The Quarto Group Annual Report 2017

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FY2017 Annual Report · The Quarto Group

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SCRATCH &

Create

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— at the —

Bear
Beach
and other adventuresBeach

S
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&
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Scratch your
Creative Itch

eet lovable and adventurous Bear and his

This unique scratch art book features
20 intricate, inspiring illustrations
of spirals, tangles, and geometric
patterns, each created with
simple lines and shapes.

In Bear at the Beach and Other Adventures, the endearing Bear learns all about
unconditional love and true friendship in three stories: Bear at the Beach, Used-Up
Bear, and Lonesome Bear. Whether yearning for a family he’s never known or feeling
worn out or lost, Bear discovers that love is all around him.

“Simple line drawings and soothing pastel watercolors depict the gentle seaside
setting for this story of a bear who longs for a father.”—Horn Book

— National Parenting Publications Best Kids’ Books Gold Award citation

“[A]t the end of this delicately drawn, exquisitely designed, quiet little book,

Bear discovers that what he searches for he already possesses—right at home.”

Follow the drawings or feel free to design your own variations
as you create your own personalized scratch art on the
opposite page. Sit back and relax as you use the specialized
stylus tool to scratch away the special scratchable ink coating
to reveal a colorful, contrasting background. Each page is
perforated, so your designs are ready to tear out and display!

“A joyous ending, in which Bear admires himself ‘all morning in

the mirror,’ brings great relief, as well as a message of love and

“Beginning readers will enjoy [Bear’s] latest adventure, as the endearing bear
search[es] high and low for his best friend.”—School Library Journal

Watch this video to learn more about

CATEGORY: Juvenile Fiction/Animals
ISBN: 978-1-63322-370-7

C
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best friend, Clara.

Praise for Clay Carmichael’s Bear books:

Bear at the Beach

Used - Up Bear

loyalty.” —Kirkus Reviews

Lonesome Bear

our Scratch & Create series!

Visit quartoknows.com

http://quartokno.ws/2n0yBPP

ALSO AVAILABLE

UK £30.00 | US $50.00 | CAN $65.00

I S B N 978-0-7112-3861-9

5 5 0 0 0

7 8 0 7 1 1 2 3 8 6 1 9

Scratch & Draw Botanicals

978-1-63159-392-5

$14.95 US / £9.99 UK / $19.95 CAN

Clay
Carmichael

LONDON
THEATRES

I
n
g
r
a
m
MICHAEL COVENEY
PETER DAZELEY

Scratch & Draw
Patterns

Use the easy-to-follow drawings to
make your own beautiful artwork!

Annual Report 2017

Zoë Ingram

ISBN: 978-1-63159-391-8

$19.99 US | £12.99 UK | $24.99 CAN

Visit QuartoKnows.com

FOREWORD BY MARK RYLANCE

O
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Discover how to

create colorful,
contemporary folk art
with a modern twist

W
H
A
T

O
N

Discover the joy of creating modern,

global-inspired art from a time-

treasured genre. In Folk Art Fusion,
world-renowned artist Heather Galler

helps artists of all skill levels create

their own colorful, inspirational

paintings in acrylic. Draw and paint

simple step-by-step projects using

creative techniques, and learn how

traditional folk art continues to

E
A
inﬂ uence today’s artists. Folk Art
R
T
Fusion modernizes a centuries-old
H
genre for a global generation.
?

B
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UK £30.00 | US $50.00 | CAN $65.00

CATEGORY: Art / Techniques / Painting
ISBN – 13: 978-1-63322-198-7

I S B N 978-0-7112-3861-9

N
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7 8 0 7 1 1 2 3 8 6 1 9

$21.95 US / £12.99 UK / $28.95 CAN

n
d

f nd your way

i n s pac e
H

Bees are an important part

of our planet. What an earth

are they all about?

Explore...the different types of

bees and how they make honey.

Visit quartoknows.com

Investigate...the best flowers for

bees by making a nectar café.

Create...a bumble bee home and

learn how to dance like a bee!

Scratch your

Creative Itch

the world around them.

to connect with and discover

What on Earth? encourages children

Discover amazing, full-color artwork

beneath sheets of metallic coating!

This all-inclusive package contains everything you need to

create 16 beautiful versions of your favorite quotes on love.

Use the custom stylus, three sheets of lettering stencils,

Plants take centre stage in this beautiful book

from award-winning chef Richard Buckley. With

over 70 mouth-watering recipes, ranging from

the simple to the stand-out, Plants Taste Better

will guide and inspire you to make even the most

knobbly and overlooked of ingredients shine.

Richard is chef proprietor of the award-

winning Acorn Restaurant in Bath, which is

often mentioned as amongst the world’s top

vegetarian eateries. With his focus exclusively

on vegetable cookery, Richard is well-placed

to provide you with the traditional and modern

techniques to advance your skills in the kitchen.

Delicious, thoughtful recipes and stunning

images will persuade even the most carnivorous

that plants can, and should, be at the centre of

our plates.

UK £25 US $35 CAN $47.99

ALASTAIR BONNETT is Professor of

Social Geography at Newcastle University.

Previous books include Off the Map,

What is Geography? and How to Argue.

He has also contributed to history and

current affairs magazines on a wide variety

of topics, such as world population and

radical nostalgia. Alastair was editor of

the avant-garde, psychogeographical

magazine Transgressions: A Journal of

Urban Exploration between 1994–2000.

Alastair lives in Newcastle.

NEW VIEWS IS A STUNNING COLLECTION OF FIFTY MAPS VISUALISING

OUR PHYSICAL, POLITICAL AND CULTURAL WORLD LIKE NEVER BEFORE

Fire activity

Amphibian diversity

Twitter relationships

Asteroid strikes

STUART CODLING’S Motorbooks title,

Ants

US fast-food franchises

Vulnerability to natural

Bird diversity

disasters

Art of the Formula 1 Race Car, re-

Countries with the largest

Energy flux

Shipping routes

Forests: loss and gain

number of venomous

ceived the “Best of Books” award from

animals

Number of migrants

ALSO AVAILABLE

Flow of people

Scratch & Create:

the International Society for Vehicle

Neglected tropical diseases

People living in the US

Hand-Lettered Life

Five per cent of the world’s

Rebounding land

Nuclear energy and

Preservation’s International Automotive

population

born outside the US

978-1-63159-389-5

Remoteness from city

Water stress

Pangea Ultima

Ecological footprint per

Media Awards competition. A journalist

capita

Critically endangered

Scratch & Create:

languages

Peacefulness

and broadcaster, Codling has worked

The Black Marble

World nut trade

Temperature anomalies

Air traffic

in motorsport and automotive writ-

Edible insects

Linguistic diversity

Total fertility rate

The unclaimed world

ing for more than a decade, covering

Religious diversity

Guns

Ocean rubbish

Problem drugs

Wild Garden

Enchanted Forest

Petrol prices

978-1-63159-388-8

renewables

Air pollution

Solar energy

Unknown oceans

sports car racing in the United States

Sugar consumption

978-1-63159-387-1

Obesity

Happiness

Draining the oceans

Drifters

Lightning

Undersea cables

Sea level variations

before joining F1 Racing, the world’s

biggest-selling Formula 1 magazine, in

2001. He has appeared as an F1 expert

Precipitation change

on TV and radio, hosted for Renault F1,

and contributes to F1 Racing, Autosport,

$19.99 US | £12.99 UK | $24.99 CAN

Visit QuartoKnows.com

Autocar and the Red Bulletin. Codling’s

781631

593901

51999

ISBN: 978-1-63159-390-1

is the author of the Motorbooks best-

seller Lamborghini Supercars and lives in

I S B N 978-1-78131-639-9

5 3 5 0 0

Farnham, Surrey, England.

•See how it works as you scratch out the four

pre-designed quotes in the front of the book.

• How and why the cars work the

9 781784 937898

Scratch & Create:

•Continue creating on 12 blank sheets ready for

way they do

• Historic racers, rivalries,

your own designs.

•Use the provided stencils to create your designs and

manufacturers, and more

add free-form drawings if you are inspired!

• Beautifully illustrated

Watch this video to learn more about

our Scratch & Create series!

http://quartokno.ws/2n0yBPP

and one sheet of decorative embellishments to scratch out

your favorite inspirational sayings from a beautiful metallic

SPEED READ: F1

coating, revealing the colorful, prismatic background

IS THE ESSENTIAL GUIDE TO MAKE YOU AN

art by Shandra Smith.

INSTANT EXPERT ON FORMULA 1 RACING

£8.99

Each sheet is perforated for clean and easy removal

to display or give as a gift!

• The history of Formula 1

ISBN 978-1-78493-789-8

ALASTAIR BONNETT

N E W
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Jacqui Small LLP
www.jacquismallpub.com

SCRATCH &

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CONTENTS

WHA T

?
LONDON
O N EAR T
THEATRES

FOREWORD BY MARK RYLANCE

MICHAEL COVENEY
Delicious plant-based recipes,
Learn to paint
PETER DAZELEY
from root to fruit
colorful contemporary
folk art in acrylic
By Heather Gall er

P
L
A
N
The Zeebles
need your help!
T
STRATEGIC REPORT
S
Go on a mission that is out of this
Highlights
world and help them fix their broken rocket.
T
Quarto at a Glance
Navigate through star clusters and watch
A
What We Do
out for the alien controller, solving maths
S
Growth Strategy
problems and collecting objects along the way.
T
Chairman’s Statement
E
Chief Executive Officer’s Statement
This bright and busy mapping series provides a fun
x
Divisional Review
B
first look at co-ordinates and map skills. Maths
l
activities are combined with an exciting mission,
Our Business Model
E
o
making for an entertaining
r
Market Overview
and educational series.
T
2017 Portfolio Highlights
T
Financial Review
E
Our Key Performance Indicators
R
Risk Management, Principal Risks and Uncertainties
Our People
Corporate Responsibility and Sustainability

e, create, a n d

P L A N T S
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e s tigat
T A S T E
B E T T E R

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£10.99
ISBN 978-1-78493-658-7

9 781784 936587

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P H O T O G R A P H Y B Y K I M L I G H T B O D Y

34
36
37
41
50
57
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63

R I C H A R D B U C K L E Y

GOVERNANCE
Board of Directors
Nominations Committee Report
Audit Committee Report
Remuneration Committee Report
Annual Report on Remuneration
Directors’ Report
Statement of Directors’ Responsibilities
Independent Auditor’s Report

I Love
Hand
SPEED READ
Lettering
FINANCIAL STATEMENTS
Consolidated Income Statement
Consolidated Statement of Comprehensive Income
F1
Consolidated Balance Sheet
New Views is a unique and beautiful
Consolidated Statement of Changes in Equity
collection of fifty maps in which our
physical, political and cultural world is
Consolidated Cash Flow Statement
uigley
visualised, measured and mapped like
Notes to the Financial Statements
never before.
an
Company Balance Sheet
Alastair Bonnett’s expert text provides
Company Statement of Comprehensive Income
Design Your Own Quotes with 16 Scratch Boards
vivid insight on each topic. From
Company Statement of Changes in Equity
charting energy networks to revealing
new and emerging lands, measuring
Notes to the Company Accounts
and 4 Alphabet and Ornament Stencils
human migration to assessing the
Five Year Summary
planet’s ant populations – and including
Officers and Professional Advisors
the phenomena we have little control
over such as lightning strikes or asteroid
impact – each map asks you to question,
wonder and look again at our rapidly
changing and often surprising world.

70
7 1
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a Q
org

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Pau M

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www.QuartoKnows.com

www.stuartcodling.com

7 8 1 7 8 1 3 1 6 3 9 9

The World Mapped Like Never Before

£25 $35 $45

Job: 12325 Title: #225543 Scratch Art I Lover Hand Lettering (Rockport)

SLC GSC Page:_Cover

THE TECHNOLOGY, RULES, HISTORY

AND CONCEPTS KEY TO THE SPORT

ISBN: 978-0-7603-5562-6

$19.99 US | £12.99 UK | $32.25.9 CAN

Visit QuartoKnows.com

STUART CODLING

Paul Bosto n

“ Lestibust litaeria corenis sum qui

et magnatem ella doluptatur ellabo”

Quote to come...

Max McMurdo

UPCYCLING

OUTDOORS

Photography by

Brent Darby

Following the success of his first book Upycling,

Max McMurdo has turned his thoughts to the

outdoors with this truly inspirational collection

of inventive projects, each built from recycled

materials and unwanted ‘spare parts’.

Max explains the basics of good outdoor design and

where to find interesting scrap items before delving

into Planters & Containers, Outdoor Structures,

Eating & Entertaining, Furniture, Lighting &

Accessories. Whether you want to create a firepit

from bicycle wheels, an outdoor plant display from

a painted dressing table or fashion a potting shed

from three vintage doors, Max provides invaluable

know-how on the tools, techniques and materials

required to take you on an outdoor creative journey.

Some of the projects involve only a few simple steps

and can be completed within an hour, others require

a weekend of outdoor activity. Above all, every one

of the 20 projects is designed to get you upcycling

and recycling as you create designs that bring hours

of pleasure to your garden.

Max McMurdo officially started his career turning

junk into treasure as a child crafting washing up

liquid bottles into spaceships! After a successful

Strap yourself in and fill the tank with

pitch to the BBC’s Dragon’s Den, Max left with

investment from Deborah Meaden and Theo

racing fuel! F1: The Technology, Rules,

Paphitis. He now has an impressive client list

that includes The Body Shop and has completed

History and Concepts Key to the Sport

several installations for Google’s head offices

globally. Max is also a TV presenter. After two series

is loaded with all the information you’ll

of George Clarke’s Amazing Spaces, Fill Your House

For Free and Channel 4’s Shed of the Year, he is

need to understand the world of Formu-

now the go-to presenter for product design and

repurposing. He co-hosted a National Geographic

la 1. Informative, easily digested entries

Channel TV show called Machine Impossible. And

is co-presenter, with Julia Bradbury, of Channel 4’s

cover the history of the sport, the back

new show £10k Holiday Home.

story to major driver rivalries and key

figures who have dominated F1, and a

UK £20.00 US $29.99 CAN $38.99

rundown of the incredible technology

that makes these cars the fastest racers

Speed Read: F1 demystifies the world’s

most exciting motorsport and ensures

you’ll be an instant expert by the time

you’re ready to watch your next Formula

One round.

Divided into three thematic sections:
Land, Air and Sea; Human and Animal,
and Globalisation, New Views offers a
fresh and truly global portrait of our
intricately fascinating planet.

Shandra Smith

f
o
o
r
P

www.quartoknows.com/jacqui-small

on earth.

20 Creative Garden Projects Made from Reclaimed Materials

T
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HUMAN AND ANIMALLAND, AIR AND SEAGLOBALISATIONIN SPACEAA332211332211AACCCCBBBB

HIGHLIGHTS

FINANCIAL

REVENUE ($M)

ADJUSTED1,3 OPERATING
PROFIT ($M)

ADJUSTED1,3 PUBLISHING
OPERATING PROFIT ($M)

2017

2016

152.5

154.6

2017

7.2

2016

17.0

11.3

2017

2016

21.7

LOSS FOR THE YEAR3 ($M)

ADJUSTED1 EARNINGS
PER SHARE2 (CENTS)

BASIC (LOSS)/EARNINGS
PER SHARE2 (CENTS)

(18.5)

2017

(5.3)

2016

18.3

2017

2016

(96.4)

2017

49.8

2016

46.4

Adjusted measures are stated before amortisation of acquired intangible assets and exceptional items, and corporate costs.

2 From continuing operations.

Included in the 2016 results was a one-time reduction in the amortisation charge arising from a change in the Useful Economic Life (UEL)
of capitalised pre-publication costs of $2.1m.

OPERATIONAL

• Stronger trading performance in H2 – revenue up 5.8% vs

prior year.

• Children’s publishing revenues up 19% (7% excluding

becker&mayer acquisition in Q3 2016), now representing third
of Group revenues. Up 165% since 2012.

• Foreign Rights business continues to perform strongly –

revenue up 6%.

• Frontlist/backlist revenue split comparable year-on-year –

60.3% revenue generated from backlist titles.

• Net debt at $64.0m (2016: $61.9m) down from $75.8m at

30 June 2017.

• Change to financial year-end from 31 December to 31 March

to better balance seasonality between fiscal H1 and H2.

STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSThe Quarto Group, Inc. Annual Report 2017QUARTO AT A GLANCE

We create a wide variety of books and intellectual
property products for global distribution, with a mission
to inspire life’s experiences for the whole family.

c.400

EMPLOYEES

IMPRINTS AND BUSINESSES

10,000

BOOKS IN OUR CATALOGUE

c.$35M

ANNUAL INTELLECTUAL
PROPERTY INVESTMENT

c.60%

OF ANNUAL SALES
FROM BACKLIST

YEARS
FOUNDED IN 1976

EIGHT MAIN CONTENT CATEGORIES

BOOKS ON
FOOD AND DRINK

BOOKS ON DESIGN,
ART AND CRAFT

BOOKS ON BODY, MIND,
SPIRIT, PARENTING AND
RELATIONSHIPS

BOOKS ON INTERIORS,
ARCHITECTURE,DIY,
PETS AND GARDENING

BOOKS ON CARS, TRAINS,
BOATS, MOTORCYCLES
AND PLANES

BOOKS ON BIOGRAPHY,
TRAVEL, HISTORY,
SPACE AND MORE

FUN & IMAGINATIVE
BOOKS AND KITS FOR
CHILDREN OF ALL AGES

STATIONERY, KITS,
CALENDARS AND MORE

The Quarto Group, Inc. Annual Report 2017Strategic Report

COUNTRY
MARKETS

OFFICES
WORLDWIDE

INTERNATIONAL
PUBLISHING
PARTNERSHIPS

Key

International partnership
English language markets
Foreign language markets

USA

SEATTLE
CALIFORNIA
MINNEAPOLIS
BOSTON
NEW YORK

QUARTO OFFICES

LONDON (X2)
BRIGHTON

CHINA

HONG KONG

STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSThe Quarto Group, Inc. Annual Report 2017WHAT WE DO

Quarto encompasses a diverse portfolio of imprints and
businesses that are expert in developing long-lasting content.
We sell our products globally through a variety of sales channels
and partnerships, and five main routes to market.

INTELLECTUAL PROPERTY

INFORMATIVE

VISUAL

KINESTHETIC

READ

SEE

Creation & Development

PORTFOLIO OF BUSINESSES

ADULT

F
A
M
L
Y

CHILDREN

‘Inspiring Life’s Experiences’

CHANNELS TO MARKET
(REPORTING CATEGORY)

INTERNATIONAL
(English Language)

FOREIGN
LANGUAGE

Q PARTNERS

Physical & Digital

GROWTH

ORGANIC

ACQUISITION

The Quarto Group, Inc. Annual Report 2017Strategic ReportCREATIVITY AT
OUR VERY CORE

In 1976, the founders of Quarto were the
first publishers to make the economics
of illustrated books work, by having the
books co-published across different
markets so that print runs could be big
enough to reduce costs per unit. Quarto
was born from creativity and innovation
and 41 years later that is still in our DNA as
we constantly explore new formats, new
content ideas and new business ventures.

We have been a global leader in
illustrated books ever since. Our size and
scale have changed, but at the heart of
what we do, our mission has not changed
– to make and sell books that entertain,
educate and enrich the lives of adults and
children around the world. That is what
we are passionate about. Many issues
that we deal with every day as a business
are very important – commercial and
financial management, sourcing, print
buying, acquisitions and many others –
but the creative quality of our content
and products will always be our number
one priority.

Ideas are our livelihood and the lifeblood
of Quarto. We succeed or fail by the
ideas we put into our hundreds of books
every year. Big ideas inspire everyone;
they shine a light on information that
most of us are unable to see. Having
the best ideas for our imprints and our
customers is what will make us successful.

That is why our guiding philosophy has
always been – and remains – ‘creative
independence’. Each one of our 40
imprints and businesses can publish
or produce what they want. We believe
that the autonomy given to our people
ensures that we remain market-focused
and relevant to our readers and
customers. Each imprint has its own
identity, its own lifecycle, and caters
for different audiences and markets.
We work hard to manage our intellectual
property investment accordingly,
consistently and carefully – one size does
not fit all when it comes to creativity.

In order to be creative, you need to be
effective. Our imprints are supported by
a strong central platform that includes
finance, operations, sales and foreign
rights sales, marketing, legal and IT.
Process will never trump passion, but
it can enable creativity when used
effectively. By removing distractions
– sharing common infrastructure and
support networks, designing efficient
back office tools and processes, and
other things that can be managed
efficiently at a central level – it frees
up time and space for our people to
be more creative, which is what Quarto
is all about.

STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSThe Quarto Group, Inc. Annual Report 2017INTELLECTUAL PROPERTY

INFORMATION
LED

READ

VISUALLY
LED

SEE

KINESTHETIC

Creation & Development

GROWTH STRATEGY

PORTFOLIO OF BUSINESSES

“We have a clear strategy to grow organically, through
innovation and, where applicable, by acquisition.”

ADULT

CHILDREN

Marcus E. Leaver
Chief Executive Officer

F
A
M
L
Y

‘Inspiring Life’s Experiences’

Innovation
Quarto was born from innovation and
42 years later that is still in our DNA.
Innovation spans four key areas – any
of which can generate significant growth
contribution to the business as a whole:
product, communication, business
and process.

• Product innovation requires that
we think like our end consumers to
understand what they want. As we
move towards a pure-play Intellectual
Property business – beyond just
one that makes books – product
innovation also involves thinking
harder about how to use our IP in as
many ways and formats as we could,
including digital. 2017 examples of
product innovation include:

– Scratch & Create and Etch Art
series – New formats that
incorporate a metallic ink coating
that consumers can scratch away
using a special stylus, to uncover
beautiful artworks or to create
their own.

As a refocused, pure-play Intellectual
Property business, our goal is to become
the dominant publisher of illustrated
CHANNELS TO MARKET
books worldwide while expanding the
use of our IP in as many formats and
(REPORTING CATEGORY)
products as possible.

Organic Growth
At Quarto, organic growth can be
achieved mostly in two ways.

We cannot think short-term, as it is
not the way creative businesses work.
However, as a publicly traded business
we need to balance the short-term
needs of the market with the longer-
term goals we have.

International
(English Language)

First, by bringing more creativity to
market and ensuring our portfolio is
balanced across markets, geographies
and content categories. Each of our
imprints is at a different stage of maturity
in its creative cycle, from young start-ups
to longer-running imprints that might
need new creative injection, and to
businesses at the top of their game.

Q Partners

Foreign
Language

Our strategy remains to grow
organically as we continually examine
and manage our portfolio; through
Physical & Digital
innovation, be it product, communication,
business or process transformation;
and where applicable, by acquisition,
within a fragmented and artisan
business landscape that can offer
attractive opportunities.

GROWTH

ORGANIC

N
N
O
V
A
T
O
N

ACQUISITION

We constantly review our portfolio to
ensure it remains aligned to the broader
market trends, which is why we have
increased our exposure to children’s
books in the last five years – one of
the faster growing areas in publishing.

Second, by diversifying and expanding
the distribution of our products. We
have built excellent relationships with
our trade, retail and co-edition customers,
both in our domestic markets and
around the world.

We constantly strive to open new
distribution channels. We sell our
products in physical stores and online;
in bookstores, gift stores, toys stores
and wherever we believe consumers
might come across them. That includes,
for instance, Lowe’s, Tractor Supply,
Costco, Urban Outfitters or Holland
& Barrett among many others.

The Quarto Group, Inc. Annual Report 2017Strategic ReportAcquisition Growth
Acquisitive growth remains a key
strategic area for the Group in the
medium to long-term. As the market
leader with a global and scalable platform
in what remains an artisan and fragmented
business landscape, the potential
opportunity is significant.

When benchmarking and evaluating
potential acquisition opportunities, we
go through an exhaustive due diligence
process and only target those businesses
that meet the specific parameters that fit
our business model and growth strategy.

Quarto has a long history of acquisitions.
Most recent ones have included small
world creations in 2014, Ivy Press in 2015,
and Harvard Common Press, Burgess
Lea Press and becker&mayer in 2016.
All are now contributing positively to
the Group.

Over the years, we have developed
a successful model and track record in
integrating acquired businesses quickly
and effectively.

Businesses acquired bring additional
innovation and expertise to Quarto. Each
time we buy a company, the culture of
our whole Group changes for the better.

– Build+Become – A new brand that
will offer an inspiring range of
books, digital content and events
designed to make people think
differently and to reflect the way
they increasingly download
information in bitesize form, from
infographics to podcasts. It will
launch in May 2018.

• Communication innovation means
finding better, more efficient ways
to share information within our own
business but also communicating
externally. For instance, how can we
better market our products directly
to consumers?

• Business innovation is about finding
new ways to expand and enhance
parts of our business, for example
the three international publishing
partnerships we have established
around the world. Other areas we
are looking at include how better to
service and manage our key customers,
and the category management model
we have in place with non-book retail
specialists Lowe’s and Tractor Supply
in the US.

• Process innovation spans efficiencies
gained from our global operational
platform – for instance improved
printing processes – but also ensuring
we have enough flexibility and
operational agility when needed.
For instance, we know that changing
trends can require us to go to market
swiftly with new products or reprints
and we need to be equipped to do so.

“It is time for all of us within the Group to start
thinking differently to ensure we continue to
fuel organic growth and embrace innovation
in the broadest sense.”

Ken Fund
Chief Operating Officer

OUR SIX KEY
ACQUISITION
PARAMETERS:

1
CATEGORY ENHANCING
Adds new titles to our portfolio
and expands one of our categories,
e.g. Harvard Common Press.

2
ADDITIONAL EXPERTISE
Brings an area or market we do not
previously have expertise in, e.g.
small world creations, specialised
in children’s 0–3 formats.

3
COMPETITOR INGESTION
Synergistic consolidation,
e.g. Ivy Press,

4
STEP CHANGERS
Significant additions to the
business, e.g. becker&mayer

5
ADJACENCIES
complementary to existing
portfolio and sales channels,
such as Book Plus and
educational products,
e.g. SmartLab

6
DISTRIBUTION
ENHANCING
A business that owns a specific
channel to market.

STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSThe Quarto Group, Inc. Annual Report 2017CHAIRMAN’S STATEMENT

“Quarto is now uniquely positioned
in the market with a refocused vision
and growth strategy.”

Peter Read
Chairman

2017 was a challenging and transitional
year for Quarto. The Group exited its last
non-core businesses – Books & Gifts
Direct (BGD) in Australia/New Zealand
and Regent Publishing Services in Hong
Kong – whilst integrating a sizeable
acquisition and facing a volatile retail
environment in its markets.

In the summer, the Board also received
an unsolicited approach to acquire the
Group. After several weeks of
discussions and as it became clearer
that the necessary regulatory approvals
required by the bidder were unlikely to
be granted on the timeline first
indicated, the Board decided to
terminate discussions in order to avoid
further distraction to management and
preserve the interests of shareholders.

Overall, full year results for 2017 were
substantially below 2016. However, the
Group achieved a strong trading
performance from its publishing assets
in the second half, reflecting the
resilience of the core business as well as
the effects of tighter cost management.

Despite a challenging year, the Board
believes that Quarto continues to
demonstrate the market value and global
demand for high-quality content and
illustrated print books, and is now uniquely
positioned in the market with a refocused
vision and growth strategy. We remain
fully confident of the inherent value of the
business and of the Group’s prospects.

Dividend
With the competing pressures of paying
dividends, reducing debt and investing
in the core business, the Board has not
recommended the payment of a final
dividend for 2017. The dividend policy
will be reviewed in consultation with
shareholders and other stakeholders.

Strengthening the
Balance Sheet
Further to statements previously made,
the Board is actively considering all
options to reduce the Group’s debt and
strengthen the balance sheet. We will
provide an update in due course.

The Quarto Group, Inc. Annual Report 2017Strategic ReportChange of Financial Year-End
The Board also announces that the
financial year-end date of the Group will
change from 31 December to 31 March.
Accordingly, the next financial year-end
date for Quarto will be 31 March 2019.
This will better align with the operations
of such a seasonal business. This will
aid better annual budgeting when the
results of the crucial calendar fourth
quarter will be fully known and better
balance revenue and profit between the
first and second half.

