QRT.L Regulatory News (QRT)

The following information was ommited from the ' THE QUARTO GROUP, INC Preliminary Results'

announcement released on 15.02.11 at 7am under RNS No 2268B.

Dividend dates

Record date: 13 May 2011

Ex Dividend date: 11 May 2011

Payment Date: 7 June 2011

All other details remain unchanged.

THE QUARTO GROUP, INC

Preliminary Results

for the Year Ended 31 December 2010

Quarto (Full List: QRT.L), one of the largest international co-edition book publishers based in London, announces its preliminary results which includes unaudited revenues and profit for the year ended 31 December 2010.

Financial Highlights

*Adjusted: excludes amortization of non-current intangibles and non-recurring items and equity adjusted for valuation of back list

Operational Highlights

·; Publishing division

o Revenue up 7% to £75.1m (2009: £70.1m)

o Publishing division larger than co-edition division; achieved a 10% operating margin

·; Co-edition division

o Revenue up 6% to £38.7m (2009: £36.5m)

o Strong reprints accounted for 71% of co-edition book publishing revenue

·; Diversified geographic focus

o Continued focus on developing markets; in particular Brazil and China

o Improvement to trading in UK and Australasia

·; Digital Investment

o Utilising Quarto owned content to create apps and internet portals

·; Acquisitions

o Opportunities emerging to acquire publishing businesses

For further information please contact:

About Quarto:

Quarto is one of the largest international co-edition book publishers with two principal strands of activity: its Publishing segment publishes books, under imprints owned by the Group; and its Co-Edition Publishing segment creates books that are licensed to third party publishers for publication under their own imprints in many languages around the world. 

Key Points from the Chairman's Statement

Chairman's Letter

This is an exciting time to be in the book business, "exciting" being the most fitting adjective to describe the times.

Financial commentary

Once again, I am pleased to record a very good annual performance in 2010, against a background of pronounced uncertainty, uneven economic activity in many of our markets around the world, and much speculation about the future of printed books and the durability of bookshops.

Our results for the year ended December 31, 2010 are encouraging. In the prior year, 2009, we benefited from forward orders for forthcoming titles, placed in 2008. In the wake of the Lehmann Brothers collapse, 2009 was, of course, a year of considerably greater nervousness; fewer new adult titles were planned and contracted for 2010. As a result, new co-edition title revenues were down a little for the year, but reprints were very strong, generating 71% of revenues. While this may not put paid to speculation about the appeal of printed books, it's a pretty reliable indicator that the sorts of books that we do well have very long legs. Similarly, in the publishing segment, our new title output reflected the delicate state of bricks-and-mortar retailing in many markets; still, we achieved strong revenues in 2010, buoyed by reprints of backlist titles.

Revenues for the year climbed 7% to £113.8 million (2009: £106.6 million). Adjusted EBITDA rose 3% to £23.4 million (2009: £22.8 million), and adjusted operating profit 4% to £10.6 million (2009: £10.2 million). Adjusted profit before tax was up 8% to £7.4 million (2009: £6.9 million), and adjusted earnings per share by 5% to 27.3p (2009:26.0p). Once again, we generated significant cash, and net debt fell 9% to £46 million (£50.3 million). We are also introducing a key performance indicator used by management, which restates the balance sheet to reflect the full value of Quarto's extensive backlist of titles and, on a like-for-like basis, this shows net debt to adjusted equity declining 18% to 81% (2009: 99%). The reconciliation of the adjusted figures to the statutory accounts appears on note 5 of this announcement.

In reflection of the improved results, the Board is recommending an enhanced final dividend of 4.15p (2009: 4p), making a total for the year of 7.5p (2009: 7.15p), an increase of 5%. This will be paid on 7th June 2011 to shareholders on the register on 13th May 2011.

These results demonstrate that Quarto's overall publishing philosophy, which is not to look for the Next Big Thing, but the Next Lasting Thing, remains alive and well. We are in the midst of major changes, and it would be a fool who proclaimed that he knew precisely where we are headed. Are we witnessing the birth of a new medium, or will we learn that books are largely just for reading and using? At the moment, the opportunities are exciting. Quarto is a major owner of content, and if this can be exploited in digital media, the future looks bright.

Currency Movements

Unlike recent years, currency movements did not play a major role in 2010, with the significant exception of the Australian and New Zealand dollars. We grapple with managing the shift in currencies every year, and can see no way out of this if one does most of one's business in currency.

