19th Mar 2015 07:00
Circle Holdings plc
("Circle", the "Company" or "Group")
Full year audited results
For the year ended 31 December 2014
London, 19 March 2015: Circle Holdings plc (LSE: CIRC), the employee co-owned health group, today announces its final results for the year ended 31 December 2014.
Financial highlights:
- Group revenue increased 32% to £111.0m (2013: £84.3m)
- EBITDA1 losses before exceptional items were down 25% to £10.4m (2013: Loss of £13.8m) including £7.8 million of central costs
- Patient volumes across the group are up 12% to 45,173 daycases (2013: 40,284) and 269,316 outpatients (2013: 248,913)
- Medical Properties Trust completed the purchase of Bath Hospital for 28.3 million, reducing CircleBath's annual rent by £1m to £2.5m
- Closing cash balance as at year end is £24.5 million (2013: 12.4m) whilst net cash outflow from operating activities has decreased to £8.4m (2013: 22.1m)
Operational highlights:
- Completed group restructure that gives staff and clinicians 25% stake in Circle Holdings plc and will offer employees share options
- Patient recommendation rates were at 99.4% at our independent hospitals and Nottingham treatment centre
- Excellent clinical outcomes across sites, including low mortality rates, infection rates and strong patient feedback
- Commenced innovative new capped2-budget contract for musculoskeletal conditions Bedfordshire
- Announced withdrawal from Hinchingbrooke franchise in January 2015
- Planning work started for new-build independent hospital in Edgbaston, Birmingham
Steve Melton, Chief Executive of the Group, commented:
"Circle's sights have never been set low. 2014 was an important year for us - and although we faced some challenges, overall there was significant progress across the group.
Compared to 2013, revenue was up 32%. Patient volumes increased 12%. Losses before exceptional items were down 25%. Three operations have now reached positive EBITDA, with Reading rapidly increasing revenue and making good progress in cost-saving initiatives.
This success is based first, on our ability to offer patients excellent care: clinical outcomes and patient feedback are consistently strong across the group. Second, it is based on our ability to run efficient, cost-effective facilities in an environment of constrained finances.
Our decision to withdraw from the franchise at Hinchingbrooke showed the other side of this trend - where financial pressure within the NHS system combined with the conflicting regulatory regimes and surrounding health economy resulted in the difficult decision to withdraw.
Organisations in the growth stage of their development expect to face such moments. Our fundamental task remains to maintain our excellent clinical performance and move the underlying operations of the business to financial sustainability. Overall, the year's results represent strong progress towards that goal - and our ambitions remain equally high."
Michael Kirkwood CMG, Chairman of the Group, commented:
"2014 saw significant developments in our business and the wider healthcare market, and we believe that our model of patient-centred and employee-led care is more relevant than ever.
We also ended 2014 by realising a long-held ambition to strengthen our employee co-owned ethos.
Our people are our greatest asset, and Project Reset simplified our structure and governance, with our staff owning 25% of Circle Holdings plc shares. The restructure aligns the interests of staff and investors, and we are now the largest employee co-owned organisation on the AIM market.
I would like to pay tribute to our board - in particular, our two major shareholder board representatives, Tim Bunting and Tony Bromovsky, who stood down from the board during the year. Their counsel and experience in the immediate years following our IPO was invaluable and I thank them for their contribution to Circle. We were delighted to welcome John Hutton and Justin Jewitt to the board, who both bring extensive healthcare and health economy experience to our strategic thinking and governance.
These changes capped a significant year for Circle. I have no doubt that the need to meet both rising patient expectations and tough efficiency goals present significant opportunities next year and beyond, even in an uncertain political environment. I remain equally confident that our patient-centred and co-owned approach is a solid foundation for future growth."
[1] Earnings before interest, tax, depreciation and amortisation ('EBITDA') before exceptional items
2 The capped budget model refers to a contract whereby the baseline revenue is fixed over the contract term rather than an activity based payment plan.
For further information, please contact:
| Circle Holdings plc | Tel: +44 207 034 1278 | ||
| Steve Melton, Chief Executive Officer |
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| Paolo Pieri, Chief Financial Officer |
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| Gordon Hector, Head of Communications |
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Numis Securities Limited |
Tel: +44 207 260 1000 | ||
| Michael Meade, Nominated Adviser |
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An analyst briefing and live conference call will be held at 9:03am BST today at the offices of Wragge Lawrence Graham, 4 More London Riverside, SE1.
Chief Executive Officer's Report
Operating overview
Circle's sights have never been set low. 2014 was an important year for us - and although we faced some challenges, overall there was significant progress across the group.
Compared to 2013, revenue was up 32%. Patient volumes increased 12%. Losses before exceptional items were down 25%. Three operations have now reached positive EBITDA, with Reading rapidly increasing revenue and making good progress in cost-saving initiatives.
This success is based first, on our ability to offer patients excellent care: clinical outcomes and patient feedback are consistently strong across the group. Second, it is based on our ability to run efficient, cost-effective facilities in an environment of constrained finances.
Our decision to withdraw from the franchise at Hinchingbrooke showed the other side of this trend - where financial pressure within the NHS system combined with the particular circumstances of the contract and surrounding health economy to result in the difficult decision to withdraw.
Organisations in the growth stage of their development expect to face such moments. Our fundamental task remains to maintain our excellent clinical performance and move the underlying operations of the business to financial sustainability. Overall, the year's results represent strong progress towards that goal - and our ambitions remain equally high.
Hospital Services
CircleBath opened in March 2010, and in 2014 it reached a milestone in its development. The hospital achieved EBITDA break-even in the second half, with total patient volumes up 17.5% year-on-year. Growth in NHS work from surrounding NHS organisations was strong, including working closely with two local Trusts in order to reduce their waiting lists for elective surgery. The hospital is now an integral part of the local health system. Private patient volumes remained strong, with 12% of all patients opting to self-pay. In total revenue was up 27% and losses reduced from £5.3m in 2013 to £0.8m this year overall.
In August, we announced the sale of the land and building to Medical Properties Trust, which reduced the rent of the site by approximately £1.0m per annum.
Clinical outcomes remain excellent. Patient satisfaction is currently 99.7%, and one particular highlight was being placed in the top quintile for hip operations.
Our average orthopaedic market share in the Bath area has grown significantly from 37% last year to 47% in 2014, which reflects our growing reputation for quality in the area.
We expect to consolidate this performance in 2015, and see more gradual growth as the hospital achieves maturity.
CircleReading had its second full year of operation. The hospital has focussed on learning from the experience of CircleBath, in particular by growing relationships with nearby NHS Trusts and increasing its catchment area.
This contributed to revenue growth of 44%, year-on-year. As noted in our half-year statement, revenue growth outpaced recruitment of permanent staff - compounded by national shortages in key clinical roles - resulting in higher than expected interim staffing costs. Losses reduced from £5.5m in 2013 to £4.6 million in 2014. Total patient volumes were up 10%, with a 38% increase in day cases and inpatients. Our presence in the local orthopaedic market is continuing to expand, growing by 8% to an average market share of 28% in 2014.
Clinical outcomes also remain excellent, with 99.7% of patients recommending the hospital to friends or family. After stabilising solid revenue, the focus for 2015 is on improving margins.
The CircleNottingham Treatment Centre had a successful full first year in its new contract which seeks to integrate care with surrounding providers. The new contract rebased prices, and removed the guaranteed volumes provided in the previous contract; however, patient volumes increased - indicating substantial success in attracting patients with freedom to choose their treatment elsewhere. EBITDA was in line with expectations, at £2.5 million pre-exceptional items.
