Carlton Communications has reported a sharp decline in profits due to falling ad sales and heavy investment in its loss-making ITV Digital joint venture.

Profits before tax for the 12 months to September fell to �118m, 40% down on the previous year.

Carlton chairman Michael Green said a 13% decline in advertising revenues had made it a "difficult" year for the company.

Carlton is the latest media group to suffer a sharp fall in profits due to a global slump in advertising expenditure this year.

The company is also burdened by heavy investment in the loss-making subscriber TV network ITV Digital, a joint venture with Granada.

ITV Digital cost cuts

Carlton said in a statement that it plans to cut costs at ITV Digital by �45m a year

The subscriber TV network, which feeds digital TV signals through conventional aerials, has so far cost its backers around �800m, with Carlton providing more than half of the total.

Technical problems and patchy service in some regions has limited the consumer take-up of the digital service.

ITV Digital has around 1.1m subscribers, but needs to sign up another 600,000 in order to break even.

Carlton on Tuesday quashed rumours that it is planning to pull out of the loss-making digital TV network altogether.

"We are looking at more creative solutions than that," Carlton chief executive Gerry Murphy said.

Carlton shares were trading 8p higher at 223.5p in London at 1444 GMT.