Final Results
Quarto Group Inc
20 February 2008
THE QUARTO GROUP, INC
Preliminary Announcement - Year to December 31, 2007
Quarto (QRT.l) the fully-listed international specialist book publisher based in
London, announces improved headline and underlying results, in spite of a weaker
economy in its core US market and adverse currency movement.
Laurence Orbach (Chairman & CEO) stated: 'We have delivered a very solid set of
2007 results.
'For our co-edition titles, the forward order book is stronger than it was at
this time last year. The Publishing segment, by its nature, sells from inventory
and does not have such forward visibility, but, even allowing for the lingering
problems in the US housing and associated markets, we expect a solid performance
for the Group in 2008. We have strong publishing programs in place and, with a
healthy backlist of titles, and greater visibility and availability for these
through internet retailers, we feel comfortable that Quarto is in good shape to
weather the head winds that may blow.
'In 2007, operating profit (before amortization of non-current intangibles and
non-recurring items) exceeded 10% of revenue, and we are striving towards a new
target of 12.5%.'
Financial Highlights
Year to December 31 2007 2006 Increase
Revenue (£m) 100.1 93.6 +7%
Adjusted EBITDA (£m) 20.0 18.0 +11%
Operating profit: adjusted (£m) 10.6 9.6 +10%
reported (£m) 9.6 6.9 +39%
Pre-tax profit: adjusted (£m) 7.7 7.3 +5%
reported (£m) 6.7 4.6 +45%
Diluted earnings per share: adjusted (p) 24.4 22.5 +8%
reported (p) 21.1 13.9 +52%
Dividends per share (p) 7.15 6.75 +6%
Net debt (£m) reported (£m) 43.4 31.0 +40%
underlying (£m) 25.4 31.0 -18%
Adjusted excludes amortization of non-current intangibles and non-recurring
items
Underlying excludes the cash outflow in respect of acquisitions
•Accelerating growth: Adjusted operating profit rose 10% to £10.6 million
(2006: £9.6 million) on revenue growth of 7% to £100.1 million (2006: £93.6
million); adjusted EBITDA (earnings before interest, taxes, depreciation,
and amortization) increased by 11% to £20.0 million (2006: £18.0 million);
adjusted profit before tax up by 5% to £7.7 million (2006: £7.3 million) - a
seventh successive annual increase; proposed final dividend up by 7% to
4.00p (2006: 3.75p), making a total for the year of 7.15p (2006: 6.75p).
Diluted, adjusted earnings per share were 24.4p (2006: 22.5p),an increase of
8%. Statutory reported operating profit rose by 39% to £9.6 million (2006:
£6.9 million), and basic earnings per share were 21.6p (2006: 14.3p), an
increase of 51%.
•Balance Sheet: Bank facilities of $165 million committed to 2012 and
beyond; strong cash generation; receivables days reduced; inventories well
controlled; net debt, following the $35.1 million acquisition of MBI
Publishing in August, is substantially better than forecast at £43.4 million
(2006: £31.0 million).
•The Publishing segment, the main focus of Quarto's growth strategy, amply
validated this approach, with operating profits jumping 23% to £6.4 million
on sales up 12% to £61.7 million, benefiting from the acquisition of MBI
•The International Co-Edition Publishing segment produced another robust
performance, with underlying operating profit 1% ahead at £5.3 million on
headline revenues of £38.4 million that on an underlying, constant currency
basis were up 6% at £40.7 million.
•The $35.1 million acquisition in August 2007 of MBI Publishing, the
leading US publisher of books for transport enthusiasts, was Quarto's
largest ever. MBI traded as expected in the last four months of 2007 and is
now located with Quarto's CPi publishing imprint, a specialist in home
improvement, in new facilities in downtown Minneapolis.
Enquiries:
The Quarto Group, Inc. 020-7700 9004
Laurence Orbach (Chairman & CEO)
Mick Mousley (Finance Director)
Bankside Consultants Limited 020-7367 8851
Charles Ponsonby
CHAIRMAN'S LETTER
Dear Shareholder:
We have delivered a very solid set of 2007 results. It seemed likely, in the
early part of the year, that our CPi publishing imprint, producing titles on
home improvement, would feel some effect from the fragile housing market in the
United States. This duly transpired as the year progressed. By the early summer,
the damage had spread beyond housing and widely enough to temper private
equity's voracious appetite, giving us the opportunity to acquire MBI
Publishing. Our largest acquisition to date, MBI, the leading US publisher of
books for transport enthusiasts, strengthens our strategy of producing books for
audiences of enthusiasts and professionals, and leveraging our infrastructure to
achieve improvements in overall financial performance. It also cements our
substantial presence in the US domestic publishing market.
Summary of Financial Performance
For the year ended December 31, 2007, revenues rose by 7% to £100.1 million
(2006: £93.6 million). Adjusted operating profit rose by 10% to £10.6 million
(2006: £9.6 million); profit before tax, on the same basis, of £7.7 million
(2006: £7.3 million)
increased by 5%; and diluted, adjusted earnings per share were 24.4p (2006:
22.5p), an increase of 8%.
Adjusted EBITDA were £20.0 million (2006: £18.0 million), an increase of 11%.
Cash generation was strong; underlying net debt was down by £5.6 million to
£25.4 million (2006: £31.0 million), excluding the cost of the acquisition of
MBI.
Earnings are strongly ahead of last year and prospects are promising, so your
board is recommending a final dividend of 4.00p (2006: 3.75p) per share, making
a total dividend for the year of 7.15p (2006: 6.75p) per share, an increase of
6%, to be paid on June 5, 2008 to shareholders on the register on May 2, 2008.
Basic earnings per share were 21.6p (2006: 14.3p), an increase of 51%. While
this is a very flattering increase, 2006's earnings were impacted adversely by a
large bad debt. A reconciliation of the above figures is given in Note 5.
The US dollar remains Quarto's principal trading currency. We continue to report
our results in sterling and I have to remind readers that the average dollar
rate for 2007 was £1=$2.00, a fall of almost 9% from the prior year's. Against
the background of a weaker economy in our core market, and adverse currency
movement, we are delighted to be able to announce improved headline and
underlying results.
Corporate Activity
As mentioned above, we were successful in an auction to buy MBI Publishing, and
closed the deal at the end of last August. MBI is the leading US publisher of
books for transport enthusiasts (automobiles, motorcycles, trucks, aviation,
etc.), and the major US distributor for a number of overseas, predominantly
UK-based publishers of specialist transport titles; it also publishes a
respected range of military history and militaria titles under the Zenith Press
imprint, and a more general list of regional, outdoor activity, sport, and
special interest titles under the Voyageur Press imprint. The purchase, which
was financed from our lines of credit, cost $35.1 million, including costs and
the assumption of MBI's debt.
