1 Triptych Place | Second Floor | London SE1 9SH | United Kingdom

Tel: +44 (0)20 7700 6700 | Email: investor@quarto.com

Annual Report 2022

The Quarto Group, Inc. Annual Report 2022

TRAVEL

Gardening

C OOKERY

DESIGN

MUSIC

HISTORY

Kids

SCIENCE

TRANSPORTATION

Health

Gif

ART

1 Triptych Place | Second Floor | London SE1 9SH | United Kingdom

Tel: +44 (0)20 7700 6700 | Email: investor@quarto.com

Annual Report 2022

The Quarto Group, Inc. Annual Report 2022

TRAVEL

Gardening

C OOKERY

DESIGN

MUSIC

HISTORY

Kids

SCIENCE

TRANSPORTATION

Health

Gif

ART

B | THE QUARTO GROUP, INC. ANNUAL REPORT 2022 | Strategic Report

Contents

STRATEGIC REPORT

Overview ............................................................................................................................................ 1

Highlights ......................................................................................................................................... 2

Quarto at a Glance ..................................................................................................................... 3

Chairman’s Statement ............................................................................................................4

Group Chief Executive Ofcer’s Statement ........................................................... 5

Divisional Review ......................................................................................................................... 7

Market Overview .........................................................................................................................8

One Content, Multiple Channels ...................................................................................... 9

Global Sales Coverage ............................................................................................................9

Financial Review .......................................................................................................................10

Our Key Performance Indicators .................................................................................. 12

Our People ..................................................................................................................................... 14

Corporate Responsibility and Sustainability .......................................................... 15

Section 172 Statement .......................................................................................................... 15

Risk Management, Principal Risks and Uncertainties ...................................... 17

GOVERNANCE

Board of Directors ...................................................................................................................20

Nominations Committee Report ................................................................................ 22

Audit and Risk Committee Report............................................................................... 23

Remuneration Committee Report ............................................................................ 25

Annual Report on Remuneration ..................................................................................33

Directors’ Report .....................................................................................................................38

Statement of Directors’ Responsibilities ................................................................ 49

Independent Auditor’s Report ......................................................................................50

FINANCIAL STATEMENTS

Consolidated Income Statement .................................................................................57

Consolidated Statement of Comprehensive Income ..................................58

Consolidated Balance Sheet .......................................................................................... 59

Consolidated Statement of Changes in Equity .................................................60

Consolidated Cash Flow Statement .......................................................................... 61

Notes to the Financial Statements ............................................................................. 62

Company Balance Sheet ..................................................................................................89

Company Statement of Comprehensive Income ...........................................90

Company Statement of Changes in Equity ..........................................................90

Notes to the Company Accounts .................................................................................. 91

Five-Year Summary ...............................................................................................................95

Ofcers & Professional Advisors ..................................................................................96

Strategic Report | THE QUARTO GROUP, INC. ANNUAL REPORT 2022 | 1

STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS

Overview

The Quarto Group Inc is an

entrepreneurial, independent,

worldwide publisher listed on the

London Stock Exchange, with offices in

London, Brighton, New York, Beverly and

Hong Kong.

Over the past 45 years, we have grown

significantly, moving away from a pure

co-edition model to a mix of co-edition

and trade publishing, building an

award-winning foreign rights sales team,

diversifying our distribution channels

through non-traditional retailers, and

pursuing international business ventures.

Today, we are a global leader in

illustrated nonfiction publishing.

Innovation is still in our DNA as we

constantly explore how to maximize the

use of our intellectual property.

At the heart of what we do, our mission

hasn’t changed - to make and sell books

that entertain, educate, and enrich the

lives of adults and children around the

world.

Frances Lincoln

Children’s Books

Aurum becker&mayer! books

becker&mayer! kids

Chartwell Books Cool Springs

Press

Design Eye Epic Ink

Fair Winds Press Frances Lincoln

Happy Yak Harvard

Common Press

Iqon Editions

Ivy Kids Ivy Press Kaddo

Leaping Hare

Press

Motorbooks New Shoe

Press

Quarry Books Rock Point Rockport

Publishing

small world

creations

The Bright Press Voyageur Press

Walter Foster Jr. Walter Foster

Publishing

Wellfleet Press White Lion

Publishing

Wide-Eyed

Editions

words &

pictures

2 | THE QUARTO GROUP, INC. ANNUAL REPORT 2022 | Strategic Report

Highlights

OPERATIONAL

• Clear focus on maximizing the Group’s core strengths, retaining a disciplined business

model and developing future growth opportunities

• Increase in Adjusted Operating Profit of 33% due to tight cost control, lower pre-publication

and amortization costs

• Profit Before Tax up 47% at $20.9m

• Revenue of custom publishing channel of $14.2m, up 33% year on year

• Net debt down by $4.9m

to $0.6m

• New Shoe Press launched in 2022 with 25 titles repurposing existing IP to compete at a

value price point. Short-run printing allows low inventory level responding to demand

• Kaddo, a new gift imprint, created with the first products publishing in autumn 2023.

Product lines span both the adult and children’s market consisting of games, card decks

and jigsaw puzzles many of which are based on existing book content

• We are also targeting growth in one of the largest sectors of the book market and will be

launching a new imprint focused on food and wellness

• SmartLab, our Toy business, was sold to Educational Development Corp. to focus on our

core publishing activities

1 Adjusted measures are stated before amortization of acquired intangible assets and exceptional items. Management believes this is a

better reflection of our trading performance.

2 Net debt excludes lease liabilities relating to right-of-use assets (IFRS 16).

FINANCIAL

“Continued strong performance across all areas of the business, with

enhanced profitability and cash generation”

REVENUE ($M) ADJUSTED

OPERATING

PROFIT ($M)

EBITDA ($M)

2022

2021 151.5

141.0

2022

2021 16.0

21.3

2022

2021 17.8

23.4

PROFIT BEFORE

TAX ($M)

BASIC EARNINGS

PER SHARE (CENTS)

ADJUSTED

BASIC

EARNINGS PER SHARE

(CENTS)

2022

2021 14.2

20.9

2022

2021 24.3

40.6

2022

2021 24.3

37.8

Strategic Report | THE QUARTO GROUP, INC. ANNUAL REPORT 2022 | 3

STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS

Quarto at a Glance

WE CREATE A WIDE VARIETY OF BOOKS AND INTELLECTUAL PROPERTY PRODUCTS WITH A

MISSION TO INSPIRE LIFE’S EXPERIENCES FOR THE WHOLE FAMILY

GLOBAL CREATIVE AND SALES

FORCE IN GROWTH SEGMENTS

• Far-reaching global sales platform

• Over 100 sales and marketing

professionals and representatives

DE-LEVERAGED BALANCE SHEET

• Cash at bank of $13.3m

• Repayment of sub-ordinated loans of

$15m

TREASURE TROVE OF IP GENERATES

STEADY INCOME

• c. 15,000 backlist titles generating

steady sales

• Focused effort to ‘re-mint’ backlist

contents

ENABLED BY TECHNOLOGY

AND DATA ANALYTICS

• Continuous efficiency

improvement from IT

modernization and automation

• AI platform to aid decision making

c. 15,000

TITLES IN

OUR CATALOG

c. 305

TALENTED EMPLOYEES

IN 5 OFFICES

(UK, US & CHINA)

c. 619

INTERNATIONAL

PUBLISHING

PARTNERS

c. $18.1m

ANNUAL INTELLECTUAL

PROPERTY

INVESTMENT

Over 50

COUNTRY MARKETS

THAT WE SELL INTO

c. 58%

OF ANNUAL SALES

FROM BACKLIST

TITLES

4 | THE QUARTO GROUP, INC. ANNUAL REPORT 2022 | Strategic Report

Chairman’s Statement

Continuing the theme of recent years,

the strategic direction of the Board in

2022 has been to maintain a clear focus

on:

• maximizing the Group’s core

strengths;

• retaining a disciplined business

model;

• further debt reduction; and

• developing future growth

opportunities.

The financial performance of the

business was ahead of Board

expectations, notwithstanding a

challenging backdrop of declining

consumer spending and supply chain

issues. Following all the progress made

in recent years, the balance sheet

position of the Group is now extremely

robust which puts us in a strong position

to successfully navigate the current

economic downturn and at the same

time allow us to proactively consider

opportunities for growth.

The Board’s vision remains for the Group

to be the dominant publisher of

illustrated books worldwide and to

expand on the use of the Group’s

intellectual property in as many ways as

possible. The Board also remains

focused on a product offering the

highest value to consumers and on

maintaining an efficient operating

company which excels at the delivery of

quality content in a cost effective way.

In reviewing 2022, the resilience and

performance of the business has again

been outstanding and whilst the

continuing strong support from our

major shareholders cannot be over

emphasized, it is the staff within Quarto

which makes the Group such a positive

experience – their enthusiasm, creativity

and commitment are all first class.

I am proud to act as Chairman of Quarto

and look forward to the future with

excitement as Alison Goff and her

talented team continue with the

development of the business. I also take

this opportunity to express my gratitude

to all the staff within Quarto for their

dedication and hard work over the last

year and their contribution to the

ongoing success of the business – a truly

inspirational team.

Dividend

The Board has not recommended a

payment of a final dividend, given the

need for further investment in the

business. The dividend policy will,

however, remain under consultation with

shareholders and other stakeholders.

Corporate governance

In June 2022 I was delighted to welcome

the Group CEO Alison Goff onto the

Board. 2022 was also the first year for Ken

Fund as a Non-Executive Director and he

was proactive in securing the disposal of

SmartLab.

2022 saw the Company make progress in

reporting against the TCFD framework as

it assessed climate-related risks. The

Group’s Diversity and Inclusion

Committee formed in 2020 continued

the Company’s focus on diversity and

inclusion amongst its staff and in its

publishing. Quarto’s approach to

corporate governance is set out in the

Directors’ Report.

Andy Cumming

Chairman

31 March 2023

“The resilience and performance of the business

have been outstanding.”

Andy Cumming

Chairman

Strategic Report | THE QUARTO GROUP, INC. ANNUAL REPORT 2022 | 5

STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS

Group Chief Executive

Officer’s Statement

“A year of strong results achieved through nimble

publishing and good cost-control.”

Alison Goff

Group Chief Executive Officer

Introduction

I have very much enjoyed my first year at

Quarto and am pleased to be writing this

reporting on another year of strong

results. Over this past year there have

been significant changes to our teams

and I believe we now have in place

outstanding publishers who will deliver

success in the years ahead. We have

invested in both our people culture and

working environment to make Quarto a

destination for talent across the industry.

Business review

The company ended the year with sales

of $141.0m down from the prior year by

7% (2021: $151.5m); operating profit before

amortization of acquired intangibles and

exceptional items increased by 33% to

$21.3m (2021: $16.0m); profit before tax

increased to $20.9m (2021: $14.2m) and

net equity improved to $67.3m (2021:

$53.2m). The group ended the year with

net debt down 89% at $0.6m (2021:

$5.5m). Results were driven by nimble

publishing maximizing opportunities

which arose, strong cost-control and

reduced finance costs.

During 2022 most markets around the

world reopened and we saw a return to

buying in physical bookstores with a

corresponding reduction in our online

sales.

With the economic pressures squeezing

consumer spending the overall book

market contracted slightly in 2022 with

non-fiction sales showing one of the

biggest declines, down by c. 7%.

Notwithstanding the sale of SmartLab

during 2022, Quarto outperformed the

market delivering increased market

share in all our core categories.

The balance of our business remains in

favor of adult publishing with 69% of our

revenue derived from adult titles. New

titles accounted for 42% of sales and our

strong back catalog continues to

perform well delivering 58% of overall

revenue. Our US and UK publishing

operations drive broadly equal shares of

our overall revenue.

Our most valuable series Little People Big

Dreams continues to grow and we will

publish the 100th title in this series in

2023. This series delivered $8.3m

revenue in the year. Another valuable

property in our children’s publishing the

Story Orchestra series delivered $2.7m in

the year from just seven titles.

During the year we ceased offering sales

services to other publishers and exited a

non-core business with the sale of

SmartLab.

Publishing

Quarto’s publishing remains focused on

key categories: Cookery, Home and

Garden, Art and Craft, Children’s,

Reference and Wellbeing. These sectors

remain strong internationally. Each of our

imprints has a distinct focus and

develops new titles aiming to grow our

market share in targeted categories. We

also make extensive use of our backlist

where existing content may be

repurposed to create new products.

HIGHLIGHTS OF 2022

• Quarto kids is the #1 publisher of

children’s general non-fiction in the UK

• Best-selling author of Little People Big

Dreams – Maria Isabel Sanchez

Vegara – is the #2 non-fiction

children’s author in the UK

• McDonald’s Happy Meal program will

put Little People Big Dreams books

into the hands of 40 million children

around the world

• Strong growth in the Manga and

Anime market where Quarto has built

significant market share

• New range of graphic novels

produced in partnership with

Saturday AM

6 | THE QUARTO GROUP, INC. ANNUAL REPORT 2022 | Strategic Report

• Beautiful Boards: 50 amazing snack

boards for any occasion continues to

sell strongly – over 200k copies and

$2.5m revenue in the year – some 3

years after publication

• Custom publishing deal with Pokemon

creating 4 titles which delivered $1.5m

in the year

• Speed to market an important factor

with Wordle Challenge created and

delivered within 8 weeks

• Start-up of a new gift imprint which

will launch in 2023 producing puzzles,

games and related products from

existing content

• Timely publication of Little People Big

Dreams: Queen Elizabeth selling over

175k copies

• New cookery and health imprint to

launch in 2023 expanding our reach

into one of the largest categories in

non-fiction publishing

Sales performance

One of Quarto’s great strengths is our

foreign language co-edition sales team

who delivered a strong performance in

2022 despite some challenging

international situations. Trade with Russia

and Ukraine was halted and persistent

lockdowns in China severely impacted

that market. All other foreign language

markets delivered growth. Reprints of

existing titles were 5% up on prior year

and core series continued to perform

well. We also saw a resurgence in sales

of reference titles which had been

reduced during the pandemic in favour

of practical titles.

Our international sales team began

travelling again in 2022 with bookfairs

and in-person meetings back on the

agenda. Overall these sales were 6%

down on prior year but with mixed results

by region. South East Asia delivered

growth +14% and the Middle East +8%

accounting for over $500k for the first

time. Sales to Europe held steady but

Australia and China were both down -7%

and -34% respectively.

UK sales were 2% down on 2021 with new

titles performing well but backlist sales

$2.3m down from the pandemic peak

which was driven by lockdown hobbyists.

The reopening of physical bookstores

saw our field sales reps deliver over £1m

for the first time in three years.

US sales were down 11% on prior year with

both Amazon and the main bookstore

chain, Barnes & Noble, showing much

slower ordering patterns. However, we

saw a marked increase (+17%) in our sales

through independent bookstores as

customers returned to stores.

Our Chartwell division targets the value

end of the market creating books

primarily from existing content. Books

are sold non-returnable. This division

had an outstanding year delivering sales

significantly ahead of budget and 32% up

on the previous year.

Operations

During the year we continued our

development of systems and processes

to improve our operational efficiency.

Our goal is to be free of reliance on third

party systems by 2024.

Supply chain

Disruptions to the supply chain continued

through much of 2022 with longer than

usual shipping times resulting from

strikes and port disruptions. To mitigate

the impact of these our operations team

remained nimble switching onward

shipping to trucks rather than rail when

necessary and putting in place local

printings. Whilst these measures

incurred some extra costs there were

significant benefits in maintaining supply

to the market. In Q4 we saw much

improved freight prices and improved

shipping times. We believe the market

has now stabilized and we do not

anticipate a return to the volatility of 2021

and 2022.

Post COVID-19 working

During 2022 we saw staff returning to our

offices both in the UK and US. We now

operate a blended working model. This

ongoing flexibility has become an

important factor in the workplace. We do

however firmly believe that in-person

collaboration is vital to our creative

business and essential to team building

and staff morale.

Strategy

Quarto’s strategic goals in the short to

medium term will be to continue to drive

organic growth through its publishing and

we will launch two new imprints in 2023.

We will also look at acquiring other related

businesses where we believe they can be

leveraged across our existing operations

and provide a good strategic fit.

Outlook

Quarto remains in a good financial

position with a strong pipeline of new title

publishing for 2023 and beyond. Our large

back catalog is a significant strength and

continues to perform well. We feel

confident in our ability to navigate the

challenging market conditions expected

of 2023 and in the broad appeal of our

books.

Our people culture has been a focus in

2022 and will remain so during 2023.

Attracting and retaining high-caliber

staff is vital for the long-term health of

the business.

We remain confident and focused on

delivering a sustainable, profitable

business for the future.

Alison Goff

31 March 2023

GROUP CHIEF EXECUTIVE OFFICER’S STATEMENT (continued)

Strategic Report | THE QUARTO GROUP, INC. ANNUAL REPORT 2022 | 7

STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS

Divisional Review

US publishing

Whilst sales were down on the previous

year, our adjusted operating profit was

up 5% to $10.5m (2021: $10m) due to a

combination of factors:

• Total revenue dropped by 7% from

$81.1m to $75.3m, partly impacted by

the disposal of SmartLab impacting

revenue by $2.4m during 2022.

Beautiful Boards continued to

perform strongly, with sales in line

with 2021.

• The continued challenges to supply

chain issues, impacted margins,

although we did see a rebound in the

Foreign Language co-edition margin.

• Reduction in pre-publication

amortization and impairment of 32%

contributed to the performance for

the year, following the change in write

down policy in 2021.

• We continued to control our overheads,

with costs being broadly flat.

UK publishing

As with the US, whilst sales were down on

the previous year, our adjusted operating

profit was up 70% to $11.9m (2021: $7m),

largely due to an increase in the gross

profit margin. Following the change in

write down policy of publication costs

during 2021, there was a reduction in

amortization and impairment of

publication costs during 2022. Print

margins were also slightly ahead.

Adjusted Operating Profit ($m) 2022 2021

US Publishing 10.6 10.0

UK Publishing 11.9 7.0

Group overhead (1.2) (1.0)

Total adjusted operating profit 21.3 16.0

Exceptional items

0.8 —

Operating profit 22.1 16.0

1 Exceptional items can be found detailed in the Financial Review. See note 5.

Total revenue decreased by 7% from

$70.4m to $65.7m, with Trade and English

Language Co-Edition sales, down $3.1m

and $2.9m respectively. Overhead costs

were broadly flat.

Group overhead

Group overhead, or corporate costs,

were flat.

Top 5 adult titles and unit sales in 2022

Beautiful Boards

(253,000)

Wordle Challenge

(138,000)

Live or Die (Surviving

Real Life Disasters)

(138,000)

Artist’s Loft Tools and

Techniques (100,000)

Spellcraft

(91,000)

Top 5 kid’s titles and unit sales in 2022

Little People Big

Dreams – Queen

Elizabeth

(177,000)

Little People Big

Dreams – David

Attenborough

(104,000)

ABC What Can She Be

(61,000)

Story Orchestra –

The Nutcracker

(48,000)

Little People Big

Dreams – Marcus

Rashford

(48,000)

8 | THE QUARTO GROUP, INC. ANNUAL REPORT 2022 | Strategic Report

Market Overview

UK market outlook

PHYSICAL TRADE SALES

In 2022 we saw a very strong and

successful re-emergence of our physical

Trade business, including an outstanding

year for our Supermarket sales. We are

expecting the Physical Trade business to

hold steady in 2023, representing about

43% of our overall UK trade business. With

Supermarket space continuing to be

extremely competitive to secure, we

have put strategies in place to ensure

growth from our field sales channel,

independent bookshops, as well as good

growth also expected from our museum

business, now that this sector is back to

full power. With excellent account/buyer

relationships, we feel confident of

support, and strong retail visibility across

our key titles and brands throughout the

year ahead.

ONLINE RETAIL

After a challenging 2022, where we saw

revenue for Online drop back to just over

the 2019 level, we expect this part of our

UK business to stabilize during 2023. We

should see a return to growth with

consumers looking for online discounts

in uncertain financial times, and by the

end of the year, we expect Online to be

approximately 40% of our overall UK

trade business, increasing from 37% in

2022. First half sales patterns are likely to

remain soft, with the upside landing in

the key Q3/4 gifting period. Amazon

inventory should remain at a more

consistent, but lower level, as they move

generally towards a 3-week only stock

holding business model, especially in the

slower Winter/Spring months.

SPECIAL MARKETS

This remains a key focus for our UK trade

business in 2023. With a new team now

firmly in place, and working well, the

ambition for special markets is for

significant growth, focusing on being

best-in-class with our existing key

accounts to encourage extra growth, as

well as continuing to prioritize initiatives

for essential new business development

and partnerships.

US market outlook

PHYSICAL TRADE SALES

The US Trade business has a positive

outlook as we move into 2023. The

independent bookstore market

continues to thrive, and we are seeing an

uptick in sales as consumer shopping is

starting to shift back to physical stores.

As independent bookstores are

expected to be a growth area, we have

signed with a new sales rep group in the

Southeast of America to give us

dedicated coverage across the entire US

as the buying pattern and selling

techniques are specific to the channel.

In a similar fashion, trade book chains are

moving to a new buying pattern of

buying regionally and in concentrated

sections and expanding the distribution

as books prove their shelf value through

sales. We are responding to the new

demand driven marketplace with an

emphasis on placing books in the key

areas of the country and helping these

sell through to expand the store count.

ONLINE RETAIL

The online business is also seeing a shift

to a demand driven buying pattern and

we are seeing smaller upfront purchases

as customers order closer to initial

orders instead of anticipating demand.

The move to demand buying allows us to

strategically distribute stock across the

channel while keeping our initial

expenditures lower. Working closely

with author platforms whilst strategically

planning our marketing campaigns

helps us keep a steady demand for titles

at all stages (pre-publication,

publication and after).

SPECIAL MARKETS

New partnerships with national chains

established in 2022 will give us a wider

distribution for key titles. While we are

seeing that customers are focusing on

larger quantities of fewer successful

titles, we have also been able to grow our

footprint in stores by expanding into new

categories with our bestselling titles in

each area. Our subscription box and

catalog business remain steady as we

look to build a corporate premium

program and capitalize on our brand

partnerships as well as striving for a

larger presence within the literacy

community.

International market

PHYSICAL TRADE SALES

Sales for English language books across

EMEA, Asia, and ANZ remain robust,

particularly children’s publishing - with the

reinvigorated Little People Big Dreams

series, but some on-going issues such as

inflation and regional political disruptions

must be taken into consideration.

Measures to mitigate these risks on a

region-by-region basis will need to be

employed. Pivoting our sales efforts and

working with suitable partners will be

essential. We have contracted with a new

agency for the Middle East and are

diversifying our revenue streams in India

e.g. direct deliveries and local Indian

printings. Opening new business across

all markets and specifically in developing

markets remains a key priority.

FOREIGN RIGHTS SALES

After two very strong years, reprints will

decrease, partially offset by some

growth in new titles sales. Sales of adult

books are more sensitive to economic

slowdown and are likely to generate

slightly less revenue; sales of children’s

titles should remain more vibrant. We

expect further growth in picture book

sales with Mariajo Illustrajo’s second title

Lost and Marianna Coppo’s Best Bad

Day Ever, amongst other, joining our solid

backlist. In non-fiction, Cat Family

Christmas and its follow-up title Museum

should sell a combined 100,000 copies;

new title Darwin’s Super-Pooping Worm

Spectacular attracted a lot of attention

and should sell its first twelve languages.

Revenue from franchises Little People,

Big Dreams and Story Orchestra should

be in line with 2022.

After two exceptionally strong years in

2021 and 2022, sales in the Central and

Eastern European regions are expected

to retreat, as inflation and the impact of

the war continues to affect Poland in

particular; Asia is showing signs of

recovery and most territories except

China should improve; French, German,

Dutch and Nordic sales will remain stable.

We expect a good performance in South

and Latin American markets, supported

by re-emergence of the Brazilian market

and progression in smaller countries

such as Portugal and Greece.

Margins will be under pressure as

consumers’ purchasing power has

shrunk and publisher’s buy-in prices are

restricted by a strong dollar. However,

with production more complex than

before the pandemic and higher prices

here to stay, foreign sales will continue to

benefit overall. Demand for our titles and

services is strong as co-editions and

rights acquisition remain a useful tool to

expand and complement publishers’

catalogs, with low creation costs and a

predictable unit price.

Strategic Report | THE QUARTO GROUP, INC. ANNUAL REPORT 2022 | 9

STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS

One Content, Multiple Channels

UNMATCHED SALES COVERAGE TO MAXIMIZING THE POTENTIAL OF OUR CONTENTS

TRADE SALES

CO-EDITION & CUSTOM SALES

English

Language

Co-Edition

US Trade

Custom

Sales

Int’l

Trade

Foreign

Rights &

Co-Edition

UK & EU

Trade

USA

BOSTON

NEW YORK

LONDON

BRIGHTON

CHINA

HONG KONG

QUARTO OFFICES

Key

International partnerships

English language markets

Foreign language markets

Global Sales Coverage

SERVED BY OVER 100 SALES AND MARKETING PROFESSIONALS AND REPRESENTATIVES

10 | THE QUARTO GROUP, INC. ANNUAL REPORT 2022 | Strategic Report

Financial Review

US publishing

Revenue for this segment was down 7%

at $75.3m (2021: $81.1m). Operating profit

before amortization of acquired

intangibles and exceptional items

(“adjusted operating profit”) was up 6%

at $10.6m (2021: $10.0m). We achieved an

adjusted operating profit margin of 14%

(2021: 12%).

UK publishing

Revenue for this segment was down 7% at

$65.7m (2021: $70.4m). Adjusted operating

profit was up 70% at $11.9m (2021: $7.0m).

We achieved an adjusted operating profit

margin of 18% (2021: 9.9%).

Corporate costs

Corporate costs were broadly flat, with

an increase in costs of $90k on 2021.

Exceptional items

Exceptional items were made up of two

elements:

• During 2022, the Cares Act Loan of

$2.422m relating to government

support given under the Coronavirus

Aid, Relief and Economic Security Act

of the USA was forgiven to the value of

$2.272m. See note 5.

• We incurred a loss on disposal of

$1.498m due to the sale of the

intellectual property of SmartLab on 1

September 2022 and the sale of its

inventory on 29 November 2022.

Finance costs

Finance costs were $1.2m (2021: $1.8m).

The reduction was attributable to

continued reduction of debt.

Tax

The tax charge for the year was $4.3m

(2021: $4.2m).

Balance sheet

The Group’s net assets increased to

$67.0m from $53.2m, driven by the

improved trading performance. The

most significant change in the balance

sheet related to the decrease of trade

payables of $20m due to quicker

turnaround of printing invoices. Long

term borrowings reduced from $28.5m

to $9.3m due to the repayment of $16.9m

loans and accrued interest to 1010

Printing Limited and C.K. Lau, along with

$3.3m paid off the Bank’s term loan. This

was partly offset by the drawdown of

$1.5m from the revolving credit facility

with the Bank.

Cash flow and indebtedness

At the year end, our net debt was $0.6m,

a reduction of 89%, compared to 2021,

when it was $5.5m

. Free cash flow

reduced down to $5.6m, down 68%

compared to 2021, when it was $17.3m.

1. Included in the debt of $5.5m at the end of 2021

is a loan of $2.4m relating to government

support given under the Coronavirus Aid, Relief

and Economic Security Act of the USA. During

2022, this loan was forgiven to the value of

$2,272,000. Net debt excludes lease liabilities

relating to right-of-use assets (IFRS 16).

Shareholder return

The Board has not recommended a

payment of a final dividend, given the

need for further investment in the

business. The dividend policy will,

however, remain under review in

consultation with shareholders and other

stakeholders.

Principal risks and uncertainties

Details of the Group’s principal risks and

uncertainties are set out on pages 17 to

19.

Group results

Revenue was $141.0m, a decrease of 7%,

compared to 2021 ($151.5m). Adjusted

operating profit was up at $21.3m (2021:

$16.0m) and represented 15.1% (2021: 10.5%)

of revenue. Diluted earnings per share

increased to 40.6c (2021: 24.3c). Two of our

titles exceeded 1% of Group revenue, with

Beautiful Boards being the top revenue

earner. The following titles were our top ten

sellers in 2022, with their respective revenue

for 2022 and year of publication:

Beautiful Boards (2019) $2,503,069

Squishy Human Body (2006) $1,941,282

Queen Elizabeth (2022) $798,198

Tiny Baking! (2019) $581,403

Wordle Challenge (2022) $533,774

Story Orchestra: The Nutcracker (2017) $448,204

All New Square Foot Gardening, 3rd Edition (2018) $436,216

David Attenborough (2021) $396,554

National Parks of the USA (2018) $393,673

Moon Magic (2019) $391,792

“Profit before tax increased by 47% to $20.9 million

(2021: $14.2 million).”

Daniel Logan

Group Finance Director

Strategic Report | THE QUARTO GROUP, INC. ANNUAL REPORT 2022 | 11

STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS

Viability statement

In accordance with Provision 31 of the

2018 revision of the UK Corporate

Governance Code, the Directors

assessed the prospects of the Group

over both a going concern period to 31

March 2024 and a viability period to 31

December 2025. The going concern

period has a greater level of certainty

and was therefore, used to set budgets

for all our businesses which culminated

in the approval of a Group budget by the

Board. The Directors have determined

that the three year period is an

appropriate term over which to provide

its viability statement, being aligned with

both the publishing program cycle and

the long-term incentives offered to

Executive Directors and certain senior

management.

The Directors have considered the

underlying robustness of the Group’s

business model, products and its recent

trading performance, cash flows and key

performance indicators. They have also

reviewed the cash forecasts prepared

for the three years ending 31 December

2025, which comprise a detailed cash

forecast for the period ending 31

December 2023 based on the budget for

that year and standard growth

assumptions for revenue and costs for

the years ending 31 December 2024 and

2025. This is to satisfy themselves of the

going concern assumption used in

preparing the financial statements and

the Group’s viability over a three year

period ending on 31 December 2025. As

part of this work, the model was

sensitized initially by an 8% reduction in

revenue to ensure headroom within the

covenants. This is deemed as a plausible

scenario, given in 2022 revenue dropped

7% year on year. Management performed

a reverse stress test to assess the point

in which the banking covenants were

breached. This occurred at a reduction in

revenue of 13%. It is considered unlikely

that such a reduction of revenue would

occur, given, sales dropped 7% in 2022

and also dropped 7% during 2020.

In February 2021, the Group renewed its

bank facilities, which run until July 2024.

Management do not foresee any issues

with regards to the repayment of loans or

longer-term viability of the Company. In

the three year model we have shown

that the business is profitable and

therefore capable of repaying the bank

loans in line with the facility agreements

of $2.7m. We continue to receive support

from the banks. In carrying out their

analysis of viability, the Directors took

account of the Group’s projected profits

and cash flows and its banking facilities

and covenants.

In addition to the agreement to the

facility, 1010 Printing Limited (a subsidiary

of the Lion Rock Group Limited) and C.K.

Lau extended the original $13m

unsecured and subordinated loans to the

Group (entered into on 31 October 2018)

on identical terms and on normal

commercial terms. Furthermore, 1010

Printing Limited agreed to provide a

further $10m unsecured and

subordinated loan to the Company on

normal commercial terms. Whilst these

unsecured and subordinated loans were

repayable by 31 August 2024, the loan of

$13m to C.K. Lau was fully repaid

including interest at 3.75% during 2022. A

repayment of $2m was also made

including interest at 4% to 1010 Printing

Limited during the year, reducing the

balance to $8m. In the three year

forecast we have shown that the

business is profitable and therefore

capable of repaying the remainder of the

subordinated loans as per the

agreements. The forecast also allows for

the repayment of the remaining $8m

subordinated loan and interest in Q1

2023. Approval for these specific

subordinated loan repayments was

agreed by the banks and payment was

made in Q1 2023. We continue to receive

support from 1010 Printing Limited.

