CareTech Holdings PLC Preliminary results for the year ended 30 - - PowerPoint PPT Presentation

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CareTech Holdings PLC

Preliminary results

for the year ended 30 September 2015

Contents

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• Executive summary
• Overview
• Highlights
• Initiatives underpinning growth
• Organic growth initiatives
• Pipeline and acquisitions
• Our people
• Overcoming headwinds
• Divisional breakdown
• Financial results
• Key investment merits and the journey so far
• Summary

Executive Summary

• CareTech has a proven track record of growth, profitability and cash generation over 20 years
• Underlying EBITDA and Diluted EPS has grown by CAGR of 30% and 25% respectively since IPO
• We operate in the £10bn per annum UK Social Care sector
• Significant organic growth opportunities and bolt on acquisitions are targeted
• Being driven by:

– Market growing by 5% per annum – Increased outsourcing – Regulatory burden – Shortfall of specialist beds

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Overview

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• A leading specialist provider of social care for adults and children with complex needs
• Long term annuity style income stream with strong asset backed balance sheet
• Freehold property portfolio of 164 homes independently valued at £294m
• Grew range of complementary services and extended geographical coverage through bolt on acquisitions
• Specialist operating divisions with client focused care pathway approach:

Young People

• Young people residential services
• Fostering care

Adult Services

• Adult learning disability
• Mental health

Learning services

Highlights

Financial

• Underlying EBITDA increased by 6% to £32.5m (2014:

£30.7m)

• Underlying PBT increased by 12% to £22.0m (2014:

£19.7m)

• Underlying diluted EPS increased by 2.5% to 31.79p

(2014: 31.01p)

• Final dividend up by 3.7% to 5.60p (2014: 5.40p) and

Full Year Dividend is up 5.0%

• Underlying operating cash inflow of £30.0m (2014:

£30.3m) 92% cash conversion ratio

• Net debt at £158.5m (2014: £166.1m)
• Net assets increased by 21.7% to £132.9m
• Independent Property Valuation £294m (2013: £275m)

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Operational

• Share placing funds raised of £21m
• Accelerated organic growth
• Good progress on aquisitions
• Strengthened management team
• Amend & Extend Bank Facilities
• Extended facility to 2019
• Improved terms
• Acquisitions
• Two in July 2015 and one last week
• Solid performance
• High quality ratings
• Extending Care Pathways through successful outcomes
• Improved occupancy rates
• Improved EBITDA margins

Targeting double digit growth

Initiatives Underpinning Growth

Organic Initiatives

Reconfigurations of existing homes

• Lindisfarne
• Brisbane Road

New Organic beds

• Walton Road
• Whitefields

Supported Living

• Prosperity House
• Springfields
• Cwlach Road
• Stronger development pipeline for 2016
• Bolt on Acquisitions
• Spark of Genius
• Dawn Hodge Associates
• ROC North West
• Exclusivity on a further 2 businesses with Heads signed

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Strengthened Management Team

• New Staff In Core Business

John Ivers - Chief Operating Officer

• Excellent Sector experience Chief Operations Officer for HC One and

previously Chief Executive of Nestor Healthcare Senior Tender Writer Head of Business Development for Children and Young People Services Business Development Director for the North & Midlands Adults Division Project Surveyor

• New Staff in Acquired Businesses
• Spark of Genius
• Dawn Hodge Associates
• ROC North West

Organic Growth - Reconfigurations of existing homes

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Lindisfarne – Reconfiguration to supported living

• Freehold Property in Wisbech
• Previously a 10 bed residential home with 30% occupancy
• Reconfigured service after becoming Preferred Provider to

Cambridge Supported Living

• Now 6 self contained flats with bedroom,

ensuite, kitchenette and living room and Communal areas

• Capex investment £230k
• Four clients in October
• Two further clients in November (full)

Brisbane Road – Reconfiguration to supported living

• Freehold property in Ilford
• Reconfigured a closed service into 5 supported living flats
• Capex investment £175k
• 4 Clients in October
• Strong referral in December

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Organic Growth – Supported Living New Beds

Walton Road Whitefields Prosperity House

• A three person house share with staff
• vernight facilities
• People are supported to develop their

living skills and to keep them safe

• The current client group have diagnosis of

Learning Disability, Epilepsy and Autism

• Currently fully occupied with three clients
• Five-person shared supported living service

in Gloucester for people with learning disabilities and associated needs

• Consists of a range of good sized bedrooms,

communal living space, kitchen large garden space

• Currently occupied by three clients and two

strong referrals

• Consists of four self-contained flats and there

is a office space for staff and tenants

• The two ground floor flats are fully accessible

for individuals with physical disabilities

• Currently has three clients. Have several live

enquiries for remaining placement

• The project is an initiative sponsored by Herts

Social Services and they cover any periodic voids

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Organic Growth – New Beds

Childrens Service Fife, Scotland

Springfield

• Springfield is located within the Fife region of Scotland and is registered

as a residential child care service for young people aged 12-17 years.

