Annual Report and Accounts 2007 Providing… · Annual Report and Accounts 2007 ... Over the period from 2005–2007 profit before tax, goodwill, amortisation and exceptional items

CareTech Holdings PLCAnnual Report and Accounts 2007

Providing…Ordinary lives to people with learning difficulties

CareTech

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www.caretech-uk.com

CareTech Holdings PLCLeighton House33-37 Darkes LanePotters BarHertfordshire EN6 1BBTel: 01707 652053Fax: 01707 662719

Company Number4457287

Registered OfficeLeighton House33-37 Darkes LanePotters BarHerts. EN6 1BB

DirectorsFarouq Sheikh(Executive Chairman)

Richard Steeves(Non-Executive Deputy Chairman)

Haroon Sheikh(Chief Executive Officer)

David Spink(Finance Director)

Stewart Wallace(Corporate Development Director)

Richard Midmer(Non-Executive Director)

Karl Monaghan(Non-Executive Director)

Graham Mattinson (Operations Director – resigned 5 June 2007)

Company SecretaryDavid Spink

Nominated Advisor and BrokerBrewin Dolphin Securities Limited12 Smithfield StreetLondonEC1A 9BD

AuditorsKPMG Audit Plc2 Cornwall StreetBirminghamB3 2DL

SolicitorsPinsent MasonsCityPointOne Ropemaker StreetLondon EC2Y 9AH

BankersThe Royal Bank of Scotland plc280 BishopsgateLondonEC2M 3YB

RegistrarsCapita RegistrarsNorthern HouseWoodsome ParkFenay BridgeHuddersfieldWest YorkshireHD8 OLA

Directors & AdvisorsCareTech is a leading provider of specialist residential care and support for people with learning disabilities.

CareTech provides high quality housing and support services to 1,029 people in 141 homes, with a range of learning and physical disabilities. The Company also has 5 resource centres for 229 people, offering excellent opportunities for people to experience a fuller and more complete lifestyle. We offer specialist services and support for people with severe physical disabilities, challenging behaviours, mental health problems and autism spectrum disorders.

Contents

1 Financial Highlights 3 Market Opportunity 4 Chairman’s Statement 6 Chief Executive’s Review 10 Finance Director’s Review 12 Board of Directors 14 Directors’ Report 20 Statement of Directors’ Responsibilities 21 Independent Auditors’ Report to the Members of CareTech Holdings PLC 22 Group Profit and Loss Account 23 Group Balance Sheet 24 Company Balance Sheet 25 Group Cash Flow Statement 26 Notes to the Financial Statements Directors & Advisors

CareTech Holdings PLC Annual Report and Accounts 2007 �

2004 18.2

22.5

33.5

53.1

2005

2006

2007

Turnover £m

2004 359

423

739

1,029

2005

2006

2007

Client capacity

2004 1.87

4.10

8.17

13.70

2005

2006

2007

Adjusted earnings per share (p)

2004 18.2

22.5

33.5

53.1

2005

2006

2007

Turnover £m

2004 359

423

739

1,029

2005

2006

2007

Client capacity

2004 1.87

4.10

8.17

13.70

2005

2006

2007


2004 18.2

22.5

33.5

53.1

2005

2006

2007

Turnover £m

2004 359

423

739

1,029

2005

2006

2007

Client capacity

2004 1.87

4.10

8.17

13.70

2005

2006

2007


Turnover increased 59% to £53.�m (2006: £33.5m)

EBITDA (being the operating profit before interest, taxation, depreciation, goodwill amortisation, exceptional items and share-based payments) increased 98% to £�0.9m (2006: £5.5m)

Operating profit increased by �06% to £9.�m (2006: £4.4m)

Profit before tax, amortisation of goodwill, exceptional items and profit on sale of fixed assets increased by 66% to £6.2m (2006: £3.7m)

Profit before tax increased by 63% to £5.4m (2006: £3.3m)

Adjusted earnings per share (being before goodwill amortisation and exceptional items) �3.70p (2006: 8.�7p), basic earnings per share �4.06p (2006: 7.07p)

Two acquisitions completed during the year representing �84 beds

Overall resident capacity increased by 290 to �,029

Occupancy levels at the year end of 90%

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Financial Highlights

Counties in which we have care homes.

2 CareTech Holdings PLC Annual Report and Accounts 2007

We have properties that provide high standards of care for people with learning difficulties.

We are a company that provides high standards of care for people with learning difficulties.

We support people with learning disabilities by helping improve the quality of their lives.

CareTech Holdings PLC Annual Report and Accounts 2007 3

Market Opportunity

The market for people with learning disabilities is growing but remains fragmented. The demographic profile drives demand for high quality care and support. CareTech is well placed to play a leading role in consolidation of the market.

A large and growing market

�.4m people have a learning disability

62,000 residential PLD care places available in the UK

Estimated shortfall of 25,000 residential care places

48% increase in adults over 50 with PLD by 202�

UK learning disability market worth £4.68bn

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Predictable revenues from local authorities and NHS

Annuity style income underpinned by normal life expectancy of residents – 62% of CareTech residents are aged 50 or under

Occupancy rates of c.95% achieved in mature homes

Low client turnover rates evidence long length of stay

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Government policy and regulation

Outsource to private sector to provide a better quality of life rather than old public sector institutionalised care

Increase in care led decision making – ‘Best Value’

With the Care Standards Act, smaller operators increasingly unable to comply with tighter regulatory regime

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1,029 Providing support services to 1,029 adults

141 Providing quality housing in 141 homes

229 Providing five day centres for 229 people


Chairman’s Statement

CareTech leads the way in providing creative ‘person centred’ services.

IntroductionIt gives me great pleasure to present our full year results for 2007. In line with previous years I can report another year of substantial progress for the Group, with strong growth in revenues and underlying earnings since our flotation in October 2005.

CareTech leads the way in providing creative ‘person centred’ services. With this in mind we have increased the range of services we offer within our specialist field of learning disability. This development, coupled with the completion of our regional management project puts us in a stronger position to continue our strategic goals. Market fundamentals and demographics remain favourable to our strategic position.

ResultsThe results to 30 September 2007 demonstrate further significant growth with revenues up 59% to £53.1m and EBITDA (being the operating profit before interest, taxation depreciation, amortisation, exceptional items and share-based payment costs) up 98% to £10.9m.

Profit before tax, amortisation and exceptional items increased by 66% to £6.2m, with adjusted basic earnings per share (i.e. on the same basis) increasing by 68% to 13.7p.

Over the period from 2005–2007 profit before tax, goodwill, amortisation and exceptional items has risen from £1.6m to £6.2m representing a compound growth rate of 96%. Similarly, basic earnings per share, adjusted as above, has increased from 4.1p to 13.7p representing a compound growth rate of 83%.

Further success with growth strategyThe Group continues to deliver against its ambition to become a consolidator in the highly fragmented market in which it operates. In the two years since flotation we have grown from 423 beds and 55 day centre places to the current 1,029 beds and 229 day places.

Through regionalisation of the operational management structure, we have positioned the group to be able to meet its strategic targets with an organisation ‘fit for purpose’.

During 2007 significant growth has again been made with residential bed capacity increasing by 290 to 1,029 beds. Once again this has been achieved through a combination of acquisitions, representing 184 beds, together with organic growth of existing services of 106 beds.

Organic growth underpins the business and the management team has delivered solid performance in this growth area as well as through acquisition. This in part stems from the build up of our regional identity and the consequent strengthening of local relationships with local authority purchasers.

Service developmentThe Group remains committed to the core activity of providing residential services to adults with learning disabilities, but recognises the opportunities that arise from being able to offer a wider menu of service options to Social Services care purchasers.

In 2006 we acquired the children’s services operated by Delam Care and during 2007 we have launched a further three services for children and school leavers in the Midlands area.

Our continuing dialogue with service purchasers has recognised a significant demand for supported living services to individuals who are more independent than those living under the residential care model. Our acquisition of One-Step in July 2007 has given further momentum to our existing supported living services and is an exciting innovation that we will begin to roll-out across our operating regions in the current year. DividendIn July 2007, we announced an interim dividend to shareholders of 1p per share. The Board is proposing a final dividend of 2p per share subject to approval by shareholders at the forthcoming Annual General Meeting.

OutlookThe performance of the underlying business is strong. The 2006 acquisitions of Delam Care and Lonsdale Midlands both performed ahead of expectations in 2007 and the initial results from both Counticare and One-step are very positive. Having organised the Group’s management into a regional structure, we remain ideally placed for further progress in all service areas.

Moreover the market remains favourable. Within the highly fragmented social care market smaller operators are struggling to meet an increased regulatory burden while demographic change leads toward greater demand, especially among the most disabled potential users. We look forward to the coming year with confidence as the Board continues to selectively evaluate growth opportunities.

ConclusionOur continuing success is underpinned by the hard work and dedication of all staff. I would again express my thanks to colleagues for their considerable effort in what has been an energising and fulfilling year.

I look forward to the year ahead with enthusiasm. I am confident that our teams will deliver the very best and innovative services to those we support and in so doing will enable all stakeholders to share in our success going forward.

Farouq SheikhChairman


...Quality homes‘ Our homes are integrated within the wider community. Local authorities recognise the importance of this when making placement decisions.’

Demand outstrips supply for specialist residential care and support for people with learning disabilities. Through the upgrade of existing properties and new acquisitions, CareTech continues to be a leader in the market.


Chief Executive’s Review

Our market position has strengthened and we continue our strategic approach to consolidation, adding a further 290 beds to our portfolio through selective acquisition and organic growth.

Introduction2007 has been another productive year and our annual financial statements to 30 September reflect the solid platform that we continue to build.

We have maintained exceptional standards within our core activity and retain our focus on high quality individually focused service delivery. Through our initiatives and innovations we continue as a favoured provider with a broad range of services that anticipate and meet demand for a spectrum of needs within the learning disability field.

Our market position has strengthened and we continue our strategic approach to consolidation, adding a further 290 beds to our portfolio through selective acquisition and organic growth. We have also increased our day centre capacity to 229 places.

The market in which we operate yields significant growth opportunity with an increase of demand year-on-year, consolidation opportunities and demand for service diversity.

CareTech is a social care provider and in the past year we have worked with more than 140 separate Social Services departments. We understand their evolving commissioning strategies and the value between the traditional residential care model of service provision and the emerging requirement for the provision of supported living services. This approach is delivering positive growth for CareTech and our long-term relationship with these commissioners offers a good deal of confidence about future opportunity.

Market reviewThe market for learning disability is large and expected to grow significantly in the foreseeable future. Department of Health statistics indicate:

there are 1.4m people in the UK with a learning disability; and 185,000 of these people are severely disabled and unable to live independently.

Research by Lancaster University confirms that there is currently a shortfall in the provision of appropriate places of 25,000, mainly residential beds.

