TIDMQRT
RNS Number : 9413U
Quarto Group Inc
31 March 2023
The Quarto Group Inc.
("Quarto", the "Company", or the "Group")
Final Results for the Year Ended 31 December 2022
The Quarto Group Inc. (LSE: QRT), the leading global illustrated
book publisher, announces its audited results for the year ended 31
December 2022.
Results ($m) 2022 2021
----------------------------------------------------- ------ ------
Revenue 141.0 151.5
Adjusted operating profit(1) 21.3 16.0
Exceptional items 0.8 -
Operating profit 22.1 16.0
Adjusted profit before tax(1) 20.1 14.2
Profit before tax 20.9 14.2
Profit for the year 16.6 9.9
Adjusted diluted earnings per share from continuing
operations(2) 37.8 24.3
Basic earnings per share from continuing operations 40.6 24.3
Net debt(3) 0.6 5.5
1 Adjusted items excludes the amortization of acquired
intangibles and exceptional items.
2 There were exceptional items of $0.8m but no dilutive share
options nor amortization of acquired intangibles in 2022.
3 Net debt excludes lease liabilities relating to right of use
assets (IFRS 16).
Operating Highlights
-- Clear focus on maximizing the Group's core strengths,
retaining a disciplined business model and developing future growth
opportunities
-- Increase in Adjusted Operating Profit of 33% due to tight
cost control, lower pre-publication and amortization costs
-- Profit Before Tax up 47% at $20.9m
-- Revenue of custom publishing channel of $14.2m, up 33% year on year
-- Net debt down by $4.9m to $0.6m
-- New Shoe Press launched in 2022 with 25 titles repurposing
existing IP to compete at a value price point. Short-run printing
allows low inventory level responding to demand
-- Kaddo, a new gift imprint, created with the first products
publishing in autumn 2023. Product lines span both the adult and
children's market consisting of games, card decks and jigsaw
puzzles many of which are based on existing book content
-- We are also targeting growth in one of the largest sectors of
the book market and will be launching a new imprint focused on food
and wellness
-- SmartLab, our Toy business, was sold to Educational
Development Corp. to focus on our core publishing activities
Commenting on the results, Group Chief Executive Officer, Alison
Goff said:
During 2022 most markets around the world reopened and we saw a
return to buying in physical bookstores with a corresponding
reduction in our online sales.
With the economic pressures squeezing consumer spending the
overall book market contracted slightly in 2022 with non-fiction
sales showing one of the biggest declines, down by c. 7%.
Notwithstanding the sale of SmartLab during 2022, Quarto
outperformed the market delivering increased market share in all
our core categories.
The company ended the year with sales of $141.0m down from prior
year by 7% (2021: $151.5m); adjusted operating profit increased by
33% to $21.3m (2021: $16.0m); profit before tax increased to $20.9m
(2021: $14.2m) and the strength of the balance sheet improved to
$67.3m (2021: $53.2m). The group ended the year with net debt down
89% at $0.6m (2021: $5.5m). Results were driven by nimble
publishing maximizing opportunities which arose, strong
cost-control and reduced finance costs.
The balance of our business remains broadly 69% of revenue being
derived from adult titles and 31% from children. New books
accounted for 42% of total sales and the backlist continues to
deliver strong sales delivering 58% of our revenue.
=====
The Legal Identifier of the Company is 549300BJ2WPX3QUATW58.
For further information, please contact:
The Quarto Group Inc.
Michael Clarke, Company Secretary +44 20 7700 6700
About The Quarto Group
The Quarto Group (LSE: QRT) creates a wide variety of books and
intellectual property products, with a mission to inspire life's
experiences. Produced in many formats for adults, children and the
whole family, our products are visually appealing, information rich
and stimulating.
The Group encompasses a diverse portfolio of imprints and
businesses that are creatively independent and expert in developing
long-lasting content across specific niches of interest. Quarto
sells and distributes its products globally in over 50 countries
and 40 languages, through a variety of sales channels, partnerships
and routes to market.
Quarto employs c.300 talented people in the US and the UK. The
group was founded in London in 1976. It is domiciled in the US and
listed on the London Stock Exchange.
For more information, visit quarto.com or follow us on Twitter
at @TheQuartoGroup.
Business Overview
During 2022 most markets around the world reopened and we saw a
return to buying in physical bookstores with a corresponding
reduction in our online sales.
The company ended the year with sales of $141.0m down from prior
year by 7% (2021: $151.5m); adjusted operating profit increased by
33% to $21.3m (2021: $16.0m); profit before tax increased to $20.9m
(2021: $14.2m) and the strength of the balance sheet improved to
$67.3m (2021: $53.2m). The group ended the year with net debt down
89% at $0.6m (2021: $5.5m). Results were driven by nimble
publishing maximizing opportunities which arose, strong
cost-control and reduced finance costs.
With the economic pressures squeezing consumer spending the
overall book market contracted slightly in 2022 with non-fiction
sales showing one of the biggest declines, down by c. 7%.
Notwithstanding the sale of SmartLab during 2022, Quarto
outperformed the market delivering increased market share in all
our core categories.
The balance of our business remains in favour of adult
publishing with 69% of our revenue derived from adult titles. New
titles accounted for 42% of sales and our strong back catalog
continues to perform well delivering 58% of overall revenue. Our US
publishing operation and our UK publishing drive broadly equal
shares of our overall revenue.
