19 Aug 2010 07:00
THE QUARTO GROUP, INC - INTERIM ANNOUNCEMENT
Dividend raised 6% on strong results
Quarto (QRT.L), the fully-listed international specialist book publisher based in London, announces its results for the six months to June 30, 2010. The first half of the year traditionally accounts for approximately 40% of annual revenues.
Financial Highlights
·; For the half year to June 30, 2010, revenue increased 9% to £45.4m, adjusted* EBITDA by 4% to £8.7m, adjusted* operating profit increased by 12% to £2.4m, and adjusted* pre-tax profit was up by 138% to £0.8m.
·; Publishing segment operating profit rose by 14% to £2.8m on revenue up 10% at £33.0m.
·; Co-Edition segment operating profit was down 10% at £0.4m on revenue up 4% at £12.3m.
·; For the trailing 12 months to June 30, 2010, compared to the year ended December 31, 2009, revenue was 3% higher at £110.2m, adjusted* EBITDA increased 2% to £23.1m, adjusted* operating profit rose 2% to £10.4m, adjusted* pre-tax profit was up 7% at £7.3m, and adjusted* diluted earnings per share increased by 6% to 27.5p.
·; Net debt, which is largely denominated in US dollars, Quarto's principal trading currency, declined by 12% to $86.6m.
·; The Board has declared an increased (6%) interim dividend per share of 3.35p, in the light of the strong performance and annualised cash generation.
* adjusted excludes amortization of non-current intangibles and exceptional items
Commercial Highlights
·; In Publishing, the US, which accounts for 60% of segmental revenue, has produced an encouraging performance. Operating profit rose by 8% on revenues ahead by 3%.
·; In Australasia, both of our display marketing businesses posted strong gains, with reported revenues up 42% and operating profit improved by 82%.
·; The International Co-Edition Publishing experienced slightly greater caution in its major continental European markets.
Laurence Orbach, Chairman and Chief Executive, commented "Quarto reports very strong results for the six months ended June 30, 2010, in what remain challenging and turbulent times.
"Unlike some of the household name publishers, most of whose titles are in narrative form, our concepts do not translate easily to the current crop of e-reader formats. We watch the developing situation closely, embracing the prospects for our titles when they make sense, but not yet having a view on whether the drift presents a strategic opportunity for Quarto. There is growing evidence that e-books can sustain an increasing audience, but the pace of growth in the last year has certainly been stimulated from the supply side, and the entrance of so many viable alternatives to Amazon's Kindle. At the same time, the degradation of sales of printed books, outside narrative titles, seems less clear.
"We note the growing concern that recovery may be sputtering. Absent any substantial deterioration in the wider economy, we still anticipate achieving our financial expectations, and ending the year positively ahead of 2009."
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, Australia and the UK; 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, 2009, Quarto reported revenues of £106.6 m and adjusted EBITDA of £22.7 m. Adjusted pre-tax profit was £6.9 m and adjusted diluted earnings per share were 26.0p. Total dividends per share of 7.15p were paid.
Enquiries:
| The Quarto Group, Inc. | 020 7700 9004 |
| Laurence Orbach (Chairman and CEO) |
|
| Mick Mousley (CFO) |
|
Dear Shareholder:
Quarto reports very strong results for the six months ended June 30th, 2010, in what remain challenging and turbulent times. After an improved first quarter, revenues and profit accelerated in the second quarter. First half revenues of £45.4 million (2009: £41.8 million) climbed 8.6%, operating profit, at £2.4 million (2009: £2.1 million) was 11.9% ahead of last year, and pre-tax profit of £0.8 million (2009: £0.3 million) leaped by 138%. Our trailing twelve months' results, for the periods ended June 30th, 2010 and December 31st, 2009 respectively, show revenues up by 3.4%, and pretax profit ahead by 6.6%. Through continued focus on collections and inventory management, we also generated substantial cash. Net debt, which is largely denominated in US dollars, Quarto's principal trading currency, declined to $86.6 million (2009: $98.2 million). Our banking covenants are in no danger of being breached, we remain extremely well funded, having ample headroom for any likely initiatives the Board decides to pursue. These unaudited figures are before amortization of intangibles and exceptional items. The CFO's report gives a detailed commentary on the results.
In the light of this fine performance, the Board has declared an increased interim dividend of 3.35p per share, payable on October 27th, 2010 to holders of record on October 1st, 2010.
