QRT.L Regulatory News (QRT)

THE QUARTO GROUP, INC.

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

Half-Year Results for the Six Months Ended 30 June 2015

The Quarto Group, Inc. (LSE: QRT), the leading global illustrated book publisher and distribution group announces its unaudited half-year results for the six months ended 30 June 2015.

Financial Highlights

Operational Highlights

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

"I am pleased that we have continued to make good progress in the first half of 2015. This is a solid set of results that sees Quarto continuing to deliver its business plan. While our half-year results highlight our increased second-half weighting, we have good visibility in all our businesses. This gives us confidence that, for the third year running, we will have a strong second half, deliver growth for the full-year and further reduce our net debt."

Note on Restatement of Prior Year:

The comparative figures for June 30, 2014 have been restated to be consistent with the audited financial statements for the year ended December 31, 2014. This interim restatement does not affect the full year results for 2014 as reported or our expectations for the current year.

For further information please contact:

The Quarto Group

Marcus Leaver, CEO / Mick Mousley, CFO 020 7700 9004

Bell Pottinger

Elly Williamson / Lucy Stewart 020 3772 2491

About The Quarto Group

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

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

This statement will be available at the registered office of the Company. A copy will also be displayed on the Company's website: www.quartoknows.com

CHIEF EXECUTIVE'S STATEMENT

SUMMARY

I am pleased that we have continued to make good progress in the first half of 2015. This is a solid set of results that sees Quarto continuing to deliver its business plan. While our half-year results highlight our increased second-half weighting, we have good visibility in all our businesses. This gives us confidence that, for the third year running, we will have a strong second half, deliver growth for the full-year and further reduce our net debt.

Revenue was up by 1% at $66.2m (H1 2014: $65.6m). Adjusted Group Operating Profit was down from last year at $0.2m (H1 2014: $0.6m) reflecting an expected shift in seasonality and with interest payments falling by 19%, the Adjusted Group Loss Before Tax was $1.1m (H1 2014: loss of $1.0m). The Group Loss Before Tax was $1.9m (2014: $0.6m), after charging amortisation of acquired intangibles of $0.3m (2014: $0.2m) and exceptional items of $0.5m (2014: gain on sale of property $0.6m). Net debt at 30 June 2015 was $81.0m (H1 2014: $81.5m).

As has been reported earlier in the year, we successfully re-financed our debt for a four-year term with four of the existing banks in the syndicate, at improved terms.

Dividend

The Board is pleased to recommend an interim dividend of 3.35p per share, consistent with the previous year. Notwithstanding the increase in the final dividend for the 2014 financial year, the Board believes that the balance between the interim dividend and final dividend should be more weighted to the final dividend given the increasing second half weighting of revenues and profits compared to prior years.

People

As previously announced Mick Mousley, our Chief Financial Officer, is retiring at the end of August after 28 years with Quarto. The enormous contribution Mick has made to The Quarto Group, its history and its people over the years can never be overstated. On behalf of everyone at Quarto and our shareholders I wish Mick, Diane and their family only the best in the future.

Our new CFO is Michael Connole, FCA. Michael takes up his position on 1 September 2015, becoming a Board Director. He will be responsible for Quarto's finance and group operations functions. Michael is currently CFO of Global Radio Group, the UK's leading commercial radio group, a post he has held since 2008.

DIVISIONAL REVIEW

Quarto International Co-Editions (QIC)

Revenue $15.1m (2014: $12.6m)

Adjusted Operating Loss $(1.1)m (2014: $(0.8)m)

As with any portfolio, different businesses tell a different story. We know from experience that the visibility for this segment is consistent and we continue to re-shape and re-define the portfolio.

The integration of Ivy Press in Q1 2015 has been very successful. Performance improvements have been achieved already and the imprint is set to exceed original profit expectations. The planned relocation in Q4 2015 of all the South Coast-based imprints to a single Brighton-based location will bring about further operational improvements.

Quarto Publishing Group USA (QUS)

Revenue $27.2m (2014: $27.0m)

Adjusted Operating Profit $1.8m (2014: $2.0m)

The first few months of 2015 were difficult for our US-based imprints with strike action in some ports on the West Coast affecting deliveries of books to our warehouses. These issues have now been resolved and we expect that the delivery of product to our customers will catch up throughout the rest of the year.

We continue to focus on the niche markets into which we publish and distribute, with direct relationships with retailers now underpinning that strategy. These relationships are performing to our expectations and the visibility for the second half of the year is encouraging especially with our market-leading position in the current adult colouring book phenomenon.

