Interim Results
Quarto Group Inc
16 August 2002
August 16th 2002
THE QUARTO GROUP, INC - INTERIM RESULTS
'Prospects for the balance of the year look solid'
• Quarto, the London based and listed international book publisher, announces
results for the half year ended June 30th 2002 'very much in line with our
expectations.'
• In what is traditionally much the quieter half of the year, on Group sales
increased by 5.5% at £31.84 m, operating profit increased by 9.5% to
£2.11m, pre-tax profit by 55.7% to £1.52 m (both profit figures are before
goodwill amortization of £0.08 m) and underlying earnings per share by
112.0% to 5.30p.
• An increased interim dividend per share of 2.35p (2001: 2.20p), up 6.8%, is
declared. The dividend was also increased at the final stage last year,
giving an increased trailing 12 months' dividend of 4.88p (2001: 4.50p),
up 8.4%.
• On a trailing basis, for the 12 months ended June 30th 2002, turnover was
£75.29 m (2001: £73.75 m), operating profit was £6.38 m (2001: £6.20 m),
and pre-tax profit was up 19% at £5.01 m (2001: £4.21 m), before goodwill
amortization and exceptional items.
• In the Publishing Division (which publishes books under the Group's
imprints), interim turnover totaled £16.83 m (2001: £14.59 m), with an
operating profit, more than double, of £1.60 m (2001: £0.76 m), almost
reaching the Group's target of an operating profit of 10% on turnover.
• In the International Co-edition Book Publishing Division (which creates
books for publication by other publishers world-wide), the order book for
the balance of the year is ahead of last year's. The slight dip in the
first half turnover of £15.01 m (2001: £15.58 m) and operating profit of
£1.25 m (2001: £1.82 m) largely reflects the timing impact of major sales
in a division where first half turnover is rarely an indicator of turnover
for the year as a whole.
• Laurence F Orbach, Chairman & Chief Executive, stated 'Prospects for the
balance of the year look solid. If there is to be a general slowdown in
the growth of retail sales worldwide, we anticipate that the impact on the
sales of books will not be very great and, as our forward orders are good,
we expect to achieve our goals for this year.'
Notes for Editors:
Quarto's International Co-edition Publishing Division primarily creates content
for publication internationally by other publishers. 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 images, 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 020-7444 4166
Charles Ponsonby Mobile: 07789 202 312
CHAIRMAN'S STATEMENT
I am pleased to report that the results for the first six months of 2002 are
very much in line with our expectations. Sales are ahead of the comparable
period in 2001, helped by very robust performances at some units. We benefited
also from the Marshall acquisition in February. General business, economic, and
political uncertainties worldwide had little impact overall, as a substantial
part of our business has a long forward order book, which had already been
affected somewhat by the hiatus following last September 11th. In our book
publishing businesses, our lists performed strongly, reflecting the historic
tendency of book publishing to do well in uncertain times and, of course, the
strength of our own offerings.
Financial Review
For the six months ended June 30th, 2002, group sales were £31.84 million (2001:
£30.17 million), operating profit was £2.11 million (2001: £1.92 million), and
pre-tax profit was up 56% at £1.52 million (2001: £0.98 million). Both profit
figures are before deduction of goodwill amortization of £75,000 (2001:
£35,000), and give underlying earnings per share of 5.3p (2001: 2.5p).
Quarto also tracks its performance on a trailing 12 months' basis. For the 12
months ended June 30th, 2002, sales were £75.29 million (2001: £73.75 million),
operating profit was £6.38 million (2001: £6.20 million), and pre-tax profit was
up 19% at £5.01 million (2001: £4.21 million), on the same basis, and before
exceptional items. Underlying earnings per share, for the twelve months, were
21.6p (2001: 16.7p).
Quarto's borrowings are mostly in US dollars, which is our major trading
currency. At the end of the period, net debt was £27.93 million (2001: £29.27
million). On a constant currency basis, net debt was £29.82 million. The
continued focus we have placed on cash management has been very successful, and
our receivables have fallen to 84 days, from 102 in 2001.
Dividend
In light of the continued improvement in the group's performance, the board has
agreed an interim dividend of 2.35p (2001: 2.20p) payable on October 23rd, 2002
to shareholders on the register on September 27th, 2002. Underlying earnings per
share, for the twelve months, were 21.6p(2001: 16.7p).
Trading Review
Publishing Division
For the first time, sales of the Publishing Division exceeded those of the
International Co-edition Book Publishing Division in the first half of the year.
Across the division, sales were good, totaling £16.83 million (2001: £14.59
million), with an operating profit, more than double, of £1.60 million (2001:
£0.76 million). We are delighted to have almost reached our target of an
operating profit of 10% on sales.
