Annual Financial Report

Circle Holdings plc

("Circle", the "Company" or "Group")

Full year audited results

For the year ended 31 December 2013

London, 20 March 2014: Circle Holdings plc (LSE: CIRC), the employee co-owned hospital group, today announces its final results for the year ended 31 December 2013.

Financial Highlights

· Revenue under management1 has grown by 13.1% to £192.7m (2012: £170.3m);

· EBITDAR2 for the year of £0.1m loss (2012: £4.0m loss);

· £27.5m (before fees) fundraise achieved in January 2014;

· Basic and diluted loss per share of 5.1p (2012: 25.7p);

· EBITDA3 (before exceptional items) on a like-for-like basis4 improved by 20.2%;

· Loss before Tax for the financial period improved by 50.0% compared to 2012;

· Daycase and inpatient volumes have risen by 14.0% to 40,797 (2012: 35,801).

Operational Highlights

· Outstanding quality metrics with patient recommendations at 99% across Circle's Independent Hospitals and its Nottingham NHS Treatment Centre;

· Hinchingbrooke remains one of the top ranking non-Foundation Trusts in the country as voted by patients (Friends and Family Test), has become fully-CQC compliant for the first time since inspections began, achieved 96.6% in the critical four-hour waiting time target against a national average of 93.1% and, over the past two years, has successfully delivered an improvement in efficiency of more than 13%;

· Commenced the new five-year contract to provide services at the Nottingham NHS Treatment Centre which successfully transitioned in July 2013;

· Selected as the preferred bidder for an innovative five-year integrated musculoskeletal ('MSK') Service contract in Bedfordshire, with services due to commence in April 2014;

· Discussions on-going with a number of investors for financing the development of CircleManchester and CircleBirmingham hospitals;

· Corporate restructure of the group planned for 2014 to give all partners, including NHS staff, access to tradable shares in Circle Holdings plc for the first time (Project RESET).

Michael Kirkwood, CMG, Chairman of the Group, commented:

"The last year has further demonstrated how Circle's proven model of patient-centred care and employee-led transformation can deliver real results.

"The achievements are the result of the outstanding dedication of our growing partnership of nearly 3,000 individuals and I would like to thank them on behalf of the Board for their immense hard work. These achievements would also be impossible without the continued support of our Board and our existing and new investors. I would like to express my sincere gratitude for their vision and commitment.

"We look forward to playing an increasing role working alongside the NHS and the private sector to improve care for patients whilst challenging the costs of delivery and driving up productivity to benefit all stakeholders including patients, partners and our shareholders."

Steve Melton, Chief Executive Officer of the Group, commented:

"We have broken new ground over the last year, continuing to improve performance, both clinically and financially, across all of our hospitals, and winning new bids to further develop our unique model of employee-led innovation in healthcare.

"We are delighted to have exceeded expectations in delivering over £192 million of revenue under management this year and improving like-for-like EBITDA by more than 20%. In addition, patient satisfaction remains extremely strong, CQC inspections have been positive, and we have won awards for our patient safety initiatives and hospitality services, further proving our reputation for patient-centred care.

"These achievements are a result of the tireless commitment of our growing partnership and I would like to thank them for all for their hard work and dedication."

1 includes revenue generated at Hinchingbrooke Health Care NHS Trust which is managed by the Group, but not included in the Group's consolidated revenue

2 defined as Earnings Before Interest, Tax, Depreciation Amortisation and Rent

3 defined as Earnings Before Interest, Tax, Depreciation and Amortisation

4 excludes results from CircleReading which commenced operations in August 2012

For further information, please contact:

An analyst briefing and live conference call will be held at 9:00am BST today at the offices of Numis Securities Limited.

Introduction

We believe in partnership. That means we invest in our people, we empower them to put their patients first in everything they do, and we give frontline doctors and nurses the tools they need to lead healthcare transformation. For us, "good enough" never is.

