Weak Domestic and Global Economic Conditions and Volatility and Disruption in the Financial and Other Markets May Adversely Affect the Company’s Business.
The U.S. and global economies and markets have weakened recently and are experiencing uncertainty and volatility due to, among other things, higher inflation, changes in monetary policy, increased interest rates, supply chain disruptions, volatile foreign currency exchange rates, the war in Ukraine, the ongoing recovery from the COVID-19 pandemic and trade disputes and other geopolitical events. These conditions increased the Company’s costs in fiscal 2022 and higher home prices and interest rates, in particular, contributed to recent declines in real estate lead and transaction volumes and adjacent businesses at its digital real estate services business. These and other similar conditions have in the past also resulted in, and could in the future lead to, among other things, a tightening of, and in some cases more limited access to, the credit and capital markets, lower levels of liquidity, increases in the rates of default and bankruptcy, lower consumer and business spending, lower consumer net worth and a decline in the real estate and energy and commodities markets. Such weakness and uncertainty and associated market disruptions have often led to broader, prolonged economic downturns that have historically resulted in lower advertising expenditures, lower demand for the Company’s products and services, unfavorable changes in the mix of products and services purchased, pricing pressures, higher borrowing costs and decreased ability of third parties to satisfy their obligations to the Company and have adversely affected the Company’s business, results of operations, financial condition and liquidity. Any continued or recurring economic weakness is likely to have a similar impact on the Company’s business and reduce its circulation and subscription, advertising, real estate, consumer and other revenues and otherwise negatively impact the performance of its businesses. The Company is particularly exposed to (1) certain Australian business risks because it holds a substantial amount of Australian assets and generated approximately 40% of its fiscal 2022 revenues from Australia and (2) to a lesser extent, business risks relating to the U.K., where it generated approximately 13% of its fiscal 2022 revenues. As a result, the Company’s business, results of operations and financial condition may be adversely affected by negative developments in the Australian and U.K. markets.
The Impact of the COVID-19 Pandemic and Other Similar Epidemics, Pandemics or Widespread Health Crises is Difficult to Predict and Could Adversely Affect the Company’s Business and Results of Operations.
The COVID-19 outbreak and measures to prevent its spread caused significant and prolonged unemployment, a decline in consumer confidence, changes in consumer behavior, significant economic deterioration, volatility in the capital markets, inflation, supply chain disruptions and an increasingly competitive labor market and have had, and may in the future have, an adverse effect on the Company’s business and results of operations. For example, business restrictions and shelter-in-place orders caused a decline in print newspaper volumes, while postponements and cancellations of sports events negatively impacted commercial subscription revenues and broadcast and Kayo Sports subscribers. Advertising revenues also declined due to the resulting economic downturn. Other epidemics, pandemics or widespread health crises may have similar effects.
While restrictions related to the COVID-19 pandemic have eased, the extent to which it and any similar epidemics, pandemics or widespread health crises may impact the Company in the future will depend on, among other things, the severity, duration, spread and any reoccurrence of such crises (including due to the emergence of new variants), the impact of governmental actions and business, consumer and customer behavior in response, the effectiveness of actions taken to contain or mitigate outbreaks and prevent or limit any reoccurrence, including the development, availability and public acceptance of effective treatments and vaccines, the resulting global economic conditions and how quickly and to what extent normal economic and operating conditions can resume, all of which are highly uncertain and cannot be predicted. In addition, the COVID-19 pandemic and other similar epidemics, pandemics or widespread health crises may amplify many of the other risk factors disclosed elsewhere in this “Item 1A. Risk Factors.”
Fluctuations in Foreign Currency Exchange Rates Could Have an Adverse Effect on the Company’s Results of Operations.
The Company is primarily exposed to foreign currency exchange rate risk with respect to its consolidated debt that is denominated in a currency other than the functional currency of the operations whose cash flows support the ability to repay or refinance such debt. As of June 30, 2022, the Foxtel operating subsidiaries, whose functional currency is Australian dollars, had approximately $345 million aggregate principal amount of outstanding indebtedness denominated in U.S. dollars. The Company’s policy is to hedge against the risk of foreign currency exchange rate movements with respect to this exposure where commercially reasonable. However, there can be no assurance that it will be able to continue to do so at a reasonable cost or at all, or that there will not be a default by any of the counterparties to those arrangements.
In addition, the Company is exposed to foreign currency translation risk because it has significant operations in a number of foreign jurisdictions and certain of its operations are conducted in currencies other than the Company’s reporting currency, primarily the Australian dollar and the British pound sterling. Since the Company’s financial statements are denominated in U.S. dollars, changes in foreign currency exchange rates between the U.S. dollar and other currencies have had, and will continue to have, a currency translation impact on the Company’s earnings when the results of those operations that are reported in foreign currencies are translated into U.S. dollars for inclusion in the Company’s consolidated financial statements, which could, in turn, have an adverse effect on its reported results of operations in a given period or in specific markets.