GEORGE TAI
Managing Director,
Regent Publishing Services
Pride and Prejudice
Rockport Publishers
1
#WEAREBOOKS
PHILIP COOPER
Publisher
Art: The Whole Story
Quintessence Editions
AMY SLETTUM
Print Promotions
& Merchandising Manager
Sally’s Candy Addiction
Race Point Publishing
#WEAREPEOPLE
2015 ANNUAL REPORT
MARLENE STURM
Foreign Rights Executive
Charles Darwin
The Voyage Of The Beagle
Zenith Press
HEATHER GODIN
Art Director
The Paper Hat Book
Quarry Books
ZETA JONES
Publisher
Alice’s Adventures
in Wonderland
Rockport Publishers
#WEAREQUARTO
KERRY ENZOR
Publisher
Superfoods 24/7
Apple Press
#WEAREBOOKS
#WEAREPEOPLE
#WEAREQUARTO
Celebrating 40 years of Quarto, our company,
our people and their favourite books!
CAITLIN FULTZ
Project Manager
Beyond Canning
Voyageur Press
JESSICA PINAULT
Digital Marketing
Co-ordinator
Sally’s Baking Addiction
Race Point Publishing
DARWIN HOLMSTROM
Senior Editor
American Muscle Cars
Motorbooks
1
CONTENTS
OVERVIEW
Setting the scene for our Group
and the businesses we operate
Highlights of the Year
Chairman's Statement
What we do & How we do it
STRATEGIC REPORT
A review of our strategy and
how we are delivering against this
Chief Executive Officer's Statement
Divisional Review
Key Initiatives
Outlook
Strategic Report
Key Performance Indicators
Our People
Financial Review
GOVERNANCE
How we manage our Group and an
introduction to the Board and their focus
Directors' Report
Audit Committee Report
Directors' Remuneration Report
Annual Report on Remuneration
Nominations Committee Report
Statement of Directors' Responsibilities
Independent Auditor's Report
2
4
6
8
10
15
17
18
20
24
29
35
42
45
55
63
64
66
FINANCIAL STATEMENTS
Our financial statements provide a complete
overview of our 2015 performance
Consolidated Statement of Comprehensive Income 71
72
Consolidated Balance Sheet
73
Consolidated Statement of Changes in Equity
74
Consolidated Cash Flow Statement
75
Notes to the Financial Statements
112
Company Balance Sheet
119
Five Year Summary
120
Officers and Advisors
2
HIGHLIGHTS OF THE YEAR
GROUP REVENUE
REVENUE
REVENUE
$182.2m1
(2014: $171.3m)2
+6%
$50.1m
(2014: $42.7m)
+17%
$72.4m
(2014: $64.0m)
+13%
ADJUSTED3 PROFIT
BEFORE TAXATION
ADJUSTED3
OPERATING PROFIT
ADJUSTED3
OPERATING PROFIT
$14.1m
(2014: $11.9m)2
+18%
$6.3m
(2014: $6.1m)
+3%
$8.9m
(2014: $6.6m)
+35%
PROFIT BEFORE TAXATION
$12.9m
(2014: $12.0m)2
+8%
PROFIT FOR THE YEAR
•
•
$9.3m
(2014: $9.1m)2
+2%
ADJUSTED EARNINGS
PER SHARE1
49.9cents
(2014: 44.1 cents per share)2
+13%
• Apple Press
• Design Eye
• Fine Wine Editions
• Global Book Publishing
Iqon Editions
Ivy Press
Ivy Kids
•
• Leaping Hare Press
• Marshall Editions
• QED Publishing
• Qu:id Publishing
• Quantum Publishing
• Quarto Children’s Books
• Quarto Publishing
• Quintessence
• Quintet Publishing
• RotoVision
• small world creations
• words & pictures
IMPRINTS
IMPRINTS
• Book Sales
• Cool Springs Press
• Creative Publishing international
• Fair Winds Press
• Motorbooks
• Quarry Books
• QDS (Distribution Services)
• Race Point Publishing
• Rock Point Calendars
• Rock Point Gift & Stationery
• Rock Port Publishers
• The Harvard Common Press
• Voyageur Press
• Walter Foster Publishing
• Walter Foster Publishing Junior
• Zenith Press
3
REVENUE
REVENUE
REVENUE
$22.8m
(2014: $21.4m)
+6%
ADJUSTED3
OPERATING PROFIT
$3.3m
(2014: $3.1m)
+6%
$22.1m
(2014: $29.9m)2
-26%
$14.8m
(2014: $13.3m)
+11%
OPERATING PROFIT
OPERATING PROFIT
$1.6m
(2014: $2.8m)2
-43%
$1.5m
(2014: $1.1m)
+36%
IMPRINTS
BUSINESSES
BUSINESSES
• Aurum Press
• Frances Lincoln
• Frances Lincoln Children's Books
• Frances Lincoln Gift & Stationery
• Jacqui Small
• Kinkajou
• Wide-Eyed Editions
Formerly:
• Lifetime Distributors (Australia)
• Premier Books (New Zealand)
• Regent Publishing Services
• Quarto Hong Kong
Includes revenue of $8.2m relating to the acquired Ivy Press business.
1
2 Restated as set out in Note 1 and Note 35.
3 Adjusted measures are stated before amortisation of acquired intangible assets and exceptional items.
4
CHAIRMAN'S STATEMENT
Financial highlights
for the year include:
Revenue up
6% to $182.2m
(2014: $171.3m)1
Adjusted2 Group Operating
Profit up 8% to $17.2m
(2014: $15.9m)1
Adjusted2 Profit Before
Tax up 18% to $14.1m
(2014: $11.9m)1
Profit Before Tax up 8%
to $12.9m (2014: $12.0m)1
Adjusted2 Earnings per
Share of 49.9c up 13%
(2014: 44.1c)1
Net debt reduced by 10%
to $59.5m (2014: $66.0m)
Proposed final dividend
of 9.4c (2014: 8.2c)3 up 15%,
making the total dividend
for the year of 14.5c,
up 6% (2014: 13.7c)
Dividend cover of 3.4x
(2014: 3.2x)1, 3
1 Restated as set out in Note 1
and Note 35.
2 Adjusted measures are stated
before amortisation of
acquired intangible assets
and exceptional items.
3 Dividend per share is declared
in cents per share and paid
in sterling. Dividend cover
is calculated using adjusted
earnings per share.
After three years of transformation, with cumulative earnings
per share growth and debt reduction, 2015 was Quarto’s most
profitable year ever. This is the fulfilment of the vision which
led to my appointment as Chairman in 2012 and I am proud
of what Quarto has achieved in that time. I have decided not
to put myself forward for re-election at the Annual Meeting,
but rather hand over with confidence to Peter Read, upon his
election at the Annual Meeting, to lead the Board as Chairman
through Quarto’s next phase of growth.
DIVIDEND
As well as our continued focus on debt reduction, the Board
is pleased to recommend a final dividend of 9.4c/6.15p per
share, making the total dividend for the year 14.5c/9.50p,
a 6% increase over last year, giving dividend cover, based
on Adjusted Earnings per Share of 49.9c (2014: 44.1c) of
3.4 times (2014: 3.2 times). Notwithstanding the increase
in the final dividend for 2015, the Board believes that the
balance between the interim dividend and final dividend
should be more weighted to the final dividend given the
increased second half weighting of revenues and profits.
Accordingly, there will be no increase in the interim dividend
in 2016, but with the expected earnings growth for the full
year, the Board anticipate appropriate progression in the
final dividend.
CORPORATE GOVERNANCE
I was elected as Chairman of Quarto at a time of great
change in late 2012. Since that time Quarto’s earnings have
increased by over 50% and its debt has reduced by over 25%.
The Company has a clear strategy for the future and I am
pleased to have appointed such an accomplished executive
management team during my tenure. With the exit of the
activist shareholder block in November 2015, I shall leave
the Board along with Christopher Mills, at the conclusion
of the forthcoming Annual Meeting on May 24, 2016.
The proposed new Chairman, Peter Read, is currently a
non-executive director of Quayle Munro Ltd. and Concha
Plc, the Professional Cricketer’s Association, and the Royal
Automobile Club. He was formerly Chairman of KPMG's
Telecoms, Media & Technology practice and a partner for
over 20 years. Peter will join the Board at the Annual Meeting.
Marie Louise Windeler will also join the Board at the Annual
Meeting and assume the role of Chair of the Remuneration
Committee; she has had excellent experience of executive
and non-executive roles in creative businesses. They will form
the non-executive Board along with Mike Hartley, Senior
Independent Director and Chair of the Audit Committee, and
Jess Burley, both of who were appointed during my tenure
as Chairman; I am grateful to both of them for their help in
reforming the Company’s corporate governance.
5
Timothy J. M. Chadwick
Chairman
Revenue up
6%
FAVOURITE TITLE
London Uncovered
Frances Lincoln
Profit before
tax up
8%
"Quarto is a fine
business, poised
at an exciting
time in its history.
I wish it all the
best in executing
its strategy."
The Board has examined the merits of moving the Company’s domicile
to the UK from its historic domicile in the USA in Delaware. Given the
significant cost and execution risk of such a move which would have
limited benefit to existing shareholders, the Directors do not believe this
to be in the Company’s interests in the short to medium term. If there is
a beneficial change in US tax legislation, then the Board will look at the
issue again in the future.
PEOPLE
We said farewell to Mick Mousley, our long-standing Chief Financial
Officer, in 2015. His enormous contribution to the Company can never
be underestimated and we wish him well in his retirement. Our new
CFO, Michael Connole, joined us in September and has made an
excellent contribution to the business already.
Yet again our people at Quarto have shown restless creativity and
resolute innovation. Increasingly tenacious sales and marketing efforts
have lifted the Company to record profits in 2015. On behalf of the Board,
I would like to thank all of our people in all of our businesses around the
world for their talented hard work and commitment to Quarto.
Quarto is a fine business, poised at an exciting time in its history.
I wish it all the best in executing its strategy.
Timothy J.M Chadwick
Chairman
March 30, 2016
6
WHAT WE DO &
HOW WE DO IT
To educate, entertain and enrich
the lives of our readers, putting
books in their hands, wherever,
however and whenever
they choose.
7
Investing in creating
product that excites the
enduring interest of niche
enthusiast groups with category
focussed publishing teams
who are creatively driven
and financially astute.
Delivering profitability
by developing the talented
people in our Group network that
retains creative independence
but encourages marketing
and sales interdependence
and collaboration.
Driving growth through
enhanced product distribution
with focus on existing
channels, adaptation and
innovation in new channels
as well as expansion into new
global markets.
Managing an efficient supply
chain and distribution of product
in order to reach consumers,
utilising best practice and the scale
of our international marketing
and sales operations to drive cost
efficiencies, while allowing our
creative teams to flourish.
8
CHIEF EXECUTIVE OFFICER’S STATEMENT
Summary
Quarto made
continued progress in
2015, delivering on our
strategic objectives
of revenue growth,
debt reduction and
dividend growth, while
improving operational
efficiency. This level
of performance
was enabled by the
resilience of our
business model and
the professionalism,
ambition and hard
work of our people
around the world.
Our goal in our 40th anniversary year remains for Quarto
to grow in a sustainable and profitable manner, organically
and through judicious acquisitions, and steadily reduce
net debt further.
Our core publishing operations contributed revenue
growth of 13% and adjusted operating profit growth of 17%.
Our publishing margins improved from 12.3% to 12.8%,
demonstrating the quality of the revenue growth that we
achieved which offset currency fluctuations in some areas
of the Group. Our trading businesses contributed $3.3m
in operating profits with an excellent year from Regent
Publishing Services making up for another year of currency
weakness and difficult trading at Book & Gifts Direct.
We have focused on tighter working capital management
in all Group companies this year and net debt has been
reduced by 10% or $6.5m and by over 25% since 2012.
Working capital management and debt reduction will
remain a key point of focus in 2016.
We continue to demonstrate the market demand and
commercial value of illustrated print books. Quarto books
serve clearly identified markets and are useful, instructive
and well produced. These characteristics reflect our creative
focus on customers and underpin the enduring quality
of our imprints. We are a content-rich company, built on
the foundations of the creative independence and vitality
of each imprint, combined with senior management that
is commercially focused. New titles are viewed through
the prism of creativity, quality and economic impact.
We celebrate our 40th Anniversary with confidence in the
continued value of these principles in guiding our business
strategy. Further, we have enhanced our model through the
implementation of global operational, marketing and sales
collaboration. Our new sales and marketing arrangements
with Allen & Unwin in Australasia and the launch of
www.QuartoKnows.com in June 2015 demonstrate this
global collaboration; the second phase of the development
of the latter, our digital hub and e-commerce platform
will take place in 2016.
Consequently, Quarto enters its fifth decade as a highly
diversified dynamic portfolio of creative businesses
underpinned by a scalable production and sales platform
for organic and acquisitive growth. We will continue to
grow by creating and exploiting information rich content
and licensing that content in domestic and global markets.
We will allocate capital across our portfolio of businesses,
backing long-lasting winners and flexibly responding to both
market opportunities and market challenges as they arise.
9
Adjusted
earnings per
share up
13%
Marcus E. Leaver
CEO, The Quarto Group
FAVOURITE TITLE
The Bear
And The Piano
Frances Lincoln
Children’s Books
Net debt
down
10%
Total
dividend up
6%
Organic growth alone will be insufficient to leverage fully
the market opportunity. Starting new imprints and attracting
new talent is vital but, with very rare exceptions, takes time
to have a significant impact on the Group. Notwithstanding
the quality of our catalogue and strong revenue contribution
of historic titles, imprints do decline and organic growth
sometimes serves only to offset this natural life cycle.
Acquisitions of appropriate publishing imprints will therefore
remain fundamental to continued strong growth providing
that we stay true to our acquisition principles: that the
businesses acquired shall be within our known areas of
publishing expertise, bring measurable benefits to the
Group as a whole and in the year after acquisition, should
be earnings enhancing.
Quarto’s people around the world have excelled in 2015
with the Quarto work ethic evident in all areas of the
business; our people are hard-working, practical and
focused. The spirit of co-operation within the Group
continues and the commitment shown to our entire
ecosystem of partners and network of suppliers allows
us to keep up the momentum we have achieved in 2015
and aim for each year.
10
DIVISIONAL REVIEW
Revenue $50.1m
(2014: $42.7m)
Adjusted Operating
Profit $6.3m
(2014: $6.1m)
Backlist sales
% of sales 59%
(2014: 68%)
Intellectual Property
Investment $15.7m
(2014: $14.6m)
Sales by territory: US
34%, Europe 32%, UK
16%, ANZ 6%, RoW 12%
(2014: US 31%, Europe 34%, UK 18%,
ANZ 9%, RoW 8%)
JOY AQUILINO
Acquiring Editor
Sharpie Art Workshop
Rockport Publishers
2015 has been a mixed year for the wide portfolio of imprints
that constitute QIC. The integration and the outperformance
of the acquired Ivy Press business has been a highlight,
contributing revenue of $8.2m and operating profit of $1.9m.
The weaker performance of some of the other imprints had
been expected and of some others less so. A variety of factors
came into play; those factors being market focussed, imprint
focussed or category focussed or a combination thereof.
We are addressing these issues and are confident that the
recovery of these formerly successful units to previous levels
of profitability will happen in the course of the next two
financial years. We recognise the cyclical nature of a number
of our businesses and manage the portfolio accordingly.
Currency fluctuations certainly had a negative impact on
deal closing and deal flow in total. Some potential downside
was countered with the execution of some entrepreneurial
royalty deals as opposed to losing deals in total. But English
language revenues were robust yet again with strength in
most imprints in new title purchases and reprints. This bodes
well for the future.
Enhanced by our acquisition of Ivy Press, this is a portfolio
of market-leading imprints based in London and Brighton,
that enjoys good medium-term visibility as we continue to
produce and publish books that are of perennial interest,
avoiding passing fads, while enjoying numerous reprints
and justifying the initial investment.
ThisIsYourCookbook.com had an encouraging few
months post-launch and proved its concept of producing
personalised cookbooks. We will invest some marketing
funds in this business in 2016. It is still too early to say
whether this new venture will reach commercial success,
but investment in new ways of exploiting our IP is essential
to the ongoing health of Quarto.
MARTIN TAYLOR
Designer
Creature Close-Up:
Ocean Animals
QED Publishing
11
Revenue $72.4m
(2014: $64.0m)
Adjusted Operating
Profit $8.9m
(2014: $6.6m)
Backlist sales
% of sales 71%
(2014: 70%)
Inventory % of sales 21%
(2014: 19%)
At a turn of 2.0x
(2014: 1.9x)
Intellectual Property
Investment $14.9m
(2014: $14.8m)
2015 has been an excellent year for the US-based imprints.
After a challenging 2014 in the Home Improvement retail
sector, the team has executed its business plan very
effectively and outperformed in its market-leading sales
in the Art Instruction category, led by adult colouring book
sales. Our most successful titles came from a three year
old organic start up imprint, Race Point. This highlights
how important it is to reinvest continually in our various
portfolios. Equally our sales and marketing structure
excelled in making our product available as deeply and
widely as it did in all channels both domestically and
globally. That said, 2015 has been an exceptional year,
and we will strive to repeat this performance in 2016.
Our direct relationships with retailers continue to develop
as we focus our publishing and distribution into niche
markets. Our strategy remains to diversify our channels
to market in a way that matches the breadth of our
publishing programmes which cater for enthusiasts.
Our recent acquisition of The Harvard Common Press is a
good example of this. The purchase, which was completed
on February 1, 2016, adds hundreds of titles to our backlist
as well as over 25,000 recipes. The acquisition furthers
our position as a leading publisher of lifestyle-orientated
titles for the consumer markets.
The medium-term view is positive in this business and
we will continue to look for suitable acquisition candidates,
either lists that complement what we already publish or
businesses in areas where this portfolio is underweight,
such as children’s books.
MARISSA GIAMBRONE
Art Director
Tangled Travels
Creative Publishing
international
12
DIVISIONAL REVIEW
2015 has been another year of progress for our UK-based
imprints with particularly gratifying performances from
Aurum Press, which has been transformed by its new
Publisher into an illustrated and global imprint, and
Wide Eyed Editions, a second year start up under a talented
creative management team, who are also re-igniting the
creativity in Frances Lincoln Children’s Books.
The medium-term view is encouraging as we maintain our
focus on both domestic and international markets utilising
the creative platform we now have in place. Suitable
acquisition candidates will be identified in areas where
the portfolio could be enhanced.
Revenue $22.8m
(2014: $21.4m)
Adjusted Operating
Profit $3.3m
(2014: $3.1m)
Backlist sales
% of sales 44%
(2014: 54%)
Inventory
% of sales 17.3%
(2014: 19%)
At a turn of 1.5x
(2014: 1.4x)
Intellectual Property
Investment $4.3m
(2014: $4.2m)
KATIE COTTON
Senior Editor
There’s A Tiger In The Garden
Frances Lincoln
Children’s Books
NICOLA PRICE
Designer
The 50 States
Wide Eyed Editions
13
Revenue $22.1m
(2014: $29.9m)1
Operating Profit $1.6m
(2014: $2.8m)1
Network Capacity 113%
(2014: 85%)
Despite the fact the Australian Dollar weakened by 17%
during the course of the year against the US Dollar, it cannot
disguise the fact that it has been another demanding year
for our business in Australia and New Zealand.
In local currency, poor last quarter trading saw our sales to
the Australian Master Franchisers down 20% for the full year
against 2014. This is a result of sales out of their networks
being sluggish, leading to the Master Franchisers being
overstocked and not needing to buy new inventory from
Books & Gifts Direct as the Australian economy has cooled.
New Zealand has had a reasonable trading year following
the merger of 2014 but has suffered lower margins
resulting from a deliberate attempt to reduce levels of
older inventory. We continue to explore the sale of the
franchises for North Island and South Island as opposed
to owning the business in this territory.
Progress has been made in this business in 2015 with the
full roll out of our proprietary technology and network
capacity up to 113% from 85% at the end of 2014. We have
a coherent market-leading business in Australia and New
Zealand. With resolutely committed partners in the Master
Franchises, an increasingly experienced management
team, enhanced buying power and the implementation of
proprietary technology that has been developed over the
last two years, we have all the ingredients for a return to
the levels of profitability enjoyed previously. Quarto’s
executive management will assist in this return to
success in any way it can.
1 Restated as set out in
Note 1 and Note 35.
JOSEPH CRAVEN
Managing Director,
Books & Gifts Direct
100 Perfect Hair Days
RotoVision
14
DIVISIONAL REVIEW
Revenue $14.8m
(2014: $13.3m)
Operating Profit $1.5m
(2014: $1.1m)
With one of the most experienced management teams in
the industry, Regent, our long-established print broking
business based in Hong Kong, produced an excellent result
in 2015 with operating profit up 36% from revenues up
11%. The new sales and marketing strategy, focussed on in
2015, of children’s, religious, comic, gaming and stationery
publishing is working well.
The establishment of Quarto Hong Kong in 2015, the
Group’s print buying office in Hong Kong, is driving
further savings for Quarto in print buying in China,
a critical element of our supply chain and a cornerstone
in our improving operational efficiencies across the Group.
MOZIDUR RAHMAN
Licensing Manager
In A Minute Mum
QED Publishing
WINCY KHO
Senior Manager,
Quarto Hong Kong
Dreams Of Freedom
Frances Lincoln Children’s Books
KEY INITIATIVES
15
Revenue $32.4m
(2014: $23.0m)
Our children’s revenues have grown by over 75% from
2012 and now constitute 22% of our publishing revenues.
Our talented creative teams around the world are
suitably teamed up with excellent specialist children’s
book sales people and marketers. We continue to attract
and develop talent in this area and will examine potential
acquisitions on both sides of the Atlantic.
ALISON STONE
Executive Assistant
The Best Homemade
Kids' Snacks On The Planet
Fair Winds Press
TOM READ
English Language Sales Manager
Could A Whale Swim
To The Moon?
QED Publishing
16
KEY INITIATIVES
Revenue $30.1m
(2014: $26.6m)
Our Foreign Rights team has battled hard to counter the
currency fluctuations affecting most of the markets they
sell into. Their entrepreneurial approach has salvaged
what could have been a poor year and with the addition
of Ivy Press they have ended the year ahead of last year.
Our Brazilian distribution agreement with Grupo Nobel,
Quarto Editora, got off to a good start and 2015 saw a
full year contribution from that business. We continue to
source similar relationships in other undersold territories
but have proceeded cautiously in ensuring we find the
right partners who share our values.
CLEMENCE MAHEO
Foreign Rights Manager
Taste
Aurum Press
JONATHAN SIMCOSKY
Acquiring Editor
Let’s Cook French
Quarry Books
OUTLOOK
17
We celebrate our
40th Anniversary
in 2016 with a clear
sense of purpose and
identity. Quarto knows
how to make and sell
books that inspire,
educate, entertain and
encourage creativity.
Quarto does this
consistently and
profitably and will
continue to do so in
2016 and beyond.
The Group is well-positioned to deliver continued
earnings growth in 2016. We expect this to manifest itself
in the second half of the year; the increase in second half
weighting experienced in 2014 and 2015 is in line with
continuing global retail trends. Visibility gained through
our forward order books and the recurring revenues of
our business model gives us confidence in our ability to
continue the momentum of the last three years as we
execute our business plan.
Quarto remains a cash generative business and we are
committed to reducing our net debt, including by resolutely
examining the strengths and weaknesses of our portfolio
with a clear focus on our working capital. Continued
reduction in net debt will further enhance our options
to build on the strong platform that has been created
in the last three years and prior. As we further develop
our business to take advantage of growth areas and the
acquisition opportunities that are presented to us, thereby
increasing the Group’s earnings, we will progress the
Company’s dividend in the second half of the year,
as we have done in 2014 and 2015.
Marcus E. Leaver
Chief Executive Officer
March 30, 2016
CECILIA FARLEY
Design Assistant
Atlas of Adventures
Wide Eyed Editions
18
STRATEGIC REPORT
Our strategy is to grow our revenue and margins by leveraging our
size, scale and reach as the leading global illustrated book publisher
and distribution group to build a business with sustainable growth in
earnings per share while reducing its debt burden. Our principal risks
and uncertainties are set out on page 33.
REVENUE GROWTH
IMPROVING OPERATING MARGINS
We focus on revenue growth organically for
each of our imprints in our portfolio. We also
search for earnings accretive lists, imprints or
businesses that can add to our portfolio and
enhance the marketing and sales efforts of
our existing businesses.
We improve our operating margins on
revenue by using the leverage of our
illustrated publishing focus to buy print
and freight effectively. We are relentless
also in identifying other areas of supply
chain efficiencies.
INTELLECTUAL PROPERTY INVESTMENT
GROUP VALUE ADD
We are committed to investing in long-
lasting intellectual property. In pursuing
the very best photography, artwork,
design and writing, we aim to safeguard
the future revenue streams of the business.
We continue to develop the value added
by the Group function in supporting
our people achieve our objectives while
acknowledging our core belief of creative
independence in each publishing imprint.
DISTRIBUTION DEVELOPMENT
DEBT REDUCTION/DIVIDEND INCREASES
We develop direct physical distribution
relationships, global partnerships and
the digital marketing and delivery of our
content. We are committed to selling our
books wherever, however and whenever our
customers want them in multiple markets;
multiple languages and multiple formats.
We shall continue to focus on reducing our
debt burden and where possible, increase
dividends to enhance shareholder value.
STRATEGIC PROGRESS IN 2015
19
The year has seen us overlay the undoubted creative independence and rigour of our
publishing with a tenacious marketing and sales force that works interdependently
and collaboratively on a global basis. With the directional control provided from the
Group and support in non-publishing or sales/marketing functions, we are beginning to
leverage our scalable business model to good effect.
Revenue
growth
Improve
operating
margins
Managing our
IP investment
Up 13%
in Publishing Businesses
Up to 12.8%
in Publishing Businesses
Children's Publishing
revenues up over 40%;
22% of Group Revenue
Developing
distribution
channels
Group
value add
Debt reduced
& dividend
increased
Foreign Rights Revenues
up 13%; Over 50% growth
in Children's foreign
rights revenues
Global Publishing
Operations unit established.
Systems implementation in
the US with 2016 UK rollout
Net Debt down 10%
Total dividend up 6%
20
KEY PERFORMANCE INDICATORS (KPIs)
Our strategy is to grow our revenue and margins by leveraging our
size, scale and reach as the leading global illustrated book publisher
and distribution group to build a business with sustainable growth
in earnings per share while reducing our debt burden.
Our EBITDA
has grown 8%
in the year.
EBITDA1,2
2015
2014
2013
2012
2 0 1 1
14.500000
15.833333
17.166667
18.500000
ADJUSTED3 PROFIT BEFORE TAX2
Our Adjusted PBT
has grown by 18%
in the year.
2015
2014
2013
2012
2 0 1 1
5.000000
8.033333
11.066667
14.100000
RETURN ON NET OPERATING ASSETS2
The Board uses
this ratio to
evaluate the long-
term financial health
of the company.
2015
2014
2013
2012
2 0 1 1
10.000000
11.266667
12.533333
13.800000
Our net debt has
reduced by 10%
in the year.
NET DEBT2
2015
2014
2013
2012
2 0 1 1
$18.4m
$17.0m
$15.9m
$16.5m
$16.1m
$14.1m
$11.9m
$9.3m
$9.0m
$10.8m
13.8%
12.7%
11.8%
11.0%
11.2%
$59.5m
$66.0m
$71.0m
$81.0m
$81.4m
50.000000
60.666667
71.333333
1 Adjusted operating profit before depreciation.
2 All comparative indicators have been restated as set out in Note 1 and Note 35.
3 Adjusted measures are stated before amortisation of acquired intangible assets and
exceptional items.
ADJUSTED3 DILUTED EARNINGS PER SHARE2
21
The Board uses
this ratio to evaluate
the quality of the
company's earnings.
