The Quarto Group, Inc.

(the "Company", "Quarto", "Group")

Half-Year Results for the Six Months Ended 30 June 2023

The Quarto Group, Inc. (LSE: QRT), the leading global illustrated book publisher, announces its unaudited half-year results for the six months ended 30 June 2023.

1.   Adjusted measures are stated exceptional items.

Headlines

•     Revenue down 16% at $52m against 2022, partly due to Quarto Distribution Services & Smart Lab being discontinued, with core revenue $51m, down 10% year on year.

•     Operating profit of $3.1m down from $7.2m in 2022, driven by the reduction in revenue.

•     Strong cash generation has continued to feature, with $14.7 million generated over the last 12 months to June 2023. Net cash position was $9.1m against a net debt position of $5.6m (June 2022)

Chief Executive, Alison Goff commented on the half year position:

"Following the economic challenges faced towards the end of 2022 and into 2023, this is a steady set of results following on from the growth in 2022. Whilst revenue and profits were down year on year, the results achieved are in line with our expectations for the seasonally weaker first half of the year.

Quarto UK, whilst sales experienced a decline of 6% year on year from $27.2m (2022) to $25.5m (2023), this is still 3% ahead of 2021. With the decline in revenue, operating profits reduced from $3.1m in 2022 to $2.4m in 2023, although this is still a significant improvement on 2021 at $1m. Softness across all areas of the business contributed to this decline, as consumer demand reduced and our business to business sales slowed as customers managed their inventory.

Bestsellers within the period include The King, a new title for 2023 in our very successful Little People Big Dreams series and London: A Guide for Curious Wanderers also a new title in 2023. We were also shortlisted for numerous prestigious awards including Flooded by Mariajo Ilustrajo (Klaus Flugge Prize) and Rescuing Titanic (Yoto Carnegie award).

Quarto US has also seen a decline in revenue down 23% from $34.7m to $26.5m. Excluding the discontinued Quarto Distribution Services and Smart Lab core trading is down 12%, with trade sales and custom down 7% and 44% respectively. The reduction in custom sales is purely timing of orders and we expect this to recover during the second half of 2023. Operating profit reduced by 69% to $1.3m from $4.1m, with the decline in sales.

We continue to see Beautiful Boards perform strongly, with Nascar 75 years published in 2023 also performing well.

We are now focused on the second half of the year, which will be a significant period for Quarto as we expect the trading environment to continue to be challenging. However, I am confident with inflation past its recent peak and supply chain issues now easing, we have the right plans in place to capture all potential opportunities. We are confident that these plans will enable us to navigate through these uncertain times.

The Board remains focused on ensuring we keep costs under control, drive sales, and develop further growth strategies for the remainder of 2023, 2024 and beyond."

- ENDS -

The Legal Identifier of the Company is 549300BJ2WPX3QUATW58.

For further information, please contact:

The Quarto Group, Inc.                                  +44 (0)20 7700 6700

Daniel Logan, Group Finance Director

Michael Clarke, Company Secretary

About The Quarto Group

The Quarto Group (LSE: QRT) creates a wide variety of books and intellectual property products, 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 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 and distributes its products globally in over 50 countries and 40 languages, through a variety of sales channels, partnerships and routes to market.

Quarto employs c.305 talented people in the US and the UK.  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.

CHIEF EXECUTIVE'S STATEMENT

SUMMARY

Following the growth in sales in the first half of 2022 compared to 2021, the revenue in first half of 2023 declined by 16% year on year at $52m, with core revenue, excluding Quarto Distribution Services and Smart Lab, down 10% at $51m. Revenue increased year on year in 2022 by 9% (H1 2021: $56.9m, Core revenue $51.5m). 

Whilst sales declined due to the disposal of Smart Lab and the scaling back of Quarto Distribution Services, gross profit margin was impacted by only 1.2% to 35.2%, with prior year at 36.4%.

The decline in revenue resulted in an adjusted group operating profit of $3.1m (H1 2022: $6.7m). The adjusted profit before tax was $2.6m (H1 2022: $6.1m).

With both US and UK reporting segments showing revenue declines year on year, this resulted in the Group's adjusted operating results also showing a reduction, as shown in the table below.

June 2023, was a significant moment, as Quarto had net cash of $9.1m, compared with net debt of $5.6m in H1 2022, with cash generation of $14.7m over the twelve-month period and $8.5m in the last 6 months (See note 7).  This strong cash generation has been driven by strong trading in 2022, dynamic inventory management, tight cost controls and reduced finance costs.

The overall book market in the first six months of 2023 proved, as expected, to be even more challenging than 2022.

OPERATING REVIEW

Note: Revenue is shown by destination; adjusted operating profit is shown by segment.

The Group's decrease in revenue this year to date, is a result of soft trade sales and reduction of our custom sales, following a very strong 2022.

UK-based Frances Lincoln Children's Books imprint continues to drive forward, with the Little People, Big Dreams series continuing to be a highlight, with over 7 million copies sold in the English language to date. We continue to expand the list, with King Charles publishing in 2023, generating $535k in revenue. This series continues to grow and we add even more foreign language partners to our sales.

In the US, our Beverly-based Adult imprints, especially Motorbooks, Rockport and Walter Foster, continue to perform strongly led by Nascars 75 years and Kawaii Tarot Coloring Book.

Foreign language sales are ahead year on year, and we expect this to continue as we move into H2.

