TIDMCLL
RNS Number : 5152I
Cello Group plc
22 March 2018
FOR IMMEDIATE RELEASE 22 March 2018
Cello Group plc
('Cello' or the 'Group')
Final Results for the twelve months ending 31 December 2017
Strong performance - Cello Health delivers robust gross profit
growth.
Cello Group plc (AIM:CLL, "Cello" or "the Group"), the
healthcare-focused advisory group, today announces its final
audited results for the year to 31 December 2017. The Group also
announces that it intends to rename itself as Cello Health Group
plc to better reflect the strategic focus of the business.
Financial Highlights
-- Group revenue up 2.4% to GBP169.3m (2016: GBP165.3m)
-- Group gross profit up 10.6% to GBP102.5m (2016: GBP92.7m)
-- Group like-for-like(1) gross profit growth of 2.5%
-- Cello Health constant currency like-for-like gross profit
growth of 9.2%, and operating margin maintained at competitive
levels
-- Group constant currency like-for like gross profit growth of 1.6%
-- Group headline(2) profit before tax up 11.9% to GBP11.4m (2016: GBP10.2m)
-- Headline basic earnings per share(3) 7.93p (2016: 8.66p),
following successful net GBP14.2m fundraise in January 2017
-- Reported profit before tax of GBP5.8m (2016: loss of GBP1.7m)
-- Statutory basic earnings per share 4.09p (2016: loss of 3.23p per share)
-- Net cash of GBP1.6m (2016: net debt of GBP5.1m)
-- Full Year dividend up 2.9% to 3.50p (2016: 3.40p)
-- Good start to 2018
Operational Highlights
-- Cello Health continues to grow strongly organically and also by acquisition
-- Secured 49 new client wins overall in 2017, with the Group
now having relationships in place with 24 of the top 25
pharmaceutical companies
-- Defined Health and Cello Health Advantage transactions
successfully completed and integrated. Both businesses trading
well
-- The US now contributing 45.1% of Cello Health's gross profit,
with total gross profit generated from the US being 29.5% of the
Group's gross profit
-- Signal business more aligned behind core health offer, with
14% of Signal gross profits from health orientated clients
-- The Group well positioned for further expansion in healthcare in 2018 and beyond
-- The Group to be renamed as Cello Health Group plc
Cello Health Cello Signal
2017 2016 2017 2016
GBP'000 GBP'000 % change GBP'000 GBP'000 % change
-------------------- --------- --------- --------- --------- --------- ---------
Gross profit 60,150 47,605 26.4% 40,961 43,613 (6.1%)
Headline operating
profit 10,639 8,635 23.2% 3,872 4,490 (13.8%)
Headline operating
margin(4) 17.7% 18.1% 9.5% 10.3%
-------------------- --------- --------- --------- --------- --------- ---------
Mark Scott, Chief Executive, commented:
"The Group continues to make rapid strides in evolving into a
global healthcare services business, with a particular focus on the
US market. Signal is successfully migrating into a position to
support Cello Health and healthcare clients with its digital and
consumer marketing services. In line with reinforcing this growth
strategy, the Group will be renamed as Cello Health Group plc to
better leverage its positioning with all constituencies. The
current year has started well and the Group is positioned for
further expansion in healthcare in 2018 and beyond."
(1) Like-for-like measures exclude the results from companies
acquired in the year and results from start-ups which are defined
in note 1.
(2) Headline measures exclude, where applicable, restructuring
costs, share based payments, amortisation of intangible assets,
impairment charges, acquisition accounting adjustments, start-up
losses, the provision for VAT payable and other one-off items.
(3) Headline earnings per share is defined in note 8.
(4) Headline operating margin is calculated by expressing
headline operating profit as a percentage of gross profit
Analyst meeting
A meeting for analysts will be held at 9.30am today, at the
offices of Buchanan, 107 Cheapside, London EC2V 6DN. For further
details please contact Buchanan on 020 7466 5000
Enquiries:
Cello Group plc
Mark Scott, Chief Executive 020 7812 8460
Mark Bentley, Group Finance Director
Cenkos Securities plc
Bobbie Hilliam 020 7397 8927
Buchanan
Mark Court
Jamie Hooper 020 7466 5000
Sophie Wills
Chairman's Statement
Summary
We continue to deliver a consistent performance, with the Group
reporting a 10.6% increase in gross profit to GBP102.5m (2016:
GBP92.7m), with headline profit before tax up 11.9% to GBP11.4m
(2016: GBP10.2m). Reported profit before tax was GBP5.8m (2016:
reported loss of GBP1.7m). Total dividends per share increased to
3.50p per share, adding to an eleven year record of dividend
increases.
Cello has evolved significantly over the years to where we are
now: a global health-focused marketing advisory company that is the
partner of choice for many of the top pharmaceutical, biotech and
healthcare organisations globally. We work with 24 of the top 25
pharmaceutical companies.
Cello's focused strategy has delivered a strong performance
across our health operations, with 9.2% constant currency
like-for-like gross profit growth from Cello Health, and a
competitive profit margin of 17.7% (2016: 18.1%). In addition, we
were able to invest in strengthening our core operations and market
position in 2017.
2017 saw the successful addition to the Cello family of two
further US acquisitions: Defined Health, and Advantage Healthcare.
Both are excellent organisations with passionate staff, high
quality clients and strongly differentiated service offerings. The
US now contributes 45.1% of Cello Health's gross profit (2016:
35.1%).
Cello Signal had an acceptable year against a tough comparative.
Operating margins were maintained at 9.5% (2016: 10.3%) despite a
6.8% like-for-like constant currency decline in gross profit.
The Group ended the year in a net cash position and recently
renewed its banking facilities with RBS. This puts the Group in a
good position to expand further as high quality acquisitions and
start-up opportunities in the health space are identified.
We begin 2018 with a positive outlook. We expect to continue to
leverage the benefits of collaboration across the Group,
particularly as a result of our new acquisitions. We will continue
to invest in market expansion, specifically in the US and, as a
matter of priority, leverage Signal's innovative digital capability
into the healthcare market. We are excited to imminently change the
name of the business to Cello Health Group plc to better reflect
our focus.
OPERATING REVIEW
2017 represented a year of investment and strengthening of our
core operations, whilst making significant progress against our
three key strategic priorities of growth, innovation and leveraging
key assets across the Group. The core operations of Cello Health
(namely Cello Health Communications, Cello Health Insight, and
Cello Health Consulting) all made strong progress in 2017. The
capability formerly represented by Cello Health Consumer was
consolidated into these three core capabilities to maximise revenue
from those operations. The fourth pillar of Cello Health is now
serviced by Cello Signal, which is bringing its digital skills and
consumer knowledge to bear on Cello Health's core agenda.
Growth
2017 has shown the benefits of our strategy of focusing the
Group on its two key areas of strength: healthcare-focused advisory
services and digital solutions. Overall constant currency
like-for-like gross profit growth in our Cello Health operations of
9.2% was driven by good performance across our core health
operations. This growth has been achieved as a result of continued
investment across all of our core operations in expanding our
geographic coverage, establishing the right infrastructure,
capabilities and processes. This includes bringing in significant
leadership and middle tier management, particularly in our
consulting business, with new recruitment approaches and enhanced
personal development and performance management.
The US market is a key territory for us and is critical to our
long-term growth aspirations. 2017 delivered a strong performance
in this region. The US share of Cello Health gross profit has now
increased to 45.1% from 35.1% in 2016. In addition to our strong
overall organic growth, 2017 saw the successful acquisition and
integration of Defined Health and Advantage Healthcare. These
acquisitions represent an important expansion of our capability as
Cello Health continues to migrate towards cutting edge science.
