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THE QUARTO GROUP
Annual Report 2021
The Old Brewery | 6 Blundell Street | London N7 9BH | United Kingdom
Tel: +44 (0)20 7700 6700 | Email: investor@quarto.com
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2021 Highlights
Crystals
80,000 units sold
ABC What Can She Be?
57,000 units sold
Color Me: Who’s
in the Ocean
22,000 units sold
In Focus Series
514,000 units sold
Magic Series
300,000 units sold
The First-Time Gardener:
Growing Vegetables
44,000 units sold
Squishy Human Body
296,000 units sold
LPBD: David Attenborough
87,000 units sold
RHS Diary 2022
29,000 units sold
The Story Orchestra:
The Nutcracker
45,000 units sold
Spectacular Spreads
60,000 units sold
LPBD: Captain Tom Moore
44,000 units sold
Food-x-Fire
24,000 units sold
In the Car
28,000 units sold
Baby Young, Gifted,
and Black: With a Mirror!
31,000 units sold
The Art of NASA
20,000 units sold
Tiny Baking!
67,000 units sold
This Book
Is Anti-Racist
103,000 units sold
Timeless Classics
75,000 units sold
Beautiful Boards
240,000 units sold
The Ultimate
Guide to Tarot
23,000 units sold
Wake Me Up When
It’s All Over...
24,000 units sold
The Complete
Language of Flowers
21,000 units sold
Zenned Out Series
88,000 units sold
Be Calm and Color
54,000 units sold
National Parks
of the U.S.A.
42,000 units sold
LPBD: Stephen Hawking
50,000 units sold
Officers and Professional Advisers
Directors
C.K. Lau, Executive Director, President
Andy Cumming*, Chairman
Jane Moriarty*, Vice Chair
Ken Fund*
Mei Lan Lam*
Andrea Giunti Lombardo*
Registrars and Transfer Office
Link Group
10th Floor
Central Square
29 Wellington Street
Leeds
LS1 4DL
Principal Banks
Santander UK plc
2 Triton Square
Regent’s Place
London
NW1 3AN
National Westminster Bank Plc
250 Bishopsgate
London
EC2M 4AA
Company Registration Number
FC0 13814
* Non-executive
Secretary
Michael Clarke
Registered Office
The Old Brewery
6 Blundell Street
London N7 9BH
Tel: +44 (0) 20 7700 6700
Stockbrokers
finnCap Ltd
One Bartholomew Close
London
EC1A 7BL
Auditor
Grant Thornton UK LLP
30 Finsbury Square
London
EC2A 1AG
Solicitors
Cleary Gottlieb Steen & Hamilton LLP
2 London Wall Place
London
EC2Y 5AU
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97
Contents
STRATEGIC REPORT
Highlights ................................................................................................................... 2
Quarto at a Glance ................................................................................................... 3
Sales Magic .................................................................................................................4
Chairman’s Statement ..............................................................................................6
Group Chief Executive Officer’s Statement ...................................................... 7
Divisional Review .......................................................................................................9
Market Overview .....................................................................................................10
One Content, Multiple Channels .........................................................................11
Global Sales Coverage ............................................................................................11
Financial Review ..................................................................................................... 12
Our Key Performance Indicators ....................................................................... 14
Our People ................................................................................................................ 16
Corporate Responsibility and Sustainability ..................................................... 17
Section 172 Statement ........................................................................................... 17
Risk Management, Principal Risks and Uncertainties .................................... 19
GOVERNANCE
Board of Directors ...................................................................................................22
Nominations Committee Report .......................................................................24
Audit and Risk Committee Report ......................................................................25
Remuneration Committee Report ....................................................................28
Annual Report on Remuneration ......................................................................35
Directors’ Report ................................................................................................... 40
Statement of Directors’ Responsibilities ...........................................................47
Independent Auditor’s Report ........................................................................... 48
FINANCIAL STATEMENTS
Consolidated Income Statement ........................................................................57
Consolidated Statement of Comprehensive Income ................................. 58
Consolidated Balance Sheet ...............................................................................59
Consolidated Statement of Changes in Equity ............................................. 60
Consolidated Cash Flow Statement .................................................................. 61
Notes to the Financial Statements .....................................................................62
Company Balance Sheet .................................................................................... 90
Company Statement of Comprehensive Income .......................................... 91
Company Statement of Changes in Equity ...................................................... 91
Notes to the Company Accounts .......................................................................92
Five-Year Summary ............................................................................................... 96
Officers & Professional Advisors ........................................................................97
Highlights
FINANCIAL
“Continued strong performance across all areas of the business, with
enhanced profitability and cash generation”
REVENUE ($M)
ADJUSTED1 OPERATING
PROFIT ($M)
EBITDA ($M)
2021
2020
151.5
126.9
2021
2020
16.0
10.6
2021
2020
17.8
13.0
PROFIT BEFORE
TAX ($M)
ADJUSTED1 BASIC
EARNINGS PER SHARE (CENTS)
BASIC EARNINGS
PER SHARE (CENTS)
2021
2020
6.6
14.2
2021
2020
24.3
14.1
2021
2020
11.7
24.3
OPERATIONAL
• Successful completion of 2018 turnaround plan against continuing backdrop of Covid pandemic
• Clear focus on maximising the Group’s core strengths, retaining a disciplined business model,
further debt reduction and developing future growth opportunities
• Increase in Adjusted Operating Profit of 51% driven by improved trading and tight cost control
• Profit Before Tax up 115% at $14.2m with interest charges down $0.9m
• Revenue of custom channel of $10.7m, up 80% year on year
• Net debt down 72% at $5.5m2
• Banking facilities extended in February 2021 to 16 July 2024
• “Beautiful Boards: 50 Amazing Snack Boards for Any Occasion” by Maegan Brown was #1
bestselling cookbook on Amazon during 2021
• Launch of Ivy Kids being the most environmentally friendly publishing initiative in the market,
Highly Commended in the Sustainability category at the Future Book Awards
• Launch of Happy Yak featuring playful, mass-market children’s books
• Rockport Publishers, an art and design imprint, has partnered with Saturday AM to publish
collections of manga-inspired webcomics that feature diversity and inclusion through the
BIPOC and LGBTQ+ characters
1 Adjusted measures are stated before amortization of acquired intangible assets and exceptional items. Management believes this is a better reflection
of our trading performance.
2 Net debt excludes lease liabilities relating to right of use assets (IFRS16).
2
THE QUARTO GROUP, INC. ANNUAL REPORT 2021Strategic Report Quarto at a Glance
WE CREATE A WIDE VARIETY OF BOOKS AND INTELLECTUAL PROPERTY PRODUCTS WITH A
MISSION TO INSPIRE LIFE’S EXPERIENCES FOR THE WHOLE FAMILY
GLOBAL CREATIVE AND SALES
FORCE IN GROWTH SEGMENTS
DE-LEVERAGED BALANCE SHEET
WITH STRONG CASHFLOW
• Far-reaching global sales platform
• Net bank cash of $21.7m
• Over 100 sales and marketing
professionals and representatives
• Strong free cash flow from
operations of $17.3m
TREASURE TROVE OF IP
GENERATES STEADY INCOME
ENABLED BY TECHNOLOGY
AND DATA ANALYTICS
• c. 15,000 backlist titles generating
steady sales
• Focused effort to ‘re-mint’ backlist
contents
• Continuous efficiency
improvement from IT
modernization and automation
• AI platform to aid decision making
c. 15,000
TITLES IN
OUR CATALOG
c. 304
TALENTED EMPLOYEES
IN 7 OFFICES
(UK, US & CHINA)
c. 619
INTERNATIONAL
PUBLISHING
PARTNERS
c. $20.2m
ANNUAL INTELLECTUAL
PROPERTY
INVESTMENT
Over 50
COUNTRY MARKETS
THAT WE SELL INTO
c. 58%
OF ANNUAL SALES
FROM BACKLIST
TITLES
2
3
THE QUARTO GROUP, INC. ANNUAL REPORT 2021Strategic ReportSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS Sales Magic
Onboarding a trend-blazing bestseller … from Beautiful to Spectacular
Charcuterie has become so
popular that Instagram
influencers are quitting their jobs
to design colorful charcuterie
boards full-time. Experts
attribute the popularity of
handcrafting eye catching
boards to a few things. One of
the main factors being that
putting together photogenic
charcuterie boards brings
together craft and food cultures,
making for a satisfying DIY
experience.
Maegan Brown, charcuterie
mastermind and creator behind
The BakerMama, a popular
cooking and lifestyle blog based
in Dallas, Texas, teamed up with
our Rock Point team to create a
book with 50 delicious and
family-friendly charcuterie
recipes. With her easy-to
recreate snack boards, Brown’s
inspiring recipes make
mealtimes and holidays extra
memorable. This mom of four,
wife, and successful business
owner mixes her creativity, love
for family, and inspiration to
create pieces of artwork with
her food. She says, “I want to
inspire people to make these
recipes for—and with—their
own families.”
Visually exciting and enticing,
Brown’s snack boards move
beyond classic cheese and
charcuterie and are comprised
of easy-to-find fresh and
prepared foods, arranged in
beautiful, artful, and whimsical
ways. Beautiful Boards will have
you spending less time in the
kitchen and more time
having fun.
This amazing book has been a
breakout title since its
publication in September
2019 and has surpassed 330,000
in unit sales in its original trade
edition. Jana Koch, Sales
Director of Gift and Specialty
commented, “Boards did several
very important things: win over
our sales reps and win over our
customers, which in turn won us
new business in so many new
and diverse accounts.”
Amazon and their customers
alike also have embraced
Beautiful Boards since its
publication. Mary Aarons, our
Sales Director, Amazon
Global and Sales Operations
commented, “It launched strong
and has quickly become one of
our evergreen backlist titles. In
2021, it was our #1 bestselling
4
THE QUARTO GROUP, INC. ANNUAL REPORT 2021Strategic Report THE QUARTO GROUP, INC. ANNUAL REPORT 2021
Strategic Report
The story does not stop with
Beautiful Boards, we have gone
from Beautiful to Spectacular!
Building on our success with
Beautiful Boards, we created
Spectacular Spreads, which
having sold more than 60,000
copies in its first six months,
shows that the magic continues.
title on Amazon, representing
4.17% of all units sold.” At various
times since publication, it has
been one \of the top 100 book
titles on the entire Amazon site.
It’s made their Movers & Shakers
list numerous times and has
been a top ten cookbook
bestseller (ahead of a lot of
celebrity and foodie names)
several times as well.
Our publicity department has
gotten stellar press for this title
including from The New York
Times, Better Homes &
Garden, the Huffington Post,
Eating Well, The Kitchn, Parents
magazine and
many more.
The magic of this title is that
even in a crowded market, the
Quarto creative team published
a book that rose above the
competition and has become a
staple for the incredible work
our powerhouse sales and
marketing teams do. Our sales
and marketing teams work
diligently to make this book a
breakout bestseller across all
sales channels. I am so proud to
be a part of this synergistic
group that illustrates what can
happen when creative,
marketing, and sales teams at
the top of their game have been
able to accomplish.
Rage Kindelsperger
VP, Group Publishing Director
4
5
STRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS Chairman’s Statement
“A strong performance following successful completion
of the turnaround plan.”
Against the continuing backdrop of the
Covid pandemic, the turnaround plan
initiated in 2018 has been successfully
completed – this represents a major
achievement for the Group.
In 2021 the Board has maintained a clear
focus on:
• maximizing the Group’s core
strengths
• retaining a disciplined business model
further debt reduction
•
• developing future growth
opportunities
During 2021 the financial performance
of the Group was considerably ahead of
expectations and the position in relation
to bank debt was significantly improved
following the successful negotiation of a
new US$20m facility provided by two
supportive banks. In addition, the Group
continued to benefit from the support
provided by the shareholders 1010
Printing Limited and C.K. Lau who
agreed to extend their existing US$13m
unsecured and subordinated loans to the
Group, with 1010 Printing Limited also
providing a further US$10m loan.
Andy Cumming
Chairman
The Board’s vision remains for the Group
to become the dominant publisher of
illustrated books worldwide and to
expand on the use of the Group’s
intellectual property in as many ways as
possible. The Board also remains
focused on a product offering which
brings the highest values to consumers
and on operating an efficient operating
company which excels at the delivery of
quality content in a cost effective way.
In reviewing 2021, I can only reiterate my
previous comments that Quarto is a
great business with great people and
great products. The resilience and
performance of the business have been
outstanding and I have been hugely
impressed by the creative energy,
dedication and commitment of the staff.
I am very proud to act as Chairman of
Quarto and look forward with
enthusiasm to the ongoing development
of the business.
Dividend
The Board has not recommended a
payment of a final dividend, given the
need for further investment in the
business. The dividend policy will,
however, remain under review in
consultation with shareholders and other
stakeholders.
6
Corporate Governance
In July 2021, Polly Powell decided to step
down as Group CEO, with C.K. Lau
stepping in as interim CEO while a search
exercise was undertaken. In November
2021, I was delighted to announce that
the highly respected publisher, Alison
Goff, had been appointed as Group CEO.
In June 2021, it was announced that Ken
Fund, Chief Operating Officer, Chief
Executive Officer Quarto US, intended to
retire in December 2021 after outstanding
service with Quarto over many years. I
am delighted that he has subsequently
agreed to remain on the Board as a
Non-Executive Director and we are
therefore able to continue to benefit from
his considerable experience.
Quarto and its talented staff have
performed exceptionally well during the
last two years, and I take this opportunity
to express my gratitude to everyone for
their significant contribution towards
placing the company in such a strong
position.
Andy Cumming
Chairman
17 March 2022
THE QUARTO GROUP, INC. ANNUAL REPORT 2021Strategic Report Group Chief Executive
Officer’s Statement
US
AUS
RoW
UK
“A year of many challenges across the globe but one in which books
have been valued as a source of information and entertainment. Our
varied catalogue provides both of these to children and adults alike.”
Alison Goff
Group Chief Executive Officer
Introduction
I joined Quarto at the beginning of
January 2022 and am looking forward to
steering the company through the next
phase of growth. I am pleased to be
writing to summarise the results of a year
in which there have been extraordinary
challenges but also some outstanding
performance and overall we have
delivered strong results. The whole team
at Quarto worked incredibly hard during
2021 to mitigate the impact of the huge
challenges across the world and I am
very grateful to them for their diligence
and perseverance.
Business Review
During 2021 the business was faced with
multiple lockdowns in various countries
around the world but, even when
physical bookstores were closed,
consumer support for books remained
strong and they continued to source
books from on-line retailers and, through
the grocery sector which remained
open. Children’s books, and practical
titles which support hobby interests,
performed particularly well which
favored the products Quarto produces.
The company ended the year with sales
of $151.5m which was ahead of the prior
year by 19% (2020: $126.9m); adjusted
operating profit increased by 51% to
$16.0m (2020: $10.6m); profit before tax
increased to $14.2m (2020: $6.6m) and
the strength of the balance sheet
improved to $53.2m (2020: $43.7m). The
group ended the year with net debt
down 72.8% at $5.5m (2020: $19.7m).
Results were driven by improved trading
and reduced finance costs.
The balance of our business remains
broadly 63% of revenue being derived
from adult titles and 37% from children’s.
New books accounted for 42% of total
sales and the backlist continues to
deliver strong sales delivering 58% of our
revenue.
Our most valuable series Little People
Big Dreams continues to perform well
accounting for over $10m revenue in the
year and having now sold over 7 million
copies worldwide in all formats. We have
also now acquired the foreign language
rights to this series and are successfully
selling these around the world. These
foreign language sales delivered $1.5m
revenue in 2021 and are expected to
continue to grow in the coming year.
The standout title in the year was David
Attenborough which sold over 87,000
copies in the UK.
Other significant series include The Story
Orchestra, $2.5m revenue, and Creative
Keepsakes which accounted for over
$2m in the year.
Stand-out performance in the year also
came from the continued strong sell-on
of Beautiful Boards and the new
companion title by the same author
Spectacular Spreads.
Publishing
Quarto’s publishing remains focussed on
its key categories: Cookery, Home and
Garden, Art and Craft, Children’s,
Reference and Wellbeing. These sectors
remain strong internationally and our
extensive backlist continues to offer
opportunities for repurposing content to
create new products from owned IP.
6
7
THE QUARTO GROUP, INC. ANNUAL REPORT 2021Strategic ReportSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS CHIEF EXECUTIVE OFFICER’S STATEMENT (continued)
During 2021 our key actions were:
• The launch of Ivy Kids which is the
most environmentally friendly
publishing initiative in the market
today and has already been
recognised as Highly Commended in
the Sustainability category at the
Future Book Awards
• The launch of Happy Yak featuring
playful, mass-market children’s books
• The relaunch of the adult list Aurum
as a narrative non-fiction imprint. This
list is building and has already
published 2 titles which are currently
being made into major movies
(Thirteen Lessons that saved Thirteen
Lives – The Thai cave rescue). As this
list grows it will feed our ebook and
audiobook programme.
• Frances Lincoln Children’s Books
remains focussed on producing
top-quality award-winning titles
• We targeted growth from the value
and discount channel. This sector has
the added benefit of being non-
returnable, direct from the printer
sales and delivered $26m revenue in
the year up 66% on the prior year.
• We restructured our US trade imprints
and reorganized them under two
creative hubs in New York and Beverly,
Massachusetts. Becker & Mayer the
imprint that produced licensed books
for third parties, will now work closely
with our New York group to publish its
own titles. The imprints Motorbooks
and Walter Foster are now part of the
Beverly group.
• Rockport Publishers, an art and design
imprint, has partnered with Saturday
AM to publish collections of manga-
inspired webcomics that feature
diversity and inclusion through the
BIPOC and LGBTQ+ characters.
• SmartLab Toys introduced six new
products that encourage children to
develop interest in STEM. One of the
new items, Ultimate Squishy Human
Body, has won the 2022 CES Editor’s
Choice Award.
Sales Performance
The sales teams continued to maximise
every opportunity pivoting their efforts
towards whichever sectors of the market
were open and trading. We sought out
new accounts and opened 157 new
accounts in the UK market alone. We
worked with customers all around the
world to maintain a strong book offering
in their stores and when supply chain
issues delayed new titles, we focussed
on selling the inventory we had on hand.
• The UK sales team topped $23m for
the first time, for English language
trade sales in the UK and
internationally. Foreign co-edition sales
grew 9% over 2020 with a stand out
performance by French language sales
which were up 40%.
• Despite the extensive lockdowns in
ANZ sales achieved through our
partner Allen & Unwin, remained level.
• Export sales were up over 40%
particularly driven by Frances Lincoln
Children’s Books which saw growth of
84%.
IT Infrastructure
During the year we worked to create
tools to help increase productivity in our
editorial departments. This included
building a new application which allows
our custom and proprietary publishing
teams to access content more quickly
from our vast backlist. This has paid
dividends as we saw significant growth in
that area.
We saw continued improvement as we
began fully realizing the benefits of our
investment in digital transformation,
including print procurement, logistics,
and data mining which brought
significant savings to the bottom line
while introducing new efficiencies
throughout the organization.
Top 10 Adult Titles
Beautiful Boards
Spectacular Spreads
Witchcraft
First-Time Gardener: Growing
Vegetables
All New Square Foot Gardening
Crystals
Art of NASA
The Encyclopedia of Crystals
The Bucket List
The Modern Tarot Reader
Top 10 Kids Titles
Squishy Human Body
This Book Is Anti-Racist
Tiny Baking!
National Parks of the USA
David Attenborough
Smart Circuits: Electronics Lab
Archi-TECH Electronic Smart
House 2020
Story Orchestra: The Nutcracker
ABC for Me: ABC What Can She Be?
Pokemon Primers: ABC
50 States
Supply Chain Challenges
There were persistent disruptions to the
supply chain throughout 2021 and
significant cost increases with the price
of container shipping peaking at 5x the
normal rate. Paper shortages,
manufacturing cost increases, labor
disruptions caused by Covid-19,
container scarcity and port delays, led to
a 2.4% increase in manufacturing and
shipping costs. Some of these additional
costs impacted the Income Statement
immediately, whilst some flowed into
inventory which will affect the
forthcoming year. Supply chain delays
caused extensive rescheduling of new
product release dates but despite these
we maintained healthy inventory
turnover rates consistent with 2019 and
2020. The key challenge in the coming
year will be rising freight costs which will
put significant pressure on our margins
and we expect paper and capacity issues
to persist.
8
THE QUARTO GROUP, INC. ANNUAL REPORT 2021Strategic Report Covid-19
The Quarto team have adapted well to a
blended working model which is our
vision of the future workplace. We have
seen a benefit in flexibility and how and
where our teams are able to work and
adoption of digital workflows has
improved efficiency. Our offices remain
open for staff who choose to come in
when government guidelines allow.
During 2022 we expect to see a slow
return to office-based working which
remains vital for creative collaboration,
team building and staff morale.
Acquisitions
Quarto has built its business through
organic growth and smart publishing but
also by acquiring other publishing
businesses. We will continue to look for
such opportunities in the non-fiction
sector of the market particularly where
they can be leveraged across our existing
operations and provide a good fit
alongside our existing lists.
Outlook
Quarto is in a good financial position and
has a strong list of new titles for
publication in 2022. The sizeable backlist
continues to perform well and we are
confident in our sales teams ability to
navigate the changing market. The
volatile state of the shipping market will
continue to present challenges and we
expect that this will have a significant
increase in shipping costs.
A key focus in 2022 is to bring increased
focus to our people culture and work on
attracting and retaining high calibre staff
for the long-term health of the business.
We will also explore sectors of the market
in which we are not operating where I
see opportunities for growth. We remain
focussed on delivering a sustainable,
profitable business for the future.
Alison Goff
17 March 2022
Divisional Review
US Publishing
US Publishing performed strongly and
the adjusted operating profit was up
213% to $10.0m (2020: $3.2m) due to a
combination of factors:
• A strong bounce back following the
disruption due to Covid-19, with total
revenue increasing by 28% from $63.1m
to $81.1m. Strong sales in titles such as
Squishy Human Body and Beautiful
Boards were the foundation of this
growth, with gardening titles also
performing well.
• Despite the challenges due to supply
chain issues, Trade margin remained
consistent with 2020, although we saw
some weakness in our co-edition
margins.
• We continued to control our overheads,
with costs being broadly flat.
Gross Trade margin improved despite the
issues with the supply chain, however
similarly to the US, we saw some
weakness in our co-edition margins.
Gross Trade margin improved despite the
issues with the supply chain.
Overhead costs were broadly flat.
UK Publishing
UK Publishing performed well, despite
adjusted operating profit being down 17%
to $7.0m (2020: $8.4m) largely due to a
reduction in the gross profit margin.
There was an increased impairment
charge and the margins in our co-edition
business were down across the board.
Total revenue increased by 11% from
$63.7m to $70.4m with the continued
success of This Book is Anti-Racist & our
best-selling Little People Big Dreams
series with revenue over $10m.
Group Overhead
Group overhead, or corporate costs, were flat.
Adjusted Operating Profit ($m)
US Publishing
UK Publishing
Group overhead
Total adjusted operating profit
Amortization of acquired intangible assets
Exceptional items
Operating profit
2021
10.0
7.0
(1.0)
16.0
—
—
16.0
2020
3.2
8.4
(1.0)
10.6
(0.9)
(0.4)
9.3
8
9
THE QUARTO GROUP, INC. ANNUAL REPORT 2021Strategic ReportSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS Market Overview
UK & International Trade Sales
In the UK, the outlook for the coming
year is cautiously optimistic. Trading
through online channels will continue to
underpin the overall revenue in the UK.
However, the continued loosening of
restrictions will see the rejuvenation of
trading through physical shops across
trade, specialty, and cultural institutions.
Challenges posed by a stressed supply
chain, inflation, and a very competitive
retail landscape will affect all channels
but will have a disproportionate effect on
physical retail as consumers will be
driven to online buying for significant
discounts not offered by traditional retail.
Sales for English language books across
EMEA, Asia, and ANZ will remain strong,
particularly children’s publishing, but
on-going supply chain issues, inflation
and regional political disruptions have to
be taken into consideration. Measures
to mitigate these risks on a region-by-
region basis will need to be employed.
Pivoting our sales efforts accordingly will
be essential.
Online Retail
Online is anticipated to track slightly
behind Q1 LY due to reduced demand
compared to the lockdown at the
beginning of 2021. Demand for our new
releases however remains strong while
the backlist demand has returned to
pre-pandemic levels. We continue to
monitor inventory levels at Amazon and
have plans to minimise returns and
increase sell through. Inflation is set to
affect consumer confidence and habits
in 2022. This could result in increased
demand with online (discount) retailers
such as Amazon. In summary, softer
trading is anticipated in H1 but the
outlook for H2 and in particular Q4 is a
return to YOY growth.
Digital is another growth channel for
Quarto in 2022. We are in a strong
position to capitalise on increased
demand in ebooks and audio as we
launch our audio programs.
Physical Retail
A vital part of the retail eco-system,
physical retail is key both in direct sales
of our books and indirect sales through
showcasing our titles. Major chain
booksellers and other key High Street
retailers are continuing to feel huge
pressure from online competition,
inflation, and business rates. Enticing
consumers to come back by offering a
safe and exciting in-store experience is
essential. Strong brands and exciting
merchandise mixes of our books create
a strong retail story and help drive
revenue. Targeted campaigns will help
drive and will enhance the success of
our books at retail. Supermarkets and
mass retail outlets are signalling a
reduction in space for books. This will
be a major challenge for us in the
coming year as they will focus more on
major brand authors and titles with
proven success.
Specialty Retail
New business development in both
physical and online specialty retail is our
major focus this year. Subscription
boxes, specialist children’s accounts and
major specialty chains are key targets for
us as we reach for significant growth in
this area.
US Trade Sales
A generally positive outlook for
bookstores as retail continues to open
up and the public resumes shopping.
Chain stores are able to move forward
with product mix plans they had put in
place prior the pandemic hitting so we
expect to see concentration on non-
fiction sections as stores prepare
merchandising efforts that speak directly
to their regions and customers.
Anticipating low returns in this space as
the focus continues on lower initials
with strong, immediate reorders for titles
that prove to be selling through. This
aligns with our strategy to focus on key
categories and timelines throughout the
year to maximize consumer interest and
relevance.
