Share price: 104.00p

Interim Results for the six months to 30 June 2017

20th September 2017

Cello Group plc

Interim Results for the six months to 30 June 2017

US Growth Drives Cello Health’s Expansion

Cello Group plc (AIM: CLL; “Cello”, “The Group”), the healthcare focused strategic marketing group, today announces its interim results for the six month period to 30 June 2017.

Group Financial Highlights

·      Revenue £78.7m (2016: £80.7m)

·      Gross profit up 12.9% to £49.1m (2016: £43.5m)

·      Like-for-like1 gross profit growth of 5.4% (Constant currency: 2.4%)

·      Headline profit before tax2 up 8.0% £4.6m (2016: £4.3m)

·      Headline operating margin3 10.0% (2016: 10.3%)

·      Headline basic earnings per share 3.43p (2016: 3.60p)

·      Statutory profit before tax of £2.7m (2016: loss of £0.8m)

·      Statutory basic earnings per share 2.16p (2016: loss of 1.08p)

·      Net debt £6.8m (June 2016: £4.8m)

·      Interim dividend up 5.0% to 1.05p (2016: 1.00p)

·      Equity placing raised £14.2m (net) in February 2017

Divisional Financial Highlights

H1

Cello Health

Cello Signal

£’000

2017

2016

% Growth

2017

2016

% Growth

Segmental gross profit

28,087

22,162

26.7%

19,851

20,714

(4.2)%

Headline operating profit

4,876

3,906

24.8%

1,197

1,694

(29.3)%

Headline operating margin

17.4%

17.6%

6.0%

8.2%

Operating Highlights

·      Continued rapid growth of Cello Health both organically and by acquisition

·      Successful acquisition of Defined Health in February 2017

·      Continued fast growth of Pulsar helped by US launch

·      Post period end acquisition of Advantage Health

·      Cello Signal on track to achieve expectations

Mark Scott, Chief Executive, commented: “It has been an encouraging first half for the Group. Cello Health’s strategy of focusing on expansion in the US is progressing well. The acquisition of Defined Health in February this year has already made a good contribution and we are very pleased with its integration in Cello Health which is also achieving strong organic growth, particularly in the US. Cello Signal is on track to meet expectations. The Board is therefore confident of meeting market expectations for the year and is pleased to increase the interim dividend.”

This announcement contains inside information

 

 

Like-for-like comparisons remove the impact of acquisitions and results from start-ups in 2016 (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

 

Enquiries:

Cello Group plc (www.cellogroup.com)

Mark Scott, Chief Executive

020 7812 8460

Mark Bentley, Group Finance Director

Cenkos Securities

Bobbie Hilliam

020 7484 4040

Buchanan

Richard Oldworth, Jamie Hooper, Madeleine Seacombe

020 7466 5000

Notes to Editors (www.cellogroup.com)

Cello is a healthcare-focused strategic marketing group.

The Group’s strategy is to create value for shareholders by building a leading global healthcare advisory business under the Cello Health brand, and a leading digital communications solutions business under the Cello Signal brand.

Cello has annualised revenues in excess of £160m, gross profit in 2016 of £93m and employs over 1000 professional staff.

 

Chairman’s Statement

Overview

The Group has had a productive six months in successfully executing its growth strategy.  The acquisition of Defined Health in February, and the associated successful fundraise, underlines the Group’s commitment to grow its Cello Health business in the US. The subsequent acquisition of Advantage Health in July continues the progress down this path.

Cello Health also continues to achieve strong organic growth, again particularly in the US. The Group is seeing the benefits of unified branding and focussed new business activity, to which it has committed increased resource. Defined Health has performed well in its first few months with  the Group.

Cello Signal has had a solid six months overall against a tough comparator. Pulsar continues to grow strongly and has opened up in the US market.  The Group will continue to invest significantly in Pulsar going forward.

Overall, the Group continues to grow strongly, giving the Board confidence to grow the dividend accordingly.

Financial Review

Gross profit for the six months to 30 June 2017 increased 12.9% to £49.1m (2016: £43.5m) on slightly lower revenue of £78.7m (2016: £80.8m). Reported like-for-like gross profit growth was 5.4%. Headline operating profit was up 8.4% to £4.8m (2016: £4.4m). The headline operating margin was 10.0% (2016: 10.3%). Headline pre-tax profit was £4.6m (2016: £4.3m). Further detail on these numbers is provided in the operating review.

The reported tax charge for the period is £0.5m (2016: £0.1m). This represents a headline tax rate of 25.2% (2016 full year: 25.7%). The reduction in the overall tax rate reflects the lower headline UK tax rate, as well as variances in the overall mix of profits between the UK and the USA.

Headline basic earnings per share were 3.43p (2016: 3.60p). Statutory earnings per share was 2.16p (2016: loss of 1.08p).

In February 2017, the Group raised £14.2m (net of expenses) to finance the acquisition of the trade and assets of Defined Health Inc.  The initial consideration for the transaction was US$5.25m in cash and US$0.50m in new ordinary shares.  Surplus proceeds are intended to be used for further acquisitions by Cello Health in the future, in addition to the acquisition of Advantage Health completed in July, and organic expansion of the overall Cello Health business. Further investment is also being made in the expansion of Pulsar into the US market.

