August 28 – September 4, 2008 Edition

U.S. Slowdown
Impacts Quarto’s
For First Half

LONDON/8/28/2008–Quarto Group, Inc., UK based publisher of illustrated books and art prints, last week reported that it closed the first half of the year June 30, 2008 with mixed results. Revenue increased by 20% to £43.8m, adjusted EBITDA by 25% to £7.4m and adjusted operating profit by 33% to £2.3m.

In the Publishing segment, continuing revenues were flat overall. The UK (by 16%) and Australasian businesses were up, but US revenues were down, and reflect the deliberate reductions in inventory by retailers.The US accounts for 60% of Quarto’s Publishing segment revenues. The slowdown is real and is biting but, with the exception of the home improvement and automotive sectors, register sales of Quarto’s titles are not under pressure, and sales through Amazon are rising.

Co-edition segment revenues rose by 12% to £13.4m and operating profit by 85% to £0.7m. This segment’s second half is historically much the stronger. Publishing segment revenues rose by 24% to £30.4m, aided by a first time contribution from MBI, and adjusted operating profit, at £2.3m, rose by 10%. The discontinuance of art print publishing, as previously announced, gave rise to a non-recurring, largely non-cash, charge of £2.6m. For the trailing 12 months, to June 30, 2008, revenue increased by 17% to £107.4m, and adjusted EBIDTA by 19% to £21.5m, operating profit by 15% to £11.1m, and pre-tax profit by 3% to £7.6m. In the light of current economic volatility, the board has declared an unchanged interim dividend of 3.15p.

In the CO-edition segment, book revenues were up by 35% to £8.2m, boosted by a larger new title program and greater reprints, but print broking revenues fell by 12% to £5.2m. The CO-edition forward order book is up by 14%. Sales of CO-edition titles remain very robust in most parts of the world, and more than compensate for the weakness in the US market. The slowdown in the US is beginning to impact the segment, as pressures on retailers to hold down inventory, and maintain tight controls on cash, discourage some of our licensees from reprinting books at this time.

Laurence Orbach, Chairman and Chief Executive, commented, “Thanks to our diversified international portfolio, trading in the first half was much stronger than we might have expected. The CO-edition segment produced extremely good results. Our trailing 12 months’ results to June 30, 2008 are encouraging. We hope that we can maintain these improvements for the balance of the year. The environment remains tough, and our performance, in the face of the challenges this poses, demonstrates the continued resilience of our business model, and our publishing programs.

“The long forward order book of our CO-edition businesses provides great transparency on the likely performance of that segment for the rest of the year. Barring extraordinary manufacturing problems, we are comfortable that we should achieve our expectations for that segment for the year. In the Publishing segment, with 60% of our revenues arising in the United States, much will depend upon trading in the last quarter of the year. In the UK, for example, where inventory reduction by retailers was a major issue in the prior two years, our publishing revenues increased by a strong 16%. There is some hope, then, that our Publishing segment’s sales to US retailers will improve as they become more comfortable with their inventory levels.”