Final Results

13 March 2012

Cello Group plc

Continuing strong performance

Cello Group plc (AIM:CLL, "Cello" or "the Group"), the insight and strategic marketing group, today announces its final audited results for the year to 31 December 2011.

Headline Summary

Strong financial performance

·; Headline profit before tax growth of 10.2% in line with market expectations.

·; Gross profit growth of 6.6% driven by acquisition of MedErgy and like-for-like gross5 profit growth of 2.1% in Research and Consulting.

·; Dividend increases by 20% to 1.72p (2010: 1.43p), the fifth consecutive year of dividend growth.

·; Reported profit before tax of £1.4m (2010: £4.9m) affected by amortisation, impairment and restructuring costs. Reported loss per share of 0.88p (2010: 5.88p).Good start to 2012, supported by strong momentum from Pharmaceutical clients.

Balance sheet considerably strengthened

·; Strong operating cash flow drives net debt down to £7.7m (2010: £8.8m).

·; Earn out provisions drop to £3.2m (2010: £7.3m).

·; Enlarged, lower cost banking facilities agreed until March 2016.

International and pharmaceutical focus enhanced

·; MedErgy, acquired in March 2011, has excellent first year.

·; International revenue rises to 33.9% of total (2010: 21.2%) driven by organic growth and MedErgy.

·; Revenue from pharmaceutical clients rises to 50.0% of Research and Consultancy revenues (2010: 41.5%).

·; Cello Business Sciences, Pharmaceutical analytics business launched in 2012 with immediate material new project win.

Strong growth from digital offering

·; Face growing fast, further investment planned

·; Award winning online research products - eVillage and e-luminate

·; Social media orientated research growing strongly

1 Gross profit is identified as revenue less cost of sales. Cost of sales includes amounts payable to external suppliers where they are retained to perform part of a project. Cost of sales does not include direct labour costs.

2 Headline measures are defined as being before restructuring costs, acquisition related employee remuneration expenses, share option charges, impairment charges and amortisation.

3 Headline operating margin is calculated by expressing headline operating profit as a percentage of gross profit.

4 Headline earnings per share is defined in note 6.

5 Like-for-like measures exclude discontinued operations, the impact of acquisitions, and the impact of any reclassification of business between reporting segments.

Mark Scott, Chief Executive, commented:

"2011 saw a continuation of the Group's solid performance and delivery on our strategy of internationalising revenues and growing our pharmaceutical expertise. As a result we are seeing good momentum in the business, demonstrated by our strong cash flow and considerably strengthened balance sheet.

"We are confident that our focus on servicing international clients in the pharmaceutical and other high margin sectors with our innovative digital offerings will continue to drive growth. We are pleased to be able to reflect this confidence by raising the dividend for the fifth consecutive year."

Enquiries:

Overview

2011 saw a strong performance, with the Group reporting a 10.2% increase in headline profit before tax to £7.1m (2010: £6.4m) on gross profit of £64.3m (2010: £60.3m). The last quarter of 2011 showed good momentum in forward bookings for the first quarter of 2012, ahead of the comparable period for the prior year.

The Research and Consulting division of the Group produced headline operating profit growth of 4.1% on an increase in gross profit of 12.1%, reflecting robust demand from global clients for its highly specialist range of services. Like for like gross profit growth was 2.1%, gross profit was also boosted by the acquisition of MedErgy HealthGroup Inc. ('MedErgy') in March 2011. This growth has allowed for continued investment in qualified staff and web-based tools to sustain future revenue growth.

The Group's strategic focus on the pharmaceutical sector continued to strengthen, with this sector accounting for 50.0% of gross profit in Research and Consulting (2010: 41.5%). MedErgy integrated well and significant new contracts have been secured through joint pitching with the Group's other pharmaceutical businesses. In 2012, we launched a pharmaceutical analytics business, Cello Business Sciences, which is already winning material new client contracts.

The Group's strategy of increasing the proportion of work won or serviced outside the UK has also made progress, with international work now accounting for 33.9% of revenues (2010: 21.2%). Within the Research and Consulting business, 59.4% of the revenue was from international clients (2010: 42.2%). This work tends to be at higher margin, reflecting its complexity. The Group now has offices in New York, Philadelphia, San Francisco, and Singapore. There are plans to open a number of additional overseas offices over the coming months to support the growth strategy.

The Group's top 20 clients accounted for 38.3% of Cello's overall gross profit (2010: 37.7%) and remain largely unchanged from the prior year. The Group saw significant new business wins in the last quarter of 2011 which will contribute in 2012.

