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ANNUAL REPORT 2017

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Cello Annual Report 20172

HIGHLIGHTS

Who We Are 4Progress Against Our Strategic Priorities 10Key Financial Metrics 12

STRATEGIC REPORT

Chairman’s Statement 15Our Marketplace 16Our Business Model 22Strategic Priorities 23Chief Executive’s Operational Review 24Group Finance Director’s Report 32

STRATEGY IN ACTION

The Work We Do 37Cello Health Logic 43Acquisitions 44

PEOPLE, CULTURE AND CORPORATESOCIAL RESPONSIBILITY

Our People 48Cello Culture 52Corporate Social Responsibility 54

Contents

CORPORATE GOVERNANCE

Directors’ Report 56Corporate Governance Report 60Report of the Remuneration Committee 62

CONSOLIDATED FINANCIALSTATEMENTS

Independent Auditors’ Report 64Consolidated Financial Statements 70Accounting Policies 75Notes to the ConsolidatedFinancial Statements 80

COMPANY FINANCIAL STATEMENTS

Independent Auditors’ Report 109Company Financial Statements 113Accounting Policies 115Notes to the CompanyFinancial Statements 118

OTHER INFORMATION

Notice of Annual General Meeting 121Directors’ Biographies 126Advisers 128

Cello Annual Report 2017 3

Who We Are

A global healthcare-focused advisorygroup comprised of adistinct set of technicaladvisory and digitaldelivery capabilities.


“We enable clients to differentiate their propositionsand drive brand success in ever more complex globalmarkets. We deliver our services through nearly1,000 highly skilled professionals utilising latestthinking, technology and digital solutions.”

Mark ScottCEO, Cello Group plc

OUR AMBITION

To be a truly global company of destinationand distinction.

• For our clients as their preferred partner of choice,working with them to achieve commercial success.

• For our people to experience a rewardingenvironment that enables them to achieve theirfull potential.

• For our shareholders to benefit from the resultsof a prosperous and successful company.


Can DoTo get things done,on time, on brief

Our underlying workethos is the ‘Pursuit ofBetter’; to never be contentwith the status quo orthe delivery of just goodenough solutions.

We challenge ourselves andour approaches to performto higher standards, todeliver exceptional results.This is represented inour core values.

Who We Are

We, not I

CollaborativeSpirit


ConstantlyCuriousSearching for deeperunderstanding andchallenging latest thinking

BoldTo act with courage,creativity and confidence

PassionateIn what we do and inour delivery

FreshThinkingHarnessing our talent todeliver innovative solutions


Who We Are

INSIGHT ANDANALYTICS

Cello Health Insight

Specialised healthcare marketresearch and analyticcapabilities. Our expert teamswork regularly with GlobalFortune 500 pharmaceuticalcompanies, as well as smallto mid-sized biotech andmedtech firms, designingand delivering cutting edgecustomer research. Thisresearch leverages latestqualitative and quantitativemethodologies, includingdigital platforms andbehavioural economic thinking,to enable clients to build adeeper understanding of theircustomers and markets.

This unique mix of capabilities,combined with our collaborativeapproach, results in a unique‘fusion’ of expertise, providingpowerful advisory andimplementation solutions.

Our four core global capabilitiesenable us to offer best in class servicesand an integrated partnershipapproach to our clients.


STRATEGY ANDCOMMERCIAL

Cello Health Consulting

A consulting-led capabilitywith a unique blend ofcommercially experiencedpharmaceutical andbiotechnology professionalswith deep scientific expertiseacross key therapeutic areas.Working across the productlifecycle, with particularexpertise in early assetdevelopment andcommercialisation, forecastingand valuations, businessdevelopment, launch planning,scenario and competitiveplanning, brand and franchisestrategy development.

SCIENCE ANDEVIDENCE

Cello HealthCommunications

A team of communication andscientific evidence experts.Skill sets combining science,strategy and creativity to builda foundational evidence baseand translating that intooutcome-focused behaviourchange. A range of skill setswith a deep understandingof the scientific evidencebehind molecules and a focuson how data and other insightsare applied in a strategicframework to support clinicaland commercial success.Our approach spans Rx,Devices, Diagnostics, OTCand Nutraceuticals.

DIGITAL ANDCREATIVE

Cello Signal

A full-service digital capabilityacross content and mobileinfrastructure, and automationand personalisation inmultichannel CRM. We developdata-led strategies and UXplanning to optimise thecustomer experience and alignthis to disruptive creative andbrand expression in campaigns,content and film. Oursignificant and growingfootprint in health (clinical,consumer and public)complements our other keyclient digital and creativesectors; technology andgaming, charities and NFP andfinancial services and utilities.Our cross-industry expertise isseen as a distinct advantage tohealthcare clients where theuse of digital strategiesand initiatives is in itsrelative infancy.


Progress AgainstOur StrategicPriorities

1. GROWTH

a. Strong overall growth in our core CelloHealth operation, reflected in 9.2%like-for-like growth in gross profit.

b. Good progress in developing ourmarket presence in early assetdevelopment and commercialisationacross small biotech and largerpharmaceutical companies.

c. Rapid US expansion driven byorganic progress in our scienceand evidence business and thesuccessful acquisition and integrationof Defined Health and AdvantageHealthcare in 2017.

9.2% Like-for-likegrowth in Health

Combined with strongorganic growth, theUS now contributes45% of Cello Health’sGP (2016: 35%).

“2017 represented ayear of investmentand strengthening ofour core operations,whilst makingsignificant progressagainst our three keystrategic priorities ofgrowth, innovationand leveragingkey assets.”

Mark ScottCEO, Cello Group plc


3. LEVERAGING

a. Significant progress was made inleveraging our core digital andcreative skills from Signal into SignalHealth, with health orientated clientsnow accounting for 14% of Signal’sgross profit.

b. Collaboration continues at a pace.

c. Collaborative wins have contributed£15.0m of gross profit to the businesssince 2015.

2. INNOVATION

a. Continued development andcommercialisation of a range ofdigital research tools and servicesdelivered strong growth in ourresearch capability.

b. Our core range of strategic planningtools and customised forecastingmodels helped bolster our ‘LaunchExcellence’ business which grewstrongly in 2017.

c. Pulsar, our social media analyticsplatform, has grown from strengthto strength with growth in softwarelicences from 257 in 2016 to346 in 2017.

£15.0mCollaborativewins since 201580% Pulsar at 80%

renewals and346 clients


LONDONFARNHAM

EDINBURGHCHELTENHAM

NEW YORKSAN FRANCISCO

CHICAGOPHILADELPHIA

UK US

Key Financial Metrics

HeadlineOperating Profit

HeadlineGross Profit

Cello SignalCello SignalCello HealthCello Health

Gross Profit (£m)Dividend per Share (p)

Key Locations

2017 3.50

2015

2013

2.86

3.402016

2014 2.60

2.25

2017 102.5

2015

2013

86.5

92.72016

2014 81.0

74.7

£3.9m£10.6m

£41.0m

£60.2m


% Split UK vs US Gross Profit Growth

OFFICES14

978STAFF

Number of Staff

Number of Offices

2017

70/30

2016

77/23

2015

80/20

2014

83/17

2013

83/17

vs



Chairman’s Statement

Summary

We continue to deliver a consistentperformance, with the Group reporting a10.6% increase in gross profit to £102.5m(2016: £92.7m), with headline profitbefore tax up 11.9% to £11.4m (2016:£10.2m). Reported profit before tax was£5.8m (2016: reported loss of £1.7m).Total dividends per share increased to3.50p per share, adding to an 11-yearrecord of dividend increases.

Cello has evolved significantly over theyears to where we are now: a globalhealth-focused marketing advisorycompany that is the partner of choicefor many of the top pharmaceutical,biotech and healthcare organisationsglobally. We work with 24 of the top 25pharmaceutical companies.

Cello’s focused strategy has delivered astrong performance across our healthoperations, with 9.2% constant currencylike-for-like gross profit growth fromCello Health, and a competitive profitmargin of 17.7% (2016: 18.1%). Inaddition, we were able to invest instrengthening our core operations andmarket position in 2017.

2017 saw the successful addition to theCello family of two further US

acquisitions: Defined Health, andAdvantage Healthcare. Both areexcellent organisations with passionatestaff, high-quality clients and stronglydifferentiated service offerings. The USnow contributes 45.1% of Cello Health’sgross profit (2016: 35.1%).

Cello Signal had an acceptable yearagainst a tough comparative. Operatingmargins were maintained at 9.5% (2016:10.3%) despite a 6.8% like-for-likeconstant currency decline in gross profit.

The Group ended the year in a net cashposition and recently renewed itsbanking facilities with RBS. This putsthe Group in a good position to expandfurther as high-quality acquisitions andstart-up opportunities in the healthspace are identified.

We begin 2018 with a positive outlook.We expect to continue to leverage thebenefits of collaboration across theGroup, particularly as a result of ournew acquisitions. We will continue toinvest in market expansion, specificallyin the US and, as a matter of priority,leverage Signal’s innovative digitalcapability into the healthcare market.We are excited to imminently changethe name of the business to Cello HealthGroup plc to better reflect our focus.

Steering aClear Course


Our Marketplace

The healthcare market is set to continue todrive demand for our services.

Ageing populations, with their myriad age-relateddiseases, together with advances in scientificunderstanding, diagnosis and treatments continue toproduce an underlying requirement for healthsolutions. Combined with the strength of our clients’R&D pipelines (see Fig.1) and the challenges (seeFig.2) they face in ensuring every product that makesit to market is a commercial success, means thatclients will continue to value the services thatCello provides.

The move from the traditional blockbuster tospeciality medicines requiring the use of biotechtechnology will continue to gain pace. Currentforecasts predict that biotech will contribute 52%of the top 100 product sales by 2022 (see Fig.3),overtaking small molecule drugs such as Viagra orLipitor. This reflects rapidly evolving cutting edgescience. This acceleration in scientific understandingincluding new technology and genomics is resulting innew and often personalised treatments, includingsome groundbreaking advances and cures forpreviously life-threatening conditions. Healthcare ischanging. The definition of a blockbuster is evolvingas new therapies are designed and targeted againstmultiple connected diseases and indications. Medicineis becoming much more targeted to specific patientpopulations and conditions requiring integrateddiagnostics and more holistic solutions.

Health,Technologyand Digital –our Marketsof the Future

AgeingPopulationof 65+ willbe 1.6bnby 2025Source: US Census Bureau

– An Aging World


Implications for our clients

To stay ahead of the curve in thisrapidly developing market, ourclients need to invest earlier instart-ups, biotechs andpromising new platformtechnology and make earlierdecisions on whether to back anasset or invest in a particulararea of science. They also needto decide earlier on the commercial platform used to inform theirclinical trial programs.

As continued financial pressures impact all sectors, health is not anexception, driven by a combination of pricing pressures, anincreased drive towards generics and biosimilars and the ongoingcosts of bringing novel therapies to market. Pharmaceutical andbiotech companies are having to find new approaches to pricing,demonstrating value, managing costs, and sharing risksexpectations around outcomes-based medicine.

In 2017 ourInsight operationdelivered projectsacross 17 raredisease areas.

1,000 14,000

12,013Pre-clinical

21Phase 0

3,497Phase I

3,530Phase II

1,399Phase III

364Pre-registration

1970s 1980s 1990s-early 2000s*

2000s-early 2010s

Average Cost to Develop One NewApproved Drug – Including the Costof Failures (in Constant 2013 Dollars)

$2.6bn

$1.0bn

$413m$179m

Clients cannota�ord to getit wrong.

They need tomaximise successof every singleproduct approved.

FIG 4:

The Costs of Drug Development Have More Than Doubled Over the Past Decade

*Previous research by same author estimated average R&D costs in the early 2000s at $1.2 billionin constant 2000 dollars (see DIMasI JA, Grabowski HG. The cost of biopharmaceutical R&D: is biotechdi�erent? Managerial and Decision Economics. 2007;28 : 469-479). That Estimate is based on the sameunderlying survey as the author's estimates for the 1990s to early 2000s reported here ($800 millionin constant 2000 dollars), but updated for changes in the cost of capital.

Source: DIMasI JA, Grabowski HG, Hansen RW. Innovation in the pharmaceutical industry:new estimate of R&D costs. J Health Economics. 2016;47:20-33.

Source: https://pharma.globaldata.com (accessed 22 Nov 2017).


1,000 14,000

12,013Pre-clinical

21Phase 0

3,497Phase I

3,530Phase II

1,399Phase III

364Pre-registration

1970s 1980s 1990s-early 2000s*

2000s-early 2010s

Average Cost to Develop One NewApproved Drug – Including the Costof Failures (in Constant 2013 Dollars)

$2.6bn

$1.0bn

$413m$179m

Clients cannota�ord to getit wrong.

They need tomaximise successof every singleproduct approved.

FIG 4:

The Costs of Drug Development Have More Than Doubled Over the Past Decade

*Previous research by same author estimated average R&D costs in the early 2000s at $1.2 billionin constant 2000 dollars (see DIMasI JA, Grabowski HG. The cost of biopharmaceutical R&D: is biotechdi�erent? Managerial and Decision Economics. 2007;28 : 469-479). That Estimate is based on the sameunderlying survey as the author's estimates for the 1990s to early 2000s reported here ($800 millionin constant 2000 dollars), but updated for changes in the cost of capital.


Clients cannotafford to getit wrong.

They need to maximisesuccess of everysingle productapproved.

Fig 1. Pipeline drugs (20,824 drugs in development)

Fig 2. The cost of drug development


2017 saw ourInsight capabilitycomplete over86 projects withspecific focuson the patient.

In this environment, communication of a value story is criticalto support not only successful market access orreimbursement outcomes for a product, but indeed to ensureoverall successful commercialisation. Clients look to Cello tonot only translate complex science into its commercialsignificance but also reinforce the value of a product byintegrating health outcomes research and real world evidenceinto the clinical story to payers and other key stakeholders.

Significance to Cello

Clients will continue to look to external partners like Cello toprovide scientific expertise, commercial understanding,thought leadership and market research capabilities toensure their clinical trials, communications and commercialstrategies are based on a true understanding of the science,the market and its myriad customers and competitors.

Additionally, clients are increasingly seeking support inhelping them integrate novel technologies includingdiagnostics, biomarkers and patient support programmesinto their overall value offer. Specifically, they are seeking tounderstand how to build innovation into the service offering,how to price, how to demonstrate value and gain marketaccess; all key challenges that require our services.

Looking at the wider healthcare market, ever moregovernments are encouraging patients to take an activerole in their own healthcare. Stopping illness in its tracksbefore it becomes chronic is the holy grail of long-termhealth transformation. Patient-focused programmes havebeen in strong demand in 2017, as the patient journey hasbecome an increasingly critical component of medical andmarketing strategy.

The rise of consumerism is not new, but pharma’s ability toaccommodate the patient voice or support patientsthroughout the product life cycle is still evolving. With theindustry needing to enhance the way it supports patients,patient support programmes become increasingly integral tooptimising the value of therapeutic assets in terms ofeducating patients, improving adherence andimproving outcomes.

Fig 3. Biotech vs. Conventional

Use of biotechtechnology continues torise, contributing to 52%of the top 100 productsales by 2022, overtakingsmall molecule drugs.

Source: Evaluate, May 2017.

20%

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0%2008

17%

83%

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2011

18%

82%

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20%

80%

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22%

78%

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23%

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24%

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2017

26%

74%

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27%

73%

2019

28%

72%

2020

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71%

2021

29%

71%

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70%

Biotechnology Conventional/Unclassified

Biotech Products Within Top 100Rapid increase in share of Top 100 products:- 2008: 30%- 2016: 49%- 2022: 52%

2022 Split:Biotech: n=48 (avg. $3.5bn)Conv.: n=52 (avg. $3.0bn)

30%

70%49%51% 52%48%


Given the way consumer-basedtechnology and digital solutions haveevolved, health in its widest sense isalso no longer associated purely withhospitals, GPs and prescriptionmedicines. For Cello this means thatour client base has evolved and nowcovers traditional pharmaceuticalorganisations, emerging biotech,medtech, device, consumer healthcompanies and health organisationsthat focus on social health awarenessissues.

As a result, the breadth of our serviceoffering is also expanding. Inaddition, the strengths we haveacross the Group in Cello Health withour deep dive technical expertise andCello Signal with its core digital andcreative competence, provide thecritical areas of expertise that ourclients need to support them in theyears to come.

DIGITAL AND DATA-DRIVENINNOVATION

Digital and data-driven innovationcontinues unabated as clients seek toharness technology to bring betterinsight, reach, targeting andexperiences to customersand stakeholders.

While discretionary spend againstgeneric concepts of research andmarketing continue to be cyclical andimpacted to a certain extent bymacroeconomic sentiment, particularlyoutside our core health domain, clientsare still willing to invest heavily infuture proofing their businesses andusing digital innovation to gaincompetitive advantage. This is whereCello is strong.

The nature of this work inevitablymoves us beyond marketing servicesand increasingly into wider businesssolutions, and specifically ones wheredata and digital-orientated platformsplay a key role, for example sociallistening and analytics.

The rising power of the‘Health Consumer’

Shifts across both clinical andconsumer health stimulate client need

for our services. We have seen a significant change in howhealth information is accessed, which now places thepatient at the centre. Social groups, patient associations,the role of social media through its various channels, digitaldata, wearable and connected technology are all having amajor impact on how both healthcare professionals andpatients receive and disseminate information. Clients needour help to understand the best way to engage with thisnew environment.

Historically, communications were based on a pushstrategy, with healthcare professionals as the main targetand targeted directly by our clients. This has changed tomultiple stakeholders, all with their individualcommunication needs – key clinician opinion leaders,payers, regulatory groups, patient groups, and thepatient directly.

This requires our clients to implement a much moresophisticated multi-channel approach with a high level ofcomplexity that requires our external support, not only inan advisory capacity but also to move from strategy tocreative execution. Cello is ideally positioned to addressthese needs, with our core strength in pharmaceutical andconsumer marketing, utilising the latest digital andcreative solutions.


APPLICATION OF OUR DIGITALAND CREATIVE SKILL SET IN THEHEALTH SECTOR PROVIDES CELLOWITH A SIGNIFICANT OPPORTUNITYFOR GROWTH

As clinical and consumer health markets continue toevolve, the ability of our digital and creative teamsto personalise communication down to theindividual level has significant application in thehealth arena. Although there are still limitations ingaining direct access to patients, audiences arebecoming increasingly educated and engaged inmanaging their own health and wellbeing. Theirdesire to better understand their conditions,treatment and related lifestyle choices offer theopportunities for the pharmaceutical clientcommunity to engage directly in supporting thepatient journey with personalised guidance.

This concept is already well established within therare diseases sphere and will increasingly becomemainstream as patients of more common conditionsbecome more able to input relevant, protected dataabout their conditions and receive personalisedsupport and communication. In many cases thisinput can be collected via patient-wearables. Thispatient-driven appetite for engagement is likely togrow in the long-term.

Our work with banks and utilities has directapplication to this healthcare opportunity. Forexample, we have built a technology platform thatallows a major UK banking group to send each of itsindividual customers a personalised video regardingsuch products as car loans. The process isautomated and ensures that each customer receivessimple-to-follow and empathetic communicationabout the specific terms and benefits of their loan.This approach has obvious applications, in areassuch as diabetes, where wearable glucose monitorsand insulin delivery devices are fast becoming thenorm. Personalised video guidance for new patientsthat acknowledges who they are, their diagnosis,location and lifestyle is far more likely to engagethan a generic print format. Cello is uniquelypositioned to capitalise on this client need and ableto offer an integrated service with blended skills.

“Digital data, socialmedia, wearable andconnected technologyis impacting all kindsof areas in healthcareincluding the collectionof real world evidenceand clinical trial design;particularly with theuploading of real timepatient information.”

“As these shifts across both clinical andconsumer health continue to evolve, theability of our core digital and creativeteam to personalise communication downto the individual level has enormousapplication in the health arena.”


“Our strategy as abusiness is clear. Wewill continue to focus,realign and leverageour digital and creativeability that largelyresides in Signal tosupport our healthagenda. Our healthclients in the widestsense value theexpertise of this teamand want this widerlens when addressingtheir challengesto ensure afresh perspective.”

John Rowley, CEO Cello Signal


Our BusinessModel

A GLOBALCOMPANY OF DISTINCTION1. That enables our clients to address

mission critical issues and decisions.

2. With deep dive technical advisory, creative,scientific, commercial and consumerexpertise at the heart of the company.

3. That leverages these different skills tomeet client need in a profitable manner.

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RMACEUTICAL

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Strategic Priorities

To deliver sustained growth,employee development andshareholder value focusing on thefollowing three key strategic priorities:

1. GROWTH

Continue to drive organic growth across allof our key capabilities, expanding:

a. our global footprint, and specifically ourpresence within the US market,

b. our position within early asset developmentand commercialisation, and

c. our footprint beyond core pharmaceuticals,biotech and medtech into the broader healthand wellbeing market.

In so doing, seek to increase margins, deliveringimproved profitability.

2. INNOVATION

To continue to innovate in our thinking, serviceoffering and products, capitalising whereverpossible on the range of technical and digitaladvances available. We will continue to enhanceour reputation by offering highly differentiatedservices, leveraging our strong market presenceacross all of our capabilities.

3. LEVERAGING

To smartly leverage the different key assetsacross Cello through alignment of businesses,collaboration, product development andintegrated solutions.

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Chief Executive’sOperational Review

Building onour strengths2017 represented a year of investment andstrengthening of our core operations,whilst making significant progress againstour three key strategic priorities of growth,innovation and leveraging key assetsacross the Group. The core operations ofCello Health (namely Cello HealthCommunications, Cello Health Insight andCello Health Consulting) all made strongprogress in 2017. The capability formerlyrepresented by Cello Health Consumer wasconsolidated into these three corecapabilities to maximise revenue fromthose operations. The fourth pillar of CelloHealth is now serviced by Cello Signal,which is bringing its digital skills andconsumer knowledge to bear on CelloHealth’s core agenda.

Cello Annual Report 201724 Cello Annual Report 2017 25

2017 has shown the benefits of our strategy offocusing the Group on its two key areas ofstrength: healthcare-focused advisory servicesand digital solutions.

• Overall constant currency like-for-like grossprofit growth in our Cello Health operations of9.2% was driven by good performance acrossour core health operations. This growth hasbeen achieved as a result of continuedinvestment across all of our core operations inexpanding our geographic coverage,establishing the right infrastructure,capabilities and processes. This includesbringing in significant leadership and middletier management, particularly in ourconsulting business, with new recruitmentapproaches and enhanced personaldevelopment and performance management.

• The US market is a key territory for us and iscritical to our long-term growth aspirations.2017 delivered a strong performance in thisregion. The US share of Cello Health grossprofit has now increased to 45.1% from 35.1%in 2016. In addition to our strong overallorganic growth, 2017 saw the successfulacquisition and integration of Defined Healthand Advantage Healthcare. These acquisitionsrepresent an important expansion of ourcapability as Cello Health continues to migratetowards cutting edge science.

• Cello Health continues to reinforce itsmarket presence by creating largerresource hubs in key geographies. 2017 sawthe relocation of the consulting capability inthe UK to the same office as the UKcommunications capability at Cello Housein Farnham. We have also unified ourEuropean Communications capability intoCello House, strengthening our offeringunder a single capability umbrella. Similarly,we moved into new office premises in NewYork. In both cases we paid specialattention to how we would use the space toenhance creativity, collaboration onprojects and new business activity.

Chief Executive’sOperating Review

“89% of our businessin 2017 was fromclients who haveused us morethan once.”

Jane ShirleyGlobal CEO, Cello Health Insight

Growth


• Our core client base is robust and continues togrow from strength to strength, withrelationships in place with 24 of the top 25pharmaceutical companies. We secured 49new client wins overall in 2017, with 23specifically in the US. We have also focused onincreasing the average size of clientengagements. Increased investment inmarketing and business developmentresources has seen significant strengtheningin our business development pipeline globally.

• Our core digital operations under the Signalbrand delivered a reduced trading result,largely reflecting the long anticipatedcessation of two significant one-off clientprojects in 2016. Importantly, as well assupporting Cello Health’s core pharmaceuticalclient base, Signal is making rapid progress indeveloping business across a wide range ofhealth and wellbeing clients, notably:

– Digital communications – working forEFPIA, Dexcom, Stryker and BUPA dental.

– Insight – Public Health England, WellcomeTrust and Tesco own label health lines.

– Wellbeing – The Federation for DisabilitySport and The Food Doctor.

• We have consolidated our core digitaloperations into three key operationaloffice hubs, in Cheltenham, London andEdinburgh. All three offices work closelytogether, sharing business developmentand professional resource. This has enableda smoother sharing of technology andtechnical expertise between locations.It is also the key to raising operatingmargins. In 2017 action was taken in theUS research business to reduce professionalcosts, resulting in an exceptional charge.This should feed through into marginenhancement in due course.

“We continue to see the breadth of market whereour services are required expanding. In 2017 wehave worked in more than 50 different geographicmarkets, including 12 markets for the first time.”

Jane ShirleyGlobal CEO, Cello Health Insight


Cello’s ethos over the years has been toconstantly challenge ourselves toimprove and bring to the marketinnovative services. In 2017 we investedin existing operations as well as thedevelopment of new initiatives to belaunched in 2018.

• 2017 saw continued success with ourrange of digital offerings. Our coreInsight digital offering continued itsrapid growth based on its ‘LivingLens’ searchable video technologyand a revamp of its eVillage offering.IQ, our quantitative research practice,had an equally strong year.

• Cello Health Insight invested indeveloping and preparing theorganisation to launch a new serviceoffering, Cello Health Logic. CelloHealth Logic is both a data scienceand social analytics unit that utilisesour proprietary Pulsar technologywith a focus on the health sector. Inaddition, we have formed strategicrelationships with a number of keypartners, which will provide us withaccess to the online ‘conversations’and views of healthcare professionals.

• Pulsar, our social media analyticsplatform, has continued its rapid paceof development, ending 2017 with 346clients, up from 257 in 2016, and amonthly revenue run rate in softwarelicence sales of c. £0.5m. Cello HealthLogic is in the process of leveragingthe Pulsar software suite into thehealthcare market.

Innovation

• Cello’s overall digital capability divides intothe planning and building of digitalinfrastructure (Content ManagementSystems, Mobile Applications, Personalisationand Automation Platforms) and DigitalMarketing (across SEO, PPC, Media, Creativeand Social). We also have a significantfootprint in data-led strategy as clients seekto connect on and off-line channels to createa seamless customer experience.

• In addition we have an extensive base ofhighly innovative clients across technology,entertainment and gaming. EA, Facebook,Apple, Sony, HP, Netflix, NBC, Wargamingand Ubisoft are all significant clients acrossour insight, communication and innovationteams. The very technologically advancednature of these clients helps shape how themajority of consumers behave online.Importantly, advances made with theseclients in these sectors provide a valuablelens for our health clients who want tobenefit from leading-edge digital solutionsused in other markets.


• The digital capability thatresides in Signal has a veryspecific role within CelloGroup as we seek to applyinnovation in audienceintelligence, digitalmarketing and digitalinfrastructure. We arefocusing on utilising thatinnovation to grow ourhealth client base. Techand gaming, charities andfinancial services aresectors that health clientsare seeking to learn from inapplying digital techniquesto meet the complexcommunication challengesin their health markets.

