Sanctuary Group shares plunged as much as 30 per cent to 6.75p after the group issued yet another profit warning and flagged a possible break-up of the group, starting with the sale of iconic record label Rough Trade.
The artist manager, record label and music publisher said it has received a number of approaches from parties interested in buying its businesses. “Once Sanctuary has announced its results for 2006, it expects to be in a position to consider these strategic proposals,” the company said in a statement.
While the group said it was considering a number of options for Rough Trade, the label behind Morrissey, it is believed that the full sale of Sanctuary’s 49 per cent in the label is its referred option.
Sanctuary revealed that Rough Trade will produce a £2.8 million pre-tax loss for the year to September 30, 2006. It warned that with its recorded product division “continuing to experience difficult trading conditions”, losses in underlying earnings would now “exceed earlier expectations”.
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However the music group, which has unveiled a litany of recent profit warnings, did not stop there. Sanctuary also warned that it may also have to book provisions of between £15 million and £18 million.
The provisions, relate to advances made to artists in previous years which were not recouped in record sales, and may lead to a restatement of the 2005 or be reported in the 2006 results.
It is understood that the financial team which booked the adavances as assets is no longer with the company, having been replaced by the team brought in by chief executive Frank Presland.
Despite the profit warning and provisions, Sanctuary was upbeat in its outlook for 2007, predicting all its major divisions would make a positive net contribution in 2007 with trading in the first month in line with expectations.
Recently-appointed chairman and former British Airways boss, Bob Ayling ousted Andy Taylor, its founder, earlier this year. Mr Ayling then brought in Mr Presland, Elton John’s manager, on an interim basis.
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Mr Presland said it was “disappointing that Sanctuary’s recovery is obscured by further historic accounting issues”. “Considerable progress has been made in dealing with the outstanding legacy issues,” he said.
“We are seeing the first signs of success from our efforts to put the business on a proper footing and I am confident that we will continue to make progress in the current financial year.”
Despite its underperformance, Sanctuary has to date been determined to remain independent.
Last month, the group waved off a takeover bid from smaller rival MAMA, refusing to even engage in takeover discussions. EMI and Warner have also considered a takeover of the group.
The company is attempting to stop artist defections and to restore its place as the UK’s only medium-sized music company, having diversified from artist management into establishing its own record label and music publishing arm.
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Sanctuary ran into trouble when an expansion in American urban music, led by Matthew Knowles, the father of Beyonce, went awry. The group has previously encountered problems over its financial reporting which led to an auditor’s restatement and an investigation from the Financial Reporting Review Panel.
The company was forced to refinance its debts and confidence collapsed, worsening the position. It lost £26.9 million in the six months to March 31, up £11.2 million from the previous year.
Mr Taylor’s departure was followed by the resignation of his co-founder Rod Smallwood earlier this month.