5th Sep 2006 07:02
Cello Group plc05 September 2006 5 September 2006 Cello Group plc Organic and acquisitive growth drive interim profits up 98% Cello Group plc (AIM: CLL) the research and data led marketing services group,today announces its interim results for the six months ended 30 June 2006. Financial highlights • Turnover £31.7m (2005 restated*: £21.9m) - up 45% • Gross profit £17.7m (2005: £10.3m) - up 72% • Headline pre tax profit of £2.62m (2005: £1.32m) - up 98% • Headline eps 5.60p (2005: 3.17p) - up 77% • Like for like gross profit growth of 15% and operating profit growth of 35% • Maiden dividend of 0.4p per share • Pre tax profit £1.9m (2005 restated**: £0.8m) - up 138% • Fully diluted eps 3.12p (2005 restated**: 1.39p) - up 124% • Strong balance sheet with £2.3m net cash • Current trading remains strong and continued good forward visibility of revenues leaves the Board confident of the full year outcome Operational highlights • Acquisition of Farm Communications in June 2006 • Continued client led growth in US and Basel offices • Announcement today of an investment in Blonde, a start-up digital agency based in Edinburgh *Restatement relates to UITF 40 adjustment. **Restatement relates to UK GAAPchanges. Both detailed in note 11. Kevin Steeds, Chairman, commented: "We have delivered an excellent set of interim results with impressive like forlike growth in both revenues and profits. "We have continued to invest in our businesses and reinforce our position as aleading research and data led consultancy. Within the marketing servicessector, we are one of the best performing groups, which is testimony to ourpositioning in high value added and higher growth areas of the marketing mix. "Current trading remains strong. Visibility across the Group is excellent and weare confident about the full year outcome." Enquiries: Cello Group plc (www.cellogroup.co.uk)Kevin Steeds - Chairman 020 7812 8460Mark Scott - Chief ExecutiveMark Bentley - Finance Director College HillAdrian Duffield/Ben Way 020 7457 2020 STRATEGIC OVERVIEW We are pleased to announce an excellent performance for the Group for the sixmonths ended 30 June 2006. The first half of the year has seen continued strongorganic revenue growth from Cello's three divisions, based on expansion ofexisting client relationships and addition of substantial new business. Recordprofits have allowed us to continue to invest in expanding the Group, primarilythrough the addition of professionals at all levels of the business. Cello is now firmly established as a leader in specialist market research,direct marketing and marketing consulting. These three areas continue to expandboth domestically and internationally as clients move spend to more accountableareas of the marketing mix where they can achieve a concrete return oninvestment. As a consequence, Cello has succeeded in growing operating marginsand efficiently converting these profits to cash. This has translated into avery strong balance sheet position of net cash, allowing for further investmentin the business. Our strategy is to reinforce our positioning as a research and data ledconsultancy group that can provide clients with cutting edge market insight. Ourlarge base of blue chip clients offers us ample opportunity to continue ourrapid rate of expansion both in the UK and abroad. The Group continues toinnovate in the solutions it offers clients, merging off-line and on-linedisciplines into integrated solutions which maximise client returns. As part ofthis process of innovation we continue to launch a range of new client offeringsand business brands, headed by industry leaders. RESULTS In the six months ended 30 June 2006, turnover grew to £31.7m (2005 restated:£21.9m), up 45% and gross profit was up 72% to £17.7m (2005: £10.3m). Headline profit before taxation, excluding the impact of FRS 20 and the notionalinterest charge, (details explained fully below) was £2.6m (2005: £1.3m).Reported pre tax profit was £1.9m (2005 restated: £0.8m), an increase of 146%. Headline basic earnings per share for the period was 5.60p (2005: 3.17p) andfully headline diluted earnings per share was 4.34p (2005: 2.53p). We are pleased to be able to comment for the first time on like for likeperformance. In respect of companies which comprised Cello at the end of 2004,like for like gross profit is up 15%, and operating profit is up 35%. The operating margin for group companies, excluding head office costs, hasreached 18.5% (2005: 15.2%) in the six month period, which is amongst the bestperformances in the marketing service sector. This is testimony to Cello'spositioning in high value added and higher growth areas of the marketing mix. Following our announcement at the time of the Group's preliminary results, weare pleased to announce a maiden interim dividend of 0.4p per