Quarto adjusts to lower profits after solid second-half

International illustrated publisher the Quarto Group has said that despite a solid second-half it expects full-year adjusted profit before tax for 2017 to be "significantly lower" than board projections. Earlier this year, Quarto warned that its first half profits would be below its market guidance; the group now says that "solid" second-half trading will more than recover the first-half loss but not by enough to meet the expectations.

According to the company, a "strong" publishing programme for the autumn and holiday period, the ongoing strong performance of the children’s and foreign rights businesses, tight operational control and restructuring in parts of the business have all contributed to the business' performance for the second half of the year. The company added that Becker&Mayer, which was acquired in August 2016, was expected to have a "healthy" first full year.

The "resilience" of the group’s business means that trading in the second half of 2017 is in line with the equivalent period in 2016, with the group revenue expected to be higher than in the second half of 2016. However following the weak trading performance from the first half of the year, group revenue for the full year was expected to be marginally lower than 2016, the company said. Year-end net debt was expected to be lower than net debt at 30th June 2017 but to increase year-on-year.

The company experienced "significant additional challenges" this year in the form of a tough retail environment, a restructure of its finance team and an unsolicited offer to purchase the group, said c.e.o. Marcus Leaver, however he added that the execution of the strategy to become a pure-play publishing business by selling its non-core businesses "went well".

Leaver added: “The resilience of the total business is reflected in a strong H2 trading performance which will more than recover the H1 loss, although not enough to claw back to earlier board expectations for the full year. Whilst we have successfully transformed the business in the last few years, the competing pressures of servicing our debt, paying dividends, and investing in the core business currently inhibit our ability to grow. We are focusing on building the enhanced operational agility we need within our business to operate in an ever-changing market environment and the global markets in which we sell our intellectual property."

In 2018, the group’s primary focus will be on organic growth in its children’s business, and more granular asset management in its adult portfolio, in order to return to acceptable profit levels and significantly reduce the losses accumulated during first half of the year. The company has also said it intends to become more "operationally agile", and to strengthen its balance sheet as a platform for growth in an "ever-changing market environment".

It added that "sales volatility remains high", and that parts of the adult portfolio "continue to underperform due to both market and specific channel softness". It stated that "a number of adults imprints are currently being reviewed to reduce the group’s cost base in this area, thereby giving Quarto more flexibility to re-allocate assets towards faster-growing parts of the business". Earlier this year, publisher Jacqui Small announced her intention to retire, and Leaver told The Bookseller that that group would continue to "prune and titivate" as appropriate, with the children's division now the "growth engine". Leaver, who celebrated his fifth anniversary as the group's c.e.o this week, said that it had been a "tough six months", but that 2018 would be better for the decisions taken this year. "The business is very different now to what it was five years ago, and will be very different again in five years time. The strategy is well set and we are feeling very positive."

In September, Michael Connole, chief financial officer of the Quarto Group, left the business and Brian Porritt, most recently c.f.o. at Huntsworth Plc, was appointed interim chief financial officer. The company has said it will announce a permanent appointment in early 2018. The company's share price fell 15% on the news, having also fallen significantly when it reported its first-half results.