QRT.L Regulatory News (QRT)

8 Jan 2007 07:01

Quarto Group Inc08 January 2007 Monday January 8, 2007 THE QUARTO GROUP, INC Trading Update and Bankruptcy of a Customer Quarto, the fully listed independent book producer and publisher based inLondon, announces that one of its Quarto's significant US customers, AdvancedMarketing Services, Inc, (AMS) has filed for protection under Chapter XI of theBankruptcy Code. AMS, which has been in business since 1982, and is publicly traded, is theprincipal supplier of books to the warehouse club market (Costco, Sams, andBJ's), publishes proprietary books under its own imprints and, through its PGWunit, provides a full range of book marketing and distribution services tosmaller publishers. For the year ended March 31, 2003, AMS's audited results showed revenue of $912million, pre-tax income of $18.4 million, and a net worth of $141.9 million. InJuly 2003, certain practices of its advertising department came under thescrutiny of the US Attorney and led, ultimately, to the successful prosecutionof three individuals. Since the 2003 financials, no audited financials have beenpublished and the company's shares have been traded on the "Pink Sheets".Another consequence of this investigation was that the warehouse clubsdiversified their sourcing, giving market share to other suppliers. Guidancegiven by the company in the interim period indicates that sales for FY 2005 were$823 million, and that they are currently running at an annualized rate ofbetween $700 and $750 million. Quarto has traded with AMS for almost 20 years but, in light of the paucity offinancial information, reduced its level of sales in the last several years. Forthe year ended December 31, 2006. Quarto's sales to AMS were £2.3 million,heavily weighted to the last four months of the year. Until the filing, AMS hadbeen current with their payments, and the filing was entirely unexpected, asthere were no signs of cash flow difficulties. AMS's filing indicates that the top 40 creditors are owed approximately $224million. The five largest creditors listed are owed a total of $135 million.Quarto's receivable is £1.6 million, including goods-in-transit to the value ofapproximately £300,000, for which payment will be made on delivery, leaving anet pre-petition receivable of approximately £1.3 million. In the preliminary announcement of its results for the year ended December 31,2006, Quarto will provide, as a separately identified exceptional item, for theestimated uncollectible part of its debt from AMS. "While this news is a setback , it should not be allowed to overshadow theconsiderable progress and achievements that the group has made in 2006", saidMichael J Mousley, Quarto's Chief Financial Officer. "Although it's too earlyafter the end of our financial year for us to update shareholders on 2006results, we were anticipating that our results, before the exceptional item,would be substantially in line with our previous expectations.Encouragingly, it's worth noting that, in spite of not receiving expectedend-of-year payments of some $1.5 million from AMS, Quarto's cash generation wasclose to target. "The impact on Quarto's business, going forward, is not easy to assess at thisearly stage. The warehouse clubs have rallied to the support of AMS, and viewAMS's expertise in supplying books as essential to their own book sellingoperations. There is every possibility that the business may be split up andsold, as several parties have indicated strong interest in all or parts of thebusiness now that it's in bankruptcy proceedings; or that it could emerge frombankruptcy reorganization. AMS has received court approval for $75 million ofdebtor-in-possession financing, which it believes is adequate for its short-termneeds, and is in line with the credit facility with which AMS had been operatingfor the past several years. It has also resolved its issues with the federalauthorities. But, we shall have to await further financial information from AMSbefore determining how Quarto might continue to trade with the company in thefuture, other than on a COD basis." Notes for Editors: Quarto is an international book producer and publisher with two principalstrands of activity: it publishes, under imprints owned by the Group, books andart prints in the US, the UK, and Australia; and it creates books that arelicensed to other publishers for publication under their own imprints in manylanguages around the world. In 2005, Quarto increased adjusted pre-tax profit by 12% to £6.6m and reportedadjusted diluted earnings per share of 20.8p (21.5p at constant tax rates, whichwould have represented a seventh successive annual increase). Enquiries: Bankside Consultants Ltd Charles Ponsonby 020-7367 8851 =======================================ends================================= This information is provided by RNS The company news service from the London Stock Exchange