QRT.L Regulatory News (QRT)

FINAL

THE QUARTO GROUP, INC

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

Final Results for the Year Ended 31 December 2012

Quarto (LSE: QRT), the world's leading international illustrated non-fiction book publisher and distribution group announces its final results for the year ended 31 December 2012.

Financial Highlights

·; Revenue of $180.9m (2011: $186.1m)

·; Adjusted1 EBITDA2 of $36.5m (2011: $37.3m)

·; Adjusted1 EBITDA2 margin of 20.2% of revenues (2011: 20.0%)

·; Adjusted1 Operating Profit of $16.6m (2011: $16.7m)

·; Adjusted1 Profit before Taxation of $11.4m (2011: $12.1m)

·; Adjusted1 diluted Earnings per Share of 43.6 cents (2011: 45.6 cents)

·; Net debt reduced to $81.0m (2011: $81.4m)

·; Net debt to adjusted equity 85% (2011: 85%)

·; Cash flow from operations $31.2m (2011: $32.7m)

·; Proposed final dividend of 4.55p, making the total dividend for the year of 7.9p (2011: 7.9p).

Notes:

1Adjusted for amortisation of non-current intangibles and exceptional items

2 EBITDA is adjusted earnings before interest tax depreciation and amortisation

Operational Highlights and Post Period End

·; Tim Chadwick elected as a director in November 2012 and appointed as Chairman in December 2012

·; Marcus Leaver appointed COO at end of April 2012 then CEO in December 2012.

·; Refinement of Group into a clearer federal structure, allowing each of four divisions effective sales responsibilities alongside scope for collaboration.

·; Divisional operating margin up to 11.2%. (2011: 10.7%)

·; Group inventory down 16.0% at period end and represents 12.6% of Group revenue (2011 - 14.6%). This represents a turn of 2.0 times (2011: 1.8 times).

·; Digital Revenues up 29% to $2.7m (2011: $2.1m) or 3.3% of applicable revenues.

·; Continued refinement to Quarto structure and shape of the business, undertaking reviews of the entire portfolio.

·; Strategy to reduce net debt by end of 2013 through selective asset disposals and continued tight cash management

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

"These 2012 results display the fundamental resilience of the Quarto businesses even in challenging times. I believe that good foundations are in place here for a business capable of rewarding shareholders and employees alike. In order to do so, it is my intention to build an agile, product-led marketing and sales organization for a dynamic and fragmented marketplace."

Chairman, Tim Chadwick added:

"The Board is pleased to be recommending a final dividend of 4.55p per share, making the total dividend for the year 7.9p, level with last year."

For further information please contact:

The Quarto Group Inc

020 7700 9004

Marcus Leaver, CEO / Mick Mousley, CFO

M:Communications

020 7920 2330

Elly Williamson / Matthew Neal

About Quarto:

The Quarto Group (LSE: QRT) is the world's leading international illustrated book publisher and distribution group and is listed on the London Stock Exchange. Quarto has about 400 talented people. We operate in four distinct but complementary businesses - Quarto International Co-editions, UK; Quayside Publishing Group, USA; Aurum Publishing Group, UK and Lifetime/Premier Display Marketing, Australia & NZ. The Group is well positioned in attractively resilient segments of the publishing market that present opportunities for growth as the industry adapts to new means of marketing, sales and consumption. The Group's headquarters are in London where the Company was founded in 1976.

THE QUARTO GROUP; ENTERTAINING, EDUCATING AND ENRICHING THE LIVES OF OUR READERS

Chairman's Statement

As a result of a Special Meeting called by a body of shareholders in November 2012, I was appointed to the Board and then elected Chairman. The public nature of this process was regrettable and bruising to all concerned, but was motivated by the underlying desire of shareholders for Quarto to improve corporate governance, adopt a more appropriate capital structure and set a clear company strategy to deliver shareholder value.

To this end, the following have been achieved:

·; With my appointment as non-executive Chairman, I brought forward the appointment of Marcus Leaver as Chief Executive, thereby splitting the two roles. Marcus, who had been recruited as Chief Operating Officer at the end of April 2012 (with an eye to taking over as CEO in June 2013) has had excellent publishing experience on both sides of the Atlantic and we have already established a good working relationship. He reports on the Company strategy below.

