Earnings Release • Sep 12, 2018
Earnings Release
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RNS Number : 4788A
Cambian Group PLC
12 September 2018
Cambian Group plc
("Cambian" or "the Group" or "the Company")
Unaudited results for the six months ended 30 June 2018
| Summary financials - continuing operations | 2018 H1 | 2017 H1 | 2017 FY |
| Revenue | £105.2m | £100.6m | £196.0m |
| Adjusted EBITDA 1 | £11.8m | £8.4m | £18.7m |
| Adjusted EBITDA margin | 11.2% | 8.3% | 9.5% |
| Operating profit before exceptional items 2 | £4.0m | £0.3m | £2.4m |
| Operating profit/(loss) | £1.7m | £(1.2)m | £(8.8)m |
| Profit/(loss) before tax | £1.6m | £(1.2)m | £ (9.0)m |
| Net cash 3 | £75.5m | £121.9m | £82.8m |
| Adjusted basic earnings per share 4 | 2.8p | 1.4p | 3.6p |
| Statutory basic earnings/(loss) per share - continuing | 0.7p | (0.6)p | (4.3)p |
1 Adjusted EBITDA is earnings before net finance costs, tax, depreciation, amortisation, profit or loss on disposal of assets, IPO share option charges and exceptional items (note 2).
2 Exceptional items are defined in the accounting policies (note 1).
3 Cash and cash equivalents net of obligations under finance leases, 2017 H1 comparative has been re-presented to align with this definition.
4 Adjusted basic earnings per share is defined as statutory basic earnings per share before amortisation of acquired intangible assets, IPO share option charges and exceptional items, net of the tax effect of these adjustments (note 7).
"The Group is performing in line with the Board's expectations and we are very pleased with our first set of results as a pure children's specialist education and behavioural health services company. These results are in line with the medium-term strategy presented in January and further opportunity exists to improve occupancy and margins."
| Enquiries: | ||
| Cambian Group plc +44 (0) 208 735 6150 | CNC +44 (0) 203 219 8800 | |
| Saleem Asaria, Chief Executive Officer Anoop Kang, Chief Financial Officer |
Richard Campbell +44 (0) 777 578 4933 Katherine Fennell +44 (0) 797 182 8445 |
A results teleconference will be held for analysts at 8.30am today. If you would like to attend, please confirm your attendance to [email protected].
The presentation to be given by management will be made available ahead of time at: http://www.cambiangroup.com/cambiangroup/investor/home.aspx
Conference call dial-in details are available below.
Conference Call:
Conference ID 57326508#
UK FreeCall Dial-In 0800 358 9473
Std International Dial-In +44 (0) 333 300 0804
Conference Call Replay (accessible for 90 days):
Conference ID 301243278#
UK FreeCall 0800 358 2049
Std International +44 (0) 333 300 0819
About Cambian:
Cambian Group is one of the UK's leading children's specialist education and behavioural health service providers. Founded in 2004, it has grown to become a significant partner to the UK public sector. The Group's services have a specific focus on children who present high severity needs with challenging behaviours and complex care requirements. Cambian employs over 4,500 people across a portfolio of approximately 220 residential facilities, specialist schools and fostering offices located in England and Wales.
Overview
The good underlying performance of the business in the first half of 2018 is in line with the Board's expectations and reflects the progress the Group has made to re-position itself towards higher severity services.
Revenue increased by 5% to £105.2 million (2017 H1: £100.6 million) primarily from the increase in fees from moving more of our portfolio to higher severity services. Revenue in 2017 H1 includes £2.4 million received from the Transitional Services Agreement ("TSA") which ended on 28 June 2017. Revenue, excluding income from the TSA, increased by 7%.
Adjusted EBITDA increased by 40% to £11.8 million (2017 H1: £8.4 million) with an adjusted EBITDA margin of 11.2%, representing a good performance during a period of transition. This reflects a growth in revenue, complemented by a reduction in overheads following a restructuring of the cost base.
Average occupancy levels decreased slightly during the period at 1,263 places (2017 FY: 1,286) predominantly as a result of the planned closure of one of the Specialist Education sites.
New admissions and the continued re-positioning to higher severity services helped deliver an improvement in the average daily fee for Residential Care and Specialist Education of 8% to £369 (2017 H1: £342).
The Group's closing capacity at 30 June 2018 was 1,617 places (2017 FY: 1,643 places) reflecting a net reduction of 26 places since the end of 2017. The reduction, predominantly within the Specialist Education division, relates to the closure of Southwick Park School in April 2018. This property was sold for £5.1 million in July, which was £1.3 million above its book value at 31 December 2017.
Closing occupancy was 1,266 places giving a stable closing utilisation of 78% (2017 FY: 77%).
Closing occupancy in the Fostering division increased 6% to 688 placements during the period (2017 FY: 649).
