11th Sep 2007 07:01
Cello Group plc11 September 2007 11 September 2007 Cello Group plc A solid platform for a strong full year Cello Group plc ("Cello", AIM: CLL. "The Group"), the market research andconsulting group, today announces its interim results for the 6 month period to30 June 2007. Financial Highlights • Turnover up 44% to £45.8m (2006: £31.7m) • Operating income up 38% to £24.4m (2006: £17.7m) • Headline profit before tax up 19% to £3.1m (2006: £2.6m) • Like-for-like operating income growth of 20% • Like-for-like operating profit growth of 6% • Basic headline earnings per share up 15% to 6.42p (2006: 5.60p) • Interim dividend up 12.5% to 0.45p (2006: 0.4p) Operational Highlights • Continued organic revenue growth fuelled by large contract wins • Invested heavily to increase organic professional headcount by 15% • Three acquisitions completed - Rosenblatt/Digital People, a qualitative market research agency - MSI, a leading healthcare research consultancy - mruk research, a public sector market research specialist agency Kevin Steeds, Chairman, commented: "During the last six months we have continued our focused strategy - to makehighly selective acquisitions and invest heavily in people to support ourgrowth. "As we approach the end of our third full year as a public company, we have muchto be proud of. Cello is now firmly established as a leading research andconsulting business, with an outstanding group of 650 professionals, a roster ofblue-chip global clients, and prudent financing. We now move forward from aposition of strength." Enquiries: Cello Group plc (www.cellogroup.co.uk)Kevin Steeds, Chairman 020 7812 8460Mark Scott, Chief ExecutiveMark Bentley, Group Finance Director EvolutionBobbie Hilliam 020 7071 4300 College Hill Adrian Duffield/Ben Way 020 7457 2020 Notes to Editors (www.cellogroup.co.uk) Cello is a market research and consulting group that listed on AIM in November2004. The Group's strategy is to create value for shareholders by building aportfolio of research and consulting businesses capable of advising blue chipclients globally. Cello has annualised turnover in excess of £100 million, annualized operatingincome in excess of £50 million and employs approx 650 professional staff. Chairman's Statement Strategic Overview We are pleased to announce that the strong performance of Cello Group hascontinued. The first half of the year has seen strong organic operating incomegrowth of 20%, based on expanding existing client relationships and successfullybuilding new ones. This has allowed us to continue to invest heavily inorganically increasing the number of professional executives in the Group whichis the principal source of our future growth. Organically we have increasedheadcount by approximately 15%, most notably to serve larger contract sizes fromkey clients. Overall headcount has increased from approximately 450 a year agoto 650 today. We are now firmly positioned as a leading market research and consultingbusiness, with strong capability in data and delivery. Market research andconsulting now accounts for approximately 75% of the Group's annualisedoperating profit and response activity accounts for 25%. We are now large enoughin both market research and response to compete against large incumbentinternational competitors for substantial contracts. We also have particularadvantage in key client verticals such as healthcare, financial services andcharities. We continue to reinforce our position in these areas through focusedacquisition. In the first half, a leading healthcare research consultancy, TheMSI Consultancy, joined to add to our credentials. Healthcare now accounts forapproximately 30% of Group operating profit on a full year basis. mruk research,a leading public sector research business, joined to reinforce our capability inthis area. We strengthened our online research offer with the acquisition ofRosenblatt/Digital People and a 20% investment in nqual, an online qualitativeresearch agency. Outside the UK, we continue to grow strongly, withinternational work now representing approximately 25% of Group revenues. Our future success will continue to