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. We have also unified our European Communications
capability into Cello House, strengthening our offering under a
single capability umbrella. Similarly, we moved into new office
premises in New York. In both cases we paid special attention to
how we would use the space to enhance creativity, collaboration on
projects and new business activity.
Our core client base is robust and continues to grow from
strength to strength, with relationships in place with 24 of the
top 25 pharmaceutical companies. We secured 49 new client wins
overall in 2017, with 23 specifically in the US. We have also
focused on increasing the average size of client engagements.
Increased investment in marketing and business development
resources has seen significant strengthening in our business
development pipeline globally.
Our core digital operations under the Signal brand delivered a
reduced trading result, largely reflecting the long anticipated
cessation of two significant one off client projects in 2016.
Importantly, as well as supporting Cello Health's core
pharmaceutical client base, Signal is making rapid progress in
developing business across a wide range of health and wellbeing
clients, notably:
-- Digital communications - working for EFPIA, Dexcom, Stryker and BUPA dental
-- Insight - Public Health England, Wellcome Trust and Tesco own label health lines
-- Wellbeing - The Federation for Disability Sport and The Food Doctor
We have consolidated our core digital operations into three key
operational office hubs, in Cheltenham, London and Edinburgh. All
three offices work closely together, sharing business development
and professional resource. This has enabled a smoother sharing of
technology and technical expertise between locations. It is also
the key to raising operating margins. In 2017 action was taken in
the US research business to reduce professional costs, resulting in
an exceptional charge. This should feed through into margin
enhancement in due course.
Innovation
In 2017 we invested in existing operations as well as the
development of new initiatives to be launched in 2018. 2017 saw
continued success with our range of Digital offerings. Our core
Insight digital offering continued its rapid growth based on its
'Living Lens' searchable video technology and a revamp of its
eVillage offering. IQ, our quantitative research practice, had an
equally strong year.
Cello Health Insight invested in developing and preparing the
organisation to launch a new service offering, Cello Health Logic.
Cello Health Logic is both a data science and social analytics unit
which utilises our proprietary Pulsar technology with a focus on
the health sector. In addition, we have formed strategic
relationships with a number of key partners which will provide us
with access to the online 'conversations' and views of healthcare
professionals.
Pulsar, our social media analytics platform, has continued its
rapid pace of development, ending 2017 with 346 clients, up from
257 in 2016, and a monthly revenue run rate in software licence
sales of c. GBP0.5m. Cello Health Logic is in the process of
leveraging the Pulsar software suite into the healthcare
market.
Cello's overall digital capability divides into the planning and
building of digital infrastructure (Content Management Systems,
Mobile Applications, Personalisation and Automation Platforms) and
Digital Marketing (across SEO, PPC, Media, Creative and Social). We
also have a significant footprint in data-led strategy as clients
seek to connect on and off-line channels to create a seamless
customer experience.
In addition we have an extensive base of highly innovative
clients across technology, entertainment and gaming. EA, Facebook,
Apple, Sony, HP, Netflix, NBC, Wargaming and Ubisoft are all
significant clients across our insight, communication and
innovation teams. The very technologically advanced nature of these
clients helps shape how the majority of consumers behave online.
Importantly, advances made with these clients in these sectors
provide a valuable lens for our health clients who want to benefit
from leading-edge digital solutions used in other markets.
Leveraging our assets
The digital capability that resides in Signal has a very
specific role within Cello Group as we seek to apply innovation in
audience intelligence, digital marketing and digital
infrastructure. We are focusing on utilising that innovation to
grow our health client base. Tech and Gaming, Charities and
Financial Services, are sectors that health clients are seeking to
learn from in applying digital techniques to meet the complex
communication challenges in their health markets.
Signal's health activity has grown to around 14.0% of gross
profit as a result of collaboration with Cello Health and by direct
client wins in clinical and consumer health. Signal was appointed
by the European Federation of Pharmaceutical Industries and
Associations to manage their digital campaign in response to
growing concern about the rising costs of healthcare. In addition,
Oasis Dental, the UK's largest Dental clinic network, appointed
Signal to deliver their CRM, Digital Marketing and SEO activity. A
further example of our success in leveraging our digital expertise
in healthcare is our work with BUPA. We delivered the re-brand of
their website and ensured they carried over their local SEO
footprint on a clinic-by-clinic basis. The Signal Health team are
also working with a range of other health clients.
In 2017 we invested in a shared business development resource
which works in co-ordination with our capability teams. This is
yielding strong benefits in new business levels across the business
as professional resource is being flexibly deployed against global
opportunities.
Group Finance Director's Report
Summary
Total Group gross profit was GBP102.5m (2016: GBP92.7m) on
revenues of GBP169.3 (2016: GBP165.3m). Headline profit before tax
was GBP11.4m (2016: GBP10.2m). Like-for-like gross profit growth
for the whole Group was 2.5%. Constant currency like-for-like gross
profit growth was 1.6%.
The Group's headline operating margin was 11.7% (2016: 11.5%)
with a headline operating margin of 17.7% in Cello Health (2016:
18.1%), and 9.5% in Cello Signal (2016: 10.3%).
Finance costs were GBP0.4m (2016: GBP0.3m). These are expected
to drop during the year as debt drops.
The Group's reported tax charge was GBP1.6m (2016: GBP0.8m) with
a headline tax rate of 28.2% (2016: 25.7%). The headline tax rate
has increased as a consequence of higher relative profits in the US
in 2017, which currently attract a higher tax rate. The Group has
carried out a preliminary assessment of the impact of the
forthcoming changes to the US tax regime. This assessment shows
that the headline tax rate for the Group should drop by at least
three percentage points from 2018 onwards. The reconciliation of
the tax charge for 2017 to reported profit/loss before tax is in
note 6.
Headline basic earnings per share is down 8.4% to 7.93p (2016:
8.66p). This drop is largely as a result of the increased number of
shares in issue following the fund raise in early 2017.
Statutory profit before tax was GBP5.8m (2016: loss of GBP1.7m),
a reconciliation of headline profit before tax to the statutory
profit/loss before tax can be found in note 1.
The Group benefitted from a stronger dollar in 2017 compared
with 2016, with average US$:GBP exchange rates strengthening from
1.35 in 2016 to 1.29 in 2017. The Group generated around GBP5.4m of
headline operating profit in the USA in 2017 (2016: GBP3.3m), an
increase of 65.1%.
The Board is proposing a final dividend of 2.45p per share
(2016: 2.40p), giving a total dividend for the year of 3.50p per
share (2016: 3.40p) representing an increase of 2.9%. The dividend
has now grown every year since 2006. Subject to shareholder
approval, the final dividend will be paid on 25 May 2018 to all
shareholders on the register at 4 May 2018, and will be recognised
in the year ending 31 December 2018.
During the year the Group completed two acquisitions to support
and develop its strategy of growing Cello Health in the US.
Acquisitions and deferred consideration
During the year the Group completed two acquisitions to support
and develop its strategy of growing Cello Health in the US.
On 31 January 2017, the Group completed the acquisition of the
trade and assets of Defined Healthcare Research Inc and Cancer
Progress LLC ("Defined Health"), a business delivering scientific
strategic advisory services to a wide range of US and European
global biotech clients. Initial consideration was $5.75m of which
$5.25m was paid in cash, with the balance settled by the issue of
398,904 new ordinary shares.