• Springfield can accommodate up to four young people with social,

emotional and behavioural difficulties.

• The service is delivered within a detached farmhouse and a beautiful

rural setting.

• Currently full with 4 clients

Adults Service – Llandudno, North Wales

Cwlach Road

• Residential property for people with mental health issues
• 5 flat freehold property
• Property was acquired and converted into a registered service

following confirmation of demand by Conwy

• Capex investment of £420K
• Property is now full

Building and Developing our Pipeline

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Additional Growth

• Growth through growing core occupancy
• Growth through reconfigurations of existing homes

and services

• Exploring 20+ potential projects in Adults
• Exploring 7 projects in Childrens

Enhancing Care Pathway (New Services)

• Childrens  Adults
• Leaving Care 16-18+
• Pre-Post Employment Support
• Developing higher acuity services

Acquisitions Pipeline

• Geographic fit, high quality and reputation with

strong growth potential in value added high acuity areas

• 4 targets under review of which 2 at Head of Terms

Stage

2015 Tender Success

• 7 major contract retender renewals
• 3 Adults
• 2 Childrens and Young People
• 1 Fostering
• 1 Training/Skills Funding
• 19 New business Wins
• 6 Childrens and Young People
• 2 Fostering
• 9 Adults
• 2 Training/Skills Funding
• Wins in Bath, Somerset, Hampshire, Fife, East of England,

West London, Cambridge, Walsall, Bradford, Kirklees, Staffordshire, Liverpool, Rochdale and Wolverhampton

• 26 wins in 2015 versus 23 in 2014 and 19 in 2013

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Spark of Genius

Acquisitions

• Acquired July 2015
• Operates 9 residential homes in Scotland representing 48 beds

and 3 schools for Young People with complex needs catering for up to 100 service users

• Highly regarded with excellent quality ratings and reputation
• Good geographic fit
• Management team retained and incentivised to deliver 4 year

development plan

• Currently ahead of its business plan
• Strong development pipeline in Central Scotland and North

East England

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Dawn Hodge Associates

Acquisitions

• Acquired July 2015
• DHA provide training, coaching and consultancy across a range
• f sectors
• Specialise in health and social care qualifications
• Based in Cheshire operates in North West
• Ofsted Grade 1 outstanding rating
• Best Provider of Learning and Development (Skills for Care

Accolades 2015/16) finalist

• Excellent fit with training and learning for staff and service

users (pre-post employment)

• Trading in line with expectations

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ROC North West Ltd.

Acquisitions

• Acquired 1 December 2015
• North West based provider of residential care and

education services for Young People with complex needs

• Currently has capacity for 41 residential places in 7

residential homes in Lancashire and 25 education places in its school in Preston

• Strong reputation and quality ratings
• Excellent geographic and Care Pathways fit with

CareTech

• Management retained and incentivised

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Our People

• Skills for care and Department of Health Initiative
• First National Employer to sign up
• Embedded in induction and staff training

Engagement Survey 2015

• 560 respondents

Responses very positive: “CareTech being a good place to work” “Our staff being committed to providing a quality service for

• ur service users”

“Staff making a positive difference to people’s lives” “Staff having the right resources and training to do their roles”

• Areas for senior team focus

“Improved Communications”

CareTech Care Awards

• Care Awards
• Recognising our stars
• 10 categories – 3 regional winners
• National overall winners recognised
• Gala Dinner Awards Event
• Service User Art Competition
• Over 100 service users took part
• Regional and National Winners awarded
• Art on display

Our Values (Dec 2015)

• Friendly
• Person Centred
• Positive
• Empowering
• Innovative

Overcoming Headwinds

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Overall

• Headwinds via NMW and the introduction of NLW
• Focus on value added (education, therapy, day care, pre-post employment

support, alongside care)

• Acuity and specialist services have faired better than standard domiciliary

and residential services

National Living Wage

• Vast majority of staff above NLW

Mitigate through:  Improved retention and reduced recruitment costs  Fee uplifts and enhanced care funding calculator  New clients better fees  NLW will aid retention and support care as a career  May drive out weaker/poorer quality social care providers