In June, we renewed and enlarged our 5-year syndicated revolving credit
facility, increasing it from $90 million to $115 million which, together with
the 8-year Note sold to Pricoa in December 2006, provides us with $165 million
of facilities committed to the middle of 2012 and beyond. We have hedged the
interest rate on the major part of the funds we have drawn. We also have further
bilateral facilities outside these two arrangements.
The acquisition of MBI demonstrated to potential vendors that we were active
and, with our strong financing arrangements, we have scope to continue our quest
for opportunities to add selectively to our portfolio of publishing businesses.
Review of Trading
Quarto's International Co-Edition Publishing segment produced another robust
performance, achieving a strong underlying operating profit margin of 13.6%
(2006: 13.7%) on headline revenues of £38.4 million that, on an underlying,
constant currency basis, were up 6% at £40.7 million (2006: £38.4 million). The
underlying operating profit was 1% ahead at £5.3 million (2006: £5.3 million).
As is the norm, the percentage of revenues from books published in prior years
remained very high, at 68% (2006: 70%). This was down slightly on the prior year
because more new titles were published during the year. Foreign language sales
in Europe were down on the very strong 2006 performance, but this was more a
reflection of timing than of market conditions.
The Publishing segment, the main focus of our growth strategy, amply validated
this approach, with operating profits jumping 23% to £6.4 million (2006: £5.2
million) on sales up 12% to £61.7 million (2006: £55.2 million), thanks to the
acquisition of MBI. Publishing is largely a domestic activity, in contrast to
the broad global reach of our co-edition publishing segment. Our main publishing
imprints and markets are in the United States, followed by Australasia.
Adjusted operating profit exceeded 10% of revenues, for the first time, and we
are striving towards a new target of 12.5%. Reprint revenues continue to
underpin the business model, with 59% (2006: 59%) of the sales of our book
publishing units being derived from titles published in prior years.
For the last four months of 2007, MBI traded as expected and, during this
period, while obtaining space in Minneapolis in which to combine our two
Minneapolis-based publishing units, we also started work on a lengthy project to
integrate some of the routine back office functions of our entire US publishing
businesses and build an infrastructure upon which further growth can be based.
We now occupy completely renovated loft space in downtown Minneapolis, ideal for
our purposes and also containing a capacious, 10,000 square feet photography
studio, which is used to build sets for our illustrated instructional how-to
books.
Prospects
Looking backwards, it now seems to have been inevitable that there was always
going to be a strong correction in the financial markets. Whatever the causes,
be they excessive pump priming by the Federal Reserve, the slow and growing
tendency for consumers in the United States to take on ever more debt (although
not quite to the greater extent that they have done in the UK!) in the hope that
the world had moved into a benign, and never-ending, period of low inflation and
productivity growth, the ill-advised 'war on terror' undertaken by an
overstretched superpower that could only see itself as a force for good in the
world, or a myriad of other possible explanations, something of a day of
reckoning seems to have arrived. As of this writing, large and powerful
economies doubt that they will be infected significantly - the Eurozone
countries, the BRIC countries, and Australasia, among others - but this may
represent the triumph of hope over reality. I suspect that the contagion will
spread, and that it would be imprudent not to point out that while all goes well
for Quarto, we cannot expect immunity from volatile and uncertain markets and
economies.
What does this mean for Quarto's short-term prospects? Without the new media
that have become commonplace over the last decade, we would use history as a
guide; remembering, of course, the obligatory government health warning that the
experience of the past may not necessarily be a guide to the future. For, in the
past, book sales did rather well in recessions, offering good value for
instruction, information, and entertainment. Does the emergence of the new
media, many of which make available similar offerings, apparently 'for free',
dismiss this happy likelihood?
As I have pointed out frequently, in previous letters, all successful new media
have made inroads on existing media by exploiting the unique capabilities,
characteristics, and rhythms of a new medium. While new media remain competition
for the consumer's dollar, they may have only passing impact on old media, by
forcing it to invent a new business model in order to survive as, no doubt, the
music industry is experiencing at the moment. Can anybody seriously imagine that
there will be no music industry and it will not re-emerge from its current
travails? What is far more likely is that the industry will indulge in
collective navel gazing, regroup, and shift its focus, groping towards a new
business model that allow performers and creators of music to profit and
disseminate music widely using the multiple channels.
The book publishing business, over a very long period, has consistently survived
the predations of most other media and prophesies of its imminent demise; the
movie industry has adapted itself to the emergence of television, cable,
videotapes and DVDs; and so it is likely to continue, but there are no
guarantees. Quarto remains on the lookout for opportunities to monetize its deep
reservoir of content. So far, the one promising digital direction we have
exploited is to make a subset of some our material available online to libraries
and their subscribers in the United States, through a fee-based library supply
vendor. It's a useful source of additional revenue, but firmly grounded in a
traditional distribution channel.
It may be inevitable that, in their relentless search for advantage,
professionals in the investment industry have much to gain by dramatizing
commercial change. They search for growth and for decline, and it's easy and
vaguely plausible to posit that growth in some areas will cause decline
elsewhere, as if the economy were in perfect balance. It's not, of course and,
while new media may offer explosive growth and create temporary disruption, the
decline in existing media is only relative to the larger pot of media. And so it
is with books, i.e. the book publishing industry may represent a smaller piece
of the overall media industry, but it still grows at slightly ahead of the rate
of inflation. As of now it remains unclear whether book publishers will be able
to derive significant new sources of revenue from digitization. Should this come
to pass, Quarto is well placed to be a major beneficiary, as so much of Quarto's
content has been self-generated, and the revenue stream will not have to be
shared with others.
Nor is it guaranteed that all 'new media' will root in the fertile soil of the
internet: at some point, finance has to be available to support new, or nearly
new, forms of media, much as advertising and license fees and cable
subscriptions have offset the cost of producing content for newspapers and
television. One must remember that content has been 'nearly' free in other media
for a very long time, and the internet does not, in that respect, represent a
revolution. In contrast, as an unsubsidized medium, book publishing has found
its way past the rocky shoals, prospering by appealing only occasionally and
successfully to really large mass audiences (a la Harry Potter), and mostly to
tiny minorities with special interests and enthusiasms.
