Share price: 112.80p

Interim Results for the six months to 30 June 2018

19th September 2018

Cello Health plc (AIM: CLL), the healthcare-focused advisory group, today announces its interim results for the six month period to 30 June 2018.

Group Financial Highlights

·      Revenue unchanged at £78.5m (2017: £78.7m)

·      Gross profit up 3.9% to £51.0m (2017: £49.1m)

·      Constant currency gross profit growth of 7.3%

·      Like-for-like1 constant currency gross profit growth of 3.0%

·      Cello Health gross profit growth of 11.7%

·      Headline profit before tax2 up 9.3% to £5.1m (2017: £4.6m)

·      Headline operating margin3 improves to 10.4% (2017: 10.0%)

·      Headline basic earnings per share up 5.5% to 3.62p (2017: 3.43p)

·      Statutory profit before tax up 23.5% to £3.3m (2017: £2.7m)

·      Statutory basic earnings per share up 9.3% to 2.36p (2017: 2.16p)

·      Net debt at 30 June 2018 of £5.4m (30 June 2017: £6.8m)

·      Interim dividend up 4.8% to 1.10p (2017: 1.05p)

1  Like-for-like comparisons remove the impact of acquisitions and results from start-ups in 2017 (see note 3)

2 Headline measures are stated before non-headline charges (see note 3)

3 Headline operating margin is defined as headline operating profit as a percentage of segmental gross profit

Divisional Financial Highlights

H1

Cello Health

Cello Signal

£’000

2018

2017

% Growth

2018

2017

% Growth

Segmental gross profit

31,378

28,087

11.7%

19,459

19,851

-2.0%

Headline operating profit

5,659

4,876

16.1%

1,244

1,197

3.9%

Headline operating margin

18.0%

17.4%

6.4%

6.0%

Operating Highlights

·      Increasing profile of the Cello Health brand

·      Continued strong like-for-like constant currency growth in Cello Health

·      Planned office openings in Philadelphia, Boston and Germany

·      Signal successfully building healthcare capability and client base

·      Board changes deepen health focus

·      Acquisition of the healthcare assets of First Light

Mark Scott, Chief Executive, commented: “Cello Health is successfully building its early stage asset development advisory platform for biotech clients, as well as growing its core later stage and post launch franchise with pharmaceutical clients. The depth and breadth of client relationships held by Cello Health under Master Service Agreements (MSAs) is impressive, underpinning revenue visibility. The leadership team is actively engaged with increasing the size of the global service platform, including Signal’s communications capabilities. Signal, and particularly Pulsar, is rapidly building its healthcare franchise. The vision of developing Cello Health into a leading global advisor to healthcare and related clients is taking shape. As the Board goes through a substantial change, I wish to thank Allan Rich, Will David and Paul Hamilton for their key contributions to the development of the business from its founding to today.”

Analyst meeting

A meeting for analysts will be held at 11am at the offices of Buchanan, 107 Cheapside, London EC2V 6DN, on 19 September 2018. For further information, please contact Buchanan on 020 7466 5000.

Enquiries:

Cello Health plc (www.cellohealthplc.com)

Mark Scott, Chief Executive

020 7812 8460

Mark Bentley, Group Finance Director

Cenkos Securities

Mark Connelly/Harry Hargreaves

020 7397 8900

Buchanan

Mark Court, Jamie Hooper, Sophie Wills

020 7466 5000

Notes to Editors

Cello Health plc is a global healthcare-focused advisory Group comprised of a set of leading clinical, commercial advisory and digital delivery capabilities. Cello Health plc currently services 24 of the top 25 pharmaceutical clients globally, as well as a wide range of biotech, diagnostics, devices and other key non-healthcare clients.

Cello Health plc enables clients to commercialise, differentiate their assets, and drive brand success in ever more complex global markets. The business delivers its services through nearly 1,000 highly skilled professionals, utilising latest thinking, technology and digital solutions.

Cello Health plc delivers its services from an office network in the UK, USA, and Asia, with hub offices in New York City, Philadelphia PA, London, Edinburgh, Farnham and Cheltenham.

For further information, please visit: https://cellohealthplc.com

 

Chairman’s Statement

Overview

During the half year, the Group has continued to make good progress in delivering its strategy. The renaming of the Group to Cello Health plc has given increased focus to the business, which continues to develop and extend its broad client base comprising a wide range of global pharmaceutical clients and earlier stage biotech businesses. Revenue visibility remains good, underpinned by a wide range of MSAs, the majority of which are in the large pharmaceutical or biotech community. The proportion of business being won and serviced in the core US market continues to increase as planned.

The senior team is focused on attracting and retaining top-class talent in order to expand the capacity of the business and, at the same time, targeting acquisitions that can be incorporated into the Cello Health brand. Cello Signal continues to make good inroads into the health sector to complement its non-health activities. Cello Signal provides digital, social media and branding expertise, which complements Cello Health’s scientifically led commercial capabilities. The combination of scientifically led commercial advisory skills with an increasing early stage asset development capability and communications delivery skills, enables Cello to differentiate itself in the global market for healthcare services.

Following the retirement of Paul Hamilton and Will David as Non-Executive Directors, we recently welcomed Clifford Tompsett and Jo LeCouilliard as Non-Executive Directors of the Group. Clifford and Jo bring a wealth of experience of the pharmaceutical sector to the Group, which will help shape the growth ambitions of the business. I am also pleased to announce that Julia Ralston, CEO of Cello Health in the US, will shortly be appointed to the Board, bringing the executive team up to four people. Julia’s presence on the Board will ensure appropriate levels of governance and control around our expanding US business.

