Quarto Group Inc Half-Year Results

Data : 16/08/2019 @ 08:00
Fonte : UK Regulatory (RNS & others)
Titolo : Quarto Group Incorporated (QRT)
Quotazione : 75.5  0.0 (0.00%) @ 01:00
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Quarto Group Inc Half-Year Results

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RNS Number : 2417J

Quarto Group Inc

16 August 2019

16 August 2019

THE QUARTO GROUP, INC.

("Quarto" or the "Company" or the "Group")

Half-Year Results for the Six Months Ended 30 June 2019

The Quarto Group, Inc. (LSE: QRT), the leading global illustrated book publisher, announces

its unaudited half-year results for the six months ended 30 June 2019.

 
 Results ($m)                   H1 2019   H1 2018 
-----------------------------  --------  -------- 
 Group Revenue                  56.4      56.2 
 Adjusted(1) Group Operating 
  Loss                          (1.2)     (4.7) 
 Group Operating Loss           (1.6)     (7.0) 
 Adjusted(1) Loss before Tax    (4.0)     (6.6) 
 Loss before Tax                (4.4)     (8.9) 
 Loss after Tax                 (3.6)     (6.7) 
 Net Debt                       65.0      73.2 
 

1. Adjusted measures are stated before amortisation of acquired intangibles and exceptional items.

Headlines

   --     Revenue marginally up at $56.4m 
   --     Adjusted operating loss down 75% at $1.2m 
   --     Net debt reduced by 11% to $65.0m 
   --     Strong contribution from children's imprints with revenues up 14% 

Commenting on the results, Chief Executive, C.K. Lau said:

"This is an encouraging set of results following a year of significant change for the Group. Revenue is slightly up year on year, while both operating loss and net debt have reduced significantly during the period in what is seasonally our weak half of the year.

We are now focused on the critical second half as we expect the trading environment to be particularly challenging, especially on the Adult co-edition side both in English and foreign language. 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 returning the Group to full health, reducing debt and defining growth strategies for 2020 and beyond."

-S -

The Legal Entity Identifier of the Company is 549300BJ2WPX3QUATW58.

For further information, please contact:

 
 The Quarto Group, Inc. 
 Walter Nolan, Chief Financial Officer 
  Dorothée de Montgolfier, Group Director 
  of Communications                               +44 20 7700 9002 
 

About The Quarto Group

The Quarto Group (LSE: QRT) creates a wide variety of books and intellectual property products, with a mission to inspire life's experiences. Produced in many formats for adults, children and the whole family, our products are visually appealing, information rich and stimulating.

The Group encompasses a diverse portfolio of imprints and businesses that are creatively independent and expert in developing long-lasting content across specific niches of interest.

Quarto sells and distributes its products globally in over 50 countries and 40 languages, through a variety of sales channels, partnerships and routes to market.

Quarto employs c.330 talented people in the US and the UK. The group was founded in London in 1976. It is domiciled in the US and listed on the London Stock Exchange.

For more information, visit quarto.com or follow us on Twitter at @TheQuartoGroup.

CHIEF EXECUTIVE'S STATEMENT

SUMMARY

Trading was encouraging for the first six months of 2019. Revenue is slightly up year on year at $56.4m (H1 2018: $56.2m) with a smaller publishing programme.

Children's imprints performed particularly well, with revenues up 14%. Revenues from Adult imprints were down 6% as the market remains challenging, particularly on the co-edition side where we are still seeing consolidation of our key publishing customers. The gross profit margin was in line with prior year at 21.5% (H1 2018: 21.3%).

The increased revenues, combined with substantial benefits from the cost out program implemented in 2018, have resulted in a significantly lower adjusted group operating loss of $1.2m (H1 2018: loss of $4.7m) in what is our seasonally weak half year. The adjusted loss before tax was $4.0m (H1 2018: loss of $6.6m).

Both reporting segments improved their trading performance year on year, resulting in a significant improvement in the Group's adjusted operating result, as shown in the table below.

Net debt at 30 June 2019 was $65.0m (H1 2018: $73.2m), a decrease of $8.2m over the twelve-month period.

The book trade market remains soft, while in the co-edition market, further consolidation is impacting both English and foreign language sales, especially on the Adult segment. As a result, the Group expects the trading environment in the second half to be more challenging than in prior years.

