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Cello Group plc (CLL)

  Print          Annual reports

Thursday 20 March, 2014

Cello Group plc

Preliminary Results for the Year Ended 31 Dec 2013

RNS Number : 7136C
Cello Group plc
20 March 2014
 

FOR IMMEDIATE RELEASE 20 March 2014

Cello Group plc

 

Strong 2013 performance - Double digit profit and gross profit growth and rising margins.

 

Cello Group plc (AIM:CLL, "Cello" or "the Group"), the insight and strategic marketing group, today announces its final audited results for the year to 31 December 2013.

 

Cello has two operating divisions, Cello Health and Cello Signal (previously Cello Consumer) which is formally launched today.

 

Financial Highlights

 

·      Revenue up 18.2% to £159.7m (2012: £135.1m)

·      Gross profit up 14.8% to £74.7m (2012: £65.1m)

·      Like-for-like1 gross profit growth of 11.4%

·      Statutory operating profit up 199% to £6.0m (2012: £2.0m)

·      Headline2 profit before tax up 21.1% to £8.5m (2012: £7.0m)

·      Headline basic earnings per share3 up 13.8% to 7.25p (2012: 6.37p)

·      Statutory basic earnings per share from continuing operations up 28 fold to 4.41p (2012: 0.16p)

·      Net debt4 reduced by 59.2% to £3.6m (2012: £8.7m)

•     Full Year dividend up 12.5% to 2.25p (2012: 2.00p)

•     Strong cash conversion5 of 122% (2012: 79%)

•     Good start to 2014, with encouraging bookings momentum continuing from Q4 2013

 

Divisional Highlights

 


Cello Health

Cello Signal


2013

£'000

2012

£'000

 

% change

2013

£'000

2012

£'000

 

% change

Gross profit

35,632

31,322

13.8%

37,873

32,735

15.7%

Headline operating profit

7,560

6,506

16.2%

3,877

2,995

29.4%

Headline operating margin6

21.2%

20.8%


10.2%

9.1%


 

·        Cello Health like-for-like gross profit growth of 6.4%, margins improved, good performance

·        Cello Signal like-for-like gross profit growth of 16.2%, margins improved, significantly improved performance.

 

Operational Highlights

 

·        Successful launch of Cello Health brand (www.cellohealth.com), which replaces a number of existing operating brands.

·       Successful acquisition of Mash Healthcare in January 2013.

·        Strong performance from new businesses started in 2012, together contributing £3.3m of gross profit in 2013.

·        Successful launch of Cello Signal (www.cellosignal.com), formerly Cello Consumer.

 

Mark Scott, Chief Executive, commented:

 

"2013 has been a very strong year that has demonstrated the potential of Cello's strategy to deliver superior performance. Both Cello Health and Cello Signal have very clear, focused growth strategies, underpinned by robust management structures. We are confident that both businesses will continue on their growth paths and deliver a successful 2014 performance for the Group as a whole. Reflecting that confidence, we have raised the full year dividend by 12.5%, the eighth successive year of dividend growth."

 

1        Like-for-like measures exclude the results from companies acquired in the year and results from start-ups in 2013.

2        Headline measures exclude, where applicable, restructuring costs, amortisation of intangible assets, impairment charges, acquisition accounting adjustments, start-up losses and fair value gains and losses on derivative financial instruments.

3        Headline earnings per share is defined in note 9.

4        Net debt is defined in note 16.

5        Cash conversion is defined as cash generated from operating activities before tax expressed as a percentage of headline operating profit.

6        Operating margin is calculated by expressing operating profit as a percentage of gross profit.

 

Enquiries:

Cello Group plc


Mark Scott, Chief Executive

020 7812 8460

Mark Bentley, Group Finance Director

 


Cenkos


Bobbie Hilliam

020 7397 8927



Buchanan


Mark Edwards

020 7466 5000

Sophie McNulty


Clare Akhurst


 

 

Overview

 

2013 saw a strong financial and operational performance. The Group reports a 14.8% increase in gross profit to £74.7m (2012: £65.1m) and headline profit before tax up 21.1% to £8.5m (2012: £7.0m).

 

The success of the year has been underpinned by robust like-for-like gross profit growth of 11.4%. This growth has been achieved across the whole business and notably in Cello Signal, where growing digital gross profit and gross profit from technically related services was supplemented by the impact of a significant incremental project.

 

The like-for-like gross profit growth was enhanced by the success of the start-up activity implemented in 2012. We have opened new offices, launched new products and started new businesses. Gross profit from such activities started in 2012, rose from £1.0m in 2012 to £3.3m in 2013.

 

Finally, our growth has been supplemented by the acquisition of Mash Health Limited ("Mash") in January 2013. Mash provides consultancy and communication services to a wide portfolio of pharmaceutical, nutraceutical and consumer healthcare clients. We are pleased with the performance of the business in the first year of ownership.

 

The investment made in 2013 in preparation for the launch of the Cello Health brand (www.cellohealth.com) has ensured a smooth transition to the new proposition. The launch of Cello Signal (www.cellosignal.com) has also been successfully completed today. For the Group's wide range of blue chip clients, the distinct service benefits offered by the two businesses are now clearer.

 

The Group started the new year with continued good booking momentum, and a solid new business pipeline, providing good visibility for the first half of the year.

 

Financial Review

 

Total Group gross profit was £74.7m (2012: £65.1m) on revenues of £159.7m (2012: £135.1m). Headline profit before tax was £8.5m (2012: £7.0m). The Group's results reflect a strong performance by both Cello Health and by Cello Signal.

 

Statutory profit before tax was £5.5m (2012: £1.4m) after the impact of restructuring costs of £0.5m (2012: £1.3m); amortisation of £1.2m (2012: £0.9m); and start-up losses of £0.4m (2012: £0.8m).

 

The Group's headline operating margin was 12.4% (2012: 12.1%) with a headline operating margin of 21.2% in Cello Health (2012: 20.8%), and 10.2% in Cello Signal (2012: 9.1%).

 

Headline finance costs were £0.6m (2012: £0.7m). The Group's tax charge was £1.8m (2012: £1.2m) reflecting a normalised tax rate on taxable profits of 30.4% (2012: 31.5%). Headline basic earnings per share was 7.25p (2012: 6.37p).

 

In January 2013, the Group acquired the entire share capital of Mash Health Limited. Total amounts payable with regards to this acquisition are £2.1m with net current assets acquired of £0.6m. £0.7m of this amount has been accounted for as acquisition related employee remuneration which is a charge accounted for below headline operating profit.  £1.6m was settled in the year, of which £1.4m was paid in cash with the balance paid in new ordinary shares.