• Signal’s health activity hasgrown to around 14.0% ofgross profit as a result ofcollaboration with CelloHealth and by direct clientwins in clinical andconsumer health. Signalwas appointed by theEuropean Federation ofPharmaceutical Industriesand Associations tomanage their digitalcampaign in its responseto growing concern aboutthe rising costs ofhealthcare. In addition,Oasis Dental, the UK’slargest dental clinicnetwork, appointed Signalto deliver their CRM,digital marketing and SEOactivity. A further exampleof our success inleveraging our digital

expertise in healthcare isour work with BUPA. Wedelivered the re-brand ofits website and ensured itcarried over their localSEO footprint on itsclinic-by-clinic basis. TheSignal Health team is alsoworking with a range ofother health clients.

• In 2017 we invested in ashared businessdevelopment resourcewhich works inco-ordination with ourcapability teams. This isyielding strong benefits innew business levels acrossthe business asprofessional resource isbeing flexiblydeployed against globalopportunities.

Leveraging key assets


Our Future

Backing the right compound,determining the best developmentroute and powering the right trialconstruct is fundamental tocreating the basis of success forour healthcare clients. This in turnis underpinned by robustcommercial thinking, which ourclients now recognise has to takeplace even earlier in the productdevelopment process.


Our clients recognise that to successfullycommercialise their development assets theyneed to create a powerful scientific andhealth economic story based on a clearunderstanding of the science, the clinicalprofile of the product and the role it can playin terms of health benefit to the patientpopulation overall. Our clients then have tobe able to devise a multi-channel, multi-media communication solution thataddresses the needs of an ever morecomplex stakeholder environment.

We are also contending with an accelerationin patients understanding of what healthmeans to them. An increase in self-determination and a more proactive attitudeto health by patients is changing thehealthcare landscape. Health now is nolonger associated with purely acute orchronic care. The concept of health andwellbeing touches all our lives and isassociated with multiple and varied situationsand products, whether it is fitness related,healthy diet, healthy mindset or a healthylifestyle overall.

This is significant for Cello as we address ahealth market that is ever broader and morevaried. The client opportunities are vast but

with the single unifying theme – health andwellbeing. What does that mean for us as weset our priorities towards 2020 and beyond?

• We will continue to broaden our focus onthe health market. Our clients will includethose involved in health consumerproducts, healthy foods, wearable devicesand organisations that focus on the healthof consumers, all of whom want to seepositive behaviour changes towardshealth, whether that be driven bygovernments, health bodies orcommercial organisations.

• We will continue to build on our strongmarket position with majorpharmaceutical companies, emergingand established biotech and medtechcompanies. We will have a particularfocus on building on our strongposition in early asset developmentand commercialisation.

• We will continue to build a strongscientific and analytical core to all of ourkey services, adding to our current suiteof tools and processes that clients havecome to value.

• We will evolve further our ability tocollaborate across Cello, enabling ourclients to access unique integratedteams of experts formed to meet theirspecific needs, not only across our corehealth practices but also leveraging ourdigital capacity.

• We will continue to focus on developingour US footprint. This is key to ourlong-term growth and builds on oursuccess to date in this market.

Finally, and most importantly we will continueto invest in building a strong vibrantorganisation, staffed with professionals whoare passionate about the company they workfor, the teams they support and the servicesthey deliver.

“Cello’s ethos over the years hasbeen to constantly challengeourselves to improve and bringto the market innovative services.”


Group FinanceDirector’s Report

Summary

Total Group gross profit was £102.5m (2016:£92.7m) on revenues of £169.3m (2016:£165.3m). Headline profit before tax was£11.4m (2016: £10.2m). Like-for-like grossprofit growth for the whole Group was 2.5%.Constant currency like-for-like1 gross profitgrowth was 1.6%.

The Group’s headline operating margin2 was11.7% (2016: 11.5%) with a headline operatingmargin of 17.7% in Cello Health (2016: 18.1%),and 9.5% in Cello Signal (2016: 10.3%).

Finance costs were £0.4m (2016: £0.3m).These are expected to drop during the year asdebt drops.

The Group’s reported tax charge was £1.6m(2016: £0.8m) with a headline tax rate of 28.2%(2016: 25.7%). The headline tax rate hasincreased as a consequence of higher relativeprofits in the US in 2017, which currently attracta higher tax rate. The Group has carried out apreliminary assessment of the impact of theforthcoming changes to the US tax regime.This assessment shows that the headline taxrate for the Group should drop by at leastthree percentage points from 2018 onwards.The reconciliation of the tax charge for 2017 toreported profit/loss before tax is in note 9.

Headline basic earnings per share3 is down8.4% to 7.93p (2016: 8.66p). This drop is largelyas a result of the increased number of shares inissue following the fund raise in early 2017.

Statutory profit before tax was £5.8m (2016:loss of £1.7m), a reconciliation of headlineprofit before tax to the statutory profit/lossbefore tax can be found in note 1.

The Group benefitted from a stronger dollar in2017 compared with 2016, with average US$:£exchange rates strengthening from 1.35 in 2016to 1.29 in 2017. The Group generated around£5.4m of headline operating profit in the US in2017 (2016: £3.3m), an increase of 65.1%.

The Board is proposing a final dividend of2.45p per share (2016: 2.40p), giving a totaldividend for the year of 3.50p per share(2016: 3.40p) representing an increase of2.9%. The dividend has now grown every yearsince 2006. Subject to shareholder approval,the final dividend will be paid on 25 May 2018

to all shareholders on the register at 4 May2018, and will be recognised in the yearending 31 December 2018.

During the year the Group completed twoacquisitions to support and develop itsstrategy of growing Cello Health in the US.

Acquisitions and deferred consideration

On 31 January 2017, the Group completed theacquisition of the trade and assets of DefinedHealthcare Research Inc. and Cancer ProgressLLC (‘Defined Health’), a business deliveringscientific strategic advisory services to a widerange of US and European global biotechclients. Initial consideration was $5.75m ofwhich $5.25m was paid in cash, with thebalance settled by the issue of 398,904 newordinary shares.

On 17 July 2017 the Group acquired the tradeand assets of Advantage Healthcare Inc.(‘Advantage Healthcare’), a consultancyproviding critical analysis and insights tobiopharmaceuticals, supporting new productsand business development. Initialconsideration was $1.5m, payable in cash.

The cash consideration for both theseacquisitions was financed by way of a placing of15,463,919 new ordinary shares at a price of 97pa share, raising £14.2m after expenses, whichoccurred in early 2017. The placing wasoversubscribed and received strong supportfrom new and existing institutional shareholders.

Total future deferred consideration obligationsat 31 December 2017 now total £4.6m (2016:£2.9m). In line with recognised accountingpractices, the income statement impact of thisdeferred consideration is spread over thelength of the deferred consideration period.The acquisitions-related EmployeeRemuneration Expense is £1.4m (2016: £1.2m).This provision will be substantially settled overthe years 2019 to 2021.

1 Like-for-like measures exclude the results from companies acquired inthe year and start-ups, which are defined in note 1.

2 Headline operating margin is calculated by expressing headlineoperating profit as a percentage of gross profit.

3 Headline earnings per share is defined in note 12.


Cello Health Financial Performance

2017£’000

2016£’000

Gross profit 60,150 47,605

Headline operating profit 10,639 8,635

Headline operating margin 17.7% 18.1%

Gross profit in Cello Health grew by 26.4% in 2017, reflecting both organic growth and growthby acquisition. Like-for-like constant currency gross profit was an excellent 9.2%, with aparticularly strong performance from the Cello Health businesses in the US. The acquisitions ofDefined Health and Advantage Health added materially to Cello Health’s biotech offer. Bothbusinesses are performing well. Operating margins dropped slightly to 17.7%, reflecting achange in the mix of the business. 45.1% of total Cello Health gross profit was earnt by the USoperations (2016: 35.1%).

Cello Signal Financial Performance

2017£’000

2016£’000

Gross profit 40,961 43,613


Headline operating margin 9.5% 10.3%

Cello Signal had an acceptable year against a tough comparator in 2016. As highlighted inprevious announcements, 2016 benefitted from two significant contracts that were not goingto repeat in 2017.

Notwithstanding this impact, the UK businesses in Cello Signal had a good year. Trading in theresearch business in the US was difficult and during the year headcount was reducedsignificantly. Trading in the US is now on track. Taking all these factors into account, theconstant currency like-for-like decline in gross profit was 6.8%.

Pulsar continued to grow well and ended the year with 346 clients and c. £0.5m of monthlylicence revenue (2016: 257 clients and c. £0.3m of monthly revenue).

Operating Cash Flow

Headline operating cash flow4 of £10.4m represented 77.2% cash conversion of headlineEBITDA (2016: 123.0%). The operating cash flow surplus generated in 2016 therefore reversedin 2017 as expected. The underlying operating cash flow performance of the Group is robust.The following table demonstrates the calculation of headline operating cash flow and the cashconversion rate.

4 Headline operating cash flow represents operating cash flow adjusted for the cash flow impact of non-headline items.


Non-Headline Items

A number of items are in the income statement below headline operating profit, whichare as follows:

2017£’000

2016£’000


Net interest payable (359) (293)

Headline profit before tax 11,419 10,204

Restructuring costs (1,916) (1,201)

Charge for VAT recoverable/(payable) and related costs 259 (1,798)

Employment settlement and related costs (48) (1,158)

Start-up losses (1,350) (977)

Acquisition costs (243) –

Amortisation of intangibles* (510) (294)

Acquisition-related employee remuneration expense* (1,364) (1,176)

Share option charges* (430) (349)

Impairment of goodwill* – (4,937)

Statutory profit/(loss) before tax 5,817 (1,686)

*No cash flow impact.

2017£’000

2016£’000

Headline operating profit 11.8 10.5

Depreciation 1.3 1.3

Headline amortisation 0.4 0.4

Headline EBITDA 13.5 12.2

Net cash inflow from operating activities 4.8 6.5

Restructuring costs 1.9 1.2

Post-employment restrictions settlement 0.1 1.2

Start-up losses 1.4 1.0

Acquisition costs 0.2 –

VAT settlement/receipts (0.3) 4.8

Settlement of deferred remuneration 2.3 0.2

Headline operating cash flow 10.4 14.9

Headline cash conversion 77.2% 123.0%

The Group’s net cash position at 31 December 2017 was £1.6m (2016: debt of £5.1m). Theoperating cash flow is weighted towards the second half of the year. During the year the Groupwas pleased to renew its debt facilities with the Royal Bank of Scotland. They have beenrenewed on the same pricing terms as the previous arrangement and expire in March 2022.


During 2017, the Group incurred restructuring costs of £1.9m (2016: £1.2m). This mainly relates to redundancypayments, predominately within the US research offer in Cello Signal. Structural changes were alsoimplemented to consolidate property commitments, integrate the offer further and reduce operating costs.

The Group collected £0.3m of VAT from charity clients in relation to the prior year's issue (2016:provision made of £1.8m).

The employment settlement costs of £nil (2016: £1.2m) represent costs incurred in the prior yearregarding the establishment of a bioconsulting team in the US. This team is now profitable.

Start-up costs in the year principally related to operating losses from the Group’s Cello HealthConsulting operations in the US as well as losses from Pulsar operations in the US. The US operationsof Cello Health Consulting moved into headline activities in the second half of 2017.

Acquisition costs of £0.2m (2016: £nil) were incurred in relation to due diligence and legal costs onacquisitions made in the year.

Amortisation of intangibles relates to the amortisation of identified intangible assets that are recognised onacquisitions, this charge has risen to £0.5m (2016: £0.3m) due to the acquisitions completed in the year.

Acquisition-related employee remuneration expense of £1.4m (2016: £1.2m) is the necessary incomestatement charge that relates to the spreading of deferred consideration payments made to certainemployees of the Group over the term of the deferred consideration measurement period.

Share option charges of £0.4m (2016: £0.3m) relate to the appropriate income statement chargebeing recognised over the life of issued share options to staff.

Goodwill has not been impaired in 2017 (2016: charge of £4.9m).

Risks and UncertaintiesThe Company regularly reviews the risks and uncertainties facing the business through a regular series ofboard and operational meetings. The Directors believe the current largest risks are as follows:

1. Economic conditionsThe Group’s business is domiciled in the UK but 48.9% (2016: 45.2%) of the Group’s revenues are fromclients based overseas. It is clear that income from clients is impacted by the prevailing economicconditions. Global economic and geopolitical uncertainty has increased following Brexit and the USelection. However, the broad spread of clients across sector and geography mitigates this risk.

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 risk is mitigated by our client base being broadly spread and by several of our pharmaceuticalclients being subject to longer term master service agreements. The loss of any large client wouldrequire replacement. The Group’s client review programmes help mitigate this risk.

3. Changing laws and regulationsThere are various laws and regulations that are relevant to the operations of the Group, in particularthe forthcoming GDPR regime that applies from 25 May 2018. The Group has established a steeringgroup on this issue that is actively working across all its businesses to ensure compliance.

4. Loss of key staffThe Group’s Directors and staff are critical to the servicing of existing business and the winning ofnew accounts and the departure of key staff could be a risk to maintaining client service. Withthat risk in mind all senior staff are subject to financial lock-ins and long-term incentivearrangements, as well as being under contractual non-compete and non-solicit clauses.

Current Trading and OutlookThe Group has begun 2018 with good levels of forward bookings and already secured a good level ofnew business wins. Following the fundraise to finance the acquisitions of Defined Health andAdvantage Health, the Group is in the process of expanding its global footprint. The imminentrenaming of the Group as Cello Health Group plc reflects this strategic focus. The Board is confidentthat expectations for 2018 will be met.

Allan RichNon-Executive Chairman21 March 2018



The Work We Do

Working inPartnership

CASE STUDIES

• Evaluating where to play inthe microbiome

• Oncology asset revenue royaltyinvestment decision

• The life-changing value of medicine

• The value of using SML – mappingonline behaviour and influence insevere asthma

• Early detection of HIV


Case Study 1

Evaluating Where toPlay in The Microbiome

THE CLIENT

Senior leadership team in aninternational healthcare companywho sought to evaluate potentialfuture business opportunities withinthe microbiome field.

THE CHALLENGE

The landscape of the human microbiomeis complex and many factors influence itsdevelopment. Our client required a rigorousevaluation of the future landscape and creationof detailed future scenarios to enable them tomake strategic business decisions.

OUR APPROACH

We used a series of proprietary methodologies,including our FUTURES scenario learningmethodology, to support this project. Wedownloaded and evaluated significant desksources and identified the critical gaps inknowledge against our critical thinkingframework. The priority gaps were filled usingadditional desk and primary research. Then,through a series of workshops and creativesessions, we engaged the cross-functional seniorleadership team to consider the implicationsof key trends and produced a range of plausiblefuture worlds (scenarios). Once the scenarioswere identified and enriched, we helped ourclient navigate the future and evaluate theirstrategic options given the different possibilities,supporting decision making.

THE RESULT

As the project progressed, we created aninteractive and highly visual PDF outlining theevolution of the microbiome landscape and thedifferent scenarios in some detail. This allowedthe work to ‘live’ within the organisation andprovides an ongoing test bed for future strategicthinking and decision making. The senior teamwere fully engaged in the process and ownedthe scenarios and strategy development. Gapsin market knowledge and capabilities wereidentified and plans to fill them initiated.Ultimately, the process allowed our clientto grasp a complex, evolving landscape andmake key strategic decisions with confidence.


Case Study 2

Oncology Asset RevenueRoyalty Investment Decision

THE CLIENT

A healthcare investment banking firm with a focus onrevenue royalty streams, evaluating a potential investmentin a recently launched treatment for ovarian cancer.

THE CHALLENGE

To understand perceptions of physicians globally at atime when ovarian cancer treatment was experiencing asignificant change due to the launch of 3-5 commerciallysimilar, yet medically ground-breaking products. To developa 10-year revenue forecast projection to best inform thedecision to bid or not bid, and if so, at what level.

OUR APPROACH

We used our therapeutic area knowledge to guidequalitative and quantitative primary research withphysicians, KOLs and payers in the US and EU5 and todevelop a flexible model that would allow for impactanalysis of differing market dynamics in the major countries.We built a research-informed financial modelthat could account for significantly different payerdynamics in various countries.

THE RESULT

Revenue projections werealigned with recent companyquarterly earnings reports tobetter inform a potential bidlevel. Top-line revenueprojections were calculatedin six major markets andextrapolated to the rest ofthe world with a dynamicforecasting model that wascapable of accounting for ashifting competitive landscape,rapid label expansions intoearlier lines of treatment,use in different patientpopulations and potentialpayer restrictions in the targetmarkets. Overall revenueprojections were lower thanconsensus Wall Street analystreports but remarkably inlinewith company reported sales.


Case Study 3

The Life-ChangingValue of Medicine

THE CLIENT

European Federation of PharmaceuticalIndustries and Associations (EFPIA).

THE CHALLENGE

The debate around the price ofmedicines has become loud, one-sidedand framed through the lens of ‘price inisolation’. As long as the debate is framedin this way, the pharmaceutical industrywill struggle to be anything other thanthe ‘bad guy’, putting price barriersin the way of access to life-changingmedicines. The challenge was to finda way to reframe the terms of thedebate, moving away from the ideaof ‘price in isolation’ to helping peoplegrasp the idea of ‘value in context’.Importantly, we sought to focus thedebate on the life-changing valueof innovative medicines to patientsand their families, healthcare systemsand society.

OUR APPROACH

Medical innovations and ground-breakingtreatments don’t just happen. A singlenew medicine is the product of thousandsof teams, working across hundreds ofcompanies, investing time, money, hardwork and dedication. Yet this side of thestory is rarely told. Harnessing thisthought, we developed a powerfulcampaign strategy and creative platform#WeWontRest.

This campaign focused on the vision,passion and tireless commitment thatindividuals within the biopharmaceuticalindustry bring to researching anddeveloping life-changing new medicines.

THE RESULT

Through close collaboration with EFPIA’smember companies and associations, thecampaign is running in 27 countries and 18different languages. The campaign has seenmany of the world’s biggest pharma companiesget involved sharing their own #WeWontRestinnovation commitments. Collectively thesepledges act as tangible proof of the industry’scommitment to changing lives.

The campaign was launched in June 2017 by theEFPIA President and Chairman of the ExecutiveBoard and CEO of Merck. The paid media isoutperforming industry norms.


Case Study 4

The Value of Using SML – MappingOnline Behaviour and Influencein Severe Asthma

THE CLIENT

A European-based pharma company.

THE CHALLENGE

Our client was preparing for launch of a newtreatment for severe asthma. As part of thelaunch strategy they wanted to develop apatient mobilisation programme to engagewith patients in the early stages of thetreatment journey. Key to this was to build asolid understanding of the severe asthmapatient, their current context, as well as theirbeliefs, behaviours, perceptions andexperiences to inform the patient mobilisationstrategy globally. Previous research andlistening exercises had provided high-levelinsight only and our client now needed adeeper exploration of the reality of living withsevere asthma in order to uncover genuineunmet needs and to identify opportunities toengage with patients directly.

OUR APPROACH

For this project, Pulsar partnered with CelloHealth Insight to provide a truly collaborativesolution. We designed a comprehensive socialmedia listening exercise that included a12-month historical search alongside fourweeks of live data capture, across keyEuropean markets plus Japan. Our searchstrategy was constructed using insights fromthe previous client research exercises, as wellas pulling upon the extensive industryknowledge of the Cello Health team andPulsar’s social expertise. We then undertook aphase 5 analysis approach that incorporatedcategory assessment, qualitative deep dive,competitive review, influencer identificationand audience profiling.

THE RESULT

Our client received a comprehensivereport bringing all the findings togetherwith a clear narrative and providingmarket-specific tactical marketing andcommunication recommendations interms of how to best reach its targetaudience. More specifically, the listeningexercise provided direction in terms ofboth content and language that wouldresonate with audiences – plus the needto change this dependent on the channelused. Clear identification of relevantemotions and frustrations enabled ourclient to truly understand the patients’unmet needs and how this should feedinto online strategy when consideringcommunication efforts. We alsohighlighted the need for nuancedstrategies varied by patient personas withdiffering needs and at different stages ofthe disease journey, as well as whichspecific channels to target and potentialonline influencers to approach. All of thisinformed the global mobilisation planningand lead to other markets commissioningsimilar work to support them in morelocalised activities.

Sample influencer network


Case Study 5

Early Detectionof HIV

THE CLIENT

Confidential.

THE CHALLENGE

The provision of HIV testing beyondgenito-urinary medicine, into settingswhere people are most likely to use them,has proved a complex issue. Challengesto expanded testing include the low levelof awareness of the benefits of testingas a driver of HIV prevention amongpoliticians and healthcare professionals,limited available resource and thecontinued stigma associated with anHIV positive diagnosis.

OUR APPROACH

From 2009 Cello Health Public Affairs played anactive role in bringing together the nation’sleading experts and advocates in HIV, from allparts of the UK, to work in common cause andcampaign with policy makers to reduce late andundiagnosed HIV. Meeting quarterly, over sixyears, the campaign-group developed a series ofexpert publications and research to raiseawareness in a range of healthcare andcommunity settings where HIV tests can bedeployed and to assess the changing attitudes ofhealthcare professionals towards the offer of anHIV test. This information was then shared withpolicy makers, other experts and advocatesthrough a series of successful eventsand meetings.

The initiative drew on the expertise of 31 expertorganisations under the independentobservation of Public Health England (PHE) andThe Department of Health. The group providedevidence on the economic and clinical benefitsof HIV testing to the 2010 House of Lords SelectCommittee Inquiry on HIV, and reportsdeveloped by the All Party Parliamentary Groupon HIV and AIDS. The group generated localreach, through strong collaboration withcommunity groups and health service networks.This enabled engagement with local healthservices and unitary authorities. Councilresolutions in support of expanded HIV testingwere passed in 20 high-HIV-prevalencelocal authorities.

In support of these activities, a national PHEframework to prevent the late detection of HIVwas established, supported by national HIVtesting guidance from NICE alongside letters insupport of expanded-HIV-testing from the UKChief Medical and Nursing Officers. In 2016, atotal 18% decline in HIV diagnoses was reportedby PHE in all groups.

THE RESULT

2017 saw significant decline in the number ofnew HIV diagnoses among gay and bi-sexualmen in the UK. In October, PHE reported that thenumber of new HIV cases had dropped from3,570 in 2015 to 2,810 in 2016. The decline wasparticularly steep among those living in London,which saw a 29% fall. PHE attributed the result toregular and frequent testing, as well as promptdiagnosis and treatment.


Cello Health Logic

"Cello Health Logic will leveragebest-in-class industry knowledge andexpertise whilst harnessing the power

of Pulsar and the very latest socialanalytics technology."

Damian EadeManaging Director, Cello Health Logic

Healthcarecompanies haveincreasingly started towake up to the hugevolume of real-worldconversational data that hasthe potential to drivestrategic decision-makingand development.

1.

4.

3.

6.

2.

5.

Through 2016/17, Cello HealthInsight’s dedicated digital

division delivered an increasingnumber of social media insight

projects, including work forseven of the world’s top

20 pharmaceuticalcompanies.

By tapping into validatedsources, alongside the wider

social conversation, CelloHealth Logic will be able to

increase confidence in socialmedia-based insight.

Over the past 18months we have been

working ever closer withcolleagues in Cello Signal

and Pulsar to exploreopportunities to better

harness the wealth of onlinehealthcare conversations.

The new offering will alsohelp facilitate further

collaboration across theCello Health organisation,

with Cello Health Logicsupporting activities

across all capabilitiesand the delivery of

more digitally-orientatedsolutions.

Access to premium healthcaredata sources will enableclients to tap into not onlythe huge wealth of healthconversations online,but also the uniquevoices of validatedhealthcareprofessional andpatientcommunities.


Acquisitions

Defined HealthEd Saltzman,Founder, Executive Chairman

I have seen many changes over the spanof a 30+ year career, advising life sciencecompanies on strategy. However, today’sever-increasing roster of biotechnologycompanies face especially dauntingobstacles to success.

Specifically, the capital demands and longtimelines inherent in biomedical productdiscovery and development means thesecompanies face unique strategicchallenges. Perhaps the greatest of theseis to direct their limited R&D funds suchthat not only their likelihood of clinicalsuccess will increase but simultaneouslyvalidate the company’s value propositionfor the serial rounds of financing that willbe required to advance programs thougheach stage of value inflection. Indeed,while scientific failure is often pointed toas the cause of biotech company attrition,the roots of such failure are toooften found in poor or evennon-existent strategy.

Over the years, along with our seniorleadership team, I have worked hard toestablish Defined Health as a pre-eminentknowledge-based strategy consultancy.We understand the unique challengesfaced by ‘cash burning’ companies andthe implication that consulting firms mustvery clearly demonstrate essential valueto be retained out of what are typicallylimited resources. As these companiesleverage successful strategy to progressto later stages of development, their needfor support and advice increases. Andright along with this comes their need fora broader palette of capabilities andresources than we as a ‘boutique’ wereable to provide. Our decision to join theCello Health family addressed this need.

After meeting with several very largeprofessional services firms we veryquickly realised that success would hingenot just on an expanded capability set,but rather by working with a team withwhom our people would be bothstrategically and culturally aligned. CelloHealth uniquely fits this bill. Additionally,we were excited by how we could play avery significant role in helping themachieve their simultaneous objectives ofexpanding their presence in biotech andtheir footprint in the US market. Sincejoining the Cello organisation in February,we have come to see how ourexpectations for fit have been exceeded.Cello Health is a fantastic home for usboth in terms of the people and strategy.


Cello Health AdvantageDebbie Glick,CEO

I started my career in healthcare withthe US marketing team at Pfizer andthen moved from Pfizer to a start-uppharmaceutical company, where I workedas the Director of Marketing beforemoving to the service side of the businesswith the firm I founded, AdvantageHealthcare Inc.

Cello Health Advantage focuses on a vitalaspect of the supplier side of healthcarein the US and globally, the acquisition,sale and/or partner identification forcommercialisation of assets. We coverbiopharmaceuticals, software, devices,diagnostics and various combinationsof these categories.

Ensuring that an opportunity iscommercially viable involves not onlyunderstanding the future standard ofcare at the time the new asset becomesavailable, but identifying/collectingpotential adoption information andaccurately using that information in aforecast. Our team has a strong trackrecord in areas where the industry hasnot collected or assembled databecause the opportunity is in aless-prevalent or rare disease.

As technology and the market demandfaster answers, our Rapid ResponseService provides turnkey information inhalf (or less) of the usual turnaround time.This is exactly what corporate licensing,business development and new productteams are seeking. Our Rapid ResponseService delivers high-quality results,formulated by senior team members,within the deadlines that have becomeroutine in today’s fast-pacedhealthcare environment.

When given the option to come intothe Cello Health fold, I knew this was theperfect opportunity to expand and honethe skill set of our growing team.

I am thrilled to be part of the Cello Healthteam. I enjoy working with a smart,responsive team in a forward-lookingenvironment. We have alreadyexperienced the benefits of interactingwith Cello Health on issues as diverse ashow to negotiate master servicesagreements, refine our businessdevelopment skills and identify teammembers with key access experiencein challenging projects.


“We work hard toensure we offeran attractive andstimulating placeto work that enablesour professionalsto achieve theirfull potential.”

Nicola CowlandCEO, Cello Health Insight

People, Culture andCorporate Social Responsibility

Key to ourfuture success



Our People

Core to Cello’s DNA is our people and it is through theirpassion, commitment and application of their expertisethat we are able to deliver outstanding value to our clients.

2017 saw a continued focus across Cello on a number of keytalent initiatives, with a particular focus on developing ourtalent and embedding our culture across the organisation.