Revenues for the Book Publishing segment accounted for most of the gains, contrasting with the weak performance in the comparable period last year, in spite of a very disappointing performance in the UK after the encouraging first quarter. In the US, book publishing's operating profit rose by 8% on revenues ahead by 3%. Even more encouragingly, the point-of-sale data we received from most retailers shows overall positive gains, with Amazon's sales of our titles up 12%, Barnes and Noble's ahead by 5%, offset by soft sales at the home improvement retailers, and a massive 20% decline at Borders, essentially because we delayed fulfilment of substantial orders from this struggling chain pending clarification of its future. In Australasia, both of our book display marketing businesses posted strong gains, with reported revenues up 42% and operating profits improved by 82%.
As usual, no single title is responsible for these gains and recurring income from reprints and sales of titles first published in prior years continues to provide the majority of our revenue. In the United States, we are benefitting from the operational efficiencies introduced in the last two years, which overcame the fairly small gains in sales. In Australasia, the story is much the same, aided also by a recovering economy in New Zealand and favorable currency movements.
The International Co-edition Book Publishing segment experienced slightly greater caution in its important continental European markets. Some of the emerging markets - notably Brazil - grew strongly, and there was even some return to stability in Central and Eastern Europe, but co-edition sales into Spain and Southern Europe in general were subdued. Even the markedly resilient French market stumbled a little.
There is a long lead time between the licensing and publication of new foreign-language co-editions, because of the translation time; the comparable figures for the first half of 2009 were helped by orders placed in late 2007 and early 2008. By contrast, this year's numbers were impacted by purchasing decisions taken during the depths of recession offset, in part, by the regular reprinting of books that our licensees require periodically to fulfil demand. Our co-edition titles tend to have very long lives, and normally contribute between 65-70% of the segment's revenue. This pattern is being maintained, and our model remains robust. It's worth remembering that, although the backlist generates so much of our revenue, no value is attributed to most titles on our balance sheet, making them a hidden asset of the Group.
Our challenges remain those common to many other businesses: of adjusting to the economic environment, with its promise of not much more than tepid recovery in most of our major markets, and fears of slowing activity in some still buoyant economies. More specifically, for the book publishing industry, the turbulence is created by the surge of interest in e-books, and the growing impact that the digital revolution is having on almost every aspect of the print publishing business. It has come slightly late to the book industry, as other media felt the breakup of their dominance some time earlier. Network television had to contend with the competition from cable and satellite, and recorded music has been revolutionized in the past decade or so.
Books are different. They've been around for much longer; have been in print form for almost 600 years; and the title range is of a different order of vastness. None of this confers immunity from change. Throughout at least the English-speaking world, the bricks-and mortar chain bookstore is struggling against competition from online retailers. In the last 30 years or so, retailing underwent profound change as big box retailers in most specialty areas copied the success of supermarkets, adding depth and choice to their ranges, and offering a superior browsing experience. Online retailers have usurped one of the big box retailers' unique selling points, their extensive ranges; they have not, to date, been able to offer a superior browsing experience. And, therein, lies one of the difficulties for the bricks-and-mortar retailers: probably permanently reduced sales, rather than the current decline in foot traffic perhaps attributable to economic uncertainty, and a search for a new unique selling proposition. One proposition immediately asserts itself, i.e. to return to being retailers responsive to the demographics of the communities they serve.
At the same time, e-books are exciting much interest and creaming off useful business. E-books will not replace physical books; at least, not in the near future, but the threat to the chain bookseller is real and imminent. This, in turn, presents a huge challenge to publishers that depend upon selling their titles to consumers, because the well-stocked bricks-and-mortar retailer has been the publishers' best marketing channel. The industry may decry the alleged "inefficiencies" of the sale-or-return system of supplying bookstores, but it has been a relatively effective way of getting titles in front of a targeted public to excite interest and, with such a large output of new titles, often all that a publisher can afford to do in the way of marketing.