The Directors also took account of the

principal risks and uncertainties facing

the business referred to on pages 17 to

19. The review focused on the

occurrence of severe but plausible

scenarios in respect of the principal risks

and considered the potential of these

scenarios to threaten viability.

The key principal risk that the business

faces is a downturn caused by a global

recession. The financial impact of this

downturn has been quantified to

illustrate the Group’s ability to manage

the impact on liquidity and covenants,

with sensitivity analysis on the key

revenue growth assumptions and the

effectiveness of available mitigating

actions. In considering this analysis, the

Directors took account of the mitigating

actions that had been previously taken.

These actions included reductions in

investment in pre-publication costs, print

volumes, staffing levels and other

variable costs.

Based on the above indications, after

taking into account the downside

scenario projections, the Directors

strongly believe that the Group has

adequate resources to continue in

operation and meet its liabilities

throughout the viability period to 31

December 2025.

Daniel Logan

Group Finance Director

31 March 2023

FINANCIAL REVIEW (continued)

12 | THE QUARTO GROUP, INC. ANNUAL REPORT 2022 | Strategic Report

Our Key Performance Indicators

Our strategy is to grow our revenue and margins

by leveraging our size, scale and reach as the

leading global illustrated book publisher, to build a

business with sustainable growth in earnings per

share while also managing our net debt.

EBITDA ($M)

ADJUSTED

OPERATING

PROFIT ($M)

2021 17.8

2020 13.0

2022 23.4

16.0

10.6

21.3

2021

2020

2022

EBITDA is used to measure the

operational performance of the Group

and is used for banking purposes. EBITDA

up 31% due to tight cost control.

See note 29.

Adjusted operating profit is used to show

our operational performance. This is a

key measure for management and is

noted in the financial review on page 10.

RETURN ON NET

OPERATING ASSETS (%)

NET DEBT ($M)

2021

2020

2022

16.0

11.2

26.4

5.5

19.7

0.6

2021

2020

2022

The Board uses this ratio to evaluate the

long-term financial health of the Group.

Improved return on Operating Assets

driven by increased profitability.

Net debt is used as a measure as it has

been a strategic goal to reduce our debt.

Our net debt has reduced by 89% in 2021.

See note 29.

Strategic Report | THE QUARTO GROUP, INC. ANNUAL REPORT 2022 | 13

STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS

ADJUSTED

DILUTED

EARNINGS PER SHARE (CENTS)

BACKLIST % OF SALES

24.3

14.1

37.8

2021

2020

2022

58.0

60.0

58.0

2021

2020

2022

The Board uses this ratio to evaluate the

quality of the Company’s earnings.

Improved profitability has increased the

EPS by 67%.

Backlist is a measure of the performance

of our intellectual property. Backlist titles

are classed as sales from titles that were

published over a year ago.

INVENTORY % OF REVENUE (%) INTELLECTUAL PROPERTY

DEVELOPMENT SPEND ($M)

13.5

12.2

15.5

2021

2020

2022

20.2

20.3

18.1

2021

2020

2022

This is a measure of our inventory value

as a proportion of revenue.

With the increase in inventory costs and

the need to mitigate the supply chain

issues, our inventory value has increased.

This shows our investment in new titles

against frontlist revenue. See note 12 of

the Financial Statements on page 76.

CHILDREN’S PUBLISHING

REVENUE ($M)

RETURN OF FRONTLIST

INVESTMENT

50.7

44.7

44.4

2021

2020

2022

3.1

2.1

2.9

2021

2020

2022

Children’s publishing revenue represents

31% of Group revenue, down 2% from

2021.

Return on investment is the ratio of

frontlist revenue generated from

investment in frontlist intellectual

property. Our frontlist return has

decreased 6% year on year, as revenue

has decreased.

1 Adjusted measure are stated before amortization of acquired intangible assets and exceptional items.

2 See note 29.

3 See note 9.

4 Operating profit before amortization of acquired intangibles and exceptional costs over Group net

assets plus unallocated net liabilities from operating segment.

5 During 2022, the Quarto US Children imprints were incorporated into the Quarto US Adult imprint

parent. Any revenue previously categorized as children under these imprints, is now classed as adult

revenue.

14 | THE QUARTO GROUP, INC. ANNUAL REPORT 2022 | Strategic Report

Our People

As a creative business, Quarto strives to

create a culture in which all our people

flourish and foster strong values to

create a fair working environment.

Quarto employs c. 305 people across 5

locations in the UK, US, and Hong Kong,

and utilizes a network of creative

contributors and freelancers.

Quarto operates in a competitive

international marketplace and needs to

attract, develop and retain creative,

talented and resourceful employees. We

invest in our people by providing them

with the tools, technology, and training

needed to meet the dynamic challenges

of our market and the evolving needs of

customers.

We publish books by and for everyone to

promote inclusion and enable diverse

writers and illustrators to reflect and

shape our culture and society. We value

continuing to learn, grow, and

understand each other’s differences,

and view them as strengths. At the heart

of this is a commitment to equality,

diversity, and inclusion. They make

Quarto an attractive place to develop a

career, and a responsible organization.

We condemn systemic racism in society

in all its forms. The Quarto Group is an

equal opportunities employer. We

believe that employing a diverse

workforce is an important factor in our

success and make recruiting decisions

based on applicants’ experience and

skills. We welcome applications from all

members of society irrespective of age,

gender, disability, sexual orientation,

race, religion, or belief.

We will not discriminate on the basis of

age, gender, ethnicity, cultural

background, sexual orientation or

religious beliefs. We operate a robust

recruitment policy, including right-to-

work checks and commitment to a policy

of equal opportunity and treatment, to

foster an inclusive, fair and diverse

environment.

The Diversity Committee formed in 2020

continued in 2022 taking forward

initiatives to support an equitable and

inclusive culture at Quarto. The

Committee comprises representatives

from all locations in the UK and US,

providing a voice across a broad section

of management levels. The work in 2022

focused on engagement with staff

through a program of social and learning

events to encouraging cultural

appreciation and inclusion and drives

awareness for diversity and inclusion

issues. During 2022 the Committee

focused on engagement activities that

brought staff from all locations together.

A new tool was added to the Company’s

intranet that promoted newsworthy

items related to diversity and inclusion

with members of the Committee

regularly posting content. The

Committee also supported the launch of

a sensitivity toolkit for editorial staff and

worked with respective HR teams in the

UK and US to engage on inclusivity.

Our Values

• BE ACCOUNTABLE

• BE PURPOSEFUL

• BE CONSISTENT

• BE EXCELLENT

• BE CURIOUS

• BE COLLABORATIVE

Quarto has an employee code of

conduct, operates anti-bribery and

corruption, equal opportunities, anti-

harassment and whistle-blowing policies

and observes health and safety

requirements, demonstrating our

commitment to acting ethically and with

integrity in all employee and business

relationships. These policies are also

readily available to staff via the Quarto

intranet site and in the staff handbooks.

Quarto honors the dignity of all people

and respects the laws, customs and

values of the communities in which we

operate. We are committed to ensuring

that there is no modern slavery or human

trafficking in our supply chains or in any

part of our business.

At the end of 2022, the breakdown of

directors, senior managers and

employees was:

Male Female

Directors 4 3

Senior managers 3 6

Employees 66 233

Strategic Report | THE QUARTO GROUP, INC. ANNUAL REPORT 2022 | 15

STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS

Corporate Responsibility

and Sustainability

Corporate responsibility and

sustainability

We strive to make our business more

sustainable by considering the

sustainability aspects of our most

important business decisions. We take

social and environmental responsibility

for our work, considering the impact our

activities have on the environment, as

well as the best ways of making a positive

contribution to society. We hold

ourselves accountable for our values, not

only by making inspirational books and

actively supporting our communities, but

also by focusing on the impact that we

have on the world around us.

Supporting communities

During 2022 the Company continued to

support both local and international

communities. Quarto maintained its

association in the US with Humble Bundle

which sells ebook bundles online and

donates a portion of the proceeds to

charities. Bundles in which Quarto

participated generated donations of

$63,491 in 2022. We also participated in

Packed with Hope, a project supporting

displaced children from Ukraine. We

have donated books to various schools,

libraries and charities in the UK and US

including Book Aid, Children’s Book

Project. More than 25,000 books were

donated during 2022 to support literacy

and access to books. Supporting our

local communities, the Company also

participated in a winter clothes initiative

that donated clothes to Beverly

Bootstraps (USA) and Winter Wishes

Adopt a Family Gift Giving Drive for the

same charity.

Environmental impact and

sustainability

Most of our impact arises through the

materials and services we procure such

as printing, production, distribution,

recycling and disposal of books.

To reduce our impact, we adopt the

following practices:

• Our first choice in printing is to always

use sustainable paper when available.

Most of our books are printed on

Forest Stewardship Council (FSC)

paper supplies, or, for domestic US

printing, we use Sustainable Forestry

Initiative (SFI) paper when available. In

2022, we estimate about 60% of books

were printed on sustainable paper.

2022 continued to be disrupted by

paper shortages.

• Increasing sustainable operations: we

continue to consolidate shipments

wherever possible so that the number

of journeys made is minimized. During

the reporting year we collected

emissions data related to

transportation. We will continue to

widen the data sets in 2023, which will

better inform decision-making for the

future.

• Ethical production: we continue to

work with our suppliers to adopt

ethical standards of manufacture

using ICTI and SEDEX Care protocols.

• Office requirements are reviewed

routinely.

The Directors promote the success of

the Company by giving due care and

attention to the following elements:

(A) LIKELY CONSEQUENCES OF

DECISIONS IN THE LONG TERM

The Board’s vision for the Group is to

become the dominant publisher of

illustrated print books worldwide and to

expand on the use of the Group’s

intellectual property in as many ways as

possible.

The Board recognizes that a coherent

and viable strategy is required which (i) is

nimble and responsive, (ii) is supported

by a modern infrastructure, and (iii)

allows the Group to grow its global reach.

These are considerations which have

long-term consequences, and so in

executing its strategy for the Group it

prioritizes the greatest stability for its

publishing imprints and employees with

appropriate consideration for what is a

challenging international marketplace.

(B) INTERESTS OF THE COMPANY’S

EMPLOYEES

Quarto is a publishing company and

having creative and motivated

employees is essential. Andy Cumming,

an independent Non-Executive director,

is the designated employees’ liaison as

recommended by the Code.

The Company offers competitive market

rates of remuneration and associated

employment benefits. It reviewed the

position in late 2021 and in January 2022

made appropriate adjustments. The

Diversity Committee established in 2020

to promote workplace inclusiveness and

diversity equitability continued in 2022,

becoming the Diversity and Inclusion

Committee (more details are given on

page 14). Additionally, the Company

encourages community interaction

through the Quarto Foundation,

established in 2017 (page 15 indicates

some of the charitable work the

Company has supported).

At the beginning of 2022, in recognition

of the work undertaken by staff in 2021, a

two week bonus was awarded to all

employees with service over 6 months.

In April 2022, the annual salary review

took into account the forecast for 2022,

along with the cost of living and external

factors. In December 2022, the company

made a one off cost of living payment to

UK full time employees earning up to

£50,000. Quarto will continue to monitor

unusual increases in energy and other

cost of living expenses and offer help

where possible to the lower paid staff.

Following Covid-19, flexible working has

been introduced across the business.

The Company invests in its people by

providing them with tools, technology

and training to meet the challenges of its

market and the evolving needs of its

customers. Quarto also involves

employees in areas of strategy where

possible.

Section 172 Statement

16 | THE QUARTO GROUP, INC. ANNUAL REPORT 2022 | Strategic Report

BUSINESS RELATIONSHIPS WITH

SUPPLIERS, CUSTOMERS AND OTHERS

The Company benefits from its

association with Lion Rock, a Hong Kong

based international printing group

(https://www.lionrockgrouphk.com/

default.aspx), which operates as one of

Quarto’s key suppliers enabling it to

maintain a positive relationship with an

essential supplier base. This connection

also allows Quarto to print outside China

and so provide a better service to US

customers particularly sensitive to US

tariffs. Major shareholder 1010 Printing

Limited is a member of the Lion Rock

Group and is a print supplier to the

Company (purchases are made on a

job-by-job basis at arm’s length, as

disclosed on page 38 and note 28 to the

Financial Statements).

The Board recognizes the need to offer a

flexible service to its customers, be that

offering them outside-China printing, or

customised publishing, as well as the

need to cultivate suppliers of print-on-

demand in order to manage the business

efficiently and still fulfill customers’

orders. By exploring all the technologies

available, Quarto maximizes its offer to

its customers. Having realized the need

for more flexible production times, and

considering the delays we have

experienced in the global supply chain in

2022, the Company has secured

additional capacity in the domestic US

printing market and is negotiating with

printers in continental Europe to mitigate

the supply chain disruptions.

(D) IMPACT OF THE COMPANY’S

OPERATIONS ON THE COMMUNITY AND

THE ENVIRONMENT

The Company seeks to minimize its

impact on the environment and during

2022 it reviewed its operations in relation

to TCFD requirements (see page 42). It

takes advantage of schemes that

promote green energy where possible;

and when refitting its offices, it

accommodates energy-saving elements

(e.g. LED lighting). Energy used by its IT

operations has reduced as the Company

has adopted cloud-based services, and

new equipment is increasingly energy-

efficient. At the start of 2023, we

relocated our London office to a smaller

office to embrace flexible working and

reduce energy consumption. The

Company adopts competent

maintenance regimes for its office

equipment so that efficient operation is

maintained and energy consumption is

minimized.

Quarto continues to publish socially

responsible and inspiring titles such as

the Little People Big Dreams series, The

ABC Series, Greta and the Giants

(endorsed by Greenpeace and 350.org),

and This Book is Anti-Racist. We

participated in charity events with

Humble Bundle in the US and have

helped them raise $137,031 in 2021 and

$63,491 in 2022.

Through the Quarto Foundation, which is

very much staff led, Quarto contributes

to local causes.

By choosing accredited production

schemes like ICTI and SEDEX, which

include worker welfare assessments,

Quarto ensures a minimum welfare

standard in its principal supplier base.

Additionally, the Group prints

predominantly on paper from sustainable

sources. In Q1 2021, Quarto launched a

new environmentally conscious

children’s imprint called Ivy Kids Eco. The

books are manufactured from recycled

components, with additional carbon

offsetting against production emissions,

and are printed in the markets where the

books are sold.

(E) DESIRABILITY OF THE COMPANY

MAINTAINING A REPUTATION FOR HIGH

STANDARDS OF BUSINESS CONDUCT

The Board complies with the

requirements of the UK’s 2018 Code of

Governance (as outlined on pages 40

and 41). The Board is confident that it has

the right composition to deliver its

strategy to the benefit of its employees,

customers, and shareholders.

The Board appraises its own

performance in accordance with the

Code and recognizes the value of fair

treatment of its suppliers, honoring its

commitments, so that it can achieve a

competitive, reliable and responsive

supply chain that serves the needs of its

customers. To this end, the Board

routinely assesses the performance of

its supply chain partners.

The Company has an established

whistle-blowing policy and anti-bribery

policy. Since 2019 as supply agreements

are negotiated, Quarto’s terms and

conditions of supply are updated to

include undertakings from print suppliers

confirming that their operations comply

with the Modern Slavery Act (2015),

permit Quarto to audit operations, and

permit Quarto to terminate a supply

agreement with immediate effect should

there be an instance of non-compliance.

(F) NEED TO ACT FAIRLY AS BETWEEN

MEMBERS OF THE COMPANY

The Company issues a single class of

common shares. 1010 Printing Limited, a

company controlled by C.K. Lau, is a

controlling shareholder which increased

its holding to 50.07% in 2022 (the current

level of major shareholdings is shown on

page 39). The Company and controlling

shareholder parties entered into a

relationship agreement to ensure that

controlling shareholders do not exert

improper influence over the Company. In

2020, the Company’s by-laws were

amended to complete the requirements

of the Listing Rules in relation to

controlling shareholders. The Company

maintains an up-to-date investor section

on its website detailing giving

governance disclosures and

announcements along with a calendar

detailing its results announcement

schedule. As a listed company, Quarto

makes timely announcements to

investors through the Regulatory News

Service, as well as these adding

announcements to the investors’ section

of the Company’s website. Executive

Director C.K. Lau and Chairman Andy

Cumming are responsible for responding

to investor queries, and Senior

Independent Director Jane Moriarty is

available to shareholders if they have

concerns that cannot be resolved

through normal channels.

SECTION 172 STATEMENT (continued)

Strategic Report | THE QUARTO GROUP, INC. ANNUAL REPORT 2022 | 17

STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS

Risk Management, Principal

Risks and Uncertainties

The Group’s risk management framework is designed to identify and assess the likelihood of risks arising, the consequences of

them doing so and the actions necessary in order to mitigate their impact.

The Board maintains a risk register which is reviewed, updated and approved at each meeting of the Audit and Risk Committee,

and presented at each quarterly Board meeting for review; this means that the register is reviewed, typically, as many as seven

times a year.

The risk review conducted by the Board is broad ranging addressing each part of the Group’s business and activities. For each

risk identified, its impact is rated, and mitigations are identified. In addition, risks to the business are monitored regularly by the

Company’s Group CEO and Group Finance Director, so that emergent risks can be identified and escalated quickly, and

mitigations enacted.

Details of the Group’s financial risk management objectives and policies are set out in note 21 to the Financial Statements. During

the year, climate-related risks were incorporated into the risk management framework. These have been added to existing risk

categories, where appropriate, with one new category ‘Transition to Net Zero Economy’ added. The business risk review has

identified the following risks that face our business.

MARKET AND FINANCIAL RISKS

Risk Description Mitigating factor

Economic

conditions

The Group operates across many of the major

world economies and its revenues and profits

depend on the general state of the economy in

those territories. A downturn caused by a global

recession, potentially as a result of the Covid-19

pandemic, inflationary pressures and the Ukrainian-

Russian conflict, could reduce consumer discre-

tionary spending, which might result in a reduction

in profitability and operating cash flow. In addition,

the UK’s exit from the European Union and

US-Sino relations (resulting in the introduction of

tariffs in 2019) contributes to uncertainty in the

economic environment.

The Group has adequate liquidity with up to $22m in

available debt facilities. In addition, the Directors have the

ability to take a number of mitigating actions, including the

reduction of spend on pre-publication costs, inventory

printings and other discretionary items. The Group

offers non-Chinese printing for customers in order to

avoid US tariffs on books. The Company’s management

information systems allow it to assess sales performance

quickly and so take the appropriate steps to maximize

operating performance. The Group has shown itself to be

adaptable by quickly accommodating the changes

necessary to its sales and marketing activities during the

Covid-19 pandemic and to subsequent supply chain

pressures. The Group has a very limited exposure to the

Russian and Ukrainian markets.

Currency The Group’s businesses operate in a number of

currencies giving rise to a risk of exchange loss

from fluctuating exchange rates.

The Group has a natural hedge that mitigates against

currency movements impacting its earnings in that one of

its largest costs, which is print costs, are paid in US Dollars.

Financial The Group has a banking facility that requires it to

operate within covenant limits.

In 2021, a three year and five months banking facility of

$20m was secured, together with additional shareholder

support. Performance during 2022 allowed the Company

to accelerate its debt reduction.

OPERATIONAL RISKS

Risk Description Mitigating factor

Customer A significant dependency on a small number of

customers, for instance co-edition partners or

retailers, could be problematic if one of them tried

to secure preferential terms or stopped doing

business with the Group. The failure of a major

customer, or a distributor, could impact revenue

and profits.

The Group has a long-established strategy of diversifying

its international customer base, including specialty

retailers, resulting in the fact that with one exception, no

customer has over 20% of the business. Customer

relations are managed to ensure a fair-trading

relationship. Management monitors debts closely and

maintains close relationships with its customers and

distributors, which may provide early warning of likely

failure. The Group continues to adapt to supporting

online selling and continues to offer and promote e-book

versions of its books.

18 | THE QUARTO GROUP, INC. ANNUAL REPORT 2022 | Strategic Report

OPERATIONAL RISKS (continued)

Risk Description Mitigating factor

Supply chain

and raw

materials

The Group relies on a group of print suppliers,

many of which are based in southern China. There

is a risk that an interruption in the availability of

printing services in that area or the financial failure

of one printer could disrupt the supply of new

books to customers. As an acute climate-related

risk this is considered to be a short (1-3 years) term

risk. Any increase in costs such as oil, port charges

etc. would also impact shipping costs. Any

disruption in supply of paper could lead to an

increase in costs and production disruption. Both

increased costs and production disruption are

deemed to be short (1-3 years) and medium (3-6

years) risks. There is also a reputational risk of

using non-environmentally friendly paper.

There is a risk that an interruption caused by

climate-related events could disrupt our manu-

facturing base. This may be through either

scarcity of raw materials as a result of either acute

or chronic climate change, or disruptions to

manufacturing and distribution facilities. Chronic

climate change has been classified as a medium

(3-10 years) and long (10+ years) term risk.

The Covid-19 pandemic continues to disrupt

freight and shipping and has caused severe delays

and increased shipping and freight costs. At the

point of publication of this report, we have seen an

easing in the issues previously faced.

The Group maintains relationships with printers in other

parts of the world and is confident that printing could be

carried out by an alternative range of printers if supply

from China was interrupted or to mitigate shipping costs.

We maintain close relations with our printers, reducing

the risk of a lack of knowledge of any printer being in

financial trouble. The Group has worked with its major

printers on a plan to adopt sustainable paper and recently

instituted a Forest Stewardship Council (FSC) paper or

Sustainable Forestry Initiative (SFI) paper policy across all

our imprints.

By monitoring frequency of factory downtime from acute

climate events (days lost) and using forecasting data as

part of scenario planning to model chronic climate

change, the Company will be better prepared in the

selection of global suppliers. Further development of

internal scenario planning tools, and through working

more closely with suppliers on identified risks, the Group

can mitigate the potential impact of longer-term climate

changes and ensure security of supply. Acute interrup-

tions to either raw materials or manufacturing are

mitigated by maintaining a flexible manufacturing

supplier base. The Group can mitigate the impact of

regional climate events by relocating manufacturing

globally. This approach was tested successfully during the

Covid-19 pandemic.

Product safety Our business is faced with increasing safety

and testing requirements on various product

components. The risk of a product recall due to

children’s safety would have a severe reputational

impact on the business.

All components receive safety testing from specialist and

accredited independent third parties. Management

carefully selects suppliers for the components the

Company uses.

The Company continues to monitor the regulatory impact

of product testing following the UK’s departure from the

European Union and maintains a European presence to

ensure compliance with European Union Product Safety

legislation following the UK’s departure from the European

Union.

Loss of

intellectual

property

A loss of stored IP through failure of storage

medium or loss of back-ups would impact our

ability to process reprints and revisions and could

cause a loss of revenue.

A cloud storage solution is integrated into our production

workflow to provide storage, back-up and recovery

services for product files in development. Complete

backlist archives are stored in a mirrored storage array.

Laws and

regulations

As a creative and IP business, any changes to

Group’s activities and any infringement could lead

to increased costs. Inconsistent internal practices

for negotiating contracts or clearing rights could

lead to IP claims.

The global transition to carbon net zero economies

presents a risk of increased regulation across

different jurisdictions. The risk of increased

regulation has been considered across all three

(short, medium and long term) time periods.

Quarto reviews its licensing, permission-acquisitions and

other contracts routinely receiving advice from relevant

professional firms (including the possible impact of

Brexit) so that legal instruments remain current and

represent best practices so that we ensure that our

practices are aligned and consistent across imprints, and

Quarto’s IP rights are properly protected.

By establishing a watching brief on regulatory changes,

particularly in relation to taxation as a response to national

government responses to climate change, the Company

can be better placed to address and integrate climate-

related risks and opportunities into our business

planning processes to find opportunities to capitalize

of decarbonizing opportunities.

RISK MANAGEMENT, PRINCIPAL RISKS AND UNCERTAINTIES (continued)

Strategic Report | THE QUARTO GROUP, INC. ANNUAL REPORT 2022 | 19

STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS

OPERATIONAL RISKS (continued)

Risk Description Mitigating factor

Cyber security Like many organizations, the Group is at risk from

cyber-attack. This presents a potentially serious

risk of disruption to the production process and

could have a significant impact on the profitability

of the business and the security of its IP assets.

The Group uses enterprise level firewalls and IT controls

to prevent attack as well as maintaining cloud-based

copies and offsite back-up of IP. Computerized files of the

Group’s books are also maintained by printers. We do not

store any personal or credit card data on our websites

www.quarto.com or www.quartoknows.com. The Group

undertakes industry standard system penetration testing.

People As in any creative business, the Group is heavily

reliant on its people and operates with the inherent

risk of not making the ‘right’ books or creativity

being uneven year-on-year. Failure to retain talent

and attract new talent could ultimately lead to a

failure to generate successful new titles, leading to

a drop in revenue.

The departure of the UK from the EU (‘Brexit’) in

2020 has altered the right-to-work permissions of

EU-citizens to work in the UK potentially disrupting

the recruitment opportunities of our UK-based

rights selling team.

Our portfolio of imprints and large number of products

spread this risk. The overall portfolio is well diversified with

no single title exceeding 1.8% of our total revenue in 2022

and no series accounted for more than 5.8% of our total

revenue in 2022.

Quarto’s Publishers are experienced and talented

professionals who work alongside sales and marketing

teams and strive to stay close to publishing trends and

markets. The Group encourages diversity and inclusion

in its workforce and offers competitive market rate

remuneration packages and works hard to make Quarto

an attractive place to work. The Group operates a flexible

hybrid working regimen.

Quarto monitors the UK’s rights-to-work requirements

closely, taking note of the advice of the UK Government so

that it is ready to support any staff affected by post-Brexit

regulations and to support its recruitment of EU-citizens so

that any potential disruptions can be minimized.

Transition to

net zero

economy

As a global organization, the Group operates

across multiple jurisdictions. Varied responses to

the challenges of climate change may have

unforeseen impacts on our business models and

operating costs.

In the transition to a carbon net zero economy,

there is a risk that the Group will not be able to

meet demands of customers for products with a

lower carbon footprint and increased scrutiny on

environmental impacts. The risk of not meeting

these demands has been classified as a medium

or a long term risk.

By engaging in its own emissions-reducing ambitions and

as supply sectors themselves transition towards net-zero

practices, the Group will be better placed to address

climate-related transitional risks. Increasing our

engagement at industry level will support establishment

of best practice approaches.

The Group continues to engage with customers and

explore emerging channels to ensure that the Group

remains competitive. By working in partnership with

customers the Company will be better placed to mitigate

these risks. We have also used insight gained from Ivy Eco,

an environmentally led imprint launched in 2020, to better

understanding market forces and customer levers. The

Company has also established a register identifying the

environmental offerings available through its global

supplier base to ensure that all customer climate-related

needs can be met.

The Strategic Report was approved by the Board and was signed on behalf of the Board by:

Alison Goff

Director

31 March 2023

20 | THE QUARTO GROUP, INC. ANNUAL REPORT 2022 | Governance

Board of Directors

Andy Cumming | Non-Executive Chairman

Andy joined the Board on 1 March 2018 as an independent Non-Executive Director

and was appointed Non-Executive Chairman on 11 July 2018; he is a member of the

Audit and Risk, and Remuneration Committees, and he Chairs the Nominations

Committee.

Andy has over 40 years’ experience in banking and risk management. The last 17

years of his full-time career were spent with Lloyds Banking Group in a variety of

senior positions, including seven years as the Chief Credit Officer of the

Commercial Banking Division and four years as Managing Director of the Global

Non-Core Division. He was also a member of the Group Risk and Commercial

Banking Executive Committees.

Andy is currently a Non-Executive Director of (i) Lloyds Development Capital, the

private equity arm of Lloyds Banking Group, (ii) Bluestone Investment Holdings

Limited, a multinational financial services business, and (iii) Integrity Capital Ltd, a

company investing in asset backed secured lending.

Alison Goff | Group Chief Executive Officer

Alison joined Quarto on 2 January 2022 and was appointed to the Board on 1 June

2022.

Alison has a long track record in illustrated publishing and prior to joining Quarto,

spent over 20 years with Hachette UK as CEO of Octopus Publishing Group. During

that time, she led ambitious growth plans, acquiring and integrating other

businesses and launching new imprints to diversify the publishing.

Chuk Kin Lau | Executive Director

C.K. Lau is also an Executive Director of Lion Rock Group and an Executive Director of

OPUS Group Limited, a subsidiary of Lion Rock. C.K. was elected to the Board on 17

May 2018 as an Executive Director. He is President of the Company.

C.K. is a member of the Remuneration and Nominations Committees.

Ken Fund | Non-Executive Director

Ken joined the Board as an Executive Director on 11 July 2018 and retired from the

Company on 1 December 2021 becoming a Non-Executive Director on 1 December

2021. Until 1 December 2021 he was Group COO and CEO of Quarto US. Ken joined the

Group in 1999 as President and CEO of the Group’s subsidiary Rockport Publishers

company.

Ken’s career started with Dino DeLaurentiis Productions in New Business Development

before moving to Simon & Schuster Publishers as Business Manager in 1984. He joined

Harper Collins San Francisco in 1990 becoming senior Vice President for Adult

publishing.

Ken is a graduate of SUNY Oswego and holds an MBA in Finance from Pace University.

Governance | THE QUARTO GROUP, INC. ANNUAL REPORT 2022 | 21

STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS

Jane Moriarty | Non-Executive Director

Jane joined the Board of the Company on 12 November 2018. Jane is Chair of the

Audit and Risk, and Remuneration Committees and she is the Senior Independent

Director. Jane is Vice-Chair of the Company.

Jane is a Fellow Chartered Accountant who worked with KPMG LLP for over 29 years.

During her time with KPMG, she worked with a broad range of businesses helping

them to develop strategies to realise opportunities and manage threats in fast

moving environments.

Jane is currently a non-executive director of (i) Mitchells & Butlers plc, one of the

largest operators of pubs, bars and restaurants in the UK, (ii) NG Bailey, an

independent engineering, construction and services company in the UK, (iii) Martin’s

Properties, a leading commercial, retail and residential property company, (iv)

Nyrstar NV, a listed Belgian holding company with an investment in a global mining

and smelting business, (v) Tennants Consolidated Limited, one of Europe’s leading

manufacturers of chemical and chemical related products, and (vi) Babcock

International Group plc.

Mei Lan Lam | Non-Executive Director

Mei Lan is an Executive Director and Chief Financial Officer of Lion Rock Group and

responsible for the financial management of Lion Rock. Mei Lan has over 30 years’

experience in finance and has held senior financial positions in various listed

companies and a non-profit charitable organisation in Hong Kong. She joined the

Company after being elected to the Board as a Non-Executive Director on 17 May

2018.

Andrea Giunti Lombardo | Non-Executive Director

Andrea was elected to the Board on 10 February 2020.

Andrea is a member of the board of Giunti Editore S.p.A., the second largest

publishing house in Italy and owner of the Giunti al Punto bookstore chain. He has

been involved in different aspects of the publishing industry, and has extensive

experience in finance, M&A and digital development.

22 | THE QUARTO GROUP, INC. ANNUAL REPORT 2022 | Governance

Nominations Committee Report

The Nominations Committee comprises

the Group’s Non-Executive Directors,

Andy Cumming (Committee Chair), Jane

Moriarty (Senior Independent Director),

and Executive Director C.K. Lau. A copy

of the Committee’s formal terms of

reference can be found on the

Company’s website (www.quarto.com).

The search for Board candidates is

conducted and appointments made, on

merit, against objective criteria and with

due regard to the benefits of diversity on

the Board, including gender. External

search consultants are engaged, as

appropriate, and formal and transparent

processes followed. When dealing with

the appointment of a successor to the

Chairman, the Senior Independent

Director will chair the Committee instead

of the Chairman.

