VAT Update

Cello Group plc

('Cello' or the 'Group')

VAT UPDATE

Cello Group PLC ("The Group") announced that on 13 May 2016 it reached agreement in principle with HMRC regarding the settlement of retrospective VAT and related penalties due in relation to historical fund raising activities delivered to charity clients by a division of Cello Signal. The agreement in principle means that there will be a further £2.1m non headline charge in 2016 in relation to this matter in addition to the existing £3.2m provision made in prior periods. The total charge will therefore be £5.3m, including penalties and interest. This total charge is stated pre-recovery from clients, and is before tax relief.

The charity business of Cello Signal has continued to trade well during the period of the dispute, growing its revenue base strongly. This growth is continuing in 2016. The HMRC guidance concerning zero rating of supplies to charities is highly complex and has been recently updated to deal with the variety of services that are provided to charities. Following consultation with HMRC, The Group is comfortable that the business will be compliant with this new guidance going forward. The Group remains fully committed to developing this business and delivering cutting edge solutions to global charity clients.

The Board is pleased that the matter is now effectively concluded, enabling a focused return to the pursuit of the Group's strategic growth agenda.

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