Cello to up the tempo

Market insight and strategic marketing combo Cello has whacked up its full year dividend by a fifth, despite one off costs turning earnings per share negative.

Headline profit before tax, which excludes amortisation, impairment and restructuring costs, rose 10.2% to £7.1m in 2011 from £6.4m in 2010, in line with market expectations.

Reported profit before tax, however, tumbled to £1.4m from £4.9m, to the indifference of the market, which chased the shares as high as 39p at one point, up 3.5p on the day, before the share price ebbed back to 37.5p.

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Impairment of goodwill and intangibles took a £2.5m chunk out of profits, while restructuring costs also took a bite, rising to £0.95m from £0.82m the year before, after the company failed to retain a large retail contract in 2011.

The £2.5m impairment charge related largely to the decision to close its London-based mass media ("above the line" in ad-land jargon) agency, though more challenging recent trading conditions for its communications business, Tangible, were also a factor.

Amortisation of intangibles in 2011 rose to £1.20m from £0.34m the year before, while acquisition costs reduced profits by a further £0.21m (2010: nil).

Once the tax-man had taken his £1.63m rake (up from £1.31m the year before), the group found itself sitting on a loss of £0.27m, compared to a profit the previous year of £3.61m.

Basic headline earnings per share declined 15.1% to 6.71p in 2011 from 7.90p, while the reported loss per share was 0.81p, against positive diluted earnings per share of 5.23p the year before.

Despite making a loss, the management signalled confidence in the future with a full year dividend of 1.72p, up 20.3% from 1.43p the year before.

Away from all the accountancy jiggery-pokery, the net debt position also improved, narrowing to £7.7m at the end of 2011 from £8.8m the year before, helped by earn-out provisions - fees the company is obliged to pay the former owners of companies it has acquired - tumbling to £3.2m from £7.3m the year before.

Talking of acquisitions, the purchase of MedErgy, a healthcare communications specialist, has been deemed a success.

The acquisition strengthened the group's focus on healthcare, a sector the group likes because of its high margins and high barriers to entry.

MedErgy has contributed £5.1m to revenue and £1.3m to profit before tax for the period between the date of acquisition (March) and the end of 2011.

"2011 saw a continuation of the group's solid performance and delivery on our strategy of internationalising revenues and growing our pharmaceutical expertise. As a result we are seeing good momentum in the business, demonstrated by our strong cash flow and considerably strengthened balance sheet," Chief Executive Mark Scott said.

"We are confident that our focus on servicing international clients in the pharmaceutical and other high margin sectors with our innovative digital offerings will continue to drive growth," Scott added.

Allan Rich, non-executive Chairman of Cello, said the group began 2012 with a solid order book and has achieved a good level of forward bookings so far this year.

"At this early stage of the year, the board is optimistic that current expectations for 2012 can be met," Rich said.

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