All Directors are required to allocate

sufficient time to discharge their

responsibilities and new Directors

receive a tailored induction on joining the

Board. This includes presentations on the

business, current strategy, shareholder

expectations and familiarization with the

Group’s operations worldwide. Guidance

is also given on the duties,

responsibilities and liabilities of a Director

of a listed company and key Board

policies and procedures.

The Board performs an annual evaluation

where the Board, its Directors, Chairman

and Committees, assess their respective

performance. The results of the

evaluations are presented to the Board

and committees to address any issues

raised and to explore opportunities to

increase effectiveness. Additionally, the

Chairman meets each Director annually

to discuss their performance and to

receive their feedback.

The Committee met three times during

the year and was active in appointing the

Group Chief Executive Officer to the

Board.

The Chair of the Committee attends the

Annual Meeting to address any

shareholder questions relating to the

Committee.

Andy Cumming

Chair of the Nominations Committee

31 March 2023

Governance | THE QUARTO GROUP, INC. ANNUAL REPORT 2022 | 23

STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS

Audit and Risk

Committee Report

In line with FRC guidance the Committee

has had two members throughout the

year, Jane Moriarty as Chair and Andy

Cumming.

Responsibilities

The Committee acts in accordance with

its terms of reference, and its specific

responsibilities include:

• To consider and recommend the

appointment of the Group’s auditor,

the audit fee, audit engagement letter

and questions of auditor

performance, partner rotation,

resignation and dismissal.

• To meet with the auditor to discuss all

aspects of the audit including audit

planning, scope, findings, accounting

policies, management judgements

and estimates.

• To review the Board’s representation

letter to the auditor.

• To review the auditor’s management

letter and management’s response.

• To set policy and review the use of any

non-audit services and assess the

independence of the auditor.

• To review financial statements

released to the public including

interim and annual financial

statements.

• To review the Group’s accounting

policies, practices and use of

accounting standards especially for

decisions requiring major elements of

judgement, significant adjustments,

long-term viability and going concern.

• To review the Group’s internal controls

and risk management including:

- the financial reporting process;

- identifying, managing and

monitoring financial, operational,

compliance and other risks,

including TCFD-related risks;

- compliance with regulatory and

legal requirements; and

- detecting fraud.

• To review the need for an internal

audit function at least annually.

Committee meetings

The Committee meets throughout the

year to fulfil its responsibilities. The

Committee Chair also meets informally

with the Group Finance Director

throughout the year and with senior

management. She also meets with the

external Audit Partner from time to time

to discuss issues and be appraised of

regulatory changes.

By invitation the Company’s CEO, the

Group Finance Director, and

representatives of the Company’s

auditor also attend Committee meetings

although part of some meetings is

exclusively for Committee members

without executive management present.

The Chair of the Committee normally

attends the Annual Meeting to address

any shareholder questions relating to the

Committee.

The Committee met five times during

2022 and once so far in 2023.

The Committee, as part of full Board

meetings, was also involved in approving

announcements made to the London

Stock Exchange.

Activities of the Committee

During 2022 and 2023, to date, the work

of the Committee included:

• Appointment of Mazars LLP as auditor,

replacing Grant Thornton UK LLP.

• Review of the plan and scope of the

external audit.

• Review of the external auditor’s report

on the 2022 year-end audit and

approval of the preliminary

announcement and the annual report.

• Consider the external auditor’s

comments in relation to internal

controls and review the need and

potential scope of internal audit

functions.

• Consider the Group’s banking

agreements, particularly with respect

to ensuring the Group’s compliance

with its banking covenants.

• Review and consider the goodwill

impairment review. See Significant

Audit Risks below for more details.

• Review and consider recoverability of

pre-publication costs.

• Review and consider revenue

recognition and sales returns.

• Review TCFD related disclosures.

• Review of forecasts and budgets.

• Consider underlying robustness of the

Group.

Significant audit risks, key findings

and financial judgements relating

to year end accounts 2022

The Committee concentrated on the

following in relation to the 2022 accounts.

GOING CONCERN AND COVENANT

COMPLIANCE

The Committee considered the

underlying robustness of the Group’s

business model, products and the

financial resources available to it for the

future to satisfy itself of the going

concern assumption in preparing the

financial statements.

The Group’s financial performance in

2022, and its forecast future

performance, reflects the positive

impact of the Group’s renewed focus on

core products and titles and the fund

raising and resulting debt position of the

open offer to shareholders that occurred

in January 2020.

ASSESSMENT OF THE CARRYING VALUE

OF GOODWILL

Goodwill arising from acquisitions is

stated at cost, less any accumulated

impairment losses. In accordance with

IAS 36, the Group tests the goodwill on

an annual basis for impairment. In the

tests carried out at 31 December 2022,

the value in use calculation exceeded

the carrying value of goodwill.

Further detail is set out in note 11 to the

Financial Statements.

RECOVERABILITY OF PRE-PUBLICATION

COSTS

Amortization of pre-publication costs is

charged to the income statement on a

50% reducing balance method. Pre-

publication costs are capitalized in

accordance with IAS 38. Further detail is

set out in note 12 to the Financial

Statements.

REVENUE RECOGNITION AND SALES

RETURNS

The Committee considered the risk that

revenue may not be captured in the

relevant period. Apart from the usual

risks relating to the timing of revenue

recognition, management is required to

provide for returns, which may be

received subsequent to the period end.

Management assesses sales returns

through quantifying the previous returns

experience and post year end returns.

24 | THE QUARTO GROUP, INC. ANNUAL REPORT 2022 | Governance

AUDIT AND RISK COMMITTEE REPORT (continued)

External audit

The Committee assesses the

effectiveness of its external auditor

through on-going dialogue and

communication with the auditor. During

2022, Mazars LLP was appointed as

external auditor. The audit cycle includes

formal meetings. The audit planning

meeting, which happens prior to the

audit, was when the Committee

discussed reporting developments,

significant accounting risks,

improvement in relation to risk

management and internal control and

controls in the accounting process.

At the end of the audit process, the

Committee met with the auditors to

receive their report on the key findings

with focus on identified key audit risks,

any misstatements in management’s

initial accounts and to consider areas of

judgement and estimates.

The auditor showed diligence and

openness with the Committee during

meetings and through written

communication and during intermediate

briefing sessions with the Chair of the

Audit and Risk Committee. The auditor

gave the Committee forthright views on

judgement areas whilst recognizing that

the decisions lay with the Committee.

The Committee is satisfied with the

auditor’s effectiveness in 2022.

Appointment of auditor and

independence

The Committee considers the

appointment of the external auditor each

year and considers the performance of

the lead Audit Partner and the Audit

Manager during the audit process.

For the 2022 audit of the Group and the

Company’s accounts, Mazars LLP

charged $360,000 (2021: Grant Thornton

UK LLP $365,000).

Non-audit services

No non-audit services were used in 2022.

The Company has a policy in regard to

the provision of non-audit services by

the auditor which is reviewed annually.

Internal audit

To date there has not been a separate

internal audit function, given the size and

scale of the Group’s operations.

The Audit and Risk Committee decided

not to establish a dedicated internal audit

function this year, for the reasons stated

above. It will review this decision on an

annual basis.

INTERNAL CONTROL AND RISK

MANAGEMENT SYSTEMS

The Executive Board is responsible for

ensuring appropriate risk management

control procedures are in place, and

regularly conducts reviews of the

effectiveness of the Company’s risk

management and internal control

systems. These reviews cover all material

controls designed to respond to

financial, operational and compliance

risks.

Quarto has continued to develop a

strong and effective control environment

for the business. This has built the

Board’s and Audit and Risk Committee’s

confidence in the financial management

of the Group.

The Executive Board is satisfied that the

Company had appropriate risk

management and risk control

procedures in place throughout the year

and up to the date of approval of this

Annual Report to prevent or detect any

material exposures. The Audit and Risk

Committee reviewed and monitored the

work of the Executive Board during the

year.

The internal control framework

comprises principles, procedures and

measures that are geared towards the

implementation of controlled

management decisions. It is designed to

ensure the effectiveness and efficiency

of business activities, the quality and

reliability of internal and external

accounting, compliance with the legal

frameworks that the Company must

adhere to, and to ensure that measures

are in place that safeguard proper

IT-based processing and data.

The following structures and processes

have been implemented by Quarto to

mitigate potential risks in the accounting

function:

• The Executive Board is responsible for

the internal control and risk

management framework with regard

to the accounting and consolidation

processes.

• The reporting structure relating to all

companies included in the

consolidated financial statements

requires that significant risks are to be

reported immediately to the

Executive Board by the individual

businesses on identification.

• Certain accounting-related

processes (in particular payroll) are

outsourced.

The Company’s risk register is reviewed

routinely by the Committee and by the

Board (see page 17) and the Committee

reviews the Company’s internal control

systems and frameworks for

effectiveness annually, reporting to the

Board on any matters affecting

effectiveness or compliance. We

consider the following items to be

significant to the effectiveness of the

internal control and risk-management

framework in the accounting and

consolidation processes which were

found to be satisfactory:

• Identification of significant risk and

control areas of relevance to the

Group-wide accounting process,

• Controls to monitor the consolidation

process and its results at the level of

the Executive Board and at the level of

the companies included in the

consolidated financial statements,

• Preventative control measures in the

accounting system of the Group and

in the processes that generate

significant information used to

prepare the consolidated financial

statements – areas include the Group

management report, segmental

analysis and commitment disclosures,

• The risk register adequately

addresses the principal risks facing

the Group.

Jane Moriarty

Chair of the Audit and Risk Committee

31 March 2023

Governance | THE QUARTO GROUP, INC. ANNUAL REPORT 2022 | 25

STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS

Annual Statement

DEAR SHAREHOLDER

I am pleased to present the Directors’ Remuneration Report for the year ended 31 December 2022, which has been prepared by

the Committee and approved by the Board.

For the year ended 31 December 2022, there were no substantial changes in Directors’ remuneration arrangements.

Though an overseas company within the meaning of the Companies Act 2006, the Company elects to continue to report in line

with The Large and Medium-sized Companies and Groups (Accounts and Reports) (Amendment) Regulations 2013.

The report is divided into two sections:

The first is Quarto’s Remuneration Policy recommended by the Board, which will apply from 24 May 2023 subject to approval at

the 2023 Annual Meeting. The proposed policy continues the existing policy implemented on 24 May 2022.

The second section is the Annual Report on Remuneration, which reviews how the existing policy has been implemented.

In line with The Large and Medium-sized Companies and Group’s (Accounts and Reports) (Amendment) Regulations 2013 the

following parts of the Annual Report on Remuneration are audited: the single total figure of remuneration for each Director,

including annual bonus outcomes for the financial year ended 31 December 2022; pension entitlements; payments for loss of

office; and Directors’ shareholdings and share interests. All other parts of the Directors’ Remuneration Report are unaudited.

I would be happy to receive any comments you may have on this report. I hope you find the report clear and comprehensive and

that it helps demonstrate how remuneration is linked to the performance of the Company, and that you are able to support the

resolutions on remuneration being presented at this year’s Annual Meeting.

Jane Moriarty

Chair of the Remuneration Committee

31 March 2023

Remuneration Committee meeting attendance 2022

Committee membership Number of meetings held during the year: 2

Andy Cumming (Appointed 1 March 2018, Chair from 17 May 2018 to 7 March 2019) 2 of 2

Jane Moriarty (Appointed 12 November 2018, Chair from 7 March 2019) 2 of 2

C. K. Lau (Appointed 17 May 2018) 2 of 2

1 Under the terms of reference of the Remuneration Committee there would normally be three meetings per year, however during 2022 the Committee was

able to conduct all necessary business with two meetings.

Policy

This section sets out Quarto’s Remuneration Policy for Directors which is recommended by the Board for approval at the 2023

Annual Meeting. The Group’s principal remuneration policy aim is to ensure that the Executive Directors’ remuneration is

designed to promote long-term value creation through transparent alignment with the agreed corporate strategy.

Performance related elements are designed to be transparent, stretching and are rigorously applied.

In formulating its policies, the Committee had regard to and balanced the following factors:

• the need to align the interests of the executive with those of the shareholders;

• the performance of the individual executive and of the Group as a whole;

• the remuneration practice in the markets in which the executive is principally based; and,

• the remuneration packages offered to executives in companies competing in the same markets and industry as the Group,

but exercising caution, in view of the risk of an upward ratchet of remuneration levels with no corresponding improvement in

corporate and individual performance.

Remuneration Committee Report

26 | THE QUARTO GROUP, INC. ANNUAL REPORT 2022 | Governance

Quarto’s remuneration policy summary

FIXED PAY

Element of

remuneration

Purpose and

link to strategy Operation Opportunity Performance metrics

Base Salary/

Fees

Set at competitive

levels in the markets

in which Quarto

operates, in order to

attract and retain

executives.

Reviewed annually with

changes normally effective

from 1 January of each year.

Reviews take account of:

• scope of the role and the

markets in which Quarto

operates;

• performance and

experience of the

individual;

• pay and conditions at

organisations of a similar

size and complexity; and,

• pay and conditions

elsewhere in the Group.

There is no prescribed

maximum to avoid setting

unhelpful expectations. Any

salary increases are applied in

line with the outcome of the

review and taking into account

wider factors, for example,

local market inflation.

Not applicable.

Benefits Designed to be

competitive in the

market in which the

individual is em-

ployed.

Benefits include life insur-

ance and private medical

insurance. Where appropri-

ate, other benefits may be

offered including, but not

limited to, participation in

all-employee share

schemes.

Benefits are non-

pensionable.

Benefits vary by role, individu-

al circumstance and eligibility

and are reviewed periodically.

Benefits are not anticipated to

exceed 5% of salary p.a. over

the period for which this

policy applies.

The Committee retains the

discretion to approve a higher

% in exceptional circumstanc-

es (e.g. relocation) or in

circumstances where factors

outside of the Group’s control

have materially changed (e.g.

increases in medical premi-

ums).

Not applicable.

Pension To provide cost

effective retirement

benefits.

Participation in defined

contribution plan or cash

allowance in lieu.

Up to 15% of base salary. Not applicable.

REMUNERATION COMMITTEE REPORT (continued)

Governance | THE QUARTO GROUP, INC. ANNUAL REPORT 2022 | 27

STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS

VARIABLE PAY

Element of

remuneration

Purpose and

link to strategy Operation Opportunity Performance metrics

Annual

performance

bonus

Designed to reinforce

individual perfor-

mance and contribu-

tion to the achieve-

ment of profit growth

and strategic

objectives.

Measures are reviewed at

the beginning of the

financial year to ensure they

remain appropriate and

reinforce the business

strategy. Performance

targets are set annually to

ensure they are appropri-

ately stretching and reflect

those strategic objectives.

At the end of the year the

Committee determines the

extent to which these were

achieved.

Awards are payable in cash.

Payments made under the

annual bonus are subject to

claw-back for the later of

one year following the date

of award or the completion

of the next audit of the

Group’s accounts, in the

event of a fraud or material

misstatement of results

being identified in relation to

the year in which the bonus

is earned.

Maximum potential opportu-

nity of up to 100% of base sala-

ry for the CEO and 50% for the

COO.

For the financial target, the

threshold bonus starts at 10%

of the total potential for

exceeding the base EBITDA

target by 2% and up to 100% of

the total potential for exceed-

ing the base EBITDA target by

10%.

60% on financial

objectives and 40%

on personal objec-

tives.

The Committee will

vary the weightings

from year-to-year to

reflect the changing

strategic needs for

the business with a

default bias towards

financial objectives.

In exceptional

circumstances, the

Committee has the

ability to exercise

discretion to override

the formulaic bonus

outcome within the

limits of the Plan

where it believes the

outcome is not truly

reflective of perfor-

mance and to ensure

fairness to both

shareholders and

participants.

28 | THE QUARTO GROUP, INC. ANNUAL REPORT 2022 | Governance

REMUNERATION COMMITTEE REPORT (continued)

VARIABLE PAY (continued)

Element of

remuneration

Purpose and

link to strategy Operation Opportunity Performance metrics

Performance

Share Plan

(PSP)

Ensures that the

Executive’s interests

are aligned with

those of sharehold-

ers through reward

for providing share-

holders with substan-

tial increases in

shareholder value

and/or for achieve-

ment of a measure of

sustained growth in

earnings over the

medium to long term.

Awards of nominal-cost (or

nil-cost) options may be

granted annually as a

percentage of base salary.

Vesting is based on perfor-

mance measured over four

years. The performance

period normally starts at the

beginning of the financial

year in which the date of

grant falls.

Dividends accrue on PSP

awards and are paid on

those shares which vest.

Award levels and perfor-

mance conditions are

reviewed before each award

cycle to ensure they remain

appropriate.

Payments made under the

PSP are subject to claw-

back, for the later of one

year following date of

vesting or completion of the

next audit of the Group’s

accounts, in the event of a

fraud or material misstate-

ment of results being

identified in relation to the

years in which the PSP is

earned.

Award opportunities for

participants are up to 50% of

base salary.

Awards of up to 100% of base

salary may be provided in

exceptional circumstances

(e.g. recruitment).

20% of maximum vests for

Threshold, rising on a

straight-line basis to full

vesting for Stretch perfor-

mance.

Awards to Executives

are subject to

four-year cumulative

earnings per share

(EPS) and/or total

shareholder return

(TSR) performance

(see page 35).

In exceptional

circumstances, the

Committee has the

ability to exercise

discretion to override

the formulaic PSP

outcome within the

Plan limits to ensure

alignment of pay with

the underlying

performance of the

business during the

performance period.

FIXED PAY

Element of

remuneration

Purpose and

link to strategy Operation Opportunity Performance metrics

Non-Executive

Directors’ fees

To reflect the time

commitment in

preparing for and

attending meetings,

the duties and

responsibilities of the

role and the contri-

bution expected

from the Non-Execu-

tive Directors.

Annual fee for Chair.

Annual base fee for Non-Ex-

ecutive Directors. Additional

fees are paid to the Senior

Independent Director and

the Chair of the Commit-

tees to reflect additional

responsibilities.

Fees are reviewed annually,

taking into account time

commitment, responsibili-

ties and fees paid by

comparable companies.

There is no prescribed

maximum. Non-Executive

Director fee increases are

applied in line with the

outcome of the review and

taking into account wider

factors, for example, inflation.

Not applicable.

Governance | THE QUARTO GROUP, INC. ANNUAL REPORT 2022 | 29

STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS

Performance measure selection and approach to target setting

The measures used under the annual bonus plan are selected annually to reflect the Group’s key strategic priorities for the year

and reinforce financial performance and achievement of annual objectives as well as individual performance. Financial

measures are based on the amount of EBITDA generated compared to budget. The Committee considers this measure is the

most appropriate measure of long-term performance of the Group.

Performance targets are set at such a level as to be stretching and achievable, with regard to the particular strategic priorities and

economic environment. The annual bonus threshold is based on a 2% growth in profits with Stretch target being 10% growth.

The Committee reviews the performance targets applying to awards made to the proposed PSP scheme annually. Awards

made to participants will be based on either one or a combination of total shareholder return and cumulative earnings per share

over the measured period. These will be reported on each year in the Annual Report on Remuneration.

Differences in remuneration policy operated for other employees

Quarto’s approach to annual salary reviews is consistent across the Group. Key management personnel and senior managers

with substantial operational responsibilities are eligible to participate in an annual bonus scheme with similar metrics to those

used for the Chief Executive Officer. Opportunities and specific performance conditions vary by organizational level with

business area-specific metrics incorporated where appropriate.

Key management personnel and senior managers are eligible to participate in the PSP. Performance conditions are consistent for

all these participants, while award opportunities may vary by organizational level but are typically limited to 50% of base salary.

Shareholding guidelines

The Committee recognizes the importance of aligning the interests of Executives with shareholders through the building up of a

significant shareholding in the Group. Executive Directors are required to retain shares of a value equal to 50% of the after-tax

gain made on the vesting of awards under the Plans, until they have built up a minimum shareholding of a value equivalent to at

least 100% of annual base salary.

Remuneration policy for new Directors

When hiring or appointing a new Executive Director, including by way of internal promotion, the Committee may make use of all

the existing components of remuneration as follows:

Component: Base Salary Benefits Pension Annual Bonus

PSP

Approach Determined in line with the

stated policy, and taking into

account their previous salary.

Initial salaries may be set

below market and considera-

tion given to phasing any

increases over two or three

years subject to development

in the role.

In line with the

stated policy.

In line with the

stated policy.

In line with stated

policy, with the

relevant maximum

pro-rated to reflect

the proportion of the

year served.

In line with the

stated policy.

Maximum

Value

Not applicable. Not applicable. Not applicable. 50% to 100%

of base salary

50% of base

salary (100% in

exceptional

circumstances)

In determining appropriate remuneration for a new Executive Director, the Committee will take into consideration all relevant

factors (including quantum, nature of remuneration and the jurisdiction from which the candidate was recruited) to ensure that

arrangements are in the best interests of both the Company and its shareholders. The Committee may consider it appropriate

to grant an award under a structure not included in the policy, for example to ‘buy out’ incentive arrangements forfeited on

leaving a previous employer and will exercise the discretion available under Listing Rule 9.4.2 R where necessary. In doing so, the

Committee will consider relevant factors including the expected value of all outstanding equity awards using a Monte Carlo,

Black-Scholes, or other relevant equivalent valuation and, where applicable, taking into account toughness of performance

conditions attached to these awards and the likelihood of those conditions being met.

In the case of appointing a new Executive Director by way of internal promotion, the Group will honor any contractual

commitments made prior to his or her promotion to Executive Director.

In the case of appointing a new Non-Executive Director, the approach will be consistent with the remuneration policy.

30 | THE QUARTO GROUP, INC. ANNUAL REPORT 2022 | Governance

REMUNERATION COMMITTEE REPORT (continued)

Executive service contracts, Non-Executive Director letters of appointment and exit payments policy

Executive Director service contracts have no fixed term and have a notice period of not more than 12 months from either the

Executive or the Group. These notice periods meet best practice guidelines and give protection, mutually, to the Group and the

Executive. Executive Director service contracts are available to view at the Group’s registered office. The dates of the Executive

Director service contracts and the relevant notice period are as follows:

Director Effective date of contract Notice period

C.K. Lau 17 May 2018 3 months

Alison Goff

1 June 2022 6 months

1 Alison Goff joined the Company on 2 January 2022 and joined the Board on 1 June 2022.

Non-Executive Directors are engaged on the basis of a letter of appointment. In line with the UK Corporate Governance Code, all

Directors are subject to re-election annually at the Company’s Annual Meeting.

The Chair, together with the other Non-Executive Directors, has a one-month notice period, and all Non-Executive Directors are

subject to re-election each year.

The Non-Executive Director Letters of Appointment are available to view at the Group’s registered office and the effective dates

of their Letters of Appointment are as follows:

Non-Executive Director Date of Appointment Notice period

Andy Cumming 1 March 2018 1 month

Mei Lan Lam 17 May 2018 1 month

Jane Moriarty 12 November 2018 1 month

Ken Fund 1 December 2021

1 month

Andrea Giunti Lombardo 10 February 2020 1 month

1 Date on which Ken Fund became a Non-Executive Director having formerly been an Executive Director.

The Committee’s policy is to limit severance payments on termination to pre-established contractual arrangements and the

rules of the relevant incentive plans. In doing so, the Committee’s objective is to avoid rewarding poor performance.

Furthermore, the Committee will take account of the Executive Director’s duty to mitigate their loss.

Termination payments are limited to base salary and benefits during the unexpired notice period which cannot be mitigated.

No payments were made to past Directors in the year.

In addition to the contractual provisions regarding payment on termination set out above, the Group’s incentive plans and share

schemes contain provisions for termination of employment.

Governance | THE QUARTO GROUP, INC. ANNUAL REPORT 2022 | 31

STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS

Component Annual bonus PSP

Bad leaver No annual bonus payable Outstanding awards are forfeited

Good leaver Eligible for an award to the extent that performance

conditions have been satisfied and pro-rated for

the proportion of the financial year served, with

Committee discretion to treat otherwise

Outstanding awards will normally continue and be

tested for performance over the full period, and

pro-rated for time based on the proportion of the

period served, with Committee discretion to treat

otherwise

Change-of-control Eligible for an award to the extent that

performance conditions have been satised up to

the change of control and pro-rated for the

proportion of the nancial year served, with

Committee discretion to treat otherwise

Outstanding awards will normally vest and be

tested for performance over the period to

change-of-control, and pro-rated for time based

on the pro-portion of the period served, with

Committee discretion to treat otherwise

Any commitment made prior to, but due to be fulfilled after the policy comes into force, will be honored.

An individual would normally be considered a good leaver if they leave for reasons of death, injury, ill-health, disability, part of the

business in which the individual is employed or engaged ceasing to be a member of the Group or any other reason as the

Committee decides. Bad leaver provisions apply under other circumstances.

External appointments

The Executive Directors may accept external appointments with the prior approval of the Board and provided only that such

appointments do not prejudice the individual’s ability to fulfill their duties at the Group. Whether any related fees are retained by

the individual or remitted to the Group will be considered on a case-by-case basis.

EXECUTIVE DIRECTORS: APPLICATION OF REMUNERATION POLICY

Illustration of the application of the remuneration policy

This illustration applies the Company’s remuneration policy which was approved at the Company’s Annual Meeting held on 24 May

2022 to Group CEO Alison Goff in the manner set out below. Alison Goff is the only Executive Director who receives a salary and

benefits from the Company. As shown on page 33, Executive Director C.K. Lau does not receive a salary, benefits, or a bonus from

the Company.

Alison Goff joined the Company on 2 January 2022 as CEO and was appointed to the Board on 1 June 2022. No bonus plan or any

PSP awards has been made to Alison Goff and so the illustration given below represents the potential maximum opportunity

available to Alison Goff as CEO under the current remuneration policy. The remunerations made to Alison Goff in 2022 are set out

on pages 33 and 35; these fixed remunerations details form the “Minimum” amounts used in this illustration, and the amounts to

which the remuneration policy has been applied in order to complete this illustration.

In illustrating the application of the remuneration policy, the following assumptions have been made:

Scenario Assumptions used

Minimum Basic salary, pension or cash in lieu of pension and benefits. No bonus and no vesting of a PSP.

On target As for the ‘Minimum’ scenario, plus a PSP

award that vests and a bonus award each at 50% of the

maximum opportunity permitted by the Company’s remuneration policy.

Maximum As for the ‘Minimum’ scenario, plus a PSP

award that vests and a bonus award each at 100% of the

maximum opportunity permitted by the Company’s remuneration policy.

Maximum where share

price increases by 50%

As for the ‘Maximum’ scenario but where the value of the PSP

award at the time of vesting increases

because of a 50% appreciation of the share price.

1 As already noted, the application of the remuneration policy represents the maximum opportunity for the ‘On target’ and ‘Maximum’ scenarios and is for

illustration only as no bonus plan or PSP option scheme has been granted for Alison Goff at present. All amounts are expressed on an annualized basis.

2 Details of PSP awards are given on page 35. There are no option schemes currently in operation.

32 | THE QUARTO GROUP, INC. ANNUAL REPORT 2022 | Governance

REMUNERATION COMMITTEE REPORT (continued)

200

400

600

800

1000

1200

Maximum with

50% share price

appreciation

MaximumOn targetMinimum

Fixed

Annual variable

PSP

US$000

Alison Go

100%

383

645

994

27%

59% 42% 39%

907

38% 35%

14%

19%

26%

Consideration of conditions elsewhere in the Group

When reviewing and setting executive remuneration, the Committee takes into account the pay and employment conditions of

all employees of the Group.

The Group has not carried out a formal employee consultation regarding Board remuneration, though it does comply with local

regulations and practices regarding employee consultation more broadly.

Consideration of shareholder views

It is the Committee’s policy to consult with major shareholders or their chosen shareholder representative body prior to any

changes to its Executive Director remuneration structure.

Jane Moriarty

Chair of the Remuneration Committee

31 March 2023

EXECUTIVE DIRECTORS: APPLICATION OF REMUMERATION POLICY (continued)

Illustration of the application of the remuneration policy (continued)

Governance | THE QUARTO GROUP, INC. ANNUAL REPORT 2022 | 33

STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS

Annual Report on Remuneration

THE REMUNERATION COMMITTEE

The Committee’s Terms of Reference are available on the Group’s website. Though an overseas company within the meaning of

the Companies Act 2006, the Company has chosen to continue to provide this report on remuneration in line with UK’s The

Large and Medium-sized Companies and Groups (Accounts and Reports)(Amendment) Regulations 2013.

The Committee is responsible for:

• Recommending to the Board the remuneration and terms and conditions of employment of the Chair, Executive Directors

and key members of senior management;

• Measuring subsequent performance as a prelude to determining the Executive Directors’ and key managers’ total

remuneration on behalf of the whole Board;

• Determining the structure and quantum of short-term scheme; and,

• Granting awards under the Performance Share Plan.

The main issues discussed and/or approved during the financial year under review:

• Approval of the prior year Directors’ Remuneration Report;

• Annual review of the Executive Directors’ salaries and benefits; and

• Review of the Executive Directors’ and the senior managers’ performance under the prior year’s annual bonus scheme,

including a review of their performance against their personal objectives and approval of the bonus awards.

Review of the Remuneration Policy and remuneration arrangements for 2023

For the year ending 31 December 2023, no substantial changes in Directors’ remuneration arrangements are proposed.

Statement of shareholder voting at the 2022 Annual Meeting

The following table shows the results of the advisory vote on the 2021 Annual Remuneration Report and the vote on the

Remuneration Policy presented at the Annual Meeting on 24 May 2022.

Annual Remuneration Report Remuneration Policy

Total number

of votes

% of

votes cast

Total number

of votes

% of

votes cast

For (including discretionary) 30,536,234 100 30,534,234 100

Against — — — —

Total votes cast 30,536,234 100 30,534,234 100

Withheld 2,000

Single total figure of remuneration (audited)

The table below sets out a single figure for the total remuneration received (or receivable) by each Director for the year ended 31

December 2022 and the prior year. These amounts are shown in the reporting currency, although the payments that were

settled through the UK were paid in Sterling. The exchange rates used in 2022 and 2021 were 1.2375 and 1.3741, respectively.

Director Year

(A)

Salary/

Fees

(B)

Benefits

(C)

Annual

Bonus

(D)

Long-

term

incentives

(E)

Pension

(F)

Payment

for loss of

office Total

Total fixed

remuneration

Total variable

remuneration

$’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000

Executive Directors*

Alison Goff

2022 349 7 — — 27 — 383 383 —

2021 — — — — — — — — —

C.K. Lau 2022 — — — — — — — — —

2021 — — — — — — — — —

Ken Fund

2022 — 8 — — 14 144 166 22 —

2021 318 18 — 281 20 29 666 356 281

34 | THE QUARTO GROUP, INC. ANNUAL REPORT 2022 | Governance

Director Year

(A)

Salary/

Fees

(B)

Benefits

(C)

Annual

Bonus

(D)

Long-

term

incentives

(E)

Pension

(F)

Payment

for loss of

office Total

Total fixed

remuneration

Total variable

remuneration

$’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000

Non—Executive Directors*

Andy Cumming 2022 89 — 12 — — — 101 89 12

2021 99 — — — — — 99 99 —

Mei Lan Lam 2022 — — — — — — — — —

2021 — — — — — — — — —

Jane Moriarty 2022 62 — 12 — — — 74 62 12

2021 69 — — — — — 69 69 —

Ken Fund

8,9

2022 85 — — — — — 85 85 —

2021 3 — — — — — 3 3 —

Andrea Lombardo Giunti 2022 43 — — — — — 43 43 —

2021 49 — — — — — 49 49 —

* For period as a Director/Non-Executive Director.

1 Benefits comprise private medical insurance contributions.

2 Annual bonus for performance over the relevant financial year. Further details can be found in note 6.

3 The sum of columns A + B + C + D + E + F

4 The sum of columns A + B + E

5 The sum of columns C + D

6 Joined as Group CEO on 2 January 2022 and was appointed to the Board from 1 June 2022. Remuneration shown refers to all of 2022.