We have emphasized, on numerous occasions, that Quarto's principal trading currency is the US dollar. The Board will consider the implications of changing our reporting currency from sterling to the US dollar. With the growth in revenues largely arising in the US, and provided that there are no material disadvantages, this may be the time to make a decision.

The impact of currency movements was not huge in 2010, but it has been in the past. Our co-edition segment recognizes that it needs to report its management figures in dollars and, of course, our large US publishing operations do so because the majority of their business is domestic. This suggests that, although we will not be able to eliminate the impact of currency movements by reporting in dollars, the lens through which we view the figures could be less distorting.

The Marketplace and The Strategy

In common with most of us, people working in book publishing tend to dramatize whatever forces are operating in the micro- and macro-worlds we inhabit. Publishing has always received more coverage in the media than its commercial weight punches, perhaps because media people like to write and read about themselves (who doesn't?).

The advent of e-readers brings a five hundred year old industry into the digital age and we divide along age lines, the young seeing opportunity, old-timers fearing Armageddon and the Apocalypse. Online bookselling has robbed the big box chain bookstores of their unique selling proposition, i.e. range, and they haven't found a substitute. In previous letters I have emphasized that the decline and demise of bookstores will be a big challenge for book publishers, robbing them of a real marketing opportunity for their titles. This challenge is barely registering.

There is an enormous amount of hype about digital opportunities, but it mostly misses the point. It's already amply evident that exceedingly few, of the hundreds of thousands of apps that are available, manage to wash their faces financially. There are, as ever, a few notable exceptions but, broadly, it's increasingly clear that enhanced e-books will suffer the same, expensive fate.

We have pointed out repeatedly that, as a medium establishes itself, it must stimulate the creation of content that takes advantage of the particular attributes that the medium offers. Print media, particularly books, are linear and sequential in their structure even though, evidently, people don't always use books in this manner. So, our skills are not in producing digital versions of our extremely valuable book content. In the case of Quarto, in contrast to most publishers, this is largely owned outright and controlled by Quarto, but is still not a major opportunity for us in the digital sphere. We shall make some money from this, but the real opportunity is the intellectual property locked up in our understanding of specialist audiences, their interests, and their willingness to spend. Our experience gives us substantial insight into what works and what doesn't, and our focus is on these aspects of the digital and online opportunities.

Quarto is a global business, and economic recession and stagnation continue to affect some of our major markets. Considered together with the secular changes taking place with the emergence of electronic books, and the fragility of many large bookstore chains in the face of both e-books and online retail selling, it's easy, but misguided, to be convinced that printed books will wither away. It won't happen; if one ignores the truism that no medium has died, suffice it to say that, after half a millennium of printed books, they are here to stay because they offer a different experience from other media, and have become a very affordable purchase. As books have adapted in response to the emergence of other media that have challenged their prominence over the time span of the printed book, so they will continue to evolve.

A few words will help to place the genesis of our strategy, and our confidence, in context.

Let me take a short journey down history's lane. Thirty-five years ago, when we founded Quarto, we had a vision, perhaps more accurately, an instinct for what might be unfolding. For centuries, it seemed (and we were young and it always looks to the young as though the past carries a weight with it), book publishing had been more or less monolithic. Authors generally prostrated themselves before publishers, begging for an audience. Publishers dispensed their favours in a meagre manner, took complete control of the authors' output, edited it, caused it to be printed, and then advertised its availability to booksellers who, having studied the demographics of their customers, ordered copies according to their needs, and sold the book at a price mandated by the publisher, receiving a portion of the revenue for their efforts.

This is, of course, a caricature, and the times were changing, and had been doing so for a considerable time by 1976. What we perceived then, which has stood Quarto in good stead, was that this established (some might have called it "cozy") relationship would break down, that the role of the publisher in the nurturing of a book would change, and that this was already happening in other sections of the media world.

This was the - to use almost contemporary jargon - "disintermediation" of the business model. Before cable and satellite channels dominated TV, at a time when the BBC and ITV reigned supreme in the UK, and ABC, CBS, and NBC in the US, broadcast channels were gradually ceding their near monopolies over production to new production companies, and the stage was set for new technologies to seed themselves in fertile new ground.

As the old business model was broken down, so power was redistributed. In the case of books, some publisher power leeched away to authors' agents and, in time, the always uneasy relationship between publishers and booksellers tilted in the booksellers' favor. Improvements in manufacturing productivity lowered the cost of producing books, allowing more titles to be published to feed an increasingly affluent book buying market, and entrepreneurs responded by building vast book emporia, opening a huge pipeline that publishers rushed to fill. Gradually, then, the retailers started to dictate the terms of their engagement, and the balance of power shifted.

