Final Results
Quarto Group Inc
15 February 2002
Friday 15 February 2002
THE QUARTO GROUP INC - PRELIMINARY RESULTS
Quarto, the London based and listed international book publisher,
announces an improved underlying result, in line with expectations, despite
difficult economic circumstances.
On unchanged turnover of £73.6 m, underlying pre-tax profit increased
by 9.8% to £4.5 m whilst underlying EPS was 16.8% higher at 18.8p.
The final dividend per share is increased by 10.0% to 2.53p, giving
4.73p, up 5.1%, for the year.
After exceptionals and goodwill amortisation, the reported pre-tax
profit decreased to £3,190,000 from £3,550,000 and EPS to 11.7p from 13.2p.
The International Co-edition Publishing Division made an operating
profit of £5.0 m (2000: £5.4 m) on a turnover of £41.6 m (2000: £43.5 m),
with the Quarto and Quantum units doing outstandingly well.
The Publishing Division increased operating profit to £2.3 m (2000:
£1.9 m) on a turnover of £32.0 m (2000: £30.1 m), with the art publishing
business moving in the right direction.
Since the year end, Quarto has purchased, from the Administrators, the
business and publishing assets of Marshall Editions and its associated entities
and appointed Danny Gurr, most recently President of Dorling Kindersley USA, as
President of Quarto Holdings to assist with operations on both sides of the
Atlantic.
Laurence Orbach, Chairman and Chief Executive, stated 'Given the
unedifying mix of circumstances, I hope that shareholders will share the Board's
satisfaction that Quarto weathered the storms well, and achieved a number of
objectives set at the beginning of the year. The current year has started well,
and I am looking forward to another useful advance in 2002.'
Notes for Editors:
Quarto's International Co-edition Publishing Division primarily creates content
for publication internationally by other publishers. It also includes Regent
and ProVision, which are Far East-based print broking and production supervision
services businesses, serving both third parties and the Group.
Quarto's Publishing Division primarily publishes books, under imprints owned by
the group, and art images, mainly for their domestic markets and from US
locations. In addition, it includes two UK-based screen printers primarily
serving the point of sale display market, Western and AP Screen.
Although a Delaware registered corporation, Quarto's Head Office is situated in
Islington, London N7 and its shares are fully listed on the London Stock
Exchange.
Enquiries:
The Quarto Group, Inc
Laurence Orbach (Chairman & Chief Executive) 020-7700 9001
Mick Mousley (Finance Director) 020-7700 9005
Bankside Consultants Limited
Charles Ponsonby 020-7444 4166
CHAIRMAN'S STATEMENT
What a difference a year can make! When I wrote to shareholders, at this time
last year, there were early intimations of recession in the US, where more than
half of Quarto's sales are made, but nothing that hinted at the tumultuous times
ahead. The recession has been confirmed, Japan has returned to stagnation,
European growth has stalled, most severely in Germany, and the horrifying events
of September 11th have, together, created a climate of insecurity that refuses
to dissipate. In addition, the new economy, imperiously proclaiming it was
wearing new clothes, revealed itself in all its nakedness. It turned out, after
all, that it was subject to fundamental economic laws.
This was the background to business in 2001 and, given the unedifying mix, I
hope that shareholders will share the board's satisfaction that Quarto weathered
the storms well, and achieved a number of objectives set at the beginning of the
year. Book businesses have done well, historically, in economic recessions. I
expected our book business not to be affected seriously by recession and, in the
event, that's how it turned out.
Financial Overview
For the year ended December 31st, 2001, sales were £73.62 million (2000: £73.56
million). Operating profits increased to £6.20 million (2000: £6.09 million),
and underlying pre-tax profits, before goodwill amortization and exceptional
items, advanced by almost 10% to £4.46 million (2000: £4.07 million). Underlying
earnings per share increased by 16.8% to 18.8p (2000: 16.1p), and basic earnings
per share were 11.7p (2000: 13.2p). The Board is recommending a 10% increase in
the final dividend to 2.53p net (2000: 2.3p net).
