Half Yearly Report

Circle Holdings plc

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

Interim results

For the six months ended 30 June 2014

London, 28 August 2014: Circle Holdings plc (LSE: CIRC), the employee co-owned hospital group, today announces its interim results for the six months ended 30 June 2014

Financial Highlights

· Revenue under management1 up 5.5% to £102.9m (2013: £97.5m)

· Group revenue up 11.4% to £48.9m (2013: £43.9m)

· Positive EBITDAR2 of £0.4m (2013: loss of £1.0m)

· Operating loss before exceptional items for the financial period improved by 28.0% to £7.2m (2013: loss of £10.0m)

· Basic and diluted loss per share of 3.8p (2013: 4.7p loss per share)

· Cash balance of £31.6m at 30 June 2014 (2013: £16.8m).

· Revenue growth in CircleBath of 32.5% to £10.6m (2013: £8.0m). Revenue growth in CircleReading of 60.0% to £10.4m (2013: £6.5m).

· CircleReading's margins are behind plan as cost base efficiencies have lagged behind the strong pace of growth.

· £6.5m of revenue generated under the first three months of the new Bedfordshire MSK contract which became fully operational in April 2014.

.

Operational Highlights

· Day case and inpatient volumes, excluding Hinchingbrooke, up 6% to 21,520 (2013: 20,244)

· Strong demand from NHS at independent facilities; NHS patient volumes up 52% in Bath and 235% in Reading

· Hinchingbrooke hospital won leading National award for patient care in England

· At Hinchingbrooke, the Group expects the commissioning environment to remain highly challenging for 2014-15, as the NHS funding mechanism has produced higher than normal tariff reductions for NHS hospitals despite our record of delivering nationally recognised quality of care for patients.

· Patient recommendation, at Circle's independent facilities and its Nottingham NHS Treatment Centre, remains at 99%

· Successfully commenced operation of the five-year integrated musculoskeletal ("MSK") service contract in Bedfordshire

· Group ownership restructure ("Project Reset"), to give all partners including NHS staff access to tradable shares in Circle Holdings plc progresses towards completion before the end of the year.

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

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

Michael Kirkwood, CMG, Chairman of Circle Holdings, commented:

'"We have seen increased revenues at CircleBath and CircleReading, a strong first year in our renewed contract in Nottingham, and widespread accolades for the transformed performance of Hinchingbrooke Health Care NHS Trust."

"Our work on MSK services in Bedfordshire has begun well, and is already attracting attention from health leaders across the country for its potential to deliver better, and more sustainable, care to patients."

"We consistently face new hurdles as our business expands and enters new territory. We believe the Circle model of engaged staff, clinical leadership and a relentless pursuit of excellence continues to overcome these hurdles and deliver world-class, efficient care. We are confident this will continue in the future."

"I would like to thank the outgoing members of the board, Tony Bromovsky and Tim Bunting, for their support and work, and welcome our newly appointed Non-Executive Directors, Lord Hutton and Justin Jewitt."

Steve Melton, Chief Executive Officer of Circle Holdings, commented:

'"Circle's ambitions are high: to redefine healthcare as we know it, with a differential management model and an excellent experience for patients. Achieving this ambition is the work of years, but the past six months have seen strong progress towards that goal."

"Our sites in Bath and Reading have seen strong year-on-year revenue growth and significant increases in the numbers of NHS patients. We are seeing a number of competitors following our model by seeking to build new assets and work closer with the NHS."

"Hinchingbrooke's reputation for high quality was confirmed by an award in May for the best patient care in England. The financial pressures on the NHS remain intense, and have seen the impact of very tight commissioning frameworks, while the commissioning environment is expected to remain highly challenging for 2014-15."

"In Nottingham and Bedfordshire, we are helping the NHS address one of its biggest challenges: integration, and giving patients seamless care. In Nottingham, patients who require elective care now receive an efficient and joined-up experience, while in Bedfordshire, we have started our task of uniting previously disparate services into a single, unified pathway."

"In both our independent hospitals and NHS sites, Circle's offer of excellent, efficient care remains extremely attractive."

