Interim report

Circle Holdings plc

Interim report

For the six months ended 30 June 2012

London, 27 September 2012: Circle Holdings plc (the 'Company'), 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 interims report for the six months ended 30 June 2012.

Financial Highlights

·; Revenue under management* on continuing facilities** up 149.1% to £78.7m (2011: £31.6m)

·; Group revenue on continuing facilities** up 8.9% to £34.4m (2011: £31.6m)

·; Group revenue down 15.5% to £34.4m (2011: £40.7m) reflecting the loss of the Burton contract

·; EBITDA*** (before exceptional items) on continuing facilities** improved by 21.0% from a loss of £8.1m to a loss of £6.4m

·; Basic and diluted loss per share of 14.9p (2011: 90.0p loss per share)

·; £47.5m equity fundraising (before fees) during the period

·; Repayment of £14.1m loan to James Caird Asset Management on 20 June 2012

Operational Highlights

·; Patient procedures in continuing facilities**, excluding Hinchingbrooke, up 10.5% to 65,627 (2011: 59,371)

·; 39.7% increase in volumes at CircleBath whilst maintaining 99.9% patient recommendation for the same period

·; First five months at Hinchingbrooke have progressed well with independent recognition of improvements in clinical performance and patient experience

·; New private hospital CircleReading opened on 1 August 2012, on time and on budget, with accreditation by regulatory authorities and insurers

·; Business strategy progressing well, with funding discussions continuing with a number of parties regarding the development of CircleManchester

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

'The Board is pleased to report that the first half of 2012 has seen further milestones achieved for the Group. CircleBath has made good progress and Nottingham continues to perform well. The NHS contract to run Hinchingbrooke commenced in February and early indicators are that this has been a successful transition. Our new facility at CircleReading opened according to schedule and is doing well. In difficult economic and financial environments the Board accelerated the Group's funding plan and successfully raised £47.5m in equity to fully fund the existing operations of Circle. We were pleased to attract a further major institutional investor, as well as enjoying the support of existing investors, in so doing. The operational achievements of the Group so far support our view that there are very significant opportunities to expand and scale our activities going forward. The Board recognises the dedication and commitment of our management teams at Group and hospital level - they are delivering the patient experience and operational excellence that is a hallmark of Circle and that underpins our confidence in the future.'

Ali Parsa, Chief Executive Officer of Circle Holdings, commented:

'The past six months have seen steady progress in our mission to redefine healthcare in this country, with revenue and patient volumes continuing to grow in all our key facilities, despite challenging operating conditions. In February, we commenced a ground-breaking contract to run Hinchingbrooke, the first NHS Trust hospital to be run by an independent provider. The Group has already brought its proven strengths to the task, with progress on quality and patient experience being widely recognised. The construction and commissioning of our second new-build hospital, CircleReading, was completed on time and on budget, and the hospital opened its doors to serve patients on 1 August 2012. We have always said achieving our ambition of making healthcare fundamentally better and more affordable will be a long-term endeavour; the past six months have seen good progress.'

Chief Executive Officer's operating overview

The past six months have seen steady progress for Circle. Revenue and patient volumes have continued to grow in all our key facilities, despite challenging operating conditions with NHS commissioners seeking to manage demand in response to increasing budget constraints.

In February, we commenced a ground-breaking contract to run Hinchingbrooke Health Care NHS Trust ('Hinchingbrooke'), the first NHS Trust hospital to be run by an independent provider. In the period, we have been heartened by the continuing excellent feedback on our service at the Nottingham NHS Treatment Centre from patients and commissioners. We are seeking to continue to provide services at Nottingham from July 2013 when the current contract ends and are actively engaged with local commissioners as part of the public procurement process. Increasing revenues at CircleBath, and the attraction of consultants and patients beyond the catchment area, continue to support Circle's new-build hospital concept. The construction and commissioning of our second new-build hospital, CircleReading, was completed on time and on budget, and the hospital opened its doors to serve patients on 1 August 2012.