ATTRACTING TALENT

We have been delighted to welcome key senior recruitsfrom the companies acquired by Cello during 2017; DefinedHealth and Advantage Healthcare. Their senior staff bring anew range of expertise which complements our existingexperience. In addition, we have added a number of seniorrecruits to the core business through external recruitment.

We also continue to be very successful at recruitinggraduates to the business, in 2017 30 graduates joined theGroup. Recruitment at this level provides the talent forgrowth in the future and our commitment to this area isreflected by the fact we now have our own internalrecruitment team.


OPPORTUNITIES FOR GROWTH

We work hard to ensure we offer an attractiveand stimulating place to work that enables ourprofessionals to achieve their full potential. Wehave a number of initiatives in place to ensure allour staff continue to learn and develop and areprovided with a range of opportunities to do so.

Our annual review process, combined withregular ‘personal development check-ins’, allowsa focus on key developmental areas for eachmember of the team. Our promotional strategyis to reward and promote once the skills are inplace, allowing us to create an environmentwhere development and promotion is on acontinuous basis.

Internal and external secondments/transfers(client companies) allow us to broaden skills, aswell as cross-fertilise experience and culturesacross our UK and US offices.

Cello also offers colleagues opportunities toattend professional and industry congresses,allowing them to continue to further theirprofessional development. For example, in 2017representatives from all three Cello Healthcapabilities attended the US and EU WorldOrphan Drug Congresses to host lively roundtable discussions with in-field experts, supportour collective exhibit there, as well as attendeducational sessions to expand our knowledgebase in the critical rare disease space.

Our latest addition to thesenior talent pool

John Tarplee joins Cello HealthConsulting Europe as a Vice President.John has over 30 years of life sciencesindustry experience in largemultinational as well as smaller nichedspeciality companies, includingAdherium, ALK-Abellò, Sanofi andAbbott. Over the course of his career,John has gained a diverse geographicalunderstanding from managing a largecardiovascular business unit in the UKwith over 250 people through to smalleraffiliate businesses in Denmark where hewas General Manager. He also gainedconsiderable experience during his timeas European Head Of Sales ForceExcellence on Sanofi.

John gained his above countryleadership perspective as a regionalSVP for Northern and Eastern Europeand the Asia-pacific areas with ALK-Abellò. He also brings immense therapyarea knowledge includingcardiovascular, urology, oncology,allergy and respiratory to complementhis vast experience in commercial seniorleadership roles. At Cello HealthConsulting, he uses his wealth ofknowledge and talents fororganisational excellence to translatevision into actionable strategyfor clients.


“As leaders in digitaltransformations,it is essential thatour team keep upwith the rapidlychanging worldand are constantlyupskilling.”

Nicola CowlandCEO, Cello Health Insight

GROUP TRAINING ANDDEVELOPMENT INITIATIVES

Our organisational developmentinitiative, identifying key talentwithin the business, was launchedin 2016. This allows us to focuslearning opportunities to meet theneeds of our key people, includingcrafting and conducting objectiveanalysis and interviews that lookat organisational needs. Thisincludes culture and values,business and leadershipchallenges; and behaviouralaspects including leadership styleand competencies. The output ofthis initiative will equip thegrowing teams to have futuresuccessors and talent in place,while constructively givingfeedback regarding differentaspects of leadership.

Alongside our local company-based learning and developmentofferings, the Cello GroupAcademy programme continues toexpand and develop. In 2017 a totalof 133 Cello employees attendedAcademy training events. Welaunched the core Academy

programme into the US to allow access for the growing US team,with 17 US colleagues attending the training. We also continuedour Masterclass programme in the UK, with modules aroundproject-based accounting and negotiation, as well as launching anumber of new Bitesize training sessions, focused on inclusionand leadership.

The range of central training initiatives that Cello Group offers isseen by our employees to offer real benefit and adds core value tothe business, both in terms of personal development andcollaborative working. In 2018 we will continue to develop theAcademy programme. We are expanding the core Academyprogramme to incorporate a change management module, whichwill continue to equip our managers for growth. We are alsolaunching more technical and vocational training initiatives underthe Academy banner, utilising the UK Government’sApprenticeship Levy.


“The Academy was so useful to my roleat Signal. The leadership course reallyopened my eyes to other people’sworking styles and made me moreaware of my emotional intelligence – Ioften now stop and think ‘What haveI learned?’ and then change how Iapproach a situation. It was also greatto spend time with colleagues fromother parts of the company such asCello Health and share ourexperiences. I would do it all again thisyear if they’d let me.”

Sarah LilleyAccount Director at Signal

“The Academy has been a greatsupport in the role I am in. It enablesme to take on everyday challengesbetter as well as supporting the teamI work with. The presentation skillslearned during the Academy traininghas supported me in presenting atvarious levels. The learning aroundleadership has also been positive in thedaily handling of people, obstacles andchallenges thrown at me.”

Sanjeev PatelHead of Digital at Signal (Opticomm)

“Cello Academy US Masterclass servedas a great litmus test for evaluating myleadership skills. It succeeded ineffectively balancing introspectivechallenges with very meaningfulcollaborative activities. The formerhelped me to better characterise who Iam as a professional, and the latterenabled me to learn more about myCello Health colleagues. Along the way,it validated many principles I try topractice and, more importantly,introduced me to new ones thatimmediately impacted how I engagewith colleagues and clients.”

Ed GeiselhartCello Health Insight


Cello Culture

Our culture is foundedon a set of values thatguides how we workwith each other and ourclients. These values areintrinsic to who we are,how we differentiateourselves and form thebasis of our serviceofferings and projectmethodologies.

We have six core valuescentral to our culture:

BOLD

We believe in being bold in ourrecommendations to clients. Our clients facetough challenges. They need us to work on theirbehalf to push the boundaries and think theimpossible.

CAN DO

A US client of Cello Health Communicationsrequested the team’s assistance with expeditingthe development of a high-profile manuscriptreporting the results of a pivotal clinical trial tothe New England Journal of Medicine, in order toachieve simultaneous publication with the late-breaking presentation at a large medicalconference, ASH. The team worked withinextremely aggressive timelines to go from a firstto final draft in less than a week, reflecting our‘can do’ attitude in achieving challengingtimelines. This is what clients expect. This is whatCello people deliver.


COLLABORATIVE SPIRIT

Collaboration within the Group has been one ofour keys to success over the last few years andwill continue to grow in importance as we evolve.Our teams enjoy the collaborative element ofworking with colleagues around the Group,allowing them to develop new skills andunderstand client issues and challenges throughdifferent lenses. Our clients benefit from thisdiversity of skills, all tuned into working withthem in a collaborative manner to help addresstheir unique challenges.

FRESH THINKING

We strive to take a fresh approach to challengingissues. For example, Cello Health CommunicationsUS recognised that our clients find it challengingto meet and gain valuable insight from their keyopinion leaders due to financial or timingconstraints. In response, Cello developed a noveldigital Virtual Advisory Platform that providedclients with a cost-effective approach to allowongoing engagement beyond the live meeting.

PASSIONATE

Across the Group all of our teams are passionateabout what we do and particularly in workingwith our clients at all levels. One specificexample that brings this to life is Cello’s long-standing client partnership with the British HeartFoundation. Cello not only combines digital,CRM and automation skills to delivertransformational supporter experiences; but wealso have five employees trekking to China toraise much-needed funds for the Foundation.

CONSTANTLY CURIOUS

The desire to be curious and learn more aboutwhat drives beliefs and behaviours underliesmuch of the work we do within Cello. Beinginquisitive enables us to really uncover andunderstand our clients' challenges, and developappropriate interventions. In 2017 Cello Health’sInsight ‘Experience First’ offering was namedone of PM360’s most innovative services. A userexperience and design research strategy thatfocuses on users of a treatment, product and/orservice, within a real-world context that factorsin environments and systems within which theylive and work.


Corporate social responsibility is a keybuilding block that provides a solidfoundation for our organisation to evolvein a manner that is sensitive to the needsof our people and the communitywe work in.

SOCIAL INITIATIVES

As a business, we have chosen to adoptsocial initiatives at a local company level,to allow us to dedicate resources and timeto more localised causes:

• In the US in 2017, Cello HealthCommunications launched its ‘GiveWhere You Live’ initiative. UScolleagues volunteered their time andresources to help various organisationsnear their office base in Yardley, PA.Different departments worked withdifferent organisations – theadministrative team started theprogramme off by collecting suppliesto donate to a local domestic violenceshelter, A Woman’s Place, and otherteams supported a range of other localinitiatives. This initiative is additionallysupported by the company’s ‘VolunteerTime Off Policy’; allocating anadditional day off to everyone in theagency, in order to encourageemployees’ instincts to help others andcultivate their generous spirits.

• Our UK businesses extended theircharity programme to include staffvolunteering days, which were held atCheltenham Animal Shelter,Gloucestershire Resource Centre, StarCollege, Vision 21 and Sue Ryder. Thisprovided employees with a greatopportunity to give something back tothe local community and theopportunity to develop new skills,while enjoying working with colleaguesoutside the office environment.

Our CorporateSocial Responsibility

In addition, our Cello businessesin the UK supported a number offundraising initiatives, including:

• The Movember Foundation– raising over £7,000 tosupport the men’s healthcharity addressing prostatecancer, testicular cancer, andmental health and suicideprevention.

• Fundraising and running inthe Crisis Square Mile Run inthe City of London, to addresshomelessness.


As a business, we have chosento adopt social initiatives at alocal company level, to allowus to dedicate resources and timeto more localised causes.

DIVERSITY AND INCLUSIONWITHIN CELLO GROUP

Cello recognises that diversity andinclusivity policies are key toallowing us to draw on a range oftalent and experience, enabling usto add value to our clients. We arecommitted to having a diverseemployee base and attract peopleon an equal opportunities basis,regardless of age, sex, sexualorientation, religion, nationality,race or disability and we adopt aninclusive culture. All employees arerecruited, trained, performanceassessed, rewarded and promotedon the basis of fairness, professionalcompetence and contribution.

• Hope for Children – a UK-basedcharity enabling vulnerablechildren globally to experiencea happy childhood. The Celloteam in Farnham organised arange of fundraising initiativesto support this organisation.

• Participating in Macmillan’s‘World’s Biggest CoffeeMorning’ to support the charityas it continues to providemedical, emotional, practicaland financial support to peoplein the UK living with cancer.


Directors’ Report

The Directors present their Directors’ reportand audited financial statements on theGroup for the year to 31 December 2017.

General Information

Cello Group plc (‘The Group’) is ahealthcare and consumer strategicmarketing group of companies. TheGroup is AIM quoted and is domiciledand registered in the United Kingdom.The Group has offices in the UnitedKingdom, the United States of Americaand Singapore.

Review of the Business andFuture Developments

The results for the year ended 31December 2017 are set out in theconsolidated income statement on page70. These show a profit for the year of£4.2m (2016: loss of £2.8m). An interimdividend of 1.05p per share was paid inNovember 2017 (2016: 1.0p) and a finaldividend of 2.45p per share is proposed(2016: 2.40p).

The Directors are required by theCompanies Act to present a businessreview, reporting on the development andperformance of the Group and theCompany during the year and theirpositions at the end of the year. A reviewof the development and future prospectsof the business and key performanceindicators (‘KPIs’) are given in the StrategicReport on pages 15 to 35 which areincorporated in this report by reference.

The Group’s KPIs are outlined in varioussections of this review. Whilst there aremany financial measures that the Groupmonitors on a regular basis our corefinancial objectives are:

• Headline profit before tax

• Headline operating profit

• Headline operating margin

• Like-for-like gross profit

• Headline operating cash flow conversion

• Headline basic earnings per share

Directors

The Directors of the Company who were inoffice during the year and up to the date ofsigning the financial statements were:

Mark ScottMark BentleyStephen HighleyPaul HamiltonWill DavidAllan RichChris Jones

Biographical details of the Directors atthe date of this report are set out onpages 126 to 127.


Directors’ Report

Directors’ Interests in Shares and Options

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

Number of ordinary shares of 10p eachAt 31 December 2017

Number of ordinary shares of 10p eachAt 31 December 2016

Mark Scott 1,455,475 1,320,175

Mark Bentley 442,518 337,968

Stephen Highley 2,136,104 2,074,604

Paul Hamilton 50,000 50,000

Will David 15,000 15,000

Allan Rich 977,785 977,785

Chris Jones – –

Under the rules of the PSP Option Scheme 2010 (the ‘PSP 2010’) the Executive Directors have beengranted an interest in options over ordinary shares of 10p each as follows:

At1 January

2017

Grantedduring

year

Exercisedduring the

year

Lapsedduring the

year

At 31December

2017

Exerciseprice

(pence)

Earliestexercise

dateExpiry

date

Mark Scott

PSP 2010 210,000 – (210,000) – – 10.00 July 2016 July 2023

PSP 2010 120,000 – (120,000) – – 10.00 June 2017 June 2024

PSP 2010 450,000 – – – 450,000 10.00 May 2019 May 2026

PSP 2010 – 275,000 – – 275,000 10.00 Sep 2020 Sep 2027

TotalMark Scott 780,000 275,000 (330,000) – 725,000

At1 January

2017

Grantedduring

year

Exercisedduring the

year

Lapsedduring the

year

At 31December

2017

Exerciseprice

(pence)

Earliestexercise

dateExpiry

date

Mark Bentley

PSP 2010 165,000 – (165,000) – – 10.00 July 2016 July 2023

PSP 2010 90,000 – (90,000) – – 10.00 June 2017 June 2024

PSP 2010 220,000 – – – 220,000 10.00 May 2019 May 2026

PSP 2010 – 140,000 – – 140,000 10.00 Sep 2020 Sep 2027

TotalMark Bentley 475,000 140,000 (255,000) – 360,000


Directors’ Report

At1 January

2017

Grantedduring

year

Exercisedduring the

year

Lapsedduring the

year

At 31December

2017

Exerciseprice

(pence)

Earliestexercise

dateExpiry

date

Stephen Highley

PSP 2010 100,000 – (100,000) – – 10.00 July 2016 July 2023

PSP 2010 50,000 – (50,000) – – 10.00 June 2017 June 2024

PSP 2010 220,000 – – – 220,000 10.00 May 2019 May 2026

PSP 2010 – 140,000 – – 140,000 10.00 Sep 2020 Sep 2027

TotalStephen Highley 370,000 140,000 (150,000) – 360,000

There were no changes in Directors’ interestsbetween the year end and the date of signingthe Group’s financial statements.

Research and Development ActivitiesDuring the year the Group spent £409,000 (2016:£310,000) on the development of new softwareproducts which are expected to generateeconomic benefits in the future. These amountswere capitalised as intangible assets. £402,000(2016: £386,000) of amortisation on research anddevelopment expenditure was charged to theincome statement during the year.

Directors’ Third-Party IndemnityProvisionsA qualifying third-party indemnity provision wasin place for Directors throughout the year and atthe date of approval of the financial statements.

EmployeesIt is the Company’s policy not to discriminatebetween employees or potential employees onany grounds. Full and fair consideration is given tothe recruitment, training and promotion ofdisabled people and, should staff becomedisabled during the course of their employment,efforts are made to provide appropriate re-training. The Company places enormousimportance on the contributions of its employeesand aims to keep them informed of developmentsin the Company through a combination ofmeetings and electronic communication.

Treasury SharesThe total number of shares in treasury at 31December 2017 was 453,000 (2016: 453,000),which represents 0.43% (2016: 0.52%) of theissued share capital. The purpose of the treasuryshares is to satisfy future earn out paymentsand/or share option awards.

Substantial ShareholdingsOther than the Directors’ interests disclosed onthe previous pages, the Company is aware ofthe following shareholdings of 3% or more in theissued share capital at 28 February 2018:

No. of shares %

Liontrust Asset Management 13,596,114 12.95

Ennismore Fund Management 9,912,176 9.44

Milton Asset Management 6,752,438 6.43

BlackRock 6,369,148 6.06

Octopus Asset Management 4,026,459 3.83

Hargreave Hale 3,300,000 3.14

Share CapitalChanges to the Company’s share capital duringthe year are given in note 24 to the consolidatedfinancial statements.

Statement of Directors’ ResponsibilitiesThe Directors are responsible for preparing theAnnual Report and the financial statements inaccordance with applicable law and regulation.

Company law requires the Directors to preparefinancial statements for each financial year.Under that law the Directors have prepared theGroup financial statements in accordance withInternational Financial Reporting Standards(IFRSs) as adopted by the European Union andcompany financial statements in accordancewith International Financial Reporting Standards(IFRSs) as adopted by the European Union.Under company law the Directors must notapprove the financial statements unless they aresatisfied that they give a true and fair view ofthe state of affairs of the Group and Companyand of the profit or loss of the Group and


Company for that period. In preparing thefinancial statements, the Directors arerequired to:

• select suitable accounting policies and thenapply them consistently;

• state whether applicable IFRSs as adopted bythe European Union have been followed forthe Group financial statements and IFRSs asadopted by the European Union have beenfollowed for the Company financialstatements, subject to any materialdepartures disclosed and explained in thefinancial statements;

• make judgements and accounting estimatesthat are reasonable and prudent; and

• prepare the financial statements on the goingconcern basis unless it is inappropriate topresume that the Group and Company willcontinue in business.

The Directors are responsible for keepingadequate accounting records that are sufficientto show and explain the Directors' andcompany’s transactions and disclose withreasonable accuracy at any time the financialposition of the Group and Company and enablethem to ensure that the financial statementscomply with the Companies Act 2006 and, asregards the Group financial statements, Article4 of the IAS Regulation.

The Directors are also responsible forsafeguarding the assets of the Group andCompany and hence for taking reasonable stepsfor the prevention and detection of fraud andother irregularities.

The Directors are responsible for themaintenance and integrity of the Company’swebsite. Legislation in the United Kingdomgoverning the preparation and dissemination offinancial statements may differ from legislationin other jurisdictions.

The Directors consider that the annual reportand accounts, taken as a whole, is fair, balancedand understandable and provides theinformation necessary for shareholders toassess the Group and Company’s performance,business model and strategy.

Each of the Directors, whose names andfunctions are listed in the Report of theRemuneration Committee confirm that, to thebest of their knowledge:

• the Company financial statements, whichhave been prepared in accordance with IFRSsas adopted by the European Union, give atrue and fair view of the assets, liabilities,financial position and profit of the Company;

• the Group financial statements, which havebeen prepared in accordance with IFRSs as

adopted by the European Union, give a trueand fair view of the assets, liabilities, financialposition and profit of the Group; and

• the Directors’ Report includes a fair review ofthe development and performance of thebusiness and the position of the Group andCompany, together with a description of theprincipal risks and uncertainties that it faces.

In the case of each Director in office at the datethe Directors’ Report is approved:

• so far as the Director is aware, there is norelevant audit information of which the Groupand Company’s auditors are unaware; and

• they have taken all the steps that they ought tohave taken as a Director in order to makethemselves aware of any relevant auditinformation and to establish that the Groupand Company’s auditors are aware.

Statement of disclosure of informationto auditorsIn the case of each Director in office at the datethe Directors’ Report is approved:

• so far as the Director is aware, there is norelevant audit information of which the Groupand Company’s auditors are unaware; and

• they have taken all the steps that they ought tohave taken as a Director in order to makethemselves aware of any relevant auditinformation and to establish that the Groupand Company’s auditors are aware ofthat information.

Independent AuditorsA resolution to reappointPricewaterhouseCoopers LLP, CharteredAccountants, as auditors will be proposed at theforthcoming Annual General Meeting.

Corporate GovernanceThe Company’s statement on corporategovernance can be found in the corporategovernance report on pages 60 to 61 of thefinancial statements. The corporate governancereport forms part of this Directors’ report and isincorporated into it by cross-reference.

By order of the Board

Mark BentleyCompany Secretary21 March 2018


Corporate GovernanceReport

The Board of Cello Group plc appreciates thevalue of good corporate governance, notonly in the areas of accountability and riskmanagement but also as a positivecontribution to the business. The Boardconsiders that the Company, whilst tradingon the AIM Market, has adopted thoserequirements of the UK CorporateGovernance Code (September 2012) (the‘Code’) as best applicable to the Companygiven its current size. The full requirements ofthe code have not been adopted.

Board Structure

The Board comprises three ExecutiveDirectors and four Non-Executive Directors.The roles of Chairman and Chief Executiveare separate. The Non-Executive Directorsare independent of management and freefrom any business or other relationship withthe Company other than owning shares.The Directors’ biographies appear on pages126 to 127.

The Board is scheduled to meet at least sixtimes a year and additionally when necessary.At each scheduled meeting of the Board, theChief Executive, Group Finance Director andGroup Chief Operating Officer report on theGroup’s operations. The Board is satisfiedthat it is provided with information in anappropriate form and quality to enable it todischarge its duties. All Directors are subjectto re-election by shareholders at the firstopportunity after their appointment. AllDirectors are required to retire by rotationand one-third of the Board is required to seekre-election each year. The Chairman ensuresthat the Directors are permitted to takeindependent professional advice as required.

All Directors have access to the advice andservices of the Company Secretary, who isresponsible to the Board for ensuring thatBoard procedures are followed and thatapplicable rules and regulations arecomplied with.

The following committees of the Board havebeen established to deal with specificaspects of the Company’s affairs.

Audit Committee

The Audit Committee consists of two Non-Executive Directors; Will David as Chairmanand Paul Hamilton. Will David is consideredto have relevant financial experience to chairthis Committee. The Committee considersmatters relating to the financial accountingcontrols, the reporting of results and theeffectiveness and cost of the external audit. Itaims to meet at least twice a year with theCompany’s auditors in attendance. OtherDirectors attend as required. The CompanySecretary provides secretarial support to theCommittee. The terms of reference of theCommittee are available on request.

Nomination Committee

The Nomination Committee consists of twoIndependent Non-Executive Directors; PaulHamilton and Will David. The Committee ischaired by Paul Hamilton and meets asnecessary. The Committee is formallyconstituted with written terms of referenceand is responsible for reviewing and makingproposals to the Board on the appointment ofDirectors. The Company Secretary providessecretarial support to the Committee. Theterms of reference of the NominationsCommittee are available on request.

Remuneration Committee

The Remuneration Committee is formallyconstituted with written terms of referenceand makes recommendations to the Boardwith regard to remuneration policy andrelated matters. The RemunerationCommittee consists solely of two of theIndependent Non-Executive Directors, PaulHamilton, who chairs the Committee and WillDavid. However, the Chief Executive attendsas required and has the right to address theCommittee. The Committee aims to meet atleast twice a year. The terms of reference ofthe Committee are available on request.

Further details of the Company’s policies onremuneration, including details of Directors’share options are given in the Report of theRemuneration Committee on pages 62 to 63.


Corporate GovernanceReport

Shareholder Communications

The Group believes in maintaining goodcommunications with shareholders. The ChiefExecutive and Group Finance Director meetanalysts and institutional shareholdersregularly with a view to ensuring that thestrategies and objectives of the Group arewell understood. The Senior IndependentDirector will not ordinarily attend suchmeetings other than at the request of therelevant shareholder. However, he is availableto shareholders if they have concerns whichthe Chairman, Chief Executive or the GroupFinance Director have failed to resolve or forwhich such contact is inappropriate.

Going Concern

The Directors have satisfied themselves thatthe Company and Group have adequateresources to continue in operationalexistence for the foreseeable future, and forthis reason the financial statements continueto be prepared on a going concern basis.

Internal Control

The Board is responsible for ensuring that theGroup maintains a system of internal controlsand risk management, including suitablemonitoring procedures. The objective of thesystem is to safeguard Group assets, ensureproper accounting records are maintainedand that the financial information used withinthe business and for publication is reliable.Any such system can only providereasonable, but not absolute, assuranceagainst material misstatement or loss.

Given the Group’s size and the nature of itsbusiness, the Board does not consider itwould be appropriate to have its own internalaudit function. An internal audit function willbe established as and when the Group is ofan appropriate size but meanwhile the auditof internal financial controls forms part of theresponsibilities of the Group’s financefunction.

All the day-to-day operational decisions aretaken initially by the Executive Directors orsubsidiary Directors, in accordance with the

Group’s strategy. Where appropriate, theBoard or subsidiary Directors approve suchdecisions. The Executive Directors orsubsidiary Directors are also responsible forinitiating all transactions and authorising allpayments, save for those relating to theiremployment. As such, the internal controlsprimarily comprise:

• the segregation of duties;

• the review of pertinent financial andother information by the Board on aregular basis;

• the prior approval of all significantstrategic decisions;

• having a formal strategy forbusiness activities.

The Environment

The activities of the Group do not have a highimpact on the environment. However, theGroup aims to ensure that where waste canbe reduced this is done efficiently byrecycling where viable.

Employees

The Group employs nearly 1,000 employeesand places a great deal of emphasis on theirtraining and retention. The centralprogramme for rising talent, Cello Academy,is now a well-established feature of theGroup’s staff development initiatives.

On behalf of the Board

Mark BentleyCompany Secretary21 March 2018


Report of theRemuneration Committee

The Directors have applied the principles of goodgovernance relating to Directors’ remuneration asdescribed below:

Remuneration Committee

The Remuneration Committee is authorised onbehalf of the Board to determine the Company’sremuneration policy on Executive Directors’remuneration, including pension rights and shareoption awards, and the terms of their servicecontracts. The Committee aims to meet at leasttwice a year and supervises the operation of shareschemes and other employee incentive schemes.The remuneration and terms and conditions ofappointment of the Non-Executive Directors willbe set by the Board. No Director shall participatein discussions relating to his own remuneration.The Remuneration Committee consists of twoIndependent Non-Executive Directors; PaulHamilton, who chairs the Committee, and Will David.

Remuneration PolicyThe policy of the Board is to provide executiveremuneration packages designed to attract,motivate and retain Directors of the calibrenecessary to maintain the Group’s position as a

market leader and to reward them for enhancingshareholder value and return on investment. Theremuneration should also reflect the Directors’responsibilities and contain incentives to deliver theGroup’s objectives.

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

• basic salary;

• performance-related bonus;

• benefit package – car allowance and healthcareinsurance;

• contributions to Directors’ individual definedcontribution pension schemes;

• share option incentives – the table below includesthe gain on share options exercised in the year,being the excess of market value at the exercisedate over the exercise price. Further details ofshare options granted to the Executive Directorsare shown on pages 57 to 58.

The Remuneration Committee reviews thecomponents of each Executive Director’sremuneration package annually.