Corporate Governance
There were several changes to the
Board last year. We welcomed two new
Non-Executive Directors – Claire Capeci
and Leslie-Ann Reed, who both bring
very different skill sets. Claire has
significant US retail experience from
her tenure as Global President, Retail for
J. Walter Thompson Worldwide, based
in New York City, while Leslie-Ann‘s
expertise in Finance in the media sector
is particularly relevant to Quarto.

Mike Hartley resigned as a Non-Executive
Director on 30 September 2017 and,
following his departure, the Board
appointed Leslie-Ann Reed to become
Chairman of the Audit Committee and
Jessica Burley to become the Senior
Independent Director. On behalf of the
Board, I would like to thank Mike for the
significant contribution he has made
since 2013.

Finally, Andy Cumming, who has over
40 years’ experience in banking and
risk management, joined the Board on
1 March 2018.

People
Three new executives are joining Chief
Executive Officer Marcus E. Leaver’s
Leadership Team in 2018: Nanette Gibb
as Group Director of People, Charles
Wilson as Group Director of Legal
and Business Affairs and Company
Secretary, and Carolyn Bresh as Chief
Financial Officer. Carolyn will join the
Board as an Executive Director.

Brian Porritt has made a considerable
contribution as Interim Chief Financial
Officer over the last nine months. He
has provided financial leadership and
wise counsel and I am sure that Carolyn
will build on the foundations he has put
in place.

I have nothing but praise and respect
for the employees of Quarto at all levels
during this time of extensive change.
They showed relentless dedication and
resilience in 2017 and, on behalf of the
Board and all shareholders, I would like
to thank all of them, as well as our global
partners and suppliers, for their continued
hard work and commitment to Quarto.

Peter Read
Chairman
29 March 2018

INVESTMENT CASE

Global leader in illustrated publishing
and Intellectual Property
Resilient and stable global book market, especially
illustrated and children’s books. Unrivalled footprint
and size. Substantial IP with a back catalogue of 10,000
titles and an annual investment of c.$35m. Clear vision for
product diversification in the short to medium term.

Attractive, de-risked business model
Clear focus on enduring IP in the long term. Not dependent
on immediate best-sellers with c. 60% of sales p.a. from
back catalogue. Solid expertise and performance in foreign
language rights. Market, channel and customer diversity.
Organic growth supplemented by innovation growth and
acquisitive growth.

Balanced creative portfolio
Geographical, genre and creative balance. Mix of
young start-ups and longer-running imprints, organic and
acquired. Increasing exposure to children’s books, one of
the faster growing areas in publishing.

Global consolidation platform
International operational platform is both flexible and
scalable. Clear medium to long-term acquisition strategy
with significant opportunities. Systems and people in place;
acquisition capabilities and track record.

STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSThe Quarto Group, Inc. Annual Report 2017CHIEF EXECUTIVE
OFFICER’S STATEMENT

“2017 was a transitional and challenging year.
We are proud to have shown resilience at a time
when many others in our industry struggled.”

Marcus E. Leaver
Chief Executive Officer

Strategic overview
2017 was a transitional year. It
encompassed difficult and volatile
trading conditions, the disposal of
our last non-core businesses, the
integration of a sizeable acquisition,
the restructuring of the finance team
and the handling of an unsolicited
offer for the Group.

A poor H1 performance, with continued
softness from H2 2016, was followed
by a stronger performance in H2 2017,
with revenue up 5.8% year-on-year. The
business showed resilience in a year when
many others in the industry struggled.

Overall, adjusted operating profit is
down 58% while revenue only declined
marginally by 1.4%.

The Group’s operating margin was
impacted by a combination of factors
including high levels of returns, rising
cost of goods and royalty expenses
as trade sales become a larger part of
the product mix, and higher product
development costs owing to the
integration of becker&mayer.

Industry shifts such as the changing
product mix and the lack of any notable
growth in the mature Adults publishing
market are unlikely to change, and we
continue to restructure a number of our
Adults imprints to realign our portfolio
with broader market trends.

Children’s publishing revenues grew
19% year-on-year, both organically and
through acquisition with the first full
year contribution from becker&mayer.
They have increased by 165% since 2012.

Our Foreign Rights sales team achieved
another year of revenue growth, up
6% year-on-year. As we continually seek
to further expand our scale and reach
across the globe, our new Spanish
language imprint in North and South
America, in partnership with Catapulta
Editores, was also a major highlight.

The Group ended the year with net debt
of $64.0m (2016: $61.9m) down from
$75.8m at 30 June 2017. Net debt is
down 21% since 2012 but is still sizeable.
It has become clear that the competing
pressures of servicing debt, paying
dividends, and investing in the core
business currently inhibit Quarto’s ability

The Quarto Group, Inc. Annual Report 2017Strategic ReportSENIOR LEADERSHIP TEAM

Carolyn Bresh
Chief Financial Officer
(from 9 April 2018)

Ken Fund
Chief Operating Officer

David Breuer
Chief Creative Officer

Karine Marko
Group Director of
Foreign Rights

Nanette Gibb
Group Director
of People

Dorothée de Montgolfier
Group Director of
Communications

Charles Wilson
Group Director of Legal
and Business Affairs

STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSThe Quarto Group, Inc. Annual Report 2017CHIEF EXECUTIVE OFFICER’S STATEMENT CONTINUED

to grow by acquisition. The Group
is therefore looking at all options to
strengthen the balance sheet and will
keep all stakeholders updated with
its progress.

Quarto is now firmly looking to the future
as a pure play intellectual property
business creating a wide variety of books
and intellectual property products for
global distribution. Produced in many
formats for both Adults and Children,
they are visually appealing, information
rich or kinesthetically stimulating. All of
them inspire life’s experiences for the
whole family.

The Group, now one third Children’s
products and two thirds Adults’
products, has been transformed as the
English language co-edition market
declines further. The acquisitions made
since 2014 have renewed the portfolio
and content pipeline, and the shape
of the Group today is largely a solid
platform from which to grow.

Our model remains effective and agile:
talented people making high quality and
long-lasting products across a balanced
portfolio of creative businesses, with
efficient processes, supported by a
scalable operating platform that adapts
to market conditions.

Quarto sells its products globally, in 50
countries in 40 languages, through a
variety of sales channels and partnerships
and five main routes to market – US, UK,
International English language, Foreign
language and other Partnerships.

The Group’s strategy remains to grow
organically as we continually examine
and manage our portfolio; through
innovation, be it product, communication,
business or process transformation;

and where applicable, by acquisition,
within a fragmented and artisan
business landscape that can offer
attractive opportunities.

The leadership of our Senior Leadership
Team has been critical in a transitional
year. I would like to thank Brian Porritt
who has been an excellent partner as
Interim Chief Financial Officer over the
past nine months and helped bring the
strategic planning and analysis we need
to the Finance function. Carolyn Bresh,
currently a Partner at Everymind Ltd, a
consultancy that provides senior Finance
strategy and support, will join Quarto in
April as Chief Financial Officer and build
on the foundations that Brian has put in
place. Nanette Gibb also joined the team
as Group Director of People, and Charles
Wilson as Group Director of Legal and
Business Affairs. Finally, David Inman,
Managing Director of Quarto Partners,
left at the end of February. David came
back to Quarto in 2013 to manage our
UK trade businesses and opened up
many new opportunities, particularly
in Children’s Publishing. All of us across
the Group wish him the very best.

Operating Review
As previously announced, following the
Group’s refocus on our core publishing
activities and a new organisational
structure, we have changed our
segmental reporting. Revenue is
reported by the geography in which the
product is sold, with five main routes to
market – US, UK, International English
language, Foreign language and other
Partnerships. Adjusted Operating Profit
is reported by IP portfolio, where the
product is generated – US Publishing,
UK Publishing and Q Partners.

Revenue ($m)

United States of America

United Kingdom

Rest of the World

Foreign Rights

Q Partners

Total Revenue

2017

2016

81.8

20.4

10.3

34.4

5.6

83.5

20.9

11.5

32.5

6.2

152.5

154.6

The Quarto Group, Inc. Annual Report 2017Strategic Report
-1%

REVENUE

-48%

ADJUSTED
PUBLISHING
OPERATING
PROFIT

Routes to Market
In the US, revenue was $81.8m, down
2.0% year-on-year (2016: $83.5m) as
a result of several factors including a
softer retail environment, especially in
H1 – lower initial order quantities, fewer
reprints, and higher than usual returns
from a few key customers. In addition,
there were still significant sales of Adult
colouring books in H1 2016 which did not
repeat in H1 2017. However, US reported
revenues did benefit from the first
full-year results of becker&mayer.
Without these, the US revenue decline
was 9.2%.

UK revenue was $20.4m, down 2.4%
year-on-year (2016: $20.9m). Besides
the soft retail environment and unusually
high level of returns, also observed in
the US, the UK has been facing a more
structural industry shift characterised
by an increase in trade sales, partially
offsetting a decline in English Language
co-edition sales.

Within the UK and the US, we are
seeing a continuing shift away from
traditional channels, including trade
retail, towards online trade and other
non-traditional channels.

Foreign Language sales achieved
another record year with revenues of
$34.4m, up 6% year-on-year, through
a mix of co-edition, license and royalty
deals sold to over 550 customers
in 50 territories and 40 languages.
This performance is particularly
commendable given the currency
fluctuations in some of the markets
in which we conduct business, and
demonstrates the solid, enduring
relationships the team have built with
co-edition partners all over the world.
The largest part of the revenue comes
from continental Europe, including
France, Germany, the Netherlands, the
Nordics and Eastern & Central European
countries, with growing contributions from
Asia and South America, as well as an
increased success in Children’s Publishing.

In its first full year, our publishing
partnerships and distribution business,
Q Partners, performed in line with
expectations. Revenue was down 11%
to $5.6m (2016: $6.2m). We launched a
new Spanish language imprint, Quarto
Iberoamericana, in November 2017
across North and South America and to
date its progress has been encouraging.
Our distribution partner has shown an
impressive ability to distribute significant
quantities of adult titles into the market
place. The key title of our launch list,
Frida Kahlo at Home, has sold out
throughout all territories within four
months of publication.

In Brazil, Quarto Editora strengthened
its presence with 85 titles published
in 2017, including two titles that made
it into best-selling lists. Revenue has
continued to increase. In the Middle
East and North Africa, Kalimat Quarto
operates with high margins although
volumes remain low.

We secured new distribution agreements
in 2017: Zest Books, Porter Press,
Connell Publishing, the Viz Annual and
Clever Publishing.

We continue to look for new distribution
partners from around the world, in
particular North America and the UK,
but also in international markets.

Intellectual Property Portfolio
The heart of the business is its creative
and development capabilities where the
intellectual property products of Quarto
are produced. Each one of our imprints
and businesses within our portfolio is
creatively independent and caters for
different audiences and markets.

Our most profitable imprints were
Quarto Children’s Books/QED Publishing
(UK, founded in 1990), Lincoln Children’s
Books (UK, acquired in 2011, relaunched
in 2014), Walter Foster Publishing
(US, acquired 1996), becker&mayer
(US, acquired in 2016) and Ivy Press
(UK, acquired in 2015).

STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSThe Quarto Group, Inc. Annual Report 2017CHIEF EXECUTIVE OFFICER’S STATEMENT CONTINUED

Overall, Adults publishing revenues
declined 9.2% while Children’s publishing
revenues grew 19% – by acquisition
through becker&mayer’s first full year
but also organically, with a solid
performance throughout the year
despite areas of softness, for example
in the educational market.

Children’s publishing continues to
remain an area of strong focus and
growth. Revenues now represent one
third of the Group’s overall revenue and
have grown by 165% since 2012
organically, by innovative reorganisation
of existing assets and by acquisition.

Parts of our Adults portfolio under-
performed expectations in both US and
UK markets, but more significantly in the
UK. We continue to review a number
of our imprints to realign our portfolio
with broader market trends and give
the Group more flexibility to re-allocate
assets towards faster-growing parts of
the business. We have consolidated
seven of our UK-based Adults imprints
into two new entities: White Lion
Publishing in London and The Bright
Press in Brighton.

The revenue split between frontlist titles
(published in 2017) and backlist titles
(published before 2017) was comparable
year-on-year, with 60.3% of publishing
revenues generated from backlist titles
vs 58.3% in 2016. This is consistent with
Quarto’s strategy to generate c. 60%
annual recurring revenues from the
Group’s rich IP catalogue and reflects its
expertise in creating long-lasting content.

Adults’ titles represented 67% of backlist
revenues (2016: 79%) and 67% of frontlist
revenues (2016: 73%), while Children’s
titles represented 33% of backlist
revenues (2016: 21%) and 33% of frontlist
revenues (2016: 27%). Even though
Children’s is more naturally frontlist-led,
the increased proportion of Children’s
titles in the backlist can be explained
as some of the Group’s imprints, only
started a couple of years ago, are now
becoming established businesses.

Outlook
Quarto is now fully focused as a
pure-play intellectual property business
with a refocused vision and a clear
growth strategy.

The Group’s strategy addresses the trends
observed in its core publishing market,
which in the US and the UK combined is
worth an estimated $14.1bn*. Children’s
books have grown ahead of other
categories in recent years, while eBook
sales have been flat-lining with limited
success outside of Adult fiction. In the retail
space, the market share of physical book
specialists continues to decrease vs online
retailers and physical non-book specialists.

Quarto expects the volatile trading
environment to continue in 2018, with
ongoing softness in specific channels.
Its primary focus this year will be on
strengthening the balance sheet and
growing margins.

The Group expects a steady recovery with
some organic growth in Children’s, despite
some softness in the foreign language
markets, and continuing remedial action
in the Adults portfolio, to drive improved
cash generation.

As expected, 2018 full year results will
be once again dependent on the second
half year performance. The Board has
decided to change the year end from
31 December to 31 March, which will
better align with the operational needs
of a seasonal business. It will enable the
business to fully focus on the critical
fourth quarter sales period and effect
a more balanced spread of revenue
between the reported fiscal half years.

In the medium to long term, our strategy
remains to grow organically, through
innovation and, where applicable, by
acquisition and to continue to drive c.
60% annual recurring revenue through
the Group’s enduring backlist and
innovative use of its rich IP catalogue.

Since the period end, the Group
has been trading in line with the
Board’s expectations.

I want to extend a large thank you to
each and every one of our employees
worldwide for their hard work and
determination as the shape of our
business continues to evolve. Their
continued passion and ability to
confront change have carried the
business through a challenging year.

* Per the Report

commissioned by
and produced for
The Quarto Group
in November 2017 by
Pragma Consulting
Limited as part of a
strategic market and
channel review.

The Quarto Group, Inc. Annual Report 2017Strategic Report$4.6M

US
PUBLISHING
ADJUSTED
OPERATING
PROFIT

$7.1M

UK
PUBLISHING
ADJUSTED
OPERATING
PROFIT

DIVISIONAL REVIEW

US Publishing
US Publishing adjusted operating profit
was down 51% to $4.6m (2016: $9.4m).

There were some significant one-time
factors to this decline:

1. The 2016 US adjusted operating profit
included a gain of $0.8m relating to
the change in the Useful Economic
Life of capitalised pre-publication
investment. A far smaller gain also
arose in 2017 as the change phased in.

2. Far higher than expected returns of
adults colouring books were taken
in 2017 with impacts on net revenue,
inventory obsolescence and on
distribution costs due to the related
processing costs.

3. Distribution costs were also higher
in 2017 as a result of running two
warehouses for SmartLab for most
of the year. These have now been
consolidated into one.

Some of the elements of the 2017
margin decline are ongoing challenges
which the Group will address in 2018
and the following years. Product
development costs have increased
following the acquisition of becker&mayer
as some of their products, including
SmartLab products, require higher
initial investments. Price increases for
raw materials and printing are being
mitigated by operational efficiency gains
but this is an ongoing challenge and area
of focus. Royalty costs are increasing
due to changes in product mix as the
proportion of co-edition sales declines
relative to trade sales. Sales and
Marketing expenses increase as the
proportion of sales to online channels
grows, although returns rates reduce.

Adjusted Operating Profit ($m)

US Publishing

UK Publishing

Q Partners

Group overhead

Total adjusted operating profit

UK Publishing
UK Publishing adjusted operating profit
was $7.1m, down 43% (2016: $12.4m), due
to a combination of factors noted below.

The 2016 UK adjusted operating profit
included a gain of $1.3m relating to the
change in the Useful Economic Life of
capitalised pre-publication investment.
A far smaller gain also arose in 2017 as
the change phased in.

2017 saw unusually high levels of returns
due to the volatile retail environment.
Returns at this level are not expected
to recur in 2018.

As mentioned above, we have also
observed a significant decline in English
Language co-edition sales, which we
believe is structural and will continue,
although at a lower rate than the sharp
drop experienced in 2017.

Finally, increased royalty costs have
impacted profitability, due to the
increasing mix of sales to the trade.
This trend is expected to continue.

Q Partners
Q Partners made a small loss of $0.4m
in 2017 (2016: loss $0.1m) due to the
investment needed to set up our third
partnership – the new Spanish language
imprint, Quarto Iberoamericana.

Overall, this business is performing in
line with the Group’s expectations as
we recognise that it will take a few years
to generate more substantial volumes.

2017

4.6

7.1

(0.4)

(4.1)

7.2

2016

9.4

12.4

(0.1)

(4.7)

17.0

STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSThe Quarto Group, Inc. Annual Report 2017
OUR BUSINESS MODEL

Produced in many formats for adults, children and the whole family,
our products are visually appealing, information rich and kinesthetically
stimulating. Our creative portfolio of imprints and businesses is expert
in developing long-lasting content across niches of interest.

People
Our people and talent make Quarto.
Each of our 40 imprints and businesses
is creatively independent, producing
what they believe is right for their
customer base and the market. That is
the underpinning ethos of Quarto.

Product
Each of our imprints has a different vision
for the products they produce. We are
proud of the wide variety of books and
related products we publish and our
unique, high quality content.

Portfolio
All our imprints make up a diversified
portfolio that strengthens with each
addition, whether organic start-up
or acquisition.

Process
Our books and products are created by
many different people but underpinned
by one financial model.

Platform
All our imprints are sitting on the Quarto
platform of operations, people, sales
and marketing that we have built and
adhering to the financial model through
which we manage our portfolio.

The Quarto Group, Inc. Annual Report 2017Strategic ReportMARKET OVERVIEW

Quarto has been firmly anchored in
international illustrated publishing since
its foundation in 1976, which is sometimes
difficult to separate from and compare
to publicly available data regarding the
global publishing book market, in which
adult fiction is over-represented.

Recently, Quarto privately commissioned
a new piece of research1 which enables us
to share the following overview and trends
of the global illustrated book market.

Market size and potential
As of 2017, Quarto’s addressable market
in the US and the UK combined is worth
$14.1bn1. The US market has grown 4.6%
since 2013 and is forecast to grow by
a further 8.8% by 2020; while the UK
market has grown 6.6% since 2013 and
is forecast to grow by 6.7% by 2020.

General trends
The market is overall quite mature and
stable with consumers very loyal to
the book product. On average, adult
non-fiction buyers purchase eight books
a year, and children’s book buyers, nine.

In the retail space, the market share
of physical book specialists vs online
retailers and physical non-book
specialists has reduced in the past few
years, and is expected to decrease
further by 2020.

International book markets are
flourishing, with significant economic
and demographic changes in large
countries, for instance Brazil and
Mexico. This can present opportunities
for publishers with global reach, such
as Quarto.

There is a healthy co-existence between
print books and the digital world.
Physical books are vibrant and
preserving a diverse retail landscape.
E-Book sales have been flatlining with
limited success outside of adult fiction.

Children’s and new/young adult
publishing are leading the way in all
markets and all channels. Children’s
books have grown ahead of other
categories in recent years, while
consumers also overwhelmingly
recognise the role books play in
children’s development and do not
believe digital content can provide
the same type of learning.

BOOK RETAIL MARKET MAP

Authors and experts

Publishers

Wholesalers

Distributors

Direct

Online Book
Specialists

Independent
Book Specialists

Chain Book
Specialists

Speciality Non-
Book Retailer

Generalists
Retailer

Discount
Retailer

End Consumer

1 This report was commissioned by and produced for The Quarto Group in November 2017 by Pragma Consulting Limited as part of a market

and channel review.

STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSThe Quarto Group, Inc. Annual Report 20172017 PORTFOLIO HIGHLIGHTS

∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞
∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞
∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞
∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞
∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞
∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞
∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞
∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞
∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞ ∞

ALASTAIR BONNETT

N E W
V I E W S

The World Mapped Like Never Before

New Views is a unique and beautiful
collection of fifty maps in which our
physical, political and cultural world is
visualised, measured and mapped like
never before.

Alastair Bonnett’s expert text provides
vivid insight on each topic. From
charting energy networks to revealing
new and emerging lands, measuring
human migration to assessing the
planet’s ant populations – and including
the phenomena we have little control
over such as lightning strikes or asteroid
impact – each map asks you to question,
wonder and look again at our rapidly
changing and often surprising world.

Divided into three thematic sections:
Land, Air and Sea; Human and Animal,
and Globalisation, New Views offers a
fresh and truly global portrait of our
intricately fascinating planet.

£25 $35 $45

C O O K I N G WITH

NONNA
NONNA
NONNA
NONNA

Celebrate Food & Family with
Over 100 Classic Recipes
from Italian
Grandmothers

or Rossella Rago, creator and host

of Cooking with Nonna TV, Italian

cooking was never just about the amazing food

or Sunday dinner. It was also about family,

community, and tradition. Rossella grew up

cooking with her Nonna Romana every Sunday

and on holidays, learning the traditional recipes

of the Italian region of Puglia, like focaccia,

braciole, zucchine alla poverella, and pizza

rustica. And in her popular web TV series,

Rossella invites Italian-American grandmothers

(the unsung heroes of the culinary world) to

cook with her, sharing the classic dishes

and flavors of each region of Italy.

Now you can take a culinary journey through

Italy with Rossella’s debut cookbook, Cooking

with Nonna, featuring over 100 classic Italian

recipes, along with advice and stories from

25 beloved Italian grandmothers. Learn to

make fresh homemade pasta, handcrafted

Spaghetti with Meatballs, and decadent

Four-Cheese Lasagna that will have everyone

coming back for seconds! With easy-to-follow

step-by-step instructions and mouthwatering

photos, Cooking with Nonna covers appetizers,

soups, salads, pasta, meats, breads, cookies,

and desserts, and features favorites such as

Sicilian Rice Balls, Fried Calamari, Stuffed

Artichokes, Orecchiette with Broccoli Rabe,

Veal Stew in a Polenta Bowl, Struffoli,

Ricotta Cookies, and more!

So if you are ready to bring back Sunday

dinner and learn how to make Italian food

just like nonna, then look no further!

R O S S E L L A R AG O

with

3rd Proof

Job: 11928 Title:Cooking With Nonna 9781631062940
Dpt:SQ Page:JKT

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Creative Lettering and Beyond
Published 2014
$691k revenue
0.5% of revenue

Learn how to create beautifuL, hand-Lettered arts and
crafts with Creative Lettering and Beyond, a sophisticated,
interactive book full of creative prompts, fun exercises, and

simple step-by-step projects. From modern calligraphy and

illumination to illustration and chalk, you’ll discover a

variety of clever and unique ways to turn words and letters

into swoon-worthy projects that can be used for gifts, home

décor, and more! Among other things, you’ll learn how

to create swirls and flourishes, free-brush letter on canvas,

make your own chalkboard, decorate ceramics, and digitize your

work for printing! Along the way, you’ll find plenty of inspiration

and helpful artist tips to encourage and educate you in your

creative lettering journey, as well as numerous open practice

pages to help you develop your own lettering style.

Adults

New Views
Published 2017
$367k
0.2% of revenue

ALASTAIR BONNETT is Professor of
Social Geography at Newcastle University.
Previous books include Off the Map,
What is Geography? and How to Argue.
He has also contributed to history and
current affairs magazines on a wide variety
of topics, such as world population and
radical nostalgia. Alastair was editor of
the avant-garde, psychogeographical
magazine Transgressions: A Journal of
Urban Exploration between 1994–2000.
Alastair lives in Newcastle.

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Visit quartoknows.com

CATEGORY: Crafts & Hobbies / Mixed Media
ISBN: 978-1-60058-397-1

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$19.95 US / £12.99 UK / $21.95 CAN

INSPIRING TIPS,
techniques & ideas
F O R H A N D L E T TE R I N G YO U R W AY
to beautiful works of art

TB10.Cover.r6.indd 1

8/2/17 9:35 am

NEW VIEWS IS A STUNNING COLLECTION OF FIFTY MAPS VISUALISING
OUR PHYSICAL, POLITICAL AND CULTURAL WORLD LIKE NEVER BEFORE

Amphibian diversity

Twitter relationships

Ants

Bird diversity

Countries with the largest
number of venomous
animals

Neglected tropical diseases

Five per cent of the world’s
population

Ecological footprint per
capita

Peacefulness

The Black Marble

Linguistic diversity

Total fertility rate

Religious diversity

Obesity

Happiness

US fast-food franchises

Shipping routes

Energy flux

Number of migrants

Flow of people

People living in the US
born outside the US

Remoteness from city

Critically endangered
languages

World nut trade

Petrol prices

Edible insects

Guns

Problem drugs

Sugar consumption

Fire activity

Asteroid strikes

Vulnerability to natural
disasters

Forests: loss and gain

Water stress

Pangea Ultima

Rebounding land

Nuclear energy and
renewables

Air pollution

Solar energy

Temperature anomalies

Air traffic

The unclaimed world

Ocean rubbish

Unknown oceans

Draining the oceans

Drifters

Lightning

Undersea cables

Sea level variations

Precipitation change

www.QuartoKnows.com

I S B N 978-1-78131-639-9

7 8 1 7 8 1 3 1 6 3 9 9

5 3 5 0 0

Star Wars: Stormtroopers
Published 2017
$627k
0.4% of revenue

STORMTR OOPERS
B E Y O N D T H E A R M O R

From their very first appearance in Star Wars: A New Hope—in which Darth Vader
marched aboard Princess Leia’s ship flanked by soldiers in all white—the stormtroopers
have created an indelible mark on the galaxy far, far away. They have gone from the
faceless enforcers of Imperial oppression to men conscripted into service with origin
stories and the ability to make decisions.

Star Wars: Stormtroopers explores these striking warriors and their evolution in depth
for the first time. Trace the roots of their creation and design from the original trilogy;
their many iterations in cartoons, comics, novels, and merchandising; their development
into a central character; and their resonance within Star Wars fandom.

Filled with photographs, illustrations, storyboards, and other artwork, this lavish
book comes complete with removable features—such as prints, replica memorabilia,
stickers, and more—making it an essential keepsake for every Star Wars fan.

Discover how these instantly recognizable troopers have transcended the screen to

become a universal symbol of Star Wars.

STORMTR OOPERS
B E Y O N D T H E A R M O R

W I N D H A M
& B R A Y

S
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Discover great authors, exclusive offers,
and more at hc.com.

PERFORMING ARTS/Film & Video/
Direction & Production

COVER DESIGN BY ROSANNA BROCKLEY

F O R E W O R D B Y J O H N B O Y E G A

R Y D E R W I N D H A M & A D A M B R A Y

1001 Movies You Must See
Before You Die (2017 Edition)
First Published 2001
$441k
0.3% of revenue

Cooking With Nonna
Published 2017
$317k
0.2% of revenue

R O S S E L L A R AG O is the host
of the popular web TV series Cooking with

Nonna (www.cookingwithnonna.com). For

Now you can cook classic Italian meals

with the long-awaited debut cookbook

from the popular web TV series

Cooking with Nonna!

each episode of the show, Rossella invites an

Italian-American nonna to cook with her and

share traditional Italian recipes and fond

memories of her childhood in Italy. Rossella

has traveled the country and performed

cooking demonstrations in numerous cities

across the United States with local nonne

as her partners.

