14th Mar 2006 07:02
Cello Group plc14 March 2006 Cello Group plc Group firmly established after strong first full year Cello Group plc ("Cello"), the marketing services group, today announces itspreliminary audited results for the year to 31 December 2005. • Increase in turnover to £52.1m (2004: £9.4m*) • Increase in gross profit to £26.6m (2004: £3.9m*) • Increase in profit before tax to £4.2m (2004: £1.3m*) • Maiden dividend planned for 2006 • All acquisitions successfully integrated • Net cash of £1.9m at 31 December 2005 following particularly strong operating cash flow conversion of 143% - benefiting from central financial controls • Encouraging start to current year with healthy level of forward revenue visibility * Comparative figures for 2004 represent results from only two months of tradingto 31 December 2004. Kevin Steeds, Chairman, commented: "These are very pleasing results for our first full year as a public company andlay the essential foundations for a profitable, cash generative and excitingfuture. We have delivered on our promises set out when Cello listed in November2004 - in terms of sector focus, profitable growth and prudent funding. "We intend to invest further in our existing businesses in order to acceleratetheir organic growth as well as look at a small number of strategic acquisitionsto enhance our positioning as a research and data led consulting business. "The Group has made an encouraging start to the current year and given thehealthy level of forward revenue visibility, we are confident that each of ourthree platforms will continue to make an excellent contribution to anothersuccessful year." 14 March 2006 Enquiries: Cello Group plc (www.cellogroup.co.uk)Kevin Steeds, Chairman 020 7457 2020Mark Scott, Chief ExecutiveMark Bentley, Group Finance Director College HillAdrian Duffield/Ben Way 020 7457 2020 Chairman's Statement Strategic overview 2005 was an excellent year for Cello. During our first full year as a publiccompany we have delivered a profit before tax of £4.2m on turnover of £52.1m andgross profits of £26.6m. This has resulted in a basic earnings per share figureof 9.83p. All three of our platforms experienced above industry average growthin revenues and profits and have returned highly competitive profit marginlevels. The monies raised at our AIM listing in November 2004, together with strongoperational cash generation have enabled us to complete six transactions in 2005whilst maintaining a strong balance sheet. Net cash stood at £1.9m at the yearend. The Board is not recommending a dividend payment in respect of 2005 but plans tocommence dividend payments in respect of the year ending 31 December 2006. When we launched Cello in November 2004, we laid out a set of clear strategicobjectives for the Group in 2005 and beyond. These were: • focusing single mindedly on three areas of the marketing services mixwhere we could achieve leadership and secure above market average growth ratesand profit levels; • ensuring that profit, cash flow and earnings per share reflected thebenefits of tight integration and the earnings enhancing nature of acquisitions;and • a prudent approach to funding. I believe that we have delivered on these promises. Operational management The six transactions completed in 2005 (Leapfrog, RS Consulting, The ValueEngineers, and TMI, in addition to the smaller Oomph and FML) have all beenintegrated into Cello's platform structure. This has meant that despite the highlevel of growth, the Group has remained extremely focused. Each platform has a fully empowered Board which has representation from each ofthe underlying businesses. This ensures that we essentially have three decisionmaking units responsible for growth and profitability. As a consequence, we haveexperienced virtually no post acquisition integration issues. The professionalchemistry is extremely good. The quality of the management boards of the three platforms and theprofessionals driving the underlying businesses is first class. As fellowshareholders in Cello and like minded people, there is a satisfying cohesivenessto the motivation and values of the Group. This positions us well to accommodatefurther growth, both organically and by acquisition in 2006 and beyond. Jointpitching and referred work within the three platforms has already establisheditself as an important source of accelerated organic growth and promises