Directors’ Remuneration

2017 (£’000) Salary Bonus BenefitsTotal

Emoluments Pension

Gain onexercised

share options Total

Mark Scott 357 100 15 472 – 331 803

Mark Bentley 264 73 13 350 – 256 606

Stephen Highley 285 73 15 373 – 151 524

Allan Rich 55 – – 55 – – 55

Will David 35 – – 35 – – 35

Paul Hamilton 35 – – 35 – – 35

Chris Jones 35 – – 35 – – 35

Total 1,066 246 43 1,355 – 738 2,093

2016 (£’000) Salary Bonus BenefitsTotal

Emoluments Pension

Gain onexercised

share options Total

Mark Scott 333 89 15 437 11 719 1,167

Mark Bentley 246 65 9 320 8 113 441

Stephen Highley 267 65 16 348 9 37 394

Allan Rich 55 – – 55 – – 55

Will David 35 – – 35 – – 35

Paul Hamilton 35 – – 35 – – 35

Chris Jones 7 – – 7 – – 7Total 978 219 40 1,237 28 869 2,134


Report of theRemuneration Committee

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

Allan Rich Non-Executive Chairman 5 April 2005 6 months

Mark Scott Chief Executive 5 May 2004 12 months

Mark Bentley Group Finance Director 1 May 2005 12 months

Stephen Highley Group Chief Operating Officer 13 May 2013 6 months

Paul Hamilton Senior Non-Executive Director 8 October 2004 6 months

Will David Non-Executive Director 8 October 2004 6 months

Chris Jones Non-Executive Director 17 October 2016 6 months

Long-term Incentive ArrangementsOn 17 November 2009 the Board adopted theCello Group plc HM Revenue & Customs ApprovedShare Option Plan 2009 (the ‘Approved Plan2009’) and on 15 March 2010 adopted the CelloGroup plc Unapproved Option Plan 2010 (the‘Unapproved Plan 2010’). Under the ApprovedPlan 2009 and the Unapproved Plan 2010 (the‘Option Plans’) performance conditions will betailored to each participant according to his or herseniority and responsibilities and will be based onperformance as measured against an appropriatecombination of Company, Division and Grouptargets and the extent to which these are achievedor exceeded over the performance period willdetermine the proportion of each participant’soptions which vest. Awards under the OptionPlans to main Board Directors will be subject tothe performance conditions which apply to awardsunder the PSP 2010. The Committee will review theOption Plans on a regular basis and may amend theperformance conditions from time to time.

On 4 June 2010 the Board adopted the CelloGroup plc Performance Share Plan 2010 (the‘PSP 2010’), as the principal long-term incentiveplan for the Group’s most senior executives.The performance measure for the PSP 2010 isTotal Shareholder Return (‘TSR’) relative to acomparator group of the Company’s peers over thethree years following the date of the award. Theproportion of PSP 2010 awards which vest will becalculated as follows:

Cello relative TSR performance Proportion of award vesting

Below median Nil

Median 25%

Upper quartile 100%

Between median Interpolation betweenand upper quartile 25% and 100%

Market Value of SharesThe market value of the shares at 31 December2017 was 134.0p and the high and low prices duringthe year were 136.5p and 96.5p respectively.

On behalf of the Board

Paul HamiltonChairman – Remuneration Committee21 March 2018


Consolidated Financial StatementsIndependent Auditors’ Report

Report on the audit of the Groupfinancial statementsOpinion

In our opinion, Cello Group plc’s group financialstatements (the ‘financial statements’):

• give a true and fair view of the state of theGroup’s affairs as at 31 December 2017 and of itsprofit and cash flows for the year then ended;

• have been properly prepared in accordance withIFRSs as adopted by the European Union; and

• have been prepared in accordance with therequirements of the Companies Act 2006.

We have audited the financial statements, includedwithin the Annual Report, which comprise: theconsolidated balance sheet as at 31 December2017, the consolidated income statement andstatement of comprehensive income, theconsolidated statement of cash flows, and theconsolidated statement of changes in equityfor the year then ended, and the notes to theconsolidated financial statements, which include adescription of the significant accounting policies.

Basis for opinion

We conducted our audit in accordance withInternational Standards on Auditing (UK) (‘ISAs(UK)’) and applicable law. Our responsibilitiesunder ISAs (UK) are further described in theAuditors’ responsibilities for the audit of thefinancial statements section of our report. Webelieve that the audit evidence we have obtainedis sufficient and appropriate to provide a basis forour opinion.

Independence

We remained independent of the Group inaccordance with the ethical requirements that arerelevant to our audit of the financial statements inthe UK, which includes the FRC’s Ethical Standard,as applicable to listed entities, and we have fulfilledour other ethical responsibilities in accordance withthese requirements.

Our audit approach

Overview

• Overall group materiality: £571,000 (2016:£511,000), based on 5% of headline profitbefore tax.

• We carried outprocedures on parts ofthe business thataccounted for 87% ofGroup revenues and 89%of Group profit before taxand non-headline items

• Audits of completefinancial information wereperformed over 15components thataccounted for 83% ofGroup revenues

• Audit procedures wereperformed over revenuein one additionalcomponent thataccounted for 4% of Group revenues

• Risk of fraud in revenue recognition in relation tocut off.

• Goodwill impairment.

• Measurement and presentation ofnon-headline items.

The scope of our audit

As part of designing our audit, we determinedmateriality and assessed the risks of materialmisstatement in the financial statements. Inparticular, we looked at where the Directors madesubjective judgements, for example in respectof significant accounting estimates that involvedmaking assumptions and considering future eventsthat are inherently uncertain.

As in all of our audits we also addressed the riskof management override of internal controls,including evaluating whether there was evidenceof bias by the Directors that represented a risk ofmaterial misstatement due to fraud.

Key audit matters

Key audit matters are those matters that, in theauditors’ professional judgement, were of mostsignificance in the audit of the financial statementsof the current period and include the mostsignificant assessed risks of material misstatement(whether or not due to fraud) identified by theauditors, including those which had the greatesteffect on: the overall audit strategy; the allocationof resources in the audit; and directing the efforts



of the engagement team. These matters, and any comments we make on the results of our proceduresthereon, were addressed in the context of our audit of the financial statements as a whole, and in formingour opinion thereon, and we do not provide a separate opinion on these matters. This is not a complete listof all risks identified by our audit.

Key audit matter How our audit addressed the key audit matterRisk of fraud in revenue recognition in relation to cut off

Refer to page 76 (accounting policies) and page 79(accounting estimates and judgements).

Our specific audit focus was on the risk that revenuemay be recorded in the incorrect period in respect ofthe stage of completion of project-based revenues.

Assessment of the stage of completion can also bejudgemental in nature, and increases the risk aroundthe timing of revenue recognition, in light of theincentive schemes for management in those businessesdesigned to reward performance.

We evaluated the revenue recognition policy of theGroup and on a sample basis we determined that therelated revenue had been recognised in conformitywith the Group’s policy and applicable IFRSs.

For a sample of transactions close to the year end,we examined supporting documentation, such asunderlying contracts, approved purchase orders andstatements of work, to determine that these sales hadtaken place and the amount recognised in the yearwas appropriate.

Where amounts recorded were based on thepercentage of the projects’ completion, we furtherverified that the income was correctly calculatedthrough agreement to timesheet records andcorroborated amounts recorded through discussionwith the responsible project managers.

There were no material issues identified by our testingof revenue recognition in relation to cut off in the year.

Goodwill impairment

Refer to page 76 (accounting policies) and page 91 topage 92 (notes).

The Group carried £73.0m of goodwill at 31 December2017 (2016: £69.8m).

The carrying values of goodwill are contingent on futurecash flows of the underlying CGUs and there is a risk thatif forecasted cash flows are not achieved, the assets willbe impaired.

Determining if an impairment charge is required involvessignificant judgements about the future results andcash flows of the business, including forecast growth infuture revenues and operating profit margins, as well asdetermining an appropriate discount rate and long-termgrowth rate.

The Directors aggregate CGUs into segments whichrepresent the level at which the cash flows of thebusinesses (and goodwill) are monitored and thereforethis is the level at which the Directors perform theirimpairment assessment.

The Directors used a value in use model to computethe present value of forecast future cash flows for eachsegment which was then compared to the carrying valueof the net assets of each segment (including goodwill andintangible assets) to determine if there was an impairment.

All segments showed headroom above the carrying valueof the net assets including goodwill when subject to theDirectors’ sensitivity analysis.

We evaluated and sensitised the Directors’ future cashflow forecasts and evaluated the process by which theywere drawn up, and tested the underlying value inuse calculations.

We assess the appropriateness of:

* the key assumptions for short and long-term growthrates in the forecasts by comparing them to historicalresults, as well as economic and industry forecasts andcomparable companies; and

* the discount rate used in the calculations by assessingthe cost of capital for the Company and comparableorganisations.

We considered the Directors’ potential bias throughperformance of our own sensitivity analysis on keyassumptions, to understand the impact of reasonablechanges in the key assumptions on the availableheadroom. This included sensitising the discount rateapplied to the future cash flows, and the short andlonger-term growth rates and profit margins.

In performing these sensitivities we considered thehistorical budgeting accuracy and how the assumptionscompared to the actual values achieved in prior years andpost year-end.

With regard to the above procedures, including thereflection of historical levels of variance from budget intothe future forecasts, we determined that the inputs to thevalue in use model were appropriate.

We found that these judgements were supported byreasonable assumptions that would require significantdownside changes before any material impairmentwas necessary.



Key audit matter How our audit addressed the key audit matterMeasurement and presentation of non-headline items

Refer to page 15 (strategic report), pages 76 to 77(accounting policies) and page 82 (notes).

The Group presents profit before taxation adjustedfor non-headline items to enable users of the financialstatements to gain a better understanding ofthe underlying business performance and reflect theway the business is controlled.

The classification of items as non-headline is an area ofjudgement, and we therefore focused on whether eachitem was properly classified as a non-headline item. Thisincluded assessing the completeness of items classifiedas exceptional, in that it includes items that bothincrease and decrease the adjusted profit measure.

Current year non-headline charges relate mainly to£1,916k of restructuring costs in relation mainly to 2CVUS; £1,364k of employee remuneration in relation to theDefined Health Inc. acquisition and £1,350k ofstart-up losses.

We understood the rationale for classifying items asnon-headline and considered whether this is reasonableand consistent, in that it includes items that both increaseand decrease the adjusted profit measure, and are inaccordance with the Group’s accounting policy.

Our work in relation to each type of non-headline item issummarised below.

• Restructuring costs – these include redundancypayments and an onerous lease as a result of theGroup’s restructuring. We tested the accuracy andcompleteness of the costs incurred, including checkingthe payments made to employees. We confirmed thatone of the offices was permanently closed in the yearand that these costs did not just relate to replacingspecific individuals.

* Acquisition-related employee remuneration – thesecosts have been treated as non-headline itemshistorically. We have considered the nature of theexpense and agreed its classification as non-headline isconsistent with the Group’s accounting policies.

* Start-up losses – these costs have been treated asnon-headline items historically. We have consideredthe nature of the expense and agreed its classificationas non-headline is consistent with the Group’saccounting policies.

* Acquisition costs – current year costs relate to theacquisitions of Defined Health Research Inc. and CancerProgress LLC, and Advantage Healthcare Inc. We haveconsidered the nature of the expense and agreed itsclassification as non-headline is consistent with theGroup’s accounting policies.

* Provision for VAT payable – This year’s credit relates toamounts recovered from charity clients in relation to VATpayable to HMRC. This amount was fully provided for, bythe Group, in prior periods and amounts recovered fromclients are recognised as non-headline items. We havevouched the receipts to the bank and have concludedthat classifying this item as non-headline is appropriateand consistent with prior year’s treatment.

We also tested the reconciliation of adjusted profitto statutory profit in (note 1) and agreed materialadjustments to underlying accounting records and ouraudit work performed over other balances.

We determined that the rationale for including orexcluding items from adjusted profit has been appliedacross gains and losses, and is consistent with the Group’saccounting policies.

We considered the adequacy of the disclosuresexplaining the rationale for providing alternative profitmeasures in the accounting policy note as well as theclarity of reconciliations of these measures to theirstatutory equivalent.



How we tailored the audit scopeWe tailored the scope of our audit to ensure thatwe performed enough work to be able to give anopinion on the financial statements as a whole,taking into account the structure of the Group,the accounting processes and controls, and theindustry in which it operates.

Taken together, our audit procedures accountedfor 83% of Group revenues and 89% of Group profitbefore tax adjusted for non-headline items.

The Group consists of the Company (‘plc’) andtwo divisions: Cello Health and Cello Signal. Thetwo divisions are further divided into 10 tradingcompanies in Cello Signal and 14 in Cello Health.

The Group’s accounting process is structuredaround a local finance function for each tradingcompany who maintain their own accountingrecords and controls and report to the plc financeteam in the UK through submission of managementreporting packs. The plc finance team consolidatesthe reporting packs of each trading company andthe central functions.

Due to their significance and/or risk characteristics,as defined in our key audit matters, Insight Medical,Cello Signal and MedErgy US, required an audit oftheir complete financial information.

The remaining UK trading companies have receivedan audit of their complete financial information,based on the legal requirement to file auditedcompany accounts.

Specific risk-based audit procedures wereperformed over revenue in Defined Health basedon the audit risks we had identified in these areas.

The Group consolidation, financial statementdisclosures and a number of complex itemswere audited at the Group’s head office. Theseincluded goodwill, non-headline items, tax andshare-based payments.

Taken together, these procedures gave us theevidence we needed for our opinion on the financialstatements as a whole.

Materiality

The scope of our audit was influenced by our application of materiality. We set certain quantitativethresholds for materiality. These, together with qualitative considerations, helped us to determine the scopeof our audit and the nature, timing and extent of our audit procedures on the individual financial statementline items and disclosures and in evaluating the effect of misstatements, both individually and in aggregateon the financial statements as a whole.

Based on our professional judgement, we determined materiality for the financial statements as a wholeas follows:

Overall Group materiality £571,000 (2016: £511,000).

How we determined it 5% of headline profit before tax.

Rationale forbenchmark applied

Based on the benchmarks used in the annual report, headline profitbefore tax is the primary measure used by the shareholders in assessingthe performance of the Group. We believe that headline operatingprofit before tax is the most appropriate measure as it eliminates anydisproportionate effect of one-off charges and provides a consistentyear-on-year basis for our work.

For each component in the scope of our Group audit, we allocated a materiality that is less than ouroverall group materiality. The range of materiality allocated across components was between £6,000 and£542,000. Certain components were audited to a local statutory audit materiality that was also less thanour overall Group materiality.

We agreed with the Audit Committee that we would report to them misstatements identified duringour audit above £28,500 (2016: £25,500) as well as misstatements below that amount that, in our view,warranted reporting for qualitative reasons.



Conclusions relating to going concern

We have nothing to report in respect of thefollowing matters in relation to which ISAs (UK)require us to report to you when:

• the Directors’ use of the going concern basis ofaccounting in the preparation of the financialstatements is not appropriate; or

• the Directors have not disclosed in the financialstatements any identified material uncertaintiesthat may cast significant doubt about the Group’sability to continue to adopt the going concernbasis of accounting for a period of at least 12months from the date when the financialstatements are authorised for issue.

However, because not all future events orconditions can be predicted, this statement is not aguarantee as to the Group’s ability to continue as agoing concern.

Reporting on other information

The other information comprises all of theinformation in the Annual Report other than thefinancial statements and our auditors’ reportthereon. The Directors are responsible for the otherinformation. Our opinion on the financial statementsdoes not cover the other information and,accordingly, we do not express an audit opinion or,except to the extent otherwise explicitly stated inthis report, any form of assurance thereon.

In connection with our audit of the financialstatements, our responsibility is to read the otherinformation and, in doing so, consider whetherthe other information is materially inconsistentwith the financial statements or our knowledgeobtained in the audit, or otherwise appears to bematerially misstated. If we identify an apparentmaterial inconsistency or material misstatement,we are required to perform procedures to concludewhether there is a material misstatement of thefinancial statements or a material misstatement ofthe other information.

If, based on the work we have performed, weconclude that there is a material misstatement ofthis other information, we are required to reportthat fact. We have nothing to report based onthese responsibilities.

With respect to the Strategic Report andDirectors’ Report, we also considered whether thedisclosures required by the UK Companies Act2006 have been included.

Based on the responsibilities described above andour work undertaken in the course of the audit,ISAs (UK) require us also to report certain opinionsand matters as described below.

Strategic Report and Directors’ Report

In our opinion, based on the work undertaken inthe course of the audit, the information given inthe Strategic Report and Directors’ Report for theyear ended 31 December 2017 is consistent withthe financial statements and has been prepared inaccordance with applicable legal requirements.

In light of the knowledge and understandingof the group and its environment obtained inthe course of the audit, we did not identify anymaterial misstatements in the Strategic Report andDirectors’ Report.

Responsibilities for the financialstatements and the auditResponsibilities of the Directors for thefinancial statements

As explained more fully in the Directors’Responsibilities Statement set out on pages 58 and59, the Directors are responsible for the preparationof the financial statements in accordance with theapplicable framework and for being satisfied thatthey give a true and fair view. The Directors arealso responsible for such internal control as theydetermine is necessary to enable the preparationof financial statements that are free from materialmisstatement, whether due to fraud or error.

In preparing the financial statements, the Directorsare responsible for assessing the Group’s abilityto continue as a going concern, disclosing asapplicable, matters related to going concern andusing the going concern basis of accounting unlessthe Directors either intend to liquidate the Group orto cease operations, or have no realistic alternativebut to do so.

Auditors’ responsibilities for the audit of thefinancial statements

Our objectives are to obtain reasonable assuranceabout whether the financial statements as a wholeare free from material misstatement, whether dueto fraud or error, and to issue an auditors’ reportthat includes our opinion. Reasonable assurance isa high level of assurance, but is not a guarantee thatan audit conducted in accordance with ISAs (UK)will always detect a material misstatement when itexists. Misstatements can arise from fraud or errorand are considered material if, individually or in theaggregate, they could reasonably be expected toinfluence the economic decisions of users taken onthe basis of these financial statements.



A further description of our responsibilities for theaudit of the financial statements is located on theFRC’s website at:www.frc.org.uk/auditorsresponsibilitiesThis description forms part of our auditors’ report.

Use of this report

This report, including the opinions, has beenprepared for and only for the company’s membersas a body in accordance with Chapter 3 of Part 16 ofthe Companies Act 2006 and for no other purpose.We do not, in giving these opinions, accept orassume responsibility for any other purpose or toany other person to whom this report is shown orinto whose hands it may come save where expresslyagreed by our prior consent in writing.

Other required reportingCompanies Act 2006 exception reporting

Under the Companies Act 2006 we are required toreport to you if, in our opinion:

• we have not received all the information andexplanations we require for our audit; or

• certain disclosures of Directors’ remunerationspecified by law are not made.

We have no exceptions to report arising fromthis responsibility.

Other matter

We have reported separately on the companyfinancial statements of Cello Group plc for the yearended 31 December 2017.

Simon O’Brien (Senior Statutory Auditor)for and on behalf of PricewaterhouseCoopers LLPChartered Accountants and Statutory AuditorsLondon

21 March 2018


Consolidated Income Statement

Note

Year ended31 December 2017

£’000


£’000

Continuing operationsRevenue 2 169,292 165,266Cost of sales (66,807) (72,610)

Gross profit 1 102,485 92,656Administrative expenses 4 (96,309) (94,049)

Operating profit/(loss) 2 6,176 (1,393)Finance income 3 1 11Finance costs 3 (360) (304)

Profit/(loss) on continuing operations before taxation 1 5,817 (1,686)Taxation 9 (1,589) (820)

Profit/(loss) on continuing operations after taxation 4,228 (2,506)Loss from discontinued operations 10 – (321)

Profit/(loss) for the year attributable to owners of the parent 4,228 (2,827)

NoteYear ended

31 December 2017Year ended

31 December 2016

Basic earnings/(loss) per share

From continued operations 12 4.09p (2.86)pFrom discontinued operations 12 – (0.37)pTotal basic earnings/(loss) per share 12 4.09p (3.23)p

Diluted earnings/(loss) per share

From continuing operations 12 4.03p (2.86)pFrom discontinued operations 12 – (0.37)pTotal diluted earnings/(loss) per share 12 4.03p (3.23)p

The notes on pages 75 to 108 are an integral part of these consolidated financial statements.


Consolidated Statement ofComprehensive Income


£’000


£’000

Profit/(loss) for the financial year 4,228 (2,827)

Other comprehensive (expense)/income:Items that may be reclassified subsequently to profit and loss:Exchange differences on translation of foreign operations (238) 211

Total comprehensive income/(expense) for the year 3,990 (2,616)

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

From continuing operations 3,990 (2,295)From discontinued operations – (321)

3,990 (2,616)

The notes on pages 75 to 108 are an integral part of these financial statements.


Consolidated Balance Sheetfor the year ended 31 December 2017 Company registration number 05120150

Note31 December 2017

£’00031 December 2016

£’000

Goodwill 13 72,954 69,833Intangible assets 15 1,192 695Property, plant and equipment 16 2,840 2,705Deferred tax assets 23 1,081 742

Non-current assets 78,067 73,975

Trade and other receivables 18 54,520 46,862Cash and cash equivalents 19 13,021 7,466

Current assets 67,541 54,328

Trade and other payables 20 (49,378) (48,171)Current tax liabilities (438) (851)Borrowings 21 (59) (155)Obligations under finance leases 22 (14) (16)

Current liabilities (49,889) (49,193)

Net current assets 17,652 5,135

Total assets less current liabilities 95,719 79,110

Trade and other payables 20 (1,400) (126)Borrowings 21 (11,333) (12,350)Obligations under finance leases 22 (3) (17)Deferred tax liabilities 23 (110) (63)

Non-current liabilities (12,846) (12,556)

Net assets 82,873 66,554

EquityShare capital 24 10,501 8,760Share premium 32,705 19,162Merger reserve 25,446 25,446Capital redemption reserve 50 50Retained earnings 13,368 12,159Share-based payment reserve 824 760Foreign currency reserve (21) 217

Total equity 82,873 66,554


The financial statements on pages 70 to 108 were approved by the Board of Directors on 21 March 2018and signed on its behalf by:

Mark Scott Mark BentleyDirector Director


Consolidated Cash Flow Statementfor the year ended 31 December 2017

Note


£’000


£’000

Net cash generated from operating activities before taxation 26 4,792 6,510Tax paid (2,066) (1,659)

Net cash generated from operating activities after taxation 2,726 4,851

Investing activitiesInterest received 1 11Purchase of property, plant and equipment 16 (1,462) (1,966)Sale of property, plant and equipment 30 30Purchase of intangible assets 15 (409) (310)Purchase of subsidiary undertakings (5,259) (25)

Net cash used in investing activities (7,099) (2,260)

Financing activitiesProceeds from issuance of shares 14,388 289Dividends paid to equity holders of the parent 11 (3,575) (2,596)Repayment of borrowings (3,000) (6,681)Repayment of loan notes (96) (77)Drawdown of borrowings 2,900 8,509Capital element of finance lease payments (16) (24)Interest paid (362) (256)

Net cash generated from/(used in) financing activities 10,239 (836)

Net increase in cash and cash equivalents 5,866 1,755Exchange (losses)/gains on cash and cash equivalents (311) 462Cash and cash equivalents at the beginning of the year 7,466 5,249

Cash and cash equivalents at the end of the year 19 13,021 7,466



Consolidated Statement ofChanges in Equityfor the year ended 31 December 2017

Sharecapital£’000

Sharepremium

£’000

Mergerreserve£’000

Capitalredemption

reserve£’000

Retainedearnings

£’000

Share-based

paymentreserve£’000

Foreigncurrency

exchangereserve£’000

Equityattributable

to theowners ofthe parent

£’000

Non-controlling

interest£’000

Totalequity£’000

At 1 January 2016 8,576 18,834 28,807 50 13,860 635 6 70,768 50 70,818

Comprehensive expense:Loss for the financial year – – – – (2,827) – – (2,827) – (2,827)Other comprehensive income:Currency translation – – – – – – 211 211 – 211

Total comprehensiveexpense for the year – – – – (2,827) – 211 (2,616) – (2,616)

Transactions with owners:Shares issued (note 24) 184 328 – – – – – 512 – 512Acquisition of non-controlling interest – – – – 25 – – 25 (50) (25)Credit for share-based incentives – – – – – 349 – 349 – 349Tax on share-based paymentsrecognised directly in equity – – – – 112 – – 112 – 112Transfer between reserves inrespect of share options – – – – 224 (224) – – – –Transfer between reserves inrespect of impairment – – (3,361) – 3,361 – – – – –Dividends (note 11) – – – – (2,596) – – (2,596) – (2,596)

Total transactions with owners 184 328 (3,361) – 1,126 125 – (1,598) (50) (1,648)

At 31 December 2016 8,760 19,162 25,446 50 12,159 760 217 66,554 – 66,554

Comprehensive income:Profit for the financial year – – – – 4,228 – – 4,228 – 4,228Other comprehensive expense:Currency translation – – – – – – (238) (238) – (238)

Other comprehensive incomefor the year – – – – 4,228 – (238) 3,990 – 3,990

Transactions with owners:Shares issued (note 24) 1,741 13,543 – – – – – 15,284 – 15,284Credit for share-based incentives – – – – – 430 – 430 – 430Tax on share-based paymentsrecognised directly in equity – – – – 190 – – 190 – 190Transfer between reserves inrespect of share options – – – – 366 (366) – – – –Dividends (note 11) – – – – (3,575) – – (3,575) – (3,575)

Total transactions with owners 1,741 13,543 – – (3,019) 64 – 12,329 – 12,329

At 31 December 2017 10,501 32,705 25,446 50 13,368 824 (21) 82,873 – 82,873



Accounting Policies

SIGNIFICANT ACCOUNTING POLICIES(1) Basis of PreparationThe consolidated financial statements of CelloGroup plc have been prepared in accordancewith International Financial Reporting Standardsas adopted by the European Union (‘IFRSs’),interpretations issued by the IFRS InterpretationsCommittee (‘IFRS IC’) and the Companies Act 2006applicable to companies reporting under IFRSs.The consolidated financial statements have beenprepared under the historical cost convention. TheGroup’s principal accounting policies have beenapplied consistently throughout the year.

The Group’s business activities, performance andposition are set out in the strategic report onpages 15 to 35. An assessment of the risks anduncertainties is set out in the strategic reporton page 35 and an assessment of the criticalaccounting estimates and judgements are set out inaccounting policy 19 on page 79.

(2) Going ConcernDuring the year the Group generated a profit beforetax on continuing activities of £5.8m and excludingnon-recurring restructuring costs and other non-headline charges the Group generated a profitbefore tax of £11.4m.

The Group meets its day-to-day working capitalrequirements through its bank facilities. At31 December 2017 the Group’s bank facilitiesconsisted of a £4.0m overdraft facility and a£20.0m revolving credit facility (‘RCF’). The RCFis committed to March 2022. £8.7m of the RCF isundrawn at 31 December 2017.

The Group’s forecasts and projections show thatthe Group is able to operate within the level of itscurrent facilities and its covenants.

After reviewing the Group’s performance andforecast future cash flows, the Directors considerthe Group has adequate resources to continuein operational existence for the foreseeablefuture. The Group therefore continues to adoptthe going concern basis in preparing the Group’sfinancial statements.

(3) Basis of ConsolidationThe Group’s financial statements consolidate thefinancial statements of the Company and all of itssubsidiary undertakings. Subsidiaries are all entitiesover which the Group has control. The Groupcontrols an entity when the Group is exposed to, orhas rights to, variable returns from its involvementwith the entity and has the ability to affectthose returns through its power over the entity.Subsidiaries are fully consolidated from the date onwhich control is transferred to the Group and arede-consolidated from the date that control ceases.

The Group uses the acquisition method ofaccounting to account for business combinations.The consideration transferred is measured as thefair value of the assets given, equity instrumentsissued and liabilities incurred to former ownersat the date of acquisition. Identifiable assetsand liabilities acquired and contingent liabilitiesassumed in a business combination are measuredinitially at their fair values at the acquisition date,irrespective of the extent of any non-controllinginterest. The excess of the cost of acquisition overthe fair value of the Group’s share of the identifiablenet assets acquired is recorded as goodwill.

Acquisition-related costs are expensed as incurred.

Inter-company transactions, balances andunrealised gains are eliminated on consolidation.Accounting policies of subsidiaries have beenchanged where necessary to ensure consistencywith the policies adopted by the Group.