Rossella spent her childhood in the

kitchen with her maternal Nonna Romana,

learning the long legacy of recipes from

Puglia passed down through generations.

Launching Cooking with Nonna TV has allowed

Rossella to expand her culinary expertise to

other regions of Italy, too. Rossella, together

with her mother and her Nonna Romana,

won the “Italiano Battle” episode of the

Food Network’s 24 Hour Restaurant Battle

in 2010. She lives in Brooklyn, New York.

Author Photo: John Cristino
Cover and Back Cover Photos: Evi Abeler
Jacket Design by Merideth Harte

Cooking With Nonna_jkt.indd 1

Star Wars On
The Front Lines
Published 2017
$301k
0.2% of revenue

ISBN: 978-1-63106-294-0

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$30.00 US | £19.99 UK | $39.00 CAN

Wonder Woman
Ambassador of Truth
Published 2017
$389k
0.3% of revenue

AT L A S T, I N A WO R L D TO R N
BY T H E H AT R E D S A N D WA R S
O F M E N, A P P E A R S A WO M A N
TO W H O M T H E P R O B L E M S
A N D F E AT S O F M E N A R E
M E R E C H I L D ’ S P L AY . . .

Born from the clay of an island paradise, DC Comics’s
Wonder Woman entered the world of man in 1941 and
stepped into pop culture history. Over the decades,
she has journeyed beyond the comic book page into
animation, live-action television, and film, while her
influence has reached deeper into society, serving as
an inspiration to women and men around the globe.

W O N D E R
W O M A N

Calligraphy Kit
Published 2014
$288k
0.2% of revenue

B E R G S T R O M

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Wonder Woman: Ambassador of Truth explores the character’s decades-long
career as she rose from secretary of the Justice Society of America to
one of the “Big Three” DC Comics characters. Packed with memorabilia
from all stages of her career—including temporary tattoos, a publicity
photograph from the 1970s TV series, and a Super Friends animation
cel—this is the ultimate collection for her legions of fans.

A M B A S S A D O R O F T R U T H

COVER DESIGN BY ROSEBUD EUSTACE

Wonder Woman and all related characters and
elements are trademarks and © DC Comics (s17)

USA $50.00 / $62.00 CAN

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Discover great authors, exclusive offers,
and more at hc.com.

ART/Popular Culture

S I G N E B E R G S T R O M
F O R E W O R D B Y LY N D A C A R T E R

W E A R A B L E
T I A R A

1001 Photographs You
Must See Before You Die
Published 2017
$381k
0.3% of revenue

Keto Meals In 30 Minutes
Published 2017
$267k
0.2% of revenue

HUMAN AND ANIMALLAND, AIR AND SEAGLOBALISATIONNONNAThe Quarto Group, Inc. Annual Report 2017Strategic Report

Little People, Big Dreams series
(9 titles)
First Published 2016
$1.1m
0.7% of revenue

Children

Ultimate Secret
Formula Lab
Published 2016
$523k
0.3% of revenue

Build The Human Body, Build
The T-Rex and Build A Rocket
First published 2013
$857k
0.6% of revenue

Illumanatomy
Published 2017
$493k
0.3% of revenue

Etch Art series – Secret
Art and Hidden Forest
Both published 2017
$738k
0.5% of revenue

Lose yourself in the latest creative craze! With EtchArt, you can uncover beautiful art -

completing, customizing and embellishing each scene to make it your own.

Use the stylus provided to carefully etch away the

surface material within the outlines. You can remove as

Make each picture your own by etching your own patterns

and marks in the areas specified. You could even try drawing

much or as little as you wish, revealing the beautiful art

patterns within the main outlines instead of removing the

that lies beneath.

whole surface. Either way, get creative!

A Chapter Two book created by Amanda Wood and Mike Jolley

Materials conform to ASTM
D-4236 standards
5 years +

! WARNING:
Toy contains functional
sharp point.

WARNING:

!
CHOKING HAZARD–
Small parts.
Not for children under 3 yrs.

UK £9.99 US $14.99 CAN $17.99

I S B N 978-1-78603-049-8

5 1 4 9 9

7 8 1 7 8 6 0 3 0 4 9 8

www.wideeyededitions.com

Printed in China

! WARNING:
Toy contains functional
sharp point.

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Reveal the wonders of the wild in
9 amazing ETCHART SCENES

Squishy Human Body
Published 2006
$488k
0.3% of revenue

All-natural Lip Balm
Boutiques
Published 2016
$481k
0.3% of revenue

Smart Circuit:
Electronics Lab
Published 2016
$650k
0.4% of revenue

Imagine
Published 2017
$606k
0.4% of revenue

Join one little pigeon as she sets out on a global journey

to spread a message of peace and friendship among

birds from around the world, of all shapes and sizes.

Featuring the lyrics of John Lennon’s immortal song, and

created in collaboration with Amnesty International, this

poignant book dares to imagine a world at peace.

Imagine is a very powerful statement, written with an incredible
deep love for humanity and its future. — Yoko Ono Lennon

Alongside John Lennon’s classic lyrics, Jean Jullien’s deceptively simple illustrations
create a beautiful, touching book. — Malorie Blackman

I love this book, and I think John would have too. — Leigh Hobbs

Never have we all, child and grown-up child, needed this more, the words and the

song in our hearts, lifting our spirits, giving us hope, and determination too to find the road
to understanding, conciliation and peace. — Michael Morpurgo

This is a beautiful reimagining of John Lennon’s immortal lyrics,
tender and perfectly judged. — Chris Riddell

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I S B N 978-1-84780-896-7

£12.99

Frances
Lincoln
9
www.franceslincoln.com Children’s Books

7 8 1 8 4 7 8 0 8 9 6 7

F
L

Royalties from the sale of this book will be

donated to Amnesty International

With a foreword from
Yoko Ono Lennon

The Nutcracker
Published 2017
$417k
0.3% of revenue

Follow Clara on a magical adventure

in this retelling of the classic ballet story.

Watch the Nutcracker battle the Mouse King, meet

the Sugar Plum Fairy and journey to the Land of

Sweets, where wonder and excitement await...

Press the note on every page to hear the story come

Job Title:The Story Orchestra Client:Frances Lincoln Size:271Hx635Wmm_ISO47L_UK_COVER

EB1600928_GP3B

to life with music from Tchaikovsky’s The Nutcracker,

From the dawn chorus

to an icy sunset, follow one girl and

her dog as they adventure through spring,

summer, autumn and winter in just one day.

Press the note on every page to hear the story come

to life with music from Vivaldi’s The Four Seasons,

then listen to all the sounds again at the

back of the book!

tory
The tory
tory
S
Orchestra
rchestra
rchestra
rchestra

Illustrated by Jessica C o u r t n

- Ti

k l e

Published in 2016 by
Frances Lincoln Children’s Books,
74-77 White Lion Street,
London N1 9PF

Made in China.
First printing July 2016.

10 9 8 7 6 5 4 3 2 1
Age 5+

Warning! Not suitable for children
under 36 month due to potential small
parts - choking hazard

Instructions for battery replacement
A child should never use this product unless the battery
compartment cover has been properly secured. Only an
adult should replace batteries. Use a Phillips screwdriver
to remove the screw. Slide the battery compartment open.
Remove the old batteries and dispose of immediately.
Install new batteries with the plus [+] sign facing up. Close
the cover and secure it with the screw. Batteries must be
inserted with the correct polarity. Do not mix old and new
batteries. Do not mix alkaline, standard [carbon-zinc],
or rechargeable [nickel-cadmium] batteries. Do not use
rechargeable batteries. Do not recharge non-rechargeable
batteries. This product uses three AG-13 button cell
batteries [3 x 1.5V = 4.5V]. Use batteries of the same or
equivalent type as recommended. The supply terminals are
not to be short-circuited. Batteries should be changed when
sounds mix, distort, or become otherwise unintelligible.
Remove exhausted batteries from the book.

Do not dispose of this book or batteries in general waste – they MUST
be recycled. Please retain this information for future reference.

I S B N 978-1-84780-877-6

5 2 2 9 9

£14.99 UK
$22.99 US
$27.99 CAN

7 8 1 8 4 7 8 0 8 7 7 6
www.franceslincoln.com

! WARNING:
CHOKING HAZARD–small parts
Not for children under 3 yrs.

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The Four Seasons_CVR_OK.indd 1

12/05/2017 15:21

then listen to all the sounds again at the back of the book!

Published in 2017 by
Frances Lincoln Children’s Books,
an imprint of The Quarto Group,
The Old Brewery, 6 Blundell
Street, London N7 9BH

Made in China.
First printing July 2017

10 9 8 7 6 5 4 3 2 1
Age 5+

Warning! Not suitable for children
under 36 months due to potential
small parts - choking hazard

Instructions for battery replacement
A child should never use this product unless the battery
compartment cover has been properly secured. Only
an adult should replace batteries. Use a Phillips
screwdriver to remove the screw. Slide the battery
compartment open. Remove the old batteries and
dispose of immediately. Install new batteries with the
plus [+] sign facing up. Close the cover and secure
it with the screw. Batteries must be inserted with the
correct polarity. Do not mix old and new batteries.
Do not mix alkaline, standard [carbon-zinc], or
rechargeable [nickel-cadmium] batteries. Do not
use rechargeable batteries. Do not recharge non-
rechargeable batteries. This product uses three AG-13
button cell batteries [3 x 1.5V = 4.5V]. Use batteries
of the same or equivalent type as recommended. The
supply terminals are not to be short-circuited. Batteries
should be changed when sounds mix, distort, or
become otherwise unintelligible. Remove exhausted
batteries from the book.

Do not dispose of this book or batteries in general waste – they
MUST be recycled. Please retain this information for future
reference.

This device complies with Part 15 of the FCC Rules.
Operation is subject to the following two conditions:
(1) this device may not cause harmful interference, and
(2) this device must accept any interference received,
including interference that may cause undesired
operation.

This equipment has been tested and found to comply
with the limits for a Class B digital device, pursuant to
Part 15 of the FCC Rules. These limits are designed
to provide reasonable protection against harmful
interference in a residential installation. This equipment
generates, uses and can radiate radio frequency energy
and, if not installed and used in accordance with the
instructions, may cause harmful interference to radio
communications. However, there is no guarantee that
interference will not occur in a particular installation.
If this equipment does cause harmful interference to
radio or television reception, which can be determined
by turning the equipment off and on, the user is
encouraged to try to correct the interference by one or
more of the following measures:
• Reorient or relocate the receiving antenna.

• Increase the separation between the equipment
and receiver.
• Consult the dealer or an experienced radio/TV
technician for help.
Note: Changes or modifications not expressly
approved by the manufacturer responsible for
compliance could void the user’s authority to operate
the equipment.
CAN ICES-3 (B)/NMB-3(B)

WARNING! KEEP BATTERIES OUT OF REACH OF CHILDREN
Contains coin/button battery. Hazardous if swallowed.
Swallowing may lead to serious injury in as little as two hours,
or death due to chemical burns and potential perforation of
the oesophagus. If you suspect your child has swallowed or
inserted a button battery immediately seek medical attention. In
Australia call the 24-hour Poisons Information Centre on 13 11
26 for fast, expert advice. Tell others about the risk associated
with button batteries and how to keep their children safe. A child
should never use this product unless the battery compartment
cover has been properly secured. Examine the product and make
sure the screw of battery compartment is fastened tight. Do not
use if compartment is not secure. Dispose of used button batteries
immediately and safely. Flat batteries can still be dangerous.

! WARNING:
CHOKING HAZARD–small parts
Not for children under 3 yrs.

I S B N 978-1-78603-068-9

5 2 2 9 9

£14.99 UK
$22.99 US
$27.99 CAN

7 8 1 7 8 6 0 3 0 6 8 9
www.franceslincoln.com

T HE N

ES S

R
P

Y ’S musi

CHAIKO V S K

THE NUTCRACKER

Illustrated by Jessica C o u r t n e y

k l e

- Ti

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STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSThe Quarto Group, Inc. Annual Report 2017

FINANCIAL REVIEW

Presentation of Results
The presentation of our results for 2017
is for continuing operations which
excludes the results of the non-core
businesses, Books & Gifts Direct (BGD)
Australia, Regent Publishing Services
and Books & Gifts Direct (BGD) New
Zealand as they were disposed of during
the year.

• US publishing revenues decreased from
$74.3m to $74.1m and operating profits
decreased from $9.4m to US$4.6m.
• UK publishing revenues decreased from
$74.1m to $72.7m and operating profits
decreased from $12.4m to US$7.1m.
• Q Partners revenues decreased from

$6.3m to $5.6m and the operating loss
increased from $0.1m to US$0.4m.

Note 31 to the financial statements
explains the alternative performance
measures we use to judge the
performance of the Group.

Group Results for continuing
operations
Revenue for the year was $152.5m
showing a decrease of 1.4% on 2016
of $154.6m. The Harvard Common
Press and becker&mayer publishing
businesses, which we acquired in the
US during 2016, accounted for $18.6m of
2017 revenue ($12.7m in 2016). Excluding
those businesses, revenue was $133.9.m,
a decrease of 5.6% against $141.9m.

The Group’s operating loss of $17.9m is
a $34.0m reduction on 2016’s profit of
$16.1m. Included in the operating profit
in the year are exceptional items of
$24.2m as detailed below. Adjusted
operating profit, which is a key measure
of how the business is performing,
decreased by 58% from $17.0m in 2016
to $7.2m in 2017.

The loss before tax for the Group was
$21.2m (2016: profit before tax of
$13.0m), after amortisation of acquired
intangibles and exceptional items.

The operating segments all had small
revenue decreases in 2017 compared
to 2016 but came under significant
cost pressures:

As set out below in other exceptional
items we carried out a review and
restructure of business operations
in the latter part of 2017 and we are
already seeing the benefit of the
associated cost reductions in 2018.

Disposal of non-core operations
As reported in the 2016 Annual Report
we completed the disposal of our 75%
interest in Regent Publishing Services
Limited, the Hong Kong based publishing
services business, on 31 March 2017.
The consideration for this disposal
was US$7.0m including a payment of
US$3.4m (HK$19.5m) for the group’s
share of the excess cash in the business.

Also reported in the 2016 Annual Report
we completed the disposal of the
Australian operating company Books &
Gifts Direct Pty Limited (BGD Australia)
on 31 March 2017. The consideration for
the sale of the company was A$1 and
Quarto took an assignment of certain
debts owed by the master franchisees to
BGD Australia of A$1.9m (US$1.4m) which
is repayable in monthly instalments over
two years, and are interest bearing.
As reported with our interim results,
we completed the disposal of the trade
and certain assets of the New Zealand
operating company, Books & Gifts Direct
Pty Limited (BGD New Zealand) on
7 July 2017. The consideration for the
sale of the trade and those assets was
NZ$0.8m. In addition, Quarto is entitled

The Quarto Group, Inc. Annual Report 2017Strategic Reportassets ($5.4m) where the predicted
future cashflows do not support the
carrying value. This charge includes
$4.9m in respect of pre-publication
assets, $0.1m in respect of inventory and
$0.4m in respect of royalty advances.

There were also corporate transaction
costs of $0.9m which include $0.6m
incurred in relation to the security
package put in place in relation to the
overall financing facilities, $0.2m
incurred in relation to the unsuccessful
bid for the group in the year and
abortive acquisition costs of $0.1m.

Finance Costs
Finance costs of $3.3m (2016: $3.1m)
represent the interest costs on the
Group’s borrowings together with the
amortisation of the debt issuance costs.
The increase in net finance costs reflects
the higher net debt on average during
2017 compared to 2016 and an increase
in interest rates charged.

Tax
The tax credit for the year of $1.5m
(2016: $3.8m) arises on the loss before
tax. The effective tax rate for the Group
is 7.0% (2016: 28.8%). A significant
proportion of the Group’s taxable profit
arises in the US where the federal tax
rate was 34%. However following the
enactment of the US tax reform
legislation commonly known as the Tax
Cuts and Jobs Act on 22 December the
federal tax rate will be 21% with effect
from 1 January 2018 which will reduce
the effective tax for the Group from
2018 onwards.

to receive a proportion of debtor
receipts and profit before interest
and tax over the next two years. The
repayments will be used to reduce the
Group’s bank debt as they are received.

More information is given in note 30
in these Financial Statements.

Exceptional items
Goodwill impairment
The annual goodwill impairment test
revealed that further to the decrease
in profitability in FY17 referred to
above the goodwill in the US publishing
business was no longer supported by
the net present value and consequently
we have booked an impairment charge
of $17.1m which reduces the carrying
value to $12.9m.

A UK imprint was closed as part of the
restructuring carried out in the latter
part of FY17 and the goodwill relating to
its acquisition of $0.3m was written off.
No other impairment was required in
respect of the UK goodwill which has
a carrying value of $6.4m.

As a result of these two changes
goodwill has been reduced by $17.4m
and it now stands at $19.3m.

More information is given in note 11
to the Financial Statements.

Other exceptional items
A review of business operations was
carried out in the latter part of 2017. As
a result it was decided to close certain
under-performing imprints which means
that no new titles will be published in
those imprints after the relevant closure
dates though existing titles will continue
to be sold as backlist. The costs of the
restructure have been treated as
exceptional items which include both
the relevant people costs ($0.5m) and
impairments of and provisions against

STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSThe Quarto Group, Inc. Annual Report 2017FINANCIAL REVIEW CONTINUED

(Loss)/Earnings Per Share
Our loss per share of 90.6c (2016: loss
per share of 28.5c) is due to the lower
level of profitability in 2017. Our adjusted
basic earnings per share for the Group
continuing operations of 18.3c shows
an annual decrease of 63.3% on the
comparative figure for 2016 of 49.8c
and reflects the decrease in the profit
before amortisation of acquired
intangibles and exceptional items before
tax from $13.9m to $3.9m. Note 10 to the
financial statements sets out how we
calculate the adjusted earnings per
share figures.

Return to Shareholders
The Directors are not recommending
a final dividend for the year, bringing
the total dividend for the year to nil
per share (2016: 15.0c per share).

Cash Flow
Cash generated by the operations
of the business amounted to $44.6m
(2016: $43.7m).

We invested $35.6.m (2016: $37.2m)
in pre-publication costs using the
cash generated from operations.
Our investment in pre-publication
costs reflects the acquisitions made
in the previous year and our continued
investment in new titles we publish each
year. This year’s new titles become part
of our backlist in the following year. We
spent $7.0m on deferred consideration
re previously acquired new businesses
(2016: $3.7m) and $1.3m on capital
expenditure (2016: $1.6m). The investment
in pre-publication costs for new titles
and our investment in acquiring new
businesses are key factors in driving
future revenue growth.

Acquisitions
No acquisitions were made in 2017.

Net Assets
The Group’s net assets of $24.1m at
31 December 2017 show a reduction
of $20.0m on 2016 position of $44.1m,
mainly reflecting the $18.5m loss for
the year (including $17.1m impairment of
US goodwill and other exceptional costs
of $7.1m), the reclassification to income
statement on disposal of business ($3.5m),
the divestment of the minority interest
in Regent Publishing Services ($3.7m)
and the final dividend relating to 2016
of $2.0m paid to shareholders.

Indebtedness and
Borrowing Facilities
Our net debt comprising our bank
borrowings less cash balances has
increased from $61.9m to $64.0m.
Although net debt did not fall in 2017,
it has reduced by $17.0m in the last five
years since 31 December 2012. The
continued reduction of our net debt
remains a key objective for the Group.
Our bank borrowings at 31 December 2017
were $81.9m (2016: $80.7m).

In February 2015, the Group agreed
a $95m multi-currency term loan and
revolving credit facility, which expires
on 30 April 2019. We have repaid $5m of
the term facility in each of February 2016,
February 2017 and February 2018 (total
$15m) and so $80m of the facility remains.

The facility requires us to maintain
certain levels of interest cover, leverage
and cash flow in the business and the
interest payable on the debt is based
on a ratchet whereby we pay LIBOR
plus a margin depending on our
leverage ratio. We also have a £5m
working capital overdraft facility,
which is renewable annually.

The Quarto Group, Inc. Annual Report 2017Strategic ReportCurrency
The Group reports in US Dollars, which
is the principal functional currency, but
during 2017 it also transacted in Sterling,
Euros, Australian Dollars, New Zealand
Dollars and Hong Kong Dollars. Our
borrowings are drawn in US Dollars,
Sterling and Euros to hedge the
movement in our net assets in those
currencies. The key exchange rates for
the year are shown in the table below.

The average rate is calculated by taking
the cumulative average of rates over the
twelve months in the year.

Exchange Rates
In the year, all of the currencies we
transact in, except for the Hong Kong
Dollar (for both year end and average
rates) and Sterling (for average rate),
weakened against the US Dollar.
The net impact of these currency
movements on our net assets was
nil (2016: increase of $0.7m).

Principal Risks and
Uncertainties
Details of the principal risks and
uncertainties are set out on pages
28 and 29.

Details of the Group’s financial risk
management objectives and policies
are set out in Note 21 to the
financial statements.

Going Concern and
Viability Statement
In accordance with provision c.2.2 of
the 2014 revision of the UK Corporate
Governance Code, the Directors have
assessed the prospects of the Group
over both a one-year and a 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 by
the Board. The three-year period offers
less certainty, but is broadly aligned
with long term incentives offered to
Executive Directors and certain senior
management. The market development
over the same forecast period has been
evaluated for the company by Pragma
Consulting. The Group’s projections
and their underlying assumptions have
been reviewed by a firm of independent
consultants, against the background
of the Pragma findings, in order to give
greater assurance.

Year end rate

Average rate

Versus US Dollar

2017

2016

%
change

2017

2016

Sterling

Euro

Australian Dollar

New Zealand Dollar

Hong Kong Dollar

0.74

0.84

1.28

1.41

7.83

0.81

(8.6)%

0.94

(10.6)%

1.38

1.43

7.73

(7.2)%

(1.4)%

1.3%

0.78

0.88

1.30

1.41

7.79

0.74

0.90

1.35

1.44

7.76

%
change

5.4%

(2.2)%

(3.7)%

(2.1)%

0.4%

STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSThe Quarto Group, Inc. Annual Report 2017FINANCIAL REVIEW CONTINUED

Supported by the findings of both the
Pragma and the other independent
consulting projects, the Directors have
considered the underlying robustness of
the Group’s business model, products
and proposition and its recent trading
performance, cash flows and key
performance indicators. They have also
reviewed the cash forecasts prepared for
the three years ending 31 December 2020,
which comprise a detailed cash forecast
for the year ending 31 December 2018,
based on the budget for that year, and
the growth assumptions for revenue
and costs, together with cash forecasts,
for the years ending 31 December 2019
and 2020, to satisfy themselves of
the appropriateness of the going
concern basis used in preparing the
financial statements.

The Directors have assessed the Group’s
viability over a three-year period ending
on 31 December 2020 based on a
financial model which was prepared as
part of the process of considering and
approving the 2018 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 loan facilities
mature in April 2019. Consistent with
previous periods and facilities, the
Directors have assumed that there
is a reasonable probability that these
facilities will be renewed or extended
by that time on similar terms.

In carrying out their analysis of viability,
the Directors took account of the
Group’s projected profits and cash
flows and its banking covenants and
these have been subjected to sensitivity
analysis over the three-year period
using a range of downside scenarios.
The scenarios tested include:

• A reduction in revenue for the second

half of 2018.

• A reduction in revenue for full

•

year 2019.
10% of receivables collections are
delayed by one quarter at the projected
period with least headroom.

If these scenarios were to materialise
the Group would still satisfy the banking
covenants in its facility agreement as
recently amended. We also have a range
of options that enable us to maintain our
financial strength including reduction in
pre-publication costs, reduction in
capital expenditure and managing debt.

The level of profitability of the Group
reduced significantly in 2017. This has
inevitably put more pressure on the
banking covenants and the ability of the
group to service its debts. The Directors
are in discussion with the loan facility
providers to mitigate the risk and the
following steps have either already
been implemented or are in progress:

• A standard security package was
put in place in December 2017 as
indicated in the group’s November
trading update.

• Spot amendments to individual

covenants have been put in place
as required.

• Further amendments for each of the
three loan covenants, to increase the
headroom available during 2018 and
early 2019, have been agreed, along
with additional oversight and
reporting arrangements. Since the
disposal of BGD and Regent, and
with the growing mix of Children’s
books in the revenue projections,
the seasonality of the business has
become more pronounced. Working
capital is managed tightly at those
points in the cycle where the
headroom is most constrained.

The Quarto Group, Inc. Annual Report 2017Strategic ReportBeyond purely financial considerations,
the Board and its Audit Committee
review the Group’s risk register and the
evaluation of likelihood and impact of
the factors identified. They assess and
challenge the mitigations proposed,
redeploying investment and resources
where necessary. As noted above, the
directors have reviewed and relied on
the Pragma Consulting evaluation of the
marketplace in which Quarto operates.
The findings of this review are
encouraging despite the well-
documented and continuing challenges
of the US and UK retail environments.

Quarto’s breadth of frontlist titles each
year means that it is not exposed to
concentration risk in relation to
individual authors, or the delivery of
individual titles. Its breadth of online and
physical retail channels results in a lower
level of customer concentration risk than
for other publishers. Quarto has a
diverse roster of key suppliers and can
quickly move production between them
should there be any instance of business
interruption. These and other risk factors
are outlined in the Principal Risks
Section of this report. All have been
considered by the Directors in reaching
our determinations.

As we indicated last year, whilst we
have successfully transformed the
business in the last few years, the
competing pressures of servicing our
debt, paying dividends, and investing
in the core business were inhibiting our
ability to grow. The Board’s decision
not to pay a dividend in respect of 2017,
its ongoing detailed review of creative
investment, and its stated intention
to look at all options to strengthen the
balance sheet, are major initiatives which
are expected to support future growth
in revenue and margins. The Board will
keep all stakeholders updated with
developments of our thinking. Based
on our assessment, the Directors have
a reasonable expectation that the Group
will be able to continue in operation and
meet all of its liabilities as they fall due
up to 31 December 2020.

For these reasons, the Directors
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. Note 1 to the financial
statements provides additional
information on the Group’s banking
covenants and sensitivity.

Marcus E. Leaver
Chief Executive Officer
29 March 2018

STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSThe Quarto Group, Inc. Annual Report 2017OUR KEY PERFORMANCE INDICATORS

Our strategy is to grow our revenue and margins
by leveraging our size, scale and reach as the
leading global illustrated book publisher, to build
a business with sustainable growth in earnings
per share while also managing our net debt.

ADJUSTED1 OPERATING PROFIT
BEFORE DEPRECIATION
(EBITDA) ($M)

ADJUSTED1 OPERATING
PROFIT ($M)

8.0

2017

2016

2015

2014

2013

2012

18.1

17.7

17.0

15.9

16.5

2017

7.2

2016

2015

2014

2013

2012

17.0

18.5

15.8

14.3

12.8

EBITDA is used to measure the
operational performance of the Group.

Adjusted operating profit decline
reflecting a difficult trading year.

RETURN ON NET
OPERATING ASSETS (%)

NET DEBT ($M)

2017

2016

2015

2014

2013

2012

7.7

14.3

13.4

12.0

11.8

11.0

2017

2016

2015

2014

2013

2012

64.0

61.9

59.5

66.0

71.0

81.0

The Board uses this ratio to evaluate the
long-term financial health of the Group.

Our net debt has reduced by 21% since
2012. The $2.1m increase in net debt
comprises free cashflow ($7.7m)
offset by interest payments ($2.9m),
acquisitions/disposals ($2.4m), 2016
dividend ($2.0m) and non-cash/other
items ($2.5m).

Adjusted measures are stated before amortisation of acquired intangible assets and
exceptional items.

The Quarto Group, Inc. Annual Report 2017Strategic ReportADJUSTED1 DILUTED
EARNINGS PER SHARE (CENTS)

BACKLIST % OF SALES (%)

17.8

2017

2016

2015

2014

2013

2012

48.7

46.1

39.1

36.1

41.6

2017

2016

2015

2014

2013

2012

60.3

58.3

61.4

66.6

71.3

69.8

The Board uses this ratio to evaluate the
quality of the Company’s earnings.

