QRT.L Regulatory News (QRT)

The Quarto Group, Inc.

(the "Company", "Quarto", "Group")

Half-Year Results for the Six Months Ended 30 June 2021

The Quarto Group Inc. (LSE: QRT), the leading global illustrated book publisher, announces its unaudited half-year results for the six months ended 30 June 2021.

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

2. The June 2020 figure has been restated to include Accrued Interest of $759k.

Headlines

• Revenue up 21% at $56.9m against 2020.

• Operating profit of $4m up from a loss of $1.8m, benefiting from the cost reduction program in 2018 and continued through 2020.

• Net debt reduced in last 12 months by $21m (56%) to $16.4m driven by the cost reduction program, improved trading, dynamic inventory management and reduced finance costs.

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

"This is an encouraging set of results following a year of challenge due to the Covid 19 pandemic. Revenue is 21% up year on year against a weak comparative in 2020. This has delivered an operating profit of $4m and net debt has reduced significantly during the period in what is seasonally our weak half of the year.

We are now focused on the critical second half as we expect the trading environment to be particularly challenging, especially with the volatility in freight, regarding capacity issues and freight costs. That said, we have the right plans in place to capture all possible opportunities and ensure a satisfactory year-end.

The Board remains focused on continuing its efforts to keep costs under control, drive sales, whilst maintaining the debt reduction and defining further growth strategies for 2022 and beyond."

- ENDS -

The Legal Identifier of the Company is 549300BJ2WPX3QUATW58.

For further information, please contact:

The Quarto Group Inc. +44 (0)20 7700 6700

Daniel Logan, Group Finance Director

Michael Clarke, Company Secretary

About The Quarto Group

The Quarto Group (LSE: QRT) creates a wide variety of books and intellectual property products, with a mission to inspire life's experiences. Produced in many formats for adults, children and the whole family, our products are visually appealing, information rich and stimulating.

The Group encompasses a diverse portfolio of imprints and businesses that are creatively independent and expert in developing long-lasting content across specific niches of interest.

Quarto sells and distributes its products globally in over 50 countries and 40 languages, through a variety of sales channels, partnerships and routes to market.

Quarto employs c.300 talented people in the US and the UK. The group was founded in London in 1976. It is domiciled in the US and listed on the London Stock Exchange.

For more information, visit quarto.com or follow us on Twitter at @TheQuartoGroup.

CHIEF EXECUTIVE'S STATEMENT

SUMMARY

Trading was encouraging for the first six months of 2021. Revenue was up 21% year on year at $56.9m against a weak comparative because of COVID 19 (H1 2020: $46.9m). Revenue was up 1% against 2019 ($56.4m).

Our Adult imprints performed strongly, with revenues up 24% year on year, and 3% ahead of 2019. Revenues from Children imprints was up 16% year on year, however against 2019, revenue was 4% down, with the US in particular seeing revenue decline. Gross profit margin was ahead of prior year at 31.8% (H1 2020: 22.7%) driven by a reduction in pre-publication amortization, by comparison, gross margin for H1 2019 was 21.5%.

The increased revenues and substantial benefits from the cost reduction program implemented in 2018 and which continued through 2020, has resulted in an adjusted group operating profit of $4.0m (H1 2020: loss of $1.8m). The adjusted profit before tax was $3.0m (H1 2020: loss of $3.3m).

Both our US and UK reporting segments improved their trading performance year on year, resulting in a significant improvement in the Group's adjusted operating result, as shown in the table below.

Net debt at 30 June 2021 was $16.4m (H1 2020: $37.4m*) a decrease of $21m over the twelve-month period and a reduction of $3.4m in the six month period. *See note 7.

This strong cash generation has been driven by the cost reduction program, improved trading, dynamic inventory management and reduced finance costs.

The book trade market in the first six months of 2021 proved to be resilient, recovering from the setback of 2020 and trading ahead of 2019, however the co-edition market is flat year on year, with the impact of COVID being felt.

OPERATING REVIEW

Note: Revenue is shown by destination; adjusted operating profit / (loss) is shown by segment.

Whilst the number of published titles is in line with prior year, as a result of the actions taken during the pandemic, the Group's revenue increased year on year, driven by backlist sales and the re-opening of bricks and mortar bookstores.

UK-based Frances Lincoln Children's Books imprint continues to drive forward, with the Little People, Big Dreams series continuing to be a highlight, with over 4.6 million copies sold in the English language to date. We have expanded the list to include inspirational role models, such as RuPaul, David Attenborough and Captain Tom. US-based SmartLab continues to perform, with sales of Squishy Human Body selling over 112k units.

Revenues from Adult imprints were up across all imprints. In the US, our Beverly-based Adult imprints, especially Fair Winds Press and Cool Spring Press, continue to perform strongly led by our Gardening and Cookery titles.

Co-edition sales are in line with prior year both in English and foreign language, however this is a drop on 2019, as our publishing partners eased back on H1 2021 acquisitions. We are starting to see these sales pick up; however, we are expecting this to be a challenging market.

We have seen new opportunities in custom publishing driving revenue growth, and we expect this to become a larger part of our business-to-business revenue in the coming years.

International English language sales are up year on year, driven by Australia and Canada.

