REG - Quarto Group Inc - Half-year Report
30/08/2022 10:15
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RNS Number : 5799X Quarto Group Inc 30 August 2022
The Quarto Group, Inc.
(the "Company", "Quarto", "Group")
Half-Year Results for the Six Months Ended 30 June 2022
The Quarto Group Inc. (LSE: QRT), the leading global illustrated book
publisher, announces its unaudited half-year results for the six months ended
30 June 2022.
Results ($m) H1 2022 H1 2021
Group Revenue 61.9 56.9
Adjusted(1) Group Operating Profit 6.7 4.0
Group Operating Profit 7.2 4.0
Adjusted(1) Profit before Tax 6.1 3.1
Profit before Tax 6.6 3.0
Profit after Tax 4.7 2.1
Net Debt 5.6 16.4
1. Adjusted measures are stated before amortization of acquired
intangibles and exceptional items.
Headlines
· Revenue up 9% at $61.9m against 2021.
· Operating profit of $7.2m up from $4m in 2021, partly due to the
continued cost reduction program implemented in 2018.
· Net debt reduced in last 12 months by $10.8m (66%) to $5.6m driven by
the cost reduction program, improved trading, dynamic inventory management and
reduced finance costs.
Chief Executive, Alison Goff commented on the half year position:
"This is an encouraging set of results following on from the growth in 2021.
Revenue has continued to grow delivering a higher than expected operating
profit, in what is seasonally, our weakest half of the year.
Quarto had strong sales in the first half of 2022 across both its UK and US
segments.
Quarto UK continued the momentum from last year with 10% revenue growth up
$2.5m to $27.2m, with operating profit up $1m to $3.1m. Strong business to
business sales were a key driver together with a solid trade performance.
Bestsellers within the period include The Queen, a new title in 2022 in our
very successful Little People Big Dreams series, as well as National Parks of
the USA which was published in 2018. My Beautiful Voice by Joseph Coelho which
was published in 2021, was the winner of the Indie Book Award 2022 in the
picture book category. We were also awarded the IPG Sustainability Award for
our Ivy Kids Imprint, which has set new sustainability standards in
publishing.
Quarto US saw an 8% revenue growth up $2.6m to $34.7m, again driven by strong
business to business sales. Operating profit also increased by 8% to $4.1m.
Custom sales grew in excess of 120% in the period as we continued to focus on
utilising our intellectual property of existing titles. We continue to see
Beautiful Boards and All New Square Foot Gardening perform strongly.
We are now focused on the second half of the year, which will be a critical
time for Quarto, as we expect the trading environment to be particularly
challenging. This is due to the current high cost of living and continued
volatility in freight, in respect to capacity issues resulting in higher
freight costs. However, I am confident we have the right plans in place to
capture all possible opportunities to ensure a satisfactory year-end position.
The Board remains focused on continuing its efforts to keep costs under
control, drive sales, whilst maintaining the debt reduction and developing
further growth strategies for the remainder of 2022, 2023 and beyond."
- ENDS -
The Legal Identifier of the Company is 549300BJ2WPX3QUATW58.
For further information, please contact:
The Quarto Group
Inc. +44
(0)20 7700 6700
Daniel Logan, Group Finance Director
Michael Clarke, Company Secretary
About The Quarto Group
The Quarto Group (LSE: QRT) creates a wide variety of books and intellectual
property products, with a mission to inspire life's experiences. Produced in
many formats for adults, children and the whole family, our products are
visually appealing, information rich and stimulating.
The Group encompasses a diverse portfolio of imprints and businesses that are
creatively independent and expert in developing long-lasting content across
specific niches of interest.
Quarto sells and distributes its products globally in over 50 countries and 40
languages, through a variety of sales channels, partnerships and routes to
market.
Quarto employs c.300 talented people in the US and the UK. The group was
founded in London in 1976. It is domiciled in the US and listed on the London
Stock Exchange.
For more information, visit quarto.com or follow us on Twitter at
@TheQuartoGroup.
CHIEF EXECUTIVE'S STATEMENT
SUMMARY
Trading was encouraging for the first six months of 2022. Revenue was up 9%
year on year at $61.9m following on from the growth in 2021(H1 2021: $56.9m).
Revenue increased year on year in 2021 by 21% (H1 2020: $46.9m).
Our Adult imprints performed strongly, with revenues up 12% year on year.
Revenues from Children imprints was also up 6% year on year. Gross profit
margin was ahead of prior year at 36.4% (H1 2021: 31.8%) driven by a reduction
in pre-publication amortization, despite pressure on print and freight costs.
