Caretech Holdings PLC Annual Report 2020

← All annual reports

FY2020 Annual Report · Caretech Holdings PLC

Loading PDF…

Annual Report and
Accounts 2020

Extraordinary days

every day

Contents

Strategic Report

Governance

Financial Statements

58 Corporate Governance Report
60 Board of Directors
66 Care Quality and Governance Report
69 Directors’ Report
72 Directors’ Remuneration Report
78 Statement of Directors’ Responsibilities

Financial and Operational Highlights

1
3 CareTech At A Glance
5
Purpose in Action
18 Group Executive Chairman’s Statement
22

Group Chief Executive Officer’s Statement
and Performance Review

28 Our Market
33 Our Strategy and KPIs
36 Our Key Performance Indicators
38 Our Business Model
42 Our Approach to Business
50 s172(1) Statement by the Directors
51 Principal Risks and Our Strategic Response
53 Group Financial Review
57 Longer-term Viability Statement

Independent Auditor’s Report to the
Members of CareTech Holdings PLC

86 Consolidated Income Statement
87

Consolidated Statement
of Comprehensive Income
Consolidated Statement
of Financial Position
Consolidated Statement
of Changes in Equity

90 Consolidated Statement of Cash Flows
91 Notes to the Financial Statements
124 Company Statement of Financial Position
125 Company Statement of Changes in Equity
126 Notes to the Company Financial

Statements

130 Appendix – Alternative Performance

Measures

132 Directors and Advisers

2020 Financial and Operational Highlights

Operational Highlights

Revenue

£430.0m

Increased by 8.9% (2019: £395.0m)

Underlying EBITDA(i)

£84.1m

Increased by 14.4% (2019: £73.5m)
Post IFRS 16: £90.9m

Underlying profit before tax(ii)

£60.5m

Increased by 20.6% (2019: £50.2m)
Post IFRS 16: £59.7m

Underlying basic earnings per share(ii)

43.02p

Increased by 14.4% (2019: 37.6p)
Post IFRS 16: 42.26p

Operating profit

£51.8m

Increased by 31.1% (2019: £39.5m)
Post IFRS 16: £53.4m

Diluted earnings per share

22.76p

Increased by 24.3% (2019: 18.31p)
Post IFRS 16: 22.03p

Net cash inflows from operating activities(v)

£87.4m

(2019: £66.3m)
Post IFRS 16: £94.2m

Property portfolio valuation(iv)

£774m

With net debt(iii) of £268.9m

Final dividend per share

8.75p

Increased by 10.1% (2019: 7.95p)

CareTech Holdings PLC
Annual Report and Accounts 2020
1

Quality

CQC – Group

91%

(2019: 95%)

Capacity

Ofsted – Group

82%

(2019: 82%)

4,984 places

Adults Services

Children’s Services

Fostering

1,997

places
(2019: 1,968 places)

1,959

places
(2019: 1,933 places)

1,028

places
(2019: 1,178 places)

Employee retention

75%

(2019: 74%)

Cambian on track
Continued to see margin enhancement,
improved quality ratings, increased staff retention
leading to increased occupancy levels. Synergies
delivered of over £5m.

Acquisition of Smartbox
Assistive technology is the means to unlocking
the digital world to millions of disabled people
and those with complex needs without speech.

Investment in AS Group
The Group completed its first investment outside
the UK in the MENA region.

Results in this section are presented for the year ended 30 September 2020 on a
non-statutory illustrative basis excluding the impact of IFRS 16 ‘Leases’ to enable
comparison with 2019 performance.

(i) EBITDA is operating profit stated before depreciation, share-based payments charge

and non-underlying items (see note 6).

(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 note 26).

(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 90).

Strategic ReportGovernanceFinancial StatementsCareTech At A Glance

Who we are

Our Adults Services support people with learning disabilities, individuals
who have or are recovering from mental illness, people with autistic
spectrum disorder, individuals who have one or more physical
impairments and provide care and rehabilitation for adults with acquired
brain injury (“ABI”). We deliver services in residential, day care and a wide
choice of creative supported living settings.

Our Children’s Services – nationally recognised for their expertise –
cover assessment, residential care, education and fostering options.
We specialise in supporting children and young people with very
complex needs including those with challenging behaviours, sexually
offending behaviours, or who have emotional and behavioural disorders.
We carefully and professionally support any child irrespective of their
need for being in social care and comprehensive high quality services
include the UK’s largest portfolio of specialist schools and colleges.

CareTech has pioneered outcomes and progression along the Care
Pathway 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 are accelerating digital adoption within the Group and blending care
and technology in new meaningful ways so even service users with the
most complex of needs can participate and flourish in society.

Our large and diverse frontline workforce includes qualified and
skilled care workers, foster carers, teachers and managers, and clinical
therapeutic teams, who are assisted by highly professional back office
and support staff – collectively the CareTech family. Their care,
commitment and dedication is critical to the success of CareTech
in delivering extraordinary days every day for our service users.

Sites across the UK

550+

People

10,500+

Local authorities across England, Scotland and Wales

300+

United Arab
Emirates

Registered offices

One of CareTech’s highly qualified Specialist Services teams, the Oakleaf Group.

CareTech Holdings PLC
Annual Report and Accounts 2020
2

Group CEO Haroon Sheikh and his brother, Group Executive Chairman Farouq
Sheikh, with their children Hamza and Aleena Sheikh to celebrate the launch of
the CareTech 25thAnniversary book. The book charts the development of the
company since its inception in 1993, and speaks to all of the key employees who
have contributed to its success throughout the years.

Purpose is at the heart
of everything we do

We enable children, young people and adults
with complex needs to gain independence.
With our person-centred support each individual
progresses to live, work, learn and engage within
their communities. They are encouraged to
achieve the best possible outcomes throughout
their daily life. We deliver on this purpose by
providing Extraordinary Days Every Day to
individuals in our care.

CareTech set out 26 years ago with a vision to provide loving homes
and high quality care for people needing specialist support. From these
foundations we have a clear purpose today which unites every one of
our services. We share commitment to our purpose, and the belief that
children, young people and adults with complex needs and disabilities
should have the opportunity to live their best life: to live, learn, work
and engage in their communities.

This desire to create better lives for people with complex needs
has powered a successful business model and amazing outcomes
for those for whom we care. Our family-oriented approach offers
the support needed for people to make their own life choices and
to enjoy their own personal version of independence, giving them
a place to call home and people to call family, as well as meeting
their practical, physical and psychological needs.

This focus on purpose remains at the heart of the Group’s success and
is a powerful motivator for every one of us, every day. The inspirational
progress that we see in adults, children and young people in our care
is a constant reminder of what we can achieve together as a family.

The recent additions of Purple and Smartbox to the Group give us the
opportunity to increase significantly the reach of our purpose as we
focus on breaking down barriers and enabling independence for
people with disabilities.

As the global pandemic has clearly demonstrated, humanity is reliant
on the responsibility and co-operation of global citizens and business.
We believe the role of business is clear and it’s increasingly apparent
that a robust and bold approach to sustainability and responsible
business will protect the future of the Group, in addition to the future
of all the people we serve. In 2021 we will develop a strategy to enable
us to act on this belief, reducing our environmental impact, increasing
visibility of our positive social impact and enabling us to report our ESG
performance for a brighter future for all the CareTech family.

Haroon Sheikh
Group Chief Executive Officer

CareTech has expanded our services into the Middle East and North Africa (MENA)
to assist families who are navigating the complex needs of their children.

CareTech service users enjoy a variety of activities and are encouraged
to pursue their interests, from art to music and gardening.

CareTech Holdings PLC
Annual Report and Accounts 2020
3

A powerful shared purposeStrategic ReportGovernanceFinancial Statements
Purpose in Action:
Children’s Services

We enable

children and

young people

to live their best lives

Two boys from Spark of Genius residential
care in Scotland enjoy an outdoors
building activity in local woods.

CareTech Holdings PLC
Annual Report and Accounts 2020
4

We offer a range of services that provide both residential
and non-residential care services to children and young
people with varying degrees of care needs.

We are proud of our reputation of being able to take on
the most challenging and complex cases.

Residential Care

Educational Services

Our specialist residential homes cater for a
range of vulnerable children who have or are:
– Complex social, emotional and mental

health needs.

– Specialist mental health needs.
– Suffered from sexual exploitation.
– Experienced complex trauma.
– Learning difficulties and disabilities.
– Deaf or significantly hearing impaired.

We are committed to:
– Enhancing children’s life chances by

Our core objective is to guarantee every child
and young person in our care achieves the
very best they can to maximise their rich
potential in life, learning and work.

We provide support to young people with:
– Autistic spectrum disorders.
– Asperger syndrome.
– Moderate or severe learning difficulties

and disabilities.
– Complex trauma.
– Social, emotional, mental health needs

protecting them from abuse and neglect.

(SEMH).

Our dedicated multi-disciplinary, specialist
clinical and therapeutic teams ensure our
children and young people receive the
highest levels of care, support and education
required to make positive progress.

The Group’s education services are subject
to rigorous operational statutory regulation
with compliance measured and audited by
Ofsted (England), Care Quality Commission
(England), Care Inspectorate (Wales) and
Education Scotland.

Specialist schools for children aged 7 to 25

Children

1,000+

– Providing children with a secure base,

safety and stability to enable their
progression back to a family environment.

– Providing clinical and therapeutic
intervention to enable children to
process trauma and equip them to
lead successful lives.

Children’s Services care capacity

1,959

Foster Care

Many foster children lack the positive
family experience that most children have,
but all it takes is one foster parent to make
that difference.

Our aim is to ensure the children and young
people we care for have safe, stable and
happy family-based experiences in order that
they can go on to lead fulfilling lives as adults.
Every child in our care is unique and all have
widely different needs. We offer training and
support to help our foster parents work out
the best kind of parenting for their foster child.

Fostering capacity

1,028

CareTech Holdings PLC
Annual Report and Accounts 2020
5

For perhaps the first time
in his life, Alex had structure,
boundaries and safety.

Alex, 9

Adverse childhood experience,
Post-traumatic stress disorder

Alex beats the national average in
maths despite his traumatic childhood
experiences of domestic abuse and
neglect, and rejection from schools.

Alex arrived in our complex trauma service
when he was nine years old. Both of his
parents had been drug users. During his early
childhood he had experienced abuse, acute
neglect and had been part of a domestically
abusive family environment. When admitted
to the service, he had an incredibly high
ACE (Adverse Childhood Experience) score.
His experiences were exhibited in his
behaviours that had resulted in him
experiencing six foster family breakdowns
before he came in to our care.

When admitted to the service, Alex was
highly aggressive and had minimal self-care.
He showed symptoms of PTSD and had
experienced numerous school changes
and was under-performing academically.

We provided Alex with a safe, nurturing
environment. The team looking after him
worked in a child-centred approach and
parented him in a way he had not previously
experienced. For perhaps the first time, he had
structure, boundaries and safety. Following
initial assessments to inform a therapeutic
framework and a clinical care plan, Alex
received psychotherapy and drama therapy
from our clinical team. This intervention
enabled him to process his trauma, build
resilience and coping mechanisms.

Alex attended a mainstream school, increased
his attendance levels and, from a low starting
point, progressed to achieve his targets in
English and Science and exceeded the national
average attainment in Maths. He has now
transitioned to a foster family and is thriving.

young people

Strategic ReportGovernanceFinancial Statements

Purpose in Action:
Adults Services

We enable

adults

to gain independence

A gentleman at a CareTech Specialist
Service creates a poppy mural for
Remembrance Sunday as part of
his rehabilitation.

CareTech Holdings PLC
Annual Report and Accounts 2020
6

Peter walked out of Oakleaf
Rehabilitation Centre for the
final time without the use
of any walking aids.

Peter

Acquired brain injury

Peter relearns how to walk, giving him
the freedom to live independently.

Following a catastrophic road traffic accident,
Peter suffered profound physical, cognitive
and behavioural difficulties. He was unable to
walk, and was reluctant to engage in therapy.

Over two years a multi-disciplinary team
provided physical therapy, occupational
therapy, and psychological therapy and
supported regular visits home to enable
a gradual re-introduction to his home life.
Peter started to walk with a frame and
progressed to using crutches and then
walking sticks, and learned to cook and
to increasingly look after himself.

After two years Peter was able to transfer
to a community setting close to his family,
where he could be more independent.
Most importantly, Peter walked out of
Oakleaf for the final time without the
use of any walking aids!

Specialist Brain Injury Services

Our Oakleaf services provide specialist
rehabilitation for adults with a range of
physical, psychological, emotional, cognitive,
behavioural and communicative support
needs resulting from an acquired brain injury.

Specialist rehabilitation centres

Specialist Mental Health
Services

We offer a range of specialist mental health
rehabilitation services for men and women
spanning across supported living, residential
care homes, care homes with nursing
and hospitals.

Specialist mental health services

Residential Services — care
homes and assisted living

We support highly vulnerable adults whose
learning disability (autism or mental health)
leads to challenging and complex behaviours,
to live safe, happy lives within their
communities. Working in partnership with
health and social care professionals within the
NHS and local authorities, we enable people
to fulfil their goals and aspirations. We do this
in two ways: fully residential care homes and
supported living.

Each person is supported to access
community-based services and to develop
the skills and confidence to participate in
local activities, whether that is participating
in sports, carrying out voluntary work or in
some cases paid employment. Many of our
individual services are active participants in
charitable activities within their community,
championed by passionate and dedicated
employees who live locally.

We believe that everyone should have the
opportunity to choose how they live within
their local community.

Day Care Services

Our day services support people with learning
disabilities and autism to access community-
based activities and training. This enables
them to develop vocational skills such as arts
and crafts, cooking, carpentry, drama and
design and technology.

CareTech Holdings PLC
Annual Report and Accounts 2020
7

Strategic ReportGovernanceFinancial StatementsPurpose in Action:
Person-centred
approach

Dan, 56

With a focus on personal goals,
Dan achieved his dream of
greater independence.

Our approach involved giving
Dan choice, observing him and
never giving up.

“What does Dan aspire to in his life? What can
we provide to support him to meet his goals?

Dan now goes out into the community every
week, he goes shopping, and to the pub; he
is quite partial to a carvery with a pint! This is
due to the approach we took and the support
we provide.

Our attitude has been one of never giving up,
adapt and overcome; it doesn’t always go
smoothly but he absolutely lives his best life.”

Michelle Woodcock
Manager of Supported Living Services

CareTech Holdings PLC
Annual Report and Accounts 2020
8

We take a person-centred
approach to deliver

better outcomes

Our primary goal is to ensure
our services are not simply
places to live but safe,
encouraging and fulfilling
homes and families for the
people in our care.

A place that values them as an individual and
cares about their life. It’s this environment that
empowers them to live their best life.

Every individual has their own complex
story and needs highly skilled interventions.
We always start with their personal story and
build a programme of care that will support
their combination of needs. We have built
a uniquely diverse and skilled team who are
experienced and qualified to support the
complex life challenges of our service users
and who, together with the individual, deliver
amazing outcomes.

This enables us to deliver our purpose to help
people to live their best life, with as much
independence as possible.

It’s our unique combination of high standard,
highly skilled specialist support and a caring
family environment that empowers them
to make their own life choices.

The breadth of our services also enables us
to offer a long-term pathway for service users
who need it; from specialist education right
through to supported living once they are
able to make independent life choices.
It’s this pathway approach and consistency
of experience for our service users that helps
us to deliver such impactful outcomes.

We are innovating the pathway approach
with our expansion into tech solutions such
as Smartbox.

Support Worker Anne Treeby sings
a Bob Marley song with music fan
Royston, at his Central Region service.

CareTech Holdings PLC
Annual Report and Accounts 2020
9

Strategic ReportGovernanceFinancial StatementsPurpose in Action:
Quality, support,
education and care

Our seven care quality
work streams

1 Child, young person and adult-centred

outcomes.

2 Improving quality standards, policies

and procedures.

3 Recruitment, retention and

development of skilled professionals.

4 Quality monitoring and assurance.
5 Embedding a culture of continuous

improvement.

6 Management Information Systems (MIS)
enabling data-informed practice and
decision making.

7 Strong and robust site to Board

governance.

Angus, 8

Angus’s transformation from fearful
and agitated to eager and calm.

Angus is a complex eight year-old boy
with a diagnosis of autism and a severe
learning disability.

He has developed from a frightened and
agitated little boy with limited life skills and
minimal exposure to meaningful experiences,
to a calm, tentative yet bubbly little boy with
mountains of character. On our last visit we
were greeted by a fully dressed Angus, wearing
his brand new coat and trainers, reins on and
raring to go – pulling staff by the hand
towards the door.

Small steps and changes lead
to staggering progress and
the possibilities for Angus are
now endless.

CareTech Holdings PLC
Annual Report and Accounts 2020
10

Cambian students hone their
cooking skills in the home
economics kitchen.

CQC-registered services

162

CQC-registered services rated
Good or Outstanding

91%

Ofsted-registered services

233

Ofsted-registered services
rated Good or Outstanding

82%

We remain committed to
becoming the highest quality
provider of care, education and
therapeutic support across the
UK. For us, quality is defined by
the level of service we deliver
and the outcomes we achieve
for children, young people
and adults.

We continue to resource our own highly
experienced internal quality and compliance
teams who 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.

Read more in our Care Quality and
Governance Committee report page 66.

We provide

high quality

support, education and care

CareTech Holdings PLC
Annual Report and Accounts 2020
11

Strategic ReportGovernanceFinancial StatementsPurpose in Action:
Our people

We empower

our people

CareTech Holdings PLC
Annual Report and Accounts 2020
12

our people

Our culture and values

Looking after our people

Our people are our bedrock. They are our
CareTech family. This belief is the foundation
of our culture, which strengthens us as “a
family” and in turn, drives the great quality
of care that we deliver for those who need
our services.

Our core values were developed by our
people and sit at the heart of our expectations
of how things are done in the Group.

– Friendly
– Positive
– Innovative
– Team working
– Person-centred

Employees/people

10,000+

Apprenticeships

1,200

Our purpose is to empower and enable our
service users to live their best life, and we
extend the same commitment to our people.
We support them to develop and grow as
professionals and believe that as our people
increase their capabilities and commitment,
so our high quality care ethos is enhanced
enabling us to achieve better outcomes.

We are proud of our heritage of diversity
and have a workforce reflective of the
communities we serve and that is central to
our success. We are committed to developing
a working environment and culture that
promote fairness and inclusivity, allowing
people to be “who they truly are”.

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. We provide
our learning services to our staff, to
individuals we care and support, and other
organisations seeking to develop their teams.

Read more about Smartbox on page 15.

We believe in doing business responsibly
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.

In addition to supporting our communities, we recognise
our responsibility to the wider global community and are
taking action to minimise our impact on the environment.
This includes carbon reduction, waste reduction and
careful use of resources.

Being a socially responsible organisation with a focus on
developing our ethical standards aligned with our commercial
objectives remains a core aim. Considering non-financial
values such as reputation, employee commitment,
environmental footprint and service user fulfilment and
independence helps us develop longer-term opportunities.

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.

Read more about our approach to responsible
business on page 16.

Read more about the CareTech Foundation on page 17.

CareTech service users show their support for the Purple Tuesday
2020 #ThumbsUp campaign, which champions an improved
experience for disabled consumers.

Nkeesha tries out her new Smartbox grid device. She was the first
person to receive one as part of the 100 Voices project; Smartbox
will provide this assistive technology to 100 adults and children in
CareTech care homes and specialist schools to promote improved
communication for the individuals we support.

CareTech Holdings PLC
Annual Report and Accounts 2020
40

We create value for our stakeholders

Our Service Users

We provide a Care Pathway to meet the needs of our service users and our professional care and
education teams strive to make each day an extraordinary day. We look after close to 5,000 service
users across the Group.

Our People

Our employees are the bedrock of the organisation. We have more than 10,000 employees and have
delivered 105,000 e-learning course, over 25,000 face to face interventions, and 3,000 virtual classroom
sessions. We have supported 1,200 learners on apprenticeships programmes across the Group.

Our Commissioners

The demonstration of value for the services that CareTech provides is objective; this is done individually
through service user reviews and collectively at a service level review. The sharing of regulatory reports
and those conducted by independent visitors allows the quality assurance of our provision to be shared.
We have relationships with more than 300 local authorities and care commissioning groups.

Our Communities

Over 3,500 organisations participated this year in Purple Tuesday making over 5,000 commitments to make
changes in practice from more accessible websites, improved signage, formalised quiet hours for people
with learning disabilities, to frontline staff learning hello, goodbye and other phrases in British Sign Language.
With media opportunities giving 17.4 million people across Britain access to the initiative and top trending
on Twitter worldwide, Purple Tuesday has become the go to brand for the disabled customer experience.

The CareTech Foundation is the first corporate foundation in the UK social care sector, demonstrating the
Group’s commitment to wider society and to our staff and the desire to play a strong leadership role within
the social care sector. The Foundation’s mission is to support and champion the social care sector, care
workers and those living in care.

Our Investors

Since IPO, Revenues, EBITDA and EPS have grown by a CAGR of 21%, 27%, and 17% respectively. CareTech’s
market capitalisation has gone from £60m at IPO through to over £500m. CareTech has a progressive
dividend policy and paid out 11.7p for 2020.

CareTech Holdings PLC
Annual Report and Accounts 2020
41

Strategic ReportGovernanceFinancial StatementsOur Approach to Business

Our approach to
shareholder engagement

Our approach to engaging
with commissioners

The Board appreciates that effective communication with the Group’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 Group’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 Group Executive Chairman and the Group Chief
Financial Officer 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 CareTech’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 available to all shareholders
and all results, Group announcements and related investor information
can be accessed via the corporate website, www.caretech-uk.com.
The website is under constant review in an effort to maximise the
effectiveness of information made available to shareholders.

The Board embraces open dialogue with shareholders and works
with its stockbrokers Numis and Panmure Gordon to ensure that an
appropriate level of communication is facilitated through a series of
investor relations activities. The Directors believe that shareholders’
views are important as part of their decision-making process.

How we engaged during the year
– Group Executive Chairman and Group Chief Financial Officer

reported back to the Board after the investor roadshows.

– Regular, detailed feedback provided to the Board by our stockbrokers,
financial public relations and investor relations advisers to inform the
Board about investor views.

– Regular meetings between the Group Executive Chairman, Group
Chief Financial Officer and Group Chief Operating Officer with
institutional investors, sales teams and industry/sector analysts.

– Released regular updates on the operational and financial

performance of the Group incorporating occupancy levels, quality
ratings, revenue, profitability by division, net debt and appropriate
commentary on key business trends.

– The Group Executive Chairman engaged with larger institutional
shareholders to discuss matters including the Board, strategy,
remuneration and corporate governance.

– All communication from individual shareholders reviewed by

management and provided with a response.

– Ensured that all shareholders have equal access to information
by making documents presented at investor meetings available
on the Group’s corporate website: www.caretech-uk.com.

Our priorities in 2021 include maintaining regular communication
with our funders (both equity and debt).

Local authorities and health commissioners across England, Scotland
and Wales are one of CareTech’s most important stakeholders.

The service users in our care will typically be referred by a local authority
social worker and access to our services are purchased through the
authority’s respective commissioning teams. The cost of placements are
not always all social care funded and health commissioners support the
payment of any “health” component to the care package. The effective
engagement and communication with these stakeholders is a priority
for the Group.

All staff at CareTech interface in some way either directly or indirectly
with local authorities and other commissioners. The Group’s business
development teams have overall responsibility to ensure that
engagement and communication is effective and together with
operational colleagues ensure that the Board is fully aware of
commissioning trends. Contact with local authorities is at least daily
across the Group. This ranges from the daily partnership working with
social work teams to ensure that the needs of service users are being
met, to formal service users and business reviews. These reviews will
involve our frontline staff, senior operational colleagues and Directors
depending on the meetings’ requirements.

The demonstration of value for the services that the Group provides
is objective, and this is demonstrated individually through service
user reviews and collectively at a service level review. The sharing
of regulatory reports and those conducted by independent visitors
allow the quality assurance of our provision to be shared.

The Group’s corporate website details the specifics of our offer
and the website is under constant review in an effort to maximise
the effectiveness of information made available to local authorities
and other commissioners.

How we engaged during the year
– CareTech’s services presented on a multitude of purchasing

frameworks across England, Scotland and Wales. These procurement
tools allow providers to bid for lots aligned to their provision type.
Where successful, this provided a purchasing mechanism to allow
the Group to access referrals of services users whose needs could
be met by our services.

– The referral and placement of service users took place daily across

the Group. This process involved many people from commissioners
and Group staff, with a single focus on meeting the needs of the
service user.

– Operational colleagues had regular contact with commissioners
regarding each service user. Alongside this, formal reviews to
understand service user progress and determining any changes
to an individual’s care plan.

– Senior operational staff alongside the business development teams
supported “whole” Authority Business Reviews that allow detailed
discussion on performance to take place.

– Business development teams had “strategic” discussions regarding
the sufficiency requirements of commissioners and this feedback
allowed the planning of future services.

Our priorities in 2021 include maintaining regular engagement and
communication with our commissioners to continue to articulate our
service offerings such that we best position our provision as a provider
of choice.

CareTech Holdings PLC
Annual Report and Accounts 2020
42

We have brilliant 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
the Group’s operations is the delivery of the highest quality of care to
our service users.

Service users are the reason for our existence and meeting their needs
remains our key objective.

As the Group grows, we strive to maintain a culture that 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 seeks to provide our
service users with “whole of life” of 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 celebrated the achievements of our service
users across the country, including holding an art competition 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 and a vital ingredient to their,
and our, success.

From the first time we meet each service user we start to gain an
understanding of not only their needs, which are often complex and
challenging, but most importantly to understand their future aspirations
so that a plan to support them in our care is individual and as best
informed as possible. Where present, parents (carers/guardians) and
the service user’s social worker, play a key role in supporting the
development of their care plan.

Dickie enjoys Easter in the garden at his South region service.

CareTech Holdings PLC
Annual Report and Accounts 2020
43

Resident Sarah Stacey paints Union Jack flags to decorate her South region
service for the 75th Anniversary of VE Day.

A service user’s care plan is dynamic, informed and updated by “their
voice” together with the professionals supporting them in their placement,
alongside their social worker (and other external professionals) as well
as advocacy services and independent reviewing professionals who
visit service users regularly. This multi-disciplinary approach ensures
that the care plan is as rich and well informed as possible. Where
communication is a challenge for a service user, the use of appropriate
communication techniques is important, from computer assistive
devices, such as those provided by our Smartbox GRID technology,
to British Sign Language and Makaton to ensure their voice is heard.

When a service user joins one of our services, it is explained to them
how their voice can be heard, and what to do if they think that this
is not happening. They are reminded of this on an ongoing basis.

Day-to-day key workers will support their service users aligned to
an agreed support plan. Each service user’s progress against this plan
is formally reviewed with clear progress targets being set by the
multi-disciplinary team supporting the service user.

We utilise surveys, in the form of simple questionnaires, to ensure
that our provision is meeting the needs of our service users. As part
of regulatory inspection, inspectors will meet and discuss the care
that service users are receiving and include this as part of the
inspection feedback.

Our relationship with parents (carers/guardians) is important as they
will often have championed the placement choice for the service user.
We support visiting and contact with parents appropriately and as
agreed as part of any care plan.

Our priorities in 2021 include continuing to ensure that we work towards
the aspiration of each service user by making every day an extraordinary
day and celebrating their successes.

Strategic ReportGovernanceFinancial Statements
Our Approach to Business
continued

Our approach to engaging
with our regulators

Our approach to supplier engagement

CareTech operates in a highly regulated environment. The Group
invests heavily in its internal compliance capacity and has established
open, transparent, and positive relations with care, health and
education regulators in the national and international environments
within which we operate.

The Board is mindful of the importance of ensuring that the
Group is able to source a broad range of high quality products
from a base of well-respected suppliers and of being a trusted
partner for our suppliers.

CareTech sits within the CQC “Market Oversight” group and complies
fully with the financial, business and care regulatory requirements that
market oversight brings.

Regulatory requirements differ across both the sectors that we operate
in, but also in the devolved administrations of Scotland and Wales. The
Group’s internal compliance team supports the business to understand
and interpret the external regulatory landscape and ensure continued
compliance with all regulatory requirements. The ratings across the
Group continue to compare well with other providers.

This year has seen the need to engage with regulators in a very different
way. COVID-19 has impacted on the regulatory programmes of all of
the national regulatory bodies. The second part of the Group’s operating
year saw the suspension of the vast majority of site inspections and of
the awarding of ratings. The Group engaged with the amended
regulatory programmes and introduced enhanced risk assessment
processes and reporting for all services to provide additional
compliance assurance to regulators.

Alongside engagement with regulators, the Group further enhanced
strategies and policies for effective data protection information
governance, and in meeting health and safety requirements.

How we engaged during the year
– National Relationship meetings with Ofsted and CQC.
– Ongoing dialogue with relationship managers through COVID-19.
– Introductory meetings for newly appointed CareTech senior

managers with key Ofsted personnel.

– Regular dialogue at regional and local level on services quality

and compliance.

– Participation in consultations and learning events with all regulatory

bodies.

