GB00B1G17S00/GBP/PLUS-exn
28 September
2012
Quercus Publishing Plc
UNAUDITED INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2012
Transition to Digital Publishing Continues
Quercus Publishing Plc ("Quercus", the "Group" or the "Company"), the award-winning independent publisher
in the digital, trade, contract, paperback and children's sectors, presents its interim results for the six
months ended 30 June 2012.
Overview
* Turnover GBP9.24m (2011: GBP11.96m)
* Pre-tax profit GBP0.6m (2011: GBP3.4m)
* Full Year dividend approved at the AGM increased by 5% to GBP1.08m (2011: GBP1.03m)
* Digital revenue up 88% to GBP2.37m (2011: GBP1.26m)
* Digital revenue as a % of total revenue more than doubled to 25.6% (2011: 10.5%)
* Cash at bank and in hand GBP2.27m (31 December 2011: GBP4.29m)
* Colin Adams appointed as Chief Financial Officer and Chief Operating Officer
* Bestsellers in the period:
o The Millennium Trilogy by Stieg Larsson
o "Things Get Better" by Katie Piper
o "Born Fearless" by Phil Campion
o "The Lewis Man" by Peter May
o "Monday to Friday Man" by Alice Peterson
Commenting on the results Mark Smith, Chief Executive, said:
"These results largely reflect the expected effects of the strategic transition which Quercus embarked upon
over a year ago, as we set out to reinvest the short-term boost to profits from our highly successful Stieg
Larsson franchise in order to build a broad and robust long-term business. The investments we are making in
hiring key publishers, in bidding more competitively for publishing rights, and in building our
infrastructure, inevitably are impacting our short-term financial performance, while the external trading
environment also remains challenging. Nevertheless, the Board remains confident that our strategy is the
right one for all of Quercus' stakeholders and we look forward to starting to reap the benefits during 2013
and thereafter. This confidence in the future was underlined by the board's decision to increase the
dividend paid in respect of the year ended 31 December 2011 by 5%".
CHIEF EXECUTIVE'S REVIEW
Overview
As stated at the Annual General Meeting in May, two trends were starting to emerge in 2012; a predicted
decline in the overall contribution from the Larsson franchise, and a more traditional seasonality to our
annual revenue and profits profile.
These trends have continued and in the latter months of the first half of the year, the Larsson trilogy's
decline accelerated, due predominantly to the unprecedented success of E L James' 50 Shades of Grey series.
Additionally, royalty receipts from North America were adversely affected as various editions were rested
to build demand for the film tie-in editions. This has resulted in a contribution from Larsson in the first
half that fell short of our expectations and we believe that this pattern will continue for the remainder
of the year.
The success of E L James has also created opportunities and Quercus publishes its first erotic fiction
trilogy later this year: Knight's Mistress, Knight's Retreat and Knight Takes Queen by CC Gibbs. Initial
reaction by both readers and retailers has been encouraging.
Over the past few years we have been reinvesting our positive cash flow in diversifying and widening our
publishing programmes to ensure that we continue longer-term earnings growth post Larsson. Whilst we are at
an early stage of the investment cycle, we are starting to see the fruits of these investments with three
Sunday Times bestselling titles: Peter May's The Lewis Man, Phil Campion's Born Fearless and Katie Piper's
Things Get Better; a Richard & Judy Book Club selection for Alison Littlewood's A Cold Season from our Jo
Fletcher Books imprint, Toby Harnden's Dead Men Risen winning the Orwell Prize, and Chris Wormersley's
Bereft, Philip Kerr's Prague Fatale and Laura Wilson's A Willing Victim all making the Crime Writer's
Association's Dagger shortlists.
Investment has also been channelled towards more commercial non-fiction projects that are suitable to the
high volume autumn selling period; hence the changing seasonality of our profile towards what would
normally be the pattern for a consumer publisher. The line-up looks promising, but we remain cautious due
to external factors.
Colin Adams has joined as Chief Financial Officer and Chief Operating Officer. Colin has over 18 years'
experience in publishing primarily at Bloomsbury through its huge growth phase and its significant
reinvestment programme in new revenue streams post the peak of the Harry Potter franchise.