The market continues to be highly fragmented with the majority of places being provided by small independent operators with three or less homes. Laing and Buisson, in their 2007 annual review of the mental health and learning disability market confirm that ‘there remains considerable scope for consolidation’.

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Strategic reviewOn flotation in October 2005 we set out our strategic objective to grow substantially and become a leading provider through consolidation in the market. I am pleased to report considerable progress in our drive to meet strategic targets with our current portfolio representing 1,029 beds and 229 day care places.

Our strategy for growth continues unchanged and is characterised by a commitment to provide first class services to people with a learning disability. We are mindful of evolving commissioning strategies and are introducing new services that offer a wider range of options for person-centred planning, including:

1) Supported living schemes – focused on our recent acquisition of One-Step; a pioneer in this field;

2) Care of disabled children – focused on the specialist services acquired with Delam Care.

Through these developments we remain a provider of specialist services, but are able to provide local authorities with a wider range of solutions to their placement needs.

Capacity growthDuring the year we have added a further 290 beds, increasing our capacity to 1,029, compared with 423 at flotation. This has been achieved from both organic development of existing services and from selective acquisitions.

2006 AcquisitionsI can report strong performance from the two acquisitions undertaken in 2006. Delam Care continues as a quality provider of services for children, attaining frequent ‘excellent’ ratings from OFSTED (the children services regulator). The development of children services is gaining momentum and a further three services representing 28 beds were commissioned in 2007.

Lonsdale Midlands has similarly performed well and during the year has been awarded significantly improved quality ratings from CSCI (the adult services regulator). In addition, our success with Lonsdale has led to 24 new clients being transferred to us through the tender route as well as a 12 client contract extension being awarded.


...Quality Carers‘ CareTech has a successful platform for engagement with families, service users and their care managers. We also have a long-standing partnership with independent quality audit assessors who monitor and report on performance.’

Where service trends evolve, we work with care managers to remain at the leading edge of service delivery, modifying and improving the services in line with their expectations.


Chief Executive’s Review continued

We are already seeing the benefits of this from the number of initiatives and business development opportunities that these are generating.

2007 AcquisitionsDuring the year we announced two further important acquisitions.

Counticare was purchased in November 2006 as an established provider of residential services in Kent. This has added a further 101 clients to our existing 18 homes in that region, a substantial day centre and the accommodation for our regional management team.

Counticare has integrated well and performed ahead of expectations.

One-Step was purchased in July 2007 and represents an exciting development of our supported living services. The business provides services to approximately 75 fairly independent people, together with a pioneering family assessment centre for up to six families.

The post-acquisition performance of One-Step has been very exciting and our strategy is to thoughtfully introduce its business model across our network, complementing the existing residential services. The founders of One-Step are part of the ongoing team, having taken a significant part of their net consideration in CareTech shares and driving the roll-out programme.

Organic developmentOrganic growth underpins our development strategy and continues to be an important aspect of our growth. One consideration when reviewing acquisitions is the opportunity for organic growth that stems from the proposal. During the year, 106 organic beds were added with each of our regions able to bolt on additional capacity.

Operational review(i) Management restructuringWe have completed our organisational restructuring into three geographical regions, which equips us for further growth in association with key local authority commissioners.

Each region is seen as a business unit with a regional director and financial accountant leading the management teams. We have devolved business development, human resources and training teams to a local level. The regions are supported from the centre and key performance indicators monitored on a weekly basis.

(ii) QualityThe focus on quality has been further strengthened in the year. We have appointed a Quality and Performance Director who is already increasing the quality benchmarks through a team devolved to the regions. Each region has a quality auditor driving improvement. (iii) InfrastructureWe recognise that the success of our growth programme requires additional infrastructure and have invested significantly in modern information technology utilising industry standard financial and management applications. We provide better and smarter information for the regional teams through high capacity lease lines.

Trading performanceThe Group has again demonstrated a significant increase in financial performance. Revenues are 59% up at £53.1m, EBITDA is 98% up at £10.9m and profit before tax up 63% at £5.4m.

Basic earnings per share have increased from 7.07p to 14.06p and we have introduced an interim dividend during the year of 1p per share. Performance continues to be underpinned by the increasing bed capacity and the benefit of the operational gearing within the business. The current year has started well with progress continuing to be made in each of the regions.

OutlookIn the UK overall and specifically in England there remains a significant shortfall of capacity for people with learning disability. The positive demographics mean that this is certain to continue for the foreseeable future. The regionalisation process means that we now have better and closer working relationships with local purchasers. We are already seeing the benefits of this from the number of initiatives and business development opportunities that these are generating. This, together with the wider range of services that we now have on offer puts us in a strong position as we continue growing the business.

In addition, there is considerable opportunity for further consolidation of the highly fragmented provider sector. As we look forward, CareTech can continue leading the consolidation process; the market place is large and there are numerous opportunities for us to consider. We have developed a strong reputation as a preferred partner and consolidator and look forward with confidence to the future as we continue to execute the strategy set out at the time of flotation.

ConclusionIt has been another very successful year for CareTech. I would like to take the opportunity of thanking our committed management teams and staff for their energy and enthusiasm during this year. I also welcome our new colleagues and wish them well in their careers with CareTech.

Through our efforts we have been able to provide better lives for more than 1,000 people, helping them discover greater independence and an improved quality of life; doing things most of us take for granted.

Haroon SheikhChief Executive Officer4 December 2007


...Quality services‘ Our approach is delivering positive growth for CareTech and our long-term relationship with these commissioners offers a good deal of confidence about future opportunity.’

Through our efforts we have been able to provide better lives for more than �,000 people, helping them discover greater independence and an improved quality of life; doing things most of us take for granted.

�0 CareTech Holdings PLC Annual Report and Accounts 2007

Finance Director’s Review

The Group continues to demonstrate strong trading cashflows which will fund the organic development of further bed capacity.

OverviewThe Group has performed well in the year, with solid results from underlying core activities and stronger than forecast contributions from the acquisitions made since flotation in October 2005.

Turnover and operating profitTurnover increased by 59% to £53.1m, including £6.6m from the Counticare and One-Step acquisitions.

Operating profit increased by 106% to £9.1m including a contribution from the acquisitions of £1.6m. The Group’s operational gearing means a continuing increase in operating margins, arising from adding additional revenue to a substantially complete cost base; EBITDA margins (being earnings before interest, tax, depreciation and amortisation) increased from 16.4% to 20.5%.

Administrative expenses, including goodwill amortisation of £0.5m (2006: £0.4m) increased to £5.1m (2006: £2.6m), reflecting the establishment of the regional structure which has been a significant achievement in the year and which provides an excellent platform for future growth. At September 2007 the regional teams are largely complete and focused to deliver additional growth in 2008.

Exceptional operating itemsThe financial statements reflect the cost of certain non-recurrent costs attributable to the integration of the Counticare and One-Step acquisitions, together with one-off costs attributable to the introduction of the regional management structure. Total exceptional costs are £308,000, comprising acquisition integration costs of £227,000 and management restructuring costs of £81,000. The tax effect of these costs amounts to £92,000.

TaxationThe Group’s effective tax rate in the year (after adjusting for the exceptional tax credit) was 20.9% (2006: 23.7%), which continues to be lower than the standard rate due to the benefit of capital allowances and the utilisation of prior year losses in recent acquisitions

During the year the Group has made significant progress in agreeing prior year and acquisition related tax matters. As a result an exceptional tax profit and loss credit of £800,000 has been recognised.

Earnings per shareBasic earnings per share have increased from 7.07p in 2006 to 14.06p in 2007. Basic earnings per share before exceptional items and amortisation have increased from 8.17p to 13.70p and from 8.13p to 13.54p on a fully diluted basis.

DividendDuring the year the Group introduced an interim dividend payment to shareholders of 1p per share (2006: nil). The directors are proposing the payment of a final dividend of 2p per share (2006: nil), subject to approval by shareholders at the Annual General Meeting.

Cashflow and net debtThe operating cashflows of the Group remain strong with net operating inflows at £8.9m. Capital expenditure, development and acquisitions amounted to £39.6m, partly funded by operating cashflow, together with further utilisation of debt facilities of £34.7m. Financing and tax costs were £4.0m. At 30 September 2007, net debt was £70.4m. The Group continues to demonstrate strong trading cashflows which will fund the organic development of further bed capacity. In October however, the Group reached agreement in principle with its bankers Royal Bank of Scotland to increase its facilities by a further £25m to £100m. Key performance indicatorsThe Group uses the following financial and non-financial key performance indicators to measure the operational and strategic performance of the business.

Earnings Before Interest, Tax, Depreciation and Amortisation (EBITDA)The Group monitors the progress of each home through the measurement of its operating contribution against its targets. This combines with the cost of central operational management to reflect EBITDA. During 2007, the EBITDA margin increased from 16.4% to 20.5%, reflecting the increasing economies of scale within the Group.

Earnings Per Share (EPS)The primary performance indicator is the Group’s earnings per share. Our strategic objective is to increase earnings per share each year through organic growth of the core business and through acquisitions. The 2007 results show improved basic and diluted earnings per share.

Occupation levels All homes are closely monitored to achieve the appropriate balance between full occupation and client compatibility (which is required for long-term occupation). During the year we maintained occupation levels in mature services (being homes open for more than 12 months) at 95% with an overall blend across all services at the year end of 90%.

International Financial Reporting Standards (‘IFRS’)The Group’s first required reporting under IFRS will be its half year report as at 31 March 2008. Preliminary work has been carried out in 2007 to familiarise the Board with the implications of implementing IFRS for CareTech. It is intended to publish an IFRS transition statement as part of the half year report which will restate the results for the year ended 30 September 2007 from UK GAAP to IFRS.

David SpinkFinance Director4 December 2007

CareTech Holdings PLC Annual Report and Accounts 2007 ��

...Quality way of life‘ CareTech provides solutions tailored to individual needs. Our ‘Ordinary Life’ model of care programme focuses on community homes with modern facilities and appropriate placing of individuals creating a quality home environment.’

We have maintained exceptional standards within our core activity and retain our focus on high quality individually focused service delivery.

�2 CareTech Holdings PLC Annual Report and Accounts 2007

Board of Directors

1. Farouq SheikhExecutive Chairman2. Haroon Sheikh BScChief Executive Officer3. David Spink ACAFinance Director4. Stewart WallaceCorporate Development Director5. Dr Richard SteevesNon-executive Deputy Chairman6. Richard MidmerNon-executive Director7. Karl MonaghanNon-executive Director

1 2 3

4 5 6

7


1. Farouq SheikhExecutive Chairman (aged 49)Farouq has been a key architect in CareTech’s growth, having been involved in the vision and strategy from the outset in 1993. With a background in law and a good understanding of finance and commerce, Farouq has been instrumental in securing dept and equity funding for the Company as well as leading the management team in winning a number of long-term contracts from local and health authorities.

