Quercus Publishing plc

September 27, 2011 02:01 ET

Interim Results for the six months ended 30 June 2011

                                                                                               27 September 2011
                                              Quercus Publishing Plc
                                  Continued margin improvement and profit growth

Quercus Publishing Plc ("Quercus", the "Group" or the "Company"), the award-winning independent publisher  in  the
digital, trade, contract, paperback and children's sectors, is pleased to present its interim results for the  six
months ended 30 June 2011.

Financial Highlights

The highlights for the six months ended 30 June 2011 include:

    *       Revenue of GBP12.0m (2010: GBP15.0m)
    *       Pre-tax profit of GBP3.4m (2010: GBP 3.3m)
    *       Gross profit margin of 59.7% (2010: 47.0%)

    *       Non-Larsson UK trade revenue growth of 69% over the same period in 2010
    *       UK book publishing market share of 0.95% (2010: 1.53%)
    *       Maiden ordinary dividend and special dividend paid in May 2011 of GBP2.46m (2010: nil)

    *       Net increase in cash during the period GBP2.04m (2010: GBP2.52m)
    *       Cash at bank and on hand of GBP6.39m (2010: GBP0.24m)
    *       Outstanding convertible loan notes of GBP1.1m were converted into equity during the period, reducing debt
        to nil.
    *       Digital revenue accounted for 10.5% of total revenue (2010: 1.2%)

Operational Highlights

    *       Digital sales increased seven fold to GBP1.26m (2010: GBP0.18m)
    *       Launch of two new imprints: Heron Books and Jo Fletcher Books

    *       Launch of fiction joint venture, Silver Oak, with Sterling Publishing/Barnes & Noble
    *       Quercus named Publisher of the Year in April at the Bookseller Awards
    *       Senior publishing appointments made to strengthen IP acquisition and development team
    *       New websites and social networking for Quercus Books, MacLehose Press and Jo Fletcher Books

    *       Bestsellers in the period:
                 -       The Millennium Trilogy by Stieg Larsson
                 -       "The King's Speech" by Mark Logue

                 -       "Dead Men Risen" by Toby Harnden
                 -       "An Epic Swindle" by Brian Reade
                 -       "Three Seconds" by Roslund and Hellstr?m

Commenting on the results Mark Smith, Chief Executive, said:

"The Board is pleased with the results for the first six months and notes that there has been a real broadening of
the Company's revenue base, demonstrating the Company's success in its diversification strategy in anticipation of
the  expected  decline  in  sales from the Larsson franchise. This has been achieved in  a  worsening  market  for
physical books and while major changes are taking place in our routes to readers."

"Although  there  are  many  external  challenges,  the Board  continues  to  believe  that  there  are  excellent
opportunities for growth in all our activities and we therefore look to the future with confidence."


Quercus's  results  for the first six months of the year demonstrate the evolution of the business  from  a  small
niche  player  to one that has the strategy and finances in place to continue to grow profitably over  the  coming
years.  The Company has been strengthened and restructured and, while we are acutely aware of the fragile economic
climate  and  the need to act prudently, all business units are focused on taking advantage of the  opportunities,
particularly on the digital side, that are available to the Company.

The  contribution to this set of results from the Larsson franchise is at a fraction of the 2010 level and,  while
the three books continue to sell well and will be boosted further by the release of the Hollywood films, Quercus's
revenue  and profit streams are now diversified across a much larger author base. The first half of 2011  saw  the
launch  of  two new imprints led by proven industry figures: we have launched Heron Books, run by Susan  Watt,  an
imprint  dedicated  to  author led fiction and non-fiction; and we have launched Jo  Fletcher  Books,  run  by  Jo
Fletcher,  which  will focus on science fiction, horror and fantasy. The first titles for both  imprints  will  be
published in the second half of the year.