Our most valuable series Little People Big Dreams continues to
grow and we will publish the 100th title in this series in 2023.
This series delivered $8.3m revenue in the year. Another valuable
property in our children's publishing the Story Orchestra series
delivered $2.7m in the year from just 7 titles.
During the year we ceased offering sales services to other
publishers and exited a non-core business with the sale of
SmartLab.
Key Strategies
PUBLISHING
Quarto's publishing remains focused on key categories: Cookery,
Home and Garden, Art and Craft, Children's, Reference and
Wellbeing. These sectors remain strong internationally. Each of our
imprints has a distinct focus and develops new titles aiming to
grow our market share in targeted categories. We also make
extensive use of our backlist where existing content may be
repurposed to create new products.
Highlights of 2022
-- Quarto kids is the #1 publisher of children's general
non-fiction in the UK
-- Best-selling author of Little People Big Dreams - Maria
Isabel Sanchez Vegara - is the #2 non-fiction children's author in
the UK
-- McDonald's Happy Meal program will put Little People Big
Dreams books into the hands of 40 million children around the
world
-- Strong growth in the Manga and Anime market where Quarto has
built significant market share
-- New range of graphic novels produced in partnership with
Saturday AM
-- Beautiful Boards: 50 amazing snack boards for any occasion
continues to sell strongly - over 200k copies and $2.5m revenue in
the year - some 3 years after publication
-- Custom publishing deal with Pokemon creating 4 titles which
delivered $1.5m in the year
-- Speed to market an important factor with Wordle Challenge
created and delivered within 8 weeks
-- Start-up of a new gift imprint which will launch in 2023
producing puzzles, games and related products from existing
content
-- Timely publication of Little People Big Dreams: Queen
Elizabeth selling over 175k copies
-- New cookery and health imprint to launch in 2023 expanding
our reach into one of the largest categories in non-fiction
publishing
SALES PERFORMANCE
One of Quarto's great strengths is our foreign language
co-edition sales team who delivered a strong performance in 2022
despite some challenging international situations. Trade with
Russia and Ukraine was halted and persistent lockdowns in China
severely impacted that market. All other foreign language markets
delivered growth. Reprints of existing titles were 5% up on prior
year and core series continued to perform well. We also saw a
resurgence in sales of reference titles which had been reduced
during the pandemic in favour of practical titles.
Our international sales team began travelling again in 2022 with
bookfairs and in-person meetings back on the agenda. Overall these
sales were 6% down on prior year but with mixed results by region.
South East Asia delivered growth +14% and the Middle East +8%
accounting for over $500k for the first time. Sales to Europe held
steady but Australia and China were both down -7% and -34%
respectively.
UK sales were 2% down on 2021 with new titles performing well
but backlist sales $2.3m down from the pandemic peak which was
driven by lockdown hobbyists. The reopening of physical bookstores
saw our field sales reps deliver over GBP1m for the first time in 3
years.
US sales were down 11% on prior year with both Amazon and the
main bookstore chain, Barnes & Noble, showing much slower
ordering patterns. However we saw a marked increase (+17%) in our
sales through independent bookstores as customers returned to
stores.
Our Chartwell division targets the value end of the market
creating books primarily from existing content. Books are sold
non-returnable. This division had an outstanding year delivering
sales significantly ahead of budget and 32% up on the previous
year.
OPERATIONS
During the year we continued our development of systems and
processes to improve our operational efficiency. Our goal is to be
free of reliance on 3rd party systems by 2024.
POST COVID WORKING
During 2022 we saw staff returning to our offices both in the UK
and US. We now operate a blended working model. This ongoing
flexibility has become an important factor in the workplace. We do
however firmly believe that in-person collaboration is vital to our
creative business and essential to team-building and staff
morale.
SUPPLY CHAIN
Disruptions to the supply chain continued through much of 2022
with longer than usual shipping times resulting from strikes and
port disruptions. To mitigate the impact of these our operations
team remained nimble switching onward shipping to trucks rather
than rail when necessary and putting in place local printings.
Whilst these measures incurred some extra costs there were
significant benefits in maintaining supply to the market. In Q4 we
saw much improved freight prices and improved shipping times. We
believe the market has now stabilized and we do not anticipate a
return to the volatility of 2021 and 2022.
STRATEGY
Quarto's strategic goals in the short to medium term will be to
continue to drive organic growth through its publishing and we will
launch 2 new imprints in 2023. We will also look at acquiring other
related businesses where we believe they can be leveraged across
our existing operations and provide a good strategic fit.
VIABILITY STATEMENT
In accordance with Provision 31 of the 2018 revision of the UK
Corporate Governance Code, the Directors assessed the prospects of
the Group over both a going concern period to 31 March 2024 and a
viability period to 31 December 2025. The going concern period has
a greater level of certainty and was therefore, used to set budgets
for all our businesses which culminated in the approval of a Group
budget by the Board. The Directors have determined that the
three-year period is an appropriate term over which to provide its
viability statement, being aligned with both the publishing program
cycle and the long-term incentives offered to Executive Directors
and certain senior management.
