RNS Number:9127Q
News Corporation Ld
15 October 2003
Chairman's Address
News Corporation Annual General Meeting
Adelaide
15 October 2003
Let me welcome the many hundreds of you
to this 2003 Annual General Meeting of The News
Corporation Limited and say what a pleasure it is
to be with you all again and to celebrate the
year 2003 fiscal year, which delivered the
magnificent operating profit of A$4.4 billion.
While many of our competitors continued to
grapple with the hangovers of the 90s excesses,
we steamed ahead to end the year with the
strongest balance sheet and competitive position
we have ever enjoyed.
Let me briefly summarise our results.
Full-year revenues were up 15 per cent to
US$17.5 billion, while operating income increased
36 per cent to a record US$2.5 billion. Those
record profits came not from one or two
operations but from record results at a wide
swathe of our businesses, including film, cable,
publishing, Australian newspapers, STAR in Asia,
and the FOX Television stations in the US. Along
with record profits, we increased our cash flow,
paid down debt and significantly improved the
health of our company. By 30 June 2003, we had
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effectively put another US$1.4 billion in the
bank, increasing our cash to US$4.9 billion,
while reducing debt by US$460 million to
US$8.2 billion.
To run through the performance at each of
our operating segments, let me start with Filmed
Entertainment where earnings increased to
US$641 million, a 36 per cent jump over the 2002
results, while our home entertainment business
continued to break records and our film studio
continued its extraordinary run of profitable box
office releases. Movies such as "X2: X-Men
United", "Dare Devil", "Phone Booth", and a
string of others gave us great returns at the box
office, while previous movie hits quickly became
best-selling DVD and video titles, including "Ice
Age", "Shallow Hal", "Behind Enemy Lines" and
others. It is no secret that those DVD and video
releases have added tremendous stability to our
filmed entertainment earnings and they provided
the bulk of the earnings increase in the segment.
Of course, the contribution of our television
studios should not be forgotten. Twentieth
Century Fox Television is scheduled to supply 24
series for the major American networks - not just
the FOX network but ABC, CBS, NBC and the WB - in
the 2003-2004 television season. The syndication
profits from existing or former hits such as
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"King of the Hill", "The Simpsons" and "X-Files"
as well as profits from the TV DVD market that we
pioneered last year continued to grow and buoy
the segment's bottom line.
Results at the television segment included
record contributions from the Fox Television
Stations group, the first full year of
profitability at STAR, and a dramatic decrease in
the losses at the FOX network. The US broadcast
television operations were dominated by the
best-ever ratings at the FOX network. Fox came
within a hair's breadth of toppling NBC for the
crown among US networks, and in fact won the
ratings race in both the February and May 2003
sweeps period on the back of hits such as "Joe
Millionaire", "American Idol", "24", "The
Simpsons", "That 70s Show", and "Bernie Mac".
The 16 per cent prime time ratings improvement
for the year at Fox helped lift operating income,
but it also gave a terrific boost to our station
group, which is our most profitable business, and
which in turn increased earnings by 24 per cent,
thanks to increased market share, higher
ratings,and the efficiencies we have gained from
the integrating of our duopoly stations. The
station group now comprises 35 television
stations covering nearly 40 per cent of the US
market and it increased its margins to
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46 per cent during ^ fiscal 2003.
Meanwhile, we started to reap the rewards of
our long-held faith and our years of hard work at
STAR in Asia. STAR's strength, particularly in
India, fuelled its first ever full year of
profitability, even as the platform absorbed
start-up losses in mainland China and elsewhere
in Asia. All told, operating income at our
television businesses was up a dramatic
46 per cent to US$851 million.
As good as the growth in the television
segment was, the cable network programming
segment remained the fastest growing area of the
entire company. Earnings more than doubled to
US$430 million in fiscal 2003, and I am convinced
there is considerable growth remaining in this
exciting business. Fox News Channel confirmed
itself as the darling of the news-watching public
by increasing its lead over its competitors,
despite predictions that its popularity would
wane as soon as the war in Iraq started.
Instead, its popularity soared.
Elsewhere, the Fox Sports News and FX lifted
profits through a combination of increased
subscriber numbers, higher affiliate fees and
better ratings. FX added a second hit series,
"Nip/Tuck", which premiered earlier in fiscal
2004, to its previous record-breaking and
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award-winning Series, "The Shield". FX's
original movie "44 Minutes: The North Hollywood
Shootout" drew more than six million viewers to
become the channel's best-rating program ever.
