Final Results

Cello Group plc

Final Results for the year ended 31 December 2014

Strong 2014 performance - robust gross profit growth.

Cello Group plc (AIM:CLL, "Cello" or "the Group"), the pharmaceutical and consumer strategic marketing group, today announces its final audited results for the year to 31 December 2014.

Financial Highlights

· Revenue up 6.4% to £169.9m (2013: £159.7m)

· Gross profit up 8.4% to £81.0m (2013: £74.7m)

· Like-for-like1 gross profit growth of 3.9%

· Headline2 profit before tax up 9.9% to £9.4m (2013: £8.5m)

· Headline basic earnings per share3 up 12.3% to 8.14p (2013: 7.25p)

· Statutory basic earnings per share 2.70p (2013: 4.41p)

• Full Year dividend up 15.6% to 2.60p (2013: 2.25p)

• Pre-tax provision made for £2.1m VAT liability with HMRC. Considerable progress made in negotiations

• Good start to 2015, with encouraging bookings momentum continuing from Q4 2014

Divisional Highlights

· Cello Health like-for-like gross profit growth of 3.6%, margins maintained at competitive levels.

· Cello Signal like-for-like gross profit growth of 4.2%, solid performance against tough comparative and Pulsar headline operating loss of £0.4m.

Operational Highlights

· Successful launch of Cello Health brand (www.cellohealth.com), which replaces a number of core existing operating brands.

· Successful acquisition of iS Healthcare Dynamics Limited in May 2014.

· Strong performance from recent start-ups, together contributing £1.5m of gross profit in 2014.

· Major Cello Health contract win for 2015, contributing at least $7m of gross profit in 2015.

· Appointment of Stephen Highley, Chairman of Cello Health, as Chief Operating Officer of Cello Group plc with immediate effect.

Mark Scott, Chief Executive, commented:

"2014 was a critical year in establishing Cello Health as an integrated global player in the pharma space under a single brand and operating structure. We have been very pleased with the positive impact this has had on our ability to compete for and win large integrated contracts on a global scale. It also underpins our ability to continue our rapid expansion in the core US marketplace which is key to our growth strategy. I am also delighted to welcome Stephen Highley to the role of Chief Operating Officer to support the central management team in its rapid global expansion of the Group."

1 Like-for-like measures exclude the results from companies acquired in the year and results from start-ups which are defined in note 6.

2 Headline measures exclude, where applicable, restructuring costs, amortisation of intangible assets, impairment charges, acquisition accounting adjustments, start-up losses and the provision for VAT payable.

3 Headline earnings per share is defined in note 9.

4 Operating margin is calculated by expressing operating profit as a percentage of gross profit.

Enquiries:

Overview

2014 saw a strong financial and operational performance. The Group reported an 8.4% increase in gross profit to £81.0m (2013: £74.7m) and headline profit before tax up 9.9% to £9.4m (2013: £8.5m).

2014 was the first full year of trading for Cello Health companies under the unified Cello Health brand. The potential of this unified structure to deliver sustained growth has been demonstrated by the type of contracts now being secured. This culminated in several joint project wins towards the end of 2014, as well as a significant $7m contract won at the end of the year.

The speed at which Cello Health has secured a global, integrated footprint has been reinforced by two focused acquisitions. The most significant was the acquisition by Cello Health of iS Healthcare Dynamics Limited ("iS Health") in May 2014, enabling Cello Health to offer a strengthened global medical education and communications capability. Cello Health also acquired Worldwide Promedica Inc ("Promedica") in December 2014, giving access to a new suite of biotech clients for the Cello Health Insight capability, as well as a physical presence on the West Coast of the USA for its other offerings. Expansion in the US market remains a high priority for Cello Health in 2015.

Cello Signal continued to make solid progress, against the headwind of a tough comparator for 2013 dominated by a one off large high margin project. Cello Signal continues to focus its activities into the growth areas of social media analytics and large scale technology platform building for communications applications. Cello Signal acquired Line Digital Limited ("Line Digital") in April 2014, adding essential programming and technological expertise. Cello Signal has also continued to push its global offering which is primarily focused on technology clients, with profitable offices now established in the USA and Asia. Pulsar, Cello Signal's social media analytics software product, continues to grow rapidly, with encouraging renewal rates so far in 2015.

