QRT.L Regulatory News (QRT)

THE QUARTO GROUP INC

("Quarto" or the "Company" or the "Group")

Final Results for the Year Ended 31 December 2015

The Quarto Group, Inc. (LSE: QRT), the leading global illustrated book publisher and distribution group, announces its unaudited results for the year ended 31 December 2015.

Financial Highlights

· Revenue up 6% to $182.2m (2014: $171.3m3)

· Adjusted1 Operating Profit up 8% to $17.2m (2014: $15.9m3)

· Adjusted Profit Before Tax up 18% to $14.1m (2014: $11.9m3)

· Profit Before Tax up 8% to $12.9m (2014: $12.0m3)

· Adjusted Earnings per Share of 49.9c up 13% (2014: 44.1c3)

· Net debt reduced by 10% to $59.5m (2014: $66.0m)

· Proposed final dividend of 9.4c/6.15p2 (2014: 8.2c/4.95p2) up 15%, making the total dividend for the year of 14.5c/9.50p2, up 6% (2014: 13.7c/8.3p2)

· Dividend cover of 3.4x (2014: 3.2x)

Operational Highlights

· Core publishing operations revenue growth of 13% and adjusted operating profit growth of 17%

· Publishing adjusted operating margins improved to 12.8% (2014: 12.3%)

· Ivy Press business exceeded management expectations since acquisition in March 2015

· Children's publishing revenues up 41% with both organic and acquisitive growth

· Foreign Rights revenues up 13% and up 43% in Children's publishing despite foreign currency fluctuations in certain markets

· Contribution from non-core trading businesses of over $3.1m in operating profit (2014: $3.9m3) with Regent Publishing Services up 34% on 2014 making up for another year of currency headwinds and difficult trading at Books & Gifts Direct

· Acquisition of The Harvard Common Press in February 2016 continues targeted growth by acquisition

Commenting on the results, Chief Executive, Marcus Leaver said: 

"Quarto made continued progress in 2015, delivering on our strategic objectives of revenue growth, debt reduction and dividend growth, while improving operational efficiency. This level of performance was enabled by the resilience of our business model and the professionalism, ambition and hard work of our people around the world. Our goal in our 40th anniversary year remains for Quarto to grow in a sustainable and profitable manner, organically and through judicious acquisitions, and steadily reduce net debt further."

Chairman, Tim Chadwick added:

"After three years of transformation, with cumulative earnings per share growth and debt reduction, 2015 was Quarto's most profitable year ever. This is the fulfilment of the vision that led to my appointment as Chairman in 2012 and I am proud of what Quarto has achieved since then. I have decided not to put myself forward for re-election at the Annual Meeting, but rather hand over with confidence to Peter Read, upon his election at the Annual Meeting, to lead the Board as Chairman through Quarto's next phase of growth."

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

2. Dividend per share is declared in cents per share and paid in sterling translated at the spot rate on the date of payment. Dividend cover is calculated using adjusted earnings per share.

3. Restated for changes in our Books & Gifts Direct business with respect to revenue recognition relating to insurance arrangements on certain product shipments, and on the treatment of overhead allocated to inventory. In addition, debt issuance costs previously included within administrative expenses have been reclassified to finance costs. Full details are set out in Note 11 to the accompanying condensed financial statements.

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About The Quarto Group

The Quarto Group (LSE: QRT) is the leading global illustrated book publisher and distribution group and is listed on the London Stock Exchange. Quarto employs about 400 talented and creative people in five distinct but complementary businesses - Quarto International Co-editions Group; Quarto Publishing Group USA; Quarto Publishing Group UK, Quarto Hong Kong and Books & Gifts Direct, Australia & NZ.

The Group is well positioned in resilient segments of book publishing with rich reserves of Intellectual Property. Quarto is uniquely positioned for growth as the industry adapts to new means of marketing, sales and routes to market. The Group's headquarters are in London where the Company was founded in 1976.