Since the emergence of other media, books have been a regular purchase in most
countries by only a very small minority of consumers and, if anything, book
purchasers are growing, thanks to the wider dissemination of books through
outlets such as supermarkets, speciality stores and, particularly, internet
retailers. A very recent Nielsen Online study shows that books are, across the
globe, the most popular online buy, with 58% of South Korean users buying books
online. And the trend is increasing. Even in the United States, with its
abundant book superstores, and the UK, respectively 38% and 45% of internet
users have bought books online, a far higher number of consumers than used to
buy books before the internet began. If further evidence were needed that Quarto
operates in a continually growing industry, it comes from the recently released
study by the Association of American Publishers, which confirms that book sales
through all channels increased by 7.4% in 2007.
We can expect to see continued nervousness and disruption in book retailing,
which feeds back into how Quarto, and other publishers, plan content production.
This represents a mighty challenge, one that Quarto is well placed to address.
If only the UK and US are currently feeling the immediate impact of the internet
and substantial book sales by non-book retailers, the ripple effect will travel
into other markets before long. Our strategy is to remain as producers and
publishers of books for enthusiasts and professionals across the globe,
translated and, if necessary, adapted for local audiences in even more than the
43 languages we license our books in now, all produced to very high standards.
For our co-edition titles, the forward order book is stronger than it was at
this time last year. The publishing segment, by its nature, sells from
inventory, and does not have such forward visibility but, even allowing for
lingering problems in the housing and associated markets, we expect a solid
performance for the group in 2008. We have strong publishing programs in place
and, with a healthy backlist of titles, and greater visibility and availability
for these through internet retailers, we feel comfortable that Quarto is in good
shape to weather the head winds that may blow (as the Wall Street Journal
recently noted in an article, nautical metaphors seem now to be raging in
corporate releases).
We remain well funded and very hopeful that, if private equity's romance with
media cools, Quarto may be better able to execute on its strategy of making
selective acquisitions. Quarto is a portfolio business, recognizes that organic
growth will be slow, and sometimes may only be successful in replacing declining
imprints, and that acquisitions of appropriate publishing imprints will help
drive ever better returns for shareholders.
I take this opportunity to thank our staff, our contributors, our bankers and
advisers who, together with the board of directors, have provided the essential
support to make 2007 a successful year.
Sincerely
Laurence F Orbach
Chairman and Chief Executive Officer
London, February 20, 2008
REVIEW OF OPERATIONS
International Co-Edition Book Publishing
2007 was a productive and successful first full year for our Quintessence unit,
with revenues up by 12%, and it is set to grow even more quickly in 2008 as its
client base broadens, and its range of series-oriented titles increases. During
the year, the phenomenally successful 1001 series hit new heights in terms of
quality and profile: in the US, 1001 Buildings was showcased in Barnes & Noble
stores in 50 states; in Australia, 1001 Classical Recordings was cross-promoted
with an accompanying audio CD in all ABC bookstore outlets; while in the UK,
Waterstones ran a nationwide promotion that generated 28,000 sales in the two
weeks before Christmas. Unwavering focus has helped the brand achieve
unprecedented credibility, with UNESCO pleased to be invited to collaborate on
1001 Historic Sites to See before You Die, the 10th title in the series, while
worldwide press and blog coverage for all titles accumulates at pace. 2007 also
saw the launch of the first two series spin-offs, 501 Movie Stars and 501 Movie
Directors, while the third and final layer in the 1001 book pyramid will launch
in 2008. Far from resting on his laurels, however, publisher Tristan de Lancey
is already well advanced with plans for two new series to take over where 1001
leaves off, and thus capitalize on Quintessence's unique brand-led, co-edition
hybrid status by applying tried and tested disciplines to ensure this success
continues for years to come.
QED, Quarto's educational publishing unit, came of age in 2007, under the
watchful guidance of founding publisher Steve Evans. Four years of steadily
increasing sales and profitability culminated in a record result, both on the
top line and in operating profit. Sales grew in most channels: by 51% in English
language co-edition, with particular successes in the US warehouse club and
display marketing segments; by 17% in the UK self-published segment; and by 12%
in the North American Library market. Two areas of disappointment - export and
foreign language co-edition sales - have been addressed through the recruitment
of additional sales resources to concentrate on emerging markets in Eastern
Europe, where there is a hunger for high quality educational content. 2008's
publishing program has been carefully researched to ensure maximum alignment
with educational trends, and reflects increased use of 'hi-lo' reading schemes -
books with high visual and subject interest, but with a low reading-age level,
designed to encourage reluctant readers. QED is now being shown a new respect by
its competitors, while at the same time major customers are increasing their
order levels, reflecting a greater confidence in the brand's reputation for
creative freshness and educational authority.
After two very strong years in 2005 and 2006, Quarto Adults experienced a
downturn in sales in 2007. Over-optimistic scheduling meant that a number of new
titles failed to meet their year-end shipping deadlines, and the weak dollar
translated into lower revenues all round. Despite this, US reprint sales
remained robust, confirming the continuing steady retail demand for Quarto
books, and sales in the UK held up well, thanks to our focus on specialist
titles licensed to very able publishers who have managed to sidestep the general
retail downturn. Foreign language sales started the year slowly, but a
barnstorming finish saw them end with gross margins increased. European hits
included 100 Characters from Classical Mythology (10 foreign language editions);
How to Raise and Keep a Dragon (22 foreign language editions); and The Color and
Texture Bible (50,000 foreign language copies sold within two months of
publication). The outlook for 2008 remains rather uncertain, with the likelihood
of continued caution prevailing among our publishing customers in North America
and elsewhere.
Quintet has not yet entirely recovered from the rude amputation of the
Quintessence unit in mid-2006; nevertheless it emerged from an exciting and
challenging 2007 with sales ahead of the previous year. The 500 Series, upon
which much reliance was placed, has gone from strength to strength in English
language markets, with some customers requiring re-supply as many as four times
during the year. Publication in English of the sixth title was the signal for
the floodgates of foreign language interest to open, and ten European customers
were signed up by year-end, with initial orders from Holland alone exceeding
first year sales achieved in the UK. Four new 500s are scheduled for publication
in 2008, and the series looks certain to be a significant generator of profit
for years to come. The rest of the Quintet program has been slower to right
itself, and this has not been helped by numerous personnel changes throughout
the year. Despite this, a 20-title frontlist for 2008, a mix of new books and
those based on existing assets, represents the highest number since 2004, and
provides a solid base from which to grow what is in many ways a brand new
imprint still in the throes of establishing its identity. Feedback from
customers has been positive, and there is optimism both in key markets and
within the unit.
