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CareTech Holdings PLC
Preliminary ResultsFor the year ended30 September 2017
CareTech Presentation Team
2
• Farouq Sheikh Chairman
• Michael Hill Group Finance Director
• John Ivers Chief Operating Officer
Agenda
3
• Executive Summary
• Highlights
• Key Investment Merits
• Moving forward
• Business and Operational Update
• Initiatives Underpinning Growth
• Update on Acquisitions
• Financial Results
• Outlook
• Summary/Conclusions
4
Executive Summary
• CareTech has a proven track record of growth, profitability and cash generation over 20 years
• Underlying EBITDA and Diluted EPS have grown by CAGRs of 26% and 20% respectively since IPO
• We operate in c.£12.6bn per annum UK social care sector
• Significant organic growth opportunities and bolt on acquisitions are being driven by:
- Market growing in size and value - Regulatory burden
- Increased outsourcing - Shortfall of specialist beds
• Proven track record of accretive and successfully integrated acquisitions; raised £21m in an up-scaled placing in
February 2015 which included Management investment just over £1.0m
• CareTech raised £37m in new money from Shareholders in March 2017 to fund further accretive acquisitions
5
CareTech today
• 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 205 homes independently valued at £329m
• Growth in the 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
Leaving care 16+
Fostering care
Short breaks/respite
Education
Therapy
Learning services
Recruitment programmes
Career development and retention
Apprenticeships
Adult
Adult learning disability
Mental health
Acquired brain injury
Introduction
6
Key Highlights
Share Placement – oversubscribed £37.4m raised
Acquisition – Selborne Care purchased for £16.9m
Accelerated Organic Growth
- Reconfigurations and developments – 9 Adults and 4 Children’s/Young People projects completed
- Property Purchases – Beacon Reach purchased for £3.8m
Improved Quality Ratings - 82% good (CQC)- 88% outstanding/good (Ofsted)
Maintained Occupancy – mature 93% blended 86%
Strengthened Management Team – including 2 MD’s and Quality Director
New and Enhanced IT and Systems – Candidate management system and Data Analytics
A busy and successful year!
DeliveringImproved our Financial K.P.I’s year on year
Together ensuring that we deliver great outcomes for those we care for!
The Journey so far…
Today• UK Market size of £12.6bn per annum
• Capacity of 2,534
• CareTech market share of less than 2%
• Three specialist operating divisions:
– Adult services – incorporating adult learning disability
– Children services – incorporating young people residential services, fostering care and learning services
– Specialist Services – incorporating mental health and acquired brain injury
7
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
12th year on the Public Markets
Underlying EBITDA and Diluted EPS has grown by CAGR of 26% and 20% respectively since IPO
£22.5m
£166.0m
0
50
100
150
200
2005A
2007A
2009A
2011A
2013A
2015A
2017A
Revenue CAGR 18% A
£2.4
£39.9
0
10
20
30
40
50
1 2 3 4 5 6 7
EBITDA CAGR 26% A
m
m
4.10p
38.03p
p
10p
20p
30p
40p
1 2 3 4 5 6 7
EPS CAGR 20% A
Key Investment Merits – Underpinning Growth
8
Long Established
Platform for Growth
25 years in social care
Market leader
Long term commissioning
relationships
Consistent year on year
growth in capacity and EBITDA
Passion for Quality Strong and improving quality ratings
Dedicated in house Compliance team
Unique Line of Sight Focus
Care Governance
Favourable Market
Dynamics
UK market size £12.6bn per
annum
Barriers to entry due to
regulatory regime
Growth in number of people
requiring care
Move from NHS to
Community based social care
Exceptional
Freehold Estate
Portfolio
Asset Backed
205 Freehold properties
£329m valuation
Book value £275m
Reconfigurations Programme with strong
project team
Diversified Operations Broad Care Pathway
UK wide operations
Work with over 300 plus
Commissioners
Full age profile of service users
Solid Financial
profile and results
Annuity style income
Cash generative
Revenue/EBITDA growth
EPS growth
Gearing improved in last 3 years
Strategic Initiatives
9
Board took a number of Strategic Initiatives in recent years – benefits of which are coming through:
• Creation of complementary care pathways focused on outcomes for Service Users
• Reconfigured existing property assets – meeting market demand
• Investment in People and IT systems
• Strengthening of balance sheet
• Acceleration of Organic Growth and Bolt-on Acquisitions
Moving Forward
10
• Managing through market dynamic and headwinds
• More of the same
- Core organic
- Reconfigurations
- Targeted Bolt On Acquisitions
- Geographic and Care Pathway Expansions
• Harnessing technology
- Use to assist with care provision (tele care)
- Validating and tracking outcomes using technology
- Diagnostic tools
. Monitoring and support
• International Development
- Arab Health 2018
- Exploring related opportunities
• Charitable Foundation
- First Social Care Provider
11
