REG - Quarto Group Inc - Half-year Report <Origin Href="QuoteRef">QRT.L</Origin> - Part 2
08/08/2017 07:07
- Part 2: For the preceding part double click ID:nRSH3402Na
Cash and cash equivalents at end of period 6,800 7,710 18,824
* Restated as set out in Note 1.
THE QUARTO GROUP, INC.
Notes to the condensed financial statements
1. Interim Statement
These interim consolidated financial statements are for the half year to 30
June 2017. They were approved by the board on 7 August 2017. These results are
unaudited and have not been reviewed by the auditor. The comparative figures
for the six months to 30 June 2016 are also unaudited and derived from the
half-yearly financial report for that period, subject to certain restatement
changes noted below.
The information for the year ended 31 December 2016 does not constitute
statutory accounts as defined in section 434 of the Companies Act 2006. A copy
of the statutory accounts for that year has been delivered to the Registrar of
Companies. The auditor's report on those accounts was not qualified, did not
include a reference to any matters to which the auditor drew attention by way
of emphasis without qualifying the report and did not contain statements under
section 498 (2) or (3) of the Companies Act 2006.
Basis of preparation
These interim financial statements have been prepared in accordance with the
Disclosure and Transparency Rules of the Financial Conduct Authority and with
IAS 34, "Interim Financial Reporting", as adopted by the European Union.
The Directors have formed a judgement that there is a reasonable expectation
that the Group has adequate resources to continue in operational existence for
the foreseeable future. For this reason, the Directors continue to adopt the
going concern basis in preparing the financial statements. The Group has
committed facilities of $85.0m through to 30 April 2019 and is in the process
of agreeing amendments to these facilities. This will allow greater
flexibility over the remaining term, particularly in light of the pronounced
seasonality of the business and degree of sensitivity around working capital
movements as previously reported. The Group has complied with all related
covenants in the current period.
The accounting policies adopted are consistent with those of the annual
financial statements for the year ended 31 December 2016 as described in those
financial statements.
Restatement of prior year results
In the process of finalising the results of the Books and Gifts Direct
business for the year ended 31 December 2016, errors were uncovered in the
cut-off procedures and accounting for returns in relation to stock in transit
and the related liability accounts at BGD Australia. The errors related to
the value attributed to stock in transit at each of the three years ended 31
December 2016, 31 December 2015 and 31 December 2014 where detailed
examination has shown that supplier invoices for stock in transit were not
processed in the correct accounting period, nor was the correct accrual or
return provision recorded in the financial statements. The error was caused
by a failure in controls relating to cut-off and reconciliation procedures in
respect of stock in transit and the related purchase clearing accounts, and
accounting for returns on certain products. The full impact of the
restatement is set out in the 2016 Annual Report and Accounts.
As a result of the above, the results for the period ended 30 June 2016 have
been restated.
The impact on the Condensed Consolidated Income Statement is to increase the
cost of sales by $0.4m, which is included in the results from discontinued
operations. No related tax credit is recognised as there is insufficient
evidence that future profits would be available against which the credit could
be applied.
The impact on the Condensed Consolidated Balance Sheet at 30 June 2016 is:
Reported$000 Adjustment$000 Restated$000
Inventories 23,353 (1,743) 21,610
Trade and other payables (38,229) (278) (38,507)
Impact on net assets (14,876) (2,021) (16,897)
Impact on total equity 50,245 (2,021) 48,224
THE QUARTO GROUP, INC.
Notes to the condensed financial statements
2. Segmental analysis
During 2016, the Group concluded an operational review of the business.
Following this review, the core publishing businesses were reorganised into
three divisions: US Publishing, UK Publishing and Q Partners. This is now the
basis on which operating results are reviewed and resources allocated by the
Chief Executive.
Due to the seasonality of the business, the Group's sales and segmental
results are weighted towards the second half of the year.
