INVESTOR PRESENTATION - Year ended 31 December 2018 - Cello Health plc
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INVESTOR PRESENTATION Year ended 31 December 2018 © CELLO HEALTH PLC
2018 HIGHLIGHTS
£104.8m of net revenue (2017: £102.5m)
£12.2m headline profit before tax (2017: £11.4m)
c. 970 professionals
4% constant currency like-for-like net revenue growth and 12% operating profit growth in Cello
Health division
Headline earnings per share growth of 13.7%
Net funds £6.3m; strong cash flows, and low earn out obligations
Growing dividend, up 10.0%, 13th year of uninterrupted growth
Big Pharma client base, with growing biotech and devices exposure under the Cello Health brand
Growing healthcare client base under the Signal brand
MSAs with 24 of the top 25* pharmaceutical companies - good visibility
Change of name in the period to Cello Health plc
New Non-Executive Directors reflect deeper health focus and experience of professional services
*pharmexec.com Top 50 Jun. 01 2018
© CELLO HEALTH PLC 2
OUR POSITIONING
Scientific
commercial services
Marketing services
Clinical/commercial MedEd/comms
Digital/comms
services Market access
Advertising
CROs Regulatory
Brand consulting
Clinical trials Data/research
PR
CMOs Consulting
Pharmacovigilence
© CELLO HEALTH PLC 3
CELLO HEALTH DIVISION: WHAT WE DO
SUPPORTING CLIENTS
Brand
ACROSS THE PRODUCT Pre-clinical Pre-launch Launch Post-launch optimisation
LIFECYCLE, WITH A
FOCUS ON EARLY
DRUG DEVELOPMENT
2018 NR: 30% 2018 NR: 29% 2018 NR: 41%
Analysis and Assessment Franchise and Brand Strategy Landscaping and unmet needs
Strategic Communication Planning Scenario and Competitor Planning Patient Journey
Data Dissemination Launch Excellence TPP Optimisation
Stakeholder Engagement Forecasting and Valuation Customer and Market Segmentation
Education and Outreach Asset and Indication Prioritisation Positioning and Message Development
Patient Engagement Commercialisation Strategy Asset Tracking
Business Development
© CELLO HEALTH PLC 4
SOURCES OF COMPETITIVE ADVANTAGE
A fusion of advisory and delivery capabilities under one global lead brand
across pharmaceuticals, biotech, devices, OTC, social health and charities
One brand, one team Global presence
• Cello Health brand • Hub offices in New York,
• BD culture Pennsylvania, London and Farnham
• Marketing out-reach • USA 45% of Cello Health division
• Events 2018 net revenues
• Uniform bonus scheme • 24 out of 25 top pharmaceutical
companies as clients
Service innovation Collaborative culture
• Biotech • Cello Academy
• E-Village • Centres of excellence
• IQ • Graduate recruitment
• Cello Health Logic • Global business development team
• Pulsar Health
• Signal digital capacity
© CELLO HEALTH PLC 5
INVESTING IN TALENT
Wide and deep talent pool
c. 970 staff
>60 PhDs
59/41 female/male
Average tenure of top 200 people = 10 years
Strong incentive performance
c. 19% of pre bonus headline operating profit paid as cash Stable professional base
Growing LTIP component
Active hiring programme
Graduate recruitment
Dedicated human resource professionals
Investment in training
Cello Academy
In the top 100 “Sunday Times Best Companies to Work For 2019”
© CELLO HEALTH PLC 6CELLO HEALTH: CLIENTS
Top 20 clients = 40.1% of Group net revenue (2017: 38.9%)
Largest client 7.9% (2017: 8.4%) of Group net revenue
Long-term client spread over multiple therapy areas and buying
points
24 of the top 25 global pharmaceutical companies are clients
15 out of the top 25 pharmaceutical companies have been clients Good visibility
for over five years
Majority big pharmaceutical; growing biotech franchise
US/Europe balance
Balanced pre and post launch capability
© CELLO HEALTH PLC 7MACRO GROWTH DRIVERS