7 Details of fees for Non-Executive Directors can be found on pages 34 and 35.

8 Ken Fund became a Non-Executive Director in December 2021. Reference to Benefits (viz. healthcare), Pension, and Payment for loss of office payments

made in 2022 relate to residual payments made in relation to early termination of Ken Fund’s role as Group COO in 2021. The incentive award payment made

in 2022 relates to a long-term retention award granted in 2020 (described on page 35).

9 In 2022 Ken Fund received $40,000 non-executive director’s fee plus $45,000 in consulting fees in relation to the disposal of SmartLab.

Directors’ shareholdings

The share interests of the Directors who held office during the year ended 31 December 2022 and of their connected persons in

the share capital of the Company are shown below:

Executive Directors

Number of share

options of common stock

Number of US$0.10

shares of common stock

31 December

2022

31 December

2021

31 December

2022

31 December

2021

C.K. Lau

— — 20,473,006 16,859,569

Alison Goff

— — — —

During the year the market price of the shares of common stock ranged between 108.5p and 178p. The mid-market price on 31

December 2022 was 118p.

Number of US$0.10

shares of common stock

Non–Executive Directors

31 December

2022

31 December

2021

Andy Cumming — —

Mei Lan Lam — —

Jane Moriarty — —

Andrea Giunti Lombardo

9,134,320 8,177,820

Ken Fund

24,000 24,000

1 The allotted share capital of the Company is 40,889,100 shares of common stock.

2 Or at date of resignation.

3 Shares are held by 1010 Printing Limited, a company over which C.K. Lau exercises control.

4 Appointed to the Board on 1 June 2022.

5 Shares held by Andrea Giunti Lombardo are jointly held with Sergio Giunti and by Montecristo 2019 S.r.L. (a private limited company incorporated under the

laws of Italy; it is an entity ultimately controlled by Sergio Giunti and Andrea Giunti Lombardo, which holds 7,144,320 shares).

6 Ken Fund was an Executive Director before becoming a Non-Executive Director from 1 December 2021.

ANNUAL REPORT ON REMUNERATION (continued)

Single total gure of remuneration (audited) (continued)

Governance | THE QUARTO GROUP, INC. ANNUAL REPORT 2022 | 35

STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS

No Director receives, or has an entitlement to receive, shares in the Company as part of his or her remuneration. A 50%

appreciation in the Company’s share price would have no impact on a Director’s remuneration; the impact of such appreciation

is included in the Remuneration Policy illustration for Executive Directors on page 31 in the event of the award of PSP options.

Directors’ share options

Shares: Common Stock of $0.10 each

Share options were granted to Ken Fund on 19 April 2016 (49,692 shares) and 28 April 2017 (25,496 shares). In both cases the

options did not vest. No other Director has been granted share options and there are no current share option schemes.

Executive directors’ base salaries/fees

During the year 2022, C.K. Lau, appointed on 17 May 2018, received $nil, in accordance with his service contract.

During the year 2022, Alison Goff, appointed to the Board on 1 June 2022, received $349,387 from January 2022 in accordance

with her service contract.

Pension and other benefits

During the year 2022, the Group made a contribution to the personal pension plan of Alison Goff of $26,565 and $7,291 for

medical insurance for 2022.

Long-term incentives – PSP awards

Under the Remuneration Policy, awards of nominal-cost (or nil-cost) options may be granted annually up to 50% (in exceptional

circumstances up to 100%) of base salary to the Executive Directors. Adhering to the same principles, other applicable

employees may receive an award (up a maximum of 40% of base salary, but typically much less). In considering the size of

awards, the Remuneration Committee has regard to the principles set out on page 28 of this report. The share options granted

in April 2016 did not vest in April 2020; and the options granted in April 2017 did not vest in April 2021. No option schemes have

been introduced since April 2017; there are currently no share option schemes in operation.

The PSP schemes granted in April 2016 and April 2017, neither of which vested, were granted on the basis outlined below.

Half of the awards have a performance condition relating to cumulative Adjusted Diluted EPS performance for the four financial

years 2017 to 2020 inclusive. The other half of these awards have a performance condition relating to total shareholder returns

(‘TSR’) from a combination of dividends and share price growth (measured as an average over a 20 business day period leading

up to grant and vesting as appropriate). The TSR period ran from 28 April 2017 to 28 April 2021.

Targets for EPS are annual compounded growth of 5% for Threshold to 10% for Stretch. Targets for total shareholder returns over

the period were annual compounded growth of 7% for Threshold and 15% for Stretch.

The Committee believes the TSR directly measures shareholder returns and thereby aligns the goals of management and

shareholders. However, TSR can be affected by a variety of investment factors, which are far removed from those which

management can directly affect. The Committee believes that cumulative diluted EPS to be a good measure of managements’

long–term impact on the business and which over time translates into shareholder value. Thus a combination of TSR and EPS

was believed to be suitable goals for the PSP Awards. Major shareholders were consulted about adding the TSR condition.

Retention awards

In 2020, Ken Fund was granted a retention award that offered a total payment of $500,000 that comprised of two elements: (i) a

payment of $350,000 so long as he remained employed by the Company until 30 September 2021, and (ii) a performance-

related payment of up to $150,000 assessed on profit-achievement by the Group for financial years 2020 and 2021. Both of the

conditions were met, with payment being spread over 2021 and 2022.

Alison Goff is entitled to receive two milestone payments: £42,000 payable on completion of one complete year of service (from

2 January 2022), and £280,000 payable on completion of five complete years’ service (from 2 January 2022).

Chair and Non-Executive Director fees

The Non-Executive Directors’ annual fees for 2022 were as follows: Andy Cumming £72,000 ($89,100), Jane Moriarty £50,000

($61,875), Mei Lan Lam $nil, Ken Fund (appointed as Non-Executive Director on 1 December 2021) $40,000, and Andrea Giunti

Lombardo £35,000 ($43,313).

36 | THE QUARTO GROUP, INC. ANNUAL REPORT 2022 | Governance

Relative importance of spend on pay

The graph below shows how total employee pay compares with expenditure on intellectual property for years ended 31

December 2021 and 31 December 2022. No dividend was paid in either year, nor was there any share buyback.

25.2

25.6

18.1

19.6

Total employee pay Intellectual property spend

2022 2021

Review of group performance

The chart below compares the annual value on 31 December of £100 invested in the Company’s common shares (the only class

of shares issued) on 31 December 2012 compared to the equivalent FTSE Small Cap Index investment for the past ten financial

years ending 31 December 2022. This index has been chosen as it comprises companies of a broadly similar size to Quarto.

Where dividends are paid by the Company they are assumed to be re-invested to purchase Company shares, and a

corresponding amount is added to the hypothetical FTSE Small Cap Index investment.

Performance graph

100

150

200

250

300

2012 2013 2014 2015 2016

2017

Quarto FTSE Small Cap

2018 20202019 2021 2022

The table below gives the total remuneration figure of the CEO for the relevant period of ten financial years ending on 31

December 2022, plus the annual bonus paid and PSP vesting level expressed as a percentage of the maximum opportunity.

2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

Total remuneration ($'000) 870 842 929 3,252 701 230

—

119

285

383

Bonus awarded (%) 56.9 33.5 95.0 12.0 31.0 — — — —

—

PSP vesting (%) — — — 100 — — — — — —

1 Remuneration to Marcus Leaver who resigned on 24 May 2018. C.K. Lau was Group CEO thereafter and did not receive any salary, benefits or bonus from the Company.

2 C.K. Lau was Group CEO and did not receive any salary, benefits or bonus from the Company.

3 C.K. Lau was Group CEO until 18 September 2020 when Polly Powell was appointed Group CEO.

4 Remuneration received by Polly Powell up to her resignation on 1 July 2021. C.K. Lau was Group CEO for the remainder of the year.

5 Group CEO, Alison Goff, joined the Company on 2 January 2022 and joined the Board on 1 June 2022. The figure shown is remuneration received for the year.

6 Group CEO received a discretionary bonus of £20,000.

ANNUAL REPORT ON REMUNERATION (continued)

Governance | THE QUARTO GROUP, INC. ANNUAL REPORT 2022 | 37

STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS

Annual percentage change in remuneration of directors and employees

The annual percentage change for Directors’ remuneration in relation to salary/fees, benefits, and bonuses for years 2020

onwards (i.e. the percentage change from 2020 to 2021, and 2021 to 2022) is summarized below where these data can be

compared to the average all-employee amounts for the corresponding elements (on a full-time equivalent basis).

Director Comparing 2022 with 2021 Comparing 2021 with 2020

Salary/Fees Benefits

Bonus Salary/Fees Benefits

Bonus

Executive Directors

C.K. Lau

0% 0% 0% 0% 0% 0%

Ken Fund

n/a n/a n/a 1% 29% n/a

Polly Powell

n/a n/a n/a 0% n/a —

Alison Goff

n/a n/a n/a n/a n/a n/a

Non-Executive Directors

Andy Cumming 0% 0% —

0% 0% 0%

Jane Moriarty 0% 0% —

0% 0% 0%

Ken Fund

n/a n/a n/a n/a n/a n/a

Mei Lan Lam

0% 0% 0% 0% 0% 0%

Andrea Giunti Lombardo

0% 0% 0% 0% 0% 0%

Average Employee -24% -3% 15% 455%

16% -1%

1 Director does not receive a salary or fees, a bonus or other benefits from the Company.

2 Ken Fund became a non-executive director on 1 December 2021.

3 Relates to healthcare and changes in year generally reflect changes in premiums.

4 Appointed on 10 February 2020 and resigned on 1 July 2021. Polly Powell’s salary remained constant throughout this period.

5 Joined the Company as CEO on 2 January 2022 and joined the Board on 1 June 2022.

6 The annual fee for Non-Executive Directors has remained unchanged year-on-year throughout the reporting period shown (see point 2 above).

7 In 2022 director received a discretionary bonus of £10,000; no bonus payment was made in prior years.

8 Joined the Board on 10 February 2020.

9 Polly Powell received a bonus in 2021 of £20,000 but did not receive a bonus in 2020.

10 Large increase from 2020 to 2021 due to introduction of all staff bonus in 2021.

Salary, benefits and bonuses for other employees have been impacted by exchange rate movements.

Dilution limits

The Group has at all times complied with the dilution limits set out in the rules of its share plans (principally a limit of 10% in 10

years). In the ten year period to 31 December 2022, awards made under the Group’s share schemes represented 1.6% (2021:

1.6%) of the Group’s issued share capital.

Directors’ shareholding guidelines and share scheme interests

There has been no requirement for Executive Directors to retain shares as no other shares have vested and they are compliant

with the shareholding guidelines.

Jane Moriarty

Chair of the Remuneration Committee

31 March 2023

38 | THE QUARTO GROUP, INC. ANNUAL REPORT 2022 | Governance

Directors’ Report

Group

The Directors present their report and the audited financial statements of The Quarto Group, Inc., for the year ended 31

December 2022.

Though an overseas company within the meaning of the Companies Act 2006, the Company has chosen to continue to include

this report in line with the UK’s The Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008.

Results

The profit for the year was $16.6m (2021: $9.9m). As already noted on page 4, the Directors do not propose a dividend (2021: nil

dividend).

Key performance indicators showing the Company’s performance in 2022 and the prior two years can be found on pages 12 and

13. An indication of likely future developments in the business of the Group is included in the Strategic Report on page 6.

Directors

Serving Directors during the year were as follows:

Andy Cumming* (Non-Executive Chairman) Appointed 1 March 2018

C.K. Lau (Executive Director; President; Group Chief Executive Officer between 1 July 2021 and 2 January 2022)

Appointed 17 May 2018

Alison Goff (Executive Director; Group Chief Executive Officer from 2 January 2022) Appointed 1 June 2022

Mei Lan Lam (Non-Executive Director) Appointed 17 May 2018

Ken Fund (Executive Director; Chief Operating Officer until retirement on 1 December 2021 becoming Non-Ex-

ecutive Director) Appointed 11 July 2018

Jane Moriarty* (Non-Executive Director; Vice-Chair; Senior Independent Director) Appointed 12 November 2018

Andrea Giunti Lombardo (Non-Executive Director) Appointed 10 February 2020

* Considered by the Board to be independent.

None of the Directors have a service agreement of more than one year’s duration. All the Directors are subject to annual re-election.

The letters of appointment of the Non-Executive Directors are made available for inspection at the Company’s registered office.

No Director had a contract of significance with the Company or its subsidiaries during the year.

Following the resignation of Polly Powell on 1 July 2021 C.K. Lau took over the role of Group CEO until 2 January 2022 when Alison Goff

joined the Company as Group CEO.

Disclosure of information under Listing Rule 9.8.4

For the purpose of compliance with LR 9.8.4 R, the following information is included by reference within the Directors’ Report:

LR 9.8.4 R requirement: Location:

Directors’ remuneration Annual Report on Remuneration, pages 33 to 37.

Details of Long-term Incentive Plans Annual Report on Remuneration, pages 33 to 37.

Related Party Transactions The Company purchases printing services from 1010 Printing Limited, a company over

which C.K. Lau exercises control. Mei Lan Lam is also a director of 1010 Printing Limited.

These purchases are made on a job-by-job basis at arm’s length. Financial Statement

note 28 summarizes purchases of printing services from 1010 Printing Limited.

Unsecured loans provided by 1010 Printing Limited and C.K. Lau are summarized in

Financial Statement note 28.

Revenue generated from Giunti Editore spa, a company over which Non-Executive

Director Andrea Giunti Lombardo exercises control, is summarized in Financial Statement

note 28.

Governance | THE QUARTO GROUP, INC. ANNUAL REPORT 2022 | 39

STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS

With reference to LR 9.8.4 R (14)(a), the Company entered into a written and legally binding relationship agreement with 1010

Printing Limited, Lion Rock Group Limited and C.K. Lau. The Company confirms in relation to the requirements of LR 9.8.4 R (14)

(c) that: (i) it has complied with the undertakings of the relationship agreement; (ii) as far as the Company is aware, the

controlling shareholder parties have complied with the relationship agreement; and (iii) so far as the Company is aware, the

procurement obligations of LR 9.2.2B R (2)(a) have been complied with within the period under review. At a special shareholder

meeting held on 31 January 2020 the Company’s By-Laws were amended to comply with LR 9.2.2AD R (2).

Employees

Applications for employment of disabled persons are always fully considered, bearing in mind the aptitudes of the applicant

concerned. In the event of staff becoming disabled, every effort is made to ensure that their employment with the Group

continues and that appropriate training is arranged. It is the policy of the Group that the training, career development and

promotion of disabled persons should, as far as possible, be identical with that of other employees. The Group places

considerable value on the involvement of its employees and has continued its practice of keeping them informed on matters

affecting them as employees and on the various factors affecting the performance of the Group. During 2022 the Company

established regular quarterly Town Hall meetings to update the entire business on key priorities and employees are consulted

regularly on a wide range of matters.

The Board recognizes the importance of diversity amongst its employees and is committed to ensuring that employees are

selected and promoted on the basis of merit and ability, regardless of age, gender, race, religion, sexual orientation or disability.

The Company continued to make the Company’s workplace inclusive and diversity equitable as described on page 14. During

2022, the Diversity and Inclusion Committee continued to play a vital advocacy and engagement role and supported in the work

described on page 14. Staff ethnicity and disability status was collected during the reporting year. Further engagement will take

place in 2023 to increase the quality and completeness of the data with new goals to be established. The gender split across the

Group as at 31 December 2022 is illustrated in the table below.

Males Females

Board 4 3

Senior managers 3 6

Employees 66 233

Substantial shareholders

The Directors have been advised of the following shareholders who have an interest of 5% or more in the shares of the common

stock of the Company at 31 December 2022 and 28 March 2023. 28 March 2023 is the latest practicable date prior to the

publication of this report.

As at 31 December 2022 As at 28 March 2023

Number of

US$0.10 shares of

common stock

% holding of the

issued capital

of the Company

Number of

US$0.10 shares of

common stock

% holding of the

issued capital

of the Company

1010 Printing Limited (C.K. Lau)

20,473,006 50.1 20,473,006 50.1

Giunti

9,134,320 22.3 9,134,320 22.3

L.F. Orbach 4,103,615 10.0 4,103,615 10.0

1 The allotted share capital of the Company is 40,889,100 shares of common stock.

2 1010 Printing Limited is ultimately controlled by C.K. Lau.

3 Sergio Giunti and Andrea Giunti Lombardo (shareholders of the Company holding 1,990,000 shares at 31 December 2022) plus Montecristo 2019 S.r.L.

(registered holder of 7,144,320 shares at 31 December 2022), a private limited company incorporated under the laws of Italy (an entity ultimately controlled

by Sergio Giunti and Andrea Giunti Lombardo).

The rights attaching to the Company’s shares of common stock are set out in the Company’s By-Laws, which can be found on

the Company’s website, www.quarto.com. The rules for appointment and replacement of the Directors are set out in the

Company’s By-Laws. The powers of the Directors are set out in the Company’s By-Laws.

The Company may amend its By-Laws by special resolution approved by the affirmative vote of the holders of a majority of the

voting power of the shares. The Directors’ interests in the shares of the Company are set out on page 34. There are no

restrictions on the number of shares that Directors can hold.

40 | THE QUARTO GROUP, INC. ANNUAL REPORT 2022 | Governance

Bank facilities

On 16 February 2021, the Group concluded its refinancing, repaid its syndicated loan (a multi-currency facility that comprised a

$25m term loan, a $8m revolving credit facility and a $2m overdraft facility), signing a new facility agreement which ends 16 July

2024. The multi-currency facility comprises a $10m term loan, a $8m revolving credit facility and a $2m overdraft facility. On the

same date, Lion Rock Group Limited, a related party agreed to provide the Group a $10m loan note at 4% interest, repayable on 31

August 2024.

Risk management strategy

The Group is exposed to a number of principal risks and uncertainties. The Group’s financial risk management strategy is set out

in on page 17 of the Risk Management Review. Operational risks are set out on pages 17 to 19 of the Risk Management Review.

Post balance sheet events

Quarto repaid the remaining loan of $8m plus accrued interest to 1010 Printing Limited in February 2023. This repayment was

made outside the agreement due to a favorable liquidity position at this point in time and had been agreed by the bank.

Corporate governance

The Company is committed to high standards of corporate governance and supports the principles laid down in the UK

Corporate Governance Code issued by the Financial Reporting Council in 2018 (the ‘Code’), available from the FRC website at

www.frc.org.uk. The Board considers that the Company has been in compliance with the principles and provisions of the Code

throughout the year ended 31 December 2022 and to the date of this report with the exception of Provisions 11 and 24.

From 2019, the Code provides that at least half the board of directors of a UK public listed company, excluding the chairman,

should comprise non-executive directors whom the board of directors considers to be independent (Provision 11). Having

considered the guidelines for independence as set out in the Code and the situation of each Director, the Board is satisfied on

each Director’s independence and considers that, even though the Company does not meet the quota of independent directors

pursuant to the Code, two independent directors, which has been the case since late 2018, are adequate for a company of the

Company’s size and nature of the business conducted by the Group.

As a “smaller company” (as defined in the Code as a company below FTSE 350 index throughout the year immediately prior to

the reporting year), the Company complies with the requirements of Provision 24 except that the Chair of the Board is a member

of the Audit and Risk Committee. The Board is satisfied that both members of the Audit and Risk Committee are independent

and bring a wide range of skills, expertise, experience and competence relevant to the sector in which the Company operates

and the challenges it faces and can satisfy the responsibilities of Provision 25.

The Board will continue to monitor its corporate governance arrangements, in the light of the Code (and future changes), as the

Group develops and grows.

The Directors consider that the annual report and accounts, taken as a whole, are fair, balanced and understandable and provide

the information necessary for shareholders to assess the Group’s performance, business model and strategy.

Section 172 statement, KPIs and principal risks, Financial instruments

The Company’s section 172 statement can be found in the Strategic Report on pages 15 and 16. Included within the section 172

statement are the disclosures relevant for stakeholder engagement (SI 2008/410 Sch 7 (11B)) and employee engagement (SI

2008/410 Sch 7 (11)). KPIs can be found on pages 12 and 13; and risk management, principal risks and uncertainties can be found

on pages 17 to 19. Risks associated with the use of financial instruments are reported in note 21 to the Financial Statements.

DIRECTORS’ REPORT (continued)

Governance | THE QUARTO GROUP, INC. ANNUAL REPORT 2022 | 41

STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS

Attendance by Directors at Board and Committee meetings in 2022

Board

Audit and Risk

Committee

Nominations

Committee

Remuneration

Committee

Andy Cumming 6 5 3 2

C.K. Lau 6 — 3 2

Alison Goff

1,2,3

4 — — —

Ken Fund

6 — — —

Mei Lan Lam

5 — — —

Jane Moriarty 6 5 3 2

Andrea Giunti Lombardo

6 — — —

Total number of meetings 6 5 3 2

1 Attended Remuneration Committee meetings in 2022 by invitation.

2 Not members of the Remuneration Committee.

3 Joined the Board on 1 June 2022.

In addition to the points made regarding compliance with the Code in the Corporate governance section above (page 40), the

principles of the Code have been applied as follows:

a) The Board of Directors represents the shareholders’ interests in maintaining and growing a successful business including

optimizing consistent long-term financial returns.

b) As at 31 December 2022, the Board comprised two Executive Directors and five Non-Executive Directors. The Chairman is

responsible for the leadership of the Board and ensuring its effectiveness. The different roles of the Chairman and Chief

Executive Officer are acknowledged. Jane Moriarty, the Senior Independent Director, is available to shareholders, if they have

concerns that are not able to be resolved through normal channels. Two Non-Executive Directors, Andy Cumming and Jane

Moriarty were considered by the Board to be independent throughout 2022.

c) There are a number of standing Committees of the Board to which various matters are delegated. They all have formal terms

of reference approved by the Board which are available on the Company’s website (www.quarto.com).

d) The Board met six times in 2022. Attendance details are set out above. A formal agenda is prepared for each meeting and all

board papers and information are circulated to the Board at least five business days before the meetings except in the case

of meetings that are convened on short notice.

e) All of the Directors are subject to re-election by the shareholders at the Annual Meeting. The Board is satisfied to support the

re-election of Andy Cumming, Jane Moriarty, Mei Lan Lam, Andrea Giunti Lombardo and Ken Fund as Non-Executive

Directors as they have individually produced excellent performance in their duties and have shown a high level of

commitment to their roles.

f) The remuneration of the Executive Directors is recommended by the Remuneration Committee, comprising Jane Moriarty,

who is the Committee Chair, Andy Cumming, and C.K. Lau. A separate report with respect to Directors’ remuneration is

included on page 33. In the year ended 31 December 2022 the Committee met two times.

g) The Audit and Risk Committee comprises Jane Moriarty, who is Committee Chair, and Andy Cumming. The Board is satisfied

that the members of the Committee have appropriate financial experience to fulfill their role. Further details of the

Committee’s work can be found on pages 23 to 24.

h) The Nominations Committee comprises Andy Cumming, who is Committee Chair, Jane Moriarty and C.K. Lau. Details of the

work of the Nominations Committee during the year are set out in its report on page 22.

i) C.K. Lau and the Company Chairman are responsible for investor relations. They meet with major shareholders during the

course of the year in order to understand their views, that are then communicated to the rest of the Board at Board meetings.

The Non-Executive Chairman and Senior Independent Director will meet with major shareholders from time to time.

Shareholders are invited to attend the Annual Meeting at least twenty days in advance of the meeting.

j) The Board has a procedure for Directors to take independent professional advice at the Company’s expense, if required.

k) All Directors have access to the advice and services of the Company Secretary.

l) For January 2022 Quarto arranged appropriate insurance cover in respect of legal action against the Directors. From

February 2022, the Company indemnified the Directors in accordance with its By-Laws.

m) The Company has an established whistle-blowing policy and anti-bribery policy.

42 | THE QUARTO GROUP, INC. ANNUAL REPORT 2022 | Governance

TCFD statement

The Company is making the following disclosures pursuant to the requirements of the Financial Conduct Authority (“FCA”) and

the listing rule LR 9.8.7R. The table below sets out the extent of disclosures against the TCFD framework.

Recommended Disclosure Response

Governance Board oversight Disclosed below

Management’s role Disclosed below

Strategy Climate-related risks and opportunities Partially disclosed

below

In 2022 risks and opportunities were

identified and evaluated. These have

been incorporated into Principal

Risks, however the Company is still to

set long term targets

Climate resilience Partially disclosed

below

Risks and mitigations have been

disclosed but further work is required

to incorporate resilience into longer

term business planning

Risk Identification and evaluation of climate-related

risks

Disclosed

Integration into risk management framework Disclosed – see

pages 17 to 19

Included in Principal Risks and Risk

Management section of this report.

Metrics Climate metrics Partially disclosed

below

Metrics have been identified and

data compiled. For internal reporting,

estimates have been used however

we have chosen to exclude

estimated data to ensure future

accuracy

GHG emissions Disclosed below See page 47.

Climate targets Partially disclosed

below

Short term targets have been set but

further work is required to

incorporate long term targets in

business and financial planning

PROGRESS

2022 represents the second year that the Company has made disclosures under the TCFD framework. We used the framework

and guidance to establish our understanding of climate-related risks and to set out how climate-related matters can be

integrated into both financial and operational planning. Significant progress was made across all four pillars; highlights in the

year include:

• Identification of suppliers and partners with the greatest impact to greenhouse gas emissions

• Engagement with key supplier groups on both establishing metrics and understanding common climate-related strategic

goals

• Identification and selection of climate metric methodologies

• Incorporation of climate-related risks into the existing risk management framework

• Establishment of core and ancillary data sets across key supplier groups

DIRECTORS’ REPORT (continued)

Governance | THE QUARTO GROUP, INC. ANNUAL REPORT 2022 | 43

STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS

GOVERNANCE

Board Oversight

The Group Board has responsibility for overseeing the Company’s response to climate-related risks and is responsible for setting

the Company’s environment and climate-related strategy; the Board is supported by the management team identified below.

Climate-related risks, which fall within the TCFD disclosures, were identified and integrated into the Company’s risk register. The

risks identified in the register are used by the Board in its planning processes informing budgets and strategic focus. Oversight of

the risk management framework is held by the Audit and Risk Committee which reviews the Company’s response three times

per year and then reports to the Board.

Board

Audit & Risk

Committee

Management

Tea m

Management’s Role

The management team comprises:

• Group Chief Executive Officer: sponsor and strategic leader

• Group Director, Transformations: lead on operational impacts and opportunities related to climate-

related risks

• Group Finance Director: lead on the financial impacts and requirements relevant to achieving the

Company’s TCFD targets

• Group Procurement Services Director: lead for principal supply chain partners to support the

Company’s TCFD efforts.

In bringing climate-related risk into the existing governance structure, climate-related risks are now part

of periodic reviews and briefings. During 2022 briefing documents were presented to the Audit and Risk

Committee and Board. Briefings and guidance were used by the management team throughout the year

to evaluate and tailor the Company’s response to climate-related risks and opportunities. The make-up of

the management team and supporting advisors will be reviewed as the Company’s response to climate-

related risk matures. The Board and Board Committees review the effectiveness of this framework

annually and, as part of this review process, will support in identifying future training needs.

Next Steps

As part of the transition plans, in 2023 a taskforce comprising key stakeholders from relevant business functions will be

established, to drive further engagement with the risks and opportunities of climate change across the business. Education

forms a key part of integrating climate related risk and opportunities within the business. During 2023, the management team

will lead the development of functional toolkits, workshops and idea generation to both improve scenario planning and bring

climate into decision-making across the business.

STRATEGY

Climate-related risks and opportunities

The Company started its second reporting cycle under TCFD by using the guidance and recommendations generated by both

TCFD and FRC to establish a roadmap to integrate climate-related risks and opportunities into existing business planning and

management. We were able to complete our initial scenario planning for both physical and transitional risks which resulted in a

significant increase in the Company’s knowledge and understanding of how climate-related risks may impact the business

across multiple time horizons. The time horizons identified were, provisionally:

• Short: (up to 3 years) incorporated as part of our annual financial planning cycle

• Medium: (3 to 10 years) forming part of our business planning processes

• Long: (over 10 years) where it is expected that our portfolio and product mix will look very different

In order to bring climate-related risks and opportunities into business planning, risks and opportunities are evaluated for

likelihood and impact and scored under the existing risk management processes. Details of identified risks are set out in the

principal risk register on pages 17 to 19. Risks are evaluated by the Audit and Risk Committee. The focus for 2022 was on short

and medium term risks and opportunities with the outcome of determining basic metrics that can be used across these time

horizons. Time horizons for climate-relate risks have been incorporated into the risk register with risks and mitigations identified

across different time periods. Using forecast data and scenario planning against an Orderly Transition (1.5°C) and a Hot House

World (3°C)

, acute and chronic climate-related risks were identified across our manufacturing base. Data from the World Bank’s

CCKP

, and from IPCC

were used to model scenarios. Scenarios were used to stress-test the Company’s exposure to risk,

particularly with the current procurement practices, which focus on maintaining a flexible manufacturing base with

manufacturing options maintained across multiple locations globally. This led to the incorporation of climate-related risk as part

of our procurement processes and annual supplier evaluations covering both physical and transitional risks. By incorporating

TCFD recommendations into our business planning practices, the Company is better placed to mitigate the impacts and

capitalize on opportunities available from de-carbonizing the business and identifying less intensive channels and processes. In

2023 the Company will increase exploitation of digital channels as well as further exploring just-in-time and local printing.

1. https://www.ngfs.net/ngfs-scenarios-portal/

2. https://climateknowledgeportal.worldbank.org/

3. https://www.ipcc.ch/

44 | THE QUARTO GROUP, INC. ANNUAL REPORT 2022 | Governance

Resilience

In 2021, the first year of TCFD reporting for the Company, we lacked both knowledge and understanding in order to effectively

incorporate climate-related risks and opportunities into our planning and management processes. Our focus during 2022 was to

establish a much greater understanding of climate-related risks and opportunities in order to address non-compliances in 2021,

but also to establish the best approach for creating meaningful metrics and targets. We successfully incorporated climate-

related risks into our principal risk register and significantly increased our understanding of how climate change is being

addressed across our value chain. Recognizing that a significant proportion of indirect emissions arise through third-party

suppliers, the management team engaged with suppliers globally to determine the best way of establishing appropriate

metrics. Working with our suppliers we can identify goals that can be used in our business planning processes and to support

our transition to net zero.

Next steps

• Use the reporting framework established in 2022 with increased stakeholder engagement, develop achievable transition

targets and appropriate interim climate-related milestones.

• Recognizing that the Company shares suppliers with other publishers, we have identified the need for greater engagement at

industry level to support transition goals in 2023.

• Working with our suppliers, we will incorporate environmental reporting into our procurement evaluation processes.

• During 2022 we worked to clarify sustainability objectives of our largest suppliers. In 2023 we plan to align more closely our

goals with the sustainability goals of our key suppliers.

RISK MANAGEMENT

Identification and evaluation of climate-related risks

Climate-related risks have been incorporated into the Company’s existing risk management framework. Risks identified have

been categorized in the normal manner, by severity of impact and likelihood of impact. Risks are assessed as:

• Market risks (viz. those affecting consumer choice, including impact on the Company’s reputation).

• Operational risks (viz. opportunities to improve the Company’s market and product position and those issues that can disrupt

operations, typically supply chain related).

• Financial risks (viz. increased costs arising from climate-related matters and the need for investment). As part of the

Company’s transition plan, increasing engagement across the value stream will improve the Company’s aptitude for

identifying emerging risks and ability to capitalize on opportunities.

Integration into risk management framework

In accordance with the Company’s established risk management process, climate-related risks are identified and approved by

the Board before being entered into the Company’s risk register. The Chair of the Audit and Risk Committee reports on

performance to the Board as part of the Company’s established risk management practices.