·; The three current Non-Executives, Peter Waine, Peter Campbell and Edward Krawitt have informed me they will not be seeking re-election to the Board at the Annual Meeting in May. We thank them for their efforts over the years on the Company's behalf and wish them well. Accordingly, Quarto will be appointing a new Non-Executive Board to help support executive management in its task, and we are pleased to welcome to the Board, with immediate effect, Max Lesser, a partner in Worsley Associates LLP, an investment advisory business, and former investment manager at Guinness Peat Group plc.

·; Along with a refreshed Board and Senior Management, we have appointed new company lawyers (Olswang), brokers (Peel Hunt) and financial advisors (Lepe Partners) and this will extend to the rest of our advisors soon. We would like to thank our previous advisors for the good work and counsel they have provided to Quarto in the past.

·; We have instructed our advisors to investigate ways in which The Quarto Group can cease to be governed by Delaware law and be restructured as a conventional UK plc, if the process is cost effective both to the Company and its shareholders. We shall report back during the course of the year on our progress.

·; I have instituted an immediate strategic review of Quarto with the objective of lifting earnings and improving shareholder returns. This will include the identification and subsequent exit of all businesses detracting from shareholder value. The proceeds will be used to accelerate the reduction of debt.

Away from the Boardroom, the underlying businesses have clearly been run well and had been by the same management team for some thirty-seven years. We are grateful to Laurence Orbach for his contribution to Quarto and wish him well in the future.

As some of you may know, the first 20 years of my working life were spent in book publishing, first at Macmillan and then I founded Aurum Press. I am delighted that the imprint is now thriving within Quarto. Since those days I have spent time in both the US and UK building up and directing other public companies in other sectors. To be back among a team of creative, dedicated and energetic people is exciting and I relish the opportunities ahead.

Lastly, despite the challenges the Company faced last year, the Board is pleased to be recommending a final dividend of 4.55p per share, making the total dividend for the year of 7.9p, level with last year.

Timothy J M Chadwick

Chairman

Chief Executive's Statement

I am grateful to all of my colleagues for making me welcome at the end of April 2012 as Chief Operating Officer, and being extremely supportive when I became Chief Executive in December 2012. They have worked assiduously in the face of turbulence both in their markets as well as their workplaces with the well-documented corporate events at the end of 2012. To have lost a co-founder, Chairman, CEO and mentor to many in Laurence Orbach would have been an unassailable shock to a company with employees of lesser stature and quality.

In the four months I have been running Quarto so far I have taken the time to visit our businesses throughout the UK, US, Hong Kong, Australia and New Zealand, meeting customers and partners as well as colleagues. What I have found has been exciting and it only takes a simple visit to experience and even further stimulate the real sense of energy in the Group.

These 2012 results display the fundamental resilience of the Quarto businesses even in challenging times. I believe that good foundations are in place here for a business capable of rewarding shareholders and employees alike. In order to do so, it is my intention to build an agile, product-led marketing and sales organization for a dynamic and fragmented marketplace.

We are now reporting the structure of the Group in a different way via four distinct but complementary businesses. Two other businesses beyond this structure also made a contribution in the year.

·; Quarto International Co-editions, UK;

·; Quayside Publishing Group, USA;

·; Aurum Publishing Group, UK and

·; Lifetime/Premier Display Marketing, Australia & NZ.

·; Other Businesses

This clarity should provide investors with a better understanding of the very different market dynamics and growth profiles of each business unit, demonstrating that the Group is well positioned in attractively resilient segments of the publishing market which present opportunities for growth as the industry adapts to new means of marketing, sales and consumption.

The portfolio nature of our publishing businesses - Quarto, Quayside and Aurum - gives us an enviable asset base of intellectual property generating properties. This is underpinned by our trading businesses - Lifetime and Premier - which enable us to look at the book business from a very different angle as well as generate significant cashflow to invest back into the business as a whole.

Strategy

At Quarto, we have made excellent quality books and sold them in great quantities around the World since 1976. In order to achieve continued success, we need to do exactly that but take into account the rapidly changed and evolving marketplaces for the products we produce. It is ever more apparent that as an illustrated book publisher with excellent content and as a distribution business we need to be increasingly intelligent and diligent about getting books into the hands of customers. While it is well-documented that book stores are closing and value shopping online is competitive and dominated by well-known names, Quarto's products, businesses and sales methods, viewed across a group of varied parts, combine to create the opportunity for a growth in value.