CHAIRMAN'S STATEMENT

After three years of transformation, with cumulative earnings per share growth and debt reduction, 2015 was Quarto's most profitable year ever. This is the fulfilment of the vision which led to my appointment as Chairman in 2012 and I am proud of what Quarto has achieved since then. I have decided not to put myself forward for re-election at the Annual Meeting, but rather hand over with confidence to Peter Read, upon his election at the Annual Meeting, to lead the Board as Chairman through Quarto's next phase of growth.

Dividend

As well as our continued focus on debt reduction, the Board is pleased to recommend a final dividend of 9.4c/6.15p per share, making the total dividend for the year 14.5c/9.50p, a 6% increase over last year, giving dividend cover, based on Adjusted Earnings per Share of 49.9c (2014: 44.1c11) of 3.4 times (2014: 3.2 times). Notwithstanding the increase in the final dividend for 2015, the Board believes that the balance between the interim dividend and final dividend should be more weighted to the final dividend given the increased second half weighting of revenues and profits. Accordingly, there will be no increase in the interim dividend in 2016, but with the expected earnings growth for the full year, the Board anticipates appropriate progression in the final dividend.

1 Restated as set out in Note 11.

Corporate Governance

I was elected as Chairman of Quarto at a time of great change in late 2012. Since that time Quarto's adjusted profit before tax has increased by over 50% and its debt has reduced by over 25%.

The Group has a clear strategy for the future and I am pleased to have appointed such an accomplished executive management team during my tenure. With the exit of the activist shareholder block in November 2015, I shall leave the Board along with Christopher Mills at the conclusion of the forthcoming Annual Meeting on 24 May 2016.

The proposed new Chairman, Peter Read is currently a non-executive director of Quayle Munro Limited, Concha PLC, The Professional Cricketer's Association and The Royal Automobile Club. He was formerly chairman of KPMG's Telecoms, Media and Technology practice and a partner for over 20 years. Peter will join the Board upon his election at the Annual Meeting. Marie Louise Windeler will also join the Board upon her election at the Annual Meeting and assume the role of Chair of the Remuneration Committee; she has had excellent experience of executive and non-executive roles in creative businesses. They will form the non-executive Board along with Mike Hartley, Senior Independent Director and Chair of the Audit Committee, and Jess Burley, both of who were appointed during my tenure as Chairman; I am grateful to both of them for their help in reforming the Company's corporate governance.

The Board has examined the merits of moving the Company's domicile to the UK from its historic domicile in the USA in Delaware. Given the significant cost and execution risk of such a move, which would have limited benefits for existing shareholders, the Directors do not believe this to be in the Company's interests in the short to medium term. If there is a beneficial change in US tax legislation, then the Board will look at the issue again in the future.

People

We said farewell to Mick Mousley, our long-standing Chief Financial Officer, in 2015. His enormous contribution to the Group can never be underestimated and we wish him well in his retirement. Our new CFO, Michael Connole, joined us in September and has made an excellent contribution to the business already.

Yet again our people at Quarto have shown restless creativity and resolute innovation. Increasingly tenacious sales and marketing efforts have lifted the Group to record profits in 2015. On behalf of the Board, I would like to thank all of our people in all of our businesses around the world for their talented hard work and commitment to Quarto.

Quarto is a fine business, poised at an exciting time in its history. I wish it all the best in executing its strategy.

Timothy J. M. Chadwick

ChairmanCHIEF EXECUTIVE'S STATEMENT

SUMMARY

Quarto made continued progress in 2015, delivering on our strategic objectives of revenue growth, debt reduction and dividend growth, while improving operational efficiency. This level of performance was enabled by the resilience of our business model and the professionalism, ambition and hard work of our people around the world. Our goal in our 40th anniversary year remains for Quarto to grow in a sustainable and profitable manner, organically and through judicious acquisitions, and steadily reduce net debt further.

