TIDMCLL
RNS Number : 5139T
Cello Health PLC
21 March 2019
FOR IMMEDIATE RELEASE 21 March 2019
Cello Health plc
('Cello' or the 'Group')
Preliminary Results for the twelve months ending 31 December
2018
Strong performance - Continued delivery of consistent
results
Cello Health plc (AIM:CLL, "Cello" or "the Group"), the
healthcare-focused advisory group, today announces its results for
the year to 31 December 2018.
Financial Highlights
2018 2017 %
Reported basic earnings
per share 6.27p 4.09p 53.3%
Headline basic earnings(1)
per share 9.02p 7.93p 13.7%
Net funds GBP6.3m GBP1.6m
Full year dividend 3.85p 3.50p 10.0%
Net revenue GBP104.8m GBP102.5m 2.3%
Group headline profit
before tax GBP12.2m GBP11.4m 6.4%
Reported profit before
tax GBP8.4m GBP5.8m 44.7%
[1] Headline basic earnings per share is defined in note 8
Operational Highlights
-- Continued progress towards strategic goals
-- Renaming of Group to Cello Health plc
-- 2017 acquisitions continue to perform well
-- Cello Health continues to broaden and deepen the client offer
-- Top 20 clients represented 40.1% of net revenue (2017: 38.9%)
-- Well positioned for further international expansion, with
Philadelphia and Berlin office opened
-- Sunday Times "100 Best Companies to Work For 2019"
-- Good progress with the Signal Health offer
-- Pulsar developing strong client links with Cello Health
Board Development
-- Chris Jones appointed as Non-Executive Chairman
-- Julia Ralston, CEO Cello Health US, appointed to the plc Board
-- Clifford Tompsett appointed as Senior Independent Non-Executive Director
-- Jo LeCouilliard and Michele Luzi appointed as independent Non-Executive Directors
Mark Scott, Chief Executive, commented:
"2018 marked an important moment in Cello's development as we
changed our name to Cello Health plc to reflect our ongoing
strategic focus and developed our Board to support that strategy.
It is pleasing to see strong earnings per share growth and we have
accordingly increased our dividend for the thirteenth successive
year. We now intend to build on this momentum to support Cello
Health's position as a leading healthcare focused advisory group
globally."
The information contained within the announcement is deemed by
the Company to constitute inside information as stipulated under
the Market Abuse Regulations (EU) No. 596/2014 ("MAR"). Upon the
publication of this announcement via Regulatory Information Service
("RIS"), this inside information is now considered to be in the
public domain.
Analyst meeting
A meeting for analysts will be held at 10.00am today, at the
offices of Buchanan, 107 Cheapside, London EC2V 6DN. For further
details please contact Buchanan on 020 7466 5000 or email
cello@buchanan.uk.com
Enquiries:
Cello Health plc 020 7812 8460
Mark Scott, Chief Executive
Mark Bentley, Group Finance
Director
Cenkos Securities plc 020 7397 8900
Mark Connelly
Harry Hargreaves
Buchanan
Mark Court 020 7466 5000
Jamie Hooper
Sophie Wills
CHAIRMAN'S STATEMENT
2018 - A year of good organic growth and strong cash
performance
I am very pleased to present these strong results in my first
year as Chairman of Cello Health plc.
2018 represented another year of continued delivery of good
results driven by strong organic headline operating profit
performance. Net revenue increased by 2.3% to GBP104.8m (2017:
GBP102.5m) with headline profit before tax up 6.4% to GBP12.2m
(2017: GBP11.4m). Reported profit before tax was up 44.7% to
GBP8.4m (2017: GBP5.8m).
Overall headline operating profit growth was underpinned by a
strong divisional performance from Cello Health, with 4.3% constant
currency like-for-like2 net revenue growth and raised headline
operating profit margins of 18.5% (2017: 17.7%). Cello Signal's
constant currency like-for-like net revenue declined by 2.9% and
headline operating margins were 9.4% (2017: 9.5%).
This good overall financial performance was accompanied by
strong cash flows in the second half and a strong net funds
position at the year end of GBP6.3m (2017: GBP1.6m). Headline basic
earnings per share rose 13.7% to 9.02p (2017: 7.93p). Reported
basic earnings per share also rose 53.3% to 6.27p (2017:
4.09p).
As a result, the Board has decided to recommend an increase in
the final dividend per share of 12.2% to 2.75p (2017: 2.45p),
adding to a twelve year record of dividend increases. If approved
by shareholders, this would bring the total dividend to 3.85p
(2017: 3.50p), an increase of 10.0% over the prior year.
The Board believes that the pharmaceutical and biotechnology
sector represents a stable and attractive market for the long-term.
Scientific advances, strong R&D pipelines and our clients'
continued need to develop and successfully commercialise every
product are likely to continue to drive demand for scientific
commercial services. Cello Health's combination of
scientifically-led commercial advisory skills with early stage
asset commercial capability and communications delivery, enables us
to differentiate ourselves in the market for healthcare services.
Unlike many of our competitors, we operate under a single lead
brand, with an equitable balance across each of our core
capabilities. This means that our approach to clients can be
blended appropriately for the specific challenge, as opposed to
being led by one particular skill set.
We continue to invest organically in the expansion of our global
footprint via recruitment and new business development. Cello
Signal has also continued to make significant progress in
developing patient-centric digital solutions as well as supporting
Cello Health as a digital services partner via Pulsar, our
proprietary social media analysis software, and via Cello Signal's
digital and creative skills.
2018 was a critical year in the Group's development, with the
renaming of the Group to Cello Health plc, reflecting a commitment
to becoming the scientific and commercial partner of choice to a
broad range of global pharmaceutical clients and earlier stage
biotech businesses. We also made changes to the composition of our
Board with the appointment of Chris Jones as Non-Executive Chairman
and of Clifford Tompsett, Jo LeCouilliard and Michele Luzi as
independent Non-Executive Directors of the Group. Clifford and Jo
bring a wealth of experience of the pharmaceutical sector to the
Group, and Michele brings with him first-hand experience of growing
a global professional service business. Julia Ralston, CEO of Cello
Health in the US, was also appointed to the plc Board consistent
with our priority to drive long-term growth in this region. I would
like to thank and acknowledge the contribution of Allan Rich, Paul
Hamilton and Will David, all of whom retired from the Board during
the year. I would also like to thank all our people whose skill and
commitment have delivered another year of consistent performance
and high quality services to our clients.
Current Trading and Outlook
In 2019, we will continue to invest in new initiatives that
enhance our differentiated services. We will continue to focus on
growing our presence in the US and leveraging Signal's digital
capability into the healthcare sector.
The Group has begun 2019 with good levels of forward bookings
and has already secured a good number of new business wins.
Accordingly, the Board is confident of a strong performance for
2019 in line with current market expectations.
Chris Jones
Non-Executive Chairman
20 March 2019
2 Like-for-like measures are defined in note 1
CHIEF EXECUTIVE'S OPERATING REVIEW
2018 demonstrated the Group's ability to deliver strong organic
headline operating profit progress from its core operations, with a
single-minded focus on our three key strategic priorities of
growth, innovation and leveraging key assets across the Group.
Growth
The Group has grown well overall in 2018, driven by the
performance of the Cello Health division.
Constant currency like-for-like net revenue growth in the Cello
Health division of 4.3% was driven by strong performance across our
Insight, Consulting and Communications operations. This
demonstrates the ability of our business model to deliver organic
growth without reliance on acquisitions. Cello Health Insight
represents 41% (2017: 41%) of the net revenue of the Cello Health
division and its successful year has been driven by a combination
of deepening relationships with specific clients and successful new
business development. In addition, our Insight team successfully
opened up a broader range of clients with the launch of Cello
Health Logic, bringing social media analytics data to the client
agenda. Cello Health Consulting, representing 29% (2017: 28%) of
the net revenue of the Cello Health division, had an ongoing drive
into the biotech area as a complement to its traditional
pharmaceutical focus. Cello Health Communications, our scientific
communications capability, represents 30% of the net revenue of the
Cello Health division (2017: 31%) and was led by ongoing expansion
in the US.