There's no insulation from disaster. Regrettably, we were caught up in the late
December bankruptcy protection filing of Konemann, one of the largest publishers
in Germany. Our exposure was at a historic high of approximately £1.2 million.
It is still too soon to assess the prospects for recovery, so we have provided,
as an exceptional item, for the entire debt. That aside, we fulfilled our
financial expectations for the year.
The US dollar is the group's major trading currency, and the currency in which
most of our assets are denominated. As a matter of prudence, most of our
borrowings are also in dollars. At the end of 2001, net debt was $34.5 million
(£23.6 million) compared to $34.3 million a year ago. Konemann aside, our net
cash inflow from operating activities was in line with expectations. Net
interest payable was covered 3.6 times (2000: 3.0 times) by underlying operating
profits, an increase of 20%.
Commentary on Results
Three principal factors account for the flat sales picture. The first was the
continued softness of our sales into the euro-zone, despite encouraging results
in some of the countries. The euro continued to be weak, and this put
unacceptable pressure on margins. The second factor was our continued focus on
eliminating some very marginal business.
The overwhelming factor was the third, i.e. the economic and political
uncertainty in our major markets. As early as the spring of 2001, it was
becoming clear that the implosion of the dot-coms in the United States indicated
a more serious imbalance between the real economy, and excessive expectation.
All sectors of the economy reacted more cautiously than for some time
previously. By the summer, the caution became contagious, and spread outside the
United States. Inflation remained benign and, in response to a weaker world
economy, central banks generally followed the Fed's lead in reducing interest
rates. Much as this may have been the correct recipe, it also emphasized the
nervousness of the business world, and contributed to wariness about the
immediate future. Customers talked about the possibility of a weak Christmas
market. Then came September 11th.
When we reported on our third quarter results, I commented on our expectations
for the balance of 2001. In the main, our expectations were met, though our
sales in December in particular, in common with those of many other companies,
were weaker than we expected. This led to sales, for the final quarter, coming
in about £1 million lower than we expected, reducing operating profits by,
perhaps, £300,000. September was, despite the events of September 11th, a
reasonably strong month, as was October. November was acceptable but,
understandably, retailers remained apprehensive about whether there would be a
real Christmas season, given the economic circumstances, and the psychological
toll that September 11th and the Afghan war had taken. In the light of these
uncertainties, we are pleased that we met our expectations for the year.
Review of the Year
International Co-Edition Book Publishing
The weakness of sales into continental Europe did not prevent the division from
turning in a very good performance overall. Sales eased to £41.6 million (2000:
£43.5 million), with an operating margin of £5.04 million (2000: £5.43 million).
The Quarto and Quantum units did outstandingly well, with sales and profits that
exceeded expectations. Quintet, and our books-plus unit, now renamed Q+, each
have new publishers, and much effort during the year went into improving their
publishing programs and operations. Gratifyingly, by the end of the year, they
were poised to perform better in 2002. Operating profits for the London-based
businesses rose by 4.8%, and operating margins reached 13.1%, compared with
11.4% in 2000.
Rockport RotoVision invested in a new publishing imprint, Fair Winds, which
produces books for the mind, body, and spirit market. Results were impacted
adversely by this investment and by disappointing sales of the backlist in the
United States, and of co-editions internationally. Additionally, RotoVision
decided to discontinue certain marginal, annual publications, at a one-off cost
in this year.
In Australia, Global was hurt badly by the collapse of Konemann, which was
Global's major customer. We held insurance cover on Konemann until it was pulled
by the credit insurer just weeks before our receivables were created. We were,
in any event, concerned that Global was doing too much of its business with
Konemann. We had already planned to expand Global's customer base, and this
focus is continuing.
Once again, the strengths of our publishing lists were manifested. Revenues from
reprints, i.e. from titles first published in prior years, accounted for 64% of
co-edition book sales.