 

Total Group deferred commitments with regards to acquisitions now stand at £0.6m, all payable in 2014 with a maximum of £0.1m payable in shares.

 

Cello Health produced headline operating profit growth of 16.2% on an increase in gross profit of 13.8%, reflecting continued robust demand from global clients for its highly specialist range of technical services. It enjoyed a full year contribution from Mash which was acquired in January 2013. Cello Health's continued expansion was helped by the start-up investments made in 2012, the majority of which achieved break-even in 2013, delivering a combined gross profit of £1.6m. Like-for-like gross profit in Cello Health grew by 6.4%.

 

Cello Signal had a very strong year, delivering headline operating profit of £3.9m (2012: £3.0m) on gross profit of £37.9m (2012: £32.7m). Cello Signal achieved headline operating margins of 10.2% (2012: 9.1%). Like-for-like gross profit in Cello Signal grew by 16.2%.

 

One notable factor in this impressive like-for-like growth rate was the delivery of a large, non-recurring rebranding project. It is not expected that a project of this size will occur in 2014, however there has been a notable increase in rebranding activity as the UK economy comes out of recession. Cello Signal has benefited from an improvement in the consumer research market, as well as an increase in work of a retained or continuous nature. The business has also developed a growing expertise in technical platform development. For example, the Commonwealth Games 2014 ticketing website was developed by Blonde, a business within Cello Signal.

 

Social media analysis is also a growing revenue stream. The launch in April 2013 of Pulsar TRAC has been very successful, with several clients purchasing the software on a retained licence fee basis. Cello Signal's rapid transition into a predominantly digital proposition supported by a range of web-centric services has enabled it to continue to develop its wide range of blue chip global client relationships.

 

As indicated in the Interim Results, the consolidation of Cello Health and Cello Signal into separately branded entities has given rise to an opportunity to pursue further efficiency gains. As a consequence, there was a restructuring charge of £0.5m in 2013 to achieve these ongoing future gains (2012: £1.3m).

 

In 2012, the Group incurred £0.8m of start-up costs in association with new offices, new products, or the commencement of new businesses. We are pleased that the gross profit in 2013 from these activities totalled £3.3m, and headline operating profit of £0.2m was delivered.

 

We have continued this strategy in 2013, by opening up offices in Hong Kong and Chicago, as well as investing in the continued development of Cello Business Sciences, a web-based analytic offering for pharmaceutical clients. In addition, we launched a US office for Cello Health Consulting, specialising in early product commercialisation. The total losses from these activities in 2013 were £0.4m.

 

Operating cash flow before tax of £11.1m (2012: £6.1m) during the year represented a 122% conversion of headline operating profit (2012: 79%). The Group's net debt position at 31 December 2013 was £3.6m (2012: £8.7m). The net debt:ebitda1 ratio has dropped to 0.3 (2012: 1.0). In order to reduce future non utilisation fees, the Board has elected to reduce the existing revolving credit facilities of £25.0m to £20.0m. This facility is in place until March 2016.

 

The Board is proposing a final dividend of 1.61p per share (2012: 1.42p), giving a total dividend per share of 2.25p (2012: 2.00p), an increase of 12.5%. The dividend has now grown every year since 2006 and has grown by 10% or more for the last three years. Subject to shareholder approval, the final dividend will be paid, on 4 July 2014 to all shareholders on the register at 6 June 2014 and will be recognised in the year ending 31 December 2014.

 

[1] ebitda is defined as headline earnings before tax, interest, depreciation and amortisation.

 

 

 

 

The Group incurs a number of charges in the income statement below headline operating profit, which are:

 


2013

2012


£'000

£'000




Headline operating profit

9,089

7,720

Net interest payable

(568)

(686)


                

                

Headline profit before tax     

8,521

7,034




Restructuring costs

(514)

(1,328)

Start-up losses

(373)

(787)

Acquisition costs

(66)

-

Amortisation of intangibles*

(1,190)

(876)

Acquisition related employee remuneration expenses

(745)

(82)

Share option charges*

(179)

(134)

Impairment of goodwill and intangibles*

-

(2,497)

Fair value gain on financial instruments*

5

50


                

                

Statutory profit before tax

5,459

1,380


                

                




*no cash flow impact

 

The Group monitors many financial measures on a regular basis but our key performance indicators are headline operating profit, headline operating margin, like-for-like gross profit, headline operating cash flow conversion and headline basic earnings per share.

 

Operational Review

 

Cello Health (www.cellohealth.com)


2013

2012


£'000

£'000

Gross profit

35,632

31,322

Headline operating profit

7,560

6,506

Headline operating margin

21.2%

20.8%

 

Cello Health had another strong year, delivering headline operating profit of £7.6m (2012: £6.5m) from gross profit of £35.6m (2012: £31.3m). The business continues to service the majority of the largest 50 pharmaceutical clients globally as well as a growing number of biotech clients. The professional employee base increased to 316 during the year (2012: 296) reflecting the addition of senior resource, particularly in the USA, to enable continued growth. Despite this ongoing senior headcount increase, operating margins increased slightly to 21.2% (2012: 20.8%).

 

The Board of Cello Health has continued to execute against its global strategy of establishing Cello Health as one of a handful of high quality, technically led advisers to the pharmaceutical and healthcare sector. During the course of 2013, the Board of Cello Health went through the detailed organisational planning required to transition its core operating brands into a single brand format reflecting the Cello Health positioning. This has already begun to deliver clear benefits in the form of better sharing of professional resource, and successful joint pitching for larger client opportunities. During 2014, it is expected that the recent launch of the Cello Health brand as the core client facing brand of the business will materially help to raise Cello Health's market profile, with associated commercial benefits.

 

In line with the stated strategy, the international profile of Cello Health continues to progress rapidly. In July 2013, Cello Health opened an office in Chicago. The consulting division of Cello Health also opened a specialist market access and early product commercialisation business in New York which is being expanded in 2014. All of Cello Health's core businesses are now represented in the US market, which is by far the largest market for such services globally. The core capabilities of Cello Health (Cello Health Consulting, Cello Health Insight and Cello Health Communications) are organised globally, enabling rapid deployment of resource against global opportunity.

 

The business continues to invest in organic expansion. In 2013 investment was made in the development of a focused consumer health offering. The acquisition of Mash in January 2013 has been a significant addition to the effort to build a major global offering in the consumer health space.

 

Innovation is at the core of Cello Health's proposition. Cello Health's digital and software based capabilities have continued to gain market traction. Cello Business Sciences, a bespoke web-based analytical tool for marketing Directors in the pharmaceutical industry, has joined forces with Cello Health's consulting capability to secure wider sales reach. Sales of software licences have continued to grow at a strong rate.