Finally, after 13 years as a Non-Executive Director, and over ten years as Chairman, it is with much regret that I also wish to announce my planned retirement from the Board in the coming months.

Following almost two years as a Non-Executive Director, Chris Jones will in due course be appointed Chairman of the Group to help guide the next stage of the Group’s growth plan. In the meantime, the Board has commenced the search process for an additional Non-Executive Director to fill Chris’ current role, which will maintain the number of non-executives at four.

I am personally very proud of what we have achieved over the past 13 years and am confident that the Group can fulfil its full potential over the coming years.

Financial Review

 

Gross profit for the six months to 30 June 2018 increased 3.9% to £51.0m (2017: £49.1m) on unchanged revenue of £78.5m (2017: £78.7m). Reported like-for-like gross profit growth was 0.4% (constant currency growth rate of 3.0%). Headline operating profit was up 10.3% to £5.3m (2017: £4.8m). The headline operating margin was 10.4% (2017: 10.0%). Headline pre-tax profit was £5.1m (2017: £4.6m). Further detail on these numbers is provided in the operating review.

The reported tax charge for the period is £0.8m (2017: £0.5m). This incorporates a headline tax rate of 24.7% (2017 full year: 28.2%). The headline tax rate has dropped to reflect the lower US tax rate in the period. This headline tax rate is expected to remain at this level for the foreseeable future.

The Group has 29.8% of its total gross profit earned in the US from US domiciled businesses, and which is therefore denominated in dollars. As such the Group carries a certain amount of foreign exchange risk. The average dollar conversion rate into sterling in the period was $1.38 (2017: $1.26). Given the relative weakness of the dollar in the period, gross profit would have been approximately £1.4m higher in constant currency, and operating profits would also have been approximately £0.3m higher. For the full year, with the dollar recently strengthening, the Group expects this impact to reduce. The average rate for the whole of 2017 was $1.29, and our current forecast average rate for 2018 is $1.32.

Headline basic earnings per share were up 5.5% to 3.62p (2017: 3.43p). Statutory earnings per share were up 9.3% to 2.36p (2017: 2.16p).

The Group’s net debt at 30 June 2018 was £5.4m (31 December 2017: net cash of £1.6m; 30 June 2017: net debt of £6.8m). This increase in net debt in the period is consistent with management expectations and relates to seasonal cash flows that occur in the Signal business. The Group expects to experience strong positive cash flow in the second half as it has done in the past. Total debt facilities are £24.0m and expire in March 2022.

The acquisition of certain assets and staff contracts of First Light Public Relations Limited (“First Light”), a UK based healthcare communications business, was completed on 7 September 2018 for an undisclosed sum. The team of ten are now part of Cello Health Communications and are based in London. The First Light team delivers communication programmes for pharmaceutical and medical technology clients both in the UK and Internationally.

The Group has deferred consideration obligations in respect of the acquisitions in 2017 of Defined Health Research Inc and Cancer Progress LLC (“Defined Health”) and Advantage Health Inc (“Advantage Healthcare”) Such obligations are estimated to total around $6.3m, payable substantially in cash between 2019-2021.

The interim dividend rises 4.8% to 1.10p (2017: 1.05p). The interim dividend is payable on 2 November 2018 to all shareholders on the register on 5 October 2018. The Group continues an unbroken record of annual dividend growth since it began paying dividends in 2006.

As anticipated, losses of £0.5m were incurred from continued investment in start-up activity. This is disclosed below headline operating profit. The start-up losses in 2018 relate solely to the recent launch of Pulsar in the US market. The Group expects start-up losses of this type to be minimal in 2019. Results from start-up operations are not allocated to a segment.

Restructuring charges were nil in the first half of the year and are currently expected to be low in the second half. In 2017 as a whole, such charges amounted to £1.9m.

The following table summarises the adjustments made to calculate headline operating profit. The acquisition related costs of £1.0m (2017: £0.6m) relate to necessary accounting charges for the deferred consideration arising from the acquisition of Defined Health and Advantage Healthcare in 2017.

2018

£m

2017

£m

Headline operating profit

  5.3

 4.8

VAT provision

0.3

Restructuring costs

(0.3)

Start-up losses

(0.5)

(0.8)

Share option charges

(0.2)

(0.2)

Acquisition related costs

(1.0)

(0.6)

Amortisation

(0.1)

(0.3)

Statutory operating profit

3.5

2.9

Net finance costs

(0.2)

(0.2)

Statutory profit before tax

3.3

2.7

 

Operating Review

Cello Health

H1 2018

H1 2017

Full year 2017

£’000

£’000

£’000

Segmental gross profit

31,378

28,087

60,150

Headline operating profit

5,659

4,876

10,639

Headline operating margin

18.0%

17.4%

17.7%

Cello Health had a strong first half of the year, with strong performances in both the UK and the US. Overall, segmental gross profit increased by 11.7% to £31.4m (2017: £28.1m) and like-for-like constant currency gross profit growth was 7.2%. The business combines a core focus on growing its position with large pharmaceutical clients, underpinned by MSAs, with a growing capability in the early stage biotech area.

The Consulting and Insight capabilities of Cello Health grew like-for-like gross profit by more than 10.0%. Insight in the UK had a very strong first half as record levels of bookings from the prior year were delivered in the period. This level of activity has now normalised in the second half, with some slowing of bookings as a consequence of the new GDPR regime coming into force. The Consulting practice also had a very busy first half in the UK. Investment in additional capacity in both these capabilities is ongoing and is a priority in the second half to enable continued fast rates of growth in 2019.