Focus on re-positioning of the Children's Service business
The Group's strategy has involved re-positioning more of its Residential Care and Specialist Education services and focusing its Fostering services entirely on higher acuity therapeutic fostering. The Group has made significant progress in this transition.
The Group's ongoing focus is to fill existing capacity, increase fee levels and reduce the cost base to increase margins. Good progress has been made in increasing average fee levels and average occupancy levels have remained stable.
Processes and systems
The Group has focussed on improving its processes to enable it to operate more efficiently with its existing systems and to support its continued strategy to re-position to higher severity services.
Quality and regulatory
The Group remains committed to providing the highest quality specialist education and behavioural health services to children. Its regulatory scores continued to be in line with sector averages with 79% of services rated Good or Outstanding with Ofsted or CQC as at 30 June 2018 (2017 FY: 80%).
The sector continues to see an increasingly stringent regulatory environment with an enhanced rigour of inspections. This is welcomed and we are well-positioned to benefit from this drive to improve the focus on our quality of care. Our aim is to achieve Good or Outstanding ratings in all of our facilities. In the short-term some fluctuation may be expected during the transition to higher severity services.
Dividend
The Board has decided not to announce an interim dividend in view of the Recommended Offer by CareTech Holdings PLC.
Outlook
Results for the first six months of the year are in line with the Board's expectations and on track for the full year outlook for 2018.
Recommended Offer
The Boards of CareTech Holdings PLC ("CareTech") and Cambian Group plc ("Cambian") announced on 16 August that they had reached agreement on the terms of a recommended acquisition of Cambian by CareTech, which is intended to be implemented by way of a scheme of arrangement of Cambian under Part 26 of the Companies Act, pursuant to which CareTech will acquire, at Completion, the entire issued and to be issued ordinary share capital of Cambian.
The scheme document and the CareTech prospectus are expected to be published during the week commencing 17 September 2018.
Saleem Asaria
Chief Executive Officer
Capacity and occupancy
Average occupancy decreased marginally during the period following the planned closure of one of the Specialist Education sites and the temporary closure of certain residential sites that have now reopened. Capacity utilisation at 30 June 2018 increased from year end to 78% (2017 FY: 77%).
| Capacity and occupancy | 2018 H1 | 2017 H11 | 2017 FY |
| Average operational capacity | 1,655 | 1,641 | 1,641 |
| Average occupancy | 1,263 | 1,292 | 1,286 |
| Average utilisation | 76% | 79% | 78% |
| Closing operational capacity | 1,617 | 1,640 | 1,643 |
| Closing occupancy | 1,266 | 1,332 | 1,271 |
| Closing utilisation | 78% | 81% | 77% |
| Average fostering placements2 | 670 | 636 | 634 |
| Fill rate3 | 1.40 | 1.43 | 1.41 |
1 Re-presented to reflect calculation based on average daily rather than monthly occupancy levels.
2 Fostering is excluded from the capacity and occupancy numbers and disclosed separately.
3 Ratio of foster placements to foster parents.
Fees
The average daily fee increased by 8% to £369 (2017 H1: £342) reflecting improved fee levels from higher severity services.
| Fees | 2018 H1 | 2017 H12 | 2017 FY |
| Average daily fee (excluding Fostering)1 | £369 | £342 | £348 |
| Fostering average daily fee1 | £135 | £131 | £132 |
1 Implied daily fee from revenue (excluding other income for 2017 H1 and the impact of revenue phasing in Education to reflect performance obligations is removed) and average number of places or foster placements during the period.
2 Re-presented to reflect calculation based on average daily occupancy levels rather than monthly occupancy levels, and impact of revenue phasing in Education to reflect performance obligations is removed.
Revenue
The Group delivered underlying growth in revenue of 7% to £105.2 million (2017 H1: £98.2 million) reflecting the re-positioning to higher severity services and increases in fees. The total growth in revenue of 5% from 2017 H1 includes £2.4 million received from the TSA, which ended on 28 June 2017.
| Revenue | 2018 H1 | 2017 H1 | 2017 FY |
| Revenue | £105.2m | £100.6m | £196.0m |
| Fostering Revenue1 | £16.3m | £15.1m | £30.6m |
1 Fostering revenue is included within revenue, and also disclosed separately.
Adjusted EBITDA
Adjusted EBITDA increased to £11.8 million (2017 H1: £8.4 million) reflecting the growth in revenue and a reduction in overheads.
| Adjusted EBITDA | 2018 H1 | 2017 H1 | 2017 FY |
| Adjusted EBITDA1 | £11.8m | £8.4m | £18.7m |
| Adjusted EBITDA margin | 11.2% | 8.3% | 9.5% |
1 Adjusted EBITDA is earnings before net finance costs, tax, depreciation, amortisation, profit or loss on disposal of assets, IPO share option charges and exceptional items (Note 2).