todeliver more in 2006 and thereafter. In line with our stated plan, the Board has been strengthened with the additionof Mark Bentley as group finance director in May and Allan Rich as anon-executive director in June. Both bring additional expertise and relevantindustry experience to the senior management team. This has enabled Mark Scottand me to focus more time on reinforcing the structure and working with them onthe growth plans, particularly as the international revenue contribution of theGroup expands. Across the Group, I am enormously proud of the professional qualities, hard workand dedication of all of our staff and would very much like to thank them onbehalf of the Board and shareholders for all their efforts this year. Financial review The Group's results are based on a full 12 months contribution from the fourbusinesses acquired in late 2004, all of which delivered good organic growth,together with contributions from the companies acquired during the year;Leapfrog and The Value Engineers (six months); RS Consulting (five months); FML(one month). TMI, which joined in late December did not contribute to the profitfor the year. Comparative figures for 2004 represent only two months trading from the originalthree trading subsidiaries. Turnover was up from £9.4m to £52.1m, including£9.7m from overseas work. Gross profits increased from £3.9m to £26.6m andprofit before tax was up from £1.3m to £4.2m. Profit margins (excluding centralcosts) for the three platforms were 19.2% compared to 36.2% in 2004. The prioryear margin was abnormally high due to the very short reporting period and thevery marked seasonality of Target, one of the original operating companies. TheGroup's effective tax charge was 31% (2004: 34%) and is likely to remainapproximately at that level given the current domicile and mix of businesses. Basic earnings per share were 9.83p and diluted earnings per share were 7.90p.Due to the two month trading period in 2004, and the seasonal nature of profitin that short period, basic earnings per share figures of 15.06p and dilutedearnings per share figures of 7.23p are not useful comparators with 2005. TheDirectors review and revise expectations of deferred consideration paymentsunder earn outs on an annual basis and this impacts on diluted earnings pershare. Revisions this year have reduced estimates of deferred consideration by£3m. The operating profit to cash flow conversion rate of 143% for the year isexceptional as a target range for our industry is usually up to 105%. Thisexcellent performance is primarily as a result of changes in working capitalmanagement implemented in certain subsidiaries during the year and strong localand central financial controls. Net cash at 31 December 2005 was £1.9m. Platform review Cello Planning and Research has had an excellent year, both in terms of revenueand profit growth. The original founding member, Insight our healthcare marketresearch subsidiary, was joined in July by Leapfrog, a qualitative consumerresearch business, and in August by RS Consulting, a quantitativebusiness-to-business group. With only a partial contribution from the two lattercompanies, the platform achieved pre-tax profits of £2.0m on turnover of £15.6mand gross profits of £9.3m. It employed approximately 180 people at the yearend. Our planning and research group is well positioned to become a leading contenderin its specialist areas. The combined client roster and shared reputation forquality are truly outstanding. With approximately a third of revenues comingfrom overseas work, we are well positioned for further expansion both in the UKand in selected international locations. Cello Brand Consulting has had an equally successful year. Our initial platformcompany, Leith, was joined by The Value Engineers, a brand and marketingconsultancy, in August and by TMI, a training advisory consultancy, in lateDecember. With a partial contribution from the two recent additions, theplatform delivered pre-tax profits of £1.6m on turnover of £14.4m and grossprofits of £8.3m. It employed approximately 150 people at year end. The mission of becoming a leading advisor to senior clients on marketing andbranding issues is now within reach. The mix of international work is increasingrapidly from its current 19% of revenues. Cello Response has had a good first full year of operation, with Target andNavigator, our direct marketing