Quercus Publishing plc
PLUS : QUPP

April 29, 2008 02:28 ET

Quercus Publishing Plc: Final Results

LONDON, UNITED KINGDOM--(Marketwire - April 29, 2008) - Quercus Publishing Plc, the PLUS-quoted publishing company (PLUS:QUPP), today announces its final results for the year ended 31 December 2007.

Key Performance Indicators 2007:



- Turnover GBP 8,626,192 (2006: GBP 3,574,275)
- Quercus Editions Operating Profit GBP 415,104 (2006: GBP 412,392)
- Quercus Publishing Plc admin costs GBP 140,368 (2006: GBP 52,952)
- Consolidated Operating Profit GBP 274,736 (2006: GBP 359,440)
- Consolidated Profit Before Tax GBP 154,100 (2006: GBP 317,867)
- Operating Earnings per Share 3.73 pence (2006: 3.72 pence)
- Basic Earnings per share 1.01 pence (2006: 2.13 pence)
- New titles 89 (2006: 48)


Mark Smith, Chief Executive of Quercus Publishing Plc, commented:

'This has been a transformational year for Quercus, with both our Contract and Trade Divsions contributing handsomely to revenue growth of 140% over the prior year.

'The Board believes that Quercus is now well placed for further growth and over the next three years the Group will continue to evolve, build the publishing programmes and further develop an enhanced source of revenues from international licensing.'

The Directors of Quercus Publishing Plc accept responsibility for this announcement.

Notes to Editors:

- Quercus Publishing plc is an independent publisher based in London. The Company was founded by Mark Smith and Wayne Davies in May 2004.

- The Company was listed on PLUS market in October 2006


CHAIRMAN'S STATEMENT

2007 was a formative year for Quercus. Sales grew by a factor of 2.4 to GBP 8.6m (2006: GBP 3.6m). Both Publishing Divisions contributed equally to the result: Contract Publishing recorded growth of 82% to GBP 3.1m (2006: GBP 1.7m), and Trade Publishing advanced by 194% to GBP 5.5m (2006: GBP 1.8m).

Despite the startling increase in turnover, the trading company's operating profits were static at GBP 0.4 million (2006: GBP 0.4 million). This represents a ratio of operating profit to sales of 4.8% (2006: 11.5%). The relatively modest level of profit recorded in 2007 reflects management's decision to invest heavily in personnel, infrastructure and marketing to prepare for the next stage in the life of the Company.

Group profits were GBP 0.15m compared to GBP 0.32m in 2006. There was a rise in costs incurred at the group level in 2007 as this was the first full year of amortisation of the loan note issue costs. Additionally there were charges associated with the employee share options granted in the year.

In 2008 we are confident that Quercus will cease to be a small company (defined within the industry as one with annual sales of less than GBP 10m) to become one of the leading independent publishing houses in the UK.

The Directors would like to thank all members of the Quercus staff, who have worked cheerfully and tirelessly to achieve a great deal in a short time. We are equally indebted to all the authors who have published their work under our imprint. It is a pleasure to record that the efforts of both authors and staff were recognized during the year by a number of awards: these included the Costa Book of the Year to Stef Penney for THE TENDERNESS OF WOLVES, the Duncan Lawrie Dagger for Best Crime Novel to Peter Temple for THE BROKEN SHORE and the publishing industry's Nibbie for Independent Publisher of the Year to Quercus Publishing Plc.

Anthony Cheetham, Chairman

29th April 2008

CHIEF EXECUTIVE'S REVIEW

2007 was a year of remarkable growth in which overall sales turnover advanced by 141% to GBP 8.6m. In the UK the retail sales reported by Nielsen Bookscan at the point of sale showed an even more vigorous rise of 319%, the largest increase recorded by any UK publisher with sales exceeding GBP 1m.

To achieve these rates of growth we invested heavily in marketing our books in the UK by way of trade and consumer advertising, and by participating in customer promotions. Marketing costs in 2007, at GBP 527,200, (2006, GBP 202,923) represented 10% of trade sales turnover (2006: 11%). This is a high level of expenditure reflecting our aim to promote not only the books but also to establish the Company as a serious competitor for shelf space with the major bookselling chains.

The most important contributor to growth was the mass market paperback list introduced in March 2007. Pre-eminent among the paperbacks was Stef Penney's prize winning first novel THE TENDERNESS OF WOLVES which sold more than 300,000 copies during the course of the year (and continues to sell briskly in 2008).

