Quercus announce interim results
UNAUDITED INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2011
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 Hellström
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.”
CHIEF EXECUTIVE’S REVIEW
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.
Digital
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.
Publishing
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 Hellström, 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.
Finance
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.
Outlook
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 improved.
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 confidence.
