News Corp falls into $8.8b hole

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    News Corp falls into $8.8b hole
    By Ian McIlwraith
    May 15 2002

    Rupert Murdoch's News Corporation has pronounced itself content with its performance after posting a massive $8.8 billion loss for the first nine months of the financial year.

    Hit by the twin blows of writing down its investment in sporting rights and the dwindling share price of its investment in Gemstar-TV Guide International, News Corp last night racked up Australia's largest-ever corporate loss.

    It easily eclipsed the previous record of $2.3 billion, held by BHP when the resource group was forced to write off its ill-fated venture into Magma Copper in 1999 - a move that led to a wholesale departure of directors and managers.

    At News Corp, however, the same is not expected to occur because of the Murdoch family's tight grip on the share register.

    At the end of the first half, News Corp wound back its profit forecasts from an expected 8-12 per cent increase to only 5-6 per cent.

    Mr Murdoch said in a statement that he was extremely pleased with the company's performance before the abnormal charges. This showed an increase from $995 million to $1.01 billion in profit for the nine months to March 31.

    The result in US dollar terms, where international fund managers will mark the company, was a less exciting $US522 million, down from $US546 million.

    The big dent came with the abnormal charges of $9.8 billion booked for the nine months, $8.2 billion of them in the March quarter.

    The bulk of that came from News' Gemstar stake, which was in its books at $US38 a share, compared with its market price of $US9.25 a share the day before the results were released.

    That represented a value gap of more than $US5 billion on News' balance sheet, and Gemstar's price fall reflected its own move to write off $US5 billion in goodwill from its balance sheet.

    News announced in late March it planned to write down $US2 billion on the Gemstar stake but it has now decided to take the full hit.

    "The substantial non-cash writedown of our Gemstar investment does nothing to alter our firm belief in the strategic value of this powerful asset," Mr Murdoch said.

    Apart from newspapers and the Fox television network in the US, both of which have been hit by the worldwide slump in advertising, News Corp's other operations were actually picking up speed, the company said.

    "We are extremely pleased with the robust growth achieved this quarter across all our key operating segments in the US, as well as our continued strength internationally," Mr Murdoch said.

    "Our balance sheet is stronger than ever, providing us with greater financial flexibility during an uncertain time."

    Elsewhere in News' operations, earnings from its Australian newspaper business, which fell 5 per cent in the first half, accelerated their decline with a 7 per cent fall, compared with a double-digit increase in the corresponding quarter of 2001. News said that while its circulation gains averaged 3 per cent, advertising had fallen 4 per cent, mainly in employment ads.

    Foxtel, in which News has a 25 per cent stake, made a $16 million loss, against the $9 million lost in the third quarter of the previous year, bringing its nine-month loss to $46 million, compared with $37 million last year.

    Filmed entertainment was a hit for News, rising from an $84 million profit in March 2001 to $310 million in the latest quarter, with the best yet to come, according to the company, when earnings from the children's film Ice Age begin to flow. Moulin Rouge and Kiss of the Dragon were the notable contributors to the nine-month profit of $772 million, up from $489 million.

    In local trading yesterday News Corp ordinary shares closed 13 cents higher at $11.92. Its preferred stock was unchanged at $10.10.

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