On 17 July 2017 the Group acquired the trade and assets of
Advantage Healthcare Inc ("Advantage Healthcare"), a consultancy
providing critical analysis and insights to biopharmaceuticals,
supporting new products and business development. Initial
consideration was $1.5m, payable in cash.
The cash consideration for both these acquisitions was financed
by way of a placing of 15,463,919 new ordinary shares at a price of
97p a share, raising GBP14.2m after expenses, which occurred in
early 2017. The placing was oversubscribed, and received strong
support from new and existing institutional shareholders.
Total future deferred consideration obligations at 31 December
2017 now total GBP4.6m (2016: GBP2.9m). In line with recognised
accounting practices, the income statement impact of this deferred
consideration is spread over the length of the deferred
consideration period. The acquisitions-related Employee
Remuneration Expense is GBP1.4m (2016: GBP1.2m). This provision
will be substantially settled over the years 2019 to 2021.
Cello Health Financial Performance
2017 2016
GBP'000 GBP'000
Gross profit 60,150 47,605
Headline operating profit 10,639 8,635
Headline operating margin 17.7% 18.1%
Gross profit in Cello Health grew by 26.4% in 2017, reflecting
both organic growth and growth by acquisition. Like-for-like
constant currency gross profit was an excellent 9.2%, with a
particularly strong performance from the Cello Health businesses in
the US. The acquisitions of Defined Health and Advantage Health
added materially to Cello Health's biotech offer. Both businesses
are performing well. Operating margins dropped slightly to 17.7%,
reflecting a change in the mix of the business. 45.1% of total
Cello Health gross profit was earnt by the US operations (2016:
35.1%).
Cello Signal Financial Performance
2017 2016
GBP'000 GBP'000
Gross profit 40,961 43,613
Headline operating profit 3,872 4,490
Headline operating margin 9.5% 10.3%
Cello Signal had an acceptable year against a tough comparator
in 2016. As highlighted in previous announcements, 2016 benefitted
from two significant contracts which were not going to repeat in
2017.
Notwithstanding this impact, the UK businesses in Cello Signal
had a good year. Trading in the research business in the US was
difficult and during the year headcount was reduced significantly.
Trading in the US is now on track. Taking all these factors into
account, the constant currency like-for-like decline in gross
profit was 6.8%.
Pulsar continued to grow well and ended the year with 346
clients and c. GBP0.5m of monthly licence revenue. (2016: 257
clients and c. GBP0.3m of monthly revenue).
Operating Cash Flow
Headline operating cash flow of GBP10.4m represented 77.2% cash
conversion of headline EBITDA (2016: 123.0%). The operating cash
flow surplus generated in 2016 therefore reversed in 2017 as
expected. The underlying operating cash flow performance of the
Group is robust. The following table demonstrates the calculation
of headline operating cash flow, and the cash conversion rate.
2017 2016
GBPm GBPm
Headline operating profit 11.8 10.5
Depreciation 1.3 1.3
Headline amortisation 0.4 0.4
Headline EBITDA 13.5 12.2
Net cash inflow from operating activities 4.8 6.5
Restructuring costs 1.9 1.2
Post-employment restrictions settlement 0.1 1.2
Start-up losses 1.4 1.0
Acquisition costs 0.2 -
VAT settlement/receipts (0.3) 4.8
Settlement of deferred remuneration 2.3 0.2
Headline operating cash flow 10.4 14.9
Headline cash conversion 77.2% 123.0%
The Group's net cash position at 31 December 2017 was GBP1.6m
(2016: debt of GBP5.1m). The operating cash flow is weighted
towards the second half of the year. During the year the Group was
pleased to renew its debt facilities with the Royal Bank of
Scotland. They have been renewed on the same pricing terms as the
previous arrangement, and expire in March 2022.
Non Headline items
A number of items are in the income statement below headline
operating profit, which are as follows:
2017 2016
GBP'000 GBP'000
Headline operating profit 11,778 10,497
Net interest payable (359) (293)
Headline profit before tax 11,419 10,204
Restructuring costs (1,916) (1,201)
Charge for VAT recoverable/(payable)
and related costs 259 (1,798)
Employment settlement and related
costs (48) (1,158)
Start-up losses (1,350) (977)
Acquisition costs (243) -
Amortisation of intangibles* (510) (294)
Acquisition-related employee remuneration
expense* (1,364) (1,176)
Share option charges* (430) (349)
Impairment of goodwill* - (4,937)
Statutory profit/(loss) before tax 5,817 (1,686)
*No cash flow impact.
During 2017, the Group incurred restructuring costs of GBP1.9m
(2016: GBP1.2m). This mainly relates to redundancy payments,
predominately within the US research offer in Cello Signal.
Structural changes were also implemented to consolidate property
commitments, integrate the offer further and reduce operating
costs.
The Group collected GBP0.3m of VAT from charity clients in
relation to the prior years issue (2016: provision made of
GBP1.8m).
The employment settlement costs of GBPnil (2016: GBP1.2m)
represent costs incurred in the prior year regarding the
establishment of a bioconsulting team in the US. This team is now
profitable.
Start-up costs in the year principally related to operating
losses from the Group's Cello Health Consulting operations in the
US as well as losses from Pulsar operations in the US. The US
operations of Cello Health Consulting moved into headline
activities in the second half of 2017.
Acquisition costs of GBP0.2m (2016: GBPnil) were incurred in
relation to due diligence and legal costs on acquisitions made in
the year.
Amortisation of intangibles relates to the amortisation of
identified intangible assets that are recognised on acquisitions,
this charge has risen to GBP0.5m (2016: GBP0.3m) due to the
acquisitions completed in the year.
Acquisition related employee remuneration expense of GBP1.4m
(2016: GBP1.2m) is the necessary income statement charge which
relates to the spreading of deferred consideration payments made to
certain employees of the Group over the term of the deferred
consideration measurement period.
Share option charges of GBP0.4m (2016: GBP0.3m) relate to the
appropriate income statement charge being recognised over the life
of issued share options to staff.
Goodwill has not been impaired in 2017 (2016: charge of
GBP4.9m).
Our Marketplace
Structural drivers of growth
The combination of ageing populations with advances in
scientific understanding, diagnosis and treatments continue to
produce an underlying requirement for health treatments. Combined
with the strength of our clients' R&D pipelines and the
challenges they face in ensuring every product is a commercial
success, clients will continue to value the type of services that
Cello provides.
The shift from the traditional block buster to specialty
medicines requiring the use of Biotech technology is gathering
pace. Current forecasts predict that Biotech will contribute over
half of the top 100 product sales by 2022, overtaking small
molecule drugs as a class. To stay ahead of the curve in this
rapidly developing market, our clients need to invest earlier in
startups, biotechs and promising new platform technology and make
earlier go/no go decisions whether to back an asset. They also need
to decide earlier on the commercial platform used to inform their
clinical trial programs.
As continued financial pressures impact all sectors, health is
not an exception, driven by a combination of pricing pressures, an
increased drive towards generics and biosimilars and the ongoing
costs of bringing novel therapies to market. Pharma and Biotech
companies are having to find new approaches to pricing, value,
managing costs, and sharing risks, including managing expectations
around outcomes-based medicine.
These factors are forcing our clients to adapt how they develop
and commercialise their products. Clients look to Cello to not only
translate complex science into its commercial application but also
to reinforce the value of a product by integrating health outcomes
research and real world evidence into the clinical story for payers
and other key stakeholders.
