REG - Quarto Group Inc - Half-year Results
30/08/2023 10:15
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RNS Number : 8090K Quarto Group Inc 30 August 2023
The Quarto Group, Inc.
(the "Company", "Quarto", "Group")
Half-Year Results for the Six Months Ended 30 June 2023
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 2023.
Results ($m) H1 2023 H1 2022
Group Revenue 52.0 61.9
Adjusted(1) Group Operating Profit 3.1 6.7
Group Operating Profit 3.1 7.2
Adjusted(1) Profit before Tax 3.1 6.1
Profit before Tax 2.6 6.6
Profit after Tax 1.8 4.7
Net Cash / (Debt) 9.1 (5.6)
1. Adjusted measures are stated exceptional items.
Headlines
• Revenue down 16% at $52m against 2022, partly due to Quarto
Distribution Services & Smart Lab being discontinued, with core revenue
$51m, down 10% year on year.
• Operating profit of $3.1m down from $7.2m in 2022, driven by the
reduction in revenue.
• Strong cash generation has continued to feature, with $14.7
million generated over the last 12 months to June 2023. Net cash position was
$9.1m against a net debt position of $5.6m (June 2022)
Chief Executive, Alison Goff commented on the half year position:
"Following the economic challenges faced towards the end of 2022 and into
2023, this is a steady set of results following on from the growth in 2022.
Whilst revenue and profits were down year on year, the results achieved are in
line with our expectations for the seasonally weaker first half of the year.
Quarto UK, whilst sales experienced a decline of 6% year on year from $27.2m
(2022) to $25.5m (2023), this is still 3% ahead of 2021. With the decline in
revenue, operating profits reduced from $3.1m in 2022 to $2.4m in 2023,
although this is still a significant improvement on 2021 at $1m. Softness
across all areas of the business contributed to this decline, as consumer
demand reduced and our business to business sales slowed as customers managed
their inventory.
Bestsellers within the period include The King, a new title for 2023 in our
very successful Little People Big Dreams series and London: A Guide for
Curious Wanderers also a new title in 2023. We were also shortlisted for
numerous prestigious awards including Flooded by Mariajo Ilustrajo (Klaus
Flugge Prize) and Rescuing Titanic (Yoto Carnegie award).
Quarto US has also seen a decline in revenue down 23% from $34.7m to $26.5m.
Excluding the discontinued Quarto Distribution Services and Smart Lab core
trading is down 12%, with trade sales and custom down 7% and 44% respectively.
The reduction in custom sales is purely timing of orders and we expect this to
recover during the second half of 2023. Operating profit reduced by 69% to
$1.3m from $4.1m, with the decline in sales.
We continue to see Beautiful Boards perform strongly, with Nascar 75 years
published in 2023 also performing well.
We are now focused on the second half of the year, which will be a significant
period for Quarto as we expect the trading environment to continue to be
challenging. However, I am confident with inflation past its recent peak and
supply chain issues now easing, we have the right plans in place to capture
all potential opportunities. We are confident that these plans will enable us
to navigate through these uncertain times.
The Board remains focused on ensuring we keep costs under control, drive
sales, and develop further growth strategies for the remainder of 2023, 2024
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.305 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
Following the growth in sales in the first half of 2022 compared to 2021, the
revenue in first half of 2023 declined by 16% year on year at $52m, with core
revenue, excluding Quarto Distribution Services and Smart Lab, down 10% at
$51m. Revenue increased year on year in 2022 by 9% (H1 2021: $56.9m, Core
revenue $51.5m).
Whilst sales declined due to the disposal of Smart Lab and the scaling back of
Quarto Distribution Services, gross profit margin was impacted by only 1.2% to
35.2%, with prior year at 36.4%.
The decline in revenue resulted in an adjusted group operating profit of $3.1m
(H1 2022: $6.7m). The adjusted profit before tax was $2.6m (H1 2022: $6.1m).
With both US and UK reporting segments showing revenue declines year on year,
this resulted in the Group's adjusted operating results also showing a
reduction, as shown in the table below.
June 2023, was a significant moment, as Quarto had net cash of $9.1m, compared
with net debt of $5.6m in H1 2022, with cash generation of $14.7m over the
twelve-month period and $8.5m in the last 6 months (See note 7). This strong
cash generation has been driven by strong trading in 2022, dynamic inventory
management, tight cost controls and reduced finance costs.