At the start of 2014, CircleNottingham opened its new inpatient unit, meaning that we can now provide patients with a wider range of more complex procedures. Since its opening, we have seen a steady increase in inpatient volumes and positive patient reviews. This was followed by some innovative approaches to meeting the needs of the surrounding community, including the opening of an outreach clinic and the extension of our orthopaedic and ophthalmology services.
As in Reading, national staffing trends have increased our cost base. Recruitment and reducing these costs represents an area to focus on in 2015.
Across the treatment centre, clinical outcomes remained excellent: patient feedback remained above 98% across the year.
Other Services
The Bedfordshire Musculoskeletal contract started in April 2014. Musculoskeletal (MSK) services represent a significant proportion of commissioners' budgets, and most projections forecast an increase in demand as the population ages. However, services are generally uncoordinated and inefficient, and most patients do not experience a seamless service.
The Bedfordshire contract aims to change the operation of this crucial clinical area, by creating a 'prime provider' which takes responsibility for coordinating and managing the rest of the system: meaning that the patient journey is more coordinated, outcomes are improved, and commissioners save money.
Achievements in the first nine months include capturing around 90% of all local MSK patients through our triage hub. This means the vast majority of patients now experience a dedicated service, seeing the right clinician, first time round - which is both better for the patient and more cost-effective. Around 40% of patients are coming through the electronic referral system, compared to about 5% previously - enabling referrals to be processed more efficiently thereby improving patient experience. Furthermore, 97% of patients using our hub are offered an independent patients' advisor, offering genuine choice to patients over their care.
Any new system faces challenges, and in Bedford this has included convincing all local partners to use our triage hub. This has been almost universally successful, with just one of 21 providers, Bedford Hospitals Trust, choosing to circumvent the system. We are in discussions with the CCG on handling this disruption of patient care, and expect to update on this further at our half-year results.
Hinchingbrooke Health Care NHS Trust
Hinchingbrooke won several awards for its quality of care in 2014, including the CHKS 'best quality of care in England' award and the Health Investor award for 'best public-private partnership.'
Cumulative quality improvement plans made savings of approximately 5% year-on-year since the start of the contract. Clinical outcomes were excellent across 2014, including running one of the best-performing A&Es in the country, meeting all major waiting time targets, low and declining mortality rates, and patient feedback in the top quartile of similar hospitals in the NHS. Efficiency was also improved. We believe that the Care Quality Commission ('CQC') inspection report on Hinchingbrooke published in January 2015 did not reflect these achievements, and is not an accurate representation of the hospital. We note that a subsequent report by MPs on the Public Accounts Committee recommended that the CQC review its approach.
In March 2014, Circle made a franchise support payment of £1.3 million, following a dispute with commissioners over payments under the 2013/14 contract. Like most acute hospitals, from late summer onwards Hinchingbrooke saw unprecedented A&E attendances - at times up to 30% higher, year-on-year - and not enough care places for healthy patients who await discharge. At the same time, funding was cut in the 2014/15 financial year.
With these pressures on the system, to maintain the standards patients deserve required significant further investment, on top of the £5.0 million and considerable resources Circle has invested in the hospital to date.
Solving the problems facing Hinchingbrooke could only be achieved through joined-up reform in Cambridgeshire across hospitals, GPs and community services - but these reforms are too far into the future. We reluctantly concluded that with little flexibility in the contract, Circle's involvement in Hinchingbrooke was unsustainable. We expect to withdraw from the franchise contract at the end of March 2015.
Operating outlook
After a strong 2014, I am optimistic for 2015. We aim for all current operating assets to be at EBITDA positive by the end of 2015. There are notable opportunities in both our independent and NHS work.
Hospital services
We have a long-term lease on well-located land in Birmingham, and we are now moving into detailed planning and modelling for its future development.
Birmingham is a more diverse market than Bath or Reading. It is a large healthcare economy, with over 2 million people living within a 30 minute drive of our site, and an ageing infrastructure of private health providers in the area. There are a number of NHS providers in the region, ranging from large teaching hospital trusts to small specialist providers, representing a wider range of NHS organisations with which to partner.
We will refine the model used in our first two hub hospitals. In particular, we expect the build to be quicker and more cost-effective, and combined with a phased recruitment and commissioning process, it is expected to reach operational maturity at a quicker pace than Bath and Reading.
We are seeing significant interest from UK and international investors for high quality healthcare facilities and we will be looking to progress with plans for the Birmingham hospital this year.
We have previously noted our intention to pursue further new-build hospitals. We have assessed the market in Manchester and believe that it is saturated. The Group has decided that in this environment, pursuing a new independent hospital in Manchester is not currently viable and we are considering options for the land we own.
Bath and Reading both have plans for organic growth in specialities where the surrounding area is under-served, with scope for new clinical units and services. Nottingham also expects some organic additions to its services.
We were pleased to be accepted in October to be a member of the NHS Supply Chain's new support framework. This places us on a centrally-approved list of permitted bidders for contingency diagnostics and elective work at our existing hospitals.
Other Services
We expect further capped budget contracts to come to market across 2015. This will include more MSK contracts, but is also likely to involve other service lines and clinical pathways. As one of the few current providers of this type of contract, we are well-placed to help the NHS evolve the format.
In March 2015, the 'vanguard' sites adopting new models of care proposed in Simon Stevens' 5-Year Forward View were announced. We expect greater clarity to emerge in the second half of the year on how these sites intend to reform services, regardless of the outcome of the general election in May.
The election does pose some political risk, given no party is an active advocate of the role of the independent sector in the NHS; however, the role of NHS England and local health leaders in leading health policy insulates against this risk, and we fully intend to engage in the ideas and policy of the Forward View as it is clarified over the coming year.
As one of the few non-NHS organisations with experience of both running acute trusts and capped budget services, we feel confident about our role as a partner to the NHS in this potentially exciting set of reforms.
Finally, we are reviewing options for acquisitions and consultancy work, both in the UK and abroad. We are continuing our close relationship with CITIC, one of China's biggest conglomerates, which we announced in December 2013. We will update on these plans as required later in the year.
Steve Melton
Chief Executive Officer
18 March 2015
Chief Financial Officer's Report
Financial review
2014 saw improvements in revenue, gross profit and a reduction in overhead administrative costs, culminating in a 25% reduction in operating loss pre-exceptional items. A milestone was achieved in 2014 as EBITDAR3 excluding exceptional items is positive for the first time. The Group's total loss for the year excluding exceptional items ('underlying total loss') has significantly improved by £4.3 million.
The Group is making continued progress with like-for-like year-on-year growth of the operating sites while improving the operational efficiency of the business.
Revenue growth is set to continue in 2015, largely from organic growth at each site. The Group continues to explore opportunities to expand independent hospital operations and has commenced planning application for CircleBirmingham. The cost of submitting detailed design plans for Birmingham is expected to be around £0.5 million. Our proposed plan would be to fund the construction of Birmingham with a third party. The Group has strong relationships with a number of investors interested in the development. In addition, the Group continues to explore development opportunities to support NHS organisations, which is likely to become clearer post general election.
Patient Procedures
Patient numbers across the Group have also seen a positive increase. As the Stratford clinic was closed at the beginning of 2014, the Stratford clinic figures have been removed from 2013 patient procedures to compare like-for-like.
