QRT.L Regulatory News (QRT)

20 Feb 2008 07:00

Quarto Group Inc20 February 2008 THE QUARTO GROUP, INC Preliminary Announcement - Year to December 31, 2007 Quarto (QRT.l) the fully-listed international specialist book publisher based inLondon, announces improved headline and underlying results, in spite of a weakereconomy in its core US market and adverse currency movement. Laurence Orbach (Chairman & CEO) stated: "We have delivered a very solid set of2007 results. "For our co-edition titles, the forward order book is stronger than it was atthis time last year. The Publishing segment, by its nature, sells from inventoryand does not have such forward visibility, but, even allowing for the lingeringproblems in the US housing and associated markets, we expect a solid performancefor the Group in 2008. We have strong publishing programs in place and, with ahealthy backlist of titles, and greater visibility and availability for thesethrough internet retailers, we feel comfortable that Quarto is in good shape toweather the head winds that may blow. "In 2007, operating profit (before amortization of non-current intangibles andnon-recurring items) exceeded 10% of revenue, and we are striving towards a newtarget of 12.5%." Financial Highlights Year to December 31 2007 2006 Increase Revenue (£m) 100.1 93.6 +7%Adjusted EBITDA (£m) 20.0 18.0 +11%Operating profit: adjusted (£m) 10.6 9.6 +10% reported (£m) 9.6 6.9 +39%Pre-tax profit: adjusted (£m) 7.7 7.3 +5% reported (£m) 6.7 4.6 +45%Diluted earnings per share: adjusted (p) 24.4 22.5 +8% reported (p) 21.1 13.9 +52%Dividends per share (p) 7.15 6.75 +6%Net debt (£m) reported (£m) 43.4 31.0 +40% underlying (£m) 25.4 31.0 -18% Adjusted excludes amortization of non-current intangibles and non-recurringitems Underlying excludes the cash outflow in respect of acquisitions •Accelerating growth: Adjusted operating profit rose 10% to £10.6 million (2006: £9.6 million) on revenue growth of 7% to £100.1 million (2006: £93.6 million); adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) increased by 11% to £20.0 million (2006: £18.0 million); adjusted profit before tax up by 5% to £7.7 million (2006: £7.3 million) - a seventh successive annual increase; proposed final dividend up by 7% to 4.00p (2006: 3.75p), making a total for the year of 7.15p (2006: 6.75p). Diluted, adjusted earnings per share were 24.4p (2006: 22.5p),an increase of 8%. Statutory reported operating profit rose by 39% to £9.6 million (2006: £6.9 million), and basic earnings per share were 21.6p (2006: 14.3p), an increase of 51%. •Balance Sheet: Bank facilities of $165 million committed to 2012 and beyond; strong cash generation; receivables days reduced; inventories well controlled; net debt, following the $35.1 million acquisition of MBI Publishing in August, is substantially better than forecast at £43.4 million (2006: £31.0 million). •The Publishing segment, the main focus of Quarto's growth strategy, amply validated this approach, with operating profits jumping 23% to £6.4 million on sales up 12% to £61.7 million, benefiting from the acquisition of MBI •The International Co-Edition Publishing segment produced another robust performance, with underlying operating profit 1% ahead at £5.3 million on headline revenues of £38.4 million that on an underlying, constant currency basis were up 6% at £40.7 million. •The $35.1 million acquisition in August 2007 of MBI Publishing, the leading US publisher of books for transport enthusiasts, was Quarto's largest ever. MBI traded as expected in the last four months of 2007 and is now located with Quarto's CPi publishing imprint, a specialist in home improvement, in new facilities in downtown Minneapolis. Enquiries:The Quarto Group, Inc. 020-7700 9004Laurence Orbach (Chairman & CEO)Mick Mousley (Finance Director) Bankside Consultants Limited 020-7367 8851Charles Ponsonby CHAIRMAN'S LETTER Dear Shareholder: We have delivered a very solid set of 2007 results. It seemed likely, in theearly part of the year, that our CPi publishing imprint, producing titles onhome improvement, would feel some effect from the fragile housing market in theUnited States. This duly transpired as the year progressed. By the early summer,the damage had spread beyond housing and widely enough to temper privateequity's voracious appetite, giving us the opportunity to acquire MBIPublishing. Our largest acquisition to date, MBI, the leading US publisher ofbooks for transport enthusiasts, strengthens our strategy of producing books foraudiences of enthusiasts and professionals, and leveraging our infrastructure toachieve improvements in overall financial performance. It also cements oursubstantial presence in the US domestic publishing market. Summary of Financial Performance For the year ended December 31, 2007, revenues rose by 7% to £100.1 million(2006: £93.6 million). Adjusted operating profit rose by 10% to £10.6 million(2006: £9.6 million); profit before tax, on the same basis, of £7.7 million(2006: £7.3 million) increased by 5%; and diluted, adjusted earnings per share were 24.4p (2006:22.5p), an increase of 8%. Adjusted EBITDA were £20.0 million (2006: £18.0 million), an increase of 11%.Cash generation was strong; underlying net debt was down by £5.6 million to£25.4 million (2006: £31.0 million), excluding the cost of the acquisition ofMBI. Earnings are strongly ahead of last year and prospects are promising, so yourboard is recommending a final dividend of 4.00p (2006: 3.75p) per share, makinga total dividend for the year of 7.15p (2006: 6.75p) per share, an increase of6%, to be paid on June 5, 2008 to shareholders on the register on May 2, 2008.Basic earnings per share were 21.6p (2006: 14.3p), an increase of 51%. Whilethis is a very flattering increase, 2006's earnings were impacted adversely by alarge bad debt. A reconciliation of the above figures is given in Note 5. The US dollar remains Quarto's principal trading currency. We continue to reportour results in sterling and I have to remind readers that the average dollarrate for 2007 was £1=$2.00, a fall of almost 9% from the prior year's. Againstthe background of a weaker economy in our core market, and adverse currencymovement, we are delighted to be able to announce improved headline andunderlying results. Corporate Activity As mentioned above, we were successful in an auction to buy MBI Publishing, andclosed the deal at the end of last August. MBI is the leading US publisher ofbooks for transport enthusiasts (automobiles, motorcycles, trucks, aviation,etc.), and the major US distributor for a number of overseas, predominantlyUK-based publishers of specialist transport titles; it also publishes arespected range of military history and militaria titles under the Zenith Pressimprint, and a more general list of regional, outdoor activity, sport, andspecial interest titles under the Voyageur Press imprint. The purchase, whichwas financed from our lines of credit, cost $35.1 million, including costs andthe assumption of MBI's debt. In June, we renewed and enlarged our 5-year syndicated revolving creditfacility, increasing it from $90 million to $115 million which, together withthe 8-year Note sold to Pricoa in December 2006, provides us with $165 millionof facilities committed to the middle of 2012 and beyond. We have hedged theinterest rate on the major part of the funds we have drawn. We also have furtherbilateral facilities outside these two arrangements. The acquisition of MBI demonstrated to potential vendors that we were activeand, with our strong financing arrangements, we have scope to continue our questfor opportunities to add selectively to our portfolio of publishing