The overall book market in the first six months of 2023 proved, as expected,
to be even more challenging than 2022.
OPERATING REVIEW
Revenue ($m) H1 2023 H1 2022 H1 2021
United States 29.3 39.7 36.3
United Kingdom 7.5 6.6 7.9
Rest of the World 6.8 8.0 6.1
Europe 8.4 7.6 6.6
Total Revenue 52.0 61.9 56.9
Adjusted Operating Profit ($m) H1 2023 H1 2022 H1 2021
US Publishing 1.3 4.1 3.8
UK Publishing 2.4 3.1 1.0
Group overhead (0.6) (0.5) (0.8)
Total adjusted operating profit 3.1 6.7 4.0
Note: Revenue is shown by destination; adjusted operating profit is shown by
segment.
The Group's decrease in revenue this year to date, is a result of soft trade
sales and reduction of our custom sales, following a very strong 2022.
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 7 million copies sold in the English language to date. We continue to
expand the list, with King Charles publishing in 2023, generating $535k in
revenue. This series continues to grow and we add even more foreign language
partners to our sales.
In the US, our Beverly-based Adult imprints, especially Motorbooks, Rockport
and Walter Foster, continue to perform strongly led by Nascars 75 years and
Kawaii Tarot Coloring Book.
Foreign language sales are ahead year on year, and we expect this to continue
as we move into H2.
The current shortfall in Custom sales is purely timing and we expect this to
recover in H2. English language co-edition sales, currently down year on year,
are expected to remain flat as customers work through existing inventory and
reprint orders are reduced.
The reduction in our financing costs will continue as we improve our cash
position.
OUTLOOK
As we move into H2 we expect the challenges seen in H1 which have been
impacting trade sales to continue. With the expected fall in inflation across
both the US & UK, we should start to see a softening of the cost-of-living
crisis and more buoyancy in the market.
Foreign language sales are expected to hold firm, with strong orders in the
pipeline and Custom sales whilst down year on year, are expected to recover
during the second half of the year.
The decision to close our Quarto Distribution Service and Smart Lab, our toy
imprint, has allowed us to focus on our core publishing business, whilst
reducing the overhead in those areas.
After the recent period of volatility in freight in terms of lead times and
costs, we have seen significant improvement in both areas. This will allow us
a greater number of options when sourcing our print, enabling us to be nimble
whilst ensuring competitive pricing.
I am confident we have the right plans in place to capture all potential
opportunities. The Board remains focused on keeping costs under control,
driving sales, and developing further growth strategies for the remainder of
2023, 2024 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 2023
Note Six months to Six months to Year ended
30 June 2023 30 June 2022 31 December 2022
Unaudited Unaudited Audited
$'000 $'000 $'000
Continuing operations
Revenue 3 52,041 61,908 141,017
Cost of sales (33,699) (39,391) (87,319)
Gross profit 18,342 22,517 53,698
Distribution costs (2,965) (3,699) (7,582)
Impairment of financial assets (264) (301) (69)
Administrative expenses (12,041) (11,836) (24,723)
Operating profit before exceptional items 3,072 6,681 21,324
Exceptional items 4 - 491 774
Operating profit 3 3,072 7,172 22,098
Finance costs (493) (545) (1,213)
Profit before tax 2,579 6,627 20,885
Taxation 5 (797) (1,904) (4,279)
Profit for the period 1,782 4,723 16,606
Attributable to:
Owners of the parent 1,782 4,723 16,606
Earnings per share (cents)
From continuing operations
Basic 6 4.4 11.5 40.6
Diluted 6 4.4 11.5 40.6
THE QUARTO GROUP, INC.
Condensed Consolidated Statement of Comprehensive Income
For the six months ended 30 June 2023
Six months to Six months to Year ended
30 June 2023 30 June 2022 31 December 2022
Unaudited Unaudited Audited
$'000 $'000 $'000
Profit for the period 1,782 4,723 16,606
Other comprehensive income which may be reclassified to profit or loss
Foreign exchange translation differences 625 (2,833) (2,475)
Total comprehensive income for the period 2,407 1,890 14,131
Attributable to:
Owners of the parent 2,407 1,890 14,131
THE QUARTO GROUP, INC.