The challenge for our clients is to create a powerful scientific
and health economic story based on a clear understanding of the
science, the clinical profile of the product and the role it can
play in terms of health benefit to the patient population overall.
Our clients then have to be able to devise a multi-channel,
multimedia communication solution that addresses the needs of an
ever more complex stakeholder environment.
Additionally, clients are increasingly seeking support in
helping them integrate solutions from new technologies in the areas
of diagnostics, biomarkers and patient support programs.
Specifically they are seeking to understand how to build innovation
into the service offering, how to price, how to demonstrate value
and gain market access; all key challenges that require our
services.
The application of digital innovation to healthcare
Digital innovation continues unabated as clients seek to harness
technology to bring better outcomes to stakeholders.
We have seen a significant change in how health information is
accessed which now places the patient at the centre. Social groups,
patient associations, the role of social media through its various
channels, digital data, wearable and connected technology are all
having a major impact on how healthcare professionals and patients
receive and disseminate information. Clients need our help to
understand the best way to engage with this new environment.
The ability of our digital and creative teams to personalise
communication down to the individual level has significant
application in the health arena. Although there are still
limitations in gaining direct access to patient data, audiences are
becoming increasingly educated and engaged in managing their own
health and wellbeing. Their desire to better understand their
conditions, treatment and related lifestyle choices offer the
opportunities for the pharmaceutical client community to engage
directly in supporting the patient journey with personalised
guidance.
In response to these trends, we will continue to broaden our
focus on the health market. Our clients will include those involved
in health consumer products, healthy foods, wearable devices and
organisations that focus on the health of consumers, all of whom
want to see positive behaviour changes towards health. We will
further evolve our ability to collaborate across Cello, enabling
our clients to access integrated blended teams of experts formed to
meet their specific needs, both across our core health practices
and also leveraging our digital capacity.
Risks and Uncertainties
The Company regularly reviews the risks and uncertainties facing
the business through a regular series of board and operational
meetings. The Directors believe the current largest risks are as
follows:
1. Economic conditions
The Group's business is domiciled in the UK but 48.9% (2016:
45.2%) of the Group's revenues are from clients based overseas. It
is clear that income from clients is impacted by the prevailing
economic conditions. Global economic and geopolitical uncertainty
has increased following Brexit and the US election. However, the
broad spread of clients across sector and geography mitigates this
risk.
2. Loss of the Group's key clients
Client relationships are crucial to the Group and the strength
of them is key to its continued success. The risk is mitigated by
our client base being broadly spread and by several of our
pharmaceutical clients being subject to longer term master service
agreements. The loss of any large client would require replacement.
The Group's client review programmes help mitigate this risk.
3. Changing laws and regulations
There are various laws and regulations that are relevant to the
operations of the Group, in particular the forthcoming GDPR regime
which applies from 25 May 2018. The Group has established a
steering group on this issue which is actively working across all
its businesses to ensure compliance.
4. Loss of key staff
The Group's Directors and staff are critical to the servicing of
existing business and the winning of new accounts and the departure
of key staff could be a risk to maintaining client service. With
that risk in mind all senior staff are subject to financial
lock-ins and long-term incentive arrangements, as well as being
under contractual non-compete and non-solicit clauses.
Current Trading and Outlook
The Group has begun 2018 with good levels of forward bookings
and already secured a good level of new business wins. Following
the fundraise to finance the acquisitions of Defined Health and
Advantage Healthcare, the Group is in the process of expanding its
global footprint. The imminent renaming of the Group as Cello
Health Group plc reflects this strategic focus. The Board is
confident that expectations for 2018 will be met.
Allan Rich
Non-Executive Chairman
21 March 2018
CONSOLIDATED INCOME STATEMENT
for the year ended 31 December 2017
Year ended Year ended
Note 31 December 2017 31 December 2016
GBP'000 GBP'000
Continuing operations
Revenue 2 169,292 165,266
Cost of sales (66,807) (72,610)
Gross profit 1 102,485 92,656
Administrative expenses 3 (96,309) (94,049)
Operating profit/(loss) 2 6,176 (1,393)
Finance income 1 11
Finance costs (360) (304)
Profit/(loss) on continuing
operations
before taxation 1 5,817 (1,686)
Taxation 6 (1,589) (820)
Profit/(loss) on continuing
operations after taxation 4,228 (2,506)
Loss from discontinued operations - (321)
Profit/(loss) for the year
attributable to owners of
the parent 4,228 (2,827)
Year ended Year ended
31 December 2017 31 December 2016
Basic earnings/(loss) per
share
From continued operations 8 4.09p (2.86)p
From discontinued operations 8 - (0.37)p
Total basic earnings/(loss)
per share 8 4.09p (3.23)p
Diluted earnings/(loss) per
share
From continuing operations 8 4.03p (2.86)p
From discontinued operations 8 - (0.37)p
Total diluted earnings/(loss)
per share 8 4.03p (3.23)p
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
for the year ended 31 December 2017
Year ended Year ended
31 December 2017 31 December
GBP'000 2016
GBP'000
Profit/(loss) for the financial
year 4,228 (2,827)
Other comprehensive (expense)/income:
Items that may be reclassified subsequently
to profit and loss:
Exchange differences on translation of
foreign operations (238) 211
Total comprehensive income/(expense)
for the year 3,990 (2,616)
Total comprehensive income/(expense) attributable to owners of the
parent arises:
From continuing operations 3,990 (2,295)
From discontinued operations - (321)
3,990 (2,616)
CONSOLIDATED BALANCE SHEET
as at 31 December 2017
31 December 31 December
2017 2016
Note GBP'000 GBP'000
Goodwill 9 72,954 69,833
Intangible assets 1,192 695
Property, plant and equipment 2,840 2,705
Deferred tax assets 1,081 742
Non-current assets 78,067 73,975
Trade and other receivables 11 54,520 46,862
Cash and cash equivalents 13,021 7,466
Current assets 67,541 54,328
Trade and other payables 12 (49,378) (48,171)
Current tax liabilities (438) (851)
Borrowings 13 (59) (155)
Obligations under finance leases (14) (16)
Current liabilities (49,889) (49,193)
Net current assets 17,652 5,135
Total assets less current liabilities 95,719 79,110
Trade and other payables 12 (1,400) (126)
Borrowings 13 (11,333) (12,350)
Obligations under finance leases (3) (17)
Deferred tax liabilities (110) (63)
Non-current liabilities (12,846) (12,556)
Net assets 82,873 66,554
Equity
Share capital 10,501 8,760
Share premium 32,705 19,162
Merger reserve 25,446 25,446
Capital redemption reserve 50 50
Retained earnings 13,368 12,159
Share-based payment reserve 824 760
Foreign currency reserve (21) 217
Total equity 82,873 66,554
Consolidated cash flow statement
for the year ended 31 December
2017
Note Year ended Year ended
31 December 31 December
2017 2016
GBP'000 GBP'000
Net cash generated from operating
activities before taxation 14 4,792 6,510
Tax paid (2,066) (1,659)
Net cash generated from operating
activities after taxation 2,726 4,851
Investing activities
Interest received 1 11
Purchase of property, plant and equipment (1,462) (1,966)
Sale of property, plant and equipment 30 30
Purchase of intangible assets (409) (310)
Purchase of subsidiary undertakings (5,259) (25)
Net cash used in investing activities (7,099) (2,260)
Financing activities
Proceeds from issuance of shares 14,388 289
Dividends paid to equity holders
of the parent 7 (3,575) (2,596)
Repayment of borrowings (3,000) (6,681)
Repayment of loan notes (96) (77)
Drawdown of borrowings 2,900 8,509
Capital element of finance lease
payments (16) (24)
Interest paid (362) (256)
