CareTech Holdings PLC – Full Year Trading Update

CareTech Holdings PLC – Full Year Trading Update

CareTech Holdings PLC (AIM: CTH), a pioneering provider of specialist social care services in the UK, which is celebrating its 25th year, is pleased to announce its full year trading update ahead of its results for the year ended 30 September 2018.

CareTech completed the acquisition of Cambian Group plc (“Cambian”) on 19 October 2018 and the Group now has two trading divisions: the CareTech Division and the Cambian Division. Each is led by a Chief Operating Officer, John Ivers and Anne Marie Carrie respectively, reporting to the Group Chief Executive Officer, Haroon Sheikh.  

The CareTech Directors believe that the Group, as enlarged by the acquisition of Cambian (the “Enlarged Group”), is a leading and diversified operator in the higher acuity social care sector for adults and children in the UK offering clear outcome based pathways from residential care, principally into various forms of supported housing or foster care for children, while residential options continue to be in demand for those with the greatest need.

Cambian’s specialist education proposition and focus on children’s services will enhance the depth and breadth of the services offered by the CareTech Group such that the Enlarged Group will be positioned to better serve local authority partners and communities with an integrated care offering across the age profile of service users.  The CareTech Directors anticipate further shifts toward more sophisticated supported living packages linked to new personalised payment methodologies and believe that the Enlarged Group will provide a strong platform on which to deliver this.

As the acquisition of Cambian took place very recently, and after the Group year end, this update refers only to trading at CareTech prior to the Cambian acquisition. An update on trading at Cambian will be included with CareTech’s preliminary results, which are expected to be announced on 6 December 2018. 

The Board confirms that trading at CareTech in the year to 30 September 2018 was in line with market expectations.

Net capacity in residential and supported living at the year-end was 2,622 places (30 September 2017: 2,534 places), a net increase in capacity of 88 residential and supported living places.  Of this total for the year 26 additional beds were in reconfigured services for Adults and in new services there were 43 new beds in Adults and 69 new beds in Children’s. The new and reconfigured services have a higher contribution than the beds in pre-configuration and are part of an ongoing strategy to enhance margins.  There were in total 50 beds withdrawn for reconfiguration in the year and there was no change in capacity in fostering.

 

Occupancy levels in the mature estate remain strong at 93% (30 September 2017: 93%) and the blended occupancy, which includes newly opened services, is approximately 86% (30 September 2017: approximately 86%).  

Staff turnover during the year has remained below the industry average at 22% (2017: 21%), assisted by Group initiatives for staff retention and development including CareTech’s care apprenticeships. During the year, CareTech was validated as a Disability Confident Leader under a Government scheme to support the employment of disabled people. 

Quality of care is the primary focus at CareTech and, whilst CQC sector data for Outstanding/Good ratings have risen from 79% in 2017 to 82% in 2018, we are really pleased that CareTech’s CQC ratings for Outstanding/Good have risen by a higher proportion from 82% in 2017 to 86% in 2018. 

The CareTech Ofsted ratings for Outstanding/Good have risen from 80% in 2017 to 86% in 2018.

Annual fee rate negotiations with local authorities have again led to a positive outcome during the year, largely as a result of our ongoing focus on meeting commissioner demand through reconfiguring services for use by higher acuity service users.

Net debt was £147.0m at the year-end (30 September 2017: £147.2m) which reflects the investment in new properties purchased and conversion work on properties acquired earlier, as well as further continuous investment in I.T. systems.

Post-Balance Sheet Events 

The offer for Cambian was structured as a mixture of CareTech shares/cash and cash alone and we are pleased that the majority of Cambian shareholders took the CareTech shares offer. 

The acquisition was funded through a combination of 33.2m new CareTech shares and the remainder from enhanced debt facilities which were underwritten by Lloyds Bank plc and NatWest Market plc.  This has now been successfully syndicated as a term loan of £322m and Revolving credit facility of £25m to a group of banks comprising Barclays Bank PLC, HSBC UK Bank plc, Santander UK plc, AIB Group (UK) plc, Clydesdale Bank PLC and Credit Suisse AG, in addition to Lloyds Bank plc and National Westminster Bank plc.  The syndication was significantly oversubscribed showing strong support for both the Company and transaction. 

As part of the financing the two freehold property portfolios were independently revalued at £350m for Cambian and £424m for CareTech making the Enlarged Group total £774m.These valuations are significantly in excess of net book values and previous valuations. 

The loan to value based only on the freehold property values is c. 42% whilst the proforma net debt to EBITDA of the Enlarged Group is 4.3x which is expected to reduce to under 4x in the short term. 

With the demand for fixed income from pension funds we are looking in the short term to undertake another Ground Rent transaction for approximately £35m, to lock in very attractive long term rates. 

CareTech remains committed to maintaining leverage at between c. 3-4x net debt to EBITDA. 

Farouq Sheikh, CareTech’s Executive Chairman, commented:

“This has been an exceptionally busy, successful and transformational year as we complete our 25th year as CareTech.

“In the year to 30 September 2018, we have continued our focus on quality of care, on staff development and on reconfiguring services to meet the requirements of care commissioners. This focus has underpinned our organic growth during the year, whilst we also pursued our acquisition strategy.

“We enter the current year having just completed the substantial acquisition of Cambian, a highly complementary business. CareTech now comprises two trading divisions, the CareTech Division and the Cambian Division, enabling the Group to provide a broader service offering to care commissioners with increased geographic reach.

“I would like to thank existing CareTech shareholders for their continued support through this transaction.  I also welcome the new shareholders who are receiving CareTech shares for their Cambian stock.  We are committed to delivering long term value for all of our shareholders.

“The continued support of the CareTech staff has been extremely encouraging and I welcome the entire Cambian team to the CareTech family.  I look forward to a large number of the Cambian staff becoming shareholders of the Enlarged Group.

“I would also like to thank NatWest and Lloyds with whom we have had long standing relationships for underwriting the acquisition and welcome on board our new banking partners.

“Our vision is for the Enlarged Group to be a leading, nationwide and integrated provider of social care pathways in the UK to children and adults, with continued growth and care excellence. We look forward to the future with confidence.”

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