These successful series, coupled with the
tremendous ratings for its original movies, have
helped cement FX as a powerhouse in original
programming and a valuable asset among our
growing stable of pay-TV channels.
Meanwhile, newer channels such as National
Geographic and SPEED continued to grow rapidly.
The National Geographic Channel in the US, which
is two-thirds owned by News Corporation,
increased subscribers more than 50 per cent to
reach 43 million homes by the end of fiscal 2003.
In the print arena, News Corporation remains
a world leader. Our newspapers serve their
communities with pride here in Australia, as well
as in the United Kingdom and the United States.
The foundation of this company is its newspapers,
and they remain the soul of who we are: they
epitomise the "can-do" spirit that has naturally
filtered down to all parts of our group. The
competitive drive at each and every one of our
newspapers - whether it's a national broadsheet,
a capital city daily or a suburban weekly - is
present in the very DNA that makes News
Corporation.
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Nowhere was the health of our papers more
evident than here in Australia, where operating
income grew to record levels. In the United
States The New York Post attracted new
advertisers and grew circulation at a pace
unmatched by any other major newspaper in the
country, or perhaps the world. We remain
confident that this great newspaper can tip the
balance of the New York tabloid market in its
favour and reach profitability in the next few
years. Meanwhile, in Britain a price war,
started by a competitor of The Sun, lowered
earnings but led to circulation gains that we
intend to hold on to now that the price war has
ended. It is already showing results in
advertising, where we have a 5 per cent gain in
market share as against a loss of 1 per cent to
our competitor that started that price argument.
Elsewhere among our print assets,
HarperCollins books performed admirably
worldwide, achieving book sales that placed 111
books on the New York Times best seller lists,
including 13 number ones. Meanwhile, our News
American Marketing arm made steady gains in
market share and solidified its place as a clear
industry leader with innovative new products.
Among magazines, The Weekly Standard continued to
build on its position at the centre of
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conservative political thought in Washington,
while the beautifully produced "donna hay" and
"InsideOut" achieved substantial circulation
growth here in Australia.
On the subject of magazines, one of the few
dark clouds that hung over us last year was the
situation at Gemstar-TV Guide, a problem area we
worked hard, long and successfully to resolve.
With the removal of the former management and the
installation of new key executives, as well as a
relaunch of TV Guide magazine, we are already on
our way to restoring the lustre to this powerful
and respected brand. Only last week Gemstar
signed an important 12-year contract with Time
Warner Cable that ensures a TV Guide-branded
interactive programming guide will be deployed
throughout Time Warner's digital's cable
subscribers. The deal means that Gemstar-TV
Guide now has contracts in place covering
12 million active digital cable subscribers, and
we expect many more in the future.
Finally, we introduced a new segment in the
final quarter of fiscal 2003, Direct Broadcast
Satellite Television. The segment essentially
represents the performance of our
80 per cent-held Sky Italia, which was formed out
of the merger of STREAM and Telepiu in Italy.
Together with our partner, Telecom Italia, we
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acquired Telepiu in April this year, and
I believe the combined platform will one day be
one of News Corp's shining jewels. The combined
platform was relaunched at the end of July, and
has met or exceeded all of our expectations
since. In the first eight weeks after its
relaunch 1.4 million subscribers swapped to the
new service, while we added a
better-than-expected 280,000 new subscribers.
Many of these new subscribers, as well as those
who swapped to the new service, chose premium
packages. We anticipate that Sky Italia will
reach profitability within the next 18 months and
that it will have a very steep growth after that.
To say the least, we are all very excited
about Sky Italia's prospects.
I view Sky Italia's potential as being on a
par with the world-class performance of our
35 per cent-owned BSkyB. In fiscal 2003, for the
first time since our 1998 decision to convert Sky
to an entirely digital service, BSkyB generated
positive earnings contributions to News
Corporation. It was worth the wait. In that
time subscribers have doubled, and we have
developed a truly world-leading direct-to-home
television service that is the envy of
competitors in Britain and pay-TV companies
around the world. Many of the successes we have
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achieved at BSkyB will be replicated at Sky
Italia, and indeed, at each of our pay-TV
platforms around the world.
That brings me to perhaps the most exciting
event of the past year, which is of course our
anticipated acquisition of a 34 per cent stake in
Hughes Electronics, the owner of America's
leading direct-to-home satellite service,
DIRECTV. It remains our hope and our expectation
that this deal will receive the proper regulatory
approvals in the coming weeks and that we will be
able to close the transaction by the end of
calendar 2003. It is our intention to
immediately set about improving the DIRECTV
experience for consumers, with enhanced
interactive services, broader local-into-local
coverage, new technological offerings, such as
personal video recorders, and greatly improved
customer service. All these things will,
I believe, enable us to compete head-to head with
the presently dominant cable companies by giving
consumers greater choice and better services.