Condensed Consolidated Balance Sheet
As at 30 June 2023 Note 30 June 2023 30 June 2022 31 December 2022
Unaudited Unaudited Audited
$'000 $'000 $'000
Non-current assets
Goodwill 18,860 18,622 18,622
Other intangible assets 1 2 1
Property, plant and equipment 7,264 4,419 7,677
Intangible assets: pre-publication costs 26,147 27,040 25,473
Deferred tax assets 1,834 2,437 1,835
Total non-current assets 54,106 52,520 53,608
Current assets
Inventories 20,522 22,552 21,826
Trade and other receivables 32,323 38,293 40,122
Cash and cash equivalents 7 13,464 8,106 13,290
Assets held for sales 8 - 2,360 -
Total current assets 66,309 71,311 75,238
Total assets 120,415 123,831 128,846
Current liabilities
Short term borrowings 7 (4,362) (3,116) (4,636)
Trade and other payables (33,254) (42,083) (33,869)
Lease liabilities (1,231) (1,111) (944)
Tax payable (2,866) (5,420) (3,295)
Total current liabilities (41,713) (51,730) (42,744)
Non-current liabilities
Medium and long-term borrowings 7 - (10,596) (9,301)
Deferred tax liabilities (2,928) (2,933) (2,798)
Tax payable (386) (386) (386)
Lease liabilities (5,641) (3,087) (6,277)
Total non-current liabilities (8,955) (17,002) (18,762)
Total liabilities (50,668) (68,732) (61,506)
Net assets 69,747 55,099 67,340
Equity
Share capital 4,089 4,089 4,089
Paid in surplus 48,701 48,701 48,701
Retained earnings and other reserves 16,957 2,309 14,550
Total equity 69,747 55,099 67,340
THE QUARTO GROUP, INC.
Condensed Consolidated Statement of Changes in Equity
For the six months ended 30 June 2023
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 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 (expense) / income for the period - - (2,833) 4,723 1,890
Balance at 30 June 2022 4,089 48,701 (8,880) 11,189 55,099
Balance at 1 January 2023 4,089 48,701 (8,522) 23,072 67,340
Profit for the period - - - 1,782 1,782
Foreign exchange translation differences - - 625 - 625
Total comprehensive (expense) / income for the period - - 625 1,782 2,407
Balance at 30 June 2023 4,089 48,701 (7,897) 24,854 69,747
THE QUARTO GROUP, INC.
Condensed Consolidated Statement of Changes in Equity
For the year ended 31 December 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 2022 4,089 48,701 (6,047) 6,466 53,209
Profit for the year - - - 16,606 16,606
Foreign exchange translation differences - - (2,475) - (2,475)
Total comprehensive (expense) / income for the period - - (2,475) 16,606 14,131
Balance at 31 December 2022 4,089 48,701 (8,522) 23,072 67,340
THE QUARTO GROUP, INC.
Condensed Consolidated Cash Flow Statement
For the six months ended 30 June 2023
Six months to Six months to Year ended
30 June 2023 30 June 2022 31 December 2022
Unaudited Unaudited Audited
$'000 $'000 $'000
Profit for the period 1,782 4,723 16,606
Adjustments for:
Net finance costs 493 545 1,213
Depreciation of property, plant and equipment 813 696 2,029
Software amortization - 50 50
Tax charge 797 1,904 4,279
Impairment of right-of-use assets - - 228
Amortization and amounts written off pre-publication costs 19,935
8,558 10,176
Impairment of pre-publication costs (121) - (729)
Forgiveness of the Cares Act Loan - (2,272) (2,272)
(Gain) / loss on disposal of property, plant & equipment (1) 58 3
Loss on disposal of SmartLab - - 1,498
Operating cash flows before movements in working capital 12,321 15,880 42,840
Decrease/ (increase) in inventories 1,597 (5,253) (3,299)
Decrease / (increase) in receivables 8,523 10,664 8,594
(Decrease) / increase in payables (1,437) (10,279) (17,119)
Cash generated by operations 21,004 11,012 31,016
Income taxes paid (1,315) (3,614) (7,561)
Net cash from operating activities 19,689 7,398 23,455
Investing activities
Net proceeds from disposal of SmartLab & property, plant & equipment - - 1,437
Net proceeds from disposal of property, plant & equipment 1 - -
Investment in pre-publication costs (8,597) (8,997) (18,067)
Purchases of property, plant and equipment (190) (35) (1,238)
Net cash used in investing activities (8,786) (9,032) (17,868)
Financing activities
Interest payments (281) (182) (397)
Lease payments (696) (837) (1,708)
External loans repaid (9,658) (17,629) (19,693)
External loans drawn - - 1,500
Net cash used in financing activities (10,635) (18,648) (20,298)
Net increase / (decrease) in cash and cash equivalents 268 (20,282) (14,711)
Cash and cash equivalents at beginning of period 13,290 28,432 28,432
Foreign currency exchange differences on cash and cash equivalents (94) (44) (431)
Cash and cash equivalents at end of period 13,464 8,106 13,290
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 2023. They were approved by the board on 30 August 2023. These results
are unaudited and have not been reviewed by the Group's auditor. The
comparative figures for the six months to 30 June 2022 were unaudited and
derived from the interim financial statements for that period.