 

New business momentum was strong in Q4 2013 and this momentum has continued into 2014. Notable, disclosable client wins in 2013 included: AbbVie, Abellio, Ahlstrom, Ariad, Avia, Bauer Media, Biogen, Biogen Idec, Boehringer Ingleheim, Canon, Chamberlain, Colgate Palmolive, Consumer Focus, CooperVision, Eisai, Epson, FCA, FedEx, GSK Oncology, HP, Janssen Cilag, Johnson and Johnson, Kimberly Clark, Legal and General, M&G, Marie Curie, MBA Mead Johnson, Medtronic, NHS Blood Transfusions, NHS Business Services Authority, Novartis, Novo Nordisk, NS&I, Otsuka, Pfizer, PruHealth, Saint Gobain, Sandoz, Sanofi Pasteur, Shionogi, Shire, Sony, Swiss Re, Terumo, UCB, Unilever, Vertex, Zentiva, Zoetis, Zurich.

 

Cello Signal (www.cellosignal.com)


2013

2012


£'000

£'000

Gross profit

37,873

32,735

Headline operating profit

3,877

2,995

Headline operating margin

10.2%

9.1%

 

Cello Signal had a very strong year, delivering headline operating profit of £3.9m (2012: £3.0m) on gross profit of £37.9m (2012: £32.7m). Operating margins were increased to 10.2% (2012: 9.1%), reflecting the business's increasing transition to higher value added, global services which command a higher margin. Headcount increased to 478 (2012: 459), reflecting expansion of capability outside the UK, both in the US and Asia.

 

Cello Signal made material progress in its development as a leading global adviser to marketing clients, enabling them to better manage relationships with customers in an increasingly digital context. The business's unique combination of data analytics, systems delivery and creativity lends it genuine competitive advantage, enabling it to both identify key customer challenges and deliver solutions of a highly technical nature. The launch of Cello Signal as the umbrella brand for the business is expected to contribute to a rapid increase in its market profile.

 

Cello Signal has continued to develop its strong digital footprint. Through its brand Face, the Group has established an industry leading capability in social media based advisory work, backed by software-enabled analytical products. Through its brand Blonde, it also has a highly successful offering in digital communications and web-based marketing. In addition, through its brand Brightsource, it has developed an industry leading capability in digital based print management, communications planning and delivery. The Group has developed a number of proprietary software products to support its sales process, including Pulsar, a ground-breaking social media analytics tool (www.pulsarplatform.com). Cello Signal continues to grow its focus on delivering proprietary software as a service. Pulsar software sales continue to progress strongly and are now supported by a dedicated sales team.

 

Cello Signal has a high quality, blue chip client list that underpins its global business growth. The client base spans the full range of technology led sectors, including mobile telephony, electronic games, and personal computing, ensuring Cello Signal is at the cutting edge of digital marketing developments. This is complemented by deep client expertise in fmcg, charities, and retail. Core clients include EA, HP, Sony, Unilever, Tesco, LBG, L'Oreal, NHS, BASF, TfL, IFAW, Oxfam, and General Motors. 2013 saw an ongoing increase in the average size of client contracts and an ongoing increase in visibility achieved through multi-year contracts.

 

Cello Signal has been rapidly transforming itself from a UK focused business into a global business. With offices in San Francisco, Los Angeles, New York, Singapore and Hong Kong, it can now offer truly global coverage. International gross profits have grown from 16% in 2012 to 18% in 2013. Cello Signal is increasingly selling contracts on a multi-country basis.

 

Cello Signal's strong new business momentum from the last quarter of 2013 has continued into 2014. Notable, disclosable client wins in 2013 included: Aegon, Age UK, Ahlstrom, Airwave Solutions, Alliance Trust, Anheuser Busch, Apetito, Art Institute of Chicago, Audi (Asia), Baillie Gifford, Barnes & Noble, Border Biscuits, BRG, British Red Cross, Canon, Cash Generator, CBRE, Chamberlain, Cigna, CITB, City of London, Cofunds, Disney, DWP, E.ON, Economist, English Heritage, Ernst & Young, Family Investments, Fantasy Football Manager, FCA, First Group, General Mills, Halo Foods, Hearst Magazines, Homebase, International Cancer Research, IQ Chocolate, JP Morgan, Keen's Footwear, Kimpton Hotels, King.com, Learn Direct, M&G, Macmillan Cancer Support, Michelmores, Microsoft, NBC Syfy, Nest, Nestle, NHS Business Services Authority, NHS Supply Chain, Nokia, North Face, NS&I, Oliver Bonas, ONS, OpenX, OXFAM, Philips, Pizza Express, Prostate Cancer UK, Quality Solicitors, Reckitt Benckiser, Royal British Legion, Royal Mail, Russell (Fruit of the Loom), Sainsbury's Finance, Save the Children, Scottish Government, Singtel (Asia), Spar, SYPTE, The Ritz Carlton, Thomas Cook, US Anheuser Busch, Visit England, Walt Disney, WorldPay.

 

People

 

Cello prides itself on investing in developing its people, funding a range of initiatives which encompass both Cello Health and Cello Signal. At the heart of this is the Cello Partnership which comprises 41 Associates, 25 Partners and 11 Managing Partners. The Partnership meets regularly and forms sub-groups to address areas critical to the future of the business, including innovation, international expansion and cross group working. Many Partners and Associates are alumni of Cello Academy.

 

Cello Academy is the Group's well respected and proprietary training programme through which over 170 people have graduated. In addition there is a Cello graduate forum for the substantial annual graduate intake of the Group. In 2013 26 new graduate trainees were recruited over the course of the year (2012: 33).

 

In order to properly incentivise the Partnership, the Group administers a robust and demanding annual bonus scheme that rewards based on performance, in addition to a share option scheme.

 

As part of making a difference, Cello invests in helping its professionals engage in socially contributive activities with a health orientation. In particular, Cello has invested in launching Talking Taboos as a stand-alone charitable foundation. The Talking Taboos Foundation assists selected charities to further develop their positions and to raise their profile supported by market data.

 

Current Trading and Outlook

 

Cello begins 2014 with a good level of secured forward bookings and has also seen encouraging levels of new business wins so far this year. The strong balance sheet position of the Group means the Board is able to further invest in the growth strategy and continue to build the Cello brand in the global marketplace. This is an exciting time for the Group and the focus of the Board is set on driving profitable growth from the high level marketing advisory platform that has successfully been established. We have two well managed, well structured and highly competitive brands in Cello Health and Cello Signal. These are only now starting to show their true potential. At this early stage of the year, the Board is confident that expectations for 2014 will be met.

