26 August 2016

hawks at the fringe: Summerhall 2013




Acquired by "eccentric millionaire" Robert McDowell for £4m in 2011, the sprawl of Summerhall has become a seasonal base for some of the most exciting theatre to be found at the Fringe. McDowell has frequently extolled the virtues of messy, large, flexible arts buildings and one can only hope that the irresistible rise of Summerhall has been noted by those providing funding to the current generation of large capital projects, which will no doubt be new, shiny, glass, 'coloured-light-at-night' buildings.

McDowell's background is perhaps not what you might expect. A Cambridge educated applied economist and banking consultant (specialising in BASEL II requirements: liquidity tests and systemic risk). He worked at Reuters for a decade, was a subject matter expert for Ernst & Young and a consultant for a Luxembourg based consultancy. On paper, he does not have the sort of CV that suggests he would be setting up an arts organisation anytime soon (although, given arts organisation's predilection for stipulating arts backgrounds on job descriptions, he likely didn't have much choice but to set up his own). His blog gives a taste of his background and makes for interesting reading if banking and economics are of interest (IE, it's even drier than the brouhaha found on these pages).

Given McDowell's background, the acquisition of the old veterinary college cannot purely be the stuff of whimsical fancy. In addition to the £4m upfront cost, my estimate is that a further £2m has been invested into Summerhall. Not small numbers for an organisation with ~45 permanent members of staff and that receives no funding from Creative Scotland. *

Summerhall are not a charity and McDowell is now the sole shareholder. Since Summerhall qualify as a small company, they are entitled to file abbreviated accounts (balance sheet + notes). The most recent set of accounts available covers the 2013 period and Summerhall Management Ltd. are well overdue on their last set of accounts (meaning a £1,500 fine and that the 2015 accounts due in September will also have to cover 2014). This means that there is a lot of speculation in what follows (even more than usual).



First thing to note is the value of the fixed assets. Although acquired for £4 million, the land and buildings will have been accounted for at 'cost' rather than 'market' value. Summerhall are the first organisation looked at on this blog that include any Intangible Assets (patents, trademarks or, less objectively, brand value and intellectual property).

There has been significant movement in the stock value. Normally, arts organisations have very little stock but this is likely related to The Royal Dick pub, the Cafe and the Summerhall Shop not being separate trading entities. Note that Pickering's Gin and Barney's Beer are both separate companies.

The Debtors number has increased to ~£450k which rings some alarm bells. We have to assume Summerhall operate 90 day payment terms (because 30 day terms would be incredibly worrying given that number), that would mean that Summerhall have monthly receivables of ~£150k (or annual receivables of £1.8m). Cash flow is dependent on actually receiving advisable. Summerhall likely have some bad debts included in the debtors number that will need to be written off at some point in the future.

Assuming 60 day payment terms for any debts that Summerhall actually owe (note that good businesses should be paying and collecting within 30 day terms for both debtors and creditors), the creditors number implies that Sumerhall's operating cost is also in the region of £1.8m. The change in the P/L account is fairly minimal (an increase of £30k) so similarity in operating cost and receivables seems likely.

This can also be worked backwards. If, for example, Summerhall actually took 120 days to pay creditors, that would imply an operating cost of ~£900,000 (half what was estimated above), which would mean that the debtors number implied 180 day credit terms being offered to Summerhall's debtors (artists, for example).

This is all speculation of course. McDowell put forward that August income in 2013 was in the region of  £750,000. Having never experienced Summerhall outside of the Fringe, it's difficult to estimate what percentage of revenue the Fringe would bring in but being an ardent fan of the power curve, it's tempting to assume an 80/20 relationship. This would make the £900k figure above a possibility.

Putting speculation about the past aside, McDowell's investment is clearly paying off artistically as Summerhall shows dominate this year's awards lists. The questions for the next accounts (when they actually arrive) will be all about cash. As a new business, Summerhall really needs to collect on those debtors and keep the cash rolling in: good cash flow management is imperative and if not done well it is the artists who will suffer. McDowell has clearly invested in Summerhall (as sole shareholder) because of the large audience the Fringe brings in and the lack of new, suitable venues in Edinburgh: very savvy commercial reasons. The artistic success is no doubt  helping commercially as Summerhall broke 2015 attendance records in the first two weeks of the 2016 Fringe but can McDowell actually build something that doesn't require more financial intervention from himself and that sustains itself in the long-term?

If not, he seems the sort of person who will have a plan B.


