Quarto reports 17% publishing profit rise in 2016

Quarto has reported its largest surge in publishing profits to date, a rise of 17%, for 2016. Its children's publishing revenues meanwhile increased by an impressive 34%, its annual results showed.

The results were published just as the publisher won the Waterstones Children's Picture Book of the Year for the second year running (with Lizzy Stewart's There's a Tiger in the Garden, Frances Lincoln Children's Books).

Quarto c.e.o. Marcus Leaver said the company would now concentrate its efforts on its publishing business, following the disposal of Hong Kong-based Regent Publishing Service and Books & Gifts Direct (BGD).

Its publishing had put up a "resilient" performance in 2016, Quarto said. Its annual results for the year ended 31st December 2016 showed its publishing business' revenue grew 6% to $154.6m (2015: $145.3m) with an increase in publishing operating profit of 17% to $21.7m (2015: $18.5m). Quarto's revenue overall climbed 3% to $188.4m (2015: $182.2m). Adjusted profits were up, but after taking a financial hit from the Books & Gift Direct (BGD) business, the group made a loss of $5.3m.

Leaver told The Bookseller that, with its change in strategy, he saw no reason why Quarto shouldn't triumph as the dominant illustrated publisher over the next few years. The company's narrower focus however has led the company's group c.f.o. and executive director Michael Connole, appointed 18 months ago, to resign; Leaver said Connole had told him he "didn't think publishing was a business that was in his blood".

Following the company's disposal of its 75% stake in Hong Kong-based Regent Publishing Services for $7m, as reported by The Bookseller last week, the sale of Books and Gifts Direct is expected to complete today (31st March). "The disposal of our non-publishing businesses, almost complete, will allow us to focus entirely on our publishing portfolio," commented Leaver. BGD had "disappointed for a number of years", he said, with 2016 no exception. Quarto incurred a one-off impairment charge of $14.2m against BGD, attributable to its exit from the business, and reported net debt at $61.9m (2015: $59.5m) resulting in part from "poor trading within BGD".

Quarto's 2016 children's publishing revenues were up 34% to $43.4m (2015: $32.4m), with both organic and acquisitive growth, after Quarto US bought US-based independent trade publisher becker&mayer in August last year. Quarto children's publishing revenues have increased 135% since 2012. Foreign rights revenues in 2016 were up 8% to $32.5m (2015: $30.1m), despite foreign currency fluctuations in certain markets.

"If you look at our children's programme over the last five years, we've concentrated on it, we've grown it considerably, so I think we're good at publishing and I think we should focus on it. Since 2012, our children's publishing has gone up 135% and 34% year-on-year. So yes, I think we're good at publishing and I'm very pleased we're just doing that as of today," Leaver told The Bookseller.

"What we do really, really well at Quarto is we make and sell books. I would say we are the leading content manufacturer. Ideas are our livelihood, they are the lifeblood of our business and I think what we do as a company is we take big ideas and we shine a light on information most people are unable to see and we turn those into books. I think we've done it for 41 years extremely well. In the last five years, we've increased our children's output, now 28% of the business, and with a focus on both adult and children's I see no reason why we shouldn't be the dominant illustrated publisher over the next few years in what is a very fragmented industry."

Leaver said in the last few years Quarto had concentrated on "distribution development" to expand its global network and capitalise on emerging markets. This strategy of more "boots on the ground", aiming to have as many people selling into as many channels as possible in as many territories around the world, runs counter to the strategies of other publishers, argued Leaver, who he said they "tend to suck into head office their key accounts base; we have gone completely the other way". 

"Not only does every channel count but also every single territory," he added, with foreign rights sales to be a "key element" in its success.

"We're in a position where we're not entirely reliant on book store traffic, we're not entirely reliant on Amazon e-commerce, we've got a very defrayed multi-channel approach to selling our books and we think that's the right way forward and we're going to continue that approach," he said.

Quarto's most profitable imprints in 2016 were QED/Quarto Children’s Books, Ivy Press, Race Point Publishing, Book Sales, Walter Foster, and the recently acquired becker&mayer. Its "create your own cookbook" initiative, ThisIsYourCookbook.com had a steady first full year, and Quarto said it would now invest some marketing funds in this business in 2017.

Quarto Publishing Group UK (QUK) showed only modest growth, badly impacted by currency volatility, resulting overall in a 6% decline, with revenue of $21.5m (2015: $22.8m). Adjusting operating profit was $2.8m (2015: $3.3m). The UK market was said to have been "somewhat softer in 2016" - "undermined to some extent by the anticipation and result of the EU referendum and subsequent currency volatility and the weakness in sterling has reduced revenue growth". 

"As in the US, there was a slow finish to the year and we are also budgeting cautiously here. That said, this remains a portfolio of good imprints that publish excellent books," reported Quarto.

Both its international co-edition operation and its US publishing businesses improved their sales and profits over the period. Quarto Publishing Group USA (QUS) took $81.2m in revenue for 2016 (2015: $72.4m) and adjusted operating profit was $9.6m (2015: $8.9m). Quarto International Co-Editions (QIC) performed well in 2016 with revenue of $51.9 (2015: $50.1m) and adjusted operating profit $9.4m.