Full year audited results

Circle Holdings plc

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

Full year audited results

For the year ended 31 December 2012

London, 18 April 2013: Circle Holdings plc (LSE: CIRC), the employee co-owned hospital group, today announces its final results for the year ended 31 December 2012.

Financial highlights

·; Revenue under management* on continuing facilities** up 170.5% to £170.4 million (2011: £64.6 million).

·; Group revenue on continuing facilities** up 13.4% to £73.2 million (2011: £64.6 million).

·; EBITDA*** loss before exceptional items on continuing activities improved 8.4% to £14.2 million (2011: loss of £15.5 million).

·; Basic and diluted loss per share of 25.7p (2011: 64.4p loss per share).

·; £47.5 million equity fundraising (before fees).

·; Repayment of £14.1 million loan to James Caird Asset Management ('JCAM').

·; Unrestricted cash balance of £32.9m (restricted cash of £5.1 million).

Operational highlights

·; Patient procedures in continuing facilities** up 20.9% to 147,291.

·; Outstanding quality metrics with continuing high rates of patient satisfaction and average patient recommendation of 99.6% across all Circle owned continuing facilities.

·; Patient volumes at flagship hospital CircleBath increased 39.7% with the continual growth in new specialities.

·; New private hospital CircleReading opened in August 2012, on time and on budget.

·; Selected as the preferred bidder by NHS commissioners to provide renewed services at the Nottingham NHS Treatment Centre for a further five years commencing from July 2013.

·; Independent recognition of improvements in clinical performance and patient experience at Hinchingbrooke Health Care NHS Trust ('Hinchingbrooke'). Projected annual deficit cut from £10 million to £3.7 million.

·; Invited to tender for an innovative £150 million, five year Integrated Musculoskeletal ('MSK') Service contract in Bedfordshire.

·; Engaged in strategic discussions regarding a potential financing solution for the independent hospital development pipeline.

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

** Defined as those continuing as at 31 December 2012, which excludes Circle's Burton NHS Treatment Centre.

*** Defined as Earnings Before Interest, Tax, Depreciation, and Amortisation.

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

"Circle has taken great strides this year. Thanks to the dedication of our management and clinical teams, we have delivered a successful first year in our ground-breaking Hinchingbrooke contract, we have received preferred-bidder status to retain our operation of the Nottingham NHS Treatment Centre for a further five years, and our private hospitals have shown considerable growth in patient volumes.

"The contribution of our Partnership of clinicians and staff is fundamental to our success. Our enviable track record on quality is down to their dedication to delivering the best possible patient care, and our reputation for efficient operations is due to their active participation in the management of their facilities. At Circle, 'partnership' has always meant working together as a team, with shared values, towards common goals; trusting clinicians on the front line; and giving everyone a stake in our success.

"We believe that our approach of putting doctors and nurses in charge of tackling the problems that the NHS faces means we are well placed for the future. Our vision, model and platform are now well established, and I believe that Circle can deliver on its plans in the year ahead."

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

"I am hugely proud of everything our partnership has achieved in the last year. With the start of our landmark contract at Hinchingbrooke, the opening of our second new-build hospital in Reading, and the winning of preferred-bidder status once more for our Nottingham NHS Treatment Centre, we have demonstrated how our common-sense approach of putting doctors and nurses in charge is delivering results.

"A clear strategy, a proven track record and, above all, our ability to unleash innovation by empowering frontline clinicians, means I am confident that Circle will continue to grow in the years ahead."

For further information, please contact:

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

Chairman's Statement

Overview of the year

I am pleased to report that 2012 has been another year of progress for the Group. Thanks to the dedication of our management and clinical teams, we delivered a successful first year in our ground-breaking Hinchingbrooke contract, and were delighted to hear recently that we have been given preferred bidder status to retain our operation of the Nottingham NHS Treatment Centre for a further five years. Our second new-build hospital, CircleReading, had an auspicious opening, with full accreditation from all regulators and private medical insurers. CircleBath has seen consistent growth in patient volumes and has significantly expanded its service with several new specialties now on offer. While the Company has yet to break into overall profitability, I believe that we have a proven concept in clinical performance terms and are on a path towards sustainability from a financial perspective.