come from four sources: business focus,pursuit of increased client contract sizes, continued investment inprofessionals and prudent organic internationalisation of our capability. Financial Review We have seen a strong performance in the first half of 2007. Turnover increased44% to £45.8m (2006: £31.7m), operating income increased 38% to £24.4m (2006:£17.7m) and headline profit before tax was up 19% to £3.1m (2006: £2.6m). Headline basic earnings per share increased 15% to 6.42p and headline fullydiluted earnings per share was up 11% to 4.81p. Fully diluted earnings reflectthe impact of the anticipated issuance of shares to vendors of companiesacquired by Cello under earn out arrangements, and these expectations arereviewed every six months. On a like-for-like basis the Group achieved 20% growth at the operating incomelevel and 6% at the operating profit level. This is against a market context ofgrowth of less than 5%. We have continued to invest heavily in our futureorganic growth by ensuring that the appropriate levels of headcount and officespace are available to our businesses to sustain expansion. Operating marginsfor the first six months moved down marginally from 18.5% to 17.1%, reflectingthis investment. The Group's net debt position at the half year was £7.6m (31 December 2006:£1.1m). This increase reflects the cash acquisition costs of Rosenblatt, TheMSI Consultancy, and mruk research. There was a £0.6m working capital outflowin the first six months arising from long payment terms on substantial overseasand UK government contracts, as well as usual levels of cash flow cyclicalityand seasonality. The Group expects this outflow to substantially reverse in thesecond half, a process which has already begun. The Board is proposing an interim dividend of 0.45p per share (2006: 0.40p). Itis proposed that this dividend be paid on 12 October 2007 to all shareholders onthe register on 21 September 2007. These are the first results which the Group has reported under IFRS. UnderIFRS, the Group is required to take non cash charges for amortisation ofintangible assets not previously recognised under UK GAAP. In addition to this,there are non cash charges for share options; acquisition related remunerationand notional interest. As non cash items, these are all added back by the Groupin order to arrive at the Group's definition of 'headline profit before tax'.The reconciliation between headline profit before tax and reported profit beforetax is detailed below: Six months ended 30 June 2007 2006 £'000 £'000Headline PBT 3,095 2,616Share option costs (154) (38)Deemed remuneration (715) (519)Notional interest (221) (121)Amortisation (364) (228)Reported PBT 1,641 1,710 Review of Operations From 1 January 2007 and as announced on 20 March 2007, the Group has stated itsfinancial reporting structure as two operating divisions which reflect theunderlying operating structure of Cello: Cello Research and Consulting; andCello Response Communications. These interim results are the first reporting ofresults on this basis. Research and Consulting Cello Research and Consulting had an excellent six months, delivering £23.6m ofturnover (2006: £17.7m), £15.3m of operating income (2006: £10.4m), and headlineoperating profit up 42% to £3.4m (2006: £2.4m). The business continued to investheavily in professional headcount and the associated expansion ofinfrastructure. The small drop in operating margins from 23.4% to 22.0% in thisbusiness reflects the investments made in staff and property to fully equip thebusiness for the levels of income growth being experienced. We continue to build on our core strength in healthcare research andconsultancy. The joining of MSI further reinforces this positioning. Healthcarenow accounts for 30% of Group operating income and 40% of our research andconsulting activity. Our qualitative research offering, which is largely focused on FMCG, retail andthe branded goods areas, continues to thrive. Our quantitative offering in thisarea has also grown quite dramatically. The division won a substantial contractfrom Tesco during the period. This contract, which involves three Celloresearch