Final Results

Quarto Group Inc
24 February 2006




                THE QUARTO GROUP, INC - PRELIMINARY ANNOUNCEMENT


Quarto, the London-based and listed international book publisher, announces
another year of solid growth and achievement, with a 12% increase in adjusted
profit before tax (excluding amortization of intangibles and non-recurring
items).


FINANCIAL HIGHLIGHTS


   • Revenue increased by 19% to £95.0m (2004: £79.8m), of which 49% in the
    US, 19% in Australasia, and 17% in the UK
   • EBITDA rose by 8% to £16.3m (2004: £15.1m)
   • Operating profit totalled £6.6m (2004: £7.0m), but adjusted profit from
    operations was 17% higher at £8.8m (2004: £7.5m)
   • Profit before tax totalled £4.4m (2004: £5.4m); adjusted, it increased
    by 12% to £6.6m (2004: £5.9m)
   • Diluted earnings per share totalled 12.9p (2004: 19.6p) or, adjusted,
    20.8p (2004: 21.2p). At constant tax rates, the adjusted diluted earnings
    per share would have risen to 21.5p, representing a seventh successive
    annual increase
   • Dividends per share in respect of 2005 totalled 6.5p (2004: 6.25p), a 4%
    increase, covered more than three times by adjusted diluted earnings per
    share


COMMERCIAL HIGHLIGHTS


   •Publishing increased its operating profit (before amortization of
    intangibles) to £5.3m from £4.1m on external revenue up 34% at £58.0m (2004:
    £43.4m)
   •Co-edition Book Publishing increased its operating profit (before
    amortization of intangibles) to £4.4m from £4.3m on external revenue up 2%
    at £37.1m (2004: £36.4m)
   •In May 2005, Quarto purchased 70% of Premier Books, New Zealand's largest
    business selling books by display marketing, for £2.8m, including debt.
    Premier contributed £3.2m to revenue in 2005, and operating profit of £0.6m
   •The integration of Quarto's three acquisitions in 2004 - CPi in the US,
    Lifetime in Australia, and Aurum in the UK - went smoothly
   •The healthy advances in revenue and operating profit were achieved
    despite tough conditions, to a greater or lesser extent, in all of Quarto's
    English-speaking markets; in particular, a downturn in sales at the end of
    the year in the US - which was unexpected but now seems to be easing
    somewhat - and a poor retail environment for most of the year in the UK
   •Sales of backlist titles contributed almost 70% of revenue in the
    Co-edition Book Publishing Division and comfortably over 50% in the
    Publishing Division


Laurence F. Orbach, Chairman, stated with regard to acquisitions: 'Quarto's
ambition is to become one of the world's leading independent book publishers. We
were less active in making acquisitions, and in starting new ventures, during
this 2005 year of consolidation, but not for want of trying. The Board continues
to confirm the strategy of growth as outlined some two years ago. We consider
that, rather than overpay for acquisitions, we should continue a policy of
watchful waiting, and are hopeful that more affordable opportunities will
present themselves in 2006.'


With regard to prospects, Mr Orbach added: 'The early signs are encouraging. The
presidents of most of our business units are feeling comfortable about the
prospects for 2006. We shall continue to invest strongly in new product, as this
is the lifeblood of our business.'


Notes for Editors:


Quarto is an international book publisher with two principal strands of
activity: it publishes, under imprints owned by the Group, books and art prints
in the US, the UK, and Australia; and it creates books that are licensed to
other publishers for publication under their own imprints in many languages
around the world.

Enquiries:

The Quarto Group, Inc.
Laurence Orbach (Chairman & CEO)                                   020-7700 9004
Mick Mousley (Finance Director)                                    020-7700 9004

Bankside Consultants Limited
Charles Ponsonby                                                   020-7367 8851




                               CHAIRMAN'S LETTER


Dear Shareholder:


2005 was another year of solid growth and achievement. I am happy to report that
Quarto's audited operating profit, before amortization of intangibles and
exceptional costs (aborted acquisition costs of £0.1m and restructuring costs of
£0.6m, both announced at the half-year stage), which is Quarto's key performance
indicator, rose by 17% to £8.8 million (2004: £7.5 million)., and pre-tax profit
rose by 12% to £6.6 million (2004: £5.9 million).


For the year ended December 31, 2005, total revenues rose by 19% to £95.0
million (2004:

£79.8 million), gross profit by 20% to £34.6 million (2004: £28.9 million), and
operating profit, before amortization of intangibles and exceptional items, by
17% to £8.8 million (2004: £7.5 million). Net interest payable was £2.2 million
(2004: £1.6 million), reflecting the acquisitions made in 2004, and slightly
higher interest rates. After amortization of intangibles, and the non-recurring
costs associated with restructuring our UK publishing services units, and
abortive acquisition costs, profit before tax was £4.4 million (2004: £5.4
million). Tax was £1.3 million (2004: £1.3 million). EBITDA rose by 8% to £16.3
million (2004: £15.1 million). Adjusted, diluted earnings per share were 20.8p
(2004: 21.2p). As anticipated, the year-on-year decline is due to the tax
charge, which is increasing as our tax losses unwind. At constant tax rates, the
adjusted, diluted earnings per share were 21.5p.


We actively sought several acquisitions, but only managed to conclude the
purchase of 70% of Premier Books, New Zealand's largest business selling books
by display marketing, for £2.8 million, including debt. The balance of the
equity remains with the vendors, including the general manager. Premier is a
well-regarded and well-run business, and its purchase further consolidates our
position in the Australasian book market. Premier's model differs from
Lifetime's (our Australian book display marketing business), and there is no
current intention to amalgamate the units, both of which are trading very
satisfactorily. Premier contributed £3.2 million to revenue in 2005, and an
operating profit of £0.6 million.


Our primary objectives in 2005 were to bed in the three acquisitions we made in
2004, continue our growth strategy of starting new ventures and making further
acquisitions, and improve our infrastructure by readying it for further
expansion.


We were not able to close as many acquisitions as we had hoped, essentially
because we did not share vendors' expectations of the very high valuations that
they put on their businesses. Happily, there are now a few straws in the wind
suggesting that the more demanding trading conditions are tempering vendors'
expectations.


The integration of our 2004 acquisitions went smoothly. The largest of these,
CPi, merged many of its non-creative functions with Rockport at the beginning of
the year. We believe that this structure can be built on for further expansion.
In Australia, we introduced more rigour and systems into Lifetime, and a greater
focus generally on its operations. The results were felt immediately. To date,
we have moved only slowly in building up Aurum (which would have been involved
in the aborted UK acquisition), and we shall focus on this more closely in 2006.



Financial Highlights


I am pleased to advise that, despite the downturn in sales at the end of the
year in the US, and a poor retailing environment for most of the year in the UK,
in generally tough trading conditions, we ended the year with a healthy advance
in revenue and operating profits, which rose by 19% and 17% respectively. The
sales hiatus in the United States was a late surprise, and marred an even better
advance. We felt it across the board, in all of the retail sectors we supply.
Since year end, though, the situation seems to be easing somewhat.


