SANCTUARY RESPONDS TO PRESS SPECULATION

Much speculation over the weekend regarding the Sanctuary Group. The London-based Independent newspaper reported yesterday that the music company will be announcing a £100m emergency rights issue this month “in a desperate bid to keep the group afloat.” The Independent also reported that Sanctuary would announce its annual results, usually delivered in January, at the same time. “The issue will have to be deeply discounted and will almost wipe out shareholders' existing holdings.”

The paper also noted that Sanctuary is likely to announce a management reshuffle this month, promoting executives with financial rather than creative expertise.

In response to the media reports, Sanctuary released the following press release this morning regarding “the press speculation over the weekend with regard to a possible fund raising.”:

Since the latter part of the summer 2005, Sanctuary has been undertaking a fundamental review of its business which has involved, inter alia, addressing worldwide cost structures, the performance of revenue generating assets, premises and accounting policies.

Without compromising the high level of service and commitment to its artists and customers, the Group has implemented substantial annualized costs savings, principally by reducing headcount worldwide by some 25%.

In addition, the Group has focused its business on its core areas of expertise which consists of Recorded Product, Merchandising, Artist Management and Live Agency activity worldwide. It has sold its Book Publishing arm and its mobile recording studios and is in active discussions regarding the disposal of its music publishing and studios businesses.

The Board continues to enjoy the support of its bankers who have recently extended facilities to the Group, although total facilities remain in line with the existing covenants on the convertible bonds as previously stated on 24 August.

Whilst the Board is confident that the actions taken to cut costs and focus on the core activities of the Group will allow the Group to continue to trade over the medium term, the Group will remain dependent on the support of its bankers in the near term and is likely to require further funding from them in the near term.

The Board recognizes that the level of debt in the Group is too high and is actively exploring a number of options for the medium and long term financing of the Group. One of these options is a significant equity fund raising through Evolution Securities, any proceeds of which would be used to reduce debt levels. The details of any such equity issue are still being considered and an
announcement will be made if and as appropriate. However, the Board recognizes that there is no guarantee that it will succeed in raising further funds.

The Board is progressing through the audit process and will announce its full-year results when this process concludes. The Board expects that, as previously announced on 21 September 2005, the Group will generate a loss at EBITDA level before exceptional items such as restructuring costs and provisions. The Board expects substantial provisions and write downs and, although still being audited, these are likely to be in the region of £130m to £170m.

Andy Taylor, Executive Chairman, commented: “We have acknowledged that Sanctuary has expanded too rapidly and we are working very hard to re-set the business for future sustainable growth. We know we have a strong business model and we continue to enjoy the support of some of the highest profile artists in the world. We have progressed quickly and efficiently
since the late summer and I am confident that the Board's response to the current situation has been the right one and one that will set Sanctuary on course for future success.”