The Group invested £0.4m in start-up activity during the year (2013: £0.4m), in new client offerings in Cello Health and Cello Signal and also in new overseas offices. These activities contributed £1.5m of gross profit in 2014 and we expect these businesses to grow their contribution to operating profits in the future.

As announced by the Group with its trading update on 22 January 2015, and subsequently on 9 February 2015, a subsidiary of Cello Signal is the subject of a review by HMRC regarding the VAT status of certain supplies to its charity clients. Agreement in principle has now been reached with HMRC on the most material of these supplies, and consequently a provision has been made for £2.1m. This provision is stated before any potential recovery from clients. Tax relief will also reduce the impact on the Group to £1.7m. While there are further types of supply on which queries have been raised, the amounts concerned are less material, and will be defended robustly.

The Board is pleased to announce the appointment of Stephen Highley, Chairman of Cello Health, as Chief Operating Officer of Cello Group plc to assist the senior team with the global expansion of the Group.

The New Year has started well, with good income visibility and solid momentum from the end of 2014.

Financial Review

Total Group gross profit was £81.0m (2013: £74.7m) on revenues of £169.9m (2013: £159.7m). Headline profit before tax was £9.4m (2013: £8.5m). The Group's results reflect a strong performance by Cello Health and a solid performance by Cello Signal against a tough comparator with 2013.

The Group's headline operating margin was 12.1% (2013: 12.2%) with a headline operating margin of 21.2% in Cello Health (2013: 21.2%), and 8.7% in Cello Signal (2013: 10.2%).

Headline finance costs were £0.4m (2013: £0.6m), reflecting the lower amortisation of facility costs as well as lower headline interest rates over the year, following the extension of bank facilities in September 2014.

The Group's tax charge was £1.5m (2013: £1.8m) which is a headline tax rate of 26.5% (2013: 29.8%). The headline tax rate is dropping as the UK Corporation Tax rate drops, and the geographical mix of profit changes.

Headline basic earnings per share was up 12.3% to 8.14p (2013: 7.25p).

Statutory profit before tax was £3.8m (2013: £5.5m) after the impact of acquisition related costs of £1.3m (2013: £0.8m); restructuring costs of £0.5m (2013: £0.5m); amortisation of £1.0m (2013: £1.2m); start-up losses of £0.4m (2013: £0.4m); and the provision for £2.1m following an HMRC review into some of Cello Signals activity in the charities sector.

In May 2014, the Group acquired the entire share capital of iS Health. The total maximum payable is £7.2m, and net assets acquired were £2.4m, which included £2.4m of cash. £2.5m was settled at closing in 2014, of which £2.0m was paid in cash with the balance paid in new ordinary shares. The remaining consideration will be payable in cash and new ordinary shares based on performance over the period ending 31 December 2016.

In December 2014, the Group acquired the entire share capital of Promedica. The total maximum payable is $2.5m. $0.7m was settled at closing in 2014. The balance is payable in cash and new ordinary shares based on performance over the period ending 31 December 2017.

In April 2014, the Group acquired the entire share capital of Line Digital. The total maximum payable is £0.5m. £0.2m was settled at closing in 2014 in cash. The balance will be payable in cash in May 2015, based on performance conditions.

Total Group estimated future acquisition related obligations are £3.6m, payable from 2015-2018, with a maximum of £0.7m payable in new ordinary shares.

Cello Health produced headline operating profit growth of 12.0% on an increase in gross profit of 12.2%, reflecting continued robust demand from global clients for its highly specialist range of clinically led services. It enjoyed a partial year contribution from iS Health which was acquired in May 2014. Like-for-like gross profit in Cello Health grew by 3.6%.

Cello Signal had a solid year, against an excellent year in 2013. Headline operating profit was £3.4m (2013: £3.9m) on gross profits of £39.5m (2013: £37.9m). Like-for-like gross profit growth was 4.2%. The fastest growing areas of Cello Signal were the US offices (27.8% gross profit growth) and pure digital services (35.5% gross profit growth). These areas are lower operating margin as they are still being invested in. This strong performance was substantially offset by the non-recurrence of a large high margin project that was completed in 2013.