– Worked with Care Inspectorate Wales (“CIW”) to re-register the

fostering services – bringing all of the Group services registered with
CIW under the Regulation & Inspection of Social Care (Wales) Act.

Our priorities in 2021 include continuing to have regular relationship
meeting with our Regulators at national and regional level and
participate in consultations with all regulatory bodies.

How we engaged during the year
– Supplier relationships are primarily managed by our property

and procurement team.

– Payment practices are monitored on a monthly basis.
– The Board reviewed and approved the Company’s Modern Slavery

Act Statement.

– Suppliers must demonstrate that they operate in accordance with
recognised standards that uphold human rights and safety and
prohibit modern slavery.

Our priorities in 2021 include continuing to actively manage supplier
relationships as well as ensuring they uphold recognised standards
in which they operate.

Judges Sarah Longley-Cook, Cambian Interim Clinical Director, and Val Cooper,
Group Recruitment Manager, admire the Regional Winner of the South category
for the Arts and Crafts Competition 2020. The piece is a CareTech hot air balloon
created by Rebecca, a resident with profound learning difficulties which features
company CEO Haroon Sheikh and Chairman Farouq Sheikh.

Blooming Marvellous certificates and prize money cheques ready to be sent
out to the three winners of our annual gardening competition; Gayton Road,
May Morning and Somerset School.

CareTech Holdings PLC
Annual Report and Accounts 2020
44

How we look after our brilliant people

Supported Living staff teams received well deserved thank you gifts from their
locality managers as recognition for their tireless hard work during the ongoing
COVID 19 pandemic.

Staff members at the annual CareTech Care Awards 2019 receive their accolades
from the Senior Executive team, onstage at the Hilton Hotel, Park Lane.

Our staff are the foundation to everything we do, and known as the
CareTech family. The Group works hard to promote a culture guided
by our purpose, and this is a key driver in how we recruit staff, provide
development, and ensure inclusiveness in our practices.

Talent acquisition

Finding and hiring the right people is central to our ability to achieving
our purpose. With this in mind, we continue to embed “values-based
recruitment” (“VBR”) in hiring practices. We train all our hiring managers
to use our VBR toolkit as the main driver in the recruitment cycle to
deliver a candidate-centric approach to the acquisition of great talent
from within and outside of the care sector. Our aim is not to merely fill
open roles, rather it is to find and select the right people to be part of
something special.

How we engaged during the year
– We continued to work tirelessly and innovatively to find new talent

to select and on-board.

– We were pleased to partner with People First to share our Group

employment opportunities, in order to support with the
redeployment of displaced employees from various sectors resulting
from the pandemic.

Our priorities in 2021 include rolling out a programme of work to
partner with charitable and other organisations to bring young people
into our sector and further deployment of technology solutions to assist
with recruitment.

We are continuing to build a fruitful and evolving partnership with
The Prince’s Trust, which allows us to give potential employees a taster
of the rewarding work and career opportunities the Group can offer.

“Our values”

Friendly, Positive, Innovative, Team Working and Person Centred are
our values. We are immensely proud of these values and work hard every
day to ensure that everyone at CareTech lives and aspires to these values.

our work in this area across the Group. We will be working to the
“aspired and lived” experience model, measuring our high aspirations
with our lived culture and values. We will seek to map awareness and
our current experience and then target our activity towards our
expectations for the future. The focus will be to create a behavioural
framework for each one of our values. This will define the way in which
“we do things around here”. These will become known as our “non-
negotiables”. They will run through the heart of our systems, processes,
communications and day-to-day dealings with each other,
underpinning our commitment to be a values led business.

How we engaged during the year
– Launched the Applause Programme, which is central to being a

mechanism to recognise and reward our staff for living the values.

Equality, diversity and inclusion

CareTech is immensely proud of our rich heritage of having a diverse
workforce. We are committed to developing a working environment
and culture that promotes fairness and inclusivity. We know that this
allows people to be “who they truly are” and not what others want them
to be. Strongly aligned to our value of “Person Centred”, this approach
continues to be a vital thread and we are committed to its ongoing
development and recognition as a valuable contribution to the success
of the Group and to service user outcomes.

How we engaged during the year
– Initiated an ED&I strategy that is shaping our priorities.

Our priorities in 2021 are to:

– Develop our Equality, Diversity and Inclusion (“ED&I”) programme
to shape our diversity and inclusion strategy and embed this into
working practices and culture.

– Conduct an internal audit of good ED&I practice to establish baseline

and roadmap.

– Work with senior leaders to provide training, development,

workshops and coaching to help increase their understanding
of the importance of ED&I and organisational relevance.

As part of our ongoing commitment to embed our values into the DNA
of our business, the Board has endorsed a programme that will cement

– Run focus groups to establish the reality of working for the Group,
from a minority perspective (Gender, Disability, Ethnicity and LGBT).

CareTech Holdings PLC
Annual Report and Accounts 2020
45

Strategic ReportGovernanceFinancial StatementsOur Approach to Business
continued

Our work through Purple

Accelerating digital adoption and extending
CareTech’s technology offer

Purple is our Group disability brand and at the forefront of changing
the disability conversation by changing it from one anchored in
welfare, charity and vulnerability to one of value, contribution
and opportunity.

COVID-19 has shone a bright light on the increasing reliance on
technology in every aspect of our lives. We are accelerating adoption
of technology with the Group and making solutions more widely
available through our extended digital Care Pathway.

There are over 14 million disabled people in the UK with a wide range
of impairments including physical, sensory, mental and learning
conditions. Over 80% of disabled people have hidden disabilities with
mental health conditions rising rapidly. Disabled people comprise 22%
of the UK population.

Purple provide a range of services and products and supports 4,500
disabled people to live independently in the community with a Local
Authority direct payment (or personal health budget from clinical
commissioning groups). This enables disabled people to employ their
own carers, use a care agency solution or increasingly a blend of both.
Our services include assistance with recruitment and payments of
carers to overseeing tax returns and pension contributions. Over £70m
of disabled peoples’ funds flow through our dedicated Purple accounts
every year. Purple also support disabled people into employment with
a range of training programmes to build confidence, skills and which
also develop the capacity of employers.

Purple’s work with employers has recently been recognised by a
shortlisted nomination in the prestigious Lloyds Bank National Business
Awards in the category of social impact. We provide audit, training and
consultancy services to organisations of all sizes and across all sectors.
Increasingly, our delivery has been online and we have been able
to model best practice in terms of being accessible. Through the
pandemic our support to organisations around mental health has
been acknowledged.

Purple has been nationally acclaimed for its flagship initiative, Purple
Tuesday, which is focused on improving the customer experience for
disabled people. Over 3,500 organisations participated this year making
over 5,000 commitments to make changes in practice from more
accessible websites, improved signage, formalised quiet hours for
people with learning disabilities to frontline staff learning hello, goodbye
and other phrases in British Sign Language. With media opportunities
giving 17.4 million people across Britain access to the initiative and top
trending on Twitter worldwide, Purple Tuesday has become the go-to
brand for the disabled customer experience.

Mike Adams, Purple’s CEO and an Executive Director at CareTech, has
recently been listed in the Shaw Trust Powerlist as one of the top 100
disabled influencers in the UK.

Purple has a unique position in the marketplace in that it provides
support and services to both disabled people and businesses with lived
experience of disability at its heart.

Over the next 12 months we will expand our range of products to further
accelerate the changing, and much needed, disability conversation.

“I can’t be Jamie without Grid”

New communication aid introduces second screen and
antimicrobial technology

Smartbox, our user-centred technology business launched in 2020 one of
the most powerful communication aids available in the market, Grid Pad
15. It provides integrated support for all alternative access from switches to
eye gaze and pointing devices and comes complete with environmental
control, all day battery life, second screen communication technology
and is the first device of its kind to be made using an anti-microbial
material, which inhibits the growth of bacteria and spread of viruses.

This combination of features has arrived at a moment when it is more
important than ever to ensure people can communicate clearly while
remaining safe.

Jamie Preece, who is a service user representative at Barnsley Hospital NHS
Foundation Trust and uses a Grid Pad 15 to augment his communication,
says “the second screen is fab, it means people don’t try to lean over
my shoulder to read my screen so it’s also good for social distancing!”

Jamie began using assistive technology to support communication
in his twenties and now presents at national conferences and mentors
people as they begin using assistive technology. “Grid and Grid Pad have
changed every aspect of my life. I can’t be Jamie without Grid.”

Implementation of assistive technology in special education
needs school leads to student independence

Lisa Rees-Renshaw is an Assistive Technology Advisory Teacher at Ysgol
Y Deri Special School in Penarth and has received the Outstanding Use
of Technology Award at The National Teaching Awards. Lisa and the
team at Ysgol Y Deri have truly led the way in adopting assistive
technology to help their pupils achieve independent participation.

Assistive technology specialists from our Smartbox business have had
the privilege of working with Ysgol Y Deri since it opened over five years
ago, supporting Lisa as she has implemented Grid 3 software for
communication, play, education and environmental control. “This has
had a significant impact on our pupils’ everyday activities; they now
have a voice, which we all hear and understand, and this has given them
control over what happens to them, being able to make choices and
participate fully in activities, both in school and at home.”

Smartbox’s Grid software is amongst the leading global alternative and
augmentative communication (“AAC”) solutions and includes advance
features such as interactive learning and early symbol communication
resources through to sophisticated text communication and computer
control. This unique platform design means all pupils can use the same
programme and it adapts to changing needs and abilities. Lisa explains,
“school staff are now starting to increase their use of Grid 3 for written tasks
using the online Grids for language, maths and topic activities and we
are in a phase of teaching staff how to edit these Grids to meet their own
pupils’ needs for their lessons. By editing grids, it is quicker for staff who
are already pushed for time. Grid 3 is a great teaching and learning tool.”

CareTech Holdings PLC
Annual Report and Accounts 2020
46

Emissions and energy usage

Scope 1

Total Scope 1
Scope 2

Total Scope 2
Scope 3

Emissions source
Natural gas(ii)
Company and leased cars
Other fuels

Purchased electricity(iii)

Electricity transmission
and distribution
Employee cars(iv)

Total Scope 3

Total (Market-based)

Total (Location-based)

Total energy usage (kWh)(v)
Carbon intensity
per employee

tCO2e per FTE

Emissions tCO2e(i)

3,179
3,914
1,195

8,288
3,108

3,108
267

166

433

9,307

11,829

53,011,194
1.6

Table 1 – Energy and carbon disclosures for reporting year.

(i) Emissions are reported for the UK estate only as global reporting remains voluntary

under the current requirements of the SECR regulation for organisations that are not
listed on the main market of the London Stock Exchange, but are considered “large”.

(ii) A benchmark figure, based upon an average of usage at similar sites, was used to

estimate missing natural gas consumption at certain sites.

(iii) A benchmark figure, based upon an average of usage at similar sites, was used

to estimate missing electricity consumption at certain sites.

(iv) A benchmark figure was used to calculate all of employee cars’ consumption.
(v) Energy reporting includes kWh from scope 1, scope 2 and scope 3 employee

cars only (as required by the SECR regulation).

Carbon Emissions

CareTech recognises that our operations have an environmental
impact and we are committed to monitoring and reducing our
emissions year-on-year. We are also aware of our reporting obligations
under The Companies (Directors’ Report) and Limited Liability
Partnerships (Energy and Carbon Report) Regulations 2018. As such,
this year we have upgraded our energy and carbon reporting to meet
these new requirements and increase the transparency with which we
communicate about our environmental impact to our stakeholders.

2019/20 performance

This year we have calculated our environmental impact across scope 1, 2
and 3 (selected categories) emissions sources for our UK only operation.
Our emissions on a location basis (using the UK grid emissions intensity)
are 11,829 tCO2e, which is an average impact of 1.6 tCO2e per
employee. We have calculated emission intensity metrics on an
employee basis, which we will monitor to track performance in our
subsequent environmental disclosures.

The market-based emissions, 9,307 tCO2e, incorporate the renewable
energy purchasing that we have carried out over the October 2019 to
September 2020 period. When compared with location-based emissions
this is a difference of 2,522 tCO2e.

Energy and carbon action
In the period covered by the report the Group has undertaken
the following emissions and energy reduction initiatives:
– As the boilers in our services come to the end of their lifespan,
we replace them with newer, more efficient condensing boilers.
– Boilers have clocks and thermostats fitted in our larger services.
– Newly installed or upgraded radiators are fitted with a

thermostatic valve.

– We upgrade to LED lightings when refurbishing services and

when fittings comes to the end of their lives.

– We have domestic kitchens in all of our services and choose AA-rated
energy efficient ovens, fridges, freezers when replacing or upgrading.

– We optimise energy efficiency in our buildings by ensuring all
roofs are insulated, windows are double or secondary glazed
and thermostatic mixing valves control hot water.

2019/20 results

The methodology used to calculate the Green House Gas (“GHG”)
emissions is in accordance with the requirements of the following
standards:
– World Resources Institute (WRI) Greenhouse Gas (GHG) Protocol

(revised version).

– Defra’s Environmental Reporting Guidelines: Including Streamlined

Energy and Carbon Reporting requirements (March 2019).

– UK office emissions have been calculated using the DEFRA 2020

issue of the conversion factor repository.

Following an operational control approach to defining our organisational
boundary, our calculated GHG emissions from business activities fall
within the reporting period of October 2019 to September 2020.

CareTech Holdings PLC
Annual Report and Accounts 2020
47

Strategic ReportGovernanceFinancial StatementsOur Approach to Business
continued

The CareTech Foundation

Established 2017, the CareTech Foundation (the “Foundation”) is an
independent grant-making corporate foundation registered with the
Charity Commission. Funded mainly and founded by the Group, the
Foundation has an independent Board of Trustees responsible for
delivering its Charitable Objects. In the year to September 2020 the
Group made charitable donations through the Foundation of £0.7m
(2019: £0.7m).

A key vehicle by which the Foundation is able to add value to its financial
commitment to its partnerships is the in-kind support provided by Group
staff who are invited to volunteer to support projects supported by the
Foundation, bringing their expertise and understanding to bear for the
benefit of the project and the delivery partner(s) involved. The Foundation
helps to broker such volunteering opportunities as well as recording the
extent and value of this support.

Through the Foundation’s existing portfolio of partnerships, it has
(directly and indirectly) supported over 275,000 beneficiaries since the
programmes’ inception. Over the last year, the Foundation has added
the Birmingham Disability Resource Centre as a partner – Positive
Pathways. Positive Pathways aims to help any person with disabilities
or person with a long-term condition who is looking to enter or return
to employment, training or volunteering.

The Foundation is the first corporate foundation in the UK social care
sector, demonstrating the Group’s commitment to wider society and
to its staff and its desire to play a strong leadership role within the social
care sector. The Foundation’s mission is to support and champion the
social care sector, care workers and those living in care. In particular,
the Foundation’s support is targeted on the following three impact areas:
– Physical and learning disabilities and mental health. Supporting
disabled people and those with long-term health difficulties,
including those with mental health conditions and complex physical
and learning disabilities.

– Skills development for the care sector, especially for those from

deprived and disadvantaged backgrounds to equip them for careers
in the care sector.

– Supporting communities, including the family and friends of Group

employees facing significant financial hardship or for issues affecting
local communities.

The Foundation published its first Impact Report based on its new
Theory of Change in April 2020 (see https://www.caretechfoundation.
org.uk/impact-report-2018-2019/).

The Foundation delivers its key objectives through the following
key approaches:

The Foundation delivers a small grants programme to support the
communities, families and friends of Group staff facing significant
financial hardship or for issues affecting local communities. These
grants are open to staff members of the Group to support the positive
contributions they make to their communities and through volunteering.

Demand for the Foundation’s Community Grants increased steadily
again this year. During 2019/20 the Foundation has supported 33 grants
to a value of £39,175.

The Foundation provides match-funding to CareTech’s staff individual
fundraising efforts for charitable causes in line with the Foundation’s
Charitable Objects.

During 2019/20, the Foundation supported 28 Match Fund grants
to a total of £7,395.

The Foundation added its new Hardship Fund to its product offerings
in late 2018, enabling it to support staff facing financial hardship. Since
their introduction, demand for these grants has increased steadily and
the Group agreed a doubling of their contribution in 2019/20 to
£50,000. Demand was significantly stimulated because of COVID-19
and the trustees agreed to divert additional funds to this grant stream,
taking the total available to £100,000. This year, the Foundation has
supported 134 grant applications to a total amount of £97,759,
processing over 200 applications.

It 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.

CareTech Holdings PLC
Annual Report and Accounts 2020
48

COVID-19 response

The Foundation recognised quickly that responding to the challenges
of COVID-19 had to be a top priority. It was particularly aware of the
huge strains that the crisis was likely to have on those individuals and
communities it seeks to serve. Recognising the significant economic
impacts of the public health crisis, trustees took an early decision to
increase the funding available through the Foundation’s Staff Hardship
Fund, more than doubling the funds originally budgeted for this grant
stream. A particularly important element of the Foundation’s approach
was proactively reaching out to new national and community projects
established in response to COVID-19. As a result of using the Foundation’s
increasingly-strong networks across the social care sector and beyond,
trustees were able to support a series of important new initiatives, including:
– National Care Force, to provide an online tool that matches

volunteers with social care providers.

– Connect the Love, to support people who are isolated in care

homes, hospitals and vulnerable situations by providing devices to
keep them digitally connected to friends, families and loved ones.
– Kit4Carers, to ensure that carers in the UK and overseas have access
to essential PPE to protect them and those for whom they care from
COVID-19.

– Potters Bar Radio station, to help combat isolation and offer a source
of comfort and hope to the many people locally who were finding
the experience of the lockdown lonely and difficult.

Alongside a wide range of partners across the social care sector, the
Foundation played a key role in calls for greater recognition of the UK’s
two million frontline care workers and the part they play in tackling
coronavirus. The #SparkleForSocialCare social media campaign was
launched to build awareness of the incredible efforts of care workers
during this time of crisis. The campaign seeks to bring to life the
amazing work of care workers up and down the country in coping
with some of the most vulnerable members of our community.

Elizabeth Cowley was awarded a grant to support Sparkle, the official charity of
the Serennu Children’s Centre in Newport, and Nevill Hall Children’s Centre in
Abergavenny. The community grant would enable the centre to fully train four
volunteers to support young people in their activities as well as go towards
funding the after school clubs activities.

CareTech Holdings PLC
Annual Report and Accounts 2020
49

The CareTech Foundation awarded a community grant of £2,500 to Dudley
Town FC in support of the Sparkle for Social Care campaign. The partnership
saw Dudley Town FC launch their first team football kit for the 2020/21
season which also marked the club’s support for frontline social care
workers. All profits from these limited-edition polo shirts will go to
The Care Workers Charity.

Championing the Social Care sector

The Foundation plays a key role in calls for greater recognition of the
UK’s two million frontline care workers. Over the last year,
the Foundation has particularly focused attention on the part care
workers play in tackling coronavirus. The #SparkleForSocialCare
social media campaign was launched to build awareness of the
incredible efforts of care workers during this time of crisis. The
campaign seeks to bring to life the amazing work of the 1.6 million
care workers up and down the country in coping with some of the
most vulnerable members of our community.

Supporting our staff and their families in difficult times…

The Foundation added the Hardship Fund to its offerings in late 2018,
enabling it to support staff and their families facing significant financial
hardship. The Company agreed a doubling of its contribution in
2019/20 to £50,000. Demand was significantly stimulated because
of the COVID-19 pandemic and trustees agreed to divert additional
funds to this grant stream, taking the total available to £100,000.
This year, the Foundation has supported 134 grant applications
to a total amount of £97,759, receiving over 200 applications.

– An employee suddenly lost their husband and the main

breadwinner last year, which left this employee and their young
child in financial hardship. The Foundation was able to support
the applicant with a donation to go towards the cost of running
their home as they tried to come to terms with their tragic loss.
– An applicant was taking unpaid leave to care for their terminally ill
mother. This unpaid leave was causing severe financial difficulties
for the staff member who was a single parent to three children.
The Foundation awarded a grant to cover rent and some
household bills.

Strategic ReportGovernanceFinancial StatementsStatement by the Directors in performance of their statutory duties in accordance
with s172(1) Companies Act 2006

Throughout this Annual Report, we provide examples of how we:
– take into account the likely consequences of long-term decisions;
– taken into account the interests of the Company’s employees;
– foster relationships with our suppliers, customers and others;
– have a positive impact of the Company’s operations on the

community and environment;

– attribute importance to behaving as a responsible business; and
– act fairly between members of the Company.

The Board of Directors of CareTech Holdings PLC consider, both
individually and together, that they have acted in the way they consider,
in good faith, would be most likely to promote the success of the
Company for the benefit of its members as a whole (having regard to
the stakeholders and matters set out in s172(1)(a-f) of the Act) in the
decisions taken during the year ended 30 September 2020.

Reporting requirement

Explanation

For more information

The likely consequences of
any decision in the long term

All decisions are made with long-term consequences
in mind and aligned to our core purpose.

Our business model page 38.
Case study on SmartBox page 15.

We maintain a conservative funding structure and
a progressive dividend policy.

The interests of employees

Our annual employment survey was completed with
positive feedback.

Our brilliant people page 45.

The need to foster business
relationships with suppliers,
commissioners and others

The Board has identified the Group’s key stakeholders
to be shareholders, employees, commissioners,
suppliers, regulators, lenders and communities. Regular
communication takes place to listen and encourage
participation from all our stakeholders.

Our commissioners page 42.
Our service users page 43.

The impact of operations on the
community and the environment

Donation of £702,000 to the CareTech Foundation
to support the wider social care sector.

Our approach to responsible business page 16.
CareTech Foundation page 17.

The desirability of maintaining
a reputation for high standards
of business conduct

We remain committed to becoming the highest quality
provider of care, education and therapeutic support
across the Group.

Our approach to responsible business page 16.

We believe good governance is the way to run a business
and have clear divisions of responsibilities and roles.

The need to act fairly between
members of the Group

The Board embraces open dialogue with shareholders
and works with its brokers to ensure than an appropriate
level of communication is facilitated.

Our approach to shareholder engagement
page 42.

CareTech Holdings PLC
Annual Report and Accounts 2020
50

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 Group 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 Group 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 frontline
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 predominantly
trades in the UK and only during the year acquired a business in the UAE.
We have limited foreign exchange exposure due to supplies being
sourced locally. 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 a factor that
we are managing, and we continue to monitor closely.

Emerging risks

The Board have considered long-term trends in the social care sector
that could present both a risk and an opportunity for CareTech. Any new
emerging risks identified by the Executive Committee are considered in
more detail and reported to the Board. During the financial year, the
outbreak of COVID-19 in the UK presented a new risk to the Group which
is outlined below. In 2020/21, the Executive Committee will create a
register of potential emerging risks that it will monitor on a periodic basis
for implications on the Group’s strategy.

The Directors believe this process achieves a robust assessment
of principal and emerging risks.

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.

CareTech Holdings PLC
Annual Report and Accounts 2020
51

Strategic ReportGovernanceFinancial StatementsPrincipal Risks and
our Strategic Response
continued

Principal Risks

Service offer and user needs

We have to develop and staff a service offering which matches the
needs of the service users and can be communicated to commissioners.
This is carefully recorded locally at every service in order to reduce the
risk of service users moving to other service providers.

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.

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.
The Group communicates and engages frequently and proactively
with our commissioners at a local level and strategically at regional
and national levels.

Reputation

The Group has to have a reputation for delivering services that offer
good value and take account of all risks. We maintain a Risk Register,
which includes all key risks, including reputational risk, and how these
are mitigated through quality of service and good communication with
service users and local authorities. The Risk Register is reviewed monthly.

Growth funding

So that the Group can keep growing adequately, funding has to be
anticipated and put in place. The Group ensures that all of its facilities
are monitored and reviewed regularly, in particular our budget setting
and forecasting processes.

Manage debt

The level of debt obtained to fund operations and ensure that growth
can occur has to be carefully managed. Different forms of leasing and
debt are reviewed quarterly when all of the covenants are also reviewed.

COVID-19

COVID-19 was identified as an emerging risk for the business
in March 2020 with potential to affect our strategy through impact
on our services users, staff, commissioners, suppliers as well as the
financial performance of our business through delays to development
projects, impact on cash flows and disruption to normal practices.

A COVID-19 taskforce, comprising both divisional leadership and
members of the Group Executive Team, was set up at the outset of the
pandemic outbreak. Through the use of a dynamic risk assessment tool
we have been able to provide real time monitoring and support across
all our services as well as ensuring that we have a business continuity
plan at each site. This covers arrangements to provide staff cover
between services, utilising extra staff as necessary and overall reducing
agency workers.

We followed the latest Government guidelines and have strict
precautions in place at our sites including enhanced levels of cleaning,
additional hygiene facilities and social distancing. Additional
precautions and safety checks are in place with oversight provided
remotely where possible and appropriate.

Brexit

The United Kingdom left the European Union on 31 January 2020 on
the terms of the Withdrawal Agreement, which introduced a transition
period until 31 December 2020.

The UK is seeking to negotiate and agree a long-term trade deal with
the EU, by the end of this transition period. The Government has said
this period will not be extended. It is possible that the UK-EU will not
have agreed a UK-EU trade deal by 31 December 2020, or a UK-EU
trade deal will be agreed but the terms of the deal are such that it
will cause disruption to our business post 31 December 2020.

We have fewer than 5% of our employees who are EU citizens; however,
from 1 January 2021 there may be a reduction in the numbers of
candidates that are able to work in the UK. We will continue to recruit
the highest calibre of candidates in line with our recruitment processes.

As during the previous financial year, the Board considered the impact
of Brexit on the business and again concluded, on the basis that the
Group is substantially a UK-based operation with no reliance on exports
and limited reliance on imports, that Brexit did not, in itself, constitute
a significant risk to the business.

By order of the Board

Farouq Sheikh
Group Executive Chairman
10 December 2020

CareTech Holdings PLC
Annual Report and Accounts 2020
52

Group Financial Review

The Group has delivered a strong
set of results for the financial year
ended 30 September 2020.
Christopher Dickinson
Group Chief Financial Officer

CareTech Holdings PLC
Annual Report and Accounts 2020
53

Strategic ReportGovernanceFinancial Statements
Group Financial Review
continued

Highlights

Capacity and occupancy

Adults Services increased 29 places to 1,997 (2019: 1,968) due to 41 beds
in two new residential sites in Specialist Services, a net four new supported
living contracts offset by 16 beds withdrawn. Children’s Services
increased to 1,959 mainly due to 27 development projects, 22 capacity
increases, eight beds withdrawn and 15 reconfigurations. Fostering
decreased to 1,028 due to blocked beds as a result of COVID-19 and
some foster parent leavers.

As at the balance sheet date, the Group capacity decreased to 4,984
(2019: 5,079) due to a decline in capacity within Foster Care.

At 30 September 2020, occupancy levels in the mature estate was 83%
(2019: 85%) reflecting the timing of the start of the educational year due
to a number of the Group’s non-residential schools operating on a
38-week basis with the new education term commencing in October.
Blended occupancy was 80% (2019: 80%).

– Revenue: £430.0m (increase of 8.9%)
– Underlying pre IFRS 16 EBITDA increase of 14.4% to £84.1m

(post IFRS 16: £90.9m)

– Statutory profit before tax: £37.8m (increase of 55.3%)
– Underlying pre IFRS 16 EPS: 43.0p (increase of 14.4%)

and statutory EPS: 23.64p (increase of 28.6%)
– Accelerated reduction in net debt to £268.9m
– Strong operating cash conversion of 103.9%
– Net assets: £364.0m

Results

The Group has delivered a strong set of results for the financial year
ended 30 September 2020.

Unless otherwise stated, results in this section are presented for the year
ended 30 September 2020 on a non-statutory illustrative basis excluding
the impact of IFRS 16 ‘Leases’ to enable a comparison with 2019
performance. Included in the Group consolidation results and reported
in Adults Services and Children’s Services operating segments for the
year ended 30 September 2020 are the AS Group’s Revenue and EBITDA
and other income statement items together with the cash flows
following completion on 4 February 2020.

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 130.

CareTech Holdings PLC
Annual Report and Accounts 2020
54

Condensed Income Statement

Revenue

Gross profit
Administrative expenses excluding depreciation
and share-based payments charge

EBITDA

EBITDA margin

Depreciation

Share-based payments charge

Underlying operating profit

Non-underlying items

Net financial expenses

Profit before tax

Taxation

Profit for the year

Non-controlling interest

Profit for the year attributable to owners of the parent

Weighted average number of diluted shares (millions)

Underlying basic earnings per share

Statutory basic earnings per share

Full year dividend per share

Revenue and EBITDA

Adults Services

Children’s Services

Foster Care

Total

Group underlying revenue increased by 8.9% to £430.0m (2019: £395.0m).

