Full year audited results

Circle Holdings plc

Full year audited results

For the year ended 31 December 2011

London, 29 May 2012: Circle Holdings plc ('Circle', the 'Group'), the vehicle that enables financial institutions to invest in Circle, the healthcare enterprise co-owned by the largest partnership of doctors, nurses and healthcare professionals in the UK (the "Circle Partnership"), today announces its final results for the year ended 31 December 2011 and a conditional agreement to raise a further £47.5m via a placing and subscription from new and existing investors.

Financial highlights

·; Revenue on continuing facilities* up 19.5% to £64.6m (2010: £54.1m)

·; Total revenues down 2.4% to £74.6m (2010: £76.5m) despite loss of Burton NHS Treatment Centre

·; Revenue at Circle's Nottingham NHS Treatment Centre up 6.6% to £51.2m

·; Revenue at CircleBath increased to £12.2m (2010: £4.9m)

·; EBITDA** loss before exceptional items reduced to £13.6m (2010: loss of £15.4m)

·; Basic and diluted loss per share of 64.4p (2010: 173.3p loss per share)

·; Successful listing on AIM completed in June 2011

·;    Announcement of £47.5m (before expenses) of equity funding, subject to the terms of the underwriting agreement, subscription agreement, and shareholder approval. Irrevocable undertakings to vote in favour of required resolutions received from existing shareholders representing in excess of 75% of issued share capital

Operational highlights

·; Patient procedures in continuing facilities* up 41.4% to 121,858

·; Quadrupling of patient attendances at flagship hospital CircleBath with expansion in specialties and attraction of consultants from beyond catchment area

·; Outstanding quality metrics at Circle's Nottingham NHS Treatment Centre with patient recommendations averaging 99.1%

·; Hinchingbrooke franchise contract signed on 9 November 2011, the first NHS hospital to be managed by the independent sector

·; Business strategy progressing well:

o CircleReading on track for opening in the second half of 2012, with an anticipated base build cost per square metre markedly lower than CircleBath for the same quality and product

o Land acquired for development of CircleManchester in the UK's second largest healthcare market

o Early metrics at Hinchingbrooke encouraging

* defined as those existing as at 31 December 2011, which excludes Circle's Burton NHS Treatment Centre and Circle's Bradford NHS Treatment Centre. Note CircleBath's operations commenced in March 2010.

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

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

"Last year saw the achievement of a number of key milestones that underpin Circle's potential as an effective and successful commercial model, with the Group's admission to AIM in June 2011 and the signing of the formal contract to manage the Hinchingbrooke Health Care NHS Trust, the first of its kind. More recently, the conditional agreement to raise a further £47.5m from new and existing investors, demonstrates the confidence that our investors have in our operating model. There are huge opportunities for the Group as a new, distinctive player in the UK healthcare space and I continue to remain energised by this enterprise which has achieved so much in such a short space of time."

Ali Parsa, Chief Executive Officer of the Group, commented:

"I could not be more proud of what our partners have achieved in a short space of time. Five years ago, we were a small group of people with zero revenue. Now, we have over £150m annual revenue under management, with responsibility for more than 2500 employees and 250,000 patients. In the midst of deep financial turmoil, we have formed the country's largest partnership of healthcare professionals, established one of UK healthcare's most prominent brands and delivered what we believe are record clinical quality and patient experience results. This track record led to Circle being entrusted with the first contract for an independent provider to manage an entire NHS hospital. We have seen early progress and are confident that we can deliver the same transformation we have seen in our other operations.

We are delighted to welcome another respected institution on board, and encouraged by existing shareholders' increased commitment. The price of the current equity raise reflects our partnership and investors' joint ambition to secure significant capital for our long-term growth. In difficult market conditions, we have taken a strategic decision to raise sufficient funds to clear the group's high-interest debt, and fully finance our existing business plan, demonstrating the ongoing commitment to our shared ownership model.