The Group treats transactions with non-controllinginterests as transactions with equity owners.For purchases of non-controlling interests, thedifference between any consideration paid and therelevant share acquired of the carrying value of netassets of the subsidiary is recorded in equity.

(4) Foreign CurrenciesSterling is the functional currency of the Companyand the presentational currency of the Group.The functional currency of subsidiaries is the localcurrency of the primary economic environment inwhich the entity operates.

Foreign currency transactions are translated intothe functional currency using the exchange rateprevailing at the date of the transaction. Foreignexchange gains or losses on monetary assetsand liabilities denominated in foreign currenciesresulting from the settlement of such transactionsand from the translation to the rate prevailing at theyear end are recognised in the income statement.

The financial statements of subsidiaries whosefunctional currency is different to the presentationalcurrency of the Group are translated intothe presentational currency of the Group onconsolidation. Assets and liabilities are translatedat the exchange rate prevailing at the balancesheet date. Income and expenses are translatedat the average exchange rate for the year, unlessexchange rates fluctuate significantly during theyear, in which case the exchange rates at thetransaction date are used. Exchange differencesarising on consolidation are recognised in othercomprehensive income and the cumulative effect ofthese as a separate component in equity.

75Cello Annual Report 2017

Accounting Policies

(5) Revenue, Cost of Sales and Revenue RecognitionRevenue comprises the fair value of theconsideration received or receivable from servicesprovided by the Group or from the sale of licencesto use software products developed by the Groupin the ordinary course of the Group’s activities.

Services include fees, commissions, rechargeableexpenses and sales of materials provided by theGroup. Revenue is shown net of Value Added Taxand discounts.

Revenue derived from fees is recognised ascontract activity progresses, in accordance with theterms of the contractual agreement and the stageof completion of the work. The stage of completionis assessed based on the proportion of actual hoursor costs incurred as a proportion of total hoursand costs expected to be incurred, or milestonescompleted, as appropriate to the contract. Whererecorded revenue exceeds amounts invoiced toclients, the excess is classified as accrued incomeand where recorded revenue is less than amountsinvoiced to clients, the difference is classified asdeferred income.

Revenue derived from retainers is recognisedevenly over the contract period.

Revenue derived from commissions, rechargeableexpenses and sale of materials is recognised whenthe risk and rewards have been transferred to theclient in line with the individual contract.

Revenue derived from the sale of licences to usethe software products developed by the Group arerecognised evenly over the licence period.

Cost of sales include amounts payable to externalsuppliers where they are retained at the Group’sdiscretion to perform part of a specific clientproject or service where the Group has fullexposure to the benefits and risks of the contractwith the client. Cost of sales does not include directlabour costs.

(6) Pension ContributionsThe Group operates defined contribution pensionschemes and contributes to the personal pensionschemes of certain employees or to a Grouppersonal pension plan. The assets of the schemesare held separately from those of the Group inindependently administered funds. The amountcharged against profits represents the contributionspayable to the schemes in respect of theaccounting period.

(7) Discontinued OperationsA discontinued operation is a component ofthe Group that has been disposed of or closed.These operations represent a separate major lineof business or geographical area of operationsand can be closely distinguished operationallyand for financial reporting purposes from therest of the Group.

(8) Share-based PaymentsThe Group has applied the requirements of IFRS2 Share-based payment to both cash-settledand equity-settled share-based employeecompensation schemes.

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

i. Share optionsCertain employees receive remuneration inthe form of share options. The fair value ofthe share options granted is measured at thedate of grant and expensed to the incomestatement over the appropriate vesting period,with a corresponding adjustment to equity.

The fair value of the share options takes intoaccount market vesting conditions and non-vesting conditions. Non-market vesting conditionsare included in assumptions of the number ofoptions expected to vest. At the end of eachreporting period the Group revises its estimateof the number of share options expected to vestand recognises the impact of the revisions toprevious estimates in the income statement, witha corresponding adjustment to equity.

ii. Acquisition-related employeeremuneration expensesIn accordance with IFRS 3 (revised) Businesscombinations and IFRS 2 Share-basedpayment, certain payments to employeeswith ongoing post-acquisition employmentarrangements in respect of acquisitionarrangements are treated as remunerationwithin the income statement. These paymentsare typically payable in cash or shares at theoption of the Group so are treated as cash-settled share-based payments. The amountexpected to be payable is expensed in theincome statement over the appropriate period,with a corresponding adjustment made toamounts payable in respect of acquisitions.

(9) Headline MeasuresThe Group believes that reporting non-GAAP orheadline measures provides a useful comparisonof underlying business performance and thisreflects the way the business is reportedinternally and controlled. Accordingly, headlinemeasures of operating profit, finance income,finance costs, profit before taxation andearnings per share exclude, where applicable,restructuring costs, amortisation of intangibleassets, impairment charges, acquisition costs,acquisition accounting adjustments, start-uplosses, share option charges, fair value gains andlosses on derivative financial instruments and theprovision for VAT payable. These are items that,in the opinion of the Directors, are required to bedisclosed separately, by virtue of their size, natureor incidence, to enable a full understanding of theGroup’s underlying financial performance.


Accounting Policies

A reconciliation between reported and headlineprofit before taxation is presented in note 1. Inaddition to this, a reconciliation between reportedand headline operating profit is presented in note 2and a reconciliation between reported and headlineearnings per share is presented in note 12. Headlinemeasures in this report are not defined terms underIFRSs and may not be comparable with similarlytitled measures reported by other companies.

(10) Segment ReportingOperating segments are reported in a mannerconsistent with the internal reporting providedto the chief operating decision maker. The chiefoperating decision maker, which is responsible forallocating resources and assessing performance ofthe operating segments, has been identified as theBoard of Directors.

(11) GoodwillGoodwill represents the excess of considerationover the fair value of the Group’s share of theidentifiable net assets acquired at the dateof acquisition. Goodwill is carried at cost lessaccumulated impairment losses. Impairment lossesare recognised in the income statement and cannotsubsequently be reversed.Goodwill is allocated to cash-generating units(‘CGUs’) for the purposes of impairment testing.The allocation is made to those CGUs that areexpected to benefit from the business combinationin which the goodwill arose.The carrying value of goodwill for each CGUis reviewed annually for impairment, or morefrequently if the events or changes in circumstancesindicate a potential impairment. An impairment lossis recognised for the amount by which the asset’scarrying amount exceeds its recoverable amount.The recoverable amount is the higher of an asset’sfair value less costs to sell and its value-in-use.

(12) Intangible Assets Acquired as Partof a Business Combination

In accordance with IFRS 3 (revised) Businesscombinations, intangible assets acquired in abusiness combination are recognised at fair valueat the acquisition date. Identified intangible assetsacquired as part of a business combination areclient contracts. These intangible assets have a finiteuseful economic life and are carried at cost lessaccumulated amortisation. Amortisation is calculatedusing the straight line method over the expected lifeof the asset, which vary from three months tothree years.Intangible assets acquired as part of a businesscombination are reviewed for impairment annuallyor whenever events or changes in circumstancesindicate that the carrying value may not be fullyrecoverable. An impairment loss is recognised forthe amount by which the assets carrying amountexceeds its recoverable amount. The recoverableamount is the higher of an asset’s fair value less

costs to sell and its value-in-use. Intangible assetsacquired as part of a business combination whichhave suffered an impairment are reviewed forpossible reversal of the impairment at each reportingdate. Impairment losses and reversal of impairmentlosses are recognised in the income statement.

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

Expenditure on research activities is recognised asan expense in the period in which it is incurred.An internally generated intangible asset arising fromthe Group’s development expenditure is recognisedonly when the following conditions are met:i. an asset is created that can be identified;ii. it is probable that the asset created will

generate future economic benefit;iii. the development cost of the asset can be

measured reliably; andiv. there is the availability of adequate technical,

financial or other resources and an intention tocomplete the development and to use or sellthe development.

Internally generated assets are carried at cost lessaccumulated amortisation. Amortisation is calculatedusing the straight line method over the expected lifeof the asset. The expected life of internally generatedintangible assets is three years. Where no internallygenerated intangible asset can be recognised,the development expenditure is recognised as anexpense in the period in which it is incurred.Internally generated intangible assets are reviewedfor impairment annually or whenever eventsor changes in circumstances indicate that thecarrying value may not be fully recoverable. Animpairment loss is recognised for the amount bywhich the assets carrying amount exceeds itsrecoverable amount. The recoverable amountis the higher of an asset's fair value less coststo sell and its value-in-use. Internally generatedintangible assets which have suffered animpairment are reviewed for possible reversal ofimpairment at each reporting date.

(14) Property, Plant and EquipmentProperty, plant and equipment is stated at historicalcost less accumulated depreciation. Cost includesthe original purchase price of the asset and thecosts attributable to bringing the asset to itsworking condition for its intended use. Depreciationis provided at rates calculated to write off the cost,less estimated residual value, of each asset, overtheir estimated useful economic lives as follows:Leasehold improvements Over the remaining

term of the leaseMotor vehicles 25% pa. straight lineComputer equipment 33% pa. straight lineFixtures, fittings andoffice equipment 25% pa. straight line


Accounting Policies

Property, plant and equipment are reviewedfor impairment annually or whenever eventsor changes in circumstances indicate that thecarrying amount may not be recoverable. Anyproperty, plant and equipment that has suffered animpairment is reviewed for possible reversal of theimpairment at each reporting date.

(15) Current and Deferred TaxationTax on the profit or loss for the year comprisescurrent and deferred tax. Tax is recognised in theincome statement, except to the extent that itrelates to items recognised in other comprehensiveincome or directly in equity.Current tax is calculated on the basis of the tax lawsenacted or substantively enacted at the balancesheet date. Management periodically evaluatespositions taken in tax returns with respect tosituations in which the applicable tax regulation issubject to interpretation. It establishes provisionswhere appropriate on the basis of amountsexpected to be paid to the tax authorities.Deferred tax is income tax recognised, using theliability method, on temporary differences arisingbetween the tax bases of assets and liabilities andtheir carrying value in the consolidated financialstatements. However, deferred tax liabilities are notrecognised if they arise from the initial recognitionof goodwill nor from the initial recognition of anasset or liability, other than resulting from a businesscombination that does not affect the accountingprofit or loss or the taxable profit or loss.Deferred tax assets are only recognised to theextent that it is probable that they can be utilisedagainst future taxable profits.Deferred tax is calculated at the tax rates that areenacted or substantially enacted and expected toapply in the period when the liability is settled orthe asset is realised.Deferred tax assets and liabilities are offset whenthere is a legally enforceable right to offset currenttax assets and liabilities and when the deferred taxassets and liabilities relate to income taxes leviedby the same tax authority on either the taxableentity or different taxable entities where there is anintention to settle the balances on a net basis.

(16) LeasesWhen the Group enters into a lease which entailstaking substantially all the risks and rewards ofownership of an asset, the lease is treated as afinance lease. The asset is recorded at fair value (orpresent value of minimum lease payments if lower) inthe balance sheet as property, plant and equipmentand is depreciated over the estimated useful life orthe term of the lease, whichever is shorter. Futureinstalments under such leases, net of financecharges, are included as a liability. Rentals payableare apportioned between the finance element, whichis charged to the income statement, and the capital

element which reduces the outstanding obligationfor future instalments.All other leases are treated as operating leases andrentals payable are charged to the income statementon a straight line basis over the lease term.

(17) Financial InstrumentsFinancial assets and financial liabilities arerecognised on the Group’s balance sheet whenthe Group has become a party to the contractualprovisions of the instrument.i. Trade receivables

Trade receivables are classified as loansand receivables and are initially recognisedat fair value and subsequently measuredat amortised cost in accordance with IAS39 Financial Instruments: Recognition andMeasurement. A provision for impairmentis made where there is objective evidence(including customers with financial difficultiesor in default on payments) that amounts will notbe recovered in accordance with original termsof the agreement. A provision for impairmentis established when the carrying value of thereceivable exceeds the present value of thefuture cash flow discounted using the originaleffective interest rate. The carrying value ofthe receivable is reduced through the use of anallowance account and any impairment loss isrecognised in the income statement.

ii. Cash and cash equivalentsCash and cash equivalents comprise cash inhand and at bank and other short-term depositsheld by the Group with original maturitiesof less than three months. Cash and cashequivalents are offset with bank overdrafts andthe net balance reported in the balance sheetwhen there is a legally enforceable right tooffset the recognised amounts.

iii. Financial liabilities and equityA financial liability is a contractual obligationto deliver cash or another financial instrument.Financial liabilities and equity instruments areclassified according to the substance of thecontractual arrangements entered into. Anequity instrument is any contract that evidencesa residual interest in the assets of the Groupafter deducting all of its liabilities.

iv. Bank borrowingsInterest bearing bank loans and overdraftsare recorded initially at their fair value, net ofdirect transaction costs. Such instruments aresubsequently carried at their amortised cost andfinance charges, including premiums payableon settlement or redemption, are recognisedin the income statement over the term of theinstrument using an effective rate of interest.

v. Trade payablesTrade payables are initially recognised at fair valueand subsequently measured at amortised cost.


Accounting Policies

(18) Share CapitalOrdinary shares are classified as equity.

Incremental costs directly attributable to the issueof new ordinary shares are shown in equity as adeduction, net of tax, from the proceeds.

Where any Group company purchases theCompany’s equity share capital (treasury shares),the consideration paid, including any directlyattributable incremental costs, net of tax, isdeducted from equity until the shares are cancelledor revised. Where such shares are reissued,any consideration received, net of any directattributable incremental costs and related incometax effects, are included in equity.

(19) Accounting Estimates and JudgementsThe Group makes estimates and judgementsconcerning the application of the Group’saccounting policies and concerning the future. Theresulting estimates may, by definition, vary fromthe actual results. Estimates are based on historicalexperience and various other assumptions thatmanagement and the Board of Directors believeare reasonable.

The Directors consider the critical accountingestimates and judgements used in the financialstatements and concluded that the main areas ofjudgements are:

i. Revenue recognition policies in respect ofcontracts which straddle the year end.The Group is required to make an estimateof the project completion levels in respectof contracts which straddle the year end forincome recognition purposes. Estimates arebased on expected total costs and revenuesfrom each contract. Total expected costs arereviewed at each period and determined basedon actuals to date versus management’s historicexperience in relation to similar contracts. Thisinvolves a level of judgement and thereforedifferences may arise between the actual andestimated result. Where immaterial differencesarise they are recognised in the incomestatement for the following reporting period.Any material changes to these estimates wouldaffect revenue recognised in the financialstatements and the level of deferred or accruedincome on the balance sheet.

ii. Contingent deferred consideration payments inrespect of acquisitions and acquisition-relatedemployee remuneration.The Group has estimated the value of futureamounts payable in respect of acquisitions.The estimate is based on management’sestimates of the relevant entity’s futureperformance. If these estimates change in the

future as the earn out progresses, the amountof the provision will vary. Any changes to thecarrying value of the provision are recognisedin the income statement.

As part of a typical acquisition an amount isalso payable to the employees of the acquiredcompany. These acquisition-related employeeremuneration costs are calculated using thesame estimates of the relevant entity’s futureperformance as the deferred considerationpayable. If these estimates change in the future,as the earn out progresses, the amount of theemployee liability, which is recognised over theearn out period, will vary. Any changes to thecarrying value of these liabilities are recognisedin the income statement.

iii. Valuation and amortisation period of separatelyidentifiable intangible assets on acquisitions.The Group is required to value the separatelyidentifiable intangible assets acquired as partof a business combination. In order to valuesome of these intangible assets, the Groupmust make assumptions as to future cash flowsderived from these costs and estimate theexpected lives of these assets. Changes to theseestimates would affect the resulting valuationof goodwill and the amortisation chargerecognised in the financial statements.

iv. Impairment of goodwill and intangible assetsacquired as part of a business combination.The Group tests goodwill and intangible assetsacquired as part of a business combinationannually for impairment, in accordance with theGroup’s accounting policies. The recoverableamount is based on value-in-use calculations,which requires estimates of future cash flowsand the discount rate to apply in order tocalculate the present values of these cash flows.The estimates used and sensitivity of theseassumptions is disclosed in note 13.


Notes to the ConsolidatedFinancial Statements

GENERAL INFORMATIONCello Group plc and its subsidiaries (the ‘Group’)provides strategic marketing services via twodistinct businesses: Cello Health and Cello Signal.Cello Group plc is incorporated in England andWales under the Companies Act 2006 and isdomiciled in the United Kingdom. The Company is apublic limited company, which is listed on

the Alternative Investment Market (‘AIM’) of theLondon Stock Exchange. The address of theCompany’s registered office is 11-13 CharterhouseBuildings, London, EC1M 7AP.The consolidated financial statements arepresented in UK sterling, which is also the functionalcurrency of the Parent Company.

ADOPTION OF NEW AND REVISED STANDARDSNo new standards, amendments or interpretationseffective for the first time for the financial yearbeginning 1 January 2017 have had a materialimpact on the Group.A number of new standards, amendments tostandards and interpretations are effective forannual periods beginning after 1 January 2017,and have not been applied in preparing theseconsolidated financial statements. None of theseare expected to have a significant effect on theconsolidated financial statements of the Group,except for the following set out below:• IFRS 15 Revenue from contracts with customers

– effective 1 January 2018.IFRS 15 establishes a single comprehensive modelfor entities to use in accounting for revenue arisingfrom contracts with customers and will supersedeexisting revenue recognition guidance includingIAS 18 Revenue and related interpretations. Thecore principle of IFRS 15 is that an entity shouldrecognise revenue to depict the transfer of goodsand services to customers in an amount thatreflects the consideration to which the entityexpects to be entitled in exchange for thosegoods and services.The Group has undertaken a preliminaryassessment of the impact of IFRS 15 andcurrently does not expect there to be a materialimpact of adopting this standard. A full

assessment of the impact of adopting thisstandard is ongoing.

• IFRS 16 Leases – effective 1 January 2019.IFRS 16 introduces a comprehensive model forthe identification of lease arrangements andaccounting treatments for both lessors andlessees. IFRS 16 will supersede the current leaseguidance including IAS 17 Leases and relatedinterpretations. IFRS 16 removes the distinctionbetween operating leases and finance leases andis replaced by a model where a right-of-use assetand a corresponding liability have to berecognised for all leases by lessees except forshort-term leases or low value assets.The Group is assessing the impact of adoptingthis standard.

• IFRS 9 Financial Investments – effective1 January 2018.The Group has performed a preliminaryassessment of the potential impact of adoptingIFRS 9 based on the financial instruments andhedging relationships in place at the date ofinitial application of IFRS 9 and currently doesnot expect a material impact on theconsolidated financial statements of the Group.The full impact of adopting IFRS 9 will dependon the financial instruments the Group hasduring 2018 as well as the economic conditionsand judgement made at 31 December 2018.

1 Non-GAAP MeasuresThe Group believes that reporting non-GAAPmeasures provides a useful comparison ofunderlying business performance and reflects

the way the business is controlled. The Groupreports two types of non-GAAP measure, headlinemeasures and like-for-like gross profit.

80 Cello Annual Report 2017

1 Non-GAAP Measures (continued)Headline measuresNon-headline gains and losses are items that, inthe opinion of the Directors, are required to bedisclosed separately, by virtue of their size, natureor incidence, to enable a full understanding ofthe Group’s underlying financial performance.Accordingly, headline measures exclude, whereapplicable, the effect of the following items:i. Restructuring costs – these costs principally

relate to redundancy costs. Further details areprovided in note 6.

ii. Net (credit)/charge for VAT payable and relatedcosts – these costs relate to the VAT payable toHMRC in respect of certain charity clients. Thisis reported net of recovery from clients

iii. Employment settlement and related costs –these costs relate to the payment made to theprior employer of senior staff hired to establishthe Cello Health BioConsulting business, inrespect of post-employment restrictions.

iv. Start-up losses – these are defined as the netoperating result in the period of the tradingactivities that relate to new offices, newproducts, or new organically started businesses.Activities so defined will cease being separatelyidentified where, in the opinion of the Directors,the activities show evidence of becomingsustainably profitable or are closed, whicheveris earlier. In any event start-up losses will ceasebeing separately identified after two years fromthe commencement of the activity. Furtherdetails are provided in note 7.

v. Acquisition costs – these are costs that aredirectly related to acquisitions completed inthe year.

vi. Amortisation of intangible assets – this isin respect of amortisation charged againstseparately identifiable intangible assetsacquired as part of a business combination.

vii. Acquisition-related employee remunerationexpense – costs with regards to deferredpayments payable to vendors and certainemployees of a company in accordance withthe share purchase agreement of the acquiredcompany. In accordance with IFRS 3 BusinessCombinations, these costs are recognisedin the income statement by virtue ofemployment conditions in the relevant sharepurchase agreement.

viii. Share option charges – these costs representthe fair value of share options charged tothe income statement and are separatelyidentified due to their nature. Further detailsare provided in note 25.

ix. Impairment of goodwill. Further details areprovided in note 13.

Headline measures in this report are not definedterms under IFRS, and may not be comparablewith similarly titled measures reported byother companies.


A reconciliation between statutory and headline profit/(loss) before taxation is presented below:

Note


£’000


£’000

Profit/(loss) on continuing operations before taxation 5,817 (1,686)Restructuring costs 6 1,916 1,201Net (credit)/charge for VAT payable and related costs (259) 1,798Employment settlement and related costs 48 1,158Start-up losses 7 1,350 977Acquisition costs 243 –Amortisation of intangible assets 15 510 294Acquisition-related employee remuneration expense 1,364 1,176Share option charges 25 430 349Impairment of goodwill 13 – 4,937

Headline profit before taxation 11,419 10,204

Headline profit before taxation is made up as follows:Headline operating profit 2 11,778 10,497Finance income 3 1 11Finance costs 3 (360) (304)

11,419 10,204



1 Non-GAAP Measures (continued)Like-for-like gross profitLike-for-like gross profit measures exclude the results from companies acquired in the year, and they alsoexclude the results of acquired companies in the prior year to the extent that those companies were notin the group in that prior year. Like-for-like gross profit measures also appropriately exclude the impact ofstart-ups, which are defined in note 7. In aggregate, these adjustments are detailed in the table below.

Like-for-like measures are also calculated both with and without the impact of movements in currency.These measures are also disclosed in the table below.

Notes


£’000


£’000

Reported gross profit 10.6% 102,485 92,656Adjustments (8,066) (525)

Like-for-like gross profit 2.5% 94,419 92,131Currency impact (825) –

Currency adjusted like-for-like gross profit 1.6% 93,594 92,131

These measures can be allocated to the Group’s operating segments (note 2) as follows:

Reported gross profit:Cello Health 26.4% 60,150 47,605Cello Signal (6.1%) 40,961 43,613Other 1,374 1,438

Total 10.6% 102,485 92,656

Like-for-like gross profit:Cello Health 10.7% 53,458 48,302Cello Signal (6.5%) 40,961 43,829

Total 2.5% 94,419 92,131

Currency adjusted like-for-like gross profit:Cello Health 9.2% 52,763 48,302Cello Signal (6.8%) 40,831 43,829

Total 1.6% 93,594 92,131



2 Segmental InformationFor management purposes, the Group is organised into two operating segments: Cello Health and CelloSignal. These segments are the basis on which the Group reports internally to the plc’s Board of Directors,who have been identified as the chief operating decision makers.

Revenue and costs not included in one of these operating segments, for example central overheads andresults from start-up operations, have not been allocated to an operating segment in line with the way theyare reported to the chief operating decision makers.

The principal activities of the operating segments are as follows:

Cello HealthThe Cello Health Division provides market research, consulting and communications services principallyto the Group’s pharmaceutical and healthcare clients.

Cello SignalThe Cello Signal Division provides market research and direct communications services principally tothe Group’s consumer-facing clients.

Revenues derived from the Group’s largest client are less than 10.0% of the Group’s total revenue. Revenuederived from the largest client in each operating segment also represents less than 10.0% of externalrevenue in each segment.

Sales between segments are carried out at arms-length. The revenue from external parties reported to thechief operating decision maker is measured in a manner consistent with that in the income statement.

for the year ended 31 December 2017Cello Health

£’000Cello Signal

£’000

ConsolidationAdjustments

and Unallocated£’000

Group£’000

RevenueExternal sales 85,465 81,905 1,922 169,292Intersegment revenue 25 133 (158) –

Total revenue 85,490 82,038 1,764 169,292

Gross profit 60,150 40,961 1,374 102,485

Operating profitHeadline operating profit (segment result) 10,639 3,872 (2,733) 11,778

Restructuring costs (1,916)Net credit for VAT payable and related costs 259Employment settlement and related costs (48)Start-up losses (1,350)Acquisition costs (243)Amortisation of intangible assets (510)Acquisition-related employee remuneration expense (1,364)Share option charges (430)

Operating profit 6,176

Financing income 1Finance costs (360)

Profit before tax on continuing operations 5,817

Other informationCapital expenditure 851 608 3 1,462

Capitalisation of intangible assets – 409 – 409

Depreciation of property, plant and equipment 646 647 11 1,304



2 Segmental Information (continued)

for the year ended 31 December 2016Cello Health

£’000Cello Signal

£’000

ConsolidationAdjustments

and Unallocated£’000

Group£’000

RevenueExternal sales 70,126 93,461 1,679 165,266Intersegment revenue 34 72 (106) –

Total revenue 70,160 93,533 1,573 165,266

Gross profit 47,605 43,613 1,438 92,656

Operating profitHeadline operating profit (segment result) 8,635 4,490 (2,628) 10,497

Restructuring costs (1,201)Net charge for VAT payable and related costs (1,798)Employment settlement and related costs (1,158)Start-up losses (977)Amortisation of intangible assets (294)Acquisition-related employee remuneration expense (1,176)Share option charges (349)Impairment of goodwill (4,937)

Operating loss (1,393)

Financing income 11Finance costs (304)

Loss before tax on continuing operations (1,686)

Other informationCapital expenditure 1,165 797 4 1,966

Capitalisation of intangible assets 3 307 – 310

Depreciation of property, plant and equipment 521 748 16 1,285

The Group’s operations are materially located in the UK and the US.The following table provides an analysis of the Group’s revenue by geographical market, based on thelocation of the client:


£’000


£’000

UK 86,566 90,640Rest of Europe 19,685 18,922US 47,044 43,049Rest of the World 15,997 12,655

169,292 165,266

The following table provides an analysis of the Group’s non-current assets, excluding deferred tax assets,by geographical location:

2017£’000

2016£’000

UK 66,104 66,109US 10,867 7,105Rest of the world 15 19

76,986 73,233



3 Finance Income and CostsYear ended

31 December 2017£’000


£’000

Finance income:Interest received on bank deposits 1 11

Finance costs:Interest payable on bank loans and overdrafts 357 301Interest payable in respect of finance leases 3 3

Total finance costs 360 304

4 Administrative ExpensesProfit for the financial year is stated after charging/(crediting):

Note


£’000


£’000

Headline administrative costs:Staff costs 8 65,570 59,147Operating lease rentals 3,759 3,463Depreciation of property, plant and equipment 16 1,304 1,285Profit on disposal of property, plant and equipment (21) (26)Amortisation of intangibles 15 402 386Auditors’ remuneration 5 390 422Net foreign exchange loss/(gain) 449 (502)Other property costs 1,822 1,920Other administration costs 15,658 14,626Non-headline administrative costs:Restructuring costs 6 1,916 1,201Net (credit)/charge for VAT payable and related costs (259) 1,798Employment settlement and related costs 48 1,158Start-up costs 7 2,724 2,415Acquisition costs 243 –Amortisation of intangibles 15 510 294Acquisition-related employee remuneration 1,364 1,176Share option costs 25 430 349Impairment of goodwill 13 – 4,937

96,309 94,049

5 Auditors’ RemunerationYear ended

31 December 2017£’000


£’000

Fees payable to PricewaterhouseCoopers LLP for:Audit to Group’s Annual Report and Financial Statements 68 52Audit of subsidiaries 231 209

Total audit fees 299 261

Non-audit fees:Audit-related assurance services 15 14Tax compliance services 74 73Tax advisory services 1 73Other assurance services 1 1

Total non-audit fees 91 161

Total auditors’ remuneration 390 422



6 Restructuring CostsRestructuring costs comprise of cost-saving initiatives including severance payments, property andother contract termination costs. They are included within administrative costs and have been separatelyidentified as a non-headline item because of their size or their nature or because they are non-recurring.In the opinion of the Directors, these costs are required to be separately identified, to enable a fullunderstanding of the Group’s underlying financial performance.