2020
£m

430.0

147.9

(63.8)

84.1

2019
£m

395.0

133.0

(59.4)

73.5

19.6%

18.6%

(11.8)

(0.3)

72.0

(20.2)

(13.1)

38.6

(10.7)

27.9

(1.9)

26.0

109.8

43.02p

23.64p

12.75p

(10.6)

(0.1)

62.9

(23.4)

(15.1)

24.3

(4.2)

20.1

(0.4)

19.7

107.6

37.6p

18.4p

11.7p

2020
Revenue
£m

136.2

252.9

40.9

430.0

%
change

8.9%

11.3%

7.4%

14.4%

11.1%

450.0%

14.5%

(13.5)%

(13.3)%

58.7%

155.6%

61.7%

55.4%

14.4%

28.5%

9.0%

2020
EBITDA
£m

33.6

65.9

8.0

107.5

2020
IFRS
Change
£m

2020
(as reported,
post IFRS 16)
£m

–

(6.8)

6.8

(5.2)

–

1.6

–

(2.4)

(0.8)

–

(0.8)

–

(0.8)

(0.76)

–

2019
Revenue
£m

123.6

230.6

40.8

395.0

430.0

147.9

(57.0)

90.9

21.1%

(17.0)

(0.3)

73.6

(20.2)

(15.5)

37.8

(10.7)

27.1

(1.9)

25.1

109.8

42.26p

22.88p

12.75p

2019
EBITDA
£m

32.7

55.7

7.5

95.9

CareTech Holdings PLC
Annual Report and Accounts 2020
55

Strategic ReportGovernanceFinancial StatementsGroup Financial Review
continued

The Adults Services segment continues to experience high levels of
occupancy at 92% across the mature estate. When this is blended with
the facilities that are being reconfigured and so are under development,
the blended occupancy level at 30 September 2020 was 86%.

We have seen an increase in capacity in Adults Services, largely due
to two new residential Specialist Services sites opening during the year
increasing capacity by 41 places. Revenues increased by 10.2% reflecting
a continuation of high acuity user demand for both residential services
and supported living and the inclusion of the AS Group. EBITDA margin
decreased to 24.7% reflecting business mix, larger Specialist Sites
opening and inclusion of the Group’s UAE operations.

Despite the impact of COVID-19, local authorities have continued
with fee increases to cover the additional costs resulting from increases
in frontline staff pay as a consequence of the National Minimum and
Living Wage increase from 1 April 2020.

Children’s Services increased by 9.6% to £252.9m, reflecting the
improved performance at Cambian and the inclusion of the AS Group.
Cambian has now been integrated and we have achieved the medium-
term target of 16%. EBITDA margins for Children’s Services increased
from 24.1% to 26.1%.

Earnings per share

The weighted average number of shares in issue rose to 109.8m mainly
due to the 1m shares issued to the CareTech Foundation and 0.4m
consideration shares for investment in the AS Group.

Underlying basic earnings per share (pre IFRS 16) increased by 14.4%
to 43.0p from 37.6p in 2019.

Statutory earnings per share increased by 24.4% to 22.88p (2019: 18.38p).

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 8.75p per share (2019: 7.95p), bringing the total
dividend for the year to 12.75p (2019: 11.7p), a growth of 8%. Dividend
cover for 2020, based upon diluted earnings per share before non-
underlying items, is 3.3 times (2019: 3.18 times).

Cash flow and net debt

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

Group EBITDA margin has increased to 19.6% (2019: 18.6%). Synergies
from the Cambian acquisition of over £5m were delivered in the financial
year with actions already taken to deliver £6m run-rate synergies from
the next financial year onwards.

EBITDA

Operating profit and profit before tax

The Group presents Operating Profit and Profit Before Tax as both
underlying and statutory results. Underlying operating profit increased
by 14.5% to £72.0m is EBITDA after depreciation and share-based
payments charge.

The depreciation charge is £11.8m (2019: £10.6m) reflecting the
investment in land and buildings, motor vehicles and fixtures, fittings and
equipment and the share-based payments charge of £330k (2019: £60k)
reflecting the issuance of shares in November 2019.

Decrease/(increase) in working capital
Cash inflows from operating activities
before non-underlying items

Leases (IFRS 16)

Tax paid

Interest paid

Dividends paid

Capital expenditure

Statutory operating profit of £53.4m (2019: £39.5m) is underlying
operating profit less amortisation of £10.2m (2019: £10.2m), acquisition
costs of £0.5 (2019: £10.3m), reflecting the costs incurred in acquiring
the AS Group in February 2020, donations to the CareTech Foundation
of £702k, other non-underlying costs of £3.7m largely associated with
the integration of Cambian and share-based payments charge of £4.1m
in relation to the 1 million shares donated to the CareTech Foundation.

Proceeds from disposal of fixed assets

Payments for business combinations

Non-underlying cash flows

Deferred consideration paid

Shareholder loan

New HP arrangements

Adult social care providers have had funding available via local authorities
to help support the provision of additional resources and associated
costs necessary to halt transmission of COVID-19. Funding of £2.6m
has been extremely helpful in allowing the Group to take key steps to
improve prevention and infection control in our services, and to support
staff financially to self-isolate where this has been necessary. Additional
costs of £3.4m have been incurred due to COVID-19 with a net cost
to the Group of £0.8m.

Underlying financial expenses decreased to £11.5m (2019: £12.7m)
reflecting the accelerated deleveraging and reduction in banking
covenants. Non-underlying financial expenses of £1.6m (2019: £2.4m)
were incurred relating to the non-cash movement in derivative
financial instruments.

Underlying Profit Before Tax improved to £60.5m (2019: £50.2m)
and statutory Profit Before Tax increased to £37.8m (2019: £24.3m).

Taxation

The effective underlying tax rate was 18.7% (2019: 18.7%) 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.

CareTech Holdings PLC
Annual Report and Accounts 2020
56

Movement in net debt

Opening net debt

Closing net debt*

Net debt consists of cash and cash equivalents, bank loans, shareholder loan and
lease and hire purchase contracts.

The Group continues to have a strong financial position with net debt
at 30 September 2020 being £268.9m compared with £291.1m at
30 September 2019. Operating cash conversion was strong which was
partially offset by the cash consideration paid for the UAE acquisition
(AS Group), development opportunities, integration costs associated
with the Cambian acquisition and additional expenditure associated
with COVID-19.

Cash inflows from operating activities were offset by a net COVID-19
related costs of £0.8m, payment to the CareTech Foundation of £0.7m,
integration costs and restructuring costs of £3.9m and acquisition of the
AS Group for £3.2m (net of cash acquired and including acquisition costs).

Capital expenditure was £26.8m which includes software development
of £2.8m.

Dividend payments of £13.0m (2019: £10.8m) and corporation tax
payments of £3.9m (2019: £5.9m) were paid during the year.

2020
£m

90.9

3.3

94.2

(6.7)

(3.9)

(10.7)

(13.0)

(26.8)

1.5

(2.0)

(5.9)

(0.7)

(1.8)

(2.0)

22.2

(291.1)

268.9

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

Bank facilities

CareTech’s three key covenant ratios are leverage (ratio of net debt
to covenant EBITDA to be no more than 4.5), interest cover (ratio of
covenant EBITDA to net finance costs to be no less than 4x) and LTV
(ratio of property value to net debt to be no more than 62.5%). As at
30 September 2020, we were operating comfortably within these ratios
at 3.1x, 7.8x and 42% respectively. The Board believes the Group will
achieve its target of reducing net debt/EBITDA to below 3.0x for the
year ended 30 September 2021.

New accounting standards

IFRS 16
A new accounting standard, IFRS 16 ‘Leases’, was adopted with
effect from 1 October 2019. The standard requires leases which were
previously treated as operating leases to be recognised as a lease liability
with the associated asset capitalised and treated as a right-of-use asset.

The Group elected to adopt the standard using the modified
retrospective approach, which means that comparative results for the
year ended 2019 are not restated. On 1 October 2019, £76.2m of leases
were recognised as liabilities on adoption of the standard and £71.7m
capitalised as right-of-use assets.

The financial impacts of IFRS 16 for the year ended 30 September 2020
are set out in the table below.

2020
(pre IFRS 16)
£m

Impact of
IFRS 16
£m

IFRS 16
(post IFRS 16)
£m

Underlying operating profit
Net underlying finance costs

Underlying profit before tax
Right-of-use assets
Other assets
Lease liabilities
Other liabilities

Net assets

72.0
(11.5)

60.5
18.7
877.1
(19.3)
(511.5)

365.0

1.6
(2.4)

(0.8)
69.1
–
(69.4)
(0.5)

(0.8)

73.6
(13.9)

59.7
87.8
877.1
(88.7)
(512.0)

364.2

The changes in accounting resulting from the implementation of IFRS 16
will not affect the way liquidity is assessed against the Group’s banking
covenants, which will continue to be assessed as though the accounting
rules had not changed. As such, headline financial leverage will continue
to be measured on a consistent (i.e. “frozen GAAP”) basis in 2020 and the
Group continues to target a headline financial leverage, excluding the
increase in leverage associated with the implementation of IFRS 16, of
below 3.0x.

Christopher Dickinson
Group Chief Financial Officer
10 December 2020

Longer-term Viability Statement

In accordance with the 2018 UK Corporate Governance Code, the
Directors assessed the viability of the Group and have used a period
of three years for their assessment. A three-year period is considered
the appropriate timeframe to assess the Group’s prospects as it is
consistent with strategic planning for the Group, management
incentive schemes and medium-term financing considerations.
The Board believes the Group has strong long-term prospects, being
well-positioned to address the need for social care providers in the
UK and emphasis the Group takes with respect to forging long-term
relationship with local authorities and providing high quality care.

The assessment conducted considered the Group’s revenue, EBITDA,
operating profit, cash flows, risks 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 33 to 41. 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. The downside scenarios include, but are not limited to, a
reduction in revenue, site closures, a cyber-attack and additional costs
associated with COVID-19. This is done to identify risks to liquidity and
covenant compliance.

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 authorities offering (which we consider to be low likelihood).

– No significant changes or implications as a result of Brexit

(which we consider to be low potential impact on the Group).

In respect of COVID-19, a number of mitigating business operational
actions have been taken and we believe the demand for high quality
social care will remain strong.

Based on this consideration of principal risks and the forecasting
exercise completed, the Board has a reasonable expectation that the
Group will be able to withstand the impact of the specific scenarios
considered over the three-year period assessed.

CareTech Holdings PLC
Annual Report and Accounts 2020
57

Strategic ReportGovernanceFinancial Statements

PB_Board_Farouq-6_prv

PB_Board_Farouq-7_prv

PB_Board_Farouq-8_prv

Corporate Governance Report

PB_Board_Farouq-9_prv

PB_Board_Farouq-10_prv

PB_Board_Farouq-12_prv

PB_Board_Farouq-13_prv

vital to achievement of the Group’s strategy. The 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 development of a
communication plan. The Board believe that its workforce policies,
including its in-house training and HR systems, support the Group’s
focus on the provision of quality services and allow for sustainable
growth. The 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 Group’s quality ratings, which are above
the industry average. The Board also believe the Group’s business
development and marketing function has established strong
relationships with commissioners and actively strives to maintain these
relationships. Being a socially responsible organisation with a focus on
ethical standards aligned with commercial objectives remains a core aim.
The Board believes 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 Group’s framework of controls includes identification and
management of any conflicts of interests. The 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 the Group’s success. In addition, Directors can
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 to 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 Directors are supplied with financial and operational information
in good time for scrutiny in advance of these meetings. The Board holds
other board meetings specifically for significant transactions involving
raising money or spending money like a significant acquisition.

The Directors attended the following meetings in the year
to 30 September 2020:

Board
(11 meetings)

Audit
Committee
(3 meetings)

Remuneration
Committee
(5 meetings)

Care Quality
and
Governance
Committee
(3 meetings)

Farouq Sheikh
Haroon Sheikh
Christopher
Dickinson
Karl Monaghan
Mike Adams
Jamie
Cumming
Gareth Dufton
Professor Moira
Livingston

* by invitation.

11
11

10
11
11

11
3

–
–

3
3
–

3
2

–
–

4*
4
–

5
1*

–
–

–
3
–

3
–

At every board meeting the Board covers an AIM continuing obligations
questionnaire and declaration of connected party transactions. This sets
the tone for corporate behaviour and helps makes governance meaningful
and focused on improving the business and protecting shareholder value.

Farouq Sheikh
Group Executive Chairman

Introduction

This is our Corporate Governance Report, which sets out how the Board
and its Committees operate and how we are committed to maintaining
the highest level of corporate governance. The Board firmly 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.

PB_Board_Farouq-11_prv

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.
Last year we welcomed the changes to corporate governance in the
new UK Corporate Governance Code.

The Board remains committed to achieving the highest standards of
integrity, ethics, professionalism and business practice throughout Group
operations. Therefore, the Group has aligned its governance with best
practice and is adopting the provisions of the UK Corporate Governance
Code 2018 on a comply or explain basis. The Code and associated
guidance is available on the Financial Reporting Council website at
www.frc.org.uk. We have noted the Code provisions below where the
Group does not comply with the Corporate Governance Code in full.

1. Principles A-E:
Board Leadership and Company Purpose

The 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. The Group has also had direct involvement in a variety of
community-based programmes further improving our corporate and
services reputation and helping to foster strengthened relationships
with commissioners.

CareTech’s key strategic priorities include a continual focus on improving
the quality and scope of our Care Pathway, increasing market share and
growing shareholder value. The Board recognises that key to achieving
its strategy is the attraction and retention of talented and committed
staff at every level of the Group and the Board has put in place policies
and procedures to achieve this. The Board ensures that the Group is
appropriately funded to deliver its strategy. The Board appreciates that
effective communication and engagement with the Group’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
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 Group Executive Chairman and the Group
Chief Financial Officer, as are regular meetings through the year with
fund managers and investment analysts.

PB_Board_Farouq-14_prv

Effective communication with employees and commissioners is also

CareTech Holdings PLC
Annual Report and Accounts 2020
58

PB_Board_Farouq-15_prv

PB_Board_Farouq-16_prv

PB_Board_Farouq-17_prv

Governance structure

The Board

The Board focuses primarily upon strategic and policy issues and is responsible for:
– Leadership of the Group.
– Implementing and monitoring effective controls to assess and manage risk.
– Supporting the Group Executive Team to formulate and execute the Group’s strategy.
– Monitoring the performance of the Group.
– Setting the Group’s values and standards.

The Board delegates certain matters to its four principal committees:

Care Quality
and Governance
Committee

Nominations
Committee

Audit
Committee

Remuneration
Committee

– Moira Livingston (Chair)
– Karl Monaghan
– Jamie Cumming

– Karl Monaghan (Chair)
– Moira Livingston
– Jamie Cumming

– Jamie Cumming (Chair)
– Moira Livingston
– Karl Monaghan

Promotes a culture of high
quality and the safe care
of service users. Responsible
for monitoring specific
non-financial risks and their
associated processes, policies
and controls.

Responsible for ensuring our
Board and its Committees
have the right balance of skills,
knowledge and experience
and ensuring adequate
succession plans are in place.

Responsible for reviewing and
reporting to the Board on the
Group’s financial reporting,
maintaining an appropriate
relationship with the Group’s
auditor and monitoring the
internal control systems.

The role of the Remuneration
Committee includes details
of Directors’ remuneration,
shareholdings and share
options scheme information.
A key Group strategy is to
attract and retain talented
and committed staff at every
level of the business and the
Remuneration Committee
aims to foster remuneration
philosophy, policies and
procedures to achieve this.

Group Executive Team

The Board delegates the execution of the strategy and the
day-to-day management of the Group to the Group Executive
Team, which operates under the direction and authority of the
Group CEO. The team generally meet once a month.

CareTech Holdings PLC
Annual Report and Accounts 2020
59

Strategic ReportGovernanceFinancial StatementsPB_Board_Moira-62_prv

PB_Board_Moira-63_prv

PB_Board_Moira-64_prv

PB_Board_Farouq-6_prv

PB_Board_Farouq-7_prv

Board of Directors

PB_Board_Farouq-8_prv

PB_Board_Moira-65_prv

PB_Board_Moira-66_prv

PB_Board_Moira-67_prv

Farouq Sheikh OBE
Group Executive Chairman
Aged 62

Haroon Sheikh BSc
Group Chief Executive Officer
Aged 64

Christopher Dickinson
Chief Financial Officer
Aged 42

Mike Adams OBE
Executive Director
Aged 49

PB_Board_Moira-68_prv

PB_Board_Mike-1_prv

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.

Mike has a significant track record
in the social care, health and
disability sectors. He is CEO of
Purple Zest Limited, a Group
disability business, and an
Executive Director of CareTech.
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.

PB_Board_Mike-4_prv

Mike was honoured with an OBE
in 2012 for his services to disability
and became a Trustee of the
CareTech Charitable Foundation
in 2017.

PB_Board_Farouq-9_prv

PB_Board_Farouq-10_prv

PB_Board_Farouq-12_prv

PB_Board_Farouq-13_prv

PB_Board_Farouq-11_prv

Farouq has been a key architect
in CareTech’s growth, having
co-founded the Group and has
been 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
authorities and health
commissioners.

Farouq is a leading business
entrepreneur, philanthropist and
investor and 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 social care
sector and his commercial and
negotiating expertise have guided
the Group’s growth.

PB_Board_Farouq-14_prv

Farouq was honoured with
an OBE in 2020 for his services
to social care, and has been
presented with a number of
Entrepreneur of the Year awards
by prestigious organisations
including LaingBuisson, Coutts
Bank and Ernst & Young. He also
presents widely at healthcare
conferences, raising awareness
of the specialist social care sector.

As Patron and Enterprise Fellow
of the Prince’s Trust and a member
of the Mosaic National Advisory
Board, Farouq supports young
people by passing on his
experience to inspire the next
generation of entrepreneurs.
He is a Founder Trustee of the
CareTech Charitable Foundation
formed in 2017.

PB_Board_Farouq-15_prv

PB_Board_Farouq-16_prv

PB_Board_Farouq-17_prv

CareTech Holdings PLC
Annual Report and Accounts 2020
60

Haroon is amongst the most
experienced CEOs in the health
and social care sector and one
of the UK’s leading entrepreneurs
and philanthropists. Along with his
brother Farouq, he co-founded
CareTech. As Group CEO he
actively leads the day-to-day
running of the Group and its
international expansion, and has
been instrumental in assembling
a highly talented leadership team
to support the continued growth
of the business. Haroon brings
commercial acumen, related
industry experience and property
knowledge. He has a deep
commitment and passion for
delivering high quality care
and support to people with
complex needs.

PB_Board_Mike-3_prv

Haroon is Patron and Enterprise
Fellow of the Prince’s Trust and
is member 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 Farouq
were winners of the highly valued
Coutts Family Business Prize and
widely applauded for the quality
and social integrity of the business
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 LaingBuisson Annual
Healthcare Awards. In 2019
Haroon and Farouq were winners
of the “Asian Business of the Year”.

Haroon, a graduate of the
University of London, is a Founder
Trustee of the CareTech Charitable
Foundation formed in 2017, and is
Chairman of the Trustees, working
closely with the Foundation’s CEO
and independent Trustees.

PB_Board_Mike-2_prv

PB_Board_Mike-5_prv

PB_Board_Moira-26_prv

PB_Board_Moira-27_prv

PB_Board_Moira-28_prv

PB_Board_Karl-21_prv

PB_Board_Karl-22_prv

PB_Board_Karl-23_prv

PB_Board_Moira-29_prv

PB_Board_Moira-30_prv

PB_Board_Moira-31_prv

PB_Board_Karl-24_prv

PB_Board_Karl-25_prv

PB_Board_Karl-26_prv

PB_Board_Jamie-39_prv

PB_Board_Jamie-40_prv

PB_Board_Jamie-41_prv

PB_Board_Moira-32_prv

PB_Board_Moira-33_prv

PB_Board_Moira-34_prv

Jamie Cumming
Non-Executive Director
Aged 70

Karl Monaghan
Non-Executive Director
Aged 58

Professor Moira Livingston
Non-Executive Director
Aged 58

PB_Board_Karl-27_prv

PB_Board_Karl-28_prv

PB_Board_Jamie-42_prv

PB_Board_Jamie-43_prv

PB_Board_Karl-29_prv

PB_Board_Moira-35_prv

PB_Board_Moira-36_prv

PB_Board_Moira-37_prv

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 Cantor 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.

After graduating from University
College Dublin with a Bachelor of
PB_Board_Jamie-44_prv
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 Crédit
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.

Moira has been involved in health
and social care for 35 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 CQC.
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.

PB_Board_Karl-30_prv

PB_Board_Jamie-45_prv

PB_Board_Karl-31_prv

PB_Board_Jamie-46_prv

PB_Board_Karl-32_prv

PB_Board_Jamie-47_prv

PB_Board_Jamie-48_prv

PB_Board_Jamie-49_prv

PB_Board_Jamie-50_prv

CareTech Holdings PLC
Annual Report and Accounts 2020
61

Strategic ReportGovernanceFinancial StatementsCorporate Governance Report
continued

Matters reserved for the Board

The 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 the Group that they are reserved
to the Board for specific consideration and decision including:
– 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.
– Shareholder communications.

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. During the year the Board undertook an in-depth
assessment of the emerging and principal risks facing the Group and
specifically those that might threaten the delivery of its strategic business
model. These risks have been discussed in the Strategic Report on
page 51 to 52. 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.

A process of control and hierarchical reporting provides for a
documented and auditable trail of accountability. These procedures
are relevant across all Group operations and they provide for successive
assurances to be given at increasingly higher levels of management and,
finally, to the Board.

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 Group’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 Group’s procedures for ensuring that
the Board’s power of authorisation in respect of conflicts is operated
effectively and that procedures have been followed.

Shareholder engagement

Through presentations and regular meetings between the executive
Directors, analysts and institutional shareholders, including those
following the announcements of the Group’s annual and interim results,
the Board seeks to understand the objectives of our shareholders.

CareTech Holdings PLC
Annual Report and Accounts 2020
62

Copies of the Annual Report and Financial Statements are issued to
all shareholders where requested and copies available on the Group’s
website (www.caretech-uk.com). The Group also uses its website to
provide information to shareholders and other interest parties. The
Company Secretary deals with correspondence as and when it arises
throughout the year.

Further details on the Group’s engagement with shareholders is contained
in the s172 statement on page 50.

Workforce policies and practices

Our reputation for acting responsibly plays a critical role in the Group’s
success as a business and our ability to generate value for shareholders.
We maintain high ethical conduct that is reflected in policies that are
embedded across the Group including the Modern Slavery Act, and
anti-bribery and corruption policy.

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 business including in our
supply chain and are committed to acting ethically and with integrity
throughout all of our dealings.

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.

A full version of our Anti-Slavery and Trafficking Statement can be found
on our website.

Anti-bribery and corruption
The Group maintains a policy for anti-bribery and corruption and has
a zero tolerance towards such activities; and requires compliance with
the laws of the UK, including the Bribery Act 2010 in respect of Group
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, which sets out the behaviours we expect

of our staff when acting for the Group.

– Recruitment Policy, all of UK employees are recruited after a robust

recruitment process in line with UK employment laws and are required
to undertake appropriate Disclosure and Barring Service checks.

– Whistleblowing Policy, we want staff to feel confident and
empowered to raise any issues or concerns and have a
whistleblowing policy in place. Our whistleblowing policy helpline
is managed by a third-party provider, enabling staff to raise concerns
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. The Board is provided with updates on
material whistleblowing events as they are reported from time to time
to the Executive Leadership Team.

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)
We take our responsibilities as a data controller/ processor very seriously
and are committed to operating within the boundaries of any necessary
data security regulations to include the Data Protection Act. We are
conversant with the requirements of both the GDPR and the Data
Protection Bill and are constantly updating our Information
Governance practices.

2. Principles: F-I:
Division of responsibilities

Ultimate responsibility for the management of the Group rests with the
Board of Directors. Details of the Board are set out on pages 60 to 61.
The Board focuses primarily upon strategic and policy issues and is
responsible for:
– Leadership of the Group.
– Implementing and monitoring effective controls to assess and

manage risk.

– Supporting the senior leadership team to formulate and execute

the Group’s strategy.

– Monitoring the performance of the Group.
– Setting the Groups’ values and standards.

The Board consists of three independent Non-Executive Directors
and four Executive Directors. The Board does not currently comply
with provision 2.11 of the UK Corporate Governance Code and this is
under review. To address the balance of independent directors, a new
Non-Executive Director will be appointed in the 2020/21 financial year.

Business review meetings are held monthly with attendance of Executive
Directors at these meetings. These meetings provide the Executive
Directors with a comprehensive understanding of the current
performance of, and the key issues affecting, the Group’s operations.
The Board also visits sites and has continued to do this virtually during
COVID-19.

Detailed briefing papers containing financial and operational summaries
and an agenda are provided to the Directors in advance of each Board,
Committee or business review meeting. The Directors are able to seek
further clarification and information on any matter from any other
Director, the Company Secretary or any other employee of the Group
whenever necessary.

The Company Secretary is responsible for advising and supporting
the Group Executive Chairman and the Board on corporate governance
matters as well as assisting the Group Executive Chairman in ensuring
a smooth flow of information to enable effective decision-making.
All Directors have access to the advice and services of the Company
Secretary and, through him, have access to independent professional
advice in respect of their duties, at the Group’s expense. The Company
Secretary, supported by the Group company secretariat, acts as secretary
to the Board, the Audit Committee and the Remuneration Committee.

The Group provides its Directors and officers with the benefit of appropriate
insurance, which is renewed annually.

The roles and responsibilities of certain members of the Board and
Company Secretary are explained and their respective responsibilities
summarised below.

Group Executive Chairman

As Group Executive Chairman, Farouq Sheikh leads the Board and is
responsible for its effective running. The Group Chief Executive Officer
is Haroon Sheikh. The Directors’ biographies appear on pages 60 to 61
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.

Farouq Sheikh is responsible for:
– The effective running of the Board.
– Promoting high standards of Corporate Governance.
– Ensuring Board agendas take full account of relevant issues

and Board members’ concerns.

– Ensuring the Directors receive accurate and timely information.

Farouq Sheikh is the co-founder of the Group and is integral to its success
and growth. Whilst the Group Executive Chairman is not independent
and therefore currently does not comply with provision 2.9, the Board
believe Farouq Sheikh, as co-founder, provides effective leadership in
directing the Group and facilitates a culture of openness and debate.

Group Chief Executive Officer

Haroon Sheikh is the Group CEO and accountable to the Board for the
day-to-day running of the Group and management of the strategic plan.

Haroon Sheikh is responsible for the following:
– Executive leadership of the Group’s business on a day-to-day basis.
– Developing the overall commercial objectives, and proposing and
developing the strategy in conjunction with the Board as a whole.
– Responsibility, together with the senior management team, for the
execution of the strategy and implementation of Board decisions.

– Recommendations on senior appointments and development

of the management team.

– Ensuring that the affairs of the Group are conducted with the highest

standards of integrity, probity and corporate governance.

Group Chief Financial Officer

Christopher Dickinson was appointed Chief Financial Officer
on 13 January 2020. Christopher is accountable to the Board for
all financial matters and responsible for:
– Preparation and integrity of financial information.
– Operating effective systems of risk management and control.
– Developing and implementing the financial strategy and policies.

Executive Director

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 business wholly owned
by the Group, which supports both disabled people and businesses.

Non-Executive Directors

Collectively, the Non-Executive Directors bring a valuable range of
expertise and experience in assisting the Group to achieve its strategic
aims and provide constructive challenge and strategic guidance. In the
furtherance of their duties, all Directors are able to take independent
professional advice at the expense of the Group 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.

The Non-Executive Directors comprise Jamie Cumming, Karl Monaghan
and Professor Moira Livingston and are considered to be independent.
Although Karl Monaghan has served on the Board for more than nine
years, the Board is satisfied that there are no matters which affect
the independence of his judgement and as such that Karl continues
to act independently.

The Non-Executive Directors are responsible for:
– Constructively challenging the Executive Directors and supporting

the Group to develop its strategy.

– Satisfying themselves as to the integrity of the financial information

and that there are effective systems of risk management and
financial control.

– Chairing and/ or serving on relevant Committees.

Senior Independent Non-Executive Director

– Acting as a sounding board for the Group Executive Chairman.
– Available to shareholders if they have concerns which cannot
be resolved through the Group Executive Chairman or other
executive management.

– Acting as an intermediary for the Directors where necessary.

CareTech Holdings PLC
Annual Report and Accounts 2020
63

Strategic ReportGovernanceFinancial Statements4. Provisions M-O:
Audit, Risk and Internal Control

The Board has established an Audit Committee comprising Karl
Monaghan (Chairman), Professor Moira Livingston and Jamie Cumming.
The Group Chief Financial Officer and representatives of the external
auditor attend meetings by invitation as required.

The Committee meets at least twice each year and receives reports
from the Group’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 Board, as advised by the Audit Committee, 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 an absolute assurance against material
misstatement or loss.

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. Risks facing the Group are described on pages 51 to 52 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
Board and the Audit Committee.

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.

The new General Data Protection Regulations 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 Group.

Corporate Governance Report
continued

Corporate governance framework and terms of reference

The Board has an overarching corporate governance framework to
ensure continued alignment of the Board and Committee members’
roles and division of responsibilities. Each member of the Board is
provided with a copy of the Company’s corporate governance
framework, which they review, discuss and update regularly. Each of the
Committees have their own written terms of reference. The Company
Secretary supports the Committees in updating these terms of reference
in order to comply with the Code and other good corporate practice.