Farouq has initiated and overseen the successful equity investments and the subsequent exits for 3i Group PLC (in 1996 and 2002) and Barclays Private Equity (in 2002 and 2005). His intimate knowledge of the marketplace, and his commercial and negotiating expertise assisted in the Group’s growth. In September 2007, he received the award for Entrepreneurial Achievement at the Laing and Buisson Independent Healthcare Awards. The awards are a showcase for the professional skills, management leadership and spirit of enterprise within the independent health and care sectors.

2. Haroon Sheikh BScChief Executive Officer (aged 51)Haroon, a London University graduate, is one of the founder members of CareTech. Haroon brings commercial acumen, related industry experience and property knowledge which has been essential in the growth of the business. He has been actively involved with CareTech since its inception in 1993 and in his role as Chief Executive Officer he has had a major part in the success of the Group.

He is actively involved in the day-to-day running of the business and over time has been instrumental in nurturing and supporting the senior management team which comprises disciplines in care, commerce and property. He has a deep commitment and passion to delivering high quality care and support to people who have a learning disability.

3. David Spink ACAFinance Director (aged 51)David qualified as a chartered accountant with KPMG in 1983. He then joined Air Call PLC as a group accountant. In 1989, he joined Healthcall Group PLC as finance and administration manager and company secretary. He was part of Healthcall Group PLC’s flotation team when it floated on the Official List in 1994. Healthcall Group PLC was subsequently taken private in 1998 and he remained as company secretary until the company was sold to Nestor Healthcare Group PLC in 2002. He joined CareTech shortly after its management buyout in August 2002. As Finance Director he is responsible for monitoring and operating the Group’s financial controls, management reporting and the Group’s information technology. He is also Company Secretary.

4. Stewart WallaceCorporate Development Director (aged 58)Stewart qualified as a social worker in 1971, obtaining an MA in Social Policy. He gained wide experience in London as a practitioner, policy advisor and senior manager before joining Harlow Council as head of community services in 1986. In 1992, he was appointed director of development in what is now the Surrey Oaklands NHS Trust. Subsequently he was appointed general manager of the Trust’s learning disability division. He returned to social services in 1997 as a senior operations manager before joining the board of Care Solutions Limited, a Care UK PLC subsidiary, as development director. He joined CareTech in November 2000 as Development Director.

5. Dr Richard SteevesNon-executive Deputy Chairman (aged 45)Richard was appointed chief executive of Synergy Healthcare PLC in 1992. Synergy Healthcare is a leading provider of non-clinical support services in the UK and the Netherlands, focusing on surgical support such as decontamination, and patient support such as infection control. Previously, he was corporate development manager for Braithwaite PLC, a plant hire company, and an associate consultant with strategic consultant LEK Consulting. Richard has a PhD in biochemistry from St John’s College Cambridge and a BSc (1st Class Hons) in human physiology from the University of British Columbia in Vancouver, Canada.

6. Richard MidmerNon-executive Director (aged 53)Richard was the Financial Director for NHP PLC from November 2000 until June 2007. NHP is a UK property investment group specialising in the ownership of freehold or long leasehold interests in modern purpose-built care homes, the majority of which are leased to care home operators on long-term leases. Prior to this, he was in construction, and the oil and gas sectors. A civil engineer by training, he was treasurer and finance director of British Borneo Oil and Gas PLC from 1997–2000. Richard was appointed to the board of Ruby Estate Investment Trust PLC in May 2007.

7. Karl MonaghanNon-executive Director (aged 45)After graduating from University College Dublin with a Bachelor of Commerce Degree, Karl trained as a chartered accountant with KPMG in Dublin. He has worked in the corporate finance departments at a number of merchant banks and stockbrokers, latterly at Credit Lyonnais Securities for seven years and Robert W. Baird for two years until June 2002. Karl set up Ashling Capital LLP in December 2002 to provide consultancy services to quoted and private companies. He sits on a number of AIM quoted and private company boards.


The directors present their report and the audited Group financial statements for the year ended 30 September 2007.

Principal activitiesThe Group’s principal activity during the year was the provision of a range of specialist care and housing support services for people with learning and physical disabilities.

Business review and future developmentsThe profit and loss account detailed on page 22 sets out the result for the year.

The Chairman’s Statement, Chief Executive’s Review and the Finance Director’s Review report on the performance of the Group during the year ended 30 September 2007 and its prospects for the future.

Key performance indicators are set out in the Financial Highlights on page 1 and in the Key Performance Indicators section of the Finance Director’s Report. The key risks and uncertainties relating to the Group are set out in this report below.

Key risks and uncertaintiesThere are a number of risks and uncertainties which could impact on the Group’s long-term performance. The Board is therefore responsible for establishing a coherent framework for the Group to manage risk, which is designed to identify, manage and mitigate business risk. Summarised below are what the Board consider to be potential risks to the Group. More detailed information on the financial risks is presented in the Finance Director’s Review.

Price and margin pressure.The market is competitive and care commissioners are seeking effective client placements which represent value for money. The Group’s strategy to counteract this is to continue to focus on providing high quality person-centred services at fee levels which are price competitive in the market.

People skills and dependency.As a care services provider, the Group is dependent on the skills of all staff. The Group aims to offer appropriate remuneration and incentive packages to all staff members, including participation in its share option and save as you earn share schemes.

Service standards.All of the Group’s contracts are with government bodies and many of its services are subject to regulation by the Commission for Social Care Inspection. The Group mitigates risks arising from poor service standards by regular audit from an internal quality and performance team.

Health and safety.Due to the nature of the Group operations, an independent advisor monitors health and safety risk in conjunction with the Quality and Performance Director, to ensure that company policies are adhered to.

Disaster recover policy.The Board has developed an IT disaster recovery procedure.

Financial risk management.The financial risk management policies and objectives are included in the Finance Director’s Review on page 10.

DividendsA dividend of £362,424 has been paid during the year. The directors propose a final dividend of 2p per share (2006: nil) subject to approval at the forthcoming Annual General Meeting.

Charitable and political donationsNo direct charitable or political donations were made during the year.

Financial instrumentsThe Group uses financial instruments including cash, borrowings and interest rate swaps, the main purpose of which are to raise finance for the Group’s activities and to manage interest rate risks. Disclosures in respect of these instruments are set out in note 15 to the financial statements.

Directors’ Report


Going concernAfter making appropriate enquiries the directors have reasonable expectations that the Company and Group have adequate resources to continue in operational existence for the foreseeable future. For this reason the directors continue to adopt the going concern basis in preparing these Financial Statements.

Payment of commercial debtsThe Group’s policy, in relation to all of its suppliers, is to settle accounts in accordance with the payment terms agreed with those suppliers. The Group does not follow any code or standard payment practice, but it is the Group’s policy to pay all its suppliers within 30 days of the end of the month in which it received the goods or services.

The number of days’ purchases (‘creditor days’) outstanding for payment by the Group at the year end was 21.0 days (2006: 23.5 days). The parent company is a holding company and does not trade.

EmployeesThe directors recognise the benefits which arise from keeping employees informed of the Group’s progress and plans and through their participation in the Group’s performance. The Group is therefore committed to providing its employees with information on a regular basis, to consulting them on a regular basis so that their views may be taken into account in taking decisions which may affect their interests, and to encouraging their participation in schemes through which they will benefit from the Group’s progress and profitability.

It is the Group’s policy to ensure that disabled persons are treated fairly and consistently in terms of recruitment, training, career development and promotion and that their employment opportunities should be based on a realistic assessment of their aptitudes and abilities. Wherever possible, the Group will continue the employment of persons who become disabled during the course of their employment with the Group through retraining, acquisition of special aids and equipment or the provision of suitable alternative employment.

Authority to allot sharesPursuant to written resolutions approved at the Extraordinary General Meeting dated 18 July 2007, the directors were granted authority under Section 80 of the Companies Act 1985 to allot shares with an aggregate nominal value of up to the value of the authorised but unissued share capital of the Company.

The directors were also granted authority under Section 95 of the Companies Act 1985 to allot equity securities for cash (within the meaning of Section 94(2) to 94(3A)) to the holders of ordinary shares as the directors may determine on the register on a fixed record date in proportion (as nearly as may be) to their respective shareholding or in accordance with the rights attached thereto.

Resolutions for the renewal of both of the above will be proposed at the forthcoming Annual General Meeting.

Substantial shareholdingsAs at 4 December 2007, the Company had been notified of, or was otherwise aware of, the following substantial interests of 3% or more in the ordinary share capital of the Company, other than those in respect of directors which are set out on page 17.

No. of shares Percentage

Natixis 2,717,300 7.4%Old Mutual Asset Managers (UK) Limited 1,884,910 5.2%UBS Global Asset Management (UK) Limited 1,810,557 4.9%Standard Life Investments Limited 1,655,929 4.5%Goldman Sachs (SL) 1,259,226 3.4%Aegon Asset Management UK PLC 1,241,888 3.4%


Share optionsThe Company operates three share option schemes: The CareTech Holdings 2005 Approved Share Option Scheme (‘The Approved Scheme’); the CareTech Holdings 2005 Unapproved Share Option Scheme (‘The Unapproved Scheme’) and the CareTech Holdings 2005 Share-save Scheme (‘the SAYE Scheme’).

Options granted under the above schemes, together with those remaining at 30 September 2007 are as follows:

Options Option Options Options remaining price Date of grant Scheme granted lapsed 30.09.2007 (pence)

13 October 2005 Approved scheme 627,375 (202,159) 425,216 1697 November 2005 SAYE Scheme 186,003 – 186,003 1362 August 2006 Approved Scheme 52,427 (18,081) 34,346 2922 August 2006 Unapproved Scheme 8,220 – 8,220 29217 January 2007 Approved Scheme 162,885 – 162,885 34517 January 2007 Unapproved Scheme 18,263 – 18,263 34521 March 2007 Approved Scheme 6,077 – 6,077 452

All options are exercisable at any time from the third anniversary of the date of grant to the tenth anniversary.

Details of directors’ share options are given on page 18.

Corporate governanceAlthough the Company is not required to comply with the provisions of the Combined Code, the directors intend to comply, so far as it is practicable and appropriate for a public Company of its size and nature.

The directors believe the Board is soundly constituted although, at this stage of the Group’s development, it is felt the functions of a Nomination Committee can be adequately fulfilled by deliberation of the full Board: this will nevertheless be kept under review.

With at least 10 full Board meetings throughout the year, the Board is well able to exercise control over the activities of the Group.

The Company maintains appropriate directors’ and officers’ liability insurance.

All directors have access to the advice and services of the Company Secretary.

