Final Results

RNS Number : 9303A

Quarto Group Inc

26 February 2014

 



THE QUARTO GROUP INC

 

("Quarto" or the "Company" or the "Group")

 

Final Results for the Year Ended 31 December 2013

 

Quarto (LSE: QRT), the leading global illustrated book publisher and distribution group announces its final results for the year ended 31 December 2013.

 

Financial Highlights

·      Revenue of $176.3m (2012: $180.9m)

·      Underlying¹Profit before Taxation of $11.5m (2012: $11.4m)

·      Underlying¹diluted Earnings per Share of 44.0 cents (2012: 43.6 cents)

·      Net cashflow from operating activities $33.6m (2012: $28.6m)

·      Net debt reduced to $71.0m (2012: $81.0m)

·      Proposed final dividend of 4.55p, making the total dividend for the year 7.9p (2012: 7.9p).

 

Operational Highlights

·      Initial phase of Strategic Review completed: exit from non-core assets and businesses and significant re-organisation within the businesses.

·      New divisional management in UK publishing and ANZ display marketing businesses.

·      Revenue in publishing businesses up 2% and underlying operating profits up 7% led by return to growth in US business.

·      Group inventory down 16% at period end at a turn² of 2.0 times (2012: 1.8 times).

Commenting on the results, Chief Executive Officer, Marcus Leaver said: 

"Overall, this is a solid performance, even with challenging circumstances in Australia and New Zealand, proving how robust our portfolio is. A stronger, more coherent Quarto has emerged from the initial phase of the Strategic Review.  We shall continue to target further improvement to allow Quarto to reduce debt and grow earnings in 2014 and beyond." 

Chairman, Tim Chadwick added: 

"2013 has been a transformational and watershed year for Quarto. Despite the continued focus on debt reduction, the Board is pleased to recommend a final dividend of 4.55p per share, making the total dividend for the year 7.9p, level with the last two years. This is an expression of our optimism that the Group will continue its upward trajectory in 2014." 

For further information please contact:

The Quarto Group

Marcus Leaver, CEO / Mick Mousley, CFO                             020 7700 9004

Bell Pottinger

Elly Williamson / Charlotte Offredi                                         020 7861 3232

Notes:    ¹ Underlying is before amortisation of acquired intangibles and exceptional items 

² Inventory cost of sales divided by the year-end inventory sales

About The Quarto Group

The Quarto Group (LSE: QRT) is the leading global illustrated book publisher and distribution group and is listed on the London Stock Exchange. Quarto employs about 400 talented and creative people in four distinct but complementary businesses - Quarto International Co-editions Group; Quarto Publishing Group USA; Quarto Publishing Group UK and Books & Gifts Direct, Australia & NZ.

The Group is well positioned in resilient segments of book publishing with rich reserves of Intellectual Property. Quarto is uniquely positioned for growth as the industry adapts to new means of marketing, sales and routes to market. The Group's headquarters are in London where the Company was founded in 1976.

Chairman's Statement

The year of 2013 was a transformational and watershed year for Quarto. The restructuring of a wide-ranging and multi-national creative business to establish financial and internal efficiencies, whilst maintaining and encouraging a fierce creative heartbeat, has been a challenge.

Thanks to a freshly empowered and dedicated executive and very vigorous effort by all our employees, we have largely met that challenge. I have nothing but praise and respect to extend to all employees of Quarto during this time of extensive change.

Quarto is a robust and cash generative enterprise with a substantial amount of its annual publishing revenues derived from 'backlist' sales year-on-year.  This is a relatively "no surprises" annuity model, completely unlike any other traditional book publishers.  Quarto is experienced, proven and confident in book and content driven publishing.

BOARD

I have felt it important to refresh the non-executive directors on our Board.  Bob Morley, a founder of the business, has re-joined the Board.  Max Lesser was announced in March 2013.  Since then, Mike Hartley joined us in August 2013.  This month we announced that Jessica Burley agreed to join the Board bringing her considerable corporate and, specifically, digital experience to the company.