Next steps

• During 2023 we will further develop our approach to climate-related reporting to ensure our risk management framework

continues to address all relevant requirements of TCFD disclosures.

• Recognizing the global nature of climate-related risks and opportunities, in 2023 we will undertake a review of prospective

regulatory and tax changes across our largest manufacturing and customer territories.

METRICS AND TARGETS

Metrics

Indirect Scope 3 emissions represent the largest source of carbon emissions for the Company. The focus for 2022 was on

establishing robust data sets that can provide meaningful measures year-on-year. Categories were evaluated for financial

materiality across all fifteen Scope 3 categories and scored based on appropriate GHG Protocol criteria. Using the intensity

measure tCO

e per staff member keeps reporting consistent with existing SECR and GHG reporting for the Company. We will

monitor our approach to ensure it remains relevant in both what we measure and as stock exchange listing and disclosure rules

further develop. We have included estimations based on best available data and methodology at time of publication. In

preparing this report we have considered the completeness and robustness of the Scope 3 emissions calculations used at that

time. Whilst we have included data in these disclosures, we recognize that it contains certain Scope 3 estimates and for this

reason we consider ourselves to not be fully compliant with the TCFD requirements at this stage. During 2023, we will focus on

developing our reporting processes to enable compliance.

DIRECTORS’ REPORT (continued)

TCFD statement (continued)

STRATEGY (continued)

Governance | THE QUARTO GROUP, INC. ANNUAL REPORT 2022 | 45

STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS

Scopes 1, 2 and 3 direct GHG emissions will continue to be measured as tCO

e using industry standards methods as reported

below and as part of SECR requirements for the Company’s UK subsidiary (as reported below). This year our reporting has

expanded to include estimated GHG emissions from all our offices including our fully serviced offices. The intensity measure

used remains tCO

e per staff member.

Direct emissions are managed by the Company, and opportunities for improvement can be achieved through suitable office

systems controls, adopting technological developments (e.g. video conferencing) to reduce business travel, and adopting

renewable electricity supplies where possible.

Scope 3 Category Evaluation Status* Explanation tCO

tCO

e per

employee

1. Purchased Goods &

Services

Relevant and material Calculated on an apportionment basis across

Preferred

manufacturing suppliers

representing 85% of group procurement

3,384.0 11

2. Capital Goods Relevant, not material Capital Goods purchased in the year fell

below established level of materiality

— —

3. Fuel & Energy Related

Activities

Not relevant Currently included under other Scope 3

categories (largely Categories 1, 4 and 9)

— —

4. Upstream Transportation &

Distribution

Relevant, not material Calculated by suppliers using WTW

methodology (transportation) and on a

volume apportionment basis for distribution

energy usage and transportation to customer

depots

1,436.8 4.7

5. Waste Generated in

Operations

Relevant and material Data is being captured, but is not currently

comprehensive enough to provide a

meaningful measure

— —

6. Business Travel Not material but

calculated

Calculation forms part of voluntary SECR

disclosures and is based on miles travelled

229.5 0.8

7. Employee Commuting Not material Not currently calculated — —

8. Upstream Leased Assets Not material Electricity for leased offices has been

calculated under Scope 2

— —

9. Downstream Transportation

& Distribution

Not material Not currently calculated — —

10. Processing of Sold Products Not relevant Falls below established level of materiality — —

11. Use of Sold Products Relevant Not calculated yet, reporting framework

remains to be determined

— —

12. End of Life Treatment of

Sold Products

Relevant Not calculated yet, reporting framework

remains to be determined

— —

13. Downstream Leased Assets Not relevant — —

14. Franchises Not relevant — —

15. Investments Not relevant — —

* Not relevant indicates that the category does not currently apply to the Company.

1. Total headcount in the year was 305.

2. Defined as any manufacturer operating under the Company’s established Preferred Supplier terms.

3. Business travel has been calculated using 2022 UK Government GHG Conversion Factors for Company Reporting were used in emission calculations.

4. Transportation is calculated on landed destination via road, rail and ship. Calculations for transportation in the reporting year include a proportion

calculated on a weight-based formula to determine equivalent WTW emissions (51%) due to incomplete data.

46 | THE QUARTO GROUP, INC. ANNUAL REPORT 2022 | Governance

DIRECTORS’ REPORT (continued)

Targets

During 2022, the Company continued to reduce its office footprint. Two offices in the US were closed in the year and the

Company took the decision to relocate the London office to new premises from January 2023. The new London premises will

further reduce the Company’s office footprint in 2023.

Time Period Target Metric

Short Term (2023 - 2026) Continue to embed climate-related risk and

opportunity into our business strategy and

operations

Qualitative

Expand data capture of waste and use of

plastics to enable future disclosures under

Scope 3 by 2024

GHG Protocol, average-data method

Increase supply chain engagement on GHG

emissions

Action plans in place to reduce carbon from

top CO

contributors

Achieve 100% green energy purchased

across all office locations

Zero CO

from Scope 2 sources

Establish data capture and measures across

Scope 3 categories classified as relevant

but not currently calculated

Completeness of data sets and reporting

frameworks

Medium Term (2026 - 2036) Reduce absolute Scope 1 and 2 GHG

emissions by 2030

tCO

e calculated against 2014 baseline (see

GHG reporting below)

Long Term (2036 - 2050) Reduce Scope 3 GHG emissions purchased

goods and services

tCO

e calculated on an apportionment basis

against 2022 baseline

Meet UK Net Zero GHG target % zero carbon

% carbon offsets

Next Steps

• Work with industry bodies to determine measures relevant to the publishing sector to support standardized cross-industry

metrics.

• Establish key milestones to support medium and long term targets.

Greenhouse gas emissions reporting

During the year, the Group worked with Energy Management Ltd, an energy procurement and carbon consultancy, to develop

GHG reporting protocol based on DEFRA and World Resource Institute guidelines. Scopes 1, 2 and 3 direct GHG emissions will

continue to be measured as tCO

e using industry standards methods as reported below and as part of SECR requirements for

the Company’s UK company (as reported below). Direct emissions are managed by the Company, and opportunities for

improvement can be achieved through suitable office systems controls, adopting IT systems to reduce business travel, and

adopting renewable electricity supplies where possible. This year our reporting has expanded to include Scope 3 reporting

relating to business travel. In 2022, Scope-reporting will expand further as the Company will estimate GHG emissions from all its

offices including its fully serviced offices. The intensity measure used is tCO

e per staff member.

This includes sites that have been disposed of during the reporting period. Scope 1 (Natural Gas) and Scope 2 (Electricity) are

reported on below. The Group has estimated usage for serviced office based on square footage calculation.

The Group has identified GHG (Greenhouse Gas) emissions per employee as the most appropriate intensity ratio. The Base Year

for these data remains 2014.

TCFD statement (continued)

METRICS AND TARGETS (continued)

Governance | THE QUARTO GROUP, INC. ANNUAL REPORT 2022 | 47

STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS

GHG emissions

BREAKDOWN OF ENERGY CONSUMPTION USED TO CALCULATE EMISSIONS (kWh)

Energy type

2022

Worldwide 2022 UK

2021

Worldwide 2021 UK

Mandatory requirements:

Gas 59,078 59,078 37,741 37,741

Purchased electricity (non-serviced offices) 274,204 158,224 250,491 133,991

Purchased electricity (serviced offices) 110,176 35,254 167,428 28,085

Transport fuel

0 0 0 0

Total energy (mandatory) 443,458 252,556 455,660 199,817

1 The Company does not operate any company vehicles.

BREAKDOWN OF EMISSIONS ASSOCIATED WITH THE REPORTED ENERGY USE (tCO₂e)

Emission source

2022

Worldwide 2022 UK

2021

Worldwide 2021 UK

Mandatory requirements:

Scope 1

Gas 10.8 10.8 6.9 6.9

Scope 2

Purchased electricity (location-based):

Non-serviced offices 75.7 30.6 77.8 34.4

Serviced offices 35.9 6.8 63.6 6.0

Total gross emissions (mandatory) 122.4 48.2 148.3 47.3

Intensity ratios (mandatory emissions only)

Tonnes of CO

e per employee 0.40 0.27 0.49 0.28

Energy use (kWh) per employee 1,454 1,435 1,499 1,175

Voluntary requirements:

Scope 3

Category 1: Purchased goods & services 3,384.0 — 3,282.0 —

Category 4: Upstream Transportation & Distribution 1,436.8 — — —

Category 6: Business travel (flights & rail) 229.5 69.7 47.6 4.0

Total gross emissions (voluntary) 5,050.3 69.7 3,329.6 4.0

Total gross emissions (mandatory & voluntary) 5,172.7 117.9 3,477.9 51.3

Intensity ratios (mandatory & voluntary)

Number of employees 305 176 304 170

Tonnes of CO

e per employee 16.96 0.67 11.44 0.30

Streamlined Energy and Carbon Reporting (SECR)

The Company’s principal source of emissions arises from the operation of its facilities. UK emissions are identified in the above

table as measured by tCO

e and kWh for 2022 and 2021. The UK’s SECR requirement expands on the emissions that relate to the

Company’s UK subsidiary, Quarto Publishing plc, and so an appropriate report will be given in that company’s annual report.

During 2021, the Company started to report on its estimated Scope 3 related emissions for business travel and reviewed its UK

office maintenance schedules (including TM44 inspections relating to air conditioning systems) and controls to ensure correct

operation and avoid excess energy usage. This approach has been continued in 2022 and during the reporting year a decision

was taken to relocate the London office. The Company will occupy new premises from January 2023. The selection of the new

office took into consideration environmental impact. The new premises meet BREEAM accreditation and are anticipated to bring

further reductions in emissions arising from the operation of its facilities.

48 | THE QUARTO GROUP, INC. ANNUAL REPORT 2022 | Governance

DIRECTORS’ REPORT (continued)

Risk management and internal controls

The Board is responsible for the Group’s system of internal control and for reviewing its effectiveness. As noted earlier,

the Directors have carried out a robust assessment of the principal businesses and considered the controls in place to eliminate

or mitigate the impact of key risks. The Board has in place risk management systems in relation to the Company’s financial

reporting process and the Group’s process for the preparation of the consolidated financial statements.

Established procedures are in place to identify and consolidate reporting entities. Our control activities include policies and

practices covering appropriate authorization and approval of transactions, the application of financial reporting standards and

reviews of significant judgements and financial performance.

The main elements of the internal control and financial reporting systems are:

a) The results of individual operating segments are reported and reviewed by the Board at its meetings during the year.

b) The management reports of each operating segment are tailored to suit the business and management needs of local

management. Each operating segment has its own key performance indicators, and these are regularly reviewed and

assessed.

c) In addition to monthly reporting, individual operating units report certain management information more frequently, where it

is considered appropriate.

d) All operating units report their bank balances weekly and a report is produced summarizing the Group position.

e) All operating units prepare annual budgets and cash flow forecasts which are reviewed by the Board.

The UK Corporate Governance Code introduced a requirement that the Directors perform on-going monitoring and review of

the effectiveness of the Group’s system of internal controls, to cover all controls including financial, operational, compliance, and

risk management. The Board confirms that there are ongoing processes covering the identification, evaluation and

management of the significant risks faced by the Group which cover all material controls. The processes are carried out through

Group Board meetings, quarterly subsidiary management meetings, discussion and review by the Executive Board and the

finance department during the several visits per year to individual operating units, and discussions with professional advisers

where appropriate. We will continue to develop our risk management framework set out on pages 17 to 19 during 2023.

Michael Clarke

Company Secretary

31 March 2023

Company Registration Number: FC0 13814

Governance | THE QUARTO GROUP, INC. ANNUAL REPORT 2022 | 49

STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS

Statement of Directors’ Responsibilities

in Respect of the Directors’ Report

and the Financial Statements

The Directors are responsible for

preparing the Strategic Report, Annual

Report and the Directors’ Remuneration

Report and the financial statements in

accordance with applicable law and

regulations.

The Company is an ‘overseas’ company

within the meaning of the Companies Act

2006.

Company law requires the Directors to

prepare financial statements for each

financial year. Under that law the

directors have prepared the Group

financial statements in accordance with

‘UK Adopted’ International Financial

Reporting Standards (IFRSs) and the

parent Company financial statements in

accordance with United Kingdom

Generally Accepted Accounting Practice

(United Kingdom Accounting Standards)

and applicable law including FRS 102 ‘The

Financial Reporting Standard applicable

in the UK and Republic of Ireland’. Under

company law the Directors must not

approve the financial statements unless

they are satisfied that they give a true and

fair view of the state of affairs and profit

or loss of the company and group for that

period. In preparing these financial

statements, the Directors are required to:

• select suitable accounting policies

and then apply them consistently;

• make judgements and accounting

estimates that are reasonable and

prudent;

• state whether applicable UK

Accounting Standards for the parent

company and IFRSs for the Group

have been followed, subject to any

material departures disclosed and

explained in the financial statements;

• prepare the financial statements on

the going concern basis unless it is

inappropriate to presume that the

company will continue in business.

The Directors are responsible for keeping

adequate accounting records that are

sufficient to show and explain the

Company’s transactions and disclose

with reasonable accuracy at any time the

financial position of the Company and

enable them to ensure that the financial

statements and the Directors’

Remuneration report comply with the

Companies Act 2006. They are also

responsible for safeguarding the assets

of the company and hence for taking

reasonable steps for the prevention and

detection of fraud and other

irregularities.

The Directors confirm that:

• so far as each Director is aware, there

is no relevant audit information of

which the Company’s auditor is

unaware; and

• the Directors have taken all the steps

that they ought to have taken as

Directors in order to make themselves

aware of any relevant audit

information and to establish that the

Company’s auditor is aware of that

information.

The Directors are responsible for

preparing the annual report in

accordance with applicable law and

regulations. Having taken advice from the

Audit and Risk Committee, the Directors

consider the annual report and the

financial statements, taken as a whole,

provides the information necessary to

assess the Company’s performance,

business model and strategy and is fair,

balanced and understandable.

The Directors are responsible for the

maintenance and integrity of the

corporate and financial information

included on the Company’s website.

Legislation in the United Kingdom

governing the preparation and

dissemination of financial statements

may differ from legislation in other

jurisdictions.

To the best of our knowledge:

• the Group financial statements,

prepared in accordance with ‘UK

Adopted’ IFRSs, give a true and fair

view of the assets, liabilities, financial

position and profit or loss of the

Company and the undertakings

included in the consolidation taken as

a whole; and

• the Strategic Report and Directors’

Report include a fair review of the

development and performance of the

business and the position of the

Company and the undertakings

included in the consolidation taken as

a whole, together with a description of

the principal risks and uncertainties

that they face.

Alison Goff

Group Chief Executive Officer

31 March 2023

50 | THE QUARTO GROUP, INC. ANNUAL REPORT 2022 | Governance

Independent auditor’s report to the

members of The Quarto Group, Inc.

Opinion

We have audited the financial statements of The Quarto Group, Inc. (the ‘parent company’) and its subsidiaries (the ‘group’) for

the year ended 31 December 2022 which comprise the Consolidated Income Statement, Consolidated Statement of

Comprehensive Income, the Consolidated Balance Sheet, the Consolidated Statement of Changes in Equity, the Consolidated

Cash Flow Statement, notes to the financial statements, including a summary of significant accounting policies, the Company

Balance Sheet, the Company Statement of Comprehensive Income, the Company Statement of Changes in Equity and notes to

the Company accounts.

The financial reporting framework that has been applied in the preparation of the group financial statements is applicable law

and UK-adopted international accounting standards. The financial reporting framework that has been applied in the preparation

of the parent company financial statements is applicable law and United Kingdom Accounting Standards, including Financial

Reporting Standard 102 ‘The Financial Reporting Standard applicable in the UK and Republic of Ireland’ (United Kingdom

Generally Accepted Accounting Practice), as applied in accordance with the provisions of the Companies Act 2006.

In our opinion:

• the financial statements give a true and fair view of the state of the group’s and of the parent company’s affairs as at 31

December 2022 and of the group’s and parent company’s profit for the year then ended;

• the group financial statements have been properly prepared in accordance with UK-adopted international accounting

standards;

• the parent company financial statements have been properly prepared in accordance with United Kingdom Generally

Accepted Accounting Practice; and

• the financial statements have been prepared in accordance with the requirements of the Companies Act 2006 which would

have applied were the parent company incorporated in the United Kingdom.

Basis for opinion

We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our

responsibilities under those standards are further described in the “Auditor’s responsibilities for the audit of the financial

statements” section of our report. We are independent of the group and the parent company in accordance with the ethical

requirements that are relevant to our audit of the financial statements in the UK, including the FRC’s Ethical Standard as applied

to listed public interest entities and we have fulfilled our other ethical responsibilities in accordance with these requirements. We

believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Conclusions relating to going concern

In auditing the financial statements, we have concluded that the directors’ use of the going concern basis of accounting in the

preparation of the financial statements is appropriate.

Our audit procedures to evaluate the directors’ assessment of the group’s and the parent company’s ability to continue to adopt

the going concern basis of accounting included but were not limited to:

• Undertaking an initial assessment at the planning stage of the audit to identify events or conditions that may cast significant

doubt on the group’s and the parent company’s ability to continue as a going concern;

• Obtaining an understanding of the relevant controls relating to the directors’ going concern assessment;

• Obtaining and challenging the board approved going concern assessment;

• Making enquiries of the directors to understand the period of assessment considered by them, the assumptions they

considered and the implication of those when assessing the group’s and the parent company’s future financial performance;

• Challenging the appropriateness of the directors’ key assumptions in their cash flow forecasts, as described in note 1E, by

reviewing supporting and contradictory evidence in relation to these key assumptions and assessing the directors’

consideration of severe but plausible scenarios. This included assessing the viability of mitigating actions within the directors’

control;

• Testing the accuracy and functionality of the model used to prepare the directors’ forecasts;

• Assessing the historical accuracy of forecasts prepared by the directors;

• Considering the consistency of the directors’ forecasts with other areas of the financial statements and our audit; and

• Evaluating the appropriateness of the directors’ disclosures in the financial statements on going concern.

Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that,

individually or collectively, may cast significant doubt on the group’s and the parent company’s ability to continue as a going

concern for a period of at least twelve months from when the financial statements are authorised for issue.

Governance | THE QUARTO GROUP, INC. ANNUAL REPORT 2022 | 51

STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS

Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections

of this report.

In relation to The Quarto Group, Inc’s reporting on how it has applied the UK Corporate Governance Code, we have nothing

material to add or draw attention to in relation to the directors’ statement in the financial statements about whether the

directors considered it appropriate to adopt the going concern basis of accounting.

Key audit matters

Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial

statements of the current period and include the most significant assessed risks of material misstatement (whether or not due

to fraud) we identified, including those which had the greatest effect on: the overall audit strategy; the allocation of resources in

the audit; and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the

financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

We summarise below the key audit matters in forming our opinion above, together with an overview of the principal audit

procedures performed to address each matter and our key observations arising from those procedures.

These matters, together with our findings, were communicated to those charged with governance through our Audit

Completion Report.

Key Audit Matter How our scope addressed this matter

COMPLETENESS AND ACCURACY OF THE RETURNS

PROVISION FOR TRADE SALES (GROUP ONLY)

We identified the completeness and accuracy of the

sales returns provision as one of the most significant

assessed risks of material misstatement due to the

subjective and judgemental nature of the provision.

The Group recognises revenue on trade sales net of a

provision for returns on the basis that certain trade

customers have a contractual right of return. At 31

December 2022, this provision totals $4,875,000. The

returns provision involves management judgement in

assessing the level of returns that will be received

post year end for sales made before the year end and

uses key assumptions in the calculation such as

historical returns rates.

RELEVANT DISCLOSURES IN THE ANNUAL REPORT

AND ACCOUNTS 2022

• Financial statements: Note 1D, General information

and significant accounting policies and Note 20,

Trade and other payables

• Audit and Risk Committee Report: Page 23

Our audit procedures included, but were not limited to:

• Obtaining an understanding of the design and implementation of

controls in relation to the trade sales returns provision;

• Recalculating management’s returns provision at the year end to

assess whether it is appropriately calculated in accordance with

management’s policy;

• Testing the completeness and accuracy of the input data being used

by management in the calculation of the returns provision;

• Reviewing historical returns rates by customer to assess the

appropriateness of the assumptions made by management, including

post Covid-19 returns rates and whether management’s methodology

and assumptions remain appropriate;

• Comparing actual returns for the period post year end against the

returns provision for the same period and against previous years

returns for the same period; and

• Making inquiries of those outside of the finance function to obtain

further evidence of potential new issues arising which will impact

future returns for example titles with a specific returns profile.

OUR OBSERVATIONS

Our audit work did not identify any material errors in the completeness

and accuracy of the sales returns provision.

52 | THE QUARTO GROUP, INC. ANNUAL REPORT 2022 | Governance

INDEPENDENT AUDITOR’S REPORT (continued)

Key Audit Matter How our scope addressed this matter

VALUATION OF PRE-PUBLICATION INTANGIBLE

ASSETS (GROUP ONLY)

We have identified valuation of pre-publication

intangible assets as one of the most significant

assessed risks of material misstatement due to error.

The Group capitalizes certain costs in relation to the

development of a book as an intangible asset on the

balance sheet, including a proportion of time spent

by creative staff and a proportion of internal

overhead costs. There is management judgement

involved in assessing the proportion of overhead

costs and creative staff time that is directly

attributable to the development of books and

therefore meet the criteria for capitalization under

IAS38 ‘Intangible Assets’.

There is further management judgement in

assessing the useful economic life of pre-publication

costs held on the balance sheet and the period over

which such assets are amortized. In the prior year

the useful economic life of the assets was amended

from a three year straight line to a reducing balance

method.

Pre-publication costs capitalized on the balance

sheet have a net book value of $25,473,000 at 31

December 2022.

RELEVANT DISCLOSURES IN THE ANNUAL REPORT

AND ACCOUNTS 2022

• Financial statements: Note 1D, General information

and significant accounting policies and Note 12,

Intangible assets – pre-publication costs;

• Audit and Risk Committee Report: Page 23

Our audit procedures included, but were not limited to:

• Evaluating the appropriateness of the capitalization policy by checking

whether it is in accordance with the financial reporting framework,

including IAS 38 ‘Intangible Assets’;

• Assessing the judgements made by management in determining

which costs are directly attributable to the development of book titles;

• Reviewing the assumptions made by management in determining the

capitalization percentages applied to overheads and corroborating

these assumptions to support where appropriate;

• Making inquiries with members of the creative team to understand

their role and the proportion of their time spent on book development;

• Selecting a sample of costs capitalized in the year and agreeing to

supporting documentation to confirm they are directly attributable to

the development of book titles;

• Evaluating any changes to the capitalization policy in the year and

assessing whether amendments are supported by corroborating

evidence.

• Evaluating the appropriateness of the amortization policy by checking

whether it is in accordance with the financial reporting framework,

including IAS 38 ‘Intangible Assets’;

• Assessing the appropriateness of the useful economic life used by

management by reviewing historic sales patterns and assessing how

well these support management’s estimate;

• Selecting a sample of the underlying sales and publishing data which

underpins management’s analysis and agreeing these to support;

• Recalculating the amortization charge to confirm it is appropriate, in

accordance with management’s policy and reflects the economic

pattern of the underlying assets useful life;

• Recalculating management’s impairment analysis of titles held in

pre-publication intangibles, challenging management’s underlying

assumptions and agreeing a sample of the underlying data to support;

OUR OBSERVATIONS

Our audit work did not identify any material errors in the valuation of

pre-publication intangible assets.

Governance | THE QUARTO GROUP, INC. ANNUAL REPORT 2022 | 53

STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS

Our application of materiality and an overview of the scope of our audit

The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for materiality.

These, together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent

of our audit procedures on the individual financial statement line items and disclosures and in evaluating the effect of

misstatements, both individually and on the financial statements as a whole. Based on our professional judgement, we

determined materiality for the financial statements as a whole as follows:

GROUP MATERIALITY

Overall materiality $1,055,000

How we determined it 5% of profit before tax

Rationale for benchmark applied We consider profit before taxation to be the most appropriate

benchmark for Group overall materiality considering this is a key focus

for the users of the financial statements.

Performance materiality Performance materiality is set to reduce to an appropriately low level

the probability that the aggregate of uncorrected and undetected

misstatements in the financial statements exceeds materiality for the

financial statements as a whole.

Having considered factors such as the Group’s control environment and

the fact that this is our first year as the group’s auditor, we set

performance materiality at $633,000, which represents 60% of overall

materiality.

Reporting threshold We agreed with the directors that we would report to them

misstatements identified during our audit above $32,000 as well as

misstatements below that amount that, in our view, warranted reporting

for qualitative reasons.

PARENT COMPANY MATERIALITY

Overall materiality $530,000

How we determined it 1% net assets

Rationale for benchmark applied As the Parent Company operates solely as a holding company, we

consider net assets to be an appropriate basis for determining

materiality.

Performance materiality Performance materiality is set to reduce to an appropriately low level

the probability that the aggregate of uncorrected and undetected

misstatements in the financial statements exceeds materiality for the

financial statements as a whole.

Having considered factors such as the Parent Company’s control

environment and the fact that this is our first year as the parent

company’s auditor, we set performance materiality at $318,000, which

represents 60% of overall materiality.

Reporting threshold We agreed with the directors that we would report to them

misstatements identified during our audit above $16,000 as well as

misstatements below that amount that, in our view, warranted reporting

for qualitative reasons.

54 | THE QUARTO GROUP, INC. ANNUAL REPORT 2022 | Governance

INDEPENDENT AUDITOR’S REPORT (continued)

As part of designing our audit, we assessed the risk of material misstatement in the financial statements, whether due to fraud or

error, and then designed and performed audit procedures responsive to those risks. In particular, we looked at where the

directors made subjective judgements, such as assumptions on significant accounting estimates.

We tailored the scope of our audit to ensure that we performed sufficient work to be able to give an opinion on the financial

statements as a whole. We used the outputs of our risk assessment, our understanding of the group and the parent company,

their environment, controls, and critical business processes, to consider qualitative factors to ensure that we obtained sufficient

coverage across all financial statement line items.

Our group audit scope included an audit of the group and the parent company financial statements. Based on our risk

assessment, we considered that the only significant components of the group were Quarto Publishing plc and Quarto Publishing

Group (USA) Inc. and these, along with the parent company, were subject to full scope audit. The audit of the parent company

and Quarto Publishing plc were performed by the group audit team. The audit of Quarto Publishing Group (USA) inc. was

performed by a component auditor, Mazars US. The full scope audits performed represent 100% of the group’s continuing

revenue for the year, 100% of the group’s total assets, and 99.1% of the group’s total liabilities. For the remaining components,

analytical procedures to respond to any potential risks of material misstatement to the Group financial statements were

performed by the group audit team.

At the parent company level, the group audit team also tested the consolidation process and carried out analytical procedures

to confirm our conclusion that there were no significant risks of material misstatement of the aggregated financial information.

Other information

The other information comprises the information included in the annual report other than the financial statements and our

auditor’s report thereon. The directors are responsible for the other information. Our opinion on the financial statements does

not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of

assurance conclusion thereon.

Our responsibility is to read the other information and, in doing so, consider whether the other information is materially

inconsistent with the financial statements or our knowledge obtained in the course of the audit or otherwise appears to be

materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to

determine whether this gives rise to a material misstatement in the financial statements themselves. If, based on the work we

have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact.

We have nothing to report in this regard.

Opinions on other matters prescribed by the Companies Act 2006, were it to apply to the parent company

In our opinion, the part of the directors’ remuneration report to be audited has been properly prepared in accordance with the

Companies Act 2006.

In our opinion, based on the work undertaken in the course of the audit:

• the information given in the strategic report and the directors’ report for the financial year for which the financial statements

are prepared is consistent with the financial statements and those reports have been prepared in accordance with applicable

legal requirements;

• the information about internal control and risk management systems in relation to financial reporting processes and about

share capital structures, given in compliance with rules 7.2.5 and 7.2.6 in the Disclosure Guidance and Transparency Rules

sourcebook made by the Financial Conduct Authority (the FCA Rules), is consistent with the financial statements and has been

prepared in accordance with applicable legal requirements; and

• information about the parent company’s corporate governance code and practices and about its administrative, management

and supervisory bodies and their committees complies with rules 7.2.2, 7.2.3 and 7.2.7 of the FCA Rules.

Matters on which we are required to report by exception, were the Companies Act 2006 to apply to the parent

company

In light of the knowledge and understanding of the group and the parent company and their environment obtained in the course

of the audit, we have not identified material misstatements in the:

• strategic report or the directors’ report; or

• information about internal control and risk management systems in relation to financial reporting processes and about share

capital structures, given in compliance with rules 7.2.5 and 7.2.6 of the FCA Rules.

Governance | THE QUARTO GROUP, INC. ANNUAL REPORT 2022 | 55

STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS

We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report

to you if, in our opinion:

• adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been

received from branches not visited by us; or

• the parent company financial statements and the part of the directors’ remuneration report to be audited are not in

agreement with the accounting records and returns; or

• certain disclosures of directors’ remuneration specified by law are not made; or

• we have not received all the information and explanations we require for our audit; or

• a corporate governance statement has not been prepared by the parent company.

Corporate governance statement

The Listing Rules require us to review the directors’ statement in relation to going concern, longer-term viability and that part of

the Corporate Governance Statement relating to The Quarto Group, Inc’s compliance with the provisions of the UK Corporate

Governance Statement specified for our review.

Based on the work undertaken as part of our audit, we have concluded that each of the following elements of the Corporate

Governance Statement is materially consistent with the financial statements or our knowledge obtained during the audit:

• Directors’ statement with regards the appropriateness of adopting the going concern basis of accounting and any material

uncertainties identified, set out on page 11;

• Directors’ explanation as to its assessment of the entity’s prospects, the period this assessment covers and why the period is

appropriate, set out on page 11;

• Directors’ statement on fair, balanced and understandable, set out on page 49;

• Board’s confirmation that it has carried out a robust assessment of the emerging and principal risks, set out on page 24;

• The section of the annual report that describes the review of effectiveness of risk management and internal control systems,

set out on page 24; and

• The section describing the work of the audit committee, set out on page 23.

Responsibilities of Directors

As explained more fully in the directors’ responsibilities statement set out on page 49, the directors are responsible for the

preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as

the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement,

whether due to fraud or error.

In preparing the financial statements, the directors are responsible for assessing the group’s and the parent company’s ability to

continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of

accounting unless the directors either intend to liquidate the group or the parent company or to cease operations, or have no

realistic alternative but to do so.

Auditor’s responsibilities for the audit of the financial statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material

misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is

a high level of assurance but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a

material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in

the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these

financial statements.

The extent to which our procedures are capable of detecting irregularities, including fraud is detailed below.

Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our

responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud.

Based on our understanding of the group and the parent company and their industry, we considered that non-compliance with

the following laws and regulations might have a material effect on the financial statements: employment regulation, health and

safety regulation and anti-money laundering regulation.

56 | THE QUARTO GROUP, INC. ANNUAL REPORT 2022 | Governance

INDEPENDENT AUDITOR’S REPORT (continued)

To help us identify instances of non-compliance with these laws and regulations, and in identifying and assessing the risks of

material misstatement in respect to non-compliance, our procedures included, but were not limited to:

• Gaining an understanding of the legal and regulatory framework applicable to the group and the parent company, the

industry in which they operate, and the structure of the group, and considering the risk of acts by the group and the parent

company which were contrary to the applicable laws and regulations, including fraud;

• Inquiring of the directors, management and, where appropriate, those charged with governance, as to whether the group

and the parent company is in compliance with laws and regulations, and discussing their policies and procedures regarding

compliance with laws and regulations;

• Reviewing minutes of directors’ meetings in the year;

• Inspecting correspondence with relevant licensing and regulatory authorities; and

• Discussing amongst the engagement team the laws and regulations listed above, and remaining alert to any indications of

non-compliance.

