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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Cello Health Plc | LSE:CLL | London | Ordinary Share | GB00B0310763 | ORD 10P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 161.00 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
From Apr 2019 to Apr 2024
TIDMCLL
RNS Number : 5407G
Cello Health PLC
18 March 2020
FOR IMMEDIATE RELEASE 18 March 2020
Cello Health plc
('Cello' or the 'Group')
Preliminary Results for the year ended 31 December 2019
Strong performance - Continued delivery of consistent results
Cello Health plc (AIM:CLL, "Cello" or "the Group"), the healthcare-focused advisory group, today announces its results for the year to 31 December 2019.
Group Financial Highlights
Hot Features
Premium
2019 2018 %
Headline basic earnings(1) per share 9.53p 9.07p 5.1%
Net revenue GBP107.6m GBP100.8m 6.7%
Group headline 2 profit before tax GBP13.1m GBP12.3m 6.6%
Reported profit before tax GBP7.1m GBP9.4m 24.2%
Reported basic earnings per share from
continuing operations 4.51p 6.96p 35.2%
Net funds 3 GBP5.5m GBP6.4m
Full year dividend 4.10p 3.85p 6.5%
Divisional Financial Highlights
Cello Health Cello Signal
GBP'000 2019 2018 % Growth 2019 2018 % Growth
------- ------- --------- ------- ------- ---------
Segmental net revenue 72,701 64,308 13.1% 34,805 36,215 (3.9%)
------- ------- --------- ------- ------- ---------
Headline operating
profit 14,037 11,890 18.1% 2,719 3,841 (29.2%)
------- ------- --------- ------- ------- ---------
Headline operating
margin4 19.3% 18.5% 7.8% 10.6%
------- ------- --------- ------- ------- ---------
Operational Highlights
-- Continued focus on the delivery of growth in core healthcare division
-- Very strong like-for-like5 growth across Cello Health in both net revenue and headline operating profit
-- Increased profit margins in Cello Health to 19.3% (2018: 18.5%) -- Successful assimilation of Innovative Science Solutions, Inc., acquired in August 2019 -- Ongoing expansion of pharmaceutical and biotech client base -- Creation of Cello Connect to support Cello Health's digital and creative marketing needs -- Substantial reduction in the size of Cello Signal, including divestiture of Pulsar -- Cello Health division now represents 82.2% of 2019 Group net revenue on a proforma basis
Mark Scott, Chief Executive, commented:
"The strong revenue and profit growth achieved by the Group in 2019 reflects our focus on our professional structure and client offering, as well as excellent operational leadership. The creation of Cello Connect within the Cello Health operating structure significantly extends our capability and skill set. We are very conscious of the uncertainty created by the COVID-19 virus and will continue to take appropriate cautionary measures to mitigate any impact, resulting from this, on the business. We remain confident of the long-term growth opportunity in the healthcare services arena."
Analyst meeting
A conference call for analysts will be held at 9.30am today. For further details please contact Buchanan on 020 7466 5000 or email cello@buchanan.uk.com
Enquiries:
Cello Health plc 020 7812 8460 Mark Scott, Chief Executive Mark Bentley, Group Finance Director Cenkos Securities plc 020 7397 8900 Giles Balleny Harry Hargreaves Buchanan Mark Court 020 7466 5000 Jamie Hooper Charlotte Slater
CHAIRMAN'S STATEMENT
2019 - A year of strong growth and increased focus
I am delighted to report that 2019 continued to deliver excellent results driven by a single-minded focus from all of our people on developing the Group into a vibrant global company set for ambitious growth. The 2019 results should be considered in light of a clearly defined strategy that has been implemented over the past five years. The strategy is focused on our being able to support our clients' journey from drug discovery through to commercialisation, with a capacity to handle cutting-edge science, complex commercial issues, multiple stakeholders and significant marketing challenges. This makes us an ideal partner, working with clients to achieve clinical and commercial success. We share the same motivation as our clients - to improve patients' lives by ensuring treatments and solutions are brought to market efficiently.
Net revenue from continuing operations increased by 6.7% to GBP107.6m (2018: GBP100.8m) with headline profit before tax up 6.6% to GBP13.1m (2018: GBP12.3m). Our strong organic headline profit before tax growth was underpinned by an excellent divisional performance from Cello Health, with 8.0% constant currency like-for-like net revenue growth and growth in headline operating profit of 18.1%. Cello Signal had a tougher year, with a decline in net revenue of 3.9% and a drop in headline operating profit of 29.2%.
This strong financial performance was accompanied by robust cash flows and a good net funds position at the year end of GBP5.5m (2018: GBP6.4m).
Reported profit before tax was down 24.2% to GBP7.1m (2018: GBP9.4m). This drop in reported profit before tax substantially reflects an impairment charge of GBP2.7m in respect of Signal Agency.
Headline basic earnings per share rose 5.1% to 9.53p (2018: 9.07p). As a result, the Board has decided to recommend an increase in the full dividend per share to 4.10p (2018: 3.85p), an increase of 6.5% subject to shareholder approval. Reported earnings per share from continuing activities fell 35.2% to 4.51p (2018: 6.96p). Significantly, this represents a record of 14 years of dividend increases.
As evidenced by these results, our effective execution against our strategic priorities of growth, innovation and leverage is delivering. 2019 saw the organic expansion of our global footprint, with the opening of a Berlin office, the growth in our Boston office and the substantial expansion of our core Yardley PA, office. These actions have all helped us attract top talent in key markets and contributed to our strategy for growth.
In August, we completed the acquisition of the scientific consultancy Innovative Science Solutions, Inc. (ISS), which specialises in strategic regulatory support for the healthcare industry and scientific support on health-related issues for legal counsel. Initial consideration was $6.4m, with $4.1m as deferred consideration contingent on future performance. ISS has performed well in its first five months as part of the Group.
In line with our strategy of increasing the health-oriented focus of the Group, in October 2019 we disposed of Pulsar, our social media and analytics business, which was part of Cello Signal.
In addition, we have accelerated the positioning of relevant core services of Cello Signal towards healthcare. In January 2020, we aligned the core digital and creative marketing capability based in Edinburgh with the Cello Health operating structure under 'Cello Connect'. This supports our ambition of broadening our access to the wider health and wellbeing market as well as leveraging these digital and creative marketing capabilities into our core biopharmaceutical and health technology clients. The creation of Cello Connect substantially enlarges the scale of our core Cello Health division which for the year ended 31 December 2019 represented 82.2% of Group net revenues on a proforma basis.
Corporate Governance
After the significant changes to the non-executive team in the second half of 2018, including my appointment as Chairman, I am pleased with the way the Board has engaged and worked together during the year. The manner in which the Board has discharged its governance activities are reported on elsewhere in this report and, now that the new Board has been in place for just over a year, we have also undertaken a Board effectiveness assessment, the results of which are being reviewed so that ongoing improvements can be made in response to the feedback.
Current Trading and Outlook
It has become clear over the last few days that the world economy will go through a period of considerable stress as a consequence of the current threat of the COVID-19 virus. It is therefore possible that certain client spend may be disrupted while the current travel restrictions and health risks exist. However, our client base is dominated by clients which are traditionally less sensitive to short - term changes in consumer behaviour . In addition, the Group has currently not experienced any material client impact arising from the disruption. We are also mitigating this threat through the use of technology to allow digital delivery of projects, supported by flexible working patterns across our office network. The Board is confident in the strength of the business and capacity of the management team to trade effectively through this period.
The growth potential of our core pharmaceutical and biotechnology client sector remains very positive, as does the opportunity in the growing health, wellbeing and health technology markets. Clients' R&D pipelines remain strong.
Advances in disease areas such as oncology and technologies such as cell and gene therapies, alongside increasingly rapid FDA approvals for breakthrough therapies focused on smaller patient populations, are compressing development and regulatory timelines and challenging traditional pricing and reimbursement systems. Cello Health has an established market position working with large-scale pharmaceutical and biotech clients on these issues. Cello Health's combination of scientifically-led commercial advisory skills with early stage asset commercialisation capability and communications delivery, allows us to support our clients' commercial goals.
We enter 2020 with a good order book from 2019 and performance has been good in the early months of the year.
Further guidance on current year trading will be given at our AGM on 20 May 2020.
Finally, I would like to thank all of our clients for selecting us as their partners, and all of our people whose expertise and commitment have delivered another year of strong performance and high-quality services to our clients.
Chris Jones
Non-Executive Chairman
17 March 2020
CHIEF EXECUTIVE'S OPERATING REVIEW
Strong performance across our core capabilities
2019 demonstrated our ongoing ability to deliver strong organic headline operating profit growth from our core operations, as well as sensibly adding new capabilities through acquisition. We retain a single-minded focus on our three key strategic priorities of ambitious growth, targeted innovation and leveraging key assets across the Group. The COVID-19 virus requires us to take sensible cautionary measures to manage any impact on the business but our strategic growth objective remains unchanged.
Growth
Strong performances across our Consulting and US Communications operations in particular contributed to an excellent overall result for the Group. Constant currency like-for-like net revenue growth of 8.0% in the Cello Health division demonstrates the ability of our business model to deliver organic growth without reliance on acquisitions.
Cello Health Communications represented 35.7% (2018: 30.2%) of the net revenue of the Cello Health division and its successful year has been driven by a combination of factors such as the increasing influence of medical affairs and the ongoing demand for our deep scientific communication services with clinical, medical and commercial buying groups. This was combined with successful integration of digital within our communications offer, successful new business development, and good client retention rates where we have deepened and broadened our relationships.
