Interim Results

Cello Group plc

An excellent first half

Cello Group plc ("Cello" AIM: CLL, "The Group"), the healthcare and consumer strategic marketing group, today announces its interim results for the six month period to 30 June 2014.

Group Highlights

· Revenue up 9.4% to £78.3m (2013: £71.5m)

· Gross profit up 14.8% to £39.5m (2013: £34.4m), constant currency1 growth of 16.2%

· Like-for-like2 gross profit growth of 11.7%, constant currency like-for-like gross profit growth of 13.3%

· Headline profit before tax3 up 26.4% to £4.4m (2013: £3.5m), constant currency growth of 28.9%

· Statutory operating profit up 77.2% to £3.6m (2013: £2.1m)

· Headline operating margin4 increase to 12.0% (2013: 11.1%)

· Headline basic earnings per share up 27.1% to 3.87p (2013: 3.05p)

· Statutory basic earnings per share up 116.0% to 2.81p (2013: 1.30p)

· Interim dividend up 25% to 0.80p (2013: 0.64p), following rebalancing of payment phasing; payment timetable also brought forward

· In September 2014, the existing banking facilities have been extended until March 2018 at lower cost

· Successful acquisition of iS Healthcare Dynamics Ltd in May 2014 for up to £5.8m plus surplus net assets.

Divisional Highlights

· Strong like-for-like growth from both divisions

1 Constant currency disclosures calculate the impact of retranslating overseas operating results at prior year exchange rates

2 Like-for-like comparisons remove the impact of acquisitions and results from start-ups in 2014

3 Headline measures are stated before non-headline charges (see note 2)

4 Headline operating margin is defined as headline operating profit as a percentage of segmental gross profit

 Mark Scott, Chief Executive, commented:

"Both Cello Health and Cello Signal have performed strongly during the first six months and the business continues to expand globally in line with its stated strategy. The board remains confident of meeting full year expectations. "

Enquiries:

Notes to Editors (www.cellogroup.com)

Cello is a healthcare and consumer 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 £160m, annualised gross profit in excess of £80m and employs over 900 professional staff.

Chairman's Statement

Overview

The Group performed very strongly in the first six months of the year, with excellent like-for-like gross profit growth in both divisions.

Cello Health continues to make rapid progress as an integrated business, benefiting from its multi-disciplinary capabilities unified under a single brand. The number of large scale, global briefs being tendered on and secured by the Cello Health team continues to increase.

Cello Signal has grown rapidly in the first half, with a focus on delivering complex digital solutions, social media analytics and technology based marketing services. Pulsar, Signal's social media analytics product, has grown rapidly to have over 60 licensed clients.

The start-up activities that were reported on in 2012 and 2013 have substantially moved into being profitable businesses. These include overseas offices in New York, Singapore and Chicago, where the Group has established businesses organically over the last 2 years.

The international profile of the Group continues to make rapid progress, with a particular focus on the US market which is the strategic growth priority for both Cello Health and Cello Signal.

The Group acquired iS Healthcare Dynamics Limited ("iS"), an award winning healthcare communications agency, in May 2014. The Board is pleased with the performance of the business post acquisition as part of Cello Health.

Operating cash flow has been in line with expectations. The balance sheet remains robust, and the Group has low deferred consideration obligations. The Group has also extended its existing banking facility until March 2018, and has secured a reduction in interest rates.

The Group is pleased to increase the interim dividend by 25% to 0.80p (2013: 0.64p). The increase reflects the shift towards a one third / two thirds split between the interim and final dividend and also reflects the Board's continued confidence in the growth prospects of the Group.

Financial Review

Revenue for the six months to 30 June 2014 was up 9.4% to £78.3m (2013: £71.5m) and gross profit was up 14.8% to £39.5m (2013: £34.4m). Like-for-like growth in gross profit was 11.7%. Headline operating profit was up 23.0% to £4.7m (2013: £3.8m). Headline operating margins were 12.0% (2013: 11.1%). Headline pre-tax profit was up 26.4% to £4.4m (2013: £3.5m). Further detail on these numbers is provided in the operating review.

The Group has considerable overseas activity both in terms of office infrastructure and global client activity. The lower value of the US Dollar during the period had a minor negative impact on reported Gross Profit of £0.5m. This adjustment only relates to the translation of overseas activities. The Group also has significant Dollar and Euro exposure arising out of its UK operations. Given the strength of the Pound against the Dollar and the Euro, these operations have incurred a further foreign exchange loss of £0.2m in the period. However, the Group has substantially hedged this loss by consistently carrying Dollar and Euro overdrafts, which have generated an exchange gain in this period. This has resulted in a reduction in central costs in the period of £0.2m. The overall impact from currency movements has therefore been minimal.