* Please note, these figures are not completely reliable. They are mostly taken from interviews or presentations given by McDowell but some of them are old and out of date (in some cases by a few years). However, this does mean that the numbers should be roughly correct for the accounting period being analysed. If not then, as always, I am happy to be corrected.

24 August 2016

hawks at the fringe: Critics

The 'Critics' panel at Summerhall.

Tough watching; an awkward, slow-motion collision|collision.

The internet has allowed for plenty of theatrical noise but demand for signal is strong.

The individual critic [as creator], perhaps, stands on the brink of something momentous?

The long tail.

1000 fans.

20 August 2016

hawks at the fringe: Paines Plough 2015



Regular readers may recall that Paines Plough were indirectly responsible for instigating this blog, largely because what they do sounds like it can't be done. Sustainable small-scale touring with new writing? Ignoring London? Building a pop-up theatre? All now standard practice for the 'UK's national theatre of new plays'.

Roundabout (Paines Plough's pop-up in-the-round theatre, shown above in Stoke-on-Trent) is back for another residency at Summerhall this year. Paines Plough now seemingly have such a strong presence at the Fringe that it could be easy to consider them ".. a huge company". Their presence at the Fringe is undoubtedly influential but with only 6 employees and annual income of under £900,000, Paines Plough are theatrical minnows compared to the likes of the National Theatre (£138m income) or BAC (£6m income).

2014 was an interesting year for Paines Plough, who have been taking great leaps forward since 2011's strategic decision to expend reserves to expand programming. From the outside, 2015 was largely about how Roundabout could be used to support and expand the activity of the charity in their 40th year. Over the period, the number of productions grew from 8 in 2014 to 12 in 2015 and the number of performances ramped up from 204 to 312. Excluding streaming and radio figures, audience numbers increased from 22,157 in 2014 to 27,811 in 2015 (around a 25% increase) so the Roundabout auditorium certainly appears to have been put to good use.



The bulk of the Voluntary Income figure is the £315,620 Paines Plough received as an ACE Portfolio organisation. This represents about 36% of their overall income figure and the £ amount received from ACE puts them on the same sort of funding level as Tamasha (2015 income of ~£400k, 46 performances, audience of 3,577) and Pilot  (2015 income of ~£700k, 88 performances, audience of 14,776). The jump in Paines Plough's Theatrical Income almost all comes from the box office, moving from £124,731 in 2014 to £233,656 in 2015 (an 87% increase and worth noting that due to Paines Plough's collaborative approach, this does not reflect a true box office figure). 5 years earlier (2010), Paines Plough had box office receipts of just £27,475, which gives a very clear indication how much activity has expanded under James Grieve and George Perrin.

Project Specific Funding increased 37% in 2015. This was helped by ACE roughly doubling their small-scale touring network contribution (£60,675 in 2014, £121,346 in 2015). A similar amount (£121,625) was received for construction of Roundabout from a combination of the Andrew Lloyd Webber Foundation, John Ellerman Foundation, J Paul Getty Jnr. Charitable Trust and the Garfield Weston Foundation. In addition, contributions were also received from the Esmée Fairbairn Foundation (£24,152 to develop a new small-scale touring model over three years), Creative Access (£12,500 to recruit an individual via Creative Access) and donations/grants for The Big Room (£38,035 to develop five emerging writers).

Before discussing 2015's expenditure, it should be mentioned that Paines Plough have done something a bit unexpected with the balance sheet:


There's no sign of Roundabout.

Ordinarily, an organisation would capitalise such significant expenditure (this would involve adding it as a fixed, tangible asset to the balance sheet rather than listing it as an expense on the financial statement). Capitalising Roundabout would do two major things: firstly, it would smooth out the performance of the organisation in the annual accounts (arguably more relevant to companies with shareholders) because the expense wouldn't show up as spend, only the annual depreciation charge would be shown. Secondly, it would paint a much more accurate picture of the organisation: this is particularly important for charities because if they close, assets must either be used for their charitable objectives prior to closure or redistributed to another similar charity. By expensing Roundabout rather than capitalising it, Paines Plough appear to have spent a lot of cash on productions in 2015 but have nothing to show for it. In reality, they have a 168 seat theatre that isn't on the books (but would have to be redistributed to a similar organisation in the event that Paines Plough ceased activity).

