Sanctuary in fresh profits warning as sales falter

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The Independent Online

Sanctuary lost over a third of its stock market value yesterday after the troubled music label served up a fresh profit warning to its long-suffering shareholders.

The group said that a review by Frank Presland, its new chief executive, had found that its recorded product division, which represents the likes of Iron Maiden, Blondie and Morrissey, was trading below expectations.

Disappointing sales of Morrissey's new album, along with delayed record releases and artist tours, are believed to have been the cause of the shortfall.

Sanctuary also said that the disposal of various non-core assets will take longer to complete than previously forecast and that the company will require further restructuring. These include the company's studio division, its publishing arm and Urban Records, the hip-hop management business it bought from Mathew Knowles, father of the singer Beyoncé.

Sanctuary, which is the world's biggest independent music label, told investors to expect a loss of between £17m and £22m for the year to 30 September 2006. The majority of this is made up of one-off exceptional items.

Analysts estimate that £10m of the total comes from the costs the group incurred from the £110m rights issue it completed earlier this year, coupled with the expense of cutting back on its workforce. The rest is made up of asset write-downs.

Mr Presland said: "It is disappointing to have to bring this news to the market. But, what I've seen having been chief executive for just under a month, is a business that can prosper if it faces up to the new realities."

Sanctuary's management team is in the process of agreeing budgets for 2007, and hopes to be in a position to tell investors about them soon.

Yesterday Sanctuary shares crashed 14.25p, or 38 per cent, to 23.25p, valuing it at £53m. Evolution Securities, the company's stockbroker, described the profit warning as a "kitchen sinking" type exercise by the new management who it believes are keen to draw a line under the company's troubles. It described the latest set of problems as "short-term issues" and stressed that they have no impact on the value of the group's back catalogue, which includes tracks from artists such as the Kinks and Bob Marley. The broker estimates the catalogue to be one of the largest held outside major industry players like Warner Music and EMI, and believes it to be worth between £80m and £100m.

At the time of its January rights issue, the music group promised that the fund-raising would represent the final chapter of a catastrophic period for the company which saw its shareholders get wiped out by a debt-for-equity swap. However, last month it was forced to remove Andy Taylor, the company's founder and chief executive, from the board after discovering "fundamental errors" in its accounts. The move followed questioning of the company's accounts by the Financial Reporting Review Panel watchdog. The investigation is ongoing.

In April, Bob Ayling, the former chief executive of British Airways, was named chairman of Sanctuary.