AnnUAL RePORT And FInAnCIAL STATemenTS · Mark Scott, Chief Executive 1 Headline measures are...

Cello

G

ro

up plc

A

nnual

Repo

rt 2011

YeAR ended 31 deCembeR 2011

AnnUAL RePORT And FInAnCIAL STATemenTS

dISCOveRY deLIveRY

Cello Group plc11-13 Charterhouse Buildings

London EC1M 7APtel: +44(0)20 7812 8460

www.cellogroup.com

Company Registration No.05120150

highlights

Headline Summary 2011 2010 Change

Gross Profit1 £64.3m £60.3m +6.6%

Headline2 profit before tax £7.1m £6.4m +10.2%

Headline operating margin3 12.1% 12.1% -0.0%

Basic headline earnings4 per share 6.71p 7.90p -15.1%

Proposed full year dividend 1.72p 1.43p +20.3%

Net debt £7.7m £8.8m -12.5%

Strong financial performance

line with market expectations.

of MedErgy and like-for-like gross5 profit growth of 2.1% in Research and Consulting.

the fifth consecutive year of dividend growth.

and restructuring costs. Reported loss per share of 0.88p (2010: 5.88p). Good start to

pharmaceutical clients.

Balance sheet considerably strengthened

to £7.7m (2010: £8.8m).

March 2016.

International and pharmaceutical focus enhanced

first year.

(2010: 21.2%) driven by organic growth and MedErgy.

50.0% of Research and Consultancy revenues (2010: 41.5%).

business launched in 2012 with immediate material new project win.

Strong growth from digital offering

– eVillage and e-luminate.

research growing strongly.

1 Gross profit is identified as revenue less cost of sales. Cost of sales includes amounts payable to external suppliers where they are retained to perform part of a project. Cost of sales does not include direct labour costs.

2 Headline measures are defined as being before restructuring costs, acquisition related employee remuneration expenses, share option charges, impairment charges and amortisation.

3 Headline operating margin is calculated by expressing headline operating profit as a percentage of gross profit.

4 Headline earnings per share is defined in note 6.5 Like-for-like measures exclude discontinued operations, the

impact of acquisitions, and the impact of any reclassification of business between reporting segments.

1

contents

Chairman’s statement 2

Cello Research and Consulting 7

Tangible 9

Case histories 11

Cello people 14

Directors’ report 16

Corporate governance 20

Report of the remuneration committee 22

Independent auditor’s report 25

Consolidated financial statements 26

Accounting policies 31

Notes to the consolidated financial statements 39

Independent auditor’s report 70

Company financial statements 71

Accounting policies 72

Notes to the company financial statements 73

Notice of annual general meeting 78

Directors 82

Powerful realisation 84

Group directory 86

Advisors 88

DISCOVERY DELIVERY

2

chairman’s statement

Overview

2011 saw a strong per formance, with the Group reporting a 10.2% increase in

headline profit before tax1 to £7.1m (2010: £6.4m) on gross profit of £64.3m (2010: £60.3m). The last quarter of 2011 showed good momentum in forward bookings for the first quarter of 2012, ahead of the comparable period for the prior year.

The Research and Consulting Division of the Group produced headline operating profit growth of 4.1% on an increase in gross prof it of 12.1% , ref lecting robust demand from global clients for its highly specialist range of services. Like-for-like2

gross profit growth was 2.1%, gross profit was also boosted by the acquisition of MedErgy HealthGroup Inc. (‘MedErgy’) in March 2011. This growth has al lowed for continued investment in qualif ied staff and web-based tools to sustain future revenue growth.

The Group’s strategic focus on the pharmaceutical sector continued to strengthen, with this sector accounting for 50.0% of gross profit in Research and Consulting (2010: 41.5%). MedErgy integrated well and significant new contracts have been secured through joint pitching with the Group’s other pharmaceutical businesses. In 2012, we launched a pharmaceutical analytics business, Cello Business Sciences, which is already winning material new client contracts.

The Group’s strategy of increasing the proportion of work won or serviced outside the UK has also made progress, with international work now accounting for 33.7% of revenues (2010: 24.8%). Within the Research and Consulting business,

59.4% of the revenue was from international clients (2010 : 42.2%). This work tends to be at higher margin, reflecting its complexity. The Group now has offices in New York, Philadelphia, San Francisco, and Singapore. There are plans to open a number of additional overseas offices over the coming months to support the growth strategy.

The Group’s top 20 clients accounted for 38.3% of Cello’s overall gross profit (2010: 37.7%) and remain largely unchanged from the prior year. The Group saw significant new business wins in the last quarter of 2011 which will contribute in 2012.

Following strong operating cash f low during the year, net debt at year end was reduced to £7.7m, (2010 : £8.8m). This debt was fully ref inanced in December 2011.

The Group’s web-based research offering continues to make strong progress. Both eVillage, which delivers social media based research solutions for pharmaceutical clients, and e-luminate, which provides similar solutions to non-pharmaceutical clients , won signif icant industr y awards . The Group’s complementary digital agency brands, Face and Blonde, also delivered very strong performances.

The Group’s profile with global clients continues to increase, with the growing reputation of the business as a good manager of talent and a reliable deliverer of complex global projects.

Mark Scott, Chief Executive


2 Like-for-like measures exclude discontinued operations, the impact of acquisitions, and the impact of any reclassification of business between reporting segments.

3


Financial Review

Trading Total Group gross prof it was £64.3m

(2010: £60.3m). Headline profit before tax was £7.1m (2010 : £6.4m). The Group’s overall results reflect continued strength in its core areas of activity, with pharmaceutical business continuing to grow strongly, along with a number of other high value client sectors. Reported profit before tax was £1.4m (2010 : £4.9m), substantially ref lecting the impact of amortisation of £1.2m (2010 : £0.3m); an impairment charge of £2.5m (2010 : nil); and restructuring costs of £0.9m (2010: £0.8m).

The Group’s headline operating margin3 was maintained at a highly competitive level of 12.1% (2010: 12.1%), with a headline operating margin of 17.5% in Research and Consulting (2010: 18.8%).

Headline finance costs4 were £0.7m (2010: £0.9m), reflecting lower debt levels. The Group’s tax charge was £1.6m (2010 : £1.3m) this is an effective tax rate of 119.8%, has been heavily impacted by non-headline charges which are largely disallowable. The

underlying headline tax rate rose to 31.3% (2010: 26.9%). This is explained by

the impact of MedErgy which is taxed in the USA at 39.7%.

Headline basic earnings per share5 was 6.71p (2010: 7.90p) and headline fully diluted earnings per share was 5.90p (2010: 6.60p). Fully diluted earnings per share ref lects the impact of the expected future issuance of shares to vendors of companies acquired by the Group under earn out arrangements. Reported loss per share was 0.81p (2010: earnings of 5.88p).

DividendThe Board is proposing a final dividend of 1.17p per share (2010 : 0.905p), giving a total dividend per share of 1.72p (2010: 1.43p), an increase of 20% . The final dividend will be paid, subject to shareholder approval, on 6 July 2012 to all shareholders on the register at 8 June 2012 and will be recognised in the year ending 31 December 2012. The full year dividend has grown for the last five years consecutively.

Acquisition and earn outsOn 22 March 2011, the Group was pleased to complete the acquisition of MedErgy for an initial consideration of £6.6m ($10.8m). The consideration was satisfied by the payment of £3.4m ($5.5m) in cash and by the issue to the vendors of 5,804,049 new ordinary shares. £2.8m of the cash consideration was raised by the placing of 5,333,333 new ordinary shares with new and existing shareholders with the balance funded through existing debt facilities. £2.3m of the total consideration has been allocated to intangible assets, being the valuation of client relationships and the acquired income pipeline. The income pipeline of £0.5m has been fully amortised in the year and the remaining £1.8m is being amortised over four years. Acquisition costs of £0.2m have been written off in the year in line with the new accounting standards.

Mark Bentley, Group Finance Director


4 Headline finance costs are defined as finance costs excluding notional finance costs on future deferred consideration payments, and excluding any write off of unamortised facility costs on previous facilities.

5 Headline earnings per share is defined in note 8.

4


Financial Review continued

In April 2011, £5.1m of earn out liabilities were settled. These were settled by £2.2m in cash and loan notes and £2.9m in shares. Following these payments, earn out commitments now stand at £3.2m, all of which falls due for payment in May 2012. The minimum cash or loan note element of this 2012 payment is £1.8m.

Cash flow and bankingThe Group’s net debt position at 31 December 2011 was £7.7m (2010 : £8.8m). Operating cash f low before tax of £7.0m (2010 : £7.8m) during the year represented a 91% conversion of headline operating profit.

In December 2011, the Group agreed a new debt facility with Royal Bank of Scotland that expires in March 2016. This comprises a revolving credit facility of £25.0m, and a multi-currency overdraft facility of £4.0m. The interest margin is between 175pts and 280pts above LIBOR. The unamortised facility costs on the prior facility of £0.1m have been written off in the year.

One-off chargesAs part of the strategic effort to focus Tangible on added value areas of communications and advisory services, the Board has taken the decision to close its London based above-the-line agency, with no exceptional cash charges. Substantially as a result of this but also as a result of more challenging recent trading conditions in Tangible, there is a goodwill impairment charge of £2.5m.

As indicated in the Interim results, the Group failed to retain a large retail contract which was subject to competitive tender in mid 2011. This was the major factor behind the exceptional restructuring charge of £0.9m, relating to employee termination payments.

The Group incurred a number of charges in the income statement below headline operating profit, as shown:

2011 2010 £’000 £’000

Headline operating profit 7,748 7,305

Net interest payable (694) (902)

Headline profit before tax 7,054 6,403

Acquisition costs (211) –

Restructuring costs (949) (822)

Fair value gain on financial instruments* 64 170

Acquisition related employee remuneration expenses* (631) (362)

Share option charges* (97) (39)

Impairment of goodwill and intangibles* (2,499) –

Amortisation of intangibles* (1,198) (344)

Notional finance costs* (58) (78)

Facility fees written off* (111) –

Reported profit before tax 1,364 4,928

*no cash flow impact in the year

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

5


Operational Review

Research and ConsultingThe Group’s Research and Consulting business enjoyed another year of strong per formance, delivering headline operating profit of £7.2m (2010: £6.9m) from gross profit of £41.3m (2010: £36.9m). This has been driven by continued spend from our large, long term global client relationships.

The Research and Consulting Division has established itself f irmly in the ranks of the top 10 research businesses in the UK (Marketing Magazine, September 2011) and in the top 25 research organisations globally (Inside Research, August 2011).

Operating margins were 17.5% (2010 : 18.8%) which represent competitive levels versus the larger competitor set.

The strategic focus on the pharmaceutical sector has continued to strengthen, with pharmaceuticals now accounting for 50.0% of gross prof it in this division (2010 : 41.5%). This sector remains high margin. The Group has increased the proportion of pharmaceutical work won through joint pitches across mult iple Cello companies . I t has also responded effectively to the increasing demand by clients for scientifically based data input into their marketing efforts, based on actual patient outcomes. This has driven an increased need for market insight by clients of the type supplied by Cello. The Group has also had success building a global franchise in other key sectors including computing gaming, digital communications devices and FMCG.

The international profile of the Group has progressed considerably, with the New York office establishing a strong market position, complemented by MedErgy’s

Philadelphia office, and a growing presence on the West Coast in San Francisco. A new off ice was opened in Singapore and it is expected that the Group will establish a second Asian off ice in due course as well as a presence in Latin America.

The Group’s digital capabilities have continued to gain market traction. eVillage, the social media research product for the pharmaceutical industry, made a material contribution to revenues in 2011 and operates at standard margins. e-luminate, the analogous product for the non-pharmaceutical community, has also made good progress. Both won prestigious industry awards in 2011, and are being actively marketed in the USA.

The Group continues to innovate in its technological offering, investing in a wide range of online products in 2011. In 2012 the Group launched Cello Business Sciences, offering a suite of bespoke analy tical tools for marketing directors in the pharmaceutical indus tr y. Addi t ional inves tment wil l a lso be committed to further develop Pulsar, a leading edge social media monitoring tool. Both products have won material new mandates in 2012.

Notable mater ial new clients and projects in 2011 included : GSK, Pf izer, Johnson & Johnson, AstraZeneca, Novartis, Merck Serono, Boehringer Ingelheim, Abbott, Shire, Novo Nordisk, Kimberly Clark, Amgen, EA, Heinz, Arla, Janssen, Legal & General, Pentland, AOL, Skype, Vodafone, West Bromwich BS, The Man Group, City of London, Chamberlain/Lif tmaster, Lidl, Prudential, Forest, Webfusion, Intuit, Nor thern Foods, Kallo Food, Bakehouse, Tata, and Interbev.

TangibleThe Group’s communications business, Tangible, delivered headline operating profit of £2.2m (2010: £2.2m) on gross profit of £23.0m (2010: £23.4m). Operating margins remained relatively low at 9.7% (2010: 9.4%), reflecting the relative competitiveness of the UK market which is Tangible’s focus of activity.

6


Operational Review continued

The lack of growth was largely a ref lection of tempor ar y weakness in Scot land where a combination of the national election and public sector decline negatively impacted the business in 2011. It is expected that this will correct now the election has passed and the public sector focus has been rapidly replaced by private sector work.

Tangible has continued to develop a strong digital footprint. Through its brand Face, the Group has established an industry leading capability in social media based advisory work. 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. This overall digital business stream has allowed Tangible to largely replace the income loss suffered from public sector and more traditional UK client work. Looking forward, it will provide Tangible with an engine for overall growth.

Notable new clients and projects included: Reckitt Benckiser, Unilever, Dobbies Garden Centres, Aldi, Baxters Food Group, Scottish Government, Cofunds, JP Morgan, Fidelity, Centaur Media, IFAW (International Fund for Animal Welfare), Macmillan Cancer Support, Bank of Scotland, NHS Health Scotland, UCAS, Marriott Hotels, Sainsbury’s, Air Malta, Standard Life Ireland and BAA Stansted.

The Board of Tangible has decided to exit its London based above-the-line business as part of focusing Tangible on more value added, web-or iented services. This has resulted in a goodwill impairment charge of £2.5m. There were no cash related costs of closure.

People developmentThe Group places great importance on its evolving staff development programmes. At the hear t of this is the Cello Par tnership, which constitutes

13 Managing Partners, 32 Partners and 39 Associates. The Par tnership meets regularly and forms sub-groups to address areas critical to the future of the business, notably innovation, international expansion and cross group working. Many Par tners and Associates are alumni of the Cello Academy.

The Academy is the Group’s well respected and proprietary training programme which has been in place for six years, and through which over 120 people have passed over that time. In addition, there is a Cello graduate forum for the substantial annual graduate in-take of the Group. 28 new graduate trainees were recruited during 2011.

In order to properly incentivise the Partnership, the Group administers a robust and demanding annual bonus scheme that rewards performance.

The Group has launched its new Corporate Social Responsibility Programme, ‘Talking Taboos’. Talking Taboos is a campaigning brand that aims to directly tackle health and social issues using the Groups experience and resources in the healthcare space.

Current Trading and Outlook

Cello began 2012 with a solid order book and has achieved a good level of forward bookings so far this year. Combined with strong new bookings in the first couple of months of 2012, this means that the Group is in a good position to progress. The strengthened balance sheet position means that the Group is able to increase the full year dividend, as well as invest in the growth strategy. At this early stage of the year, the Board is optimistic that current expectations for 2012 can be met.

Allan Rich Non-Executive Chairman

12th March 2012

7

cello research and consulting

Insight

in excess of £20.0m.

appointed agency of record for a key Swiss client.

consolidation of presence in Switzerland.

eVillage, and success recognised by an award from the British Healthcare Business Information Association.

MedErgy

major client corporations during the year: Shire, Novo Nordisk, Forest and Amgen.

businesses under ‘Cello Health’ platform (MSI and Insight).

lead service offer to drive continued growth.

medical communications via meeting and congresses’ category.

MSI

global pharmaceutical client base with notable wins in the Middle East , South East Asia , Australia and Latin America.

America provide a platform for growing a strong US presence.

Consulting.

conjunction with MedErgy and Insight.

to exploit the growing opportunity for web-based strategic planning and evaluation tools.

2CV

more viewing studio capacity.

for Costa and Audi.

M-Pesa on behalf of Vodafone in Kenya and Tanzania to develop a new mobile payment platform.

Francisco office, with major investment in senior resource.

8

The Value Engineers

consultancy to major brands.

continents, including

– a customer centric vision for British Airways

– a digital go-to-market strategy for EA games (with 2CV)

– major innovation projects for Wrigley in Russia and China

– Sony Ericsson’s global brand health monitor.

start.

for clients such as BP, Citibank , Heineken, Wrigley, and Unilever.

RS Consulting

with new project wins from Royal British Legion, Nokia and Chamberlain Liftmaster.

brand, performed well despite adverse market conditions in financial services, adding Prudential and the FT.

wins include The Financial Services Authority, First Capital Connect and several NHS bodies.

well and one of the team responsible was named ‘Young Technologis t of the Year ’ by the Association of Survey Computing.

of London Corporation, Macmillan Cancer and the Department for Work and Pensions.

Leapfrog

– building consumer healthcare exper tise (now 50% of revenue)

– delivering world class segmentation solutions to clients in the personal care and technology sectors

– building an effective global offer from its US/UK hub offices.

Major healthcare wins included Boehr inger Ingelheim, Pfizer and Kimberly Clark Professional.

Marriot.

TMI

and TMI is rapidly establishing itself as a key player in designing and enabling world-class service experiences.

values engagement project for Sainsbury’s ; designing and implementing the end-to-end experience for Malaysia Airlines’ new A380 and the development of the customer experience strategy for Standard Life.

cello research and consulting

9

Kudos

business.

for 14% of overall revenue.

Unilever/Fallon, Bonamy Finch and YouGov and account for 95% growth in new business.

consortium to conduct a large piece of consumer research study across all 27 member states concerning safeguarding the public against potential threats to European electricity supplies.

Rank Name UK Turnover £m (2010)

1. TNS UK 224

2. GfK UK 128

3. Ipsos Mori 128

4. Mintel 56

5. Cello 54

6. Symphony IRI 38

7. Hall and Partners 21

8. Insight Research Group 20

9. ICM Research 19

10. Harris Interactive 18

*Source: Marketing Magazine, market research league 2011

FACE

agency continues to attract clients to its social media based methodologies, with significant new projects from AEG, Birdseye, Google, and HSBC.

New York and is actively exploring opportunities for opening in Asia.

platform, has delivered wins from ING, Rayban and Sunsilk.

itself as a leading tool for a range of other social projects including innovation, consumer closeness, and ethnography.

Brightsource

year track record of double digit growth.