Outsourcing trend
Pricing
pressure
RX CX trend
Growth of orphan drugs
and customised medicines
Regulatory and market access
changes
Strong R & D and pipelines
Improved diagnostics and unmet needs
Demographics
© CELLO HEALTH PLC 8CLIENT SPECIFIC TRENDS
Orphan propositions increasingly making it direct to market
Surge in interest in non-standard therapeutic solutions
Immunotherapy
Growing role of ‘real world data’ in verifying efficacy
Patient engagement requirements increasing
Pricing pressure raises need for efficiency in commercial delivery, speed to
market and market impact
New entrants disrupt established models
Biosimilars
© CELLO HEALTH PLC 9THE COMPETITIVE LANDSCAPE
CROs migrating towards ‘soup to nuts’ solutions
Inventiv + Research Inc = Syneos Health
Quintiles + IMS = IQVIA
Private Equity highly active Accelerating consolidation
Parexel of providers
Range of emerging consolidators
UDG
Eversana
Navigant
© CELLO HEALTH PLC 10THE EMERGING CONSUMER AGENDA
CONSUMER
© CELLO HEALTH PLC 11CELLO SIGNAL Digital marketing and social media research solutions for big corporates Blue chip global client base: Healthcare, Technology, Financial Services, Public Sector, Utilities and Charities Solid core contracted revenue stream and visibility Consolidated office network: Edinburgh, London, Cheltenham, Los Angeles and Singapore Strong technology and proprietary software licensing model © CELLO HEALTH PLC 12
DEVELOPING CELLO SIGNAL
Specialist
Digital and Creative
Research Communication
Communications
Services
LBG
TFL Merlin
RBS
Tesco Marriott
A G Barr
Sony IHG
Network Rail
Sky HP
RBL
L’Oreal Hammerson
IFAW
Disney P&O
WWF
Vodafone
Nando’s
EA
BUPA BRC Netflix Stryker (Medical
The Scottish IMI HP Devices)
Government IPHA The Food Doctor
EFPIA EUDF Novartis
BHF Macmillan AstraZeneca
Novo Nordisk Marie Curie Sanofi
Wellcome Trust
© CELLO HEALTH PLC 13FINANCIAL REVIEW © CELLO HEALTH PLC 14
FINANCIAL HIGHLIGHTS
2018 2017 %
Reported basic earnings per share 6.27p 4.09p ↑53.3%
Headline basic earnings per share 9.02p 7.93p ↑13.7%
Net funds £6.3m £1.6m
Full year dividend* 3.85p 3.50p ↑10.0%
Net revenue £104.8m £102.5m ↑2.3%
Like-for-like constant currency growth ↑1.4%
Group headline profit before tax £12.2m £11.4m ↑6.4%
Reported profit before tax £8.4m £5.8m ↑44.7%
Headline Group operating margin 12.0% 11.6%
*2018 final dividend subject to shareholder approval
© CELLO HEALTH PLC 15SEGMENTAL ANALYSIS
2018 2017
Headline Headline Headline Headline
Margin Margin
Net Revenue Operating Profit Net Revenue Operating Profit
% %
£m £m £m £m
Cello Health 64.3 11.9 18.5% 60.2 10.6 17.7%
Cello Signal 40.0 3.7 9.4% 41.0 3.9 9.5%
Sub total 104.3 15.6 14.9% 101.2 14.5 14.3%
Central cost - (3.1) - - (2.7) -
Group 104.3 12.5 12.0% 101.2 11.8 11.6%
6.1% increase in headline operating profit (7.8% constant currency)
11.8% headline operating profit growth in Cello Health (13.8% constant currency)
3.4% headline operating profit decline in Cello Signal (3.4% constant currency)
Like-for-like net revenue growth in Cello Health of 2.8% (4.3% constant currency)
Like-for-like net revenue decline in Cello Signal of 3.1% (2.9% constant currency)
Currency headline operating profit translation headwind of £0.2m
© CELLO HEALTH PLC 16CELLO HEALTH
2018 2017
Constant
£’000 £’000 % Change
Exchange Rates
Headline net revenue 64,308 60,150 6.9% 8.7%
Headline operating profit 11,890 10,639 11.8% 13.8%
Headline operating margins 18.5% 17.7% - -
Constant currency operating profit growth of 13.8%
Constant currency like-for-like net revenue growth of 4.3%
Operating margin stronger at 18.5% (2017: 17.7%)
Overall client base growing, especially in USA
Collaborative wins grow strongly behind the Cello Health brand