Publishing
The group's publishing businesses are predominantly in the United States. On the
book side, Book Sales increased its sales, substantially through increasing its
own publishing program in 2001. In the prior year, Walter Foster had launched
an innovative new list under the My Chaotic Life imprint. We had very high hopes
for its success. In most of the outlets where the range was sold, it did very
well but, unfortunately, far fewer retailers than we had expected elected to
stock the range in 2001. We are winding down our investment in the line. Despite
this experience, Walter Foster improved its profits as its more traditional
ranges of instructional books performed well. We continue to update them and
extend their concepts.
Finally, in the last quarter of the year, our art publishing businesses began to
hit their stride. This was not enough to return the business to profitability
for the year, but we are moving in the right direction. Vastly improved
operations are partly responsible for this turnaround, and our new management in
New York and Melbourne are largely responsible for this achievement. It is also
gratifying that the fall release of new images performed in accordance with our
business model, and far better than the immediately preceding releases. 2002 is
a crucial year for the business. The art publishing business has high gross
margins. The leveraging effect of extra sales is substantial. If we can
increase sales, the impact on the bottom line will be profound, and will open up
many options for us. The business is no longer absorbing cash and, I am happy to
report, is now modestly cash generative.
Publishing Services
Once again, publishing services, which provide production services to
publishers, and point of sale materials for marketing support, were very
successful in 2001. Regent dealt very adroitly with a competitive and fickle
international market. Sales, as expected, were down, but profits increased.
Regent's results are included in the Co-edition Publishing Division. The
challenge for Regent, based in Hong Kong, remains to increase sales and maintain
margins. In the UK, Western and AP, whose results are recorded in the Publishing
Division, performed extremely well, and continue to focus on their growth
opportunities.
Prospects
Clearly, in operating margin terms, we're on the way to the initial target of
10% that we have set as an objective. We improved the performance of the art
publishing business, and we maintained profitable sales across the group, in an
adverse trading environment.
We have also moved to improve the publishing programs produced by our units. I
have already mentioned that Rockport RotoVision's performance was below
expectations. We have addressed this, together with weakness in some other
areas, generally by appointing dynamic, new publishers. This is, of course, an
ongoing effort. I am happy that we are able to recruit such able people, and
provide them with exciting challenges.
Last week we announced the purchase, from the Administrators, of the business
and publishing assets of Marshall Editions, and its associated entities. We have
long admired the reference and instructional books produced by Marshall. Our
intention is to maintain it as a co-edition publishing unit, with the same
degree of autonomy as our other units. This purchase signals not only our
confidence in this area of book publishing, but also our conviction that it is
now time for us to kick-start the growth of Quarto with some judicious
acquisitions. In order to do this most effectively, we need to raise our profile
in the publishing trade, and also in the investment community. We have a strong
message to convey, our strategy is well defined, and we have a solid business to
explain.
Over the years, we have acquired a number of businesses. We have made successes
of a number of these acquired businesses, perhaps on a par with the organic
growth initiatives that we have undertaken. Of course, acquisitions take time to
absorb, and require a great deal of management attention. We've learned these
lessons from experience, and will apply them in the future.
We've made a number of important, senior management and publishing appointments
in the last year or two. The effect of these appointments is that we have both
enormous depth of management experience now, and also breadth of coverage. Since
the end of the year, we have also appointed Danny Gurr, as President of Quarto
Holdings, to assist our operations on both sides of the Atlantic. Danny is an
industry veteran, with substantial experience in book retailing and publishing,
most recently as President of Dorling Kindersley USA. Danny will divide his time
between our offices in London and New York.
Given the developments I have outlined, I am looking forward to another useful
advance in 2002. The year has started well. The caution exhibited by retailer
and wholesalers in the aftermath of September 11th, and in the run-up to
Christmas was understandable. In the event, though, holiday sales in our major
markets were comfortably ahead of expectations. The effect of this has been both
to leave retailers both short of inventory, and more optimistic about the
short-term. We have seen that in the sales of some of our units in January.