The crucial issue for Quarto is not one of platform or of format but of channel. How the consumer wants to read our content is up to them. Our job is to make this content available to them in an economically viable format with the quality that we have historically been known for on whichever platform they desire. Such an approach is not something new, this is fundamentally our job at Quarto as publishers: the sales, marketing and distribution of content.

At Quarto we are exploring aggressively new channels to market within the territories in which we are already present and moving into new territories where we believe the market dynamics are encouraging for illustrated books and content. In some of these territories, we shall create the content, create the distribution opportunities and own an important delivery channel. The power of going to the customer with product as opposed to hoping to have the customer come to where the product is, has been an illuminating experience for us learned from our display marketing businesses. We are doing everything we can to maximize that experience in the marketing and sales process of our products in the rapidly changing, dynamic and multi-faceted markets we operate in.

As a result, in the last few months of 2012, we have examined the federal nature of the Group and have made some refinements that are described below. These refinements preserve the federal autonomous structure but allow more cross-fertilization between the businesses and co-operation between them, where real expertise resides in order to start capturing as much of the opportunity our structure affords us as possible.

The refinements outlined in the business reviews which follow are just the beginning and as a management team we are making it a priority task to identify others which will help Quarto's talented people achieve more together and sell even more books.

Divisional Review

1. Quarto International Co-Editions, UK

This business is at the core of the Quarto Group as the founding business around which the Group was formed. It comprises eleven businesses that span a range in annual revenue, reflecting different levels of maturity of the individual imprints. All of the co-edition business units license the books they create to third-party publishers around the world before they are created. No inventory is held and the businesses generate revenue in part from the new titles they create each year but also, predominantly, from the reprints that they supply to licensees of backlist titles first published in prior years.

This is a highly disciplined and low risk model, relying for its success on the integrity of each title, its relevance to the intended audience, and its ability to retain those attributes for many years and in many geographies.

The strength of Quarto International Co-Editions lies, as it has always done, in identifying categories of enduring interest to enthusiasts into which books can be published; creating titles that educate, entertain and enrich the lives of our readers; and taking advantage of the greater size of the global rather than the domestic audience to deliver a more comprehensive and useful book.

Quarto's titles are published by many of the world's most established and successful publishing houses. All in all, we sell books around the world in nearly 40 languages in a given year through our dedicated foreign language sales team.

The businesses are not strongly dependent on any single franchise or publication. By way of illustration, the top five strongest selling Quarto International Co-edition titles were:

1001 Movies: $555k;

Flora: $476k;

Photography: The Whole Story: $473k;

How Machines Work: $404k;

Art: The Whole Story: $394k

The overall result for this division in 2012 was disappointing with revenues down 5% to $41.4m (2011: $43.4m). The European market was particularly difficult given the regional economic malaise and retail flux and revenues fell by $3m, which amounts to more than the total revenue shortfall. The largest falls were seen in Scandinavia and Eastern Europe.

·; EBITDA margin was 33.2% (2011: 34.5%) of sales

·; Operating margin was 12.1% (2011: 12.5%) of sales

·; Backlist sales accounted for 68% (2011: 70%) of gross sales.

·; Geographic breakdown of sales:

o Europe 37% (2011: 41%),

o US 32% (2011: 27%),

o UK 12% (2011: 13%),

o Australasia 10% (2011: 9%),

o ROW 9% (2011: 10%).

As is to be expected in a portfolio business, some underlying businesses performed better than others and steps have been and continue to be taken in order to focus our energies on those imprints where we have clarity of publishing strategy and a future visibility into the main markets in which we do business.

In terms of new horizons we are pleased to be launching The World of Fine Wine Magazine iPad app in early April in both English and Chinese. This magazine is a fine brand for us to showcase our ability to create excellent content and it won the prestigious Louis Roederer International Wine Writers' Award for Publication of the Year for the third year running in 2012. We now need to leverage this expertise into making it an international business and the beginnings of that strategy will be seen in 2013.

The Quarto International Co-Edition business is the undisputed market leader in its field. With a history of deserved acclaim and dogged determination in its current and long-established markets as well as tenacity in opening up new frontiers, the medium-term view is dependable for this business with some potential upside as we apply our expertise in creative ways.

2. Quayside Publishing Group, USA

Our US business comprises twelve imprints and a distribution business, located in two main offices in Minneapolis and Boston with smaller satellites in Los Angeles and New York.