businesses, starts in earnest in the second half of the year and therehas been material set-up cost incurred in the first half. Our consulting offer in this area has also made rapid progress, substantiallyincreasing the scale of client contracts we service and expanding facilities toaccommodate growth. Our business-to-business research offering continues to make good progress,developing global research relationships across a range of sectors. Our reachinto public sector research has until recently been under represented. Therecent joining of mruk research has added significant scale and will acceleratethe growth of our existing public sector practice. New client wins in the six month period include: Unilever, NHS, Hyundai,T-Mobile, Postwatch, The Competition Commission, Accenture, BAA, CarphoneWarehouse, EON, Microsoft, Superquinn, Sony, Burton Foods, BSkyB, 3M, ReckittBenckiser, Tilda, British Airways, Barclaycard, Tesco Personal Finance and DVLA. The business continues to expand internationally. We now have 4 overseasoperations (3 in the USA and 1 in Europe). International work now accounts foraround 40% of our research and consultancy operating income on a full yearbasis. We see the international mix continuing to increase and face theopportunity of expanding our footprint overseas. The results of the divisionwere influenced by the start up of our qualitative research offering in the US,and by the like-for-like devaluation of the US dollar. We continue to offer more innovative client solutions. Kudos, Digital People andnqual are helping drive a proportion of our data gathering online. As well asproviding third party clients with online solutions, we are bundling thiscapability alongside our more traditional approaches to optimise the quality ofmarket insight we can provide to clients. Our strategy is to consolidate behind our lead brands, to continue to innovateand to expand internationally via organic growth. Response Communications Cello Response Communications had a good six months, delivering £22.1m ofturnover (2006: £14m), £9.09m of operating income (2006: £7.3m), and headlineoperating profit of £0.78m (2006: £0.85m). Excellent revenue growth has allowed continued investment in headcount andcapacity, the benefits of which will emerge during the second half. Thebusiness remains weighted towards the second half due to increasingly seasonalpatterns of client spending. The decline in operating margins from 11.6% to8.6% for the first half reflects this. We continue to build on our core strengths in financial services, charities andthe public sector. The joining of cchm:ping on 6 July 2007 has doubled ourcapability in financial services where we are now a sector leader. Our public sector work continues to grow both in Scotland and England where wehave established a new strength in London on the basis of investment made lastyear, with a particular focus on ethical issues such as anti-smoking. This fitswell with our established market position in the charities sector which, as thelargest area of direct marketing in the UK, continues to fuel healthy growth. New client wins in the six month period include: Ann Summers, Nestle, BritishHeart Foundation, Stagecoach, Courage Bitter, NHS Scotland, Sue Ryder Care,Breast Cancer Care, British Red Cross, Lloyds TSB Personal Loans', BaillieGifford, Greenpeace, ING and Standard Life. The business continues to innovate rapidly, driving delivery online through ourdigital brands, Blonde and Oomph. Our strength in data management has beenparticularly useful in accelerating this process. Our strategy is to consolidate our position behind our lead UK brands, innovaterapidly and secure a leadership position in our key client segments. Outlook We remain confident of the full year outcome. Since the end of June the Groupcontinues to trade well, with good visibility of operating income and thebenefit of seasonally strengthening cash flow and operating margins. We remainvery moderately geared and with capacity to further expand through selectedacquisition to complement our existing organic growth strategy, both in the UKand overseas. I wish above all to thank our