– sophis t icated mult i -channel marketing campaigns for clients including World Vision and British Heart Foundation

– online document management systems for SPX and Health Working Lives

– transformational marketing automation for Lloyds Banking Group.

including a new US supply chain for IFAW and growing Far East supply chain through Beijing.

Fundraising’s ‘Supplier of the Year’.

tangible

10

Leith

its core market – 60% of its income coming from outside of Scotland.

Garden Centres, Aldi, Baxter’s Food and various Scottish Government projects.

division, both recorded record annual profits.

Agency of the Year’ and ‘Advertising Agency of the Year’, in Scotland.

Tangible Agency

strategic insight, creativity and multi-channel expertise, secured wins in all three of its offices:

– Cheltenham: National Trust and AgeUK.

– Edinburgh: Alliance Trust and Velux.

– London: Fidelity Cofunds and JP Morgan.

for new projects from National Trust, Save the Children and SEAT.

Bank, Tangible was awarded ‘Agency of Record Status’ for Halifax and Birmingham Midshires.

two DMA Golds and a host of top honours from other industry awards.

Opticomm

charities , media , spor t , retail and f inancial services.

core clients.

acceptance.

Rank Name Turnover £m (2010)

1. Iris Worldwide 48

2. GyroHSR 44

3. Digital Marketing Group 35

4. Wunderman 34

5. Tangible 23

6. CHI & Partners 23

7. The Marketing Store Worldwide 21

8. Tullo Marshall Warren 19

9. BillingtonCartmell 16

10. G2 Joshua 16

*Source: Brand Republic, direct marketing sales promotion leagues 2011

tangible

11

case histories

DELIVERY

The insights gathered from the research enabled the client team to adapt plans for the brand at short notice; fine tuning the strategy to develop more consistent and compelling communications.

The research won a BOB I ( ‘ Bes t of Bus iness Intelligence’) award this year from the BHBIA and was shortlisted for the first MRS award for healthcare research.

Enabling the right response to changeFaced with the prospect of a competitor launch and other signif icant changes in the COPD market, Boehringer Ingelheim approached Insight Research Group to help them anticipate the impact and customer response to change.

Insight Research Group designed an award-winning methodology intended to deliver a full realisation of the potential scope and limitations of the change programme. It centered on a six month online community, using innovative tools such as quick polls, diaries, live online groups, idea boards and campaign materials assessments to explore a huge breadth of topics.

Driving differentiationMS I wa s app roached by a g loba l b l ue - ch i p pharmaceutical company to develop a robust brand strategy that would allow them to differentiate their product in a rapidly evolving landscape.

MSI’s strategic planning process focused the team on the key issues facing the business, identifying a need for greater understanding of physicians’ prescribing decisions. Working with Insight Research Group, MSI discovered a subtle change in the understanding of the disease, which was reshaping the way in which physicians would treat and assess success. Physicians needed clarity on the impact of this change and help to identify the products that would give them the greatest chance of success.

MSI worked at the core of the global team to define their vision, strategy and positioning; MSI acted as designers and stewards of the process taking the cross functional team on the journey to a robust brand strategy and par tnering with Insight to f ill the right knowledge gaps where they mattered most.

The client team is now working with local affiliates and MSI to implement the new strategy.

“You have enabled this consistent global approach to be possible, with clarity and focus for the brand for the first time. Importantly, the whole brand team went on the journey together, which ensured significant engagement and buy-in. We could not have done it without you.”

Found from our FTP

Building the next success for SensodyneLeapfrog worked with GlaxoSmithKline to def ine a positioning, name and iconography for a new science-dr iven Sensodyne product , developed agains t a powerful, relevant consumer insight.

Co-creation, workshops and super-groups enabled the team to discover the previously unsuspected potency of a ‘damage repair’ proposition among specific consumer segments. It was something consumers hadn’t seen in oral care before, with the capacity to set Sensodyne apart from its competition as it moved from temporary relief to longer term repair and ongoing protection.

“Working with Leapfrog throughout this project we found a clear, relevant and differentiated proposition in ‘Sensodyne Repair and Protect’ that has been a global success since it launched in January 2011. The single-mindedness of the proposition, clarity of the insight and consistent execution has made this the most successful NPD for Sensodyne to date, with sales in over 31 countries, and achieving market shares on average double that of the original forecast, resulting in the most successfully selling SKU for the category in many countries and top quartile repeat rates. This launch has also won “Most Innovative Product of the Year” and “Global design awards” in 2011.” Shafik Saba: Global Marketing Director, Sensodyne

DISCOVERY

12

case histories

DELIVERY

“I have often been startled by the amount of time, energy and commitment people are prepared to give to the RNLI… and your contribution is right up there among the most telling.

I see this project as massively important for us. It will end up defining the way that we take the business forward, and it marks a step change in the level of commercial understanding across the Institution’s board. Without your extraordinary commitment of time, energy and insight we would have been wholly unable to manage this decisive step on our own.”

Paul Boissier: Chief Executive, RNLI

Creating a brand vision for the RNLIThe Value Engineers worked with the RNLI to evolve its brand and proposition, in order to ensure that it is relevant to the widest possible potential donor base and that it reflects all that the RNLI is today and can be in the future.

We helped the board of the RNLI to recognise the need for and the value of a new master brand, encompassing not only Lifeboats but the totality of their of fer – including Lifeguards, Flood Rescue Services, International, Fundraising and ongoing community work. This has helped them to plan the organisation’s long term strategy more effectively, and where appropriate adapt their immediate marketing plans to reflect their aims.

Modelling real-time social media segmentsO2 wanted to develop a more dynamic segmentation model using social data to provide a real time stream of information on O2 customers and those engaging with the brand.

Current social media research declares itself unable to map audiences, due to an assumption in the research industry access to demographics is required.

Face discovered that by mining social media content and behaviour by audience, it is possible to build a map of an audience, its hubs, its behaviours and its interests.

Face delivered a vital new methodology to unpack audience insights from social media: the Brand Graph. It allows O2 to:

how is it changing, in real time.

about, what makes an interesting topic and how broader cultural conversations affect it.

of interest, passions, life stages, professions, online behaviours and so on.

DISCOVERY

Placing the customer at the coreA major retail bank was struggling to f ind the right digital tools to help its customers manage their finances. Face designed an end-to-end methodology that created tools and services with the consumer at its core.

Working with consumers, Face discovered that complex tools were not necessarily the solution to provide a tangible benefit to customers. Instead, simple and easily executed tools could be created by reworking customers’ digital interaction with the organisation to better fit their thought patterns and behaviours.

Running through the core of the research was a detailed understanding of consumers’ needs, based on ethnography and co-creation with consumers. This meant that each concept could be tied back to a grounded problem in consumers’ lives, which stakeholders had heard first-hand when working with consumers.

The benefits of working closely with consumers to deliver mutual benefits convinced senior members of the business that the co-creative methodology is highly effective, and it has now been recommended for use in other markets.

13

case histories

DELIVERY

Not only was the critical insight discovered by working directly with affected audiences, but it was brought to life as a powerful viral film using graffiti, co-created with young people from the streets of Inverclyde.

The campaign has been credited by Strathclyde Police with a staggering 35% reduction in the number of those carrying knives in the area during the campaign period – at a time when stop and search activity was at an all time high.

Combating knife crimeKnife crime is a huge issue in Scotland, especially on the west coast, costing the economy millions of pounds a year and damaging families and communities across the country.

The Leith Agency worked with the Scottish Government to target ‘at-risk’ knife carriers and reduce knife carrying in the Inverclyde region.

Co-creat ion wi th at-r isk audiences brought the realisation that many of them had no awareness of the consequences of carrying a knife. This wasn’t about a fear of the law or the justice system, but about emotional factors much closer at home, such as the effect of knife crime on parents, partners or younger siblings.

Boosting organ donorsThe shortage of organ donors has become a critical issue for the National Health Service in Scotland. Tangible was approached to work with the NHS and the Scottish Government to increase donor numbers by optimising the effectiveness of targeting of and messaging to potential donors.

Tangible’s development of a ‘Test and Learn’ strategy with constant refinement and post-campaign analysis highlighted a number of core insights around age, gender, likelihood to sign up and the creative messages most l ikely to motivate potential donors . A key realisation was that of the need to build stronger relationships with the NHSBT service in order to engage multiple stakeholders.

A member-get-member mechanism increased response by 50% , while campaign materials achieved a 14% response rate.The campaign won numerous awards in 2011:

Award.

Silver Award.

’.

DISCOVERY

14

cello people

Cello Group Talent Development

Cello believes people are central to the business, and constantly looks for ways to develop them at both an individual, company and Group level. We have created a number of initiatives aimed to help us develop and retain key personnel, including the Cello Academy, which is an internal programme of Training and Development, designed to sit alongside individual company’s own schemes; a series of Marketing Services MasterClasses and a Graduate networking scheme. In 2011 we recruited 28 graduates.

The Cello Academy core curriculum focuses on Business Development, Personal Presentation and Leadership skills and to date over 120 Cellists have passed through it, these Academists continue to link up and network through our Alumni scheme. More recently, we launched a series of MasterClasses, designed for senior personnel across the Group, addressing key business issues including Negotiation Skills, Commercial Skills and Digital Developments. Last year we also launched a ‘Class of ’ initiative, aimed at our Graduate intake each year, to provide them with both an overview of the organisation and effective network of fellow graduates.

The Cello Academy

The Academy is designed to help our high f liers solve the management challenges they are facing on a daily basis in their businesses. The programme covers issues such as driving growth, particularly in te r na t iona l l y ; lead ing and re t a in ing h igh performing teams; developing and maintaining client relationships, and ensuring the production of high quality outputs for our clients.

Feedback from our Academists is incredibly positive. We recently conducted an internal survey where

we learnt the greatest perceived benefit from their perspective was ‘learning new skills’, which included developing advanced selling and presentation skills; leadership skills ; dealing with conflict and difficult situations, and many more.

‘…it was really practical for me and really easy to

15

cello people

apply, and a lot of it was quite exciting in terms of my personality and understanding those on my team and how to deal with them’.

In addition, many of the Academists talked of the benef its of forming relationships with others within the Cello Group, which facilitates joint

business opportunities to be maximised. All of our Academists join our Alumni Group, which allows relationships to be maintained once the Academy programme is finished.

The Longer Term Effect

Many of our Academists talked in our survey of the longer term effects of the Academy:

‘ I feel now that I am not afraid of interacting with challenging situations. I feel more comfor table if someone comes and challenges me, I would now be able to deal with it more rationally’.

‘It helped me a lot in talking to clients in an appropriate way and a less ‘researchy’ way; much more of a business way and much more strategic. I know more about what they want to hear.’

Improvements in presentation skills, the management of teams, an increased understanding of both themselves and others, and increased general conf idence were all seen as key results of the Academy.

The BenefitsAs well as the obvious training and development benefits, we believe that the Academy offers Cello a great opportunity to show recognition and to invest in our people, this leads to better retention and promotion of key personnel. It is a means of developing links across the Cello Group, building client opportunities and enhancing the benefits of being part of a larger group.

Alongside our other initiatives, this is par t of the continuing commitment to maintaining and developing the talent within our organisation, which we believe remains a key dif ferentiator for the Cello Group.

16

directors’ report

The directors present their report and the audited consolidated financial statements of Cello Group plc for the year to 31 December 2011. To the best of their knowledge the Directors’ Report includes a fair view of the business and position of the Group, together with a description of the principal risks and uncertainties faced by the Group.

Principal Activities

The principal activity of the Group during the year under review is that of market research, consulting and communications consultancy.

Review of the Business and Future Developments

The results for the year ended 31 December 2011 are set out in the consolidated income statement on page 26. These show a loss for the year of £0.3m (2010 : prof it of £3.6m). An interim dividend of 0.55p per share was paid during the year (2010 : 0.525p) and a final dividend of 1.17p per share is proposed (2010: 0.905p).

The directors are required by the Companies Act to present a business review, repor ting on the development and performance of the Group and the Company during the year and their positions at the end of the year. A review of the development and future prospects of the business and key performance indicators (“KPIs”) are given in the Chairman’s Statement on pages 2 to 6 which are incorporated in this report by reference.

The Group’s KPIs are outlined in various sections of this review. Whilst there are many f inancial measures that the Group monitors on a regular basis our core financial objectives are:

The Company regular ly reviews the r isks and uncertainties facing the business through a regular series of board and operational meetings. The directors believe the current largest risks are as follows:

1. UK economyThe Group’s business is domiciled in the UK but 33.9% of the Group’s revenues are from clients based overseas. It is clear that the current economic downturn and the reduction in public sector spending continues to affect the Group and there is a risk that further downturn in any of our markets will have an additional effect. However, the mix of services we are offering is proving resilient as the economy stabilises.

2. Loss of the Group’s key clientsClient relationships are crucial to the Group, and the strength of them is key to its continued success. The r isk is mitigated by our client base being broadly spread and by several of our pharmaceutical clients being subject to longer term master service agreements. The loss of any large client would require replacement. The Group’s client review programmes help mitigate this risk.

3. Loss of key staffThe Group’s directors and staff are critical to the servicing of existing business and the winning of new accounts, 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.

Directors

The following directors have held of f ice since 1 January 2011:Mark Scott Mark Bentley Paul Hamilton Will David Allan Rich Paul Walton (resigned 31 December 2011)

17

directors’ report

Biographical details of the directors at the date of this report are set out on pages 82 to 83.

Directors’ Interests in Shares and Options

Directors’ interests in the shares of the Company were as follows:Number of ordinary

shares of 10p each At 31 December 2011

Number of ordinary shares of 10p each

At 31 December 2010

Mark Scott 803,219 754,010Mark Bentley 35,000 35,000Paul Hamilton 50,000 50,000Will David 15,000 15,000Allan Rich 977,785 474,595

Under the rules of the EMI Share Option Scheme (the “EMI Scheme”), the Unapproved Share Option Scheme 2004 (the “Unapproved Scheme 2004”), the PSP Option Scheme 2010 (the “PSP 2010”) and the Approved Share Option Plan 2009 (the “Approved Plan 2009”), the Executive Directors have been granted an interest in options over ordinary shares of 10p each as follows:

At 1 January 2011

number of ordinary shares of 10p each

Granted in the year number of

ordinary shares of 10p each

Lapsed in the year

number of ordinary shares of 10p each

At 31 December

2011 number of

ordinary shares of 10p each

Date from which

exercisable Expiry date

Exercise price

(pence)

Mark Scott (1) 100,000 – 100,000 Nov 2004 Nov 2014 100Mark Scott (2) 200,000 – 200,000 Nov 2004 Nov 2004 100Mark Scott (3) 430,000 – 430,000 June 2013 June 2020 10Mark Scott (4) 72,000 – 72,000 June 2013 June 2020 31.5Mark Scott (3) – 170,000 – 170,000 June 2014 June 2021 10Mark Bentley (1) 81,633 – 81,633 June 2008 June 2015 122.5Mark Bentley (2) 81,633 – 81,633 June 2008 June 2015 122.5Mark Bentley (3) 214,000 – 214,000 June 2013 June 2020 10Mark Bentley (4) 72,000 – 72,000 June 2013 June 2020 31.5Mark Bentley (3) – 130,000 – 130,000 June 2014 June 2021 10

(1) Granted under the EMI Scheme(2) Granted under the Unapproved Scheme 2004(3) Granted under the PSP 2010(4) Granted under the Approved Plan 2009

None of the options that have been granted were exercised in the year.

18

directors’ report

Substantial Shareholdings

Other than the directors’ interests disclosed on the previous page, the Company is aware of the following shareholdings of 3% or more in the issued share capital at 29 February 2012:

No. of shares %

Octopus Asset Management Limited 6,651,898 8.47

Aspen Marketing Services 5,223,644 6.65

Ennismore Fund Management Limited 4,742,285 6.04

Vincent Nolan 4,074,045 5.19

Universities Superannuation Scheme 3,787,952 4.82

Richard Gilmore 3,037,888 3.87

Share Capital

Changes to the Company’s share capital during the year are given in note 21 to the consolidated financial statements.

Treasury Shares

The total number of shares in treasury at 31 December 2011 was 237,000 (0.3% of the issued share capital). The purpose of the treasury shares is to satisfy future earn out payments and/or option awards.

Statement of Directors’ Responsibilities

The directors are responsible for preparing the Annual Repor t and the f inancial statements in accordance with applicable law and regulations.

Company law requires the directors to prepare f inancial statements for each financial year. Under that law the directors have prepared the Group f inancial s tatements in accordance

with International Financial Reporting Standards ( “ IFRSs” ) as adopted by the

European Union (“EU”), and the parent company f inancial statements in accordance with United Kingdom (“UK”) Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law). Under company law the directors must not approve the financial statements unless they are satisf ied that they give a true and fair view of the state of affairs of the Group and the Company and of the profit or loss of the Group for that period. In preparing these financial statements, the directors are required to:

them consistently;

are reasonable and prudent;

applicable UK Accounting Standards have been followed, subject to any material depar tures disclosed and explained in the Group and parent company financial statements respectively;

concern basis unless it is inappropriate to presume that the Group and the Company will continue in business.

The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group and the Company’s transactions and disclose with reasonable accuracy at any time the f inancial position of the Group and the Company and enable them to ensure that the f inancial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Group and the Company and hence for taking reasonable steps for the prevention

19

directors’ report

and detection of fraud and other irregularities.

The directors are responsible for the maintenance and integrity o f t he Company ’ s webs i t e . Legislation in the United Kingdom governing the preparation and dissemination of f inancial statements may dif fer from legislation in other jurisdictions.

Employees

It is the Company’s policy not to discr iminate between employees or potential employees on any grounds. Full and fair consideration is given to the recruitment, training and promotion of disabled people and, should staff become disabled during the course of their employment, efforts are made to provide appropriate re-training. The Company places enormous importance on the contributions of its employees and aims to keep them informed of developments in the Company through a combination of meetings and electronic communication.

Political and Charitable Contributions

During the year the Company made no political or charitable donations.

Directors Third Party Indemnity Provisions

A qualifying third par ty indemnity provision was in place for directors throughout the year.

Policy on Payment to Creditors

The Company agrees the terms and conditions under which business transactions with suppliers are conducted. It complies with these payment terms, provided that it is satisf ied that the supplier has provided the goods or services in accordance with agreed terms and conditions.

The effect of the Company’s payment policy is that the number of days credit taken for purchases represents 53 days at 31 December 2011 (2010: 45 days).

Research and Development Activities

During the year the Group spent £38,000 (2010: £283,000) on the development of new software products which are expected to generate economic benef i ts in the future . These amounts were capitalised as intangible assets.