Circle was founded nearly a decade ago on the firm belief that healthcare could be better. Since then, we've stayed true to our mission to improve care and build a great company dedicated to our patients.

Our objective has always been fundamentally to transform long-term value in healthcare. We're committed to reinvesting our profits continually to improve the services we deliver whilst providing a strong return to our shareholders.

Our partnership includes more than 3,000 doctors, nurses, managers and porters across the country. These partners include our midwifery team who have been chosen as one of the safest units in the country once again; our award-winning cancer nurses who have been recognised by leading charities for their commitment to compassionate care, and our catering team who have won awards for their locally sourced, high-quality menus, delivered at lower costs.

These are just some of countless stories we hear every day. It's these achievements which have made 2013 such a successful year for Circle. From awards for our patient safety initiatives and newly-opened private hospital, to our positive inspection reports from the CQC, the Royal College of Surgeons and our local commissioners, we are continually improving the quality of care we deliver.

Circle was created to transform healthcare. It doesn't matter if our patients have been referred by their insurer, by their GP, or are paying for themselves: our only concern is that we provide the best quality of care and the highest standard of service.

With the hard work, commitment and innovation of our growing partnership, we know that next year there's even more we can do.

Yours sincerely,

Steve Melton Dr Massoud Fouladi

Chief Executive Officer, Circle Chief Medical Officer, Circle

Operating Overview

NHS

Hinchingbrooke Health Care NHS Trust

Hinchingbrooke Health Care NHS Trust ("Hinchingbrooke") has continued to transform quality and services in the last year. Previously, the hospital suffered from a series of clinical and financial failings that threatened the sustainability of the service and the reputation of the local health economy. As part of this transformation, and as previously disclosed, Circle made a support payment to Hinchingbrooke of £3.7 million in January 2013 to ensure the Trust remained in surplus for its financial year ending 31 March 2013, as required by the franchise agreement.

Prior to the commencement of the contract, A&E performance was ranked 102nd nationally, serious concerns had been raised by the Royal College of Surgeons about the quality of colorectal services, and the trust had been red-flagged by commissioners due to poor handling of Serious Incidents. Since then, Hinchingbrooke has undergone a wholesale transformation in quality of services, resulting in it consistently being ranked in the top decile of hospitals in England for 4-hour A&E waiting time, fully repatriating colorectal services, achieving full CQC-compliance for the first time since inspections began, and reducing Serious Incidents by 50% between 2011-12 and 2012-13.

Unlike many trusts across the country, Hinchingbrooke performed well over the winter of 2013-14, with the proportion of A&E patients being seen within 4 hours remaining consistently above the 95% target threshold at 96.7%. For the year as a whole, the number of patients waiting in A&E for longer than four hours has been cut by one-third between 2011-12 and 2012-13. In 2012-13, complaints at Hinchingbrooke fell by 17.1% to 179, the lowest level in five years.

Staff engagement continues to improve, with staff turnover having now fallen for the sixth month in a row. In the most recent NHS staff survey, Hinchingbrooke has shown improvements from 2012 in more than two-thirds of surveyed areas whilst Direct Nursing Care Time has increased to 69%, ahead of a target of 66%. Further initiatives are planned to improve this and to continue reducing staff sickness absence rates which remain high in some departments.

Hinchingbrooke has received national commendation for a number of activities, receiving the Philip Baxendale Award for employee innovation for the nurse-led patient safety initiative, "Stop the Line", while the catering team have received the Soil Association Bronze Award for organic food and quality improvement.

This transformation in services has resulted in a significant rise in GP referrals, largely from repatriating patients back to their local hospital partly through patient choice as the high quality of care has become recognised.

