Half Yearly Report

Circle Holdings plc

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

Half year audited results

For the period January-June 2015

London, 27 August 2015: Circle Holdings plc (LSE: CIRC), the employee co-owned health group, today announces its final results for the half-year ended 30 June 2015

Financial highlights:

- Group revenue increased 28% to £62.5m (H1 2014: £48.9m)

- EBITDA losses before exceptional items were down 37% to £3.7m (H1 2014: Loss of £5.9m)

- Patient volumes across the group are up 12% to 24,135 daycases (H1 2014: 21,396) and 158,407 outpatients (H1 2014: 141,667)

- Operating loss of £5.7m, an improvement of 43% on the previous year's results (H1 2014: Loss of £10.0m).

Operational highlights:

- Nottingham's core service of surgery was awarded a rating of 'Outstanding' by the Care Quality Commission (CQC)

- Staff offered share options in February, following completion of Project Reset

- 10-year partnership signed with Tech Mahindra for IT, computing and informatics support

- Excellent patient feedback and clinical outcomes across sites. Patient recommendation across the Group is 99%

- Hinchingbrooke withdrawal completed in March

- Planning progressing for new-build independent hospital in Edgbaston, Birmingham.

Chairman's statement

"The past 6 months have been significant in the NHS, in politics, and healthcare - and I am pleased with progress in an equally important period for Circle.

The debate in the UK health economy has shifted steadily towards integration, and the need for more joined-up, cost effective care.

Circle's activities this half reflect this trend. Isolated contracts based on single hospitals - such as Hinchingbrooke, which we left in March - have been superseded by discussion of new models of care that integrate services.

Our Bedfordshire musculoskeletal service ('Bedford MSK') is one such pioneering model, and we celebrated our first year with solid results in making the system more coherent, effective, and responsive. In Bath, Reading, and Nottingham we continue to provide excellent elective private and NHS services, and we are increasingly settled as essential parts of surrounding health systems. We are pleased at the clinical performance of all sites - but were particularly delighted by the Care Quality Commission (CQC) awarding Nottingham's core service of surgery a rating of 'Outstanding'.

While the general election brought confirmation of the overall funding settlement for the NHS, the tone of policy discussion remains one of exploring new ideas and testing thinking rather than detailed implementation.

At the same time, while the private insured market remains flat, we saw growth in self-pay and there is much debate around the coming wave of 'consumerisation' in healthcare.

We are also increasingly excited about opportunities to offer our expertise in emerging markets.

The Board and management are focussed on appropriate capital allocation and evolving the business to a sustainable financial position. We are continually evaluating options offered by the business and the market to ensure that suitable returns are realised for all our shareholders.

In an environment with significant pressure to balance innovation with cost-effective patient care, Circle's model and emphasis on clinical engagement has much to offer both public and private healthcare. Our task is to ensure this unique approach is valued in a fast-changing sector.

I have every confidence that we will do just that, and that this offers a good route to serving our patients, customers, staff and shareholders."

Chief Executive Officer's statement

"The half year saw greater clarity for Circle, as we confirmed our withdrawal from Hinchingbrooke, focussed on performance at our other sites, and made the first moves in international strategic partnerships.

Total revenues were up 28% on a year-on-year basis, patient volumes were up 12%, and our losses including all exceptional items were down 40%.

There was also political clarity, as an extended period of unhelpfully politicised debate came to an end in May.

We now wait to see on exactly how the NHS takes forward the 5-Year Forward View. This is an exciting plan with the potential to set healthcare in the UK on a new footing: and as one of the few organisations already running integrated services in the UK, we are well-placed to contribute, and we support its direction. But there is now increasing pressure to move to detail.

The business has developed strong IP in public and private provision. This supports its ability to realise sustainable long term returns, though this requires the continued growth and opening of the NHS and private markets.

Overall, this has been a half-year of growth: and we have good options for continued growth, in public and private sectors across the world."

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 9:30am BST today at the offices of Wragge Lawrence Graham, 4 More London SE1 2AU. If you are unable to attend please contact Elizabeth Matthews on 0207 034 5270 for dial-in details.

CEO's operational report

CircleBath had a strong half-year. Revenue was up 13.3%, of which NHS revenues increased by 18%. Total patient volumes increased 5%. We previously indicated that as the hospital approaches maturity, the increase in patients would drop off, so it is encouraging to see continued growth. We now have approximately 50% of the local orthopaedic market, and patient feedback remains one of the best in the country.

Clinical outcomes were excellent. Patient recommendation rates were at 99.5% across the half, and in May the Health and Social Care Information Centre, the UK's national health data body, made the hospital a case-study for its use of Patient-Reported Outcome Measures.