Online
Online continues to be a strong avenue
and revenue driver as we explore more
ways to maximize key properties and
emerging trends. Consumers are ever
comfortable with online shopping, and
we anticipate this to continue to be a
strong avenue as legacy brands and key
categories benefit from a robust
10
concentration on our part to maximize
our titles in an interesting, informative,
lifestyle aspect through online presence
in both national online accounts and
smaller online retailer arms that grew
out of necessity during lockdowns.
Special Markets
Our focus will be to drive sales in retail
locations outside of tradition bookstores
as we continue partnerships with
national chains and concentrate on
building brands with key partners in
premium sales as well as niche
subcategories. Subscription boxes
continue to be a popular purchasing
platform. Tremendous growth in 2021 is
proving to be a stable environment in
2022.
Foreign Rights Sales
During lockdowns around the world
adult practical stay-at-home titles and
educational titles for children continued
to sell widely and reprint. What we have
also seen is the appetite for more
expensive books has come back. We
expect this to translate into sales of adult
reference titles and gift packages, as well
as of our upmarket children’s novelty
titles and upmarket gift titles. Our
children’s franchises Little People Big
Dreams, Story Orchestra and Shine a
Light should also keep performing well.
The Dutch and Nordic markets, where
sales had slowed down during the
pandemic, show signs of recovery for
2022; Asia, Southern markets, and
German language sales, after good
performances in 2020-2021 we expect
to remain stable; finally, French language
and countries of the Central and Eastern
European region, are expected to
perform strongly.
High material and transport costs
combined with longer production times
will persist, putting pressure on margin
and the supply chain, but a continued
strong backlist performance and the
renewed demand for higher retail
products provide balance against these
headwinds and support a generally
positive outlook for foreign revenue.
THE QUARTO GROUP, INC. ANNUAL REPORT 2021Strategic Report One Content, Multiple Channels
UNMATCHED SALES COVERAGE TO MAXIMIZING THE POTENTIAL OF OUR CONTENTS
TRADE SALES
CO-EDITION & CUSTOM SALES
US Trade
English
Language
Co-Edition
UK & EU
Trade
Foreign
Rights &
Co-Edition
Int’l
Trade
Custom
Sales
Global Sales Coverage
SERVED BY OVER 100 SALES AND MARKETING PROFESSIONALS AND REPRESENTATIVES
QUARTO OFFICES
USA
SEATTLE
CALIFORNIA
BOSTON
NEW YORK
UK
LONDON
BRIGHTON
CHINA
HONG KONG
10
Key
International partnerships
English language markets
Foreign language markets
11
THE QUARTO GROUP, INC. ANNUAL REPORT 2021Strategic ReportSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
Financial Review
“Profit before tax increased by 115% to $14.2 million
(2020: $6.6 million).”
Group Results
Revenue was $151.5m, an increase of 19%,
compared to 2020 ($126.9m). Adjusted
operating profit was up at $16.0m (2020:
$10.6m) and represented 10.5% (2020: 8.4%)
of revenue. Diluted earnings per share
increase to 25.2c (2020: 11.6c). Two of our
titles exceeded 1% of Group revenue, with
Squishy Human Body being the top revenue
earner for the third year in a row. The
following titles were our top ten sellers in
2021, with their respective revenue and year
of publication:
Daniel Logan
Group Finance Director
Squishy Human Body (2006)
Beautiful Boards (2019)
Spectacular Spreads (2021)
This Book Is Anti-Racist (2019)
Tiny Baking! (2019)
Witchcraft (2016)
National Parks of the USA (2018)
David Attenborough (2020)
First-Time Gardener: Growing Vegetables (2020)
Smart Circuits: Electronics Lab (2016)
$2,865,819
$2,547,101
$694,825
$679,442
$585,204
$579,798
$550,879
$530,475
$526,877
$515,141
US Publishing
Revenue for this segment was up 28% at
$81.1m (2020: 63.1m). Operating profit
before amortization of acquired
intangibles and exceptional items
(“adjusted operating profit”) was up 215%
at $10.0m (2020: $3.2m). We achieved an
adjusted operating profit margin of 12%
(2020: 5.1%).
Finance costs
Finance costs were $1.8m (2020: $2.7m).
The reduction was attributable to
reduction in bank debt due to strong
cash generation.
Tax
The tax charge for the year was $4.2m
(2020: $2.0m).
UK Publishing
Revenue for this segment was up 11% at
$70.4m (2020: $63.7m). Adjusted
operating profit was down 17% at $7.0m
(2020: $8.4m). We achieved an adjusted
operating profit margin of 9.9% (2020:
13.1%).
Corporate costs
Corporate costs were flat.
Exceptional Items
No exceptional items were incurred in
2021.
Exceptional items in 2020, comprised
banking and refinancing costs of
$195,000, and $251,000 arising from the
cost reduction program implemented to
address the impact of Covid-19.
Balance Sheet
The Group’s net assets increased to
$53.2m from $43.7m, driven by the
trading performance during the year. The
most significant change in the balance
sheet related to Intangible Assets - Pre-
publication costs, reducing from $40.9m
to $29.9m. This is due to the
amortization and impairment charge
being greater than the amount being
spent on the new publishing programs,
which have become more focussed
under the Group’s current management
teams. In February 2021 we extended
our banking facilities to 16 July 2024.
Cash Flow and Indebtedness
At the year end, our net debt was $5.5m1,
a reduction of 72%, compared to 2020,
when it was $19.7m1. Free cash flow
remained strong at $17.3m, up 5%
compared to 2020, when it was $16.4m.
1. Included in the debt of $5.5m (2021) & $19.7m
(2020) is a loan of $2.4m relating to
government support given under the
Coronavirus Aid, Relief and Economic Security
Act of the USA. Without reasonable assurance
of forgiveness, it has been treated as debt to be
repaid within 12 months. See notes 17 and 22.
Net debt excludes lease liabilities relating to
right of use assets (IFRS 16).
Shareholder Return
The Board has not recommended a
payment of a final dividend, given the
need for further investment in the
business. The dividend policy will,
however, remain under review in
consultation with shareholders and
other stakeholders.
Principal Risks and Uncertainties
Details of the Group’s principal risks and
uncertainties are set out on pages 19 to
21.
12
THE QUARTO GROUP, INC. ANNUAL REPORT 2021Strategic Report FINANCIAL REVIEW (continued)
Viability Statement
In accordance with Provision 31 of the
2018 revision of the UK Corporate
Governance Code, the Directors
assessed the prospects of the Group
over both a going concern period to 31
March 2023 and a viability period to 31
December 2024. The going concern
period has a greater level of certainty
and was therefore, used to set budgets
for all our businesses which culminated
in the approval of a Group budget by
the Board. The Directors have
determined that the three-year period is
an appropriate term over which to
provide its viability statement, being
aligned with both the publishing
program cycle and the long-term
incentives offered to Executive
Directors and certain senior
management.
The Directors have considered the
underlying robustness of the Group’s
business model, products and
proposition and its recent trading
performance, cash flows and key
performance indicators. They have also
reviewed the cash forecasts prepared
for the three years ending 31 December
2024, which comprise a detailed cash
forecast for the period ending 31
December 2022 based on the budget
for that year and standard growth
assumptions for revenue and costs for
the years ending 31 December 2023
and 2024. This is to satisfy themselves
of the going concern assumption used
in preparing the financial statements
and the Group’s viability over a three-
year period ending on 31 December
2024. As part of this work, the model
was sensitized initially by a 5% reduction
in revenue to ensure headroom within
the covenants. This is deemed as a
plausible scenario, given in 2020
revenue only dropped 7% year on year,
even with the challenge of Covid.
Management performed a reverse
stress test to assess the point in which
the banking covenants were breached.
This occurred at a reduction in revenue
of 9%. It is considered unlikely that such
a reduction of revenue would occur,
given, the performance in 2021 and
against the backdrop of a 7% revenue
drop in 2020.
subordinated loan and interest, and $2m
of the second subordinated loan.
Approval for these specific subordinated
loan repayments was agreed by the
banks and payment was made in Q1
2022. We continue to receive support
from 1010 Printing Limited.
In February 2021, the Group renewed
its bank facilities, retiring the current
syndicate. The new facility runs until
July 2024. Management do not foresee
this creating any issues with regards to
repayment of the loans or longer-term
viability of the Company. In the 3 year
model we have shown that the business
is profitable and therefore capable of
repaying the bank loans as per the
facility agreements. We continue to
receive support from the banks. In
carrying out their analysis of viability,
the Directors took account of the
Group’s projected profits and cash
flows and its new banking facilities and
covenants.
In addition to the agreement to the new
facility, 1010 Printing Limited (a subsidiary
of the Lion Rock Group Limited) and C.K.
Lau agreed to extend the original $13m
unsecured and subordinated loans to the
Group, which were entered into on 31
October 2018, on identical terms to
those originally entered into and on
normal commercial terms. Furthermore,
1010 Printing Limited agreed to provide a
further $10m unsecured and
subordinated loan to the Company on
normal commercial terms. These
unsecured and subordinated loans are
repayable by 31 August 2024.
Management do not foresee this
creating any issues with regards to
repayment of the loans or longer-term
viability of the Company. In the 3 year
model we have shown that the business
is profitable and therefore capable of
repaying the subordinated loans as per
the agreements. The model also allows
for the repayment of the $13m
The Directors also took account of the
principal risks and uncertainties facing
the business referred to on pages 19 to
21. The review focused on the
occurrence of severe but plausible
scenarios in respect of the principal risks
and considered the potential of these
scenarios to threaten viability.
The key principal risk that the business
faces is a downturn caused by a global
recession. The financial impact of this
downturn has been quantified to
illustrate the Group’s ability to manage
the impact on liquidity and covenants,
with sensitivity analysis on the key
revenue growth assumptions and the
effectiveness of available mitigating
actions. In considering this analysis, the
Directors took account of the mitigating
actions that had been previously taken.
These actions included reductions in
investment in pre-publication costs,
print volumes, staffing levels and other
variable costs.
Based on the above indications, after
taking into account the downside
scenario projections, the Directors have
a reasonable expectation that the
Group has adequate resources to
continue in operation and meet its
liabilities throughout the viability period
to 31 December 2024.
Daniel Logan
Group Finance Director
17 March 2022
12
13
THE QUARTO GROUP, INC. ANNUAL REPORT 2021Strategic ReportSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS Our Key Performance Indicators
Our strategy is to grow our revenue and margins by
leveraging our size, scale and reach as the leading
global illustrated book publisher, to build a business
with sustainable growth in earnings per share while
also managing our net debt.
EBITDA ($M)2
ADJUSTED1 OPERATING
PROFIT ($M)2
2021
17.8
2021
16.0
2020
13.0
2020
10.6
2019
12.5
2019
10.0
EBITDA is used to measure the
operational performance of the Group
and is used for banking purposes.
EBITDA up 37% due to improved trading
& tight cost control.
Adjusted operating profit is used to show
our operational performance. This is a
key measure for management and is
noted in the financial review on page 12.
RETURN ON NET
OPERATING ASSETS (%)4
NET DEBT ($M)2
2021
16.0
2021
5.5
2020
11.2
2020
19.7
2019
10.2
2019
50.5
The Board uses this ratio to evaluate the
long-term financial health of the Group.
Improved return on Operating Assets
driven by increased profitability.
Net debt is used as a measure as it has
been a strategic goal to reduce our debt.
Our net debt has reduced by 72% in
2021.
14
THE QUARTO GROUP, INC. ANNUAL REPORT 2021Strategic Report ADJUSTED1 DILUTED
EARNINGS PER SHARE (CENTS)3
BACKLIST % OF SALES
2021
24.3
2021
2020
14.1
2019
18.8
2020
2019
58.0
60.0
55.0
The Board uses this ratio to evaluate the
quality of the Company’s earnings.
Backlist is measured as a performance of
our intellectual property.
Improved profitability has increased the
EPS by 72%.
Backlist sales as a percentage of revenue
are returning towards the level prior to
the disruption of Covid-19.
INVENTORY % OF REVENUE (%)
INTELLECTUAL PROPERTY
DEVELOPMENT SPEND ($M)
2021
2020
2019
13.5
12.2
14.3
2021
2020
2019
20.2
20.3
23.8
This is a measure of our inventory value
as a proportion of revenue.
With the increase in inventory costs and
the need to mitigate the supply chain
issues, our inventory value has increased.
This shows our investment in new titles
against frontlist revenue. See note 15 of
the financial statements on page 76.
CHILDREN’S PUBLISHING
REVENUE ($M)
RETURN OF FRONTLIST
INVESTMENT
2021
2020
2019
55.5
2021
3.13
49.3
49.8
2020
2.13
2019
2.36
Children’s publishing revenue represents
37% of Group revenue, down 2% from
2020.
Return on investment is the ratio of
frontlist revenue generated from
investment in frontlist Intellectual
Property. Our frontlist return has
increased 47% year on year, with tighter
cost control of the publishing program
along with an increase in revenue.
1 Adjusted measure are stated before amortization of acquired intangible assets and exceptional items
2 See note 29
3 See note 9
4 Operating profit before amortization of acquired intangibles & exceptional costs over Group net
assets plus unallocated net liabilities from operating segment
14
15
THE QUARTO GROUP, INC. ANNUAL REPORT 2021Strategic ReportSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS Our People
Quarto employs c. 304 people across 6
locations in the UK and the US, and
utilizes a network of creative contributors
and freelancers. We operate in a
competitive international marketplace
and need to attract, develop and retain
creative, talented and resourceful
employees.
Our Values
Quarto’s values shape our business.
They make Quarto an attractive place to
develop a career, and a responsible
organization.
Our Values
• BE ACCOUNTABLE
• BE PURPOSEFUL
• BE CONSISTENT
• BE EXCELLENT
• BE CURIOUS
• BE COLLABORATIVE
We will not discriminate on the basis of
age, gender, ethnicity, cultural
background, sexual orientation or
religious beliefs. We operate a robust
recruitment policy, including right to
work checks and commitment to a
policy of equal opportunity and
treatment, to foster an inclusive, fair and
diverse environment.
The Diversity Committee formed in 2020
continued in 2021 becoming the
Diversity and Inclusion Committee to
take forward initiatives that will ensure
the culture at Quarto is equitable and
inclusive. During 2021, the Committee
engaged staff with social events
encouraging cultural appreciation and
inclusion; worked with Awakening Minds
consultancy to offer anti-racist training;
and has a strong program of activity to
create awareness for diversity and
inclusion issues throughout 2022.
Additionally, the Committee will measure
staff ethnicity and disability status in
2022.
The Company acted quickly to protect its
employees and contractors when the
extent of Covid-19 spread became clear
closing its offices from March 2020 and
allowing teams to work from home, a
situation which continued during 2021.
In late 2021, offices were opened to
allow staff who needed to access
resources to work from offices taking the
appropriate care to reduce occupancy at
any given time and so maintain
distancing protocols and adhering to
government guidelines. This hybrid
approach has continued in 2022.
Quarto has an employee code of
conduct, operates anti-bribery and
corruption, equal opportunities, anti-
harassment and whistle-blowing policies
and observes health and safety
requirements, demonstrating our
commitment to acting ethically and with
integrity in all employee and business
relationships. These policies are also
readily available to staff via the Quarto
intranet site and in the staff handbooks.
Quarto honours the dignity of all people
and respects the laws, customs and
values of the communities in which we
operate. We are committed to ensuring
that there is no modern slavery or
human trafficking in our supply chains or
in any part of our business.
At the end of 2021, the breakdown of
directors, senior managers and
employees was:
Directors
Senior managers
All employees
Male
Female
4
7
64
2
8
230
16
THE QUARTO GROUP, INC. ANNUAL REPORT 2021Strategic Report Corporate Responsibility
and Sustainability
Corporate responsibility and
sustainability
Quarto wants to be a good corporate
citizen and considers the impact our
activities have on the environment; as
well as make a positive contribution to
society by making inspirational books
and actively supporting our
communities. In 2022 the Company will
review its practices in relation to its TCFD
obligations (see page 43).
Supporting communities
Quarto launched the Quarto Foundation
in 2017 as a means for our people to
support local charities. The disruption of
the Covid-19 pandemic has reduced the
activities of The Quarto Foundation.
Quarto continued its association in the
US with Humble Bundle which sells
ebook bundles online and donates a
portion of the proceeds to charities.
Bundles in which Quarto participated
generated donations of $245,000 in 2021
(of which Quarto’s contribution was
$137,031). Throughout the year, Quarto
made book donations to libraries and
schools, and in the UK donated 3,000
copies of This Book is Anti-Racist to
schools and libraries in support of Black
History Month.
Environmental impact and
sustainability
Most of our impact arises through the
materials and services we procure such
as printing, production, distribution,
recycling and disposal of books. To
reduce our impact, we adopt the
following practices:
• Our first choice in printing is to always
use sustainable paper when available.
Most of our books are printed on
Forest Stewardship Council (FSC)
paper supplies, or, for domestic US
printing, we use Sustainable Forestry
Initiative (SFI) paper when available.
Most of our products are produced
•
with sustainable-sourced materials
although due to worldwide paper
shortages, this level declined
compared to 2020. In 2021, we
estimate about 66% of books were
printed on sustainable paper.
Increasing sustainable operations: we
continue to consolidate shipments
wherever possible so that the number
of journeys made is minimised.
• Ethical production: we continue to
work with our suppliers to adopt
ethical standards of manufacture
using ICTI and SEDEX Care protocols.
• Office requirements are reviewed
routinely and from Q1 2021, the
Company’s UK office footage reduced
by 13%.
• 2021 saw the launch of a new
children’s imprint whose books will be
manufactured in local markets using
recycled paper and with carbon-
offsetting against manufacturing
emissions.
Section 172 Statement
The Directors promote the success of
the Company by giving due care and
attention to the following elements:
publishing imprints and employees with
appropriate consideration for what is a
challenging international marketplace.
(A) LIKELY CONSEQUENCES OF
DECISIONS IN THE LONG TERM
The Board’s vision for the Group is to
become the dominant publisher of
illustrated print books worldwide and to
expand on the use of the Group’s
intellectual property in as many ways as
possible.
The Board recognizes that a coherent
and viable strategy is required which (i) is
nimble and responsive, (ii) is supported
by a modern infrastructure, and (iii)
allows the Group to grow its global
reach. These are considerations which
have long-term consequences, and so in
executing its strategy for the Group it
prioritises the greatest stability for its
In Q1 2021 the Company continued to
reduce its indebtedness; the position in
relation to bank debt has improved
further with a new US$20m three year
and five months bank facility.
(B) INTERESTS OF THE COMPANY’S
EMPLOYEES
Quarto is a publishing company and
having creative and motivated
employees is essential. During the
Covid-19 pandemic Quarto increased its
effort to engage with its employees
through online events and management
briefings as it adjusted its activities during
the pandemic. Andy Cumming, an
independent non-executive director, is
the designated employees’ liaison as
recommended by the Code.
The Company offers competitive market
rates of remuneration and associated
employment benefits. It reviewed the
position in late 2021 and in January 2022
made appropriate adjustments. The
Diversity Committee established in 2020
to promote workplace inclusiveness and
diversity equitability continued in 2021,
becoming the Diversity and Inclusion
Committee (more details are given on
page 16). Additionally, the Company
encourages community interaction
through the Quarto Foundation,
established in 2017 (page 17 indicates
some of the charitable work the
Company has supported).
16
17
THE QUARTO GROUP, INC. ANNUAL REPORT 2021Strategic ReportSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS The adjustments the Company
introduced to protect its employees and
contractors during the Covid-19
pandemic continued during 2021. During
this period, the Company encouraged
contact between its employees both to
manage workloads effectively; socially,
including arranging online fitness
sessions; and engaging employees on
how to tackle the disruptions to normal
business. The Company has complied
with government guidelines and where
offices have been opened (during late
2021) occupancy has been limited in
order to maintain distancing protocols.
The Company invests in its people by
providing them with tools, technology
and training to meet the challenges of its
market and the evolving needs of its
customers. Quarto also involves
employees in areas of strategy where
possible.
(C) FOSTERING THE COMPANY’S
BUSINESS RELATIONSHIPS WITH
SUPPLIERS, CUSTOMERS AND
OTHERS
The Company benefits from its
association with Lion Rock which
operates as one of Quarto’s key suppliers
enabling it to maintain a positive
relationship with an essential supplier
base; this connection also allows Quarto
to print outside China and so provide a
better service to US customers
particularly sensitive to US tariffs.
The Board recognises the need to offer a
flexible service to its customers, be that
offering them outside-China printing, or
customised publishing, as well as the
need to cultivate suppliers of print-on-
demand in order to manage the business
efficiently and still fulfil customers’
orders. By exploring all the technologies
available, Quarto maximises its offer to
its customers. Having realized the need
for more flexible production times, and
considering the delays we have
experienced in the global supply chain in
2021, the Company has secured
additional capacity in the domestic US
printing market and is negotiating with
printers in continental Europe to mitigate
the supply chain disruptions.
Throughout the Covid-19 pandemic, the
Company has worked hard to support its
customers to ensure interruptions to
product supply are minimised. It has
also been able to pay its suppliers on
time.
(D) IMPACT OF THE COMPANY’S
OPERATIONS ON THE COMMUNITY
AND THE ENVIRONMENT
The Company seeks to minimise its
impact on the environment and during
2022 will review its operations in relation
to TCFD requirements (see page 43). It
takes advantage of schemes that
promote green energy, such as in the UK
where for its non-fully serviced offices
the Company uses 100% green energy
supplies; and when refitting its offices, it
accommodates energy-saving elements
(e.g. LED lighting). Energy used by its IT
operations has reduced as the Company
has adopted cloud-based services, and
new equipment is increasingly energy-
efficient. In the UK from Q1 2021 office
space reduced by 13% reducing energy
consumption. The Company adopts
competent maintenance regimes for its
office equipment so that efficient
operation is maintained and energy
consumption is minimized.
Quarto continues to publish socially
responsible and inspiring titles such as
the Little People Big Dreams series, The
ABC Series, Greta and the Giants
(endorsed by Greenpeace and 350.org),
and This Book is Anti-Racist. We
participated in charity events with
Humble Bundle in the US and have
helped them raise over $200,000 in
2020 and in 2021 Quarto’s participation
raised $137,031.
Through the Quarto Foundation, which
is very much staff led, Quarto
contributes to local causes.
By choosing accredited production
schemes like ICTI and SEDEX, which
include worker welfare assessments,
Quarto ensures a minimum welfare
standard in its principal supplier base.
Additionally, the Group prints predominantly
on paper from sustainable sources. In Q1
2021, Quarto launched a new
environmentally conscious children’s
imprint. The books are manufactured from
recycled components, with additional
carbon offsetting against production
emissions, and will be printed in the markets
where the books are sold.
(E) DESIRABILITY OF THE COMPANY
MAINTAINING A REPUTATION FOR
HIGH STANDARDS OF BUSINESS
CONDUCT
The Board complies with the
requirements of the UK’s 2018 Code of
Governance (as outlined on page 42).
The Board is confident that it has the
right composition to deliver its strategy
to the benefit of its employees,
customers, and shareholders.
The Board appraises its own
performance in accordance with the
Code and recognises the value of fair
treatment of its suppliers, honouring its
commitments, so that it can achieve a
competitive, reliable and responsive
supply chain that serves the needs of its
customers. To this end, the Board
routinely assesses the performance of its
supply chain partners.
The Company has an established
whistle-blowing policy and anti-bribery
policy.
(F) NEED TO ACT FAIRLY AS BETWEEN
MEMBERS OF THE COMPANY
The Company has a single class of
common shares. 1010 Printing Limited, a
company controlled by C.K. Lau, is a
controlling shareholder (the current level
of shareholding is shown on page 41).
The Company and controlling
shareholder parties entered into a
relationship agreement to ensure that
controlling shareholders do not exert
improper influence over the Company,
and in accordance with the Listing Rules.
In 2020, the Company’s by-laws were
amended to complete the requirements
of the Listing Rules in relation to
controlling shareholders.
18
THE QUARTO GROUP, INC. ANNUAL REPORT 2021Strategic Report Risk Management, Principal
Risks and Uncertainties
The 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 maintains a Risk Register which is reviewed, updated and approved at each meeting of the Audit and Risk Committee,
and presented at each quarterly Board meeting for review; this means that the Register is reviewed, typically, as many as seven
times a year.
The risk review conducted by the Board is broad ranging addressing each part of the Group’s business and activities. For each
risk identified its impact is rated, and mitigations are identified. In addition, risks to the business are monitored regularly by the
Company’s Group and divisional CEOs, so that emergent risks can be identified and escalated quickly, and mitigations enacted.
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 has identified the following risks that face our businesses.
MARKET AND FINANCIAL RISKS
Risk
Description
Economic
conditions
The Group operates across many of the major
world economies and its revenues and profits
depend on the general state of the economy in
those territories. A downturn caused by a global
recession, potentially as a result of the Covid-19
pandemic, inflationary pressures and the Ukraini-
an-Russian conflict, could reduce consumer
discretionary spending, which might result in a
reduction in profitability and operating cash flow. In
addition, the UK’s exit from the European Union
and US-Sino relations (resulting in the introduction
of tariffs in 2019) contributes to uncertainty in the
economic environment.
Currency
The Group’s businesses operate in a number of
currencies giving rise to a risk of exchange loss
from fluctuating exchange rates.
Financial
The Group has a banking facility that requires it to
operate within covenant limits.
Mitigating factor
The Group has adequate liquidity with up to $24.7m 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 spend on pre-publica-
tion costs, inventory printings and other discretionary
Items. The Group offers non-Chinese printing for custom-
ers in order to avoid US tariffs on books. The Company’s
management information systems allow it to assess sales
performance quickly and so take the appropriate steps to
maximise operating performance. The Group has shown
itself to be adaptable by quickly accommodating the
changes necessary to its sales and marketing activities
during the Covid-19 pandemic. The Group has a very
limited exposure to the Russian and Ukrainian markets.
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.
In 2020 the Quarto progressed in its goal to reduce its debt
when it completed an open offer to shareholders in
January; the net proceeds of $17m were used to pay down
bank debt. In 2021, a new three year and five months
banking facility of $20m was secured, together with
additional shareholder support. This has enabled the
Company to repay the facility that existed at the year end
and a competitive auction platform introduced during 2019
to procure printing services which is providing additional
cost savings. In 2021 the Company reduced its office
footprint to accommodate new working styles which will
further reduce operating costs. Meanwhile the Group is
pursuing its strategy of organic growth through innovation
(as set out on page 9). Performance during 2021 allowed
the Company to accelerate its debt reduction.
