Debt-crippled ITV faces rights issue

By SIMON DUKE FOR MAILONLINE
Updated:

Michael Grade's turnaround of ITV has been stalled thanks to the recession

Michael Grade's turnaround of ITV has been stalled thanks to the recession

ITV could be forced into a humiliating rights issue if profits continue to nose-dive at their current pace.

The ailing broadcaster yesterday unveiled a 41 per cent drop in annual pretax profits to £167million - the result of the most severe downturn in ad spending in decades.

But with companies cutting even deeper into their marketing budgets, ITV's earnings are set to plummet over the coming two years.

This would put ITV in grave danger of breaching the terms of its £450m overdraft, and leave the group little option but to tap shareholders for a handout, analysts warned.

Executive chairman Michael Grade yesterday pointedly refused to rule out a cash call as he grapples with a vertiginous £730m debt mountain.

'We've been looking at the options. All options means all options,' said the ex-BBC chairman.

Investors appear increasingly resigned to a rights issue, and sold the shares down a further 1/4p to an all-time low of 231/2p.

Paul Richards, of stock broker Numis, predicted that pretax profits would tumble to £50million this year, and then drop to a measly £30million in 2010.

Even though Grade plans to slash overheads, a profits crash of that severity leaves ITV with little room for manoeuvre with its creditors, analysts said.

'ITV has too much debt and we'd like to have seen them go for a rights issue,' said Richards.

Its parlous finances were thrown into sharp relief last night after ratings agency Fitch downgraded ITV debt even deeper into junk territory.

Grade is scrambling to keep ITV above water in the 'horror' of the current advertising downturn.

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Another 600 jobs are set to go across the group in a bid to save £245million a year by 2011.

Following a recent 1,000-redundancy programme, ITV will have shed a quarter of its staff by this Christmas.

Grade, who defected to ITV in early 2007, has also effectively jettisoned his plan to take ITV upmarket.

A swingeing £135million cut to the £1billion-a-year production budget means more shiny-floored game shows and fewer expensive dramas

The Friends Reunited website has been put up for sale and Grade is weighing his options on the SDN Freeview business.

Following a 17 per cent plunge in ad revenues in the first quarter, ITV slashed the value of its channels and programme library by a further £1billion yesterday.

That pushed ITV into a statutory loss of £2.7billion - by far the deepest loss in the 54-year history of commercial TV.

Grade has also axed the dividend to preserve cash.

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