ITV broadcaster Carlton geared up for its merger with Granada as a cost-cutting drive boosted underlying profits.

Shares in the group, owner of Southampton-based Meridian which covers Sussex, jumped six per cent as it said advertising revenues were set to improve two per cent on a year ago.

Chairman Charles Allen said conditions in the advertising market were likely to remain challenging but ITV had started the year well.

Carlton has generated £54 million of cost savings in the last year by closing ITV Digital, streamlining its internet arm and cutting 320 jobs.

The cuts meant interest payments had fallen and this had helped offset the fall in advertising revenues caused by the economic climate.

Advertising revenues declined six per cent in the year to September 30 while group turnover fell to £964.6 million from £1.04 billion.

Group underlying pre-tax profits surged 76 per cent to £53.3 million before one-off costs, ahead of City forecasts of around £40 million.

Bottom-line pre-tax losses were cut back to £156.2 million from £409.2 million the year before when the costly ITV Digital business was still running.

Mr Allen said Carlton had benefited from focusing on its core activities to protect its position in peak-time programmes.

While the group had cut costs, more than £1 billion was being invested to entice more viewers.

Carlton and Granada agreed plans for a £2.6 billion merger last month and have already submitted the case for a deal to the Office of Fair Trading.

Mr Allen will chair the new group if the merger is approved. He said it was the right move at the right time.

Shareholders will receive an unchanged total dividend of 8.275p a share.