THERE were serious concerns for the survival of Sanctuary Group yesterday as the world’s largest independent music company unveiled its third profits warning for the year and said that takeover talks with a prospective buyer had fallen through. The company’s shares plunged by more than 40 per cent to 10p, their lowest point in more than 13 years, after it said that profits were likely to underperform full-year market forecasts.

It also said that it had secured waivers and amendments from its banks in order to avoid breaching its financial covenants and raised its debt facilities slightly to £120 million.

Sanctuary, home to artists such as Morrissey and Kelly Osborne, said that talks with the unnamed party behind an informal approach in June were unlikely to lead to an offer “at or near to the current share price”.

It added that it was in discussions with a number of other parties about a “range of possible transactions,” including a possible offer for the company. Music majors including EMI Group and Warner Music Group have been touted as possible bidders, along with several private equity groups.

Sanctuary’s shareholders are thought to be frustrated with the present management, led by Andy Taylor, a Cambridge graduate, who founded the group on the back of a management contract with Iron Maiden, the heavy metal band. However, no campaign has yet been launched to install a new regime.

“We’re not panicking, yet,” said one leading investor, who has suffered a paper loss of millions owing to the slide.

Richard Hitchcock, an analyst at Numis Securities, said: “The company has bought itself a few months, but they have clearly technically breached their old banking covenants. The situation is dire.’’

Analysts are concerned that Sanctuary’s financial problems could trigger an exodus of key artists and management, which would reduce its ability to trade itself out of trouble.

The company issued one profit warning in January and another in June, when it admitted that a string of delayed releases would mean that interim profits would be 40 per cent below those of last year.

The company said that it was on track to cut between £7 million and £8 million from its costs.

INDIE LABEL'S STRING OF HITS

January 25: Reveals losses of £13.5 million two days before it was due to release annual results. Shares slump 15 per cent

April 1: Buys Sir Elton John’s management company, Twenty-First Artists, for £16 million

June 3: Reveals that it is in discussions that could lead to a takeover bid

Jun 17: Issues profits warning. Shares fall 30 per cent as “significant slippage of record releases” forces analysts to cut interim profits forecasts by 40 per cent

June 28: Says considering selling non-core assets and plans to cut costs by up to £8 million

August 23: Shares fall by 40 per cent. Admits will underperform expectations for the full-year, negotiates with banks to avoid breaching financial covenants and says that earlier takeover approach is unlikely to lead to an acceptable offer

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