An analysis of restructuring costs incurred is as follows:


£’000


£’000

Staff redundancies 1,479 1,113Property costs 437 88

Total restructuring costs 1,916 1,201

7 Start-up LossesStart-up losses have been separately identified as a non-headline item because, in the opinion of theDirectors, separate disclosure is required to enable a full understanding of the Group’s underlyingfinancial performance.

Start-up losses are defined as the net operating result in the period of the trading activities that relate tonew offices, new products, or new organically started businesses. Activities so defined will cease beingseparately identified where, in the opinion of the Directors, the activities show evidence of becomingsustainably profitable or are closed, whichever is earlier. In any event start-up losses will cease beingseparately identified after two years from the commencement of the activity.

An analysis of start-up losses incurred is as follows:


£’000


£’000

Revenue 1,922 1,679Cost of sales (548) (241)

Gross profit 1,374 1,438Administrative costs (2,724) (2,415)

Start-up losses (1,350) (977)



8 Staff CostsThe average monthly number of persons (including Directors) employed by the Group during the year wasas follows:


Number


Number

Cello Health 472 406Cello Signal 498 549Central 8 8

978 963

The aggregate staff costs of these persons were as follows:


£’000


£’000

Wages and salaries 57,663 51,985Social security costs 5,922 5,295Other pension costs 1,985 1,867

Employee costs before non-headline charges 65,570 59,147Acquisition-related employee remuneration expense 1,364 1,176Share-based payments – share options 430 349

67,364 60,672

Included in the aggregate staff costs are the following amounts paid to the Directors:

Directors’ emoluments 1,355 1,237Money purchase pension contributions – 28

1,355 1,265

Included in the above is £472,000 (2016: £437,000) of emoluments and nil (2016: £11,000) of pensioncontributions paid or payable to the highest paid Director.

The Directors exercised 735,000 share options in the year (2016: 1,022,000), including 330,000 shareoptions exercised (2016: 842,000) by the highest paid director. The market value of the exercised optionsat the exercise date exceeded the exercise price by £738,000 (2016: £869,000) of which £331,000 (2016:£719,000) related to options exercised by the highest paid Director.

The number of Directors to whom retirement benefits accrued under money purchase pension schemes inthe year was nil (2016: 3).



9 Taxation


£’000


£’000

Current tax:Current tax on profits/(losses) for the year 1,961 1,392Prior year current tax adjustment (114) (555)

1,847 837

Deferred tax (note 23): (258) (17)

Tax charge 1,589 820

The standard rate of corporation tax in the UK was 19.25% (2016: 20.00%) for the whole financial year.Taxation for other jurisdictions is calculated at the rates prevailing in the respective jurisdiction.

The charge for the year can be reconciled to the profits/(losses) per the income statement as follows:


£’000


£’000

Profit/(loss) before taxation 5,817 (1,686)

Tax at the UK corporation tax rate of 19.25% (2016: 20.00%) 1,120 (337)Tax effect of expenses not deductible for tax purposes 243 1,335Effect of decrease in tax rate on deferred tax assets 7 29Effect of different tax rates of subsidiaries in foreign jurisdiction 338 292Tax losses not utilised in the year – 30Utilisation of losses not previously recognised (31) –Origination and reversal of other temporary differences 26 26Prior year current tax adjustment (114) (555)

1,589 820

Changes to the UK corporation tax rates were substantively enacted as part of the Finance Bill 2015 (on 26October 2015) and the Finance Bill 2016 (on 7 September 2016). These include reductions to the main rateof corporation tax to 19.0% from 1 April 2017 and to 17.0% from 1 April 2020. Deferred taxes at the balancesheet date have been measured using these enacted tax rates in these financial statements.



10 Discontinued OperationsThe loss from discontinued operations in the prior year relates to the Group’s operations in Hong Kongwhich were closed during 2016.

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


£’000


£’000

Revenue – 339Cost of sales – (162)

Gross Profit – 177Administration expenses – (498)

Loss on discontinued operations before taxation – (321)Tax – –

Loss on discontinued operations after taxation – (321)

Cash flows from discontinued operations are as follows:Operating cash flows 157 (82)Investing cash flows – (1)Financing cash flows – (13)

157 (96)

11 Equity DividendsThe dividends paid in the year were:

Date paid


£’000


£’000

Final dividend 2015 – 2.02p per share 27 May 2016 – 1,727Interim dividend 2016 – 1.00p per share 04 November 2016 – 869Final dividend 2016 – 2.40p per share 26 May 2017 2,478 –Interim dividend 2017 – 1.05p per share 03 November 2017 1,097 –

3,575 2,596

A 2017 final dividend of 2.45p has been proposed for approval at the Annual General Meeting on 9May 2018. In accordance with IAS 10 Events After the Reporting Period these dividends have not beenrecognised in the Consolidated Financial Statements at 31 December 2017.



12 Earnings/(loss) per Share


£’000


£’000

Earnings/(loss) attributable to ordinary shareholders 4,228 (2,827)Loss from discontinued operations – 321

Earnings/(loss) attributable to ordinary shareholdersfrom continuing operations 4,228 (2,506)

Adjustments to earnings/(loss):Restructuring costs 1,916 1,201(Credit)/charge for VAT payable and related costs (259) 1,798Employment settlement and related costs 48 1,158Start-up losses 1,350 977Acquisition costs 243 –Amortisation of intangible assets 510 294Acquisition-related employee remuneration expense 1,364 1,176Share options charges 430 349Impairment of goodwill – 4,937Tax thereon (1,629) (1,804)

Headline earnings for the year 8,201 7,580

2017Number of shares

2016Number of shares

Weighted average number of ordinary shares usedin basic earnings/(loss) per share calculation 103,373,430 87,565,662Dilutive effect of securities:Share options 1,370,660 1,257,984Deferred consideration shares 216,243 593,786

Weighted average number of ordinary shares indiluted earnings/(loss) per share 104,960,333 89,417,432


£’000


£’000

Basic earnings/(loss) per shareContinuing operations 4.09p (2.86)pDiscontinued operations – (0.37)pTotal basic earnings/(loss) per share 4.09p (3.23)p

Diluted earnings/(loss) per shareContinuing operations 4.03p (2.86)pDiscontinued operations – (0.37)pTotal diluted earnings/(loss) per share 4.03p (3.23)p

In addition to basic and diluted earnings per share, headline earnings per share, which is a non-GAAPmeasure, has also been presented.

Headline earnings per shareHeadline basic earnings per share 7.93p 8.66pHeadline diluted earnings per share 7.81p 8.48p



12 Earnings/(loss) per Share (continued)Basic earnings/(loss) per share is calculated by dividing the earnings/(loss) attributable to ordinaryshareholders of the parent by the weighted average number of ordinary shares outstanding during theyear, excluding treasury shares and shares in employee benefit trusts, determined in accordance with theprovisions of IAS 33 Earnings per Share.

Diluted earnings/(loss) per share is calculated by dividing earnings/(loss) attributable to ordinaryshareholders of the parent by the weighted average number of ordinary shares outstanding during the yearadjusted for the potentially dilutive ordinary shares.

The Group’s potentially dilutive shares are shares expected to be issued as deferred consideration onacquisitions and share options issued.

Headline earnings per share is calculated using headline post-tax earnings for the year, which excludes theeffect of restructuring costs, start-up losses, amortisation of intangibles, impairment charges, acquisitionaccounting adjustments, share option charges and other exceptional costs.

13 Goodwill£’000

Cost

At 1 January 2016 86,052Exchange differences 1,097

At 31 December 2016 87,149Additions 3,946Exchange differences (825)

At 31 December 2017 90,270

Accumulated impairmentAt 1 January 2016 12,379Impairment charge in the year ended 31 December 2016 4,937

At 31 December 2016 and 31 December 2017 17,316

Net book valueAt 31 December 2017 72,954

At 31 December 2016 69,833

At 1 January 2016 73,673

Goodwill represents the excess of consideration over the fair value of the Group’s share of the netidentifiable assets of the acquired subsidiary at the date of acquisition.



13 Goodwill (continued)Goodwill acquired through business combinations is allocated to CGUs for impairment testing. Thegoodwill balance was allocated to the following CGUs:

2017£’000

2016£’000

Cello Health Insight 10,224 10,224Cello Health Consulting 7,666 7,666MedErgy 5,617 6,183Mash 248 248iS Health 1,425 1,425Defined Health 3,384 –Advantage Healthcare 254 –Promedica 297 309The Value Engineers 4,589 4,589RS Consulting 4,305 4,305Cello Signal 23,227 23,1182CV 8,276 8,276Pulsar (previously Face) 3,442 3,442Opticomm – 48

Total 72,954 69,833

The recoverable amount for each CGU is determined using a value-in-use calculation. This calculationuses budgeted pre-tax headline operating profit adjusted for non-cash transactions to generate cash flowprojections. The budgets are approved by management based on past experience and historic trends. Anunderlying growth rate of 2.0% per annum in years two to five has accordingly been used for those years.After year five a long-term growth rate has been applied in perpetuity. This growth rate is based onestimated long-term growth rates for the markets Cello operated in. Accordingly, a terminal value has beenapplied using an underlying long-term growth rate of 2.0%. No additional Cello-specific growth has beenassumed beyond year one.The pre-tax cash flows are discounted to present value using the Group’s pre-tax weighted average cost ofcapital (‘WACC’), which was 10.95% for 2017 (2016: 10.30%). This rate was calculated using the Capital AssetPricing Model with an estimated cost of debt and equity, with appropriate small company risk factors.The impairment review did not result in an impairment of goodwill for any other CGU.

Sensitivity to changes in assumptionsThe impairment review of the Group is sensitive to changes in the key assumptions, most notably the pre-tax discount rate, the terminal growth rate and projected operating cash flows. Reasonable changes tothese assumptions are considered to be:• 1.0% increase in the pre-tax discount rate.• 1.0% reduction in the terminal growth rate.• 10.0% reduction in projected operating cash flows.

At 31 December 2017, the value-in-use exceeds the total goodwill value across the Group by £122m.

Reasonable changes to the assumptions used, considered in isolation, would not result in an impairment ofgoodwill for any of the Groups CGUs.

The following changes to the key assumptions, in isolation, would be needed before the recoverableamount being equal to the carrying value of goodwill in the CGU with the smallest headroom

• An increase in pre-tax discount rate of 2.85% to 13.8%• A decrease in terminal growth rate of 2.5% to (6.8%)• A decrease in operating cash flows of 26.0%.



14 Acquisitions

Defined Health

On 31 January 2017, the Group acquired the trade and assets of Defined Health Research Inc. and CancerProgress LLC (together ‘Defined Health’), a healthcare consulting business based in New Jersey, US.Defined Health has contributed £6.2m to revenue and £nil to profit before tax for the period between thedate of acquisition and the balance sheet date. Had Defined Health been consolidated from 1 January 2017,the consolidated income statement for the year ended 31 December 2017 would show revenue of £169.8mand profit before tax of £5.8m.The provisional fair value of the net assets at the acquisition date is as follows:

£’000

Client relationships 417Property, plant and equipment 6Trade and other receivables 885Cash and cash equivalents 806Trade and other payables (432)

Net assets acquired 1,682Goodwill arising on acquisition 3,626

5,308

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

Goodwill comprises the value of expected synergies and other opportunities arising from the acquisition,management know how, the skilled work force employed by Defined Health and other intangible assetsthat do not qualify for separate recognition.

The fair value of the consideration paid at the acquisition date is as follows:

£’000

Cash consideration 4,164Issue of ordinary shares 400Deferred consideration 744

5,308



14 Acquisitions (continued)

Advantage Healthcare

On 17 July 2017, the Group acquired the trade and assets of Advantage Healthcare Inc. (‘Advantage’), ahealthcare research and consulting business, based in New Jersey, US.Advantage has contributed £2.0m to revenue and £0.1m of losses before tax between the date ofacquisition and the balance sheet date. Had Advantage been consolidated from 1 January 2017, theconsolidated income statement for the year ended 31 December 2017 would show revenue of £170.7m andprofit before tax of £5.7m.The provisional fair value of the net assets at the acquisition date is as follows:

£’000

Client relationships 612Trade and other receivables 669Cash and cash equivalents 166Trade and other payables (485)

Net assets acquired 962Goodwill arising on acquisition 260

1,222

The fair value of trade and other receivables include trade receivables with a fair value of £637,000. Thegross contractual amount of trade receivables is equal to the fair value.

Goodwill comprises the value of expected synergies and other opportunities arising from the acquisition,management know how, the skilled work force employed by Advantage Healthcare and other intangibleassets that do not qualify for separate recognition. None of the goodwill recognised is expected to bedeductible for tax purposes.

The fair value of the consideration paid at the acquisition date is as follows:

£’000

Cash consideration 1,136Deferred consideration 86

1,222

Tanami

On 28 July 2017, the Group acquired the trade of Tanami a company based in the UK specialising in videoproduction and social media. The net assets acquired and consideration paid do not have a material effecton the results or position of the Group.



15 Intangible Assets

Softwaredevelopment

costs£’000

Clientcontracts

£’000Total

£’000

CostAt 1 January 2016 2,102 5,372 7,474Expenditure on development 310 – 310Exchange differences – 15 15

At 31 December 2016 2,412 5,387 7,799Expenditure on development 409 – 409Intangible assets acquired – 1,029 1,029Exchange differences – (29) (29)

At 31 December 2017 2,821 6,387 9,208

Accumulated amortisationAt 1 January 2016 1,467 4,957 6,424Charge for the year 386 294 680

At 31 December 2016 1,853 5,251 7,104Charge for the year 402 510 912

At 31 December 2017 2,255 5,761 8,016

Net book value

At 31 December 2017 566 626 1,192

At 31 December 2016 559 136 695

At 1 January 2016 635 415 1,050



16 Property, Plant and Equipment

Leaseholdimprovements

£’000

Computerequipment

£’000

Fixtures,fittings

and officeequipment

£’000

Motor vehicles

£’000Total

£’000

CostAt 1 January 2016 2,465 5,781 1,587 209 10,042Additions 821 623 522 – 1,966Disposals (420) (245) (62) (44) (771)Exchange differences 58 820 320 1 1,199

At 31 December 2016 2,924 6,979 2,367 166 12,436Additions 512 671 279 – 1,462Acquisitions – – 6 – 6Disposals – (185) – (52) (237)Exchange differences 149 (150) (219) – (220)

At 31 December 2017 3,585 7,315 2,433 114 13,447

Accumulated depreciationAt 1 January 2016 1,992 4,808 1,129 163 8,092Charge for the year 353 604 308 20 1,285Disposals (420) (241) (62) (44) (767)Exchange differences 54 771 295 1 1,121

At 31 December 2016 1,979 5,942 1,670 140 9,731Charge for the year 428 620 241 15 1,304Disposals – (176) – (52) (228)Exchange differences (19) (124) (56) (1) (200)

At 31 December 2017 2,388 6,262 1,855 102 10,607

Net book value

At 31 December 2017 1,197 1,053 578 12 2,840

At 31 December 2016 945 1,037 697 26 2,705

At 1 January 2016 473 973 458 46 1,950

The net book value of property, plant and equipment of the Group includes £1,000 (2016: £11,000) ofmotor vehicles and £4,000 (2016: £22,000) of fixtures, fittings and office equipment in respect of assetsheld under finance leases.



17 SubsidiariesThe Group consists of the parent company, Cello Group plc, and a number of subsidiaries which are allowned 100% by the Group (unless stated otherwise), either directly by the Parent Company, or indirectly,which operate and are incorporated around the world. Details of the Group’s subsidiary undertakings areset out below:

Company name Registered office Country

Held directly:2CV Limited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12 Flitcroft Street, London WC2H 8DL . . . . . . . . . . . . . . . . . . . . . . . . . . . . UKCello Group Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1209 Orange Street, Wilmington, DE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . USCello Signal Group Limited . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11-13 Charterhouse Buildings, London EC1M 7AP . . . . . . . . . . . . . . . . . . . UKChiaros Holdings Limited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11-13 Charterhouse Buildings, London EC1M 7AP . . . . . . . . . . . . . . . . . . . UKFarm Communications Limited . . . . . . . . . . . . . . . . . . . . . . . . .31 Old Nichol Street, London E2 7HR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . UKFenix Media Limited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .31 Old Nichol Street, London E2 7HR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . UKInsight Medical Research Limited . . . . . . . . . . . . . . . . . . . . . . .11-13 Charterhouse Buildings, London EC1M 7AP . . . . . . . . . . . . . . . . . . . UKiS Healthcare Dynamics Limited . . . . . . . . . . . . . . . . . . . . . . . .The Courtyard, Shoreham Road, Upper Beeding,

Steyning, West Sussex BN44 3TN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . UKMash Health Limited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Cello House, West Street, Farnham, Surrey GU9 7EQ . . . . . . . . . . . . . . UKMarket Research International Limited . . . . . . . . . . . . . . . . . .Priory House, 8 Battersea Park Road, London SW8 3BG . . . . . . . . . . . UKMedErgy Europe Limited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11-13 Charterhouse Buildings, London EC1M 7AP . . . . . . . . . . . . . . . . . . . UKOpticomm Media Limited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .31 Old Nichol Street, London E2 7HR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . UKRS Consulting Group Limited . . . . . . . . . . . . . . . . . . . . . . . . . . .Priory House, 8 Battersea Park Road, London SW8 3BG . . . . . . . . . . . UKThe MSI Consultancy Limited . . . . . . . . . . . . . . . . . . . . . . . . . . .Cello House, West Street, Farnham, Surrey GU9 7EQ . . . . . . . . . . . . . . UKThe Value Engineers Limited . . . . . . . . . . . . . . . . . . . . . . . . . . .12 Flitcroft Street, London WC2H 8DL . . . . . . . . . . . . . . . . . . . . . . . . . . . . UK

Held indirectly:2CV Hong Kong Limited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Rooms C-E 9/F China Overseas Building,

139 Hennessy Road, Wanchai . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Hong Kong2CV Pte Limited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .78B Tras Street, 079017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Singapore2CV Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4551 Glencoe Avenue, Suite 350, Marina Del Rey.

Los Angeles, CA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . US2CV Research Pty. Limited . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Level 7, 161 Collins Street, Melbourne VIC 3000 . . . . . . . . . . . . . . . . . . . AustraliaBlonde Digital Limited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .86 Commercial Quay, Commercial Street,

Edinburgh EH6 6LZ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . UKBrightgroup Limited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .St James House, St James Square, Cheltenham,

Gloucestershire GL50 3PR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . UKBrightsource Limited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .St James House, St James Square, Cheltenham,

Gloucestershire GL50 3PR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . UKCello 123 Limited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .86 Commercial Quay, Commercial Street,

Edinburgh EH6 6LZ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . UKCello Health Advantage Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . .790 Township Line Road, Yardley, PA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . USCello Health BioConsulting Inc. . . . . . . . . . . . . . . . . . . . . . . . . .790 Township Line Road, Yardley, PA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . USCello Health Communications Inc. . . . . . . . . . . . . . . . . . . . . . .1209 Orange Street, Wilmington, DE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . USCello Health Consulting Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . .1209 Orange Street, Wilmington, DE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . USCello (Research and Consulting) Limited . . . . . . . . . . . . . . . .11-13 Charterhouse Buildings, London EC1M 7AP . . . . . . . . . . . . . . . . . . . UKCello MRUK Research Limited . . . . . . . . . . . . . . . . . . . . . . . . . .Priory House, 8 Battersea Park Road, London SW8 3BG . . . . . . . . . . . UKCello Signal Limited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .86 Commercial Quay, Commercial Street,

Edinburgh EH6 6LZ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . UKConsensus Research International Limited. . . . . . . . . . . . . . .Priory House, 8 Battersea Park Road, London SW8 3BG . . . . . . . . . . . UKDefined Health Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .790 Township Line Road, Yardley, PA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . USFace US Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .200w 16th Street, 14H, New York, NY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . USHuman Innovation Limited (85% owned) . . . . . . . . . . . . . . . .11-13 Charterhouse Buildings, London EC1M 7AP . . . . . . . . . . . . . . . . . . . UKInsight Research Group USA Inc . . . . . . . . . . . . . . . . . . . . . . . .161 Washington Valley Road, Suite 2, Warren, NJ . . . . . . . . . . . . . . . . . . USIntangibles Measurement and Management Limited . . . . .11-13 Charterhouse Buildings, London EC1M 7AP . . . . . . . . . . . . . . . . . . . UKiS Academy Limited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .The Courtyard, Shoreham Road, Upper Beeding,

Steyning, West Sussex BN44 3TN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . UKiS Health Group Limited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .The Courtyard, Shoreham Road, Upper Beeding,

Steyning, West Sussex BN44 3TN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . UKiS Lifesciences Limited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .The Courtyard, Shoreham Road, Upper Beeding,

Steyning, West Sussex BN44 3TN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . UKKudos Research Limited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Priory House, 8 Battersea Park Road, London SW8 3BG . . . . . . . . . . . UKLabinah Management Training Limited . . . . . . . . . . . . . . . . . .11-13 Charterhouse Buildings, London EC1M 7AP . . . . . . . . . . . . . . . . . . . UKMedErgy Communications Inc. . . . . . . . . . . . . . . . . . . . . . . . . .1209 Orange Street, Wilmington, DE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . USMedErgy Health Group Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1209 Orange Street, Wilmington, DE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . USMedErgy Scientific Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1209 Orange Street, Wilmington, DE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . USMighty Blast Limited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .31 Old Nicol Street, London E2 7HR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . UKTanami Media Limited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .37 The Shore, Edinburgh EH6 6LX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . UKRS Consulting Limited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Priory House, 8 Battersea Park Road, London SW8 3BG . . . . . . . . . . . UKSciFluent Communications Inc. . . . . . . . . . . . . . . . . . . . . . . . . .1209 Orange Street, Wilmington, DE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . USStripe PR and Communications Limited . . . . . . . . . . . . . . . . .86 Commercial Quay, Commercial Street, Edinburgh EH6 6LZ . . . . . UKTangible Data Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11-13 Charterhouse Buildings, London EC1M 7AP . . . . . . . . . . . . . . . . . . . UKThe Leith Agency Limited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .86 Commercial Quay, Commercial Street, Edinburgh EH6 6LZ . . . . . UKWorldwide Promedica Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .950 Mariners Island Boulevard, San Mateo, NY . . . . . . . . . . . . . . . . . . . . US



18 Trade and Other Receivables

2017£’000

2016£’000

Trade receivables 36,420 34,259Other receivables 1,312 1,576Accrued income 14,544 9,077Prepayments 2,244 1,950

54,520 46,862

The average credit period taken on the provision of services was 62 days (2016: 61 days).

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

19 Cash and Cash Equivalents

2017£’000

2016£’000

Cash at bank and in hand 13,021 7,466

20 Trade and Other PayablesThe following are included in trade and other payables falling due within one year:

2017£’000

2016£’000

Trade payables 14,285 14,449Other taxation and social security 2,618 2,256Deferred income 15,829 13,216Accruals 16,353 14,872Deferred consideration for acquisitions 35 35Acquisition-related employee remuneration liability – 2,743Other payables 258 600

49,378 48,171

The following are included in trade and other payables falling due after one year:

Acquisition-related employee remuneration liability 1,400 126

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



21 Borrowings

2017£’000

2016£’000

Bank loans 11,333 12,350Loan notes 59 155

11,392 12,505

2017£’000

2016£’000

The borrowings are repayable as follows:– on demand or within 1 year 59 155– within 2 to 5 years 11,333 12,350

11,392 12,505

Bank loans

The Group has a multi-currency debt facility with the Royal Bank of Scotland plc (‘RBS’). At 31 December2017 this facility consisted of a £20.0m revolving credit facility (‘RCF’). The RCF bears interest at a variablerate of 1.25% to 2.30% over LIBOR and is committed to March 2022 following an extension of the facilitiesduring the year. The average interest rate on the Group’s bank loans in the year was 2.4% (2016: 2.3%). Thedebt facility is secured by a debenture held by RBS over the assets of the Group.

At 31 December 2017, the Group has drawn £11.3m (2016: £12.3m) under the RCF.

Loan notes

Loan notes have been issued as part of the consideration for certain acquisitions. Loan notes are initiallysecured by way of cash deposits and by guarantee. This security expires after a period of between two andfive years in accordance with the terms of the relevant acquisition agreement. After this period the loannotes are unsecured. Loan notes bear interest at the following rates:

2017£’000

2016£’000

UnsecuredLIBOR less 2.0% 45 121LIBOR 14 34

59 155



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

2017£’000

2016£’000

Finance leases which expire:– within 1 year 14 16– in more than 1 year but not more than 5 years 3 17

17 33

The Group’s policy is to lease certain property, plant and equipment under finance leases. The averagelease term is three years. The average effective borrowing rate is 9.8% (2016: 7.4%). Interest rates are fixedat 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.

23 Deferred Tax Assets/(Liabilities)An analysis of deferred tax assets and deferred tax liabilities is set out below:

2017£’000

2016£’000

Deferred tax assetsDecelerated capital allowances 101 159Unrelieved share-based payment expense 451 405Unrelieved acquisition-related employee remuneration expense 443 178Temporary difference between the net book value andthe tax value of intangible assets 86 –

1,081 742

Deferred tax liabilitiesAccelerated capital allowances (53) (21)Temporary difference between the net book value andthe tax value of goodwill (57) –Temporary difference between the net book value andthe tax value of intangible assets – (42)

(110) (63)

971 679

The movement for the year is analysed as follows:

2017£’000

2016£’000

At 1 January 679 746Income statement 258 17Recognised in equity 46 (78)Foreign exchange differences (12) (6)

At 31 December 971 679

There are no material unrecognised deferred tax assets or liabilities at 31 December 2017 (2016: nil).



24 Share Capital

Authorised numberof 10p shares

Allotted, issuedand fully paid

number of10p shares

Share capital£’000

At 1 January 2016 102,467,091 85,760,222 8,576Movements in the year 618,731 1,836,270 184

At 31 December 2016 103,085,822 87,596,492 8,760Movements in the year 21,109,577 17,415,665 1,741

At 31 December 2017 124,195,399 105,012,157 10,501

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

The authorised number of 10p shares represents the number of shares authorised to be allotted by theGroup under authorities granted by shareholders by way of ordinary resolution at General Meetings ofthe Group.

During the year, 1,148,939 shares (2016: 1,607,523) were issued to staff in relation to share option schemeswhere the exercise prices were between 10.0p and 50.0p per share. Further details of share options areprovided in note 25.

