Interim Results 2012

Cello Group plc

Delivering on the strategy

Cello Group plc ("Cello" AIM: CLL, "The Group"), the insight and strategic marketing group, today announces its interim results for the six month period to 30 June 2012. These results are the first in which the Group re-aligns its segmental analysis to reflect its growing emphasis on the pharmaceutical market.

Group Highlights

·; Revenue up 2.8% to £63.3m (2011:£61.6m)

·; Gross profit up 7.2% to £31.7m (2011:£29.5m)

·; Headline profit before tax2 up 2.2% to £3.0m (2011:£2.9m)

·; Statutory operating profit £1.7m (2011:£2.4m)

·; Headline basic earnings per share 2.69p (2011:3.06p)

·; Statutory basic earnings per share from continuing operations 1.16p (2011:1.79p)

·; Interim dividend up 5.5% to 0.58p (2011:0.55p)

Divisional Highlights

·; Strong growth performance in Cello Health

·; Stabilisation and planned profit recovery in Cello Consumer

1 Like-for-like comparisons remove the impact of acquisitions and discontinued operations

2 Headline profit before tax is stated before non-headline charges (see note 2)

3 Operating margin is defined as headline operating profit as a percentage of gross profit

 Mark Scott, Chief Executive, commented:

"Cello continues to make strong headway implementing its stated strategy. Cello Health is becoming established as a leading business in the global pharmaceutical market. The Group's international revenues are growing, the Group's value added advisory revenues are growing and our web capabilities are cutting edge. This positions the Group well for future expansion in line with the strategy. The Group believes that management expectations for headline operating profits will be met."

Enquiries:

Notes to Editors (www.cellogroup.com)

Cello is an insight and strategic marketing group.

The Group's strategy is to create value for shareholders by building an international marketing advisory business able to advise blue chip clients globally, with a primary focus on the pharmaceutical sector, along with other high margin client sectors.

Cello has annualised revenues in excess of £130m, annualised gross profit in excess of £65m and employs over 700 professional staff.

Chairman's Statement

Overview

Cello's strategy is to focus on providing high value-added advisory services to high margin client sectors, with a primary focus on the pharmaceutical and healthcare sector, and to do so globally. In line with this strategy, Cello's pharmaceutical and healthcare activities have been consolidated into Cello Health. These results are the first in which this new segmental analysis is presented, reflecting the managerial structure and operational focus of the Group. This is enabling the Group to better leverage its expertise and resource in this area to secure growth with existing and new clients. Cello's non pharmaceutical activities have been grouped into Cello Consumer, reflecting their primary focus on the consumer marketing agenda of clients.

For the first six months of 2012, Cello experienced solid overall growth in revenues and profits, driven by strong growth in Cello Health. This was founded on strong like-for-like1 gross profit growth of 11.1% in Cello Health and the full effect of MedErgy which joined the Group in April 2011. Overall operating profit margins in Cello Health have risen to 25.0% (2011:20.7%), which is highly competitive for this area of activity. Operating profit in Cello Health increased to £4.1m (2011:£2.7m) on gross profit of £16.4m (2011:£13.2m).

Cello Health's core areas of activity which are market research (Insight), medical communications (MedErgy) and strategy consulting (MSI) continued to make solid progress, with increasing sharing of client opportunities across the 22 of the top 25 pharmaceutical clients they work with. The international profile of work also increased, notably in New York and Philadelphia.

The core growth thrusts of extending Cello Health's quantitative research offering (Insight and RS), of extending into Consumer Health (The Value Engineers), as well as strengthening the Market Access offering, have all made good progress following investment by the Group. A number of senior hirings have been made to support this growth strategy. In addition, the Group has also commenced a number of larger organic growth initiatives to further broaden its client offering and geographical reach. The Group has invested in the expansion of MedErgy into Europe with the opening of a London office. Geographical reach is also being extended following the continued investment in the new office in Singapore. The Group has also invested in the development of a web-based analytics service for pharmaceutical clients under the Cello Business Sciences banner. The costs of these initiatives have been highlighted separately (£0.3m).

Cello Consumer experienced an overall revenue decline in the first six months of 5.6%, and a consequent decline in profits. This decline is largely attributable to a marked slow-down in client activity in qualitative and quantitative research during the period. By contrast, the communications activities of Cello Consumer (previously called "Cello Communications") performed as expected, with modest overall growth in both revenues and profits. The decline in client spend in qualitative and quantitative research has now recovered somewhat and as a result it is expected that full year performance in this area will improve. This profit recovery process has required a reduction in headcount and property rationalisation, incurring an exceptional charge of approximately £0.7m.