In order to sustain the momentum over the following three years (2008 - 2010), we created 21 new jobs between October 2006 and December 2007. The total number of employees at the year's end was 34 (2006:17). Overhead costs consequently rose by GBP 1.3m to GBP 2.1m (2006: GBP 843,000).

Contract Publishing

Contract Sales increased by 82% to GBP 3.1m (2006: GBP 1.7m). We delivered 25 new titles to customers around the world, and these accounted for 60% of contract sales. Our bestselling backlist titles were SPEECHES THAT CHANGED THE WORLD, introduced by Simon Sebag Montefiore and Giles Sparrow's COSMOS. The former sold a further 100,000 copies and now has over 600,000 copies of the English language edition in print. COSMOS was, for the second year running, the best selling title in its category for Borders in the USA.

GREAT IRISH SPEECHES, edited by Richard Aldous, became our first national bestseller in the Republic of Ireland. A new series, 50 Ideas You Really Need to Know, was exceptionally well received in North America, Britain and Australia, and eleven foreign language editions will be published in 2008/9.

Further growth in 2007 was capped by the lack of editorial and design capacity to produce more titles; we therefore recruited a second illustrated book team, under the direction of Richard Green, formerly of Quarto and the BBC, to work alongside the first. From 2008 we plan to raise to 40 the number of new titles published annually.

We shall be entering a number of new subject areas, including Fine Arts, Photography, Travel, and Military, Maritime and Aviation History. The first titles in these categories will be published in 2008.

Trade Fiction

Fiction sales throughout 2007 were dominated by our two prize winning authors, Stef Penney and Peter Temple. But a number of newcomers to the list made their debut in 2007 and hold out significant promise for the future. Colin Cotterill's engaging crime series, featuring a 70 year old coroner in communist Laos, led some critics to compare his first novel, THE CORONER'S LUNCH, to the work of Alexander McCall Smith. Philip Kerr's spy novel THE ONE FROM THE OTHER was a best seller in the London area. Theresa Schwegel's Chicago based detective story OFFICER DOWN earned her the Crime Writers of America's Best First Novel Award. Heather O'Neill's harrowing coming of age novel LULLABIES FOR LITTLE CRIMINALS was shortlisted for the Orange Prize in April 2008.

Perhaps the most important series of steps taken during the year was the recruitment of four specialist publisers to broaden and deepen the range of the Quercus Fiction list.

- Christopher Maclehose brings us the benefit of long experience as a leading publisher of international fiction in translation. Among his first acquisitions were the World English Language rights in Stieg Larsson's MILLENNIUM trilogy. This epic of crime and retribution, already a massive bestseller in Sweden, Germany, and France, could prove to be a publishing franchise of exceptional value.

- Jonathan Riley has earned his reputation as a publisher of literary fiction at Penguin, Picador and Faber. Jon's first purchase, a historical adventure by Scottish novelist Andrew Greig, entitled ROMANNO BRIDGE, became a No.1 fiction bestseller in Scotland in April 2008. Andrea Schenkel's THE MURDER FARM won all three of the major crime fiction awards and sold over 600,000 copies in her native Germany. Elizabeth Lowry (THE BELLINI MADONNA) and Susan Irvine (MUSE) are two first time novelists of rare talent, both scheduled for publication in 2008.

- Jane Wood, formerly Fiction Publishing Director at the Orion Publishing Group, joined Quercus in 2007 to initiate a women's fiction list. Her first acquisitions include Shona MacLean's outstanding historical fiction debut, THE REDEMPTION OF ALEXANDER SEATON, the first in a series set in Reformation Scotland. Equally impressive, as the first in a series, is THE CROSSING PLACES, which features an archaeologist, called in by the East Anglian police to apply her forensic skills to unsolved murder cases. Jane has also assumed responsibility for authors acquired by Sue Freestone, who left the company at the end of 2007: these include Fay Weldon (THE STEPMOTHER'S DIARY), Prue Leith (THE CHORAL SOCIETY), and Stella Rimington, former head of MI5, and creator of the Liz Carlyle espionage series.

- Roisin Heycock heads the newly created Quercus Children's Fiction Department whose first books were launched in the Spring of 2008. Her list includes fantasy, adventure, history and science fiction series from new writers, as well as books from the Caldecott Medal winner, Kevin Crossley Holland, and the Smarties Prize winner, Darren King.

We have listed a number of individual authors, titles and series above to convey some idea of the range, depth and quality of the fiction lists that our editors created during the past year. It is a young list, and in most cases it will be some years before our authors find their place on the ladder of public recognition. But we believe that we shall look back on 2007 as a year of transformation which saw the creation of a formidable engine for future growth.

