The depth of the never-ending stream of red ink at the Murdoch family’s Australian newspapers has been exposed in another filing with United States regulators that fleshes out the third-quarter report released on Friday.
The filing shows that News Corp Australia’s newspapers lost revenue at the rate of more than US$3 million (A$3.2 million) a week in the March quarter. That’s the amount left after deducting the impact of the higher US dollar against the Aussie currency. Including the foreign exchange impact, the newspapers lost more than US$8 million a week in the March quarter.
The filing also confirmed that the Murdoch family’s Australian newspapers remain the worst-performing part of the News Corp arm of the empire. And if it hadn’t been for a US$794 million tax benefit, courtesy of the Australian taxpayer, News Corp would have reported a loss for the quarter.
The new filing (called a 10Q) put dollar values to the percentage changes revealed in the briefer report issued on Friday morning, our time. News’ global news and information services segment recorded a 9% or US$143 million fall in revenue in the quarter, and a US$474 million fall (also down 9%) for the nine months ended March 31, 2014.
But as the company reported, there was a 21% plunge in Australian revenues, with the rise in the greenback accounting for 13%. That means there was an 8% fall in revenues from trading in Australia in the quarter. The fall in revenues (from advertising, circulation and “other”, which wasn’t identified) in Australia was US$103 million for the quarter and US$317 million for the nine months to the end of March. Including the foreign exchange impact, that was made up of US$77 million in the quarter from lower ad revenues, US$14 million from lower circulation revenues and a US$12 million fall in “other”. For the nine months the figures were a fall of US$257 million in ad revenues, a US$40 million fall in circulation revenues and a US$20 million drop in “other” income.
It is impossible to work out if News Corp Australia operated at a trading profit in the quarter and in the nine-month period. On the figures presented in the accounts, it is doubtful. The company earned just US$48 million in the quarter from all sources. The underlying lack of profitability in News Corp was best illustrated by the paltry tax bill of just US$1 million for the quarter, which was lowered by some help from a favourable tax deal in Australia, where a tax refund reduced the tax bill to virtually nothing.
That caught the eye of Sydney investment analyst Mark McDonnell from BBY, who pointed out on Friday that not only was there another cost from the News of the World phone-hacking scandal of US$20 million for the quarter (that’s above and beyond what 21st Century Fox paid under a previous costs indemnification agreement, and US$144 million for the nine months), but the company’s tax bill was very low:
“When you pay $1 million in income tax for the quarter, yes, you can really dress up your net income. The fact that they’re not really not paying any tax, and in the year-to-date they’re showing a nearly $700 million tax benefit, simply to have a net income that is less than 40% of the income tax benefit that you have received for the nine months of this financial year highlights the intrinsic lack of profitability in this company.”
News explained the low tax bill thus:
“During the nine months ended March 31, 2014 and 2013, the Company paid gross income taxes of $69 million and $82 million, respectively, and received income tax refunds of $840 million and $12 million, respectively. The income tax refunds for the nine months ended March 31, 2014 included the $794 million related to amounts received from the foreign tax authority discussed above.”
That was from the Australian Tax Office. The US$724 million was paid through to 21st Century Fox under an agreement between the two companies. The tax liability extended back to when the two companies were one group in the old News Corp. The ATO had challenged claims made by News when it fled Australia for life in the US about a decade ago. The ATO lost a series of legal cases, meaning it finally had to make a large payment to the Murdoch family company.
News Corp’s Weekend Australian and The Australian are reporting on a hit list at Fairfax Media of newspapers that could be shut as cost-cutting measures. But not one report in a News Corp paper has laid out the tide of red ink still overwhelming the local papers, or the favourable impact of the latest huge tax benefit.
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