Financial Results
The Stieg Larsson series has been hugely successful for the company in recent years. Revenue for these
titles, as predicted, is reducing to a long-term annuity level which has contributed to the turnover
decrease to GBP 9.24m (2011: GBP 11.96m). The decline in Larsson revenues accounts for circa GBP 2.0m of
the reduced revenue between H1 2012 and H1 2011. The business is undergoing a transition whereby it is re-
investing the net cash generated from its activities in new organic start-up businesses. These require
upfront investment in staff and other overheads, which has given rise to a higher Administrative expense
charge of GBP 3.28m (2011: GBP 2.24m). The combination of increased Administrative expenses and book
advances contributed to the reduction in Net cash from GBP 4.29m at the end of 2011, to GBP 2.27m at 30
June.
Digital
Quercus continues to invest in digital publishing, in social media initiatives and in building reader
communities. We are seeing a substantial return on this investment, both in our print sales and in a
quantum leap in our ebook revenues, shown by the 88% increase in digital revenues for the half-year
compared with the first half of 2011.
In a move of great strategic importance, Quercus will have launched, by the year end, our own direct-to-
consumer (DTC) system, allowing us to connect with our readers without a retail intermediary. Our DTC
solution will comprise both an e-commerce system to sell print and ebooks directly to visitors to any of
our suite of websites and a customer relationship management (CRM) system to capture and utilise their
details.
We anticipate that these DTC endeavours will work well with the genre communities that we began to court
last year through dedicated websites and blogger outreach initiatives. For our fantasy and sci-fi and
translated fiction genres, the number of readers opting-in to share their email addresses has multiplied
many times over, a valuable asset for the future. Likewise, our database of influential bloggers has
increased exponentially. These efforts will be expanded to more genres in 2013.
On the digital publishing front, Quercus's fledgling e-book-only publishing program has already acquired
more than 100 titles from established authors' backlists, and we expect this capture of valuable IP to
quadruple over the next twelve months. In keeping pace with the proliferation of new devices, Quercus is
now developing products for iPad, Amazon Fire, Nook and other tablets, utilising our advantage of owning an
extensive backlist of illustrated non-fiction titles.
Publishing
Quercus achieved three Sunday Times top ten bestsellers in the first half of the year, namely The Lewis Man
by Peter May, Things Get Better by Katie Piper and the paperback edition of Born Fearless by Phil Campion.
A Cold Season by Alison Littlewood a first novelist signed by Jo Fletcher Books was a Richard and Judy Book
Club pick in January and sold 65,000 copies. Quercus maintains its strong presence in crime fiction with
Bereft by Chris Wormersley being shortlisted for The Crime Writers Association Gold Dagger and both Philip
Kerr's Prague Fatale and Laura Wilson's A Willing Victim shortlisted for the Historical Dagger.
Notable successes in the first half of 2012 were the launch of two new debut novelists, British crime
writer David Mark with Dark Winter and Rosanna Ley with The Villa, a paperback original selling over 50,000
copies, as well as an innovative simple reference series Maths in Minutes, Science in Seconds and Big Ideas
In Brief, and a new Young Readers series Guinea Pigs Online by Amanda Swift and Jennifer Grey.
The Company continues to develop and nurture the Fiction, Non-Fiction and Children's lists with the
ambition to grow imprint revenues significantly.
Outlook
The Company is on track with its strategy of reinvesting earnings in new organic start-up operations. As
with all start-ups, there is a level of upfront investment and therefore short-term earnings dilution,
which we are experiencing this year. The Larsson trilogy, as predicted, is reducing to a long-term annuity
level but the new operations should ensure that we can continue to grow the business in the future.
The investment in I.P. during 2011 and 2012 will significantly enhance the Company's publishing programme
in 2013. The first titles in the new Cookery list will be Lynn Hill's Clandestine Cake Club and new
cookbooks from TV chefs Allegra McEvedy and Matt Tebbutt. In Fiction, Heron Books will lead off 2013 with
The Misinterpretation of Tara Jupp by Eva Rice whose previous title The Lost Art of Keeping Secrets was a
Richard and Judy Book Club pick and went on to sell over 250,000 copies. The Paperback division will
release the mass market edition of Dorothy Koomson's bestseller The Rose Petal Beach in the late spring.
The Children's list presents an exciting debut novel from Piers Torday The Last Wild and the Non-Fiction
highlight is Africa: Eye to Eye with the Unknown which is accompanied by a six-part prime-time BBC One
series presented by Sir David Attenborough.
