15 December 2015

Northern Stage 2015

As one of the top producing theatre companies in the UK and the largest in North East England, Northern Stage is arguably a reasonable barometer by which to gauge the theatrical health of the region. As mentioned here, it is a stretch to claim that theatre across the UK has thrived in the face of cuts to public subsidy. Significant growth has certainly been achieved over the last few years by The National Theatre and other London theatres but this is by no means universal across Arts Council England's National portfolio. Northern Stage's 2015 accounts map the rocky theatrical landscape outside the M25.

Back in 2010, Northern Stage received £1.3m from ACE as their core funding. In 2015, their portfolio funding from ACE was £1.6m. Adjusted for inflation, Northern Stage are receiving pretty much the same amount of core funding that they were five years ago and there won't be much growth in that figure over the next few years. By the time we get to the end of this funding cycle, it seems likely that Northern Stage will actually be receiving less core funding in real cash terms (they aren't alone in this). In 2010, that core funding was 52% of Northern Stage's £2.5m incoming resources. In 2015, ACE portfolio funding constituted  56% of Northern Stages's £2.85m incoming resources (which was actually down from 61% in 2014). The chart below shows the percentage of each organisation's revenue derived from National Portfolio Organisation status in 2014 (the last year for which all organisations have data available).

The nature of ACE preserving a 'balanced' portfolio means that some organisations will be subsidised more heavily than others. Subsidy should theoretically offset some of the uncertainty resulting from producing art, hence certain types of art require larger subsidies if they are difficult to commoditise or expensive to create: theatre ticks both boxes because of the unrepeatable nature of live performance and a commitment to large spend on production elements. 'Contact' are interesting to consider in the chart above: since their core values emphasise the centrality of young people to the organisation they're operating in a much more restricted fashion than an organisation at the other end of the scale with a more open charitable aim (like BAC) so you would expect a higher level of subsidy. It's equally interesting to look at Albatross (Geese Theatre Company) and wonder whether their low ratio means that their focus on working in prisons and related agencies opens up additional revenue streams (seems unlikely) or Geese could be considered underfunded (more likely). Portfolio funding is a complex and slippery beast (as is analysing it).

Northern Stage are clearly very reliant on ACE's NPO funding, which is slightly disconcerting given that their output and audiences are not particularly niche. In 2015, Northern Stage also received an additional £66,751 from ACE for presentation of an Edinburgh programme (£45,000) and from ACE Catalyst funding (£21,751 match funding for sourcing additional income streams - full Catalyst Year 2 report here). Other major grants include £41,750 from the Newcastle City Council (down from £83,500 in 2014) and £40,000 from the University of Newcastle. Northern Stage is surrounded by the University of Newcastle campus which begs comparison to Warwick Arts Centre. The University of Warwick contributed £1.3m to Warwick Arts Centre in 2014, equating to ~23% of WAC's £5.6m revenue and this is relationship that certainly seems to be paying off. Northern Stage receive 1.4% of their revenue from their in-kind partnership (rental of the theatre from the university 'costs' £40k annually) which suggests there might be significant room for development.

Development remains a serious consideration for Northern Stage in 2015, as the utilisation of a Business Development Manager and retention of a fundraising consultant demonstrate. There has certainly been some success on this front, increasing income derived from existing assets (commercial hire, skills workshops and set building) by £48,000 (up to £116,000 from £68,000 in 2014) and forging new relationships with funding bodies. One point of interest is the café bar: rather than a parent/child gift aid relationship (as seen at BAC, Soho and many others), Northern Stage have outsourced the operation to privately owned catering firm McKenna's. This makes it difficult to gauge the effectiveness of the channel as a revenue stream for Northern Stage (being a small limited company, McKenna's can opt out of filing a full set of accounts). Given how much impact the café bar can have on a theatre's bottom line, the decision to outsource is 'interesting' but then it's much easier to advocate taking on additional cost, risk and operational complexity at a distance than up close.

It was expected that Northern Stage would post a loss in 2015 given that the last time the organisation reported a profit was back in 2007. This sounds incredibly dramatic but it's largely due to the amortisation of the £9,000,000 refurbishment of the theatre in 2006. All those restricted funds received for refurb were written on as fixed assets so there are substantial depreciation charges every year (£347,397 in 2015). In their 2015 financial review Northern Stage actually report an unrestricted surplus of £12,485 (following on from an unrestricted surplus of £52,480 in 2014), so it depends how you look at it. I prefer to look at profit after depreciation because although those costs are not actual cash expenditures, fixed assets have a limited lifetime and do require maintenance (unless of course you plan to ask for £15,000,000 in 25 years time for the next refit).