For the year as a whole, the average sterling/dollar ratio was almost unchanged,
something that we haven't experienced for a number of years, although at balance
sheet date the 2005 rate of $1.72= £1.00 was much changed from 2004's $1.92=
£1.00. This remains important to us in reporting our results, as Quarto's
principal operating currency is the US dollar and, for historical reasons, we
continue to present our financial statements in sterling.

We are a little later than usual in reporting our results this year, because of
the changeover to reporting under IFRS. This change has necessitated a
significant amount of technical adjustment, and it has also required us to put
into separate categories those of our businesses with common characteristics.
Prior to this, and speaking broadly, we have explained that we are in the
consumer book publishing business, some of our units publishing our books under
imprints owned by the group, and other units licensing our books for publication
by other publishers.


IFRS require us to report to you our business segments, according to their risk
and reward profiles. We are still using the same two sectors, Co-Edition
Publishing, and Publishing but, since we amalgamated CPi and Rockport into the
Quayside Publishing Group at the beginning of the year, and the risk profile is
more characteristic of the Publishing division, we are treating Rockport (for
purposes of comparison only) as if it had been part of the Publishing division
in 2004. Your Board is proposing a final dividend of 3.6p (2004: 3.5p), making a
total for the year of 6.5p (2004: 6.25p), an increase of 4% for the year,
payable on June 7, 2006, to shareholders on the register on May 5 , 2006. The
dividend is covered more than three times, with adjusted, diluted earnings per
share of 20.8p (2004: 21.2p), the year-on-year decline being explained by the
increased tax charge for the year.

At balance sheet date (and exchange rates), our net borrowings totalled £35.1
million; at constant currency rates, they were £32.7 million (2004: £33.1
million).


Commentary on Trading


On the trading front, market conditions were mixed. Quarto's revenue is well
spread internationally: the US is the largest market, with 49% of sales (2004:
54%), followed by Australasia at 19% (2004: 10%), reflecting the addition of
Lifetime and Premier, and the UK at 17% (2004: 20%). The rest of the world,
predominantly continental Europe, accounted for 15% of sales (2004: 16%). To a
greater or lesser extent, all of our English-speaking markets experienced tough
conditions. Retailers continued to use pricing as a major marketing tool, and
this reached ludicrous proportions in the UK at the end of the year, as if a
collective death wish had infected the major chains.


Retail bookselling has not been good anywhere in the English-speaking world.
From Australia and New Zealand, where conditions were quite difficult early in
the year, compounded by bankruptcies and overstocks, to the US, where sales of
booksellers are now estimated to have been down overall (by a small amount) for
the year, and the UK, where everything seemed to fall apart for a good part of
the year, things may appear bleak. Based on our experience, though, much of the
business that evaporated from the high street and main street may have
re-emerged at online booksellers, particularly Amazon. 2005 was the first year
that most of our publishing units felt that Amazon was a hugely important outlet
for our titles. Of course, it has an unrivalled range, good prices, fantastic
ease of use, and superb service. Even if online bookselling never holds a much
greater percentage of the market than the old-time book clubs and mail-order
publishers maintained, it's a vastly more satisfactory experience for the buyer.


The bricks-and-mortar retailers deserve consideration. Their environment is
competitive, is compounded by the competition from the electronic catalogs of
Amazon and others, and they have little alternative but to meet the competition.
This is a particularly acute problem in book publishing because, by the
standards of other consumer goods, books are not expensive, the average book
purchaser doesn't spend very much money on each shopping trip, and the velocity
of sale of most titles is slow. In order to pay the rent for the prime sites
that booksellers believe they need, and their other overheads, it's
understandable that retailers focus on moving large quantities of best-selling
titles. It's an unsatisfactory state of affairs but, with the outpouring of new
titles each year showing no signs of abating, it's difficult to see this
changing greatly in the near future. Perhaps - and one can but hope - the growth
of internet retailing will put downward pressure on rents in prime shopping
areas, and so restore greater profitability to brick-and-mortar retailers.


Much ink has been used to demonstrate - and sometimes bemoan - the growing power
of retailers, and the diminishing power of manufacturers and suppliers. Again,
it is difficult to see this trend reversing itself rapidly, as powerful
retailers embrace the view that they are not much more than landlords, renting
their space to manufacturers, distributors, and suppliers, and providing sales
points. Increasingly, now, for many vendors, the risk, which used to pass
largely to the retailers when they delivered the retailers' orders, extends all
the way to the point of sale. Into this mind-set have come slotting fees,
in-store placement fees, and all manner of other devices for retailers to
increase their share of the purchaser's dollar. Vendors have now to evolve
different models for their businesses in response to this commercial reality. It
may be that, Canute-like, the Eurozone economies can hold back, by regulation,
this wave of discount 'creep', now required by retailers of their vendors, but
it has swept over most of the English-speaking economies. As more publishers
seek to sell books from their own web sites, the bigger question is whether we
shall see a return to a more vertically-integrated industry.


At Quarto, we focus on publishing well-focused, and niche-oriented, how-to
titles, mostly in categories where there are special-interest retailers that can
be as important to our sales as the bookstore. This is true in categories such
as crafts, home improvement, home decor, cooking, and so on. Our how-to books
are known, by many specialist retailers, to help to drive sales of items that
shoppers need in order to undertake projects. Some retailers have studied the
buying patterns of customers who buy how-to books, and have verified this
pattern.


Overall, we continue to produce and publish books that are of perennial
interest, avoid temporary fads and fashions, and expect to enjoy a long life on
sale, with numerous reprints justifying the investment in each title. The spread
of our sales, including so much recurring revenue from evergreen titles, with
few of them ever producing as much as 1% of the group's revenues, emphasizes the
quality of our earnings. In our Co-Edition Publishing division, approximately
69% of our revenues came from books first published in prior years. This is down
from the 75% achieved in 2004, and probably reflects the greater concentration
that retailers have been placing on faster-moving best-selling titles. In the
Publishing division, the sales of backlist titles comfortably remained above
50%.


With the launch of QED, in 2004, Quarto moved into educational publishing, at
the early- learning, supplementary education, level. Our initial target market
was the school and library market, but we are beginning now to reach out to
parents and teachers, and are gratified with the early results, and, in
particular, the response to test placements at Tesco. We hope to build on QED's
experience to extend our reach into more educational and vocational areas.


Iqon Editions' Isms...series had great success with its second title, on
architecture. This is shaping up to be a promising approach, and is well liked
in most markets and languages. Other new initiatives have not done so well.
Walter Foster's efforts to create a co-edition children's program were
unsuccessful. Quarto Magazines is struggling with some of its titles,
particularly The World of Fine Wine. Despite glowing reviews and praise from all
quarters, it remains loss-making, and the pay-back period may be too lengthy for
it to be sustained. Other new magazine titles are also still at the loss-making
stage.