Quality and patience experience

We are proud that our key facilities maintained their near faultless record on patient recommendation. CircleBath continued to attract acclaim from its GP and patient customers, achieving 99.9% patient recommendation ratings in the six months ended 30 June 2012 (six months ended 30 June 2011: 97.3%). In the same period, our Nottingham NHS Treatment Centre again achieved an average recommendation rating of 99.4%. Clinical results at both facilities remain first class with returns to theatre for CircleBath and unplanned transfers for our Nottingham NHS Treatment Centre being 0.18% and 0.44% respectively. Since taking on the management of Hinchingbrooke, we have made great progress on patient experience, coming first out of 46 hospitals in the Government's first rank of 'friends and family recommendations'. Progress on quality at Hinchingbrooke has been widely recognised, with metrics on Accident & Emergency performance, cancer waiting time targets and hospital productivity all pointing to a sustainable transformation programme. Out of the 46 hospitals in the Midlands and East region, the hospital's Accident & Emergency department is the top-performing, and Hinchingbrooke came first for overall performance amongst full-service hospitals.

Current trading

On 1 August 2012, CircleReading opened its doors to patients, with accreditation by regulatory authorities and insurers. Early signs are encouraging with performance in line with expectation. Circle's Nottingham NHS Treatment Centre continues to trade in line with operating plan whilst focussing its efforts on its re-tender process, and CircleBath continues to grow positively, albeit in a challenging local NHS and private environment. The early focus in Hinchingbrooke has been on resolving many of the quality and safety issues; as the hospital's clinical performance and patient experience improve, we will seek to build on the quality gains whilst continuing to look at cost efficiencies as part of the phased cost reduction programme.

Funding

In June, the Group raised a further £47.5m (before fees) to fund our continued growth and existing business plan. In the fundraising, the Group welcomed another well respected financial institution as a major investor, and existing shareholders increased their commitment. In difficult market conditions, we have now succeeded in raising the capital necessary to repay our high-interest loan owed to James Caird Asset Management ('JCAM'), fund our growth for the foreseeable future, and secure the most stable and sustainable platform possible for that growth.

Outlook

We have always said achieving our ambition of making healthcare fundamentally better and more affordable will be a long-term endeavour. We still have a way to go, but the past six months have seen good progress and we remain on track to meet our full year expectations.

Ali Parsa

Chief Executive Officer

26 September 2012

Financial review

Introduction

The period has been one of continued progress for the Group, with revenue under management on continuing facilities increasing by 149.1% to £78.7m, primarily as a result of the commencement of the Hinchingbrooke contract on 1 February 2012 and the continuing improvement in the performance of CircleBath, which is now in its second full financial year of trading. In total, Group revenue decreased period on period by 15.5%, mainly attributable to the loss of the contract to run the Burton NHS Treatment Centre in July 2011. Group EBITDA (before exceptional items) on continuing facilities improved by 21.0% from a loss of £8.1m to a loss of £6.4m, primarily driven by increased volumes at CircleBath and further cost efficiencies in the Group.

Highlights

Review of performance

CircleBath revenue increased by 35.7% to £7.6m and patient volumes by 39.7% to 21,409. Performance was strong in both private and NHS, with insurance volumes exceeding expectations. NHS volumes have increased as a result of continued recruitment of additional NHS consultants and active engagement with local GP practices, although pressure on NHS budgets is becoming more apparent and is starting to affect NHS referrals.

Circle's Nottingham NHS Treatment Centre increased revenue by 3.6% to £26.2m, despite day case and outpatient numbers remaining broadly consistent in the period, and improved its EBITDA before exceptional items from £1.9m to £2.5m for the six months ended 30 June 2012.

On 1 February 2012, the Group commenced the operation to run Hinchingbrooke, 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 £5.0m 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 £5.0m in aggregate deficits, at which point the Group is also required to pay a further £2.0m in termination costs to Hinchingbrooke (which amount is currently held in cash 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 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.

Since 1 February 2012, Hinchingbrooke revenue has totalled £44.3m, 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 during this phase, however it did trade behind plan in the first quarter, with plans to help recover this now being implemented.

As part of the recent fund-raise process, the Group has re-focussed its efforts on key priorities over the near term and as such, has provided for any relevant impact on other property assets within the Group, including Birmingham, by taking a net exceptional charge of £1.0m in the period.