Net cash generated from/(used in) financing
activities 10,239 (836)
Net increase in cash and cash equivalents 5,866 1,755
Exchange (losses)/gains on cash and
cash equivalents (311) 462
Cash and cash equivalents at the
beginning of the year 7,466 5,249
Cash and cash equivalents at the
end of the year 13,021 7,466
Consolidated statement of changes in equity
for the year ended 31 December 2017
Equity
attributable
to
the
Foreign owners
Capital Share-based currency of Non-
Share Share Merger redemption Retained payment exchange the controlling Total
capital premium reserve reserve earnings reserve reserve parent interest equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
At 1 January
2016 8,576 18,834 28,807 50 13,860 635 6 70,768 50 70,818
__ __ __ __ __ __ __ __ __ __
Comprehensive
expense:
Loss for the
financial year - - - - (2,827) - - (2,827) - (2,827)
Other comprehensive
income:
Currency
translation - - - - - - 211 211 - 211
__ __ __ __ __ __ __ __ __ __
Total
comprehensive
expense for the
year - - - - (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 (note
7) - - - - (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 - 66,554
__ __ __ __ __ __ __ __ __ __
Comprehensive
income:
Profit for the
financial year - - - - 4,228 - - 4,228 - 4,228
Other comprehensive
expense:
Currency
translation - - - - - - (238) (238) - (238)
__ __ __ __ __ __ __ __ __ _____
Total
comprehensive
income for the
year - - - - 4,228 - (238) 3,990 - 3,990
__ __ __ __ __ __ __ __ __ __
Transactions
with owners:
Shares issued 1,741 13,543 - - - - - 15,284 - 15,284
Credit for
share-based
incentives - - - - - 430 - 430 - 430
Tax on
share-based
payments
recognised
directly in
equity - - - - 190 - - 190 - 190
Transfer between
reserves in
respect
of share
options - - - - 366 (366) - - - -
Dividends (note
7) - - - - (3,575) - - (3,575) - (3,575)
__ __ __ __ __ __ __ __ __ __
Total
transactions
with owners 1,741 13,543 - - (3,019) 64 - 12,329 - 12,329
__ __ __ __ __ __ __ __ __ __
At 31 December
2017 10,501 32,705 25,446 50 13,368 824 (21) 82,873 - 82,873
______
SIGNIFICANT ACCOUNTING POLICIES
(1) Basis of Preparation
The consolidated financial statements of Cello Group plc have
been prepared in accordance with International Financial Reporting
Standards as adopted by the European Union ("IFRSs"),
interpretations issued by the IFRS Interpretations Committee ("IFRS
IC") and the Companies Act 2006 applicable to companies reporting
under IFRSs. The consolidated financial statements have been
prepared under the historical cost convention. The Group's
principle accounting policies have been applied consistently
throughout the year.
The Group's business activities, performance and position and an
assessment of the risks and uncertainties are set out in the
Chairman's Statement. An assessment of the critical accounting
estimates and judgements are set out in accounting policy 5.
(2) Going Concern
During the year the Group generated a profit before tax on
continuing activities of GBP5.8m and excluding non-recurring
restructuring costs and other non-headline charges the Group
generated a profit before tax of GBP11.4m.
The Group meets its day-to-day working capital requirements
through its bank facilities. At 31 December 2017 the Group's bank
facilities consisted of a GBP4.0m overdraft facility and a GBP20.0m
revolving credit facility ("RCF"). The RCF is committed to March
2022. GBP8.7m of the RCF is undrawn at 31 December 2017.
The Group's forecasts and projections show that the Group is
able to operate within the level of its current facilities and its
covenants.
After reviewing the Group's performance and forecast future cash
flows, the Directors consider the Group has adequate resources to
continue in operational existence for the foreseeable future. The
Group therefore continues to adopt the going concern basis in
preparing the Group's financial statements.
(3) Headline Measures
The Group believes that reporting non-GAAP or headline measures
provides a useful comparison of underlying business performance and
this reflects the way the business is reported internally and
controlled. Accordingly, headline measures of operating profit,
finance income, finance costs, profit before taxation and earnings
per share exclude, where applicable, restructuring costs,
amortisation of intangible assets, impairment charges, acquisition
costs, acquisition accounting adjustments, start-up losses, share
option charges, fair value gains and losses on derivative financial
instruments and the provision for VAT payable. These 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.
A reconciliation between reported and headline profit before
taxation is presented in note 1. In addition to this, a
reconciliation between reported and headline operating profit is
presented in note 2 and a reconciliation between reported and
headline earnings per share is presented in note 8. Headline
measures in this report are not defined terms under IFRSs and may
not be comparable with similarly titled measures reported by other
companies.
(4) Goodwill
Goodwill represents the excess of consideration over the fair
value of the Group's share of the identifiable net assets acquired
at the date of acquisition. Goodwill is carried at cost less
accumulated impairment losses. Impairment losses are recognised in
the income statement and cannot subsequently be reversed.
Goodwill is allocated to cash-generating units ("CGUs") for the
purposes of impairment testing. The allocation is made to those
CGUs that are expected to benefit from the business combination in
which the goodwill arose.
SIGNIFICANT ACCOUNTING POLICIES
The carrying value of goodwill for each CGU is reviewed annually
for impairment, or more frequently if the events or changes in
circumstances indicate a potential impairment. An impairment loss
is recognised for the amount by which the asset's carrying amount
exceeds its recoverable amount. The recoverable amount is the
higher of an asset's fair value less costs to sell and its
value-in-use.
(5) Accounting Estimates and Judgements
The Group makes estimates and judgements concerning the
application of the Group's accounting policies and concerning the
future. The resulting estimates may, by definition, vary from the
actual results. Estimates are based on historical experience and
various other assumptions that management and the Board of
Directors believe are reasonable.
The Directors consider the critical accounting estimates and
judgements used in the financial statements and concluded that the
main areas of judgements are:
i. Revenue recognition policies in respect of contracts which straddle the year end.
The Group is required to make an estimate of the project
completion levels in respect of contracts which straddle the year
end for income recognition purposes. Estimates are based on
expected total costs and revenues from each contract. Total
expected costs are reviewed at each period and determined based on
actuals to date versus management's historic experience in relation
to similar contracts. This involves a level of judgement and
therefore differences may arise between the actual and estimated
result. Where immaterial differences arise they are recognised in
the income statement for the following reporting period. Any
material changes to these estimates would affect revenue recognised
in the financial statements and the level of deferred or accrued
income on the balance sheet.
ii. Contingent deferred consideration payments in respect of
acquisitions and acquisition-related employee remuneration.
The Group has estimated the value of future amounts payable in
respect of acquisitions. The estimate is based on management's
estimates of the relevant entity's future performance. If these
estimates change in the future as the earn out progresses, the
amount of the provision will vary. Any changes to the carrying
value of the provision are recognised in the income statement.
As part of a typical acquisition an amount is also payable to
the employees of the acquired company. These acquisition-related
employee remuneration costs are calculated using the same estimates
of the relevant entity's future performance as the deferred
consideration payable. If these estimates change in the future, as
the earn out progresses, the amount of the employee liability,
which is recognised over the earn out period, will vary. Any
changes to the carrying value of these liabilities are recognised
in the income statement.
iii. Valuation and amortisation period of separately
identifiable intangible assets on acquisitions.