Operating profit
Operating profit before exceptional items was £4.0 million (2017 H1: £0.3 million). After exceptional costs of £2.3 million (2017 H1: £1.5 million), which relate mainly to one off IT system costs, non-contingent transaction fees incurred in relation to the potential sale of the Group, and restructuring following the closure of one site, the operating profit was £1.7 million in 2018 H1 (2017 H1: £1.2m loss).
Finance charges
Finance costs have remained constant at £0.2 million (2017 H1: £0.2 million) and relate predominantly to commitment fees incurred on the £30 million revolving credit facility which was taken out in May 2017.
Tax
The Group's tax charge was £0.4 million (2017 H1: £0.2 million credit) which represents an effective tax rate of 22.0% (2017 H1: 17.5%). The difference between the current statutory rate of 19.0% and the effective tax rate is principally due to non-deductible expenditure.
Earnings per share
Adjusted basic earnings per share was 2.8 pence (2017 H1: 1.4 pence) and statutory basic earnings per share was 0.7 pence (2017 H1: 0.6 pence loss), reflecting the improved profit after tax.
Capital expenditure
£4.7 million (2017 H1: £2.2 million) of capital expenditure was incurred, of which £1.2 million (2017 H1: £0.5 million) was spent on the development of new capacity, and £3.5 million (2017 H1: £1.7 million) was spent on the improvements to existing sites, including re-positioning of services and the conversion of leasehold properties to freehold.
Cash flow
Net cash from operating activities was an inflow of £11.5 million (2017 H1: £7.7 million inflow). Net cash of £75.5 million (2017 H1: £121.9 million net cash) reflects the return of capital to shareholders of £50.0 million on 15 September 2017 and of £15.0m on 28 February 2018. Operating cash conversion was 119% and represents cash flow from operating activities adjusted for cash outflow from exceptional items, divided by adjusted EBITDA.
Return of capital
On 18 February 2018, a special dividend of £15.0 million (8.2 pence per share) was paid to shareholders.
Sleep-ins
Although there were no significant developments between 1 January 2018 and 30 June 2018, on 13 July 2018, the Court of Appeal published a judgement which overturned earlier decisions. The Court of Appeal has confirmed that social care staff must be paid the National Minimum Wage ('NMW') only for those parts of sleep-in shifts when the member of staff is awake for the purposes of working.
On 8 August the trade union organisation, UNISON, supported an application for leave to appeal this decision to the Supreme Court. That application is currently being considered and it is believed that a decision on the application is likely to be made during the second half of 2018. If leave to appeal is granted, the Supreme Court hearing is unlikely to be held before late 2019. On the basis of this uncertainty, Cambian has maintained its historical and current provisions.
The principal risks and uncertainties facing the business are considered to be as follows:
| Risk | Description & Impact |
| Quality of Service | Failure to provide a high quality and consistent level of care for the children and young people placed under our charge. |
| Regulatory Breach | Loss or suspension of operating licences due to a major statutory, regulatory or contractual compliance breach. |
| Service Innovation | Insufficient innovation in our business model, service offerings or model of care reduces our competitiveness in the market. |
| Incident Response | Inability to effectively react and respond to a major incident or systematic incidents in a timely and controlled manner. |
| Relationships | Failure to create and maintain strong relationships with commissioners to ensure referrals and conversions at appropriate prices. |
| Systems & Processes | Immaturity of financial and operational systems and processes prevents effective business operations and sustainable future growth. |
| Attraction & Retention | Failure to attract and maintain an effective, high quality resource and talent base may prevent the delivery of a high quality service to the service users. Uncertainty regarding outcome of takeover may unsettle staff and increase turnover rates |
| Strategy & Performance | Failure to develop, execute and operate a strategic plan that ensures continued viable growth. |
| Integration | Failure to realise the benefits and synergies of effectively integrating new sites and acquisitions. |
| Business Change | Failure to effectively deliver key business change programmes to improve controls and processes. |
| Government Action | Failure to anticipate or respond to changes in government policy or regulation. |
| National Living Wage | Additional costs of national living wage on "sleep-ins" could be material. |
Further details on the principal risks and uncertainties can be found in the Group's Annual Report and Accounts 2017.
We confirm to the best of our knowledge that this unaudited consolidated interim financial information has been prepared in accordance with IAS 34 as adopted by the European Union and that the interim management report includes a fair review of the information required by DTR 4.2.7R and DTR 4.2.8R, namely:
By order of the Board
| Saleem Asaria | Anoop Kang |
| Chief Executive Officer | Chief Financial Officer |
Cautionary Statement
Certain statements in this half yearly statement are forward-looking. Although the Group believes that the expectations reflected in these forward-looking statements are reasonable, we can give no assurance that these expectations will prove to have been correct. Because these statements contain risks and uncertainties, actual results may differ materially from those expressed or implied by these forward-looking statements. We undertake no obligation to update any forward-looking statements whether as a result of new information, future events or otherwise.