Cello Health Consulting represented 29.3% (2018: 29.1%) of the net revenue of the Cello Health division, and also had a strong period of growth and margin expansion, with a marked widening of the core client base. It also added a healthy spread of new clients in the US biotech space. We have seen an increase in earlier stage strategy work, with pleasing growth from clients managing assets in Phase 2-3 of development. In the US, our early stage biotech strategy consultancy, Cello Health BioConsulting, continued to perform strongly in its third year in the Group. The business continues to work at the cutting edge of science and technology, with technical strength in areas such as oncology, advanced therapeutics (cell and gene therapy) and rare disease.
The addition of ISS to the consulting division in August 2019 contributed a key expansion of our advisory capability and in particular bolsters our ability to provide a comprehensive early commercialisation proposition around the regulatory submission process.
Cello Health Insight represented 35.0% (2018: 40.7%) of the net revenue of the Cello Health division, delivering to expectations in its core operations as well as seeing strong progress with its digital practice, Cello Health Logic, as well as with its new behavioural science unit, Disrupt. In addition, we are seeing continued success in providing high-quality, value-added trackers, with revenue in this area more than doubling in 2019. This type of work brings with it the benefit of greater revenue visibility.
2019 saw continued success with the US expansion of the business. Cello Health's US revenues were $46.2m in 2019 (2018: $38.7m). The US now represents over 52.0% of the Group's operating profit. Cello Health Communications US performed extremely well and we continue to invest in further expansion of our operations in Yardley PA, and Boston.
Our European performance was also strong, with core health operations delivering good growth in operating profit. In 2018, the European pharmaceutical industry invested an estimated EUR35bn on R&D and Europe represented 23.0% of world pharmaceutical sales (www.efpia.eu). Seven of the top 20 pharmaceutical companies have their global headquarters in Europe. Consequently, along with enlarging our US footprint, continuing to build on our strength in Europe is key to our long-term plans, with a primary focus in London and Berlin.
Our core client base remains strong with the top 20 clients contributing 41.0% to Group net revenue (2018: 40.1%). We continue to have relationships in place with 24 of the top 25 pharmaceutical companies (www.pharmexec.com), 17 of which we have been in relationships with for over five years. Our largest client represents 9.2% (2018: 7.9%) of Group net revenue. This is a long-term client that has work streams spread over multiple therapy areas and buying points. Our top 25 global pharmaceutical clients contributed 38.0% of total net revenues for the Cello Health division.
Cello Signal like-for-like constant currency net revenue from continuing operations fell by 4.1%. This performance largely reflected a weak trading environment in the UK market where a range of clients deferred spend in the last quarter, pending the election result and clarity around Brexit. Since the year end action has been taken to reduce the cost base to improve profitability for 2020. This is expected to give rise to an exceptional charge for redundancies of GBP0.5m in 2020.
In January 2020, we formed Cello Connect, as an integral part of the Cello Health operating structure. Cello Connect is centered on the high performing creative and digital teams headquartered in Edinburgh and formerly part of Cello Signal. These teams have been spearheading Signal's move into Health with notable work for EFPIA and a growing strength in digital strategy for major pharma clients. Cello Connects' growth and commercial performance are in line with that of Cello Health and these capabilities are increasingly relevant to our core biopharmaceutical and medtech clients. Cello Connect's food, drink and leisure client base positions us well to capture more of the burgeoning Health and Wellbeing market and substantially enlarges the scale of our core Cello Health division. Cello Connect delivered GBP15.6m (2018: GBP14.7m) of net revenue and GBP2.4m (2018: GBP2.7m) of operating profit in 2019. On a 2019 proforma basis, the Cello Health division now contributes 82.2% of overall Group net revenue and 96.0% of overall Group headline operating profit.
The creation of Cello Connect leaves Signal with 2019 proforma GBP19.2m of net revenue (2018: GBP21.5m) and GBP0.7m of operating profit (2018: GBP1.6m), with a 3.7% operating profit margin (2018: 7.4%). The Signal business will be tightly run to increase profitability in the short-term.
Excluding Pulsar, average headcount across the Group was 907 (2018: 922). This reflects an 8.0% increase in closing headcount in the Cello Health division; and a 6.5% decrease in Cello Signal's closing headcount. 2019 saw the strengthening of the Global Human Resources function of Cello, building on its well-established recruitment and colleague engagement strategies, including its leading training programme, Cello Academy while striving to optimise balanced and competitive remuneration programmes. A concerted effort is being made to accelerate the rate of recruitment at all levels of Cello Health.
We continue to appraise and examine potential acquisitions for Cello Health against our focused criteria, maintaining a disciplined approach to valuation and strategic fit.
Innovation
Innovation continues to play a critical role in each of our core capabilities, especially in light of the convergence of science and technology and the speed of change for our clients. We continually stretch our skills, knowledge and perspective to tackle clients' complex problems. In 2019, we sought to capitalise on this by:
1. Rolling out a cross-capability Innovation Lab, with the goal of identifying opportunities to openly embrace experimentation and drive collaboration and incremental revenue.
2. Building organised groups of internal experts by therapeutic area, as we build deep expertise in key areas of innovation. We have already established a strong leadership position in the fields of immunology, oncology, rare disease and advanced therapeutics. Our own industry event, Cancer Progress, continues to allow the oncology specialism to display its strong thought leadership in this area.
3. Launching a unified www.cellohealth.com website to provide greater clarity around our expert navigation positioning that delivers a modern, professional platform for greater engagement with clients, prospective clients, employees and potential employees.
We have performed well across the innovation streams activated in 2018.
Our specialist analytics unit, Cello Health Logic, has grown strongly, helped by market opportunities such as recent FDA guidance highlighting the value of social media in understanding the patient voice. Net revenues in this unit nearly doubled in 2019, with confident expectations for 2020 and beyond as we are well positioned to take advantage of this long-term opportunity.
We have made additional investment in the development of our online community platform, eVillage, which has delivered improved scale of communities and speed of response.
Our dedicated Advanced Therapeutics practice has maintained its growth as the team work on the cutting edge of cell and gene therapies.
We have continued to strengthen our digital capabilities and services across the Group, especially within our Cello Health Communications and Cello Health Insight capabilities. The stronger link with Cello Connect is already yielding new project wins and enhanced digital and consumer delivery capabilities.
We continue to work towards building our own data capability, sold to clients under licence or in the form of publications, to complement our customised data collection capability. This initiative builds off our existing health panels and our social media analytics capability.
Given clients face the ongoing risk of not recovering their R&D costs, in 2019 Cello Health Consulting launched its 'Launch PRO' offering. Launch PRO is built on a deep understanding of launch, from critical thinking, coordination and cross-functional alignment. Our experts support clients to deliver a robust launch strategy, with disciplined implementation.
During 2019, we developed our new behavioural science unit, Disrupt, which pulls on the expertise we have across our capabilities in behaviour change, health psychology and social anthropology. This service addresses our clients' need to drive behaviour change in critical areas such as adherence.
Leveraging key assets
A significant strength of the Group lies in the complementarity of our service capabilities; insight and analytics, strategic and scientific consulting, scientific and creative communications.
The core of our service is working with the senior decision makers in client organisations on projects that focus on mission-critical decisions. These type of projects require best-in-class approaches in each discipline as well as a blend of expertise across each service area. This blended capability set differentiates us versus many of our competitors. It also provides opportunities for our people to work together to offer innovative and smarter solutions to our clients. This means that we have access to, and relationships with, myriad different stakeholders and buying points within our client organisations. Combined with our centres of excellence in oncology, rare diseases and market access, this continues to drive incremental growth through collaboration.
In 2019, we continued to make significant investments in marketing the Cello Health divisional brand, with the aim of establishing a strong presence at key industry events and increasing overall awareness. In addition, we applied increasing focus and coordination in the area of shared business development, supporting cross collaboration as well as individual capability areas. This continues to yield benefits in new business as our resource focuses on global opportunities.
2019 saw further success in being able to leverage the digital and creative services that reside within Cello Signal resulting in over GBP1.0m of winning bids partnering between Health and Signal teams. The newly formed Cello Connect brings greater focus on accelerating and leveraging this expertise into the core health agenda.
GROUP FINANCE DIRECTOR'S REPORT
A Robust Financial Performance
Summary
All numbers detailed below are from continuing operations. The trading results of Pulsar, which was disposed of in the year, are not included in either the current or the prior year, unless explicitly stated and are accounted for as discontinued operations.
Total Group net revenue was up 6.7% at GBP107.6m (2018: GBP100.8m) and headline profit before tax was up 6.6% at GBP13.1m (2018: GBP12.3m).
Like-for-like net revenue growth for the whole Group was 5.2%. Constant currency like-for-like net revenue growth was 3.7%. Constant currency like-for-like net revenue growth was 8.0% in Cello Health, partially offset by a decline of 4.1% in Cello Signal.
The Group's headline operating margin was 12.6% (2018: 12.5%) with a headline operating margin of 19.3% in Cello Health (2018: 18.5%), and 7.8% in Cello Signal (2018: 10.6%).
Reported profit before tax was down 24.2% to GBP7.1m (2018: GBP9.4m); a reconciliation of reported profit before tax to headline profit before tax can be found later in this report.
Operational Financial Performance
Cello Health
2019 2018
GBP'000 GBP'000 % change
Headline net revenue 72,701 64,308 13.1%
Headline operating
profit 14,037 11,890 18.1%
Headline operating
margin 19.3% 18.5%
Cello Health had an excellent year with net revenue rising by 13.1% to GBP72.7m (2018: GBP64.3m). Headline operating profits rose by 18.1% to GBP14.0m (2018: GBP11.9m). This growth was partially driven by the impact of the acquisition of ISS, which was completed in August 2019. Like-for-like constant currency net revenue growth was robust at 8.0%. This growth was driven by all capabilities, but in particular by Cello Health Communications in the US and Cello Health Consulting. Headline operating margins rose to 19.3% (2018: 18.5%), reflecting the change in the operating mix of Cello Health, but also strong operating margin improvements in Cello Health Communications.