A notable feature of the performance in Cello Signal was the growth of Pulsar, which grew its client base from 11 to 88 during the year. Pulsar is a social media analytics product which is sold on a licence basis. The product is continuing to sell well in 2015 and renewal rates of prior year licences are encouraging so far in 2015. Operating losses of £0.4m from Pulsar are included in headline numbers.

Over the past two years, the Group has invested in start-up initiatives as an efficient and profitable way to expand organically. We have continued this strategy in 2014, by opening up offices in Hong Kong, as well as investing in the continued development of Cello Health Consulting in the US. The total losses from these activities commenced in 2014 were £0.4m.

During 2014, the Group incurred exceptional costs of £0.5m, substantially as a result of the strategy to reshape the proposition of Cello Signal towards higher growth areas of social media and technology delivery, resulting in the reduction of certain skills areas not relevant to this agenda. This process will continue in 2015.

Operating cash flow before tax of £4.8m (2013: £11.1m) during the year represented a 48.7% conversion of headline operating profit. This followed excessive cash conversion in 2013 (121.8%), with the inevitable subsequent reversal of cash in early 2014. The Group's net debt position at 31 December 2014 was £7.2m (2013: £3.6m), reflecting this cash flow effect, investment in acquisitions and a one-off impact of the acceleration of the dividend payment. The net debt1:ebitda2 ratio at 31 December 2014 was 0.6 (2013: 0.3). In September 2014, the Group was pleased to extend its debt facilities. They now expire in March 2018. Interest rate margins and annual facility cost amortisation were also reduced at this point. Total debt facilities are £20.0m with a £4.0m overdraft facility.

As announced by the Group with its trading update on 22 January 2015, and subsequently on 9 February 2015, a subsidiary of Cello Signal is the subject of a review by HMRC regarding the VAT status of certain supplies to its charity clients. Agreement in principle has now been reached with HMRC on the most material of these supplies, and consequently a provision has been made for £2.1m (before any tax deductions and recovery from clients). This agreement in principle has removed the potential for a considerable further claim on this core type of supply. Discussions and negotiations are still ongoing with HMRC on other less material types of supply as described in more detail in note 16. The Board continues to believe, with the support of its advisors and industry bodies, that these issues are unlikely to result in further material provisions in future years.

The Board is proposing a final dividend of 1.80p per share (2013: 1.61p), giving a total dividend for the year of 2.60p (2013: 2.25p) an increase of 15.6%. The dividend has grown every year since 2006 and has grown by 10% or more for the past five years. Subject to shareholder approval, the final dividend will be paid on 29 May 2015 to all shareholders on the register at 1 May 2015, and will be recognised in the year ending 31 December 2015. It should be noted, that as outlined in the interim results on 17 September 2014, this timetable is accelerated from prior years.

The Group incurs a number of charges in the income statement below headline operating profit, which are:

*no cash flow impact

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

[1] Net debt is defined in note 18.

2 ebitda is defined as headline earnings before tax, interest, depreciation and amortisation.

Operational Review

Cello Health (www.cellohealth.com)

Cello Health had another strong year, delivering headline operating profit of £8.5m (2013: £7.6m) from gross profit of £40.0m (2013: £35.6m). The business continues to service the majority of the largest 50 pharmaceutical clients globally as well as a growing number of biotech clients. The employee base increased to 398 during the year (2013: 328) reflecting the addition of senior resource, particularly in the USA, as well as the acquisitions completed in the year. Despite this ongoing senior headcount increase, operating margins were maintained at the competitive level of 21.2%. It is likely that investment in senior headcount within Cello Health Consulting in the US will continue in 2015.

The Board of Cello Health has continued to execute its global strategy of establishing Cello Health as one of a small number of high quality, technically led advisers to the pharmaceutical and healthcare sector. During the course of 2014, the single brand and unified operating format of Cello Health already began to deliver clear benefits in the form of better sharing of professional resource, successful joint pitching for larger client opportunities and the raising of Cello Health's market profile, with associated commercial benefits. This culminated in late 2014 with the winning of a $7m annual gross profit global contract with a large client buying Cello Health's services on an integrated basis.