 

Allan Rich

Non-Executive Chairman

19 March 2014



 

CONSOLIDATED INCOME STATEMENT

for the year ended 31 December 2013


 

 

Notes

Year ended

31 December 2013

£'000

Year ended

31 December 2012

£'000





Continuing operations




Revenue

2

159,671

135,141

Cost of sales


(84,971)

(70,046)



              

              

Gross profit

2

74,700

65,095





Administration expenses

4

(68,678)

(63,079)



              

              

Operating profit

2

6,022

2,016





Finance income

3

16

76

Finance costs

3

(579)

(712)



              

              





Profit on continuing operations before taxation

5,459

1,380





Taxation

7

(1,828)

 (1,224)



              

              

Profit on continuing operations after taxation


3,631

  156





Loss from discontinued operations


-

(516)



              

              

Profit/(loss) for the year


3,631

(360)



              

              

Attributable to:




Owners of the parent


3,634

(386)

Non-controlling interests


(3)

26



              

              



3,631

 (360)



              

              







Year ended

31 December 2013

 

Year ended

31 December 2012

 

Basic earnings/(loss) per share




From continuing operations

9

4.41p

0.16 p

From discontinued operations

9

-

(0.65)p

Total basic earnings/(loss) per share

 

9

4.41p

 

(0.49)p

 

Diluted earnings/(loss) per share




From continuing operations

9

4.28p

0.16 p

From discontinued operations

9

-

(0.65)p

Total diluted earnings/(loss) per share

9

4.28p

 

(0.49)p

 

 



 

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

for the year ended 31 December 2013

 



Year ended

31 December 2013

£'000

Year ended

31 December 2012

£'000





Profit/(loss) for the year


3,631

(360)

 

Other comprehensive income/(loss):

 




Items that may be subsequently reclassified to profit or loss


Exchange differences on translation of foreign operations

(34)

(287)



              

              

Total comprehensive income/(loss) for the year


3,597

(647)



              

 

              

 

Total comprehensive income/(loss) attributable to:

 


Owners of the parent


3,600

(673)

Non-controlling interest


(3)

26

 

Total comprehensive income/(loss) for the year


              

3,597

              

              

(647)

              

 

Total comprehensive income/(loss) attributable to owners of the parent arises:

 

From continuing operations


3,600

 (164)

From discontinued operations


-

(509)

 

Total comprehensive income/(loss) attributable to owners of the parent

             

 

3,600

                

              

 

(673)

               

 

 



 

CONSOLIDATED BALANCE SHEET

31 December 2013

 


 

Notes

31 December 2013

£'000

31 December 2012

£'000





Goodwill

10

71,192

71,028

Intangible assets


1,275

1,790

Property, plant and equipment


2,212

2,289

Deferred tax assets


792

463



                      

                      

Non-current assets


75,471

75,570



                      

                      

Trade and other receivables

12

36,320

29,935

Cash and cash equivalents


5,984

4,148



                      

                      

Current assets


42,304

34,083



                      

                      

Trade and other payables

13

(38,403)

(29,717)

Current tax liabilities


(1,271)

(582)

Borrowings

14

(373)

(498)

Provisions


-

(108)

Obligations under finance leases


(13)

(23)

Derivative financial instruments


-

(5)



                      

                      

Current liabilities


(40,060)

(30,933)



                      

                      

Net current assets


2,244

3,150



                     _

                      

Total assets less current liabilities


77,715

78,720



                      

                      





Borrowings

14

(9,146)

(12,320)

Provisions


-

(280)

Obligations under finance leases


(13)

(26)

Deferred tax liabilities


(292)

(498)



                      

                      

Non-current liabilities


(9,451)

(13,124)



                      

                      

Net assets


68,264

65,596



                     

                     

Equity




Share capital


8,348

8,226

Share premium


18,368

18,188

Merger reserve


28,345

28,228

Capital redemption reserve


50

50

Retained earnings


12,810

10,636

Share-based payment reserve


455

343

Foreign currency reserve


(158)

(124)



                      

                      

Equity attributable to owners of the parent


68,218

65,547





Non-controlling interests


46

49



                      

                      

Total equity


68,264

65,596



                      

                      



 

CONSOLIDATED CASH FLOW STATEMENT

for the year ended 31 December 2013


 

 

Notes

Year ended

31 December 2013

£'000

Year ended

31 December 2012

£'000

Net cash generated from operating activities before taxation

15

11,074

6,125





Tax paid


(1,738)

 (1,874)



              

              

Net cash generated from operating activities after taxation


9,336

4,251



              

              

Investing activities




Interest received


11

26

Purchase of property, plant and equipment


(1,047)

(1,432)

Sale of property, plant and equipment


27

75

Purchase of intangible assets


(312)

 (358)

Purchase of subsidiary undertakings


(777)

 (1,327)



              

              

Net cash used in investing activities


(2,098)

(3,016)



              

              

Financing activities




Proceeds from issuance of shares


112

-

Dividends paid to equity holders of the parent

8

(1,643)

(1,386)

Repayment of borrowings


(7,500)

(3,800)

Repayment of loan notes


(125)

 (461)

Drawdown of borrowings


4,524

5,500

Capital element of finance lease payments


(23)

 (50)

Interest paid


(498)

                  (911)

Purchase of own shares


(117)

-



              

              

Net cash used in financing activities


(5,270)

(1,108)



              

              





Net increase in cash and cash equivalents


1,968

127





Exchange losses on cash and cash equivalents


(132)

 (149)

Cash and cash equivalents at the beginning of the year


4,148

4,170



              

              

Cash and cash equivalents at end of the year


5,984

4,148



              

              





 

Cash flows in the year ended 31 December 2012 have been reclassified. Further details are provided in note 15.