share, payable on13 October 2006 to all shareholders on the register at 22 September 2006. Thispayment represents the commencement of a planned progressive dividend policy,and reflects the directors' confidence in the Group. Our balance sheet is strong with over £2.3m of net cash as at 30 June 2006. Ouroperating profit cash flow conversion of 76% reflects the cyclicality of certainof our businesses. This represents a considerable improvement over thecomparable prior period. Accounting Policy Changes In 2006, the Group is obliged to adopt the provisions of FRS 20, which covershare based payments, including the accounting for options and also for equitybased deferred consideration. In particular, where amounts payable underacquisition agreements are due to non-equity holding employees of thosebusinesses, then companies are no longer able to treat them as a cost ofacquisition and are obliged to treat these payments as remuneration to thoseemployees, and spread them over the period of the earn out. This accountingchange equates to a charge for the first six months of this year of £519,000,and £438,000 for the first half of 2005. The full year adjustment for 2005 is£952,000. The Group has also taken a notional interest charge on contingent cashconsideration which the Board believes is likely to be payable. This equates toa notional interest charge for the period of £121,000, and a prior periodadjustment of £89,000 (full year adjustment of £204,000). There is no cash impact from these notional charges and the total effect ofthese changes, and a reconciliation of reported profit before tax to headlineprofit before tax is presented below: £'000 2006 2005 2005 H1 H1 Full yearHeadline PBT 2,616 1,316 4,162Share option costs (38) - -Deemed remuneration (519) (438) (961)Notional interest (121) (89) (204)Reported PBT (restated) 1,938 789 2,997 Both of these accounting changes solely relate to the changed financialreporting requirements which the Group now faces. The underlying operatingperformance and cash generation profile of the Group remains unchanged and suchcharges will not occur once the earn outs to which they relate have beencompleted. REVIEW OF OPERATIONS As we expand, we have invested carefully in establishing a robust operatingmanagement structure across our three divisions. This gives us the ability toabsorb both new businesses and senior professionals. The three divisional boardsare charged with management of each division, integration of acquisitions, andtimely management reporting. They also constitute the primary partnership groupof Cello. Cello Planning and Research cello Planning and Research, the market research group, delivered £7.9m of grossprofit (2005: £2.9m) an increase of 172%; and operating profit of £1.94m (2005:£0.64m), an increase of 203%. Operating margins improved from 22% to 24.5%. The market research group is focused on three core areas - healthcare marketresearch (Insight brand) business-to-business research (RS brand) and consumerresearch (Leapfrog brand). Our healthcare market research practice continues to grow strongly, primarilythrough expanding existing client relationships with the major pharmaceuticalcompanies. Over half of revenues are international. Our new USA office hascontinued to expand and we recently opened an office in Switzerland. Similarly,the growth in our business-to-business practice has come primarily fromexpansion of international accounts with clients looking for multinational reachin complex quantitative studies. Our thriving consumer practice has also begunto expand beyond its UK base, most notably into the USA. Major new client winsacross the division include Unilever, Sanofi Pasteur MSD, Aspreva, SeronoPharmaceuticals Ltd (US), NS&I, HSBC, Norwich Union Life, Fidelity, Lexus/Toyota, Bayer and Vodafone. The market research group has an integrated managerial approach and has scoredsome notable successes delivering combined client solutions. This has also beenthe case in the area of field force data gathering where we have a particularstrength and which we have migrated on-line. We plan to continue to expand thedivision aggressively through a mixture of organic growth and selectedacquisition. Cello Brand Consulting Cello Brand Consulting, the marketing consultancy group, delivered £5.4m ofgross profit (2005: £3.3m), an increase of 63% and operating profit of £0.8m(2005: £0.54m), an increase of 48%. Operating margins fell from 16.4% to 14.9%due to shifts in the client mix. The marketing consultancy group continues to build its position as a leadingadviser to senior marketers on complex marketing issues. Our brand strategypractice (The Value Engineers brand) has expanded rapidly in the UK andoverseas, securing a number of large new client relationships, including BritishAirways, Dyson, France Telecom/Orange and