The Group has continued its overseas expansion, with the overall proportion of international revenues increasing to 37% (2011:31%), with over 65% of Cello Health's revenue coming from non UK activity. The Group will organically expand its footprint in New York during the second half, and plans to expand further in Philadelphia. In addition, the Group will shortly open an office in Hong Kong.

Net debt was in line with expectations; following the settlement of all outstanding earnouts in May 2012 and seasonal working capital movements.

The Board has decided to increase the interim dividend by 5.5% from 0.55p to 0.58p, continuing the track record of progressive dividend policy.

Financial Review

Revenue for the six months to 30 June 2012 was £63.3m (2011:£61.6m) and gross profit was £31.7m

(2011:£29.5m). Headline operating profit was £3.3m (2011:£3.2m). Headline operating margins remained largely flat at 10.3% (2011:10.9%). Headline pre-tax profit was up 2.2% at £3.0m (2011:£2.9m).

Headline basic earnings per share were 2.69 p (2011:3.06p). This drop is explained by the full impact of prior and current year share issuances to settle earnouts.

The interim dividend has been increased by 5.5% to 0.58p (2011:0.55p). It is payable on 4 January 2013 to all holders on the register on 9 December 2012.

The Group's net debt at 30 June 2012 increased to £13.7m (31 December 2011:£7.7m; 30 June 2011: £11.2m). This debt increase largely reflects normal seasonal operating cash outflows, as well as the settlement of £1.7m of earnouts in May 2012.

In line with the Group's stated strategy the Group has invested organically in new offices and products. The losses incurred on these start-up operations total £0.3m, and these have been highlighted separately.

Following restructuring within Cello Consumer to address the slow-down in consumer market research, the Group has incurred an exceptional charge of £0.7m.

The following table details the adjustments made to calculate headline operating profit.

Operating review

The Group continues to benefit from a broad set of blue chip multinational client relationships. 15 of the top 20 clients from 2011 remained significant clients in 2012. The Group's largest client accounts for less than 5% of total Group gross profit and the top 20 clients account for less than 45% of total Group gross profit.

Cello's pharmaceutical and health activities are now grouped under Cello Health, with a single board and director group, enabling better leveraging of specialist resource and better leveraging of client relationships across the top 50 pharmaceutical companies. Cello Health now accounts for over half of the Group's overall gross profit, in line with the Group's stated strategy, contributing £16.4m from a total gross profit of £31.7m for the first six months of the year, and with overall growth of 24% over the equivalent period last year.

The Group continues to invest behind expanding activities outside the UK, enabling it to service global client needs. Approximately 65% of Cello Health's revenues are won outside the UK. The Group's New York office will double in size in September this year, enabling the addition of professionals. The Group's Philadelphia office is also planning to expand materially over the course of the next 12 months. It is expected that the Group will open another North American office during the course of the next twelve months, to complement its offices in New York, Philadelphia and San Francisco. The Group also plans to build on its presence in Singapore with a sister office in Hong Kong, enabling servicing of international work into that region.

The web related advisory and delivery capabilities of the Group continue to make strong strides under the key brands of Face (social media based research and analysis), e-Village (health related social media based research), e-luminate (non-health related social media based research) and Blonde (web infrastructure and advisory).

Cello Health

The formalisation of Cello Health as a management and reporting structure, announced on the 11th July, has enabled us to better leverage our professional resource and our existing client relationships. The benefits of this have rapidly become apparent. In the first six months of 2012, Cello Health saw gross profit increase by 24.2% to £16.4m (2011:£13.2m). Like-for-like gross profit grew at 11.1%. Headline operating profit was up 50.0% to £4.1m (2011:£2.7m). Headline operating margins improved to 25.0% (2011:20.7%) although it is expected that margins will return to closer to 20% on a full year basis which would represent a solid, competitive position.

New business momentum has been strong over the past six months, with major wins coming from: Bayer, NSFI, Sinclair IS Pharma, TEVA Russia, United Therapeutics Europe, Shire Pharmaceuticals, Pfizer, Abbott Laboratories, Astellas, Gilead Sciences Europe, Amgen, Horizon, Mundipharma, NHS Business Service Authority, and Boots Opticians.

