Trading update

6 July 2011

Cello Group plc

Trading update

Cello Group (AIM: CLL, "Cello" or "the Group"), the leading independent insight and strategic marketing group, publishes a trading update for the six months to 30 June 2011.

Summary

Cello has traded solidly in line with the Board's expectations for the first six months of the financial year, with more than 5% growth in headline profits before tax. The research and consulting division of the Group has continued to show good like for like revenue growth.

The Group has accelerated the expansion of its international presence in New York, San Francisco, Philadelphia, Singapore and Basel. Furthermore, the Group has continued to maintain its focus on innovation in social media, with the development of industry leading products.

On 1 July 2011, the Group was informed of the loss of a single large retail research contract following a competitive tender process. In addition, a second smaller retail client has recently entered administration.

The Group has taken immediate action to reduce costs associated with servicing these contracts, predominantly through a reduction in the number of professional staff. The Board expects to incur a full year exceptional charge of approximately £0.5m. The Board believes that full year Group headline profits before tax will be slightly lower than management's previous expectations.

However, based on the Group's positive trading in other areas during the first half of the year, and its strong current pipeline of client activity, the Group may be able to mitigate this impact.

Operating performance

Like for like revenue growth in the research and consulting division has been driven by strong international client spend, particularly in the pharmaceutical sector which has shown continued robustness.

MedErgy, the US healthcare communications consulting business acquired by Cello in March, has had a good first three months as part of the Group, with several significant new business wins. A number of potentially major client opportunities have also arisen through joint client pitches with Cello's existing health businesses. In addition, MedErgy has opened a UK operation to service European clients.

Red Kite, the UK pharmaceutical consulting business acquired by Cello in April, has been successfully integrated with MSI, Cello's primary pharmaceutical consulting business.

The Group continues to invest in its international infrastructure. The Group's offices in New York and San Francisco have continued to expand. With the addition of the MedErgy office in Pennsylvania, the Group now employs nearly 100 people in the United States.

To exploit increasing opportunities in Asia, the Group has also recently opened an office in Singapore with a strong management team. A Swiss office has also been opened to service European pharmaceutical clients.

New business momentum has been strong with material wins over the past six months from: Novo, Shire, Sanofi Aventis, AMREF, Danone, Nestle, Tata, Parkinson's UK, Mundipharma, Philips, Carlsberg, EA Games, Heinz, Janssen Pharmaceuticals, NFU Mutual, Royal Caribbean Cruises Ltd, Sony Ericsson, SimplyHealth, Wrigleys China, Abbott, Actelion, Pfizer, Roche, Novartis, Allergan, Viiv, GSK Biologicals, GSK Global, Sandoz, Steifel, Teva, UCB Pharma, Astellas, Astra Zeneca, Merz, MSD, Merck Serono, Johnson and Johnson, Boots, Advanced Bio Healing, and Vertex.

Tangible, Cello's communications division, has performed in line with the Board's expectations.These expectations reflected the significant decline in public sector spend compared to the same period last year, particularly in Scotland. Following the recent Scottish Parliamentary elections, communications activity in the public sector is resuming, albeit at a reduced level.

Tangible has won significant new business in the past six months from clients including: Endsleigh Insurance, Macmillan Cancer Care, Blue Cross, Friends of the Earth, Clic Sargent, Keesing Media Group, Damart, Birdseye, Lucozade (GSK), Johnson and Johnson , Kimberly Clark, Unilever, Ernst & Young, AstraZeneca, Nike Foundation, Camelot, Reckitt Benckiser, Expedia, Rayban (Luxottica Group), Coleman, Philips, Halifax Share Dealing, Hiscox, Fidelity, JP Morgan, British Heart Foundation, Chelsea FC, VSO, BT, The Post Office,and Jacques Vert.

Digital innovation

The Group continues to innovate, particularly online. Its eVillage product, which specialises in web community development for the pharmaceutical sector, has experienced strong revenue growth and achieved rapid industry-wide recognition. E-Luminate, the web based community research product, has shown good client uptake. Face, the social media research consultancy, continues to grow robustly, and is now trading in New York.

Balance sheet

Net debt is in line with the Board's expectations, reflecting good underlying cashflows, seasonality and planned earnout payments made in the first half of the year. £5.0m of earnouts were settled in April, comprising £2.2m in cash and £2.8m in new ordinary shares issued at 49.5p per share. Following this settlement, the forward earnout liabilities of the Group have been dramatically reduced.

Full year outlook

Revenue visibility remains good across the business. As outlined above, two losses in the retail sector are likely to lead to a slight reduction in management's previous expectations for full year headline profits before tax, though this impact may be mitigated by stronger trading in other areas of the Group.

The strategy of the Group is to continue to build a distinctive position servicing the healthcare and pharmaceutical sector, in addition to a number of other high margin, high growth client sectors, on an international basis.

Mark Scott,Cello Chief Executive, commented:

"Cello is fast developing into a global research and consulting business, with a distinctive focus on the pharmaceutical sector, along with other international, high margin client sectors. Combined with a focused innovation drive, particularly behind social media based research, we are confident that this strategy will deliver strong shareholder value."

Enquiries:

Notes to Editors

Cello is an insight and strategic marketing group. The Group's strategy is to create value for shareholders by building an international research and consulting business able to advise blue chip clients globally, along with a marketing business capable of delivering world class solutions.

Cello has annualised revenue in excess of £125m, annualised operating income in excess of £60m and employs just under 800 professional staff.

www.cellogroup.co.uk