The increased revenues and substantial benefits from the cost reduction
program initiated in late 2018 that continued through the pandemic, resulted
in an adjusted group operating profit of $7.2m (H1 2021: $4.0m). The adjusted
profit before tax was $6.6m (H1 2021: $3.1m).
Both our US and UK reporting segments improved their trading performance year
on year, resulting in a significant improvement in the Group's adjusted
operating result, as shown in the table below.
Net debt at 30 June 2022 was $5.6m (H1 2020: $16.4m) a decrease of $10.8m over
the twelve-month period, with minimal movement in the last 6 months (See note
7.) This strong cash generation has been driven by the improved trading,
dynamic inventory management, cost reduction program and reduced finance
costs.
The book trade market in the first six months of 2022 proved to be resilient,
continuing the recovery seen in 2021. The co-edition market also performed
strongly year on year.
OPERATING REVIEW
Revenue ($m) H1 2022 H1 2021 H1 2020
United States 39.7 36.3 28.7
United Kingdom 6.6 7.9 6.4
Rest of the World 8.0 6.1 5.6
Europe 7.6 6.6 6.2
Total Revenue 61.9 56.9 46.9
Adjusted Operating Profit ($m) H1 2022 H1 2021 H1 2020
US Publishing 4.1 3.8 (0.4)
UK Publishing 3.1 1.0 (0.6)
Group overhead (0.5) (0.8) (0.8)
Total adjusted operating profit 6.7 4.0 (1.8)
Note: Revenue is shown by destination; adjusted operating profit is shown by
segment.
The Group's increase in revenue this year to date, is a result of strong
business to business sales. Whilst our sales to traditional retailer and
specialists accounts have seen growth, online sales have decreased year on
year.
UK-based Frances Lincoln Children's Books imprint continues to drive forward,
with the Little People, Big Dreams series continuing to be a highlight, with
over 6 million copies sold in the English language to date. We have expanded
the list to include inspirational role models such as Marcus Rashford, Nelson
Mandela and the continuing success of David Attenborough.
In the US, our New York-based Adult imprints, especially Chartwell, Wellfleet
Press and Rock Point, continue to perform strongly led by Beautiful Boards and
MBS titles.
Co-edition is ahead of prior year both in English and Foreign language
however, as we move into H2, we are expecting this to be a challenging market.
In respect to Custom, we have seen new opportunities driving revenue growth
and we expect this to become a larger part of our business-to-business revenue
in the latter half of 2022 and the coming years.
International English language sales are up year on year, driven predominantly
by Canada, with sales to Australia down year on year.
We continue to see a reduction in our financing costs, as we drive down the
Group's net debt.
OUTLOOK
As we move into H2 this financial year, we expect to see a turbulent second
half of the year, with the cost-of-living crisis impacting both the US and UK
trade sales. We are also seeing a sharper fall in online sales than expected,
impacted not only by the increased cost of living, but as the consumer returns
to purchase books from the traditional book stores. Business to business sales
is continuing to hold firm, with particular growth through the custom channel.
However, we expect this channel to become increasingly more challenging.
We have taken the decision to close our Distribution Service, where we provide
Sales & Logistic services for third party customers, which will start to
impact our sales from July 2022. We have also decided to sell Smart Lab, our
Toy imprint, in order to focus on our core publishing business.
Whilst the volatility in freight has reduced, costs remain at the high levels
of last year, along with pressure on print prices. We continue to try to
mitigate these costs and have actively increased our use of local print
suppliers as well as review our inventory policy, to ensure we print at the
most efficient quantities. We expect this pressure on print and freight to
continue for the foreseeable future.
However, I am confident we have the right plans in place to capture all
possible opportunities to ensure a satisfactory year-end position. The Board
remains focused on continuing its efforts to keep costs under control, drive
sales, whilst maintaining the debt reduction and developing further growth
strategies for the remainder of 2022, 2023 and beyond.
On behalf of the Board, I would like to thank all our staff, readers,
customers, suppliers and shareholders around the world, for their continued
support and commitment.
Alison Goff
Chief Executive Officer
THE QUARTO GROUP, INC.