Both 2017 acquisitions performing as expected
Opening of Philadelphia office in 2018
Berlin and Boston opening in 2019
© CELLO HEALTH PLC 17CELLO SIGNAL
2018 2017
Constant
£’000 £’000 % Change
Exchange Rates
Headline net revenue 39,971 40,961 (2.4%) (2.9%)
Headline operating profit 3,739 3,872 (3.4%) (3.4%)
Headline operating margins 9.4% 9.5% - -
Constant currency operating profit decline of 3.4%
Constant currency like-for-like net revenue decline of 2.9%
Operating margin 9.4% (2017: 9.5%)
Tougher trading conditions in the UK, although good performance in Edinburgh
Full year impact of reduction in US capacity in 2017
Rapid net revenue growth from Signal Health
Significant health wins from Pulsar, shared with Cello Health
© CELLO HEALTH PLC 18INCOME STATEMENT
2018 2017
£m £m COMMENT
Headline operating profit 12.5 11.8
Interest (0.3) (0.4)
Headline profit before tax 12.2 11.4
Restructuring costs (0.2) (1.9) Much lower than 2017
Credit for VAT received - 0.3
Start-up investment/biotech team (1.2) (1.4) Pulsar US
Acquisition costs - (0.2)
Amortisation of intangibles (0.3) (0.5) Deal related
Acquisition-related remuneration (1.5) (1.4) Spread of deferred payments
Share options (0.5) (0.4)
Reported profit before tax 8.4 5.8
© CELLO HEALTH PLC 19CASH FLOW AND NET FUNDS
2018 2017
£m £m COMMENT
Net cash inflow from operating activities 13.4 4.8 Excellent operating profit conversion
Interest (0.3) (0.4) Non utilisation fee plus sundry interest - dropping
Tax (2.2) (2.1) Headline tax rate dropping from 2017
Capex (2.0) (1.8) Office moves/Pulsar
Acquisitions (0.3) (5.3) Defined Health/Advantage in prior year
Fund raise - 14.2 Cash raise in prior year
Share option proceeds - 0.2
Dividends (3.7) (3.6) Rising in 2019
Foreign exchange movement (0.2) 0.7 Less exposure now US$ debt removed
Net cash inflows 4.7 6.7
Opening net funds/(debt) 1.6 (5.1)
Closing net funds 6.3 1.6 Facilities of £24m; expire in March 2022
© CELLO HEALTH PLC 20OPERATING CASH CONVERSION
2018 2017 2016 COMMENT
£m £m £m
Headline operating profit 12.5 11.8 10.5 Note growth record
Depreciation 1.3 1.3 1.3
Amortisation 0.4 0.4 0.4
Headline EBITDA 14.2 13.5 12.2
Cash flow from operations 13.4 4.8 6.5
Cash impact of non-headline items 1.4 3.6 3.3 Start-ups/restructuring
VAT settlement/receipts - (0.3) 4.9 2016 VAT settlement
Deferred remuneration - 2.3 0.2 iS Health settlement
Headline operating cash flow 14.8 10.4 14.9
2017 shows reversal of underlying 2016
% conversion of headline EBITDA 104% 77% 123%
surplus. 2018 strong performance
Good underlying operating cash characteristics
© CELLO HEALTH PLC 21BALANCE SHEET
2018 2017
£m £m
Goodwill 73.6 73.0
Intangible assets 1.4 1.2
Fixed assets 2.9 2.8
Deferred tax assets 1.5 1.1
Non-current assets 79.4 78.1
Current non cash assets 47.9 51.9
Cash 10.4 13.0
Creditors 1 year (5.5) (12.8)
Net assets 86.8 82.9
Total maximum deferred acquisition obligation of $6.3m payable over 3 years from 2019-2021, payable largely in cash
© CELLO HEALTH PLC 22TAXATION AND DIVIDEND TAXATION US tax charges implemented Lower than expected headline rate in 2018 of 21.6% as a result of US changes Expected headline rate in 2019 of 23.5% DIVIDEND Full year dividend increased 10.0% to 3.85p* (2017: 3.50p) 13 year unbroken dividend growth record *2018 final dividend subject to shareholder approval © CELLO HEALTH PLC 23
SUMMARY AND OUTLOOK FOR 2019 Strong growth in like-for-like fee income in Cello Health Increasing exposure to US market, organically and via potential acquisitions Leverage of Cello Signal digital capabilities into healthcare New office openings in Berlin and Boston in H1 2019 Good operating cash generation Strong balance sheet Dividend continues to grow Strong start to the year Positive 2019 outlook based on current overall pipeline © CELLO HEALTH PLC 24
