Final Results
Quarto Group Inc
14 February 2003
THE QUARTO GROUP, Inc - PRELIMINARY RESULTS
• Quarto, the London-based and listed book publisher, announces 'a year of
substantial achievement', despite a much less benign business environment
than expected.
• Pre-tax profit, before amortization of goodwill, increased by 55% to £5.1
m from
£3.3 m in 2001. Basic EPS increased by 72% to 20.1p from 11.7p. Excluding
2001's exceptional charge of £1.2 m, pre-tax profit increased by 13%.
• The final dividend is to be increased by 15% to 2.9p, making a total
dividend for the year of 5.25p which is covered 4 x by underlying EPS.
• Operating cash flow increased significantly to £8.4 m (2001: £5.7 m).
Underlying cash generation significantly increased to approximately £7 m,
reducing net debt by £3.9 m to £19.8 m.
• The International Co-Edition Publishing Division made an operating profit
of £4.5 m (2001: £5.0 m) on a turnover of £41.9 m (2001: £41.6 m), with the
Quarto, Quintet, and Quantum units performing exceptionally well, and
Marshall Editions (acquired in February 2002) fully meeting expectations.
• The Publishing Division increased operating profit to £2.9 m (2001: £2.3
m) on a turnover of £32.9 m (2001: £32.0 m) with the art publishing
business eliminating operating losses and generating cash.
• Laurence F Orbach, Chairman & Chief Executive, stated 'We are quietly
confident that, barring catastrophic events, we shall be able to navigate
our way through the choppy waters ahead induced by a background of
international tension and economic stagnation, although organic growth may
be less robust than we expected some months ago.'
• Mr Orbach concluded 'We are keen to explore acquisition opportunities that
fall within our areas of core competence, and it is the Board's intention to
grow the business substantially over the next several years.'
Notes for Editors:
Quarto's International Co-edition Book Publishing Division creates books which
are licensed to other publishers for publication internationally. It also
includes Regent and ProVision, which are Far East-based print broking and
production services businesses, serving both third parties and the Group.
Quarto's Publishing Division primarily publishes books, under imprints owned by
the Group, and art prints, mainly for their domestic markets in the US and
Australia. In addition, it includes two UK-based screen printers primarily
serving the point of sale display market, Western and AP Screen.
Although a Delaware registered corporation, Quarto's Head Office is situated in
Islington, London N7 and its shares are fully listed on the London Stock
Exchange.
Enquiries:
The Quarto Group, Inc.
Laurence F Orbach (Chairman & CEO) 020-7700 9001
Mick Mousley (Finance Director) 020-7700 9005
Bankside Consultants Limited
Charles Ponsonby 020-7444 4166
CHAIRMAN'S LETTER
Dear Shareholder:
I am pleased to report on a year of substantial achievement for your company.
First, it was a year of substantially improved profits. Second, we significantly
increased our underlying cash generation, to about £7 million, reducing our net
debt by £3.9 million. Third, we achieved underlying volume growth, disguised by
the decline in the value of the dollar, our principal operating currency, in
what turned out to be a much less benign business environment than we expected.
Fourth, we eliminated the operating losses at our art publishing business, which
generated cash during the period. Fifth, we have undertaken some organic
initiatives that, together with the acquisition of Marshall Editions, are laying
the groundwork for further growth in the years ahead. Sixth, we renewed our
committed lending facilities for a further five years, grounding our ambitions
in a firm financial foundation.
Financial Results
For the year ended December 31, 2002, our pretax profit, before amortization of
goodwill, increased by 55% to £5.1 million (2001: £3.3 million, after
exceptional item, and by 13% before exceptional item), and headline earnings per
share increased by 72% to 20.1p (2001: 11.7p). Underlying earnings per share,
before goodwill amortization and 2001's exceptional item increased by 12% to
21.1p (2001: 18.8p). Sales increased to £74.7 million (2001: £73.6 million).
The decline in the value of the dollar, which accelerated during 2002, has had
an adverse impact on the overall sales and profit figures, as the US dollar is
our principal trading currency . Our tax charge remains very favourable, but it
will rise gradually over the next few years.