The increased levels of referrals and quality improvements at Hinchingbrooke have led to increased revenue earned under the contract. As is common with many NHS Trusts at this time of year, a number of contractual challenges from the local CCG have arisen. These challenges centre around the payment for delivered activity, the achievement of certain cost-saving initiatives and the level of unplanned activity in year. Hinchingbrooke is confident of its contractual position in relation to these challenges and is actively engaged in negotiations with the CCG to resolve them. A resolution is expected over the coming weeks through a process of mediation or, failing that, binding arbitration. Circle has an obligation to fund up to a maximum of £5 million in operating deficits at Hinchingbrooke (to date, Circle has invested £3.7 million).

In the event of a significant adverse outcome to the negotiations and/or arbitration there could be a breach of the operating conditions under the Franchise Agreement which would result in further discussion with the Trust Development Authority regarding Circle's on-going right to operate Hinchingbrooke.

CircleNottingham

Over the past five years, CircleNottingham has a proven track-record of delivering the highest quality of patient care, significantly improved productivity, and a reputation among GPs and local patients for providing first-class treatments. Services in the Nottingham Treatment Centre successfully transitioned to the new five-year contract at the end of July. This innovative contract is based on developing services for local patients through the introduction of an integrated care approach.

CircleNottingham has continued to perform well in 2013 and has now opened 11 new inpatient beds based on the high demand for our quality of services. Patient feedback remains encouragingly high and is also reflected in patient volumes which have reached their highest point on record in the last year.

Private

CircleReading

CircleReading has built an enviable reputation for clinical excellence and first-class patient hospitality in its first full year of operation. The hospital has received a positive CQC inspection report, top decile patient feedback scores, and significantly growing referrals from local GPs. Total daycase and inpatient volumes for the last quarter of the year have risen by 84.8% compared with 2012.

CircleReading is supporting local NHS hospitals with their capacity problems and has seen its proportion of the local orthopaedic market increase to circa 20%, making it the leading provider of orthopaedic care in the area.

Earlier in the year, CircleReading won a prestigious design award for "best internal environment" at the 2013 Building Better Healthcare awards. The award recognised "an outstanding therapeutic space that enhances the overall experience of patients". Since opening, the hospital has treated more than 5,000 NHS and private patients, with 99.4% saying they would recommend the hospital to a friend or family member who needed care.

CircleReading expects to build on these successes in NHS and private revenues, developing a larger speciality mix to allow an even wider group of patients to benefit from the cutting edge facilities.

CircleBath

CircleBath has made significant strides since first opening in March 2010. After relatively slow growth at the beginning of 2013, CircleBath has rapidly expanded the number of slots it provides for NHS patients and has seen a dramatic increase in NHS activity. In the last six months of 2013, CircleBath recorded its highest ever volumes and ends the year with a trajectory of continued growth. Total daycase and inpatient volumes for the year have increased by 10.0% compared with 2012; with the growth in the last quarter of daycase and inpatient volumes at 24.0%.

CircleBath continues to perform well, recording a patient satisfaction score of 99.7%, one of the highest in the country. CircleBath has developed new sub-specialities, such as neurosurgical services, and is building the range of treatments offered to local patients as a result of the hospital's well-established reputation among local GPs, patients and consultants.

In 2013 CircleBath won a national award for "Nursing Services" at the Laing and Buisson Private Healthcare Awards, recognising the outstanding achievement of the Hospital Lead Cancer Nurse who is also part of the MacMillan team.

CircleBath is now looking to build on a successful marketing strategy in 2014, with new patient testimonials and a television campaign to consolidate this increased activity.

Circle Clinics

As part of its reconfiguration to exit its smaller clinics businesses, the Group completed the migration of specialist surgical services from its CircleWindsor clinic to its CircleReading facility in March 2013. The Group also plans to cease all operations at its Stratford Clinic from April 2014.

Operating outlook

Following a positive end to 2013, the Group is encouraged by the performance of existing assets and expects them to be at or near to EBITDA break-even, pre-central overhead, by the end of 2014. Good progress has been made in finalising the Bedfordshire MSK contract, the first of its kind, which is expected to commence in the second quarter of 2014, slightly behind the original target.