2018 saw a continued strengthening in our core client base, with
the top 20 clients contributing 40.1% to net revenue (2017: 38.9%).
We continue to have relationships in place with 24 of the top 253
pharmaceutical companies, 15 of which we have been in relationships
with for over five years. Our largest client represents 7.9% (2017:
8.4%) of Group net revenue. This is a long-term client which has
work streams spread over multiple therapy areas and buying
points.
Over the last three years we have worked on building a strong
presence within early stage commercialisation and pre-launch,
accelerated by the presence of Cello Health Bioconsulting (formerly
Defined Health) and Cello Health Advantage, both acquired in 2017.
2018 has shown that we are on course with this strategy, with 7.1%
of Group net revenue generated by these businesses. We continue to
appraise and examine potential acquisitions against our focused
criteria, maintaining a disciplined approach to valuation and
strategic fit.
Given that the US is by far the largest global pharmaceutical
market, US expansion is a key strategic priority. Cello Health's US
revenues approached $40.0m in 2018, nearly doubling since 2015,
consistent with the opportunity that the market affords.
Cello Health extended its geographical reach through recent
office openings in Philadelphia and Berlin and has plans to extend
further in 2019 with an office opening in Boston in the first half.
Germany currently represents our largest single EU market for
client revenue. The Berlin office will give access to new talent
whilst also strengthening our ability to access the European client
base, with on-the-ground support.
Cello Signal like-for-like constant currency net revenue fell by
2.9%. This partially reflects tougher trading conditions in the UK
across the range of services that Cello Signal provides. In
addition, these results reflect the full year net revenue impact of
the substantial reduction in capacity in the US that was undertaken
in 2017, along with general restraint in hiring new staff. Signal
continues to focus the franchise in healthcare, financial services,
utilities, charities and technology, with a particularly strong
performance overall in 2018 from its Edinburgh based operation.
Against this more demanding UK backdrop outside healthcare,
Cello Signal made significant progress in terms of aligning itself
with our core health operations. Cello Signal was appointed by the
Scottish Government as the sole provider on its 'Healthier
Scotland' digital contract. It also became the digital media
partner to Macmillan, the major UK cancer charity, as it identifies
and supports those at the very early stage of cancer diagnosis.
Signal remains the agency partner for EFPIA (European Federation of
Pharmaceutical Industries and Associations), delivering the highly
successful "We won't rest" campaign, along with recent appointments
by the Innovative Medicines Initiative, Novo Nordisk and the
European Diabetes Forum. Pulsar continues to work increasingly
closely with Cello Health as the pharmaceutical industry turns to
social media channels for customer insight, with some considerable
opportunities visible for 2019.
Innovation
Innovation is at the core of the Group's activity, with
continued investment in existing operations and the development of
new initiatives.
In 2018 we launched our new analytics unit specialising in
health, Cello Health Logic, utilising the Pulsar proprietary
software platform that the Group has developed in-house. We have
secured sales from a number of clients through a combination of
standalone and blended projects with our Insight operation. We
intend to prioritise this for further investment in 2019. In
addition, we continued to invest in the development of our bespoke
online community platform, eVillage, improving the scale of
communities that can now be included and speed of response to
critical questions. The provision of digital services by Cello
Health has continued to strengthen, supported by Cello Signal.
Using virtual advisory platforms, Cello Health has enhanced its
ability to obtain vital insights from our own proprietary web-based
key opinion leader (KOL) ecosystem.
For many years, we have offered a patient-focused approach to
our services and solutions. Given the continued importance of the
patient as an audience, we have evolved this further into a Patient
Innovation Hub, which pulls on all of the expertise we have in this
area from across the Cello Health footprint. Consistent with the
transformative nature of scientific breakthroughs and particularly
the arrival of the era of gene and cell therapies, an Advanced
Therapeutics practice was created within Cello Health
BioConsulting. We anticipate this resulting in some innovative IP
around our core offerings in 2019.
Leveraging key assets
Blending expertise across capabilities into unified client
service propositions is central to our global growth initiatives.
As part of this, over the past three years, we have successfully
operated centres of excellence in select areas that drive
additional organic growth through collaboration. This effort was
focused on the key areas of oncology; rare diseases; market access;
and market forecasting. The forecasting cross-capability unit
included utilising databases from early stage
pre-clinical/pre-acquisition to post phase 3 readouts.
2018 saw continued success in terms of collaboration across the
Group, resulting in significant revenue being generated by
collaborative projects. We continued to invest in shared business
development resource, which works in co-ordination with our
capability teams. This has yielded benefits in new business levels
across the business, as professional resource is being flexibly
deployed against global opportunities.
Cello Signal is also partnering with Cello Health in digital
services, delivering software solutions to match the growing need
for virtual advisory platforms from the early stages of drug
development through post launch. Cello Signal's experience in
precision digital marketing across Social, SEO, PPC and Display,
alongside strengths in User Experience Design and Digital Customer
Journey mapping, has been deployed very successfully within recent
major Cello Health projects.
3 pharmexec.com Top 50 Jun. 01 2018
GROUP FINANCE DIRECTOR'S REPORT
Summary
Total Group net revenue was up 2.3% at GBP104.8m (2017:
GBP102.5m) and headline profit before tax was up 6.4% at GBP12.2m
(2017: GBP11.4m). Reported profit before tax was up 44.7% to
GBP8.4m (2017: GBP5.8m); a reconciliation of headline profit before
tax to reported profit before tax can be found in note 1 to these
results.
Like-for-like net revenue growth for the whole Group was 0.4%.
Constant currency like-for-like net revenue growth was 1.4%.
Constant currency like-for-like net revenue growth was 4.3% in
Cello Health, offset by a decline of 2.9% in Cello Signal.
The Group's headline operating margin4 was 12.0% (2017: 11.6%)
with a headline operating margin of 18.5% in Cello Health (2017:
17.7%), and 9.4% in Cello Signal (2017: 9.5%).
Finance costs were GBP0.3m (2017: GBP0.4m).
The Group's reported tax charge was GBP1.8m (2017: GBP1.6m),
with a headline tax rate of 21.6% (2017: 28.2%).
Reported basic earnings per share rose 53.3% to 6.27p (2017:
4.09p) reflecting strong headline operating profit growth and a
significant reduction in total non-headline items to GBP3.7m (2017:
GBP5.6m). Headline basic earnings per share also rose 13.7% to
9.02p (2017: 7.93p).
Operating cash flow was strong in 2018, with 104.2% of headline
cash conversion (2017: 77.2%). This strong performance led to a net
funds position ahead of market expectations of GBP6.3m at 31
December 2018 (2017: GBP1.6m).
Foreign Currency
The Group suffered slight aggregate foreign exchange headwinds
of GBP0.2m of headline operating profit during the year, with
average GBP/$ exchange rates moving from 1.29 to 1.34 during the
year. The Group generated around GBP5.8m headline operating profit
in the US in 2018 (2017: GBP5.3m), an increase of 9.9%.
Taxation
The headline tax rate, dropped more than initially expected from
28.2% to 21.6% in 2018, as a consequence of the changes to the US
tax regime. The Group expects the headline tax rate to stabilise at
around 23.5% in 2019 and then drop further in 2020 as UK
corporation tax rates are expected to drop. The reconciliation of
the tax charge for 2018 to reported profit before tax is in note 6
to these results.