It is inevitable that not all of our new ventures will succeed, but investment
in them is absolutely essential to the ongoing health of Quarto. We have been
extremely cautious and prudent with our publishing programs, and have enough
experience to avoid the worst pitfalls but, on occasion, we must expect to fall
into them. The seeding process involves a substantial amount of executive time
and capital, and it may take between three and five years to justify the
investment. We did not do enough of this in 2005, because of our focus on
consolidating what we have, and must resume the process in 2006, especially in
our co-edition activities.


Corporate Events


As noted above, we remained active in looking at, and negotiating the purchase
of, several acquisitions. We spent months investigating, and negotiating, the
acquisition of a UK operation that would have given our presence here some
critical mass. In the end, though, we were unable to come to terms. We were
prepared to pay a premium for the business, but the figures never justified what
was expected, and we had to withdraw.


We also looked at some businesses in the US, although not as deeply, and with
the same conclusion that we could not meet vendors' expectations on price. We
did succeed, though, with the purchase of 70% of Premier Books for £2.8 million,
including the assumption of debt, and costs. The balance is owned by three of
the vendors, including the general manager, Grant Letica, and two non-executive
directors, who remain on the board.


Premier Books distributes books and related items sourced from publishers and
distributors in New Zealand and from around the world, and is the country's
largest and most successful display marketer of books. Operating from three
regional centres, 55 independently employed agents, working on a fortnightly
cycle, deliver and retrieve displays of books in tens of thousand of workplaces,
fulfilling the orders when they pick up the displays. The business is efficient
and, through testing of many of its offerings before they are ordered for a
roll-out, minimizes its risks.


Financial Strategy and Reporting


Quarto continues to generate good cash flow. For many years, it has generated
more than its operating profits in cash. In 2005, and chiefly because the merger
of CPi and Rockport into Quayside has required the funding of receivables on a
much bigger scale than previously, and because CPi required greater investment
in revitalizing its core publishing programs, which had been neglected under
previous ownership, cash generation, while still good, was 77% of operating
profits.


Our acquisitions in 2004 and 2005 were funded with debt. During the course of
2005, two more banks joined our five-year syndicated revolving credit facility,
Allied Irish Banks, and the Australia and New Zealand Bank, expressing their
confidence in the strategy and management of Quarto. We are well funded, with
the syndicated agreement providing $90 million, and a further $20 million
available via a variety of bilateral arrangements. During 2005, some £2.6
million of debt (previous classified as convertible preferred stock) was
converted into equity.


We have hedged the interest cost of a significant proportion of our debt until
the middle of 2007, when our syndicated revolving credit agreement comes due for
renewal. We continue to keep the capital structure of the group, and our average
weighted cost of capital, under review, and there are many options open to us.


Strategy


Quarto's ambition is to become one of the world's leading independent book
publishers. The printed word has unsurpassed ability to convey meaning and,
despite the regular emergence of new media since printed books first appeared,
none has rivalled its authority. Book publishing has adapted extremely well to
competition, for the consumer dollar, from other media and communication forms.
Quarto focuses on the consumer non-fiction market, with an emphasis on books in
enduring categories of interest, generally intended for audiences with
specialized interests. This approach allows books to remain in print for many
years. Our books are intended to inform, instruct, and inspire the reader, and
are produced in attractive full colour formats to enhance the experience of
gaining skills and knowledge.


We were less active in making acquisitions, and in starting new ventures, during
this 2005 year of consolidation, but not for want of trying. The board continues
to confirm the strategy of growth as outlined some two years ago. We consider
that, rather than overpay for acquisitions, we should continue a policy of
watchful waiting, and are hopeful that more affordable opportunities will
present themselves in 2006.


As we grow in size, and ambition, we must keep our portfolio of businesses under
regular review, adjusting it when the size or activity or prospects for a unit
no longer fit comfortably with our overall direction. Already, it is becoming
clear that very small businesses, unless they fit centrally within our core
activities, are likely to demand more management time than a group of our size
can afford.


Prospects


The early signs are encouraging. The presidents of most of our business units
are feeling comfortable about the prospects for 2006. We shall continue to
invest strongly in new product, as this is the lifeblood of our business.


Our management and executive structure is a work in progress and, so long as I
am in charge, I hope that it will remain so! Philosophically, we have always
concluded that our core activity, producing and publishing books, is product-,
rather than process-, intensive. This has led us to operate our business units
as autonomously as possible, and to keep them small scale. We prefer our book
units to be headed by people whose orientation, background, and sympathies are
more likely to be on the creative than the business side of publishing. Small
units are easier to manage, and they confer the additional advantage of keeping
our management structure very flat.


As the group has grown, our management and executive structure must be organized
to take advantage of the additional opportunities that the group offers for the
member businesses of the enlarged group. At the beginning of 2005, Piers Spence
moved from his position as Publisher of Quarto Books to a newly created post as
Director of the Co-Edition Book Publishing Division, and this appointment has
worked very well. Almost all of the co-edition units share common problems and
opportunities, and Piers' experience and management skills are excellent assets.


But our management challenges go further, and we are inching our way to a better
structure that preserves the best of what we've got in place, but adds value to
the group. We are determined not to move, into positions of responsibility,
people whose talents are better used elsewhere and, because we believe we have
some very good people in place as editors, designers, art directors, and so on,
we have a limited internal talent pool to recruit for new management
responsibilities. In any event, the benefit of recruiting some new blood from
outside is too tempting to ignore.


Once again, I want to take this opportunity to thank all the people at Quarto
who worked so diligently to make this year a success.


Sincerely,



Laurence F Orbach

Chairman and Chief Executive Officer

London, February 24, 2006


                              REVIEW OF OPERATIONS
                                        

Quarto is an international book publisher and book producer. In the US, UK, and
Australia, Quarto publishes and distributes books under imprints owned by the
group. As a book producer, Quarto's co-edition units license other publishers,
worldwide, to publish books in their own geographic markets. Quarto's licensees
include - and its books appear under the imprints of - publishers such as Simon
& Schuster, Reader's Digest, Random House, Orion, Bloomsbury, HodderHeadline,
Thames & Hudson, Allen & Unwin, Murdoch Books, HarperCollins, Bonniers,
Gyldendaal, Taschen, Hachette, and many, many other distinguished publishing
houses worldwide. The group publishes approximately 500 new titles a year, and
maintains, in print, a backlist of over 6,000 titles.


For reporting purposes, our imprints and services are organized into two
divisions: International Co-Edition Book Publishing and Publishing. Since
January 1st, 2005, when Rockport's sales and fulfilment operations were merged
with those of CPi, we are now reporting Rockport in the Publishing division
rather than, as previously, in International Co-Edition.