The Communications capability has continued to grow strongly particularly in the US, with core clients continuing their long-term pre-launch communications development programmes. A ten-person team from First Light were recently acquired to enlarge the UK-based servicing capacity of the Communications capability, based in one of our existing London offices.

Following the expiry of a lease, we recently completed our consolidation of operations into our core London office structures, ensuring full utilisation of all central office space and maximising coordination of client teams. This will help with margin enhancement efforts across the business.

The US acquisitions made in 2017 continue to perform in line with expectations and are contributing fully to the ongoing programme of enhancing the client offer under the Cello Health brand. Investment will be also be made in the US in the second half with the opening of a central Philadelphia office to complement the existing hub office in Yardley, PA. A permanent office in Boston is also planned to open shortly. Overall, the US domiciled operations contributed 45.2% of Cello Health’s gross profits in the first half (H1 2017: 42.6%).

Plans are also progressing for the opening of a German office in the near future to further develop the European client base of Cello Health.

The investment made in new business activity has continued to drive awareness of the Cello Health brand. The Cello Health brand was present at a number of industry conferences during the period, notably at the 2018 BIO International Convention in Boston. This programme of brand development is ongoing, alongside a vigorous programme of client outreach. Cello Health continues to invest in a global new business team which continues to successfully grow the market share of the business.

The management team of Cello Health continue to focus on growing the professional capacity of the business, with headcount globally increasing by 5% over the past 12 months. Supported by a graduate recruitment programme and training process under the Cello Academy banner, Cello Health continues to successfully attract and retain top talent from the industry.

 

Cello Signal

 

H1 2018

H1 2017

Full year 2017

£’000

£’000

£’000

Segmental gross profit

19,459

19,851

40,961

Headline operating profit

1,244

1,197

3,872

Headline operating margin

6.4%

6.0%

9.5%

Cello Signal has had a good first six months and is on track to meet financial expectations of increased productivity and hence a raised operating profit margin. The slight decline in gross profit is attributable largely to the reduction in unprofitable activity on the West Coast of the US in 2017. This has also contributed to an overall increase in operating margin.

The development of the Cello Signal offer for health clients continues to make progress, with a pleasing number of new health-related clients won across the business, ranging from regulatory clients (EFPIA), to government and social health work (Scottish Government), to consumer health work (Reckitt Benckiser; BUPA), to work on prescription pharmaceuticals (Novo Nordisk; Celgene; Sanofi). An increasing number of joint pitches are being made and won in cooperation with Cello Health. In particular, Pulsar, in partnership with Cello Health Logic, has been an instrumental element within cross-Group client activity in the health area, as pharmaceutical and biotech clients begin to engage with social media as a key data source.

Client activity across the rest of Cello Signal was as expected, with the wide range of charity, financial services, government and utility clients all committing to solid levels of activity, largely driven by regulatory communications requirements. Overall visibility remains good, despite some evidence of slower decision making by certain UK clients.

Central Costs

Central costs, which are not allocated to a segment, have risen from £1.3m to £1.6m in the first half of 2018 to reflect the increased costs of running the necessary central functions in the US domiciled operations of the Group.

Outlook

 

The Group has continued to trade well over the summer period and overall visibility remains good. Accordingly, the Board remains confident of delivering a full year result in line with current market expectations.

Allan Rich,

Chairman

19 September 2018

 

Condensed Consolidated Income Statement

For the six months ended 30 June 2018

 

 

 

Notes

Unaudited

Six months ended

30 June 2018

£’000

Unaudited

Six months ended

30 June 2017

£’000

Audited

Year ended

 31 December 2017

£’000

Continuing operations

Revenue

4

78,514

78,653

 169,292

Cost of sales

(27,503)

(29,569)

(66,807)

              

              

              

Gross profit

4

51,011

49,084

102,485

Operating expenses

(47,462)

(46,229)

(96,309)

              

              

              

Operating profit

4

3,549

2,855

6,176

Finance income

5

1

Finance costs

5

(218)

(157)

(360)

              

              

              

Profit from continuing operations before taxation

 

 

 

3,331

 

2,698

 

5,817

Taxation

6

(840)

(513)

(1,589)

              

              

              

Profit from continuing operations

after taxation

 

2,491

 

2,185

 

4,228

              

              

              

Unaudited

Six months ended

30 June 2018

£’000

Unaudited

Six months ended

30 June 2017

£’000

Audited

Year ended

31 December 2017

£’000

Basic earnings per share

8

2.36p

2.16p

4.09p

Diluted earnings per share

8

2.32p

2.13p

4.03p

 

 

Condensed Consolidated Statement of Comprehensive Income

For the six months ended 30 June 2018

Unaudited

Six months ended

30 June 2018

£’000

Unaudited

Six months ended

30 June 2017

£’000

Audited

Year ended

31 December 2017

£’000

Profit for the period

2,491

2,185

4,228

Other comprehensive income/(expense):

Exchange differences on translation of foreign operations

104

(138)

(238)

              

              

              

Total comprehensive income for the period

2,595

2,047

3,990

              

              

              

 

Condensed Consolidated Balance Sheet

As at 30 June 2018

 

 

 

