SANCTUARY Music Group, the independent record label, yesterday revealed unexpected losses of £13.5 million just two days before it was due to release its annual results.

The admission, which appears to have followed a row between the company and its auditor, Baker Tilly, knocked 15 per cent off the share price and will wipe out most of the group’s profits for this year.

It also overshadowed the group’s announcement that it had acquired the publishing rights to Guns N’ Roses’ back catalogue in a deal believed to be worth £10 million. Guns N’ Roses will join Morrissey, Beyoncé and Coldplay as clients of Sanctuary.

However, the sudden shortfall emerged from problems elsewhere in the company. The bulk stemmed from an £11.4 million “previously unanticipated provision” which was agreed upon “in discussion with the group’s auditors”, according to a statement released yesterday. The provision relates to the fact that the company expects to receive less money from Cloud 9, a TV production business that it used to own.

Cloud 9 was sold to its founder, former scriptwriter Raymond Thompson, in 2003 for £28.5 million in loan notes. However, Cloud 9 has struggled since the sale, and the recent restructuring has meant that Sanctuary is unlikely to get back all of its loan.

As well as the write-off, Sanctuary’s books arm said that it would record a loss of £2.1 million in the year to September 2004, following a restructuring required by poor trading. The unit, which publishes authors such as Neil Young and John Motson, had been expected to break even.

Richard Hitchcock, an analyst at Numis Securities, said: “The good news is that these items are non-core to the rest of the group. But it will hit investor confidence, given that this announcement has come so late in the day.”

Numis said that last year’s losses in books would reduce pre-tax profits for last year to about £16 million. For this year, earnings predictions fell from £20 million to £6.6 million, including the write-down.

Sanctuary said that it did expect to generate about £50 million from exploiting Guns N’ Roses hits through film soundtracks, cover versions and their use in advertisements.

Deke Arlon, Sanctuary’s head of publishing, said: “After The Beatles and Queen there doesn’t come much bigger in the rock canon than Guns N’ Roses. We spent years trying to find the right deal and we are delighted with acquiring a slice of rock history.”

The notoriously unpredictable Axl Rose signed with Sanctuary after months of negotiations through his lawyers. Although rival publishers are believed to have offered more, Rose felt more comfortable with Sanctuary’s business plan.

Sanctuary has also secured the rights to Chinese Democracy, the new Guns N’ Roses album and all future Rose material. However, the album has no release date 12 years after work began. The effort has cost other labels £6 million and seen off eight producers.

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