After treading water in 2006, Qu:id's renewed focus on the 'three Cs' - concept,
content, and co-edition - led to a healthy improvement in sales and profit. The
new frontlist was well received, and early results from titles launched in the
last quarter of 2007 are encouraging: Make 50 Wild & and Wacky Contraptions
(published in association with The Smithsonian Institution in the US), and the
lead humour title What Shat That? both performed strongly, the latter doing
particularly well in the trendy US retail chain Urban Outfitters that some would
say is Qu:id's natural habitat. This is Not a Book: Adventures in Popular
Philosophy was also a hit, and additional volumes are planned in this line for
2008. In today's very competitive environment, the look and feel of a book is
often key to its success. Qu:id continues to utilize the thriving creative
community in Brighton by commissioning design and illustration from talented
individuals seeking to support their wider artistic ambition; this enables it to
extract both quality and value from its new title development process. Prospects
for 2008 and beyond are good, with a healthy order book and some big titles in
production, including a new series, and continuations of other established
formats. The integration into the Qu:id worldview of Quarto's crack London-based
foreign language sales team has proceeded seamlessly, and we are expecting to
see very significant sales increases in these markets. Qu:id remains a small
business unit, but with a growing ambition. It has carved a solid niche with its
refreshing approach to established publishing categories, and seems set on a
path of growth combined with strong bottom-line performance.
In what was a very tough year for the promotional book sector, Quantum grew
sales by 7% while profit remained flat. The unit's performance was severely
impacted mid-year by the failure of a printer to keep to delivery agreements,
leading to major disruption and some cancelled orders. Most of the sales growth
came from English language reprints of the Cartographica line, offsetting
further declines in Quantum's traditional business. The decision to invest in
Cartographica was taken specifically to counter Quantum's over-reliance on the
systemically weak promotional market, and this now looks like a wise move, as
the disintegration of the sector continues apace. The latest victim is The Works
Retail Ltd, the UK's largest value book retailer, which went into administration
on January 31, 2008. Most of Quantum's UK business is transacted through
wholesalers, so our direct exposure to this event is negligible, but it will
undoubtedly have a ripple effect through the UK industry. All is not bleak,
however: four new Cartographica titles are scheduled for delivery in 2008 and
are eagerly awaited by their licensees; the order book is 30% ahead of where it
was this time last year, and foreign language markets are holding up well.
Quantum has a new publisher, with a new perspective, and she has set about
redefining the unit's activities in the changed landscape of promotional
publishing with vigour and determination.
Illustrated children's imprint Q+ made great strides towards fulfilling its
promise of last year. On the back of a program of innovative, high quality
publishing, significant breakthroughs were made in the form of first-time deals
with prestigious new customers, including Chronicle Books, National Geographic,
and Random House. The strategy of producing titles in series to generate
pull-through began to bear fruit as Scholastic followed up Ultimate Interactive
Atlas with Ultimate Interactive Space Atlas. Barron's, another well-regarded US
educational publisher, emerged as one of our most important customers, adding
four titles in 2007 to the four they bought in 2006, the majority of which have
already reprinted. New UK partners included Dorling Kindersley, Hodder, and The
Natural History Museum, while Allen & Unwin and Walker Books joined the party in
Australia. Sales in foreign language markets were, if anything, even more
impressive: all new projects were auctioned, with some buyers fighting to
acquire the title of their choice. Despite all this, the unit failed to meet its
profit forecast in 2007, as a number of key frontlist titles missed their
year-end delivery slots. It is hard to overstate the sense of disappointment
this has caused. The outlook for 2008 is considerably rosier, however: the order
book is already significantly ahead of 2007's year-end figure, and foreign sales
are set to grow by over 50%. With a little more discipline, vigilance, and
honest self-appraisal, the prospects for Q+ look brighter than they have for
some time.
Iqon Editions, Quarto's boutique co-edition unit specializing in accessible
cultural reference, delivered Understanding Religions, the latest title in its
bestselling . . . Isms series. This is proving a successful concept, with more
than 400,000 copies sold to date of the first three titles, in over 20 language
editions. The next title, Understanding Fashion, is due for publication in 2008
and is eagerly awaited by an already salivating public.
RotoVision continued its upward trajectory with steady growth in 2007. Trade
with existing US co-edition partners remained brisk, while the uncertainty
surrounding the US economy did not prevent the establishment of new business
relationships. Elsewhere, a strong year in established territories such as
Netherlands, Italy, and Spain, where turnover more than doubled, was partially
offset by Germany, where sales dipped as one-off backlist opportunities in 2006
were not repeated. Growth in Eastern Europe was steady rather than stellar,
while sales in Japan and Korea, where domestic competition is tough, remained
disappointingly flat. Despite this, an overall increase of 22% in foreign
language sales is a very satisfactory result. One indicator of enduring appeal
is the 44% increase in foreign co-edition reprints. Series such as 500 Hints,
Tips and Techniques, Essential Design Handbooks and the flagship World's Top
Photographers reprint repeatedly, while stand-alone title Designs of the Times,
which published in 2005, is now translated into a dozen languages, and some
customers are on their third printing. On the back of difficult trading
conditions in the UK, RotoVision escaped relatively lightly. As a publisher of
specialist professional books, it is less exposed to the vagaries of the UK book
trade, and actually benefits from the continued onslaught on the trade from
online retailers. Export sales were robust, and although the ambitious target
wasn't quite reached, turnover increased by 19%. A policy of rigorous stock
management is paying off, and an aggressive stock clearance that took place
mid-year means the unit has a clean slate moving into 2008, which publisher
April Sankey expects to be another year of solid growth.
Marshall Editions' strategy is straightforward: to increase its output of
high-quality reference books that customers will want to buy in English-speaking
and foreign language markets. This was partially successful in 2007; frontlist
revenues hit a six-year peak, with twenty new titles published - up from
seventeen the previous year - and this helped to offset the fall in backlist and
foreign language sales, declines arising largely from the age of some of the
backlist titles. The frontlist, meanwhile, is more robust than at any time since
Quarto acquired Marshall from administration, and will provide significant
profit contribution in the medium term. New relationships were established
during the year, and existing ones strengthened: our collaboration with National
Geographic was further cemented by the publication of Encyclopedia of Animal
Tracks, while the signing of new contracts with Harper Collins and Harry
Potter's US publisher, Scholastic, emerged as key developments. We expect 2008
to be a challenging year, but we have it within our capabilities to overcome
these headwinds, and to further build the Marshall brand and reputation for
excellence.
2007 was quite a year for the small but talented team at The World of Fine Wine.
Contributor Jamie Goode won the Glenfiddich Wine Writer of the Year Award for
his work in the magazine. Tasting Panel member Andreas Larsson was named World's
Best Sommelier at a ceremony in Spain. And The World of Fine Wine won the
ArtVinum Media Award 2007 at the forum for European Wine Culture in Stuttgart.