Staff Retention

• Staff turnover currently at 18% social care industry average at 26%
• Refer a friend recruit/retain initiatives and local workshops
• Harnessing our Learning Expertise (EQL/DHA)
• 440 staff on funded programmes internally delivered (2015)
• Focus on values based recruitment (pilot underway)

Time and Attendance

• Fingerprint recognition system in each service.
• Ensures good rota management, accurate and timely payroll information
• Enhanced real time reporting

Comprehensive Spending Review (Nov 2015)

• 2% Levy Social Care Precept Council Tax
• Better Care Fund additional £1.5bn
• £600m made available for Mental Health Care Funding
• Funded Pre and Post employment for those with Learning Disability

Divisional breakdown

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Extraordinary days every day

Divisional breakdown for the year ended 30 September 2015

Range of services and geographical coverage

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Care Pathway – 30 September 2015 Capacity

Adult Learning Disabilities

• Residential care
• Independent supported living
• Community support services
• Transitional Services

1,496

Mental Health

• Residential care
• Low secure and step down
• Independent supported living
• Community outreach

114 1,610

Young People Residential Services

• Residential care of children
• Transitional Services

205

Foster Care

• Fostering

301 506

Learning services

• Pre-employment and

apprenticeships

2,116 440

2015 Revenue £m 2015 Underlying EBITDA £m 2014 Revenue £m 2014 Underlying EBITDA £m Adult Learning Disabilities 75.7 24.5 74.2 22.6 Mental Health 6.4 1.9 7.3 2.5 Sub Total 82.1 26.4 81.5 25.1 Young People Residential Services 22.4 8.2 21.9 7.4 Foster Care 9.8 2.4 12.0 3.0 Sub Total 32.2 10.6 33.9 10.4 Learning Services 10.0 0.9 7.9 0.1 Sub Total 124.3 37.9 123.3 35.6 Less Unallocated Group Costs (5.4) (4.9) Total 124.3 32.5 123.3 30.7 Margin 26.1% 24.9% 18

Service Revenue & EBITDA Split for the year ended 30 September 2015

Adult Learning Disabilities

• 1.4m people in the UK have a learning disability
• 13.2% (185,000) of these cannot live independently
• UK market for adult residential learning disability and supported living

worth £6.6bn annually, growing at 5.5% per annum (Laing & Buisson)

• Highly fragmented market
• High demand for community based care and high value specialist

residential services

• Long average length of stay

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Insert chart on growth of ALD market/map of service locations

Capacity: 1,496 spaces Occupancy: 89% Average weekly fee: £1,186 Turnover: £75.7m EBITDA: £24.5m

*Figures correct at 30/09/2015

Mental Health

20 Capacity: 114 spaces Occupancy: 82% Average weekly fee: £1,144 Turnover: £6.4m EBITDA: £1.9m

*Figures correct at 30/09/2015

Insert chart on growth of MH market/map of service locations

• 2.4% of UK population will be referred to specialist psychiatric

service

• Mental Health Care Homes and non acute NHS provision is £1.6bn

annually (Laing & Buisson)

• Independent sector counts for 9% of the care home market and 6%
• f the non residential market
• 70% of the prison population have mental health problems

Young People Residential Services

21 Capacity: 205 spaces Occupancy: 69% Average weekly fee: £3,512 Turnover: £22.4m EBITDA: £8.2m

*Figures correct at 30/09/2015

Insert chart on growth of YPRS market/map of service locations

• 17,500 children in England “Looked after” outside of foster care
• Residential children’s market in England worth £1.1bn per annum

(Department for Education Statistics)

• Market growth rate of 5.7% per annum
• Highly fragmented market
• Fees range considerably
• Certain placements at more specialist centres cost over £4,000 per week

• Every 22 minutes a child comes into care
• 68,840 “Looked after” children in England at March 2014, and growing year
• n year
• 51,340 children placed in foster care, being 75% of “Looked after” children

(Department for Education Statistics)

• The independent fostering market is worth c. £1.4bn per annum
• CareTech is a top 5 provider with a 1% market share
• The Children and Families Bill in England gives local authorities funding to

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Foster Care

22 Capacity: 301 spaces Occupancy: 88% Average weekly fee: £731 Turnover: £9.8m EBITDA: £2.4m

*Figures correct at 30/09/2015

Insert chart on growth of FC market/map of service locations

Learning Services

23 Turnover: £10.0m EBITDA: £0.9m

• Acquired EQL Solutions in November 2013 and Dawn Hodge Associates in July 2015
• Market leading provider of pre-employment training and work based learning (WBL) and

Care Sector SMEs

• Two major streams are being developed as part of the CareTech Aspire Programme
• Pre-employment and Apprenticeships for CareTech staff (3,500) 440

Apprenticeships

• Pre-employment and Apprenticeships for CareTech service users (2,000)

Divisional breakdown

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Extraordinary days every day Financial Results for the year ended 30 September 2015

Financial Highlights

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• Underlying EBITDA increased 6% to £32.5m (2014: £30.7m)
• Underlying profit before tax increased 12%
• Final year dividend increased 3.7% to 5.60p (2014: 5.40p) and full year

dividend is up 5.0%.