The Board places greater emphasis on maintaining the creative vitality of our
individual operating units than on organizational tidiness. To the extent that
it is possible, each unit operates autonomously, is modest in terms of staff
size, and manageable by someone whose abilities are likely to be more focused on
the product, or creative, side than on the managerial. International Co-Edition
Book Publishing is headed by Piers Spence, previously the Publisher of Quarto
Books for five years. Piers is based in the UK, as are the majority of the
co-edition businesses. The operating units in the Publishing division, which are
based predominantly in the US and Australia, report directly to the Chief
Executive.


International Co-Edition Book Publishing Division


Quarto's International Co-Edition Book Publishing Division includes a number of
units creating titles that are licensed internationally to hundreds of
publishers in some 35 countries and 25 languages, and published and distributed
under the imprints of the licensees. Quarto owns the intellectual property in
the books that the units create, but is not engaged in the marketing, selling,
and distribution of these books. The business depends on international sales,
and the substantial cost of creating titles is, in effect, borne totally by our
licensees, and shared between them across individual publishing territories.
Book ideas are presented to potential licensing publishers, and are only put
into production after firm commitments have been received. The books are
produced on a firm sale basis, and at deep discount to retail prices. This
model, and the manner in which it is implemented across the division's units,
ensures that the total cost of producing a title is completely covered by the
initial deliveries to licensees. This, then, is an extremely risk-averse
approach to publishing: there is no risk in producing a book, the geographical
spread of customers reduces reliance on a single market, the reprint profile of
the division, and the modest sales expectations for many of our titles, ensure
that any individual title is rarely responsible for more than 1% of the
division's revenues.


As the division makes its co-edition profits from titles that reprint, our
imprints focus on creating titles of enduring and widespread interest
internationally. Quarto's reputation is particularly strong as creators of books
that inspire and instruct, allowing the reader to improve his or her level of
skill and knowledge. The common characteristics of the division are that,
broadly, the businesses do not hold inventory, and that the creation of books
for an international, rather than a purely domestic, audience is at the core of
an imprint's activity. Quarto's most important co-edition markets are in the
English-speaking world, and continental Europe.

The division's intellectual property rights are retained at nil value on the
balance sheet. The backlist sales of these titles generate 69% of the division's
revenues, contributing substantially to overall profit, as the cost of servicing
the reprints is very modest. The balance sheet treatment of the backlist is as
prudent as it is possible to be, and it's worth noting that Quarto has acquired
backlist titles and has paid, on average, £5,000 per title.


In 2005, 74% of the division's revenue was invoiced in the US dollar which,
because of the substantial amount of printing sourced in South East Asia, in
dollar-related currencies, is the group's principal operating currency. Revenues
in 2005 were £37.1 million (2004: £36.4 million), giving an operating profit of
£4.4 million (2004: £4.3 million). Our target for the division is for an
operating profit of 15%. In a very tight market, the division once again
affirmed the resilience of its business model.


Quarto Books, the original imprint and largest of the co-edition units, had a
very good year, recording double-digit increases in both revenue and profits.
Continued strong demand in its core art and craft categories saw foreign
language sales leap 17% ahead of the previous year's performance, and new
initiatives - such as the Outdoor Kama Sutra, shot on location in India - will
be keeping customers warm next winter in Poland, the Czech Republic, and other
chilly climes. Quarto's biggest selling new title (in volume terms) was the
Strip Poker Kit, a box containing an illustrated guide to the rules of the game
together with a saucy deck of cards, but the broad scope of the business could
be equally well described by the success of Fly-Tying for Beginners, The Movie
Making Course, or 501 Guitar Chords. That all this was achieved under the
direction of new publisher Paul Carslake, who took over the reins at the
beginning of the year with little fuss and no loss of traction, is particularly
satisfying, and augurs well for the future. Operating profit grew by almost £0.4
million.


Quintet Publishing was less fortunate, and an unsuccessful appointment
necessitated a change of publisher mid-year, which, in a people-led business, is
always a distraction. Despite this, the unit delivered on its major commitments
during the year and met challenging production timetables for the latest two
volumes in its bestselling 1001 series, 1001 Albums and 1001 Books. Albums
delivered in September, and was already reprinting by November, an almost
unheard-of occurrence outside of the fiction bestseller lists, while Books is
being launched early in 2006. This series is continuing to pay off, with major
foreign language and English-language reprint runs for 1001 Movies (already in
its second, updated edition) and 1001 Natural Wonders. Almost 500,000 copies of
the existing titles are now in print, in 19 territories and 13 languages. Two
further volumes are planned for each of 2007 and 2008, and these have been
successfully placed with existing licensees in the English language.


Marshall Editions had its most profitable year since Quarto acquired it from
Administration. Re-establishing the once-revered reference imprint has been a
more intense task than we anticipated, but it seems now to have found its feet
under the steady guidance of publisher Richard Green. The children's list was
first out of recovery, with a series of educational biographies licensed to
National Geographic. Backlist sales remained strong, especially in foreign
languages, thanks to sterling work by rights director Laurence Richard. The
future looks even brighter: a review of editorial strategy for the adult list at
the beginning of last year bore fruit with a strong showing of quality reference
projects at October's Frankfurt Book Fair, promising a further substantial
increase in profit as these titles deliver in 2006 and beyond.


Quantum is the operating unit that 'recycles' content from the other imprints
for promotional markets. It had a difficult year, in a market with an excess of
supply. Its value proposition proved insufficiently attractive in the face of
fierce price and quality competition. Its disproportionate exposure to the
domestic market meant Quantum was not immune to the woes of the UK High Street,
and it suffered from business failures among its UK retail bookshop customers.
As a result, we have instituted a review of the unit's publishing strategy,
which will concentrate on adding value rather than merely reducing price.
Despite this, and a £0.4 million fall in its operating profit, Quantum's
financial results remained satisfactory.

Longer-term shareholders will know that Q+, our books-plus unit, comprising
Quarto Children's Books and Design Eye, has struggled in recent years to
re-establish its former profitability. This year, we made only a modest advance
numerically, but took a significant step philosophically with the appointment of
a new publisher, whose task is to reinvent our publishing for this market. The
aim is to inject greater editorial integrity and educational utility into a line
of product that all agree is innovative and fun, and to do this without losing
any of the 'wow' factor. In this way, we will continue to attract and delight
our primary audience of children, while at the same time making their parents
feel good about funding the purchase. Initial reactions to this new approach are
promising, with My Dad's Toolbox the subject of multiple bids, and a strong
foreign language showing.