Edward Krawitt has decided not to put his name forward for re-election.  I should like to extend my deep gratitude to him for his helpful and professional advice to me and the new Board during the transition from the previous management to the present one. 

CORPORATE GOVERNANCE

Changing Quarto's domicile from Delaware to the UK continues to be an issue fraught with obstacles.  We shall continue to examine ways to achieve redomicile as circumstances allow.  In the meantime, we seek to meet best practice Corporate Governance guidelines for a fully listed company and UK plc.

DIVIDEND

Notwithstanding its resolute focus on debt reduction, the Board is pleased to recommend a final dividend of 4.55p per share, making the total dividend for the year of 7.9p, level with the last two years giving dividend cover, based on underlying diluted Earnings per Share 28.2p (44.0c), of 3.6 times (2012: 3.5 times).

The continued execution of the Quarto strategy gives the Board confidence in the company's prospects of achieving its goals of debt reduction and earnings growth.

Timothy J. M. Chadwick

Chairman

Chief Executive's Statement

GROUP PERFORMANCE

Revenues; $176.3m (2012: $180.9m)

Underlying PBT; $11.5m (2012: $11.4m)

Underlying diluted EPS; 44.0c (2012: 43.6c)

Net cashflow from operating activities $33.6m (2012: $28.6m)

Net Debt: $71.0m (2012: $81.0m)

We went into 2013 with the Group now organised, for the first time, into four operating divisions. With operational issues having been systematically addressed as part of the initial phase of the Strategic Review business-by-business, the 2013 financial year has been encouraging.

The publishing businesses recovered lost ground in the US and stabilised in the face of much change in the UK as has the International Co-Edition business. These three publishing businesses are a portfolio with an enviable asset base of intellectual property. We have strengthened both our internal operations and our external appearance by undertaking some important streamlining and consolidating in 2013. The businesses now share domestic sales teams, international sales teams and foreign language sales teams that reduced costs and give a better quality of service to our customers. We have re-branded them all Quarto to clarify to our customers that we are one integrated global supplier to them and to capitalize on the 38 year old brand heritage. That means our reporting will be under these headings:

Quarto International Co-Editions

Quarto Publishing Group USA - formerly Quayside Publishing Group

Quarto Publishing Group UK - formerly Aurum Publishing Group

We are not only focussed on sales, marketing and operational efficiencies but also publishing ones. In an asset portfolio that has a back catalogue generating 71% of annual publishing revenues (2012: 70%), continued investment in the future vibrancy of this asset is a key driver of Quarto's growth.  We direct the spending of working capital on intellectual property (also known as pre-publication costs) to where the best return on investment can be gained after publication throughout the portfolio. In 2013, this investment was $19.5m increased from $18.2m in 2012.  We will continue to report on this KPI by business segment.

The display marketing businesses in Australia and New Zealand have been a disappointment. However, we have a solid strategy in place for 2014, including new management and we expect to address quickly the dramatic fall-off in performance in 2013.  We have merged the Lifetime and Premier businesses to operate one business with one infrastructure and one combined buying team, providing us with external leverage and reduced costs in 2014. The merged business has been re-branded Books & Gifts Direct, which more accurately reflects what the business does and offers clarity to its customers.

We have successfully reduced net debt by 12.3% from $81.0m (2012) to $71.0m through cash generation from operations, selective asset disposals and continued tight cash management. During the course of the year we sold The World of Fine Wine Magazine, The Image Factory, including the freehold property from where it operated, and the freehold of our head office in London, N7, which we have leased back. Significant debt reduction will continue to be a focus in 2014. The only non-core asset we have not disposed of is a property in Switzerland, that we aim to dispose of during the course of 2014. This corporate activity has the added benefit of removing the distraction of non-core businesses from our senior management's efforts and time.

EXCEPTIONAL ITEMS

With such considerable operational change undertaken in 2013 and the sales of non-core assets, these have resulted in exceptional items of ($5.3m). This total is split between profits and losses on sales of businesses and assets of ($3.3m) and restructuring charges, closure of businesses/offices and severance of ($2.0m).

