Full Year 2015 Audited Results

Circle Holdings plc

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

Full year audited results

For the year ended 31 December 2015

London, 30 March 2016: Circle Holdings plc (LSE: CIRC), the employee co-owned health group, today announces its final results for the year ended 31 December 2015.

Financial highlights

· Group revenue up 15% with total revenue increased to £127.8m (2014: £111.0m)

· Group EBITDA1 losses for the year more than halved to £4.9m (2014: £10.4m)

· All business segments now EBITDA positive, excluding Head Office

· Patient volumes up 8%

Operational highlights

· Clinical performance consistently high, with patient recommendation rate above 98% across the Group, above NHS and private averages

· 100% of Bedfordshire MSK patients triaged within 24 hours

· Nottingham one of few centres in the country to gain 'Outstanding' rating for surgery service from Care Quality Commission

· Secured planning permission for CircleBirmingham, Circle's fourth new-build hospital

Steve Melton, Chief Executive of the Group, commented:

"In 2015, we made encouraging progress in our core business, and developed significant opportunities for further growth.

Circle's management model has always emphasised a number of key principles. We believe that we offer better, more efficient care by focussing above all else on patients. We believe that excellent hospitality and design are essential to an excellent patient experience. We believe in clinical leadership, and constant innovation. And finally, we have built up a particular expertise in musculoskeletal care, beyond the orthopaedic surgery many private hospital groups offer.

In 2015, we consolidated this operational expertise and as a result, we have delivered solid financial results."

Michael Kirkwood CMG, Chairman of the Group, commented:

"In 2015, Circle continued to grow its existing operations. Pleasingly, Bath, Nottingham and Bedfordshire MSK are now contributing positive EBITDA, and the Group's growth performance in revenues and patient volumes outperformed the sector in general - though the Group has yet to reach a scale that fully covers central costs.

Clinical performance remains consistently high. Notable outcomes included the exceptional patient satisfaction levels across the Group and the 'Outstanding' CQC rating achieved for surgery at CircleNottingham.

In the UK, the pressures facing healthcare are expected to grow. We anticipate increasing patient demand, tighter public finances, radical changes in technology, and a shift towards more integrated healthcare.

We plan to commence construction work on our fourth new-build hospital in Birmingham during 2016. To further grow and optimise utilisation of our facilities, we are examining a partnership opportunity with a major healthcare group to extend our current acute offering into post-acute care, at our existing and new-build operations.

We believe Circle - after a period of maturation - is currently well poised to realise its potential through a sustainable business model while generating consistent returns for our shareholders."

For further information, please contact:

An analyst briefing and live conference call will be held at 10:00am BST today at the offices of Numis.

Chairman's Letter

In 2015, Circle continued to grow its existing operations. Pleasingly, Bath, Nottingham and Bedfordshire MSK are now contributing positive EBITDA, and the Group's growth performance in revenues and patient volumes outperformed the sector in general - though the Group has yet to reach a scale that fully covers central costs. Further discussion of operational and financial performance can be read in the CEO's report.

Clinical performance remains consistently high. Notable outcomes included the exceptional patient satisfaction levels across the Group and the 'Outstanding' CQC rating achieved for surgery at CircleNottingham.

During the year, the Board and Management conducted an extensive review of the business.

The review included an analysis of the competitive environment, options for inorganic growth, and examining opportunities to utilise our operational expertise, both in the UK and abroad.

In the UK, the pressures facing healthcare are expected to grow. We anticipate increasing patient demand, tighter public finances, radical changes in technology, and a shift towards more integrated healthcare.

The review concluded that in this environment, Circle's core principles of a relentless patient focus, outstanding hospitality and design, persistent innovation, and clinical leadership, along with increasing expertise in musculoskeletal care, were developing a solid platform for further growth. 

To ensure adequate scale in this respect, we expect to commence construction work on our fourth new-build hospital in Birmingham during 2016. To further grow and optimise utilisation of our facilities, we are examining a partnership opportunity with a major healthcare group to extend our current acute offering into post-acute care, at our existing and new-build operations.