2015
2014
2013
2012
2 0 1 1
25.000000
33.333333
41.666667
50.000000
BACKLIST % OF SALES
Backlist has reduced
as a % of sales as we
have invested in new
Intellectual Property.
2015
2014
2013
2012
2 0 1 1
56.000000
61.333333
66.666667
72.000000
INVENTORY % OF REVENUE2
This is a measure
of the cash used
up in inventory
as a proportion
of revenue.
2015
2014
2013
2012
2 0 1 1
10.000000
11.333333
12.666667
14.000000
INTELLECTUAL PROPERTY DEVELOPMENT SPEND
We have increased
the IP spend in order to
grow the publishing
businesses organically.
2015
2014
2013
2012
2 0 1 1
28.000000
30.333333
32.666667
35.000000
PRODUCT EFFICIENCY
The new title
sales for any given
year are a leading
indicator that show
how effective and
reliable our backlist
sales might be.
2015
2014
2013
2012
2 0 1 1
CHILDREN'S PUBLISHING REVENUES
We shall report this
key strategic area of
our publishing
from now on.
2015
2014
2013
2012
2 0 1 1
0
11
22
49.8c
44.1c
36.1c
41.6c
43.6c
61.4%
66.6%
71.3%
69.8%
68.6%
14.4%
14.5%
11.2%
12.6%
14.5%
$34.9m
$33.5m
$31.7m
$30.5m
$30.7m
1.34x
1.16x
1.01x
1.02x
1.12x
$32.4m
$23.0m
$19.6m
$18.5m
$14.7m
22
OUR VALUES
BE
EXCELLENT
Quality matters in
everything we do
BE
COLLABORATIVE
Use 'we’ and
bring the best out
of each other
23
BE
PURPOSEFUL
Do what you
love and make
it happen
BE
ACCOUNTABLE
Take responsibility
and do what
you say
BE
CURIOUS
Try things, fail well,
do it quickly
BE
CONSISTENT
Be clear,
concise and
clear-headed
24
OUR PEOPLE
Sally Dwyer
Group Director of People
FAVOURITE TITLE
Porsche Sixty Years
Motorbooks
Quarto’s unique
identity, the world
over, is created by
our people and
shaped by our
organisational culture.
Our values guide our
journey to achieve
our core purpose –
to inspire, educate,
create and entertain.
Today’s business environment demands greater need
for collaboration, co-creation and learning agility.
Employees are a critical part of our business and our
most important asset. We are always looking for better
ways to attract, develop and retain employees who love
what they do and who are driven by their passion for
creating wonderful illustrated books.
This year our people strategy focused on employee
engagement and getting the foundations in place so
that we can attract the right talent for our business while
nurturing our current talent. As part of this process, we
reviewed and increased our global benefits for maternity,
paternity, adoption and surrogacy. Across our UK
businesses, we harmonised the employment terms and
conditions of all our employees.
We are also committed to establishing lean HR processes
to improve employee engagement and ensure we support
an open and transparent people environment. This included
developing and launching our employee intranet –
Q Exchange and creating a dedicated HR section called
People Zone. People Zone houses all our global career
opportunities and people content, providing for just
in time access to any HR related tool or process, quick
access guides and HR contacts across the world.
25
HEIDI NORTH
Senior Design Manager
Creative Lettering
And Beyond
Walter Foster
CARA CONNORS
Project Manager
The Homemade
Flour Cookbook
Fair Winds Press
SUPPORTING DIVERSITY
At Quarto we celebrate diversity, and our diverse
team is a reflection of the communities where we live.
By encouraging diversity and inclusion, we unlock
different talents to increase creativity, problem solving
and adaptability. Workplace diversity is a driver of
competitiveness that supports our ability to attract,
develop and retain the best employees, create an
engaged team and deliver innovation.
We do not discriminate against age, gender, ethnicity,
cultural background, sexual orientation or religious beliefs.
We recruit, develop and promote our staff based on their
performance alone. We are proud of the fact we review each
job application and do not filter them through a system that
disqualifies candidates based on education, sex or age.
Building an open, fair and transparent culture is not only
embedded in our values but also imperative for business
continuity. We believe that a culture that drives equal
opportunity, meritocracy and one in which employees feel
safe and ‘listened to’, will lead to higher levels engagement,
retention and performance.
26
OUR PEOPLE
VICTORIA LYLE
Commissioning Editor
Cats In Hats
Quarto Publishing
RICHARD JEWITT
Senior Designer
Adorable Hedgehogs 2017
Rock Point Gift & Stationery
Employees are
a critical part
of our business
and our most
important asset.
We are always
looking for better
ways to attract,
develop and retain
employees who
love what they do
and who are driven
by their passion for
creating wonderful
illustrated books.
HIGH PERFORMING CULTURE
An organisation’s talent pool and expertise will emerge
as the key differentiator for business growth and success.
At Quarto we believe in recognising the strengths of our
people and developing them to take on different and/or more
senior roles within the business. We do this predominately by
mentoring, coaching and on the job development.
Our priority is driving a high performance culture where
all our employees feel empowered to achieve and be the
best they can be. We ensure individual performance goals
are connected to the overall strategic goals of Quarto.
We have listened to our employees who said the annual
performance review process was too long, not relevant
and did not provide the feedback needed throughout the
year and in 2016 we will be moving away from a single
annual process. We will be implementing a quarterly
process that allows for more timely performance coaching
and development, and one that ensures our people are
engaging with our vision, values and strategy and aligning
their goals to these key drivers.
We believe a quarterly performance check-in will help
our people to better understand our performance
expectations and track their progress. This gives them
greater visibility about how they contribute to our business
and perform in their roles. Most importantly, it allows our
employees to be proactive in their career development.
27
SUSI MARTIN
Art Director
How To Cook In
10 Easy Lessons
Walter Foster Jr.
CORPORATE RESPONSIBILITY
Our people individually and collectively contribute to the
communities in which we live and work. We are proud
of the efforts our people make to educate, entertain
and enrich the lives of not just our readers. Some of the
highlights for this year have been:
Quarto California partnered with LA Parent magazine
and some of Hollywood's young celebrities to donate
books for the annual Celebrity Stuff-a-thon benefiting the
Los Angeles Ronald McDonald House and deliver the bags
to critically ill children and their families.
Quarto UK and Quarto Co-editions gave book in kind
donations to several charities across the year, including
Help for Heroes, Ronald McDonald House as well as
The Family School.
Our Books & Gifts Direct business work closely with
many communities and charitable organisations including
Make A Wish Foundation, Little Heroes, Care Flight, and
The Royal Children’s Hospital in Melbourne to name a few.
To date we have raised over $2.0m and counting!
Since 2014, 5.0c from every product sold in Australia goes
to the McGrath Foundation, which raises money to put
breast care nurses in communities all over Australia as well
as increasing breast cancer awareness in young Australian
women. In New Zealand 5.0c from every product sale
goes to the Starship Foundation, which is a children's
charity who are a dedicated pediatric healthcare service
and major teaching centre, providing family centred care
to children and young people throughout New Zealand
and the South Pacific.
28
OUR PEOPLE
SUSAN MEARS
International
Sales Administrator
Quilters
Quarry Books
JAMES CAREY
Director of Publishing
Operations, UK
Actual Size
Frances Lincoln Children’s Books
CORPORATE SUSTAINABILITY
Making our business more sustainable by integrating
sustainability into the very heart of everything we do,
where our efforts create value for our shareowners
and continue to provide value to our customers,
partners and communities in which we operate.
We are working towards developing sustainable
operations by analyzing each link in the value chain and
in particular identify the sources of waste in our supply
chains, such as managing our carbon emissions by
ensuring we consolidate shipments across the group and
ship as infrequently as possible. This limits the shipping
of empty space across the oceans, and reduces energy
waste and our carbon footprint.
Going forward we will be producing our entire Children’s
products using Forest Stewardship Council (FSC)
paper. We continue to work with partners and suppliers
who are certified by the FSC, IS0 14001 which covers
environmental management systems and the ICTI CARE
process covering ethical standards of manufacturing.
FINANCIAL REVIEW
29
“Our adjusted
operating profit
margins reflect
the maturity
and stability
of the business”
Michael Connole
CFO, The Quarto Group
ADJUSTED1 OPERATING PROFIT MARGIN2
2015
2014
2013
2012
2011
8.3%
8.3%
7.8%
FAVOURITE TITLE
The Complete Book
of Porsche 911
Motorbooks
9.4%
9.3%
7.0%
7.6%
8.2%
8.8%
9.4%
10.0%
REVENUE AND PRE-TAX PROFIT
Revenue for the year was $182.2m (2014: $171.3m)
and gross profit was $59.4m (2014: $55.0m) showing
a stable gross margin of 32.6% (2014: 32.1%).
$8.2m of the increase relates to the Ivy Press
business which we acquired in March 2015.
Our administrative expenses of $35.0m show
an increase of 8.0%, resulting mainly from the
acquisition of Ivy Press in March 2015.
Adjusted operating profit, which is a key measure of
how the business is performing, rose by 8.2% from
$15.9m in 2014 to $17.2m in 2015. The 2015 figure
includes a contribution of $1.9m from Ivy Press.
Operating profit of $16.0m (2014: $16.0m)
includes exceptional charges $0.4m (2014: $0.6m
exceptional credit), reflecting costs relating to
our acquisition of Ivy Press and costs associated
with certain other corporate transactions that we
did not pursue. In 2014, operating profit reflected
exceptional credits of $0.6m arising on sales of
businesses and assets.
Our adjusted profit before tax was $14.1m,
showing an improvement of 18.5% on the
corresponding figure for 2014 of $11.9m.
1 Adjusted measures are stated before amortisation of acquired intangibles and exceptional items.
2 All comparative years have been restated as set out in Note 1 and Note 35.
30
Our profit before tax was $12.0m (2014: $12.0m).
Reconciliation of profit before
tax to adjusted profit before tax
Profit before tax
Amortisation of acquired intangibles
Exceptional items
2015
$000
12,939
724
445
2014
$000
Restated
12,005
503
(566)
Adjusted profit before tax
14,108
11,942
FINANCE COSTS
EARNINGS PER SHARE
Finance costs of $3.2m (2014: $4.1m) represent
the interest costs on the group’s borrowings
together with the amortisation of the debt
issuance costs associated with the refinancing
of bank debt that took place in February 2015.
The reduced finance costs reflects the reducing
net debt and the reduction in interest margin
negotiated as part of the refinancing. As set
out in Note 1 and Note 35 the amortisation of
debt issuance costs was previously included in
administrative expenses and has been reclassified.
Basic earnings per share increased by 1.1% from
44.5c in 2014 to 45.0c, reflecting the higher profit
for the year. Diluted earnings per share, which
takes account of share options issued during the
year was 44.9c (2014: 44.5c).
Our adjusted earnings per share of 49.9c per
share shows a year-on-year increase of 13%
(2014: 44.1c), and reflects the increase in adjusted
profit referred to earlier. Note 9 to the accounts
sets out how we calculate the adjusted earnings
per share figures.
TAX CHARGE
The tax charge for the year of $3.7m represents
an effective rate of tax of 28.5% which shows
an increase on the corresponding figure for last
year of 24.3%, explained by the increase in profits
generated by our US publishing business where
federal corporate taxes are levied at 34%, which
compares unfavourably with the current UK
corporation tax rate of 20.25%.
PROFIT FOR THE YEAR
Profit for the year of $9.3m showed a $0.2m
increase on the same figure for 2014, which
reflects the higher operating profit for the year.
RETURN TO SHAREHOLDERS
The Directors are recommending a final dividend
of 9.4c per share, bringing the total dividend per
share for the year to 14.5c per share. In 2014 the
total dividend paid was $13.7c per share, which
is covered 3.4 times by earnings (2014: 3.2 times
by earnings)
The increase in the dividend reflects the Directors’
commitment to maximising shareholder value
through a progressive dividend policy, but
underpinned by at least three times cover.
31
CASH FLOW
Free cash flow for the year was $15.1m, showing
an increase of $3.9m on the same figure for
2014 of $11.2m.
Free cash flow is our operating cash flow less our
cash expenditure on pre-publication costs and
our capital expenditure, and shows the cash that
the business has generated to fund acquisitions
to pay taxes, service our debts and pay dividends
to shareholders.
Our management of working capital produced an
incremental $2.4m of free cash, generating $0.6m of
cash in the year, compared to utilising $1.8m in 2014.
Our cash generated by operations was $51.9m
(2014: $46.1m), which is stated before the cash
expenditure on pre-publication costs of $34.9m
(2014: $33.5m). The increase in our investment in
pre-publication costs reflects the increase in the
number of new titles we published in the year,
some of which were published by Ivy Press,
which we acquired during the year.
Profit for the year
Adjustment for:
Net finance costs
Depreciation of property, plant and equipment
Tax charge
Share based payments charges
Amortisation of acquired intangible assets
Amortisation of pre-publication costs
Movement in fair value of derivatives
Gain on disposal of property, plant and equipment
Operating profit before movement in working capital
Net movement in working capital
Cash generated by operations
Investment in pre-publication costs
Capital expenditure
2015
$000
9,254
3,098
1,189
3,685
186
724
33,258
(85)
–
51,309
639
51,948
(34,872)
(2,010)
2014
$000
Restated
9,083
3,977
1,106
2,922
–
503
30,933
(43)
(642)
47,839
(1,779)
46,060
(33,525)
(1,341)
Free cash flow
15,066
11,194
32
ACQUISITIONS
INDEBTEDNESS AND BORROWING FACILITIES
As referred to previously, we acquired Ivy Press on
4th March 2015 for a total consideration of $1.9m.
We also assumed and settled debt of $0.4m. The
consideration was payable in three tranches, the
final tranche of which was paid on 4th January
2016. Goodwill of $0.3m arose on the acquisition,
details of which are set out in Note 34.
Our net debt comprising our bank borrowings
less cash balances has reduced from $66.0m
to $59.5m. The overall 10% reduction of $6.5m
reflects both currency movements and the
improvement in our operating cashflow referred
to above. The continued reduction of our net debt
is a key objective for the Directors.
NET ASSETS
The Group’s net assets of $55.0m show an
increase of $4.3m on for 2014 of $50.7m,
reflecting the improved trading performance.
Goodwill has reduced from $41.1m to $40.1m over
the course of 2015 reflecting the addition of $0.3m
of goodwill arising on the Ivy Press acquisition and
currency movements.
The net investment in publishing assets of $131.1m,
comprising our investment in pre-publication
costs, our inventories and our trade receivables,
shows an increase of $8.5m on 2014 of $122.6m.
This is explained by our growth in the year arising
from both the acquisition of Ivy Press and by
organic growth in our existing publishing imprints.
Since I joined Quarto Group in September 2015,
I have made this investment a priority, looking to
maintain resolute focus on its management and
efficient use.
Our actual bank borrowings at 31 December 2015
were $84.6m (2014: $89.2m). In February 2015,
the Group agreed a new $95m multi-currency
term loan and revolving credit facility, which
expires on 30th April 2019. This facility requires
us to maintain certain levels of interest cover,
leverage and cashflow in the business and the
interest payable on the debt is based on a ratchet
whereby we pay LIBOR plus a margin of between
2.1% and 2.8% depending on our leverage ratio.
We also have a £5m ($7.4m) working capital
overdraft facility, which is renewable annually.
CURRENCY
The group reports in US dollars, which is the
principal functional currency, but also transacts
in Sterling, Euro, Australian dollars, New Zealand
dollars and Hong Kong Dollars. We use a currency
swap arrangement to mitigate the fluctuations
between US dollars and Sterling. Our borrowings
are in US dollars, Sterling and Euros to hedge the
movement in our net assets in those currencies.
The key exchange rates for the year were:
Exchange rates
Versus US Dollar
2015
2014
Movement
2015
2014
Movement
Year End Rate
Average rate
Sterling
Euro
Australian Dollar
New Zealand Dollar
Hong Kong Dollar
0.68
0.92
1.37
1.46
7.77
0.64
0.83
1.22
1.28
7.75
-5%
-11%
-12%
-14%
-0.3%
0.65
0.90
1.33
1.43
7.73
0.61
0.75
1.11
1.21
7.74
-7%
-20%
-20%
-19%
0%
33
In the year, all of currencies we transact in
weakened against the US dollar. The net impact of
these currency movements on our net assets was to
reduce them by $2.5m (2014: reduction of $1.9m).
The impact on revenue and profits was felt most in
our Books & Gifts Direct business in Australia and
New Zealand where the local currencies weakened
by 20% and 19% respectively against the US Dollar
over the year which meant that revenue was down
$7.8m and operating profit down by $1.2m.
PRINCIPAL RISKS AND UNCERTAINTIES
The Board has recently carried out a robust
assessment of the principal business risks facing
our various businesses and have documented
these risks in a risk register, which will be regularly
reviewed, and the Board will monitor these
principal risks and associated material controls.
Details of the group’s financial risk management
objectives and policies is set out in Note 33.
The business risk review identified the following
key risks that face our businesses.
a) Customer Risk. The Group operates across
many of the major world economies including
the USA, United Kingdom, Europe, Australia,
New Zealand and Hong Kong and our revenues
and profits depend on the general state of
the economies in these territories. Another
recessionary environment in our key USA and
UK markets could have a significant impact
on the financial status of some of our key
customers and their ability to pay their debts
to us. We monitor debts closely and maintain
close relationships with all major customers that
may provide prior warning of likely failure.
b) Currency Risk. The Group’s businesses
operate in a number of different currencies
giving rise to a risk of exchange loss due to
fluctuating exchange rates. We have hedging
and currency swaps in place. We have a
natural hedge that mitigates against currency
movements impacting our earnings in that one
of our largest costs, which is print costs, are
paid in US Dollars. Borrowings have been taken
out in different currencies to mitigate risk of
currency movements impacting our net assets.
c) Loss of Intellectual Property. As we are an
owner of intellectual property, a lot of which is
digitally stored and accessed, the security and
strength of our information technology systems
is very important. Because of its importance,
we regularly review our storage and back-up
routines and disciplines and are in the process
of introducing a new title management system
for our publishers that will improve the security
of and access to our intellectual property.
d) Economic Conditions. A sudden downturn
in revenues or profits caused by a global
recession or through the impact of currency
movements could reduce consumer
discretionary spending which might result
in a reduction in profitability and operating
cashflow. The group is well funded with over
$100m in debt facilities but in addition, in
the event of such a reduction in profits and/
or cashflow, the Directors have the ability to
make a number of mitigating actions including
the reduction of discretionary spend on
pre-publication costs.
e) Supply Chain Risk. The Group uses a number
of print suppliers to print its books, many of
whom are based in Southern China. There is
a risk that an interruption in the availability
of printing services in Southern China could
result in an interruption in the printing and
distribution of new books to customers.
The group maintain relationships with printers
in other South East Asian countries, Eastern
Europe, the UK and the USA and are confident
that printing could be carried out by an
alternative range of printers if supply from
China was interrupted.
f) Cyber Security Risk. Like many organisations,
the group is at risk from cyber attack. This
presents a potentially serious risk disruption
to the production process and could have
a significant impact on the probability of
the business and the security of intellectual
property assets. The Group uses firewalls
and IT controls to prevent attack as well as
maintaining offsite backup of intellectual
property. Computerised files of the Group's
books are also maintained by printers.
34
GOING CONCERN AND VIABILITY STATEMENT
In accordance with provision C.2.2 of the 2014
revision of the Corporate Governance Code,
the Directors have assessed the prospects of
the Group over both a one-year and three year
period. The one year period has a greater level of
certainty and is, therefore, used to set budgets for
all our businesses which culminates in the approval
of a Group budget for the Board. The three-
year period offers less certainty, but is aligned
with long term incentives offered to Executive
Directors and certain senior management.
The Directors have considered the underlying
robustness of the Group’s business model, products
and proposition and its recent trading performance,
cash flows, compliance with its banking covenants
and key performance indicators. They have also
reviewed the cash forecasts prepared for the
3 years ending 31 December 2018, which comprise
a detailed cash forecast for the year ending
31 December 2016 based on the budget for that
year and using standard growth assumptions
for revenue and costs for the years ending
31 December 2017 an 2018 to satisfy themselves
of the going concern assumption used in preparing
the financial statements.
The Directors noted the new $95.0m multi-
currency term loan and revolving credit facility
agreed in February 2015 and the £5.0m working
capital overdraft facility and the forecast
compliance with the new facility’s covenants
for the foreseeable future.
The Directors have assessed the Group’s viability
over a three year period ending on 31 December
2018 based on a three year financial model
which was prepared as part of the process of
considering and approving the 2016 Budget.
The Directors used the three-year review period
for the following reasons:
• The Group’s publishing programme planning cycle
normally works over a two to three year period.
• The Group’s current banking facilities have just
over three years to run before they will need to
be refinanced in April 2019.
As a result, it is expected that the Group’s
assessment of viability will not extend beyond
three years in future reporting periods.
In carrying out their analysis of viability, the
Directors took account of the Group’s projected
profits and cashflows, its banking covenants
and the impact of a downturn in trading that
the Group could endure whilst remaining viable.
They also took account of the principal risks
and uncertainties facing the business referred to
above, a sensitivity analysis on the key revenue
growth assumption, and the effectiveness of
available mitigating actions.
Based on their assessment, the Directors have
a reasonable expectation that the Group will be
able to continue in operation and meet all of their
liabilities as the fall due up to 31 December 2018.
For this reason, they continue to adopt the going
concern basis in preparing the financial statements.
In doing so, it is recognised that such future
assessments are subject to a level of uncertainty
that increases with time and, therefore, future
outcomes cannot be guaranteed or predicted
with certainty.
Michael D. Connole
Chief Financial Officer
March 30, 2016
DIRECTORS’ REPORT
35
GROUP
DIRECTORS
The Directors present their report and the audited
financial statements of The Quarto Group, Inc., for
the year ended December 31, 2015.
RESULTS AND DIVIDENDS
The profit for the year amounted to $9.3m
(2014: $9.1m). The Directors propose a final
ordinary dividend of 9.41c (6.15p) per share
(2014: 8.17c (4.95p) per share), amounting to
$1.9m (2014: $1.5m), subject to approval at
the Annual Meeting.
Serving Directors during the year, were as follows:
T. J. M. Chadwick (Non-executive) Chairman
R. J. Morley
(Non-executive)
Deputy Chairman
M. E. Leaver
M. D. Connole
J. Burley
M.G. Hartley
C.H.B. Mills
M. J. Mousley
(Appointed 1 September 2015)
(Non-executive)
(Non-executive)
(Non-executive)
(Resigned 1 September 2015)
None of the Directors have a service agreement
of more than one year's duration, other than
Timothy Chadwick who had an initial three year
agreement which has been extended until the end
of the 2016 Annual Meeting and Robert Morley,
the duration of whose appointment is unspecified,
subject to the continuance of certain conditions
as set out on page 52. All of the directors are
subject to annual re-election. The terms and
conditions of appointment of non-executive
directors are made available for inspection.
Save as disclosed in Note 31, no Director had
a contract of significance with the company
or its subsidiaries during the year.
Neither Timothy Chadwick nor Christopher
Mills are standing for re-election at the Annual
Meeting on May 24, 2016. Two new non-executive
Directors are being proposed for appointment
at that meeting. It is proposed that Peter Read
be elected to the Board and serve as Chairman.
Marie Louise Windeler also be elected to the
Board and assume the role of Chair of the
Remuneration Committee at which point,
Michael Hartley will relinquish that role.
36
BOARD
Timothy Chadwick (69) started his career in 1974
with Macmillan Publishers and established his first
business, Aurum Press, in 1978. In 1988, he sold
Aurum Press to The Really Useful Group. In 1991, he
started ABC (All Books for Children), which he sold
to HIT Entertainment plc in 1995 after developing
the best-selling series, Angelina Ballerina.
In 1995, he floated American Port Services plc on
the London Exchange. After growing his company
into a substantial seaport and airport owner
and operator in the USA and Belgium, APS was
acquired in 1998 by Associated British Ports plc.
Tim was elected as Chairman of Simon Ports plc
in March 2003. The business grew substantially
and was acquired in 2006 by Cobelfret.
Tim joined Quarto in 2012 and chairs the
Nominations Committee and is a member
of the Remuneration Committee.
Marcus Leaver (45) has been Chief Executive
Officer since December 2012 having joined the
Board of Quarto as Chief Operating Officer
in May 2012. Prior to Quarto, he worked in the
USA from 2005, latterly as President of Sterling
Publishing, a subsidiary of Barnes & Noble, the
leading bricks-and-mortar bookseller in the US.
Before living and working in the US, he worked in
London for Chrysalis Group plc, a London Stock
Exchange-listed media company, latterly as CEO
of Chrysalis Books Group, from 2002, and prior
to that Corporate Development Director and in a
number of different general management roles,
from 1998.
Marcus graduated from the University of East
Anglia with a degree in Art History, and received
his MBA from London Business School.
Marcus is a member of the Nominations Committee.
Michael Connole FCA (51) joined Quarto as
Chief Financial Officer on 1 September 2015.
He has considerable experience in media, being
CFO of Global Radio, the UK's largest commercial
radio group from June 2008 to August 2015, and
before that he was Group Finance Director at
Chrysalis Group PLC, where he worked from 1997
to 2008. He has also been Vice President – Finance
(Europe) for Management Consulting Group plc
and spent 7 years with KPMG's London office.
He qualified as a chartered accountant in 1988.
Jess Burley (50) has over 20 years' experience in
media, working previously as the Group Managing
Director of Hearst in the UK, responsible for Hearst
Digital and The National Magazine Company
portfolio. Jess joined m/SIX (the WPP joint venture
between CHI&Partners and GroupM) as CEO in
May 2010 bringing a wealth of knowledge across
all media. Jess has also held a number of Non Exec
roles working currently as a Non Exec for UK Mail Plc
and previously with the fashion retailer Jacques Vert
Plc and TalkTalk Telecom Plc. Jess is also a Trustee
of the young person's charity Get Connected. She
became a Non-executive Director of Quarto in 2014.
Jess is a member of the Nominations, Audit and
Remuneration Committees.
Mike Hartley (67) was appointed to the Board in
August 2013 as Senior Independent Director and
Chair of Remuneration and additionally as Chair
of Audit from May 2014. Mike brings considerable
board and international experience and a broad
knowledge of strategic management. He formerly
held a series of senior executive positions in both
retail and manufacturing serving latterly as Chief
Executive Officer of the £800m turnover Viyella
division of Coats Viyella plc retiring in 2003. He
has held a series of non-executive roles including
Chairman of Dawson International plc from 2003
to 2009 and Senior Independent Director of ITE
Group plc from 2003 to 2014. He is currently
Chairman of US based Dawson Forte LLP.
Christopher Mills (63) is the Managing Partner
of Harwood Capital Management LLP, which is
the largest shareholder of The Quarto Group, Inc.
Christopher is also currently a director of Gleeson
PLC, Catalyst Media Group plc and Bioquell plc as
well as a number of private companies. He became
a Non-executive Director of Quarto in 2014.
Christopher is a member of the Nominations,
Audit and Remuneration Committees.
37
Robert Morley (70) co-founded The Quarto Group
in 1976, setting up the original co-edition imprints
and later developing the newly acquired US imprints.
As a graphic design graduate from art college,
he started out his career at Haymarket Publishing
Group. He also worked as Art Director on the Sunday
Telegraph magazine and with Richard Branson at the
start of what is now the Virgin Group. From there he
worked for IPC art directing part-work magazines
followed by a period developing new ideas for
Readers Digest books before setting up Jackson-
Morley, a boutique editorial and design company.
EMPLOYEES
Applications for employment of disabled persons
are always fully considered, bearing in mind the
aptitudes of the applicant concerned. In the event
of staff becoming disabled, every effort is made
to ensure that their employment with the Group
continues and that appropriate training is arranged.
It is the policy of the Group that the training, career
development and promotion of disabled persons
should, as far as possible, be identical with that of
other employees.
The Group places considerable value on the
involvement of its employees and has continued
its practice of keeping them informed on matters
affecting them as employees and on the various
factors affecting the performance of the Group.
This is achieved through formal and informal
meetings. Employees are consulted regularly
on a wide range of matters.