While we have seen important improvements in the services at Hinchingbrooke, the increase in patient numbers has led to some unplanned agency staff expenses, which have resulted in a temporary increase in Hinchingbrooke's cost base. As a consequence, our expectation of a near breakeven outturn for Hinchingbrooke in their financial year ending 31 March 2014 is now likely to result in a deficit of £500,000 - £1,000,000, which Circle is required to fund under the terms of the Franchise Agreement. Any adverse outcome arising from the on-going contractual dispute with the local CCG would increase this deficit.

A market opportunity is now becoming more evident as developments in the national healthcare market have highlighted more than ever the need for better quality and better value services in both the private healthcare and NHS markets. The Group remains encouraged about its prospects of progressing specific growth opportunities in both sectors, facilitated by the recent £27.5m fundraise (before fees).

The Group is committed to implementing Project Reset, a corporate restructure of the group planned for 2014 to give all partners, including NHS staff, access to tradable shares in Circle Holdings plc for the first time. While significant progress has been made, the Group has elected to wait until the issuance of the Competition Commission's final report in early April before submitting its reorganisation plan to the BVI court. The Company remains optimistic that the current Competition Commission investigation will result in important changes to the private healthcare market and continue the support for equity partnerships that will benefit new entrants like Circle.

Steve Melton

Chief Executive Officer

Board of Directors

Michael Kirkwood CMG, Non-Executive Chairman (a), (b), (c)*

Michael is an Economics and Industrial Engineering graduate of Stanford University and a Fellow of the Chartered Institute of Bankers. He joined the Board of Circle Holdings plc as Chairman in June 2011. He is additionally Senior Advisor (formerly Chairman) of Ondra Partners LLP and a Non-Executive Director of UK Financial Investments Limited (UKFI), AngloGold Ashanti Limited, Eros International plc and an Emeritus Director (formerly Chairman) of British American Business Inc. Michael joined Citigroup in 1977 from where he retired at the end of 2008. Prior to Citigroup, he spent a number of years in Asia with Bowater-Ralli Group having started his career at HSBC. He was previously a Non-Executive Director and Audit Committee Chair of Kidde plc and Deputy Chairman of PricewaterhouseCoopers LLP's Advisory Board. He is a member of the Advisory Board of the Association of Corporate Treasurers and a Patron of poverty housing charity Habitat for Humanity. During his City career he served as Deputy Chairman of the British Bankers Association, President of the Chartered Institute of Bankers, Chairman of the Association of Foreign Banks, and as a member of the CBI's Financial Services Council. A former H M Lieutenant for the City of London in 2004, Michael was appointed a Companion of the Order of St. Michael & St. George (CMG) in the Queen's 2003 Birthday Honours.

Steve Melton, Chief Executive Officer

Steve was appointed as the interim Chief Executive Officer in December 2012 after previously holding the role of Chief Operating Officer since joining Circle in 2008. His appointment as Chief Executive Officer was confirmed on a formal and continuing basis in April 2013. Steve has nearly 30 years of experience leading large scale operations. Prior to Circle, he was the Supply Chain Director at Argos, where he also headed up their business excellence programmes. Previously, he was Supply Chain Director at Scottish Courage Limited, and was part of the team that turned around Asda in the 90's. He began his career on Unilever's Management Trainee Programme, and lead transformational change programmes in a variety of roles for them in the UK and abroad. Steve holds an MA (First Class) in Chemical Engineering from the University of Cambridge.

Paolo Pieri, Chief Financial Officer

Paolo joined Circle after working at lastminute.com for over five years. He spent the majority of this time as the UK Finance Director and subsequently took on a number of operational roles including the Managing Director of some European divisions. Prior to this, Paolo spent seven years in the Virgin organisation, principally within the retail and cinema operations, where was Finance Director of the Virgin Megastore business for three years. He has a Bachelor of Accountancy degree from the University of Glasgow and is a member of the Institute of Chartered Accountants for Scotland.