Notes

Unaudited

30 June 2018

£’000

Audited

31 December 2017

£’000

Goodwill

9

73,172

72,998

 72,954 

Intangible assets

1,155

813

1,192 

Property, plant and equipment

2,946

2,753

2,840 

Deferred tax assets

1,352

1,239

 1,081

               

               

               

Non-current assets

78,625

77,803

78,067

               

               

               

Trade and other receivables

44,309

45,284

54,520

Cash and cash equivalents

1,868

2,144

13,021

               

               

               

Current assets

46,177

47,428

67,541

               

               

               

Trade and other payables

(32,706)

(32,823)

(49,378)

Current tax liabilities

(412)

(1,143)

(438)

Borrowings

(112)

(8,906)

(59)

Obligations under finance leases

(11)

(14)

(14)

               

               

               

Current liabilities

(33,241)

(42,886)

(49,889)

              

              

               

Net current assets

12,936

4,542

17,652

               

               

               

Total assets less current liabilities

91,561

82,345

95,719

               

               

               

Trade and other payables

(1,125)

(486)

(1,400)

Borrowings

(7,136)

(11,333)

Obligations under finance leases

(29)

(10)

(3)

Deferred tax liabilities

(127)

(77)

(110)

               

               

               

Non-current liabilities

(8,417)

(573)

(12,846)

               

               

               

Net assets

83,144

81,772

82,873

               

               

               

Equity

Share capital

10

10,516

10,412

10,501

Share premium

32,758

32,673

32,705

Merger reserve

25,446

25,446

25,446

Capital redemption reserve

50

50

50

Retained earnings

13,294

12,160

13,368

Share-based payment reserve

997

952

824

Foreign currency reserve

83

79

(21)

              

              

              

Total equity

83,144

81,772

82,873

               

               

               

 

 

 

 

Condensed Consolidated Cash Flow Statement

For the six months ended 30 June 2018

 

 

 

Notes

Unaudited

Six months ended

30 June 2018

£’000

Unaudited

Six months ended

30 June 2017

£’000

Audited

Year ended

31 December 2017

£’000

Net cash (used in)/generated from operating activities before taxation

11

(2,071)

(8,263)

4,792

Tax paid

(1,166)

(409)

(2,066)

              

              

              

Net cash generated (used in)/from operating activities after taxation

(3,237)

(8,672)

2,726

              

              

              

Investing activities

Interest received

1

Purchase of property, plant and equipment

(649)

(653)

(1,462)

Sale of property, plant and equipment

32

13

30

Expenditure on intangible assets

(302)

(182)

(409)

Purchase of subsidiary undertakings

(4,127)

(5,259)

              

              

              

Net cash used in investing activities

(919)

(4,949)

(7,099)

              

              

              

Financing activities

Proceeds from issuance of shares

68

14,267

14,388

Dividends paid to equity holders

(2,563)

(2,478)

(3,575)

Net repayment of borrowings

(4,497)

(3,000)

(100)

Repayment of loan notes

(17)

(96)

(96)

Increase in overdrafts

70

Capital element of finance lease payments

(36)

(9)

(16)

Interest paid

(237)

(157)

(362)

              

              

              

Net cash generated (used in)/from financing activities

(7,212)

 

8,527

 

 10,239

              

              

              

Movements in cash and cash equivalents

Net (decrease)/increase in cash and cash equivalents

(11,368)

(5,094)

5,866

Exchange gains/(losses) on cash and bank overdrafts

215

(228)

(311)

Cash and cash equivalents at the beginning of the period

13,021

7,466

7,466

              

              

              

Cash and cash equivalents at end of the period

1,868

2,144

13,021

               

               

               

 

 

 

 

Condensed Consolidated Statement of Changes in Equity

For the six months ended 30 June 2018

 

Statement of changes in equity for the six months ended 30 June 2018:

Share

Capital

£’000

 

Share Premium

£’000

Merger Reserve

£’000

Capital Redemption Reserve

£’000

Retained Earnings

£’000

Share-based Payment Reserve

£’000

Foreign Currency

Exchange Reserve

£’000

Total Attributable to Equity Shareholders

£’000

At 1 January 2018

10,501

32,705

25,446

50

13,368

824

(21)

82,873

           

            

            

            

            

            

            

            

Profit for the period

2,491

2,491

Other comprehensive loss:

Currency translation

104

104

           

            

            

            

            

            

            

            

Total comprehensive income in the period

 

 

 

 

 

2,491

 

 

104

 

2,595

           

            

            

            

            

            

            

            

Transactions with owners:

Shares issued

15

53

68

Credit for share-based incentives

 

 

 

 

             –

 

 

203

 

 

203

Tax on share-based payments recognised directly in equity

 

 

 

 

             –

 

(32)

 

 

 

(32)

Transfer between reserves in respect of share options

 

 

 

 

 

30

 

(30)

 

 

Dividends paid (note 7)

(2,563)

(2,563)

           

            

            

            

            

            

            

            

Total transactions with owners

 

15

 

53

 

 

 

(2,565)

 

173

 

 

(2,324)

           

            

            

            

            

            

            

            

At 30 June 2018

10,516

32,758

25,446

             50

13,294

997

83

83,144

           

            

            

            

            

            

            

              

 

Statement of changes in equity for the six months ended 30 June 2017:

 

Share

Capital

£’000

 

Share Premium

£’000

Merger Reserve

£’000

Capital Redemption Reserve

£’000

Retained Earnings

£’000

Share-based Payment Reserve

£’000

Foreign Currency

Exchange Reserve

£’000

Total Attributable to Equity Shareholders

£’000

At 1 January 2017

8,760

19,162

25,446

50

12,159

760

217

66,554

           