Condensed Consolidated Income Statement
For the six months ended 30 June 2022
Note Six months to Six months to Year ended
30 June 2022 30 June 2021 31 December 2021
Unaudited Unaudited Audited
$'000 $'000 $'000
Continuing operations
Revenue 3 61,908 56,864 151,483
Cost of sales (39,391) (38,775) (103,897)
Gross profit 22,517 18,089 47,586
Distribution costs (3,699) (3,562) (8,439)
Impairment of financial assets (301) (689) (874)
Administrative expenses (11,836) (9,858) (22,314)
Operating profit before amortisation of acquired intangibles and exceptional 6,681 3,980 15,959
items
Amortisation of acquired intangibles - (7) (7)
Exceptional items 4 491 - -
Operating profit 3 7,172 3,973 15,952
Finance costs (545) (929) (1,796)
Profit before tax 6,627 3,044 14,156
Taxation 5 (1,904) (895) (4,230)
Profit for the period 4,723 2,149 9,926
Attributable to:
Owners of the parent 4,723 2,149 9,926
Earnings/(loss) per share (cents)
From continuing operations
Basic 6 11.5 5.3 24.3
Diluted 6 11.5 5.3 24.3
THE QUARTO GROUP, INC.
Condensed Consolidated Statement of Comprehensive Income
For the six months ended 30 June 2022
Six months to Six months to Year ended
30 June 2022 30 June 2021 31 December 2021
Unaudited Unaudited Audited
$'000 $'000 $'000
Profit for the period 4,723 2,149 9,926
Other comprehensive income which may be reclassified to profit or (loss)
Foreign exchange translation differences (2,833) 255 (506)
Tax relating to items that may be reclassified to profit or loss - - 66
Total comprehensive income for the period 1,890 2,404 9,486
Attributable to:
Owners of the parent 1,890 2,404 9,486
THE QUARTO GROUP, INC.
Condensed Consolidated Balance Sheet
As at 30 June 2022 Note 30 June 2022 30 June 2021 31 December 2021
Unaudited Unaudited Audited
$'000 $'000 $'000
Non-current assets
Goodwill 18,622 19,429 19,286
Other intangible assets 2 101 51
Property, plant and equipment 4,419 6,112 5,181
Intangible assets: Pre-publication costs 27,040 39,958 29,941
Deferred tax assets 2,437 3,604 2,436
Total non-current assets 52,520 69,204 56,895
Current assets
Inventories 22,552 17,366 20,393
Trade and other receivables 38,293 34,473 51,242
Cash and cash equivalents 7 8,106 19,044 28,432
Assets Held for Sales 8 2,360 0 0
Total current assets 71,311 70,883 100,067
Total assets 123,831 140,087 156,962
Current liabilities
Short term borrowings 7 (3,116) (3,905) (5,438)
Trade and other payables (42,083) (41,992) (53,789)
Lease liabilities (1,111) (1,426) (1,363)
Tax payable (5,420) (4,117) (7,467)
Total current liabilities (51,730) (51,440) (68,057)
Non-current liabilities
Medium and long-term borrowings 7 (10,596) (31,498) (28,508)
Deferred tax liabilities (2,933) (6,347) (3,130)
Tax payable (386) (386) (386)
Lease liabilities (3,087) (4,289) (3,672)
Total non-current liabilities (17,002) (42,520) (35,696)
Total liabilities (68,732) (93,960) (103,753)
Net assets 55,099 46,127 53,209
Equity
Share capital 4,089 4,089 4,089
Paid in surplus 48,701 48,701 48,701
Retained earnings and other reserves 2,309 (6,663) 419
Total equity 55,099 46,127 53,209
THE QUARTO GROUP, INC.
Condensed Consolidated Statement of Changes in Equity
For the six months ended 30 June 2022
Share capital Paid in surplus Translation Retained earnings Equity attributable to owners of the parent
reserve
$000 $000 $000 $000 $000
Balance at 1 January 2021 4,089 48,701 (5,607) (3,470) 43,713
Profit for the period - - - 2,149 2,149
Foreign exchange translation differences - - 255 - 255
Total comprehensive (expense)/income for the period - - 255 2,149 2,404
Share based payment charge - - - 10 10
Transactions with owners
Balance at 30 June 2021 4,089 48,701 (5,352) (1,311) 46,127
Balance at 1 January 2022 4,089 48,701 (6,047) 6,466 53,209
Profit for the period - - - 4,723 4,723
Foreign exchange translation differences - - (2,833) - (2,833)
Total comprehensive income for the period - - (2,833) 4,723 1,890
Share based payment charge - - - - -
Balance at 30 June 2022 4,089 48,701 (8,880) 11,189 55,099
THE QUARTO GROUP, INC.