Backlist has increased as a percentage
of sales as we have invested in new IP.

INVENTORY % OF REVENUE (%)

INTELLECTUAL PROPERTY
DEVELOPMENT SPEND ($M)

2017

2016

2015

2014

2013

2012

14.8

15.5

13.8

13.9

11.2

12.6

2017

2016

2015

2014

2013

2012

35.6

37.2

34.9

33.5

31.7

30.5

This is a measure of the cash used up
in inventory as a proportion of revenue.

We have increased the IP spend
to grow the publishing portfolio
organically. Frontlist sales have
grown by 107% in the period.

CHILDREN’S PUBLISHING
REVENUES ($M)

49.1

41.1

2017

2016

2015

2014

2013

32.4

23.0

19.6

2012

18.5

Children’s publishing revenues have
increased by 165% since 2012.

STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSThe Quarto Group, Inc. Annual Report 2017RISK MANAGEMENT, PRINCIPAL
RISKS AND UNCERTAINTIES

The Quarto Group’s risk management framework is designed to identify and assess the likelihood of risks arising, the
consequences of them doing so and the actions necessary in order to mitigate their impact.

The Board has carried out its periodic assessment of the principal business risks facing our various businesses and has
updated these risks in its risk register, which is regularly reviewed. The Board continues to monitor these principal risks and
associated material controls. Details of the Group’s financial risk management objectives and policies are set out in Note 21
to the financial statements. The business risk review identified the following key risks that face our businesses.

MARKET AND FINANCIAL RISKS

Risk

Economic
conditions

Description

Mitigating factor

The Group operates across many of the major
world economies and our revenues and profits
depend on the general state of the economy in
those territories. A downturn caused by a global
recession could reduce consumer discretionary
spending, which might result in a reduction in
profitability and operating cash flow. The UK’s
exit from the European Union and the US
elections have also caused some uncertainty
in the economic environment.

The Group has adequate facilities with up to $80m
(and £5m) in available debt facilities. In addition, in
such an event, the Directors have the ability to take a
number of mitigating actions, including the reduction
of discretionary spend on pre-publication costs.

Currency

The Group’s businesses operate in a number
of different currencies giving rise to a risk of
exchange loss due to fluctuating exchange rates.

Financial

The Group’s relatively high level of debt makes
the Group sensitive to interest rates and potential
covenant breaches.

The Group has 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.

The Banks receive financial information from the
Company on a regular basis and so are able to evaluate
the performance of the Group and the covenants. Where
required, the Company discusses with the Banks whether
amendments to the facility covenants are needed.
Improved financial systems and management reduce the
risk of covenant breaches. The Company is also exploring
ways to strengthen its balance sheet. The Company also
has means available to it to reduce costs, for example
pre-publication costs and, as in 2017, cancel the dividend.

OPERATIONAL RISKS

Risk

Customer

Description

Mitigating factor

A significant dependency on a small number of
customers, for instance co-edition partners or
retailers, could be problematic if one of them
tried renegotiating preferential terms or stopped
doing business with the Group. The failure of a
major customer could impact revenue and profits.

The Group has a long-established strategy of diversifying
its customer base, resulting in the fact that no one
customer has over 20% of the business. Customer
relations are well managed with all Quarto’s larger
customers to ensure a fair trading relationship.
Management monitors debts closely and maintains
close relationships with all customers, which may
provide prior warning of likely failure.

The Quarto Group, Inc. Annual Report 2017Strategic ReportOPERATIONAL RISKS

Risk

Description

Mitigating factor

Supply chain
and raw
materials

The Group uses a number of print suppliers, many
of which are based in Southern China. There is
a risk that an interruption in the availability of
printing services in that area or the financial
failure of one printer could disrupt the distribution
of new books to customers. Any increase in costs
such as oil, port charges etc. would also impact
shipping costs. Any disruption in supply of paper
could lead to an increase in costs and production
disruption. There is also a reputational risk of
using non-environmental paper.

The Group maintains relationships with printers in other
parts of the world and is confident that printing could be
carried out by an alternative range of printers if supply
from China was interrupted or to mitigate shipping costs.
We maintain close relations with our printers, reducing
the risk of a lack of knowledge of any printer being in
financial trouble. The Group worked with our major
printers on a plan to move to sustainable paper and
recently instituted a Forest Stewardship Council (FSC)
paper or Sustainable Forestry Initiative (SFI) paper policy
across all our imprints.

Product
safety

Our business is faced with increasing safety
and testing requirements on various product
components. The risk of a product recall due to
children’s safety would have a severe reputational
impact on the business.

All components receive safety testing from independent
third parties. Management carefully selects suppliers for
components. The Group has 2 dedicated Sourcing and
Quality Managers who handle components sourcing and
safety test management.

Loss of
intellectual
property

A loss of stored IP through failure of storage
medium or loss of back-ups would impact our
ability to process reprints and revisions and
could cause a loss of revenue.

A cloud storage solution has recently been integrated
into production workflow for storage, back-up and
recovery services for product files in development. Two
archive data arrays that will be a replication of each other
have been purchased and are being installed across the
first half of 2018. There is one in the UK and one in the US
with each hosting a complete set of backlist archives.

Laws and
regulations

As a creative and IP business, any changes to
copyright laws could have an impact on the
Group’s activities and any infringement could lead
to increased costs. Inconsistent internal practices
for negotiating contracts or clearing rights could
lead to IP claims.

Quarto has recently streamlined and simplified the
number of legal entities it operates through, and
reviewed the structure of our Legal team, including
hiring a new Group Director for Legal and Business
Affairs. This will ensure that all practices are aligned
and consistent across imprints and geographies within
the Group.

Cyber security Like many organisations, the Group is at risk from

cyber-attack. This presents a potentially serious
risk of disruption to the production process and
could have a significant impact on the profitability
of the business and the security of IP assets.

The Group uses firewalls and IT controls to prevent
attack as well as maintaining offsite back-up of IP.
Computerised files of the Group’s books are also
maintained by printers. We do not store any personal
or credit card data on our transactional website
quartoknows.com.

People

As in any creative business, the Group is heavily
reliant on its people and operates with the
inherent risk of not making the ‘right’ books, or
creativity being uneven year-on-year. Failure to
retain existing talent and attract new talent could
ultimately lead to a failure to generate new titles,
leading to a drop in revenue.

Our portfolio of imprints and large number of products
spread this risk. The overall portfolio is extremely well
diversified with no single title or series accounting for
more than 0.7% of our total revenue in 2017.

Quarto’s Publishers are experienced and talented, and
strive to stay close to publishing trends and markets. The
Group also offers competitive market rate remuneration
packages and has been working on making Quarto an
attractive place to work.

STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSThe Quarto Group, Inc. Annual Report 2017OUR PEOPLE

“I want to make a real and tangible difference by
supporting and empowering both the business and
our people to be even better at what they already do.”

Nanette Gibb
Group Director of People

Our ethos and values
Quarto has a strong set of values that
shape the way we go about our business
and engage with our employees.

With a wide range of individual imprints
and people, we want to be known as
an employer who genuinely values
individuality and diversity.

Our Values

• BE ACCOUNTABLE

• BE PURPOSEFUL

• BE CONSISTENT

• BE EXCELLENT

• BE CURIOUS

• BE COLLABORATIVE

I joined Quarto as Group Director of
People in January 2018. Every day,
around 400 people in our 9 offices
in the UK, US and Hong Kong create,
publish and sell amazing books across
the world.

Operating in a crowded and competitive
market, Quarto’s sustainability and
future growth are both dependent on
our ability to attract and grow talented,
resourceful and creative employees.

My focus
My immediate focus for 2018 is to
enhance the many great things that
Quarto already does and stands for as
an employer of talent.

Everything on our People agenda should:

• Align and support the overall

business objectives;

• Perpetuate and promote
commercial creativity;

• Provide focus, accountability

and purpose;

• Stay true to the Quarto ethos

and cultural values;

• Provide the platform for Quarto
and our employees to realise
their ambitions.

The Quarto Group, Inc. Annual Report 2017Strategic ReportEmployee Recognition
In 2016 Quarto launched its first ever
Company-wide employee awards
initiative – the Purple Quagga Awards.
Its objective is to provide a platform
and voice for recognising employee
contribution to the business and spirit
of Quarto. There are 10 awards with
8 being nominated directly by employees
or line managers. We had 140 nominations.
The winners received a personalised
trophy and letter from our Chief Executive.
The prizes are both for teams and
individual, ranging from $1,000 to $5,000.
Owing to its success, we are repeating
the Awards again this year and are
about to announce the winners from
the 150 nominations received.

Diversity of people and skills
Quarto continues to make significant
progress in appointing female talent into
senior positions. Today, both the Board
of Directors and senior leadership team
are gender-balanced:

• Quarto achieved gender parity on its
Board of Directors in 2017 for the first
time ever and has since moved to a
ratio of 58% female: 42% male in 2018;

• Quarto had 44% women on its

Leadership Team in 2017 (vs none
in 2012), and has moved to a ratio
of 50% in 2018.

We will continue to recruit, develop and
promote employees based on their skills
and performance.

We will not discriminate against age,
gender, ethnicity, cultural background,
sexual orientation or religious beliefs.
We will not filter job applications
through a system that disqualifies
candidates based on education, sex
or age.

We will continue to diversify our
recruitment pipeline, particularly for
entry-level and junior positions. In 2017
Quarto worked with Creative Access to
provide the opportunity for individuals
from Black, Asian and Minority Ethnic
(BAME) backgrounds to have greater
access to publishing networks and
break-down barriers to finding an entry
level job in publishing. In the UK, Quarto
has a clear policy that all interns are paid
the ‘national living wage’.

I am excited and feel really privileged to
be part of Quarto’s next chapter. I want
to make a real and tangible difference,
by supporting and empowering the
business and our people to be even
better at what they already do.

Nanette Gibb
Group Director of People
29 March 2018

STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSThe Quarto Group, Inc. Annual Report 2017CORPORATE RESPONSIBILITY
AND SUSTAINABILITY

Our mission is to inspire life’s experiences through rich
content and beautifully illustrated books, which in itself has
a high social value. We consider our impact on society and
the environment, and work to be a good corporate citizen.

Supporting our communities
Our people individually and collectively
contribute to the communities in which
we live and work.

In 2017, we launched The Quarto
Foundation to support our local
communities in areas that are close to
our hearts and business – education and
knowledge. Every Quarto office chose
one local charity to support and was
encouraged to raise money through
mechanisms such as matched giving,
in-kind donations and volunteering time.
In total, Quarto offices raised over
$12,000 in support of their charities in
2017. We are carrying on with the Quarto
Foundation in 2018.

$12K+

RAISED
THROUGH
THE QUARTO
FOUNDATION

$10K

DONATED
TO GODDARD
RIVERSIDE

Supporting literacy
In 2017, Quarto signed the Vision for
Literacy Business Pledge, a UK national
campaign led by the National Literacy
Trust through which businesses commit
to take action to drive up literacy levels
and boost social mobility. The pledge
counted 51 signatories in 2017 including
Sainsbury’s, Costa, Boots Opticians,
McDonald’s, Amazon UK as well as
several publishers such as Penguin
Random House, Walker Books, Hachette
UK, and Pearson.

Activities of the Quarto Foundation in
the UK are aligned with the requirements
of the Pledge.

For instance, our headquarter office in
London, located near Pentonville Prison,
supported Shannon Trust in their
mission to improve literacy amongst
prisoners. Our Production teams worked
with our print suppliers to set up an
ongoing print deal to produce Shannon
Trust’s prisoner reading material series,
“Turning Pages”, cutting their printing
costs by 17%. Quarto has renewed its
commitment to the Literacy Pledge
in 2018.

The Quarto Group, Inc. Annual Report 2017Strategic ReportOther activities
Other highlights for 2017 include:

• Our annual $10,000 donation to

the Goddard Riverside Community
Center in New York City. The Goddard
Riverside Community serves some
17,000 people each year. They have
established a decade-long partnership
with the publishing industry to fight
against homelessness.

• $10,000 donated to Wholesome
Wave against future royalties for
three Burgess Lea Press titles: Onions,
Tree of Life, and Dulce De Leche.
Wholesome Wave is a US charity
which empowers under-served
consumers to make healthier food
choices by increasing affordable
access to fresh, local food. Burgess
Lea Press donates 100% of after-tax
publishing profits on every book to
organisations that address hunger
relief, farmland preservation and
culinary education.

• Lincoln Children’s Books created
the first picture book set to John
Lennon’s Imagine in partnership
with Amnesty International and
illustrations by renowned artist
Jean Jullien. The book was published
on 21 September 2017 – the UN’s
International Day of Peace – in 16
territories simultaneously, each
supported by a partnership with a
local Amnesty International branch.
Imagine is one of Quarto’s bestsellers
in 2017, with c. 210,000 copies sold
in 15 languages, with Amnesty
International receiving a royalty
from every copy sold.

Limiting our impact on
the environment
The impact of our business on the
environment predominantly comes
from the activities we subcontract
to our suppliers including the printing,
production, distribution, recycling
and disposal of printed books.

Using sustainable paper
Since late 2016, we have implemented
out a Forest Stewardship Council (FSC)
paper policy across all our UK and US
imprints, including gift and stationery
products, adults and children’s books
published under Quarto imprints,
as well as co-edition books printed
for our foreign language customers.
As a consequence, close to 100% of our
newly printed books now use FSC paper.

Where we print domestically in the US,
and FSC material is not available, we
use Sustainable Forestry Initiative
(SFI) 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.

Developing more
sustainable operations
We manage our carbon emissions by
ensuring that we consolidate shipments
across the Group and ship as infrequently
as possible.

We ship most of our books to two
warehouses – one in the UK and one in
the US. The majority of our books are
printed in southern China and shipments
are consolidated. As a rule, we consolidate
palletised shipments from the printer
and limit movements to only full 40-foot
containers. When a container is not full,
we will hold shipment until the following
week barring exceptional circumstances.
We have been applying these guidelines
as standard practice for US-bound
shipments for the last three years, and
we started for UK-bound shipments in
mid-2016. Since we started for the UK,
our average pallet loading for each
container has been 49 pallets out of
a maximum capacity of 52 – so we
are performing efficiently in this area.

STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSThe Quarto Group, Inc. Annual Report 2017BOARD OF DIRECTORS

Peter Read
Chairman

Marcus E. Leaver
Chief Executive Officer

Carolyn Bresh
Chief Financial Officer

Leslie-Ann Reed
Non-Executive Director

Peter joined the Board
in May 2016.

Peter currently holds a
number of a non-executive
directorships including,
Concha, various Quayle
Munro companies, the
Professional Cricketers’
Association, the Royal
Automobile Club, and the
Motor Sports Association.
He was formerly chairman of
KPMG’s Telecoms, Media and
Technology practice and a
partner for over 20 years.

Peter chairs the Nominations
Committee and is a member of
the Remuneration Committee.

Marcus E. Leaver has been
CEO of The Quarto Group
since December 2012 having
joined the company as COO
earlier that year. He has
re-focussed the London Stock
Exchange-listed Group on
its intellectual property
businesses, selling non-core
activities, and increasing
the focus on its children’s
business both organically
and by acquisition.

Prior to Quarto, he worked in
the USA from 2005, latterly
as President of Sterling
Publishing, a subsidiary of
Barnes & Noble. Before living
and working in the US, from
1998 he worked for Chrysalis
Group plc, a London Stock
Exchange-listed media
company, latterly as
Corporate Development
Director and then CEO
of Chrysalis Books Group,
from 2002.

Marcus graduated from the
University of East Anglia
with a degree in Art History,
and received his MBA from
London Business School.

Carolyn is joining Quarto as
Chief Financial Officer on
9 April 2018 and will join the
Board as an Executive Director.

Previously, Carolyn was a
Partner at Everymind Ltd,
a consultancy that provides
senior Finance strategy and
support to mainly private
equity backed businesses – a
post she has held since 2007.
Prior to that, Carolyn was
Deputy CFO and Group
Financial Controller at
Reuters Group plc, which
she joined in 1995, working
in the US and UK in Divisional
Finance Director roles.
Carolyn previously held
various senior finance roles
at Blenheim Group plc, in the
UK and US, between 1992
and 1995, following her ACA
qualification at PwC. She is
also qualified as a Corporate
Treasurer (ACA).

Carolyn graduated from
Imperial College, University
of London with a degree in
Physics and received her
MBA from the London
Business School.

Leslie-Ann is a chartered
accountant with a diverse
background and extensive
international experience,
having served in both
executive and non-executive
roles in publicly listed media
and professional services
companies. She is currently
Non-Executive Director and
Chair of the Audit Committee
for Learning Technologies
Group plc, the market leading
integrated e-learning services
and technologies provider.
She is also a member of the
Supervisory Board & Chair of
the Audit Committee of Zeal
Networks SE – a company
listed on the Frankfurt Stock
Exchange that specialises
in the area of online lottery.

From 2010, Leslie-Ann was
Chief Financial Officer of the
global, online B2B auctioneer
Go Industry plc. Between
2007 and 2010, she was an
adviser to private equity
company Marwyn Investment
Management and prior to this,
she served as CFO of global
commodities and economic
research media group Metal
Bulletin plc. Leslie-Ann is
Chairman of the Audit
Committee and a member
of the Nominations and
Remuneration Committees.

Quarto Group, Inc. Annual Report 2017GovernanceJess Burley
Senior Independent Director

Claire Capeci
Non-Executive Director

Andy Cumming
Non-Executive Director

Charles Wilson
Company Secretary

Charles is a solicitor with
20 years experience in private
practice and in house roles.
He joined Quarto in
December 2017. In private
practice Charles worked
principally at DLA Piper and
latterly at Trowers & Hamlins
where he was a partner
specialising in all corporate
and commercial matters for
4 years until 2013. Since then
he has worked in a number
of senior in house interim
roles for Travelex, Ascential
plc and Kingfisher plc. His
last role was at Ascot Lloyd
Financial Services where
he was General Counsel
and Company Secretary.
Charles is an ICSA qualified
Company Secretary.

Jess Burley 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 The&Partnership
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 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 and Remuneration
Committees, and is Senior
Independent Director.

Claire is Global President,
Retail for J. Walter Thompson
Worldwide, the WPP-owned
advertising agency, and
based in New York City.
She leads a specialized retail
discipline that leverages the
company’s deep experience
in the category and extends
and expands it around the
world. In addition to her
global role, Claire leads the
agency’s Edgewell Personal
Care account and worked
with Macy’s for 8 years. She
has been with the company
since 2006, having assumed
the roles of Global Business
Director and Managing
Director for JWT New York
before taking on her current
position. Prior to joining JWT,
Claire was Executive Vice
President, Managing Director
of Lowe Worldwide.

Claire was named one of the
“30 Most Powerful Women
in Advertising” by Business
Insider and has worked on
campaigns for renowned
brands including Nokia, Estee
Lauder, Macy’s, GMC SUV’s
and Trucks, Heineken and
Diet Coke.

Claire is a member of the
Audit, Nominations and
Remuneration Committees.

Andy joined the Board on
1 March 2018.

Andy has over 40 years’
experience in banking and
risk management. The last
17 years of his full-time career
were spent with Lloyds
Banking Group in a variety
of senior positions, including
seven years as the Chief
Credit Officer of the
Commercial Banking Division
and four years as Managing
Director of the Global
Non-Core Division. He was
also a member of the Group
Risk and Commercial Banking
Executive Committees.

Andy is currently
Non-Executive Director of
Lloyds Development Capital,
the private equity arm of
Lloyds Banking Group,
Bluestone Holdings Limited,
a multinational financial
services business, and Seadrill
Partners LLC, which focuses
on the acquisition, ownership
and operation of offshore
drilling rigs.

Andy is a member of the
Audit, Nominations and
Remuneration Committees.

STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSQuarto Group, Inc. Annual Report 2017NOMINATIONS
COMMITTEE REPORT

With the Board changes that took
place in 2017 and post the year end, the
Nominations Committee now comprises
the Group’s non-executive Directors,
Peter Read (Committee Chairman),
Jess Burley (Senior Independent Director),
Claire Capeci, Leslie-Ann Reed and Andy
Cumming. The Chief Executive Officer,
Marcus E. Leaver, stepped down as
a member of the Committee on
23 February 2018. A copy of the
Committee’s formal terms of reference
can be found on the Company’s website.
(www.quarto.com)

Brian Porritt as interim Chief Financial
Officer, following the resignation of
Michael Connole, in May 2017. Michael
Hartley resigned as a non-executive
Director on 30 September 2017. Clive
Potterell resigned as Company Secretary
on 31 January 2017 and was replaced
by Anne Crompton. Post the year end,
following Anne’s resignation, Charles
Wilson was appointed Company
Secretary, and Andy Cumming
was appointed as an independent
non-executive Director with effect
from 1 March 2018.

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. The
Committee now comprises two men and
three women. 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 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 two times during
the year and was active, in approving
Claire Capeci and Leslie-Ann Reed’s
appointment as new independent
Non-Executive Directors on 17 May
and 3 August 2018 respectively. The
Nominations Committee also appointed

Following an extensive executive
search to identify a suitable permanent
replacement undertaken by Campbell
Brown, an executive search agency, the
Committee appointed Carolyn Bresh as
Chief Financial Officer with effect from
9 April 2018. Brian Porritt, the Interim
Chief Financial Officer since May 2017,
will stay with the business until August
2018 to work closely with Carolyn to
effect a comprehensive transition.
The Committee and Board thank Brian
Porritt for his considerable contribution
and for agreeing to stay on.

The Chairman of the Committee
attends the Annual Meeting to address
any shareholder questions relating to
the Committee.

Peter Read
Chairman of the
Nominations Committee
29 March 2018

Quarto Group, Inc. Annual Report 2017GovernanceAUDIT
COMMITTEE REPORT

Changes to the Board that took place
in 2017 meant the composition of
the Audit Committee also changed.
Michael Hartley served as Chairman until
30 September 2017 when he resigned
from the Board and (also the Committee)
and was replaced as Chairman by
Leslie-Ann Reed who became a member
of the Committee on 3 August 2017.
Claire Capeci joined the Committee
shortly after her appointment to the
Board on 17 May 2017. Jess Burley
served on the Committee until she
stepped down on 30 September 2017
due to her other commitments. Post the
year end, Andy Cumming was appointed
as a member of the Audit Committee
on 1 March 2018. The Board considers
Leslie-Ann Reed, Claire Capeci and
Andy Cumming to be independent
Non-Executive Directors who together
have recent, relevant and a wide range
of financial, commercial and sector
experience in order to fulfil the
Committee’s duties.

Responsibilities
The Committee acts in accordance with
its terms of reference, 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 CFO throughout
the year and with senior management.
He/she also meets with the external
Audit Partner from time to time to
discuss issues and be apprised of
regulatory change.

By invitation the Company’s Chairman of
the Board, CEO, 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
2017 and twice so far in 2018.

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 2017 and 2018 to date the work
of the Committee included:

• Re-tendering of the external audit

mandate and appointment of Grant
Thornton in place of Deloitte.
• Review of the plan and scope of

the external audit.

• Review of the external auditor’s

report on the 2017 year end audit
and approval of the preliminary
announcement and the annual report.

• Review of the Directors’

viability statement.

• Consider the external auditor’s

comments in relation to internal control
and review the need and potential
scope of internal audit functions.

• Consider and approve of measures

to ensure the Company’s compliance
with banking covenants.

• Review and approve of the interim
report 2017 after discussion with
management and the external auditor.

• Review and consider the goodwill

impairment review.
• Consider the external

recommendations of the external
auditor arising out of the 2016 accounts.

• Discussion of significant accounting
issues and judgements in the 2016
accounts as had been detailed in
last year’s annual report.

STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSQuarto Group, Inc. Annual Report 2017AUDIT COMMITTEE REPORT CONTINUED

Significant Audit risks,
key findings and financial
judgements relating to
year end accounts 2017
The Committee concentrated on the
following in relation to the 2017 accounts.

Going Concern, Covenant
Compliance and Bank Security
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.

Following the failure of the Q4 2016
CFADS covenant test, the Committee
had considered and approved measures
to ensure the Company’s compliance
with banking covenants. A combination
of a reduction in operating cash flow
generated in H1 and deferred
consideration payments in respect of
becker&mayer and other transactions
had increased net debt. In December 2017,
amendments to the facility agreement
were agreed including the waiver of the
CFADS covenant test that would have
been undertaken at 31 December 2017
and the reduction of the CFADS ratio.

Management consulted with the lead
bank to ensure that they concurred that
it was appropriate to exclude certain
items as exceptional items when
calculating covenant compliance.

The Committee noted these matters,
including the significant control
observations on this area, and the
forecast compliance with the facility’s
covenants for the foreseeable future.
The Committee also noted that security
over the principal assets of the Group was
granted to the Banks in December 2017.

Assessment of the carrying
value of Goodwill
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. In the
tests carried out at 31 December 2017
the net present value of the goodwill in
respect of the US Publishing business
was calculated as being $12.9m which
necessitated a $17.1m impairment charge
from its carrying value of $30.0m. A UK
imprint was closed in 2017 and associated
goodwill of $0.3m was written off.
No other goodwill impairment was
required and total goodwill now stands
at $19.3m. Further detail is set out in
note 11 to the financial statements.

Recoverability of
pre-publication costs
Amortisation of pre-publication costs
is charged to the income statement on
a straight line basis over the estimated
useful lives of the intangible assets.
Pre-publication costs are capitalised
in accordance with IAS 38 and the
Committee, with the external auditor,
discussed the assumptions behind
the amortisation profile including the
amortisation period of the publications.
Further detail is set out in note 15 to the
financial statements.

In 2016, management amended their
estimate of the useful life of certain
assets to better reflect the expected
useful life of the assets and no further
changes to this were made in 2017.

Exceptional items
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 items
outside the scope of normal business
that need to be disclosed by virtue of
their size or incidence. This has been
applied consistently from 2014.

For the 2017 accounts there have been
significant exceptional items. These
include the goodwill impairment ($17.4m)
as set out above, $5.9m in respect of
restructuring costs ($0.5m for people
costs and $5.4m of impairments and
provision against imprint assets) and
$0.9m of corporate costs including
costs in respect of the security package
put in place in relation to the overall
financing facilities ($0.6m), costs
incurred in relation to the unsuccessful
bid for the group in the year ($0.2m)
and abortive acquisition costs ($0.1m).
All of these items were included within
Exceptional Items due either to their
scale and one-off nature or to being
non-trading items.

For the 2016 accounts there were
significant exceptional items in relation
to the two BGD businesses which were
disposed of in 2017. These included
items relating to impairment of goodwill
and intangibles of $6.2m as well as
$8.0m relating to the write-down
of assets including receivables and
inventory. These were included within
Exceptional Items due to their scale
and one-off nature rather than being
non-trading items. These costs are now
included as part of the result of disposed
operations shown in note 30 to the
financial statements.

Quarto Group, Inc. Annual Report 2017GovernanceRevenue recognition
and sales returns
The Committee considered the risk
that revenue may not be captured in
the relevant period. This depended on
principally on when shipment had taken
place. 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 and post year end returns.

During 2017, 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. As a result
the returns provision for 2017 is
considered to be fully provided.

Inventory provisioning
The economics of manufacturing and
wholesaling of books in the publishing
businesses inherently leads to substantial
inventories. Most of these are printed
without guaranteed sales so there is a
degree of judgement as to the provisions
required to hold this inventory at the
lower of cost or net realisable value.

The Committee reviewed management’s
methodology and discussed the
testing performed by the Auditor to
provide comfort that these estimates
were reasonable.

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. The Committee
noted the much-reduced level of overdue
receivables in the publishing businesses.

Appointment of new Auditor
and independence
Following a tender process, Grant
Thornton was appointed the Group’s
auditor in November 2017 and as auditor
to the UK and US subsidiaries in place of
Deloitte. The last tender process for the
Company’s audit had been carried out in
early 2014. There are no restrictions on the
Committee’s choice of external auditor.

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.

For the 2017 audit of the Group and the
Company’s accounts, Grant Thornton
was paid $256,000 (2016: Deloitte was
paid $597,000).