professionals who are rapidly turning Cello into awell respected leader in our industry. Kevin Steeds Chairman 11 September 2007 Consolidated Income Statement for the six months ended 30 June 2007 Unaudited Unaudited Unaudited Six months ended Six months ended Year ended 30 June 2007 30 June 2006 31 December 2006 Notes £'000 £'000 £'000 Revenue 3a 45,784 31,704 74,702Cost of sales (21,386) (13,965) (35,870) Operating income 3b 24,398 17,739 38,832 Administration expenses (21,118) (15,117) (32,844) Headline operating profit 3c 3,280 2,622 5,988 Amortisation of intangible assets (364) (228) (691)Acquisition related employee (715) (519) (1,336)expensesShare option charges (154) (38) (65) Operating profit 2,047 1,837 3,896 Financing income 5 129 88 211Finance cost of deferred 6 (221) (121) (234)considerationOther finance costs 6 (314) (94) (346) Profit before taxation 3d 1,641 1,710 3,527 Tax 7 (521) (563) (1,058) Profit for the period 1,120 1,147 2,469 Attributable to:Equity holders of parent 1,113 1,147 2,463Minority interest 7 - 6 1,120 1,148 2,469 Earnings per shareBasic earnings per share 8 3.16p 3.53p 7.44pDiluted earnings per share 8 3.06p 3.46p 7.29p Consolidated Balance Sheet As at 30 June 2007 Unaudited Unaudited Unaudited At 30 June 2007 At 30 June 2006 At 31 December 2006 Notes £'000 £'000 £'000 Goodwill 9 65,656 46,777 55,519Intangible assets 3,152 3,466 3,187Property, plant and equipment 2,765 1,938 2,304Investments 228 15 65 Non-current assets 71,801 52,196 61,075 Work in progress 1,916 1,098 928Trade and other receivables 22,637 13,258 18,669Cash and cash equivalents 4,781 7,694 7,010 Current assets 29,334 22,050 26,607 Trade and other payables (21,095) (20,220) (20,560)Current tax liabilities (1,362) (1,196) (1,245)Obligations under finance leases (71) (103) (87) Current liabilities (22,528) (21,519) (21,892) Net current assets 6,806 531 4,715 Total assets less current 78,607 52,727 65,790liabilities Non-current liabilities Bank loans (9,900) - (6,050)Provisions 11 (25,792) (16,900) (20,578)Obligations under finance leases (57) (97) (81) Net assets 3e 42,858 35,730 39,081 Capital and reservesShare capital 13 3,631 3,277 3,448Share premium 22,498 18,019 19,981Profit and loss account 5,924 3,841 5,026Equity reserves 10,792 10,593 10,620 Equity attributable to equity 42,845 35,730 39,075holders of parent Minority interest 13 - 6 Total equity 42,858 35,730 39,081 Consolidated Cash Flow Statementfor the six months ended 30 June 2007 Unaudited Unaudited Unaudited Six months ended Six months ended Year ended 30 June 2007 30 June 2006 31 December 2006 Notes £'000 £'000 £'000 Net cash (outflow)/inflow from operating 14a (556) 1,572 4,184activities before taxation Tax paid (1,033) (542) (1,489) Net cash (outflow)/inflow from operating (1,589) 1,030 2,695activities after taxation Investing activities Interest received 129 88 180Purchase of property, plant and (806) (267) (1,004)equipmentSale of property, plant and equipment 12 24 79Expenditure on intangible assets (64) - -Purchase of associates and investments (113) - (50)Purchase of subsidiary undertakings (4,628) (300) (4,400)Proceeds from sale of other investments 50 - 50Net cash acquired with subsidiaries 2,088 (30) 780Payment of deferred consideration - - (90)Expenses paid in connection with (365) (108) (622)purchase of subsidiary undertakings Net cash outflow from investing (3,697) (593) (5,077)activities Financing activities Dividends paid to equity holders of the (215) - (131)parentRepayment of bank loan (1,000) - (500)Repayment of loan notes (1,053) (140) (196)Drawdown of borrowings 4,850 - 4,250Capital element of finance lease (40) (41) (73)paymentsRepayment of obligations under finance (12) (12) (22)leaseInterest paid (287) (83) (289) Net cash inflow/(outflow) from financing 2,243 (276) 3,039 Movements in cash and cash equivalents Net (decrease)/increase in cash and cash (3,043) 161 657equivalentsCash and cash equivalents at thebeginning of the period 6,974 6,317 6,317 Cash and cash equivalents at end of the 3,931 6,478 6,974period Consolidated Statement of Changes in Equityfor the six months ended 30 June 2007 Capital Profit