Business and Operational Update
Working Together ‘Extraordinary days every day’
12
Our People
• 5000 plus staff passionate and dedicated
• Well trained and developed• Well led and managed• Supported by tools and back office• High retention and attraction• Our People are Shareholders - share
in success +200 and +250
Those we care for
Positive Outcomes
Supporting 2500 plus people to reach their full potential and independence with life skills
Personalised and tailored It’s all about you User voice essential
Care Pathway
• End to End Services offering progression
• Specialist support teams working with children, young people, adults, their families and commissioners to provide the best solutions for them
• Learning disabilities• Mental Health Issues• Specialist and complex care• Physical Disabilities• Acquired Brain Injury• Fostered
13
Expanding our Operational Footprint
Children and Young People Fostering Adults
Areas of specialism • Learning disability
• Mental Health Issues
• Autism Spectrum Conditions
• Complex social, emotional and
behavioural difficulties
• Young people in crisis
• Education and Therapy
• Foster Placements for Children and
Young People with challenging and
complex behaviours
• Family placements for Children and
Young People with disabilities
• Learning disabilities
• Mental Health
• Autism and Asperger’s
• Physical disabilities
• Sensory Impairment
• Dual Diagnosis
• Brain Injury Rehabilitation (ABI)
(new 2016)
Regional coverage • South West (extended 2017)
• Home Counties
• North West (extended 2017)
• North East (extended 2017)
• Midlands
• Scotland (extended 2017)
• Wales
• London, Kent, Sussex, Hampshire
and Essex
• North West England
• Midlands (new 2017)
• Wales
• UK Mainland
• Independent Hospital in
Hampshire
• Specialist ABI Service, Oakleaf in
East Midlands (new 2017)
• Expansion in North West, South
West and Midlands (2017)
Market • £1.5bn p.a. growing 5.7% p.a. • £1.6bn p.a. at 5.2% p.a. • £9.5bn p.a. growing at 5.5% p.a.
Market Share • 3% • 1% • 2%
Growth Potential Significant Significant Significant
Offering a broad range of services across Care Pathway
14
Care Pathway – 30 September 2017 Capacity
Our Core Business TodayAdult Learning
Disabilities
Residential
Independent supported living
Community support services
Transitional Services
1,735
% net Growth
from Sept 2016
Adults
Specialist
Services
Residential care
Low secure and step down
Independent supported living
Community outreach
214 1,949 9%
Young People
Residential
Services
Residential care of children
Transitional Services
Education and therapy
284
Children’s & Young People
Foster care Fostering 301 585 9%
Overall Capacity 2,534 9%
Learning
services
Employee Pre-employment and
apprenticeships
509
Initiatives Underpinning Growth
15
Our Focus and Approach
• Pioneering provision of specialist social care services across the UK
- Strong Team with focus on positive outcomes in a community setting
• National profile with Local Engagement and Service Delivery
- Powered by CareTech with support infrastructure
- Facilitating growth
- Local ‘brands’ with high quality reputation for excellent service delivery
• Innovative Emerging Models of Care
- Extending Care Pathway (Children’s/Young People – Adults)
• New Partnerships Approach
- Registered Housing Providers as partners
- Health and Social Care Partnering Opportunities
- Evolving payments/funding models
Key Focus Areas to Generate Growth
Core Organic Initiatives
• Continued growth of capacity and occupancy of existing services
- Capacity net growth of up to 5.5% year on year
• Reconfiguring or extending existing services in process
Projects completed
- 9 Adults projects (43 extra beds)
- Wigan new contract win (36 extra beds) August 2017
- 4 Children’s/Young People projects (11 beds)
• Building out from recent acquisitions (after purchase)
- Spark of Genius 4 new projects (20 extra beds)
- ROC North West 3 new projects (18 extra beds includes Beacon Reach)
• Targeting New Acquisitions with capability for growth and excellent track record
- Strong experienced team
- Reputation for getting deals done once agreed to buy
- Enhanced care pathways/acuity and specialism
- Geographic expansion
16
Extending Scope and Coverage of Existing ServicesChildren's and Young People
17
Hidelow ProjectExtending the highly successful specialist children’s service from Wales into EnglandConverting a holiday let complex in Worcestershire into a 8 bedded Children’s service. Opened November 2017 and currently has the first 2 young people placed. Payback 3.8 years.
Stanbury AvenueLocated in Bristol, opened in the Summer of 2017 as a Supported Accommodation service for Young People transitioning to independence. The service is full and we care for 5 Young People as they enter into Adulthood. Payback 2.5 years.
18
Adults Supported Living Services
Essex RoadHertfordshire Third party development of 13 self contained flats for people with Mental Health problems, stepping down from hospital provision. Nine flats currently occupied after 3 months of opening. Payback 2 years.