Non-Audit services
The Company’s previous auditor, Deloitte,
did not review the 2017 interim financial
statements and therefore charged no
fee in respect of it. Grant Thornton
has not been engaged to provide any
non-audit services. The Company has
a policy in regard to the provision of
non-audit services by the auditor.

External Audit
The Committee assesses the
effectiveness of its external auditor
through on-going 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 interim CFO involved with the
audit. The Committee is satisfied with
the Auditor’s effectiveness in 2017.

STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSQuarto Group, Inc. Annual Report 2017AUDIT COMMITTEE REPORT CONTINUED

We consider the following items to be
significant to the effectiveness of the
internal control and risk management
framework in the accounting and
consolidation processes:

•

Identification of significant risk and
control areas of relevance to the
Group-wide accounting process,

• Controls to monitor the consolidation
process and its results at the level of
the Executive Board and at the level
of the companies included in the
Consolidated Financial Statements,
• Preventative control measures in the
accounting system of the Group and
in the processes that generate
significant information used to
prepare the Consolidated Financial
Statements – areas include the Group
management report, segmental
analysis and commitment disclosures.

Leslie-Ann Reed
Chairman of the Audit Committee
29 March 2018

Internal Audit
To date there has not been a separate
internal audit function, given the size
and scale of the Group’s operations.
As reported in the Annual Report 2016
the Audit Committee had concerns
about the financial management of
the Company following the scale of
accounting errors identified in the 2016
year-end audit and the need for another
restatement of the accounts in that year
though the operations accounting within
the publishing businesses was generally
found to be adequate.

In May 2017 a new interim CFO, Brian
Porritt, was appointed. He has
implemented strong controls and
procedures in the group finance function
which have since allowed the Board and
Audit Committee to have confidence in
the financial management of the
Company. The Committee have
requested that Carolyn Bresh, the
permanent CFO appointed with effect
from 9 April 2018, build on the excellent
work that Brian has done in this area.
Later in 2018, the Committee will
consider whether to establish a
dedicated internal audit function.

Internal control and risk
management systems
The Executive Board is responsible for
ensuring appropriate risk management
control procedures are in place, and
regularly conducts reviews of the
effectiveness of the Company’s risk
management and internal control systems.
These reviews cover all material controls
designed to respond to financial,
operational and compliance risks.

The Executive Board is satisfied that
the Company had appropriate risk
management and risk control procedures
in place throughout the year and up
to the date of approval of this Annual
Report to prevent or detect any material
exposures. The Audit Committee reviewed
and monitored the work of the Executive
Board during the year.

The internal control framework
comprises principles, procedures and
measures that are geared towards
the implementation of controlled
management decisions. It is designed
to ensure the effectiveness and
efficiency of business activities, the
quality and reliability of internal and
external accounting, compliance with
the legal frameworks that the Company
must adhere to, and to ensure that
measures are in place that safeguard
proper IT-based processing and data.

The following structures and processes
have been implemented by Quarto
to mitigate potential risks in the
accounting function:

• The Executive Board is responsible
for the internal control and risk
management framework with
regard to the accounting and
consolidation processes.

• The reporting structure relating
to all companies included in the
Consolidated Financial Statements
requires that significant risks are
to be reported immediately to the
Executive Board by the individual
businesses on identification.

• Certain accounting-related processes
(in particular payroll) are outsourced.

Quarto Group, Inc. Annual Report 2017GovernanceREMUNERATION
COMMITTEE REPORT

Annual Statement
Dear shareholder
I am pleased to present the Directors’ Remuneration Report for the year ended 31 December 2017, which has been prepared
by the Committee and approved by the Board.

For the year ended 31 December 2017, there were no substantial changes in Directors’ remuneration arrangements other than
the merger of the STIP and MTIP which is explained below.

This is the Company’s fourth 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 Quarto’s Remuneration Policy recommended by the Board, which will apply from 17 May 2018 subject to approval
at the 2018 Annual Meeting. Following the Smith & Williamson benchmarking exercise undertaken in early 2017, the Committee
considered the value of having an annual bonus plan (STIP) and medium term (3 year) bonus plan (MTIP) for both the
Executive Directors and the Quarto Leadership Team (QLT). The Committee decided the two structures to be overly
complicated and not aligned to building both the short term and longer-term performance of the Company. The total bonus
potential for the Executive Directors was found to be at the lower level with a maximum potential of 60% of salary versus the
normal of 100% for quoted companies. The MTIP offered a potential of up to 40% of salary per year over three years with a
single payment at the end of the three year period. Therefore the STIP and MTIP schemes have been merged and replaced
with an Annual Performance Plan which will give the Chief Executive Officer and the Chief Financial Officer a maximum
potential annual bonus of up to 100% of salary and 70% respectively. For 2018, the amount of free cash generated compared to
that budgeted for, will replace the net debt measure applied in previous years. The QLT’s bonus structure has been harmonised
with that of the Executive Directors except that the maximum earnings as a percentage of salary are at a lower level (from 40%
to 60%). Other than this change, the proposed policy mirrors the last year’s policy which was first implemented on 23 May 2014,
and has stayed the same since apart from the annual bonus threshold that changed last year.

The second section is the Annual Report on Remuneration, which reviews how the existing policy has been implemented.

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 31 December 2017; pension entitlements; and, Directors’
shareholdings and share interests. All other parts of the Directors’ Remuneration Report are unaudited.

I would be happy to receive any comments you may have on this report. I hope you find the report clear and comprehensive
and that it helps demonstrate how remuneration is linked to the performance of the Company, and that you are able to support
the resolutions on remuneration being presented at this year’s Annual Meeting.

Jess Burley
Chairman of the Remuneration Committee
29 March 2018

STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSQuarto Group, Inc. Annual Report 2017REMUNERATION COMMITTEE REPORT CONTINUED

Remuneration Committee meeting attendance 2017

Committee membership

Jess Burley (Chair from 21 December 2016)

Mike Hartley (Resigned 30 September 2017)

Peter Read

Claire Capeci (Appointed 17 May 2017)

Leslie-Anne Reed (Appointed 3 August 2017)

Number of meetings held during the year: 8

8 of 8

7 out of 7 held before resignation

8 of 8

2 of 3 held after appointment

2 of 2 held after appointment

During 2016 the Remuneration Committee held eight meetings. During 2017 the Committee has held 8 meetings, and met for
1 presentation by appointed Remuneration Consultants, Smith & Williamson LLP.

Claire Capeci and Leslie-Anne Reed were appointed to the Board and the Committee part way through 2017, on 17 May 2017
and 3 August 2017 respectively and, therefore were only able to attend meetings held after their appointment. Michael Hartley
resigned as a Director and a member of the Committee on 30 September 2017.

The Chief Executive Officer, interim Chief Financial Officer and the Group Director of People have also been invited to attend
parts of some Committee meetings. No individual is permitted to participate in any matter concerning details of their
own remuneration.

Policy
This section sets out Quarto’s Remuneration Policy for Directors which is recommended by the Board for approval at the 2018
Annual Meeting. The Group’s principal remuneration policy aim is to ensure that the Executive Directors’ remuneration is
designed to promote long term value creation through transparent alignment with the agreed corporate strategy.

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.

Quarto Group, Inc. Annual Report 2017GovernanceQuarto’s Remuneration Policy summary

FIXED PAY

Element of
Remuneration
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.

Benefits

Designed to be
competitive in the
market in which the
individual is
employed.

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.

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.

Performance metrics
Not applicable.

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.

Not applicable.

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).

Pension

To provide
cost effective
retirement benefits.

Participation in defined
contribution plan or cash
allowance in lieu.

Up to 15% of base salary.

Not applicable.

STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSQuarto Group, Inc. Annual Report 2017REMUNERATION COMMITTEE REPORT CONTINUED

VARIABLE PAY

Element of
Remuneration

Purpose and
link to strategy

Annual
performance
bonus

Designed to
reinforce individual
performance and
contribution to the
achievement of
profit growth and
strategic objectives.

Operation

Opportunity

Performance metrics

Maximum potential opportunity
of up to 100% of base salary for
the CEO and 70% for the CFO.

For the financial target, the
threshold bonus starts at 15%
of the total potential (i.e. 7.5%
of salary in the case of the CEO)
for exceeding the base EBITDA
target by 2% and up to 100% of
the total potential (i.e. 50% of
salary) for exceeding the base
EBITDA target by 10%.

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.

50% on financial
objectives, 40% on
personal objectives
with 10% on the
amount of free cash
generated compared
to that budgeted for.

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.

Quarto Group, Inc. Annual Report 2017GovernanceVARIABLE PAY

Element of
Remuneration

Purpose and
link to strategy

Operation

Opportunity

Performance metrics

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.

Awards to Executives
are subject to four year
cumulative earnings
per share (EPS) and/or
total shareholder return
(TSR) 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.

Not applicable.

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
Share Plan
(PSP)

Ensures that the
Executive’s interests
are aligned with those
of shareholders through
reward for providing
shareholders with
substantial increases in
shareholder value and/
or for achievement of
a measure of sustained
growth in earnings
over the medium
to long term.

FIXED PAY

Non-executive
Directors’ fees

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.

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.

Annual fee for Chair.

Annual base fee for
non-executive Directors.
Additional fees are paid
to the Senior Independent
Director and the Chair of
the Committees to reflect
additional responsibilities.

Fees are reviewed annually,
taking into account time
commitment, responsibilities
and fees paid by
comparable companies.

STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSQuarto Group, Inc. Annual Report 2017REMUNERATION COMMITTEE REPORT CONTINUED

Performance measure selection and approach to target setting
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 are based on the amount of EBITDA and with effect from 2018, the amount of free cash generated compared to that
budgeted for will replace the net debt measure that applied in previous years.

The Committee considers that profit before tax adjusted for any exceptional items is the most appropriate measure of
long-term performance of the Group. The Company believes that a measure of free cash generation is appropriate for 2018.

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 2% growth in profits with Stretch target
being 10% growth.

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.

Differences in remuneration policy operated for other employees
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 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 E. 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.

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:

Base Salary

Benefits

Pension

Annual Bonus

PSP

Approach

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.

In line with the
stated policy.

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% to 100%
of base salary

100% of base
salary (200% in
exceptional
circumstances)

Quarto Group, Inc. Annual Report 2017GovernanceIn determining appropriate remuneration for a new Executive Director, 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 Company 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 the case of appointing a new Executive Director by way of internal promotion, the Group will honour any contractual
commitments made prior to his or her promotion to Executive Director.

In the case of appointing a new non-executive Director, the approach will be consistent with the remuneration policy.

Executive Service contracts, Non-executive letters of appointment and exit payments policy
Executive Director service contracts have no fixed term and have a notice period of not more than 12 months from either the
Executive or the Group. 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

Marcus E. Leaver

30 April 2012

Carolyn Bresh

9 April 2018

Notice period

12 months

6 months

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 Chair, together with the other non-executive Directors, have a one month notice period, and are subject to re-election
each year.

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:

Date of Appointment

Notice period

24 May 2016 (coincident with the 2016 AGM)

1 month

Director

Peter Read

Jess Burley

Claire Capeci

22 May 2014

17 May 2017

Leslie-Ann Reed

3 August 2017

Andy Cumming

1 March 2018

1 month

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.

No payments to past Directors or payments for loss of office were made during the year ended 31 December 2017.

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.

STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSQuarto Group, Inc. Annual Report 2017REMUNERATION COMMITTEE REPORT CONTINUED

Component

Bad leaver

Good leaver

Change-of-control

Annual bonus

PSP

No annual bonus payable

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

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

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

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, part
of the business in which the individual is employed or engaged ceasing to be a member of the Group 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 49 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 remuneration policy presented for shareholder approval at the
Annual Meeting on 17 May 2018, applied to the latest known fixed pay of base salaries, pension, other benefits and variable pay
of annual bonus and PSP. To better illustrate the annual potential reward opportunities, the remuneration and PSP Awards are
pro-rated to an annual equivalent. All remuneration is contracted in sterling.

Quarto Group, Inc. Annual Report 2017GovernanceEXECUTIVE DIRECTORS APPLICATION OF REMUNERATION POLICY
US$
16
1400

Marcus E. Leaver

1,258

Fixed
Annual variable
PSP

1200

1000

800

600

400

200

976

9.5%

33.9%

56.6%

552

100%

12.2%

43.9%

Min

In line

Max

In illustrating the application of the remuneration policy the following assumptions have been made:

Minimum performance Basic salary, pension or cash in lieu of pension and benefits. No bonus and no vesting of the PSP.

In line with expectation Basic salary, pension or cash in lieu of pension and benefits. Bonus payout at 60% of the maximum

bonus. PSP vesting at 60% of maximum vesting.

Maximum

Basic salary, pension or cash in lieu of pension and benefits. Bonus payout at 100%. Full vesting
of the PSP.

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.

The Group has not carried out a formal employee consultation regarding Board remuneration, though 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.

Jess Burley
Chair of the Remuneration Committee
29 March 2018

STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSQuarto Group, Inc. Annual Report 2017ANNUAL REPORT
ON REMUNERATION

THE REMUNERATION COMMITTEE

The 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 Chair, 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;

• Determining the structure and quantum of short–term scheme; and,
• Granting awards under the Performance Share Plan.

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 the merger of the annual bonus plan and MTIP.

Advisors
The Committee has paid fees of £31,800 to Smith & Williamson LLP. Smith & Williamson have not provided any other services
to the Company. The Committee has not paid any fees to any other advisors during 2017.

Statement of shareholder voting at the 2017 Annual Meeting
The following table shows the results of the advisory vote on the 2016 Annual Remuneration Report at the Annual Meeting on
16 May 2017.

For (including discretionary)

Against

Total votes cast

Withheld

Total
number of
votes

% of

votes cast

6,801,807

99.70%

20,400

6,822,207

53,400

0.30%

100%

Quarto Group, Inc. Annual Report 2017GovernanceSingle 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 31 December
2017 and the prior year. These amounts are shown in the reporting currency, although settled in sterling. The exchange rates
used in 2017 and 2016 were 1.30 and 1.35, respectively.

Base Salary

Benefits1

Annual Bonus2

Long–term
incentives3

Total
remuneration

Executive Directors

2017
$’000

2016
$’000

2017
$’000

2016
$’000

2017
$’000

2016
$’000

2017
$’000

2016
$’000

2017
$’000

2016
$’000

Marcus E. Leaver

545

561

Michael Connole*

269

373

Bob Morley

–

150

–

2,651

701

3,252

–

275

378

–

Non–executive Directors

2017
$’000

2016
$’000

2017
$’000

2016
$’000

2017
$’000

2016
$’000

2017
$’000

2016
$’000

2017
$’000

2016
$’000

Fees4

Benefits

Annual Bonus

Long–term
incentives3

Total remuneration

Peter Read

Mike Hartley

Jess Burley

Claire Capeci*

Leslie–Ann Read*

Tim Chadwick

Christopher Mills

Marie Louise Windeler

–

57*

–

* For period for which he/she was a Director/Non–executive Director.
1 Benefits comprise private medical insurance contributions.
2 Annual bonus for performance over the relevant financial year. Further details can be found on page 59.
3 On 31 March 2016, Marcus E. Leaver’s Performance Share Plan award of 666,666 shares vested and were capable to being exercised at any
time after 30 June 2016. On 9 August 2016 the options were exercised and the shares were transferred to Marcus E. Leaver out of treasury
stock. The closing mid–market price on that date was £2.64. Upon exercise of the options, he was also entitled to a dividend equivalent
payment in respect of dividends paid from 31 December 2012 and 9 August 2016, subject to withholdings tax and National Insurance
contributions. The dividend equivalent payment was £203,890. None of Marcus E. Leaver’s outstanding options were capable of vesting
in 2017 as the performance period had not been completed.

4 Details of non–executive Directors’ fees can be found on page 60.

STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSQuarto Group, Inc. Annual Report 2017ANNUAL REPORT ON REMUNERATION CONTINUED

Directors’ shareholdings
The share interests of the Directors who held office at 31 December 2017 and of their connected persons in the share capital
of the Company are shown below:

Executive Directors

Marcus E. Leaver

Non–executive Directors

Peter Read

Jess Burley2

Claire Capeci3

Leslie–Ann Reed

Number of share
options of common stock

Number of US$0.10
shares of common stock

31 December

2017

312,149

2016

241,214

2017

395,000

2016

393,500

Number of US$0.10
shares of common stock

31 December

2017

25,625

7,355

10,000

–

2016

10,000

3,300

–

1 Peter Read purchased 10,000 shares in the Company in June 2016, and a further 15,625 shares in August 2017.
2 Jess Burley purchased 4,055 shares on 4 April 2017.
3 Claire Capeci purchased 2,500 shares on 13 October 2017 and 7,500 shares on 20 October 2017. During the year the market price of the

shares of common stock ranged between 120p and 323p. The mid–market price at 31 December 2017 was 142p.

Directors’ share options
Shares: Common Stock of $0.10 each

Date of
grant

As at
1 January
2017

Granted

Forfeited

As at
31 December
2017

Face value
at date of
grant
(£’000)

Fair value
at date of
grant
(£’000)

Price at
exercise
date

Marcus E.
Leaver

Michael
Connole

24/09/2015

19/04/2016

4/08/2016

28/04/17

24/09/2015

19/04/2016

83,732

73,750

83,732

–

70,935

241,214

60,000

48,980

108,980

70,935

–

(60,000)

(48,980)

(108,980)

83,732

73,750

83,732

70,935

312,149

–

175

181

175

187

125

120

239

187

239

190

171

124

n/a

All awards under the PSP schemes have a 4 year vesting period.

Quarto Group, Inc. Annual Report 2017GovernanceExecutive directors base salaries/fees
During year ended 2017, Marcus E. Leaver, the Chief Executive Officer, received £419,486 in respect of base salary and salary
in lieu of pension contributions. He was awarded a salary increase of 3.5% at 1 January 2017.

Michael Connole, the Chief Financial Officer, resigned on 16 May 2017 and was paid salary in line with his service contract
(£240,000 per annum).

Pension and other benefits
The Group makes a contribution to the personal pension scheme of Marcus E. Leaver equal to 15% of his 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 2017 bonus framework
For the 2017 financial year, the maximum annual bonus opportunity was 100% of salary for Marcus E. Leaver. Michael Connole
resigned as Chief Financial Officer on 16 May 2017 and, therefore was not entitled to receive a bonus. (An interim CFO was
appointed in May 2017, and he was not entitled to a bonus).

The annual bonus opportunity was split between targeted growth in adjusted profit before tax and other financial and personal
goals. 50% of total bonus potential for Marcus E. Leaver is based on growth in EBITDA , 10% on reduction of net debt and the
balance is based on achievement of personal objectives.

In 2017, the Threshold Target EBITDA for bonus purposes of $16.7m was not exceeded and, therefore no bonus is payable in
respect of this element of the overall annual bonus for Marcus E. Leaver. Personal objectives for Marcus E. Leaver for 2017 were
set by the Committee in discussion with the Chairman. Personal objectives included both financial and non-financial criteria
with 40% of salary potentially payable for Marcus E. Leaver. The Committee considered that he achieved his personal
objectives and, therefore, approved the award detailed below. He did not achieve the financial objective which was based
on a reduction in net debt.

Marcus E. Leaver’s 2017 bonus award was:

Marcus E. Leaver

% of

$’000

maximum

150

31%

In 2018, 50% of the bonus opportunity will continue to be based on the amount of EBITDA and 40% on personal objectives
including both financial and non-financial criteria. The amount of free cash generated (10%) compared to that budgeted for,
will replace the net debt measure that applied in previous years. Further information on the Annual Performance Bonus
opportunity is set out on page 44.

Long Term Incentives – PSP Awards
Under the Remuneration Policy awards of nominal-cost (or nil-cost) options may be granted annually up 50% (in exceptional
circumstances up to 100%) of base salary to the Executive Directors. Adhering to the same principles, members of the senior
leadership team and other applicable employees may receive an award (up a maximum of 40% of base salary, but typically
much less). In considering whether to make the size of awards, the Remuneration Committee has regard to the principles set
out on page 45 of this report. On 28 April 2017, Marcus E. Leaver was granted 70,935 PSP Awards. The value of these awards
was £187,268 based on a closing price of £2.64 on the day before. They represented 44.6% of salary.

STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSQuarto Group, Inc. Annual Report 2017
ANNUAL REPORT ON REMUNERATION CONTINUED

Half of the awards set out above have a performance condition relating to cumulative Adjusted Diluted EPS performance for
the four financial years 2017 to 2020 inclusive. The other half of these awards have a performance condition relating to total
shareholder returns (‘TSR’) from a combination of dividends 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 28 April 2016 to 28 April 2020.

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.

Chair and non–executive director fees
With effect from the date of the Annual Meeting in 2017, 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 Chair receives an annual fee of £72,000.

The non–executive Directors’ fees for 2018 are as follows: Peter Read £72,000,Jess Burley £41,500, Claire Capeci £35,000
Leslie–Ann Reed £38,500 and Andy Cumming £35,000.

Relative importance of spend on pay
The graph below shows how total employee pay compares with expenditure on intellectual property for years ended
31 December 2016 and 31 December 2017.

29.7

31.3

35.6

37.2

Total employee pay

Intellectual property spend

2017

2016

Total employee pay has been impacted by exchange rate movements.

Quarto Group, Inc. Annual Report 2017GovernanceReview of group performance
The chart on page 55 compares the value of £100 invested in Quarto shares, including re–invested dividends, on 31 December
2010 compared to the equivalent investment in the FTSE Small Cap Index, over the last eight 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.

CEO single figure of
remuneration including bonus
($’000)

2010

750

2011

996

2012

1,0201

2013

870

2014

842

2015

929

2016

3,252

2017

701

Annual bonus awarded

$ amount ($’000s)

392

572

1212

233

169

305

PSP vesting

$ amount ($’000s)

% of maximum
opportunity

–

56.9%

33.5%

95.0%

12.0%

–

2,651

100%

150

31%

–

1 The figure for 2012 is a combination of remuneration of Laurence Orbach, the previous CEO, and Marcus E. Leaver for the respective periods.
2 Discretionary.

Performance graph

400

350

300

250

200

150

100

2009

2010

2011

2012

2013

2014

2015

2016

2017

2017 Quarto

2017 FTSE Small Cap

STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSQuarto Group, Inc. Annual Report 2017ANNUAL REPORT ON REMUNERATION CONTINUED

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 2016 to 2017.

$’000

Salary

Taxable benefits

Annual variable bonus

Total

CEO

Average
for other
employees

2017

545

150

701

2016

% change

561

601

(2.9)%

nil

341.2%

16.6%

(2.7)%

20.0%

(69.9)%

(3.8)%

Salary, benefits and bonuses have been impacted by exchange rate movements.

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 31 December 2017, awards made under the Group’s share schemes represented 5.9%
(2016: 6.8%) of the Group’s issued share capital.

Directors’ shareholding guidelines and share scheme interests
There has been no requirement for Executive Directors to retain shares as no other shares have vested and they are compliant
with the shareholding guidelines.

Jess Burley
Chair of the Remuneration Committee
29 March 2018

Quarto Group, Inc. Annual Report 2017GovernanceDIRECTORS’ REPORT

Group
The Directors present their report and the audited financial statements of The Quarto Group, Inc., for the year ended
December 31, 2017.

Results
The loss for the year is $18.5m (2016: loss of $5.3m). The Directors do not propose a dividend.

An indication of likely future developments in business of the Group and included in the Strategic Report on page 14.

Directors
Serving Directors during the year were as follows:

P. Read

(Non-executive) Chairman

M. E. Leaver

Chief Executive Officer

M. D. Connole

Resigned 16 May 2017

J. Burley

(Non-executive)

M. G. Hartley

(Non-executive) Resigned 30 September 2017

C. Capeci

L-A. Reed

(Non-executive) Appointed 17 May 2017

(Non-executive) Appointed 3 August 2017

None of the Directors have a service agreement of more than one year’s duration. All of the directors are subject to annual
re-election. The letters of appointment of the non-executive Directors are made available for inspection at the Company’s
registered office. Post the year end, Andy Cumming was appointed a non-executive Director with effect from 1 March 2018
and Carolyn Bresh was appointed Chief Financial Officer and an Executive Director with effect from 9 April 2018.

No Director had a contract of significance with the Company or its subsidiaries during the year.

Disclosure of information under Listing Rule 9.8.4
For the purpose of compliance with LR 9.8.4 R, the following information is included by reference within the Directors’ Report:

LR 9.8.4 R

Location

Directors’ remuneration

Annual Report on Remuneration, pages 50 to 56

Details of Long-term Incentive Plans

Annual Report on Remuneration, pages 50 to 56

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 as at 31 December 2017 is illustrated in the table below.

Board

Senior Leadership Team

All employees

Males

Females

114

295

STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSQuarto Group, Inc. Annual Report 2017DIRECTORS’ REPORT CONTINUED

Substantial shareholders
The Directors have been advised of the following shareholders who have an interest of 3% or more in the shares of the
common stock of the Company at 30 December 2017 and 26 March 2018. 26 March 2018 is the latest practicable date prior
to the publication of this report.

As at 30 December 2017

As at 26 March 2018

Number of
US$0.10 shares of
common stock

% holding of the
issued capital
of the Company

Number of
US$0.10 shares of
common stock

% holding of the
issued capital
of the Company

Chuk Kin Lau

Dr L F Orbach

Herald Investment Management

Cavendish Asset Management

Lazard Freres Gestion

Gresham House Asset Management Limited

Intrepid Capital Management

Standard Bank plc

4,089,743

20.00

5,234,672

3,641,715

1,812,045

1,491,769

993,674

898,837

848,112

750,929

17.81

8.86

7.30

4.86

4.40

4.15

3.67

4,101,715

1,812,045

330,000

993,674

898,837

847,644

886,700

25.60

20.06

8.86

1.61

4.86

4.40

4.15

4.34

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.quarto.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 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 52. 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 in on page 28 of the Financial Review. Operational risks are set out on pages 28 and 29 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 2016 (the ‘Code’). The Board considers that the
Company has been in compliance with the principles and provisions of the Code throughout the year ended 31 December,
2017 and to the date of this report, except those outlined below:

B.6.1. –It was decided that, because of the substantial additional workload for the Board, Committees and Directors arising
from the numerous and material matters affecting the Company during the year, there was insufficient time to review the
performance of the Board, its Committees and the Directors. It was also the case that a number of the Directors joined the
Company part way through the year and therefore it would have been premature to review their performance.

E.2.4. – The Company did not send the Notice of Annual Meeting and related papers to its shareholders at least 20 working
days before the meeting. Instead, the Company complied with its By-Laws that provide for the Notice and related papers
to be sent to shareholders not less than 21 clear days (irrespective of whether they are working days) before the meeting.

The Board will continue to monitor its corporate governance arrangements, in the light of the Code (and future changes), as
the Group develops and grows. The Company intends to review the performance of the Board, its Committees and Directors
in 2018 and also send the Notice of Annual Meeting and related papers to its shareholders at least 20 working days before
the meeting.

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.

Quarto Group, Inc. Annual Report 2017GovernanceAttendance by Directors at Board and Committee meetings in 2017

Jess Burley1 6

Claire Capeci2

Michael Hartley3

Marcus E. Leaver6 7

Michael Connole4

Leslie-Ann Reed5

Peter Read6

Total number of meetings

Board

Audit
Committee

Nominations
Committee

Remuneration
Committee

–

1 Jess Burley stepped down from the Audit Committee on 30 September 2017.
2 Claire Capeci appointed on 17 May 2017.
3 Michael Hartley resigned on 30 September 2017.
4 Michael Connole resigned on 16 May 2017.
5 Leslie-Ann Reed appointed on 3 August 2017.
6 These Directors are not members of the Audit Committee (as referred to below) and attend by invitation only.
7 Marcus E. Leaver stepped down from the Nominations Committee on 23 February 2018.

