SANCTUARY Group is considering selling off its classical music catalogue and books business as it tries to reduce its debt.

The disposals by the independent music group, home to artists such as Morrissey and Kelly Osborne, are intended to be an alternative to raising cash through a rights issue.

Debts have peaked at £117 million after a disastrous first half to March this year.

Andy Taylor, Sanctuary’s executive chairman, said: “We are now looking at disposals to reduce debt. There are no plans, for now, to undertake a rights issue or tap the City in any other way for cash.”

The company also said that it would cut between £7 million and £8 million from its costs, conceding that it had overexpanded to generate growth that had failed to materialise. About 50 of the 650 staff will go, at a cost of £4 million to £5 million.

Sanctuary is continuing to hold talks about a possible takeover or third-party cash injection with private equity groups and a record company, thought to be Warner Music. However, Mr Taylor hinted that he may be prepared to sell out. “The City doesn’t seem to be interested in the continuation of the British music industry. Even though we are having success with great artists, a small slippage is causing great problems,” he said.

Sanctuary has had a dismal 2005, which has included two profit warnings, the second of which was issued ten days ago. The company admitted then that a string of delayed releases would mean that interim profits would be 40 per cent below last year’s levels.

This was confirmed by yesterday’s results, and Sanctuary admitted that most of the problems stemmed from its newly created Urban Music unit, which is run by Matthew Knowles, father of Beyoncé, the solo singer and Destiny’s Child star.

In total, £9.3 million of sales “slipped out” of the first half, and about half of those stemmed from the Urban division. However, Mr Taylor said that the management team of Sanctuary Urban had been “tightened up” and that Mr Knowles, who had been ill during the period, retained the confidence of the group.

Andy Taylor, a Cambridge graduate who founded the group on the back of a management contract with Iron Maiden, said that Sanctuary had “hit an unlucky patch” whose financial impact was more severe than normal because “we have increased the profile of the artists we have signed”.

He said that there would be “no further slippage in Urban” because all the forthcoming albums, including a new release from Earth, Wind and Fire, were ready.

The shares fell again yesterday, closing down 1¾p to 18¼p. Before the last profit warning the stock was trading at 43p.

Sanctuary reported a loss before tax of £2.1 million in the half, compared with a profit of £3.8 million a year ago.

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