The Group’s net debt at 30 June 2017 was £6.8m (31 December 2016: £5.1m; 30 June 2016: £4.8m). This slight increase in net debt largely reflects the second half seasonality of the cashflow of the Group.  This normal seasonality of cash flows was less pronounced in 2016 due to the large one-off contract won by Cello Signal in that period. The Group expects this seasonal trend to continue in the second half of 2017. There has also been a managed unwinding of the unusually overall positive working capital position that was achieved in 2016.   Total debt facilities are £25.0m.   Debt facilities are to be renewed by 31 March 2018 and this renewal process is nearly complete.

The interim dividend rises 5.0% to 1.05p (2016: 1.00p). The interim dividend is payable on 3 November 2017 to all shareholders on the register on 6 October 2017. The Group continues an unbroken record of annual dividend growth since it began paying dividends in 2006.

Losses of £0.8m were incurred from continued investment in start-up activity. This is disclosed below headline operating profit. The start-up losses relate in part to the launch and opening of Pulsar in the US market.  Initial client traction has been robust in the US since the launch. Accordingly , there will be an expansion of activity beyond the original plan which will lead to further start-up losses from Pulsar in the second half of the year.

Restructuring costs of £0.3m were incurred during the period. Following a significant loss making period, costs were materially reduced on the West Coast of the US in the market research business of Cello Signal. Following the completion of this restructuring in the second half of the year, it is expected that total restructuring costs of up to £1.0m will be incurred for the full year. This will relate to property provisions and staff reductions.

The following table summarises the adjustments made to calculate headline operating profit. In addition to those non-headline charges already explained, £0.3m was recovered from clients in relation to the VAT provision that the Group made in previous years. The acquisition related costs of £0.6m (2016: £0.5m) relate to necessary accounting charges arising from the acquisition of Defined Health Inc in February 2017.

2017

£m

2016

£m

Headline operating profit

 4.8

4.4

VAT provision

0.3

(2.1)

Restructuring costs

(0.3)

(0.7)

Start-up losses

(0.8)

(0.5)

Bio Consulting settlement

(1.1)

Share option charges

(0.2)

(0.1)

Acquisition related costs

(0.6)

(0.5)

Amortisation

(0.3)

(0.1)

Statutory operating profit/(loss)

2.9

(0.7)

Net finance costs

(0.2)

(0.1)

Statutory profit/(loss) before tax

2.7

(0.8)

Operating Review

Cello Health

H1 2017

H1 2016

Full year 2016

£’000

£’000

£’000

Segmental gross profit

28,087

22,162

47,605

Headline operating profit

4,876

3,906

8,635

Headline operating margin

17.4%

17.6%

18.1%

The four underlying capabilities of Cello Health are Cello Health Insight, Cello Health Consulting, Cello Health Communications and Cello Health Consumer. Cello Health overall had a strong six months, with a particularly strong performance in the core US market.  Overall, segmental gross profit increased by 26.7% to £28.1m (2016: £22.2m) and like-for-like gross profit growth in the first half of 2017 was 14.3%.  Constant currency like-for-like gross profit growth was 9.3%.  Like-for-like growth was strongest in the US.

Cello Health Communications and Cello Health Consumer all grew strongly at constant current growth rates in excess of 10%. Cello Health Insight was flat year on year reflecting a weaker performance on the West Coast of the US, and a continued switch towards longer term tracker and quantitative studies where the revenue is earnt over longer periods of time.  This area is fast becoming a major line of business for Cello Health Insight and offers significant opportunities. Visibility of income in Cello Health Insight is therefore improved from the prior period, and this business has been very busy over the summer. Cello Health Consumer saw positive growth as a result of a strong performance in the US, and continued success with our specialised UK research business, and a stabilisation of the consulting business in the UK.

Cello Health in the US has grown strongly organically and via acquisition. Defined Health is a consultancy based in New Jersey specialising in supplying scientific strategic advisory services to a wide range of biotech clients. Since Defined Health joined Cello Health Consulting, there have already been a range of shared project wins and collaborations. The business has had an excellent start to life in the Group.

In July 2017, the Group acquired Advantage Health, a research and consulting firm located in New Jersey. Early indications of performance are positive. The Group continues to appraise suitable acquisition opportunities in the US.

As a result of the organic and acquisitive expansion of Cello Health, the US now accounts for approximately 40% of the gross profits of Cello Health. In addition, Cello Health now has an increasingly strong position in the biotech area and early stage development market for new drugs, both of which are higher growth areas in the US market.

Cello Health continues to reinforce its market presence by creating larger resource hubs in key geographies. 2017 saw the relocation of the consulting capability in the UK to the same office as the UK communications capability at Cello House in Farnham.  This has helped collaboration on projects and new business activity. Cello Health has also invested in shared business development resource which has already yielded strong benefits in new business levels. Professional resource is being flexibly deployed against global opportunities as they present themselves.