| Notes | Six months 30 June 2018 £'000 (Unaudited) |
Six months 30 June 2017 £'000 (Unaudited) |
Year ended 31 December 2017 £'000 (Audited) |
|||
| Revenue | 3 | 105,186 | 100,566 | 195,952 | ||
| Cost of sales | (83,114) | (78,953) | (158,513) | |||
| Gross profit | 22,072 | 21,613 | 37,439 | |||
| Administrative expenses | (20,348) | (22,765) | (46,253) | |||
| Operating profit/(loss) | 1,724 | (1,152) | (8,814) | |||
| Operating profit before exceptional items | 4,007 | 307 | 2,350 | |||
| Exceptional items within administrative expenses | 4 | (2,283) | (1,459) | (11,164) | ||
| Operating profit/(loss) | 1,724 | (1,152) | (8,814) | |||
| Finance income | 85 | 106 | 218 | |||
| Finance costs | (211) | (190) | (399) | |||
| Profit/(loss) before tax | 1,598 | (1,236) | (8,995) | |||
| Tax | 5 | (352) | 183 | 1,198 | ||
| Profit/(loss) for the period from continuing operations | 1,246 | (1,053) | (7,797) | |||
| Discontinued operations | ||||||
| Profit/(loss) for the period from discontinued operations | 6 | 750 | (3,985) | (3,566) | ||
| Profit/(loss) for the period | 1,996 | (5,038) | (11,363) | |||
| Total comprehensive income/(loss) for the period1 | 1,996 | (5,038) | (11,363) | |||
| Earnings/(loss) per share | ||||||
| Basic (pence per share) | 7 | 0.7 | (0.6) | (4.3) | ||
| Diluted (pence per share) | 7 | 0.7 | (0.6) | (4.3) |
| Notes | 30 June 2018 £'000 (Unaudited) |
30 June 2017 £'000 (Unaudited) |
31 December 2017 £'000 (Audited) |
|||
| Goodwill | 75,783 | 75,783 | 75,783 | |||
| Other intangible assets | 39,555 | 43,808 | 41,678 | |||
| Property, plant and equipment | 169,707 | 174,070 | 170,703 | |||
| Non-current assets | 285,045 | 293,656 | 288,164 | |||
| Trade and other receivables | 17,737 | 30,525 | 22,609 | |||
| Cash and cash equivalents | 8 | 75,705 | 122,335 | 83,056 | ||
| Current tax asset | - | 3,410 | - | |||
| Prepayments and accrued income | 3,406 | 2,555 | 3,224 | |||
| Current assets | 96,848 | 158,825 | 108,889 | |||
| Total assets | 381,893 | 452,481 | 397,053 | |||
| Trade and other payables | (31,993) | (28,315) | (22,208) | |||
| Provisions | (137) | (10,426) | (1,603) | |||
| Deferred revenue | (16,858) | (19,817) | (28,491) | |||
| Obligations under finance leases | (168) | (225) | (132) | |||
| Borrowings | (87) | - | - | |||
| Current tax liabilities | (1,822) | - | (1,729) | |||
| Current liabilities | (51,065) | (58,783) | (54,163) | |||
| Net current assets | 45,783 | 100,042 | 54,726 | |||
| Obligations under finance leases | (57) | (229) | (144) | |||
| Provisions | (11,035) | - | (9,777) | |||
| Deferred tax liabilities | (21,211) | (26,559) | (21,540) | |||
| Non-current liabilities | (32,303) | (26,788) | (31,461) | |||
| Total liabilities | (83,368) | (85,571) | (85,624) | |||
| Net assets | 298,525 | 366,910 | 311,429 | |||
| Equity | ||||||
| Share capital | 1,842 | 1,842 | 1,842 | |||
| Share premium | 20,499 | 20,499 | 20,499 | |||
| Merger reserve | 391,459 | 322,559 | 391,459 | |||
| Other reserves | (137,981) | (139,024) | (138,494) | |||
| Retained earnings | 22,706 | 161,034 | 36,123 | |||
| Total equity | 298,525 | 366,910 | 311,429 |
| Share capital £'000 |
Share premium £'000 |
Merger reserve £'000 |
Other reserves £'000 |
Retained earnings £'000 |
Total £'000 |
|
| Balance at 1 January 2017 | 1,842 | 20,499 | 391,459 | (139,665) | 97,172 | 371,307 |
| Total comprehensive loss for the period | - | - | - | - | (5,038) | (5,038) |
| Transfer from merger reserve | - | - | (68,900) | - | 68,900 | - |
| Credit to equity for equity settled share-based payments | - | - | - | 641 | - | 641 |
| Balance at 30 June 2017 | 1,842 | 20,499 | 322,559 | (139,024) | 161,034 | 366,910 |
| Total comprehensive loss for the period | - | - | - | - | (6,325) | (6,325) |
| Transfer from merger reserve | 68,900 | - | (68,900) | - | ||
| Dividends | - | - | - | - | (49,686) | (49,686) |
| Credit to equity for equity-settled share-based payments | - | - | 530 | - | 530 | |
| Balance at 31 December 2017 | 1,842 | 20,499 | 391,459 | (138,494) | 36,123 | 311,429 |
| Total comprehensive income for the period | - | - | - | - | 1,996 | 1,996 |
| Dividends | - | - | - | - | (15,413) | (15,413) |
| Credit to equity for equity-settled share-based payments | - | - | - | 513 | - | 513 |
| Balance at 30 June 2018 | 1,842 | 20,499 | 391,459 | (137,981) | 22,706 | 298,525 |
| Notes | Six months 30 June 2018 £'000 (Unaudited) |
Six months 30 June 2017 £'000 (Unaudited) |
Year ended 31 December 2017 £'000 (Audited) |
|
| Net cash inflow from operating activities | 9 | 11,523 | 7,731 | 29,884 |
| Investing activities | ||||
| Proceeds on disposal of property, plant and equipment | 347 | 150 | 1,081 | |
| Purchases of property, plant and equipment | (4,670) | (2,246) | (10,764) | |
| Sale of Adult business - discontinued operations | - | - | (3,985) | |