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) As at 31 December 2017, the Board comprised one Executive Director and four 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. Jess Burley, the Senior Independent Director is available to shareholders, if they have
concerns that are not able to be resolved through normal channels. All four non-executive Directors, Peter Read, Jess
Burley, Claire Capeci and Leslie-Ann Reed were considered by the Board to be independent throughout 2017. During the
year, Michael Hartley (resigned 30 September May 2017) was considered by the Board to be independent. Post year end,
Andy Cumming was appointed a non-executive Director of the Company with effect from 1 March 2018 and he is considered
by the Board to be independent. Also post year end Carolyn Bresh was appointed Chief Financial Officer and executive
Director with effect from 9 April 2018.

c) 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).

d) The Board met sixteen times in 2016. Attendance details are set out above. A formal agenda is prepared for each meeting
and all board papers and information are circulated to the Board at least a week before the meetings except in the case of
meetings that are convened on short notice.

e) All of the Directors are subject to re-election by the shareholders at the Annual Meeting. The Board is satisfied to support
the re-election of Peter Read, Jess Burley, Claire Capeci, Leslie-Ann Reed and Andy Cumming 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.

STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSQuarto Group, Inc. Annual Report 2017
DIRECTORS’ REPORT CONTINUED

f) The remuneration of the executive Directors is recommended by the Remuneration Committee, comprising Jess Burley,
who is the Committee Chairman, Peter Read, Claire Capeci, Leslie-Ann Reed and Andy Cumming. A separate report with
respect to Directors’ remuneration is included on pages 50 to 56. The Committee meets at least three times a year. In the
year ended 31 December 2017 the Committee had met eight times.

g) The Audit Committee is comprised of Leslie-Ann Reed, who is Committee Chairman, Claire Capeci and Andy Cumming.

The Board is satisfied that the members of the Committee have appropriate financial experience to fulfil their role. Further
details of the Committee’s work can be found on pages 37 to 40.

h) The Nominations Committee is comprised of Peter Read, who is Committee Chairman, Jess Burley, Claire Capeci, Leslie-Ann
Reed and Andy Cumming. Marcus E. Leaver resigned as a member of the Committee on 23 February 2018. Details of the
work of the Nominations Committee during the year are set out in its report on page 36.

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 in order to understand their views, that are then 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.

j) The Board has a procedure for Directors 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.

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 (CO2e)

Average number of staff

Emissions per staff member

* Excluding staff at fully serviced offices.

2017

2016

Tonnes of CO2e
13
13

174

187

425

0.44

258

271

499

0.54

Quarto Group, Inc. Annual Report 2017GovernanceRisk management and internal controls
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 weekly and a report is produced summarising the Group position.
e) The Chief Executive Officer and the Chief Financial Officer make frequent visits to all operating segments. These visits
include reviews of the internal control and financial reporting systems. It was decided in 2017 to focus on delivering the
improvements to the controls and procedures in the group finance function. Later in 2018, the Audit Committee will
consider the need for a dedicated internal audit function.

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. We will continue to develop our risk management framework during 2018.

Charles Wilson
Company Secretary
29 March 2018

Company Registration Number: FC0 13814

STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSQuarto Group, Inc. Annual Report 2017STATEMENT OF DIRECTORS’ RESPONSIBILITIES
IN RESPECT OF THE DIRECTORS’ REPORT AND
THE FINANCIAL STATEMENTS

To the best of our knowledge:

• 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 company and the
undertakings included in the
consolidation taken as a whole; and
• the Strategic Report and Directors’
Report include 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.

Marcus E. Leaver
Chief Executive Officer
29 March 2018

The directors are responsible for
preparing the Strategic Report, Annual
Report and the Directors’ Remuneration
Report and the financial statements in
accordance with applicable law and
regulations.

The Company is an ‘overseas’ company
within the meaning of the Companies
Act 2006.

Company law requires the directors to
prepare financial statements for each
financial year. Under that law the
directors have prepared the Group
financial statements in accordance
with International Financial Reporting
Standards (IFRSs) as adopted by the
European Union and the parent
Company financial statements in
accordance with United Kingdom
Generally Accepted Accounting Practice
(United Kingdom Accounting Standards)
and applicable law including FRS 102
‘The Financial Reporting Standard
applicable in the UK and Republic of
Ireland’. Under company law the directors
must not approve the financial statements
unless they are satisfied that they give a
true and fair view of the state of affairs
and profit or loss of the company and
group for that period. In preparing these
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 applicable UK

Accounting Standards for the parent
company and IFRSs as adopted by
the European Union for the Group
have been followed, subject to any
material departures disclosed and
explained in the financial statements;
• prepare the financial statements on
the going concern basis unless it is
inappropriate to presume that the
company will continue in business.

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 Directors’
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.

The directors confirm that:

• 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 company’s 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.

Quarto Group, Inc. Annual Report 2017GovernanceINDEPENDENT AUDITOR’S REPORT
TO THE SHAREHOLDERS
OF THE QUARTO GROUP, INC.

Opinion
Our opinion on the financial statements is unmodified
We have audited the financial statements of The Quarto Group, Inc. (the ‘parent company’) and its subsidiaries (the ‘group’)
for the year ended 31 December 2017 which comprise the consolidated income statement, the consolidated statement of
comprehensive income, the consolidated balance sheet, the consolidated statement of changes in equity, the consolidated
cash flow statement, the company statement of comprehensive income , the company balance sheet, the company statement
of changes in equity and notes to the financial statements, including a summary of significant accounting policies. The financial
reporting framework that has been applied in the preparation of the group financial statements is applicable law and International
Financial Reporting Standards (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, including Financial Reporting Standard 102 ‘The Financial Reporting Standard applicable in the UK and Republic
of Ireland’ (United Kingdom Generally Accepted Accounting Practice).

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 2017 and of the group’s loss and the parent company’s loss for the year then ended;

• the group financial statements have been properly prepared in accordance with 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; and

• the financial statements have been prepared in accordance with the requirements of the Companies Act 2006 which

would have applied were the company incorporated in the United Kingdom; and, as regards the group financial statements,
Article 4 of the IAS Regulation.

Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law.
Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the financial
statements section of our report. We are independent of the group and the parent company in accordance with the ethical
requirements that are relevant to our audit of the financial statements in the UK, including the FRC’s Ethical Standard as applied
to listed public interest entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Who we are reporting to
This report is made solely to the company’s members, as a body, in accordance with the terms that have been agreed in our
engagement letter dated 20 November 2017. 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.

Conclusions relating to principal risks, going concern and viability statement
We have nothing to report in respect of the following information in the annual report, in relation to which the ISAs (UK)
require us to report to you whether we have anything material to add or draw attention to:

• the disclosures in the annual report set out on pages 28 to 29 that describe the principal risks and explain how they are

being managed or mitigated;

• the directors’ confirmation, set out on page 25 of the annual report 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 directors’ statement, set out on page 25 of the financial statements about whether the directors considered it

appropriate to adopt the going concern basis of accounting in preparing the financial statements and the directors’
identification of any material uncertainties to the group and the parent company’s ability to continue to do so over a period
of at least twelve months from the date of approval of the financial statements;

• whether the directors’ statement relating to going concern required under the Listing Rules in accordance with Listing Rule

9.8.6R(3) is materially inconsistent with our knowledge obtained in the audit; or

• the directors’ explanation, set out on pages 23 to 25 of the annual report, 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.

STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSQuarto Group, Inc. Annual Report 2017INDEPENDENT AUDITOR’S REPORT CONTINUED

Overview of our audit approach
• Overall materiality: $676,000, which represents 0.44% of continuing revenue;
• Key audit matters were identified as assessing the completeness of the sales return provision, assessment of the carrying
value of goodwill in relation to Quarto US, assessment of the carrying value of pre-publication costs and application of
disposal accounting.

• We have performed a full scope audit of Quarto UK and Quarto US, representing 100% of continuing revenue for the Group,
99% of group assets and 99% of group liabilities. We have performed analytical procedures on the other companies within
the group.

Key audit matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial
statements of the current period and include the most significant assessed risks of material misstatement (whether or not
due to fraud) that we identified. These matters included those that had the greatest effect on: the overall audit strategy; the
allocation of resources in the audit; and directing the efforts of the engagement team. 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. These matters are the same as those identified during the planning stage of out audit.

Key Audit Matter – Group

Completeness of sales
return provision

The Group generates material revenues from
published books. Certain customers have a right
of return for these books and therefore the revenue
is recognised net of a provision for these returns.
Management judgement is required when assessing
the level of returns which are expected to occur
subsequent to the year end for sales made during
the year. The key assumption applied is in relation
to historical return experience, which is used in order
to predict future returns and therefore the provision
which is required to be made.

We therefore identified the completeness of
sales return provision as a significant risk, which
was one of the most significant assessed risks of
material misstatement.

How the matter was addressed in the audit – Group

Our audit work included, but was not restricted to:

• Testing a sample of returns made during the year to supporting

documentation in order to confirm the accuracy of the data used
to calculate the provision which support the rates of returns used
in calculating the provision;

• Recalculated the provision to confirm that it is in accordance with

management’s policy; and

• Comparing actual returns in prior period to the provision made
in order to evaluate the accuracy of management’s forecast.

The group’s accounting policy on the sales return provision is
shown in note 1 to the financial statements and related disclosures
are included in notes 1 and 17. The Audit Committee identified sales
return provision as a significant issue in its report on page 39, where
the Audit Committee also described the action that it has taken to
address this issue.

Key observations
We concur with management’s view that the adjustment made for
sales returns against revenue is reasonable and has been calculated
on an appropriate basis.

Quarto Group, Inc. Annual Report 2017GovernanceAssessment of the carrying value of goodwill in
relation to Quarto US

The Group holds $19,286k of goodwill on its balance
sheet, the largest balance ($12,882k) relates to Quarto
US as shown in Note 11 to the accounts.

In accordance with International Accounting Standard
36: Impairment of Assets (‘IAS 36’) Goodwill is subject
to an annual impairment test.

We consider that the carrying value of the goodwill
for this CGU is a key risk due to the sensitivity of the
impairment calculations to a reasonably possible
change in the key assumptions, including the discount
rate, cash flow forecasts and growth rates.

We therefore identified the assessment of the
carrying value of goodwill in relation to Quarto US as
a significant risk, which was one of the most significant
assessed risks of material misstatement.

Assessment of the carrying value of
pre-publication costs

The Group’s net book value of capitalised
pre-publication costs at 31 December 2017 was
$60,278k (2016: $61,133k) as detailed in note 15.
This represents costs which are capitalised by
the Group in relation to the development of book
titles. These costs are amortised over a three year
period on a straight line basis to reflect the expected
useful economic life of this asset.

There is management judgement in relation to the
length of life of this asset and whether it is recoverable.

We therefore identified the assessment of the carrying
value of pre-publication costs as a significant risk,
which was one of the most significant assessed
risks of material misstatement.

Our audit work included, but was not restricted to:

• Obtaining managements’ impairment review model and testing

the mathematical accuracy;

• Assessed the appropriateness of the asset and liability

amounts included in the carrying value of each of the cash
generating units which were assessed by management as part
of the impairment review

• Assessed the discount rate applied, including an assessment by
our valuation specialists and benchmarking against competitors;
• Consideration of post year end performance of the Group against

budget and comparison of historical budgets to actual performance
in order to assess the accuracy of budgets prepared by
management.

The group’s accounting policy on goodwill is shown in note 1 to
the financial statements and related disclosures are included in note 11.
The Audit Committee identified the carrying value of goodwill as a
significant issue in its report on page 38, where the Audit Committee
also described the action that it has taken to address this issue.

Key observations
An impairment charge of $17,100k has been recognised during the
year in relation to goodwill held in the US and $314k in relation to
goodwill held in the UK. Quarto US goodwill remains sensitive to
changes in key assumptions and these continue to be disclosed in the
accounts.

Our audit work included, but was not restricted to:

• Analysing historic sales patterns to ensure that they support
the estimate made by management of a three year useful
economic life;

• Benchmarking of the useful economic life applied to peers;
• Testing of a sample of third party costs and directly attributable
internal costs capitalised to confirm that it is appropriate to
capitalise them in accordance with IAS 38 ‘Intangible assets’; and
• Assessing the recoverability of pre-publication costs allocated to
each CGU as part of the impairment test performed under IAS 36
to ensure that pre-publication costs are recoverable based on
management’s value in use calculation for each CGU.

The group’s accounting policy on pre-publication costs is shown in
note 1 to the financial statements and related disclosures are included
in note 15. The Audit Committee identified the carrying value of
pre-publication costs as a significant issue in its report on page 38,
where the Audit Committee also described the action that it has
taken to address this issue.

Key observations
On the basis of work performed, it is considered that pre-publication
costs have been recognised on an appropriate basis and are free from
material misstatement.

STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSQuarto Group, Inc. Annual Report 2017INDEPENDENT AUDITOR’S REPORT CONTINUED

Disposal accounting

During the year the company disposed of Books and
Gifts Direct, based in Australia and New Zealand, and
the Regent business based in Hong Kong.

The Group made a net gain of $1,163k in relation to
the operations which were disposed of during the
year. The accounting for disposals requires a number
of judgements around the fair value of the disposal
balance sheet and the accounting for deferred
consideration receivable.

We therefore identified disposal accounting as a
significant risk, which was one of the most significant
assessed risks of material misstatement.

Our audit work included, but was not restricted to:

• Analytically review the disposal balance sheets to ensure

that balances have been recognised on an appropriate basis;

• Agreeing costs recognised in relation to the disposal to

supporting documentation;

• Obtaining management’s assessment of the fair value of deferred

consideration and assessing the appropriateness of the assumptions
made; and

• Evaluated management’s calculation of the profit or loss on

disposal of each business to confirm that it has been calculated
on an appropriate basis.

The group’s disclosures in relation to disposal accounting are included
in note 30 – Discontinued Operations.

Key observations
The accounting for operations disposed of during the year has
been recognised on an appropriate basis, based on the audit
work undertaken.

Key Audit Matter – Parent

How the matter was addressed in the audit – Parent

There are no key audit matters in relation to the
parent company.

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 in determining the
nature, timing and extent of our audit work and in evaluating the results of that work.

Materiality was determined as follows:

Materiality measure

Group

Parent

Financial statements as a whole

Performance materiality used
to drive the extent of our testing

Specific materiality

Materiality was set at $676,000,
which is based on our assessment
of a number of benchmarks for the
Group and represents 0.44% of
continuing revenue. This is considered
to be the most appropriate benchmark
for the Group as it drives performance
during the year, and we do not consider
it appropriate to use earnings before tax
given the loss made during the year.

Materiality was set at $8,000 which
is 1% of total assets. This benchmark is
considered the most appropriate because
the company is a holding company and
does not trade.

65% of financial statement materiality.

We determine a lower level of specific
materiality for certain areas which
includes directors’ remuneration and
related party transactions where they
are balances which are material by their
nature. We have set this at $5,000.

We have determined a lower level of
specific materiality of $5,000 for certain
areas being directors’ remuneration and
related party transactions.

Communication of misstatements
to the audit committee

$33,800 and misstatements below
that threshold that, in our view, warrant
reporting on qualitative grounds.

$3,550 and misstatements below that
threshold that, in our view, warrant
reporting on qualitative grounds.

Quarto Group, Inc. Annual Report 2017GovernanceAn overview of the scope of our audit
Our audit approach was a risk-based approach founded on a thorough understanding of the group’s business, its environment
and risk profile and in particular included:

• Evaluation by the group audit team of identified components to assess the significance of that component and to determine
the planned audit response based on a measure of materiality. Significance was either determined as a percentage of the
group’s total assets, revenues and profit before taxation or significance was based on qualitative factors, such as specific
use is or concerns over specific components;

• Based on this evaluation it is considered that the only significant components are Quarto UK and Quarto US, due to

financial significance;

• We have also performed a full scope audit of the parent company;
• For Quarto US we performed a full scope audit to component materiality, capped at 60% of group materiality, utilising
a team from Grant Thornton LLP but directed and supervised by the UK team, including on-site visits by the Group
audit team.

• For Quarto UK we performed a full scope audit to a materiality level which was lower than would have applied had

we performed procedures for group purposes.

• The full scope audits performed represent 100% of continuing revenue for the year and 99% of total assets.
• The other entities in the group have been subject to analytical review.

Other information
The directors are responsible for the other information. The other information comprises the information included in the
annual report set out on pages 1 to 62, other than the financial statements and our auditor’s report thereon. Our opinion
on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in
our report, we do not express any form of assurance conclusion thereon.

In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so,
consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained
in the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material
misstatements, we are required to determine whether there is a material misstatement in the financial statements or a material
misstatement of the other information. If, based on the work we have performed, we conclude that there is a material
misstatement of this other information, we are required to report that fact.

We have nothing to report in this regard.

In this context, we also have nothing to report in regard to our responsibility to specifically address the following items
in the other information and to report as uncorrected material misstatements of the other information where we conclude
that those items meet the following conditions:

• Fair, balanced and understandable – the statement given on page 62 by the directors that they consider the

annual report and financial statements taken as a whole is fair, balanced and understandable and provides the
information necessary for shareholders to assess the group’s performance, business model and strategy, is materially
inconsistent with our knowledge obtained in the audit; or

• Audit committee reporting – the section set out on page 37 to 40 does not appropriately address matters

communicated by us to the audit committee; or

• Directors’ statement of compliance with the UK Corporate Governance Code set out on page 58 – the parts of

the directors’ statement required under the Listing Rules relating to the company’s compliance with the UK Corporate
Governance Code containing provisions specified for review by the auditor in accordance with Listing Rule 9.8.10R(2)
do not properly disclose a departure from a relevant provision of the UK Corporate Governance Code

STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSQuarto Group, Inc. Annual Report 2017INDEPENDENT AUDITOR’S REPORT CONTINUED

Our opinions on other matters prescribed by the Companies Act 2006,
were it to apply to the company, are unmodified
In our opinion, the part of the directors’ remuneration report to be audited has been properly prepared in accordance
with the Companies Act 2006.

In our opinion, based on the work undertaken in the course of the audit:

• 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; and

• the strategic report and the directors’ report have been prepared in accordance with applicable legal requirements.

Matters on which we are required to report under the Companies Act 2006,
were it to apply to the company
In the light of the knowledge and understanding of the group and the parent company and its environment obtained in the
course of the audit, we have not identified material misstatements in the strategic report or the directors’ report.

Matters on which we are required to report by exception, were the Companies Act 2006
to apply to the company
We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to
report to you if, in our opinion:

• 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 and the part of the directors’ remuneration report to be audited are not in

agreement with the accounting records and returns; or

• certain disclosures of directors’ remuneration specified by law are not made; or
• we have not received all the information and explanations we require for our audit.

Responsibilities of directors for the financial statements
As explained more fully in the directors’ responsibilities statement set out on page 62, the directors are responsible for
the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal
control as the directors determine is necessary to enable the preparation of financial statements that are free from material
misstatement, whether due to fraud or error.

In preparing the financial statements, the directors are responsible for assessing the group’s and the parent company’s ability
to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis
of accounting unless the directors either intend to liquidate the group or the parent company or to cease operations, or have
no realistic alternative but to do so.

Quarto Group, Inc. Annual Report 2017GovernanceAuditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance
is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect
a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually
or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of
these financial statements.

We are responsible for obtaining reasonable assurance that the financial statements taken as a whole are free from material
misstatement, whether caused by fraud or error. Owing to the inherent limitations of an audit, there is an unavoidable risk
that material misstatements of the financial statements may not be detected, even though the audit is properly planned and
performed in accordance with the ISAs (UK). Our audit approach is a risk-based approach and is explained more fully in the
‘An overview of the scope of our audit’ section of our audit report.

A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting
Council’s website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.

Other matters which we are required to address
We were appointed by the Audit Committee on 20 November 2017. Our total uninterrupted period of engagement is one year,
covering the period ending 31 December 2017.

The non-audit services prohibited by the FRC’s Ethical Standard were not provided to the group or the parent company and
we remain independent of the group and the parent company in conducting our audit.

Our audit opinion is consistent with the additional report to the audit committee.

Mark Henshaw
Senior Statutory Auditor
for and on behalf of Grant Thornton UK LLP
Statutory Auditor, Chartered Accountants
London
29 March 2018

STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSQuarto Group, Inc. Annual Report 2017CONSOLIDATED INCOME STATEMENT

FOR THE YEAR ENDED 31 DECEMBER 2017

Continuing operations

Revenue

Cost of sales

Gross profit

Administrative expenses

Distribution costs

Operating profit before amortisation of acquired intangibles
and exceptional items

Amortisation of acquired intangibles

Exceptional items

Operating (loss)/profit

Finance income

Finance costs

(Loss)/profit before tax

Tax

(Loss)/profit for the year

Discontinued operations

Profit/(loss) for the year from discontinued operations

Loss for the year

Attributable to:

Owners of the parent

Non-controlling interests

(Loss)/earnings per share (cents)

From continuing operations

Basic

Diluted

Adjusted basic

Adjusted diluted

From discontinued operations

Basic

Diluted

From continuing and discontinued operations

Adjusted basic

Adjusted diluted

Notes

2017

$’000

2016

$’000

152,512

154,610

(109,848)

(103,916)

42,664

50,694

(27,922)

(26,835)

(7,549)

7,193

(6,870)

16,989

(840)

(24,235)

(17,882)

(3,325)

(21,182)

1,480

(19,702)

(654)

(191)

16,144

–

(3,109)

13,035

(3,756)

9,279

1,163

(14,556)

(18,539)

(5,277)

(18,513)

(5,697)

(26)

420

(18,539)

(5,277)

(96.4)

18.3

17.8

5.8

5.7

(90.6)

46.4

45.4

49.8

48.7

(74.9)

(28.5)

The results of the discontinued businesses of BGD and Regent have been classified separately in the consolidated income
statement for the current and previous years.

Quarto Group, Inc. Annual Report 2017Financial StatementsCONSOLIDATED STATEMENT
OF COMPREHENSIVE INCOME

FOR THE YEAR ENDED 31 DECEMBER 2017

Loss for the year

Items that may be reclassified to profit or loss

Foreign exchange translation differences

Reclassification to income statement on disposal of business

Cash flow hedge; gains arising during the year

Tax relating to items that may be reclassified to profit or loss

Total other comprehensive income/(expense)

Total comprehensive expense for the year

Total comprehensive expense for the year attributable to:

Owners of the parent

Non-controlling interests

2017
$’000

2016
$’000

(18,539)

(5,277)

3,540

471

4,071

706

–

150

(1,609)

(753)

(14,468)

(6,030)

(14,442)

(6,450)

(26)

420

(14,468)

(6,030)

Quarto Group, Inc. Annual Report 2017STRATEGIC REPORTFINANCIAL STATEMENTSGOVERNANCECONSOLIDATED BALANCE SHEET

AS AT 31 DECEMBER 2017

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

Bank Overdrafts

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

Tax payable

Other payables

Total non-current liabilities

Total liabilities

Net assets

Equity

Share capital

Paid in surplus

Retained earnings and other reserves

Equity attributable to owners of the parent

Non-controlling interests

Total equity

Notes

2017
$000

2016
$000

19,286

36,144

3,516

2,129

60,278

3,901

89,110

22,637

53,460

205

17,946

94,248

4,351

1,857

61,133

2,022

105,507

24,006

54,162

141

18,824

97,133

183,358

202,640

(5,000)

–

(60,796)

(5,243)

(94)

(59,718)

(4,060)

(71,039)

(68,872)

(76,907)

(75,748)

(8,520)

(10,502)

(1,116)

(1,673)

–

(3,407)

(88,216)

(89,657)

(159,255)

(158,529)

24,103

44,111

2,045

33,764

(11,706)

24,103

–

24,103

2,045

33,764

3,410

39,219

4,892

44,111

The financial statements were approved by the Board of Directors and authorised for issue on 29 March 2018. They were
signed on its behalf by:

Marcus E. Leaver, Director

Quarto Group, Inc. Annual Report 2017Financial StatementsCONSOLIDATED STATEMENT
OF CHANGES IN EQUITY

FOR THE YEAR ENDED 31 DECEMBER 2017

Share
capital
$000

Paid in
surplus
$000

Hedging
reserve
$000

Translation
Reserve
$000

Treasury
shares
$000

Retained
earnings
$000

Equity
attributable
to owners
of the
parent
$000

Non-
controlling
interests
$000

Total
$000

Balance at 1 January 2016

2,045

33,764

(10)

(7,937)

(634)

21,057

48,285

5,159

53,444

(Loss)/profit for the year

Other comprehensive income

Foreign exchange
translation differences

Cash flow hedge: losses
arising during the year

Tax relating to items that may
be reclassified to profit or loss

Total comprehensive income
for the year

Sale of shares

Dividends paid to
shareholders

Dividends paid to
non-controlling interests

Vesting of options

Share based payments charge

–

150

–

696

–

(1,609)

150

(913)

–

Balance at 31 December 2016

2,045

33,764

140

(8,850)

Loss for the year

Other comprehensive income

Foreign exchange
translation differences

Reclassification to income
statement on disposal
of business

Cash flow hedge: losses
arising during the year

Tax relating to items that may
be reclassified to profit or loss

Total comprehensive income
for the year

Dividend in-specie paid to
non-controlling interests

Adjustment arising
from change in
non-controlling interests

Dividends paid to shareholders

Share based payments charge

–

3,540

–

471

4,057

–

Balance at 31 December 2017

2,045

33,764

165

(4,793)

–

(5,697)

420

(5,277)

–

696

150

(1,609)

706

–

150

(1,609)

(5,697)

(6,460)

430

(6,030)

–

(2,902)

–

(2,902)

–

(697)

565

(594)

256

12,120

(29)

256

–

(29)

256

39,219

4,892

44,111

(18,513)

(26)

(18,539)

–

3,540

471

–

(11)

–

3,540

471

(18,513)

(14,431)

(37)

(14,468)

–

1,111

–

(3,744)

1,111

(1,111)

–

(2,018)

222

(7,078)

24,103

–

(2,018)

222

24,103

–

Quarto Group, Inc. Annual Report 2017STRATEGIC REPORTFINANCIAL STATEMENTSGOVERNANCE
CONSOLIDATED CASH FLOW STATEMENT

FOR THE YEAR ENDED 31 DECEMBER 2017

Loss for the year

Adjustments for:

Net finance costs

Depreciation of property, plant and equipment

Software amortisation

Tax (credit)/expense

Impairment of goodwill

Impairment of pre-publication costs

Exceptional impairment of BGD assets

Share based payment charge

Amortisation of acquired intangibles

Amortisation and amounts written off pre-publication costs

Movement in fair value of derivatives

(Gain)/loss on divestment of business

Notes

2017
$000

2016
$000

(18,539)

(5,277)

3,300

817

315

(1,480)

17,418

4,868

–

222

841

32,212

(130)

(2,541)

2,945

1,080

–

3,991

–

14,203

256

705

30,540

120

–

Operating cash flows before movements in working capital

37,303

48,563

(Increase)/decrease in inventories

(Increase)/decrease in receivables

Increase/(decrease) in payables

Cash generated by operations

Income taxes paid

Net cash from operating activities

Investing activities

Interest received

Investment in pre-publication costs

Purchases of property, plant and equipment

Purchase of software

Acquisition of businesses

Disposal of subsidiaries

1,281

(784)

6,822

44,622

–

44,622

(35,551)

(1,063)

(266)

(7,041)

4,588

1,270

1,628

(7,715)

43,746

(1,436)

42,310

164

(37,165)

(1,562)

–

(3,718)

–

Net cash used in investing activities

(39,308)

(42,281)

Financing activities

Dividends paid

Interest payments

Drawdown of revolving credit facility

Repayment of term loan and revolving credit facility

Dividends paid to non-controlling interests

Net cash from/(used) in financing activities

Net decrease in cash and cash equivalents

Cash and cash equivalents at beginning of year

Foreign currency exchange differences on cash and cash equivalents

Cash and cash equivalents at end of year

(2,018)

(2,935)

6,600

(8,271)

–

(6,624)

(1,310)

18,824

432

17,946

(2,902)

(2,725)

5,583

(5,000)

(697)

(5,741)

(5,712)

25,059

(523)

18,824

Quarto Group, Inc. Annual Report 2017Financial StatementsNOTES TO THE
FINANCIAL STATEMENTS

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 117. 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 10.