The Paperback Division

In November 2007 we recruited Ron Beard as Head of Paperbacks to start a new division responsible for the sales and marketing of all mass market reprint editions. The division commenced operations in January 2008.

Ron Beard's mission is to develop our paperback sales to the major chain booksellers, Waterstone's and WH Smith, and to the supermarkets. These chains, who control up to 75% of UK books sales, work in close collaboration with the six largest UK publishing groups and it is not easy for independent publishers such as Quercus to gain access to their major promotions. Ron's background as a Key Account Director with Hachette Livre and Sales Director at Random House will bring to Quercus a valuable mix of contacts and experience drawn from the two market leaders in the UK publishing industry.

The Paperback Division will therefore play a crucial role in the process of introducing our fiction list to a mass market readership, and it is this division which is expected to deliver the largest percentage gains in the Company's annual growth rate over the next three years. Since mass market paperbacks yield a higher ratio of gross margin against sales the division should raise the Company's overall profit margins.

The Paperback Division will also take charge of an important new initiative in the autumn of 2008, when we plan to relaunch our illustrated list of non fiction titles, originally created by the Contract Publishing Division, in smaller, inexpensive formats more suited to trade distribution.

The Licensing Division

In 2007 Quercus' rights income increased by more than 200% to GBP 183,958. Rights income is defined as the publisher's share of monies received from the licensing of author's copyrights to a third party. Typically, the publisher's share amounts to 20% of the gross monies received.

We have in the past treated this source of income as a useful ancillary to our core business. But the growth of the income during 2007, and the readiness of overseas publishers to invest in Quercus authors has prompted us to assign a central role to this activity as a means of distributing intellectual property, at modest cost, on a global basis.

In 2007 we sold publishing rights in Stef Penney's THE TENDERNESS OF WOLVES to more than 20 countries. In the final quarter the sale of US and Canadian rights in Stieg Larsson's MILLENNIUM trilogy yielded substantial gross sales. In March 2008 we acquired world rights (excluding Australasia) in GENESIS by Bernard Beckett, a wonderfully inventive fable about the future of artificial intelligence written for young adults. Before the end of April we had closed sales to 7 territories with gross advances of more than GBP 200,000. In all these instances the sale of rights not only provides an income stream but also furnishes a platform for publicising our own edition on publication in the UK. GENESIS will be published in the UK in January 2009.

Finance and Administration

Mike McGrath joined the Company and the Board in April 2007 as Chief Operating Officer. His task has been to ensure that we have in place the appropriate IT systems, internal management procedures and financial disciplines to serve the needs of a rapidly growing and complex business. The Finance Department was strengthened with two new appointments, and Managing Editors were appointed to oversee the administration of the two principal publishing divisions.

Summary and Outlook

The defining achievement of 2007 was to prepare the Company for a new level of activity as a medium sized publisher with annual sales exceeding GBP 10m. Management believe that we now have in place the strategy, the organisational structure and the publishing programmes to take the business to GBP 20m over the next three years.

We have doubled the capacity of the Contract Publishing Division; acquired a core list of some 60 continuing authors across the spectrum of fiction publishing; established a mass market paperback division; and developed an enhanced source of revenues from international licensing.

We expect to see significant growth in 2008. Trading in the first quarter has been satisfactory. Sales of the first novel of Stieg Larsson's MILLENNIUM trilogy, THE GIRL WITH THE DRAGON TATTOO, launched in January, are ahead of expectation at 50,000 copies.

Prospects for the year as a whole are inevitably clouded by the threat of reduced consumer spending in the wake of the credit crisis. But with the benefit of the major investments in staff and marketing made last year, we nevertheless expect to see a recovery in the ratio of operating profits to sales.

Mark Smith, Chief Executive

29th April 2008



CONSOLIDATED PROFIT AND LOSS ACCOUNT
FOR THE YEAR ENDED 31 DECEMBER 2007


Notes 2007 2006
GBP GBP

TURNOVER 1 8,626,192 3,574,275

Cost of sales (4,687,471) (1,810,989)

GROSS PROFIT 3,938,721 1,763,286

Selling and distribution (1,377,682) (497,008)
Administration expenses (2,286,303) (906,838)

OPERATING PROFIT 274,736 359,440

Interest receivable and similar income 5,962 14,158
Interest payable and similar charges (126,598) (55,731)

PROFIT ON ORDINARY ACTIVITIES
BEFORE TAXATION 154,100 317,867

Taxation (41,920) (82,254)

PROFIT ON ORDINARY ACTIVITIES AFTER
TAXATION AND RETAINED PROFIT FOR
THE YEAR 112,180 235,613

EARNINGS PER SHARE
Basic earnings per share 3 1.01 pence 2.13 pence
Diluted earnings per share 3 0.89 pence 2.05 pence


All amounts relate to continuing operations.