About two-thirds of the Publishing Division's sales are in the United States,
and Walter Foster, publisher of art instructional and related titles, turned in
particularly strong sales growth. Most of the division's businesses are
performing comfortably above our operating margin target. There has been a
significant turnaround in the art publishing area, and I am pleased to report
that, for both the last six months, and the last twelve months, our art
publishing businesses broke even on their operations.
In the UK, all of the division's units performed dramatically better than in the
prior period, particularly our point-of-sale display and publishing services
units, and operating profits rose to £836,000 (2001: £330,000). The Publishing
Division's businesses all operate principally in their domestic markets of the
United States, the United Kingdom, and Australia, and profited from an
unexpectedly benign retail environment
International Co-Edition Book Publishing Division
By contrast, the International Co-edition Book Publishing Division operates
worldwide. It has a long forward order book as, typically, it takes at least one
year, from the time when the concept is first sold to a publishing customer, to
create a new title. Most new titles are published in the second half of the
year, for the initial Christmas selling season, and first half sales are rarely
an indicator of sales for the year as a whole.
The trailing twelve months' sales show this very clearly. The current first half
year's sales of £15 million represent only a little over 36% of the £41 million
of turnover achieved in the twelve months ended June 30th, 2002. They also
illustrate that the co-edition business, which fills a pipeline, was affected by
the uncertainties of the last quarter of 2001. Purchasing decisions by
publishers (our customers), both for new titles and for reprints, were deferred
amid the general nervousness. Conversely, the Publishing Division, which sells
from its own inventory, was able to take immediate advantage of the robust
retail environments that existed in the first half of this year in the USA, the
UK, and Australia.
Our order book for the balance of the year is ahead of last year's, and the
first half sales of £15.01 million (2001: £15.58 million), including £0.78
million from Marshall, and operating profits of £1.25 million (2001: £1.82
million), largely reflect the timing impact of our major second half sales. We
are particularly pleased with the turnaround at Quintet, which is being revived
energetically, and at the sales figures for Marshall and Fairwinds, a new list
published by RockportRotoVision.
Corporate Activity
The major corporate activity in the first half of the year was the acquisition
of Marshall, for £1.26 million, from Administration. Complementing our core
illustrated co-edition book publishing lists perfectly. Marshall gives us some
new publishing opportunities, particularly in the reference field. At the time
of acquisition, its forward publishing program was almost moribund, and it will
take some time to revive. Fortunately, the backlist of some 300 titles is very
strong, and will provide a reasonable flow of income while the frontlist is
being regenerated.
Prospects
Prospects for the balance of the year look solid. If there is to be a general
slowdown in the growth of retail sales worldwide, we anticipate that the impact
on the sales of books will not be very great and, as our forward orders are
good, we expect to achieve our goals for this year.
Your board is focusing on the longer term, and believes that Quarto's growth
will come from organic initiatives and acquisitions, in about equal parts, as it
has done in the past. We know that our track record with acquisitions is about
on a par with organic initiatives, the main difference being in the way the two
have been funded in the past. Traditional equity markets seem to have dried up,
so we are pleased that, in July, we signed a new syndicated, committed revolving
credit facility for a further five years, adding financial strength to our
trading performance. This puts us in a good position to take advantage of
opportunities that arise, and to plan for a prosperous future.
Generally, there continues to be growing evidence that more and more markets are
becoming sensitive to retail prices and, while this has only a limited impact on
our output (as we can adapt our offerings to appropriate price points), we do
have to produce more units to achieve the same levels of sales. This comment, I
am sure, applies across many consumer goods industries, but it is still a point
worth making. The accumulative impact of small changes over a number of years
can be substantial, and the international growth of discount retailers over the
past decade has been phenomenal. In the publishing industry the knock-on effect
of this has arguably been more profound than the impact of the Internet, where
one of the largest retailers, Amazon.com, has affected the book publishing
industry more than any other. Of course, Internet retailing has also contributed
to the discounting culture. The net result of this is that more books are being
sold to more people than ever before, and this is good news for our industry.
George Tai has retired from the group's board. He continues to remain in Hong
Kong as managing director of Regent. We are very grateful to him for his past
service on the board. The board is now comprised of three non-executive
directors, and three executive directors, none of whom has direct line
responsibility for any business unit. As usual, the board has played an
important role in steering the group.
Once again, it is time to thank all those involved in Quarto, and particularly
all Quarto employees, for their support and enthusiasm. As always, it's a
pleasure to be able to do this.