Our publishing strategy is based around illustrated non-fiction imprints that can best be described as serving Communities of Niche Enthusiasts (CoNE), ranging from motor enthusiasts who love our Motorbooks imprint, the world's leading publisher of automotive books and calendars, to professional designers and artisans of all types who are well catered for by Rockport which creates illustrated source books.

Our CoNE Network Approach underpins our businesses and we focus our publishers and their imprints on finding their communities, not communities finding authors. This targeted approach to content generation, focused on like-minded communities of interest, has evolved our business into being content-led but market-aware and proactive. Accordingly we have adapted our marketing and sales strategy during the course of 2012 to a nuanced approach, where we market and sell our wealth of content in a more granular way, than the 'publish it and they will come' approach of the C20 and early C21. To this end, we have effectively put more 'boots on the ground' by adapting our sales teams to a regional and local focus with our marketing efforts underscoring that approach.

This grassroots approach is both because of events that have unfolded to make 2012 a difficult year for Quayside and in anticipation of any future market turbulence; certainly, however, with only 15% of our overall sales in traditional book stores in the US & Canada we are well placed to take advantage of any uptick in the economy in the next year or so, should there be one, which the changes we have introduced can only enhance.

Here too there is a wide-range of titles, the six strongest selling in 2012 being:

All New Square Foot Gardening:$508k;

The Complete Photo Guide Cake Decorating: $363k

The Complete Guide to Wiring: $357k

101 Dog Tricks: $343k

The lllustrated History of Firearms: $262k

The Harley Davidson Calendar: $259k

The overall result for this division in 2012 was of a resilient performance in a very difficult environment. Management showed tenacity and adaptability during the course of the year.

Sales were down 12% ($8.4m). The two most significant factors were the losses, both in the first quarter of 2012, of the category manager role at Tractor Supply Company (1000 stores), which resulted in a loss of some $4m of revenues, and a major customer, Home Depot (1500 stores), ceasing to carry books as a main line front of store item, which resulted in a loss of some $1m of revenues.

·; EBITDA margin was 24.7% (2011: 22.8%) of sales.

·; Operating margin was 10.9% (2011: 10.2%) of sales.

·; Backlist sales in our book publishing units (excluding Distribution businesses) accounted for 77% (2011: 70%) of sales.

A significant operational achievement for Quayside in 2012 as it adapted to the changing landscape of its domestic market was it ability to reduce its inventory by 22% during the course of the year. This took a concerted effort by all areas of the business to come together and change established behaviors and practices. Clearly such a reduction has great benefit to cash generation and affected margins by less than 1%.

Again with more adherence to operational workings and how we can best leverage overall Group resources, we have made some recent further changes that we believe will benefit Quayside in 2013 and beyond, namely: taking on distribution of all of Aurum's adult publishing lists in the US and Canada, teaming up with the Quarto foreign language team to sell its foreign language rights and teaming up with Aurum to sell its books in the UK and through Aurum's revitalized Export Sales Department.

E-book revenues totalled $2,090k (2011: $1,424k), with Fair Winds being the largest contributor with $581k (2011:$345k). Digital sales totalled $2,441k (2011: $2,029k). Digital revenues amount to 4.1% of segmental revenue, or 5.6%, excluding our distribution businesses. The percentage differs quite significantly within our business per genre and per imprint and the data tells many different stories - quite literally, every book has its own digital profile or story. We aim therefore for platform ubiquity.

While we feel strongly that our titles work best in print, if our readers choose to read them digitally we want to make that same content available to them in whatever form they choose to consume it. Our imprints are renowned for their quality product and we are committed to making available as many of our books on as many of the e-reading platforms that make sense for our product - without sacrificing quality in any way.

We are working closely with our E-book vendors to make sure they 'surface' our e-books to our enthusiasts. Often E-book vendors don't even list the categories we publish into in their navigation, nor do they highlight, for example, that they have craft books for sale. In this multi-faceted and multi-channeled world, we continue to strive to make it as simple as possible for readers to find our E-books as well as our print editions.

3. Aurum Publishing Group, UK

Our UK publishing business comprises five different imprints each with their unique characteristics and focus on publishing to specific interest groups.

With a resolutely non-fiction focus, we publish in the following areas: history, entertainment, sport; flowers and gardening, art and architecture, food and drink, craft and walking guides, most notably Wainwrights.