18
19
THE QUARTO GROUP, INC. ANNUAL REPORT 2021Strategic ReportSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS RISK MANAGEMENT, PRINCIPAL RISKS AND UNCERTAINTIES (continued)
OPERATIONAL RISKS
Risk
Description
Customer
Supply chain
and raw
materials
A significant dependency on a small number of
customers, for instance co-edition partners or
retailers, could be problematic if one of them tried
to secure preferential terms or stopped doing
business with the Group. The failure of a major
customer, or a distributor, could impact revenue
and profits. The impact of Covid-19 has moved
sales online which has increased the Group’s
exposure to Amazon and has reduced sales to
traditional retailers and bookstores. Until lock-
downs are over and customer buying patterns are
better understood, we can expect market disrup-
tion to continue and with that there is the risk that
sales to traditional customers will fall.
The Group relies on a group 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 supply 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-envi-
ronmentally friendly paper.
Inefficiencies in product movement introduced by
‘Brexit’, the departure of the UK from the EU from
2021, could disrupt timely product movement into
the UK.
The Covid-19 pandemic has disrupted freight
shipping causing severe delays and increasing
shipping and freight costs significantly, a situation
that is expected to continue during 2022.
Coronavirus
The global spread of the coronavirus (Covid-19) is
causing significant business interruption by
infecting the Group’s workforce; closing retail
outlets and impacting orders and revenues; causing
lockdowns altering customer buying patterns; and
impairing the Group’s supply chain adding cost and
delaying fulfilment of orders.
Mitigating factor
The Group has a long-established strategy of diversifying its
international customer base, including specialty retailers,
resulting in the fact that with one exception no customer
has over 20% of the business. Customer relations are
managed to ensure a fair-trading relationship. Management
monitors debts closely and maintains close relationships
with its customers, and distributors, which may provide
prior warning of likely failure. The Group continues to
adapt to supporting online selling and continues to offer
and promote e-book versions of its books.
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 trou-
ble. The Group has worked with its major printers on a plan
to adopt sustainable paper and recently instituted a Forest
Stewardship Council (FSC) paper or Sustainable Forestry Ini-
tiative (SFI) paper policy across all our imprints.
Quarto monitors the Brexit-situation closely, taking note of
the advice of the UK Government and key suppliers to
ensure minimal disruption. Most of Quarto’s product is
shipped directly to EU countries from its printers based
principally in China. These shipments are not expected to
be affected by Brexit.
The Company recognises the disruptions from freight
shipping and will take a flexible holistic approach to its
supply chain activities and will work closely with logistics
suppliers and its network of onshore and offshore printers.
Quarto monitors and follows government advice making
the necessary adjustments in order to maintain the
well-being of its employees. Quarto promotes hygienic
practices in its offices and avoids unnecessary travel. The
Group operates modern IT systems that permit remote
working with the minimum of interruption and during Q4
2021, hybrid working practices were introduced. The Group
also has the ability to immediately reduce its investment in
pre-publication costs and inventory and manage discre-
tionary spending. Working with its suppliers and customers,
Quarto works hard to reduce the impact of any interruption
in its supply chain.
During 2021 Quarto was able to adapt to the increasing
value of book sales going online. It will continue to perfect
its approach to supporting sales as necessary.
20
THE QUARTO GROUP, INC. ANNUAL REPORT 2021Strategic Report OPERATIONAL RISKS (continued)
Risk
Description
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.
Mitigating factor
All components receive safety testing from specialist and
accredited independent third parties. Management
carefully selects suppliers for components.
Quarto will monitor the regulatory impact of product testing
following the UK’s departure from the European Union.
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 is integrated into our production
workflow to provide storage, back-up and recovery services
for product files in development. Complete backlist
archives are stored in a mirrored storage array.
Loss of
intellectual
property
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.
Cyber security
Like many organizations, 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 its IP assets.
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 talent
and attract new talent could ultimately lead to a
failure to generate successful new titles, leading to
a drop in revenue.
The departure of the UK from the EU (‘Brexit’) in
2020 will alter the right-to-work permissions of
EU-citizens to work in the UK potentially disrupting
the recruitment opportunities of our UK-based
rights selling team.
During 2018, an information system was introduced Group-
wide to harmonise the management of contracts. Quarto
reviews its licensing, permission-acquisitions and other
contracts routinely receiving advice from relevant profession-
al firms (including the possible impact of Brexit) so that legal
instruments remain current and represent best practices so
that we ensure that our practices are aligned and consistent
across imprints, and Quarto’s IP rights are properly protected.
The Group uses enterprise level firewalls and IT controls to
prevent attack as well as maintaining cloud-based copies
and 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 websites www.quarto.
com or www.quartoknows.com. The Group undertakes
industry standard system penetration testing.
Our portfolio of imprints and large number of products spread
this risk. The overall portfolio is well diversified with no single
title exceeding 5% of our total revenue in 2021 and no series
accounted for more than 10% of our total revenue in 2021.
Quarto’s Publishers are experienced and talented profes-
sionals who work alongside sales and marketing teams and
strive to stay close to publishing trends and markets. The
Group encourages diversity and inclusion in its workforce
and offers competitive market rate remuneration packages
and works hard to make Quarto an attractive place to work.
Quarto monitors the UK’s rights-to-work requirements
closely, taking note of the advice of the UK Government so
that it is ready to support any staff affected by post-Brexit
regulations and to support its recruitment of EU-citizens so
that any potential disruptions can be minimized.
Climate-
related risks
As an international organization, the Group faces
disruptions from climate-related factors as well as
the need to comply with reporting (e.g. TCFD
requirements), tax-related initiatives (e.g. CBAM),
and customers’ requirements.
The Group has a well-developed and flexible supply chain.
It is in regular communication with its customers and their
needs. During 2022, it will undertake a risk assessment to
identify its principal climate-related risks and incorporate
these risks into its risk management practices.
The Strategic Report was approved by the Board and was signed on behalf of the Board by:
20
21
Chuk Kin Lau
Director
17 March 2022
THE QUARTO GROUP, INC. ANNUAL REPORT 2021Strategic ReportSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS Board of Directors
Andy Cumming | Non-Executive Chairman
Andy joined the Board on 1 March 2018 as an independent Non-Executive Director
and was appointed Non-Executive Chairman on 11 July 2018; he is a member of
the Audit and Risk, and Remuneration Committees, and he Chairs the Nominations
Committee.
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 a Non-Executive Director of (i) Lloyds Development Capital, the
private equity arm of Lloyds Banking Group, (ii) Bluestone Consolidated Holdings
Limited, a multinational financial services business, and (iii) Integrity Capital Ltd, a
company investing in asset backed secured lending.
Chuk Kin Lau | Executive Director
C.K. Lau, “CK”, is also an Executive Director of Lion Rock Group and an Executive
Director of OPUS Group Limited, a subsidiary of Lion Rock. CK was elected to the
Board on 17 May 2018 as an Executive Director. He is President of the Company.
CK is a member of the Remuneration and Nominations Committees.
Ken Fund | Non-Executive Director
Ken joined the Board as an Executive Director on 11 July 2018 and retired from the
Company on 1 December 2021 becoming a Non-Executive Director on 1 December
2021. Until 1 December 2021 he was Group COO and CEO of Quarto US. Ken joined
the Group in 1999 as President and CEO of the Group’s subsidiary Rockport Publishers
company.
Ken’s career started with Dino DeLaurentiis Productions in New Business
Development before moving to Simon & Schuster Publishers as Business Manager in
1984. He joined Harper Collins San Francisco in 1990 becoming senior Vice President
for Adult publishing.
Ken is a graduate of SUNY Oswego and holds an MBA in Finance from Pace University.
22
THE QUARTO GROUP, INC. ANNUAL REPORT 2021Governance Jane Moriarty | Non-Executive Director
Jane joined the Board of the Company on 12 November 2018. Additionally, Jane is
Chair of the Audit and Risk, and Remuneration Committees; she is the Senior
Independent Director. Jane is Vice-Chair.
Jane is a Fellow Chartered Accountant who worked with KPMG LLP for over 29
years. During her time with KPMG, she worked with a broad range of businesses
helping them to develop strategies to realise opportunities and manage threats in
fast moving environments.
Jane is currently a non-executive director of (i) Mitchells & Butlers plc, one of the
largest operators of pubs, bars and restaurants in the UK, (ii) NG Bailey, an
independent engineering, construction and services company in the UK, (iii) Martin’s
Properties, a leading commercial, retail and residential property company, (iv) Nyrstar
NV, a listed Belgian holding company with an investment in a global mining and
smelting business, and (v) Tennants Consolidated Limited, one of Europe’s leading
manufacturers of chemical and chemical related products.
Mei Lan Lam | Non-Executive Director
Mei Lan is an Executive Director and Chief Financial Officer of Lion Rock Group and
responsible for the financial management of Lion Rock. Mei Lan has over 30 years’
experience in finance and has held senior financial positions in various listed
companies and a non-profit charitable organisation in Hong Kong. She joined the
Company after being elected to the Board as a Non-Executive Director on 17 May
2018.
Andrea Giunti Lombardo | Non-Executive Director
Andrea was elected to the Board on 10 February 2020.
Andrea is a member of the board of Giunti Editore S.p.A., the second largest
publishing house in Italy and owner of the Giunti al Punto bookstore chain. He has
been involved in different aspects of the publishing industry, and has extensive
experience in finance, M&A and digital development.
22
23
THE QUARTO GROUP, INC. ANNUAL REPORT 2021GovernanceSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS Nominations Committee Report
The Nominations Committee comprises
the Group’s Non-Executive Directors,
Andy Cumming (Committee Chair), Jane
Moriarty (Senior Independent Director),
and Executive Director C.K. Lau. A copy
of the Committee’s formal terms of
reference can be found on the
Company’s website (www.quarto.com).
The search for Board candidates is
conducted and appointments made, on
merit, against objective criteria and with
due regard to the benefits of diversity on
the Board, including gender. External
search consultants are engaged, as
appropriate, and formal and transparent
processes 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 Board performs an annual
evaluation where the Board, its directors,
chairman and committees, assess their
respective performance. The results of
the evaluations are presented to the
Board and committees to address any
issues raised and to explore
opportunities to increase effectiveness.
Additionally, the chairman meets each
director annually to discuss their
performance and to receive their
feedback.
The Committee met three times during
the year and was active in appointing
Alison Goff as Group Chief Executive
Officer.
The Chair of the Committee attends the
Annual Meeting to address any
shareholder questions relating to the
Committee.
Andy Cumming
Chair of the Nominations Committee
17 March 2022
24
THE QUARTO GROUP, INC. ANNUAL REPORT 2021Governance Audit and Risk
Committee Report
In line with FRC guidance the Committee
has had two members throughout the
year, Jane Moriarty as Chair and Andy
Cumming.
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 Chair also meets informally
with the Group Finance Director
throughout the year and with senior
management. She also meets with the
external Audit Partner from time to time
to discuss issues and be appraised of
regulatory changes.
By invitation the Company’s CEO, the
Group Finance Director, representatives
of the Company’s auditor, and Michael
Mousley (advisor to the Board and
former Company CFO), also attend
Committee meetings although part of
some meetings is exclusively for
Committee members without executive
management present.
The Chair of the Committee normally
attends the Annual Meeting to address
any shareholder questions relating to the
Committee, however in 2021 owing to
Covid-19 related restrictions
shareholders were encouraged to not to
attend the Annual Meeting but to vote in
advance of the Meeting and to submit
questions in advance by e-mail.
The Committee met 3 times during 2021
and once so far in 2022.
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 2021 and 2022, to date, the work
of the Committee included:
• Review of the plan and scope of the
external audit.
• Review of the external auditor’s report
on the 2021 year-end audit and
approval of the preliminary
announcement and the annual report.
• Consider the external auditor’s
comments in relation to internal
controls and review the need and
potential scope of internal audit
functions.
• Consider the Group’s banking
agreements, particularly with respect
to ensuring the Group’s compliance
with its banking covenants.
• Review and consider the goodwill
impairment review. See Significant
Audit Risks below for more details.
• Review and consider recoverability of
pre-publication costs.
• Review and consider revenue
recognition and sales return.
• Review TCFD related disclosures from
2022.
Significant Audit Risks, Key
Findings and Financial
Judgements Relating to Year End
Accounts 2021
The Committee concentrated on the
following in relation to the 2021
accounts.
GOING CONCERN AND COVENANT
COMPLIANCE
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 signing of the Group’s new
banking facilities, the Committee
reviewed the Group’s forecasts to
confirm the Group was able to meet its
current and future banking covenants.
The Group’s financial performance in
2021, and its forecast future
performance, reflects the positive impact
of the Group’s renewed focus on core
products and titles, the cost-out program
which began in 2018, and the fund
raising and resulting debt position of the
open offer to shareholders that occurred
in January 2020.
The Committee discussed the impact of
Covid-19 on the Group and, in particular,
considered the downside scenario that
was prepared as part of the going
concern review.
24
25
THE QUARTO GROUP, INC. ANNUAL REPORT 2021GovernanceSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS AUDIT AND RISK COMMITTEE REPORT (continued)
Non-Audit Services
No non-audit services were used in
2021. The Company has a policy in
regard to the provision of non-audit
services by the auditor which is reviewed
annually.
Internal Audit
To date there has not been a separate
internal audit function, given the size and
scale of the Group’s operations.
The Audit and Risk Committee decided
not to establish a dedicated internal audit
function this year, for the reasons stated
above. It will review this decision on an
annual basis.
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.
Quarto has continued to develop a
strong and effective control environment
for the business. This has built the
Board’s and Audit and Risk Committee’s
confidence in the financial management
of the Group.
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 2021,
the value in use calculation exceeded
the carrying value of goodwill.
Further detail is set out in note 10 to the
Financial Statements.
RECOVERABILITY OF PRE-
PUBLICATION COSTS
Amortization of pre-publication costs is
charged to the income statement on a
50% reducing balance method. Pre-
publication costs are capitalized in
accordance with IAS 38 and the
Committee, with the external auditor,
discussed the assumptions behind the
amortization profile including the
amortization period of the publications.
Further detail is set out in note 14 to the
Financial Statements.
REVENUE RECOGNITION AND SALES
RETURNS
The Committee considered the risk that
revenue may not be captured in the
relevant period. Apart from the usual
risks relating to the timing of revenue
recognition, management is required to
provide for returns, which may be
received subsequent to the period end.
Management assesses sales returns
through quantifying the previous returns
experience and post year end returns.
During 2021, 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.
External Audit
The Committee assesses the
effectiveness of its external auditor
through on-going dialogue and
communication with the Auditor. The
audit cycle includes formal meetings.
The audit planning meeting, which
happens prior to the audit, was when the
Committee discussed reporting
developments, significant accounting
risks, 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 and Risk Committee. The Auditor
gave the Committee forthright views on
judgement areas whilst recognising that
the decisions lay with the Committee.
The Committee is satisfied with the
Auditor’s effectiveness in 2021.
Appointment of Auditor and
Independence
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 2021 audit of the Group and the
Company’s accounts, Grant Thornton
UK LLP charged $365,000 (2020:
$287,000).
26
THE QUARTO GROUP, INC. ANNUAL REPORT 2021Governance 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 and Risk
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.
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.
Jane Moriarty
Chair of the Audit and Risk Committee
17 March 2022
26
27
THE QUARTO GROUP, INC. ANNUAL REPORT 2021GovernanceSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS Remuneration Committee Report
Annual Statement
DEAR SHAREHOLDER
I am pleased to present the Directors’ Remuneration Report for the year ended 31 December 2021, which has been prepared by
the Committee and approved by the Board.
For the year ended 31 December 2021, there were no substantial changes in Directors’ remuneration arrangements.
Though an overseas company within the meaning of the Companies Act 2006, the Company elects to continue to report 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 24 May 2022 subject to approval at
the 2022 Annual Meeting. The proposed policy mirrors the existing policy implemented on 25 May 2021.
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 2021; pension entitlements; payments for loss of
office; 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.
Jane Moriarty
Chair of the Remuneration Committee
17 March 2022
Remuneration Committee meeting attendance 2021
Committee membership
Number of meetings held during the year: 4
Andy Cumming (Appointed 1 March 2018, Chair from 17 May 2018 to 7 March 2019)
Jane Moriarty (Appointed 12 November 2018, Chair from 7 March 2019)
C. K. Lau (Appointed 17 May 2018)
4 of 4
4 of 4
4 of 4
Policy
This section sets out Quarto’s Remuneration Policy for Directors which is recommended by the Board for approval at the 2022
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:
•
•
•
•
the need to align the interests of the executive with those of the shareholders;
the performance of the individual executive and of the Group as a whole;
the remuneration practice in the markets in which the executive is principally based; and,
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.
28
THE QUARTO GROUP, INC. ANNUAL REPORT 2021Governance Operation
Opportunity
Performance metrics
Not applicable.
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.
Quarto’s Remuneration Policy Summary
FIXED PAY
Element of
remuneration
Purpose and
link to strategy
Base Salary/
Fees
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 em-
ployed.
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 experi-
ence of the individual;
• pay and conditions at
organisations of a similar
size and complexity; and,
• pay and conditions
elsewhere in the Group.
Benefits include life insur-
ance and private medical
insurance. Where appropri-
ate, other benefits may be
offered including, but not
limited to, participation in
all-employee share schemes.
Benefits are non-
pensionable.
Not applicable.
Benefits vary by role, individual
circumstance and eligibility
and are 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
% in exceptional circumstances
(e.g. relocation) or in circum-
stances where factors outside
of the Group’s control have
materially changed (e.g.
increases in medical premi-
ums).
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.
28
29
THE QUARTO GROUP, INC. ANNUAL REPORT 2021GovernanceSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS REMUNERATION COMMITTEE REPORT (continued)
VARIABLE PAY
Element of
remuneration
Annual
performance
bonus
Purpose and
link to strategy
Designed to reinforce
individual perfor-
mance and contribu-
tion to the achieve-
ment of profit growth
and strategic objec-
tives.
Operation
Opportunity
Maximum potential opportuni-
ty of up to 100% of base salary
for the CEO and 50% for the
COO.
For the financial target, the
threshold bonus starts at 10%
of the total potential for
exceeding the base EBITDA
target by 2% and up to 100% of
the total potential for exceed-
ing the base EBITDA target by
10%.
Measures are reviewed at the
beginning of the financial
year to ensure they remain
appropriate and reinforce the
business strategy. Perfor-
mance targets are set
annually to ensure they are
appropriately stretching and
reflect those strategic
objectives. At the end of the
year the Committee deter-
mines 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.
Performance metrics
60% on financial
objectives and 40% on
personal objectives.
The Committee will
vary the weightings
from year-to-year to
reflect the changing
strategic needs for the
business with a default
bias towards financial
objectives.
In exceptional
circumstances, the
Committee has the
ability to exercise
discretion to override
the formulaic bonus
outcome within the
limits of the Plan
where it believes the
outcome is not truly
reflective of perfor-
mance and to en-sure
fairness to both
shareholders and
participants.
30
THE QUARTO GROUP, INC. ANNUAL REPORT 2021Governance VARIABLE PAY (continued)
Element of
remuneration
Purpose and
link to strategy
Operation
Opportunity
Performance
Share Plan (PSP)
Ensures that the
Executive’s interests
are aligned with those
of shareholders
through reward for
providing sharehold-
ers with substantial
increases in share-
holder value and/or
for achievement of a
measure of sustained
growth in earnings
over the medium to
long term.
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 of nominal-cost (or
nil-cost) options may be
granted annually as a
percentage of base salary.
Vesting is based on perfor-
mance 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 appropri-
ate.
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.
FIXED PAY
Element of
remuneration
Purpose and
link to strategy
Operation
Opportunity
Non-Executive
Directors’ fees
To reflect the time
commitment in
preparing for and
attending meetings,
the duties and
responsibilities of the
role and the contribu-
tion expected from
the Non-Executive
Directors.
Annual fee for Chair.
Annual base fee for Non-Ex-
ecutive Directors. Additional
fees are paid to the Senior
Independent Director and
the Chair of the Committees
to reflect additional responsi-
bilities.
Fees are reviewed annually,
taking into account time
commitment, responsibilities
and fees paid by comparable
companies.
There is no prescribed
maximum. Non-Executive
Director fee increases are
applied in line with the
outcome of the review and
taking into account wider
factors, for example, inflation.
Performance metrics
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.
Performance metrics
Not applicable.
30
31
THE QUARTO GROUP, INC. ANNUAL REPORT 2021GovernanceSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS REMUNERATION 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 generated compared to budget. The Committee considers this measure is the most
appropriate measure of long-term performance of the Group.
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. 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 the
stated policy.
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.
50% to 100%
of base salary
50% of base
salary (100% in
exceptional
circumstances)
In 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.
32
THE QUARTO GROUP, INC. ANNUAL REPORT 2021Governance 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
C.K. Lau
Ken Fund1
Polly Powell2
Effective date of contract
17 May 2018
11 July 2018 (until 30 November 2021)
10 February 2020 until 1 July 2021
Notice period
3 months
6 months
6 months
1 Ken Fund retired on 1 December 2021 at which time he became a Non-Executive Director.
2 Polly Powell resigned on 1 July 2021.
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, has a one-month notice period, and all Non-Executive Directors 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:
Non-Executive Director
Date of Appointment
Notice period
Andy Cumming
Mei Lan Lam
Jane Moriarty
Ken Fund
Andrea Giunti Lombardo
1 March 2018
17 May 2018
12 November 2018
1 December 20211
10 February 2020
1 month
1 month
1 month
1 month
1 month
1 Date on which Ken Fund became a Non-Executive Director having formerly been an Executive Director as noted above.
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 were made to past Directors.
In addition to the contractual provisions regarding payment on termination set out above, the Group’s incentive plans and share
schemes contain provisions for termination of employment.
Component
Bad leaver
Good leaver
Change-of-control
Annual bonus
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 Commit-
tee 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
pro-portion 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.
32
33
THE QUARTO GROUP, INC. ANNUAL REPORT 2021GovernanceSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS REMUNERATION COMMITTEE REPORT (continued)
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 below shows the remuneration that the Executive Directors could be expected to obtain based on varying
performance scenarios. C.K. Lau and Polly Powell (who resigned during 2021) are not included in the illustrations because neither
of them is on a bonus plan. 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 25 May 2021, 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.
EXECUTIVE DIRECTORS APPLICATION OF REMUNERATION POLICY
US$000
500
400
300
200
100
0
Ken Fund
0.0%
422
8.9%
91.1%
0.0%
460
16.3%
83.7%
385
100%
Fixed
Annual variable
PSP
Min
In line
Max
In illustrating the application of the remuneration policy the following assumptions have been made:1
Minimum
On target
Maximum
Basic salary, pension or cash in lieu of pension and benefits. No bonus and no vesting of the PSP.
Basic salary, pension or cash in lieu of pension and benefits. Bonus pay out at 50% of the maximum
bonus. PSP vesting at 50% of maximum vesting.
Basic salary, pension or cash in lieu of pension and benefits. Bonus pay out at 100%. Full vesting of
the PSP.
1 Ken Fund became a non-executive director from 1 December 2021. This illustration is based on a 12-month period as an executive director.
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 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.
Jane Moriarty
Chair of the Remuneration Committee
17 March 2022
34
THE QUARTO GROUP, INC. ANNUAL REPORT 2021Governance Annual Report on Remuneration
THE REMUNERATION COMMITTEE
The Committee’s Terms of Reference are available on the Group’s website. Though an overseas company within the meaning
of the Companies Act 2006, the Company has chosen to continue to provide this report on remuneration in line with UK’s The
Large and Medium-sized Companies and Groups (Accounts and Reports)(Amendment) Regulations 2013.
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; and
• 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.
Statement of shareholder voting at the 2021 Annual Meeting
The following table shows the results of the advisory vote on the 2020 Annual Remuneration Report at the Annual Meeting
on 25 May 2021.
For (including discretionary)
Against
Total votes cast
Withheld
Total number
of votes
% of
votes cast
27,611,389
100.00%
400
27,611,789
0
0.00%
100%
Single total figure of remuneration (audited)
The table below sets out a single figure for the total remuneration received (or receivable) by each Director for the year ended 31
December 2021 and the prior year. These amounts are shown in the reporting currency, although the payments that were
settled through the UK were paid in Sterling. The exchange rates used in 2021 and 2020 were 1.3741 and 1.2900, respectively.
Base Salary
Benefits1
Annual Bonus2
Long-term
incentives
Pension
Payment for
loss of office
Total
remuneration
2021
$’000
2020
$’000
2021
$’000
2020
$’000
2021
$’000
2020
$’000
2021
$’000
2020
$’000
2021
$’000
2020
$’000
2021
$’000
2020
$’000
2021
$’000
2020
$’000
—
258
318
—
286
315
—
—
18
—
—
14
—
27
—
—
—
—
—
—
—
—
281
175
—
30
20
—
29
18
—
—
298
—
—
—
—
315
666
—
315
522
Executive
Directors*
C. K. Lau
Polly Powell4
Ken Fund5,6
34
35
THE QUARTO GROUP, INC. ANNUAL REPORT 2021GovernanceSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS ANNUAL REPORT ON REMUNERATION (continued)
Fees3
Benefits
Annual Bonus
Long-term
incentives
Pension
Total
remuneration
Non–Executive Directors*
2021
$’000
2020
$’000
2021
$’000
2020
$’000
2021
$’000
2020
$’000
2021
$’000
2020
$’000
2021
$’000
2020
$’000
2021
$’000
2020
$’000
Andy Cumming
Mei Lan Lam
Jane Moriarty
Ken Fund6
Andrea Giunti Lombardo7
99
—
69
3
49
93
—
64
—
40
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
99
—
69
3
49
93
—
64
—
40
* For period as 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 in note 6.
3 Details of Non–Executive Directors’ fees can be found on pages 31 and 37.
4 Appointed on 10 February 2020 and resigned on 1 July 2021.
5
In 2019 Ken Fund was granted a retention award (a long-term incentive) of which no part of the award payment was due before October 2021 and where
payment was subject to eligibility criteria noted on page 37.
6 From 1 December 2021 Ken Fund when became a Non-Executive Director.
7 Appointed on 10 February 2020.
8 Payment in relation to early termination of Ken Fund’s role as Group COO.
Directors’ shareholdings
The share interests of the Directors who held office during the year ended 31 December 2021 and of their connected persons in
the share capital of the Company are shown below:
Executive Directors
C.K. Lau3
Polly Powell4
Ken Fund5
Number of share
options of common stock
Number of US$0.10
shares of common stock1
31 December
20212
31 December
2020
—
—
—6
—
—
25,496
31 December
20212
16,859,569
—
24,000
31 December
2020
16,674,569
—
24,000
During the year the market price of the shares of common stock ranged between 58.5p and 116.5p. The mid-market price on 31
December 2021 was 112.5p.