Our core publishing operations contributed revenue growth of 13% and adjusted operating profit growth of 17%. Our publishing margins improved from 12.3% to 12.8%, demonstrating the quality of the revenue growth that we achieved which offset currency fluctuations in some areas of the Group. Our trading businesses contributed $3.1m in operating profits with an excellent year from Regent Publishing Services making up for another year of currency weakness and difficult trading at Book & Gifts Direct.

We have focused on tighter working capital management in all Group companies this year and net debt has been reduced by 10% or $6.5m and by over 25% since 2012. Working capital management and debt reduction will remain a key point of focus in 2016.

We continue to demonstrate the market demand and commercial value of illustrated print books. Quarto books serve clearly identified markets and are useful, instructive and well produced. These characteristics reflect our creative focus on customers and underpin the enduring quality of our imprints. We are a content-rich company, built on the foundations of the creative independence and vitality of each imprint, combined with senior management that is commercially focused. New titles are viewed through the prism of creativity, quality and economic impact. We celebrate our 40th Anniversary with confidence in the continued value of these principles in guiding our business strategy. Further, we have enhanced our model through the implementation of global operational, marketing and sales collaboration. Our new sales and marketing arrangements with Allen & Unwin in Australasia and the launch of www.QuartoKnows.com in June 2015 demonstrate this global collaboration; the second phase of the development of the latter, our digital hub and e-commerce platform, will take place in 2016.

Consequently, Quarto enters its fifth decade as a highly diversified dynamic portfolio of creative businesses underpinned by a scalable production and sales platform for organic and acquisitive growth. We will continue to grow by creating and exploiting information rich content and licensing that content in domestic and global markets. We will allocate capital across our portfolio of businesses, backing long-lasting winners and flexibly responding to both market opportunities and market challenges as they arise.

Organic growth alone will be insufficient to leverage fully the market opportunity. Starting new imprints and attracting new talent is vital but, with very rare exceptions, takes time to have a significant impact on the Group. Notwithstanding the quality of our catalogue and strong revenue contribution of historic titles, imprints do decline and organic growth sometimes serves only to offset this natural life cycle. Acquisitions of appropriate publishing imprints will therefore remain fundamental to continued strong growth providing that we stay true to our acquisition principles: that the businesses acquired shall be within our known areas of publishing expertise, bring measurable benefits to the Group as a whole, and in the year after acquisition, should be earnings enhancing.

Quarto's people around the world have excelled in 2015 with the Quarto work ethic evident in all areas of the business; our people are hard-working, practical and focused. The spirit of co-operation within the Group continues and the commitment shown to our entire ecosystem of partners and network of suppliers allows us to keep up the momentum we have achieved in 2015 and aim for each year.

DIVISIONAL REVIEW

Publishing Businesses

2015 has been a mixed year for the wide portfolio of imprints that constitute QIC. The integration and the outperformance of the acquired Ivy Press business has been a highlight, contributing revenue of $8.2m and operating profit of $1.9m. The weaker performance of some of the other imprints had been expected and of some others less so. A variety of factors came into play; those factors being market focussed, imprint focussed or category focussed or a combination thereof. We are addressing these issues and are confident that the recovery of these formerly successful units to previous levels of profitability will happen in the course of the next two financial years. We recognise the cyclical nature of a number of our businesses and manage the portfolio accordingly.

Currency fluctuations certainly had a negative impact on deal closing and deal flow in total. Some potential downside was countered with the execution of some entrepreneurial royalty deals as opposed to losing deals in total. But English language revenues were robust yet again with strength in most imprints in new title purchases and reprints. This bodes well for the future.

Enhanced by our acquisition of Ivy Press, this is a portfolio of market-leading imprints based in London and Brighton, that enjoys good medium-term visibility as we continue to produce and publish books that are of perennial interest, avoiding passing fads, while enjoying numerous reprints and justifying the initial investment.