The Board recognises the importance of diversity
amongst its employees and is committed to ensuring
that employees are selected and promoted on the
basis of merit and ability, regardless of age, gender,
race, religion, sexual orientation or disability. The
gender split across the Group for the year ended
December 31, 2015 is illustrated in the table below.
Males
Females
Board
Senior Leadership Team
All employees
6
6
141
1
2
297
The Group's Senior Leadership Team comprises the Group's
CEO and CFO, together with six senior managers.
SUBSTANTIAL SHAREHOLDERS
As at March 14, 2016, the latest practicable date prior to the publication of this report, the Directors have
been advised of the following shareholders who have an interest of 3% or more in the shares of common
stock of the Company:
Number of US$0.10 shares of common stock
L. F. Orbach
Liontrust Asset Management
Herald Investment Trust
R. J. Morley
Henderson Global Investors
Unicorn Asset Management
Cavendish Asset Management
Lazard Freres Gestion
AXA Investment Management
2,889,785
1,969,832
1,812,045
1,402,852
1,192,791
995,116
813,500
800,000
750,000
14.13%
9.63%
8.86%
6.86%
5.83%
4.87%
3.98%
3.91%
3.67%
1 R.J. Morley sold 1,022,228 shares on March 24, 2016.
2
Gresham House Strategic PLC acquired 550,000 shares on March 24, 2016. On March 28, 2014 the Directors were advised
that the total shareholding was 898,837 shares, representing 4.40% of common stock in issue.
38
The rights attaching to the Company’s shares
of common stock are set out in the Company’s
By-Laws, which can be found on the Company’s
website, www.quartoknows.com. The rules for
appointment and replacement of the Directors are
set out in the Company’s By-Laws. The powers
of the Directors are set out in the Company’s
By-Laws. The Company may purchase its own
shares through the market or by tender at a price
which will not exceed the average prices at which
business was done for 10 business days before
the purchase is made or, in the case of a purchase
through the market, at the market price, provided
that it is not more than 5% above such average.
The Company may amend its By-Laws by special
resolution approved by the affirmative vote of the
holders of a majority of the voting power of the
shares. The Directors' interests in the shares of
the Company are set out on page 57. There are
no restrictions on the number of shares that
Directors can hold.
RISK MANAGEMENT STRATEGY
The Group is exposed to a number of principal
risks and uncertainties. The Group’s financial risk
management strategy is set out on in Note 33.
Operational risks are set out on page 33 of the
Financial Review.
CORPORATE GOVERNANCE
The Company is committed to high standards of
corporate governance and supports the principles
laid down in the UK Corporate Governance
Code issued by the Financial Reporting Council
in 2014 (the ‘Code’). The Board considers that
the Company has been in compliance with the
principles and provisions of the Code, with the
exception of those outlined below, throughout
the year ended December 31, 2015 and to the
date of this report.
The principles of the Code have been applied
as follows:
a) The Board of Directors represents the
shareholders’ interests in maintaining and
growing a successful business including
optimising consistent long-term financial returns.
b) The Board comprises two Executive Directors
and five Non-executive Directors. The Chairman
is responsible for the leadership of the Board
and ensuring its effectiveness. The different roles
of the Chairman and Chief Executive Officer
are acknowledged. The senior independent
Non-executive Director is Michael Hartley who is
available to shareholders, if they have concerns
which are not able to be resolved through normal
channels. Two Non-executive Directors, Michael
Hartley and Jess Burley are considered by the
Board to be independent. Timothy Chadwick
and Christopher Mills are not deemed to be
independent because of their relationship
with Harwood Capital LLP, which was a major
shareholder. Bob Morley, who co-founded the
Group and previously served as a Director until
May 2012, is also not deemed independent.
There are a number of standing Committees
of the Board to which various matters are
delegated. They all have formal terms of
reference approved by the Board which are
available on the Company’s website
(www.quarto.com).
c) The Board met seven times in 2015. Attendance
details are set out below. A formal agenda is
prepared for each meeting and all board papers
and information are circulated to the Board at
least forty-eight hours before the meetings.
39
Attendance by Directors at Board and Committee meetings in 2015
Board
Audit Committee
Nominations
Committee
Remuneration
Committee
Jess Burley
Timothy Chadwick
Michael Hartley
Marcus Leaver
Michael Mousley1
Michael Connole2
Christopher Mills
Robert Morley
Total number of meetings
6
7
7
7
5
2
6
5
7
4
23
5
53
43
13
4
-
5
2
3
3
3
-
-
3
-
3
1 Michael Mousley resigned on August 31, 2015
2 Michael Connole was appointed to the Board on September 1, 2015.
3 These Directors are not members of the Audit Committee and attend by invitation only.
5
6
6
-
-
-
6
-
6
d) All of the Directors are subject to re-election
by the shareholders at the Annual Meeting.
Timothy Chadwick and Christopher Mills will
not put themselves forward for re-election
at the Annual Meeting. The Board is satisfied
to support the re-election of Mike Hartley
and Jess Burley as non-executive Directors
as they have individually produced excellent
performance in their duties and have shown
a high level of commitment to their roles.
e) The remuneration of the Executive Directors
is recommended by the Remuneration
Committee, comprising Michael Hartley who
is the Committee Chairman, Timothy Chadwick,
Jess Burley and Christopher Mills. A separate
report with respect to Directors’ remuneration
is included on pages 46 to 62. The Committee
meets at least twice a year.
f) The Audit Committee is comprised of
Michael Hartley who is Committee Chairman,
Jess Burley and Christopher Mills. The Board
is satisfied that Michael Hartley, together
with Jess Burley and Christopher Mills, has
appropriate financial experience to fulfil his
role. Further details of the Committee’s work
can be found on pages 42 to 45.
g) Details of the work of the Nominations
Committee during the year are set out in
its report on page 63.
h) A formal review of the performance of the
Board, its Committees and the Directors
was carried out before the year end, led by
the Chairman and assisted by the Company
Secretary. A questionnaire was used as part
of the process and individual performance was
reviewed by the Chairman. The Chairman's own
performance was subject to a review led by the
Senior Independent Director. The output from
the appraisal confirmed that the Board and its
Committees were operating effectively.
i) The Chief Executive Officer and Chief Financial
Officer are responsible for investor relations.
They meet with major shareholders during
the course of the year to ensure that they
develop an understanding of their views,
which are communicated to the rest of the
Board at Board meetings. The Non-executive
Chairman and Senior Independent Director
meet with major shareholders from time to
time. Shareholders are invited to attend the
Annual Meeting at least twenty-one days in
advance of the meeting. All Directors attend
the meeting which is used to communicate
with shareholders.
40
j) The Board has a procedure for Directors
GREENHOUSE GAS EMISSIONS REPORTING
During the year, the Group worked with Energy
Management LLP, an energy procurement and
carbon consultancy, to develop GHG reporting
protocol based on DEFRA and World Resource
Institute guidelines.
The Group has chosen to use Operational
Control in their approach to reporting utility
data, electricity and natural gas from UK and
International operations. This includes sites that
have been disposed of during the reporting period.
Scope 1 (Natural Gas) and Scope 2 (Electricity)
are reported on below, but the Group are not
reporting on Scope 3 emissions covering emissions
from transport and emissions from fully serviced
offices where only a service charge is applied.
The Group has identified GHG (Greenhouse Gas)
emissions per employee as the most appropriate
available KPI (referred to as the intensity ratio) and
has chosen 2014 as our Base Year, following the
disposal of our silk screen printing business in 2013.
GLOBAL GHG EMISSIONS
Scope 1
Scope 2
Total GHG emissions (CO e)
Average number of staff*
Emissions per staff member
2015
2014
Tonnes of CO2e
13
17
268
285
321
0.89
319
332
324
1.02
* Excluding staff at fully serviced offices.
to take independent professional advice at
the Company’s expense, if required.
k) All Directors have access to the advice
and services of the Company Secretary.
l) Quarto has arranged appropriate
insurance cover in respect of legal
action against the Directors.
m) The Company has an established
whistle- blowing policy.
The provisions of the Code not complied
with are as follows:
a) A.3.1. – As noted above, the Chairman of the
Board was not independent at the date of
appointment. Upon his anticipated election at
the Annual Meeting as Chairman of the Board,
Peter Read will be independent.
b) B.2.1. – The Nomination Committee is not
composed of a majority of independent
Non-executive Directors. The Board is however
satisfied that its current composition enables
the Committee to benefit from a broad range
of views and does not inhibit it from following
a formal, rigorous and transparent procedure
when appointing new directors.
c) C.2.1. – During the year end, the Directors
commenced a robust assessment of the
principal business risks including those that
would jeopardise its business model, future
performance, solvency or liquidity. Since the
year end, this assessment has been formally
documented in a risk register which also details
the effectiveness of the controls in place.
The Board will continue to review its corporate
governance arrangements, in the light of the
Code, as the Group develops and grows, and in
particular will review those provisions that are not
currently complied with.
The Directors consider that the annual report
and accounts, taken as a whole, are fair, balanced
and understandable and provide the information
necessary for shareholders to assess the Group’s
performance, business model and strategy.
41
RISK MANAGEMENT AND INTERNAL CONTROLS
e) The Chief Executive Officer and the Chief
The Board is responsible for the Group’s
system of internal control and for reviewing its
effectiveness. As stated previously, the Directors
have carried out a robust assessment of the
principal businesses and considered the controls
in place to eliminate or mitigate the impact of key
risks. The Board has in place risk management
systems in relation to the Company’s financial
reporting process and the Group’s process for
the preparation of the consolidated financial
statements. However, such systems are designed
to manage rather than eliminate the risk of failure
to achieve business objectives and can provide
only reasonable and not absolute assurance
against material misstatement or loss.
Established procedures are in place to identify
and consolidate reporting entities. Our control
activities include policies and practices covering
appropriate authorisation and approval of
transactions, the application of financial reporting
standards and reviews of significant judgements
and financial performance.
The main elements of the internal control and
financial reporting systems are:
a) The results of individual operating segments
are reported and reviewed by the Board at its
meetings during the year.
b) The management reports of each operating
segment are tailored to suit the business and
management needs of local management.
Each operating segment has its own key
performance indicators and these are
regularly reviewed and assessed.
c) In addition to monthly reporting, individual
operating units report certain management
information more frequently, where it is
considered appropriate.
d) All operating units report their bank balances
twice weekly and a report is produced
summarising the Group position.
Financial Officer make frequent visits to all
operating segments. These visits include
reviews of the internal control and financial
reporting systems.
f) All operating units prepare annual budgets
and cash flow forecasts which are reviewed
by the Board.
The UK Corporate Governance Code
introduced a requirement that the Directors
perform on-going monitoring and review of the
effectiveness of the Group’s system of internal
controls, to cover all controls including financial,
operational, compliance, and risk management.
The Board confirms that there are ongoing
processes covering the identification, evaluation
and management of the significant risks faced by
the Group and covers all material controls. The
processes are carried out through Group Board
meetings, quarterly subsidiary management
meetings, discussion and review by the Executive
Board and the finance department during the
several visits per year to individual operating units,
and discussions with professional advisers where
appropriate. The Board identified a significant
failing in relation to financial reporting controls
in the year, which together with the remedial
actions, is discussed in the Audit Committee
Report on page 44. We will continue to develop
our risk management framework during 2016.
AUDITORS
Deloitte LLP have expressed their willingness to
continue in office. A resolution to reappoint them
as the Company’s auditors and to authorise the
Directors to determine their remuneration will be
proposed at the Annual Meeting.
Clive Potterell
Secretary
March 30, 2016
Company Registration Number: FC0 13814
42 AUDIT COMMITTEE REPORT
The members of the Audit Committee who
served throughout the year are non-executive
Directors Michael Hartley (Chairman), Jessica
Burley and Christopher Mills. The Board
considers Jessica Burley and Michael Hartley
to be independent Directors. The Board
considers a majority of members of the
Committee to have recent and relevant financial
experience and together have a wide range of
financial and commercial experience to fulfil
the Committee’s duties.
RESPONSIBILITIES
The Committee acts in accordance with its terms
of reference as available on the Group’s website,
and its specific responsibilities include:
• To consider and recommend the appointment
of the Group’s auditor, the audit fee, audit
engagement letter and questions of auditor
performance, partner rotation, resignation,
and dismissal.
• To meet with the auditor to discuss all aspects
of the audit including audit planning, scope,
findings, accounting policies, management
judgements and estimates.
• To review the Board’s representation letter
to the auditor.
• To review the auditor’s management letter
and management’s response.
• To set policy and review the use of any
non-audit services and assess the
independence of the auditor.
• To review financial statements released
to the public including interim and annual
financial statements.
• To review the Group’s accounting policies,
practices and use of accounting standards
especially for decisions requiring major
elements of judgement, significant adjustments,
long term viability and going concern.
• To review the Group’s internal controls and risk
management including:
- the financial reporting process
- identifying, managing and monitoring financial,
operational, compliance and other risks
- compliance with regulatory and legal requirements
- detecting fraud
• To review the need for an internal audit function
at least annually.
COMMITTEE MEETINGS
The Committee meets throughout the year to fulfil
its responsibilities. The Committee Chairman also
meets informally with the Chief Financial Officer
throughout the year and with senior management.
He also meets with the external Audit Partner from
time to time to discuss issues and be appraised of
regulatory change.
By invitation the Company’s Chairman of
the Board, Chief Executive Officer, CFO and
representatives of the Company’s auditor also
attend Committee meetings although part of
some meetings are exclusively for Committee
members without executive management present.
The Chairman of the Committee attends the
Annual Meeting to address any shareholder
questions relating to the Committee.
The Committee met five times during 2015.
The Committee, as part of full Board meetings,
was also involved in approving announcements
made to the London Stock Exchange.
ACTIVITIES OF THE COMMITTEE
During 2015 and 2016 to date the work of the
Committee included:
• Review of the plan and scope of the external audit.
• Review of the external auditor’s report on the 2015
year end audit and approval of the preliminary
announcement and the annual report.
• Recommend to the Board its support for
management’s recommendation for the final
and interim dividend.
43
• Consider the external auditor’s comments in
Exceptional items
relation to internal control and review the need
and potential scope of internal audit functions.
• Review compliance of the policy relating to use
of the auditors for non-audit work.
• Review and approval of the interim report 2015
after discussion with management and the
external auditor.
• Discussion of significant accounting issues facing
the Group including goodwill impairment, the
amortisation of intangible assets, going concern,
revenue recognition and policy with regard to
disclosure of exceptional items.
• Review of the Directors' viability statement.
• Review of the independence of the external
auditor.
AUDIT RISKS, KEY FINDINGS AND FINANCIAL
JUDGEMENTS RELATING TO YEAR END
ACCOUNTS 2015
The Committee concentrated on the following
judgement areas in relation to the 2015 accounts.
Goodwill impairment
Goodwill arising from acquisitions is stated at
cost less any accumulated impairment losses.
In accordance with IAS 36 the Group tests the
goodwill on an annual basis for impairment.
The Committee reviewed the methodology and
assumptions in the testing process with focus on
the discount rate used in the discounted cash flow
valuations and the sensitivity to changes in the
discount rate and growth rate. Further detail is
set out in Note 10.
Amortisation and recoverability
of intangible assets
Amortisation of intangible assets is charged to
profit or loss on a straight line basis over the
estimated useful lives of the intangible assets.
Pre-publication costs which are capitalised in
accordance with IAS 38 form much of these
intangible assets and the Committee, with the
external auditor, discussed the assumptions
behind the amortisation including the
amortisation period of the publications.
Further detail is set out in Note 14.
The Committee, in consultation with the Auditor,
considered the latest regulatory guidelines issued
by the FRC in December 2013 and agreed with
the Executive Directors to restrict exceptional
items to significant non-trading items outside
the scope of normal business that need to be
disclosed by virtue of their size or incidence.
Further detail is set out in Note 4.
Going Concern
The Committee considered the underlying
robustness of the Group’s business model,
products and proposition, and the financial
resources available to it for the future to
satisfy itself of the going concern assumption
in preparing the financial statements. The
Committee noted the forecast compliance with
the facility’s covenants for the foreseeable future.
Revenue recognition and sales returns
The Committee considered the risk that revenue
may not be captured in the relevant period.
Apart from the usual risks relating to the timing
of revenue recognition, management are required
to provide for returns which may be made
subsequent to the period end. This requires a
significant degree of judgement as management
assesses sales returns through quantifying the
previous returns experience. This judgement
is particularly germane in 2015 due to the
very high rate of sales of the fashionable adult
colouring books, particularly in the final quarter.
The Committee reviewed management's
methodology, and discussed the procedures
followed to ensure that revenue was booked
into the correct period in line with the stated
accounting policies and that returns provisions
were reasonable.
During the audit of the BGD subsidiary in
Australia where Deloitte replaced the previous
local auditor, it was identified that due to the
specific goods in transit insurance arrangements,
title does not pass until receipt by the customer.
The accounts had previously been based on title
passing at port. The accounts have been restated
to correctly reflect revenue cut off. Further detail
is set out in Note 35.
44
Inventory provisioning
EXTERNAL AUDIT
Manufacturing and wholesaling economics of
books inherently leads to holding significant
inventory. Most of these are not firm sales so
there is a significant degree of judgement as
to the provisions required to hold this inventory
at the lower of cost or net realisable value. The
Committee reviewed managements’ methodology
and discussed the testing performed by the
Auditor to provide comfort that these estimates
were reasonable. Management recorded
additional provisions on slow moving inventory in
the Books & Gifts Direct business in New Zealand.
Receivables provisioning
Trade receivables is inherently a critical accounting
estimate in relation to the risk of non recoverability
of trade receivables. The Committee has discussed
and challenged the overall receivables position
and considered the reasonableness of the level
of provisioning.
Restatement of overhead capitalisation
During consolidation testing procedures, the
Auditor identified a balance of capitalised
overheads of $0.6m, which had been incorrectly
capitalised as it did not meet the recognition criteria
identified by IAS 2 “Inventories”. The Accounts have
been restated. Further detail is set out in Note 35.
The Committee was concerned by the need
for restatements relating to 2014 identified
above. The Committee notes the steps taken to
strengthen the Group's finance function and also
extend the scope of the Group's external auditor's
involvement to other local markets including
Australia, New Zealand and Hong Kong. Progress
has been made, with certain control and process
reviews initiated by Michael Connole (our CFO
since his appointment in September 2015), and
the extension of Deloitte's audit to these markets.
The audit in 2016 has identified issues relating to
Australia and the relevant restatements have been
made. In 2016 further recruitment of senior finance
personnel at Group and local markets has taken
place. The Committee and executive management
recognise the need for continuous improvement
in this area and will be closely monitoring further
progress in 2016.
The Committee assesses the effectiveness of its
external auditor through ongoing dialogue and
communication with the Auditor. The audit cycle
included formal meetings. The audit planning
meeting, which happens prior to the audit, was when
the Committee discussed reporting developments,
significant accounting risks, the new requirements
in relation to the viability statement and other
Corporate Governance Code changes, improvement
in relation to risk management and internal control
and controls in the accounting process.
At the end of the audit process, the Committee met
with the auditors to receive their report on the key
findings with focus on identified key audit risks, any
misstatements in management’s initial accounts
and to consider areas of judgement and estimates.
The Auditor showed diligence and openness
with the Committee during meetings and
through written communication and during
intermediate briefing sessions with the Chair
of the Audit Committee. The Auditor gave the
Committee forthright views on judgement areas
whilst recognising that the decisions lay with
the Committee. The Committee also received
feedback from the Executive Directors involved
with the audit. The Committee is satisfied with
the Auditor’s effectiveness.
APPOINTMENT AND INDEPENDENCE
Deloitte was appointed the Group’s auditor in
December 2014 and as auditor to the UK and
US subsidiaries. Deloitte member firms were
also appointed auditor of the Australian, Hong
Kong and New Zealand subsidiaries in 2015.
The Committee considers the appointment of
the external auditor each year and considers
the performance of the lead audit partner and
the audit manager during the audit process.
A tender process for the Company's audit was last
completed in early 2014. There are no restrictions
on the Committee’s choice of external auditor.
For the 2015 audit of the Group and the
Company’s accounts, Deloitte was paid
£266,600 (2014: £147,500).
45
NON-AUDIT SERVICES
Deloitte provided agreed upon procedures
in respect of the interim financial statements
at a fee of £5,000 (2014: $nil).
list of required internal control tasks with reports
on these items coming to the Committee for review.
This was not achieved, partly due to a change
in the Group CFO role. The new Group CFO has
committed that this will be achieved in 2016.
INTERNAL AUDIT
The Committee reviews the appropriateness of
having an internal audit function. To date there has
not been a separate internal audit function, given the
size and scale of the Group's operations. However,
in 2015, the Committee planned to implement a
greater formalisation of the internal review of a set
Mike Hartley
Chairman of the Audit Committee
March 30, 2016
REMUNERATION COMMITTEE REPORT
DEAR SHAREHOLDER
I am pleased to present the Directors' Remuneration
Report for the year ended 31 December 2015, which
has been prepared by the Remuneration Committee
(“the Committee”) and approved by the Board.
Whilst the Remuneration Policy is unchanged, for
clarity we have updated the charts illustrating the
application of the remuneration policy to reflect
the latest salaries and changes to Directors where
appropriate.
This is the Company’s third year of reporting in
line with The Large and Medium-sized Companies
and Groups (Accounts and Reports) (Amendment)
Regulations 2013. The report is divided into two
sections:
The first is the Policy Report which was approved
by shareholders at the AGM on 22 May 2014 and
which outlines the Group’s Remuneration Policy
applying from 23 May 2014.
The second section is the Annual Report on
Remuneration, which reviews how the policy was
implemented. Mindful of the length of remuneration
reports, we have aimed to be concise without
compromising on transparency. I hope you find the
Remuneration Report clear and easy to understand
and we would welcome any feedback or comments.
Mike Hartley
Chairman of the Remuneration Committee
March 30, 2016
46 DIRECTORS' REMUNERATION REPORT
In line with The Large and Medium-sized
Companies and Group’s (Accounts and Reports)
(Amendment) Regulations 2013 the following
parts of the Annual Report on Remuneration are
audited: the single total figure of remuneration for
each director, including annual bonus outcomes
for the financial year ended December 31, 2015;
pension entitlements; payments to past directors
and payments for loss of office; and, directors’
shareholdings and share interests. All other parts of
the Directors’ Remuneration Report are unaudited.
POLICY REPORT
This section provides Quarto’s remuneration
policy for Directors, which has been applied
from May 23, 2014, following approval at the
2014 Annual Meeting. The Group’s principal
remuneration policy aim is to ensure that the
Executive Directors' remuneration is designed
to promote the long-term success of the Company.
Performance related elements are designed to be
transparent, stretching and are rigorously applied.
In formulating its policies the Committee had
regard to and balanced the following factors:
a) the need to align the interests of the
executive with those of the shareholders;
b) the performance of the individual executive
and of the Group as a whole;
c) the remuneration practice in the markets in
which the executive is principally based; and,
d) the remuneration packages offered to
executives in companies competing in the
same markets and industry as the Group,
but exercising caution, in view of the risk of
an upward ratchet of remuneration levels with
no corresponding improvement in corporate
and individual performance.
SUMMARY OF QUARTO’S REMUNERATION POLICY APPLYING FROM MAY 23, 2014
The elements of the remuneration policy for Directors are set out below. The changes to the annual and
medium- term bonus schemes were implemented from 2014. The Performance Share Plan (“PSP”) was
implemented following approval at the 2014 Annual Meeting.
FIXED PAY – BASE SALARY / FEES
Purpose and
link to strategy
Set at competitive levels in the markets in which Quarto operates, in order to attract
and retain executives.
Operation
Reviewed annually with changes normally effective from 1 January of each year.
Reviews take account of:
• scope of the role and the markets in which Quarto operates;
• performance and experience of the individual;
• pay levels at organisations of a similar size and complexity; and,
• pay and conditions elsewhere in the Group.
Opportunity
There is no prescribed maximum to avoid setting unhelpful expectations. Any salary
increases are applied in line with the outcome of the review and taking into account
wider factors, for example, local market inflation.
Performance
metrics
Not applicable
47
Fixed pay – Benefits
Purpose and
link to strategy
Operation
Designed to be competitive in the market in which the individual is employed.
Benefits include life insurance and private medical insurance. Where appropriate,
other benefits may be offered including, but not limited to, participation in all-
employee share schemes.
Benefits are non-pensionable.
Opportunity
Benefits vary by role and individual circumstance and eligibility is reviewed
periodically.
Benefits are not anticipated to exceed 5% of salary p.a. over the period for which
this policy applies.
The Committee retains the discretion to approve a higher cost in exceptional
circumstances (e.g. relocation) or in circumstances where factors outside of the
Group’s control have materially changed (e.g. increases in medical premiums).
Performance
metrics
Not applicable
Fixed pay – Pension
Purpose and
link to strategy
To provide cost effective retirement benefits.
Operation
Participation in defined contribution plan or cash allowance in lieu.
Opportunity
Up to 15% of base salary.
Performance
metrics
Not applicable
Variable pay – Annual performance bonus
Purpose and
link to strategy
Designed to reinforce individual performance and contribution to the achievement
of profit growth and strategic objectives.
Operation
Measures are reviewed prior to the start of the financial year to ensure they remain
appropriate and reinforce the business strategy, and performance targets are set
annually to ensure they are appropriately stretching and reflect those strategic
objectives. At the end of the year the Committee determines the extent to which
these were achieved.
Awards are payable in cash.
Payments made under the annual bonus are subject to claw-back for the later of one
year following the date of award or the completion of the next audit of the Group’s
accounts, in the event of a fraud or material misstatement of results being identified
in relation to the year in which the bonus is earned.
48
Opportunity
Maximum potential opportunity of up to 60% of base salary.
Typically, 10% of potential is achieved for Threshold performance of the financial
goals and 100% for Stretching performance.
Performance
metrics
At least half of the annual bonus is based on financial objectives with the balance
on personal objectives.
The Committee will vary the weightings from year-to-year to reflect the changing
strategic needs for the business with a default bias towards financial objectives.
In exceptional circumstances, the Committee has the ability to exercise discretion to
override the formulaic bonus outcome within the limits of the Plan where it believes
the outcome is not truly reflective of performance and to ensure fairness to both
shareholders and participants.
Variable pay – Medium-term performance bonus
Purpose and
link to strategy
Designed to reinforce the achievement of continuous profit growth over a longer
time frame and aid staff retention.
Operation
Measures are reviewed prior to the start of each 3 year period to ensure they remain
appropriate and to ensure they are appropriately stretching. At the end of the 3 year
period the Committee determines the extent to which these were achieved.
Awards are payable in cash.
Payments made under the medium-term bonus are subject to claw-back for the
later of one year following the date of award or the completion of the next audit of
the Group’s accounts, in the event of a fraud or material misstatement of results being
identified in relation to the year in which the bonus is earned.
Opportunity
Maximum potential opportunity of up to 120% of base salary for the three year period.
Typically, 10% of potential is achieved for achieving Threshold performance and 100%
for Stretching performance.
Performance
metrics
The medium-term bonus is based entirely on cumulative increases in earnings and is
only paid at the end of the 3 year period based on the cumulative result.
In exceptional circumstances, the Committee has the ability to exercise discretion to
override the formulaic bonus outcome within the limits of the Plan where it believes
the outcome is not truly reflective of performance and to ensure fairness to both
shareholders and participants.
Variable pay – Performance Share Plan (PSP)
Purpose and
link to strategy
Ensures that the Executive’s interests are aligned with those of shareholders through
reward for providing shareholders with substantial increases in shareholder value by
June 30, 2016 and/or for achievement of a measure of sustained growth in earnings
over the medium to long term.
49
Operation
Aside from a one-off award to the Chief Executive Officer which vests if the target
shareholder return is met by June 30, 2016, awards of nominal-cost (or nil-cost)
options may be granted annually as a percentage of base salary. Vesting is based on
performance measured over four years. The performance period normally starts at
the beginning of the financial year in which the date of grant falls.