We also have a stationery business that is somewhat of a hidden gem and we expect this to flourish in 2013 and beyond. Lastly, within Frances Lincoln, the business we purchased in 2011, is a small but profitable children's publishing business that can be grown over time.

Strongest selling titles in this business were:

Decorate: $601k

Cake Master Class: $496k

Bletchley Park: $439k

The overall result for this division in 2012 was of a resilient performance in a difficult environment, with revenues up 39% to $21.9m (2011: $15.7m), benefiting from a full year of Frances Lincoln, compared to seven months, last year. Revenues, excluding Frances Lincoln, were down 8%.

·; EBITDA margin was 23.9% (2011: 24.6%) of sales

·; Operating margin was 13.5% (2011: 13.6%) of sales

·; Backlist revenues accounted for 54% (2011:50%) of sales.

Against a backdrop of continued market turbulence in its domestic market as well as the companies' own efforts to knit together the existing business with the Frances Lincoln business, the business delivered a good performance.

With that integration achieved and a move into new premises in the last weeks of 2012 as well as a root-and-branch overhaul of the marketing and sales function both domestically and internationally, the stage is set for a good performance in 2013.

We now have an energized team focused on all channels to market, not just the trade but anywhere a book or gift can be sold, just as we have established that expertise in the US. Internationally, as alluded to above we have focused our Export efforts - books sold in territories in English language - for both Quayside and Aurum under one team based out of London. Honing our network of sales people and agents around the world will take time but again shows the Quarto Group's innate belief in having more 'boots on the ground'.

In 2013, operationally the business will consolidate its warehouse presence from 3 warehouses into 1 and this will both present savings and reduce complexity in the business going forward. Additionally with new personnel in finance and operations some of the supply chain initiatives we have seen success with in the US can be learned from and adapted to the UK market. By the end of 2013, we should have a very reliable publishing and operational foundation from which to grow.

E-book revenues in this business amounted to $271k (2011:$77k), which is 1.2% of segmental revenues. Aurum was the biggest contributor and E-Book revenues, here, were 5.4% of total revenues. With the market, at best, seeming to be 18 months behind the US we are still focused on experimenting with pricing and learning about elasticity of that within certain subject areas as well as how the promotion of our books in an E-bookstore might best be presented.

4. Lifetime/Premier Display Marketing, Australia & NZ

Our businesses in the Southern Hemisphere, Lifetime in Australia and Premier in New Zealand present a very welcome alternative route to market compared to the well-documented vagaries and turmoil of the markets all of our businesses publish into. These trading businesses balance out our asset-backed portfolio of intellectual property producing businesses. Both businesses are direct sales companies, retailing a curated selection of books and gifts for all ages in workplaces throughout a network of sales people. Lifetime is a franchise operation that has been in existence for over 20 years and is the 4th largest retailer of books in Australia calling on some 38,000 workplaces. Premier has a network of distributors and has also been in existence for over 20 years and is the 3rd largest retailer of books in New Zealand calling on some 10,000 workplaces. Books represent about 65% of sales in each business, non-book about 35%.

The overall result for this division in 2012 was of a good performance with revenues up 1% and with improved margins, driven by Lifetime. Premier struggled with product cycles, following the inventory reduction programme, and increased overheads, which they are now working on cutting back.

As publishers look, as Quarto's publishing businesses have always done, to non-bookstore channels to sell their product, Lifetime and Premier's position strengthens in the markets they work in. Both businesses are underpinned by a rigorous testing system that allows us to buy on non-returnable terms as well as analyze the data from the handheld terminals that we are rolling out assiduously to all our franchises and distributors. There is very visible organic growth in the next few years and as we learn from these businesses and systematize them we can look at the ability to replicate best practice if we decide to set up business in other territories.

5. Other Businesses

Regent, our Hong Kong based print broker, is a reliable generator of profits and did not disappoint in 2012. Focused on the small and medium sized publisher, primarily in the US, this business continually adapts and regenerates to suit the market. While we like the business for its profits and the reliability of its management team we do not believe that the business is scalable.

Image Factory is one of the UK's leading manufacturers and distributors of point of sale for the retail sector and leading brands. With a traumatic year for this business in 2012 with the death of its Managing Director, new management did well to restore the business to profit and more progress in that regard is expected in 2013.