The reported tax charge is £1.0m (2013: £0.7m). This represents a headline tax rate of 27.0% (2013: 28.4%) which has fallen due to reduced UK tax corporation tax rates.

Headline basic earnings per share were up 27.1% to 3.87p (2013: 3.05p). Statutory earnings per share were up 116.0% to 2.81p (2013: 1.30p).

In May 2014, the Group acquired the entire share capital of iS Healthcare Dynamics Limited. Initial consideration was £2.5m, with £0.5m of this amount settled by the issue of new ordinary shares. Deferred consideration of up to £3.3m is payable by May 2017 and is dependent on profit performance over the period to 31 December 2016. The deferred consideration is payable in at least 80% cash, with the balance to be settled by the issue of new ordinary shares.

The Group's net debt at 30 June 2014 was £10.2m (31 December 2013: £3.6m; 30 June 2013: £11.4m). The operating cash outflow reflects normal seasonal working capital outflows, the unwinding of prior year operating cashflow surpluses, and the payment of larger bonuses in the first half that were in relation to the strong performance in 2013. All of these items are in line with management expectations.

Total debt facilities are £24.0m. These facilities were reduced in February 2014 by £5.0m to reduce non-utilisation costs. In September 2014, these facilities have been extended by two years. Accordingly, the expiry date is now March 2018. Interest rates have been reduced by 50 basis points, reducing the lowest interest rate to 125 points above LIBOR when adjusted net debt: EBITDA is less than 1 times.

The interim dividend has been increased 25% to 0.80p (2013: 0.64p). This larger than expected increase reflects a rebalancing of the dividend towards a one third / two third split between the interim dividend and the final dividend. The payment timetable has also been brought forward by two months, and it can be expected that going forward dividends will be paid in November and May, rather than January and July as has been the case in the past. Accordingly, the interim dividend is payable on 7 November 2014 to all shareholders on the register on 3 October 2014. The Group continues an unbroken eight year record of annual dividend growth.

The Group has incurred operating losses in the first half in relation to the development of the Pulsar suite of products. As these losses do not fit the Group's tight definitions of 'start-up' activity, these losses have been absorbed within headline operating profit.

Costs of £0.1m were incurred from continued investment in start-up activity, including the opening of new overseas offices to support future growth, notably in Hong Kong. This is disclosed below headline operating profit. The vast majority of previous start-up activities are now profitable, albeit currently operating at lower margins than the core business.

The following table details the adjustments made to calculate headline operating profit. The acquisition related costs of £0.5m (2013: £0.6m) relate to necessary accounting charges arising from the acquisition of iS.

Operating Review

Cello Health

Cello Health had an excellent six months, with overall client spending patterns continuing to be robust.

Segmental gross profit increased by 13.4% to £19.7m (2013: £17.3m). Like-for-like gross profit growth in the first half of 2014 was 7.1%. Margins remained healthy and competitive at 21.2% (H1 2013: 21.6%, FY 2013: 21.2%). Operating profit therefore rose to £4.2m (2013: £3.7m).

Cello Health consists of four capabilities; Cello Health Insight, Cello Health Consulting, Cello Health Communications and Cello Health Consumer. These underlying brands were formally launched in March 2014. The client response has been very encouraging, and there has already been a notable increase in the value and quantity of projects that use more than one of the disciplines of Cello Health. These are incremental cross-Group projects that would not have been won without the launch of Cello Health.

As Cello Health wins and services ever larger client contracts of a more integrated nature, the role of the procurement function within the client plays a more significant role in determining the initiation and pricing of contracts. This can cause delays both in the initiation of contracts, their final scoping and the timing of cash flows. Cello Health will continue to work hard to manage these growth issues.

The Group's global client penetration remains as strong as ever, with Cello Health continuing to work for nine of the top ten pharmaceutical companies. The decision to build a strong consumer centred health capability has also proven to be itself a vital addition to Cello Health's innovative offering.

The addition of iS to Cello Health in May 2014 has enhanced the Group's ability to service medical communications accounts from the UK, supplementing existing capacity in the US. The business now forms an important part of the Cello Health Communications offering.

Cello Health continues to focus on expanding its presence in the vital US market, with planned expansion in Chicago and San Francisco.

The major new business wins achieved in the first six months of 2014 included: Amgen, Boehringer Ingelheim, Celgene, Cooper Vision, Eli Lilly and Company Limited, 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, Roche Oncology, Shire HGT, Shire, and UCB Pharma.

