Saturday, 9 July 2011

Big Society without the BS? How to buy your local film studio

Last September I went on a fascinating tour of a film studio based in an 18th warehouse in trendy Rotherhithe - and wrote about it briefly here. Now the owner of the warehouse wants to raise the rent beyond the means of the studio, which has been there since the 1970s, when Rotherhithe was a cheap industrial wasteland. It's a familiar story in the history of London - creative industries drive up property prices, forcing the creatives to move on. But rather than move on, the studio is trying to buy out its landlord. And it is doing that by issuing shares in its business to the local Rotherhithe community and contacts in the film industry.

This is interesting because it could show how communities can save something they value in a way that benefits everyone. If the plan works, the studio, Sands Films, wins because it stays in a building it considers an integral part of its business identity. The owner, Coba Asset Management, wins because it makes a profit on its investment. And the investors win because they have found a profitable place to stick any cash that's currently losing them money in a bank account - more on that below.

It's particularly relevant in my local Camberwell at the moment because there is talk of a local institution, the Sun & Doves pub, going under - again because the landlord is trying to exact an unrealistic level of rent from the tenant under the terms of the infamous pub tie. The tenant, Mark Dodds, has laid out the situation very clearly in the comments below this blog post. I wonder if he could use his standing in the community to raise the money necessary to buy the premises, with a realistic level of rent funding dividend payments to his new shareholders? Another win-win situation potentially - if, of course, the landlord, Scottish & Newcastle, is willing to sell (S&N, once a FTSE 100 company, was bought by Heineken at the very top of the market in early 2008 so it's safe to assume they're in trouble).

Back to Sands Films. As an independent production company, it is best known for the 1988 film version of Dickens' Little Dorrit, which starred Derek Jacobi and Alec Guinness and was directed by the company's founder Christine Edzard. These days its main line of business is providing costumes for period dramas - the list is endless but includes Pride & Prejudice, Marie Antoinette and The Other Boleyn Girl. The warehouse in which it operates is a magical rabbit warren of a building built out of ancient ship timbers. It's not hard to see why they want to stay there - irrespective of the commercial consideration that they could get a much cheaper rent by moving to a new industrial wasteland further East (North Greenwich, Stratford?).

The Grade II warehouse is now valued at £2.8m, however. Olivier Stockman, one of the studio's co-owners alongside the original founders, says they want to raise £3.2m overall to cover the building and some health-and-safety upgrades, of which a third will be bank debt and two thirds equity (ie. cash from shareholders). They already have about 100 investors and enough to pay the down-payment on the building, and Olivier is confident he can raise the rest from three main groups of individuals. First, film buffs and professionals who value the company's work. Second, local residents who want to preserve the heritage and arty identity of the area (the alternative proposed by Coba Asset Management is to turn the building into retail on the first floor and luxury flats above). Third, investors who want a decent return.

That return is dual - there is a return from the business, and a return from the tax man. The business return will take the form of a dividend. Olivier is aiming for a 10 per cent yield - ie, if you invest £1000, you get £100 a year back. That is a very high yield in the current interest-rate environment, but it does come with the risks generally associated with small businesses: a) trading, and so dividend payments, can be variable and b) the business can go bust, wiping out your investment. But the latter risk is minimal in this case because the company's balance sheet would be backed by a property that could, in the event of insolvency, be sold back to developers like Coba to turn into luxury flats.

Then there's the tax return, which is very generous. Sands Films is issuing the shares within a government framework called the Enterprise Investment Scheme or EIS, which was introduced in 1993 to help small businesses raise money. Investors get an immediate 30% rebate on any income tax they pay - if you invest £1000 and are a tax payer, you can immediately claim £300 back from Inland Revenue. Moreover, any capital gains are tax free, and any capital loss can be offset against income tax. So even if the business goes bust AND the property cannot be sold, tax-paying investors wouldn't lose their money.

In fact, the biggest investment risk here is what financiers call "liquidity" - if you want your money back, who do you sell to? Olivier's hope is that the business will generate enough money to put together a fund to buy back shares from investors that want to sell. But he stresses it is necessarily a "long-term investment" - indeed, the government rules tie investors in for a minimum of three years.

Basically, the investment case looks sound providing the company makes a 10 per cent pre-rent profit margin and so can afford 10 per cent dividends - and anyone interested should call Olivier for a copy of the accounts (0207 231 2209). But let's not forget the ethical case. It's not often investors get a chance to put their money directly to work in service of a decent and interesting cause. Olivier boasts that Sands Films is a "real business employing real people to make real things". People (particularly the French) can get a bit nostalgic about companies that "make things", but it's certainly fair to draw a contrast between the unearned profits that accrue to landlords when property prices rise (as they have enormously in Rotherhithe) and the profits earned by companies like Sands Films when they sell goods or services to clients.

It's also rather winning that Olivier is not using a broker - famous for their extortionate underwriting fees in fund-raisings, which simply waste investors' cash. Instead, he is doing all the marketing himself, with open days and film screenings for anyone interested. That means you can very easily go see the company, ask questions and make up your mind rather than having to deal with the sales patter of slick stock brokers. A perfect investment for those who mistrust the mainstream financial system.


  1. Thank you for this clear outline of the Sands Films EIS. The Studio will open its doors on Saturday July 16th, Friday July 22nd and Saturday July 30th to potential subscribers and investors. Each event is provided with refreshments and the screening of a film... See details at

  2. I visited this place when it was Open House Week-end a few years ago (every September, buildings which are not normally open to the general public open their doors - for people interested in architecture) - it is just opposite the Mayflower Pub, adjacent to St Mary's Church - I found the tour very interesting and learned that they now concentrate on MAKING clothes for period dramas - they have an array of clothes, shoes, you-name-it to hire out to film companies including abroad. One of the young ladies went to a tailor in Jermyn Street for lessons to perfect making men's suits. I was amazed at the talent and endeavors of all the staff ensuring each item be authentic for the era on which they were working. I learned too that they are not featured on films' "Credits" which seems grossly unfair!! It would be a great shame if Sands Films were to close so I wish them luck in raising funds to enable them to stay in Rotherhithe!! Blue plaque and all!! Frankie

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