The Directors have considered the underlying robustness of the
Group's business model, products and its recent trading
performance, cash flows and key performance indicators. They have
also reviewed the cash forecasts prepared for the three years
ending 31 December 2025, which comprise a detailed cash forecast
for the period ending 31 December 2023 based on the budget for that
year and standard growth assumptions for revenue and costs for the
years ending 31 December 2024 and 2025. This is to satisfy
themselves of the going concern assumption used in preparing the
financial statements and the Group's viability over a three-year
period ending on 31 December 2025. As part of this work, the model
was sensitized initially by an 8% reduction in revenue to ensure
headroom within the covenants. This is deemed as a plausible
scenario, given in 2022 revenue dropped 7% year on year. Management
performed a reverse stress test to assess the point in which the
banking covenants were breached. This occurred at a reduction in
revenue of 13%. It is considered unlikely that such a reduction of
revenue would occur, given, sales dropped 7% in 2022 and also
dropped 7% during 2020.
In February 2021, the Group renewed its bank facilities, which
run until July 2024. Management do not foresee any issues with
regards to the repayment of loans or longer-term viability of the
Company. In the 3 year model we have shown that the business is
profitable and therefore capable of repaying the bank loans in line
with the facility agreements of $2.7m. We continue to receive
support from the banks. In carrying out their analysis of
viability, the Directors took account of the Group's projected
profits and cash flows and its banking facilities and
covenants.
In addition to the agreement to the facility, 1010 Printing
Limited (a subsidiary of the Lion Rock Group Limited) and C.K. Lau
extended the original $13m unsecured and subordinated loans to the
Group (entered into on 31 October 2018) on identical terms and on
normal commercial terms. Furthermore, 1010 Printing Limited agreed
to provide a further $10m unsecured and subordinated loan to the
Company on normal commercial terms. Whilst these unsecured and
subordinated loans were repayable by 31 August 2024, the loan of
$13m to C.K. Lau was fully repaid including interest at 3.75%
during 2022. A repayment of $2m was also made including interest at
4% to 1010 Printing Limited during the year, reducing the balance
to $8m. In the 3 year forecast we have shown that the business is
profitable and therefore capable of repaying the remainder of the
subordinated loans as per the agreements. The forecast also allows
for the repayment of the remaining $8m subordinated loan and
interest in Q1 2023. Approval for these specific subordinated loan
repayments was agreed by the banks and payment was made in Q1 2023.
We continue to receive support from 1010 Printing Limited.
The Directors also took account of the principal risks and
uncertainties facing the business referred in the annual report.
The review focused on the occurrence of severe but plausible
scenarios in respect of the principal risks and considered the
potential of these scenarios to threaten viability.
The key principal risk that the business faces is a downturn
caused by a global recession. The financial impact of this downturn
has been quantified to illustrate the Group's ability to manage the
impact on liquidity and covenants, with sensitivity analysis on the
key revenue growth assumptions and the effectiveness of available
mitigating actions. In considering this analysis, the Directors
took account of the mitigating actions that had been previously
taken. These actions included reductions in investment in
pre-publication costs, print volumes, staffing levels and other
variable costs.
Based on the above indications, after taking into account the
downside scenario projections, the Directors strongly believe have
a reasonable expectation that the Group has adequate resources to
continue in operation and meet its liabilities throughout the
viability period to 31 December 2025.
OUTLOOK
Quarto remains in a good financial position with a strong
pipeline of new title publishing for 2023 and beyond. Our large
back catalog is a significant strength and continues to perform
well. We feel confident in our ability to navigate the challenging
market conditions expected of 2023 and in the broad appeal of our
books.
Our people culture has been a focus in 2022 and will remain so
during 2023. Attracting and retaining high-caliber staff is vital
for the long-term health of the business.
We remain confident and focused on delivering a sustainable,
profitable business for the future.
THE QUARTO GROUP, INC .
Condensed Consolidated Income Statement
For the year ended 31 December 2022
Year ended Year ended
31 December 31 December
2022 2021
Note $000 $000
Continuing operations
Revenue 2 141,017 151,483
Cost of sales (87,319) (103,897)
-------------------------------------------- ---- ------------ ------------
Gross profit 53,698 47,586
Distribution costs (7,582) (8,439)
Impairment of financial assets (69) (874)
Administrative expenses (24,723) (22,314)
Operating profit before amortization of
acquired intangibles and exceptional items 21,324 15,959
Amortization of acquired intangibles - (7)
Exceptional items 3 774 -
-------------------------------------------- ---- ------------ ------------
Operating profit 2 22,098 15,952
Finance costs 4 (1,213) (1,796)
-------------------------------------------- ---- ------------ ------------
Profit before tax 20,885 14,156
Tax 5 (4,279) (4,230)
-------------------------------------------- ---- ------------ ------------
Profit for the year 16,606 9,926
============================================ ==== ============ ============
Attributable to:
Owners of the parent 16,606 9,926
============================================ ==== ============ ============
Earnings per share (cents)
From continuing operations
Basic 6 40.6 24.3
Diluted 6 40.6 24.3
THE QUARTO GROUP, INC .
Condensed Consolidated Statement of Comprehensive Income
For the year ended 31 December 2022
Year ended Year ended
31 December 31 December
2022 2021
$000 $000
Profit for the year 16,606 9,926
Items that may be reclassified to profit
or loss
Foreign exchange translation differences (2,475) (506)
Tax relating to items that may be reclassified
to profit or loss - 66
-------------------------------------------------- ------------------------- ------------
Total other comprehensive income (2,475) (440)
-------------------------------------------------- ------------------------- ------------
Total comprehensive income for the year
net of tax 14,131 9,486
================================================== ========================= ============
Attributable to:
Owners of the parent 14,131 9,486
================================================== ========================= ============
THE QUARTO GROUP, INC.
