The Quarto Group Inc (LON:QRT) Chief Executive Officer Marcus Leaver caught up with DirectorsTalk for an exclusive interview to discuss the half yearly results, acquisitions and an outlook for the full year
Q1: Half of your results came out today, how is the business looking for the first half?
A1: Good, these are a solid set of results. You’ll find a business on track to deliver earnings growth and debt reduction for the third year running. We’re executing our business plan in all areas of the business, I believe we have good visibility into our heavily-weighted second half as we previously communicated and we’re really building on our strength, managing through operational and circumstantial issues. We have swings and roundabouts like any portfolio but our platform of making and selling quality books around the world is working both organically and through acquisitions.
Q2: How are the core divisions performing?
A2: There are ups and downs in the co-edition business. We are doing very well in our children’s area, that’s moving forward very nicely, we now have a full range of children’s publishing from zero to nine. We have been affected in some other of the imprints by the weakness of the euro and that affects translation of books, particularly the bigger books with higher word counts and in certain areas there’s been a saturation of the kind of books we publish. On the other hand, we’ve acquired a business like Ivy where we are proving the model of acquiring businesses and we have quite a cookie-cutter business model in terms of acquiring businesses and that business that we’ve acquired, Ivy Group, will outperform expectations so we’re very pleased with that. In the USA, we had a few issues with the port strikes in LA but we will catch up with that during the rest of the year because we have a very resilient business in the US. Our direct relationships with retailers are performing to plan and adult colouring books, which is a phenomenon I’m sure you’ve read about, is something that we’re doing very well with and we will ride that phenomenon until it’s time to stop. The market place in America is interesting for sensible acquisitions and we have a number of targets in mind should the opportunity arise. In the UK, we’re continuing to transform our UK business and our children’s publishing imprints are in the Vanguard there. In our trading businesses in Australia, New Zealand and Hong Kong, we’re moving forward very nicely executing our business plans, there will be some effects in Australia and New Zealand because of currency at the end of the year but as I say, we’re executing all the business plans around the world the way we wanted.
Q3: We’ve previously discussed the acquisition of Ivy Press and you acquired Small World Creations in 2014, how are these progressing within the group?
A3: Very good indeed, we bought Ivy and prior to that, we bought Small World Creations. We have a very cookie-cutter approach to value, we know what works in our business, we’re in a business that looks for the back catalogue to be of great value and great sustainability over a period of time. We’re not here today, gone tomorrow. Yes, we can pick up on trends but we look for long lasting book publishing catalogues of value. We found that with both Small world and Ivy, we’ve managed in both of those businesses to take the value that we saw and we’ve been able to add sales leverage, operational leverage and also some cost saving overhead reduction. They’re working very well, both of those acquisitions, and I think they have really proved out the model and template for further acquisitions, should the right targets arise.
Q4: What are the key investment highlights of Quarto from your point of view?
A4: Very simply, we are the pioneer of the co-edition model, it underpins our DNA, we are relatively risk-averse as a publishing business, we are the illustrated major. Backlist, backlist, backlist, that’s what we care about, we like the fact that 66% of our business is from recurring revenues from prior years’ publications. We are a resilient and niche publishing business, we’re resilient in terms of we don’t just do trendy publishing, I’m looking at a table of books in front of me for example we have a wonderful celebration of Alice in Wonderland’s 150th anniversary, we have a book called Thriving with Diabetes, we have 20 Ways to Draw a Star and we a beautiful children’s book called The City Atlas. So we are in the book business not the author business, we come up with ideas and we make those ideas reality and we sell them around the world. Our Profit Before Tax (PBT) has gone from 9.2 million in 2012 to 12.1 million in 2014 and broker consensus shows us growing both in terms of PBT and also reducing debt which we’ll reducing responsibly. We’re managing our portfolio for children’s growth, foreign language focus and we’re retooling the UK publishing programme and as I say, we’ve talked about earnings-accretive targets that we can build on to our platform and grow the business by acquisition.
Q5: What would be your outlook for the full year?
A5: It’s really more of what I’ve been talking about. We have a good Order book visibility for the second half of the year, we continue to expand our reach in channel territory and format, we’re well positioned to grow organically as I’ve touched on or to develop the business through suitable acquisitions whilst being committed to bringing down debt. So that’s what’s going on in the business and that’s what’s going on in the market places that we work in. We also have in the second half of the year, the retirement of our longstanding CFO Mick who I’m extremely thankful to for all his support and counsel over the last three years and I’m very pleased and excited to welcome Michael Connole, our new CFO. Michael is currently the CFO of Global Radio Group, the largest commercial radio group in the UK and Michael is someone I worked with when we were back at Chrysalis and I look forward to working with him into the future to take this business on for another three years and beyond of PBT growth, earnings growth and debt reduction.
