NEWS CORP quarterly report, Q3 FY2020

Business context and reporting period

News Corporation is a diversified media and information-services company operating in news and information services, subscription video, book publishing and digital real estate. This filing covers the quarter and nine months ended March 31, 2020 (fiscal 2020 Q3; fiscal year ends June 30), compared with the corresponding 2019 periods. The request metadata says “2019 Q3,” which does not match the filing period.

Unless indicated otherwise, amounts are in U.S. dollars and millions. Interim results are unaudited. Segment EBITDA is a non-GAAP measure.

Key financial metrics

Quarterly and year-to-date Segment EBITDA margins were approximately 10.7% and 11.5%, respectively, versus 10.1% and 12.8% in the prior-year periods. Margins are calculated as Segment EBITDA divided by revenue.

At March 31, 2020, cash and cash equivalents were $1,388; total borrowings were $1,115, with no current borrowings reported. Total current assets were $3,741 and current liabilities $2,689. Borrowings were incurred by Foxtel and REA Group, are guaranteed by those groups and subsidiaries, and are non-recourse to News Corp. Operating lease liabilities were $1,249 non-current, plus $156 current.

Changes versus prior comparable periods

• Revenue declined across both reported periods, led by lower advertising and subscription revenue, foreign-exchange effects and weaker News America Marketing results. Circulation and subscription revenue increased slightly at News and Information Services, helped by digital subscriber growth and price increases.
• Segment EBITDA fell 2% for the quarter and 16% for the nine months. Subscription Video Services EBITDA declined 31% and 26%, respectively; Book Publishing EBITDA rose 4% for the quarter but fell 20% year to date; Digital Real Estate Services EBITDA was broadly flat for the quarter and down 8% year to date.
• Net losses included $1,106 of non-cash impairment charges in the quarter and $1,398 year to date, compared with impairment and restructuring charges of $34 and $71, respectively, in 2019.
• Operating cash flow decreased $199 year to date. Capital expenditures were $335, versus $417 in 2019; free cash flow available to News Corp fell $86.
• Cash declined from $1,643 at June 30, 2019 to $1,388 at March 31, 2020. Total borrowings declined from $1,453 to $1,115, following refinancing and repayments.

Outlook, commentary, risks and unusual items

• COVID-19: Management said effects were not material to reported results for the three and nine months ended March 31, but expected a more significant impact in fiscal Q4. Risks cited include lower advertising and print sales, postponed sports and subscriber impacts, lower commercial subscriptions, book distribution disruptions and weaker real-estate listings and transactions. Management said the duration and financial impact were highly uncertain and did not provide quantified earnings guidance.
• News Corp described cost reductions, lower discretionary spending, reduced non-essential capital expenditures and headcount actions, and a shift of some local newspapers to digital-only. Fiscal 2020 capital expenditures were expected to be approximately $435, including an anticipated 35%–40% reduction in Foxtel capital spending.
• Impairments: Foxtel recorded $931 of non-cash impairment charges, including $882 against goodwill and $49 against indefinite-lived intangibles, following lower expected subscribers and COVID-related revenue concerns. News America Marketing recorded a $175 disposal-group write-down in the quarter; it had also recorded $235 of goodwill and intangible impairments earlier in fiscal 2020.
• Disposals: News America Marketing was sold on May 5, 2020, after the quarter-end. Consideration included $50 cash at closing, subject to adjustments and reinvestment for a 5% equity stake, deferred cash payments of $125 to approximately $185 depending on timing, and a warrant for up to an additional 10% stake. News Corp retained certain legal liabilities. Unruly was sold in January 2020 for approximately 7% of Tremor, alongside a three-year commercial arrangement with a £30 minimum revenue guarantee.
• Liquidity and debt: Management said cash, operating cash generation and available credit were expected to meet foreseeable needs, while cautioning that COVID-19 could affect financing access and cost. News Corp had an undrawn $750 revolving facility at quarter-end. Debt covenants were reported in compliance. REA Group amended facilities and added working-capital and overdraft facilities in April 2020, after quarter-end.
• Contingencies: News America Marketing-related antitrust cases brought by Insignia and Valassis remained unresolved; the company said outcomes could not be predicted. The company retained these liabilities after the business sale. For U.K. newspaper matters, News Corp accrued approximately $62 and recorded an approximately $66 receivable for indemnification by Fox Corporation at March 31, 2020.
• No ordinary forward earnings projections were provided. The board’s February 2020 semi-annual dividend of $0.10 per share was paid April 15; future dividends remain discretionary.

Most important facts for investors to verify

• Confirm the intended reporting period: the supplied filing is for fiscal 2020 Q3, not 2019 Q3.
• Review the impairment assumptions and whether further COVID-related impairments, tax valuation allowances or operating losses arise.
• Track advertising, sports-event scheduling, subscriber trends and real-estate activity, particularly the anticipated fiscal Q4 effects.
• Verify the News America Marketing sale proceeds, deferred payment terms, retained liabilities and resolution of the Insignia and Valassis cases.
• Monitor operating cash flow, accessible cash (including cash held at separately listed REA Group), debt covenants and the impact of lease liabilities on liquidity.