Schroders. The nature of the advisoryoffer can frequently lead to a requirement to disseminate such ideas across theclient organisation. Our training resource (TMI brand) offers us the ability to breathe life into ourideas which is bearing fruit and new clients this year include RBS, LondonAmbulance Service, Johnson & Johnson and the Environment Agency. In addition,our communications delivery business (Leith brand) continues to driveincreasingly into advisory work to complement its creative execution, as well asbuilding on its London presence through the recent acquisition of Farm. Some ofthe larger client wins this year include SEAT UK, Scottish Enterprise, GoldenWonder, COI Enjoy England, Sony and ICI. We have also announced separately today an investment in Blonde, a start-updigital agency based in Edinburgh. The supply side of marketing consultancy services remains highly fragmented, incontrast to other areas of the marketing services mix. Cello's marketingservices group has a clear opportunity to establish itself as market leader inthis area, both through organic growth and selected acquisition. Cello Response Cello Response, the direct marketing group, delivered £4.4m of gross profit(2005: £4.0m), an increase of 10% and operating profit of £0.54m (2005: £0.38m),an increase of 42%. Operating margins improved from 9.3% to 12.3%. CelloResponse remains highly weighted to the second half of the year. The response group has enjoyed the benefits of strong client spending inresponse media, as budgets shift from advertising to response mechanismsincluding on-line. Cello's direct marketing group is now ranked in the top 10 inthe UK and continues to expand rapidly. Our leadership position in thenot-for-profit and financial services sectors continues to prove resilient.Recent major client wins include Black Horse Finance, Barclays, Shelter, WWF,CLIC Sargent, Action for Blind People, YWCA, Oxfam, Calor Gas and O2. Thecombination of our data management business (Talking Numbers) with a seniorlevel on-line capability (Oomph) has underpinned our migration on-line. The divisional board is actively reviewing opportunities to further expand theGroup through acquisition, most notably in London. OUTLOOK Since the end of June the Group has continued to trade very well. Visibilityacross the Group is excellent and the Board is confident of the full yearoutcome. Our strong balance sheet and absence of leverage also gives us thecapacity to further expand the Group organically and through acquisitions asappropriate opportunities emerge. At less than two years old we are still a very young public company. We haveachieved much in that time, laying the foundations of a modern marketingservices group. We have some exciting growth plans and collective ambition andare well positioned for the challenges of the future. I would also like to take this opportunity to thank all of our staff for theirexcellent contribution so far this year. Kevin SteedsChairman ---------------------------------------------Notes to Editors (www.cellogroup.co.uk) Cello Group plc is a research and data led marketing services group that listedon AIM in November 2004. The Group's strategy is to create value for shareholders by building a portfolioof companies around three specialist platforms, each operating within adifferent niche of the marketing services sector: market research and planning,brand strategy and consultancy, and direct marketing, digital and databasemanagement. Each of Cello's three platforms has significant organic and acquisitive growthpotential; blue chip client relationships with a history of client loyalty;experienced, high quality management teams; and a track record of profitability. Cello Planning and Research * Insight Research Group - London, New York and Basel Insight is a specialist healthcare market research business that offers a broadrange of quantitative and qualitative research based solutions. Its clientsinclude GlaxoSmithKline, Novartis, AstraZeneca, Shire Pharmaceuticals,NovoNordisk, Boehringer Ingleheim, Lundbeck, Pfizer, Roche and Merck, Sharp andDohme. Insight recently acquired FML, a leading field force company. * Leapfrog Research and Planning - Windsor and New York Leapfrog is a leading consumer market research and planning consultancy offeringqualitative and quantitative research in the UK and internationally. It actsfor a number of blue chip clients including Tesco, GSK, BBC, Scottish Courage,Toyota, AA, RHM and Wyeth. * RS Consulting - London RS Consulting is a quantitative market research and business consultancy. Basedin London, the company employs approx 80 people across its three subsidiaries.Major clients include hp, Xerox, Sony, FedEx, Department of Work & Pensions,Cisco Systems, AXA, Yell, RBS, AON and BUPA. Cello Brand Consulting * Leith - Edinburgh and