For further information, please contact:

Circle Holdings plc Tel: +44 207 034 5250

Steve Melton, Chief Executive Officer

Paolo Pieri, Chief Financial Officer

Gordon Hector, Head of Communications

Numis Securities Limited Tel: +44 207 260 1000

Michael Meade, Nominated Adviser

Alex Ham, Corporate Broking

An analyst briefing and live conference call will be held at 11:30am BST today at the offices of Numis Securities Limited.

Chief Executive Officer's operating overview

We are pleased with the Group's overall progress over the last six months. Hinchingbrooke remains an outstanding example of a transformed NHS service, our other NHS work has grown steadily, and our independent hospitals continue to progress towards profitability. The operating environment, however, is challenging, particularly as a result of political uncertainty in the lead-up to next spring's general election and its impact on new nationally led NHS opportunities.

Operating environment

The NHS as a whole continues to come under increasing pressure in the face of an ageing society and increased demand for services, but public expectations of excellent care remain high. Circle's model, which is proven to offer both excellent and cost-effective care, is well-placed to prosper in this increasingly turbulent environment.

The effect of political uncertainty leading up to an election is indirect, but the desire of government to avoid significant attention on the NHS could create some delay in the procurement of NHS services throughout the country. We do, however, expect more musculoskeletal contracts to come to market over the next year.

Any effect of political uncertainty is likely to be a short-term trend. Whichever party or coalition is in power from next year, the challenges will remain the same - and an employee co-owned provider, dedicated to its patients and to improving care, remains an attractive service partner for the NHS.

The private market has seen several significant developments. The Competition and Markets Authority ("CMA") published its final report into UK private healthcare in April. While its remedies were more modest than expected, it was clear about its concerns over historic bad practices in the sector. Our competitors have been barred from offering "cash-for-patients", while the CMA expressly recognised the importance of clinical ownership in models such as ours. Additionally, we have seen investment by competitors looking to expand into the UK.

Hinchingbrooke Health Care NHS Trust

Hinchingbrooke continues to deliver outstanding quality of care. In 2013/14, Accident and Emergency performance was ranked top-10 in England. The hospital is meeting all main cancer targets, it has hit the 18-week waiting time targets for the last 26 months running, and won a respected national prize for the quality of its care.

Hinchingbrooke ended its 2013-14 financial year with a £1.3 million deficit, marginally higher than expected, due to unanticipated contractual deductions stipulated by the local Clinical Commissioning Group. This still represents year-on-year efficiency improvements of 6%, compared to the 4% required, on average, of NHS trusts and an approximate 90% reduction of the deficit Circle inherited. To date, Circle has made cumulative support payments to Hinchingbrooke of £4.85m. Under the franchise agreement, both parties must agree the basis for the continuation of the franchise if the cumulative losses exceed £5 million.

The Group expects the local commissioning environment to remain challenging for 2014-15. NHS funding mechanisms have changed, with higher than normal reductions in national and local tariffs, partially replaced with new payments designed to ease short-term systemic pressures. These could have a disproportionately negative impact on small and successful trusts like Hinchingbrooke, as they redirect NHS funds towards struggling hospitals.

Consequently, the Group has commenced discussions with the NHS as to its commissioning and contract intentions in relation to Hinchingbrooke and the wider system. The impact of changed funding mechanisms currently leaves a degree of uncertainty over Hinchingbrooke's profitability over the next year, but the Group believe that our patient-centred and innovative approach should ensure the long-term sustainability of the contract.

MSK contracts

We have commenced our contract to manage musculoskeletal ("MSK") services in Bedfordshire. Previously, patients were attending up to 50 different providers for MSK conditions, with no coordination between them, poorly integrated clinical pathways and limited patient choice. After just a few months, we estimate over 50% are now being cared for through our single referral hub and receive clear information about their clinical choices.

Other Clinical Commissioning Groups ("CCGs") are studying the model closely. Commissioning along a pathway like MSK is attractive, as it enables CCGs both to reduce costs and integrate care. We are in a strong position to take advantage of any emergent opportunities in this exciting area.