On 16 August 2019, the Group purchased the trade and assets of ISS, for a maximum consideration of $10.5m. $6.4m was paid in cash on completion with the remaining $4.1m payable in four tranches until 2024, dependent on financial performance over the period from completion until 31 July 2024. ISS is a scientific consulting firm specialising in strategic counsel and regulatory support for the healthcare industry in the US. ISS performed well in the first five months post acquisition.
Cello Signal
2019 2018
GBP'000 GBP'000 % change
Headline net revenue 34,805 36,215 (3.9%)
Headline operating
profit 2,719 3,841 (29.2%)
Headline operating
margin 7.8% 10.6%
Cello Signal had a decline in net revenue, largely attributable to tougher trading conditions in the UK, particularly in the final quarter of the year. Net revenue fell by 3.9% to GBP34.8m (2018: GBP36.2m). Headline operating profit fell by 29.2% to GBP2.7m (2018: GBP3.8m). Like-for-like constant currency net revenue fell by 4.1%. The headline operating margin was 7.8% (2018: 10.6%).
As a consequence of more difficult 2019 trading in Signal Agency, part of Cello Signal, the Group has recognised non-headline impairment charge of GBP2.7m against the carrying level of goodwill in relation to Signal Agency.
Central Costs
Central costs were flat at GBP3.2m (2018: GBP3.1m). The central cost structure of the Group represents those costs which are not attributable directly to a segment. They predominantly consist of Group staff costs in the UK and the US.
Finance Costs
Finance costs were GBP0.5m (2018: GBP0.3m). This increase reflects a GBP0.3m charge in 2019 in respect of notional interest arising on the adoption of IFRS 16 Leases.
Discontinued Operations
In line with the stated strategy of the Group to focus on its core healthcare advisory services capabilities, in October 2019 the Group sold Pulsar, its social media and analytics business. Gross consideration, stated at fair value, was GBP2.4m paid in shares of the purchaser, Access Intelligence Plc. Net asset-related adjustments to the consideration were subsequently agreed at GBP1.6m. The loss on disposal, after a goodwill write off of GBP3.4m, was GBP4.9m. Trading losses, after tax, from discontinued operations were GBP0.9m. The total loss from discontinued operations, after tax, was therefore GBP5.8m.
Earnings Per Share
Headline basic earnings per share rose 5.1% to 9.53p (2018: 9.07p). Reported basic earnings per share fell 114.0% to a loss per share of 0.88p (2018: earnings per share of 6.27p). The basic loss per share of 0.88p is impacted by a loss per share from discontinued operations of 5.39p (2018: 0.69p).
Basic earnings per share from continuing operations were down 35.2% to 4.51p (2018: 6.96p). This decline in basic earnings per share was as a result of the impairment charge of GBP2.7m (2018: GBPnil) in Signal Agency.
Operating Cash Flow
Operating cash flow was strong in 2019, with a very low movement in working capital of GBP0.4m outflow (2018: GBP0.6m inflow) reflecting an expected reversal of a slight prior year surplus. Operating cash flow is weighted towards the second half of the year. The Group has debt facilities of GBP24.0m with the Royal Bank of Scotland, which expire in March 2022. At the year end, GBP3.0m of these facilities were drawn down in US dollars (2018: GBP4.0m which was drawn down in sterling). This strong performance led to a healthy net funds position of GBP5.5m at 31 December 2019 (2018: GBP6.4m).
Foreign Currency
The Group experienced a small aggregate foreign exchange benefit of GBP0.3m of headline operating profit during the year, as a result of average GBP:$ exchange rates moving from 1.34 to 1.28 during the year. The Group generated around GBP7.1m headline operating profit from continuing operations in the US in 2019 (2018: GBP5.8m), an increase of 23.0%.
Deferred Acquisition Obligations
The maximum total payable under deferred acquisition obligations is $8.8m (2018: $6.3m). This will be settled over the years 2020 to 2024, substantially in cash. In line with recognised accounting practices, the income statement impact of this deferred obligation is spread over the length of the deferred period. In 2019, the acquisition related employee remuneration expense element of this deferred obligation was GBP0.9m (2018: GBP1.6m).
Taxation
The Group's reported tax charge was GBP2.3m (2018: GBP2.0m), with a headline tax rate of 22.0% (2018: 21.9%). The Group expects the headline tax rate to stabilise at around 23.8% in 2020. This slight increase reflects the expected change in the profit mix between the UK and the US in 2020. The reconciliation of the tax charge for 2019 to reported profit before tax is in note 5 to these results.
Dividends
The Board is proposing a final dividend increase of 7.2% to 2.95p per share (2018: 2.75p), giving a total dividend of 4.10p (2018: 3.85p), representing a total increase of 6.5%. This increase in the dividend reflects the growth in headline earnings per share, the strength of the balance sheet of the Group and the Board's confidence in the ongoing trading performance of the business. This increase maintains the Group's 14(th) consecutive year of dividend growth. Subject to shareholder approval, the final dividend will be paid on 22 May 2020 to all shareholders on the register at 24 April 2020 and will be recognised in the year ending 31 December 2020.
Employee Benefit Trust
The Group has recently approved the establishment of an Employee Benefit Trust (EBT). It is proposed that this Trust be used to receive ordinary shares in the Group from existing shares held in Treasury and also from occasional market purchases from time to time. The EBT would then be used to satisfy the supply of shares in relation to the exercise of employee share options as and when they are exercised in the future. In this way, the number of new ordinary shares that would otherwise be issued on exercise of these options would be reduced.
IFRS 16 Adoption
IFRS 16 Leases became mandatory from 1 January 2019. The Group has adopted the simplified approach to implementation and has not restated prior year balances. The impact of the adoption has been to generate a right-of-use asset of GBP9.1m as at 31 December 2019, and a lease liability of GBP9.1m at 31 December 2019. Notional interest of GBP0.3m has been charged to the income statement for the year ended 31 December 2019.
Non-Headline Items
Our reported operating profit is reconciled to our headline profit before tax as follows:
2019 2018
GBP'000 GBP'000
Reported operating profit 7,597 9,717
Net interest payable (485) (339)
_________ _________
Profit before tax on continuing operations 7,112 9,378
Restructuring costs (a) 821 204
Start-up losses (b) 404 293
Acquisition costs 44 22
Impairment of goodwill (c) 2,719 -
Amortisation of intangibles (d) 766 325
Acquisition-related employee remuneration
expense (e) 932 1,571
Share option charges (f) 263 464
_________ _________
Headline profit before tax 13,061 12,257
_________ _________
(a) During 2019, the Group incurred charges of GBP0.4m (2018: GBP0.2m) in relation to headcount reductions in Cello Signal. These were largely incurred in the Cheltenham office. The Group also incurred a charge of GBP0.5m associated with the disposal of a subsidiary relating to necessary lease provisions taken on the lease previously occupied by Pulsar. In the first quarter of 2020 the Group anticipates incurring exceptional redundancy charges of up to GBP0.5m relating to the decision to establish Cello Connect.
(b) Start-up costs in the year of GBP0.4m (2018: GBP0.3m) relate to the treatment for the opening of the Berlin office. For 2020 it is envisaged that start-up costs will be minimal.
(c) The Group has impaired the goodwill value relating to Signal Agency by GBP2.7m.
(d) Amortisation of intangibles relates to the amortisation of intangible assets that are recognised on acquisition. In 2019 there is an amortisation charge relating to the acquisition of ISS, which was completed during the year, so this charge has increased.
(e) Acquisition-related employee remuneration expense of GBP0.9m (2018: GBP1.6m) is the necessary income statement charge that relates to the spreading of deferred acquisition payments made to certain employees of acquired companies over the term of the measurement period arising as a result of acquisitions. This charge dropped in the year due to the settlement of deferred consideration relating to the 2017 acquisition of Cello Health BioConsulting (formerly Defined Health Inc).
(f) Share option charges of GBP0.3m (2018: GBP0.5m) relate to the appropriate income statement charge being recognised over the vesting period of issued share options to staff.
Revised Segmentation for 2020
In January 2020 the Cello Signal division was restructured, with certain operations joining the Cello Health division under the name 'Cello Connect'. The operations which are now part of Cello Connect are substantially based in Scotland and have become part of the Cello Health reporting and Board structure. It is envisaged that this important move will encourage further utilisation of the digital and creative skill set within these businesses by the existing Cello Health client base. Going forward, Cello Connect will complement Cello Health's science-led advisory strength with marketing capability.
For 2020, the Group will be segmented on this revised basis for both management and reporting purposes.
The proforma segmentation for 2019 is as follows:
Cello Health Cello Signal
2019 2018 2019 2018
GBP'000 GBP'000 % change GBP'000 GBP'000 % change
Headline net revenue 88,350 78,998 11.8% 19,156 21,525 (11.0%)
Headline operating
profit 16,437 14,595 12.6% 714 1,595 (55.2%)
Headline operating
margin 18.6% 18.5% 3.7% 7.4%
Risks and Uncertainties
The Company regularly reviews the risks and uncertainties facing the business through a series of Board and operational meetings.
The Group has instigated a more comprehensive risk assessment process during the year and documented mitigation strategies. A risk-scoring methodology was adopted as well as an assessment of the strength of mitigation. The key risks arising were as follows:
1. Macro-economic conditions
The Group's business is domiciled in the UK but 55.8% (2018: 51.2%) of the Group's revenues are from clients based overseas. Income from clients can be impacted by prevailing local and global economic conditions. Economic and geopolitical uncertainty has remained, for example the continued uncertainty over the impact of Brexit and COVID-19. However, the broad spread of clients across sector and geography mitigates this risk.
2. COVID-19 and restrictions on staff and client mobility
There have recently been some restrictions on travel for clients and staff arising from the outbreak of COVID-19 across the world. This potentially impacts how staff get to work, delivery of projects, as well as conducting new business and marketing activity.
