Quarto Group Inc (LON:QRT) CEO Marcus Leaver and CFO Michael Connole caught up with DirectorsTalk for an exclusive interview to discuss the 2015 year-end financial results, Board changes, how the business is looking and ambition for the next phase
Q1: Now guys, you announced today your final results for the year ending 31st December 2015, can you talk us through the financial highlights for the year?
A1: Quarto Group announced our results this morning, obviously we’re very very happy with the results. We’ve announced:
• Revenue for the year is $182.2 million which is up 6% on last year.
• Adjusted operating profit of $17.2 million which is up 8% on last year
• APBT of $14.1 million on an adjusted basis which is up 18% on last year
• Our Earnings per Share of 49.9 cents per share is up 13% on last year’s comparative figure of 44.1 cents
• We’ve reduced our net debt by 10% and that now is at a figure of $59.5 million as of 31st December 2015
• Proposed a final dividend for the year of 9.4 cents, making a total dividend for the year of 14.5 cents which is up 6% on last year
• At that level, we’re providing dividend cover of 3.4 times, that compares favourably with last year’s dividend cover of 3.2 times.
I think they’re the key financial highlights for the year.
Q2: So how are the core divisions performing?
A2: Well I think that we look at our business on the basis of the publishing business and the trading business and if you look at what we’re reporting this morning in terms of our revenue by division, if you look at our publishing business the revenue we’re reporting is $145.3 million which is up 13% on last year’s comparative figure of $128.1 million, within that our international co-edition is up 17%, our US publishing business is up 13% and our UK trade publishing is up 6% so we’re quite happy to show that kind of growth of 13% for the year. Our trading businesses, a mix bag as it were, we’ve 2 trading businesses:
- Books and Gifts Direct which is our trading business in Australia, that didn’t have a good year, revenues down 26%, a combination of currency and I suppose local markets not being as strong as they were, the local economy in Australia is obviously cooling which is a well-known fact.
- The other business we have is Quarto Hong Kong which is our print broking business, that itself did have a good year, that was up from $13.3 million revenue to $14.8 million so 11% revenue growth. So as I said, 6% overall growth but within that 13% growth on our publishing business.
If I look at the operating profit by division, our international co-edition business delivered an operating profit of $6.3 million against last year’s $6.1 million so nice growth there. Our US business produced growth of nearly 35%, being up from $6.6 million to $8.9 million and our UK publishing business grew its operating profit from $3.1 million to $3.3 million. So overall again, when we look at our publishing business we’ve increased the operating profit of those 2 businesses from $15.8 million to $18.5 million and that’s growth of 17%. As I said a few seconds ago our Australian business didn’t do so well on the top line neither did it do well on the bottom line as you’d expect, its profits fell from $2.8 million down to $1.6 million but our Hong Kong business increases its profit from $1.1 million to $1.5 million, that’s its operating profit. So overall, we see nice growth in the operating profit but obviously with Books and Gifts Direct, our Australian business, not performing as well as we’d had hoped.
I think that’s the key story from the core divisions.
Q3: Now as you’ve mentioned the children’s publishing is clearly performing well, what are your expectations for this part of the business?
A3: So I think in terms of children’s publishing, we had in the past some good assets and we had some good people, we’ve enhanced those assets over the last few years and we’ve added substantially to the talent. We now have 8 imprints business units: we now have 3 organic businesses that we owned already, 3 start-ups that started up in the last few years and 2 businesses that we’ve acquired in the last 3 years. So the most important thing was that we had to enhance the creative talent and now we’ve brought on an exceptional marketing sales talent and as you can see we’ve grown substantially in our children’s business from $18.5 million in 2012 to $32.4 million in 2015 so a really fantastic growth in that time. We’re on course for $50 million I would say in children’s sales by the end of financial year 2018, that being a healthy mix of organic and acquisitive growth and I’m extremely pleased to say that we have another 2 start-up imprints coming this year in America, Moondance and Seagrass presses so that really is the future. Added to which I am pleased to say that this evening it will give me great joy to go to Waterstones Book of the Year awards where we have 2 children’s books out for Book of the Year.
Q4: Now Quarto Group have announced some Board changes today, can you tell us about the significance of these for the business?
A4: Well I (Marcus Leaver) came on board in May 2012 and shortly thereafter there was an activist activity which saw the Chairman and CEO founder Laurence Orbach ousted from the Board, I took over as CEO. At that time the Chairman became Tim Chadwick, I worked with him extremely well over the last 3 years as you can see from the results today, we’ve had the backing of the activist shareholder Christopher Mills from Harwood Capital, who’s been in the business for over 12 years, and he provided support and guidance and latterly came on the Board. In November, he sold the shares he controlled which was about 30% of the company, he was very pleased with the profit he made from those, he’s also very pleased with the company, he’s maintaining his personal holding in the business of 100,000 shares and we’re pleased that he is so he’s stepping down from the Board as is Tim Chadwick at the Annual Meeting. I think that brings to an end the activist era of this business so we’ve finished the founder era, we’ve finished the activist era and now we’ve got an extremely supportive institutional shareholder base for a very committed management team that can run this publishing business around the world.
Q5: Now after 3 full financial years with you as CEO, how is the business looking?
A5: Well I think it’s looking, I would say this wouldn’t I, I think it’s looking good. I feel as though we’ve done an awful lot, they’re a pleasing set of results, they demonstrate well not just our business model but also our newfound creative energy in operational agility. So we’re 40 years old this year and I think that we have much of our history to look back on fondly whilst at the same time having a bright future ahead of us in this post-activist world for all the fundamentals here are pointing in the right direction, as I would like to point out, this is becoming an increasingly colourful story.
Q6: Finally then, Marcus what’s your ambition for the next phase?
A6: Well given in the last 3 years, well the first full 3 years under my stewardship, the business has gone up really quite considerably in terms of its fundamentals, if we could manage to do the same again in the next 3 years that would be a fairly healthy business that we were running, even healthier than we are today. So I think if we can achieve that, bringing the debt down further, taking the earnings up and enhancing the dividends, so just to be clear since 2012 the Adjusted PBT has gone up by 55%, the net debt has gone down by 27% and the Adjusted Earnings per Share has gone up 23%, I think we will maintain an excellent momentum in the next 3 years if we manage to achieve those sorts of numbers.