businesses. Review of Trading Quarto's International Co-Edition Publishing segment produced another robustperformance, achieving a strong underlying operating profit margin of 13.6%(2006: 13.7%) on headline revenues of £38.4 million that, on an underlying,constant currency basis, were up 6% at £40.7 million (2006: £38.4 million). Theunderlying operating profit was 1% ahead at £5.3 million (2006: £5.3 million). As is the norm, the percentage of revenues from books published in prior yearsremained very high, at 68% (2006: 70%). This was down slightly on the prior yearbecause more new titles were published during the year. Foreign language salesin Europe were down on the very strong 2006 performance, but this was more areflection of timing than of market conditions. The Publishing segment, the main focus of our growth strategy, amply validatedthis approach, with operating profits jumping 23% to £6.4 million (2006: £5.2million) on sales up 12% to £61.7 million (2006: £55.2 million), thanks to theacquisition of MBI. Publishing is largely a domestic activity, in contrast tothe broad global reach of our co-edition publishing segment. Our main publishingimprints and markets are in the United States, followed by Australasia. Adjusted operating profit exceeded 10% of revenues, for the first time, and weare striving towards a new target of 12.5%. Reprint revenues continue tounderpin the business model, with 59% (2006: 59%) of the sales of our bookpublishing units being derived from titles published in prior years. For the last four months of 2007, MBI traded as expected and, during thisperiod, while obtaining space in Minneapolis in which to combine our twoMinneapolis-based publishing units, we also started work on a lengthy project tointegrate some of the routine back office functions of our entire US publishingbusinesses and build an infrastructure upon which further growth can be based.We now occupy completely renovated loft space in downtown Minneapolis, ideal forour purposes and also containing a capacious, 10,000 square feet photographystudio, which is used to build sets for our illustrated instructional how-tobooks. Prospects Looking backwards, it now seems to have been inevitable that there was alwaysgoing to be a strong correction in the financial markets. Whatever the causes,be they excessive pump priming by the Federal Reserve, the slow and growingtendency for consumers in the United States to take on ever more debt (althoughnot quite to the greater extent that they have done in the UK!) in the hope thatthe world had moved into a benign, and never-ending, period of low inflation andproductivity growth, the ill-advised "war on terror" undertaken by anoverstretched superpower that could only see itself as a force for good in theworld, or a myriad of other possible explanations, something of a day ofreckoning seems to have arrived. As of this writing, large and powerfuleconomies doubt that they will be infected significantly - the Eurozonecountries, the BRIC countries, and Australasia, among others - but this mayrepresent the triumph of hope over reality. I suspect that the contagion willspread, and that it would be imprudent not to point out that while all goes wellfor Quarto, we cannot expect immunity from volatile and uncertain markets andeconomies. What does this mean for Quarto's short-term prospects? Without the new mediathat have become commonplace over the last decade, we would use history as aguide; remembering, of course, the obligatory government health warning that theexperience of the past may not necessarily be a guide to the future. For, in thepast, book sales did rather well in recessions, offering good value forinstruction, information, and entertainment. Does the emergence of the newmedia, many of which make available similar offerings, apparently "for free",dismiss this happy likelihood? As I have pointed out frequently, in previous letters, all successful new mediahave made inroads on existing media by exploiting the unique capabilities,characteristics, and rhythms of a new medium. While new media remain competitionfor the consumer's dollar, they may have only passing impact on old media, byforcing it to invent a new business model in order to survive as, no doubt, themusic industry is experiencing at the moment. Can anybody seriously imagine thatthere will be no music industry and it will not re-emerge from its currenttravails? What is far more likely is that the industry will indulge incollective navel gazing, regroup, and shift its focus, groping towards a newbusiness model that allow performers and creators of music to profit anddisseminate music widely using the multiple channels. The book publishing business, over a very long period, has consistently survivedthe predations of most other media and prophesies of its imminent demise; themovie industry has adapted itself to the emergence of television, cable,videotapes and DVDs; and so it is likely to continue, but there are noguarantees. Quarto remains on the lookout for opportunities to monetize its deepreservoir of content. So far, the one promising digital direction we haveexploited is to make a subset of some our material available online to librariesand their subscribers in the United States, through a fee-based library supplyvendor. It's a useful source of additional revenue, but firmly grounded in atraditional distribution channel. It may be inevitable that, in their relentless search for advantage,professionals in the investment industry have much to gain by dramatizingcommercial change. They search for growth and for decline, and it's easy andvaguely plausible to posit that growth in some areas will cause declineelsewhere, as if the economy were in perfect balance. It's not, of course and,while new media may offer explosive growth and create temporary disruption, thedecline in existing media is only relative to the larger pot of media. And so itis with books, i.e. the book publishing industry may represent a smaller pieceof the overall media industry, but it still grows at slightly ahead of the rateof inflation. As of now it remains unclear whether book publishers will be ableto derive significant new sources of revenue from digitization. Should this cometo pass, Quarto is well placed to be a major beneficiary, as so much of Quarto'scontent has been self-generated, and the revenue stream will not have to beshared with others. Nor is it guaranteed that all "new media" will root in the fertile soil of theinternet: at some point, finance has to be available to support new, or nearlynew, forms of media, much as advertising and license fees and cablesubscriptions have offset the cost of producing content for newspapers andtelevision. One must remember that content has been "nearly" free in other mediafor a very long time, and the internet does not, in that respect, represent arevolution. In contrast, as an unsubsidized medium, book publishing has foundits way past the rocky shoals, prospering by appealing only occasionally andsuccessfully to really large mass audiences (a la Harry Potter), and mostly totiny minorities with special interests and enthusiasms. Since the emergence of other media, books have been a regular purchase in mostcountries by only a very small minority of consumers and, if anything, bookpurchasers are growing, thanks to the wider dissemination of books throughoutlets such as supermarkets, speciality stores and, particularly, internetretailers. A very recent Nielsen Online study shows that books are, across theglobe, the most popular online buy, with 58% of South Korean users buying booksonline. And the trend is increasing. Even in the United States, with itsabundant