These risks are mitigated by the use of technology that allows staff to work from home where necessary, by the digital delivery of projects, and by adjusting new business methodologies that reduce the need for travel and face to face meetings.
3. Loss of the Group's key clients
Client relationships are crucial to the Group and their strength is key to our continued success.
The risk is mitigated by our client base being broadly spread and by the majority of our key clients being subject to longer-term master service agreements. In addition, there are ongoing programmes of formal and informal client satisfaction assessment. In all cases, client satisfaction was measured as high across the Group.
Our client list is not concentrated, with the largest client being 9.2% (2018: 7.9%) of our net revenue. This client is spread across several therapy areas and several individual client-buying points. The Master Service Agreement has recently been renewed for three more years.
4. Loss of key staff and staff turnover
The Group's Directors and staff are critical to the servicing of existing business and the winning of new accounts and the departure of key staff could be a risk to maintaining client service. With that risk in mind, all senior staff are subject to financial lock-ins and long-term incentive arrangements, as well as being under contractual non-compete and non-solicit clauses.
We make a significant effort to develop the working culture of our businesses. This has culminated in Cello Health UK winning a place in 'The Sunday Times 100 Best Companies to Work For 2020'. This award independently measures various employee satisfaction metrics.
In addition, there are numerous policies and initiatives around the Group (in the UK and the US) to promote diversity and inclusiveness and employee engagement.
5. Changing laws and regulations
Various laws and regulations are relevant to the operations of the Group. The Group receives guidance from time to time from its legal advisers regarding changes in the law that relate to the Group.
For example, the recent application of GDPR legislation has been a significant change in the law. The Group has successfully established a centrally coordinated GDPR steering group, actively working across all its businesses to ensure GDPR compliance.
The Group will also be impacted by the April 2020 adjustments to the IR35 legislation concerning freelance and previously non-payrolled consultants. The Group has undertaken a thorough review of exposures in this area and has adjusted contractual situations where necessary.
CONSOLIDATED INCOME STATEMENT
for the year ended 31 December 2019
Note 2019 2018
GBP'000 GBP'000
Continuing operations
Revenue 2 166,770 158,947
Third-party project costs (59,207) (58,157)
Net Revenue 1 107,563 100,790
Administrative expenses (99,966) (91,073)
Operating profit 1 7,597 9,717
Finance income 12 1
Finance costs (497) (340)
Profit before taxation 7,112 9,378
Taxation 5 (2,287) (2,033)
Profit from continuing operations 4,825 7,345
Loss from discounted operations
after tax 6 (5,768) (727)
(Loss)/profit for the year
attributable to owners of
the parent (943) 6,618
2019 2018
Basic (loss)/earnings per
share
From continuing operations 8 4.51p 6.96p
From discontinued operations 8 (5.39)p (0.69)p
Total basic (loss)/earnings
per share 8 (0.88)p 6.27p
Diluted (loss)/earnings per
share
From continuing operations 8 4.46p 6.82p
From discontinued operations 8 (5.39)p (0.69)p
Total diluted (loss)/earnings
per share 8 (0.88)p 6.14p
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
for the year ended 31 December 2019
2019 2018
GBP'000 GBP'000
(Loss)/profit for the financial
year (943) 6,618
Other comprehensive income and expense:
Items that may be reclassified subsequently
to profit and loss:
Exchange differences on translation of
foreign operations (526) 590
Loss reclassified to profit or loss on 135 -
disposal of foreign operations
Total comprehensive (expense)/income
attributable to owners of the parent: (1,334) 7,208
Total comprehensive (expense)/income
attributable to owners of the parent
arises from:
Continuing operations 4,299 7,935
Discontinued operations (5,633) (727)
(1,334) 7,208
CONSOLIDATED BALANCE SHEET
as at 31 December 2019
2019 2018
Note GBP'000 GBP'000
Goodwill 9 70,787 73,623
Intangible assets 1,053 1,388
Investments 2,099 -
Property, plant and equipment 2,645 2,931
Right of use assets 18 9,082 -
Deferred tax assets 1,789 1,513
Non-current assets 87,455 79,455
Trade receivables 11 34,578 35,260
Contract assets 12 5,852 6,798
Other receivables 13 3,300 5,800
Cash and cash equivalents 8,549 10,424
Current assets 52,279 58,282
Trade and other payables 14 (27,992) (30,949)
Contract liabilities 12 (14,307) (14,004)
Current tax liabilities (558) (389)
Borrowings 15 (19) (42)
Lease liabilities 18 (2,689) (11)
Current liabilities (45,565) (45,395)
Net current assets 6,714 12,887
Total assets less current
liabilities 94,169 92,342
Trade and other payables 14 (1,505) (1,246)
Borrowings 15 (3,030) (4,000)
Lease liabilities 18 (6,388) (30)
Provisions (557) -
Deferred tax liabilities (287) (233)
Non-current liabilities (11,767) (5,509)
Net assets 82,402 86,833
Equity
Share capital 10,668 10,516
Share premium 33,209 32,759
Merger reserve 24,293 25,446
Capital redemption reserve 50 50
Retained earnings 13,160 16,237
Share-based payment reserve 844 1,256
Foreign currency reserve 178 569
Total equity 82,402 86,833
Consolidated cash flow statement
for the year ended 31 December 2019
2019 2018
Note GBP'000 GBP'000
Cash flows from operating activities
Cash generated from operations 16 14,803 13,418
Tax paid (2,073) (2,239)
N et cash inflow from operating
activities 12,730 11,179
Cash flows from investing activities
Interest received 12 1
Purchase of property, plant and
equipment (1,222) (1,312)
Sale of property, plant and equipment 3 38
Expenditure of intangible assets (407) (672)
Purchase of subsidiary undertakings
(net of cash acquired) (5,031) (256)
Disposal of subsidiary (net of (169) -
cash disposed)
N et cash outflow from investing
activities (6,814) (2,201)
Cash flows from financing activities
Proceeds from issuance of shares 179 69
Dividends paid to equity holders
of the parent (4,102) (3,714)
Net repayment of bank loans (710) (7,686)
Repayment of loan notes (23) (17)
Principle element of lease payments
(2018: Capital element of finance
lease payments) (2,770) (35)
Interest paid (472) (348)
Proceeds from sale of investments 142 -
N et cash outflow from financing activities (7,756) (11,731)
Net decrease in cash and cash
equivalents 17 (1,840) (2,753)
Exchange (losses)/gains on cash and
cash equivalents (35) 156
Cash and cash equivalents at the beginning
of the year 10,424 13,021
Cash and cash equivalents at the end
of the year 8,549 10,424
Consolidated statement of changes in equity
for the year ended 31 December 2019
Foreign
Capital Share-based currency
Share Share Merger redemption Retained payment exchange Total
capital premium reserve reserve earnings reserve reserve equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
At 1 January 2018 10,501 32,705 25,446 50 13,368 824 (21) 82,873
Comprehensive income:
Profit for the
period - - - - 6,618 - - 6,618
Other comprehensive income:
Currency translation - - - - - - 590 590
Total comprehensive
income for the
year - - - - 6,618 - 590 7,208
Transactions with
owners:
Shares issued 15 54 - - - - - 69
Credit for
share-based
incentives - - - - - 464 - 464
Tax on share-based
payments recognised
directly in equity - - - - (67) - - (67)
Transfer between
reserves in respect
of share options - - - - 32 (32) - -
Dividends (note
7) - - - - (3,714) - - (3,714)
Total transactions
with owners 15 54 - - (3,749) 432 - (3,248)
At 31 December
2018 10,516 32,759 25,446 50 16,237 1,256 569 86,833
Comprehensive income:
Loss for the
financial
year - - - - (943) - - (943) Other comprehensive income: Currency translation - - - - - - (391) (391) Total comprehensive expense for the year - - - - (943) - (391) (1,334) Transactions with owners: Shares issued 152 450 - - - - - 602 Credit for share-based incentives - - - - - 263 - 263 Tax on share-based payments recognised directly in equity - - - - 140 - - 140 Transfer between reserves in respect of share options - - - - 675 (675) - - Transfer between reserves in respect of impairment - - (136) - 136 - - - Transfer between reserves in respect of disposal - - (1,017) - 1,017 - - - Dividends (note 7) - - - - (4,102) - - (4,102) Total transactions with owners 152 450 (1,153) - (2,134) (412) - (3,097) At 31 December 2019 10,668 33,209 24,293 50 13,160 844 178 82,402
SIGNIFICANT ACCOUNTING POLICIES
A. Basis of Preparation
The consolidated financial statements of Cello Health plc have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union ("IFRSs"), interpretations issued by the IFRS Interpretations Committee ("IFRS IC") and the Companies Act 2006 applicable to companies reporting under IFRSs. The consolidated financial statements have been prepared under the historical cost convention.
The financial information set out in the preliminary announcement for the year ended 31 December 2019 does not constitute the statutory accounts of Cello Health plc, but is derived from those statutory accounts, which have been prepared in accordance with International Financial Reporting Standards (IFRSs) and also in accordance with IFRSs adopted by the European Union and therefore they comply with Article 4 of the EU IAS Regulation.
The financial information included in the preliminary announcement for year to 31 December 2019 has been audited and an unqualified audit report has been issued. The preliminary financial statements represent extracts from those audited accounts but do not constitute statutory accounts within the meaning of Section 434 of the Companies Act 2006. The auditors have reported on those accounts; their reports were unqualified, did not draw attention to any matters by way of emphasis, other than uncertainty for all businesses around the outcome of Brexit negations which cannot be predicted, and their report and did not contain statements under s498 (2) or (3) Companies Act 2006.
Statutory accounts for 2018 have been delivered to the Registrar of Companies and those for 2019 will be delivered following the Company's Annual General Meeting. The Group's business activities, performance and position are set out in the Strategic Report. An assessment of the critical accounting estimates and judgements are set out in accounting policy F.