We also considered those laws and regulations that have a direct effect on the preparation of the financial statements, such as

tax legislation, pension legislation and the Companies Act 2006.

In addition, we evaluated the directors’ and management’s incentives and opportunities for fraudulent manipulation of the financial

statements, including the risk of management override of controls, and determined that the principal risks related to posting

manual journal entries to manipulate financial performance, management bias through judgements and assumptions in significant

accounting estimates, in particular in relation to the completeness and accuracy of the sales return provision for trade sales,

revenue recognition (which we pinpointed to the cut off of co-edition revenue) and significant, one-off or unusual transactions.

Our procedures in relation to fraud included but were not limited to:

• Making enquiries of the directors and management on whether they had knowledge of any actual, suspected or alleged fraud;

• Gaining an understanding of the internal controls established to mitigate risks related to fraud;

• Discussing amongst the engagement team the risks of fraud; and

• Addressing the risks of fraud through management override of controls by performing journal entry testing.

The primary responsibility for the prevention and detection of irregularities, including fraud, rests with both those charged with

governance and management. As with any audit, there remained a risk of non-detection of irregularities, as these may involve

collusion, forgery, intentional omissions, misrepresentations or the override of internal controls.

The risks of material misstatement that had the greatest effect on our audit are discussed in the “Key audit matters” section of

this report.

A further description of our responsibilities is available on the Financial Reporting Council’s website at www.frc.org.uk/

auditorsresponsibilities. This description forms part of our auditor’s report.

Other matters which we are required to address

Following the recommendation of the audit and risk committee, we were appointed by the Board on 8 July 2022 to audit the

financial statements for the year ending 31 December 2022 and subsequent financial periods.

The non-audit services prohibited by the FRC’s Ethical Standard were not provided to the group or the parent company and we

remain independent of the group and the parent company in conducting our audit.

Our audit opinion is consistent with our additional report to the audit committee.

Use of the audit report

This report is made solely to the company’s members as a body in accordance with Chapter 3 of Part 16 of the Companies Act

2006. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to

state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume

responsibility to anyone other than the company and the company’s members as a body for our audit work, for this report, or for

the opinions we have formed.

Claire Larquetoux (Senior Statutory Auditor)

for and on behalf of Mazars LLP

Chartered Accountants and Statutory Auditor

30 Old Bailey

London

EC4M 7AU

31 March 2023

THE QUARTO GROUP, INC. ANNUAL REPORT 2022

Financial Statements

Financial Statements | THE QUARTO GROUP, INC. ANNUAL REPORT 2022 | 57

STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS

Notes

2022

$000

2021

$000

Continuing operations

Revenue 2 141,017 151,483

Cost of sales (87,319) (103,897)

Gross profit 53,698 47,586

Administrative expenses (24,723) (22,314)

Impairment of financial assets 16 (69) (874)

Distribution costs (7,582) (8,439)

Operating profit before amortization of acquired intangibles and exceptional items 21,324 15,959

Amortization of acquired intangibles 13 — (7)

Exceptional items 5 774 —

Operating profit 4 22,098 15,952

Finance costs 7 (1,213) (1,796)

Profit before tax 20,885 14,156

Tax 8 (4,279) (4,230)

Profit for the year 16,606 9,926

Attributable to:

Owners of the parent 16,606 9,926

16,606 9,926

Earnings per share (cents)

Basic 9 40.6 24.3

Diluted 9 40.6 24.3

Adjusted earnings per share (cents)

Basic 9 37.8 24.3

Diluted 9 37.8 24.3

The notes on pages 62 to 88 are an integral part of these consolidated financial statements.

Consolidated Income Statement

FOR THE YEAR ENDED 31 DECEMBER 2022

58 | THE QUARTO GROUP, INC. ANNUAL REPORT 2022 | Financial Statements

Consolidated Statement of

Comprehensive Income

FOR THE YEAR ENDED 31 DECEMBER 2022

2022

$000

2021

$000

Profit for the year 16,606 9,926

Items that may be reclassified to profit or loss

Foreign exchange translation differences (2,475) (506)

Tax relating to items that may be reclassified to profit or loss — 66

Total other comprehensive income (2,475) (440)

Total comprehensive income for the year 14,131 9,486

Total comprehensive income for the year attributable to:

Owners of the parent 14,131 9,486

14,131 9,486

The notes on pages 62 to 88 are an integral part of these consolidated financial statements.

THE QUARTO GROUP, INC. ANNUAL REPORT 2022

Financial Statements

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STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS

Notes

2022

$000

2021

$000

Non-current assets

Property, plant and equipment

10 7,677 5,181

Goodwill

11 18,622 19,286

Intangible assets: Pre-publication costs

12 25,473 29,941

Other intangible assets

13 1 51

Deferred tax assets 18 1,835 2,436

Total non-current assets 53,608 56,895

Current assets

Inventories

15 21,826 20,393

Trade and other receivables

16 40,122 51,242

Cash and cash equivalents 17 13,290 28,432

Total current assets 75,238 100,067

Total assets 128,846 156,962

Current liabilities

Short term borrowings

17 (4,636) (5,438)

Trade and other payables

20 (33,869) (53,789)

Lease liabilities

19 (944) (1,363)

Tax payable (3,295) (7,467)

Total current liabilities (42,744) (68,057)

Non-current liabilities

Long term borrowings

17 (9,301) (28,508)

Deferred tax liabilities

18 (2,798) (3,130)

Tax payable

(386) (386)

Lease liabilities 19 (6,277) (3,672)

Total non-current liabilities (18,762) (35,696)

Total liabilities (61,506) (103,753)

Net assets

67,340 53,209

Equity

Share capital

23 4,089 4,089

Paid in surplus

23 48,701 48,701

Retained earnings and other reserves 24 14,550 419

Total equity

67,340 53,209

The notes on pages 62 to 88 are an integral part of these consolidated financial statements.

The financial statements were approved by the Board of Directors and authorized for issue on 28 March 2023. They were signed

on its behalf by:

Alison Goff

Director

31 March 2023

Consolidated Balance Sheet

AS AT 31 DECEMBER 2022

60 | THE QUARTO GROUP, INC. ANNUAL REPORT 2022 | Financial Statements

Consolidated Statement

of Changes in Equity

FOR THE YEAR ENDED 31 DECEMBER 2022

capital

$000

Paid

in surplus

$000

Translation

reserve

$000

Retained

earnings

$000

Equity

attributable

to owners

of the

parent

$000

Balance at 1 January 2021 4,089 48,701 (5,607) (3,470) 43,713

Profit for the year — — — 9,926 9,926

Other comprehensive income

Foreign exchange translation differences — — (506) — (506)

Tax relating to items that may be reclassified to profit or

loss

— — 66 — 66

Total comprehensive income for the year — — (440) 9,926 9,486

Transactions with owners

Share based payments — — — 10 10

Total transactions with owners for the year — — — 10 10

Balance at 31 December 2021 4,089 48,701 (6,047) 6,466 53,209

Profit for the year — — — 16,606 16,606

Other comprehensive income

Foreign exchange translation differences — — (2,475) — (2,475)

Tax relating to items that may be reclassified to profit

or loss

— — — — —

Total comprehensive income for the year — — (2,475) 16,606 14,131

Transactions with owners

Share based payments — — — — —

Total transactions with owners for the year — — — — —

Balance at 31 December 2022 4,089 48,701 (8,522) 23,072 67,340

The notes on pages 62 to 88 are an integral part of these consolidated financial statements.

THE QUARTO GROUP, INC. ANNUAL REPORT 2022

Financial Statements

Financial Statements | THE QUARTO GROUP, INC. ANNUAL REPORT 2022 | 61

STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS

Notes

2022

$000

Restated

2021

$000

Profit after tax 16,606 9,926

Adjustments for:

Net finance costs 7 1,213 1,796

Depreciation of property, plant and equipment 10 2,029 1,741

Software amortization 13 50 101

Tax expense 8 4,279 4,230

Impairment of right-of-use assets 10 228 —

Share based payments 23 — 10

Amortization of acquired intangibles 13 — 7

Forgiveness of Cares Act loan 5 (2,272) —

Loss on disposal of SmartLab 5 1,498 —

Loss on disposal of property, plant and equipment 10 3 —

Amounts expensed work-in-progress 12 2,875 4,433

Amortization and impairment of pre-publication costs 12 16,331 26,567

Operating cash flows before movements in working capital 42,840 48,811

Increase in inventories 15 (3,299) (5,036)

Decrease/(increase) in receivables 16 8,594 (7,106)

(Decrease)/increase in payables 20 (17,119) 4,035

Cash generated by operations 31,016 40,704

Income taxes paid 8 (7,561) (3,053)

Net cash from operating activities 23,455 37,651

Investing activities

Proceeds from disposal of SmartLab 5 1,437 —

Investment in pre-publication costs 12 (18,067) (20,229)

Purchases of property, plant and equipment 10 (1,238) (111)

Net cash used in investing activities (17,868) (20,340)

Financing activities

Interest payments 17 (397) (1,866)

Lease payments 17 (1,708) (1,426)

Drawdown of revolving credit facility and other loan 17 1,500 22,994

Repayment of term loan and revolving credit facility 17 (19,693) (30,840)

Net cash used in financing activities (20,298) (11,138)

Net (decrease)/increase in cash and cash equivalents (14,711) 6,173

Cash and cash equivalents at beginning of year 28,432 22,079

Foreign currency exchange differences on cash and cash equivalents (431) 180

Cash and cash equivalents at end of year 13,290 28,432

1 Pre-publication costs for 2021 have now been split between work-in-progress and published product.

The notes on pages 62 to 88 are an integral part of these consolidated financial statements.

Consolidated Cash Flow Statement

FOR THE YEAR ENDED 31 DECEMBER 2022

62 | THE QUARTO GROUP, INC. ANNUAL REPORT 2022 | Financial Statements

Notes to the Financial Statements

1 General information and significant accounting policies

The Quarto Group, Inc. is a company incorporated in the State of Delaware, United States. The address of the registered office is

given on page 96. The nature of the Group’s operations and its principal activities are set out in the Chief Executive Officer’s

Statement on page 5.

Each entity in the Group determines its own functional currency and items included in the financial statements of each entity are

measured using that functional currency. The presentational currency of the Group is US dollars.

A) STATEMENT OF COMPLIANCE

The Group financial statements consolidate those of the Company and its subsidiaries (together referred to as the ‘Group’). The

parent company financial statements present information about the Company as a separate entity and not about its Group.

The Group financial statements have been prepared and approved by the Directors in accordance with ‘UK Adopted’

International Financial Reporting Standards (‘IFRS’). The Company has elected to prepare its parent company financial

statements in accordance with UK GAAP, including The Financial Reporting Standard applicable in the UK and Republic of Ireland

(‘FRS 102’). These are presented on pages 89 to 94.

B) BASIS OF ACCOUNTING

The financial statements are prepared on the historical cost basis.

C) STANDARDS, AMENDMENTS AND INTERPRETATIONS TO EXISTING STANDARDS

The Group has applied the following new standards and interpretations for the first time for the annual reporting period ending

31 December 2022:

• IAS 16 Property, Plant and Equipment (Amendment): Proceeds before Intended Use

• IAS 37 Provisions, Contingent Liabilities and Contingent assets (Amendment): Onerous Contracts: Cost of Fulfilling a Contract

• IFRS 3 Business Combinations (Amendment): Reference to the Conceptual Framework

• Annual Improvements Cycle 2018 to 2020

The adoption of the standards and interpretations listed above has not led to any changes to the Group’s accounting policies or

had any material impact on the financial position or performance of the Group.

Standards issued but not yet effective

At the date of authorization of these financial statements, the following standards and interpretations relevant to the Group and

which have not been applied in the financial statements, were in issue but were not yet effective.

IFRS standards effective from 1 January 2023 onwards

• IAS 1 Amendment: Disclosure of Accounting Policies

• IAS 8 Amendment: Definition of Accounting Estimates

• IAS 1 Amendment: Classification of Liabilities as Current or Non-current and Non-current Liabilities with Covenants

• IAS 12 Amendment: Deferred Tax related to Assets and Liabilities arising from a Single Transaction

• IFRS 16 Amendment: Lease Liability in a Sale and Leaseback

The adoption of the above mentioned standards, amendments and interpretations in future years are not expected to have a

material impact on the Group or Company’s financial statements.

D) SIGNIFICANT ACCOUNTING ESTIMATES AND JUDGEMENT

The preparation of financial statements in conformity with IFRS requires management to make judgements, estimates and

assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The

estimates and associated assumptions are based on historical experience and various other factors that are believed to be

reasonable under the circumstances. Actual results may differ from these estimates. The estimates and underlying assumptions

are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the year in which the estimate is revised if

the revision affects only that year or in the year of the revision and future years if the revision affects both current and future

years.

Key estimates at the balance sheet date are:

GOODWILL

Note 11:

Management makes estimates and assumptions in measuring the carrying amount of goodwill. In considering whether goodwill

has been impaired, the recoverable amount of cash generating units has been determined based on value in use calculations.

These calculations require management to estimate future cash flows, a long-term growth rate and an appropriate discount

rate. The sensitivity of the carrying amount of goodwill to these variables is considered.

THE QUARTO GROUP, INC. ANNUAL REPORT 2022

Financial Statements

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STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS

INTANGIBLE ASSETS

Note 12:

Management makes estimates and assumptions in relation to intangible assets. The capitalisation of these assets and the

related amortization and impairment charges are based on estimates about the value and economic life of such items. We use a

50% reducing balance method of amortization.

Work-in-progress is reviewed throughout the year and at each balance sheet date, to ascertain if any carrying value exists per

title. If the title has no future economic value, the full value of the individual asset is expensed. During the year, a charge of

$2.875m broken down between the US $1.640m and the UK $1.235m (2021: $4.433m US $2.108m UK $2.325m) was recognised in

cost of sales in the Consolidated Income Statement.

The carrying amount of the intangible assets is reviewed at each balance sheet date to determine whether there is any

indication of impairment. At the end of 2022, published products are reviewed to ensure the asset’s carrying value is the higher

of the fair value, reflecting market conditions less cost costs to sell and value in use based on an internal discounted cash flow

valuation. During the year a reversal of impairment of $0.729m broken down between the US $0.608m and the UK $0.121m (2021:

impairment $6.759m US $3.066m UK $3.693m) was recognised in cost of sales in the Consolidated Income Statement.

SALES RETURNS ALLOWANCE

Note 1, 2, 20:

On certain contracts, the customer has a right to return the products. The Group makes an allowance for this, based on a review

of the historical return patterns associated with each customer, as well as current market trends. Over the last two years, actual

returns reduced on average by 28% year on year, which the directors believe was due initially to logistic and distribution issues

that resulted in a significant backlog of returns in 2020 and more recently a change in customers buying on a just in time basis.

The sales returns provision period, being the period that sales and returns are reviewed to form an expectation of the sales

return percentage, was extended in 2021 from 1 year to 3 years with equal weighting given to each year. The estimated period

that returns are made from the point of sale remains at 6 months, being the final six months of the financial year. The returns

provision for the group was $4.875m at 31 December 2022 which in accordance with the requirements of IFRS 15 - Revenue from

Contracts with Customers, represents a weighted expectation of returns and the estimation of the variable income as a result of

the sales returns has been constrained to the extent that it is highly probable that there will not be a significant reversal in the

amount of cumulative revenue recognized.

This allowance is included within other payables. The Group also recognize an asset in relation to stock which is expected to be

returned within inventory, based on average print margins and an additional allowance for unsaleable returns.

Key judgement at the balance sheet date is:

PROPERTY LEASES

During 2022, new premises were entered into and the assumption was made that the termination date would be the break

clause in the lease, which is consistent with management’s expectations of when the lease is most likely to be exited.

E) GOING CONCERN BASIS

The Board assessed the Group’s ability to operate as a going concern for at least the next 12 months from the date of signing the

financial statements.

The Directors have considered the underlying robustness of the Group’s business model, products and proposition and its recent

trading performance, cash flows and key performance indicators. They have also reviewed the cash forecasts prepared in detail

to 31 March 2024. Within the forecast, all future loan repayments are consistent with the loan agreements in place. This is to satisfy

themselves of the going concern assumption used in preparing the financial statements. The base case model was built using a

detailed sales forecast driven by the publishing program for 2023. Trade receivable days remaining consistent with 2022.

As part of this work, the model was sensitized initially by a 5% reduction in revenue to ensure headroom within the covenants.

This is deemed as a severe but plausible scenario. Management performed a reverse stress test to assess the point in which the

banking covenants were breached. This occurred at a reduction in revenue of 13%. It is considered unlikely that such a reduction

of revenue would occur, given, sales dropped 7% in 2022 and dropped 7% during 2020. Should we start to see a reduction in

revenue, then mitigating action will be taken, such as reduction in investment in pre-publication costs, print volumes, staffing

levels and other variable costs.

Based on the above indications, the Directors believe that it remains appropriate to continue to adopt the going concern in

preparing the financial statements.

1 General information and signicant accounting policies (continued)

D) SIGNIFICANT ACCOUNTING ESTIMATES AND JUDGEMENT (continued)

64 | THE QUARTO GROUP, INC. ANNUAL REPORT 2022 | Financial Statements

1 General information and signicant accounting policies (continued)

NOTES TO THE FINANCIAL STATEMENTS (continued)

F) BASIS OF CONSOLIDATION

The Group financial statements include the results of the Company and all of its subsidiary undertakings. A subsidiary is an entity

controlled, directly or indirectly, by the Group. Control is the power to govern the financial and operating policies of the entity so

as to obtain benefits from its activities. The financial statements of subsidiaries are included in the consolidated financial

statements from the date that control commences until the date that control ceases.

Intragroup balances and any unrealized gains and losses or income and expenses arising from intra-group transactions are

eliminated in preparing the consolidated financial statements.

The interest of non-controlling interests on an acquisition is initially measured at the minority’s proportion of the net fair value of

the assets, liabilities and contingent liabilities recognized.

G) BUSINESS COMBINATIONS, INTANGIBLE ASSETS AND GOODWILL

All business combinations are accounted for by applying the acquisition method. Goodwill represents the excess of the

consideration transferred over the fair value of the net assets and any contingent liabilities acquired. Acquisition costs are

expensed as incurred.

Goodwill arising on acquisitions is stated at cost less any accumulated impairment losses. Goodwill is allocated to cash-

generating units and is tested annually for impairment. Quarto identifies its cash-generating units based on its operating model

and how data is collected and reviewed for management reporting and strategic planning purposes, in accordance with IAS36

- Impairment of Assets. Corporate overheads have been divided between cash-generating units and factored into the value in

use calculation.

Other intangible assets, such as backlists, that are acquired by the Group are stated at cost less accumulated amortization and

impairment losses.

Amortization of intangible assets is charged to profit or loss on a straight-line basis over the estimated useful lives of the

intangible assets. The amortization period for backlists is 5 years and for software is 4 years.

H) IMPAIRMENT OF PROPERTY, PLANT AND EQUIPMENT AND INTANGIBLE ASSETS INCLUDING GOODWILL

The carrying amount of the Group’s assets is reviewed at each balance sheet date to determine whether there is any indication

of impairment. If any such indication exists, the asset’s recoverable amount is estimated. The recoverable amount is the higher

of fair value, reflecting market conditions less costs to sell, and value in use based on an internal discounted cash flow valuation.

For goodwill, the recoverable amount is estimated at each balance sheet date. An impairment loss is recognized whenever the

carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. Impairment losses are recognized in

profit or loss.

I) SEGMENT REPORTING

The Group has two operating segments: US Publishing and UK Publishing. In identifying these operating segments,

management follows the information provided to the chief operating decision maker of our business which relates to the two

geographical locations. The two segments are managed separately and focus on different geographic markets. For

management purposes, the Group uses the same measurement policies as those used in its financial statements.

J) REVENUE RECOGNITION

Revenue arises largely from the sale of physical products. To determine whether to recognize revenue, the Group considers the

following criteria:

• Identifying the contract with a customer

• Identifying the performance obligations

• Determining the transaction price

• Allocating the transaction price to the performance obligations

• Recognizing revenue as/when performance obligations are satisfied

THE QUARTO GROUP, INC. ANNUAL REPORT 2022

Financial Statements

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STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS

1 General information and signicant accounting policies (continued)

J) REVENUE RECOGNITION (continued)

Products

For sales of products, each is for an agreed price and revenue is recognized at a point in time when the Group satisfies

performance obligations by transferring the products to its customers. This is determined with reference to delivery terms. This

could be acceptance of the product by the customers freight forwarder or received into the customers warehouse directly.

Invoices for products transferred are due on the terms specified in the contract. Contracts can span over 1 year. Where invoices

are issued prior to transfer of the product to the customer, and there are unconditional rights to consideration the amounts

invoiced are recorded as contract liabilities on the balance sheet, under deferred Income. In most cases this contract liability will

be recognized within 12 months. When the product has been transferred to the customer, the liabilities are released and treated

as revenue accordingly.

On certain contracts, the customer has a right to return the products. The Group makes an allowance for this, based on a review

of the historical return patterns associated with the customer, as well as current market trends. The estimated returns period is a

key input of the returns allowance and is calculated by reference to historic returns data. The estimated returns period for the

current and prior year is 6 months. The estimation of the variable income as a result of the sales returns is constrained to the

extent that it is deemed highly probable that there will be no significant reversal in the amount of cumulative revenue

recognized. This allowance is included within other payables. The Group also recognize an asset in relation to stock which is

expected to be returned within inventory, based on average print margins and an additional allowance for unsaleable returns.

Publishing rights

Revenue from the sale of publishing rights is recognized at the point in time when the Group has performed all contractual

obligations under the contract and the customer is able to use and benefit from the right to use the license. The sale of

publishing rights includes the right to future sales based royalties. Revenue generated from the sales based royalties, is only

recognized net of the initial royalty paid. Quarto licences the intellectual property rights to the customer on a right to use basis.

This allows the customer to use the intellectual property as detailed in the contract. Once the term of the contract has expired,

the licence becomes cancelled.

K) FOREIGN CURRENCIES

Transactions in foreign currencies are translated at the foreign exchange rate ruling at the date of the transaction. Monetary

assets and liabilities denominated in foreign currencies at the balance sheet date are translated at the exchange rate ruling at

that date with any exchange differences arising on retranslation being recognized in the income statement.

The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on consolidation, are

translated into US Dollars at exchange rates ruling at the balance sheet date. The revenues and expenses of foreign operations

are translated into US Dollars at average exchange rates. Foreign exchange differences arising on retranslation are charged or

credited to other comprehensive income and are recognized in the currency translation reserve in equity. On disposal of a

foreign operation, the related cumulative translation differences recognized in equity are reclassified to profit or loss and are

recognized as part of the gain or loss on disposal.

L) EXCEPTIONAL ITEMS

Exceptional items are those which the Group defines as significant items outside the scope of normal business that need to be

disclosed by virtue of their size or incidence.

M) RETIREMENT BENEFIT COSTS

The Group’s pension costs relate to individual pension plans and are charged to profit or loss as they fall due.

N) TAXATION

Tax on the profit or loss for the year comprises both current and deferred tax. Current tax is the expected tax payable on the

taxable income for the year, using tax rates enacted or substantively enacted at the balance sheet date, and any adjustments to

tax payable in respect of previous years. Tax provisions are based on Management’s interpretation of country specific tax law

and recognized when it is considered probable that there will be a future outflow of funds to a tax authority. Provisions are made

annually based on the specific information available at that time and therefore there is limited risk of change in the estimates in

the short term. Deferred tax is provided using the balance sheet liability method, providing for temporary differences between

the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes.

However, deferred tax is not provided on the initial recognition of goodwill, nor on the initial recognition of an asset or a liability

unless the related transaction is a business combination or affects tax or accounting profit. Not all temporary differences give

rise to deferred tax assets/liabilities. A deferred tax asset is recognized only to the extent that it is probable that future taxable

profits will be available against which the asset can be utilized. Changes in deferred tax assets or liabilities are recognized as a

component of tax expense in the income statement, except where they relate to items that are charged or credited directly to

other comprehensive income or equity, in which case the related deferred tax is also charged or credited directly to other

comprehensive income or equity, respectively.

66 | THE QUARTO GROUP, INC. ANNUAL REPORT 2022 | Financial Statements

1 General information and signicant accounting policies (continued)

NOTES TO THE FINANCIAL STATEMENTS (continued)

O) PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment are stated at cost less accumulated depreciation and any provision for impairments in value.

Depreciation is provided on a straight-line basis to write off the cost, less the estimated residual value, of property, plant and

equipment over their estimated useful lives, which are reviewed annually. Where parts of an item of plant and equipment have

separate lives, they are accounted for and depreciated as separate items. Residual values are reassessed on an annual basis.

Estimated useful lives are as follows:
Right-of-use assets	Over the period of the lease
Short term leasehold property improvements	Over the period of the lease
Plant, equipment and motor vehicles	4 to 10 years
Fixtures and fittings	5 to 7 years

In the case of right-to-use assets, expected useful lives are determined by reference to comparable owned assets or the lease

term, if shorter. Material residual value estimates and estimates of useful life are updated as required, but at least annually.

The gain or loss arising on the disposal or retirement of an asset is determined as the difference between the sales proceeds

and the carrying amount of the asset and is recognized in income.

P) LEASED ASSETS

For any new contracts entered into on or after 1 January 2021, the Group considers whether a contract is, or contains, a lease. A

lease is defined as a ‘contract, or part of a contract, that conveys the right to use an asset for a period of time in exchange for

consideration’. To apply this definition the Group assesses whether the contract meets three key evaluations which are whether:

• the contract contains an identified asset, which is either explicitly identified in the contract or implicitly specified by being

identified at the time the asset is made available to the Group

• the Group has the right to obtain substantially all of the economic benefits from use of the identified asset throughout the

period of use, considering its rights within the defined scope of the contract

• the Group has the right to direct the use of the identified asset throughout the period of use. The Group assess whether it has

the right to direct ‘how and for what purpose’ the asset is used throughout the period of use.

At lease commencement date, the Group recognizes a right-of-use asset and a lease liability on the balance sheet. The right-of-

use asset is measured at cost, which is made up of the initial measurement of the lease liability, any direct costs incurred by the

Group, an estimate of any costs to dismantle and remove the asset at the end of the lease, and any lease payments made in

advance of the lease commencement date (net of any incentives received).

The Group depreciates the right-of-use assets on a straight-line basis from the lease commencement date to the earlier of the

end of the useful life of the right-of-use asset or the end of the lease term. The Group also assesses the right-of-use asset for

impairment when such indicators exist.

At the commencement date, the Group measures the lease liability at the present value of the lease payments unpaid at that

date, discounted using the interest rate implicit in the lease if that rate is readily available or the Group’s incremental borrowing

rate. The Group’s incremental borrowing rate reflects the marginal interest rates available to the Group, in the countries in which

the assets reside. Lease payments included in the measurement of the lease liability are made up of fixed payments, variable

payments based on an index or rate, amounts expected to be payable under a residual value guarantee and payments arising

from options reasonably certain to be exercized. Subsequent to initial measurement, the liability will be reduced for payments

made and increased for interest. It is remeasured to reflect any reassessment or modification, or if there are any changes in

in-substance fixed payments. When the lease liability is remeasured, the corresponding adjustment is reflected in the right-of-

use asset, or profit and loss if the right-of-use asset is already reduced to zero.

The Group has elected to account for short-term lease and leases of low-value assets using the practical expedients. Instead of

recognizing a right-of-use asset and lease liability, the payments in relation to these are recognized as an expense in profit or

loss on a straight-line basis over the lease term.

On the statement of financial position, right-of-use assets have been included in property, plant and equipment and lease

liabilities are disclosed separately.

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STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS

1 General information and signicant accounting policies (continued)

Q) INTANGIBLE ASSETS - PRE-PUBLICATION COSTS

Pre-publication costs represent directly attributable costs and attributable overheads incurred in the development of book titles

prior to their publication. Attributable overheads are allocated on a title by title basis. These costs are recognized as non-current

intangible assets in accordance with IAS38 - Intangible Assets, where the book title will generate future economic benefits and

costs can be measured reliably. Management has made judgements and assumptions when assessing the estimated economic

life attributed to such titles. The capitalisation of these assets and the related amortization charges are based on judgements

about the value and economic life of such items. The amortization rate used in 2022 was a 50% reducing balance basis.

Pre-publication costs are initially recorded as work-in-progress and are transferred to Published products on publication of the

book, at which point amortization commences. Management regularly review all unpublished titles, to ensure they meet our

economic expectations. WIP costs are impaired accordingly if required.

R) INVENTORIES

Inventory is valued at the lower of cost and net realizable value, on a weighted average cost basis. Net realizable value is the

estimated selling price in the ordinary course of business, less estimated costs of completion and selling expenses.

S) FINANCIAL INSTRUMENTS

Financial assets and financial liabilities are recognized on the Group’s balance sheet when the Group becomes a party to the

contractual provisions of the instrument.

T) FINANCIAL ASSETS

Financial assets are measured at amortized cost using the effective interest method.

Financial assets are assigned to the different categories on initial recognition, depending on the characteristics of the

instrument and its purpose. A financial instrument’s category is relevant for the way it is measured and whether any resulting

income and expenses is recognized in profit or loss or directly in equity. See note 21 for a summary of the Group’s financial assets

by category.

Generally, the Group recognizes all financial assets using trade date accounting. An assessment of whether a financial asset is

impaired is made at least at each reporting date. All income and expense relating to financial assets are recognized in the

income statement line item ‘finance costs’ or ‘finance income’, respectively, with the exception of trade and other receivables

which are recorded in revenue and administrative expenses.

After initial recognition, Financial Assets are measured at amortized cost using the effective interest method. Discounting is

ignored, where the effect is immaterial. The Group’s cash and cash equivalents, trade and most other receivables, fall into this

category of financial instrument. Assets in this category are measured, initially, at their transaction price with gains or losses

recognized in profit or loss.

In considering impairment of financial assets, the group uses a wide range of information when assessing credit risk and

measuring credit losses, including past events, current conditions, reasonable and supportable forecasts that affect the

expected collectability of future cash flows of the instrument.

The Group adopts a simplified approach in accounting for trade and other receivables and records the loss allowance as lifetime

expected credit losses. These are the expected shortfalls in contractual cash flows, considering the potential for default at any

point during the life of the financial instrument. The Group uses its historical experience, external indicators and forward-looking

information to calculate the expected credit losses using a provision matrix.

U) FINANCIAL LIABILITIES

The Group’s financial liabilities include borrowings, trade and other payables (including lease liabilities).

After initial recognition at fair value, all financial liabilities, with the exception of derivative financial instruments, are measured at

amortized cost using the effective interest rate method. A summary of the Group’s financial liabilities by category is given in note 21.

68 | THE QUARTO GROUP, INC. ANNUAL REPORT 2022 | Financial Statements

1 General information and signicant accounting policies (continued)

NOTES TO THE FINANCIAL STATEMENTS (continued)

V) FINANCIAL LIABILITIES AND EQUITY INSTRUMENTS

Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered

into. An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of

financial liabilities.

W) FINANCE COSTS

Finance costs comprise interest payable on borrowings calculated using the effective interest method together with the

amortization of debt issuance costs.

X) CASH AND CASH EQUIVALENTS

For the purposes of the statement of cash flows, cash and cash equivalents comprise cash balances, call deposits and bank

overdrafts that form an integral part of the Group’s cash management processes.

Y) SHARE-BASED PAYMENTS

The Group issues equity settled share-based payments to certain employees. Equity settled share-based payments are

measured at fair value at the date of grant. The fair value, determined at the grant date, of equity settled share-based payments

is expensed on a straight-line basis over the vesting period, based on the Group’s estimate of shares that will eventually vest.

The fair value of employee share option grants is calculated using a Monte Carlo model, taking into account the terms and

conditions upon which the options were granted. The value of the charge is adjusted to reflect expected and actual levels

of options vesting.

