The axe continues to hover over the Australian operations of News Ltd. After revealing asset impairment charges of $US2.8 billion in the year to June, Rupert Murdoch’s News Corporation has warned that it could make further cuts to the value of its goodwill of up to $US2.2 billion, mostly in its publishing businesses in Australia, the US and UK.
The charges were made to rebalance the asset base of the publishing businesses ahead of the planned split in the company later this year. They also reflect the sharp downturn in activity, ad revenues and circulation sales for many of the papers, especially in Australia. The warning indicates that News Corp management has not finished this rebalancing. The local arm’s asset base will be boosted if the ConsMedia takeover happens. That will bring 50% of Foxtel and 100% of Fox Sports onto the News Ltd balance sheet.
The new warning is contained in the 2011-12 annual report, filed with the US Securities and Exchange Commission Tuesday night, our time. News told investors:
“As a result of the fiscal 2012 annual impairment review performed, the company recorded non-cash impairment charges of approximately $2.8 billion ($2.4 billion, net of tax) during the fiscal year ended June 30, 2012. The charges consisted of a write-down of goodwill of $1.5 billion and a write-down of indefinite-lived intangible assets of $1.3 billion. (Primarily newspaper mastheads and distribution networks).
“These impairment charges were primarily the result of adverse trends affecting several businesses in the company’s publishing segment, including secular declines in the economic environment in Australia, a decline in in-store advertising spend by consumer packaged goods manufacturers in the US and lower forecasted revenues from certain businesses utilising various trade names owned by the company’s newspaper operations. The charges also reflected the pending sale of certain businesses at values below their respective carrying values.
“The publishing and other segments have reporting units with goodwill that continue to be at risk for future impairment. Goodwill was $2.2 billion as of June 30, 2012 at these reporting units where goodwill is at risk for future impairment. The company will continue to monitor its goodwill and intangible assets for possible future impairment.”
The “other” part of this segment consists of certain digital businesses and News’ education technology business.
Much of the $US2.8 billion in impairment charges were taken in Australia after a big restructuring was announced in June. At last week’s post-profit announcement call with investors, News chief operating officer Chase Carey warned of a flat year and the possible need for further restructuring of the Australian operations: “Our publishing business are clearly in a restructuring mode.” He forecast a flat outlook for 2013, when he said the company will cut news publishing costs. Cuts will be more likely in Australia than in the UK, where some cuts and property savings have already been made, Carey said.
The News report reveals the company had goodwill and intangibles in its publishing business totalling $US4.58 billion at June 30, down from $US7.37 billion at June 30, 2011. The $US2.2 billion figure is almost half the goodwill and intangibles for the division. The accounts show that publishing had total assets of $US10.91 billion at June 30 ($US14.91 billion a year earlier). The accounts also reveal that the company recorded a restructuring charge of $US197 million, “of which $US175 million related to the newspaper businesses.
These included the cost of the shutting of The News of the World, “certain organisational restructurings at other newspapers and the closure of a regional newspaper”:
“For the fiscal year ended June 30, 2012, revenues at the publishing segment decreased $578 million, or 7%, as compared to fiscal 2011, primarily due to lower revenues in the UK, principally resulting from the absence of $226 million in revenue resulting from the shutdown of The News of the World in July 2011, lower revenues at the Australian newspapers and lower advertising revenues at the integrated marketing services business resulting from lower volume of in-store and coupon marketing products. The weakening of the US dollar against local currencies, primarily the Australian dollar, resulted in a revenue increase of approximately $104 million for the fiscal year ended June 30, 2012 as compared to fiscal 2011.
“For the fiscal year ended June 30, 2012, operating income at the Publishing segment decreased $267 million, or 31%, as compared to fiscal 2011, primarily due to the revenue decreases noted above and the absence of $122 million in operating profit resulting from the shutdown of The News of the World.”
That’s the first time we have seen revenue and profit figures for the News of the World. The operating profit of $US122 million, on revenue of $US226 million, gives us a gross margin of 54%, which is very fat indeed. No wonder the value of the UK operations were also reduced in the latest impairment charges. That’s a serious loss of earnings.The accounts also give us the bare bones of the Australasian and Australian operations. In Australasia (which includes Australia, Asia, PNG, NZ and Fiji) News had revenues of $US6.091 billion in the 2012 financial year, up from $US5.807 billion in 2011 and $US5.338 billion in 2010.
Australian revenues were listed as being $US3.2 billion for 2012, which was unchanged from 2011. In 20910, revenues in Australia totalled $US2.9 billion. No figures for operating earnings in Australia (or losses) were given. Australia’s revenues were bigger than in the UK, which were listed as $US2.6 billion for 2012 and $US2.6 billion in 2011 and 2010.
And the annual report reveals News Corp has been cutting staff (the News of the World closure and the start of restructurings in Australia, plus the sale of NDS). It said the company had about 48,000 employees. A year earlier, the 2011 report said there were about 51,000.
Meanwhile, Murdoch yesterday told staff worldwide that the company was reviewing and revamping anti-corruption controls in several of its publishing arms, including News International in London.
Murdoch told News Corp staff in a memo on Wednesday that the company recently launched the probe as a “forward-looking review” to improve compliance with bribery laws. He told staff that the anti-corruption review was “not based on any suspicion of wrongdoing by any particular business unit or its personnel”. That’s despite the arrest of 14 journalists from The Sun in a police investigation into bribery of officials in various parts of the UK government.