The Group's principal accounting policies are consistent with these applied in the year ended 31 December 2018 with the exception of changes resulting from the adoption of the following accounting standard:
IFRS 16 Leases
IFRS 16 introduces a comprehensive model for the identification of lease arrangements for both lessors and lessees. IFRS 16 supersedes the provisions in IAS 17 Leases and related interpretations.
IFRS 16 removes the distinction between operating leases and finance lease which is replaced by a model where a right-of-use asset and a corresponding lease liability is recognised for all leases except for lease with low value or a term less than 12 months.
The Group has used the simplified transition approach and accordingly has not restated the prior year financial statements. The impact of adoption on the balance sheet at 1 January 2019 is disclosed in note 18.
A number of new standards, amendments to standards and interpretations are effective for the annual period beginning 1 January 2020 and have not been applied in preparing these consolidated financial statements. None of these are expected to have a significant effect on the consolidated financial statements of the Group.
-- IFRS 17 Insurance contracts -- IFRS 3 amendments - definition of a business -- IAS 1 amendments - classification of liabilities and definition of materiality -- Amendments to IFRS 7, IFRS 9 and IAS 39 - interest rate benchmark reform
B. Revenue Recognition and Third-party Project Costs
i. Revenue recognition
The Group's revenues are principally derived from the provision of consulting, market research and communications projects and services. The Signal division derives some revenue from media placements and the sale of printed goods. Revenue from the sales of licences is included in discontinued operations.
Revenue is measured based on the consideration specified in a contract, exclusive of VAT, with a customer and excludes, where applicable, any amounts collected on behalf of third parties. Revenue is recognised either over time or at a point in time, when (or as) the Group satisfies performance obligations and control of the product or service is transferred to the customer.
In most instances, promised goods or services in a contract are not considered distinct, or represent a series of services that are substantially the same with the same pattern of transfer to the customer and therefore are accounted for as a single performance obligation. However, where there are contracts with goods or services that are capable of being distinct or multiple products or services are provided, the total transaction price is allocated amongst the various performance obligations based on the relative stand-alone selling prices to the client.
The Group does not expect to have any contracts where the period between the transfer of the promised goods or services to the customer and payment by the customer exceeds one year. As a consequence, the Group does not adjust any of the transaction prices for the time value of money.
ii. Revenue from consulting, market research and communications projects and services
Revenue derived from the provision of consulting, market research and communications projects and services are generally under fixed price contracts with single performance obligations. Contracts rarely extend beyond 12 months and clients are billed based on a payments schedule over the term of the contract. Invoices are generally payable by customers within 30 to 60 days.
Revenue is recognised over time because either the customer receives and uses the benefits simultaneously or the Group's performance does not create an asset with alternative use and the Group has an enforceable right to payment for performance to date.
The proportion of revenue recognised is based on milestones completed, or actual labour hours spent compared to total expected hours, as appropriate to the contract. Estimates of the extent of progress towards completion are revised if circumstances change with changes to estimated revenues being recognised in the period in which the circumstances which give rise to revision become known to management.
Some contracts include variable consideration in the form of volume-based rebate arrangements. Variable consideration is estimated using the most likely amount payable and deducted from the transaction value of each contract.
iii. Media placement revenue
Revenue derived from placing advertising with media sources is recognised and billed at the point in time when the placing is non-cancellable. Invoices are generally payable by customers within 30 to 60 days. Revenue excludes amounts where the Group collects amounts on behalf of third parties.
iv. Sale of printed goods
Revenue derived from the sale of printed goods is recognised and billed at the point in time when the printed materials are delivered. Invoices are generally payable by customers within 30 to 60 days. Revenue excludes amounts where the Group collects amounts on behalf of third parties.
v. Software licence revenue
The Group derives revenue from the sale of licences to use in-house developed software products. This licence also includes a defined amount of monthly data the customer can access via the software. The licence and data allowance are not deemed to be distinct so revenue is recognised over the duration of the licence in line with the access to the data. Contracts with clients are for no longer than a year and are billed in advance on a monthly, quarterly or annual basis, invoices are generally payable by customers within 30 to 60 days
vi. Third-party project costs
Third-party project costs comprise amounts payable to external suppliers where they are retained at the Group's discretion to perform part of a specific performance obligation where the Group has full exposure to the benefits and risk of the contract with the client.
Third-party project costs do not include direct labour costs.
vii. Net revenue
Net revenue is revenue less third-party project costs and represents fees, commissions and mark-up on third-party project costs where appropriate.
viii. Costs to obtain a contract
Costs that would have been incurred regardless of whether the contract is obtained, for example costs of developing a proposal, are organised as incurred. The Group incurs incremental costs to obtain a contract, principally in the form of sales commissions. As the amortisation period of these costs, if capitalised, would be less than one year, the Group makes use of the practical expedient in IFRS 15 and expenses them as incurred. These costs are included in administrative expenses.
ix. Contract assets and liabilities
The Group recognises consideration received in respect of unsatisfied performance obligations as contract liabilities in the Consolidated Balance Sheet. Similarly, if the Group satisfies a performance obligation before it receives the consideration, the Group recognises a contract asset in the Consolidated Balance Sheet.
C. Going Concern
For the year to 31 December 2019 the Group reported a profit before tax on continuing activities of GBP7.1m and excluding non-recurring restructuring costs and other non-headline recharges the Group generated a profit before tax of GBP13.1m.
The Group meets its day-to-day working capital requirements through its bank facilities. At 31 December 2019 the Group had a GBP20.0m revolving credit facility ("RCF") which is committed to March 2022. GBP17.0m of the RCF was undrawn at 31 December 2019.
The Group's forecasts and projections including a reasonable downside scenario, show that the Group is able to operate within the level of its current facilities and its covenants.
After reviewing the Group's forecasts, projections and forecast future cash flows, the Directors consider the Group has adequate resources to continue in operational existence for the foreseeable future. The Group therefore continues to adopt the going concern basis in preparing the Group's financial statements.
D. Headline Measures of Performance
The Group believes that reporting headline measures provides meaningful information on underlying
business performance reflecting the way the business is managed and reported internally. Accordingly, headline measures of operating profit, profit before taxation and earnings per share exclude, where applicable, restructuring costs, right-of-use asset impairments, start-up losses, acquisition costs, impairment of goodwill, amortisation of intangible assets, acquisition-related employee remuneration expenses and share option charges. These are items that, in the opinion of the Directors, should be disclosed separately, by virtue of their size, nature or incidence, to enable a full understanding of the Group's underlying financial performance.
A reconciliation between reported profit before tax and headline profit is presented in note 1. In addition to this, a reconciliation between reported and headline earnings per share is presented in note 8. Headline measures in this report are not defined terms under IFRSs and may not be comparable with similarly titled measures reported by other companies.
E. Goodwill
Goodwill represents the excess of consideration over the fair value of the Group's share of the identifiable net assets acquired at the date of acquisition. Goodwill is carried at cost less accumulated impairment losses. Impairment losses are recognised in the income statement and cannot subsequently be reversed.
Goodwill is allocated to cash-generating units ("CGUs") for the purposes of impairment testing. The allocation is made to those CGUs that are expected to benefit from the business combination in which the goodwill arose.
The carrying value of goodwill for each CGU is reviewed annually for impairment, or more frequently if the events or changes in circumstances indicate a potential impairment. An impairment loss is recognised for the amount by which the asset's carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset's fair value less costs to sell and its value-in-use.
F. Critical Accounting Estimates and Judgements in Applying the Accounting Policies
There are no significant judgements made in preparing the consolidated financial statements.
The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are addressed below.
i. Impairment of goodwill and intangible assets
The Group tests goodwill and intangible assets for impairment annually. The recoverable amount of the Group's cash generating units ("CGUs") is based on value-in-use calculations, which require estimates of future cash flows, weighted average cost of capital used to discount the cash flows to present value, and future expected growth rates.
The assumptions used and sensitivity to changes in these assumptions are disclosed in note 9.
ii. Contingent deferred acquisition related to employee payments
The Group estimates the value of amounts payable to certain employees of the Group in respect of amounts payable under acquisition agreements. The estimates made are based on management's estimates of the relevant entities future performance. If these estimates change the amount of the liability, which is recognised over a performance period, will change. Any changes to the carrying value of the liability is recognised in the income statement.
At 31 December 2019, the value of the liability recognised contingent on future performance of acquired businesses is GBP1.3m. The maximum amount that could be recognised at 31 December 2019 is GBP2.3m.
NOTES TO THE PRELIMINARY ACCOUNCEMENT
1. Headline and like-for-like measures
The Group believes that reporting non-GAAP measures provides a meaningful assessment of underlying business performance reflecting the way the business is managed and reported internally. The Group reports two types of non-GAAP measure, headline measures and like-for-like net revenue.
Headline measures of performance
Non-headline gains and losses are items that, in the opinion of the Directors, are required to be disclosed separately, by virtue of their size, nature or incidence, to enable a full understanding of the Group's underlying financial performance. Headline measures are not defined terms under IFRS, and may not be comparable with similarly titled measures reported by other companies.
Calculation of headline earnings per share measures are included in note 8.