The emphasis in our business model on a wide clinician partnership, commissioning and operating expertise, and high patient satisfaction has attracted attention from overseas interests. We are currently examining opportunities for Circle to engage with highly credible financial and operational partners in major economies where our investment would be primarily in the form of our intellectual property.

In summary, we believe Circle - after a period of maturation - is currently well poised to realise its potential through a sustainable business model while generating consistent returns for our shareholders.

In closing, I must pay tribute to our excellent executive team and their colleagues throughout the organisation for a year of hard work, strong operational performance and for their full commitment to our strategic direction and identification of new opportunities. Likewise, I am hugely indebted to my Board colleagues for their commitment, wise counsel and full engagement in our mission.

Michael Kirkwood CMG

Chairman

29 March 2016

Chief Executive Officer's Report

Operating Overview

In 2015, we made encouraging progress in our core business, and developed significant opportunities for further growth.

Circle's management model has always emphasised a number of key principles. We believe that we offer better, more efficient care by focussing above all else on patients. We believe that excellent hospitality and design are essential to an excellent patient experience. We believe in clinical leadership, and constant innovation. And finally, we have built up a particular expertise in musculoskeletal care, beyond the orthopaedic surgery many private hospital groups offer.

In 2015, we consolidated this operational expertise and as a result, we have delivered solid financial results.

CircleBath

Revenues at CircleBath grew at a greater rate than patient volumes, 12% and 3% respectively, reflecting a shift towards higher acuity work. On average, the hospital now performs 100 hip and knee joint replacements a month and has doubled the volumes of spinal procedures performed from the previous year.

A clear majority (85%) of NHS revenue is derived from patients individually choosing CircleBath, as opposed to a Trust transferring waiting list work to the hospital. The hospital continues to capture orthopaedic market share which now stands at 54% of the local market, up from 44% in the previous year.

CircleBath still face challenges over agency staff expenses, in common with many other hospitals across the UK; however, we have resolved this issue in priority areas and are ensuring a staffing and skill mix that ensures patient safety.

The patient recommendation rate at the hospital remains strong at 99% and we are proud that almost 80% of our staff would recommend working at Circle to their friends and family.

CircleReading

CircleReading, our newest hospital, secured £22.9m revenue in its third full year of operations.

Patient volumes increased 16%. In particular the hospital saw a significant uplift in the number of day case procedures, as it expanded the range of NHS services offered. Like CircleBath, CircleReading attracts a large number of patients who choose the hospital: roughly 80% of CircleReading's NHS patients come through the NHS e-Referral system, formerly known as Choose and Book.

We were pleased to see an 8% point improvement in gross margin. This is primarily due to a number of efficiency measures, such as standardising consumable and prosthesis compliance towards industry standards - which in turn, we attributed to a model of clinical engagement. Agency staffing costs also reduced from £1.1m in 2014 to £0.4m in 2015.

Patient and staff satisfaction both remain extremely high at 99.6% and 79% respectively.

CircleNottingham NHS Treatment Centre

As mentioned in our interim results, CircleNottingham received a rating of 'Outstanding' from the Care Quality Commission for its core service of surgery. It is only one of a handful of facilities in the country to receive this rating. This was one highlight in a year of consistently strong clinical performance, also reflected in a strong patient recommendation rate of 97%.

The hospital continues to increase its patient volumes despite its contract having no guaranteed volumes: again, this is a testament to the patient care offered and the active choice of GPs and patients to be treated by us. To offer greater patient choice, we are offering operations on weekday evenings and during the day and evenings on Saturdays.

EBITDA increased by £0.5m to £3m, supported by efficiencies in the Treatment Centre. We also seek further opportunities to support the local healthcare economy, and consider the Treatment Centre to be a prime example of the independent sector working closely with the NHS to offer excellent care.

CircleBedfordshire MSK

We are now two years into our five-year Bedfordshire musculoskeletal (MSK) contract. The purpose of the contract is to make the system for MSK services more coherent for the patient, while capping the contract value - and thus the cost to taxpayers - beneath previously anticipated projections of MSK spending.

Total MSK referrals increased 6% in 2015 on prior year, and were up 17% compared to the 2013 calendar year.

Despite this increase in patients, we achieved a number of improvements to MSK care.

