Chairman points out signs of recovery at ITV

ITV chairman Michael Grade pointed today to early signs of recovery at the troubled broadcaster after an uplift in advertising and audience figures.

Shares in the group rose more than 3% as Mr Grade, who took the helm in January, said the ratings decline at flagship channel ITV1 had slowed and forecast a 1% rise in advertising revenues for the three months to September 30.

ITV added the advertising environment was set to improve with the Rugby World Cup attracting a return of male-orientated motor and financial services advertisers. Across the group, advertising revenues are set to grow by 4% in the third quarter.

The news came as the firm posted a better-than-expected 39% fall in pre-tax profits to £105m (€154m), driven by a 5% fall in advertising revenues to £717m (€1.05bn) in the six months to June 30.

Performance at ITV1 stabilised in the period after the group regained audience share in the afternoon following the replacement of children’s TV with drama re-runs such as Inspector Morse.

It also won over audiences with shows such as Britain’s Got Talent, Kingdom starring Stephen Fry, and Saturday evening drama series Primeval. Mainstay soaps Coronation Street and Emmerdale increased viewing figures over 2006.

ITV pointed to further growth in the next six months with major hit shows such as X Factor and I’m A Celebrity set to return to screens.

The group has also been moving to reduce its reliance on ITV1, with revenues from outside the channel’s net advertising income now accounting for 41% of total revenues, up from 39% a year ago.

Mr Grade said: “We have seen some encouraging early signs of recovery as ITV1’s performance begins to stabilise in the first six months of 2007.

“Ratings decline has slowed and the advertising environment continues to improve, as the UK television advertising market in the first half was essentially flat and is growing in the third quarter.”

Mr Grade, who defected from the BBC, has already identified a “lack of programming innovation” for some of the broadcaster’s recent woes.

He has spent £500 million on new programmes since the start of the year and launched a review, due in September, into the “allocation of resources” within the company in an attempt to maximise future growth.

Since Mr Grade’s appointment, however, performance has been blighted by an industry-wide TV phone-in scandal.

Profits from premium rate services such as voting and quizzes dropped from £22m (€32m) to £3m (€4.4m) in the first half following the withdrawal of ITV Play. Other phone-in competitions were suspended and only returned to air after they had been cleared by an investigation.

Mr Grade said ITV would have to work hard to restore the public’s confidence and reiterated his “zero tolerance” to the “casual contempt towards viewers” following recent revelations of programmes effectively “duping” audiences.

He said he could not put a timescale on how long it would take public confidence to be restored.

“There is no question that consumer confidence has been severely affected,” he said. “We need to convince the public that our systems ensure that they are getting exactly what they pay for.

“I don’t believe that the public has lost its appetite from becoming involved in TV programming.”

ITV came under renewed pressure last week after it was accused of misleading viewers over scenes in a documentary about the death of an Alzheimer’s sufferer, Malcolm and Barbara: Love’s Farewell, due to be aired at 9pm tonight.

Citigroup analyst Marc Sugarman said profitability in the first half was slightly better than expected. More importantly, the continued improvement in advertising and audience supports the view that ITV’s trend growth is improving, and may improve further on better product and a relaxation of regulation.

ITV is currently challenging Contract Rights Renewal (CRR) regulations, which allow advertisers to pay less if audience figures fall, and is waiting an Office for Fair Trading decision on a review the mechanism.