In 2011, Paines Plough estimated the cost of Roundabout to be £90,000:

Labour: £30,000
Seating: £35,000
Stage: £10,000
Lighting: £5,000
Sound: £5,000
Steps into the space: £3,000
Outside wall / casing: £2,000

TOTAL: £90,000

Up to and including the 2015 period, £391,092 of specifically restricted funds were spent on building Roundabout. Perhaps costs spiralled, but it seems more likely that the initial design was improved upon and additional funds secured.

If (and this is a huge, hypothetical 'if'), Roundabout actually ended up costing substantially more than £400k to construct, there might be an argument for not listing it on the balance sheet as any decent auditor would quickly uncover the true cost of the asset and force a revaluation. However, expensing it would allow that extra cost to be buried in any vague category of expenditure ("other costs" for example). There's not really any reason to do this though, unless Roundabout cost £1.5m (clearly, it didn't) and Paines Plough decided to use all funds at their disposal to build it (clearly, they haven't).

Knowing that Roundabout is included in the 2015 expenditure (£293,968 on auditorium costs) and that Paines Plough significantly increased their activity over the year, the deficit of £166,904 certainly doesn't seem as bad as perhaps it looks at first. Support costs (mostly salaries and office overheads), governance costs and fundraising costs stayed about the same. Production cost changes are shown below:



Several of these increases would be expected given that the number of performances has increased by 50%: actor salaries, travel costs, accommodation and publicity for example. It then seems likely that the costs for Roundabout are buried in Sound/electrics and Other fees. The lack of significant increase to the Storage figure is good to see since it implies Roundabout is in constant rotation.

It seems most likely that Paines Plough will enter a (brief) period of consolidation in 2016, reducing activity (and production costs) slightly and seeing a resulting slight decline in box office income. With Roundabout now constructed and out on the road, it will be interesting to see what sort of additional project specific funding the organisation can attract and whether this can be used to maintain (or even increase) activity levels. Paines Plough are a great example of what a lightweight organisation can achieve without the tyranny of a building and I very much look forward to taking up a perch inside Roundabout at next year's Fringe.

16 August 2016

hawks at the fringe: Underbelly 2015



Underbelly was founded in 2000 by Ed Bartlam and Charlie Wood. What began as a single venue for a handful of Edinburgh shows has evolved into a sprawling live entertainment company that produces shows and festivals across the globe (along with a much expanded Fringe programme). In 2015, over 5 million people visited Underbelly events worldwide but only 215,000 of those were tickets sold at the Fringe. From the previous post, The Pleasance's audience in 2014 nudged past the 400,000 mark.*

Underbelly's diversification into live events has evidently been of huge benefit to the organisation. Whilst The Pleasance maintains a clear seasonal focus with annual success riding on Edinburgh box office, Edinburgh is only a small part Underbelly's undertakings for the year. Not having all their eggs in the Edinburgh basket allows Underbelly to spread the risk across their portfolio of events, theoretically stabilising annual revenue. Underbelly have also been cautious (historically) about taking on too much risk: commercial partnerships with Smirnoff and E4 being used to leverage new spaces into existence.

A quick word on structure: unlike The Pleasance, Underbelly are not a charity. They do not have trustees and the associated obligations, they do not have charitable aims/objectives and they have different reporting requirements when it comes to their accounts. Underbelly Ltd. is a private limited company (as opposed to a company limited by guarantee) with shareholders (as opposed to members): the majority shareholder (86%) being 'By Popular Demand Promotions Ltd.', a parent company owned by Ed Bartlam and Charlie Wood. The remaining shares are held by Underbelly's Non-Executive Director Thomas Page, a partner at law firm Cameron McKenna, who specialises in hotel/leisure mergers and acquisitions.

It seems safe to infer from the choice of structure that Underbelly Ltd. (and the parent company) exists to create value for the shareholders listed above. The following analysis differs slightly from the usual hawk fodder (where the organisations theoretically exist to fulfil their charitable objectives rather than create shareholder value) as a result. For example, 'turnover', 'cost of sales', or the 'profit/loss statement' are not terms readily applied to charities.