OPERATING REVIEW

 
 Revenue ($m)                    H1 2019   H1 2018 
------------------------------  --------  -------- 
 United States                   36.7      33.8 
 United Kingdom                  7.6       8.1 
 Europe                          5.7       6.3 
 Rest of the World               6.4       8.0 
 Total Revenue                   56.4      56.2 
------------------------------  --------  -------- 
 
 
 Adjusted Operating Loss ($m)    H1 2019   H1 2018 
------------------------------  --------  -------- 
 US Publishing                   1.0       (0.7) 
 UK Publishing                   (1.5)     (2.0) 
 Group overhead                  (0.7)     (2.0) 
------------------------------  --------  -------- 
 Total adjusted operating 
  loss                           (1.2)     (4.7) 
------------------------------  --------  -------- 
 

Note: Revenue is shown by destination; Adjusted Operating Profit is shown by segment.

With fewer titles published in the period than the prior year, as a result of the cost out programme initiated in the second half of 2018, the Group's revenue increased slightly year on year, led by the strong performance of our children's imprints.

UK-based Frances Lincoln Children's Books was particularly successful. Its Little People, Big Dreams series remains a highlight, with over 1.3 million copies sold in the English language to date. We have expanded the list to include inspirational male role models and these titles have done well so far. Young Quarto also performed strongly, selling well in the book trade, although sales to our key co-edition publishers have been slower than the prior year. In the US, our SmartLab Toys business also performed well.

Revenues from Adult imprints were down and that market remains more challenging. In the US, our Beverly-based Adult imprints, especially Fair Winds Press and Harvard Common Press, continue to perform strongly led by our successful line of Keto cookery titles.

Co-editions sales have been slower than the prior year both in English and foreign language and, with the continued consolidation of key publishers in the market, we expect them to remain so in the second half. We continue to look at new opportunities in custom publishing to grow our customer base.

The challenging Adult co-edition market has impacted Foreign language sales, which have been slower than prior year in the first half and are expected to remain down year on year for the full year.

International English language sales are down year on year. This is mostly due to order timings and they are expected to remain comparable for the full year.

Group overheads were reduced by 65% due to the cost out program initiated in the second half of 2018. The benefits of these savings will much lower in the second half of the year.

OUTLOOK

The market remains soft in both the US and the UK and, considering the weaker performance of Adult co-editions in both English and foreign language, as well as the uncertainty surrounding Brexit and US trade tariffs, we expect the trading environment in the second half to be particularly challenging.

That said, the Group has the right plans in place to capture all possible opportunities and deliver a satisfactory end to the year. The Board remains focused on returning the Group to full health, reducing debt and defining growth strategies for 2020 and beyond.

On behalf of the Board, I would like to thank all our people for their continued commitment as well as our partners and suppliers across the world.

C.K. Lau

Chief Executive Officer

THE QUARTO GROUP, INC.

Condensed Consolidated Income Statement

For the six months ended 30 June 2019

 
                                                 Six months     Six months    Year ended 
                                                         to             to   31 December 
                                               30 June 2019   30 June 2018          2018 
                                                  Unaudited      Unaudited       Audited 
                                        Note          $'000          $'000         $'000 
 
  Continuing operations 
Revenue                                  3           56,390         56,174       149,292 
Cost of sales                                      (44,282)       (44,237)     (107,195) 
--------------------------------------  ----  -------------  -------------  ------------ 
 
Gross profit                                         12,108         11,937        42,097 
 
Distribution costs                                  (3,525)        (3,778)       (7,919) 
Administrative expenses                             (9,773)       (12,838)      (23,873) 
--------------------------------------  ---- 
 
Operating (loss)/profit before 
 amortisation of acquired intangibles 
 and exceptional items                              (1,190)        (4,679)        10,305 
 
Amortisation of acquired intangibles                  (408)          (428)         (850) 
Exceptional items                        4                -        (1,891)       (5,152) 
--------------------------------------  ----  -------------  -------------  ------------ 
 
Operating (loss)/profit                  3          (1,598)        (6,998)         4,303 
 
Finance income                                            9              -            21 
Finance costs                                       (2,792)        (1,902)       (4,381) 
--------------------------------------  ----  -------------  -------------  ------------ 
 
Loss before tax                                     (4,381)        (8,900)          (57) 
 
Taxation                                 5            1,095          2,225         (495) 
 
 
Loss for the period                                 (3,286)        (6,675)         (552) 
======================================  ====  =============  =============  ============ 
 
Attributable to: 
 
Owners of the parent                                (3,286)        (6,675)         (552) 
======================================  ====  =============  =============  ============ 
 
(Loss)/earnings per share (cents) 
 
From continuing operations 
Basic                                    6           (16.1)         (32.6)         (2.7) 
Diluted                                  6           (16.1)         (32.6)         (2.7) 
 
Adjusted basic                           6           (14.6)         (24.1)          23.2 
Adjusted diluted                         6           (14.6)         (24.1)          23.0 
 
 

THE QUARTO GROUP, INC.