Year to | Year to | Change | ||||
31-Dec-14 | 31-Dec-13 | |||||
Number | Number | |||||
Day case and inpatients | 45,173 | 40,284 | 12.1% | |||
Outpatients | 269,316 | 248,913 | 8.2% | |||
Total procedures | 314,489 | 289,197 | 8.7% | |||
Total procedures continue to grow, with total day case and inpatient volumes increasing by 12%, as more patients are actively choosing to use Circle facilities for our high quality care. Reading saw the most significant increase in daycase volumes with a 38% growth on prior year. Growth was also seen in Nottingham and Bath outpatient procedures increasing by 7% and 17% respectively. The independent hospitals both delivered significant growth in average revenue per case as the procedure mix trends towards a higher acuity: Bath increased by 14% and Reading saw an increase of 18%.
Group results
Revenue under management* of £221.0 million and Group revenue of £111.0 million mark a substantial uplift on the previous year's results. The Group ends the year with a cash position of £24.5 million.
Year to | Year to | |||
31-Dec-14 | 31-Dec-13 | |||
£'000 | £'000 | |||
Revenue under management* | 221,048 | 192,749 | ||
Group revenue | 110,983 | 84,252 | ||
Earnings before interest, tax, depreciation and amortisation and rent ('EBITDAR') before exceptional items | 1,152 | (143) | ||
Earnings before interest, tax, depreciation and amortisation ('EBITDA') before exceptional items | (10,427) | (13,812) | ||
Total operating loss before exceptional items (note 6) | (13,329) | (17,726) | ||
Exceptional items (note 6) | (5,341) | 3,860 | ||
Loss for the financial year | (20,155) | (15,230) | ||
Underlying total loss for the financial year** | (14,812) | (19,090) | ||
Net assets | 34,374 | 27,867 |
* Includes revenue generated at Hinchingbrooke which is managed by the Group, but not included in the Group's statutory consolidated revenue
** Underlying total loss for the year is the total loss for the financial year excluding exceptional items.
The Group has seen continued growth in its core operations, with revenue of £111.0 million marking a year-on-year increase of 32%. This revenue growth was down to growth at both Bath and Reading hospitals as well as the commencement of the Bedfordshire MSK contract.
The Group achieved positive EBITDAR for the first time: an improvement from a loss of £0.1million in 2013 to a positive EBITDAR of £1.2 million in 2014. Operating loss before exceptional items improved significantly by £4.4 million on prior year. This is principally attributable to the continual EBITDA improvements in CircleBath and CircleReading. CircleBath increased revenue by 27% from 2013 levels and saw an increase of 84% in EBITDA in the year. For the first time, CircleBath recorded a positive EBITDA for the second half of 2014. CircleReading continues to grow towards sustainability and achieved significant revenue growth of 44% with revenue reaching £21.0m and also closed the year with an improvement in EBITDA loss of £0.9 million.
This is our first full year of the new Payments by Results ('PBR') contract at Nottingham. The Treatment Centre is delivering a greater number of procedures to an increasing volume of patients (7% increase on prior year), assisted by the delivery of new inpatient services. The new Nottingham contract works under the NHS 'choose and book' system. It is gratifying to see that now patients are afforded greater choice, they nevertheless choose to return to the CircleNottingham facility, a testament to our high quality of care. EBITDA achieved was in line with expectations at £2.5 million with opportunities to improve margins as complexity of work increases.
We began 2014 by working closely with Bedfordshire CCG and the local supply chain to mobilise our MSK service, which started in April. Our contracts with all providers require patients to use the Circle MSK services. We are currently in discussions with the CCG regarding payments for those who circumvented the Circle triage system. In addition, the contract provides for a number of one-off payments related to the transition of waiting lists at the start of the contract. We expect to provide a more comprehensive review of our MSK business at the interim results, after a full year's performance of the service.
The £4.9 million increase in total loss for the year to £20.2 million in 2014 is due to the inclusion of one-off items, most of which are non-cash items. Exceptional charges of £5.3 million were expensed in 2014. In 2013, an exceptional gain of £3.9 million was recognised largely due to the deconsolidation of Health Properties Edinburgh. To enable a more like-for-like basis of comparison, the underlying total loss for the year of £14.8 million highlights an improved trading performance in comparison to the underlying loss of £19.1 million in 2013. Exceptional costs are reviewed in more detail below.
Exceptional Items
In 2014 the Group recorded exceptional charges £5.3 million (2013: exceptional gain of £3.9 million).
Following the completion of Project Reset, which further enhanced our partnership incentive scheme and entailed a significant restructure of the Group to simplify our corporate structure; a non-cash IFRS 2 charge of £1.7 million was recognised in relation to the shares and associated share options issued. Further on-going share based charges are expected going forwards in relation to share options being granted to Circle clinicians and employees.
The Group made a non-cash gain of £4.8 million upon wind up of the joint venture activities in Health Properties Bath.
An impairment of £0.1 million was recorded against Birmingham assets under construction following updated plans for Birmingham, along with a £2.8 million impairment of assets under construction at the Manchester site as reported in the first half of 2014.
The Group have made cumulative payments of £4.8 million towards working capital to Hinchingbrooke Health Care NHS Trust to date and has provided for a further £0.2 million, culminating in a £5.0 receivable at year-end. The full amount has been provided against, given the current status of the contract. Please refer to the Directors' report for further details.
Other exceptional costs of £0.7 million incurred related to advisory fees to assist the Group's consideration of potential acquisitions. The Group incurred fees during the year in relation to due diligence costs for a material potential acquisition. This acquisition was unsuccessful and the costs have been included within exceptional costs.
Corporate Streamlining
The on-going exercise to rationalise the number of Group entities resulted in the wind up of a further eight entities, reducing the costs of administration. A further eleven entities are planned to be dissolved in 2015.
Financing
In January 2014, the Group successfully raised £27.5 million (before fees) by way of equity funding. The Group will use the proceeds for: growth and expansion into large markets, with planning set to commence on Circle's next new-build independent hospital in Birmingham; pursuing growth opportunities for current operating assets, for example expansion of current service offerings; and set-up costs, commissioning and working capital for a mix of up to three generic service lines.
On 1 July, Medical Properties Trust ('MPT'), the US specialist hospital real estate investment trust ('REIT'), completed the purchase of the Bath freehold for £28.3 million. The asset was previously owned by Health Properties (Bath) Limited, a joint venture of which the Group controlled 38.7%. This sale fully extinguished the loans held by Health Properties (Bath) Limited with Santander and Lehman Brothers (in administration), as well as an interest rate swap held in conjunction with the Santander loan. CircleBath has signed a 15-year lease agreement with MPT, with a further 15-year extension, which will see its annual rent reduce by £1 million to £2.5 million. As part of the repayment of the mezzanine debt, Circle Holdings plc paid Lehman Brothers £0.6 million under a capped guarantee, which has been recognised in exceptional finance costs.
In July 2014, an amount of £2 million was released from escrow in Circle Hinchingbrooke Limited, in accordance with the terms of the Hinchingbrooke franchise agreement.
Two cash-backed performance bonds totalling £1.8 million, held in favour of GE Capital as guarantee for leased clinical equipment, expired on 31 October 2014 and the amount was returned to Circle Holdings plc. As a result, the Group has no restricted cash reserves.
Cashflow
Net cash outflow from operating activities amounted to £8.4 million (2013: 22.1 million) showing an improvement on prior year. Some of this improvement can be attributed to the timing of Bedford MSK payments.
At 31 December 2014, the only borrowings remaining relate to finance leases of clinical equipment.