In line with the stated strategy, the international profile of Cello Health continues to progress rapidly. All of Cello Health's core businesses are now represented in the US market, which is by far the largest market for such services globally. The acquisition of iS Health enables the extension of the previously US based medical education and communications offering to European clients. The acquisition of Promedica enables Cello Health to provide a global insight capability, as well as access to the biotech client community of the West Coast of the USA. The core capabilities of Cello Health (Cello Health Consulting, Cello Health Insight and Cello Health Communications) are now organised globally, enabling rapid deployment of resource against global opportunity.

Product innovation and the use of digital platforms has been a key investment area over the last few years, and the benefits of this investment began to flow in 2014. eVillage, Cello Health's online digital community research platform, is recognised as a leader in this field with over 100 platforms implemented, providing invaluable insights to clients. This innovative methodology is becoming more widely adopted in the industry and we are excited about the global opportunities for this product. Use of digital tools and techniques is allowing clients to break new grounds in many areas. Cello Health will continue to invest in these developing areas.

The client base remains strong. Cello Health works with 21 of the top 25 pharmaceutical organisations3. Within these 21 clients the substantial majority now work with more than one Cello Health capability. It is also a common feature that Cello Health benefits from having multiple buying points within these clients. We have long term relationships with our largest clients, laying the foundations for a strong 2015 and beyond.

New business momentum was strong in Q4 2014 and this momentum has continued into 2015. Notable, disclosable client wins in 2014 included:Amgen, Boehringer Ingelheim, Celgene, Cooper Vision, Eli Lilly and Company, GSK Consumer Healthcare, GSK Global, HP, Johnson & Johnson, Lloyds Pharmacy, MSD Schering Plough, Nexus, NHS Business Services Authority, NHS Leadership Team, NHS Warrington, Novartis IHC, Novartis Respiratory, NS&I, Pfizer, Reckitt Benckiser, Roche Oncology, Shire HGT, Shire, UCB Pharma and Unilever.

2015 represents a further continuation on the journey towards becoming the leading Healthcare Marketing service partner to our clients. Cello Health will continue to offer best-in-class capabilities of research, consulting and evidence based communications; and blended teams with experts from appropriate capabilities to meet the challenges faced by our clients.

3 Source Pharmaceutical Executive June 2014.

Cello Signal (www.cellosignal.com)

Cello Signal had a solid year, delivering headline operating profit of £3.4m (2013: £3.9m) on gross profit of £39.5m (2013: £37.9m). Operating margins were 8.7% (2013: 10.2%), reflecting the non-recurrence of a single large high margin project at the end of 2013, the impact of a £0.4m headline operating loss from Pulsar and also low margins in high growth but newly started US offices. Headcount increased to 558 (2013: 500), reflecting the acquisitions of Line Digital, expansion of overseas capability, and investment in technical staff in line with the stated growth strategy.

Cello Signal made material progress in its development as a leading digital advisory and delivery business. The business's unique combination of data analytics, systems delivery and creativity lends it genuine competitive advantage, enabling it to both identify key customer challenges and deliver solutions of a highly technical nature. The launch of Cello Signal as the umbrella brand for the business in 2014 helped secure a range of significant new client contracts.

Cello Signal has continued to develop its strong digital footprint with large client contracts. Cello Signal has a blue chip client list spanning the full range of technology led sectors, including mobile telephony, electronic games, and personal computing, ensuring Cello Signal is at the cutting edge of digital marketing developments. This is complemented by deep client expertise in fmcg, financial services, and retail. Core clients include EA, HP, Sony, Unilever, Tesco, LBG, L'Oreal, NHS, BASF, TfL, IFAW, Oxfam, and General Motors. 2014 saw an ongoing increase in the average size of client contracts and an ongoing increase in visibility achieved through multi-year contracts.