The AvenueHertfordshire conversion of registered care home into 6 self-contained flats for people with complex needs, full within 2 months of opening. Payback 2.4 years.
Gayton RoadKings Lynn. Third party development of 6 self-contained flats for people with complex needs. Full after 2 months of opening. Payback 2.7 years.
19
Spark of Genius
Update on Recent Acquisitions
Strong management team retained and focused on growth based on strong quality service provision.
Since our acquisition in July 2015 we have commissioned the following Residential Care Homes for Children and Young People:
West Cottage - Opened November 2016Brandy Burn - Opened January 2017The Shian - Opened April 2017Easter Hayston – Opened July 2017Oaklea – Opening January 2018.
Average Payback 3.5 years.
20
The OakLeaf Group
Update on Recent Acquisitions
• Acquired 14 March 2016• Northamptonshire based provider of specialist
brain injury rehabilitation for men over 18 • Currently has capacity for 122 residential and
nursing places in three different service levels• New 22 bed service opened in 2016 now fully
open at near 100% occupancy• Strong reputation and quality ratings• Excellent geographic and Care Pathways fit with
CareTech, platform for growth of brain injury services
• Management retained
21
ROC North West
Update on Recent Acquisitions
Laceby House is a 5 bed home in Oldham for young people with social, emotional and behavioural difficulties. Laceby was purchased on 27 February 2017, opening in June and was full by November 2017.
Fairfield is a 5 bed home in Rawtenstall for young people with social, emotional and behavioural difficulties.
Red Rock is a 5 bed property located in Wigan and will support young people with social, emotional and behavioural difficulties. Purchased 6 October 2017, opened 4 December. To be full in January 2018.
Beacon Reach• Purchased 9 June for £3.8m estimated payback 3.75 years• New Mountwood Academy• 8 Young People transferred in August 2017, currently 13
Young People with development plans to move to 23 over next 12 months
Average Payback for residential projects 3.5 years.
Providers of specialist residential care, supported living services, outreach and day care services for adults with a range of learning disabilities and associated mental health needs including challenging behaviours. Purchased June 2017 for £16.9m.
Retained operational management. Excellent reputation and strong demand for services with over 20 commissioners funding care provision. Residential care services are provided through 8 care services with a combined capacity of 57 beds. Supported Living services are provided to 30 service users. Innovative outreach and day services are also offered.
22
New Acquisition
Selborne Care
Initiatives Supporting Our Growth
23
Our People – Staff recruitment and retention
• Positive trend on new hires
• Staff turnover 22%, this is below sector average of 30%
• 200+ staff have completed their apprenticeship programme
• 58 managers on our Leadership and Management Care Programme
• 162 participants in 2016 Sharesave Scheme and 258 participants in 2017 Sharesave Scheme
• Recognition at Care awards
- Laing and Buisson (5 finalists – ROC overall winner Best Children’s Service
2017)
- National Care Awards (14 winners – 39 regional winners)
National Living Wage
• Fully Implemented across our business with a review of role differentials• Impacted under half of our operational team• Fee recovery and new placement fees to incorporate extra costs.
Fee Uplifts and Reviews• Contact programme in process for all purchasers/commissioners
• On track to cover the costs of NLW through uplifts (circa 3%)
• Last year achieved cover of NLW (2%) in fees
Systems and Processes
• Time and Attendance – fingerprint recognition live in services generating accurate and timely rota management and real time costing/payroll analysis
• ‘Line of Sight’ RAG Reporting for each home and service across KPI areas that support continuous improvement and growth
• Projects-Data Analytics and Electronic Forms to Launch in 2018
Quality and Compliance
• CQC inspection ratings for our services are 82% good progressed from 73% in 2016
• Ofsted inspection ratings 88% outstanding/good progressed from 82% in 2016
• We undertake regular operational audits of services and independently monitor and inspect services through a national compliance team
Recognition for Our People-
24
Our 2017 Care Awards
We celebrated our third CareTech National Care Awards the 23rd November 2017 with a Gala
Lunch 300 nominated guests and sponsors attended. There were 120 service user
nominations for the arts and crafts, with 4 finalists and an overall winner. Our National Care
Awards were also presented, there were13 National winners and one overall National winner.
The guest speaker this year was Seema Malhotra MP for Feltham & Heston.