We have always said achieving our ambition of making healthcare fundamentally better and more affordable will be a long-term endeavour, and in 2011 we made good progress."

For further information, please contact:

An analyst briefing and live conference call will be held at 9:00am BST today at the offices of M:Communications, CityPoint, 1 Ropemaker Street, London, EC2Y 9AW.

Chairman's statement

It was an honour to have been asked to chair this fascinating enterprise last June and it gives me great pleasure to be providing the first Chairman's statement of Circle Holdings plc since it was admitted to trading on the Alternative Investment Market ('AIM') of the London Stock Exchange. The Group's unique model in healthcare of sharing ownership between capital and labour has continued to attract widespread attention and acclaim. While still a work in progress, the past year has seen a number of key milestones that underpin Circle's potential as an effective and successful commercial model.

Key achievements

On a like for like basis, increasing operational revenues, patient volumes, and ongoing implementation against our pipeline of projects signal that the Group is on track in its ambitious programme to redefine UK healthcare.

The Group's current flagship hospital, CircleBath, has made important strides in providing proof of concept. The positive impact of clinician engagement and exceptional patient service has been powerfully demonstrated in increasing market share, revenues and gross margins. In addition, clinical results and customer satisfaction have been maintained at very high levels across all our hospital sites. On key benchmarks such as readmission rates after day surgery and patient recommendations, the Group has enjoyed remarkable success.

Highlights

The Group's admission to AIM in June 2011 signalled its increasing maturity. Its ability to attract over £53,000,000 (before costs) of new investment during the year through equity investments from existing and new shareholders, at a time of considerable political risk and market volatility, speaks volumes for the uniqueness and strength of the business model.

A key landmark in the past year was the signing of the formal contract to manage the Hinchingbrooke Health Care NHS Trust ('Hinchingbrooke'), which commenced at the beginning of February 2012. The Group has brought its proven strengths to the task and the early indications in terms of feedback and metrics are very encouraging. The Circle approach of clinician leadership, staff engagement, a customer centric ethos and re-engineering processes to drive productivity and enhance patient experience is already transforming the hospital. In addition, patient numbers at CircleBath have continued to grow and our overall business strategy is developing well.

The Board

Concurrent with the listing, a Board was formed with a majority of independent Directors. The Board now consists of four independent Non-Executive Directors, two Non-Executive Directors representing major institutional investors in Circle, along with the three Executive Directors.

I was delighted to be able to attract Lorraine Baldry, Peter Cornell and Andrew Shilston to the Board. Each of them brings extraordinary and diverse experience and maturity to our deliberations and I am confident that the governance of Circle is in good hands.

Likewise, at this stage in the development of the Group, we benefit greatly from the insights and perspectives of institutional shareholder representation on our Board. Tim Bunting and Jamie Wood are important and intelligent contributors to our collective thinking.

The engagement of the new Non-Executive Directors with the co-founders of Circle, Chief Executive Officer Ali Parsa and Chief Medical Officer Massoud Fouladi, and with Chief Financial Officer Paolo Pieri, has resulted in a constructive and cohesive approach to the Group's opportunities and challenges.

I am delighted and privileged to be working with such a strong combination of talent, expertise and experience.

The Team

The differentiating element of Circle is the quality and engagement of the people within the Group. Whether in the executive or administrative teams, or in our hospital operations, it is the skill and commitment of the wider group that will ultimately determine our future success. The Circle Partnership under the leadership of Massoud and Ali is executing the vision and the Board and I would like to recognise their central importance to the Circle business model.

The Group recognises that to create an enterprise of scale, three ingredients need to be brought together and incentivised in fair measure: entrepreneurial drive, employee passion and financial resources. To that end, the Group is focused on ensuring the model continues to incentivise all parties appropriately.

The Outlook

I believe that there are significant opportunities for the Group as a new and distinctive player in the UK healthcare space. The recent conditional agreement to raise a further £47,500,000 is testament to the confidence that our new and existing investors have in the Group's prospects. This fully finances the business for the medium term, allowing the management to fully exploit the market opportunity. With the support of the Board, the Executive team, the Circle Partnership and our external constituencies, I remain confident that we will make further progress in the coming year.