Quarto Publishing Group UK (QUK)

Revenue $7.6m (2014: $7.6m)

Adjusted Operating Profit $0.3m (2014: $0.2m)

Our UK business is performing to expectations and is set to deliver a healthy year of organic growth in revenue and operating profit. While doing this, its management team are transforming its lists to be more global and illustrated in focus, with the children's element of the business growing in importance.

Books & Gifts Direct (BGD)

Revenue $8.9m (2014: $11.8m)

Adjusted Operating Profit $0.4m (2014: $0.6m)

Our business in Australia and New Zealand continues to make progress with an order book that is more skewed towards the second half than it was last year; this is solely to do with the phasing of buying meetings this year.

Progress has been made in this business this year so far with the full roll out of our proprietary technology and network capacity up to 96% from 85% at the end of 2014.

Obviously currency will have a significant impact on the reported operating profit at the end of 2015, but we have visibility on small year-on-year organic profit growth in local currency results. For a trading business in a market that is not without its economic struggles right now we feel that is an acceptable expectation.

Quarto Hong Kong

Revenue $7.4m (2014: $6.5m)

Adjusted Operating Profit $0.8m (2014: $0.6m)

Quarto Hong Kong had a reasonable start to 2015. Its order book visibility for the rest of the year shows the business performing to our expectations.

KEY INITIATIVES

Children's Publishing

Revenue $9.2m (2014: $7.4m)

Our growth in Children's publishing revenues continues, both organically by investment in our own originated product and by acquisition, selling those products in English language and foreign language with increasing competence and reach.

Foreign Rights

Revenue $7.4m (2014: $5.5m)

We anticipate further growth in our foreign language sales by the end of the year with all areas of the publishing businesses contributing, especially our children's businesses.

Digital Development

ThisIsYourCookbook.com , a web-to-print personalised cookbook using Quarto-owned intellectual property was developed, refined and soft-launched in the UK in first half of the year. Roll out in the US is also in progress with a date for soft launch to be announced soon.

In early July we launched QuartoKnows.com, a new consumer-facing site that showcases and promotes The Quarto Group's entire global publishing programme. The site allows consumers to discover more books in subjects they are interested in and presents books in ten subject areas each distinctly branded with a unique icon. Direct to consumer sales will launch from 31st August in the USA and 30th September in the UK.

Outlook

We fully anticipate Quarto will have a strong second half of the year with good order book visibility. Quarto will develop further as a business in 2015 and continue to expand our reach in channel, territory and format. We are well-positioned, as we have shown in recent years, to grow organically, capitalising on our strengths, making long-lasting, information-rich books and selling them in as many languages and channels as possible. We also intend to develop the business by making suitable acquisitions, as we have done, that are complementary to our existing businesses and provide financial and operational synergies, taking advantage of opportunities that support the long-term growth of our business around the world.

On behalf of the Board, I would like to thank all of our people in all of our businesses for their continued hard work and commitment as well as our entire ecosystem of partners and network of suppliers.

Marcus E. Leaver

Chief Executive Officer

THE QUARTO GROUP, INC.

CONDENSED

CONSOLIDATED INCOME STATEMENT

For the six months ended June 30, 2015

*Restated as set out in note 1.

THE QUARTO GROUP, INC.

CONDENSED

Consolidated statement of COMPREHENSIVE INCOME

For the six months ended June 30, 2015

*Restated as set out in note 1.

THE QUARTO GROUP, INC.

CONDENSED

CONSOLIDATED BALANCE SHEET

at June 30, 2015

*Restated as set out in note 1.

THE QUARTO GROUP, INC.

CONDENSED

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

Six month period ended June 30, 2015 (Unaudited)

THE QUARTO GROUP, INC.

CONDENSED

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

June 30, 2015

Year ended December 31, 2014 (Audited)

THE QUARTO GROUP, INC.

CONDENSED

CONSOLIDATED CASH FLOW STATEMENT

For the six months ended June 30, 2015

THE QUARTO GROUP, INC.

NOTES TO THE INTERIM FINANCIAL STATEMENTS

For the six months to June 30,215

1. Introduction

These interim consolidated financial statements are for the half year to June 30, 2015. They were approved by the board on August 12, 2015. These results are unaudited and unreviewed by the auditor. The comparative figures for the six months to June 30, 2014 are also unaudited and derived from the half-yearly financial report for that period, subject to certain restatement changes noted below.

The information for the year ended December 31, 2014 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.