Global Publishing, our Sydney-based co-edition unit, had another good year.
Anatomica, released in 2000 and one of Global's first titles, reprinted again
together with its spin-offs, The Encyclopedic Atlas of the Human Body, The Human
Body Atlas, and Pocket Anatomica, illustrating once again the tremendous
longevity and repurpose-ability of these investments. As if three spin-offs
weren't enough, Anatomica's Flash Cards, an innovative study aid using the same
material, surprised everyone - not least its publisher - by reprinting three
times in its first year of release. More than 100,000 card sets were shipped in
2005. The Flora brand, built upon the enormous archive created for the eponymous
encyclopedia of garden plants, gave birth to Flora's Orchids, the most
comprehensive and best photographed book on orchids ever produced, which was
released to rave reviews in October, and reprinted prior to the first
consignment reaching its destination port. And following the principle that if a
thing works once it will work twice or three times, Flora's Gardening Cards, a
new Flora series title presented in an innovative card format, shipped in
December, with a first print run of over 35,000 copies.


All three recent start-up units fared well: QED, which produces children's
titles for the educational and library market, hit its stride in its second full
year of publishing, with sales nearly doubled, and profits up by not much less.
It has just begun to exploit its properties in foreign language markets and to
date has garnered sales in French, Spanish, Greek, Hungarian, Slovenian, Danish,
Portuguese, and Chinese. Two if its series - Let's Start Science and Animal
Lives - made Editor's Choice for Bookspan, the largest book club in the US,
while, in the UK, agreement was reached with McGraw-Hill's subsidiary,
Kingscourt, to have it act as QED's principal reseller and schools sales force,
offering the entire range of products direct to schools via its sales
representatives in the UK and the Republic of Ireland.


QU:ID, known for its sideways, and often quirky, look at life, had its third
successive year of growth. Its flagship title, Household Management for Men
(which now has derivative sales over 400,000 copies), is being developed as a
franchise. The follow-up, Man Management for Women, achieved international sales
of 60,000 copies within six months of publication; while new title 101 Things to
Do in a Shed sold 100,000 copies in its first 12 weeks. The unit's publisher is
now knuckling down to the challenging task of turning small-scale profitability
into large-scale profitability.


IQON, having seen the first book in its Isms series, Understanding Art,
translated swiftly into an extraordinary 21 languages, proved that it wasn't
just beginner's luck by delivering its second at the very end of the year.
Fifteen foreign language partners have already signed up for Understanding
Architecture, and sales and pre-orders at the time of writing exceed 65,000
copies.


RotoVision, our specialist visual arts and graphic design imprint, was
completely re-engineered during the year to run as a stand-alone business - not
without some pain - but is now smaller, leaner, and fit for the challenges that
lie ahead. The vacant role of publisher was filled by an internal promotion,
which gave the unit renewed focus and impetus. All US distribution was
re-contracted on a co-edition basis, with the attendant benefits in cash flow.
Foreign language sales responded well to the introduction of expertise from
elsewhere in the Group, increasing by 20% in the year: most RotoVision titles
now routinely go into four or five foreign languages, and Designs of the Times,
published in September 2005, is already available in seven. Other highlights
include 500 Digital Photography Hints, Tips and Techniques, published in early
2005, which has 50,000 copies in print in a dozen languages; and the follow-up,
500 More Digital Photography Hints, Tips and Techniques, which looks set to
exceed this, with over 20,000 foreign orders booked before delivery of the
English language edition.

One event during the year illustrates perhaps better than most what we call the
'backlist-ability' of our books, that is, their propensity to sell on for years
beyond the original date of publication. In November 2005, the UK press broke
the story that popular artist Jack Vettriano had created some of his most iconic
works simply by copying characters straight out of a book. The volume in
question? The Illustrator's Reference Manual, created by Quarto back in 1987.


The division includes our Far East-based print broking subsidiaries, Regent and
ProVision. In extremely competitive markets, both performed strongly, and
improved on the prior year's performances.


Publishing Division


Quarto also publishes titles under imprints owned by the group. The Publishing
Division publishes, and distributes books, art prints, and magazines either
created in-house or licensed from third-party authors or as co-editions. While
the broad outlines of the subjects and categories of books by the division does
not differ substantially from those produced by the group's Co-edition
Publishing division, the focus of the publishing imprints is firmly on domestic
markets. Titles are published with the expectation that the majority of their
sales will be in the home market.


In sales terms, the most important market is the US, followed by Australia, and
then the UK. Common to all of our publishing imprints is this focus on domestic
sales, and holding inventory of the titles they publish. To a greater, or
lesser, extent, all units are involved in distributing their own titles so that
sales, marketing, fulfillment, and collections are as central to the units'
activities as the creation of their individual publishing lists.
Inventory-holding publishing inherently has a different risk profile from
co-edition publishing: there are greater fixed costs, including a much bigger
infrastructure, risk in holding the inventory and, because the business is more
dependent on a domestic market, it is more exposed to volatility in retail
sales. In exchange, publishers retain a bigger percentage of the retail dollar
against which to write off these extra costs and risks.

Premier Books, our 2005 acquisition, is in this division.


For 2005, including the contribution from Premier books of £3.2 million,
revenues totaled £58.0 million (2004: £43.4 million), and generated an operating
profit of £5.3 million (2004: £4.1 million). The target operating profit is 10%
of sales.


As noted above, Rockport, which does have substantial co-edition business,
merged its business operationally with CPi from the beginning of the year to
form the Quayside Publishing Group, under the direction of Ken Fund. The
Quayside Publishing Group, operating from Minneapolis and the Boston area, is a
niche publisher, with a mission to become the publisher of choice in the
categories that it publishes into, and is well established as publisher of
choice in the areas of graphic design, home improvement, and outdoor lifestyle.
Quayside is seeking to gain similar status in arts and crafts and, by teaming up
with fellow group subsidiary, Walter Foster, believes that it can gain this
recognition in 2006.


Creative Publishers international (CPi) is the newest member of the Quayside
group, and was added to the group in August 2004. CPi's publishing program was
in transition in 2005, with only 22 new titles produced, because of greater than
anticipated underinvestment in the publishing list by the prior owners. Sales
for the year fell short of expectations, but operating profits, at over 15% of
sales, exceeded budget. Unlike other publishing units in the Quayside group, CPi
relies primarily on accounts outside the traditional book market. The main
market is in the home improvement channel, which did exceedingly well this year,
experiencing double digit growth, and mirroring the strength of the housing
market in the US. Continued strong demand for the Black & Decker Complete Guide
series along with the revised editions of its top two selling titles made this a
strong year. Sales of the Complete Guide to Home Wiring exceeded 125,000 copies,
The Complete Guide to Home Plumbing exceeded 90,000 copies, and each of the
following titles shipped in excess of 50,000 copies: The Complete Guide to
Bathrooms, The Complete Guide to Ceramic and Stone Tile, and The Complete Guide
to Building Decks.


There was some difficulty with several accounts during the year; sales to both
Menards and Wal-Mart were off significantly, as both dropped several lines of
books during the year. Menards has revamped its book program entirely, and we
expect the business to return in 2006. A great deal of effort was undertaken to
create a more vigorous ongoing publishing program, and the number of new titles
being launched in 2006 will double, which should lead us to continued growth
with our major retailers.