 

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

for the year ended 31 December 2013

 


Share capital £'000

Share premium £'000

Merger reserve £'000

Capital redemption reserve £'000

Retained earnings £'000

Share-based payment reserve £'000

Foreign currency exchange reserve £'000

Total attributable to the owners of the parent £'000

Non- controlling interest £'000

Total equity £'000

 

 

At 1 January 2012

 

7,853

 

18,104

 

28,742

 

50

 

10,389

 

209

 

163

 

65,510

 

613

 

66,123

 


                            

                            

                            

                            

                            

                            

                            

                            

                            

                            

 

Comprehensive income:

Loss for the year

-

-

-

-

 (386)

-

-

(386)

26

(360)

 

Other comprehensive income:











 

Currency translation

-

-

-

-

-

-

(287)

(287)

-

(287)

 


                            

                            

                            

                            

                            

                            

                            

                            

                            

                            

 

Total comprehensive income for the year

 

-

 

-

 

-

 

-

 

 (386)

 

-

 

(287)

 

(673)

 

26

 

(647)

 


                            

                            

                            

                            

                            

                            

                            

                            

                            

                            

 

Transactions with owners:











 

Shares issued      

373

84

898

-

 -

-

-

1,355

-

1,355

 

Credit for share-based incentives

 

-

 

-

 

-

 

-

 

-

 

134

 

-

 

134

 

-

 

134

 

Tax on share-based payments recognised directly in equity

-

-

-

-

17

-

-

17

-

17

 

Changes in non-controlling interests in shareholdings

-

-

-

-

590

-

-

590

(590)

-

 

Transfer between reserves in respect of impairment

-

-

(1,412)

-

1,412

-

-

-

-

-

 

Dividends (note 8)

-

-

-

-

(1,386)

-

-

(1,386)

-

(1,386)

 


                            

                            

                            

                            

                            

                            

                            

                            

                            

                            

 

Total transactions with owners

 

373

 

84

 

(514)

 

-

 

633

 

134

 

-

 

710

 

(590)

 

120

 


                            

                            

                            

                            

                            

                            

                            

                            

                            

                            

 

As at 31 December 2012

 

8,226

 

18,188

 

28,228

 

50

 

10,636

 

343

 

(124)

 

65,547

 

49

 

65,596

 


                            

                            

                            

                            

                            

                            

                            

                            

                            

                            

 












 

Comprehensive income:

Profit/(loss) for the year

-

-

-

-

3,634

-

-

3,634

(3)

3,631

Other comprehensive income:











Currency translation

-

-

-

-

-

-

(34)

(34)

-

(34)


                            

                            

                            

                            

                            

                            

                            

                            

                            

                            

Total comprehensive income for the year

 

-

 

-

 

-

 

-

 

3,634

 

-

 

(34)

 

3,600

 

(3)

 

3,597


                            

                            

                            

                            

                            

                            

                            

                            

                            

                             

Transactions with owners:











Shares issued      

122

180

117

-

-

-

-

419

-

419

Purchase of treasury shares

-

-

-

-

(117)

-

-

(117)

-

(117)

Credit for share-based incentives

 

-

 

-

 

-

 

-

 

-

 

179

 

-

 

179

 

-

 

179

Tax on share-based payments recognised directly in equity

-

-

-

-

233

-

-

233

-

233

Transfer between reserves in respect of share options

-

-

-

-

67

(67)

-

-

-

-

-

-

-

-

(1,643)

-

-

(1,643)

-

(1,643)


                             

                             

                             

                             

                             

                             

                             

                             

                             

                             

Total transactions with owners

 

122

 

180

 

117

 

-

 

(1,460)

 

112

 

-

 

(929)

 

-

 

(929)


                   

                             

                             

                             

                             

                             

                             

                             

                             

                             

 

As at 31 December 2013

 

8,348

 

18,368

 

28,345

 

50

 

12,810

 

455

 

(158)

 

68,218

 

46

 

68,264


                             

                             

                             

                             

                             

                             

                             

                             

                             

                             

 



 

 

SIGNIFICANT ACCOUNTING POLICIES

 

1.   Basis of Preparation

The financial information included in this report does not amount to full financial statements within the meaning of Section 434 of Companies Act 2006. The financial information has been extracted from the Group's Annual Report and financial statements for the year ended 31 December 2013, on which an unqualified report has been made by the Company's auditors, PricewaterhouseCoopers LLP.

 

Financial statements for the year ended 31 December 2012 have been delivered to the Register of Companies; the report of the auditors on those accounts was unqualified and did not contain a statement under 498 of the Companies Act 2006. The 2013 statutory accounts are expected to be published on 14 April 2014.

 

During the year the Group generated a profit before tax on continuing activities of £5.5m and excluding non-recurring restructuring costs and other non-headline charges the Group generated a profit before tax of £8.5m.

 

The Group meets its day-to-day working capital requirements through its bank facilities. At 31 December 2013 the Group's bank facilities consisted of a £4.0m overdraft facility and a £25.0m revolving credit facility ("RCF"). The RCF is committed to March 2016. On 3 February 2014 the Directors elected to reduce the RCF to £20m. £10.9m of the RCF, at its reduced level, is undrawn at 31 December 2013 and the Group's forecasts and projections show that the Group is able to operate within the level of its current facilities.

 

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.

 

2.   Revenue, Cost of Sales and Revenue Recognition

Revenue comprises the fair value of the consideration received or receivable from services, provided by the Group in the ordinary course of the Group's activities. Services include fees, commissions, rechargeable expenses and sales of materials provided by the Group. Revenue is shown net of Value Added Tax and discounts.

 

Revenue derived from fees is recognised as contract activity progresses, in accordance with the terms of the contractual agreement and the stage of completion of the work. The stage of completion is assessed based on the proportion of costs incurred or milestone completed, as appropriate to the contract. Where recorded revenue exceeds amounts invoiced to clients, the excess is classified as accrued income and where recorded revenue is less than amounts invoiced to clients, the difference is classified as deferred income.

 

Revenue derived from retainers is recognised evenly over the contract period.

 

Revenue derived from commissions, rechargeable expenses and sale of materials is recognised when the risk and rewards have been transferred to the client in line with the individual contract.

 

Cost of sales include amounts payable to external suppliers where they are retained at the Group's discretion to perform part of a specific client project or service where the Group has full exposure to the benefits and risks of the contract with the client. Cost of sales does not include direct labour costs.

 

3.   Headline Measures

The Group believes that reporting non-GAAP or headline measures provides a useful comparison of 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 accounting adjustments, start-up losses, share option charges and fair value gains and losses on derivative financial instruments. These are items that, in the opinion of the directors, are required to be disclosed separately, by virtue of their size or incidence, to enable a full understanding of the Group's 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, a reconciliation between reported and headline finance income and costs is presented in note 3 and a reconciliation between reported and headline earnings per share is presented in note 9. 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.   Accounting Estimates and Judgements

The Group makes estimates and judgements concerning the application 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. 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 entities 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 entities 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 10.



 

 

NOTES TO THE PRELIMINARY ANNOUNCEMENT

 

1   Reconciliation of Profit on Continuing Operations Before Taxation to Headline Profit Before Tax



 

 

Notes

Year ended

31 December 2013

       £'000

Year ended

31 December 2012

£'000

Profit on continuing operations before taxation


5,459

1,380

Restructuring costs

5

514

1,328

Start-up losses

6

373

787

Acquisition costs

4

66

-

Amortisation of intangible assets

4

1,190

876

Acquisition related employee remuneration expense

4

745

82

Share option charges

4

179

134

Impairment of goodwill

4

-

2,497

Fair value gain on derivative financial instruments

3

(5)

(50)



              

              

Headline profit before taxation


8,521

7,034



              

              

Headline profit before taxation is made up as follows:



Headline operating profit

2

9,089

7,720

Headline finance income

3

11

26

Headline finance costs

3

(579)

 (712)



              

              



8,521

7,034



              

              









2   Segmental Information

 

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

 

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% of the Group's total revenue. Revenue derived from the largest client in each operating segment also represents less than 10% 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.