and database businesses, joining as founders in2004. The platform delivered pre-tax profits of £1.5m on a turnover of £22.1mand gross profits of £9m. It employed approximately 120 staff at 31 December2005. The platform had a very successful year of organic growth, significantlydeveloping many of our existing accounts as well as a number of new majoraccount wins. This level of success has been shared by its subsidiaries, TalkingNumbers and Target Direct Print, and has also led to the successful start up ofTarget Direct Scotland. The platform has continued to develop its digitalmarketing offer, reinforcing the existing on-line and digital capabilities inboth Target and Navigator with the launch of Oomph, a specialist advisory firm. Growth priorities The Group's growth priorities are all focused on fulfilling the ambitions of thethree platforms. Most notably, we intend to reinforce the planning andconsulting capability of Cello Planning and Research, which will complement ourexisting research capability. We intend to bring Cello Response into the London market, with a physicalpresence in the capital to complement its presence in Cheltenham and Edinburgh.We also intend to add further to the advisory capabilities of Cello BrandConsulting. All three platforms continue to win an increasing proportion of revenues fromoverseas clients. Insight has continued to invest in its New York office whichwas established as a start-up towards the end of 2004 and has now moved intoprofit. In March 2006, Insight opened an office in Basel. We intend to exploreopportunities to establish shared international facilities through a mix oforganic start-up and local hiring of key executives and professional teams. Current trading and prospects Our first full year as a quoted company has been highly encouraging. We start2006 with momentum, focus and determination, a healthy level of revenuevisibility across the Group and a strong balance sheet with £1.9m of net cash.This will enable us to invest with confidence in our existing businesses toaccelerate their growth as well as complete a small number of strategicacquisitions that will further enhance Cello. Kevin Steeds Chairman Cello Group plc CONSOLIDATED PROFIT AND LOSS ACCOUNT for the year ended 31 December 2005 Year ended 31 December 2005 Notes Continuing Acquisitions Total Period from 5 operations May 2004 to 31 December 2004 £ £ £ £ TURNOVER 1 45,263,424 6,824,091 52,087,515 9,400,558Cost of sales (23,105,362) (2,368,292) (25,473,654) (5,473,229) GROSS PROFIT 22,158,062 4,455,799 26,613,861 3,927,329Administrative expenses (19,217,233) (3,412,999) (22,630,232) (2,665,925) OPERATING PROFIT 2,940,829 1,042,800 3,983,629 1,261,404Interest receivable 279,597 63,311Interest payable (100,830) (27,891) PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION 4,162,396 1,296,824Tax on profit on ordinary activities (1,274,288) (437,581) PROFIT FOR THE YEAR/PERIOD 2,888,108 859,243 Basic earnings per share 3 9.83 15.06Diluted earnings per share 3 7.90 7.23 No separate statement of Total Recognised Gains and Losses has been presented asall such gains and losses have been dealt with in the profit and loss account. Cello Group plc CONSOLIDATED BALANCE SHEETas at 31 December 2005 Notes 31 December 2005 31 December 2004 as restated £ £FIXED ASSETSIntangible assets 51,836,054 35,977,427Tangible assets 1,950,350 1,137,033Investments 15,120 - 53,801,524 37,114,460 CURRENT ASSETSWork in progress 604,344 2,322,744Debtors 11,519,086 8,924,507Cash at bank and in hand 6,716,888 9,718,919 18,840,318 20,966,170 CREDITORS: Amounts falling due within one year (20,042,635) (16,820,461) NET CURRENT (LIABILITIES)/ASSETS (1,202,317) 4,145,709 TOTAL ASSETS LESS CURRENT LIABILITIES 52,599,207 41,260,169 CREDITORS: (120,173) (97,167)Amounts falling due after more than one year PROVISIONS FOR LIABILITIES AND CHARGES (6,988,875) (7,658,000) NET ASSETS 45,490,159 33,505,002 CAPITAL AND RESERVESCalled up share capital 3,244,455 2,804,189Share premium account 17,652,075 12,323,417Shares to be issued 10,350,125 7,022,000Capital redemption reserve 50,000 -Profit and loss account 3,697,351 859,243Merger reserve 10,496,153 10,496,153 EQUITY SHAREHOLDERS' FUNDS 4 45,490,159 33,505,002 Approved by the Board on 13 March 2006and signed on its behalf by Kevin Steeds Director Mark Bentley Director Cello Group plc CONSOLIDATED CASH FLOW STATEMENTfor