All English-speaking markets are suffering from weak economic growth and reduced consumer spending, exacerbated in
the  case of book retailing by structural change in the market and the insolvency of major retailers.  Quercus has
not  been  immune  to  these  forces,  which (in addition to the decline in sales  of  the  Larsson  titles)  have
contributed  to the pressure on the Company this year and to our not matching H1 2010's revenues. As  we  believe
that  the  macroeconomic climate and the state of publishing market will remain challenging, our  strategy  is  to
pursue carefully targeted profitable growth while preserving our strong balance sheet.

The  office  move from Bloomsbury Square to Baker Street has been completed and the new space offers a modern  and
efficient workplace, while providing room for the recruitment of additional staff necessary for planned growth.


Continued  investment  in  digital publishing and building reader communities is paying  off  with  a  substantial
increase in digital and e-book revenues recorded in the period.

The  digital  editorial,  sales,  marketing  and social networking teams  have  been  integrated  into  the  wider
organisation, ensuring that digital aspects and opportunities are considered with every decision.

Major initiatives completed and under way include:

    -       Distribution deals with both Apple and Google were signed during the period, significantly widening our
        retailer base and future sales opportunities.   
    -        A development partnership has been struck with an innovative Far Eastern software house to create new
        enhanced products for iPad, Kindle and Kindle Tablet, Nook and other tablets from our extensive backlist of
        illustrated non-fiction titles.       
    -       We have launched the first in a series of websites dedicated to capturing specific reading communities -
        jofletcherbooks.com, aimed at the enthusiastic fan base for the fantasy, horror and sci-fi genre - where 
        exclusive content, interviews, promotions and giveaways will give readers a genuine reason to become community 
        members and allow us to talk, listen and respond to readers and, ultimately, promote and sell our titles 
        directly to them.        
    -       Our new dedicated social media team, comprising staff recruited from Amazon and the music industry, is
        providing attractive new Quercus content across Facebook, Twitter and YouTube, resulting in much increased
        consumer engagement.

The  Company  has  had  three top ten Sunday Times bestsellers in the first half of the year;  namely  "The  Kings
Speech" by Lionel Logue, "Dead Men Risen" by Toby Harnden and "An Epic Swindle" by Brian Reade. "Three Seconds" by
Roslund  and  Hellstr?m,  winner of the Crime Writers Association's International Dagger Award,  became  Quercus's
first New York Times bestseller in January 2011.

The  Company  has spent the last few years developing and nurturing the fiction, non-fiction and children's  lists
and this work is being rewarded by significant growth across these areas.

Notable  successes in the period in fiction were "The House at Sea's End" by Elly Griffiths, winner  of  the  Mary
Higgins  Clark  Edgar Award; Peter May's "The Black House", now a Richard and Judy Book Club pick;  Alex  Connor's
"The Rembrandt Secret"; Steve Alten's "The Mayan Prophecy"; and Sissel-Jo Gazan's "The Dinosaur Feather", recently
voted the best Danish crime novel of the decade.

In  the  non-fiction  illustrated programme, four new titles were added to the market leading "50  Ideas"  series:
Universe, Literature, Political Ideas and World History.  This series is now sold in 25 territories worldwide.

The  children's  list continues to grow successfully with the launch of Kevin Crossley Holland's new  Viking  Saga
"Bracelet of Bones" and teen fiction saw the launch of Cat Clarke's "Entangled" and Jennifer Lynn Barnes "Trial by
Fire" - book two in the werewolf series that started strongly with "Raised by Wolves".

The  Stieg Larsson Millennium Trilogy continues to perform well, but at greatly reduced levels compared  to  those
enjoyed  in  2010. This year the Trilogy accounted for 35% of first half trade book sales, as against 78%  in  the
same  period  last  year.  While  we  expect Larsson to continue to be a major  contributor  to  future  revenues,
particularly during the period around the release of the first Hollywood movie scheduled in December this year, it
is pleasing to note that sales of the Company's non-Larsson trade revenues have grown by 69% in the UK.

Two  important  appointments were made to the publishing team in the period: Jo Dickenson has  been  appointed  to
develop  the Company's paperback programme and Jenny Heller is joining the company to continue the growth  of  the
non-fiction list. Both will join the Company in October.