The Audit Committee comprises Richard Midmer (Chairman), Farouq Sheikh, Richard Steeves and Karl Monaghan. The Finance Director and representatives of the external auditors attend meetings by invitation as required. The Committee meets at least twice each year and receives reports from the Company’s management and external auditors relating to the annual and interim accounts and the accounting and internal control systems throughout the Group. The Committee has direct and unrestricted access to the external auditors.

The Remuneration Committee comprises Richard Steeves (Chairman), Richard Midmer and Karl Monaghan and meets at least twice each year. The principal duties of the Committee are to review the scale and structure of the remuneration and service contracts for executive directors and senior management. The Committee also administers the Company’s share option schemes.

Internal controlsThe Group has established processes and procedures for identifying, evaluating and managing the significant risks faced by the Group. These processes have been in place for the period under review and up to the date of approval of this annual report and financial statements. The processes and procedures will be regularly reviewed by the Board.

The Board is ultimately responsible for the Group’s system of internal controls and for reviewing its effectiveness. The role of management is to implement Board policies on risk and control. The system of internal controls is designed to manage rather than eliminate the risk of failure of the achievement of business objectives. In pursuing these objectives, internal controls can only provide reasonable and not absolute assurance against material misstatement or loss.

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

Directors’ Report continued


The processes used by the Board to review the effectiveness of the system of internal controls include the following:

Annual budgets are prepared for each operating business. Monthly management reporting focuses on actual performance against these budgets for each operating business.Management reports and external audit reports on the system of internal controls and any material control weaknesses that are identified.Review with management including discussions on the actions taken on problem areas identified by Board members or in the external audit reports.Policies and procedures for such matters as delegation of authorities, capital expenditure and treasury management as well as regular updates.Review of the adequacy of the level of experienced and professional staff throughout the business and the expertise of individual staff members so that they are capable of carrying out their individual delegated responsibilities.Review of the external audit work plans.

DirectorsThe names of the current directors together with brief biographical details are shown on pages 12 and 13.

In accordance with the articles of association, Farouq Sheikh and, Karl Monaghan retire by rotation and, being eligible, offer themselves for re-election. Farouq Sheikh has a service contract which is terminable by the Company on not less than 12 months’ notice. Karl Monaghan has a service contract which is terminable by the Company on not less than three months’ notice.

The names of all directors who held office in the year are disclosed on page 18.

Directors’ service agreementsAll executive directors’ service contracts are subject to 12 months’ notice of termination on either side.

The non-executive directors have each been appointed under contracts which are subject to three months’ notice of termination on either side.

Remuneration policyIt is the Company’s policy to provide for each of its executive directors a remuneration package which is adequate to attract, retain and motivate individuals of the appropriate calibre, whilst at the same time not paying more than is necessary for this purpose.

Non-executive directors’ remunerationThe remuneration for non-executive directors is set by the full Board on the recommendation of the executive directors. Non-executive directors are not eligible to participate in any of the Company’s bonus or share option schemes.

Directors’ interestsThe directors who held office at the end of the financial year had the following interests in the ordinary share capital of the Company according to the register of directors’ interests:

30 Sept 30 Sept 2007 2006 Number of Number of Ordinary Ordinary 0.5p 0.5p

Westminster Holdings Limited* 13,272,500 14,772,500Stewart Wallace 1,186,250 1,486,250David Spink 880,000 1,330,000Richard Steeves 15,625 15,625Richard Midmer 12,500 12,500Karl Monaghan 31,250 31,250

* Westminster Holdings Limited is a company owned by a trust, the beneficiaries of which include Farouq Sheikh and Haroon Sheikh.

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Attendance at meetingsThe directors attended the following meetings in the year to 30 September 2007:

Audit Remuneration Board Committee Committee

Farouq Sheikh 10 2 Richard Steeves 10 2 2Haroon Sheikh 10 David Spink 9 Stewart Wallace 10 Richard Midmer 10 2 2Karl Monaghan 10 2 2Graham Mattinson (resigned 5 June 2007) 3

Executive directors’ remunerationThe remuneration of the executive directors is determined by the Remuneration Committee.

The following comprised the principal elements of executive director’s remuneration for the period under review:

Basic salaryBonusBenefits, including car allowance and vehicle expenses, healthcare and permanent health insurancePension contribution

Information forming part of the financial statementsThe information set out in a) and b) below forms part of the Financial Statements.

(a) Directors’ emolumentsThe various elements of remuneration (excluding employer pension contributions) received by each director were as follows:

Salary and fees Benefits Annual bonus Pension Total 2007 2006 2007 2006 2007 2006 2007 2006 2007 2006 Year to 30 September £000 £000 £000 £000 £000 £000 £000 £000 £000 £000

Current directorsFarouq Sheikh 187 55 20 23 30 24 33 50 270 152Haroon Sheikh 126 80 12 12 43 29 38 50 219 171David Spink 95 74 12 11 27 17 5 3 139 105Stewart Wallace 70 67 12 11 17 15 3 3 102 96Richard Steeves 30 23 – – – – – – 30 23Richard Midmer 27 19 – – – – – – 27 19Karl Monaghan 27 19 – – – – – – 27 19

Former directorGraham Mattinson 50 67 8 11 – 17 2 3 60 98

Total 612 404 64 68 117 102 81 109 874 683

(b) Directors’ share optionsStewart Wallace holds options over 6,875 (2006: 6,875) ordinary shares of 0.5p in the Company’s SAYE Scheme with an exercise price of £1.36.

••••

Directors’ Report continued


(c) Call option agreementsDuring the year to 30 September 2007, the Company has been party to three Call Option Agreements dated 7 October 2005 between the CareTech Holdings Employees’ Share Trust (‘the Trust’) and each of David Spink, Stewart Wallace and Graham Mattinson (‘the Shareholders’). The Call Option Agreements are in identical form and are as set out below.

Pursuant to each Call Option Agreement, each of the Shareholders granted to the Company a series of call options over certain of the ordinary shares they hold in the Company. The number of shares over which the options are exercisable reduces over a three year period from 12 October 2005, so that after two years and one day, two thirds of the relevant shares are no longer subject to the option and after three years and one day, the options drop away entirely. During the life of the options, the Shareholders cannot sell the ordinary shares which are subject to options.

In the event that the Shareholder ceases to be a director and/or an employee of the Company, the Trust has the option to purchase the specified number of ordinary shares from the Shareholder.

The number of ordinary shares subject to the Call Option Agreements during the year is as follows:

Options Options Options At lapsed lapsed exercised At 1 October 12 October 5 June by the 30 Sept 2006 2006 2007 Trust 2007

David Spink 574,875 (191,625) 383,250Stewart Wallace 574,875 (191,625) 383,250Graham Mattinson 574,875 (191,625) (143,729) (239,521) –

On 12 October 2007, being the second anniversary of the Company’s admission onto AIM, Call Options in respect of a further 191,625 ordinary shares lapsed in respect of both David Spink and Stewart Wallace.

AuditorsKPMG Audit PLC have expressed their willingness to continue in office and, in accordance with Section 384 of the Companies Act 1985, a resolution for their re-appointment will be proposed at the forthcoming Annual General Meeting.

Disclosure of information to the auditorsThe directors who held office at the date of approval of this Directors’ Report confirm that, so far as they are each aware, there is no relevant audit information of which the Company’s auditors are aware; and each director has taken all the steps that he ought to have taken as a director to make himself aware of any relevant audit information and to establish that the Company’s auditors are aware of that information.

By order of the Board.

D SpinkCompany Secretary 4 December 2007 Leighton House 33-37 Darkes LanePotters Bar HertfordshireEN6 1BB


The directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulations.

Company law requires the directors to prepare Company and Group financial statements for each financial year which give a true and fair view of the state of affairs of the Company and of the Group and of the profit or loss of the Group for that year. Under that law the directors have elected to prepare the financial statements in accordance with UK Accounting Standards and applicable law (UK Generally Accepted Accounting Practice). In preparing those financial statements, the directors are required to:

select suitable accounting policies and then apply them consistently;make judgements and estimates that are reasonable and prudent;state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements; andprepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group and the Company will continue in business.

The directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the Company and of the Group and to enable them to ensure that the financial statements comply with the Companies Act 1985. They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Company and of the Group to prevent and detect fraud and other irregularities.

The Group and parent company financial statements are required by law to give a true and fair view of the state of affairs of the Group and the parent company and of the profit or loss for the period.

The directors are responsible for the maintenance and integrity of the corporate and financial information included in the Company’s website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

•••

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Statement of Directors’ Responsibilities


We have audited the Group and parent company financial statements, (the ‘financial statements”) of CareTech Holdings PLC for the year ended 30 September 2007 which comprise the Group Profit and Loss Account, the Group and Company Balance Sheets, the Group Cash Flow Statement and the related notes. These financial statements have been prepared under the accounting policies set out herein.

This report is made solely to the Company’s members, as a body, in accordance with Section 235 of the Companies Act 1985. Our audit work has been undertaken so that we might state to the Company’s members those matters we are required to state to them in an auditors’ report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s members as a body, for this report, or for the opinions we have formed.

Respective responsibilities of directors and auditorsThe directors’ responsibilities for preparing the Annual Report and the financial statements in accordance with applicable law and UK Accounting Standards (UK Generally Accepted Accounting Practice) are set out in the Statement of Directors’ Responsibilities on page 20.

Our responsibility is to audit the financial statements in accordance with relevant legal and regulatory requirements and International Standards on Auditing (UK and Ireland).

We report to you our opinion as to whether the financial statements give a true and fair view and are properly prepared in accordance with the Companies Act 1985. We also report to you if, in our opinion, the Directors’ Report is consistent with the financial statements. The information given in the Directors’ Report includes that specific information presented in the Chairman’s Statement, the Chief Executive’s Review and the Finance Director’s Review that is cross referenced from the Business Review and future developments section of the Directors’ Report.

In addition we report to you if, in our opinion, the Company has not kept proper accounting records, if we have not received all the information and explanations we require for our audit, or if information specified by law regarding directors’ remuneration and other transactions is not disclosed.

We read the other information contained in the Annual Report and consider whether it is consistent with the audited financial statements. We consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the financial statements. Our responsibilities do not extend to any other information.

Basis of audit opinionWe conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an assessment of the significant estimates and judgements made by the directors in the preparation of the financial statements, and of whether the accounting policies are appropriate to the Group’s and Company’s circumstances, consistently applied and adequately disclosed.

We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements.

OpinionIn our opinion:

the financial statements give a true and fair view, in accordance with UK Generally Accepted Accounting Practice, of the state of the Group’s and parent company’s affairs as at 30 September 2007 and of the Group’s profit for the year then ended;the financial statements have been properly prepared in accordance with the Companies Act 1985; andthe information given in the Directors’ Report is consistent with the financial statements.

