TV giants claw back cash from digital

TELEVISION giants Granada and Carlton are set to announce huge losses this week in the wake of the collapse of their disastrous ITV Digital joint venture.

But the companies are poised to claw back hundreds of millions of pounds from the Exchequer that will offset some of the £1.2bn they lost on the doomed project.

ITV Digital went into administration on 27 March. Under the tax rules then in place, Carlton's and Granada's losses on the business could be offset against gains made on future disposals. The rules were changed on 1 April.

Carlton and Granada have already offset more than £650m of losses at ITV Digital against corporation tax, but a further investment of £630m could be offset against tax in the future. In total, the companies may be able to recover about £200m.

Brian Lindsey, tax partner at accountancy firm HW Fisher, said that Carlton and Granada would have to convince the Inland Revenue that their stake in ITV Digital was of 'negligible value'. This would be easier once the company had been placed in administration.

'The pair could claim hundreds of millions in tax relief on future disposals as long as the Inland Revenue accepted their stake in ITV Digital was of negligible value before 1 April,' he said.

It is highly likely that both companies will make disposals in the near future since the two are expected to merge and are likely to have to dispose of some parts of their business to beat competition laws.

Both companies claim that the change to tax laws did not influence the decision to put ITV Digital-into administration. ITV Digital-appointed Deloitte & Touche as administrators after failing to renegotiate deals with suppliers, especially the Football League, which is owed £178.5m.

Granada said: 'The change in tax laws had no bearing on the decision, which saw ITV Digital go into administration when it did. The business model was not going to work so the shareholders did what they thought was best.'

Both companies need all the help they can get as they try to recover from the ITV Digital debacle, which is likely to cost each company £150m for the financial year to September, say analysts at investment bank JP Morgan.

Granada's results for the half-year to March are likely to see the small profit it made last year wiped out. Analysts at investment bank Numis reckon that the company is likely to post a pre-tax loss of over £46m after digital investments compared with a profit of £17m last time. Before digital costs are considered, its pre-tax profit is likely to be almost halved to about £70m compared with £128m last time.

Carlton is expected to report a first-half, pre-tax loss of £87.7m after digital investments compared with a loss of £65 million last time. Excluding digital activities, Carlton's pre-tax profit is likely to be about £35m compared with £66m last year.

This week, each is likely to explain its strategy for boosting ITV's performance and Granada will probably announce an extra £25m for its programme budget.