Cello Signal

 

H1 2017

H1 2016

Full year 2016

£’000

£’000

£’000

Segmental gross profit

19,851

20,714

43,613

Headline operating profit

1,197

1,694

4,490

Headline operating margin

6.0%

8.2%

10.3%

Cello Signal has had a solid six months against a tough comparatorand is on track to achieve expectations.  As previously indicated, there is a constant currency like-for-like decline in gross profit of 5.0% in the period reflecting the material impact of a significant one-off contract in the first half of 2016. Operating margin was also impacted by a reduction in operating profits from the research business in the US. Necessary action has been taken here to reduce headcount and property commitments in order to restore operating margin.

Cello Signal has continued to make rapid strides in consolidating its integrated digital solutions proposition to clients behind the Signal brand. A number of significant new contracts have been secured behind this brand proposition, including in the healthcare space. Signal now has strong propositions in the key client verticals of financial services, electronic gaming and devices, charities and utilities. As a consequence, overall visibility of revenues continues to increase, allowing ongoing investment in technical programming capability.

To deliver this proposition efficiently, Signal has consolidated its operations into three core operational office hubs, in Cheltenham, London and Edinburgh.  All three offices work closely together, sharing business development resource and professional resource behind secured contracts. This also enables a smoother sharing of technology and technical expertise between locations.  It is also the key to raising operating margins which is a strategic imperative for Signal.

In London, the dominant Signal business is Pulsar. Pulsar continues to grow fast, backed up by an increasingly close and evolving relationship with Facebook, demonstrated by the recent confirmation as a Facebook Insight Partner. Pulsar now has 290 clients in the UK, and 20 clients in the US, including a growing number of pharmaceutical clients.  Monthly recurring revenue at June 2017 was just over £430,000.  This has risen from £260,000 in June 2016. Extra investment in account management has grown the renewal rate to around 80% by the end of June. Further investment is planned in the US market which represents Pulsar’s largest opportunity for growth.

The Group is making a concerted effort to leverage Signal’s digital skill set into the healthcare arena both within pharmaceuticals and biotech, where demand for digital solutions is rising rapidly. This effort is already bearing fruit, with Signal securing a contract with one of the largest UK based healthcare services providers, as well as with the European drugs regulator. Pulsar has already made strides in entering the healthcare arena. The Group’s objective is to optimise Signal’s focus on this sector to enable Cello Health to have a competitive offering in this digital activation space.

Full year Trading Outlook

The Group continues to trade well, particularly in Cello Health, and the Board remains confident of a strong full year result in line with current market expectations.

Allan Rich,

Chairman

19 September 2017

Condensed Consolidated Income Statement

For the six months ended 30 June 2017

 

 

 

Notes

Unaudited

Six months ended

30 June 2017

£’000

Unaudited

Six months ended

30 June 2016

£’000

Audited

Year ended

 31 December 2016

£’000

Continuing operations

Revenue

4

78,653

80,734

 165,266

Cost of sales

(29,569)

(37,259)

(72,610)

              

              

              

Gross profit

4

49,084

43,475

92,656

Administration expenses

(46,229)

(44,142)

(94,049)

              

              

              

Operating profit/(loss)

4

2,855

(667)

(1,393)

Finance income

5

11

Finance costs

5

(157)

(126)

(304)

              

              

              

Profit/(loss) from continuing operations  before taxation

 

3

 

2,698

 

(793)

 

(1,686)

Taxation

6

(513)

(47)

(820)

              

              

              

Profit/(loss) from continuing operations

after taxation

 

2,185

 

(840)

 

(2,506)

Loss from discontinued operations

7

(99)

(321)

              

              

              

Profit/(loss) for the period

2,185

(939)

(2,827)

              

              

              

Unaudited

Six months ended

30 June 2017

£’000

Unaudited

Six months ended

30 June 2016

£’000

Audited

Year ended

31 December 2016

£’000

Basic earnings/(loss) per share

From continued operations

9

2.16p

(0.97)p

(2.86)p

From discontinued operations

9

(0.11)p

(0.37)p

Total basic earnings/(loss) per share

9

2.16p

(1.08)p

(3.23)p

Diluted earnings/(loss) per share

From continued operations

9

2.13p

(0.97)p

(2.86)p

From discontinued operations

9

(0.11)p

(0.37)p

Total diluted earnings/(loss) per share

9

2.13p

(1.08)p

(3.23)p

 

Condensed Consolidated Statement of Comprehensive Income

For the six months ended 30 June 2017

Unaudited

Six months ended

30 June 2017

£’000

Unaudited

Six months ended

30 June 2016

£’000

Audited

Year ended

31 December 2016

£’000

Profit/(loss) for the period

2,185

 (939)

(2,827)

Other comprehensive (expense)/income:

Exchange differences on translation of foreign operations

(138)

38

211

              

              

              

Total comprehensive income/(expense) for the period

2,047

(901)

(2,616)

              

              

              

Total comprehensive income/(expense) for the period arises:

From continuing operations

2,047

(802)

(2,295)

From discontinued operations

(99)

(321)

              

              

              

2,047

(901)

(2,616)

              

              

              

 