The 2015 accounting period examined below was extended by Underbelly and ran from 1st January 2014 to 31st January 2015, representing 13 months trading. Changes of accounting period are often done because a company wants a set of accounts to tell a particular story. This is 100% speculation but it seems likely that Underbelly would have extended their accounting period in the hope of the debtors number reducing (see the later balance sheet) before they had to file. It's probably what I would have done if I were them because:

Small businesses in the UK have to provide a lot less accounting information if they meet two of the following three criteria: fewer than 50 employees, turnover of under £6.5m and balance sheet assets of less than £3.26m (note: these numbers were revised upwards by the government in March 2015 to £10.2m turnover and £5.1m on the balance sheet). Being classified as a small business means an organisation can omit the p/l statement and cash flow statement, so the upward revision of those numbers means much less transparency (and don't even get me started on planned changes to scrap Companies House records that are older than 6 years). For the accounting period in question, Underbelly's turnover was ~£13m, employees numbered 25 and balance sheet assets were ~£4m (£2.75m of which comes under debtors, up from £1m in 2013). If the debtors number had come down, Underbelly would have only have had to submit a balance sheet (as their parent company did), and this would be a very short and highly speculative piece of analysis.

Underbelly's gross margin has moved up to around the 21% mark in the 2015 accounts (from ~17% in 2013), which is in the region one would expect for live entertainment. Gross margin (gross profit divided by turnover) is largely dictated by sector but the operational efficiency implied by improving margins is certainly something to be appreciated. For a very basic comparison, Live Nation's gross margin fluctuates from 25% to 35% depending on the quarter (a company producing cheap physical goods such as Primark would expect to have a gross margin of around 40%). Maintaining the same level of administrative expenses is a reasonable (but again basic) indicator of Underbelly's operations becoming more efficient and seems to be the key to the jump in the EBITDA number (Earnings Before Interest, Taxes, Depreciation and Amortisation). From a cursory look at the P/L Statement, 2014/2015 appears to have been excellent for Underbelly. Here's how that looks on the balance sheet:


Underbelly's fixed assets are mostly listed as plant/machinery which probably translates as staging equipment, inflatable purple cows etc.. As mentioned earlier, the debtors number is largely made up of box office income that is yet to be received. The jump in the creditors is due to Underbelly taking a £500k loan from the parent company (By Popular Demand Promotions), presumably for cash flow reasons. There was also a jump in 'accruals and deferred income', meaning Underbelly have either received payment in advance for an event not yet completed or have not yet invoiced for a portion of income received during the period.

Shareholders' Funds doesn't usually feature here. This figure represents the theoretical amount that the shareholders would receive if the company were to liquidate on the date of the balance sheet. Underbelly have issued 400 ordinary shares to date: 343 to the parent company (ownership of which is split 50/50 by Bartlam and Wood) and 57 to Non-Executive Director, Thomas Page. Underbelly paid out a total dividend of £235,000 (dividend per share of £587.50) in the 2014/2015 period compared to a dividend of £160,000 in the 2013 period (dividend per share of £400). Dividends are usually used to pay the directors in a tax efficient way in companies of this size and as such are a reasonable indicator of the directors' perception of their company's health. Increasing the dividend by almost 50% certainly says that Underbelly are performing their primary function efficiently.

One of the great things about looking at Underbelly's accounts is that they are obliged to include a cash flow statement. Charities have traditionally not had to submit these but that should be changing soon (if it hasn't already, I believe the changes were made in March 2015 so upcoming accounts should feature them). Underbelly's cash flow statement is not replicated here but it seems to show the same story outlined above (Underbelly have taken a loan from the parent company to help with cash flow whilst waiting for box office cash to come through). The most interesting thing to note about all this is that the directors are clearly very confident that the cash will actually come through.

They might both be 'Big 4' but Underbelly are very different to The Pleasance.


* Worth noting that there can be discrepancies when looking at Fringe ticket sales. Underbelly specify that the number they are reporting is tickets sold. However, The Pleasance do not make it clear whether their reported figures represent tickets sold or tickets issued. The issued tickets number would of course be inflated by including papering, industry comps, press and other passes.

9 August 2016

hawks at the fringe: The Pleasance Theatre Trust 2014

Quieter times

The Pleasance Theatre Trust has been responsible for operating the spaces surrounding the cobbled courtyard at Pleasance Edinburgh since 1985. Formally established as a charity in late 1995, the organisation provides an 'affordable, supportive and adventurous' platform for emerging and established artists. With over 200 shows on every day at Pleasance Edinburgh during the festival, a cemented spot in the "Big Four" and the lack of a public programme at Pleasance Islington during August, the organisation clearly has a seasonal focus.

There are many ways to deliver a substantial Fringe programme; establishing a charitable trust in order to do so is unlikely to be the most financially lucrative for anyone involved. Individual promoters and short-lived limited companies can perform astounding disappearing tricks with money that a 30 year-old charitable trust will not not be able to perform.