KPMG Audit PLCChartered AccountantsRegistered Auditor

4 December 2007

2 Cornwall StreetBirminghamB3 2DL

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Independent Auditors’ Report to the Members of CareTech Holdings PLC


Goodwill Goodwill Before amortisation Before amortisation exceptional and exceptional and items and exceptional 2007 items and exceptional 2006 amortisation items Total amortisation items Total Notes £000 £000 £000 £000 £000 £000

Turnover 1 – continuing operations 46,530 46,530 33,450 33,450 – acquisitions 6,589 6,589 – –

53,119 53,119 33,450 33,450

Cost of sales (38,790) (100) (38,890) (26,394) (26,394)

Gross profit 14,329 (100) 14,229 7,056 7,056Administrative expenses (4,449) (660) (5,109) (2,224) (399) (2,623)

Operating profit– continuing operations 7,988 (432) 7,556 4,832 (399) 4,433– acquisitions 1,892 (328) 1,564 – – –

9,880 (760) 9,120 4,832 (399) 4,433

Operating profit before interest, taxation depreciation, amortisation, share-based payments and exceptional items 10,909 10,909 5,502 5,502Depreciation 12 (942) (942) (670) (670)Amortisation 11 (452) (452) (399) (399)Share-based payments charge (87) (87) –Exceptional items 7 (308) (308) –

Operating profit 9,880 (760) 9,120 4,832 (399) 4,433

Interest receivable and similar income 4 62 62 122 122Interest payable and similar charges 5 (3,741) (3,741) (1,210) (1,210)

Profit on ordinary activities before taxation 6,201 (760) 5,441 3,744 (399) 3,345Taxation on profit on ordinary activities 6 (1,228) 892 (336) (792) (792)

Profit on ordinary activities after taxation and for the financial year 4,973 132 5,105 2,952 (399) 2,553

Earnings per share – basic 10 13.70p 14.06p 8.17p 7.07p – diluted 10 13.54p 13.90p 8.13p 7.03p

There are no other recognised gains or losses other than the results stated above for the current and preceding year.

Group Profit and Loss AccountFor the year ended 30 September 2007


2007 2006 Notes £000 £000

Fixed assetsIntangible assets 11 9,253 7,408Tangible assets 12 88,264 48,401

97,517 55,809

Current assetsDebtors 14 8,394 2,766Cash at bank and in hand 1,093 1,478

9,487 4,244Creditors: amounts falling due within one year 15 (12,713) (6,851)

Net current liabilities (3,226) (2,607)

Total assets less current liabilities 94,291 53,202

Creditors: amounts falling due after more than one year 16 (71,035) (36,984)Provisions for liabilities 19 (208) –

Net assets 23,048 16,218

Capital and reservesCalled up share capital 20 183 181Share premium account 21 9,569 9,569Merger reserve 21 1,998 –Profit and loss account 21 11,298 6,468

Equity shareholders’ funds 22 23,048 16,218

These financial statements were approved by the Board of Directors on 4 December 2007 and were signed on its behalf by:

F SheikhChairman

D SpinkFinance Director

Group Balance SheetAt 30 September 2007


2007 2006 Notes £000 £000

Fixed assetsInvestments 13 15,563 10,648

Current assetsDebtors 14 10 1,925Cash at bank and in hand 14 9

24 1,934

Creditors: amounts falling due within one year 15 (1,404) (62)

Net current (liabilities)/assets (1,380) 1,872

Total assets less current liabilities 14,183 12,520

Creditors: amounts falling due after more than one year 16 – –

Net assets 14,183 12,520

Capital and reservesCalled up share capital 20 183 181Share premium account 21 9,569 9,569Merger reserve 21 1,998 –Profit and loss account 21 2,433 2,770

Equity shareholders’ funds 22 14,183 12,520

These financial statements were approved by the Board of Directors on 4 December 2007 and were signed on its behalf by:

F SheikhChairman

D SpinkFinance Director

Company Balance SheetAt 30 September 2007


Restated 2007 2006 Notes £000 £000

Net cash inflow from operating activities 25 8,876 4,547Returns on investments and servicing of finance 26 (3,655) (1,082)Taxation (369) –Capital expenditure and financial investment 26 (15,667) (13,345)Acquisitions, net of cash acquired 28 (23,927) (20,272)Dividends paid (362) –

Net cash outflow before financing (35,104) (30,152)Financing 26 34,719 29,803

Change in cash (385) (349)

Restated 2007 2006 £000 £000

Reconciliation of net cash flow to movement in net debtChange in cash in the period (385) (349)Cash flow from increase in debt and lease financing 26 (34,719) (20,303)

Change in net debt resulting from cash flows (35,104) (20,652)New HP inceptions (268) (446)Finance leases acquired with subsidiary – (158)

Change in net debt in year (35,372) (21,256)Net debt at start of financial year (35,002) (13,746)

Net debt at end of financial year 27 (70,374) (35,002)

As explained in note 29, the Group Cash Flow Statement for the year ended 30 September 2006 has been restated.

Group Cash Flow StatementFor the year ended 30 September 2007


1. Accounting policiesBasis of preparationThe financial statements have been prepared under the historical cost convention, and in accordance with applicable accounting standards, applied consistently in dealing with items which are considered material in relation to the Group’s financial statements. The Group has adopted FRS 20 ‘Share-Based Payments’. The effect on prior year figures is immaterial.

Going concernAlthough the balance sheet of the Group shows net current liabilities, the projected further profitability of the Group’s trading subsidiaries show that sufficient cash flows will be generated to finance the Group’s trading activities. The directors therefore consider it appropriate to prepare these financial statements on a going concern basis.

Basis of consolidationThe Group accounts consolidate the accounts of CareTech Holdings PLC and its subsidiary undertakings made up to 30 September 2007. The acquisition method of accounting has been adopted. Under this method, the results of subsidiary undertakings acquired or disposed of in the year are included in the Consolidated Profit and Loss Account from the date of acquisition or up to the date of disposal.

Purchases of subsidiary undertakings are accounted for as tangible fixed asset purchases where such purchases are not material and where the substance of the transaction is the purchase of a freehold property, notwithstanding whether any revenue is accruing in the subsidiary undertaking at the date of the acquisition.

No profit and loss account is presented for CareTech Holdings PLC as permitted by Section 230 of the Companies Act 1985.

GoodwillGoodwill arising on acquisitions is capitalised, classified as an asset and amortised on a straight-line basis over its estimated useful life up to a maximum of 20 years, being the period over which the directors estimate that the value of the underlying business acquired is expected to exceed the value of the underlying assets.

On subsequent disposal or termination of any business the profit or loss on disposal is calculated after charging/(crediting) the unamortised amount of any related goodwill.

Fixed assets and depreciationDepreciation is provided to write off the cost less the estimated residual value of tangible fixed assets over their estimated useful economic lives as follows:

Freehold buildings – 2% straight-lineLong leasehold property – over the life of the lease (to a maximum of 50 years)Short leasehold property – over the life of the leaseFixtures, fittings and equipment – 25% reducing balanceMotor vehicles – 25% reducing balance

LeasesAssets acquired under finance leases are treated as tangible fixed assets and initially recorded at the net present value of the minimum lease payments at the inception of the lease. The assets are depreciated over their useful economic lives. Operating lease rentals are charged to the profit and loss account on a straight-line basis over the period of the lease.

BorrowingsBorrowings are initially stated at the fair value of the consideration received after deduction of issue costs. Issue costs, together with finance costs, are charged to the Profit and Loss Account over the expected term of the borrowings.

TaxationThe charge for taxation is based on the profit for the year and takes into account taxation deferred because of timing differences between the treatment of certain items for taxation and accounting purposes.

Deferred taxation is recognised, with discounting, in respect of all timing differences between the treatment of certain items for taxation and accounting purposes which have arisen but not reversed by the balance sheet date, except as otherwise required by FRS 19.

Notes to the Financial Statements


1. Accounting policies continuedPost retirement benefitsThe Group operated a defined contribution pension scheme during the year. The assets of the scheme are held separately from those of the Group in an independently administered fund. The amount charged against profits represents the contributions payable to the scheme in respect of the accounting period.

Share-based paymentsThe share option programme allows employees to acquire shares of the Company. The fair value of options granted after 13 October 2005 and not yet vested at 30 September 2007 is recognised as an employee expense with a corresponding increase in equity. The fair value is measured at the date of grant and spread over the period during which the employees become unconditionally entitled to the options. The fair value of the options granted is measured using an option pricing model, taking into account the terms and conditions upon which the options were granted. The amount recognised as an expense is adjusted to reflect the actual number of share options that vest except where variations are due only to share prices not achieving the threshold for vesting.

Sale and leaseback transactionsThe Group accounts for sale and leaseback transactions according to the nature of the lease arrangement which arises. Transactions which give rise to an operating lease, in which substantially all the risks and rewards of ownership are transferred, result in a profit or loss on disposal being recognised immediately, calculated by reference to the sale price and the previous carrying value. Profits or losses arising on transactions giving rise to a finance lease, where the Group retains substantially all the risks and rewards of ownership, are deferred and amortised over the shorter of the lease term and the life of the asset.

TurnoverTurnover comprises the fair value of fee income receivable for the year in respect of the provision of care services and is recognised, excluding VAT, in respect of the days that care has been provided in the relevant period. Turnover invoiced in advance is included in deferred income until service is provided. The Group’s activities are wholly undertaken in the United Kingdom and relate to one business segment; accordingly no segmental analysis is shown.

Transactions with Group companiesThe Company has taken advantage of the exemption contained in FRS 8 and not disclosed transactions with other Group companies.

Dividends on shares presented within equityDividends unpaid at the balance sheet date are only recognised as a liability at that date to the extent that they are appropriately authorised and are no longer at the discretion of the Company. Unpaid dividends that do not meet these criteria are disclosed in the notes to the financial statements.

2. Profit on ordinary activities before taxation(a) Profit on ordinary activities before taxation is stated after charging: 2007 2006 £000 £000

Amortisation of goodwill 452 399Depreciation of owned assets 766 488Depreciation of assets held under finance lease 176 182Operating lease rentals – land and buildings 3,747 3,466

– plant and machinery 242 233

(b) Auditors’ remuneration 2007 2006 £000 £000

Fees payable to the Company’s auditors for the audit of the Company’s annual accounts 30 20Fees payable to the Company’s auditors and its associates for other services: – the audit of the Company’s subsidiaries pursuant to legislation 70 39 – tax services 51 30 – corporate finance and transaction services 20 20 – other services 49 –

220 109

Amounts paid to the auditors included above for other services relating to the acquisitions in the year and not expensed through the profit and loss account amounted to £20,000 (2006: £20,000).