In addition to its strong showing in home improvement, CPi registered growth in
the Outdoor category. To become the publisher of choice in this category, CPi
needs to continue to grow the publishing program.


Rockport Publishers, the original division of Quayside, had a successful and
profitable 2005. After a few years of flat sales, the company achieved growth
this year and exceeded both its revenue and profit forecasts. The graphic design
program, which makes up the core of the Rockport list, performed above
expectation, both domestically, and in co-edition, where sales exceeded $1.5
million. The backbone of the Rockport program, which includes design annuals,
such as Best of Brochure Design, Letterhead and Logo Design, and Logo Lounge,
continues to sell successfully on an international scale. A more recent focus on
creating a backlist program with a core list of hard-working books paid off this
year, with much of Rockport's success coming from co-edition and domestic
reprints of books like Making and Breaking the Grid, The Universal Principles of
Design, and our 1000 series. We also achieved notable critical and commercial
success with the publication of The Design of Dissent by one of the world's most
renowned graphic designers, Milton Glaser. This book was reviewed nationally,
and sold in co-edition in three languages. In addition, Amazon.com listed the
title as one of the 50 best books of the year.


2005 marked the first full year of publishing for Rockport's Quarry Books list.
There were notable successes with the 'art and craft' titles, including Artists'
Journals and Sketchbooks, Alphabetica, Altered Images, and the art doll series,
Creative Cloth Dollmaking, each achieving sales in excess of 20,000 copies in
the first year. Quarry has found a good niche in this area, and is starting to
see other publishers begin to compete for this audience. We see this as a
challenge.


The general reference program, although still new, is off to a strong start with
co-editions confirmed on the pet care titles, including The Good Food Cookbook
for Dogs and the Home Spa Book for Dogs, and strong domestic sales and
co-edition interest for our backyard and artisan series. Quarry will continue to
concentrate on producing titles with consumer-driven, niche, audiences which are
sought out by the readers. Its success in this direction is seen in the
significant sales through Amazon, and other, on-line booksellers. Amazon is one
of Rockport's biggest accounts for both craft and graphic design titles.


Fair Winds Press, publisher of practical self-improvement and lifestyle books,
marked its fourth year of publishing in 2005. It was a year of transition. After
three years of spectacular sales and profit growth, driven primarily by the Dana
Carpender low-carbohydrate cookbook franchise, Fair Winds experienced a dramatic
increase in returns as a result of the crash of the low-carbohydrate craze.
Without another best-seller to offset the returns, Fair Winds fell short of its
financial targets. This, in turn, offset some of the success of Rockport's other
lists, and led to a £0.5 million fall in operating profits.


There were some high notes, however: In 2005, Fair Winds published Frumpy to
Foxy in 15 Minutes Flat to positive press and strong sales and, at the end of
the year, launched Makeup Makeovers, which has already sold more than 40,000
copies. Fair Winds competes in the highly competitive category of
self-improvement, and is retooling its editorial efforts to create books that
appeal to markets outside the US book trade. Fair Winds made progress in this
direction in 2005 with record foreign co-edition sales, and is expanding one of
its most successful categories with the planned autumn 2006 launch of Quiver, a
new line of illustrated sex books.


Southern California-based, and for over 80 years one of the leading US
publishers of how-to books for amateur artists, Walter Foster posted flat
revenues for 2005, as the core business experienced lower sales, and increased
sales of activity kits, and co-editions, made-up the difference. Walter Foster's
sales, over the last four years, have remained within a narrow range, and have
not shown growth. The profits were hit, over the last two years, due to the
investment in a new custom children's book producing division, started in late
2003, that did not generate large enough customer support, and was closed in
2005.

Walter Foster has been successful in expanding sales of its core products
outside the art and craft market and into other channels, but adult art products
do not have as wide a market appeal as children's, and licensed, titles in other
markets. There is more opportunity to present children's, and licensed,
products, than adult titles, to a variety of markets. In order to take advantage
of the opportunities, and based on the customer relationships that Walter Foster
has established with retailers outside the art market, it has established its
children's publishing team under a separate publisher. Separating out the
children's list will allow the publishers of both lists better to focus on the
growth prospects for their respective publishing programs. In 2006,Walter Foster
and Quayside are consolidating their sales forces in the US to take advantage of
relationships and build upon the presence each business has in the market
channels it services.

Walter Foster's best selling kit last year was the Rock Painting Kit, which
included all the tools and paints needed to do the projects, plus a rock, and a
CD with 450 patterns. Of the 79,800 copies sold, 42,800 were co-edition sales,
in four different languages. The best selling adult book was the Color Mixing
Recipes title, which was acclaimed by the Craft & Hobby Association as the best
art book of 2005. Of the 41,000 units sold in 2005, 16,000 were co-edition
sales, in four different languages. The book provides a reference of more than
1,100 common subjects and features an acetate color mixing grid for accurately
measuring paints. Quarto's international co-edition sales team, based in London,
made the co-edition sales. The Craft & Hobby Association also awarded Walter
Foster the best children's product award (Paint Like A Famous Artist), and the
award for best art product overall (Getting Started In Watercolor DVD) in 2005.
The best selling licensed title was 5 Splashy Styles of Spongebob Squarepants,
selling 521,000 copies.

Book Sales, one of the most established and successful promotional publishers in
the US, experienced flat sales, and operating profit dipped, as orders dried up
in the last six weeks of the year. Once again, good progress was made with its
own publishing program, a book on baseball, Ballparks, selling 100,000 copies
during the year.

In art print publishing, we continue to make small profits on a slightly
declining sales base, but there are signs that sales erosion is leveling off.
The market was very erratic all year, with no clear pattern emerging, except
that, with consumers flush with money, the trend was towards any kind of
reproduction that appeared one-off in nature, such as prints on canvas that were
individually embellished, however slightly, and individually sized digital
prints, known as giclees. The industry is, clearly, going through a major
transition, and we are not comfortable enough that we can lead the market. We
shall tread water while we try to sense where the market is going.

Quarto Magazines had a very difficult year. Almost all magazines depend very
heavily on advertising revenue and this, for our niche, special-interest,
titles, was in short supply. Our flagship Artists' and Illustrators' Magazine,
and its accompanying Fine Art Materials show, struggled to make a profit,
despite good subscriber numbers and good attendance at the show. But the unit
was tipped into heavy losses by the decision, taken in 2004, to launch new
titles. Creative Scrapbooking Magazine and Fine Wine magazine have not yet
achieved the circulation and advertising revenues that were projected initially.
We are keeping the situation under close review, and intend to act decisively if
the position does not improve in the first half of 2006. Overall, after
including the losses on the start-ups, the unit's performance deteriorated by
almost £0.5 million. As the UK business environment remains tough, it will be a
considerable achievement to turn around these two magazines in 2006.

In the UK, Aurum and Apple both battled hard for sales during the year. For much
of the year, their results trailed 2004's but, in the final few months, sales
improved and, although they underperformed 2004, in what was a very difficult
retailing environment, the outcomes were in line with expectations. Both s
uffered from the extreme polarization in the UK trade between bestseller and
also-rans. Apple did itself no favors with an unappealing offering of new titles
in the first half of the year, and experienced higher than average returns.
Although sales were strong in the run-up to Christmas, not enough time remained
to make up the shortfall, and the imprint ended the year feeling it should have
done better.

Aurum's big winner was the anniversary volume, The Trafalgar Companion (£45),
with 17,000 copies in print. As reported by others, across the board, Aurum's
sales in traditional bookstores were mixed, and sales were down at both
Waterstones and Ottakers, and there was pressure on backlist sales because of
retailers' reluctance to stock slow-moving items but, through supermarkets and
Amazon, they were well ahead. The Jacqui Small joint venture turned in a
slightly disappointing set of figures, but this was partly the result of the
decision taken in 2004 to increase the output of the list's titles which,
because of the gestation period of Jacqui's books, will come to fruition in
2006.

Lifetime and Premier Books are distinctive businesses in Quarto's Publishing
Division. Operating from Australia and New Zealand respectively, they are both
the largest display marketers of books in their countries. Display marketing is
a simple concept, and everything depends on execution and product selection.
Display marketers do not create titles; they simply license the display
marketing rights from publishers.

Fundamentally, they visit workplaces and, by arrangement with the management,
leave on display a box of books, and related items, which they retrieve some
time later, having allowed adequate time for staff to examine the samples, and
fulfill orders on the spot. For the consumer, the two advantages are price and
convenience. In the case of Lifetime, while both businesses operate similar
two-weekly cycles of drops and pick-ups, Lifetime's 'agents' are self-employed
franchisees, obtaining their inventory from master franchisees in each state in
Australia, who take the risk in holding the inventory; in New Zealand, the
inventory is owned by Premier and the agents are paid commission on their sales.

The franchise approach is appealing because inventory risk is reduced, but it
involves a great deal of work in maintaining the integrity of the franchise, and
this had been sadly neglected under prior ownership. We have been rectifying
this. We have also addressed a number of other operational deficiencies, so that
management has the best possible handle on what is happening, in a very dynamic
business. Lifetime's operating profit increased by £0.7 million.

Premier does not operate a franchising system and, given the small size of New
Zealand's population, it can manage its operations extremely efficiently from
the centre. While it does, in theory, have a greater financial exposure than
Lifetime in its inventory-holding, in practice both units operate rigorous
testing procedures before committing to many of their major purchases. Fewer
than 10% of tested items are, in fact, ordered, and inventory obsolescence is
not a major issue.

Because of the different ways they operate, there is no real comparability
between Lifetime's and Premier's figures. Lifetime sells the inventory it order
from its suppliers to its master franchisees at a mark up on cost, and Premier
accounts for the full value of final sales.

Finally, as announced earlier in the year, we decided that we could not afford
higher occupancy costs for our publishing and marketing services units, AP, and
Western. Accordingly, we did not renew our lease in Reading, and amalgamated the
two units in the Image Factory building in Chippenham, leaving only a sales
office in the Reading area. A certain amount of re-equipping was necessary and
there were, inevitably, a few glitches in both the move and the amalgamation,
particularly in software and working methodology compatibilities. Fortunately,
these were anticipated, and sorted out swiftly, with no discernible loss of
customers. The cost of the restructuring (£0.6 million) has been treated as
non-recurring.


                         CONSOLIDATED INCOME STATEMENT

                          Year ended December 31, 2005

                                                  Notes     2005          2004
                                                            £000          £000

Continuing operations
Revenue                                             1     95,038        79,750
Cost of sales                                            (60,444)      (50,880)

Gross profit                                              34,594        28,870

Other operating income                                       227           126
Distribution costs                                        (4,148)       (3,014)
                                                          --------      --------
Administrative expenses before amortization of
intangibles and non-recurring items                      (21,898)      (18,466)
Amortization of intangibles                               (1,381)         (509)
Non-recurring items
Aborted acquisition costs                                   (102)            -
Restructuring costs                                         (644)            -
                                                          --------      --------

Total administrative expenses                            (24,025)      (18,975)
                                                          --------      --------
Profit from operations before amortization of
intangibles and non-recurring items                        8,775         7,516
                                                          --------      --------

Operating profit                                    1      6,648         7,007

Finance income                                               128            65
Finance costs                                             (2,351)       (1,680)

Profit before tax                                          4,425         5,392

Tax                                                       (1,263)       (1,255)

Profit for the year                                        3,162         4,137

Attributable to:
Equity holders of the parent                               2,497         3,734
Minority interest                                            665           403

                                                           3,162         4,137

Earnings per share
From continuing operations
Basic                                               2       13.2p         20.8p

Diluted                                             2       12.9p         19.6p



                           CONSOLIDATED BALANCE SHEET

Year ended December 31, 2005

                                                         2005             2004
                                                         £000             £000
Non-current assets
Goodwill                                               10,317            7,732
Other intangible assets                                 4,842            5,334
Property, plant and equipment                           8,533            8,982
Deferred tax assets                                        25                4

Total non-current assets                               23,717           22,052

Current assets
Inventories                                            23,521           20,638
Tax receivable                                            152              154
Trade and other receivables                            28,399           23,646
Cash and cash equivalents                              14,431           12,578

Total current assets                                   66,503           57,016

Total assets                                           90,220           79,068

Current liabilities
Short term borrowings                                  (3,932)          (7,250)
Trade and other payables                              (26,793)         (24,995)
Tax payable                                            (1,258)          (1,304)

Total current liabilities                             (31,983)         (33,549)

Non-current liabilities
Medium and long term borrowings                       (45,599)         (38,408)
Deferred tax liabilities                                 (668)            (630)
Other payables                                           (114)            (210)

Total non-current liabilities                         (46,381)         (39,248)

Total liabilities                                     (78,364)         (72,797)

Net assets                                             11,856            6,271


                                                             2005         2004
                                                             £000         £000
Equity
Share capital                                               1,162        1,063
Paid in surplus                                            21,716       19,199
Retained earnings and other reserves                      (14,666)     (16,678)

Equity attributable to equity holders of the parent         8,212        3,584

Minority interest                                           3,644        2,687

Total equity                                               11,856        6,271



                        CONSOLIDATED CASH FLOW STATEMENT

Year ended December 31, 2005

                                                              2005        2004
                                                              £000        £000

Profit for the period                                        3,162       4,137
Adjustments for:
Net finance costs                                            2,223       1,615
Depreciation of property, plant and equipment                1,067       1,073
Tax expense                                                  1,263       1,255
Amortization of intangible assets                            1,381         509
Equity settled share - based payment expense                     9           4
Loss/(gain) on disposal of property, plant and equipment        51          (1)

Operating cash flows before movements in working capital     9,156       8,592
Decrease/(increase) in inventories                              28        (722)
(Increase)/decrease in receivables                          (3,057)        301
Decrease in payables                                          (120)     (1,668)

Cash generated by operations                                 6,007       6,503

Income taxes paid                                           (1,428)     (1,062)

Net cash from operating activities                           4,579       5,441

Investing activities

Interest received                                              119          51
Proceeds on disposal of property, plant and equipment          237          38
Purchases of property, plant and equipment                    (678)     (1,020)
Acquisition of subsidiaries (net of cash acquired)          (2,847)    (13,700)

Net cash used in investing activities                       (3,169)    (14,631)

Financing activities
Dividends paid                                              (1,197)     (1,077)
Interest payments                                           (2,390)     (1,753)
Proceeds on issue of share capital                              18          26
New bank loans raised                                        2,288      10,967
Dividends paid to minority interest                           (121)       (103)

Net cash (used in)/from financing activities                (1,402)      8,060

Net increase/(decrease) in cash and cash equivalents             8      (1,130)

Cash and cash equivalents at beginning of year              10,611      12,455

   Foreign currency exchange differences on cash and cash
                                              equivalents    1,280        (714)

Cash and cash equivalents at end of year                    11,899      10,611



                                     NOTES


1.       Segmented analysis

Business segments

               Co-edition  Co-edition  Publishing  Publishing   Total     Total
               Publishing  Publishing
                   2005        2004        2005        2004      2005      2004
                   £000        £000        £000        £000      £000      £000
Revenue
                                                                    ---       ---
Total sales      38,314      37,391      57,989      43,395    96,303    80,786
Inter-segment
revenue          (1,259)     (1,024)         (6)        (12)   (1,265)   (1,036)

External         37,055      36,367      57,983      43,383    95,038    79,750
sales
                                                                    ---       ---

Operating
profit
Before
amortization
of                4,380       4,263       5,346       4,082     9,726     8,345
intangibles
Amortization
of                  (12)        (12)     (1,369)       (497)   (1,381)     (509)
intangibles

                  4,368       4,251       3,977       3,585     8,345     7,836

Unallocated
corporate
expenses                                                         (951)     (829)
Aborted
acquisition
costs                                                            (102)        -
Restructuring
costs                                                            (644)        -

Profit from
operations                                                      6,648     7,007
Investment
income                                                            128        65
Finance costs                                                  (2,351)   (1,680)

Profit before
tax                                                             4,425     5,392
Tax                                                            (1,263)   (1,255)

Profit after
tax                                                             3,162     4,137



Geographical Segments

                                                       Revenue          Revenue
                                                        2005             2004
                                                        £000             £000

United Kingdom                                        15,848           15,804
United States of America                              46,305           43,072
Australia and the Far East                            18,344            8,375
Europe                                                10,415            9,211
Rest of the World                                      4,126            3,288

                                                      95,038           79,750



                               NOTES (continued)


2.       Earnings per share
                                                            2005          2004
                                                            £000          £000
Earnings for the purposes of basic earnings per
share, being net profit attributable to equity
holders of the parent                                      2,497         3,734
Effect of dilutive potential ordinary shares:                 57            23
Interest on loan notes (net of tax)                          204           446
Interest on convertible redeemable preference shares

Earnings for the purposes of diluted earnings per
share                                                      2,758         4,203

                                                          Number        Number
Number of shares
Weighted average number of ordinary shares for the
purposes of basic earnings per share                  18,893,419    17,955,495
Effect of dilutive potential ordinary shares:
Share options                                            139,183       111,636
Dilutive loan note                                     1,074,288       437,347
Dilutive preference shares                             1,218,131     2,923,514

Weighted average number of ordinary shares for the
purposes of diluted earnings per share                21,325,021    21,427,992

                                                            2005          2004
                                                           pence         pence

Basic                                                       13.2p         20.8p

Diluted                                                     12.9p         19.6p

Adjusted Earnings
Earnings for the purposes of basic earnings per
share, being net                                           2,497         3,734
profit attributable to equity holders of the parent
Amortization of intangibles (net of tax and minority
interest)                                                    925           345
Restructuring costs                                          644             -
Aborted acquisition costs                                    102             -

Earnings for the purposes of adjusted earnings per
share                                                      4,168         4,079
Effect of dilutive potential ordinary shares:                 57            23
Interest on loan notes (net of tax)                          204           446
Interest on convertible redeemable preference shares

Earnings for the purposes of diluted earnings per
share                                                      4,429         4,548

                                                            2005          2004
                                                           pence         pence

Basic                                                       22.1p         22.7p

Diluted                                                     20.8p         21.2p




                               NOTES (continued)


3.       Dividends
                                                                 2005     2004
                                                                 £000     £000
Amounts recognised as distributions to equity holders in the
period:
Interim dividend for the year ended December 31, 2005 of
2.9p (2004: 2.75p) per share.                                     567      494
Final dividend for the year ended December 31, 2004 of 3.5p       630      583
(2003: 3.25p) per share.

                                                                1,197    1,077

Proposed final dividend for the year ended December 31, 2005
of                                                                736      629
3.6p (2004: 3.5 p) per share.

                                                                  736      629



4.       Consolidated statement of recognised income and expense

Year ended December 31, 2005
                                                               2005      2004
                                                               £000      £000

Exchange differences on translation of foreign operations       485      (390)
Net (loss)/gain on hedge of net investment in foreign
subsidiaries                                                   (120)       33
Change in the fair value of cash flow hedges                    329       130

Net income/(expense) recognised directly in equity              694      (227)

Profit for the year                                           3,162     4,137

Total recognised income and expense for the year              3,856     3,910

Attributable to:
Equity holders of the parent                                  3,191     3,507
Minority interest                                               665       403

                                                              3,856     3,910



5.       The financial information set out above does not constitute the
company's statutory accounts for the years ended December 31, 2005 or 2004 but
is derived from the 2005 accounts. Statutory accounts for 2004, which were
prepared under UK GAAP, have been delivered to the Registrar of Companies, and
those for 2005, prepared under accounting standards adopted by the EU, will be
delivered in due course. The auditors have reported on those accounts; their
reports were (i) unqualified, (ii) did not include references to any matters to
which the auditors drew attention by way of emphasis without qualifying their
reports and (iii) did not contain statements under section 237(2) or (3) of the
Companies Act 1985.

6.       The accounting policies adopted for use in the preparation of the 2005
Preliminary Results and of the 2005 Annual Financial Statements were included in
the Interim Results released on 2 September 2005.

7.       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: [phone] (email:
[e-mail]).



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