Sales & Marketing

The  sales,  marketing,  rights,  co-edition  and publicity departments  have  been  reorganised  to  reflect  the
increasingly global nature of our business.

Major first half initiatives have included:

-        Moving our distribution in Australia and New Zealand to Pan Macmillan Australia. This move significantly
         increases our penetration and coverage of the ANZ market and should result in much improved sales.

-        Increased activity with the major UK supermarket groups to ensure continued strong positioning of our
         titles through these retailers.

-        Strengthening  and  restructuring the rights and co-edition teams to extend our international  reach  and
         apply additional resources to emerging markets, with a particular focus on South America and China.


Cash  generated from operations of GBP5.31m (2010: GBP2.66m) resulted in net cash or cash equivalents of  GBP6.39m
(2010: GBP0.24m).

Quercus  paid a maiden ordinary dividend in the period of 5 pence per share and a special dividend of 7 pence  per
share. It  remains the Company's intention to pursue a progressive dividend policy with payment of the next  full
dividend planned for the first half of 2012, subject to shareholder approval.

The  Company's corporate tax status changed during the period requiring a move to the instalment basis,  resulting
in tax payments of GBP1.99m (2010: GBP nil).

The outstanding convertible loan notes of GBP1.1m were converted to equity during the period.


Given  the wider economic outlook and depressed consumer confidence in our major markets, the Directors  expect  a
challenging  environment over the remainder of the year and beyond. As witnessed during the first  half,  however,
while  top  line  revenue  is being affected by these conditions, profitability is being  maintained  and  margins

The Company has a positive outlook for the prospects of the business over the longer term and is using this period
to  invest in intellectual property, digital distribution and social networking platforms and people who have  the
expertise to enable Quercus to maximise the commercial return from our assets.
In  this  regard, the Board has recently been strengthened by the appointment of Paul Lenton as Finance  Director.
Paul is a chartered accountant who has spent the last 15 years in a variety of senior finance positions within the
media industry.

The  Company  maintains a strong balance sheet and we continue to deploy our resources carefully, mindful  of  the
recent recession and uncertain outlook.

The investments made during 2010 and the first half of 2011 are paying off with more bestsellers than ever before,
author  sales  increasing  with  each title, digital revenues progressing and a highly  commercial  forward  title
programme. The  Directors  look  forward to both the remainder of our financial  year  and  2012  with  cautious

The Directors of the Company are responsible for the contents of this announcement.

Enquiries to:                                                                                               

QUERCUS PUBLISHING PLC                                                                                      
Mark Smith, Chief Executive                                                               Tel: 020 7291 7200

ST HELENS CAPITAL PARTNERS LLP                                                                              
Mark Anwyl or Duncan Vasey                                                                Tel: 020 7368 6959
Media Enquiries:                                                                                            
ATTILA CONSULTANTS                                                                        Tel: 020 7776 8825
Charles Cook                                                                           Mobile:  07710 910563