Dividends accrue on PSP awards and are paid on those shares which vest. Award
levels and performance conditions are reviewed before each award cycle to ensure
they remain appropriate.
Payments made under the PSP are subject to claw-back, for the later of one year
following date of vesting or completion of the next audit of the Group’s accounts, in
the event of a fraud or material misstatement of results being identified in relation to
the years in which the PSP is earned.
Opportunity
With the exception of a one-off award made to the Chief Executive Officer in 2014,
award opportunities for participants are up to 50% of base salary.
Awards of up to 100% of base salary may be provided in exceptional circumstances
(e.g. recruitment).
20% of maximum vests for Threshold, rising on a straight-line basis to full vesting for
Stretch performance.
Performance
metrics
Apart from the initial one-off award to the Chief Executive Officer, which is based on
achieving total shareholder returns of £2.50 by June 30, 2016 from a combination of
dividends, capital returns and share price, awards to Executives are subject to four
year cumulative EPS performance.
In exceptional circumstances, the Committee has the ability to exercise discretion to
override the formulaic PSP outcome within the Plan limits to ensure alignment of pay
with the underlying performance of the business during the performance period.
Fixed pay – Non-executive Directors’ fees
Purpose and link
to strategy
To reflect the time commitment in preparing for and attending meetings, the duties and
responsibilities of the role and the contribution expected from the Non-executive Directors.
Operation
Annual fee for Chairman.
Annual base fee for non-executive Directors. Additional fees are paid to the Senior
Independent Director and the Chairmen of the Committees to reflect additional
responsibilities.
Fees are reviewed annually, taking into account time commitment, responsibilities
and fees paid by comparable companies.
Opportunity
There is no prescribed maximum. Non-executive Director fee increases are applied
in line with the outcome of the review and taking into account wider factors, for
example, inflation.
Performance
metrics
Not applicable
In addition to the above elements of remuneration, any commitment made prior to, but due to be fulfilled
after, the approval and implementation of the remuneration policy detailed in this report will be honoured.
50
PERFORMANCE MEASURE SELECTION AND
APPROACH TO TARGET SETTING
DIFFERENCES IN REMUNERATION POLICY
OPERATED FOR OTHER EMPLOYEES
The measures used under the annual bonus plan
are selected annually to reflect the Group’s key
strategic priorities for the year and reinforce
financial performance and achievement
of annual objectives as well as individual
performance. Financial measures include,
but may not be limited to, profit after tax.
The Committee considers that profit after tax
adjusted for any exceptional items is the most
appropriate measure of long-term performance
of the Group. It is well-aligned with shareholder
interests, provides clear visibility and the
scheme is simple.
Performance targets are set at such a level as
to be stretching and achievable, with regard to
the particular strategic priorities and economic
environment. The annual bonus Threshold is
based on a 3% growth in profits with Stretch
target being 10% growth. The same basis is used
for the medium-term bonus where the targets
compound annually.
The Committee reviews the performance targets
applying to awards made to the proposed PSP
scheme annually. Awards made to participants
will be based on either one or a combination of
total shareholder return and cumulative earnings
per share over the measured period. These will be
reported on each year in the Annual Report on
Remuneration.
Quarto’s approach to annual salary reviews is
consistent across the Group. Key management
personnel and senior managers with substantial
operational responsibilities are eligible to
participate in an annual and, in certain cases, the
medium-term bonus scheme with similar metrics
to those used for the Chief Executive Officer.
Opportunities and specific performance conditions
vary by organisational level with business area-
specific metrics incorporated where appropriate.
Key management personnel and senior managers
are eligible to participate in the PSP. Performance
conditions are consistent for all these participants,
while award opportunities may vary by
organisational level but are typically limited
to 50% of base salary.
SHAREHOLDING GUIDELINES
The Committee recognises the importance
of aligning the interests of Executives with
shareholders through the building up of a
significant shareholding in the Group. Save for the
initial award made to Marcus Leaver in May 2014,
Executive Directors are required to retain shares of
a value equal to 50% of the after-tax gain made on
the vesting of awards under the Plans, until they
have built up a minimum shareholding of a value
equivalent to at least 100% of annual base salary.
51
REMUNERATION POLICY FOR NEW DIRECTORS
When hiring or appointing a new executive director, including by way of internal promotion,
the Committee may make use of all the existing components of remuneration as follows:
Component
Approach
Base salary
Determined in line with the stated policy, and taking into
account their previous salary. Initial salaries may be set below
market and consideration given to phasing any increases
over two or three years subject to development in the role.
Benefits
Pension
In line with the stated policy.
In line with the stated policy.
Annual bonus
In line with stated policy, with the relevant maximum
pro-rated to reflect the proportion of the year served.
Maximum value
Not applicable
Not applicable
Not applicable
60% of base salary
Medium-term
bonus
In line with stated policy, with the relevant maximum
pro-rated to reflect the proportion of the year served.
120% of base salary
over 3 years
PSP
In line with the stated policy.
100% of base salary
(200% in exceptional
circumstances)
In determining appropriate remuneration for
a new executive, the Committee will take into
consideration all relevant factors (including
quantum, nature of remuneration and the
jurisdiction from which the candidate was
recruited) to ensure that arrangements are in the
best interests of both The Quarto Group and its
shareholders. The Committee may consider it
appropriate to grant an award under a structure
not included in the policy, for example to ‘buy
out’ incentive arrangements forfeited on leaving
a previous employer, and will exercise the
discretion available under Listing Rule 9.4.2 R
where necessary. In doing so, the Committee will
consider relevant factors including the expected
value of all outstanding equity awards using a
Monte Carlo, Black-Scholes, or other relevant
equivalent valuation and, where applicable,
taking into account toughness of performance
conditions attached to these awards and the
likelihood of those conditions being met.
In cases of appointing a new Executive Director
by way of internal promotion, the Group will
honour any contractual commitments made prior
to their promotion to Executive Director.
In cases of appointing a new non-executive Director,
the approach will be consistent with the policy.
52
SERVICE CONTRACTS AND EXIT PAYMENTS POLICY
Non-executive Directors are engaged on the basis of a letter of appointment. In line with the UK
Corporate Governance Code, all Directors are subject to re-election annually at the Annual Meeting.
The Chairman had an initial 3 year contract, subject to re-election each year and the non-executive
Directors have a one month notice period. The Chairman’s contract was renewed in January 2016 to run
until his retirement at the 2016 Annual Meeting. The non-executive Director Letters of Appointment are
available to view at the Group’s registered office and the effective dates of their Letters of Appointment
are as follows:
Director
Date of Appointment
Appointment Letter
Notice period
Tim Chadwick
November 7, 2012
January 25, 2016
Jessica Burley
May 22, 2014
January 17, 2014
Michael Hartley
August 6, 2013
August 22, 2013
Contract terminates
coincident with the
2016 AGM
1 month
1 month
Christopher Mills
October 15, 2014
October 22, 2014
1 month
Bob Morley
August 6, 2013
August 6, 2013
None1
1 Bob Morley’s contract provides ongoing employment, without limit, whilst he meets certain conditions, including, but not
limited to, him not selling or otherwise disposing of his shares in the Company in a manner that qualifies for Entrepreneur’s
Relief. This contract precedes his re-appointment to the Board.
Executive Director service contracts have no fixed term and, save for Bob Morley, have a notice period
of not more than 12 months from either the Executive or the Group. Save for Bob Morley, these notice
periods meet best practice guidelines and give protection, mutually, to the Group and the Executive.
Executive Director service contracts are available to view at the Group’s registered office. The dates of
the Executive Director service contracts and the relevant notice period are as follows:
Director
Effective date of contract
Notice period
Marcus Leaver
April 30, 2012
Michael Connole
September 1, 2015
12 months
12 months
The Committee’s policy is to limit severance payments on termination to pre-established contractual
arrangements and the rules of the relevant incentive plans. In doing so, the Committee’s objective is
to avoid rewarding poor performance. Furthermore, the Committee will take account of the Executive
Director’s duty to mitigate their loss.
Termination payments are limited to base salary and benefits during the unexpired notice period which
cannot be mitigated.
53
In addition to the contractual provisions regarding payment on termination set out above, the Group’s
incentive plans and share schemes contain provisions for termination of employment.
Component
Bad leaver
Good leaver
Change-of-control
Annual bonus No annual
bonus payable
Medium-term
bonus
No annual
bonus payable
PSP
Outstanding
awards are
forfeited
Eligible for an award to the
extent that performance
conditions have been
satisfied and pro-rated for
the proportion of the financial
year served, with Committee
discretion to treat otherwise
Eligible for an award to the extent
that performance conditions
have been satisfied up to the
change of control and pro-rated
for the proportion of the financial
year served, with Committee
discretion to treat otherwise
Eligible for an award to the
extent that performance
conditions have been
satisfied and pro-rated for the
proportion of the three financial
years served, with Committee
discretion to treat otherwise
Eligible for an award to the extent
that performance conditions have
been satisfied up to the change
of control and pro-rated for the
proportion of the three financial
years served, with Committee
discretion to treat otherwise
Outstanding awards will
normally continue and be tested
for performance over the full
period, and pro-rated for time
based on the proportion of the
period served, with Committee
discretion to treat otherwise
Outstanding awards will normally
vest and be tested for performance
over the period to change-of-
control, and pro-rated for time
based on the proportion of the
period served, with Committee
discretion to treat otherwise
Any commitment made prior to, but due to
be fulfilled after the policy comes into force,
will be honoured.
An individual would normally be considered a
good leaver if they leave for reasons of death,
injury, ill-health, disability, redundancy, part of
the business in which the individual is employed
or engaged ceasing to be a member of the
Group, circumstances that are considered by the
Committee to be retirement, or any other reason
as the Committee decides. Bad leaver provisions
apply under other circumstances.
EXTERNAL APPOINTMENTS
The Executive Directors may accept external
appointments with the prior approval of the Board
and provided only that such appointments do not
prejudice the individual’s ability to fulfil their duties
at the Group. Whether any related fees are retained
by the individual or remitted to the Group will be
considered on a case-by-case basis.
ILLUSTRATION OF THE APPLICATION
OF THE REMUNERATION POLICY
The chart on page 54 shows the remuneration
that the Executive Directors could be expected
to obtain based on varying performance
scenarios. Illustrations are intended to provide
further information to shareholders regarding
the relationship between pay and performance.
Potential reward opportunities illustrated are based
on the policies applying from May 23, 2014, applied
to the latest known fixed pay of base salaries,
pension, other benefits and variable pay of annual
bonus, medium term bonus and PSP. To better
illustrate the annual potential remuneration, the
medium-term bonus potential and PSP Awards are
pro-rated to an annual equivalent.
54
1500
1200
900
600
300
996
43%
6%
9%
42%
421
100%
1,247
37%
12%
17%
34%
278
100%
338
4%
14%
82%
435
8%
28%
64%
0
Minimum
Performing in line
with expectations
Marcus Leaver
Maximum
Minimum
Performing in line
with expectations
Maximum
Michael Connole
Fixed remuneration
Annual variable remuneration
Medium-term variable remuneration
PSP
* Does not include commissions which may become due (refer to Annual Report on Remuneration)
** Remuneration is contracted in sterling
Assumptions underlying each element of pay are provided in the below table:
Component
‘Minimum’
‘Maximum’
Base salary
Latest known salary
d
e
x
F
i
Pension
Contribution rate applied to latest known salary
Other benefits
Benefits as provided in the single figure table on page 56
Annual bonus
No bonus payable
Medium-term bonus*
No bonus payable
PSP Vesting*
None Vesting
Maximum bonus
Maximum bonus
Full vesting
* The maximum medium term bonus and the PSP vesting has been pro-rated over three years
CONSIDERATION OF CONDITIONS
ELSEWHERE IN THE GROUP
When reviewing and setting executive
remuneration, the Committee takes into account
the pay and employment conditions of all
employees of the Group. The Group-wide pay
review budget is one of the key factors when
reviewing the salaries of the Executive Directors.
Although the Group has not carried out a
formal employee consultation regarding
Board remuneration, it does comply with local
regulations and practices regarding employee
consultation more broadly.
CONSIDERATION OF SHAREHOLDER VIEWS
It is the Committee’s policy to consult with
major shareholders or their chosen shareholder
representative body prior to any changes to its
Executive Director remuneration structure.
Mike Hartley
Chairman of the Remuneration Committee
March 30, 2016
ANNUAL REPORT ON REMUNERATION
55
THE REMUNERATION COMMITTEE
(“THE COMMITTEE”)
• Determining the structure and quantum of short-
term and medium-term bonus schemes; and,
The current members of the Committee are the
Group’s non-executive Directors, Michael Hartley
(Chairman), Jessica Burley, Tim Chadwick, and
Christopher Mills. They served throughout the year.
The Committee met five times during the year.
Further details of attendance of non-executive
Directors at Remuneration Committee meetings
can be found in the Corporate Governance
Report on page 39. The CEO and the Director
of People attended parts of certain meetings
to make presentations and answer questions.
No individual was present when their own
remuneration was being discussed. The
Remuneration Committee’s Terms of Reference
are available on the Group’s website.
The Committee is responsible for:
• Recommending to the Board the remuneration
and terms and conditions of employment
of the Chairman (who absents himself from
discussions regarding his own remuneration),
Executive Directors and key members of senior
management;
• Measuring subsequent performance as a prelude
to determining the Executive Directors’ and key
managers’ total remuneration on behalf of the
whole Board;
• Granting awards under the PSP Share Award
Scheme.
The main issues discussed and/or approved
during the financial year under review:
• Approval of the prior year Directors’
Remuneration Report;
• Annual review of the Executive Directors’
salaries and benefits;
• Review of the Executive Directors’ and the
senior managers’ performance under the prior
year’s annual bonus scheme, including a review
of their performance against their personal
objectives and approval of the bonus awards;
• Review of the design and targets for
the forthcoming annual bonus scheme,
including personal objectives;
• Approval of awards made in the year under
the Performance Share Plan; and
• Approval of terms for new senior management
appointments falling within the remit of the
Committee.
ADVISERS
The Committee has not paid fees to any advisers
during the financial year.
STATEMENT OF SHAREHOLDER VOTING AT THE 2015 ANNUAL MEETING
The following table shows the results of the advisory vote on the 2014 Annual Remuneration Report
at the Annual Meeting on May 12, 2015.
For (including discretionary)
Against
Total votes cast*
* Representing 63.4% of the total voting shares
Total number of votes
% of votes cast
9,452,804
3,027,938
12,480,742
75.7%
24.3%
100%
56
The following table shows the results of the vote on the proposal to amend the conditions relating to
the Chairman's bonus at the Annual Meeting on May 12, 2015.
For (including discretionary)
Against
Total votes cast*
* Representing 65.4% of the total voting shares
Total number of votes
% of votes cast
7,505,472
4,957,270
12,462,742
60.2%
39.8%
100%
SINGLE TOTAL FIGURE OF REMUNERATION (AUDITED)
The table below sets out a single figure for the total remuneration received by each Director for the
year ended December 31, 2015 and the prior year. These amounts are shown in the reporting currency,
although set in sterling. The exchange rates used in 2015 and 2014 were 1.53 and 1.65, respectively.
Base Salary
Benefits1
Pension
Annual Bonus2
Long-term
incentives3
Total
remuneration
Executive Directors
2015
$000
2014
$000
2015
$000
2014
$000
2015
$000
2014
$000
2015
$000
2014
$000
2015
$000
2014
$000
2015
$000
2014
$000
Marcus Leaver
536
577
Michael Connole*
122
–
Mick Mousley*
260
422
8
2
9
Robert Morley*5
258
349
21
* For period for which he was a Director.
9
–
13
22
80
18
38
–
87
–
63
–
305
169
59
78
–
–
60
–
–
–
–
–
–
–
–
–
929
842
201
–
385
558
279
371
Fees4
Benefits
Pension
Annual Bonus
Long-term
incentives3
Total
remuneration
Non-executive
Directors
2015
$000
2014
$000
2015
$000
2014
$000
2015
$000
2014
$000
2015
$000
2014
$000
2015
$000
2014
$000
2015
$000
2014
$000
Tim Chadwick
153
165
Peter Campbell
Mike Hartley
Edward Krawitt
Max Lesser
Peter Waine
Jess Burley
Christopher Mills
–
69
–
–
–
54
54
–
71
23
41
–
35
12
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
153
165
–
69
–
–
–
–
71
23
41
–
54
35
54
12
1 Benefits comprise private medical insurance contributions.
2
Annual bonus for performance over the relevant financial year. Further details of performance criteria, achievement,
and resulting awards can be found on page 58.
Further details of Long-term incentives can be found on page 59. The columns above are zero as no medium or long term
incentive schemes ended during 2014 or 2015.
Further details of non-executive Director fees can be found on page 60.
Total payments to Robert Morley include payments in lieu of his previous contract notice period is £165,385 paid in equal
amounts split across 2014 and 2015.
3
4
5
There has been no withholding, clawback or deferral of remuneration during the period.
57
DIRECTORS’ INTERESTS
The share interests of the Directors who held office at December 31, 2015 and of their connected persons
in the share capital of the Company are shown below:
Shareholding
December 31, 20151 December 31, 20141 December 31, 20151 December 31, 20141
Number of share
options of common stock
Number of US$0.10
shares of common stock
T. Chadwick
R. J. Morley
M. E. Leaver
M. D. Connole
J. Burley
M.G. Hartley
C.H.B. Mills
–
–
750,398
60,000
–
–
–
–
–
666,666
–
–
–
–
–
1,402,852
14,000
10,000
3,300
10,000
–
1,402,852
14,000
–
3,300
10,000
100,000
4,100,0002
1 or date of appointment
2
4,000,000 shares were held in the names of Oryx International Growth Fund and North Atlantic Smaller Companies
Investment Trust plc of which Christopher is a Director, and 100,000 shares are held by him personally.
During the year the market price of the shares of common stock ranged between 147p and 239p. The mid-market price at
December 31, 2015 was 221p.
M.E. Leaver was granted a further award of 83,732 shares under the performance share plan, details of
which are set out on page 59. On March 17, 2016, he acquired 4,562 shares at 272.34p per share.
M.D. Connole was granted an award of 60,000 shares under the performance share plan, details of which
are set out on page 59.
R.J. Morley sold 1,022,228 shares at 264.0p per share on March 24, 2016.
EXECUTIVE DIRECTOR BASE SALARIES/FEES
During the year, Marcus Leaver, the Chief Executive
Officer, received £350,000 in salary. His salary
has been increased by 3.25% to £361,375 for 2016.
This was set in line with the typical increase across
the good performing UK employee population.
The next salary review date will be January 1, 2017.
Mick Mousley resigned as Director on 31 August 2015.
He will continue to be an employee and be paid
his salary of £255,000 per annum until May 25, 2016,
together with contributions to his personal
pension and private health insurance, whilst
providing whatever assistance is required
to his successor.
During the year, Michael Connole, the newly
appointed Chief Financial Officer, was paid
£80,000 in salary. His salary has been set at
£240,000 in line with his contract on appointment.
During the year, Bob Morley, the Deputy Chairman,
received £86,000 in salary and a lump sum of
£82,692, in relation to the second part payment
of notice in lieu of the termination of his former
contract. From January 1, 2016 his salary has
been set at £50,000 to reflect his reduced
responsibilities and time commitments. He is also
entitled to a commission of 37.5% of gross profit
generated on projects that he creates for the
Children's Design Eye imprint, from 2014.
PENSION AND OTHER BENEFITS
The Group makes a contribution to the personal
pension schemes of Marcus Leaver, Mick Morsley
and Michael Connole equal to 15% of their base
salary which may, at their discretion, be taken as
cash in line with the policy. Benefits are in line
with the policy.
ANNUAL PERFORMANCE BONUS
2015 bonus framework
For the 2015 financial year, the maximum annual
bonus opportunity was 60% of salary for Marcus
Leaver and 20% for Mick Mousley. Michael
Connole was appointed on 1 September 2015.
His appointment letter provides for a maximum
annual bonus entitlement of 50% of salary.
58
The annual bonus opportunity was split between
targeted growth in adjusted profit before tax and
other financial and personal goals. Adjusted profit
before tax represented 75% of total potential for
Marcus Leaver, 50% for Mick Mousley and 85% for
Michael Connole, with the balance being against
personal objectives.
The adjusted group profit before tax target was
based on the 2014 actual result, adjusted upwards
to reflect the Ivy and Small World acquisitions giving
a Threshold of $12.4m and a Stretch of $14.0m.
Adjusted profit before tax was $14.1m thus the
Stretch target was exceeded and the Committee
awarded maximum bonus to participants for
this element.
Personal objectives for Marcus Leaver, Mick
Mousley and Michael Connole were set by the
Committee in discussion with the Chairman and
CEO. The Committee reviewed and judged the
level of achievement against the objectives at
the end of the performance period.
Marcus Leaver’s personal objectives for 2015 were
amended mid year to reflect changing Board
priorities. His amended personal goal related to
achievement of a net debt target, with a payment
of zero for $61.9m and a full award for $58.9m. Year
end net debt was $59.5m and he was awarded 80%
of maximum for this element. Michael Connole's
personal objectives mirrored the net debt target
given to Marcus Leaver, and he was also awarded
80% of the maximum for this element.
Mick Mousley’s personal objectives related to
negotiation of new debt facilities. Payout under
this element of the bonus was assessed at 100%.
After taking account of their financial targets and
personal goals bonus awards were:
Marcus Leaver
£199,500
Mick Mousley
£51,000
Michael Connole
£38,800
% of maximum
95%
100%
97%
2016 annual bonus framework
For the financial year commencing January 1, 2016,
the Executive Bonus Plan will operate in line
with the approved remuneration policy, save
for the measure being adjusted profit before
tax (derivation of which is shown in note 32 on
page 102) rather than profit after tax, adjusted
as appropriate for exceptional items. The adjusted
profit before tax measure is based on the 2015
actual result of $14.1m which will be adjusted as
appropriate to reflect any acquisitions, disposals
and any significant one-off exceptional items
for Board initiatives outside management’s
control, which do not qualify for inclusion in
the Exceptional Item line in the Accounts.
Maximum annual bonus potential in 2016 for
Marcus Leaver and Michael Connole is 60%
and 50% respectively of which 75% and 85%
respectively are based on adjusted group profit
before tax.
For Marcus Leaver the remaining potential is
split between certain deliverables in relation to
acquisition planning and a sliding target based on
net debt, adjusted for the effect of any Corporate
activity, with zero being paid at $55.4m or below
and maximum for $52.4m or above.
For Michael Connole the remaining potential is
based on a split between certain deliverables in
relation to the reorganisation of the finance team
and the same net debt target as Marcus Leaver.
MEDIUM-TERM PERFORMANCE BONUS
2014-2016 medium-term bonus framework
This is the third and final year of the current
medium term bonus scheme which is designed
to motivate management to focus on continual
profit improvement. The Committee recognises
that profit development is not within an annual
financial cycle. Rather, the publications (which
are a substantial part of the Group’s businesses)
are substantially created in the year before
the sales are achieved. Thus within any one
financial year, there is a limit to the influence of
management on profits. These in-year influences
are the marketing of the publications and cost
control. Emphasis on a single year can motivate
cost cutting of creative publishing resources
to the detriment of the following year’s results.
Thus the Committee has developed a mix of
59
annual and medium term performance goals.
To most align these goals with shareholders,
the targets are based on improving profits from
the prior year/s as the Committee believes that
ultimate shareholder value is most driven by a
continual improvement in profits from which
cash is generated for dividend growth.
The profit targets are based on a base year
of 2013. The targets have been changed by
the Committee to reflect the preferred measure
of adjusted profit before tax in line with the
Annual Bonus Awards. Base is the achieved
adjusted profits before tax for 2013 adjusted
upwards to account for a one-off gain in 2014
on interest charges from the effect of terminating
an interest rate swap, in 2013. There has been no
adjustment for major corporate actions, though
the Committee may make such adjustments for
items outside management’s control in the event
of items determined to be material over the three-
year period. As at the date of this Report, there
have been no further adjustments. The target is
based on compound increases over three years
over the Base of $12.6m giving Threshold for a
9.3% increase at $13.6m and Stretch for a 33.1%
increase at $16.6m. Payments are made at the end
of the period based on the 2016 results.
Marcus Leaver has a maximum opportunity of
120% of salary, with 10% of maximum potential
for Threshold and 100% for Stretch.
LONG-TERM INCENTIVES
PSP Awards
Subsequent to the approval by shareholders of the
PSP Plan an initial award was made to CEO, Marcus
Leaver with a grant of 666,666 shares (3.3% of
share capital) which would vest on June 30, 2016
subject to a stretching performance condition of
achieving an average share price of £2.50 over any
consecutive 90 day period occurring before vesting
date, adjusted for an agreed challenging minimum
level of dividends and other cash distributions paid
to shareholders from December 31, 2012. Following
a change in Board strategy during 2015 to focus on
building and developing the business in preference
to cash distributions back to shareholders (save for
a progressive dividend policy), the condition for a
minimum level of cash returns to shareholders was
removed by the Committee as being no longer
appropriate. The target is now solely for achieving
an average share price (including dividends)
of £2.50 over any consecutive 90 day period
occurring before vesting date. Major shareholders
have been consulted on this amendment.
On 24 September 2015, Marcus Leaver was granted
83,732 PSP Awards and Michael Connole 60,000.
The face value of these awards was £175,000 and
£125,400 respectively based on a closing price the
day before of 209p. They represent 50.0% and
52.25% of salary respectively.
Half of these awards have a performance condition
relating to cumulative Adjusted Diluted EPS
performance for the four financial years 2015 to
2018 inclusive. The other half of these awards have a
performance condition relating to total shareholder
returns (“TSR”) from a combination of dividends,
capital returns and share price growth (measured as
an average over a 20 business day period leading up
to grant and vesting as appropriate). The TSR period
runs from September 24, 2015 to September 23, 2019.
Targets for EPS are annual compounded growth
of 5% for Threshold to 10% for Stretch. Targets for
total shareholder returns over the period are annual
compounded growth of 7% for Threshold and
15% for Stretch.
The Committee believes the TSR directly measures
shareholder returns and thereby aligns the goals
of management and shareholders. However,
TSR can be affected by a variety of investment
factors, which are far removed from those which
management can directly affect. The Committee
believes that cumulative diluted EPS to be a good
measure of managements’ long-term impact on
the business and which over time translates into
shareholder value. Thus a combination of TSR and
EPS is believed to be suitable goals for the PSP
Awards. Major shareholders have been consulted
about adding the TSR condition.
Subject to shareholder consent at the 2016 AGM
Marcus Leaver will be issued with a further 83,732
PSP Awards on the same vesting and performance
conditions as those issued in September 2015. If
approved, these will be treated as though they were
issued in September 2015. Shareholder consent is
required, as this award equates to 100% of salary in
2015, which exceeds approved Policy limits of 50%.
During 2016, it is envisaged that PSP Awards will
be made to executive directors, key management
personnel and certain senior managers with
60
direct profit responsibility for business units or for
major sales and marketing. The quantum has yet
to be decided but will be restricted by the dilution
limits. Performance measures are anticipated to
be half EPS and half TSR both measured over a
four year period.
OTHER LONG TERM INCENTIVES
On appointment to Chairman, Timothy Chadwick
was awarded a potential bonus of £750,000
if, during the three year period commencing
December 18, 2012, shareholders are able to sell
their shares at a price of £2.50 or more, in the
context of a general offer to acquire all the shares
of the Company by a third party or by way of sale
of shares in the market provided that the shares
are traded on the market at a bid price of £2.50 or
more for a continuous period of at least 6 months
and during that period the shares are trading with
sufficient liquidity to enable up to 15% of the shares
to be sold in the market on a regular monthly basis
at a bid price of at least £2.50 per share without
the bid price falling as a consequence.
Following shareholder consent with a Special
Resolution at the 2015 AGM, this bonus was
reduced to £500,000 whilst extending the period
for the award to end on 30 June 2016. As of the
date of this report, with less than 6 months to run
to 30 June 2016, it is clear that this bonus will not
be achieved.