Redemption and Loss Share Share Reserve Merger Capital Account Minority Total Capital Premium Reserve Reserve Total Interest Equity £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 At 1 January 2007 3,448 19,981 50 10,496 74 5,026 39,075 6 39,081 Profit for the year - - - - - 1,113 1,113 7 1,120 Shares issued 183 2,517 - - - - 2,700 - 2,700 Credit for share basedincentive schemes - - - - 172 - 172 - 172 Dividends - - - - - (215) (215) - (215) As at 30 June 2007 3,631 22,498 50 10,496 246 5,924 42,845 13 42,858 Changes in equity for the six months ended 30 June 2006: Capital Profit Redemption and Loss Share Share Reserve Merger Capital Account Minority Total Capital Premium Reserve Reserve Total Interest Equity £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 At 1 January 2006 3,244 17,652 50 10,496 9 2,694 34,145 - 34,145 Profit for the year - - - - - 1,147 1,147 - 1,147 Shares issued 33 367 - - - - 400 - 400 Credit for share basedincentive schemes - - - - 38 - 38 - 38 As at 30 June 2006 3,277 18,019 50 10,496 47 3,841 35,730 - 35,730 Changes in equity for the year ended 31 December 2006: Capital Profit Redemption and Loss Share Share Reserve Merger Capital Account Minority Total Capital Premium £'000 Reserve Reserve Total Interest Equity £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 At 1 January 2006 3,244 17,652 50 10,496 9 2,694 34,145 - 34,145 Profit for the year - - - - - 2,463 2,463 6 2,469 Shares issued 204 2,329 - - - - 2,533 - 2,533 Credit for share basedincentive schemes - - - - 65 - 65 - 65 Dividends - - - - - (131) (131) - (131) As at 31 December 2006 3,448 19,981 50 10,496 74 5,026 39,075 6 39,081 Notes to the Financial Information for the six months ended 30 June 2007 1. BASIS OF PREPARATION The consolidated interim financial information has been prepared on a consistentbasis with the accounting policies that we expect to be applied in the financialstatements, which will be prepared in accordance with International FinancialReporting Standards as adopted by the EU. The financial information contained within this interim report has been preparedin accordance with International Accounting Standard 34 (IAS 34 InterimFinancial Reporting) and are unaudited. They were approved by the board andauthorised for issue on 10 September 2007. 2. SIGNIFICANT ACCOUNTING POLICIES The significant accounting policies shown below are extracts from the fullpolicies as detailed in the IFRS Transition Statement released on 30 August2007: (a) Turnover, Cost of Sales and Revenue Recognition Turnover is recognised as contract activity progresses, in accordance with theterms of the contractual agreement and the stage of completion of the work. Itis in respect of the provision of services including fees, commissions,rechargeable expenses and sales of materials performed subject to specificcontract. Where recorded turnover exceeds amounts invoiced to clients, theexcess is classified as accrued income. Cost of sales include amounts payable to external suppliers where they areretained at the Group's discretion to perform part of a specific client projector service where the Group has full exposure to the benefits and risks of thecontract with the client. (b) Goodwill and Intangible Assets In accordance with IFRS 3 Business Combinations goodwill arising on acquisitionsis capitalised as an intangible fixed asset. Other intangible assets are alsothen identified and amortised over their useful economic lives. Examples ofthese are licences to trade, and client contracts. The useful economic livesvary from 3 months to 8 years. Goodwill is not amortised. Under IAS 36 Impairment of Assets, the carrying values of all intangible fixedassets are reviewed each financial period for impairment on the basis stipulatedin IAS 36 and adjusted to the recoverable amount. Typically, such a review willentail an assessment of the present value of projected returns from the assetover a 3-5 year projection period, and an RPI based growth assumption for futureyears after that. (c) Share Based Payments The Group has applied the requirements of IFRS 2 Share Based Payment whichrequires the fair value of share based payments to be recognised as an expense.In accordance with the transitional provisions, IFRS 2 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 IFRS 2 and in accordance withIAS 8 Accounting policies and IFRS 3 Business Combinations, the Group treatscertain payments made to employees in respect of earn out arrangements asremuneration within the profit and loss account. 