Condensed Consolidated Statement of Comprehensive Income

For the six months ended 30 June 2019

 
                                              Six months     Six months    Year ended 
                                                      to             to   31 December 
                                            30 June 2019   30 June 2018          2018 
                                               Unaudited      Unaudited       Audited 
                                                   $'000          $'000         $'000 
 
Loss for the period                              (3,286)        (6,675)         (552) 
 
Other comprehensive income which 
 may be reclassified to profit or 
 loss 
Foreign exchange translation differences           (119)          (691)       (1,950) 
Cash flow hedge: (losses)/profits 
 arising during the period                          (85)             26          (60) 
  Tax relating to items that may be 
   reclassified to profit or loss                      -              -         (246) 
-----------------------------------------  -------------  -------------  ------------ 
 
Total comprehensive expense for 
 the period                                      (3,490)        (7,340)       (2,808) 
=========================================  =============  =============  ============ 
 
Attributable to: 
 
Owners of the parent                             (3,490)        (7,340)       (2,808) 
=========================================  =============  =============  ============ 
 

THE QUARTO GROUP, INC.

Condensed Consolidated Balance Sheet

At 30 June 2019

 
                                                         30 June 2018  31 December 
                                           30 June 2019     Unaudited         2018 
                                     Note     Unaudited      Restated      Audited 
                                                  $'000        '$'000        $'000 
Non-current assets 
Goodwill                                         18,907        19,144       18,954 
Other intangible assets                           1,809         3,025        2,368 
Property, plant and equipment         2          11,112         1,870        1,552 
Intangible assets: Pre-publication 
 costs                                           54,110        60,373       56,741 
Deferred tax assets                               3,900         3,890        3,901 
-----------------------------------  ----  ------------  ------------  ----------- 
Total non-current assets                         89,838        88,302       83,516 
-----------------------------------  ----  ------------  ------------  ----------- 
 
Current assets 
Inventories                                      20,561        24,574       22,324 
Trade and other receivables                      42,084        41,699       54,476 
Derivative financial instruments                     20           191          105 
Cash and cash equivalents             7           7,694         5,047       15,384 
 
Total current assets                             70,359        71,511       92,289 
-----------------------------------  ----  ------------  ------------  ----------- 
 
Total assets                                    160,197       159,813      175,805 
-----------------------------------  ----  ------------  ------------  ----------- 
 
Current liabilities 
Short term borrowings                 7         (7,500)      (78,294)      (5,000) 
Trade and other payables              2        (49,328)      (52,617)     (64,917) 
Tax payable                                     (2,960)       (1,268)      (4,167) 
 
Total current liabilities                      (59,788)     (132,179)     (74,084) 
-----------------------------------  ----  ------------  ------------  ----------- 
 
Non-current liabilities 
Medium and long term borrowings       7        (65,156)             -     (70,752) 
Deferred tax liabilities                        (8,445)       (8,397)      (8,753) 
Tax payable                                       (541)       (1,016)        (544) 
Other payables                        2         (8,579)       (1,524)        (554) 
-----------------------------------  ----  ------------  ------------  ----------- 
Total non-current liabilities                  (82,721)      (10,937)     (80,603) 
-----------------------------------  ----  ------------  ------------  ----------- 
 
Total liabilities                             (142,509)     (143,116)    (154,687) 
-----------------------------------  ----  ------------  ------------  ----------- 
 
Net assets                                       17,688        16,697       21,118 
===================================  ====  ============  ============  =========== 
 
Equity 
Share capital                                     2,045         2,045        2,045 
Paid in surplus                                  33,764        33,764       33,764 
Retained profit and other reserves             (18,121)      (19,112)     (14,691) 
-----------------------------------  ----  ------------  ------------  ----------- 
Total equity                                     17,688        16,697       21,118 
===================================  ====  ============  ============  =========== 
 

THE QUARTO GROUP, INC.

