Sanctuary: The Bloodletting Begins

With debts of around £120 million, a capital value worth an eighth of what it was at the beginning of the year and little or no prospect of getting the kiss of life from a purchaser, a very sick Sanctuary Music Group has come to terms with the fact that some serious bloodletting is its best (or only) hope of a cure.

Having avoided the last rites by renegotiating its bank covenants, the company’s looking to get back on its own two feet by shutting its Canada and North Carolina offices, part of a move that will see it shed a quarter of its workforce.

Most of the 175 staffers to get shown the door are based in the company’s U.S. ops, while only about 30 of the 400 or so employed in the U.K. will be getting their P45s. Not all of the redundancies take effect immediately, although Sanctuary expects to have completed the clearout by Christmas.

When asked if the bulk of the job cuts (five out of six) have come Stateside because that’s where Sanctuary has been hemorrhaging the most money, a London-based company spokesperson said, “Yes, I think that’s self-evident.”

He denied that ditching around 150 U.S. employees at a stroke raises questions about what some of them were doing there in the first place, pointing out that Sanctuary chairman Andy Taylor has been very open about the fact the company’s infrastructure was based on its business forecast going forward.

Despite the company doubling its targeted £8 million-per-year savings in a bid to trade its way out of trouble, the move has drawn a mixed response from the U.K. media.

“This [announcement] raises as many questions as it answers. It would be better to come out with the review, rather than the drip-out of information,” Bridgewell analyst Patrick Yau told The Guardian.

That view suggests Yau thinks there are more cuts to come, despite Sanctuary saying it won’t compromise its “levels of service” and doesn’t expect to make “any further significant headcount reductions.”

“Although I am sad to be losing Sanctuary people, I am confident that we have a high-quality business and, with a much-reduced cost base, I believe we are well-placed to rapidly return to profitability,” Taylor explained in an October 10 press statement, which came under the title “Headcount Reduction.”

He’d informed staff of the cuts in a personal e-mail sent three days earlier, ensuring that they’d know the score in advance of reading it in newspapers.

Although some investors believe Sanctuary will have to sell one of its large divisions if it is to return to financial health, the company is adamant it will not withdraw from its core businesses. Its live agency operation – including Helter Skelter, arguably the world’s largest booking office outside of the U.S. – would be an attractive acquisition, but offloading that would be like the company sounding its own death knell.

For the six-month period ending March 31, Sanctuary posted a net loss of £3.65 million (US$6.86 million). According to most newspaper reports, its current debt sits at around £109.3 million (US$205.4 million). Those numbers alone may have frightened shareholders enough to prompt talks with major labels, but it seems they in turn were also a bit scared of them.

Sanctuary shares closed at 6.89p on the London Stock Exchange October 10, 4.5 percent up on the day, and went up another a further 0.29p to close at 7.18p on the 11th.

— John Gammon