That will lead to greater returns for
shareholders of Hughes, Fox Entertainment Group
and News Corporation. I expect that I will have
a great deal to tell you about Hughes and DIRECTV
when we meet here again next year.
The anticipated completion of the DIRECTV
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transaction will mark the culmination of a
long-time pursuit by our company of providing the
missing link in a global satellite television
platform that will span four continents and
encompass 23 million subscribers at its
beginning, all of which will give us, I believe,
the perfect balance of assets for a media
company, the right mix of subscription and
advertising revenues, the right mix of content
and distribution businesses, and a geographic
breadth that is unmatched by any media company in
the world today.
Let me speak a little about corporate
governance, a topic that has taken on far greater
significance in the past few years with several
high-profile corporate collapses here and in the
United States. We have always been careful to
meet the spirit and the letter of the law on
corporate governance, and the past year has been
no exception, as we have undertaken many changes
to comply with the Sarbanes-Oxley Act, new SEC
rules, and newly proposed New York Stock Exchange
Listing Rules in the United States, as well as
revised guidelines at the Australian Stock
Exchange.
News Corporation has reconstituted its three
board committees. The Audit Committee,
Nominating and Corporate Governance Committee,
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and the Compensation Committee will - and does -
consist solely of nonexecutive directors who will
satisfy the "independence" requirements of the
proposed NYSE rules when those rules become
effective. The NYSE rules are generally more
restrictive than the ASX guidelines.
During the fiscal year, Stan Shuman resigned
from the Audit Committee, and Graham Kraehe, who
is present with us today, was appointed chairman
of that committee. Mr Kraehe has a great deal of
expertise in financial matters and, as you all
know, is one of Australia's most respected and
influential business leaders.
Also during the year the former Nominating
Committee was restructured to form the nominating
and corporate governance committee and the three
new independent members were appointed: Geoff
Bible, Ken Cowley and Rod Eddington. This
committee is charged with recommending nominees
for the company's board of directors and with
advising and making recommendations to the board
on corporate governance matters.
Finally, the Compensation Committee was
restructured and took over the role of the former
Share Option Committee. Andrew Knight, as
chairman, and Tom Perkins - again independent,
non-executive directors - were appointed to this
committee. Dr Erkko was also a member. As a
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consequence of Dr Erkko's retirement from the
board, at the next board meeting, Rod Eddington
will be nominated to become a member of this
committee. This committee has been meeting
without the presence of any executive directors
to discuss the compensation of all the executive
directors and other senior management in the
company. The compensation of your chairman and
chief executive for the past fiscal year was
decided by the non-executive directors sitting
without the presence of the executive directors,
upon recommendation of the Compensation
Committee.
News Corporation is proud of its record of
scrupulous corporate governance, and it will
continue to comply with the changing rules and
regulations in each of the markets in which we
operate. Our high standards of corporate
governance have shielded us from any of the
difficulties and scandals that have faced too
many other companies in the past few years.
I have full confidence that we have a management
team as honest as it is capable.
Much credit for our good reputation, as well
as our outstanding results in fiscal 2003, must
also go to our 37,000 hard-working and talented
employees around the world. The combined efforts
of our managers and employees produced record
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profits last year, and we are on target to repeat
the performance this year. As we said when we
released our year-end results in August, we
anticipate operating income growth at News
Corporation in the high-single to low double
digit range this year. Based on the performance
of our businesses so far in fiscal 2004, I am
very confident that we will meet these targets.
Based on present trends, as well as our
expectations for many of our developing
businesses, I believe we can achieve average
annual earnings growth of 20 per cent in the
coming years.
I want to end on a personal note. Last
month marked an anniversary of sorts: 50 years
since I assumed control of News Limited, then a
small South Australian publishing company just
across the road from here, where we started our
growth out of Adelaide News. You will not have
noticed the milestone, because we did not make
any fuss about it. In fact, I did not even know
about it until somebody pointed it out to me
recently. At News Corporation we are guided by
the success of those past 50 years, as well as by
some of the mistakes we have made along the way,
but what truly drives us are the opportunities
for the next 50 years. I want to say to you that
I am tremendously proud to have had the privilege
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of leading this company and its wonderful
employees, and proud to have served its
shareholders and investors for the past 50 years.
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This information is provided by RNS
The company news service from the London Stock Exchange
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