Quarto in talks to sell

lllustrated publisher Quarto has announced it is considering a sale, following a preliminary approach from a third party to acquire it at "a price that the board considers attractive and reflective of the inherent value of the business as a global publishing platform". It revealed the news at the same time as announcing revenues were down 13% to $50m in the first half of the year following "continued softness in the retail environment".

Chief executive Marcus Leaver (pictured) told The Bookseller the approach from a third party to buy Quarto was "unsolicited" and made less than a week after its profit warning in early July, the day after the disposal of BGD New Zealand, the Group’s last non-core business. He said the move was "potentially exciting" but said his main concern for the business was what presented "the best offer" to shareholders while "making sure the potential acquirer would be a good home for each and every one of our employees". 

Sale discussions are in the "early stages" without guarantee any offer will be forthcoming, he added. The identity of the potential acquirer has not been revealed but Leaver said Quarto had been "gratified by the resources that have been committed by the potential acquirer at this stage". Shares have jumped more than 27% this morning following the news.

He said: "Discussions are at an early stage; no formal offer has been made yet and there can be no certainty that any offer will materialise, although we are gratified by the resources that have been committed by the potential acquirer at this stage. We are naturally proud to have third party validation of the inherent value of our business.

"Our main concern is to present the best offer to our shareholders while making sure the potential acquirer would be a good home for each and every one of our employees. In the meantime, we are all fully focused on delivering our plans for the rest of the year in the midst of a challenging retail environment in both our domestic markets.”

The news was revealed in tandem with the publication of its half-year financial results revealing a "lower than expected publishing performance". 

Revenue for the group was down 13%, from $57.9m in the first half of 2016 to $50.2m for the same period this year following "continued softness in the retail environment" characterised by "a changing product mix and unusually high returns from key customers". 

Sales of titles in its adult publishing imprints and international English language co-edition sales were the hardest hit, Leaver said. In the US, despite a revenue contribution from becker&mayer, which it acquired last year, total year-on-year revenue was lower after the publisher enjoyed "significant" sales of colouring books in the first half of 2016.

Profits were also affected by "higher than expected one-off, non recurring costs" related to personnel, including money spent following the resignation of its c.f.o., employing an interim c.f.o. and searching for a new c.f.o., as well as IT upgrades, resulting in a higher adjusted loss before tax of $8.7m (H1 2016 loss: $1.6m). Net debt rose 5% to $75.8m (H1 2016: $72.5m). Shareholders will not be paid an interim dividend, according to Quarto, its final dividend policy to be reviewed over the coming months.

Adult imprints under-performed in both domestic markets. US revenues for the first half came in $29.6m, down from $34.4m, while first half revenue for the UK was $7.5m, down from $8.9m. Bucking the trend, children’s imprints were said to have performed "resiliently, despite pockets of softness, for instance in the educational market", with children’s publishing revenue for the first six months of 2017 at $13.4m, 3% higher than the same period last year of $13m.

Leaver told The Bookseller footfall to retail stores was down in the US and UK and customers were buying less high-margin, "value products". However, in spite of the "very tough" first half, with "lots of transition", he emphasised the business was going to have "a fantastic second half" and was in in "good shape" to put a difficult start to the year behind it. 

"We've had a very tough first half, lots of transition, looking for a new c.f.o., sold our non-core businesses. But we've got a very healthy order book, good visibility, and I feel good about the second half - even though selling every book is going to be a struggle, because I don't think the economy in the UK or the US is particularly attractive right now," said Leaver. 

Quarto last month issued a profit warning to shareholders, admitting its original guidance had been “set too high” while a “soft retail environment” had resulted in a “disappointing” first half. The company is in the process refocusing its efforts on its publishing business after a change of strategy was announced in March. At that point publishing profits were up 17% and the company had just sold Regent Publishing Service for $7m and Books & Gifts Direct (BGD). As a result of refocusing the business on publishing, revenue will be more weighted towards the second half of the year, Quarto has said.

“As highlighted in our trading update in July, this set of results is below expectations," Leaver said. "However, it needs to be set in the context of both a soft retail environment and the new reality of a higher second-half seasonality for the group as a pure-play publishing business, especially with the addition of becker&mayer to our portfolio.

"It has been a transitional period with the completion of the disposals of our non-core businesses while facing a challenging trading background in our key domestic markets. We have seen lower initial orders and reprints from some large customers. In particular, most of our adult imprints have performed below our expectations."

He added: “It’s been a difficult first half but clearly we are crunching through the gears right now. Time will tell in six to twelve months time whether the shift in strategy is a good idea or a bad idea. I like to think it’s a good idea and clearly being a pure-play publishing business has been attractive to a third party, who you you can see has made an offer [approach] to buy the business.

“They clearly look at our business and see the inherent value in having a publishing platform on a global basis, making fantastic books and selling lots of them."