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Quercus sees sales drop but profits rise
27.09.11 | Philip Jones
Quercus saw an inevitable downturn in sales in the first half of 2011 after its Stieg Larsson enhanced 2010 numbers, but still managed to increase profit, improve its cash position, grow digital sales seven-fold and pay its first ever dividend to shareholders.
Quercus recorded sales of £12m in the first six months of 2011, down from last year's £15m. Pretax profit rose to £3.4m, up marginally on 2010's £3.3m. The decline in sales was attributed to a drop in the contribution from the Stieg Larsson Millennium Trilogy after their 2010 high as well as the weak economy. The Larsson books accounted for 35% of sales in the first half of 2011 compared to 78% in the equivalent period in 2010, in revenue terms a drop of £7.5m.
The company said that its non-Stieg Larsson trade revenue grew 69%. According to Nielsen BookScan figures, the firm's trade sales of £5.9m in the first half far outdistanced its other half-year results, with the exception of 2010. The publisher's previous best half year sales were £2.6m in 2009.
Chief executive Mark Smith said there had been a "real broadening of the company’s revenue base, demonstrating the company’s success in its diversification strategy in anticipation of the expected decline in sales from the Larsson franchise". He said: "This has been achieved in a worsening market for physical books and while major changes are taking place in our routes to readers . . . If you've got the right books people are still buying them."
The company said its bestsellers during the period included The King’s Speech by Mark Logue, Dead Men Risen by Toby Harnden, An Epic Swindle by Brian Reade, and Three Seconds by Roslund and Hellström.
The first half of 2011 saw the launch of two new imprints: Heron Books, run by Susan Watt, an imprint dedicated to author-led fiction and non-fiction; and Jo Fletcher Books, run by Jo Fletcher, which will focus on science fiction, horror and fantasy. The first titles for both imprints will be published in the second half of the year.
Digital sales grew seven-fold, accounting for 10.5% of revenue (£1.3m). Quercus added it had signed distribution deals with both Apple and Google.
It has also set up a development partnership with a Far Eastern software house to create new enhanced products for iPad, Kindle, Nook, the forthcoming Kindle Tablet and other tablets from its extensive backlist of illustrated non-fiction titles.
The company also increased its staff numbers, and now has 65 full-time staff in its new offices on Baker Street. Smith previously told The Bookseller he is aiming to be a top-five player, with a plan to grow its staff to 100 within three years. It has also built a strong cash position with cash in the bank of £6.4m, and its remaining debt turned into equity during the period.
Smith said it was keen to retain the firm's "entrepreneural culture" and he would sooner invest in his own employees than look for a bolt-on acquisition. However, he added: "It's not top of my agenda, but I wouldn't entirely rule it out".
Smith said that given the wider economic outlook and depressed consumer confidence, the company was expecting a "challenging environment over the remainder of the year and beyond".
Quercus paid a maiden ordinary dividend in the period of 5p per share and a special dividend of 7p per share. Quercus' shares are trading at 115p this morning, having opened at 123p today. The shares are down from a one year high of 157.5p, but City analyst Northland has suggested a target of price 195p, which would value the business at close to £50m, arguing that "it is better positioned than most to capitalise on the shift of publishing online".