Paolo Pieri
Chief Financial Officer
18 March 2015
[1] Earnings before interest, tax, depreciation, amortisation and rent excluding exceptional items.
Consolidated income statement
For the year ended 31 December 2014
2014 | 2013 | ||||
£'000 | £'000 | ||||
Revenue | 110,983 | 84,252 | |||
Cost of sales | (80,373) | (56,861) | |||
Gross profit | 30,610 | 27,391 | |||
Administrative expenses before exceptional items | (43,939) | (45,117) | |||
Operating loss before exceptional items | (13,329) | (17,726) | |||
Exceptional operating items | (5,341) | 3,860 | |||
Operating loss | (18,670) | (13,866) | |||
Finance income | 181 | 2,035 | |||
Finance costs | (911) | (2,774) | |||
Exceptional finance items | (625) | 1,113 | |||
Provision for joint venture deficit | (130) | (1,738) | |||
Loss before taxation | (20,155) | (15,230) | |||
Income tax credit | - | - | |||
Loss for the financial year | (20,155) | (15,230) | |||
Loss for the year attributable to: | |||||
- | Owners of the parent | (8,055) | (6,678) | ||
- | Non-controlling interests | (12,100) | (8,552) | ||
(20,155) | (15,230) | ||||
Basic and diluted loss per ordinary share attributable to the owners of the parent (pence) | (4.3) | (5.1) | |||
There is no other comprehensive income arising in the Group or joint venture (2013: £nil) and therefore no separate Statement of other comprehensive income has been prepared.
Consolidated balance sheet
As at 31 December 2014
2014 | 2013 | ||||
£'000 | £'000 | ||||
Non-current assets | |||||
Intangible assets | 5,562 | 5,982 | |||
Property, plant and equipment | 17,498 | 20,675 | |||
Trade and other receivables | 2,500 | 3,840 | |||
25,560 | 30,497 | ||||
Current assets | |||||
Inventories | 1,806 | 1,645 | |||
Trade and other receivables | 16,683 | 14,184 | |||
Cash and cash equivalents | 24,496 | 12,397 | |||
42,985 | 28,226 | ||||
Total assets | 68,545 | 58,723 | |||
Current liabilities | |||||
Trade and other payables | (21,256) | (11,818) | |||
Loans and other borrowings | (1,922) | (1,547) | |||
Provisions | - | (605) | |||
(23,178) | (13,970) | ||||
Non-current liabilities | |||||
Trade and other payables | (2,074) | (2,169) | |||
Loans and other borrowings | (8,869) | (9,982) | |||
Provision for joint venture deficit | - | (4,685) | |||
Provisions | (50) | (50) | |||
(10,993) | (16,886) | ||||
Total liabilities | (34,171) | (30,856) | |||
Net assets | 34,374 | 27,867 | |||
Share capital | 4,956 | 2,616 | |||
Share premium | 236,795 | 193,145 | |||
Other reserves | 22,182 | 22,182 | |||
Warrant reserve | 22,703 | 22,703 | |||
Share-based charges reserve | 1,842 | 151 | |||
Treasury share reserve | (9,587) | - | |||
Retained deficit | (244,517) | (169,980) | |||
Equity attributable to owners of the parent | 34,374 | 70,817 | |||
Non-controlling interests | - | (42,950) | |||
Total equity | 34,374 | 27,867 | |||
Consolidated statement of changes in equity
For the year ended 31 December 2014
Share capital | Share premium | Other reserves | Warrant reserve | Treasury share reserve | Share-based charges reserve | Retained deficit | Equity attributable to owners of the parent | Non-controlling interests | Total equity | |||||||||||
£'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |||||||||||
At 1 January 2013 | 2,614 | 193,145 | 22,182 | 22,390 | - | 96 | (170,612) | 69,815 | (27,088) | 42,727 | ||||||||||
Loss and total comprehensive loss for the year | - | - | - | - | - | - | (6,678) | (6,678) | (8,552) | (15,230) | ||||||||||
Transactions with owners: | - | - | - | |||||||||||||||||
Issue of shares in respect of awards to Non-Executive Directors (note 22) | 2 | - | - | - | - | 55 | - | 57 | - | 57 | ||||||||||
Share-based charges in respect of warrants issued (note 25) | - | - | - | 313 | - | - | - | 313 | - | 313 | ||||||||||
Effect of shares vesting in the period (note 23) | - | - | - | - | - | - | 7,310 | 7,310 | (7,310) | - | ||||||||||
At 1 January 2014 | 2,616 | 193,145 | 22,182 | 22,703 | - | 151 | (169,980) | 70,817 | (42,950) | 27,867 | ||||||||||
Loss and total comprehensive loss for the year | - | - | - | - | - | - | (8,055) | (8,055) | (12,100) | (20,155) | ||||||||||
Transactions with owners: | ||||||||||||||||||||
Issue of shares in relation to fundraising (note 22) | 1,100 | 26,400 | - | - | - | - | - | 27,500 | - | 27,500 | ||||||||||
Capitalised costs in relation to fundraising (note 22) | - | (1,280) | - | - | - | - | - | (1,280) | - | (1,280) | ||||||||||
Effect of shares vesting in the period (note 23) | - | - | - | - | - | - | 6,439 | 6,439 | (6,439) | - | ||||||||||
Issue of shares in respect of Project Reset (note 22 and 23) | 1,239 | 19,780 | - | - | (9,587) | - | (72,921) | (61,489) | 61,489 | - | ||||||||||
Issue of shares to acquire unvested shares in Circle Partnership Limited in respect of Project Reset (note 25) | - | - | - | - | - | 1,105 | - | 1,105 | - | 1,105 | ||||||||||
Capitalised costs in relation to Project Reset (note 23) | - | (1,250) | - | - | - | - | - | (1,250) | - | (1,250) | ||||||||||
Issue of shares in respect of awards to Non-Executive Directors (note 23) | 1 | - | - | - | - | 14 | - | 15 | - | 15 | ||||||||||
Other share-based charges (note 25) | - | - | - | - | - | 572 | - | 572 | - | 572 | ||||||||||
At 31 December 2014 | 4,956 | 236,795 | 22,182 | 22,703 | (9,587) | 1,842 | (244,517) | 34,374 | - | 34,374 | ||||||||||
Consolidated statement of cash flows
For the year ended 31 December 2014
2014 | 2013 | ||||
£'000 | £'000 | ||||
Cash flows from operating activities | |||||
Net cash outflow from operating activities | (8,361) | (22,062) | |||
Interest paid | (1,536) | (2,400) | |||
Interest received | - | 2,035 | |||
Tax paid | - | - | |||
Net cash used in operating activities | (9,897) | (22,427) | |||
Cash flows from investing activities | |||||
Additional consideration paid for Circle Clinic Windsor | - | (366) | |||
Purchase of computer software | (112) | (57) | |||
Purchase of property, plant and equipment | (1,383) | (881) | |||
Net cash used in investing activities | (1,495) | (1,304) | |||
Cash flows from financing activities | |||||
Proceeds from issuance of ordinary shares | 27,500 | - | |||
Capitalised costs in relation to fundraising | (1,280) | - | |||
Capitalised costs in relation to group restructuring | (1,250) | - | |||
Repayment of borrowings | - | (430) | |||
Repayment of finance lease | (1,660) | (1,471) | |||
Interest received | 181 | - | |||
Movement in restricted cash: | |||||
- | Release of minimum balance - GE Capital Equipment Finance Limited ('GE') | 1,800 | 1,300 | ||
- | Release of committed cash in respect of Hinchingbrooke deposit | 2,000 | - | ||
Net cash inflow / (outflow) from financing activities | 27,291 | (601) | |||
Net increase in unrestricted cash and cash equivalents | 15,899 | (24,332) | |||
Unrestricted cash and cash equivalents at the beginning of the year | 8,597 | 32,929 | |||
Unrestricted cash and cash equivalents at the end of the year | 24,496 | 8,597 | |||
Cash and cash equivalents consist of: | |||||
Cash at bank and in hand | 24,496 | 12,397 | |||
Restricted cash: | |||||
- | Letter of Credit - GE | - | (1,800) | ||
- | Hinchingbrooke deposit | - | (2,000) | ||
Unrestricted cash at bank and on hand | 24,496 | 8,597 | |||
1a) | General information | |||||||
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Circle Holdings plc (the 'Company'), its subsidiaries and joint venture (together the 'Group') provide healthcare services in the UK.