Condensed Consolidated Balance Sheet
At 31 December 2022
31 December 31 December
2022 2021
Note $000 $000
Non-current assets
Goodwill 7 18,622 19,286
Other intangible assets 1 51
Property, plant and equipment 7,677 5,181
Intangible assets: Pre-publication
costs 8 25,473 29,941
Deferred tax assets 1,835 2,436
----------------------------------- ---- ----------- -------------
Total non-current assets 53,608 56,895
----------------------------------- ---- ----------- -------------
Current assets
Inventories 21,826 20,393
Trade and other receivables 40,122 51,242
Cash and cash equivalents 13,290 28,432
Total current assets 75,238 100,067
----------------------------------- ---- ----------- -------------
Total assets 128,846 156,962
----------------------------------- ---- ----------- -------------
Current liabilities
Short term borrowings (4,636) (5,438)
Trade and other payables (33,869) (53,789)
Lease liabilities (944) (1,363)
Tax payable (3,295) (7,467)
----------- -------------
Total current liabilities (42,744) (68,057)
----------------------------------- ---- ----------- -------------
Non-current liabilities
Long term borrowings (9,301) (28,508)
Deferred tax liabilities (2,798) (3,130)
Tax payable (386) (386)
Lease liabilities (6,277) (3,672)
Total non-current liabilities (18,762) (35,696)
----------------------------------- ---- ----------- -------------
Total liabilities (61,506) (103,753)
----------------------------------- ---- ----------- -------------
Net assets 67,340 53,209
=================================== ==== =========== =============
Equity
Share capital 4,089 4,089
Paid in surplus 48,701 48,701
Retained earnings and other
reserves 14,550 419
----------------------------------- ---- ----------- -------------
Total equity 67,340 53,209
=================================== ==== =========== =============
THE QUARTO GROUP, INC .
Condensed Consolidated Statement of Changes in Equity
For the year ended 31 December 2022
Equity attributable
Share Paid Translation Retained to owners
capital in surplus reserve earnings of the parent
$000 $000 $000 $000 $000
Balance at 1 January 2021 4,089 48,701 (5,607) (3,470) 43,713
Profit for the year - - - 9,926 9,926
Foreign exchange translation
differences - - (506) - (506)
Tax relating to items that may
be reclassified to profit or loss - - 66 - 66
------------------------------------- -------- ----------- ----------------------- ---------- -------------------
Total comprehensive income for
the year - - (440) 9,926 9,486
Share based payments credit - - - 10 10
Balance at 31 December 2021 4,089 48,701 (6,047) 6,466 53,209
Profit for the year - - - 16,606 16,606
Foreign exchange translation
differences - - (2,475) - (2,475)
Tax relating to items that may
be reclassified to profit or loss - - - - -
------------------------------------- -------- ----------- ----------------------- ---------- -------------------
Total comprehensive income for
the year - - (2,475) 16,606 14,131
Share based payments credit - - - - -
Balance at 31 December 2022 4,089 48,701 (8,522) 23,072 67,340
===================================== ======== =========== ======================= ========== ===================
THE QUARTO GROUP, INC.
Condensed Consolidated Cash Flow Statement
For the year ended 31 December 2022
Year ended Year ended
31 December 31 December
2022 2021
Note $000 $000
Profit for the year 16,606 9,926
Adjustments for:
Net finance costs 4 1,213 1,796
Depreciation of property, plant and equipment 2,029 1,741
Software amortization 50 101
Tax expense 5 4,279 4,230
Impairment of right-to-use assets 228 -
Loss on disposal of property, plant and
equipment 3 -
Loss on disposal of SmartLab 3 1,498 -
Forgiveness of Cares Act Loan 3 (2,272) -
Share based payments - 10
Amortization of acquired intangibles - 7
Amounts expensed work-in-progress 8 2,875 4,333
Amortization and impairment of pre-publication
costs 8 16,331 26,567
----------------------------------------------------- ------ ------------ ------------
Operating cash flows before movements
in working capital 42,840 48,811
Increase in inventories (3,299) (5,036)
Decrease/(increase) in receivables 8,594 (7,106)
(Decrease)/increase in payables (17,119) 4,035
----------------------------------------------------- ------ ------------ ------------
Cash generated by operations 31,016 40,704
Income taxes paid (7,561) (3,053)
----------------------------------------------------- ------ ------------ ------------
Net cash from operating activities 23,455 37,651
----------------------------------------------------- ------ ------------ ------------
Investing activities
Proceeds from sale of SmartLab 3 1,437 -
Investment in pre-publication costs 8 (18,067) (20,229)
Purchases of property, plant and equipment (1,238) (111)
Net cash used in investing activities (17,868) (20,340)
----------------------------------------------------- ------ ------------ ------------
Financing activities
Interest payments (397) (1,866)
Lease payments (1,708) (1,426)
Drawdown of revolving credit facility
and other loans 1,500 22,994
Repayment of revolving credit facility
and other loans (19,693) (30,840)
Net cash used in financing activities (20,298) (11,138)
----------------------------------------------------- ------ ------------ ------------
Net (decrease)/increase in cash and
cash equivalents (14,711) 6,173
Cash and cash equivalents at beginning
of year 28,432 22,079
Foreign currency exchange differences
on cash and cash equivalents (431) 180
----------------------------------------------------- ------ ------------ ------------
Cash and cash equivalents at end of
year 13,290 28,432
===================================================== ====== ============ ============
THE QUARTO GROUP, INC.
