Pre-close trading update

Cello Group plc

('Cello' or the 'Group')

PRE-CLOSE TRADING UPDATE - YEAR ENDED 31 DECEMBER 2012

Solid full year performance - Cello Health continues its growth path; Cello Consumer confirms its anticipated recovery.

Cello, the insight and strategic marketing group, today publishes the following trading update for the year ended 31 December 2012.

Highlights

- Solid trading for the year, in line with headline expectations

- Successful restructuring of Group into Cello Health and Cello Consumer

- Cello Health continues to show good revenue growth and sustain competitive 20% + margins

- Cello Consumer demonstrates solid recovery, with stabilising of headline profit margins

- Strong cash conversion with net debt in line with expectations

- Continued investment in future growth initiatives, with a focus on healthcare

- Acquisition of Mash Health announced today

- Good new business pipeline in Q4 2012 underpins solid start to 2013

Cello Health

Strong performance

Cello Health demonstrated a strong full year performance in line with expectations, maintaining a headline operating profit margin above 20% which is highly competitive for the sector. Cello Health is increasingly selling integrated solutions to clients that draw on its core areas of consulting, market research and medical communications, backed by a central business development team. The executive Board of Cello Health, comprising Stephen Highley (Chair), Jane Shirley (CEO UK, Europe and Asia) and Julia Ralston (CEO USA), are charged with establishing Cello Health as one of the world's leading providers of advisory services to the pharmaceutical community, and we are encouraged by the progress to date.

Continued growth outside the UK

The majority of Cello Health's activity is now for clients outside the UK, with a particular focus on the USA. All of the core services of Cello Health are now represented in the US market, which is by far the largest market for pharmaceutical advisory services.

Strong organic investment

In 2012 the Group's strong balance sheet enabled Cello Health to make a number of significant investments in new activities which will lay the foundations for continued future growth. These investments accounted for a P&L impact of approximately £0.8m, which has been excluded from the calculation of headline operating profits.

Strong new business pipeline

Cello Health enjoyed an encouraging new business period in the last quarter of 2012, which provides confidence regarding the start to 2013. Notable new business wins included, Actelion, Boehringer Ingelheim, Boots Opticians, GE Healthcare, General Mills, Mundipharma, NEST, Novartis, Tunstall Healthcare, and Vision Care.

Acquisition of Mash Health

Cello today announces the acquisition of Mash Health, a consultancy specialising in advising pharmaceutical and health clients on consumer related brand issues. Mash Health will reinforce Cello Health's drive into the Consumer Health area which is a rapidly increasing focus for many of the Group's clients. Jane Ayton, Mash's CEO, will assume a senior position within Cello Health.

Cello Consumer

Second half recovery and good foundations for growth

Cello Consumer combines three key service offerings for clients under its four lead brands, insight delivery (2CV and Face), communications logistics support (Brightsource), and communications execution (Leith Group). These are supported by a number of specialist sub brands providing highly focused support services. 

After a challenging first half to 2012, reflecting a marked slowdown in demand for insight services, Cello Consumer enjoyed the anticipated recovery in activity in the second half. This resulted in Cello Consumer delivering a full year headline performance in line with expectations, with a recovery of headline operating margins. There was a charge of approximately £1.0m for restructuring costs incurred in response to the slowdown in the first half, much of which related to a provision for a property vacated as part of the rationalisation of activities. In addition, £0.5m of pre-tax losses arose from discontinued activities, exited as part of the rationalisation process.

Fast evolving leadership in web

Cello Consumer's primary strength stems from its strong digital credentials in the area of systems build (Blonde), customer engagement and management (Brightsource), social media analytics and mobile research (Face and 2CV) and digital communications planning and execution (Leith Group). The Board of Cello Consumer, led by Mark Scott (Chair) and John Rowley (CEO), is charged with establishing the business as a leading global provider of digital marketing solutions for clients, married with off-line communications capability.

Good new business momentum

Cello Consumer enjoyed decent new business momentum in the last quarter of 2012 which will underpin expectations for the business for 2013. New business wins included mandates from companies including: Britvic, Glasgow 2014 Commonwealth Games, Coca-Cola, General Motors and HSBC.

Balance sheet

The Group balance sheet continued to strengthen, with minimal deferred consideration commitments. Following good cash conversion, year end net debt is expected to be approximately £9.0m.

Outlook

Following the successful restructuring of the Group into Cello Health and Cello Consumer, good momentum in client bookings in the last quarter of 2012 puts the Group in good stead as we begin the new year. Although mindful of the challenging global outlook amongst multinational clients, the Board is optimistic of a solid outcome for 2013.

Preliminary results

The preliminary results for the year ended 31 December 2012 will be announced on Wednesday 13 March 2013.

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