Non–Executive Directors
Andy Cumming
Mei Lan Lam
Jane Moriarty
Andrea Giunti Lombardo7,8
Ken Fund5
Number of US$0.10
shares of common stock
31 December
31 December
20212
2020
—
—
—
—
—
—
8,177,820
8,177,820
24,000
24,000
1 Following an open offer which concluded on 31 January 2020 the allotted share capital of the Company increased from 20,444,550 shares of common
stock to 40,889,100.
2 Or date of resignation.
3 Shares held on 31 December 2021 were held by 1010 Printing Limited, a company over which C.K. Lau exercises control. On 31 December 2020, C.K. Lau
held 1,679,743 shares and 1010 Printing Limited held 14,994,826 shares.
4 Resigned on 1 July 2021.
5 Ken Fund was an Executive Director and became a Non-Executive Director from 1 December 2021.
6 This option granted on 28 April 2017 failed to vest on 28 April 2021.
7 Shares held by Andrea Giunti Lombardo are jointly held with Sergio Giunti and by Montecristo 2019 S.r.L. (a private limited company incorporated under the
laws of Italy; it is an entity ultimately controlled by Sergio Giunti and Andrea Giunti Lombardo).
8 Appointed on 10 February 2020.
No director receives, or has an entitlement to receive, shares in the Company as part of his or her remuneration. A 50%
appreciation in the Company’s share price would have no impact on a director’s remuneration. As noted below Ken Fund has
been granted share options under the Company’s PSP Scheme (see note 27).
36
THE QUARTO GROUP, INC. ANNUAL REPORT 2021Governance
Directors’ share options
Shares: Common Stock of $0.10 each
Date of grant
As at
1 January
2021
Granted
Lapsed in
year1
As at
31 December
2021
Face value at
date of grant
(£’000)
Fair value
at date of
grant
(£’000)
Price at
exercise date
Ken Fund
28/04/2017
25,496
—
(25,496)
—
67
68
n/a
1 The option granted on 28 April 2017 did not vest in April 2021.
All awards under the PSP schemes have a four-year vesting period.
Executive directors’ base salaries/fees
During the year 2021, C.K. Lau, appointed on 17 May 2018, received $nil, in accordance with his service contract.
During the year 2021, Polly Powell, appointed on 10 February 2020 and resigned on 1 July 2021, received $258,327, in
accordance with her service contract.
During the year 2021 until his retirement on 1 December 2021, Ken Fund, appointed on 11 July 2018, received $317,625 in
accordance with his service contract, plus $28,875 as payment for loss of office in relation to early termination of his role as
Group COO. From 1 December 2021, Ken Fund became a Non-Executive Director whose fees are summarised below.
Pension and other benefits
The Group made an annual contribution to the personal pension plan of Ken Fund of $19,635, and $30,005 for Polly Powell.
Long-Term Incentives – PSP Awards
Under the Remuneration Policy, awards of nominal-cost (or nil-cost) options may be granted annually up to 50% (in exceptional
circumstances up to 100%) of base salary to the Executive Directors. Adhering to the same principles, other applicable
employees may receive an award (up a maximum of 40% of base salary, but typically much less). In considering the size of
awards, the Remuneration Committee has regard to the principles set out on page 30 of this report. The share options granted
in April 2016 did not vest in April 2020; and the options granted in April 2017 did not vest in April 2021.
Half of the awards 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 2017 to 28 April 2021.
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.
Retention Award
In 2020, Ken Fund was granted a retention award that offered a total payment of $500,000 that comprised of two elements: (i) a
payment of $350,000 so long as he remained employed by the Company until 30 September 2021, and (ii) a performance-related
payment of up to $150,000 assessed on profit-achievement by the Group for financial years 2020 and 2021. Both of the
conditions were met, with payment being spread over 2021 and 2022.
Chair and Non-Executive director fees
The Non–Executive Directors’ annual fees for 2021 were as follows: Andy Cumming £72,000 ($98,935), Jane Moriarty £50,000
($68,705), Mei Lan Lam $nil, Ken Fund (appointed on 1 December 2021) $40,000 (for 2021, Ken Fund received $3,333), and
Andrea Giunti Lombardo £35,000 ($48,094).
36
37
THE QUARTO GROUP, INC. ANNUAL REPORT 2021GovernanceSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS ANNUAL REPORT ON REMUNERATION (continued)
Relative importance of spend on pay
The graph below shows how total employee pay compares with expenditure on intellectual property for years ended 31
December 2020 and 31 December 2021.
21.8
19.6
20.3
16
30
25.6
20
10
0
Total employee pay
Intellectual property spend
2021
2020
Review of group performance
The chart below compares the value of £100 invested in Quarto shares, including re–invested dividends, on 31 December
2010 compared to the equivalent investment in the FTSE Small Cap Index, over the last ten financial years. The FTSE Small
Cap Index has been chosen as it comprises companies of a broadly similar size to Quarto.
Performance graph
350
300
250
200
150
100
50
0
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
Quarto
FTSE Small Cap
38
THE QUARTO GROUP, INC. ANNUAL REPORT 2021Governance The table below shows the single figure for the CEO over the same period.
CEO single
figure of
remuneration
including
bonus ($’000)
Annual bonus
awarded
$ amount
($’000s)
% of maximum
opportunity
PSP vesting
$ amount
($’000s)
% of maximum
opportunity
2010
2011
2012
2013
2014
2015
2016
2017
750
996 1,0201
870
842
929
3,252
701
2018
2302
2019
2020
—
1194
2021
2855
393
573
1213
233
169
305
34
150
—
—
—
—
—
—
— 56.90% 33.50% 95.00% 12.0%
31%
—
—
—
—
—
—
—
—
2,651
100%
—
—
—
—
—
—
—
—
—
—
—
—
—
—
273
—
—
—
1 The figure for 2012 is a combination of remuneration of Laurence Orbach, the previous CEO, and Marcus Leaver for the respective periods.
2 The figure for 2018 is a combination of remuneration of Marcus Leaver, the previous CEO, and C.K. Lau for the respective periods.
3 Discretionary.
4 The figure for 2020 is a combination of remuneration of C.K. Lau who was Group CEO until 18 September 2020 when Polly Powell was appointed Group
CEO.
5 The figure for 2021 is a combination of remuneration of Group CEO, Polly Powell, until 1 July 2021. C.K. Lau was Group CEO for the remainder of the year.
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 2020 to 2021.
$’000
Salary
Taxable benefits
Annual variable bonus
Total
20212
258
—
27
285
20201
119
—
—
119
Group CEO
Average for
other employees
% change
% change
117
—
—
139
19
—
462
23
1 From 18 September 2020 when Polly Powell replaced C.K. Lau who receives no salary or fee.
2 Until 1 July 2021 when Polly Powell resigned. C.K. Lau, who receives no salary or fee, was Group CEO for the remainder of the year.
Salary, benefits and bonuses for other employees 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 2021, awards made under the Group’s share schemes represented 3.3% (2020:
3.6%) 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.
38
39
Jane Moriarty
Chair of the Remuneration Committee
17 March 2022
THE QUARTO GROUP, INC. ANNUAL REPORT 2021GovernanceSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
Directors’ Report
Group
The Directors present their report and the audited financial statements of The Quarto Group, Inc., for the year ended 31
December 2021.
Though an overseas company within the meaning of the Companies Act 2006, the Company has chosen to continue to include
this report in line with the UK’s The Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008.
Results
The profit for the year was $9.9m (2020: $4.6m). The Directors do not propose a dividend.
Key performance indicators showing the Company’s performance in 2021 and the prior three years can be found on pages 14
and 15. An indication of likely future developments in the business of the Group is included in the Strategic Report on page 9.
Directors
Serving Directors during the year were as follows:
Andy Cumming*
(Non-Executive Chairman) Appointed 1 March 2018
C.K. Lau
Polly Powell
Mei Lan Lam
Ken Fund
(Executive Director; President; Group Chief Executive Officer between 1 July 2021 and 2 January 2022)
Appointed 17 May 2018
(Executive Director; Group Chief Executive Officer from 18 September 2020) Appointed 10 February 2020
and resigned on 1 July 2021
(Non-Executive) Appointed 17 May 2018
(Executive Director; Chief Operating Officer until retirement on 1 December 2021 becoming Non-Execu-
tive Director) Appointed 11 July 2018
Jane Moriarty*
(Non-Executive; Vice-Chair; Senior Independent Director) Appointed 12 November 2018
Andrea Giunti Lombardo (Non-Executive) Appointed 10 February 2020
* Considered by the Board to be independent.
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.
No Director had a contract of significance with the Company or its subsidiaries during the year.
Polly Powell resigned on 1 July 2021 whereupon C.K. Lau took over the role of Group CEO until 2 January 2022.
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 requirement:
Location:
Directors’ remuneration
Annual Report on Remuneration, pages 35 to 39.
Details of Long-term Incentive Plans
Annual Report on Remuneration, pages 35 to 39.
Related Party Transactions
The Company purchases printing services from 1010 Printing Limited, a company over which C.K.
Lau exercises control. These purchases are made on a job-by-job basis at arm’s length. Financial
Statement note 28 summarizes purchases of printing services from 1010 Printing Limited.
Unsecured loans provided by 1010 Printing Limited and C.K. Lau are summarized in Financial
Statement note 28. 1010 Printing Limited provided an additional $10m unsecured loan in Q1 2021.
Revenue generated from Pavilion Books Limited, a company over which Polly Powell (who
was a director until she resigned on 1 July 2022) exercises control, is summarized in
Financial Statement note 28.
Revenue generated from Giunti Editore spa, a company over which Non-Executive Director
Andrea Giunti Lombardo exercises control, is summarized in Financial Statement note 28.
With reference to LR 9.8.4 R (14)(a), the Company entered into a written and legally binding relationship agreement with 1010
Printing Limited, Lion Rock Group Limited and C.K. Lau. The Company confirms in relation to the requirements of LR 9.8.4 (14)
(c) that: (i) it has complied with the undertakings of the relationship agreement; (ii) as far as the Company is aware, the
controlling shareholder parties have complied with the relationship agreement; and (iii) so far as the Company is aware, the
procurement obligations of LR 9.2.2B R (2)(a) have been complied with within the period under review. At a special shareholder
meeting held on 31 January 2020 the Company’s By-Laws were amended to comply with LR 9.2.2AD R (2).
40
THE QUARTO GROUP, INC. ANNUAL REPORT 2021Governance 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.
In 2020 the Company established a Diversity Group, renamed the Diversity and Inclusion Committee, to make the Company’s
workplace inclusive and diversity equitable as described on page 16. During 2022, the Committee will measure staff ethnicity
and disability status. The gender split across the Group as at 31 December 2021 is illustrated in the table below.
Board
Senior managers
All employees
Males
Females
4
7
64
2
8
230
Substantial shareholders
The Directors have been advised of the following shareholders who have an interest of 5% or more in the shares of the common
stock of the Company at 31 December 2021 and 15 March 2022. 15 March 2022 is the latest practicable date prior to the
publication of this report.
1010 Printing Limited (C.K. Lau)2
Giunti3
L.F. Orbach
As at 31 December 2021
As at 15 March 2022
Number of
US$0.10 shares of
common stock1
% 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
16,859,569
8,177,820
4,103,615
41.2
20.0
10.0
18,257,569
8,177,820
4,103,615
44.7
20.0
10.0
1 Following an open offer which concluded on 31 January 2020 the allotted share capital of the Company increased from 20,444,550 shares of common
stock to 40,889,100.
2 1010 Printing Limited, which held 16,859,569 shares on 31 December 2021, is ultimately controlled by C.K. Lau.
3 Sergio Giunti and Andrea Giunti Lombardo (shareholders of the Company) plus Montecristo 2019 S.r.L., a private limited company incorporated under the
laws of Italy (an entity, ultimately controlled by Sergio Giunti and Andrea Giunti Lombardo).
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 36. There are no
restrictions on the number of shares that Directors can hold.
In 2020 the following amendment to the Company’s By-Laws was approved at a Special Meeting of shareholders held on 31
January 2020: the election or re-election of any independent director by shareholders must be approved by (a) the shareholders
of the Company, and (b) the independent shareholders of the Company (which excludes any controlling shareholders of the
Company). At the same Special Meeting, shareholders approved a resolution to increase the authorized number of Common
Shares ($0.10) to 55,000,000. The Company’s Certificate of Incorporation was amended accordingly.
Bank facilities
On 16 February 2021, the Group concluded its refinancing, repaid its syndicated loan (a multi-currency facility that comprised a $25m
term loan, a $8m revolving credit facility and a $2m overdraft facility), signing a new facility agreement which ends 16 July 2024. The
multi-currency facility comprises a $10m term loan, a $8m revolving credit facility and a $2m overdraft facility. On the same date, Lion
Rock Group Limited, a related party agreed to provide the Group a $10m loan note at 4% interest, repayable on 31 August 2024.
40
41
THE QUARTO GROUP, INC. ANNUAL REPORT 2021GovernanceSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS DIRECTORS’ REPORT (continued)
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 19 of the Risk Management Review. Operational risks are set out on pages 20 and 21 of the Risk Management Review.
Post balance sheet events
C.K. Lau and 1010 Printing Limited were repaid $6m and $9m respectively in Q1 2022, including accrued interest. This repayment
was made outside the agreement due to a favorable liquidity position at this point in time.
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 2018 (the ‘Code’), available from the FRC website at
www.frc.org.uk. The Board considers that the Company has been in compliance with the principles and provisions of the Code
throughout the year ended 31 December 2021 and to the date of this report with the exception of Provisions 11 and 24.
From 2019, the Code provides that at least half the board of directors of a UK public listed company, excluding the chairman,
should comprise non-executive directors whom the board of directors considers to be independent (Provision 11). Having
considered the guidelines for independence as set out in the Code and the situation of each Director, the Board is satisfied on
each Director’s independence and considers that, even though the Company does not meet the quota of independent directors
pursuant to the Code, two independent directors, which has been the case since late 2018, are adequate for a company of the
Company’s size and nature of the business conducted by the Group.
As a “smaller company” (as defined in the Code as a company below FTSE 350 index throughout the year immediately prior to
the reporting year), the Company complies with the requirements of Provision 24 except that the Chair of the Board is a
member of the Audit and Risk Committee. The Board is satisfied that both members of the Audit and Risk Committee are
independent and bring a wide range of skills, expertise, experience and competence relevant to the sector in which the
Company operates and the challenges it faces and can satisfy the responsibilities of Provision 25.
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 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.
Section 172 statement, KPIs and principal risks
The Company’s section 172 statement can be found in the Strategic Report on pages 17 and 18. Included within the section 172
statement are the disclosures relevant for stakeholder engagement (SI 2008/410 7 Sch 11B) and employee engagement (SI 2008/410 7
Sch 11). KPIs can be found on pages 14 and 15; and risk management, principal risks and uncertainties can be found on pages 19 to 21.
Attendance by Directors at Board and Committee meetings in 2021
Andy Cumming
C.K. Lau
Polly Powell1,2,3
Ken Fund2
Mei Lan Lam2
Jane Moriarty
Andrea Giunti Lombardo2
Total number of meetings
1 Attended Remuneration Committee meetings in 2021 by invitation.
2 Not members of the Remuneration Committee.
3 Resigned on 1 July 2021.
The principles of the Code have been applied as follows:
Board
Audit and Risk
Committee
Nominations
Committee
Remuneration
Committee
11
11
4
11
11
11
11
11
3
—
—
—
—
3
—
3
3
3
—
—
—
3
—
3
4
4
—
—
—
4
—
4
a) The Board of Directors represents the shareholders’ interests in maintaining and growing a successful business including
optimizing consistent long-term financial returns.
b) As at 31 December 2021, the Board comprised one Executive Director and five Non-Executive Directors. The Chairman is
responsible for the leadership of the Board and ensuring its effectiveness. The different roles of the Chairman and Chief
Executive Officer are acknowledged. Jane Moriarty, the Senior Independent Director, is available to shareholders, if they have
42
THE QUARTO GROUP, INC. ANNUAL REPORT 2021Governance
concerns that are not able to be resolved through normal channels. Two Non-Executive Directors, Andy Cumming and Jane
Moriarty were considered by the Board to be independent throughout 2021.
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 11 times in 2021. 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 5 business days 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 Andy Cumming, Jane Moriarty, Mei Lan Lam, Andrea Giunti Lombardo and Ken Fund 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.
f) The remuneration of the Executive Directors is recommended by the Remuneration Committee, comprising Jane Moriarty, who
is the Committee Chair, Andy Cumming, and C.K. Lau. A separate report with respect to Directors’ remuneration is included on
page 35. The Committee meets at least twice a year. In the year ended 31 December 2021 the Committee had met 4 times.
g) The Audit and Risk Committee comprises Jane Moriarty, who is Committee Chair, 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 25 to 27.
h) The Nominations Committee comprises Andy Cumming, who is Committee Chair, Jane Moriarty and C.K. Lau. Details of the
work of the Nominations Committee during the year are set out in its report on page 24.
i) C.K. Lau and the Company Chairman 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 will meet with major shareholders from time to time.
Shareholders are invited to attend the Annual Meeting at least 20 days in advance of the meeting. In 2021 as a result of the
Covid-19 pandemic and government restrictions on travel, shareholders were advised not to attend the Annual Meeting and to
vote by proxy. Quarto notified shareholders of the opportunity to ask questions via e-mail in advance of the Annual Meeting.
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) During 2021 Quarto arranged appropriate insurance cover in respect of legal action against the Directors. From February
2022, the Company will indemnify the Directors in accordance with its By-Laws.
m) The Company has an established whistle-blowing policy and anti-bribery policy.
TCFD Statement
This year is the Company’s first report against the four pillars of TCFD framework in accordance with LR 9.8.7R. The
Company is not fully compliant with all TCFD recommended disclosures as we will complete the assessment of climate-
related risks by the end of H1 2022. The Company cannot comply with disclosures relating to the three recommended
Strategy disclosures and two of the recommended disclosures regarding Metrics and Targets (disclosures a and c) until this
assessment is complete.
GOVERNANCE
The Group Board has oversight of the Company’s response to climate-related risks and is responsible for setting the Company’s
environment and climate-related strategy and with the management team, the Board assesses TCFD-related risks, determines the
Company’s priorities, and monitors the Company’s performance as described below. The Company’s risk register which addresses
all risks relating to the Company is reviewed and updated at least four times in the year and is presented at quarterly Board meetings.
The TCFD management team mentioned below will report on the climate-related risks as part of this routine review.
The Company’s direct emissions arise from operating its office facilities and from business travel; it does not operate vehicles
and does not operate its own manufacturing or distribution services. Indirect emissions arise principally from third-party
suppliers of printing, shipping, and distribution and fulfilment services. Given these emission origins, the Company’s TCFD-
related management team comprises:
• Group Chief Executive Officer – leads the team, with the Board assesses the Company’s priorities, and once the Board has
confirmed targets (as outlined below), monitors the Company’s performance against its climate-risk related targets and
reports performance to the Board. Unless otherwise warranted, performance review will be aligned to the Company’s
established practice of reviewing its risk register quarterly.
• Group Director, Transformations – has an in-depth knowledge of the Company’s operations and can assess practices related
to direct emissions.
• Group Finance Director – as the Company addresses the climate risks and opportunities the financial impacts and
requirements relevant to achieving the Company’s TCFD targets will be properly addressed, including its reporting and
investment proposals arising from mitigations identified in due course.
• Group Procurement Services Director – able to engage and select the Company’s principal supply chain partners to support
the Company’s TCFD efforts.
43
42
THE QUARTO GROUP, INC. ANNUAL REPORT 2021GovernanceSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS DIRECTORS’ REPORT (continued)
Energy Management Limited, an energy management consultancy, supports the management team with advice on
opportunities for engaging renewable energy supplies and will assist in establishing protocols for measuring the Company’s
direct emissions and indirect emissions. The Company believes this team has sufficient experience to manage the short-
term risks and opportunities, however, as its plans evolve it expects that additional members will be included and expert
input, particularly relating to assessing risks and opportunities in its supply chain, will be sought.
The Audit and Risk Committee is responsible for reviewing the Company’s TCFD disclosures (to date, other than this report,
no TCFD-related statement has been made).
The management team is constituted from experienced operations and commercial managers who can brief Audit and Risk
Committee and Board members on both the Company’s emissions footprint and associated physical climate-related risks
along with opportunities. The Company has not completed its climate-related risk assessment, and once the principal risks
are identified appropriate training (and expert advice) will be sought. The Board and Board Committees review their
effectiveness annually and this review process can also assist in identifying training needs.
STRATEGY
The Company will focus on estimating its direct and indirect emissions. Direct emissions arise from its office facilities and from
business travel. Scope 3 business travel emissions have been reported for the first time in 2021 and we will identify how to
measure Scope 1 and Scope 2 emissions for all our offices (i.e. including fully serviced offices) for 2022 onwards and so establish
a baseline for all direct emissions. The Company will continue its practices relating to facilities management where it uses
maintenance and operational controls to minimize energy usage, and where available use electricity supplies from renewable
sources. The effectiveness of these facilities regimes will be assessed from electricity (and natural gas where used) consumption
data and included in Scope 1 and Scope 2 reporting.
During 2022, the Company will establish the methodologies required to estimate its principal indirect emissions (viz. book
manufacture and shipping), and use these details to support baseline and target setting. We will build on the learnings and
opportunities from the Ivy Kids imprint launched in 2021 where books are manufactured in local markets using recycled paper
with carbon-offsetting against manufacturing emissions. The Company needs more time to evaluate the opportunities to expand
on this product approach and in the meantime explore the opportunities to reduce indirect emissions and improve its service to
customers. Printing in end-markets is already underway as a means to mitigate against Covid-related supply chain interruptions
experienced in 2021, and to maintain flexible production schedules that provide customers faster response times. The Company
has secured additional printing capacity in the domestic US market and is negotiating increased printing capacity in Europe.
Climate-related risks being addressed by this assessment fall into the following risk categories:
• Disruptions related to availability of raw materials: the Company prints in Asia, Europe, and in the US and is reliant upon an
international supply of wood pulp from sustainable sources for printing. Climate changes can adversely impact its availability
and cost of printing as a result of low harvest and as the result of extreme climatic-related events damaging plantations –
such events will reduce profitability. The Company relies on having a broad, flexible and diverse supply base, however,
on-going, the Company needs to work with its partners to ensure security of supply as well as maintaining efficient inventory
management (e.g. proactive use of print-on-demand services).
• Disruptions to production capacity related to extreme weather events: the Company produces highly illustrated books
printed by specialised high quality four-color printers in Asia, Europe and the US. Extreme weather events could disrupt
production and supply, by interrupting printing, or in extreme events, damage the printer’s production facility.
• Failure to adapt to customers’ needs: customers’ requirements represent a risk and an opportunity. The Company needs to
satisfy the climate-related eco-production specifications of its co-edition customers, and for its Trade publishing businesses it
risks reputational damage if it does not satisfy its readers’ expectations. The Company will work with its suppliers and
co-edition customers accordingly and will pursue the learnings of its eco-imprint, Ivy Kids, as it develops its climate-friendly
practices. Failure to adapt can decrease sales revenue.
• Managing transition arrangements: currently, the Company’s supply chain is diverse and broad; it is capable of managing
business disruptions by flexing this supply chain. As the Company pursues its emissions-reducing ambitions and as supply
sectors themselves transition towards net-zero practices, the Company needs to address the impact of supplier changes,
competition for printing capacity in local markets, and regulatory changes capable of affecting its product cost and pricing
(e.g. the impact of the EU’s CBAM levy when printing in Europe) on its commercial choices. As suppliers invest and adjust to
low-carbon economies and demands, capacities and new product opportunities are expected. With the prospect of many
things changing however, and without careful management, sales revenues could fall.
Once the Company has a fuller view of its direct and indirect emissions it can become confident in reduction target-setting and
its approach to the specific risks and opportunities it identifies. The Company will prepare its performance targets (short,
medium, and long term) and confirm its principal metrics by end of H1 2022 and update the Company’s risk register accordingly.
At this stage, the Company will then establish an appropriate action program to work towards its targets.
44
THE QUARTO GROUP, INC. ANNUAL REPORT 2021Governance The foregoing will include the Company’s assessment of the transition risks (i.e. market and supply. sector risks the Company
perceives as being associated with transitioning to a low carbon economy) and associated opportunities and with feedback from
its supply chain partners, it will get insight on climate-related physical risks whose details will be incorporated in the Company’s
risk register and managed accordingly. Once the Company has completed its risk assessment, it will then be able to undertake
appropriate climate-related scenarios assessments to address the Company’s resilience.
RISK MANAGEMENT
The TCFD management team is expected to conclude the Company’s risk assessment – risks and opportunities related to
transition and physical climate-related issues – during H1 2022, with expert input (e.g. consultants) as appropriate, and will be
active in (i) identifying the principle climate risks facing the business for approval by the Board; (ii) proposing emissions
reductions targets for approval by the Board; (iii) establishing and managing an activity program to achieve the stated targets;
and (iv) reporting performance to the Audit and Risk Committee.
Risks identified will be categorized in the normal manner, by severity of impact and likelihood of impact. Mitigations will be
identified as appropriate in accordance with (i) the targeted reductions in emissions, and (ii) actions required to mitigate against
physical climate effects. Risks are assessed as market risks (viz. those affecting consumer choice, including impact on the
Company’s reputation); operational risks (viz. opportunities to improve the Company’s market and product position and those
issues that can disrupt operations, typically supply chain related); and financial risks (viz. increased costs arising from climate-related
matters and the need for investment). The TCFD management team will produce the initial assessment by end of H1 2022.
Once the principal climate-related risks are identified and approved by the Board, the risks will be entered into the Company’s
risk register. The Chair of the Audit and Risk Committee will report performance to the Board as part of the Company’s
established risk management practices – the Board reviews the risk register four times a year.
The proposed TCFD management team is constituted in a manner that will permit Company policies and operations to be
updated as appropriate.