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1b) Basis of preparation | ||||||||
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The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ('IFRS') as adopted by the European Union and IFRIC interpretations, Companies (Jersey) Law 1991, on a going concern basis and under the historical cost convention, as modified by the revaluation of financial assets and financial liabilities (including derivative financial instruments). In their preparation, management must make certain critical accounting estimates and exercise judgement in the process of applying the Group's accounting policies.
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Items included in the results of each of the Group's subsidiaries and joint venture are measured using the functional currency, which in all instances is Sterling. The Group's consolidated financial statements and parent company statements are presented in Sterling. All financial information presented has been rounded to the nearest thousand.
2 Going Concern
The consolidated financial statements have been prepared on a going concern basis which assumes that the Group will continue in operational existence for the foreseeable future. The Directors have prepared cash flow forecasts for a period of not less than 12 months from the date of signing the financial statements for the year ended 31 December 2014.
3 | Segmental reporting | ||||||||||||||||
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The chief operating decision-maker has been identified as the Board. The Board reviews the Group's internal reporting in order to assess performance and allocate resources, and has divided the Group into three reportable business segments based on the Group's management and internal reporting structure. The Board assesses the performance of the segments based on revenue, gross profit, EBITDA before exceptional items and operating (loss) / profit. Measures of assets and liabilities for each reportable segment is not reviewed by the Board in the Group's internal reporting. All measures are prepared on a basis consistent with that of the consolidated income statement. Revenue charged between segments has been charged at arm's length and eliminated from the Group financial statements.Revenue from external customers in the segmental analysis is also measured in a manner consistent with the income statement. This is split by hospital rather than by patient. Circle hospital services include CircleReading, CircleBath and CircleNottingham. Other Circle Services includes other non hospital management services such as the contract with Bedfordshire CCG to provide musculoskeletal services ('MSK') to patients in Bedfordshire. Geographic factors are not considered as all of the Group's operations take place within the United Kingdom. Reporting segments have been reclassified from prior years and 2013 has been restated as this is deemed to be more representative of the Group's current internal reporting. The introduction of the Bedfordshire MSK contract during the year marked an introduction of a new operating segment, its economic characteristics being different to those of the hospital sites. CircleReading, CircleBath and CircleNottingham are hospitals that are managed in a similar way and have similar economic characteristics, meeting the IFRS 8 criteria for aggregation.
| |||||||||||||||||
| 2014 | Circle hospital services | Other Circle services | All Other Segments and Unallocated Items | Total Group | ||||||||||||
| £'000 | £'000 | £'000 | £'000 | |||||||||||||
| |||||||||||||||||
| Revenue from external customers | 89,407 | 21,557 | 19 | 110,983 | ||||||||||||
| Cost of sales | (60,212) | (20,161) | - | (80,373) | ||||||||||||
| |||||||||||||||||
| Gross Profit | 29,195 | 1,396 | 19 | 30,610 | ||||||||||||
| Administrative expenses before exceptional items, depreciation, amortisation and charge recognised in respect of amounts recoverable on contract | (32,075) | (2,547) | (6,415) | (41,037) | ||||||||||||
| |||||||||||||||||
| EBITDA before exceptional items | (2,880) | (1,151) | (6,396) | (10,427) | ||||||||||||
| |||||||||||||||||
| Depreciation and amortisation charge | (2,448) | (2) | (452) | (2,902) | ||||||||||||
| |||||||||||||||||
| Operating loss before exceptional items | (5,328) | (1,153) | (6,848) | (13,329) | ||||||||||||
| Share-based charges in respect of awards and warrants issued (includes National Insurance Contributions costs) | - | - | (1,756) | (1,756) | ||||||||||||
| Revaluation of finance lease payments | - | - | - | - | ||||||||||||
| Provision for under declared VAT in prior periods | - | - | - | - | ||||||||||||
| Deconsolidation of Health Properties Edinburgh | - | - | - | - | ||||||||||||
| Restructuring costs | - | - | - | - | ||||||||||||
| Release of provisions | - | - | - | - | ||||||||||||
| Impairment of non-current assets | - | - | (2,907) | (2,907) | ||||||||||||
| Provision for receivables | - | - | (5,000) | (5,000) | ||||||||||||
| Other exceptional items | - | - | 4,322 | 4,322 | ||||||||||||
| |||||||||||||||||
| Operating loss | (5,328) | (1,153) | (12,189) | (18,670) | ||||||||||||
| Finance income | 181 | |||||||||||||||
| Finance costs | (911) | |||||||||||||||
| Exceptional finance income | (625) | |||||||||||||||
| Provision for joint venture deficit | (130) | |||||||||||||||
| |||||||||||||||||
| Loss before taxation | (20,155) | |||||||||||||||
2014 | Circle hospital services | Other Circle services | All Other Segments and Unallocated Items | Total Group | ||||
Other information | ||||||||
- Capital additions | 2,070 | 29 | 210 | 2,309 | ||||
2013 Restated | Circle hospital services | Other Circle services | All Other Segments and Unallocated Items | Total Group | ||||
£'000 | £'000 | £'000 | £'000 | |||||
Revenue from external customers | 84,200 | - | 52 | 84,252 | ||||
Cost of sales | (56,858) | - | - 3 | (56,861) | ||||
Gross Profit | 27,342 | - | 49 | 27,391 | ||||
Administrative expenses before exceptional items, depreciation, amortisation and charge recognised in respect of amounts recoverable on contract | (32,079) | - | (9,124) | (41,203) | ||||
EBITDA before exceptional items | (4,737) | - | (9,075) | (13,812) | ||||
Depreciation, amortisation and charge recognised in respect of amounts recoverable on contract | (3,363) | - | (551) | (3,914) | ||||
Operating loss before exceptional items | (8,101) | - | (9,625) | (17,726) | ||||
Share-based charges in respect of awards and warrants issued | - | - | (369) | (369) | ||||
Increase in onerous lease provision | (35) | - | 614 | 579 | ||||
Impairment of non-current assets | 3,578 | - | (3,732) | (154) | ||||
Provision for receivables | - | - | (6,348) | (6,348) | ||||
Other exceptional items | (136) | - | 10,288 | 10,152 | ||||
Operating loss | (4,694) | - | (9,172) | (13,866) | ||||
Finance income | 2,035 | |||||||
Finance costs | (2,774) | |||||||
Exceptional finance costs | 1,113 | |||||||
Provision for joint venture deficit | (1,738) | |||||||
Loss before taxation | (15,230) | |||||||
