14th Mar 2005 07:01
Cello Group plc14 March 2005 Cello Group plc Preliminary audited results for the period ended 31 December 2004 Cello Group plc announces its preliminary audited results for the period ended31 December 2004. These relate to the period from incorporation on 5 May 2004until 31 December 2004, and include results from its trading subsidiaries forthe two month period November and December 2004. Highlights • Placing and admission to AIM on 9 November 2004, raising £15m (gross) at 100p per share. • Simultaneous completion of three acquisitions of Insight Research Group, The Leith Agency and Target Direct Group in November 2004. • Completion of further acquisition, Navigator Responsive Advertising in December 2004 which has joined the Target Direct Group. • Profit before taxation for the two month period ended 31 December 2004 of £1.3m. • Profits boosted by marked seasonality of Target Direct Group. • Net cash as at 31 December 2004 of £6.4m. Kevin Steeds, Executive Chairman, commented: "We are pleased to have made an excellent start as a new public company. Thesuccessful placing in November has given us both the resources to acquire highquality companies and a first class institutional shareholder base. "The current year has started well and we are confident that all parts of ourgroup will contribute to a successful year. "We continue to appraise a number of very exciting opportunities that will addquality and scale to our existing businesses and expect to announce a number ofearnings enhancing initiatives over the forthcoming months." 14 March 2005 Enquiries: Cello Group plc (www.cellogroup.co.uk)Kevin Steeds, Executive Chairman 020 7457 2020Mark Scott, Chief Executive College HillAdrian Duffield/Clare Warren 020 7457 2020 Cello Group plc Chairman's Statement Cello is a newly created UK marketing services group which specialises in marketresearch, brand advertising, direct marketing and database management. The Groupwas launched in November 2004 with a listing on the Alternative InvestmentMarket, a placing to raise £15m (gross) and the simultaneous acquisition ofthree companies which form the core of the Group. 2004 was a good year for our group companies, with all three showing strongrevenue and profit growth. In the two month period following the listing on 9November, profit before taxation was £1.3m on gross profit of £3.9m and turnoverof £9.4m. This excellent trading result reflects a significant contribution fromTarget, the Group's direct marketing subsidiary, whose core charity andnot-for-profit business is heavily weighted towards the final quarter. As stated in the prospectus, the Board is not recommending any dividend paymentin respect of 2004. Cello has a strong balance sheet. At year end, net cash stood at £6.4m, and allour businesses are profitable and generating cash. We intend to preserve aprudent level of cash reserves, whilst continuing to invest in earningsenhancing acquisitions and the expansion of our existing businesses. Strategy and acquisitions The Group's strategy is to create value for shareholders through the building ofa portfolio of companies in the UK marketing services sector around specialistplatforms in market research, brand advertising, and direct marketing anddatabase management. Cello's objective is to provide its platform businesses with increased resourcesto accelerate their growth. By focusing on core platforms and sticking tightlyto the strategy of building these businesses, we can achieve scale withoutsacrificing coherence or the benefits of specialism. The initial three platform companies acquired by Cello operate in differentniches of the marketing services sector. They all share the followingcharacteristics: • Significant organic and acquisitive growth potential• Blue chip client base with a record of client loyalty• Experienced, high quality management teams• A track record of profitability and• Potential for enhancing gross margins We intend to acquire a number of smaller marketing services businesses which canbe integrated into the three core platforms. We also believe that there areselective opportunities to acquire other marketing services companies withsimilar characteristics as additional platforms. Cello's central management team, consisting of Mark Scott and myself, have over35 years of experience in building high quality marketing services groups anddelivering excellent returns for shareholders. The team will be strengthened bythe recruitment of a Group Finance Director, Mark Bentley, who is expected tojoin in late April. Platform companies • Insight - healthcare market research - London and New York• Leith - brand advertising - Edinburgh and London• Target - direct marketing and data base management - Cheltenham In December, the Group acquired Navigator Responsive Advertising, Scotland'sleading direct marketing agency based