Preliminary Results for the Year Ended 31 Dec 2012

Cello Group plc

Solid overall 2012 performance - Cello Health continued growth; Cello Consumer H2 recovery 

Cello Group plc (AIM:CLL, "Cello" or "the Group"), the insight and strategic marketing group, today announces its final audited results for the year to 31 December 2012.

Financial Highlights

• Strong cash conversion of 88.5% (2011: 90.6%)

• Net debt follows earn out settlement in the year of £2.0m

Ø Forward looking deferred consideration minimal

• Gross profit in Cello Health up 7.2%; like-for-like4 gross profit up 2.6%

• Headline operating margin in Cello Health 20.8% (2011: 20.9%)

• Like for like Gross Profit in Cello Consumer maintained, despite challenging H1

• Headline operating margin in Cello Consumer of 9.1% (2011: 10.4%)

• Good start to 2013, with strong bookings momentum continuing from Q4 2012

Operational Highlights

·; Successful restructuring of the Group into Cello Health and Cello Consumer

·; Strong performance from Cello Health, underpinned by a unified client proposition

·; Good recovery in H2 from Cello Consumer

·; International gross profit increase from 40.6% to 46.1% of total Group revenue

·; International gross profit in Cello Health increase from 68.2% to 72.3%

·; Strong performance from digital products and brands within Cello Consumer

·; Acquisition of Mash Healthcare Limited in January 2013 and integration into Cello Health

Mark Scott, Chief Executive, commented:

"2012 has seen the Group continue to grow its pharmaceutical expertise in the UK and overseas markets. The recent acquisition of Mash Health, combined with centralised new business activity and further organic investment, will continue this progress into 2013. Cello Consumer, after a challenging first half, recovered strongly in the second half and this momentum is continuing in the early stages of the current year. We are confident that both these factors will combine to deliver a successful 2013 performance and as an indicator of that confidence we have raised the dividend by 16.3%, the sixth successive year of dividend growth."

1 Headline measures exclude, where applicable, restructuring costs, amortisation of intangible assets, impairment charges, acquisition

accounting adjustments, start-up losses, share option charges and fair value gains and losses on derivative financial instruments.

2 Operating margin is calculated by expressing operating profit as a percentage of gross profit.

3 Headline earnings per share is defined in note 10.

4 Like-for-like measures exclude discontinued operations and the impact of any reclassification of business between reporting segments.

Enquiries:

Overview

2012 saw a solid performance with the Group reporting a 5.3% increase in gross profit to £65.1m (2011: £61.8m) and headline profit before tax of £7.0m (2011: £7.1m). The restructuring of the Group into Cello Health and Cello Consumer was successfully completed and the benefits of this are already evident in new client activity. The last quarter of 2012 showed good momentum in forward bookings for the first quarter of 2013, providing good visibility for the start of the current year.

Cello Health produced headline operating profit growth of 6.7% on an increase in gross profit of 7.2%, reflecting robust demand from global clients for its highly specialist range of services. Cello Health enjoyed a full year contribution from MedErgy which was acquired in April 2011. This top line growth has allowed for continued investment in qualified staff, the initiation of a range of new services and expansion of international offices to sustain future revenue growth. Like-for-like gross profit in Cello Health grew by 2.6%.

Cello Health's profile with global clients continues to grow rapidly, with the recent addition of a central business development team reporting to the Board of Cello Health. The Board of Cello Health are working rapidly to deliver a fully integrated global service, promoted under the Cello Health brand, enabling it to compete effectively against larger US based competitors.

Cello Consumer enjoyed a strong recovery in the second half after a marked slowdown in the first half caused by a hiatus in research activity by clients. Cello Consumer's rapid transition into a dominantly digital proposition supported by a range of web-centric services has enabled it to continue to develop its wide range of blue chip client relationships. With headline operating profit of £3.0m (2011: £3.4m) on gross profit of £32.7m (2011: £32.6m), Cello Consumer achieved operating margins of 9.1% (2011: 10.4%). Like-for-like gross profit in Cello Consumer grew by 0.6%.

The Group's strategy of increasing the proportion of work won or serviced outside the UK has also made continued progress with international work now accounting for 46.1% of total Group gross profit (2011: 40.6%). Within Cello Health 72.3% of the gross profit was secured from international clients (2011: 68.2%). The Group now has overseas offices in New York, Philadelphia, San Francisco, Los Angeles, Singapore and Hong Kong. There are plans to open an office in Chicago during the course of the current year.

