News Corporation — FY2020 Form 10-K
Period clarification: The provided filing is the annual report for the fiscal year ended June 30, 2020 (52 weeks ended June 28, 2020), not a 2019 Q4 filing. Unless noted, amounts are U.S. dollars.
Business context and reporting period
News Corp is a global media and information services company operating in digital real estate, subscription video, news and information, and book publishing. Its six reporting segments are Digital Real Estate Services, Subscription Video Services, Dow Jones, Book Publishing, News Media and Other. Dow Jones became a separately reported segment in FY2020; prior-period segment figures were revised to conform.
Financial results and key metrics
| Metric | FY2020 | FY2019 |
|---|---|---|
| Revenue | $9.008 billion | $10.074 billion |
| Net income (loss) attributable to News Corp stockholders | $(1.269) billion | $155 million |
| Net cash provided by operating activities | $780 million | $928 million |
| Capital expenditures | $438 million | $572 million |
| Free cash flow available to News Corp (non-GAAP) | $180 million | $213 million |
| Cash and cash equivalents at year-end | $1.517 billion | $1.643 billion |
| Total borrowings | $1.259 billion | $1.453 billion |
Total Segment EBITDA, a non-GAAP measure, was $1.013 billion, down from $1.244 billion. Impairment and restructuring charges were $1.830 billion, including $1.690 billion of non-cash impairments. The GAAP net loss reflected these charges and lower operating performance. The filing reports current assets of $3.461 billion and current liabilities of $2.682 billion.
| Segment | FY2020 revenue | FY2020 Segment EBITDA | Revenue change vs. FY2019 |
|---|---|---|---|
| Digital Real Estate Services | $1.065 billion | $345 million | Down 8% |
| Subscription Video Services | $1.884 billion | $323 million | Down 14% |
| Dow Jones | $1.590 billion | $236 million | Up 3% |
| Book Publishing | $1.666 billion | $214 million | Down 5% |
| News Media | $2.801 billion | $53 million | Down 18% |
| Other | $2 million | $(158) million | Not meaningful |
Material changes versus the prior comparable period
- Revenue fell 11%; advertising declined 20% to $2.193 billion. Circulation and subscription revenue declined 6% to $3.857 billion.
- Management estimated COVID-19 reduced FY2020 revenue by $370 million. Foreign exchange movements reduced revenue by a further $275 million.
- News Media revenue and EBITDA contracted sharply, reflecting print-ad weakness, COVID-related pressure and the May 2020 sale of News America Marketing. Subscription Video Services also weakened, while Dow Jones revenue and EBITDA grew.
- Dow Jones digital revenue reached 67% of segment revenue, up from 63%. Average daily WSJ digital-only subscriptions rose 23% to 2.244 million; total consumer digital-only subscriptions increased 28% to 2.8 million.
- Foxtel’s year-end residential broadcast subscribers fell to 1.903 million from 2.104 million. Kayo had 419,000 paid subscribers and Binge, launched in May 2020, had 56,000 paid subscribers at June 30.
- Cash from operations decreased $148 million. The company repaid $1.226 billion of borrowings and raised $926 million of new borrowings during the year. No share repurchases were made; dividends remained $0.20 per share.
Outlook, management commentary, risks and unusual items
- The company does not ordinarily provide projections of future operating results. Management expected COVID-19 effects to continue into FY2021, with the pace and scale dependent on the pandemic, restrictions and economic recovery.
- Management expected approximately $400 million of FY2021 capital expenditures. It cited expected Foxtel cost reductions of about $100 million in FY2021, net of approximately $55 million of deferred sports-rights costs, and annualized shared-services savings of at least $100 million beginning FY2022.
- Foxtel renegotiated sports agreements and expected to save an estimated A$180 million in programming costs over the next three fiscal years. Resumed events could raise costs before associated revenue fully recovers.
- FY2020 impairments included $931 million at Foxtel, $410 million related to News America Marketing, and $292 million identified in the annual impairment assessment. Approximately $908 million of goodwill remained at risk of future impairment, principally in Subscription Video Services and News Media.
- Liquidity: management said cash, operating cash flow and available credit were expected to meet needs for at least 12 months. The company had an undrawn $750 million corporate revolver. $153 million of cash held by separately listed REA Group was not readily accessible without a dividend declaration.
- Most reported borrowings were at Foxtel and REA Group and were non-recourse to News Corp. Foxtel’s debt covenants, leverage, subscriber trends and ability to refinance are important risks. Total firm commitments and contractual obligations were $6.430 billion, including programming rights, purchase obligations, leases, borrowings and interest.
- News America Marketing was sold for consideration of up to approximately $235 million plus equity-related consideration; News Corp retained certain liabilities. The company also retained legal exposure in Insignia and Valassis antitrust cases; outcomes and potential losses were not estimable in the filing.
- For U.K. Newspaper Matters, the company accrued approximately $64 million and recorded an approximately $66 million receivable for expected FOX indemnification. Additional claims and ultimate costs remained uncertain.
- Other material risks include continued declines in print advertising and circulation, competition from streaming and digital platforms, sports-rights costs, foreign-exchange exposure, privacy and cybersecurity regulation, and potential further asset impairments. Auditors issued unqualified opinions on the financial statements and internal controls; management reported effective internal control over financial reporting.
Most important facts for investors to verify
- Whether COVID-related revenue and advertising pressure, real estate activity and sports subscriber trends improved or worsened after year-end.
- Progress toward the stated Foxtel and shared-services cost savings, and whether savings offset deferred programming costs and revenue weakness.
- Foxtel’s and REA Group’s debt covenant headroom, refinancing needs and cash availability, including cash held at REA Group.
- Whether the remaining at-risk goodwill or other assets require additional impairments.
- Final proceeds and retained liabilities from the News America Marketing sale, and developments in the Insignia, Valassis and U.K. Newspaper Matters proceedings.
- Whether the non-GAAP Segment EBITDA and free-cash-flow measures reconcile consistently with GAAP results and adequately reflect recurring cash needs.