Following strong operating cash flow during the year, net debt at year end was reduced to £7.7m, (2010: £8.8m). This debt was fully refinanced in December 2011.

The Group's web-based research offering continues to make strong progress. Both eVillage, which delivers social media based research solutions for pharmaceutical clients, and e-luminate, which provides similar solutions to non-pharmaceutical clients, won significant industry awards. The Group's complementary digital agency brands, Face and Blonde, also delivered very strong performances.

The Group's profile with global clients continues to increase, with the growing reputation of the business as a good manager of talent and a reliable deliverer of complex global projects.

Financial Review

Trading

Total Group gross profit was £64.3m (2010: £60.3m). Headline profit before tax was £7.1m (2010: £6.4m). The Group's overall results reflect continued strength in its core areas of activity, with pharmaceutical business continuing to grow strongly, along with a number of other high value client sectors. Reported profit before tax was £1.4m (2010: £4.9m), substantially reflecting the impact of amortisation of £1.2m (2010: £0.3m); an impairment charge of £2.5m (2010: nil); and restructuring costs of £0.9m (2010: £0.8m).

The Group's headline operating margin was maintained at highly competitive levels of 12.1% (2010: 12.1%), with a headline operating margin of 17.5% in Research and Consulting (2010: 18.8%).

Headline finance costs were £0.7m (2010: £0.9m), reflecting lower debt levels. The Group's tax charge was £1.6m (2010: £1.3m) This is an effective tax rate of 119.7%, has been heavily impacted by non-headline charges which are largely disallowable. The underlying headline tax rate rose to 31.3% (2010: 26.9%). This is explained by the impact of MedErgy which is taxed in the USA at 39.7%.

Headline basic earnings per share was 6.71p (2010: 7.90p) and headline fully diluted earnings per share was 5.90p (2010: 6.60p). Fully diluted earnings per share reflects the impact of the expected future issuance of shares to vendors of companies acquired by the Group under earn out arrangements. Reported loss per share was 0.81p (2010: earnings of 5.88p).

Dividend

The Board is proposing a final dividend of 1.17p per share (2010: 0.905p), giving a total dividend per share of 1.72p (2010: 1.43p), an increase of 20%. The final dividend will be paid, subject to shareholder approval, on 6 July 2012 to all shareholders on the register at 8 June 2012 and will be recognised in the year ending 31 December 2012. The full year dividend has now grown for the last five years consecutively.

Acquisition and Earn outs

On 22 March 2011, the Group was pleased to complete the acquisition of MedErgy for an initial consideration of £6.6m ($10.8m). The consideration was satisfied by the payment of £3.4m ($5.5m) in cash and by the issue to the vendors of 5,804,049 new ordinary shares. £2.8m (gross) of the cash consideration was raised by the placing of 5,333,333 new ordinary shares with existing and new shareholders with the balance funded through existing debt facilities. £2.3m of the total consideration has been allocated to intangible assets, being the valuation of client relationships and the acquired income pipeline. The income pipeline of £0.5m has been fully amortised in the year and the remaining £1.8m is being amortised over four years. Acquisition costs of £0.2m have been written off in the year in line with the new accounting standards.

In April 2011, £5.1m of earn out liabilities were settled. These were settled by £2.2m in cash and loan notes and £2.9m in shares. Following these payments, earn out commitments now stand at £3.2m, all of which falls due for payment in May 2012. The minimum cash or loan note element of this 2012 payment is £1.8m.

Cash flow and banking

The Group's net debt position at 31 December 2011 was £7.7m (2010: £8.8m). Operating cash flow before tax of £7.0m (2010: £7.8m) during the year represented a 91% conversion of headline operating profit.

In December 2011, the Group agreed a new debt facility with Royal Bank of Scotland that expires in March 2016. This comprises a revolving credit facility of £25.0m, and a multi-currency overdraft facility of £4.0m. The interest margin is between 175pts and 280pts above LIBOR. The unamortised facility costs on the prior facility of £0.1m have been written off in the year.

One-off charges

As part of the strategic effort to focus Tangible on added value areas of communications and advisory services, the Board has taken the decision to close its London based above-the-line agency, with no exceptional cash charges. Substantially, as a result of this but also as a result of more challenging recent trading conditions in Tangible, there is a goodwill impairment charge of £2.5m.

As indicated in the Interim results, the Group failed to retain a large retail contract which was subject to competitive tender in mid 2011. This was the major factor behind the exceptional charge of £0.9m, relating to employee termination payments.