Dividends
The Board is proposing a final dividend increase of 12.2% to
2.75p per share (2017: 2.45p), giving a total dividend of 3.85p
(2017: 3.50p), representing a total increase of 10.0%. This
increase in the dividend reflects the growth in headline earnings
per share, the strength of the balance sheet of the Group, the
lower than expected future headline tax rates and the Board's
confidence in the ongoing trading performance of the business. This
increase maintains the Group's thirteenth year unbroken record of
dividend growth. Subject to shareholder approval, the final
dividend will be paid on 24 May 2019 to all shareholders on the
register at 26 April 2019, and will be recognised in the year
ending 31 December 2019.
Deferred Acquisition Obligations
The maximum total payable under deferred acquisition obligations
is $6.3m (2017: $6.3m). This will be settled over the years 2019 to
2021, substantially in cash. In line with recognised accounting
practices, the income statement impact of these deferred
obligations is spread over the length of the deferred period. In
2018, the acquisition-related employee remuneration expense element
of these deferred obligations is GBP1.6m (2017: GBP1.4m).
4 Headline operating margin is calculated by expressing headline
operating profit as a percentage of net revenue
Operational Financial Performance
Cello Health Cello Signal
2018 2017 2018 2017
GBP'000 GBP'000 % change GBP'000 GBP'000 % change
Net revenue 64,308 60,150 6.9% 39,971 40,961 (2.4%)
Headline operating
profit 11,890 10,639 11.8% 3,739 3,872 (3.4%)
Headline operating
margin 18.5% 17.7% 9.4% 9.5%
A detailed commentary on the performance of Cello Health and
Cello Signal can be found within the Chief Executive's report.
Cello Health had a good year with net revenue rising by 6.9% to
GBP64.3m (2017: GBP60.2m). Headline operating profits rose by 11.8%
to GBP11.9m (2017: GBP10.6m). This growth was partially driven by
the full year impact of acquisitions completed in 2017.
Like-for-like constant currency net revenue growth was robust at
4.3%. This growth was driven by all capabilities. Headline
operating margins rose to 18.5% (2017: 17.7%), reflecting stronger
operating margin performance across all capabilities. The 2017
acquisitions of Defined Health and Cello Health Advantage both
performed well in the year.
Cello Signal had a slight decline in net revenue, largely
attributable to the full year impact of the reductions in the US
presence in 2017, as well as tougher trading conditions in the UK.
Net revenue fell by 2.4% to GBP40.0m (2017: GBP41.0m). Headline
operating profit fell by 3.4% to GBP3.7m (2017: GBP3.9m).
Like-for-like constant currency net revenue fell by 2.9%. Headline
operating margin was marginally down at 9.4% (2017: 9.5%).
Central costs rose to GBP3.1m (2017: GBP2.7m), reflecting extra
resource requirements in the US and the costs relating to the
changes in the Board during the year.
Headline Operating Cash Flow
Headline operating cash flow5 of GBP14.8m represented 104.2%
cash conversion of headline EBITDA (2017: 77.2%). The underlying
operating cash flow performance of the Group is therefore robust.
The following table demonstrates the calculation of headline
operating cash flow and the cash conversion rate.
2018 2017
GBP'000 GBP'000
Headline operating profit 12,494 11,778
Depreciation 1,305 1,304
Profit on disposal of property, plant
and equipment (17) (21)
Headline amortisation 444 402
Headline EBITDA 14,226 13,463
Net cash inflow from operating activities 13,418 4,792
Restructuring costs 204 1,916
Post-employment restrictions settlement - 48
Start-up losses 1,150 1,350
Acquisition costs 22 243
VAT settlement/receipts - (259)
Settlement of deferred remuneration 28 2,303
Headline operating cash flow 14,822 10,393
Headline cash conversion 104.2% 77.2%
The Group's net funds position at 31 December 2018 was GBP6.3m
(2017: GBP1.6m). Operating cash flow is weighted towards the second
half of the year. The Group has long-term debt facilities of
GBP24.0m with the Royal Bank of Scotland, which expire in March
2022. At the year end GBP4.0m of these facilities were drawn down
in sterling (2017: GBP11.3m which was drawn down in US
dollars).
5 Headline operating cash flow represents operating cash flow
adjusted for the cash flow impact of non-headline items
Non-Headline Items
Our headline operating profit is reconciled to our reported
profit before tax as follows:
2018 2017
GBP'000 GBP'000
Headline operating profit 12,494 11,778
Net interest payable (339) (359)
Headline profit before tax 12,155 11,419
Restructuring costs (204) (1,916)
Credit for VAT recoverable - 259
Employment settlement and related costs - (48)
Start-up losses (1,150) (1,350)
Acquisition costs (22) (243)
Amortisation of intangibles* (325) (510)
Acquisition-related employee remuneration
expense* (1,571) (1,364)
Share option charges* (464) (430)
Reported profit before tax 8,419 5,817
*No cash flow impact in the year
During 2018, the Group incurred charges of GBP0.2m (2017:
GBP1.9m) on the costs related to relocation of certain businesses
within the Group as part of the consolidation of operations into
shared facilities to increase efficiency. In January and February
2019, as indicated in our trading statement on 17 January 2019, the
Group incurred restructuring costs of c.GBP0.3m in relation to
headcount reductions in Cello Signal. These were largely incurred
in the Cheltenham office.
Start-up costs in the year of GBP1.2m (2017: GBP1.4m) largely
relate to the start-up treatment for Pulsar in the US. There was
also additional investment relating to the new office in Boston and
investment in broadening the health offer of Cello Signal. As it
has been in start-up treatment for the maximum of two years allowed
under our policy, Pulsar US moves into headline in 2019. As a
result, start-up losses in 2019 are likely to be reduced.
Amortisation of intangibles relates to the amortisation of
identified intangible assets that are recognised on acquisitions.
This charge fell to GBP0.3m (2017: GBP0.5m).
Acquisition-related employee remuneration expense of GBP1.6m
(2017: GBP1.4m) is the necessary income statement charge that
relates to the spreading of deferred acquisition payments made to
certain employees of acquired companies over the term of the
measurement period arising as a result of acquisitions.
Share option charges of GBP0.5m (2017: GBP0.4m) relate to the
appropriate income statement charge being recognised over the
vesting period of issued share options to staff.
Risks and Uncertainties
The Company regularly reviews the risks and uncertainties facing
the business through a series of Board and operational meetings.
The Directors believe the current largest risks are as follows:
1. Varying economic conditions
The Group's business is domiciled in the UK but 50.1% (2017:
51.5%) of the Group's revenues are from clients based overseas. It
is clear that income from clients is impacted by prevailing
economic conditions. Economic and geopolitical uncertainty has
increased recently, with continued uncertainty over Brexit.
However, the broad spread of clients across sector and geography
mitigates this risk.
2. Brexit risk
While Brexit may impact general macro conditions (see risk 1)
the Group has been considering the risk of Brexit directly on its
client and employee relationships.
The substantial business in the Group that has a client base in
mainland Europe is Cello Health. Cello Health derived 21.5% (2017:
20.4%) of its revenue from mainland Europe. The other businesses in
the Group are located in the UK with UK and US-domiciled clients,
or located in the US with US-domiciled clients.
We are aware that even in the event of a "no-deal" Brexit, it
appears unlikely that tariffs are to be levied on professional
services. The provision of services to the EU client base is
therefore down to individual client behaviour and the mobility of
our workforce, as staff regularly travel to clients in mainland
Europe.
In terms of client behaviour, we have spoken to several clients
and they have expressed a desire to maintain working relationships
post Brexit. We have seen no explicit threat from these
conversations.