Condensed Consolidated Balance Sheet

As at 30 June 2017

 

 

Notes

Unaudited

30 June 2017

£’000

Unaudited

30 June 2016

£’000

Audited

31 December 2016

£’000

Goodwill

10

72,998

74,237

 69,833 

Intangible assets

813

786

695 

Property, plant and equipment

2,753

2,347

2,705 

Deferred tax assets

1,239

765

 742

               

               

               

Non-current assets

77,803

78,135

73,975

               

               

               

Trade and other receivables

45,284

41,193

46,862

Cash and cash equivalents

2,144

3,976

7,466

               

               

               

Current assets

47,428

45,169

54,328

               

               

               

Trade and other payables

(32,823)

(42,141)

(48,171)

Current tax liabilities

(1,143)

(1,296)

(851)

Borrowings

(8,906)

(155)

(155)

Obligations under finance leases

(14)

(21)

(16)

               

               

               

Current liabilities

(42,886)

(43,613)

(49,193)

              

              

               

Net current assets

4,542

1,556

5,135

               

               

               

Total assets less current liabilities

82,345

79,691

79,110

               

               

               

Trade and other payables

(486)

(2,218)

(126)

Borrowings

(8,564)

(12,350)

Obligations under finance leases

(10)

(24)

(17)

Deferred tax liabilities

(77)

(105)

(63)

               

               

               

Non-current liabilities

(573)

(10,911)

(12,556)

               

               

               

Net assets

81,772

68,780

66,554

               

               

               

Equity

Share capital

12

10,412

8,726

8,760

Share premium

32,673

19,099

19,162

Merger reserve

25,446

28,807

25,446

Capital redemption reserve

50

50

50

Retained earnings

12,160

11,451

12,159

Share-based payment reserve

952

603

760

Foreign currency reserve

79

44

217

              

              

              

Total equity

81,772

68,780

66,554

               

               

               

 

 

 

Condensed Consolidated Cash Flow Statement

For the six months ended 30 June 2017

 

 

 

Notes

Unaudited

Six months ended

30 June 2017

£’000

Unaudited

Six months ended

30 June 2016

£’000

Audited

Year ended

31 December 2016

£’000

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

13

(8,263)

3,269

6,510

Tax paid

(409)

(459)

(1,659)

              

              

              

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

(8,672)

2,810

4,851

              

              

              

Investing activities

Interest received

11

Purchase of property, plant and equipment

(653)

(957)

(1,966)

Sale of property, plant and equipment

13

17

30

Expenditure on intangible assets

(182)

(62)

(310)

Purchase of subsidiary undertakings

(4,127)

(248)

(25)

              

              

              

Net cash used in investing activities

(4,949)

(1,250)

(2,260)

              

              

              

Financing activities

Proceeds from issuance of shares

14,267

192

289

Dividends paid to equity holders

(2,478)

(1,727)

(2,596)

Repayment of borrowings

(3,000)

(3,681)

(6,681)

Repayment of loan notes

(96)

(77)

(77)

Drawdown of borrowings

2,509

8,509

Capital element of finance lease payments

(9)

(12)

(24)

Interest paid

(157)

(105)

(256)

              

              

              

Net cash generated from/(used in) financing activities

 

8,527

 

 (2,901)

 

 (836)

              

              

              

Movements in cash and cash equivalents

Net (decrease)/increase in cash and cash equivalents

(5,094)

(1,341)

1,755

Exchange (losses)/gains on cash and bank overdrafts

(228)

 68

462

Cash and cash equivalents at the beginning of the period

7,466

5,249

5,249

              

              

              

Cash and cash equivalents at end of the period

2,144

3,976

7,466

               

               

               

 

 

 

 

Condensed Consolidated Statement of Changes in Equity

For the six months ended 30 June 2017

 

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

Non-Controlling Interest

£’000

Total

Equity

£’000

At 1 January 2017

8,760

19,162

25,446

50

12,159

760

217

66,554

66,554

            

            

            

            

            

            

            

            

            

            

Profit for the period

2,185

2,185

2,185

Other comprehensive loss:

Currency translation

(138)

(138)

(138)

            

            

            

            

            

            

            

            

            

            

Total comprehensive income in the period

 

 

 

 

 

2,185

 

 

(138)

 

2,047

 

 

2,047

            

            

            

            

            

            

            

            

            

            

Transactions with owners:

Shares issued

1,652

13,511

15,163

15,163

Credit for share-based incentives

 

 

 

 

             –

 

 

229

 

 

229

 

 

229

Tax on share-based payments recognised directly in equity

 

 

 

 

             –

 

257

 

 

 

257

 

 

257

Transfer between reserves in respect of share options

 

 

 

 

 

37

 

(37)

 

 

 

 

Dividends paid (note 8)

(2,478)

(2,478)

(2,478)

            

            

            

            

            

            

            

            

            

            

Total transactions with owners

 

1,652

 

13,511

 

 

 

(2,184)

 

192

 

 

13,171

 

 

13,171

            

            

            

            

            

            

            

            

            

            

At 30 June 2017

10,412

32,673

25,446

50

12,160

952

79

81,772

81,772

           