METRICS AND TARGETS
Scopes 1, 2 and 3 direct GHG emissions will continue to be measured as tCO2e using industry standards methods as reported below
and as part of SECR requirements for the Company’s UK company (as reported below). This year our reporting has expanded to
include Scope 3 reporting relating to business travel. In 2022, Scope-reporting will expand further as the Company will estimate
GHG emissions from all its offices including its fully serviced offices. The intensity measure used is tCO2e per staff member.
Direct emissions are managed by the Company, and opportunities for improvement can be achieved through suitable office
systems controls, adopting IT systems to reduce business travel, and adopting renewable electricity supplies where possible.
Indirect emissions are more difficult to estimate, and as regards indirect Scope 3 emissions suitable protocols need to be
identified in order to establish a baseline. Until this protocol is confirmed and the Board has approved performance targets, the
Company cannot make disclosures related to metrics and targets.
Greenhouse gas emissions reporting
During the year, the Group worked with Energy Management Ltd, 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 is not reporting on fully serviced offices where only a service
charge is applied. 2021 is the first year that the Group has reported on Scope 3 emissions originating from business travel.
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
Scope 31,2
Total
Average number of staff
Emissions per staff member
1 These emissions relate to business travel.
2 2021 is the first year of Scope 3 reporting.
Total (tCO2e)
2021
UK (tCO2e)
2021
UK (kWh)
2021
Total (tCO2e)
2020
UK (tCO2e)
2020
UK (kWh)
2020
7
79
48
134
304
0.44
7
29
4
40
170
0.24
45
37,741
137,285
15,639
190,665
170
1,122
11
117
—
128
302
0.42
11
45
—
56
172
0.33
60,364
191,975
—
252,339
172
1,471
44
THE QUARTO GROUP, INC. ANNUAL REPORT 2021GovernanceSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS DIRECTORS’ REPORT (continued)
Streamlined Energy and Carbon Reporting
The Company’s principal source of emissions arises from the operation of its facilities, and following a review of office space in
the UK, office square footage reduced by 13% from March 2021. UK emissions are identified in the above table as measured by
tCO2e and kWh for 2021 and 2020.
The UK’s SECR requirement expands on the emissions that relate to the Company’s UK subsidiary, Quarto Publishing plc, and so
an appropriate report will be given in that company’s annual report.
During 2021, the Company started to report on its estimated Scope 3 related emissions for business travel and reviewed its UK
office maintenance schedules (including TM44 inspections relating to air conditioning systems) and controls to ensure correct
operation and avoid excess energy usage. The Company will continue to review its activities in relation to SECR during 2022.
Risk management and internal controls
The Board is responsible for the Group’s system of internal control and for reviewing its effectiveness. As noted earlier,
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 authorization 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 summarizing the Group position.
e) 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 which cover 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 set out on pages 19 to 21 during 2021.
Michael Clarke
Company Secretary
17 March 2022
Company Registration Number: FC0 13814
46
THE QUARTO GROUP, INC. ANNUAL REPORT 2021Governance Statement of Directors’ Responsibilities
in Respect of the Directors’ Report
and the Financial Statements
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 and Risk 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.
To the best of our knowledge:
•
•
the Group financial statements,
prepared in accordance with ‘UK
Adopted’ IFRSs, 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.
Chuk Kin Lau
Executive Director
17 March 2022
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
‘UK Adopted’ International Financial
Reporting Standards (IFRSs) 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 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.
46
47
THE QUARTO GROUP, INC. ANNUAL REPORT 2021GovernanceSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS Independent Auditor’s Report to the
Members 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 2021, which comprise of the Consolidated Statement of Comprehensive Income, the
Consolidated Balance Sheet, the Consolidated Statement of Changes in Equity, the Consolidated Cash Flow Statement, the
Company Balance Sheet, the company statement of comprehensive income, 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 UK-adopted international accounting
standards. 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 2021 and of the group and of the parent company’s profit for the year then ended;
the group financial statements have been properly prepared in accordance with UK-adopted international accounting
standards;
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 parent company incorporated in the United Kingdom.
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.
Conclusions relating to going concern
We are responsible for concluding on the appropriateness of the directors’ use of the going concern basis of accounting and,
based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast
significant doubt on the group’s and the parent company’s ability to continue as a going concern. If we conclude that a material
uncertainty exists, we are required to draw attention in our report to the related disclosures in the financial statements or, if such
disclosures are inadequate, to modify the auditor’s opinion. Our conclusions are based on the audit evidence obtained up to the
date of our report. However, future events or conditions may cause the group or the parent company to cease to continue as a
going concern.
As part of our risk assessment, we evaluated the Group’s and the parent company’s cash position, assessed the Group’s and the
parent company’s performance and headroom against bank covenants throughout the year, considered the Group’s and the
parent company’s lack of reliance on government assistance throughout the current year, and concluded that the Group’s and
the parent company’s ability to continue as a going concern was not a significant risk that required special audit consideration.
Our evaluation of the directors’ assessment of the Group’s and the parent company’s ability to continue to adopt the going
concern basis of accounting included reviewing management’s base case cash flow forecasts covering the period to 31 March
2023, challenging the underlying assumptions and reviewing forecast covenant compliance throughout the going concern
period. We obtained management’s reverse stress test prepared to consider the scenario that would cause a breach in covenant
compliance and evaluated the impact and availability of mitigating actions available to management to restrict the impact on the
Group’s and the parent company’s performance and covenant compliance. Our assessment also included a review of the
accuracy of management’s past forecasting and an assessment of the adequacy of related disclosures within the annual report.
In our evaluation of the directors’ conclusions, we considered the inherent risks associated with the group’s and the parent
company’s business model including effects arising from macro-economic uncertainties such as Brexit and Covid-19, we
assessed and challenged the reasonableness of estimates made by the directors and the related disclosures and analysed how
those risks might affect the group’s and the parent company’s financial resources or ability to continue operations over the
going concern period.
48
THE QUARTO GROUP, INC. ANNUAL REPORT 2021Governance Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that,
individually or collectively, may cast significant doubt on the group’s and the parent company’s ability to continue as a going
concern for a period of at least twelve months from when the financial statements are authorised for issue.
In auditing the financial statements, we have concluded that the directors’ use of the going concern basis of accounting in the
preparation of the financial statements is appropriate.
The responsibilities of the directors with respect to going concern are described in the ‘Responsibilities of directors for the
financial statements’ section of this report.
Our approach to the audit
Overview of our audit approach
Materiality
Key audit
matters
OVERALL MATERIALITY:
• Group: $693,600, which represents approximately 0.5% of the group’s revenue.
• Parent company: $48,000, which represents 1% of the parent company’s total assets.
Scoping
KEY AUDIT MATTERS WERE IDENTIFIED AS:
• completeness of the sales return provision; and
• valuation and accuracy of pre-publication intangible assets.
Our auditor’s report for the year ended 31 December 2020 included two key audit matters
that have not been reported as key audit matters in our current year’s report. These relate
to the assessment of the carrying value of goodwill and the going concern assessment.
The exclusion of these matters from our current year’s report reflects our risk assessment,
wherein the group’s continued improvement in profitability and performance over the
past several years, combined with decreased uncertainty surrounding the impact of
Covid-19 has informed a lower risk assessment relating to these matters. Therefore, these
have not been reported as key audit matters for the year ended 31 December 2021.
We have performed an audit of the financial information of the components using
component materiality (full-scope audit) for the parent company, of Quarto Publishing
plc (‘Quarto UK’), and of Quarto Publishing Group USA Inc. (‘Quarto US’).
We have performed analytical procedures on the financial information of other companies
within the group. This is consistent with the scope of the audit in the prior year.
Key audit matters
Key audit matters are those matters that, in our professional judgement, 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.
Description
Audit response
KAM
Disclosures
Our results/
Key observations
48
49
THE QUARTO GROUP, INC. ANNUAL REPORT 2021GovernanceSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS INDEPENDENT AUDITOR’S REPORT (continued)
In the graph below, we have presented the key audit matters, significant risks and other risks relevant to the audit.
High
Other
Revenue
Pre-publication Intangibles –
valuation and accuracy
External Pre-publication
Intangibles – accuracy*
Sales Return -
Completeness
t
c
a
p
m
i
t
n
e
m
e
t
a
t
s
i
l
a
c
n
a
n
fi
l
a
i
t
n
e
t
o
P
Related party
transactions
Trade
Receivables
Goodwill -
Valuation
Co-Edition revenue in
Q4 - Occurrence
Management
override
Inventory
Borrowings
IFRS 16
Deferred
tax assets
Deferred
Income
Going Concern
*This relates to the capitalised
external, third party costs and the
capitalised timesheet costs within
pre-publication intangibles
Low
Low
Extent of management judgement
High
.
Key audit matter
Significant risk
Other risk
Key Audit Matter – Group
How our scope addressed the matter – Group
RISK 1: COMPLETENESS OF SALES RETURN
PROVISION
In responding to the key audit matter, our audit work included but was not
restricted to:
We identified the completeness of the sales returns
provision as one of the most significant assessed risks
of material misstatement due to error.
The Group generates material revenues from published
books. Certain trade customers have a right of return
for these books and therefore the revenue is recog-
nised net of a provision for these returns. At 31
December 2021, this provision totals $5,776,000.
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 to predict future
returns and therefore the provision which is required to
be made.
RELEVANT DISCLOSURES IN THE ANNUAL
REPORT AND ACCOUNTS 2021
• Financial statements: Note 1, General information
and significant accounting policies and Note 20,
Trade and other payables
• Audit and Risk Committee Report: Page 25
• Considering the appropriateness of the accounting policy for the
provision for sales returns by checking whether it is in accordance with
the financial reporting framework, including IAS 37 ‘Provisions, Contin-
gent Liabilities and Contingent Assets’ and IFRS 15 ‘Revenue from
Contracts with Customers’;
• Selecting a sample of returns made during the year and agreeing to
supporting documentation in order to confirm the accuracy of the data
used to calculate the rates of returns used in management’s calculation
of the provision;
• Recalculating the provision to confirm that it is appropriate and in
accordance with management’s policy;
• Comparing actual returns in the period to the provision made in the
prior period in order to evaluate the accuracy of management’s
forecasting;
• Obtaining actual returns for the period after the balance sheet date and
comparing these with the returns provision for the same period; and
• Inquiring of sales and operations staff as to their knowledge of any
exceptional returns in the period or the potential for these in the returns
period.
OUR RESULTS
• Our audit work did not identify any material errors in the completeness
of the sales returns provision.
50
THE QUARTO GROUP, INC. ANNUAL REPORT 2021Governance
Key Audit Matter – Group
How our scope addressed the matter – Group
RISK 2: VALUATION AND ACCURACY OF PRE-
PUBLICATION INTANGIBLE ASSETS
In responding to the key audit matter, our audit work included but was not
restricted to:
We have identified valuation and accuracy of pre-publi-
cation intangible assets as one of the most significant
assessed risks of material misstatement due to error.
The Group holds capitalised pre-publication costs as
intangible assets which have a net book value of
$29,941,000 on its consolidated balance sheet.
There is judgement involved in assessing the useful
economic life of these assets, which informs manage-
ment’s amortisation policy. Therefore, there is a risk
that intangible assets are misstated due to an inappro-
priate amortisation policy.
During the period management have amended the
useful economic life of these assets from a three-year
straight-line policy to a reducing balance method.
A significant portion of the capitalised costs relate to
creative staff time and internal overheads, which
management have determined relate to the develop-
ment of book titles.
There is management judgement involved in determin-
ing the portion of overhead costs and employee time
which is directly attributable to the development of
books, as well as assessing the split between research
and development activities, which would determine
how much of this time should be capitalised.
RELEVANT DISCLOSURES IN THE ANNUAL
REPORT AND ACCOUNTS 2021
• Financial statements: Note 1, General information
and significant accounting policies and Note 14,
Intangible assets – pre-publication costs;
• Audit and Risk Committee Report: Page 25
• Considering the appropriateness of the amortisation policy by checking
whether it is in accordance with the financial reporting framework,
including IAS 38 ‘Intangible Assets’;
• Challenging management on the appropriateness of the assumption of
a three-year useful economic life by reviewing historic sales patterns
and assessing how well these support management’s estimate;
• Obtaining management’s paper on their proposed amendments to the
group’s amortisation policy and challenging management’s assump-
tions;
• Selecting a sample of the underlying sales and publishing data which
underpins management’s analysis and agreeing these to support;
• Recalculating the amortisation charge to confirm it is appropriate, in
accordance with management’s policy and reflects the economic
pattern of the underlying assets useful life;
• Performing a benchmarking analysis against businesses of a similar size
and industry to Quarto;
• Recalculating management’s impairment analysis of titles held in
pre-publication intangibles, challenging management’s underlying
assumptions and agreeing a sample of the underlying data to support;
• Assessing the adequacy of financial statement disclosures in relation to
the management estimate associated with the useful economic life of
pre-publication intangibles;
• Considering the appropriateness of the capitalisation policy by checking
whether it is in accordance with the financial reporting framework,
including IAS 38 ‘Intangible Assets’;
• Challenging judgements made by management in determining which
costs are directly attributable to the development of book titles;
• Challenging management over the assumptions used to determine the
capitalisation percentages applied to overheads and corroborating these
assumptions to support where appropriate;
• Selecting a sample of costs capitalised in the year and agreeing to
supporting documentation to confirm they are directly attributable to
the development of book titles; and
• Making inquiries with members of the creative team to understand their
role and the appropriateness of their time being capitalised to pre-publi-
cation costs.
OUR RESULTS
Our audit work identified that the straight line amortisation of pre-publica-
tion intangibles over a useful economic life of three years was no longer
appropriate given the sales profile of the assets.
Management subsequently revised their amortisation policy for the
current and future years, to a 50% reducing balance method.
Following the application of the revised amortisation policy, our audit
work did not identify any material errors in the accuracy or valuation of
pre-publication intangibles.
We did not identify any key audit matters relating to the audit of the financial statements of the parent company.
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THE QUARTO GROUP, INC. ANNUAL REPORT 2021GovernanceSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS INDEPENDENT AUDITOR’S REPORT (continued)
OUR APPLICATION OF MATERIALITY
We apply the concept of materiality both in planning and performing the audit, and in evaluating the effect of identified
misstatements on the audit and of uncorrected misstatements, if any, on the financial statements and in forming the opinion in
the auditor’s report.
Materiality was determined as follows:
Materiality measure
Group
Parent company
MATERIALITY FOR FINANCIAL
STATEMENTS AS A WHOLE
We define materiality as the magnitude of misstatement in the financial statements that,
individually or in the aggregate, could reasonably be expected to influence the economic
decisions of the users of these financial statements. We use materiality in determining the
nature, timing and extent of our audit work.
Materiality threshold
$693,600, which is approximately 0.5% of group
revenue.
$48,000, which is approximately 1% of the
parent company’s total assets.
This benchmark is considered the most
appropriate because the parent company is
a holding company and has no revenue.
Materiality for the current year is the same
as the level that we determined for the year
ended 31 December 2020.
No reassessment of materiality was
required.
Significant judgements made by
auditor in determining materiality
Significant revision of materiality
threshold that was made as the
audit progressed
This benchmark is considered the most
appropriate because revenue is a key driver and
a key performance indicator of the business,
monitored by management and the directors.
As part of this assessment, we considered the
use of earnings before tax as the benchmark
however as there have been significant fluctua-
tions in the group’s earnings before tax in recent
years this was not deemed to be appropriate.
Given the current uncertainties in the mac-
ro-economic environment a percentage of 0.5%
of the revenue benchmark has been applied.
We also referred to key metrics and perfor-
mance indicators raised in the annual report to
determine our revenue based materiality; this is
therefore also a reflection of what the entity
deem to be key benchmarks for users of the
financial statements.
Materiality for the current year is higher than the
level that we determined for the year ended 31
December 2020 to reflect the increase in the
group’s revenue in the current year.
We calculated materiality during the planning
stage of the audit based on a straight-line
extrapolation of revenue earned from January
2021 to September 2021.
During the course of our audit, we re-assessed
initial materiality based on actual revenue for the
year ended 31 December 2021 and adjusted our
audit procedures accordingly. This was to
ensure our audit work has been completed to
an appropriate level based on the materiality
benchmark selected.
52
THE QUARTO GROUP, INC. ANNUAL REPORT 2021Governance Materiality measure
Group
Parent company
PERFORMANCE MATERIALITY
USED TO DRIVE THE EXTENT
OF OUR TESTING
We set performance materiality at an amount less than materiality for the financial statements as
a whole to reduce to an appropriately low level the probability that the aggregate of uncorrected
and undetected misstatements exceeds materiality for the financial statements as a whole.
Performance materiality threshold
$486,000, which is 70% of financial statement
materiality.
$33,600, which is 70% of financial state-
ment materiality.
Significant judgements made by
auditor in determining perfor-
mance materiality
In determining performance materiality, we
made the following significant judgements:
• Our experience with auditing the financial
statements of the Group in previous years –
based on the number and quantum of
identified misstatements in the prior year audit
and management’s attitude to correcting
misstatements identified;
• Our assessment of the strength and effective-
In determining performance materiality, we
made the following significant judgements:
• Our experience with auditing the
financial statements of the parent
company in previous years – based on
the number and quantum of identified
misstatements in the prior year audit and
management’s attitude to correcting
misstatements identified; and
SPECIFIC MATERIALITY
Specific materiality
COMMUNICATION OF
MISSTATEMENTS TO THE AUDIT
COMMITTEE
Threshold for communication
ness of the control environment; and
• Our assessment of the strength and
• The number of components within the Group
and the extent of audit procedures planned
and performed at these components.
effectiveness of the control environment.
We determine specific materiality for one or more particular classes of transactions, account
balances or disclosures for which misstatements of lesser amounts than materiality for the
financial statements as a whole could reasonably be expected to influence the economic
decisions of users taken on the basis of the financial statements.
We determined a lower level of specific
materiality for the following areas:
• Related party transactions; and
• Directors’ remuneration
We determined a lower level of specific
materiality for the following areas:
• Related party transactions; and
• Directors’ remuneration
We determine a threshold for reporting unadjusted differences to the audit committee.
$34,680 and misstatements below that thresh-
old that, in our view, warrant reporting on
qualitative grounds.
$2,400 and misstatements below that
threshold that, in our view, warrant
reporting on qualitative grounds.
The graph below illustrates how performance materiality interacts with our overall materiality and the tolerance for potential
uncorrected misstatements.
Overall materiality
Group
Revenue
$151,483k
PM
$486k
70%
FSM
$694k
0.46%
TFPUM
$208k
30%
Parent Company
Total Assets
$4,759k
PM
$34k
70%
FSM
$48k
1%
TFPUM
$14k
30%
FSM: Financial statements materiality, PM:
Performance materiality, TFPUM: Tolerance for
potential uncorrected misstatements
An overview of the scope of our audit
We performed a risk-based audit that requires an understanding of the group’s and the parent company’s business and in
particular matters related to:
UNDERSTANDING THE GROUP, ITS COMPONENTS, AND THEIR ENVIRONMENTS, INCLUDING GROUP-WIDE CONTROLS
• The engagement team obtained an understanding of the group and its environment, including group-wide controls, and
assessed the risks of material misstatement at the group level; and
• The group comprises of two trading components alongside multiple dormant components. The groups financial system is
independent at each component however input is provided into the group wide controls by group management.
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THE QUARTO GROUP, INC. ANNUAL REPORT 2021GovernanceSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS INDEPENDENT AUDITOR’S REPORT (continued)
IDENTIFYING SIGNIFICANT COMPONENTS
• The group audit team evaluated the various components to assess their significance and determined the planned audit
response based on a measure of materiality. Significance was determined as a percentage of the group’s total assets,
revenues and profit before taxation.
TYPE OF WORK TO BE PERFORMED ON FINANCIAL INFORMATION OF PARENT AND OTHER COMPONENTS
• The parent entity has been subjected to a full scope audit, being an audit of the financial information of the component using
component materiality, of its financial statements;
• Based on our evaluation we considered that the only significant components of the group are Quarto Publishing plc and
Quarto Publishing Group (USA) Inc. due to their significance to the group;
• We have performed a full-scope audit of all significant components of the group as identified above;
• Key audit matters were identified within the group as part of our risk assessment procedures. Disclosures as to how the key
audit matters identified have been addressed can be found within the key audit matter section of our audit report;
• The financial information of the other components in the group has been subjected to analytical procedures at a group level.
PERFORMANCE OF OUR AUDIT
• The full scope audits performed represent 100% of the group’s continuing revenue for the year, 100% of the group’s total
assets, and 99.1% of the group’s total liabilities;
• As part of our procedures a review of the group’s IT systems and controls has been completed.
CHANGES IN APPROACH FROM PREVIOUS PERIOD
• Our approach is consistent with the approach used in the previous year, due to travel restrictions imposed as a result of COVID-19,
our audit work in relation to Quarto Publishing Group (USA) Inc. had to be completed virtually as opposed to an on-site visit.
• We have been able to complete site visits through the audit engagement at the client site for Quarto Publishing plc as well as
completing in person stock counts for Quarto Publishing Group (USA) Inc at the main distribution site in the US.
Other information
The directors are responsible for the other information. The other information comprises the information included in the annual
report, 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.
Our opinions on other matters prescribed by the Companies Act 2006, were it to apply to the parent
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.
Matter on which we are required to report under the Companies Act 2006, were it to apply to the parent
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
parent 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
54
THE QUARTO GROUP, INC. ANNUAL REPORT 2021Governance •
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.
Corporate governance statement
The Listing Rules require us to review the directors’ statement in relation to going concern, longer-term viability and that part of
the Corporate Governance Statement relating to the group’s and the parent company’s compliance with the provisions of the
UK Corporate Governance Code specified for our review.
Based on the work undertaken as part of our audit, we have concluded that each of the following elements of the Corporate
Governance Statement is materially consistent with the financial statements or our knowledge obtained during the audit:
•
•
•
•
•
•
the directors’ statement in 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’s 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;
the directors’ explanation in the annual report as to how they have assessed the prospects of the group and the parent
company, 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 and the parent company will be able to continue in operation and
meet their liabilities as they fall due over the period of their assessment, including any related disclosures drawing attention to
any necessary qualifications or assumptions;
the directors’ statement 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 and the parent company’s
performance, business model and strategy;
the directors’ confirmation in the annual report that they have carried out a robust assessment of the principal and emerging
risks facing the group and the parent company, including the impact of Brexit and Covid-19, and the disclosures in the annual
report that describe the principal risks, procedures to identify emerging risks and an explanation of how they are being
managed or mitigated;
the section of the annual report that describes the review of the effectiveness of group’s and the parent company’s risk management
and internal control systems, covering all material controls, including financial, operational and compliance controls; and
the section of the annual report describing the work of the audit committee, including significant issues that the audit
committee considered relating to the financial statements and how these issues were addressed.
Responsibilities of directors for the financial statements
As explained more fully in the directors’ responsibilities statement, the directors are responsible for the preparation of the financial
statements and for being satisfied that they give a true and fair view, 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.
Auditor’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.
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.
EXPLANATION AS TO WHAT EXTENT THE AUDIT WAS CONSIDERED CAPABLE OF DETECTING IRREGULARITIES,
INCLUDING FRAUD
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our
responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. Owing to the
inherent limitations of an audit, there is an unavoidable risk that material misstatements in the financial statements may not be
detected, even though the audit is properly planned and performed in accordance with ISAs (UK).
The extent to which our procedures are capable of detecting irregularities, including fraud, is detailed below:
54
55
THE QUARTO GROUP, INC. ANNUAL REPORT 2021GovernanceSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS INDEPENDENT AUDITOR’S REPORT (continued)
• We obtained an understanding of the legal and regulatory frameworks applicable to the parent company and the group and
the industry in which they operate. We determined that the following laws and regulations were most significant: UK-adopted
international accounting standards, for the Group, Financial Reporting Standard 102 ‘The Financial Reporting Standard
applicable in the UK and Republic of Ireland’ for the parent company, Listing Rules, Companies Act 2006, Tax rules in the UK
and US and the UK Corporate Governance Code.
• We obtained an understanding of how the parent company and the group is complying with those legal and regulatory
frameworks by making inquiries of management, at a group and component level, inquiring with those responsible for legal
and compliance procedures and with the company secretary. We corroborated our inquiries through our review of board
minutes and papers provided to the Audit Committee.
• We evaluated the design and implementation of controls over the financial reporting systems and the effectiveness of the
control environment as part of our risk assessment.
• We assessed the susceptibility of the parent company’s and group’s financial statements to material misstatement, including
how fraud might occur. Audit procedures performed included:
– identifying and assessing the design effectiveness of controls management has in place to prevent and detect fraud;
– understanding how those charged with governance considered and addressed the potential for override of controls or
other inappropriate influence over the financial reporting process;
– challenging assumptions and judgments made by management in its significant accounting estimates; and
– identifying and testing journal entries posted in the year which were deemed to be unusual.
• These audit procedures were designed to provide reasonable assurance that the financial statements were free from fraud or
error. The risk of not detecting a material misstatement due to fraud is higher than the risk of not detecting one resulting from
error and detecting irregularities that result from fraud is inherently more difficult than detecting those that result from error,
as fraud may involve collusion, deliberate concealment, forgery or intentional misrepresentations. Also, the further removed
non-compliance with laws and regulations is from events and transactions reflected in the financial statements, the less likely
we would become aware of it.
• The engagement partner assessed whether the engagement team collectively had the appropriate competence and capabilities
to identify and recognise non-compliance with laws and regulations through an assessment of the engagement team’s:
– understanding of, and practical experience with, audit engagements of a similar nature and complexity, through
appropriate training and participation; and
– knowledge of the industry in which the Group and parent company operate
• We note our key audit matter in relation to the completeness of the sales return provision relates to irregularities, including
fraud. Refer to key audit matters for work completed and our results from the procedures performed.
• We note that there is no specific industry legislation that significantly impacts The Quarto Group, inc. and the engagement
team are deemed to hold appropriate competence and capabilities to identify non-compliance with laws and regulations.
Other matters which we are required to address
Following the recommendation of the audit committee, we were appointed by the Board on 20 November 2017 to audit the
financial statements for the year ended 31 December 2017 and subsequent financial periods.
The period of total uninterrupted engagement including previous renewals and reappointments of the firm is 5 years, covering
the periods ending 31 December 2017 to 31 December 2021.
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.
Use of our report
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 23 November 2021. 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.