While the services we provide are not regulated by any
government body, there are various trading standards in individual
country markets in Europe that need to be adhered to. We have
ensured that our businesses are compliant with these standards,
where applicable. We have opened an entity in Berlin, and, if
contracting with a UK entity becomes an issue for our European
clients, then we can potentially use this entity to maintain
contractual relationships. There will also be full-time German
national staff who will pursue domestic European business, as well
as servicing some existing work.
Where possible we have made it easier for our staff to travel to
the EU in the event of any restraints on free movement. For
example, we have assisted staff to obtain European passports where
they are eligible to do so.
3. Loss of the Group's key clients
Client relationships are crucial to the Group and the strength
of them is key to our continued success. The risk is mitigated by
our client base being broadly spread and by the majority of our key
clients being subject to longer-term master service agreements.
Our client list is not concentrated, with the largest client
being 7.9% of our net revenue. This client is spread across several
therapy areas and several individual client-buying points.
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.
We make a significant effort to develop the working culture of
our businesses. This has culminated in Cello Health UK winning a
place in 'The Sunday Times 100 Best Companies to Work For 2019'.
This award independently measures various employee satisfaction
metrics.
In addition there are numerous policies and initiatives around
the Group (in the UK and the US) to promote diversity and
inclusiveness and employee engagement.
5. Changing laws and regulations
Various laws and regulations are relevant to the operations of
the Group. The Group receives guidance from time to time from its
legal advisers regarding changes in the law that relate to the
Group.
In particular, the application of GDPR legislation has been a
significant change in the law in 2018. The Group has successfully
established a centrally coordinated GDPR steering group, actively
working across all its businesses to ensure GDPR compliance. This
compliance is reported on to the plc Board on a regular basis, with
local Data Protection Officers in the Group being responsible for
day-to-day questions on compliance.
CONSOLIDATED INCOME STATEMENT
for the year ended 31 December 2018
Restated
Note 2018 2017
GBP'000 GBP'000
Continuing operations
Revenue 2 165,573 170,293
Third-party project costs (60,757) (67,808)
Net Revenue 1 104,816 102,485
Administrative expenses 3 (96,058) (96,309)
Operating profit 8,758 6,176
Finance income 1 1
Finance costs (340) (360)
Profit before taxation 1 8,419 5,817
Taxation 6 (1,801) (1,589)
Profit for the year attributable
to owners of the parent 6,618 4,228
2018 2017
Earnings per share
Basic 8 6.27p 4.09p
Diluted 8 6.14p 4.03p
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
for the year ended 31 December 2018
2018 2017
GBP'000 GBP'000
Profit for the financial year 6,618 4,228
Other comprehensive income and expense:
Items that may be reclassified subsequently
to profit and loss:
Exchange differences on translation of
foreign operations 590 (238)
Total comprehensive income for the year
attributable to owners of the parent: 7,208 3,990
CONSOLIDATED BALANCE SHEET
as at 31 December 2018
Restated
2018 2017
Note GBP'000 GBP'000
Goodwill 9 73,623 72,954
Intangible assets 1,388 1,192
Property, plant and equipment 2,931 2,840
Deferred tax assets 1,513 1,081
Non-current assets 79,455 78,067
Trade receivables 10 35,260 36,420
Contract assets 11 6,798 6,726
Other receivables 12 5,800 8,808
Cash and cash equivalents 16 10,424 13,021
Current assets 58,282 64,975
Trade and other payables 13 (30,949) (32,748)
Contract liabilities 11 (14,004) (14,064)
Current tax liabilities (389) (438)
Borrowings 14 (42) (59)
Obligations under finance
leases (11) (14)
Current liabilities (45,395) (47,323)
Net current assets 12,887 17,652
Total assets less current
liabilities 92,342 95,719
Trade and other payables 13 (1,246) (1,400)
Borrowings 14 (4,000) (11,333)
Obligations under finance
leases (30) (3)
Deferred tax liabilities (233) (110)
Non-current liabilities (5,509) (12,846)
Net assets 86,833 82,873
Equity
Share capital 10,516 10,501
Share premium 32,759 32,705
Merger reserve 25,446 25,446
Capital redemption reserve 50 50
Retained earnings 16,237 13,368
Share-based payment reserve 1,256 824
Foreign currency reserve 569 (21)
Total equity 86,833 82,873
Consolidated cash flow statement
for the year ended 31 December 2018
2018 2017
Note GBP'000 GBP'000
Net cash generated from operating
activities before taxation 15 13,418 4,792
Tax paid (2,239) (2,066)
Net cash generated from operating
activities after taxation 11,179 2,726
Investing activities
Interest received 1 1
Purchase of property, plant and
equipment (1,312) (1,462)
Sale of property, plant and equipment 38 30
Purchase of intangible assets (672) (409)
Purchase of businesses (256) (5,259)
Net cash used in investing activities (2,201) (7,099)
Financing activities
Proceeds from issuance of shares 69 14,388
Dividends paid to equity holders
of the parent 7 (3,714) (3,575)
Net repayment of borrowings (7,686) (100)
Repayment of loan notes (17) (96)
Capital element of finance lease
payments (35) (16)
Interest paid (348) (362)
Net cash (used in)/generated from
financing activities (11,731) 10,239
Net (decrease)/increase in cash
and cash equivalents 16 (2,753) 5,866
Exchange gains/(losses) on cash
and cash equivalents 156 (311)
Cash and cash equivalents at
the beginning of the year 13,021 7,466
Cash and cash equivalents at
the end of the year 10,424 13,021
Consolidated statement of changes in equity
for the year ended 31 December 2018
Foreign
Capital Share-based currency
Share Share Merger redemption Retained payment exchange Total
capital premium reserve reserve earnings reserve reserve equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
At 1 January 2017 8,760 19,162 25,446 50 12,159 760 217 66,554
Comprehensive
income:
Profit for the
financial year - - - - 4,228 - - 4,228
Other comprehensive income:
Currency
translation - - - - - - (238) (238)
Total comprehensive
income for the
year - - - - 4,228 - (238) 3,990
Transactions with
owners:
Shares issued 1,741 13,543 - - - - - 15,284
Credit for
share-based
incentives - - - - - 430 - 430
Tax on share-based
payments
recognised
directly in equity - - - - 190 - - 190
Transfer between
reserves in
respect
of share options - - - - 366 (366) - -
Dividends (note
7) - - - - (3,575) - - (3,575)
Total transactions
with owners 1,741 13,543 - - (3,019) 64 - 12,329
At 31 December
2017 10,501 32,705 25,446 50 13,368 824 (21) 82,873
Comprehensive
income:
Profit for the
financial year - - - - 6,618 - - 6,618
Other comprehensive income:
Currency
translation - - - - - - 590 590
Total comprehensive
income for the
year - - - - 6,618 - 590 7,208
Transactions with
owners:
Shares issued 15 54 - - - - - 69
Credit for
share-based
incentives - - - - - 464 - 464
Tax on share-based
payments
recognised
directly in equity - - - - (67) - - (67)
Transfer between
reserves in
respect
of share options - - - - 32 (32) - -
Dividends (note
7) - - - - (3,714) - - (3,714)
Total transactions
with owners 15 54 - - (3,749) 432 - (3,248)
At 31 December
2018 10,516 32,759 25,446 50 16,237 1,256 569 86,833
SIGNIFICANT ACCOUNTING POLICIES
1. Basis of Preparation
The consolidated financial statements of Cello Health 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 financial information set out in the preliminary
announcement for the year ended 31 December 2018 does not
constitute the statutory accounts of Cello Health plc, but is
derived from those statutory accounts, which have been prepared in
accordance with International Financial Reporting Standards (IFRSs)
and also in accordance with IFRSs adopted by the European Union and
therefore they comply with Article 4 of the EU IAS Regulation.