The Group incurred a number of charges in the income statement below headline operating profit, as detailed below:

*no cash flow impact in the year

The Group monitors many financial measures on a regular basis but the key performance indicators are headline operating profit, headline operating margin, like-for-like gross profit, headline operating cash flow conversion and headline basic earnings per share.

Operational Review

Research and Consulting

The Group's Research and Consulting business enjoyed another year of strong performance, delivering headline operating profit of £7.2m (2010: £6.9m) from gross profit of £41.3m (2010: £36.9m). This has been driven by continued spend from our large, long term global client relationships.

The Research and Consulting division has established itself firmly in the ranks of the top 10 research businesses in the UK (Marketing Magazine, September 2011) and in the top 25 research organisations globally (Inside Research, August 2011).

Operating margins were 17.5% (2010: 18.8%) which represent competitive levels versus the larger competitor set.

The strategic focus on the pharmaceutical sector has continued to strengthen, with pharmaceuticals now accounting for 50.0% of gross profit in this division (2010: 41.5%). This sector remains high margin. The Group has increased the proportion of pharmaceutical work won through joint pitches across multiple Cello companies. It has also responded effectively to the increasing demand by clients for scientifically based data input into their marketing efforts, based on actual patient outcomes. This has driven an increased need for market insight by clients of the type supplied by Cello. The Group has also had success building a global franchise in other key sectors including computing gaming, digital communications devices and FMCG.

The international profile of the Group has progressed considerably, with the New York office establishing a strong market position, complemented by MedErgy's Philadelphia office, and a growing presence on the West Coast in San Francisco. A new office was opened in Singapore and it is expected that the Group will establish a second Asian office in due course as well as a presence in Latin America.

The Group's digital capabilities have continued to gain market traction. eVillage, the social media research product for the pharmaceutical industry, made a material contribution to revenues in 2011 and operates at standard margins. e-luminate, the analogous product for the non-pharmaceutical community, has also made good progress. Both won prestigious industry awards in 2011, and are being actively marketed in the USA.

The Group continues to innovate in its technological offering, investing in a wide range of online products in 2011. In 2012 the Group launched Cello Business Sciences, offering a suite of bespoke analytical tools for marketing directors in the pharmaceutical industry. Additional investment will also be committed to further develop Pulsar, a leading edge social media monitoring tool. Both products have won material new mandates in 2012.

Notable material new clients and projects in 2011 included: GSK, Pfizer, Johnson & Johnson, AstraZeneca, Novartis, Merck Serono, Boehringer Ingelheim, Abbott, Shire Novo Nordisk, Kimberly Clark, Amgen, EA, Heinz, Arla, Janssen, Legal & General, Pentland, AOL, Skype, Vodafone, West Bromwich BS, The Man Group, City of London, Chamberlain/Liftmaster, Lidl, Prudential, Forest, Webfusion, Intuit, Northern Foods, Kallo Food, Bakehouse, Tata, and Interbev.

Tangible

The Group's communications business, Tangible, delivered headline operating profit of £2.2m (2010: £2.2m) on gross profits of £23.0m (2010: £23.4m). Operating margins remained relatively low at 9.7% (2010: 9.4%), reflecting the relative competitiveness of the UK market which is Tangible's focus of activity.

The lack of growth was largely a reflection of temporary weakness in Scotland where a combination of the national election and public sector decline negatively impacted the business in 2011. It is expected that this will correct now the election has passed and the public sector focus has been rapidly replaced by private sector work.

Tangible has continued to develop a strong digital footprint. Through its brand Face, the Group has established an industry leading capability in social media based advisory work. Through its brand Blonde, it also has a highly successful offering in digital communications and web-based marketing. In addition, through its brand Brightsource, it has developed an industry leading capability in digital based print management, communications planning and delivery. This overall digital business stream has allowed Tangible to largely replace the income loss suffered from public sector and more traditional UK client work. Looking forward, it will provide Tangible with an engine for overall growth.

Notable new clients and projects included: Reckitt Benckiser, Unilever, Dobbies Garden Centres, Aldi, Baxters Food Group, Scottish Government, Cofunds, JP Morgan, Fidelity, Centaur Media, IFAW (International Fund for Animal Welfare), Macmillan Cancer Support, Bank of Scotland, NHS Health Scotland, UCAS, Marriott Hotels, Sainsbury's, Air Malta, Standard Life Ireland and BAA Stansted.

The board of Tangible has decided to exit its London based above-the-line business as part of focusing Tangible on more value added, web-oriented services. This has resulted in a goodwill impairment charge of £2.5m. There were no cash related costs of closure.