Cello Health works for nine of the top ten pharmaceutical companies, 22 of the top 25 and 31 of the top 50. This is a solid foundation-stone for strong future growth, based on the development and enlargement of existing relationships. Cello Health has also been effective at leveraging relationships across the broad palette of its specialist capabilities. Two or more of the Cello Health companies work for five of the top ten pharmaceutical clients, ten of the top 25 and 13 of the top 50. All three of our key product areas are sold to two of the top ten pharmaceutical companies, four of the top 25 and five of the top 50. In other words, its client relationships across the eligible client base are broad and also deep.

Cello Health's core client deliverables are strategic consulting, market research and scientific communications. These activities all have a strong scientific foundation and are delivered by pharmacologically qualified professionals. In addition, Cello Health is in the process of building a strong consumer health proposition through its Value Engineers subsidiary, targeted at clients dealing with the over-the-counter market where consumer branding and positioning are paramount. Cello Health has made rapid progress in building a quantitative research offering to complement its qualitative research offering, bringing closer together Insight and RS. Cello Business Sciences, the data analytics and decision support arm of Cello Health, has also made rapid strides developing its suites of web based tools and generating client activity. The business is also developing a shared offering in the Market Access area, helping pharmaceutical clients market to centralised buying points.

Cello Health operates primarily from its London, New York and Philadelphia base, but offers global servicing coverage. All of its core activity areas are now delivered both in Europe and the USA, with both MedErgy and MSI having opened international offices. It is expected that the US presence of Cello Health will be grown rapidly, reflecting the heavy dominance of the US pharmaceutical market overall.

Cello Health also has a strong digital component. e-Village, in particular, has emerged as the leading core offering within Cello Health, enabling clients to use social media communities for research applications. Cello Business Sciences, whose services are founded on web enabled analytical and decision support software, is making rapid strides recently winning "Best Technical Innovation" at the 2012 WireHive awards. The Group is also in the process of building a Real World Data Market Access offering using its social media analysis capability.

As part of leveraging its expertise in the Health field, Cello has invested in developing strong capabilities in the area of social health. This has included the creation of a ground-breaking CSR programme, Talking Taboos. In its initial phase, Talking Taboos has partnered with YoungMinds, the UK's leading children and young people's mental health and wellbeing charity, to produce a pioneering piece of research, exploring the perceptions of young people who self-harm and whether they receive the help they truly need. The findings will be unveiled at an event chaired by Claire Perry MP at the Houses of Parliament on Tuesday 23rd October 2012.

Cello Consumer

Cello Consumer encompasses Cello's services to largely consumer focused clients. The two primary service areas are qualitative and quantitative market research, and communications consultancy and delivery. Its primary client base is comprised of blue chip multinationals, market leading organisations and charities.

Overall, Cello Consumer suffered a decline in revenues in the first half and a consequent decline in profits. This was entirely driven by a marked decline in client activity in qualitative and quantitative market research, both in the UK and internationally. This trend was industry wide and not isolated to Cello. In response to this, the Group has reduced staff and property overheads. This has resulted in an exceptional charge of £0.7m, of which £0.4m relates to excess property commitments. More recently, a modest recovery in client activity has commenced. It is expected that this recovery will continue through the remainder of the year. As a result of this modest recovery in client spend, combined with the overhead actions, it is expected that profit recovery will occur quickly.

The other communications activities of Cello Consumer (previously Cello Communications) have performed slightly ahead of expectations, following strong performances from its core brands of Leith and Brightsource.

Cello Consumer's overall strategy is to position itself as a senior advisor to blue chip clients, based on outstanding market data and insight, and an ability to translate this into action, with a particular focus on web delivery. Cello Consumer has key strengths in data led marketing consulting, and web enabled marketing delivery. It has a leading position in the use and application of social media tools both for data collection and marketing execution. The Group has made material investments behind developing a suite of web based analytical tools to reinforce its social media research and advisory capabilities, hosting communities and allowing analysis of social media activity for clients, particularly through mobile devices.

In order to continue to build a leadership position in this area, Cello Consumer will continue to consolidate its primary business behind its largest lead brands in key areas; Leith Group (communications delivery); 2CV (qualitative and quantitative research); Face (social media) and Brightsource Group (data, print and direct marketing support). Cello Consumer has a single board charged with executing this strategy.