| Net cash used in investing activities | (4,323) | (2,096) | (13,668) | |
| Financing activities | ||||
| Dividends paid | (14,957) | - | (49,686) | |
| Repayments of obligations under finance leases | (57) | (108) | (294) | |
| Net cash used in financing activities | (15,014) | (108) | (49,980) | |
| Net (decrease)/increase in cash and cash equivalents | (7,814) | 5,527 | (33,764) | |
| Net increase in cash held on behalf of clients | 463 | 151 | 163 | |
| Cash and cash equivalents at beginning of period | 83,056 | 116,657 | 116,657 | |
| Cash and cash equivalents at end of period | 8 | 75,705 | 122,335 | 83,056 |
1. Accounting policies
General information
Cambian Group plc. (the "Company") is a company incorporated in England and Wales under the Companies Act 2006 and its registered office is at 4th Floor, Waterfront Manbre Wharf, Manbre Road, Hammersmith, London W6 9RH. The Company is listed on the London Stock Exchange. The principal activity of the Company and its subsidiaries (collectively, the "Group") is the provision of high quality behavioural health services to children.
Basis of preparation
The financial information contained in this Half-Yearly Financial Report does not constitute statutory accounts as defined in section 434 of the Companies Act 2006. The results for the year ended 31 December 2017 are an abridged version of the full accounts for that year, which received an unqualified report from the auditor, did not contain a statement under section 498(2) or (3) of the Companies Act 2006 or include a reference to any matter to which the auditor drew attention by way of emphasis without qualifying the auditor's report, and have been filed with the Registrar of Companies. The annual financial statements of the Company are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of financial statements included in this Half-Yearly Financial Report has been prepared in accordance with IAS 34 Interim Financial Reporting, as adopted by the European Union. The same accounting policies, presentation and methods of computation are followed in the condensed set of financial statements as applied in the latest audited annual financial statements except as noted below.
Change in accounting policies - IFRS 9
The Company has adopted IFRS 9 Financial Instruments from 1 January 2018. There has been no change in presentation as a result of this as the Company has no complex financial instruments. The impact on impairment of financial assets has been considered as IFRS 9 mandates the use of an expected credit loss model to calculate impairment losses rather than an incurred loss model. The new impairment model applies to the Company's financial assets, and no changes to the impairment provisions were made on transition to IFRS 9 as the majority of trade receivables are principally with local authorities controlled by the UK government. Therefore the inclusion of specific expected credit loss considerations did not have a material impact.
Change in accounting policies - IFRS 15
The Company has adopted IFRS 15 Revenue from Contracts with Customers from 1 January 2018. The primary impact of application is the revision of accounting policies to reflect the five-step approach to revenue recognition required by IFRS 15. This has not resulted in any adjustments as under IAS18 revenue was recognised over the period in which a service was provided, and under IFRS 15 revenue is recognised over time, as performance obligations are satisfied.
Exceptional items
Exceptional items reflect items of non-recurring expenditure that have been disclosed separately due to their size or incidence in order to obtain clear and consistent presentation of the Group's performance (see note 4).
Going concern
The directors have, at the time of approving the financial statements, a reasonable expectation that the Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly, they have adopted the going concern basis of accounting in preparing the financial statements. The directors have considered the Group's forecasts and projections, taking account of reasonably possible changes in trading performance, and are satisfied that the Group should be able to operate within the level of its current facilities. Consideration has also been given to the recommended offer on 16 August 2018 (see note 12)
Critical accounting judgements and key sources of estimation uncertainty
The key assumptions concerning the future, and other key sources of estimation uncertainty at the balance sheet date, that have a significant risk of causing a material adjustment to the carrying amount of assets and liabilities within the next financial year are consistent with those set out in the 2017 Annual Report and Accounts. These include the carrying value of goodwill and trade receivables, the judgements in connection with the "sleep-ins", and an onerous contract.
