Annual Report 2022 TRAVEL Gardening C OOKERY DESIGN Gift ART B | THE QUARTO GROUP, INC. ANNUAL REPORT 2022 | Strategic Report Contents STRATEGIC REPORT Overview ............................................................................................................................................1 Highlights ......................................................................................................................................... 2 Quarto at a Glance ..................................................................................................................... 3 Chairman’s Statement ............................................................................................................4 Group Chief Executive Officer’s Statement ........................................................... 5 Divisional Review ......................................................................................................................... 7 Market Overview .........................................................................................................................8 One Content, Multiple Channels ......................................................................................9 Global Sales Coverage ............................................................................................................9 Financial Review .......................................................................................................................10 Our Key Performance Indicators .................................................................................. 12 Our People ..................................................................................................................................... 14 Corporate Responsibility and Sustainability .......................................................... 15 Section 172 Statement .......................................................................................................... 15 Risk Management, Principal Risks and Uncertainties ...................................... 17 GOVERNANCE Board of Directors ...................................................................................................................20 Nominations Committee Report ................................................................................ 22 Audit and Risk Committee Report............................................................................... 23 Remuneration Committee Report ............................................................................ 25 Annual Report on Remuneration ..................................................................................33 Directors’ Report .....................................................................................................................38 Statement of Directors’ Responsibilities ................................................................49 Independent Auditor’s Report ......................................................................................50 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 ..................................................................................................89 Company Statement of Comprehensive Income ...........................................90 Company Statement of Changes in Equity ..........................................................90 Notes to the Company Accounts ..................................................................................91 Five-Year Summary ...............................................................................................................95 Officers & Professional Advisors ..................................................................................96 Strategic Report | THE QUARTO GROUP, INC. ANNUAL REPORT 2022 | 1 STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS OYeUYLeZ The Quarto Group Inc is an entrepreneurial, independent, worldwide publisher listed on the London Stock Exchange, with offices in London, Brighton, New York, Beverly and Hong Kong. Over the past 45 years, we have grown significantly, moving away from a pure co-edition model to a mix of co-edition and trade publishing, building an award-winning foreign rights sales team, diversifying our distribution channels through non-traditional retailers, and pursuing international business ventures. Today, we are a global leader in illustrated nonfiction publishing. Innovation is still in our DNA as we constantly explore how to maximize the use of our intellectual property. At the heart of what we do, our mission hasn’t changed - to make and sell books that entertain, educate, and enrich the lives of adults and children around the world. Frances Lincoln Children’s Books Aurum becker&mayer! books becker&mayer! kids Chartwell Books Cool Springs Press Design Eye Epic Ink Fair Winds Press Frances Lincoln Happy Yak Harvard Common Press Iqon Editions Ivy Kids Ivy Press Kaddo Leaping Hare Press Motorbooks New Shoe Press Quarry Books Rock Point Rockport Publishing small world creations The Bright Press Voyageur Press Walter Foster Jr. Walter Foster Publishing Wellfleet Press White Lion Publishing Wide-Eyed Editions words & pictures 2 | THE QUARTO GROUP, INC. ANNUAL REPORT 2022 | Strategic Report HLJKOLJKts OPERATIONAL • Clear focus on maximizing the Group’s core strengths, retaining a disciplined business model and developing future growth opportunities • Increase in Adjusted Operating Profit of 33% due to tight cost control, lower pre-publication and amortization costs • Profit Before Tax up 47% at $20.9m • Revenue of custom publishing channel of $14.2m, up 33% year on year • Net debt down by $4.9m2 to $0.6m • New Shoe Press launched in 2022 with 25 titles repurposing existing IP to compete at a value price point. Short-run printing allows low inventory level responding to demand • Kaddo, a new gift imprint, created with the first products publishing in autumn 2023. Product lines span both the adult and children’s market consisting of games, card decks and jigsaw puzzles many of which are based on existing book content • We are also targeting growth in one of the largest sectors of the book market and will be launching a new imprint focused on food and wellness • SmartLab, our Toy business, was sold to Educational Development Corp. to focus on our core publishing activities 1 Adjusted measures are stated before amortization of acquired intangible assets and exceptional items. Management believes this is a better reflection of our trading performance. 2 Net debt excludes lease liabilities relating to right-of-use assets (IFRS 16). )INANCIAL “Continued strong performance across all areas of the business, with enhanced profitability and cash generation” REVENUE ($M) ADJUSTED1 OPERATING PROFIT ($M) EBITDA ($M) 2022 2021 151.5 141.0 2022 2021 16.0 21.3 2022 2021 17.8 23.4 PROFIT BEFORE TAX ($M) BASIC EARNINGS PER SHARE (CENTS) ADJUSTED1 BASIC EARNINGS PER SHARE (CENTS) 2022 2021 14.2 20.9 2022 2021 24.3 40.6 2022 2021 24.3 37.8 Strategic Report | THE QUARTO GROUP, INC. ANNUAL REPORT 2022 | 3 6TRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS QXDUto Dt D GODnFe WE CREATE A WIDE VARIETY OF BOOKS AND INTELLECTUAL PROPERTY PRODUCTS WITH A MISSION TO INSPIRE LIFE’S EXPERIENCES FOR THE WHOLE FAMILY GLO%AL CREATI9E AN' 6ALE6 )ORCE IN GRO:TH 6EG0ENT6 • Far-reaching global sales platform • Over 100 sales and marketing professionals and representatives 'EǿLE9ERAGE' %ALANCE 6HEET • Cash at bank of $13.3m • Repayment of sub-ordinated loans of $15m TREA6URE TRO9E O) IP GENERATE6 6TEA'< INCO0E • c. 15,000 backlist titles generating steady sales • Focused effort to ‘re-mint’ backlist contents ENA%LE' %< TECHNOLOG< AN' 'ATA ANAL