Our net debt at December 31, 2002 was £19.8 million (2001: £23.6 million), a
really strong showing especially since we paid approximately £1.8 million to
acquire Marshall in February 2002 and settle some of its liabilities; bought a
further five per cent of Book Sales, and paid a special dividend to the minority
shareholder of Regent Publishing, together totalling
£1.2 million; and returned to shareholders, through the purchase of convertible
preference shares, and increased dividend payments on ordinary shares, a further
£0.1 million. Altogether, £1.4 million was returned in cash to shareholders in
2002.
Operating cash flow in 2002 was £8.4 million (2001: £5.7 million). The
unbudgeted acquisitions and other costs, together with the improvement in
Quarto's cash position, represent an underlying swing of about £7 million. This
demonstrates that we have managed our cash resources effectively, and have
allocated capital appropriately. As this was a major focus of the company for
the year, I am very pleased that we have exceeded our most optimistic
expectations. Interest charges of £1.2 million (2001: £1.7 million) were covered
5.4 times (2001: 3.6 times) by operating profit, before goodwill amortization
and exceptional items.
In the light of these very positive results, the Board is recommending an
increase of 15% in the final dividend to 2.9p (2001: 2.53p), giving an increase
for the full year of 11%. If approved at the Annual Meeting on May 15, 2003, the
dividend will be paid , on May 22, 2003, to shareholders, on the record on April
25, 2003.
Commentary on 2002 Trading
Behind the figures there lie a number of significant improvements, and,
inevitably, one or two disappointments. In the International Co-edition Book
Publishing Division, Quarto, Quintet, and Quantum performed exceptionally well.
Marshall fully met our expectations. It proved much more difficult than we
anticipated to recruit a dynamic publisher for this new acquisition, taking
until November to fill the position. It was important, of course, to find the
right person for this important job. Rockport/RotoVision did not do well, and
our books plus imprints, trading now as Q+, turned in a very disappointing
performance. The managing director has been replaced.
In the Publishing Division, there were notable achievements. Our objective in
art publishing was to eliminate operating losses. Management changes made in the
second half of 2001 delivered the desired result. On the book side, Apple Press
and Walter Foster delivered sharply improved results. Despite the tightness of
the market for advertising, our Artist's and Illustrator's Magazine was also
well ahead in sales and profits. The division's publishing services silkscreen
printing units, providing point of sale support services, edged ahead of the
prior year's good result. We lost an important customer during the second half
of the year largely because we only provided a limited range of services. We
have decided to invest in the business, so that we can provide a broader range
of solutions for our clients. A recent independent survey of the silkscreen
printing industry has identified our businesses as among the most profitable and
successful in the UK.
Strategy and Developments
During the course of the year, I reported that the book business, worldwide, had
recovered from anxieties induced during the 'tech' boom, and was very confident
about the future of the book. Disappointing bookstore sales in the US at
Christmas aside, this confidence is growing, and we have taken some new
initiatives to expand our offerings. We launched two new co-edition imprints
(Qu:id and Eye) at the very end of the year. We expect to see the first books
from them, and from a further new imprint (Iqon Editions) launched this week,
during the course of 2004. These organic developments are taking us into new
content areas.
We are also almost finished with the initial development and implementation of
our proprietary database software, a project that will have taken almost three
years from inception. Designed to give our co-edition businesses full
information about their current and backlist books, it has been in use, in
abbreviated form, for over a year, and has been found to be very useful. As with
so many software projects, there have been plenty of hiccups but, now, we are
close to having the program operate as originally conceived. We expect to be
able to adapt and implement the software for all our co-edition units during the
course of the next 18 months.
The strategy of our core co-edition book publishing business is to focus on the
higher- value-added areas of publishing, particularly the conception, creation,
development, and ownership of the content of our books, outsourcing the
capital-intensive, less flexible, and frequently low-value-added functions of
printing, warehousing, and distribution. In the publishing division, our
strategy has been to focus on publishing books targeted at specific niche
markets, generally modest in size, where we can achieve our sales and profit
objectives without costly marketing campaigns.
In common with other, and larger, publishing and media companies, our business
is an amalgam, or portfolio, of imprints. Each has a different identity,
targeting a specific sector of the market, and creating its books to satisfy
that market's interests. The bewildering variety of imprints and names that are
part and parcel of the assets of larger media companies often mean little to
outsiders. But, the financial world has a singular parallel, i.e. the mutual
fund sector. In the mutual fund world, most of the large players are similarly
amalgams of discrete funds, managed by separate individuals, each with its own
objectives for its investors.