These developments were facilitated by a substantial £47.5 million equity fund-raise to finance our operating plans. The Board has been gratified by the continuing confidence demonstrated both by our current investors and our new cornerstone investor, Invesco. We are currently reviewing financing offers for a new CircleManchester hospital as well as positioning ourselves to bid for further NHS franchise management contracts. We are encouraged by the emergence of these and other NHS opportunities, including individual service lines and the delivery of integrated hospital and community care.

Leadership and Board changes

Earlier this year Circle's CEO and co-founder, Ali Parsa, moved to a Non-Executive role on the Board in order to pursue other entrepreneurial ambitions, and we asked the then Head of Mobilisation, Steve Melton, to assume the position of Interim Chief Executive. Over the past three months Steve has led the team with distinction and the Board was delighted recently to confirm his appointment to the CEO role on a formal and continuing basis. The Board and I would like to express gratitude for Ali's invaluable contribution over many years, and admiration for his founding vision and drive. Circle's talented executive team and strong platform is a legacy of his stewardship.

In other Board changes, we said farewell to Jamie Wood, and welcomed Tony Bromovsky to the Board. Tony brings with him a wealth of business and entrepreneurial experience and is already making a substantive contribution as an integral Board member.

The Partnership

The contribution of our Partnership of clinicians and staff is fundamental to our success. Our enviable track record on quality is down to their dedication to delivering the best possible patient care, and our reputation for efficient operations is due to their active participation in the management of their facilities. At Circle, 'partnership' has always meant working together as a team, with shared values, towards common goals; trusting clinicians on the front line; and giving everyone a stake in our success.

The Board is eager to ensure the continued engagement and motivation of clinicians and staff, and is therefore consulting with its shareholders around the efficacy of the current partnership incentivisation.

The Board has noted that the Group structure is relatively complex, reflecting various challenges faced in the early years, which included designing an effective employee ownership mechanism and incorporating a property development capability. Some progress has been made on this front, with the decrease in the number of legal entities and with Circle Holdings being brought onshore for tax purposes at the time of the AIM-listing in 2011. However, the Board remains highly focused on structural simplification and improved transparency across the Group.

Looking forward

We believe that our common-sense approach of putting doctors and nurses in charge of tackling the problems that the NHS faces - tighter budgets, a growing elderly population, and an ever increasing focus on the quality of care provided by the current structure - means we are well placed for the future. With increased scrutiny of NHS hospitals facing quality and financial challenges, we believe opportunities will emerge for players who can help the NHS achieve its aims with new solutions that increase efficiency, improve quality and change culture.

Our focus in the year ahead is to build on the strong foundations we have laid by demonstrating how we can transform the quality and costs of care through empowerment of frontline doctors and nurses. While this will continue to demand investment, we are confident that patients - and all other stakeholders - will see the value, innovation and service that our approach delivers against a backdrop of tighter budgets in the NHS, alongside the demographic challenge posed by an ageing population.

Our vision, model and platform are now well established, and I am confident that the Company can deliver on its plans in the year ahead.

Michael Kirkwood, CMG

Chairman

Chief Executive Officer's report

Business review

It is a privilege to present the Group's Chief Executive statement. I would like to join the Chairman in paying tribute to the enormous contribution of my predecessor, Ali Parsa. Our rapid growth and current track record in innovative healthcare delivery owe much to his founding vision and entrepreneurial drive.

In 2012 Circle made significant progress in our mission to transform healthcare in the UK. With the start of our contract to run Hinchingbrooke Hospital, the opening of our second new-build hospital, and successful participation in a re-tendering process for our Nottingham NHS Treatment Centre contract, we are showing how our approach of putting doctors and nurses in charge raises the quality of care, delivers value and sparks innovation. We are pleased to report that overall performance remains in line with market expectations, with better than projected consolidated revenues and operating profits before exceptional items for the year ended 31 December 2012.