Condensed Consolidated Statement of Changes in Equity
For the year ended 31 December 2021
Share capital Paid in surplus Translation Retained earnings Equity attributable to owners of the parent
reserve
$000 $000 $000 $000 $000
Balance at 1 January 2021 4,089 48,701 (5,607) (3,470) 43,713
Profit for the year - - - 9,926 9,926
Foreign exchange translation differences - - (506) - (506)
Tax relating to items that may be reclassified to profit or loss - - 66 - 66
Total comprehensive income for the year - - (440) 9926 9,486
Share based payment credit - - - 10 10
Transactions with owners - - - 10 10
Balance at 31 December 2021 4,089 48,701 (6,047) 6,466 53,209
THE QUARTO GROUP, INC.
Condensed Consolidated Cash Flow Statement
For the six months ended 30 June 2022
Six months to Six months to Year ended
30 June 2022 30 June 2021 31 December 2021
Unaudited Unaudited Audited
$'000 $'000 $'000
Profit for the period 4,723 2,149 9,926
Adjustments for:
Net finance costs 545 929 1,796
Depreciation of property, plant and equipment 696 766 1,741
Software amortization 50 51 101
Tax charge 1,904 895 4,230
Profit on disposal of right-of-use assets - - -
Share based payments 0 10 10
Amortisation and amounts written off acquired intangibles - 7 7
Amortisation and amounts written off pre-publication costs 31,000
10,176 12,026
Forgiveness of the Cares Act Loan (2,275) - -
(Gain) / Loss on disposal of property, plant & equipment 58 - -
Operating cash flows before movements in working capital 15,877 16,833 48,811
Increase in inventories (5,253) (1,867) (5,036)
Decrease / (Increase) in receivables 10,664 10,239 (7,106)
(Decrease) / Increase in payables (10,276) (7,371) 4,035
Cash generated by operations 11,012 17,834 40,704
Income taxes paid (3,614) (1,156) (3,053)
Net cash from operating activities 7,398 16,678 37,651
Investing activities
Investment in pre-publication costs (8,997) (10,911) (20,229)
Purchases of property, plant and equipment (35) (56) (111)
Net cash used in investing activities (9,032) (10,967) (20,340)
Financing activities
Interest payments (182) (1,923) (1,866)
Lease payments (837) (712) (1,426)
External loans repaid (17,629) (31,567) (30,840)
External loans drawn - 25,118 22,994
Net cash used in financing activities (18,648) (9,084) (11,138)
Net (decrease)/increase in cash and cash equivalents (20,282) (3,373) 6,173
Cash and cash equivalents at beginning of period 28,432 22,079 22,079
Foreign currency exchange differences on cash and cash equivalents (44) 338 180
Cash and cash equivalents at end of period 8,106 19,044 28,432
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 2022. They were approved by the board on 30 August 2022. These results
are unaudited and have not been reviewed by the Group's auditor. The
comparative figures for the six months to 30 June 2021 were unaudited and
derived from the interim financial statements for that period.
The information for the year ended 31 December 2021 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".
The Group's forecast and projections, taking account of reasonably possible
changes in trading performance, show that the Group will be able to operate
well within the level of its current banking facilities. The Directors have
therefore adopted a going concern basis in preparing the Interim Information.
2. Accounting policies
The accounting policies, significant judgements and key sources of estimation
adopted in the preparation of this Interim Report are consistent with those
applied by the Group in its consolidated financial statements for the year
ended 31 December 2021.
THE QUARTO GROUP, INC.
Notes to the condensed financial statement
3. Segmental analysis
Six months to 30 June 2022
US Publishing UK Publishing Total
$000 $000 $000
Revenue 34,650 27,258 61,908
Operating profit before amortisation of acquired intangibles and exceptional 4,096 3,115 7,211
items
Amortisation of acquired intangibles - - -
Segment result 4,096 3,115 7,211
Unallocated corporate expenses (530)
Exceptional items 491
Operating profit 7,172
Finance costs (545)
Profit before tax 6,627
Tax charge (1,904)
Profit after tax 4,723
Six months to 30 June 2021 US Publishing UK Publishing Total
$000 $000 $000
Revenue 32,085 24,779 56,864
Operating profit before amortisation of acquired intangibles and exceptional 3,792 1,029 4,821
items
Amortisation of acquired intangibles (7) - (7)
Segment result 3,785 1,029 4,814
Unallocated corporate expenses (841)
Exceptional items -
Operating profit 3,973
Finance costs (929)
Profit before tax 3,044
Tax charge (895)
Profit after tax 2,149
Year ended 31 December 2021 US Publishing UK Publishing Total
$000 $000 $000
Revenue 81,062 70,421 151,483
Operating profit before amortisation of acquired intangibles and exceptional 10,024 7,001 17,025
items
Amortisation of acquired intangibles (7) - (7)
Segment result 10,017 7,001 17,018
Unallocated corporate expenses (1,066)
Corporate exceptional items -
Operating profit 15,952
Finance costs (1,796)
Profit before tax 14,156
Tax (4,230)
Profit after tax 9,926
THE QUARTO GROUP, INC.
