Investor News

16 August 2019

Half-Year Results for the Six Months Ended 30 June 2019


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 2019.

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Results ($m) H1 2019 H1 2018
Group Revenue 56.4 56.2
Adjusted1 Group Operating Loss (1.2) (4.7)
Group Operating Loss (1.6) (7.0)
Adjusted1 Loss before Tax (4.0) (6.6)
Loss before Tax (4.4) (8.9)
Loss after Tax (3.6) (6.7)
Net Debt 65.0 73.2

1. Adjusted measures are stated before amortisation of acquired intangibles and exceptional items.

Headlines

Commenting on the results, Chief Executive, C.K. Lau said:

“This is an encouraging set of results following a year of significant change for the Group. Revenue is slightly up year on year, while both operating loss and net debt have reduced significantly during the period in what is seasonally our weak half of the year.

We are now focused on the critical second half as we expect the trading environment to be particularly challenging, especially on the Adult co-edition side both in English and foreign language. That said, we have the right plans in place to capture all possible opportunities and ensure a satisfactory year-end.

The Board remains focused on returning the Group to full health, reducing debt and defining growth strategies for 2020 and beyond.”

 

The Legal Entity Identifier of the Company is 549300BJ2WPX3QUATW58.

 

For further information, please contact:

The Quarto Group, Inc.  
Walter Nolan, Chief Financial Officer
Dorothée de Montgolfier, Group Director of Communications
+44 20 7700 9002

 

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.330 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.

 

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CHIEF EXECUTIVE'S STATEMENT

SUMMARY

Trading was encouraging for the first six months of 2019. Revenue is slightly up year on year at $56.4m (H1 2018: $56.2m) with a smaller publishing programme.

Children’s imprints performed particularly well, with revenues up 14%. Revenues from Adult imprints were down 6% as the market remains challenging, particularly on the co-edition side where we are still seeing consolidation of our key publishing customers. The gross profit margin was in line with prior year at 21.5% (H1 2018: 21.3%).

The increased revenues, combined with substantial benefits from the cost out program implemented in 2018, have resulted in a significantly lower adjusted group operating loss of $1.2m (H1 2018: loss of $4.7m) in what is our seasonally weak half year. The adjusted loss before tax was $4.0m (H1 2018: loss of $6.6m).

Both 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 2019 was $65.0m (H1 2018: $73.2m), a decrease of $8.2m over the twelve-month period.

The book trade market remains soft, while in the co-edition market, further consolidation is impacting both English and foreign language sales, especially on the Adult segment. As a result, the Group expects the trading environment in the second half to be more challenging than in prior years.

OPERATING REVIEW

Revenue ($m) H1 2019 H1 2018
United States 36.7 33.8
United Kingdom 7.6 8.1
Europe 5.7 6.3
Rest of the World 6.4 8.0
Total Revenue 56.4 56.2
Adjusted Operating Loss ($m) H1 2019 H1 2018
US Publishing 1.0 (0.7)
UK Publishing (1.5) (2.0)
Group overhead (0.7) (2.0)
Total adjusted operating loss (1.2) (4.7)

Note: Revenue is shown by destination; Adjusted Operating Profit is shown by segment.

With fewer titles published in the period than the prior year, as a result of the cost out programme initiated in the second half of 2018, the Group’s revenue increased slightly year on year, led by the strong performance of our children’s imprints.

UK-based Frances Lincoln Children’s Books was particularly successful. Its Little People, Big Dreams series remains a highlight, with over 1.3 million copies sold in the English language to date. We have expanded the list to include inspirational male role models and these titles have done well so far. Young Quarto also performed strongly, selling well in the book trade, although sales to our key co-edition publishers have been slower than the prior year. In the US, our SmartLab Toys business also performed well.

Revenues from Adult imprints were down and that market remains more challenging. In the US, our Beverly-based Adult imprints, especially Fair Winds Press and Harvard Common Press, continue to perform strongly led by our successful line of Keto cookery titles.
Co-editions sales have been slower than the prior year both in English and foreign language and, with the continued consolidation of key publishers in the market, we expect them to remain so in the second half. We continue to look at new opportunities in custom publishing to grow our customer base.

The challenging Adult co-edition market has impacted Foreign language sales, which have been slower than prior year in the first half and are expected to remain down year on year for the full year.

International English language sales are down year on year. This is mostly due to order timings and they are expected to remain comparable for the full year.

Group overheads were reduced by 65% due to the cost out program initiated in the second half of 2018. The benefits of these savings will much lower in the second half of the year.

OUTLOOK

The market remains soft in both the US and the UK and, considering the weaker performance of Adult co-editions in both English and foreign language, as well as the uncertainty surrounding Brexit and US trade tariffs, we expect the trading environment in the second half to be particularly challenging.