Michael Kirkwood, CMG

Chairman

Chief Executive Officer's report

The year ended 31 December 2011 was another year of progress for the Group. Operational revenues and EBITDA have progressed steadily and according to plan, with overall revenues increasing by 19.5% in continuing facilities to £64,618,000 (2010: £54,058,000). Both of our flagship facilities, CircleBath and Circle's Nottingham NHS Treatment Centre, achieved impressive clinical quality and patient recommendation metrics, which we believe rate amongst the best in the UK. Our track record was affirmed by the Government approving the ground-breaking Hinchingbrooke contract, allowing for the first time the independent sector to run an entire NHS hospital. In a relatively short space of time, Circle has created an unrivalled platform.

CircleBath, our first independent hospital which opened in March 2010, has performed well in many measures. Revenues grew by 94.2% and gross margins improved by 34.4 percentage points between the second half of 2010 (when the hospital completed its first full six months of trading) and the second half 2011, as existing operations grew and processes matured. At the same time, we maintained an average of 99.4% patient recommendation for the six months ended 31 December 2011 and a zero infection rate. CircleBath also became the first hospital in the country to gain a national award for Best Building, an international award for Best Public Space globally, and a regional award for Best Customer Service, beating stiff competition from some of the best five star hotels in the country.

Revenue in Circle's Nottingham NHS Treatment Centre, one of the largest day surgical centres in Europe, increased by 6.6% to £51,185,000 (2010: £48,000,000), whilst operating profits were up by 85.0% to £2,390,000 (2010: £1,292,000). Our Nottingham operation has gained national acclaim from policymakers and politicians for its record 18.5% average compounded productivity gain and outstanding quality metrics, including readmissions after day surgery being seven times better than the national Independent Sector Treatment Centre ('ISTC') threshold, and patient recommendations averaging 99.1%. The contract to run the Nottingham Treatment Centre expires in July 2013 and we are awaiting details of the proposed re-tendering of the contract. If the re-tendering process does not commence imminently, we expect that an extension to the current contract is a reasonable prospect.

We have been heartened by overwhelming staff, stakeholder and community support around the launch of our franchise contract in Hinchingbrooke. In an NHS first, around 1,200 of the 1,700 hospital employees came together to create the improvement plan for their own hospital. Collectively, they came up with the audacious goal of becoming one of the best district general hospitals in the country within two years, and a detailed plan to achieve this. Early metrics are encouraging with Accident and Emergency performance consistently above 98.0%, approximately a 10.0% improvement since the beginning of February, making Hinchingbrooke the top performer in the region.

It has also been a good year for our development pipeline, with funding deployed for CircleReading's construction and commissioning, and land acquisition in Manchester. Construction of CircleReading is expected to be completed by the end of May 2012, on time and on budget, and we look forward to opening our doors to serve patients there in the second half of 2012.

The politics of healthcare in the UK is often turbulent, yet the direction of travel has been encouragingly consistent. Since Circle was founded, the operating environment has improved immeasurably. Significant gains in the number of patients being offered choice, the opening of secondary and community services to independent sector provision, and our own ground-breaking contract to run an entire NHS hospital, all confirm that there are increasing opportunities for plural provision of NHS services.

Circle has made a number of contributions to opening up this market, with three significant and successful campaigns. Firstly, we referred the issue of consultants' contracted hours to the NHS Co-operation and Competition Panel ('CCP') which accepted our argument that consultants should have the freedom to practice at the location of their patients' choice. Secondly, we referred Primary Care Trusts that were restricting NHS patients' choice to the CCP, which again ruled in favour of patient choice. Thirdly, we referred anti-competitive practices in the private sector to the Office of Fair Trading, which accepted our arguments and referred the entire sector to the Competition Commission for a market investigation. It is widely accepted that UK healthcare needs more efficient solutions, so we are confident that the environment will continue to improve.