CHAIRMAN AND NON-EXECUTIVE
DIRECTOR FEES
With effect from the date of the Annual Meeting
in 2014, the non-executive Directors received an
annual base fee of £35,000, with an additional
annual fee for Audit and Remuneration Committee
Chairs of £3,500 and the Senior Independent
Director of £3,000.
The non-executive Directors’ fees for 2016 will
remain unchanged and are therefore as follows:
Jessica Burley £35,000, Michael Hartley £45,000
and Christopher Mills £35,000.
The Chairman's fee remains at a rate of £100,000
p.a. through to his retirement at the 2016 AGM.
The Committee has determined that a more
appropriate salary for the non-executive Chairman
is £70,000 which will be the salary of the next
Chairman on appointment.
RELATIVE IMPORTANCE OF SPEND ON PAY
The graph below shows Quarto’s distributions to
shareholders and total employee pay expenditure
for the financial years ended December 31, 2014 and
December 31, 2015.
30.7
29.3
$m
40
30
20
10
0
2014
2015
Total Employee Pay
(Excluding Ivy Press which
was acquired during the year)
1 Total employee pay has been impacted by exchange rate movements.
2.6
2.9
Total Dividend
61
REVIEW OF GROUP PERFORMANCE
The chart below compares the value of £100 invested in Quarto shares, including re-invested dividends,
on December 31, 2010 compared to the equivalent investment in the FTSE Small Cap Index, over the last
five financial years. The FTSE Small Cap Index has been chosen as it comprises companies of a broadly
similar size to Quarto. The table below shows the single figure for the CEO over the same period.
250
2009
2010
2011
2012
2013
2014
2015
CEO single figure of remuneration
including bonus ($000)
200
Annual bonus
awarded
150
PSP vesting
$ amount ($000s)
% of maximum
opportunity
$ amount ($000s)
% of maximum
opportunity
729
750
996
1,0201
870
842
929
–
–
–
–
392
572
1212
233
169
305
–
–
–
–
–
–
–
–
–
56.9% 33.5% 95.0%
–
–
–
–
–
–
1 The figure for 2012 is a combination of remuneration of Laurence Orbach, the previous CEO, and Marcus Leaver for the
31 Dec
2011
31 Dec
2012
31 Dec
2013
31 Dec
2014
100
respective periods.
2 Discretionary
31 Dec
2009
31 Dec
2010
PERFORMANCE GRAPH
Quarto
Small cap
250
200
150
100
50
0
31 Dec
2010
31 Dec
2011
31 Dec
2012
31 Dec
2013
31 Dec
2014
31 Dec
2015
Quarto
Small cap
62
CHANGE IN CEO REMUNERATION AND FOR EMPLOYEES AS A WHOLE
The table below shows the change in CEO annual cash remuneration, defined as salary, taxable benefits
and annual bonus, compared to the average employees for 2014 to 2015.
$ 000
Salary1
Taxable benefits1
Annual variable
Total
CEO
Average for
other employees2
2014
% change
% change
577
9
169
755
-7.1%
–
80.5%
12.5%
-7.4%
-5.4%
28.5%
-6.7%
2015
536
8
305
849
1 There was no change to the CEO's salary and benefits. The change is due to exchange rate movements.
2 The salary of the other employees has been impacted by exchange rate movements
PAYMENTS TO PAST DIRECTORS AND PAYMENTS FOR LOSS OF OFFICE
There have been payments of $2,000, during 2015, to settle certain fees and costs relating to the
Quarto Publishing PLC Pension Plan (a defined contribution scheme). Laurence Orbach and Bob Morley
are the only remaining participants. There will be no further payments of any kind into this scheme.
Laurence Orbach pro-rated benefit of such costs is $1,000. Bob Morley’s pro-rate benefit is shown
under other income within the Director’s remuneration table on page 56.
DILUTION LIMITS
The Group has at all times complied with the dilution limits set out in the rules of its share plans
(principally a limit of 10% in 10 years). In the 10 year period to December 31, 2015, awards made
under the Group’s share schemes represented 4.0% (2014: 3.3%) of the Group’s issued share capital.
DIRECTORS’ SHAREHOLDING GUIDELINES AND SHARE SCHEME INTERESTS
To date there has been no requirement for Executive Directors to retain shares as there has been no
vesting of share based incentives.
Mike Hartley
Chairman of the Remuneration Committee
March 30, 2016
NOMINATIONS COMMITTEE REPORT
63
The members of the Nominations Committee are
the Group’s non-executive Directors, Tim Chadwick
(Committee Chairman), Michael Hartley, Jess Burley
and Christopher Mills, and the Chief Executive
Officer, Marcus Leaver. A copy of the Committee’s
formal terms of reference can be found on the
Company’s website. (www.quarto.com)
The search for Board candidates is conducted
and appointments made, on merit, against
objective criteria and with due regard to the
benefits of diversity on the Board, including
gender. External search consultants are engaged,
as appropriate, and a formal and transparent
process is followed. When dealing with the
appointment of a successor to the Chairman, the
senior independent non-executive Director will
chair the Committee instead of the Chairman.
All Directors are required to allocate sufficient
time to discharge their responsibilities and
new Directors receive a tailored induction on
joining the Board. This includes presentations
on the business, current strategy, shareholder
expectations, and familiarisation with the Group's
operations worldwide. Guidance is also given
on the duties, responsibilities and liabilities of
a Director of a listed company and key Board
policies and procedures.
The Committee met three times during the year
and was active in the appointment of Quarto’s
new Chief Financial Officer, Michael Connole,
who joined the Board on 1 September 2015. Other
activities included a review of the balance of skills
and experience on the Board to consider if any
changes were necessary, a review of the output
from the annual Board evaluation process, and a
review of the Company’s management structure
and succession plans.
Tim Chadwick,
Chairman of the Nominations Committee
March 30, 2016
64 STATEMENT OF DIRECTORS’ RESPONSIBILITIES IN RESPECT
OF THE DIRECTORS’ REPORT AND THE FINANCIAL STATEMENTS
The Directors are responsible for preparing the
Directors’ Report, the Directors’ Remuneration
Report and the financial statements in accordance
with applicable law and regulations. The Company
is incorporated in the State of Delaware, United
States and is subject to the law of that state which
places no requirement for annual reporting to
shareholders upon the Directors. However, since
the Company has a listing on the London Stock
Exchange and a place of business in the UK,
the Directors are required to prepare financial
statements which comply with certain provisions
which are contained within the Listing Rules of the
UK Financial Conduct Authority (the Listing Rules)
and UK company law for overseas companies.
The Company is an ‘overseas’ company within
the meaning of the Companies Act 2006. The
Directors have elected to prepare the Group
financial statements in accordance with IFRSs
as adopted by the EU, and the parent Company
financial statements in accordance with applicable
law and UK GAAP, including FRS102 "The Financial
Reporting Standard applicable in the UK and
Republic of Ireland".
The Directors have accepted responsibility for
preparing Group financial statements as required
by IFRSs as adopted by the EU which present
fairly the financial position and the performance
of the group. The Companies Act 2006 provides
in relation to such financial statements that
references in the relevant part of that Act to
financial statements giving a true and fair view are
references to their achieving a fair presentation.
The Directors have accepted responsibility for
preparing parent Company financial statements
which give a true and fair view of the state of
affairs and profit or loss of the parent company.
In preparing the parent Company financial
statements, the Directors are required to:
• select suitable accounting policies and then
apply them consistently;
• make judgements and accounting estimates
that are reasonable and prudent;
• state whether Financial Reporting Standard 102
'The Financial Reporting Standard applicable
in the UK and Republic of Ireland' has been
followed, subject to any material departures
disclosed and explained in the financial
statements; and
• prepare the financial statements on the going
concern basis unless it is inappropriate to presume
that the company will continue in business.
In preparing the Group financial statements,
International Accounting Standard 1 requires that
Directors:
• properly select and apply accounting policies;
• present information, including accounting
policies, in a manner that provides relevant,
reliable, comparable and understandable
information;
• provide additional disclosures when compliance
with the specific requirements in IFRSs are
insufficient to enable users to understand the
impact of particular transactions, other events
and conditions on the entity's financial position
and financial performance; and
• make an assessment of the company's ability to
continue as a going concern.
The Directors are responsible for keeping adequate
accounting records that are sufficient to show
and explain the Company’s transactions and
disclose with reasonable accuracy at any time the
financial position of the Company and enable them
to ensure that the financial statements and the
Remuneration report comply with the Companies
Act 2006 and Article 4 of the IAS Regulation. They
are also responsible for safeguarding the assets
of the Company and hence for taking reasonable
steps for the prevention and detection of fraud and
other irregularities.
65
The Directors confirm that:
We confirm to the best of our knowledge:
• so far as each director is aware, there is
no relevant audit information of which the
Company’s auditor is unaware; and
• the Directors have taken all the steps that they
ought to have taken as Directors in order to
make themselves aware of any relevant audit
information and to establish that the auditor is
aware of that information.
The Directors are responsible for preparing the
annual report in accordance with applicable law
and regulations. Having taken advice from the
Audit Committee, the Directors consider the
annual report and the financial statements, taken
as a whole, provides the information necessary
to assess the Company’s performance, business
model and strategy and is fair, balanced and
understandable.
The Directors are responsible for the maintenance
and integrity of the corporate and financial
information included on the Company’s website.
Legislation in the United Kingdom governing
the preparation and dissemination of financial
statements may differ from legislation in other
jurisdictions.
• the Group financial statements, prepared in
accordance with IFRSs as adopted by the
European Union, give a true and fair view of
the assets, liabilities, financial position and
profit or loss of the Group and the undertakings
included in the consolidation taken as a whole;
• the Strategic Report includes a fair review
of the development and performance of the
business and the position of the Company and
the undertakings included in the consolidation
taken as a whole, together with a description of
the principal risks and uncertainties that they
face; and
• the annual report and financial statements,
taken as a whole, are fair, balanced and
understandable, and provide the information
necessary for shareholders to assess the
Company's position, performance, business
model and strategy.
Clive Potterell,
Secretary
March 30, 2016
66
INDEPENDENT AUDITOR’S REPORT
OPINION ON FINANCIAL STATEMENTS OF
THE QUARTO GROUP INC.
In our opinion:
• The financial statements give a true and fair view
of the state of the Group’s and of the parent
Company’s affairs as at 31 December 2015 and of
the Group profit for the year then ended;
• The Group financial statements have been
properly prepared in accordance with
International Financial Reporting Standards
(IFRSs) as adopted by the European Union;
• The parent Company financial statements
have been properly prepared in accordance
with United Kingdom Generally Accepted
Accounting Practice, including FRS 102 “The
Financial Reporting Standard applicable in
the UK and Republic of Ireland”; and
• The financial statements have been prepared
in accordance with the provisions of the
Companies Act 2006 which would have
applied were the company incorporated in
the United Kingdom.
The financial statements comprise the
consolidated statement of comprehensive
income, the consolidated balance sheet, the
consolidated statement of changes in equity
and the consolidated cash flow statement, and
the related Notes 1 to 36, the parent company
balance sheet, the parent company statement
of changes in equity and the related notes
to the parent company balance sheet 1 to 8.
The financial reporting framework that has
been applied in the preparation of the Group
financial statements is applicable law and IFRSs
as adopted by the European Union. The financial
reporting framework that has been applied in
the preparation of the parent company financial
statements is applicable law and United Kingdom
Accounting Standards (United Kingdom Generally
Accepted Accounting Practice) including FRS 102
“The Financial Reporting Standard applicable in
the UK and Republic of Ireland”.
GOING CONCERN AND THE DIRECTORS’
ASSESSMENT OF THE PRINCIPAL RISKS THAT
WOULD THREATEN THE SOLVENCY
OR LIQUIDITY OF THE GROUP
As required by the Listing Rules we have
reviewed the Directors’ statement regarding the
appropriateness of the going concern basis of
accounting contained within note 1 to the financial
statements and the Directors’ statement on the
longer-term viability of the Group contained within
the Financial Review on page 34.
We have nothing material to add or draw attention
to in relation to:
• The Directors' confirmation on page 41 that they
have carried out a robust assessment of the
principal risks facing the Group, including those
that would threaten its business model, future
performance, solvency or liquidity;
• The disclosures on page 33 that describe those
risks and explain how they are being managed
or mitigated;
• The Directors’ statement in note 1 to the financial
statements about whether they considered it
appropriate to adopt the going concern basis
of accounting in preparing them and their
identification of any material uncertainties to
the group’s ability to continue to do so over a
period of at least twelve months from the date
of approval of the financial statements;
• The Directors’ explanation on page 34 as to how
they have assessed the prospects of the Group,
over what period they have done so and why
they consider that period to be appropriate,
and their statement as to whether they have
a reasonable expectation that the Group will
be able to continue in operation and meet its
liabilities as they fall due over the period of their
assessment, including any related disclosures
drawing attention to any necessary qualifications
or assumptions.
We agreed with the Directors’ adoption of the
going concern basis of accounting and we did
not identify any such material uncertainties.
However, because not all future events or
conditions can be predicted, this statement
is not a guarantee as to the Group’s ability to
continue as a going concern.
67
INDEPENDENCE
We are required to comply with the Financial Reporting Council’s Ethical Standards for Auditors and we
confirm that we are independent of the group and we have fulfilled our other ethical responsibilities in
accordance with those standards. We also confirm we have not provided any of the prohibited non-audit
services referred to in those standards.
OUR ASSESSMENT OF RISKS OF MATERIAL MISSTATEMENT
The assessed risks of material misstatement described below are those that had the greatest effect on our
audit strategy, the allocation of resources in the audit and directing the efforts of the engagement team:
Risk
How the scope of our audit responded to the risk
Risk that the carrying value of goodwill
($40.1m) in the consolidated balance
sheet exceeds the recoverable amount
We tested management’s assumptions used in their
impairment model for goodwill, specifically including the
cash flow projections, discount rates and growth rates applied.
The Group hold significant goodwill
balances ($40.1m) arising from
acquisitions of which the largest balance
is the US CGU ($26.9m) as shown in
Note 10 to the financial statements.
The assessment of the carrying value
of goodwill to ensure that the carrying
value does not exceed the recoverable
amount involves judgement in relation
to identification of the appropriate cash
generating units and forecasting future
cash flows. It is sensitive to the growth
rates and the discount rates applied
to the future cash flows to estimate
recoverable amount.
Risk that the carrying value of
pre-publication costs ($59.4m) in
the consolidated balance sheet
exceeds the recoverable amount
The Group capitalises third party costs
incurred and directly attributable costs
in developing book titles prior to their
publication. These costs are then amortised
over a three year period which is the
estimated economic life of a title. The
assessment of the carrying value of these
pre-publication costs to ensure that
the carrying value does not exceed the
recoverable amount, as described in Note 14,
involves judgement in respect of the life of
an imprint and its recoverability.
Our procedures included:
• Considering the identification of appropriate cash
generating units;
• Assessing cash flow forecast projections and forecast
growth rates with reference to historical trading
performance and cash flow forecasting accuracy and
external expectations of long term growth rates;
• Comparing the discount rate applied against a broad
comparator group as well as involving our internal
valuation specialists to review underlying calculations and
assess the key components of the discount rate calculation;
• Considering the reasonableness of, and recalculating,
the sensitivity assessment applied by management;
• Performing further independent sensitivity analysis on
the impairment model; and
• Assessing the overall market capitalisation of the Group
compared to the carrying value.
The audit procedures we performed in respect of this
risk included:
• Analysing, on a sample basis, the historical level of sales
following the date of publication;
• Evaluating a sample of sales, and their associated profit,
in the current year against their respective
pre-publication carrying value;
• Comparing the amortisation period applied to industry
peers; and
• Analysing the overall sales profiles to evaluate the
consistency of the amortisation period to the historical data.
68
Risk
How the scope of our audit responded to the risk
Revenue recognition risk that the sales
returns provision is inaccurate
To test the risk of material misstatement in respect of
revenue recognition, our procedures included:
The Group primarily generates revenue
from publishing new titles and sales
of back catalogues (see revenue
recognition policy in note 1 to the financial
statements). In certain business units
customers have rights of return for a
limited period and revenue is recorded
net of a provision for these returns
based on historical data. Management
judgement is required when assessing the
level of sales returns subsequent to the
year-end to be provided for at the year-
end. Key assumptions principally surround
historical return experience when
estimating future sale return levels against
revenue recognised in the year.
• Testing a sample of underlying returns data used to
develop the sales return estimate for completeness and
accuracy and challenging the appropriateness of the rate
by reference to current and post year end sales return
levels;
• Evaluating new title and / or seasonal sales and the
potential impact on future sales returns estimates;
• Using analytical techniques to assess monthly returns
by reference to historical trends; and
• Considering forecasting accuracy by comparing actual
returns against accrual estimates.
The description of the above risks should be read in conjunction with the significant issues considered by
the Audit Committee discussed on page 43. In 2014 we identified the assessment of going concern as a key
audit risk. In 2015 the Group completed a re-financing and has committed facilities in place to April 2019,
accordingly we do not identify this as a significant risk in the current year.
These matters were addressed in the context of our audit of the financial statements as a whole, and in
forming our opinion thereon, and we do not provide a separate opinion on these matters.
OUR APPLICATION OF MATERIALITY
We define materiality as the magnitude of misstatement in the financial statements that makes it probable
that the economic decisions of a reasonably knowledgeable person would be changed or influenced.
We use materiality both in planning the scope of our audit work and in evaluating the results of our work.
We determined materiality for the group to be $697,000 (2014: $585,000), which is 5% (2014: 5%) of
adjusted profit before tax plus amortisation, and 1% (2014: 1%) of equity. The adjusted profit before tax
measure excludes those items identified as exceptional in the annual report (Note 4) and is consistent with
the measures used by the Group for internal and external reporting requirements. This measure has been
used to facilitate a better understanding of the trading performance of the Group as the Group policy for
exceptional items is to include only non-trading items. The basis of determining materiality is consistent with
our approach adopted in 2014.
We agreed with the Audit Committee we would report to the Committee all audit differences in excess of
$13,900 (2014 $11,700) as well as differences below that threshold that, in our view, warranted reporting on
qualitative grounds. We also report to the Audit Committee on disclosure matters that we identified when
assessing the overall presentation of the financial statements.
69
AN OVERVIEW OF THE SCOPE OF OUR AUDIT
Our Group audit was scoped by obtaining an
understanding of the Group and its environment,
including group-wide controls, and assessing
the risks of material misstatement at the Group
level. Based on that assessment, we focused our
Group audit scope primarily on the UK and US
co-editions and publishing segments, operations
in Australia, New Zealand and Hong Kong, and
the Group corporate head office function. These
locations were subject to full audit procedures and
represent the principal business units and account
for 98% of the Group’s net assets (2014: 92%),
99% of the Group’s revenue (2014: 97%) and 97%
of the Group’ s profit before tax (2014: 82%). They
were also selected to provide an appropriate basis
for undertaking audit work to address the risks of
material misstatement identified above. Our audit
work at locations subject to full audit procedures
was executed at levels of materiality applicable to
each individual location which was lower than the
Group materiality.
We carried out analytical procedures for
operations in Switzerland and for the US holding
company on an entity-only basis, neither of which
were subject to audit, to confirm our planning
assessment that there were no significant risks of
material misstatement of the financial information
of these entities.
At the parent entity level we also tested the
consolidation process.
The Group audit team is following a programme
of planned visits designed so that the Senior
Statutory Auditor and/or a senior member of
the Group audit team visit each of the locations
where the group audit scope is focused. For 2015
the Senior Statutory Auditor again visited the
United States, being the single most significant
component outside of the United Kingdom and
representing 40% of the Group’s revenue. In years
when we do not visit a significant component
we include the component audit team, including
the component audit partner, in our team
briefing, discuss the risk assessment, and review
documentation of the findings from their work.
OPINION ON OTHER MATTERS PRESCRIBED BY
OUR ENGAGEMENT LETTER
In our opinion:
• the part of Directors’ Remuneration Report
to be audited has been properly prepared in
accordance with the Companies Act 2006,
were the requirements of the Act to apply to
The Quarto Group Inc.; and
• the information given in the Strategic Report
and the Directors’ Report for the financial year
for which the financial statements are prepared
is consistent with the financial statements.
MATTERS ON WHICH WE ARE REQUIRED
TO REPORT BY EXCEPTION
Adequacy of explanations received and
accounting records
Under our engagement letter, we are required
to report to you if, in our opinion:
• We have not received all the information and
explanations we require for our audit; or
• Adequate accounting records have not been
kept by the parent company, or returns
adequate for our audit have not been received
from branches not visited by us; or
• The parent company financial statements are
not in agreement with the accounting records
and returns.
We have nothing to report in respect of
these matters.
Directors’ remuneration
Under our engagement letter we are also required
to report if in our opinion certain disclosures of
directors’ remuneration have not been made or
the part of the Directors’ Remuneration Report
to be audited is not in agreement with the
accounting records and returns. We have nothing
to report arising from these matters.
Corporate Governance Statement
Under the Listing Rules we are also required
to review part of the Corporate Governance
Statement relating to the Company’s compliance
with certain provisions of the UK Corporate
Governance Code. We have nothing to report
arising from our review.
70
Our duty to read other information in the
Annual Report
Under International Standards on Auditing (UK and
Ireland), we are required to report to you if, in our
opinion, information in the annual report is:
• Materially inconsistent with the information in
the audited financial statements; or
• Apparently materially incorrect based on, or
materially inconsistent with, our knowledge of
the group acquired in the course of performing
our audit; or
• Otherwise misleading.
In particular, we are required to consider whether
we have identified any inconsistencies between
our knowledge acquired during the audit and the
Directors’ statement that they consider the annual
report is fair, balanced and understandable and
whether the annual report appropriately discloses
those matters that we communicated to the Audit
Committee which we consider should have been
disclosed. We confirm that we have not identified
any such inconsistencies or misleading statements.
RESPECTIVE RESPONSIBILITIES OF
DIRECTORS AND AUDITOR
As explained more fully in the Directors’
Responsibilities Statement, the Directors are
responsible for the preparation of the financial
statements and for being satisfied that they give a
true and fair view. Our responsibility is to audit and
express an opinion on the financial statements in
accordance with applicable law and International
Standards on Auditing (UK and Ireland). We also
comply with International Standard on Quality
Control 1 (UK and Ireland). Our audit methodology
and tools aim to ensure that our quality control
procedures are effective, understood and applied.
Our quality controls and systems include our
dedicated professional standards review team
and independent partner reviews.
This report is made solely to the company’s
members, as a body, in accordance with our
engagement letter. Our audit work has been
undertaken so that we might state to the
company’s members those matters we are
required to state to them in an auditor’s report
and for no other purpose. To the fullest extent
permitted by law, we do not accept or assume
responsibility to anyone other than the company
and the company’s members as a body, for our
audit work, for this report, or for the opinions we
have formed.
SCOPE OF THE AUDIT OF THE
FINANCIAL STATEMENTS
An audit involves obtaining evidence about
the amounts and disclosures in the financial
statements sufficient to give reasonable
assurance that the financial statements are
free from material misstatement, whether
caused by fraud or error. This includes an
assessment of: whether the accounting policies
are appropriate to the Group’s and the parent
Company’s circumstances and have been
consistently applied and adequately disclosed;
the reasonableness of significant accounting
estimates made by the Directors; and the overall
presentation of the financial statements.
In addition, we read all the financial and non-
financial information in the annual report
to identify material inconsistencies with the
audited financial statements and to identify
any information that is apparently materially
incorrect based on, or materially inconsistent
with, the knowledge acquired by us in the
course of performing the audit. If we become
aware of any apparent material misstatements
or inconsistencies we consider the implications
for our report.
Deloitte LLP
Chartered Accountants and Statutory Auditor
London
March 30, 2016
CONSOLIDATED STATEMENT OF COMPREHENSIVE
INCOME FOR THE YEAR ENDED DECEMBER 31, 2015
71
Continuing operations
Revenue
Cost of sales
Gross profit
Other operating income
Distribution costs
Administrative expenses
Operating profit before amortisation
of acquired intangibles and exceptional items
Amortisation of acquired intangibles
Exceptional items
Operating profit
Finance income
Finance costs
Profit before tax
Tax
Profit for the year
Other comprehensive income which may
be reclassified to profit or loss
Foreign exchange translation differences
Cash flow hedge: losses arising during the year
Cash flow hedge: reclassification adjustment for net income
recognised directly in equity
Tax relating to items that may be reclassified to profit or loss
Total comprehensive income for the year
Profit for the year attributable to:
Owners of the parent
Non-controlling interests
Total comprehensive income for the year attributable to:
Owners of the parent
Non-controlling interests
Earnings per share
Basic
Diluted
* Restated as set out in Note 1 and 35.
Notes
2015
$000
2014
$000
Restated*
2
4
4
6
7
8
9
9
182,165
(122,803)
59,362
–
(7,196)
(34,960)
17,206
(724)
(445)
16,037
142
(3,240)
12,939
(3,685)
171,339
(116,326)
55,013
22
(6,747)
(32,369)
15,919
(503)
566
15,982
151
(4,128)
12,005
(2,922)
9,254
9,083
(2,467)
(64)
68
(14)
(2,477)
(1,936)
(46)
463
(100)
(1,619)
6,777
7,464
8,866
388
9,254
6,403
374
6,777
45.0c
44.9c
8,773
310
9,083
7,160
304
7,464
44.5c
44.5c
72 CONSOLIDATED BALANCE SHEET AT DECEMBER 31, 2015
Notes
2015
$000
2014
$000
Restated*
2013
$000
Restated*
Non-current assets
Goodwill
Other intangible assets
Property, plant and equipment
Intangible assets: Pre-publication costs
Deferred tax assets
Total non-current assets
Current assets
Inventories
Trade and other receivables
Derivative financial instruments
Cash and cash equivalents
Total current assets
Total assets
Current liabilities
Short term borrowings
Derivative financial instruments
Trade and other payables
Tax payable
Total current liabilities
Non-current liabilities
Medium and long term borrowings
Deferred tax liabilities
Other payables
Total non-current liabilities
Total liabilities
Net assets
Equity
Share capital
Paid in surplus
Retained profit and other reserves
10
11
12
14
20
15
16
19
17
22
19
23
18
20
24
25
40,112
1,510
3,368
59,443
–
104,433
26,147
57,145
18
25,059
108,369
41,069
956
2,731
57,534
126
102,416
24,851
51,740
–
23,110
99,701
41,367
991
3,752
56,221
33
102,364
19,679
54,349
–
23,879
97,907
212,802
202,117
200,271
(5,000)
(10)
(63,076)
(2,549)
(70,635)
(79,562)
(7,466)
(99)
(87,127)
(89,150)
(67)
(53,271)
(2,430)
(144,918)
–
(5,927)
(537)
(6,464)
(16,603)
(427)
(52,784)
(671)
(70,485)
(78,291)
(5,485)
–
(83,776)
(157,762)
(151,382)
(154,261)
55,040
50,735
46,010
2,045
33,764
14,072
2,045
33,764
9,985
2,045
33,764
5,392
41,201
4,809
Equity attributable to owners of the parent
49,881
45,794
Non-controlling interests
5,159
4,941
Total equity
55,040
50,735
46,010
The financial statements were approved by the Board of Directors and authorised for
issue on March 30, 2016. They were signed on its behalf by: M. D. Connole, Director
* Restated as set out in Note 1 and Note 35.
