[June 22, 2006]

ITV gives more cash to shareholders Return of GBP500m not viewed as attempt to rebuff predator

(The Herald Via Thomson Dialog NewsEdge) ITV yesterday increased a planned cash return to shareholders from GBP300m to GBP500m, but the rise was not prompted by a wish to fend off circling predators, industry observers suggested.

The broadcaster, a frequent subject of bid speculation, also announced in a trading update that it anticipates first-half net advertising revenues of GBP750m. This is down 4.6-per cent year on year, but in line with expectations as viewers desert flagship channel ITV1 in favour of digital platforms.

In an effort to compete in a digital age, ITV has launched a family of digital channels and acquired the popular Friends Reunited website. The company stressed yesterday that television has been less affected by weak advertising than radio or newspapers, adding regional TV advertising was up 18-per cent at GBP98m across all channels.

It added: "Broadcast revenue outside ITV1 continues to grow. ITV's digital channels continue to perform strongly, and in the first half are up 42-per cent at GBP69m. Sponsorship is increasingly attractive to advertisers and is up 24-per cent at GBP21m. Interactive advertising and online revenue, albeit smaller revenue streams, are up by 175-per cent and 46-per cent respectively."

Total revenues in the first half were expected to be up 2-per cent on last year, ITV said.

Some gloomy commentators point to a wider malaise in the TV advertising market, which by one estimate is expected to decline by up to 5-per cent this year amid a difficult high street spending environment. Across its channels ITV is targeting an advertising share of 38.5-per cent by 2012. Chief executive Charles Allen said ITV is uniquely wellpositioned to benefit as the UK television market continues to fragment.

In March a private equity consortium led by Greg Dyke, the former director-general of the BBC, failed in a sweetened 130p-a-share, GBP5.4bn bid for ITV. More recently, US-based private equity giant KKR, which is fronted by Lord Clive Hollick, has been linked to an approach in conjunction with investor Permira.

ITV said yesterday that the two-thirds rise in the cash return to shareholders ref lected a continuing review of the capital structure and further disposal of non-core assets. These included May's disposal of a minority stake in Australia's Seven Network for GBP87m.

One insider commented: "It's daft to think of the rise in the cash return in terms of fighting predators. The company always said it would return cash to shareholders as it divested assets. If someone is coming up with GBP5bn in a (takeover) then GBP200m would not make a bit of difference."

Yesterday's announcement prompted ratings agencies Moody's and Fitch to cut their credit ratings on ITV to one notch above "junk". Fitch said the company was facing a number of structural challenges, with the UK's advertising-funded TV model showing no signs of recovering from its current slump.

"An increase in share buybacks will further limit ITV's options in addressing these problems and increase its risk profile, "Alex Griffiths, a director in Fitch's telecoms, media and technology group, said in a statement.

The agency nevertheless saw ITV's commitment to maintaining its investment grade credit rating and the use of non-core asset sales to fund part of the buyback as positive rating factors.

It said the rating outlook for ITV was now stable.

Investors appeared impressed, marking up the shares by 2.75p yesterday to 105.25p.

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