Laurence F Orbach
Chairman & Chief Executive
August 16th, 2001
UNAUDITED PROFIT AND LOSS ACCOUNT
for the six months to June 30, 2002
Six months Six months Year
ended ended ended
June 30, June 30, December 31,
2002 2001 2001
£'000 £'000 £'000
Turnover : Continuing Operations 31,061 30,172 73,620
: Acquisitions 781 - -
31,842 30,172 73,620
Operating profit before amortisation of goodwill
and exceptional items 2,106 1,924 6,197
Amortisation of goodwill (75) (35) (74)
Exceptional items - - (1,200)
Operating profit after amortisation of goodwill
and exceptional items 2,031 1,889 4,923
Net interest payable (586) (948) (1,733)
Profit on ordinary activities before taxation 1,445 941 3,190
Taxation (152) (117) (300)
Profit on ordinary activities after taxation 1,293 824 2,890
Minority interests (199) (185) (352)
Profit for the period 1,094 639 2,538
Dividends
Ordinary (421) (394) (848)
Preference (220) (228) (447)
Retained Profit for the period 453 17 1,243
Earnings per share 4.9p 2.3p 11.7p
Underlying earnings per share 5.3p 2.5p 18.8p
UNAUDITED CONSOLIDATED BALANCE SHEET
at June 30, 2002
June 30, June 30, December 31,
2002 2001 2001
£'000 £'000 £'000
Fixed assets
Intangible assets 3,268 1,167 1,395
Tangible assets 6,017 6,383 6,267
9,285 7,550 7,662
Current assets
Stocks and work in progress 22,267 22,459 20,118
Debtors 18,152 23,023 23,509
Cash at bank and in hand 5,735 5,740 8,679
46,154 51,222 52,306
Creditors: Amounts falling due within one year (50,011) (21,554) (54,225)
Net current assets (liabilities) (3,857) 29,668 (1,919)
Total assets less current liabilities 5,428 37,218 5,743
Creditors: Amounts falling due after
more than one year (461) (33,107) (517)
Provisions for liabilities and charges
Deferred taxation (1,135) (1,249) (1,175)
Net assets 3,832 2,862 4,051
Capital and reserves
Called up share capital 1,341 1,341 1,341
Reserves (289) (1,991) (839)
Shareholders' funds 1,052 (650) 502
Minority interests 2,780 3,512 3,549
3,832 2,862 4,051
UNAUDITED CASH FLOW STATEMENT
For the six months to June 30, 2002
Six months Six months Year
ended ended ended
June 30, June 30, December 31,
2002 2001 2001
£'000 £'000 £'000
Operating profit 2,031 1,889 4,923
Non-cash items 643 597 1,180
Working capital movement, net (3,879) (4,466) (357)
Net cash inflow/(outflow) from operating activities (1,205) (1,980) 5,746
Interest, net (582) (1,140) (2,339)
Dividend payments to minority shareholders (850) - -
Dividends (673) (639) (1,254)
Taxation (209) (141) (348)
Capital expenditure, net (395) (703) (1,200)
Purchase of Shares - - (177)
Acquisitions and disposals (1,444) (271) (544)
Net cash (outflow) (5,358) (4,874) (116)
Translation difference 1,070 (1,394) (523)
Net debt at beginning of period (23,637) (22,998) (22,998)
Net debt at end of period (27,925) (29,266) (23,637)
Notes:
1. The financial information contained in this interim statement does not
constitute statutory accounts within the meaning of Section 240 of the
Companies Act 1985. The interim accounts for the six months ended June 30,
2002 and the comparative figures for the six months ended June 30, 2001 are
unaudited. The comparative figures for the year ended December 31, 2001
are extracted from the accounts for the period which have been reported on
by the Company's auditors and delivered to the Registrar of Companies. The
report of the auditors was unqualified and did not contain a statement
under Section 237 (2) or (3) of the Companies Act 1985.
2. Turnover from acquisitions relates to the purchase of the business and
assets of Marshall Editions Limited and its associated entities in February
2002. The business was integrated into the existing businesses of the
Group and it has not been possible to separately identify the impact on the
operating profit for the period. Goodwill arising on the acquisition has
been estimated at £1,948,000.
3. The exceptional items in the year ended December 31, 2001 relate to a bad
debt.
4. Taxation is based on the estimated effective tax rate for the year.
5. The interim dividend is 2.35p per share net (2001: 2.2p) and will be paid
on October 23, 2002 to shareholders on the register at the close of
business on September 27, 2002.
6. The calculation of earnings per share is based on 17,925,306 shares (the
number of issued shares, excluding those held as treasury stock) in each
period and earnings, after minority interests and preference dividends, of
£874,000 (June 30, 2001: £411,000; December 31, 2001: £2,091,000). The
calculation of underlying earnings per share is based on earnings of
£949,000 (June 30, 2001: £446,000; December 31, 2001: £3,365,000),
calculated as follows:
June 30, June 30, December 31,
2002 2001 2001
£'000 £'000 £'000
Earnings after minority interests and preference
dividends
874 411 2,091
Exceptional items - - 1,200
Amortisation of goodwill 75 35 74
949 446 3,365
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