Circle Nottingham NHS Treatment Centre

The renewed Nottingham contract, centred around integrated care pathways treating more patients at home or in the community, is progressing well. Although the new contract has no guaranteed minimum volume levels, Nottingham has sustained year-on-year activity levels. The Group is now looking to expand the range of services offered.

Independent Hospitals

CircleBath has experienced steady growth in patient volumes as it expands its catchment area further, with overall year-on-year volume growth of 23% in the first six months of 2014. NHS demand has grown, and CircleBath has gradually built up trust and respect in the wider area (including Bristol), and has benefitted from more patients. The ownership of the CircleBath property also changed. The property asset was recently acquired by a US-based Real Estate Investment Trust ("REIT"), following which CircleBath entered into a new long-term lease that has reduced the annual rent payable by the hospital by £1 million from 1 July 2014.

CircleReading has realised encouraging year-on-year growth, with revenues up 60% in the first half of 2014. This increase largely stems from increased NHS activity, as private volumes (insured and self-pay) have remained comparatively stable. The significant growth has resulted in some recruitment lags, due partly to a national shortage of nurses, and delivery of certain cost efficiencies.

We are currently re-evaluating our options on the type of operation we develop in Manchester, as Spire, Nuffield and HCA have all recently announced plans to expand in the city. We continue to make very positive progress for the development and / or acquisition of other sites within the UK.

Partnership Structure

The Group announced plans last year to alter its ownership structure. Due to the accumulation of debt owed by Circle Health Limited (and its operating subsidiaries) to the Company and to Circle International, the value of Circle Partnership is limited in the near-term and therefore the effectiveness of the current incentivisation scheme is undermined. Accordingly, the Company and Circle Partnership have agreed a corporate reorganisation of the Group. This reorganisation, called Project Reset, involves the Company acquiring Circle Partnership and issuing a new class of convertible shares to existing Circle Partnership shareholders in exchange for their partnership shares. These shares will be held by a new Partnership Benefit Trust that will also hold additional ordinary shares of the Company, to be used to satisfy future options issued under a new share scheme. We expect Project Reset to complete in the fourth quarter this year.

Board changes

Tony Bromovsky and Tim Bunting, two of our Non-Executive Directors, left the board earlier this year. At the same time, we welcomed two new Non-Executive Directors to the board: Lord John Hutton and Justin Jewitt.

Steve Melton

Chief Executive Officer

Financial review

Introduction

Total revenue under management has increased by 5.5% to £102.9m compared with the same period in 2013. This is despite the renewed Nottingham NHS Treatment Centre contract which rebased the price per episode downwards to national tariff from July 2013. Excluding Nottingham results in both years, revenue under management growth has been 19.4%. Some of this growth stems from the new Bedfordshire MSK contract, the first of its kind, which became operational in April, along with continuing growth in Reading and Bath. This enhances the Group's solidity and strength as revenue distribution becomes more uniform across a number of sites.

Group EBITDA before exceptional items has improved 23.3% from the previous year's results to a loss of £5.9m. Year-on-year improvement in performance in CircleBath and CircleReading has more than compensated for the revised contract terms seen in Nottingham. Early indicators from the Bedfordshire MSK contract show it to be delivering results in line with expectations.

The Group generated an operating loss before exceptional items of £7.2m, an improvement of 28.0% on the previous year's result, while the loss per share now stands at 3.8 pence, improved from a loss per share in 2013 of 4.7 pence.

The £27.5m proceeds (before fees) from the January fundraise and the ever improving performance within the independent hospitals have assisted in demonstrating to the Government, NHS, and real-estate investors the strength of the Group's balance sheet.

In July 2014 the Group refinanced the Bath Hospital, which is discussed further below. The financial stability seen in the Group has also facilitated the release in July 2014 of £2.0m cash previously held in escrow, under a condition attached to the Hinchingbrooke contract.

The Group ceased all operations at its Stratford Clinic from March 2014, as part of its reconfiguration to exit its smaller clinics businesses and streamline the Group's focus on its independent hospitals and on winning further NHS bids.