It's hard to overemphasize that a typical book title does not generate enough revenue to permit publishers to devote much money to marketing an individual title. Marketing on the Internet can be effective for some titles, and there are other alternative ways to attract readers' attention to new titles, e.g. reviews, extracts in newspapers and magazines, news stories, and so on but, essentially, most new books do not get noticed unless they are put on display in an appropriate environment, such as a bookstore or a specialty store where relevant titles are being sold. One must wonder whether, as publishers recognize the problems posed by the threat to booksellers, they will take action that will alleviate some of them? For example, could the present system of selling to bookstores be replaced by consignment selling, i.e. payment on scan, something that happens in a few places already? Will some publishers opt for boutiques within bookstores, and so on? The debate hasn't started yet but, unless book publishers wish to abandon their ground, it will have to do so soon and, as online retailing make similar inroads outside the English-speaking world, the challenges will likely arise there, too.
Quarto has undoubtedly benefited from the ubiquity of the big box retailers, and not just the big bookstores. These retailers have offered much more visibility for books interesting to, or needed by, special audiences. Quarto's long-standing strategy and emphasis on publishing into a lot of special interest areas has allowed us to avoid total reliance on bookstore sales, although outside the English-speaking markets, the bookstores remain the primary selling channel for our licensees around the world.
Serendipitously, our broad focus on how-to categories, heavily illustrated in full-color, makes most of our titles far more useful in a printed, than in an e-book, format. That advantage may be diluted by technological improvements but, as I've argued before, a truly enhanced e-book would require a completely different approach from book publishing, calling upon a host of skills that book publishers currently do not possess. At the moment, we cannot see a way to recoup the very considerable costs of producing a really enhanced e-book, so it's premature to rush into a decision. Further, book publishing, whether in its current or some new form, will have plenty of room for new entrants, particularly when they have something superior to offer the reader. In the meantime, we continue to enjoy the regular flow of revenue streaming in from our titles.
Unlike some of the household name publishers, most of whose titles are in narrative form, our concepts do not translate easily to the current crop of e-reader formats. We watch the developing situation closely, embracing the prospects for our titles when they make sense, but not yet having a view on whether the drift presents a strategic opportunity for Quarto. There is growing evidence that e-books can sustain an increasing audience, but the pace of growth in the last year has certainly been stimulated from the supply side and the entrance of so many viable alternatives to Amazon's Kindle. At the same time, the degradation of sales of printed books, outside narrative titles, seems less clear.
We note the growing concern that recovery may be sputtering. Absent any substantial deterioration in the wider economy, we still anticipate achieving our financial expectations, and ending the year positively ahead of 2009.
Sincerely,
Laurence F Orbach
Chairman and CEO
London, August 19th, 2010
FINANCIAL REVIEW
Business Performance
|
| Reported Results |
|
| ||
|
| 2010 |
| 2009 |
| Growth |
| Six months to June 30 | £000 |
| £000 |
| % |
|
|
|
|
|
|
|
| Revenue | 45,353 |
| 41,766 |
| 9 |
| Adjusted EBITDA | 8,735 |
| 8,405 |
| 4 |
| Adjusted operating profit | 2,360 |
| 2,109 |
| 12 |
| Adjusted profit before taxation | 784 |
| 330 |
| 138 |
| Adjusted diluted earnings per share | 2.2p |
| 0.7p |
| 214 |
| Dividend per share | 3.35p |
| 3.15p |
| 6 |
|
|
|
|
|
|
|
| Trailing twelve months to June 30 | Trailing 12 months ended 30 June 2010 |
| Year ended December 31, 2009 |
|
|
|
|
|
|
|
|
|
| Revenue | 110,218 |
| 106,631 |
| 3 |
| Adjusted EBITDA | 23,146 |
| 22,799 |
| 2 |
| Adjusted operating profit | 10,442 |
| 10,191 |
| 2 |
| Adjusted profit before taxation | 7,313 |
| 6,859 |
| 7 |
| Adjusted diluted earnings per share | 27.5p |
| 26.0p |
| 6 |
| Dividends per share | 7.35p |
| 7.15p |
| 3 |
|
|
|
|
|
|
|
| Statutory results to June 30 |
|
|
|
|
|
|
|
|
|
|
|
|
| Operating profit | 1,642 |
| 403 |
|
|
| Profit (loss) before tax | 66 |
| (1,376) |
|
|
| Basic loss per share | (0.6)p |
| (5.1)p |
|
|
Adjusted results are stated before amortization of non-current intangibles and exceptional items. A reconciliation to the statutory results appears in note 9 of this announcement. The commentary below focuses on the adjusted performance.