Condensed Consolidated Statement of Changes in Equity for the six months ended 30 June 2019

 
                                                                                          Equity 
                                                                                    attributable 
                                                                                       to owners 
                       Share  Paid in  Hedging              Translation   Retained        of the  Non-controlling 
                     capital  surplus  reserve                  reserve   earnings        parent        interests    Total 
                        $000     $000     $000                     $000       $000          $000             $000     $000 
 
Balance at 1 
 January 
 2018                  2,045   33,764      165                  (4,793)    (7,078)        24,103                -   24,103 
 
Loss for the period        -        -        -                        -    (6,675)       (6,675)                -  (6,675) 
Foreign exchange 
 translation 
 differences               -        -        -                    (691)          -         (691)                -    (691) 
Cash flow hedge: 
 profits 
 arising during the 
 period                    -        -       26                        -          -            26                -       26 
  Total 
   comprehensive 
   (expense)/income 
   for the period          -        -       26                    (691)    (6,675)       (7,340)                -  (7,340) 
-------------------  -------  -------  -------  -----------------------  ---------  ------------  ---------------  ------- 
 
Share based payment 
 credit                    -        -        -                        -       (66)          (66)                -     (66) 
 
Balance at 30 June 
 2018                  2,045   33,764      191                  (5,484)   (13,819)        16,697                -   16,697 
===================  =======  =======  =======  =======================  =========  ============  ===============  ======= 
 
Balance at 1 
 January 
 2019                  2,045   33,764      105                  (6,989)    (7,807)        21,118                -   21,118 
 
Loss for the period        -        -        -                        -    (3,286)       (3,286)                -  (3,286) 
Foreign exchange 
 translation 
 differences               -        -        -                    (119)          -         (119)                -    (119) 
Cash flow hedge: 
 losses 
 arising during the 
 period                    -        -     (85)                        -          -          (85)                -     (85) 
Total comprehensive 
 (expense) 
 for the period            -        -     (85)                    (119)    (3,286)       (3,490)                -  (3,490) 
-------------------  -------  -------  -------  -----------------------  ---------  ------------  ---------------  ------- 
 
Share based payment 
 charge                    -        -        -                        -         60            60                -       60 
 
Balance at 30 June 
 2019                  2,045   33,764       20                  (7,108)   (11,033)        17,688                -   17,688 
===================  =======  =======  =======  =======================  =========  ============  ===============  ======= 
 

THE QUARTO GROUP, INC.

Condensed Consolidated Statement of Changes in Equity for the year ended 31 December 2018

 
                                                                                       Equity 
                              Paid                                               attributable 
                    Share       in  Hedging              Translation   Retained  to owners of  Non-controlling 
                  capital  surplus  reserve                  reserve   earnings    the parent        interests    Total 
                     $000     $000     $000                     $000       $000          $000             $000     $000 
 
Balance at 1 
 January 
 2018               2,045   33,764      165                  (4,793)    (7,078)        24,103                -   24,103 
 
Loss for the 
 year                   -        -        -                        -      (552)         (552)                -    (552) 
Foreign exchange 
 translation 
 differences            -        -        -                  (1,950)          -       (1,950)                -  (1,950) 
Cash flow hedge: 
 losses 
 arising during 
 the year               -        -     (60)                        -          -          (60)                -     (60) 
Tax relating to 
 items 
 that may be 
 reclassified 
 to profit or 
 loss                   -        -        -                    (246)          -         (246)                -    (246) 
  Total 
   comprehensive 
   income 
   for the year         -        -     (60)                  (2,196)      (552)       (2,808)                -  (2,808) 
----------------  -------  -------  -------  -----------------------  ---------  ------------  ---------------  ------- 
 
Share based 
 payment credit         -        -        -                        -      (177)         (177)                -    (177) 
 
Balance at 31 
 December 
 2018               2,045   33,764      105                  (6,989)    (7,807)        21,118                -   21,118 
================  =======  =======  =======  =======================  =========  ============  ===============  ======= 
 
 

THE QUARTO GROUP, INC.

