Pre-close trading update

22 July 2010

Cello Group plc

Pre-close trading update

Cello Group (AIM: CLL, 'Cello', or 'the Group'), the leading independent market research and consulting group, publishes a trading update for the six months to 30 June 2010. Cello has continued to trade well and will show like for like income growth and double digit operating profit growth for the first half of the financial year.

The Group continues to experience growing income from its international blue chip client base, with particular growth arising from the US, where further organic investment is planned for the second half of the year. Income from UK clients has held up well, with several notable private sector wins, while as anticipated there are likely to be further declines in public sector income over the coming months.

The like for like income growth achieved, combined with a lower cost base as a result of pro-active action taken in 2009, are expected to lead to a healthy improvement in profitability in 2010.

Divisional trading

The Research and Consulting division continues to trade strongly, returning to like for like income growth. This has been driven by continued robustness in core client activity levels, most notably in pharmaceutical and health related sectors, as well as the growing international revenues.

The recent investments made to increase the Group's overseas capabilities have begun to bear fruit. Cello recently relocated its US business into a new office in New York. This will act as a resource hub for other Group brands as they continue to build their US client base.

New business activity has increased markedly, with notable major project wins from ITV, GSK, Visa Europe, 3M, AG Barr, BA, Expedia, Heineken, Mars Petfood, Unilever, Electronic Arts, Sony, Nokia, Adidas, Miele, Eurostar, MerckSerono, HP, Canon, Epson, Brother, P&G Airwave and Green-works. As a result, the division has a strong pipeline of committed work into the second half of the year, which will more than offset the expected decline in public sector work.

Tangible, Cello's response communications business, as expected, saw slight like for like decline in operating income in the first half. The income decline largely occurred due to certain public sector clients not repeating their programmes in 2010.

The business now operates out of three office hubs in Edinburgh, London and Cheltenham which is yielding both clear cost benefits, as well as professional and client benefits. A major cost reduction exercise was also undertaken last year, which with these structural changes, mean that operating margins in the current financial year have been substantially protected.

There has been a good series of major client wins by Tangible including Scottish and Southern Energy, Sainsbury's Bank, Reckitt Benckiser, O2, Chartis, SPX, SQA. Macmillan Cancer Care, The Sun (Scottish), Avon, Pfizer, Ben & Jerrys, Nandos and Matalan. The benefit of many of these wins will be seen in the second half of the year.

Given Tangible's strong flow of private sector client wins, and a more efficient cost base, the Group is confident that Tangible will be substantially ahead of 2009 on a full year basis.

Full year outlook

Revenue visibility for the next quarter remains solid and, subject to proper conversion of existing client opportunities, the Board is optimistic for a good full year outcome.

Mark Scott, Cello Chief Executive, commented:

 "We are pleased with our trading performance and like for like income growth levels in the first half of the year. We are seeing the benefits from our international investment programme initiated two years ago.

"The continued growth of income from our long term multi-national blue chip client base, both in the UK and internationally, has more than offset the expected weaker performance from our UK public sector clients. We are set well for the remainder of the year.

"Separately I am also delighted to welcome Paul Walton to the Board. As a senior client advisor and strategist, he will undoubtedly continue to make a substantial contribution across the Group"

The Group expects to publish its interim results on Tuesday 14 September 2010.

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