The Group is committed to implementing Project Reset, a corporate restructure of the Group planned for the fourth quarter of 2014 to give all partners, including NHS staff, access to tradable shares in Circle Holdings plc for the first time. It is expected that Project Reset will complete towards the end of the year, with estimated costs to deliver of approximately £1m, largely related to the issuance of the new shares.

As a result of all option schemes awarded there will be a large share-based payment charge booked in the second half of the year. These option schemes will be valued on a standard IFRS 2 basis using fair market value calculations.

Highlights

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

** exceptional items in the six months ended 30 June 2014 relate to the impairment of assets under construction. Exceptional items in the six months ended 30 June 2013 of £0.5m consist largely of share-based charges in respect of warrants issued and restructuring costs offset in part with a gain on the release of the Ashford onerous lease provision

*each appointment is counted as an additional patient number. 2013 outpatient volumes have been restated to reflect this.

Review of performance

CircleBath revenues have increased by 32.5% to £10.6m and patient volumes by 22.9% to 27,783, with the majority of increased revenues coming from NHS work, which has been a continuing focus. CircleReading has achieved encouraging year-on-year growth with revenues up 60.0% in the first half of 2014 to £10.4m, largely as a result of increased NHS activity which now accounts for 45% of total revenues, whilst private volumes have remained stable. Total volumes have risen by 40.6% compared with 2013. The benefit of this significant growth has been partially eroded by some recruitment lags and delivery of certain cost efficiencies, due partly to a national shortage of nurses. We believe that this short-term impact temporarily puts CircleReading behind track in achieving EBITDA break-even.

The renewed Nottingham NHS Treatment Centre contract rebased the pricing paid by commissioners and allowed greater flexibility in the procurement of staff and clinical services. Despite minimum volume guarantees no longer existing, the business has remained stable, volumes being consistent with the same period last year, and patient feedback has continued to value the high level care offered. Increasing revenues will be driven in future by expanding services and optimising our new inpatient wards. Revenue for the first six months of the year was as expected at £21.3m (2013: £29.2m).

The Group commenced operation of the innovative five-year integrated musculoskeletal ('MSK') service contract in Bedfordshire in April 2014. Revenue to date has totalled £6.5m, in line with expectations and early indications are that the contract is operating in line with plan.

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 that surpluses are generated by Hinchingbrooke, the Group will not recognise any income associated with the running of the contract and meanwhile revenue generated by Hinchingbrooke will be presented as proforma 'revenue under management', which is a non-statutory term.

In the six months to 30 June 2014, Hinchingbrooke revenue has totalled £54.0m. Following a protracted dispute with the local Clinical Commissioning Group ("CCG"), referred to in the Company's full year results for the 2013 financial year, Hinchingbrooke ended its 2013-14 financial year with an operating deficit of £1.3 million. To date, Circle has made cumulative support payments to Hinchingbrooke totalling approximately £4.85 million. Under the franchise agreement, Circle has an obligation to fund up to a maximum of £5 million.

Financing

In December 2013, the Group successfully raised £27.5 million (before fees) by way of equity funding. This was finalised in January 2014. The Group intends to use the proceeds for: growth and potential expansion into large markets where the opportunity to develop new sites or acquire divested assets present themselves with independent hospitals; pursuing growth opportunities in current operating assets, for example, expansion of service offerings; and set-up costs, commissioning and working capital for a mix of generic service lines and/or hospital franchises.

In July 2014, Medical Properties Trust ("MPT"), the specialist hospital Real Estate Investment Trust based in the US, completed the purchase of the Bath Hospital asset for £28.3m. The asset was previously owned by Health Properties (Bath) Limited, a joint venture of which the Group controlled 38.7%. This sale fully extinguished the loans held by Health Properties (Bath) Limited with Santander and Lehman Brothers as well as an interest rate swap held in conjunction with the Santander loan. CircleBath have signed a 15 year lease agreement with MPT, with a 15 year extension, which will see their rent reduce by £1.0m to £2.5m a year. As part of the repayment of the mezzanine debt, Circle Holdings plc had to make a payment related to a guarantee to Lehman Brothers of £625,000.