Financing

In June 2012 the Group successfully raised £47.5m (before fees) by way of equity funding. The proceeds from this fundraise have been used, in part, to pay down the entire £14.1m loan owed to JCAM, and complete the commissioning of CircleReading. Additionally, they are intended to fund the short-term cash flow requirements of CircleReading, support working capital requirements of the Group's business plan, and finance additional bidding expenses to manage further NHS Trusts when they are put out to tender.

The Group continues to explore further financing for its real estate development and is currently in funding discussions with a number of parties regarding the development of CircleManchester.

Paolo Pieri

Chief Financial Officer

26 September 2012

Notes to the consolidated interim financial information

For the year ended 30 June 2012

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.

2 Basis of preparation and accounting policies

Basis of preparation

The Interim report and financial information for the six months ended 30 June 2012 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 2011, 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 2011 were approved by the Board of Directors on 29 May 2012. 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 26 September 2012.

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 2012. 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 taking on the management of NHS Hospitals and funding the commissioning and start-up losses of the projected independent hospital roll out programme. 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 2011. 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.

The following new standards are effective for accounting periods beginning 1 January 2012 but have not had a material impact on the results or financial position of the Group:

- Amendment to IAS 12 'Income Taxes' - Deferred tax: Recovery of Underlying Assets. Limited scope amendment regarding recovery of underlying assets.

IFRS standards in issue, not yet effective as at 30 June 2012, but which will apply in the future are as follows:

- Amendment to IAS 34, 'Interim financial reporting' - This will bring IAS 34 in line with the full requirements of IFRS 8 'Operating segments' (applies retrospectively for annual periods beginning on or after 1 January 2013).

- IFRS 10, 'Consolidated financial statements' - The standard will replace all the guidance on control and consolidation in IAS 27 'Consolidated and separate financial statements' and SIC-12 'Consolidation - special purpose entities' (applies to annual periods beginning on or after 1 January 2013).

- IFRS 11, 'Joint arrangements' and IAS 28 (revised 2011) 'Associates and joint ventures' - These standards provide for a more realistic reflection of joint arrangements by focusing on the rights and obligations of the arrangement, rather than its legal form (applies to annual periods beginning on or after 1 January 2013).

- IFRS 12, 'Disclosures of interests in other entities' - The standard requires entities to disclose information that helps financial statement readers to evaluate the nature, risks and financial effects associated with the entity's interests in subsidiaries, associates, joint arrangements and other off balance sheet vehicles (applies to annual periods beginning on or after 1 January 2013).

- IFRS 13, 'Fair value measurement' - The standard aims to improve consistency and reduce complexity by providing a precise definition of fair value and a single source of fair value measurement and disclosure requirements for use across IFRSs, excluding the fair value measurement of share-based charges (applies to annual periods beginning on or after 1 January 2013).

The above amendments are not expected to materially impact the Group's financial statements in future periods.

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 2011.

3 Segmental reporting

During 2011, the Board changed the way it reviewed 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 June 2011 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 EBITDA and exceptional items

The revaluation of the finance lease payments has arisen due to the delay in developing the Birmingham hospital site, which will result in a higher rent being paid until such time that the site is developed.

The 2011 shareholder warrant expense relates to the fair value movement on the warrant instruments issued as part of equity raises.

This information is included here as it provides useful insight to the reader of the accounts for understanding operational performance.

5 Finance income

6 Finance costs

(i) James Caird Asset Management loan facility of £14,131,000 (2011: 13,300,000) repaid on 20 June 2012

During the period ended 30 June 2011, £nil of interest was capitalised (six months to 30 June 2011: £55,000, year to 31 December 2011: £296,000).

7 Loss per share

Basic loss per ordinary share is calculated by dividing the loss attributable to equity holders of the parent by the weighted average number of ordinary shares in issue during the year. Diluted loss per ordinary share is calculated by adjusting the weighted average number of ordinary shares outstanding to assume the conversion of all potentially dilutive ordinary shares. Share warrants in issue represent the only category of dilutive ordinary shares for the Group.

The following table sets out the computation for basic and diluted net loss per share for the six months ended 30 June 2012 and 2011 and the year ending 31 December 2011: