Final Results for the Year Ended 31 December 2017
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29 March 2018 Final Results for the Year Ended 31 December 2017 The Quarto Group Inc. (LSE: QRT, "Quarto" or "the Group"), the leading global illustrated book publisher, announces its audited results for the year ended 31 December 2017. Highlights Strategic overview Download Operating review Financial review The full results are available to Income Statement view and download in PDF format Statement of Comprehensive Income Balance Sheet Statement of Changes in Equity Cash Flow Statement Presentation Notes View the slides of the Results Presentation Results ($m) 2017 2016 Revenue 152.5 154.6 Adjusted Operating Profit* 7.2 17.0 Operating (Loss)/Profit (17.9) 16.1 Adjusted Profit Before Tax* 3.9 13.9 (Loss)/Profit Before Tax (21.2) 13.0 Exceptional Items 24.2 0.2 Loss After Tax (18.5) (5.3) Adjusted Earnings per Share from continuing 18.3c 49.8c operations Basic (Loss)/Earnings per Share from continuing (96.4)c 46.4c operations Net Debt 64.0 61.9 Total dividend for the year nil 15.0c *Adjusted items exclude the amortisation of acquired intangibles and exceptional items. TRIAL MODE − a valid license will remove this message. See the keywords property of this PDF for more information. Included in the 2016 results was a one-time reduction in the amortisation charge arising from a change in the Useful Economic Life (UEL) of capitalised pre-publication costs of $2.1m. Headlines • Stronger trading performance in H2 - revenue up 5.8% vs prior year. • Children's publishing revenues up 19% (7% excluding becker&mayer acquisition in Q3 2016), now representing third of Group revenues. Up 165% since 2012. • Foreign Rights business continues to perform strongly - revenue up 6%. • Frontlist/backlist revenue split comparable year-on-year - 60.3% revenue generated from backlist titles. • Net debt at $64.0m (2016: $61.9m) down from $75.8m at 30 June 2017. • As previously announced, with the competing pressures of paying dividends, reducing debt and investing in the core business, the Board has not recommended the payment of a final dividend. • Transitional year: ◦ Refocused vision and strategy - now pure-play intellectual property business. ◦ Tough retail environment, finance team restructured and unsolicited offer. • Change to financial year-end from 31 December to 31 March to better balance seasonality between fiscal H1 and H2. 2018 Focus • Momentum from H2 2017. • Organic revenue and margin growth. • Continuing restructuring in parts of Adults portfolio to support more operational agility. • Strengthening the balance sheet as a platform for growth. Commenting on the results, Chief Executive, Marcus Leaver said: "While 2017 was, overall, a transitional and challenging year, we are particularly pleased with our stronger trading performance in H2 - our Children's and Foreign Rights businesses showing significant growth once again, when many others in our industry struggled. "Quarto is now fully focused on what we do best - creating a variety of books and intellectual property products that inspire life's experiences for the whole family, and selling them globally through diversified sales channels and partnerships. "Our strategy remains to grow organically, through innovation and, where applicable, by acquisition, and to continue to drive c. 60% annual recurring revenue through our enduring backlist and to leverage our rich IP catalogue. "We have moved into 2018 with clear objectives about continuing to realign our portfolio with the broader market and consumer trends, and making the financial and operational improvements required to fulfil our ambitions - including strengthening our balance sheet as a platform for growth. "Since the year end, the Group has been trading in line with the Board's expectations." For further information, please contact: The Quarto Group, Inc. Marcus Leaver, CEO +44 20 7700 9002 Brian Porritt, Interim CFO Dorothée de Montgolfier, Group Director of Communications TRIAL MODE − a valid license will remove this message. See the keywords property of this PDF for more information. Instinctif Partners Adrian Duffield/Chantal Woolcock +44 20 7457 2077 About The Quarto Group The Quarto Group (LSE: QRT) creates a wide variety of books and intellectual property products for global distribution, with a mission to inspire life's experiences. Produced in many formats for adults, children and the whole family, our products are visually appealing, information rich and kinesthetically stimulating. The Group encompasses a diverse portfolio of imprints and businesses that are creatively independent and expert in developing long-lasting content across specific niches of interest. Quarto sells its products globally in over 50 countries and 40 languages, through a variety of sales channels and partnerships, and five main routes to market - US, UK, International English language, Foreign language and other Partnerships. Quarto employs c. 400 talented people in the US, UK and Hong Kong. The group was founded in London in 1976. It is domiciled in