in Edinburgh. This business has alreadybeen incorporated into the Target platform. Our excellent start as a public company can be attributed to the momentum in thethree original companies. This is a function of their professionalism, talent,market position and strong client relationships with some of the best globalbrands. It is a testimony to the quality of our businesses that in November and December2004, the first two months of Cello's existence, clients of the calibre ofBristol-Myers, Roche, Nationwide, Vodafone, BG, Barnado's, RSPB, CancerResearch, AXA, Scottish Executive, Nestle, Sainsbury's Bank, Cross Pens, andDymo were added to our client list. Our growth priorities are focused on: • Complementing Insight's strength in healthcare market research with capability in consumer and general commercial market research, in addition to reinforcing the medical analytics offering of the company. • Strengthening Leith by expanding the existing London operation and adding a media planning capability so that the business can offer a fully integrated service to clients across the UK. • Reinforcing Target's capability in the "grey" sector, building on the data analysis capability of its subsidiary Talking Numbers, as well as extending Navigator's reach in commercial direct marketing outside Scotland. In addition to the primary mission of building both depth and scale in eachplatform, we have put in place mechanisms to create linkages between platforms.It is essential that our key executives share the same mission in terms ofcreating overall shareholder value. To this end, all key executives are materialholders of Cello shares and the shared commitment to create sustained, long termvalue is very clear. Secondly, we have implemented the Executive Committee comprising myself asChairman, Mark Scott, and two directors from each of the platform businesses.This committee meets six times a year to review performance and strategy. Thishas already borne fruit in terms of prioritising acquisitions and businessdevelopment opportunities. Current trading and prospects Our early performance as a group has been very encouraging. We have started thecurrent financial year well, with considerable momentum both with existing andnew clients. We are currently appraising several interesting growthopportunities and expect to complete a number of earnings enhancing initiativesover the forthcoming months. Kevin SteedsExecutive Chairman11 March 2005 Cello Group plcConsolidated Profit and Loss Accountfor the period ended 31 December 2004 Period from 5 May 2004 to 31 December 2004 Note £ TURNOVER 2 9,400,558 Cost of sales (5,473,229) GROSS PROFIT 2 3,927,329 Administrative expenses (2,665,925) OPERATING PROFIT 1,261,404 Interest receivable and similar income 63,311Interest payable (27,891) PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION 2 1,296,824 Tax on profit on ordinary activities (437,581) PROFIT FOR THE PERIOD 859,243 Basic earnings per share 3 15.06p Diluted earnings per share 3 7.23p The operating profit for the year arises from the group's continuing operations. 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 plcConsolidated Balance Sheet31 December 2004 31 December 2004 Note £ FIXED ASSETSIntangible assets 1 36,104,001Tangible assets 1,137,033 37,241,034CURRENT ASSETSWork in progress 5,583,826Debtors 8,924,507Cash at bank and in hand 9,718,919 24,227,252 CREDITORS: Amounts falling due within one year (20,208,117) NET CURRENT ASSETS 4,019,135 TOTAL ASSETS LESS CURRENT LIABILITIES 41,260,169 CREDITORS: Amounts falling due after more than one year (97,167) PROVISIONS FOR LIABILITIES AND CHARGES (7,658,000) NET ASSETS 33,505,002 CAPITAL AND RESERVESCalled up share capital 2,804,189Share premium account 12,323,417Shares to be issued 7,022,000Profit and loss account 859,243Merger reserve 10,496,153 EQUITY SHAREHOLDERS' FUNDS 33,505,002 Cello Group plcConsolidated Cash Flow Statementfor the period ended 31 December 2004 2004 Note £ Net cash inflow from operating activities 5a 2,998,810 Returns on investments and servicing of finance 5b 35,420 Taxation (60,240) Capital expenditure and financial investment 5b (92,309) Acquisitions and disposals 5b (7,720,144) Cash (outflow) before financing (4,838,463) Financing 5b 13,799,385 INCREASE IN CASH IN THE PERIOD 5c 8,960,922 RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET FUNDS 2004 Note £ Increase in cash in the period 5c 8,960,922 Cash outflow from decrease in debt and lease 5c 196,820financing Change in net debt resulting from cash flows 9,157,742 New finance leases 5c (15,432) New loan notes 5c (2,305,362) Loans and finance leases acquired with subsidiary 5c (390,116) 6,446,832 NET FUNDS AT 5 MAY 2004 - NET FUNDS AT 31 DECEMBER 2004 6,446,832 Cello Group plcNotes to the Preliminary Resultsfor the period ended 31 December 2004 1. ACCOUNTING POLICIES BASIS