We were pleased to support surrounding NHS Trusts, and the hospital has a recognised reputation as a trusted provider to assist when surrounding Trusts are challenged on capacity.

CircleReading opened exactly 3 years ago. Revenue increased by 13.4%, of which NHS revenues increased by 40%. Patient volumes increased by 17.9%, while margins improved significantly from the challenging second year of operation, to an average of 36%.

Clinical outcomes remained good, with a patient recommendation rate above NHS and private averages, at 99.5%. The hospital's catchment area expanded into Oxfordshire and Wiltshire, and with continued distress in nearby Trusts has won itself a place in the local health economy.

At both Bath and Reading, we believe that the growth of NHS patients over the past 6 months represents an excellent example of the independent sector providing value to the NHS - where patients were treated at no additional cost to the taxpayer in a high-quality hospital, when nearby Trusts were under significant pressure.

The CircleNottingham NHS Treatment Centre had a good half-year. Revenues increased by almost one-fifth (18.9%) year-on-year, of which NHS revenues increased by 19%. Even in a contract without guaranteed volumes, patient numbers increased by 12%.

In May, the Care Quality Commission (CQC) gave the Treatment Centre an overall rating of 'good', and made it one of a handful of facilities in the country to gain an 'outstanding' for surgery. This cemented our reputation as a centre of excellence in elective surgery. We were also proud to be the only private provider to offer the Care Certificate for Health Care Assistants, and our first cohort graduated in June. We began the transformation of a number of service lines, crucially including dermatology, aiming to focus hospital admissions on those that need it and treat others closer to home - recognising that the local healthcare system requires innovation to move beyond a national shortage of dermatologists.

The Bedford MSK service ended its first full year in April. The contract aims to replace a previously disjointed set of MSK services with a single, more coherent system. Our first year saw considerable progress in creating the new pathway. Over 20 providers are now sub-contracted with us, and over 80% of patients are referred through the Circle triage system. We gave specialist triage to 100% of patients within 24 hours, talked 98% of those who required surgery through their choices, and introduced a host of outcome measures to improve quality throughout the system. We were able to offer the NHS excellent value: even though overall MSK activity was up, by reducing the proportion of patients converting to surgery, the costs are lower than our commissioners were expected to otherwise spend. Our revenue was as-expected for the six months.

The Group has historically seen strong revenue growth, but has always recognised the need to take margins closer to industry standard. Progress on this was slower in the first half of the year, primarily due to national staffing shortages, particularly in nurses, and in dermatology. Our response has been to address specific challenges - for example with renewed recruitment and retention policies for nurses - along with adapting our operating model to better reflect our current mix of patients and treatments. We have seen an improving trend towards the end of the half, and we are confident that we will achieve our plans to bring margins on-target by mid-2016, but current performance will likely have an impact on expected outturn in 2015.

With these plans, we expect all sites to reach EBITDA breakeven next year.

The group also saw some significant milestones, such as the issuing of staff share options under the Group's new incentivisation plans in March - the final element of Project Reset - and signing a 10-year deal with Tech Mahindra in June, to access the latest health technology and informatics.

Looking forward, we expect modest organic growth at each site, particularly in NHS and self-paying patients while PMI patient levels are expected to be flat. We are currently seeing softer demand by NHS patients through the summer with NHS hospitals under less pressure and the removal of penalties for breaking Referral to Treatment (RTT) standards; but expect increased growth as winter approaches.

Plans for a new hospital in Birmingham are proceeding. We are moving through the planning process, with local stakeholders and government authorities expressing satisfaction with our plans and planning approval expected mid-September. We are in active discussion with a finance partner and expect to provide further detail on the financing and range of services it will offer before the end of 2015.

In the NHS, we expect the shift away from contracts based on single, isolated hospitals to continue, but there is an increasingly active market in prime contractor and integrated health systems. Several MSK contracts have come to market, and as a first mover in the field we expect to submit and be well-placed to win bids in the future. The new models of care are harder to predict, but again, our expertise positions us well to offer our support.

We also expect to see continued interest from emerging markets, particularly from the Middle East and Asia, seeing rapid growth in state-provided services, public-private partnerships and conglomerates creating new hospitals and services. We are exploring how to capitalise on these trends, without compromising our existing operations, through strategic partnerships or advisory services that exploit our experience and intellectual property.

In short, with a new proposed independent hospital, further NHS contracts, and growing demand for healthcare expertise across the world, we have a number of notable opportunities and a broad range of options for future growth. We intend to evaluate and pursue these across the rest of the year, balancing capital requirements, returns and strategic benefit for our business and its shareholders as well as quality patient care.