As noted we have seen increased activities from competitors opening new sites. Consequently the Group has provided for the carrying costs on the design development costs on its Manchester site as it re-evaluates the model appropriate for that market. This impairment to assets under construction has resulted in an exceptional charge of £2.8m in the profit and loss account, but has no cash impact. At this current time, management considers that the capitalised costs associated with the Birmingham site development of £0.5m are recoverable, and therefore no impairment is required at this time.

Paolo Pieri

Chief Financial Officer

Consolidated income statement

For the six months ended 30 June 2014

Consolidated balance sheet

As at 30 June 2014

Consolidated statement of changes in equity

(unaudited at 30 June 2014 and 2013)

For the six months ended 30 June 2014

Consolidated statement of cash flows

For the six months ended 30 June 2014

Notes to the consolidated interim financial information

For the year ended 30 June 2014

1. General information

Circle Holdings plc (the 'Company') and its subsidiaries and joint venture (together the 'Group') provide healthcare services in the UK.

The Company is a public limited company and is incorporated in Jersey, however is resident in the UK for tax purposes. The registered office is 12 Castle Street, St Helier, Jersey, JE2 3RT.

2. Basis of preparation and accounting policies

Basis of preparation

The Interim report and financial information for the six months ended 30 June 2014 has been prepared on a going concern basis in line with projections of the Group's anticipated results, which show that the Group has adequate resources to continue in existence for the foreseeable future. The Interim report and financial information should be read in conjunction with the Annual Report and financial statements for the year ended 31 December 2013, which were prepared in accordance with IFRS and IFRIC interpretations as endorsed by the EU, 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. As the Group is listed on AIM, it is not required to adopt IAS 34 'Interim Financial Reporting' in preparing the consolidated interim financial information and therefore it is not fully compliant with IFRS.

The Interim report and financial information is unaudited and has not been reviewed by external auditors. The condensed set of financial information in the Interim report does not constitute statutory accounts within the meaning of section 434 of the Companies Act 2006. The Group's Annual Report and financial statements for the year ended 31 December 2013 were approved by the Board of Directors on 19 March 2014. The report of the auditors on those accounts was unqualified and did not contain an emphasis of matter paragraph or a statement under Section 498 of the Companies Act 2006. The Interim report and financial information was approved by the Board of Directors on 27 August 2014. The 2013 interim numbers for the non-controlling interest and the number of shares vested at the start of the period have been restated due to updated share register information becoming available.

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 signing the financial statements for the six months ended 30 June 2014. Existing cash balances and cash flows from the operating businesses are sufficient to fund head office costs necessary to sustain the current operations, cost of financing (as detailed in the Financial review) over the next 12 months and future growth plans. These plans include the development of new sites and new contracts for provisions of healthcare services. On this basis, the Directors conclude that it is appropriate for these accounts to be prepared on a going concern basis.

Significant accounting policies

The accounting policies adopted in the preparation of the Interim report and financial information are consistent with those of the Group's Annual Report and financial statements for the year ended 31 December 2013. In addition, at interim periods, taxes on income are accrued using the tax rate that is expected to be applicable for the full financial year and the impact of other relevant taxes.

Significant accounting judgements and estimates

The judgements and estimates which have the most significant effect on the amounts recognised in the Interim report and financial information are consistent with those reported in the Annual Report and financial statements for the year ended 31 December 2013.

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. This is split by hospital rather than by patient. CircleReading and CircleBath are contained within the "Circle Independent" sector, while revenue earned from the Nottingham NHS Treatment Centre is categorised within "Circle NHS". Geographic factors are not considered as all of the Group's operations take place within the United Kingdom.

4. EBITDA and exceptional items

The Group has provided for the carrying costs on the current design development costs which were historically spent on its Manchester site as it re-evaluates the model appropriate for that market. This impairment to assets under construction has resulted in an exceptional charge of £2.782 million in the profit and loss account.

The Barclays swap was tied to the PFI loan of £41,768,000. This was extinguished in full on 1 July 2013 when the Group exercised their unconditional right to receive cash from the construction of Circle's Nottingham NHS Treatment Centre and the PFI operating asset was handed to the Department of Health.