Notes to the condensed financial statements
3. Segmental analysis (continued)
Geographical revenue
The Group generates its revenue in the following geographical areas:
Six months to Six months to Year ended
30 June 2022 30 June 2021 31 December 2021
Unaudited Unaudited Audited
$'000 $'000 $'000
United States 39,712 36,315 93,399
United Kingdom 6,556 7,851 20,241
Europe 7,616 6,661 21,204
Rest of the World 8,024 6,087 16,639
Total 61,908 56,864 151,483
4. Exceptional Items
Six months to Six months to Year ended
30 June 2022 30 June 2021 31 December 2021
Unaudited Unaudited Audited
$'000 $'000 $'000
Exceptional items comprised:
Impairment costs on remeasurement of Disposal Group (see note 8) (1,781) - -
Forgiveness of Cares Act Loan 2,272 - -
Total 491 - -
5. Taxation
Taxation for the six months to 30 June 2022 is based on the Group estimated
underlying tax rate for the year.
THE QUARTO GROUP, INC.
Notes to the condensed financial statements
6. Earnings per share
Six months to Six months to Year ended
30 June 2022 30 June 2021 31 December 2021
Unaudited Unaudited Audited
$'000 $'000 $'000
From continuing operations
Profit/ for the purposes of basic and diluted earnings per share, being net 4,723 2,149 9,926
profit/ attributable to owners of the parent
Amortisation of acquired intangibles (net of tax) 0 5 5
Exceptional items (net of tax) (369) - -
Earnings for the purposes of adjusted earnings per share 4,354 2,154 9,931
Number Number Number
Weighted average number of shares 40,889,000 40,889,000 40,889,100
Dilutive outstanding options awards - 43,482 -
Diluted weighted average number of shares 40,889,000 40,932,482 40,899,100
Earnings/(loss) per share (cents) Cents Cents Cents
From continuing operations
Basic 11.5 5.3 24.3
Diluted 11.5 5.3 24.3
Adjusted basic 10.6 5.3 24.3
Adjusted diluted 10.6 5.3 24.3
7. Net debt
30 June 2022 30 June 2021 31 December 21
Unaudited Unaudited Audited
$'000 $'000 $'000
Net debt comprised:
Cash and cash equivalents 8,106 19,044 28,432
Short term borrowings (3,116) (3,905) (5,438)
Medium and long-term borrowings (10,596) (31,498) (28,508)
Net debt (5,606) (16,359) (5,514)
At 30 June 2022, the Group has a $15.3m club facility, comprising a term loan,
revolving credit facility and overdraft. These facilities expire on 16 July
2024 and are subject to covenants, which were all met in the current period.
In addition, the Group has $8.0m of sub-ordinated loans with related parties,
repayable on 31 August 2024 and a loan of $0.1m relating to government support
given under the Coronavirus Aid, Relief and Economic Security Act of the USA
(see note 4).
THE QUARTO GROUP, INC.
Notes to the condensed financial statements
8. Disposal group held for sale
At the reporting date, management had committed to sell Smart Lab, our toy
imprint. Accordingly, that imprint is presented as a disposal group held for
sale. Whilst no disposal has been agreed, we have received a non-binding
offer. Efforts to sell the disposal group have continued and a sale is
expected to be completed by September 2022.
Assets and liabilities of disposal group held for sale
$000's
Non-current assets 16
Current assets 2,344
Assets held for Sale 2,360
Non-current assets held for sale are Pre-publication costs.
9. 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 19 to 21 of the 2021
Annual Report.
10. Financial instruments
There are no material differences between the fair value of financial
instruments and their carrying value.
11. 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 4.2.7R (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 4.2.8R (disclosure of related party transactions
and changes therein).
By the order of the board
Alison Goff Andrew Cumming
Chief Executive Officer Chairman
30 August 2022 30 August 2022
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