Statement as to Disclosure of Information to the Auditors

The directors who were in off ice on the date of approval of these f inancial statements have confirmed that, as far as they are aware, there is no relevant audit information of which the auditors are unaware. Each of the directors has confirmed that he, as far as he is aware, has taken all the steps that he ought to have taken as a director in order to make him aware of any relevant audit information and to establish that the Company’s auditors are aware of the information.

Independent Auditors

A resolution to reappoint PricewaterhouseCoopers LLP, Char tered Accountants, as auditors will be proposed at the forthcoming Annual General Meeting.

By order of the Board

Mark Bentley Company Secretary

12 March 2012

20

corporate governance

The Board of Cello Group plc appreciates the value of good corporate governance not only in the areas of accountability and risk management but also as a positive contribution to the business. The Board considers that the Company, whilst trading on the AIM Market, has adopted those requirements of the UK Corporate Governance Code (2010) (the “Code”) as best applicable to the Company given its current size.

Board Structure

The Board comprises two Executive Directors and three Non-Executive Directors. The roles of Chairman and Chief Executive are separate. The Non-Executive Directors are independent of management and free from any business or other relationship with the Company other than owning shares. The directors’ biographies appear on pages 82 to 83.

The Board is scheduled to meet at least six times a year and additionally when necessary. At each scheduled meeting of the Board, the Chief Executive and Finance Director repor t on the Group’s operations. The Board is satisfied that it is provided with information in an appropriate form and quality to enable it to discharge its duties. All directors are subject to re-election by shareholders at the first opportunity after their appointment. All directors are required to retire by rotation and one third of the Board is required to seek re-election each year. The Chairman ensures that the directors are permitted to take independent professional advice as required.

All directors have access to the advice and services of the Company Secretary, who is responsible to the Board for ensuring that Board procedures are followed and that applicable rules and regulations are complied with.

The following committees of the Board have been established to deal with specif ic aspects of the Company’s affairs.

Audit Committee

The Audit Committee consists of three Non-Executive Directors; Will David as Chairman, Paul Hamilton and Allan Rich. Will David is considered to have relevant financial experience to chair this Committee. The Committee considers matters relating to the f inancial accounting controls, the repor ting of results, and the effectiveness and cost of the ex ternal audit . It aims to meet at least twice a year with the Company’s auditors in attendance. Other directors attend as required. The Company Secretary provides secretarial support to the Committee. The terms of reference of the Committee are available on request.

Nomination Committee

The Nomination Commit tee consis ts of two independent Non-Execut ive Direc tor s ; Paul Hamilton and Will David. The Committee is chaired by Paul Hamilton and meets as necessary. The Committee is formally constituted with written terms of reference and is responsible for reviewing and mak ing proposals to the Board on the appointment of directors. The Company Secretary provides secretarial support to the Committee. The terms of reference of the Nominations Committee are available on request.

Remuneration Committee

The Remuner at ion Commi t tee i s forma l l y constituted with written terms of reference and makes recommendations to the Board with regard to remuneration policy and related matters. The Remuneration Committee consists solely of two of the Independent Non-Executive Directors, Paul Hamilton, who chairs the Committee and Will David. However, the Chief Executive attends as required and has the right to address the Committee. The Committee aims to meet at least twice a year. The terms of reference of the Committee are available on request.

21

corporate governance

Remuneration Committee continued

Fur ther details of the Company’s policies on remuneration, including details of directors’ share options are given in the Report of the Remuneration Committee on pages 22 to 24.

Shareholder Communications

The Company bel ieves in mainta ining good communications with shareholders. The Chief Executive and Finance Director meet analysts and institutional shareholders regularly with a view to ensuring that the strategies and objectives of the Company are well understood. The Senior Independent Director will not ordinarily attend such meetings other than at the request of the relevant shareholder. However, he is available to shareholders if they have concerns which contact through the Chairman, Chief Executive or the Finance Director has failed to resolve or for which such contact is inappropriate.

Going Concern

The directors have satisf ied themselves that the Company and Group have adequate resources to continue in operational existence for the foreseeable future, and for this reason the financial statements continue to be prepared on a going concern basis.

Internal Control

The Board is responsible for ensuring that the Group maintains a system of internal controls and risk management, including suitable monitoring procedures. The objective of the system is to safeguard Group assets, ensure proper accounting records are maintained and that the f inancial information used within the business and for publication is reliable. Any such system can only provide reasonable, but not absolute, assurance against material misstatement or loss.

Given the Group’s size and the nature of its business,

the Board does not consider it would be appropriate to have its own internal audit function. An internal audit function will be established as and when the Group is of an appropriate size but meanwhile the audit of internal f inancial controls forms par t of the responsibilities of the Group’s finance function.

All the day-to-day operational decisions are taken initially by the Executive Directors or subsidiary directors, in accordance with the Group’s strategy. Where appropriate, the Board or subsidiary directors approve such decisions. The Executive Directors or subsidiary directors are also responsible for initiating all transactions and authorising all payments, save for those relating to their employment. As such, the internal controls primarily comprise:

information by the Board on a regular basis;

decisions;

The Environment

The activities of the Group do not have a high impact on the environment. However, the Group aims to ensure that where waste can be reduced, this is done efficiently, by recycling where viable.

Employees

The Group employs nearly 800 employees, and places a great deal of emphasis on their training and retention. The central programme for rising talent, “Cello Academy”, is now a well established feature of the Group’s staff development initiatives.

On behalf of the Board

Mark Bentley Company Secretary

12 March 2012

22

report of the remuneration committee

The directors have applied the principles of good governance relating to directors’ remuneration as described below:

Remuneration Committee

The Remuneration Committee is authorised on behalf of the Board to determine the Company’s remuneration policy on Executive Directors’ remuneration, including pension rights and share option awards, and the terms of their service contracts. The Committee aims to meet at least twice a year and supervises the operation of share schemes and other employee incentive schemes. The remuneration and terms and conditions of appointment of the Non-Executive Directors will be set by the Board. No director shall participate in discussions relating to his own remuneration. The Remuneration Committee consists of the two independent Non-Execut ive Direc tor s , Paul Hamilton who chairs the Committee, and Will David.

Remuneration Policy

The policy of the Board is to provide executive remuneration packages designed to attract, motivate and retain directors of the calibre necessary to maintain the Group’s position as a market leader and to reward them for enhancing shareholder value and return on investment. The remuneration should also reflect the directors’ responsibilities and contain incentives to deliver the Group’s objectives.

The main elements of the Executive Directors’ remuneration packages are as follows:

insurance;

granted to the Executive Directors are shown on page 17;

contribution pension schemes.

The Remuneration Commit tee reviews the components of each Execut ive Direc tor ’s remuneration package annually.

23


Directors’ Remuneration

Salary/Fees £’000

Bonus £’000

Benefits £’000

Total Emoluments

£’000Pension

£’000Total 2011

£’000Total 2010

£’000

Mark Scott 245 75 13 333 37 370 382Mark Bentley 182 60 9 251 27 278 283Paul Walton1,2 165 – 22 187 13 200 89Allan Rich 50 – – 50 – 50 43Paul Hamilton 30 – – 30 – 30 26Will David 30 – – 30 – 30 26Chris Outram3 – – – – – – 21

Total 702 135 44 881 77 958 870

1 Appointed on 22 July 20102 Resigned on 31 December 20113 Resigned on 20 July 2010

Directors’ Titles and Service ArrangementsName Title Date of appointment Notice period

Allan Rich Non-Executive Chairman 5 April 2005 3 monthsMark Scott Chief Executive 5 May 2004 12 monthsMark Bentley Group Finance Director 1 May 2005 12 monthsPaul Hamilton Senior Non-Executive Director 8 October 2004 6 monthsWill David Non-Executive Director 8 October 2004 6 months

Long Term Incentive Arrangements

In 2004, the Company established the EMI Share Option Scheme and an Unapproved Share Option Scheme. Vesting of the share options awarded to Mark Scott in November 2004 under the EMI scheme and the Unapproved Share Option Scheme 2004 is not subject to per formance conditions but vesting of the share options granted to Mark Bentley in June 2005 under these plans was subject to performance conditions which have been met.

On 13 March 2006 the Board adopted the Cello Group plc Performance Share Plan 2006 (the “PSP 2006”). However, no awards made under the PSP

2006 have vested or are capable of vesting and the Remuneration Committee decided that no further awards would be made under the PSP 2006. As previously announced, to replace the PSP 2006 the Board considered adopting a Joint Ownership Share Plan but decided instead to reinstate the PSP 2006, renamed the PSP 2010, with new per formance conditions, as the principal long term incentive plan for the Group’s most senior executives. The performance measure for the PSP 2010 will be Total Shareholder Return (“TSR”) relative to a comparator group of the Company’s peers over the three years following the date of the award. The proportion of PSP 2010 awards which vest will be calculated as follows:-

24


Long Term Incentive Arrangements continued

Proportion Cello relative TSR performance of award vesting

Below median nil

Median 25%

Upper quartile 100%

Between median and interpolation between upper quartile 25% and 100%

The comparator companies against which Cello’s relative TSR performance will be measured will be as shown below. The Remuneration Committee reserves the right to substitute new comparator companies in certain circumstances, for example the delisting, takeover, merger or liquidation of any comparator companies.

Aegis Group

Chime Communications

Creston

Huntsworth

M&C Saatchi

Media Square

The Mission Marketing Group

Next Fifteen Communications Group

WEARE 2020 Plc

WPP Group

YouGov

On 17 November 2009 the Board adopted the Cello Group plc HM Revenue & Customs Approved Share Option Plan 2009 (the “Approved Plan 2009”) and on 15 March 2011 adopted the Cello Group plc Unapproved Option Plan 2010 (the “Unapproved Plan 2010”). Under the Approved Plan 2009 and the Unapproved Plan 2010 (the “Option Plans”) performance conditions will be tailored to each participant according to his or her seniority and responsibilities and will be based on performance as measured against an appropriate combination of Company, Division and Group targets and the extent to which these are achieved or exceeded over the per formance period will determine the propor tion of each par ticipant’s options which vest. Awards under the Option Plans to main Board directors will be subject to the performance conditions which apply to awards under the PSP 2010. The Committee will review the Option Plans on a regular basis and may amend the performance conditions from time to time.

Market Value of Shares

The market value of the shares at 31 December 2011 was 34.80p and the high and low prices during the year were 62.00p and 30.25p respectively.

On behalf of the Board

Paul Hamilton Chairman – Remuneration Committee

12 March 2012

25

KWV[WTQLI\ML�ÅVIVKQIT�[\I\MUMV\[�

– independent auditor’s report

We have audited the group financial statements of Cello Group Plc for the year ended 31 December 2011 which comprise the Group Income Statement and Statement of Comprehensive Income, the Group Statement of Financial Position, the Group Cash Flow Statement, the Group Statement of Changes in Equity, and the related notes. The f inancial repor ting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union.

Respective Responsibilities of Directors and Auditors

As expla ined more fu l l y in the Direc tor s’ Responsibilities Statement set out on page 18, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors.

This repor t , including the opinions, has been prepared for and only for the company’s members as a body in accordance with Chapter 3 of Par t 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

Scope of the Audit of the Financial Statements

An audit involves obtaining evidence about the amounts and disclosures in the financial statements suf f icient to give reasonable assurance that the f inancial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of : whether the accounting policies are appropriate to the Group’s circumstances and have been consistently applied and

adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the f inancial statements.

Opinion on Financial Statements

In our opinion the Group financial statements:

Group’s affairs as at 31 December 2011 and of its loss and cash flows for the year then ended;

IFRSs as adopted by the European Union; and

requirements of the Companies Act 2006.

Opinion on Other Matter Prescribed by the Companies Act 2006

In our opinion the information given in the Directors’ Report for the financial year for which the Group financial statements are prepared is consistent with the Group financial statements.

Matters on which we are Required to Report by Exception

We have nothing to repor t in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion:

specified by law are not made; or

explanations we require for our audit.

Other Matter

We have repor ted separately on the parent company financial statements of Cello Group Plc for the year ended 31 December 2011.

David A Snell (Senior Statutory Auditor) for and on behalf of PricewaterhouseCoopers LLP Chartered Accountants and Statutory Auditors London

12 March 2012

26

consolidated income statementFOR THE YEAR ENDED 31 DECEMBER 2011

Notes

Year ended 31 December 2011

£’000


£’000

Continuing operationsRevenue 1 133,534 124,965Cost of sales (69,263) (64,672)

Gross profit 1 64,271 60,293

Administration expenses 3a (62,108) (54,555)

Operating profit 3 2,163 5,738

Finance income 2 86 188Finance costs 2 (885) (998)

Profit on continuing operations before taxation 1,364 4,928

Taxation 5 (1,634) (1,306)

(Loss)/profit on continuing operations after taxation (270) 3,622

Loss from discontinued operations 6 – (15)

(Loss)/profit for the year (270) 3,607

Attributable to:Owners of the parent (587) 3,463Non-controlling interests 317 144

(270) 3,607

NotesYear ended

31 December 2011 Year ended

31 December 2010

Basic (loss)/earnings per share

From continuing operations 8 (0.81)p 5.88 p

From discontinued operations 8 0.00 p (0.03)p

Total basic earnings per share 8 (0.81)p 5.86 p

Diluted (loss)/earnings per share

From continuing operations 8 (0.81)p 5.25 p

From discontinued operations 8 0.00 p (0.03)p

Total diluted earnings per share 8 (0.81)p 5.23 p

27

consolidated statement of comprehensive incomeFOR THE YEAR ENDED 31 DECEMBER 2011


£’000


£’000

(Loss)/profit for the year (270) 3,607

Other comprehensive income:Exchange differences on translation of foreign operations 208 (10)

Total comprehensive income for the year (62) 3,597

Total comprehensive income attributable to:Equity holders of the parent (379) 3,453Non-controlling interest 317 144

(62) 3,597

Reconciliation of profit on continuing operations before taxation to headline profits before tax:

Notes


£’000


£’000

Profit on continuing operations before taxation 1,364 4,928

Restructuring costs 3c 949 822Acquisition costs 3d 211 –Amortisation of intangible assets 3d 1,198 344Acquisition related employee remuneration expense 3d 631 362Share option charges 3d 97 39Impairment of goodwill 3d 2,499 –Finance cost of deferred consideration 2 58 78Fair value gain on derivative financial instruments 2 (64) (170)Facility fees written off 2 111 –

Headline profit before taxation 7,054 6,403

Headline profit before taxation is made up as follows:

Headline operating profit 1 7,748 7,305Headline finance income 2 22 18Headline finance costs 2 (716) (920)

7,054 6,403

28

consolidated balance sheet31 DECEMBER 2011

Notes31 December 2011

£’00031 December 2010

£’000

Goodwill 9 73,823 71,155Intangible assets 11 2,373 1,113Property, plant and equipment 12 2,176 2,124Deferred tax assets 20 577 964

Non-current assets 78,949 75,356

Trade and other receivables 14 29,131 26,370Cash and cash equivalents 14 4,170 797

Current assets 33,301 27,167

Trade and other payables 15 (29,968) (26,306)Current tax liabilities (1,190) (1,219)Borrowings 16 (959) (3,208)Provisions 17 (2,268) (4,439)Obligations under finance leases 18 (39) (57)Derivative financial instruments 19 (55) –

Current liabilities (34,479) (35,229)

Net current liabilities (1,178) (8,062)

Total assets less current liabilities 77,771 67,294

Borrowings 16 (10,806) (6,250)Provisions 17 – (2,432)Obligations under finance leases 18 (43) (54)Derivative financial instruments 19 – (119)Deferred tax liabilities 20 (799) (196)

Non-current liabilities (11,648) (9,051)

Net assets 66,123 58,243

Equity Share capital 21 7,853 6,164Share premium 18,104 15,738Merger reserve 28,742 26,741Capital redemption reserve 50 50Retained earnings 10,389 9,187Share-based payment reserve 209 112Foreign currency reserve 163 (45)

Equity attributable to owners of the parent 65,510 57,947Non-controlling interests 613 296

Total equity 66,123 58,243

Approved and authorised for issue by the Board on 12 March 2012 and signed on its behalf byMark Scott DirectorMark Bentley Director

29

KWV[WTQLI\ML�KI[P�ÆW_�[\I\MUMV\FOR THE YEAR ENDED 31 DECEMBER 2011

Notes


£’000


£’000

Net cash generated from operating activities before taxation 23a 7,024 7,800

Tax paid (1,266) (743)

Net cash generated from operating activities after taxation 5,758 7,057

Investing activitiesInterest received 22 18Purchase of property, plant and equipment (975) (917)Sale of property, plant and equipment 25 74Expenditure on intangible assets (38) (283)Sale of available-for-sale investments – 20Purchase of subsidiary undertakings (2,767) (537)Sale of subsidiary undertakings – (69)

Net cash used in investing activities (3,733) (1,694)

Financing activitiesProceeds from issuance of shares 2,541 –Dividends paid to equity holders of the parent (709) (814)Repayment of borrowings (9,494) (4,350)Repayment of loan notes (1,430) (1,445)Drawdown of borrowings 11,300 –Capital element of finance lease payments (61) (22)Interest paid (704) (1,054)

Net cash used in financing activities 1,443 (7,685)

Net increase/(decrease) in cash and cash equivalents 3,468 (2,322)

Exchange losses on cash and bank overdrafts (95) (16)Cash and cash equivalents at the beginning of the year 797 3,135

Cash and cash equivalents at end of the year 14 4,170 797

30

consolidated statement of changes in equity FOR THE YEAR ENDED 31 DECEMBER 2011

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 2010 5,876 15,544 26,278 50 6,523 73 (35) 54,309 117 54,426

Comprehensive income:

Profit for the year – – – – 3,463 – – 3,463 144 3,607

Other comprehensive income:

Currency translation – – – – – – (10) (10) – (10)

Total comprehensive income for the year – – – – 3,463 – (10) 3,453 144 3,597

Transactions with owners:

Shares issued 288 194 463 – – – – 945 – 945

Credit for share-based incentives – – – – – 39 – 39 – 39

Deferred tax on share-based payments recognised directly in equity – – – – 15 – – 15 – 15

Changes in non-controlling interests in shareholdings – – – – – – – – 35 35

Dividends – – – – (814) – – (814) – (814)

Total transactions with owners 288 194 463 – (799) 39 – 185 35 220

As at 31 December 2010 6,164 15,738 26,741 50 9,187 112 (45) 57,947 296 58,243

Comprehensive income:

Loss for the year – – – – (587) – – (587) 317 (270)

Other comprehensive income:

Currency translation – – – – – – 208 208 – 208

Total comprehensive income for the year – – – – (587) – 208 (379) 317 (62)

Transactions with owners:

Shares issued 1,689 2,366 4,500 – – – – 8,555 – 8,555

Credit for share-based incentives – – – – – 97 – 97 – 97

Deferred tax on share-based payments recognised directly in equity – – – – (1) – – (1) – (1)

Transfer between reserves in respect of impairment – – (2,499) – 2,499 – – – – –

Dividends – – – – (709) – – (709) – (709)

Total transactions with owners 1,689 2,366 2,001 – 1,789 97 – 7,942 – 7,942

As at 31 December 2011 7,853 18,104 28,742 50 10,389 209 163 65,510 613 66,123

31


– accounting policies

General Information

Cello Group plc and its subsidiaries (the “Group”) provides research, consulting and direct marketing services.