A reconciliation of reported operating profit to headline operating profit and headline profit before tax is as follows:
2019 2018
Note Ref GBP'000 GBP'000
Reported operating profit 7,597 9,717
Non-headline items:
Restructuring costs 3 i 821 204
Start-up losses 4 ii 404 293
Acquisition costs iii 44 22
Impairment of goodwill 9 iv 2,719 -
Amortisation of intangible assets v 766 325
Acquisition-related employee remuneration
expense vi 932 1,571
Share option charges vii 263 464
Total non-headline items 5,949 2,879
Headline operating profit 13,546 12,596
Finance income 12 1
Finance costs (497) (340)
Headline profit before tax 13,061 12,257
i. Restructuring costs - these costs principally relate to business relocation and redundancies. Further details are provided in note 3.
ii. Start-up losses - these are defined as the net operating result in the period of the trading activities that relate to new offices, new products, or new organically started businesses. Activities so defined will cease being separately identified where, in the opinion of the Directors, the activities show evidence of becoming sustainably profitable or are closed, whichever is earlier. In any event start-up losses will cease being separately identified after two years from the commencement of the activity. Further details are provided in note 4.
iii. Acquisition costs - these are costs that are directly related to acquisitions completed in the year.
iv. Impairment of goodwill - see note 9.
v. Amortisation of intangible assets - this is in respect of amortisation charged against separately identifiable intangible assets acquired as part of a business combination.
vi. Acquisition related employee remuneration expense - costs with regards to deferred payments payable to vendors and certain employees of a company in accordance with the share purchase agreement of the acquired company. In accordance with IFRS 3 Business Combinations, these costs are recognised in the income statement by virtue of employment conditions in the relevant share purchase agreement.
vii. Share option charges - these costs represent the fair value of share options charged to the income statement and are separately identified due to their nature.
1. Headline and like-for-like measures (continued)
Like-for-like net revenue
Like-for-like net revenue measures adjusts reported net revenue for the following items:
i. They exclude the results of companies or businesses acquired in the current period.
ii. They exclude the results of acquired companies or businesses in the current period to the extent that those companies or businesses were not in the Group in the prior period.
iii. They exclude the results from start-ups in the current period.
iv. They include the results from start-up operations in the prior period to the extent they are included within an operating segment in the current period.
Like-for-like measures are also calculated both with and without the impact of movements in currency. These measures are also disclosed in the table below.
Growth 2019 2018
% GBP'000 GBP'000
Reported net revenue 6.7% 107,563 100,790
Acquisitions (1,649) -
Start-ups (57) (211)
Like-for-like net revenue 5.2% 105,857 100,579
Currency impact (1,591) -
Currency adjusted like-for-like
net revenue 3.7% 104,266 100,579
Allocated to the Group's operating segments:
Reported net revenue:
Cello Health 13.1% 72,701 64,308
Cello Signal (3.9)% 34,805 36,215
Other 57 267
Total 6.7% 107,563 100,790
Like-for-like net revenue:
Cello Health 10.4% 71,052 64,364
Cello Signal (3.9)% 34,805 36,215
Total 5.2% 105,857 100,579
Currency adjusted like-for-like net revenue:
Cello Health 8.0% 69,533 64,364
Cello Signal (4.1)% 34,733 36,215
Total 3.7% 104,266 100,579
2. Segmental Information
For management purposes, the Group is organised into two operating segments, Cello Health and Cello Signal. These segments are the basis on which the Group reports internally to the plc's Board of Directors, who have been identified as the chief operating decision makers. Revenue and costs not included in one of these operating segments, for example central overheads and results from start-up operations, have not been allocated to an operating segment in line with the way they are reported to the chief operating decision makers.
The principal activities of the operating segments are as follows:
Cello Health
The Cello Health Division provides market research, consulting and communications services principally to the Group's pharmaceutical and healthcare clients.
Cello Signal
The Cello Signal Division provides market research and direct communications services principally to the Group's consumer-facing clients.
Revenues
Sales between segments are carried out at arm's length. The revenue from external parties reported to the chief operating decision maker is measured in a manner consistent with that in the income statement.
The Group derives revenue from the transfer of goods and services over time and at a point in time based on the location of the client and from the following geographical segments.
Revenue
For the year ended 31 December 2019 Cello Health Cello Signal Consolidation Adjustments Group
GBP'000 GBP'000 and Unallocated GBP'000 GBP'000
External sales 96,308 70,300 162 166,770
Intersegment revenue - 246 (246) -
Total revenue 96,308 70,546 (84) 166,770
Timing of revenue recognition from external
sales:
Revenue recognised over time 96,308 46,088 162 142,558
Revenue recognised at a point in time - 24,212 - 24,212
Total revenue 96,308 70,300 162 166,770
Revenue by geography:
UK 16,188 57,463 - 73,651
Rest of Europe 17,840 561 162 18,563
USA 50,523 10,559 - 61,082
Rest of the World 11,757 1,717 - 13,474
Total revenue 96,308 70,300 162 166,770
2. Segmental Information (continued)
Revenue Cello Health Cello Signal Consolidation Adjustments Group
For the year ended 31 December 2018 GBP'000 GBP'000 and Unallocated GBP'000 GBP'000
External sales 88,483 69,494 970 158,947
Intersegment revenue 20 295 (315) -
Total revenue 88,503 69,789 655 158,947
Timing of revenue recognition from external
sales:
Revenue recognised over time 88,483 41,788 970 131,241
Revenue recognised at a point in time - 27,706 - 27,706
Total revenue 88,483 69,494 970 158,947
Revenue by geography:
UK 16,873 59,841 914 77,628
Rest of Europe 19,040 610 - 19,650
USA 39,130 7,334 56 46,520
Rest of the World 13,440 1,709 - 15,149
Total revenue 88,483 69,494 970 158,947
Segmental net revenue and headline operating profit
The segment result, headline operating profit, is the measure used for the purpose of performance assessment by the Group's chief operating decision makers and represents operating profit before non-headline items and the impact of adoption of IFRS 16 Leases.
For the year ended 31 December 2019 Cello Health Cello Signal Group
GBP'000 GBP'000 Unallocated GBP'000 GBP'000
Net revenue 72,701 34,805 57 107,563
Headline operating profit (segment result) 14,037 2,719 (3,210) 13,546
For the year ended 31 December 2018 Cello Health Cello Signal Group
GBP'000 GBP'000 Unallocated GBP'000 GBP'000
Net revenue 64,308 36,215 267 100,790
Headline operating profit (segment result) 11,890 3,841 (3,135) 12,596
2. Segmental Information (continued)
A reconciliation of Group reported operating profit to headline operating profit is presented in note 1.
Non-current assets excluding deferred tax by geographical
location:
2019 2018
GBP'000 GBP'000
UK 68,439 66,722
USA 16,940 11,197
Rest of the world 287 23
85,666 77,942
Cello Health Cello Signal Group
GBP'000 GBP'000 Unallocated GBP'000 GBP'000
Capital expenditure
Year ended 31 December 2019 854 353 15 1,222
Year ended 31 December 2018 703 522 145 1,370
Capitalisation of intangible assets
Year ended 31 December 2019 - - 407 407
Year ended 31 December 2018 - - 672 672
Depreciation of property, plant and equipment
Year ended 31 December 2019 850 456 52 1,358
Year ended 31 December 2018 742 502 61 1,305
Other information:
3. Restructuring costs
2019 2018
GBP'000 GBP'000
Staff redundancies 351 30
Property costs 470 174
Total restructuring costs 821 204
Restructuring costs compromise of cost-saving initiatives including severance payments, property and other contract termination costs. These costs are included in administrative expenses and have been separately identified as non-headline because of their size or their nature or because they are non-recurring, to provide a full understanding of the Group's underlying performance.
In the year ended 31 December 2019 these costs relate to headcount reductions in Cello Signal and right-of-use asset impairment charges. The right-of-use impairment charge was incurred following the disposal of a subsidiary, which was the principal tenant of a property leased by the Group. This property is now vacant and being actively marketed for sub-letting or assignment.
In the year ended 31 December 2018, the costs related to the consolidation of two UK businesses into existing property.
4. Start-up Losses
Start-up losses have been separately identified as a non-headline item because, in the opinion of the Directors, separate disclosure is required to enable a full understanding of the Group's underlying financial performance.
Start-up losses are defined as the net operating result in the period of the trading activities that relate to new offices, new products, or new organically started businesses. Activities so defined will cease being separately identified where, in the opinion of the Directors, the activities show evidence of becoming sustainably profitable or are closed, whichever is earlier. In any event, start-up losses will cease being separately identified after two years from the commencement of the activity.
Start-up losses in the year ended 31 December 2019 relate to the losses associated with the opening of the new Berlin office. Start-up losses in the year ended 31 December 2018 relate to costs associated with the opening of the Boston office and losses from the Signal Health initiative. Start-up losses in the year ended 31 December 2019 have been represented in accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations, to exclude losses associated with Pulsar US, which are included within loss from discontinued operations (note 6).
An analysis of start-up losses incurred is as follows:
2019 2018
GBP'000 GBP'000
Revenue 162 970
Third-party project costs (105) (703)
Net revenue 57 267
Administrative expenses (461) (560)
Start-up losses (404) (293)
5. Taxation
2019 2018
GBP'000 GBP'000
Current tax:
Current tax on profits for
the year 2,770 2,609
Prior year tax adjustment (277) (229)
2,493 2,380
Deferred tax (206) (347)
Tax charge 2,287 2,033
The charge for the year can be reconciled to the profits per the income statement as follows:
2019 2018
GBP'000 GBP'000
Profit before taxation 7,112 9,378
Tax at the UK corporation tax rate
of 19.00%
(2018: 19.00%) 1,351 1,782
Tax effect of expenses not deductible
for tax purposes 801 238
Effect of change in tax rate on deferred
tax assets (10) 20
Effect of different tax rates of subsidiaries
in foreign jurisdiction 374 213
Tax losses not utilised in the year 77 4
Origination and reversal of other temporary
differences (29) 5
Prior year current tax adjustment (277) (229)
Tax charge 2,287 2,033
Changes to the UK corporation tax rates were substantively enacted as part of the Finance Bill 2015 (on 26 October 2015) and the Finance Bill 2016 (on 7 September 2016). These include reductions to the main rate of corporation tax to 17.0% from 1 April 2020. Deferred taxes at the balance sheet date have been measured using these enacted tax rates in these financial statements.