Our digital investments are also expected to reap rewards in the remainder of 2012, in 2013, and beyond,
taking advantage of the rapid transition to digital that is fundamentally changing the publishing industry.
We have already had an ebook, Alice Peterson's Monday to Friday Man, occupy the no.1 slot in the Kindle
chart for nearly two months over the summer, July was our record month for ebook units sold, and Christmas
2012 is anticipated to break our ebook sales records.
The macro-economic environment continues to be challenging and the fact that this has been going on for a
considerable period and shows no signs of improvement is increasing the uncertainty and hitting confidence
in the book retail sector. The success of 50 Shades of Grey has had a significant impact on the book sales
of all publishers over the summer and this will continue in the lead up to Christmas. Taking these factors
together, trading is expected to be below market expectations for 2012. The balance sheet, however, remains
strong with no borrowings.
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 Profit & Loss
As at 30th June 2012
6 Months to 30 6 Months to 30 Year to 31st
June 2012 June 2011 December 2011
(unaudited) (unaudited) (Audited)
GBP '000 GBP '000 GBP '000
Turnover 9,236 11,960 24,759
Cost of sales (4,056) (4,815) (9,558)
Gross profit 5,180 7,145 15,201
Selling & Distribution Costs (1,344) (1,430) (3,753)
Administrative expenses (3,279) (2,241) (5,550)
Operating Profit 557 3,474 5,898
Interest receivable 12 0 39
Interest Payable 0 (39) (61)
Profit on Ordinary Activities before 569 3,435 5,876
taxation
Taxation charge for year (154) (966) (1,506)
Profit on ordinary activities after 415 2,469 4,370
taxation , and retained profit for year
Quercus Publishing plc
Interim Consolidated cash flow statement
As at 30th June 2012
6 Months to 30 6 Months to 30 Year to 31st
June 2012 June 2011 December 2011
(unaudited) (unaudited) (Audited)
GBP '000 GBP '000 GBP '000
Cash Flows from Operating Activities :-
Profit for the period 557 3,474 5,898
Adjustments for :-
Depreciation 108 43 144
Share Option costs 0 0 16
Profit/Loss on disposal of assets 0 6 4
665 3,523 6,062
(Increase)/decrease in inventories 12 251 (115)
(Increase)/decrease in receivables (825) 3,673 159
Increase/(decrease) in creditors (1,414) (2,163) (1,552)
Cash generated from Operations (1,562) 5,284 4,554
Interest received 12 15 39
Interest paid 0 (54) (45)
Corporation tax paid (427) (1,990) (2,870)
Net cash flows from operating activities (1,977) 3,255 1,678
Investing Activities
Purchase of Fixed Assets (46) (61) (581)
Net cash flows used in Investing (46) (61) (581)
Activities
Financing Activities
Isssue of Share capital 4 188 188
Loans Repaid 0 0 0
Dividends paid 0 (2,462) (2,462)
Net cash flows from Financing activities 4 (2,274) (2,274)
Net increase / (Decrease) in cash and (2,019) 920 (1,177)
cash equivalents
Cash and cash equivalents at 1st Jan 4,291 5,468 5,468
Cash and cash equivalents at 30th June 2,272 6,388 4,291
Quercus Publishing plc
Interim Consolidated Balance Sheet
As at 30th June 2012
6 Months to 30 6 Months to 30 Year to 31st
June 2012 June 2011 December 2011
(unaudited) (unaudited) (Audited)
GBP '000 GBP '000 GBP '000
Fixed Assets
Tangible Assets 527 168 588
Current Assets
Stocks 2,829 2,475 2,841
Trade and other receivables 13,068 8,004 11,525
Cash at bank and in hand 2,272 6,388 4,291
18,169 16,867 18,657
Current Liabilities
Bank Overdraft 0 0 0
Short term Loan 0 0 0
Trade and other creditors (4,813) (4,676) (5,449)
Corporation and other taxes (279) (1,141) (611)
(5,092) (5,817) (6,060)
Net Current assets 13,077 11,050 12,597
Non current liabilities (3) 0 (3)
Net Assets 13,601 11,218 13,182
Capital and Reserves
Called up Share capital 164 164 164
Equity Shares to be issued 0 0 0
Share premium Account 4,812 4,762 4,808
Profit & Loss Account 8,625 6,292 8,210
Total Equity 13,601 11,218 13,182