CONSOLIDATED STATEMENT OF CHANGES
IN EQUITY FOR THE YEAR ENDED DECEMBER 31, 2015
73
Share
capital
(Note 24)
$000
Paid in
surplus
$000
Hedging
reserve
(Note 25)
$000
Translation
reserve
(Note 25)
$000
Treasury
stock
(Note 25)
$000
Retained
earnings
$000
Equity
attributable
to owners of
the parent
$000
Non
controlling
interests
$000
Total
$000
Balance at January 1, 2014,
as previously stated
2,045
33,764
(317)
(3,681)
(634)
10,861
42,038
4,809 46,847
Prior year adjustment
–
–
–
–
–
(837)
Balance at January 1, 2014*
2,045
33,764
(317)
(3,681)
(634)
10,024
Profit for the year
Other comprehensive income
Foreign exchange translation
differences
Cash flow hedge: losses arising
during the year
Cash flow hedge
Reclassification adjustment for
net income recognised directly
in equity
Tax relating to items that may
be reclassified to profit or loss
Total comprehensive income
for the year
Transactions with owners
Dividends to shareholders
(Note 25)
Dividends paid to
non-controlling interests
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Balance at December 31, 2014 2,045
33,764
Profit for the year
Other comprehensive income
Foreign exchange translation
differences
Cash flow hedge: losses arising
during the year
Cash flow hedge
reclassification adjustment for
net income recognised directly
in equity
Tax relating to items that may
be reclassified to profit or loss
Total comprehensive income
for the year
Transactions with owners
Dividends to shareholders
(Note 25)
Dividends paid to
non-controlling interests
Shared based payments
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(46)
463
(100)
–
(1,930)
–
–
–
317
(1,930)
–
–
–
–
–
(64)
68
(14)
–
–
–
(2,453)
–
–
–
(10)
(2,453)
–
–
–
–
–
–
8,773
–
–
–
–
8,866
–
–
–
–
(837)
41,201
8,773
–
(837)
4,809 46,010
310
9,083
(1,930)
(6)
(1,936)
(46)
463
–
–
(46)
463
(100)
–
(100)
8,773
7,160
304
7,464
(2,567)
(2,567)
–
(2,567)
–
–
(172)
(172)
45,794
8,866
4,941
50,735
388
9,254
(2,453)
(14)
(2,467)
(64)
68
(14)
–
–
–
(64)
68
(14)
8,866
6,403
374
6,777
(2,502)
(2,502)
–
(2,502)
–
186
–
(156)
(156)
186
–
186
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(5,611)
(634)
16,230
Balance at December 31, 2015 2,045
33,764
(10)
(8,064)
(634)
22,780
49,881
5,159 55,040
* Restated as set out in Note 1 and Note 35.
74 CONSOLIDATED CASH FLOW STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 2015
Profit for the year
Adjustments for:
Net finance costs
Depreciation of property, plant and equipment
Tax charge
Share based payments charges
Amortisation of acquired intangible assets
Amortisation of and amount written off pre-publication costs
Movement in fair value of derivatives
Gain on disposal of property, plant and equipment
Operating cash flows before movements in working capital
Increase in inventories
(Increase)/decrease in receivables
Increase in payables
Cash generated by operations
Income taxes paid
Net cash from operating activities
Investing activities
Interest received
Proceeds on disposal of property, plant and equipment
Investment in pre-publication costs
Purchases of property, plant and equipment
Acquisition of subsidiaries
Net cash used in investing activities
Financing activities
Dividends paid
Interest payments
External debt repaid
Dividends paid to non-controlling interest
Net cash used in financing activities
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Foreign currency exchange differences on cash and cash equivalents
Notes
6, 7
12
8
14
2015
$000
9,254
3,098
1,189
3,685
186
724
33,258
(85)
–
51,309
(1,929)
(6,156)
8,724
2014
$000
Restated*
9,083
3,977
1,106
2,922
–
503
30,933
(43)
(642)
47,839
(5,640)
1,310
2,551
51,948
46,060
(1,981)
(759)
49,967
45,301
142
–
(34,872)
(2,010)
(1,614)
151
1,848
(33,525)
(1,341)
(2,008)
(38,354)
(34,875)
(2,502)
(2,891)
(3,283)
(156)
(2,567)
(3,461)
(4,275)
(172)
(8,832)
(10,475)
2,781
23,110
(832)
(49)
23,879
(720)
Cash and cash equivalents at end of year
17
25,059
23,110
* Restated as set out in Note 1 and Note 35.
NOTES TO THE FINANCIAL STATEMENTS
75
1
GENERAL INFORMATION AND SIGNIFICANT ACCOUNTING POLICIES
The Quarto Group, Inc. is a company incorporated
in the State of Delaware, United States. The
address of the registered office is given on page
120. The nature of the Group’s operations and its
principal activities are set out in Note 3 and in the
Chief Executive Officer's Statement on page 8.
The accounting policies adopted, are consistent
with those of the annual financial statements for
the year ended December 31, 2014, as described
in those financial statements, except as described
below and in Note 35.
Each entity in the Group determines its own
functional currency and items included in the
financial statements of each entity are measured
using that functional currency. The presentational
currency of the Group is US dollars.
RESTATEMENT OF PRIOR YEAR RESULTS
The results have been restated for the
following items:
a) Classification of the amortisation of
debt issuance cost.
The amortisation of debt issuance costs
was previously included within administrative
expenses. The policy on these costs has
been changed to better reflect the underlying
nature as a financing cost. There is no
net impact to the income statement. The
reclassified amount for the year ended
December 31, 2014 was $720,000.
b) Insurance arrangements and related
revenue recognition.
A review of certain insurance arrangements
across the Group identified that in limited
circumstances the Group remains the principal
insurer of product shipments in transit. In
these circumstances it was determined that
it was inappropriate to recognise the related
revenue until the shipment was receipted by
the customer. This correction is limited to the
Books & Gifts Direct business only. The impact
on the results of the business for the year
ended December 31, 2014 was a reduction in
profit after tax of $128,000.
c) Allocation of overheads to inventories.
A review of the inventory costing model across
the Group identified some inconsistency in
the allocation of overheads to inventories.
The inconsistency was limited to the Books
& Gifts Direct business only and has been
corrected. The impact of the results of the
business for the year ended December 31, 2014
was an increase in profit after tax of $8,000.
The impact on the Consolidated Income Statement
of Comprehensive Income for the year ended
December 31, 2014 and on the Consolidated
Balance Sheet as at December 31, 2014 and
December 31, 2013 is set out in Note 35.
STATEMENT OF COMPLIANCE
The Group financial statements consolidate those of
the Company and its subsidiaries (together referred
to as the ‘Group’). The parent company financial
statements present information about the Company
as a separate entity and not about its Group.
The Group financial statements have been prepared
and approved by the Directors in accordance
with International Financial Reporting Standards
as adopted by the EU (‘IFRS’). The Company has
elected to prepare its parent company financial
statements in accordance with UK GAAP,
including The Financial Reporting Standard
applicable in the UK and Republic of Ireland
('FRS 102'); these are presented on pages 112 to 118.
The Company adopted FRS 102 from January 1,
2015 in respect of the parent company financial
statements. No adjustments were required and no
restatements of prior year figures were necessary.
BASIS OF ACCOUNTING
The financial statements are prepared on the
historical cost basis, except that derivative
financial instruments are stated at fair value.
The preparation of financial statements in
conformity with IFRS requires management to
make judgements, estimates and assumptions
that affect the application of policies and
reported amounts of assets and liabilities, income
76
and expenses. The estimates and associated
assumptions are based on historical experience
and various other factors that are believed to be
reasonable under the circumstances.
Actual results may differ from these estimates.
The estimates and underlying assumptions are
reviewed on an ongoing basis. Revisions to
accounting estimates are recognised in the period
in which the estimate is revised if the revision
affects only that period or in the period of the
revision and future periods if the revision affects
both current and future periods. Judgements
made by Management in the application of IFRS
that have a significant effect on the financial
statements and accounting estimates are
discussed in:
Note 10: Key assumptions in making the
assessment of carrying value of goodwill
Note 14: Presentation of pre-publication costs
and the assessment of their useful life
Note 16: Assessment of the impairment of trade
receivables and the estimated allowance for sales
returns
Note 20: Calculation of temporary differences
in the assessment of deferred tax liabilities
There are no judgements, apart from those
involving estimations, that management has
made in applying the Group’s accounting policies.
The accounting policies set out below have been
applied to all periods presented.
GOING CONCERN BASIS
After making enquiries, the Directors have
formed a judgement, at the time of approving
the financial statements, 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.
See also the group concern and viability
statement on Page 34.
The Group’s business activities, together with the
factors likely to affect its future development,
performance and position are set out in the Chief
Executive Officer’s Statement on pages 8 to 17.
The financial position of the Group, its cash flows,
liquidity position and borrowing facilities are
described in the Financial Review on pages 29
to 34 and in Note 18 to the financial statements.
The Group has considerable financial resources
together with a number of customers and suppliers
across different geographies. As a consequence,
the Directors believe that the Group is well placed
to manage its business risks successfully despite
the current economic outlook.
The Group has significant banking facilities
including committed facilities comprising a
US$95m multi-currency revolving credit and
term loan facility. These facilities were agreed
with the Group’s bankers on February 6, 2015
and expire on April 30, 2019. The Group has
prepared a three-year financial plan comprising
a budget for the year ending December 31, 2016
together with projections for the two years ending
December 31, 2018. These show that the Group
is forecasting to have sufficient headroom within
that period. The Group complied with its bank
covenants in 2015 and the three-year financial
plans show sufficient headroom on the covenants
throughout the period covered. The covenants will
be monitored closely by the Board and appropriate
action will be taken if it is considered that one or
more of the covenants were likely to be breached.
BASIS OF CONSOLIDATION
The Group financial statements include the
results of the Company and all of its subsidiary
undertakings. A subsidiary is an entity controlled,
directly or indirectly, by the Group. Control is
the power to govern the financial and operating
policies of the entity so as to obtain benefits
from its activities. The financial statements of
subsidiaries are included in the consolidated
financial statements from the date that control
commences until the date that control ceases.
Intragroup balances and any unrealised gains and
losses or income and expenses arising from intra-
group transactions are eliminated in preparing the
consolidated financial statements.
The interest of non-controlling interests on an
acquisition is initially measured at the minority’s
proportion of the net fair value of the assets,
liabilities and contingent liabilities recognised.
77
BUSINESS COMBINATIONS, INTANGIBLE
ASSETS AND GOODWILL
All business combinations are accounted for
by applying the acquisition method. Goodwill
represents the excess of the consideration
transferred over the fair value of the net assets
and any contingent liabilities acquired. Acquisition
costs are expensed as incurred.
Goodwill arising on acquisitions is stated at cost
less any accumulated impairment losses. Goodwill
is allocated to cash-generating units and is tested
annually for impairment.
Other intangible assets, such as backlists, that
are acquired by the Group are stated at cost less
accumulated amortisation and impairment losses.
Amortisation of intangible assets is charged
to profit or loss on a straight-line basis over
the estimated useful lives of intangible assets.
The amortisation period for non-contractual
relationships is 2.5 years and for backlists is
between 4 and 10 years.
VOLUME REBATES
In the ordinary course of business, the Group
receives volume rebates from its printers. This
is accounted for in accordance with contractual
terms and is credited in full to cost of sales.
IMPAIRMENT OF PROPERTY, PLANT AND
EQUIPMENT AND INTANGIBLE ASSETS
INCLUDING GOODWILL
The carrying amount of the Group’s assets is
reviewed at each balance sheet date to determine
whether there is any indication of impairment.
If any such indication exists, the asset’s recoverable
amount is estimated. The recoverable amount
is the higher of fair value, reflecting market
conditions less costs to sell, and value in use based
on an internal discounted cash flow valuation.
For goodwill, the recoverable amount is estimated
at each balance sheet date. An impairment loss
is recognised whenever the carrying amount
of an asset or its cash-generating unit exceeds
its recoverable amount. Impairment losses are
recognised in profit or loss.
REVENUE RECOGNITION
Revenue comprises the fair value of the
consideration received or receivable for the sale
of goods and services, net of sales taxes, rebates
and discounts, and after eliminating sales within
the Group. For each of the Group’s operating
segments, revenues are recognised on the
despatch of goods and when the significant risks
and rewards of ownership have been passed to the
buyer. The following specific criteria also apply:
• The Group’s publishing revenues are stated net
of an estimated allowance for sales returns,
which is based on a review of the historical
return patterns associated with the various sales
outlets, as well as current market trends in the
business in which the Group operates.
• Revenue from e-books is recognised when the
content is delivered.
LEASING
Where assets are acquired under finance leases
(including hire purchase contracts), which confer
risks and rewards similar to those attached to
owned assets, the amount representing the
outright purchase price of such assets is included
in property, plant and equipment. All other leases
are classified as operating leases. Depreciation is
provided in accordance with the accounting policy
below. The capital element of future finance lease
payments is included in liabilities and the interest
element is charged to the income statement over
the period of the lease in proportion to the capital
element outstanding. Expenditure on operating
leases is charged to the income statement on a
straight line basis.
FOREIGN CURRENCIES
Transactions in foreign currencies are translated
at the foreign exchange rate ruling at the date of
the transaction. Monetary assets and liabilities
denominated in foreign currencies at the balance
sheet date are translated at the exchange rate
ruling at that date with any exchange differences
arising on retranslation being recognised in the
income statement.
The assets and liabilities of foreign operations,
including goodwill and fair value adjustments arising
on consolidation, are translated into US Dollars at
exchange rates ruling at the balance sheet date.
78
The revenues and expenses of foreign operations
are translated into US Dollars at average annual
exchange rates. Foreign exchange differences
arising on retranslation are charged or credited to
other comprehensive income and are recognised
in the currency translation reserve in equity.
On disposal of a foreign operation, the related
cumulative translation differences recognised in
equity are reclassified to profit or loss and are
recognised as part of the gain or loss on disposal.
EXCEPTIONAL ITEMS
Exceptional items which the Company defines
as non-trading items are, in management's
judgement, significant items outside the scope
of normal business that need to be disclosed by
virtue of their size or incidence in order for the
user to obtain a proper understanding of the
financial information.
RETIREMENT BENEFIT COSTS
The Group’s pension costs relate to individual
pension plans and are charged to profit or loss
as they fall due.
TAXATION
Tax on the profit or loss for the year comprises
both current and deferred tax. Current tax is the
expected tax payable on the taxable income for
the year, using tax rates enacted or substantively
enacted at the balance sheet date, and any
adjustments to tax payable in respect of previous
years. Deferred tax is provided using the balance
sheet liability method, providing for temporary
differences between the carrying amounts
of assets and liabilities for financial reporting
purposes and the amounts used for taxation
purposes. However, deferred tax is not provided
on the initial recognition of goodwill, nor on the
initial recognition of an asset or a liability unless the
related transaction is a business combination or
effects tax or accounting profit. Not all temporary
differences give rise to deferred tax assets/
liabilities. A deferred tax asset is recognised only
to the extent that it is probable that future taxable
profits will be available against which the asset
can be utilised. Changes in deferred tax assets
or liabilities are recognised as a component of
tax expense in the income statement, except
where they relate to items that are charged or
credited directly to other comprehensive income
or equity, in which case the related deferred
tax is also charged or credited directly to other
comprehensive income or equity, respectively.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at
deemed cost less accumulated depreciation
and any provision for impairments in value.
The Group recognises in the carrying amount of
property, plant and equipment the subsequent
costs of replacing part of such items when there
are future economic benefits. All other costs are
recognised in profit or loss as an expense as they
are incurred.
Depreciation is provided on a straight-line basis
to write off the cost, less the estimated residual
value, of property, plant and equipment over
their estimated useful lives, which are reviewed
annually. Where parts of an item of plant
and equipment have separate lives, they are
accounted for and depreciated as separate items.
Residual values are reassessed on an annual basis.
Land is not depreciated.
Estimated useful lives are as follows:
• Freehold property and long leasehold property
improvements – 50 years
• Short leasehold property improvements
– over the period of the lease
• Plant, equipment and motor vehicles
– 4 to 10 years
• Fixtures and fittings – 5 to 7 years
Assets held under finance leases are depreciated
over their expected useful lives on the same basis
as owned assets or, where shorter, over the term
of the relevant lease.
The gain or loss arising on the disposal or retirement
of an asset is determined as the difference between
the sales proceeds and the carrying amount of the
asset and is recognised in income.
79
Generally, the Group recognises all financial assets
using trade date accounting. An assessment of
whether a financial asset is impaired is made
at least at each reporting date. All income and
expense relating to financial assets are recognised
in the income statement line item ‘finance costs’ or
‘finance income’, respectively, with the exception of
trade and other receivables which are recorded in
revenue and administrative expenses.
Loans and receivables, including trade receivables,
are non-derivative financial assets with fixed or
determinable payments that are not quoted in
an active market. After initial recognition, at fair
value, these are measured at amortised cost using
the effective interest method, less provision for
impairment. Any change in their value is recognised
in profit or loss. The Group’s trade and most other
receivables fall into this category of financial
instruments. Discounting, however, is omitted
where the effect of discounting is immaterial.
Significant receivables are considered for
impairment on a case-by-case basis when they
are past due at the balance sheet date or when
objective evidence is received that a specific
counterparty will default. All other receivables
are reviewed for impairment in groups, which
are determined by reference to the industry and
region of a counterparty and other available
features of shared credit risk characteristics, if
any. The percentage of the write-down is then
based on recent historical counterparty default
rates for each identified group.
Derivative financial instruments are initially
recognised at fair value, and subsequently
classified as financial assets at fair value through
profit and loss. Any gain or loss arising from
derivative financial instruments is based on
changes in fair value, which is determined by direct
reference to active market transactions or using a
valuation technique where no active market exists.
PRE-PUBLICATION COSTS
Pre-publication costs represent directly
attributable costs and attributable overheads
incurred in the development of book titles prior
to their publication. Attributable overheads are
allocated on a title by title basis. These costs are
carried forward in current intangible assets where
the book title will generate future economic
benefits and costs can be measured reliably.
These costs are amortised on a straight line basis
upon publication of the book title over estimated
economic lives of three years or less, being an
estimate of the expected useful economic life of
a book title. The investment in pre-publication
costs has been disclosed as part of the investing
activities in the cash flow statement.
INVENTORIES
Inventory is valued at the lower of cost, including
an appropriate portion of overheads, and net
realisable value, on a first in, first out basis. Net
realisable value is the estimated selling price in the
ordinary course of business, less estimated costs
of completion and selling expenses.
FINANCIAL INSTRUMENTS
Financial assets and financial liabilities are
recognised on the Group’s balance sheet when
the group becomes a party to the contractual
provisions of the instrument.
FINANCIAL ASSETS
Financial assets other than hedging instruments
are divided into the following categories:
• loans and receivables; and
• financial assets at fair value through profit or loss
Financial assets are assigned to the different
categories on initial recognition, depending on the
characteristics of the instrument and its purpose.
A financial instrument’s category is relevant for
the way it is measured and whether any resulting
income and expenses is recognised in profit or loss
or directly in equity. See Note 33 for a summary of
the Group’s financial assets by category.
80
FINANCIAL LIABILITIES
The Group’s financial liabilities include borrowings,
trade and other payables (including finance lease
liabilities).
After initial recognition at fair value, all financial
liabilities, with the exception of derivative financial
instruments, are measured at amortised cost using
the effective interest rate method. A summary of
the Group’s financial liabilities by category is given
in Note 33.
All of the Group’s derivative financial instruments
that are not designated as hedging instruments
in accordance with the strict conditions explained
under the heading ‘Derivative financial instruments
and hedge accounting’, are accounted for at fair
value through profit or loss by definition.
FINANCIAL LIABILITIES AND EQUITY
INSTRUMENTS
Financial liabilities and equity instruments are
classified according to the substance of the
contractual arrangements entered into. An equity
instrument is any contract that evidences a residual
interest in the assets of the Group after deducting
all of financial liabilities.
FINANCE COSTS
Finance costs comprise interest payable on
borrowings calculated using the effective interest
method together with the amortisation of debt
issuance costs.
FINANCE INCOME
Finance income comprises interest receivable,
which is recognised in profit or loss as it accrues
using the effective interest method.
CASH AND CASH EQUIVALENTS
For the purposes of the statement of cash
flows, cash and cash equivalents comprise cash
balances, call deposits and bank overdrafts
that form an integral part of the Group’s cash
management processes.
DERIVATIVE FINANCIAL INSTRUMENTS AND
HEDGE ACCOUNTING
The Group’s activities expose it primarily to the
financial risks of changes in foreign currency
exchange rates and interest rates. The Group
uses interest rate swap contracts to hedge these
exposures. The Group does not use derivative
financial instruments for speculative purposes.
The use of financial derivatives is governed by
the Group’s policies approved by the Board of
Directors, which provide written principles on the
use of financial derivatives.
Where a derivative financial instrument is
designated as a hedge of the variability in cash
flows of a recognised asset or liability, or a highly
probable forecast transaction, the effective part
of any gain or loss on the derivative financial
instrument is recognised directly in other
comprehensive income. If the cash flow of a firm
commitment or forecast transaction results in
the recognition of an asset or a liability, then,
at the time the asset or liability is recognised,
the associated gains or losses on the derivative
that had previously been recognised in equity
are included in initial recognition of that asset or
liability. Amounts previously recognised in other
comprehensive income are recognised in the
profits and loss in the same period in which the
hedged item affects net profit or loss. Changes
in the fair value of derivative financial instruments
that do not qualify for hedge accounting are
recognised in profit or loss as they arise.
The Group’s derivatives are split between level
1 and level 2 financial instruments under IFRS 7.
The foreign currency exchange rate derivatives
are level 1 and they are valued based on a quoted
price in an active market. The interest rate swaps
are level 2 financial instruments and they are
valued using techniques based significantly on
observable market data such as yield curves as at
the balance sheet date.
Hedge accounting is discontinued when the
hedging instrument expires or is sold, terminated,
or exercised, or no longer qualifies for hedge
accounting. At that time, any cumulative gain
or loss on the hedging instrument recognised in
81
equity is retained in other comprehensive income
until the forecast transaction occurs. If a hedged
transaction is no longer expected to occur, the
net cumulative gain or loss recognised in other
comprehensive income is transferred to net profit
or loss for the period.
TREASURY SHARES
Treasury shares represent holdings of the
Company’s own equity instruments. No gain or
loss is recognised in profit or loss on the purchase,
issue or cancellation of these equity instruments.
Consideration paid or received is recognised
directly in other comprehensive income.
FINANCIAL RISK MANAGEMENT
The principal risk factors faced by the Group are
disclosed in Note 33 and on page 33.
NEW STANDARDS AND INTERPRETATIONS
NOT APPLIED
The International Accounting Standards Board
and the International Reporting Interpretations
Committee (IFRIC) have issued the following
standards and interpretations for annual
periods beginning on or after the effective
dates noted below.
SHARE-BASED PAYMENTS
The Group issues equity settled share-based
payments to certain employees. Equity settled
share-based payments are measured at fair value
at the date of grant. The fair value, determined
at the grant date, of equity settled share-based
payments is expensed on a straight line basis over
the vesting period, based on the Group's estimate
of shares that will eventually vest.
The fair value of employee share option grants is
calculated using a Monte Carlo model, taking into
account the terms and conditions upon which the
options were granted. The value of the charge is
adjusted to reflect expected and actual levels of
options vesting.
BORROWING COSTS
All borrowing costs are recognised in the income
statement in the period in which they are incurred.
Debt issuance costs comprising arrangement fees
and legal costs are capitalised and amortised on a
straight line basis over the period of the borrowing
facility or included within the amortised cost
calculation as appropriate. The annual amortisation
charge is included within finance costs in the
Consolidated Statement of Comprehensive Income.
The Group does not incur any borrowing costs
which are directly attributable to the acquisition,
construction or production of qualifying assets.
82
IAS/IFRS STANDARDS
Amendments to IAS 1
Disclosure initiative
Amendments to IAS 16
and IAS 38
Clarification of Acceptable Methods
of Depreciation and Amortisation
Amendments to IFRS 10,
IFRS 12 and IFRS 28
Investment entities: Applying the
consolidation exception
Effective for
accounting periods
starting on or after
1 January 2016
1 January 2016
1 January 2016
Amendments to IAS 12
Recognition of Deferred Tax Assets
1 January 2017
IFRS 15
IFRS 9
IFRS 16
Revenue from Contracts with Customers
1 January 2018
Financial Instruments
Leases
1 January 2018
1 January 2019
The potential impact of the future adoption of IFRS 15 and IFRS 16 on the Group's accounts is ongoing.
Apart from these standards, the Directors do not consider that the adoption of the other standards listed
above will have a material impact on the Group’s accounts in the period of initial application.
2
REVENUE
An analysis of the Group’s revenue is as follows:
Sales of goods
Revenue
Other operating income
Finance income
Total income
2015
$000
182,165
182,165
–
142
2014
$000
171,339
171,339
22
151
182,307
171,512
83
3
OPERATING SEGMENTS
The analysis by segment is presented below. This is based upon the operating results reviewed
by the Chief Executive Officer.
2015
Quarto
International
Co-Editions
Group
$000
Quarto
Publishing
Group USA
$000
Quarto
Publishing
Group UK
$000
Books &
Gifts Direct,
ANZ
$000
Quarto
HK
$000
Total
$000
External revenue
50,147
72,441
22,765
22,060
14,752
182,165
Operating profit before amortisation
of acquired intangibles and
exceptional items
6,351
8,884
3,302
1,613
1,487
21,637
Amortisation of acquired intangibles
(240)
(346)
(86)
(52)
–
(724)
Segment result
6,111
8,538
3,216
1,561
1,487
20,913
Unallocated corporate expenses
Exceptional Item – Acquisition costs
Exceptional Item – Professional
fees relating to aborted corporate
transactions
Finance income
Finance costs
Profit before tax
Tax
Profit after tax
Capital expenditure
Depreciation
Investment in pre-publication costs
Amortisation of pre-publication costs
(4,431)
(257)
(188)
142
(3,240)
12,939
(3,685)
9,254
2,010
1,189
34,872
33,258
529
539
15,724
16,246
773
329
14,888
13,014
38
181
4,260
3,998
546
86
–
–
124
54
–
–
Transactions between operating segments are recorded at normal commercial terms.
84
3
OPERATING SEGMENTS (CONTINUED)
2014 (Restated)
Quarto
International
Co-Editions
Group
$000
Quarto
Publishing
Group USA
$000
Quarto
Publishing
Group UK
$000
Books &
Gifts Direct,
ANZ
$000
Quarto
HK
$000
Total
$000
External revenue
42,676
64,058
21,477
29,865
13,263
171,339
Operating profit before amortisation
of acquired intangibles and
exceptional items
6,063
6,636
3,099
2,773
1,112
19,683
Amortisation of acquired intangibles
(3)
(346)
(93)
(61)
–
(503)
Segment result
6,060
6,290
3,006
2,712
1,112
19,180
Unallocated corporate expenses
Exceptional Item – Acquisition costs
Exceptional Item – Profit on disposal
of freehold property
Finance income
Finance costs
Profit before tax
Tax
Profit after tax
Capital expenditure
Depreciation
282
333
233
276
Investment in pre-publication costs
14,573
14,787
Amortisation of and amount written
off pre-publication costs
15,151
11,961
There are no other significant non-cash expenses.
(3,764)
(78)
644
151
(4,128)
12,005
(2,922)
9,083
1,341
1,106
33,525
30,933
43
205
4,165
3,821
770
269
–
–
13
23
–
–
85
2015
$000
92,154
20,562
49,957
17,241
7,811
25,077
212,802
22,567
7,848
23,246
5,189
4,325
94,587
157,762
2014
$000
Restated
84,607
20,414
46,486
20,242
7,132
23,236
202,117
16,488
5,869
19,701
8,313
3,438
97,573
151,382
3
OPERATING SEGMENTS (CONTINUED)
Balance sheet
Quarto Publishing Group USA
Quarto Publishing Group UK
Quarto International Co-Editions Group
Books & Gifts Direct, ANZ
Quarto HK
Unallocated (Deferred tax and cash)
Total assets
Quarto Publishing Group USA
Quarto Publishing Group UK
Quarto International Co-Editions Group
Books & Gifts Direct, ANZ
Quarto HK
Unallocated (Borrowings, derivatives, deferred tax and tax payable)
Total liabilities
Geographical areas
The Group operates in the following main geographic areas:
United States of America
Australasia and Far East
United Kingdom
Europe
Rest of the World
Revenues
2015
$000
92,758
28,556
24,150
24,453
12,248
182,165
Revenues
2014
$000
Restated
79,537
36,322
24,665
22,703
8,112
171,339
Non-current
assets 2015
$000
Non-current
assets 2014
$000
55,507
8,066
39,304
1,556
–
53,559
8,716
38,005
2,136
–
104,433
102,416
Revenues are allocated based on the country in which the customer is located, irrespective of the
origin of the goods. Non-current assets are based on the subsidiary's country of domicile and comprise
goodwill, other intangible assets, property, plant and equipment and pre-publication costs.