Group
In what is, traditionally, our seasonally quieter half of the year, we have produced a strong trading performance. Revenues rose by 9% to £45.4m (2009:£41.8m) and EBITDA rose by 4% to £8.7m (2009:£8.4m). Operating profit was up 12% at £2.4m (2009:£2.1m) and profit before tax was up 138% at £784,000 (2009:£330,000). Diluted earnings per share rose by 214% to 2.2p (2009:0.7p).
Revenues for the trailing twelve months to June 30, 2010, compared to the year ended December 31, 2009, are up by 3% to £110.2m (2009:£106.6m) and EBITDA is up 2% at £23.1m (2009:£22.8m). Operating profit at £10.4m (2009:£10.2m) and adjusted profit before tax at £7.3m (2009:£6.9m) for the same periods are up 2% and 7% respectively.
In the last twelve months, we have generated a substantial amount of cash, reflecting a continued focus on working capital management. The majority of our debt is denominated in US dollars. At June 30, 2010, our net debt was $86.6m (£57.7m), a reduction of 12% ($11.6m), compared to June 30, 2009 when it was $98.2m (£59.9m). The Group is well funded, with the total borrowing facilities at June 30, 2010, of $171m (£114m). Committed facilities total $165m (£110m) and comprise a $115m (£77m) syndicated facility which extends to June 12, 2012, and a $50m (£33m) private placement facility, repayment of which commences on December 7, 2012.
Co-edition Publishing segment
Revenues for this segment were up 4% at £12.3m (2009:£11.8m). The operating profit was down, slightly, at £444,000 (2009:£493,000), due to mix of business. Excluding QED, our new title output in the first half of the current year was 30, compared to 31 last year. The product mix was very different, resulting in much lower revenues at £1.1m (2009:£1.4m). Reprints have held up well in the period.
At the individual operating level, there was another strong performance at QED, our educational publishing unit, that we launched in 2003. Revenue was up 22% and we expect a strong performance from this unit for the year as a whole. In contrast, revenues at Q Plus, our innovative children's books publisher, were down 44%, due mainly to lower foreign language sales, which was expected following two particularly good years.
This segment also includes Regent, our Hong Kong-based print broker. Its reported revenue was up 24%, reflecting the increased confidence of its publishing customers.
Publishing segment
Revenue for this segment was up 10% at £33.0m (2009:£29.9m) and operating profit was up 14% at £2,758,000 (2009:£2,409,000), driven, in particular, by strong performances by our display marketing businesses.
Sales at our UK book publishing units were down 17%, in large part due to publishing fewer new titles (79 this year, compared to 95 last year). Across all of our book publishing units, the UK market has been subdued in recent months and gross sales are down 8% compared to last year. The lower number of new titles published by our UK book publishing units has contributed to this shortfall.
The US, which accounts for approximately 60% of our publishing segment revenue, is performing better than a year ago, with local currency revenues up 5%. The performance has been helped by cost savings following the consolidation of the warehouse and back office functions. The final part of this consolidation, the systems integration, will be completed in the second half of this year.
Our display marketing businesses have put in a good first half performance, with combined revenues up 42%, helped by currency, resulting in a good bottom line advance.
Finally, revenues at Image Factory, our UK point of sale marketing services business, were up 14%, resulting in a much improved performance, following a difficult time in 2009.
Dividend
In light of our robust performance and annualised cash generation, the Board has declared an increased (6%) interim dividend of 3.35p per share.