ThisIsYourCookbook.com had an encouraging few months post-launch and proved its concept of producing personalised cookbooks. We will invest some marketing funds in this business in 2016. It is still too early to say whether this new venture will reach commercial success, but investment in new ways of exploiting our IP is essential to the ongoing health of Quarto.

Quarto Publishing Group USA (QUS)

2015 has been an excellent year for the US-based imprints. After a challenging 2014 in the Home Improvement retail sector, the team has executed its business plan very effectively and outperformed in its market-leading sales in the Art Instruction category, led by adult colouring book sales. Our most successful titles came from a three year old organic start up imprint, Race Point.  This highlights how important it is to reinvest continually in our various portfolios. Equally our sales and marketing structure excelled in making our product available as deeply and widely as it did in all channels both domestically and globally. That said, 2015 has been an exceptional year, and we will strive to repeat this performance in 2016.

Our direct relationships with retailers continue to develop as we focus our publishing and distribution into niche markets. Our strategy remains to diversify our channels to market in a way that matches the breadth of our publishing programmes which cater for enthusiasts. Our recent acquisition of The Harvard Common Press is a good example of this. The purchase, which was completed on February 1, 2016, adds hundreds of titles to our backlist as well as over 25,000 recipes. The acquisition furthers our position as a leading publisher of lifestyle-orientated titles for the consumer markets.

The medium-term view is positive in this business and we will continue to look for suitable acquisition candidates, either lists that complement what we already publish or businesses in areas where this portfolio is underweight, such as Children's books.

Quarto Publishing Group UK (QUK)

2015 has been another year of progress for our UK-based imprints with particularly gratifying performances from Aurum Press, which has been transformed by its new Publisher into an illustrated and global imprint, and Wide Eyed Editions, a second year start up under a talented creative management team, who are also re-igniting the creativity in Frances Lincoln Children's Books.

The medium-term view is encouraging as we maintain our focus on both domestic and international markets utilising the creative platform we now have in place. Suitable acquisition candidates will be identified in areas where the portfolio could be enhanced.

Trading Businesses

Whilst our trading businesses may not attract as high a quality of earnings as that of the core publishing operations, in aggregate they provide a healthy stream of earnings for the Group. In addition, both businesses give management unique insight into publishing related activities. We continue to examine whether Quarto is the correct owner of both businesses, as we do across the entire portfolio.

Books & Gifts Direct (BGD)

1 Restated as set out in Note 11.

Despite the fact the Australian Dollar weakened by 17% during the course of the year against the US Dollar, it cannot disguise the fact that it has been another demanding year for our business in Australia and New Zealand.

Poor last quarter trading saw our sales to the Australian Master Franchisers down 16% in local currency for the full year against 2014. This is a result of sales out of their networks being sluggish, leading to the Master Franchisers being overstocked and not needing to buy new inventory from Books & Gifts Direct as the Australian economy has cooled.

New Zealand has had a reasonable trading year following the merger of 2014 but has suffered lower margins resulting from their product mix and the clearance of some older inventory at lower prices. We continue to explore the sale of the franchises for North Island and South Island as opposed to owning the business in this territory.

Progress has been made in this business in 2015 with the full roll out of our proprietary technology and network capacity up to 113% from 85% at the end of 2014. We have a coherent market-leading business in Australia and New Zealand. With resolutely committed partners in the Master Franchisees, an increasingly experienced management team, enhanced buying power and the implementation of proprietary technology that has been developed over the last two years, we have all the ingredients for a return to the levels of profitability enjoyed previously. Quarto's executive management will assist in this return to success in any ways it can.

Quarto Hong Kong

With one of the most experienced management teams in the industry, Regent Publishing Services, our long-established print broking business based in Hong Kong, produced an excellent result in 2015 with operating profit up 36% from revenues up 11%. The new sales and marketing strategy, focussed on in 2015, of Children's, religious, comic, gaming and stationery publishing is working well.