The Group is required to value the separately identifiable
intangible assets acquired as part of a business combination. In
order to value some of these intangible assets, the Group must make
assumptions as to future cash flows derived from these costs and
estimate the expected lives of these assets. Changes to these
estimates would affect the resulting valuation of goodwill and the
amortisation charge recognised in the financial statements.
iv. Impairment of goodwill and intangible assets acquired as
part of a business combination.
The Group tests goodwill and intangible assets acquired as part
of a business combination annually for impairment, in accordance
with the Group's accounting policies. The recoverable amount is
based on value-in-use calculations, which requires estimates of
future cash flows and the discount rate to apply in order to
calculate the present values of these cash flows. The estimates
used and sensitivity of these assumptions is disclosed in note
9.
NOTES TO THE PRELIMINARY ANNOUNCEMENT
1 Non-GAAP Measures
The Group believes that reporting non-GAAP measures provides a
useful comparison of underlying 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. Further details are provided in note 4.
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.
Further details are provided in note 5.
v. Acquisition costs - these are costs that are directly related
to acquisitions completed in the year.
vi. Amortisation of intangible assets - this is in respect of
amortisation charged against separately identifiable intangible
assets acquired as part of a business combination.
vii. Acquisition related employee remuneration expense - costs
with regards to deferred payments payable to vendors and certain
employees of a company in accordance with the share purchase
agreement of the acquired company. 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.
viii. 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.
ix. Impairment of goodwill. Further details are provided in note 9.
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/(loss)
before taxation is presented in below:
Note Year ended Year ended
31 December 31 December
2017 2016
GBP'000 GBP'000
Profit/(loss) on continuing operations
before taxation 5,817 (1,686)
Restructuring costs 4 1,916 1,201
Net (credit)/charge for VAT payable
and related costs (259) 1,798
Employment settlement and related
costs 48 1,158
Start-up losses 5 1,350 977
Acquisition costs 243 -
Amortisation of intangible assets 510 294
Acquisition-related employee remuneration
expense 1,364 1,176
Share option charges 430 349
Impairment of goodwill 9 - 4,937
Headline profit before taxation 11,419 10,204
Headline profit before taxation is made
up as follows:
Headline operating profit 2 11,778 10,497
Finance income 1 11
Finance costs (360) (304)
11,419 10,204
Like-for-like gross profit
Like-for-like gross profit measures exclude the results from
companies acquired in the year, and they also exclude the results
of acquired companies in the prior year to the extent that those
companies were not in the Group in that prior year. Like-for-like
gross profit measures also appropriately exclude the impact of
start-ups, which are defined in note 5. 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 Year ended Year ended
31 December 31 December
2017 2016
GBP'000 GBP'000
Reported gross profit 10.6% 102,485 92,656
Adjustments (8,066) (525)
Like-for-like gross profit 2.5% 94,419 92,131
Currency impact (825) -
Currency adjusted like-for-like
gross profit 1.6% 93,594 92,131
These measures can be allocated to the Group's operating segments
(note 2) as follows:
Reported gross profit:
Cello Health 26.4% 60,150 47,605
Cello Signal (6.1%) 40,961 43,613
Other 1,374 1,438
Total 10.6% 102,485 92,656
Like-for-like gross profit:
Cello Health 10.7% 53,458 48,302
Cello Signal (6.5%) 40,961 43,829
Total 2.5% 94,419 92,131
Currency adjusted like-for-like
gross profit:
Cello Health 9.2% 52,763 48,302
Cello Signal (6.8%) 40,831 43,829
Total 1.6% 93,594 92,131
2 Segmental Information
For management purposes, the Group is organised into two
operating segments, Cello Health and Cello Signal. These segments
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.
The principal activities of the operating segments are as
follows:
Cello Health
The Cello Health Division provides market research, consulting
and communications services principally to the Group's
pharmaceutical and healthcare clients.
Cello Signal
The Cello Signal Division provides market research and direct
communications services principally to the Group's consumer-facing
clients.
Revenues derived from the Group's largest client are less than
10.0% of the Group's total revenue. Revenue derived from the
largest client in each operating segment also represents less than
10.0% of external revenue in each segment.
Sales between segments are carried out at arms-length. The
revenue from external parties reported to the chief operating
decision maker is measured in a manner consistent with that in the
income statement.
for the year ended 31 December 2017 Consolidation
Adjustments
Cello Health Cello Signal and Unallocated Group
GBP'000 GBP'000 GBP'000 GBP'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 credit for VAT payable and related
costs 259
Employment settlement and related costs (48)
Start-up losses (1,350)
Acquisition costs (243)
Amortisation of intangible assets (510)
Acquisition-related employee remuneration expense (1,364)
Share option charges (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
for the year ended 31 December 2016 Consolidation
Adjustments
Cello Health Cello Signal and Unallocated Group
GBP'000 GBP'000 GBP'000 GBP'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
The Group's operations are materially located in the United
Kingdom and the US.
The following table provides an analysis of the Group's revenue
by geographical market, based on the location of the client:
Year ended Year ended
31 December 2017 31 December 2016 GBP'000
GBP'000
UK 86,566 90,640
Rest of Europe 19,685 18,922
USA 47,044 43,049
Rest of the World 15,997 12,655
169,292 165,266
The following table provides an analysis of the Group's
non-current assets, excluding deferred tax assets, by geographical
location:
2017 2016
GBP'000 GBP'000
UK 66,104 66,109
USA 10,867 7,105
Rest of the world 15 19
76,986 73,233
3 Administrative Expenses
Profit for the financial year is stated
after charging/(crediting):
Year ended Year ended
31 December 31 December
2017 2016
Notes GBP'000 GBP'000
Headline administrative costs:
Staff costs 65,570 59,147
Operating lease rentals 3,759 3,463
Depreciation of property, plant
and equipment 1,304 1,285
Profit on disposal of property,
plant and equipment (21) (26)
Amortisation of intangibles 402 386
Auditors' remuneration 390 422
Net foreign exchange loss/(gain) 449 (502)
Other property costs 1,822 1,920
Other administration costs 15,658 14,626
Non-headline administrative costs:
Restructuring costs 4 1,916 1,201
Net (credit)/charge for VAT payable
and related costs (259) 1,798
Employment settlement and related
costs 48 1,158
Start-up costs 5 2,724 2,415
Acquisition costs 243 -
Amortisation of intangibles 510 294
Acquisition-related employee remuneration 1,364 1,176
Share option costs 430 349
Impairment of goodwill 9 - 4,937
96,309 94,049
4 Restructuring Costs
Restructuring costs comprise of cost saving initiatives including
severance payments, property and other contract termination costs.
They are included within administrative costs and have been separately
identified as a non-headline item because of their size or their
nature or because they are non-recurring. In the opinion of the
Directors, these costs are required to be separately identified,
to enable a full understanding of the Group's underlying financial
performance.
An analysis of restructuring costs incurred is as follows:
Year ended Year ended
31 December 31 December
2017 2016
GBP'000 GBP'000
Staff redundancies 1,479 1,113
Property costs 437 88
Total restructuring costs 1,916 1,201
5 Start-up Losses
Start-up losses have been separately identified as a non-headline
item because, in the opinion of the Directors, separate disclosure
is required to enable a full understanding of the Group's underlying
financial performance.
Start-up losses 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.