Approximately 50% of Northern Stage's expenditure is on salaries for their reported 87 members of staff. BAC spend about the same amount (~£1.5m) on their 67 members of staff but report more than twice the revenue (£5.8m Vs £2.85m). Also worth remembering that BAC's numbers include café bar employees but Northern Stage's do not. This means that Northern Stage have overhead of ~£120k a month just for salaries (the theatre is rented in kind from the university so this is likely the bulk of overheads). For 2015/2016 the board have actually adjusted the reserves policy down to 2 months operating costs. The unrestricted reserves currently stand around the £260,000 mark: not the most comfortable position to be in. Also worth noting that the creditors (amounts falling due within one year) figure on the balance sheet below is not covered by the reserves:

Please do not misunderstand this analysis: Northern Stage are by no means on the brink of impending doom. Although they are very heavily reliant on ACE, have a lot of overhead, do not have a great deal of cash on hand and are not diversifying their revenue streams at the same rate that other organisations based in London are able to do (for a variety of reasons: corporate sponsors are much less inclined to give large amounts outside London for example).

Northern Stage are surviving.

Not thriving.

And do not for one second think that they are alone amongst the 178 ACE portfolio organisations that are neither the NT or the RSC (sidenote: it would be nice to see solidarity/trickle down payments from those organisations that are thriving).

It's very difficult to talk about arts organisations if they're having a hard time. ACE won't necessarily name an organisation that receives emergency funding and with very good reason: it is incredibly difficult to attract money when it is well known that you don't have any. In addition to this, the arts are not renowned for excellent financial analysis (neither is the business world) and nor should they be (although I did see an article today that was cited by a high profile arts writer as 'excellent analysis'. The article consisted of numbers from a table written down as words.). Unfortunately, operational complexity is growing rapidly across all organisations and there is a real need to try and get a handle on such big, slippery beasts. The sooner we get comfortable talking numbers, the better we can take care of each other.

12 December 2015

Aside: 3 paragraphs talking about identifying sectoral trends in a complex system

This week, The Stage published this article by David Brownlee. The article explores the summarised 'Annual Submission' dataset, provided annually by Arts Council England and based on survey data gleaned from their National portfolio organisations. The data consists of headline financial figures, figures relating to diversity amongst staff and boards, number of commissions etc.. You can find archived annual submissions here. ACE publish a wealth of data on all sorts of things (including successful Grants for the Arts awards) but I don't find their website particularly easy to navigate so the sitemap has proved invaluable on several occasions. I provide these links so that you can immerse yourself in the datasets to get a feeling for what might be happening in our complex system because contrary to the article's headline, I am wary of concluding that "theatre has thrived despite the cuts".

This is a dangerous assertion to make in the current climate: a Conservative government do not want (and will not ever want) to subsidise the arts because of a whole hearted belief in the power of the market. They may want to invest in the arts if they can see a return for the wider economy (hence the shifting rhetoric from many arts organisations) but a market does not allow for subsidy because it dilutes the primary function of price discovery. If theatre is thriving despite the cuts then the market has become more efficient at creating value following the removal of subsidy and the government has a solid case for removing all subsidy so that the full value of theatre can be unlocked. Creating maximum market value is a very different vision to nurturing a healthy, accessible, diverse and vibrant sector and will have very different results.

The National Theatre and The Royal Shakespeare company substantially skew any aggregated analysis of ACE portfolio data. If aiming to identify sector trends then they really have to be considered in isolation. In The Stage article, David Brownlee demonstrates a £58m increase in Earned Income across ACE portfolio organisations between 2010 and 2015. By my reckoning, The National Theatre alone has increased Earned Income by about £37m (inflation adjusted) over that period, equating to 65% of the £58m portfolio increase. The National Theatre is certainly thriving despite the cuts but I would be extremely unwilling to extrapolate any further sectoral trends from Annual Submission summaries without access to the raw data and a substantial amount of time (but you'd probably expect that from someone with a blog analysing the finances of individual arts organisations).

6 December 2015

Battersea Arts Centre 2015

2015 has not been easy for the Suffolk red-brick and Bath stone former Battersea Town Hall. Nor can it have been easy for the organisations residing within. When Bachelard wrote "It is better to live in a state of impermanence than in one of finality.", it seems unlikely he had the poetics of temporary office space in mind.

Grade II listed, 80 rooms, peppercorn rent, needs work

March's fire was the principle cause of concern when considering BAC's 2013/14 accounts: what would the true cost be and how would BAC cope with associated fundraising challenges, increasing levels of operational complexity and no doubt several project management nightmares? This was a potentially toxic mix of problems best weathered by a cash rich organisation. Ever cautious, my assumption was that we would have to wait another year to get a true feel for the impact of the fire. Whilst this remains true for the operational side of things, significant adjustments were actually made to the balance sheet in 2014/15.

Before examining the 2015 financial statement and balance sheet, it's worth noting that BAC is a group and that the following will focus on the group accounts. 'Battersea Arts Centre' is the parent organisation and operates a wholly-owned subsidiary: 'BAC Enterprises Limited'. 'Battersea Arts Centre' is a registered charity with the primary purpose of advancing education in the arts for the benefit of the public. 'BAC Enterprises Ltd.' is a limited company focused on running venue hire, the café-bar and all commercial trading operations carried out at Battersea Arts Centre. At the end of the financial year 'BAC Enterprises Ltd.' pays all profits on which tax would otherwise be due to 'Battersea Arts Centre' via Gift Aid.