Cello Group plc is incorporated in England and Wales under the Companies Act 1985 and is domiciled in the United Kingdom. The company is a public limited company, which is listed on the Alternative investment Market (“AIM”) of the London Stock Exchange. The address of the Company’s registered off ice is 11-13 Char terhouse Buildings, London, EC1M 7AP.

The consolidated financial statements are presented in UK sterling, which is also the functional currency of the parent company.

The following new and revised standards and interpretations have been adopted for the financial year beginning 1 January 2011 but are not currently relevant to the Group:

Presentation – Classification of rights issues

equity instruments

– Limited exemption from comparative IFRS 7 disclosures for first-time adopters

funding requirement

The following new standards, amendments and interpretations have been issued but are not effective for the financial year beginning 1 January 2011 and have not been early adopted. The impact of these standards, amendments and interpretations is being assessed by management:

financial assets (effective 1 July 2011)

2015)

(effective 1 January 2013)

2013)


1 January 2013)

comprehensive income (effective 1 July 2012)

underlying assets (effective date 1 January 2013)

1 January 2013)


joint ventures (effective date 1 January 2013)

32



Significant Accounting Policies

(1) Basis of Preparation

The consolidated financial statements of the Group have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union (“IFRSs”), IFRIC interpretations and the Companies Act 2006 applicable to companies reporting under IFRSs. The consolidated financial statements have been prepared under the historical cost convention, as modif ied by the revaluation of available-for-sale f inancial assets and f inancial assets and f inancial liabilities (including derivative instruments) at fair value through profit or loss.

The Group’s business activities, performance and position are set out in the Chairman’s Statement on pages 2 to 6 and an assessment of the risks and uncertainties is set out in the Directors’ Report on page 16.

During the year the Group generated a prof it before tax of £1.4m and excluding non-recurring restructuring costs and other non-headline charges the Group generated a profit of £7.1m.

The Group had net current liabilities of £1.2m at 31 December 2011. This includes £3.2m of amounts payable under acquisition agreements. £1.4m of these payables are expected to be settled through the issuance of new share capital. In addition the Group has a £4.0m overdraft facility and a £25.0m revolving credit facility of which £14.2m is undrawn at 31 December 2011. The revolving credit facility is committed to March 2016.

Af ter reviewing the Group’s per formance 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 f inancial statements.

(2) Basis of Consolidation

The Group’s f inancial statements consolidate the financial statements of the Company and all of its subsidiary under takings. Subsidiaries are entities controlled by the Group. Control is achieved when the Group has the power to govern the financial and operating policies of an entity which generally accompany a shareholding of more the one half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or conver tible are considered when assessing whether the Group controls another entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group and are de-consolidated from the date that control ceases.

The Group uses the purchase method of accounting to account for the acquisition of subsidiaries. The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange. Identifiable assets and liabilities acquired and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any non-controlling interest. The excess of the cost of acquisition over the fair value of the Group’s share of the identifiable net assets acquired is recorded as goodwill.

Inter-company transactions, balances and unrealised gains are eliminated on consolidation. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group.

The Group treats transactions with non-controlling interests as transactions with equity owners. For purchases of non-controlling interests, the difference between any consideration paid and the relevant share acquired of the carrying value of net assets of the subsidiary is recorded in equity. Gains and losses of disposal to non-controlling interests are also recorded in equity.

33



(3) Foreign Currencies

Sterling is the functional currency of the Company and the presentational currency of the Group. The functional currency of subsidiaries is the local currency of the primary economic environment in which the entity operates.

Foreign currency transactions are translated into the functional currency using the exchange rate prevailing at the date of the transaction. Foreign exchange gains or losses on monetary assets and liabilities denominated in foreign currencies resulting from the settlement of such transactions and from the translation to the rate prevailing at the year end are recognised in the income statement.

The f inancial statements of subsidiaries whose functional currency is different to the presentational currency of the Group are translated into the present a t iona l cur rency of the Group on consolidation. Assets and liabilities are translated at the exchange rate prevailing at the balance sheet date. Income and expenses are translated at the average exchange rate for the year, unless exchange rates fluctuate significantly during the year, in which case the exchange rates at the transaction date are used. Exchange differences arising on consolidation are recognised in other comprehensive income and the cumulative effect of these as a separate component in equity.

(4) Revenue, Cost of Sales and Revenue Recognition

Revenue compr i se s t he f a i r v a lue of t he 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. 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.

(5) Pension Contributions

The Group operates defined contribution pension schemes and contributes to the personal pension schemes of cer tain employees or to a Group personal pension plan. The assets of the schemes are held separately from those of the Group in independently administered funds. The amount charged against profits represents the contributions payable to the scheme in respect of the accounting period.

(6) Share-based Payments

The Group has applied the requirements of IFRS 2 Share-based payment to both cash-settled and equity-settled share-based employee compensation schemes.

This standard has been applied to various types of share-based payments as follows:

i. Share options

Certain employees receive remuneration in the form of share options. The fair value of the share options granted is measured at the date of grant and expensed to the income statement over the

34



appropriate vesting period, with a corresponding adjustment to equity.

The fair value of the share options takes into account market vesting conditions and non-ves t ing cond i t ions . Non-mar ket ves t ing conditions are included in assumptions of the number of options expected to vest. At the end of each reporting period the Group revises its estimate of the number of share options expected to vest and recognises the impact of the revisions to previous estimates in the income statement, with a corresponding adjustment to equity.

ii. Acquisition related employee remuneration expenses

In accordance with IFRS 3 (revised) Business combinations and IFRS 2 Share-based payment, cer tain payments to employees in respect of acquisition arrangements are treated as remuneration within the income statement. These payments are typically payable in cash or shares at the option of the Group so are treated as cash-settled share-based payments. The amount expected to be payable is expensed in the income statement over the appropriate period, with a corresponding adjustment made to amounts payable in respect of acquisitions.

(7) Headline Measures

The Group believes that reporting non-GAAP or headline measures provides a useful comparison of business per formance and ref lects the way the business is controlled. Accordingly headline measures of operating prof it , f inance income, finance costs, profit before taxation and earnings per share exclude, where applicable, restructuring costs, amortisation of intangible assets, impairment charges , acquis i t ion accounting adjus tments , share option charges, fair value gains and losses on der ivative f inancial instruments and other exceptional costs. Exceptional costs are items that,

in the opinion of the directors, are required to be disclosed separately, by vir tue of their size or incidence, to enable a full understanding of the Group’s financial performance.

A reconciliation between reported and headline prof i t before taxation is presented af ter the consolidated statement of comprehensive income. In addition to this, a reconciliation between reported and headline operating profit is presented in note 1, a reconciliation between reported and headline f inance income and costs is presented in note 2 and a reconciliation between reported and headline earnings per share is presented in note 8. Headline measures in this report are not defined terms under IFRSs and may not be comparable with similarly titled measures reported by other companies.

(8) Segment Reporting

Operating segments are repor ted in a manner consistent with the internal repor ting provided to the chief operating decision maker. The chief operating decision maker, which is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Board of directors.

(9) Goodwill

Goodwill represents the excess of the cost of acquisitions 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 for the purposes of impairment testing. The allocation is made to those cash-generating units that are expected to benefit from the business combination in which the goodwill arose.

The carrying value of goodwill for each cash-generating unit is reviewed annually for impairment.

35



An impairment loss is recognised for the amount by which the assets carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an assets fair value less costs to sell and its value-in-use.

(10) Intangible Assets Acquired as Part of a Business Combination

In accordance with IFRS 3 (revised) Business combinations , intangible assets acquired in a business combination are recognised at fair value at the acquisition date. Identified intangible assets acquired as par t of a business combination are client contracts and licences. These intangible assets have a finite useful economic life and are carried at cost less accumulated amortisation. Amortisation is calculated using the straight line method over the expected life of the asset, which vary from 3 months to 8 years.

Intangible assets acquired as par t of a business combination are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value may not be fully recoverable. An impairment loss is recognised for the amount by which the assets carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an assets fair value less costs to sell and its value-in-use.

(11) Internally Generated Intangible Assets – Research and Development Expenditure

Expenditure on research activities is recognised as an expense in the period in which it is incurred.

An internally generated intangible asset arising from the Group’s development expenditure is recognised only when the following conditions are met:

i. an asset is created that can be identified (such as software or a new process);

ii. it is probable that the asset created will generate future economic benefit;

iii. the development cost of the asset can be measured reliably;

iv. there is the availability of adequate technical, financial or other resources and an intention to complete the development and to use or sell the development.

Internally generated assets are carried at cost less accumulated amortisation. Amortisation is calculated using the straight line method over the expected life of the asset. Where no internally generated intangible asset can be recognised, the development expenditure is recognised as an expense in the period in which it is incurred.

Internally generated intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value may not be fully recoverable. An impairment loss is recognised for the amount by which the assets carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an assets fair value less costs to sell and its value-in-use.

(12) Property, Plant and Equipment

Property, plant and equipment are stated at historical cost less accumulated depreciation. Depreciation is provided at rates calculated to write off the cost, less estimated residual value, of each asset, over their estimated useful economic lives as follows:-

Leasehold Over the remaining term improvements of the lease

Motor vehicles 25% pa. straight line

Computer equipment 33% pa. straight line

Fixtures, fittings and office equipment 25% pa. straight line

36



(13) Current and Deferred Taxation

Tax on the prof it or loss for the year comprises current and deferred tax. Tax is recognised in the income statement, except to the extent that it relates to items recognised in other comprehensive income or directly in equity.

Current tax is calculated on the basis of the tax laws enacted or substantively enacted at the balance sheet date. Management periodically evaluates positions taken in tax returns with respect to situations in which the applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities.

Deferred tax is income tax recognised, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying value in the consolidated f inancial statements. However, deferred tax liabilities are not recognised if they arise from the initial recognition of goodwill nor from the initial recognition of an asset or liability, other than resulting from a business combination, that does not affect the accounting profit or loss or the taxable profit or loss.

Deferred tax assets are only recognised to the extent that it is probable that they can be utilised against future taxable profits.

Deferred tax is calculated at the tax rates that are enacted or substantially enacted and expected to apply in the period when the liability is settled or the asset is realised.

(14) Leasing and Hire Purchase Commitments

When the Group enters into a lease which entails taking substantially all the risks and rewards of ownership of an asset, the lease is treated as a f inance lease or similar hire purchase contract. The asset is recorded at fair value (or present value of minimum lease payments if lower) in the balance sheet as proper ty, plant and equipment

and is depreciated over the estimated useful life or the term of the lease, whichever is shor ter. Future instalments under such leases, net of finance charges, are included as a liability. Rentals payable are appor tioned between the f inance element, which is charged to the income statement, and the capital element which reduces the outstanding obligation for future instalments.

All other leases are treated as operating leases and rentals payable are charged to the income statement on a straight line basis over the lease term.

(15) Provisions

Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources will be required to settle this obligation and a reliable estimate can be made of the amount of the obligation. Expected future cash f lows to settle provisions are discounted to present value.

(16) Financial Instruments

Financial assets and financial liabilities are recognised on the Group’s balance sheet when the Group has become a party to the contractual provisions of the instrument.

i. Trade receivables

Trade receivables are classif ied as loans and receivables and are initially recognised at fair value and subsequently measured at amortised cos t in accordance with IAS 39 Financia l instruments: Recognition and measurement. A provision for impairment is made where there is objective evidence (including customers with financial difficulties or in default on payments) that amounts will not be recovered in accordance with original terms of the agreement. A provision for impairment is established when the carrying value of the receivable exceeds the present value of the future cash f low discounted using the original effective interest rate. The carrying value

37



of the receivable is reduced through the use of an allowance account and any impairment loss is recognised in the income statement.

ii. Cash and cash equivalents

Cash and cash equivalents comprise cash in hand and at bank and other short-term deposits held by the Group with original maturities of less than three months.

iii. Financial liabilities and equity

A financial liability is a contractual obligation to deliver cash or another f inancial instrument. Financial liabilities and equity instruments are classif ied according to the substance of the contractual arrangements entered into. An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities.

iv. Bank borrowings

Interest bear ing bank loans and overdraf ts are recorded initially at their fair value, net of direct transaction costs. Such instruments are subsequently carried at their amortised cost and finance charges, including premiums payable on settlement or redemption, are recognised in the income statement over the term of the instrument using an effective rate of interest.

v. Trade payables

Trade payables are initially recognised at fair value and subsequently measured at amortised cost.

vi. Derivative f inancial instruments and hedge accounting

The Group’s activities expose the entity primarily to foreign currency and interest rate risk. The Group uses interest rate swap contracts to hedge interest rate exposures. The Group does not use derivative financial instruments for speculative purposes.

The interest rate swap contracts do not meet the requirements for hedge accounting so the contracts are initially recognised at fair value on the date the contract is entered into and subsequently re-measured at their fair value. Changes in the fair value are recorded in the income statement.

(17) 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 cr itical accounting estimates and judgements used in the f inancial 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 dif ferences arise they are recognised in the income statement for the following reporting period. Any material changes to these estimates would effect 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.

38



The Group has estimated the value of future amounts payable in respect of acquisitions. The estimate is based on managements 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 par t 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 per formance 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 is 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 effect the resulting valuation of goodwill and the amortisation charge recognised in the financial statements.

iv. Impairment of goodwill.

The Group tes t s goodwi l l annua l l y for impairment, in accordance with the Group’s accounting policy. 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.

39

VW\M[�\W�\PM�KWV[WTQLI\ML�ÅVIVKQIT�[\I\MUMV\[FOR THE YEAR ENDED 31 DECEMBER 2011

1. Segmental Information

For management purposes, the Group is organised into two operating groups; Research and Consulting, and Tangible. These groups are the basis on which the Group reports internally to the plc’s Board of directors, who have been identif ied as the chief operating decision makers.

The principal activities are as follows:

Research and Consulting

The Research and Consulting Division provides both qualitative and quantitative research to a

global range of clients across a range of sectors. This research combined with a consulting capability puts the Group in a unique position to add real value to client relationships.

Tangible

Tangible offers direct communication solutions from a mixture of direct mail, email and related response media with a focus on the key delivery areas of response: Direct, Digital and Data.

Revenues of £5.06m (2010: £5.58m) are derived from the Group’s largest client and these revenues are included in the Research and Consulting Division.

for the year ended 31 December 2011


£’000Tangible

£’000

Unallocated corporate expenses

£’000Group £’000

Profit and lossRevenue:External sales 64,835 68,699 – 133,534Intersegment revenue 49 122 (171) –

Total revenue 64,884 68,821 (171) 133,534

Gross profit 41,300 22,971 – 64,271

Headline operating profit (segment result) 7,232 2,238 (1,722) 7,748

Restructuring costs (949)Acquisition costs (211)Amortisation of intangible assets (1,198)Acquisition related employee expenses (631)Share option charges (97)Impairment of goodwill (2,499)

Operating profit 2,163

Financing income 86Finance costs (885)

Profit before tax 1,364

Other information Additions to property, plant and equipment 616 390 1 1,007

Capitalisation of intangible assets – 38 – 38

Depreciation of property, plant and equipment 629 396 10 1,035

40


1. Segmental Information continued

for the year ended 31 December 2010


£’000Tangible

£’000

Unallocated corporate expenses

£’000Group £’000

Profit and lossRevenue:External sales 59,782 65,183 – 124,965Intersegment revenue 114 96 (210) –

Total revenue 59,896 65,279 (210) 124,965

Gross profit 36,858 23,435 – 60,293

Headline operating profit (segment result) 6,946 2,210 (1,851) 7,305

Restructuring costs (822)Amortisation of intangible assets (344)Acquisition related employee expenses (362)Share option charges (39)

Operating profit 5,738

Financing income 188Finance costs (998)

Profit before tax 4,928

Other information Additions to property, plant and equipment 543 368 6 917

Capitalisation of intangible assets – 283 – 283

Depreciation of property, plant and equipment 568 541 42 1,151

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:

Geographical


£’000


£’000

UK 88,508 93,918Rest of Europe 22,636 18,281USA 19,733 10,831Rest of the World 2,657 1,935

133,534 124,965

41


2. Finance Income and CostsYear ended

31 December 2011 £’000


£’000

Finance income:Interest receivable on bank deposits 22 18

Headline finance income 22 18

Fair value gain on derivative financial instruments 64 170

Total finance income 86 188

Finance costs:Interest payable on bank loans and overdrafts 617 594Interest payable on loan notes – 1Interest payable in respect of finance leases 9 13Finance costs paid on derivative investments 90 312

Headline finance costs 716 920

Notional finance costs on future deferred consideration 58 78Facility fee written off 111 –

Total finance costs 885 998

3. Operating Profit

Notes


£’000


£’000

(a) Operating profit is stated after charging:

Operating costs:

Staff costs 4 42,028 38,368Operating lease rentals : land and buildings 1,978 1,907 : other leases 142 206Depreciation of property, plant and equipment : owned assets 969 1,077 : leased assets 66 74Loss on disposal of property, plant and equipment 64 76Auditors’ remuneration 3b 302 262Net foreign exchange (gains)/losses (10) 83Restructuring costs 3c 949 822Non-headline charges 3d 4,636 745Other property costs 1,336 1,577Other administration costs 9,648 9,358

Total operating costs 62,108 54,555

42


3. Operating Profit continued

Notes


£’000


£’000

(b) Auditors’ remuneration:

Fees payable to PricewaterhouseCoopers LLP for: – audit services to the parent company 38 27– audit services to subsidiary companies pursuant to legislation 189 167

Total audit fees 227 194

Non-audit fees: – taxation services 66 59 – interim review 9 9

Total non-audit fees 75 68

Total amounts payable to auditors 302 262

(c) Restructuring costs:

Staff redundancies 876 509Property costs – 313Other 73 –

949 822

(d) Other non-headline charges:

Acquisition costs 10 211 –Amortisation of intangible assets 11 1,198 344Acquisition related employee expenses 631 362Share options charges 22 97 39Impairment of goodwill 9 2,499 –

4,636 745

43


4. Staff Costs

The average monthly number of persons (including directors) employed by the Group during the year was as follows:



Research and Consulting 407 402Tangible 323 338Head Office 7 6

737 746


£’000


£’000

The aggregate staff costs of these persons were as follows:Wages and salaries 36,796 33,662Social security costs 4,140 3,805Other pension costs 1,092 901

Employee costs before non-headline charges 42,028 38,368Acquisition related employee remuneration expense 631 362Share-based payments – share options 97 39

42,756 38,769

Included in the aggregate staff costs are the following amounts paid to the directors:Directors’ emoluments 877 808Money purchase pension contributions 77 62

954 870

Included in the above is £333,000 (2010: £350,000) of emoluments and £37,000 (2010: £32,000) of pension contributions paid or payable to the highest paid director.

