Trading update

Cello Group plc

(the "Group" or the "Company")

Cello, the leading insight and strategic marketing group, publishes a trading update for the six months to 30 June 2012.

Summary

Cello has traded in line with the Board's expectations for the first six months of the financial year.

The Group has made material progress in its' strategy of focusing Cello on servicing the pharmaceutical and health sectors, along with other selected high margin areas. Pharmaceutical revenues have grown strongly, following solid increases in activity from existing clients and good new business generation. This area of the Group's activity also benefits from having a high exposure to international revenue flows.

Looking forward, the Board believes that the Group will trade in line with its full year headline market expectations.

Operating Performance

Research and Consulting

Overall, Cello's research and consulting division traded in line with expectations for the first six months. This encompassed a continued strong performance from the pharmaceutical and health activities of the division and a relatively weak performance from some areas of the consumer insight activities of the division.

The pharmaceutical and health activities of the division have continued to expand at a good rate, with a focus on strategy consulting, market research and scientific communications. These businesses are working closely together, generating incremental business through shared business development activity and sharing of professional resource. The Group is planning to organically enlarge the US footprint of this business in 2012, with a material increase in office space in New York.

Some areas of Cello's non pharmaceutical research activity have suffered from an industry wide slow-down in client spend. Action has been taken to consolidate operations and exit leases where possible, as well as reducing headcount. The Board expects the combined effect of this action to reverse the deterioration in performance that has occurred in these areas in the first six months. There will be a full year exceptional charge connected to these actions, of approximately £0.6m.

Cello Communications

Cello Communications (Tangible), delivered a six month performance in line with the Board's expectations. The division has experienced good new business momentum, and an anticipated recovery in Scotland. The division's social media consulting and research capability continues to expand at a healthy rate, recently opening in New York and is due to open in Hong Kong later this year. The second largest client of Cello Communications is now a US based client, reflecting the increasing migration away from UK dependency. 

Investment for growth

The Group has made material investment in continuing the organic expansion of the overall business, with a focus on growing healthcare activity and international servicing capability. Cello Business Sciences has been launched to provide analytical support services to pharmaceutical clients; a Singapore office has been opened and will shortly be followed by a Hong Kong office to support the Group's global servicing capability; a consumer health offering, backed with senior hiring, has recently been launched; and the expansion of the Group's New York office is now underway. In due course, these will become important engines of growth for the Group.

Structure

As part of the Group's strategic focus on the healthcare market, Cello's pharmaceutical businesses will be grouped under a single structure, "Cello Health", with a board of directors charged with growing the global reach of the business. As part of this strategy, Cello Health will also be joined by our specialist brand consultancy group of professionals to develop the consumer health proposition, targeted at brand owners with a strong consumer health positioning. In addition, we plan to augment our pharmaceutical research capabilities by grouping certain elements of our general quantitative research capability under Cello Health.

Following this grouping of our pharmaceutical and health activities under Cello Health, we plan to group our consumer centric businesses into a single division called Cello Consumer, encompassing Cello Communications and consumer insight. This will enable the combined business to push more energetically overseas, and particularly into the US. It will also accelerate its movement upstream into more advisory, high margin work. Finally, it will allow it to better leverage its strong digital capability, which constitutes approximately 20% of headcount and revenue.

From the interim results onwards, the Group will report its performance under these two divisions: Cello Health and Cello Consumer.

Balance Sheet

At the half year stage, net debt is in line with the Board's expectations, reflecting the Group's solid underlying cash flows.

Full Year Outlook

The Board believes that the Group will trade in line with its full year expectations at a headline level. It is anticipated that Cello Health will be the primary driver of growth in 2012.

Mark Scott, Cello Chief Executive, commented: "Cello's strategy of focusing on the pharmaceutical sector with high value advisory services continues to bear fruit. The reorganisation of the Group behind this strategy will further galvanise our leadership position in this area. The Group will continue to invest behind increasing its exposure to international client markets as a primary driver of growth, both in the pharmaceutical and other high margin client sectors"

The Group will announce its full interim results on the 19th September 2012.

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