SANCTUARY HITS THE WALL

The Sanctuary Group’s half-year earnings results, released Tuesday, were even worse than the company had warned, as pretax profit before goodwill plummeted by 80% to £1.3 million from £6.9 million for the first half of 2004. Sanctuary posted a net loss of £3.65 million, compared to a 2.22 million profit a year ago, with a debt load of £87.7 million.

This dramatic fall-off is a stunner considering that Sanctuary had until this year remained profitable while the industry as a whole experienced a prolonged slump.

Singled out as problem areas within the diversified British company were recorded music in general and the under-performing Sanctuary Urban division in particular. “Many of these releases have been rescheduled into the second half and should therefore lead to a greater second half performance,” the company said. “However, some of these releases, together with releases originally scheduled for the second half are now expected to be delayed until the Group's next financial year. The total number of forecast unit sales that slipped out of the first half was almost 1.3m reducing turnover by £9.3m.”

While acknowledging that it had “not met our original targets for the period,” the company attempted to reassure investors with the stated belief that “this will be redressed in the second half and thereafter as the pipeline of expected new releases is fulfilled.”

The report also updated investors on the status of a possible sale: “On 3rd June we announced that we had held preliminary talks which may or may not lead to an offer for the company or a further business opportunity. These talks are continuing, although we can still not be sure of their outcome. Management is aware that these talks can be unsettling for our staff and our artists and so of the need to bring them to a conclusion, particularly so that we can more effectively address the resolutions we are putting in place with respect to the difficulties we have experienced in the first half. In addition, whilst in these discussions, we have suspended our programme of Catalogue Exploitation Contracts which might decrease value for a potential acquirer.”

Said Executive Chairman Andy Taylor, “I am clearly disappointed that setbacks within Recorded Product releases, and particularly within Sanctuary Urban, have resulted in a lack of growth in the business in an environment where we had increased overheads in anticipation of continued growth. The measures we will take will have an immediate effect and, in adjusting our costs to a level more consistent with the level of business we have been able to achieve, we will have started to establish a more stable operating environment for our core business areas. I continue to be very confident in our model and in its ability to generate returns for shareholders. I am very focussed on actions which will strengthen the business.”