That said, the Group has the right plans in place to capture all possible opportunities and deliver a satisfactory end to the year. The Board remains focused on returning the Group to full health, reducing debt and defining growth strategies for 2020 and beyond.

On behalf of the Board, I would like to thank all our people for their continued commitment as well as our partners and suppliers across the world.

 

C.K. Lau
Chief Executive Officer

 

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Condensed Consolidated Income Statement
For the six months ended 30 June 2019

  Note Six months to
30 June 2019
Unaudited
$’000
Six months to
30 June 2018
Unaudited
$’000
Year ended
31 December 2018
Audited
$’000
         
Continuing operations        
Revenue 3 56,390 56,174 149,292
Cost of sales   (44,282) (44,237) (107,195)
         
Gross profit   12,108 11,937 42,097
         
Distribution costs   (3,525) (3,778) (7,919)
Administrative expenses   (9,773) (12,838) (23,873)
       
Operating (loss)/profit before amortisation of acquired intangibles and exceptional items (1,190) (4,679) 10,305
         
Amortisation of acquired intangibles   (408) (428) (850)
Exceptional items 4 - (1,891) (5,152)
       
Operating (loss)/profit 3 (1,598) (6,998) 4,303
         
Finance income   9 - 21
Finance costs   (2,792) (1,902) (4,381)
       
Loss before tax (4,381) (8,900) (57)
         
Taxation 5 1,095 2,225 (495)
         
         
Loss for the period (3,286) (6,675) (552)
         
Attributable to:        
         
Owners of the parent (3,286) (6,675) (552)
         
(Loss)/earnings per share (cents)        
       
From continuing operations        
Basic 6 (16.1) (32.6) (2.7)
Diluted 6 (16.1) (32.6) (2.7)
         
Adjusted basic 6 (14.6) (24.1) 23.2
Adjusted diluted 6 (14.6) (24.1) 23.0

 

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Condensed Consolidated Statement of Comprehensive Income
For the six months ended 30 June 2019

  Six months to
30 June 2019
Unaudited
$’000
Six months to
30 June 2018
Unaudited
$’000
Year ended
31 December 2018
Audited
$’000
       
Loss for the period (3,286) (6,675) (552)
       
Other comprehensive income which may be reclassified to profit or loss      
Foreign exchange translation differences (119) (691) (1,950)
Cash flow hedge: (losses)/profits arising during the period (85) 26 (60)
Tax relating to items that may be reclassified to profit or loss - - (246)
       
Total comprehensive expense for the period (3,490) (7,340) (2,808)
       
Attributable to:      
       
Owners of the parent (3,490) (7,340) (2,808)

 

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Condensed Consolidated Balance Sheet
At 30 June 2019

  Note 30 June 2019
Unaudited
30 June 2018
Unaudited
Restated
31 December 2018
Audited
  $’000 $’000 $’000
Non-current assets        
Goodwill   18,907 19,144 18,954
Other intangible assets   1,809 3,025 2,368
Property, plant and equipment 2 11,112 1,870 1,552
Intangible assets: Pre-publication costs   54,110 60,373 56,741
Deferred tax assets   3,900 3,890 3,901
Total non-current assets   89,838 88,302 83,516
         
Current assets        
Inventories   20,561 24,574 22,324
Trade and other receivables   42,084 41,699 54,476
Derivative financial instruments   20 191 105
Cash and cash equivalents 7 7,694 5,047 15,384
         
Total current assets   70,359 71,511 92,289
         
Total assets   160,197 159,813 175,805
         
Current liabilities        
Short term borrowings 7 (7,500) (78,294) (5,000)
Trade and other payables 2 (49,328) (52,617) (64,917)
Tax payable   (2,960) (1,268) (4,167)
         
Total current liabilities   (59,788) (132,179) (74,084)
         
Non-current liabilities        
Medium and long term borrowings 7 (65,156) - (70,752)
Deferred tax liabilities   (8,445) (8,397) (8,753)
Tax payable   (541) (1,016) (544)
Other payables 2 (8,579) (1,524) (554)
Total non-current liabilities   (82,721) (10,937) (80,603)
         
Total liabilities   (142,509) (143,116) (154,687)
         
Net assets 17,688 16,697 21,118
         
Equity        
Share capital   2,045 2,045 2,045
Paid in surplus   33,764 33,764 33,764
Retained profit and other reserves   (18,121) (19,112) (14,691)
Total equity 17,688 16,697 21,118

 

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Condensed Consolidated Statement of Changes in Equity
for the six months ended 30 June 2019