the US and listed on the London Stock Exchange. For more information, visit quarto.com or follow us on Twitter at @TheQuartoGroup . back to top Strategic overview 2017 was a transitional year. It encompassed difficult and volatile trading conditions, the disposal of our last non-core businesses, the integration of a sizeable acquisition, the restructuring of the finance team and the handling of an unsolicited offer for the Group. A poor H1 performance, with continued softness from H2 2016, was followed by a stronger performance in H2 2017, with revenue up 5.8% year-on-year. The business showed resilience in a year when many others in the industry struggled. Overall, adjusted operating profit is down 58% while revenue only declined marginally by 1.4%. The Group's operating margin was impacted by a combination of factors including high levels of returns, rising cost of goods and royalty expenses as trade sales become a larger part of the product mix, and higher product development costs owing to the integration of becker&mayer. Industry shifts such as the changing product mix and the lack of any notable growth in the mature Adults publishing market are unlikely to change, and we continue to restructure a number of our Adults imprints to realign our portfolio with broader market trends. Children's publishing revenues grew 19% year-on-year, both organically and through acquisition with the first full year contribution from becker&mayer. They have increased by 165% since 2012. Our Foreign Rights sales team achieved another year of revenue growth, up 6% year-on-year. As we continually seek to further expand our scale and reach across the globe, our new Spanish language imprint in North and South America, in partnership with Catapulta Editores, was also a major highlight. The Group ended the year with net debt of $64.0m (2016: $61.9m) down from $75.8m at 30 June 2017. Net debt is down 21% since 2012 but is still sizeable. It has become clear that the competing pressures of servicing debt, paying dividends, and investing in the core business currently inhibit Quarto's ability to grow by acquisition. The Group is therefore looking at all TRIAL MODE − a valid license will remove this message. See the keywords property of this PDF for more information. options to strengthen the balance sheet and will keep all stakeholders updated with its progress. Quarto is now firmly looking to the future as a pure play intellectual property business creating a wide variety of books and intellectual property products for global distribution. Produced in many formats for both Adults and Children's, they are visually appealing, information rich or kinesthetically stimulating. All of them inspire life's experiences for the whole family. The Group, now one third Children's products and two thirds Adults products has been transformed as the English language co-edition market declines further. The acquisitions made since 2014 have renewed the portfolio and content pipeline, and the shape of the Group today is largely a solid platform from which to grow. Our model remains effective and agile: talented people making high quality and long-lasting products across a balanced portfolio of creative businesses, with efficient processes, supported by a scalable operating platform that adapts to market conditions. Quarto sells its products globally, in 50 countries in 40 languages, through a variety of sales channels and partnerships and five main routes to market - US, UK, International English language, Foreign language and other Partnerships. The Group's strategy remains to grow organically as we continually examine and manage our portfolio; through innovation, be it product, communication, business or process transformation; and where applicable, by acquisition, within a fragmented and artisan business landscape that can offer attractive opportunities. Outlook Quarto is now fully focused as a pure-play intellectual property business with a refocused vision and a clear growth strategy. The Group's strategy addresses the trends observed in its core publishing market, which in the US and the UK combined is worth an estimated $14.4bn*. Children's books have grown ahead of other categories in recent years, while eBook sales have been flat-lining with limited success outside of Adult fiction. In the retail space, the market share of physical book specialists continues to decrease vs online retailers and physical non-book specialists. Quarto expects the volatile trading environment to continue in 2018, with ongoing softness in specific channels. Its primary focus this year will be on strengthening the balance sheet and growing margins. The Group expects a steady recovery with some organic growth in Children's, softer foreign language markets, and continuing remedial action in the Adults portfolio, to drive improved cash generation. As expected, 2018 full year results will be once again dependent on the second half year performance. The Board has decided to change the year end from 31 December to 31 March, which will better align with the operational needs of a seasonal business.