National Awards – Laing & Buisson
Overall Winner
ROC North West won best Children’s ServicesFinalists were:Best for Management Excellence – ROC North WestBest for Specialist Care – Jon Plummer, Service Manager, Kingston HouseBest for Supported Living – Brisbane Road Supported Living TeamBest for Personalisation – Southlands Team
Divisional breakdown
25Extraordinary days every day
Financial Resultsfor the year ended 30 September 2017
Financial Highlights
26
• Revenue increased by 11.4% to £166.0m (2016: £149.0m)
• Underlying EBITDA increased by 7.5% to £39.9m (2016: £37.1m)
• Underlying profit before tax increased by 12.6% to £29.4m (2016: £26.1m)
• Underlying diluted earnings per share decreased by 0.03% to 38.02p (2016:
38.03p)
• Final dividend increased by 5.6% to 6.60p (2016: 6.25p) per share
• Net assets have grown by 34.6% to £204.2m (2016: £151.7m)
• Cash inflows from operating activities were £32.7m (2016: £34.2m)
• Share placing of 11m new shares raising £37m (net of expenses)
twelve months ending2017
Revenue£m
2017Underlying
EBITDA£m
2016Revenue
£m
2016Underlying
EBITDA£m
Adult Learning Disabilities 87.7 26.3 79.4 25.4
Specialist Services 15.5 3.9 10.7 2.7
Sub Total 103.2 30.2 90.1 28.1
Young People Residential Services 43.8 13.2 39.0 11.8
Foster Care 8.6 1.9 8.7 2.2
Sub Total 52.4 15.1 47.7 14.0
Learning Services 10.4 0.9 11.2 1.0
Sub Total 166.0 46.2 149 43.1
Less Unallocated Group Costs (6.3) (6.0)
Total 166.0 39.9 149 37.1
Margin 24.0% 24.9%
27
Service Revenue & EBITDA Splitfor the twelve months ended 30 September 2017
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:
28
2017£m
2016£m
Acquisition Costs (0.8) 0.4
Integration, Reorganisation Costs and Redundancy costs (2.9) (1.8)
Costs arising from placement of shares (0.3) -
Profit arising from ground rent transaction - 5.6
EBITDA Adjustment Items (4.0) 4.2
Amortisation of Intangibles (6.9) (5.7)
Financing costs relating to ground rent transactions (1.1) (2.0)
PBT Adjustment Items (12.0) (3.5)
(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
Financials
29
Cashflow Highlightsfor the twelve months ended 30 September 2017
2017£m
2016£m
Operating Cash flow before Adjustments 39.9 37.1
Movement in working capital (7.2) (2.9)
32.7 34.2
Capital Expenditure (19.8) (14.3)
Proceeds from sale of ground rents - 29.9
Interest, Dividend & Tax Paid (17.2) (12.2)
Share Placing funds 37.4 -
Acquisitions (16.6) (27.6)
Treasury & Acquisition Related Costs (7.2) (7.9)
Decrease In Net Debt 9.3 2.1
Opening Net Debt (156.4) (158.5)
Closing Net Debt (147.1) (156.4)
30
Balance Sheet Highlightsas at 30 September 2017
2017
£m
2016
£m
Tangible Fixed Assets - £327m Valuation 297.2 267.7
Goodwill and Intangibles
Net Debt
84.1
(147.1)
87.0
(156.4)
Other Liabilities (Net) (30.0) (46.6)
Net Assets 204.2 151.7
Actual 2017 Actual 2016
EBITDA: INTEREST 7.2 times 6.0 times
NET DEBT: EBITDA 3.31 times 3.9 times
LOAN: VALUE 46% 51%
Continuing our growth……
31
KeyA: ActualC: Consensus estimates
p
2p
4p
6p
8p
10p
12p
x
1x
2x
3x
4x
5x
6x
7x
Net debt toEBITDA
Divi pershare CAGR25% A
0
10
20
30
40
50
60
70
80
90
0
20
40
60
80
100
120
140
160
180
2005 A 2007 A 2009 A 2011 A 2013 A 2015 A 2017 A
RevenueCAGR 18%A
EBITDACAGR 26%A
EPS CAGR20% A
Outlook
32
IPO 2005 Actual 2017Placing 2015
Direction of Travel
Underlying Market factors remain positive
• Growing market
• Increased outsourcing
• Regulatory burden increasing
• Shortage of specialist beds
Certain Perceived Headwinds
• National Minimum Wage and National Living Wage
• Staffing and staff retention
• Fee rates
• Brexit
Revenue £23m
EBITDA £2.4m
EPS 4.1p
Market size £2.1bn
Market Share 1%
Revenue £123.3m
EBITDA £30.7m
EPS 31.02p
Market size £9.7bn
Market Share less
than 2%
Revenue £166.0m
EBITDA £39.9m
EPS 38.0p
Market size
£12.6bn
Market Share 2%
Next 2 to 3 years
• Another solid year
• CareTech is a profitable, cash generative and asset backed business with an attractive yield
• Highly fragmented market with growth opportunities through organic and acquisition
• Exciting and identifiable opportunities for both organic development, property
related transactions, bolt on acquisitions and reconfigurations
• Firepower boosted by share placement
• Track record of deploying capital in enhanced earnings acquisitions
• Experienced management team whose interests are aligned with shareholders
33
SummarySummary