            

            

            

            

            

            

              

            

              

 

Statement of changes in equity for the six months ended 30 June 2016:

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

Non-Controlling Interest

£’000

Total

Equity

£’000

At 1 January 2016

8,576

18,834

28,807

50

13,860

635

6

70,768

50

70,818

           

            

            

            

            

            

            

              

            

              

Loss for the period

(939)

(939)

(939)

Other comprehensive income:

Currency translation

38

38

38

           

            

            

            

            

            

            

              

            

              

Total comprehensive loss in the period

 

 

 

 

 

(939)

 

 

38

 

(901)

 

 

(901)

           

            

            

            

            

            

            

              

            

              

Transactions with owners:

Shares issued

150

265

415

415

Acquisition of non-controlling interest

 

 

 

 

 

25

 

 

 

25

 

(50)

 

(25)

Credit for share-based incentives

 

 

 

 

             –

 

 

138

 

 

138

 

 

138

Tax on share-based payments recognised directly in equity

 

 

 

 

62

 

 

 

62

 

 

62

Transfer between reserves in respect of share options

 

 

 

 

170

 

(170)

 

 

 

 

Dividends paid (note 8)

(1,727)

(1,727)

(1,727)

           

            

            

            

            

            

            

              

            

              

Total transactions with owners

 

150

 

265

 

 

 

(1,470)

 

(32)

 

 

(1,087)

 

(50)

 

(1,137)

           

            

            

            

            

            

            

              

            

              

At 30 June 2016

8,726

19,099

28,807

50

11,451

603

44

68,780

68,780

           

            

            

            

            

            

            

              

            

              

 

 

Statement of changes in equity for the year ended 31 December 2016:

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

Non-Controlling Interest

£’000

Total

Equity

£’000

At 1 January 2016

8,576

18,834

28,807

50

13,860

635

6

70,768

50

70,818

           

            

            

            

            

            

            

              

            

             

Loss for the year

(2,827)

(2,827)

(2,827)

Other comprehensive income:

Currency translation

211

211

211

           

            

            

            

            

            

            

              

            

             

Total comprehensive loss for the period

 

 

 

 

 

(2,827)

 

 

211

 

(2,616)

 

 

(2,616)

           

            

            

            

            

            

            

              

            

             

Transactions with owners:

Shares issued

184

328

512

512

Acquisition of non-controlling interest

 

 

 

 

 

25

 

 

 

25

 

(50)

 

(25)

Credit for share-based incentives

 

 

 

 

 

 

349

 

 

349

 

 

349

Tax on share-based payments recognised directly in equity

 

 

 

 

 

 

 

 

 

 

112

 

 

 

 

 

 

112

 

 

 

 

112

Transfer between reserves in respect of share options

 

 

 

 

 

224

 

(224)

 

 

 

 

Transfer between reserves in respect of impairment

 

 

 

(3,361)

 

 

3,361

 

 

 

 

 

Dividends paid (note 8)

(2,596)

(2,596)

(2,596)

           

            

            

            

            

            

            

              

            

             

Total transactions with owners

 

184

 

328

 

(3,361)

 

 

1,126

 

125

 

 

(1,598)

 

(50)

 

(1,648)

           

            

            

            

            

            

            

              

            

             

 

At 31 December 2016

 

8,760

 

19,162

 

25,446

 

50

 

12,159

 

760

 

217

 

66,554

 

 

65,554

           

            

            

            

            

            

            

              

            

             

 

Notes to the Financial Information

For the six months ended 30 June 2017

1.   ACCOUNTING POLICIES AND BASIS OF PREPARATION

The condensed consolidated financial information for the six months ended 30 June 2017 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 2016, 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 2016 were approved by the Board of directors on 21st March 2017 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 19 September 2017 and has not been audited.

The accounting policies applied are consistent with those of the annual financial statements for the year ended 31 December 2016, as described in those annual financial statements.

There are no new IFRSs or IFRICs that are effective for the first time for the interim period that would be expected to have a material impact on the Group.

 

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 indentifiable 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 2017

£’000

Unaudited

Six Months ended

 30 June 2016

£’000

Audited

Year ended

 31 December 2016

£’000

Profit/(loss) from continuing operations before taxation

2,698

(793)

(1,686)

Restructuring costs

281

647

1,201

Net (credit)/charge for VAT payable and related costs

 (259)

2,053

1,798

Post-employment restrictions settlement and related costs

   37

1,067

1,158

Start-up losses

 832

518

977

Acquisition costs

139

Amortisation of intangible assets

261

146

294

Acquisition related employee remuneration expense

425

525

1,176

Share option charges

229

138

349

Impairment of goodwill

4,937

              

              

              

Headline profit before taxation

4,643

4,301

10,204

              

              

              

Headline profit before tax is made up as follows:

Headline operating profit

4,800

4,427

10,497

Headline finance income

11

Headline finance costs

(157)

(126)

(304)

              

              

              

4,643

4,301

10,204

              

              

              

In addition, a reconciliation between statutory and headline earnings per share is presented in note 9.