The Group's top 20 clients accounted for 40.0% of Cello's overall gross profit (2011: 38.3%) and remain largely unchanged from the prior year. Cello Health continues to benefit from accredited supplier status with the majority of its large pharmaceutical clients, enabling it to increase its service offering to these clients. The Group saw significant new business wins in the last quarter of 2012 which will be active in 2013.

Following strong operating cash flow and the settlement of the earn out commitments during the year, net debt at year end was £8.7m (2011: £7.7m). As a consequence of the vastly reduced deferred consideration profile, and continued strong operating cash flow, the Board is pleased to propose an increase in the full year dividend of 16.3% to 2.00p per share (2011: 1.72p). The dividend has now grown every year since 2006.

In January 2013 the Group completed the acquisition of Mash Healthcare Limited ("Mash"), for a total maximum consideration of £1.5m, payable over the next 18 months. Mash has joined the Consumer Health division of Cello Health.

Financial Review

Total Group gross profit was £65.1m (2011: £61.8m) on revenues of £135.1m (£127.7m). Headline profit before tax was £7.0m (2011: £7.1m). The Group's results reflect a solid performance by Cello Health and a markedly improved performance by Cello Consumer in the second half.

Reported profit before tax was £1.4m (2011: £1.2m) after the impact of restructuring costs of £1.3m (2011: £0.9m); amortisation of £0.9m (2011: £1.2m); start-up losses of £0.8m (2011: £0.2m); and impairment charges of £2.5m (2011: £2.5m). The Group's headline operating margin was 12.1% (2011: 12.6%) with a headline operating margin of 20.8% in Cello Health (2011: 20.9%), and 9.1% in Cello consumer (2011: 10.4%).

Headline finance costs were £0.7m (2011: £0.7m). The Group's tax charge was £1.2m (2011: £1.6m) reflecting a normalised tax rate on taxable profits of 31.5% (2011: 31.7%). Headline basic earnings per share was 6.37p (2011: 6.82p).

The Board is proposing a final dividend of 1.42p per share (2011: 1.17p), giving a total dividend per share of 2.00p (2011: 1.72p), an increase of 16.3%. The final dividend will be paid, subject to shareholder approval, on 5 July 2013 to all shareholders on the register at 31 May 2013 and will be recognised in the year ending 31 December 2013.

The Group's net debt position at 31 December 2012 was £8.7m (2011: £7.7m). This debt figure is well within existing debt facilities of £29.0m which are in place until March 2016. Operating cash flow before tax of £6.8m (2011: £7.0m) during the year represented an 88.5% conversion of headline operating profit (2011: 90.6%).

In April and May 2012 £3.3m of acquisition related liabilities were settled. These were settled by £2.0m in cash and loan notes and £1.3m in shares issued at an average price of 37p per share. Following these payments, deferred consideration commitments now stand at £0.4m, all payable in 2013. In January 2013, the Group acquired Mash for a maximum potential consideration of £1.5m. This consideration will all be paid by May 2014 with a maximum of 20% payable in shares.

The Group has invested in a number of new start-up activities in 2012, most notably the start-up of a quantitative research activity in Cello Health; the opening of new offices in Singapore, Hong Kong and Los Angeles; the creation of Cello Business Sciences, a web-enabled analytics offering; and expansion in New York. This incurred a net investment cost of £0.8m which has been added back to earnings for purposes of headline operating profit so as not to distort the reporting of underlying operational performance. We are confident about the majority of these activities being profitable in 2013. We were pleased to earn £1.0m of gross profit from these activities in their first year of operations.

As indicated in the interim results, Cello Consumer suffered from a marked slowdown of certain research activities in the first half of 2012. As a result the Group took action to reduce costs in certain areas, some of which have been closed and are therefore accounted for as discontinued operations. There was a restructuring charge of £1.3m for 2012 of which £0.6m related to a vacant property provision. The restructuring also necessitated an impairment charge of £2.5m.

The Group incurs a number of charges in the income statement below headline operating profit, detailed overleaf:

The Group monitors many financial measures on a regular basis but our key performance indicators are headline operating profit, headline operating margin, like-for-like gross profit, headline operating cash flow conversion and headline basic earnings per share.

Operational Review

Cello Health

The Group's healthcare business enjoyed another year of strong performance, delivering headline operating profit of £6.5m (2011: £6.1m) from gross profit of £31.3m (2011: £29.2m). This has been driven by continued spend from the business's large, long term, global client relationships. The professional employee base has increased to 305 during the year (2011: 280) reflecting the addition of senior resource, particularly in the USA, to enable continued growth. Despite this senior headcount increase operating margins have remained static at 20.8% (2011: 20.9%) which represents competitive levels versus the larger competitor set.