The accounting policies adopted, are consistent with those of the annual financial statements for the year ended
31 December 2016, as described in those financial statements. The results of the discontinued businesses of BGD
and Regent have been classified separately in the consolidated income statement for the current and previous years.

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.

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 108 to 115.

Basis of accounting
The financial statements are prepared on the historical cost basis, except that derivative financial instruments are stated
at fair value.

Significant accounting estimates and judgements
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 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 year in which the estimate is revised
if the revision affects only that year or in the year of the revision and future years if the revision affects both current and
future years.

Key estimates at the balance sheet date are:

Note 1, 17 The revenue recognition policy details our judgement in respect of sales returns and the method of

estimating the related sales returns allowance
Key assumptions in making the assessment of carrying value of goodwill and acquired intangible assets

Note 11:
Note 15: Recoverability of pre-publication costs and the assessment of their useful life
Note 17: Assessment of the impairment of trade receivables
Note 19: Calculation of corporation tax liabilities and temporary differences in the assessment of deferred tax liabilities

Key judgements at the balance sheet date:

On 22 December 2017, the United States enacted tax reform legislation commonly known as the Tax Cuts and Jobs Act
(the “Act”), resulting in significant modifications to existing law. These changes included a reduction in the corporate tax
rate from 35% to 21% and a one-time deemed repatriation transition tax on unrepatriated foreign earnings. The Group, in
consultation with its US tax advisors, has completed its evaluation of these changes in determining the additional tax liability
and has recorded a liability of $1.1m in the year, which will be settled over a period of 8 years. The timing and complexity of the
legislation changes, together with emerging best practice in determining this additional liability makes the degree of estimation
and judgement in this area more challenging. The current estimate could change materially as the legislative changes are
better understood and any change will be accounted for in the next financial year when the tax return for the year ended
31 December 2017 is finalised and submitted.

Quarto Group, Inc. Annual Report 2017STRATEGIC REPORTFINANCIAL STATEMENTSGOVERNANCENOTES TO THE FINANCIAL STATEMENTS CONTINUED

1 General information and significant accounting policies continued
Going concern basis
The Board has assessed the Group’s ability to operate as a going concern based on a financial model which was prepared as
part of the process of considering and approving the 2018 budget. The Group engaged Pragma Consulting to perform a review
of the market over a similar timeframe. The financial model and the underlying assumptions have been reviewed by a firm of
independent consultants, against the background of this market review.

Supported by the findings of both the Pragma and the other independent consulting project, the Directors have considered
the underlying robustness of the Group’s business model, products and proposition and its recent trading performance,
cash flows and key performance indicators. They have also reviewed the cash forecasts prepared for the three years ending
31 December 2020, which comprise a detailed cash forecast for the year ending 31 December 2018, based on the budget for
that year, and the growth assumptions for revenue and costs, together with cash forecasts, for the years ending 31 December 2019

and 2020, to satisfy themselves of the appropriateness of the going concern basis used in preparing the financial statements.

In carrying out their analysis of viability, the Directors took account of the Group’s projected profits and cash flows and its
banking covenants and these have been subjected to sensitivity analysis over the three-year period using a range of downside
scenarios. The scenarios tested include:

• A reduction in revenue for the second half of 2018.
• A reduction in revenue for full year 2019.
• 10% of receivables collections are delayed by one quarter at the projected period with least headroom.

If these scenarios were to materialise the Group would still satisfy the banking covenants in its facility agreement as recently
amended. We also have a range of options that enable us to maintain our financial strength including reduction in pre-publication
costs, reduction in capital expenditure and managing debt.

The level of profitability of the Group reduced significantly in 2017. This has inevitably put more pressure on the banking
covenants and the ability of the group to service its debts. The Directors are in discussion with the loan facility providers
to mitigate the risk and the following steps have either already been implemented or are in progress:

• A standard security package was put in place in December 2017 as indicated in the group’s November trading update.
• Spot amendments to individual covenants have been put in place as required.
• Further amendments for each of the loan covenants, to increase the headroom available during 2018 and early 2019, have

been agreed, along with additional oversight and reporting arrangements.

As we indicated last year, whilst we have successfully transformed the business in the last few years, the competing pressures
of servicing our debt, paying dividends, and investing in the core business were inhibiting our ability to grow. The Board’s
decision not to pay a dividend in respect of 2017, its ongoing detailed review of creative investment, and its stated intention
to look at all options to strengthen the balance sheet, are major initiatives which are expected to support future growth in
revenue and margins. The Board will keep all stakeholders updated with developments of our thinking.

Based on our assessment, the Directors have a reasonable expectation that the Group will be able to continue in operation and
meet all of its liabilities as they fall due up to 31 December 2020.

For these reasons, the Directors 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.

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.

Quarto Group, Inc. Annual Report 2017Financial Statements1 General information and significant accounting policies continued
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, for backlists is 5 years and software is 4 years.

Profit or loss from discontinued operations
A discontinued operation is a component of the Group that has been disposed of. Profit or loss from discontinued operations
comprises the post-tax profit or loss of discontinued operations.

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.

Quarto Group, Inc. Annual Report 2017STRATEGIC REPORTFINANCIAL STATEMENTSGOVERNANCENOTES TO THE FINANCIAL STATEMENTS CONTINUED

1 General information and significant accounting policies continued
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. The revenues and expenses of foreign operations
are translated into US Dollars at average 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 are those which the Group defines as 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. Tax provisions are based on Management’s interpretation of country specific tax
law and recognised when it is considered probable that there will be a future outflow of funds to a tax authority. Provisions
are made annually based on the specific information available at that time and therefore there is limited risk of change in
the estimates in the short term. 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.

Discontinued operations
The income statement for 2016 was restated to exclude BGD and Regent, which were fully disposed of during 2017. These are
dealt with in note 30.

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.

Quarto Group, Inc. Annual Report 2017Financial Statements1 General information and significant accounting policies continued
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

Fixtures and fittings

4 to 10 years

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.

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 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 21 for a summary of the Group’s financial
assets by category.

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.

Quarto Group, Inc. Annual Report 2017STRATEGIC REPORTFINANCIAL STATEMENTSGOVERNANCENOTES TO THE FINANCIAL STATEMENTS CONTINUED

1 General information and significant accounting policies continued
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 21.

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 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 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 equity.

Quarto Group, Inc. Annual Report 2017Financial Statements1 General information and significant accounting policies continued
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.

Financial risk management
The principal risk factors faced by the Group are disclosed in Note 21.

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.

IAS/IFRS Standard

Effective for years starting on or after

IFRS 9

IFRS 15

IFRS 16

IFRIC 22

Financial Instruments

Revenue from contracts with customers

Leases

Foreign currency transactions and advance
considerations

1 January 2018

1 January 2019

Not yet endorsed

IFRIC 23

Uncertainty over Income Tax Treatments

Not yet endorsed

IAS 7

IAS 12

IFRS 2

Amendments to IAS 7 Statement of Cash Flows

1 January 2017

Amendments to Recognition of Deferred Tax Assets for
Unrealised Losses

1 January 2017

Amendments to IFRS 2 Classification and Measurement of
Share-based Payment Transactions

1 January 2018

IFRS 9 and IFRS 16 have not yet been considered for 2017 reporting. The impact of IFRS 15 is considered below..

IFRS 15 presents new requirements for the recognition of revenue, replacing IAS 18 ‘Revenue’, IAS 11 ‘Construction Contracts’,
and several revenue-related Interpretations. The new standard establishes a control-based revenue recognition model and
provides additional guidance in many areas not covered in detail under existing IFRSs, including how to account for arrangements
with multiple performance obligations, variable pricing, customer refund rights, supplier repurchase options, and other
common complexities.

Management has started to assess the impact of the new Standard, and has identified that the accounting treatment of customer
contracts will not be affected.

Quarto Group, Inc. Annual Report 2017STRATEGIC REPORTFINANCIAL STATEMENTSGOVERNANCENOTES TO THE FINANCIAL STATEMENTS CONTINUED

2 Revenue

Sales of goods

2017
$’000

2016
$’000

152,512

154,610

No single customer comprises in excess of 20% of group revenue.

3 Operating segments
During 2017, the Group concluded an operational review of the business. Following this review, the core publishing businesses
were reorganised into three divisions: US Publishing, UK Publishing and Q Partners. This is now the basis on which operating
results are reviewed and resources allocated by the Chief Executive Officer.

2017

Continuing operations

Revenue

Operating profit/(loss) before amortisation of acquired intangibles
and exceptional items

Amortisation of acquired intangibles

Segment result

Exceptional pre-publication asset impairment

Exceptional impairment of goodwill (note 5)

Exceptional items other (note 5)

Unallocated corporate expenses

Corporate exceptional items

Operating (loss)/profit

Finance income

Finance costs

Loss before tax

Tax

Loss after tax from continuing operations

Profit after tax from discontinued operations

Loss after tax

Capital expenditure

Depreciation

Investment in pre-publication costs

Amortisation of pre-publication costs

US
Publishing
$000

UK
Publishing
$000

Q Partners
$000

Total Group
$000

74,134

4,641

(596)

4,045

(1,041)

(17,100)

(82)

(14,178)

72,737

7,099

(244)

6,855

(3,827)

(314)

(842)

1,872

5,641

(431)

–

(431)

–

(46)

(477)

152,512

11,309

(840)

10,469

(4,868)

(17,414)

(970)

(12,783)

(4,116)

(983)

(14,178)

1,872

(477)

(17,882)

(3,325)

(21,182)

1,480

(19,702)

1,163

(18,539)

1,063

817

35,551

32,212

539

267

18,958

15,267

524

550

16,593

16.945

–

Quarto Group, Inc. Annual Report 2017Financial StatementsUS
Publishing
$000

UK
Publishing
$000

Q Partners
$000

Total Group
$000

6,276

(67)

154,610

21,738

74,263

9,403

(356)

9,047

(191)

8,856

74,071

12,402

(298)

12,104

–

12,104

8,856

12,104

–

(67)

–

(67)

739

320

17,363

13,017

682

565

19,802

17,523

–

(654)

21,084

(191)

20,893

(4,749)

16,144

(3,109)

13,035

(3,756)

9,279

(14,556)

(5,277)

1,421

885

37,165

30,540

3 Operating segments continued

2016

Continuing Operations:

Revenue

Operating profit/(loss) before amortisation of acquired intangibles
and exceptional items

Amortisation of acquired intangibles

Segment result

Exceptional items

Unallocated corporate expenses

Operating profit/(loss)

Finance costs

Profit before tax

Tax

Profit after tax from continuing operations

Discontinued operations

Loss after tax from discontinued operations

Loss after tax

Capital expenditure

Depreciation

Investment in pre-publication costs

Amortisation of pre-publication costs

Quarto Group, Inc. Annual Report 2017STRATEGIC REPORTFINANCIAL STATEMENTSGOVERNANCENOTES TO THE FINANCIAL STATEMENTS CONTINUED

3 Operating segments continued
Balance sheet

Continuing operations:

Quarto Publishing Group USA

Quarto Publishing Group UK

Unallocated (Deferred tax and cash)

Discontinued operations

Books & Gifts Direct, ANZ

Regent Publishing Services

Total assets

Continuing operations:

Quarto Publishing Group USA

Quarto Publishing Group UK

Unallocated (Deferred tax and debt)

Discontinued operations:

Books & Gifts Direct, ANZ

Regent Publishing Services

Total liabilities

2017
$’000

2016
$’000

93,085

67,984

21,848

110,010

63,332

20,987

441

–

1,720

6,591

183,358

202,640

31,518

36,390

91,331

29,569

24,519

95,405

–

5,141

3,895

159,255

158,529

Geographical areas
The Group operates in the following main geographic areas:

United States of America

United Kingdom

Europe

Rest of the World

Revenue

Non-current assets

2017
$’000

2016
$’000

2017
$’000

2016
$’000

86,444

20,256

29,098

16,714

152,512

92,492

21,244

27,003

13,871

154,610

53,649

35,443

–

68,586

36,921

–

89,110

105,507

Note: the assets for Q Partners are included within those of United States of America and United Kingdom.

Quarto Group, Inc. Annual Report 2017Financial Statements4 Operating profit
Operating profit has been arrived at after charging/(crediting):

Depreciation of property, plant and equipment

Net foreign currency exchange differences

Amortisation of acquired intangibles

Amortisation of pre-publication costs

Staff costs (Note 6)

Auditor’s remuneration (see below)

Cost of inventory recognised as an expense

Share based payment charges

Loss on derivative financial instruments recognised at fair value through profit and loss

Exceptional items (Note 5)

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 the audit of subsidiary companies

Fees payable to the Company’s auditor for other assurance services

5 Exceptional items

Goodwill impairment (note 11)

Reorganisation costs

– Impairment of pre-publication intangible assets (note 15)

– Staff costs

– Royalty advance provisions

– Inventory provisions

Costs of implementing facility security package

Aborted corporate transaction costs

Aborted business acquisition costs

Business acquisition costs

Total

2017
$’000

817

841

32,212

29,715

256

39,801

222

–

24,235

226

–

256

2017
$000

17,414

4,868

544

409

597

241

–

24,235

2016
$’000

1,080

241

705

30,540

34,274

604

41,474

256

120

191

567

604

2016
$000

–

191

During the year, the Group undertook a review of all imprints and certain reorganisations plans to either close or restructure
the imprints. In relation to the imprints affected, this resulted in the related pre-publication intangible assets, royalty advances
and inventory being impaired. The charges in respect of pre-publication costs, staff costs, royalty advance provisions and
inventory provisions would ordinarily be included within cost of sales. The charges in respect of implementing the facility
security package and transaction costs would ordinarily be included within administrative costs.

2016
These charges were in respect of business acquisition costs including due diligence expenses and other professional fees.
Exceptional costs of $14.2m in respect of discontinued operations have been presented within the results from discontinued
operations (Note 30).

Quarto Group, Inc. Annual Report 2017STRATEGIC REPORTFINANCIAL STATEMENTSGOVERNANCENOTES TO THE FINANCIAL STATEMENTS CONTINUED

6 Staff costs

Average monthly number of employees (excluding Executive Directors)

Wages and salaries

Social security costs

Other pension costs

2017
Number

2016
Number

440

$’000

26,638

2,456

621

29,715

439

$’000

27,910

2,276

999

31,185

Directors’ remuneration is disclosed in the Remuneration Committee Report on page 47.

The remuneration of 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.

Short term employee benefits

Long term employee benefits

Post-employment benefits

7 Finance income

Interest income

8 Finance costs

Interest expense on borrowings

Amortisation of debt issuance costs

2017

2,426

–

2,496

2017
$'000

2,941

384

3,325

2016

2,735

2,650

256

5,641

2016
$'000

–

2016
$'000

2,728

381

3,109

Quarto Group, Inc. Annual Report 2017Financial Statements9 Taxation

Corporation tax

Current tax

Prior periods

Total current tax

Deferred tax (Note 19)

Origination and reversal of temporary differences

Total tax (credit)/expense

2017
$'000

2016
$'000

1,552

804

2,356

(3,836)

(1,480)

2,344

–

2,344

1,412

3,756

Corporation tax on UK profits is calculated at 19%, based on the UK standard rate of corporation tax, (2016: 20%) 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 19% and the
Group’s total tax expense for the year.

(Loss)/profit before tax

Tax at the UK corporation tax rate of 19% (2016: 20%)

Effect of different tax rates of subsidiaries operating in other jurisdictions

Adjustment to prior years

Tax effect of changes in legislation

Tax effect of items that are not deductible in determining taxable profit

Other

Tax (credit)/expense

Effective tax rate

2017
$'000

(21,182)

(4,025)

–

804

1,116

625

–

2016
$'000

13,035

2,607

1,095

–

138

(84)

(1,480)

7.0%

3,756

28.8%

On 22 December 2017, the United States enacted tax reform legislation commonly known as the Tax Cuts and Jobs Act
resulting in significant modifications to existing law. These changes included a reduction in the corporate tax rate from 35%
to 21% and a one-time deemed repatriation transition tax on unrepatriated foreign earnings. The Group, in consultation with its
US tax advisors, has completed its evaluation of these changes in determining the additional tax liability and has recorded a
liability of $1.1m in the year, which will be settled over a period of 8 years. The timing and complexity of the legislation changes,
together with emerging best practice in determining this additional liability makes the degree of estimation and judgement in
this area more challenging. The current estimate could change materially as the legislative changes are better understood and
any change will be accounted for in the next financial year when the tax return for the year ended 31 December 2017 is finalised
and submitted.

Quarto Group, Inc. Annual Report 2017STRATEGIC REPORTFINANCIAL STATEMENTSGOVERNANCENOTES TO THE FINANCIAL STATEMENTS CONTINUED

10 Earnings per share

From continuing operations

(Loss)/profit for the year

Amortisation of acquired intangibles (net of tax)

Exceptional items (net of tax)

Earnings for the purposes of adjusted earnings per share

From continuing and discontinued operations

Loss attributable to owners of the parent

Amortisation of acquired intangibles (net of tax)

Exceptional items (net of tax)

Profit/(loss) from discontinued operations

Earnings for the purpose of adjusted earnings per share

Number of shares

Weighted average number of ordinary shares

Effect of potentially dilutive share options

Diluted weighted average number of ordinary shares

(Loss)/earnings per share (cents) – continuing operations

Basic

Diluted

Adjusted earnings per share (cents)

Basic

Diluted

Earnings/(loss) per share (cents) – discontinued operations

Basic

Diluted

Loss per share (cents) : from continuing and discontinued operations

Basic

Diluted

2017
$'000
Group

2016
$'000
Group

(19,702)

9,279

591

22,852

3,741

473

191

9,943

(18,513)

(5,697)

591

22,852

1,189

3,741

473

191

(14,976)

9,943

Number

20,444,450

19,984,824

575,631

452,031

21,020,081

20,436,855

(96.4)

18.3

17.8

5.8

5.7

(90.6)

46.4

45.4

49.8

48.7

(74.9)

(28.5)

Quarto Group, Inc. Annual Report 2017Financial Statements11 Goodwill

Cost

At 1 January

Exchange differences

Recognised on acquisitions (Note 29)

At 31 December

Accumulated impairment losses

At 1 January

Impairment

Exchange differences

At 31 December

Carrying value

At 31 December

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)

2017
$000

2016
$000

42,425

40,448

582

–

(1,128)

3,105

43,007

42,425

(6,281)

(17,414)

(26)

(336)

(6,000)

(23,721)

(6,281)

19,286

36,144

2017
$000

12,882

6,404

19,286

2016
$000

29,982

6,162

36,144

The recoverable amount of each cash generating unit (‘CGU’) is determined using the value in use basis. In determining value
in use, management prepares a detailed bottom up budget for the initial twelve month period, with reviews conducted at each
business unit. A further two years are forecast using relevant growth rates and other assumptions. Cash flows beyond the
three year period are extrapolated into perpetuity, by applying the growth rates applicable to each CGU. The cashflows are
then discounted using a country specific WACC. The growth rates used are consistent with the growth expectations for the
sector in which the company operates.

The discount rate has been calculated using Weighted Average Cost of Capital analysis.

Goodwill, specific to the US Publishing Group, was impaired by $17.1m at 31 December 2017 reducing its carrying value to
$12.9m. The impairment principally arose due to the decrease in profitability experienced in 2017.

One imprint in the UK was closed in the year and the previous carrying value of its goodwill of $0.3m was impaired to nil.

Quarto Group, Inc. Annual Report 2017STRATEGIC REPORTFINANCIAL STATEMENTSGOVERNANCENOTES TO THE FINANCIAL STATEMENTS CONTINUED

12 Other intangible assets

Cost

At 1 January 2016

Transfer

Exchange differences

Recognised on acquisition of businesses (Note 29)

Disposals

Transfer from property, plant and equipment

At 1 January 2017

Exchange differences

Additions

Disposals

At 31 December 2017

Amortisation and impairment

At 1 January 2016

Transfer

Exchange differences

Charge for the year

Disposals

Transfer from property, plant and equipment

At 1 January 2017

Exchange differences

Charge for the year

Disposals

At 31 December 2017

Carrying amount

At 31 December 2017

At 31 December 2016

Non-
contractual
relationships
$000

Backlists
$000

Software
$000

Total
$000

–

1,033

–

(1,061)

–

782

(855)

–

19,635

(1,033)

(458)

2,980

–

21,124

218

–

21,342

18,125

(782)

(296)

654

–

17,701

163

841

–

18,705

2,637

3,423

–

2,312

–

313

(1,046)

1,579

–

1,384

–

315

(999)

700

879

928

19,635

–

(430)

2,980

(1,061)

2,312

23,436

218

313

(1,046)

22,921

18,125

–

(274)

705

(855)

1,384

19,085

163

1,156

(999)

19,405

3,516

4,351

Quarto Group, Inc. Annual Report 2017Financial Statements13 Property, Plant and Equipment

Cost

At 1 January 2016

Exchange difference

Acquisition of subsidiaries

Additions

Impairment charge for the year

Disposals

Transfer to other intangible assets

At 1 January 2017

Exchange difference

Additions

Disposals

Disposal of businesses

At 31 December 2017

Depreciation

At 1 January 2016

Exchange differences

Charge for the year

Impairment Charge for the year

Disposals

Transfer to other Intangible assets

At 1 January 2017

Exchange differences

Charge for the year

Disposals

Disposal of businesses

At 31 December 2017

Net book value

At 31 December 2017

At 31 December 2016

Leasehold
Property
Improvements
$000

Plant,
Equipment &
Motor
Vehicles
$000

Fixture &
Fittings
$000

1,062

(105)

–

425

(54)

(78)

–

1,250

101

433

(327)

(149)

1,308

666

(76)

188

(48)

(77)

–

653

152

(307)

(117)

434

874

597

5,542

(266)

175

1,115

(2,134)

(1,070)

(2,312)

1,050

406

(248)

(190)

1,116

3,160

(158)

682

(1,020)

(1,070)

(1,384)

210

444

(223)

(186)

295

821

840

1,120

(86)

(56)

(89)

–

996

317

(52)

(182)

1,117

530

(48)

210

(32)

(84)

–

576

221

(4)

(139)

683

434

420

Total
$000

7,724

(457)

260

1,562

(2,244)

(1,237)

(2,312)

3,296

237

1,156

(627)

(521)

3,541

4,356

(282)

1,080

(1,100)

(1,231)

(1,384)

1,439

132

817

(534)

(442)

1,412

2,129

1,857

Quarto Group, Inc. Annual Report 2017STRATEGIC REPORTFINANCIAL STATEMENTSGOVERNANCENOTES TO THE FINANCIAL STATEMENTS CONTINUED

14 Subsidiaries
A list of the significant investments in subsidiaries, including the name, country of incorporation and proportion of ownership
interest is given in Note 5 to the Company’s balance sheet. All of these subsidiaries are included in the consolidated results.

15 Intangible Assets – Pre-publication costs

Cost

At 1 January

Exchange differences

Acquired with subsidiaries

Additions

Reclassification to other balance sheet lines

Disposals

At 31 December

Amortisation

At 1 January

Exchange differences

Charge for the year

Impairment charge

Disposals

At 31 December

Net Book Value

At 31 December

2017
$000

2016
$000

181,791

4,609

–

35,551

(2,113)

(26,346)

193,492

151,733

(7,671)

564

37,165

–

181,791

120,658

92,290

1,822

32,212

4,868

(26,346)

(2,172)

30,540

–

133,214

120,658

60,278

61,133

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. The reclassifications in the year relate to final review of the becker&mayer acquired balances and apart from this
reclassification, no further adjustments were required. The impairment charge for the year is included in exceptional items
and further information is included in Note 5.

16 Inventories

Finished goods

Work in progress

Raw materials

2017
$000

22,309

–

328

2016
$000

23,655

153

198

22,637

24,006

All of the Group’s inventories have been reviewed for indicators of impairment. Certain inventories were found to be impaired
and a provision of $2,045,362 (2016: $4,360,000) has been recorded accordingly.

Quarto Group, Inc. Annual Report 2017Financial Statements17 Trade and other receivables

Trade receivables

Other receivables and prepayments

2017
$000

43,127

10,333

53,460

2016
$000

42,259

11,903

54,162

The average credit period on sales of goods is 71 days (2016: 70 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 $801,000 (2016: $670,000)
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

2017
$000

2,475

860

699

245

341

2016
$000

3,869

765

270

4,620

5,078

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.

Movement in allowance for doubtful debts:

Balance at beginning of year

Amounts written off in the year

Amounts recovered during the year

Exchange differences

Increase in allowance recognised in profit or loss

Balance at end of the year

2017
$000

670

(476)

565

801

2016
$000

908

(682)

(66)

499

670

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 of $6.4m (2016: $4.7m). The reserve is calculated based on a time lag
between sales and returns and historical return patterns.

18 Cash, borrowings and net debt
Cash

Bank balances

Short term deposits

Cash and cash equivalents

The carrying amount of these assets approximates to their fair value.
The effective interest rates on bank balances and short term deposits was 0.2% (2016: 0.2%).

2017
$000

17,946

–

17,946

2016
$000

12,824

6,000

18,824

Quarto Group, Inc. Annual Report 2017STRATEGIC REPORTFINANCIAL STATEMENTSGOVERNANCENOTES TO THE FINANCIAL STATEMENTS CONTINUED

18 Cash, borrowings and net debt continued

Bank loans

On demand or within one year

In the second year

In the third to fifth years inclusive

2017
$000

81,907

5,000

76,907

–

81,907

2016
$000

80,748

5,000

70,748

80,748

2015
$000

84,562

5,000

74,562

84,562

Less: Amount due for settlement within 12 months (shown under current liabilities)

(5,000)

Amount due for settlement after 12 months

76,907

75,748

79,562

US dollar borrowings

Other currency borrowings

As at 31 December 2017

US dollar borrowings

Other currency borrowings

As at 31 December 2016

Total

$’000

Fixed rate
borrowings
$’000

Variable rate
borrowings
$’000

55,500

26,407

81,907

56,500

24,248

25,000

–

25,000

30,000

–

30,500

26,407

56,907

26,500

24,248

80,748

30,000

50,748

Weighted
average
interest rate
for fixed rate
borrowings
%

Average
time over
which
interest rate
is fixed
Months

3.6

–

3.6

–

3.6

15.5

–

15.5

19.5

–

19.5

At 31 December 2017, undrawn borrowing facilities totalled $3,100,000 (2016: $8,320,000). The variable rate borrowings carry
interest based on LIBOR plus a margin, depending on the leverage ratio and are secured on the assets of the Group.

The Directors estimate the fair value of the Group’s borrowings to be equal to book value, by reference to market rates.

At 31 December 2017 the Group had a US$85m (2016: US$90m) multi-currency syndicated bank facility which is due to expire
on 30 April 2019. During the year, a standard security package covering these facilities was put in place over the assets of
the Group. EBITDA used for bank covenant purposes was $27.0m in 2017 ($35.3m in 2016). Details of the calculation are shown
in note 31).

These facilities are subject to three financial covenants relating to interest cover, leverage and cash flow cover.
At 31 December 2017, the interest cover covenant was suspended and the remaining covenants were met at 31 December 2017.