Over the past twelve months, Cello Consumer has also worked hard to introduce new international revenue streams. It now has offices in San Francisco, New York, Singapore, and will shortly open in Hong Kong. This will progressively increase Cello Consumer's dependence on non-UK client activity.

Cello Consumer has enjoyed a strong run of new business activity in the past few months with major projects secured from: Diageo, adidas, Hewlett Packard, Electronic Arts, Costa Coffee, Barnes and Noble, AOL, ebay, Coke, Reckitt Benkiser, Unilever, General Motors, Johnson and Johnson, Philips, NBC, Hallmark, EMC, Heathrow Express, Veolia Water, Glasgow 2014, Marketing Edinburgh, Velux, Ryder Cup, ASCO, ATOC, SWIP, Edrington Group, Intelligent Mobile, Vanguard, AG Barr, ABF Soldiers Charity, Breakthrough Breast Cancer, Diabetes UK, Achica, Marie Curie Cancer Care, Amnesty International, The National Trust, and Land Securities.

Current trading and outlook

The clarity and focus of the Group's strategy puts it in a good position to continue to achieve growth, against a challenging economic backdrop. The Board is confident that Cello Health will continue with its strong performance over the full year and that the growth investments made will promote longer term expansion. Provided the stabilisation of the consumer research market continues, then Cello Consumer should deliver a solid full year outcome. Overall, the Board believes that management's expectations for headline operating profits for 2012 will be met.

Allan Rich,

Chairman

19 September 2012

Condensed Consolidated Income Statement

For the six months ended 30 June 2012

Condensed Consolidated Statement of Comprehensive Income

For the six months ended 30 June 2012

Reconciliation of profit before tax to headline profit before tax

Condensed Consolidated Balance Sheet

As at 30 June 2012

Condensed Consolidated Cash Flow Statement

For the six months ended 30 June 2012

Condensed Consolidated Statement of Changes in Equity

For the six months ended 30 June 2012

Statement of changes in equity for the six months ended 30 June 2012:

Statement of changes in equity for the six months ended 30 June 2011:

Statement of changes in equity for the year ended 31 December 2011:

Notes to the Financial Information

For the six months ended 30 June 2012

1. ACCOUNTING POLICIES AND BASIS OF PREPARATION

The condensed consolidated financial information for the six months ended 30 June 2012 has been prepared in accordance with IAS 34 Interim Financial Reporting, as adopted by the European Union. The condensed consolidated financial information should be read in conjunction with the annual financial statements for the year ended 31 December 2011, which have been prepared in accordance with IFRSs as adopted by the European Union.

The condensed consolidated financial information does not comprise statutory accounts within the meaning of section 434 of the Companies Act 2006. Statutory accounts for the year ended 31 December 2011 were approved by the Board of directors on 12 March 2012 and delivered to the Registrar of Companies. The report of the auditors on those accounts was unqualified, did not contain an emphasis of matter paragraph and did not contain any statement under section 498 of the Companies Act 2006.

The condensed consolidated financial information was approved for issue on 19 September 2012 and has not been audited.

The accounting policies applied are consistent with those of the annual financial statements for the year ended 31 December 2011, as described in those annual financial statements.

There are no new IFRS's or IFRIC's that are effective for the first time for the interim period that would be expected to have a material impact on the Group.

 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, start-up losses, 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. Non-headline gains and losses 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 statutory and headline profit/(loss) before taxation is presented after the Condensed Consolidated Statement of Comprehensive Income. In addition to this, a reconciliation between statutory and headline operating profit is presented in note 4, a reconciliation between statutory and headline finance income and costs is presented in note 7 and a reconciliation between statutory and headline earnings per share is presented in note 10. 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. SEASONALITY OF OPERATIONS

The Cello Health division is not materially influenced by seasonal factors. However, there are a number of clients in the Cello Consumer division who traditionally commission activity in the second half of the year leading to increased revenues for that period with respect to those clients.

4. SEGMENTAL INFORMATION

During the year the Group has changed its operating segments in line with the way the operating results are now reported to the chief operating decision maker and the way the Group is managed. Prior period segmental information has been represented in line with these new operating segments.

The new operating segments are Cello Health and Cello Consumer. Cello Health includes the Group's pharmaceutical and healthcare activities. Cello Consumer includes the businesses of the Group whose clients seek to influence consumers via a variety of marketing disciplines.