Cello Health has increased the proportion of pharmaceutical assignments won on the basis of joint pitches across multiple Cello Health companies. These are often won in competition with larger, consolidated healthcare services providers, often domiciled in the USA. It has also responded effectively to the increasing demand by clients for scientifically based data input into their marketing efforts based on actual patient outcomes.

Cello Health is managed by a single executive Board comprising Stephen Highley (Chair), Julia Ralston (CEO USA) and Jane Shirley (CEO Europe and Asia), supported by a leadership team. The business has a central senior business development function. During the course of 2013 the board of Cello Health plans to transition its core operating brands into a single brand format reflecting the Cello Health positioning, as Cello Health transitions into the lead client facing identity. This will enable it to compete more effectively, with better sharing of professional resource, and to raise Cello Health's market profile.

The international profile of Cello Health has progressed considerably. In July 2012 Cello Health moved to new, enlarged premises in New York, complemented by the Philadelphia office of MedErgy. During the course of 2013 the business will open an office in Chicago to service the North West of the US and the Philadelphia office is being materially expanded to allow further growth in headcount. All of Cello Health's core businesses are now represented in the US market, which is by far the largest market for such services globally.

The business continues to invest in organic expansion. In 2012 investments were made in quantitative research to complement the dominant qualitative research focus of the business; geographical expansion; the development of an integrated Market Access proposition; and the development of a focused Consumer Health offering. The recent acquisition of Mash in early 2013 has been a significant addition to the effort to build a major global offering in the Consumer Health space. The Board of Cello Health is charged with demonstrating profitable revenue flow from these investment activities.

Innovation is at the core of Cello Health's proposition. Cello Health's digital capabilities have continued to gain market traction. eVillage, the division's social media research product for the pharmaceutical industry, made a material contribution to revenues in 2012. In 2012 Cello Health also launched Cello Business Sciences, a bespoke web-based analytical tool for marketing directors in the pharmaceutical industry.

Notable, disclosable client wins in 2012 included: Actelion, Ahlstrom, Airwave, Alix Partners, Allergan, Amgen, AVEBE, Avery Dennison, Boehringer Ingelheim, Boots Opticians, Centro, CooperVision, EE, GE Healthcare, General Mills, Infineum, Johnson and Johnson, Mundipharma, NEST, Novartis, Shionogi, Synergy, TATA Group, Tunstall Healthcare, and Vision Care.

Cello Consumer

Cello Consumer delivered headline operating profit of £3.0m (2011: £3.4m) on gross profit of £32.7m (2011: £32.6m). This represented a solid recovery following a challenging first half in 2012 caused by a temporary slowdown of research activity by a range of large clients, consistent with that experienced by the market overall. Operating margins were 9.1% (2011: 10.4%).

Cello Consumer is based on three core capabilities - Insight: helping clients identify market and customer issues and opportunities; Creative: helping clients solve their customer issues and capture opportunities through communications processes; and Logistics: helping clients execute these plans most cost effectively. These capabilities are represented by 2CV and Face on the research side; Leith Group on the creative side; and by Bright Group on the logistics side. These core brands are in turn supported by a number of specialist sub brands.

Cello Consumer is managed by an executive Board led by Mark Scott (Chair) and John Rowley (CEO) along with six other executives. The mission of the Board is to establish Cello Consumer as a leading global advisor to marketing clients, enabling them to better manage relationships with customers in an increasingly digital context. Cello Consumer responds to clients increasing need for speed of response, need to drive down cost and need to show immediate return on marketing investment. As part of this process Cello Consumer will be changing its name in 2013 into a client facing brand to help drive additional revenue into the core branded engines of the business.

Cello Consumer has a very high quality, blue chip, client list that will underpin global business growth. The primary client segments served by Cello Consumer are fmcg, mobile telephony, computer games, financial services, as well as charities. The largest client accounted for less than 3% of total revenues for Cello Consumer.

Cello Consumer has continued to develop a strong digital footprint. Through its brand Face, the Group has established an industry leading capability in social media based advisory work, backed by

software enabled analytical products. Through its brand Blonde, it also has a highly successful offering in digital communications and web-based marketing. In addition, through its brand Brightsource, it has developed an industry leading capability in digital based print management, communications planning and delivery.

Cello Consumer has been rapidly transforming itself from a UK focused business into a global business. With offices in San Francisco, Los Angeles, New York, Singapore and Hong Kong, it can truly offer global coverage. International gross profits have grown from 18.2% in 2011 to 20.6% in 2012 and this trend is accelerating.