            

            

            

            

            

            

            

Profit for the period

2,185

2,185

Other comprehensive loss:

Currency translation

(138)

(138)

           

            

            

            

            

            

            

            

Total comprehensive income in the period

 

 

 

 

 

2,185

 

 

(138)

 

2,047

           

            

            

            

            

            

            

            

Transactions with owners:

Shares issued

1,652

13,511

15,163

Credit for share-based incentives

 

 

 

 

             –

 

 

229

 

 

229

Tax on share-based payments recognised directly in equity

 

 

 

 

             –

 

257

 

 

 

257

Transfer between reserves in respect of share options

 

 

 

 

 

37

 

(37)

 

 

Dividends paid (note 7)

(2,478)

(2,478)

           

            

            

            

            

            

            

            

Total transactions with owners

 

1,652

 

13,511

 

 

 

(2,184)

 

192

 

 

13,171

           

            

            

            

            

            

            

            

At 30 June 2017

10,412

32,673

25,446

50

12,160

952

79

81,772

           

            

            

            

            

            

            

              

 

 

 

 

 

 

Statement of changes in equity for the year ended 31 December 2017:

Share

Capital

£’000

Share Premium

£’000

Merger Reserve

£’000

Capital Redemption Reserve

£’000

Retained Earnings

£’000

Share-based Payment Reserve

£’000

Foreign Currency Exchange Reserve

£’000

Total Attributable to Equity Shareholders

£’000

At 1 January 2017

8,760

19,162

25,446

50

12,159

760

217

66,554

            

            

            

            

            

            

            

              

Profit for the year

4,228

4,228

Other comprehensive loss:

Currency translation

(238)

(238)

            

            

            

            

            

            

            

              

Total comprehensive profit for the period

 

 

 

 

 

4,228

 

 

(238)

 

3,990

            

            

            

            

            

            

            

              

Transactions with owners:

Shares issued

1,741

13,543

15,284

Credit for share-based incentives

 

 

 

 

 

 

430

 

 

430

Tax on share-based payments recognised directly in equity

 

 

 

 

 

 

 

 

 

 

190

 

 

 

 

 

 

190

Transfer between reserves in respect of share options

 

 

 

 

 

366

 

(366)

 

 

Dividends paid (note 7)

(3,575)

(3,575)

            

            

            

            

            

            

            

              

Total transactions with owners

 

1,741

 

13,543

 

 

 

(3,019)

 

64

 

 

12,329

            

            

            

            

            

            

            

              

 

At 31 December 2017

 

10,501

 

32,705

 

25,446

 

50

 

13,368

 

824

 

(21)

 

82,873

            

            

            

            

            

            

            

              

 

Notes to the Financial Information

For the six months ended 30 June 2018

 

1.   ACCOUNTING POLICIES AND BASIS OF PREPARATION

The condensed consolidated financial information for the six months ended 30 June 2018 has been prepared in accordance with IAS 34 Interim Financial Reporting, as adopted by the European Union. The condensed consolidated financial information should be read in conjunction with the annual financial statements for the year ended 31 December 2017, which have been prepared in accordance with IFRSs as adopted by the European Union.

The condensed consolidated financial information does not comprise statutory accounts within the meaning of section 434 of the Companies Act 2006. Statutory accounts for the year ended 31 December 2017 were approved by the Board of Directors on 21 March 2018 and delivered to the Registrar of Companies. The report of the auditors on those accounts was unqualified, did not contain an emphasis of matter paragraph and did not contain any statement under section 498 of the Companies Act 2006.

The condensed consolidated financial information was approved for issue on 18 September 2018 and has not been audited.

The accounting policies applied are consistent with those of the annual financial statements for the year ended 31 December 2017, as described in those annual financial statements, except for the adoption of IFRS 9 Financial Instruments and IFRS 15 Revenue from Contracts with Customers. The adoption of IFRS 9 and IFRS 15 have not had a material impact on this interim financial information.

 

2.   SEASONALITY OF OPERATIONS

The Cello Health division is not materially influenced by seasonal factors. However, there are a number of clients in the Cello Signal division who traditionally commission activity in the second half of the year leading to increased revenues for that period with respect to those clients.

 

3.   NON-GAAP MEASURES

The Group believes that reporting non-GAAP or headline measures provides a useful comparison of business performance and reflects the way the business is controlled.  The Group reports two types of non-GAAP measure, headline measures and like-for-like gross profit.

Headline measures

Non-headline gains and losses are items that, in the opinion of the Directors, are required to be disclosed separately, by virtue of their size, nature or incidence, to enable a full understanding of the Group’s underlying financial performance.  Accordingly, headline measures exclude, where applicable, the effect of the following items:

i.          Restructuring costs – these costs principally relate to redundancy costs.

ii.    Net (credit)/charge for VAT payable and related costs – these costs relate to the VAT payable to HMRC in respect of certain charity clients.  This is reported net of recovery from clients

iii.   Employment settlement and related costs – these costs relate to the payment made to the prior employer of senior staff hired to establish the Cello Health BioConsulting business, in respect of post-employment restrictions.

iv.   Start-up losses – these are defined as the net operating result in the period of the trading activities that relate to new offices, new products, or new organically started businesses. Activities so defined will cease being separately identified where, in the opinion of the Directors, the activities show evidence of becoming sustainably profitable or are closed, whichever is earlier. In any event, start-up losses will cease being separately identified after two years from the commencement of the activity.

v.    Amortisation of intangible assets – this is in respect of amortisation charged against separately identifiable intangible assets acquired as part of a business combination.

vi.   Acquisition related employee remuneration expense – costs with regards to deferred payments payable to vendors and certain employees of a company in accordance with the purchase agreement of the acquired company or business. In accordance with IFRS 3 Business Combinations, these costs are recognised in the income statement by virtue of employment conditions in the relevant share purchase agreement.

vii.  Share option charges – these costs represent the fair value of share options charged to the income statement and are separately identified due to their nature.