86
4
OPERATING PROFIT
Operating profit has been arrived at after charging/(crediting):
Profit on sale of property, plant and equipment
Depreciation of property, plant and equipment
Net foreign currency exchange differences
Amortisation of acquired intangibles
Amortisation of pre-publication costs
Staff costs (Note 5)
Auditor’s remuneration (see below)
Cost of inventory recognised as an expense
Exceptional items
2015
$000
–
1,189
(118)
724
33,258
30,843
408
43,413
445
2014
$000
Restated
(642)
1,106
(243)
503
30,933
30,725
224
36,430
(566)
Exceptional items comprise acquisition costs of $257,000 and costs relating to aborted corporate
transactions of $188,000. Exceptional items for 2014 comprised the profit on sales of businesses
and assets amounting to $644,000 and acquisition costs of $78,000.
Auditor’s remuneration
Fees payable to the Company’s auditor for the audit
of the Company’s annual accounts
Fees payable to the Company’s auditor and its associates for
other services: The audit of the Company’s subsidiaries pursuant
to legislation
Fees payable to the Company’s auditor for other assurance services
30
370
8
408
59
165
–
224
The principal increase in the year relates to the Company's auditor appointment for certain overseas
operations.
5
STAFF COSTS
The average monthly number of employees
(including Executive Directors) was:
Their aggregate remuneration comprised:
Wages and salaries
Social security costs
Other pension costs
2015
Number
2014
Number
434
402
$000
27,560
2,119
1,164
30,843
$000
27,431
2,226
1,068
30,725
Directors’ remuneration is disclosed in the Remuneration Committee Report on page 57.
6
FINANCE INCOME
Interest income on financial assets carried at amortised cost
7
FINANCE COSTS
Interest expense on borrowings
Amortisation of debt issuance costs
Total finance costs
* See note 1 regarding reclassification of debt issuance costs.
8
TAX
Current tax on profit for the year
Total current tax
Deferred tax (Note 20)
Current year origination and reversal of temporary differences
87
2014
$000
151
2014
$000
Restated
3,408
720
4,128
2014
$000
Restated
2,413
2,413
509
2,922
2015
$000
142
2015
$000
2,837
403
3,240
2015
$000
2,277
2,277
1,408
3,685
Corporation tax on UK profits is calculated at 20.25%, based on the UK standard rate of corporation tax,
(2014: 21.5%) of the estimated assessable profit for the year. Taxation for other jurisdictions is calculated
at the rates prevailing in the respective jurisdictions. The table below explains the difference between
the expected expense at the UK statutory rate of 20.25% and the Group's total tax expense for the year.
Profit before tax
Tax at the UK corporation tax rate of 20.25% (2014: 21.5%)
Effect of different tax rates of subsidiaries operating in
other jurisdictions
Adjustment to prior years
Other, including tax effect of expenses that are
not deductible in determining taxable profit
2015
$000
12,939
2,620
1,015
–
50
2015
%
2014
$000
Restated
12,005
2014
%
2,581
409
(480)
412
Tax expense and effective tax rate for the year
3,685
28.5%
2,922
24.3%
88
9
EARNINGS PER SHARE
From continuing operations
The calculation of the basic and diluted earnings per share is based on the following data:
Earnings
Earnings for the purposes of basic earnings per share being
net profit attributable to owners of the parent
2015
$000
2014
$000
Restated
8,866
8,773
Number of shares
Number
Number
Weighted average number of ordinary shares for the purposes
of basic earnings per share
Effect of potential dilutive ordinary shares:
Share options
Weighted average number of ordinary shares for the
purposes of diluted earnings per share
19,696,729
19,696,729
38,591
–
–
–
19,735,320
19,696,729
Earnings per share
Basic
Diluted
Adjusted earnings
Earnings for the purposes of basic earnings per share being
net profit attributable to owners of the parent:
Amortisation of acquired intangibles (net of tax)
Exceptional items (net of tax)
Earnings for the purposes of adjusted earnings per share
Adjusted earnings per share
Basic
Diluted
2015
Cents
45.0
44.9
$000
8,866
526
441
9,833
2015
Cents
49.9
49.8
2014
Cents
Restated
44.5
44.5
$000
Restated
8,773
350
(427)
8,696
2014
Cents
Restated
44.1
44.1
10
GOODWILL
Cost
At January 1
Exchange differences
Recognised on acquisitions (Note 34)
At December 31
Accumulated impairment losses
At January 1
Exchange differences
At December 31
Carrying amount
At December 31
89
2013
$000
41,869
(125)
–
41,744
(368)
(9)
(377)
2015
$000
41,423
(1,244)
269
40,448
(354)
18
(336)
2014
$000
41,744
(971)
650
41,423
(377)
23
(354)
40,112
41,069
41,367
Impairment tests for cash generating units containing goodwill
The following units have significant carrying amounts of goodwill:
Quarto Publishing Group USA (QUS)
Quarto Publishing Group UK (QUK)
Quarto International Co-Editions Group (QIC)
Books & Gifts Direct, ANZ (BGD)
2015
$000
26,878
2,176
5,145
5,913
40,112
2014
$000
26,878
2,293
5,171
6,727
41,069
2013
$000
26,878
2,440
4,987
7,062
41,367
The recoverable amount of each cash generating
unit (‘CGU’) is based on the value in use basis. In
determining value in use, management prepare
a detailed bottom up budget, with reviews
conducted at each business unit. Cash flows
beyond the budget period of twelve months
are extrapolated into perpetuity, by applying
the growth and rates applicable to each unit
discounted to present value. The key assumptions
used in the value in use calculations were:
Discount rate: 11.58% pre-tax for QUS, 12.17%
for QUK and QIC and 11.58% for BGD which
reflects current assessments of the time value
of money. The discount rate has been calculated
using Weighted Average Cost of Capital analysis
adjusted to derive the pre-tax discount rate.
Cash flow growth rates: based on a forecast
growth rate of 3% (2014: 3%), into perpetuity,
to reflect the long term expected growth in each
of the key markets. Changes in selling prices and
direct costs are based on past experience and
expectations of future changes in the market.
Determining whether goodwill, specific to the US,
is impaired requires an estimation of the value of
use of each CGU based on the key assumptions
above. The headroom of the US CGU as at
December 31, 2015 was $12.7m (2014: $12.8m).
Neither a 1.7% decrease in the long term growth
rate or a 1.5% increase in the discount rate would
have led to an impairment.
90
11
OTHER INTANGIBLE ASSETS
Cost
At January 1, 2014
Acquisitions
Exchange differences
At December 31, 2014 and January 1, 2015
Exchange differences
Recognised on acquisitions (Note 34)
Disposals
At December 31, 2015
Amortisation and impairment
At January 1, 2014
Exchange differences
Charge for the year
At December 31, 2014 and January 1, 2015
Exchange differences
Charge for the year
Disposals
At December 31, 2015
Carrying amount
At December 31, 2015
At December 31, 2014
At December 31, 2013
Non-contractual
relationships
$000
Backlists
$000
Total
$000
19,248
503
(178)
19,573
(278)
1,365
(1,025)
19,635
18,257
(143)
503
18,617
(191)
724
(1,025)
18,125
18,121
503
(131)
18,493
(223)
1,365
–
19,635
17,130
(96)
503
17,537
(136)
724
–
18,125
1,510
1,510
956
991
956
991
1,127
–
(47)
1,080
(55)
–
(1,025)
–
1,127
(47)
–
1,080
(55)
–
(1,025)
–
–
–
–
91
Total
$000
8,574
(298)
1,341
12
PROPERTY, PLANT AND EQUIPMENT
Freehold
Property
$000
Leasehold
Property
Improvements
$000
Plant
Equipment
& Motor
Vehicles
$000
Fixtures &
Fittings
$000
Cost
At January 1, 2014
Exchange difference
Additions
Disposals
Acquisition of subsidiaries
At December 31, 2014 and January 1, 2015
Acquisition of subsidiaries
Exchange difference
Additions
Disposals
At December 31, 2015
Depreciation
At January 1, 2014
Exchange differences
Charge for the year
Disposals
At December 31, 2014 and January 1, 2015
Exchange differences
Charge for the year
Disposals
At December 31, 2015
Net book value
At December 31, 2015
At December 31, 2014
At December 31, 2013
1,371
(9)
12
1,253
(38)
6
(1,374)
(364)
–
–
–
–
–
–
–
169
(1)
–
(168)
–
–
–
–
–
–
–
1,202
–
857
–
(46)
253
(2)
1,062
656
(22)
228
(364)
498
(25)
193
–
666
396
359
597
4,461
(234)
1,184
(990)
106
4,527
2
(335)
1,525
(177)
5,542
3,362
(109)
455
(990)
2,718
(206)
825
(177)
3,160
2,382
1,809
1,099
1,489
(17)
139
(630)
(3,358)
3
109
984
6,368
–
(38)
232
(58)
1,120
635
(7)
423
2
(419)
2,010
(237)
7,724
4,822
(139)
1,106
(630)
(2,152)
421
(8)
171
(54)
530
590
563
854
3,637
(239)
1,189
(231)
4,356
3,368
2,731
3,752
92
13
SUBSIDIARIES
A list of the significant investments in subsidiaries, including the name, country of incorporation
and proportion of ownership interest is given in Note 4 to the Company’s balance sheet. All of
these subsidiaries are included in the consolidated results.
14
INTANGIBLE ASSETS – PRE-PUBLICATION COSTS
Cost
At January 1
Exchange differences
Transfer from inventories
Acquired on acquisition of subsidiaries
Additions
At December 31
Amortisation
At January 1
Exchange differences
Charge for the year
Amount written off
At December 31
Carrying amount
2015
$000
117,077
(2,217)
–
2,001
34,872
2014
$000
102,701
(2,774)
660
102
33,525
151,733
134,214
59,543
(511)
33,258
–
46,480
(733)
30,933
–
2013
$000
88,510
858
691
–
31,668
121,727
34,971
233
30,099
203
92,290
76,680
65,506
59,443
57,534
56,221
The assessment of the useful life of pre-publication costs and amortisation involves a significant
amount of judgement based on historical trends and management estimates of future potential
sales, in accordance with the accounting policy stated in Note 1.
15
INVENTORIES
Finished goods
Work in progress
Raw materials
93
2015
$000
25,889
151
107
2014
$000
Restated
24,525
114
212
2013
$000
Restated
19,394
167
118
26,147
24,851
19,679
All of the Group’s inventories have been reviewed for indicators of impairment. Certain inventories were
found to be impaired and a provision of $1,649,000 (2014: $1,696,000) has been recorded accordingly.
16
TRADE AND OTHER RECEIVABLES
Trade receivables
Other receivables and prepayments
Amounts falling due within one year
2015
$000
45,475
11,670
57,145
2014
$000
Restated
40,225
11,515
51,740
2013
$000
Restated
44,611
9,738
54,349
The average credit period on sales of goods is 65 days (2014: 73 days).
The Group’s trade and other receivables have been reviewed for indicators of impairment. Certain trade
receivables, including certain trade receivables not yet due, were not considered to be recoverable
and a provision of $908,000 (2014: $1,509,000) has been recorded accordingly. The trade receivables
considered irrecoverable relate to customers which are experiencing trading difficulties. In addition,
some of the recoverable trade receivables are past due as at the reporting date. The extent of financial
assets past due but not impaired is as follows:
Less than one month
More than one month but less than two months
More than two months but less than three months
More than three months but less than six months
More than six months
2015
$000
3,338
1,182
339
599
73
5,531
2014
$000
3,018
783
342
823
444
5,410
2013
$000
3,310
1,365
385
300
172
5,532
The Group has not provided against these receivables as there has not been a significant change in
credit quality and the Group believes they are still recoverable. No collateral is held over these balances.
94
16
TRADE AND OTHER RECEIVABLES (CONTINUED)
Movement in allowance for doubtful debts:
Balance at beginning of year
On acquisition of subsidiaries
Amounts written off in the year
Amounts recovered during the year
Exchange difference
Increase in allowance recognised in profit or loss
Balance at end of the year
2015
$000
1,509
46
(1,571)
150
(26)
800
908
2014
$000
1,185
–
(434)
337
(16)
437
1,509
2013
$000
957
–
(607)
268
2
565
1,185
The Directors consider that the carrying amount of trade and other receivables approximates to their fair
value. Trade receivables are disclosed after deducting a reserve for sales returns. The reserve is calculated
based on a time lag between sales and returns and historical return patterns.
17
CASH AND CASH EQUIVALENTS
Bank balances
Short term deposits
Cash and cash equivalents
2015
$000
18,274
6,785
25,059
2014
$000
13,375
9,735
23,110
2013
$000
15,145
8,734
23,879
The carrying amount of these assets approximates to their fair value.
The effective interest rates on bank balances and short term deposits was 0.4% (2014: 0.6%).
18
MEDIUM AND LONG TERM LOANS
Bank loans
Obligations under finance leases (see Note 21)
2015
$000
79,562
–
79,562
2014
$000
–
–
–
The borrowings (excluding obligations under finance leases) are repayable as follows:
On demand or within one year
In the second year
In the third to fifth years inclusive
5,000
5,000
74,562
84,562
89,150
–
–
89,150
95
2013
$000
78,287
4
78,291
16,600
78,287
–
94,887
Less: Amount due for settlement within 12 months
(shown under current liabilities)
Amount due for settlement after 12 months
(5,000)
79,562
(89,150)
–
(16,600)
78,287
Fixed rate
borrowings
Variable
rate
borrowings
Weighted
average
interest rate
for fixed rate
borrowings
Average
time over
which
interest rate
is fixed
$000
30,000
–
30,000
–
–
–
44,000
–
44,000
$000
27,000
27,562
54,562
60,000
29,150
89,150
18,635
32,252
50,887
%
3.5
–
3.5
–
–
–
3.8
–
3.8
Months
19.5
–
19.5
–
–
–
11
–
11
Total
$000
57,000
27,562
84,562
60,000
29,150
89,150
62,635
32,252
94,887
US dollar borrowings
Other currency borrowings
As at December 31, 2015
US dollar borrowings
Other currency borrowings
As at December 31, 2014
US dollar borrowings
Other currency borrowings
As at December 31, 2013
The variable rate borrowings bear interest by
reference to LIBOR plus a margin.
At December 31, 2015, undrawn borrowing
facilities totalled $16,540,000 (2014: $5,480,000).
The Directors estimate the fair value of the
Group’s borrowings to be equal to book value,
by reference to market rates.
The above borrowings carry interest based on
LIBOR plus a margin of between 2.1% and 2.8%,
depending on the leverage ratio and are secured
on the assets of the Group.
At December 31, 2015, the Group had a US$95m
(2014: US$95m) multi-currency syndicated bank
facility which is due to expire on April 30, 2019.
96
18
MEDIUM AND LONG TERM LOANS (CONTINUED)
These facilities are subject to three principal covenants, namely:
(a)
Total consolidated net indebtedness shall
not exceed 3 times EBITDA (as defined
in the committed facility agreements).
At December 31, 2015, net indebtedness
was 1.63 times (2014: 1.87 times) EBITDA.
(b) The consolidated operating profit before
exceptional items and goodwill amortisation
shall exceed three times net interest payable.
For the year ended December 31, 2015, net
interest payable was 5.55 times (2014: 4.00
times) covered under this covenant.
(c)
Cash flow shall exceed 1.2 times Debt Service.
For the year ended December 31, 2015, Debt
Service was 3.89 times (2014: 3.19 times)
covered under this covenant.
19
OTHER FINANCIAL ASSETS/LIABILITIES
In the reporting periods under review, other financial assets/liabilities comprise derivative financial
instruments as follows:
2015
$000
2014
$000
2013
$000
Current financial liabilities
Derivative financial (assets)/liabilities – forward exchange contract
Derivative financial instruments – interest rate swaps
(18)
10
(8)
67
–
67
110
317
427
The Group’s activities expose it primarily to
the financial risks of changes in foreign currency
exchange rates and interest rates. The Group
uses exchange rate swaps to hedge exchange
rate exposures and interest rate swap contracts
to hedge the interest rate exposures. The Group
does not use derivative financial instruments for
speculative purposes. All interest rate swaps have
been designated as hedging instruments in cash
flow hedges in accordance with IAS 39.
The Group’s interest rate swaps have been designed
to match the corresponding loan terms to maximise
the effectiveness of the hedging instrument. There
was no ineffectiveness during the year and all
movements were recorded in other comprehensive
income, with amounts reclassified to finance
costs within profit or loss. Exchange rate swaps
are not treated as hedging instruments for hedge
accounting purposes.
The following table details the principal amounts and the remaining terms of interest rate swap contracts
outstanding at the reporting date:
Principal amounts
Committed interest payments
2015
%
2014
%
2013
%
2015
$000
2014
$000
2013
$000
2015
$000
2014
$000
Within one year
Within one to two years
Within two to five years
Derivative
3.1
3.5
3.8
–
–
–
3.8% 10,000
–
–
10,000
10,000
30,000
–
–
–
–
44,000
(134)
–
–
(384)
(674)
44,000
(1,192)
–
–
–
–
2013
$000
(317)
–
–
(317)
The fair value of interest rate swaps is determined by using mark to market values at the balance sheet
date, based on quoted prices in active markets.
97
20
DEFERRED TAX
2015
$000
2014
$000
Restated
2013
$000
Restated
Deferred taxation provided in the financial statements
is as follows:
Excess of capital allowances over depreciation – UK
Other temporary differences – UK
Other temporary differences – US
Other overseas temporary differences
Deferred taxation assets
Other temporary differences – Other overseas
Net deferred taxation liability
59
4,190
4,249
2,924
293
7,466
–
–
7,466
25
4,493
4,518
1,545
(136)
5,927
–
(126)
5,801
The movement on the net provision for deferred taxation is as follows:
Net provision at January 1
Acquisitions
Exchange difference through other comprehensive
income
Charge/(credit) to profit and loss
Net provision at December 31
2015
$000
5,801
394
(137)
1,408
7,466
2014
$000
Restated
5,452
145
(305)
509
5,801
13
4,756
4,769
906
(190)
5,485
–
(33)
5,452
2013
$000
Restated
5,609
48
85
(290)
5,452
At the balance sheet date, the group has unused tax losses of $2,909,000, which are recognised
in deferred tax above (2014: $8,947,000) available for offset against future profits.
At the balance sheet date, the aggregate amount of temporary differences associated with undistributed
earnings of subsidiaries for which deferred tax has not been recognised was $20,165,000 (2014: $21,411,000).
98
21
OBLIGATIONS UNDER FINANCE LEASES
2015
$000
2014
$000
2013
$000
Amounts payable under finance leases:
Within one year
In the second to fifth year inclusive
Less: future finance charges
Less: Amount due for settlement within
12 months (Note 22)
Amount due for settlement after 12 months
22
SHORT TERM BORROWINGS
Current loan instalments
Borrowings (Note 18)
Finance lease obligations (Note 21)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2015
$000
5,000
5,000
–
5,000
2014
$000
89,150
89,150
–
89,150
The carrying amount of these liabilities approximates to their fair value.
23
TRADE AND OTHER PAYABLES
Trade payables
Other payables
2015
$000
49,856
13,220
63,076
2014
$000
Restated
44,047
9,224
53,271
4
4
8
(1)
7
(3)
4
2013
$000
16,600
16,600
3
16,603
2013
$000
41,025
11,759
52,784
The Directors consider that the carrying amount of trade payables approximates to their fair value.
99
24
SHARE CAPITAL
Authorised:
28,000,000 (2014: 28,000,000) shares of common stock of par value US$0.10 each (‘shares of
common stock’) with an aggregate nominal value of US$2,800,000 (2014: US$2,800,000).
Equity share capital
Allotted, called up and fully paid:
Shares of common stock of par value US$0.10
each 20,444,550 (2014: 20,444,550)
2015
$000
2014
$000
2013
$000
2,045
2,045
2,045
The Company has one class of common stock which carries no right to fixed income.
25
RETAINED EARNINGS AND OTHER RESERVES
HEDGING RESERVE
The hedging reserve comprises the effective portion of the cumulative net change in the fair value
of cash flow hedging instruments related to hedged transactions.
TRANSLATION RESERVE
The translation reserve comprises all foreign exchange differences arising from the translation of the
closing balance sheets of foreign operations of the Group and the results of foreign operations of the
Group since January 1, 2004.
TREASURY STOCK
Treasury stock represents the Group’s purchase of its own shares. The Group owns 747,821 (2014: 747,821)
shares, representing 3.7% (2014: 3.7%) of its shares of common stock.
DIVIDENDS
Amounts recognised as distributions to equity holders in the period:
Interim dividend for the year ended December 31, 2015 of 5.13c/3.35p
(2014: 5.53c/3.35p) per share
Final dividend for the year ended December 31, 2014 of 8.17c/4.95p
(2013: 7.51c/4.55p) per share
Proposed final dividend for the year ended December 31, 2015 of
9.41c/6.15p (2014: 8.17c/4.95p) per share
2015
$000
1,010
1,492
2,502
1,853
1,853
2014
$000
1,089
1,478
2,567
1,521
1,521
The proposed final dividend is subject to approval by shareholders at the Annual Meeting and has not
been included as a liability in these financial statements.
100
25
RETAINED EARNINGS AND OTHER RESERVES (CONTINUED)
The Quarto Group, Inc., as a US incorporated
company, is required to collect US dividend
withholding taxes on dividend distributions made
to its non-US shareholders. The US dividend
withholding tax is generally 30% of any dividends
paid to Quarto’s non-US shareholders, but this
amount can potentially be reduced pursuant to an
applicable income tax treaty between the US and
the country of residence of the non-US shareholder.
For example, under the US/UK income tax
treaty, the US dividend withholding tax rate can
range from nil (applicable to certain UK resident
pension trusts and tax exempt entities) to 15%
(applicable to UK resident individual shareholders
and certain UK corporate shareholders). For US
shareholders, no US dividend withholding tax
is generally applicable. It should be noted that
certain documentation requirements must be met
by all shareholders prior to the payment of any
dividends to certify their status as a US or non-US
shareholder, and, if a non-US shareholder to claim
any applicable benefits under the US/UK or other
applicable income tax treaty. Each shareholder
should consult their own tax adviser to determine
whether and to what extent they may be entitled
to claim a reduced amount of US dividend
withholding taxes under a US income tax treaty.
26
NOTES TO THE CASH FLOW STATEMENT
Cash comprises cash on hand and demand deposits. Cash equivalents are short-term highly liquid
investments that are readily convertible to known amounts of cash and which are subject to insignificant
changes in value.
27
SUBSEQUENT EVENTS
On February 3, 2016, the Group announced that it had acquired the trade and assets of Harvard
Common Press through its subsidiary company, Quarto Publishing Group USA Inc. The consideration
of $1,034,000 is payable in three instalments, on completion, in July 2016 and July 2017. These assets
were acquired because of their strategic fit within the Group.
28
OPERATING LEASE ARRANGEMENTS AND OTHER FINANCIAL COMMITMENTS
Lease payments under operating leases
recognised in income for the year
2015
$000
2,153
2014
$000
2,253
At the balance sheet date, the Group had outstanding commitments for future minimum lease
payments under non-cancellable operating leases, which fall due as follows:
Minimum lease payments under operating leases
within one year
In the second to fifth years inclusive
After more than five years
2015
$000
1,915
3,836
2,399
8,150
2014
$000
2,055
5,288
2,006
9,349
101
2013
$000
2,632
2013
$000
2,098
3,994
1,462
7,554
Operating lease payments represent rentals payable by the Group, primarily for its office properties.
There were no capital commitments amounting at the year end (2014: $24,000).
29
SHARE OPTIONS
Details of the award under the Company's Performance Share Plan are set out in the Directors' report
on page 35, and note 36.
30
REMUNERATION OF KEY MANAGEMENT PERSONNEL
The remuneration of the Directors and the Executive Committee, who are the key management personnel
of the Group, is set out below in aggregate for each of the categories specified in IAS 24 Related Party
Disclosures. Further information about the remuneration of individual Directors is provided in the audited
part of the Directors’ Remuneration Report on page 56.
Short term employee benefits
Post-employment benefits
2015
$000
3,424
317
3,741
2014
$000
3,559
261
3,820
102
31
DIRECTORS’ TRANSACTIONS
There were no transactions with Directors during the year. In 2014, R. J. Morley maintained a current account
with the Group. The balance due to the Group on this account was less than $5,000 throughout that year.
32
RECONCILIATION OF FIGURES INCLUDED IN THE OTHER PARTS OF
THE FINANCIAL STATEMENTS
Adjusted profit before tax (before amortisation of acquired
intangibles and exceptional items)
Amortisation of acquired intangibles
Exceptional items (Note 4)
Profit before tax
EBITDA (as defined in the committed facility agreement)
Adjusted profit before tax (before amortisation of acquired
intangibles and exceptional items)
Net interest
Depreciation
Amortisation of pre-publication costs
EBITDA, before exceptional items
Net debt
Short term borrowings
Medium and long term borrowings
Cash and cash equivalents
2015
$000
14,108
(724)
(445)
12,939
2014
$000
Restated
11,942
(503)
566
12,005
14,108
11,942
3,098
1,189
18,184
36,579
5,000
79,562
(25,059)
59,503
3,977
1,106
18,333
35,358
89,150
–
(23,110)
66,040
33
RISK MANAGEMENT OBJECTIVES AND POLICIES
The Group is exposed to market risk through its use of financial instruments and specifically to currency
risk, interest rate risk, credit risk, liquidity risk and certain other price risks, which result from both its
operating and investing activities. The Group’s risk management is coordinated at its headquarters, in
close co-operation with the Board of Directors, and focuses on actively securing the Group’s short to
medium-term cash flows by minimising the exposure to financial markets.
The Group does not actively engage in the trading of financial assets for speculative purposes nor does
it write options. The most significant financial risks to which the Group is exposed and a summary of
financial assets and liabilities by category are described below:
103
33
RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTINUED)
FOREIGN CURRENCY SENSITIVITY
Exposures to currency exchange rates arise from the Group’s overseas sales and costs,
which are primarily denominated in Sterling.
Foreign currency denominated financial assets and liabilities, translated into US Dollars at the closing rate,
are as follows:
Financial assets
Financial liabilities
Short-term exposure
Financial liabilities
Long-term exposure
At December 31
2015
$000
Sterling
44
(123)
(79)
–
–
2014
$000
Sterling
186
–
186
–
–
Other
5,423
(4,497)
926
–
(3,265)
Other
3,725
(8,000)
(4,275)
–
–
(79)
(2,339)
186
(4,275)
The following table illustrates the sensitivity of the net result for the year and equity in regards
to the Group’s financial assets and financial liabilities and the US Dollar – Sterling exchange rate.
It assumes a +/– 5% change of the Sterling/US-Dollar exchange rate. This percentage has been determined
based on the average market volatility in exchange rates in the year ended December 31, 2015.
The sensitivity analysis is based on the Group’s foreign currency financial instruments held at
each balance sheet date.
If Sterling had strengthened against the US Dollar by 5% (2014: 5%) then this would have had the
following impact:
Profit after tax for the year
Equity
If Sterling had weakened against the US Dollar by 5% (2014: 5%)
then this would have had the following impact:
Profit after tax for the year
Equity
2015
$000
(3)
(101)
2015
$000
3
101
2014
$000
8
(297)
2014
$000
(8)
297
Exposures to foreign exchange rates vary during the year depending on the volume of overseas
transactions. Nonetheless, the analysis above is considered to be representative of the Group’s
exposure to currency risk.