book superstores, and the UK, respectively 38% and 45% of internetusers have bought books online, a far higher number of consumers than used tobuy books before the internet began. If further evidence were needed that Quartooperates in a continually growing industry, it comes from the recently releasedstudy by the Association of American Publishers, which confirms that book salesthrough all channels increased by 7.4% in 2007. We can expect to see continued nervousness and disruption in book retailing,which feeds back into how Quarto, and other publishers, plan content production.This represents a mighty challenge, one that Quarto is well placed to address.If only the UK and US are currently feeling the immediate impact of the internetand substantial book sales by non-book retailers, the ripple effect will travelinto other markets before long. Our strategy is to remain as producers andpublishers of books for enthusiasts and professionals across the globe,translated and, if necessary, adapted for local audiences in even more than the43 languages we license our books in now, all produced to very high standards. For our co-edition titles, the forward order book is stronger than it was atthis time last year. The publishing segment, by its nature, sells frominventory, and does not have such forward visibility but, even allowing forlingering problems in the housing and associated markets, we expect a solidperformance for the group in 2008. We have strong publishing programs in placeand, with a healthy backlist of titles, and greater visibility and availabilityfor these through internet retailers, we feel comfortable that Quarto is in goodshape to weather the head winds that may blow (as the Wall Street Journalrecently noted in an article, nautical metaphors seem now to be raging incorporate releases). We remain well funded and very hopeful that, if private equity's romance withmedia cools, Quarto may be better able to execute on its strategy of makingselective acquisitions. Quarto is a portfolio business, recognizes that organicgrowth will be slow, and sometimes may only be successful in replacing decliningimprints, and that acquisitions of appropriate publishing imprints will helpdrive ever better returns for shareholders. I take this opportunity to thank our staff, our contributors, our bankers andadvisers who, together with the board of directors, have provided the essentialsupport to make 2007 a successful year. Sincerely Laurence F OrbachChairman and Chief Executive Officer London, February 20, 2008 REVIEW OF OPERATIONS International Co-Edition Book Publishing 2007 was a productive and successful first full year for our Quintessence unit,with revenues up by 12%, and it is set to grow even more quickly in 2008 as itsclient base broadens, and its range of series-oriented titles increases. Duringthe year, the phenomenally successful 1001 series hit new heights in terms ofquality and profile: in the US, 1001 Buildings was showcased in Barnes & Noblestores in 50 states; in Australia, 1001 Classical Recordings was cross-promotedwith an accompanying audio CD in all ABC bookstore outlets; while in the UK,Waterstones ran a nationwide promotion that generated 28,000 sales in the twoweeks before Christmas. Unwavering focus has helped the brand achieveunprecedented credibility, with UNESCO pleased to be invited to collaborate on1001 Historic Sites to See before You Die, the 10th title in the series, whileworldwide press and blog coverage for all titles accumulates at pace. 2007 alsosaw the launch of the first two series spin-offs, 501 Movie Stars and 501 MovieDirectors, while the third and final layer in the 1001 book pyramid will launchin 2008. Far from resting on his laurels, however, publisher Tristan de Lanceyis already well advanced with plans for two new series to take over where 1001leaves off, and thus capitalize on Quintessence's unique brand-led, co-editionhybrid status by applying tried and tested disciplines to ensure this successcontinues for years to come. QED, Quarto's educational publishing unit, came of age in 2007, under thewatchful guidance of founding publisher Steve Evans. Four years of steadilyincreasing sales and profitability culminated in a record result, both on thetop line and in operating profit. Sales grew in most channels: by 51% in Englishlanguage co-edition, with particular successes in the US warehouse club anddisplay marketing segments; by 17% in the UK self-published segment; and by 12%in the North American Library market. Two areas of disappointment - export andforeign language co-edition sales - have been addressed through the recruitmentof additional sales resources to concentrate on emerging markets in EasternEurope, where there is a hunger for high quality educational content. 2008'spublishing program has been carefully researched to ensure maximum alignmentwith educational trends, and reflects increased use of "hi-lo" reading schemes -books with high visual and subject interest, but with a low reading-age level,designed to encourage reluctant readers. QED is now being shown a new respect byits competitors, while at the same time major customers are increasing theirorder levels, reflecting a greater confidence in the brand's reputation forcreative freshness and educational authority. After two very strong years in 2005 and 2006, Quarto Adults experienced adownturn in sales in 2007. Over-optimistic scheduling meant that a number of newtitles failed to meet their year-end shipping deadlines, and the weak dollartranslated into lower revenues all round. Despite this, US reprint salesremained robust, confirming the continuing steady retail demand for Quartobooks, and sales in the UK held up well, thanks to our focus on specialisttitles licensed to very able publishers who have managed to sidestep the generalretail downturn. Foreign language sales started the year slowly, but abarnstorming finish saw them end with gross margins increased. European hitsincluded 100 Characters from Classical Mythology (10 foreign language editions);How to Raise and Keep a Dragon (22 foreign language editions); and The Color andTexture Bible (50,000 foreign language copies sold within two months ofpublication). The outlook for 2008 remains rather uncertain, with the likelihoodof continued caution prevailing among our publishing customers in North Americaand elsewhere. Quintet has not yet entirely recovered from the rude amputation of theQuintessence unit in mid-2006; nevertheless it emerged from an exciting andchallenging 2007 with sales ahead of the previous year. The 500 Series, uponwhich much reliance was placed, has gone from strength to strength in Englishlanguage markets, with some customers requiring re-supply as many as four timesduring the year. Publication in English of the sixth title was the signal forthe floodgates of foreign language interest to open, and ten European customerswere signed up by year-end, with initial orders from Holland alone exceedingfirst year sales achieved in the UK. Four new 500s are scheduled for publicationin 2008, and the series looks certain to be a significant generator of profitfor years to come. The rest of the Quintet program has been slower to rightitself, and this has not been helped by numerous personnel changes throughoutthe year. Despite this, a 20-title frontlist for 2008, a mix of new books andthose based on existing assets, represents the highest number since 2004, andprovides a solid base from which to grow what is in many ways a brand newimprint still in the throes of establishing its identity. Feedback fromcustomers has been positive, and there is optimism both in key markets andwithin the