2. Profit on ordinary activities before taxation continued(c) Impact of acquisitions

Ongoing 2007 Ongoing 2006 activities Acquisitions Total activities Acquisitions Total £000 £000 £000 £000 £000 £000

Turnover 46,530 6,589 53,119 28,622 4,828 33,450Cost of sales (35,067) (3,823) (38,890) (23,011) (3,383) (26,394)

Gross profit 11,463 2,766 14,229 5,611 1,445 7,056Administrative expenses (3,907) (1,202) (5,109) (2,021) (602) (2,623)

Operating profit 7,556 1,564 9,120 3,590 843 4,433

In respect of 2007, the acquisitions relate to Counticare Limited, Hazledene UK Limited, and Community Support Project Limited. In respect of 2006, the acquisitions relate to Lonsdale Midlands Limited and Delam Care Limited.

This information was omitted from the 2006 financial statements and has been included for completeness. The amounts relating to acquisitions in 2006 form part of continuing operations in 2007.

3. Staff costs 2007 2006 £000 £000

Wages and salaries 24,544 16,181Social security costs 3,198 1,448Pension costs 105 134Share-based payments charge 87 –

27,934 17,763

The average number of persons employed by the Group (including directors) during the year, analysed by category, was as follows:

2007 No. No.

Residential care staff 1,690 1,086Maintenance 12 6Management and administration 96 60

1,798 1,152

The analysis of directors’ emoluments and share options is included within sections (a) and (b) of the Directors’ Report on page 18.This analysis forms part of these financial statements.

4. Interest receivable and similar income 2007 2006 £000 £000

Bank interest 60 120Other interest 2 2

62 122

Notes to the Financial Statements continued


5. Interest payable and similar charges 2007 2006 £000 £000

On bank loans and overdrafts 3,653 1,145Finance charges payable in respect of finance leases and hire purchase contracts 74 57On other loans 14 8

3,741 1,210

6. Taxation on profit on ordinary activities(a) Analysis of charge for year 2007 2006 £000 £000

Current tax – current year charge 928 792 – adjustment in respect of prior years (800) –

Total current tax 128 792Deferred tax – current year charge 208 –

336 792

(b) Factors affecting tax charge for year

The tax assessed for the year is lower than the standard rate of corporation tax. The differences are explained below:

2007 2006 £000 £000

Profit on ordinary activities before taxation 5,441 3,345

Current tax at 30% (2006: 30%) 1,632 1,004Capital allowances in excess of depreciation (949) (451)Expenses disallowed 245 239Adjustment in respect of prior years (800) –

Total current tax 128 792

The deferred taxation assets not provided are: 2007 2006 £000 £000

Capital allowances – 413Other timing differences – –Losses – –

– 413

7. Exceptional items 2007 2006 £000 £000

Acquisition integration costs 227 –Management restructuring costs 81 –

Total operating exceptional items 308 –

Taxation adjustments in respect of prior years 800 –Taxation effect of operating exceptional items 92 –

892 –


8. Dividends 2007 2006 £000 £000

Amounts recognised as a distribution to equity holders in the year:Interim dividend for the year ended 30 September 2007 of 1p (2006: nil) per share 362 –

Proposed final dividend for the year ended 30 September 2007 of 2p (2006: nil) per share 725 –

The proposed final dividend is subject to approval by shareholders at the Annual General Meeting and has not been included as a liability in these financial statements.

9. Company profit and loss account 2007 2006 £000 £000

Company loss for the year (62) (4)

10. Earnings per share 2007 2006 £000 £000

Earnings for the year 5,105 2,553

Goodwill amortisation 452 399Exceptional items – acquisition integration costs 227 –

– management restructuring costs 81 – – tax adjustment in respect of prior years (800) – – tax effect of operating exceptional items (92) –

Adjusted earnings for the year 4,973 2,952

Weighted number of shares in issue for basic earnings per share 36,298,178 36,116,358Weighted number of shares in issue for diluted earnings per share 36,737,180 36,294,625

An adjusted earnings per share has also been presented which the directors consider gives a useful additional indication of the Group’s performance. Adjusted earnings for the year represent earnings for the year adjusted for goodwill amortisation, exceptional items and the taxation thereon.

Diluted earnings per share is the basic earnings per share adjusted for the dilutive effect of the conversion into fully paid shares of the weighted average number of share options outstanding during the year.

2007 2006

Earnings per share (pence per share)Basic 14.06p 7.07pDiluted 13.90p 7.03p

Adjusted earnings per share (pence per share)Basic 13.70p 8.17pDiluted 13.54p 8.13p



11. Intangible assets

Goodwill Group £000

CostAt 1 October 2006 8,644Additions 2,297

At 30 September 2007 10,941

AmortisationAt 1 October 2006 1,236Provided during the year 452


Net book valueAt 30 September 2007 9,253


CompanyThe Company has no intangible assets.

(a) Acquisition of assets from Counticare Holdings LimitedOn 16 November 2006, CareTech Estates Limited acquired certain freehold properties from Counticare Holdings Limited and CareTech Community Services Limited acquired the entire share capital of Counticare Limited and Hazledene UK Limited for an aggregate cash consideration of £14,277,000 plus costs.

The provisional fair values attributed by the directors to the net assets are as follows:

Book Freeholds Fair value value acquired adjustment Fair value £000 £000 £000 £000

Tangible fixed assets 92 12,242 3,836 16,170Debtors 479 479Cash 180 180Creditors – other payables (1,382) (150) (1,532)

(631) 15,297

Consideration paid – cash 14,277Costs of acquisition 1,020

Total of acquisition 15,297

Goodwill arising on acquisition –

The book values of assets and liabilities were extracted from the underlying accounting records of Counticare Holdings Limited, Counticare Limited and Hazledene UK Limited at the date of acquisition. The fair value adjustments made to tangible fixed assets, were to reflect their value on a going concern market value basis. Fair value adjustments to creditors principally relate to the acquisition of liabilities not recorded in the underlying records at the date of acquisition.

In the financial year to 31 March 2006, Counticare Limited and Hazledene Limited reported an aggregate retained profit of £23,000. In the period 1 April 2006 to acquisition Counticare Limited and Hazledene Limited reported aggregate turnover of £4,144,000 and a retained profit of £171,000. In the period since acquisition, Counticare Limited and Hazledene limited recorded aggregate turnover of £5,599,000 and operating profit of £1,267,000, before certain exceptional items as detailed in note 7.


11. Intangible assets continued(b) Acquisition of Community Support Project LimitedOn 26 July 2007, CareTech Holdings PLC acquired the entire share capital of Community Support Project Limited, together with its wholly-owned subsidiary One-Step (Support) Limited and certain freehold and associated long leasehold properties for an aggregate consideration of £7,654,000 plus the assumption of bank and other liabilities of £3,046,000 plus costs.

The provisional fair values attributed by the directors to the net assets are as follows:

Book Freeholds Fair value value acquired adjustments Fair value £000 £000 £000 £000

Intangible fixed assets 2,626 (2,626) –Tangible fixed assets 3,252 3,000 2,448 8,700Debtors 1,323 1,323Cash 208 208Creditors – bank loans (2,084) (2,084)

– shareholder loans (962) (962) – other liabilities (1,110) (150) (1,260)

3,253 5,925

Consideration paid – cash 5,654 – shares 2,000

Costs of acquisition 568

Total cost of acquisition 8,222

Goodwill arising on acquisition 2,297

The book values of assets and liabilities were extracted from the underlying accounting records of Community Support Project Limited and One-Step (Support) Limited at the date of acquisition. The fair values adjustments made to tangible fixed assets reflect their value on a going concern market value basis. Fair value adjustments to creditors principally relate to the recognition of liabilities not recorded in the underlying records at the date of acquisition.

The goodwill arising on this acquisition will be amortised to the profit and loss account over its estimated useful economic life of 20 years, being the period over which the directors estimate that the value of the underlying business acquired is expected to exceed the value of the underlying assets.

Community Support Project Limited reported no material profit and loss movements in any period because it acts purely as a holding company. In its financial year to 31 October 2006, One-Step (Support) Limited recorded a retained profit of £548,946. In the period 1 November 2006 to acquisition, the company recorded turnover of £2,813.000 and an operating profit of £750,000. In the period since acquisition, the company recorded turnover of £990,000 and an operating profit of £317,000 before certain exceptional items as detailed in note 7.



11. Intangible assets continued(c) Acquisitions 2006The following notes reflect the disclosure of the acquisitions undertaken in the year ended 30 September 2006.

(i) Acquisition of Delam Care LimitedOn 2 May 2006, CareTech Community Services Limited acquired the entire share capital of Delam Care Limited, together with associated freehold properties, for a cash consideration of £9,070,000 plus costs.

The fair values attributed by the directors to the net assets are as follows:

Book Freeholds Fair value value acquired adjustments Fair value £000 £000 £000 £000

Intangible fixed assets 30 (30) –Tangible fixed assets 113 7,000 7,113Stock 30 30Debtors 473 473Loans due from shareholders 938 938Cash 624 624Creditors (602) (602)

1,606 8,576

Consideration paid – cash 9,070Costs of acquisition 367


Goodwill arising on acquisition 861

(ii) Acquisition of Lonsdale Midlands LimitedOn 26 May 2006, CareTech Community Services Limited acquired the entire share capital of Lonsdale Midlands Limited, for a cash consideration of £6,514,000 plus costs.

The fair values attributed by the directors to the net assets are as follows:

Book Fair value value adjustments Fair value £000 £000 £000

Intangible fixed assets 28 (28) –Tangible fixed assets 9,551 2,869 12,420Debtors 875 49 924Loans due from shareholders 2,676 2,676Cash 45 45Bank overdraft (8,314) (8,314)Finance leases (158) (158)Creditors (2,593) (771) (3,364)

2,110 4,229

Consideration paid – cash 6,514Costs of acquisition 290


Goodwill arising on acquisition 2,575


11. Intangible assets continued

(d) Reconciliation to Group Cash Flow Statement

2007 2006 Counticare One-Step Delam Lonsdale £000 £000 £000 £000

Cash consideration (15,197) (6,072) (9,437) (6,804)Net cash/overdrafts acquired with subsidiary 180 (1,876) 624 (8,269)Loans (due to)/due from shareholders (962) 938 2,676

Acquisitions net of cash acquired (15,017) (8,910) (7,875) (12,397)

12. Tangible fixed assets

Fixtures, Land and Motor fittings and buildings vehicles equipment Total Group £000 £000 £000 £000

CostAt 1 October 2006 46,633 1,011 3,109 50,753Additions 13,565 598 1,772 15,935Acquisitions 24,737 19 114 24,870

At 30 September 2007 84,935 1,628 4,995 91,558

DepreciationAt 1 October 2006 756 343 1,253 2,352Provided during the year 180 288 474 942

At 30 September 2007 936 631 1,727 3,294

Net book valueAt 30 September 2007 83,999 997 3,268 88,264

At 30 September 2006 45,877 668 1,856 48,401

The net book value of land and buildings is split as follows: 2007 2006 £000 £000

Freehold 78,741 41,822Leasehold 5,258 4,055

83,999 45,877

The net book value of leasehold land and buildings is split as follows: 2007 2006 £000 £000

Short leasehold 1,911 1,847Long leasehold 3,347 2,208

5,258 4,055

Assets held under finance lease or similar hire purchase agreements and included above: 2007 2006 £000 £000

Net book value 805 703Depreciation in the year 176 182

CompanyThe Company has no tangible fixed assets.