Michael J Mousley
Chief Financial Officer
London, August 19, 2010
THE QUARTO GROUP, INC
CONDENSED CONSOLIDATED INCOME STATEMENT
for the six months to June 30, 2010
|
| Six months ended June 30, 2010 | Six months ended June 30, 2009 | Year ended December 31, 2009 |
|
| £'000 | £'000 | £'000 |
|
|
|
|
|
| Revenue | 45,353 | 41,766 | 106,631 |
|
|
|
|
|
| Operating profit before amortization of intangibles and non-recurring items | 2,360 | 2,109 | 10,191 |
| Amortization of non-current intangible assets | (411) | (1,125) | (1,596) |
| Exceptional items | (307) | (581) | (1,625) |
|
|
|
|
|
| Operating profit | 1,642 | 403 | 6,970 |
|
|
|
|
|
| Finance costs | (1,713) | (1,980) | (3,611) |
| Financial income | 137 | 201 | 279 |
|
|
|
|
|
| Profit (loss) before taxation | 66 | (1,376) | 3,638 |
| Taxation | 33 | 485 | (881) |
|
|
|
|
|
| Profit (loss) for period | 99 | (891) | 2,757 |
|
|
|
|
|
| Profit (loss) for the period attributable to: |
|
|
|
| Owners of the parent company | (122) | (999) | 2,567 |
| Non-controlling interests | 221 | 108 | 190 |
|
| 99 | (891) | 2,757 |
|
|
|
|
|
| (Loss) earnings per share | (0.6)p | (5.1)p | 13.0p |
| Diluted (loss) earnings per share | (0.6)p | (5.1)p | 13.0p |
|
|
|
|
|
| The following information is presented as additional information and does not form part of the Income Statement : | |||
|
|
|
|
|
| Adjusted earnings per share | 2.2p | 0.7p | 26.0p |
| Adjusted diluted earnings per share | 2.2p | 0.7p | 26.0p |
THE QUARTO GROUP, INC
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
for the six months to June 30, 2010
|
| Six months to June 30, 2010 | Six months to June 30, 2009 | Year to December 31, 2009 |
|
| £'000 | £'000 | £'000 |
| Profit (loss) for the period | 99 | (891) | 2,757 |
| Other comprehensive income |
|
|
|
| Foreign exchange translation differences | 899 | (1,248) | (413) |
| Cash flow hedge: change in fair value | (504) | 1,356 | 1,449 |
| Net income recognised directly in equity | 395 | 108 | 1,036 |
| Total comprehensive income and expense for the period | 494 | (783) | 3,793 |
| Attributable to: |
|
|
|
| Owners of parent | (27) | (413) | 3,914 |
| Non-controlling interests | 521 | (370) | (121) |
|
| 494 | (783) | 3,793 |
THE QUARTO GROUP, INC
CONSOLIDATED BALANCE SHEET
at June 30, 2010
|
| June 30, 2010 | June 30, 2009 | December 31, 2009 |
|
| £'000 | £'000 | £'000 |
| Non-current assets |
|
|
|
| Goodwill | 23,923 | 21,828 | 22,624 |
| Other intangible assets | 1,073 | 1,868 | 1,388 |
| Property, plant and equipment | 6,490 | 7,055 | 6,703 |
| Deferred tax asset | 732 | 893 | 615 |
| Total non-current assets | 32,218 | 31,644 | 31,330 |
|
|
|
|
|
| Current assets |
|
|
|
| Intangible assets: Pre-publication costs | 35,979 | 32,854 | 31,941 |
| Inventories | 16,643 | 17,405 | 15,805 |
| Trade and other receivables | 25,311 | 24,338 | 33,696 |
| Tax receivable | 771 | - | - |
| Cash and cash equivalents | 19,317 | 15,328 | 24,092 |
| Total current assets | 98,021 | 89,925 | 105,534 |
| Total assets | 130,239 | 121,569 | 136,864 |
|
|
|
|
|
| Current liabilities |
|
|
|
| Short-term borrowings | (225) | (2,513) | (250) |
| Derivative financial instruments | - | - | (144) |
| Trade and other payables | (22,532) | (20,946) | (32,447) |
| Tax payable | - | (469) | (299) |
|
| (22,757) | (23,928) | (33,140) |
| Non current liabilities |
|
|
|
| Medium and long-term borrowings | (76,794) | (72,704) | (74,176) |
| Deferred tax liabilities | (4,248) | (3,208) | (3,975) |
| Derivative financial instruments | (2,966) | (2,555) | (2,462) |
| Other payables | (17) | (35) | (17) |
| Total non-current liabilities | (84,025) | (78,502) | (80,630) |
|
|
|
|
|
| Total liabilities | (106,782) | (102,430) | (113,770) |
|
|
|
|
|
| Net assets | 23,457 | 19,139 | 23,094 |
| Equity |
|
|
|
| Share capital | 1,162 | 1,162 | 1,162 |
| Paid in surplus | 21,768 | 21,768 | 21,768 |
| Retained deficit and other reserves | (4,541) | (8,221) | (4,514) |
|
|
|
|
|
| Total equity attributable to owners of the parent | 18,389 | 14,709 | 18,416 |
| Non-controlling interests | 5,068 | 4,430 | 4,678 |
| Total equity | 23,457 | 19,139 | 23,094 |
THE QUARTO GROUP, INC
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the six months to June 30, 2010
|
