Financial crisis strikes record label that gave us Iron Maiden

The world's largest independent record label, home of the Strokes, Beyoncé and Morrissey will announce interim results today revealing the full scale of its financial crisis.

Started by two Cambridge University friends in the 1970s, Sanctuary has become one of pop music's leading pioneers and one of its greatest successes. But in the past year sales have been poor and the London-based company has issued two profit warnings. Yesterday its board met to consider how to stem the decline amid reports that it faced a showdown with its bankers.

The company has already warned shareholders that earnings will be 40 per cent down for the first six months of 2005. The company's share price has responded by going into freefall. Yesterday it stood at just over 20p - down from 48p a year ago.

Sanctuary has faced a damaging public spat with Morrissey who said he would not sign a new deal. He blamed the company for the mix-up over his failure to play at this year's Isle of Wight Festival. In another embarrassment in May, Beyoncé was forced to quash speculation she was thinking about changing management.

Sanctuary, founded by Andy Taylor and Rod Smallwood, made the big league in 1983 after discovering a band called Iron Maiden playing in a pub. Under Sanctuary, Iron Maiden became one of the world's biggest acts.

With a reputation for both musical and business integrity, Messrs Taylor and Smallwood built up a large stable of artists ranging from old-timers such as Fleetwood Mac to cutting-edge bands such as the Libertines. Mr Taylor, a former accountant, provided financial acumen while Mr Smallwood concentrated on the music. They have dipped their fingers into practically every music industry pie, offering services in recording, merchandising and business management.

The company's plight has prompted some analysts to question whether the board, which includes the former British ambassador to Washington Sir Christopher Meyer, was considering an emergency rights issue.

Sanctuary dismissed as "conjecture" a recent press report that it was in danger of breaching its banking covenants. A spokesman refused to comment on yesterday's board meeting insisting it was "entirely routine".

Earlier this month Sanctuary confirmed it was in talks with a competitor, thought to be the giant Warner Music Group, over a merger.

The City expects the board to discuss ways of accelerating this deal, although some analysts fear talks have stalled.

Sanctuary believes its unique business strategy makes it an attractive proposition to rivals - a strategy it believes makes it "the only 360 degree international music group". Its catalogue contains more than 150,000 tracks, making it the largest independent owner of music intellectual property rights.

As well as releasing records on its own label, Sanctuary provides a plethora of artist services. These include handling the business affairs of performers and, critically, tour management. It is estimated that touring can generate four to five times the profits of record sales.

Bosses are currently milking Speculation that Jimmy Page and Robert Plant, both of whom are clients, will reform Led Zeppelin for a tour next year.

The company also recently bought Music World Entertainment, the management firm owned by Beyoncé's father, Matthew Knowles, to get a foothold in urban R 'n' B - a sector where it was under-represented.

Sanctuary also operates the merchandising arrangements for Eminem, Christina Aguilera and Robbie Williams.

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