The Group owns 453,000 (2016: 453,000) of its own shares and these shares are held as treasury shares.The Company has the right to re-issue these shares at a later date. The purchase of treasury shares isrecorded in equity as a deduction in retained earnings.

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

On 1 February 2017, 5,154,640 new ordinary shares of 10p each were issued at a placing price of 97.0p tonew and existing shareholders.

On 1 February 2017, 398,904 new ordinary shares of 10p each were issued at 100.3p to vendors of DefinedHealth Research Inc. and Cancer Progress LLC, pursuant to the terms of the asset purchase agreement withthose companies.

On 17 February 2017, 10,309,279 new ordinary shares of 10p each were issued at a placing price of 97.0p tonew and existing shareholders.

On 2 May 2017, 403,903 new ordinary shares of 10p each were issued at 123.0p to vendors of iS HealthcareDynamics Limited and certain employees of the Group, pursuant to the terms of the share purchaseagreement of iS Healthcare Dynamics Limited.

25 Share OptionsThe Group has the following share options schemes.

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 Plan2009 (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 withan exercise price equal to the market value of the shares at the date the awards are granted. The range ofexercise prices of options granted under these schemes is 31.50p to 128.75p. Options are exercisable threeyears, but not later than 10 years, after the date of grant subject to performance conditions. Performanceconditions are based on Company, Division or Group targets, as appropriate to the participant.



25 Share Options (continued)PSP Option Scheme 2010

On 4 June 2010 the Company established a new Performance Share Plan (‘PSP’). Under this planparticipants are awarded options over fully paid shares with an exercise price equal to the nominal valueof shares, currently 10p per share. Options are exercisable three years, but not more than 10 years, aftergrant, subject to performance conditions based on the total shareholder return (‘TSR’) of the Group. Thenumber of awards that ultimately vest depends on where Cello ranks when compared to the TSR of a list ofcomparator companies.

The following share options were outstanding under these share option schemes at 31 December 2017 and31 December 2016:

31 December 2017 31 December 2016

Number ofshare options

Weightedaverage exercise

price (pence)Number of

share options

Weightedaverage exercise

price (pence)

Outstanding at the beginning of the year 4,411,572 27 4,582,105 28Granted during the year 1,215,000 27 1,680,000 20Exercised during the year (1,153,144) 17 (1,607,523) 19Lapsed during the year (87,449) 99 (243,010) 51

Outstanding at the end of the year 4,385,979 28 4,411,572 27

Exercisable at the end of the year 1,490,979 39 1,936,836 26

The options outstanding at the end of the year under the PSP, Approved Plan 2009 and the UnapprovedPlan 2010 have a weighted average remaining life of 7.6 years (2016: 6.0 years).

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

2017 2016

Weighted average share price 129.0p 97.0pWeighted average exercise price 27.0p 20.0pExpected volatility 31.5% 31.0%Expected life 10 years 10 yearsRisk-free rate 1.37% 1.49%Dividend yield 2.68% 2.95%

Expected volatility has been determined by calculating the historical volatility of the Group’s shareprice over the previous 10 years. The expected life used in the model has been adjusted, based onmanagement’s best estimates, for the effects of the non-transferability, exercise restrictions andbehavioural considerations.

The following options have vested and are unexercised at 31 December 2017 and 31 December 2016:

2017Number

2016Number

PSP 455,000 955,000Approved plan 2010 511,049 601,836Unapproved plan 2011 524,930 380,000

1,490,979 1,936,836

The fair value of all options granted in the year was £439,000 (2016: £995,000).



26 Cash Generated from Operations


£’000


£’000

Profit/(loss) on continuing operations before taxation 5,817 (1,686)Loss on discontinued operations before taxation – (321)Financing income (1) (11)Finance costs 360 304Depreciation 1,304 1,285Amortisation of intangible assets 912 680Impairment of goodwill – 4,937Share-based payment expense 430 349Profit on disposal of property, plant and equipment (21) (26)(Decrease)/increase in acquisition-related employeeremuneration payable (940) 953Decrease in provisions – (3,209)

Operating cash flow before movements in working capital 7,861 3,255Increase in receivables (6,105) (3,233)Increase in payables 3,036 6,488

Net cash inflow from operating activities 4,792 6,510

27 Net (Funds)/DebtNet (funds)/debt at 31 December 2017 and 31 December 2016 comprises of:

2017£’000

2016£’000

Bank loans 11,333 12,350Loan notes 59 155Finance leases 17 33Cash and cash equivalents (13,021) (7,466)

Net (funds)/debt (1,612) 5,072

Changes in net (funds)/debt can be analysed as follows:

2017£’000

2016£’000

Net increase in cash and cash equivalents (5,866) (1,755)

Changes in net (funds)/debt as a result of cash flow:Repayment of bank loans (3,000) (6,681)Repayment of loan notes (96) (77)Drawdown of borrowings 2,900 8,509Capital element of finance lease payments (16) (24)

Other movements:Foreign exchange differences (606) 933New finance leases – –

Movement in net (funds)/debt in the year (6,684) 905Net debt at the beginning of the year 5,072 4,167

Net (funds)/debt at the end of the year (1,612) 5,072



28 Commitments under Operating LeasesThe future aggregate minimum lease payments under non-cancellable operating leases are as follows:

Land andbuildings 2017

£’000

Land andbuildings 2016

£’000Other 2017

£’000Other 2016

£’000

No later than 1 year 3,738 3,737 94 106Later than 1 year and no later than 5 years 10,394 9,520 26 74Later than 5 years 2,254 2,153 – –

16,386 15,410 120 180

29 Related Party TransactionsThe ultimate controlling party of the Group is Cello Group plc, a company incorporated in England andWales. The Group has related party relationships with its subsidiaries and its Directors.

Transactions between the Company and its subsidiaries have been eliminated on consolidation and are notdisclosed in this note.

Remuneration of key management personnel

The key management personnel of the Group are considered to be the Directors (Executive andNon-Executive) and the members of the divisional boards of Cello Health and Cello Signal. Theremuneration paid to the key management personnel is shown below:


£’000


£’000

Short-term employee benefits 3,960 3,648Post-employment benefits 112 125Share-based payments – share options 366 289

4,438 4,062

Further information about the remuneration of the Directors is provided in the Report of the RemunerationCommittee on pages 62 to 63, and in note 8 to the consolidated financial statements.



30 Financial InstrumentsThe Group’s principal financial instruments comprise of bank loans, bank overdrafts, loan notes, financeleases, deferred consideration for acquisitions under IFRS 3 (Revised), trade receivables, trade payablesand 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 31December 2017 and 31 December 2016:

2017£’000

2016£’000

Financial assets:Cash and cash equivalents 13,021 7,466Trade receivables 36,420 34,259Other receivables 1,312 1,576Accrued income 14,544 9,077

Total financial assets 65,297 52,378

Financial liabilities:Bank loans 11,333 12,350Loan notes 59 155Finance leases 17 33Amounts payable in respect of acquisitions 1,435 2,904Trade payables 14,285 14,449Accruals 16,353 14,872Other payables 258 600

Total financial liabilities 43,740 45,363

All non-derivative financial assets are categorised as loans and receivables and all non-derivative financialliabilities are categorised as other financial liabilities at amortised cost.

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

Risk management objectives and policiesThe main risks arising from the Group’s financial instruments are interest rate risk, liquidity risk, credit riskand foreign exchange risk.

Interest rate riskThe Group’s exposure to interest rate risk arises from the Group’s long-term debt obligations with floatingand fixed interest rates. Floating rate financial instruments comprise of the Group’s cash and cashequivalents and borrowings. Fixed rate financial instruments comprise of obligations under finance leases.

£11.3m (2016: £9.3m) of the Group’s borrowings are denominated in US dollars. All of the Group’sother borrowings and obligations under finance leases are denominated in sterling. Details of theGroup’s borrowings are set out in note 21 and details of the Groups obligations under finance leasesare set out in note 22.



30 Financial Instruments (continued)The following table demonstrates the sensitivity to reasonable possible changes in interest rates, with allother variables held constant, on the Group’s profit/(loss) before tax and equity:

2017£’000

2016£’000

Increase in rates of 100 basis pointsEffect on profit/(loss) before tax and equity (97) (108)

Decrease in rates of 50 basis pointsEffect on profit/(loss) before tax and equity 49 54

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

At 31 December 2017 the Group has an agreed committed RCF of £20.0m with RBS, which is committedto March 2022. In addition to the RCF the Group has an overdraft facility of £4.0m with RBS, which iscommitted to March 2022. The RCF and overdraft are secured by a debenture held by RBS over the assetsof the Group.

At 31 December 2017 the Group had an undrawn facility of £8.7m (2016: £7.7m) on the RCF and cash andcash equivalents of £13.0m (2016: £7.5m).

The table below summarises the maturity profile of the Group’s non-derivative financial liabilities at31 December 2017 and 31 December 2016 based on contractual undiscounted payments, includingestimated interest payments where applicable:

2017

Less than6 months

£’000

Between 6months and

1 year£’000

Between 1and 5 years

£’000Total

£’000

Bank loans 74 50 11,616 11,740Loan notes 59 – – 59Finance leases 7 7 5 19Amounts payable in respect of acquisitions 35 – 1,400 1,435Trade payables 14,285 – – 14,285Accruals 16,353 – – 16,353Other payables 258 – – 258

Total 31,071 57 13,021 44,149

2016

Less than6 months

£’000

Between 6months and

1 year£’000

Between 1and 5 years

£’000Total

£’000

Bank loans 66 50 12,375 12,491Loan notes 155 – – 155Finance leases 11 11 41 63Amounts payable in respect of acquisitions 2,778 – 126 2,904Trade payables 14,449 – – 14,449Accruals 14,872 – – 14,872Other payables 600 – – 600

Total 32,931 61 12,542 45,534



30 Financial Instruments (continued)Credit riskCredit risk predominately arises from trade receivables.

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

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

2017£’000

2016£’000

Trade receivables 36,420 34,259Accrued income 14,544 9,077

50,964 43,336

The following table provides an analysis of trade and other receivables that were past due, but notimpaired, at 31 December 2017 and 31 December 2016. The Group believes that the balances are ultimatelyrecoverable based on a review of past payment history and the current financial status of customers. Thereare no material bad debt provisions at either 31 December 2017 or 31 December 2016.

2017£’000

2016£’000

Up to 3 months 5,255 3,979Up to 6 months 235 275

5,490 4,254

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



30 Financial Instruments (continued)Foreign exchange riskThe Group operates in a number of markets across the world and is exposed to foreign exchange riskarising from various currency exposures in respect of cash and cash equivalents, trade receivables andtrade payables, in particular with respect to the US dollar and the euro. The Group mitigates its foreignexchange risk with bank loans and overdrafts denominated in foreign currency under its debt facilities.

The Group also has foreign subsidiaries located in the US. At 31 December 2017 the net foreign assetswere £1.9m (2016: £2.4m). Differences that arise from the translation of these assets from US dollar tosterling are recognised in other comprehensive income in the year and the cumulative effect as a separatecomponent in equity. The Group does not hedge this translation exposure to its equity.

The following table demonstrates the Group’s sensitivity to a 10.0% increase and decrease in sterling againstthe US dollar and euro, on the Group’s profit/(loss) for the year and on the Group’s equity. This sensitivityrepresents management’s assessment of the reasonably possible change in foreign exchange rates.

US Dollar Euro

2017 2016 2017 2016

Strengthening of sterling by 10.0%On profit/(loss) for the year (281) (116) (153) (211)On equity (451) (336) (153) (211)

Weakening of sterling by 10.0%On profit/(loss) for the year 344 142 187 258On equity 551 411 187 258

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

The Group considers its capital to be total equity attributable to owners of the parent and net debt. Equityattributable to the owners of the parent comprises of issued share capital, reserves and retained earningsand is disclosed in the Balance Sheet and in the Consolidated Statement of Changes in Equity. Net debtcomprises short and long-term borrowings (including overdrafts and obligations under finance leases) netof cash and cash equivalents.

The ratio of debt to capital at 31 December 2017 and 31 December 2016 is as follows:

2017£’000

2016£’000

Total debt 11,409 12,538Less cash and cash equivalents (13,021) (7,466)

Net (funds)/debt (1,612) 5,072

Total equity attributable to owners of the parent 82,873 66,554

Debt to capital ratio (1.9%) 7.6%

The Group has various financial covenants in connection with its current bank facilities. During the yearended 31 December 2017, the Group was compliant with its covenants.


Company Financial StatementsIndependent Auditors’ Report

Report on the audit of the Company financial statementsOpinionIn our opinion, Cello Group plc’s Company financialstatements (the ‘financial statements’):

• give a true and fair view of the state of theCompany’s affairs as at 31 December 2017;

• have been properly prepared in accordance withUnited Kingdom Generally Accepted AccountingPractice (United Kingdom Accounting Standards,comprising FRS 101 ‘Reduced DisclosureFramework’, and applicable law); and

• have been prepared in accordance with therequirements of the Companies Act 2006.

We have audited the financial statements, includedwithin the Annual Report, which comprise:the balance sheet as at 31 December 2017; thestatement of changes in equity for the year thenended; and the notes to the financial statements,which include a description of the significantaccounting policies.

Basis for opinionWe conducted our audit in accordance withInternational Standards on Auditing (UK) (‘ISAs(UK)’) and applicable law. Our responsibilitiesunder ISAs (UK) are further described in theAuditors’ responsibilities for the audit of thefinancial statements section of our report. Webelieve that the audit evidence we have obtainedis sufficient and appropriate to provide a basis forour opinion.

IndependenceWe remained independent of the Company inaccordance with the ethical requirements that arerelevant to our audit of the financial statements inthe UK, which includes the FRC’s Ethical Standard,as applicable to listed entities, and we have fulfilledour other ethical responsibilities in accordance withthese requirements.

Our audit approach

Overview

• Overall materiality: £1,620,000(2016: £1,299,000), based on2% of net assets.

• The Company has one divisionand an audit of the completefinancial information wasperformed.

• We have no key audit mattersto report.

The scope of our auditAs part of designing our audit, we determinedmateriality and assessed the risks of materialmisstatement in the financial statements. Inparticular, we looked at where the Directors madesubjective judgements, for example in respectof significant accounting estimates that involvedmaking assumptions and considering future eventsthat are inherently uncertain.

As in all of our audits we also addressed the risk ofmanagement override of internal controls, includingevaluating whether there was evidence of bias bythe Directors that represented a risk of materialmisstatement due to fraud.

Key audit mattersKey audit matters are those matters that, in theauditors’ professional judgement, were of mostsignificance in the audit of the financial statementsof the current period and include the mostsignificant assessed risks of material misstatement(whether or not due to fraud) identified by theauditors, including those which had the greatesteffect on: the overall audit strategy; the allocationof resources in the audit; and directing the effortsof the engagement team. We determined thatthere were no key audit matters applicable to thecompany to communicate in our report.

How we tailored the audit scopeWe tailored the scope of our audit to ensure thatwe performed enough work to be able to give anopinion on the financial statements as a whole,taking into account the structure of the company,the accounting processes and controls, and theindustry in which it operates.

The Company has one division and an audit of thecomplete financial information was performed.



Report on the audit of the Company financial statements (continued)MaterialityThe scope of our audit was influenced by our application of materiality. We set certain quantitativethresholds for materiality. These, together with qualitative considerations, helped us to determine the scopeof our audit and the nature, timing and extent of our audit procedures on the individual financial statementline items and disclosures and in evaluating the effect of misstatements, both individually and in aggregateon the financial statements as a whole.

Based on our professional judgement, we determined materiality for the financial statements as a wholeas follows:

Overall materiality £1,620,000 (2016: £1,299,000).

How we determined it 2% of net assets.

Rationale forbenchmark applied

We believe that net assets is the primary measure used by the shareholdersin assessing the performance of the entity, and is a generally acceptedauditing benchmark.

We agreed with the Audit Committee that we would report to them misstatements identified duringour audit above £28,500 (2016: £25,500) as well as misstatements below that amount that, in our view,warranted reporting for qualitative reasons.

Conclusions relating to going concernWe have nothing to report in respect of the following matters in relation to which ISAs (UK) require us toreport to you when:

• the Directors’ use of the going concern basis of accounting in the preparation of the financial statementsis not appropriate; or

• the Directors have not disclosed in the financial statements any identified material uncertainties thatmay cast significant doubt about the Company’s ability to continue to adopt the going concern basis ofaccounting for a period of at least 12 months from the date when the financial statements are authorisedfor issue.

However, because not all future events or conditions can be predicted, this statement is not a guarantee asto the company’s ability to continue as a going concern.



Report on the audit of the Company financial statements (continued)Reporting on other informationThe other information comprises all of theinformation in the Annual Report other than thefinancial statements and our auditors’ reportthereon. The Directors are responsible for the otherinformation. Our opinion on the financial statementsdoes not cover the other information and,accordingly, we do not express an audit opinion or,except to the extent otherwise explicitly stated inthis report, any form of assurance thereon.

In connection with our audit of the financialstatements, our responsibility is to read the otherinformation and, in doing so, consider whetherthe other information is materially inconsistentwith the financial statements or our knowledgeobtained in the audit, or otherwise appears to bematerially misstated. If we identify an apparentmaterial inconsistency or material misstatement,we are required to perform procedures to concludewhether there is a material misstatement of thefinancial statements or a material misstatement ofthe other information. If, based on the work we haveperformed, we conclude that there is a materialmisstatement of this other information, we arerequired to report that fact. We have nothing toreport based on these responsibilities.

With respect to the Strategic Report andDirectors’ Report, we also considered whether thedisclosures required by the UK Companies Act2006 have been included.

Based on the responsibilities described above andour work undertaken in the course of the audit, ISAs(UK) require us also to report certain opinions andmatters as described below.

Strategic Report and Directors’ ReportIn our opinion, based on the work undertaken inthe course of the audit, the information given inthe Strategic Report and Directors’ Report for theyear ended 31 December 2017 is consistent withthe financial statements and has been prepared inaccordance with applicable legal requirements.

In light of the knowledge and understanding ofthe company and its environment obtained inthe course of the audit, we did not identify anymaterial misstatements in the Strategic Report andDirectors’ Report.

Responsibilities for the financial statementsand the audit

Responsibilities of the Directors for thefinancial statementsAs explained more fully in the Directors’Responsibilities Statement set out on pages 58 to59, the Directors are responsible for the preparation

of the financial statements in accordance with theapplicable framework and for being satisfied thatthey give a true and fair view. The Directors arealso responsible for such internal control as theydetermine is necessary to enable the preparationof financial statements that are free from materialmisstatement, whether due to fraud or error.

In preparing the financial statements, the Directorsare responsible for assessing the Company’sability to continue as a going concern, disclosingas applicable, matters related to going concernand using the going concern basis of accountingunless the Directors either intend to liquidatethe Company or to cease operations, or have norealistic alternative but to do so.

Auditors’ responsibilities for the audit of thefinancial statementsOur objectives are to obtain reasonable assuranceabout whether the financial statements as a wholeare free from material misstatement, whether dueto fraud or error, and to issue an auditors’ reportthat includes our opinion. Reasonable assurance isa high level of assurance, but is not a guarantee thatan audit conducted in accordance with ISAs (UK)will always detect a material misstatement when itexists. Misstatements can arise from fraud or errorand are considered material if, individually or in theaggregate, they could reasonably be expected toinfluence the economic decisions of users taken onthe basis of these financial statements.

A further description of our responsibilities for theaudit of the financial statements is located on theFRC’s website at:www.frc.org.uk/auditorsresponsibilitiesThis description forms part of our auditors’ report.

Use of this reportThis report, including the opinions, has beenprepared for and only for the Company’s membersas a body in accordance with Chapter 3 of Part 16 ofthe Companies Act 2006 and for no other purpose.We do not, in giving these opinions, accept orassume responsibility for any other purpose or toany other person to whom this report is shown orinto whose hands it may come save where expresslyagreed by our prior consent in writing.



Report on the audit of the company financial statements (continued)Other required reporting

Companies Act 2006 exception reporting

Under the Companies Act 2006 we are required toreport to you if, in our opinion:

• we have not received all the information andexplanations we require for our audit; or

• adequate accounting records have not been keptby the company, or returns adequate for ouraudit have not been received from branches notvisited by us; or

• certain disclosures of Directors’ remunerationspecified by law are not made; or

• the financial statements are not in agreementwith the accounting records and returns.

We have no exceptions to report arising fromthis responsibility.

Other matter

We have reported separately on the Group financialstatements of Cello Group plc for the year ended 31December 2017.

Simon O’Brien (Senior Statutory Auditor)

for and on behalf of PricewaterhouseCoopers LLPChartered Accountants and Statutory AuditorsLondon

21 March 2018


Company Balance SheetAs at 31 December 2017 Company registration number 05120150

Note31 December 2017

£’00031 December 2016

£’000

FIXED ASSETSTangible assets 1 5 7Investments 2 83,740 82,024

83,745 82,031

CURRENT ASSETSDebtors 3 18,813 13,592Cash at bank and in hand 782 –

19,595 13,592

CREDITORS: Amounts falling due within 1 year 4 (11,090) (17,814)

NET CURRENT ASSETS/(LIABILITIES) 8,505 (4,222)

TOTAL ASSETS LESS CURRENT LIABILITIES 92,250 77,809

CREDITORS: Amounts falling due after more than 1 year 5 (11,333) (12,350)

PROVISIONS FOR LIABILITIES – –

NET ASSETS 80,917 65,459

CAPITAL AND RESERVESCalled up share capital 7 10,501 8,760Share premium account 32,705 19,162Merger reserve 25,446 25,446Capital redemption reserve 50 50Share-based payment reserve 824 760Profit and loss account 11,391 11,281

TOTAL SHAREHOLDERS’ FUNDS 80,917 65,459

The notes on pages 115 to 120 are an integral part of these company financial statements.

The company financial statements on pages 113 to 120 were approved by the Board of Directors on 21March 2018 and signed on its behalf by:

Mark Scott Director

Mark Bentley Director


Company Statement ofChanges in Equity

Called-up share

capital£’000

Sharepremiumaccount

£’000

Mergerreserve£’000

Capitalredemption

reserve£’000

Profitand lossaccount

£’000

Share-based

paymentreserve£’000

Total equityattributable

toshareholders

£’000

At 1 January 2016 8,576 18,834 28,807 50 8,400 635 65,302

Profit for the financial year – – – – 1,907 – 1,907

Total comprehensive incomein the year – – – – 1,907 – 1,907

Transactions with owners:

Shares issued 184 328 – – – – 512

Credit for share-based incentives – – – – – 201 201

Tax on share-based paymentsrecognised directly in equity – – – – 60 – 60

Transfer between reserves inrespect of share options – – – – 149 (149) –

Share-based payments in subsidiaries – – – – – 73 73

Transfer between reserves inrespect of impairment – – (3,361) – 3,361 – –

Dividends paid (note 9) – – – – (2,596) – (2,596)

Total transactions with owners 184 328 (3,361) – 974 125 (1,750)

At 31 December 2016 8,760 19,162 25,446 50 11,281 760 65,459

Profit for the financial year – – – – 3,307 – 3,307

Total comprehensive incomein the year – – – – 3,307 – 3,307

Transactions with owners:

Shares issued 1,741 13,543 – – – – 15,284

Credit for share-based incentives – – – – – 251 251

Tax on share-based paymentsrecognised directly in equity – – – – 87 – 87

Transfer between reserves inrespect of share options – – – – 291 (291) –

Share-based payments in subsidiaries – – – – – 104 104

Transfer between reserves inrespect of impairment – – – – – – –

Dividends paid (note 9) – – – – (3,575) – (3,575)

Total transactions with owners 1,741 13,543 – – (3,197) 64 12,151

At 31 December 2017 10,501 32,705 25,446 50 11,391 824 80,917

The notes on pages 115 to 120 are an integral part of these company financial statements.


Company Financial Statements –Accounting Policies

(1) Basis of AccountingThe financial statements have been prepared ona going concern basis and under the historicalcost convention and in accordance with FinancialReporting Standard 101 ‘Reduced DisclosureFramework’ and the Companies Act 2006, asapplicable to companies using FRS 101.

Details of new standard, amendments to standardsand interpretations that have been adopted in theyear or are effective for annual periods beginningafter 1 January 2017, but have not been applied, aredisclosed in the consolidated financial statementson page 80.

Financial Reporting Standard 101 –Reduced Disclosure ExemptionsThe company has taken advantage of the followingdisclosure exemptions under FRS 101:

• the requirements of paragraphs 45(b) and 46-52of IFRS 2 Share-based payment

• the requirements of paragraphs 62, B64(d),B64(e), B64(g), B64(h), B64(j) to B64(m),B64(n)(ii), B64(o)(ii), B64(p), B64(q)(ii), B66 andB67 of IFRS 3 Business Combinations

• the requirements of paragraph 33(c) of IFRS 5Non-Current Assets Held For Sale andDiscontinued Operations

• the requirements of IFRS 7 Financial Instruments:Disclosures

• the requirements of paragraphs 91-99 of IFRS 13Fair Value Measurement

• the requirement in paragraph 38 of IAS 1‘Presentation of Financial Statements’ to presentcomparative information in respect of:

– paragraph 79(a) (iv) of IAS 1;

– paragraph 73(e) of IAS 16 Property,Plant and Equipment;

– paragraph 118(e) of IAS 38 Intangible Assets;

– paragraphs 76 and 79(d) of IAS 40 InvestmentProperty; and

– paragraph 50 of IAS 41 Agriculture

• the requirements of paragraphs 10(d), 10(f), 16,38A, 38B, 38C, 38D, 40A, 40B, 40C, 40D, 111 and134-136 of IAS 1 Presentation of FinancialStatements

• the requirements of IAS 7 Statement of CashFlows

• the requirements of paragraphs 30 and 31 of IAS8 Accounting Policies, Changes in AccountingEstimates and Errors

• the requirements of paragraph 17 of IAS 24Related Party Disclosures

• the requirements in IAS 24 Related PartyDisclosures to disclose related party transactionsentered into between two or more members of agroup, provided that any subsidiary which is aparty to the transaction is wholly owned by sucha member

• the requirements of paragraphs 134(d)-134(f) and135(c)-135(e) of IAS 36 Impairment of Assets.



(2) Profit and Loss AccountAs permitted by section 408 of the CompaniesAct 2006, the Company’s profit and loss accounthas not been presented. The Company reporteda profit in the financial year of £3,307,000 (2016:£1,907,000).

The auditors’ remuneration for the audit of theCompany’s financial statements was £12,000 (2016:£11,000). The auditors’ remuneration for the auditand other services is disclosed in note 5 to theconsolidated financial statements.

(3) TurnoverTurnover is derived from management charges tosubsidiary companies. Turnover is recognised on anaccruals basis, net of VAT.

(4) PensionsThe Company operates a defined contributionscheme. The amount charged to the profitand loss account in respect of pensions is thecontributions payable in the year. Differencesbetween contributions payable in the year andcontributions paid are shown as either otherdebtors or other creditors.

(5) DividendsEquity dividends are recognised when they becomelegally payable. Interim equity dividends arerecognised when paid. Final equity dividends arerecognised when approved by the shareholders atan annual general meeting.

(6) Tangible Fixed AssetsTangible fixed assets are stated at historical costless accumulated depreciation. Cost includes theoriginal purchase price of the asset and the costsattributable to bringing the asset to its workingcondition for its intended use. Depreciation isprovided at rates calculated to write off the cost,less estimated residual value, of each asset, overtheir estimated useful economic lives as follows:

Computer equipment 33% pa. straight line

Fixtures, fittings andoffice equipment 25% pa. straight line

(7) InvestmentsFixed asset investments are stated at cost lessprovision for any impairment in value.