Notes to the condensed financial statements
1. Basis of preparation
The results have been extracted from the audited financial
statements of the Group for the year ended 31 December 2022. The
results do not constitute statutory accounts within the meaning of
Section 434 of the Companies Act 2006. Whilst the financial
information included in this announcement has been computed in
accordance with the principles of 'UK Adopted' International
Financial Reporting Standards ("IFRS") and Companies Act 2006 that
applies to companies reporting under IFRS, this announcement does
not of itself contain sufficient information to comply with IFRS.
The Group will publish full financial statements that comply with
IFRS. The auditors have reported on these accounts; their report
was unqualified, did not draw attention to any matters by way of
emphasis without qualifying their report and did not contain
statements under s498(2) or (3) of the Companies Act 2006.
Statutory accounts for the year ended 31 December 2022, will not
have been filed with the Registrar of Companies. The accounting
policies applied are consistent with those described in the Annual
Report & Accounts for the year ended 31 December 2022.
The Group financial statements are presented in US Dollars and
all values are shown in thousands of dollars ($000) rounded to the
nearest thousand dollars, except where otherwise stated. Each
entity in the Group determines its own functional currency and
items included in the financial statements of each entity are
measured using that functional currency.
Going Concern
The Board assessed the Group's ability to operate as a going
concern for at least the next 12 months from the date of signing
the financial statements.
The Directors have considered the underlying robustness of the
Group's business model, products and proposition and its recent
trading performance, cash flows and key performance indicators.
They have also reviewed the cash forecasts prepared in detail to 31
March 2024. This is to satisfy themselves of the going concern
assumption used in preparing the financial statements. The base
case model was built using a detailed sales forecast driven by the
publishing program for 2023. Trade receivable days remaining
consistent with 2022.
As part of this work, the model was sensitized initially by a 5%
reduction in revenue to ensure headroom within the covenants. This
is deemed as a severe but plausible scenario. Management performed
a reverse stress test to assess the point in which the banking
covenants were breached. This occurred at a reduction in revenue of
13%. It is considered unlikely that such a reduction of revenue
would occur, given, sales dropped 7% in 2022 and dropped 7% during
2020. Should we start to see a reduction in revenue, then
mitigating action will be taken, such as reduction in investment in
pre-publication costs, print volumes, staffing levels and other
variable costs.
Based on the above indications, the Directors believe that it
remains appropriate to continue to adopt the going concern in
preparing the financial statements.
2. Operating segments
The analysis by segment is presented below. This is the basis on
which the operating results are reviewed and resources allocated by
the Chief Executive Officer, who is deemed to be the chief
operating decision maker.
US UK
2022 Publishing Publishing Total
$000 $000 $000
External revenue - continuing operations 75,329 65,688 141,017
============ ============ ========
Operating profit before amortization
of acquired intangibles and exceptional
items 10,608 11,875 22,483
Amortization of acquired intangibles - - -
------------ ------------ --------
Segment result 10,608 11,875 22,483
Unallocated corporate expenses (1,159)
Corporate exceptional items (note
3) 774
--------
Operating profit 22,098
Finance costs (1,213)
--------
Profit before tax 20,885
Tax (4,279)
--------
Profit after tax 16,606
========
2021 US Publishing UK Publishing Total
$000 $000 $000
External revenue - continuing operations 81,062 70,421 151,483
============== ============== ========
Operating profit before amortization
of acquired intangibles and exceptional
items 10,024 7,001 17,025
Amortization of acquired intangibles (7) - (7)
-------------- -------------- --------
Segment result 10,017 7,001 17,018
Unallocated corporate expenses (1,066)
Corporate exceptional items (note
3) -
--------
Operating profit 15,952
Finance costs (1,796)
--------
Profit before tax 14,156
Tax (4,230)
--------
Profit after tax 9,926
--------
Segmental balance sheet
2022 2021
$000 $000
Quarto Publishing Group USA 65,945 54,313
Quarto Publishing Group UK 49,590 71,877
Unallocated (Deferred tax and cash) 13,311 30,772
Total Assets 128,846 156,962
======= =======
Quarto Publishing Group USA 21,175 28,472
Quarto Publishing Group UK 22,265 30,351
Unallocated (Deferred tax, corporation tax and
debt) 18,066 44,930
Total Liabilities 61,506 103,753
======= =======
2. Operating segments (continued)
Geographical revenue
The Group operates in the following geographical
areas:
Non-current
Revenue assets
2022 2021 2022 2021
$000 $000 $000 $000
United States of America 85,397 93,399 28,908 31,333
United Kingdom 17,052 20,241 22,865 23,126
Europe 23,099 21,204 - -
Rest of the world 15,469 16,639 - -
Total 141,017 151,483 51,773 54,459
============================================ ======== ======== ======= =======
3. Exceptional items
2022 2021
$000 $000
SmartLab disposal (1,498) -
Cares Act loan forgiveness 2,272 -
Total 774 -
============================ ======== =====
On 30 August 2022, the Group publicly announced that we were
committed to sell SmartLab, our toy imprint. On 1 September 2022,
the intellectual property of SmartLab to the value of $1.825m was
sold for $0.5m. Sales were continued to be made until 29 November
2022, when the inventory on hand of $1.11m was sold at cost for
$1.088m. The overall loss on disposal was $1.498m after incurring
legal fees of $31k and redundancy costs of $120k.