 

Like-for-like gross profit follows:

Like-for-like gross profit measures exclude the results from companies or businesses acquired in the period, and they also exclude the results of acquired companies or businesses in the prior period to the extent that those companies or businesses are not in the Group in that prior period.  Like-for-like gross profit also appropriately excludes the impact of start-ups.  In aggregate, these adjustments are detailed in the table below.

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 month ended

30 June 2017

£’000

Unaudited

Six month ended

30 June 2016

£’000

Reported gross profit

12.9 %

49,084

43,475

Adjustments

(3,809)

(525)

              

              

Like-for-like gross profit

5.4 %

45,275

42,950

Currency impact

(1,298)

              

              

Currency adjusted like-for-like gross profit

2.4 %

43,977

42,950

              

              

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

Reported gross profit

Cello Health

26.7 %

28,087

22,162

Cello Signal

(4.2)%

19,851

20,714

Other

1,146

599

              

              

Total

12.9 %

49,084

43,475

              

              

Like-for-like gross profit:

Cello Health

14.3 %

25,424

22,236

Cello Signal

(4.2)%

19,851

20,714

              

              

5.4 %

45,275

42,950

              

              

Currency adjusted like-for-like gross profit:

Cello Health

9.3 %

24,305

22,236

Cello Signal

(5.0)%

19,672

20,714

              

              

Total

2.4 %

43,977

42,950

              

              

 

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.

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

                  

                  

                  

                  

 

 Six months ended 30 June 2016

 

 

 

 

Cello Health

£’000

 

 

Cello Signal

£’000

 

Consolidated and Unallocated

£’000

 

 

Group £’000

Revenue

External sales

32,906

47,057

771

80,734

Intersegment revenue

11

16

(27)

                  

                  

                  

                  

Total revenue

32,917

47,073

744

80,734

                  

                  

                  

                  

Gross profit

22,162

20,714

599

43,475

                  

                  

                  

                  

Operating profit

Headline operating profit (segment result)

3,906

1,694

(1,173)

4,427

                  

                  

                  

Restructuring costs

(647)

Charge for VAT payable and related costs

(2,053)

Post-employment restrictions settlement and related costs

(1,067)

Start-up losses

(518)

Amortisation of intangible assets

(146)

Acquisition related employee remuneration expense

(525)

Share option charges

(138)

                  

Operating loss

(667)

Finance costs

(126)

                  

Loss from continuing operations before taxation

 

(793)

                  

Other information

Capital expenditure

686

271

957

                  

                  

                  

                  

Capitalisation of intangible assets

3

59

62

                  

                  

                  

                  

Depreciation of property plant and equipment

218

377

3

598

                  

                  

                  

                  

 

Year ended 31 December 2016

 

 

Cello Health

£’000

 

 

Cello Signal

£’000

Consolidation Adjustments and Unallocated

£’000

 

 

Group

£’000

Revenue

External sales

70,126

93,461

1,679

165,266

Intersegment revenue

34

72

(106)

               

               

               

               

Total revenue

70,160

93,533

1,573

165,266

               

               

               

               

Gross profit

47,605

43,613

1,438

92,656

               

               

               

               

 

Operating profit

Headline operating profit (segment result)

8,635

4,490

(2,628)

10,497

               

               

               

Restructuring costs

(1,201)

Net charge for VAT payable and related costs

(1,798)

Employment settlement and related costs

(1,158)

Start-up losses

(977)

Amortisation of intangible assets

(294)

Acquisition-related employee remuneration expense

(1,176)

Share option charges

(349)

Impairment of goodwill

(4,937)

               

Operating loss

(1,393)

Financing income

11

Finance costs

(304)

               

Loss before tax on continuing operations

(1,686)

               

Other information

Capital expenditure

1,165

797

4

1,966

               

               

               

               

Capitalisation of intangible assets

3

307

310

               

               

               

               

Depreciation of property, plant and equipment

521

748

16

1,285

               

               

               

               

5.   FINANCE INCOME AND COSTS

 

Unaudited

Six months ended

30 June 2017

£’000

Unaudited

Six months ended

30 June 2016

£’000

Audited

Year ended

31 December 2016

£’000

Finance income:

Interest receivable on bank deposits

11

              

              

              

Finance costs:

Interest payable on bank loans and overdrafts

156

124

301

Interest payable in respect of finance leases

1

2

3

              

              

              

Total finance costs

157

126

304

              

              

              

6.   TAXATION ON PROFIT ON ORDINARY ACTIVITIES

The tax charge for the period ended 30 June 2017 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 25.2% (2016: 27.2%).

 

7.   DISCONTINUED OPERATIONS

There are no discontinued operations in the current period.  The loss from discontinued operations in the periods ended 30 June 2016 and 31 December 2016 relates to the Group’s operations in Hong Kong which were closed.  In accordance with IFRS5 Non-current Assets Held for Sale and Discontinued Operations, the income statement for the period ended 30 June 2016 has been re-presented to include income and expenses of the discontinued operations within loss from discontinued operations.