Exceptional Items

Exceptional items comprise operational restructuring costs of $1,397,000, excess returns and associated costs on termination of a key customer relationship of $589,000 and corporate restructuring costs of $1,866,000. The corporate restructuring costs arose mainly as a result of the Special Meeting of shareholders, as discussed in the Chairman's statement.

Net Interest Payable

We completed the refinance of our revolving credit facility in February 2012. The new facility of $95m runs until April 30, 2015. Unsurprisingly, given the very different state of the banking market from when we concluded the previous refinancing in June 2007, we are paying a higher margin on our borrowings and this has resulted in an increase in net interest payable from $4,629,000 to $5,158,000. We expect this cost to reduce in 2013 because of the conclusion of one of our expensive interest rate swaps in December 2012.

Group Initiatives 2013

As detailed above we are now reporting each core business separately and will comment from now on each business on this basis. This format has been welcomed by the Executive Committee that is newly constituted for 2013 of the following people under my leadership:

·; Mick Mousley, Chief Financial Officer;

·; Bob Morley; Co-Founder

·; Michael Clarke; Director of Group Operations

·; Joe Craven; Director of Group Development

·; David Breuer, Director of Quarto International Co-Editions

·; Ken Fund, President & CEO, Quayside Publishing Group

·; David Graham, Managing Director, Aurum Publishing Group

·; Gareth Thomas, Executive Director, Lifetime/Premier Display Marketing Group

The Group function has been re-dedicated to provide support regarding IT, HR and internal communications, property, procurement, supply chain and inventory planning, digital development and best practice, strategic analysis and planning as well as treasury and tax planning. There has been no addition to headcount. By meeting regularly, at book fairs and dedicated meetings, this team will drive the federal but no longer silo-ed culture we need to foster.

Other than running the businesses and producing the budgeted results the main focuses for this team this year are:

·; Strategic Review - we shall continue, with urgency, to refine the Quarto structure and shape of the business, undertaking reviews of the entire portfolio including potential disposals, internal merging of assets where applicable and small strategic acquisitions, but the latter only if they are immediately accretive.

·; Debt reduction - with a net debt as at 31st December 2012 of $81.0 million management has an aggressive target to reduce net debt by the end of 2013 through selective asset disposals and continued tight cash management.

·; Children's - Children's books represent only 10% of the entirety of Quarto's business and with measured but focused investment there is opportunity to grow this part of the business in publishing for the 0-9 age groups. We shall report back during the course of 2013.

·; Digital Development - continual adherence to new technology and development of the Company's assets will be a theme for 2013. Our basic thesis of needing to enhance the discoverability of our content, both digitally and physically, is one that we shall develop during the course of the year as we explore, cost-effectively, the atomization of our content and how to generate revenue from it.

·; Non-Book - we have a burgeoning expertise with calendars in the US, stationery in the UK and large amounts of sales of both in Australia and New Zealand. We are undertaking an examination of the potential for growing these businesses in 2013, 2014 and beyond both separately and in cooperation between these businesses that exploits existing intellectual property.

·; Geographical - while the Group has made good inroads into emerging markets both in English language and foreign language, a more aggressive approach will be taken in 2013 and exploratory trips made to South America and China specifically to find partners in those territories.

·; Distribution - with a very focused direct-to-consumer strategy encompassing more 'boots on the ground' in all of our businesses be it foreign language sales, US regional sales, English language export sales or direct sales in Australia and New Zealand, there is much best practice we are learning from each. In a world where bookstores and retail are under pressure, and e-retailers have their own discoverability issues, we are exploring how we might best systematize that best practice to enhance our distribution.

Current trading

Current trading is in line with expectations. All the businesses are currently focused on laying the groundwork for the second half of the year when the majority of the sales and profit are generated.

Outlook

This year, 2013, will be a year of resolute focus on the operational underpinnings of Quarto that will allow us to grow the business in 2014 and beyond. Cash generation and debt reduction will be key. We will continue Quarto's relentless quest to make quality products that entertain, educate and enrich the lives of our readers but now with a renewed focus on marketing and selling both via existing channels and by discovering new ones. This year will see fine-tuning to already solid foundations, allowing focus on revenue and profit growth in years to come.