6. Discontinued operations
On 2 October 2019 the Group sold its social media analytics software business, Pulsar, to Access Intelligence Plc, in exchange for the beneficial interest over 4,577,608 ordinary shares of 5p each in Access Intelligence Plc. Pulsar comprised of the Group's subsidiaries, Fenix Media Limited and Face US Inc. The Group has treated these operations as discontinued in accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations ("IFRS 5"). Additionally, in accordance with IFRS 5, the Income Statement for the year ended 31 December 2018 has been re-presented to include income and expenses of the discontinued operations within loss from discontinued operations.
Loss from discontinued operations after tax in the Income statement can be summarised as follows:
2019 2018
GBP'000 GBP'000
Trading loss from discontinued operations
after tax (870) (727)
Loss on disposal of discontinued operations (4,898) -
Loss from discontinued operations after
tax (5,768) (727)
The trading loss from discontinued operations after
tax is as follows:
2019 2018
GBP'000 GBP'000
Revenue 4,871 6,626
Third-party project costs (2,277) (2,600)
Net revenue 2,594 4,026
Administration expenses (3,653) (4,985)
Loss before tax (1,059) (959)
Taxation 189 232
Loss after tax (870) (727)
The loss on disposal of discontinued operations is
as follows:
2019
GBP'000
Consideration received:
Fair value of shares of Access Intelligence
Plc 2,380
Cash and cash equivalents disposed (85)
Deferred cash payable to fund working
capital (1,696)
Disposal related costs (84)
Net consideration received 515
Carrying amount of net assets disposed (5,278)
Reclassification of foreign currency
exchange reserve (135)
Loss on disposal of discontinued operations (4,898)
6. Discontinued operations (continued)
The carrying amount of assets and liabilities as
at the date of sale were:
2019
GBP'000
Goodwill 3,442
Intangible assets 815
Property, plant and equipment 29
Deferred tax assets 20
Trade and other receivables 850
Contract assets 713
Other receivables 461
Total assets disposed 6,330
Trade and other payables (793)
Contract liabilities (259)
Total liabilities disposed (1,052)
Net assets disposed 5,278
Cash flows from discontinued operations to the date
of sale were as follows:
2019 2018
GBP'000 GBP'000
Operating cash outflow (237) (197)
Investing cash outflow (414) (707)
(651) (904)
7. Equity Dividends
The dividends paid in the year were:
2019 2018
GBP'000 GBP'000
Date paid
Final dividend 2017 - 2.45p
per share 25 May 2018 - 2,563
Interim dividend 2018 -
1.10p per share 02 Nov 2018 - 1,151
Final dividend 2018 - 2.75p 24 May 2019
per share 2,881 -
Interim dividend 2019 - 01 Nov 2019
1.15p per share 1,221 -
4,102 3,714
A 2019 final dividend of 2.95p has been proposed for approval at the Annual General Meeting on 20 May 2020. In accordance with IAS 10 Events After the Reporting Period these dividends have not been recognised in the Consolidated Financial Statements at 31 December 2019.
8. Earnings/(loss) per Share
2019 2018
Note GBP'000 GBP'000
(Loss)/profit for the year attributable
to owners of the parent (943) 6,618
Loss from discontinued
operations 5,768 727
Earnings attributable to ordinary
shareholders from continuing operations 4,825 7,345
Adjustments to earnings/(loss):
Non-headline charges 1 5,949 2,879
Tax theron (585) (651)
Headline earnings for the
year 10,189 9,573
2019 2018
Number of shares Number of shares
Weighted average number of ordinary
shares used in basic earnings
per share calculation 106,970,710 105,592,302
Dilutive effect of securities:
Share options 377,718 1,459,481
Deferred consideration shares 871,056 663,308
Weighted average number of ordinary
shares in diluted earnings per
share 108,219,484 107,715,091
8. Earnings/(loss) per Share (continued)
2019 2018
Basic (loss)/earnings per
share
From continuing operations 4.51p 6.96p
From discontinued operations (5.39)p (0.69)p
Total basic (loss)/earnings
per share (0.88)p 6.27p
Diluted (loss)/earnings
per share
From continuing operations 4.46p 6.82p
From discontinued operations (5.39)p (0.69)p
Total diluted (loss)/earnings
per share (0.88)p 6.14p
In addition to basic and diluted (loss)/earnings per share,
headline earnings per share, a non-GAAP measure is presented
below:
Headline earnings per share
Headline basic earnings
per share 9.53p 9.07p
Headline diluted earnings
per share 9.42p 8.89p
Basic earnings per share is calculated by dividing the earnings attributable to ordinary shareholders of the parent by the weighted average number of ordinary shares outstanding during the year, excluding treasury shares and shares in employee benefit trusts, determined in accordance with the provisions of IAS 33 Earnings per Share.
Diluted earnings per share is calculated by dividing earnings attributable to ordinary shareholders of the parent by the weighted average number of ordinary shares outstanding during the year adjusted for the potentially dilutive ordinary shares.
The Group's potentially dilutive shares are shares expected to be issued as deferred consideration on acquisitions and share options issued.
Headline earnings per share is calculated using headline post-tax earnings for the year, which excludes the effect of non-headline charges as defined in note 1.
9. Goodwill
GBP'000
Cost
At 1 January 2018 90,270
Additions 146
Exchange differences 523
_______
At 31 December 2018 90,939
Additions (note 10) 3,928
Disposals (note 6) (3,442)
Exchange differences (603)
_______
At 31 December 2019 90,822
_______
Accumulated impairment
At 1 January 2018 and 31 December 2018 17,316
Impairment charge in the year 2,719
_______
At 31 December 2019 20,035
_______
Net book amount
At 31 December 2019 70,787
At 31 December 2018 73,623
At 1 January 2018 72,954
Goodwill represents the excess of consideration over the fair value of the Group's share of the net identifiable assets of the acquired subsidiary at the date of acquisition.
Goodwill acquired through business combinations is allocated to CGUs for impairment testing. During the year ended 31 December 2019, allocations to some CGUs have changed as a result of rationalisation of management structures. This resulted in GBP15.5m of goodwill being allocated to a new CGU, Cello Connect, previously included in the Cello Signal CGU.
The goodwill balance was allocated to the following CGUs:
2019 2018
GBP'000 GBP'000
Cello Health Insight 10,528 10,537
Cello Health Consulting 7,666 7,666
Cello Health Communications US 5,745 5,925
Cello Health Communications UK 1,819 1,819
Cello Health BioConsulting 3,462 3,570
Cello Health Advantage 259 267
ISS 3,630 -
TVE 4,589 4,589
RS Consulting 4,305 4,305
Cello Signal 5,055 23,227
Cello Connect 15,453 -
2CV 8,276 8,276
Pulsar - 3,442
Total 70,787 73,623
9. Goodwill (continued)
The recoverable amount for each CGU is determined using a value-in-use calculation. This calculation uses budgeted pre-tax headline operating profit adjusted for non-cash transactions to generate cash flow projections. The budgets are prepared by management based on business plans for each CGU which reflect expectations, cash performance and historic trends. An underlying growth rate of 5.0% per annum in years two to five has accordingly been used for the CGUs within the Cello Health segment. For the CGUs within the Cello Signal segment a growth of 2.3% has been applied to years two to five.
After year five a long-term growth rate has been applied in perpetuity. This growth rate is based on estimated long-term growth rates for the markets the Group operates in. Accordingly, a terminal value has been applied using an underlying long-term growth rate of 2.2%. No additional Group-specific growth has been assumed beyond year one.
The pre-tax cash flows are discounted to present value using the Group's pre-tax weighted average cost of capital ("WACC"), which was 11.73% for 2019 (2018: 11.73%). This rate was calculated using the Capital Asset Pricing Model with an estimated cost of debt and equity, with appropriate small company risk factors.
At 31 December 2019, the value-in-use exceeds the total goodwill value across the Group by GBP118.8m.
The impairment review resulted in an impairment charge of GBP2.7m in the Cello Signal CGU. The impairment review did not result in an impairment of goodwill for any other CGU.
Sensitivity to changes in assumptions
The impairment review of the Group is sensitive to changes in the key assumptions, most notably the pre-tax discount rate, the terminal growth rate and projected operating cash flows. Reasonable changes to these assumptions are considered to be:
-- 1.0% increase in the pre-tax discount rate. -- 1.0% reduction in the two to five year growth rate. -- 10.0% reduction in projected operating cash flows.
Reasonable changes to the assumptions used, considered in isolation, would not result in an impairment of goodwill for any of the Group's CGUs with the exception of:
-- 1.0% increase in the discount rate would potentially lead to a GBP0.7m additional impairment charge in the Cello Signal CGU and an impairment charge of GBP0.6m in the TVE CGU.
-- A 1.0% reduction in the two to five year growth rate would potentially lead to a GBP0.1m additional impairment charge in the Cello Signal CGU and a GBP0.2m impairment charge in the TVE CGU.
-- A 10.0% reduction in projected operating cash flow would potentially lead to a GBP0.4m impairment charge in the Cello Signal CGU and a GBP0.4m impairment charge in the TVE CGU.
10. Acquisitions
Innovative Science Solutions
On 15 August 2019, the Group acquired the trade and assets of Innovative Science Solution LLC ("ISS"), a scientific consulting firm specialising in strategic counsel and regulatory support for the healthcare industry, based in New Jersey, US.
ISS has contributed GBP2.2m to revenue and GBP0.1m to profit before tax for the period between the date of acquisition and the balance sheet date. Had ISS been consolidated from 1 January 2019 the consolidated income statement would show revenue of GBP169.3m and profit before tax of GBP7.3m.