The award citation described the magazine as 'By far the best wine publication
on the market.' In addition to a further four quarterly issues of the
award-winning magazine, the WoFW team delivered the content of 1001 Wines You
Must Taste Before You Die to Quintessence in record time. They will announce,
during 2008, the launch of their first co-edition publishing initiative proper,
a prestigious new series of regional guides to the world's finest wines.
Shareholders can subscribe to The World of Fine Wine at half price by emailing
the publisher, SaraB@finewinemag.com.
Sydney-based Global Book Publishing turned in a superb performance under the
stewardship of managing director Chryl Campbell. Sales were 16% ahead of the
prior year. A significant contributor to the result is the continuing success of
Biblica: The Bible Atlas. Since publication in 2006, it has been translated into
twelve foreign languages (Dutch, French, German, Italian, Greek, Catalan,
Russian, Norwegian, Hungarian, Czech, Polish and Japanese), and this success has
opened doors to existing and future Global titles: all of Global's 2007 titles
are sold in at least one foreign language, and 2008 projects are eliciting keen
interest. Global sold and produced four new titles in 2007, expanding its
English-language client base to include half a dozen new customers. The
acquisition of The Anatomy Student's Self-Test Coloring Book by The Royal
Society of Medicine Press and Palgrave Macmillan is a testament to the very high
quality of Global's human anatomy illustrations, all of which were developed
in-house. Following excellent initial sales of the coloring book, both these
customers have ordered the updated and revised edition of Anatomica's Flash
Cards for delivery in the first half of 2008. Global is starting 2008 with a
record number of new titles and updated editions in the order book. New
customers of note include National Geographic US, who, following extensive
direct mail testing, committed to 60,000 copies of Edible, and Thames & Hudson,
which will publish both China and The Middle East. The unit's key challenges for
the year ahead are those associated with managing growth: maintaining its
near-perfect record for on-time delivery, despite a much heavier production
schedule, and consolidating its financial results despite considerable
investment in new titles and an aging backlist. Another good year is
anticipated.
Regent Publishing Services, our Hong Kong based print production service, made
very considerable sales advances in 2007 in an extremely price competitive
environment. Most of the growth came from the United States and, for 2008, we
are redoubling our efforts to penetrate the UK and continental European markets
more effectively.
Publishing
Quayside Publishing Group, under the direction of Ken Fund, the core of Quarto's
US publishing and distribution operations, had a very successful 2007. We began
the year with four strategic goals: to review and develop a business plan for
our Craft publishing; to improve and modernize the design of our Home
Improvement titles; to arrest and reverse the poor performance at Fair Winds
Press; and to locate a new facility for Quayside West. We achieved, or made
significant progress towards achieving, all of these during the year. In August
we acquired Minnesota neighbours MBI Publishing, which served the strategic
imperative of providing entry into another tranche of enthusiast publishing
categories. MBI's management team has worked hard to adopt the Quayside business
model and excellent progress has been made towards full integration of the two
businesses. As expected, the acquisition has thrown up issues of size and shape,
and we continue to research warehouse and operational consolidation for the
North American publishing businesses, with the goal of having a strategy in
place by second quarter 2008, for implementation in early 2009. In our search to
identify the correct sales and marketing resource for the combined business, we
recently appointed Kevin Hamric, formerly of Taunton Press, as VP of sales and
marketing. Our first sales meeting under his leadership included a searching
examination of current accounts, publishing lists, discount schedules, marketing
and publicity plans, together with numerous strategy sessions, all of which
energized the sales team for 2008.
After several years of robust frontlist growth, Rockport's 2007 list did not
perform as strongly out of the gate as in previous seasons. This is partly the
result of a deliberate change of tack: we have placed increased emphasis on
producing evergreen titles that backlist strongly and sell in foreign language
markets, and expect that this will more than make up for any frontlist
shortfall. We have stepped up efforts to gain course adoptions and secondary
reading list recommendations. We will build on our initial successes in these
areas by creating an editorial and marketing strategy to optimize our
penetration into academic markets, which will help in consolidating our status
as publisher of choice for design professionals, both domestically and
internationally.
Efforts to attract well recognized and prolific authors - including Angela
Cartwright, Laura McCabe, LK Ludwig, and Susan Stein - to our craft specialists
Quarry Books and CPi Lifestyles were rewarded by many strong sellers in 2007,
but overall we suffered somewhat from the lack of an outstanding, break-out
title. Our books continue to be well received by the craft community, and a
diverse backlist has enabled us to maintain a strong foothold in the category,
but we remain faced with the challenge of growth on a playing field that is now
more competitive than ever. 2007 also presented its fair share of problems in
our existing distribution channels: strong sales into the Michaels chain early
in the year were offset by sluggishness in the second half, as inventory built
up in the stores. Hancock Fabrics, an important account for us in previous
years, sought bankruptcy protection and reduced store counts. AC Moore changed
distributors halfway through the year, and suspended ordering for a while. We
will continue to take such challenges in our stride. Craft books aside, Quarry
continues to build on core categories that have proved successful to date (pets,
foods, artisan hobbies) and test new ones that seem likely to meet our aims. Our
101 Tricks for Dogs sold more than 40,000 copies in 10 months, and we are close
to reaching our initial goal as a small, but strong and profitable, publisher of
backlist.
Fair Winds Press had a lacklustre year. The list has still not fully recovered
from the success of its Low-Carb cooking series, and in the intervening years
has been unable to replace this line of revenue with anything of similar
magnitude. During 2007 we carried out a comprehensive strategic review of our
publishing, identifying successful subject areas and rethinking the kind of
books that will carry the program to higher profits without significantly
increasing the number of titles published. We now believe we have charted the
path to future success. Our new book concepts are broad reaching, have greater
reference value, and offer consumers specific solutions that differentiate them
from the competition, with authoritative, information-driven text backed up by
exemplary design and high production values. First signs are that our new
approach is working. Last fall we published Jonny Bowden's 150 Healthiest Foods
on Earth, a book that exemplifies the new direction Fair Winds is taking. Its
depth of content is convincing to potential consumers making a purchasing
decision: no matter what page they flip to, they learn something surprising and
useful. This density of information in a chunky package justifies the $25 price
point in paperback, and with 20,000 copies through the register in 2007 it seems
the public agrees. The 2008 Fair Winds program is off to a solid start. We have
a full flight of 40-plus content-packed titles and believe we are positioned for
healthy gains in 2008, and beyond.