An analysis of the results from discontinued operations is as follows:

Unaudited

Six months ended

30 June 2017

£’000

Unaudited

Six months ended

30 June 2016

£’000

Audited

Year ended

31 December 2016

£’000

Revenue

121

339

Cost of sales

(61)

(162)

                  

                  

                  

Gross Profit

60

177

Administrative expenses

(159)

(498)

                  

                  

                  

Loss from discontinued operations before and after taxation

 

 

(99)

 

(321)

                  

                  

                  

Cash flows from discontinued operations are as follows:

Unaudited

Six months ended

30 June 2017

£’000

Unaudited

Six months ended

30 June 2016

£’000

Audited

Year ended

31 December 2016

£’000

Operating cash flow

157

57

(82)

Investing cash flow

(1)

Financing cash flow

(13)

                  

                  

                  

157

57

(96)

                  

                  

                  

8.   DIVIDEND

 

 

 

Date Paid

Unaudited

Six months ended  30 June 2017

£’000

Unaudited

Six months ended  30 June 2016

£’000

Audited

Year ended

31 December 2016

£’000

Final dividend 2015 – 2.02p per share

27 May 2016

1,727

1,727

Interim dividend 2016 – 1.00p per share

4 November 2016

869

Final dividend 2016  – 2.40p per share

26 May 2017

2,478

                  

                  

                  

2,478

1,727

2,596

                  

                  

                  

An interim dividend of 1.05p (2016: 1.00p) per ordinary share is declared and will be paid on 3 November 2017 to all shareholders on the register on 6 October 2017. In accordance with IAS 10 Events after the Balance Sheet Date, this dividend has not been recognised in the accounts at 30 June 2017, but will be recognised in the accounting period ending 31 December 2017.

 

9.   EARNINGS PER SHARE

 

Unaudited

Six months ended

30 June 2017

£’000

Unaudited

Six months ended

30 June 2016

£’000

Audited

Year ended

31 December 2016

£’000

Profit/(loss) attributable to owners of the parent

2,185

(939)

(2,827)

Loss from discontinued operations

99

321

                   

                   

                   

Profit/(loss) attributable to owners of the parent from continuing operations

 

2,185

 

(840)

 

(2,506)

Adjustments to earnings:

Restructuring costs

281

647

1,201

Net (credit)/charge for VAT and related costs

(259)

2,053

1,798

Post-employment restrictions settlement and related costs

37

1,067

1,158

Start-up losses

832

518

977

Acquisition costs

139

Amortisation of intangible assets

261

146

294

Acquisition related employee remuneration expenses

425

525

1,176

Share-based payments charge

229

138

349

Impairment of goodwill

4,937

Tax thereon

(658)

(1,125)

(1,804)

                   

                   

                   

Headline earnings for the period

3,472

3,129

7,580

                   

                   

                   

30 June 2017

number of shares

30 June 2016

number of shares

31 December 2016

number of shares

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

 

101,128,482

 

86,903,491

 

87,565,662

Dilutive effect of securities:

Share options

1,459,014

705,469

1,257,984

Deferred consideration shares

77,790

473,958

593,786

                   

                   

                   

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

 

102,665,286

 

88,082,918

 

89,417,432

                   

                   

                   

Basic earnings/(loss) per share

From continuing operations

2.16 p

(0.97)p

(2.86)p

From discontinued operations

(0.11)p

(0.37)p

Total basic earnings/(loss) per share

2.16 p

(1.08)p

(3.23)p

Diluted earnings/(loss) per share

From continuing operations

2.13 p

(0.97)p

(2.86)p

From discontinued operations

(0.11)p

(0.37)p

Total diluted earnings/(loss) per share

2.13 p

(1.08)p

(3.23)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

3.43 p

3.60 p

8.66 p

Headline diluted earnings per share

3.38 p

3.55 p

8.48 p

 

Basic earnings/(loss) per share is calculated by dividing the profit/(loss) attributable to ordinary shareholders by the weighted average number of ordinary shares in issue 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/(loss) per share is calculated by dividing profit/(loss) attributable to ordinary shareholders by the weighted average number of ordinary shares in issue 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.

10.   GOODWILL

Unaudited

Six months ended

30 June 2017

£’000

Unaudited

Six months ended

30 June 2016

£’000

Audited

Year ended

31 December 2016

£’000

Cost

At the beginning of period

87,149

86,052

86,052

Additions

3,626

Exchange differences

(461)

564

1,097

                  

                  

                  

At the end of the period

90,314

86,616

87,149

                  

                  

                  

Amortisation

At the beginning and the end of the period

17,316

12,379

12,379

Impairment charge

4,937

                  

                  

                  

At the end of the period

17,316

12,379

17,316

                  

                  

                  

Net book value

At the end of the period

72,998

74,237

69,833

                  

                  

                  

 

At the beginning of the period

 

69,833

 

73,673

 

73,673

                  

                  

                  

 

 

11.   ACQUISITIONS

 

Defined Health

On 1 February 2017, the Group acquired the trade and assets of Defined Health Research Inc. and Cancer Progress LLC (together “Defined Health”), a healthcare consulting business based in New Jersey, USA.