The establishment of Quarto Hong Kong in 2015, the Group's print buying office in Hong Kong, is driving further savings for Quarto in print buying in China, a critical element of our supply chain and a cornerstone in our improving operational efficiencies across the Group.

KEY INITIATIVES

Children's Publishing

Our children's revenues have grown by over 75% from 2012 and now constitute 22% of our publishing revenues. Our talented creative teams around the world are suitably teamed up with excellent specialist children's book sales people and marketers. We continue to attract and develop talent in this area and will examine potential acquisitions on both sides of the Atlantic.

Foreign Rights

Our Foreign Rights team has battled hard to counter the currency fluctuations affecting most of the markets they sell into. Their entrepreneurial approach has salvaged what could have been a poor year and with the addition of Ivy Press they have ended the year ahead of last year.

Our Brazilian distribution agreement with Grupo Nobel, Quarto Editora, got off to a good start and 2015 saw a full year contribution from that business. We continue to source similar relationships in other undersold territories but have proceeded cautiously in ensuring we find the right partners who share our values.

Outlook

The Group is well-positioned to deliver continued earnings growth in 2016. We expect this to manifest itself in the second half of the year; the increase in second half weighting experienced in 2014 and 2015 is in line with continuing global retail trends. Visibility gained through our forward order books and the recurring revenues of our business model gives us confidence in our ability to continue the momentum of the last three years as we execute our business plan.

Quarto remains a cash generative business and we are committed to reducing our net debt, including by resolutely examining the strengths and weaknesses of our portfolio with a clear focus on our working capital. Continued reduction in net debt will further enhance our options to build on the strong platform that has been created in the last three years and prior. As we further develop our business to take advantage of growth areas and the acquisition opportunities that are presented to us, thereby increasing the Group's earnings, we will progress the Company's dividend in the second half of the year, as we have done in 2014 and 2015.

We celebrate our 40th Anniversary in 2016 with a clear sense of purpose and identity. Quarto knows how to make and sell books that inspire, educate, entertain and encourage creativity. Quarto does this consistently and profitably and will continue to do so in 2016 and beyond.

Marcus E. Leaver

Chief Executive

CONDENSED CONSOLIDATED INCOME STATEMENT

FOR THE YEAR ENDED DECEMBER 31, 2015

(UNAUDITED)

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE YEAR ENDED DECEMBER 31, 2015

(UNAUDITED)

CONDENSED CONSOLIDATED BALANCE SHEET

AS AT DECEMBER 31, 2015

(UNAUDITED)

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (UNAUDITED)

FOR THE YEAR ENDED DECEMBER 31 2015

CONDENSED CONSOLIDATED CASH FLOW STATEMENT

FOR THE YEAR ENDED DECEMBER 31 2015

(UNAUDITED)

NOTES TO THE CONDENSED ACCOUNTS (UNAUDITED)

1. Basis of preparation

The financial information set out in this statement does not constitute the Group's Annual Report for the year ended December 31, 2015 and 2014, prepared in accordance with the Companies Act 2006 as applicable to overseas companies. The financial information for the year ended December 31, 2014 has been extracted from the statutory financial statements. The statutory financial statements for the year ended December 31, 2014, including an unmodified auditor's report, have been delivered to the Registrar of Companies. The audit for the year ended December 31, 2015 is not yet complete. The financial information contained within this preliminary announcement was approved by the Board on March 17, 2016.The financial statements will be finalised on the basis of the financial information presented by the Directors in this preliminary announcement and will be delivered to the Registrar of Companies following the Company's annual meeting.

The Group financial statements are presented in US Dollars and all values are shown in thousands of dollars ($000) rounded to the nearest thousand dollars, except where otherwise stated. Each entity in the Group determines its own functional currency and items included in the financial statements of each entity are measured using that functional currency. The accounting policies used have been applied consistently, except where set out below, and are described in full in the statutory financial statements for the year ended December 31, 2014.