3. Principles: J-L:
Composition, Succession and Evaluation

Matters are delegated to Board Committees, individual Directors or
executive management where appropriate. To date, given the stage of
the Group’s development, it has been felt the functions of a Nominations
Committee can be adequately fulfilled by deliberation of the full Board;
this will nevertheless be kept under review (non-compliant with 3.17 and
3.23 of the Corporate Governance Code 2018). When the need for
additional Non-Executive Directors are identified, the Board appoints
advisers to nominate experienced relevant and appropriate candidates.
Currently Board members meet the candidates and come to a collective
view on appointments.

Currently all Directors are required to submit themselves for re-election
at least every three years (non-compliant with 3.18 of the Corporate
Governance Code 2018) and new Directors are subject to election
by shareholders at the first opportunity following their appointment.

Whilst the performance of each the Directors is kept under review, no
formal evaluation is currently conducted by the Group. The Board does
not believe the requirement is commensurate with the size and nature
of the business but is aware that this does not comply with the Code
provision 3.21-3.22 and will therefore keep under review.

CareTech is committed to developing a working environment and
culture that promotes fairness and inclusivity. We initiated an Equality,
Diversity & Inclusion Programme during the year which will shape our
strategy and embed this into everything we do. Our priorities for 2020/21
are to conduct an internal audit of our practice to establish where we
can improve. During the course of 2020/21, we are looking to work
with senior leaders to provide training, development, workshops and
coaching to help increase their understanding of the importance
of this work to the Group.

The Board maintains regular focus on succession planning for both
Board and senior leadership roles. During the year, the Board has
considered the desired skills, personal attributes and experience that
would be of benefit to the Board in future Non-Executive Directors
and during 2021 we plan to appoint an additional independent
Non-Executive Director. During the year, Christopher Dickinson joined
the Board as Group Chief Financial Officer along with some senior
appointments which reinforces our commitment to build a strong Group
executive team. A number of members of the Executive Committee have
attended a number of Board meetings at which they have presented
their respected strategies. We will continue to review out succession
planning strategy to ensure the Board composition and that of the Group
executive team reflects and aligns with the needs of the business.

CareTech Holdings PLC
Annual Report and Accounts 2020
64

The processes used by the 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.

– The whistleblowing helpline is managed by a third-party provider,

enabling staff 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 the 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.
– Review of the adequacy of the level of experienced and professional

staff throughout the Group and the expertise of individual staff
members so that they are capable of carrying out their individual
delegated responsibilities.

– Review of the external audit work plans.
– The Audit Committee receive the audit report and discusses the impact

in the meetings of the Board.

– Reports from management on significant matters are reviewed

and challenged, and the impact on the financial statements and the
statutory audit are considered. In the year, these relate to the adoption
of IFRS 16 ‘Leases’, going concern and viability statement, impairment
of assets and control assessment.

The Group continues to review its system of internal controls to ensure
compliance with best practice and Code guidance, whilst also having
regard to our size and the resources available. The external auditor obtained
an understanding of our internal controls for the purposes of forming
their audit opinion as set out on pages 79 to 85. No significant deficiencies
in our internal controls were reported by our external auditor in the course
of their external audit. The Committee, taking into account the current
nature of the operations and the experience and skill of the management
team, believes that management is able to discharge their duties in the
management of the Group without the need for an internal audit function.
This matter will continue to be actively reviewed by the Committee.

The Group has in place a whistleblowing policy which sets out the
formal process by which an employee of the Group may, in confidence,
raise concerns about possible improprieties in financial reporting or
other matters. Any material whistleblowing matters in relation to financial
reporting are on the Committee’s agenda. During the year, there were
no major incidents for consideration.

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 2020, AON Hewitt 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 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.

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.
– Executive Directors’ incentives should be aligned with the interests

of shareholders.

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.

5. Provisions P-R:
Remuneration

The composition and role of the Remuneration Committee is set out
in the Remuneration Report on pages 72 to 77. Also detailed in that
report are Directors’ remuneration, shareholdings and share options
scheme information.

The composition and role of the Remuneration Committee includes
details of Directors’ remuneration, shareholdings and share options
scheme information. A key Group strategy is to attract and retain
talented and committed staff at every level of the organisation and
the Remuneration Committee aims to foster remuneration philosophy,
policies and procedures to achieve this.

By order of the Board

Farouq Sheikh
Group Executive Chairman
10 December 2020

CareTech Holdings PLC
Annual Report and Accounts 2020
65

Strategic ReportGovernanceFinancial Statements
PB_Board_Moira-26_prv

PB_Board_Moira-27_prv

PB_Board_Moira-28_prv

PB_Board_Moira-29_prv

PB_Board_Moira-30_prv

PB_Board_Moira-31_prv

PB_Board_Moira-32_prv

PB_Board_Moira-33_prv

PB_Board_Moira-34_prv

Care Quality and Governance Report

PB_Board_Moira-35_prv

PB_Board_Moira-36_prv

Each registered site is inspected and given a rating. The highest ratings
are “Outstanding”, “Good” or equivalent.

We continue to work closely with our regulators and commissioners
across England, Scotland and Wales. In addition to localised links with
inspectors, we have held meetings with senior leaders from our two main
regulators – CQC and Ofsted, to review the performance of our portfolio.
In addition, during 2020 we have shared and discussed our approach
to managing COVID-19. As a consequence of the varying restrictions
imposed during the pandemic our regulators adapted their inspection
framework from March 2020. At all times since March we have worked
closely with regulators, local and national government to ensure we
maintain safe and effective care and follow infection control guidance.

Our Adults Services and a small number of our Children’s Services
residential and college portfolio are regulated by the 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.

Adults Services in Wales are regulated under different national legislation
and are not currently rated on any form of scale, though all are compliant.

The Foster Care services in England are regulated by Ofsted and 100%
services are rated Good.

In Wales the services are regulated by the Care Inspectorate Wales (CIW)
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.

CQC

Professor Moira Livington
Chair of the Care Quality and Governance Committee

Quality is defined by the level of service we deliver and
the outcomes we achieve for children, young people
and adults and the Group as a whole.

Ambition

PB_Board_Moira-37_prv

We remain committed to becoming the highest quality provider of
care, education and therapeutic support across the Group. We provide
services to over 4,900 adults and children across 550 locations. We work
with the majority of commissioners in England, Scotland and Wales and
employ approximately 10,000 people. For us, quality is defined by the
level of service we deliver and the outcomes we achieve for children,
young people and adults and the Group as a whole.

Our mission is to provide every service user with extraordinary days,
every day.

Quality framework

Quality is assured through a “three-line of defence” framework.

We have 162 CQC-registered services, of which 155 have been graded.
The statistics below show that we continue to operate well-above the
national averages for the adult social care sector.

1st line – Our operational team
Each part of the Group has a clear operating model. Our Chief Operating
Officer line manages a number of Managing Directors who each hold
accountability and responsibility for the day-to-day performance of
their portfolio of services. Each Managing Director leads a team of site
managers, regional managers and operations directors. Our approach
is to embed quality throughout the Group’s operations and employ
well-qualified and skilled professionals who operate within a
quality framework.

2nd line – Quality monitoring and independent visiting
Our quality improvement team oversee our policies and procedures,
performance KPIs, improvement programme, data analysis and our
independent visiting contract (delivered through the National Youth
Advocacy Service (NYAS).

3rd line – Compliance and regulation
Our experienced internal compliance and regulation team operates
across all divisions, reporting to our Group Executive Director –
Compliance. The team undertakes a programme of regular service
inspections and thematic reviews, assessing against an internal quality
assurance framework.

These three lines of defence form our quality framework which aims
to ensure the Group operates to the highest professional standards.

Strategic oversight of the quality of our services is provided by our
independent Care Quality and Governance Committee. The Committee
has oversight of all aspects of care, safety and service-user well-being.

Regulatory data and performance
(at year-end: 30 September 2020)

Whilst the majority of our Group’s 500+ services are located in England
we also have a strong presence within Scotland and Wales. As such
we operate under a number of different regulators.

We have made progress on these ratings whereby in 2018 86% of
CQC-registered services were rated as Good or Outstanding, in 2019 it
was 95% and in 2020 it is 91%. In each of these years we have operated
well above national averages for the adult care sector.

Ofsted

The majority of our Children’s Services are regulated by Ofsted in
England and these services are rated as Outstanding, Good, Requires
Improvement or Inadequate.

We have 233 Ofsted registered services. We have maintained our
Group’s blended (2019: 82%) position of 82% Good or Outstanding
(30 September 2020).

Quality governance and strategy

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 John Ivers, Chief Operating
Officer and Amanda Sherlock, Group Executive Director – Compliance.

The purpose of the Committee is to lead the development of the
Group’s quality strategy and be responsible for the strategic oversight
and assurance of care standards across the Group. In particular, to hold
the Executive to account for the governance, risk and assurance process
in place to identify, mitigate and manage risk and to maintain and
improve the quality and safety of Group services.

During 2020 it has met four times to provide oversight and assurance
on the quality strategy, quality standards, safety and compliance of the
Group on behalf of the Board. In addition to standard business, as with
previous years the Committee has invited operational directors to attend
and present on topics ranging from restraint reduction strategy, data
protection and GDPR, and clinical governance strategy.

CareTech Holdings PLC
Annual Report and Accounts 2020
66

Our commitment to improving quality

Building upon the integration of Cambian, and a successful 2019, in January 2020 the Care Quality and Governance Committee endorsed a
programme for further improving operational quality over the coming three years. This programme, consisting of seven workstreams (as set out
below), is designed to consolidate operational policy and practice, improve quality inspection ratings and evidence strong and improving outcomes
for children, young people and adults. Implementation began in early 2020. For each workstream we provide below the objectives, key achievements
during 2020 and what we plan to deliver in the coming year.

Workstream 1: Child, young person and adult-centred outcomes

Our objectives:
– To improve our ability to measure and
demonstrate both quantitative and
qualitative improvements in outcomes
for all service users.

– Expand our therapeutic framework (STEP)
across more children’s services, enabling
us to better meet the needs of all service
users at each stage of their journey with us.

What have we achieved in 2020?
– Trialled and evaluated a number of outcome
frameworks within different services and
have now selected “Child and Adolescent
Needs and Strengths” (CANS) as our
outcome framework of choice for Children’s
Services.

Looking ahead to 2021
– Expand the roll-out of our outcome-
framework, and select appropriate
frameworks for Adults’ Services.

– Expand the use of Mind of My Own (Voice

of the Child application).

– STEP will be rolled out to our Specialist

– Conducted a survey of our children and

Services (mental health portfolio).

young people to assess their views on how
well supported they felt during the
COVID-19.

– Introduced the STEP therapeutic framework

into parts of our Children’s Services.

Workstream 2: Improving quality standards, policies and procedures

Our objectives:
– Define our own quality standards, which
enable us to operate above and beyond
those expected by our different regulators.

– Implement corporate policy where

applicable which engenders consistent
high quality practice.

– Ensure our policies and procedures are

fit for purpose and accessible.

What have we achieved in 2020?
– Designed and implemented a new and
robust policy review process for all
operational policies across the Group.
– Integrated a step within the review cycle

which enables us to review quality standards
across regulators and identify the highest
standards which can then be integrated into
our policies.

– Reviewed key operational policies to ensure

they align to national best practice.

Looking ahead to 2021
– We will prepare and implement key
corporate policies across the Group.
– We will investigate effective methods
to update staff on changes in policy
and test their understanding.

Workstream 3: Recruitment, retention and development of skilled professionals

Our objectives:
– Ensure every site has the staff required
to meet the needs of service users.

What have we achieved in 2020?
– Reviewed our safer recruitment policy

Looking ahead to 2021
– Implement our new safer recruitment

and processes.

policy.

– Every role (education / care / clinical) has

– Reviewed and improved our induction

– Integrate our competency matrices

a competency framework that defines the
knowledge and understanding, skills and
behaviours expected of that role.

programmes for residential and
education portfolio.

– Designed competency matrices

– Ensure we listen to the voices of our staff so
that we can enable them to do their best.

for care staff.

– Conducted a whole-organisation

staff survey.

with our Myrus HR system to link with
supervision and appraisal.

Workstream 4: Quality monitoring and assurance

Our objectives:
– Have a robust cycle of quality monitoring

What have we achieved in 2020?
– We have expanded the scope of the

and assurance operating across all services.

– Consistent independent visiting and
reporting contract operating across
Children’s Services.

– A consistent suite of operational KPIs
to inform performance monitoring
and reporting.

– We meet and exceed nationally recognised

safeguarding standards.

Compliance and Regulation team to support
the enlarged Children Services portfolio.
– Completed the roll-out of the “CareTech”
Children’s Services quality framework.
– Expanded the National Youth Advocacy
Service’s (NYAS) independent visiting
contract to cover over 98% of the Children’s
Services portfolio.

– Reviewed our safeguarding practice against

NSPCC safeguarding standards.

Looking ahead to 2021
– Implement the quality framework for
CQC-registered sites and Children’s
(residential) Services.

– Implement a new dynamic risk assessment

“line of sight” system to monitor
performance.

– Introduce changes to our compliance and
regulation audits for our CQC portfolio.

CareTech Holdings PLC
Annual Report and Accounts 2020
67

Strategic ReportGovernanceFinancial StatementsCare Quality and Governance Report
continued

Workstream 5: Embedding a culture of continuous improvement

Our objectives:
– Establish and implement a consolidated
programme of improvement across
the Group.

What have we achieved in 2020?
– We are one year into our three-year quality

Looking ahead to 2021
– All quality improvement plans will be

improvement programme.

– All sites have quality improvement plans

reviewed monthly.

– Establish our Responsible Individual forum,
our Outstanding Practitioner Forum and
implement an expanded safeguarding
governance framework.

– Every site has a consolidated improvement

in operation.

plan that is regularly reviewed.

– Forums of excellence are established to

review performance and share best practice.

– Learn from every regulatory inspection.

– Established a Heads of Care Forum,
a Heads of Education Forum and
Safeguarding Boards.

Workstream 6: Management Information Systems (MIS) enabling data-informed practice and decision making

Our objectives
– Transition our services to be underpinned
by management information systems (MIS).

portfolio.

What have we achieved in 2020?
– Procured a new MIS for our education

Looking ahead to 2021
– Roll-out the new MIS into our Children’s

– Become a data-informed organisation.

– Transitioned to a new MIS for our

By the Bridge services within Foster Care.

– Trialled an online outcome tool in our
Children’s (complex care) Services.
– Built and implemented a bespoke MIS
to manage our response to COVID-19.

Workstream 7: Strong and robust site to Board governance

Our objectives
– Have a stronger and more robust site
to Board governance framework.

– Have consistent performance reporting

across every operational portfolio.

– Have productive and regular engagement
with key stakeholders to assure the quality
of our services offer.

What have we achieved in 2020?
– Strengthened our safeguarding governance

and assessed it against the NSPCC
safeguarding standards.

– Implemented compliance and regulation
visits and inspections across Children’s
Services.

– Operated a pandemic response taskforce

and leadership team to manage the effective
handling of COVID-19 across the Group.

– Commenced Board-level site visits to
triangulate quality assurance evidence
of behalf of the Board.

(schools) Services.

– Embed the new MIS into Foster Care.
– Extend our weekly KPI system to more
of our Children’s (residential) Services.

Looking ahead to 2021
– Establish our Friends and Families Forums
to enable their collective voice to inform
policy and practice.

– Focus upon strengthening our clinical

governance work.

We are committed to this journey of improvement and our aspiration to become the highest quality provider in our sector.

Professor Moira Livingston
Non-Executive Director
10 December 2020

CareTech Holdings PLC
Annual Report and Accounts 2020
68

Directors’ Report

The Directors present their Report and the audited Group Financial
Statements for the year ended 30 September 2020.

Principal activities

Directors

The names of the current Directors together with brief biographical
details are shown on pages 60 to 61.

The principal activity of the Group is the provision of high quality support
and care for individuals who often have complex needs.

In accordance with the articles of association, Karl Monaghan retires
by rotation and, being eligible, offer himself for re-election.

Business review and future developments

The names of all Directors who held office in the year are as follows:

The results for the financial year ended 30 September 2020 are set
out in the consolidated statement of comprehensive income detailed
on pages 86 to 87. Revenue for the year amount to £430.0m, operating
profit for the year before non-underlying items amounted to £73.5m and
operating profit after non-underlying items amounted to £53.3m.

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 pages 51 to 52.

Employee engagement

Details in relation to employment policies, employee involvement,
development, together with details of some of the human resource
improvement initiatives implemented during the year and priorities for
the year 2020/21 are shown in the Strategic Report, all of which are
incorporated by reference into this Directors’ Report.

Director’s name

Title

Farouq Sheikh
Haroon Sheikh
Christopher Dickinson
Mike Adams
Karl Monaghan
Jamie Cumming
Professor Moira Livingston

Group Executive Chairman
Group Chief Executive Officer
Group Chief Financial Officer
Executive Director
Non-executive Director
Non-executive Director
Non-executive Director

Christopher Dickinson (FCA) joined the Group in January 2019 as
Cambian Chief Financial Officer, having previously been a Managing
Director of Jefferies where he acted for CareTech Holdings 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. Christopher Dickinson was
appointed as Group Chief Financial Officer and joined the Board
on 13 January 2020.

Business relationships

Details of the Group’s commissioners, service users, regulators and
suppliers; and how we engage with them are described in the Strategic
Report, all of which are incorporate by reference into the Directors’ Report.

The terms of the Directors’ service contracts and details of the Directors’
interests in the shares of the Group, together with details of share options
granted and any other awards made to the Directors, are disclosed in the
Remuneration Report commencing on page 72.

Environmental

Details of the Group’s Greenhouse gas emissions and the methodology
used to calculate such emissions are set out on page 47 which is
incorporated by reference into this Directors’ Report.

Dividends

Dividends of £13m have been paid during the year. The Directors
propose a final dividend of 8.75p per share (2019: 7.95p) subject to the
approval at the forthcoming Annual General Meeting.

Share listing

The Group’s ordinary shares are admitted to and traded on AIM, a market
operated by the London Stock Exchange. Further information regarding
the Group’s share capital, including movements during the year, are set
out in note 23 to the financial statements.

Directors’ insurance

The Company maintains appropriate Directors’ and Officers’ liability
insurance, as permitted by the Companies Act 2006.

Share capital

Substantial shareholdings

As at 3 December 2020, being the date of the preliminary results
announcement, the Group had been notified of, or was otherwise aware
of, the following substantial interests of 3% or more in the ordinary share
capital of the Group, other than those in respect of the Directors which
are set out in the Remuneration Report on page 76.

Liontrust Asset Mgt
Lombard Odier Asset Mgmt
Hof Hoorneman Bankiers (Netherlands)
Canaccord Genuity Wealth Mgt (London)
Mr Richard Griffiths (Jersey)

No. of
Ordinary
shares
of 0.5p

16,573,407
15,468,657
9,349,584
8,097,000
5,835,323

Percentage
%

14.6
13.7
8.3
7.2
5.2

CareTech Holdings PLC
Annual Report and Accounts 2020
69

Strategic ReportGovernanceFinancial Statements

Directors’ Report
continued

Capital structure

Post balance sheet events

As at 30 September 2020, the Group had 113,173,992 issued ordinary
shares of 0.05p each. The Company has, and as at 30 September 2020,
had, one class of ordinary shares and each share carries the right to one
vote at general meetings of the Group and to participate in any dividends
declared in accordance with the articles of association. No person has
any special rights of control over the Group’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 26 to the
financial statements.

On 23 November 2020 an interim dividend of 4.0p per share was paid
to shareholders.

On 6 October 2020, the Group completed the acquisition of a majority
holding in Smartbox Assistive Technology Limited and associated
subsidiaries, and Sensory Software International Ltd (collectively
“Smartbox”).

Smartbox is a market-leading creator of software and hardware that
helps disabled people without speech to have a voice and live more
independently. It makes communication as quick, simple and effective
as possible for those service users for whom speech difficulties can be
a challenge. Its solutions include communication aids, environmental
control devices, computer control technology and interactive learning.

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. The Group 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, 2017 and 2020, details of which can be found
in note 22 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 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
17 March 2020 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 Group.

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.

To facilitate the acquisition, the Group has established a new subsidiary,
Smartbox Holdings Ltd, which is 70% owned by the Group, with the
remaining minority ownership held by the Smartbox management team
comprising Dougal Hawes, Jarrod Inott and Hannah Church as well as
previous owners Paul and Alyson Hawes.

Smartbox Holdings Ltd will pay up to £10,600,000 comprising of an
aggregate initial purchase price of £7,050,000, funded through an equity
contribution and loan note from the Group and equity contribution from
the minority holders of Smartbox Holdings Ltd. Earn-outs of up to
£3,550,000 are payable over a two-year period from completion.
The Group’s contribution will be funded from existing cash resources.

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
Executive Chairman’s Statement, Group Chief Executive’s Statement and
Performance Review on pages 22 to 24 and pages 25 to 27 and Viability
Statement on page 57. The financial position of the Group, its cash flows,
liquidity position and borrowing facilities are described in the Financial
Review on pages 53 to 56. In addition, note 26 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 26 and indicates their contractual cash flow maturities.

The Group has 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 and Credit Suisse AG, Lloyds Bank plc and
National Westminster Bank plc) for committed financing by way of term
loans, none of which are repayable before February 2022. In addition
to the term loans, a £25m revolving credit facility is available to provide
working capital for the 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.

CareTech Holdings PLC
Annual Report and Accounts 2020
70

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. As at the balance sheet date, the Group had
cash balances of £54.3m.

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. The Group has run downside scenarios including,
but not limited to, a reduction in revenue, site closures, a cyber-attack
and additional costs associated with COVID-19. This is done to identify
risks to liquidity and covenant compliance. After making due enquiries
and applying the downside sensitivities both individually and in combination,
the Directors have not identified any material uncertainties to the Group
and the parent company’s ability to continue to operate over a period of
at least 12 months from the date of approval of the financial statements.
Therefore the Directors consider it appropriate to adopt the going
concern basis of accounting in preparing the financial statements.

COVID-19 was identified as an emerging risk for the business in March
2020. Less than 3% of our service users fall into the formal NHS high-risk
categories for COVID-19 such as those with underlying health
conditions. Throughout the pandemic, all our services remain fully
operational and funded. Adult social care providers have had additional
funding available via local authorities to help support the provision of
additional resources and associated costs necessary to halt any
transmission of COVID-19. Through the use of a dynamic risk assessment
tool we have been able to provide real time monitoring and support
across all our services as well as ensuring that we have a business
continuity plan at each site. This covers arrangements to provide staff
cover between services. For these reasons we do not consider COVID-19
a significant risk to the business based on the current position.

The United Kingdom left the European Union on 31 January 2020 on
the terms of the Withdrawal Agreement, which introduced a transition
period until 31 December 2020. It is possible that the UK-EU will not have
agreed a UK-EU trade deal by 31 December 2020, or a UK-EU trade deal
will be agreed but the terms of the deal are such that it will cause
disruption to our business post 31 December 2020. We have fewer than
5% of our employees who are EU citizens; however, from 1 January 2021
there may be a reduction in the numbers of candidates that are able to
work in the UK. The Board have considered this specific impact in
respect of Brexit and concluded, on the basis the Group is substantially
a UK-based operation with no reliance on exports and limited reliance
on imports, that Brexit is not a significant risk to the business.

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
10 December 2020

CareTech Holdings PLC
Annual Report and Accounts 2020
71

Strategic ReportGovernanceFinancial Statements
PB_Board_Jamie-39_prv

PB_Board_Jamie-42_prv

PB_Board_Jamie-45_prv

PB_Board_Jamie-40_prv

PB_Board_Jamie-41_prv

Directors’ Remuneration Report
Statement from the Chairman of the Remuneration Committee

The following comprised the principal elements of remuneration for
Executive Directors for the year under review: base salary; annual bonus;
benefits; and pension.

On 8 November 2019, the Group issued 2,504,475 new ordinary shares
of 0.5p in the Group under an Executive Shared Ownership Plan
(“ExSOP”) to 30 executive and senior managers.

Executive Directors have existing options under the Group’s ExSOP.

The remuneration for Non-Executive Directors is set by the Board
on the recommendation of the Executive Directors. Non-Executive
Directors are not eligible to participate in any of the Group’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

PB_Board_Jamie-44_prv

CareTech have 26 years of experience in the care sector and 15 years
on the public markets. In that time, the business has grown from a single
home to 550 facilities with 10,000 staff supporting close to 5,000 service
users. Since listing on the AIM market 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.
Over the last 26 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 91%
Good or Outstanding in Adults Services, which compares favourably to
the market average of 85%. The Ofsted ratings for Children’s services are
82% Good or Outstanding.

CareTech has continued to deliver the highest standards of care during the
COVID-19 pandemic and the Group has played a vital role in ensuring our
services remain fully operational. In these unprecedented times, the Group’s
focus has been on delivering safe services and the health, safety and
wellbeing of our employees and service users. A COVID-19 taskforce,
comprising both divisional leadership and members of the Group Executive
Team, was set up at the outset of the pandemic outbreak. Through the use
of a dynamic risk assessment tool we have been able to provide real time
monitoring and support across all of our services as well as ensuring that
we have a business continuity plan at each site. Through all of the above
and the incredible dedication of our staff, support teams and management,
we continue to provide excellent support and care to those in our services.

PB_Board_Jamie-47_prv

The Group has been less severely affected by the COVID-19 pandemic
than the care home sector for older people. The Government introduced
two grants in England from which local authorities can disburse money
to social care providers. These grants have helped support the provision
of additional resources and associated costs necessary to improve
prevention and infection control in our services, and to support
financially to self-isolate where this has been necessary.

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.

Since IPO, EBITDA and EPS have grown by CAGR of 20% and 25%.
CareTech’s market capitalisation has gone from £60m at IPO to £510m,
an increase of over 8-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.

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 2020. The Group is
listed on the Alternative Investment Market (“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:

PB_Board_Jamie-43_prv

– 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.

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 Group. 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.

The Committee’s principal duties are to review the scale and structure
of the remuneration and service contracts for Executive Directors and it
also administers the Company’s share option schemes. The Committee
takes into consideration 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 principles of clarity, simplicity, risk, predictability,
proportionality and alignment to culture prescribed by the UK Corporate
Governance Code were taken into account by the Committee when
determining the approach to Group executive remuneration.

Remuneration Policy

PB_Board_Jamie-46_prv

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.

The Committee has the objective of ensuring that remuneration
packages are offered that:
– 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.
– Foster the development of a high-performance culture across

the Group.

CareTech Holdings PLC
Annual Report and Accounts 2020
72

PB_Board_Jamie-48_prv

PB_Board_Jamie-49_prv

PB_Board_Jamie-50_prv

The Company’s growth in revenue, EBITDA (pre IFRS 16) and Underlying EPS (pre IFRS 16) are graphically demonstrated as follows:

Revenue CAGR 21% A £m

EBITDA CAGR 27% A £m

EBITDA CAGR 17% A p

500

400

300

200

100

0 2005

2010

2015

2020

0 2005

2010

2015

2020

0 2005

2010

2015

2020

Remuneration decisions and outcomes

Salary
The following table sets out salaries for Executive Directors for the year ended 30 September 2020 and intended salaries effective for the year ending
30 September 2021.

Executive Directors

Group Executive Chairman

Group Chief Executive Officer

Executive Director

Chief Financial Officer

* From appointment on 13 January 2020.

Farouq Sheikh

Haroon Sheikh

Mike Adams OBE

Christopher Dickinson

2019
salary with
effect from
1 October
2019

2020
salary with
effect from
1 October
2020

£400,000

£450,000

£125,000

£278,000*

£300,000

(+0%)

(+8%)

2020 bonus
The Committee assessed outcomes over the year ended 30 September 2020 with respect to Group Underlying EPS, EBITDA and the quality of
regulatory reports, and determined that bonuses of 91% of the maximum were appropriate for the Executive Directors. Achievement against these
measures is described in more detail in the Annual Report on Remuneration.

2021 bonus
For the year ending 30 September 2021, maximum bonus opportunities will be between 50% and 100% of salary for the Executive Directors. For the
FY21 bonus, we will use the same mix of three measures, with a weighting of a third each on EPS, EBITDA and Quality. In line with our approach for
the FY20 bonus, we will retrospectively set out the targets and 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. In November 2019, the Company issued a
total of 2,504,475 new ordinary shares of 0.5p in the Company under an ExSOP to 30 members of senior and executive management, as disclosed
in Stock Exchange announcements at the time. 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.

On 15 September 2020, the Company granted options in aggregate over 480,678 ordinary shares of 0.5p in the Company pursuant to the CareTech
Holdings Plc Sharesave Scheme 2020.

CareTech Holdings PLC
Annual Report and Accounts 2020
73

Strategic ReportGovernanceFinancial StatementsDirectors’ 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 FY20 and intended operation for FY21.