2013 | Circle hospital services | Other Circle services | All Other Segments and Unallocated Items | Total Group | ||||
Other information | ||||||||
- Capital additions | 1,711 | - | 87 | 1,798 | ||||
4 | Revenue | |||||||
2014 | 2013 | |||||||
£'000 | £'000 | |||||||
Provision of healthcare services | 110,547 | 83,873 | ||||||
Other miscellaneous income | 436 | 379 | ||||||
110,983 | 84,252 | |||||||
5 | Operating loss | |||
Operating loss is stated after charging / (crediting): | 2014 | 2013 | ||
£'000 | £'000 | |||
Charge recognised in respect of amounts recoverable on contracts | - | 1,181 | ||
Amortisation of intangible assets | 451 | 443 | ||
Depreciation of property, plant and equipment | 2,451 | 2,290 | ||
Auditors' remuneration (see below) | 564 | 486 | ||
Movement in provision for bad debts | (73) | 129 | ||
Operating lease rental | 11,579 | 13,669 | ||
Exceptional operating items | 5,341 | (3,860) | ||
6 | EBITDA and exceptional items | ||||||||
Exceptional operating items | |||||||||
2014 | 2013 | ||||||||
£'000 | £'000 | ||||||||
Impairment of property, plant and equipment | 2,907 | 152 | |||||||
Impairment of Hinchingbrooke working capital contributions | 5,000 | - | |||||||
Share-based charges | 651 | 368 | |||||||
Deconsolidation of Health Properties Edinburgh | - | (4,384) | |||||||
Revaluation of finance lease payments | - | 136 | |||||||
Provision for under declared VAT in prior periods | (226) | 115 | |||||||
Restructuring costs | 1,105 | 312 | |||||||
Decrease in provision for onerous leases, including dilapidations | - | (579) | |||||||
Provision for debtor with Health Properties Bath | - | 40 | |||||||
Gain on the wind up of joint venture activities (net of professional fees) | (4,750) | - | |||||||
Other exceptional expense / (income) | 654 | (20) | |||||||
5,341 | (3,860) | ||||||||
7 | Finance costs | ||||||||
2014 | 2013 | ||||||||
£'000 | £'000 | ||||||||
Interest on Barclays plc ('Barclays') loan | - |
| 1,466 | ||||||
Interest on AIB loan | - | 317 | |||||||
Finance lease interest | 895 | 973 | |||||||
Unwind of discount on unsecured loan note and deferred consideration | - | 18 | |||||||
Other bank charges | 16 | - | |||||||
911 | 2,774 | ||||||||
8 | Finance income | |||
2014 | 2013 | |||
£'000 | £'000 | |||
Bank interest receivable | 118 | 65 | ||
Interest receivable on operating financial asset | - | 1,970 | ||
Other interest income | 63 | - | ||
181 | 2,035 | |||
9 | Loss per share | |||
Basic loss per ordinary share is calculated by dividing the loss attributable to owners of the parent by the weighted average number of ordinary shares in issue during the year. Diluted loss per ordinary share is calculated by adjusting the weighted average number of ordinary shares outstanding to assume the conversion of all potentially dilutive ordinary shares. Share warrants and options in issue represent the only category of potentially dilutive ordinary shares for the Group. | ||||
The following table sets out the computation for basic and diluted net loss per share for the year: | ||||
2014 | 2013 | |||
Loss and total comprehensive loss for the year attributable to owners of the parent (£000's) | (8,055) | (6,678) | ||
Weighted average number of ordinary shares in issue (number) | 186,911,084 | 130,748,362 | ||
Basic and diluted loss per ordinary share (pence) | (4.3) | (5.1) | ||
There is no difference in the weighted average number of ordinary shares used for basic and diluted net loss per ordinary share as the effect of all potentially dilutive ordinary shares outstanding is anti-dilutive. | ||||
10 | Taxation |
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i | Analysis of income tax charge in year |
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2014 | 2013 |
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£'000 | £'000 |
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Current tax |
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UK corporation tax | - | - |
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Deferred tax |
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Originating and reversal of timing differences | - | - |
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Income tax charge | - | - |
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ii | Factors affecting the current tax charge for the year | ||||||||
Although the parent company is registered in Jersey, it became resident for UK tax purposes during 2011 and is subject to UK corporation tax. The tax assessed on the Group's loss before taxation differs from the average standard rate of UK corporation tax of 21.5% (2013: 23.25%). The differences are explained below: | |||||||||
2014 | 2013 | ||||||||
£'000 | £'000 | ||||||||
Loss before taxation | (20,155) | (15,230) | |||||||
Loss before taxation multiplied by the average standard rate of corporation tax in the UK of 21.5% (2013: 23.25%) | (4,333) | (3,541) | |||||||
Effects of: | |||||||||
Expenses not deductible for tax purposes | 1,407 | 124 | |||||||
Income not taxable for tax purposes | - | (153) | |||||||
Temporary differences for which no deferred tax recognised | 175 | (993) | |||||||
Tax losses for which no deferred tax recognised | 3,862 | 4,820 | |||||||
Effect of Jersey tax at 0.0% | (1,111) | (257) | |||||||
Total income tax charge for the year | - | - | |||||||
iii | Factors that may affect future tax charges | ||||||||
The standard rate of corporation tax in the UK changed from 23.0% to 21.0% with effect from 1 April 2014. Legislation was enacted to reduce the main rate of corporation tax from 21.0% to 20.0% (and will become unified with the small companies rate) with effect from 1 April 2015. | |||||||||
The reductions in tax rate to 21% and subsequently to 20% were substantively enacted for the purposes of IAS 12, 'Income taxes', on 2 July 2013. | |||||||||
As these rate changes have been substantively enacted at the balance sheet date, their effects have been included in these financial statements. | |||||||||
11 Property, plant and equipment
Cost | Freehold and leasehold land | Assets under construction | Leasehold improve-ments | Clinical equipment | Furniture, fittings and office equipment | Total | ||||||||||||||
£'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |||||||||||||||
At 1 January 2013 | 19,701 | 3,404 | 2,796 | 8,005 | 15,917 | 49,823 | ||||||||||||||
Additions | - | 4 | 510 | 1,043 | 184 | 1,741 | ||||||||||||||
Reclassifications | - | (101) | - | 101 | - | - | ||||||||||||||
Disposals | (7,859) | - | (90) | (303) | (167) | (8,419) | ||||||||||||||
At 1 January 2014 | 11,842 | 3,307 | 3,216 | 8,846 | 15,934 | 43,145 | ||||||||||||||
Additions | - | 69 | 137 | 1,558 | 432 | 2,197 | ||||||||||||||
Disposals | - | - | - | (42) | - | (42) | ||||||||||||||
At 31 December 2014 | 11,842 | 3,376 | 3,353 | 10,362 | 16,366 | 45,299 | ||||||||||||||
Accumulated depreciation and impairment | Freehold and leasehold land | Assets under construction | Leasehold improve-ments | Clinical equipment | Furniture, fittings and office equipment | Total | ||||||||||||||
£'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |||||||||||||||
