QRT.L Regulatory News (QRT)

22 Oct 2008 07:00



Wednesday October 22, 2008

THE QUARTO GROUP, INC

INTERIM MANAGEMENT STATEMENT

Continued Progress

Quarto (QRT.L), the fully-listed international specialist book publisher and producer based in London, announces its Interim Management Statement for the period from July 1, 2008 and the results to September 30, 2008.

Revenues for the 9 months to September 30, 2008 increased by an underlying* 19% to £78.7 million (2007: £66.2 million), and underlying operating profit rose 15% to £6.2 million (2007: £5.4 million). 

Revenues for the trailing twelve months to September 30, 2008 rose by an underlying 20% to £111.8 million (2007: £93.1 million), and underlying operating profit was 16% ahead at £11.5 million (2007: £9.9 million). Underlying pre-tax profit grew by 5% to £7.8 million (2007: £7.5 million).

Very strong performance from International Co-Edition Book Publishing segment; operating margins slightly improved on robust sales of backlist titles; outlook for year positive.

Publishing segment operating margins adversely affected by increasingly difficult US retail environment, particularly in the housing and automotive categories, but overall performance still strong, with better trading results from the UK and Australasia.

Book publishing likely to achieve overall growth on the increasingly cost-conscious consumer's shopping habits. The industry's business model - which is resilient in economic downturns, and unusual in the traditional media sector - deserves to attract renewed investor interest. 

For the 9 months, interest costs increased by 39% to £2.7 million. This reflects the acquisition of MBI, a year ago, which has made a good contribution this year.

Business performance in the third quarter, which ended September 30, was in line with management's expectations. The results confirm the merits of Quarto's confident business strategy of serving special interest audiences with high-quality, non-fiction books. In the first nine months, revenues increased by 17% to £79.1m (2007: £67.6m), and EBITDA jumped by 19% over the same period last year. Operating profit grew by 15% to £6.1m (2007: £5.3m.) Trailing 12 months' results are also encouraging, with profit before tax at £7.7m (2007: £7.5 million).

Unaudited results, before amortization of non-current intangibles and non-recurring items, are shown below:

*Underlying results exclude discontinued activities.

"The general economic environment may not improve over the near future, but Quarto's performance is demonstrating the resilience of its business model, which relies upon creating books that will backlist and be of relevance to the public for a long time, come feast or famine," commented Laurence F Orbach, Quarto's chairman and chief executive. "While not quite as prudent as a utility, this model, when executed well, with its recurring income stream, deserves to attract renewed investor interest. 

"In the unfolding economic decline, books may well even reclaim market territory that many deemed lost to other, more expensive entertainments and pastime. This opportunity is especially pertinent in categories where Quarto is traditionally strong - from hobbies, arts, crafts, and children's activity and learning books, to comprehensive anthologies and reference titles for enthusiasts of anything from gastronomy to architecture, fashion, cinema, travel - and many, many more subjects.

"At a time when investors are bewildered by a merciless financial storm sweeping all over the globe, it is worth remembering that the resilience of book publishing is no accident. Unusually in the media sector, this industry has remained faithful to the most basic principles of commerce by avoiding dependence on advertising in its business model. Websites, newspapers and magazines have all received a built-in "subsidy" to their products by inherently relying on advertising revenue, which can be fickle. By contrast, book-buyers have to pay the full economic cost of their purchases, and a typical paperback book, at the price of a movie seat, remains wonderful value for money; even a magnificent art tome, or prodigious work of reference often costs less than a tie (and who needs yet another tie?). 

"Marketing costs in book publishing are also modest, relative to other consumer goods industries. Widely available, and with a dedicated retail outlet that has been with us for centuries - the bookstore - and the enormous and efficient online catalogue of the behemoth, Amazon, book publishing has ample opportunities to extend its reach. Quarto's substantial experience at monetizing its vast backlist of titles is also benefiting from using new technologies to further extend the "long tail."

"Not only has the number of books published been on the increase, relentlessly, but the quality has also improved remarkably: books are written better, designed better, illustrated better, and manufactured to a higher standard, and altogether provide a much enhanced experience for the consumer." 

"It remains our strategic priority to keep Quarto's revenue base highly diversified, and drawn from our thousands of titles in print. Still, every year, some books show exceptional potential. The 1001 "things" you must do before you die series, now in its fifth year, has continued to excel in sales, producing inspiring new titles of ever-growing appeal, such as this year's bestselling 1001 Wines. The recently launched JR Books imprint has stirred considerable interest. Particularly noteworthy are its humour books, including Maureen Lipman's Past-it Notes, and Mission Accomplished! - a collection of verbal blunders by political leaders. Aurum's release of Didier Drogba - The Autobiography has been very well received by football fans and beyond. In the US, alternative health books by Fair Winds Press remain widely popular, and its growing list of popular history titles has attracted warm praise.

"With a wide international business base, we have strengthened our supervision of counterparty risk by enhancing our knowledge of the solvency and liquidity of our suppliers and customers. It is clear that there are some strains but we are monitoring these on a case-by-case basis.

Outlook

"Recent data on the US retail industry suggest little to cheer about. Nevertheless, cash-register sales of published titles have remained strong and have in some categories even increased, with the notable exception of the two areas of home improvement and automotive, which have been hit especially hard by the current economic turmoil. Last week's Frankfurt Book Fair, at which, in spite of the doom mongers, more exhibitors than ever participated, also demonstrated strong continued interest in Quarto's offering from its trading partners. The solid forward order book for the balance of this year, in our Co-Edition segment, gives comfort, as do the trailing 12 months' results; but the outcome for our larger, Publishing segment depends, crucially, on the performance of the retail sector in the final quarter of the year.

"Earlier in the year, and in common with many other industries, we were facing rising manufacturing costs from our printers which, coupled with retailers' incessant and innovative demands for more discount, threatened to erode our margins, in a no longer robust economy. While the retailers remain unrelenting, the general rollback in raw material costs is encouraging the book printing industry to return to an easier pricing environment.

"We remain on the lookout for growth opportunities. Quarto is solidly funded, with continuing substantial headroom in its credit lines, which remain committed until 2012 and beyond."

Laurence F Orbach

Chairman and Chief Executive

October 22, 2008

Photographs:

Photographs of the covers of Maureen Lipman's Past-it Notes and Didier Drogba - The Autobiography are available from Rose Oddy on 0207-367 8853/ rose.oddy@bankside.com 

Notes for Editors:

Quarto is an international book publisher and producer with two principal strands of activity: its Publishing segment publishes books, under imprints owned by the Group, in the US, the UK and Australia; and its Co-Edition Publishing segment creates books that are licensed to other publishers for publication under their own imprints in many languages around the world.

For the year ended December 31, 2007, Quarto increased revenues by 7% to £100.1m and adjusted EBITDA by 11% to £20.0m, pre-tax profit by 5% to £7.7m and diluted earnings per share by 8% to 24.4p, paying total dividends per share up 6% at 7.15p.

Enquiries:

The Quarto Group, Inc. 020-7700 9004

Laurence Orbach (Chairman and CEO)

Mick Mousley (CFO)

Bankside Consultants Limited 020-7367 8851

Charles Ponsonby