OF ACCOUNTING The financial statements have been prepared under the historical cost convention and in accordance with applicable accounting standards in the United Kingdom. As discussed below, where goodwill is treated as having indefinite economic life, the financial statements depart from the requirement of companies' legislation to amortise goodwill over a finite period, in order to give a true and fair view. BASIS OF CONSOLIDATION The Group's financial statements consolidate the accounts of the Company and all of its subsidiary undertakings. The results of subsidiary undertakings acquired in the year are included in the consolidated profit and loss account from the effective date of acquisition. The results of NewCo Navigator Limited which was acquired on 15 December 2004 have not been consolidated for the period to 31 December 2004 as the board considers the impact on the consolidated results to be not material. As permitted by s.230 of the Companies Act 1985, Cello Group plc has not presented its own profit and loss account. GOODWILL AND INTANGIBLE ASSETS Goodwill arising on the acquisition of businesses or subsidiary undertakings is calculated as the excess of the fair value of the consideration given and costs of acquisition over the fair value of the net assets acquired. In accordance with FRS 10: "Goodwill and intangible assets", goodwill arising on acquisitions is capitalised as an intangible asset and amortised over its estimated useful economic life. Each acquisition is assessed with reference to its durability and ability to sustain long term profitability. Based on their assessment of acquisitions made during the year, the directors are of the opinion that the goodwill arising in respect of the acquisitions made during the period is sufficiently durable that it has an indefinite economic life due, inter alia, to the strength of its market position, its long term profitability prospects, and the Group's ongoing commitment to maintain and enhance its value, the asset will not be amortised. In accordance with FRS 10 and 11: "Impairment of fixed assets and goodwill", the carrying values of intangible fixed assets are reviewed annually for impairment on the basis stipulated in FRS 11 and adjusted to the recoverable amount if required. Where goodwill is treated as having indefinite economic life, the financial statements depart from the requirement of companies' legislation to amortise goodwill over a finite period, in order to give a true and fair view for the reasons outlined above. Capitalised goodwill regarded as having indefinite useful economic life amounted to £36,104,001 as at 31 December 2004. If this goodwill were to be amortised over a period of 20 years, the operating profit for the period ended 31 December 2004 would have decreased to £300,867. Cello Group plcNotes to the Preliminary Resultsfor the period ended 31 December 2004 2 SEGMENTAL INFORMATION The group's turnover, gross profit and profit on ordinary activities before taxation were all derived from the following activities: Period from 5 May 2004 to 31 December 2004 Profit on ordinary Turnover Gross profit activities before tax Net assets £ £ £ £ Market research 1,870,692 1,228,570 157,567 3,371,448 Brand advertising 4,634,622 1,204,800 314,480 358,593 Direct marketing & database management 2,895,244 1,493,959 949,307 1,336,924 Central costs - - (124,530) 28,438,037 9,400,558 3,927,329 1,296,824 33,505,002 The group's turnover was made in the following geographical markets: Period from 5 May 2004 to 31 December 2004 Profit on ordinary Turnover activities before tax Net assets £ £ £ UK 8,785,756 1,296,824 33,505,002 Rest of the World 614,802 - - 9,400,558 1,296,824 33,505,002 Cello Group plcNotes to the Preliminary ResultsFor the period ended 31 December 2004 3 EARNINGS PER SHARE Profit for the Period from period from 5 May 2004 5 May 2004 to 31 December 2004 to 31 December 2004 Weighted average Pence £ number of shares per share Basic earnings per share Earnings attributable to ordinary shareholders 859,243 5,705,692 15.06 Dilutive effect of securities: Share options 600,000 Contingent consideration: shares to be issued 5,573,045 Diluted earnings per share 859,243 11,878,737 7.23 Basic earnings per share is calculated by dividing the earnings attributable to ordinary shareholders by the weighted average number of ordinary shares in issue during the period, determined in accordance with the provisions of FRS14: "Earnings per Share". Diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares in issue on the assumption of conversion of all the potentially dilutive ordinary shares. The Group has two categories of dilutive potential shares, being share options granted where the exercise price is less than the average price of the Company's ordinary shares during the period and shares to be issued as contingent