Six months to 30 June 2017 US Publishing UK Publishing TotalPublishing Q Partners Total
$000 $000 $000 $000 $000
Revenue 26,656 20,834 47,490 2,669 50,159
Operating profit before amortisation of acquired intangibles and exceptional items (1,712) (3,577) (5,289) (161) (5,450)
Amortisation of acquired intangibles (298) (120) (418) - (418)
Segment result (2,010) (3,697) (5,707) (161) (5,868)
Unallocated corporate expenses (1,757)
Exceptional items -
Operating (loss)/profit (7,625)
Finance costs (1,528)
Loss before tax (9,153)
Tax credit 2,655
Loss after tax from continuing operations (6,498)
Profit after tax from discontinued operations 1,243
Loss after tax (5,255)
Six months to 30 June 2016 US Publishing UK Publishing Total Publishing Q Partners Total
$000 $000 $000 $000 $000
Revenue 28,493 25,956 54,449 3,429 57,878
Operating profit before amortisation of acquired intangibles and exceptional items 2,416 (86) 2,330 (127) 2,203
Amortisation of acquired intangibles (129) (176) (305) - (305)
Segment result 2,287 (262) 2,025 (127) 1,898
Unallocated corporate expenses (2,253)
Exceptional items -
Operating (loss)/profit (355)
Finance costs (1,566)
(Loss)/profit before tax (1,921)
Tax credit 1,071
Loss after tax from continuing operations (850)
Loss after tax from discontinued operations (14)
Loss after tax (864)
THE QUARTO GROUP, INC.
Notes to the condensed financial statements
2. Segmental analysis (continued)
Year ended 31 December 2016 US Publishing UK Publishing Total Publishing Q Partners Total
$000 $000 $000 $000 $000
Revenue 74,263 74,071 148,334 6,276 154,610
Operating profit before amortisation of acquired intangibles and exceptional items 9,403 12,402 21,805 (67) 21,738
Amortisation of acquired intangibles (356) (298) (654) - (654)
Segment result 9,047 12,104 21,151 (67) 21,084
Unallocated corporate expenses (4,749)
Exceptional items (191) - (191) - (191)
Operating (loss)/profit 8,856 12,104 20,960 (67) 16,144
Finance costs (3,109)
(Loss)/profit before tax 13,035
Tax (3,756)
Loss after tax from continuing operations 9,279
Loss after tax from discontinued operations (14,556)
Loss after tax (5,277)
Geographical revenue
The Group generates its revenue in the following geographical areas:
Six months to 30 June 2017 Unaudited$'000 Six months to 30 June 2016 Unaudited$'000 Year ended31 December 2016 Audited$'000
United States 29,557 34,341 83,516
United Kingdom 7,486 8,867 20,889
Rest of the World 4,961 5,223 11,432
Foreign Language 5,486 6,018 32,497
Q Partners 2,669 3,429 6,276
Total 50,159 57,878 154,610
3. Exceptional items
There were no exceptional items included in loss before tax for the current
and previous period. Exceptional items for the year ended 31 December 2016
comprised of acquisition costs including due diligence expenses and other
professional fees.
4. Taxation
Taxation for the six months to 30 June 2017 is based on the Group estimated
underlying tax rate for the year. We expect the full year effective rate to
be substantially consistent with the rate for the period.
THE QUARTO GROUP, INC.
Notes to the condensed financial statements
5. Discontinued operations
On 30 March 2017, the Group completed the disposal of its 75% interest in
Regent Publishing Services Limited ("Regent"), its Hong Kong based publishing
services business.
On 3 April 2017, the Group completed the disposal of its 100% share of Books &
Gifts Direct Pty Limited ("BGD Australia"), its direct sales business in
Australia.
On 7 July 2017, the Group completed the disposal of the trade and selected net
assets of Books & Gifts Direct Limited ("BGD New Zealand"), its direct sales
business in New Zealand. At 30 June 2017, this business is disclosed as a
discontinued operation held for sale. The final loss on disposal will be
accounted for in the financial statements for the year ended 31 December
2017.