13. Fixed asset investments Subsidiary undertakings Company £000

CostAt 1 October 2006 10,648Additions 4,828Share based payments charge in respect of employees of subsidiary undertakings 87


Details of the principal investments in which the Group and Company (unless indicated) holds 20% or more of the nominal value of any class of share capital are as follows: Proportion of voting rights Name of company Holding and shares held Nature of business

CareTech Community Services Limited Ordinary 100% Operator of residential care homesCareTech Community Services (No.2) Limited1 Ordinary 100% Operator of residential care homesCare Support Services Limited1 Ordinary 100% Operator of residential care homesDelam Care Limited1 Ordinary 100% Operator of residential care homesSunnyside Care Homes Limited1 Ordinary 100% Operator of residential care homesLonsdale Midlands Limited1 Ordinary 100% Operator of residential care homesOne-Step (Support) Limited1 Ordinary 100% Supported living servicesCounticare Limited1 Ordinary 100% Operator of residential care homesHazeldene UK Limited1 Ordinary 100% Operator of residential care homesOne Six One Limited1 Ordinary 100% Operator of residential care homesCareTech Estates Limited1 Ordinary 100% Property rentalDaisybrook Limited1 Ordinary 100% Operator of residential care homes

1 Held by subsidiary undertaking.All subsidiaries are incorporated in England & Wales except Counticare Limited which is incorporated in Gibraltar.

14. Debtors Group Company 2007 2006 2007 2006 £000 £000 £000 £000

Trade debtors 7,169 1,601 – –Amounts owed by Group undertakings – – – 1,916Other debtors 97 57 10 9Prepayments and accrued income 1,128 1,108 – –

8,394 2,766 10 1,925

15. Creditors: amount falling due within one year Group Company 2007 2006 2007 2006 £000 £000 £000 £000

Trade creditors 2,177 1,922 – –Amounts owed to Group undertakings – – 1,404 –Other loans 100 – – –Corporation tax 2,051 1,244 – –Obligations under finance leases and hire purchase contracts 331 287 – –Other taxes and social security costs 841 607 – –Other creditors – 100 – –Accruals and deferred income 7,213 2,691 – 62

12,713 6,851 1,404 62


15. Creditors: amount falling due within one year continuedFinancial instrumentsThe Group’s financial instruments comprise short-term debtors and creditors, borrowings and cash, all of which are denominated in sterling. The main purpose of these financial instruments is to raise finance for the Group’s operations. As permitted by FRS 13 ‘Derivatives and other financial instruments’, short-term debtors and creditors have been excluded from the disclosures.

It is, and has been throughout the year, the Group’s policy that no trading of a speculative nature in financial instruments shall be undertaken.

The main risks arising from the Group’s financial instruments are interest rate risk and liquidity risk. The Finance Director is responsible for managing these risks and reports to the Board on a regular basis on the policies adopted. The policies are summarised below.

Interest rate riskThe Group finances its operations through called up share capital, retained profits, bank borrowings, and the sale of assets if appropriate. The Group’s income is by its nature relatively stable and its growth is, inter alia, impacted by inflation. Group policy is to balance interest rate fixes between the short, medium and long-term. The benchmark rate for bank borrowings is LIBOR. During the year, the Group carried three hedging instruments, details of which are as follows:

A five year cap of £10m, commencing 25 October 2002, at LIBOR with a cap rate of 7% and a floor rate of 4.65%.A four year floating rate swap of £25m commencing 19 October 2006, at LIBOR with a cap rate of 5.75% and a floor rate of 4.78%.A five year floating rate swap of £20m commencing on 28 September 2007, at LIBOR with a cap rate of 6.40% and a floor rate of 5.30%.The fair value of these swaps at 30 September 2007 was a liability of £205,000.

Liquidity riskThe Group prepares annual cash flow forecasts reflecting known commitments and anticipated projects. Borrowing facilities are arranged as necessary to finance requirements. The Group has available bank and overdraft facilities totalling £75.5m, sufficient, with cash flow from profits, to fund present commitments. Term facilities are utilised to fund capital expenditure and short-term flexibility is achieved by the utilisation of overdraft facilities.

16. Creditors: amounts falling due after more than one year Group Company 2007 2006 2007 2006 £000 £000 £000 £000

Bank loans 70,461 35,658 – –Obligations under finance leases and hire purchase contracts 574 534 – –Corporation tax – 792 – –

71,035 36,984 – –

17. Loans Group Company 2007 2006 2007 2006 £000 £000 £000 £000

Amounts falling dueIn one year or less or on demand – – – –Between one and two years – – – –Between two and five years 25,615 8,686 – –In five years or more 45,539 27,495 – –Less: unamortised issue costs (693) (523) –

70,461 35,658 – –Less included in Creditors: amounts falling due within one year – – – –

Disclosed in Creditors: amounts falling due after more than one year 70,461 35,658 – –

The bank loans and overdrafts are secured by way of a charge over certain assets of the Group. All of the above loans are subject to floating rates of interest.

••••



18. Obligations under finance leases and hire purchase contractsThe maturity of obligations under finance and hire purchase contracts is as follows: Group Company 2007 2006 2007 2006 £000 £000 £000 £000

Amounts payableWithin one year 331 287 – –In the second to fifth years 574 534 – –

905 821 – –

19. Provisions for liabilities Group Company £000 £000

Deferred taxBalance at 1 October 2006 – –Charge for the year 208 –

Balance at 30 September 2007 208 –

Deferred tax provisions are analysed under the following headings:

2007 2006 £000 £000

Accelerated capital allowances 208 –

208 –

20. Share capital 2007 2006 Authorised share capital £000 £000

51,812,366 Ordinary shares of 0.5p each 259 259 53,402 Deferred shares of 0.5p each – –

259 259

2007 2006 Called up share capital £000 £000

36,596,061 (2006: 36,232,424) Ordinary shares of 0.5p each 183 181 53,402 (2006: 53,402) Deferred shares of 0.5p each – –

183 181

The holders of the ordinary shares are entitled to receive dividends as declared and are entitled to one vote per share at meetings of the Company.


20. Share capital continuedMovements in the number of issued shares were as follows:

Issued in At 1 connection At 30 October with Bonus September 2007 2006 acquisitions Placing Issue 2007

Ordinary shares of 0.5p each 36,232,424 363,637 – – 36,596,061Deferred shares of 0.5p each 53,402 – – – 53,402

On 26 July 2007, the Company issued 363,637 ordinary shares of 0.5p each for a total consideration of £2,000,000 in connection with the acquisition of Community Support Project Limited. (see note 11b).

At 1 At 30 October Conversion Bonus September 2006 2005 (note 1) Placing Issue 2006

Ordinary shares of 0.5p each – 53,000 7,062,500 29,116,924 36,232,424Deferred shares of 0.5p each – 53,402 – – 53,402B1 ordinary shares of 0.5p each 45,000 (45,000) – – –B2 ordinary shares of 0.5p each 45,000 (45,000) – – –C1 ordinary shares of 0.5p each 8,000 (8,000) – – –C2 ordinary shares of 0.5p each 8,000 (8,000) – – –D ordinary shares of 0.5p each 7,000 (7,000) – – –

Note 1• On 4 October 2005, resolutions were passed to convert the issued share capital as follows:• Each B1 share was converted into 1 ordinary share.• 1.15 B2 shares were converted into 1 deferred share.• 1.1 C1 shares were converted into 1 deferred share.• Each C2 share was converted to 1 ordinary share.• Each D share was converted into 1 deferred share.

Upon the conversions referred to above having completed, £145,516 of the Company’s reserves were capitalised and used to issue 29,116,924 bonus shares in the form of ordinary shares to each of the shareholders at that date, pro rata to their holdings of ordinary shares.

On 12 October 2005, the Company placed 7,062,500 ordinary shares at £1.60 per share raising £9,500,000 (net of issue costs).

Share optionsThe Company operates three share option schemes: The CareTech Holdings 2005 Approved Share Option Scheme (‘The Approved Scheme’); the CareTech Holdings 2005 Unapproved Share Option Scheme (‘The Unapproved Scheme’) and the CareTech Holdings 2005 Share-Save Scheme (‘the SAYE Scheme’).

Options granted under the above schemes, together with those remaining at 30 September 2007 are as follows:

Options Options Option Options lapsed to remaining price Date of grant Scheme granted 30.09.2007 30.09.2007 (pence)

13 October 2005 Approved scheme 627,375 (202,159) 425,216 1697 November 2005 SAYE Scheme 186,003 186,003 1362 August 2006 Approved Scheme 52,427 (18,081) 34,346 2922 August 2006 Unapproved Scheme 8,220 8,220 29217 January 2007 Approved Scheme 162,885 162,885 34517 January 2007 Unapproved Scheme 18,263 18,263 34521 March 2007 Approved Scheme 6,077 6,077 452

All options are exercisable at any time from the third anniversary of the date of grant to the tenth anniversary.



20. Share capital continuedShare-based paymentsDuring the year, the Group adopted FRS 20 ‘Share-Based Payments’. A charge of £87,000 arose in respect of the share options in place. The effect on the prior year is immaterial.

The CareTech Holdings 2005 Approved Share Option SchemeThe number and weighted average exercise price of share options is as follows:

2007 2006 Weighted Weighted average average Number of exercise Number of exercise share price share price options (£) options (£)

Outstanding at the beginning of the period 534,874 1.81 – Granted during the period 168,962 3.49 679,802 1.78Forfeited during the period (75,312) 1.78 (144,928) 1.69

Outstanding at the end of the period 628,524 2.24 534,874 1.81

Exercisable at the end of the period – –

The options outstanding at 30 September 2007 were exercisable at prices between 169p and 452p and had a weighted average remaining contractual life of 1.9 years.

During the year ended 30 September 2007, options were granted on 17 January 2007 and 21 March 2007. The aggregate of the estimated fair values of the options granted on the dates is £518,654.

The fair value of services received in return for share options granted are measured by reference to the fair value of share options granted. The estimate of the fair value of the services received is measured based on the Black-Scholes model. The inputs into the Black-Scholes model are as follows:

2007 2006

Weighted average share price £3.08 £3.08Weighted average exercise price £2.24 £1.81Expected volatility 30% 30%Expected life in years 3 3Risk free rate 5% 5%Dividend yield 0% 0%

Expected volatility was determined by calculating the historical volatility of the Group’s share price over the previous two years. The expected life used in the model has been adjusted, based on management’s best estimate for the effects of non-transferability exercise restrictions and behavioural considerations.