With the initial operational phase of the Strategic Review now completed, no exceptional items in the 2014 financial year are anticipated unless there is strategic re-alignment of the portfolio of businesses and assets with our continued focus on debt reduction and earnings growth.

DIVISIONAL PERFORMANCE

Quarto International Co-Editions Group -

FY2013 KPIs:

Revenue: $40.4m (2012: $41.3m)

Underlying Operating Profit: $5.1m (2012: $5.0m)

Backlist sales % of sales: 74% (2012: 68%)

Intellectual Property Development Spend3: $8.2m (2012: $8.5m)

Sales by territory: US 36% (2012: 32%); Europe 36% (37%);

    UK 13% (12%); ANZ 7% (10%); RoW 8% (9%)

The founding business around which the Group was formed has seen much activity with a number of imprints being consolidated or given new direction with new personnel off a lower cost base. We now have a very good team of publishers in this business, based either in London or Brighton, capable of stretching their responsibilities and business scope to realise growth opportunities.

English language revenues were particularly robust in 2013 with the US particularly strong with both new title purchases and reprints. The UK and Europe was steady on all fronts as was Asia and Latin America but Australia and New Zealand was soft.

The Quarto International Co-Editions business is the undisputed market leader in its field. With a history of deserved acclaim and dogged determination in its current and long-established markets as well as tenacity in opening up new frontiers, the medium-term view is dependable for this business with some potential upside as we continue to apply our expertise in creative ways.

Quarto Publishing Group USA -

FY2013 KPIs:

Revenue: $64.4m (2012: $59.4m)

Underling Operating Profit: $7.2m (2012: $6.5m)

Backlist sales % of sales: 74% (2012: 78%)

Inventory % of sales: 16% (2012: 21%) at a turn of 2.4 times (2012: 2.0 times)

Intellectual Property Development Spend³: $7.9m (2012: $7.3m)

Notes:    ³ also known as pre-publication costs

It has been an encouraging year for the US-based imprints with a welcome return to growth after a challenging year in 2012. There was momentum in the publishing programme from almost all of the imprints. With continued refinement to our marketing and sales efforts as well as the operations of the business, the medium-term view is positive as we leverage the expertise and focus on the niche markets that we publish into.

Quarto Publishing Group UK -

FY2013 KPIs:

Revenue: $20.8m (2012: $21.9m)

Underlying Operating Profit: $3.1m (2012: $2.9m)

Backlist sales % of sales: 59% (2012: 54%)

Inventory % of sales: 20% (2012: 23%) at a turn of 1.3 times (2012: 1.2 times)

Intellectual Property Development Spend3: $3.4m (2012: $2.4m)

This business has seen a great deal of organizational re-alignment with a new Managing Director and two new Publishers being brought in as well as significant operational fine tuning and focus on marketing and sales. We now have a reliable publishing and operational foundation from which to grow and are encouraged by early results.

Books & Gifts Direct, ANZ -

FY2013 KPIs:

Revenue: $29.4m (2012: $34.6m)

Underlying Operating Profit: $3.0m (2012: $4.2m)

Network Capacity: 81% (2012: not measured)

This has been a difficult year for our Australia and New Zealand businesses but we have re-examined the business model. We introduced new divisional management in September 2013 that has brought about the consolidation of our businesses into one, with a combined infrastructure and the resultant buying leverage. With a clear focus on and turnaround strategy for the critical areas of the business, buying, recruitment, inventory disposal and marketing (including re-branding), we believe that 2014 will see a re-bound in performance from this historically robust and cash generative business.

Other - Regent Publishing Services + The Image Factory (9 months) -

FY2013 KPIs:

Revenue: $21.2m (2012: $23.6m)

Underlying Operating Profit: $1.4m (2012: $1.4m)

Our Strategic Review confirmed the view that our Hong Kong based print broking business, Regent should become more integrally involved in the quality control, print buying consolidation and component sourcing that we increasingly need to focus on in all of our businesses.

Outlook

We shall continue to refine our portfolio and work with our talented people around the world; investing in them and their abilities to make and sell books and related products to customers wherever, whenever and however they want them through our consolidated multi-channel marketing and sales teams. This is a scalable business model with the ability to be the consolidator in the global illustrated publishing industry as the landscape continues to shift. Size, scale and reach are distinct advantages.

