August 17 – August 24, 2006 Edition

Quarto Group
Posts Strong
First Half LONDON/8/11/2006—The Quarto Group, Inc., the UK-based independent book producer and publisher based in London, announced a strong first half of the year, highlighting the fundamental robustness of Quarto’s book businesses. In the first six months of fiscal 2006 sales were relatively flat at £38.29m over the previous year, but operating income soared 127% to £2.0 million, mainly from co-edition profits. In the publishing segment, however, sales were down 2% and profits declined by 24%.

The first half typically accounts for only about 40% of annual revenue. In the 12 months ended June 30, 2006, revenue rose by 9% to £95.1m and, on an adjusted basis, operating profit rose by 21% to £9.3m and pre-tax profit by 22% to £6.9m–slightly ahead of internal expectations.

The results from the International Co-Edition Book Publishing segment were very strong. Revenue increased by 4% to £13.2m, but operating profit soared by 140%, as almost all units performed more strongly than in 2005.

Revenue for the Publishing segment, in contrast, slipped by 2% to £25.1m, reflecting sluggish sales in the US, and a disposal of some magazines in the UK. Operating income declined by a more substantial 24%. The results were mixed, but the indicators were generally positive.

During the period, Quarto was very involved in seeking acquisition opportunities and the Board is hopeful that Quarto shall not end the year without closing another substantial transaction.

Quarto has increased its target operating margin for both the Group and the Publishing segment to 12.5% from 10%, Co-Edition remaining on 15%.

Laurence F Orbach, Chairman & Chief Executive, remarked on prospects “The good first-half results cannot hide the fact that market conditions have become more challenging in many of our markets. At this point, it’s hard to tell if the slowdown in the housing market in the United States will affect the sales of our home improvement and lifestyle books. The evidence isn’t suggesting this currently but, in these categories, as in others, and whether we are selling our co-edition books to licensees, or our published titles to bookstores and other retailers, ultimately, the consumer is our main customer and, although our ranges of titles focus on areas of practical need, passion, and enthusiasm, we cannot expect to be immune from the flatter retail markets in several of our major geographies.”

He added that “The United States market is still our single largest market, responsible for about half of our revenue; a slowing economy there, and the weakening dollar, give pause for some concern. By the same token, we should not overstate the difficulties. Books remain, in the scheme of things, fairly inexpensive purchases, and have traditionally done well in less buoyant economic times.

“For the balance of this year we are rolling out substantial programs of new titles which will, in turn, provide the recurring reprint revenues that are the backbone of the group’s business. As mentioned above, because we expense the development costs of our new co-edition titles at the time of the first printing, and will be producing a larger than usual number of new titles in the second half of the year, we cannot expect to continue the first half’s excellent overall results, but remain confident that, barring major external developments, Quarto’s 2006 results should meet our expectations.”

Quarto is an international book producer and publisher with two principal strands of activity: it publishes, under imprints owned by the Group, books and art prints in the US, the UK, and Australia; and it creates books that are licensed to other publishers for publication under their own imprints in many languages around the world.

In 2005, Quarto increased adjusted pre-tax profit by 12% to £6.6m and reported adjusted diluted earnings per share of 20.8p (21.5p at constant tax rates, which would have represented a seventh successive annual increase).