Circle's steady track record demonstrates what can be achieved through an unrelenting passion for innovation. As Chief Executive Officer and entrepreneur co-founder of Circle, I am privileged to be surrounded by excellent people. We are fortunate to have such supportive investors, wise and willing Board members, talented and dedicated management, and a committed and passionate partnership. I am grateful to all who have contributed to the delivery of 2011's milestones. We still have a long way to go, in an ever changing market, but last year we made steady progress.

Ali Parsa

Chief Executive Officer

Operating and financial review

Introduction

On 17 June 2011 the Group listed on AIM and raised £25,283,000 excluding proceeds from warrants, bringing the total amount raised for the year to £53,077,000 before costs. This was achieved at a time of intense political risk and stock market volatility, which is testament to the strength of the Group's operating model. The listing forms part of the overall fundraising strategy and demonstrates the Group's increasing maturity.

Results

The Group has continued to deliver growth in its core operations, with revenues increasing by 19.5% in continuing facilities to £64,618,000, primarily as a result of the improving performance of CircleBath, proving the concept of clinician engagement in new-build hospitals, and the growth in Circle's Nottingham NHS Treatment Centre, one of the largest outpatient and day surgery centres in Europe. Patient attendances in continuing facilities have grown by 41.4%, with the volume mix between day case, inpatients and outpatients impacting overall revenue growth. Overall revenues decreased year on year by 2.4% to £74,607,000, which was achieved despite the loss of the Burton contract.

CircleBath, which opened in March 2010, continued to show impressive growth with the number of patients treated up to 33,174 (2010: 7,232), and the hospital attracting acclaim from its General Practitioners ('GP') and patients, achieving 98.3% patient satisfaction ratings in the year ended 31 December 2011. Circle's Nottingham NHS Treatment Centre completed its third full year of trading and continues to show significant growth, with the number of patients treated increasing by 12.5% to 87,340 and revenue increasing by 6.6% to £51,185,000.

Group EBITDA before exceptional items improved by 11.7% from a loss of £15,441,000 to a loss of £13,633,000. Within these losses, we continue to invest in our future growth.

*Exceptional items in the year ended 31 December 2011 of £1,413,000 (2010: £15,067,000) consist largely of share-based charges in respect of warrants issued, AIM listing costs not capitalised, increases in onerous lease provisions and profit on cessation of the contract to run Circle's Burton NHS Treatment Centre. Exceptional finance costs of £10,097,000 (2010: £451,000) were incurred primarily due to fair value adjustments of warrant instruments and interest rate swaps in the period.

A review of the key segmental operating units is as follows:

Circle Independent

The Circle Independent segment comprises privately owned hospitals and clinics which derive their revenues from providing healthcare services to privately insured patients, self-pay private patients and NHS patients.

Segment revenue grew by 120.4% to £13,224,000 (2010: £6,000,000) primarily due to CircleBath which opened in March 2010 and volumes have continued to grow to 33,174 patient attendances (2010: 7,232), driven by the introduction of new consultant partners and an increase in the number of specialties offered to both private and NHS patients. CircleBath continues to gain market share in core specialities, specifically demonstrated by the growth in hip and knee replacement procedures. As well as volume growth, profitability has also improved with gross margins in the year up to 19.6% (2010: 0.4%).

CircleReading is currently under construction, with the scheduled opening for the second half of 2012 continuing on plan.

Circle NHS

The Circle NHS segment comprises business units which have NHS sponsored contracts and derive the majority of their revenues from providing healthcare services to NHS referred patients. Circle NHS comprises Circle's Nottingham NHS Treatment Centre, Hinchingbrooke and, until the cessation of the contract in July 2011, Circle's Burton NHS Treatment Centre.