Cello Signal

Cello Signal also had an excellent six months.

Segmental gross profit increased by 15.9% to £19.4m (2013: £16.7m). The improvement that was seen in the second half of 2013 has been maintained into the first half of 2014, with like-for-like growth in Gross Profit of 16.2%. Operating profit rose to £1.5m (2013: £1.2m), and operating margins continued to rise slightly to 7.6% (2013: 7.3%).

This strong growth is a reflection of Cello Signal's core focus on delivering complex digital solutions and social media products, combined with the increasing proportion of its revenues won and serviced in the US and Asia. Cello Signal is now securing large and multi-year contracts on the basis of its integrated, digitally led proposition, in line with the stated growth strategy for the business.

Cello Signal's programming capability was augmented by the acquisition and full integration of Line Digital Limited during the first half. Pulsar TRAC (www.pulsarplatform.com), Cello Signal's advanced social intelligence platform, has had an encouraging first half and now has 60 clients, up from 14 clients at the start of the year. Annualised licence revenue from Pulsar TRAC is now over £1.1m up from £0.4m at the start of the year. Pulsar TRAC is currently loss making overall, as investment continues in developing the product suite and sales force capacity. These losses are absorbed within headline operating activity.

Cello Signal's international profile continues to make rapid strides. Of particular note is the like-for-like gross profit growth rate in the US, on both the West Coast and in New York, where Cello Signal's offices have grown gross profit organically by more than 50%. Cello Signal's research business in Singapore is also now profitable and we have opened an additional office in Hong Kong. All of these overseas activities are now accounted for with the headline activities of the Group. Despite the fast income growth rate, these businesses are still in the investment phase, so whilst these operations are profitable they are currently at low operating margin. Cello Signal continues to review new office opportunities.

Cello Signals operations in Edinburgh contribute around £10m of gross profit and around 10% of Cello Group's overall operating profit. In particular, the business reflects a world-class digital and technological capability which is growing quickly, servicing a diverse domestic and international client base, both in the public and private sectors. Cello Group PLC will keep under review the financial and economic consequences of the result of the Referendum. However, the Group intends to continue to invest in building its talent pool in Scotland, to service global client opportunity.

Major new business wins achieved in the first six months of 2014 include: AEGON, Alliance Trust Savings, Alzheimer's Society, Anthony Nolan, Apetito, Arthritis Research UK, Aviva, BBC Roster, Canon, Centro, Chamberlain, Christian Aid, Cofunds, Creative Clyde, Deloitte, E.ON, First Group, HP, Intercontinental Hotels Group, JP Morgan, Legg Mason Asset Management, National Audit Office, NEST, Nexus, NHS Greater East Midlands, NS&I, Reliance Mutual, Renaissance Hotels, RR Donnelley, Samsung, Scotland's House, Scottish Government, Sightsavers, Tesco, The Famous Grouse, and Worldpay.

Current Trading and Outlook

The robust trading experienced in the first half of the year, combined with a solid order book and new business pipeline, provides the Group with good momentum for the remainder of the year. The Board is confident that current full year expectations will be met.

Allan Rich,

Chairman

16 September 2014

Condensed Consolidated Income Statement

For the six months ended 30 June 2014

Condensed Consolidated Statement of Comprehensive Income

For the six months ended 30 June 2014

Condensed Consolidated Balance Sheet

As at 30 June 2014

Condensed Consolidated Cash Flow Statement

For the six months ended 30 June 2014

Condensed Consolidated Statement of Changes in Equity

For the six months ended 30 June 2014

Statement of changes in equity for the six months ended 30 June 2014:

Statement of changes in equity for the six months ended 30 June 2013:

Statement of changes in equity for the year ended 31 December 2013:

Notes to the Financial Information

For the six months ended 30 June 2014

1. ACCOUNTING POLICIES AND BASIS OF PREPARATION

The condensed consolidated financial information for the six months ended 30 June 2014 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 2013, 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 2013 were approved by the Board of directors on 19 March 2014 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 16 September 2014 and has not been audited.

The accounting policies applied are consistent with those of the annual financial statements for the year ended 31 December 2013, as described in those annual financial statements.

There are no new IFRSs or IFRICs 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 before taxation is presented in note 4. In addition to this a reconciliation between statutory and headline finance income and costs is presented in note 6 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 Signal 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. RECONCILIATION OF PROFIT FROM CONTINUING OPERATIONS BEFORE TAXATION TO

HEADLINE PROFIT BEFORE TAX

5. SEGMENTAL INFORMATION

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