Cello Signal has developed a number of proprietary software products to support its sales process, including Pulsar, a ground-breaking social media analytics tool (www.pulsarplatform.com). Pulsar software sales continue to progress strongly, increasing clients in the year from 11 to 88, with high contract renewal rates in 2015. The 2014 headline operating loss of £0.4m is expected to reduce as volumes grow in future years.

Cello Signal has been rapidly transforming itself from a UK focused business into a global business. With offices in San Francisco, Los Angeles, New York, Singapore and Hong Kong, it can now offer truly global coverage. The short term effect of this has been to lower headline operating margins as these offices scale from small beginnings, but operating margins will normalise as they mature.

Cello Signal's strong new business momentum from the last quarter of 2014 has continued into 2015. Notable, disclosable client wins in 2014 included: ABF Soldier's Charity, AEGON, Alliance Trust Savings, Alzheimer's Society, Anthony Nolan, Apetito, Arthritis Research UK, Aviva, BBC, Canon, Centro, Chamberlain, Christian Aid, Cofunds,Corgi,Creative Clyde, Crisis, Deloitte, Economist Korea, Electrolux, E.ON, First Group, GSK, HP, Intercontinental Hotels Group, JP Morgan, Kaplan University, Legg Mason Asset Management,Macmillan,National Audit Office, Network Rail, NEST, Nexus, NHS Greater East Midlands, NS&I, Reliance Mutual, RaVaBe, RBS Roster, Renaissance Hotels, RNLI, RR Donnelley, S1, Samsung, Scotland's House, Scottish Government, Sightsavers, Smile Train, Tesco, The Famous Grouse, and Unilever.

People

Cello continues to pride itself on investing in developing its people, with a range of initiatives which encompasses the whole Group. The Cello Partnership comprises 49 Associates, 30 Partners and 12 Managing Partners. This Partnership meets regularly and forms sub-groups to address areas critical to the future of the business, for example innovation, international expansion and cross group working. Many Partners and Associates are alumni of the Cello Academy.

The Cello Academy is the Group's well respected and proprietary training programme through which over 200 people have graduated.

In 2014 30 new graduate trainees were recruited over the course of the year (2013: 26).

Current Trading and Outlook

The Group begins 2015 with a good level of secured forward bookings, particularly within Cello Health, and has also seen encouraging levels of new business wins so far this year. The strong balance sheet position of the Group means the Board is able to further invest in the growth strategy. At this relatively early stage of the year, the Board is confident that expectations for 2015 will be met.

Allan Rich

Non-Executive Chairman

18 March 2015

CONSOLIDATED INCOME STATEMENT

for the year ended 31 December 2014

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

for the year ended 31 December 2014

CONSOLIDATED BALANCE SHEET

31 December 2014

CONSOLIDATED CASH FLOW STATEMENT

for the year ended 31 December 2014

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

for the year ended 31 December 2014

SIGNIFICANT ACCOUNTING POLICIES

1. Basis of Preparation

The financial information included in this report does not amount to full financial statements within the meaning of Section 434 of Companies Act 2006. The financial information has been extracted from the Group's Annual Report and financial statements for the year ended 31 December 2014, on which an unqualified report has been made by the Company's auditors, PricewaterhouseCoopers LLP.

Financial statements for the year ended 31 December 2013 have been delivered to the Register of Companies; the report of the auditors on those accounts was unqualified and did not contain a statement under 498 of the Companies Act 2006. The 2014 statutory accounts are expected to be published on 14 April 2015.

2. Going Concern

During the year the Group generated a profit before tax on continuing activities of £3.8m and excluding non-recurring restructuring costs and other non-headline charges the Group generated a profit before tax of £9.4m.

The Group meets its day-to-day working capital requirements through its bank facilities. At 31 December 2014 the Group's bank facilities consisted of a £4.0m overdraft facility and a £20.0m revolving credit facility ("RCF"). The RCF is committed to March 2018. £7.6m of the RCF is undrawn at 31 December 2014 and the Groups forecasts and projections show that the Group is able to operate within the level of its current facilities and its covenants.

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.

3. Revenue, Cost of Sales and Revenue Recognition

Revenue comprises the fair value of the consideration received or receivable from services, provided by the Group in the ordinary course of the Group's activities. Services include fees, commissions, rechargeable expenses and sales of materials provided by the Group. Revenue is shown net of Value Added Tax and discounts.