the year ended 31 December 2005 Period from 5 May 2004 to 31 December Year ended 31 2004 December 2005 £ £ NotesCASHFLOWNet cash inflow from operating activities 5 5,691,561 2,998,810Returns on investments and servicing of finance 191,755 35,420Taxation (1,289,411) (60,240)Capital expenditure and financial investment (644,144) (92,309)Acquisitions (7,666,043) (7,720,144)Cash (outflow) before financing (3,716,282) (4,838,463)Financing 1,072,380 13,799,385 (DECREASE)/INCREASE IN CASH IN THE YEAR/PERIOD (2,643,902) 8,960,922 Period from 5 May 2004 to 31 Year ended 31 December December 2004 2005 £ £RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET FUNDS(Decrease)/increase in cash in the year/period (2,643,902) 8,960,922Cash (inflow)/outflow from (increase)/decrease in debt and lease (1,122,380) 196,820financingChange in net debt resulting from cash flows (3,766,282) 9,157,742New finance leases (91,485) (15,432)New loan notes (515,128) (2,305,362)Loans and finance leases acquired with subsidiary (163,873) (390,116) (4,536,768) 6,446,832 Net funds at 1 January 2005 6,446,832 -Net funds at 31 December 2005 5c 1,910,064 6,446,832 Cello Group plc NOTES TO THE PRELIMINARY RESULTS for the year ended 31 December 2005 (1) BASIS OF CONSOLIDATION The financial statements have been prepared under the historical cost conventionand in accordance with applicable accounting standards in the United Kingdom.As discussed in accounting policy (4) below, in order to give a true and fairview, where goodwill is treated as having indefinite economic life, thefinancial statements depart from the requirement of companies' legislation toamortise goodwill over a finite period. (2) BASIS OF CONSOLIDATION The Group's financial statements consolidate the accounts of the Company and allof its subsidiary undertakings. The results of subsidiary undertakings acquiredin the year are included in the consolidated profit and loss account from theeffective date of acquisition. (3) TURNOVER, COST OF SALES AND REVENUE RECOGNITION The Group's policy for recording turnover changed during the period as aconsequence of the introduction of UITF40. Details of the financial effect aregiven in note 2. Turnover is recognised as contract activity progresses, in accordance with theterms of the contractual agreement and the stage of completion of the work. Itis in respect of the provision of marketing services including fees,commissions, rechargeable expenses and sales of marketing materials performedsubject to specific contract. Where recorded turnover exceeds amounts invoicedto clients, the excess is classified as accrued income. Cost of sales include amounts payable to external suppliers where they areretained at the Group's discretion to perform part of a specific client projector service where the Group has full exposure to the benefits and risks of thecontract with the client. (4) GOODWILL AND INTANGIBLE ASSETS Goodwill arising on the acquisition of businesses or subsidiary undertakings iscalculated as the excess of the fair value of the consideration given and costsof acquisition over the fair value of the net assets acquired. In accordance with FRS 10 "Goodwill and intangible assets", goodwill arising onacquisitions is capitalised as an intangible fixed asset and amortised over itsestimated useful economic life. Each acquisition is assessed with reference toits durability and ability to sustain long term profitability. Based on theirassessment of acquisitions made during the year, the directors are of theopinion that the goodwill arising in respect of the acquisitions made during theyear is sufficiently durable that it has an indefinite economic life due, interalia, to the strength of its market position, its long term profitabilityprospects, and the Group's ongoing commitment to maintain and enhance its value,goodwill arising on acquisition will therefore not be amortised. In accordance with FRS 10 and FRS 11 "Impairment of fixed assets and goodwill",the carrying values of intangible fixed assets are reviewed annually forimpairment on the basis stipulated in FRS 11 and adjusted to the recoverableamount if required. Where goodwill is treated as having indefinite economic life, in order to give atrue and fair view for the reasons outlined above, the financial statementsdepart from the requirement of companies' legislation to amortise goodwill overa finite period. Capitalised