Chief Financial Officer's report

Financial review

Introduction

The Group continues to make progress with growth in its core operations whilst improving the efficiency of the business. Total Group revenue for the six month ended 30 June 2015 has increased by 27.9% to £62.5m compared with the same period in 2014. This growth is driven by patient volumes at existing hospital sites and the inclusion of a full six months of Bedford MSK revenue. Gross profit has improved by 15.6% on last year.

Group EBITDA before exceptional items and Project Reset charge has improved 37% from the previous year's results to a loss of £3.7m. CircleBath and CircleReading have achieved positive growth whilst Nottingham's EBITDA is consistent with the same period in 2014. The cost savings at Head Office have also contributed towards the EBITDA growth.

The Group generated an operating loss before exceptional and Reset items of £5.2m, an improvement of 28% on the previous year's result, while the loss per share now stands at 2.7 pence, improved from a loss per share in 2014 of 3.8 pence.

Following the completion of Project Reset in December 2014, share option awards were granted to employees during 2015. These share scheme options have been valued under IFRS 2 basis using fair market value calculations and a corresponding charge has been recognised in the 6 months to 30 June 2015. Further information on the impact of Reset is detailed below.

Highlights

Review of performance

Total volumes have risen by 11.9% compared with 2014, with growth across all three hospital sites. CircleReading has achieved year-on-year growth of 13.4% revenues and total volumes increasing by 17.9%, particularly as a result of increased NHS activity. CircleBath revenues have increased by 13.3% to £12.0m and patient volumes by 4.9% to 29,142, with the majority of increased revenues coming from NHS work, which has been a continuing focus. CircleBath recorded an EBITDA profit of £0.2m for the six months to 30 June 2015 after an EBITDA loss of £0.8m for the same period in 2014.

The Nottingham NHS Treatment Centre is now in its second full year of the new contract. Patient volumes continue to increase and revenues grew by 18.9% compared to the same period in 2014. NHS patient volumes grew by 12.1% on prior year and patient satisfaction is consistently high.

The Group has now completed the first year of the innovative five-year integrated Bedford MSK contract. Revenue for the six months to June 2015 totalled £13.5m. As reported in our 2014 Annual financial statements, we faced some challenges in convincing all local partners to use our triage hub, leading to discussions with the clinical commissioning group ('CCG') regarding this disruption of patient care. We have reached a full agreement on the position in 2014 and resolved a large number of operational points. We believe the remaining points will be addressed in the coming months. We continue to work with the CCG to engage Bedford GPs to follow the referral process managed by Circle, and the CCG have implemented changes to their guidance in the healthcare system.

As mentioned in the Chief Executive's operational report, improvements in gross margins were slower to materialise than initially expected. On a like-for-like basis (analysing assets that were operating for the same period in 2014 - CircleNottingham, CircleBath and CircleReading), total gross margins dropped by around 1%. This is due partly to benefits received in 2014 in relation to the old Nottingham contract offset by higher than anticipated staffing costs in H1 2015. The exclusion of the one-off benefit results in a 2% increase on like-for-like margins from H1 2014 to H1 2015.

Closing cash balance as at 30 June 2015 is £26.7m. This is approximately £8m higher than expected and is due to short-term timing differences in the flow of cash to and from our contracted customers and suppliers. This timing difference reversed in July 2015, and all transactions were in the ordinary course of our business and within contract terms.

We noted in our 2014 annual report that we do not believe the development of the Manchester land to be a viable project, and we are now assessing potential exit options to the asset.

Following the successful completion of Project Reset, the Company issued initial allocations of options under its Management Incentive Plan (MIP) and Partnership Incentive Plan (PIP) share schemes earlier this year. Together with 11.5m 2016 Convertible Shares that will automatically convert into Ordinary Shares of the Company in June 2016, up to 20m options may vest and become eligible to exercise in 2016 (approximately 13m of which are subject to performance conditions that may not be satisfied). Both the 2016 Convertible Shares and the Ordinary Shares into which these options will be exercised are currently issued and held by the Circle Partnership Benefit Trust Limited, on behalf of scheme beneficiaries, and are non-dilutive.

The 2015 full year share based payment charge in relation to employee and management share schemes issued is expected to be circa £1.7m excluding national insurance contributions costs.

As the Chief Executive's report notes, we have a number of opportunities we could pursue in both private and public markets, in the UK and internationally. The first half of 2015 has been a half of growth, and balancing capital requirements and potential returns, we have good options to ensure a strong end to the year and beyond.

Paolo Pieri

Chief Financial Officer