The financial information included in the preliminary
announcement for year to 31 December 2018 has been audited and an
unqualified audit report has been issued. The preliminary financial
statements represent extracts from those audited accounts but do
not constitute statutory accounts within the meaning of Section 434
of the Companies Act 2006. The auditors have reported on those
accounts; their reports were unqualified, did not draw attention to
any matters by way of emphasis, other than uncertainty for all
businesses around the outcome of Brexit negations which cannot be
predicted, and their report and did not contain statements under
s498 (2) or (3) Companies Act 2006.
Statutory accounts for 2017 have been delivered to the Registrar
of Companies and those for 2018 will be delivered following the
Company's Annual General Meeting.
The Group's business activities, performance and position are
set out in the Strategic Report. An assessment of the critical
accounting judgements and estimates are set out in accounting
policy 6.
During the course of the year the Group has change the
nomenclature in the consolidated income statement. 'Cost of sales'
has been renamed to 'third-party project costs' and 'gross profit'
has been renamed 'net revenue'. The Group believes this
nomenclature better reflects the underlying activity of the
Group.
The Group's principal accounting policies are consistent with
these applied in the year ended 31 December 2017 with the exception
of changes resulting from the adoption of the following accounting
standards:
IFRS 15 Revenue from Contracts with Customers
IFRS 15 establishes a single comprehensive five-step model to be
applied to all contracts with customers and replaces the separate
models for goods and services included in IAS 18 Revenue and
related interpretations.
The core principle of IFRS 15 is that an entity should recognise
revenue to depict the transfer of goods and services to customers
in an amount that reflects the consideration to which the entity
expects to be entitled in exchange for those goods or services.
Revenue is recognised when (or as) performance obligations in
contracts are satisfied by transferring control of the relevant
goods or services to the customer.
The adoption of IFRS 15 did not have a significant impact on the
Group's operating profits or on the Group's equity.
However, for certain contracts, the adoption of IFRS 15 resulted
in a change in the timing of recognition of certain third-party
costs where the Group acts as principal with respect to services
provided and associated revenue. As a result there was a increase
in third-party costs of GBP1.0m in the year ended 31 December 2017
with a corresponding decrease in revenue. There was therefore no
impact on net revenue or operating profit.
The impact on the balance sheet at 31 December 2017 was to
reduce current assets by GBP2.6m with a corresponding decrease in
current liabilities. A full reconciliation of the impact of
adopting IFRS 15 on the balance sheet at 31 December 2017 and 31
December 2016 together with the impact on the income statement for
the year ended 31 December 2017 is disclosed in note 17.
IFRS 9 Financial Instruments
IFRS 9 replaces the provisions of IAS 39 that relate to; the
recognition, classification and measurement of financial assets and
liabilities; depreciation of financial instruments; impairment of
financial assets and hedge accounting.
The adoption of IFRS 9 resulted in changes to the accounting
policy for trade receivables.
The requirement of IFRS 9 to use the expected loss method of
impairment of financial assets did not have a material effect on
the Group due to the short-term nature of trade receivables, which
are mainly due from large UK and US clients.
A number of new standards, amendments to standards and
interpretations are effective for the annual period beginning 1
January 2019 and have not been applied in preparing these
consolidated financial statements. None of these are expected to
have a significant effect on the consolidated financial statements
of the Group, except the following:
IFRS 16 Leases - effective 1 January 2019
IFRS 16 introduces a comprehensive model for the identification
of lease arrangements and accounting treatments for both lessors
and lessees. IFRS 16 will supersede the current lease guidance
including IAS 17 Leases and related interpretations. IFRS 16
removes the distinction between operating leases and finance leases
and is replaced by a model where a right-of-use asset and a
corresponding liability have to be recognised for all leases by
lessees except for short-term leases or low value assets.
The Group has made an initial assessment of the impact of
adopting IFRS 16.
The Group intends to apply the simplified transition approach
and will not restate comparative figures for the year prior to
first adoption. Operating leases with less than 12 months remaining
and low value leases will continue to be recognised on a straight
line basis as expensed to profit and loss.
For the remaining leases, principally in relation to land and
buildings, the Group expects to recognise a right-of-use asset of
approximately GBP11.2m and lease liabilities of GBP11.1m, after
adjustment for prepaid and accrued lease payments recognised at 31
December 2018.
The Group expects operating profit to increase by approximately
GBP0.1m and profit before tax to decrease by approximately GBP0.1m
as a result of adopting the new rules.
2. Revenue Recognition and Third-party Project Costs
i. Revenue recognition
The Group's revenues are principally derived from the provision
of consulting, market research and communications projects and
services. In addition, the Signal division derives some revenue
from media placements, the sale of printed goods and the sale of
licences to use software products developed by the Group.
Revenue is measured based on the consideration specified in a
contract with a customer and excludes, where applicable, any
amounts collected on behalf of third parties. Revenue is recognised
either over time or at a point in time, when (or as) the Group
satisfies performance obligations and control of the product or
service is transferred to the customer.
In most instances, promised goods or services in a contract are
not considered distinct, or represent a series of services that are
substantially the same with the same pattern of transfer to the
customer and therefore are accounted for as a single performance
obligation. However, where there are contracts with goods or
services that are capable of being distinct or multiple products or
services are provided, the total transaction price is allocated
amongst the various performance obligations based on the relative
stand-alone selling prices to the client.
The Group does not expect to have any contracts where the period
between the transfer of the promised goods or services to the
customer and payment by the customer exceeds one year. As a
consequence, the Group does not adjust any of the transaction
prices for the time value of money.
ii. Revenue from consulting, market research and communications projects and services
Revenue derived from the provision of consulting, market
research and communications projects and services are generally
under fixed price contracts with single performance obligations.
Contracts rarely extend beyond 12 months and clients are billed
based on a payments schedule over the term of the contract.
Invoices are generally payable by customers within 30 to 60
days.
Revenue is recognised over time because the customer receives
and uses the benefits simultaneously and/or the Group's performance
does not create an asset with alternative use and the Group has an
enforceable right to payment for performance to date.
The proportion of revenue recognised is based on milestones
completed, time elapsed or actual labour hours spent relevant to
total expected hours, as appropriate to the contract. Estimates of
the extent of progress towards completion are revised if
circumstances change with changes to estimated revenues being
recognised in the period in which the circumstances which give rise
to revision become known to management.
Some contracts include variable consideration in the form of
volume-based rebate arrangements. Variable consideration is
estimated using the most likely amount payable and deducted from
the transaction value of each contract.
iii. Media placement revenue
Revenue derived from placing advertising with media sources and
is recognised and billed at the point in time when the placing is
non-cancellable. Invoices are generally payable by customers within
30 to 60 days. Revenue excludes amounts where the Group collects
amounts on behalf of third parties.
iv. Sale of printed goods
Revenue derived from the sale of printed goods is recognised and
billed at the point in time when the printed materials are
delivered. Invoices are generally payable by customers within 30 to
60 days. Revenue excludes amounts where the Group collects amounts
on behalf of third parties.
v. Software licence revenue
The Group derives revenue from the sale of licences to use
in-house developed software products. This licence also includes a
defined amount of monthly data the customer can access via the
software. The licence and data allowance are not deemed to be
distinct so revenue is recognised over the duration of the licence
in line with the access to the data. Contracts with clients are for
no longer than a year and are billed in advance on a monthly,
quarterly or annual basis, invoices are generally payable by
customers within 30 to 60 days
vi. Third-party project costs
Third-party project costs comprise amounts payable to external
suppliers where they are retained at the Group's discretion to
perform part of a specific performance obligation where the Group
has full exposure to the benefits and risk of the contract with the
client.