unit. After treading water in 2006, Qu:id's renewed focus on the "three Cs" - concept,content, and co-edition - led to a healthy improvement in sales and profit. Thenew frontlist was well received, and early results from titles launched in thelast quarter of 2007 are encouraging: Make 50 Wild & and Wacky Contraptions(published in association with The Smithsonian Institution in the US), and thelead humour title What Shat That? both performed strongly, the latter doingparticularly well in the trendy US retail chain Urban Outfitters that some wouldsay is Qu:id's natural habitat. This is Not a Book: Adventures in PopularPhilosophy was also a hit, and additional volumes are planned in this line for2008. In today's very competitive environment, the look and feel of a book isoften key to its success. Qu:id continues to utilize the thriving creativecommunity in Brighton by commissioning design and illustration from talentedindividuals seeking to support their wider artistic ambition; this enables it toextract both quality and value from its new title development process. Prospectsfor 2008 and beyond are good, with a healthy order book and some big titles inproduction, including a new series, and continuations of other establishedformats. The integration into the Qu:id worldview of Quarto's crack London-basedforeign language sales team has proceeded seamlessly, and we are expecting tosee very significant sales increases in these markets. Qu:id remains a smallbusiness unit, but with a growing ambition. It has carved a solid niche with itsrefreshing approach to established publishing categories, and seems set on apath of growth combined with strong bottom-line performance. In what was a very tough year for the promotional book sector, Quantum grewsales by 7% while profit remained flat. The unit's performance was severelyimpacted mid-year by the failure of a printer to keep to delivery agreements,leading to major disruption and some cancelled orders. Most of the sales growthcame from English language reprints of the Cartographica line, offsettingfurther declines in Quantum's traditional business. The decision to invest inCartographica was taken specifically to counter Quantum's over-reliance on thesystemically weak promotional market, and this now looks like a wise move, asthe disintegration of the sector continues apace. The latest victim is The WorksRetail Ltd, the UK's largest value book retailer, which went into administrationon January 31, 2008. Most of Quantum's UK business is transacted throughwholesalers, so our direct exposure to this event is negligible, but it willundoubtedly have a ripple effect through the UK industry. All is not bleak,however: four new Cartographica titles are scheduled for delivery in 2008 andare eagerly awaited by their licensees; the order book is 30% ahead of where itwas this time last year, and foreign language markets are holding up well.Quantum has a new publisher, with a new perspective, and she has set aboutredefining the unit's activities in the changed landscape of promotionalpublishing with vigour and determination. Illustrated children's imprint Q+ made great strides towards fulfilling itspromise of last year. On the back of a program of innovative, high qualitypublishing, significant breakthroughs were made in the form of first-time dealswith prestigious new customers, including Chronicle Books, National Geographic,and Random House. The strategy of producing titles in series to generatepull-through began to bear fruit as Scholastic followed up Ultimate InteractiveAtlas with Ultimate Interactive Space Atlas. Barron's, another well-regarded USeducational publisher, emerged as one of our most important customers, addingfour titles in 2007 to the four they bought in 2006, the majority of which havealready reprinted. New UK partners included Dorling Kindersley, Hodder, and TheNatural History Museum, while Allen & Unwin and Walker Books joined the party inAustralia. Sales in foreign language markets were, if anything, even moreimpressive: all new projects were auctioned, with some buyers fighting toacquire the title of their choice. Despite all this, the unit failed to meet itsprofit forecast in 2007, as a number of key frontlist titles missed theiryear-end delivery slots. It is hard to overstate the sense of disappointmentthis has caused. The outlook for 2008 is considerably rosier, however: the orderbook is already significantly ahead of 2007's year-end figure, and foreign salesare set to grow by over 50%. With a little more discipline, vigilance, andhonest self-appraisal, the prospects for Q+ look brighter than they have forsome time. Iqon Editions, Quarto's boutique co-edition unit specializing in accessiblecultural reference, delivered Understanding Religions, the latest title in itsbestselling . . . Isms series. This is proving a successful concept, with morethan 400,000 copies sold to date of the first three titles, in over 20 languageeditions. The next title, Understanding Fashion, is due for publication in 2008and is eagerly awaited by an already salivating public. RotoVision continued its upward trajectory with steady growth in 2007. Tradewith existing US co-edition partners remained brisk, while the uncertaintysurrounding the US economy did not prevent the establishment of new businessrelationships. Elsewhere, a strong year in established territories such asNetherlands, Italy, and Spain, where turnover more than doubled, was partiallyoffset by Germany, where sales dipped as one-off backlist opportunities in 2006were not repeated. Growth in Eastern Europe was steady rather than stellar,while sales in Japan and Korea, where domestic competition is tough, remaineddisappointingly flat. Despite this, an overall increase of 22% in foreignlanguage sales is a very satisfactory result. One indicator of enduring appealis the 44% increase in foreign co-edition reprints. Series such as 500 Hints,Tips and Techniques, Essential Design Handbooks and the flagship World's TopPhotographers reprint repeatedly, while stand-alone title Designs of the Times,which published in 2005, is now translated into a dozen languages, and somecustomers are on their third printing. On the back of difficult tradingconditions in the UK, RotoVision escaped relatively lightly. As a publisher ofspecialist professional books, it is less exposed to the vagaries of the UK booktrade, and actually benefits from the continued onslaught on the trade fromonline retailers. Export sales were robust, and although the ambitious targetwasn't quite reached, turnover increased by 19%. A policy of rigorous stockmanagement is paying off, and an aggressive stock clearance that took placemid-year means the unit has a clean slate moving into 2008, which publisherApril Sankey expects to be another year of solid growth. Marshall Editions' strategy is straightforward: to increase its output ofhigh-quality reference books that customers will want to buy in English-speakingand foreign language markets. This was partially successful in 2007; frontlistrevenues hit a six-year peak, with twenty new titles published - up fromseventeen the previous year - and this helped to offset the fall in backlist andforeign language sales, declines arising largely from the age of some of thebacklist titles. The frontlist, meanwhile, is more robust than at any time sinceQuarto acquired Marshall from administration, and will provide significantprofit contribution in the medium term. New relationships were establishedduring the year, and existing ones strengthened: our collaboration with NationalGeographic was further cemented by the publication of Encyclopedia of AnimalTracks, while the signing of new contracts with Harper Collins and HarryPotter's US publisher, Scholastic, emerged as key developments. We expect 2008to be a challenging year, but we have it within our capabilities to overcomethese headwinds, and to further build the Marshall brand and reputation forexcellence. 