consideration on acquisition during the year. Earnings per share has also been calculated for the two month period November and December 2004, as the whole of the profit for the period was earned in these two months. Profit for the Period from period from 9 November 2004 9 November 2004 to 31 December 2004 to 31 December 2004 Weighted average Pence Basic earnings per share £ number of shares per share Earnings attributable to ordinary 859,243 26,510,029 3.24 shareholders Cello Group plcNotes to the Preliminary Resultsfor the period ended 31 December 2004 4 RECONCILIATION OF MOVEMENT IN EQUITY Group Company SHAREHOLDERS' FUNDS 2004 2004 £ £ Profit/(loss) for the period 5 May 2004 to 31 December 2004 859,243 (124,530) Other gains and losses relating to the year New share capital subscribed 2,804,189 2,804,189 Premium on shares issued in period (net of expenses) 22,819,570 22,819,570 Movement in value of shares to be issued 7,022,000 7,022,000 Net addition to equity shareholders' funds 33,505,002 32,521,229 Opening equity shareholders' funds - - Closing equity shareholders' funds 33,505,002 32,521,229 5 NOTES TO THE CONSOLIDATED CASH FLOW STATEMENT 2004 £a Reconciliation of operating profit to net cash inflow from operating activities Operating profit 1,261,404 Depreciation 63,454 Increase in work in progress 1,617,553 Increase in debtors 976,693 (Decrease) in creditors (920,294) Net cash inflow from operating activities 2,998,810 Cello Group plcNotes to the Preliminary Resultsfor the period ended 31 December 2004 5 NOTES TO THE CONSOLIDATED CASH FLOW STATEMENT (continued) b Analysis of cash flows for headings netted in the cash flow statement 2004 £ Returns on investments and servicing of finance Interest received 63,311 Interest paid (25,356) Finance lease interest (2,535) Net cash flow from returns on investments and servicing of finance 35,420 Capital expenditure and financial investment Purchase of tangible fixed assets (99,807) Sale of tangible fixed assets 7,500 Net cash outflow from capital expenditure and financial investment (92,309) Acquisitions and disposals Purchase of subsidiary undertakings (10,092,481) Net cash acquired with subsidiary 3,247,561 Expenses paid in connection with purchase of subsidiary undertakings (875,224) (7,720,144) Financing Receipts from issue of shares 15,300,000 Equity share issue expenses (1,301,583) Repayment of bank loan (175,000) Capital element of finance lease payments (24,032) Net cash inflow from financing 13,799,385 Cello Group plcNotes to the Preliminary Resultsfor the period ended 31 December 2004 5 NOTES TO THE CONSOLIDATED CASH FLOW STATEMENT (continued) c Analysis of net funds At 5 May Cash flow Acquisition Other non At 31 December cash charges 2004 2004 £ £ £ £ £ Cash at bank and in hand - 9,718,919 - - 9,718,919 Overdrafts - (757,997) - (757,997) 8,960,922 Loan notes due within one - - - (2,305,362) (2,305,362) year Other loans due within one - 170,000 (170,000) - - year Finance leases - 26,820 (220,116) (15,432) (208,728) - 9,157,742 (390,116) (2,320,794) 6,446,832 d Purchase of subsidiary undertakings Fair value 2004 £ Fair value of assets and liabilities acquired: Tangible fixed assets 1,106,012 Work in progress 7,201,379 Debtors 9,679,472 Cash at bank and in hand 4,798,472 Overdraft (1,394,620) Creditors (17,829,902) Goodwill 36,104,001 39,664,814 Consideration satisfied by: Cash 10,593,481 Shares allotted 11,635,340 Loan notes issued 2,340,519 Accrued costs of acquisition 951,474 Deferred consideration - loan notes 7,122,000 Deferred consideration - shares to be allotted 7,022,000 39,664,814 Cello Group plcNotes to the Preliminary Resultsfor the period ended 31 December 2004 6. FINANCIAL INFORMATION The financial information set out in this preliminary announcement, which was approved by the Board on 11 March 2005, does not constitute the Company's statutory financial statements for the period ended 31 December 2004 but is derived from those financial statements. The auditors have reported on those financial statements for the period to 31 December 2004 and their report was unqualified and did not contain statements under section 237(2) or (3) of the Companies Act 1985. The statutory financial statements for the period ended 31 December 2004 were prepared following accounting policies consistent with those set out in the Prospectus dated 1 November 2004. Copies of the Company's financial statements will be posted to shareholders in April and after approval at the Annual General Meeting on 23 May 2005, will be delivered to the Registrar of Companies. Further copies will be available from the registered office of the Company or the Company's Nominated Adviser and Broker, Durlacher Limited, Moorgate Hall, 155 Moorgate, London EC2M 6XB. 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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