Quarto sees 43% adjusted operating profit rise despite revenue dip

Illustrated book publisher the Quarto Group has announced a 43% increase in adjusted operating profit for the year despite a 2% dip in revenue, but warned of further challenges ahead.

The company said today revenue had fallen from $152.5m (£117.3m) in 2017 to $149.3m (£114.8m) for 2018. However, adjusted operating profit was up to $10.3m (£7.9m) from $7.2m (£5.5m) thanks to a “strong trading performance” and “significant cost reductions”. It had an operating profit of $4.3m (£3.3m) – an improvement on last year’s $17.9m (£13.8) loss.

Figures showed children’s revenues were particularly healthy, up 2%, partly due to the performance of the UK-based Lincoln Children’s Books list, and now making up more than one-third of the group’s total. Another 63.2% of revenue came from the company’s backlist.

Quarto formed a new board in May following a shareholder revolt over how to deal with its significant levels of debt, appointing Andy Cumming as its non-executive chairman in July, who oversaw renegotiation of the company’s banking facilities. The publisher slashed its portfolio of imprints from 40 to 33 and downsized its offices as part of a series of cutbacks that included job cuts. Significantly, it also negotiated an extension of its banking facilities.

For 2018, US publishing revenues were down 1% at $81.2m (£62.4m) while UK publishing revenues were flat at $20.4m (£15.7m) from $20.3m (£15.6m). The UK results were led by the Lincoln Children’s Books, Ivy Press/Ivy Kids, and Wide Eyed Editions imprints.

In isolation, UK adjusted operating profit was up 11% to $7.9m (£6m) which Quarto said was partly due to lower royalty costs, reducing investment in new title acquisition and cost-cutting. Reprints accounted for 61% of revenue, compared to 54% in 2017.

Adult publishing revenues were down 4.3% across the group, which it blamed on the “consolidation of publishers in the English language co-edition market”.

Quarto predicted it would now start to return to full health but warned foreign language markets and its adults portfolio would continue to face challenges.

Its report stated: “In the medium to long term, our strategy remains to grow organically through innovation and, where applicable, by acquisition, and to continue to drive circa 60% annual recurring revenue through the group’s enduring backlist and innovative use of its rich IP catalogue.”

Chuk Kin Lau, c.e.o, said: “Adjusted operating profit and adjusted profit before tax were both ahead of the prior year, in a time of continued softness in the marketplace and of considerable transition for the group. Our resilient and talented staff have stepped up to the challenges we have faced.

“The extension of our banking facilities gives us a stable position from which we can continue to improve business performance and to reduce debt to a more acceptable level. The board are fully focused on achieving stability in the business, returning the Group to full health and defining further growth strategies for 2020 and beyond.

“Together with the board, I remain confident in the business model and future prospects of Quarto. The group is uniquely positioned in the market and its vision stays unchanged; to become the dominant publisher of illustrated books worldwide.”