Notable, disclosable client wins in 2012 included: AB Inbev, Aer Lingus, Air Malta, Airwick, Aldi, ANZ, AOL, Arla, Asia Pacific Breweries, Avon, Bang and Olufsen, Barnes and Noble, BBC Global business, Ben & Jerry's, Berry Bros, BHF furniture stores, British Gas, British Red Cross, Britvic, Camelot, Church & Dwight, Coutts, Dairy Crest, Debenhams, Delhaize Group, Edrington, Electrolux, EMC, Eurostar, Fitflop, Forestry Commission, General Motors, Glasgow 2014 Commonwealth Games, Hallmark, Heathrow Express, HSBC, ING, Johnson & Johnson, Land Securities, Liberty Mutual, Lipton, Magic Radio, Magnum, Malaysia Airlines, Marie Curie Cancer Care, Marriott, Montpelier Group, Mortein, NBC, NHS, Nokia, O2, Odeon, Pfizer, Philips, Phones 4U, Powerade, Pronova, Quaker, RBK, RBS, Royal Mail, Save the Children, Scottish Widows, Sky, Skyscanner, Stansted Airport, Strategic Defence, Tesco, The Alzheimers Society, Timberland, Toyota, and Veolia Water.

People

Cello maintains a range of initiatives that span the entire Group, encompassing both Cello Health and Cello Consumer, which are aimed at developing and retaining the Group's professional resource. At the heart of this is the Cello Partnership which comprises 44 Associates, 31 Partners and 13 Managing Partners. The Partnership meets regularly and forms sub-groups to address areas critical to the future of the business, notably innovation, international expansion and cross group working. Many Partners and Associates are alumni of Cello Academy.

Cello Academy is the Group's well respected and proprietary training programme which has been in place for seven years, and through which over 150 people have passed during that time. In addition there is a Cello graduate forum for the substantial annual graduate in-take of the Group. In 2012 33 new graduate trainees were recruited over the course of the year (2011: 28).

In order to properly incentivise the Partnership the Group administers a robust and demanding annual bonus scheme that rewards based on performance.

As part of making a difference, Cello invests in helping its professionals engage in socially contributive activities with a health orientation. In particular, Cello has invested in creating Talking Taboos, a research programme aimed at supporting selected charities to further develop their positions and raise their profile supported by market data. In 2013 Cello aims to launch Talking Taboos as a charitable foundation led by Vincent Nolan.

Current Trading and Outlook

Cello began 2013 with a good level of secured forward bookings and has also seen encouraging levels of new business wins so far in 2013. This solid start to 2013 means that the Group is in a good position to progress against its growth goals. The strong balance sheet position of the Group means it is able to materially increase the full year dividend, as well as further invest in the growth strategy of the Group. At this early stage of the year, the Board is confident that current expectations for 2013 can be met.

Allan Rich

Non-Executive Chairman

12March 2013

CONSOLIDATED INCOME STATEMENT

for the year ended 31 December 2012

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

for the year ended 31 December 2012

CONSOLIDATED BALANCE SHEET

31 December 2012

CONSOLIDATED CASHFLOW STATEMENT

for the year ended 31 December 2012

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

for the year ended 31 December 2012

SIGNIFICANT ACCOUNTING POLICIES

1. Basis of Preparation

The financial information included in this report does not amount to full financial statements within the meaning of Section 434 of Companies Act 2006. The financial information has been extracted from the Group's Annual Report and financial statements for the year ended 31 December 2012, on which an unqualified report has been made by the Company's auditors, PricewaterhouseCoopers LLP.

Financial statements for the year ended 31 December 2011 have been delivered to the Registrar of Companies; the report of the auditors on those account were unqualified and did not contain a statement under Section 498 of the Companies Act 2006. The 2012 statutory accounts are expected to be published on 11 April 2013.

During the year the Group generated a profit before tax on continuing activities of £1.4m and excluding non-recurring restructuring costs and other non-headline charges the Group generated a profit before tax of £7.0m.

The Group meets its day to day working capital requirements through its bank facilities. The Group's bank facilities consist of a £4.0m overdraft facility and a £25.0m revolving credit facility which is committed to March 2016. £12.7m of the revolving credit facility is undrawn at 31 December 2012 and the Groups forecasts and projections show that the Group is able to operate within the level of its current facilities.

After reviewing the Group's performance and forecast future cash flows, the directors consider the Group has adequate resources to continue in operational existence for the foreseeable future. The Group therefore continues to adopt the going concern basis in preparing the Group's financial statements.