CPi Home Improvement did not escape the consequences of a continuing soft market
in the home construction and building trades: unit sales numbers were off in
almost every channel, and were especially hard hit in the Lowes and Home Depot
chains which, together, are the major sales outlets for CPi's home improvement
titles. There was some cause for optimism in the final quarter, however, and
December buy-ins were strong enough partially to redeem an otherwise dismal year
for revenue. We correctly predicted the popularity of flooring as a subject
matter, and our publication of a flooring how-to book, as well as an
inspirational title on flooring, gave us a market advantage over the
competition. Other successes during the year included books on Sheds, Luxurious
Living, and Custom Shelves & Built-ins. The newly branded John Deere line
enjoyed a surprisingly good reception at Home Depot, while our Complete Guide to
Home Repair and Complete Guide to Home Improvement fared well in all channels.
The home improvement crunch that is hurting us is also hurting our competitors,
who have retrenched significantly in the category, abandoning market share that
we will be only too pleased to pick up. For 2008 we will update and revise our
strong-selling backlist titles, and release new titles where we see strong
marketplace support. In this respect, we are working with new branding partner,
Quikrete, a manufacturer of proprietary concrete products.
CPi Outdoor faces a number of tough decisions in 2008. The category remains
severely challenged, with a weakening public appetite for traditional hunting
and fishing titles, and sales to all major outdoor accounts showing year-on-year
declines. We plan to curtail investment in new titles, while keeping proven
backlist sellers up to date for the restricted market that we know exists, while
at the same time exploring outdoor recreational subjects beyond the confines of
hunting and fishing. The logic of this is reinforced by the sales success we had
during the year with wild game and wild fish cookbooks, and the high
pre-publication sell-in of our Orvis Birdwatching Guide, all of which gives us
confidence that we may be able to evolve the program away from its current
narrow preoccupations into a more general outdoor and recreational how-to list.
Overall sales at MBI Distribution were flat, but this disguised a number of
significant changes in the mix of customers. A huge increase in sales to
Amazon.com, where sales have increased by 10% per year since 2005, offset
declining trade sales and sales to Tractor Supply. Several distribution
agreements came to an end during the year, and we will seek to replace this
business as a priority, as we embark on a new initiative to market MBI
Distribution Services to new publishing clients.
Motorbooks finished the year strongly. The publishing program was 13% smaller
than the prior year's and placed greater emphasis on 'Core Skill' titles - those
applicable broadly, as opposed to focused on a specific marque or engine family
- paid off with good initial sales for our Workshop series, and our Muscle Car
and Motorcycle publishing strands performed dependably well. A line of narrative
books, a fairly recent development for Motorbooks and an unusual one for a
transport publisher, has worked selectively, with just four titles generating a
half million dollars in net sales. Throughout the year our newly strengthened
marketing team achieved widespread coverage of our books, not only in the
enthusiast press, but also in mainstream outlets like Men's Journal, Rolling
Stone, Playboy, New York Times, and LA Times, and got our authors on radio and
TV. New narrative titles include The Chrome Cowgirl Guide to the Motorcycle
Life, the female answer to the Biker's Handbook; and Riding on the Edge, a
memoir of a former president of the Pagans, one of the more notorious outlaw
biker clubs. The Custom Painting Idea Book, aimed at enthusiasts planning their
next custom vehicle, is the first in a new series of aspirational titles
designed to do for the gearhead what craft and home remodelling books do for a
general audience. We also see a strong and largely untapped opportunity for
foreign language editions of Motorbooks titles and, using Quarto's abundant
experience, look forward to exploiting this profitably over the coming years.
Voyageur Press's surprise bestseller in 2007 was How to Shovel Manure, and Other
Life Lessons for the Country Woman, while its top-selling giftbook was The Art
of the Snowflake, which sold 25,278 copies. In between times it also launched a
new series of animal husbandry books in conjunction with the Future Farmers of
America group, capturing the category from the competition in the 750+ store
Tractor Supply Co, one of the mid-West's biggest retail chains, and appointed a
publisher to develop a new regional sports and recreation imprint with plans to
publish 16 titles annually starting in 2009.
Zenith Press, which has a number of well-established and successful series in
the military history and aviation books categories, had another year of growth.
A major attraction of this kind of publishing is that sales into specialist
channels of distribution tend to be non-returnable, providing steady and
profitable business, although this often goes hand in hand with low retail
prices. Efforts are being made across the list to increase retail prices, and
Zenith's first $50 gift book, on the Normandy campaign, is scheduled for
Christmas 2008. A strong program of narrative frontlist titles got off to an
excellent start at launch last year: several of these should backlist in
hardcover and most will be suitable for softcover reissue in the future. A
particular highlight of 2008's program is the publication of a tie-in book for
the Hell's Highway video game, which is budgeted to sell 2m copies at a MRSP of
$60. This is a new venture and we are unable to predict what proportion of game
owners will buy the companion book, but it is clearly an exciting prospect that
has the potential to influence our performance significantly. We already have
the tie-in book for the next game in the series - Bastogne - under contract.
Book Sales continued under the watchful stewardship of Mel Shapiro and, like
clockwork, turned in a reliable performance in spite of considerable volatility
in the promotional book market.
With its very solid sales in the mature art instruction area, Walter Foster has
struggled to achieve comparable strengths in other areas. There were sales gains
in 2007, but they were not reflected on the bottom line, and call for a
fundamental re-evaluation of the current publishing strategy, which is now being
undertaken.
JR Books, our newest UK-based venture, had an auspicious first year: its debut
list, launched in late 2007, beat its sales budget by 100%. Although the short
lead-time between the launch and Christmas meant that many titles missed the
main bookstore promotions, sales of Matthew Parris' Mission Accomplished and
Alan Coren's posthumous 69 for 1 far exceeded expectations, while Les Dawson's
Secret Notebooks ended up on Waterstones' bestseller list and Dr Pam's Fabulous
Foreplay made it on to Amazon's sex bestsellers. Of course, this sort of profile
can be achieved by lavish spending on promotions, Christmas catalogues, and
author launches, but the Quarto way relies more on hard work, clever
interventions, and judicious use of contacts in the media, with the minimum of
expenditure. We achieved very wide review coverage of our new title output, and
had our authors popping up on key radio and television programmes throughout the
autumn. We were also able to arrange a number of high-profile serializations,
including a six-part dramatization of Frederic Raphael's Fame and Fortune on BBC
Radio 4. The trade press was highly supportive, not only heralding the new
company, but running news stories on acquisitions and events. After such an
excellent start, the pressure is on to deliver an equally stunning second year:
we are planning to publish twice as many new titles in 2008, as well as reissue
our launch list in paperback, so for now we are growing fast and full of
optimism for the future.