The similar characteristic, of course, is that both publishing companies and
mutual funds are working in product-rich environments. Last year, in the UK, in
excess of 110,000 new book titles (or about 400 every working day) were
published. This profusion of new products (far vaster than the new product
output of any other industry), is in addition to the hundreds and hundreds of
thousands of titles that have stood the test of time, and occupy the shelves of
bookstores.
The core marketplace, the bookstore, may have undergone significant
modernization in the last couple of decades, but it is one of the oldest of
niche retailers and, except in scale, is probably less unchanged in the last one
hundred years than most other niche retailing concepts. Book buyers, although
growing in number, remain a minority and, at Quarto, we never forget that the
bookstore is their core retail outlet. Despite the enormous expansion in the
number and type of outlets that sell books, it remains the only substantial
outlet for the huge variety of books in print.
Our individual publishing units are organized so as to keep their primary focus
where it belongs: on their products and their target audiences. Of necessity,
this means that there is a finite limit to the number of new titles that each
can produce in a year. This constraint they share with fund managers, who can
only realistically follow a finite number of investments.
We are able to achieve some economies of scale, but not on the product creation
side. We can gain benefits from common procurement of printing. We can use our
financial strength to fund our units more advantageously than they could do
themselves. We can, generally, provide accounting, finance, and some IT services
centrally. We can share some sales functions. But, that is about as far as it
goes. Fundamentally, there are few further operating synergies on the creative
side but, as our offerings grow wider, through the launch, or acquisition, of
new imprints, we become a more important supplier to our co-publishers and
distributors around the world.
This background information is necessary, if shareholders are to recognize that,
in addition to the books and prints we publish, Quarto's strengths also lie in
its management skills and disciplines. We have a very stable management team
that has been managing a portfolio of individual businesses for years, through
good economies and bad. As growth will involve adding more operating units, we
have the infrastructure to handle it: senior management, scalable proprietary
software, financial strength, procurement expertise, and very substantial
accumulated market savvy.
We have spent the last couple of years very focused on housekeeping. This has
now created a firm foundation upon which to grow the business. The acquisition
of Marshall was important in its own right. Marshall was a respected imprint,
producing books in a different area, but it was also important because it fell
in with our strategy of making judicious acquisitions as well as growing through
launching new imprints.
We have invested in an infrastructure that allows us to grow. This year we shall
be going further by recruiting several senior people who can bring a more
detached focus to our strategic and operational planning needs. We hope to have
them in place during the second quarter of the year. We view this as a very
opportune moment. Much of the heat and attention has gone out of the media
sector, and sanity is returning. This allows us to take stock and to determine
our own future course.
Prospects
International tension and economic stagnation are not an encouraging background
against which to write to you. For business in general, and for international
businesses in particular, these are trying times. Yet, we are quietly confident
that we shall be able to navigate our way through the choppy waters ahead,
barring catastrophic events.
The profile of our sales mix does not alter markedly from year to year. We still
produce books and products that have long lives. The revenues of our co-edition
division still derive mostly from reprints of books produced in previous years.
We have a backlist of over 5,000 titles. The value of these is not reflected on
the balance sheet, as we write off development costs against our first printing.
We recognize that this is a bit of a nonsense, as the backlist is, clearly, of
great value, but it is a very prudent approach. As a guide, I make two related
points: (1) the assets we acquired with Marshall principally comprised some 300
titles published in prior years, to which we ascribed a value of about £5,000
per title; and (2) we invested in excess of £5 million in 2002 in new co-edition
titles, which we wrote off in the year. About two-thirds of our co-edition
sales, and gross profit, is derived from sales of backlist titles. The gross
profit derived from co-edition reprints in 2002 was in excess of £7.5 million,
coming from our huge backlist that has no value ascribed to it on the balance
sheet.
The interest in the subjects we cover does not wax and wane with fashion trends
and, given that we do not have a costly and inflexible infrastructure dependent
on mainstream publishing, we expect to be able to move ahead relatively
unscathed. I am confident that we are able to respond to market opportunities.
But, of course, it would be imprudent not to recognize that 2003 will be a
challenging year, both economically and politically, and organic growth may be
less robust than we expected some months ago.