2. Headline Measures

The Group believes that reporting non-GAAP or headline measures provides a useful comparison of business performance and this reflects the way the business is reported internally and controlled. Accordingly headline measures of operating profit, finance income, finance costs, profit before taxation and earnings per share exclude, where applicable, restructuring costs, amortisation of intangible assets, impairment charges, acquisition accounting adjustments, start-up losses, share option charges and fair value gains and losses on derivative financial instruments. These are items that, in the opinion of the directors, are required to be disclosed separately, by virtue of their size or incidence, to enable a full understanding of the Group's financial performance.

A reconciliation between reported and headline profit before taxation is presented in note 1. In addition to this, a reconciliation between reported and headline operating profit is presented in note 2, a reconciliation between reported and headline finance income and costs is presented in note 3 and a reconciliation between reported and headline earnings per share is presented in note 11. Headline measures in this report are not defined terms under IFRSs and may not be comparable with similarly titled measures reported by other companies.

3. Accounting Estimates and Judgements

The Group makes estimates and judgements concerning the application the Group's accounting policies and concerning the future. The resulting estimates may, by definition, vary from the actual results. Estimates are based on historical experience and various other assumptions that management and the Board of directors believe are reasonable.

The directors consider the critical accounting estimates and judgements used in the financial statements and concluded that the main areas of judgements are:

i. Revenue recognition policies in respect of contracts which straddle the year end.

The Group is required to make an estimate of the project completion levels in respect of contracts which straddle the year end for income recognition purposes. Estimates are based on expected total costs and revenues from each contract. This involves a level of judgement and therefore differences may arise between the actual and estimated result. Where immaterial differences arise they are recognised in the income statement for the following reporting period. Any material changes to these estimates would affect revenue recognised in the financial statements and the level of deferred or accrued income on the balance sheet.

ii. Contingent deferred consideration payments in respect of acquisitions and acquisition related employee remuneration.

The Group has estimated the value of future amounts payable in respect of acquisitions. The estimate is based on management's estimates of the relevant entities future performance. If these estimates change in the future as the earn out progresses, the amount of the provision will vary. Any changes to the carrying value of the provision are recognised in the income statement.

As part of a typical acquisition an amount is also payable to the employees of the acquired company. These acquisition related employee remuneration costs are calculated using the same estimates of the relevant entities future performance as the deferred consideration payable. If these estimates change in the future, as the earn out progresses, the amount of the employee liability, which is recognised over the earn out period, will vary. Any changes to the carrying value of these liabilities are recognised in the income statement.

iii. Valuation and amortisation period of separately identifiable intangible assets on acquisitions.

The Group is required to value the separately identifiable intangible assets acquired as part of a business combination. In order to value some of these intangible assets, the Group must make assumptions as to future cash flows derived from these costs and estimate the expected lives of these assets. Changes to these estimates would affect the resulting valuation of goodwill and the amortisation charge recognised in the financial statements.

iv. Impairment of goodwill.

The Group tests goodwill annually for impairment, in accordance with the Group's accounting policy. The recoverable amount is based on value-in-use calculations, which requires estimates of future cash flows and the discount rate to apply in order to calculate the present values of these cash flows. The estimates used and sensitivity of these assumptions is disclosed in note 11.

NOTES TO THE PRELIMINARY ANNOUNCEMENT

1 Reconciliation of Profit on Continuing Operations Before Taxation to Headline Profit Before Tax

2 Segmental Information

For management purposes, the Group is organised into two operating groups; Cello Health and Cello Consumer. These groups are the basis on which the Group reports internally to the plc's board of directors, who have been identified as the chief operating decision makers.

During the year the Group has changed its operating segments, in line with the way the group is managed and reported to the chief operating decision maker. Prior period segmental information has been represented in line with these new operating segments.

The principal activities of the operating segments are as follows:

Cello Health

The Cello Health Division provides market research, consulting and communications services principally to the Group's pharmaceutical and healthcare clients.

Cello Consumer

The Cello Health Division provides market research and direct communications services principally to the Group's consumer facing clients.

Revenues derived from the Group's largest client are less than 10% of the group's total revenue. Revenue derived from the largest client in each operating segment also represents less than 10% of external revenue in each segment.

Sales between segments are carried out at arms-length. The revenue from external parties reported to the chief operating decision maker is measured in a manner consistent with that in the income statement.

2 Segmental Information (continued)

2 Segmental Information (continued)

2 Segmental Information (continued)

The Group's operations are located in the United Kingdom and the USA.

The following table provides an analysis of the Group's revenue by geographical market, based on the location of the client:

3 Finance Income and Costs

4 Loss for the Year

5 Restructuring Costs

6 Start-up Losses