Aurum Press started the year on a wave of optimism following an exceptional
2006, although our budget for 2007 did reflect concern that consumer spending
might dip in the course of the year. What we were absolutely not prepared for
was the unprecedented level of returns in the first 6 months. It is one of the
idiocies of the book trade that the more you sell, the more you get back, even
when sales out of the stores are increasing. Thus we paid the price in the first
half of 2007 for our sales success in late 2006. Our key 2007 Christmas titles -
biographies of Pink Floyd and Alice Cooper, a facsimile of the 1937 Oor Wullie
Annual, and The Rules of Golf - sold well across the board, and we anticipate
lower returns in 2008, as we deliberately restricted supply towards the end of
the year to let stock in the stores sell through. Throughout the year, sales
continued to drift from the High Street to supermarkets and online, in
particular to Amazon. Aurum is in a good position to benefit from this shift.
The joint venture with Jacqui Small is now 5 years old and in that time we have
built up a considerable image archive. As well as seeking to reuse these images
in spin-off titles, we have entered into an agreement with TIA Digital to market
them on a worldwide basis for use other than in books. We believe this could
create a useful new income stream.
Also in the UK, Image Factory, which supplies publishing and market support
services from its Chippenham base, doubled its profit contribution after
installing a new 10 foot wide digital printer, and associated equipment, at the
end of 2006. This investment has paid off, and complements the factory's silk
screen capabilities. We have ordered a larger machine, which will be delivered
by the end of the first quarter of 2008.
Lifetime Distributors, Australia's leading display marketer of books, prospered
well in Australia's booming economy, brushing off the effect of three successive
interest rate rises and continued increases in both fuel and shipping costs.
Mark Bonello and his team grew sales by 22% and saw pre-tax profits nearly
double. A key achievement during the year was the satisfactory resolution of a
longstanding issue through the transfer of ownership of an underperforming
master franchise. The energy with which the new owner set about redressing the
situation in this master franchise was a major driver of performance throughout
the second half of the year. 2007 also saw the business quietly re-brand itself,
and during 2008 it will undertake a major marketing initiative to increase the
Lifetime franchising profile, and heighten public awareness of the company. This
will focus primarily on recruiting new franchisees and sub-franchisees in both
the Australian and New Zealand markets. Recorded sales of 4.1 million units from
a combined Australia and New Zealand population of just over 25 million makes
Lifetime the largest direct seller of products per capita in the world. The
company is in robust good health and has exciting and ambitious plans for the
future.
Premier Books, the largest, and only national, display marketer of books in New
Zealand, produced a very solid result for the year. After years of strong
growth, during which Premier has entrenched itself throughout the country, we
shall now be focusing greater attention on better product selection, and
operational improvements, as we operate in an increasingly competitive
environment.
The most disappointing news on the publishing front, comes from our two art
print publishing units, APG in the US and Artworks, in Australia. After
struggling to deal with major industry changes for several years, but still
managing to produce profit and a positive cash flow, both units fell into loss.
Overall, they still contributed cash, but they are now retooling their
approaches. APG is considering moving into more upmarket publishing, and
Artworks has expanded its third-party design business. Evidence suggests that
the depredations of the last several years, which involved digital printing of
imagery, the importation of inexpensive framed canvas look-alikes from China,
and an affluent customer base that was looking for something original, have now
largely run their course. This is not to say that the situation has reverted to
what it was before, but the indications are that these businesses can succeed,
if they adapt.
CONSOLIDATED INCOME STATEMENT (unaudited)
year ended December 31, 2007
Note 2007 2006
£000 £000
Continuing operations
Revenue 1 100,107 93,613
Cost of sales (62,842) (58,926)
Gross profit 37,265 34,687
Other operating income 321 281
Distribution costs (3,778) (3,586)
-------- --------
Administrative expenses before amortization of
intangibles and non-recurring items (23,248) (21,825)
Amortization of intangibles (1,312) (1,387)
Non-recurring items
Bad debt - (1,238)
Excess recovery of aborted acquisition costs 370 -
-------- --------
Total administrative expenses (24,190) (24,450)
-------- --------
Profit from operations before amortization of
intangibles and non-recurring items 10,560 9,557
-------- --------
Operating profit 1 9,618 6,932
Finance income 412 298
Finance costs (3,321) (2,593)
Profit before tax 6,709 4,637
Tax (1,697) (1,202)
Profit for the year 5,012 3,435
Attributable to:
Equity holders of the parent 4,243 2,800
Minority interest 769 635
5,012 3,435
Earnings per share
From continuing operations
Basic 2 21.6p 14.3p
Diluted 2 21.1p 13.9p
CONSOLIDATED BALANCE SHEET (unaudited)
at year ended December 31, 2007
2007 2006
£000 £000
Non-current assets
Goodwill 18,307 9,710
Other intangible assets 4,194 2,987
Property, plant and equipment 7,445 7,501
Deferred tax assets 763 198
Total non-current assets 30,709 20,396
Current assets
Intangible assets: Pre-publication costs 25,079 20,919
Inventories 15,696 13,948
Tax receivable - 178
Trade and other receivables 32,285 27,022
Cash and cash equivalents 17,577 13,929
Total current assets 90,637 75,996
Total assets 121,346 96,392
Current liabilities
Short term borrowings (2,760) (17,800)
Trade and other payables (32,572) (25,981)
Tax payable (1,547) (1,437)
Total current liabilities (36,879) (45,218)
Non-current liabilities
Medium and long term borrowings (58,190) (27,121)
Deferred tax liabilities (3,273) (4,404)
Derivative financial instruments (1,110) -
Other payables (29) (21)
Total non-current liabilities (62,602) (31,546)
Total liabilities (99,481) (76,764)
Net assets 21,865 19,628
Equity
Share capital 1,162 1,162
Paid in surplus 21,768 21,740
Retained deficit and other reserves (5,025) (6,951)
Equity attributable to equity holders of the parent 17,905 15,951
Minority interest 3,960 3,677
Total equity 21,865 19,628
CONSOLIDATED CASH FLOW STATEMENT (unaudited)
year ended December 31, 2007
2007 2006
£000 £000
Profit for the year 5,012 3,435
Adjustments for:
Net finance costs 2,909 2,295
Depreciation of property, plant and equipment 1,038 959
Tax expense 1,697 1,202
Amortization of intangible assets 1,312 1,387
Amortization of pre-publication costs 8,416 7,461
Movement in fair value of derivatives - (254)