Element of remuneration

Year ended 30 September 2020

Salary

Maximum discretionary
bonus opportunity

Bonus performance measures

ExSOP options

Pension arrangements

Group Executive Chair
Group CEO
Executive Director
Chief Financial Officer
Group Executive Chair and
Group CEO – 100% of salary
payable in cash

Group Financial Officer
– 50% of salary payable in cash

Executive Director 50%
of salary payable in cash
Three measures each with
equal weighting:
adjusted EPS; EBITDA; and
quality of regulatory reports
Grants made in October 2019
Group Executive Chair
Group CEO
Executive Director
Chief Financial Officer
15% of salary pension
contribution
(which can be taken as 13%
of salary cash allowance)

£400,000 (+0%)
£450,000 (+0%)
£125,000 (+0%)
£300,000 (+8%)

£400,000
£450,000
£125,000
£278,000

Year ending 30 September 2021

Group Executive Chair
Group CEO
Executive Director
Chief Financial Officer
Group Executive Chair and
Group CEO – 100% of salary
payable in cash

Group Financial Officer
– 66% of salary payable in cash

Executive Director 50%
of salary payable in cash

(number of shares):
400,000
400,000
93,750
155,250

New LTIP arrangement to
be introduced (see below)

CareTech Holdings PLC
Annual Report and Accounts 2020
74

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 2020 and their
comparative figures for the financial year ended 30 September 2019.

Salary and fees

Benefits

Annual bonus

LTIP

Pension

Total

2020
£000

2019
£000

2020
£000

2019
£000

2020
£000

2019
£000

2020
£000

2019
£000

2020
£000

2019
£000

2020
£000

2019
£000

Executive Directors

Farouq Sheikh

Haroon Sheikh

Christopher Dickinson

Gareth Dufton

Mike Adams OBE

Michael Hill

Non-Executive Directors

Karl Monaghan

Professor Moira Livingston

Jamie Cumming

Total

400

450

198

125

–

350

400

–

155

–

367

413

–

350

400

–

100

–

1,371

1,155

101

106

928

850

–

833

971

325

190

–

785

920

–

278

126

132

2,527

2,243

Notes to the table:
–

Michael Hill, the Company’s then Group Chief Financial Officer, passed away on 9 December 2018. Gareth Dufton was appointed Interim Group Chief Financial Officer the
following day. Christopher Dickinson was appointed Group Chief Financial Officer on 13 January 2020, replacing Gareth Dufton as Interim Chief Financial Officer. Remuneration
details for Christopher Dickinson and Gareth Dufton represent only those amounts in relation to their services as a Director on the Board.

Benefits

Benefits include car allowance (or company vehicle), vehicle expenses, healthcare insurance and relocation assistance.

Annual bonus

Annual bonus awards were made in respect of the year ended 30 September 2020. Christopher Dickinson and Mike Adams were eligible for a
maximum bonus opportunity of 50% of salary. Farouq Sheikh and Haroon Sheikh were eligible for a maximum bonus opportunity of 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. Given the suspension of site visits from our Regulators due to COVID-19, the Remuneration Committee
has exercised its discretion in relation to how they have judged performance in relation to the Quality performance measure as Regulatory
inspections were suspended in March 2020 due to the pandemic. The Remuneration Committee’s judgement has been based on Quality ratings
during the period up until suspension of site visits, internal compliance monitoring of our sites and strong leadership during the pandemic to support
the health and safety of our staff and service users. The following table sets out performance measures, weightings, targets and outcomes in respect
of the bonus for the year ended 30 September 2020.

Performance measure

Group underlying EPS

Group EBITDA

Weighting

One third

Target

Outcome

42.0p (pre IFRS 16)

43.02p resulting in
one third payable

One third

£82.0m (pre IFRS 16) £84.1m resulting in

Quality % of regulatory reports rated good or outstanding,
and there are also no serious reputational risks identified

One third

85-90%

one third payable
75% payable

Total

91% of the maximum bonus opportunity available is payable

Long Term Incentive Plan (“LTIP”)

To date, the Group has not operated 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.

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 underlying EPS increases 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

CareTech Holdings PLC
Annual Report and Accounts 2020
75

Strategic ReportGovernanceFinancial StatementsDirectors’ Remuneration Report
Statement from the Chairman of the Remuneration Committee
continued

Details of share options made in previous years are set out in the share options section below.

The Group’s Remuneration Committee has been reviewing a new LTIP to attract, retain and motivate key senior members of the CareTech leadership
team. After receiving expert advice from AON Hewitt Consulting Services, the Group’s Remuneration Committee will look to implement a LTIP which
will operate alongside the Group’s existing share option plan and be established to encourage long-term value creation for the Group’s shareholders
and align the interests of the senior management team.

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 fee policy for Non-Executive Directors:
– Base fee of £42,000-£45,000; 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 (total 640,000 ordinary
shares) of 0.5p respectively under the Group’s Executive Shared Ownership Plan 2017 (see note 21) and 400,000 ordinary shares (total 800,000
ordinary shares) of 0.5p respectively under the Group’s Executive Shared Ownership Plan 2019.

On 17 October 2017, the Group granted options in aggregate over 254,681 ordinary shares pursuant to the CareTech Holdings plc Sharesave Scheme
2017. This 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.

On 15 September 2020, the Group granted options in aggregate over 480,678 ordinary shares pursuant to the CareTech Holdings plc Sharesave
Scheme 2020. This is a three-year contract with a start date of 1 November 2020, with options exercisable at a price of 355p per share between
1 November 2023 and 30 April 2024. Within the options described above, there were 5,070 options each granted to Farouq Sheikh, Haroon Sheikh
and Christopher Dickinson under the Sharesave Scheme.

Christopher Dickinson has an interest 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 Group.

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 2020 was 4,657,643 million shares,
representing less than 5% of the Group’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

Christopher Dickinson

30 September 2020
Number of ordinary
0.5p shares

30 September 2019
Number of ordinary
0.5p shares

10,047,864

10,547,864

230,000

2,579,145

–

41,795

2,500

2,145

–

230,000

500,000

638,919

690,226

41,795

2,500

2,145

–

Notes to the table:
(1) Westminster Holdings Limited is a company owned by a trust, the beneficiaries of which include Farouq Sheikh and Haroon Sheikh.
(2) Cosaraf Pension Fund is a self-administered scheme established for the benefit of Farouq Sheikh and Haroon Sheikh.
(3) 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.

CareTech Holdings PLC
Annual Report and Accounts 2020
76

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.

Percentage change in the Board’s 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 2019 to the year ending 30 September 2020.

Change in remuneration

Chief Executive Officer
Average pay of all employees

Historic CEO pay

Salary

12.5%
6.6%

Benefits Annual bonus

0%
0%

3.1%
3.0%

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.

In the years to 2017, the maximum potential bonus opportunity for the CEO was 25% of salary, changing to 100% of salary 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

2020
2019
2018
2017
2016
2015
2014
2013
2012
2011

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

971
920
794
430
375
304
298
247
259
246

91%
100%
62%
64%
76%
96%
69%
0%
0%
0%

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
10 December 2020

CareTech Holdings PLC
Annual Report and Accounts 2020
77

Strategic ReportGovernanceFinancial StatementsStatement 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 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.

The Directors are responsible for the maintenance and integrity of
the 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

CareTech Holdings PLC
Annual Report and Accounts 2020
78

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 2020, which comprise the Consolidated Income Statement, the Consolidated Statement of Comprehensive Income,
the Consolidated Statement of Financial Position, the Consolidated Statement of Changes in Equity, the Consolidated Statement of Cash Flows,
the Company Statement of Financial Position, 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 the preparation of the Group financial
statements is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union. The financial reporting
framework that has been applied in the preparation of the parent company financial statements is applicable law and United Kingdom
Accounting Standards, including Financial Reporting Standard 101 ‘Reduced Disclosure Framework’ (United Kingdom Generally Accepted
Accounting Practice).

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 2020

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 United Kingdom Generally Accepted Accounting

Practice; 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.

The impact of macro-economic uncertainties on our audit

Our audit of the financial statements requires us to obtain an understanding of all relevant uncertainties, including those arising as a consequence
of the effects of macro-economic uncertainties such as COVID-19 and Brexit. All audits assess and challenge the reasonableness of estimates made
by the Directors and the related disclosures and the appropriateness of the going concern basis of preparation of the financial statements. All of
these depend on assessments of the future economic environment and the Group’s and the parent company’s future prospects and performance.

COVID-19 and Brexit are amongst the most significant economic events currently faced by the UK, and at the date of this report their effects are
subject to unprecedented levels of uncertainty, with the full range of possible outcomes and their impacts unknown. We applied a standardised
firm-wide approach in response to these uncertainties when assessing the Group’s and the parent company’s future prospects and performance.
However, no audit should be expected to predict the unknowable factors or all possible future implications for a Group or a parent company
associated with these particular events.

Conclusions relating to principal risks, going concern and viability statement

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 and accounts set out on page 51 that describe the principal risks, procedures to identify emerging risks

and an explanation of how they are being managed or mitigated (including the impact of COVID-19 and Brexit);

– the Directors’ confirmation, set out on page 51 of the Annual Report and accounts, that they have carried out a robust assessment of the

principal and emerging risks facing the Group (including the impact of COVID-19 and Brexit), including those that would threaten its business
model, future performance, solvency or liquidity;

– the Directors’ statement, set out on page 91 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

– the Directors’ explanation, set out on page 91 of the Annual Report 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.

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 draw attention to in respect of the Directors’ statements relating to going concern and the prospects of the Group
required under the Listing Rules in accordance with Listing Rule 9.8.6R(3) and whether they are materially consistent with our knowledge obtained
in the audit.

CareTech Holdings PLC
Annual Report and Accounts 2020
79

Strategic ReportGovernanceFinancial StatementsIndependent Auditor’s Report
to the members of CareTech Holdings PLC
continued

Overview of our audit approach
– Overall materiality: £2.505m, which represents 5% of the Group’s normalised profit before
tax after adjustments for specific non-routine items, at the planning stage of the audit;

– Key audit matters were identified as:

– Occurrence of revenue and existence of deferred income;
– Valuation of goodwill and customer relationships;
– Identification of control and accuracy of acquisition accounting;
– Measurement of lease assets and liabilities;
– Valuation of non-current “sleep-in” provisions; and
– Going concern.

– The parent company, CareTech Holdings PLC and its subsidiaries, excluding Cambian Group
Limited and its subsidiaries (“CareTech”); and Cambian Group Limited and its subsidiaries
(“Cambian”) were each identified as significant components on which we performed full
scope audit procedures using component materiality on all entities included in the
respective components.

– Other smaller components of the Group were subject to a combination of specified audit
procedures and analytical procedures using component materiality, with the exception
of Spark of Genius North East LLP, which was subject to full scope audit procedures using
entity materiality.

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.

Key Audit Matter – Group

How the matter was addressed in the audit – Group

Occurrence of revenue and existence of deferred income
Under ISA (UK) 240 ‘The Auditor’s Responsibilities Relating to Fraud
in an Audit of Financial Statements’, there is a rebuttable presumption
that there are risks of fraud in revenue recognition.

We have identified fraud risk relating to service users discharged for
Adult/Supported services and Children revenue streams for the current
year. We have identified the revenue associated with users who have
been discharged in the year as susceptible to fraud risk because this
is predominantly a manual process which requires adjustments to
revenue billed, when notification of discharge of a service user
is received.

In addition, IFRS 15 ‘Revenue from Contracts with Customers’ involves
management judgement for the recognition of revenue from care
services and therefore there is a risk that a material error could occur
if it was incorrectly recognised.

We have focused the significant risk of occurrence in the Adult/
Supported services and Children revenue streams on revenue relating
to service users discharged in the year. Due to the nature of the risk
identified, this also results in a significant risk in respect of the existence
of year-end deferred income balances. Fostering revenues are
considered to have a significant risk of occurrence.

We therefore identified occurrence of revenue and existence of
deferred income as a significant risk, which was one of the most
significant assessed risks of material misstatement.

Our audit work included, but was not restricted to:
– considering the Group’s revenue recognition accounting policies
to check these were in compliance with IFRS 15 and consistently
applied across the Group;

– 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,
Residential and Education). The testing of these revenue streams
was disaggregated between CareTech and Cambian due to different
processes and control environments;

– performing substantive testing on fostering and other smaller

revenue streams in the significant components and on revenues
in those smaller components, where we did not place reliance upon
the operating effectiveness of controls;

– agreeing a sample of revenue transactions to subsequent cash
receipt and evidence of right to revenue recognition, to ensure
that service has been provided and accordingly the performance
obligation is satisfied;

– testing the completeness of credit notes recognised in the year

against revenues billed in advance for discharged service users; and

– testing the deferred income recognised at the end of the year and

agree them to supporting evidence, on a sample basis.

The Group’s accounting policy on revenue is shown in note 2(m) 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 and existence of deferred income.

CareTech Holdings PLC
Annual Report and Accounts 2020
80

Key Audit Matter – Group

How the matter was addressed in the audit – Group

Valuation of goodwill and customer relationships
The Group has goodwill with a carrying value of £84.6m (2019: £79.5m)
and customer relationships included within intangible assets with a
carrying value of £76.3m (2019: £73.0m) at the year-end, which have
arisen as a result of acquisitions.

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 models and

Under IAS 36 ‘Impairment of Assets’, management is required to test
the goodwill annually for impairment. Given the current economic
climate, we believe impairment indicators also exist in relation to the
other intangible assets.

underlying data used by management in their impairment
assessment by checking the consistency of formulae used and
agreeing the underlying forecasts to approved budgets;
– challenging management’s identification of CGUs within the

Significant judgements in the determination of recoverable amount
of an asset/CGU include the determination of the CGUs, the forecast
growth rates and the applicable discount rates.

IAS 36 requires that assets are not carried at more than their
recoverable amount.

business for reasonableness;

– using our in-house valuation specialists as an auditor’s expert to

assess (in respect of value-in-use assessments) the reasonableness
of the discount rates and growth rates applied to cash flows, and (in
respect of fair value less costs to sell assessments) the multiples used
to derive fair value;

– challenging management’s model in respect of unallocated costs

and unallocated capital expenditure; and

We therefore identified the valuation of goodwill and customer
relationships as a significant risk, which was one of the most significant
assessed risks of material misstatement.

– challenging management’s assumptions concerning forecast cash
flows, based on historical trends and any changes in customer
preferences and regulations.

The Group’s accounting policy on intangible assets and goodwill,
including their valuation, is shown in note 2(e) to the financial
statements and related disclosures are included in note 15.

Key observations
Our audit testing did not identify any material misstatements in relation
to the valuation of goodwill and customer relationships. The
assessment of potential impairment is highly sensitive to reasonable
changes in the key assumptions and inputs. We have satisfied ourselves
that the disclosures made are reasonable and consistent with the
assessment performed.

Our audit work included but was not restricted to:
– inspecting documentation including articles and memorandum
of association and share purchase agreements to ensure that the
Group controls the entities acquired and that the date of control
was accurately recorded and reflective of when such control
was achieved;

– reviewing management’s paper and challenging management’s
assessment that control exists for the operating entity of AS1
Investment Holdings Ltd where the Group holds less than 50%
of voting rights;

– evaluating the calculations and management judgements on the
fair value of assets and liabilities acquired, including any identified
intangibles on the acquisition of the AS Group in line with IFRS 3;
– engaging internal experts to assist with our audit of significant inputs
to the fair valuation of assets identified as part of the acquisition;
– inspecting evidence to support the accuracy of prepaid assets and

deposits and the recoverability of receivables; and

– performing specific 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(r) to the financial statements and related disclosures are included
in notes 3 and 5(a).

Key observations
Our audit testing did not identify a material misstatement in relation to
the identification of control and the accuracy of acquisition accounting.
The identification of control of the operating entity of AS1 Investment
Holdings Ltd is a significant judgement and accordingly has been
disclosed in notes 3 and 5(a).

Identification of control and accuracy of acquisition accounting
The Group acquired controlling interests in AS Investment Holdings Ltd
and AS1 Investment Holdings Ltd and their respective operating entities
in the United Arab Emirates (UAE) (the “AS Group”) on 4 February 2020.
The Group indirectly holds less than 50% of the voting rights of the
operating company of AS1 Investment Holdings Ltd giving rise to
a significant risk relating to whether “control” exists.

IFRS 10 ‘Consolidated Financial Statements’ involves significant
judgement by management regarding when an acquired entity
is “controlled” by the acquiring entity and there is a risk that material
error could occur in the consolidation of such entities.

IFRS 3 ‘Business Combinations’ involves significant judgement
regarding the measurement of assets acquired (including goodwill)
and there is a risk that material error could occur in the reporting
of this business combination.

We therefore identified identification of control and accuracy of
acquisition accounting as a significant risk, which was one of the most
significant assessed risks of material misstatement.

CareTech Holdings PLC
Annual Report and Accounts 2020
81

Strategic ReportGovernanceFinancial StatementsIndependent Auditor’s Report
to the members of CareTech Holdings PLC
continued

Key Audit Matter – Group

How the matter was addressed in the audit – Group

Measurement of lease assets and liabilities
The Group has adopted IFRS 16 ‘Leases’ for the year ended
30 September 2020.

IFRS 16 involves significant management estimation and judgement
regarding the determination of appropriate incremental borrowing
rates (IBR) to use when discounting lease cashflows, and in relation
to the selection/application of an adoption method and practical
expediencies therein. There is a risk that material error could occur
in the reporting on the first-time adoption of IFRS 16.

We therefore identified measurement of lease assets and liabilities
as a significant risk, which was one of the most significant assessed
risks of material misstatement.

Valuation of non-current “sleep-in” provisions
As at 30 September 2020, the Group’s provisions include an amount
for sleep-in payments. There is currently an ongoing legal case
involving HMRC and the care provider, Mencap, the outcome of which
will confirm the legal position in respect of those payments and the
national minimum wage. The case relates to the application of
minimum wage law for care workers on “sleep-in” shifts.

The case has been heard at the Supreme Court and is awaiting
judgement. 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 valuation of non-current “sleep-in” provisions
as a significant risk, which was one of the most significant assessed
risks of material misstatement.

Our audit work included, but was not restricted to:
– evaluating the Group’s accounting policy for consistency with IFRS

16 and considering whether the accounting policy has been applied
accurately and consistently across the Group;

– understanding and documenting the processes and controls relating

to the implementation of IFRS 16;

– testing the arithmetical accuracy and integrity of the calculations

made by management in the model adopted and ensured they were
in accordance with the requirements of IFRS 16;

– checking the completeness of the leases included in the
computations prepared by management by performing a
combination of checking prior year accounts disclosure relating
to operating lease commitments; locations as listed in the Group’s
websites; and sampling rent transactions;

– performing substantive testing, for a sample of leases, to ensure
accuracy of inputs in management calculations by tracing leases
to signed lease contracts;

– challenging the reasonableness of the IBR rates used by

management in their lease calculations; and

– using our in-house valuation specialists as an auditor’s expert to

assess the reasonableness of the IBR rates used in the calculations.

The Group’s accounting policy on leased assets is shown in note 2(p) to
the financial statements and related disclosures are included in note 14.

Key observations
Our audit testing did not identify any material misstatements in relation
to the measurement of lease assets and liabilities.

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;

– 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;

– challenging management’s assumptions used in calculating the

amount of the “sleep-in” liability, which include the number of years
to be provided for; and

– updating our understanding of the probable outcome and status
of the case through review of the information on the Supreme
Court website, to check whether the case has been heard but not
concluded on and therefore whether our prior year discussions and
review of external legal documentation are still appropriate.

The Group’s accounting policy on the provisions is shown in note 2(l) to
the financial statements and related disclosures are included in note 21.

Key observations
Our audit testing did not identify any material misstatements in relation
to the valuation of non-current “sleep-in” provisions.

CareTech Holdings PLC
Annual Report and Accounts 2020
82

Key Audit Matter – Group

How the matter was addressed in the audit – Group

Going concern
As stated in the “The impact of macro-economic uncertainties on our
audit” section of our report, COVID-19 is amongst the most significant
economic events currently faced by the UK, and at the date of this
report its effects are subject to unprecedented levels of uncertainty.
This event could adversely impact the future trading performance of
the Group and the parent company and as such increases the extent of
judgement and estimation uncertainty associated with management’s
decision to adopt the going concern basis of accounting in the
preparation of the financial statements. The Group has external
financing which has covenants that must be complied with.

We therefore identified going concern as a significant risk, which was
one of the most significant assessed risks of material misstatement.

Our audit work included, but was not restricted to:
– obtaining management’s base case cash flow forecasts covering

the period from October 2020 to December 2021;
– performing walkthroughs to update and document our

understanding of the budgeting and forecasting process,
management’s considerations in forming their own assessment
and any internal review process;

– assessing the accuracy of management’s historical forecasting

to check the reliability of current forecasting process;

– assessing the banking facilities and covenant compliance to check

whether these support the going concern assumptions;

– obtaining and testing management’s sensitivity analysis, including
the reverse stress test workings, prepared to assess the potential
impact of COVID-19 on the business;

– challenging the key assumptions in the forecasts and the scope of
scenario planning undertaken given current social and economic
conditions in the UK and wider world; and

– assessing the appropriateness of the going concern accounting

policy.

The Group’s accounting policy on going concern is shown in note 1
to the financial statements.

Key observations
We have nothing to report in addition to that stated in the “Conclusions
relating to going concern” section of our report.

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

Performance materiality used to drive
the extent of our testing

Specific materiality

£2,505,000, which is 5% of the Group’s
normalised profit before tax after adjustments
for specific non-routine items, including
acquisition costs, integration costs, redundancy
and site closure costs and COVID-19 related
costs, at the planning stage of the audit. This
benchmark is considered the most appropriate
because it is most reflective of the performance
of the business.

Materiality for the current year is higher than
the level that we determined for the year ended
30 September 2019 to reflect the increase in
the Group’s normalised profit before tax after
adjustment for specific non-routine items,
notwithstanding the adjustments being higher
last year.

£2,254,000, which is 2% of the Company’s
total assets capped at its component
materiality, which is based on a percentage
of Group 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 2019 to reflect
the increase in the Company’s total assets
and the capping, noted above, at a higher
percentage of Group materiality, which
was also higher this year.

70% of financial statement materiality.

We determined a lower level of specific
materiality for certain areas such as Directors’
remuneration and related party transactions.

Communication of misstatements
to the Audit Committee

£125,250 and misstatements below that
threshold that, in our view, warrant reporting
on qualitative grounds.

£112,000 and misstatements below that
threshold that, in our view, warrant reporting
on qualitative grounds.

CareTech Holdings PLC
Annual Report and Accounts 2020
83

Strategic ReportGovernanceFinancial StatementsIndependent 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 earnings before interest, tax, depreciation and amortisation (EBITDA). CareTech and Cambian were significant components for
which we performed full scope audit procedures on all entities included in the respective components, using component materiality, with the
exception of Spark of Genius North East LLP, which was subject to full scope audit procedures using entity materiality. For other smaller
components, we performed a combination of specified audit procedures and analytical procedures.

– The acquisition of controlling interest in AS Group on 4 February 2020 for £9.0m caused a change in scope of the audit. We assessed the

accounting treatment for the acquisition (particularly in relation to whether and when “control” was obtained) and for certain assets acquired
as part of the acquisition. The AS Group was collectively identified as not financially significant to the Group for the year and hence was subject
to specified audit procedures relating to specifically identified risk areas.

– Evaluating the design and implementation of controls over the financial reporting systems identified as part of our risk assessment. With respect

to payroll and operating expenses, we evaluated the design of controls and their implementation in addition to performing substantive
procedures. With respect to revenue recognition and certain selling and other operating expenses, we evaluated the design and
implementation of controls and tested their operating effectiveness in addition to performing substantive procedures.

– Inspecting the processes 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 all controlled by the Company. 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 78) – 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 page 64) – the section describing the work of the Audit Committee does not appropriately address

matters communicated by us to the Audit Committee.

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.

CareTech Holdings PLC
Annual Report and Accounts 2020
84

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.

Responsibilities of Directors for the financial statements

As explained more fully in the statement of Directors’ responsibilities set out on page 78, 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.

Rebecca Eagle
Senior Statutory Auditor
for and on behalf of Grant Thornton UK LLP
Statutory Auditor, Chartered Accountants
London
11 December 2020

CareTech Holdings PLC
Annual Report and Accounts 2020
85

Strategic ReportGovernanceFinancial StatementsConsolidated Income Statement
for the year ended 30 September 2020

Revenue

Cost of sales

Gross profit

Other income

Administrative expenses

Operating profit

EBITDA(i)

Depreciation

Amortisation of intangible assets

Acquisition expenses

Profit on ground rent transaction

Other non-underlying items

COVID-19 costs

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

13,14

6,15

6,9

6,10

11,12

2020

Non-

2019

Non-

Underlying
£000

underlying(ii)

£000

Total
£000

Underlying
£000

underlying(ii)

£000

429,966

(282,029)

147,937

–

(74,356)

73,581

90,932

(17,021)

–

(330)

73,581

–

429,966

(282,029)

147,937

394,994

(262,018)

132,976

2,550

(22,769)

(20,219)

2,550

–

(10,186)

(545)

–

(4,497)

(3,422)

(4,119)

(20,219)

2,550

(97,125)

53,362

93,482

(17,021)

(10,186)

(545)

–

(4,497)

(3,422)

(4,449)

53,362

–

(70,121)

62,855

73,546

(10,631)

–

(60)

Total
£000

394,994

(262,018)

132,976

–

(93,500)

39,476

73,546

(10,631)

(10,188)

(10,331)

4,565

(7,425)

–

(60)

–

(23,379)

–

(10,188)

(10,331)

4,565

(7,425)

–

(13,928)

59,653

(1,611)

(21,830)

(15,539)

37,823

(11,325)

48,328

553

(21,277)

(10,772)

27,051

62,855

(23,379)

39,476

(12,690)

50,165

(9,423)

40,742

(2,446)

(25,825)

5,209

(20,616)

(15,136)

24,340

(4,214)

20,126

(1,933)

–

(1,933)

(422)

–

(422)

46,395

(21,277)

25,118

40,320

(20,616)

19,704

22.88p

22.03p

18.38p

18.31p

(i) EBITDA is operating profit stated before depreciation, share-based payments charge and non-underlying items.
(ii) Non-underlying items comprise: amortisation, acquisition expenses, integration, reorganisation and redundancy costs, donations to the CareTech Foundation, COVID-19

income and costs, and profit associated with the ground rent transaction (prior year only), and are explained in note 6.

CareTech Holdings PLC
Annual Report and Accounts 2020
86

Consolidated Statement of Comprehensive Income
for the year ended 30 September 2020

2020

Non-

Note

Underlying
£000

48,328

underlying(i)

£000

(21,277)

Total
£000

27,051

2019

Non-
underlying(i)

£000

Underlying
£000

Total
£000

40,742

(20,616)

20,126

Profit for the year

Item that may be subsequently
reclassified to the income statement:
Exchange movements on overseas
net assets

Items that will not be reclassified
to income statement:
Exchange movements on overseas
net assets of non-controlling interests

Other comprehensive income
for the year

–

(422)

Total comprehensive income for the year

48,426

(21,277)

27,149

Non-controlling interest

(1,978)

–

(1,978)

(422)

Profit for the year attributable to owners
of the parent

46,448

(21,277)

25,171

40,320

(20,616)

19,704

(i) Non-underlying items comprise: amortisation, acquisition expenses, integration, reorganisation and redundancy costs, donations to the CareTech Foundation, COVID-19

income and costs, and profit associated with the ground rent transaction (prior year only), and are explained in note 6.