Headline measures in this report are not defined terms under IFRS, and may not be comparable with similarly titled measures reported by other companies.

A reconciliation between statutory and headline profit before taxation is presented in below:

Unaudited

Six months ended

 30 June 2018

£’000

Unaudited

Six months ended

 30 June 2017

£’000

Audited

Year ended

 31 December 2017

£’000

Profit from continuing operations before taxation

3,331

2,698

5,817

Restructuring costs

281

1,916

Net credit for VAT payable and related costs

 (259)

(259)

Post-employment restrictions settlement and related costs

   37

48

Start-up losses

465

 832

1,350

Acquisition costs

139

243

Amortisation of intangible assets

131

261

510

Acquisition related employee remuneration expense

946

425

1,364

Share option charges

203

229

430

              

              

              

Headline profit before taxation

5,076

4,643

11,419

              

              

              

Headline profit before tax is made up as follows:

Headline operating profit

5,294

4,800

11,778

Headline finance income

1

Headline finance costs

(218)

(157)

(360)

              

              

              

5,076

4,643

11,419

              

              

              

In addition, a reconciliation between statutory and headline earnings per share is presented in note 8.

 

Like-for-like gross profit follows:

Like-for-like gross profit measures adjusts reported gross profit for the following items:

i.    They exclude the results of companies or businesses acquired in the current period

ii.    They exclude the results of acquired companies or businesses in the current period to the extent that those companies or businesses were not in the Group in that prior period.

iii.   They exclude the results from start-ups in the current period.

iv.   They include the results from start-up operations in the prior period to the extent they are included within an operating segment in the current period.

Like-for-like measures are also calculated both with and without the impact of movements in currency. These measures are also disclosed in the table below.

 

 

 

Growth

Unaudited

Six months ended

30 June 2018

£’000

Unaudited

Six months ended

30 June 2017

£’000

Reported gross profit

3.9 %

51,011

49,084

Acquisitions

(1,658)

Start-ups

(174)

(118)

              

              

Like-for-like gross profit

0.4 %

49,179

48,966

Currency impact

1,278

              

              

Currency adjusted like-for-like gross profit

3.0 %

50,457

48,966

              

              

These measures can be allowed to the Group’s operating segments (note 4) as follows:

Reported gross profit

Cello Health

11.7 %

31,378

28,087

Cello Signal

(2.0)%

19,459

19,851

Other

174

1,146

              

              

Total

3.9 %

51,011

49,084

              

              

Like-for-like gross profit:

Cello Health

3.1 %

29,720

28,817

Cello Signal

(3.4)%

19,459

20,149

              

              

0.4 %

49,179

48,966

              

              

Currency adjusted like-for-like gross profit:

Cello Health

7.2 %

30,902

28,817

Cello Signal

(2.9)%

19,555

20,149

              

              

Total

3.0 %

50,457

48,966

              

              

 

4.   SEGMENTAL INFORMATION

For management purposes, the Group is organised into two operating groups; Cello Health and Cello Signal. These groups are the basis on which the Group reports internally to the plc’s Board of Directors, who have been identified as the chief operating decision makers.

Revenue and costs not included in one of these operating segments, for example central overheads and results from start-up operations, have not been allocated to an operating segment in line with the way they are reported to the chief operating decision makers.

Six months ended 30 June 2018

 

 

 

 

Cello Health

 £’000

 

 

Cello Signal

£’000

 

Consolidated and Unallocated

£’000

 

 

Group

£’000

Revenue

External sales

42,766

35,124

624

78,514

Intersegment revenue

16

55

(71)

                  

                  

                  

                  

Total revenue

42,782

35,179

553

78,514

                  

                  

                  

                  

Gross profit

31,378

19,459

174

51,011

                  

                  

                  

                  

Operating profit

Headline operating profit (segment result)

5,659

1,244

(1,609)

5,294

                  

                  

                  

Start-up losses

(465)

Amortisation of intangible assets

(131)

Acquisition related employee remuneration expense

(946)

Share option charges

(203)

                  

Operating profit

3,594

Finance costs

(218)

                  

Profit from continuing operations before taxation

3,331

                  

Other information

Capital expenditure

354

331

23

708

                  

                  

                  

                  

Capitalisation of intangible assets

302

302

                  

                  

                  

                  

Depreciation of property plant and equipment

344

268

3

615

                  

                  

                  

                  

 

 

Six months ended 30 June 2017

 

 

 

 

Cello Health

 £’000

 

 

Cello Signal

£’000

 

Consolidated and Unallocated

£’000

 

 

Group

£’000

Revenue

External sales

39,875

37,506

1,272

78,653

Intersegment revenue

25

(25)

                  

                  

                  

                  

Total revenue

39,875

37,531

1,247

78,653

                  

                  

                  

                  

Gross profit

28,087

19,851

1,146

49,084

                  

                  

                  

                  