David White
Senior Statutory Auditor
for and on behalf of Grant Thornton UK LLP
Statutory Auditor, Chartered Accountants
London
17 March 2022
56
THE QUARTO GROUP, INC. ANNUAL REPORT 2021Governance Consolidated Income Statement
FOR THE YEAR ENDED 31 DECEMBER 2021
Continuing operations
Revenue
Cost of sales
Gross profit
Administrative expenses
Impairment of financial assets
Distribution costs
Operating profit before amortization of acquired intangibles
and exceptional items
Amortization of acquired intangibles
Exceptional items
Operating profit
Finance costs
Profit before tax
Tax
Profit for the year
Attributable to:
Owners of the parent
Earnings per share (cents)
From continuing operations
Basic
Diluted
The notes on pages 62 to 89 are an integral part of these consolidated financial statements.
Notes
2021
$000
2020
$000
2
151,483
126,883
(103,897)
(89,298)
47,586
37,585
(22,314)
(18,264)
16
4
5
7
8
9
9
(874)
(8,439)
15,959
(7)
—
15,952
(1,796)
14,156
(4,230)
9,926
9,926
9,926
(1,571)
(7,132)
10,618
(890)
(446)
9,282
(2,693)
6,589
(2,020)
4,569
4,569
4,569
24.3
24.3
11.7
11.6
57
57
THE QUARTO GROUP, INC. ANNUAL REPORT 2021Financial StatementsSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS Consolidated Statement
of Comprehensive Income
FOR THE YEAR ENDED 31 DECEMBER 2021
Profit for the year
Items that may be reclassified to profit or loss
Foreign exchange translation differences
Tax relating to items that may be reclassified to profit or loss
Total other comprehensive income
Total comprehensive income for the year
Total comprehensive income for the year attributable to:
Owners of the parent
The notes on pages 62 to 89 are an integral part of these consolidated financial statements.
2021
$000
9,926
(506)
66
(440)
9,486
9,486
9,486
2020
$000
4,569
1,087
54
1,141
5,710
5,710
5,710
58
THE QUARTO GROUP, INC. ANNUAL REPORT 2021Financial Statements Consolidated Balance Sheet
AS AT 31 DECEMBER 2021
Non-current assets
Property, plant and equipment
Goodwill
Intangible assets: Pre-publication costs
Other intangible assets
Intangible assets
Deferred tax assets
Total non-current assets
Current assets
Inventories
Trade and other receivables
Cash and cash equivalents
Total current assets
Total assets
Current liabilities
Short term borrowings
Trade and other payables
Lease liabilities
Tax payable
Total current liabilities
Non-current liabilities
Long term borrowings
Deferred tax liabilities
Tax payable
Lease liabilities
Total non-current liabilities
Total liabilities
Net assets
Equity
Share capital
Paid in surplus
Retained earnings and other reserves
Total equity
Notes
12
10
14
11
18
15
16
17
17
20
19
17
18
19
23
23
24
2021
$000
5,181
19,286
29,941
51
49,278
2,436
56,895
20,393
51,242
28,432
100,067
156,962
(5,438)
(53,789)
(1,363)
(7,467)
Restated1
2020
$000
6,818
19,381
40,913
159
60,453
1,360
68,631
15,465
44,519
22,079
82,063
150,694
(41,819)
(50,064)
(1,968)
(4,355)
(68,057)
(98,206)
(28,508)
(3,130)
(386)
(3,672)
(35,696)
—
(4,079)
(386)
,(4,310)
(8,775)
(103,753)
(106,981)
53,209
43,713
4,089
48,701
419
53,209
4,089
48,701
(9,077)
43,713
1 Please refer to note 18.
The notes on pages 62 to 89 are an integral part of these consolidated financial statements.
The financial statements were approved by the Board of Directors and authorized for issue on 17 March 2022. They were signed
on its behalf by:
58
Chuk Kin Lau
Director
17 March 2022
59
THE QUARTO GROUP, INC. ANNUAL REPORT 2021Financial StatementsSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS Consolidated Statement
of Changes in Equity
FOR THE YEAR ENDED 31 DECEMBER 2021
Share
capital
$000
2,045
Paid
in surplus
$000
Translation
Reserve
$000
33,764
(6,748)
Balance at 1 January 2020
Profit for the year
Other comprehensive income
Foreign exchange translation differences
Tax relating to items that may be reclassified to profit or loss
Total comprehensive income for the year
Transactions with owners
Share capital raised
Costs of raising share capital
Share based payments credit
Total transactions with owners for the year
Balance at 31 December 2020
Profit for the year
Other comprehensive income
Foreign exchange translation differences
Tax relating to items that may be reclassified to profit or loss
Total comprehensive income for the year
Transactions with owners
Share based payments credit
Total transactions with owners for the year
—
—
—
—
2,044
—
—
2,044
4,089
—
—
—
—
—
—
—
—
—
—
16,307
(1,370)
—
14,937
48,701
—
—
—
—
—
—
Retained
earnings
$000
(8,007)
4,569
—
—
4,569
—
—
(32)
(32)
—
1,087
54
1,141
—
—
—
—
(5,607)
—
(3,470)
9,926
(506)
66
(440)
—
—
—
—
9,926
10
10
Equity
attributable
to owners
of the
parent
$000
21,054
4,569
1,087
54
5,710
18,351
(1,370)
(32)
16,949
43,713
9,926
(506)
66
9,486
10
10
Balance at 31 December 2021
4,089
48,701
(6,047)
6,466
53,209
The notes on pages 62 to 89 are an integral part of these consolidated financial statements.
60
THE QUARTO GROUP, INC. ANNUAL REPORT 2021Financial Statements Consolidated Cash Flow Statement
FOR THE YEAR ENDED 31 DECEMBER 2021
Profit for the year
Adjustments for:
Net finance costs
Depreciation of property, plant and equipment
Software amortization
Tax expense
Profit on disposal of right-of-use assets
Share based payments/(credits)
Amortization of acquired intangibles
Amortization and impairment of pre-publication costs
Operating cash flows before movements in working capital
(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
Investment in pre-publication costs
Purchases of property, plant and equipment
Net cash used in investing activities
Financing activities
Interest payments
New share capital raised
Costs of raising new share capital
Lease payments
Drawdown of revolving credit facility and other loan
Repayment of term loan and revolving credit facility
Net cash used in financing activities
Net increase 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
The notes on pages 62 to 89 are an integral part of these consolidated financial statements.
2021
$000
9,926
1,796
1,741
101
4,230
—
10
7
31,000
48,811
(5,036)
(7,106)
4,035
40,704
(3,053)
37,651
2020
$000
4,569
2,693
2,160
231
2,020
(35)
(32)
890
28,646
41,142
4,023
2,721
(9,205)
38,681
(1,760)
36,921
(20,229)
(20,324)
(111)
(34)
(20,340)
(20,358)
(1,866)
—
—
(1,426)
22,994
(30,840)
(11,138)
6,173
22,079
180
28,432
(1,297)
18,351
(1,370)
(1,995)
4,520
(28,413)
(10,204)
6,359
15,621
99
22,079
60
61
THE QUARTO GROUP, INC. ANNUAL REPORT 2021Financial StatementsSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS Notes 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 97. The nature of the Group’s operations and its principal activities are set out in the Chief Executive Officer’s Statement on page 7.
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.
CHANGE IN ESTIMATE
The group undertook a review of the amortization period and method of the pre-publication costs in the development of the books
title prior to publication. The review resulted in the change of method used to amortize the pre-publication costs in accordance with
IAS 38 - Intangible Assets. The amortization rate has now changed prospectively from a 3 year straight line to a 50% reducing balance
basis. The impact of this change is that the amortization charge of the group for the current year has been reduced by $1.26m.
During 2021, actual returns reduced by 31% year on year. As the directors believe this to be a short-term issue, the directors have
extended the period which they monitor historical returns to ensure that the longer term trend is reflected in the provision.
Accordingly, the period that sales and returns are reviewed was extended from 1 to 3 years. The estimated period that returns are
made from the point of sale remains at 6 months, being the final six months of the financial year.
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 ‘UK Adopted’
International Financial Reporting Standards (‘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 90 to 95.
BASIS OF ACCOUNTING
The financial statements are prepared on the historical cost basis, except that derivative financial instruments are stated at fair value.
STANDARDS, AMENDMENTS AND INTERPRETATIONS TO EXISTING STANDARDS THAT ARE NOT YET EFFECTIVE AND
HAVE NOT BEEN ADOPTED EARLY BY THE GROUP
A number of amendments to accounting standards and Interpretations, effective in the current financial year have been adopted
but have not had a material impact on the Group financial statements.
The Group has not applied any other standards, Interpretations or amendments that have been issued but are not yet effective.
Management anticipates that all relevant pronouncements will be adopted for the first period beginning on or after the effective
date of the pronouncement.
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 recognized 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:
GOODWILL
Note 10:
Management makes estimates and assumptions in measuring the carrying amount of goodwill. In considering whether goodwill
has been impaired, the recoverable amount of cash generating units has been determined based on value in use calculations.
These calculations require management to estimate future cash flows, a long-term growth rate and an appropriate discount rate.
The sensitivity of the carrying amount of goodwill to these variables are considered.
INTANGIBLE ASSETS
Note 14:
Management makes estimates and assumptions when assessing the estimated economic life attributed to such titles. The
capitalisation of these assets and the related amortization and impairment charges are based on estimates about the value and
economic life of such items. The Group undertook a review of the pre-publication cost amortization with the benefits
generated from the book title revenues. We concluded that a 50% reducing balance method of amortization was now
appropriate rather than the 3 year straight line basis.
62
THE QUARTO GROUP, INC. ANNUAL REPORT 2021Financial Statements
1 General information and significant accounting policies (continued)
The carrying amount of the intangible 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.
SALES RETURNS ALLOWANCE
Note 1, 2, 20:
On certain contracts, the customer has a right to return the products. The Group makes an allowance for this, based on a review
of the historical return patterns associated with each customer, as well as current market trends. During 2021, actual returns
reduced by 31% year on year which the directors believe was due to a large extent, by logistic and distribution issues that
resulted in a significant backlog of returns and a change in customer habits. As this is believed to be a short-term issue, the
directors have extended the period which they monitor historical returns to ensure that the longer-term trend is reflected in the
provision. Accordingly, the period that sales and returns are reviewed to form an expectation of the sales return percentage was
extended from 1 year to 3 years, with equal weighting given to each year. The estimated period that returns are made from the
point of sale remains at 6 months, being the final six months of the financial year. The returns provision for the group, was
$5.8m at 31 December 2021 which in accordance with the requirements of IFRS 15 - Revenue from Contracts with Customers,
represents a weighted expectation of returns and the estimation of the variable income as a result of the sales returns has been
constrained to the extent that it is highly probable that there will not be a significant reversal in the amount of cumulative
revenue recognised. However, if the prior year methodology of 1 year had been used, the impact to the provision would have
been a decrease of $1.1m.
Management deem that the sales returns provision could have a reasonable possible range from $3.4m to $6.1m as a result of
the estimation uncertainty. The lower range reflects actual returns for 2022 to date increased by the expected backlog which
has been extrapolated across the 6 month returns period.
This allowance is included within other payables. The Group also recognize an asset in relation to stock which is expected to be
returned within inventory, based on average print margins and an additional allowance for unsaleable returns.
Key judgements at the balance sheet date are:
GOVERNMENT GRANTS
During 2020, the Group received a loan of $2,422,000 relating to government support given under the Coronavirus Aid, Relief and
Economic Security Act of the USA. The loan is forgivable under certain prescribed conditions. As at the balance sheet date, the
Group couldn’t adequately ascertain that the prescribed conditions had all been satisfied and, therefore, without such reasonable
assurance, the loan has continued to be treated as a borrowing. Please see note 22 for more details.
GOING CONCERN BASIS
The Board assessed the Group’s ability to operate as a going concern for at least the next 12 months from the date of signing
the financial statements.
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 in detail to
31 March 2023. This is to satisfy themselves of the going concern assumption used in preparing the financial statements. The base
case model was built using a detailed sales forecast driven by the publishing program for 2022. Core margins have been reviewed,
with the ongoing Issues of freight and shipping pushing margins down. Trade receivable days remaining consistent with 2021.
As part of this work, the model was sensitized initially by a 5% reduction in revenue to ensure headroom within the covenants.
This is deemed as a severe but plausible scenario. Management performed a reverse stress test to assess the point in which the
banking covenants were breached. This occurred at a reduction in revenue of 9% from the base case. It is considered unlikely
that such a reduction of revenue would occur, given, the detailed nature of the sales forecast and even with the challenges of
2020, revenue dropped by only 7% year on year. Should we start to see a reduction in revenue, then mitigating action will be
taken, such as reduction in investment in pre-publication costs, print volumes, staffing levels and other variable costs.
Based on the above indications, the Directors believe that it remains appropriate to continue to adopt the going concern in
preparing the financial statements.
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 unrealized gains and losses or income and expenses arising from intra-group transactions are
eliminated in preparing the consolidated financial statements.
62
63
THE QUARTO GROUP, INC. ANNUAL REPORT 2021Financial StatementsSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS (continued)
1 General information and significant accounting policies (continued)
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 recognized.
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. Quarto identifies its cash-generating units based on its operating model and how data
is collected and reviewed for management reporting and strategic planning purposes, in accordance with IAS36 - Impairment of
Assets. Corporate overheads have been divided between cash-generating units and factored into the value in use calculation.
Other intangible assets, such as backlists, that are acquired by the Group are stated at cost less accumulated amortization and
impairment losses.
Amortization of intangible assets is charged to profit or loss on a straight-line basis over the estimated useful lives of the intangible
assets. The amortization period for non-contractual relationships is 2.5 years, for backlists is 5 years and for software is 4 years.
VOLUME REBATES
In the ordinary course of business, the Group receives volume rebates from its printers. This is accounted for in accordance with
contractual terms and is credited to Inventory or cost of sales, as appropriate.
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 recognized whenever the carrying
amount of an asset or its cash-generating unit exceeds its recoverable amount. Impairment losses are recognized in profit or loss.
GOVERNMENT GRANTS
During 2020, the Group received financial support from Governments in UK and USA. The grants related to expense items. Any
monies received or receivable are initially held as liabilities on the balance sheet. Grants are subsequently recognized in profit and loss
when there is reasonable assurance that compliance has been satisfied. Additional Information is disclosed in note 6 and note 17.
SEGMENT REPORTING
The Group has two operating segments: US Publishing and UK Publishing. In identifying these operating segments, management
follows the information provided to the chief operating decision maker of our business which relates to the two geographical
locations. The two segments are managed separately and focus on different geographic markets. For management purposes, the
Group uses the same measurement policies as those used in its financial statements.
REVENUE RECOGNITION
Revenue arises largely from the sale of physical products. To determine whether to recognize revenue, the Group considers the
following criteria:
Identifying the contract with a customer
Identifying the performance obligations
•
•
• Determining the transaction price
• Allocating the transaction price to the performance obligations
• Recognizing revenue as/when performance obligations are satisfied
Each contract is for an agreed price and revenue is recognized at a point in time when the Group satisfies performance
obligations by transferring the products to its customers; this is determined with reference to delivery terms. Invoices for products
transferred are due on the terms specified in the contract. Contracts can span over 1 year. Where invoices are issued prior to
transfer of the product to the customer, and there are unconditional rights to consideration the amounts invoiced are recorded as
contract liabilities on the balance sheet, under deferred Income. In most cases this contract liability will be recognized within 12
months. When the product has been transferred to the customer, the liabilities are released and treated as revenue accordingly.
Revenue from the sale of publishing rights is recognized at the point the customer is able to use and benefit from the right to use
the license. This is when the Group has discharged its performance obligations under the contractual arrangements. The sale of
publishing rights includes the right to future sales based royalties. Revenue generated from the sales based royalties is only
recognized when the subsequent sale occurs. Quarto licences the intellectual property rights to the customer on a right to use
basis. This allows the customer to use the intellectual property as detailed in the contract. Once the term of the contract has
expired, the licence becomes cancelled.
64
THE QUARTO GROUP, INC. ANNUAL REPORT 2021Financial Statements 1 General information and significant accounting policies (continued)
On certain contracts, the customer has a right to return the products. The Group makes an allowance for this, based on a review
of the historical return patterns associated with the customer, as well as current market trends. The estimated returns period is a
key input of the returns allowance and is calculated by reference to historic returns data. The estimated returns period for the
current and prior year is 6 months. The estimation of the variable income as a result of the sales returns is constrained to the
extent that it is deemed highly probable that there will be no significant reversal in the amount of cumulative revenue
recognized. This allowance is included within other payables. The Group also recognize an asset in relation to stock which is
expected to be returned within inventory, based on average print margins and an additional allowance for unsaleable returns.
QUARTO DISTRIBUTION SERVICES
Quarto acts as an agent for our distributed customers facilitating sales through our distribution channels. Quarto recognizes the
revenue from the sales in line with the above-mentioned revenue recognition policy.
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 recognized 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 recognized in the currency translation reserve in equity. On disposal of a
foreign operation, the related cumulative translation differences recognized in equity are reclassified to profit or loss and are
recognized 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
recognized 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 recognized only to the extent that it is probable that future taxable
profits will be available against which the asset can be utilized. Changes in deferred tax assets or liabilities are recognized as a
component of tax expense in the income statement, except where they relate to items that are charged or credited directly to
other comprehensive income or equity, in which case the related deferred tax is also charged or credited directly to other
comprehensive income or equity, respectively.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost less accumulated depreciation and any provision for impairments in value.
Depreciation is provided on a straight-line basis to write off the cost, less the estimated residual value, of property, plant and
equipment over their estimated useful lives, which are reviewed annually. Where parts of an item of plant and equipment have
separate lives, they are accounted for and depreciated as separate items. Residual values are reassessed on an annual basis. Land
is not depreciated.
Estimated useful lives are as follows:
Right-of-use assets
Short leasehold property improvements
Plant, equipment and motor vehicles
Fixtures and fittings
Over the period of the lease
Over the period of the lease
4 to 10 years
5 to 7 years
64
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THE QUARTO GROUP, INC. ANNUAL REPORT 2021Financial StatementsSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS (continued)
1 General information and significant accounting policies (continued)
In the case of right-to-use assets, expected useful lives are determined by reference to comparable owned assets or the lease
term, if shorter. Material residual value estimates and estimates of useful life are updates as required, but at least annually.
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 recognized in income.
LEASED ASSETS
For any new contracts entered into on or after 1 January 2021, the Group considers whether a contract is, or contains, a lease. A
lease is defined as a ‘contract, or part of a contract, that conveys the right to use an asset for a period of time in exchange for
consideration’. To apply this definition the Group assesses whether the contract meets three key evaluations which are whether:
•
•
•
the contract contains an identified asset, which is either explicitly identified in the contract or implicitly specified by being
identified at the time the asset is made available to the Group
the Group has the right to obtain substantially all of the economic benefits from use of the identified asset throughout the
period of use, considering its rights within the defined scope of the contract
the Group has the right to direct the use of the identified asset throughout the period of use. The Group assess whether it has
the right to direct ‘how and for what purpose’ the asset is used throughout the period of use.
At lease commencement date, the Group recognizes a right-of-use asset and a lease liability on the balance sheet. The right-of-
use asset is measured at cost, which is made up of the initial measurement of the lease liability, any direct costs incurred by the
Group, an estimate of any costs to dismantle and remove the asset at the end of the lease, and any lease payments made in
advance of the lease commencement date (net of any incentives received).
The Group depreciates the right-of-use assets on a straight-line basis from the lease commencement date to the earlier of the
end of the useful life of the right-of-use asset or the end of the lease term. The Group also assesses the right-of-use asset for
impairment when such indicators exist.
At the commencement date, the Group measures the lease liability at the present value of the lease payments unpaid at that
date, discounted using the interest rate implicit in the lease if that rate is readily available or the Group’s incremental borrowing
rate. The Group’s incremental borrowing rate reflects the marginal interest rates available to the Group, in the countries in which
the assets reside. Lease payments included in the measurement of the lease liability are made up of fixed payments, variable
payments based on an index or rate, amounts expected to be payable under a residual value guarantee and payments arising
from options reasonably certain to be exercised. Subsequent to initial measurement, the liability will be reduced for payments
made and increased for interest. It is remeasured to reflect any reassessment or modification, or if there are any changes in
in-substance fixed payments. When the lease liability is remeasured, the corresponding adjustment is reflected in the right-of-
use asset, or profit and loss if the right-of-use asset is already reduced to zero.
The Group has elected to account for short-term lease and leases of low-value assets using the practical expedients. Instead of
recognizing a right-of-use asset and lease liability, the payments in relation to these are recognized as an expense in profit or
loss on a straight-line basis over the lease term.
On the statement of financial position, right-of-use assets have been included in property, plant and equipment and lease
liabilities are disclosed separately.
INTANGIBLE ASSETS - 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 recognized as non-current
intangible assets in accordance with IAS38 - Intangible Assets, where the book title will generate future economic benefits and
costs can be measured reliably. Management has made judgements and assumptions when assessing the estimated economic
life attributed to such titles. The capitalisation of these assets and the related amortization charges are based on judgements
about the value and economic life of such items. The Group undertook a review of the pre-publication cost amortization with
the benefits generated from the book title revenues. Specific imprints that had been impaired were excluded from the review.
The review resulted in the change of method used to amortize the pre-publication costs in accordance with IAS 38 - Intangible
Assets. The amortization rate has now changed prospectively from a 3 year straight line to a 50% reducing balance basis. The
impact of this change is that the amortization charge of the group for the current year has been reduced by $1.26m. The
investment in pre-publication costs has been disclosed as part of the investing activities in the cash flow statement.
Pre-publication costs include work-in-progress. Costs on such unpublished titles are regularly reviewed and if they fail to meet
economic expectations, the costs are impaired.
66
THE QUARTO GROUP, INC. ANNUAL REPORT 2021Financial Statements 1 General information and significant accounting policies (continued)
INVENTORIES
Inventory is valued at the lower of cost and net realisable value, on a weighted average cost 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 recognized on the Group’s balance sheet when the Group becomes a party to the
contractual provisions of the instrument.
FINANCIAL ASSETS
Financial assets are measured at amortized cost using the effective interest method.
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 recognized 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 recognizes 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 recognized 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.
After initial recognition, Financial Assets are measured at amortized cost using the effective interest method. Discounting is
ignored, where the effect is immaterial. The Group’s cash and cash equivalents, trade and most other receivables, fall into this
category of financial instrument. Assets in this category are measured, initially, at their transaction price with gains or losses
recognized in profit or loss.
In considering impairment of financial assets, the group uses a wide range of information when assessing credit risk and
measuring credit losses, including past events, current conditions, reasonable and supportable forecasts that affect the expected
collectability of future cash flows of the instrument.
The Group adopts a simplified approach in accounting for trade and other receivables and records the loss allowance as lifetime
expected credit losses. These are the expected shortfalls in contractual cash flows, considering the potential for default at any
point during the life of the financial instrument. The Group uses its historical experience, external indicators and forward-looking
information to calculate the expected credit losses using a provision matrix.
FINANCIAL LIABILITIES
The Group’s financial liabilities include borrowings, trade and other payables (including lease liabilities).
After initial recognition at fair value, all financial liabilities, with the exception of derivative financial instruments, are measured at
amortized cost using the effective interest rate method. A summary of the Group’s financial liabilities by category is given in note 21.
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
amortization of debt issuance costs.
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.
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.
66
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THE QUARTO GROUP, INC. ANNUAL REPORT 2021Financial StatementsSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS (continued)
BORROWING COSTS
All borrowing costs are recognized in the income statement in the period in which they are incurred. Debt issuance costs
comprising arrangement fees and legal costs are capitalized and amortized on a straight-line basis over the period of the
borrowing facility or included within the amortized cost calculation as appropriate. The annual amortization charge is included
within finance costs in the Consolidated Statement of Comprehensive Income.
No borrowing costs have been capitalized in the current or prior years in relation to any asset.
FINANCIAL RISK MANAGEMENT
The principal risk factors faced by the Group are disclosed in note 21.
2 External revenue
Sales
Products
2021
$000
147,939
Publishing
Rights
2021
$000
3,544
Products
2020
$000
122,848
Publishing
Rights
2020
$000
4,035
See accounting policies for detail of the revenue recognition concerning the above revenue streams.
During the year, sales to our primary distributor exceeded 10% of Group revenue (2020: one primary distributor). The value of
these sales was $62.0m (2020: $58.8m).
3 Operating segments
The core publishing businesses comprises two divisions: US Publishing and UK Publishing. This is the basis on which operating
results are reviewed and resources allocated by the Chief Executive Officer, who is deemed to be the chief operating decision
maker.
2021
Continuing operations
External revenue
Operating profit before amortization of acquired intangibles and exceptional items
Amortization of acquired intangibles
Segment result
Unallocated corporate expenses
Corporate exceptional items
Operating profit
Finance costs
Profit before tax
Tax
Profit after tax
Capital expenditure
Disposals
Depreciation and software amortization
Depreciation on disposals
Investment in pre-publication costs
Amortization and impairment of pre-publication costs
Deferred Income released
US Publishing
$000
UK Publishing
$000
Total Group
$000
81,062
10,024
(7)
10,017
70,421
7,001
—
7,001
39
(44)
(1,399)
44
10,280
(14,438)
1,811
72
—
(443)
—
9,949
(16,562)
10,617
151,483
17,025
(7)
17,018
(1,066)
—
15,952
(1,796)
14,156
(4,230)
9,926
111
(44)
(1,842)
44
20,229
(31,000)
12,428
68
THE QUARTO GROUP, INC. ANNUAL REPORT 2021Financial Statements
3 Operating segments (continued)
2020
Continuing operations:
External revenue
Operating profit before amortization of acquired intangibles and exceptional items
Amortization of acquired intangibles
Segment result
Unallocated corporate expenses
Corporate exceptional items
Operating profit
Finance costs
Profit before tax
Tax
Profit after tax
Capital expenditure
Depreciation and software amortization
Investment in pre-publication costs
Amortization of pre-publication costs
Deferred income released
BALANCE SHEET
Quarto Publishing Group USA
Quarto Publishing Group UK
Unallocated (Deferred tax and cash)
Total assets
Quarto Publishing Group USA
Quarto Publishing Group UK
Unallocated (Deferred tax, corporation tax and debt)
Total liabilities
1 Refer to note 18 for further details.
GEOGRAPHICAL AREAS
The Group operates in the following main geographic areas:
United States of America
United Kingdom
Europe
Rest of the world
68
69
US Publishing
$000
UK Publishing
$000
63,137
3,249
(851)
2,398
63,746
8,360
(39)
8,321
7
(1,333)
10,349
(15,702)
964
27
(1,058)
9,975
(12,944)
12,769
2021
$000
54,313
71,877
30,772
Total
Group
$000
126,883
11,609
(890)
10,719
(991)
(446)
9,282
(2,693)
6,589
(2,020)
4,569
34
(2,391)
20,324
(28,646)
13,733
Restated1
2020
$000
69,330
57,925
25,439
156,962
150,694
28,472
30,351
44,930
26,930
29,413
50,638
103,753
106,981
Revenue
Non-current assets
2021
$000
93,399
20,241
21,204
16,639
2020
$000
76,061
18,250
17,446
15,126
2021
$000
31,333
23,127
—
—
Restated1
2020
$000
36,858
30,413
—
—
151,483
126,883
54,460
67,271
THE QUARTO GROUP, INC. ANNUAL REPORT 2021Financial StatementsSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS (continued)
3 Operating segments (continued)
1 The comparative value for non-current assets held within the United States of America operating segment has been restated. In the prior year financial
statements, the non-current assets incorrectly included a balance of $3,604k in relation to deferred tax assets. The comparative numbers have been
amended to reflect the revision.