 

Defined Health has contributed £3.1m to revenue and £0.2m of profit before tax for the period between date of acquisition and the balance sheet date.  Had Defined Health been consolidated from 1 January 2017, the consolidated income statement for the period ended 30 June 2017 would show revenue of £79.1m and profit before tax of £2.7m.

 

The provisional fair value of net assets at acquisition date is as follows:

 

£’000

Client relationships

417

Property, plant  and equipment

6

Trade and other receivables

885

Cash and cash equivalents

806

Trade and other payables

(432)

________

Net assets acquired

1,682

Goodwill arising on acquisition

3,626

________

Net assets acquired

5,308

              

 

The fair value of trade and other receivables includes trade receivables with a fair value of £674,000. The gross contractual value amount of trade receivables is equal to the fair value.

 

Goodwill comprises of the value of expected synergies and other opportunities arriving from the acquisition, management knowhow, the skilled workforce employed by Defined Health and other intangible assets that do not qualify for separate recognition.

 

The fair value of the consolidation paid is as follows:

 

£’000

Cash consideration

4,164

Issue of ordinary shares

400

Deferred consideration

744

________

Total consideration

5,308

              

12.   SHARE CAPITAL

Unaudited

At 30 June 2017

£’000

Unaudited

At 30 June 2016

£’000

Audited

At 31 December 2016

£’000

Allotted, issued and fully paid

104,122,969 ordinary shares of 10p each

10,412

8,726

8,760

                  

                  

                  

Between 1 January 2016 and 30 June 2017 the following shares were issued:

During the six months ended 30 June 2017 259,751 (year ended 31 December 2016: 1,607,523) were issued to certain employees of the Group in relation to the share option schemes at exercise prices of between 10.0p and 50.0p 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 14 May 2016, 109,529 new ordinary shares of 10p each were issued at 91.3p to vendors of iS Healthcare Dynamics Limited, pursuant to the terms of the share purchase agreement of that company.

On 6 June 2016, 226,642 new ordinary share of 10p each were issued at 98.4p to vendors of Opticomm Media Limited pursuant to the terms of the share purchase agreements of that company.

On 1 February 2017, 5,154,640 new ordinary shares of 10p 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 10p 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 10p 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 10p 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.

 

13.   CASH GENERATED FROM OPERATIONS

 

Unaudited

Six months ended

30 June 2017

£’000

Unaudited

Six months ended

30 June 2016

£’000

Audited

Year ended

31 December 2016

£’000

Profit/(loss) on continuing operations before taxation

2,698

(793)

(1,686)

Loss from discontinued operations

(99)

(321)

Financing income

(11)

Finance costs

157

126

304

Depreciation

649

598

1,285

Amortisation of intangible assets

470

334

680

Impairment of goodwill

4,937

Share-based payment expense

229

138

349

Profit on disposal of property, plant and equipment

(13)

(15)

(26)

(Decrease)/increase in acquisition related employee remuneration payable

 

(1,879)

 

525

 

 953

Decrease in provisions

(3,209)

   (3,209)

                 

                 

__________

Operating cash flow before movements in working capital

 2,311

(2,395)

3,255

Decrease/(increase) in trade and other receivables

 2,463

2,463

 (3,233)

(Decrease)/increase in trade and other payables

                 (13,037)

3,201

 6,488

                 

                 

__________

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

 

(8,263)

 

3,269

 

6,510

                 

                 

                 

 

 

14.   NET DEBT

Unaudited

Six months ended

30 June 2017

£’000

Unaudited

Six months ended

30 June 2016

£’000

Audited

Year ended

31 December 2016

£’000

Net debt comprises of:

Bank loans

8,847

8,564

12,350

Loan notes

59

155

155

Finance leases

24

45

33

Cash and cash equivalents

(2,144)

(3,976)

(7,466)

                 

                 

                 

Net debt

6,786

4,788

5,072

                 

                 

                 

Movements in net debt can be analysed as follows:

Net decrease in cash and cash equivalents

5,094

1,341

(1,755)

Repayment bank loans

(3,000)

(3,681)

(6,681)

Repayment loan notes

(96)

(77)

(77)

Drawdown of bank loans

2,509

8,509

Capital element of finance lease payments

(9)

(12)

(24)

                 

                 

                 

Movements in net debt from cash flows

1,989

80

(28)

Other movements:

Foreign exchange

(275)

 541  

933

                 

                 

                 

Total movement in net debt in the period

1,714

621

905

Net debt at the beginning of the period

5,072

4,167

4,167

                 

                 

                 

Net debt at the end of the period

6,786

4,788

5,072

                 

                 

                 

 

 

15. POST BALANCE SHEET EVENTS

 

On 18 July 2017, the Group acquired the trade and assets of Advantage Healthcare Inc. (“Advantage”), a healthcare research and consulting firm based in New Jersey, USA for an initial consideration of US$1.5m.  Further cash consideration will be paid to Advantage to the extent that the acquired net current assets are over US$0.5 million at the date of completion. In addition, up to US$3.0m may be payable, dependent on financial performance over the period from 1 July 2017 to 30 June 2021.

This information is provided by RNS
The company news service from the London Stock Exchange

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