  Quercus Publishing plc                                                                     
  Interim Consolidated Balance Sheet                                                         
  As at 30th June 2011                                                                       
                                                       6 Months to 30       6 Months to 30        Year to 31st
                                                            June 2011            June 2010       December 2010
                                                      (unaudited)       (unaudited)          (Audited)
                                                                    ?                    ?                   ?
  Fixed Assets                                                                               
  Tangible Assets                                             168,412              147,105             156,076
  Current Assets                                                                             
  Stocks                                                    2,475,236            2,221,795           2,725,839
  Trade and other receivables                               8,003,949           11,080,834          11,700,342
  Cash at bank and in hand                                  6,387,610            1,369,874           5,468,220
                                                           16,866,795           14,672,503          19,894,401
  Current Liabilities                                                                        
  Bank Overdraft                                                    0                    0                (20)
  Short term Loan                                                   0          (1,131,721)         (1,122,195)
  Trade and other creditors                               (4,676,109)          (6,590,908)         (6,783,412)
  Corporation and other taxes                             (1,141,010)          (1,422,156)         (2,220,105)
                                                          (5,817,119)          (8,013,064)        (10,125,732)
  Net Current assets                                       11,049,676            6,659,439           9,768,669
  Non current liabilities                                           0             (13,920)                   0
  Net Assets                                               11,218,088            6,792,624           9,924,745
  Capital and Reserves                                                                       
  Called up Share capital                                     164,175              140,493             140,493
  Equity Shares to be issued                                        0               20,500              20,500
  Share premium Account                                     4,761,772            3,477,851           3,477,851
  Profit & Loss Account                                     6,292,141            3,153,780           6,285,901
  Total Equity                                             11,218,088            6,792,624           9,924,745
  Quercus Publishing plc                                                                     
  Interim Consolidated Profit & Loss                                                         
  As at 30th June 2011                                                                       
                                                       6 Months to 30       6 Months to 30        Year to 31st
                                                            June 2011            June 2010       December 2010
                                                          (unaudited)          (unaudited)           (Audited)
                                                                    ?                    ?                   ?
  Turnover                                                 11,960,227           15,005,898          31,783,809
  Cost of sales                                           (4,815,142)          (7,953,296)        (15,869,800)
  Gross profit                                              7,145,085            7,052,602          15,914,009
  Selling & Distribution Costs                            (1,430,508)          (1,764,727)         (4,004,403)
  Administrative expenses                                 (2,240,613)          (1,891,659)         (4,273,778)
  Operating Profit                                          3,473,964            3,396,216           7,635,828
  Interest receivable                                               0                2,345               9,074
  Interest Payable                                           (39,130)             (98,881)           (160,395)
  Profit on Ordinary Activities before taxation             3,434,834            3,299,680           7,484,507
  Taxation charge for year                                  (966,285)            (996,620)         (2,074,058)
  Profit on ordinary activities after taxation              2,468,549            2,303,060           5,410,449
  , and retained profit for year
  Quercus Publishing plc                                                                     
  Interim Consolidated cash flow statement                                                   
  As at 30th June 2011                                                                       
                                                       6 Months to 30       6 Months to 30        Year to 31st
                                                            June 2011            June 2010       December 2010
                                                          (unaudited)          (unaudited)           (Audited)
                                                                    ?                    ?                   ?
  Cash Flows from Operating Activities :-                                                    
  Profit for the period                                     3,473,964            3,396,216           7,635,828
  Adjustments for :-                                                                         
  Depreciation                                                 42,506               45,434              92,320
  Share Option costs                                                0                    0              24,731
  Profit/Loss on disposal of assets                             6,519                                        0
                                                            3,522,989            3,441,650           7,752,879
  (Increase)/decrease in inventories                          250,603              637,500             133,456
  (Increase)/decrease in receivables                        3,696,394          (1,849,203)         (2,445,699)
  Increase/(decrease) in creditors                        (2,163,019)              426,179           1,689,493
  Cash generated from Operations                            5,306,967            2,656,126           7,130,129
  Interest received                                            15,107                2,345               9,074
  Interest paid                                              (54,237)             (98,881)           (160,395)
  Corporation tax paid                                    (1,989,665)                    0           (255,509)
  Net cash flows from operating activities                  3,278,172            2,559,590           6,723,299
  Investing Activities                                                                       
  Purchase of Fixed Assets                                   (61,361)             (42,950)            (98,807)
  Net cash flows used in Investing Activities                (61,361)             (42,950)            (98,807)
  Financing Activities                                                                       
  Isssue of Share capital                                   1,099,182                    0                   0
  Proceeds from share options exercised                       187,921                    0                   0
  Loans Repaid                                                      0                    0                   0
  Dividends paid                                          (2,462,309)                    0                   0
  Net cash flows from Financing activities                (1,175,206)                    0                   0
  Net increase / (Decrease) in cash and cash                2,041,605            2,516,640           6,624,492
  Cash and cash equivalents at 1st Jan                      4,346,005          (2,278,487)         (2,278,487)
  Cash and cash equivalents at 30th June                    6,387,610              238,153           4,346,005


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