Third-party project costs do not include direct labour
costs.
vii. Costs to obtain a contract
Costs that would have been incurred regardless of whether the
contract is obtained, for example costs of developing a proposal,
are organised as incurred. The Group incurs incremental costs to
obtain a contract, principally in the form of sales commissions. As
the amortisation period of these costs, if capitalised, would be
less than one year, the Group makes use of the practical expedient
in IFRS 15 p94 and expenses them as incurred. These costs are
included in administrative expenses.
viii. Contract assets and liabilities
The Group recognises consideration received in respect of
unsatisfied performance obligations as contract liabilities in the
Consolidated Balance Sheet. Similarly, if the Group satisfies a
performance obligation before it receives the consideration, the
Group recognises a contract asset in the Consolidated Balance
Sheet.
3. Going Concern
For the year to 31 December 2018 the Group reported a profit
before tax on continuing activities of GBP8.4m and excluding
non-recurring restructuring costs and other non-headline charges
the Group generated a profit before tax of GBP12.2m.
The Group meets its day-to-day working capital requirements
through its bank facilities. At 31 December 2018 the Group had a
GBP20.0m revolving credit facility ("RCF") which is committed to
March 2022. GBP16.0m of the RCF was undrawn at 31 December
2018.
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 forecasts, projections 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.
4. Headline Measures of Performance
The Group believes that reporting headline measures provide a
meaningful assessment of underlying business performance reflecting
the way the business is managed and reported internally.
Accordingly, headline measures of operating profit, profit before
taxation and earnings per share exclude, where applicable,
restructuring costs, net credit for certain VAT payable and related
costs/(credits), certain employment settlement costs, start-up
losses, acquisition costs, amortisation of intangible assets,
acquisition-related employee remuneration expenses and share option
charges. These are items that, in the opinion of the Directors,
should 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 headline operating profit and reported
profit before tax is presented in note 1. In addition to this, 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.
5. 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.
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.
6. Accounting Judgements and Estimates
There are no significant judgements made in preparing the
consolidated financial statements.
The Group makes estimates 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 used in
the financial 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 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 estimates 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.
The Group tests goodwill and intangible assets 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 ACCOUNCEMENT
1. Non-GAAP Measures
The Group believes that reporting non-GAAP measures provides a
meaningful assessment of underlying business performance reflecting
the way the business is managed and reported internally. The Group
reports two types of non-GAAP measure, headline measures and
like-for-like net revenue.
Headline measures of performance
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 the effect of the following items:
i. Restructuring costs - these costs principally relate to
business relocation and redundancy costs. Further details are
provided in note 4.
ii. Credit for VAT recoverable - this relates to the VAT
recoverable from clients in respect of a previous VAT issue.
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.
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 headline operating profit and reported
profit before taxation is presented below:
2018 2017
Note GBP'000 GBP'000
Headline operating profit 2 12,494 11,778
Finance income 3 1 1
Finance costs 3 (340) (360)
Headline profit before tax 2 12,155 11,419
Non-headline gains/(losses):
Restructuring costs 4 (204) (1,916)
Credit for VAT recoverable - 259
Employment settlement and related
costs - (48)
Start-up losses 5 (1,150) (1,350)
Acquisition costs (22) (243)
Amortisation of intangible assets (325) (510)
Acquisition-related employee remuneration
expense (1,571) (1,364)
Share option charges 3 (464) (430)
Total non-headline gains/(losses) (3,736) (5,602)
Reported profit before taxation 8,419 5,817
Like-for-like net revenue
Like-for-like net revenue measures adjusts reported net revenue
for the following items:
i. They exclude the results of companies or businesses acquired in the current period
ii. They exclude the results of acquired companies or businesses
in the current period to the extent that those companies or
businesses were not in the Group in the prior period.
iii. They exclude the results from start-ups in the current period.
iv. They include the results from start-up operations in the
prior period to the extent they are included within an operating
segment in the current period.
v. 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 2018 2017
% GBP'000 GBP'000
Reported net revenue 2.3% 104,816 102,485
Acquisitions (1,658) -
Start-ups (537) (305)
Like-for-like net revenue 0.4% 102,621 102,180
Currency impact 996 -
Currency adjusted like-for-like
net revenue 1.4% 103,617 102,180
These measures can be allocated to the Group's operating segments
(note 2) as follows:
Reported net revenue:
Cello Health 6.9% 64,308 60,150
Cello Signal (2.4%) 39,971 40,961
Other 537 1,374
Total 2.3% 104,816 102,485
Like-for-like net revenue:
Cello Health 2.8% 62,650 60,921
Cello Signal (3.1%) 39,971 41,259
Total 0.4% 102,621 102,180
Currency adjusted like-for-like net revenue:
Cello Health 4.3% 63,565 60,921
Cello Signal (2.9%) 40,052 41,259
Total 1.4% 103,617 102,180
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
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.
The Group derives revenue from the transfer of goods and
services over time and at a point in time based on the location of
the client and from the following geographical segments.
Revenue
For the year ended 31 December 2018 Cello Health Cello Signal Consolidation Adjustments Group
GBP'000 GBP'000 and Unallocated GBP'000 GBP'000
External sales 88,483 74,897 2,193 165,573
Intersegment revenue 62 482 (544) -
Total revenue 88,545 75,379 1,649 165,573
Timing of revenue recognition:
Revenue recognised over time 88,483 47,191 2,193 137,867
Revenue recognised at a point in time - 27,706 - 27,706
Total revenue 88,483 74,897 2,193 165,573
Revenue by geography:
UK 16,873 65,244 914 83,031
Rest of Europe 19,040 610 - 19,650
USA 39,130 7,334 1,279 47,743
Rest of the World 13,440 1,709 - 15,149
Total revenue 88,483 74,897 2,193 165,573
Revenue Cello Health Cello Signal Consolidation Adjustments Group
For the year ended 31 December 2017 (restated) GBP'000 GBP'000 and Unallocated GBP'000 GBP'000
External sales 85,406 82,965 1,922 170,293
Intersegment revenue 25 133 (158) -
Total revenue 85,431 83,098 1,764 170,293
Timing of revenue recognition:
Revenue recognised over time 85,406 51,592 1,922 138,920
Revenue recognised at a point in time - 31,373 - 31,373
Total revenue 85,406 82,965 1,922 170,293
Revenue by geography:
UK 17,486 69,872 298 87,656
Rest of Europe 17,444 2,182 - 19,626
USA 36,783 8,592 1,624 46,999
Rest of the World 13,693 2,319 - 16,012
Total revenue 85,406 82,965 1,922 170,293
Segmental net revenue and headline operating profit
For the year ended 31 December 2018 Cello Health Cello Signal Group
GBP'000 GBP'000 Unallocated GBP'000 GBP'000
Net revenue 64,308 39,971 537 104,816
Headline operating profit 11,890 3,739 (3,135) 12,494
For the year ended 31 December 2017 Cello Health Cello Signal Group
GBP'000 GBP'000 Unallocated GBP'000 GBP'000
Net revenue 60,150 40,961 1,374 102,485
Headline operating profit 10,639 3,872 (2,733) 11,778
A reconciliation of Group headline operating profit (segment
result) to profit before tax on the income statement is presented
in note 1.