We are keen to explore acquisition opportunities that fall within our areas of
core competence. We shall not overpay but, with the merger and acquisition fever
now somewhat lessened, we hope that circumstances will allow us to identify
appropriate candidates. We have a good record with acquisitions, notably with
Walter Foster, Book Sales, and our screen-printing business. All we need are the
opportunities. We have adequate headroom within our borrowing facilities to fund
a serious acquisition.
We have demonstrated that we are very capable of handling debt responsibly, and
the renewal of our unsecured revolving credit syndicated facility for a further
five years gives us a strong base from which to expand. It is your board's
intention to grow the business substantially over the next several years. I
believe that we have people and systems in place, and access to funding, to
achieve our ambitions.
Our business depends a great deal on some exceptional people. They continue to
exceed expectations, and I am very grateful to them. Quarto is a demanding
employer, and I'm delighted that we have more than our fair share of extremely
talented and capable publishing people.
I'd also like to take this opportunity to express my thanks, and those of my
executive colleagues, to our non-executive directors, for their input and
encouragement during 2002.
Sincerely,
Laurence F Orbach
Chairman and Chief Executive
London, February 14, 2003
PROFIT & LOSS ACCOUNT
for the year ended December 31st, 2002
2002 2001
£000 £000
Turnover: Continuing operations 72,552 73,620
Acquisitions 2,183 -
______ ______
74,735 73,620
______ ______
Gross Profit 25,939 25,996
Net operating expenses (19,733) (19,799)
Amortisation of goodwill (175) (74)
Exceptional items - (1,200)
Operating Profit
Before exceptional items and goodwill amortisation 6,206 6,197
Amortisation of goodwill (175) (74)
Exceptional items - (1,200)
6,031 4,923
Net Interest Payable (1,151) (1,733)
Profit on ordinary activities before taxation
Before exceptional items and goodwill amortisation 5,055 4,464
Amortisation of goodwill (175) (74)
Exceptional items - (1,200)
4,880 3,190
Taxation (497) (300)
Profit on ordinary activities after taxation 4,383 2,890
Minority interests - equity (343) (352)
Profit for the financial year 4,040 2,538
Dividends (including non-equity) (1,379) (1,295)
Retained profit for the financial year 2,661 1,243
Earnings per share 20.1p 11.7p
Underlying earnings per share 21.1p 18.8p
Diluted earnings per share 19.3p 11.7p
Diluted underlying earnings per share 20.1p 18.1p
Dividends per ordinary share 5.25p 4.73p
CONSOLIDATED BALANCE SHEET
for the year ended December 31st, 2002
2002 2001
£000 £000
Fixed assets
Goodwill 3,376 1,395
Tangible assets 5,875 6,267
______ ______
9,251 7,662
______ ______
Current assets
Stocks and work in progress 18,675 20,118
Debtors 21,519 23,509
Cash and deposits 11,315 8,679
______ ______
51,509 52,306
______ ______
Creditors: Amounts falling due within one year (24,576) (54,225)
Net current assets (liabilities) 26,933 (1,919)
Total assets less current liabilities 36,184 5,743
Creditors: Amounts falling due after more than one year (29,056) (517)
Provision for liabilities and charges
Deferred taxation (1,235) (1,175)
Net assets 5,893 4,051
Capital and reserves
Called up share capital 1,341 1,341
Reserves - paid in surplus 23,891 23,891
- revaluation 988 998
- profit and loss (22,135) (25,090)
Treasury stock (698) (638)
Shareholders' funds 3,387 502
Equity (1,817) (4,702)
Non equity 5,204 5,204
3,387 502
Minority interests - equity 2,506 3,549
5,893 4,051
CONSOLIDATED CASH FLOW STATEMENT
for the year ended December 31st, 2002
2002 2001
£000 £000
Net cash inflow from operating activities 8,396 5,746
Net cash outflow from return on investment and servicing of finance (2,335) (2,786)
Taxation (504) (348)
Capital expenditure (599) (648)
Acquisitions and disposals (1,767) (544)
Equity dividends paid (875) (807)
Management of liquid resources
Movement of short term deposits (1,895) 477
Net cash flow from financing (536) (983)
(Decrease)/increase in cash (115) 107
Reconciliation of net cashflow to movement in net debt
Movement in cash (115) 107
Movement in debt 476 806
Management of liquid resources 1,895 (477)
2,256 436
New finance leases (123) (552)
Translation differences 1,721 (523)
Movement in debt for year 3,854 (639)
Net debt at beginning of year (23,637) (22,998)
Net debt at end of year (19,783) (23,637)
NOTES
1. Segmental Analysis
Geographical analysis of turnover by destination
2002 2001
£000 £000
United Kingdom 16,557 14,024
United States of America 41,879 41,927
Canada 1,794 1,683
Europe 7,956 8,536
Australasia and the Far East 5,212 5,793
Rest of the World 1,337 1,657
______ ______
74,735 73,620
______ ______
Turnover and operating profit before amortisation of goodwill and exceptional items
Operating profit before
amortisation of goodwill and
exceptional items
Turnover
2002 2001 2002 2001
£000 £000 £000 £000
Class of business
Co-edition publishing 41,856 41,570 4,528 5,044
Publishing 32,879 32,050 2,864 2,295
74,735 73,620 7,392 7,339
Group overheads (1,186) (1,142)