People development

The Group places great importance on its evolving staff development programmes. At the heart of this is the Cello Partnership, which constitutes 13 Managing Partners, 32 Partners and 39 Associates. The Partnership meets regularly and forms sub-groups to address areas critical to the future of the business, notably innovation, international expansion and cross group working. Many Partners and Associates are alumni of the Cello Academy.

The Academy is the Group's well respected and proprietary training programme which has been in place for six years, and through which over 120 people have passed over that time. In addition, there is a Cello graduate forum for the substantial annual graduate in-take of the Group. 28 new graduate trainees were recruited during 2011.

In order to properly incentivise the Partnership, the Group administers a robust and demanding annual bonus scheme that rewards performance.

In a separate announcement today the Group has launched its new Corporate Social Responsibility Programme, 'Talking Taboos'. Talking Taboos is a campaigning brand that aims to directly tackle health and social issues using the Groups experience and resources in the healthcare space.

Current Trading and Outlook

Cello began 2012 with a solid order book and has achieved a good level of forward bookings so far this year. Combined with strong new bookings in the first couple of months of 2012, this means that the Group is in a good position to progress. The strengthened balance sheet position means that the Group is able to increase the full year dividend, as well as invest in the growth strategy. At this early stage of the year, the Board is optimistic that current expectations for 2012 can be met.

Allan Rich

Non-Executive Chairman

12March 2012

CONSOLIDATED INCOME STATEMENT

for the year ended 31 December 2011

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

for the year ended 31 December 2011

CONSOLIDATED BALANCE SHEET

31 December 2011

Approved and authorised for issue by the Board on 12 March 2012 and signed on its behalf by

Mark Scott Director

Mark Bentley Director

CONSOLIDATED CASHFLOW STATEMENT

for the year ended 31 December 2011

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

for the year ended 31 December 2011

SIGNIFICANT ACCOUNTING POLICIES

1. Basis of Preparation and Accounting Policies

The final results for the year to 31 December 2011 have been extracted from the audited consolidated financial statements.

The financial information set out above does not constitute the Company's statutory accounts for the years to 31 December 2011 or 2010 but is derived from those accounts. Statutory accounts for the year to 31 December 2010 were approved by the Board of Directors on 14 March 2010, published on 15 April 2011 and delivered to the Registrar of Companies, and those for 2011 are expected to be published on 13 April 2012.

The auditors, PricewaterhouseCoopers LLP, have reported on the accounts for the year to 31 December 2011 and year to 31 December 2010; their reports were (i) unqualified, (ii) did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under Section 498 (2) or (3) of the Companies Act 2006.

During the year the Group generated a profit before tax of £1.4m and excluding non-recurring restructuring costs and other non-headline charges the Group generated a profit of £7.1m.

The Group had net current liabilities of £1.2m at 31 December 2011. This includes £3.2m of payables under acquisition agreements. £1.4m of these payables is expected to be settled through the issuance of new share capital. In addition the Group has a £4.0m overdraft facility and a £25.0m revolving credit facility of which £14.2m is undrawn at 31 December 2011. The revolving credit facility is committed to March 2016.

After reviewing the Group's performance and forecast future cash flows, the directors consider the Group has adequate resources to continue in operational existence for the foreseeable future. The Group therefore continues to adopt the going concern basis in preparing the Group's financial statements.

2. Headline Measures

The Group believes that reporting non-GAAP or headline measures provides a useful comparison of business performance and reflects the way the business is controlled. Accordingly headline measures of operating profit, finance income, finance costs, profit before taxation and earnings per share exclude, where applicable, restructuring costs, amortisation of intangible assets, impairment charges, acquisition accounting adjustments, share option charges, fair value gains and losses on derivative financial instruments and other exceptional costs. Exceptional costs are items that, in the opinion of the directors, are required to be disclosed separately, by virtue of their size or incidence, to enable a full understanding of the Group's financial performance.

A reconciliation between reported and headline profit before taxation is presented after the Consolidated Statement of Comprehensive Income. In addition to this, a reconciliation between reported and headline operating profit is presented in note 1, a reconciliation between reported and headline finance income and costs is presented in note 2 and a reconciliation between reported and headline earnings per share is presented in note 6. Headline measures in this report are not defined terms under IFRS and may not be comparable with similarly titled measures reported by other companies.

3. Accounting Estimates and Judgements

The Group makes estimates and judgements concerning the application the Group's accounting policies and concerning the future. The resulting estimates may, by definition, vary from the actual results. Estimates are based on historical experience and various other assumptions that management and the board of directors believe are reasonable.

The directors consider the critical accounting estimates and judgements used in the financial statements and concluded that the main areas of judgements are:

i. Revenue recognition policies in respect of contracts which straddle the year end.