CONSOLIDATED BALANCE SHEET
AS AT 31 DECEMBER 2007

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Notes 2007 2006
GBP GBP

FIXED ASSETS
Tangible assets 181,005 147,958
------------ -----------


CURRENT ASSETS
Stocks 2,007,386 616,538
Debtors 6,395,456 3,152,968
Cash at bank and in hand 112,605 979,264
------------ -----------

8,515,447 4,748,770
CREDITORS: amounts falling due
within one year (5,127,789) (1,454,110)
------------ -----------

NET CURRENT ASSETS 3,387,658 3,294,660
------------ -----------

TOTAL ASSETS LESS CURRENT LIABILITIES 3,568,663 3,442,618

CREDITORS: amounts falling due
after more than one year (1,351,751) (1,377,139)

PROVISIONS FOR LIABILITIES
Deferred taxation (5,393) (13,342)
------------ -----------

NET ASSETS 2,211,519 2,052,137
------------ -----------
------------ -----------

CAPITAL AND RESERVES
Called up share capital 89,494 88,689
Equity shares to be issued 34,507 34,760
Share premium account 1,703,047 1,682,032
Profit and loss account 384,471 246,656
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SHAREHOLDERS' FUNDS - All Equity 2,211,519 2,052,137
------------ -----------
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NOTES

1. TURNOVER

A geographical analysis of turnover is given below:



2007 2006
GBP GBP

United Kingdom 5,168,428 1,744,988
USA 1,889,914 978,451
Canada 180,199 71,794
Other 1,387,651 779,042
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8,626,192 3,574,275
------------ -----------
------------ -----------


2. NET CASH FLOW FROM OPERATING ACTIVITIES



2007 2006
GBP GBP

Operating Profit 274,736 359,440
Depreciation of tangible fixed assets 60,672 20,741
Amortisation of debt issue expenses 57,030 19,563
Share option cost 25,635 -
Increase in stocks (1,390,848) (497,303)
Increase in debtors (3,299,518) (2,751,646)
Increase in creditors 2,801,363 1,067,933
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NET CASH OUTFLOW FROM OPERATIONS (1,470,930) (1,781,272)
------------ -----------
------------ -----------


3. EARNINGS PER SHARE

Earnings per share is calculated on the basis of a profit of GBP 112,180 (2006: GBP 235,613) divided by the weighted average number of shares in issue for the period of 11,131,615 (2006: 11,085,865). The diluted earnings per share is calculated on the assumption all options are exercised. This would give rise to a total weighted average number of ordinary shares in issue at the end of the period of 12,624,491 (2006: 11,504,158). The conversion of the loan notes are excluded from this calculation as they are anti-dilutive.



Year ended Period ended
31 December 2007 31 December 2006
GBP GBP

Profit for the financial year 112,180 235,613

Earnings per share Earnings per share

Profit per share 1.01 pence 2.13 pence
Diluted Profit per share 0.89 pence 2.05 pence

Number of shares Number of shares
Weighted average number of shares:
For basic earnings per share 11,131,615 11,085,865
Dilutive share options 1,492,876 418,293

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Diluted weighted average number
of shares 12,624,491 11,504,158
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---------------- -----------------


4. TRANSACTIONS WITH THE DIRECTORS

During the year, unsecured loans were made to the company from the following directors:



Repayment date
Director Date Loan granted Amount loaned of the loan

Mark Smith 30/11/2007 GBP 100,000 31/05/2008
Anthony Cheetham 30/11/2007 GBP 250,000 31/05/2008
Pentland Group 30/11/2007 GBP 400,000 31/05/2008
David Potter 30/11/2007 GBP 25,000 31/05/2008


Barry Mosheim is a director of the company and also of Pentland Group.

Contact Information

  • Quercus Publishing Plc
    Mark Smith
    Chief Executive
    020 7291 7200
    or
    Redleaf Communications
    Sanna Sumner/Clair Sharp
    020 7822 0200
    or
    St Helen's Capital Plc
    Barry Hocken / Duncan Vasey
    020 7628 5582