The tactical improvements that have been made during the course of 2013 allow Quarto to focus on its strategic priorities to deliver growth in all areas of the business for 2014 and beyond. This is the year where the Group will begin to deliver its true potential.

Marcus E. Leaver

Chief Executive Officer

CONSOLIDATED INCOME STATEMENT (UNAUDITED)

Year ended December 31, 2013

			Note	2013 $000	2012 $000
Continuing operations
Revenue			1	176,318	180,873
Cost of sales				(111,807)	(115,332)
Gross profit				64,511	65,541
Other operating income				261	250
Distribution costs				(6,306)	(6,629)
Administrative expenses				(42,509)	(42,581)
				________	_______
Profit from operations before amortisation of acquired intangibles and exceptional items				15,957	16,581
Amortisation of acquired intangibles				(434)	(436)
Exceptional items			2	(5,318)	(3,852)
				________	_______
Operating profit			1	10,205	12,293
Finance income				353	485
Finance costs				(4,796)	(5,643)
Profit before tax				5,762	7,135
Tax				(1,416)	(1,608)
Profit for the year				4,346	5,527
Attributable to:
Owners of the parent				3,934	5,104
Non-controlling interests				412	423
				4,346	5,527
Earnings per share
Basic			3	20.0c	25.9c
Diluted			3	20.0c	25.9c
Underlying earnings per share
Basic			3	44.0c	43.7c
Diluted			3	44.0c	43.6c

Consolidated statement of COMPREHENSIVE INCOME (UNAUDITED)

year ended December 31, 2013

		2013 $000	2012 $000
Profit for the year		4,346	5,527
Other comprehensive income which may be reclassified to profit or loss
Foreign exchange translation differences		(2,002)	306
Recycling of translation reserve on disposal		202	-
Cash flow hedge: change in fair value		(120)	(348)
Transfer from profit and loss on cash flow hedges		1,256	1,758
Net income recognised directly in equity		(664)	1,716
Total comprehensive income for the year		3,682	7,243
Attributable to:
Owners of the parent		3,247	6,814
Non-controlling interests		435	429
		3,682	7,243

CONSOLIDATED BALANCE SHEET (UNAUDITED)

at December 31, 2013

			2013 $000	2012 $000	2011 $000
Non-current assets
Goodwill			41,367	41,501	40,898
Other intangible assets			991	1,422	1,840
Property, plant and equipment			3,752	10,041	9,785
Trade and other receivables			-	-	1,228
Deferred tax assets			2,226	2,534	1,765
Total non-current assets			48,336	55,498	55,516
Current assets
Intangible assets: Pre-publication costs			56,221	53,539	52,437
Inventories			19,181	22,843	27,165
Trade and other receivables			56,043	57,504	57,072
Cash and cash equivalents			23,879	26,718	34,303
Total current assets			155,324	160,604	170,977
Total assets			203,660	216,102	226,493
Current liabilities
Short term borrowings			(16,603)	(16,822)	(82,348)
Derivative financial instruments			(427)	(49)	(133)
Trade and other payables			(52,784)	(49,251)	(54,560)
Tax payable			(671)	(880)	(857)
Total current liabilities			(70,485)	(67,002)	(137,898)
Non-current liabilities
Medium and long term borrowings			(78,291)	(90,874)	(33,376)
Deferred tax liabilities			(4,938)	(5,594)	(5,782)
Derivative financial instruments			-	(1,453)	(2,863)
Other payables			-	(49)	(54)
Total non-current liabilities			(83,229)	(97,970)	(42,075)
Total liabilities			(153,714)	(164,972)	(179,973)
Net assets			49,946	51,130	46,520

Equity
Share capital			2,045	2,045	2,045
Paid in surplus			33,764	33,759	33,756
Retained profit and other reserves			9,328	8,379	4,032
Equity attributable to owners of the parent			45,137	44,183	39,833
Non-controlling interests			4,809	6,947	6,687
Total equity			49,946	51,130	46,520