The number of directors to whom retirement benefits accrued under money purchase pension schemes in the year was 3 (2010: 3).

44


5. TaxationYear ended

31 December 2011 £’000


£’000

Current tax:Corporation tax 1,962 1,561Adjustment in respect of prior year (294) (174)

1,668 1,387

Deferred tax:Origination and reversal of temporary differences (256) 9Effect of decrease in tax rate on deferred tax assets 19 22Adjustment in respect of prior year 203 (112)

(34) (81)

Tax charge 1,634 1,306

Corporation tax is calculated at 26.5% (2010: 28.0%) of the estimated assessable profit for the 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 profit per the income statement.


£’000


£’000

Profit before taxation 1,364 4,928

Tax at the UK corporation tax rate of 26.5% (2010: 28.0%) 362 1,380Tax effect of expenses not deductible for tax purposes 1,030 190Effect of decrease in tax rate on deferred tax assets 19 22Effect of different tax rates of subsidiaries in foreign jurisdiction 314 –Prior year corporation tax adjustment (294) (174)Prior year deferred tax adjustment 203 (112)

1,634 1,306

The Finance Act 2011, which was enacted on 19 July 2011, included legislation reducing the main rate of corporation tax from 27% to 26% from 1 April 2011 and also reducing the main rate of corporation tax from 26% to 25% from 1 April 2012. Further reductions to the main rate are proposed to reduce the rate by 1% per annum to 23% by 1 April 2014. These further changes had not been substantially enacted at the balance sheet date and are therefore not included in these Financial Statements.

The proposed reductions of the main rate of corporation tax by 1% per year to 23% by 1 April 2014 are expected to be enacted separately each year. The overall effect of the further changes from 25% cent to 23%, if applied to the deferred tax balances at 31 December 2011, would be to reduce the net deferred tax asset by £43,000.

45


6. Discontinued Operations

The loss from discontinued operations for the year ended 31 December 2010 relates to OMP Services Limited, a company in which the Group held a 50.1% stake. OMP Services Limited was sold to the non-controlling interests in December 2010.

An analysis of the result of discontinued operations is as follows: Year ended

31 December 2011 £’000


£’000

Revenue – 2,850Cost of sales – (2,198)

Gross profit – 652

Administration expenses – (702)

Post-tax loss of discontinued operations – (50)

Profit from disposal of discontinued operations – 35

Loss for the year from discontinued operations – (15)

Loss for the year from discontinued operations attributable to:Equity holders of the parent – 10Non-controlling interest – (25)

– (15)

In accordance with IFRS 5 Non-current assets held for sale and discontinued operations, cash f lows from discontinued operations have been included in the cash flow statement together with cash flows from continuing operations. Cash flows from discontinued operations are as follows:

2011 £’000

2010 £’000

Operating cash flows – (30)Investing cash flows – (77)

Total cash flows – (107)

46


7. Equity Dividends

A final dividend of 0.905p (2010: 0.80p) per ordinary share was paid on 8 July 2011 to all shareholders on the register at 10 June 2011. The total amount of the dividend paid was £709,000 (2010: £491,000).

An interim dividend of 0.55p (2010 : 0.525p) per ordinary share was paid on 6 January 2012 to all shareholders on the register on 9 December 2011. In accordance with IAS 10 Events after the reporting date, this dividend has not been recognised in the consolidated financial statements at 31 December 2011, but will be recognised when paid in the year ended 31 December 2012.

A final dividend of 1.17p (2010: 0.905p) per ordinary share is proposed to be paid on 6 July 2012 to all shareholders on the register on 8 June 2012. In accordance with IAS 10 Events after the reporting date, this dividend has not been recognised in the consolidated financial statements at 31 December 2011, but if approved will be recognised in the year ended 31 December 2012.

8. (Loss)/Earnings per ShareYear ended

31 December 2011 £’000


£’000

(Loss)/earnings attributable to ordinary shareholders (587) 3,463Loss from discontinued operations – 15

(Loss)/earnings attributable to ordinary shareholders from continuing operations (587) 3,478Non-controlling interests 311 139

(Loss)/earnings from year from continuing operations (276) 3,617

Adjustments to (loss)/earnings:Restructuring costs 949 822Acquisition costs 211 –Amortisation of intangible assets 1,198 344Acquisition related employee remuneration expenses 631 362Share-based payments charge 97 39Impairment of goodwill 2,499 –Notional finance costs on future deferred consideration payments 58 78Fair value gain on derivative financial instruments (64) (170)Facility fees written off 111 –Tax thereon (575) (421)

Headline earnings for the year 4,839 4,671

47


8. (Loss)/Earnings per Share continued2011

Number of shares2010

Number of shares

Weighted average number of ordinary shares in issue 74,111,359 60,649,614Less:Weighted average number of treasury shares (237,000) (237,000)Weighted average number of shares held in employee benefit trusts (1,739,754) (1,307,074)

Weighted average number of ordinary shares 72,134,605 59,105,540

Dilutive effect of securities:Deferred consideration shares 5,629,378 7,105,287

Diluted weighted average number of ordinary shares 77,763,983 66,210,827

Further dilutive effect of securities:Share options 4,097,576 2,242,594Contingent consideration shares to be issued 143,885 2,308,715

Fully diluted weighted average number of ordinary shares 82,005,444 70,762,136



Basic (loss)/earnings per shareFrom continuing operations (0.81)p 5.88 pFrom discontinued operations 0.00 p (0.03)pTotal basic earnings per share (0.81)p 5.86 p

Diluted (loss)/earnings per share From continuing operations (0.81)p 5.25 pFrom discontinued operations 0.00 p (0.03)pTotal diluted earnings per share (0.81)p 5.23 p

In addition to basic and diluted (loss)/earnings per share, headline earnings per share and fully diluted (loss)/earnings per share, which are non-GAAP measured, have also been presented.

Fully diluted (loss)/earnings per shareFrom continuing operations (0.81)p 4.92 pFrom discontinued operations 0.00 p (0.03)pTotal fully diluted earnings per share (0.81)p 4.89 p

Headline earnings per shareHeadline basic earnings per share 6.71 p 7.90 pHeadline diluted earnings per share 6.22 p 7.05 pHeadline fully diluted earnings per share 5.90 p 6.60 p

48


8. (Loss)/Earnings per Share continued

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

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

The Group’s potentially dilutive shares are shares expected to be issued as deferred consideration on acquisitions and share options issued but not exercised.

Fully diluted (loss)/earnings per share is calculated by dividing (loss)/earnings attributable to ordinary shareholders by the weighted average number of shares in issue during the year adjusted for all of the potentially dilutive ordinary shares expected to be issued in future period whether or not the conditions of the issue have substantially been met. This measure is presented to show the dilutive effect on earnings per share of all shares expected to be issued in the future.

Headline earnings per share is calculated using headline earnings for the year, which excludes the effect of restructuring costs, 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. The exclusion of these non-controlling interests is a change of definition in the year ended 31 December 2011. The effect of this change is to increase headline basic earnings per share by 0.23p, headline diluted earnings per share by 0.21p and headline fully diluted earnings per share by 0.20p for the year ended 31 December 2010.

9. Goodwill

2011 £’000

2010 £’000

CostAt 1 January 71,155 67,926Goodwill arising on acquisitions in the year 4,687 –Adjustment to fair value of deferred consideration 225 3,229Impairment of goodwill (2,499) –Exchange differences 255 –

At 31 December 73,823 71,155

Goodwill represents the excess of cost of acquisition over the fair value of the Group’s share of the net identifiable assets of the acquired subsidiary at the date of acquisition.

49


9. Goodwill continued

Goodwill arising on acquisition in the year ended 31 December 2011 relates to the Group’s acquisition of MedErgy HealthGroup Inc. (“MedErgy”). Further disclosure in relation to this acquisition is given in note 10.

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 the accordance 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 for the year ended 31 December 2011 and 31 December 2010:

2011 £’000

2010 £’000

Insight 10,224 10,224Leapfrog 3,908 3,908The Value Engineers 9,526 9,526RS Consulting 3,364 3,364MSI 7,666 7,6742CV 8,276 8,276Tangible UK 22,419 24,918Rosenblatt – 545Face 3,450 2,672Opticomm 48 48MedErgy 4,942 –

Total 73,823 71,155

During the year ended 31 December 2011, as a result of restructuring initiatives which rationalised the Group’s management structure, the goodwill allocations changed.

The recoverable amount for each CGU is determined using a value-in-use calculation. This calculation uses pre-tax cash flow projections derived from 2012 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 10.8% for 2011 (2010: 12.1%). This rate was calculated using the Capital Asset Pricing Model with an estimated cost of debt and equity, with appropriate small company risk factors.

The review performed at 31 December 2011 resulted in an impairment of goodwill of £2,499,000 for the Tangible UK CGU. The impairment charge was as a result of more challenging trading conditions in Tangible and also the Board’s decision to close its London based above-the-line agency, as part of the strategic effort to focus Tangible on added value areas of communications and advisory services.

50


9. Goodwill continued

The review did not result in the impairment of goodwill for any other of the Group’s CGUs.

Sensitivity to changes in assumptions

Forecast cash flows are inherently uncertain and could materially change over time.

Changes to the assumptions used in calculating forecast cash flows would also change the level of impairment charge recognised in the Tangible UK CGU. The table below shows the variation on the impairment charge with reasonable changes, in isolation, of the key assumptions used in the value-in-use calculation.

Impairment charge (Increase)/decrease

£’000

Pre-tax adjusted discount rate:Increase by 1% (2,503)Decrease by 1% 2,499

Long term growth rate:Increase by 1% 740Decrease by 1% (761)

Reasonable changes to estimates would not result in any impairment to goodwill for the Group’s other CGUs.

10. Acquisitions

MedErgy

On 22 March 2011, the Group acquired the entire share capital of MedErgy HealthGroup Inc. (a company incorporated in the United States), a healthcare communications consulting company based in Pennsylvania, USA.

MedErgy has contributed £5.1m to revenue and £1.3m to profit before tax for the period between the date of acquisition and the balance sheet date. Had MedErgy been consolidated from 1 January 2011, the consolidated income statement for the year ended 31 December 2011 would show revenue of £134.8m and profit before tax of £1.5m.

The fair value of the net assets at the acquisition date shown over the page:

51


10. Acquisitions continuedFair value

£’000

Client relationships 2,348Property, plant and equipment 159Deferred tax assets 99Trade and other receivables 2,703Cash and cash equivalents 706Trade and other payables (2,708)Deferred tax liability (992)

Net assets acquired 2,315

Goodwill arising on acquisition 4,687

7,002

The fair value of trade and other receivables include trade receivables with a fair value of £661,000. The gross contractual amount of trade receivables due at the acquisition date was £733,000 of which £72,000 was expected to be uncollectable.

Goodwill comprises the value of expected synergies and other opportunities arising from the acquisition, management know how, the skilled work force employed by MedErgy 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 3,400Issue of ordinary shares 3,163Deferred consideration 439

7,002

As part of the consideration for the acquisition of MedErgy deferred contingent consideration is also payable. The amount to be paid is dependant on the profits earned by MedErgy in the three years to 31 December 2013. The fair value of this consideration at the acquisition date is £nil and at 31 December 2011 is £nil. The maximum amount of deferred contingent consideration payable is US $1,750,000. Any changes to the fair value of deferred contingent consideration in the future will be recognised in the income statement. In addition an amount equal to the deferred contingent consideration is payable to the employees of MedErgy.

Acquisition costs of £190,000 were incurred. These costs have been included in administration costs in the income statement, but have been excluded from headline measures.

Red Kite

On 11 April 2011, the Group acquired the entire share capital of the Red Kite Consulting Group Limited (a company incorporated in England and Wales), a UK based pharmaceutical consulting business. The net assets acquired and consideration paid were immaterial.

52


11. Intangible AssetsDevelopment costs

£’000Client contracts

£’000Licences

£’000Total

£’000

CostAt 1 January 2010 371 1,280 3,209 4,860Expenditure on development 283 – – 283

At 31 December 2010 654 1,280 3,209 5,143

Expenditure on development 38 – – 38On acquisition of subsidiaries – 2,348 – 2,348Exchange differences – 72 – 72

At 31 December 2011 692 3,700 3,209 7,601

Accumulated amortisation At 1 January 2010 110 1,280 2,296 3,686Charge for the year 116 – 228 344

At 31 December 2010 226 1,280 2,524 4,030 Charge for the year 145 825 228 1,198

At 31 December 2011 371 2,105 2,752 5,228

Net book valueAt 31 December 2011 321 1,595 457 2,373

At 31 December 2010 428 – 685 1,113

At 1 January 2010 261 – 913 1,174

53


12. Property, Plant and Equipment

Leasehold improvements

£’000

Computer equipment

£’000

Fixtures, fittings and office

equipment £’000

Motor vehicles

£’000Total

£’000

CostAt 1 January 2010 2,003 3,403 1,103 339 6,848Additions 75 639 173 30 917Disposals (254) (896) (69) (96) (1,315)Exchange differences – 3 1 1 5

At 31 December 2010 1,824 3,149 1,208 274 6,455

Additions 258 560 153 36 1,007On acquisition of subsidiaries 15 85 60 – 160Disposals (124) (214) (504) (100) (942)Exchange differences 1 5 3 – 9

At 31 December 2011 1,974 3,585 920 210 6,689

Accumulated depreciationAt 1 January 2010 933 2,638 604 158 4,333Charge for the year 207 652 228 64 1,151Disposals (157) (855) (71) (73) (1,156)Exchange differences – 2 1 – 3

At 31 December 2010 983 2,437 762 149 4,331

Charge for the year 203 534 238 60 1,035Disposals (56) (209) (498) (90) (853)Exchange differences (1) – 1 – –

At 31 December 2011 1,129 2,762 503 119 4,513

Net book valueAt 31 December 2011 845 823 417 91 2,176

At 31 December 2010 841 712 446 125 2,124

At 1 January 2010 1,070 765 499 181 2,515

The net book value of property, plant and equipment of the Group includes £85,000 (2010: £140,000) of motor vehicles and £15,000 (2010 : £19,000) of other equipment in respect of assets held under finance leases.

54


13. SubsidiariesDetails of the Company’s principal subsidiary undertakings as at 31 December 2011 are as follows:

Company name

Country of incorporation/

principal operation Class of share

Proportion of nominal value

of issued shares held

Principal activity

Held directly:2CV Limited England Ordinary 100% RCCello Group Inc USA Ordinary 100% RCChiaros Holdings Limited England Ordinary 100% RCFenix Media Limited England Ordinary 51% TInsight Medical Research Limited England Ordinary 100% RCLeapfrog Research and Planning Limited England Ordinary 100% RCOpticomm Media Limited* England Ordinary 20% TRosenblatt Limited England Ordinary 100% RCRS Group Limited England Ordinary 100% RCTangible Group Limited England Ordinary 100% TThe MSI Consultancy Limited England Ordinary 100% RCThe Value Engineers Limited England Ordinary 100% RC

Held indirectly:2CV Inc USA Ordinary 100% RCBlonde Digital Limited Scotland Ordinary 84% TBrightsource Limited England Ordinary 100% TInsight Research Group USA Inc USA Ordinary 100% RCLabinah Management Training Limited England Ordinary 100% RCMedErgy Communications Inc USA Ordinary 100% RCMedErgy Healthcare Group USA Ordinary 100% RCMedErgy Marketing Inc USA Ordinary 100% RCRS Consulting Limited England Ordinary 100% RCScifluent Communications Inc USA Ordinary 100% RCStripe PR and Communications Limited Scotland Ordinary 76% TTangible UK Limited Scotland Ordinary 100% T

*Opticomm Media Limited is included as a subsidiary as Cello Group plc has options over the remaining 80% of the shares in Opticomm Media Limited and under the option agreement Cello has the power to govern the financial and operating policies of Opticomm Media Limited.

RC = Research and Consulting T= Tangible

55


14. Current Assets2011

£’0002010

£’000

Trade and other receivables Trade receivables 21,566 20,038Other receivables 1,456 1,202Prepayments and accrued income 6,109 5,130

29,131 26,370

The average credit period taken on the provision of services was 53 days (2010: 53 days).

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

2011 £’000

2010 £’000

Cash and cash equivalentsCash at bank and in hand 4,170 797

Cash of £830,000 (2010: £69,000) is maintained in a designated account with The Royal Bank of Scotland plc as security for the loan notes issued on acquisitions and is therefore not freely available to the Group.

15. Trade and Other Payables2011

£’0002010

£’000

Trade payables 11,728 11,404Other taxation and social security costs 1,454 2,777Accruals and deferred income 14,710 10,913Deferred consideration for acquisitions 559 –Acquisition related employee remuneration liability 927 846Other payables 590 366

29,968 26,306

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

56


16. Borrowings2011

£’0002010

£’000

Bank loans 10,806 9,000Loan notes 959 458

11,765 9,458

The borrowings are repayable as follows:– on demand or within one year 959 3,208– within two to five years 10,806 6,250

11,765 9,458

Bank loans

During the year ended 31 December 2011 the Group entered into a new multi-currency debt facility with the Royal Bank of Scotland plc. This new facility consists of a £25.0m revolving credit facility which is committed to March 2016. The revolving credit facility bears interest at a variable rate of 1.75% to 2.80% over LIBOR. The average interest rate on the Group’s bank loans in the year was 3.4% (2010: 3.3%).

At 31 December 2011, the Group has drawn £10.8m under the revolving credit facility.

Loan notes

Loan notes have been issued as part of the consideration for certain acquisitions. Secured loan notes are secured on cash deposits and by way of guarantee. Cash deposits provided as security are included within cash and cash equivalents and amount to £830,000. Loan notes bear interest at the following rates:

2011 £’000

2010 £’000

SecuredLIBOR less 2% 880 337LIBOR 79 121

959 458

57


17. Provisions

2011 £’000

2010 £’000

Contingent deferred consideration for acquisitions 2,268 6,415Restructuring provision – 456

2,268 6,871

Current 2,268 4,439Non-current – 2,432

2,268 6,871

Contingent deferred consideration for acquisitions

£’000

Restructuring provision

£’000Total

£’000

At 1 January 2010 4,760 – 4,760

Additions for the year – 456 456Adjustments to provisions for additions in prior years 3,228 – 3,228Notional interest 78 – 78Utilisation of provisions (1,651) – (1,651)

At 31 December 2010 6,415 456 6,871

Adjustments to provisions in prior years 225 – 225Notional interest 58 – 58Utilisation of provisions (4,430) (456) (4,886)

At 31 December 2011 2,268 – 2,268

The provision for contingent deferred consideration for acquisitions represents the directors’ best estimate of the amount expected to be payable in cash (or loan notes) and shares to be issued on acquisitions before 1 July 2009 and accounted for under IFRS 3 Business combinations (as revised January 2008). The provision is discounted to present value at the risk free at the acquisition date.