Marcus E. Leaver

Chief Executive Officer

March 12 2013

CONSOLIDATED INCOME STATEMENT (UNAUDITED)

year ended December 31, 2012

Consolidated statement of COMPREHENSIVE INCOME (UNAUDITED)

year ended December 31, 2012

CONSOLIDATED BALANCE SHEET (UNAUDITED)

at year ended December 31, 2012

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (UNAUDITED)

year ended December 31, 2012

CONSOLIDATED CASH FLOW STATEMENT (UNAUDITED)

year ended December 31, 2012

 NOTES (UNAUDITED)

1. Segmental analysis

Operating segments

Geographical segments

2. Exceptional items

Exceptional items comprise operational restructuring costs of $1,397,000 (2011: $1,367,000), excess returns on termination of a key customer relationship of $589,000 (2011 : $nil) and corporate restructuring costs of $1,866,000 (2011 : $nil).

3. Earnings per share

4. Dividends

The proposed final dividend of 4.55p per share is payable on July 5, 2013, to shareholders on the register on June 7, 2013, with an ex-dividend date of June 5, 2013.

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.

5. Business Combinations

The comparative information in the Balance Sheet for the year ended December 31, 2011 has been restated for acquisition accounting adjustments that have been finalised in relation to the acquisitions made in 2011. The comparative information has been restated in accordance with IFRS3 Business Combinations. The impact of the restatement is to increase goodwill and trade and other payables by $1,033,000 and $165,000 respectively and to reduce intangible assets: pre-publication costs and inventories by $274,000 and $594,000 respectively.

6. Reconciliation of figures included in the Chief Executive's Letter

7. Committed facilities and banking covenants

At December 31, 2012 the Group had a US$95m (2011: US$115m) syndicated bank facility which is due to expire on April 30, 2015. In addition, the Group has a two year floating rate note of US$33.3m (2011: US$50m). These facilities are subject to four principal covenants, namely:

(a) Total consolidated net indebtedness shall not exceed 3 times EBITDA. For the year ended December 31, 2012, net indebtedness was 2.22 times (2011: 2.09 times) proforma EBITDA.

(b) The consolidated operating profit before exceptional items and goodwill amortization shall exceed three times net interest payable. For the year ended December 31, 2012, net interest payable was 3.21 times (2011: 3.62 times) covered under this covenant.

(c) The consolidated operating profit before goodwill amortization shall exceed 1.5 times net interest payable. For the year ended December 31, 2012, net interest payable was 2.47 times (2011: 3.32 times) covered under this covenant.

(d) Cashflow shall exceed 1 times Debt Service. For the year ended December 31, 2012, Debt Service was 1.27 times covered under this covenant, which was introduced by the $95m syndicated bank facility signed on February 14, 2012.

8. The financial information set out in the announcement does not constitute the company's statutory accounts for the year ended December 31, 2012 or 2011, prepared in accordance with the Companies Act 2006 as applicable to overseas companies. The financial information for the year ended December 31, 2011 is derived from the statutory accounts for that year, which have been delivered to the Registrar of Companies. The auditor reported on those accounts and their report was unmodified. The audit of the statutory accounts for the year ended 31 December 2012 is not yet complete. These accounts will be finalized 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 financial information contained within this Announcement was approved by the Board on March 12, 2013.

9. The accounting policies adopted for use in the preparation of the 2012 Preliminary Results and of the 2012 Annual Financial Statements were consistent with those used in the preparation of the 2011 Annual Financial Statements, other than the Group's disclosure of operating segments.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.

10. The Directors confirm that to the best of their knowledge:

(a) The 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.

11. Principal risks and uncertainties facing the group

(a) The Group's profitability depends, in part, on the economic conditions across the world. The Group has a global business and, therefore, is affected by global economic conditions that may affect or impact upon the financial health of its customers, which in turn may lead to them not being able to honour their payment obligations to the Group. The Group has built up strong relationships with its customers and is not over reliant on any one of them.

(b) The success of the Group's titles is also an important factor in increasing the Group's profitability. In particular, we need to continue producing titles that reprint or backlist well. We are not reliant on any one product or group of products and none of our titles accounted for more than 1% of Group revenues in 2012.

(c) The security and robustness of our systems, in particular our IT systems, are important in all aspects of our business. IT processes are continually updated and security improved, with daily off-site back up of electronic files.

12. The Annual Report will be sent out to shareholders in due course. Additional copies can be obtained from the Chief Financial Officer, The Quarto Group, Inc., 230 City Road, London EC1V 2TT. Tel: 020 7700 9000 (email: mick.mousley@quarto.com).