3. SEGMENTAL INFORMATION For management purposes, the Group is organised into two operating divisions;Cello Research and Consulting, and Cello Response Communications. Thesedivisions are the basis on which the Group reports its primary segmentinformation. The Group's turnover, gross profit and operating profit were all derived fromthe following activities: (a) Turnover Unaudited Unaudited Unaudited Six months ended Six months ended Year ended 30 June 2007 30 June 2006 31 December 2006 £'000 £'000 £'000 Cello Research and Consulting 23,686 17,690 37,095Cello Response Communications 22,098 14,014 37,607 45,784 31,704 74,702 (b) Operating income Unaudited Unaudited Unaudited Six months ended Six months ended Year ended 30 June 2007 30 June 2006 31 December 2006 £'000 £'000 £'000 Cello Research and Consulting 15,305 10,416 21,982Cello Response Communications 9,093 7,323 16,850 24,398 17,739 38,832 (c) Headline Operating Profit Unaudited Unaudited Unaudited Six months ended Six months ended Year ended 30 June 2007 30 June 2006 31 December 2006 £'000 £'000 £'000 Cello Research and Consulting 3,405 2,435 4,624Cello Response Communications 778 850 2,667Head Office (903) (663) (1,303) 3,280 2,622 5,988 (d) Profit before tax Unaudited Unaudited Unaudited Six months ended Six months ended Year ended 30 June 2007 30 June 2006 31 December 2006 £'000 £'000 £'000 Cello Research and Consulting 2,210 1,958 3,015Cello Response Communications 425 668 2,473Head Office (994) (916) (1,961) 1,641 1,710 3,527 (e) Net Assets Unaudited Unaudited Unaudited At 30 June 2007 At 30 June 2006 At 31 December 2006 £'000 £'000 £'000 Cello Research and Consulting 14,834 8,852 10,531Cello Response Communications 3,702 2,818 3,308Head Office 24,322 24,060 25,242 42,858 35,730 39,081 4. DIVIDEND An interim dividend of 0.45p (2006: 0.4p) per ordinary share is recommended andwill be paid on 12 October 2007 to all shareholders on the register on 21September 2007. In accordance with IAS 10 Events after the Balance Sheet Date,this dividend has not been recognised in the accounts at 30 June 2007, but willbe recognised in the accounting period ending 31 December 2007. 5. FINANCING INCOME Unaudited Unaudited Unaudited Six months ended Six months ended Year ended 30 June 2007 30 June 2006 31 December 2006 £'000 £'000 £'000 Interest receivable bank deposits 129 88 211 6. FINANCE COSTS Unaudited Unaudited Unaudited Six months ended Six months ended Year ended 30 June 2007 30 June 2006 31 December 2006 £'000 £'000 £'000 Interest payable on bank loans and overdrafts 279 57 296Interest payable on loan notes 23 25 28Interest payable in respect of finance leases 12 12 22Notional finance costs on future deferred 221 121 234consideration 535 215 580 7. TAXATION ON PROFIT ON ORDINARY ACTIVITIES The tax charge for the half year ended 30 June 2007 has been based on anestimated effective tax rate on profit on ordinary activities for the full yearof 32% (year ended 31 December 2006: 33%). 8. EARNINGS PER SHARE Unaudited Unaudited Unaudited Six months ended Six months ended Year ended 30 June 2007 30 June 2006 31 December 2006 £'000 £'000 £'000 Basic and diluted earnings attributable to ordinary 1,113 1,147 2,463shareholders Adjustments to earnings:Amortisation of intangibles 364 228 691Share based payments expense 154 38 65Acquisition related employee remuneration expenses 715 519 1,336Notional finance costs on future deferred consideration 221 121 234paymentsTax thereon (308) (235) (627) Adjusted earnings attributable to ordinary shareholders 2,259 1,818 4,162 Number Number Number Weighted average number of ordinary shares 35,209,762 32,453,567 33,106,006 Dilutive effect of securities:Share options 600,000 600,000 600,000Contingent consideration shares to be issued 510,000 