Writedowns push News deep into the red

THE Australian arm of Rupert Murdoch's News Corp has reported a $300 million loss for the past financial year, with large write-downs in the value of its mastheads reflecting the difficulties facing the newspaper industry and the unpredictable future of digital media.

By InvestSMART · 16 Nov 2011

By InvestSMART ·
16 Nov 2011

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Accounts filed with the corporate regulator show that in his final full year as chairman and chief executive of News Ltd, John Hartigan oversaw a write-down in the value of the assets of its holding company in the order of $713 million.

That turned the operating profit of News Australia Holdings into a significant loss. Last year, it reported a $300 million profit.

The group includes The Australian, Daily Telegraph, Herald Sun and other newspapers, plus a quarter stake in Foxtel, half of Fox Sports and 44 per cent of the New Zealand pay TV monopoly, Sky.

It reported an operating profit of $645 million, up 1.7 per cent on the previous year, with revenues of $2.9 billion, up a comparatively marginal $46 million.

The company paid a dividend of $1.2 billion, but received an interest bearing $1.2 billion loan from another News Corp entity.

The report noted that trading conditions deteriorated in the second half of the financial year - a common position for all publishers and other parts of the economy. It only briefly noted the main event that turned the accounts from black to red.

"The group also recorded impairment charges of $713 million during the year relating to certain publishing mastheads and titles and related goodwill," the report said. "The impairment charge reflects lower future forecast earnings for these businesses and uncertainties surrounding the impact and timing of future digital revenue streams."

The accounts do not indicate the performance of the various print, digital and TV businesses, but it is no secret that print newspapers are struggling in both circulation and share of the advertising market.

While their online versions have gained mass readership, the digital advertising revenue has not been enough to offset the declines in print, prompting News Ltd to launch its program of digital subscriptions, first for The Australian then for the major tabloids next year.

News is not alone in writing down the value of its print assets. Fairfax Media, publisher of the Herald and The Age, also turned an operating profit into a net loss in the past financial year after also writing down the value of mastheads. In August, it reported a loss of $401 million after write-downs of $650 million, despite a better-than-expected operating profit of $274 million after tax.

The same month, APN News & Media booked a $156 million charge against its New Zealand major newspaper mastheads - primarily The New Zealand Herald and the Herald on Sunday - which saw it post a $98 million loss for the six months to the end of June.

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Frequently Asked Questions about this Article…

Why did News Corp’s Australian arm report a $300 million loss?

News Corp Australia reported a $300 million loss mainly because it recorded impairment write-downs totaling about $713 million against the value of certain publishing mastheads and related goodwill. Those write-downs reflected lower expected future earnings for those titles and uncertainty around the timing and impact of future digital revenue streams, which turned what would have been a profit into a significant loss.

What was the $713 million impairment charge and what does it mean for investors?

The $713 million impairment charge was a write-down against the value of specific newspaper mastheads, titles and associated goodwill. For investors, it signals that company forecasts for those publishing assets were reduced because future earnings are expected to be lower and the shift to digital revenue is uncertain — meaning the historical book value of those print assets no longer matched expected cash flows.

How could News Australia show an operating profit of $645 million yet still report a loss?

On an operating basis News Australia reported $645 million in profit (up 1.7%) with revenues of $2.9 billion, but the large $713 million impairment charge against publishing assets pushed the bottom line into a loss. In other words, strong operating results were outweighed by non‑cash write‑downs of asset values.

What does this say about the health of print newspapers and digital ad revenue?

The accounts underline that print newspapers are struggling with circulation and advertising share. While online readership has grown, digital advertising revenue hasn’t been enough to offset print declines. As a result, publishers like News Ltd are pursuing digital subscriptions (starting with The Australian and rolling out to major tabloids next) to try to make up the shortfall.

How did other Australian publishers like Fairfax and APN perform in the same period?

Fairfax Media also turned an operating profit into a net loss after large write‑downs: it reported a $401 million loss after $650 million in masthead write‑downs, despite an operating profit of $274 million after tax. APN News & Media booked a $156 million charge against its New Zealand newspaper mastheads and posted a $98 million loss for the six months to the end of June.

Do the write‑downs affect News Corp’s TV and pay‑TV investments like Foxtel, Fox Sports and Sky?

The article notes News Corp’s stakes in Foxtel (quarter), Fox Sports (half) and 44% of New Zealand pay‑TV operator Sky, but the impairment charges reported related specifically to certain publishing mastheads and goodwill. The accounts in the article don’t provide detailed performance breakdowns for the separate print, digital and TV businesses, so the write‑downs were targeted at publishing assets rather than directly attributed to TV investments.

What corporate actions did News Australia take during the year that investors should know about?

The company paid a $1.2 billion dividend during the year and also received an interest‑bearing $1.2 billion loan from another News Corp entity. The report also noted trading conditions deteriorated in the second half of the financial year and management launched a program of digital subscriptions to boost online revenue.

Who is John Hartigan and what was his role in these results?

John Hartigan was chairman and chief executive of News Ltd, and the accounts filed show that the $713 million write‑down occurred in his final full year in that role. The write‑down of the holding company’s assets was a key event that moved the group’s accounts from profit to loss during his last full year as chief executive.