CareTech Holdings PLC
Annual Report and Accounts 2020
87

Strategic ReportGovernanceFinancial Statements
Consolidated Statement of Financial Position
as at 30 September 2020

Non-current assets

Property, plant and equipment

Right-of-use assets

Intangible assets

Goodwill

Current assets

Inventories

Trade and other receivables

Cash and cash equivalents

Total assets

Current liabilities

Trade and other payables

Lease liabilities

Contingent consideration payable

Deferred income

Corporation tax

Non-current liabilities

Loans and borrowings

Lease liabilities

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

Other reserves

Retained earnings

Total equity attributable to equity shareholders of the parent

Non-controlling interest

Total equity

Note

2020
£000

2019
£000

604,096

609,658

87,790

83,084

84,604

859,574

1,937

51,055

54,273

107,265

–

80,348

79,456

769,462

998

51,011

29,238

81,247

966,839

850,709

55,017

6,208

1,569

30,309

14,757

107,860

56,937

1,763

–

28,710

13,777

101,187

318,955

315,878

82,480

69,844

21,286

2,198

17,805

63,951

14,884

1,640

494,763

414,158

602,623

364,216

515,345

335,364

565

133,079

(13,305)

125,842

107,120

353,354

545

121,304

(3,537)

125,536

–

90,559

334,407

10,862

364,216

957

335,364

These financial statements were approved by the Board of Directors and authorised for issue on 10 December 2020 and were signed on its behalf by:

Farouq Sheikh OBE
Group Executive Chairman
Company number: 04457287

CareTech Holdings PLC
Annual Report and Accounts 2020
88

Christopher Dickinson
Group Chief Financial Officer

Foreign
currency
translation
reserve
£000

–

–
–
–
–

–

–
53

–
–
–

–
–

Total
attributable
to owners
of the
parent
£000

207,069

Non-
controlling
Interest
£000

Total
equity
£000

639

207,708

19,704

422

20,126

117,163

–

117,163

60
1,213
(10,802)
–

–
–
–
(104)

60
1,213
(10,802)
(104)

107,634

334,407

318

957

107,952

335,364

25,118
53

1,933
45

27,051
98

64
229
2,040

4,449
(13,006)

–
–
7,927

64
229
9,967

–
–

4,449
(13,006)

18,947

9,905

28,852

353,354

10,862

364,216

Consolidated Statement of Changes in Equity
as at 30 September 2020

Shares
held by
Executive
Shared
Ownership
Plan
£000

Retained
earnings
£000

Share
capital
£000

Share
premium
£000

At 1 October 2018

379

120,820

(4,750)

81,597

Merger
reserve
£000

9,023

–

166

484

–

–
1,213
–
–

19,704

–

116,513

60
–
(10,802)
–

–
–
–
–

484

1,213

(10,742)

116,513

121,304

(3,537)

90,559

125,536

–
–

25,118
–

10,043
–
1,732

–
–

(9,997)
229
–

–
–
–

–
–

4,449
(13,006)

–
–

–
–
306

–
–

–
–
–
–

166

545

–
–

18
–
2

–
–

565

11,775

(9,768)

16,561

306

133,079

(13,305)

107,120

125,842

Profit for the year and total
comprehensive income

Issue of ordinary shares
net of transaction costs
Equity-settled share-based
payments charge
Redemption of share options
Dividends
Non-controlling interest
Transactions with owners
recorded directly in equity

At 30 September 2019

Profit for the year
Other comprehensive income

Issue of ordinary shares
net of transaction costs
Redemption of share options
Acquisition (note 5a)
Equity-settled share-based
payments charge
Dividends
Transactions with owners
recorded directly in equity

At 30 September 2020

CareTech Holdings PLC
Annual Report and Accounts 2020
89

Strategic ReportGovernanceFinancial StatementsConsolidated Statement of Cash Flows
for the year ended 30 September 2020

Cash flows from operating activities

Profit before tax

Adjustments for:

Finance expenses

Depreciation

Amortisation

COVID-19 income

COVID-19 costs

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 and non-underlying items

Increase in inventory

Decrease / (increase) in trade and other receivables

Decrease in trade and other payables

Operating cash flows before non-underlying items

Integration and restructuring costs

Payment of charitable donations

COVID-19 receipts

COVID-19 payments

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 net of cash acquired

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 issue of shares net of transaction costs

Proceeds from sale and leaseback

Proceeds from shareholder loans

Interest paid

Cash outflow arising non-underlying finance expenses

Bank loans drawdown

Loan arrangement fees paid

Repayment of borrowings

Principal payment of lease liabilities

Dividends paid

Net cash (used in)/arising 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 2020
90

Note

2020
£000

2019
£000

37,823

24,340

8,22

15,539

17,021

10,186

(2,550)

3,422

545

–

4,497

4,449

90,932

(46)

5,563

(2,227)

94,222

(3,795)

(702)

2,550

(3,420)

(545)

88,310

(3,899)

84,411

15,136

10,631

10,188

–

10,331

(4,565)

7,425

73,546

(100)

(6,518)

(604)

66,324

(5,748)

(736)

–

(14,393)

45,447

(5,889)

39,558

1,536

(2,000)

(23,842)

(2,840)

(739)

23,894

(160,271)

(27,810)

(2,699)

(966)

(27,885)

(167,852)

294

–

1,808

(10,737)

(1,053)

–

(8,797)

(13,006)

(31,491)

25,035

29,238

54,273

1,697

7,888

–

(10,945)

(308)

431,910

(4,696)

(263,576)

(3,057)

(10,802)

148,111

19,817

9,421

29,238

Notes to the Financial Statements

1. Background and basis of preparation

2. Accounting policies

CareTech Holdings PLC (the “Group” or “Company”) is a company
registered and domiciled in England and Wales. The consolidated
financial statements of the Company for the year ended 30 September
2020 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 124 to 129 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 10 December 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 Executive Chairman’s Statement and Group Chief
Executive’s Statement and Performance Review on pages 18 to 21
and pages 22 to 27. The financial position of the Group, its cash flows,
liquidity position and borrowing facilities are described in the Group
Financial Review on pages 53 to 56. In addition, note 26 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
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 26 and indicates their contractual
cash flow maturities.

The Group is financed by bank loan facilities that mature in 2022
and 2023. The Directors have considered the Group’s forecasts and
projections, and the risks associated with their delivery, and are satisfied
that the Group will be able to operate within the covenants imposed by
bank loan facilities for at least twelve months from the date of approval
of the consolidated financial information. In relation to available cash
resources, the Directors have had regard to both cash at bank and
a £25m committed undrawn revolving credit facility. The Group has
undertaken extensive activity to identify and mitigate its exposure
to plausible risks which may arise from COVID-19.

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 and current
assessment of the likelihood of the COVID-19 risks arising together with
their assessment of the planned mitigating actions being successful,
the Directors have 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.

(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 16 ‘Leases’
In 2020 the Group has adopted IFRS 16 and follows this standard
for the recognition of leases.

IFRS 16 ‘Leases’ replaces IAS 17 ‘Leases’ along with three Interpretations
(IFRIC 4 ‘Determining whether an Arrangement contains a Lease’,
SIC 15 ‘Operating Leases-Incentives’ and SIC 27 ‘Evaluating the
Substance of Transactions Involving the Legal Form of a Lease’).

The adoption of this new Standard has resulted in the Group
recognising a right-of-use asset and related lease liability in connection
with all former operating leases except for those identified as low-value
or having a remaining lease term of less than 12 months from the date
of initial application.

The new Standard has been applied using the modified retrospective
approach, with the cumulative effect of adopting IFRS 16 being
recognised in equity as an adjustment to the opening balance of
retained earnings for the current period. Accordingly, the Group is not
required to present a third statement of financial position as at that date.
Prior periods have not been restated.

For contracts in place at the date of initial application, the Group has
elected to apply the definition of a lease from IAS 17 and IFRIC 4 and
has not applied IFRS 16 to arrangements that were previously not
identified as lease under IAS 17 and IFRIC 4.

The Group has elected not to include initial direct costs in the
measurement of the right-of-use asset for operating leases in existence
at the date of initial application of IFRS 16, being 1 October 2019. At this
date, the Group has also elected to measure the right-of-use assets at
an amount equal to the lease liability adjusted for any prepaid or
accrued lease payments that existed at the date of transition.

Instead of performing an impairment review on the right-of-use assets
at the date of initial application, the Group has relied on its historic
assessment as to whether leases were onerous immediately before
the date of initial application of IFRS 16.

On transition, for leases previously accounted for as operating leases
with a remaining lease term of less than 12 months, including those on
a rolling basis, and for leases of low-value assets the Group has applied
the optional exemptions to not recognise right-of-use assets but to
account for the lease expense on a straight-line basis over the remaining
lease term. Leases on a rolling basis are assessed as short-term due to
the legal enforceable period being less than 12 months.

For those leases previously classified as finance leases, the right-of-use
asset and lease liability are measured at the date of initial application
at the same amounts as under IAS 17 immediately before the date
of initial application.

CareTech Holdings PLC
Annual Report and Accounts 2020
91

Strategic ReportGovernanceFinancial StatementsNotes to the Financial Statements
continued

2. Accounting policies continued

Sale and leaseback transactions entered into before the date of initial
application have not been reassessed to determine whether the
transfer of the underlying asset satisfies the requirements in IFRS 15
to be accounted for as a sale. On transition, finance sale and leaseback
transactions under IAS 17 are accounted for in the same way as any
other finance lease that exists at the date of initial application and any
gains are amortised over the lease term. For operating sale and
leaseback transactions, the leaseback is accounted for in the same way
as any other operating lease that exists at the date of initial application,
and the leaseback right-of-use asset is adjusted for any deferred gains
or losses that relate to off-market terms recognised in the statement
of financial position immediately before the date of initial application.

On transition to IFRS 16 the weighted average incremental borrowing
rate applied to lease liabilities recognised under IFRS 16 was between
2.5% to 2.6% for equipment, 2.6% for motor vehicles and 3.5% for land
and buildings. The incremental borrowing rate was determined by
considering the Group’s current borrowing rates, comparator
borrowing rates and property yield rates.

The Group has benefited from the use of hindsight for determining the
lease term when considering options to extend and terminate leases.

The following is a reconciliation of the financial statement line items
from IAS 17 to IFRS 16 at 1 October 2019:

Carrying
amount at
30 September
2019
£000

Remeasure-
ment
£000

19,535
(19,568)

(33)

71,730
(71,730)

–

IFRS 16
carrying
amount at
1 October
2019
£000

91,265
(91,298)

(33)

Right-of-use assets
(note 14)
Lease liabilities

Total

Lease liabilities recognised under IAS 17 and previously presented in
loans and borrowings, and ground rent liabilities arising under IAS 17,
have been represented as lease liabilities.

Right-of-use assets have been reclassified into a separate category
from property, plant and equipment as at 1 October 2019, see note 13.

The following is a reconciliation of total operating lease commitments
at 30 September 2019 (as disclosed in the financial statements to
30 September 2019) to the lease liabilities recognised at 1 October 2019:

Total operating lease commitments disclosed
at 30 September 2019
Operating lease liabilities before discounting
Discounted using incremental borrowing rate
Short-term operating lease commitments
Other adjustments*

Total lease liabilities recognised under IFRS 16
at 1 October 2019

£000

251,639
251,639
(201,865)
(3,793)
25,749

71,730

Other adjustments include predominantly certain hundred year leases that
did not previously form part of the operating lease commitments disclosed
at 30 September 2019.

Impact of IFRS 16
The financial impacts of IFRS 16 on 2020 are set out in the table below.

2020
(pre IFRS 16)
£m

Impact of
IFRS 16
£m

IFRS 16
(post IFRS 16)
£m

Underlying operating profit
Net underlying
finance costs

Underlying profit
before tax
Right-of-use assets
Other assets
Lease liabilities
Other liabilities

Net assets

72.0

(11.5)

60.5
18.7
877.1
(19.3)
(511.5)

365.0

1.6

(2.4)

(0.8)
69.1
–
(69.4)
(0.5)

(0.8)

73.6

(13.9)

59.7
87.8
877.1
(88.7)
(512.0)

364.2

The changes in accounting resulting from the implementation of
IFRS 16 will not affect the way liquidity is assessed against the Group’s
banking covenants, which will continue to be assessed as though the
accounting rules had not changed. As such, headline financial leverage
will continue to be measured on a consistent (i.e. “frozen GAAP”) basis
in 2020 and the Group continues to target a headline financial leverage,
excluding the increase in leverage associated with the implementation
of IFRS 16, of below 3.0x in the medium term.

Issued IFRS not yet effective
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

Subject

Amendment to
IFRS 16 ‘Leases’
COVID-19 – Related
Rent Concessions
(May 2020)
Amendments
to References to
the Conceptual
Framework in
IFRS Standards
Amendments to
IFRS 3 (Oct 2018)
Amendments to
IAS 1 and IAS 8
(Oct 2018)
IFRS 17

Amendments to
IFRS 10 and IAS 28
(Sept 2014)

COVID-19 – Related
Rent Concessions

Amendments
to References to
the Conceptual
Framework in
IFRS Standards
Definition of Business

Definition of Material

Insurance Contracts

Sale or Contribution
of Assets between an
Investor and
its Associate or
Joint Venture

Effective date
per standard

1 June 2020
per IASB.

1 January 2020
per IASB.

1 January 2020
per IASB.
1 January 2020
per IASB.

1 January 2023
per IASB.
Postponed

The Directors expect that the adoption of the standards listed above
will not have a material impact on the financial information of the
Group in future reporting periods.

CareTech Holdings PLC
Annual Report and Accounts 2020
92

(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 2020.
All subsidiaries have a reporting date of 30 September, except for
“the AS Group” which has a year end of 31 December. 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. Subsidiaries are only consolidated where control exists.
Control is determined to exist when the Group has power over the
investee, exposure, or rights, to variable returns from its involvement
with the investee and the ability to use its power over the investee
to affect the amount of the investor’s returns.

(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.

(e) Intangible assets and goodwill
All business combinations are accounted for by applying the acquisition
method as described in note 2(s). 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.

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.

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.

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 completing the intangible asset so that it will

be available for use or sale;

(b) it can be demonstrated that the asset will generate probable future

economic benefits;

to complete the development;

(d) the expenditure attributable to the intangible asset can be reliably

measured; and

(e) management has the ability and intention to use or sell the asset.

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.

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.

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.

(f) Inventories
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.

Following implementation of IFRS 16 there is no longer disaggregation
of finance lease assets; however in the prior financial year 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.

CareTech Holdings PLC
Annual Report and Accounts 2020
93

Strategic ReportGovernanceFinancial StatementsNotes to the Financial Statements
continued

2. Accounting policies continued

(h) Financial Instruments
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. Except for those trade receivables that do not contain a
significant financing component are measured at the transaction price
in accordance with IFRS 15, all financial assets are initially measured at
fair value adjusted for transaction costs (where applicable). Financial
liabilities are initially measured at fair value, and, where applicable,
adjusted for transaction costs unless the Group designated a financial
liability at fair value through profit or loss. 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:
– Financial assets at amortised cost.
– Financial assets/liabilities held at fair value through profit or loss

(FVTPL).

FVTPL assets in this category are measured at fair value with gains or
losses recognised in profit or loss. 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.

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.

– the contractual terms of the financial assets give rise to cash flows
that are solely payments of principal and interest on the principal
amount outstanding.

After initial recognition, these are measured at amortised cost using the
effective interest method. 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.

Financial assets at FVTPL
Financial assets that are held within a different business model other
than “hold to collect” or “hold to collect and sell” are categorised at fair
value through profit and loss. Further, irrespective of business model
financial assets whose contractual cash flows are not solely payments
of principal and interest are accounted for at FVTPL. All derivative
financial instruments fall into this category, except for those designated
and effective as hedging instruments, for which the hedge accounting
requirements apply.

Assets in this category are measured at fair value with gains or losses
recognised in profit or loss. 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.

Trade receivables and contract assets
The Group applies the IFRS 9 simplified approach to measuring
expected credit losses, which uses a lifetime expected loss allowance
for all trade receivables and contract assets.

Trade receivables and contract assets have been grouped based
on share credit risk characteristics and the days past due in order to
measure expected credit losses. Contract assets related to unbilled
work in progress have substantially the same risk characteristics as
trade receivables for the same type of contracts. The Group has
therefore concluded that the expected loss rates for trade receivables
are a reasonable approximation of the loss rates for contract assets.

The expected loss rates are based on the payment profiles of sales over
a period of 48 months and before 30 September 2019 and 30 September
2020 respectively as well as the correspondingly historical credit losses
during that period. The vast majority of the Group’s customers are
state-owned entities such as local authorities. As such, credit loss
is not expected to increase significantly since initial recognition.

CareTech Holdings PLC
Annual Report and Accounts 2020
94

(i) Impairment (excluding deferred tax assets)
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.

(k) Employee benefits
Defined contribution plans
Obligations for contributions to defined contribution pension plans
are recognised as an expense in the consolidated income statement
as incurred.

For goodwill and assets that have an indefinite useful life, the recoverable
amount is estimated at each balance sheet date. For goodwill and
assets which are not amortised or depreciated, 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 financial assets carried at
amortised cost is calculated as the present value of estimated future
cash flows, discounted at the original effective interest rate. Financial
assets 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. This includes right-of-use assets, which
cannot be operated independently.

Reversals of impairment
An impairment loss in respect of a financial asset 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.

(j) Interest-bearing borrowings
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.

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 (Black-Scholes 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.

(l) Provisions
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
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.

The Group provides care services to vulnerable adults and children
which are consumed as soon as they are provided. It 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 Foster Care, the Group is acting as a
principal as contracts are between the Group and local authorities and
separately between the Group and foster carers with a number of
performance conditions attached to each. Our contracts provide that
the Group is 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, the Group have applied
the practical expedient set out in IFRS 15 para 121. There are no
significant judgements used in the recognition of revenue.

CareTech Holdings PLC
Annual Report and Accounts 2020
95

Strategic ReportGovernanceFinancial StatementsNotes to the Financial Statements
continued

2. Accounting policies continued

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. Foster Care 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 service user 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.

(o) Expenses
Finance lease payments – prior year only
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.

Revenue in respect of long-term contracts is recognised over the period
that services are performed and is recognised in respect of the services
that have been provided.

Financing costs also include losses arising on the change in fair value
of derivatives that are recognised in the consolidated income statement.

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.

(p) Leased assets
As described in note 2(a), the Group has applied IFRS 16 using the
modified retrospective approach and therefore comparative information
has not been restated. This means comparative information is still
reported under IAS 17 and IFRIC 4.

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 17).
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. The Group’s operations are substantially
within the UK. As such the Group has 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).

(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.

Accounting policy applicable from 1 October 2019
The Group as a lessee
For any new contracts entered into on or after 1 October 2019,
the Group considers whether a contract is, or contains, a lease. A lease
is defined as “a contract, or part of a contract, that conveys the right to
use an asset (the underlying asset) for a period of time in exchange for
consideration”. To apply this definition the Group assesses whether the
contract meets three key evaluations which are whether the:
– Contract contains an identified asset, which is either explicitly

identified in the contract or implicitly specified by being identified
at the time the asset is made available to the Group.

– Group has the right to obtain substantially all of the economic

benefits from use of the identified asset throughout the period of
use, considering its rights within the defined scope of the contract.

– Group has the right to direct the use of the identified asset

throughout the period of use. The Group assesses whether it has
the right to direct “how and for what purpose” the asset is used
throughout the period of use.

Measurement and recognition of leases as a lessee
At lease commencement date, the Group recognises a right-of-use
asset and a lease liability on the balance sheet. The right-of-use asset
is measured at cost, which is made up of the initial measurement of the
lease liability, any initial direct costs incurred by the Group, an estimate
of any costs to dismantle and remove the asset at the end of the lease,
and any lease payments made in advance of the lease commencement
date (net of any incentives received).

The Group depreciates the right-of-use assets on a straight-line basis
from the lease commencement date to the earlier of the end of the
useful life of the right-of-use asset or the end of the lease term. The
Group also assesses the right-of-use asset for impairment when such
indicators exist.

At the commencement date, the Group measures the lease liability at
the present value of the lease payments unpaid at that date, discounted
using the interest rate implicit in the lease if that rate is readily available
or the Group’s incremental borrowing rate.

Lease payments included in the measurement of the lease liability
are made up of fixed payments (including in substance fixed), variable
payments based on an index or rate, amounts expected to be payable
under a residual value guarantee and payments arising from options
reasonably certain to be exercised.

CareTech Holdings PLC
Annual Report and Accounts 2020
96

Subsequent to initial measurement, the liability will be reduced for
payments made and increased for interest. It is remeasured to reflect
any reassessment or modification, or if there are changes in in-substance
fixed payments.

When the lease liability is remeasured, the corresponding adjustment
is reflected in the right-of-use asset, or profit and loss if the right-of-use
asset is already reduced to zero.

The Group has elected to account for short-term leases and leases of
low-value assets using the practical expedients. Instead of recognising
a right-of-use asset and lease liability, the payments in relation to these
are recognised as an expense in profit or loss on a straight-line basis
over the lease term.

On the statement of financial position, right-of-use assets and lease
liabilities have been disclosed separately.

Accounting policy applicable before 1 October 2019
The Group as a lessee
Finance leases
Management applies judgement in considering the substance of
a lease agreement and whether it transfers substantially all the risks
and rewards incidental to ownership of the leased asset. Key factors
considered include the length of the lease term in relation to the
economic life of the asset, the present value of the minimum lease
payments in relation to the asset’s fair value, and whether the Group
obtains ownership of the asset at the end of the lease term. For leases
of land and buildings, the minimum lease payments are first allocated
to each component based on the relative fair values of the respective
lease interests. Each component is then evaluated separately for
possible treatment as a finance lease, taking into consideration the fact
that land normally has an indefinite economic life. See note 2 for the
depreciation methods and useful lives for assets held under finance
leases. The interest element of lease payments is charged to profit
or loss, as finance costs over the period of the lease.

Operating leases
All other leases are treated as operating leases. Where the Group is a
lessee, payments on operating lease agreements are recognised as an
expense on a straight-line basis over the lease term. Associated costs,
such as maintenance and insurance, are expensed as incurred.

(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.

(r) Business combinations
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. The Group recognises non-controlling
interests in an acquired entity either at fair value or at the non-controlling
interest’s proportionate share of the acquired entity’s net identifiable
assets. This decision is made on an acquisition-by-acquisition basis.
For the non-controlling interests in the AS Group, the Group elected
to recognise the non-controlling interests at its proportionate share
of the acquired net identifiable assets.

(s) Government grants
Government grants are recognised only when there is reasonable
assurance that the Group will comply with any conditions attached
to the grant and the grant will be received. The grants are recognised
as income over the period necessary to match them with the related
costs, for which they are intended to compensate, on a systematic
basis. A grant receivable as compensation for costs already incurred
or for immediate financial support, with no future related costs,
is recognised as income in the period in which it is receivable.

3. Accounting estimates and judgements

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 2(e).
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 15.

Incremental borrowing rate
Implementation of the new leasing standard IFRS 16 requires the
Group to apply judgement in determining an appropriate incremental
borrowing rate to use as the discount rate when the interest rate
implicit in the lease cannot be readily determined. Further information
is given in note 2(a).

CareTech Holdings PLC
Annual Report and Accounts 2020
97

Strategic ReportGovernanceFinancial StatementsNotes to the Financial Statements
continued

3. Accounting estimates and judgements continued

Judgements
Business combination
Judgement is required in determining the date of acquisition and
when control was obtained of AS Investment Holdings Limited and
AS1 Investment Holdings Limited (AS holding companies) and their
operating subsidiaries (together collectively, the AS Group). Where the
economic interest in the operating entities of the AS Group was less
than 50%, judgement has been used in determining control of the
underlying subsidiaries. Due to the absence of explicit substantive
control (on the basis of voting rights held), the Company considered
other aspects detailed in IFRS 10 around design and purpose of the
investee and their current ability to control and direct the relevant
activities of the AS Group and also the rights of the other investors and
their powers before making a judgement around existence of control.
As part of the assessment, the Company noted that the board of AS
holding companies, over which the Company held explicit substantive
control, was in charge of the key operating and financial decisions of
the operating entities.

In determining the date of acquisition, the Board has assessed this as
the date on which it obtained control over the AS Group in accordance
with IFRS 3 paragraph 8, as 4 February 2020. This is also the date in
which the exposure, or rights, to variable returns from its involvement
with the AS Group were obtained. Disclosure in respect of the business
combination is given in note 5a.

Provisions
As part of the Cambian 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 judgment 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 judgment.
Since this Court of Appeal ruling, the Supreme Court has heard the
appeal to the judgment, however it has yet to give its position. 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
are not separately disclosed to avoid any potential prejudice in the
outcome of each matter.

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.

CareTech Charitable Foundation
Judgement is required in determining whether the Group has control
of the CareTech Charitable Foundation (the “Foundation”). In assessing
control, the Group has assessed whether it is exposed, or has rights,
to variable returns from its involvement in the Foundation. Consideration
has been given to the fact the Group cannot directly appoint or remove
a Trustee but can remove a member and veto the appointment of a
new member. The membership of the charitable company is restricted
to the independent trustees and relevant activities of the charity
governed by the Board of Trustees. Given the majority of the Trustees
are Group employees, an assessment has been made as to whether
the Group employees are able to exercise control and therefore
generate variable returns.

The Foundation’s Trustees owe very strict legal duties under the
Charity Commission to act as fiduciaries and each trustee must act
independent of its own interest or indeed anyone else’s save for those
of the charity. Based on these legal duties, the Directors have used their
judgement that a Foundation trustee could not act on behalf of a third
party if acting in compliance with their duties and how the law permits
and therefore the Group does not control the Foundation.

4. Segmental information

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

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

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

The Group’s operating segments have been determined based on the
services that are summarised as follows:
– Adults Services – the provision of care and residential services
for adults with learning disabilities, individuals recovering from
mental health disorders, adults with autistic spectrum disorder,
those with one or more physical impairment and adults with
acquired brain injury.

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

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

The results as at the balance sheet date report segmental information
on the Group’s three operating divisions.

The segmental results for the current financial year ending
30 September 2020 and prior year ending 30 September 2019 and
the reconciliation of the segment measures to the respective statutory
items included in the consolidated financial information are as follows:

CareTech Holdings PLC
Annual Report and Accounts 2020
98

Adults Services

Client capacity

Revenue £000

Pre IFRS 16 EBITDA before unallocated costs £000

IFRS 16 adjustment £000

EBITDA before unallocated costs £000

Children’s Services

Client capacity

Revenue £000

Pre IFRS 16 EBITDA before unallocated costs £000

IFRS 16 adjustment £000

EBITDA before unallocated costs £000

Foster Care

Client capacity

Revenue £000

Pre IFRS 16 EBITDA before unallocated costs £000

IFRS 16 adjustment £000

EBITDA before unallocated costs £000

Total

Client capacity

Revenue £000

Pre IFRS 16 EBITDA before unallocated costs £000

IFRS 16 adjustment £000

EBITDA before unallocated costs £000

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
2020
Total
£000

Year ended
30 September
2019
Total
£000

1,997

136,219

33,585

2,091

35,676

1,968

123,635

32,726

–

32,726

1,959

1,933

252,863

230,575

65,874

3,687

69,561

55,632

–

55,632

1,028

40,884

8,047

516

8,563

1,178

40,784

7,551

–

7,551

4,984

429,966

107,506

6,294

113,800

5,079

394,994

95,909

–

95,909

Year ended
30 September
2020
£000

Year ended
30 September
2019
£000

113,800

(22,868)

90,932

(17,021)

(330)

(20,219)

53,362

(15,539)

37,823

(10,772)

(1,933)

25,118

95,909

(22,363)

73,546

(10,631)

(60)

(23,379)

39,476

(15,136)

24,340

(4,214)

(422)

19,704

Operations of the Group are primarily carried out in the UK, the Company’s country of domicile. On 4 February 2020 the Group completed the
acquisition of the AS Group, registered in the United Arab Emirates (“UAE”). Revenue of £15.5m has been generated in the UAE. All other revenues
arise within the UK. No single external customer amounts to 10% or more of the Group’s revenues. £14.3m of intangible assets, and £0.4m of
property, plant and equipment are located in the UAE. All other non-current assets are located in the UK.

No asset and liability information is presented above as this information is not allocated to operating segments in the regular reporting to the Group’s
CODM and are not measures used by the CODM to assess performance and to make resource allocation decisions.

CareTech Holdings PLC
Annual Report and Accounts 2020
99

Strategic ReportGovernanceFinancial StatementsNotes to the Financial Statements
continued

5. Business combinations

(a) Acquisition of “the AS Group”
On 4 February 2020, the Group acquired controlling interest in AS Investments Holding Limited and AS1 Investments Holding Limited and their
respective operating entities (collectively “the AS Group”). The Group indirectly controls 33% and 46% voting rights in the operating entities of
AS Investments Holding Limited and AS1 Investments Holdings Limited respectively. Note 29 details the list of entities and the direct voting rights
held in each of the entities comprising the AS Group.

The initial consideration for the investment is £7.4m (which included £0.7m deferred consideration satisfied in May 2020), and a performance
driven earn-out mechanism of up to £1.6m to be paid out in 2021. The Group expects this amount to be paid within one year from the date
of acquisition and accordingly this amount is deemed to be at fair value. The expected range of the amount payable is between £0 to £1.6m.

As part of the acquisition, the acquiree shareholders who are now shareholders of the Company have provided a cash loan to the AS Group
of £1.8m to be used for investment in future growth. This has resulted in a shareholder loan as noted in the cash flow statement. 50% of the
unutilised amount will be repaid on 4 February 2021, and the remaining balance on 4 August 2021.

The AS Group is the largest provider of outpatient mental health services in the UAE and comprises two well-established brands, Maudsley Health
and ACPN. Services provided by the AS Group have been cited earlier in this note.

The book values attributable to the acquisition were £2.0m net assets and the fair value and adjustments were £10.2m. The AS Group operates
in the UAE which is a 0% tax jurisdiction. Accordingly, there are no deferred tax assets and liabilities recognised.

The acquisition table is as follows:

Intangible assets
Property plant & equipment
Trade and other receivables
Prepayments
Other current assets
Inventory
Cash
Trade and other payables
Deferred income

Net assets on acquisition

Less: Non-controlling interest

Consideration paid
Goodwill

Consideration paid:

Cash
Settled in shares
Contingent consideration

Total consideration

Reconciliation to the cash flow statement
Cash paid
Cash acquired

Payments for business combination net of cash acquired

Book values
£000s

Fair value
adjustments
£000s

–
399
2,827
534
925
893
2,704
(5,364)
(875)

2,044

10,443
–
(211)
–
–
–
–
–
–

10,232

Total
£000s

10,443
399
2,616
534
925
893
2,704
(5,364)
(875)

12,276

(7,927)

4,349
9,052
4,703

£000

4,704
2,040
2,308

9,052

£000

4,704
(2,704)

2,000

Goodwill of £4.7m, which is not expected to be deductible for tax purposes, has been recognised. The goodwill represents the value of the
workforce acquired. The non-controlling interest in the AS Group has been calculated by applying the proportionate share in the fair value of the
net assets acquired and represents their share of the AS Group.