Condensed Consolidated Cash Flow Statement

For the six months ended 30 June 2019

 
                                                          Six months     Six months 
                                                                  to             to    Year ended 
                                                             30 June   30 June 2018   31 December 
                                                                2019      Unaudited          2018 
                                                    Note   Unaudited       Restated       Audited 
                                                               $'000          $'000         $'000 
 
           Loss for the period                               (3,286)        (6,675)         (552) 
           Adjustments for: 
     Net finance costs                                         2,783          1,902         4,360 
     Depreciation of property, plant 
      and equipment                                    2       1,089            357           693 
     Software amortisation                                       151            137           298 
     Tax (credit)/charge                                     (1,095)        (2,225)           495 
     Impairment of pre-publication 
      costs                                                        -              -           501 
     Share based payments                                         60           (66)         (177) 
     Amortisation and amounts written 
      off acquired intangibles                                   408            428           910 
     Amortisation and amounts written 
      off pre-publication costs                               15,034         16,206        31,426 
     Movement in fair value of derivatives                         -           (26)             - 
 
           Operating cash flows before movements 
            in working capital                                15,144         10,038        37,954 
 
               Decrease/(increase) in inventories              1,734        (2,030)            21 
   Decrease/(increase) in receivables                         12,317         11,550       (2,280) 
    (Decrease)/increase in payables                         (16,196)        (8,322)         4,639 
--------------------------------------------------  ----  ----------  -------------  ------------ 
 
           Cash generated by operations                       12,999         11,236        40,334 
 
           Income taxes paid                                   (385)        (1,865)       (1,962) 
--------------------------------------------------  ----  ----------  -------------  ------------ 
 
Net cash from operating activities                            12,614          9,371        38,372 
 
Investing activities 
Interest received                                                  9              -            21 
Investment in pre-publication 
 costs                                                      (12,935)       (16,886)      (29,744) 
Purchases of property, plant and 
 equipment                                                      (75)          (121)         (169) 
Purchase of software                                               -           (82)          (77) 
Acquisition of subsidiaries                                        -              -       (1,887) 
 
Net cash used in investing activities                       (13,001)       (17,089)      (31,856) 
 
Financing activities 
Interest payments                                            (2,341)        (1,651)       (2,980) 
External loans repaid                                        (6,923)        (8,633)      (24,238) 
External loans drawn                                           1,997          5,000        18,457 
 
Net cash used in financing activities                        (7,267)        (5,284)       (8,761) 
 
Net decrease in cash and cash 
 equivalents                                                 (7,654)       (13,002)       (2,245) 
 
Cash and cash equivalents at beginning 
 of period                                                    15,384         17,946        17,946 
 
Foreign currency exchange differences 
 on cash and cash equivalents                                   (36)            103         (317) 
--------------------------------------------------  ----  ----------  -------------  ------------ 
 
Cash and cash equivalents at end 
 of period                                                     7,694          5,047        15,384 
==================================================  ====  ==========  =============  ============ 
 

THE QUARTO GROUP, INC.

Notes to the condensed financial statements

   1.         Interim Statement 

These interim consolidated financial statements are for the half year to 30 June 2019. They were approved by the board on 15 August 2019. These results are unaudited and have not been reviewed by the Group's auditor. The comparative figures for the six months to 30 June 2018 are also unaudited and derived from the interim financial statements for that period.

The information for the year ended 31 December 2018 does not constitute statutory accounts as defined in section 434 of the Companies Act 2006. A copy of the statutory accounts for that year has been delivered to the Registrar of Companies. The auditor's report on those accounts was not qualified, did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying the report and did not contain statements under section 498 (2) or (3) of the Companies Act 2006.

Basis of preparation

These interim financial statements have been prepared in accordance with the Disclosure and Transparency Rules of the Financial Conduct Authority and with IAS 34, "Interim Financial Reporting", as adopted by the European Union.

The Directors have formed a judgement that there is a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. For this reason, the Directors continue to adopt the going concern basis in preparing the financial statements. The Group has committed facilities of $82.5m through to 31 August 2020. The Group has complied with its bank covenants and is budgeted to do so for the foreseeable future.

The accounting policies adopted are consistent with those of the annual financial statements for the year ended 31 December 2018 as described in those financial statements, except for the adoption of a new International Accounting Standard, IFRS 16, which is commented on in Note 2.

Prior period restatement

The Condensed Consolidated Balance Sheet as at 30 June 2018 has been restated to reflect the adoption of IRFS 15 (effective 1 January 2018) and the requirement to include the reserve for sales returns within other payables. This adjustment has increased trade and other receivables by $4.8m and increased trade and other payables by the same value. There is no impact on the net assets of the Group.

   2.     New Standards adopted as at 1 January 2019 

IFRS 16 'Leases'

This note explains the impact of the adoption of IFRS 16 'Leases' on the Group's financial statements and discloses the new accounting policy that has been applied from 1 January 2019.