An analysis of start-up losses incurred is as follows:
Year ended Year ended
31 December 31 December
2017 2016
GBP'000 GBP'000
Revenue 1,922 1,679
Cost of sales (548) (241)
Gross profit 1,374 1,438
Administrative costs (2,724) (2,415)
Start-up losses (1,350) (977)
6 Taxation Year ended Year ended
31 December 2017 31 December 2016
GBP'000 GBP'000
Current tax:
Current tax on profits/(losses) for the year 1,961 1,392
Prior year current tax adjustment (114) (555)
1,847 837
Deferred tax: (258) (17)
Tax charge 1,589 820
The standard rate of corporation tax in the UK was 19.25% (2016: 20.00%) for the whole financial
year. Taxation for other jurisdictions is calculated at the rates prevailing in the respective
jurisdiction.
The charge for the year can be reconciled to the profits/(losses) per the income statement
as follows:
Year ended Year ended
31 December 2017 31 December 2016
GBP'000 GBP'000
Profit/(loss) before taxation 5,817 (1,686)
Tax at the UK corporation tax rate of 19.25% (2016: 20.00%) 1,120 (337)
Tax effect of expenses not deductible for tax purposes 243 1,335
Effect of decrease in tax rate on deferred tax assets 7 29
Effect of different tax rates of subsidiaries in foreign jurisdiction 338 292
Tax losses not utilised in the year - 30
Utilisation of losses not previously recognised (31) -
Origination and reversal of other temporary differences 26 26
Prior year current tax adjustment (114) (555)
1,589 820
Changes to the UK corporation tax rates were substantively
enacted as part of the Finance Bill 2015 (on 26 October 2015) and
the Finance Bill 2016 (on 7 September 2016). These include
reductions to the main rate of corporation tax to 19.0% from 1
April 2017 and to 17.0% from 1 April 2020. Deferred taxes at the
balance sheet date have been measured using these enacted tax rates
in these financial statements.
7 Equity Dividends
The dividends paid in the year were:
Year ended Year ended
31 December 31 December
2017 2016
Date paid GBP'000 GBP'000
Final dividend 2015 - 2.02p
per share 27 May 2016 - 1,727
Interim dividend 2016 - 1.00p 04 November
per share 2016 - 869
Final dividend 2016 - 2.40p
per share 26 May 2017 2,478 -
Interim dividend 2017 - 1.05p 03 November
per share 2017 1,097 -
3,575 2,596
A 2017 final dividend of 2.45p has been proposed for approval at
the Annual General Meeting on 9 May 2018. In accordance with IAS
10 Events After the Reporting Period these dividends have not been
recognised in the Consolidated Financial Statements at 31 December
2017.
8 Earnings/(loss) per Share
Year ended Year ended
31 December 2017 31 December
GBP'000 2016 GBP'000
Earnings/(loss) attributable to ordinary
shareholders 4,228 (2,827)
Loss from discontinued operations - 321
____ _______
Earnings/(loss) attributable to ordinary
shareholders from continuing operations 4,228 (2,506)
Adjustments to earnings/(loss):
Restructuring costs 1,916 1,201
Net (credit)/charge for VAT payable and
related costs (259) 1,798
Employment settlement and related costs 48 1,158
Start-up losses 1,350 977
Acquisition costs 243 -
Amortisation of intangible assets 510 294
Acquisition related employee remuneration
expense 1,364 1,176
Share options charges 430 349
Impairment of goodwill - 4,937
Tax thereon (1,629) (1,804)
_______ _______
Headline earnings for the year 8,201 7,580
2017 2016
Number of shares Number of shares
Weighted average number of ordinary
shares used in basic earnings/(loss)
per share calculation 103,373,430 87,565,662
Dilutive effect of securities:
Share options 1,370,660 1,257,984
Deferred consideration shares 216,243 593,786
_______ _______
Weighted average number of ordinary
shares in diluted earnings/(loss) per
share 104,960,333 89,417,432
Year ended Year ended
31 December 2017 31 December
2016
Basic earnings/(loss) per share
Continuing operations 4.09p (2.86)p
Discontinued operations - (0.37)p
Total basic earnings/(loss) per share 4.09p (3.23)p
Diluted earnings/(loss) per share
Continuing operations 4.03p (2.86)p
Discontinued operations - (0.37)p
Total diluted earnings/(loss) per share 4.03p (3.23)p
In addition to basic and diluted earnings 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 7.93p 8.66p
Headline diluted earnings per share 7.81p 8.48p
Basic earnings/(loss) per share is calculated by dividing the
earnings/(loss) attributable to ordinary shareholders of the parent
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/(loss) per share is calculated by dividing
earnings/(loss) attributable to ordinary shareholders of the parent
by the weighted average number of ordinary shares outstanding
during the year adjusted for the potentially dilutive ordinary
shares.
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
post-tax earnings for the year, which excludes the effect of
restructuring costs, start-up losses, amortisation of intangibles,
impairment charges, acquisition accounting adjustments, share
option charges and other exceptional costs.
9 Goodwill
GBP'000
Cost
At 1 January 2016 86,052
Exchange differences 1,097
_______
At 31 December 2016 87,149
Additions 3,946
Exchange differences (825)
______
At 31 December 2017 90,270
_______
Accumulated impairment
At 1 January 2016 12,379
Impairment charge in the year 4,937
_______
At 31 December 2016 and 31 December 2017 17,316
_______
Net book value
At 31 December 2017 72,954
At 31 December 2016 69,833
At 1 January 2016 73,673
Goodwill represents the excess of consideration over the fair value
of the Group's share of the net identifiable assets of the acquired
subsidiary at the date of acquisition.
Goodwill acquired through business combinations is allocated to
CGUs for impairment testing. The goodwill balance was allocated
to the following CGUs:
2017 2016
GBP'000 GBP'000
Cello Heath Insight 10,224 10,224
Cello Health Consulting 7,666 7,666
MedErgy 5,617 6,183
Mash 248 248
iS Health 1,425 1,425
Defined Health 3,384 -
Advantage Healthcare 254 -
Promedica 297 309
The Value Engineers 4,589 4,589
RS Consulting 4,305 4,305
Cello Signal 23,227 23,118
2cv 8,276 8,276
Pulsar (previously Face) 3,442 3,442
Opticomm - 48
Total 72,954 69,833
The recoverable amount for each CGU is determined using a
value-in-use calculation. This calculation uses budgeted pre-tax
headline operating profit adjusted for non-cash transactions to
generate cash flow projections. The budgets are approved by
management based on past experience and historic trends. An
underlying growth rate of 2.0% per annum in years 2 to 5 has
accordingly been used for those years.
After year 5 a long-term growth rate has been applied in
perpetuity. This growth rate is based on estimated long term growth
rates for the markets Cello operated in. Accordingly, a terminal
value has been applied using an underlying long-term growth rate of
2.0%. No additional Cello specific growth has been assumed beyond
year 1.
The pre-tax cash flows are discounted to present value using the
Group's pre-tax weighted average cost of capital ("WACC"), which
was 10.95% for 2017 (2016: 10.30%). This rate was calculated using
the Capital Asset Pricing Model with an estimated cost of debt and
equity, with appropriate small company risk factors.
The impairment review did not result in an impairment of
goodwill for any other CGU.
Sensitivity to changes in assumptions
The impairment review of the Group is sensitive to changes in
the key assumptions, most notably the pre-tax discount rate, the
terminal growth rate and projected operating cash flows. Reasonable
changes to these assumptions are considered to be:
-- 1.0% increase in the pre-tax discount rate.