The revenue in the above table has been allocated by country of destination, whilst the non-current assets have been allocated
by location.
4 Operating profit
Whilst costs have been shown on the Income statement by function within the company, the following table shows costs
grouped by nature:
Direct costs
Purchase of goods and changes in inventories
Royalties and product development
Amortization of pre-publication costs (note 14)
Impairment of pre-publication costs (note 14)
Operating costs
Staff
Depreciation of property, plant and equipment (note 12)
Software amortization (note 11)
Distribution Costs
Marketing Costs
Impairment of losses of financial assets
Other
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
5 Exceptional items
Staff severance costs
Refinancing costs
Total
2021
$000
61,414
11,483
19,808
11,192
103,897
2020
$000
50,078
10,574
23,304
5,342
89,298
14,651
12,068
1,741
101
8,439
4,461
874
1,361
2,160
231
7,131
3,075
1,450
852
31,628
26,967
142
223
365
2021
$000
—
—
—
108
179
287
2020
$000
251
195
446
During the year, there were no exceptional Items (2020: $446,000), in accordance with the accounting policy disclosed in note
1. In 2020, costs comprised $251,000 in respect of redundancy costs following restructuring during the Covid-19 pandemic and
a further $195,000 of refinancing costs in connection with amendments to the existing facility agreement. There was no charge,
net of taxation for the year (2020: $349,000).
70
THE QUARTO GROUP, INC. ANNUAL REPORT 2021Financial Statements 6 Staff costs
Average monthly number of employees (excluding Executive Directors)
Wages and salaries
Share-based credits
Social security costs
Other pension costs
Less monies received by UK Government under Coronavirus Job Retention Scheme
Directors remuneration is disclosed in the Remuneration Committee Report on page 28.
Total emoluments for Directors was:
Short term employee benefits
Long term employee benefits
Termination benefits
Post-employment benefits
2021
Number
304
2020
Number
302
$000
23,107
(38)
2,214
918
26,201
—
26,201
2021
$000
900
281
29
50
$000
19,074
(32)
1,969
730
21,741
(387)
21,354
2020
$000
878
175
—
47
1,260
1,110
The Directors’ remuneration disclosed above included the following amounts earned in respect of the highest paid director:
Short term employee benefits
Post-employment benefits
2021
$000
620
20
640
2020
$000
504
18
522
The Group considers key management personnel as defined under IAS 24 - Related Party Disclosures. To be Directors of the
company, this includes Non-Executive Directors and those having authority and responsibility for planning, directing and
controlling the activities of Quarto.
Total emoluments for Executive Directors and other key personnel were:
Short term employee benefits
Long term employee benefits
Termination benefits
Post-employment benefits
2021
$000
1,366
281
29
88
Restated1
2020
$000
1,043
175
—
67
1,765
1,285
70
71
1 The key management personnel disclosure for the comparative year has been restated. The 2020 disclosure of key management personnel has been
amended to include non-executive directors and those having authority and responsibility for planning, directing and controlling the activities of the
group, as well as to include employer’s NI contribution with respect of key management personnel and the reclassification of long-term employee benefits
which were previously disclosed within short-term employee benefits. The impact of these amendments is an increase in key management remuneration
of $244k.
THE QUARTO GROUP, INC. ANNUAL REPORT 2021Financial StatementsSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS (continued)
7 Finance costs
Interest expense on borrowings
Amortization of debt issuance costs and bank fees
Interest expense on lease liabilities arising from the adoption of IFRS 16
Other interest
8 Taxation
Corporation tax
Current tax
Prior periods
Total current tax
Deferred tax (note 18)
Origination and reversal of temporary differences
Total tax expense
2021
$000
1,399
85
276
36
2020
$000
1,724
543
390
36
1,796
2,693
2021
$000
6,209
—
6,209
2020
$000
3,156
2
3,158
(1,979)
4,230
(1,138)
2,020
Corporation tax on UK profits is calculated at 19%, based on the UK standard rate of corporation tax, (2020: 19%) of the estimated
assessable profit for the year. An increase in the UK corporation rate from 19% to 25% is effective 1 April 2023. This will increase the
company’s future current tax charge accordingly and would increase our net tax liability by $361k. 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.
Profit before tax
Tax at the UK corporation tax rate of 19% (2020: 19%)
Effect of different tax rates of subsidiaries operating in other jurisdictions
Change in overseas tax rates during the year
Adjustment to prior years
Tax effect of items that are not deductible in determining taxable profit
Other
Tax expense
Effective tax rate
9 Earnings per share
From continuing operations
Profit for the year
Amortization of acquired intangibles (net of tax)
Exceptional items (net of tax)
Earnings for the purposes of adjusted earnings per share
72
2021
$000
14,156
2,690
1,058
—
—
(16)
498
4,230
29.9%
2021
$000
9,926
5
—
9,931
2020
$000
6,589
1,252
161
68
2
240
297
2,020
30.7%
2020
$000
4,569
626
349
5,544
THE QUARTO GROUP, INC. ANNUAL REPORT 2021Financial Statements 9 Earnings per share (continued)
Number of shares
Weighted average number of ordinary shares
Average number of potentially dilutive share options
Diluted weighted average number of ordinary shares
Earnings per share (cents) – continuing operations
Basic
Diluted
Adjusted earnings per share (cents)
Basic
Diluted
10 Goodwill
Cost
At 1 January
Exchange differences
At 31 December
Accumulated impairment losses
At 1 January
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)
Number
Number
40,889,100
39,185,388
—
123,037
40,889,100
39,308,425
24.3
24.3
24.3
24.3
11.7
11.6
14.1
14.1
2021
$000
2020
$000
43,102
(95)
43,007
42,913
189
43,102
(23,721)
(23,721)
—
—
(23,721)
(23,721)
19,286
19,381
2021
$000
12,882
6,404
19,286
2020
$000
12,882
6,499
19,381
Quarto identifies its cash-generating units based on its operating model and how data is collected and reviewed for
management reporting and strategic planning purposes, in accordance with IAS36 - Impairment of Assets. Corporate overheads
have been divided between cash-generating units and factored into the value in use calculation.
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 a 2% growth rate from the addressable market. The cashflows are
then discounted using a country-specific discount rate. The growth rates used are consistent with the growth expectations for
the sector in which the company operates and the discount rate has been calculated using pre-tax Weighted Average Cost of
Capital analysis.
The key assumptions for calculating value in use are:
72
73
THE QUARTO GROUP, INC. ANNUAL REPORT 2021Financial StatementsSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS (continued)
10 Goodwill (continued)
United States of America
United Kingdom
Terminal Growth Rates
Discount Rates
2021
2%
2%
2020
2%
2%
2021
11.13%
10.86%
2020
11.40%
11.12%
Revenue growth rates: forecast sales growth rates are based on those applied to the Board approved budget for the year ending 31
December 2022 and three-year plan. They incorporate future expectations of growth driven by investment plans for each CGU.
Long-term growth rates: the three-year forecasts are extrapolated to perpetuity on the basis that the CGU’s are long-established
business units. The long-term growth rates are blended rates formed from the territory-specific long-term growth rates.
Gross margins: gross margins are based on historic performance and expected changes to the sales mix in future periods.
The Group has undertaken various sensitivities of the QUK and QUS CGU’s. There were no reasonably possible changes in QUK
that would lead to impairment. QUS, which has the largest goodwill and non-current assets, carries a greater risk that reasonably
possible changes would result in impairment. Based on the above long-term growth rate and discount rate, QUS exceeded the
carrying value of goodwill by $9m. The following sensitivities were applied to this CGU:
• 1.5% increase in discount rate, at which level there was no impairment. The recoverable amount exceeded the carrying value
of goodwill by $1.8m. The discount rate would need to increase to 13.05% to record any impairment.
• 0.5% terminal growth rate, at which level there was no impairment. The recoverable amount exceeded the carrying value of
goodwill by $1.8m. The terminal growth rate would need to be 0% before any impairment was recorded.
• 5% decline in first year revenues, at which level there was no impairment. The recoverable amount exceeded the carrying
value of goodwill by $5.4m.
• 5% decline in first year revenues and an increased discount rate of 12.3% would cause impairment if there were no mitigation
actions.
Should there be a headline change in revenues and margins, this could create an impairment.
11 Other intangible assets
Cost
At 1 January 2020
Exchange differences
At 1 January 2021
Exchange differences
At 31 December 2021
Amortization and impairment
At 1 January 2020
Exchange differences
Charge for the year
At 1 January 2021
Exchange differences
Charge for the year
At 31 December 2021
Carrying amount
At 31 December 2021
At 31 December 2020
Backlists
$000
Software
$000
Total
$000
21,174
79
21,253
(39)
21,214
1,630
—
1,630
—
1,630
22,804
79
22,883
(39)
22,844
20,274
1,248
21,522
81
890
21,245
(39)
7
—
231
1,479
—
101
81
1,121
22,724
(39)
108
21,213
1,580
22,793
1
8
50
151
51
159
74
THE QUARTO GROUP, INC. ANNUAL REPORT 2021Financial Statements
12 Property, plant and equipment
Cost
At 1 January 2020
Exchange difference
Additions
Remeasurement
Disposals
At 31 December 2020
Exchange difference
Additions
Disposals
At 31 December 2021
Depreciation
At 1 January 2020
Exchange differences
Charge for the year: right of use asset
Charge for the year: other property, plant and equipment
Disposals
At 31 December 2020
Exchange differences
Charge for the year: right of use asset
Charge for the year: other property, plant and equipment
Disposals
At 31 December 2021
Net book value
At 31 December 2021
At 31 December 2020
Short-term
Leasehold
Improvements
$000
Right-of-use
Leasehold
Property
$000
Plant,
Equipment
and Motor
Vehicles
$000
Fixture and
Fittings
$000
1,010
11,202
1,197
1,086
21
—
—
—
1,031
(11)
27
—
(22)
227
2
(2,313)
9,096
—
—
—
25
34
—
—
2
—
—
—
1,256
1,088
(13)
84
(44)
(1)
—
—
Total
$000
14,495
26
261
2
(2,313)
12,471
(25)
111
(44)
1,047
9,096
1,283
1,087
12,513
362
13
—
105
—
480
(7)
115
—
588
459
551
1,545
—
1,760
—
(184)
3,121
—
1,432
—
—
782
50
—
217
—
1,049
(11)
129
(44)
923
2
—
78
—
1,003
—
65
—
4,553
1,123
1,068
4,543
5,975
160
207
19
85
3,612
65
1,760
400
(184)
5,653
(18)
1,432
309
(44)
7,332
5,181
6,818
All property, plant and equipment has been pledged as security for the Group’s bank borrowings (note 17).
13 Subsidiaries
A list of the 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.
74
75
THE QUARTO GROUP, INC. ANNUAL REPORT 2021Financial StatementsSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS (continued)
14 Intangible assets – pre-publication costs
Cost
At 1 January
Exchange difference
Additions
Transfers
Amounts expensed
Disposals
At 31 December
Amortization and impairment
At 1 January
Exchange difference
Amortization charge
Amounts expensed
Disposals
At 31 December
2021
$000
2021
$000
Work in
progress
Published
products
11,442
(64)
20,229
(17,069)
(4,433)
—
86,496
(1,037)
—
17,069
—
—
2021
$000
Total
97,938
(1,101)
20,229
—
(4,433)
—
147
20,324
(18,508)
(3,450)
—
10,105
102,528
112,633
11,442
—
—
—
—
—
—
57,025
(900)
19,808
6,759
—
57,025
(900)
19,808
6,759
—
82,692
82,692
—
—
—
—
—
—
2020
$000
2020
$000
Work in
progress
Published
products
2020
$000
Total
12,929
118,271
131,200
2,056
—
18,508
—
(52,339)
86,496
82,503
1,665
23,304
1,892
(52,339)
57,025
2,203
20,324
—
(3,450)
(52,339)
97,938
82,503
1,665
23,304
1,892
(52,339)
57,025
Net book value
10,105
19,836
29,941
11,442
29,471
40,913
The assessment of the useful life of pre-publication costs and amortization involves a significant management estimate based
on historical trends and future potential sales, in accordance with the accounting policy stated in note 1. The Group undertook
a review of the pre-publication cost amortization with the benefits generated from the book title revenues. We concluded that a
50% reducing balance method of amortization was now appropriate rather than the 3 year straight line basis.
The carrying amount of the intangible 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.
Pre-publication costs form part of the carrying value of the CGU for each segment and are considered for impairment of
goodwill in note 10.
15 Inventories
Finished goods
Raw materials
2021
$000
20,267
126
20,393
2020
$000
15,285
180
15,465
All of the Group’s inventories have been reviewed for indicators of impairment. Certain inventories were found to be impaired
and a provision of $1,967,000 (2020: $2,220,000) has been recorded accordingly.
All inventories have been pledged as security for the Group’s bank borrowings (Note 17).
76
THE QUARTO GROUP, INC. ANNUAL REPORT 2021Financial Statements 16 Trade and other receivables
Trade receivables
Other receivables and prepayments
2021
$000
45,086
6,156
51,242
2020
$000
38,361
6,158
44,519
The average credit period on sales of goods is 79 days (2020: 77 days).
The Group applies the IFRS 9 simplified model of recognising lifetime expected credit losses for all trade receivables as these
items do not have a significant financing component. In measuring the expected credit losses, the trade receivables have been
assessed on an individual basis, as much as possible, because credit risk characteristics vary by customer. The expected loss
rates are based on the payment profile over the last 12 months, to reflect the current and future economic environment. Trade
receivables are written off (ie, derecognized) when there is no reasonable expectation of recovery.
On the above basis, the expected credit loss for trade receivables as at 31 December 2021 and 31 December 2020 was
determined as follows:
31 December 2021
Gross carrying amount $000
Expected credit loss rate
Lifetime expected credit loss $000
31 December 2020
Gross carrying amount $000
Expected credit loss rate
Lifetime expected credit loss $000
Current
39,177
3.1%
1,223
Current
33,877
1.0%
347
Overdue
Less Than
30 Days
Overdue
Less Than
60 Days
Overdue
Less Than
90 Days
Overdue
More Than
90 Days
3,317
3.1%
103
2,010
4.2%
85
1,166
13.2%
154
2,195
55.3%
1,214
Overdue
Less Than
30 Days
Overdue
Less Than
60 Days
Overdue
Less Than
90 Days
Overdue
More Than
90 Days
2,039
1.8%
37
1,506
3.8%
58
1,096
18.1%
199
Movement in provision for lifetime expected credit loss is as follows:
Provision at beginning of year
Amounts de-recognized in the year
Amounts recovered during the year
Exchange differences
Increase in allowance recognized in profit or loss
Provision at end of the year
Total
47,865
5.8%
2,779
Total
40,275
4.8%
1,914
2020
$000
1,168
(977)
138
14
1,571
1,914
1,757
72.5%
1,273
2021
$000
1,914
(109)
124
(24)
874
2,779
The Directors consider that the carrying amount of trade and other receivables approximates to their fair value.
Note 21 includes disclosures relating to credit risk exposures and analysis relating to the allowance for expected credit losses.
76
77
THE QUARTO GROUP, INC. ANNUAL REPORT 2021Financial StatementsSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS (continued)
17 Cash, borrowings and net debt
CASH
Cash and cash equivalents
The carrying amount of these assets approximates to their fair value.
The effective interest rate on bank balances and short-term deposits was 0% (2020: 0%).
BORROWINGS
Bank and other loans
On demand or within one year
Less: Amount due for settlement within 12 months (shown under current liabilities)
Amount due for settlement after 12 months
Total
$000
Fixed rate
borrowings
$000
Variable rate
borrowings
$000
33,879
27,212
67
33,946
39,408
2,411
41,819
—
27,212
16,408
—
16,408
6,667
67
6,734
23,000
2,411
25,411
US dollar borrowings
Other currency borrowings
As at 31 December 2021
US dollar borrowings
Other currency borrowings
As at 31 December 2020
OTHER LOANS
Other loans (unsecured)
On demand or within one year
Less: Amount due for settlement within 12 months (shown under current liabilities)
Amount due for settlement after 12 months
Other loans comprise:
2021
$000
28,432
2020
$000
22,079
2021
$000
33,946
5,438
33,946
(5,438)
28,508
2020
$000
41,819
41,819
41,819
(41,819)
—
Weighted
average
interest rate
for fixed rate
borrowings
%
Average
time over
which interest
rate is fixed
Months
3.75
—
3.75
3.1
—
3.1
2021
$000
27,212
2,771
27,212
(2,771)
24,441
32
—
32
6.5
—
6.5
2020
$000
16,408
16,408
16,408
(16,408)
—
(a) Loans of $13,000,000 (2020: $11,500,000) from related parties, as disclosed in note 28, are repayable 31 August 2024,
together with the accrued interest.
(b) A loan for $10,000,000 from related parties, as disclosed in note 28 is repayable on 31 August 2024 and carries an interest
rate of 4%.
(c) A loan of $2,422,000 (2020: $2,422.000) relates to government support given under the Coronavirus Aid, Relief and
Economic Security Act of the USA. This attracts an interest rate of 1%. Without reasonable assurance of forgiveness, it has
been treated as debt to be repaid within the next 12 months. See note 22.
(d) Accrued Interest of $1,790,000 (2020: $986,000) on the above loans.
78
THE QUARTO GROUP, INC. ANNUAL REPORT 2021Financial Statements 17 Cash, borrowings and net debt (continued)
US dollar borrowings
As at 31 December 2021
As at 31 December 2020
BANK LOANS
Bank loans
On demand or within one year
Total
$000
Fixed rate
borrowings
$000
Variable
rate
borrowings
$000
Weighted
average
interest rate
for fixed rate
borrowings
%
Average
time over
which interest
rate is fixed
Months
27,212
16,408
27,212
16,408
—
—
3.75
2.8
32
6.5
2021
$000
6,734
2,667
6,734
(2,667)
4,067
2020
$000
25,411
25,411
25,411
(25,411)
—
Less: Amount due for settlement within 12 months (shown under current liabilities)
Amount due for settlement after 12 months
At 31 December 2021, undrawn borrowing facilities totalled $9.7m (2020: $9.6m). The variable rate borrowings carry interest
based on SOFR plus a margin, depending on the leverage ratio. The banking facilities expire on 16 July 2024. The Directors
estimate the fair value of the Group’s borrowings to be equal to book value, by reference to market rates.
US dollar borrowings
Other currency borrowings
As at 31 December 2021
US dollar borrowings
Other currency borrowings
As at 31 December 2020
Fixed rate
borrowings
$000
Variable rate
borrowings
$000
Weighted
average
interest rate
for fixed rate
borrowings
%
Average
time over
which interest
rate is fixed
Months
—
—
—
—
—
6,667
67
6,734
23,000
2,411
25,411
—
—
—
—
—
—
—
—
—
—
—
—
Total
$000
6,667
67
6,734
23,000
2,411
25,411
78
79
THE QUARTO GROUP, INC. ANNUAL REPORT 2021Financial StatementsSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS (continued)
17 Cash, borrowings and net debt (continued)
CHANGES IN LIABILITIES ARISING FROM FINANCING ACTIVITIES
Borrowings
IFRS 16 lease liabilities
Interest
Cash and cash equivalents
Net debt
Borrowings
IFRS 16 lease liabilities
Interest
Cash and cash equivalents
Net debt
18 Deferred tax
Deferred tax liabilities
Profit and
Loss
$000
Cashflows
$000
Non-cash
items
$000
Foreign
exchange
$000
31 December
2021
$000
Profit and
Loss
$000
Cashflows
$000
Non-cash
items
$000
Foreign
exchange
$000
31 December
2020
$000
1 January
2021
$000
(41,819)
(6,278)
22,079
(26,018)
1 January
2020
$000
(66,077)
(9,866)
15,621
(60,322)
—
(1,796)
(1,796)
17,311
—
—
—
—
—
—
7,846
1,426
1,866
6,173
23,893
1,995
1,297
6,359
—
(2,693)
(2,693)
33,544
(417)
(207)
(70)
—
(694)
444
24
—
180
648
(33,946)
(5,035)
—
28,432
(10,549)
(92)
1,574
1,396
—
2,878
457
19
—
99
575
(41,819)
(6,278)
—
22,079
(26,018)
2021
$000
2020
$000
3,131
—
3,131
2,436
2,436
695
4,103
2,220
6,323
3,604
3,604
2,719
Pre-publication costs and other temporary differences – UK
Pre-publication costs and other temporary differences – US
Deferred tax assets
Goodwill, intangible assets and other temporary differences – US
Net deferred taxation liability
Quarto US have a deferred tax asset of $3,604k and a deferred tax liability of $2,220k. In the prior year statement of financial
position these were incorrectly disclosed as gross balances, however, in accordance with IAS 12 - Income Taxes, the deferred tax
asset and deferred tax liabilities have been offset as they relate to the same taxable entity. The comparative numbers within the
statement of financial position have been amended to reflect the revision. A restated statement of financial position as at 1
January 2020 has not been presented, in accordance with IAS 1 - Presentation of Financial Statements, on the grounds that the
misstatement does not impact on net assets and as it represents a grossing up on assets and liabilities is not considered to be
qualitatively material.
The movement on the net provision for deferred taxation is as follows:
Net provision at 1 January
Charge direct to equity
Exchange difference through other comprehensive income
Credit to profit and loss
Net provision at 31 December
80
2021
$000
2,719
—
(45)
(1,979)
695
2020
$000
3,808
(54)
103
(1,138)
2,719
THE QUARTO GROUP, INC. ANNUAL REPORT 2021Financial Statements 19 Lease liabilities
Current
Non-current
Total
2021
$000
1,363
3,672
5,035
2020
$000
1,968
4,310
6,278
The Group has leases for its offices and some IT equipment. With the exception of short-term leases and leases of low-value
underlying assets, each lease is reflected on the balance sheet as right-of-use asset and a lease liability. Variable lease payments
which do not depend on an index or a rate (such as lease payments based on a percentage of Group revenues) are excluded
from the initial measurement of the lease liability and asset. The Group classifies its right-of-use assets in a consistent manner to
its property, plant and equipment (note 12).
Each lease generally imposes a restriction that, unless there is a contractual right for the Group to sublet the asset to another
party, the right-of-use asset can only be used by the Group. Leases are either non-cancellable or may only be cancelled by
incurring a substantive termination fee. For leases over office buildings the Group must keep those properties in a good state of
repair and return the properties in their original condition at the end of the lease. Further, the Group must insure items of
property, plant and equipment and incur maintenance fees on such items in accordance with the lease contracts.
The table below describes the nature of the Group’s leasing activities by type of right-to-use asset recognized on the balance sheet:
No of right-of-
use assets
leased
Range of
remaining term
Average
remaining lease
term
No of lease
with extension
options
No of lease
with options to
purchase
No of lease with
variable
payments
linked to an
index
No of lease with
termination
options
6
4-9 years
6 years
1
—
4
1
Right-of-use
asset
Office
building
Properties with extension, or termination, options are assessed on a case-by-case basis in determining take-up of the options.
The property lease in Seattle includes the option to extend this lease by 5 years. At this point in time, there is no intention by the
company to exercise this extension. However, if we were to extend, the future cash flow would be $1.75m.
The lease liabilities are secured by the related underlying assets. Future minimum lease payments at 31 December 2021 were as
follows:
Within 1 year
1-2 years
2-3 years
3-4 years
4-5 years
After 5 years
Total
Minimum lease payments due US$000
31 December 2021
Lease payments
Finance charges
Net present values
31 December 2020
Lease payments
Finance charges
Net present values
1,601
(223)
1,378
2,358
(390)
1,968
794
(164)
630
1,551
(269)
1,282
450
(122)
328
1,585
(219)
1,366
272
(80)
192
1,044
(161)
883
161
(42)
119
1,013
(234)
779
2,414
(26)
2,388
—
—
—
5,692
(657)
5,035
7,551
(1,273)
6,278
The total cash outflow in relation to lease liabilities during the year was $1,426,000 (2020: $1,995,000). Please see note 17.
The Group has elected not to recognize a lease liability for short term leases or for leases of low value assets. Payments made
under such leases are expensed on a straight-line basis and amounted to $4,000 in the year (2020: $26,000).
80
81
THE QUARTO GROUP, INC. ANNUAL REPORT 2021Financial StatementsSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS (continued)
20 Trade and other payables
CURRENT LIABILITIES
Trade payables
Other payables
Total
2021
$000
29,450
24,339
53,789
2020
$000
28,529
21,535
50,064
Under IFRS 15, the reserve for sales returns is included in other payables; it amounts to $5,776,000 (2020: $6,481,000). The
reserve is calculated based on a time lag between sales and returns and historical return patterns. Management monitors actual
returns against the reserve on a regular basis. If the rate of sales return had been 1% higher during the year, the provision would
have increased by $545,000 (2020: $512,000).
Included within other payables is $1,957,000 in respect of deferred Income (2020: $2,274,000), detailed below:
Opening liability
Deferred income invoiced
Revenue recognized
Exchange difference
Closing liability
2021
$000
2,274
12,136
(12,428)
(25)
1,957
2020
$000
2,525
13,436
(13,733)
46
2,274
We expect deferred Income to be recognized within the next 12 months.
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, and, to a much lesser extent in Euros. The Group has minimal exposure to other foreign currencies.
