Share price: 162.00p


14th July 2009

Pre-close Trading Update – six months to 30 June 2009

Cello Group plc (“Cello” AIM: CLL, “The Group”), the research and consulting group, today provides the following pre close trading update for the six months to 30 June 2009.

The Group continues to benefit from its focus on pharmaceutical, international, and public sector research and marketing communications activity. This has mitigated weakness in qualitative research and other services where client activity, as expected, has been slower in recent months.

Divisional trading

Within Cello (Research) the pharmaceutical research and consultancy business has continued to perform well and in line with last year. Cello’s quantitative UK research offering and its international research business (which makes up approximately 40% of divisional revenues), has remained solid. Cello also recently renewed two of its largest UK research quantitative contracts in the public and retail sectors.

However, in other sectors of the research market there has been weakness in UK based qualitative research work, which is an industry-wide trend. There has also been continued trading weakness in both the business intelligence and HR research and training units. The cost base in these businesses has been reduced accordingly and the Group expects to reduce the carrying value of these two assets in its interim results.

Tangible, the direct marketing and response network, has experienced strong levels of new business wins in the public sector and resilience amongst key accounts. It recently retained its largest charities account and its primary financial services accounts have also proved resilient. Smaller, specialist account activity across several sectors has been weaker in the first six months and professional resource in these areas has been reduced accordingly.

In aggregate the impact of these specific developments, which are consistent with the overall decline in activity experienced by the market, is that the group has seen like for like gross profits fall by around 10% year on year, with operating margins also squeezed. This has not been helped by recent unfavourable dollar currency movements.

Like for like professional costs have been reduced by around 7%, thereby balancing profit protection with maintenance of professional capacity for recovery. The cost reduction measures outlined above have resulted in an exceptional cost of around £0.4m in the first half.

Cashflow and earn out obligations

Underlying cash flow has remained solid in the first six months of the year.

The Group has now settled in excess of 75% of its obligations under earnout arrangements. In May, the Group settled £7.8m of earn out and deferred consideration payments, satisfied by the payment of £3.2m of cash and the issue of £4.6m of new ordinary shares.

Full year outlook

As stated at the time of the Annual General Meeting on 19 May 2009, the Board remains mindful of the continued impact of the recent economic turmoil on the spending commitments of clients. Core revenue visibility remains solid as contract retention has proved to be good. The Group has also continued to take prudent action to adjust the cost base and remains alert to taking further action where necessary. Therefore, the Board believes that full year headline operating profit in line with the current market consensus is achievable.

Cello Group plans to announce its interim results on Tuesday 15th September 2009.


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