-- 1.0% reduction in the terminal growth rate.
-- 10.0% reduction in projected operating cash flows.
At 31 December 2017, the value-in-use exceeds the total goodwill
value across the Group by GBP122m.
Reasonable changes to the assumptions used, considered in
isolation, would not result in an impairment of goodwill for any of
the Groups CGUs.
The following changes to the key assumptions, in isolation,
would be needed before the recoverable amount being equal to the
carrying value of goodwill in the CGU with the smallest
headroom.
-- An increase in pre-tax discount rate of 2.85% to 13.8%
-- A decrease in terminal growth rate of 2.5% to (6.8%)
-- A decrease in operating cash flows of 26.0%
10 Acquisitions
Defined Health
On 31 January 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 GBP6.2m to revenue and GBPnil to
profit before tax for the period between the date of acquisition
and the balance sheet date. Had Defined Health been consolidated
from 1 January 2017, the consolidated income statement for the year
ended 31 December 2017 would show revenue of GBP169.8m and profit
before tax of GBP5.8m.
The provisional fair value of the net assets at the acquisition
date is as follows:
GBP'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
5,308
The fair value of trade and other receivables include trade
receivables with a fair value of GBP674,000. The gross contractual
amount of trade receivables is equal to the fair value.
Goodwill comprises the value of expected synergies and other
opportunities arising from the acquisition, management know how,
the skilled work force employed by Defined Health and other
intangible assets that do not qualify for separate recognition.
The fair value of the consideration paid at the acquisition date
is as follows:
GBP'000
Cash consideration 4,164
Issue of ordinary shares 400
Deferred consideration 744
5,308
Advantage Healthcare
On 17 July 2017, the Group acquired the trade and assets of
Advantage Healthcare Inc. ("Advantage"), a healthcare research and
consulting business, based in New Jersey, USA.
Advantage has contributed GBP2.0m to revenue and GBP0.1m of
losses before tax between the date of acquisition and the balance
sheet date. Had Advantage been consolidated from 1 January 2017,
the consolidated income statement for the year ended 31 December
2017 would show revenue of GBP170.7m and profit before tax of
GBP5.7m.
The provisional fair value of the net assets at the acquisition
date is as follows:
GBP'000
Client relationships 612
Trade and other receivables 669
Cash and cash equivalents 166
Trade and other payables (485)
Net assets acquired 962
Goodwill arising on acquisition 260
1,222
The fair value of trade and other receivables include trade
receivables with a fair value of GBP637,000. The gross contractual
amount of trade receivables is equal to the fair value.
Goodwill comprises the value of expected synergies and other
opportunities arising from the acquisition, management know how,
the skilled work force employed by Advantage Healthcare and other
intangible assets that do not qualify for separate recognition.
None of the goodwill recognised is expected to be deductible for
tax purposes.
The fair value of the consideration paid at the acquisition date
is as follows:
GBP'000
Cash consideration 1,136
Deferred consideration 86
1,222
Tanami
On 28 July 2017, the Group acquired the trade of Tanami a
company based in the UK specialising in video production and social
media. The net assets acquired and consideration paid do not have a
material effect on the results or position of the Group.
11 Trade and Other Receivables 2017 2016
GBP'000 GBP'000
Trade receivables
Other receivables
Accrued income
Prepayments 36,420 34,259
1,312 1,576
14,544 9,077
2,244 1,950
54,520 46,862
The average credit period taken on the provision of services was
62 days (2016: 61 days).
The Directors consider that the carrying value of trade and
other receivables approximates to fair value.
12 Trade and Other Payables
The following are included in trade and other payables falling due within one year:
2017 2016
GBP'000 GBP'000
Trade payables 14,285 14,449
Other taxation and social security 2,618 2,256
Deferred income 15,829 13,216
Accruals 16,353 14,872
Deferred consideration for acquisitions 35 35
Acquisition-related employee remuneration liability - 2,743
Other payables 258 600
49,378 48,171
The following are included in trade and other payables falling due after one year:
Acquisition-related employee remuneration liability 1,400 126
The Directors consider that the carrying value of trade and
other payables approximates to fair value.
13 Borrowings
2017 2016
GBP'000 GBP'000
Bank loans 11,333 12,350
Loan notes 59 155
11,392 12,505
2017 2016
GBP'000 GBP'000
- on demand or within 1 year 59 155
- within 2 to 5 years 11,333 12,350
11,392 12,505
Bank loans
The Group has a multi-currency debt facility with the Royal Bank
of Scotland plc ("RBS"). At 31 December 2017 this facility
consisted of a GBP20.0m revolving credit facility ("RCF"). The RCF
bears interest at a variable rate of 1.25% to 2.30% over LIBOR and
is committed to March 2022 following an extension of the facilities
during the year. The average interest rate on the Group's bank
loans in the year was 2.4% (2016: 2.3%). The debt facility is
secured by a debenture held by RBS over the assets of the
Group.
At 31 December 2017, the Group has drawn GBP11.3m (2016:
GBP12.3m) under the RCF.
Loan notes
Loan notes have been issued as part of the consideration for
certain acquisitions. Loan notes are initially secured by way of
cash deposits and by guarantee. This security expires after a
period of between 2 and 5 years in accordance with the terms of the
relevant acquisition agreement. After this period the loan notes
are unsecured. Loan notes bear interest at the following rates:
2017 2016
GBP'000 GBP'000
Unsecured
LIBOR less 2.0% 45 121
LIBOR 14 34
59 155
14 Cash Generated from Operations Year ended
31 December Year ended
2017 31 December
GBP'000 2016GBP'000
Profit/(loss) on continuing operations
before taxation 5,817 (1,686)
Loss on discontinued operations before
taxation - (321)
Financing income (1) (11)
Finance costs 360 304
Depreciation 1,304 1,285
Amortisation of intangible assets 912 680
Impairment of goodwill - 4,937
Share based payment expense 430 349
Profit on disposal of property, plant
and equipment (21) (26)
(Decrease)/increase in acquisition related
employee
remuneration payable (940) 953
Decrease in provisions - (3,209)
Operating cash flow before movements
in working capital 7,861 3,255
Increase in receivables (6,105) (3,233)
Increase in payables 3,036 6,488
Net cash inflow from operating activities 4,792 6,510
15 Net (Funds)/Debt
Net (funds)/debt at 31 December 2017
and 31 December 2016 comprises of:
2017 2016
GBP'000 GBP'000
Bank loans 11,333 12,350
Loan notes 59 155
Finance leases 17 33
Cash and cash equivalents (13,021) (7,466)
Net (funds)/debt (1,612) 5,072
Changes in net (funds)/debt can be analysed
as follows:
Year ended Year ended
31 December 31 December
2017 2016
GBP'000 GBP'000
Net increase in cash and cash equivalents (5,866) (1,755)
Changes in net (funds)/debt as a result
of cash flow:
Repayment of bank loans (3,000) (6,681)
Repayment of loan notes (96) (77)
Drawdown of borrowings 2,900 8,509
Capital element of finance lease payments (16) (24)
Other movements:
Foreign exchange differences (606) 933
New finance leases - -
Movement in net (funds)/debt in the year (6,684) 905
Net debt at the beginning of the year 5,072 4,167
Net (funds)/debt at the end of the year (1,612) 5,072
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR PGUGPWUPRGMG
(END) Dow Jones Newswires
March 22, 2018 03:00 ET (07:00 GMT)
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