Provided that this continues, 2002 will be a better year.
It remains for me to thank all of my colleagues for achieving much, in the face
of numerous adversities. I cannot single out all those who have excelled, but it
would be invidious of me not to pay special thanks to the unstinting work of our
Chief Financial Officer, Mick Mousley. He has always been a tireless worker. I'm
not sure I know how he managed to take on even more work in 2001. I do know
that, without his efforts, things would have been much more difficult for many
people.
Laurence F Orbach
Chairman and Chief Executive London, February 15th, 2002
PROFIT AND LOSS ACCOUNT
for the year ended December 31st, 2001
2001 2000
£000 £000
Turnover 73,620 73,564
Gross Profit 25,996 25,925
Net operating expenses (19,799) (19,837)
Amortisation of goodwill (74) (58)
Exceptional items (1,200) (457)
Group Operating Profit
Before exceptional items and goodwill amortisation 6,197 6,088
Amortisation of goodwill (74) (58)
Exceptional items (1,200) (457)
4,923 5,573
Net interest payable and similar charges (1,733) (2,023)
Profit on ordinary activities before taxation
Before exceptional items and goodwill amortisation 4,464 4,065
Amortisation of goodwill (74) (58)
Exceptional items (1,200) (457)
3,190 3,550
Taxation (300) (314)
Profit on ordinary activities after taxation 2,890 3,236
Minority interests - equity (352) (413)
Profit for the year 2,538 2,823
Dividends (including non-equity) (1,295) (1,262)
Retained profit for the year 1,243 1,561
Earnings per share 11.7p 13.2p
Underlying earnings per share 18.8p 16.1p
Diluted earnings per share 11.7p 13.2p
Diluted underlying earnings per share 18.1p 15.8p
CONSOLIDATED BALANCE SHEET
for the year ended December 31st, 2001
2001 2000
£000 £000
Fixed assets
Intangible assets 1,395 1,201
Tangible assets 6,267 6,141
7,662 7,342
Current assets
Stocks and work in progress 20,118 18,709
Debtors 23,509 26,504
Cash and deposits 8,679 9,691
52,306 54,904
Creditors: Amounts falling due within one year (54,225) (26,642)
Net current (liabilities) assets (1,919) 28,262
Total assets less current liabilities 5,743 35,604
Creditors: Amounts falling due after more than one year (517) (31,337)
Provision for liabilities and charges
Deferred taxation (1,175) (1,202)
Net assets 4,051 3,065
Capital and reserves
Called up share capital 1,341 1,341
Reserves - paid in surplus 23,891 23,891
- revaluation 998 1,018
- profit and loss (25,090) (25,852)
Treasury stock (638) (461)
Shareholders' funds 502 (63)
Equity (4,702) (5,267)
Non equity 5,204 5,204
502 (63)
Minority interests - equity 3,549 3,128
4,051 3,065
CONSOLIDATED CASH FLOW STATEMENT
for the year ended December 31st, 2001
2001 2000
£000 £000
Net cash inflow from operating activities 5,746 6,409
Net cash outflow from return on investment and servicing of finance (2,786) (2,478)
Taxation (348) (627)
Capital expenditure (648) (450)
Acquisitions (544) (1,471)
Equity dividends paid (807) (877)
Management of liquid resources
Movement in short term deposits 477 (115)
Net cash flow from financing (983) (1,388)
Increase/(decrease) in cash 107 (997)
Reconciliation of net cashflow to movement in net debt
Movement in cash 107 (997)
Movement in debt and lease financing 806 1,388
Management in liquid resources (477) 115
436 506
New finance leases (552) (324)
Translation differences (523) (2,286)
Movement in debt for year (639) (2,104)
Net debt at beginning of year (22,998) (20,894)
Net debt at end of year (23,637) (22,998)
NOTES
1. Segmental Analysis
Geographical analysis of turnover by destination
2001 2000
£000 £000
United Kingdom 13,970 14,189
United States of America 41,872 39,783
Canada 1,683 1,838
Europe 8,174 9,319
Australasia and the Far East 5,793 6,383
Rest of the World 2,128 2,052
73,620 73,564
Turnover and operating profit before amortisation of goodwill and exceptional
items
Operating profit before
amortisation of goodwill and
exceptional items
Turnover
2001 2000 2001 2000
£000 £000 £000 £000
Class of business
Co-edition publishing 41,570 43,472 5,044 5,429
Publishing 32,050 30,092 2,295 1,902
73,620 73,564 7,339 7,331
Group overheads (1,142) (1,243)
6,197 6,088
2. Exceptional items comprise a bad debt write-off (2000: restructuring
costs with regard to the co-edition businesses).