IFRS 16, effective from 1 January 2019, requires lessees to recognise a lease liability reflecting future lease payments and a right-to-use asset for lease contracts, subject to exceptions for short-term leases and leases of low-value assets. The Group has adopted the standard's "modified retrospective" transition approach. There is no adjustment to equity at the date of initial application. Prior periods have not been restated, as permitted under the specific transitional provisions in the standard.

The Group has elected to measure the right-of-use assets at 1 January 2019 at an amount equal to the lease liability. The liabilities were measured at the present value of the remaining lease payments, discounted using the weighted average incremental borrowing rate, ranging between 3.33% and 5.11% based on the length of the remaining lease.

THE QUARTO GROUP, INC.

Notes to the condensed financial statements

   2.     New Standards adopted as at 1 January 2019 (continued) 

The following is a reconciliation of total operating lease commitments at 31 December 2018 to the lease liabilities recognised at 1 January 2019:

$000

Total operating lease commitments disclosed at 31 December 2018

12,008

Recognised exemptions at 1 January 2019:

   --      Leases with remaining lease term of less than 12 months  (266) 

Other liabilities now recognised within lease liabilities 837

12,579

Discounted using incremental borrowing rate

(1,970)

Total lease liabilities recognised under IFRS 16 at 1 January 2019

10,609

Of which are:

   --      Current lease liabilities 

1,885

   --      Non-current lease liabilities 

8,724

The adoption of IFRS 16 has impacted the following items:

Impact on Balance sheet

                                                                                                       1 January 2019                      30 June 2019 
                                                                                                                   $000                                       $000 

Right-of-use assets:

-- Property, plant and equipment 10,609 9,767

Lease liabilities:

   --      Trade and other payables: 

within one year (1,885) (1,863)

over one year (8,724) (7,995)

                                                                                                                (10,609)                                     (9,858) 

The adoption of IFRS 16 on 1 January 2019 had a nil impact on the net assets of the Group due to applying the modified retrospective approach where assets equal liabilities. At 30 June 2019, lease liabilities of $9,858,000 are $91,000 higher than right-of-use assets to the depreciation charge in the period being in excess of lease repayments, net of interest charges.

A reconciliation of the value of right-of-use assets and lease liabilities from 1 January 2019 to 30 June 2019 is presented below:

                                                                                                                   Right-of-use                              Lease 
                                                                                                                           assets                            liabilities 
                                                                                                                             $000                                   $000 
   Right-of-use asset and lease liabilities at 1 January 2019                       10,609 

(10,609)

Depreciation (812) -

Lease payments - 949

Lease interest - (228)

Exchange differences (30) 30

   Right-of-use asset and lease liabilities at 30 June 2019                            9,767 

(9,858)

There were no additions during the period.

THE QUARTO GROUP, INC.

Notes to the condensed financial statements

   2.     New Standards adopted as at 1 January 2019 (continued) 

Impact on Income statement:

6 months to

30 June 2019

$000

Reduction in occupancy expenses

949

Total EBITDA benefit

949

(Increase) in depreciation of property, plant and equipment

(812)

(Increase) in interest expense

(228)

Net (increase) in loss before tax

(91)

Prior to the adoption of IFRS 16 rental payments were charged to the income statement on a straight-line basis. Under IFRS 16 rental costs in the income statement are replaced with depreciation on the right-to-use asset and interest charges on the lease liability. The adoption of IFRS 16 therefore gives rise to a net $91,000 charge in the loss before tax for the period to 30 June 2019. At EBITDA, the adoption of IFRS 16 gives a benefit of $949,000.

In applying IFRS 16 for the first time, the Group has used the following practical expedients permitted by the standard:

   --      Reliance on historic assessments as to whether leases are onerous. 

-- Account for operating lease with a remaining term of less than 12 months at 1 January 2019 as short-term leases and expense on a straight-line basis over the remaining lease term.

-- Account for leases of low value assets on a straight-line basis and not recognise as a right-of- use asset.

-- Exclusion of initial direct costs for the measurement of the right-of-use asset at the date of initial application.

-- The use of hindsight in determining the lease term where the contract contains options to extend or terminate the lease.

   3.     Segmental analysis 

The Group reorganised the number of its divisions from three to two at the start of the current year. The previous year's figures have been restated accordingly.