The first thing to note is that BAC achieved a significant increase in income in 2015 (up 25% from 2014's figure). It's worth taking a moment to appreciate the growth that BAC have had in this area and that this period's incoming resources are around 4.5 times what they were when David Jubb became Artistic Director back in 2004. The chart below documents that progression.

Incoming resources are certainly never the whole story but it doesn't hurt to be an arts organisation enjoying long-term growth in that area. Of course, it's also worth examining BAC's success in a wider context: Hampstead Theatre and Soho Theatre are historically of similar size in terms of incoming resources to BAC and all three also operate a group structure with separated commercial operations (obviously all three are also located in London). There are differences in terms of ACE portfolio funding between the three: Hampstead receive ~£875k annually, Soho ~600k and BAC ~£700k. Unfortunately Soho Theatre's 2015 accounts are not available at the time of writing (hence no figure for them on the chart below) but I will endeavour to update once available. The takeaway from the comparison is that seems BAC's growth over the last few years has been mirrored by their immediate peers.

Less of a success story in 2015 was the income gifted to BAC by BAC Enterprises Ltd., which you can see denoted on the financial statement (under both income and expenditure) as 'Commercial trading operations'. Over the last few years, profits generated by BAC's commercial arm have averaged ~£135,000 and haven't dropped below six figures. In 2015 the surplus was only £3,312. This has been attributed to reduced turnover as a result of the temporary closure of the events side of the business and reduced footfall due to building works begun in September 2014. However (focusing on the child accounts momentarily), BAC Enterprises' cost of sales has actually increased dramatically to £354,936 (up from £296,948 in 2014), reducing gross profit. Not what you'd expect given that all of the demand constraints mentioned previously should have been identified in advance. In addition to this, the creditors figure (amounts falling due within one year) has almost doubled from £67,529 to £122,115 (although the majority of this appears to be owed to the group so will likely end up written off). For comparison: in 2014 Soho Theatre's bar turned over ~£1.5m with a gross profit of ~£1m.

Returning to BAC's group financial statement; grants and donations increased 21% in 2015 to just under £3.8 million. Trying to create a 21st Century theatre in a 19th Century building is an expensive business and around £2.1 million of BAC's grants and donations are related to building regeneration works (ACE Renew contributing £594,445, Heritage Lottery Fund £829,085 and other sources £699,560).

The remaining £1.7 million includes £150,000 received in kind from Wandsworth Borough Council since the premises will essentially be provided rent free until 2028. An equivalent charge relating to the in kind payment is included in the expenditure. Wandsworth Council also have a service agreement in place with BAC where they contribute ~£100,000 annually (included under charitable activities income).

BAC also received £667,186 in 2015 as designated project specific funding related to their charitable cause (£190,992 for participatory activities, £414,259 for developing and staging theatre, £30,575 for other causes and £31,360 for supporting theatre makers), approximately 11% of all incoming resources. Designated funds for the building represented 37% of all incoming resources. Annual ACE Portfolio funding represented 12% of all incoming resources.

Expenditure on charitable activities increased almost £1 million in 2015. Producing costs decreased by approximately £100,000 but there were jumps in operational spend (up ~£108,000) and marketing and press (up ~£100,000). However, the big increase is mostly due to writing off damages from the fire which is mostly accounted for as depreciation/impairments under support costs. This excludes the ~£55k restitution costs shown in the financial statement above.

In 2015, BAC paid out £147,166 to artists for their share of the box office. Admission fees and programme income was £660,227, which means ~22% goes back to artists. BAC state that they work with over 400 artists annually, so that works out to ~£368 per artist (or 1 week each at London Living Wage level). Elsewhere in the accounts BAC state that they spent £513.7k supporting theatre makers but no clear breakdown of which theatre makers received what is provided (not a reporting requirement but transparent financial flows and clearly substantiated numbers are always a win). When considering these box office numbers and the amount trickling down to artists, it's difficult to put out of your mind how much money that Grade II listed building demands, even preceding March's fire.

The impact of the fire is not immediately obvious on the balance sheet below:

A lot of the tangible assets value is however actually made up of 'Work in progress' (£1.5m) rather than being in the property itself (which was written down by ~£900k to £2.57m) . Fixtures, fittings and equipment were also written off but additions help balance this out. The building was fully insured and Aviva accepted indemnity for replacement, rebuild and costs of business interruption, hence £500k appearing in 2015 income. The majority of the insurance money remained unspent at year end and significant contributions will have come in after March 31st as well. The position that BAC are reporting certainly seems favourable although risk no doubt remains on the operations side.

The real difficulty for BAC is the building itself. I'm a big believer that architecture significantly influences the activity that unfolds within, whether it's the reinforcement of structure and hierarchy (consider the archetypal production building: factory floor downstairs, managerial suites upstairs) or aspirational schools (£80m Holland Park School with their bespoke Ercol chairs). So it makes absolute sense for an arts organisation's home to be a wonderful building of local significance with the capacity to inspire. However, part of me also wonders if Wandsworth Council are providing something of a poisoned chalice: a building that requires so much cash to run, maintain and upgrade that it hampers the development of the organisation within.