The current shortfall in Custom sales is purely timing and we expect this to recover in H2. English language co-edition sales, currently down year on year, are expected to remain flat as customers work through existing inventory and reprint orders are reduced.

The reduction in our financing costs will continue as we improve our cash position. 

OUTLOOK

As we move into H2 we expect the challenges seen in H1 which have been impacting trade sales to continue. With the expected fall in inflation across both the US & UK, we should start to see a softening of the cost-of-living crisis and more buoyancy in the market.

Foreign language sales are expected to hold firm, with strong orders in the pipeline and Custom sales whilst down year on year, are expected to recover during the second half of the year.

The decision to close our Quarto Distribution Service and Smart Lab, our toy imprint, has allowed us to focus on our core publishing business, whilst reducing the overhead in those areas.

After the recent period of volatility in freight in terms of lead times and costs, we have seen significant improvement in both areas. This will allow us a greater number of options when sourcing our print, enabling us to be nimble whilst ensuring competitive pricing.

I am confident we have the right plans in place to capture all potential opportunities. The Board remains focused on keeping costs under control, driving sales, and developing further growth strategies for the remainder of 2023, 2024 and beyond.

On behalf of the Board, I would like to thank all our staff, readers, customers, suppliers and shareholders around the world, for their continued support and commitment.

Alison Goff

Chief Executive Officer

THE QUARTO GROUP, INC.

Condensed Consolidated Income Statement

For the six months ended 30 June 2023

THE QUARTO GROUP, INC.

Condensed Consolidated Statement of Comprehensive Income

For the six months ended 30 June 2023

THE QUARTO GROUP, INC.

Condensed Consolidated Balance Sheet

THE QUARTO GROUP, INC.

Condensed Consolidated Statement of Changes in Equity

For the six months ended 30 June 2023

THE QUARTO GROUP, INC.

Condensed Consolidated Statement of Changes in Equity

For the year ended 31 December 2022

THE QUARTO GROUP, INC.

Condensed Consolidated Cash Flow Statement

For the six months ended 30 June 2023

THE QUARTO GROUP, INC.

Notes to the condensed financial statements

1. Interim Statement

These interim consolidated financial statements are for the half year to 30 June 2023. They were approved by the board on 30 August 2023. These results are unaudited and have not been reviewed by the Group's auditor. The comparative figures for the six months to 30 June 2022 were unaudited and derived from the interim financial statements for that period.

The information for the year ended 31 December 2022 does not constitute statutory accounts as defined in section 434 of the Companies Act 2006. A copy of the statutory accounts for that year has been delivered to the Registrar of Companies. The auditor's report on those accounts was not qualified, did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying the report and did not contain statements under section 498 (2) or (3) of the Companies Act 2006.

Basis of preparation

These interim financial statements have been prepared in accordance with the Disclosure and Transparency Rules of the Financial Conduct Authority and with IAS 34, "Interim Financial Reporting".

The Group's forecast and projections, taking account of reasonably possible changes in trading performance, show that the Group will be able to operate well within the level of its current banking facilities. The Directors have therefore adopted a going concern basis in preparing the Interim Information.

2. Accounting policies

The accounting policies, significant judgements and key sources of estimation adopted in the preparation of this Interim Report are consistent with those applied by the Group in its consolidated financial statements for the year ended 31 December 2022.

THE QUARTO GROUP, INC.

Notes to the condensed financial statement

3. Segmental analysis

THE QUARTO GROUP, INC.

Notes to the condensed financial statements

3.   Segmental analysis (continued)

4.   Exceptional Items

5.   Taxation

Taxation for the six months to 30 June 2023 is based on the Group estimated underlying tax rate for the year.  

THE QUARTO GROUP, INC.

Notes to the condensed financial statements

7.   Net cash

At 30 June 2023, the Group has a $12.7m club facility, comprising a term loan, revolving credit facility and overdraft. These facilities expire on 16 July 2024 and are subject to covenants, which were all met in the current period.

THE QUARTO GROUP, INC.

Notes to the condensed financial statements

Assets and liabilities of disposal group held for sale

Non-current assets held for sale are Pre-publication costs.

There have been no changes to the principal risks and uncertainties facing the Group since the year-end. These are disclosed on pages 17 to 19 of the 2022 Annual Report.

10.   Financial instruments

There are no material differences between the fair value of financial instruments and their carrying value.

This Interim Management Report (IMR) has been prepared solely to provide additional information to shareholders to assess the Group's strategies and the potential for those strategies to succeed.  The IMR should not be relied on by any other party or for any other purpose.

The IMR contains certain forward-looking statements.  These statements are made by the directors in good faith based on the information available to them up to the time of their approval of this report but such statements should be treated with caution due to the inherent uncertainties, including both economic and business risk factors, underlying any such forward-looking information.

12.   Responsibility statement

We confirm that to the best of our knowledge:

a)    the condensed set of financial statements, which has been prepared in accordance with IAS 34 "Interim Financial Reporting", gives a true and fair view of the assets, liabilities, financial position and profit or loss of the issuer, or the undertakings included in the consolidation as a whole as required by DTR 4.2.4R;

b)    the interim management report includes a fair review of the information required by DTR 4.2.7R (indication of important events during the first six months and description of principal risks and uncertainties for the remaining six months of the year); and

c)     the interim management report includes a fair review of the information required by DTR 4.2.8R (disclosure of related party transactions and changes therein).

By the order of the board