Sleep-ins
A sleep-in refers to a type of work shift, commonly used in the care industry, where employees "sleep-in" and are paid an allowance for doing so. HMRC's view is 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. Cambian have opted into the scheme. Whilst a number of other care service providers have challenged HMRC's original view, if it is ultimately individually determined that Cambian had to pay each individual engaged in a sleep-in an amount by reference to the National Living Wage, the additional cost could be material. The directors have used their judgement to provide for this matter. The Group has provided £10.6 million against the historic treatment of sleep-ins as at 30 June 2017.
2. Segmental analysis
Products and services from which reportable segments derive their revenues
Following the sale of the Adult Services business in December 2016, the directors have determined there is one remaining operating segment.
The Group assesses performance using adjusted EBITDA as its primary measure. This reflects the underlying performance of the business and provides an additional useful comparison of how the business is managed and measured on a day to day basis. Our KPIs are aligned to our strategy and together are used to measure the performance of our business and form the basis of the performance measures for remuneration.
The following is an analysis of the Group's revenue and results based on continuing operations.
| Six months 30 June 2018 £'000 (unaudited) |
Six months 30 June 2017 £'000 (unaudited) |
Year ended 31 December 2017 £'000 (audited) |
|
| Revenue | 105,186 | 100,566 | 195,952 |
| Adjusted EBITDA1 | 11,781 | 8,404 | 18,687 |
| Depreciation | (5,352) | (5,214) | (11,124) |
| Amortisation | (2,123) | (2,126) | (4,250) |
| Profit on disposal of property, plant and equipment | 11 | 5 | 137 |
| IPO share option charge2 | (310) | (762) | (1,100) |
| Operating profit before exceptional items | 4,007 | 307 | 2,349 |
| Exceptional items | (2,283) | (1,459) | (11,163) |
| Operating profit/(loss) | 1,724 | (1,152) | (8,814) |
| Net financing costs | (126) | (84) | (181) |
| Profit/(loss) before tax | 1,598 | (1,236) | (8,995) |
| Tax | (352) | 183 | 1,198 |
| Profit/(loss) after tax | 1,246 | (1,053) | (7,797) |
1 Adjusted EBITDA is earnings before net finance costs, tax, depreciation, amortisation, profit or loss on disposal of assets, IPO share option charges and exceptional items (Note 4).
2 IPO share option charges arise on Continuation Option Plan shares awarded as part of the IPO, the impact of which is excluded from Adjusted EBITDA. Charges on future share based awards are included within Adjusted EBITDA.
3. Revenue
| Six months 30 June 2018 £'000 (unaudited) |
Six months 30 June 2017 £'000 (unaudited) |
Year ended 31 December 2017 £'000 (audited) |
|
| Revenue from operations | 105,174 | 98,145 | 195,952 |
| Other income - rental | 12 | - | - |
| Other income -Transitional Services Agreement | - | 2,421 | - |
| Revenue | 105,186 | 100,566 | 195,952 |
Revenue from operations is derived from the provision of specialist educational and behavioural health services for children in the UK. Other income in 2018 is derived from the letting of one of the Group's surplus properties to a third party. Other income in 2017 is derived from the Transitional Services Agreement to provide services relating to IT, finance, procurement and estates to the purchasers of the Adult Services business.
4. Exceptional items
The following table provides a breakdown of exceptional items:
| Six months 30 June 2018 £'000 (unaudited) |
Six months 30 June 2017 £'000 (unaudited) |
Year ended 31 December 2017 £'000 (audited) |
|
| IT System costs | 1,169 | - | 642 |
| Transaction fees | 634 | - | - |
| Restructuring and reorganisation costs Costs associated with the disposal of the Adult Services Business |
480 - |
- 1,459 |
888 1,245 |
| Impairment of property, plant and equipment | - | - | 5,177 |
| Sleep-ins | - | - | 3,460 |
| Reversal of prior period exceptional provision | - | - | (248) |
| Exceptional items before tax | 2,283 | 1,459 | 11,164 |
IT System costs relate predominantly to professional fees incurred in connection with a significant project on process simplification and system costs, following the sale of the Adult Services business. Transaction fees relate to non-contingent costs incurred in relation to the potential sale of the Group. Restructuring and reorganisation costs relate predominantly to costs incurred in the closure of one of its sites.
5. Tax
The tax charge in the statement of comprehensive income for the six months ended 30 June 2018 is calculated at a rate of 22.0% (H1 2017: 17.5%), which represents the best estimate of the annual effective tax rate expected for the full year applied to taxable profits for the six month period.