| Share capital | Paid in surplus | Hedging reserve | Translation reserve | Treasury shares | Retained deficit | Equity attributable to owners of the parent | Non-controlling interest | Total |
|
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 |
| At January 1, 2009 | 1,162 | 21,768 | (3,911) | 1,499 | (388) | (4,221) | 15,909 | 5,205 | 21,114 |
| Total recognised income and expense | - | - | 1,356 | (770) | - | (999) | (413) | (370) | (783) |
| Dividends to shareholders | - | - | - | - | - | (787) | (787) | - | (787) |
| Dividends paid to non-controlling interest | - | - | - | - | - | - | - | (189) | (189) |
| Purchase of non-controlling interest | - | - | - | - | - | - | - | (216) | (216) |
| At June 30, 2009 | 1,162 | 21,768 | (2,555) | 729 | (388) | (6,007) | 14,709 | 4,430 | 19,139 |
| Total recognised income and expense | - | - | 93 | 668 | - | 3,566 | 4,327 | 249 | 4,576 |
| Dividends to shareholders | - | - | - | - | - | (620) | (620) | - | (620) |
| Dividends paid to non-controlling interest | - | - | - | - | - | - | - | 4 | 4 |
| Purchase of non-controlling interest | - | - | - | - | - | - | - | (5) | (5) |
| At December 31, 2009 | 1,162 | 21,768 | (2,462) | 1,397 | (388) | (3,061) | 18,416 | 4,678 | 23,094 |
| Total recognised income and expense | - | - | (504) | 599 | - | (122) | (27) | 521 | 494 |
| Dividends to shareholders | - | - | - | - | - | - | - | - | - |
| Dividends paid to non-controlling interest | - | - | - | - | - | - | - | (29) | (29) |
| Purchase of non-controlling interest | - | - | - | - | - | - | - | (102) | (102) |
| At June 30, 2010 | 1,162 | 21,768 | (2,966) | 1,996 | (388) | (3,183) | 18,389 | 5,068 | 23,457 |
|
|
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|
|
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|
|
THE QUARTO GROUP, INC
CONDENSED CASH FLOW STATEMENT
for the six months to June 30, 2010
|
| Six months to June 30, 2010 | Six months to June 30, 2009 | Year to December 31, 2009 |
|
| £'000 | £'000 | £'000 |
| Profit (loss) for the period | 99 | (891) | 2,757 |
| Tax (credit) expense | (33) | (485) | 881 |
| Net finance costs | 1,576 | 1,779 | 3,332 |
| Depreciation | 487 | 554 | 1,049 |
| Amortization of non-current intangible assets | 411 | 1,125 | 1,596 |
| Amortization of pre-publication costs | 5,888 | 5,742 | 11,559 |
| Movement in fair value of derivatives | (144) | 741 | 885 |
| Profit on sale of fixed assets | - | - | (34) |
| Changes in working capital | (3,222) | (7,533) | (4,263) |
| Corporation tax | (578) | (575) | (954) |
| Net cash from operating activities | 4,484 | 457 | 16,808 |
|
|
|
|
|
| Purchase of tangible fixed assets (net) | (222) | (150) | (234) |
| Investment in pre-publication costs | (7,731) | (7,926) | (12,384) |
| Purchase of subsidiaries | (227) | (515) | (532) |
| Interest received | 137 | 201 | 279 |
| Net cash used in investing activities | (8,043) | (8,390) | (12,871) |
|
|
|
|
|
| Dividends paid | - | (787) | (1,407) |
| Interest paid | (1,767) | (2,395) | (4,000) |
| Dividends paid to non-controlling shareholders | (29) | (189) | (185) |
| Net loans repaid | (678) | (54) | - |
| Net cash flows from financing activities | (2,474) | (3,425) | (5,592) |
|
|
|
|
|
| Net decrease in cash and cash equivalents | (6,033) | (11,358) | (1,655) |
|
|
|
|
|
| Cash and cash equivalents at beginning of period | 24,092 | 28,180 | 28,180 |
|
|
|
|
|
| Foreign currency exchange differences on cash and cash equivalents | 1,258 | (1,494) | (2,433) |
|
|
|
|
|
| Cash and cash equivalents at end of period | 19,317 | 15,328 | 24,092 |
THE QUARTO GROUP, INC
NOTES TO THE INTERIM FINANCIAL STATEMENTS
for the six months to June 30, 2010
1. Introduction
These interim consolidated financial statements are for the half year to June 30, 2010. They were approved by the Board on August 19, 2010 and are unaudited, as is the case with the comparative figures to June 30, 2009. These interim financial results do not comprise statutory accounts within the meaning of Section 434 of the Companies Act 2006. Statutory accounts for the year to December 31, 2009, prepared in accordance with International Financial Reporting Standards as adopted by the EU, which carried an unqualified Auditors' Report, have been filed with the Registrar of Companies and did not contain a statement under Section 498(2) or (3) of the Companies Act 2006.