During 2022, the Cares Act loan of $2.422m relating to
government support given under the Coronavirus Aid, Relief and
Economic Security Act of the USA, was forgiven to the value of
$2.272m.
4. Finance costs
2022 2021
$000 $000
Interest expense on borrowings 778 1,399
Amortization of debt issuance costs and bank
fees 70 85
Interest expense on lease liabilities 365 276
Other interest - 36
---------------------------------------------- ------ ------
Total 1,213 1,796
============================================== ====== ======
5. Taxation
2022 2021
$000 $000
Corporation tax
C urrent year 3,477 6,209
Prior periods 201 -
----------------- -------
Total current tax 3,678 6,209
----------------- -------
Deferred tax
Origination and reversal of temporary differences 601 (1,979)
------------------------------------------------------- ----------------- -------
Total tax expense 4,279 4,230
======================================================= ================= =======
5. Taxation (continued)
Corporation tax on UK profits is calculated at 19% (2021: 19%),
based on the UK standard rate of corporation tax of the estimated
assessable profit for the year. Taxation for other jurisdictions is
calculated at the rate prevailing in the respective jurisdictions.
An increase in the UK corporation rate from 19% to 25% is effective
1 April 2023. The table below explains the difference between the
expected expense at the UK statutory rate of 19% and the total tax
expense for the year.
2022 2021
$000 $000
Profit before tax 20,885 14,156
------ ------
Tax at the UK corporation tax rate of 19%
(2021: 19%) 3,968 2,690
Effect of different tax rates of subsidiaries
operating in other jurisdictions 813 1,058
Adjustment to prior years 201 -
T ax effect of items that are not deductible
in determining taxable profit (10) (16)
Tax effect of non-taxable items (587) -
Other (106) 498
------ ------
Tax expense 4,279 4,230
====== ======
Effective tax rate for the year 20.5% 29.9%
====== ======
6. Earnings per share
2022 2021
$000 $000
From continuing operations
Profit for the year 16,606 9,926
Amortization of acquired intangibles (net of
tax) - 5
Exceptional items (net of tax) (1,160) -
----------- -----------
Earnings for the purposes of adjusted earnings
per share 15,446 9,931
==================================================== =========== ===========
Number of shares Number Number
Weighted average number of ordinary shares 40,889,100 40,889,100
Diluted weighted average number of ordinary
shares 40,889,100 40,889,100
---------------------------------------------------- ----------- -----------
Earnings per share (cents) - continuing operations
Basic 40.6 24.3
Diluted 40.6 24.3
Adjusted earnings per share (cents)
Basic 37.8 24.3
Diluted 37.8 24.3
7. Goodwill
2022 2021
$000 $000
Cost
At 1 January 43,007 43,102
Exchange differences (664) (95)
At 31 December 42,343 43,007
====================================== ========= =========
Accumulated impairment losses
At 1 January (23,721) (23,721)
Impairment - -
Exchange differences - -
-------------------------------------- --------- ---------
At 31 December (23,721) (23,721)
====================================== ========= =========
Carrying value:
At 31 December 18,622 19,286
-------------------------------------- --------- ---------
The cash generating units containing
goodwill are as follows:
2022 2021
$000 $000
Quarto Publishing Group USA
(QUS) 12,882 12,882
Quarto Publishing Group UK
(QUK) 5,740 6,404
-------------------------------------- --------- ---------
18,622 19,286
====================================== ========= =========
Quarto identifies its cash-generating units based on its
operating model and how data is collected and reviewed for
management reporting and strategic planning purposes, in accordance
with IAS36 - Impairment of Assets. Corporate overheads have been
divided between cash-generating units and factored into the value
in use calculation.
The recoverable amount of each cash generating unit ('CGU') is
determined using the value in use basis. In determining value in
use, management prepares a detailed bottom up budget for the
initial twelve-month period, with reviews conducted at each
business unit. A further two years are forecast using relevant
growth rates and other assumptions. Cash flows beyond the
three-year period are extrapolated into perpetuity, by applying a
2% growth rate from the addressable market. The cashflows are then
discounted using a country-specific discount rate. The growth rates
used are consistent with the growth expectations for the sector in
which the company operates and the discount rate has been
calculated using pre-tax Weighted Average Cost of Capital
analysis.
The key assumptions for calculating value in use are:
Terminal Growth
Rates Discount Rates
------------------------- ================== ==============================
2022 2021 2022 2021
========================= ======== ======== ============== ==============
United States of America 2% 2% 10.75% 11.13%
------------------------- -------- -------- -------------- --------------
United Kingdom 2% 2% 11.13% 10.86%
========================= ======== ======== ============== ==============
Revenue growth rates: forecast sales growth rates are based on
those applied to the Board approved budget for the year ending 31
December 2023 and three-year plan. They incorporate future
expectations of growth driven by investment plans for each CGU.
Long-term growth rates: the three-year forecasts are
extrapolated to perpetuity on the basis that the CGU's are
long-established business units. The long-term growth rates are
blended rates formed from the territory-specific long-term growth
rates.
Gross margins: gross margins are based on historic performance
and expected changes to the sales mix in future periods.