Quarto's origins lie in that fertile period. We, and a few others, perceived that improvements in manufacturing technology, and the decline of monolithic media entities, offered an opportunity for a business model that commercialized the creation of the book. In essence, we invented a collaborative model that engaged author, editor, designer, illustrator, photographer, and publisher to make a book, at an affordable price, which brought clear and useful benefit to eager buyers. We achieved this by thinking counter-intuitively, as the modern parlance would have it.

There have always been authors whose names resonated internationally, both in fiction and non-fiction. But book publishing was then, and remains now, largely focused on domestic, geographically based audiences, and there are sound commercial reasons for this. This was reinforced by the growth of chain booksellers, as the balance of power shifted towards the retailers. So, Quarto's approach was to abjure the publishing of our titles in our domestic market, and license our titles, on a market-by-market basis, to publishers better equipped to handle marketing, promotion, sales, and fulfillment.

That wasn't the only insight we had: the other was that execution was as important as ideas. In plain terms, making a good book, and doing so profitably, were equally crucial tasks. Nobody owed us a living; our offerings had to be worthwhile. I can look back wistfully, at our enthusiasm when we produced a title, The World Guide to Beer, in our earliest years, written in-house by one of our co-founders, the great, late and lamented, Michael Jackson (who soon after left to make his fame as a writer on booze). In the beer world Michael is as legendary as his younger namesake was in another area of popular enjoyment (our Michael was never much of a singer or dancer). The influence that his book had was profound; but what interested us much more was that, through freeing ourselves from operating in a domestic market, we were able to bring many titles to many people in many countries that would simply not have been affordable other than by the global licensing in which we engaged.

The Investment Case

This is all a very long-winded way of emphasizing that those heady days of 1976 were also days of doubt and confusion. And, in England at least, the economic prospects looked exceedingly dire. So, plus ça change, plus c'est la même chose…or is it? Yes and no. I think that the reason Quarto has survived and prospered is because it has retained some detachment from any domestic market, giving it the ability to have an overview, and it has paid appropriate attention to the business side of its business. That may have made us a little difficult for investing institutions to understand, particularly given that small cap institutional investors typically handle dozens, if not hundreds, of stocks, and don't have the time to perceive our merits, which are never even reinforced by having our name on the spine or title page of our books. With only occasional hiccups, mostly when we have failed to observe our own, deeply articulated disciplines, and listened too closely to the sirens of "growth", we have outlasted war, revolutions, bankruptcies of customers, natural disasters, and deep recessions, with barely a ripple of disturbance.

I know that it is considered inappropriate for executives and directors of publicly traded companies to stick their necks out to proclaim that their businesses are not understood by investors and should be more highly rated. I risk opprobrium for voicing my dismay that Quarto's shareholders have not been better served by my explanation of the company's virtues to the investing community. We have grown our business over the years, but could do much more if we were trading on a higher multiple of earnings.

We make good books, and run our businesses well, whether they are acquired or have been created, and it is not to any stakeholder's benefit that these virtues are ignored. We are attentive to the evolution of markets, alert to new ways of presenting material and ideas, and are good managers, able to execute our objectives, as we can demonstrate through good times and bad. The management team has handled many seismic transitions well, and is ready to handle more challenges, as opportunities for corporate activity return.

The Future

Although we continue to invest in new directions, including digital, these are not risk-free, and sometimes have to be abandoned. At the moment, we are being urged on all sides to be more active in producing digital versions of our titles. A number of our narrative titles are available digitally, but very few of our illustrated ones. This is not because we are stubbornly rejecting the iPad, and other platforms, but simply that there is no affordable way to successfully transfer most of them to the desired formats and platforms. New solutions may emerge soon and we cannot see that there is any real benefit to producing loss-making projects now. There's little of value that we shall learn, and improved software and platforms will surely ease the translation as the new medium establishes itself.

On the other hand, there are opportunities emerging now to acquire publishing businesses that, in our view, will add usefully to our portfolio. In revenue and profits, the publishing segment is now larger than the original international co-edition segment, and it is a portfolio business, with specialized imprints for many categories of interest. The results are very good: an operating margin of 10% across the segment. The explanations are many and varied: we have instilled the market knowledge we acquired as co-edition publishers into the segment, emphasized the importance of financial disciplines and, perhaps most important of all, where we can leverage these benefits, have subtly shifted the emphasis to the book and the book's user, and away from process and authorial voice. We continue to look at opportunities for further growth, and are more confident than in the recent past that acquisition opportunities will be available.