The information for the year ended 31 December 2022 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 2022.
THE QUARTO GROUP, INC.
Notes to the condensed financial statement
3. Segmental analysis
Six months to 30 June 2023
US Publishing UK Publishing Total
$000 $000 $000
Revenue 26,545 25,496 52,041
Segment result 1,264 2,427 3,691
Unallocated corporate expenses (619)
Exceptional items -
Operating profit 3,072
Finance costs (493)
Profit before tax 2,579
Taxation (797)
Profit after tax 1,782
Six months to 30 June 2022 US Publishing UK Publishing Total
$000 $000 $000
Revenue 34,650 27,258 61,908
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
Taxation (1,904)
Profit after tax 4,723
Year ended 31 December 2022 US Publishing UK Publishing Total
$000 $000 $000
Revenue 75,329 65,688 141,017
Segment result 10,608 11,875 22,483
Unallocated corporate expenses (1,159)
Corporate exceptional items 774
Operating profit 22,098
Finance costs (1,213)
Profit before tax 20,885
Taxation (4,279)
Profit after tax 16,606
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 2023 30 June 2022 31 December 2022
Unaudited Unaudited Audited
$'000 $'000 $'000
United States 29,336 39,712 85,397
United Kingdom 7,512 6,556 17,052
Europe 8,352 7,616 23,099
Rest of the World 6,841 8,024 15,469
Total 52,041 61,908 141,017
4. Exceptional Items
Six months to Six months to Year ended
30 June 2023 30 June 2022 31 December 2022
Unaudited Unaudited Audited
$'000 $'000 $'000
Exceptional items comprised:
Impairment costs on remeasurement of Disposal Group (see note 8) - (1,781) -
Smartlab Disposal - - (1,498)
Forgiveness of Cares Act Loan - 2,272 2,272
Total - 491 774
5. Taxation
Taxation for the six months to 30 June 2023 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 2023 30 June 2022 31 December 2022
Unaudited Unaudited Audited
$'000 $'000 $'000
From continuing operations
Profit for the purposes of basic and diluted earnings per share, being net 1,782 4,723 16,606
profit attributable to owners of the parent
Exceptional items (net of tax) - (369) (1,160)
Earnings for the purposes of adjusted earnings per share 1,782 4,354 15,446
Number Number Number
Weighted average number of shares 40,889,000 40,889,000 40,889,100
Dilutive outstanding options awards - - -
Diluted weighted average number of shares 40,889,000 40,889,000 40,899,100
Earnings per share (cents) Cents Cents Cents
From continuing operations
Basic 4.4 11.5 40.6
Diluted 4.4 11.5 40.6
Adjusted basic 4.4 10.6 37.8
Adjusted diluted 4.4 10.6 37.8
7. Net cash
30 June 2023 30 June 2022 31 December 2022
Unaudited Unaudited Audited
$'000 $'000 $'000
Net cash / (debt) comprised:
Cash and cash equivalents 13,464 8,106 13,290
Short term borrowings (4,362) (3,116) (4,636)
Medium and long-term borrowings - (10,596) (9,301)
Net cash / (debt) 9,102 (5,606) (647)
At 30 June 2023, the Group has a $12.7m 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.
THE QUARTO GROUP, INC.
Notes to the condensed financial statements
8. Disposal group held for sale
Assets and liabilities of disposal group held for sale
30 June 2023 30 June 2022 31 December 2022
Unaudited Unaudited Audited
$'000 $'000 $'000
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 17 to 19 of the 2022
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.
12. 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 2023 30 August 2023
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