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 AS Group contributed revenue of £15.5m and £1.8m to the Group’s profit after tax for the year between the date of acquisition and the
balance sheet date. Had the acquisition of the AS Group been completed on the first day of the financial year, Group revenues for the year would
have been higher by £7.7m and Group profit after tax would have been higher by £0.9m for the current year ended.

CareTech Holdings PLC
Annual Report and Accounts 2020
100

(b) Acquisition after the balance sheet date
Non-adjusting subsequent event
Subsequent to the year end, on 5 October 2020, the Group acquired a majority holding in Smartbox Assistive Technology Limited and associated
subsidiaries, and Sensory Software International Limited (Collectively “Smartbox”) a creator of augmentative and alternative communication (AAC)
solutions (the “Investment”).

The Group will pay up to £10.6m comprising of an aggregate initial purchase price £7.0m, funded through an equity contribution and loan
note from the Group and equity contribution from the minority holders of Smartbox Holdings Limited. Earn-outs of up to £3.6m payable over
a two-year period from completion. The Group’s contribution will be funded from existing cash resources.

Smartbox is a market-leading creator of software and hardware that helps disabled people without speech to have a voice and live more
independently. It makes communication as quick, simple and effective as possible for those service users for whom speech difficulties can be
a challenge. Its solutions include communication aids, environmental control devices, computer control technology and interactive learning.

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

On 30 November 2020, the Group completed the transfer of seven services previously operated by The Huntercombe Group. These services are
highly specialised facilities for the treatment and care of adults with complex learning disabilities, autism and mental health diagnoses. They consist
of three hospitals, two care homes with nursing, a number of single accommodation units with residential care registration and the support of
people in their own tenancies in a step-down facility. The capacity of the services today is 125 beds. The transfer was structured with no capital
outlay and is expected to be immediately earnings accretive.

Given the proximity of the acquisition to the announcement date it is not possible to provide an estimate of the financial effect at this time.

CareTech Holdings PLC
Annual Report and Accounts 2020
101

Strategic ReportGovernanceFinancial Statements

Notes to the Financial Statements
continued

6. Non-underlying items

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

COVID-19 income

Amortisation of intangible assets

COVID-19 cost

Acquisition expenses

Profit arising from the ground rent transaction

Integration and restructuring costs

Onerous leases

Charitable donations

Share-based payments charge

Other non-underlying expenses

Included in operating profit

Finance expenses

Fair value movements relating to derivative financial instruments

Charges relating to derivative financial instruments

Ground rent 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)

(vii)

(viii)

(ix)

(x)

2020
£000

(2,550)

10,186

3,422

545

–

3,769

–

728

4,119

12,583

20,219

557

591

463

–

1,611

(5,988)

5,435

(553)

21,277

2019
£000

–

10,188

–

10,331

(4,565)

5,597

1,092

736

–

13,191

23,379

1,487

217

345

397

2,446

(1,090)

(4,119)

(5,209)

20,616

(i)

(ii)

(iii)

(iv)

(v)

(vi)

(vii)

(viii)

The Group has incurred additional costs as a results of COVID-19 in relation to higher sickness absence rates, personal protective equipment (PPE) costs, infection control
and higher administration costs. The Group has received additional funding by way of Government grants through local authorities to assist in dealing with this. The Group
has worked closely with all local authorities in establishing a dedicated funding arrangement to support our services which has been collected to offset the additional
costs, as noted above, that the Group has incurred in relation to COVID-19.
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”). CMA costs relate to prior year only.
In the prior year, 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 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.
The Group incurred a number of costs relating to the integration of the Cambian acquisition and reorganisation of the internal operating, finance and management
structures as outlined in the Scheme of Arrangement dated 19 September 2018.
During the previous 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.
These charges represent charitable donations made to the CareTech Foundation, an independent grant-making corporate foundation registered with the Charity
Commission. Funded and founded by the Group, the Foundation has a number of independent Trustees responsible for delivering its Charitable Objects. The Trustees
also include Haroon and Farouq Sheikh, Christopher Dickinson and Mike Adams, Directors of the Group.
To further support the CareTech Foundation, the Group has donated one million new ordinary Company shares to the Foundation. This donation will provide the Foundation
with additional income and demonstrates the Group’s commitment to wider society, to its staff, and its desire to play a strong leadership role within the social care sector.
In connection with the donation, the CareTech Foundation has entered into a lock-up undertaking not to sell the new shares without the Company Board’s approval.
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.
Represents the current tax on items (i), (iii), (iv) and (v) above. and includes a prior year adjustment of £3.4m, see note 10.

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

Derivative financial instruments

Change in rate (note 10)

Intangible assets

Fixed asset

Prior year adjustments

Other adjustments

Other adjustments comprise a number of deferred tax movements which are individually insignificant.

CareTech Holdings PLC
Annual Report and Accounts 2020
102

2020
£000

107

(7,592)

1,373

1,925

(966)

(282)

(5,435)

2019
£000

219

–

2,357

–

1,543

4,119

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

2020
£000

397

–

2019
£000

397

214

Other non-assurance services of £11,000 in 2020 (2019: £214,000) represents the reporting accountant work carried out on the acquisition
of Cambian Group plc.

8. Staff numbers and costs

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

9. Finance expenses

Interest expense on financial liabilities at amortised cost:

On bank loans and overdrafts

Finance charges in respect of leases

Underlying financial expenses

Derivative financial instruments (note 6)

Ground rent lease imputed interest (note 6)

Termination of old banking arrangements (note 6)

Total finance expenses

Number of employees

2020

9,074

108

947

10,129

2019

9,111

111

707

9,929

2020
£000

2019
£000

214,105

203,387

330

19,473

5,250

239,158

2020
£000

11,186

2,742

13,928

1,148

463

–

19,523

4,467

227,437

2019
£000

12,345

345

12,690

1,704

345

397

15,539

15,136

CareTech Holdings PLC
Annual Report and Accounts 2020
103

Strategic ReportGovernanceFinancial StatementsNotes to the Financial Statements
continued

10. Taxation

(a) Recognised in the consolidated income statement

Current tax expense

Current year

Current tax on non-underlying items (note 6)

Prior year adjustments

Total current tax

Deferred tax expense

Current year

Deferred tax on non-underlying items (note 6)

Prior year adjustments

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% (2019: 19.0%)

Non-deductible expenses including impairment charge

Income not taxable

Other tax adjustments

Change in tax rate

Current tax prior year adjustments

Deferred tax prior year adjustments

Total tax in the consolidated income statement

2020
£000

(10,494)

5,988

(374)

(4,880)

(840)

(5,434)

382

(5,892)

(10,772)

2020
£000

37,791

7,180

1,549

(500)

(1,644)

7,592

(3,988)

583

10,772

2019
£000

(8,842)

1,090

–

(7,752)

(581)

4,119

–

3,538

(4,214)

2019
£000

24,340

4,625

2,438

–

(2,849)

–

4,214

Included in the current tax prior year adjustments is an amount of £3.4m previously recognised on the acquisition of the Cambian Group PLC.
Following a review of the tax position and the Cambian tax liabilities this liability is no longer required.

Deferred tax assets and liabilities have been measured in line with IAS 12 using the tax rates and laws that have been enacted or substantively
enacted by the reporting date that are expected to apply when the asset is realised or the liability is settled. As the rate of 19% was substantively
enacted on 17 March 2020 this is the rate used (2019: 17%). The tax rate has remained constant at 19% 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.

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

2020
£000

25,118

2019
£000

19,704

109,772,214

107,231,912

4,220,077

365,090

113,992,292

107,597,002

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

CareTech Holdings PLC
Annual Report and Accounts 2020
104

2020

2019

22.88p

22.03p

18.38p

18.31p

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

13. Property, plant and equipment

Cost
At 1 October 2018
Acquisitions through business combinations
Additions
Disposals
At 30 September 2019

At 1 October 2019
Acquisitions through business combinations
Additions
Reclassified as ROU asset (note 14)
Disposals

At 30 September 2020

Depreciation and impairment
At 1 October 2018
Depreciation charge for the year
Disposals
At 30 September 2019

At 1 October 2019
Depreciation charge for the year
Disposals

At 30 September 2020

Net book value
At 1 October 2018
At 30 September 2019

At 30 September 2020

2020
£000

25,118

21,277

46,395

42.26p

40.70p

Land and
buildings
£000

284,305
295,208
16,342
(15,803)
580,052

580,052
–
11,529
(15,098)
(1,294)

575,189

6,489
1,717
(213)
7,993

7,993
1,183
(62)

9,114

Fixtures,
fittings and
equipment
£000

Motor
vehicles
£000

28,412
11,599
11,866
(3,061)
48,816

48,816
399
12,813
–
–

62,028

11,181
7,430
(630)
17,981

17,981
8,648
–

26,629

11,798
390
2,305
(1,076)
13,417

13,417
–
1,769
(4,437)
(1,307)

9,442

5,736
1,484
(567)
6,653

6,653
1,133
(966)

6,820

2019
£000

19,704

20,616

40,320

37.60p

37.48p

Total
£000

324,515
307,197
30,513
(19,940)
642,285

642,285
399
26,111
(19,535)
(2,601)

646,659

23,406
10,631
(1,410)
32,627

32,627
10,964
(1,028)

42,563

277,816
572,059

566,075

17,231
30,835

35,399

6,062
6,764

2,622

301,109
609,658

604,096

Included in the result for the year is a loss of £135,000 (2019: £4,565,000) on the disposal of freehold property, plant and equipment and motor
vehicles. Included in property, plant and equipment are amounts held under leases of nil (2019: £19,535,000).

CareTech Holdings PLC
Annual Report and Accounts 2020
105

Strategic ReportGovernanceFinancial StatementsNotes to the Financial Statements
continued

14. Leases

Right-of-use assets

Gross carrying amount
Balance 1 October 2019
Additions

Balance at 30 September 2020

Depreciation and impairment
Balance 1 October 2019
Depreciation

Balance at 30 September 2020

Carrying amount 30 September 2020

Land and
buildings
£000

Motor
vehicles
£000

Equipment
£000

Total
right-of-use
assets
£000

82,537
2,497

85,034

–
3,686

3,686

81,348

8,030
85

8,115

–
2,027

2,027

6,088

698
–

698

–
344

344

354

91,265
2,582

93,847

–
6,057

6,057

87,790

The right-of-use assets are included in the same line item as where the corresponding underlying assets would be presented if they were owned.

Lease liability
Lease liabilities are presented in the statement of financial position as follows:

Current

Non-current

2020
£000

6,208

82,480

88,688

2019
£000

1,763

17,805

19,568

The Group has leases for land and buildings, motor vehicles and office equipment. With the exception of short-term leases and leases of low-value
underlying assets, each lease is reflected on the balance sheet as a right-of-use asset and a lease liability. The Group classifies its right-of-use assets
in a consistent manner to its property, plant and equipment.

Lease liabilities recognised under IAS 17 and previously presented in loans and borrowings, and ground rent liabilities arising under IAS 17, have been
represented as lease liabilities.

Each lease generally imposes a restriction that, unless there is a contractual right for the Group to sublet the asset to another party, the right-of-use
asset can only be used by the Group. Leases are either non-cancellable or may only be cancelled by incurring a substantive termination fee. Some
leases contain an option to purchase the underlying leased asset outright at the end of the lease, or to extend the lease for a further term. The
Group is prohibited from selling or pledging the underlying leased assets as security. For leases over land and buildings the Group must keep those
properties in a good state of repair and return the properties in their original condition at the end of the lease. Further, the Group must insure items
of property, plant and equipment and incur maintenance fees on such items in accordance with the lease contracts.

The lease liabilities are secured by the related underlying assets. Future minimum lease payments at 30 September 2020 were as follows:

Within 1 year

1 - 2 years

2- 3 years

3 - 4 years

4- 5 years

After 5 years

Total

30 September 2020
Lease payments
Finance charges

Net present values
30 September 2019
Lease payments
Finance charges

Net present values

9,086
(2,878)

6,208

2,339
(576)

1,763

7,600
(2,713)

4,887

1,758
(523)

1,235

5,423
(2,595)

2,828

1,445
(506)

939

4,394
(2,520)

1,874

1,133
(471)

662

4,103
(2,461)

1,642

552
(456)

324,188
(252,939)

71,249

354,794
(266,106)

88,688

72,489
(57,616)

14,873

79,716
(60,148)

19,568

Lease payments not recognised as a liability
The Group has elected not to recognise a lease liability for short-term leases (leases with an expected term of 12 months or less) or for leases
of low-value assets. Payments made under such leases are expensed on a straight-line basis. In addition, certain variable lease payments are
not permitted to be recognised as lease liabilities and are expensed as incurred.

Interest expense on lease liabilities for the year ended 30 September 2020 was £2,181,000.

CareTech Holdings PLC
Annual Report and Accounts 2020
106

The expense relating to payments not included in the measurement of the lease liability is as follows:

Short-term leases

Leases of low-value assets

2020
£000

3,783

3,793

At 30 September 2020 the Group was committed to short-term leases and the total commitment at that date was £3,793,000.

Total cash outflow for leases for the year ended 30 September 2020 was £3,793 (2019: £2,200).

Lease liabilities recognised under IAS 17 and previously presented in loans and borrowings, and ground rent liabilities arising under IAS 17, have been
represented as lease liabilities.

15. Intangible assets

Cost
At 1 October 2018
Acquisitions through business combinations
Additions
At 30 September 2019

At 1 October 2019
Acquisitions through business combinations
Exchange adjustments
Additions for the year

At 30 September 2020

Amortisation and impairment
At 1 October 2018
Amortisation for the year
At 30 September 2019

At 1 October 2019
Amortisation for the year

At 30 September 2020

Net book value
At 1 October 2018
At 30 September 2019

At 30 September 2020

Goodwill
£000

Software
and licences
£000

Customer
relationships
£000

45,717
35,392
375
81,484

81,484
4,703
27
418

86,632

2,028
–
2,028

2,028
–

2,028

43,689
79,456

84,604

19,951
–
3,054
23,005

23,005
–

2,429

25,434

12,597
3,066
15,663

15,663
3,044

18,707

7,354
7,342

6,727

63,344
47,354
–
110,698

110,698
10,433
60
–

121,191

30,570
7,122
37,692

37,692
7,142

44,834

32,774
73,006

76,357

Total
£000

129,012
82,746
3,429
215,187

215,187
15,136
87
2,847

233,257

45,195
10,188
55,383

55,383
10,186

65,569

83,817
159,804

167,688

Amortisation
The amortisation charge is recognised in the following line items in the consolidated income statement:

Administrative expenses

2020
£000

10,186

2019
£000

10,188

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 (“CGUs”)
against carrying value.

For the purpose of annual impairment testing, goodwill is allocated into four identifiable CGUs, Adults Services. Children’s Services, Foster Care
and Middle East. This broadly aligns to the reported operating segments expected to benefit from the synergies of the business combinations in
which the goodwill arises, with exception to Middle East. Whilst Middle East performs Adults Services and Children’s services, given its geographical
location, it has been identified as a separate CGU. 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).

CareTech Holdings PLC
Annual Report and Accounts 2020
107

Strategic ReportGovernanceFinancial Statements
Notes to the Financial Statements
continued

15. Intangible assets continued

The carrying value of goodwill is split between the following cash-generating units:

Adults Services

Children’s Services

Foster Care

Middle East

2020
£000

27,944

44,769

7,162

4,729

84,604

2019
£000

27,525

44,769

7,162

–

79,456

During the year the Group carried out a review of the recoverable amount of its goodwill throughout the business. The recoverable amount,
which is the higher of fair value less cost to sell and the value in use, has been determined initially based on value-in-use calculations. These
calculations use cash flow projections for operational assets at the balance sheet date based on financial budgets approved by the Board of
Directors for the forthcoming year which are based on assumptions of the business, industry and economic growth. Cash flows beyond this
year are extrapolated using growth rates, which do not exceed the expected long-term economic growth rate of 2%, into perpetuity.

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. Management estimates discount rates using pre-tax rates that reflect the market assessment of the time value of money
as at each balance sheet date, adjusted for the risks specific to the Group.

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

Middle East

2020

1 year

8.4%

9.7%

9.6%

14.7%

2019

1 year

10%

12%

–

Sensitivities
A sensitivity analysis has been performed on each of the base case assumptions used for assessing the goodwill with other variables held constant.
Consideration of sensitivities to key assumptions can evolve from one financial year to the next. The Directors consider that a reasonable possible
change in assumptions would be an increase in pre-tax discount rate of 50 basis points, or a reduction in budgeted cash flows of 5%.

None of these sensitivities would result in an impairment in Children’s Services or Foster Care.

For Adults Services the current headroom £4.7m. The impact of the above reasonable changes are as follows:
– An increase in pre-tax discount rate of 50 basis points results in an impairment of £18.5m.
– A reduction in budgeted cash flows of 5% results in an impairment of £13.2m.

The Directors have also considered the amount by which the value assigned to each key assumption must change, after incorporating any
consequential effects of that change on the other variables used to measure recoverable amount, in order for the Adults Services CGUs
recoverable amount to be equal to its carrying amount as follows:
– An increase in pre-tax discount rate of 10 basis points.
– A reduction in budgeted cash flows of 1.1%.

For Middle East the current headroom £0.1m. The impact of the above reasonable changes are as follows:
– An increase in pre-tax discount rate of 50 basis points results in an impairment of £0.8m.
– A reduction in budgeted cash flows of 5% results in an impairment of £1.1m.

The Directors have also considered the amount by which the value assigned to each key assumption must change, after incorporating any
consequential effects of that change on the other variables used to measure recoverable amount, in order for the Middle East CGUs recoverable
amount to be equal to its carrying amount as follows:
– An increase in pre-tax discount rate of 6 basis points.
– A reduction in budgeted cash flows of 0.4%.

The Directors believe that, notwithstanding the sensitivity of Adults Services and Middle East, there is no requirement for an impairment
on the carrying value of the existing CGUs.

CareTech Holdings PLC
Annual Report and Accounts 2020
108

16. Trade and other receivables

Trade receivables (note 26)

Other debtors and prepayments

Accrued income (note 17)

On 30 September 2019 a balance of £2m has been restated from accrued expenses to a reduction in trade receivables.

17. Accrued income and deferred income

At 1 October 2019
Amounts acquired at acquisition
Accrued revenue invoiced
Revenue recognised in the reporting period.
Revenue billed in period but relates to future periods
New accrued revenue

At 30 September 2020

2020
£000

37,604

5,025

8,426

51,055

Accrued
income
£000

6,369
–
(6,369)
–
–
8,426

8,426

2019
£000

36,299

8,343

6,369

51,011

Deferred
income
£000

(28,710)
(875)

29,585
(30,309)
–

(30,309)

The Directors consider that the carrying value of accrued income and deferred income approximates to its fair value.

18. Interest-bearing loans and borrowings

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 26.

Non-current liabilities

Secured bank loans

Shareholder loans (note 5)

Terms and debt repayment schedule

Term loan

Revolving credit facility term loan

2020
£000

2019
£000

317,122

1,833

318,955

315,878

–

315,878

Currency

Nominal
interest rate (%)

Year of
maturity

Book value
2020
£000

Book value
2019
£000

2.25 (2019: 2.25)1

2.50 (2019: 2.50)1

2.50 (2019: 2.75)1

2022

2023

158,561

–

167,000

148,878

–

317,122

315,878

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 in August 2018 to facilitate 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.

CareTech Holdings PLC
Annual Report and Accounts 2020
109

Strategic ReportGovernanceFinancial StatementsNotes to the Financial Statements
continued

19. Trade and other payables

Trade payables

Accrued expenses

2020
£000

15,576

39,441

55,017

2019
£000

12,378

44,559

56,937

On 30 September 2019, a balance of £2m has been restated from accrued expenses to a reduction in trade receivables, see note 16.

20. Deferred tax assets and liabilities

Recognised deferred tax assets and liabilities
Deferred tax assets and liabilities are attributable to the following:

Assets
£000

–

(418)

(163)

–

(27)

(309)

(917)

2020

Liabilities
£000

52,552

11,616

–

6,593

–

70,761

(917)

69,844

Assets
£000

–

(278)

(90)

–

(368)

2019

Liabilities
£000

42,213

18,270

–

3,836

–

64,319

(368)

63,951

1 October
2019
£000

Recognised in
income
£000

Reclassification
balances
£000

Prior year
adjustment
£000

30 September
2020
£000

42,213

(278)

18,270

(90)

3,836

–

4,521

(140)

(5)

(73)

946

(2)

63,951

5,309

5,685

–

(5,685)

–

133

–

(964)

–

1,811

(25)

(371)

584

52,552

(418)

11,616

(163)

6,593

(27)

(309)

69,844

1 October
2018
£000

Recognised in
income
£000

Acquired in
business
combination
£000

30 September
2019
£000

1,901
(59)
14,395
(443)
3,060
18,854

(141)
(219)
(4,311)
353
776
(3,542)

40,453
–
8,186
–
–
48,639

42,213
(278)
18,270
(90)
3,836
63,951

Property, plant and equipment

Intangible assets

Derivative financial instruments

Share-based payments

Rolled-over gains on property, plant and equipment

Trading losses carried forward

Short-term timing differences

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

Trading losses carried forward

Short-term timing differences

Movement in deferred tax during the previous year:

Property, plant and equipment
Derivative financial instruments
Intangible assets
Share options
Rolled-over gains on property

CareTech Holdings PLC
Annual Report and Accounts 2020
110

21. Provisions

At 1 October 2019
Provisions raised during the period
Amounts used during the period
Unused amounts reversed

At 30 September 2020

£000

14,884
8,218
(1,388)
(428)

21,286

Provisions principally comprise an amount provided for “sleep-in payments” and a provision for dilapidations. These have been explained in note 3
to the financial statements.

22. Employee benefits

Share-based payments
The Group operates four share option schemes: The CareTech Holdings 2017 Sharesave Scheme, the CareTech Holdings 2020 Sharesave
Scheme, the CareTech Holdings 2015 Approved Share Option Scheme and the Executive Shared Ownership Plan. All share options are equity
settled.

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 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.

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 Group’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.

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

29 March
2016

8 November
2019

25%
3.90%
2.39%
3 years

25%
3.5%
1.25%
3 years

CareTech Holdings PLC
Annual Report and Accounts 2020
111

Strategic ReportGovernanceFinancial Statements
Notes to the Financial Statements
continued

22. Employee benefits continued

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 2020 are as follows:

Date of grant

3 Aug 2010

17 Mar 2016

29 Mar 2016

1 Dec 2017

23 Oct 2019

5 Nov 2019

8 Nov 2019

21 Sep 2020

Scheme

Approved
Scheme
Unapproved
Scheme
Sharesave
Scheme
2016
Executive
Share
Ownership
Plan
Sharesave
Scheme
2017
Approved
Share Option
Plan 2015
Approved
Share Option
Plan 2015
Executive
Share
Ownership
Plan
Sharesave
Scheme
2020

Options
remaining as
at 30 Sep 2019

Options
granted
30 Sep 2020

Options
lapsed to
30 Sep 2020

Options
exercised to
30 Sep 2020

Options
remaining
as at
30 Sep 2020

Exercise price
of share
option
(pence)
30 Sep 2020

Average
exercised price
(pence)
30 Sep 2020

(22,890)

(10,656)

–

(33,873)

(27,937)

(49,154)

–

305

194

451

455

382

33,546

33,873

77,071

1,429,000

220,600

–

(92,400)

1,336,600*

247.5

407

–

220,600*

308

857,772**

380

898,106**

380

– 2,504,475**

399

–

480,678**

355

–

1,190,000

(332,228)

898,106

2,504,475

480,678

–

* All options exercisable at 30 September 2020.
** No options exercisable at 30 September 2020.

The charge for the year was £330,000 (2019: £60,000) which relates to the Executive Share Ownership Scheme, the Sharesave Scheme 2017 and
the Approved Share Option Plan 2015. The weighted average exercise price of the remaining options is 398.7p.

The weighted average remaining contractual life of all share options outstanding is 7.6 years.

CareTech Holdings PLC
Annual Report and Accounts 2020
112

23. Equity

Share Capital

Allotted, called up and fully paid:

113,173,992 (2019: 109,144,369) ordinary shares of 0.5p each

53,402 deferred shares of 0.5p each

2020
£000

565

–

565

2019
£000

545

–

545

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.

Movements in the number of issued shares were as follows:

2020

Ordinary shares of 0.5p each

Deferred shares of 0.5p each

2019

Ordinary shares of 0.5p each
Deferred shares of 0.5p each

24. Reserves

At 1 October
2019

Issued during
the acquisition
of AS Group

Issued to the
CareTech
Charitable
Foundation

Issued under
Share
Schemes

At 30
September
2020

109,144,369

431,465

1,000,000

2,598,158 113,173,992

53,402

–

53,402

At 1 October
2018

75,691,423
53,402

Issued during
the acquisition
of Cambian

Issued under
Save as You
Earn Scheme

At 30
September
2019

33,188,817
–

264,129 109,144,369
53,402

–

(a) Share premium account
During the year, the issue of new shares charged to the share premium account are as follows:

Opening balance 1 October 2019

Premium on issue of shares

At 30 September 2020

2020
£000

121,304

11,775

133,079

2019
£000

120,820

484

121,304

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

2020

£000

125,536

306

–

125,842

2019

£000

9,023

118,182

(1,669)

125,536

(c) Shares held by Executive Shared Ownership Plan
Further information relating to the EBT reserve of the Group is detailed in note 22 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.

(e) Foreign currency translation reserves
A foreign currency translation reserve exists following the acquisition of the AS Group. This consists of exchange differences that arise on the
translation on overseas net assets.

CareTech Holdings PLC
Annual Report and Accounts 2020
113

Strategic ReportGovernanceFinancial StatementsNotes to the Financial Statements
continued

25. Dividends

The aggregate amount of dividends comprises:

Interim dividend paid in respect of prior year but not recognised as liabilities in that year
(3.75p per share, (2019: 3.50p per share))

Final dividend paid in respect of the prior year (7.95p per share, (2019: 7.50p per share))

Aggregate amount of dividends paid in the financial year (11.70p per share (2019: 11.00p per share))

2020
£000

4,093

8,913

13,006

2019
£000

2,645

8,157

10,802

The aggregate amount of dividends proposed and not recognised as liabilities as at the year end is 12.75p per share, £14,000,000
(2019: 11.7p per share, £13,000,000).

26. Financial instruments

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 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
(ECLs) 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 credit to the consolidated income statement of £28,000 (2019: £403,000 charge) to decrease 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 considers that the carrying value of trade receivables approximates to 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 16)

The movement in provisions for impairment of trade receivables are as follows:

At 1 October 2018
Adoption of IFRS 9
Charged to the consolidated income statement
At 30 September 2019
Credit to the consolidated income statement

At 30 September 2020

Included in the provision for impairment of trade receivables is an expected credit loss of £220,000 (2019: £525,000).

2020
£000

26,304

10,494

805

37,604

2019
£000

23,417

12,217

2,665

38,299

£000

761
525
403
1,689
(28)

1,661

CareTech Holdings PLC
Annual Report and Accounts 2020
114

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 3 year swap commencing 16 May 2019 at pre-determined amounts initially starting at £21.6 million at LIBOR fixed at 1.076%
– a 3 year swap commencing 16 May 2019 at pre-determined amounts initially starting at £21.6 million at LIBOR fixed at 1.056%
– a 3 year swap commencing 16 May 2019 at pre-determined amounts initially starting at £27.6 million at LIBOR fixed at 1.076%
– a 3 year swap commencing 16 May 2019 at pre-determined amounts initially starting at £21.6 million at LIBOR fixed at 1.071%
– a 3 year swap commencing 16 May 2019 at pre-determined amounts initially starting at £27.6 million at LIBOR fixed at 1.066%

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

Secured bank loans

Shareholder loans

Lease liabilities

Derivative financial instruments

Trade and other payables
IAS 17 Ground rent
Secured bank loans
Lease liabilities
Derivative financial instruments

Effective
interest
rate %

Carrying
amount
£000

2020

Contractual
cash
flows
£000

< 1
year
£000

(49,843)

1 – 5
years
£000

–

3.5%

(317,122)

(338,457)

(7,116)

(331,341)

(1,833)

–

(1,833)

5 years
& over
£000

–

(88,688)

(293,452)

(8,581)

(19,897)

(264,974)

(2,198)

–

(2,198)

–

(459,684)

(685,783)

(65,540)

(355,269)

(264,974)

Effective
interest
rate %

3.5%
6%

2019

Contractual
cash
flows
£000

(52,369)
(15,131)
(355,569)
(4,689)
(1,640)
(429,398)

Carrying
amount
£000

(52,369)
(15,131)
(315,878)
(4,437)
(1,640)
(389,455)

< 1
year
£000

(52,369)
(100)
(10,146)
(1,783)
–
(64,398)

1 – 5
years
£000

–
(500)
(345,423)
(2,906)
(1,640)
(350,469)

5 years
& over
£000

–
(14,531)
–
–
–
(14,531)

See note 18 for the maturity dates and interest rates charged on the secured bank loans.