The Group has undertaken various sensitivities of the QUK and
QUS CGU's. There were no reasonably possible changes in QUK that
would lead to impairment. QUS, which has the largest goodwill and
non-current assets, carries a greater risk that reasonably possible
changes would result in impairment. Based on the above long-term
growth rate and discount rate, QUS exceeded the carrying value of
the CGU by $4.3m. The following sensitivities were applied to this
CGU:
-- 0.75% increase in discount rate, at which level there was no
impairment. The recoverable amount exceeded the carrying value of
the CGU by $0.1m. The discount rate would need to increase to
11.75% to record any impairment.
-- 1.5% terminal growth rate, at which level there was no
impairment. The recoverable amount exceeded the carrying value of
the CGU by $2m. The terminal growth rate would need to be 1% before
any impairment was recorded.
Should there be a headline change in revenues and margins, this
could create an impairment.
8. Intangible assets: Pre-publication costs
2022 2022 2022 2021 2021 2021
$000 $000 $000 $000 $000 $000
============================ ========= ========= ======= ========= ========= =======
Work in Published Work in Published
progress products Total progress products Total
============================ ========= ========= ======= ========= ========= =======
Cost
---------------------------- --------- --------- ------- --------- --------- -------
At 1 January 10,105 102,528 112,633 11,442 86,496 97,938
---------------------------- --------- --------- ------- --------- --------- -------
Exchange difference (456) (7,240) (7,696) (64) (1,037) (1,101)
---------------------------- --------- --------- ------- --------- --------- -------
Additions 18,067 - 18,067 20,229 - 20,229
---------------------------- --------- --------- ------- --------- --------- -------
Transfers (16,036) 16,036 - (17,069) 17,069 -
---------------------------- --------- --------- ------- --------- --------- -------
Amounts expensed(1) (2,875) - (2,875) (4,433) - (4,433)
---------------------------- --------- --------- ------- --------- --------- -------
Disposals (note 5) (626) (4,072) (4,698) - - -
============================ ========= ========= ======= ========= ========= =======
At 31 December 8,179 107,252 115,431 10,105 102,528 112,633
============================ ========= ========= ======= ========= ========= =======
Amortization and impairment
---------------------------- --------- --------- ------- --------- --------- -------
At 1 January - 82,692 82,692 - 57,025 57,025
---------------------------- --------- --------- ------- --------- --------- -------
Exchange difference - (6,193) (6,193) - (900) (900)
---------------------------- --------- --------- ------- --------- --------- -------
Amortization charge - 17,060 17,060 - 19,808 19,808
---------------------------- --------- --------- ------- --------- --------- -------
(Reversal)/impairment
of published product - (729) (729) - 6,759 6,759
---------------------------- --------- --------- ------- --------- --------- -------
Disposals (note 5) - (2,872) (2,872) - - -
============================ ========= ========= ======= ========= ========= =======
At 31 December - 89,958 89,958 - 82,692 82,692
============================ ========= ========= ======= ========= ========= =======
Net book value 8,179 17,294 25,473 10,105 19,836 29,941
============================ ========= ========= ======= ========= ========= =======
1 Amounts expensed relate to the impairment of Work-In-Progress.
Titles which have no economic future are impaired.
The carrying amount of the intangible assets is reviewed
annually at each balance sheet date to determine whether there is
any indication of impairment. If any such indication exists, the
asset's recoverable amount is estimated. The recoverable amount is
the higher of fair value, reflecting market conditions less costs
to sell, and value in use based on an internal discounted cash flow
valuation.
Pre-publication costs form part of the carrying value of the CGU
for each segment and are considered for impairment of goodwill as
set out in note 7.
9. Alternative performance measures
The Group uses alternative performance measures to explain and
judge its performance.
Adjusted operating profit excluding amortization of acquired
intangibles and exceptional items. The Directors consider this to
be a useful measure of the Group operating performance as it shows
the performance of the underlying business.
Exceptional items are those which the Group defines as
significant items outside the scope of normal business that need to
be disclosed by virtue of their size or incidence.
Free cashflow is the cash generated by operations less
pre-publication investment and purchases of property, plant and
equipment and software.
Backlist % refers to book titles that were published in previous
calendar years and is a key measure of the performance of our
intellectual property assets.
Intellectual property development spend refers to the amounts
spent annually on the creation and publication of book titles
against which we monitor subsequent sales (see note 8).
2022 2021
$000 $000
Adjusted Operating Profit
Operating profit 22,098 15,952
Add back:
Amortizatio n of acquired intangibles - 7
Exceptional items (note 3) (774) -
------- -------
Adjusted operating profit 21,324 15,959
Adjusted profit before tax befor e amortization of acquired
intangibles and exceptional items
Adjusted operating profit befor e amortization of acquired
intangibles and exceptional items 21,324 15,959
Less: net finance costs (1,213) (1,796)
------- -------
Adjusted profit before tax befor e amortization of acquired
intangibles and exceptional items 20,111 14,163
======= =======
2022 2021
$000 $000
Net debt
Short term borrowings 4,636 5,438
Long term borrowings 9,301 28,508
Cas h and cash equivalents (13,290) (28,432)
-------- --------
Net debt 647 5,514
======== ========
10. Post balance sheet events
Quarto repaid the remaining loan of $8m plus accrued interest to
1010 Printing Limited in February 2023. This repayment was made
outside the agreement due to a favorable liquidity position at this
point in time and had been agreed by the bank. No additional
charges will be payable as a result of the early repayment.