Massoud Fouladi, Chief Medical Officer

Massoud is a co-founder of Circle. As Chief Medical Director, his vision has been to build a co-owned and clinically-led partnership of doctors, nurses, managers and other healthcare professionals. Massoud graduated from Bristol Medical School in 1990 and completed his ophthalmology training at Birmingham and Midland Eye Centre in 1999. He was also awarded a Masters in Health Services Management by Birmingham Health Services Management Centre in 1998. As a consultant in East Kent he was involved in redesigning ophthalmic services for the region, which became a national model for service redesign. In 2001, he founded the Ophthalmic Clinical Leads Forum at the King's Fund. He was Chairman of the Association of Ophthalmologists UK from 2003 to 2007. He remains an active consultant specialising in ophthalmic surgery.

Lorraine Baldry OBE, Senior Non-Executive Director (Independent) (a), (b)*, (c)

Lorraine is Chairman of London and Continental Railways Limited, Inventa Partners Limited, Schroder Real Estate Investment Trust and Tri-Air Developments Limited. She is also a Board member of the Olympic Delivery Authority. She was previously senior independent Non-Executive Director of DTZ Holdings plc, and Chairman of the London Thames Gateway Development Corporation. Prior to that Lorraine was Chief Executive of Chesterton International plc, a senior advisor at Morgan Stanley, Investment Banking Division, and Managing Director and a member of the Executive Committee of Regus. Lorraine joined Regus from Prudential Corporation where she held a number of posts including Managing Director of Prudential Corporate Pensions, Chief Operating Officer of Prudential Portfolio Managers (now M&G) and Managing Director of its property investment division. She was awarded an OBE in the Queen's Jubilee Honours and is an Honorary Member of the Royal Institution of Chartered Surveyors and a past president of the British Property Federation.

Tony Bromovsky, Non-Executive Director (Non-Independent)

Tony joined the Board of Circle Holdings plc in November 2012. Tony is also a director of Kilda Investments Limited (since 1991), a corporate finance company he set up that advised on and arranged investments in a variety of ventures in Eastern Europe, and (since 2012) is a director of Local World Limited, a local media business that has a portfolio of market-leading print and digital brands. Prior to this, Tony was a director of BHE Limited, a UK healthcare company set up in 1999 that secured and managed a number of long-term LIFT contracts for the development of major infrastructure projects in partnership with the NHS.

Tony started his career as a commodities trader for Louis Dreyfus in 1974, followed by similar roles at Woodhouse Drake and Carey and Drexel Burnham Lambert, where he was Senior Vice President and Director of Commodities Trading. During this period he was also Deputy Chairman of the London Commodity Exchange. Tony graduated from the University of Toronto in 1972 with an Honours degree in General Arts.

Tim Bunting, Non-Executive Director (Non-Independent)

Tim has been a General Partner of Balderton Capital since 2007. He was previously a partner of Goldman Sachs where he spent 18 years. At Goldman Sachs, Tim held various roles including Global Head of Equity Capital Markets (2002-2005) and Vice Chairman of Goldman Sachs International (2005-2006). Tim is a governor of Wellington College and the Wellington Academy and a trustee of the Rainbow Trust children's charity and the Paul Hamlyn Foundation. Tim is a graduate of the University of Cambridge.

Andrew Shilston, Non-Executive Director (Independent) (a)*, (b), (c)

Andrew graduated from the University of Oxford in 1977 with an MA in Engineering Sciences and is a member of the Institute of Chartered Accountants of England and Wales and a Fellow of the Association of Corporate Treasurers. Andrew joined Rolls-Royce Group plc in 2002 and was appointed Group Finance Director in 2003 where he remained until 2011. He was Finance Director at Enterprise Oil plc from 1993 to 2002. Andrew was an independent Non-Executive Director of Cairn Energy plc between 2004 and 2008, and is currently Chairman of Morgan Advanced Materials plc and Senior Independent Non-Executive Director of BP plc.