48,980 62,986 Diluted weighted average number of ordinary shares 36,319,762 33,102,547 33,768,992 Further dilutive effect of securities:Share options 1,462,206 465,332 563,168Contingent consideration shares to be issued 9,199,538 8,348,564 11,263,368 Fully diluted weighted average number of ordinary shares 46,981,506 41,916,443 45,595,528 Basic earnings per share 3.16p 3.53p 7.44pDiluted earnings per share 3.06p 3.46p 7.29pFully diluted earnings per share 2.37p 2.74p 5.40p Headline basic earnings per share 6.42p 5.60p 12.57pHeadline diluted earnings per share 6.22p 5.49p 12.33pHeadline fully diluted earnings per share 4.81p 4.34p 9.13p 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 IAS 33Earnings 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. 9. Goodwill Unaudited Unaudited Unaudited At 30 June 2007 At 30 June 2006 At 31 December 2006 £'000 £'000 £'000CostAt 1 January 2007 55,519 45,417 45,167 Goodwill arising on acquisition (note 10) 10,366 1,360 9,916Adjustment to fair value of deferred (229) - 368considerationAdjustment to value of assets acquired - - 23 At 30 June 2007 65,656 46,777 55,519 The adjustment to the fair value of deferred consideration relates to changes inestimate of deferred consideration payable under earn out arrangements inaccordance with the terms of the relevant acquisition agreements. Adjustment tothe value of assets acquired relate to fair value adjustments of the net assetsacquired on acquisitions in the prior period. 10. Acquisitions MSI Other acquisitions Total £ '000 £ '000 £ '000Net assets acquired: Intangible assets - client 132 133 265contractsProperty, plant and equipment 28 95 123Trade and other receivables 637 940 1,577Cash and cash equivalents 1,838 250 2,088Current liabilities (836) (645) (1,481)Deferred tax provision (39) (38) (77) Net assets acquired 1,760 735 2,495 Goodwill 7,454 2,912 10,366 Total cost of acquisition 9,214 3,647 12,861 Satisfied by:Cash 3,220 1,073 4,293Shares 1,801 899 2,700Loan notes 704 - 704Deferred consideration 3,297 1,525 4,822Acquisition costs 192 150 342 Total 9,214 3,647 12,861 The fair value of net assets acquired is provisional and based on the bestestimate available at the date at which this financial information has beenprepared. The fair value of deferred consideration is provisional and is based onmanagements current best estimate of the companies financial performance overthe relevant earn out periods. This estimate is reviewed at acquisition and eachfinancial period thereafter. Deferred consideration will be paid with a mixtureof cash and shares (note 12). The aggregate results for these transactions for the period from completion to30 June were £2.1m of turnover, £1.6m of operating income and £0.3m of operatingprofit. (a) The MSI Consultancy Limited ("MSI") On 30 March 2007, the company acquired the entire share capital of MSI for amaximum total consideration of £13.2m. The initial consideration of £5.7mconsists of £3.9m payable in cash or loan notes and the balance satisfied by theissue of 1,198,402 new ordinary shares. Final consideration depends on thefinancial performance of MSI over the period to 31 December 2010. The maximumamount of final consideration is £7.5m and is payable in a mixture of cash andshares. (b) Rosenblatt Limited ("Rosenblatt") and Digital People Online Limited ("Digital People") On the 29 January 2007, the company acquired 75% of the issued share capital ofRosenblatt and 51% of Digital People for consideration of £322,000 in cash andthe issue of 119,426 new ordinary shares. The remaining 25% issued share capital of Rosenblatt is subject to a put andcall option exercisable in 2009 and the remaining 49% issued share capital inDigital People is subject to a put and call option exercisable anytime in theperiod to 31 March 2012. The amount of option consideration payable is dependenton the financial performance of the companies in the two years prior exercise ofthe option. In accordance with IFRS 3, amounts expected to be paid for these put and calloptions have been accounted for as deferred consideration and 100% of the netassets and results for Rosenblatt and Digital People have been consolidated intothe Group. (c) Market Research International Limited ("mruk") On 8 June 2007, the company acquired the entire issued share capital of mruk fora maximum total consideration of £6m. The initial consideration of £1.5mconsists of £750,000 payable in cash and the balance satisfied by the issue of506,757 new ordinary shares. Final consideration depends on the financialperformance of mruk over the period to 31 December 2010. The maximum amount offinal consideration is £4.5m and is payable in a mixture of cash and shares. 