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
2021
2020
$000
Sterling
15,465
(1,362)
14,103
—
—
14,103
$000
Other
1,394
(1,000)
394
—
—
394
$000
Sterling
11,792
(755)
11,037
—
—
$000
Other
1,053
(3,033)
(1,980)
—
—
11,037
(1,980)
The following table illustrates the sensitivity of the net result for the year and equity in regard 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, in line with the movement over the last year.
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% (2020: 5%) then this would have had the following impact:
82
THE QUARTO GROUP, INC. ANNUAL REPORT 2021Financial Statements 21 Financial instruments (continued)
Profit/(loss) after tax for the year
Equity
2021
$000
46
46
If Sterling had weakened against the US Dollar by 5% (2020: 7.5%) then this would have had the following impact:
(Loss)/profit after tax for the year
Equity
2021
$000
(46)
(46)
2020
$000
(240)
(240)
2020
$000
240
240
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.
INTEREST RATE SENSITIVITY
The Group’s policy is to minimize interest rate cash flow risk exposures, where possible and commercially appropriate, on
long-term financing, through interest rate swaps. A part of longer-term borrowings are sometimes, therefore, at fixed rates.
At 31 December 2021, the Group is exposed to changes in market interest rates through its bank borrowings, which are subject
to variable interest rates – see note 17 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:
Loss for the year
Equity
A 0.25% decrease in interest rates would have the following impact:
Profit for the year
Equity
2021
$000
(13)
(13)
2021
$000
13
13
2020
$000
(48)
(48)
2020
$000
48
48
CREDIT RISK ANALYSIS
The Group’s maximum exposure to credit risk is limited to the carrying amount of financial assets recognized at the balance
sheet date, as summarized below:
Cash and cash equivalents
Trade receivables
2021
$000
28,432
45,086
73,518
2020
$000
22,079
38,361
60,440
The Group’s credit risk is primarily attributable to its trade receivables. There is minimal credit risk within other 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 ongoing credit risk is managed
through regular review of ageing analysis together with credit limits per customer.
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.
82
83
THE QUARTO GROUP, INC. ANNUAL REPORT 2021Financial StatementsSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS (continued)
21 Financial instruments (continued)
The Group’s management considers that all the above financial assets that are not impaired for each of the reporting dates
under review are of good credit quality, including those that are past due. Credit losses written off during the year which are
subject to enforcement activity are minimal.
In respect of trade and other receivables, the Group is not exposed to any significant credit risk exposure to any single
counterparty or any group of counterparties having similar characteristics. The credit risk for liquid funds and other short-term
financial assets is limited, since the counterparties are reputable banks with high quality external credit ratings.
LIQUIDITY RISK ANALYSIS
The Group manages its liquidity needs by carefully monitoring scheduled debt servicing payments for long-term financial
liabilities as well as cash-outflows due in day-to-day business. Liquidity needs are monitored in various time bands, on a day-to-
day and week-to-week basis.
The Group maintains cash and marketable securities to meet its liquidity requirements. Funding for long-term liquidity needs
is additionally secured by an adequate amount of committed credit facilities.
A new facility agreement was signed on 16 February 2021 with borrowing facilities of US$20m. This facility is subject to two
principal covenants in 2021, being:
(a) Net banking Indebtedness shall not exceed 2.0 times EBITDA (as defined in the facility agreement)
(b) EBITDA shall exceed 4 times net finance charges (as defined in the facility agreement)
The Group’s liabilities have contractual maturities which are summarized below:
31 December 2021
Bank and other loans
Lease liabilities
Trade payables
Other short-term financial liabilities
31 December 2020
Bank and other loans
Lease liabilities
Trade payables
Other short-term financial liabilities
Current
Non-Current
Within 6
months
$000
348
800
29,450
24,339
54,937
6 to 12
months
$000
2,422
800
—
—
1 to 5
years
$000
28,508
4,092
—
—
3,222
32,600
Current
Non-Current
Within 6
months
$000
3,132
984
28,529
21,535
54,180
6 to 12
months
$000
40,965
984
—
—
1 to 5
years
$000
—
4,310
—
—
41,949
4,310
Over 5
years
$000
—
—
—
—
—
Over 5
years
$000
—
—
—
—
—
SUMMARY OF FINANCIAL ASSETS AND LIABILITIES BY CATEGORY
The carrying amounts of the Group’s financial assets and liabilities as recognized at the balance sheet date of the reporting
periods under review may also be categorized as follows. See note 1, significant accounting policies, covering financial assets
and financial liabilities for explanations about how the category of instruments affects their subsequent measurement.
84
THE QUARTO GROUP, INC. ANNUAL REPORT 2021Financial Statements 21 Financial instruments (continued)
Current assets
Financial assets at amortized cost:
Trade receivables
Cash and cash equivalents
Current liabilities
Financial liabilities measured at amortized cost:
Borrowings
Trade payables
Other payables
Non-current liabilities
Financial liabilities measured at amortized cost:
Borrowings
2021
$000
Restated1
2020
$000
45,086
28,432
73,518
5,438
29,450
21,475
56,363
28,508
28,508
38,361
22,079
60,440
41,819
28,529
19,146
89,494
—
—
1 The comparative year has been restated to reflect disclosure errors identified within the prior year financial statements in relation to the financial liabilities.
Within the prior year financial statements amounts for non-financial liabilities, including contractual liabilities and statutory obligations had been incorrectly
disclosed. The comparative numbers have been amended to reflect the revision which has reduced current liabilities by $2,389k. The comparative year has
also been restated with the removal of lease liabilities as these have been disclosed on the face of the Statement of financial position.
CAPITAL RISK MANAGEMENT
The Group manages its capital to ensure that entities in the Group will be able to continue as a going concern 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 17, 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 17. As part of this review, the Board considers the cost of capital and the risks associated with each class of capital. The
Group has complied with its covenant obligations during the year.
22 Post balance sheet events
C.K. Lau and 1010 Printing Limited were repaid $6m and $9m respectively in Q1 2022, including accrued interest. This
repayment was made outside the agreement due to a favorable liquidity position at this point in time.
In February 2022, we received notification from Bank of America advising that $2.272m of the loan relating to government
support given under the Coronavirus Aid, Relief and Economic Security Act of the USA of $2.422m was being forgiven. We are still
in the process of finalising the repayment of the unforgiven portion, which will take place once agreement has been reached.
23 Share capital and paid in surplus
SHARE CAPITAL
Authorized
2021
$000
2020
$000
55,000,000 (2020: 55,000,000) shares of common stock of par value of US$0.10 each
5,500
5,500
Allotted, called up and fully paid:
40,889,100 (2020: 40,889,100) shares of common stock of par value of US$0.10 each
4,089
4,089
The Company has one class of common stock which carries no right to fixed income.
84
85
THE QUARTO GROUP, INC. ANNUAL REPORT 2021Financial StatementsSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS (continued)
23 Share capital and paid in surplus (continued)
PAID IN SURPLUS
This reserve records the amount above par value received for common stock sold less transaction costs. The movement on this
reserve was as follows:
At 1 January
Issue of new common stock
At 31 December
2021
$000
48,701
—
48,701
2020
$000
33,764
14,937
48,701
24 Retained earnings and other reserves
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.
RETAINED EARNINGS
The retained earnings reserve comprises profit for the year attributable to owners of the Group and other items recognized
directly through equity as presented on the consolidated statement of changes in equity.
25 Dividends
No dividends have been declared in the current or prior year.
26 Notes to the cash flow statement
Cash comprises cash on hand and demand deposits. Cash equivalents are short-term highly liquid investments that are readily
convertible to known amounts of cash and which are subject to insignificant changes in value.
27 Share based payments
PERFORMANCE SHARE PLAN (‘PSP’)
The Company operates a PSP scheme that awards free shares.
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:
Outstanding at beginning of the year
Forfeited during the year
Lapsed during the year
Outstanding at the end of the year
2021
Number
—
—
—
—
2020
Number
143,784
(33,673)
(110,111)
—
86
THE QUARTO GROUP, INC. ANNUAL REPORT 2021Financial Statements 27 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 (%)
EPS Portion
TSR Portion
£2.45
4
£2.10
2.3
3.88
n/a
£2.45
4
£0.44
3.3
3.88
19.1
Dividend
discount
Monte-
Carlo
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
Forfeited during the year
Lapsed 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
2021
Number
65,223
—
(65,223)
2020
Number
84,995
(19,772)
—
—
65,223
EPS Portion
TSR Portion
£2.64
4
£2.20
3.3
£4.55
n/a
£2.64
4
£0.48
3.3
£4.55
18.6
Dividend
discount
Monte-
Carlo
86
87
THE QUARTO GROUP, INC. ANNUAL REPORT 2021Financial StatementsSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS (continued)
28 Related party transactions
The Group had the following related party transactions over the periods under review:
PRINTING PURCHASES:
Lion Rock Group Limited
Accounts payable at start of year
Purchases
Rebate received
Payments
Accounts payable at end of year
LOANS AND ACCRUED INTEREST:
Loans
Accrued interest on loans at end of year
2021
$000
12,895
23,830
—
(20,123)
16,602
2020
$000
13,692
14,720
(1,464)
(14,053)
12,895
At 31
December
2021
$000
At 31
December
2020
$000
23,000
1,789
11,500
874
The loans are from 1010 Printing Limited $17m (2020: $7m) and C.K. Lau $6m ($6m). The loans are unsecured, are repayable, on
31 August 2024, and carry interest at 3.5% and 4.0%. Interest is paid annually on one loan with the remaining accrued interest to
be paid at the end of the term.
Lion Rock Group Limited and 1010 Printing Limited are companies over which C.K. Lau exercises control.
The rebate received in 2020 was accounted for in accordance with the accounting policy disclosed in note 1. The rebate
scheme was not renewed in 2021.
REVENUES AND TRADE RECEIVABLES:
Revenues
Outstanding receivables balance at end of year
At 31
December
2021
$000
At 31
December
2020
$000
631
126
137
63
The Group recorded revenues of $623,000 (2020: $129,000) with Giunti Editore S.p.A, a company over which Andrea Giunti
Lombardo, a non-executive director, exercises control. The transactions were in the normal course of business on arms-length
terms. The amount outstanding at 31 December 2021 was $126,000 (2020: $58,000).
The Group recorded revenues of $8,000, up to 30 June 2021, (2020: $8,000) with Pavilion Books Limited, a company over
which Polly Powell, the CEO for Pavilion Books, exercises control. The transactions were in the normal course of business on
arms-length terms.
DISTRIBUTION SERVICES:
Pavilion Books Limited
Net sales less distribution fees
At 31
December
2021
$000
1,357
At 31
December
2020
$000
—
From January to June 2021, Quarto provided distribution services to Pavilion Books Group Limited, which was owned by Polly
Powell, who resigned on 1 July 2021.
88
THE QUARTO GROUP, INC. ANNUAL REPORT 2021Financial Statements 29 Reconciliation of figures included in other parts of the financial statements
Adjusted operating profit
Operating profit
Add back:
Amortization of acquired intangibles
Other exceptional items (note 5)
Adjusted operating profit
EBITDA
Operating profit before amortization of acquired intangibles and exceptional items
Less: Net finance costs
Impact of IFRS 16
Adjusted profit before tax
Net finance costs
Depreciation of property, plant and equipment and software (excluding right-of-use assets)
Share based payments/(credits)
One off non-cash costs
EBITDA for banking purposes
Impact of IFRS 16
Depreciation of right-of-use assets
Less: one off non-cash costs
EBITDA
Adjusted profit before tax before amortization of acquired intangibles and exceptional items
Adjusted operating profit before amortization of acquired intangibles and exceptional items
Less: net finance costs
Adjusted profit before tax before amortization of acquired intangibles and exceptional items
Free cashflow
Net cash from operating activities
Investment in pre-publication costs
Purchases of property, plant and equipment excluding IFRS 16 assets
Free cashflow
Net debt
Short-term borrowings
Long-term borrowings
Cash and cash equivalents
Net debt
2021
$000
15,952
7
—
2020
$000
9,282
890
446
15,959
10,618
15,959
(1,796)
(18)
14,145
1,796
410
10
—
16,361
18
1,432
—
17,811
15,959
(1,796)
14,163
37,651
(20,229)
(111)
17,311
5,438
28,508
(28,432)
5,514
10,618
(2,693)
(270)
7,655
2,693
631
(32)
1,892
12,839
270
1,760
(1,892)
12,977
10,618
(2,693)
7,925
36,921
(20,324)
(34)
16,563
41,819
—
(22,079)
19,740
88
89
THE QUARTO GROUP, INC. ANNUAL REPORT 2021Financial StatementsSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS Company Balance Sheet
AS AT 31 DECEMBER 2021
Fixed assets
Investments
Current assets
Other receivables falling due within one year
Current liabilities
Creditors falling due within one year
Creditors falling due after more than one year
Tax payable
Net assets
Equity
Called up share capital
Paid in surplus
Retained earnings
Total equity
Notes
4
6
7
8
2021
$000
1,244
1,244
3,515
3,515
(431)
(431)
2020
$000
1,234
1,234
3,370
3,370
(52)
(52)
—
4,328
(430)
4,122
4,089
48,701
4,089
48,701
(48,462)
(48,668)
4,328
4,122
The company reported a profit for the financial year ended 31 December 2021 of $195,000 (2020 $2,214,000).
The notes on pages 92 to 95 are an integral part of these consolidated financial statements.
The financial statements were approved by the Board of Directors and authorized for issue on 17 March 2022.
They were signed on its behalf by
Chuk Kin Lau
Director
17 March 2022
90
THE QUARTO GROUP, INC. ANNUAL REPORT 2021Financial Statements
Company Statement of
Comprehensive Income
FOR THE YEAR ENDED 31 DECEMBER 2021
Other operating income
Dividends received
Administrative expenses
Foreign exchange (loss)/gain
Profit before tax
Tax
Profit for the year
The notes on pages 92 to 95 are an integral part of these consolidated financial statements.
Notes
2021
$000
—
196
(52)
144
52
196
3
2020
$000
1980
—
224
2,204
10
2,214
Company Statement of
Changes in Equity
FOR THE YEAR ENDED 31 DECEMBER 2021
Balance at 1 January 2020
Profit for the year
Transactions with owners
Share capital raised
Costs of raising share capital
Share based charges
Balance at 1 January 2021
Profit for the year
Transactions with owners
Share capital raised
Costs of raising share capital
Share based payments/charges
Balance at 31 December 2021
Share
capital
$000
2,045
—
2,044
—
—
Paid in
surplus
$000
33,764
Retained
earnings
$000
Equity
attributable
to owners
$000
(50,850)
(15,041)
—
2,214
2,214
16,307
(1,370)
—
—
—
(32)
4,089
48,701
(48,668)
—
—
—
—
—
—
196
—
—
10
18,351
(1,370)
(32)
4,122
196
—
—
10
4,089
48,701
(48,462)
4,328
The notes on pages 92 to 95 are an integral part of these consolidated financial statements.
90
91
THE QUARTO GROUP, INC. ANNUAL REPORT 2021Financial StatementsSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS Notes to the Company Accounts
AT 31 DECEMBER 2021
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;
•
• exposure to, and management of, financial risks.
items of income, expenses, gains or losses relating to financial instruments; and
There were no significant judgements or estimates in preparing the financial statements of the Company.
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.
OTHER RECEIVABLES
Amounts owed by subsidiary undertakings are initially recognized at fair value, and subsequently measured at amortized cost
using the effective interest method.
CREDITORS
Amounts owed to subsidiary undertakings are initially recognized at fair value, and subsequently measured at amortized cost
using the effective interest method.
SHARE-BASED PAYMENTS
The Company operates a number of equity-settled, share based compensation plans that are awarded to employees of the
Company’s subsidiary undertakings. The fair value of the employee services received under such schemes is recognized as an
expense in the subsidiary undertakings financial statements, which benefit from the employee services. The Company has
recognized the fair value of the share-based payments as an increase to equity with a corresponding adjustment to investments.
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.
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 recognized in the income statement.
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.
92
THE QUARTO GROUP, INC. ANNUAL REPORT 2021Financial Statements NOTES TO THE COMPANY ACCOUNTS (continued)
3 Tax
Current tax credit
2021
$000
(52)
2020
$000
(10)
Corporation tax is calculated at 21%, based on the US standard rate of corporate tax (2020: 21%) of the estimated assessable
profit for the year. The table below explains the difference between the expected expense at the US statutory rate of 21% and
the Company’s total tax expense for the year.
2021
$000
144
30
(30)
—
—
2021
$000
1,234
10
1,244
2020
$000
2,204
463
(463)
(10)
(10)
2020
$000
1,266
(32)
1,234
% held
Segment
100
US Publishing
100*
UK Publishing
100*
US Publishing
Profit before tax
Tax at the US corporation tax rate of 21% (2020: 21%)
Tax effect of items that are not (taxable)/deductible in determining taxable profit
Other
Tax Credit
4 Investments
At 1 January
Movement during the year
At 31 December
5 Subsidiaries
A) TRADING COMPANIES
Incorporation
Name
Place
Date
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
*Directly held by The Quarto Group, Inc.
Registered
address key
Issued and fully paid
up share capital
380 shares of
US$0.01 each
100,000 shares of £1
each
86 shares of no
par value
B
A
B
93
92
THE QUARTO GROUP, INC. ANNUAL REPORT 2021Financial StatementsSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS NOTES TO THE COMPANY ACCOUNTS (continued)
5 Subsidiaries (continued)
B) DORMANT COMPANIES
Incorporation
Name
Place
Date
AP Screen Printers Limited
United Kingdom 30 September 1980
Apple Press Limited
Aurum Press Limited
United Kingdom 5 June 1984
United Kingdom 31 May 1977
Books & Gifts Direct Limited
New Zealand
27 September 1996
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
Global Book Publishing Pty Limited1 Australia
4 November 1999
The Great American Trading
Company Limited
IQON Editions Limited
iqu-digital.com Limited
The Ivy Press Limited
Quarto (JS) LLP
JR Books Limited
United Kingdom 24 February 1982
United Kingdom 5 December 1972
United Kingdom 30 November 1978
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
QU:ID Publishing Limited
United Kingdom 30 September 1980
Quarto Australia Pty Limited2
Australia
14 September 1981
Quantum Books Limited
United Kingdom 7 February 1983
Quarto Children’s Books Limited
United Kingdom 6 January 1976
Quarto China Company Limited
Hong Kong
16 March 2021
Quarto Group HK Ltd3
Hong Kong
26 January 2015
Quarto Magazines Limited
United Kingdom 20 May 1986
Quarto Marketing Inc
Quarto Media Inc
Delaware, USA
26 April 1995
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
RotoVision S.A.2
Switzerland
18 July 1977
Small World Creations Limited
United Kingdom 20 September 1997
*Directly held by The Quarto Group, Inc.
1 Deregistered on 24 February 2021.
2 In the process of deregistration.
3 Deregistered on 5 March 2021.
94
Registered
address
key
A
A
A
C
A
A
A
A
B
A
A
A
A
A
A
A
A
A
A
A
A
A
B
A
A
D
A
A
E
A
B
B
A
A
A
A
F
A
Issued share capital
% held
1000 shares of £1 each
100 shares of £1 each
382,502 shares of £1 each
100
100
100
400,000 shares of NZ$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
1,000 shares of A$1 each
100 shares of £1 each
300 shares of £1 each
100 shares of £1 each
1042 shares of 10p each
100 units
43 004 shares of £1 each
20,840 shares of £0.01 each
1 shares of £1 each
1 shares of £1 each
1500 shares of no par value
400 shares of £1 each
100 shares of £1 each
110 shares of $A1 each
100 shares of £1 each
2 shares of £1 each
1 share of HKD1 each
100 shares of HKD1 each
1000 shares of £1 each
3000 shares of no par value
1000 shares of $1 each
1000 shares of £1 each
1000 shares of £1 each
1 shares of £1 each
100 shares of £1 each
1,500 shares of SFr500 each
1,536 share of £1 each
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
THE QUARTO GROUP, INC. ANNUAL REPORT 2021Financial Statements NOTES TO THE COMPANY ACCOUNTS (continued)
5 Subsidiaries (continued)
C) LIST OF REGISTERED OFFICES
A The Old Brewery, 6 Blundell Street, London, N7 9BH, United Kingdom
100 Cummings Center, Suite 265D, Beverly, MA 01915-6115, USA
B
(Quarto Publishing Group USA Inc., 251 Little Falls Drive, Wilmington, DE 19808, Delaware, USA; Quarto Inc.,
1209 Orange Street, Wilmington, Delaware 19801, USA)
C c/o Brownes CA Limited, Unit K, 215 Rosedale Road, Albany, Auckland, 0632, New Zealand
D c/o ZM Partners, Suite 10 Ground Floor, 123 Clarence Street, Sydney, NSW 2000, Australia
E Level 11 East Wing, NEO, 123 Hoi Bun Road, Kwun Tong, Hong Kong
F Passage Perdonet 1, 1005 Lausanne, Switzerland
6 Other receivables falling due within one year
Amounts owed by subsidiary undertakings
7 Creditors falling due within one year
Amounts owed to subsidiary undertakings
Tax payable
2021
$000
3,515
3,515
2021
$000
—
(431)
(431)
2020
$000
3,370
3,370
2020
$000
—
52
52
8 Called up share capital
Details of called up share capital are set out in note 23 of the consolidated Financial Statements.
9 Contingent liabilities
The Quarto Group, Inc. has issued guarantees in respect of bank loans of subsidiaries of $6.7m, (2020: $25,411,000). Refer to
note 17 of the group consolidated Financial Statements.
10 Related parties
The Company made no repayments to its wholly owned subsidiary, Quarto Publishing plc, during the year (2020: $19,184,000
borrowed in the year). The balance on the loan at 31 December 2021 was $3.5m (due to the company) (2020: $3.4m owed by
the company). These balances are non-interest bearing and repayable on demand.
94
95
THE QUARTO GROUP, INC. ANNUAL REPORT 2021Financial StatementsSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS Five Year Summary
Results
Revenue
Operating profit before amortization
of acquired intangibles and exceptional items
Operating profit/(loss)
Profit before tax, amortization of acquired
intangible assets and exceptional items
Profit/(loss) before tax
Profit/(loss) after tax
Assets employed
Non-current assets
Current assets
Current liabilities
Non-current liabilities
Net assets
Financed by
Equity
20212
$000
20202
$000
20192
$000
20181
$000
20171
$000
151,483
15,417
126,883
10,618
135,807
149,292
152,512
10,004
10,305
7,193
15,410
13,621
13,614
9,862
58,154
100,067
(68,057)
(36,996)
53,168
9,282
7,925
6,589
4,569
70,875
82,063
(98,206)
(11,019)
43,713
8,774
5,074
3,844
2,882
83,385
81,396
(128,226)
(15,501)
21,054
4,303
5,945
(57)
(552)
79,481
92,289
(74,084)
(79,698)
17,988
(17,882)
3,893
(21,182)
(18,539)
85,075
94,248
(71,039)
(87,311)
20,973
53,168
43,713
21,054
17,988
20,973
Non-controlling interests
—
—
—
—
—
53,168
43,713
21,054
17,988
20,973
Earnings/(loss) per share (cents)
Basic
Diluted
Adjusted basic
Adjusted diluted
33.8
33.8
33.8
33.8
11.7
11.6
14.1
14.1
14.1
14.0
19.0
18.8
(2.7)
(2.7)
23.2
23.0
(96.4)
(96.4)
18.3
17.8
1 The results of 2017 and 2018 have not been restated to reflect the change in accounting for the absorption of overheads to pre-publication costs as set out
2
in note 1.
IFRS16 (‘Leases’) have been adopted on a modified retrospective basis and accordingly the prior year has not been restated. The impact of this is disclosed
in note 1 of Notes to the Financial Statements.
96
THE QUARTO GROUP, INC. ANNUAL REPORT 2021Financial Statements 2021 Highlights
Crystals
80,000 units sold
ABC What Can She Be?
54,000 units sold
Color Me: Who’s
in the Ocean
22,000 units sold
In Focus Series
800,000 units sold
Magic Series
300,000 units sold
The First-Time Gardener:
Growing Vegetables
40,000 units sold
Squishy Human Body
290,000 units sold
LPBD: David Attenborough
87,000 units sold
RHS Diary 2022
30,000 units sold
The Story Orchestra:
The Nutcracker
45,000 units sold
Spectacular Spreads
50,000 units sold
LPBD: Captain Tom Moore
44,000 units sold
Food-x-Fire
23,000 units sold
In the Car
26,000 units sold
Baby Young, Gifted,
and Black: With a Mirror!
24,000 units sold
The Art of NASA
20,000 units sold
Tiny Baking!
67,000 units sold
This Book
Is Anti-Racist
88,000 units sold
Timeless Classics
75,000 units sold
Beautiful Boards
205,000 units sold
The Ultimate
Guide to Tarot
20,000 units sold
Wake Me Up When
It’s All Over...
24,000 units sold
The Complete
Language of Flowers
28,000 units sold
Zenned Out Series
100,000 units sold
Be Calm and Color
52,000 units sold
National Parks
of the U.S.A.
40,000 units sold
LPBD: Stephen Hawking
33,000 units sold
Officers and Professional Advisers
Directors
C.K. Lau, Executive Director, President
Andy Cumming*, Chairman
Jane Moriarty*, Vice Chair
Ken Fund*
Mei Lan Lam*
Andrea Giunti Lombardo*
Registrars and Transfer Office
Link Group
10th Floor
Central Square
29 Wellington Street
Leeds
LS1 4DL
Principal Banks
Santander UK plc
2 Triton Square
Regent’s Place
London
NW1 3AN
National Westminster Bank Plc
250 Bishopsgate
London
EC2M 4AA
Company Registration Number
FC0 13814
* Non-executive
Secretary
Michael Clarke
Registered Office
The Old Brewery
6 Blundell Street
London N7 9BH
Tel: +44 (0) 20 7700 6700
Stockbrokers
finnCap Ltd
One Bartholomew Close
London
EC1A 7BL
Auditor
Grant Thornton UK LLP
30 Finsbury Square
London
EC2A 1AG
Solicitors
Cleary Gottlieb Steen & Hamilton LLP
2 London Wall Place
London
EC2Y 5AU
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97
Over 350,000 copies sold
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THE QUARTO GROUP
Annual Report 2021
The Old Brewery | 6 Blundell Street | London N7 9BH | United Kingdom
Tel: +44 (0)20 7700 6700 | Email: investor@quarto.com
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