Quarto revenues up 21% in first half but 'challenging' months lie ahead

The Quarto Group saw revenue increase by 21% to $56.9m (£40.9m) in the six months to 30th June 2021, from $46.9m (£33.7m) during the same period last year, but c.e.o. C K Lau has warned the second half of 2021 will be "challenging" due to freight issues.

Revenue was also up 1% against 2019's $56.4m (£40.6m), while the publisher's operating profit increased to $4m (£2.9m) from a loss of $1.8m (£1.3m) last year, benefiting from a cost reduction programme in 2018 that continued through 2020. Adjusted profit before tax was $3m (£2.2m), from a 2020 loss of $3.3m (£2.4m).

Lau said the results were "encouraging" following "a year of challenge" due to the Covid-19 pandemic. He added: "We are now focused on the critical second half, as we expect the trading environment to be particularly challenging, especially with the volatility in freight regarding capacity issues and freight costs. That said, we have the right plans in place to capture all possible opportunities and ensure a satisfactory year-end.

"The board remains focused on continuing its efforts to keep costs under control, drive sales, while maintaining the debt reduction and defining further growth strategies for 2022 and beyond."

The publisher's net debt reduced in the last 12 months by $21m (£15m) to $16.4m (£11.8m), driven by its cost reduction programme, improved trading, "dynamic inventory management" and reduced finance costs.

Lau is acting as interim group chief executive officer after Polly Powell unexpectedly quit last month to build on the success of her own company, Pavilion Books.

In its report, Quarto said adult imprints performed "strongly" with revenues up 24% year on year, and 3% ahead of 2019. Revenue from children imprints was up 16% year on year. However, against 2019, revenue was 4% down, with the US in particular seeing a revenue decline.

It said the book trade market in the first half of 2021 has "proved to be resilient, recovering from the setback of 2020 and trading ahead of 2019". However it warned "the co-edition market is flat year on year, with the impact of Covid being felt."

Quarto added, while the number of published titles is in line with the prior year, revenue increased year on year, driven by backlist sales and the reopening of bricks and mortar bookstores.

UK publishing revenue in the first six months of 2021 was $7.9m (£5.7m), compared to $6.3m (£4.5m) in 2020 and $7.6m (£5.5m) in 2019. UK operating profit stood at $1m (£0.7m), compared to a loss of $0.6m (£0.4m) in 2020 and a loss of $1.5m (£1.1m) in 2019.

The UK-based Frances Lincoln Children's Books imprint "continues to drive forward", with the Little People, Big Dreams series selling more than 4.6 million copies in the English language to date. The publisher said: "We have expanded the list to include inspirational role models, such as RuPaul, David Attenborough and Captain Tom". US-based SmartLab continues to perform, with sales of Squishy Human Body selling more than 112,000 units.

Revenues from adult publishing were up across all imprints. In the US, Beverly-based adult imprints, especially Fair Winds Press and Cool Spring Press, "continue to perform strongly", led by gardening and cookery titles. US publishing revenue in the first six months of 2021 was $36.3m (£26.1m), compared to $29.2 (£21m) in 2020 and $36.7m (£26.4m) in 2019. US operating profit stood at $3.8m (£2.7m) in 2021, compared to a loss of $0.4m (£0.3m) in 2020 and a $1.3m (£0.9m) profit in 2019.

Co-edition sales are in line with the prior year, both in English and foreign-language titles, however this is a drop on 2019. The publisher said this is because its partners eased back on acquisitions in this half. It added: "We are starting to see these sales pick up; however, we are expecting this to be a challenging market."

Quarto said it has seen "new opportunities in custom publishing driving revenue growth" and expects this to become a larger part of its business-to-business revenue in the coming years. It added that international English-language sales are up year on year, driven by Australia and Canada.

Looking ahead to the second half of the year, Quarto said it expects to see online sales "return to more normal volumes with sales from traditional books stores building, albeit from a lower base". It expressed concerns about "volatility" in freight, "with capacity issues and freight costs increasing three to four-fold since the turn of the year", as well as pressure on print prices.

The report said: "We continue to look to mitigate these costs by using local printer suppliers and reviewing our inventory policy to ensure we print in the most efficient quantities. We expect this pressure on print and freight to increase our costs significantly". It added "the group has the right plans in place to capture all possible opportunities and deliver a satisfactory second half".