At December 31, 2014 directly attributable costs in relation to capitalised pre-publication costs on the balance sheet were restated to be shown on a gross basis rather than a net basis. In the income statement there was a reclassification from administrative expenses to cost of sales for this gross presentation and pre-publication costs in the Balance Sheet were reclassified from current to non-current at December 31, 2014. In addition, a deferred tax liability was recognised on the difference between the carrying amount of the goodwill and the tax base of the goodwill in accordance with IAS 12. Details of these have all been set out in the 2014 Annual Report and Accounts.

As a result of the above restatements, comparative figures for June 30, 2014 have been restated, as follows :

Consolidated statement of comprehensive income for the six months ended June 30, 2014

THE QUARTO GROUP, INC.

NOTES TO THE INTERIM FINANCIAL STATEMENTS

1. Introduction (continued)

Consolidated balance sheet at June 30, 2014

The restated items impacted equity by $(4,504,000).

2. 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", as adopted by the European Union.

The Directors have formed a judgement that there is a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. For this reason, the Directors continue to adopt the going concern basis in preparing the financial statements. The Group has significant banking facilities. In particular, the Group has committed facilities of $95m through to April 30, 2019.The Group has continued to comply with its bank covenants.

The accounting policies adopted are consistent with those of the annual financial statements for the year ended December 31, 2014 as described in those financial statements.

THE QUARTO GROUP, INC.

NOTES TO THE INTERIM FINANCIAL STATEMENTS

3. Segmental analysis

Operating segments

Due to the seasonality of the business, the Group's sales and segmental results are weighted towards the second half of the year.

THE QUARTO GROUP, INC.

NOTES TO THE INTERIM FINANCIAL STATEMENTS

4. Exceptional items

Exceptional items comprise one-off corporate development costs, due diligence expenses and restructuring costs arising post the acquisition (See Note 10 for details of the acquisition) (2014: Profit on sale of property).

5. Taxation

Taxation for the six months to June 30, 2015 is based on the Group estimated underlying tax rate for the year.

6. Earnings per share

 THE QUARTO GROUP, INC.

NOTES TO THE INTERIM FINANCIAL STATEMENTS

7. Dividends

The proposed interim dividend of 3.35p per share is payable on October 26, 2015, to shareholders on the register on September 25, 2015 with an ex-dividend date of September 24, 2015.

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.

8. Committed facilities and banking covenants

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

(a) Total consolidated net indebtedness shall not exceed 3 times EBITDA. For the six months ended June 30, 2015, net indebtedness was 2.36 times (2014: 2.42 times) EBITDA.

(b) The consolidated operating profit before exceptional items and goodwill amortisation shall exceed three times net interest payable. For the six months ended June 30, 2015, net interest payable was 5.10 times (2014: 3.77 times) covered under this covenant.

(c) Cashflow shall exceed 1.2 times Debt Service. For the six months June 30, 2015, Debt Service was 1.96 times (2014: 2.53 times) covered under this covenant.

The Group has adequate resources to continue in operational existence for the foreseeable future.

THE QUARTO GROUP, INC.

NOTES TO THE INTERIM FINANCIAL STATEMENTS

9. Principal risks and uncertainties facing the Group

There have been no changes to the principal risks and uncertainties facing the Group since the year-end. These are disclosed on page 38 of the 2014 Annual Report.

10. Acquisitions

The Group acquired 100% of the equity share capital of Lewes Holdings Limited, the owner of Ivy Press Limited ("Ivy") on March 4, 2015, a company based in the UK, specialising in illustrated book publishing. This transaction has been accounted for by the acquisition method of accounting. Ivy was acquired because of its strategic fit within the Group. The Group incurred transaction costs of $0.2m in relation to this acquisition.

Details of the fair values of the net assets acquired, and the attributable goodwill, are presented as follows :

The goodwill arising on the acquisition is largely attributable to the anticipated incremental sales and cost synergies with being part of The Quarto Group. If the acquisition had been completed on the first day of the financial year, Group revenues for the period would have been $67,512,000 and Group loss attributable to the equity holders of the Parent would have been $(1,572,000). The revenue and profit of Ivy since the acquisition date included in the consolidated statement of comprehensive income for the reporting period were $2,558,000 and $210,000 respectively.

THE QUARTO GROUP, INC.

NOTES TO THE INTERIM FINANCIAL STATEMENTS

11. Financial Instruments

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

12. Management Statement

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 interim financial statements has been prepared in accordance with IAS34 "Interim Financial Reporting";

(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

Marcus Leaver Michael Mousley