Non-current assets excluding deferred tax by geographical
location:
2018 2017
GBP'000 GBP'000
UK 66,722 66,104
USA 11,197 10,867
Rest of the world 23 15
77,942 76,986
Other information:
Cello Health Cello Signal Group
GBP'000 GBP'000 Unallocated GBP'000 GBP'000
Capital expenditure
Year ended 31 December 2018 703 557 110 1,370
Year ended 31 December 2017 851 608 3 1,462
Capitalisation of intangible assets
Year ended 31 December 2018 - 672 - 672
Year ended 31 December 2017 - 409 - 409
Depreciation of property, plant and equipment
Year ended 31 December 2018 742 544 19 1,305
Year ended 31 December 2017 646 647 11 1,304
3. Administrative Expenses
Profit for the financial year is stated after
charging/(crediting):
2018 2017
Note GBP'000 GBP'000
Headline administrative costs:
Staff costs 68,210 65,570
Operating lease rentals 3,823 3,759
Depreciation of property, plant
and equipment 1,305 1,304
Profit on disposal of property,
plant and equipment (17) (21)
Amortisation of intangibles 444 402
Auditors' remuneration 346 390
Net foreign exchange loss/(gain) (1) 449
Other property costs 1,665 1,822
Other administration costs 16,010 15,658
Non-headline administrative costs:
Restructuring costs 4 204 1,916
Credit for VAT recoverable - (259)
Employment settlement and related
costs - 48
Start-up costs 5 1,687 2,724
Acquisition costs 22 243
Amortisation of intangibles 325 510
Acquisition-related employee
remuneration 1,571 1,364
Share option costs 464 430
96,058 96,309
4. Restructuring Costs
Restructuring costs comprise of cost-saving initiatives
including severance payments, property and other contract
termination costs. In 2018, these costs relate to the consolidation
of two UK businesses into existing property. These costs 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:
2018 2017
GBP'000 GBP'000
Staff redundancies 30 1,479
Property costs 174 437
Total restructuring costs 204 1,916
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.
5. Start-up Losses (continued)
Start-up losses in 2018 relate to the losses associated with
Pulsar in the US, the costs associated with the new Boston office
and the initial losses of the Signal Health initiative.
An analysis of start-up losses incurred is as follows:
2018 2017
GBP'000 GBP'000
Revenue 2,193 1,922
Third-party project costs (1,656) (548)
Net revenue 537 1,374
Administrative costs (1,687) (2,724)
Start-up losses (1,150) (1,350)
6. Taxation
2018 2017
GBP'000 GBP'000
Current tax:
Current tax on profits for
the year 2,377 1,961
Prior year current tax adjustment (229) (114)
2,148 1,847
Deferred tax (347) (258)
Tax charge 1,801 1,589
The standard rate of corporation tax in the UK was 19.00% (2017:
19.25%) 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:
2018 2017
GBP'000 GBP'000
Profit before taxation 8,419 5,817
Tax at the UK corporation tax rate
of 19.00%
(2017: 19.25%) 1,600 1,120
Tax effect of expenses not deductible
for tax purposes 238 243
Effect of decrease in tax rate on deferred
tax assets 20 7
Effect of different tax rates of subsidiaries
in foreign jurisdiction 163 338
Tax losses not utilised in the year 4 -
Utilisation of losses not previously
recognised - (31)
Origination and reversal of other temporary
differences 5 26
Prior year current tax adjustment (229) (114)
1,801 1,589
6. Taxation (continued)
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 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.
During the year, the US federal corporate income tax rate
reduced from 34.0% to 21.0%. This reduction, together with
reductions in the UK rate of corporation tax, has meant the
reported tax rate on profit before tax is reduced to 21.4% (2017:
27.3%).
7. Equity Dividends
The dividends paid in the year were:
2018 2017
GBP'000 GBP'000
Date paid
Final dividend 2016 - 2.40p
per share 26 May 2017 - 2,478
Interim dividend 2017 -
1.05p per share 03 Nov 2017 - 1,097
Final dividend 2017 - 2.45p 25 May 2018
per share 2,563 -
Interim dividend 2018 - 02 Nov 2018
1.10p per share 1,151 -
3,714 3,575
A 2018 final dividend of 2.75p has been proposed for approval at
the Annual General Meeting on 8 May 2019. In accordance with IAS 10
Events After the Reporting Period these dividends have not been
recognised in the Consolidated Financial Statements at 31 December
2018.
8. Earnings per Share
2018 2017
Note GBP'000 GBP'000
Profit for the year attributable
to owners of the parent 6,618 4,228
Adjustments to earnings:
Non-headline charges 1 3,736 5,602
Tax on non-headline charges (830) (1,629)
Headline earnings for the
year 9,524 8,201
2018 2017
Number of shares Number of shares
Weighted average number of ordinary
shares used in basic earnings per
share calculation 105,592,302 103,373,430
Dilutive effect of securities:
Share options 1,459,481 1,370,660
Deferred consideration shares 663,308 216,243
------------------ ------------------
Weighted average number of ordinary
shares in diluted earnings per
share 107,715,091 104,960,333
------------------ ------------------
8. Earnings per Share (continued)
2018 2017
Basic earnings per share 6.27p 4.09p
Diluted earnings per share 6.14p 4.03p
In addition to basic and diluted earnings per share, headline
earnings per share, which is a non-GAAP measure, has also been
presented.
2018 2017
Headline basic earnings per
share 9.02p 7.93p
Headline diluted earnings
per share 8.84p 7.81p
Basic earnings per share is calculated by dividing the earnings
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 per share is calculated by dividing earnings
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,
acquisition related costs and share option charges.
9. Goodwill
GBP'000
Cost
At 1 January 2017 87,149
Additions 3,946
Exchange differences (825)
_______
At 31 December 2017 90,270
Additions 146
Exchange differences 523
_______
At 31 December 2018 90,939
_______
Accumulated impairment
At 1 January 2017, 31 December 2017 and 31 December
2018 17,316
_______
Net book value
At 31 December 2018 73,623
At 31 December 2017 72,954
At 1 January 2017 69,833
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. During the year ended 31 December
2018, as a result of rationalisation of management structures and
restructuring initiatives, allocations to some CGUs have
changed
The goodwill balance was allocated to the following CGUs:
2018 2017
GBP'000 GBP'000
Cello Health Insight 10,537 10,224
Cello Health Consulting 7,666 7,666
Cello Health Communications US (previously
MedErgy) 5,925 5,617
Cello Health Communications UK (previously
iS Health) 1,819 1,425
Mash - 248
Cello Health BioConsulting (previously
Defined Health) 3,570 3,384
Cello Health Advantage 267 254
Promedica - 297
The Value Engineers 4,589 4,589
RS Consulting 4,305 4,305
Cello Signal 23,227 23,227
2cv 8,276 8,276
Pulsar 3,442 3,442
Total 73,623 72,954
9. Goodwill (continued)
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 prepared by
management based on business plans for each CGU which reflect
expectations, past performance and historic trends. An underlying
growth rate of 3.8% per annum in years two to five has accordingly
been used for those years.
After year five 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
2.2%. No additional Cello-specific growth has been assumed beyond
year one.
The pre-tax cash flows are discounted to present value using the
Group's pre-tax weighted average cost of capital ("WACC"), which
was 11.73% for 2018 (2017: 10.95%). This rate was calculated using
the Capital Asset Pricing Model with an estimated cost of debt and
equity, with appropriate small company risk factors.
At 31 December 2018, the value-in-use exceeds the total goodwill
value across the Group by GBP114.7m.
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.
Reasonable changes to the assumptions used, considered in
isolation, would not result in an impairment of goodwill for any of
the Groups CGUs with the exception of:
-- 1.0% increase in the discount rate would potentially lead to
a GBP0.6m impairment charge across the Pulsar and 2CV CGUs.
-- A 1.0% reduction in the terminal growth rate to 1.2% would
potentially lead to a GBP0.3m impairment charge in the Pulsar
CGU.
-- A 10.0% reduction in projected operating cash flow would
potentially lead to a GBP0.3m impairment charge across the Pulsar
and 2CV CGUs.
In addition, in the case of each of the sensitivities referred
to above, the Cello Signal CGU has limited goodwill headroom of
between 3% and 6%.
10. Trade Receivables
2018 2017 2016
GBP'000 GBP'000 GBP'000
Trade receivables 35,260 36,420 34,259
The average credit period taken on the provision of services was
62 days (2017: 62 days).