2007 was quite a year for the small but talented team at The World of Fine Wine.Contributor Jamie Goode won the Glenfiddich Wine Writer of the Year Award forhis work in the magazine. Tasting Panel member Andreas Larsson was named World'sBest Sommelier at a ceremony in Spain. And The World of Fine Wine won theArtVinum Media Award 2007 at the forum for European Wine Culture in Stuttgart.The award citation described the magazine as "By far the best wine publicationon the market." In addition to a further four quarterly issues of theaward-winning magazine, the WoFW team delivered the content of 1001 Wines YouMust Taste Before You Die to Quintessence in record time. They will announce,during 2008, the launch of their first co-edition publishing initiative proper,a prestigious new series of regional guides to the world's finest wines.Shareholders can subscribe to The World of Fine Wine at half price by emailingthe publisher, SaraB@finewinemag.com. Sydney-based Global Book Publishing turned in a superb performance under thestewardship of managing director Chryl Campbell. Sales were 16% ahead of theprior year. A significant contributor to the result is the continuing success ofBiblica: The Bible Atlas. Since publication in 2006, it has been translated intotwelve foreign languages (Dutch, French, German, Italian, Greek, Catalan,Russian, Norwegian, Hungarian, Czech, Polish and Japanese), and this success hasopened doors to existing and future Global titles: all of Global's 2007 titlesare sold in at least one foreign language, and 2008 projects are eliciting keeninterest. Global sold and produced four new titles in 2007, expanding itsEnglish-language client base to include half a dozen new customers. Theacquisition of The Anatomy Student's Self-Test Coloring Book by The RoyalSociety of Medicine Press and Palgrave Macmillan is a testament to the very highquality of Global's human anatomy illustrations, all of which were developedin-house. Following excellent initial sales of the coloring book, both thesecustomers have ordered the updated and revised edition of Anatomica's FlashCards for delivery in the first half of 2008. Global is starting 2008 with arecord number of new titles and updated editions in the order book. Newcustomers of note include National Geographic US, who, following extensivedirect mail testing, committed to 60,000 copies of Edible, and Thames & Hudson,which will publish both China and The Middle East. The unit's key challenges forthe year ahead are those associated with managing growth: maintaining itsnear-perfect record for on-time delivery, despite a much heavier productionschedule, and consolidating its financial results despite considerableinvestment in new titles and an aging backlist. Another good year isanticipated. Regent Publishing Services, our Hong Kong based print production service, madevery considerable sales advances in 2007 in an extremely price competitiveenvironment. Most of the growth came from the United States and, for 2008, weare redoubling our efforts to penetrate the UK and continental European marketsmore effectively. Publishing Quayside Publishing Group, under the direction of Ken Fund, the core of Quarto'sUS publishing and distribution operations, had a very successful 2007. We beganthe year with four strategic goals: to review and develop a business plan forour Craft publishing; to improve and modernize the design of our HomeImprovement titles; to arrest and reverse the poor performance at Fair WindsPress; and to locate a new facility for Quayside West. We achieved, or madesignificant progress towards achieving, all of these during the year. In Augustwe acquired Minnesota neighbours MBI Publishing, which served the strategicimperative of providing entry into another tranche of enthusiast publishingcategories. MBI's management team has worked hard to adopt the Quayside businessmodel and excellent progress has been made towards full integration of the twobusinesses. As expected, the acquisition has thrown up issues of size and shape,and we continue to research warehouse and operational consolidation for theNorth American publishing businesses, with the goal of having a strategy inplace by second quarter 2008, for implementation in early 2009. In our search toidentify the correct sales and marketing resource for the combined business, werecently appointed Kevin Hamric, formerly of Taunton Press, as VP of sales andmarketing. Our first sales meeting under his leadership included a searchingexamination of current accounts, publishing lists, discount schedules, marketingand publicity plans, together with numerous strategy sessions, all of whichenergized the sales team for 2008. After several years of robust frontlist growth, Rockport's 2007 list did notperform as strongly out of the gate as in previous seasons. This is partly theresult of a deliberate change of tack: we have placed increased emphasis onproducing evergreen titles that backlist strongly and sell in foreign languagemarkets, and expect that this will more than make up for any frontlistshortfall. We have stepped up efforts to gain course adoptions and secondaryreading list recommendations. We will build on our initial successes in theseareas by creating an editorial and marketing strategy to optimize ourpenetration into academic markets, which will help in consolidating our statusas publisher of choice for design professionals, both domestically andinternationally. Efforts to attract well recognized and prolific authors - including AngelaCartwright, Laura McCabe, LK Ludwig, and Susan Stein - to our craft specialistsQuarry Books and CPi Lifestyles were rewarded by many strong sellers in 2007,but overall we suffered somewhat from the lack of an outstanding, break-outtitle. Our books continue to be well received by the craft community, and adiverse backlist has enabled us to maintain a strong foothold in the category,but we remain faced with the challenge of growth on a playing field that is nowmore competitive than ever. 2007 also presented its fair share of problems inour existing distribution channels: strong sales into the Michaels chain earlyin the year were offset by sluggishness in the second half, as inventory builtup in the stores. Hancock Fabrics, an important account for us in previousyears, sought bankruptcy protection and reduced store counts. AC Moore changeddistributors halfway through the year, and suspended ordering for a while. Wewill continue to take such challenges in our stride. Craft books aside, Quarrycontinues to build on core categories that have proved successful to date (pets,foods, artisan hobbies) and test new ones that seem likely to meet our aims. Our101 Tricks for Dogs sold more than 40,000 copies in 10 months, and we are closeto reaching our initial goal as a small, but strong and profitable, publisher ofbacklist. Fair Winds Press had a lacklustre year. The list has still not fully recoveredfrom the success of its Low-Carb cooking series, and in the intervening yearshas been unable to replace this line of revenue with anything of similarmagnitude. During 2007 we carried out a comprehensive strategic review of ourpublishing, identifying successful subject areas and rethinking the kind ofbooks that will carry the program to higher profits without significantlyincreasing the number of titles published. We now believe we have charted thepath to future