Z) BORROWING COSTS AND FINANCIAL RISK MANAGEMENT

All borrowing costs are recognized in the income statement in the period in which they are incurred. Debt issuance costs

comprising arrangement fees and legal costs are capitalized and amortized on a straight-line basis over the period of the

borrowing facility or included within the amortized cost calculation as appropriate. The annual amortization charge is included

within finance costs in the Consolidated Statement of Comprehensive Income.

No borrowing costs have been capitalized in the current or prior years in relation to any asset.

The principal risk factors faced by the Group are disclosed in note 21.

2 External revenue

	Products
		Publishing
		Rights	Total	Products
					Publishing
					Rights	Total
	2022
	$000
		2022
		$000
			2022
			$000
				2021
				$000
					2021
					$000
						2021
						$000
Sales	136,026	4,991	141,017	147,939	3,544	151,483

See accounting policies for detail of the revenue recognition concerning the above revenue streams.

During the year, sales to one customer exceeded 10% of Group revenue (2021: one customer). The value of these sales was

$30.6m (2021: $39.0m).

3 Operating segments

The core publishing businesses comprises two divisions: US Publishing and UK Publishing. This is the basis on which operating results

are reviewed and resources allocated by the Chief Executive Officer, who is deemed to be the chief operating decision maker.

THE QUARTO GROUP, INC. ANNUAL REPORT 2022

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STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS

2022
	US Publishing
	$000
		UK Publishing
		$000
			Total Group
			$000
Continuing operations:
External revenue	75,329	65,688	141,017
Operating profit before amortization of acquired intangibles, exceptional items and
unallocated corporate expenses
	10,608	11,875	22,483
Amortization of acquired intangibles	—	—	—
Segment result before amortization of acquired intangibles, exceptional items and
unallocated corporate expenses
	10,608	11,875	22,483
Unallocated corporate expenses			(1,159)
Corporate exceptional items			774
Operating profit			22,098
Finance costs			(1,213)
Profit before tax			20,885
Tax			(4,279)
Profit after tax			16,606
Capital expenditure	20	1,218	1,238
Disposals excluding right-of-use assets	(1,277)	(1,116)	(2,393)
Depreciation and software amortization	(1,195)	(884)	(2,079)
Depreciation on disposals	1,274	1,116	2,390
Investment in pre-publication costs	9,681	8,386	18,067
Amounts expensed work-in-progress	(1,640)	(1,235)	(2,875)
Amortization and impairment of pre-publication costs	(7,907)	(8,424)	(16,331)
Deferred income released	1,444	10,649	12,093

2021
	Restated
	1
	US Publishing
	$000
		Restated
		1
		UK Publishing
		$000
			Restated
			1
			Total Group
			$000
Continuing operations:
External revenue	81,062	70,421	151,483
Operating profit before amortization of acquired intangibles, exceptional items
and unallocated corporate expenses
	10,024	7,001	17,025
Amortization of acquired intangibles	(7)	—	(7)
Segment result before amortization of acquired intangibles, exceptional items and
unallocated corporate expenses
	10,017	7,001	17,018
Unallocated corporate expenses
			(1,066)
Corporate exceptional items			—
Operating profit
			15,952
Finance costs			(1,796)
Profit before tax
			14,156
Tax			(4,230)
Profit after tax			9,926
Capital expenditure
	39	72	111
Disposals excluding right-of-use assets
	(44)	—	(44)
Depreciation and software amortization
	(1,399)	(443)	(1,842)
Depreciation on disposals
	44	—	44
Investment in pre-publication costs
	10,280	9,949	20,229
Amounts expensed work-in-progress	(2,108)	(2,325)	(4,433)
Amortization and impairment of pre-publication costs
	(12,330)	(14,237)	(26,567)
Deferred income released
	1,811	10,617	12,428

1 Pre-publication costs for 2021 have now been split between work-in-progress and published product.

The revenue in the above table has been allocated by country of destination, whilst the non-current assets have been allocated by

location.

3 Operating segments (continued)

70 | THE QUARTO GROUP, INC. ANNUAL REPORT 2022 | Financial Statements

3 Operating segments (continued)

NOTES TO THE FINANCIAL STATEMENTS (continued)

BALANCE SHEET

	2022
	$000
		2021
		$000
Quarto Publishing Group USA	65,945	54,313
Quarto Publishing Group UK	49,590	71,877
Unallocated (Deferred tax and cash)	13,311	30,772
Total assets	128,846	156,962
Quarto Publishing Group USA	21,175	28,472
Quarto Publishing Group UK	22,265	30,351
Unallocated (Deferred tax, corporation tax and debt)	18,066	44,930
Total liabilities	61,506	103,753

GEOGRAPHICAL AREAS

The Group operates in the following main geographic areas:

		Revenue		Non-current assets
	2022
	$000
		2021
		$000
			2022
			$000
				2021
				$000
United States of America	85,397	93,399	28,908	31,333
United Kingdom	17,052	20,241	22,865	23,126
Europe	23,099	21,204	—	—
Rest of the world	15,469	16,639	—	—
	141,017	151,483	51,773	54,459

4 Operating profit

Whilst costs have been shown on the Income statement by function within the company, the following table shows costs

grouped by nature:

	2022
	$000
		Restated
		1
		2021
		$000
Direct costs
Purchase of goods and changes in inventories	57,071	61,414
Royalties and product development	11,042	11,483
Amounts expensed work-in-progress (note 12)	2,875	4,433
Amortization and impairment of pre-publication costs (note 12)	16,331	26,567
	87,319	103,897
Operating costs
Staff	13,366	14,651
Depreciation of property, plant and equipment (note 10)	2,029	1,741
Software amortization (note 13)	50	101
Distribution Costs	7,582	8,439
Marketing Costs	4,243	4,461
Impairment of losses of financial assets	69	874
Other	5,035	1,360
	32,374	31,627

1 Pre-publication costs for 2021 have now been split between work-in-progress and published product.

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STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS

4 Operating profit (continued)

AUDITOR’S REMUNERATION

	2022
	$000
		2021
		$000
Fees payable to the Company’s auditor for the audit of the Company’s annual accounts	150	142
Fees payable to the Company’s auditor and its associates for the audit of subsidiary companies	210	223
	360	365

5 Exceptional items

	2022
	$000
		2021
		$000
Smartlab disposal	(1,498)	—
Cares Act loan forgiveness	2,272	—
	774	—

On 30 August 2022, the Group publicly announced that we were committed to sell SmartLab, our toy imprint. On 1 September

2022, the intellectual property of SmartLab to the value of $1.826m was sold for $0.5m. Sales were continued to be made until 29

November 2022, when the inventory on hand of $1.1m was sold at cost for $1.088m. The overall loss on disposal was $1.498m after

incurring legal fees of $31k and redundancy costs of $120k.

During 2022, the Cares Act loan of $2.422m relating to government support given under the Coronavirus Aid, Relief and

Economic Security Act of the USA, was forgiven to the value of $2.272m.

6 Staff costs

	2022
	Number
		2021
		Number
Average monthly number of employees (excluding Executive Directors)	305	304
	$000	$000
Wages and salaries	22,537	23,107
Share-based credits	—	(38)
Social security costs	2,215	2,214
Other pension costs	835	918
	25,587	26,201

Directors’ remuneration is disclosed in the Remuneration Committee Report on page 33.

Total emoluments for Directors were:

	2022
	$000
		2021
		$000
Short term employee benefits	669	900
Long term employee benefits	—	281
Termination benefits	144	29
Post-employment benefits	41	50
	854	1,260

The Directors’ remuneration disclosed above included the following amounts earned in respect of the highest paid director:

	2022
	$000
		2021
		$000
Short term employee benefits	356	620
Post-employment benefits	27	20
	383	640

72 | THE QUARTO GROUP, INC. ANNUAL REPORT 2022 | Financial Statements

6 Staff costs (continued)

NOTES TO THE FINANCIAL STATEMENTS (continued)

The Group considers key management personnel as defined under IAS 24 - Related Party Disclosures to be Directors of the

company, this includes Non-Executive Directors and those having authority and responsibility for planning, directing and

controlling the activities of Quarto, which will include key personnel such as the Group Finance Director and Group Sales

Directors.

Total emoluments for Executive Directors and other key personnel were:

	2022
	$000
		2021
		$000
Short term employee benefits	1,031	1,366
Long term employee benefits	409	281
Termination benefits	144	29
Post-employment benefits	61	88
	1,645	1,764

7 Finance costs

	2022
	$000
		2021
		$000
Interest expense on borrowings	778	1,399
Amortization of debt issuance costs and bank fees	70	85
Interest expense on lease liabilities	365	276
Other interest	—	36
	1,213	1,796

8 Taxation

	2022
	$000
		2021
		$000
Corporation tax
Current tax	3,477	6,209
Prior periods	201	—
Total current tax	3,678	6,209
Deferred tax (note 18)
Origination and reversal of temporary differences	601	(1,979)
Total tax expense	4,279	4,230

Corporation tax on UK profits is calculated at 19%, based on the UK standard rate of corporation tax (2021: 19%) of the estimated

assessable profit for the year. An increase in the UK corporation rate from 19% to 25% is effective 1 April 2023. Taxation for other

jurisdictions is calculated at the rates prevailing in the respective jurisdictions. The table below explains the difference between

the expected expense at the UK statutory rate of 19% and the Group’s total tax expense for the year.

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STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS

8 Taxation (continued)

	2022
	$000
		2021
		$000
Profit before tax	20,885	14,156
Tax at the UK corporation tax rate of 19% (2021: 19%)	3,968	2,690
Effect of different tax rates of subsidiaries operating in other jurisdictions	813	1,058
Tax effect of items that are not deductible in determining taxable profit	(10)	(16)
Tax effect of non-taxable items	(587)	—
Adjustment to prior years	201	—
Other	(106)	498
Tax expense	4,279	4,230
Effective tax rate	20.5%	29.9%

9 Earnings per share

	2022
	$000
		2021
		$000
From continuing operations
Profit for the year	16,606	9,926
Amortization of acquired intangibles (net of tax)	—	5
Exceptional items (net of tax)	(1,160)	—
Earnings for the purposes of adjusted earnings per share	15,446	9,931

Number of shares	Number	Number
Weighted average number of ordinary shares	40,889,100	40,889,100
Diluted weighted average number of ordinary shares	40,889,100	40,889,100
Earnings per share (cents) – continuing operations
Basic	40.6	24.3
Diluted	40.6	24.3
Adjusted earnings per share (cents)
Basic	37.8	24.3
Diluted	37.8	24.3

74 | THE QUARTO GROUP, INC. ANNUAL REPORT 2022 | Financial Statements

NOTES TO THE FINANCIAL STATEMENTS (continued)

10 Property, plant and equipment

Cost
	Short-term
	Leasehold
	Improvements
	$000
		Right-of-use
		Leasehold
		Property
		$000
			Plant,
			Equipment
			and Motor
			Vehicles
			$000
				Fixture and
				Fittings
				$000
					Total
					$000
At 1 January 2021	1,031	9,096	1,256	1,088	12,471
Exchange difference	(11)	—	(13)	(1)	(25)
Additions	27	—	84	—	111
Disposals	—	—	(44)	—	(44)
At 31 December 2021	1,047	9,096	1,283	1,087	12,513
Exchange difference	(83)	247	(85)	(9)	70
Additions	893	3,661	158	187	4,899
Disposals	(707)	(1,507)	(832)	(854)	(3,900)
Remeasure	—	1,100	—	—	1,100
Effect of modification to lease term	—	(939)	—	—	(939)
At 31 December 2022	1,150	11,658	524	411	13,743
Depreciation
At 1 January 2021	480	3,121	1,049	1,003	5,653
Exchange differences	(7)	—	(11)	—	(18)
Charge for the year: right-of-use asset	—	1,432	—	—	1,432
Charge for the year: other property, plant and equipment	115	—	129	65	309
Disposals	—	—	(44)	—	(44)
At 31 December 2021	588	4,553	1,123	1,068	7,332
Exchange differences	(37)	(39)	(69)	(5)	(150)
Charge for the year: right-of-use asset	—	1,552	—	—	1,552
Charge for the year: other property, plant and equipment	370	—	89	18	477
Disposals	(707)	(1,507)	(830)	(853)	(3,897)
Impairment	—	228	—	—	228
Remeasure	—	524	—	—	524
At 31 December 2022	214	5,311	313	228	6,066
Net book value
At 31 December 2022	936	6,347	211	183	7,677
At 31 December 2021	459	4,543	160	19	5,181

During the year, the decision was made to vacate the North London office and notice was accordingly given to the Landlord to

terminate the lease at the break clause in November 2023. The leased premises in California also became vacant during 2022

despite the lease coming to an end on 31 December 2023, due to the reorganization of imprints in 2021.

These decisions resulted in a reduction of the right-of-use asset for the London office due a modification to the lease term for

this lease of $939k and an impairment for both offices of $228k, due to leaving both premises earlier than the lease expiry.

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STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS

11 Goodwill

	2022
	$000
		2021
		$000
Cost
At 1 January	43,007	43,102
Exchange differences	(664)	(95)
At 31 December	42,343	43,007
Accumulated impairment losses
At 1 January	(23,721)	(23,721)
Exchange differences	—	—
At 31 December	(23,721)	(23,721)
Carrying value
At 31 December	18,622	19,286

IMPAIRMENT TESTS FOR CASH GENERATING UNITS CONTAINING GOODWILL

The following units have significant carrying amounts of goodwill:

	2022
	$000
		2021
		$000
Quarto Publishing Group USA (QUS)	12,882	12,882
Quarto Publishing Group UK (QUK)	5,740	6,404
	18,622	19,286

Quarto identifies its cash-generating units based on its operating model and how data is collected and reviewed for

management reporting and strategic planning purposes, in accordance with IAS36 - Impairment of Assets. Corporate

overheads have been divided between cash-generating units and factored into the value in use calculation.

The recoverable amount of each cash generating unit (‘CGU’) is determined using the value in use basis. In determining value in

use, management prepares a detailed bottom-up budget for the initial twelve-month period, with reviews conducted at each

business unit. A further two years are forecast using relevant growth rates and other assumptions. Cash flows beyond the

three-year period are extrapolated into perpetuity, by applying a 2% growth rate from the addressable market. The cashflows

are then discounted using a country-specific discount rate. The growth rates used are consistent with the growth expectations

for the sector in which the company operates and the discount rate has been calculated using pre-tax Weighted Average Cost

of Capital analysis.

The key assumptions for calculating value in use are:

		Terminal Growth Rates		Discount Rates
	2022	2021	2022	2021
United States of America	2%	2%	10.75%	11.13%
United Kingdom	2%	2%	11.13%	10.86%

Revenue growth rates: forecasted sales growth rates are based on those applied to the Board approved budget for the year

ending 31 December 2023 and the three-year plan. The revenue growth rates incorporate future cashflows which have been

estimated for the asset in current conditions for each CGU.

Long-term growth rates: the three-year forecasts are extrapolated to perpetuity on the basis that the CGU’s are long-

established business units. The long-term growth rates are blended rates formed from the territory-specific long-term growth

rates.

Gross margins: gross margins are based on historic performance and expected changes to the sales mix in future periods.

76 | THE QUARTO GROUP, INC. ANNUAL REPORT 2022 | Financial Statements

11 Goodwill (continued)

NOTES TO THE FINANCIAL STATEMENTS (continued)

The Group has undertaken various sensitivities of the QUK and QUS CGU’s. There were no reasonably possible changes in QUK

that would lead to impairment. QUS, which has the largest goodwill and non-current assets, carries a greater risk that reasonably

possible changes would result in impairment. Based on the above long-term growth rate and discount rate, the value in use of

QUS exceeded the carrying value of the CGU by $4.3m. The following sensitivities were applied to this CGU:

• 0.75% increase in discount rate, at which level there was no impairment. The recoverable amount exceeded the carrying value

of the CGU by $0.1m. The discount rate would need to increase to 11.75% to record any impairment.

• 1.5% terminal growth rate, at which level there was no impairment. The recoverable amount exceeded the carrying value of

the CGU by $2m. The terminal growth rate would need to be 1% before any impairment was recorded.

Should there be a headline change in revenues and margins, this could create an impairment.

12 Intangible assets – pre-publication costs

	2022
	$000
		2022
		$000
			2022
			$000
				2021
				$000
					2021
					$000
						2021
						$000
	Work-in-
	progress
		Published
		products	Total
				Work-in-
				progress
					Published
					products	Total
Cost
At 1 January	10,105	102,528	112,633	11,442	86,496	97,938
Exchange difference	(456)	(7,240)	(7,696)	(64)	(1,037)	(1,101)
Additions	18,067	—	18,067	20,229	—	20,229
Transfers	(16,036)	16,036	—	(17,069)	17,069	—
Amounts expensed
1
	(2,875)	—	(2,875)	(4,433)	—	(4,433)
Disposals (note 5)	(626)	(4,072)	(4,698)	—	—	—
At 31 December	8,179	107,252	115,431	10,105	102,528	112,633
Amortization and impairment
At 1 January	—	82,692	82,692	—	57,025	57,025
Exchange difference	—	(6,193)	(6,193)	—	(900)	(900)
Amortization charge	—	17,060	17,060	—	19,808	19,808
(Reversal)/impairment of published
product
	—	(729)	(729)	—	6,759	6,759
Disposals (note 5)	—	(2,872)	(2,872)	—	—	—
At 31 December	—	89,958	89,958	—	82,692	82,692
Net book value	8,179	17,294	25,473	10,105	19,836	29,941

1 Amounts expensed relate to the impairment of Work-In-Progress. Titles which have no economic future are impaired.

The carrying amount of the intangible assets is reviewed annually at each balance sheet date to determine whether there is any

indication of impairment. If any such indication exists, the asset’s recoverable amount is estimated. The recoverable amount is

the higher of fair value, reflecting market conditions less costs to sell, and value in use based on an internal discounted cash flow

valuation.

Pre-publication costs form part of the carrying value of the CGU for each segment and are considered for impairment of

goodwill as set out in note 11.

THE QUARTO GROUP, INC. ANNUAL REPORT 2022

Financial Statements

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STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS

13 Other intangible assets

	Backlists
	$000
		Software
		$000
			Total
			$000
Cost
At 1 January 2021	21,253	1,630	22,883
Exchange differences	(39)	—	(39)
At 1 January 2022	21,214	1,630	22,844
Exchange differences	(147)	—	(147)
Disposals	—	(86)	(86)
At 31 December 2022	21,067	1,544	22,611
Amortization and impairment
At 1 January 2021	21,245	1,479	22,724
Exchange differences	(39)	—	(39)
Charge for the year	7	101	108
At 1 January 2022	21,213	1,580	22,793
Exchange differences	(147)	—	(147)
Charge for the year	—	50	50
Disposals	—	(86)	(86)
At 31 December 2022	21,066	1,544	22,610
Carrying amount
At 31 December 2022	1	—	1
At 31 December 2021	1	50	51

14 Subsidiaries

A list of the investments in subsidiaries, including the name, country of incorporation and proportion of ownership interest is

given in note 5 to the Company’s balance sheet. All of these subsidiaries are included in the consolidated results.

15 Inventories

	2022
	$000
		2021
		$000
Finished goods	21,690	20,267
Raw materials	136	126
	21,826	20,393

All of the Group’s inventories have been reviewed for indicators of impairment. Certain inventories were found to be impaired

and a provision of $1.115m (2021: $0.771m) has been recorded accordingly.

78 | THE QUARTO GROUP, INC. ANNUAL REPORT 2022 | Financial Statements

NOTES TO THE FINANCIAL STATEMENTS (continued)

16 Trade and other receivables

	2022
	$000
		2021
		$000
Trade receivables	34,389	45,086
Other receivables and prepayments	5,733	6,156
	40,122	51,242

The average credit period on sales of goods is 80 days (2021: 79 days).

The Group applies the IFRS 9 simplified model of recognizing lifetime expected credit losses for all trade receivables as these

items do not have a significant financing component. In measuring the expected credit losses, the trade receivables have been

assessed on an individual basis, as much as possible, because credit risk characteristics vary by customer. The expected loss

rates are based on the historic data which are then adjusted to reflect the current and future economic environment. Trade

receivables are written off (i.e. derecognized) when there is no reasonable expectation of recovery.

On the above basis, the expected credit loss for trade receivables as at 31 December 2022 and 31 December 2021 was

determined as follows:

31 December 2022	Current
		Overdue
		Less Than
		30 Days
			Overdue
			Less Than
			60 Days
				Overdue
				Less Than
				90 Days
					Overdue More
					Than
					90 Days	Total
Gross carrying amount $000	27,824	5,074	1,297	665	1,953	36,813
Expected credit loss rate	2.1%	6.3%	6.5%	8.5%	70.9%	6.6%
Lifetime expected credit loss $000	581	318	84	56	1,385	2,424

31 December 2021	Current
		Overdue
		Less Than
		30 Days
			Overdue
			Less Than
			60 Days
				Overdue
				Less Than
				90 Days
					Overdue More
					Than
					90 Days	Total
Gross carrying amount $000	39,177	3,317	2,010	1,166	2,195	47,865
Expected credit loss rate	3.1%	3.1%	4.2%	13.2%	55.3%	5.8%
Lifetime expected credit loss $000	1,223	103	85	154	1,214	2,779

Movement in provision for lifetime expected credit loss is as follows:

	2022
	$000
		2021
		$000
Provision at beginning of year	2,779	1,914
Amounts de-recognized in the year	(305)	(109)
Amounts recovered during the year	37	124
Exchange differences	(156)	(24)
Increase in allowance recognized in profit or loss	69	874
Provision at end of the year	2,424	2,779

The Directors consider that the carrying amount of trade and other receivables approximates to their fair value.

Note 21 includes disclosures relating to credit risk exposures and analysis relating to the allowance for expected credit losses.

17 Cash, borrowings and net debt

CASH

	2022
	$000
		2021
		$000
Cash and cash equivalents	13,290	28,432

The carrying amount of these assets approximates to their fair value.

The effective interest rate on bank balances and short-term deposits was 0% (2021: 0%).

THE QUARTO GROUP, INC. ANNUAL REPORT 2022

Financial Statements

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STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS

17 Cash, borrowings and net debt (continued)

BORROWINGS

	2022
	$000
		2021
		$000
Bank and other loans	13,937	33,946
Less: Amount due for settlement within 12 months (shown under current liabilities)	(4,636)	(5,438)
Amount due for settlement after 12 months	9,301	28,508

	Total
	$000
		Fixed rate
		borrowings
		$000
			Variable rate
			borrowings
			$000
				Weighted
				average
				interest rate
				for fixed rate
				borrowings
				%
					Average
					time over
					which interest
					rate is fixed
					Months
US dollar borrowings	13,780	8,280	5,500	3.75	20
Other currency borrowings	157	—	157	—	—
As at 31 December 2022	13,937	8,280	5,657	3.75	20
US dollar borrowings	33,879	27,212	6,667	3.75	32
Other currency borrowings	67	—	67	—	—
As at 31 December 2021	33,946	27,212	6,734	3.75	32

OTHER LOANS

	2022
	$000
		2021
		$000
Other loans (unsecured)	8,280	27,212
Less: Amount due for settlement within 12 months (shown under current liabilities)	(280)	(2,771)
Amount due for settlement after 12 months	8,000	24,441

Other loans comprise:

(a) Loans of $8m (2021: $23m) from related parties, as disclosed in note 28, are repayable 31 August 2024, together with the

accrued interest at 4%.

(b) A loan of $2.422m relating to government support given under the Coronavirus Aid, Relief and Economic Security Act of the

USA, was forgiven in 2022 to the value of $2.272m.

	Total
	$000
		Fixed rate
		borrowings
		$000
			Variable
			rate
			borrowings
			$000
				Weighted
				average
				interest rate
				for fixed rate
				borrowings
				%
					Average
					time over
					which interest
					rate is fixed
					Months
US dollar borrowings
As at 31 December 2022	8,280	8,280	—	4.00	20
As at 31 December 2021	27,212	27,212	—	3.75	32

80 | THE QUARTO GROUP, INC. ANNUAL REPORT 2022 | Financial Statements

17 Cash, borrowings and net debt (continued)

NOTES TO THE FINANCIAL STATEMENTS (continued)

BANK LOANS

	2022
	$000
		2021
		$000
Bank loans	5,657	6,734
Less: Amount due for settlement within 12 months (shown under current liabilities)	(4,356)	(2,667)
Amount due for settlement after 12 months	1,301	4,067

At 31 December 2022, undrawn borrowing facilities totaled $8.2m (2021: $9.7m). The variable rate borrowings carry interest based

on SOFR plus a margin, depending on the leverage ratio. The banking facilities expire on 16 July 2024. The Directors estimate the

fair value of the Group’s borrowings to be equal to book value, by reference to market rates. All assets have been pledged as

security for the Group’s bank borrowings.

	Total
	$000
		Fixed rate
		borrowings
		$000
			Variable rate
			borrowings
			$000
				Weighted
				average
				interest rate
				for fixed rate
				borrowings
				%
					Average
					time over
					which interest
					rate is fixed
					Months
US dollar borrowings	5,500	—	5,500	—	—
Other currency borrowings	157	—	157	—	—
As at 31 December 2022	5,657	—	5,657	—	—
US dollar borrowings	6,667	—	6,667	—	—
Other currency borrowings	67	—	67	—	—
As at 31 December 2021	6,734	—	6,734	—	—

CHANGES IN LIABILITIES ARISING FROM FINANCING ACTIVITIES

	1 January
	2022
	$000
		Profit and
		Loss
		$000
			Cashflows
			$000
				Non-Cash
				items
				$000
					Foreign
					Exchange
					$000
						31 December
						2022
						$000
Borrowings	(33,946)	—	18,193	1,906	(91)	(13,938)
IFRS 16 lease liabilities	(5,035)	—	1,708	(3,697)	(197)	(7,221)
Interest	—	(1,213)	397	816	—	—
Cash and cash equivalents	28,432	—	(14,711)	—	(431)	13,290
Net debt	(10,549)	(1,213)	5,587	(975)	(719)	(7,869)

	1 January
	2021
	$000
		Profit and
		Loss
		$000
			Cashflows
			$000
				Non-cash
				items
				$000
					Foreign
					exchange
					$000
						31 December
						2021
						$000
Borrowings	(41,819)	—	7,846	(417)	444	(33,946)
IFRS 16 lease liabilities	(6,278)	—	1,426	(207)	24	(5,035)
Interest	—	(1,796)	1,866	(70)	—	—
Cash and cash equivalents	22,079	—	6,173	—	180	28,432
Net debt	(26,018)	(1,796)	17,311	(694)	648	(10,549)

THE QUARTO GROUP, INC. ANNUAL REPORT 2022

Financial Statements

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STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS

18 Deferred tax

	2022
	$000
		2021
		$000
Deferred tax liabilities
Pre-publication costs and other temporary differences – UK	2,798	3,130
	2,798	3,130
Deferred tax assets
Pre-publication costs and other temporary differences – US	(1,777)	—
Goodwill, intangible assets and other temporary differences – US	3,612	2,436
	1,835	2,436
Net deferred taxation liability	963	694

The movement on the net provision for deferred taxation is as follows:

	2022
	$000
		2021
		$000
Net provision at 1 January	694	2,719
Exchange difference through other comprehensive income	(332)	(45)
Debit/(credit) to profit and loss	601	(1,980)
Net provision at 31 December	963	694

19 Lease liabilities

	2022
	$000
		2021
		1
		$000
Current	944	1,363
Non-current	6,277	3,672
	7,221	5,035

The table below shows the movement of lease liabilities for the year:

	2022
	$000
		2021
		$000
At 1 January	5,035	6,278
Addition	3,598	—
Remeasurement	684	—
Effect of modification of lease term	(916)	—
Interest	331	276
Lease payments	(1,708)	(1,426)
Exchange difference	197	(93)
At 31 December	7,221	5,035

1 This table was introduced in 2022 and so comparatives have been added for 2021 as a result.

The Group has leases for its offices and some IT equipment. With the exception of short-term leases and leases of low-value

underlying assets, each lease is reflected on the balance sheet as right-of-use asset and a lease liability. The Group classifies its

right-of-use assets in a consistent manner to its property, plant and equipment (note 10).

Each lease generally imposes a restriction that, unless there is a contractual right for the Group to sublet the asset to another

party, the right-of-use asset can only be used by the Group. Leases are either non-cancellable or may only be cancelled by

incurring a substantive termination fee. For leases over office buildings the Group must keep those properties in a good state of

repair and return the properties in their original condition at the end of the lease. Further, the Group must insure items of

property, plant and equipment and incur maintenance fees on such items in accordance with the lease contracts.

82 | THE QUARTO GROUP, INC. ANNUAL REPORT 2022 | Financial Statements

19 Lease liabilities (continued)

NOTES TO THE FINANCIAL STATEMENTS (continued)

The table below describes the nature of the Group’s leasing activities by type of right-to-use asset recognized on the balance sheet:

Right-of-use
asset
	No of right-of-
	use assets
	leased
		Range of
		remaining term
			Average
			remaining lease
			term
				No of lease with
				extension
				options
					No of lease with
					options to
					purchase
						No of lease with
						variable
						payments linked
						to an index
							No of lease with
							termination
							options
Office
building
	6	1-7 years	3 years	1	Nil	4	1

Properties with extension, or termination, options are assessed on a case-by-case basis in determining take-up of the options.

Due to the reorganization of the Californian based imprint Walter Foster into the Boston based imprints during 2021, the leased

premises in California became vacant in 2022. During 2022, due to difficulty in subletting these premises, the decision was made

to write down the net book value of the right-of-use asset at the end of 2022. In early January 2023, new premises in London

were occupied after a fitout and the right-of-use assets for the old premises in London which were vacated in December 2022,

was also written down to nil. The net impairment for both properties was $228k, which has been recognized within administrative

expenses in the Consolidated Income Statement.

The lease liabilities are secured by the related underlying assets. Future minimum lease payments at 31 December 2022 were as follows:

				Minimum lease payments due US$000
	Within 1 year	1-2 years	2-3 years	3-4 years	4-5 years	After 5 years	Total
31 December 2022
Lease payments	1,275	1,831	1,764	1,289	1,011	1,104	8,274
Finance charges	(331)	(276)	(198)	(131)	(77)	(40)	(1,053)
Net present value	944	1,555	1,566	1,158	934	1,064	7,221
31 December 2021
Lease payments	1,601	794	450	272	161	2,414	5,692
Finance charges	(223)	(164)	(122)	(80)	(42)	(26)	(657)
Net present value	1,378	630	328	192	119	2,388	5,035

The total cash outflow in relation to lease liabilities during the year was $1.708m (2021: $1.426m). Please see note 17.

The Group has elected not to recognize a lease liability for short term leases or for leases of low value assets. Payments made

under such leases are expensed on a straight-line basis and amounted to $32k in the year (2021: $4k).

20 Trade and other payables

CURRENT LIABILITIES

	2022
	$000
		2021
		$000
Trade payables	13,497	29,450
Other payables	20,372	24,339
	33,869	53,789

Under IFRS 15, the reserve for sales returns is included in other payables; it amounts to $4.875m (2021: $5.776m). The reserve is

calculated based on a time lag between sales and returns and historical return patterns. Management monitors actual returns

against the reserve on a regular basis. If the rate of sales return had been 1% higher during the year, the provision would have

increased by $450k (2021: $545k).

Included within other payables is $3.063m in respect of deferred income (2021: $1.957m), detailed below:

	2022
	$000
		2021
		$000
Opening liability	1,957	2,274
Deferred income invoiced	13,408	12,136
Revenue recognized	(12,093)	(12,428)
Exchange difference	(209)	(25)
Closing liability	3,063	1,957

We expect deferred income to be recognized within the next 12 months.