Approach to Digital

As for our digital efforts, they are focused, and limited. The conversion from print to digital is in train wherever it can be done effectively and inexpensively, and demand can be anticipated. There is no supply-side mantra that tells us that we must have so many thousands of our titles available on Kindle or Nook or Kobo. Nor, indeed, do we see much future in creating app-like versions of some of our more complex titles. Aside from the cost and technical concerns I've already cited, there are huge marketing hurdles to overcome. Instead, we're following two tracks: (i) to create apps, in conjunction with outside developers, where the monetizing of the content is easy to determine (if still difficult to execute), and where our perception of users' needs allows us some informed judgment as to content (for example, we are working on some diagnostic applications that will help users identify and solve problems specific to their concerns), and (ii) to launch a couple of internet portals for enthusiasts where, again, we shall focus on the users' needs and benefits, something that we know from our book publishing experience, rather than on direct translation of our content to the screen. Of course, there's no guarantee that these initiatives will yield more than greater experience, but the investment will be carefully controlled and monitored.

Shareholders may be divided over this approach. Some will favor more substantial resources being devoted to the area. Others may recognize that the costs of pursuing a more active role could be very costly. We are taking the course we have chosen for a number of reasons: (i) the history of players moving from one medium to another demonstrates that it is a risky strategy, with a low probability of commercial success; (ii) given that our overwhelming strength is not in promoting an authorial voice, but in making hardworking collaborative books, we are deeply entrenched in process and efficiency and, to an extent, hidebound by these issues; (iii) even mighty IBM, an early and dominating player in computers and software, and makers of some excellent electronic typewriters, never became dominant in the computer printer and personal computer markets (presumably, because they never saw the size to which they would grow); (iv) skepticism that the enhanced e-book and apps flurry is actually much more than a maelstrom; and (v) realization that there is likely to be room for many players in the event that a new, exciting medium is established, and no guarantee that it will be a monopoly, or duopoly, or indeed be dominated by first movers. Any, and all of these reasons may be profoundly mistaken, but we are confident that the better an institution is at doing what it set out to do, the more difficult it is to shift it, and we believe that Quarto's units are very focused on their core businesses.

Appointments

There have been several recent arrivals and departures to note. After many years as Publisher of the Quarto Adult list, Piers Spence became Quarto's first Director of International Co-Edition Book Publishing. He retired from this position at the end of the year to devote himself to his farm in Devon, and will be remembered fondly throughout the business. David Breuer, formerly Chief Executive of Royal Academy Enterprises, a role that encompassed many activities, including the RA's book and magazine publishing and bookselling activities, succeeds him. David was also the Publisher of Iqon Editions, which he ran in his free time, in conjunction with Quarto. After a decade of service, Leigh Collins resigned his non-executive directorship. His input on financial matters was always invaluable. Edward Krawitt, who succeeds him, is a Fellow of the Association of Corporate Treasurers, has worked extensively in the media sector, including a period as Treasurer at EMI, and is currently chief executive of Rustins Ltd. Mr Krawitt will also chair the Audit Committee.

Bill McCreadie has retired from Aurum Press, of which he was a founder, after building it successfully to its respected position. In his place, David Graham, the former MD of Granta and Canongate, joins us today as the new Managing Director, bringing with him plans for a new imprint under the Aurum umbrella - Union Press - and a remit to develop and grow Aurum's business.

Corporate News

There's many a slip 'twixt cup and lip, but we hope that, within the next several days, we may be able to announce the acquisition of a small, bolt-on list to complement a significant special interest category into which we publish.

Prospects

It may be evident, from this discursive essay, that the immediate future is even foggier than usual; readers will have their own views on whether economies remain in the mire, are poised for growth, or are slipping backwards. This is particularly so now, because in the major English-language markets, the chain bookstores are under siege. In the UK, where Waterstone's has emerged as the sole substantial national chain, the fragility of the business has been well aired. In the US, there are two national chains, Barnes & Noble, the world's largest bricks-and-mortar bookseller, and Borders. Barnes & Noble is making a concerted effort to play a major role in e-books and e-readers, Borders has fallen behind in almost all areas, and the prospect of an imminent Chapter 11 filing remains alive. In Australasia, the Red Group, which gobbled up many other stalwart booksellers, postponed its IPO indefinitely, and is currently a source of anxiety for all Australasian publishers. Against this, then, why are we reasonably sanguine about the future?

