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Lower ad revenue sees News Corp’s fiscal revenue fall by four per cent to $8.57 bn

MUMBAI: US media conglomerate News Corp has announced revenues of $8.57 billion for the fiscal compared to $8.89 billion in the prior year.

The company reported total segment EBITDA of $770 million compared to $688 million in the prior year. Adjusted EPS were $0.46 compared to $0.62 in the prior year.

Reported EPS were $0.41 compared to $0.87 in the prior year (which included a non-taxable gain on the CMH and Sky Network Television Ltd. transactions and impairment charges).

Free cash flow available to News Corp improved by $293 million to $365 million. News Corp CEO Robert Thomson said, “We finished our first full year as the new News Corp and made significant progress in achieving the mission we articulated at the outset – to be more global and more digital through organic growth, product launches and strategic acquisitions. Thanks to the exciting e-evolution of News Corp’s leading global brands, we are enjoying enhanced engagement with our expanding paid audiences, underscoring the growth potential of our diverse portfolio.

“In addition to acquiring Storyful in December, strengthening our video reach and depth, we completed the Harlequin acquisition last week – which brings an international digital platform to HarperCollins. REA, our digital real estate services company, continues to show impressive top- and bottom-line growth, while importantly, expanding to new markets – most recently in Southeast Asia through an investment in iProperty. While we are operating in a challenging advertising environment, our results highlight the diversification of our portfolio and our cost discipline, leading to improved free cash flow and a firm foundation for sustained growth.”

The majority of the revenue decline for the fiscal reflects lower ad revenues at the News and Information Services segment, foreign currency fluctuations and the sale of the Dow Jones Local Media Group (LMG), partially offset by the inclusion of Fox Sports Australia, which News Corp began consolidating in November 2012 following the Consolidated Media Holdings (CMH) acquisition, and strong performance in the Book Publishing and Digital Real Estate Services segments.

The company reported full year total segment EBITDA of $770 million, a 12% increase as compared to $688 million in the prior year. These results include $72 million in fees and costs in fiscal 2014 and $183 million in fiscal 2013 – net of indemnification – related to the UK Newspaper Matters. The improvement was also driven by the consolidation of Fox Sports Australia and the strong performance in the Book Publishing and Digital Real Estate Services segments, offset by adverse foreign currency fluctuations, declines at the News and Information Services segment and higher investment at Amplify compared to the prior year.Adjusted Total Segment EBITDA decreased by two per cent compared to the prior year.

Net income available to News Corp stockholders was $237 million as compared to $506 million in the prior year, which included a non-taxable gain on the CMH and Sky Network Television Ltd. transactions within Other, net as well as impairment charges. Impairment and restructuring charges were $94 million and $1,737 million in the fiscal years ended June 30, 2014 and 2013, respectively. Adjusted net income available to News Corp stockholders (as defined in Note 3) was $268 million compared to $357 million in the prior year.

The company reported fourth quarter total revenues of $2.19 billion, a three per cent decrease as compared to the prior year fourth quarter revenues of $2.26 billion. The majority of the revenue decline reflects lower advertising revenues at the News and Information Services segment, the sale of LMG and foreign currency fluctuations, partially offset by strong performance in the Book Publishing and Digital Real Estate Services segments. Adjusted revenues were one per cent lower than the corresponding prior year period.

The company’s fourth quarter Total Segment EBITDA of $127 million, which includes the fees and costs, net of indemnification, related to the U.K. Newspaper Matters of $16 million, was a two per cent decrease as compared to $130 million in the prior year. This decline was primarily driven by weakness at the News and Information Services segment and adverse foreign currency fluctuations, partially offset by the strong performance in the Book Publishing and Digital Real Estate Services segments and lower costs in the Other segment. Adjusted Total Segment EBITDA decreased by seven per cent compared to the prior year.

Full year segment results

Fiscal 2014 full year revenues decreased $578 million, or 9%, compared to the prior year. Australian newspapers revenues declined 18%, of which 10% was related to foreign currency, and accounted for the majority of the segment revenue decline compared to the prior year.

Total segment advertising revenues declined 10%, driven primarily by weakness in the print advertising market coupled with the negative impact of foreign currency and the absence of results from LMG, partially offset by continued growth at News America Marketing led by in-store advertising.