2. Basis of preparation
These interim financial statements have been prepared in accordance with the Disclosure and Transparency Rules of the Financial Services Authority and with IAS 34, "Interim Financial Reporting", as adopted by the European Union.
3. Accounting policies
The accounting policies adopted are consistent with those of the annual financial statements for the year ended December 31, 2009, as described in those financial statements, with the exception of the following new standards, which have become mandatory for the first time for the year ending December 31, 2010:
- IFRS 3 Business Combinations (Revised 2008)
- IAS 27 Consolidated and Separate Financial Statements (Revised 2008)
- Improvements to IFRSs 2009
Segmental analysis
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Co-edition Publishing
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Publishing
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Total
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| Six months ended June 30, 2010 | Six months ended June 30, 2009 | Year ended December 31, 2009 | Six months ended June 30, 2010 | Six months ended June 30, 2009 | Year ended December 31, 2009 | Six months ended June 30, 2010 | Six months ended June 30, 2009 | Year ended December 31, 2009 |
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| £000 | £000 | £000 | £000 | £000 | £000 | £000 | £000 | £000 |
| Revenue |
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| Total revenue | 13,306 | 12,537 | 38,555 | 33,037 | 29,928 | 70,112 | 46,343 | 42,465 | 108,667 |
| Inter-segment revenue | (984) | (693) | (2,036) | (6) | (6) | - | (990) | (699) | (2,036) |
| External revenue | 12,322 | 11,844 | 36,519 | 33,031 | 29,922 | 70,112 | 45,353 | 41,766 | 106,631 |
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| Segment result |
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| Before amortization of non-current intangibles and exceptional items | 444 | 493 | 4,960 | 2,758 | 2,409 | 6,704 | 3,202 | 2,902 | 11,664 |
| Amortization of non-current intangibles | (4) | (6) | (12) | (407) | (1,119) | (1,584) | (411) | (1,125) | (1,596) |
| Exceptional items | (107) | (128) | (221) | (200) | (453) | (1,404) | (307) | (581) | (1,625) |
| Segment result | 333 | 359 | 4,727 | 2,151 | 837 | 3,716 | 2,484 | 1,196 | 8,443 |
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| Unallocated corporate expenses |
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| (842) | (793) | (1,473) |
| Profit from operations |
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| 1,642 | 403 | 6,970 |
| Financial income |
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| 137 | 201 | 279 |
| Finance costs |
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| (1,713) | (1,980) | (3,611) |
| Profit (loss) before tax |
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| 66 | (1,376) | 3,638 |
| Tax |
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| 33 | 485 | (881) |
| Profit (loss) after tax |
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| 99 | (891) | 2,757 |
4. Exceptional items
Exceptional items primarily relate to charges associated with the consolidation of the US warehouse and back office functions and other restructuring costs.
5. Taxation
Taxation for the six months to June 30, 2010 is based on the estimated effective tax rate for the year. The rate that has been used is 25% (June 30, 2009: 23% and December 31, 2009: 24%).