(a) Member of Audit and Risk Committee

(b) Member of Remuneration Committee

(c) Member of Nomination Committee

* Denotes Chair of respective Committee

Chief Financial Officer's report

Financial review

Introduction

The Group's results have exceeded market expectations for consolidated revenues and operating profits before exceptional items, and at the same time the Group is making exciting progress in pursuing its goals. This continued progression gives us confidence that all four sites are on track to achieve in-year EBITDA break-even in the coming year.

The commencement of the renewed contract in Nottingham to run the NHS Treatment Centre for a further five years, together with the first full year of trading in Hinchingbrooke and Reading, marked important milestones in developing the Circle business model. These demonstrate our ability to scale our business; renewing existing contracts, opening first-class independent hospitals and being the first private operator to run an NHS hospital successfully. These factors, combined with the fundraising of £27.5 million (before fees) in January 2014, put the Group on a firm path to continue to deliver on its plans for the coming years.

The Group completed the migration of specialist surgical services from its CircleWindsor clinic to its CircleReading facility in March 2013. The Group plans to cease all operations at its Stratford Clinic from April 2014, as part of its reconfiguration to exit its smaller clinics businesses.

Group results

Revenue under management** of £192.7 million and Group revenue of £84.3 million mark a significant uplift on the previous year's results. The Group ends the year with a cash position of £12.4 million (including £3.8 million of restricted cash) prior to the January fundraise.

* 2012 results include five months of losses from the operations at CircleReading which opened in August 2012.

** Includes revenue generated at Hinchingbrooke which is managed by the Group, but not included in the Group's statutory consolidated revenue.

The Group has continued to deliver growth in its core operations, with revenue of £84.3 million delivering a year on year increase of 15.2%, primarily stemming from on-going growth at CircleBath and a full year of operations at CircleReading, and endorsing the increasing demand for high quality facilities to deliver healthcare. The renewed Nottingham NHS Treatment Centre contract rebased the price per episode to national tariff from July 2013, although patient volumes for the first five months of operations under the new contract were ahead of expectations.

Patient procedures (excluding Hinchingbrooke)

Daycase and Inpatient procedures increased by 14.0% to 40,797 (2012: 35,801), while overall patient procedures in Circle facilities increased by 28.5% to 189,314 procedures. Circle's Nottingham NHS Treatment Centre has seen total numbers increase by 3.2% from the prior year to 90,862. CircleReading completed its first full year of operations; consequently total procedures grew to 50,215, with total patient numbers in the last quarter of 2013 up 57.3% on 2012.

The increase in patient procedures is also attributable to the performance of CircleBath, who have seen impressive growth in their number of daycase and inpatient procedures, up 10.0% from 2012 to 6,231. Crucially, the number of daycase and inpatient procedures in the final quarter of 2013 was up 24.0% on 2012. The increases in patient numbers visiting Circle facilities have been achieved while also increasing patient satisfaction, which averages 99% across the three main sites.

Results in 2013 contained a full year of losses for the operations of CircleReading, compared with 2012 which includes only five months of trade after opening. Offsetting this were improved operating results at Circle's Nottingham NHS Treatment Centre and CircleBath and cost savings at head office. Consequently, total Group EBITDA (before exceptional items) improved by 2.8% from a loss of £14.2 million to a loss of £13.8 million. When looking on a like-for-like basis, excluding the results of CircleReading for both years, Group EBITDA (before exceptional items) improved by 20.2% from a loss of £10.4 million to a loss of £8.3 million. Due to the nature of commissioning hospitals, losses are unavoidable in the first six months of operations.

Loss before tax improved by 50.0% to £15.2 million and the loss per share now stands at 5.1 pence, improved from a loss per share in 2012 of 25.7 pence.