We continue to see a reduction in our financing costs, as we drive down the Group's net debt.

OUTLOOK

As we move into H2 2021, and as the global economy continues to unlock, we expect to see online sales return to more normal volumes with sales from traditional books stores building, albeit from a lower base. Business to business sales are starting to show signs of green shoots, in particular through the custom channel.

One area of concern is the volatility in freight, with capacity issues and freight costs increasing 3 to 4-fold since the turn of the year. We are also seeing pressure on print prices. We continue to look to mitigate these costs by using local printer suppliers and reviewing our inventory policy to ensure we print in the most efficient quantities. We expect this pressure on print and freight to increase our costs significantly.

That said, the Group has the right plans in place to capture all possible opportunities and deliver a satisfactory second half. The Board remains focused on continuing its efforts to keep costs under control, drive sales, whilst maintaining the debt reduction and defining further growth strategies for 2022 and beyond.

On behalf of the Board, I would like to thank all our staff, readers, customers, suppliers and shareholders, across the world, for their continued commitment and support.

C.K. Lau

Chief Executive Officer

THE QUARTO GROUP, INC.

Condensed Consolidated Income Statement

For the six months ended 30 June 2021

THE QUARTO GROUP, INC.

Condensed Consolidated Statement of Comprehensive Income

For the six months ended 30 June 2021

THE QUARTO GROUP, INC.

Condensed Consolidated Balance Sheet

*See note 7

THE QUARTO GROUP, INC.

Condensed Consolidated Statement of Changes in Equity for the six months ended 30 June 2021

THE QUARTO GROUP, INC.

Condensed Consolidated Statement of Changes in Equity for the year ended 31 December 2020

THE QUARTO GROUP, INC.

Condensed Consolidated Cash Flow Statement

For the six months ended 30 June 2021

*See note 7

THE QUARTO GROUP, INC.

Notes to the condensed financial statements

These interim consolidated financial statements are for the half year to 30 June 2021. They were approved by the board on 3 August 2021. These results are unaudited and have not been reviewed by the Group's auditor. The comparative figures for the six months to 30 June 2020 were unaudited and derived from the interim financial statements for that period.

The information for the year ended 31 December 2020 does not constitute statutory accounts as defined in section 434 of the Companies Act 2006. A copy of the statutory accounts for that year has been delivered to the Registrar of Companies. The auditor's report on those accounts was not qualified, did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying the report and did not contain statements under section 498 (2) or (3) of the Companies Act 2006.

Basis of preparation

These interim financial statements have been prepared in accordance with the Disclosure and Transparency Rules of the Financial Conduct Authority and with IAS 34, "Interim Financial Reporting".

The Group's forecast and projections, taking account of reasonably possible changes in trading performance, show that the Group will be able to operate well within the level of its current banking facilities. The Directors have therefore adopted a going concern basis in preparing the Interim Information.

2. Accounting policies

The accounting policies, significant judgements and key sources of estimation adopted in the preparation of this Interim Report are consistent with those applied by the Group in its consolidated financial statements for the year ended 31 December 2020.

THE QUARTO GROUP, INC.

Notes to the condensed financial statement

3. Segmental analysis

THE QUARTO GROUP, INC.

Notes to the condensed financial statements

3. Segmental analysis (continued)

Taxation for the six months to 30 June 2021 is based on the Group estimated underlying tax rate for the year.

THE QUARTO GROUP, INC.

Notes to the condensed financial statements

7. Net debt

* The June 2020 figure has been restated to include Accrued Interest of $759k moved from other payables.

At 30 June 2021, the Group has a $18m syndicated facility, comprising a term loan, revolving credit facility and overdraft. These facilities expire on 16 July 2024 and are subject to covenants, which were all met in the current period. In addition, the Group has $23.0m of sub-ordinated loans with related parties, repayable on 31 August 2024 and a loan of $2.4m relating to government support given under the Coronavirus Aid, Relief and Economic Security Act of the USA.

There have been no changes to the principal risks and uncertainties facing the Group since the year-end. These are disclosed on pages 19 to 21 of the 2020 Annual Report.

THE QUARTO GROUP, INC.

Notes to the condensed financial statements

9. Financial instruments

There are no material differences between the fair value of financial instruments and their carrying value.

This Interim Management Report (IMR) has been prepared solely to provide additional information to shareholders to assess the Group's strategies and the potential for those strategies to succeed. The IMR should not be relied on by any other party or for any other purpose.

The IMR contains certain forward-looking statements. These statements are made by the directors in good faith based on the information available to them up to the time of their approval of this report but such statements should be treated with caution due to the inherent uncertainties, including both economic and business risk factors, underlying any such forward-looking information.

Responsibility statement

We confirm that to the best of our knowledge:

a) the condensed set of financial statements, which has been prepared in accordance with IAS 34 "Interim Financial Reporting", gives a true and fair view of the assets, liabilities, financial position and profit or loss of the issuer, or the undertakings included in the consolidation as a whole as required by DTR 4.2.4R;

b) the interim management report includes a fair review of the information required by DTR 4.27R (indication of important events during the first six months and description of principal risks and uncertainties for the remaining six months of the year); and

c) the interim management report includes a fair review of the information required by DTR 4.28R (disclosure of related party transactions and changes therein).

By the order of the board