 

 

For the year ended 31 December 2013

 

 

 

 

Cello Health

£'000

 

 

 

 

Cello Signal

£'000

 

 

 

Consolidation and Unallocated

£'000

 

 

 

 

Group

£'000

 

Revenue





External sales

52,330

105,694

-

158,024

Intersegment revenue

18

40

(58)

-


               

               

               

               

Total segmental revenue

52,348

105,734

(58)

158,024


               

               

               


Start-up revenue




1,647





               

Total revenue




159,671





               

Gross profit





Segmental gross profit

35,632

37,873

-

73,505


               

               

               


Start-up gross profit




1,195





               

Total gross profit




74,700





               

Operating profit





Headline operating profit (segment result)

7,560

3,877

(2,348)

9,089


               

               

               


Restructuring costs




(514)

Start-up losses




(373)

Acquisition costs




(66)

Amortisation of intangible assets




(1,190)

Acquisition related employee remuneration expense



(745)

Share option charges



(179)





               

Operating profit




6,022






Financing income




16

Finance costs




(579)





               

Profit before tax on continuing operations




(5,459)





               

Other information





Capital expenditure

205

839

3

1,047


               

               

               

               

Capitalisation of intangible assets

131

181

-

312


               

               

               

               

Depreciation of property, plant and equipment

438

683

3

1,124


               

               

               

               

 

 

 

 

 

 

For the year ended 31 December 2012

 

 

 

 

Cello Health

£'000

 

 

 

 

Cello Signal

£'000

 

 

 

Consolidation and Unallocated

£'000

 

 

 

 

Group

£'000

 

Revenue





External sales

46,247

87,457

-

133,704

Intersegment revenue

100

88

(188)

-


               

               

               

               

Total segmental revenue

46,347

87,545

(188)

133,704


               

               

               


Start-up revenue




1,437





               

Total revenue




135,141





               

Gross profit





Segmental gross profit

31,322

32,735

-

64,057


               

               

               


Start-up gross profit




1,038





               

Total gross profit




65,095





               

Operating profit





Headline operating profit (segment result)

6,506

2,995

(1,781)

7,720


               

               

               


Restructuring costs




(1,328)

Start-up losses




(787)

Amortisation of intangible assets




(876)

Acquisition related employee remuneration expense




(82)

Share option charges



(134)

Impairment of goodwill



(2,497)





               

Operating profit




2,016






Financing income




76

Finance costs




(712)





               

Profit before tax on continuing operations




1,380





               

Other information





Capital expenditure

605

843

1

1,449


               

               

               

               

Capitalisation of intangible assets

102

256

-

358


               

               

               

               

Depreciation of property, plant and equipment

391

728

8

1,127


               

               

               

               






 



 

 

The Group's operations are located in the United Kingdom and the USA.

 

The following table provides an analysis of the Group's revenue by geographical market, based on the location of the client:

 


Year ended

31 December 2013 £'000

Year ended

31 December 2012 £'000

Geographical






UK

105,684

85,159

Rest of Europe

16,487

17,053

USA

32,349

26,172

Rest of the World

5,151

6,757


              

              


159,671

135,141


              

              




3   Finance Income and Costs

 


Year ended

31 December 2013

£'000

Year ended

31 December 2012

£'000

Finance income:



Interest received on bank deposits

11

26


              

              

Headline finance income

11

26




Fair value gains on derivative financial instruments

5

50


              

              

Total finance income

16

76


              

              

Finance costs:



Interest payable on bank loans and overdrafts

569

649

Interest payable in respect of finance leases

5

6

Finance costs paid on derivative financial instruments

5

57


              

              

Total and headline finance costs

579

712


              

              




 



 

4   Administration Expenses

Profit/(loss) for the year is stated after charging:




Continuing operations

Discontinued operations

Total



Year Ended 31 December 2013

Year Ended 31 December 2012

Year Ended 31 December 2013

Year Ended 31 December 2012

Year Ended 31 December 2013

Year Ended 31 December 2012


Notes

£'000

£'000

£'000

£'000

£'000

£'000

Headline administration costs:






Staff costs


48,154

41,816

-

645

48,154

42,461

Operating lease rentals


2,267

2,156

-

-

2,267

2,156

Depreciation of property, plant and equipment


1,124

1,033

-

94

1,124

1,127

Profit/(loss) on disposal of property, plant and equipment


(16)

38

-

                 82

(16)

120

Amortisation of intangibles


247

-

-

-

247

-

Auditors remuneration


347

335

-

8

347

343

Net foreign exchange losses


41

83

-

5

41

88

Other property costs


1,755

1,825

-

96

1,755

1,921

Other administration costs


10,497

9,051

-

349

10,497

9,400









Non-headline administration costs:






Restructuring costs

5

514

1,328

-

-

514

1,328

Start-up costs

6

1,568

1,825

-

-

1,568

1,825

Acquisition costs


66

-

-

-

66

-

Amortisation of intangible assets


1,190

876

-

-

1,190

876

Acquisition related employee remuneration


745

82

-

-

745

82

Impairment of goodwill


-

2,497

-

-

-

2,497

Share option costs


179

134

-

-

179

134



           

           

           

           

           

           



68,678

63,079

-

1,279

68,678

64,358



           

           

           

           

           

           

 

 








5   Restructuring Costs

 

Restructuring costs comprise of cost saving initiatives including severance payments, property and other contract termination costs. They are included within administration 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 financial performance.

An analysis of restructuring costs incurred is as follows:


Year Ended

31 December 2013

£'000

Year Ended

31 December 2012

£'000




Staff redundancies

514

730

Property costs

-

598


           

           

Total restructuring costs

514

1,328


           

           

 



 

6   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 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

31 December 2013

£'000

Year Ended

31 December 2012

£'000




Revenue

1,647

1,437

Cost of sales 

(452)

(399)


              

              

Gross profit

1,195

1,038




Administration costs

(1,568)

(1,825)


              

              

Start-up losses

(373)

(787)


              

              

 

7   Taxation


Year ended

31 December 2013

£'000

Year ended

31 December 2012

£'000


Current tax:





Current tax on profits for the year

2,312

1,499


Prior year current tax adjustment


(33)

(132)




             

             




2,279

1,367


Deferred tax:


             

             


Origination and reversal of temporary differences


(323)

(98)


Effect of decrease in tax rate on deferred tax assets


35

21


Prior year deferred tax adjustment


(163)

(66)




             

             




(451)

(143)




             

             


Tax charge


1,828

1,224




             

             





The standard rate of corporation tax in the UK changed from 24% to 23% with effect from 1 April 2013. Accordingly the Group's profits from the UK are taxed at an effective rate of 23.25% (2012: 24.50%). A further rate reduction to 21% from 1 April 2014 has also been substantially enacted and this rate has been applied in valuing UK deferred tax assets and liabilities. Taxation for other jurisdictions is calculated at the rates prevailing in the respective jurisdiction.