Exceptional Items

The Group has been going through changes to simplify and streamline the business. There has been and continues to be a cost of doing this which will reduce over the next year as management strives to reduce its commitments to non-core activities. Consequently, the Group has recognised some key exceptional items in the year and had a successful year in terminating onerous contracts entered into in previous years, in many cases generating savings against amounts initially provided.

Exceptional operating income of £3.9 million (2012: expense of £11.3 million) was recorded. This mainly arose from the deconsolidation of Health Properties (Edinburgh) Limited (see below) and the gain on the release of a number of dilapidation provisions relating to properties vacated during the year. The Windsor hand surgery building, and West London and Ashford properties were vacated during the year, with all dilapidations settled with landlords. These resulted in exceptional gains of £74,000, £468,000 and £146,000 respectively. An additional cost has been recognised during the year in respect of dilapidations for the Stratford Clinic of £109,000.

In the prior year, after a review of its treatment of VAT for prior periods, the Group made a £1.5 million provision relating predominantly to inaccuracies in the 2008-2010 periods. The Group has finalised its position with HM Revenue and Customs ('HMRC') on the outcome of the majority of this review during the year. The remaining issues are expected to be agreed upon shortly. As a result, the Group has recognised an additional £115,000 provision during the year and is confident that no further unprovided expense will be incurred. Finally a revaluation of finance lease payments has arisen due to the delay in developing the Birmingham hospital site, which may result in a higher rent being paid for the remainder of the lease.

The remaining exceptionals relate to impairment of property, plant and equipment, Share-based charges in respect of warrants issued and Share-based charges in respect of awards to Non-Executive Directors. These have been presented in exceptionals for consistency with the previous periods as they are considered to be outside the course of normal business activity.

Exceptional finance income of £1.1 million (2012: income of £866,000) was recorded. In the current year this related to the gain on fair value of an interest rate derivative in Nottingham which has now expired, conterminously with the associated PFI loan which was repaid. For further details refer to the section below.

Restructuring

At the start of the year, the Group undertook a restructure of its head office to ensure the cost base was in line with the Group strategy. This has resulted in annual run-rate savings of £1.0 million, with an exceptional restructuring charge of £300,000 (2012: £650,000). We do not anticipate any further restructuring charges in 2014.

Financing

In January 2014 the Group successfully raised £27.5 million (before fees) by way of equity funding. The Group intends to use the proceeds for: growth and potential expansion into large markets such as Manchester and Birmingham with independent hospitals; pursuing growth opportunities in current operating assets, for example expansion of service offerings; and set-up costs, commissioning and working capital for a mix of up to 3-5 generic service lines and/or hospital franchises. Additional opportunities arising from Competition Commission-advised divestiture remedies may also be considered by the Group.

The proceeds from the fundraising will also assist in demonstrating to the Government, NHS, and real-estate investors the strength of the Group's balance sheet.

The Group continues to seek financing for CircleManchester, CircleBirmingham and the independent hospital development pipeline and is currently in discussions with a number of real-estate investors for a potential financing solution.

Given the cash raised, the recent findings from the Competition Commission and the current positive mood in infrastructure financing, the Board has a number of options available to assess. These options include progressing with the Manchester and/or Birmingham sites in their current design or considering alternative designs. However, any material redesign which may not fully utilise the design elements invested to date in these projects may require an impairment of the carrying value of the Assets Under Construction for each site. Based on current plans management does not believe any impairment is necessary at the current time.

Cashflow

Net cash outflow from operating activities amounted to £22.1 million (2012: outflow of £17.0 million) where improvements in the underlying performance of the Group were offset by movements in working capital, most notably an increase in the VAT receivable owing to the on-going investigation, which was settled post year-end. Furthermore, the £3.7 million paid to Hinchingbrooke for temporary funding of their working capital is included as an outflow here. Exceptional items were predominantly non-cash, with the exception of restructuring costs. During the year, the Group has extinguished all bank loans owed following the repayment of the Barclays loan and deconsolidation of Health Properties (Edinburgh) which held a loan with AIB. Consequently the only borrowings remaining relate to finance leases.