goodwill regarded as having indefinite usefuleconomic life amounted to £51,836,054 as at 31 December 2005. If this goodwillwere to be amortised over a period of 20 years, the operating profit for theyear ended 31 December 2005 would have decreased by £2,151,041 (2004: £300,867). Cello Group plc NOTES TO THE PRELIMINARY RESULTS for the year ended 31 December 2005 1 SEGMENTAL INFORMATION The Group's turnover, gross profit and profit on ordinary activities before taxation were all derived from the following activities: Gross Profit on ordinary Net Turnover profit activities before tax assets 2005 2004 2005 2004 2005 2004 2005 2004 £ £ £ £ £ £ £ £Business typeCello Planning andResearch 15,583,991 1,870,692 9,295,121 1,228,570 2,028,442 157,567 5,326,960 3,371,448Cello Brand Consulting 14,355,874 4,634,622 8,321,087 1,204,800 1,610,536 314,480 2,129,245 358,593Cello Response 22,147,650 2,895,244 8,997,653 1,493,959 1,460,456 949,307 1,922,642 1,336,924Head Office - - - - (937,038) (124,530) 36,111,312 28,438,037 52,087,515 9,400,558 26,613,861 3,927,329 4,162,396 1,296,824 45,490,159 33,505,002 The Group's turnover was earned from clients domiciled in the followinggeographical markets: 2005 2004 £ £GeographicalUK 42,339,957 8,785,756Rest of the world 9,747,558 614,802 52,087,515 9,400,558 Profit before tax on all sales is earned in the UK and all Group net assets areheld in the UK. 2 PRIOR YEAR ADJUSTMENT As described on page 8, the Group's accounting policy for recordingturnover changed during the period as a consequence of the introduction ofUITF40. As a result of this, turnover for the year ended 31 December 2005has increased by £134,796 and profit before tax has increased by £29,518. £383,487 that would previously have been categorised as work in progresshas been reclassified as accrued income. The effect of UITF40 on prior years' figures is to increase the purchased goodwill by £126,574. 3 EARNINGS PER SHARE Year ended 31 December 2005 Period from 5 May 2004 to 31 December 2004 Profit Weighted Pence per Profit Weighted Pence per average share average share number of number of shares shares Basic £ £ Earnings attributable to 2,888,108 29,366,404 9.83 859,243 5,705,692 15.06 ordinary shareholders Dilutive effect of securities: Share options 763,266 600,000 Contingent consideration: shares 6,435,270 5,573,045 to be issued Diluted earnings per share 2,888,108 36,564,940 7.90 859,243 11,878,737 7.23 Basic earnings per share is calculated by dividing the earnings attributable toordinary shareholders by the weighted average number of ordinary shares in issueduring the year/period, determined in accordance with the provisions of FRS22:"Earnings per Share". Diluted earnings per share is calculated by adjusting the weighted averagenumber of ordinary shares in issue on the assumption of conversion of all thepotentially dilutive ordinary shares. The Group has two categories of dilutivepotential shares, being share options granted where the exercise price is lessthan the average price of the Company's ordinary shares during the period andshares to be issued as contingent consideration on acquisition during the year. Earnings per share has also been calculated for the two months period Novemberand December 2004, as the whole of the profit for the period was earned in thesetwo months. Profit for the period from 9 Period from 9 November 2004 November 2004 to 31 December 2004 to 31 December 2004 Weighted average number of Pence per share shares £BasicEarnings per share 859,243 26,510,029 3.24Dilutive effect of securities:Share options: 600,000Contingent considerationShares to be issued 5,573,045Diluted earnings per share 859,243 32,683,074 2.63 4 RECONCILIATION OF MOVEMENT IN EQUITY Group Group Company Company SHAREHOLDERS' FUNDS 2005 2004 2005 2004 £ £ £ £ Profit/(loss) for the year to 31 December 2,888,108 859,243 (164,026) (124,530) 2005 New share capital subscribed 490,266 2,804,189 490,266 2,804,189 Premium on shares issued in year (net of 5,328,658 22,819,570 5,328,658 22,819,570 expenses) Share capital redeemed (50,000) - (50,000) - Movements in value of shares to be issued 3,328,125 7,022,000 3,328,125 7,022,000 Net addition to equity shareholders' funds 11,985,157 33,505,002 8,933,023 32,521,229 Opening equity shareholders' funds 33,505,002 - 32,521,229 - Closing equity shareholders' funds 45,490,159 33,505,002 41,454,252 32,521,229 5 NOTES