We improved the triage process, so that every patient who was referred via our hub is triaged within 24 hours. At the same time, all patients requiring secondary care were offered a genuine choice of treatment providers - with 98% offered choice verbally by a patient advisor.

A number of operational issues were also resolved. Previously, we reported our challenge in convincing all local partners to use our triage hub. Following discussions with the local clinical commissioning group (CCG), we launched a prior approval scheme which has reduced the level of patients circumventing the hub and improved choice for a larger number of patients.

We also saw improvements in outcome collection, such as a new MSK Patient-Reported Outcome Measure developed by Oxford and Keele Universities, and using technology to improve community care outcome collection, where data has traditionally been poor.

With this improved triage, better engagement with patients, greater control of the system and stronger outcomes collection, we saw significant shifts towards more clinically-appropriate care.

In 2013, the year before the contract, 11% of all MSK patients were treated in community care, with 18% in physiotherapy and 65% in surgery or outpatient care. By 2015, this had moved to 18% in community care, 20% in physio, and 55% in surgery or outpatient care.

These shifts make the MSK service more cost efficient than the previous system, as it moves activity towards more clinically appropriate treatments and reduce unnecessary surgery. This underpins our ability to manage MSK services within the capped budget.

More importantly, this shift in referral patterns is also better for patients, which is reflected in outcomes such as patient recommendation rates - where 97% of patients in our triage hub saying they would recommend our care - and county-wide measures such as Eq5D scores, which ask patients to report on their health before and after care. In 2014, 73% of Bedford area patients reported health improvements following a course of physio; this rose to 78% in 2015.

In short, we believe the Bedfordshire contract is starting to deliver its proposed model of improved outcomes for capped spending, even as activity rises, with benefits shared between the NHS and the provider.

Operating Outlook

Our core strengths have enabled the Group to deliver excellent growth and improved results in 2015, both in our hospitals and in delivering integrated care.

Our aim is to use the skills we have developed in these operations to further grow our core business, and to add logical extensions to our current services.

Continued organic growth at hospital sites

CircleBath will continue to secure its status as a clinical centre of excellence, pursuing higher acuity work that delivers strong margins to the Group. The hospital will continue to work on efficiency projects throughout 2016 to further improve financial performance.

CircleReading will see a continued strong rate of growth in both patient volumes and revenue as we continue to attract patients from an expanding catchment area. We expect the facility will further benefit from Circle's planned rehabilitation service, which is outlined below.

We have recently launched a new range of all-inclusive self-pay packages, with the aim of growing this payor group. Current self-pay patients account for 10% of the patient mix across the two hub hospitals for total patient procedures and we therefore see an opportunity to grow this figure. These packages offer excellent value and promote the outstanding hospitality and quality care that are Circle's hallmarks.

CircleNottingham will continue with its integration into the local healthcare economy throughout 2016. It is expected that the hospital can leverage our core expertise to develop further opportunities in orthopaedic work, and it will drive efficiencies in the facility to accommodate continued volume growth.

Provisional contracts are in place for construction on CircleBirmingham. The concept has adapted to be a multi-use facility, to allow for expansion with an integrated rehabilitation centre. Building works will commence in the third quarter of 2016.

Further MSK contracts

Our Bedfordshire MSK contract has seen the Group transfer our strength of MSK knowledge and innovation from solely acute care to primary, community and secondary care. This represents unique operational knowledge and insight into the benefits and challenges of integrating care, from referral to triage through to treatment completion.

The Group is actively working on securing additional MSK services and we expect further opportunities in integrated MSK work to come to market in the next 12 months. Circle's experience puts us in a prime position to secure further work and we expect to do so. We will assess opportunities individually, to ensure they are viable and that they genuinely offer shared benefits for both the NHS commissioner and the provider.

Improving post-acute care in the UK

Our experience in acute care has led to the insight that UK patients would benefit from improved rehabilitation services.

There are some rehabilitation centres in the UK, but they tend to focus on drug, alcohol or mental health, and tend to be small centres disconnected from mainstream acute hospitals. Hospitals do provide some rehabilitation services for serious neurological conditions but the UK could significantly improve its record on patients who fail to return to health after surgery. The NHS also faces recurrent problems of medically healthy patients in acute hospitals awaiting discharge, who cannot access social, step-down or re-ablement care. With an ageing population, these problems will only grow.

This combination of demographic trends, gaps in current provision and a growing crisis in post-acute patients suggest there is significant potential demand for better rehabilitation services.

Circle expects to enter into a partnership with a major European provider of medical rehabilitation, with an extensive track record in providing public and private healthcare services.

This will complement Circle's experience in hospital care and orthopaedic work, and offer one of the UK's only dedicated service to meet demand for intensive, medically-driven rehabilitation.

Circle expects to open rehabilitation facilities in Reading, Bath and Birmingham.

We are finalising the terms of the partnership, and expect to confirm further details in the coming weeks.

Bringing next generation proton beam therapy to Harley Street

Circle's desire to innovate also sees us partnering with Advanced Oncotherapy (AVO), who are developing a next-generation proton beam therapy system, incorporating technology licensed from CERN. This reduces the size and cost of the proton beam machine considerably, enabling AVO to install a facility in Harley Street.

AVO's technology development remains on track and we are supporting AVO's efforts to obtain finance for its technology.

Using Circle's operational knowledge abroad

Circle has demonstrated its operational expertise and, as mentioned in our 2014 results, we continue to explore opportunities in China to build on our UK platform. We expect to provide a subsequent update on these international opportunities in the coming months.

2016 will be another important year for us. Our track record of growth, our commitment to excellent patient care and strategy to use our existing expertise to unlock further partnerships and growth provides Circle with a clear path to sustained profitability.

Together with a dedicated and talented team, we are excited about the opportunities that the next twelve months will bring.

Steve Melton

Chief Executive Officer

29 March 2016

Chief Financial Officer's Report

Financial review

2015 has been a year of progress. We achieved revenue growth across all sites, we improved gross profit margins and we further reduced operating overheads; all of which contributed to a 42% reduction in total losses. These results were achieved through increasing patient volumes and cost savings across many areas of our business.

Last year, for the first time, we reported a positive EBITDAR2. In 2015 we improved on this milestone with a positive EBITDAR2 of almost four times higher at £5.5 million and a positive EBITDA of £1.8m excluding our Head Office recharges.

As anticipated in the 2014 annual report, growth in revenue and improvement in operational efficiency continued at every hospital site in 2015. NHS patient volumes continue to grow as a result of patient choice and our support of surrounding NHS trusts. A key milestone was achieved in 2015 with CircleBath realising a full year positive EBITDA of £0.3 million, a turn-around from EBITDA loss of £0.8 million in the prior year. CircleNottingham and CircleReading continue to experience encouraging organic growth. Compared to prior year, CircleNottingham's EBITDA increased by 20% to £3.0m while CircleReading's EBITDA loss reduced by 38% to £2.8m.

The Group generated an operating loss before exceptional and Project Reset2 items of £8.0 million, an improvement of 40% on 2014. We are pleased with the financial progress made in 2015 while maintaining patient satisfaction levels at 99%. This positive growth provides solid grounding for 2016 and beyond as we seek to maximise the scale of our provisions to cater to the full patient experience.

Patient Procedures

Patient volumes continue to grow at a steady rate, particularly NHS volumes as more patients are actively selecting Circle as their healthcare provider of choice. At CircleReading and CircleBath, NHS e-referral orthopaedic appointments booked have risen on average 40% and 11% respectively year on year. This reflects our growing orthopaedic market share.

Total day case and inpatient volumes increased by 7% on prior year. Particularly encouraging growth in inpatients was seen at CircleNottingham where the number of inpatients increased by more than threefold on prior year. In addition, CircleNottingham has achieved year on year growth of 6%, which is very pleasing for a mature asset.

Fee pressures were evident across the market in 2015 and we expect these to continue. After consecutive years of decreasing NHS tariffs we take note of Monitor's proposal for the 2016/17 financial year3.

CircleBath saw a total volume growth of 3% to 49,052. Average inpatient and day case revenue increased in both NHS and PMI segments due to changes in procedure mix, with a higher proportion of orthopaedic procedures than prior year.

Growth in patient volumes at CircleReading was largely in specialities that are predominantly day case procedures.