Details of the provisional fair value of assets and liabilities acquired, goodwill and purchase consideration are as follows:
GBP'000
Intangible assets - client relationships 1,308
Right-of-use assets 128
Trade and other receivables 832
Contract assets 138
Other receivables 21
Cash and cash equivalents 205
Trade and other payables (166)
Contract liabilities (26)
Lease liabilities (124)
Net assets acquired 2,316
Goodwill arising on acquisition 3,928
Total purchase consideration 6,244
The gross contractual amount of trade receivables is equal to the fair value. Goodwill comprises of the value of expected synergies and other opportunities arising from the acquisition, management know-how, the skilled work force employed by ISS and other intangible assets that do not qualify for separate recognition.
The fair value of the purchase consideration at the acquisition date is as follows:
GBP'000
Cash consideration 5,236
Deferred consideration 1,008
Total purchase consideration 6,244
11. Trade Receivables
2019 2018 2017
GBP'000 GBP'000 GBP'000
Trade receivables 34,578 35,260 36,420
The average credit period taken on the provision of services was 61 days (2018: 62 days).
There were no material expected loss allowances recognised on trade receivables in the year ended 31 December 2019 or the prior year.
The Directors consider that the carrying value of trade receivables approximates to fair value.
12. Contract assets and liabilities
2019 2018 2017
GBP'000 GBP'000 GBP'000
Contract assets 5,852 6,798 6,726
Contract liabilities (14,307) (14,004) (14,064)
Significant changes in the contract assets and contract liabilities are as follows:
Contract assets Contract liabilities
2019 2018 2019 2018
GBP'000 GBP'000 GBP'000 GBP'000
At 1 January 6,798 6,726 (14,004) (14,064)
Revenue recognised that
was included in contract
liability balance at the
beginning of the period - - 14,004 14,064
Increase due to amounts
invoiced to customers and
not recognised as revenue
in the period - - (14,631) (13,881)
Transfer from contract
assets recognised at the
beginning of the period
to receivables (6,798) (6,726) - -
Revenue recognised as a
result of changes in the
measure of progress in
the period in excess of
amounts billed to clients 6,485 6,694 - -
Disposed with subsidiary (713) - 259 -
Acquisitions 138 - (26) -
Other movements (58) 104 91 (123)
At 31 December 5,852 6,798 (14,307) (14,004)
The Group has applied the practical expedient permitted by IFRS 15 not to disclose the transaction price allocated to performance obligations unsatisfied (or partially unsatisfied) at the end of the reporting period as contracts have an original expected duration of less than 12 months.
13. Other receivables
2019 2018
GBP'000 GBP'000
Contract assets - amounts to
fulfil a contract 849 1,745
Prepayments 1,562 2,320
Other receivables 889 1,735
3,300 5,800
The Directors consider that the carrying value of other receivables approximates to fair value.
14. Trade and Other Payables
The following are included in trade and other payables falling due within one year:
2019 2018
GBP'000 GBP'000
Trade payables 9,641 12,472
Other taxation and social security 2,421 2,591
Accruals 12,151 13,326
Deferred consideration for acquisitions 768 35
Deferred cash payable in respect of discontinued operations 1,696 -
Acquisition-related employee remuneration liability 811 1,806
Other payables 504 719
27,992 30,949
The following are included in trade and other payables falling due after one year:
Deferred consideration for acquisitions 199 -
Acquisition-related employee remuneration liability 1,306 1,246
1,505 1,246
The Directors consider that the carrying value of trade and other payables approximates to fair value.
15. Borrowings
2019 2018
GBP'000 GBP'000
Bank loans 3,030 4,000
Loan notes 19 42
3,049 4,042
2019 2018
GBP'000 GBP'000
The borrowings are repayable as follows:
- on demand or within one year 19 42
- within two to five years 3,030 4,000
3,049 4,042
Bank loans
The Group has a multi-currency debt facility with the Royal Bank of Scotland plc ("RBS"). At 31 December 2019 this facility consisted of a GBP20.0m revolving credit facility ("RCF"). The RCF bears interest at a variable rate of 1.25% to 2.30% over LIBOR and is committed to March 2022. The average interest rate on the Group's bank loans in the year was 3.1% (2018: 2.6%). The debt facility is secured by a debenture held by RBS over the assets of the Group.
At 31 December 2019, the Group has drawn GBP3.0m (2018: GBP4.0m) under the RCF.
15. Borrowings (continued)
Loan notes
Loan notes have been issued as part of the consideration for certain acquisitions. Loan notes are initially secured by way of cash deposits and by guarantee. This security expires after a period of between two and five years in accordance with the terms of the relevant acquisition agreement. After this period the loan notes are unsecured. Loan notes bear interest at the following rates:
2019 2018
GBP'000 GBP'000
Unsecured
LIBOR less 2.0% 5 28
LIBOR 14 14
19 42
16. Cash Generated from Operations
2019 2018
GBP'000 GBP'000
Profit before taxation 7,112 9,378
Loss before taxation on discontinued
operations (1,059) (959)
Profit before tax including discontinued
operations 6,053 8,419
Finance income (12) (1)
Finance costs 497 340
Depreciation of property, plant
and equipment 1,358 1,305
Depreciation of right-of-use assets 2,957 -
Amortisation of intangible assets 1,152 769
Impairment of goodwill 2,719 -
Impairment of right-of-use assets 470 -
Share-based payment expense 263 464
Loss/(profit) on disposal of property,
plant and equipment 39 (17)
(Decrease)/increase in acquisition-related
employee
remuneration payable (450) 1,543
Change in market value of investments 20 -
Other non-cash expenses 119 -
Operating cash flow before movements
in working capital 15,185 12,822
Movements in working capital:
Decrease in receivables 2,081 4,592
Decrease in payables (2,463) (3,996)
Operating cash flow from movements
in working capital (382) 596
Cash generated from operations 14,803 13,418
17. Net Funds
Net funds is a non-statutory measure which is disclosed as the Group considers it helpful to the users of the accounts. Lease liabilities that arise on adoption of IFRS 16 are not included in the Group's definition of net funds.
2019 2018
GBP'000 GBP'000
Cash and cash equivalents 8,549 10,424
Bank loans (3,030) (4,000)
Loan notes (19) (42)
Net funds 5,500 6,382
Movements in net funds can be analysed as follows:
2019 2018
GBP'000 GBP'000
Net decrease in cash and cash equivalents (1,840) (2,753)
Changes in net funds as a result of
cash flow:
Repayment of bank loans 710 7,686
Repayment of loan notes 23 17
Other movements:
Foreign exchange differences 225 (197)
Movement in net funds in the year (882) 4,753
Net funds at the beginning of the
year 6,382 1,629
Net funds at the end of the year 5,500 6,382
18. Adoption of IFRS 16 Leases
On 1 January 2019 the Group adopted IFRS 16 Leases ("IFRS 16") using the simplified transition approach and accordingly has not restated comparative figures. IFRS 16 supersedes the current lease guidance under IAS 17 Leases and related interpretations. IFRS 16 removes the distinction between operating leases and finance leases, replacing with a model where a right-of-use asset and corresponding lease liability is recognised for all leases except for short-term or low-value leases.
Leases previously classified as operating leases with less than 12 months remaining or with low value have continued to be expensed in the income statement on a straight line basis. For remaining leases previously classified as operating leases the Group has recognised right-of-use assets and lease liabilities at 1 January 2019, the transition date. There was no material effect on the financial statements with regards to leases previously classified as finance leases under IAS 17.
Lease liabilities were measured at the present value of the remaining lease payments, discounted using the Group's incremental borrowing rate. The weighted average borrowing rate applied to the lease liabilities on 1 January 2019 was 2.5%.
18. Adoption of IFRS 16 Leases (continued)
A reconciliation of operating commitments under operating leases disclosed in the financial statements as at 31 December 2018 to the lease liability recognised at the transition date is presented below:
Office
Properties equipment Total
GBP'000 GBP'000 GBP'000
Operating lease commitments at
31 December 2018 12,328 86 12,414
Less low-value leases - (86) (86)
Less short-term leases (424) - (424)
Finance leases at 31 December 2018 - 41 41
Adjustment in respect to variable
lease payments 127 - 127
Discount using the Group's incremental
borrowing rate (791) - (791)
Lease liability at 1 January
2019 11,240 41 11,281
Current lease liabilities 2,595 11 2,606
Non-current lease liabilities 8,645 30 8,675
11,240 41 11,281
Movement in lease liabilities in the period to 31 December 2019 are as follows:
Office
Properties equipment Total
GBP'000 GBP'000 GBP'000
Recognition of lease liabilities
at 1 January 2019 11,240 41 11,281
Interest on lease liabilities 252 2 254
Lease payments during the period (3,012) (12) (3,024)
New leases commenced in the period 525 - 525
Acquisition 124 - 124
Exchange differences (83) - (83)
Lease liability at 31 December
2019 9,046 31 9,077
Current lease liabilities 2,678 11 2,689
Non-current lease liabilities 6,368 20 6,388
9,046 31 9,077
Right-of-use assets were measured at an amount equal to the lease liability, adjusted by the amount of any prepaid or accrued lease payments recognised at 31 December 2018. In addition, the right-of-use asset includes a provision of GBP557,000 for restoration costs in relation to some of these leases. This provision has been recognised as a result of a reassessment of these provisions as a result of the adoption of IFRS 16.
18. Adoption of IFRS 16 Leases (continued)
Movements in right-of-use assets in the period to 31 December 2019 were as follows:
Office
Properties equipment Total
GBP'000 GBP'000 GBP'000
Recognised on 1 January 2019 on transition
to IFRS 16 11,877 - 11,877
Right-of-use assets previously included
in property, plant and equipment - 57 57
Total recognised at 1 January
2019 11,877 57 11,934
Recognised on commencement of
new leases 525 - 525
Acquisition 128 - 128
Depreciation charged in the year (2,945) (12) (2,957)
Impairment charge in the year (470) - (470)
Exchange differences (78) - (78)
Net book amount at 31 December
2019 9,037 45 9,082
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
END
FR MZGMFZNLGGZZ
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March 18, 2020 03:00 ET (07:00 GMT)
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