Operating profit

Headline operating profit (segment result)

4,876

1,197

(1,273)

4,800

                  

                  

                  

Restructuring costs

(281)

Recovery of VAT from clients

259

Post-employment restrictions settlement and related costs

(37)

Start-up losses

(832)

Acquisition costs

(139)

Amortisation of intangible assets

(261)

Acquisition related employee remuneration expense

(425)

Share option charges

(229)

                  

Operating profit

2,855

Finance costs

(157)

                  

Profit from continuing operations before taxation

 

2,698

                  

Other information

Capital expenditure

456

196

1

653

                  

                  

                  

                  

Capitalisation of intangible assets

182

 182

                  

                  

                  

                  

Depreciation of property plant and equipment

303

337

9

649

                  

                  

                  

                  

 

Year ended 31 December 2017

 

 

Cello Health

£’000

 

 

Cello Signal

£’000

Consolidation Adjustments and Unallocated

£’000

 

 

Group

£’000

Revenue

External sales

85,465

81,905

1,922

169,292

Intersegment revenue

25

133

(158)

               

               

               

               

Total revenue

85,490

82,038

1,764

169,292

               

               

               

               

Gross profit

60,150

40,961

1,374

102,485

               

               

               

               

 

Operating profit

Headline operating profit (segment result)

10,639

3,872

(2,733)

11,778

               

               

               

Restructuring costs

(1,916)

Net charge for VAT payable and related costs

259

Employment settlement and related costs

(48)

Start-up losses

(1,350)

Amortisation of intangible assets

(243)

Acquisition-related employee remuneration expense

(510)

Share option charges

(1,364)

Impairment of goodwill

(430)

               

Operating profit

6,176

Financing income

1

Finance costs

(360)

               

Profit before tax on continuing operations

5,817

               

Other information

Capital expenditure

851

608

3

1,462

               

               

               

               

Capitalisation of intangible assets

409

409

               

               

               

               

Depreciation of property, plant and equipment

646

647

11

1,304

               

               

               

               

5.   FINANCE INCOME AND COSTS

 

Unaudited

Six months ended

30 June 2018

£’000

Unaudited

Six months ended

30 June 2017

£’000

Audited

Year ended

31 December 2017

£’000

Finance income:

Interest receivable on bank deposits

1

              

              

              

Finance costs:

Interest payable on bank loans and overdrafts

217

156

357

Interest payable in respect of finance leases

1

1

3

              

              

              

Total finance costs

218

157

360

              

              

              

 

 

6.   TAXATION ON PROFIT ON ORDINARY ACTIVITIES

The tax charge for the period ended 30 June 2018 is based on management’s estimate of weighted average annual tax rate expected for the full financial year. The estimated average annual tax rate used is 24.7% (2017: 25.2%).

 

7.    DIVIDEND

 

 

 

Date Paid

Unaudited

Six months ended  30 June 2018

£’000

Unaudited

Six months ended  30 June 2017

£’000

Audited

Year ended

31 December 2017

£’000

Final dividend 2016  – 2.40p per share

26 May 2017

2,478

2,478

Interim dividend 2017 – 1.05p per share

3 November 2017

1,097

Final dividend2017 – 2.45p per share

25 May 2018

2,563

                  

                  

                  

2,563

2,478

3,575

                  

                  

                  

An interim dividend of 1.10p (2017: 1.05p) per ordinary share is declared and will be paid on 2 November 2018 to all shareholders on the register on 5 October 2018. In accordance with IAS 10 Events after the Balance Sheet Date, this dividend has not been recognised in the accounts at 30 June 2018, but will be recognised in the accounting period ending 31 December 2018.

 

8.   EARNINGS PER SHARE

 

Unaudited

Six months ended

30 June 2018

£’000

Unaudited

Six months ended

30 June 2017

£’000

Audited

Year ended

31 December 2017

£’000

Profit attributable to owners of the parent

2,491

2,185

4,228

Adjustments to earnings:

Restructuring costs

281

1,916

Net credit for VAT and related costs

(259)

(259)

Post-employment restrictions settlement and related costs

37

48

Start-up losses

465

832

1,350

Acquisition costs

139

243

Amortisation of intangible assets

131

261

510

Acquisition related employee remuneration expenses

946

425

1,364

Share-based payments charge

203

229

430

Impairment of goodwill

Tax thereon

(416)

(658)

(1,629)

                   

                   

                   

Headline earnings for the period

3,820

3,472

8,201

                   

                   

                   

30 June 2018

number of shares

30 June 2017

number of shares

31 December 2017

number of shares

Weighted average number of ordinary shares used in basic earnings per share

 

105,618,591

 

101,128,482

 

103,373,430

Dilutive effect of securities:

Share options

1,474,249

1,459,014

1,370,660

Deferred consideration shares

476,706

77,790

216,243

                   

                   

                   

Weighted average number of ordinary shares used in diluted earnings per share

 

107,569,546

 

102,665,286

 

104,960,333

                   

                   

                   

Basic earnings per share

2.36 p

2.16 p

4.09 p

Diluted earnings per share

2.32 p

2.13 p

4.03 p

 

In addition to basic and diluted earnings/(loss) per share, headline earnings per share, which is a non-GAAP measure, has also been presented.

 

Headline earnings per share

Headline basic earnings per share

3.62 p

3.43 p

7.93 p

Headline diluted earnings per share

3.55 p

3.38 p

7.81 p

 

Basic earnings per share is calculated by dividing the profit attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the year, excluding treasury shares and shares in employee benefit trusts, determined in accordance with the provisions of IAS 33 Earnings per Share.

