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— The economic downturn battering the media sector may get worse over the next year before it gets better, the head of CanWest Global Communications Corp. said Wednesday.

Speaking to investors at the company's annual meeting in Toronto, CanWest chief executive officer Leonard Asper said the steep drop in advertising revenue seen across the industry may not yet have reached its lowest point.

"We have no certainty that we are at the bottom, I don't think anyone in this room feels comfortable saying that," Mr. Asper told shareholders. "It's hard to say it's getting worse, but it's certainly not getting better."

Slowing consumer spending has caused advertising budgets to shrink across several sectors in recent months. The struggling North American auto industry is one of several major advertisers that has curtailed ad buying.

Mr. Asper's comments came as CanWest told investors that it may be forced to explore asset sales to prevent the company from breaking its bank covenants.

Should the economic situation erode further, CanWest would consider selling smaller pieces of its operations. However, Mr. Asper did not say which assets would go on the block.

Debt-laden CanWest Global Communications Corp.'s stock plunged by 35 per cent Wednesday, as investors digested the company's disclosure that it lost $33-million in the first quarter and warned that it may breach even some of the more liberal loan conditions it negotiated with its banks in November.

The loss at CanWest compared with a profit of $41-million in the first quarter of its 2008 fiscal year. This translated to a loss of 18 cents a share, compared with a profit of 23 cents.

The company also cautioned investors that "based upon current revenue and expense projections, the company may not be able to comply with its existing quarterly total financial leverage ratio covenants in fiscal 2009."

CanWest added that, as a result of this, it is reviewing and implementing strategies to boost profit and chop its $3.7-billion in debt. Most of that borrowing was assumed to buy Conrad Black's Canadian newspaper empire in 2000, and, in 2007, Alliance Atlantis Communications Corp.'s stable of specialty channels.

On an "adjusted" basis, which excludes such items as restructuring expenses and foreign exchange and investment gains and losses, this translated to a profit of $27-million, or 15 cents a share, for the three months ended Nov. 30, down from $61-million, or 35 cents, a year earlier.

The plunge came as revenue climbed to $886-million, up 2 per cent from $867-million a year earlier, although the 2007 figure excludes $89.1-million in revenue from equity-accounted affiliates, CanWest said.

Analysts had, on average, forecast that the company would turn in a profit of about 8 cents a share for the quarter, along with an adjusted profit of 21 cents and revenue of $897-million, according to a recent survey by Bloomberg.

CanWest warned that it expects the advertising market to remain soft as the economy continues to slow. While ad revenues will grow in the specialty channel and digital sectors, it will be at lower levels than last year in the much larger conventional television and publishing businesses.

The company said operating profit at its publishing operations fell to $73-million for the quarter from $102-million a year earlier, as revenue fell to $336-million from $362-million.

Its Canadian conventional TV business delivered just under $31.7-million in operating profit, down from $32.2-million, as revenue fell to just under $200-million from nearly $211-million. Similarly its Australian network TV business saw revenue fall by $40-million to $202-million and operating profit drop to $74-million from $103-million.

By contrast, CanWest's specialty TV and digital media division fattened its operating profit to $44-million from $37-million, as revenue rose by nearly $9-million to $106-million.

The red-ink in the first quarter followed a loss of nearly $1.02-billion in the last three months of fiscal 2007, when the media company unexpectedly took a $1.01-billion non-cash writedown on goodwill and licences related to its Canadian conventional TV.

CanWest also said at the time that it had renegotiated several key covenants or conditions on the $3.7-billion in bank loans. The changes included an increase in the amount of debt its banks would let it carry to 6.75 times its EBITDA (earnings before interest, taxes, depreciation and amortization) from five times. Analysts had been growing increasingly concerned that CanWest was in danger of breaching this condition.