Sanctuary: the background

Sanctuary: the background

Clash between auditors and a Big Four firm is just the latest turn in the Sanctuary saga

Embattled music group Sanctuary has been through the financial wars in the
past year, proving that even a glamorous client list – Joss Stone, Morrisey,
Beyonce and Elton John – can’t keep you from hitting the skids.

Big problems began in October last year when the group, which concentrates on
artist management as well as operating a record label, warned that that it was
facing a ‘serious loss of capital’ after launching a review of its accounting
policies.

At the time, the company said it was in discussions with its auditor Baker
Tilley over a review it expected would alter the group’s balance sheet
significantly.

In fact, the group was expecting to make prior-year adjustments, alter its
method of estimation and produce exceptional items for the accounts.

Given the A-list client stable, the company garnered the full spectrum of
press publicity.

Talks with the company’s bankers, HBOS, were also underway after they ordered
in Ernst & Young to conduct a viability study. At the same time, Sanctuary
was using corporate finance boutique Evolution to help raise £130m aimed at
saving the group from its huge level of debt.

In December, further trouble came when the group was forced to issue a
statement supporting its chief executive Andy Taylor after reports that he would
have to step down.

But this week’s story appears to throw further confusion on Sanctuary’s
finances. While auditor, Baker Tilley, appears set to qualify the company’s
accounts, senior sources protest that a Big Four firm has already given the
accounts a clean bill of health.

This ultimately forms the first step in a publicity fight back by the group
anxious to demonstrate to the City that, while things are not good, they are
under control.

This will be a difficult trick to pull off, and will no doubt require all the
persuasive faculties of CEO Andy Taylor and the recently finance director Paul
Wallace. Their major task will be to overcome the now substantial scepticism
among analysts, a job that at the moment seems difficult to achieve.

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