These disposals were completed in line with the Group's strategy of disposing
of non-core businesses. Proceeds from the disposals will be used to manage
the Group's net debt position as received. The results of the discontinued
operations which have been included in the consolidated income statement
were:
Regent Six months to 30 June 2017 Unaudited$'000 Six months to 30 June 2016 Unaudited$'000 Year ended31 December 2016 Audited$'000
Revenue 2,632 7,718 14,466
Expenses (2,804) (6,818) (12,724)
(Loss)/profit before tax (172) 900 1,742
Tax 3 (150) (235)
(Loss)/profit after tax (169) 750 1,507
Profit on disposal 3,236
Tax -
Net profit attributable to discontinued operations 3,067
BGD Australia Six months to 30 June2017 Unaudited$'000 Six months to 30 June 2016(Restated)* Unaudited$'000 Year ended31 December 2016 Audited$'000
Revenue 1,199 5,074 12,745
Expenses (1,970) (5,500) (25,728)
Loss before tax (771) (426) (12,983)
Tax - - -
Loss after tax (771) (426) (12,983)
Loss on disposal (698)
Tax -
Net loss attributable to discontinued operations (1,469)
BGD New Zealand Six months to 30 June 2017 Unaudited$'000 Six months to 30 June 2016 Unaudited$'000 Year ended31 December 2016 Audited$'000
Revenue 2,889 2,673 6,613
Expenses (3,244) (3,029) (9,693)
Loss before tax (355) (356) (3,080)
Tax - - -
Loss after tax (355) (356) (3,080)
THE QUARTO GROUP, INC.
Notes to the condensed financial statements
6. Earnings per share
Six months to 30 June2017 Unaudited$'000 Six months to 30 June 2016(Restated)* Unaudited$'000 Year ended31 December 2016 Audited$'000
From continuing operations
(Loss)/earnings for the purposes of basic and diluted earnings per share, being net (loss)/profit attributable to owners of the parent (6,498) (850) 9,279
Amortisation of acquired intangibles (net of tax) 293 226 473
Exceptional items (net of tax) - - 191
(Loss)/earnings for the purposes of adjusted earnings per share (6,205) (624) 9,943
From continuing and discontinued operations
(Loss)/earnings for the purposes of basic and diluted earnings per share, being net (loss)/profit attributable to owners of the parent (5,229) (1,083) (5,697)
Amortisation of acquired intangibles (net of tax) 293 244 509
Exceptional items - - 6,332
Adjusted earnings attributable to owners of the parent (4,936) (839) 1,144
Number Number Number
Weighted average number of shares 20,444,450 19,696,729 19,696,729
Dilutive outstanding options awards 626,167 971,614 38,591
Diluted weighted average number of 21,070,617 20,668,343 19,735,320
(Loss)/earnings per share (cents)
From continuing operations
Basic (31.8) (4.3) 46.4
Diluted (31.8) (4.3) 45.4
Adjusted basic (30.4) (3.2) 49.8
Adjusted diluted (30.4) (3.2) 48.7
From continuing and discontinued operations
Basic (25.6) (5.5) (28.5)
Diluted (25.8) (5.4) (27.9)
* Restated as set out in Note 1.
THE QUARTO GROUP, INC.
Notes to the condensed financial statements
7. Dividends
Six months to 30 June 2017Unaudited$'000 Six months to 30 June 2016Unaudited$'000 Year ended31 December 2016Audited$'000
Amounts recognised as distributions to equity holders in the period:
Final dividend for the year ended 31 December 2016 of 9.87c/7.95p (2015: 9.41c/6.15p) 2,018 1,826 1,853
Interim dividend for the year ended 31 December 2016 of 5.13c/3.93p (2015: 5.13c/3.35p) - - 1,049
Total dividend paid for the period 2,018 1,826 2,902
The Quarto Group, Inc., as a US incorporated company, is required to collect
US dividend withholding taxes on dividend distributions made to its non-US
shareholders. The US dividend withholding tax is generally 30% of any
dividends paid to Quarto's non-US shareholders, but this amount can
potentially be reduced pursuant to an applicable income tax treaty between the
US and the country of residence of the non-US shareholder. For example, under
the US/UK income tax treaty, the US dividend withholding tax rate can range
from nil (applicable to certain UK resident pension trusts and tax exempt
entities) to 15% (applicable to UK resident individual shareholders and
certain UK corporate shareholders). For US shareholders, no US dividend
withholding tax is generally applicable. It should be noted that certain
documentation requirements must be met by all shareholders prior to the
payment of any dividends to certify their status as a US or non-US
shareholder, and, if a non-US shareholder to claim any applicable benefits
under the US/UK or other applicable income tax treaty. Each shareholder
should consult their own tax adviser to determine whether and to what extent
they may be entitled to claim a reduced amount of US dividend withholding
taxes under a US income tax treaty.