London Leith is the largest and most successful branding agency in Scotland. Theagency has been voted Scottish Agency of the Year for the last five years. Leith opened a London office in 2000 which has recently been integrated withFarm. Leith's major clients include Irn Bru, Scottish Executive, Standard LifeBank, Standard Life, Smile, ICI, FT and Goodfellas Pizza. * The Value Engineers - Beaconsfield TVE is a leading strategic brand consultancy focused on four core disciplines;branding, strategy, insight and innovation. Clients include Unilever,Carlsberg, Diageo, Sony Ericsson, ICI, Visa, BP, T-Mobile and Britvic. * TMI - Redditch Formed in 1978 TMI UK employs some 60 staff and is a leading provider oforganisational development and consultancy solutions to a range of blue chipclients including Toyota, hp, Metronet, Marks and Spencer, the Foreign andCommonwealth Office, National Express Group and Serco Solutions. Cello Response * Target Group - Cheltenham and Cirencester Target is the leading direct and database marketing consultancy specialising inthe "not-for-profit" and charity sector. The agency works for five of the top20 charities in the UK. Target is expanding into the "grey sector" of productsand services for older people for clients such as National Trust, Saga andWhich? Limited. Target has a leading database subsidiary, Talking Numbers and asuccessful print management operation, Target Direct Print. * Navigator Responsive Advertising - Edinburgh Navigator Responsive Advertising, Scotland's leading direct marketing agency,provides responsive communication solutions for a wide range of clientsincluding HBOS Group, De Vere Resort Ownership, ScottishPower, Abbey and RemyMartin. Consolidated Profit and Loss Accountfor the six months ended 30 June 2006 Unaudited Unaudited Audited six months ended six months ended Year to 30 June 2006 30 June 2005 31 December 2005 as restated as restated Notes £ £ £ TURNOVER 2a 31,704,407 21,906,762 52,087,515Cost of sales (13,964,554) (11,645,233) (25,473,654) _____________ _____________ _____________ GROSS PROFIT 2b 17,739,853 10,261,529 26,613,861 ADMINISTRATIVE EXPENSESAcquisition related employee remuneration 11 (519,000) (438,000) (952,000)expensesOther administrative expenses (15,154,753) (9,088,978) (22,639,584) _____________ _____________ _____________ TOTAL ADMINISTRATIVE EXPENSES (15,673,753) (9,526,978) (23,591,584) OPERATING PROFIT 2c 2,066,100 734,551 3,022,277 Interest receivable and similar income 4 87,846 192,737 279,597 Interest payableNotional finance costs on future deferred 11consideration payments (121,355) (88,948) (204,046)Interest payable (94,497) (48,922) (100,830) _____________ _____________ _____________ Total interest payable 5 (215,852) (137,870) (304,876) PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION 1,938,094 789,418 2,996,998Tax on profit on ordinary activities 6 (631,246) (312,453) (985,882) _____________ _____________ _____________ PROFIT FOR THE PERIOD 1,306,848 476,965 2,011,116 _____________ _____________ _____________ Basic earnings per share 7 4.03p 1.73p 6.85pDiluted earnings per share 7 3.95p 1.69p 6.71p Statement of Total Recognised Gains and Lossesfor the six months ended 30 June 2006 Unaudited Unaudited Audited six months ended six months ended Year to 30 June 2006 30 June 2005 31 December 2005 £ as restated as restated £ £ Notes Profit for the financial period 1,306,848 476,965 2,011,116 _____________ _____________Prior period adjustment 11 (1,004,130) _____________Total gains and losses recognised since lastannual report 302,718 _____________ Consolidated Balance Sheetat 30 June 2006 Unaudited at Unaudited at Audited at 30 June 2006 30 June 2005 31 December 2005 as restated as restated Notes £ £ £ FIXED ASSETSIntangible assets 49,362,673 32,608,992 47,423,211Tangible assets 1,937,972 1,241,752 1,950,350Investments 15,120 - 15,120 _____________ _____________ _____________ 51,315,765 33,850,744 49,388,681 _____________ _____________ _____________ CURRENT ASSETSWork in progress 1,097,935 1,289,787 604,344Debtors 13,258,061 11,779,085 11,850,092Cash at bank and in hand 7,693,917 7,430,569 6,716,888 _____________ _____________ _____________ 22,049,913 20,499,441 19,171,324 _____________ _____________ _____________ CREDITORS: Amounts falling due within one year (21,519,105) (16,387,803) (20,042,635) _____________ _____________ _____________ NET CURRENT ASSETS/(LIABILITIES) 530,808 4,111,638 (871,311) _____________ _____________ _____________ TOTAL ASSETS LESS CURRENT LIABILITIES 51,846,573 37,962,382 48,517,370 CREDITORS: Amounts falling due after more than one year (97,097) (61,203) (120,173) PROVISIONS FOR LIABILITIES AND CHARGES 8 (15,859,710) (11,118,350) (14,251,941) _____________ _____________ _____________ NET ASSETS 2d 35,889,766 26,782,829 34,145,256 _____________ _____________ _____________ CAPITAL AND RESERVESCalled up share capital 3,277,109 2,754,189 3,244,455Share premium account 18,019,422 12,323,417 17,652,075Capital redemption reserve 50,000 50,000 50,000Capital reserve 47,013 - 9,352Profit and loss account 4,000,069 1,159,070 2,693,221Merger reserve 10,496,153 10,496,153 10,496,153 _____________ _____________ _____________ EQUITY SHAREHOLDERS' FUNDS 9 35,889,766 26,782,829 34,145,256 _____________ _____________ _____________ Consolidated Cash Flow Statementfor the six months ended 30 June 2006 Unaudited Unaudited Audited six months six months year to ended ended 31 December 30 June 2006 30 June 2005 2005 Notes £ £ £ Net cash inflow/(outflow) from operating activities 10a 1,573,632 (17,442) 5,691,561 Returns on investments and servicing of finance (7,297) 143,815 191,755Taxation (542,193) (67,364) (1,289,411)Capital expenditure and financial investment (243,184) (302,081) (644,144)Acquisitions (437,577) (889,900) (7,666,043) _____________ _____________ _____________ Cash inflow/(outflow) before financing 343,381 (1,132,972) (3,716,282) Financing (181,518) (487,294) 1,072,380 _____________ _____________ _____________ INCREASE/(DECREASE) IN CASH IN THE PERIOD/YEAR 161,863 (1,620,266) (2,643,902) _____________ _____________ _____________ Reconciliation of Net Cash Flow to Movement in Net Funds Unaudited Unaudited Audited six months six months year to ended ended 31 December 30 June 2006 30 June 2005 2005 Notes £ £ £ Increase/(decrease) in cash in the period 161,863 (1,620,266) (2,643,902) Cash outflow/(inflow) from decrease/(increase) in debtand lease financing 181,518 437,295 (1,122,380) _____________ _____________ _____________ Change in debt resulting from cash flows 343,381 (1,182,971) (3,766,282) New finance leases - - (91,485) Issue of loan notes - (246,100) (515,128) Loans and finance leases acquired with subsidiary - - (163,873) _____________ _____________ _____________ 343,381 (1,429,071) (4,536,768) NET FUNDS AT 1 JANUARY 2006 1,910,064 6,446,832 6,446,832 _____________ _____________ _____________ NET FUNDS AT 30 JUNE 2006 10b 2,253,445 5,017,761 1,910,064 _____________ _____________ _____________ Notes to the Financial Statementsfor the six months ended 30 June 2006 1. BASIS OF PREPARATION The consolidated interim financial statements, which were approved by the boardon 4 September 2005 have been prepared under the accounting policies set out onpages 28 and 29 of the Group's 2005 Annual Report with the exception of theadoption of the policies given below. Details of the financial effect of these changes are given in note 11. a. FRS 20 Share Based Payments The group has applied the requirements of FRS 20 "share based payments". Inaccordance with the transitional provisions, FRS 20 has been applied to suchequity instruments that were granted after 7 November 2002 and which had notvested by 1 January 2006. This standard has been applied to various types of share based payments asfollows: i. Share options Certain employees receive remuneration in the form of share options. The fairvalue of the equity instruments granted is measured on the date at which theyare granted by using the Black-Scholes model, and is expensed to the profit andloss account over the appropriate vesting period. ii. Acquisition related employee remuneration expenses Having regard to the basis for conclusions behind FRS 20 and in accordance withFRS 18 Changes in Accounting Policy, the group has revised its accounting policyfor certain payments made to employees in respect of earn-out arrangements.These payments are to now be treated as remuneration within the profit and lossaccount. b. FRS 25 Financial instruments: Presentation and disclosure The estimated value of contingent consideration payable by issue of new ordinaryshares in the Company was previously included in the balance sheet withinCapital and Reserves as "shares to be issued". In accordance with FRS 25 "Financial instruments: Presentation and disclosure" contingent considerationpayable by issue of new ordinary shares have now been included as a liabilitywithin provisions. c. Notional finance costs on future deferred consideration payments The Group has now adopted the policy of discounting deferred cash and loan noteconsideration to fair value. The difference between the fair value and theactual amounts payable is charged to the profit and loss account as a notionalfinance cost over the period the liability remains outstanding. The information relating to the half year ended 30 June 2006 is unaudited anddoes not constitute statutory accounts but has been reviewed by the company'sauditors in accordance with the auditing practices board bulletin, "Review ofInterim financial information". The accounts for the period ended 31 December2005 have been reported on by the company's auditors and delivered to theRegistrar of Companies. The report of the auditors was unqualified and did notcontain a statement under section 237(2) or (3) of the Companies Act 1985. 