6. Discontinued operations
On 5 December 2016, the Group entered into a sale agreement to dispose of Cambian Healthcare Limited and its subsidiaries, Care Aspirations Developments Limited and its subsidiaries, and Cambian Care Services, ("the Adult Services business"), which carried out all of the Group's Adult Services operations. The disposal was completed on 28 December 2016, on which date control of the Adult Services business passed to the acquirer, Cygnet Health Care Limited ("Cygnet").
A profit of £144.3 million arose on the disposal of the Adult Services business, being the difference between the proceeds of disposal and the carrying amount of the subsidiaries' net assets sold. Under the terms of the Share Purchase Agreement, Cambian delivered a Closing Summary Statement on 24 April 2017 to Cygnet. On 15 September 2017 following formal negotiations between Cambian and Cygnet the purchase price decreased by £4.0 million to £379.0 million.
During 2016, as part of the transaction, it was identified that Cambian was a party to an exclusive supply agreement in respect of pharmaceutical supplies at its sites. This contract did not automatically transfer with the adult services business. The supplier indicated that in its view the sale is in breach of the agreement and is seeking either a novation of the agreement or compensation. Litigation has been formerly threatened but not yet commenced, and the directors have used their judgement to provide for this. In 2018, the directors obtained specialist legal advice on the matter and following this, the provision for this onerous contract has been reduced by £0.8 million.
The following table provides a breakdown of discontinued operations:
| Six months 30 June 2018 £'000 (unaudited) |
Six months 30 June 2017 £'000 (unaudited) |
Year ended 31 December 2017 £'000 (audited) |
|
| Purchase price adjustment | - | (3,985) | (4,015) |
| Directly attributable costs | - | - | 449 |
| (3,985) | (3,566) | ||
| Onerous contract | 750 | - | - |
| Profit/(loss) after tax for discontinued operations | 750 | (3,985) | (3,566) |
7. Earnings per share
The earnings/(loss) and weighted average number of ordinary shares used in the calculation of basic and diluted earnings per share are as follows:
| Six months 30 June 2018 £'000 (unaudited) |
Six months 30 June 2017 £'000 (unaudited) |
Year ended 31 December 2017 £'000 (audited) |
||
| Profit/(loss) after tax for continuing operations | 1,246 | (1,053) | (7,797) | |
| Profit/(loss) after tax for discontinued operations | 750 | (3,985) | (3,566) | |
| Total profit/(loss) after tax for the period | 1,996 | (5,038) | (11,363) | |
| Six months 30 June 2018 Number (unaudited) |
Six months 30 June 2017 Number (unaudited) |
Year ended 31 December 2017 Number (audited) |
||
| Weighted average ordinary shares used in the calculation of basic earnings per share | 182,472,675 | 182,472,675 | 182,402,674 | |
| Weighted average ordinary shares used in the calculation of diluted earnings per share | 184,198,746 | 182,472,675 | 182,402,674 | |
| Weighted average of share options under the Continuation Option Plans | 1,795,916 | 2,473,810 | 1,796,072 |
In prior periods, the weighted average of share options under the Continuation Option Plans has been excluded from the calculation of diluted earnings per share as they were anti-dilutive for the periods presented but could dilute earnings per share in the future.
Adjusted basic earnings per share reconciles to statutory basic earnings per share as follows:
| Six months 30 June 2018 Pence (unaudited) |
Six months 30 June 2017 Pence (unaudited) |
Year ended 31 December 2017 Pence (audited) |
||
| Adjusted diluted earnings per share | 2.7 | 1.4 | 3.6 | |
| Effect of dilution | 0.1 | - | - | |
| Adjusted basic earnings per share | 2.8 | 1.4 | 3.6 | |
| Adjusted basic earnings per share | 2.8 | 1.4 | 3.6 | |
| Amortisation of acquired intangibles | (0.9) | (0.9) | (1.9) | |
| IPO share option charges | (0.1) | (0.3) | (0.4) | |
| Exceptional items | (1.1) | (0.8) | (5.6) | |
| Basic and diluted profit/(loss) per share | 0.7 | (0.6) | (4.3) | |
8. Cash and cash equivalents
| Six months 30 June 2018 £'000 (unaudited) |
Six months 30 June 2017 £'000 (unaudited) |
Year ended 31 December 2017 £'000 (audited) |
||
| Cash and bank balances | 74,276 | 121,398 | 82,102 | |
| Cash held on behalf of clients | 1,429 | 937 | 954 | |
| Cash and cash equivalents | 75,705 | 122,335 | 83,056 | |
Cash and cash equivalents include cash held on behalf of clients, which is not available for use by the Group. All interest earned on these funds is returned back to the client and is not included in the Group's statement of comprehensive income. An equivalent liability of £1.4 million (30 June 2017: £0.9 million and 31 December 2017: £1.0 million) exists for this amount.