The financial statements for the year ended December 31, 2014 have been restated. Full details of the restatements are included in Note 11.

On the basis of the cash flows generated by the business and the headroom available on the bank facilities the Directors are confident that the Group has adequate resources to continue in operational existence for the foreseeable future and, accordingly, consider that it is appropriate to continue to adopt the going concern basis of accounting in preparing the financial statements.

2. Operating segments

The analysis by segment is presented below. This is based upon the operating results reviewed by the Chief Executive Officer.

2015

2014 (restated)

2. Operating segments (continued)

Geographical areas

Revenues are allocated based on the country in which the customer is located, irrespective of the origin of the goods.

3. Exceptional items

4. Finance costs

5. Taxation

Corporation tax on UK profits is calculated at 20.25%, based on the UK standard rate of corporation tax, (2014: 21.5%) of the estimated assessable profit for the year. Taxation for other jurisdictions is calculated at the rates prevailing in the respective jurisdictions. 

5. Taxation (continued)

The table below explains the difference between the expected expense at the UK statutory rate of 20.25% and the Group's total tax expense for the year.

6. Earnings per share

7. Committed facilities and banking covenants

At December 31, 2015, the Group had a US$95m (2014: US$95m) syndicated bank facility which is due to expire on April 30, 2019. These facilities are subject to three principal covenants summarized below.

These facilities are subject to three principal covenants, namely:

8. Dividends

The proposed final dividend is subject to approval by shareholders at the Annual Meeting and has not been included as a liability in these condensed financial statements.

The Quarto Group, Inc., as a US incorporated company, is required to collect US dividend withholding taxes on dividend distributions made to its non-US shareholders. The US dividend withholding tax is generally 30% of any dividends paid to Quarto's non-US shareholders, but this amount can potentially be reduced pursuant to an applicable income tax treaty between the US and the country of residence of the non-US shareholder. For example, under the US/UK income tax treaty, the US dividend withholding tax rate can range from nil (applicable to certain UK resident pension trusts and tax exempt entities) to 15% (applicable to UK resident individual shareholders and certain UK corporate shareholders). For US shareholders, no US dividend withholding tax is generally applicable. It should be noted that certain documentation requirements must be met by all shareholders prior to the payment of any dividends to certify their status as a US or non-US shareholder, and, if a non-US shareholder to claim any applicable benefits under the US/UK or other applicable income tax treaty. Each shareholder should consult their own tax adviser to determine whether and to what extent they may be entitled to claim a reduced amount of US dividend withholding taxes under a US income tax treaty.

9. Reconciliation of figures included in other parts of the condensed financial statements

10. Acquisitions

On March 4, 2015, the Group acquired 100% of the equity share capital of Lewes Holdings Limited and its subsidiary company Ivy Press Limited ("Ivy Press") for a total consideration of $1.9m, plus the assumption of $0.3m of debt. Ivy Press specialises in illustrated book publishing. The consideration was payable in three tranches: on completion, on July 1, 2015, and January 4, 2016. Transaction costs of $0.3m were incurred in relation to the acquisition (see Note 3). The transaction has been accounted for by the acquisition method of accounting. These companies were acquired because of their strategic fit within the Group.

The goodwill of $269,000 arising on the acquisitions is largely attributable to the anticipated incremental sales and cost synergies with being part of The Quarto Group.

If the acquisitions had been completed on the first day of the financial year, Group revenues for the period would have been $183,473,000 and Group profit attributable to the equity holders of the Parent would have been $9,179,000. The revenue and operating profit of Ivy Press since the acquisition date included in the consolidated statement of comprehensive income for the year ended December 31, 2015 were $8,075,000 and $1,946,000 respectively.

10. Acquisitions (continued)

The fair value of acquired assets and liabilities is summarised below.