6,206 6,197
2. Exceptional items in 2001 comprise a bad debt write-off.
3. Dividends comprise:
2002 2001
£000 £000
Non equity: Preference: 437 447
Equity: Ordinary: Interim 422 395
Final proposed 520 453
1,379 1,295
The Board proposes a final dividend of 2.90p net (2001: 2.53p) per share of
common stock of par value US$0.10 each ('ordinary share') which is expected to
be paid on 22 May 2003 to shareholders on the register on 25 April 2003.
4. Earnings per share
Basic earnings per share is calculated by dividing the earnings attributable to
common stock holders by the weighted average number of shares in issue during
the period, excluding those held as treasury stock.
For diluted earnings per share, the weighted average number of shares in issue
is adjusted to assume conversion of all dilutive potential shares of common
stock. These represent share options granted to employees where the exercise
price is less than then weighted average market price of the Company's shares
during the period and preference shares which are convertible into shares of
common stock.
Underlying earnings per share figures are presented. These exclude the effects
of exceptional items and goodwill amortisation.
2002 2001
Weighted Per Share Weighted Per Share
Average Amount Average Amount
Earnings Number of Pence Earnings Number of Pence
£000 Shares £000 Shares
Basic earnings per share 3,603 17,925,306 20.1 2,091 17,925,306 11.7
Effect of dilutive options - 31,423 - - 4,138 -
Dilutive preference shares 437 2,989,414 14.6 - - -
Diluted earnings per share 4,040 20,946,143 19.3 2,091 17,929,444 11.7
Underlying earnings per share
figures
Basic earnings per share 3,603 17,925,306 20.1 2,091 17,925,306 11.7
Effect of:
Exceptional items - 17,925,306 - 1,200 17,925,306 6.7
Goodwill amortisation 175 17,925,306 1.0 74 17,925,306 0.4
Basic earnings per share before
goodwill
amortisation and exceptional items 3,778 17,925,306 21.1 3,365 17,925,306 18.8
Underlying basic earnings per share 3,778 17,925,306 21.1 3,365 17,925,306 18.8
Effect of:
Dilutive options - 31,423 - - 4,138 -
Dilutive preference shares 437 2,989,414 14.6 447 3,086,414 14.5
Diluted underlying earnings per
share
before goodwill amortisation
and exceptional items 4,215 20,946,143 20.1 3,812 21,015,858 18.1
5. The financial information contained in the preliminary announcement
does not constitute the Company's statutory accounts for the years ended 31
December 2002 or 2001 but is derived from those accounts. Statutory accounts
for 2001 have been delivered to the Registrar of Companies; those for 2002 will
be delivered following the Company's Annual General Meeting. The auditors have
reported on those accounts, their reports were unqualified and did not contain a
statement under Section 237(2) or (3) of the Companies Act 1985.
6. The Annual Report will be sent out to shareholders in early March.
Additional copies can be obtained from the Finance Director, The Quarto Group,
Inc., the Old Brewery, 6 Blundell Street, London, N7 9BH. Tel: 020 7700 9000
(email: mickm@quarto.com).
This information is provided by RNS
The company news service from the London Stock Exchange
Tuesday, 14th May 2024
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