9. Notes to the cash flow statement
| Six months 30 June 2018 £'000 (unaudited) |
Six months 30 June 2017 £'000 (unaudited) |
Year ended 31 December 2017 £'000 (audited) |
|
| Profit/(loss) from continuing operations | 1,598 | (1,236) | (8,995) |
| Adjustments for: | |||
| Finance income | (85) | (106) | (218) |
| Finance costs | 211 | 190 | 399 |
| Depreciation of property, plant and equipment | 5,352 | 5,214 | 11,124 |
| Amortisation of intangible assets | 2,123 | 2,126 | 4,250 |
| Profit on disposal of property, plant and equipment | (11) | (5) | (137) |
| Impairment on property, plant and equipment | - | - | 5,177 |
| Other non-cash items | 515 | 640 | 1,341 |
| Operating cash flows before movements in working capital | 9,703 | 6,823 | 12,941 |
| Decrease in receivables | 4,688 | 11,374 | 19,729 |
| Decrease in payables | (2,220) | (11,321) | (4,635) |
| Cash generated by operations | 12,171 | 6,876 | 28,035 |
| Income taxes (paid)/received | (588) | 883 | 1,972 |
| Interest paid | (60) | (28) | (123) |
| Net cash generated from operating activities | 11,523 | 7,731 | 29,884 |
Other non-cash items relate to the charge to the income statement on the IPO share option plans shares under Continuation Option Plan 1 and Continuation Option Plan 2, Long Term Incentive Plans, and non-cash exceptional items.
10. Related party transactions
Balances and transactions between Group companies have been eliminated on consolidation and are not disclosed in this note. Other than remuneration of executive and non-executive directors and members of the senior executive team, there were no related party transactions except for expenses paid to GI Partners (being a shareholder with representation on the Board) of £26,000 (six months ended 30 June 2017: £12,000). This amount was outstanding as at 30 June 2018 and was paid on 31 July 2018.
All related party transactions are considered to be on an arm's length basis, and in the ordinary course of business.
In addition to these related party transactions, the Group uses the services of PHS Group Limited, a hygiene business chaired by Christopher Kemball, our Chairman. The total cost of these services amount to £36,000 (six months ended 30 June 2017: £32,000) and Mr Kemball took no part in the contract negotiations.
11. Dividends
| Six months 30 June 2018 £'000 (unaudited) |
Six months 30 June 2017 £'000 (unaudited) |
Year ended 31 December 2017 £'000 (audited) |
|
| Amounts recognised as distributions to equity holders in the year | |||
| Special dividend of 27.1p per share | - | - | 49,431 |
| 2017 interim dividend of 0.14p per share | - | - | 255 |
| Special dividend of 8.2p per share | 14,957 | - | - |
| 2017 final dividend of 0.25p per share | 456 | - | - |
| Net cash generated from operating activities | 15,413 | - | 49,686 |
12. Subsequent events
Sleep-ins
On 13 July 2018, the Court of Appeal overturned an Employment Tribunal decision made in 2016, which had ruled that social care staff should be paid the National Minimum Wage ('NMW') for sleep-in shifts. The Court of Appeal ruled that sleep-in shifts fall into an exception from the NMW as staff are only 'available for work', which means the NMW would only be payable when the person was awake and working and not while asleep.
On 8 August the trade union organisation, UNISON, appealed to the Supreme Court against this decision. This appeal is currently being considered and it is possible that the Court will agree to hear the appeal. This may take 8-12 weeks. It may take between 12 to 18 months before any further decision on this appeal is made. On the basis of this uncertainty Cambian has maintained its historical and current provisions.
Recommended offer
The Boards of CareTech Holdings PLC ("CareTech") and Cambian Group plc ("Cambian") announced on 16 August that they had reached agreement on the terms of a recommended acquisition of Cambian by CareTech, which is intended to be implemented by way of a scheme of arrangement of Cambian under Part 26 of the Companies Act, pursuant to which CareTech will acquire, at Completion, the entire issued and to be issued ordinary share capital of Cambian.
The scheme document and the CareTech prospectus are proposed to be published in due course.
Independent review report to Cambian Group plc (the "Company")
We have been engaged by the company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2018 which comprises the statement of comprehensive income, the balance sheet, the statement of changes in equity, the cash flow statement and related notes 1 to 12. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.
This report is made solely to the company in accordance with International Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Financial Reporting Council. Our work has been undertaken so that we might state to the company those matters we are required to state to it in an independent review 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, for our review work, for this report, or for the conclusions we have formed.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority.
As disclosed in note 1, the annual financial statements of the group are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34 "Interim Financial Reporting" as adopted by the European Union.
Our responsibility
Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.
Scope of Review
We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Financial Reporting Council for use in the United Kingdom. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2018 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority.
Deloitte LLP
Statutory Auditor
London, United Kingdom
11 September 2018
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact [email protected] or visit www.rns.com.
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