Daycase and outpatient numbers increased during the year at Circle's Nottingham NHS Treatment Centre by 12.5% to 87,340 with revenue increasing by 6.6% to £51,185,000. Gross margins broadly remained constant at 29.5% (2010: 30.1%) and operating profit increased by 85.0% to £2,390,000.

In March 2011, the Group was notified that the Burton NHS Treatment Centre would automatically revert to Burton Hospitals NHS Foundation Trust when the original contract expired on 10 July 2011. This contract was one of the first drafted under the last Government's ISTC programme and, almost uniquely, contained a clause permitting the local NHS hospital to re-claim rather than re-tender the service upon expiry. As part of the handover, the Group transferred all operating assets and provided training and mobilisation services to ensure the Burton NHS Treatment Centre was able to continue operating over the transition period.

Segment revenue decreased by 13.1% to £61,175,000 (2010: £70,416,000) primarily due to the loss of the contracts to run the Bradford NHS Treatment Centre in June 2010 and the Burton NHS Treatment Centre in July 2011. Operating profit for this segment improved from £691,000 to £5,167,000 for the year ended 31 December 2011.

In November, Circle signed a contract to run the Hinchingbrooke Health Care NHS Trust in Cambridgeshire, which will see Circle manage an estimated £1,000,000,000 of revenue over the ten year contract period. Under the terms of the Hinchingbrooke contract, Circle has agreed to make working capital contributions of up to £5,000,000. The contract allows either party to terminate if the Trust incurs more than £5,000,000 in aggregate deficits, at which point Circle is also required to pay up to a further £2,000,000 in termination costs to Hinchingbrooke. Therefore Circle's liability under the contract is capped at £7,000,000. Circle will share surpluses generated over the term of the contract with the Trust. The contract commenced in February 2012, and we believe there is already a clear path to achieving our ambition of the Trust becoming one of the best district general hospitals in the country.

Other Segments and Unallocated Items

The Other Segments and Unallocated Items segment comprises property companies and the head office entities not involved in the operation of hospitals or treatment centres. Specifically it comprises head office costs, interest income, interest expenditure and corporation tax which are not allocated to reporting segments as they are managed on a Group wide basis.

Financing

During 2011, the Group continued to successfully raise finance to fund business growth. In addition to the £25,283,000 (excluding proceeds from warrants) the Group raised at the time of its listing on AIM, which brought the total amount raised from investors in the year to £53,077,000 before costs, the Group secured a short-term loan facility of £5,000,000 from Vinci, to enable the purchase of land in Didsbury, Manchester. This loan was repaid on 14 December 2011 along with accrued interest of £296,000.

In May 2011, the Group secured an extension of the James Caird Asset Management ('JCAM') facility of £13,300,000 from August 2012 to February 2013. Under the terms of the extension, an advance payment of £6,204,000 was made to JCAM, of which £4,258,000 remains on the balance sheet at 31 December 2011.

More recently, despite the challenging financial markets, the Group has entered into an underwriting agreement with Numis Securities to raise £47,500,000 by way of equity funding, before fees, subject to the terms of the underwriting agreement and shareholder approval. Once again, this demonstrates the confidence that our investors, both new and existing, have in the business strategy.

In addition, the Group continues to explore further financing for its real estate development in relation to both hospital development on sites already secured, and potential future sites.

Investing

The additional funding raised from the current shareholders and the AIM listing outlined above means the Group had net assets of £26,184,000 as at 31 December 2011 (previously net liabilities of £5,223,000 at 31 December 2010).

The Group's new build strategy is progressing, with the construction of the second hospital, CircleReading, budgeted to have a cost base per square metre less than CircleBath for the same quality and product, demonstrating that we are gaining competitive advantage. In May 2011, the Group entered into an agreement to buy a 5.3 acre site in Didsbury, Manchester, for Circle's third new-build hospital, in the second largest private healthcare market in the country. This was initially part financed by a loan from Vinci, secured against the land. This loan was repaid in December 2011 along with accrued interest.