success. Our new book concepts are broad reaching, have greaterreference value, and offer consumers specific solutions that differentiate themfrom the competition, with authoritative, information-driven text backed up byexemplary design and high production values. First signs are that our newapproach is working. Last fall we published Jonny Bowden's 150 Healthiest Foodson Earth, a book that exemplifies the new direction Fair Winds is taking. Itsdepth of content is convincing to potential consumers making a purchasingdecision: no matter what page they flip to, they learn something surprising anduseful. This density of information in a chunky package justifies the $25 pricepoint in paperback, and with 20,000 copies through the register in 2007 it seemsthe public agrees. The 2008 Fair Winds program is off to a solid start. We havea full flight of 40-plus content-packed titles and believe we are positioned forhealthy gains in 2008, and beyond. CPi Home Improvement did not escape the consequences of a continuing soft marketin the home construction and building trades: unit sales numbers were off inalmost every channel, and were especially hard hit in the Lowes and Home Depotchains which, together, are the major sales outlets for CPi's home improvementtitles. There was some cause for optimism in the final quarter, however, andDecember buy-ins were strong enough partially to redeem an otherwise dismal yearfor revenue. We correctly predicted the popularity of flooring as a subjectmatter, and our publication of a flooring how-to book, as well as aninspirational title on flooring, gave us a market advantage over thecompetition. Other successes during the year included books on Sheds, LuxuriousLiving, and Custom Shelves & Built-ins. The newly branded John Deere lineenjoyed a surprisingly good reception at Home Depot, while our Complete Guide toHome Repair and Complete Guide to Home Improvement fared well in all channels.The home improvement crunch that is hurting us is also hurting our competitors,who have retrenched significantly in the category, abandoning market share thatwe will be only too pleased to pick up. For 2008 we will update and revise ourstrong-selling backlist titles, and release new titles where we see strongmarketplace support. In this respect, we are working with new branding partner,Quikrete, a manufacturer of proprietary concrete products. CPi Outdoor faces a number of tough decisions in 2008. The category remainsseverely challenged, with a weakening public appetite for traditional huntingand fishing titles, and sales to all major outdoor accounts showing year-on-yeardeclines. We plan to curtail investment in new titles, while keeping provenbacklist sellers up to date for the restricted market that we know exists, whileat the same time exploring outdoor recreational subjects beyond the confines ofhunting and fishing. The logic of this is reinforced by the sales success we hadduring the year with wild game and wild fish cookbooks, and the highpre-publication sell-in of our Orvis Birdwatching Guide, all of which gives usconfidence that we may be able to evolve the program away from its currentnarrow preoccupations into a more general outdoor and recreational how-to list. Overall sales at MBI Distribution were flat, but this disguised a number ofsignificant changes in the mix of customers. A huge increase in sales toAmazon.com, where sales have increased by 10% per year since 2005, offsetdeclining trade sales and sales to Tractor Supply. Several distributionagreements came to an end during the year, and we will seek to replace thisbusiness as a priority, as we embark on a new initiative to market MBIDistribution Services to new publishing clients. Motorbooks finished the year strongly. The publishing program was 13% smallerthan the prior year's and placed greater emphasis on "Core Skill" titles - thoseapplicable broadly, as opposed to focused on a specific marque or engine family- paid off with good initial sales for our Workshop series, and our Muscle Carand Motorcycle publishing strands performed dependably well. A line of narrativebooks, a fairly recent development for Motorbooks and an unusual one for atransport publisher, has worked selectively, with just four titles generating ahalf million dollars in net sales. Throughout the year our newly strengthenedmarketing team achieved widespread coverage of our books, not only in theenthusiast press, but also in mainstream outlets like Men's Journal, RollingStone, Playboy, New York Times, and LA Times, and got our authors on radio andTV. New narrative titles include The Chrome Cowgirl Guide to the MotorcycleLife, the female answer to the Biker's Handbook; and Riding on the Edge, amemoir of a former president of the Pagans, one of the more notorious outlawbiker clubs. The Custom Painting Idea Book, aimed at enthusiasts planning theirnext custom vehicle, is the first in a new series of aspirational titlesdesigned to do for the gearhead what craft and home remodelling books do for ageneral audience. We also see a strong and largely untapped opportunity forforeign language editions of Motorbooks titles and, using Quarto's abundantexperience, look forward to exploiting this profitably over the coming years. Voyageur Press's surprise bestseller in 2007 was How to Shovel Manure, and OtherLife Lessons for the Country Woman, while its top-selling giftbook was The Artof the Snowflake, which sold 25,278 copies. In between times it also launched anew series of animal husbandry books in conjunction with the Future Farmers ofAmerica group, capturing the category from the competition in the 750+ storeTractor Supply Co, one of the mid-West's biggest retail chains, and appointed apublisher to develop a new regional sports and recreation imprint with plans topublish 16 titles annually starting in 2009. Zenith Press, which has a number of well-established and successful series inthe military history and aviation books categories, had another year of growth.A major attraction of this kind of publishing is that sales into specialistchannels of distribution tend to be non-returnable, providing steady andprofitable business, although this often goes hand in hand with low retailprices. Efforts are being made across the list to increase retail prices, andZenith's first $50 gift book, on the Normandy campaign, is scheduled forChristmas 2008. A strong program of narrative frontlist titles got off to anexcellent start at launch last year: several of these should backlist inhardcover and most will be suitable for softcover reissue in the future. Aparticular highlight of 2008's program is the publication of a tie-in book forthe Hell's Highway video game, which is budgeted to sell 2m copies at a MRSP of$60. This is a new venture and we are unable to predict what proportion of gameowners will buy the companion book, but it is clearly an exciting prospect thathas the potential to influence our performance significantly. We already havethe tie-in book for the next game in the series - Bastogne - under contract. Book Sales continued under the watchful stewardship of Mel Shapiro and, likeclockwork, turned in a reliable performance in spite of considerable volatilityin the promotional book market. With its very solid sales in the mature art instruction area, Walter Foster hasstruggled to achieve comparable strengths in other areas. There were sales gainsin 2007, but they were not reflected on the bottom line, and call for afundamental re-evaluation of the current publishing strategy, which is now beingundertaken. JR Books, our newest UK-based venture, had an auspicious first year: its debutlist, launched in late 2007, beat its sales