 
 
 Six months to 30 June 2019                US Publishing     UK Publishing     Total 
                                                    $000              $000      $000 
 Revenue                                          32,921            23,469    56,390 
                                        ================  ================  ======== 
 
 Operating profit before amortisation 
  of acquired intangibles and 
  exceptional items                                1,026           (1,520)     (494) 
 Amortisation of acquired intangibles              (285)             (123)     (408) 
                                        ----------------  ----------------  -------- 
 Segment result                                      741           (1,643)     (902) 
 Unallocated corporate expenses                                                (696) 
                                                                            -------- 
 Operating loss                                                              (1,598) 
 Finance costs                                                               (2,783) 
                                                                            -------- 
 Loss before tax                                                             (4,381) 
 Tax credit                                                                    1,095 
                                                                            -------- 
 Loss after tax                                                              (3,286) 
                                                                            ======== 
 

THE QUARTO GROUP, INC.

Notes to the condensed financial statements

   3.         Segmental analysis (continued) 
 
 Six months to 30 June 2018              US Publishing   UK Publishing     Total 
                                                  $000            $000      $000 
 Revenue                                        31,554          24,620    56,174 
                                        ==============  ==============  ======== 
 
 Operating profit before amortisation 
  of acquired intangibles and 
  exceptional items                              (677)         (1,993)   (2,670) 
 Amortisation of acquired intangibles            (298)           (130)     (428) 
                                        --------------  --------------  -------- 
 Segment result                                  (975)         (2,123)   (3,098) 
 Unallocated corporate expenses                                          (2,009) 
 Exceptional items                                                       (1,891) 
                                                                        -------- 
 Operating loss                                                          (6,998) 
 Finance costs                                                           (1,902) 
                                                                        -------- 
 Loss before tax                                                         (8,900) 
 Tax credit                                                                2,225 
                                                                        -------- 
 Loss after tax                                                          (6,675) 
                                                                        ======== 
 
 
 Year ended 31 December 2018             US Publishing   UK Publishing     Total 
                                                  $000            $000      $000 
 Revenue                                        78,108          71,184   149,292 
                                        ==============  ==============  ======== 
 
 Operating profit before amortisation 
  of acquired intangibles and 
  exceptional items                              5,027           7,708    12,735 
 Amortisation of acquired intangibles            (596)           (254)     (850) 
--------------------------------------  --------------  --------------  -------- 
 Segment result                                  4,431           7,454    11,885 
 Exceptional items: 
 Exceptional item - pre-publication 
  asset impairment                             (1,164)               -   (1,164) 
 Exceptional items - other                       (811)           (402)   (1,213) 
--------------------------------------  --------------  --------------  -------- 
 Operating profit                                2,456           7,052     9,508 
 Unallocated corporate expenses                                          (2,430) 
 Corporate exceptional items                                             (2,775) 
                                                                        -------- 
 Operating profit                                                          4,303 
 Finance income                                                               21 
 Finance costs                                                           (4,381) 
                                                                        -------- 
 Loss before tax                                                            (57) 
 Tax                                                                       (495) 
                                                                        -------- 
 Loss after tax                                                            (552) 
                                                                        ======== 
 

THE QUARTO GROUP, INC.

Notes to the condensed financial statements

   3.   Segmental analysis (continued) 
 
 Geographical revenue 
 The Group generates its revenue in the 
  following geographical areas: 
 
                                Six months      Six months     Year ended 
                                        to              to    31 December 
                              30 June 2019    30 June 2018           2018 
                                 Unaudited       Unaudited        Audited 
                                     $'000           $'000          $'000 
 United States                      36,749          33,741         86,092 
 United Kingdom                      7,595           8,137         20,384 
 Europe                              5,672           6,295         25,314 
 Rest of the World                   6,374           8,001         17,502 
 Total                              56,390          56,174        149,292 
=========================  ===============  ==============  ============= 
 
   4.     Exceptional items 
 
                                                                 Six months   Six months 
                                                                         to           to     Year ended 
                                                                    30 June      30 June    31 December 
                                                                       2019         2018           2018 
                                                                  Unaudited    Unaudited        Audited 
                                                                      $'000        $'000          $'000 
 Exceptional items comprised: 
 Reorganisation costs 
 
        *    Impairment of pre-publication intangible assets              -            -            501 
 
        *    Impairment of backlists                                      -            -             60 
 
        *    Write-off of pre-publication costs                           -            -            603 
 
        *    Staff severance costs                                        -          132          1,039 
 
        *    Other reorganisation costs                                   -            -            672 
 
        *    Board changes                                                -          866            831 
 
        *    Refinancing costs                                            -          893          1,446 
 
 Total                                                                    -        1,891          5,152 
=============================================================  ============  ===========  ============= 
 
   5.     Taxation 

Taxation for the six months to 30 June 2019 is based on the Group estimated underlying tax rate for the year.