11. Principal risks and uncertainties facing the Group
a. Economic conditions. The Group has adequate liquidity with up
to $22m in available debt facilities. In addition, the Directors
have the ability to take a number of mitigating actions, including
the reduction of spend on pre-publication costs, inventory
printings and other discretionary items. The Group offers
non-Chinese printing for customers in order to avoid US tariffs on
books. The Company's management information systems allow it to
assess sales performance quickly and so take the appropriate steps
to maximize operating performance. The Group has shown itself to be
adaptable by quickly accommodating the changes necessary to its
sales and marketing activities during the Covid-19 pandemic and to
subsequent supply chain pressures. The Group has a very limited
exposure to the Russian and Ukrainian markets.
b. Currency. The Group has a natural hedge that mitigates
against currency movements impacting its earnings in that one of
its largest costs, which is print costs, are paid in US
Dollars.
c. Loss of intellectual property. A cloud storage solution is
integrated into our production workflow to provide storage, back-up
and recovery services for product files in development. Complete
backlist archives are stored in a mirrored storage array.
d. Financial. In 2021, a three year and five months banking
facility of $20m was secured, together with additional shareholder
support. Performance during 2022 allowed the Company to accelerate
its debt reduction.
e. Customer. The Group has a long-established strategy of
diversifying its international customer base, including specialty
retailers, resulting in the fact that with one exception no
customer has over 20% of the business. Customer relations are
managed to ensure a fair-trading relationship. Management monitors
debts closely and maintains close relationships with its customers,
and distributors, which may provide prior warning of likely
failure. The Group continues to adapt to supporting online selling
and continues to offer and promote e-book versions of its
books.
f. Supply chain and raw materials. The Group maintains
relationships with printers in other parts of the world and is
confident that printing could be carried out by an alternative
range of printers if supply from China was interrupted or to
mitigate shipping costs. We maintain close relations with our
printers, reducing the risk of a lack of knowledge of any printer
being in financial trouble. The Group has worked with its major
printers on a plan to adopt sustainable paper and recently
instituted a Forest Stewardship Council (FSC) paper or Sustainable
Forestry Initiative (SFI) paper policy across all our imprints.
By monitoring frequency of factory downtime from acute climate
events (days lost) and using forecasting data as part of scenario
planning to model chronic climate change, the Company will be
better prepared in the selection of global suppliers. Further
development of internal scenario planning tools, and through
working more closely with suppliers on identified risks, the Group
can mitigate the potential impact of longer-term climate changes
and ensure security of supply. Acute interruptions to either raw
materials or manufacturing are mitigated by maintaining a flexible
manufacturing supplier base. The Group can mitigate the impact of
regional climate events by relocating manufacturing globally. This
approach was tested successfully during the Covid-19 pandemic.
g. Cyber security. The Group uses enterprise level firewalls and
IT controls to prevent attack as well as maintaining cloud-based
copies and offsite back-up of IP. Computerized files of the Group's
books are also maintained by printers. We do not store any personal
or credit card data on our websites www.quarto.com or
www.quartoknows.com. The Group undertakes industry standard system penetration testing.
h. Transition to net zero economy. By engaging in its own
emissions-reducing ambitions and as supply sectors themselves
transition towards net-zero practices, the Group will be better
placed to address climate-related transitional risks. Increasing
our engagement at industry level will support establishment of best
practice approaches.
The Group continues to engage with customers and explore
emerging channels to ensure that the Group remains competitive. By
working in partnership with customers the Company will be better
placed to mitigate these risks. We have also used insight gained
from Ivy Eco, an environmentally led imprint launched in 2020, to
better understanding market forces and customer levers. The Company
has also established a register identifying the environmental
offerings available through its global supplier base to ensure that
all customer climate-related needs can be met.
j. Product safety. All components receive safety testing from
specialist and accredited independent third parties. Management
carefully selects suppliers for the components the Company
uses.
The Company continues to monitor the regulatory impact of
product testing following the UK's departure from the European
Union and maintains a European presence to ensure compliance with
European Union Product Safety legislation following the UK's
departure from the European Union
k. Laws and regulations. Quarto reviews its licensing,
permission-acquisitions and other contracts routinely receiving
advice from relevant professional firms (including the possible
impact of Brexit) so that legal instruments remain current and
represent best practices so that we ensure that our practices are
aligned and consistent across imprints, and Quarto's IP rights are
properly protected.
l. People. Quarto's Publishers are experienced and talented
professionals who work alongside sales and marketing teams and
strive to stay close to publishing trends and markets. The Group
encourages diversity and inclusion in its workforce and offers
competitive market rate remuneration packages and works hard to
make Quarto an attractive place to work. The Group operates a
flexible hybrid working regimen.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
RNS may use your IP address to confirm compliance with the terms
and conditions, to analyse how you engage with the information
contained in this communication, and to share such analysis on an
anonymised basis with others as part of our commercial services.
For further information about how RNS and the London Stock Exchange
use the personal data you provide us, please see our Privacy
Policy.
END
FR EANDFDESDEEA
(END) Dow Jones Newswires
March 31, 2023 05:11 ET (09:11 GMT)
Quarto (LSE:QRT)
Historical Stock Chart
From Jan 2025 to Feb 2025
Quarto (LSE:QRT)
Historical Stock Chart
From Feb 2024 to Feb 2025