budget by 100%. Although the shortlead-time between the launch and Christmas meant that many titles missed themain bookstore promotions, sales of Matthew Parris' Mission Accomplished andAlan Coren's posthumous 69 for 1 far exceeded expectations, while Les Dawson'sSecret Notebooks ended up on Waterstones' bestseller list and Dr Pam's FabulousForeplay made it on to Amazon's sex bestsellers. Of course, this sort of profilecan be achieved by lavish spending on promotions, Christmas catalogues, andauthor launches, but the Quarto way relies more on hard work, cleverinterventions, and judicious use of contacts in the media, with the minimum ofexpenditure. We achieved very wide review coverage of our new title output, andhad our authors popping up on key radio and television programmes throughout theautumn. We were also able to arrange a number of high-profile serializations,including a six-part dramatization of Frederic Raphael's Fame and Fortune on BBCRadio 4. The trade press was highly supportive, not only heralding the newcompany, but running news stories on acquisitions and events. After such anexcellent start, the pressure is on to deliver an equally stunning second year:we are planning to publish twice as many new titles in 2008, as well as reissueour launch list in paperback, so for now we are growing fast and full ofoptimism for the future. Aurum Press started the year on a wave of optimism following an exceptional2006, although our budget for 2007 did reflect concern that consumer spendingmight dip in the course of the year. What we were absolutely not prepared forwas the unprecedented level of returns in the first 6 months. It is one of theidiocies of the book trade that the more you sell, the more you get back, evenwhen sales out of the stores are increasing. Thus we paid the price in the firsthalf of 2007 for our sales success in late 2006. Our key 2007 Christmas titles -biographies of Pink Floyd and Alice Cooper, a facsimile of the 1937 Oor WullieAnnual, and The Rules of Golf - sold well across the board, and we anticipatelower returns in 2008, as we deliberately restricted supply towards the end ofthe year to let stock in the stores sell through. Throughout the year, salescontinued to drift from the High Street to supermarkets and online, inparticular to Amazon. Aurum is in a good position to benefit from this shift.The joint venture with Jacqui Small is now 5 years old and in that time we havebuilt up a considerable image archive. As well as seeking to reuse these imagesin spin-off titles, we have entered into an agreement with TIA Digital to marketthem on a worldwide basis for use other than in books. We believe this couldcreate a useful new income stream. Also in the UK, Image Factory, which supplies publishing and market supportservices from its Chippenham base, doubled its profit contribution afterinstalling a new 10 foot wide digital printer, and associated equipment, at theend of 2006. This investment has paid off, and complements the factory's silkscreen capabilities. We have ordered a larger machine, which will be deliveredby the end of the first quarter of 2008. Lifetime Distributors, Australia's leading display marketer of books, prosperedwell in Australia's booming economy, brushing off the effect of three successiveinterest rate rises and continued increases in both fuel and shipping costs.Mark Bonello and his team grew sales by 22% and saw pre-tax profits nearlydouble. A key achievement during the year was the satisfactory resolution of alongstanding issue through the transfer of ownership of an underperformingmaster franchise. The energy with which the new owner set about redressing thesituation in this master franchise was a major driver of performance throughoutthe second half of the year. 2007 also saw the business quietly re-brand itself,and during 2008 it will undertake a major marketing initiative to increase theLifetime franchising profile, and heighten public awareness of the company. Thiswill focus primarily on recruiting new franchisees and sub-franchisees in boththe Australian and New Zealand markets. Recorded sales of 4.1 million units froma combined Australia and New Zealand population of just over 25 million makesLifetime the largest direct seller of products per capita in the world. Thecompany is in robust good health and has exciting and ambitious plans for thefuture. Premier Books, the largest, and only national, display marketer of books in NewZealand, produced a very solid result for the year. After years of stronggrowth, during which Premier has entrenched itself throughout the country, weshall now be focusing greater attention on better product selection, andoperational improvements, as we operate in an increasingly competitiveenvironment. The most disappointing news on the publishing front, comes from our two artprint publishing units, APG in the US and Artworks, in Australia. Afterstruggling to deal with major industry changes for several years, but stillmanaging to produce profit and a positive cash flow, both units fell into loss.Overall, they still contributed cash, but they are now retooling theirapproaches. APG is considering moving into more upmarket publishing, andArtworks has expanded its third-party design business. Evidence suggests thatthe depredations of the last several years, which involved digital printing ofimagery, the importation of inexpensive framed canvas look-alikes from China,and an affluent customer base that was looking for something original, have nowlargely run their course. This is not to say that the situation has reverted towhat it was before, but the indications are that these businesses can succeed,if they adapt. CONSOLIDATED INCOME STATEMENT (unaudited) year ended December 31, 2007 Note 2007 2006 £000 £000 Continuing operationsRevenue 1 100,107 93,613Cost of sales (62,842) (58,926) Gross profit 37,265 34,687 Other operating income 321 281Distribution costs (3,778) (3,586) -------- --------Administrative expenses before amortization ofintangibles and non-recurring items (23,248) (21,825)Amortization of intangibles (1,312) (1,387)Non-recurring itemsBad debt - (1,238)Excess recovery of aborted acquisition costs 370 - -------- -------- Total administrative expenses (24,190) (24,450) -------- --------Profit from operations before amortization ofintangibles and non-recurring items 10,560 9,557 -------- -------- Operating profit 1 9,618 6,932 Finance income 412 298Finance costs (3,321) (2,593) Profit before tax 6,709 4,637 Tax (1,697) (1,202) Profit for the year 5,012 3,435 Attributable to:Equity holders of the parent 4,243 2,800Minority interest 769 635 5,012 3,435 Earnings per shareFrom continuing operationsBasic 2 21.6p 14.3p Diluted 2 21.1p 13.9p CONSOLIDATED BALANCE SHEET (unaudited) at year ended December 31, 2007 2007 2006 £000 £000Non-current assetsGoodwill 18,307 9,710Other intangible assets 4,194 2,987Property, plant and equipment 7,445 7,501Deferred tax assets 763 198 Total non-current assets 30,709 20,396 Current assetsIntangible assets: Pre-publication costs 25,079 20,919Inventories 15,696 13,948Tax receivable - 178Trade and other receivables 32,285 27,022Cash and cash equivalents 17,577 13,929 Total current assets 90,637 75,996 Total assets 121,346 96,392 Current liabilitiesShort term borrowings (2,760) (17,800)Trade and other payables (32,572) (25,981)Tax payable (1,547) (1,437) Total current liabilities (36,879) (45,218) Non-current liabilitiesMedium and long term borrowings (58,190) (27,121)Deferred tax liabilities (3,273) (4,404)Derivative financial instruments (1,110) -Other payables (29) (21) Total non-current liabilities (62,602) (31,546) Total liabilities (99,481) (76,764) Net assets 21,865 19,628 EquityShare capital 1,162 1,162Paid in surplus 21,768 21,740Retained deficit and other reserves (5,025) (6,951) Equity attributable to equity holders of the parent 17,905 15,951 Minority interest 3,960 3,677 Total equity 21,865 19,628 CONSOLIDATED CASH FLOW STATEMENT (unaudited) year ended December 31, 2007 2007 2006 £000 £000 Profit for the year 5,012 3,435Adjustments for:Net finance costs 2,909 2,295Depreciation of property, plant and equipment 1,038 959Tax expense 1,697 1,202Amortization of intangible assets 1,312 1,387Amortization of pre-publication costs 8,416 7,461Movement in fair value of derivatives - (254)Equity settled share - based payment expense 5 7Loss (gain) on disposal of property, plant and equipment 22 (87) Operating cash flows before movements in working capital 20,411 16,405 Decrease (increase) in inventories 1,527 (1,307)Increase in receivables (1,674) (672)Increase (decrease) in payables 1,384 (267) Cash generated by operations 21,648 14,159 Income taxes paid (798) (611) Net cash from operating activities 20,850 13,548 Investing activities Interest received 412 298Proceeds on disposal of property, plant and equipment 119 933Investment in pre-publication costs (10,481) (8,444)Purchases of property, plant and equipment (688) (864)Acquisition of subsidiaries (17,941) (89) Net cash used in investing activities (28,579) (8,166) Financing activitiesDividends paid (1,355) (1,291)Interest payments (3,005) (2,797)Proceeds on issue of share capital 56 56New bank loans raised 32,189 583Repayment of bank loans (15,916) -Dividends paid to minority interest (226) (244) Net cash from (used in) financing activities 11,743 (3,693) Net increase in cash and cash equivalents 4,014 1,689 Cash and cash equivalents at beginning of year 12,110 11,899 Foreign currency exchange differences on cash and cash equivalents (15) (1,478) Cash and cash equivalents at end of year 16,109 12,110 NOTES (unaudited) 1. Segmented analysis Business segments Co-edition Co-edition Publishing Publishing Total Total Publishing Publishing 2007 2006 2007 2006 2007 2006 £000 £000 £000 £000 £000 £000Revenue Total sales 40,287 40,307 61,732 55,210 102,019 95,517Inter-segmentrevenue (1,907) (1,900) (5) (4) (1,912) (1,904) External sales 38,380 38,407 61,727 55,206 100,107 93,613 Segment result beforeamortizationof intangiblesand non-recurringcosts 5,215 5,277 6,435 5,245 11,650 10,522Amortizationof intangibles (12) (12) (1,300) (1,375) (1,312) (1,387)Bad debts - (1,085) - (153) - (1,238) Segment result 5,203 4,180 5,135 3,717 10,338 7,897 Excess recovery of aborted acquisition costs 370 -Unallocated corporateexpenses (1,090) (965) Profit from operations 9,618 6,932Investment income 412 298Finance costs (3,321) (2,593) Profit before tax 6,709 4,637Tax (1,697) (1,202) Profit after tax 5,012 3,435 Geographical Segments Revenue Revenue 2007 2006 £000 £000 United Kingdom 16,385 16,668United States of America 48,750 43,070Australia and the Far East 19,605 18,384Europe 11,266 11,860Rest of the World 4,101 3,631 100,107 93,613 NOTES (unaudited)(continued) 2. Earnings per share 2007 2006 £000 £000Earnings for the purposes of basic earnings pershare, being net profit attributable to equityholders of the parent 4,243 2,800Effect of dilutive potential ordinary shares:Interest on loan notes (net of tax) 26 45 Earnings for the purposes of diluted earnings pershare 4,269 2,845 Number NumberNumber of sharesWeighted average number of ordinary shares for thepurposes of basic earnings per share 19,643,747 19,563,900Effect of dilutive potential ordinary shares:Share options 55,643 104,651Dilutive loan note 537,144 855,015 Weighted average number of ordinary shares for thepurposes of diluted earnings per share 20,236,534 20,523,566 2007 2006 pence pence Basic 21.6 14.3 Diluted 21.1 13.9 Adjusted EarningsEarnings for the purposes of basic earnings pershare, being net 4,243 2,800profit attributable to equity holders of the parentAmortization of intangibles (net of tax and minorityinterest) 905 962Bad debt (net of tax and minority interest) - 818Excess recovery of aborted acquisition costs (net oftax) (242) - Earnings for the purposes of adjusted earnings pershare 4,906 4,580Effect of dilutive potential ordinary shares:Interest on loan notes (net of tax) 26 45 Earnings for the purposes of diluted earnings pershare 4,932 4,625 2007 2006 pence pence Basic 25.0 23.4 Diluted 24.4 22.5 NOTES (unaudited)(continued) 3. Dividends 2007 2006 £000 £000Amounts recognised as distributions to equity holders in theperiod:Interim dividend for the year ended December 31, 2007 of 3.15p(2006: 3.0p) per share 619 587Final dividend for the year ended December 31, 2006 of 3.75p (2005: 3.6p) per share 736 704 1,355 1,291 Proposed final dividend for the year ended December 31, 2007of 4.0p (2006: 3.75p) per share 787 736 787 736 4. Consolidated statement of recognised income and expense 2007 2006 £000 £000 Exchange differences on translation of foreign operations 116 (1,222)Change in the fair value of cash flow hedges (1,110) - Net expense recognised directly in equity (994) (1,222) Profit for the year 5,012 3,435 Total recognised income and expense for the year 4,018 2,213 Attributable to:Equity holders of the parent 3,249 1,578Minority interest 769 635 4,018 2,213 NOTES (unaudited) (continued) 5. Reconciliation of figures included in the Chairman's Letter 2007 2006 £000 £000 Profit before tax, before amortization of intangibles 7,651 7,262and non-recurring itemsAmortization of intangibles (1,312) (1,387)Non-recurring items 370 (1,238) Profit before tax 6,709 4,637 EBITDAProfit before tax, before amortization of intangibles 7,651 7,262and non-recurring itemsNet interest 2,909 2,295Depreciation 1,038 959Amortization of pre-publication costs 8,416 7,461 EBITDA, before non-recurring items 20,014 17,977 Net debtMedium and long term borrowings 58,190 27,121Short term borrowings 2,760 17,800Cash and cash equivalents (17,577) (13,929) 43,373 30,992 6. The financial information set out in the announcement does not constitute the company's statutory accounts for the year ended December 31, 2007 or 2006, prepared in accordance with the Companies Act 1985 as applicable to oversea companies. The financial information for the year ended December 31, 2006 is derived from the statutory accounts for that year, which have been delivered to the Registrar of Companies. The auditors reported on those accounts and their report was unqualified. The statutory accounts for the year ended December 31, 2007 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 Annual Meeting. The financial information contained within this Preliminary Announcement was approved by the Board on February 19, 2008. 7. The accounting policies adopted for use in the preparation of the 2007 Preliminary Results and of the 2007 Annual Financial Statements were consistent with those used in the preparation of the 2006 Annual Financial Statements. 8. The Annual Report will be sent out to shareholders in due course. Additional copies can be obtained from the Finance Director, The Quarto Group, Inc., 226 City Road, London EC1V 2TT. Tel: 020 7700 9000 (email: mickm@quarto.com). -------------------------- * Adjusted operating profit is profit before amortization of non-currentintangibles and non-recurring items. Underlying numbers illustrate businessperformance excluding currency impact, amortization of intangibles, andnon-recurring items, and are produced to give readers greater transparency. Areconciliation to the statutory results appears in Note 5. This information is provided by RNS The company news service from the London Stock Exchange