Performance

We were delighted to be selected as the preferred bidder to provide renewed services at the Nottingham NHS Treatment Centre for a further five years. This result is a vote of confidence in our model of clinical leadership and employee engagement, and testament to the talent and commitment of our frontline clinicians, who were heavily involved in the assembly of our bid. Following our Hinchingbrooke win last year, this contract cements our first-mover advantage in independent NHS provision of services through an innovative approach to integrating hospital and community care.

CircleBath has seen steady growth in revenue and patient volumes, with year on year increases of 28% and 40%, respectively. Whilst a strategy to increase private revenues substantially has seen some progress, there is now a renewed focus on securing improved margins.

Our second new-build hospital, CircleReading, opened in August 2012, and has had a strong first five months, delivering the majority of its committed private revenue and gaining significant market share. It has created a £10 million run-rate business within six months of opening. At the same time, it has quickly matched other Circle facilities in achieving high levels of patient satisfaction. Lessons from the commissioning of CircleBath are being applied continuously to CircleReading operations.

In regard to our NHS hospital contract, the year ended 31 December concluded the first eleven months of operations at Hinchingbrooke, and we were gratified that our model has delivered strong performance across a range of indicators. The projected annual deficit of £10 million will this year be reduced to £3.7 million, in line with market expectations. Through our transformation programme, we have also secured approximately 7% annualised savings against a £100 million budget, including a 50% decrease in locum costs.

In the year ahead, we will be focusing on overcoming Hinchingbrooke's historic financial problems by achieving a sustainable break-even position, and making CircleBath and CircleReading economically sustainable by continuing to grow revenues and patient volumes.

Quality

The strong thread running through all of our current facilities and future plans is our commitment to providing the best possible patient care. Our founding credo describes us as 'the agents of our patients', and speaks of 'exceeding their expectations every time'. Our proudest achievement is the consistently high levels of patient satisfaction recorded in feedback, which averages 99.6% in Circle built and commissioned facilities. We were delighted that CircleBath was awarded the Bath Business Award for 'Customer Service' for the second consecutive year, beating stiff competition from luxury hotels in the region.

In our Hinchingbrooke contract we have made improving patient care our top priority. During our first few months, we focused on fixing areas of patient care that we judged to be sub-standard or unsafe. Since then, the hospital has consistently ranked amongst the top of the regional health authority's independent ratings of 46 in the Midlands and East region, including top ten for patient experience. In addition, it has been named as one of the five most improved hospitals in the country for patient safety, with a 60% year on year reduction in clinical incidents. We have also established a new culture of transparency that has achieved a 13-fold increase in the number of patient feedback forms. We ensure all concerns are addressed promptly by publishing feedback verbatim online in a 'TripAdvisor' style initiative, and so far this has led to the scrapping of parking fines, an overhaul of menus, the installation of free patient television systems, and the introduction of bedside handovers on nursing shifts.

Strategy and Outlook

We remain focused on a strategy of transforming healthcare by innovating in both the public and private spheres of UK healthcare. Our experience to date shows that many opportunities exist to improve the provision of healthcare in the UK. At Hinchingbrooke, in a relatively short space of time we have shown what can be achieved by putting doctors and nurses in charge: the quality of care goes up, the costs of bureaucracy go down, and an environment is created which stimulates innovation and initiative.

We won our bid to renew the Nottingham NHS Treatment Centre contract on the back of innovative proposals for integrating care between the Treatment Centre and the community, and believe that the contract will enable us to gain unique expertise in this area.

On top of that, we are participating in the Competition Commission inquiry into the private healthcare industry, and remain optimistic that its recommendations will tackle many of the barriers to entry that we have encountered in the hospital sector.