2. SEGMENTAL INFORMATION The Group's turnover, gross profit and operating profit were all derived fromthe following activities: (a) Turnover Unaudited Unaudited Audited six months six months year to ended ended 31 December 30 June 2006 30 June 2005 2005 as restated as restated £ £ £ Cello Planning and Research 14,183,070 4,816,190 15,583,991Cello Brand Consulting 7,993,808 6,739,378 14,355,874Cello Response 9,527,529 10,351,194 22,147,650 _____________ _____________ _____________ 31,704,407 21,906,762 52,087,515 _____________ _____________ _____________ (b) Gross Profit Unaudited Unaudited Audited six months six months year to ended ended 31 December 30 June 2006 30 June 2005 2005 £ £ £ Cello Planning and Research 7,904,105 2,908,996 9,295,121Cello Brand Consulting 5,414,664 3,315,677 8,321,087Cello Response 4,421,084 4,036,856 8,997,653 _____________ _____________ _____________ 17,739,853 10,261,529 26,613,861 _____________ _____________ _____________ (c) Operating profit Unaudited Unaudited Audited six months six months year to ended ended 31 December 30 June 2006 30 June 2005 2005 as restated as restated £ £ £ Cello Planning and Research 1,938,959 639,996 1,953,497Cello Brand Consulting 804,079 542,682 1,574,152Cello Response 542,809 375,072 1,458,106Head Office (1,219,747) (823,199) (1,963,478) _____________ _____________ _____________ 2,066,100 734,551 3,022,277 _____________ _____________ _____________ Head Office costs include acquisition related remuneration expenses of £519,000for the six months to 30 June 2006, £438,000 for the six months ended 30 June2005 and £952,000 for the year to 31 December 2005. (d) Net assets Unaudited at Unaudited at Audited at 30 June 2006 30 June 2005 31 December 2005 as restated as restated £ £ £Cello Planning and Research 7,011,234 3,820,816 5,326,960Cello Brand Consulting 2,397,655 706,609 2,129,245Cello Response 2,262,133 1,548,478 1,922,642Head Office 24,218,744 20,706,926 24,766,409 _____________ _____________ _____________ 35,889,766 26,782,829 34,145,256 _____________ _____________ _____________ 3. DIVIDEND An interim dividend of 0.4p (2005: nil) per ordinary share is recommended andwill be paid on 13 October 2006 to all shareholders on the register on 22September 2006. In accordance with FRS 21: Post Balance Sheet Events, thisdividend has not been recognised in the accounts at 30 June 2006, but will berecognised in the accounting period ending 31 December 2006. 4. INTEREST RECEIVABLE AND SIMILAR INCOME Unaudited Unaudited Audited six months six months year to ended ended 31 December 30 June 2006 30 June 2005 2005 £ £ £Interest receivable:Bank deposits 87,846 192,737 279,597 _____________ _____________ _____________ 5. INTEREST PAYABLE Unaudited Unaudited Audited six months six months year to ended ended 31 December 30 June 2006 30 June 2005 2005 as restated as restated £ £ £ Notional finance costs on future deferredconsideration payments 121,355 88,948 204,046On bank loans and overdrafts 57,539 12,726 45,637On loan notes 24,935 28,861 40,762In respect of finance leases 12,023 7,335 14,431 _____________ _____________ _____________ 215,852 137,870 304,876 _____________ _____________ _____________ 6. TAXATION ON PROFIT ON ORDINARY ACTIVITIES The tax charge for the half year ended 30 June 2006 has been based on anestimated effective tax rate on profit on ordinary activities for the full yearof 33% (year ended 31 December 2005: 33%). 7. EARNINGS PER SHARE Unaudited Unaudited Audited six months ended six months ended Year to 30 June 2006 30 June 2005 31 December 2005 £ as restated as restated £ £ Basic and diluted earnings attributable to ordinary 1,306,848 476,965 2,011,116shareholders Adjustments to earnings:Share based payments expense 37,661 - 9,352Acquisition related employee remuneration expense 519,000 438,000 952,000Notional finance costs on future deferredconsideration payments 121,355 88,948 204,046Tax thereon (166,998) (131,400) (288,406) _____________ _____________ _____________ Headline earnings attributable to ordinary 1,817,866 872,513 2,888,108shareholders _____________ _____________ _____________ Number Number Number Weighted average number of ordinary shares 32,453,567 27,541,892 29,366,404 Dilutive effect of securities:Share options 600,000 600,000 600,000Contingent consideration shares to be issued 48,980 - - _____________ _____________ _____________ Diluted weighted average number of ordinary shares 33,102,547 28,141,892 29,966,404 Further dilutive effect of securities:Share options 465,332 123,266 163,266Contingent consideration shares to be issued 8,348,564 6,132,751 6,435,270 _____________ _____________ _____________ Fully diluted weighted average number of ordinary 41,916,443 34,397,909 36,564,940shares _____________ _____________ _____________ Basic earnings per share 4.03p 1.73p 6.85pDiluted earnings per share 3.95p 1.69p 6.71pFully diluted earnings per share 3.12p 1.39p 5.50p Headline basic earnings per share 5.60p 3.17p 9.83pHeadline diluted earnings per share 5.49p 3.09p 9.64pHeadline fully diluted earnings per share 4.34p 2.53p 7.90p Headline earnings per share and fully diluted earnings per share have beenpresented to provide additional information which may be useful to the readersof this statement. Basic earnings per share is calculated by dividing the earnings attributable toordinary shareholders by the weighted average number of ordinary shares in issueduring the period, determined in accordance with the provisions of FRS 22: "Earnings per Share". Diluted earnings per share is calculated by adjusting the weighted averagenumber of ordinary shares in issue on the assumption of conversion of all thepotential dilutive ordinary shares for which all the conditions of issue havebeen met. Fully diluted earnings per share is calculated by adjusting the weighted averagenumber of ordinary shares in issue on the assumption of conversion of all thepotentially dilutive ordinary shares. The Group has two categories of potential dilutive shares, being share optionsgranted where the exercise price is less than the average price of the Company'sordinary shares during the period and shares to be issued as contingentconsideration on completed acquisitions. 8. PROVISIONS FOR LIABILITIES AND CHARGES Unaudited Unaudited Audited six months six months year to ended ended 31 December 30 June 2006 30 June 2005 2005 as restated as restated £ £ £ Earn out related cash liabilities 5,887,348 5,243,037 5,317,391Shares to be issued 9,972,362 5,875,313 8,934,550 _____________ _____________ _____________ 15,859,710 11,118,350 14,251,941 _____________ _____________ _____________ Earn out payments are to be in cash and shares, in the analysis above theminimum percentage of cash has been assumed. However, at the Groups solediscretion, this percentage can be increased. 9. RECONCILIATION OF MOVEMENT IN EQUITY SHAREHOLDERS' FUNDS Unaudited Unaudited Audited six months six months year to ended ended 31 December 30 June 2006 30 June 2005 2005 as restated as restated £ £ £ Profit for the period to 30 June 2006 1,306,848 476,965 2,011,116 New share capital subscribed 32,654 - 490,266Premium on shares issued in period (net of expenses) 367,347 - 5,328,658Redemption of redeemable shares - (50,000) (50,000)Credit for share based incentive schemes 37,661 - 9,352 _____________ _____________ _____________ Net addition to opening shareholders' funds 1,744,510 426,965 7,789,392 Opening shareholders' funds 34,145,256 26,355,864 26,355,864 _____________ _____________ _____________ Closing equity shareholders' funds 35,889,766 26,782,829 34,145,256 _____________ _____________ _____________ 10. NOTES TO THE CONSOLIDATED CASH FLOW STATEMENT (a) Reconciliation of operating profit to net cash inflow from operatingactivities Unaudited Unaudited Audited six months six months year to ended ended 31 December 30 June 2006 30 June 2005 2005 as restated as restated £ £ £ Operating profit 2,066,100 734,551 3,022,277 Depreciation 323,390 223,561 572,769Profit on disposal of fixed assets (14,055) (26,200) (34,621)Share based payment expense 37,661 - 9,352Acquisition related employee remuneration expense 519,000 438,000 952,000(Increase)/decrease in work in progress (493,591) 143,124 1,947,944(Increase)/decrease in debtors (754,723) 1,516,571 1,605,262(Decrease) in creditors (110,150) (3,047,049) (2,383,422) _____________ _____________ _____________Net cash inflow/(outflow) from operating activities 1,573,632 (17,442) 5,691,561 _____________ _____________ _____________ (b) Analysis of net funds At 1 January 2006 Cash flow At 30 June 2006 £ £ £Cash at bank and in hand 6,716,888 977,029 7,693,917Overdrafts (399,868) (815,166) (1,215,034) _____________ _____________ _____________ 6,317,020 161,863 6,478,883 Loan notes due within one year (1,866,098) 140,327 (1,725,771)Other loans due within one year (2,300,000) - (2,300,000)Finance leases (240,858) 41,191 (199,667) _____________ _____________ _____________ 1,910,064 343,381 2,253,445 _____________ _____________ _____________ 11. PRIOR YEAR ADJUSTMENTS As described in note 1 the Group's accounting policies in respect of share basedpayments, disclosure of financial instruments and acquisition considerationchanged during the period. The effect of each of these is given below. a. FRS 20 Share Based Payments i. Share options The effect of this change in accounting policy is to create a charge to theprofit and loss account of £37,661 in the period to 31 June 2006 and £9,352 inthe year to 31 December 2005. There is no charge in the period to 30 June 2005. Deferred tax is provided based upon the expected tax future tax deductions as aresult of these transactions. ii. Acquisition related employee remuneration expenses The cumulative effect of this to the balance sheet is to decrease provisions by£1,960,557 and goodwill by £3,573,557. The effect to the profit and lossaccount is to increase administrative costs by £519,000 in the period to 30 June2006, by £438,000 in the period to 30 June 2005 and by £952,000 in the year to31 December 2005. Deferred tax is provided based upon the expected tax future tax deductions as aresult of these transactions. b. FRS 25 Financial instruments: Presentation and disclosure The effect of the change in this policy is to decrease Net Assets and Capitaland Reserves by £11,104,625. The effect of this on prior years' figures is todecrease Net Assets and Capital and Reserves by £7,022,000 at 30 June 2005 andby £10,350,125 at 31 December 2005. c. Notional finance costs on future deferred consideration payments As a result of this change in accounting policy interest payable has increasedby £121,355. The effect of this on prior years figures is to increase interestpayable by £88,948 for the 6 months to 30 June 2005 and by £204,046 in the yearended 31 December 2005. d. UITF 40 Revenue recognition and service contracts As described in accounting policy note 3 in the audited accounts for the yearended 31 December 2005, the groups' policy for revenue recognition changed as aconsequence of the introduction of UITF 40. As a consequence of this, theresults for the period to 30 June 2005 have been restated with turnover and costof sales being increased by £970,640 with no effect to gross profit or profitbefore tax. There is no effect to the results for the year ended 31 December2005. 12. POST BALANCE SHEET EVENTS On 3 July 2006 the company exercised its option to take a controlling stake of50.1% of the issued share capital of OMP Services Limited (trading as Oomph) fora total consideration of £150,000 in loan notes and the issue of 123,254ordinary shares. The remaining 49.9% of OMP Services Limited is subject to a put option by thevendors. The total maximum payable for this 49.9% is £1.5 million of which upto 75% is in new ordinary shares. 13. INTERIM STATEMENT Copies of the interim statement are being sent to shareholders and will beavailable from the company's registered office at 11-13 Charterhouse Buildings,London EC1M 7AP. INDEPENDENT REVIEW REPORT TO CELLO GROUP PLC Introduction We have been instructed by the company to review the financial information setout on pages 8 to 18 and we have read the other information in the interimstatement and considered whether it contains any apparent misstatements ormaterial inconsistencies with the financial information. This report, including the conclusion, has been prepared for and only for thecompany for the purpose of their interim statement and for no other purpose. Wedo not, therefore, in producing this report, accept or assume responsibility forany other purpose or to any other person to whom this report is shown or intowhose hands it may come save where expressly agreed by our prior consent inwriting. Directors' responsibilities The interim statement, including the financial information contained therein, isthe responsibility of, and has been approved by the directors. The directorsare responsible for preparing the interim statement in accordance with the AIMMarket Rules which require that the accounting policies and presentation appliedto the interim figures must be consistent with those that will be adopted in thecompany's annual accounts. Review work performed We conducted our review in accordance with guidance contained in Bulletin 1999/4issued by the Auditing Practices Board as if that Bulletin applied. A reviewconsists principally of making enquiries of group management and applyinganalytical procedures to the financial information and underlying financial dataand based thereon assessing whether the accounting policies and presentationhave been consistently applied unless otherwise disclosed. A review excludesaudit procedures such as tests of controls and verification of assets,liabilities and transactions. It is substantially less in scope than an auditperformed in accordance with Auditing Standards and therefore provides a lowerlevel of assurance than an audit. Accordingly we do not express an auditopinion on the financial information. Review conclusion On the basis of our review we are not aware of any material modifications thatshould be made to the financial information as presented for the six monthsended 30 June 2006. BAKER TILLYChartered Accountants2 Bloomsbury StreetLondonWC1B 3ST This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
CLL.L