11. PROVISIONS Unaudited Unaudited Unaudited At 30 June 2007 At 30 June 2006 At 31 December 2006 £'000 £'000 £'000 Contingent consideration for 24,834 15,860 19,590acquisitionsDeferred taxation 958 1,040 988 25,792 16,900 20,578 12. CONTINGENT CONSIDERATION FOR ACQUISITIONS Unaudited Unaudited Unaudited At 30 June 2007 At 30 June 2006 At 31 December 2006 £'000 £'000 £'000 At 1 January 2007 19,590 14,252 14252 Payments in the period (435) - (148)Additions in the year 4,972 968 3,548Adjustment to provisions of (229) - 368additions in prior yearsAcquisition related remuneration 715 519 1,336expenseNotional finance costs on future 221 121 234deferred consideration payments At 30 June 2007 24,834 15,860 19,590 Make up of contingent consideration is as follows: Earn out related cash payables 9,631 5,887 7,374Shares to be issued 15,203 9,973 12,216 24,834 15,860 19,590 Earn out payments are to be in cash and shares, in the analysis above theminimum percentage of cash has been assumed. However, at the Group's solediscretion, this percentage can be increased. 13. SHARE CAPITAL Unaudited Unaudited Unaudited At 30 June 2007 At 30 June 2006 At 31 December 2006 £'000 £'000 £'000 Authorised:50,000,000 ordinary shares of 10p 5,000 5,000 5,000each Alloted, issued and fully paid 36,309,612 ordinary shares of 10p 3,631 3,277 3,448each During the interim period 1,824,585 ordinary shares of 10p each were issued aspart of the consideration for acquisitions. 14. NOTES TO THE CONSOLIDATED CASH FLOW STATEMENT (a) Reconciliation of operating profit to net cash (out)/inflow fromoperating activities Unaudited Unaudited Unaudited Six months ended Six months ended Year ended 30 June 2007 30 June 2006 31 December 2006 £'000 £'000 £'000 Operating profit 2,047 1,837 3,896Depreciation 460 323 713Amortisation 364 228 691Share based payment expense 172 38 65Acquisition related employee remuneration expense 715 519 1,336Profit on disposal of property, plant and (4) (14) (29)equipmentProfit on disposal of investments (10) - (90)Increase in work in progress (988) (493) (324)Increase in receivables (2,218) (756) (5,033)(Decrease)/increase in payables (1,094) (110) 2,959 Net cash (outflow)/inflow from operating (556) 1,572 4,184activities (b) Analysis of net debt At 1 January 2007 Cash flow Acquisition At 30 June 2007 £'000 £'000 £'000 £'000 Cash at bank and in hand 7,010 (2,229) - 4,781Overdrafts (36) (814) - (850) 6,974 (3,043) - 3,931 Loan notes due within one (1,820) 1,053 (704) (1,471)yearOther loans due within one (6,050) (3,850) - (9,900)yearFinance leases (168) 40 - (128) (1,064) (5,800) (704) (7,568) During the interim period there were the following issuances and repayments ofdebt: • £4.85m was drawn down from the Group's loan facility to fund the cash element of acquisitions made in the period. • £1m of the Group's loan facility was repaid from the Group's cash reserves. • £704,000 of secured loan notes were issued as part of the consideration for acquisitions in the period. 15. 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. This statement does not constitute full statutory financial statements withinthe meaning of section 240 of the Companies Act 1985. INDEPENDENT REVIEW REPORT TO CELLO GROUP PLC Introduction We have been instructed by the company to review the financial information setout on pages 6 to 17 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 2007. BAKER TILLY UK AUDIT LLP Chartered Accountants 2 Bloomsbury Street London WC1B 3ST 11 September 2007 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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