Net debt

Borrowings

Cash and cash equivalents

Net debt

Borrowings

Cash and cash equivalents

Net debt

Cashflows
$’000

Non-cash
items
$’000

Foreign
exchange
$’000

31 December
2017
$’000

1,761

(1,310)

451

(384)

(2,536)

(81,907)

–

432

17,946

(384)

(2,104)

(63,961)

Cashflows
$’000

Non-cash
items
$’000

Foreign
exchange
$’000

31 December
2016
$’000

583

(5,712)

(5,129)

(381)

–

(381)

3,612

(523)

(80,748)

18,824

3,089

(61,924)

1 January
2017

$’000

(80,748)

18,824

(61,924)

1 January
2016

$’000

(84,562)

25,059

(59,503)

Quarto Group, Inc. Annual Report 2017Financial Statements19 Deferred tax

Deferred tax liabilities

Excess of capital allowances over depreciation – UK

Pre-publication costs and other temporary differences – UK

Pre-publication costs and other temporary differences

Other overseas temporary differences

Deferred tax assets

Tax losses – UK

Goodwill, intangible assets and other temporary differences – US

Net deferred taxation liability

The movement on the net provision for deferred taxation is as follows:

Net provision at 1 January

Credit direct to equity

Exchange difference through other comprehensive income

Charge/(credit) to profit and loss

Net provision at 31 December

2017
$000

5,060

5,092

3,428

–

2016
$000

5,369

5,417

4,909

176

8,520

10,502

509

3,392

3,901

4,619

2017
$000

8,480

471

(496)

(3,836)

4,619

–

2,022

8,480

2016
$000

7,466

(689)

1,647

8,480

Note 9 sets out details of the recent US tax reforms, which included a reduction in the corporate tax rate from 35% to 21%.
The US related deferred tax assets and liabilities have been remeasured at the reduced rate resulting in a $0.7m reduction
in the deferred tax asset and a $0.6m reduction in the deferred tax liability.

20 Trade and other payables

Trade payables

Other payables

Total

2017
$000

46,514

14,282

60,796

2016
$000

43,423

16,295

59,718

Other payables includes the discounted deferred and contingent consideration liabilities of $1.6m in respect of prior year
acquisitions (2016: $7.0m). $7.0m was paid in the year.

The Directors consider that the carrying amount of trade payables approximates to their fair value.

Quarto Group, Inc. Annual Report 2017STRATEGIC REPORTFINANCIAL STATEMENTSGOVERNANCENOTES TO THE FINANCIAL STATEMENTS CONTINUED

21 Financial instruments
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.

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 31 December

2017

2016

$000
Sterling

6,512

(1,868)

4,644

$000
Other

3,167

(394)

2,773

$000
Sterling

6,691

$000
Other

7,103

(2,880)

(6,599)

3,811

504

(22,823)

(3,584)

(21,082)

(18,179)

(811)

(17,271)

(3,168)

(2,664)

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.

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% (2016: 5%) then this would have had the following impact:

(Loss)/profit after tax for the year

Equity

2017
$000

840

2,474

If Sterling had weakened against the US Dollar by 5% (2016: 5%) then this would have had the following impact:

(Loss)/profit after tax for the year

Equity

2017
$000

(840)

(2,474)

2016
$000

(661)

151

2016
$000

661

(151)

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.

Quarto Group, Inc. Annual Report 2017Financial Statements

21 Financial instruments 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 31 December 2017, 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 the following impact:

Profit after tax for the year

Equity

2017
$000

(155)

2016
$000

(78)

2017

$’000

2016

$’000

155

Credit risk analysis
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

Other receivables

Derivative financial instruments

2017

$’000

17,946

43,127

–

205

2016

$’000

18,824

42,259

3,249

141

61,278

64,473

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.

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.

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.

Quarto Group, Inc. Annual Report 2017STRATEGIC REPORTFINANCIAL STATEMENTSGOVERNANCENOTES TO THE FINANCIAL STATEMENTS CONTINUED

21 Financial instruments continued
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.

The Group’s liabilities have contractual maturities which are summarised below:

31 December 2017

Bank loans

Trade payables

Other short term financial liabilities

Other long term payables

Current

Non-Current

Within 6
months
$’000

6 to 12
months
$’000

1 to 5
years
$’000

Over 5
years
$’000

6,454

46,514

14,282

–

1,478

78,289

–

1,673

79,962

67,250

1,478

–

31 December 2016

Current

Non-Current

Bank loans

Trade payables

Other short term financial liabilities

Derivative financial instruments

Other payables

Within 6
months
$’000

6,294

43,423

16,295

–

6 to 12
months
$’000

1,316

–

66,106

1,316

1 to 5
years
$’000

80,148

–

3,407

83,555

Over 5
years
$’000

–

Quarto Group, Inc. Annual Report 2017Financial Statements21 Financial instruments 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 designated as hedging instruments:

– Interest rate swap

Loans and receivables:

– Trade receivables

– Other receivables

– Cash and cash equivalents

Non-current liabilities

Financial liabilities measured at amortised cost:

– Borrowings

Other payables

Current liabilities

Derivative financial instruments carried at fair value through profit and loss:

– Forward exchange contract

Financial liabilities measured at amortised cost:

– Borrowings

– Trade payables

– Other payables

2017
$000

2016
$000

205

141

43,127

–

17,946

61,278

42,259

3,249

18,824

64,473

76,907

1,673

78,580

75,748

3,407

79,155

–

5,000

46,514

14,282

65,796

5,000

43,423

16,295

64,812

Capital risk management
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 Note 18, 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.

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.

Quarto Group, Inc. Annual Report 2017STRATEGIC REPORTFINANCIAL STATEMENTSGOVERNANCENOTES TO THE FINANCIAL STATEMENTS CONTINUED

22 Other Financial Assets/Liabilities
In the reporting periods under review, other financial assets/liabilities comprise derivative financial instruments as follows:

Current financial assets

Derivative financial instruments – interest rate swaps

Total

Current financial liabilities

Derivative financial assets – forward exchange contract

Total

2017
$000

2016
$000

205

–

141

(94)

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 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 designated 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:

Within one year

Within one to two years

Within two to five years

Derivative

23 Share Capital

Authorised

Principal amounts

Committed interest
payments

2017

2016

2017

2016

2017

2016

3.3

2.9

–

2.8

3.1

2.7

$000

10,000

–

10,000

(210)

(484)

–

(175)

(505)

(714)

20,000

30,000

(694)

(1,394)

2017
$000

2016
$000

28 million shares of common stock of par value of US$0.10 each

2,800,000

Allotted, called up and fully paid:

20,444,550 (2016: 20,444,550) shares of common stock of par value of US$0.10 each

2,045

The Company has one class of common stock which carries no right to fixed income.

100

Quarto Group, Inc. Annual Report 2017Financial Statements24 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 1 January 2004.

Treasury stock
Treasury stock represents the Group’s purchase of its own shares. During 2016, 666,666 of the treasury stock was used to fulfil
the obligations under the 2014 PSP plan and the remainder was sold.

25 Dividends

Amounts recognised as distributions to equity holders in the period: Interim dividend for the year
ended 31 December 2017 of nil (2016: 5.13c/3.35p) per share

Final dividend for the year ended 31 December 2016 of 9.87c/7.95p (2015: 8.17c/4.95p) per share

Proposed final dividend for the year ended 31 December 2017 of nil (2016: 9.87c/7.95p) per share

2017

$’000

–

2,018

–

2016

$’000

1,049

1,853

2,902

2,018

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.

101

Quarto Group, Inc. Annual Report 2017STRATEGIC REPORTFINANCIAL STATEMENTSGOVERNANCENOTES TO THE FINANCIAL STATEMENTS CONTINUED

27 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 22 May 2014 and vest on 30 June 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 31 December 2014 the awards under this scheme were valued at $nil as the performance criteria were not
expected to be met.

During the year ended 31 December 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

Exercised during the year

Outstanding at the end of the year

2017
Number

–

2016
Number

666,666

(666,666)

–

2015 award
The awards under this scheme were granted on 24 September 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.

Details of the share options outstanding during the year are as follows:

Outstanding at beginning of the year

Granted during the year

Forfeited during the year

Outstanding at the end of the year

2017
Number

2016
Number

227,464

143,732

–

83,732

(60,000)

–

167,464

227,464

102

Quarto Group, Inc. Annual Report 2017Financial Statements27 Share based payments continued
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

EPS Portion TSR Portion

£2.09

£1.78

2.7

3.97

n/a

£2.09

£1.07

3.7

3.97

Dividend
discount

Monte–
Carlo

2016 award
The awards under this scheme were granted on 19 April 2016. 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.

Details of the share options outstanding during the year are as follows:

2017
Number

366,728

2016
Number

–

366,728

(79,592)

–

287,136

366,728

EPS Portion TSR Portion

£2.45

£2.10

2.3

3.88

n/a

£2.45

£0.44

3.3

3.88

19.1

Dividend
discount

Monte–
Carlo

Outstanding at beginning of the year

Granted during the year

Forfeited during the year

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 (%)

103

Quarto Group, Inc. Annual Report 2017STRATEGIC REPORTFINANCIAL STATEMENTSGOVERNANCENOTES TO THE FINANCIAL STATEMENTS CONTINUED

27 Share based payments continued
2017 award
The awards under this scheme were granted on 28 April 2017. 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.

Details of the share options outstanding during the year are as follows.

Outstanding at beginning of the year

Granted during the year

Forfeited during the year

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

28 Operating lease commitments

Lease payments under operating leases recognised in income for the year

2017
Number

–

189,063

(10,932)

178,131

EPS Portion TSR Portion

£2.64

£2.20

3.3

4.55

n/a

£2.64

£0.48

3.3

4.55

18.6%

Dividend
discount

Monte–
Carlo

2017

$’000

1,489

2016

$’000

2,264

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

2017

$’000

1,885

6,264

4,038

12,187

2016

$’000

1,679

4,805

4,427

10,911

Operating lease payments represent rentals payable by the Group, primarily for its office properties. There were no capital
commitments outstanding at the year end (2016: $nil).

104

Quarto Group, Inc. Annual Report 2017Financial Statements29 Acquisitions
There were no acquisitions in the year. On 8 August 2016, the Group acquired the publishing business of becker&mayer LLC
for a consideration of $9.8m, together with a working capital adjustment payment capped at $1.0m and further contingent
consideration of up to $1.0m, based on performance of the business over the next two years. The consideration is payable
in stages over the next three years.

Intangible assets – pre-publication costs

Other intangible assets – backlists

Property, plant and equipment

Inventories

Trade and other receivables

Trade and other payables

Net assets acquired

Goodwill

Total consideration paid (including deferred consideration)

Satisfied by:

Cash

Deferred consideration

Contingent consideration arrangements

Total

Net cash outflow arising on acquisition

Cash consideration

becker&mayer

Harvard
Common Press

Fair values
$’000

564

2,415

259

2,461

6,340

(3,225)

8,814

2,332

11,146

2,300

7,319

1,527

11,146

–

436

–

297

(551)

261

773

1,034

230

804

–

1,034

2,300

502

The goodwill arising on the acquisition is largely attributable to the anticipated incremental sales and cost synergies achievable
as part of The Quarto Group and is expected to be deductible for tax purposes.

105

Quarto Group, Inc. Annual Report 2017STRATEGIC REPORTFINANCIAL STATEMENTSGOVERNANCENOTES TO THE FINANCIAL STATEMENTS CONTINUED

30 Discontinued operations
On 30 March 2017, the Group completed the disposal of its 75% interest in Regent Publishing Services Limited (“Regent”),
its Hong Kong based publishing services business.

On 3 April 2017, the Group completed the disposal of its 100% share of Books & Gifts Direct Pty Limited (“BGD Australia”),
its direct sales business in Australia.

On 7 July 2017, the Group completed the disposal of the trade and selected net assets of Books & Gifts Direct Limited
(“BGD New Zealand”), its direct sales business in New Zealand.

These disposals were completed in line with the Group’s strategy of disposing of non-core businesses. Proceeds from the
disposals will be used to manage the Group’s net debt position as received. The results of the discontinued operations which
have been included in the consolidated income statement were:

Regent

Revenue

Expenses

(Loss)/profit before tax

Tax

(Loss)/profit after tax

Profit on disposal

Net profit attributable to discontinued operations

Net cash inflow arising on disposal

Cash consideration

Less: Cash disposed

Net cash inflow

BGD Australia

Revenue

Expenses

Loss before tax

Tax

Loss after tax

Loss on disposal

Net loss attributable to discontinued operations

Net cash outflow arising on disposal

Cash consideration

Less: Cash disposed

Net cash outflow

106

2017
$000

2,632

2016
$000

14,466

(2,803)

(12,724)

(171)

(168)

3,236

3,068

7,000

(3,350)

3,650

2017
$000

1,199

1,742

(235)

1,507

–

1,507

–

2016
$000

12,745

(1,970)

(25,728)

(771)

(12,983)

–

(771)

(325)

–

(12,983)

–

(1,096)

(12,983)

–

(767)

–

Quarto Group, Inc. Annual Report 2017Financial Statements30 Discontinued operations continued

BGD New Zealand

Revenue

Expenses

Loss before tax

Tax

Loss after tax

Loss on disposal

Net loss attributable to discontinued operations

Net cash inflow arising on disposal

Cash consideration

Net cash inflow

31 Reconciliation of figures included in other parts of the financial statements

Adjusted Operating Profit

Operating (loss)/profit (continuing operations)

Add back: – Amortisation of acquired intangibles

– Other exceptional items (Note 5)

Adjusted operating profit

EBITDA

Operating profit before amortisation of acquired intangibles and exceptional items

Net finance costs

Adjusted profit before tax (before amortisation of acquired intangibles and exceptional items)

Net interest

Depreciation

EBITDA, before exceptional items

Amortisation of pre-publication costs

EBITDA (as defined in the committed facility agreement)

2017
$000

3,070

(3,667)

(597)

–

(597)

(212)

(809)

2016
$000

6,613

(9,693)

(3,080)

–

(3,080)

–

(3,080)

540

–

2017
$000

2016
$000

(17,882)

16,144

840

24,235

7,193

654

191

16,989

7,193

(3,300)

16,989

(3,109)

3,893

3,300

817

8,010

19,037

27,047

13,880

3,109

1,080

18,069

17,244

35,313

107

Quarto Group, Inc. Annual Report 2017STRATEGIC REPORTFINANCIAL STATEMENTSGOVERNANCENOTES TO THE FINANCIAL STATEMENTS CONTINUED

31 Reconciliation of figures included in other parts of the financial statements continued

Adjusted profit before tax before amortisation of acquired intangibles and exceptional items

Adjusted operating profit before amortisation of acquired intangibles and exceptional items

Less: net finance costs

Adjusted profit tax before amortisation of acquired intangibles and exceptional items

Free cashflow

Net cash from operating activities

Investment in pre-publication costs

Purchases of property, plant and equipment

Purchases of software

Free cashflow

Net debt

Short term borrowings

Medium and long term borrowings

Cash and cash equivalents

Net debt

2017
$000

2016
$000

7,193

(3,300)

3,893

16,989

(3,109)

13,880

44,622

(35,551)

(1,063)

(266)

7,742

42,310

(37,165)

(1,562)

–

3,583

5,000

76,907

5,000

75,748

(17,946)

(18,824)

63,961

61,924

108

Quarto Group, Inc. Annual Report 2017Financial StatementsCOMPANY BALANCE SHEET

AS AT 31 DECEMBER 2017

Fixed Assets

Investments

Current liabilities

Creditors: Amounts falling due within one year

Creditors: Amounts falling due after more than one year

Net liabilities

Equity

Called up share capital

Treasury stock

Reserves – Paid in surplus

– Profit and loss

Total equity

Notes

Restated
Note 1
2016
$000

Restated
Note 1
2015
$000

4,080

8,444

2017
$000

772

(15,939)

(12,584)

(11,614)

(15,939)

(12,584)

(11,614)

(1,116)

–

(16,283)

(8,504)

(3,170)

2,045

–

2,045

(634)

33,764

(52,092)

(44,313)

(38,345)

(16,283)

(8,504)

(3,170)

The financial statements were approved by the Board of Directors and authorised for issue on 29 March 2018.
They were signed on its behalf by

Marcus E. Leaver
Director
29 March 2018

109

Quarto Group, Inc. Annual Report 2017STRATEGIC REPORTFINANCIAL STATEMENTSGOVERNANCECOMPANY STATEMENT OF
COMPREHENSIVE INCOME

FOR THE YEAR ENDED 31 DECEMBER 2017

Administrative expenses

Impairment of investments

Foreign exchange (loss)/gain

Loss before tax

Tax

Loss for the year

Notes

2017
$’000

(320)

(3,308)

(1,239)

(4,867)

(1,116)

2016
$’000

(64)

(4,364)

2,265

(2,163)

–

(5,983)

(2,163)

110

Quarto Group, Inc. Annual Report 2017Financial StatementsCOMPANY STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 31 DECEMBER 2017

Balance at 1 January 2016 (as previously stated)

Prior year adjustment (Note 1)

Share
capital
$’000

2,045

–

Paid in
surplus
$’000

33,764

–

Balance at 1 January 2016 (restated)

2,045

33,764

(634)

(38,345)

Treasury
stock
$’000

Retained
earnings
$’000

Equity
attributable
to owners
$’000

(634)

(47,723)

(12,548)

–

9,378

(2,163)

9,378

(3,170)

(2,163)

(2,902)

256

(1,159)

(44,313)

(5,983)

256

(525)

(8,504)

(5,983)

(2,018)

222

(52,092)

(16,283)

Loss for the year

Transactions with owners

Dividends to shareholders

Share based payments charges

Shares released/sold from Treasury

Balance at 31 December 2016

Loss for the year

Transactions with owners

Dividends to shareholders

Share based payments/charges

Balance at 31 December 2017

–

2,045

33,764

–

2,045

33,764

–

634

–

111

Quarto Group, Inc. Annual Report 2017STRATEGIC REPORTFINANCIAL STATEMENTSGOVERNANCENOTES TO THE COMPANY ACCOUNTS

AT 31 DECEMBER 2017

1 Basis of preparation
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 the Group.

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. The financial statements have
been prepared using the going concern basis, as discussed in the Group going concern disclosure.

The Company has adopted the following disclosure exemptions:

• the requirement to present a statement of cash flow and related notes; and
• financial instrument disclosures, including,
– categories of financial instruments;
– items of income, expenses, gains or losses relating to financial instruments; and
– exposure to, and management of, financial risks.

There were no significant judgements or estimates in preparing the financial statements of the Company.

Restatement of prior year
During the preparation of the Group financial statements a historical error was uncovered in the financial statements of
the Company .

This error related to certain intercompany creditor balances in the Company’s financial statements being retained, when the
corresponding intercompany debtor balances were written off. The intercompany elimination had been made on consolidation
rather than through the Company’s financial statements.

This error has no impact on the Group’s income statement and balance sheet. The Company reserves and net assets were
understated by $9.4m. This has been corrected by increasing the retained earnings at 1 January 2016 and decreasing the
intercompany creditors as at 1 January 2016 by $9.4m.

2 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 27 to the group consolidated financial statements.

Cash and cash equivalents
There were no cash transactions during the year and accordingly no cash flow statement has been presented.

112

Quarto Group, Inc. Annual Report 2017Financial StatementsForeign 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.

3 Tax
The tax charge for the year relates to the changes in US tax law enacted in December 2017. See Note 1 to the group
consolidated financial statements.

4 Investments

At 1 January

Amounts written off during year

At 31 December

2017
$000

4,080

2016
$000

8,444

(3,308)

(4,364)

2015
$000

4,080

–

772

4,080

During the review operations undertaken during the year, certain imprints were discontinued. The impairment relates to the
investment value of that company.

5 Subsidiaries
a) Trading companies

Incorporation

Name

Place

Date

Registered
address key

Issued and fully paid up
share capital

% held Segment

Global Book Publishing
Pty. Limited

Quarto Australia
Pty Limited

Australia

4 November 1999

1,000 shares of A$1 each

100* UK Publishing

Australia

14 September 1981 D

110 shares of $A1 each

100 UK Publishing

Quarto Group HK Ltd

Hong Kong

26 January 2015

Quarto Publishing
Group USA Inc.

Delaware, USA

28 June 2004

Quarto Publishing plc

United Kingdom 1 April 1976

Quarto, Inc.

Delaware, USA

16 October 1986

RotoVision S.A.

Switzerland

18 July 1977

b) Non-trading company

Incorporation

100 shares of HKD1 each

100 UK/US

380 shares of
US$0.01 each

Publishing

100 US Publishing

100,000 shares of £1 each 100* UK Publishing

86 shares of no par value

100* US Publishing

1,500 shares
of SFr500 each

100* UK Publishing

Name

Place

Date

Registered
address key

Issued and fully
paid up share capital

% held Segment

Books & Gifts
Direct Limited

New Zealand

27 September 1996 C

400,000 shares
of NZ$1 each

100*

Discontinued

* Directly held by The Quarto Group, Inc.

113

Quarto Group, Inc. Annual Report 2017STRATEGIC REPORTFINANCIAL STATEMENTSGOVERNANCENOTES TO THE COMPANY ACCOUNTS AT 31 DECEMBER 2017 CONTINUED

5 Subsidiaries continued
c) Dormant companies

Name

Place

Date

Incorporation

Registered
address key Issued share capital

AP Screen Printers Limited

United Kingdom 30 September 1980 A

1000 shares of £1 each

Apple Press Limited

United Kingdom 5 June 1984

Aurum Press Limited

United Kingdom 31 May 1977

Cartographica Press Limited

United Kingdom 27 July 1981

Design Eye Holdings Limited

United Kingdom 22 June 1992

Design Eye Limited

United Kingdom 18 March 1988

Design Eye Publishing Limited

United Kingdom 17 June 1992

EYE Quarto Inc

Delaware, USA

19 December 2002

Fine Wine Editions Limited

United Kingdom 23 June 1949

Frances Lincoln Limited

United Kingdom 15 December 1980

Frances Lincoln Publishers Limited United Kingdom 11 March 1987

Global Book Publishing Pty Limited United Kingdom 7 July 1986

Great American Trading Company
Limited (THE)

United Kingdom 24 February 1982

IQON Editions Limited

United Kingdom 5 December 1972

% held

100

100 shares of £1 each

382,502 shares of £1 each 100

1000 shares of £1 each

200 shares of £1 each

100 shares of £1 each

2 shares of £1 each

1000 shares
of no par value

9020 shares of £1 each

565,000 shares
of 10p each

100 shares of £1 each

1000 shares of £1 each

100 shares of £1 each

300 shares of £1 each

iqu-digital.com Limited

United Kingdom 30 November 1978 A

100 shares of £1 each

Ivy Press (The)

Jacqui Small LLP

JR Books Limited

United Kingdom 9 July 1996

United Kingdom 6 November 1998

United Kingdom 9 September 1986

Lewes Holdings Limited

United Kingdom 21 July 2005

Marshall Editions Limited

United Kingdom 7 February 2002

Marshall Publishing Limited

United Kingdom 7 February 2002

QEB Publishing Inc

Delaware, USA

27 April 2004

QED Publishing Limited

United Kingdom 12 November 1974

1042 shares of 10p each

100 units

43 004 shares of £1 each 100

20,840 shares
of £0.01 each

1 shares of £1 each

1500 shares
of no par value

400 shares of £1 each

QU:ID Publishing Limited

United Kingdom 30 September 1980 A

100 shares of £1 each

Quantum Books Limited

United Kingdom 7 February 1983

Quarto Children’s Books Limited

United Kingdom 6 January 1976

Quarto Magazines Limited

United Kingdom 20 May 1986

Quarto Marketing Inc

Delaware, USA

26 April 1995

Quarto Media Inc

Delaware, USA

10 December 2010

Quarto Multi-Media Limited

United Kingdom 14 December 1984

Quill Publishing Limited

United Kingdom 14 May 1979

Quintessence Editions Limited

United Kingdom 7 February 2002

Quintet Publishing Limited

United Kingdom 14 May 1979

100 shares of £1 each

2 shares of £1 each

1000 shares of £1 each

3000 shares
of no par value

1000 shares of $1 each

1000 shares of £1 each

1 shares of £1 each

100 shares of £1 each

Small World Creations Limited

United Kingdom 20 September 1997 A

1,536 share of £1 each

114

100

Quarto Group, Inc. Annual Report 2017Financial Statementsd) List of registered offices
A The Old Brewery, 6 Blundell Street, London, N7 9BH, United Kingdom
B 400 First Avenue North, Minneapolis, MN 55401, USA
C
D c/o ZM Partners, Suite 10 Ground Floor, 123 Clarence Street, Sydney, NSW 2000, Australia
E Room 2306, Technology Plaza, 651 King’s Road, North Point, Hong Kong
F Passage Perdonet 1, 1005 Lausanne, Switzerland

135b Morrin Road, Saint Johns, Auckland, 1072, New Zealand

6 Creditors: Amounts falling due within one year

Amounts owed to subsidiary undertakings

Restated
(Note 1)
2016
$000

12,584

2017
$000

15,939

2015
$000

11,614

7 Called up share capital and treasury stock
Details of called up share capital and treasury stock are set out in Notes 23 to 24 of the consolidated financial statements.

8 Contingent liabilities
The Quarto Group, Inc. has issued guarantees in respect of bank loans of subsidiaries of $81,907,000 (2016: $80,748,000).
Refer to Note 18 of the group consolidated financial statements.

9 Related parties
The company borrowed an amount of $2.0m from its wholly owned subsidiary, Quarto Publishing plc, during the year
(2016: $3.2m borrowed in the year). The balance on the loan at 31 December 2017 was $15.9m (2016: $15.5m). These balances
are non-interest bearing and repayable on demand.

115

Quarto Group, Inc. Annual Report 2017STRATEGIC REPORTFINANCIAL STATEMENTSGOVERNANCEFIVE YEAR SUMMARY

Results

Revenue

Operating profit before amortisation
of acquired intangibles and exceptional items

Operating (loss)/profit

Profit before tax, amortisation of acquired
intangible assets and exceptional items

(Loss)/Profit before tax

(Loss)/Profit after tax

Assets employed

Non-current assets

Current assets

Current liabilities

Non-current liabilities

Net assets

Financed by

Equity

Non-controlling interests

Earnings per share (cents)

Basic

Diluted

Adjusted basic

Adjusted diluted

2017
$’000

2016
$’000

2015#
$’000

2014#
$’000

2013#
$’000

152,512

154,610

182,165

171,339

175,481

7,193

16,989

16,475

14,927

14,565

(17,882)

3,893

16,144

13,880

(21,182)

13,035

(18,539)

(5,277)

15,306

13,377

12,208

8,523

14,990

10,950

11,013

8,091

10,726

9,294

5,455

3,761

89,110

105,507

104,433

102,416

102,364

94,248

97,133

107,413

98,709

97,907

(71,039)

(68,872)

(71,275)

(144,918)

(70,485)

(88,216)

(89,657)

(87,127)

(6,464)

(83,776)

24,103

44,111

53,444

49,743

46,010

24,103

39,219

48,285

44,802

–

24,103

(96.4)

18.3

17.8

4,892

44,111

46.4

45.4

49.8

48.7

41,201

4,809

5,159

4,941

53,444

49,743

46,010

41.3

41.2

46.2

46.1

39.5

39.1

17.0

36.1

# The 2014 closing balance sheet restatement was all corrected through the 2014 results as it was impractical to determine the impact on

these earlier individual financial years and it is not expected to result in a material change to these years. The results of 2013 to 2015 have
not been adjusted to reflect the effect of discontinued operations.

116

Quarto Group, Inc. Annual Report 2017Financial StatementsOFFICERS & PROFESSIONAL ADVISERS

Directors
Marcus E. Leaver, Chief Executive Officer
Carolyn Bresh, Chief Financial Officer, appointed
9 April 2018
Peter Read*, Chairman
Jess Burley*
Leslie-Ann Reed*
Claire Capeci*
Andy Cumming*, appointed 1 March 2018

* Non-executive

Registrars and Transfer Office
Link Asset Services
The Registry
34 Beckenham Road
Beckenham
Kent BR3 4TU

Principal Banks
Bank of America Corporation
100 Federal Street
Boston MA 02110 USA

Fifth Third Bank
38 Fountain Square Plaza
MD 109055 Cincinatti
OH 45263 USA

Abbey National Treasury Services 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
Anne Crompton, resigned 7 January 2018
Charles Wilson, appointed 23 February 2018

Registered Office
The Old Brewery
6 Blundell Street
London N7 9BH
Tel: +44 (0) 7700 6700

Stockbrokers
Stockdale Securities Limited
100 Wood Street
London EC2V 7AN

Liberum Capital Limited
Ropemaker Place, Level 12
25 Ropemaker Street
London EC2Y 9LY

Auditor
Grant Thornton UK LLP
30 Finsbury Square
London
EC2A 1AG

Solicitors
Taylor Wessing LLP
5 New Street Square
London EC4A 3TW

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