Revenue derived from fees is recognised as contract activity progresses, in accordance with the terms of the contractual agreement and the stage of completion of the work. The stage of completion is assessed based on the proportion of costs incurred or milestone completed, as appropriate to the contract. Where recorded revenue exceeds amounts invoiced to clients, the excess is classified as accrued income and where recorded revenue is less than amounts invoiced to clients, the difference is classified as deferred income.

Revenue derived from retainers is recognised evenly over the contract period.

Revenue derived from commissions, rechargeable expenses and sale of materials is recognised when the risk and rewards have been transferred to the client in line with the individual contract.

Cost of sales include amounts payable to external suppliers where they are retained at the Group's discretion to perform part of a specific client project or service where the Group has full exposure to the benefits and risks of the contract with the client. Cost of sales does not include direct labour costs.

4. Headline Measures

The Group believes that reporting non-GAAP or headline measures provides a useful comparison of business performance and this reflects the way the business is reported internally and 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, start-up losses, share option charges, fair value gains and losses on derivative financial instruments and the provision for VAT payable. These 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 in note 1. In addition to this, a reconciliation between reported and headline operating profit is presented in note 2, a reconciliation between reported and headline finance income and costs is presented in note 3 and a reconciliation between reported and headline earnings per share is presented in note 9. Headline measures in this report are not defined terms under IFRSs and may not be comparable with similarly titled measures reported by other companies.

5. Accounting Estimates and Judgements

The Group makes estimates and judgements concerning the application of 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 affect 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 of acquisitions. The estimate is based on management's 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 are 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 affect the resulting valuation of goodwill and the amortisation charge recognised in the financial statements.

iv. Impairment of goodwill and intangible assets acquired as part of a business combination.

The Group tests goodwill and intangible assets acquired as part of a business combination annually for impairment, in accordance with the Group's accounting policies. 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 10.

v. Provision for VAT payable.

The Group has recognised a £2.1m provision in relation to VAT payable in respect of supplies to some of its charity clients by one of its subsidiaries Brightsource Limited ("Brightsource"). Discussions with HMRC continue. Further details in relation to this provision and a contingent liability in relation to additional VAT payable, are disclosed in note 15 and 16.

NOTES TO THE PRELIMINARY ANNOUNCEMENT

1 Reconciliation of Profit on Continuing Operations Before Taxation to Headline Profit Before Tax

2 Segmental Information

For management purposes, the Group is organised into two operating segments; Cello Health and Cello Signal. These segments 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.

Revenue and costs not included in one of these operating segments, for example central overheads and results from start-up operations, have not been allocated to an operating segment in line with the way they are reported to the chief operating decision makers.

The principal activities of the operating segments are as follows:

Cello Health

The Cello Health Division provides market research, consulting and communications services principally to the Group's pharmaceutical and healthcare clients.

Cello Signal

The Cello Signal Division provides market research and direct communications services principally to the Group's consumer facing clients.

Revenues derived from the Group's largest client are less than 10% of the Group's total revenue. Revenue derived from the largest client in each operating segment also represents less than 10% of external revenue in each segment.

Sales between segments are carried out at arms-length. The revenue from external parties reported to the chief operating decision maker is measured in a manner consistent with that in the income statement. 

The Group's operations are materially 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:

3 Finance Income and Costs

4 Administrative Expenses

5 Restructuring Costs

6 Start-up Losses

7 Taxation

9 Earnings per Share

Basic earnings per share is calculated by dividing the earnings attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the year, excluding treasury shares and shares in employee benefit trusts, determined in accordance with the provisions of IAS 33 Earnings per share.

Diluted earnings per share is calculated by dividing earnings attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the year adjusted for the potentially dilutive ordinary shares.

The Group's potentially dilutive shares are shares expected to be issued as deferred consideration on acquisitions and share options issued.

Headline earnings per share is calculated using headline post-tax earnings for the year, which excludes the effect of restructuring costs, start-up losses, amortisation of intangibles, impairment charges, acquisition accounting adjustments, share option charges, fair value gains and losses on derivative financial instruments and other exceptional costs. The calculation also excludes non-controlling interests over which the Group has exclusive options to acquire in the future.