At 1 January 2013 | 6,709 | 165 | 2,248 | 1,531 | 14,294 | 24,947 | ||||||||||||||
Depreciation charge for the year | 35 | - | 95 | 1,506 | 654 | 2,290 | ||||||||||||||
Impairment charge for the year | - | - | 152 | - | - | 152 | ||||||||||||||
Disposals | (4,359) | - | (90) | (303) | (167) | (4,919) | ||||||||||||||
At 1 January 2014 | 2,385 | 165 | 2,405 | 2,734 | 14,781 | 22,470 | ||||||||||||||
Depreciation charge for the year | 35 | - | 104 | 1,827 | 486 | 2,451 | ||||||||||||||
Impairment charge for the year | - | 2,907 | - | - | - | 2,907 | ||||||||||||||
Disposals | - | - | - | (26) | - | (26) | ||||||||||||||
At 31 December 2014 | 2,420 | 3,072 | 2,509 | 4,535 | 15,267 | 27,803 | ||||||||||||||
Net book amount | ||||||||||||||||||||
At 31 December 2014 | 9,422 | 304 | 844 | 5,827 | 1,099 | 17,498 | ||||||||||||||
At 31 December 2013 | 9,457 | 3,142 | 811 | 6,112 | 1,153 | 20,675 | ||||||||||||||
At 1 January 2013 | 12,992 | 3,239 | 548 | 6,474 | 1,623 | 24,876 | ||||||||||||||
The depreciation charge for the year is included in the income statement within administrative expenses before exceptional items. | ||||||||||||||||||||
Freehold and leasehold land were valued at 31 December 2012 by a third party valuer. Management believe these to be appropriate on the basis that there have not been decreases in land values in the areas since. The Group has provided for the carrying costs on the current design development costs which were historically spent on its Manchester site as it re-evaluates the model appropriate for that market. This impairment to assets under construction has resulted in an exceptional charge of £2,782,000 million in the profit and loss account. In addition, assets under construction of £125,000 was provided for in relation to the Birmingham site as the Group implement new plans for Birmingham. | ||||||||||||||||||||
| Assets held under finance leases have the following net book amounts: |
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| 2014 | 2013 |
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| £'000 | £'000 |
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| Leasehold land | 4,272 | 4,307 |
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| Clinical equipment | 4,686 | 5,406 |
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| Furniture, fittings and office equipment | 469 | 649 |
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| 9,427 | 10,362 |
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| The additions during the year comprise lease agreements with Shawbrooke and Close Leasing Limited to finance the purchase of clinical equipment at the CircleReading and CircleBath hospitals. |
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| Freehold and leasehold land can be split into the following net book amounts: |
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| 2014 | 2013 |
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| £'000 | £'000 |
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| Freehold | 5,150 | 5,150 |
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| Leasehold | 4,272 | 4,307 |
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| 9,422 | 9,457 |
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12 Share capital and other reserves
Authorised | 2014 | 2013 | |||||||||||
£'000 | £'000 | ||||||||||||
Ordinary shares of £0.02 each | 6,500 | 5,000 | |||||||||||
Convertible shares (18 months) of £0.02 each | 250,000 | - | |||||||||||
Convertible shares (36 months) of £0.02 each | 310,000 | - | |||||||||||
566,500 | 5,000 | ||||||||||||
Number | Number | ||||||||||||
Ordinary shares of £0.02 each | 325,000,000 | 250,000,000 | |||||||||||
Convertible shares (18 months) of £0.02 each | 12,500,000 | - | |||||||||||
Convertible shares (36 months) of £0.02 each | 15,500,000 | - | |||||||||||
353,000,000 | 250,000,000 | ||||||||||||
Allotted and fully paid up | |||||||||||||
Par value | Shares | Share capital | Share premium | Treasury shares | Otherreserves | Total | |||||||
Ordinary shares: | (number) | £'000 | £'000 | £'000 | £'000 | £'000 | |||||||
At 1 January 2013 | 130,706,657 | 2,614 | 193,145 | - | 22,182 | 217,941 | |||||||
Shares issued - 20 June 2013 (net of costs) | £0.02 | 78,465 | 2 | - | - | - | 2 | ||||||
At 1 January 2014 | 130,785,122 | 2,616 | 193,145 | - | 22,182 | 217,943 | |||||||
Fundraise - 9 January 2014 (net of costs) | £0.02 | 55,000,000 | 1,100 | 25,120 | - | - | 26,220 | ||||||
Shares issued - 16 June 2014 2014 (net of costs) | £0.02 | 62,769 | 1 | - | - | - | 1 | ||||||
Project Reset - ordinary shares issued - 8 December 2014 (net of costs) | £0.02 | 38,855,367 | 777 | 7,560 | (9,587) | - | (1,250) | ||||||
Project Reset - convertible shares issued - 8 December 2014 (net of costs) | £0.02 | 23,093,930 | 462 | 10,970 | - | - | 11,432 | ||||||
At 31 December 2014 | 247,797,188 | - | 4,956 | 236,795 | (9,587) | 22,182 | 254,346 | ||||||
Fundraise |
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On 9 January 2014, the Group issued, at nominal value, an 55,000,000 ordinary shares of £0.02 each in the capital of the Company as part of the equity raise. |
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Transaction costs incurred during the 2014 equity raise totalled £1,280,000 all of which have been taken to share premium. |
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Shares awarded to non-executive directors |
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On 16 June 2014, the group issued, at nominal value, an aggregate of 62,769 ordinary shares of £0.02 each in the capital of the Company to non-executive directors pursuant to individual share awards. |
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Project Reset |
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Under the terms of Project Reset, the Company issued 38,855,367 ordinary shares of £0.02 each in the Company to the Circle Partnership Trust (the "CPBT Ordinary Shares"), which are to be used to satisfy options to be granted under the Company's new share incentivisation plans in accordance with the terms previously approved by the Company's shareholders.In addition, Circle Holdings plc issued 23,093,930 Convertible Shares of £0.02 each in the Company, to the trustee of Circle Partnership Benefit Trust (the "CPBT"), split in two equal tranches, which shall automatically convert after 18 months and 36 months, respectively, into Ordinary Shares. The Convertible Shares cannot be traded or sold until they have converted into Ordinary Shares. |
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The Circle Partnership Benefit trust was also issued with shares in the Company. The Trust is consolidated in the financial statements and accordingly shares held by the Trust are recognised at cost as a debit to equity in the Treasury share reserve. |
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Project Reset transaction costs amounted to £1,250,000, all of which has been set against share premium as costs directly attributable to the issuance of shares.
