ITV cheers City with debt and pension fund plan

Broadcaster raises £120m and shelves SDN sale
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The Independent Online

ITV is set to raise £120m and has shelved the proposed sell-off of its digital channel operator SDN as it looks to slash debts and bolster the pension fund.

The City backed the plan as welcome news, sending ITV shares up nearly 7 per cent to 50.55p, a day after ITV's search for a new chairman and chief executive was plunged further into chaos. Sir Michael Bishop, the front-runner for chairman, became the latest candidate to rule himself out of the process on Monday.

ITV yesterday announced "a number of initiatives to diversify the company's funding, strengthen its balance sheet and manage its debt profile over the medium term". The board also remained adamant that it had no plans for a much-rumoured rights issue.

The broadcaster added that the rate of decline in the UK television advertising market had continued to ease in the second half of the year. The chief operating officer John Cresswell, who will stand in as chief executive on a temporary basis, said: "While we are not yet seeing a recovery in UK television advertising, the trend is improving across the second half and into the fourth quarter. We continue to outperform the market and are on track to deliver the substantial cost savings we have set out."

Lorna Tilbian, a senior analyst at Numis, said the latest developments were positive for the group, with the better-than-expected advertising numbers adding £20m to the group's earnings forecasts.

ITV raised £120m by issuing debt, which was 10 times oversubscribed by investors. The group said the move would help diversify the company's funding and increase the efficiency of the balance sheet. It has now raised £225m of new borrowings this year.

The group has also changed tack over plans to sell SDN, valued at about £200m, which operates channels on Freeview. ITV said it "believes that retaining SDN offers greater potential value for shareholders and is therefore no longer planning to dispose of the business."

After talks with the trustees of the ITV pension fund, the broadcaster has agreed to use SDN as an asset to back the fund, reducing the amount of funding it has to contribute. The £2.1bn pension scheme had a funding deficit of £646m when it was last valued in December, and ITV has already agreed to pay £150m into the fund over five years.

The board said SDN was trading in line with expectations, with revenues forecast at £40m this year. Numis said it had long viewed SDN as a "hidden gem within ITV, and are pleased to see that the group has decided to retain it".

Yet analysts were still worried over ITV's prospects. Patrick Yau, of Cannacord Adams, said: "The recruitment processes for the chief executive and chairman have been fiascos, with both processes conducted in the glare of the media, both still inconclusive at best.

"The great hope that the CRR pricing mechanism would be dismantled has been completely dashed and the company has little strategic option but to continue cutting costs and hope for a recovery – ignoring some of the more fundamental programming issues it is facing."