Quarto 'pleased' to post 2019 profit, but pandemic forces cost-cutting measures

Quarto has posted a trading update for its 2019 results, saying it expects revenues to slip 9% to $135.8m (2018: $149.3m) but will be returning a profit of $2.9m. However the company is putting in place immediate cost-saving measures as a result of the Covid-19 pandemic, including reducing its output of books and a voluntary four-day week for all staff.

The trading update revealed net debt has been reduced to $33m, following the open offer completed in January 2020 that succeeded in raising $16.5m net of expenses. Furthermore, previously tasked with repaying its debt facilities by 31st August 2020, Quarto's banking facilities have since been extended to 31st July 2021.

Quarto's group chief executive officer C K Lau said the expectation it will report profit for 2019 represents "a pleasing result", while the successful open offer and the subsequent reduction in bank debt, coupled with the extension of its banking facilities, "provides a stable financial platform for the group".

Polly Powell, chief executive of the company's UK operations, likewise told The Bookseller the trading statement "shows that Quarto had a good year, in which it turned in a profit", drawing the comparison with the end of 2018, when it reported a loss of $0.6m. "It also carried out a successful share placement and brought down its debt," she said. "Giunti became a major shareholder in the company which offers the opportunity for greater global reach for both companies when the world returns to some kind of normality."

The coronavirus crisis is however causing problems, both Lau and Powell conceded. Lau said the group was "taking proactive measures to mitigate our operational risk and manage our business and cash flows" in the face of the pandemic, the impact of which on the economy long-term is expected to be "significant".

And–although Lau said its "more sustainable balance sheet" made it "now a more robust business that can respond quickly to the challenges ahead"–the board noted the financial support commitment made by the UK Government as part of a package to support businesses: "Whilst there is still uncertainty around this package, the Board believes, based on the initial details circulated as part of the announcements, that the Group would qualify for some elements of this financial support," the report read.

In the report Quarto said it hadn't observed "any material impact in trading performance" due to the outbreak, but order volumes in the US and UK "have been dropping in recent days".

Powell said the Covid-19 crisis also meant auditors are unwilling to sign off on Quarto being a "going concern". "This is happening with all companies who are trying to post their results at precisely this moment," said Powell. "I’m not sure that any company that isn’t producing essential items, would be able to say safely that they were a ‘going concern’ at the moment, so it would be unfair to judge Quarto at this moment."

She continued that Quarto is putting in place "immediate strategies to conserve cash" and reducing its output of books over the next few months to be fair to authors.

"We are introducing a voluntary four-day week for all staff, which has been supported by the staff, we are reducing our publication programme over the next few months (it is not fair to authors to push books into the market when there is a reduced opportunity to sell their books) and we are reducing our printings to reflect potential sales," said Powell.

"Meanwhile, we are going on the offensive with everything we can do on the sales and marketing front, and concentrating our efforts in all the the subjects that are of appeal at the moment. I’m glad to report that all the subjects in high demand‚Äìchildren’s books, hobbies, cookery, gardening, mindfulness‚Äìare all key niches of the Quarto publishing portfolio and I believe that Quarto is in fact better placed than most to sustain sales over this challenging time."