A clear strategy, proven results and, above all, our ability to unleash innovation by putting doctors and nurses in charge, mean we are confident that Circle will continue to grow in the years ahead.

Steve Melton

Chief Executive Officer

Operational overview

Private

CircleBath

CircleBath, the Group's first new-build independent hospital which opened in March 2010, has performed well on many fronts. Having completed its third year of operations, CircleBath has continued to show impressive growth with the number of patients treated in 2012 up to 46,340, an increase of 39.7% (2011: 33,174). Revenues grew by 28.1% to £15,644,000 (2011: £12,217,000), driven by an increase in the number of specialties offered to private and NHS patients. Spinal and neurosurgery have seen the greatest growth following their introduction in the early part of 2012. In addition, there has been an increase in new consultant partners from a wider catchment area.

At the same time, high levels of patient satisfaction have been maintained with an average recommendation of 99.9% for the year ended 31 December 2012 (2011: 98.3%). True to the Group's belief that "hospitals can be better", the Group is pleased that for a second year running, CircleBath has been awarded the Bath Business Award for "Customer Service", beating stiff competition from some of the best five star hotels in the country. Furthermore, CircleBath was the only independent healthcare finalist in the cancer leadership category of the Nursing Times awards.

In 2012, CircleBath has continued to play an active role in both the healthcare and local community. CircleBath became a training site for student nurses, student radiographers and student physiotherapists and ran, with enthusiastic involvement from staff and Consultant Partners, a number of successful work experience programmes and internships aimed at young people thinking about a career in healthcare.

CircleReading

CircleReading, Circle's second new-build independent hospital, opened in August 2012 on time and on budget. It has had a strong first five months, delivering a significant portion of its committed revenue, and produced record revenues of just under £1,000,000 in the month of November.

CircleReading has welcomed 11,599 patients to the hospital, generating revenues of £3,221,000 predominately from privately-insured and self-pay patients. NHS activity commenced in the fourth quarter of 2012 and is expected to increase steadily during 2013.

An operating loss of £7,477,000 was recorded for 2012. Included in this loss are the pre-opening costs of commissioning the hospital, which were substantially lower than budget following efficiencies learned and executed from the commissioning of Circle's first new-build hospital, CircleBath.

At the same time, CircleReading has achieved high levels of patient satisfaction, with an average patient recommendation of 99.6% in 2012.

The Group is now focused on growing its private and self-pay activity whilst also delivering a steady increase in NHS patient procedures.

NHS

Nottingham NHS Treatment Centre

Circle's Nottingham NHS Treatment Centre, one of the largest day case centres in Europe, has continued to perform well in 2012. Revenue has increased by 4.2% to £53,317,000 (2011: £51,185,000), despite a modest increase of 0.8% in overall volumes. At the same time, operating profit has increased by 14.2% to £2,729,000 (2011: £2,390,000).

As with Circle's independent facilities, the Nottingham NHS Treatment Centre has achieved high quality metrics, with patient recommendation averaging 99.4% in 2012 and unplanned transfers being 4.5 times lower than the national Independent Sector Treatment Centre threshold.

Furthermore, Circle is delighted to have been selected as the preferred bidder by NHS commissioners to provide renewed services at the Treatment Centre for a further five years from July 2013, subject to completion of the final contract. The decision to award preferred bidder status to Circle follows a seven month tender process managed by NHS Midlands and East's Strategic Projects Team on behalf of Principia Rushcliffe Clinical Commissioning Group, and is a testament to the Company's model of clinical leadership and employee engagement.

The Group is planning to adopt an innovative integrated care pathway approach with some elements undertaken in a community setting. In addition, the Group intends to introduce a ten-bed inpatient facility to enhance services currently offered by certain specialties.