APPENDIX © CELLO HEALTH PLC 25
IFRS 9 IFRS 9 Financial Instruments IFRS 9 replaces the provisions of IAS 39 that relate to; the recognition, classification and measurement of financial assets and liabilities; depreciation of financial instruments; impairment of financial assets and hedge accounting. The adoption of IFRS 9 resulted in changes to the accounting policy for trade receivables. The requirement of IFRS 9 to use the expected loss method of impairment of financial assets did not have a material effect on the Group due to the short-term nature of trade receivables, which are mainly due from large UK and US clients. © CELLO HEALTH PLC 26
IFRS 15 IFRS 15 Revenue from Contracts with Customers IFRS 15 establishes a single comprehensive five-step model to be applied to all contracts with customers and replaces the separate models for goods and services included in IAS 18 Revenue and related interpretations. The core principle of IFRS 15 is that an entity should recognise revenue to depict the transfer of goods and services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Revenue is recognised when (or as) performance obligations in contracts are satisfied by transferring control of the relevant goods or services to the customer. The adoption of IFRS 15 did not have a significant impact on the Group’s operating profits or on the Group’s equity. However, for certain contracts, the adoption of IFRS 15 resulted in a change in the timing of recognition of certain third- party costs where the Group acts as principal with respect to services provided and associated revenue. As a result there was a increase in third party costs of £1.0m in the year ended 31 December 2017 with a corresponding decrease in revenue. There was therefore no impact on net revenue or operating profit. The impact on the balance sheet at 31 December 2017 was to reduce current assets by £2.6m with a corresponding decrease in current liabilities. © CELLO HEALTH PLC 27
IFRS 16 IFRS 16 Leases - effective 1 January 2019 IFRS 16 introduces a comprehensive model for the identification of lease arrangements and accounting treatments for both lessors and lessees. IFRS 16 will supersede the current lease guidance including IAS 17 Leases and related interpretations. IFRS 16 removes the distinction between operating leases and finance leases and is replaced by a model where a right-of-use asset and a corresponding liability have to be recognised for all leases by lessees except for short- term leases or low value assets. The Group has made an initial assessment of the impact of adopting IFRS 16. The Group intends to apply the simplified transition approach and will not restate comparative figures for the year prior to first adoption. Operating leases with less than 12 months remaining and low value leases will continue to be recognised on a straight line basis as expensed to profit and loss. For the remaining leases, principally in relation to land and buildings, the Group expects to recognise a right-of-use asset of approximately £11.2m and lease liabilities of £11.1m, after adjustment for prepaid and accrued lease payments recognised at 31 December 2018. The Group expects operating profit to increase by approximately £0.1m and profit before tax to decrease by approximately £0.1m as a result of adopting the new rules. © CELLO HEALTH PLC 28
CONTACT US:
MARK SCOTT, Chief Executive
mark.scott@cellogroup.com
+44 (0)20 7812 8462
MARK BENTLEY, Group Finance Director
mark.bentley@cellogroup.com
+44 (0)20 7812 8463
Thank You.
Cello Health plc
Queens House
8-9 Queen Street
London
EC4N 1SP
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