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (UNAUDITED)

year ended December 31, 2013

	Share capital	Paid in surplus	Hedging reserve	Translation reserves	Treasury shares	Retained earnings	Equity attributable to owners of the parent	Non-controlling interests	Total
	$000	$000	$000	$000	$000	$000	$000	$000	$000
Balance at January 1, 2012	2,045	33,756	(2,863)	(2,158)	(648)	9,701	39,833	6,687	46,520
Profit for the year	-	-	-	-	-	5,104	5,104	423	5,527
Foreign exchange translation differences	-	-	-	300	-	-	300	6	306
Cash flow hedge: change in fair value	-	-	(348)	-	-	-	(348)	-	(348)
Transfer from profit and loss on cash flow hedges	-	-	1,758	-	-	-	1,758	-	1,758
Total comprehensive income for the year	-	-	1,410	300	-	5,104	6,814	429	7,243
Share options exercised by employees	-	3	-	-	5	-	8	-	8
Dividends to shareholders	-	-	-	-	-	(2,472)	(2,472)	-	(2,472)
Dividends paid to non-controlling interests	-	-	-	-	-	-	-	(169)	(169)
Balance at December 31, 2012 and January 1, 2013	2,045	33,759	(1,453)	(1,858)	(643)	12,333	44,183	6,947	51,130
Profit for the year	-	-	-	-	-	3,934	3,934	412	4,346
Foreign exchange translation differences	-	-	-	(2,025)	-	-	(2,025)	23	(2,002)
Recycling of translation reserve on disposal	-	-	-	202	-	-	202	-	202
Cash flow hedge: change in fair value	-	-	(120)	-	-	-	(120)	-	(120)
Transfer from profit and loss on cash flow hedges	-	-	1,256	-	-	-	1,256	-	1,256
Total comprehensive income for the year	-	-	1,136	(1,823)	-	3,934	3,247	435	3,682
Share options exercised by employees	-	5	-	-	9	-	14	-	14
Dividends to shareholders	-	-	-	-	-	(2,427)	(2,427)	-	(2,427)
Dividends paid to non-controlling interests	-	-	-	-	-	-	-	(168)	(168)
Purchase of non-controlling interests	-	-	-	-	-	120	120	(2,405)	(2,285)
Balance at December 31, 2013	2,045	33,764	(317)	(3,681)	(634)	13,960	45,137	4,809	49,946

CONSOLIDATED CASH FLOW STATEMENT (UNAUDITED)

year ended December 31, 2013

			2013 $000	2012 $000
Profit for the year			4,346	5,527
Adjustments for:
Net finance costs			4,443	5,158
Depreciation of property, plant and equipment			1,374	1,479
Tax expense			1,416	1,608
Amortisation of non-current intangible assets			434	436
Amortisation and amounts written off of pre-publication costs			18,102	18,449
Movement in fair value of derivatives			61	(84)
Loss on disposal of subsidiaries and businesses			1,801	-
Loss/(gain) on disposal of property, plant and equipment			1,367	(126)
Operating cash flows before movements in working capital			33,344	32,447
Decrease in inventories			2,329	4,762
(Increase)/decrease in receivables			(1,858)	1,915
Increase/(decrease) in payables			3,068	(7,935)
Cash generated by operations			36,883	31,189
Income taxes paid			(3,256)	(2,614)
Net cash from operating activities			33,627	28,575
Investing activities
Interest received			353	442
Proceeds on disposal of subsidiaries and businesses			1,057	-
Proceeds on disposal of property, plant and equipment			4,861	151
Investment in pre-publication costs			(19,468)	(18,228)
Purchases of property, plant and equipment			(1,998)	(1,361)
Net cash used in investing activities			(15,195)	(18,996)
Financing activities
Dividends paid			(2,427)	(2,472)
Interest payments			(4,886)	(5,799)
Proceeds on issue of share capital			14	8
Bank loans repaid			(13,184)	(9,163)
Dividends paid to non-controlling interests			(168)	(169)
Net cash used in financing activities			(20,651)	(17,595)
Decrease in cash and cash equivalents			(2,219)	(8,016)
Cash and cash equivalents at beginning of year			26,718	34,303
Foreign currency exchange differences on cash and cash equivalents			(620)	431
Cash and cash equivalents at end of year			23,879	26,718