 

Diluted earnings per share is calculated by dividing profit attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the year adjusted for the potentially dilutive ordinary shares for which the conditions of issue have substantially been met but not issued at the end of the year.

 

The Group’s potentially dilutive shares are shares expected to be issued as deferred consideration on acquisitions and share options issued.

 

Headline earnings per share is calculated using headline earnings for the period, which excludes the effect of restructuring costs, start-up losses, amortisation of intangibles, impairments charges, acquisition accounting adjustments, share option charges, fair value gains and losses on derivative financial instruments and the charge for VAT and related costs.

 

9.   GOODWILL

Unaudited

Six months ended

30 June 2018

£’000

Unaudited

Six months ended

30 June 2017

£’000

Audited

Year ended

31 December 2017

£’000

Cost

At the beginning of period

90,270

87,149

87,149

Additions

3,626

3,946

Exchange differences

218

(461)  

(825)  

                  

                  

                  

At the end of the period

90,488

90,314

90,270

                  

                  

                  

Amortisation

At the beginning and the end of the period

17,316

17,316

17,316

                  

                  

                  

Net book value

At 31 December 2017

73,712

72,998

72,954

                  

                  

                  

 

At 1 January 2016

 

72,954

 

69,833

 

69,833

                  

                  

                  

 

 

10.   SHARE CAPITAL

Unaudited

At 30 June 2018

£’000

Unaudited

At 30 June 2017

£’000

Audited

At 31 December 2017

£’000

Allotted, issued and fully paid

105,163,342 ordinary shares of 10p each

10,516

10,412

10,501

                  

                  

                  

Between 1 January 2017 and 30 June 2018 the following shares were issued:

During the six months ended 30 June 2018 151,185 (year ended 31 December 2017: 1,148,939) were issued to certain employees of the Group in relation to the share option schemes at exercise prices of between 10.0p and 85.0p per share.

The Group owned 453,000 of its own shares over the whole period and these shares are held as treasury shares. The company has a right to re-issue these shares at a later date.

On 1 February 2017, 5,154,640 new ordinary shares of 10.0p each were issued at a placing price of 97.0p to new and existing shareholders.

On 1 February 2017, 398,904 new ordinary shares of 10.0p each were issued at 100.3p to vendors of Defined Health Research Inc. and Cancer Progress LLC, pursuant to the terms of the asset purchase agreement with those companies.

On 17 February 2017, 10,309,279 new ordinary shares of 10.0p each were issued at a placing price of 97.0p to new and existing shareholders.

On 2 May 2017, 403,903 new ordinary shares of 10.0p each were issued at 123.0p to vendors of iS Healthcare Dynamics Limited and certain employees of the Group, pursuant to the terms of the share purchase agreement of iS Healthcare Dynamics Limited.

 

11.   CASH GENERATED FROM OPERATIONS

 

Unaudited

Six months ended

30 June 2018

£’000

Unaudited

Six months ended

30 June 2017

£’000

Audited

Year ended

31 December 2017

£’000

Profit on continuing operations before taxation

3,331

2,698

5,817

Financing income

(1)

Finance costs

  218

157

  360

Depreciation

615

649

1,304

Amortisation of intangible assets

346

470

912

Share-based payment expense

203

229

430

Profit on disposal of property, plant and equipment

(28)

(13)

(21)

(Decrease)/increase in acquisition related employee remuneration payable

946

 

(1,879)

 

(940)

                 

                 

__________

Operating cash flow before movements in working capital

5,631

 2,311

7,861

Decrease/(increase) in trade and other receivables

9,720

 2,463

 (6,105)

(Decrease)/increase in trade and other payables

(17,422)

                 (13,037)

3,036

                 

                 

__________

Net cash (used in)/generated from operating activities before taxation

 

(2,071)

 

(8,263)

 

4,792

                 

                 

                 

 

 

12.   NET DEBT

Unaudited

Six months ended

30 June 2018

£’000

Unaudited

Six months ended

30 June 2017

£’000

Audited

Year ended

31 December 2017

£’000

Net debt comprises of:

Bank loans

7,136

8,847

11,333

Loan notes

42

59

59

Finance leases

40

24

17

Bank overdraft

70

Cash and cash equivalents

(1,868)

(2,144)

(13,021)

                 

                 

                 

Net debt

5,420

6,786

(1,612)

                 

                 

                 

Movements in net debt can be analysed as follows:

Net increase/(decrease) in cash and cash equivalents

11,368

5,094

(5,866)

Net repayment bank loans

 (4,497)

(3,000)

(100)

Repayment loan notes

(17)

(96)

(96)

Increase in overdraft

70

Capital element of finance lease payments

(36)

(9)

(16)

Other movements:

New finance leases

59

Foreign exchange

85

(275)   

(606)

                 

                 

                 

Movements in net debt/(funds) in the year

7,032

1,714

(6,684)

Net debt at the beginning of the period

(1,612)

5,072

5,072

                 

                 

                 

Net debt/(funds) at the end of the period

5,420

6,786

(1,612)

                 

                 

                 

 

 

Contact Us

Dianna Hillier

Dianna.Hillier@cellohealth.com

Phone 020 7812 8468

Address

Cello Health plc

Queens House

8-9 Queen Street

London

EC4N 1SP

Registered Office

Queens House

8-9 Queen Street

London

EC4N 1SP

Company Registered

in England no.05120150