 

 

 

 

 

 

 

 

 


The charge for the year can be reconciled to the profit per the income statement.

 

 



Year ended

31 December 2013

£'000

Year ended

31 December 2012

£'000

 






 


Profit before taxation


5,459

1,380

 




             

             

 






 


Tax at the UK corporation tax rate of 23.25% (2012: 24.50%)


1,269

338

 


Tax effect of expenses not deductible for tax purposes


447

870

 


Effect of decrease in tax rate on deferred tax assets


35

21

 


Effect of different tax rates of subsidiaries in foreign jurisdiction


 

273

 

193

 


Prior year current tax adjustment


(33)

(132)

 


Prior year deferred tax adjustment


(163)

(66)

 




             

             

 




1,828

1,224

 




             

             

 



 

 

 

 

 

 

 

    8

Equity Dividends

 

The dividends paid in the year were:


Date paid

Year ended

31 December 2013

£'000

Year ended

31 December 2012

 £'000

 





 

Interim dividend 2011 - 0.55p per share

6 January 2012

-

429

 

Final dividend 2011 - 1.17p per share

6 July 2012

-

957

 

Interim dividend 2012 - 0.58p per share

6 January 2013

476

-

 

Final dividend 2012 - 1.42p per share

5 July 2013

1,167

-

 



          

          

 



1,643

1,386

 



          

          

 

 

A 2013 interim dividend of 0.64p per ordinary share was paid on 6 January 2014 and a 2013 final dividend of 1.61p has been proposed for approval at the Annual General Meeting in 2014. In accordance with IAS 10 Events after the reporting date these dividends have not been recognised in the consolidated financial statements at 31 December 2013.

 

 



 

 

9   Earnings/(Loss) per Share


Year ended

31 December 2013

£'000

Year ended

31 December 2012

£'000




 

Profit/(loss) attributable to owners of the parent

3,634

                      (386)

 

Loss from discontinued operations

-

                       516

 


          

          

 

Earnings attributable to owners of the parent from continuing operations

3,634

130

 




 

Non-controlling interests

(3)

22

 


          

          

 

Earnings from continuing operations

3,631

152

 




 

Adjustments to earnings:



 

Restructuring costs

514

1,328

 

Start-up losses

373

787

 

Acquisition costs

66

-

 

Amortisation of intangible assets

1,190

876

 

Acquisition related employee remuneration expenses

745

82

 

Share-based payments charge

179

134

 

Impairment of goodwill

-

2,497

 

Fair value gain on derivative financial instruments

(5)

(50)

 

Tax thereon

(712)

(766)

 


          

          

 

Headline earnings for the year

5,981

5,040

 


          

          

 




 




 

Weighted average number of ordinary shares used in basic earnings/(loss) per share calculation

82,444,872

79,116,209   

 

 

Dilutive effect of securities:



 

Share options

2,231,510

-

 

Deferred consideration shares

198,540

1,540,918

 


                  

                  

 

Weighted average number of ordinary shares in diluted earnings/(loss) per share

84,874,922

80,657,127

 


                  

                  

 




 

 

 



Year ended

31 December 2013

Year ended

31 December 2012

Basic earnings/(loss) per share




From continuing operations

4.41p

0.16 p

From discontinued operations

-

(0.65)p

Total basic earnings/(loss) per share

4.41p

(0.49)p

Diluted earnings/(loss) per share



From continuing operations

4.28p

0.16 p

From discontinued operations

-

(0.65)p

Total diluted earnings/(loss) per share

4.28p

(0.49)p




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

 

 

 

Headline earnings per share



Headline basic earnings per share

7.25p

6.37 p

Headline diluted earnings per share

7.05p

6.25 p

 

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

 

Diluted earnings/(loss) per share is calculated by dividing earnings/(loss) attributable to ordinary shareholders 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 earnings for the year, which excludes the effect of restructuring costs, start-up losses, amortisation of intangibles, impairments charges, acquisition accounting adjustments, share option charges, fair value gains and losses on derivative financial instruments and other exceptional costs. The calculation also excludes non-controlling interests over which the Group has exclusive options to acquire in the future.

 

 

10   Goodwill

 


£'000

 

Cost


 

A 1 January 2012

83,705

 

Adjustment to fair value of deferred consideration

(8)

 

Exchange differences

(290)

 


                 

 

At 31 December 2012

83,407

 



 

Additions

248

 

Exchange differences

(84)

 


                 

 

At 31 December 2013

83,571

 


                     

 

Amortisation


 

At 1 January 2012

9,882

 

Impairment charge in the year

2,497

 


                 

 

At 31 December 2012 and 31 December 2013

12,379

 


                 

 

Net book value


 

At 31 December 2013

71,192

 


                 

 

At 31 December 2012

71,028

 


                 

 

At 1 January 2012

73,823

 


                 

 

 

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 arising on acquisition in the year ended 31 December 2013 relates to the Group's acquisition of Mash Health Limited ("Mash").

 

The adjustment to fair value of deferred consideration relates to the changes in estimate to deferred consideration payable under earn out arrangements in accordance with the terms of the relevant acquisition agreements for acquisitions before 1 July 2009 and therefore not accounted for in accordance with the provisions of IFRS 3 Business combinations (as revised January 2008).

 

Goodwill acquired through business combinations is allocated to cash-generating units ("CGUs") for impairment testing. The goodwill balance was allocated to the following CGUs:

 



2013

2012



£'000

£'000






Insight Research Group

10,224

10,224


The Value Engineers

9,526

9,526


RS Consulting

4,305

4,305


MSI

7,666

7,666


2CV

8,276

8,276


Tangible UK

22,889

22,889


Face

3,442

3,442


Opticomm

48

48


MedErgy

4,568

4,652


Mash

248

-



               

               


Total

71,192

71,028



               

               

 

The recoverable amount for each CGU is determined using a value-in-use calculation. This calculation uses pre-tax cash flow projections derived from 2014 budgets, as approved by management, with an underlying growth rate of 3.5% per annum in years two to five, representing economic growth and inflation. After year five a terminal value has been applied using an underlying long term inflation rate of 2.5%. 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 9.7% for 2013 (2012: 10.5%). This rate was calculated using the Capital Asset Pricing Model with an estimated cost of debt and equity, with appropriate small company risk factors.