Repayment of the Barclays PFI Loan

The Barclays PFI loan of £41.8 million was extinguished in full on 27 July 2013 when the Group exercised its unconditional right to receive cash from the Secretary of State for the repayment of the construction loan relating to Circle's Nottingham NHS Treatment Centre. The PFI operating asset was transferred to the Department of Health and has been derecognised from the Group's Balance Sheet. At this point the interest rate SWAP also expired.

Deconsolidation of Health Properties (Edinburgh)

Health Properties (Edinburgh) has been excluded from the consolidated Group results from October 2013. This is on the basis that the entity does not meet the criteria of a subsidiary, due to the transfer of control to govern the financial and operating policies of the business after formally having been placed into liquidation with the support of the principal creditor, AIB. The expectation is that the entity will be fully dissolved within the coming months.

The gain on deconsolidation recognised in the group accounts amounted to £4.4 million. This is the net impact of derecognition of the loan amount and the loss of the land asset. The principal loan originally owed to AIB was £7.4 million which is non-recourse to the remainder of the group; with accrued interest this totalled £7.9 million. On deconsolidation, the land was carried at a book value of £3.5 million.

Financial risks

The Group's operations expose it to a variety of financial risks that include working capital and funding risk, contract risk and price risk. The Group has implemented a comprehensive strategic planning and budgeting system to monitor and limit the adverse effects of the above risks, the results of which are presented to and approved by the Board. Management and the Board monitor performance against budget and key financial benchmarks through monthly reporting routines, detailed business reviews and variance analysis.

Working capital and funding risk

Working capital and funding risk is the risk that the Group will encounter difficulty in meeting obligations associated with financial liabilities or be unable to obtain sufficient funding to pursue its growth plans and expansion opportunities. The Group aims to mitigate this risk by robustly managing cash generation across its operations through detailed budgeting and tight cost control, as well as applying cash collection targets throughout the Group. Where the need arises, significant cost savings are made in the short-term by reducing Head Office costs. The Group is also backed by leading UK institutional investors that have provided finance through several financing rounds over the last nine years.

Contract risk

Contract risk exists where the Group is unable to renew the NHS contracts at the end of their fixed tenure. The Group aims to mitigate this risk by maintaining good relationships with contracting parties and actively pursuing contract renewals and extensions ahead of time. During the year, the Group won the re-tender to provide renewed services at the Nottingham NHS Treatment Centre for a further five years until July 2018. The Group also commenced a 10-year contract in February 2012 to manage Hinchingbrooke Health Care NHS Trust in Huntingdonshire.

Owing to the complexity of delivering NHS-funded services, there is inherent contractual risk arising from the Group's existing NHS contracts. Default and termination of these contracts could occur as a result of clinical or operational failures. Furthermore, the contract with Hinchingbrooke Health Care NHS Trust allows either party to terminate if Hinchingbrooke incurs more than £5.0 million in aggregate deficits, at which point the Group would be required to pay a further £2.0 million in termination/transition costs to Hinchingbrooke (which amount is currently held in cash escrow). The Group aims to mitigate these risks by focusing on its business model of delivering high quality care at the best value.

Price risk

The Group generally seeks to price contracts at levels that take account of increasing prices and, where appropriate, establish contract terms that enable revenues to be adjusted as a result of any future increasing price levels. As the volume of patients is anticipated to increase, the Group will be increasingly subject to pricing changes from private insurance companies and the NHS pricing tariff.

Paolo Pieri

Chief Financial Officer

19 March 2014

Consolidated income statementFor the year ended 31 December 2013

There is no other comprehensive income arising in the Group or joint venture (2012: £nil) and therefore no separate Statement of other comprehensive income has been prepared.

Consolidated balance sheetAs at 31 December 2013

Consolidated statement of changes in equityFor the year ended 31 December 2013

Consolidated statement of cash flowsFor the year ended 31 December 2013