The Group is required to make an estimate of the project completion levels in respect of contracts which straddle the year end for income recognition purposes. Estimates are based on expected total costs and revenues from each contract. This involves a level of judgement and therefore differences may arise between the actual and estimated result. Where immaterial differences arise they are recognised in the income statement for the following reporting period. Any material changes to these estimates would effect revenue recognised in the financial statements and the level of deferred or accrued income on the balance sheet.

ii. Contingent deferred consideration payments in respect of acquisitions and acquisition related employee remuneration.

The Group has estimated the value of future amounts payable in respect acquisitions. The estimate is based on managements estimates of the relevant entities future performance. If these estimates change in the future as the earn out progresses, the amount of the provision will vary. Any changes to the carrying value of the provision are recognised in the income statement.

As part of a typical acquisition an amount is also payable to the employees of the acquired company. These acquisition related employee remuneration costs are calculated using the same estimates of the relevant entities future performance as the deferred consideration payable. If these estimates change in the future, as the earn out progresses, the amount of the employee liability, which is recognised over the earn out period, will vary. Any changes to the carrying value of these liabilities is recognised in the income statement.

iii. Valuation and amortisation period of separately identifiable intangible assets on acquisitions.

The Group is required to value the separately identifiable intangible assets acquired as part of a business combination. In order to value some of these intangible assets, the group must make assumptions as to future cash flows derived from these costs and estimate the expected lives of these assets. Changes to these estimates would effect the resulting valuation of goodwill and the amortisation charge recognised in the financial statements.

iv. Impairment of goodwill.

The Group tests goodwill annually for impairment, in accordance with the Group's accounting policy. The recoverable amount is based on value-in-use calculations, which requires estimates of future cash flows and the discount rate to apply in order to calculate the present values of these cash flows. The estimates used and sensitivity of these assumptions is disclosed in note 7.

NOTES TO THE PRELIMINARY ANNOUNCEMENT

1. Segmental Information

For management purposes, the Group is organised into two operating groups; Research and Consulting, and Tangible Group. These groups are the basis on which the Group reports internally to the plc's board of directors, who have been identified as the chief operating decision makers.

The principal activities are as follows:

Research and Consulting

The Research and Consulting Division provides both qualitative and quantitative research to a global range of clients across a range of sectors. This research combined with a consulting capability puts the Group in a unique position to add real value to client relationships.

Tangible Group

The Tangible Group offers direct communication solutions from a mixture of direct mail, email and related response media with a focus on the key delivery areas of response: Direct, Digital and Data.

Revenues of £5.06m (2010: £5.58m) are derived from the Group's largest client and these revenues are included in the Research and Consulting Division.

The Group's operations are located in the United Kingdom and the USA.

The following table provides an analysis of the Group's revenue by geographical market, based on the location of the client:

2. Finance Income and Costs

3.  Operating Profit

4. Taxation

The Finance Act 2011, which was enacted on 19 July 2011, included legislation reducing the main rate of corporation tax from 27% to 26% from 1 April 2011 and also reducing the main rate of corporation tax from 26% to 25% from 1 April 2012. Further reductions to the main rate are proposed to reduce the rate by 1% per annum to 23% by 1 April 2014. These further changes had not been substantially enacted at the balance sheet date and are therefore not included in these Financial Statements.

The proposed reductions of the main rate of corporation tax by 1% per year to 23% by 1 April 2014 are expected to be enacted separately each year. The overall effect of the further changes from 25% cent to 23%, if applied to the deferred tax balances at 31 December 2011, would be to reduce the net deferred tax asset by £43,000.

5. Equity Dividends

A final dividend of 0.905p (2010: 0.80p) per ordinary share was paid on 8 July 2011 to all shareholders on the register at 10 June 2011. The total amount of the dividend paid was £709,000 (2010: £491,000).

An interim dividend of 0.55p (2010: 0.525p) per ordinary share was paid on 6 January 2012 to all shareholders on the register on 9 December 2011. In accordance with IAS 10 Events After the Reporting Date, this dividend has not been recognised in the consolidated financial statements at 31 December 2011, but will be recognised when paid in the year ended 31 December 2012.

A final dividend of 1.17p (2010: 0.905p) per ordinary share is proposed to be paid on 6 July to all shareholders on the register on 8 June 2012. In accordance with IAS 10 Events After the Reporting Date, this dividend has not been recognised in the consolidated financial statements at 31 December 2011, but if approved will be recognised in the year ended 31 December 2012.

6.  (Loss)/Earnings per Share