20. Share capital continuedThe CareTech Holdings Unapproved Share Option Scheme 2007 2006 Weighted Weighted average average Number of exercise Number of exercise share price share price options (£) options (£)

Outstanding at the beginning of the period 8,220 2.92 – –Granted during the period 18,263 3.45 8,220 2.92Forfeited during the period – – – –Exercised during the period – – – –


Exercisable at the end of the period – – – –

The options outstanding at 30 September 2007 were exercisable at prices between 292p and 345p and had a weighted average remaining contractual life of 2.1 years.

During the year ended 30 September 2007, no options were granted.

The fair value of services received in return for share options granted are measured by reference to the fair value of share options granted. The estimate of the fair value of the services received is measured based on the Black-Scholes model. The inputs into the Black-Scholes model are as follows:

2007 2006


Expected volatility was determined by calculating the historical volatility of the Group’s share price over the previous two years. The expected life used in the model has been adjusted, based on management’s best estimate for the effects of non-transferability exercise restrictions and behavioural considerations.

The CareTech Holdings Save As You Earn Scheme 2007 2006 Weighted Weighted average average Number of exercise Number of exercise share price share price options (£) options (£)

Outstanding at the beginning of the period 186,003 1.36 – –Granted during the period – – 186,003 1.36Forfeited during the period – – – –


Exercisable at the end of the period – – – –

The options outstanding at 30 September 2007 were exercisable at 136p and had a weighted average remaining contractual life of 1.1 years.

During the year ended 30 September 2007, no options were granted.



20. Share capital continuedThe fair value of services received in return for share options granted are measured by reference to the fair value of share options granted. The estimate of the fair value of the services received is measured based on the Black-Scholes model. The inputs into the Black-Scholes model are as follows:

2007 2006


Expected volatility was determined by calculating the historical volatility of the Group’s share price over the previous two years. The expected life used in the model has been adjusted, based on management’s best estimate for the effects of non-transferability exercise restrictions and behavioural considerations

21. Reserves Share Profit Premium Merger and loss account reserve account Group £000 £000 £000

At 1 October 2006 9,569 – 6,468Profit for the year – – 5,105Dividend paid – – (362)Issue of ordinary shares, net of issue costs of £ nil – 1,998 –Share-based payments – – 87

At 30 September 2007 9,569 1,998 11,298

Share Profit premium Merger and loss account reserve account Company £000 £000 £000

At 1 October 2006 9,569 – 2,770Loss for the year – – (62)Dividend paid – – (362)Issue of ordinary shares, net of issue costs of £ nil. – 1,998 –Share-based payments – – 87

At 30 September 2007 9,569 1,998 2,433

The issue of the ordinary shares as part of the acquisition consideration in respect of Community Support Project Limited (see note 11b) has given rise to a merger reserve in accordance with section 131 of the Companies Act 1985.


22. Reconciliation of movements in shareholders’ funds 2007 2006 Group Company Group Company £000 £000 £000 £000

Profit for the financial year 5,105 (62) 2,553 (4)Share-based payments 87 87 – –Less dividend paid (362) (362) – –

Retained for year 4,830 (337) 2,553 (4)New shares issued 2,000 2,000 9,500 9,500

6,830 1,663 12,053 9,496Opening shareholders’ funds 16,218 12,520 4,165 3,024

Closing shareholders’ funds 23,048 14,183 16,218 12,520

23. Pension schemeThe Group operates a defined contribution pension scheme. The assets of the scheme are held separately from those of the Group in an independently administered fund. The pension cost charge for the year represents contributions payable by the Group to the scheme and amounted to £34,825 (2006: £25,790). Contributions amounting to £6,530 (2006: £5,888) were payable at the year end.

24. Other financial commitmentsGroup(a) At 30 September the Group had annual commitments under non-cancellable operating leases as follows: 2007 2006 Land and Land and buildings Other buildings Other £000 £000 £000 £000

Operating leases which expire:Within one year – 52 60 62In the second to fifth years inclusive 164 67 – 119In over five years 3,465 – 3,259 –

3,629 119 3,319 181

(b) In February 2002, CareTech Community Services Limited guaranteed the rental payments arising on certain 35 year property leases following the sale and leaseback of four properties.

(c) In August 2004, the Company guaranteed the rental payments arising on certain 35 year property leases following the sale and leaseback of 26 freehold properties by CareTech Community Services Limited.

25. Reconciliation of operating profit to net cash flow from operating activities 2007 2006 £000 £000

Operating profit 9,120 4,433Depreciation 942 670Amortisation of goodwill 452 399Share-based payments charge 87 –Change in debtors (3,826) 1,775Change in creditors 2,101 (2,730)

Net cash flow from operating activities 8,876 4,547



26. Analysis of cash flows 2007 2006 £000 £000

Returns of investments and servicing of financeInterest received 62 122Interest paid (3,717) (1,204)

(3,655) (1,082)

Restated 2007 2006 £000 £000

Capital expenditure and financial investmentPurchase of tangible fixed assets (15,667) (13,345)Proceeds of disposal of tangible fixed assets – –

(15,667) (13,345)

2007 2006 £000 £000

FinancingIssue of ordinary share capital – 11,300Expenses associated with the issue of ordinary share capital – (1,800)Repayment of loans – (6,800)Capital element of finance lease rental payments (184) (235)New term loan drawn down 34,903 27,338

34,719 29,803

27. Analysis of net debt At 1 Other At 30 October Cash non-cash New HP September 2006 flow changes inceptions 2007 £000 £000 £000 £000 £000

Cash at bank and in hand 1,478 (385) – – 1,093Debt due within one year – (100) – – (100)Debt due after one year (35,659) (34,768) (35) (70,462)Finance leases and hire purchase contracts (821) 184 – (268) (905)

(35,002) (35,069) (35) (268) (70,374)

28. Acquisitions Restated 2007 2006 £000 £000

Cash consideration paid (21,269) (16,241)Net cash/(overdrafts) acquired with subsidiary undertakings (1,696) (7,645)Shareholder loans (repaid)/recovered on acquisition (962) 3,614

(23,927) (20,272)


29. Restatement of 2006 cash flowsDuring the course of the year the directors have concluded that the allocation of certain cash flows in the financial statements for the year ended 30 September 2006 associated with the acquisitions of Lonsdale Midlands Limited and Delam Care Limited was not appropriate. The 2006 cash flow statement has therefore been adjusted as follows:

As previously stated Adjustment Revised £000 £000 £000

Net cash inflow from operating activities 4,547 4,547Returns on investments and servicing of finance (1,082) (1,082)Capital expenditure and financial investment (18,045) 4,700 (13,345)Acquisitions, net of cash acquired (15,572) (4,700) (20,272)

Net cash outflow before financing (30,152) (30,152)Financing 29,803 29,803

Change in cash (349) (349)

As set out in the 2006 Annual Report, the acquisition consideration of Lonsdale Midlands Limited was cash together with the assumption of certain liabilities. Lonsdale Midlands Limited had a bank overdraft liability of £8,314,000 at acquisition, which was repaid in full subsequent to the acquisition. Also, included within Debtors for both the Lonsdale Midlands Limited and Delam Care Limited acquisitions were loans totalling £3,614,000 due from shareholders of those companies. As part of the terms of the acquisitions, these loans were repaid in full.

The directors have concluded that these amounts should have been shown as part of the cash flows associated with acquisitions, being net cash acquired as part of the acquisitions, having been originally shown as relating to the purchase of tangible fixed assets within capital expenditure and financial investment cash flows.

30. Contingent liabilitiesDuring 2004, the Group disposed of assets and has claimed roll-over relief in respect of corporation tax, as it expects to make sufficient qualifying expenditure within three years of the disposals.

The maximum corporation tax which would become payable if the Group does not incur sufficient qualifying expenditure is £4,500,000 (2006: £4,500,000).

31. Related party disclosuresLeighton HouseCareTech Community Services Limited entered into a lease agreement in 1998 with F Sheikh and H Sheikh, both directors, concerning the use of Leighton House, the Group’s head office. The lease expired in May 2007 and is currently being re-negotiated. The annual rent charged under the lease is £53,650 (2006: £53,650).


Company Number4457287

Registered OfficeLeighton House33-37 Darkes LanePotters BarHerts. EN6 1BB

DirectorsFarouq Sheikh(Executive Chairman)

Richard Steeves(Non-Executive Deputy Chairman)

Haroon Sheikh(Chief Executive Officer)

David Spink(Finance Director)

Stewart Wallace(Corporate Development Director)

Richard Midmer(Non-Executive Director)

Karl Monaghan(Non-Executive Director)

Graham Mattinson (Operations Director – resigned 5 June 2007)

Company SecretaryDavid Spink

Nominated Advisor and BrokerBrewin Dolphin Securities Limited12 Smithfield StreetLondonEC1A 9BD

AuditorsKPMG Audit Plc2 Cornwall StreetBirminghamB3 2DL

SolicitorsPinsent MasonsCityPointOne Ropemaker StreetLondon EC2Y 9AH

BankersThe Royal Bank of Scotland plc280 BishopsgateLondonEC2M 3YB

RegistrarsCapita RegistrarsNorthern HouseWoodsome ParkFenay BridgeHuddersfieldWest YorkshireHD8 OLA

Directors & AdvisorsCareTech is a leading provider of specialist residential care and support for people with learning disabilities.

CareTech provides high quality housing and support services to 1,029 people in 141 homes, with a range of learning and physical disabilities. The Company also has 5 resource centres for 229 people, offering excellent opportunities for people to experience a fuller and more complete lifestyle. We offer specialist services and support for people with severe physical disabilities, challenging behaviours, mental health problems and autism spectrum disorders.

Contents

1 Financial Highlights 3 Market Opportunity 4 Chairman’s Statement 6 Chief Executive’s Review 10 Finance Director’s Review 12 Board of Directors 14 Directors’ Report 20 Statement of Directors’ Responsibilities 21 Independent Auditors’ Report to the Members of CareTech Holdings PLC 22 Group Profit and Loss Account 23 Group Balance Sheet 24 Company Balance Sheet 25 Group Cash Flow Statement 26 Notes to the Financial Statements Directors & Advisors

CareTech Holdings PLCAnnual Report and Accounts 2007

Providing…Ordinary lives to people with learning difficulties

CareTech

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www.caretech-uk.com

CareTech Holdings PLCLeighton House33-37 Darkes LanePotters BarHertfordshire EN6 1BBTel: 01707 652053Fax: 01707 662719

Documents

Annual Report and Accounts 2007 Providing… · Annual Report and Accounts 2007 ... Over the period from 2005–2007 profit before tax, goodwill, amortisation and exceptional items