 NOTES (UNAUDITED)

1.      Segmental analysis

Operating segments

				Revenue 2013 $000	Revenue 2012 $000	Operating Profit 2013 $000	Operating Profit 2012 $000
Revenue
Quarto Publishing Group USA				64,392	59,377	7,242	6,482
Quarto Publishing Group UK				20,819	21,920	3,128	2,957
Quarto International Co-Editions Group				40,430	41,351	5,089	5,017
Books & Gifts Direct, ANZ				29,455	34,621	3,042	4,213
Other				21,222	23,604	1,398	1,390
				176,318	180,873	19,899	20,059
Segment result before
amortisation of intangibles and exceptional items						19,899	20,059
Amortisation of intangibles						(434)	(436)
Exceptional items						(5,318)	(3,852)
Segment result						14,147	15,771
Unallocated corporate expenses						(3,942)	(3,478)
Operating profit						10,205	12,293
Investment income						353	485
Finance costs						(4,796)	(5,643)
Profit before tax						5,762	7,135
Tax						(1,416)	(1,608)
Profit after tax						4,346	5,527

Geographical segments

				Revenue 2013 $000	Revenue 2012 $000
United States of America				83,936	77,070
Australasia and the Far East				34,658	40,516
United Kingdom				29,465	34,073
Europe				20,353	19,503
Rest of the World				7,906	9,711
				176,318	180,873

2.      Exceptional items

Exceptional items comprise profits and losses on sales of businesses and assets of $3,282,000 (2012: $nil), restructuring charges, closure of businesses/offices and severance of $2,036,000 (2012: $3,263,000).  Exceptional items, in 2012, also included excess returns on termination of a key customer relationship $589,000.

3.      Earnings per share

		2013 $000		2012 $000
Earnings for the purposes of basic and diluted earnings per share, being net profit attributable to owners of the parent		3,934		5,104
		Number		Number
Number of shares
Weighted average number of ordinary shares for the purposes of basic earnings per share		19,694,658		19,685,212
Effect of dilutive potential ordinary shares:
Share options		942		4,521
Weighted average number of ordinary shares for the purposes of diluted earnings per share		19,695,600		19,689,733
		2013		2012
		Cents		Cents
Basic		20.0		25.9
Diluted		20.0		25.9
Underlying earnings
Earnings for the purposes of basic earnings per share, being net profit attributable to owners of the parent		3,934	5,104
Amortisation of acquired intangibles (net of tax)		297	296
Exceptional items (net of tax and non-controlling interest)		4,442	3,194
Earnings for the purposes of underlying earnings per share		8,673	8,594
		2013	2012
		Cents	Cents
Basic		44.0	43.7
Diluted		44.0	43.6

4.      Dividends

		2013 $000	2012 $000
Amounts recognised as distributions to equity holders in the period:
Interim dividend for the year ended December 31, 2013 of 3.35p/5.23c (2012: 3.35p/5.33c) per share		1,029	1,049
Final dividend for the year ended December 31, 2012 of 4.55p/7.10c (2011: 4.55p/7.23c) per share		1,398	1,423
		2,427	2,472
Proposed final dividend for the year ended December 31, 2013 of 4.55p/7.55c (2012: 4.55p/7.37c) per share		1,488	1,451
		1,488	1,451

The proposed final dividend of 4.55p per share is payable on July 7, 2014, to shareholders on the register on June 6, 2014, with an ex-dividend date of June 4, 2014.

