PRE CLOSE TRADING STATEMENT

Cello Group plc

('Cello' or the 'Group')

PRE CLOSE TRADING STATEMENT

Cello Group plc (AIM:CLL), the health and consumer strategic marketing group, today publishes the following update for the six months to 30 June 2016.

The Group has had a good first half, with robust performances from the core of Cello Health and from Cello Signal. Accordingly, the Board remains confident that the Group will deliver a strong full year result in line with current expectations.

Cello Health

Cello Health has had a good six months, with particularly strong performances from Cello Health Communications and Cello Health Insight, both of which are focused on the core pharmaceutical client base in the UK and the USA. Cello Health's US business continues to increase its share of overall Group revenue. The investment made in Cello Health BioConsulting in the US is starting to generate good incremental project work which is further enhancing the overall offer and the Board is confident it will shortly move into a profitable position.

Cello Health's core operations, which focus on the pharmaceutical and biotech business sectors, have continued to grow gross profit organically in line with our overall growth strategy. However, as outlined in previous recent announcements, the consumer consulting business within Cello Health has experienced an ongoing contraction in revenues. The decline of the consumer consulting business has largely offset the overall growth of core Cello Health for the first six months. As a consequence, overall like-for-like gross profit growth of Cello Health for the six month period has been modest, and overall operating margins have declined slightly. Appropriate action has now been taken to reduce the size of the consumer consulting unit.

The Board remains confident that Cello Health will show good overall full-year gross profit growth and competitive margins.

Cello Signal

Cello Signal has had a very strong first half. Overall growth has been robust across the whole of Cello Signal, reflecting the investment in building the business behind the unified brand and proposition.

Cello Signal enables clients to automate their regular communications with customers, using a combination of software solutions, distribution logistics capabilities and creative campaign development skills. This core offer is growing strongly and is particularly relevant to regulated clients who communicate with customers on a regular basis, including financial services clients, utilities and charities.

Pulsar, Cello Signal's social media analytics software proposition, continues to grow strongly and is now operationally profitable, with over 250 clients.

As a result, first half operating profit for Cello Signal is considerably stronger than the prior year, with improved operating margins. The Board expects, as usual, profits in Cello Signal to be second half weighted.

Non headline charges

As previously announced, the Group made a payment of £0.9m to the previous employer of a team of senior consultants which has established CelloHealth Bioconsulting Inc in the USA. This business is starting to gain good revenue traction as a result of this investment which has enabled the key executives to operate free of legal restriction.

Also, as previously announced, following the final settlement reached with HMRC regarding the long standing VAT dispute, there will be a charge of £2.1m in the accounts for the first six months of the year. The full provision of £5.3m has been settled in full in July 2016. Discussions are ongoing with clients regarding recovery of these balances.

In order to further improve the margin in Cello Signal and reduce costs in the consumer consulting unit of Cello Health, a number of further cost saving measures have been implemented. As a consequence, there is a non-headline redundancy charge of £0.6m in 2016.

Dividend

The Board is actively reviewing its dividend policy, with a view to increasing the payout ratio. A further update will be given with the interim results.

Outlook

The Group has delivered a good underlying first half, and the Board expects this to continue in the second half. Whilst profits in the first half will be flat on the prior year as a result of the decline of the consumer consulting unit of Cello Health, overall revenue growth has nevertheless been good. There has been no noticeable impact on client spending behaviour as a result of the EU referendum vote and income pipelines remain robust. The Group will also continue to benefit from a stronger dollar in the second half if the dollar / sterling rate remains at current levels. The Board remains confident that the Group will deliver a strong full year result in line with current expectations.

Interim Results

The interim results for the six months to 30 June 2016 will be announced on 14 September 2016.

This announcement contains inside information.

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