 

Sensitivity to changes in assumptions

 

The value-in-use exceeds the total goodwill value across the Group by £55.9m. 

 

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% increase in the pre-tax discount rate.

·     1% decrease in the terminal growth rate.

·     10% decrease in projected operating cash flows.

 

Reasonable changes to the assumptions used, considered in isolation, would not result in an impairment to goodwill for any of the Groups CGU's.

 

 

11 Acquisitions

 

Mash

On 25 January 2013, the Group acquired the entire share capital of Mash Health Limited ("Mash"), a healthcare communications consulting company based in the UK.

 

Mash has contributed £2.5m to revenue and £0.5m to profit before tax for the period between the date of acquisition and the balance sheet date. Had Mash been consolidated from 1 January 2013, the consolidated income statement for the period ended 31 December 2013 would show revenue of £159.9m and profit before tax of £5.4m.

 

 

 

 

 

 

 

 

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


Fair value

£'000



Client relationships

531

Property, plant and equipment

15

Trade and other receivables

717

Cash and cash equivalents

694

Trade and other payables

(686)

Deferred tax liability

(124)


                  

Net assets acquired

1,147



Goodwill arising on acquisition

248


                  


1,395


                  



 

 

The fair value of trade and other receivables include trade receivables with a fair value of £567,000. 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 Mash 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 is as follows:

 


£'000



Cash consideration

500

Issue of ordinary shares

127

Deferred consideration

768


                  


1,395


                  

 

As part of the consideration for the acquisition of Mash deferred contingent consideration is payable. The amount to be paid is dependent on the profits earned by Mash in the year to 31 December 2013. The fair value of this consideration at the acquisition date was £175,000 and at 31 December 2013 is £175,000. The maximum amount of deferred contingent consideration payable is £175,000. Any changes to the fair value of deferred contingent consideration in the future will be recognised in the income statement.

 

In addition to the deferred consideration, acquisition related employee remuneration of up to £700,000 was also payable to the vendors of Mash. This remuneration was also dependent on the profits earned by Mash in the year to 31 December 2013 and is recognised in the income statement over that period.  At 31 December 2013 £350,000 of deferred remuneration has been paid and £350,000 is expected to be paid in the year ended 31 December 2014.

 

Newhaven

On 14 June 2013, the Group acquired the trade and certain assets of Newhaven Communications Limited. The net assets acquired and consideration paid were immaterial.



 

  12

Trade and Other Receivables

 

 

 

2013

£'000

 

2012

£'000






 


Trade receivables


28,468

23,840

 


Other receivables


789

1,174

 


Prepayments and accrued income


7,063

4,921

 




          

          

 




36,320

29,935

 




          

          

 

 

The average credit period taken on the provision of services was 52 days (2012: 53 days).

 

The Directors consider that the carrying value of trade and other receivables approximates to fair value.

 

 

  13

Trade and Other Payables




2013

£'000

2012

£'000






Trade payables

12,700

14,744


Other taxation and social security costs

1,344

1,546


Accruals and deferred income

23,098

12,416


Deferred consideration for acquisitions

201

343


Acquisition related employee remuneration liability

350

75


Other payables

710

593



                 

                 



38,403

29,717



                    

                    

 

The Directors consider that the carrying value of trade and other payables approximates to fair value.

 

 

  14

Borrowings

 



 

 

2013

£'000

2012

£'000







Bank loans


9,146

12,320


Loan notes


373

498




             

             




9,519

12,818




             

             



 



2013

£'000

2012

£'000


The borrowings are repayable as follows:




- on demand or within one year

373

498


- within two to five years

9,146

12,320



             

             



9,519

12,818



             

             

Bank loans

 

The Group has a multi-currency debt facility with the Royal Bank of Scotland plc ("RBS"). At 31 December 2013 this facility consisted of a £25.0m revolving credit facility ("RCF"). The RCF bears interest at a variable rate of 1.75% to 2.80% over LIBOR and is committed to March 2016. The average interest rate on the Group's bank loans in the year was 2.8% (2012: 3.4%). The debt facility is secured by a debenture held by RBS over the assets of the Group. On 3 February 2014 the Directors elected to reduce the RCF to £20m.

 

At 31 December 2013, the Group has drawn £9.1m (2012: £12.3m) under the revolving credit facility.

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.  Cash deposits provided as security are included within cash and cash equivalents and amount to £nil (2012: £278,000). Loan notes bear interest at the following rates:



 

2013

£'000

 

2012

£'000


Secured




LIBOR less 2%

-

278


Unsecured




LIBOR less 2%

322

169


LIBOR

51

51



             

             



373

498



             

             

 

 15   Cash Generated from Operations

 

 

 

Year ended

31 December 2013

£'000

 

Year ended

31 December 2012

                      £'000

 




 

Profit on continuing activities before taxation

5,459

1,380

 




 

Loss from discontinued operations

-

(617)

 

Financing income

(16)

(76)

 

Finance costs

579

712

 

Depreciation of property, plant and equipment

1,124

1,127

 

Amortisation of intangible assets

1,437

876

 

Impairment of goodwill

-

2,497

 

Share-based payment expense

179

134

 

(Profit)/loss on disposal of property, plant and equipment                       

(16)

120

 

Increase in trade and other receivables

(5,747)

(879)

 

Increase/(decrease) in acquisition related employee remuneration payable

433

(628)

 

Increase in trade and other payables

7,642

1,479

 


            

            

 

Net cash inflow from operating activities

11,074

6,125

 


            

            

 




 

Cash flows in relation to acquisition related employee remuneration payments in the year ended 31 December 2012 have been reclassified. The effect of this is to reduce in cash generated from operating activities in the year ended 31 December 2012 by £710,000.  There is a corresponding decrease in cash used in investing activities in the year ended 31 December 2012, which is presented in the consolidated cash flow statement.



 

9)

16    Net Debt

 

 

 

 

1 January 2013

£'000

 

 

 

Cash flow

£'000

 

 

Foreign exchange

£'000

 

 

 

31 December 2013

£'000






Cash and cash equivalents

4,148

1,968

(132)

5,984

Loan notes

(498)

125

-

(373)

Bank loans

(12,320)

2,976

198

(9,146)

Finance leases

(49)

23

-

(26)


            

            

            

            


(8,719)

5,092

66

(3,561)


            

            

            

            

 


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