While we have seen strong growth in our NHS day case and inpatient procedure volumes across all three hospital sites, overall PMI volumes have remained flat with self-pay volumes falling slightly on prior year.

We have also seen a positive increase in outpatient volumes, increasing by 9% to 292,472 year on year with a corresponding 10% growth in outpatient revenues.

Overall, we are encouraged by the continuing steady growth at all our hospital sites. All assets, in particular CircleReading, have potential for increased utilisation so as we move into 2016 we expect to see continued growth.

Group results

2015 continues the trend of positive growth from 2014. EBITDA loss before exceptional items reduced by more than half as the Group continues to grow in its core operations while achieving operating efficiencies. Cash balance as at end of December was £15.0 million with no restricted cash reserves.

Like-for-like5 revenue increase at the current hospital sites was 11%, reflecting the strength of our core business. At CircleBath and CircleReading, 85% and 80% respectively of our revenues came from patients who chose these facilities through the NHS e-Referral system. While reassured by our progress on revenues, we acknowledge that gross margin growth has been slower to materialise than anticipated. This is partly due to challenges around agency costs and achieving sufficient scale, as addressed in the Chairman and CEO's statement. Like-for-like gross margin is at 34% for the year ended 2015, compared to 33% in 2014. After removing the one-off impact of benefits received in 2014 in relation to the old Nottingham contract, like-for-like margins improved 3% in the period.

Group EBITDAR continues to improve at an encouraging rate, rising by nearly four times the EBITDAR of prior year. EBITDA loss has also more than halved. The improvement in performance is driven by EBITDA progress across all hospital sites and facilities.

The Bedford MSK service operated for a full financial year in 2015 and completed its first year of operation in April 2015. The operational challenges that we faced in 2014 have been largely resolved and we can now concentrate on implementing our planned initiatives to improve care and reduce surgeries in a growing population.

We are pleased that this success led to EBITDA of £1.3m. In a capped budget model where overall activity was up 17% since calendar year 2013, this represents benefits genuinely shared between independent provider and NHS commissioner. We also continue to work closely with the CCG to engage Bedford GPs to utilise the referral process managed by Circle.

The Company issued initial allocations of options under its Management Incentive Plan (MIP) and Partnership Incentive Plan (PIP) share schemes during 2015. The total share option charge recognised in 2015 amounted to £2.5 million. Together with 11.5m 2016 Convertible Shares that will automatically convert into Ordinary Shares of the Company in June 2016, up to 20m options may vest and become eligible to exercise in 2016 (approximately 13m of which are subject to performance conditions that may or may not be satisfied). Both the 2016 Convertible Shares and the Ordinary Shares into which these options will be exercised are currently issued and held by the Circle Partnership Benefit Trust, on behalf of scheme beneficiaries and are non-dilutive.

With the aid of future plans to maximise scale and also current strategies to reduce staffing costs while simultaneously maintaining our high quality clinical care, we are confident that we have the resources to achieve sustainable growth.

Exceptional Items

During 2015, net exceptional costs of £0.4m were recognised in relation to:

- A gain due to lower than expected costs in 2014 for advisory fees to assist the Group's consideration of potential acquisitions and;

- IFRS 2 share based charge on the share options awarded to the Group's Chief Financial Officer.

Cashflow

Net cash outflow from operating activities amounted to £4.6 million (2014: £8.4 million) showing an improvement on prior year as a result of improved operational performance.

At 31 December 2015, the only borrowings relate to finance leases of clinical equipment. Our cash flow forecasts have been prepared based on the expected cash flows from the Group's existing operating businesses and the commitments associated with new projects as discussed in the Chairman's and CEO's reports. Should any adverse variances to expected cash flows materialise, a number of actions could be taken to mitigate the negative impact. Actions include reducing Head Office costs, reducing the scale or timing of investment in new projects or seeking further funding opportunities. There is also potential to generate additional capital through the sale of land in Manchester. We continue to evaluate our growth options to maintain a balance between capital requirements and potential returns.

In early 2016, we marketed the sale of our land in Manchester. We expect to receive offers before we report again at the half year.

Paolo Pieri

Chief Financial Officer

29 March 2016