Pleasance Islington provides a permanent home in London for the Pleasance Theatre Trust, as well as performance spaces and rehearsal rooms that operate throughout the year. Pleasance Edinburgh only exists during August; for the rest of the year the various spaces are run by Edinburgh University Students Union. Importantly, as part of this long standing and amicable arrangement, Edinburgh University also run the bars at Pleasance Edinburgh and retain the resulting income. The Pleasance Theatre Trust does operate a wholly owned subsidiary (Pleasance Theatre Festival Ltd.) which operates the bar at Pleasance Islington. This subsidiary company carries out trading activities on behalf of the charity and profits are donated to the charity under Gift Aid.

The Pleasance Theatre Trust's financial year runs to the end of November and the most recent accounts available at the time of writing cover the period up until 30th November 2014. The 2015 accounts should be submitted by the end of August 2016.


The bulk of Voluntary Income was donated by the subsidiary company Pleasance Theatre Festival Ltd.: £98.352 in 2014 and £91,187 in 2013. This is in the same region as BAC's commercial trading operations (~£135k on average up until 2015 when it dropped dramatically) but a long way from Soho Theatre's million pound income machine. The remaining Voluntary Income was attributed to miscellaneous donations/legacies/similar, whilst Activities for Generating Funds consisted of income derived from hiring out the various spaces at Pleasance Islington. Investment income is unremarkable and largely the result of bank interest.

The standout figure on the financial statement is the income resulting from the trust's charitable activities. In both 2013 and 2014, ~£2m of income resulted specifically from productions staged by The Pleasance Theatre Trust. Approximately £1.9m of that comes from Edinburgh productions. As mentioned earlier, no income is received from the bar during the festival and note that The Pleasance receive no public funding. That income figure is all ticket sales (or artists topping up box office sales to meet the first call - see here for specific information about how The Pleasance work with individual shows, it's a minimum guarantee followed by at least a 55/45 split in favour of the artist). In 2014, The Pleasance Edinburgh's audience figure barely grazed past 400,000 people, down from 420,000 in 2013.

Venue 33

The trustees are keenly aware of The Pleasance's reliance on Edinburgh box office income. All future plans depend on the success of the Edinburgh programme and as a result, The Trust explicitly state their strategy for ensuring income is maintained and, where possible, increased: select a better quality programme year on year, leveraging the experience of theatrical entrepreneurship found amongst the trustees. Interestingly, the experience of the directorate and trustee body appears to dictate that "arbitrary targets... are not practical operational tools." So, it appears we must speculate that any income growth would be the result of the trustees gut feel for the programme. It seems safe to assume that The Pleasance will not deviate from their receiving house model (or any other strategic aspect) in the immediate future, so one does begin to wonder how those future plans will actually be implemented, particularly if The Fringe really has peaked.

In terms of expenditure, The Pleasance spent 2014 spending as expected; just over £1m was paid out for productions and direct staff costs (IE staff employed on a project basis), salaries for ~30 Trust employees made up about £400k, rent and rates spend was ~£200k and advertising ~£250k. Since The Pleasance operates from Edinburgh during August, staff members are relocated and their ranks swelled with help from ~200 volunteers. Pleasance volunteers are paid a stipend of £600 for expenses during the festival and have accommodation provided. Whilst volunteer stipends, accommodation and staff relocation probably costs The Pleasance in the region of £300k each year, it does help get around some of the thorny labour problems caused by extreme seasonal demand.


In terms of the balance sheet, the principle movement is clearly that unrestricted reserves were used to cover the operating costs due to the shortfall at the box office. The Pleasance blamed 2014's poor ticket sales on the proximity of the Glasgow Commonwealth Games. However, the 2014 Fringe broke 2 million ticket sales for the first time and the Fringe Society report lauded the games on the basis that it provided easier access to the world's media. Venues such as Summerhall reported an increase of over 20% on 2013's ticket sales. Clearly, 2014 was not a terrible year for all Fringe venues and it seems hasty of The Trust to attribute causation solely to the games.

This is particularly hard to swallow given the assertion elsewhere in the trustees report that the Pleasance's income figure is the direct result of Edinburgh programming quality and the trustees theatrical entrepreneurial expertise.

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Hopefully some of the upcoming 'hawks at the fringe' pieces will put this analysis into a wider context but since the 2015 accounts will be here before you can say "self-serving bias", I hope to revisit The Pleasance shortly.