104
33
RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTINUED)
INTEREST RATE SENSITIVITY
The Group’s policy is to minimise interest rate cash flow risk exposures on long-term financing, through
interest rate swaps. A large part of longer-term borrowings are, therefore, usually at fixed rates.
At December 31, 2015, the Group is exposed to changes in market interest rates through its bank
borrowings, which are subject to variable interest rates – see Note 18 for further information.
The following table illustrates the sensitivity of the profit after tax for the year and equity to a reasonably
possible change in interest rates of +/–0.25%, with effect from the beginning of the year. These changes
are considered to be reasonably possible based on observation of current market conditions. The
calculations are based on the Group’s financial instruments held at each balance sheet date. All other
variables are held constant.
A 0.25% increase in interest rates would have the following impact:
Profit after tax for the year
Equity
A 0.25% decrease in interest rates would have had the following impact:
Profit after tax for the year
Equity
Credit risk analysis
2015
$000
(108)
(108)
2015
$000
108
108
2014
$000
(67)
(67)
2014
$000
67
67
The Group’s maximum exposure to credit risk is limited to the carrying amount of financial assets recognised
at the balance sheet date, as summarised below:
Cash and cash equivalents
Trade receivables
2015
$000
25,059
45,475
70,534
2014
$000
Restated
23,110
40,225
63,335
The Group’s credit risk is primarily attributable to its trade receivables. The amounts presented in the
balance sheet are net of allowances for doubtful receivables, estimated by the Group’s management
based on prior experience and their assessment of the current economic environment.
The Group continuously monitors defaults of customers and other counterparties, identified either
individually or by group, and incorporates this information into its credit risk controls. Where available
at reasonable cost, external credit ratings and/or reports on customers and other counterparties are
obtained and used. The Group’s policy is to deal only with creditworthy counterparties.
105
33
RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTINUED)
The Group’s management considers that all the above financial assets that are not impaired for each
of the reporting dates under review are of good credit quality, including those that are past due.
None of the Group’s financial assets are secured by collateral or other credit enhancements.
In respect of trade and other receivables, the Group is not exposed to any significant credit risk
exposure to any single counterparty or any group of counterparties having similar characteristics.
The credit risk for liquid funds and other short-term financial assets is limited, since the counterparties
are reputable banks with high quality external credit ratings.
LIQUIDITY RISK ANALYSIS
The Group manages its liquidity needs by carefully monitoring scheduled debt servicing payments for
long-term financial liabilities as well as cash-outflows due in day-to-day business. Liquidity needs are
monitored in various time bands, on a day-to-day and week-to-week basis.
The Group maintains cash and marketable securities to meet its liquidity requirements. Funding for long-
term liquidity needs is additionally secured by an adequate amount of committed credit facilities.
As at December 31, 2015, the Group’s liabilities have contractual maturities which are summarised below:
December 31, 2015
Bank loans
Trade payables
Other short term financial liabilities
At December 31
Current
within 6
months
$000
5,016
49,856
13,220
68,092
Non-Current
1 to 5
years
$000
87,696
–
–
87,696
6 to 12
months
$000
–
–
–
–
Over
5 years
$000
–
–
–
–
This compares to the maturity of the Group’s financial liabilities in the previous reporting period as follows:
December 31, 2014
Bank loans
Trade payables
Other short term financial liabilities
At December 31
Current
within 6
months
$000
90,251
44,047
9,224
143,522
Non-Current
6 to 12
months
$000
1 to 5
years
$000
Over
5 years
$000
–
–
–
–
–
–
–
–
–
–
–
–
106
33
RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTINUED)
SUMMARY OF FINANCIAL ASSETS AND LIABILITIES BY CATEGORY
The carrying amounts of the Group’s financial assets and liabilities as recognised at the balance sheet date
of the reporting periods under review may also be categorised as follows. See Note 1, significant accounting
policies, covering financial assets, financial liabilities and derivative financial instruments and hedge
accounting for explanations about how the category of instruments affects their subsequent measurement.
Current assets
Derivative financial instruments carried at fair value through profit and loss:
– Forward exchange contract
Loans and receivables:
– Trade receivables
– Cash and cash equivalents
Non-current liabilities
Financial liabilities measured at amortised cost:
– Borrowings
Current liabilities
Derivative financial instruments carried at fair value through profit and loss:
– Forward exchange contract
Derivative financial instruments designated as hedging instruments:
– Interest rate swap
Financial liabilities measured at amortised cost:
– Borrowings
– Trade payables
CAPITAL RISK MANAGEMENT
2015
$000
2014
$000
Restated
18
–
45,475
25,059
70,552
40,225
23,110
63,335
79,562
79,562
–
10
–
–
67
–
5,000
49,856
54,866
89,150
44,047
133,264
The Group manages its capital to ensure that entities in the Group will be able to continue as going
concerns while maximising the return to shareholders through an optimal balance of debt and equity.
The capital structure of the Group consists of debt, which includes the borrowings disclosed in Notes 17,
18 and 22, cash and cash equivalents and equity attributable to equity holders of the parent, comprising
share capital and reserves as disclosed in the consolidated statement of changes in equity on page 73.
The Board reviews the capital structure, including the level of indebtedness and interest cover, as
required. The Board’s objective is to maintain the optimal level of indebtedness and manage interest
cover to comply with the covenant requirements set out in Note 18. As part of this review, the Board
considers the cost of capital and the risks associated with each class of capital. Details of the level of
indebtedness, in the form of net debt to EBITDA, and interest cover are given in Note 32, including a
comparison with the covenants under the Group’s financing facilities.
107
34
ACQUISITIONS
On March 4, 2015, the Group acquired 100% of the equity share capital of Lewes Holdings Limited
and its subsidiary company Ivy Press Limited (“Ivy Press”) for a total consideration of $1.9m, plus the
assumption of $0.3m of debt. Ivy Press specialises in illustrated book publishing. The consideration
was payable in three tranches: on completion, on July 1, 2015, and January 4, 2016. Transaction costs of
$0.3m were incurred in relation to the acquisition (see Note 4). The transaction has been accounted for
by the acquisition method of accounting. These companies were acquired because of their strategic fit
within the Group.
Net assets acquired
Intangibles
Property, plant and equipment
Intangible assets – pre-publication costs
Inventories
Trade and other receivables
Cash
Trade and other payables
Borrowings
Tax recoverable
Deferred tax
Goodwill
Total consideration (including deferred consideration)
Net cash outflow arising on acquisition in the year
Cash consideration
Less: Cash acquired
Net Cash consideration
Add: Borrowings repaid
Fair values
$000
1,365
2
2,001
282
1,397
114
(2,757)
(383)
15
(394)
1,642
269
1,911
1,247
(114)
1,133
383
1,516
The goodwill of $269,000 arising on the acquisitions is largely attributable to the anticipated
incremental sales and cost synergies with being part of The Quarto Group and is expected to be
deductible for tax purposes.
If the acquisitions had been completed on the first day of the financial year, Group revenues for the
period would have been $183,473,000 and Group profit attributable to the equity holders of the Parent
would have been $9,179,000. The revenue and operating profit of Ivy Press since the acquisition date
included in the consolidated statement of comprehensive income for the year ended December 31, 2015
were $8,075,000 and $1,946,000 respectively.
108
35
RESTATEMENT OF PRIOR YEAR RESULTS
The results have been restated for the
following items:
a. Classification of the amortisation of debt
issuance costs
The amortisation of debt issuance costs was
previously included within administrative
expenses. The policy on these costs has been
changed to better reflect the underlying nature
as a financing cost. The reclassified amount
for the year ended December 31, 2014 was
$720,000.
b. Insurance arrangements and related
revenue recognition
A review of certain insurance arrangements
across the Group identified that in limited
circumstances the Group remains the principal
insurer of product shipments in transit.
In these circumstances it was determined that
it was inappropriate to recognise the related
revenue until the shipment was receipted by
the customer, This correction is limited to the
Books & Direct Gifts business only. The impact
of the results of the business for the year ended
December 31, 2014 was a reduction in profit
after tax of $128,000.
c. Allocation of overheads to inventories
A review of the inventory costing model across
the Group identified some inconsistency in
the allocation of overheads to inventories. The
inconsistency was limited to the Books & Gifts
direct business only and has been corrected.
The impact of the results of the business for the
year ended December 31, 2014 was an increase
in profit after tax of $8,000.
CONDENSED CONSOLIDATED INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 2014
Revenue
Cost of sales
Gross profit
Other operating income
Distribution costs
Administrative expenses
Operating profit before
amortisation of acquired intangibles
and exceptional items
Amortisation of acquired intangibles
Exceptional items
Operating profit
Finance income
Finance costs
Profit before tax
Taxation
Profit for the year
2014
$000
Reported
172,644
(117,437)
55,207
22
(6,747)
(33,089)
a
$000
b
$000
c
$000
–
–
–
–
–
720
(1,305)
1,123
(182)
–
–
–
–
(12)
(12)
–
–
–
2014
$000
Restated
171,339
(116,326)
55,013
22
(6,747)
(32,369)
15,393
720
(182)
(12)
15,919
(503)
566
15,456
151
(3,408)
12,199
(2,980)
9,219
–
–
720
–
(720)
–
–
–
–
–
(182)
–
–
(182)
54
(128)
–
–
(12)
–
–
(12)
4
(8)
(503)
566
15,982
151
(4,128)
12,005
(2,922)
9,083
109
35
RESTATEMENT OF PRIOR YEAR RESULTS (CONTINUED)
CONDENSED CONSOLIDATED BALANCE SHEET AS AT DECEMBER 31, 2014
Inventories
Trade and other receivables
Deferred tax liabilities
Impact on net assets
Impact on total equity
2014
$000
Reported
23,347
54,616
(6,338)
71,625
51,695
a
$000
–
–
–
–
–
b
$000
2,294
(2,876)
176
c
$000
(790)
–
236
2014
$000
Restated
24,851
51,740
(5,926)
(406)
(554)
70,665
(406)
(554)
50,735
CONDENSED CONSOLIDATED BALANCE SHEET AS AT DECEMBER 31, 2013
Inventories
Trade and other receivables
Deferred tax liabilities
Impact on net assets
2013
$000
Reported
19,181
56,043
(5,844)
69,380
Impact on total equity
46,847
a
$000
–
–
–
–
–
b
$000
1,277
(1,694)
125
c
$000
(779)
–
234
2013
$000
Restated
19,679
54,349
(5,485)
(292)
(545)
68,543
(292)
(545)
46,010
110
36
SHARE-BASED PAYMENTS
PERFORMANCE SHARE PLAN (“PSP”)
The Company operates a PSP scheme that awards free shares.
2014 award
The awards under this scheme were granted on May 22, 2014 and vest on June 30, 2016. Vesting is
conditional on the average share price being equal to or greater than £2.50 over any consecutive period
of 90 days during the performance period, adjusted for dividends and other cash distributions paid,
where the minimum value of such dividends and other cash distributions paid is no less than £2.25p per
share. Participants are entitled to receive dividend equivalents over the vesting period of the awards,
which are payable on vesting.
For the year ended December 31, 2014 the awards under this scheme were valued at $nil as the
performance criteria were not expected to be met.
During the year ended December 31, 2015 the performance criteria was amended such that vesting is
only conditional on the average share price being equal to or greater than £2.50 over any consecutive
period of 90 days during the performance period. Following this change, the fair value of the award
was reassessed at $226,000.
Outstanding at beginning of the year
Granted during the period
Outstanding at the end of the year
Share price at date of grant
Expected life (years)
Fair value per award
Weighted average remaining contractual life
Dividend yield
Expected volatility of share price (%)
Model used
2015 award
Number of share options
666,666
–
666,666
£1.70
2.1
£0.23
0.5 years
n/a
16.6
Monte-Carlo
The awards under this scheme were granted on September 24, 2015. The vesting period is 4 years
from the date of grant. The award vests in the following proportion:
• 50% is conditional on the cumulative growth in Adjusted Diluted EPS being between 5% and 10%
over the performance period, resulting in the awards vesting on a sliding scale of 20% to 100%; and
• 50% is conditional on Total Shareholder Return being between 7% and 15%, resulting in vesting on
a sliding scale of 20% to 100%.
Participants are not entitled to receive dividends until awards have vested.
111
36
SHARE-BASED PAYMENTS (CONTINUED)
Details of the share options outstanding during the year are as follows.
Outstanding at beginning of the year
Granted during the period
Outstanding at the end of the year
The key inputs used to value the options are:
Share price at date of grant
Expected life (years)
Fair value per award
Weighted average remaining contractual life (years)
Dividend yield (%)
Expected volatility of share price (%)
Model used
Number of share options
–
143,732
143,732
EPS Portion
TSR Portion
£2.09
4
£1.78
3.67
3.97
n/a
£2.09
4
£1.07
3.67
3.97
19.0
Dividend discount
Monte-Carlo
112 COMPANY BALANCE SHEET AT DECEMBER 31, 2015
Fixed assets
Investments
Current assets
Cash at bank and in hand
Current liabilities
Notes
3
2015
$000
8,444
8,444
2014
$000
12,060
12,060
–
–
Creditors: Amounts falling due within one year
5
(20,992)
(19,565)
Net current liabilities
Net liabilities
Capital and reserves
Called up share capital
Treasury stock
Reserves – Paid in surplus
– Profit and loss
Shareholders’ deficit
6
6
(20,992)
(19,565)
(12,548)
(7,505)
2,045
(634)
33,764
(47,723)
2,045
(634)
33,764
(42,680)
(12,548)
(7,505)
The financial statements were approved by the Board of Directors and authorised for issue on March 30, 2016.
They were signed on its behalf by
M. D. Connole
Director
March 30, 2016
COMPANY STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED DECEMBER 31, 2015
113
Balance at December 31, 2013
and January 1, 2014
Profit for the year
Other comprehensive income
Foreign exchange translation differences
Total comprehensive income for the year
Transactions with owners
Dividends to shareholders
Balance at December 31, 2014
and December 31, 2014
Loss for the year
Other comprehensive income
Foreign exchange translation differences
Total comprehensive income for the year
Transactions with owners
Dividends to shareholders
Share based payments
Share capital
$000
Paid in surplus
$000
Treasury stock
$000
Retained
earnings
$000
Equity
attributable to
owners
$000
2,045
33,764
(634)
(40,578)
(5,403)
–
–
–
–
–
–
–
–
–
–
–
–
–
465
465
(2,567)
2,045
33,764
(634)
(42,680)
–
465
465
(2,567)
(7,505)
–
–
–
–
–
–
–
–
–
–
–
–
(3,802)
(3,802)
1,075
1,075
1,075
1,075
(2,502)
(2,502)
186
186
Balance at December 31, 2015
2,045
33,764
(634)
(47,723)
(12,548)
114 NOTES TO COMPANY BALANCE SHEET AT DECEMBER 31, 2015
1
SIGNIFICANT ACCOUNTING POLICIES
The separate financial statements of the Company
are presented and have been prepared in accordance
with Financial Reporting Standard 102 (FRS 102)
issued by the Financial Reporting Council. These
financial statements present information for the
Company, not about its Group, which is presented
on pages 71 to 111.
BASIS OF PREPARATION
The financial statements have been prepared in
accordance with applicable accounting standards
and under the historical cost accounting rules
modified to include certain items as fair value
and in accordance with FRS 102. FRS 102 was
adopted from 1 January 2015. No adjustments were
required and no restatements of prior year figures
were necessary. The financial statements have
been prepared using the going concern basis, as
discussed in the Group going concern disclosure
on page 76.
ACCOUNTING POLICIES
The following accounting policies have been
applied consistently in dealing with items
which are considered material in relation to
the financial statements.
The functional currency of the company is
Pounds Sterling, with the parent company
accounts presented in US Dollars.
INVESTMENTS
Investments in subsidiaries are stated at cost less,
where appropriate, provisions for impairment.
CREDITORS
Amounts owed to subsidiary undertakings are
initially recognised at fair value, and subsequently
measured at amortised cost using the effective
interest method.
SHARE-BASED PAYMENTS
The Group issues equity settled share-based
payments to certain employees. Equity settled
share-based payments are measured at fair value
at the date of grant. The fair value, determined
at the grant date, of equity settled share–based
payments is expensed on a straight line basis over
the vesting period, based on the Group’s estimate
of shares that will eventually vest.
The fair value of employee share option grants is
calculated using a Monte Carlo model, taking into
account the terms and conditions upon which the
options were granted. The value of the charge is
adjusted to reflect expected and actual levels of
options vesting. Further detail is set out in Note 36.
CASH AND CASH EQUIVALENTS
There were no cash transactions during the
year and accordingly no cash flow statement
has been presented.
115
2
LOSS ATTRIBUTABLE TO THE COMPANY
The loss for the financial year dealt with in the
financial statements of the parent company was
$3,802,000 (2014: $nil). No separate profit and
loss account is presented in respect of the parent
company as permitted by section 408 of the
Companies Act 2006.
3
INVESTMENTS
At January 1, 2015
Amounts written off during year
At December 31, 2015
$000
12,060
(3,616)
8,444
FOREIGN CURRENCIES
Transactions in foreign currencies are translated
at the foreign exchange rate ruling at the date of
the transaction. Monetary assets and liabilities
denominated in foreign currencies at the balance
sheet date are translated at the exchange rate
ruling at that date with any exchange differences
arising on retranslation being recognised in the
income statement.
The assets and liabilities of foreign operations,
including goodwill and fair value adjustments arising
on consolidation, are translated into US Dollars at
exchange rates ruling at the balance sheet date.
The revenues and expenses of foreign operations
are translated into US Dollars at average annual
exchange rates. Foreign exchange differences
arising on retranslation are charged or credited to
other comprehensive income and are recognised
in the currency translation reserve in equity.
On disposal of a foreign operation, the related
cumulative translation differences recognised in
equity are reclassified to profit or loss and are
recognised as part of the gain or loss on disposal.
FINANCIAL GUARANTEE CONTRACTS
Where the Company enters into financial
guarantee contracts to guarantee the indebtedness
of other companies within its group, the Company
considers these to be insurance arrangements,
and accounts for them as such. In this respect,
the Company treats the guarantee contract as a
contingent liability until such time as it becomes
probable that the Company will be required to
make a payment under the guarantee.
116
4
SUBSIDIARIES
TRADING COMPANIES
Name
Place and date
of incorporation
Issued and fully paid
share capital
Percentage
held
Segment
Books & Gifts Direct (Pty)
Australia
100,004 shares of A$1 each
100
Books & Gifts Direct, ANZ
Limited
3 December, 1990
Books & Gifts Direct Limited New Zealand
400,000 shares of NZ$1 each
100*
Books & Gifts Direct, ANZ
27 September, 1996
Quarto Publishing plc
United Kingdom
100,000 shares of £1 each
100*
Quarto International
Quarto, Inc.
RotoVision S.A.
1 April, 1976
Delaware, USA
16 October, 1986
Switzerland
18 July, 1977
Co-Editions Group
86 shares of no par value
100*
Quarto International
Co-Editions Group
1,500 shares of SFr500 each
100*
Quarto International
Co-Editions Group
Global Book Publishing
Australia
1,000 shares of A$1 each
100*
Quarto International
Pty. Limited
4 November, 1999
Co-Editions Group
Apple Press Limited
United Kingdom
100 shares of £1 each
100
Quarto International
5 June, 1984
Co-Editions Group
Small World Creations
United Kingdom
1,536 share of £1 each
100
Quarto International
Limited
20 September, 1997
Co-Editions Group
Lewes Holdings Limited
United Kingdom
20,840 shares of £0.01 each
100
Quarto International
21 July, 2005
Co-Editions Group
Aurum Press Limited
United Kingdom
382,502 shares of £1 each
100
Quarto Publishing
31 May, 1977
Group UK
Jacqui Small LLP
United Kingdom
100 units
100
Quarto Publishing
6 November, 1998
Group UK
Frances Lincoln Limited
United Kingdom
565,000 shares of 10p each
100
Quarto Publishing
15 December, 1980
Group UK
Quarto Publishing
Delaware, USA
380 shares of US$0.01 each
100
Quarto Publishing
Group USA Inc.
28 June, 2004
Group USA
Regent Publishing
Hong Kong
1,000 shares of HK$10 each
75
Quarto HK
Services Limited
23 October, 1985
* Directly held by The Quarto Group, Inc.
117
DORMANT COMPANIES
Name
Place and date of incorporation
Issued
share capital
Percentage
held
AP Screen Printers Limited
United Kingdom – 30 September, 1980 1000 shares of £1 each
Cartographica Press Limited
United Kingdom – 27 July, 1981
1000 shares of £1 each
Design Eye Holdings Limited
United Kingdom – 22 June, 1992
200 shares of £1 each
Design Eye Limited
United Kingdom – 18 March, 1988
100 shares of £1 each
Design Eye Publishing Limited
United Kingdom – 17 June, 1992
2 shares of £1 each
Fine Wine Editions Limited
United Kingdom – 23 June, 1949
9020 shares of £1 each
Frances Lincoln Publishers Limited
United Kingdom – 11 March, 1987
100 shares of £1 each
Great American Trading Company Limited (THE) United Kingdom – 24 February, 1982
100 shares of £1 each
Global Book Publishing Pty Limited
United Kingdom – 7 July, 1986
1000 shares of £1 each
IQON Editions Limited
iqu-digital.com Limited
JR Books Limited
Marshall Editions Limited
Marshall Publishing Limited
Quarto Magazines Limited
United Kingdom – 5 December, 1972
300 shares of £1 each
United Kingdom – 30 November, 1978
100 shares of £1 each
United Kingdom – 9 September, 1986
43 004 shares of £1 each
United Kingdom – 7 February, 2002
1 shares of £1 each
United Kingdom – 7 February, 2002
1 shares of £1 each
United Kingdom – 20 May, 1986
1000 shares of £1 each
Quarto Children's Books Limited
United Kingdom – 6 January, 1976
2 shares of £1 each
QED Publishing Limited
Quantum Books Limited
United Kingdom – 12 November, 1974
400 shares of £1 each
United Kingdom – 7 February, 1983
100 shares of £1 each
Quarto Multi-Media Limited
United Kingdom – 14 December, 1984
1000 shares of £1 each
QU:ID Publishing Limited
Quill Publishing Limited
United Kingdom – 30 September, 1980
100 shares of £1 each
United Kingdom – 14 May, 1979
1000 shares of £1 each
Quintessence Editions Limited
United Kingdom – 7 February, 2002
1 shares of £1 each
Quintet Publishing Limited
QEB Publishing Limited
Quarto Media Inc
Quarto Marketing Inc
EYE Quarto Inc
United Kingdom – 14 May, 1979
100 shares of £1 each
Delaware, USA – 27 April, 2004
1500 shares of no par value
Delaware, USA – 10 December, 2010
1000 shares of $1 each
Delaware, USA – 26 April, 1995
3000 shares of no par value
Delaware, USA – 19 December, 2002
1000 shares of no par value
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
118
5
CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR
Amounts owed to subsidiary undertakings
2015
$000
20,992
2014
$000
19,565
6
CALLED UP SHARE CAPITAL AND TREASURY STOCK
Details of called up share capital and treasury stock are set out in Notes 24 to 25 of the consolidated
financial statements.
7
CONTINGENT LIABILITIES
The Quarto Group, Inc. has issued guarantees in respect of bank loans of subsidiaries of $84,562,000
(2014: $89,150,000). Refer to Note 18.
8
RELATED PARTY DISCLOSURE
The company borrowed an amount of $2,511,000 from its wholly owned subsidiary, Quarto Publishing plc,
during the year (2014: $2,567,000 borrowed in the year). The balance on the loan at December 31, 2015 was
$14,995,000 (2014: $13,255,000).
FIVE YEAR SUMMARY
119
Results
Revenue
2015
$000
2014*
$000
2013*
$000
2012*
$000
2011*
$000
182,165
171,339
175,481
180,632
185,937
Operating profit before amortisation
of acquired intangibles and exceptional items
17,206
15,919
14,565
14,986
14,594
Operating profit
16,037
15,982
10,726
12,962
12,570
Profit before tax, amortisation of acquired
intangible assets and exceptional items
Profit before tax
Profit after tax
Assets employed
Non-current assets
Current assets
Current liabilities
Non-current liabilities
Net assets
Financed by
Equity
Non-controlling interests
Key statistics (cents)
Basic
Diluted
Adjusted basic
Adjusted diluted
14,108
11,942
9,294
9,034
10,844
12,939
9,254
12,005
9,083
5,455
3,761
7,010
5,124
9,315
7,681
104,433
102,416
102,364
106,537
105,452
108,369
99,701
97,907
106,157
117,482
(70,635)
(144,918)
(70,485)
(67,002)
(137,898)
(87,127)
(6,464)
(83,776)
(98,019)
(41,608)
55,040
50,735
46,010
47,673
43,428
49,881
45,794
5,159
4,941
41,201
4,809
40,726
6,947
36,741
6,687
55,040
50,735
46,010
47,673
43,428
45.0
44.9
49.9
49.8
44.5
44.5
44.1
44.1
17.0
17.0
36.1
36.1
23.9
23.9
41.6
41.6
36.8
36.8
43.6
43.6
* Restated for prior year adjustments as set out in Note 35.
120
OFFICERS & PROFESSIONAL ADVISERS
DIRECTORS
Timothy Chadwick (Non-executive Chairman)
Robert Morley (Deputy Chairman)
Marcus Leaver (CEO)
Michael Connole, FCA (CFO)
Jess Burley (Non-executive)
Michael Hartley (Non-executive)
Christopher Mills (Non-executive)
REGISTRARS AND
TRANSFER OFFICE
Capita Asset Services
The Registry
34 Beckenham Road
Beckenham
Kent BR3 4TU
PRINCIPAL BANKERS
Bank of America Corporation
100 Federal Street
Boston MA 02110 USA
Fifth Third Bank
38 Fountain Square Plaza
MD 109055 Cincinatti
OH 45263 USA
Santander UK plc
4th Floor Santander House
100 Ludgate Hill
London EC4M 7RE
The Royal Bank of Scotland plc
280 Bishopsgate
London EC2M 4RB
COMPANY REGISTRATION NUMBER
FC0 13814
SECRETARY
Clive Potterell, ACIS
PRINCIPAL OFFICE
The Old Brewery
6 Blundell Street
London N7 9BH
Tel: +44 (0) 7700 6700
STOCKBROKERS
Stockdale Securities Limited
Beaufort House
15 St Botolph Street
London EC3A 7BB
AUDITOR
Deloitte LLP
2 New Street Square
London EC4A 3BZ
SOLICITORS
Olswang LLP
90 High Holborn
London WC1V 6XX
SHERRY ANISI
Contracts & Licensing
Assistant
The Easy Vegetarian Kitchen
Fair Winds Press
WHERE TO FIND US
The Quarto Group, Inc
+44 20 7700 9004
Marcus Leaver, CEO
E marcus.leaver@quarto.com
Michael Connole, CFO
E michael.connole@quarto.com
The Old Brewery, 6 Blundell Street, London, N7 9BH
www.quarto.com
Twitter: @TheQuartoGroup
AMY YODANIS
VP/Marketing Director
Cicchetti
Jacqui Small
MICHELLE FAULKNER
Editorial Director
The Art Of The Snowflake
Voyageur Press
ALAN BROWN
Design Manager
Cars: A Complete History
Quarto Children’s Books
JAMES CAREY
Director of Publishing
Operations, UK
Actual Size
Frances Lincoln Children’s Books
AGATA RADKIEWICZ
Foreign Rights Manager
Doodling For Cat People
Walter Foster
ISHEETA MUSTAFI
Editorial Director
Braids, Buns And Twists!
RotoVision
#WEAREBOOKS
#WEAREPEOPLE
#WEAREQUARTO
BRAD SPRINGER
Senior Art Director
The Doors
Voyageur Press
JENNY BROOM
Editorial Director
Amazing Grace
Frances Lincoln
Children’s Books
RAGE KINDELSPERGER
Editorial Director,
Gifts & Stationery
Papercut
Rockport Publishers