As a result of the review of contingent consideration at the year end, the directors best estimate of contingent consideration payable in respect of acquisitions prior to 1 January 2011 has increased the provision payable by £0.2m (2010: £3.2m).

The restructuring provision relates to redundancy cost, and onerous lease costs relating to the material reduction of the Group’s exposure to public sector clients in the Research and Consultancy Division.

58


18. Obligations under Finance LeasesA maturity analysis of obligations under finance leases is shown below:

2011 £’000

2010 £’000

Finance leases which expire:– within one year 39 57– in more than one year but not more than five years 43 54

82 111

The Group’s policy is to lease certain of its property, plant and equipment under finance leases. The average lease term is 3 years. The average effective borrowing rate is 9% (2010: 10%). Interest rates are fixed at the contract date and all leases are on a fixed repayment basis.

All lease obligations are denominated in sterling.

The fair value of the Group’s obligations approximates to their carrying value.

The Group’s obligations under finance leases are secured by the lessors’ rights over the leased assets.

19. Derivative Financial Instruments2011

£’0002010

£’000

Interest rate swap at fair value 55 119

55 119

On 24 April 2010, the Group entered into an interest rate swap over £5.3m of borrowings from December 2010, this reduces to £3.3m on 31 December 2011, to £1.0m on 31 December 2012 and £nil on 31 March 2013. The interest rate swap fixes the LIBOR rate at 2.35%. At 31 December 2011 the fair value of this interest rate swap is a liability of £55,000 (2010: £119,000). The interest rate swap is included within Tier 2 as defined in IFRS 7 (Revised) Financial instruments: Disclosures.

59


20. Deferred TaxationThe deferred tax asset of £577,000 (2010: £964,000) and deferred tax liability of £799,000 (2010: £196,000) recognised in the financial statements is set out below:

2011 £’000

2010 £’000

Deferred tax assetsDecelerated capital allowances 203 302Unrelieved share-based payment expense 40 25Unrelieved acquisition related employee remuneration expense 320 605Unrelieved loss on derivative financial instruments 14 32

577 964

Deferred tax liabilitiesAccelerated capital allowances (10) (4)Temporary difference between the net bookvalue and the tax value of intangible assets (789) (192)

(799) (196)

(222) 768

The movement for the year is analysed as follows:2011

£’0002010

£’000

At 1 January 768 670Income statement 34 81Recognised in equity (1) 15Acquired deferred tax balances (992) –Movement due to disposal of a subsidiary – (3)Foreign exchange differences (31) 5

At 31 December (222) 768

60


21. Share Capital

Authorised number of 10p shares

Allotted, issued and fully paid number of

10p sharesShare capital

£’000

At 1 January 2010 84,600,000 58,762,197 5 ,876Movements in the year – 2,882,457 288

At 31 December 2010 84,600,000 61,644,654 6 ,164Movements in the year 15,400,000 16,882,052 1 ,689

At 31 December 2011 100,000,000 78,526,706 7 ,853

The Company has one class of ordinary shares which carry no right to fixed income.

The authorised share capital in the table above represents the number of shares the Company has been given authority to issue by shareholders, including shares already issued, by way of resolution at the Company’s last Annual General Meeting.

On 29 April 2010, 2,882,457 new ordinary shares of 10p each were issued at a value of 32.8p to vendors of Leapfrog Research and Planning Limited and 2CV Limited, both wholly owned subsidiaries, pursuant to the terms of the share purchase agreements of these companies.

On 15 March 2011, 5,333,333 ordinary shares of 10p each were issued at a placing price of 52.5p to new and existing shareholders. The proceeds were used to fund the acquisition of MedErgy.

On 22 March 2011, 5,804,049 ordinary shares of 10p each were issued at the value of 54.4p to the vendors of MedErgy HealthGroup Inc. pursuant to the terms of the share purchase agreement of that company.

On 11 May 2011, 5,744,670 ordinary shares of 10p each were issued at a value of 49.6p to the vendors of 2CV Limited and The MSI Consultancy Limited pursuant to the terms of the share purchase agreements of these companies.

22. Share Options

The Group has the following share options schemes.

EMI Share Option Scheme and Unapproved Share Option Scheme 2004

In 2004, the Company established an EMI Share Option Scheme (the “EMI Scheme”) and an Unapproved Share Option Scheme (the “Unapproved Scheme 2004”). 600,000 share options awarded under these schemes have vested in full and expire on 1 November 2014. 163,266 share options awarded under these have also vested in full and expire on 1 June 2015. On 13 March 2006, the Remuneration Committee agreed that no further awards would be made under these plans. The range of exercise prices of options granted under these schemes is 100p to 122.5p being the market value of the shares at the date of grant of the options.

61


22. Share Options continued

HM Revenue & Customs Approved Share Option Plan 2009 and the Unapproved Option Plan 2010

On 17 November 2009 the Company established the HM Revenue & Customs Approved Share Option Plan 2009 (the “Approved Plan 2009”) and on 15 March 2010 established the Unapproved Option Plan 2010 (the “Unapproved Plan 2010”). Under these plans participants are awarded options over fully paid shares with an exercise price equal to the market value of the shares at the date the awards are granted. Options are exercisable three years, but not later than ten years, after the date of grant subject to performance conditions. Performance conditions are based on Company, Division or Group targets, as appropriate to the participant.

PSP Option Scheme 2010

On 4 June 2010 the Company established a new Performance Share Plan 2010 (“PSP 2010”). Under this plan participants are awarded options over fully paid shares with an exercise price equal to the nominal value of shares, currently 10p per share. Options are exercisable three years, but not more than ten years, after grant subject to performance conditions based on the total shareholder return (“TSR”) of the Group. The number of awards that ultimately vest depends on where Cello ranks when compared to the TSR of a list of comparator companies.

The following share options were outstanding under these share option schemes at 31 December 2011 and 31 December 2010.

31 December 2011 31 December 2010

Number of share options

Weighted average

exercise price (pence)

Number of share options

Weighted average

exercise price (pence)

Outstanding at the beginning of the year 3,649,266 41 763,266 105Granted during the year 1,494,576 31 2,984,000 24Lapsed during the year (583,000) 65 (98,000) 31

Outstanding at the end of the year 4,560,842 35 3,649,266 41

Exercisable at the end of the year 463,266 108 763,266 105

The options outstanding at the end of the year under the EMI Scheme and Unapproved Scheme 2004 have a weighted average remaining life of 3.0 years (2010: 4.0 years) and options issued under the PSP 2010, Approved Plan 2009 and the Unapproved Plan 2010 have a weighted average remaining life of 8.4 years (2010: 9.5 years).

62


22. Share Options continued

The Group uses a Black Scholes model to calculate the fair value of options. The key inputs for share options granted in the year are as follows:

2011 2010

Weighted average share price 42.0p 31.5pWeighted average exercise price 31.0p 24.0pExpected volatility 27.6% 27.7%Expected life 10 years 10 yearsRisk free rate 3.3% 3.5%Dividend yield 3.4% 4.1%

Expected volatility has been determined by calculating the historical volatility of the Group’s share price over the previous 5 years. The expected life used in the model has been adjusted, based on management’s best estimates, for the effects of the non-transferability, exercise restrictions and behavioural considerations.

At 31 December 2011, 181,633 options under the EMI Scheme (2010: 281,633) and 281,633 options under the Unapproved Scheme 2004 (2010: 481,633) had vested. None of the options under the PSP 2010, or Approved Plan 2010 or the Unapproved Plan 2010 have vested at 31 December 2011 (2010: nil).

The fair value of all options granted in the year was £213,000 (2010: £277,000).

23. Notes to the Consolidated Cash Flow Statement(a) Reconciliation of profit for the year to net cash inflow from operating activities


£’000


£’000

(Loss)/profit for the year (270) 3,607Financing income (86) (188)Finance costs 885 998Tax 1,634 1,306Depreciation of the property, plant and equipment 1,035 1,151Amortisation of intangible assets 1,198 344Impairment of goodwill 2,499 –Share-based payment expense 97 39Acquisition related employee remuneration expense 631 362Loss on disposal of property, plant and equipment 64 76Profit on disposal of subsidiary undertaking – (35)Increase in trade and other receivables (324) (1,106)(Decrease)/increase in trade and other payables (339) 1,246

Net cash inflow from operating activities 7,024 7,800

63


23. Notes to the Consolidated Cash Flow Statement continued

(b) Analysis of net debt

At 1 January 2011

£’000Cash flow

£’000

Foreign exchange

£’000

Other changes

£’000

At 31 December

2011 £’000

Cash and cash equivalents 797 3,468 (95) – 4,170Loan notes (458) 1,430 – (1,931) (959)Bank loans (9,000) (1,806) – – (10,806)Finance leases (111) 61 – (32) (82)

(8,772) 3,153 (95) (1,963) (7,677)

24. Commitments under Operating LeasesAt 31 December 2011 the Group had total commitments under non-cancellable operating leases as follows:

Land and buildings

2011 £’000

Land and buildings

2010 £’000

Other 2011

£’000

Other 2010

£’000

within one year 1,962 1,578 215 300in more than one year but no more than five years 5,491 4,161 203 189after five years 1,247 959 – –

8,700 6,698 418 489

64


25. Related Party TransactionsTransactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this note.

Remuneration of key management personnel

The key management personnel of the Group are considered to be the directors (Executive and Non-Executive). The remuneration paid to the key management personnel is shown below:


£’000


£’000

Salaries and other short-term benefits 881 808Social security costs 114 97Post-employment benefits 77 62Share-based payments – share options 44 18

1,116 985

Further information about the remuneration of the directors is provided in the Remuneration Report on pages 22 to 24, and in note 4 to the consolidated financial statements.

26. Contingent LiabilitiesUnder the terms of certain acquisition agreements, additional consideration is payable by the Company contingent on the future financial performance of the acquired entities. The estimated amount of such contingent consideration is included in Provisions (note 17 to the consolidated financial statements).

65


27. Financial Instruments The Group’s principal financial instruments comprise bank loans, bank overdrafts, loan notes, finance leases, deferred consideration for acquisition under IFRS 3 (revised), trade receivables, trade payables and cash. The main purpose of these financial instruments is to provide finance for the Group operations. The Group has other financial assets and liabilities which arise directly from operations.

The following table provides an analysis of the Group’s non-derivative financial assets and liabilities at 31 December 2011 and 31 December 2010:

2011 £’000

2010 £’000

Financial assets:Cash and cash equivalents 4,170 797Trade receivables 21,566 20,038Other receivables 1,456 1,202Accrued income 2,815 2,773

Total financial assets 30,007 24,810

Financial liabilities: Bank loans 10,806 9,000Loan notes 959 458Finance leases 82 111Consideration payable in respect of acquisitions 3,749 5,285Trade payables 11,728 11,404Accruals 8,232 6,467Other payables 590 366

Total financial liabilities 36,146 33,091

The Group enters into derivative financial instruments in the form of interest rate swaps which are disclosed in note 19. The purpose of these derivative financial instruments is to manage the interest rate risk arising from its sources of finance. The Group does not hold derivative financial instruments for trading purposes.

Derivative financial instruments are recognised in the balance sheet at fair value. All other financial assets and liabilities are recognised in the balance sheet at amortised cost.

66


27. Financial Instruments continued

Risk management objectives and policies

The main risks arising from the Group’s financial instruments are interest rate risk, liquidity risk, credit risk and foreign exchange risk.

Interest rate risk

The Group’s exposure to interest rate risk arises from the Group’s long term debt obligations with floating and fixed interest rates. Floating rate financial instruments comprise of the Group’s cash and cash equivalents and borrowings. Fixed rate financial instruments comprise of obligations under finance leases.

£3.8m (2010: nil) of the Group’s borrowings are denominated in US dollars. All the Group’s other borrowings and obligations under finance leases are denominated in sterling. Details of the Group’s borrowings are set out in note 16 and details of the Groups obligations under finance leases are set out in note 18.

The Group manages interest rate risk with the use of interest rate swaps. Details of the Group’s interest rate swap arrangement is set out in note 19. At 31 December 2011 approximately 31% (2010: 56%) of the Group’s total borrowings are at a fixed rate of interest as a result of this arrangement.

The following table demonstrates the sensitivity to reasonably possible changes in interest rates, with all other variables held constant, on the Group’s profit before tax and equity:

2011 £’000

2010 £’000

Increase in rates of 100 basis pointsEffect on headline profit before tax (91) (56)Effect on profit before tax and equity (55) 33

Decrease in rates of 50 basis pointsEffect on headline profit before tax 45 28Effect on profit before tax and equity 28 (16)

The difference in the effects on headline profit before tax and reported profit before tax is due to estimated differences in the fair value of derivative financial instruments.

Liquidity risk

The Group manages liquidity risk by maintaining adequate reserves on its available bank facilities and by continuously monitoring forecast and actual cash flows.

The Group currently has an agreed committed revolving credit facility (“RCF”) of £25.0m with the Royal Bank of Scotland plc, which matures on 31 March 2016, as set out in note 16. In addition to the RCF, the Group has an overdraft facility of £4.0m with the Royal Bank of Scotland plc, which is reviewed on an annual basis. Both the RCF and the overdraft are available on demand. At 31 December 2011 the Group had an undrawn facility of £14.2m on the RCF and had cash and cash equivalents of £4.2m.

67



The table below summarises the maturity prof ile of the Group’s non-derivative f inancial liabilities at 31 December 2011 and 31 December 2010 based on contractual undiscounted payments, including estimated interest payments where applicable:

2011

Less than 6 months

£’000

Between 6 months and

1 year £’000

Between 1 and 5 years

£’000Total

£’000

Bank loans 91 64 11,221 11,376Loan notes 959 – – 959Finance leases 25 24 42 91Consideration payable in respect of acquisitions 3,749 – – 3,749Trade payables 11,728 – – 11,728Accruals 8,232 – – 8,232Other payables 590 – – 590

Total 25,374 88 11,263 36,725

2010

Less than 6 months

£’000

Between 6 months and

1 year £’000

Between 1 and 5 years

£’000Total

£’000

Bank loans 946 2,180 6,560 9,686Loan notes 458 – – 458Finance leases 34 33 57 124Consideration payable in respect of acquisitions 5,285 – 2,086 7,371Trade payables 11,404 – – 11,404Accruals 6,467 – – 6,467Other payables 366 – – 366

Total 24,960 2,213 8,703 35,876

Credit risk

Credit risk predominately arises from trade receivables and cash and cash equivalents.

The Group only trades with recognised creditworthy third parties. Customers who wish to trade on credit terms are generally subject to credit verification procedures. In addition, trade receivable balances are monitored on a continuous basis with the result that the Group’s exposure to bad debt is considered limited.

68



The Group considers the maximum exposure to credit risk is as follows:2011

£’0002010

£’000

Trade receivables 21,566 20,038Accrued income 2,815 2,773

24,381 22,811

The following table provides an analysis of trade and other receivables that were past due, but not impaired, at 31 December 2011 and 31 December 2010. The Group believes that the balances are ultimately recoverable based on a review of past payment history and the current financial status of customers. There are no material bad debt provisions at either 31 December 2011 or 31 December 2010.

2011 £’000

2010 £’000

Up to three months 2,081 2,081Up to six months 166 263

2,247 2,344

The credit risk from other financial instruments arises from default of the counterparty, with a maximum exposure equal to the carrying value of the asset.

Foreign exchange risk

The Group operates in a number of markets across the world and is exposed to foreign exchange risk arising from various currency exposures in respect of trade receivables and trade payables, in particular with respect to the US dollar and the Euro. The Group mitigates its foreign exchange risk with bank loans and overdrafts denominated in foreign currency under its debt facilities.

The Group also has foreign subsidiaries located in the USA. At 31 December 2011 the net foreign assets were £8,109,000 (2010: £740,000). The Group does not hedge this translation exposure to its earnings.

69



The following table demonstrates the Group’s sensitivity to a 10% increase and decrease in sterling against the US dollar and euro, on the Group’s equity. This sensitivity represents management’s assessment of the reasonably possible change in foreign exchange rates.

US Dollar Euro

2011 2010 2011 2010

Strengthening of sterling by 10%On profit for the year (40) (69) (111) (116)On equity (515) (69) (111) (116)

Weakening of sterling by 10%On profit for the year 48 84 135 142On equity 630 84 135 142

The Group’s sensitivity in respect of the US dollar has increased during the current period due to the acquisition of MedErgy in the year. The goodwill arising on the acquisition is recognised as a US dollar asset. Changes in the value of this asset on translation at the balance sheet date are recorded in other comprehensive income. If goodwill is excluded from the sensitivity calculation, a 10% strengthening of sterling against the US dollar would result in an increase in equity of £36,000 and a 10% weakening of sterling against the US dollar would result in a decrease in equity of £44,000.

Capital managementThe Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern in order to provide returns for shareholders through the optimisation of the debt and equity balance.

The Group’s considers its capital to be total equity and net debt. Equity attributable to the owners of the parent comprises of issued share capital, reserves and retained earnings and is disclosed in the balance sheet and in the consolidated statement of changes in equity. Net debt comprises short and long term borrowings (including overdrafts and obligations under finance leases) net of cash and cash equivalents.

The ratio of debt to capital ratio at 31 December 2011 and 31 December 2010 is as follows:2011

£’0002010

£’000

Total debt 11,847 9,569Less cash and cash equivalents (4,170) (797)

Net debt 7,677 8,772

Total equity 66,123 58,243

Debt to capital ratio 12% 15%

The Group has various financial covenants in connection with its current bank loans. During the year ended 31 December 2011 the Group was compliant with its covenants.

70

We have audited the parent company f inancial statements of Cello Group Plc for the year ended 31 December 2011 which comprise the Balance Sheet and the related notes. The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice).

Respective Responsibilities of Directors and AuditorsAs explained more fully in the Directors’ Responsibilities Statement set out on page 18, the directors are responsible for the preparation of the parent company financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit the parent company financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors.

This repor t , including the opinions, has been prepared for and only for the company’s members as a body in accordance with Chapter 3 of Par t 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

Scope of the Audit of the Financial StatementsAn audit involves obtaining evidence about the amounts and disclosures in the financial statements suf f icient to give reasonable assurance that the f inancial statements are free from material miss tatement , whether caused by f r aud or error. This includes an assessment of : whether the accounting policies are appropriate to the parent company’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the financial statements.