11. Restatement of prior year results

The following tables show the impact of the prior year adjustments:

a. Classification of the amortisation of debt issuance costs

The amortisation of debt issuance costs was previously included with administrative expenses. The policy on these costs has changed to better reflect the underlying nature as a financing cost. There is no net impact to the income statement. The reclassified amount for the year ended December 31, 2014 was $720,000.

b. Insurance arrangements and related revenue recognition

A review of certain insurance arrangements across the Group identified that in limited circumstances the Group remains the principal insurer of product shipments in transit. In these circumstances it was determined that it was inappropriate to recognise the related revenue until the shipment was receipted by the customer, This correction is limited to the Books & Direct Gifts business only. The impact of the results of the business for the year ended December 31, 2014 was a reduction in profit after tax of $128,000.

c. Allocation of overheads to inventories

A review of the inventory costing model identified that some inconsistency in the allocation of overheads to inventories. The inconsistency was limited to the Books & Gifts Direct business only and has been corrected. The impact of the results of the business for the year ended December 31, 2014 was a reduction in profit after tax of $8,000.

11. Restatement of prior year results (continued)

CONDENSED CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED DECEMBER 31, 2014

CONDENSED CONSOLIDATED BALANCE SHEET AS AT DECEMBER 31, 2014

CONDENSED CONSOLIDATED BALANCE SHEET AS AT DECEMBER 31, 2013

12. Principal risks and uncertainties

a. Customer risk. The Group operates across many of the major world economies including the USA, United Kingdom, Europe, Australia, New Zealand and Hong Kong and our revenues and profits depend on the general state of the economies in these territories. Another recessionary environment in our key USA and UK markets could have a significant impact on the financial status of some of our key customers and their ability to pay their debts to us. We monitor debts closely and maintain close relationships with all major customers that may provide prior warning of likely failure.

b. Currency risk. The Group's businesses operate in a number of different currencies giving rise to a risk of exchange loss due to fluctuating exchange rates. We have hedging and currency swaps in place. We have a natural hedge that mitigates against currency movements impacting our earnings in that one of our largest costs which is print costs are paid in US Dollars. Borrowings have been taken out in different currencies to mitigate risk of currency movements impacting our net assets.

c. Loss of intellectual property. As we are an owner of intellectual property, a lot of which is digitally stored and accessed, the security and strength of our information technology systems is very important. Because of its importance, we regularly review our storage and back-up routines and disciplines and are in the process of introducing a new title management system for our publishers that will improve the security of and access to our intellectual property.

d. Economic risk. A sudden downturn in revenues or profits caused by a global recession or through the impact of currency movements could reduce consumer discretionary spending which might result in a reduction in profitability and operating cashflow. The group is well funded with over $100m in debt facilities but in addition, in the event of such a reduction in profits and/or cashflow, the Directors have the ability to make a number of mitigating actions including the reduction of discretionary spend on pre-publication costs.

e. Supply chain risk. The Group uses a number of print suppliers to print its books, many of whom are based in Southern China. There is a risk that an interruption in the availability of printing services in Southern China could result in an interruption in the printing and distribution of new books to customers. The group maintain relationships with printers in other South East Asian countries, Eastern Europe, the UK and the USA and are confident that printing could be carried out by an alternative range of printers if supply from China was interrupted.

f. Cyber security risk. Like many organisations, the group is at risk from cyber attack. This presents a potentially serious risk disruption to production process and could have a significant impact on the probability of the business and the security of intellectual property assets. The Group uses firewalls and IT controls to prevent attack as well as maintaining offsite backup of intellectual property. Computerised files of the Group's books are also maintained by printers.

13. Directors responsibilities statement

The Directors confirm that to the best of their knowledge: 

a. The condensed financial statements, prepared in accordance with the applicable set of accounting standards give a true and fair view of the assets, liabilities, financial position and profit or loss of the company and the undertakings included in the consolidation taken as a whole; and

b. The Business Review, which will be incorporated into the Directors' Report of the financial statements, will include a fair review of the development and performance of the business and the position of the company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties they face.