CareTech Holdings PLC
Annual Report and Accounts 2020
115

Strategic ReportGovernanceFinancial StatementsNotes to the Financial Statements
continued

26. Financial instruments continued

Analysis of changes in liabilities from financing activities
The below table represents the movement in liabilities from financing activities:

1 October 2018
Cash flows
New leases
Changes in fair value
Acquisitions
Other

30 September 2019
Cash flows
Adoption of IFRS 16
New leases
Changes in fair value
Effect of foreign exchange
Other

30 September 2020

Secured bank
loans
£000

Lease liabilities
£000

Shareholders
loan
£000

Derivative
financial
instruments
£000

151,748
163,638
–
–
–
492

315,878
–
–
–
–
–
1,244

317,122

11,956
4,806
2,305
–
515
(14)

19,568
(8,797)
71,730
6,187
–
–
–

88,688

–
–
–
–
–
–

–
1,808
–
–
–
25
–

1,833

152
(308)
–
1,796
–
–

1,640
(1,053)
–
–
1,611
–
–

2,198

Total
£000

163,856
168,136
2,305
1,796
515
478

337,086
(8,042)
71,730
6,187
1,611
25
1,244

409,841

CareTech’s three key covenant ratios are leverage (ratio of net debt to covenant EBITDA to be no more than 4.5), interest cover (ratio of covenant
EBITDA to net finance costs to be no less than 4x) and LTV (ratio of property value to net debt to be no more than 62.5%). As at 30 September
2020, we were operating comfortably within these ratios at 3.1x, 7.8x and 42% respectively. The Board believes the Group will achieve its target
of reducing net debt/EBITDA to below 3.0x for the year ended 30 September 2021.

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.

The Group’s capital structure is as follows:

Net debt

Equity (see note 23)

2020
£000

268,886

364,216

2019
£000

291,077

335,364

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 bank loans and borrowings and HP leases previously accounted for under IAS 17 excluding
Project Teak sale and leaseback. Net debt remains unchanged following the adoption of IFRS 16.

Note

2020
£000

2019
£000

54,273

29,238

(317,122)

(315,878)

(1,833)

(4,204)

–

(4,437)

(268,886)

(291,077)

Net debt in the balance sheet comprises:

Cash and cash equivalents

Bank loans

Shareholder loan

Lease and hire purchase contracts

Net debt at 30 September

CareTech Holdings PLC
Annual Report and Accounts 2020
116

Foreign currency risk
Most of The Group’s transactions are carried out in GBP. Exposures to currency exchange rates arise from the Group’s investment in “the AS Group”,
registered in the United Arab Emirates, which is denominated in AED. All other revenues 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.

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 2020, 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 £2,020,000 (2019: £1,950,000). 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 16)

Trade payables (note 19)

Secured bank loans (note 18)

Contingent consideration

Shareholder loan

Held at fair value through profit and loss:

Derivative financial instruments

Carrying
amount
2020
£000

Fair
value
2020
£000

54,273

37,604

54,273

37,604

(15,576)

Carrying
amount
2019
£000

29,328

38,299

(12,378)

Fair
value
2019
£000

29,328

38,299

(12,378)

(317,122)

(315,878)

(1,569)

(1,833)

(1,569)

(1,833)

–

(2,198)

(1,640)

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;

– for shareholder loans the amount is repayable in less than one year and the carrying amount is deemed to reflect the fair value;
– for contingent consideration the amount is repayable in less than one year and the carrying amount is deemed to reflect the fair value; 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

The fair values for all financial instruments carried at amortised costs are within level 3 of the fair value hierarchy.

2020
£000

–

(2,198)

(1,569)

2019
£000

–

(1,640)

–

CareTech Holdings PLC
Annual Report and Accounts 2020
117

Strategic ReportGovernanceFinancial StatementsNotes to the Financial Statements
continued

27. Operating leases

Prior year only
Non-cancellable operating lease rentals are payable as follows:

Within one year
Between two and five years
More than five years

2019

Land and
buildings
£000

6,426
12,425
228,127
246,978

Other
£000

1,935
2,726
–
4,661

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

28. Related parties

2019

Land and
buildings
£000

6,300
6,300

Other
£000

1,841
1,841

During the year, the Group paid rent totalling £408,343 (2019: £226,000) in respect of properties in which Farouq Sheikh and Haroon Sheikh
have an interest. At the year-end rent of £240,595 (2019: £20,000) was outstanding. The current lease liability recognised at 30 September 2020
is £2,705,000. The corresponding liability at 1 October 2019 under IFRS 16 was £3,018,000.

Dividends paid to Directors in the year totalled £192,000 (2019: £157,000).

Transactions with key management personnel

Salary

Benefits

Bonus

Total short-term remuneration

Post-employment benefits

Share-based payments

Key management personnel are defined as Directors of the Group and members of the Senior Management Team.

Directors’ emoluments are set out on page 75.

During the year, the Group made donations to the CareTech Charitable Foundation which are set out in note 6.

2020
£000

4,131

322

1,348

5,801

255

220

6,276

2019
£000

4,775

354

1,110

6,239

288

6,577

CareTech Holdings PLC
Annual Report and Accounts 2020
118

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

4404355

Country of
incorporation

Type

Ownership
2020%

Ownership
2019%

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*

Branas Isaf (Ashfield House) Limited*

Branas Isaf (Bythnod & Hendre Llwyd) Limited*

Branas Isaf (Dewis) Limited*

Branas Isaf (Education Centre) Limited*

Branas Isaf (Llyn Coed) Ltd*

3390658

3370991

3304446

5156601

3293998

4351554

3160894

England and Wales Operating

England and Wales

Non-trading

England and Wales

Non-trading

England and Wales

Non-trading

4050685

England and Wales Operating

5761962

4826628

4828115

4826662

4826774

England and Wales Operating

Branas Isaf (personal development & approach training) Limited* 4826959

England and Wales

Non-trading

Branas Isaf (Therapeutic Provision Limited)*

Branas Isaf Holdings Ltd*

Branas Isaf Personal Development Centre Ltd*

Bright Care Limited*

By the Bridge Holdings*

By the Bridge Limited*

5355404

4827227

3744583

4050733

England and Wales

Non-trading

England and Wales

Non-trading

England and Wales

Non-trading

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*

Cambian Childcare Properties Limited*

Cambian Education Services Limited*

Cambian FS Limited*

Cambian Group Holdings Limited*

Cambian Group Limited*+

Cambian Heritage I Limited*

Cambian Heritage II Limited*

Interact Care Limited*

Cambian Properties (UK) Limited*

Cambian Signpost Limited*

Cambian Whinfell School Limited*

Cameron Care Limited*

Care Support Services Limited*

CareTech Community Services (No 2) Limited*

CareTech Community Services Limited*+

CareTech Consulting Limited*

CareTech Estates (No 2) Limited*+

CareTech Estates (No 3) Limited*+

CareTech Estates (No 4) Limited*+

CareTech Holdings PLC
Annual Report and Accounts 2020
119

03449214

England and Wales Operating

3813824

England and Wales

Non-trading

04280519

England and Wales Operating

05274924

05554772

England and Wales

Property

England and Wales

Non-trading

09501886

England and Wales

Non-trading

08929407

England and Wales

Non-trading

8929371

5150238

3898254

4822716

5554819

6253729

4617562

England and Wales

Non-trading

England and Wales

Non-trading

England and Wales

Property

England and Wales Operating

England and Wales

Non-trading

England and Wales Operating

SC283940

Scotland

Operating

5356025

3894564

2804415

7186925

6518327

6518491

6543818

England and Wales Operating

England and Wales

Non-trading

England and Wales

Property

England and Wales

Property

England and Wales

Property

100

Strategic ReportGovernanceFinancial StatementsNotes to the Financial Statements
continued

29. Group undertakings continued

Company

CareTech Estates (No 5) Limited*+

CareTech Estates (No 6) Limited*+

CareTech Estates (no 7) Limited*+

CareTech Estates Limited*+

CareTech Foster Care Limited*

CareTech Fostering Holdings Limited*

CareTech Fostering Services*

CareTech Housing Services*
CareTech International (Previously Family Assessment Services
Limited) Limited*

Clifford House Limited*

Colerne Community Care (kent) Limited*

Community Support Project Limited*+

Complete Care & Enablement Services Limited*

Continuum Care and Education Group Limited*

Counticare Limited*

Coveberry Limited*

Daisybrook Limited*

Dawn Hodge Associates Limited*

Delam Care Limited*

Delham Care Limited*

Elite Children’s Care Limited*

Emeraldpoint Limited*

EQL Solutions Limited*+

Farrow House Limited*

Fostering Support Group Limited*

Franklin Homes Limited*

Glenroyd House Limited*

Gloucestershire Autism Services Limited*

Green Corns Limited*

Greenfields Adolescent Development Limited*

Greenfields Care Group Limited*

Hereson House Limited*

Herts Care (Escort and Supervision Services) Limited*

Herts Care Group Limited*

Herts Care Limited*

Herts Care Property Limited*

Huntsmans Lodge Limited*

Independent Childcare Group of Schools Limited*

Inhoco 2993 Limited*

K O B Care Limited*

Kirkstall Lodge Limited*

Leigham Lodge Limited*

Lonsdale Midlands Limited*

Lyndhurst Psychiatric Residential Care Limited*

Magnolia Court Limited*

Mason Property Development Company Limited*

Oakleaf Care (Hartwell) Limited*

One Six One Limited*

One Step (Support) Limited*

Onetrue Step Limited*

Outlook Fostering Services Limited*

CareTech Holdings PLC
Annual Report and Accounts 2020
120

Company
number

7027116

8420656

8628141

5964868

5185612

7206363

7205262

3438332

6902547

3320573

2755757

5941774

5905163

5804360

2585666

1208511

3026221

4130146

2995783

2748991

5251327

3098166

8758477

3504115

2359399

3002865

4326288

3091510

3918305

4068839

4642100

4385252

3648069

4539660

3400914

4132387

4668317

2525026

4495879

3039698

4778674

4583599

2834141

2958528

5444649

4308273

5225317

4136284

4534652

8339192

4357704

Country of
incorporation

Type

Ownership
2020%

Ownership
2019%

England and Wales

Property

England and Wales

Property

England and Wales

Property

England and Wales

Property

England and Wales

Non-trading

England and Wales

Non-trading

England and Wales

Non-trading

England and Wales

Non-trading

England and Wales

Non-trading

England and Wales

Non-trading

England and Wales

Non-trading

England and Wales

Non-trading

England and Wales Operating

England and Wales

Non-trading

England and Wales

Non-trading

England and Wales Operating

England and Wales

Non-trading

England and Wales

Non-trading

England and Wales Operating

England and Wales

Non-trading

England and Wales Operating

England and Wales

Non-trading

England and Wales

Non-trading

England and Wales Operating

England and Wales

Non-trading

England and Wales Operating

England and Wales

Non-trading

England and Wales

Non-trading

England and Wales

Non-trading

England and Wales

Non-trading

England and Wales Operating

England and Wales

Non-trading

England and Wales

Non-trading

England and Wales

Non-trading

England and Wales Operating

England and Wales

Non-trading

England and Wales Operating

England and Wales

Property

England and Wales Operating

England and Wales

Non-trading

England and Wales Operating

100

Company

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*

Professional Integrated Care Services Limited*

Purple Zest Limited*+

Roborough House Limited*

ROC North West Ltd*

Rosedale Children’s Services Limited*

SACCS Care Limited*

SACCS Limited*

Selborne Care Limited*

Selwyn Care Limited*

South East Care Services Limited*

Spark of Genius Limited*

Spark Of Genius (North East) LLP

Spark Of Genius (Training) Limited*

St Michael’s Support & Care Limited*

Sunnyside Care Homes Ltd*

The Community Care Company UK Limited*

TLC (Wales) Independent Fostering Limited*

Trojan Spark Limited*

Uplands (Fareham) Limited*

Valeo Community Projects Limited*

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 Asprirations Capital Limited

H2O Limited

Hazeldene UK Limited1

Cambian Properties II Limited

Caretech Cloud Limited*

CareTech Mena Social Care LLC

CareTech Holdings Limited

AS1 Investments Holding Ltd (ADGM)

CareTech Holdings PLC
Annual Report and Accounts 2020
121

Country of
incorporation

Type

Ownership
2020%

Ownership
2019%

Company
number

4050739

4861395

SC427502

SC254555

2736242

4129564

4803769

4771613

11421082

5054294

5564417

4932054

3400914

4497910

5513162

3737832

2296352

3488896

3941224

4099715

4454845

4778676

4351559

4319271

107650

107661

107672

107660

87311

106304

104724

102148

91181

87312

109922

101512

101522

101503

England and Wales Operating

Scotland

Operating

England and Wales

Non-trading

England and Wales Operating

England and Wales

Non-trading

England and Wales Operating

England and Wales

Non-trading

England and Wales

Non-trading

England and Wales Operating

England and Wales

Non-trading

SC479758

Scotland

Non-trading

OC384807

England and Wales Operating

SC196146

Scotland

Operating

5978585

4589719

2816119

4824925

England and Wales Operating

England and Wales

Non-trading

England and Wales Operating

SC453152

Scotland

Non-trading

England and Wales Operating

England and Wales

Non-trading

England and Wales Operating

England and Wales

Non-trading

Jersey2

Non-trading

Operating

Property

FC97291

FC015967

91131

Gibraltar

Jersey2

12392889

England and Wales

Non-trading

1010563230

Saudi Arabia

Non-trading

3381

3272

United Arab Emirates Non-trading

100

–

Strategic ReportGovernanceFinancial StatementsNotes to the Financial Statements
continued

29. Group undertakings continued

Company

AS Investments Holding Ltd (ADGM)

Macani Medical Centre

Country of
incorporation

Type

Ownership
2020%

Ownership
2019%

Company
number

3087

United Arab Emirates Non-trading

CN-1937451 United Arab Emirates Operating

AS Northwood Investments Holdings LLC (ADGM)

CN-2696945 United Arab Emirates Non-trading

ACPN Dubai

ACPN Abu Dhabi

ACPN Al Ain

Care Talent Advisors Limited*

Jobzooma Limited

Recruiterlink Limited

674030

United Arab Emirates Operating

CN-1142528 United Arab Emirates Operating

CN-1142528-1 United Arab Emirates Operating

12391623

10127824

11665920

England and Wales

Non-trading

England and Wales Operating

29.4

–

1 Has a UK designated trading branch, Hazeldene UK Limited.
2 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 2020.
As such, the Company has provided a guarantee against all debts and liabilities in these subsidiaries as at 30 September 2020.

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 2020 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 2020 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.

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
Cameron Care Limited
Dawn Hodge Associates Limited
Park Foster Care Services Scotland Limited
Phoenix Therapy and Care Limited
Professional Integrated Care Services Limited
Spark of Genius Limited
Spark Of Genius (North East) LLP
Spark Of Genius (Training) Limited
Trojan Spark Limited
H2O Limited
Hazeldene UK Limited
CareTech Mena Social Care LLC

CareTech Holdings Limited

AS1 Investments Holding Ltd (ADGM)
AS Investments Holding Ltd (ADGM)
Macani Medical Centre

AS Northwood Investments Holdings LLC (ADGM)

ACPN Dubai
ACPN Abu Dhabi

ACPN Al Ain

CareTech Holdings PLC
Annual Report and Accounts 2020
122

Netherlea House, Bankend Road, Dumfries, DG1 4AL
Inspire Children Services, Lochview, Fort William, Inverness-Shire, PH33 7NP
Fiveways House, Buildwas Road, Neston, CH64 3RU
272 Bath Street, Glasgow, G2 4JR
1 Lodge Street, Haddington, East Lothian, EH41 3DX
Tan Y Fron, Pontardulais Road, Crosshands, Carmarthenshire, SA14 6PG
Trojan House Pegasus Avenue, Phoenix Business Park, Paisley, PA1 2BH
King Edwin School Mill Lane, Norton, Stockton-On-Tees, North Yorkshire, TS20 1LG
Trojan House Pegasus Avenue, Phoenix Business Park, Paisley, PA1 2BH
Trojan House Pegasus Avenue, Phoenix Business Park, Paisley, PA1 2BH
Montagu Pavillion, 8-10 Queensway, Gibraltar
Montagu Pavillion, 8-10 Queensway, Gibraltar
7534 King Abdul Aziz Road – Al Ghadeer District, Unit No 44, Riyadh 13311-4672,
Kingdom of Saudi Arabia
2459, 24, Al Sila Tower, Abu Dhabi Global Market Square, Al Maryah Island, Abu Dhabi,
United Arab Emirates
2458 Al Sila Tower, ADGM Square, Al Marya Island Abu Dhabi, UAE
2458 Al Sila Tower, ADGM Square, Al Marya Island Abu Dhabi, UAE
Ahmed Ali Mohamed Abdulla Alsayegh Building, Office 205,
GH 10, Q 63, T 2, Al Khalidiah Street, Abu Dhabi, UAE
Unit of Ahmed Ali Mohamed Abdulla Alsayegh, West 10,0, P.O. Box No. 52613,
Abu Dhabi, UAE
Jumeirah Sunset Mall, Jumeirah 3, PO Box 66026, Dubai, UAE
Khalid bin Abdul Aziz Street, Mounira Sheikh Ahmed Al Mubarak Building,
PO Box 108699, Abu Dhabi, UAE
Villa of Mohammed Raashid Mohammed and others, Al Ghil, Al Ma’atarid, Al Ain,
Abu Dhabi, UAE

Subsidiaries with material non-controlling interest (“NCI”)
The Group has aggregated the subsidiary financial information of the AS Group acquired on 4 February 2020. The Group has considered
it appropriate to aggregate the information due to geographical location and the nature of the activities being performed being consistent.
The below table shows the subsidiaries that form part of the Group.

Proportion of
ownership
interests held
by non-
controlling
interests

Proportion of
voting rights
held by non-
controlling
interests

48%
1%
35%
35%
35%
6%
51%

2020
£’000

1,234

9,206

2020
£’000

8,139

274

(2,870)

(1,833)

15,548

1,881

2,202

(77)

(161)

1,964

48%
1%
35%
35%
35%
6%
51%

2019
£’000

–

2019
£’000

–

Subsidiary name

AS Investments Holding Ltd (ADGM)
AS Northwood Investments Holdings LLC (ADGM)
ACPN Dubai
ACPN Abu Dhabi
ACPN Al Ain
AS1 Investments Holding Ltd (ADGM)
Macani Medical Centre

Principal place of business

United Arab Emirates
United Arab Emirates
United Arab Emirates
United Arab Emirates
United Arab Emirates
United Arab Emirates
United Arab Emirates

Profit allocated to NCIs during the reporting period

Accumulated NCI at 30 September

Dividends of £1.9m were paid during the year to the NCI.

Summarised financial information for the AS Group is set out in the table below:

Current assets

Non-current assets

Current liabilities

Non-current liabilities

Revenue

Profit and total comprehensive income

Net cash from operating activities

Net cash used in investing activities

Net cash used in financing activities

Net cash inflow

CareTech Holdings PLC
Annual Report and Accounts 2020
123

Strategic ReportGovernanceFinancial StatementsCompany Statement of Financial Position
as at 30 September 2020

Non-current assets

Investments

Current assets

Trade and other receivables

Cash and cash equivalents

Total assets

Current liabilities

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

2020
£000

2019
£000

399,859

395,822

247,171

485

247,656

647,515

257,731

1,012

258,743

654,565

48,411

44,065

318,592

367,003

280,512

565

133,080

125,842

21,025

280,512

317,358

361,423

293,142

545

121,304

125,536

45,757

293,142

Under section 408 of the Companies Act 2006 the Company is exempt from the requirement to present its own income statement.
The loss for the year included in the financial statements of the Company was £15,845,000 (2019 profit: £25,778,000).

These financial statements were approved by the Board of Directors and authorised for issue on 10 December 2020 and were signed on its behalf by:

Farouq Sheikh
Group Executive Chairman
Company number: 04457287

Christopher Dickinson
Chief Financial Officer

CareTech Holdings PLC
Annual Report and Accounts 2020
124

Company Statement of Changes in Equity
as at 30 September 2020

At 1 October 2018
Profit for the year and total comprehensive income
Issue of shares
Sharesave Scheme charge
Dividends
At 30 September 2019

At 1 October 2019

Profit for the year and total comprehensive income

Issue of shares

Share-based payment charge

Dividends

At 30 September 2020

Share
capital
£000

Share
premium
£000

379
–
166
–
–
545

120,820
–
–
484
–
121,304

Merger
reserve
£000

9,023
–
116,513
–
–
125,536

Retained
earnings
£000

30,781
25,778
–
–
(10,802)
45,757

Total
Equity
£000

161,003
25,778
116,679
484
(10,802)
293,142

545

121,304

125,536

45,757

293,142

–

11,776

–

306

–

(15,845)

(18,846)

–

4,119

2,058

4,119

(13,006)

565

133,080

125,842

21,025

280,512

CareTech Holdings PLC
Annual Report and Accounts 2020
125

Strategic ReportGovernanceFinancial StatementsNotes 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.

(b) Investments
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.

(d) Interest-bearing borrowings
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.

(f) Revenue
Revenue represents management fees receivable, in respect of the period to which management services relate.

(g) Share-based payments
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) Employee Benefit Trust (EBT)
The Company has not elected to consolidate the employee benefit trust and consequently recognise it as an investment in subsidiary, and
recognise a receivable balance for any shares issued to the trust, and is subsequently measured at amortised cost. These receivables are payable
on demand and do not carry any interest. Considering these amounts are receivable on the sale of shares held by the trust and such shares are
quoted higher than the value receivable, the Company are of the view that the there are no credit losses as at balance sheet date.

(i) Financial Instruments
Recognition, initial measurement and derecognition
Financial assets and financial liabilities are recognised when the Company becomes a party to the contractual provisions of the financial
instrument. All financial assets are initially measured at fair value adjusted for transaction costs (where applicable). Financial liabilities are initially
measured at fair value, and, where applicable, adjusted for transaction costs unless the Company designated a financial liability at fair value
through profit or loss. 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:
– Financial assets at amortised cost.
– Financial assets/liabilities held at fair value through profit or loss (FVTPL).

FVTPL assets in this category are measured at fair value with gains or losses recognised in profit or loss. 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 2020
126

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 are measured at amortised cost if the assets meet the following conditions (and are not designated as FVTPL):
– they are held within a business model whose objective is to hold the financial assets and collect its contractual cash flows; and
– the contractual terms of the financial assets give rise to cash flows that are solely payments of principal and interest on the principal

amount outstanding.

After initial recognition, these are measured at amortised cost using the effective interest method. Discounting is omitted where the effect of
discounting is immaterial. The Company’s cash and cash equivalents, trade and most other receivables fall into this category of financial instruments.

Financial assets at FVTPL
Financial assets that are held within a different business model other than “hold to collect” or “hold to collect and sell” are categorised at fair value
through profit and loss. Further, irrespective of business model financial assets whose contractual cash flows are not solely payments of principal
and interest are accounted for at FVTPL. All derivative financial instruments fall into this category, except for those designated and effective as
hedging instruments, for which the hedge accounting requirements apply.

Assets in this category are measured at fair value with gains or losses recognised in profit or loss. 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 Company’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 Company 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 Company 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 Company 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 Company has an unconditional right to defer payment beyond 12 months. Otherwise derivatives
are presented as current assets or liabilities.

(j) 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.

(k) 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 2020
127

2020
£000

125,536

306

125,842

2019
£000

9,023

116,513

125,536

Strategic ReportGovernanceFinancial StatementsNotes 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 (3.75p per share,
(2019: 3.50p per share))

Final dividend paid in respect of the prior year (7.95p per share, (2019: 7.50p per share))

Aggregate amount of dividends paid in the financial year (11.70p per share (2019: 11.00p per share))

2020
£000

4,093

8,913

13,006

2019
£000

2,645

8,157

10,802

The aggregate amount of dividends proposed and not recognised as liabilities as at the year end is 12.75p per share, £14,000,000
(2019: 11.7p per share, £13,000,000).

32. Investments

Cost and net book value
At 1 October 2019
Acquisitions (see note 5)

At 30 September 2020

33. Trade and other receivables

Amounts owed by Group undertakings

Amounts owed by the Employment Benefit Trust

Shares in
Group
undertakings
£000

395,822
4,037

399,859

2019
£000

255,788

1,943

257,731

2020
£000

235,382

11,769

247,151

These balances owed by Group undertakings accrue intercompany interest at a rate of 3% per annum. Please refer to note 1 and the statement on
going concern. Intercompany financial assets were assessed by management for impairment using the expected credit loss model under IFRS 9.
The assets are considered to have low credit risk and consequentially an immaterial credit loss was assessed and no provision has been made.

The prior year balance has been restated for an amount of £40.2m due to a prior year amount owed by a Group undertaking being incorrectly
netted off against other amounts receivable from Group undertakings. See note 35.

34. Interest-bearing loans and borrowings

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

Revolving credit facility term loan

Currency

Nominal
interest rate (%)

Year of
maturity

Book value
2020
£000

Book value
2019
£000

2.25 (2019: 2.25)1

2.50 (2019: 2.50)1

(2019: 2.75)1

2022

2023

160,031

158,561

–

167,000

150,358

–

318,592

317,358

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 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.

CareTech Holdings PLC
Annual Report and Accounts 2020
128

35. Trade and other payables

Amounts due to Group undertakings

Other creditors

2020
£000

42,769

5,642

48,411

2019
£000

40,199

3,866

44,065

36. Contingent liabilities

As per note 29, the Company 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.

37. Called up share capital

Allotted, called up and fully paid:

113,173,992 (2019: 109,144,369) ordinary shares of 0.5p each

53,402 deferred shares of 0.5p each

2020
£000

565

–

565

2019
£000

545

–

545

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 (2019: none) other than the Directors. Directors’ emoluments are shown on page 75.

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 (2019: £nil).

Share-based payments
There was no expense for share-based payments relating to the Company’s employees in the year (2019: £nil). There was a grant of shares to
the CareTech Charitable Foundation in the year, which is accounted for as a share-based payment with a charge of £4.1m (2019: nil) to the income
statement in the year.

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 22).

40. Related parties

The Company receives dividends from its subsidiaries according to their ability to remit them and received interest in intergroup 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 the Company.

CareTech Holdings PLC
Annual Report and Accounts 2020
129

Strategic ReportGovernanceFinancial StatementsAppendix: 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.

a) EBITDA

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:

COVID-19 income

Depreciation

Amortisation of intangible assets

Profit on ground rent transaction

Acquisition cost

Other non-underlying items

COVID-19 costs

Share-based payments charge

Operating profit

b) Non-underlying items

2020
£000

90,932

2,550

(17,021)

(10,186)

–

(545)

(4,497)

(3,422)

(4,449)

53,362

2019
£000

73,546

–

(10,631)

(10,188)

4,565

(10,331)

(7,425)

–

(60)

39,476

6,14

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

Financial expenses

Profit before tax

Taxation

Profit for the year

Note

6,10

Underlying
£000

73,581

(13,928)

59,653

(11,325)

48,328

2020

Non-
underlying
£000

(20,219)

(1,611)

(21,830)

553

(21,277)

Statutory
£000

Underlying
£000

53,362

(15,539)

37,823

(10,772)

27,051

62,855

(12,690)

50,165

(9,423)

40,742

2019

Non-
underlying
£000

(23,379)

(2,446)

(25,825)

5,209

(20,616)

Statutory
£000

39,476

(15,136)

24,340

(4,214)

20,126

CareTech Holdings PLC
Annual Report and Accounts 2020
130

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 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

Shareholder loan

Lease and hire purchase contracts

Net debt at 30 September

d) Working capital conversion

Note

2020
£000

2019
£000

54,273

29,238

(317,122)

(315,878)

(1,833)

(4,204)

–

(4,437)

(268,886)

(291,077)

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 2019 financial 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

2020
£000

94,222

90,932

103.6%

2020
£000

94,222

–

94,222

90,932

103.6%

2019
£000

66,324

73,546

90.2%

2019
£000

66,324

8,140

74,464

73,546

101.2%

CareTech Holdings PLC
Annual Report and Accounts 2020
131

Strategic ReportGovernanceFinancial StatementsDirectors 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
5 Fleet Place
London
EC4M 7RD

Ashurst LLP
Broadwalk House
5 Appold Street
London
EC2A 2HA

(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 2020
132

Nominated Adviser and Joint Broker
Panmure Gordon and Co
One New Change
London
EC4M 9AF

Joint Brokers
Numis Securities Ltd
10 Paternoster Square
London
EC4M 7LT

Auditor
Grant Thornton UK LLP
30 Finsbury Square
London
EC2A 1AG

Bankers
The Royal Bank of Scotland PLC
250 Bishopsgate
London
EC2M 4AA

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
60 Queen Victoria St
London
EC4N 4TR

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.

CareTech Holdings PLC

Metropolitan House
3 Darkes Lane
Potters Bar
Hertfordshire
EN6 1AG

Tel: 01707 601800
Fax: 01707 655265