  Share
capital
Paid in
surplus
Hedging
reserve
Translation
reserve
Retained
earnings
Equity
attributable
to owners
of the parent
Non-
controlling
interests
Total
$000 $000 $000 $000 $000 $000 $000 $000
           
Balance at 1 January 2018 2,045 33,764 165 (4,793) (7,078) 24,103 - 24,103
           
Loss for the period - - - - (6,675) (6,675) - (6,675)
Foreign exchange translation differences - - - (691) - (691) - (691)
Cash flow hedge: profits arising during the period - - 26 - - 26 - 26
Total comprehensive (expense)/income for the period - - 26 (691) (6,675) (7,340) - (7,340)
             
Share based payment credit - - - - (66) (66) - (66)
             
Balance at 30 June 2018 2,045 33,764 191 (5,484) (13,819) 16,697 - 16,697
           
Balance at 1 January 2019 2,045 33,764 105 (6,989) (7,807) 21,118 - 21,118
             
Loss for the period - - - - (3,286) (3,286) - (3,286)
Foreign exchange translation differences - - - (119) - (119) - (119)
Cash flow hedge: losses arising during the period - - (85) - - (85) - (85)
Total comprehensive (expense) for the period - - (85) (119) (3,286) (3,490) - (3,490)
             
Share based payment charge - - - - 60 60 - 60
             
Balance at 30 June 2019 2,045 33,764 20 (7,108) (11,033) 17,688 - 17,688

 

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Condensed Consolidated Statement of Changes in Equity
for the year ended 31 December 2018

  Share
capital
Paid in
surplus
Hedging
reserve
Translation
reserve
Retained
earnings
Equity
attributable
to owners of
the parent
Non-
controlling
interests
Total
$000 $000 $000 $000 $000 $000 $000 $000
           
Balance at 1 January 2018 2,045 33,764 165 (4,793) (7,078) 24,103 - 24,103
           
Loss for the year - - - - (552) (552) - (552)
Foreign exchange translation differences - - - (1,950) - (1,950) - (1,950)
Cash flow hedge: losses arising during the year - - (60) - - (60) - (60)
Tax relating to items that may be reclassified to profit or loss - - - (246) - (246) - (246)
Total comprehensive income for the year - - (60) (2,196) (552) (2,808) - (2,808)
             
Share based payment credit - - - - (177) (177) - (177)
             
Balance at 31 December 2018 2,045 33,764 105 (6,989) (7,807) 21,118 - 21,118

 

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Condensed Consolidated Cash Flow Statement
For the six months ended 30 June 2019

  Note Six months to
30 June 2019
Unaudited
Six months to
30 June 2018
Unaudited
Restated
Year ended
31 December 2018
Audited
    $’000 $’000 $’000
     
Loss for the period (3,286) (6,675) (552)
Adjustments for:        
   Net finance costs   2,783 1,902 4,360
   Depreciation of property, plant and equipment 2 1,089 357 693
   Software amortisation   151 137 298
   Tax (credit)/charge   (1,095) (2,225) 495
   Impairment of pre-publication costs   - - 501
   Share based payments   60 (66) (177)
   Amortisation and amounts written off acquired intangibles   408 428 910
   Amortisation and amounts written off pre-publication costs   15,034 16,206 31,426
   Movement in fair value of derivatives   - (26) -
         
Operating cash flows before movements in working capital   15,144 10,038 37,954
         
   Decrease/(increase) in inventories   1,734 (2,030) 21
   Decrease/(increase) in receivables   12,317 11,550 (2,280)
   (Decrease)/increase in payables   (16,196) (8,322) 4,639
         
Cash generated by operations   12,999 11,236 40,334
         
Income taxes paid   (385) (1,865) (1,962)
         
Net cash from operating activities   12,614 9,371 38,372
       
Investing activities        
Interest received   9 - 21
Investment in pre-publication costs   (12,935) (16,886) (29,744)
Purchases of property, plant and equipment   (75) (121) (169)
Purchase of software   - (82) (77)
Acquisition of subsidiaries   - - (1,887)
         
Net cash used in investing activities   (13,001) (17,089) (31,856)
       
Financing activities        
Interest payments   (2,341) (1,651) (2,980)
External loans repaid   (6,923) (8,633) (24,238)
External loans drawn   1,997 5,000 18,457
         
Net cash used in financing activities   (7,267) (5,284) (8,761)
       
Net decrease in cash and cash equivalents   (7,654) (13,002) (2,245)
         
Cash and cash equivalents at beginning of period   15,384 17,946 17,946
       
Foreign currency exchange differences on cash and cash equivalents   (36) 103 (317)
         
Cash and cash equivalents at end of period   7,694 5,047 15,384

 

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Notes to the condensed financial statements

The notes are available in the printable pdf of the results. To download it, please click here.