Hinchingbrooke Health Care NHS Trust

On 1 February 2012, the Group commenced operations at Hinchingbrooke, the first NHS hospital to be managed by the independent sector. The contract will see the Group manage an estimated £1 billion of revenue over the ten year contract period. Under the terms of the contract, the Group has agreed to make working capital contributions of up to £5,000,000 and will share surpluses generated over the term of the contract with the Trust. The contract allows either party to terminate if Hinchingbrooke incurs more than £5,000,000 in aggregate deficits, at which point the Group is also required to pay a further £2,000,000 in termination costs to Hinchingbrooke.

The Group is pleased to report strong performance across a range of indicators. The projected underlying annual deficit of £10,000,000 in the financial year ending 31 March 2013, that was originally projected by the Trust, has been reduced to £3,700,000, which is broadly in line with our expectations. At the same time, the Trust has delivered significant improvements in patient satisfaction, Accident and Emergency waiting times and follow-up times for cancer treatment.

We will now continue our unrelenting focus on improving the Trust's finances and quality of care to achieve our goal of making Hinchingbrooke one of the top 10 District General Hospitals in the country.

Chief Financial Officer's report

Financial review

Introduction

We are delighted with the progress made by the Group in pursuing its objectives, and the ensuing results for the year. The Group has delivered results with better than projected consolidated revenues and operating profits before exceptional items. The commencement of the contract to manage Hinchingbrooke in February, together with the opening of CircleReading in August, were two important events in the evolution of the Group. These significant milestones, combined with the £47,500,000 (before fees) fundraising in June puts the Group on a solid trajectory to continue to deliver on its plans for the coming years.

Group Results

Revenue under management of £170,400,000 and revenue from continuing facilities of £73,200,000 mark a significant uplift on the previous year's results. The Group ends the year with a cash position of £38,000,000 (including £5,100,000 of restricted cash).

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

** Defined as those continuing as at 31 December 2012, which excludes Circle's Burton NHS Treatment Centre.

*** Exceptional items in the year ended 31 December 2012 of £11,332,000 (2011: £1,413,000) consist largely of impairments to property, plant and equipment, write-off of the debtor balance with the joint venture, provisions in respect of VAT, write-off of CircleReading pre-opening expenses, revaluation of finance lease payments, share-based charges in respect of warrants and shares issued, increases in onerous lease provisions and restructuring costs incurred during the year.

The Group has continued to deliver growth in its core operations, with revenue of £73,246,000 delivering a year on year increase of 13.4% in continuing facilities primarily resulting from the on-going growth at CircleBath and the Nottingham NHS Treatment Centre, endorsing the concept of clinician engagement in healthcare. Our new facility, CircleReading, started impressively, exceeding planned patient attendances in the five months after opening, and contributed revenues of £3,221,000.

Patient procedures (excluding Hinchingbrooke)

\* The number of procedures in the year to 31 December 2011 exclude Circle's Burton NHS Treatment Centre, to enable a comparison of the Group's continuing facilities (defined as those existing at 31 December 2012).

Overall patient procedures in continuing Circle facilities increased by 20.9% to 147,291 procedures. CircleBath continued to show significant growth with the number of procedures up 39.7% to 46,340 (2011: 33,174). The increase in patient procedures in continuing facilities is also attributable to the impressive performance of CircleReading, which has performed 11,599 procedures since opening in August 2012. Circle's Nottingham NHS Treatment Centre continued to see strong patient volumes, with total day case procedures increasing by 3.5% to 27,700. Crucially, the increases in patient numbers visiting Circle facilities have been achieved while also increasing patient satisfaction, which now averages 99.6%.

Group EBITDA (before exceptional items) on continuing facilities improved by 8.4% from a loss of £15,500,000 to a loss of £14,200,000, primarily driven by improved operating results at CircleBath, Circle's Nottingham NHS Treatment Centre and further cost efficiencies in the Group.

The Group generated an operating loss before exceptional items of £17,974,000, an increase of 4.9% on the previous year's result. The increase in the Group's operating result was impacted by the loss of the contract to run the Burton NHS Treatment Centre in July 2011 and CircleReading overhead costs prior to its opening.