• Strong operating cash flow
• Net Assets increased by 22.4% to £133.7m
• Share placement of £21m gross
• Amend and extend of banking facilities
• Two acquisitions in the year
• Property Valuation £294m

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Non Underlying Items

• The disclosure of certain current and non-current liabilities has been enhanced and more clearly demonstrates their future

impact on net debt. IFRS also requires changes in acquisition fair values to be restated for the prior period.

• Adjustment items charged / credited in the Income Statement are as follows:

2015 £’m 2014 £’m Acquisition Costs (1.0) (0.3) Integration, Reorganisation Costs and Redundancy costs (1.9) (2.1) EBITDA Adjustment Items (2.9) (2.4) Bank fees written off (2.5)

• Onerous lease provision

(0.3)

• Amortisation of Intangibles

(5.2) (4.4) Charges Relating to Derivative Financial Instruments (1.6) (0.4) PBT Adjustment Items (12.5) (7.2)

(i) EBITDA is operating profit stated before depreciation, share-based payments charge and adjustment items (ii) Profit before tax and diluted earnings per share are stated before adjustment items

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Cashflow Highlights for the year ended 30 September 2015

2015 £m 2014 £m Operating Cash flow before Adjustments 32.5 30.7 Movement in working capital (1.7) (0.2) 30.8 30.5 Acquisitions & Capital Expenditure (16.6) (10.3) Interest, Dividend & Tax Paid (12.2) (9.8) Share Placing funds 19.8

• Treasury & Acquisition Related Costs

(14.2) (8.0) Decrease In Net Debt 7.6 2.4 Opening Net Debt (166.1) (168.5) Closing Net Debt (158.5) (166.1)

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Balance Sheet Highlights as at 30 September 2015

2015 £m 2014 £m Tangible Fixed Assets - £294m Valuation* 256.6 243.3 Goodwill and Intangibles Net Debt 72.9 (158.5) 66.9 (166.1) Other Liabilities (Net) (37.3) (34.9) Net Assets 133.7 109.2 Actual 2015 Underlying EBITDA: INTEREST 4.8 times NET DEBT: EBITDA 4.9 times LOAN: VALUE 53%

*Valuation 2015 by Christies (before ROC Acquisition)

The Journey so far…

Today

• UK Market size of £10bn per annum
• Capacity of 2116
• CareTech market share of less than 2%
• Two specialist operating divisions:

– Adult services – incorporating adult learning disability and mental health – Children services – incorporating young people residential services, fostering care and learning services

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At IPO

• UK Market size of £2.1bn
• Capacity of 435
• CareTech market share of less than 1%
• One focused operating division – residential and day

care services for adults with learning disabilities

£23m £124.3m 40 80 120 160 2005 2015

Revenue

£m £2.4m £32.5m 10 20 30 40 2005 2015

Underlying EBITDA

£ 4.1p 31.79p 10 20 30 40 2005 2015

Diluted EPS

Pence

Celebrating 10th year on the Public Markets Underlying EBITDA and Diluted EPS has grown by CAGR of 30% and 25% respectively since IPO

Key investment merits

An investment in CareTech offers investors

• Strong defensive characteristics

– Visibility of contracted revenue – Length of resident stay measured in decades – Strong asset backing

• Strong organic growth opportunity

– There is an undersupply of places – A highly scalable model – reinforced through improved organisational structure

• Strong acquisition growth opportunity

– Highly fragmented market to consolidate – geographical and service fragmentation – Many small operators unable to cope with regulation

• Proven business model

– Strength and depth of management team to operational level – Demonstrable track record of delivering growth – Ahead on quality standards – Strong cash generation – Solid strategic position 30

Summary

• Strong year
• Acquisitions completed in July and December respectively
• Strategic initiatives underpinning growth

– Share placing in March – Strengthened management team in April – Amend and Extend in July – Acquisitions in July and last week – Development pipeline expanded for 2016

• Confident start to the new year

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