The first thing to note is that we share the expectation of most commentators that e-book readership will continue to grow. Some of this may simply be an adjunct to printed books as, years ago, paperback books were to hardcover versions (and it's worth remembering the printed books can now co-exist simultaneously in hardcover, "trade" paperback, and mass market paperback versions), so this notion is not fanciful. Quarto, because of the kind of books it produces, is well exposed to alternative sales channels for books and, coupled with our expectation that printed books will remain a substantial business, this gives us considerable comfort. For example, the large art and craft stores chains tend to sell more of our books than bookstores, and home improvement retailers sell more of our DIY titles than do bookstores. Certainly, the bookstore scene will be disruptive and the road may be rocky, but printed books are not going away; they are simply too good at what they bring to their audience.

Some interesting numbers may be worth considering. Drawn, via McSweeney's Internet Tendency, from the US, where the impact of change is occurring more rapidly, Nielsen's Bookscan, which tracks sales of about 70% of trade sales, reported that 750+ million books were purchased in 2010 (that's just down a tad from the deep recession years of 2008 and 2009), compared with 650 million in 2005. The number of new titles continue to roar ahead; compared to the 397 book publishers operating in 1925, there were almost 75,000 in 2007; overall revenue is sustained; adult literacy is at an all-time high; library membership is at an all-time high, as is library circulation. In conclusion, then, reading is robust, but we can expect considerable dislocation while retailers experiment with different formats to find what will work in the changing environment. If Borders files Chapter 11 (we have made an exceptional provision for this in our accounts), we may well witness them using the opportunity to be adventurous in reorganizing their business.

We continue to improve our results in emerging markets, and more can be done. Through our foothold in the region, we continue to work on our penetration of the Chinese market. To date, we haven't found an appropriate way into India, with its large, English-speaking market, and this remains a frustration. But we are happy that our approach to Latin America, of treating the important Spanish- and Portuguese-speaking markets on their own merits, rather than as appendages of Spain and Portugal, is working.

Trading remains interesting and exciting, and I take this opportunity to thank all Quarto's staff and directors for their invaluable contributions to a successful year, and to urge them on to greater achievements. Management, and the Board, are alert to opportunities, and conscious of the focus on change.

Sincerely,

Laurence F Orbach

Chairman and Chief Executive Officer

London, February 15, 2011

FINANCIAL REVIEW

Business Performance

A reconciliation from the statutory measures to the adjusted measures appears in note 5 of this announcement. The commentary below focuses on the adjusted performance.

Group

We have produced a good trading performance. Revenues rose by 7% to £113.8m (2009:£106.6m) and EBITDA rose by 3% to £23.4m (2009:£22.8m). Operating profit was up 4% at £10.6m (2009:£10.2m) and profit before tax was up 8% at £7.4m (2009:£6.9m). Diluted earnings per share rose by 5% to 27.3p (2009:26.0p).

It has been the case for many years, that not one of our titles exceeded 1% of group revenues, and this year is no exception. The following titles were our top five sellers, with their respective revenues, in 2010:

Complete Guide to Wiring: £386k

1001 Movies You Must See Before You Die: £383k

Anatomica Revised: £338k

1001 Songs You Must Listen to Before You Die: £322k

Art: The Whole Story: £301k

Co-edition Publishing segment

Revenues for this segment were up 6% at £38.7m (2009:£36.5m). Operating profit was down 8%, at £4.6m (2009:£5.0m), due to a change in the mix of business. Reprints accounted for 71% of co-edition book publishing revenues, compared to 69% last year, confirming that we have a very valuable backlist and that our business model is working effectively.

At the individual operating level, there was a strong performance from the Group's very first imprint, Quarto, with revenues up 15%, driven by a strong backlist performance from its major English language territories, the USA and the UK. Quarto produces titles in the art, crafts, gardening, lifestyle and reference categories and its best selling title was, again, 100 Flowers to Knit and Crochet; this title has now sold over 250,000 copies in the two years since publication. Quarto continues to be our largest co-edition book publishing unit. In contrast, revenues at Quantum, our value co-edition book publishing imprint, were down substantially, in part due to a short hiatus following the departure of its publisher, but also due to the difficulties being suffered by its customer base.

This segment also includes Regent, our Hong Kong-based print broker. Its revenue was up 17%, reflecting an increased confidence of its publishing customers.

Publishing segment

Revenue for this segment was up 7% at £75.1m (2009:£70.1m) and operating profit was up 14% at £7.6m (2009:£6.7m), driven, in particular, by strong performances by our display marketing businesses. We achieved an operating profit margin of 10.1% (2009: 9.6%); this is the first time that the operating profit margin, for this segment, has exceeded 10%.