Loss before tax was up 7.6% to £30,430,000 and the loss per share now stands at 25.7 pence, improved from a loss per share in 2011 of 64.4 pence.

Exceptional Items

The Group recognised some key exceptional items in the year.

After a review of its treatment of VAT for prior periods, the Group has made a £1,500,000 provision relating predominantly to inaccuracies in the 2008-10 period. The Group continues to conduct further analysis with the aim of finalising its position during 2013 and is in consultation with HM Revenue and Customs ('HMRC') on the outcomes of this review.

Furthermore, the Group has impaired the carrying value of its land in Manchester by £2,200,000 and made a provision of £1,600,000 for historic balances due from its Bath property joint venture. In compliance with accounting standards that require the Group to consider the current value of discounted cash flows over the near term, the Group has written off the commissioning asset (approximately £2,100,000) relating to its CircleReading facility as a one-off exceptional item (note 11). The overall cash commissioning cost for CircleReading has remained unchanged and under budget for 2012.

Exceptional finance income of £866,000 (2011: expense of £10,097,000 predominantly due to the AIM-listing) was recorded. Exceptional finance charges were primarily due to costs associated with the repayment of the JCAM loan offset by fair value adjustments on interest rate swaps in the year.

Financing

In June 2012 the Group successfully raised £47,500,000 (before fees) by way of equity funding. The proceeds from this fundraise have been used, in part, to pay down the entire £14,100,000 loan owed to JCAM, and complete the commissioning of CircleReading and the commencement of the Hinchingbrooke contract. Funds have also been used for the general working capital requirements of the Group, in particular CircleBath. The Group is encouraged by the emergence of further NHS opportunities and would consider the requirements for further capital depending on the opportunities presented.

The Group continues to seek financing for Circle Manchester and the independent hospital development pipeline and are currently in discussions with real-estate investors for a potential financing solution.

Cashflow

Net cash outflow from operating activities reduced by 27.9% to £16,989,000 (2011: outflow of £23,575,000) reflecting the improvement in the underlying performance of the Group. Net debt has also fallen from £42,354,000 to £23,471,000 at year end, despite funding CircleReading's start-up phase.

During the year, the Group invested £1,400,000 in developing the Circle Operating System and supporting the development of the IT infrastructure across all sites to improve the stability and effectiveness of clinical and management information.

The Group's interest expense in the year was reduced by 50.4% to £2,998,000 (2011: £6,040,000) following the repayment of the JCAM loan, which had been accruing interest at 25% per annum.

Restructuring

The Group continues to focus on meeting its objectives in line with the current strategy and recently undertook a restructure of its head office to ensure the cost base remains in line with operational requirements. This will result in projected annual run-rate savings between £2,000,000 and £3,000,000, with an expected restructure charge of £500,000 in 2013.

The Group completed the migration of specialist surgical services from its CircleWindsor clinic to its CircleReading facility in March 2013.

Financial risks

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

Working capital and funding risk

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

Contract risk

Contract risk is the risk that the Group is unable to renew the NHS contracts at the end of their fixed tenure. The Group aims to mitigate this risk by maintaining good relationships with contracting parties and actively pursuing contract renewals and extensions ahead of time. The Group has recently been selected as the preferred bidder by NHS commissioners to provide renewed services at the Nottingham NHS Treatment Centre for a further five years commencing from July 2013. The Group also commenced a 10 year contract in February 2012 to run Hinchingbrooke Health Care NHS Trust in Huntingdonshire.

Price risk

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

Paolo Pieri

Chief Financial Officer

Notes to the consolidated information

For the year ended 31 December 2012

1a) General information

The Company is a public limited company which is listed on the Alternative Investment Market of the London Stock Exchange and is incorporated in Jersey and domiciled in the UK.