TO THE CONSOLIDATED CASH FLOW STATEMENT Year ended 31 December Period from 5 May 2004 to 31 2005 December 2004 £ £a Reconciliation of operating profit to net cash inflow from operating activities Operating profit 3,983,629 1,261,404 Depreciation and amortisation 572,769 63,454 Profit on disposal of fixed assets (34,621) - Decrease in work in progress 1,947,944 1,617,553 Decrease in debtors 1,605,262 976,693 (Decrease) in creditors (2,383,422) (920,294) Net cash inflow from operating activities 5,691,561 2,998,810 b Analysis of cash flows for headings netted in the Year ended 31 December Period from 5 May 2004 to 31 cash flow statement 2005 December 2004 £ £ Returns on investments and servicing of finance Interest received 279,597 63,311 Interest paid (73,411) (25,356) Finance lease interest (14,431) (2,535) Net cash flow from returns on investments and 191,755 35,420 servicing of finance Taxation Corporation tax paid (1,289,411) (60,240) Capital expenditure and financial investment Purchase of tangible fixed assets (700,539) (99,809) Sale of tangible fixed assets 56,395 7,500 Net cash outflow from capital expenditure and (644,144) (92,309) financial investment Acquisitions Purchase of subsidiary undertakings (7,731,666) (10,092,481) Payments of deferred consideration (889,900) - Net cash acquired with subsidiaries 1,352,423 3,247,561 Expenses paid in connection with purchase of (396,900) (875,224) subsidiary undertakings Net cash outflow from acquisitions (7,666,043) (7,720,144) Financing Receipts from issue of shares - 15,300,000 Equity share issue expenses - (1,301,583) Redemption of share capital (50,000) - Receipt of bank loan 2,300,000 - Repayment of bank loan (95,786) (175,000) Redemption of loan notes (954,392) - Capital element of finance lease payments (127,442) (24,032) Net cash inflow from financing 1,072,380 13,799,385 5 NOTES TO THE CONSOLIDATED CASH FLOW STATEMENT (continued) c Analysis of net funds At 1 January Cash flow Acquisition Other non At 31 2005 cash charges December £ £ £ £ 2005 £ Cash at bank and in hand 9,718,919 (4,557,420) 1,555,389 - 6,716,888 Overdrafts (757,997) 561,095 (202,966) - (399,868) 8,960,922 (3,996,325) 1,352,423 - 6,317,020 Loan notes due within one (2,305,362) 954,392 - (515,128) (1,866,098) year Other loans due within one - (2,204,214) (95,786) - (2,300,000) year Finance leases (208,728) 127,442 (68,087) (91,485) (240,858) 6,446,832 (5,118,705) 1,188,550 (606,613) 1,910,064 d Purchase of subsidiary undertakings Period from 5 May 2004 to 31 December Year ended 31 December 2005 2004 £ £ Fair value of assets and liabilities acquired: Tangible fixed assets 615,836 1,106,055 Investments 15,120 - Work in progress 229,544 7,201,379 Debtors 4,085,691 9,679,472 Cash at bank and in hand 1,592,179 4,798,429 Overdraft (298,752) (1,394,620) Creditors (4,158,860) (17,839,902) Goodwill 19,095,330 36,104,001 Consideration 21,176,088 39,654,814 Satisfied by: Cash 7,731,666 10,593,481 Loan notes issued 269,028 2,340,519 Shares allotted 5,818,924 11,635,340 Deferred consideration - cash / loan notes 1,966,875 7,122,000 Deferred consideration - shares to be allotted 4,828,125 7,022,000 Costs of acquisition 561,470 951,474 21,176,088 39,664,814 6. FINANCIAL INFORMATION The financial information contained in this document does not constitutestatutory financial statements within the meaning of section 240 CompaniesAct 1985. The figures for the year ended 31 December 2005 and the period5 May 2004 to 31 December 2004 have been extracted from the audited statutoryfinancial statements. The financial statements for both year ended 31December 2005 and the period 5 May 2004 to 31 December 2004 received anunqualified auditors' report which did not contain a statement under section 237(2) or (3) Companies Act 1985. Copies of the Company's financial statements will be posted toshareholders in April and after approval at the Annual General Meeting on23 May 2006, will be delivered to the Registrar of Companies. Further copies will be available from the registered office of the Company or the Company'sNominated Adviser and Broker, Evolution Securities Limited, 100 WoodStreet, London, EC2V 7AN. 7. OTHER INFORMATION Other information regarding Cello Group plc can be found on the Company's website at www.cellogroup.co.uk. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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