8. Goodwill
The Group performs its annual impairment review at the end of each financial
year. The recent and on-going challenging trading environment gives rise to
an indicator of potential impairment and therefore, a full review was
undertaken at 30 June 2017. The key inputs to the review were consistent with
the review performed at 31 December 2016 and applied to the Group's updated
forecasts. The review did not require an impairment charge in respect of
either of the two cash generating units of US Publishing and UK Publishing.
9. Net debt and financing
At 30 June 2017, the Group has a $85.0m syndicated bank facility, comprising a
term loan and revolving credit facility. These facilities expire in 30 April
2019 and are subject to financial covenants which were all met in the current
period.
Net debt is reconciled as follows:
30 June 2017Unaudited$'000 30 June 2016Unaudited$'000 31 December 2016Audited$'000
Cash and cash equivalents 6,800 7,710 18,824
Cash included in assets held for sale 128 - -
Short term borrowings (5,000) (5,000) (5,000)
Medium and long term borrowings (77,720) (75,247) (75,748)
Net debt (75,792) (72,537) (61,924)
10. Principal risks and uncertainties facing the Group
There have been no changes to the principal risks and uncertainties facing the
Group since the year-end. These are disclosed on pages 22 and 23 of the 2016
Annual Report.
11. Financial Instruments
There are no material differences between the fair value of financial
instruments and their carrying value.
THE QUARTO GROUP, INC.
Notes to the condensed financial statements
12. Acquisitions and post balance sheet event
On 7 July 2017, the Group completed the sale of the trade and selected assets
of Books & Gifts Direct Limited ("BGD New Zealand"), its direct sales business
in New Zealand and last remaining non-publishing business. The business has
been acquired by Etailer BGD (2017) Limited, a company incorporated in New
Zealand and formed for the purposes of acquiring the business. It is part of
the established online retail group Etailer Limited in New Zealand. The cash
consideration for the sale is US$0.6m (NZ$0.8m) payable over the next two
years. In addition, Quarto is entitled to receive 50% of debtor receipts for
the next year and 15% of the profit before interest and tax of the business
for the next three years. The cashflows will be used to reduce the Group's
bank debt as they are received.
The Board has received a preliminary approach to acquire the Company at a
price it considers very attractive and hence worthy of due consideration.
Discussions with the potential acquirer are at an early stage and there can be
no certainty that an offer will be made.
13. Management Statement
This Interim Management Report (IMR) has been prepared solely to provide
additional information to shareholders to assess the Group's strategies and
the potential for those strategies to succeed. The IMR should not be relied
on by any other party or for any other purpose.
The IMR contains certain forward-looking statements. These statements are
made by the directors in good faith based on the information available to them
up to the time of their approval of this report but such statements should be
treated with caution due to the inherent uncertainties, including both
economic and business risk factors, underlying any such forward-looking
information.
Responsibility statement
We confirm that to the best of our knowledge:
(a) the condensed set of financial statements, which has been prepared
in accordance with IAS 34 "Interim Financial Reporting", gives a true and fair
view of the assets, liabilities, financial position and profit or loss of the
issuer, or the undertakings included in the consolidation as a whole as
required by DTR 4.2.4R;
(b) the interim management report includes a fair review of the
information required by DTR 4.27R (indication of important events during the
first six months and description of principal risks and uncertainties for the
remaining six months of the year); and
(c) the interim management report includes a fair review of the
information required by DTR 4.28R (disclosure of related party transactions
and changes therein).
By the order of the board
Marcus E. Leaver Chief Executive Officer Peter ReadChairman
7 August 2017 7 August 2017
This information is provided by RNS
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