Equity settled share - based payment expense 5 7
Loss (gain) on disposal of property, plant and equipment 22 (87)
Operating cash flows before movements in working capital 20,411 16,405
Decrease (increase) in inventories 1,527 (1,307)
Increase in receivables (1,674) (672)
Increase (decrease) in payables 1,384 (267)
Cash generated by operations 21,648 14,159
Income taxes paid (798) (611)
Net cash from operating activities 20,850 13,548
Investing activities
Interest received 412 298
Proceeds on disposal of property, plant and equipment 119 933
Investment in pre-publication costs (10,481) (8,444)
Purchases of property, plant and equipment (688) (864)
Acquisition of subsidiaries (17,941) (89)
Net cash used in investing activities (28,579) (8,166)
Financing activities
Dividends paid (1,355) (1,291)
Interest payments (3,005) (2,797)
Proceeds on issue of share capital 56 56
New bank loans raised 32,189 583
Repayment of bank loans (15,916) -
Dividends paid to minority interest (226) (244)
Net cash from (used in) financing activities 11,743 (3,693)
Net increase in cash and cash equivalents 4,014 1,689
Cash and cash equivalents at beginning of year 12,110 11,899
Foreign currency exchange differences on cash and cash
equivalents (15) (1,478)
Cash and cash equivalents at end of year 16,109 12,110
NOTES (unaudited)
1. Segmented analysis
Business segments
Co-edition Co-edition Publishing Publishing Total Total
Publishing Publishing
2007 2006 2007 2006 2007 2006
£000 £000 £000 £000 £000 £000
Revenue
Total sales 40,287 40,307 61,732 55,210 102,019 95,517
Inter-segment
revenue (1,907) (1,900) (5) (4) (1,912) (1,904)
External sales 38,380 38,407 61,727 55,206 100,107 93,613
Segment result before
amortization
of intangibles
and non-recurring
costs 5,215 5,277 6,435 5,245 11,650 10,522
Amortization
of intangibles (12) (12) (1,300) (1,375) (1,312) (1,387)
Bad debts - (1,085) - (153) - (1,238)
Segment result 5,203 4,180 5,135 3,717 10,338 7,897
Excess recovery
of aborted
acquisition costs 370 -
Unallocated corporate
expenses (1,090) (965)
Profit from
operations 9,618 6,932
Investment income 412 298
Finance costs (3,321) (2,593)
Profit before tax 6,709 4,637
Tax (1,697) (1,202)
Profit after tax 5,012 3,435
Geographical Segments
Revenue Revenue
2007 2006
£000 £000
United Kingdom 16,385 16,668
United States of America 48,750 43,070
Australia and the Far East 19,605 18,384
Europe 11,266 11,860
Rest of the World 4,101 3,631
100,107 93,613
NOTES (unaudited)(continued)
2. Earnings per share
2007 2006
£000 £000
Earnings for the purposes of basic earnings per
share, being net profit attributable to equity
holders of the parent 4,243 2,800
Effect of dilutive potential ordinary shares:
Interest on loan notes (net of tax) 26 45
Earnings for the purposes of diluted earnings per
share 4,269 2,845
Number Number
Number of shares
Weighted average number of ordinary shares for the
purposes of basic earnings per share 19,643,747 19,563,900
Effect of dilutive potential ordinary shares:
Share options 55,643 104,651
Dilutive loan note 537,144 855,015
Weighted average number of ordinary shares for the
purposes of diluted earnings per share 20,236,534 20,523,566
2007 2006
pence pence
Basic 21.6 14.3
Diluted 21.1 13.9
Adjusted Earnings
Earnings for the purposes of basic earnings per
share, being net 4,243 2,800
profit attributable to equity holders of the parent
Amortization of intangibles (net of tax and minority
interest) 905 962
Bad debt (net of tax and minority interest) - 818
Excess recovery of aborted acquisition costs (net of
tax) (242) -
Earnings for the purposes of adjusted earnings per
share 4,906 4,580
Effect of dilutive potential ordinary shares:
Interest on loan notes (net of tax) 26 45
Earnings for the purposes of diluted earnings per
share 4,932 4,625
2007 2006
pence pence
Basic 25.0 23.4
Diluted 24.4 22.5
NOTES (unaudited)(continued)
3. Dividends
2007 2006
£000 £000
Amounts recognised as distributions to equity holders in the
period:
Interim dividend for the year ended December 31, 2007 of 3.15p
(2006: 3.0p) per share 619 587
Final dividend for the year ended December 31, 2006 of 3.75p
(2005: 3.6p) per share 736 704
1,355 1,291
Proposed final dividend for the year ended December 31, 2007
of 4.0p (2006: 3.75p) per share 787 736
787 736
4. Consolidated statement of recognised income and expense
2007 2006
£000 £000
Exchange differences on translation of foreign operations 116 (1,222)
Change in the fair value of cash flow hedges (1,110) -
Net expense recognised directly in equity (994) (1,222)
Profit for the year 5,012 3,435
Total recognised income and expense for the year 4,018 2,213
Attributable to:
Equity holders of the parent 3,249 1,578
Minority interest 769 635
4,018 2,213
NOTES (unaudited) (continued)
5. Reconciliation of figures included in the Chairman's Letter
2007 2006
£000 £000
Profit before tax, before amortization of intangibles 7,651 7,262
and non-recurring items
Amortization of intangibles (1,312) (1,387)
Non-recurring items 370 (1,238)
Profit before tax 6,709 4,637
EBITDA
Profit before tax, before amortization of intangibles 7,651 7,262
and non-recurring items
Net interest 2,909 2,295
Depreciation 1,038 959
Amortization of pre-publication costs 8,416 7,461
EBITDA, before non-recurring items 20,014 17,977
Net debt
Medium and long term borrowings 58,190 27,121
Short term borrowings 2,760 17,800
Cash and cash equivalents (17,577) (13,929)
43,373 30,992
6. The financial information set out in the announcement does not constitute
the company's statutory accounts for the year ended December 31, 2007 or
2006, prepared in accordance with the Companies Act 1985 as applicable to
oversea companies. The financial information for the year ended December
31, 2006 is derived from the statutory accounts for that year, which have
been delivered to the Registrar of Companies. The auditors reported on
those accounts and their report was unqualified. The statutory accounts for
the year ended December 31, 2007 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 Annual Meeting.
The financial information contained within this Preliminary Announcement
was approved by the Board on February 19, 2008.
7. The accounting policies adopted for use in the preparation of the 2007
Preliminary Results and of the 2007 Annual Financial Statements were
consistent with those used in the preparation of the 2006 Annual Financial
Statements.
8. The Annual Report will be sent out to shareholders in due course.
Additional copies can be obtained from the Finance Director, The Quarto
Group, Inc., 226 City Road, London EC1V 2TT. Tel: 020 7700 9000
(email: mickm@quarto.com).
--------------------------
* Adjusted operating profit is profit before amortization of non-current
intangibles and non-recurring items. Underlying numbers illustrate business
performance excluding currency impact, amortization of intangibles, and
non-recurring items, and are produced to give readers greater transparency. A
reconciliation to the statutory results appears in Note 5.
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