1b) Basis of preparation

The consolidated financial information has 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 derivative financial instruments and the fair valuing of share-based charges and certain loans.The accounting policies adopted in the preparation of this condensed set of financial information are consistent with those of the Group's 2012 Annual report and financial statements. This condensed set of financial information does not constitute statutory accounts within the meaning of Article 105 of the Companies (Jersey) Law 1991. The Group's published consolidated financial statements for the year ended 31 December 2012 have been reported on by the Group's auditors and filed with the Registrar of Companies.The report of the auditors was unqualified and contained an emphasis of matter paragraph in relation to going concern and did not contain a statement under section 113A of the Companies (Jersey) Law 1991. Note 2 below provides further details regarding the material uncertainty in relation to going concern.The financial information for the year ended 31 December 2012 has been extracted from the audited consolidated financial statements for the year ended 31 December 2012 prepared under IFRS, which have not yet been approved by the shareholders and have not yet been delivered to the Registrar. The report of the auditors on the consolidated financial statements for 2012 was unqualified.

2 Going concern

The Directors have prepared cash flow forecasts for a period of 18 months from the date of signing the financial statements for the year ended 31 December 2012. These forecasts have been prepared on the cash flows from the existing operating businesses to include the following assumptions:

• CircleBath and CircleReading revenue and margin growth assumptions; and

• Awarding of the new Nottingham NHS Treatment Centre contract on revised terms.

If sensitivities to the Group business forecasts were to materialise, management believe that it could mitigate these by undertaking some combination of the following:

• Utilisation of contingencies built into the business plan;

• Head office cost savings; and

• The sale of some property asset holdings.

While the Directors are confident that the Group and Company can continue to meet their working capital requirements over the next 12 to 18 months, any significant deviations from the forecasts will impact on the sufficiency of working capital and this represents a material uncertainty that casts significant doubt upon the Group's and Company's ability to continue as a going concern.

Nevertheless, the Directors believe that, based on its current business plan, the Group and Company have adequate resources to continue in operational existence. As such, the Directors consider it appropriate for these financial statements to be prepared on a going concern basis. The financial statements do not include the adjustments that would result if the Group and Company were unable to continue as a going concern.

3 Segmental reporting

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 to date 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. These are all measured 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. Geographic factors are not considered as all of the Group's operations take place within the United Kingdom.

Overall, the Directors consider that the Group is principally a provider of medical services, that treats privately insured, self-pay and NHS patients. As the Group grows, a significant proportion of the independent hospitals' revenue is likely to derive from NHS patients. Consequently, in the future, the Board may manage the business as a single segment, as the distinction between the type of patient and where they are treated becomes less marked. This would lead to an equivalent change in the disclosures below.

ii Other Income

On 1 February 2012, the Group commenced the operation to run Hinchingbrooke NHS Healthcare Trust, which will see the Group manage an estimated £1 billion of revenue over the ten year contract period. Under the terms of the contract, the Group has agreed to make working capital contributions of up to £5,000,000 and will share surpluses generated over the term of the contract with the Trust. The contract allows either party to terminate if Hinchingbrooke incurs more than £5,000,000 in aggregate deficits, at which point the Group is also required to pay a further £2,000,000 in termination costs to Hinchingbrooke (currently held in escrow).

For accounting purposes, the Group is not deemed to control Hinchingbrooke and therefore does not consolidate the net assets and results of the company. Until such time as surpluses are generated by Hinchingbrooke, the Group will not recognise any income associated with the running of the contract: meanwhile revenue generated by Hinchingbrooke will be presented as proforma 'revenue under management' which is a non-statutory term.

In the eleven months from 1 February 2012, Hinchingbrooke revenue has totalled £97.2m, supported by increased out-patient and Accident & Emergency attendances, and admissions. During this time, the Group has focused on quality and safety as a priority and made some financial improvements. Trading in 2012 has been behind plan; however plans to help recover this are now being implemented.

The loan owed to JCAM on 20 June 2012 was repaid in full during the year with the above costs arising as a result.

This information is included here as it provides useful information to the reader of the financial statements for understanding operational performance

During the year, £nil of directly attributable interest arising on the Vinci Construction loan was capitalised (2011: £296,000).