Granada adds £57m to profits

MEDIA group Granada's profits were boosted by more than half last year through a controversial method of accounting for its purchase of ITV licences, Financial Mail has established.

The troubled group is now reviewing whether to take a large write-off on the £1.75bn takeover of the Meridian and Anglia franchises. So far Granada has made no such charge, even though the value of broadcasting assets has plummeted since the television stations were bought from United News and Media, now renamed UBM, in 2000.

Granada admits operating profits would have been £57m lower in 2001 if 'goodwill' in the ITV businesses it acquired had been depreciated over a standard accounting period of 20 years to give a true and fair view of their accounts. Goodwill is the difference between the value of assets acquired and the price paid for them because of, say, their reputation or brand name.

However, Granada has adopted far more aggressive, albeit legal, bookkeeping practices that have the effect of boosting profits. It argues that the goodwill relating to the Meridian and Anglia acquisitions has 'an indefinite useful life' and therefore does not need to be amortised, or depreciated.

A note in Granada's accounts says this is 'because of the durability and long-term profitability of the broadcasting business, the strength of the underlying ITV brand and the high barriers to entry in the broadcasting part of the business.'

Granada concedes that 'this is a departure from the specific amortisation requirement of the Companies-Act 1985', but insists this is 'for the overriding purpose of giving a true and fair view of the Group's results'.

Analysts at investment bank Morgan Stanley said the only other media group they research that accounts for goodwill in this way is advertising giant WPP. 'We are not aware of any other media companies in our coverage universe that do not amortise goodwill on large acquistions,' wrote Morgan's Matthew Owen in a recent note to clients.

'Granada has £1.145bn of goodwill on its balance sheet from the acquisition of the TV assets of UBM, which it has no plans to amortise.' But the odds on Granada taking a multi-million hit against profits this year have been increased by a numberof factors. These include poor viewing figures, a major advertising slump, the damage caused to the ITV brand by the collapse of the ITV Digital joint venture and news that ITV companies will no longer have automatic first refusal when their licences come up for renewal.

Granada's accounts state that: 'A full review of the potential impairment of the United News and Media goodwill will be undertaken in the year to September 2002.' Granada declined to comment. Operating profits before one-off items and losses on the disastrous ITV Digital venture with Carlton came to £103m in 2001.

Granada paid £1.75bn for United's three ITV franchises - Meridian, Anglia and HTV. It later sold HTV to Carlton for £181m to comply with broadcasting rules.