Opinion on Financial Statements In our opinion the parent company f inancial statements:

Company’s affairs as at 31 December 2011;

United Kingdom Generally Accepted Accounting Practice; and

requirements of the Companies Act 2006.

Opinion on Other Matter Prescribed by the Companies Act 2006In our opinion the information given in the Directors’ Report for the f inancial year for which the parent company financial statements are prepared is consistent with the parent company financial statements.

Matters on which we are Required to Report by ExceptionWe have nothing to repor t in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion:

by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or

in agreement with the accounting records and returns; or

specified by law are not made; or

explanations we require for our audit.

Other MatterWe have reported separately on the Group financial statements of Cello Group Plc for the year ended 31 December 2011.

David A Snell (Senior Statutory Auditor) for and on behalf of PricewaterhouseCoopers LLP Chartered Accountants and Statutory Auditors London

12 March 2012

KWUXIVa�ÅVIVKQIT�[\I\MUMV\[�

– independent auditor’s report

71

company balance sheetAT 31 DECEMBER 2011

Notes31 December 2011

£’00031 December 2010

£’000

Fixed assetsTangible assets 1 10 20Investments 2 83,763 82,636

83,773 82,656

Current assetsDebtors 3 10,069 6,729Cash at bank and in hand 830 69

10,899 6,798

Creditors: Amounts falling due within one year 4 (20,370) (22,748)

Net current liabilities (9,471) (15,950)

Total assets less current liabilities 74,302 66,706

Creditors: Amounts falling due after more than one year 5 (10,806) (6,250)

Provisions for liabilities 6 – (1,977)

Net assets 63,496 58,479

Capital and reservesCalled up share capital 9 7,853 6,164Share premium account 11 18,104 15,738Capital redemption reserve 11 50 50Merger reserve 11 28,742 26,741Share-based payment reserve 11 209 112Profit and loss account 11 8,538 9,674

Total shareholders’ funds 12 63,496 58,479

Approved and authorised for issue by the Board on 12 March 2012 and signed on its behalf by

Mark Scott Director

Mark Bentley Director

72

KWUXIVa�ÅVIVKQIT�[\I\MUMV\[�


(1) Basis of AccountingThe Company f inancial statements have been prepared under the historical cost convention and in accordance with United Kingdom Generally Accepted Accounting Practice (UK GAAP). As permitted by section 408 of The Companies Act 2006, the Company’s profit and loss account has not been presented. In line with generally accepted practice when consolidated cash f low statement is presented for the Group, the Company has not presented a cash flow statement.

(2) Tangible Fixed AssetsTangible f ixed assets are stated at historical cost less accumulated depreciation. Depreciation is provided at rates calculated to write off the cost, less estimated residual value, of each asset, over their estimated useful economic lives as follows:-

Computer equipment 33% pa. straight line

Fixtures, fittings and office equipment 25% pa. straight line

(3) InvestmentsFixed asset investments are stated at cost less provision for any impairment in value.

(4) Deferred TaxationDeferred tax is recognised in respect of all timing differences that have originated but not reversed at the balance sheet date where transactions or events that result in an obligation to pay more tax in the future or a right to pay less tax in the future have occurred at the balance sheet date. Timing differences are differences between the Company’s taxable profits and its results as stated in the financial statements that arise from the inclusion of gains and losses in tax assessments in periods different from those in which they are recognised in the financial statements.

Deferred tax assets are recognised to the extent that it is regarded as more likely than not that they will be recoverable against suitable taxable profits in the future.

Deferred tax is measured at the average tax rates that are expected to apply in the periods in which timing differences are expected to reverse, based on tax rates and laws that have been enacted or substantially enacted by the balance sheet date. Deferred tax is measured on a non-discounted basis.

(5) Foreign CurrencyTransactions denominated in foreign currencies are initially translated at the exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the rate of exchange ruling at the balance sheet date and the resulting gains and losses are recorded in the profit and loss account.

(6) Share-based PaymentsThe Company has applied the requirements of FRS 20 Share-based payment to both cash-settled and equity-settled share-based employee compensation schemes.

Cer tain employees of the Company receive remuneration in the form of share options. The fair value of the share options granted is measured at the date of grant and expensed to the profit and loss account over the appropriate vesting period, with a corresponding adjustment to equity.

The fair value of the share options takes into account market vesting conditions and non-vesting conditions. Non-market vesting conditions are included in assumptions of the number of options expected to vest. At the end of each repor ting period the Company revises its estimate of the number of share options expected to vest and recognises the impact of the revisions to previous estimates in the prof it and loss account, with a corresponding adjustment to equity.

The grant of share options to the employees of subsidiary under takings is treated as a capital contribution. The fair value of the share options granted is measured at the date of grant and recognised as an increase of cost of investment over the appropriate vesting period, with a corresponding adjustment to equity.

(7) ProvisionsProvisions are recognised when the Company has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources will be required to settle this obligation and a reliable estimate can be made of the amount of the obligation. Expected future cash f lows to settle provisions are discounted to present value.

(8) Related Party TransactionsIn accordance with FRS 8 Related party disclosures, the Company is exempt from disclosing transactions with its wholly owned subsidiaries.

73

VW\M[�\W�\PM�KWUXIVa�ÅVIVKQIT�[\I\MUMV\[FOR THE YEAR ENDED 31 DECEMBER 2011

1. Tangible Fixed Assets

Computer equipment £’000

Fixtures, fittings and office equipment

£’000Total

£’000

CostAt 1 January 2011 40 43 83Additions – 1 1

At 31 December 2011 40 44 84

Accumulated depreciationAt 1 January 2011 34 29 63Charged for the year 3 8 11

At 31 December 2011 37 37 74

Net book valueAt 31 December 2011 3 7 10

At 31 December 2010 6 14 20

2. Fixed Asset Investments

Subsidiaries £’000

At 1 January 2011 82,636Additions in the year 3,351Adjustment to deferred consideration 225Impaired in the year (2,499)Capital contribution in relation to share-based payments 50

At 31 December 2011 83,763

Subsidiaries:The Company’s principal trading subsidiaries are listed in note 13 to the consolidated financial statements.

3. Debtors

Notes2011

£’0002010

£’000

Amounts falling due within one year:Amounts owed by subsidiary companies 9,621 5,624Other debtors 346 369Deferred tax asset 8 18 8Corporation tax – 502Prepayments and accrued income 84 226

10,069 6,729

74


4. Creditors: Amounts falling due within one year

Notes2011

£’0002010

£’000

Bank overdraft 12,128 11,371Loan notes 1,263 458Bank loans – 2,750Trade creditors 92 90Amounts owed to Group companies 3,434 2,746Corporation tax 66 –Other taxation and social security costs 145 156Consideration payable in respect of acquisitions 7 2,467 4,438Other creditors 102 70Accruals and deferred income 673 669

20,370 22,748

Bank overdraftThe bank overdraft is part of the £4.0m Group wide overdraft facility with the Royal Bank of Scotland plc, which holds a debenture over the assets of the Company and its subsidiaries. There is a cross-guarantee between the Company and its subsidiaries. The bank overdraft bears interest at a variable rate of 1.75% to 2.80% over LIBOR and is repayable on demand.

Bank loansDuring the year the Company entered into a new debt facility with the Royal Bank of Scotland plc. The new debt facility consists of a £25.0m revolving credit facility which is committed to March 2016. The revolving credit facility bears interest at a variable rate of 1.75% to 2.80% over LIBOR. The security over the revolving credit facility is the same as for the bank overdraft.

Loan notesLoan notes have been issued as part of the consideration for certain acquisitions. Secured loan notes are secured on cash deposits and by way of guarantee. Cash deposits provided as security are included within cash at bank and in hand and amount to £830,000 (2010: £69,000). Loan notes a repayable on demand and bear interest at the following rates:

2011 £’000

2010 £’000

SecuredLIBOR less 2% 1,184 337LIBOR 79 121

1,263 458

75


5. Creditors: Amounts falling due after more than one year 2011

£’0002010

£’000

Bank loans 10,806 6,250

6. Provisions for Liabilities

Notes2011

£’0002010

£’000

Contingent consideration for acquisitions 7 – 1,977

7. Deferred Consideration for Acquisitions

£’000

At 1 January 2011 6,415Settled in the year (4,231)Adjustment to provision for additions in prior years 225Notional finance costs on future deferred consideration payments 58

At 31 December 2011 2,467

Due in one year or less:Consideration for acquisitions 2,467

Due after more than one year but not more than five years:Contingent consideration for acquisitions –

At 31 December 2011 2,467

Acquisitions made by the Company typically involve an earn out agreement whereby the consideration payable includes a deferred element that is contingent on the future financial performance of the acquired entity.

Conditions have substantially been met on £2.5m of earn out and other consideration which is payable in 2012.

The provision for contingent consideration for acquisitions represents the directors’ best estimate of the amount expected to be payable in cash or loan notes and shares to be issued. The provision is discounted to present value at the risk free rate at the acquisition date.

As a result of a review of contingent consideration at the year end, the directors’ best estimate of contingent consideration payable in respect of acquisitions prior to 1 January 2011 has increased the provision for consideration payable by £0.2m.

76


8. Deferred Taxation2011

£’0002010

£’000

Deferred tax assets:Other timing differences 18 8

The movement in the year of £10,000 is included in the tax charge in the profit and loss account.

9. Called Up Share Capital

2011 £’000

2010 £’000

Authorised:100,000,000 ordinary shares of 10p each 10,000 8,460

Allotted, issued and fully paid:78,526,706 ordinary shares of 10p each 7,853 6,164

The Company has one class of ordinary shares which carry no right to fixed income.

Details of shares issued in the year are given in note 21 to the consolidated financial statements.

10. Share-based Payments

Details of share option awards and key inputs into the Black Scholes model to calculate the fair value of options are given in note 22 to the consolidated financial statements.

For the year ended 31 December 2011, the Company recognised an expense of £47,000 in the profit and loss account (2010: £39,000) in relation to equity settled share-based payment transactions.

77


11. ReservesShare

premium account

£’000

Capital redemption

reserve £’000

Merger reserve

£’000

Share-based payment reserve

£’000

Profit and loss account

£’000Total

£’000

Company

At 1 January 2011 15,738 50 26,741 112 9,674 52,315Loss for the year – – – – (2,926) (2,926)Shared-based payments – – – 47 – 47Dividends paid – – – – (709) (709)Transfer between reserves in respect of impairment – – (2,499) – 2,499 –Share-based payment in subsidiaries – – – 50 – 50Allotment of shares during the year 2,366 – 4,500 – – 6,866

31 December 2011 18,104 50 28,742 209 8,538 55,643

12. Equity Shareholders’ Funds

2011 £’000

2010 £’000

(Loss)/profit for the year (2,926) 1,789New share capital subscribed 1,689 288Premium on shares issued in the year (net of expenses) 2,366 194Merger reserve on shares issued in the year 4,500 463Dividends paid (709) (814)Expense for share-based incentive schemes 47 19Share-based payments in subsidiaries 50 20

Net addition to equity shareholders’ funds 5,017 1,959

Opening equity shareholders’ funds 58,479 56,520

Closing equity shareholders’ funds 63,496 58,479

78

notice of annual general meeting

Notice is hereby given that the Eighth Annual General Meeting of the Company will be held at 11-13 Charterhouse Buildings, London EC1M 7AP on Tuesday 15 May 2012 at 12.30pm, for the transaction of the following business:

Ordinary Business

1. To receive and adopt the Directors’ Repor t and Financial Statements for the year ended 31 December 2011, together with the auditors’ report thereon.

2. To declare a final dividend of 1.17p per ordinary share for the year ended 31 December 2011.

3. To rece ive and approve the D irec tor s ’ Remuneration Repor t for the year ended 31 December 2011.

4. To re-elect Paul Hamilton as a Director, who resigns in accordance with the Company’s Articles of Association.

5. To re-elect William David as a Director, who resigns in accordance with the Company’s Articles of Association.

6. To re-appoint Pr icewaterhouseCoopers as auditors of the Company to hold office until the next General Meeting at which accounts are laid and to authorise the Directors to fix their remuneration.

Special Business

To consider and, if thought fit, pass the following resolutions of which resolution 7 is an ordinary resolution and resolutions 8 and 9 are special resolutions.

7. That, in substitution for existing authorities to the extent unutilised, the directors be and are hereby generally and unconditionally authorised pursuant to section 551 of the Companies Act 2006 (the “Act”) to exercise all powers of the Company to allot shares or grant rights to subscribe for or conver t any security into

shares up to an aggregate nominal amount of £2,147,329 to such persons, at such times and on such terms and conditions as the directors determine, during the period expiring (unless previously renewed, varied or revoked by the Company in General Meeting) on whichever is the earlier of the conclusion of the Annual General Meeting of the Company held in 2013 and the date falling 15 months after the date of passing of this resolution, but the Company may make an offer or agreement before the expiry of this authority which would or might require shares to be allotted or rights to subscribe for or convert any security into shares to be granted after expiry of this authority and the directors may allot shares or grant rights to subscribe for or convert any security into shares in pursuance of that offer or agreement.

Special Resolutions

8. That, subject to the passing of resolution 7 set out in the notice convening this meeting, the directors be empowered pursuant to section 570 of the Companies Act 2006 (the “Act”), to allot equity securities (within the meaning of the Act) of the Company for cash pursuant to the general authority conferred on them by the said resolution 7 as if section 561(1) of the Act did not apply to any such allotment provided that this power shall be limited to:

(a) the a l lotment of equ i t y secur i t ies in connection with an offer of equity securities (whether by way of a rights issue, open offer or otherwise), open for acceptance for a period f ixed by the directors, to holders of ordinary shares on the register on any f ixed record date in proportion (as nearly as practicable) to their holdings of ordinary shares, subject to such exclusions or other such arrangements as the directors may deem necessary or expedient in relation to fractional entitlements or legal or practical problems arising under the laws of, or the

79

requirements of, any regulatory body or any stock exchange in, any territory; and/or

(b) the allotment (otherwise than pursuant to paragraph (a) above) of equity securities up to an aggregate nominal amount of £785,267.

and the power hereby conferred shall operate in substitution for and to the exclusion of any previous power given to the directors pursuant to section 570 of the Act and shall expire on whichever is the ear l ier of the conclusion of the Annual General Meeting of the Company held in 2013 and the date falling 15 months after the date of the passing of this resolution, unless such power is renewed or extended prior to such expiry, except that the Company may before the expiry of any power conferred by this resolution make an of fer or agreement which would or might require equity securities to be allotted after such expiry and the directors may allot equity securities in pursuance of such offer or agreement as if the power conferred hereby had not expired.. This power applies in relation to a sale of shares which is an allotment of equity securities by virtue of Section 560(2) of the Act as if in the f irst paragraph of this resolution the words “pursuant to the general authority conferred on them by the said resolution 7” were omitted.

9. That the Company be and is hereby granted general and unconditional authority (pursuant to section 701 of the Companies Act 2006 (the “Act”)) to make market purchases (as defined in section 693 of the Act) of any of its own ordinary shares of 10p each on such terms and in such manner as the Board of directors of the Company may from time to time determine provided that:

(a) the maximum number of shares authorised to be purchased is 3,926,335 ordinary shares of 10p each, being 5% of the shares in issue as at 5 March 2012;

(b) the maximum price which may be paid for a share is an amount equal to not more than 105% of the average of the middle market quotations for the shares taken from the London Stock Exchange Daily Off icial List for the five business days before the day on which the purchase is made;

(c) the minimum price which may be paid for a share is 10p exclusive of any attributable expenses payable by the Company; and

(d) the authority conferred by this resolution shall expire on whichever is the earlier of the conclusion of the Annual General Meeting of the Company held in 2013 and the date falling 15 months after the date of the passing of this resolution, unless such authority is renewed or extended prior to such expiry, whichever is the earlier, except that the Company may, before such expiry, enter into a contract for the purchase of its own shares which may be completed by or executed wholly or partly after the expiration of this authority.

By order of the Board

Mark BentleyCompany Secretary11 April 2012

Registered Office11-13 Charterhouse Buildings, London EC1M 7AP

Notes To The Notice Of Annual General Meeting

1. As a member of the Company, you are entitled to appoint a proxy to exercise all or any of your rights to attend, speak and vote at the Annual General Meeting and you should have received a proxy form with this notice of meeting. You can only appoint a proxy using the procedures set out in these notes and the notes to the proxy form.

2. A proxy does not need to be a member of the Company but must attend the Annual General


80


Meeting to represent you. Details of how to appoint the Chairman of the Annual General Meeting or another person as your proxy using the proxy form are set out in the notes to the proxy form. If you wish your proxy to speak on your behalf at the Annual General Meeting you will need to appoint your own choice of proxy (not the Chairman) and give your instructions directly to him/her.

3. You may appoint more than one proxy provided each proxy is appointed to exercise r ights attached to different shares. You may not appoint more than one proxy to exercise rights attached to any one share.

4. A s pe r mi t ted by Regu la t ion 41 of t he Uncer tif icated Securities Regulations 2001, Shareho lder s who ho ld the i r sha res in uncer tif icated form must be entered on the Company’s share register by 12.30pm on 11 May 2012 in order to be entitled to attend and vote at the Annual General Meeting. Such Shareholders may only cast votes in respect of shares held at such time. Changes to entries on the register of members after such time on such date will be disregarded in determining the rights of any person to attend and vote at the Annual General Meeting.

5. To be effective, a proxy form must be duly completed, executed and returned, together with the power of attorney or other authority, if any, under which it is signed, or a notarially certified copy or a copy certified in accordance with the Powers of Attorney Act 1971 of such power of attorney or authority, so as to reach the Company’s registrars, Computershare Investor Services PLC, The Pavilions, Bridgwater Road, Bristol, BS99 6ZY by 12.30pm on 11 May 2012, being 48 hours (excluding any part of a day that is not a working day) prior to the time fixed for the meeting or, in the case of an adjournment, as at 48 hours (excluding any part of a day that

is not a working day) prior to the time of the adjourned meeting.

6. In the case of joint holders, where more than one of the joint holders purports to appoint a proxy, only the appointment submitted by the most senior holder will be accepted. Seniority is determined by the order in which the names of the joint holders appear in the Company’s register of members in respect of the joint holding (the first-named being the most senior).