The carrying value of investments is reviewedannually for impairment, or more frequently ifthe events or changes in circumstances indicatea potential impairment. An impairment loss isrecognised for the amount by which the assetscarrying amount exceeds its recoverable amount.The recoverable amount is the higher of an assetsfair value less costs to sell and its value-in-use.

(8) Deferred TaxationTax on the profit or loss for the year comprisescurrent and deferred tax. Tax is recognised in theincome statement, except to the extent that itrelates to items recognised in other comprehensiveincome or directly in equity.

Current tax is calculated on the basis of the tax lawsenacted or substantively enacted at the balancesheet date. Management periodically evaluatespositions taken in tax returns with respect tosituations in which the applicable tax regulation issubject to interpretation. It establishes provisionswhere appropriate on the basis of amountsexpected to be paid to the tax authorities.

Deferred tax is income tax recognised, using theliability method, on temporary differences arisingbetween the tax bases of assets and liabilitiesand their carrying value in the consolidatedfinancial statements. However, deferred taxliabilities are not recognised if they arise from theinitial recognition of goodwill nor from the initialrecognition of an asset or liability, other thanresulting from a business combination that doesnot affect the accounting profit or loss or thetaxable profit or loss.

Deferred tax assets are only recognised to theextent that it is probable that they can be utilisedagainst future taxable profits.

Deferred tax is calculated at the tax rates that areenacted or substantially enacted and expected toapply in the period when the liability is settled orthe asset is realised.

Deferred tax assets and liabilities are offset whenthere is a legally enforceable right to offset currenttax assets and liabilities and when the deferred taxassets and liabilities relate to income taxes leviedby the same tax authority on either the taxableentity or different taxable entities where there is anintention to settle the balances on a net basis.

(9) Foreign CurrencyTransactions denominated in foreign currenciesare initially translated at the exchange rate rulingat the date of the transaction. Monetary assetsand liabilities denominated in foreign currenciesare retranslated at the rate of exchange ruling atthe balance sheet date and the resulting gains andlosses are recorded in the profit and loss account.



(10) Share-based PaymentsCertain employees of the Company receiveremuneration in the form of share options. The fairvalue of the share options granted is measured atthe date of grant and expensed to the profit andloss account over the appropriate vesting period,with a corresponding adjustment to reserves.

The fair value of the share options takes intoaccount market vesting conditions and non-vestingconditions. Non-market vesting conditions areincluded in assumptions of the number of optionsexpected to vest. At the end of each reportingperiod the Company revises its estimate of thenumber of share options expected to vest andrecognises the impact of the revisions to previousestimates in the profit and loss account, with acorresponding adjustment to reserves.

The grant of share options to the employees ofsubsidiary undertakings is treated as a capitalcontribution. The fair value of the share optionsgranted is measured at the date of grant andrecognised as an increase of cost of investmentover the appropriate vesting period, with acorresponding adjustment to reserves.

(11) Financial InstrumentsFinancial assets and financial liabilities arerecognised on the Company balance sheetwhen the Company has become a party to thecontractual provisions of the instrument.

i. DebtorsShort-term debtors are measured attransaction price, less any impairment. Loansreceivable are measured initially at fair value,net of transaction costs, and are measuredsubsequently at amortised cost using theeffective interest method, less any impairment.

ii. Cash and cash equivalentsCash and cash equivalents comprise cash inhand and at bank and other short-term depositsheld by the Company with original maturities ofless than three months.

iii. CreditorsCreditors are obligations to pay for goods orservices that have been acquired in the ordinarycourse of business from suppliers.

Creditors are recognised initially at fair valueand subsequently measured at amortised costusing the effective interest method.

iv. Bank borrowingsInterest bearing bank loans and overdraftsare recorded initially at their fair value, netof direct transaction costs. Such instrumentsare subsequently carried at their amortisedcost and finance charges, including premiumspayable on settlement or redemption, arerecognised in the income statement over theterm of the instrument using an effective rateof interest.

(12) Accounting Estimates and JudgementsThe Company makes estimates and judgementsconcerning the application of the Company’saccounting policies and concerning the future. Theresulting estimates may, by definition, vary fromthe actual results. Estimates are based on historicalexperience and various other assumptions thatmanagement and the Board of Directors believeare reasonable. The Directors consider the criticalaccounting estimates and judgements used in thefinancial statements and concluded the main areaof judgement to be impairment of investments.

The Company tests the carrying value ofinvestments annually for impairment. Therecoverable amount is based on value-in-usecalculations, which requires extensions of futurecash flows and the discount rate to apply in orderto calculate the present values of these cash flows.The estimates and sensitivities are disclosed in note13 of the consolidated financial statements.


Notes to the CompanyFinancial Statements

1 Tangible fixed assets

Computerequipment

£’000

Fixtures, fittingsand office

equipment£’000

Total£’000

CostAt 1 January 2017 57 50 107Additions 3 – 3

At 31 December 2017 60 50 110

Accumulated depreciationAt 1 January 2017 53 47 100Charged for the year 4 1 5

At 31 December 2017 57 48 105

Net book valueAt 31 December 2017 3 2 5

At 31 December 2016 4 3 7

2 InvestmentsSubsidiaries

£’000

CostAt 1 January 2017 100,639Additions in the year 1,612Capital contribution in relation to share-based payments 104

At 31 December 2017 102,355

Accumulated impairmentAt 1 January 2017 and 31 December 2017 18,615

Net book valueAt 31 December 2017 83,740

At 31 December 2016 82,024

The Company’s principal trading subsidiaries are listed in note 17 to the consolidated financial statements.

The Directors believe that the carrying value of the investments is supported by their underlying net assets.



3 Debtors

Note2017

£’0002016

£’000

Amounts falling due within 1 year:Amounts owed by Group undertakings 18,297 12,591Other debtors 2 228Deferred tax asset 11 125 174Corporation tax 300 497Prepayments 89 102

18,813 13,592

Amounts owed by Group undertakings are unsecured and repayable on demand. Balances withsubsidiaries outside of normal trading terms bear an interest rate of 1.50% (2016: 1.25%).

4 Creditors: Amounts falling due within 1 year

2017£’000

2016£’000

Bank overdraft – 6,725Loan notes 59 155Trade creditors 97 102Amounts owed to Group undertakings 9,687 9,589Other taxation and social security costs 452 463Other creditors 134 114Accruals 661 666

11,090 17,814

Amounts owed to Group undertakings are unsecured and repayable on demand. Balances with subsidiariesoutside of normal trading terms bear an interest rate of 1.50% (2016: 1.25%).

Bank overdraftThe bank overdraft is part of the Group-wide overdraft facility with RBS, which holds a debenture over theassets of the Company and the majority of its subsidiaries. There is also a cross-guarantee between theCompany and the majority of its subsidiaries. The bank overdraft bears interest at a variable rate of 1.25%to 2.30% over LIBOR and is repayable on demand.

Loan notesLoan notes have been issued as part of the consideration for certain acquisitions. Loan notes are initiallysecured by way of cash deposits and by guarantee. This security expires after a period of between two andfive years in accordance with the terms of the relevant acquisition agreement. After this period the loannotes are unsecured. Loan notes bear interest at the following rates:

2017£’000

2016£’000

UnsecuredLIBOR less 2.0% 45 121LIBOR 14 34

59 155



5 Creditors: Amounts falling due after more than 1 year

2017£’000

2016£’000

Bank loans 11,333 12,350

The Company has a debt facility with RBS. At 31 December 2017 the debt facility consists of a £20.0m RCF.The RCF bears interest at a variable rate of 1.25% to 2.30% over LIBOR and is committed to March 2022.The security over the RCF is the same as for the bank overdraft (note 4).

6 Deferred Tax Assets

2017£’000

2016£’000

Deferred tax assets:Unrelieved share-based payment expense 122 166Other timing differences 3 8

At 31 December 2017 125 174

Movement in deferred tax in the year can be analysed as follows:£’000

At 1 January 2017 174Income statement (49)Tax charged directly to equity –

At 31 December 2017 125

7 Called Up Share Capital

2017£’000

2016£’000

Allotted, issued and fully paid:105,012,157 (2016: 87,596,492) ordinary shares of 10p each 10,501 8,760

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 24 to the consolidated financial statements.

8 Share-based PaymentsDetails of share option awards and key inputs into the Black Scholes model to calculate the fair value ofoptions are given in note 25 to the consolidated financial statements.For the year ended 31 December 2017, the Company recognised an expense of £251,000 in the profit andloss account (2016: £201,000) in relation to equity settled share-based payment transactions.

9 DividendsFor details of dividends paid in the year, please refer to note 11 in the consolidated financial statements.

10 Related Party TransactionsTransactions with the Company’s Directors are disclosed in note 8 to the consolidated financial statements.Further information about the remuneration of the Directors is provided in the Report of the RemunerationCommittee on pages 62 to 63.The Company has applied the exemption available not to disclose transactions with its wholly ownedsubsidiaries.


Notice of AnnualGeneral Meeting

Notice is hereby given that the Fourteenth Annual General Meeting of the Company will be held atBuchanan, 107 Cheapside, London EC2V 6DN on 9 May 2018 at 12.30pm, for the transaction of thefollowing business:

ORDINARY BUSINESS1. To receive and adopt the Directors’ Report

and Financial Statements for the year ended31 December 2017, together with the auditors’report thereon.

2. To declare a final dividend of 2.45p per ordinaryshare for the year ended 31 December 2017.

3. To receive and approve the Directors’Remuneration Report for the year ended 31December 2017.

4. To re-elect William David as a Director, whoresigns in accordance with the Company’sArticles of Association.

5. To re-elect Paul Hamilton as a Director, whoresigns in accordance with the Company’sArticles of Association.

6. To re-appoint PricewaterhouseCoopers asauditors of the Company to hold office untilthe next General Meeting at which accountsare laid and to authorise the Directors to fixtheir remuneration.

SPECIAL BUSINESSTo consider and, if thought fit, pass the followingresolutions of which resolution 7 is an ordinaryresolution and resolutions 8 and 9 arespecial resolutions.

ORDINARY RESOLUTION7. That, in substitution for existing authorities to

the extent unutilised, the Directors be and arehereby generally and unconditionally authorisedpursuant to section 551 of the CompaniesAct 2006 (the ‘Act’) to exercise all powers ofthe Company to allot shares or grant rightsto subscribe for or convert any security intoshares up to an aggregate nominal amount of£2,100,443 to such persons, at such times andon such terms and conditions as the Directorsdetermine, during the period expiring (unlesspreviously renewed, varied or revoked by theCompany in General Meeting) on whicheveris the earlier of the conclusion of the AnnualGeneral Meeting of the Company held in 2019and the date falling 15 months after the date ofthe passing of this resolution, but the Companymay make an offer or agreement before theexpiry of this authority which would or mightrequire shares to be allotted or rights tosubscribe for or convert any security into sharesto be granted after expiry of this authority andthe Directors may allot shares or grant rights tosubscribe for or convert any security into sharesin pursuance of that offer or agreement.



SPECIAL RESOLUTIONS8. That, subject to the passing of resolution 7 set

out in the notice convening this meeting, theDirectors be empowered pursuant to section570 of the Companies Act 2006 (the ‘Act’), toallot equity securities (within the meaning of theAct) of the Company for cash pursuant to thegeneral authority conferred on them by the saidresolution 7 as if section 561(1) of the Act didnot apply to any such allotment provided thatthis power shall be limited to:

(a) the allotment of equity securities inconnection with an offer of equity securities(whether by way of a rights issue, openoffer or otherwise), open for acceptance fora period fixed by the Directors, to holdersof ordinary shares on the register on anyfixed record date in proportion (as nearlyas practicable) to their holdings of ordinaryshares, subject to such exclusions or othersuch arrangements as the Directors maydeem necessary or expedient in relation tofractional entitlements or legal or practicalproblems arising under the laws of, or therequirements of, any regulatory body orany stock exchange in, any territory; and/or

(b) the allotment (otherwise than pursuant toparagraph (a) above) of equity securities upto an aggregate nominal amountof £1,050,221

and the power hereby conferred shall operatein substitution for and to the exclusion of anyprevious power given to the Directors pursuantto section 570 of the Act and shall expire onwhichever is the earlier of the conclusion of theAnnual General Meeting of the Company heldin 2019 and the date falling 15 months after thedate of the passing of this resolution, unlesssuch power is renewed or extended prior tosuch expiry, except that the Company maybefore the expiry of any power conferred by thisresolution make an offer or agreement whichwould or might require equity securities to beallotted after such expiry and the Directors mayallot equity securities in pursuance of such offeror agreement as if the power conferred herebyhad not expired.

This power applies in relation to a sale of shareswhich is an allotment of equity securities byvirtue of Section 560(2) of the Act as if in thefirst paragraph of this resolution the words“pursuant to the general authority conferred onthem by the said resolution 7” were omitted.

9. That the Company be and is hereby grantedgeneral and unconditional authority (pursuantto section 701 of the Companies Act 2006 (the‘Act’)) to make market purchases (as definedin section 693 of the Act) of any of its ownordinary shares of 10p each on such terms andin such manner as the board of Directors of theCompany may from time to time determineprovided that:

(a) the maximum number of shares authorisedto be purchased is 5,251,107 ordinary sharesof 10p each, being 5% of the shares in issueas at 28 February 2018.

(b) the maximum price which may be paid fora share is an amount equal to not morethan 105% of the average of the middlemarket quotations for the shares takenfrom the London Stock Exchange DailyOfficial List for the five business daysbefore the day on which the purchaseis made;

(c) the minimum price which may be paid fora share is 10p exclusive of any attributableexpenses payable by the Company; and

(d) the authority conferred by this resolutionshall expire on whichever is the earlierof the conclusion of the Annual GeneralMeeting of the Company held in 2019 andthe date falling 15 months after the date ofthe passing of this resolution, unless suchauthority is renewed or extended prior tosuch expiry, whichever is the earlier, exceptthat the Company may, before such expiry,enter into a contract for the purchase ofits own shares which may be completedby or executed wholly or partly after theexpiration of this authority.

By order of the Board

Mark BentleyCompany Secretary13 April 2018

Registered Office11-13 Charterhouse BuildingsLondonEC1M 7AP



NOTES TO THE NOTICE OF ANNUAL GENERAL MEETING1. As a member of the Company, you are entitled

to appoint a proxy to exercise all or any of yourrights to attend, speak and vote at the AnnualGeneral Meeting and you should have receiveda proxy form with this notice of meeting. Youcan only appoint a proxy using the proceduresset out in these notes and the notes to theproxy form.

2. A proxy does not need to be a member of theCompany but must attend the Annual GeneralMeeting to represent you. Details of how toappoint the Chairman of the Annual GeneralMeeting or another person as your proxy usingthe proxy form are set out in the notes to theproxy form. If you wish your proxy to speak onyour behalf at the Annual General Meeting youwill need to appoint your own choice of proxy(not the Chairman) and give your instructionsdirectly to him/her.

3. You may appoint more than one proxy providedeach proxy is appointed to exercise rightsattached to different shares. You may notappoint more than one proxy to exercise rightsattached to any one share.

4. As permitted by Regulation 41 of theUncertificated Securities Regulations 2001,Shareholders who hold their shares inuncertificated form must be entered on theCompany’s share register by 12.30pm on 7May 2018 in order to be entitled to attendand vote at the Annual General Meeting. SuchShareholders may only cast votes in respectof shares held at such time. Changes to entrieson the register of members after such time onsuch date will be disregarded in determining therights of any person to attend and vote at theAnnual General Meeting.

5. To be effective, a proxy form must be dulycompleted, executed and returned, togetherwith the power of attorney or other authority,if any, under which it is signed, or a notariallycertified copy or a copy certified in accordancewith the Powers of Attorney Act 1971 of suchpower of attorney or authority, so as to reachthe Company’s registrars, ComputershareInvestor Services PLC, The Pavilions, BridgwaterRoad, Bristol, BS99 6ZY by 12.30pm on 7 May2018, being 48 hours (excluding any part ofa day that is not a working day) prior to the

time fixed for the meeting or, in the case of anadjournment, as at 48 hours (excluding any partof a day that is not a working day) prior to thetime of the adjourned meeting.

6. In the case of joint holders, where more thanone of the joint holders purports to appoint aproxy, only the appointment submitted by themost senior holder will be accepted. Seniorityis determined by the order in which the namesof the joint holders appear in the Company’sregister of members in respect of the jointholding (the first-named being the most senior).

7. CREST members who wish to appoint a proxyor proxies through the CREST electronicproxy appointment service may do so byusing the procedures described in the CRESTManual. CREST Personal Members or otherCREST sponsored members, and those CRESTmembers who have appointed a serviceprovider(s), should refer to their CREST sponsoror voting service provider(s), who will be able totake the appropriate action on their behalf.

8. In order for a proxy appointment orinstruction made using the CREST service tobe valid, the appropriate CREST message (a‘CREST Proxy Instruction’) must be properlyauthenticated in accordance with EuroclearUK & Ireland Limited’s specifications, andmust contain the information required forsuch instruction, as described in the CRESTManual (available via my.euroclear.com/euilegal). The message, regardless of whetherit constitutes the appointment of a proxy oris an amendment to the instruction given to apreviously appointed proxy must, in order tobe valid, be transmitted so as to be receivedby the issuer’s agent (ID 3RA50) by 12.30pm on 7 May 2018. For this purpose, thetime of receipt will be taken to be the time(as determined by the time stamp appliedto the message by the CREST ApplicationHost) from which the issuer’s agent is ableto retrieve the message by enquiry to CRESTin the manner prescribed by CREST. Afterthis time any change of instructions toproxies appointed through CREST shouldbe communicated to the appointee throughother means.



NOTES TO THE NOTICE OF ANNUAL GENERAL MEETING (continued)9. CREST members and, where applicable, their

CREST sponsors or voting service providersshould note that Euroclear UK & Ireland Limiteddoes not make available special proceduresin CREST for any particular message. Normalsystem timings and limitations will, therefore,apply in relation to the input of CREST ProxyInstructions. It is the responsibility of the CRESTmember concerned to take (or, if the CRESTmember is a CREST Personal Member, orsponsored member, or has appointed a votingservice provider, to procure that his CRESTsponsor or voting service provider(s) take(s))such action as shall be necessary to ensure thata message is transmitted by means of the CRESTsystem by any particular time. In this connection,CREST members and, where applicable, theirCREST sponsors or voting system providers arereferred, in particular, to those sections of theCREST Manual concerning practical limitationsof the CREST system and timings.

10. The Company may treat as invalid a CRESTProxy Instruction in the circumstances set outin Regulation 35(5)(a) of the UncertificatedSecurities Regulations 2001.

11. If multiple corporate representatives areappointed, in order to facilitate voting bycorporate representatives at the Annual GeneralMeeting, arrangements will be put in place atthe Annual General Meeting so that:

(i) if a corporate member has appointed theChairman of the Annual General Meetingas its corporate representative withinstructions to vote on a poll in accordancewith the directions of all the othercorporate representatives for that memberat the Annual General Meeting, then, on apoll, those corporate representatives willgive voting directions to the Chairman andthe Chairman will vote (or withhold a vote)as corporate representative in accordancewith those directions; and

(ii) if more than one corporate representativefor the same corporate member attends theAnnual General Meeting but the corporatemember has not appointed the Chairman ofthe Annual General Meeting as its corporaterepresentative, a designated corporaterepresentative will be nominated, from thosecorporate representatives who attend, whowill vote on a poll and the other corporaterepresentatives will give voting directions tothat designated corporate representative.

12. The following documents will be available atthe registered office of the Company on anyweekday (except Saturday) during normalbusiness hours from the date of this notice untilthe date of the Annual General Meeting:

– a copy of the service agreements for theExecutive Directors;

– a copy of the letters of appointment for theNon-Executive Directors;

– the Articles of Association of the Company;and

– the register of interests of the Directors(and their families) in the share capital ofthe Company.

These documents will also be available forinspection during the Annual General Meetingand for at least 15 minutes before it begins.



EXPLANATION OF SPECIAL BUSINESS AT THE ANNUAL GENERAL MEETINGExplanation of Resolution 7 (Authority toallot securities)

Resolution 7, which will be proposed as an ordinaryresolution, would give the Directors authority toallot shares up to a maximum nominal amountof £2,100,443 being approximately 20% of theCompany’s issued share capital as at 28 February2018. The existing authority would be revoked andthis new authority would expire on the date of the2019 Annual General Meeting or 9 August 2019,whichever is the earlier.

Explanation of Resolution 8 (Disapplication ofpre-emption rights)

Resolution 8, which will be proposed as a specialresolution, would renew the power of the Directorsto allot shares for cash as though the rights of pre-emption conferred by section 561(1) of the Act didnot apply:

(a) in connection with an offer to existingshareholders in proportion to their existingholdings save that the Directors are allowed tooffer shares to existing shareholders otherwisethan strictly in proportion to their holdingswhere, for example, overseas regulations makeit difficult to offer shares pro rata to existingoverseas shareholders or when dealing withfractions of shares, and/or

(b) up to a nominal amount of £1,050,221 beingapproximately 10% of the issued share capitalof the Company as at 28 February 2018 (togive the Directors some flexibility in financingbusiness opportunities as they arise).

This power would expire on the date of the2019 Annual General Meeting or 9 August 2019,whichever is the earlier.

Explanation of Resolution 9 (Authority topurchase own shares)

In certain circumstances it may be advantageousfor the Company to purchase its own shares.Resolution 9, which will be proposed as a specialresolution, seeks authority from shareholders todo so, such authority to expire on the date of the2019 Annual General Meeting or 9 August 2019,whichever is the earlier. The Directors intend toexercise this power only if and when, in the lightof market conditions prevailing at the time, theybelieve that the effect of such purchases willbe to increase earnings per share and is in thebest interests of shareholders generally. Otherinvestment opportunities, appropriate gearinglevels and the overall position of the Company willbe taken into account before deciding upon thiscourse of action. Any shares purchased in this waywill be cancelled and the number of shares in issuewill be accordingly reduced.

This resolution specifies the maximum number ofshares which may be acquired (being 5,251,107ordinary shares, which is approximately 5% of theCompany’s issued share capital as at 28 February2018 of 105,022,157 ordinary shares) and themaximum and minimum prices at which they maybe bought.


Directors’Biographies

Allan RichNon-Executive Chairman

Allan Rich has spent all his working life in the advertisingbusiness. He co-founded Davidson Pearce Berry andSpottiswood, which became one of the most successfulagencies in the UK during the late 60s and early 70s. In 1975he founded the first independent media planning and buyingcompany in the UK, which he called The Media Business. In1995 he took the company to the London Stock Market andin 1998 sold his Group to Grey Advertising New York in orderto create a truly global media organisation, MediaCom. Overthe following four years MediaCom became the largestmedia company in the UK and remains so to this day.

Mark ScottChief Executive

From 1994 to 1998 Mark Scott was a senior executive at WPPGroup plc, latterly being appointed Operations Director forthe Group with responsibility for the Group’s European andAsian acquisition programme. Post WPP he becameExecutive Vice President of Lighthouse Global Network LLCwhere he helped acquire and consolidate more than 15marketing services companies. From 2000 to 2002 he wasappointed a senior executive of Lake Capital Management, aprivate equity firm, where he was responsible for a range ofinvestments in marketing service firms. He has been amember of the boards of a number of public companies inthe sector including Watermark Group plc, ChimeCommunications Group plc, Chemistry CommunicationsGroup plc and Fitch plc. He obtained his MBA from HarvardBusiness School and a first class honours degree in EnglishLiterature from Oxford University.

Mark BentleyGroup Finance Director

Mark Bentley joined Cello Group as Group Finance Directorin May 2005. He is also Company Secretary. Mark previouslyworked for Citigate Dewe Rogerson, which he joined in 2000as Financial Controller and spent the next five years invarious senior finance roles within Incepta Group plc,including Finance Director of Citigate Dewe Rogerson fromFebruary 2001. Whilst maintaining the Finance Director role,he took on wider operational responsibilities when he wasappointed Chief Operating Officer in November 2003. FromJune 2002 he also had the parallel role of Finance Directorof the Citigate SMARTS regional network of offices. Prior toCitigate he was Financial Projects Manager at HodderHeadline plc. Mark qualified as a chartered accountant withCoopers & Lybrand in 1996.


Stephen HighleyGroup Chief Operating Officer

Stephen started his career in the Retail and FMCG sector beforemoving into healthcare. His extensive healthcare career includesworking for Baxter Healthcare and a London-based consultancycompany where he was Director of the Healthcare Division. In 1994Stephen was a founding Director of MSI and subsequently spent 17years as Managing Director. Since early 2011 Stephen has performedin a number of wider Cello roles, specifically Chairman of CelloHealth and Group Chief Operating Officer, responsibilities hecurrently retains. As Chairman of Cello Health, Stephen’s key role isto harness the considerable talent within the Cello Healthcapabilities to build on the success to date in the healthcare sector.

Will DavidIndependent Non-Executive Director

Will David was previously Non-Executive Chairman of Polaron plc,Orca Interactive Limited and Advanced Power Components plc. Hehas more than 20 years’ experience working in corporate advisory andbroking roles for small and mid-cap companies and has worked atInvestec Henderson Crosthwaite, PricewaterhouseCoopers, HoareGovett & Co and The London Stock Exchange. During his professionalcareer Will has worked on over 20 flotations for clients across a rangeof sectors. His experience also includes acquisitions and disposals,public takeovers and secondary fundraisings and provision of adviceon corporate governance matters. Will chairs the Audit Committee andis a member of both the Nomination and Remuneration Committees.

Paul HamiltonNon-Executive Director andSenior Independent Director

Paul Hamilton was Senior Independent Director of WellingtonUnderwriting plc until 31 December 2006. Prior to this Paul workedin both corporate finance at UBS Warburg where he was a ManagingDirector, and in corporate broking at Rowe & Pitman where he was aPartner. Paul has also been Chairman of the FSA Listing RulesCommittee and a member of the FSA Listing Authority AdvisoryCommittee and London Stock Exchange Primary MarketsCommittee. Paul chairs both the Nomination and RemunerationCommittee and is a member of the Audit Committee.

Chris JonesIndependent Non-Executive Director

After graduating from Cambridge University, Chris spent 24 yearsin the advertising industry, ultimately becoming the GlobalChairman and Chief Executive Officer of J Walter Thompson Cobased in New York, part of WPP Group plc. Since returning to theUK, Chris has held board positions in many companies in Europeand the US in sectors which include healthcare, technology andfinancial services. He also has extensive not-for-profit interests,especially in healthcare and education.


Advisers

Company SecretaryMark Bentley

Registered Office11-13 Charterhouse BuildingsLondonEC1M 7AP

Independent AuditorPricewaterhouseCoopers LLPChartered Accountants and Statutory Auditors1 Embankment PlaceLondonWC2N 6RH

Nominated Adviser and BrokerCenkos Securities plc6.7.8 Tokenhouse YardLondonEC2R 7AS

SolicitorsMarriott Harrison LLP11 Staple InnLondonWC1V 7QH

Principal BankerThe Royal Bank of Scotland plc280 BishopsgateLondonEC2M 4RB

RegistrarsComputershare Investor Services plcPO Box 82The PavilionsBridgwater RoadBristolBS99 7NH


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Cello Group plc 11-13 Charterhouse Buildings London EC1M 7AP Tel: +44 (0)20 7812 8460 cellogroup.com

Company Registration no. 05120150

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