The Group has not recognised an expected loss allowance (2017:
nil) on trade receivables.
The Directors consider that the carrying value of trade
receivables approximates to fair value.
11. Contract assets and liabilities
Restated Restated
2018 2017 2016
GBP'000 GBP'000 GBP'000
Contract assets 6,798 6,726 6,223
Contract liabilities (14,004) (14,064) (15,641)
Significant changes in the contract assets and contract
liabilities are as follows:
Contract assets Contract liabilities
2018 2017 2018 2017
GBP'000 GBP'000 GBP'000 GBP'000
At 1 January 6,726 6,223 (14,064) (15,641)
Revenue recognised that
was included in contract
liability balance at the
beginning of the period - - 14,064 15,641
Increase due to amounts
invoiced to customers and
not recognised as revenue
in the period - - (13,881) (13,911)
Transfer from contract
assets recognised at the
beginning of the period
to receivables (6,726) (6,223) - -
Revenue recognised as a
result of changes in the
measure of progress in
the period in excess of
amounts billed to clients 6,694 6,633 - -
Other movements 104 93 (123) (153)
At 31 December 6,798 6,726 (14,004) (14,064)
The Group has applied the practical expedient permitted by IFRS
15 not to disclose the transaction price allocated to performance
obligations unsatisfied (or partially unsatisfied) at the end of
the reporting period as contracts have an original expected
duration of less than 12 months.
12. Other receivables
Restated
2018 2017
GBP'000 GBP'000
Contract assets - amounts to
fulfil a contract 1,745 5,252
Prepayments 2,320 2,244
Other receivables 1,735 1,312
5,800 8,808
The Directors consider that the carrying value of other
receivables approximates to fair value.
13. Trade and Other Payables
The following are included in trade and other payables falling
due within one year:
Restated
2018 2017
GBP'000 GBP'000
Trade payables 12,472 14,285
Other taxation and social security 2,591 2,618
Accruals 13,326 15,552
Deferred consideration for acquisitions 35 35
Acquisition-related employee remuneration liability 1,806 -
Other payables 719 258
30,949 32,748
The following are included in trade and other payables falling due after one year:
Acquisition-related employee remuneration liability 1,246 1,400
The Directors consider that the carrying value of trade and
other payables approximates to fair value.
14. Borrowings
2018 2017
GBP'000 GBP'000
Bank loans 4,000 11,333
Loan notes 42 59
4,042 11,392
2018 2017
GBP'000 GBP'000
The borrowings are repayable as follows:
- on demand or within one year 42 59
- in more than one year but not more
than five years 4,000 11,333
4,042 11,392
Bank loans
The Group has a multi-currency debt facility with the Royal Bank
of Scotland plc ("RBS"). At 31 December 2018 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. The average interest rate on the
Group's bank loans in the year was 2.6% (2017: 2.4%). The debt
facility is secured by a debenture held by RBS over the assets of
the Group.
At 31 December 2018, the Group has drawn GBP4.0m (2017:
GBP11.3m) 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 two and five 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:
2018 2017
GBP'000 GBP'000
Unsecured
LIBOR less 2.0% 28 45
LIBOR 14 14
42 59
15. Cash Generated from Operations
Restated
2018 2017
GBP'000 GBP'000
Profit before taxation 8,419 5,817
Financing income (1) (1)
Finance costs 340 360
Depreciation 1,305 1,304
Amortisation of intangible assets 769 912
Share-based payment expense 464 430
Profit on disposal of property,
plant and equipment (17) (21)
Increase/(decrease) in acquisition-related
employee
remuneration payable 1,543 (940)
Operating cash flow before movements
in working capital 12,822 7,861
Decrease/(increase) in receivables 4,592 (3,539)
(Decrease)/increase in payables (3,996) 470
Net cash inflow from operating activities 13,418 4,792
16. Net Funds
Net funds at 31 December 2018 and 31 December 2017 comprises
of:
2018 2017
GBP'000 GBP'000
Cash and cash equivalents 10,424 13,021
Bank loans (4,000) (11,333)
Loan notes (42) (59)
Finance leases (41) (17)
Net funds 6,341 1,612
16. Net Funds (continued)
Changes in net funds/(debt) can be analysed as follows:
2018 2017
GBP'000 GBP'000
Net (decrease)/increase in cash and
cash equivalents (2,753) 5,866
Changes in net funds/(debt) as a result
of cash flow:
Net repayment of bank loans 7,686 100
Repayment of loan notes 17 96
Capital element of finance lease payments 35 16
Other movements:
Foreign exchange differences (197) 606
New finance leases (59) -
Movement in net funds in the year 4,729 6,684
Net funds/(debt) at the beginning
of the year 1,612 (5,072)
Net funds at the end of the year 6,341 1,612
17. Restatement of Prior Years
On 1 January 2018 the Group adopted IFRS 15 Revenue from
contracts with customers using the full retrospective method.
Adoption of IFRS 15 result in change in the timing of recognition
of certain third-party costs where the Group acts as principle with
respect to services provided.
This has resulted in adjustments of the consolidated balance
sheets at 31 December 2016 and 31 December 2017 together with
change to the consolidated income statement for the year ended 31
December 2017.
Consolidated balance sheet at 31 December 2016:
Previously IFRS 15 Restated
reported adjustment 2016
GBP'000 GBP'000 GBP'000
Non-current assets 73,975 - 73,975
Current assets
Trade and other receivables excluding
deferred income 37,785 2,059 39,844
Accrued income/contract assets 9,077 (2,854) 6,223
Cash and cash equivalents 7,466 - 7,466
Total current assets 54,328 (795) 53,533
Current liabilities
Trade and other payables excluding
deferred income (32,342) 607 (31,735)
Deferred income/contract liabilities (15,829) 188 (15,641)
Cash and cash equivalents (1,022) - (1,022)
Total current liabilities (49,193) 795 (48,398)
Net current assets 5,135 - 5,135
Total assets less current liabilities 79,110 - 79,110
Non-current liabilities (12,556) - (12,556)
Net assets 66,554 - 66,554
17. Restatement of Prior Years (continued)
Consolidated balance sheet at 31 December 2017:
Previously Restated
reported IFRS 15 2017
GBP'000 adjustment GBP'000
Non-current assets 78,067 - 78,067
Current assets
Trade and other receivables excluding
accrued income 39,976 5,252 45,228
Accrued income/contract assets 14,544 (7,818) 6,726
Cash and cash equivalents 13,021 - 13,021
Total current assets 67,541 (2,566) 64,975
Current liabilities
Trade and other payables excluding
accrued income (33,549) 801 (32,748)
Deferred income/contract liabilities (15,829) 1,765 (14,064)
Cash and cash equivalents (511) - (511)
Total current liabilities (49,889) 2,566 (47,323)
Net current assets 17,652 - 17,652
Total assets less current liabilities 95,719 - 95,719
Non-current liabilities (12,846) - (12,846)
Net assets 82,873 - 82,873
Consolidated income statement for the year ended
31 December 2017
Previously IFRS 15 Restated
reported adjustment 2017
GBP'000 GBP'000 GBP'000
Revenue 169,292 1,001 170,293
Third-party project costs (66,807) (1,001) (67,808)
Net revenue 102,485 - 102,485
There was no change to operating profit, profit before tax or
profit for the year attributable to owners of the parent as a
result of adopting IFRS 15.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR LBLLLKXFBBBE
(END) Dow Jones Newswires
March 21, 2019 03:01 ET (07:01 GMT)
Cello Health (LSE:CLL)
Historical Stock Chart
From Jul 2024 to Aug 2024
Cello Health (LSE:CLL)
Historical Stock Chart
From Aug 2023 to Aug 2024