THE QUARTO GROUP, INC.

Notes to the condensed financial statements

   6.   Earnings per share 
 
                                                     Six months  Six months 
                                                             to          to    Year ended 
                                                        30 June     30 June   31 December 
                                                           2019        2018          2018 
                                                      Unaudited   Unaudited       Audited 
                                                          $'000       $'000         $'000 
  From continuing operations 
  Loss for the purposes of basic and diluted 
   earnings per share, being net loss attributable 
   to owners of the parent                              (3,286)     (6,675)         (552) 
  Amortisation of acquired intangibles 
   (net of tax)                                             306         321           701 
  Exceptional items (net of tax)                              -       1,418         4,603 
---------------------------------------------------  ----------  ----------  ------------ 
  (Loss)/earnings for the purposes of 
   adjusted earnings per share                          (2,980)     (4,936)         4,752 
===================================================  ==========  ==========  ============ 
 
                                                         Number      Number        Number 
  Weighted average number of shares                  20,444,450  20,444,450    20,444,450 
  Dilutive outstanding options awards                   250,957     400,185       256,655 
---------------------------------------------------  ----------  ----------  ------------ 
  Diluted weighted average number of shares          20,695,407  20,844,635    20,701,105 
===================================================  ==========  ==========  ============ 
 
 
  (Loss)/earnings per share (cents)                       Cents       Cents         Cents 
  From continuing operations 
  Basic                                                  (16.1)      (32.6)         (2.7) 
  Diluted                                                (16.1)      (32.6)         (2.7) 
 
  Adjusted basic                                         (14.6)      (24.1)          23.2 
  Adjusted diluted                                       (14.6)      (24.1)          23.0 
 
 

The impact of IFRS 16 (note 2) on the loss per share has been to increase the basic loss per share from 15.7 cents to 16.1 cents and the adjusted basic loss per share from 14.2 cents to 14.6 cents.

   7.      Net debt 
 
                                       30 June      30 June   31 December 
                                          2019         2018          2018 
                                     Unaudited    Unaudited       Audited 
                                         $'000        $'000         $'000 
 Net debt comprised: 
 Cash and cash equivalents               7,694        5,047        15,384 
 Short term borrowings                 (7,500)     (78,294)       (5,000) 
 Medium and long-term borrowings      (65,156)            -      (70,752) 
 Net debt                             (64,962)     (73,247)      (60,368) 
                                   ===========  ===========  ============ 
 

At 30 June 2019, the Group has a $67.5m syndicated facility, comprising a term loan and revolving credit facility. These facilities expire on 31 August 2020 and are subject to covenants, which were all met in the current period. In addition, the Group has $13.0m of loans with related parties, repayable on 31 August 2020, and a $2.0m overdraft facility.

   8.     Principal risks and uncertainties facing the Group 

There have been no changes to the principal risks and uncertainties facing the Group since the year-end. These are disclosed on pages 18 and 19 of the 2018 Annual Report.

THE QUARTO GROUP, INC.

Notes to the condensed financial statements

   9.      Financial instruments 

There are no material differences between the fair value of financial instruments and their carrying value.

10. Management Statement

This Interim Management Report (IMR) has been prepared solely to provide additional information to shareholders to assess the Group's strategies and the potential for those strategies to succeed. The IMR should not be relied on by any other party or for any other purpose.

The IMR contains certain forward-looking statements. These statements are made by the directors in good faith based on the information available to them up to the time of their approval of this report but such statements should be treated with caution due to the inherent uncertainties, including both economic and business risk factors, underlying any such forward-looking information.

Responsibility statement

We confirm that to the best of our knowledge:

(a) the condensed set of financial statements, which has been prepared in accordance with IAS 34 "Interim Financial Reporting", gives a true and fair view of the assets, liabilities, financial position and profit or loss of the issuer, or the undertakings included in the consolidation as a whole as required by DTR 4.2.4R;

(b) the interim management report includes a fair review of the information required by DTR 4.27R (indication of important events during the first six months and description of principal risks and uncertainties for the remaining six months of the year); and

(c) the interim management report includes a fair review of the information required by DTR 4.28R (disclosure of related party transactions and changes therein).

By the order of the board

 
 Chuk Kin Lau               Andrew Cumming 
  Chief Executive Officer    Chairman 
 
 15 August 2019             15 August 2019 
 

This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.

END

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