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13 | Warrants |
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The Group issues warrants which give the holders the right to purchase shares for a specific price at a future date. The warrants are treated either as equity instruments and recorded in the warrant reserve, or as financial liabilities and recorded in liabilities, depending on certain criteria, as outlined in the Group's accounting policies. There are no remaining warrants issued as financial liabilities. |
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Warrants treated as equity instruments |
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Movements in the warrant reserve during the year are as follows: |
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2014 | 2013 |
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£'000 | £'000 |
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At 1 January | 22,703 | 22,390 |
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Share-based charges in respect of warrants issued | - | 313 |
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At 31 December | 22,703 | 22,703 |
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The following table details all share warrants issued by the Group which are recognised in equity, none of which have been exercised to date: |
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| Exercise price | Original warrants | Modified | Revised warrants | ||||||||||||||||||||||||||
| Warrant reserve: | |||||||||||||||||||||||||||||
| At 1 January 2014 | Share-based charges | At 31 December 2014 | |||||||||||||||||||||||||||
| Beneficiary | £ | (number) | (number) | (number) | £'000 | £'000 | £'000 | ||||||||||||||||||||||
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| Warrants issued in 2008: | |||||||||||||||||||||||||||||
| - | Balderton Capital | b | £1.52 | 523,460 | - | 523,460 | 4,111 | - | 4,111 | ||||||||||||||||||||
| - | Lansdowne Partners | b | £1.52 | 99,630 | - | 99,630 | 783 | - | 783 | ||||||||||||||||||||
| - | JCAM | £10.31 | 238,930 | - | 238,930 | 1,616 | - | 1,616 | |||||||||||||||||||||
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| Warrants issued in 2009: | |||||||||||||||||||||||||||||
| - | Balderton Capital | b | £1.52 | 172,355 | - | 172,355 | 675 | - | 675 | ||||||||||||||||||||
| - | Lansdowne Partners | b | £1.52 | 172,355 | - | 172,355 | 479 | - | 479 | ||||||||||||||||||||
| - | BlueCrest Capital Management | b | £1.52 | 75,510 | - | 75,510 | 296 | - | 296 | ||||||||||||||||||||
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| Warrants modified in 2011: | |||||||||||||||||||||||||||||
| - | Health Trust (Jersey) | a, b | £1.52 | - | 2,340,765 | 2,340,765 | 14,743 | - | 14,743 | ||||||||||||||||||||
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| 1,282,240 | 2,340,765 | 3,623,005 | 22,703 | - | 22,703 | ||||||||||||||||||||||||
a | The cancellation of the warrants issued to Health Trust (Jersey) and Health Trust (Jersey) - option pool and re-issue of warrants to Health Trust (Jersey). | |||||||||||
b | In May 2011 after the Initial Public Offering ('IPO') the existing share warrants, which consisted of warrants issued in 2008 and 2009 to Health Trust (Jersey) and Health Trust (Jersey) option pool were modified adjusting both the exercise price and vesting conditions. Under the terms of the modification the existing share warrants were replaced with warrants issued exclusively to Health Trust (Jersey), of which Ali Parsa is a beneficiary, and the exercise price was set to the IPO price of £1.52 per new ordinary share issued. The modified share warrants do not have any expiry date or any conditions attached. A fair value assessment was completed based on the value of the existing warrants prior to IPO and the fair value of the modified warrants determined using Black-Scholes on a diluted pricing basis using the parameters outlined on the next page. The incremental fair value of the modification was recognised on a straight-line basis over a 24 month period from May 2011 until May 2013, in line with the revised vesting timetable (1/24 every month from May 2011).
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14 | Net cash outflow from operating activities |
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2014 | 2013 |
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£'000 | £'000 |
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Loss before taxation | (20,155) | (15,230) |
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Provision for joint venture deficit | 130 | 1,738 |
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Exceptional finance items | 625 | (1,113) |
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Finance costs | 911 | 2,774 |
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Finance income | (181) | (2,035) |
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Amortisation of intangible assets | 451 | 443 |
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Depreciation of property, plant and equipment | 2,451 | 2,290 |
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Charge recognised in respect of amounts recoverable under contract | - | 1,181 |
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Loss on sale of tangible fixed assets | 16 | - |
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Impairment of property, plant and equipment | 2,907 | 152 |
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Impairment of intangible assets | 81 | - |
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Share-based charges in respect of warrants issued | - | 313 |
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Share-based charges | 1,691 | 55 |
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Deconsolidation of Health Properties Edinburgh | - | (4,384) |
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Revaluation of Birmingham finance lease payments | - | 136 |
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Gain on the wind up of joint venture activities | (4,750) | - |
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Provision for VAT | (226) | 115 |
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Decrease in provision for onerous leases | - | (579) |
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Provision of debtor with Health Properties Bath | - | 40 |
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Movements in working capital: |
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- | Increase in inventories | (161) | (347) |
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- | Increase in trade and other receivables | (1,159) | (2,804) |
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- | Increase / (Decrease) in trade and other payables | 9,387 | (3,229) |
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- | Decrease in provisions | (379) | (1,578) |
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Net cash outflow from operating activities | (8,361) | (22,062) |
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15 | Reconciliation and analysis of net debt | |||||
2014 | 2013 | |||||
£'000 | £'000 | |||||
increase / (Decrease) in unrestricted cash in the year | 15,899 | (24,332) | ||||
(Decrease) in restricted cash in the year | (3,800) | (1,300) | ||||
Repayment of borrowings | - | 430 | ||||
Repayment of loan notes | - | 366 | ||||
Repayment of finance lease | 1,660 | 1,471 | ||||
Movement in net debt from cash flow | 13,759 | (23,365) | ||||
Other non-cash movements | (922) | 47,704 | ||||
Movement in net debt | 12,837 | 24,339 | ||||
Net debt at 1 January | 868 | (23,471) | ||||
Net debt at 31 December | 13,705 | 868 | ||||
2014 | At 1 January | Cash flow | Reclassifi-cations | Other non-cash changes | At 31 December 2014 | |||||
£'000 | £'000 | £'000 | £'000 | £'000 | ||||||
Liquid resources | ||||||||||
Unrestricted cash | 8,597 | 15,899 | - | - | 24,496 | |||||
Restricted cash | 3,800 | (3,800) | - | - | - | |||||
Debt due within one year | ||||||||||
Loan notes | - | - | - | - | - | |||||
Finance leases | (1,547) | 1,660 | (1,801) | (234) | (1,922) | |||||
Debt due after one year | ||||||||||
Finance leases | (9,982) | - | 1,801 | (688) | (8,869) | |||||
Net debt | 868 | 13,759 | - | (922) | 13,705 | |||||
2013 | At 1 January | Cash flow | Reclassifi-cations | Other non-cash changes | At 31 December 2013 | |||||
£'000 | £'000 | £'000 | £'000 | £'000 | ||||||
Liquid resources | ||||||||||
Unrestricted cash | 32,929 | (24,332) | - | - | 8,597 | |||||
Restricted cash | 5,100 | (1,300) | - | - | 3,800 | |||||
Debt due within one year | ||||||||||
AIB | (7,380) | - | - | 7,380 | - | |||||
Barclays | (41,768) | 430 | - | 41,338 | - | |||||
Loan notes | (348) | 366 | - | (18) | - | |||||
Finance leases | (1,340) | 1,471 | (1,409) | (269) | (1,547) | |||||
Debt due after one year | ||||||||||
Finance leases | (10,664) | - | 1,409 | (727) | (9,982) | |||||
Net debt | (23,471) | (23,365) | - | 47,704 | 868 | |||||
16 Events after the balance sheet date
On 1 February 2012, the Group commenced the operation to run Hinchingbrooke Health Care NHS Trust. Under the terms of the contract ('the 'Franchise Agreement'), the Group agreed to make working capital contributions of up to £5.0 million and to share surpluses generated over the term of the contract with the Trust. The franchise agreement allows either party to terminate if Hinchingbrooke incurs more than £5.0 million in aggregate deficits during the contract term.
In January 2015, Circle announced its intention to terminate the Franchise Agreement. Based on discussions with the Trust Development Authority ('TDA'), Circle expects the contract to be formally terminated on or before 31 March 2015, after which Circle will have no further financial obligations under the contract.
Circle is obliged to pay all costs incurred by the Trust arising as a result of the termination, including but not limited to re-tendering costs, up to £2 million. As the franchise is not being re-tendered and because the transition period is significantly less than that assumed in the original franchise, the Trust, the TDA, and Circle have agreed £130,000 in termination costs.
During the year, the Group has provided for a further £164,000 working capital contribution to the Trust which has resulted in an aggregate £5.0 million receivable at the year-end. In light of the Group's announcement of its intention to terminate the contract, the aggregate working capital contributions of £5.0 million are not recoverable and have been fully impaired.
Related Shares:
Rize Circular