THE QUARTO GROUP, INC. ANNUAL REPORT 2022

Financial Statements

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STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS

21 Financial instruments

The Group is exposed to market risk through its use of financial instruments and specifically to currency risk, interest rate risk,

credit risk, liquidity risk and certain other price risks, which result from both its operating and investing activities. The Group’s risk

management is coordinated at its headquarters, in close co-operation with the Board of Directors, and focuses on actively

securing the Group’s short to medium-term cash flows by minimising the exposure to financial markets.

The Group does not actively engage in the trading of financial assets for speculative purposes nor does it write options.

The most significant financial risks to which the Group is exposed and a summary of financial assets and liabilities by category

are described below.

FOREIGN CURRENCY SENSITIVITY

Exposures to currency exchange rates arise from the Group’s overseas sales and costs, which are primarily denominated in

Sterling, and, to a much lesser extent in Euros. The Group has minimal exposure to other foreign currencies.

Foreign currency denominated financial assets and liabilities including IFRS 16, translated into US Dollars at the closing rate, are

as follows:

	2022
			Restated
			1
			2021
	$000
	Sterling
		$000
		Other
			$000
			Sterling
				$000
				Other
Financial assets	14,433	806	16,965	1,394
Financial liabilities	(811)	(1,082)	(1,596)	(1,000)
Short-term exposure	13,622	(276)	15,369	394
Financial liabilities	(4,175)	—	(1,385)	—
Long-term exposure	(4,175)	—	(1,385)	—
At 31 December	9,447	(276)	13,984	394

1 Financial assets and liabilities for 2021 have been restated to include right-of-use assets and lease liabilities as per IFRS16.

The following table illustrates the sensitivity of the net result for the year and equity in regard to the Group’s financial assets and

financial liabilities and the US Dollar – Sterling exchange rate.

It assumes a ± 5% change of the Sterling/US-Dollar exchange rate, in line with the movement over the last year.

The sensitivity analysis is based on the Group’s foreign currency financial instruments held at each balance sheet date.

If Sterling had strengthened against the US Dollar by 5% (2021: 5%) then this would have had the following impact:

	2022
	$000
		2021
		$000
(Loss)/Profit after tax for the year	(107)	46
Equity	(107)	46

If Sterling had weakened against the US Dollar by 5% (2021: 5%) then this would have had the following impact:

	2022
	$000
		2021
		$000
Profit/(Loss) after tax for the year	107	(46)
Equity	107	(46)

Exposures to foreign exchange rates vary during the year depending on the volume of overseas transactions. Nonetheless, the

analysis above is considered to be representative of the Group’s exposure to currency risk.

INTEREST RATE SENSITIVITY

The Group’s policy is to minimize interest rate cash flow risk exposures, where possible and commercially appropriate, on

long-term financing, through interest rate swaps. A part of longer-term borrowings is sometimes, therefore, at fixed rates.

At 31 December 2022, the Group is exposed to changes in market interest rates through its bank borrowings, which are subject

to variable interest rates – see note 17 for further information.

84 | THE QUARTO GROUP, INC. ANNUAL REPORT 2022 | Financial Statements

21 Financial instruments (continued)

NOTES TO THE FINANCIAL STATEMENTS (continued)

The following table illustrates the sensitivity of the profit after tax for the year and equity to a reasonably possible change in

interest rates of ± 1%, with effect from the beginning of the year. These changes are considered to be reasonably possible based

on observation of current market conditions. The calculations are based on the Group’s financial instruments held at each

balance sheet date. All other variables are held constant.

A 1% increase in interest rates would have the following impact:

	2022
	$000
		Restated
		1
		2021
		$000
Loss for the year	(43)	(52)
Equity	(43)	(52)

1 Loss for the year in 2021 has been restarted using 1% rather than 0.25% which was used last year.

A 1% decrease in interest rates would have the following impact:

	2022
	$000
		Restated
		1
		2021
		$000
Profit for the year	43	52
Equity	43	52

1 Profit for the year in 2021 has been restated using 1% rather than 0.25% which was used last year.

CREDIT RISK ANALYSIS

The Group’s maximum exposure to credit risk is limited to the carrying amount of financial assets recognized at the balance

sheet date, as summarized below:

	2022
	$000
		2021
		$000
Cash and cash equivalents	13,290	28,432
Trade receivables	34,389	45,086
	47,679	73,518

The Group’s credit risk is primarily attributable to its trade receivables. There is minimal credit risk within other receivables. The

amounts presented in the balance sheet are net of allowances for doubtful receivables, estimated by the Group’s management

based on prior experience and their assessment of the current economic environment. The ongoing credit risk is managed

through regular review of ageing analysis together with credit limits per customer.

The Group continuously monitors defaults of customers and other counterparties, identified either individually or by group, and

incorporates this information into its credit risk controls. Where available at reasonable cost, external credit ratings and/or

reports on customers and other counterparties are obtained and used. The Group’s policy is to deal only with creditworthy

counterparties.

The Group’s management considers that all the above financial assets that are not impaired for each of the reporting dates

under review are of good credit quality, including those that are past due. Credit losses written off during the year which are

subject to enforcement activity are minimal.

In respect of trade and other receivables, the Group is not exposed to any significant credit risk exposure to any single

counterparty or any group of counterparties having similar characteristics. The credit risk for liquid funds and other short-term

financial assets is limited since the counterparties are reputable banks with high quality external credit ratings.

LIQUIDITY RISK ANALYSIS

The Group manages its liquidity needs by carefully monitoring scheduled debt servicing payments for long-term financial

liabilities as well as cash-outflows due in day-to-day business. Liquidity needs are monitored in various time bands, on a day-to-

day and week-to-week basis.

The Group maintains cash and marketable securities to meet its liquidity requirements. Funding for long-term liquidity needs

is additionally secured by an adequate amount of committed credit facilities.

THE QUARTO GROUP, INC. ANNUAL REPORT 2022

Financial Statements

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STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS

21 Financial instruments (continued)

The Group’s liabilities have contractual maturities which are summarized below:

	Current		Non-Current
31 December 2022
	Within 6
	months
	$000
		6 to 12
		months
		$000
			1 to 5
			years
			$000
				Over 5
				years
				$000
Bank and other loans	3,635	1,528	9,539	—
Lease liabilities	638	638	5,895	1,103
Trade payables	13,497	—	—	—
Other short-term financial liabilities	17,756	—	—	—
	35,526	2,166	15,434	1,103

	Restated
	1
	Current
			Restated
			1
			Non-Current
31 December 2021
	Within 6
	months
	$000
		6 to 12
		months
		$000
			1 to 5
			years
			$000
				Over 5
				years
				$000
Bank and other loans	2,436	4,198	29,623	—
Lease liabilities	800	800	1,934	2,155
Trade payables	29,450	—	—	—
Other short-term financial liabilities	21,237	—	—	—
	53,923	4,998	31,557	2,155

1 Current and non-current contractual maturities for 2021 have been restated.

SUMMARY OF FINANCIAL ASSETS AND LIABILITIES BY CATEGORY

The carrying amounts of the Group’s financial assets and liabilities as recognized at the balance sheet date of the reporting

periods under review may also be categorized as follows. See note 1, significant accounting policies, covering financial assets

and financial liabilities for explanations about how the category of instruments affects their subsequent measurement.

	2022
	$000
		2021
		$000
Current assets
Financial assets at amortized cost:
Trade receivables	34,389	45,086
Cash and cash equivalents	13,290	28,432
	47,679	73,518
Current liabilities
Financial liabilities measured at amortized cost:
Borrowings
	4,636	5,438
Trade payables
	13,497	29,450
Other payables	17,756	21,475
	35,889	56,363
Non-current liabilities
Financial liabilities measured at amortized cost:
Borrowings	9,301	28,508
	9,301	28,508

CAPITAL RISK MANAGEMENT

The Group manages its capital to ensure that entities in the Group will be able to continue as a going concern while maximising

the return to shareholders through an optimal balance of debt and equity. The capital structure of the Group consists of debt,

which includes the borrowings disclosed in note 17, cash and cash equivalents and equity attributable to equity holders of the

parent, comprising share capital and reserves as disclosed in the consolidated statement of changes in equity.

86 | THE QUARTO GROUP, INC. ANNUAL REPORT 2022 | Financial Statements

21 Financial instruments (continued)

NOTES TO THE FINANCIAL STATEMENTS (continued)

The Board reviews the capital structure, including the level of indebtedness and interest cover, as required. The Board’s objective

is to maintain the optimal level of indebtedness and manage interest cover to comply with the covenant requirements set out in

note 17. As part of this review, the Board considers the cost of capital and the risks associated with each class of capital. The

Group has complied with its covenant obligations during the year.

22 Post balance sheet events

Quarto repaid the remaining loan of $8m plus accrued interest to 1010 Printing Limited in February 2023. This repayment was

made outside the agreement due to a favorable liquidity position at this point in time and had been agreed by the bank. No

additional charges will be payable as a result of the early repayment.

23 Share capital and paid in surplus

SHARE CAPITAL

	2022
	$000
		2021
		$000
Authorized
55,000,000 (2021: 55,000,000) shares of common stock of par value of US$0.10 each	5,500	5,500
Allotted, called up and fully paid:
40,889,100 (2021: 40,889,100) shares of common stock of par value of US$0.10 each	4,089	4,089

The Company has one class of common stock which carries no right to fixed income.

PAID IN SURPLUS

This reserve records the amount above par value received for common stock sold less transaction costs. The movement on this

reserve was as follows:

	2022
	$000
		2021
		$000
At 1 January	48,701	48,701
Issue of new common stock	—	—
At 31 December
	48,701	48,701

24 Retained earnings and other reserves

TRANSLATION RESERVE

The translation reserve comprises all foreign exchange differences arising from the translation of the closing balance sheets

of foreign operations of the Group and the results of foreign operations of the Group since 1 January 2004.

RETAINED EARNINGS

The retained earnings reserve comprises profit for the year attributable to owners of the Group and other items recognized

directly through equity as presented on the consolidated statement of changes in equity.

25 Dividends

No dividends have been declared in the current or prior year.

26 Notes to the cash flow statement

Cash comprises cash on hand and demand deposits. Cash equivalents are short-term highly liquid investments that are readily

convertible to known amounts of cash and which are subject to insignificant changes in value.

27 Share based payments

PERFORMANCE SHARE PLAN (‘PSP’)

The Company operates a PSP scheme that awards free shares.

2017 AWARD

The awards under this scheme were granted on 28 April 2017. The vesting period was 4 years from the date of grant. The award

vests in the following proportion:

• 50% was conditional on the cumulative growth in Adjusted Diluted EPS being between 5% and 10% over the performance

period, resulting in the awards vesting on a sliding scale of 20% to 100%; and

• 50% was conditional on Total Shareholder Return being between 7% and 15%, resulting in vesting on a sliding scale of

20% to 100%.

THE QUARTO GROUP, INC. ANNUAL REPORT 2022

Financial Statements

Financial Statements | THE QUARTO GROUP, INC. ANNUAL REPORT 2022 | 87

STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS

27 Share based payments (continued)

Participants are not entitled to receive dividends until awards have vested.

Details of the share options outstanding during the year are as follows.

	2022
	Number
		2021
		Number
Outstanding at beginning of the year	—	65,223
Lapsed during the year	—	(65,223)
Outstanding at the end of the year	—	—

The key inputs used to value the options are:

	EPS Portion	TSR Portion
Share price at date of grant	£2.64	£2.64
Expected life (years)	4	4
Fair value per award	£2.20	£0.48
Weighted average remaining contractual life (years)	3.3	3.3
Dividend yield (%)	£4.55	£4.55
Expected volatility of share price (%)	n/a	18.6
Model used	Dividend
	discount
		Monte-
		Carlo

28 Related party transactions

The Group had the following related party transactions over the periods under review:

PRINTING PURCHASES:

Lion Rock Group Limited
	2022
	$000
		2021
		$000
Accounts payable at start of year	16,602	12,895
Purchases	21,523	23,830
Payments	(31,621)	(20,123)
Accounts payable at end of year	6,504	16,602

LOANS AND ACCRUED INTEREST:

	At 31
	December
	2022
	$000
		At 31
		December
		2021
		$000
Loans	8,000	23,000
Accrued interest on loans at end of year	280	1,789

The loans are from 1010 Printing Limited $8m (2021: $17m) and C.K. Lau $0m ($6m). The loans are unsecured, are repayable on 31

August 2024, and carry interest at 4% and 3.5% respectively. Interest is paid annually on one loan with the remaining accrued

interest to be paid at the end of the term.

Lion Rock Group Limited and 1010 Printing Limited are companies over which C.K. Lau exercises control. 1010 Printing Limited is

now the majority shareholder of the company.

REVENUES AND TRADE RECEIVABLES:

	At 31
	December
	2022
	$000
		At 31
		December
		2021
		$000
Revenues	325	631
Outstanding receivables balance at end of year	92	126

88 | THE QUARTO GROUP, INC. ANNUAL REPORT 2022 | Financial Statements

28 Related party transactions (continued)

NOTES TO THE FINANCIAL STATEMENTS (continued)

The Group recorded revenues of $325k (2021: $623k) with Giunti Editore S.p.A, a company over which Andrea Giunti Lombardo, a

Non-Executive Director, exercises control. The transactions were in the normal course of business on arms-length terms. The

amount outstanding at 31 December 2022 was $92k (2021: $126k).

The Group recorded revenues of $0k in 2022 (2021: $8k) with Pavilion Books Limited, a company over which Polly Powell, the CEO

for Pavilion Books, exercized control. Polly Powell was a Director of the Group but resigned on 1 July 2021.The transactions were in

the normal course of business on arms-length terms and no amounts were outstanding at year end.

DISTRIBUTION SERVICES:

Pavilion Books Limited
	At 31
	December
	2022
	$000
		At 31
		December
		2021
		$000
Net sales less distribution fees	—	1,357

From January to June 2021, Quarto provided distribution services to Pavilion Books Group Limited, which was owned by Polly

Powell, who resigned on 1 July 2021.

29 Reconciliation of figures included in other parts of the financial statements

	2022
	$000
		2021
		$000
Adjusted operating profit
Operating profit	22,098	15,952
Add back: Amortization of acquired intangibles	—	7
Other exceptional items (note 5)	(774)	—
Adjusted operating profit	21,324	15,959
EBITDA
Operating profit before amortization of acquired intangibles and exceptional items	21,324	15,959
Less: Net finance costs	(1,213)	(1,796)
Impact of IFRS 16	(586)	(18)
Adjusted profit before tax	19,525	14,145
Net finance costs	1,213	1,796
Depreciation of property, plant and equipment and software (excluding right-of-use assets)	527	410
Share based payments	—	10
EBITDA for banking purposes	21,265	16,361
Impact of IFRS 16	586	18
Depreciation of right-of-use assets	1,552	1,432
EBITDA	23,403	17,811
Adjusted profit before tax before amortization of acquired intangibles and exceptional items
Adjusted operating profit before amortization of acquired intangibles and exceptional items	21,324	15,959
Less: net finance costs	(1,213)	(1,796)
Adjusted profit before tax before amortization of acquired intangibles and exceptional items	20,111	14,163
Free cashflow
Net cash from operating activities	24,859	37,651
Investment in pre-publication costs	(18,067)	(20,229)
Purchases of property, plant and equipment excluding IFRS 16 assets	(1,238)	(111)
Free cashflow	5,554	17,311
Net debt
Short-term borrowings	4,636	5,438
Long-term borrowings	9,301	28,508
Cash and cash equivalents	(13,290)	(28,432)
Net debt	647	5,514

THE QUARTO GROUP, INC. ANNUAL REPORT 2022

Financial Statements

Financial Statements | THE QUARTO GROUP, INC. ANNUAL REPORT 2022 | 89

STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS

Notes

2022

$000

2021

$000

Fixed assets

Investments 4 1,244 1,244

1,244 1,244

Current assets

Other receivables falling due within one year 6 51,880 3,515

51,880 3,515

Current liabilities

Creditors falling due within one year 7 (174) (431)

(174) (431)

Non-current liabilities

Creditors falling due after more than one year — —

Tax payable — —

— —

Net assets 52,950 4,328

Equity

Called up share capital 8 4,089 4,089

Paid in surplus 48,701 48,701

Retained earnings 160 (48,462)

Total equity 52,950 4,328

The company reported a profit for the financial year ended 31 December 2022 of $48.622m (2021: profit $0.196m).

The notes on pages 91 to 94 are an integral part of these consolidated financial statements.

The financial statements were approved by the Board of Directors and authorized for issue on 28 March 2023.

They were signed on its behalf by

Alison Goff

Director

31 March 2023

Company Balance Sheet

AS AT 31 DECEMBER 2022

90 | THE QUARTO GROUP, INC. ANNUAL REPORT 2022 | Financial Statements

Company Statement of

Comprehensive Income

FOR THE YEAR ENDED 31 DECEMBER 2022

Notes

2022

$000

2021

$000

Other operating income

Dividends received 48,699 —

Administrative expenses — 196

Foreign exchange loss (334) (52)

Profit before tax 48,365 144

Tax 3 257 52

Profit and total comprehensive income for the year 48,622 196

The notes on pages 91 to 94 are an integral part of these consolidated financial statements.

Company Statement of

Changes in Equity

FOR THE YEAR ENDED 31 DECEMBER 2022

capital

$000

Paid in

surplus

$000

Retained

earnings

$000

Equity

attributable

to owners

$000

Balance at 1 January 2021 4,089 48,701 (48,668) 4,122

Profit and total comprehensive income for the year — — 196 196

Share based charges — — 10 10

Balance at 1 January 2022 4,089 48,701 (48,462) 4,328

Profit and total comprehensive income for the year — — 48,622 48,622

Share based payments — — — —

Balance at 31 December 2022 4,089 48,701 160 52,950

The notes on pages 91 to 94 are an integral part of these consolidated financial statements.

THE QUARTO GROUP, INC. ANNUAL REPORT 2022

Financial Statements

Financial Statements | THE QUARTO GROUP, INC. ANNUAL REPORT 2022 | 91

STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS

Notes to the Company Accounts

1 Basis of preparation

The separate financial statements of the Company are presented and have been prepared in accordance with Financial

Reporting Standard 102 (FRS 102) issued by the Financial Reporting Council. These financial statements present information for

the Company, not about the Group.

The financial statements have been prepared in accordance with applicable accounting standards and under the historical cost

accounting rules in accordance with FRS 102. The financial statements have been prepared using the going concern basis, as

discussed in the Group going concern disclosure.

The Company has adopted the following disclosure exemptions:

• the requirement to present a statement of cash flow and related notes; and

• financial instrument disclosures, including,

• categories of financial instruments;

• items of income, expenses, gains or losses relating to financial instruments; and

• exposure to, and management of, financial risks.

There were no significant judgements or estimates in preparing the financial statements of the Company.

2 Accounting policies

The following accounting policies have been applied consistently in dealing with items which are considered material in relation

to the financial statements. The functional currency of the Company is US dollars.

A) INVESTMENTS

Investments in subsidiaries are stated at cost less, where appropriate, provisions for impairment.

B) INTERCOMPANY LOANS

Management makes estimates and assumptions in measuring the carrying amount of intercompany loans. All intercompany

loans relate solely to group companies, wholly owned by the Company, and therefore carried at full value.

C) OTHER RECEIVABLES

Amounts owed by subsidiary undertakings are initially recognized at fair value, and subsequently measured at amortized cost

using the effective interest method.

D) CREDITORS

Amounts owed to subsidiary undertakings are initially recognized at fair value, and subsequently measured at amortized cost

using the effective interest method.

E) SHARE-BASED PAYMENTS

The Company operates a number of equity-settled, share based compensation plans that are awarded to employees of the

Company’s subsidiary undertakings. The fair value of the employee services received under such schemes is recognized as an

expense in the subsidiary undertakings financial statements, which benefit from the employee services. The Company has

recognized the fair value of the share-based payments as an increase to equity with a corresponding adjustment to

investments. Equity settled share-based payments are measured at fair value at the date of grant. The fair value, determined at

the grant date, of equity settled share–based payments is expensed on a straight-line basis over the vesting period, based on

the Group’s estimate of shares that will eventually vest. The fair value of employee share option grants is calculated using a

Monte Carlo model, taking into account the terms and conditions upon which the options were granted. The value of the charge

is adjusted to reflect expected and actual levels of options vesting. Further detail is set out in note 27 to the group consolidated

Financial Statements.

F) CASH AND CASH EQUIVALENTS

There were no cash transactions during the year and accordingly no cash flow statement has been presented.

G) FOREIGN CURRENCIES

Transactions in foreign currencies are translated at the foreign exchange rate ruling at the date of the transaction. Monetary

assets and liabilities denominated in foreign currencies at the balance sheet date are translated at the exchange rate ruling at

that date with any exchange differences arising on retranslation being recognized in the income statement.

H) FINANCIAL GUARANTEE CONTRACTS

Where the Company enters into financial guarantee contracts to guarantee the indebtedness of other companies within

its group, the Company considers these to be insurance arrangements, and accounts for them as such. In this respect, the

Company treats the guarantee contract as a contingent liability until such time as it becomes probable that the Company will be

required to make a payment under the guarantee.

92 | THE QUARTO GROUP, INC. ANNUAL REPORT 2022 | Financial Statements

3 Tax

2022

$000

2021

$000

Current tax credit (257) (52)

Corporation tax is calculated at 21%, based on the US standard rate of corporate tax (2021: 21%) of the estimated assessable

profit for the year. The table below explains the difference between the expected expense at the US statutory rate of 21% and

the Company’s total tax expense for the year.

2022

$000

Restated

2021

$000

Profit before tax 48,365 144

Tax at the US corporation tax rate of 21% (2021: 21%) 10,157 30

Tax effect of items that are not taxable in determining taxable profit (10,227) (30)

Other (187) (52)

Tax Credit (257) (52)

1 Other tax items for 2021 have been restated.

4 Investments

2022

$000

2021

$000

At 1 January 1,244 1,234

Movement during the year — 10

At 31 December 1,244 1,244

5 Subsidiaries

A) TRADING COMPANIES

Incorporation

Name Place Date

Registered

address key

Issued and fully paid

up share capital % held Segment

Quarto Publishing

Group USA Inc.

Delaware, USA 28 June 2004 B 380 shares of

US$0.01 each

100 US Publishing

Quarto Publishing plc United Kingdom 1 April 1976 A 100,000 shares of £1

each

100* UK Publishing

Quarto, Inc. Delaware, USA 16 October 1986 B 86 shares of no

par value

100* US Publishing

*Directly held by The Quarto Group, Inc.

NOTES TO THE COMPANY ACCOUNTS (continued)

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STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS

5 Subsidiaries (continued)

B) DORMANT COMPANIES

Incorporation

Name Place Date

Registered

address

key Issued share capital % held

A.P. Screen Printers Limited United Kingdom 30 September 1980 A 1000 shares of £1 each 100

Apple Press Limited United Kingdom 5 June 1984 A 100 shares of £1 each 100

Aurum Press Limited United Kingdom 31 May 1977 A 382,502 shares of £1 each 100

Books & Gifts Direct Limited

New Zealand 27 September 1996 C 400,000 shares of NZ$1 each 100*

Cartographica Press Limited United Kingdom 27 July 1981 A 1000 shares of £1 each 100

Design Eye Holdings Limited United Kingdom 22 June 1992 A 200 shares of £1 each 100

Design Eye Limited United Kingdom 18 March 1988 A 100 shares of £1 each 100

Design Eye Publishing Limited United Kingdom 17 June 1992 A 2 shares of £1 each 100

EYE Quarto Inc Delaware, USA 19 December 2002 B 1000 shares of no par value 100

Fine Wine Editions Limited United Kingdom 23 June 1949 A 9020 shares of £1 each 100

Frances Lincoln Limited United Kingdom 15 December 1980 A 565,000 shares of 10p each 100

Frances Lincoln Publishers Limited United Kingdom 11 March 1987 A 100 shares of £1 each 100

Global Book Publishing Pty Limited United Kingdom 7 July 1986 A 1000 shares of £1 each 100

The Great American Trading

Company Limited

United Kingdom 24 February 1982 A 100 shares of £1 each 100

IQON Editions Limited United Kingdom 5 December 1972 A 300 shares of £1 each 100

iqu-digital.com Limited United Kingdom 30 November 1978 A 100 shares of £1 each 100

The Ivy Press Limited United Kingdom 9 July 1996 A 1042 shares of 10p each 100

Quarto (JS) LLP United Kingdom 6 November 1998 A 100 units 100

JR Books Limited United Kingdom 9 September 1986 A 43,004 shares of £1 each 100

Lewes Holdings Limited United Kingdom 21 July 2005 A 20,840 shares of £0.01 each 100

Marshall Editions Limited United Kingdom 7 February 2002 A 1 share of £1 each 100

Marshall Publishing Limited United Kingdom 7 February 2002 A 1 share of £1 each 100

QEB Publishing Inc Delaware, USA 27 April 2004 B 1500 shares of no par value 100

QED Publishing Limited United Kingdom 12 November 1974 A 400 shares of £1 each 100

QU:ID Publishing Limited United Kingdom 30 September 1980 A 100 shares of £1 each 100

Quarto Australia Pty Limited

Australia 14 September 1981 110 shares of $A1 each 100

Quantum Books Limited United Kingdom 7 February 1983 A 100 shares of £1 each 100

Quarto Children’s Books Limited United Kingdom 6 January 1976 A 2 shares of £1 each 100

Quarto Group Limited

Hong Kong 16 March 2021 E 1 share of HKD1 each 100

Quarto Magazines Limited United Kingdom 20 May 1986 A 1000 shares of £1 each 100

Quarto Marketing Inc Delaware, USA 26 April 1995 B 3000 shares of no par value 100

Quarto Media Inc Delaware, USA 10 December 2010 B 1000 shares of $1 each 100

Quarto Multi Media Limited United Kingdom 14 December 1984 A 1000 shares of £1 each 100

Quill Publishing Limited United Kingdom 14 May 1979 A 1000 shares of £1 each 100

Quintessence Editions Limited United Kingdom 7 February 2002 A 1 share of £1 each 100

Quintet Publishing Limited United Kingdom 14 May 1979 A 100 shares of £1 each 100

RotoVision S.A.

Switzerland 18 July 1977 1,500 shares of SFr500 each 100

Small World Creations Limited United Kingdom 20 September 1997 A 1,536 shares of £1 each 100

*Directly held by The Quarto Group, Inc.

1 In the process of deregistration.

2 Deregistered on 1 April 2022.

3 Name changed from Quarto China Company Limited on 3 October 2022.

4 Deregistered on 11 May 2022.

94 | THE QUARTO GROUP, INC. ANNUAL REPORT 2022 | Financial Statements

5 Subsidiaries (continued)

C) LIST OF REGISTERED OFFICES

A From 3 January 2023: Second Floor, 1 Triptych Place, London, SE1 9SH, United Kingdom (previously: The Old Brewery, 6

Blundell Street, London, N7 9BH, United Kingdom)

B 100 Cummings Center, Suite 265D, Beverly, MA 01915-6115, USA

(Quarto Publishing Group USA Inc., 251 Little Falls Drive, Wilmington, DE 19808, Delaware, USA; Quarto Inc.,

1209 Orange Street, Wilmington, Delaware 19801, USA)

C c/o Brownes CA Limited, Unit K, 215 Rosedale Road, Albany, Auckland, 0632, New Zealand

D c/o ZM Partners, Suite 10 Ground Floor, 123 Clarence Street, Sydney, NSW 2000, Australia

E Level 11 East Wing, NEO, 123 Hoi Bun Road, Kwun Tong, Hong Kong

6 Other receivables falling due within one year

2022

$000

2021

$000

Amounts owed by subsidiary undertakings 51,880 3,515

The intercompany loans are non interest bearing and are repayable on demand.

7 Creditors falling due within one year

2022

$000

2021

$000

Tax payable (174) (431)

8 Called up share capital

Details of called up share capital are set out in note 23 of the consolidated Financial Statements.

9 Contingent liabilities

The Quarto Group, Inc. has issued guarantees in respect of bank loans of subsidiaries of $5.6m (2021: $6.7m). Refer to note 17 of

the group consolidated Financial Statements.

10 Related parties

During 2022, $46.9m was owed by Quarto Inc. a wholly owned subsidiary of the Company to Quarto Publishing Plc. Quarto

Publishing Plc assigned the debt to the Company at a cost of $46.9m. The balance on the intercompany loans at 31 December

2022 was $51.9m due to the Company (2021: $3.5m due to the Company).

11 Ultimate parent company and parent undertaking of larger group

The Company is a subsidiary undertaking of 1010 Printing Limited which was incorporated in Hong Kong. Lion Rock Group

Limited Is the ultimate parent company and the controlling party, which was incorporated in Bermuda.

The largest group in which the results of the Company are consolidated is that headed by Lion Rock Group Limited.

The consolidated financial statements of Lion Rock Group Limited are available to the public and may be obtained from:

Level 11

East Wing

NEO

123 Hoi Bun Road

Kwun Tong

Kowloon

Hong Kong

NOTES TO THE COMPANY ACCOUNTS (continued)

THE QUARTO GROUP, INC. ANNUAL REPORT 2022

Financial Statements

Financial Statements | THE QUARTO GROUP, INC. ANNUAL REPORT 2022 | 95

STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS

2022

$000

Restated

2021

$000

2020

$000

2019

$000

2018

$000

Results

Revenue 141,017 151,483 126,883 135,807 149,292

Operating profit before amortization

of acquired intangibles and exceptional items

21,324 15,959 10,618 10,004 10,305

Operating profit 22,098 15,952 9,282 8,774 4,303

Profit before tax, amortization of acquired

intangible assets and exceptional items

20,111 14,163 7,925 5,074 5,945

Profit before tax 20,885 14,156 6,589 3,844 (57)

Profit after tax 16,606 9,926 4,569 2,882 (552)

Assets employed

Non-current assets 53,608 56,895 70,875 83,385 79,481

Current assets 75,238 100,067 82,063 81,396 92,289

Current liabilities (42,744) (68,057) (98,206) (128,226) (74,084)

Non-current liabilities (18,762) (35,696) (11,019) (15,501) (79,698)

Net assets 67,340 53,209 43,713 21,054 17,988

Financed by

Equity 67,340 53,209 43,713 21,054 17,988

Non-controlling interests — — — — —

67,340 53,209 43,713 21,054 17,988

Earnings/(loss) per share (cents)

Basic 40.6 24.3 11.7 14.1 (2.7)

Diluted 40.6 24.3 11.6 14.0 (2.7)

Adjusted basic 37.8 24.3 14.1 19.0 23.2

Adjusted diluted 37.8 24.3 14.1 18.8 23.0

1 Some numbers have been restated to correct 2021.

Five Year Summary

96 | THE QUARTO GROUP, INC. ANNUAL REPORT 2022 | Financial Statements

Officers and Professional Advisers

Directors

Alison Goff, Group Chief Executive Officer

C.K. Lau, Executive Director, President

Andy Cumming*, Chairman

Jane Moriarty*, Vice Chair, Senior Independent Director

Ken Fund*

Mei Lan Lam*

Andrea Giunti Lombardo*

* Non-executive

Secretary

Michael Clarke

Registered Office

Second Floor*

1 Triptych Place

London SE1 9SH

Tel: +44 (0) 20 7700 6700

* From 3 January 2023

Stockbrokers

finnCap Ltd

One Bartholomew Close

London

EC1A 7BL

Auditor

Mazars LLP

30 Old Bailey

London

EC4M 7AU

Solicitors

Dorsey & Whitney (Europe) LLP

199 Bishopsgate

London

EC2M 3UT

Registrars and Transfer Office

Link Group

10th Floor

Central Square

29 Wellington Street

Leeds

LS1 4DL

Principal Banks

Santander UK plc

2 Triton Square

Regent’s Place

London

NW1 3AN

National Westminster Bank Plc

250 Bishopsgate

London

EC2M 4AA

Company Registration Number

FC0 13814