7. I f mult iple corporate representat ives are appointed, in order to facil i tate voting by corporate representatives at the Annual General Meeting, arrangements will be put in place at the Annual General Meeting so that:

(i) if a corporate member has appointed the Chairman of the Annual General Meeting a s i t s corpor ate representat i ve w i th instructions to vote on a poll in accordance with the directions of all the other corporate representatives for that member at the Annual General Meeting, then, on a poll, those corporate representatives will give voting directions to the Chairman and the Chairman will vote (or withhold a vote) as corporate representative in accordance with those directions; and

(ii) if more than one corporate representative for the same corporate member attends the Annual General Meeting but the corporate member has not appointed the Chairman of the Annual General Meeting as its corporate representative, a designated corporate representative will be nominated, from those corporate representatives who attend, who will vote on a poll and the other corporate representatives will give voting directions to that designated corporate representative.

8. The following documents will be available at the registered office of the Company on any weekday

81


(except Saturday) during normal business hours from the date of this notice until the date of the Annual General Meeting:

- a copy of the ser vice agreements for the Executive Directors;

- a copy of the letters of appointment for the Non Executive Directors;

- the Articles of Association of the Company; and

- the register of interests of the directors (and their families) in the share capital of the Company.

These documents will also be available for inspection during the Annual General Meeting and for at least 15 minutes before it begins.

Explanation of Special Business at the Annual General Meeting

Explanation of Resolution 7 (Authority to allot securities)

Resolution 7, which will be proposed as an ordinary resolut ion, would give the directors author ity to allot shares up to a maximum nominal amount of £2,147,329 being approximately 27% of the Company’s issued share capital as at 5 March 2012. The existing authority would be revoked and this new authority would expire on the date of the 2013 Annual General Meeting or 15 August 2013, whichever is the earlier.

Explanation of Resolution 8 (Disapplication of pre-emption rights)

Resolution 8, which will be proposed as a special resolution, would renew the power of the directors to allot shares for cash as though the rights of pre-emption conferred by section 561(1) of the Act did not apply:

(a) in connection with an offer to existing shareholders in proportion to their existing holdings save that the directors are allowed to offer shares to existing shareholders otherwise than strictly in proportion to their holdings where, for example, overseas regulations make it difficult to offer shares pro rata

to existing overseas shareholders or when dealing with fractions of shares, and/or

(b) up to a nominal amount of £785,267 being 10% , of the issued share capital of the Company as at 5 March 2012 (to give the directors some flexibility in financing business opportunities as they arise).

This power would expire on the date of the 2013 Annual General Meeting or 15 August 2013, whichever is the earlier.

Explanation of Resolution 9 (Authority to purchase own shares)

In certain circumstances it may be advantageous for the Company to purchase its own shares. Resolution 9, which will be proposed as a special resolution, seeks authority from shareholders to do so, such authority to expire on the date of the 2013 Annual General Meeting or 15 August 2013, whichever is the earlier. The directors intend to exercise this power only if and when, in the light of market conditions prevailing at the time, they believe that the effect of such purchases will be to increase earnings per share and is in the best interests of shareholders generally. Other investment opportunities, appropriate gearing levels and the overall position of the Company will be taken into account before deciding upon this course of action. Any shares purchased in this way will be cancelled and the number of shares in issue will be accordingly reduced.

This resolution specifies the maximum number of shares which may be acquired (being 3,926,335 ordinary shares, which is 5% of the Company’s issued share capital as at 5 March 2012 of 78,526,706 ordinary shares) and the maximum and minimum prices at which they may be bought.

82

directors

Allan Rich – Non-Executive Chairman

Allan Rich has spent all his working life in the advertising business. He co-founded Davidson Pearce Berry and Spottiswood which became one of the most successful agencies in the UK during the late 60’s and early 70’s. In 1975 he founded the first independent media planning and buying company in the UK which he called The Media Business. In 1995 he

took the company to the London Stock Market and in 1998 sold his group to Grey Advertising New York in order to create a truly global media organisation, MediaCom. Over the following 4 years MediaCom became the largest media company in the UK and number 5 in the world. Allan is a member of the Audit Committee.

Mark Scott – Chief Executive

From 1994 to 1998 Mark Scott was a senior executive at WPP Group plc, latterly being appointed Operations Director for the Group with responsibility for the Group’s European and Asian acquisition programme. Post WPP he became Executive Vice President of Lighthouse Global Network LLC where he helped acquire and consolidate

more than 15 marketing services companies. From 2000 to 2002 he was appointed a senior executive of Lake Capital Management, a private equity firm, where he was responsible for a range of investments in marketing service firms. He has been a member of the Boards of a number of public companies in the sector including Watermark Group plc, Chime Communications Group plc, Chemistry Communications Group plc and Fitch plc. He obtained his MBA from Harvard Business School and a first class honours degree in English Literature from Oxford University.

Mark Bentley – Group Finance Director

Mark Bentley joined Cello Group as Group Finance Director in May 2005. He is also Company Secretary. Mark previously worked for Citigate Dewe Rogerson which he joined in 2000 as Financial Controller and spent the next five years in various senior finance roles within Incepta Group plc, including Finance Director of Citigate Dewe Rogerson from February 2001. Whilst maintaining the Finance Director role, he took

on wider operational responsibilities when he was appointed Chief Operating Officer in November 2003. From June 2002 he also had the parallel role of Finance Director of the Citigate SMARTS regional network of offices. Prior to Citigate he was Financial Projects Manager at Hodder Headline plc. Mark qualified as a chartered accountant with Coopers & Lybrand in 1996.

83

directors

Paul Hamilton – Non-Executive Director and Senior Independent Director

Paul Hamilton was Senior Independent Director of Wellington Underwriting plc until 31 December 2006. Prior to this Paul worked in both corporate finance at UBS Warburg where he was a Managing Director, and in corporate broking at Rowe & Pitman where

he was a Partner. In recent years Paul has also been Chairman of the FSA Listing Rules Committee and a member of the FSA Listing Authority Advisory Committee and London Stock Exchange Primary Markets Committee. Paul chairs both the Nomination and Remuneration Committee and is a member of the Audit Committee.

Will David – Independent Non-Executive Director

Will David was Non-Executive Chairman of Polaron plc until March 2007 and Chairman of its Audit and Remuneration Committees, and of Orca Interactive Limited until it was taken over in May 2008. He is currently Non-Executive Chairman of Advanced Power Components plc. He has more than 20 years experience working in corporate advisory

and broking roles for small and mid cap companies. Will has also worked at Investec Henderson Crosthwaite, PricewaterhouseCoopers, Hoare Govett & Co and The London Stock Exchange. During his professional career Will has worked on over twenty flotations for clients across a range of sectors. His experience also includes acquisitions and disposals, public takeovers and secondary fundraisings and provision of advice on corporate governance matters. Will chairs the Audit Committee and is a member of both the Nomination and Remuneration Committees.

84

XW_MZN]T�ZMITQ[I\QWV�

With commercial pressures mounting and new technologies making wholesale changes to the pace and nature of marketing, Cello’s mission is to cut through the increasing mass of data and unlock the real value of information for brand owners, allowing them to act more quickly and with greater conviction than the competition. We help our clients to discover business-changing ideas and to deliver those ideas with real impact on the bottom line, using the Cello Powerful Realisation methodology.

Our Powerful Realisation methodology starts with discovering and distilling original customer and market insights, think “Aha!”. We reach these Eureka moments by using Cello businesses’ intellectual strength to think in flexible, unconventional and diverse ways. It allows us to creatively gather insight, fill narrative gaps, and ultimately, to make ingenious connections that illuminate simple truths – truths that have the power to change our clients’ businesses.

From here, we work with client teams to make their strategic objectives and ambitions real. The delivery stage is all about turning the penetrating insights into commercially sound recommendations; embedding knowledge and equipping internal teams with the expertise and consumer understanding to reach their goals; and creating highly differentiated marketing strategies that can be executed using a variety of traditional and new delivery methods, especially in new channels.

In launching the Powerful Realisation methodology across the Cello Group, we have drawn inspiration from examples ranging from biology to engineering; from Ancient Greece to modern Britain and below are some of the stories that we found most inspiring. Some you may know; others may surprise you – but each tells a tale of Powerful Realisation, made a reality via a process of discovery and delivery.

EYE/CAMERA From Aristotle’s pinhole aperture to Wollaston’s curved meniscus lenses, the history of the camera is a masterclass in biomimicry. Magnifying, focusing and capturing images is an evolving art, with each new iteration borrowing yet more from the ultimate optical machine – the eye. 2010 saw the development of a 360˚ camera, inspired by the workings of a fly’s eye: the latest addition to a market due to reach $230.9 billion by 2013.

WHALE/SUBMARINEThe submarine has been inspired by that other majestic deep sea diver – the whale, drawing on the interior structures which allow both to remain underwater without being constrained by water pressure, and self-adjustable buoyancy controls. More recently biology professor Dr Frank Fish noticed that the bumps on the flippers of a humpback whale increased their aerodynamic efficiency, and turned this discovery into an innovative solution now stretching beyond submarines to aeroplanes and wind turbines.

BIRD/PLANEIcarus may have failed, but birds have always inspired us in our quest for flight. Around 400 BC the Greek polymath Archytas designed and built the first self-propelled flying device – a bird-shaped model named The Dove. Even today, aeronautical engineers still draw inspiration from our feathered friends, borrowing from birds of prey that circle and attack for new fighter jets. Worldwide airport passenger numbers reached 5.04 billion in 2010 – a figure beyond Archytas’ wildest dreams.

85

CHAMELEON/CAMOUFLAGEThe 1909 publication of Abbott Thayer’s book Concealing Coloration in the Animal Kingdom led to a revolutionary concept for those operating in dangerous conditions overseas. His presentation of the natural concealment used by creatures such as tigers and chameleons inspired a revolutionary concept in protection for those engaged in hunting or combat: the camouflage pattern. In the 21st century, camouflage materials can be found everywhere from the battlefield to the high street.

BAT/SONAROne could argue that sonar was never invented – it was merely borrowed from the animal kingdom. Bats use sonar to gauge their position relative to other objects – or their prey – based on the time it takes for their high pitched calls to ricochet from surrounding surfaces and come back to them. Today sonar is used in myriad situations, from communication between maritime vessels to geology, oceanography and fishing fleets.

PALM LEAF/FANPalms leaves have been used as fans across centuries and continents – such an important asset for life in desert climes that they are mentioned more than 30 times in the Bible. The Greeks, Etruscans and Romans all used fans as cooling and ceremonial devices, while Chinese literary sources associate them with mythical characters. The story goes that when fans came to the courts of Europe in the 17th century they were used to flutter secret, flirtatious messages between young lovers – in truth, an early coup of marketing for 18th century consumers.

DROPLET/EYEGLASSESIn the 1st century AD, Roman philosopher Seneca the Younger noted the magnifying properties of water: “Letters, however small and indistinct, are seen enlarged and more clearly through a globe or glass filled with water”. By 1286, the Italians had used his discovery to deliver the first pair of eyeglasses. These same ancient properties are now harnessed in glasses and contact lenses to correct myriad vision impairments worldwide, with a global market projected to exceed $107 billion by 2015.

ORANGE/VITAMIN CIn 1747, British naval surgeon Sir James Lind discovered that citrus fruits prevent scurvy – helping to bring the English fleet victory against Napoleon. Nearly two hundred years later, Dr Norman Haworth was awarded the Nobel Prize for chemistry for his work in identifying ascorbic acid as the primary source of Vitamin C, allowing it to be synthesised and distributed en masse as the first artificial vitamin supplement. The global market for vitamins is now forecast to reach $3.2 billion by 2017.

XW_MZN]T�ZMITQ[I\QWV�

86

group directory

Head Office11-13 Charterhouse Buildings, London EC1M 7APtel: +44 (0)20 7812 8460 www.cellogroup.comContact: Mark Scott

Cello Research and Consulting

Insight Research Group11-13 Charterhouse Buildings, London EC1M 7APtel: +44 (0)20 7608 9300 www.insightrg.comContact: Jane Shirley, Nicola Cowland

Insight Research Group USA236 West 30th Street, 11th Floor, NY 10001 USAtel: +1 646 837 8151 www.insightrg.com Contact: Avanti Ananthram

RS Consulting Group (London)Priory House, 8 Battersea Park Road SW8 4BGtel: +44 (0)20 7627 7700 www.rsconsulting.comContact: Phil Stubington and Chris Stead

MedErgy HealthGroup790 Township Line Road, Suite 200, Yardley, PA 19067tel: +1 215 504 2082 www. medergygroup.comContact: Julia Ralston

Leapfrog13 High Street, Windsor, Berkshire SL4 1LDtel: +44 (0)175 327 1400 www.leapfrogresearch.co.ukContact: Judy Taylor

Leapfrog in America236 West 30th Street, 11th Floor, NY 10001 USAtel: +1 212 488 6300 www.leapfroginamerica.com Contact: Claire Thomas

The Value EngineersWendover House, 24 London End, Beaconsfield, Buckinghamshire HP9 2JHtel: +44 (0)1494 680999www.thevalueengineers.com Contact: Owen Williams

The Value Engineers – North America236 West 30th Street, 11th Floor, NY 10001 USAtel: +1 646 837 8161 www.thevalueengineers.com Contact: Alex Waters

Cello MRUKPriory House, 8 Battersea Park Road SW8 4BGtel: +44 (0)845 130 4576 www.mruk.co.ukContact: Rachel Cope

TMI7 Clarendon Place, Royal Leamington Spa, Warwickshire CV32 5QLtel: +44 (0)845 330 8312 www.tmi.co.ukContact: Gillian James

The MSI Consultancy Weaver’s Yard, West Street, Farnham, Surrey GU9 7DNtel: +44 (0)1252 717099 www.msi.co.ukContact: Jon Bircher

2CV Research35 King Street, Covent Garden, London WC2E 8JGtel: +44 (0)20 7655 9900 www.2CV.co.ukContact: Vincent Nolan

2CV US460 Bush Street, Floor 1, San Francisco, California CA 94108tel: +1 415 956 1004 www.2CV-inc.comContact: Doug Edmonds

87

group directory

2CV Asia Pacific1 Fullerton Road #02-01, Singapore 049213tel: +65 68325611 www.2cv-ap.comContact: James Redden

Face7 Midford Place, London W1T 5BGtel: +44 (0)20 7874 6599 www.facegroup.comContact: Andrew Needham

Face USA236 West 30th Street, 11th Floor, NY 10001 USAtel: +1 646 837 8152 www.facegroup.com Contact: Philip McNaughton

Cello Communications

Tangible Group37 The Shore, Edinburgh EH6 6QUtel: +44 (0)131 556 8002 www.tangible.uk.comContact: John Rowley

Tangible (Edinburgh)37 The Shore, Edinburgh EH6 6QUtel: +44 (0)131 556 8002 www.tangible.uk.comContact: Melanie Morris

Tangible (Cheltenham)St James’s House, St James Square, Cheltenham GL50 3PRtel: +44 (0)1242 258700 www.tangible.uk.comContact: Guy Harris

Tangible (London)7 Midford Place, London W1T 5BGtel: +44 (0)20 7881 3200 www.tangible.uk.comContact: Karen Trickett

Leith 37 The Shore, Edinburgh EH6 6QUtel: +44 (0)131 561 8600 www.leith.co.ukContact: Richard Marsham

Blonde 116 Dundas Street, Edinburgh EH3 5EEtel: +44 (0)131 526 3030 www.blonde.netContact: Pete Burns

BrightsourceSt James’s House, St James Square, Cheltenham GL50 3PRtel: +44 (0)1242 534200 www.brightsource.co.ukContact: Peter Frings

Magnetic116 Dundas Street, Edinburgh EH3 5EEtel: +44 (0)131 555 7510 www.magnetic-advertising.comContact: Ben Hutton

Stripe Communications116 Dundas Street, Edinburgh EH3 5EEtel: +44 (0)131 561 8628 www.stripecom.co.ukContact: Juliet Simpson

Opticomm Media7 Midford Place, London W1T 5BGtel: +44 (0)20 7874 6567 www.opticomm.co.ukContact: Spencer Stratford, Paul Cox

Rosenblatt7 Midford Place, London W1T 5BGTel: +44 (0)20 7483 0583 www.rosenblatt.co.ukContact: Andrew Needham

88

advisors

Company SecretaryMark Bentley

Registered Office11-13 Charterhouse BuildingLondon EC1M 7AP

Independent AuditorPricewaterhouseCoopers LLPChartered Accountants and Statutory Auditors1 Embankment PlaceLondonWC2N 6RH

Nominated Advisor and BrokerCenkos Securities6.7.8 Tokenhouse YardLondon EC2R 7AS

SolicitorsMarriott HarrisonStaple Court11 Staple Inn BuildingsLondonWC1V 7QH

Principal BankerRoyal Bank of Scotland plc280 BishopsgateLondon EC2M 4RB

RegistrarsComputershare Investor Services plcPO Box 82The PavilionsBridgwater RoadBristol BS99 7NH

Cello Group plc11-13 Charterhouse Buildings

London EC1M 7APtel: +44(0)20 7812 8460

www.cellogroup.com

Company Registration No.05120150

highlights

Headline Summary 2011 2010 Change

Gross Profit1 £64.3m £60.3m +6.6%

Headline2 profit before tax £7.1m £6.4m +10.2%

Headline operating margin3 12.1% 12.1% -0.0%

Basic headline earnings4 per share 6.71p 7.90p -15.1%

Proposed full year dividend 1.72p 1.43p +20.3%

Net debt £7.7m £8.8m -12.5%

Strong financial performance

line with market expectations.

of MedErgy and like-for-like gross5 profit growth of 2.1% in Research and Consulting.

the fifth consecutive year of dividend growth.

and restructuring costs. Reported loss per share of 0.88p (2010: 5.88p). Good start to

pharmaceutical clients.

Balance sheet considerably strengthened

to £7.7m (2010: £8.8m).

March 2016.

International and pharmaceutical focus enhanced

first year.

(2010: 21.2%) driven by organic growth and MedErgy.

50.0% of Research and Consultancy revenues (2010: 41.5%).

business launched in 2012 with immediate material new project win.

Strong growth from digital offering

– eVillage and e-luminate.

research growing strongly.

1 Gross profit is identified as revenue less cost of sales. Cost of sales includes amounts payable to external suppliers where they are retained to perform part of a project. Cost of sales does not include direct labour costs.



4 Headline earnings per share is defined in note 6.5 Like-for-like measures exclude discontinued operations, the

impact of acquisitions, and the impact of any reclassification of business between reporting segments.

C

ello

G

ro

up plc

A

nnual

Repo

rt 2011

YeAR ended 31 deCembeR 2011

AnnUAL RePORT And FInAnCIAL STATemenTS

dISCOveRY deLIveRY

Date post:	22-Mar-2020
Category:	Documents
Upload:	others
View:	0 times
Download:	0 times

AnnUAL RePORT And FInAnCIAL STATemenTS · Mark Scott, Chief Executive 1 Headline measures are...

Documents