Bumpy Ride For Ayling

Within three months of taking over as chairman of the rickety Sanctuary Group, former British Airways chief exec Bob Ayling has found himself flying into another spot of turbulence.

After being forced to jettison chief exec and former chairman Andy Taylor at a May 25th board meeting as a result of “fundamental errors” found in 2004 accounts, he now has shareholders fastening their belts in response to yet another Sanctuary profit warning.

Twenty-First Artists/The Sanctuary Group director Frank Presland, who stepped in as Sanctuary chief exec when Taylor was ousted, needed fewer than 28 days to determine that the current year’s losses are likely to be higher than expected – maybe as high as £25 million (US$45.4 million).

“It is disappointing to have to bring this news to the market. But, what I’ve seen having been chief executive for just under a month, is a business that can prosper if it faces up to the new realities,” he said in a June 23rd release to the London Stock Exchange.

The test for Ayling and Presland, who manages Elton John and James Blunt and has only been part of the Sanctuary setup since he and partner Keith Bradley sold up for £16 million (US$29.1 million) last April, is to convince the city the company won’t crash since they have taken over the controls.

Ayling, who ran British Airways from 1996 to 2000, was brought in because the company needed a high-flyer who would command more investor confidence than Taylor.

Arguably, the money men have supported him once already. Sanctuary already had Evolution Securities underwrite a new £110 million share issue and persuaded Bank of Scotland and the Highbridge bondholders to wipe £35 million (US$63.7 million) worth of debt before his April 6th appointment, but The Daily Telegraph, which broke the story February 6th, and Financial Times were naming him as Taylor’s likely successor several weeks before the deals went through.

The June 23rd note to the stock exchange will have shareholders bracing themselves for the interim results for the six months ending March 31st. The numbers are expected to be announced before the beginning of August.

The figures are likely to show the Helter Skelter and K2 booking operations along with Bravado merchandising business all cruising along according to schedule while the recorded music business and management divisions are still flying into a headwind.

The root of the problem seems to be timetable delays caused by some of the company’s major management and recording acts pushing activities back until the second half of the year or – still worse – into the first half of 2007.

The majority of the current year’s losses are said to be due to restructuring, although the news that the board is still reviewing Sanctuary’s cost base hints that even more restructuring could be on the way.

The statement to the stock exchange said the board is trying to bring the overheads “into line with the revenues being generated,” which suggests the trading position isn’t likely to improve short term.

Apart from trying to absorb the ever-deteriorating figures, it must be close to the point where city brokers and shareholders are probably struggling to keep track of whether the number of 2006 profit warnings is likely to exceed the five the company put out last year.

– John Gammon