The Quarto Group, Inc., as a US incorporated company, is required to collect US dividend withholding taxes on dividend distributions made to its non-US shareholders.  The US dividend withholding tax is generally 30% of any dividends paid to Quarto's non-US shareholders, but this amount can potentially be reduced pursuant to an applicable income tax treaty between the US and the country of residence of the non-US shareholder.  For example, under the US/UK income tax treaty, the US dividend withholding tax rate can range from nil (applicable to certain UK resident pension trusts and tax exempt entities) to 15% (applicable to UK resident individual shareholders and certain UK corporate shareholders).  For US shareholders, no US dividend withholding tax is generally applicable.  It should be noted that certain documentation requirements must be met by all shareholders prior to the payment of any dividends to certify their status as a US or non-US shareholder, and, if a non-US shareholder to claim any applicable benefits under the US/UK or other applicable income tax treaty.  Each shareholder should consult their own tax adviser to determine whether and to what extent they may be entitled to claim a reduced amount of US dividend withholding taxes under a US income tax treaty.

5.      Reconciliation of figures included in this announcement

		2013 $000	2012 $000
Underlying pre-tax profit		11,514	11,423
Amortisation of acquired intangibles		(434)	(436)
Exceptional items		(5,318)	(3,852)
Profit before tax		5,762	7,135
EBITDA
Profit before tax, before amortisation of acquired intangibles and exceptional items		11,514	11,423
Net interest		4,443	5,158
Depreciation		1,374	1,479
Amortisation of pre-publication costs		17,899	18,449
EBITDA, before exceptional items		35,230	36,509
Net debt
Medium and long term borrowings		78,291	90,874
Short term borrowings		16,603	16,822
Cash and cash equivalents		(23,879)	(26,718)
		71,015	80,978

6.      Committed facilities and banking covenants

At December 31, 2013 the Group had a US$95m (2012: US$95m) syndicated bank facility which is due to expire on April 30, 2015.  In addition, the Group has a one year floating rate note of US$16.6m (2012: US$33.3m).  These facilities are subject to four principal covenants, namely:

(a)       Total consolidated net indebtedness shall not exceed 3 times EBITDA.  For the year ended December 31, 2013, net indebtedness was 2.02 times (2012: 2.22 times) proforma EBITDA. 

(b)       The consolidated operating profit before exceptional items and goodwill amortisation shall exceed three times net interest payable.  For the year ended December 31, 2013, net interest payable was 3.59 times (2012: 3.21 times) covered under this covenant.

(c)       The consolidated operating profit before goodwill amortisation shall exceed 1.5 times net interest payable.  For the year ended December 31, 2013, net interest payable was 2.30 times (2012: 2.47 times) covered under this covenant.

(d)       Cashflow shall exceed 1.1 times Debt Service.  For the year ended December 31, 2013, Debt Service was 3.49 times (2012: 1.27 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, 2013 or 2012, prepared in accordance with the Companies Act 2006 as applicable to overseas companies.  The financial information for the year ended December 31, 2012 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 unmodified.  The audit of the statutory accounts for the year ended 31 December 2013 is not yet complete.  These accounts will be finalised 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 Announcement was approved by the Board on February 26, 2014.

8.      The accounting policies adopted for use in the preparation of the 2013 Annual Financial Results announcement and of the 2013 Annual Financial Statements were consistent with those used in the preparation of the 2012 Annual Financial Statements, other than the Group's disclosure of operating segments.

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.

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.   Principal risks and uncertainties facing the group

(a)       The Group's profitability depends, in part, on the economic conditions across the world.  The Group has a global business and, therefore, is affected by global economic conditions that may affect or impact upon the financial health of its customers, which in turn may lead to them not being able to honour their payment obligations to the Group.  The Group has built up strong relationships with its customers and is not over reliant on any one of them.

(b)       The success of the Group's titles is also an important factor in increasing the Group's profitability.  In particular, we need to continue producing titles that reprint or backlist well.  We are not reliant on any one product or group of products and none of our titles accounted for more than 1% of Group revenues in 2013.

(c)       The security and robustness of our systems, in particular our IT systems, are important in all aspects of our business.  IT processes are continually updated and security improved, with daily off-site back up of electronic files.

11.   The Annual Report will be sent out to shareholders in due course. Additional copies can be obtained from the Chief Financial Officer, The Quarto Group, Inc., The Old Brewery, 6 Blundell Street, London, N7 9BH. Tel: [phone] (email: [e-mail]).

 

END

 

 

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