Sales in the UK rebounded in the latter part of the year but were still down 3% for the year as a whole.

The US, which accounts for over 60% of our publishing segment revenue, was subdued, with revenues finishing 1% down on last year. Our lifestyle and better sex guides lists performed reasonably well but, this did not quite compensate for the difficulties faced by our home improvement, transportation and graphic design lists.

Backlist sales in our book publishing units accounted for 61% (2009: 59%) of sales.

Both of our display marketing businesses produced strong performances, with Lifetime, in particular, having a record year.

Finally, revenues at Image Factory, our UK point of sale marketing services business, were up 16%, resulting in a much improved performance, following a difficult time in 2009.

Cashflow and Indebtedness

In the last twelve months, we have generated a significant amount of cash, reflecting a continued focus on working capital management. The majority of our debt is denominated in US dollars. At the year end, our net debt was $71.7m (£46.0m), a reduction of 12% ($9.3m), compared to 2009, when it was $81.0m (£50.3m).

The Group is well funded, with total borrowing facilities at December 31, 2010, of $169m (£108m). Committed facilities total $165m (£106m) and comprise a $115m (£74m) syndicated facility which extends to June 12, 2012, and a $50m (£32m) private placement facility, repayment of which commences on December 7, 2012.

Net debt to adjusted equity has improved from 99%, a year ago, to 81%. Our two key banking covenants have also improved. Interest cover is now 3.36 times (2009: 3.06 times) and net debt to EBITDA is now 1.97 times (2009: 2.21 times).

Shareholder return

Adjusted fully diluted earnings per share were up 5% at 27.3p (2009: 26.0p). The market price of the shares of common stock on December 31, 2010 was 135p, up 50% compared to last year (90.0p) and up 116% compared to 2008 (62.5p).

In light of our performance and strong cash generation, the Board has proposed an increased final dividend of 4.15p per share, which, combined with the interim dividend of 3.35p, results in total dividends of 7.5p, up 5% compared to 2009.

Michael J Mousley

Chief Financial Officer

London, February 15, 2011

CONSOLIDATED INCOME STATEMENT (UNAUDITED)

year ended December 31, 2010

Consolidated statement of COMPREHENSIVE INCOME (UNAUDITED)

year ended December 31, 2010

CONSOLIDATED BALANCE SHEET (UNAUDITED)

at year ended December 31, 2010

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (UNAUDITED)

year ended December 31, 2010

CONSOLIDATED CASH FLOW STATEMENT (UNAUDITED)

year ended December 31, 2010

 NOTES (UNAUDITED)

1. Segmental analysis

Operating segments

Geographical segments

2. Exceptional items

Exceptional items comprise restructuring costs of £1,092,000 (2009: £1,625,000) associated primarily with the consolidation of the US warehouse and back office functions, and a bad debt provision of £515,000 (2009: £nil).

3. Earnings per share

4. Dividends

5. Reconciliation of figures included in the Chairman's Letter and Financial Review

6. Committed facilities and banking covenants

The Group has a US$115m (2009: US$115m) syndicated bank facility which expires on June 12, 2012. In addition, the Group has a four year floating rate note of US$50m (2009: US$50m). These facilities are subject to three principal covenants, namely:

(a) Total consolidated net indebtedness shall not exceed 3 times EBITDA. For the year ended December 31, 2010, net indebtedness was 1.97 times (2009: 2.21 times) 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, 2010, net interest payable was 3.36 times (2009: 3.06 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, 2010, net interest payable was 2.85 times (2009: 2.57 times) covered under this covenant.

7. The financial information set out in the announcement does not constitute the company's statutory accounts for the year ended December 31, 2010 or 2009, prepared in accordance with the Companies Act 2006 as applicable to overseas companies. The financial information for the year ended December 31, 2009 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 unqualified. The audit of the statutory accounts for the year ended 31 December 2010 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 Preliminary Announcement was approved by the Board on February 15, 2011.

8. The accounting policies adopted for use in the preparation of the 2010 Preliminary Results and of the 2010 Annual Financial Statements were consistent with those used in the preparation of the 2009 Annual 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

9. 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.

10. The Annual Report will be sent out to shareholders in due course. Additional copies can be obtained from the Finance Director, The Quarto Group, Inc., 226 City Road, London EC1V 2TT. Tel: 020 7700 9000 (email: mickm@quarto.com).