Share price: 161.00p


4th July 2008

The Group has continued to make good progress across both of its operating divisions during the first half of 2008, with healthy like-for-like operating income growth. The Group will therefore deliver headline first half profits in line with expectations.

Divisional Trading

Our research and consulting business has performed well in the first six months. Most notably, our healthcare and public sector practices (which comprise approx 33% of the operating income of the Group) have delivered encouraging levels of growth and have a healthy pipeline going into the second half. Our consumer research businesses have also made an excellent contribution with growth being aided by a number of significant new international client wins and new continuous research projects.

We have continued our organic, client led international growth plan with the establishment of an office in San Francisco and we plan to open shortly in Germany. We have also continued our investment in digital and online research initiatives. Notwithstanding this investment, the Group expects its underlying operating margins in this division to be maintained at previous full year levels.

Our response business, which was rebranded as Tangible Group at the start of the year, has also performed well in the first half. The business is traditionally second half weighted as a substantial number of our charity clients have marketing budgets with a significant second half bias. Revenue visibility from such clients is generally very good. The division also has a growing number of public sector clients with committed spend. Our financial services clients continue to migrate budget to the more accountable elements of marketing spend. The Group expects underlying operating margins in this division to be at least one percentage point higher than the comparable period in 2007.


The overall headcount of the Group has risen by 3% in the first six months of the year to over 820 people. We have invested in our growing digital, data, and UK qualitative research businesses. In some other areas of the Group headcount has been reduced as a matter of due prudence given the general economic outlook. As part of our regular review of our fixed cost structure, we have reduced annualised salary costs by £1.0m at a cost of £0.5m during the first half.

Debt and Earn Out Obligations

In line with the Group’s prudent funding policy, we have maintained a relatively low level of net debt and future cash obligations under earn out commitments. We expect net debt at 30 June 2008 to be c.£15.0m, and well within our agreed banking facilities.

In April 2008, the Group settled £14.4m of earn out and deferred consideration payments to over 80 vendors and employees of businesses acquired in 2004 and also some deferred initial consideration in respect of an acquisition made in 2007. This was satisfied by the payment of £8.0m in cash or loan notes and the issue of 5.6m shares at 114.5p.

Following this substantial settlement, the Group estimates that its future earn out liabilities have almost halved since 31 December 2007 to around £15.0m. The Group estimates that these future earn out obligations, payable between 2009 and 2013, will be settled by a minimum of £5.8m payable in loan notes and up to £9.2m payable by the issue of new shares.

Full Year Outlook

As stated at the time of the Annual General Meeting on 20 May 2008, the board is mindful of the macro economic environment and its potential impact on our business. We have good revenue visibility for the next quarter and subject to further conversion of existing opportunities and market conditions, we remain cautiously optimistic for the full year. We continue to actively manage our cost base across the Group.

We plan to announce our interim results on Tuesday 17 September 2008 and will further update the market on the trading outlook for the full year at that time.


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Cello Health plc

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8-9 Queen Street



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