3. Dividends comprise:
2001 2000
£000 £000
Non equity: Preference: 447 455
Equity: Ordinary: Interim 395 395
Final proposed 453 412
1,295 1,262
The Board proposes a final dividend of 2.53p net (2000: 2.3p) per share
of common stock of par value US$0.10 each ('ordinary shares') which is
expected to be paid on 22 May 2002 to shareholders on the register on
26 April 2002.
4. Earnings per share
Basic earnings per share is calculated by dividing the earnings
attributable to common stock holders by the weighted average number of
shares in issue during the period, excluding those held as treasury stock.
For diluted earnings per share, the weighted average number of shares in
issue is adjusted to assume conversion of all dilutive potential shares
of common stock. These represent share options granted to employees
where the exercise price is less than then weighted average market price
of the Company's shares during the period and preference shares which are
convertible into shares of common stock.
Underlying earnings per share figures are presented. These exclude the
effects of exceptional items and goodwill amortisation.
2001 Per 2000 Per
Weighted Share Weighted Share
Average Amount Average Amount
Number of Pence Number of Pence
Earnings Shares Earnings Shares
£000 £000
Basic earnings per share 2,091 17,925,306 11.7 2,368 17,925,306 13.2
Effect of dilutive options - 4,138 - - 47,396 -
Diluted earnings per share 2,091 17,929,444 11.7 2,368 17,972,702 13.2
Underlying earnings per share
figures
Basic earnings per share 2,091 17,925,306 11.7 2,368 17,925,306 13.2
Effect of:
Exceptional items 1,200 17,925,306 6.7 457 17,925,306 2.6
Goodwill amortisation 74 17,925,306 0.4 58 17,925,306 0.3
Basic earnings per share before
goodwill 3,365 17,925,306 18.8 2,883 17,925,306 16.1
amortisation and exceptional items
Underlying basic earnings per share 3,365 17,925,306 18.8 2,883 17,925,306 16.1
Effect of:
Dilutive options - 4,138 - - 47,396 -
Dilutive preference shares 447 3,086,414 14.5 455 3,122,414 14.6
Diluted underlying earnings per
share
before goodwill amortisation 3,812 21,015,858 18.1 3,338 21,095,116 15.8
and exceptional items
5. The financial information contained in the preliminary announcement
does not constitute the Company's statutory accounts for the years
ended 31 December 2001 or 2000 but is derived from those accounts.
Statutory accounts for 2000 have been delivered to the Registrar of
Companies; those for 2001 will be delivered following the Company's
Annual General Meeting. The auditors have reported on those accounts,
their reports were unqualified and did not contain a statement under
Section 237(2) or (3) of the Companies Act 1985.
6. The Annual Report will be sent out to shareholders in early March.
Additional copies can be obtained from the Finance Director, The
Quarto Group, Inc., the Old Brewery, 6 Blundell Street, London, N7 9BH.
Tel: 020 7700 9000, (email: mickm@quarto.com).
This information is provided by RNS
The company news service from the London Stock Exchange