Goodwill represents the excess of consideration over the fair value of the Group's share of the net identifiable assets of the acquired subsidiary at the date of acquisition.

Goodwill arising on acquisition in the year ended 31 December 2014 relates to the Group's acquisition of iS Healthcare Dynamics Limited, Line Digital Limited and Worldwide Promedica Inc.

The adjustment to fair value of deferred consideration relates to the changes in estimate to deferred consideration payable under earn out arrangements in accordance with the terms of the relevant acquisition agreements for acquisitions before 1 July 2009 and therefore not accounted for in accordance with the provisions of IFRS 3 Business combinations (as revised January 2008).

Goodwill acquired through business combinations is allocated to cash-generating units ("CGUs") for impairment testing. The goodwill balance was allocated to the following CGUs:

The recoverable amount for each CGU is determined using a value-in-use calculation. This calculation uses pre-tax cash flow projections derived from 2015 budgets, as approved by management, with an underlying growth rate of 2.5% per annum in years two to five, representing economic growth and the current rate of inflation. After year five a terminal value has been applied using an underlying long term inflation rate of 2.5%. No additional Cello specific growth has been assumed beyond year one. The pre-tax cash flows are discounted to present value using the Group's pre-tax weighted average cost of capital ("WACC"), which was 9.3% for 2014 (2013: 9.7%). This rate was calculated using the Capital Asset Pricing Model with an estimated cost of debt and equity, with appropriate small company risk factors.

Sensitivity to changes in assumptions

The value-in-use exceeds the total goodwill value across the Group by £110.3m.

The impairment review of the Group is sensitive to changes in the key assumptions, most notably the pre-tax discount rate, the terminal growth rate and projected operating cash flows. Reasonable changes to these assumptions are considered to be:

· 1% increase in the pre-tax discount rate.

· 1% decrease in the terminal growth rate.

· 10% decrease in projected operating cash flows.

Reasonable changes to the assumptions used, considered in isolation, would not result in an impairment to goodwill for any of the Groups CGU's.

11 Acquisitions

iS Healthcare Dynamics

On 12 May 2014, the Group acquired the entire share capital of iS Healthcare Dynamics Limited ("iS Health"), a healthcare communications consulting company based in the UK.

iS Health has contributed £5.2m to revenue and £1.0m to profit before tax for the period between the date of acquisition and the balance sheet date. Had iS Health been consolidated from 1 January 2014, the consolidated income statement for the year ended 31 December 2014 would show revenue of £172.1m and profit before tax of £4.3m.

The provisional fair value of the net assets at the acquisition date is as follows:

 The fair value of trade and other receivables include trade receivables with a fair value of £1,022,000. The gross contractual amount of trade receivables is equal to the fair value.

Goodwill comprises the value of expected synergies and other opportunities arising from the acquisition, management know how, the skilled work force employed by iS Health and other intangible assets that do not qualify for separate recognition. None of the goodwill recognised is expected to be deductible for tax purposes.

The fair value of the consideration paid is as follows:

In addition to the consideration, acquisition related employee remuneration of up to £3,300,000 is also payable to the vendors and employees of iS Health. This remuneration is dependent on the profits earned by iS Health in the three years to 31 December 2016 and is recognised in the income statement over that period.

Line Digital

On 24 April 2014, the Group acquired the entire share capital of Line Digital Limited a company based in the UK specialising in web designs and development and online marketing strategy. The net assets acquired and consideration paid do not have a material effect on the results or position of the Group.

Worldwide Promedica Inc.

On 9 December 2014, the Group acquired the entire share capital of Worldwide Promedica Inc, a market research firm servicing pharmaceutical and biotechnology companies, based in San Francisco, USA. The net assets acquired and consideration paid do not have a material effect on the results or position of the Group.

The average credit period taken on the provision of services was 55 days (2013: 52 days).

The Directors consider that the carrying value of trade and other receivables approximates to fair value.

The Directors consider that the carrying value of trade and other payables approximates to fair value.