6. Earnings per share
The calculation of earnings per share is based on 19,679,229 shares (the weighted average number of issued shares, excluding those held as treasury stock) (June 30, 2009: 19,677,229 shares; December 31, 2009: 19,677,229) and losses of £122,000 (June 30, 2009: £999,000; December 31, 2009: profits of £2,567,000). The calculation of adjusted earnings per share is based on earnings of £437,000 (June 30, 2009: £140,000; December 31, 2009: £5,116,000), calculated as follows:
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| June 30, 2010 | June 30, 2009 | December 31, 2009 |
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| £'000 | £'000 | £'000 |
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| (Loss) earnings after non-controlling interests | (122) | (999) | 2,567 |
| Amortization of non-current intangible assets * | 273 | 739 | 1,075 |
| Restructuring costs* | 286 | 400 | 1,474 |
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| 437 | 140 | 5,116 |
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| Adjusted earnings per share | 2.2p | 0.7p | 26.0p |
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| * net of tax |
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There is no dilution in earnings per share or adjusted earnings per share for the six months to June 30, 2010 and June 30, 2009, or for the year to December 31, 2009.
7. Dividend
The interim dividend of 3.35p per share is payable on October 27, 2010, to shareholders on the register on October 1, 2010, with an ex-dividend date of September 29, 2010.
8. Reconciliation of figures included in the Announcement
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| June 30, 2010 | June 30, 2009 | December 31, 2009 |
| £'000 | £'000 | £'000 | |
| Adjusted operating profit | 2,360 | 2,109 | 10,191 |
| Amortization of non-current intangible assets | (411) | (1,125) | (1,596) |
| Non-recurring items | (307) | (581) | (1,625) |
| Operating profit | 1,642 | 403 | 6,970 |
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| Adjusted EBITDA |
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| Adjusted operating profit | 2,360 | 2,109 | 10,191 |
| Depreciation | 487 | 554 | 1,049 |
| Amortization of pre-publication costs | 5,888 | 5,742 | 11,559 |
| Adjusted EBITDA | 8,735 | 8,405 | 22,799 |
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| Adjusted profit before taxation | 784 | 330 | 6,859 |
| Amortization of non-current intangible assets | (411) | (1,125) | (1,596) |
| Non-recurring items | (307) | (581) | (1,625) |
| Profit (loss) before taxation | 66 | (1,376) | 3,638 |
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9. Net debt
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| June 30, 2010 | June 30, 2009 | December 31, 2009 |
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| £'000 | £'000 | £'000 |
| Cash and cash equivalents | 19,317 | 15,328 | 24,092 |
| Short term borrowings | (225) | (2,513) | (250) |
| Medium and long term borrowings | (76,794) | (72,704) | (74,176) |
| Net debt | (57,702) | (59,889) | (50,334) |
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The majority of the borrowings are in US$. At June 30, 2010, net debt was US$86.6m, compared to US$98.2m at June 30, 2009. Total borrowing facilities at June 30, 2010, were $171m (£114m). Committed facilities total $165m (£110m) and comprise a $115m (£77m) syndicated facility which extends to June 12, 2012, and a $50m (£33m) private placement facility, repayment of which commences on December 7, 2012.
10. Risks and uncertainties
The principal risks and uncertainties affecting the business activities of the Group remain those detailed in the Annual Report for 31 December 2009, a copy of which is available on the Group website at www.quarto.com. The Board considers that these remain a current reflection of the risk and uncertainties facing the business for the second half of the financial year.
11. Directors' Responsibility Statement in respect of the Condensed Interim Financial Statements
The directors confirm that this condensed set of financial statements has been prepared in accordance with IAS 34 "Interim Financial Reporting" as adopted by the European Union, and that the interim management report includes a fair review of the information required by Disclosure and Transparency Rules of the Financial Services Authority, paragraphs DTR 4.2.7 and DTR 4.2.8.
The directors of The Quarto Group, Inc. are listed in The Quarto Group, Inc. Annual Report for 31 December, 2009. A list of current directors is maintained on the Quarto website: www.quarto.com.
THE QUARTO GROUP, INC
MANAGEMENT'S PRO FORMA ABBREVIATED INCOME STATEMENT
for the twelve months to June 30, 2010
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| 12 months to June 30, 2010 | 12 months to June 30, 2009 |
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| £'000 | £'000 |
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| Revenue | 110,218 | 110,673 |
| Gross profit | 36,885 | 38,390 |
| Overheads | (26,443) | (27,185) |
| Adjusted operating profit | 10,442 | 11,205 |
| Interest | (3,129) | (3,663) |
| Profit before tax | 7,313 | 7,542 |
| Adjusted EBITDA | 23,146 | 22,994 |
Note:
The above figures do not include amortization of non-current intangible assets or exceptional items.