Circulation and subscription revenues declined 5%, primarily due to the continued decline in professional information business (formerly Institutional) revenues at Dow Jones, the absence of results from LMG and lower print circulation volume, partially offset by cover price increases in the U.K. and at several Australian newspapers as well as higher subscription pricing at The Wall Street Journal and WSJ.com. Adjusted revenues declined 5% compared to the prior year.

Full year Segment EBITDA decreased $130 million, or 16%, as compared to the prior year. Results were impacted by continued revenue weakness in the Australian market and Dow Jones’ professional information business, coupled with the sale of LMG, incremental dual rent and other facility costs related to the relocation of the Company’s London operations of $21 million, which are primarily non-cash, and higher marketing expenses at News UK. The declines were partially offset by the growth in News America Marketing’s in-store advertising revenues. Adjusted Segment EBITDA decreased 13% compared to the prior year.

Fourth quarter segment results

Revenues for the fourth quarter of fiscal 2014 decreased $104 million, or 6%, compared to the prior year, which was driven by a 9% decline in advertising revenues and a 4% decline in circulation revenues. Adjusted revenues declined 5% compared to the prior year. Segment EBITDA decreased $80 million in the quarter, or 38%, as compared to the prior year. The decline was driven by $11 million of dual rent and other facility costs, as noted above, combined with higher marketing expenses and severance costs at News UK. Adjusted Segment EBITDA decreased 34% compared to the prior year.

Cable Network Programming : Fiscal 2014 revenues were $491 million and segment EBITDA was $128 million. The increases relative to the prior year primarily reflect the consolidation of Fox Sports Australia in November 2012.

On a stand-alone basis, revenues declined by five per cent versus the prior year revenues of $516 million, as the gains from higher affiliate pricing, increased digital platform subscribers and advertising growth were more than offset by adverse foreign currency fluctuations.

Full year segment EBITDA decreased by two per cent compared to the prior year stand-alone segment EBITDA of $130 million (consisting of operating income of $101 million and depreciation and amortization of $29 million), primarily driven by higher expenses associated with the National Rugby League rights contract and adverse foreign currency fluctuations, partially offset by the absence of domestic cricket rights costs.

Adjusted revenues and Adjusted Segment EBITDA for the full year increased 2% and 32%, respectively, compared to the prior year.

In the fourth quarter, revenues decreased by $10 million, or seven per cent, compared to the prior year. Segment EBITDA in the quarter was flat compared to the prior year. Adjusted revenues decreased by two per cent and adjusted segment EBITDA increased by 11 per cent, compared to the prior year.

Digital real estate services: Fiscal 2014 revenues increased by $63 million, or 18 per cent, compared to the prior year, primarily reflecting increased listing depth penetration across the product range. Segment EBITDA increased $46 million, or 27 per cent, compared to the prior year primarily due to the increased revenues as noted above. Adjusted revenues and adjusted segment EBITDA increased by 31 per cent and 41 per cent, respectively, compared to the prior year.

Revenues in the quarter increased $22 million, or 24 per cent, and segment EBITDA in the quarter increased $16 million, or 35 per cent, compared to the prior year. Adjusted revenues and adjusted Segment EBITDA increased by 33 per cent and 41 per cent, respectively, compared to the prior year.

Book Publishing: Full year revenues increased by $65 million, or five per cent, compared to the prior year driven by the success of the ‘Divergent’ series by Veronica Roth which sold more than 19 million net units throughout the year, as well as ‘The First Phone Call From Heaven’ by Mitch Albom and ‘The Pioneer Woman Cooks: A Year of the Holidays’ by Ree Drummond, partially offset by the impact of the divestiture of the Women of Faith live events business.

E-book revenues improved by 35 per cent versus the prior year and represented 22 per cent of consumer revenues, up from 17 per cent in the prior year. Segment EBITDA increased $55 million, or 39 per cent, from the prior year, benefiting from the higher contribution to profits from e-books and ongoing operational efficiencies coupled with higher revenues, partially offset by dual rent and other facility costs. Adjusted revenues increased by six per cent and adjusted segment EBITDA increased by 38 per cent, compared to the prior year.

Revenues in the quarter increased by $32 million, or 10 per cent, compared to the prior year driven by the continued popularity of the Divergent series. E-book revenues increased by 23 per cent versus the prior year period and represented 22% of consumer revenues, up from 19 per cent in the prior year. Segment EBITDA increased $11 million, or 50%, from the prior year. Adjusted revenues increased by nine per cent and adjusted segment EBITDA increased by 43 per cent, compared to the prior year.