In November 2011, the Group signed a 125 year lease on a 3.4 acre site in Edgbaston, Birmingham, which is anticipated to become Circle's fourth new-build hospital.

Outlook

The year ended 31 December 2011 was a landmark year in the development of Circle: we successfully listed on AIM, secured further funding from existing shareholders, and we won the Hinchingbrooke contract, which was the first of its kind and won in open competition, outshining competition from the NHS and independent sectors. We improved volumes, revenues and profitability at both of our main sites in Bath and in Nottingham, despite continued demand pressures in the market place.

We enter 2012 with a strong platform to build on the improvements seen in Bath and Nottingham, commencing the operation of the Hinchingbrooke contract in February and opening the new hospital in Reading in the second half of the year. The current contract in respect of the Nottingham facility expires in July 2013 and we are awaiting details of the proposed re-tendering of the contract. If the re-tendering process does not commence imminently, we expect that an extension to the current contract is a reasonable prospect. In the meantime we will continue to seek further opportunities within the NHS.

In relation to the independent pipeline, construction of Circle's facility in Reading is expected to be completed in line with budget, with the facility opening in the second half of 2012.  We will continue to explore funding opportunities in challenging financial markets for the construction and commissioning of our Manchester and Birmingham hospitals.

Paolo Pieri

Chief Financial Officer

Notes to the consolidated information

For the year ended 31 December 2011

a) 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.

b) 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 2010 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 2010 have been reported on by the Group's auditors and field with the Registrar of Companies. The report of the auditors was unqualified and did not contain an emphasis of matter paragraph or statement under section 113A of the Companies (Jersey) Law 1991.

The financial information for the year ended 31 December 2011 has been extracted from the audited consolidated financial statements for the year ended 31 December 2011 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 2011 was unqualified.

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 2011. These forecasts include the underwritten commitments received by the Company to raise a further (i) £46,000,000 of funds from Numis Securities, subject to the terms of the placing agreement and shareholder consent, and (ii) £1,500,000 of funds from Balderton Capital III L.P. subject to the terms of the subscription agreement and shareholder consent, such shareholder consent expected on or about 18 June 2012 together with existing cash balances and cash flows from the operating businesses.

The Board currently believes that, following the completion of the fundraising, the Group will have sufficient funding to carry out its current plans. Should the Group not perform in line with the Board's current expectations or unforeseen circumstances occur the Group may need to seek additional debt and/or equity funding. Based on this, the Directors believe that the Group has adequate resources to continue in operational existence for the foreseeable future and as such, consider it appropriate for these financial statements to be prepared on a going concern basis.

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. Revenue from external customers in the segmental analysis is 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.

During the year, the Board has changed the way it reviews the results of the business and no longer allocates the majority of head office and other central costs across the business segments. This has resulted in the 2010 segmental information being restated. 'IFRS Improvement' (endorsed 23 March 2010) has been adopted in relation to non-disclosure of segment assets under IFRS 8. Assets and liabilities are not disclosed by segment as they are not reported to the Board.

Overall, the Directors consider that the Group is principally a hospital operator, 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, and consequently the Board going forward may manage the business as a single segment, as the distinction between the type of patient and where they are treated becomes less distinct. This would lead to an equivalent change in the disclosures below.

4 Disposals and discontinued operations

In July 2011, the contract to run Circle's Burton NHS Treatment Centre came to an end after its five year term. The business assets, comprising property, plant and equipment (including the GE equipment) and inventories were sold to Burton Healthcare Foundation Trust for an agreed consideration of £2,500,000 (which included managing the transition and passing on established knowledge up to 31 July 2011). The profit on cessation of contract has been determined as follows:

Revenue for the seven months to July 2011 was £9,988,000 (year to 31 December 2010: £16,781,000). The operation has not been classified as discontinued under IFRS 5 'Non-current assets held for resale and discontinued operations' since it is not managed as a single Cash Generating Unit ('CGU') nor represents a separate major line of business.

5 Revenue