Plus— a secondary exchange for small and mid-size companies— can have its downsides. While non-listed publishers can shrug off the effects of the economic slowdown, Quercus lives the credit crunch fallout far more publicly. The firm's share price has fallen over the last year by roughly 75%, dragging its market capitalisation down from around £11m to £3.2m, despite the firm's anticipated 2008 turnover of £12m. Yet Quercus m.d. Mark Smith is pragmatic about the increased transparency a listing brings.
"I think today's share price doesn't reflect Quercus' current trading or future prospects," he says. "With the flight from equities in the present environment, it is not unusual that smaller cap stocks suffer the most, but history tells us that these stocks bounce back very quickly when sentiment changes and confidence returns to the market. We are in this for the long haul and short-term price fluctuations are immaterial to the implementation of our growth strategy."
It's clear Smith relishes Quercus' independence, and he shrugs off any suggestion of being bought out. Although he does acknowledge the easier life which the backing of a major conglomerate might bring, he is far keener to grow the company from within. Being part of the Faber-backed Independent Alliance helps make this autonomy possible. "Joining the Alliance was one of the best things we have done," Smith says. "It means we can retain our individuality, but with an efficient sales team behind us."
From tiny acorns
Having been told by Quercus employees just a couple of days before this interview that the m.d. has great ambitions for their forthcoming titles, I am not surprised when Smith says it has "always been the plan" to grow the publishing house into a "medium-sized company" turning over £50m a year. "That would allow us to compete with the divisions of the major groups. That scale would allow us to play an important role within the UK," he explains.
However, with the current economic gloom that plan has been delayed somewhat. Growth for 2008 is expected to be around 10%—still strong, but nothing compared to the previous years. Last year's results showed sales had increased by 140%, although operating profits remained static at £0.4m. "Our time frame for reaching £50m has been slightly skewed because the feeling for next year is conservative," says Smith. "We will still grow, but possibly not at the same rate as in the original plan."
Recruitment will also continue, but not at the rate that has seen Quercus' ranks double over the last couple of years. Smith estimates current staffing levels could sustain the company until it grows to £20m. All the company needs, he says, is to fill a few support service roles, but there is to be no more recruitment of top brass.
The final hire within senior positions is former m.d. of Pan Macmillan David North, who started this week as the managing director of Quercus's trade division. North's appointment will allow Smith "much more time to look at growing the business, and find opportunities for growth," he says. This includes selling pre-published titles from Quercus' contract publishing range into more territories.
Smith gives the impression of being somewhat shackled by having directly managed his teams for the last few years. "It's not that I don't enjoy it, but I've never been tremendously good at managing a lot of people," he admits. "It's a much better use of my time pushing people where they need to go. Bringing in an expert for the trade side will give me more time to develop the company, to create the opportunities to do what I want well."
Smith estimates that the trade publishing side of the firm now generates the same level of revenues as the contract sales, through a combination of brand new titles and repackaging those previously only sold in North America for sale in the UK and Europe. He is keen to retain this balance between the "higher growth, higher margin but higher risk" trade lists and the steadier original part of the business. "The cash generated from [the contract publishing business] allows us to invest more in the fiction list," he says.
Playing with fire
Alongside Smith, publisher Anthony Cheetham will help develop Quercus growth strategy. Smith dismisses rumours that the pair have had a difficult working relationship as "unfounded and mischievous", adding the partnership will remain for some time yet. "We work fantastically together," he says. "We are both strong-willed people, but our relationship is as smooth as can be."
Together they will be looking to develop the non-fiction trade list over the next three to four years to match the fiction side, a tall order given the success of top novels such as Stef Penney's Costa Award-winning The Tenderness of Wolves or Stieg Larsson's posthumous trilogy, kick-started this year with bestseller The Girl with the Dragon Tattoo. The Larsson books, Smith believes, "could have a Dan Brown moment" — with the Quercus marketing team aiming to sell at least one million copies. To that end, Quercus is assigning a quarter of next year's marketing budget to the second in the Millennium series, The Girl Who Played With Fire. "Tenderness and the Millennium trilogy are both in the same category of defining books for us," he adds. "It sounds a bit pretentious, but the Millennium trilogy will define the next part of our journey."