The directors present the strategic report for the year ended 31 October 2019.
Effective from 1 November 2018, the rights for the play Harry Potter and the Cursed Child were transferred into this entity from its subsidiary HP West End Limited.
HPCC Group Limited manages the rights for the play, licensing them to productions across the world, and providing ongoing advisory services to those productions.
During the period, there were productions running in London, New York and Melbourne, with productions in San Francisco opening and Hamburg starting previews post year end. Licences for future productions in Tokyo and Toronto have also been agreed post year end.
These financial statements show the consolidated results of the London production (via its subsidiary HP West End Limited) and the licensing operation.
Turnover has increased from £32.5m to £36.2m. 76% of revenue comes from the London production, which has increased by £0.9m (3%) year-on-year. The balance of licence-related income has increased by £3.7m (11% year-on-year) as a result of income streams from US and Australia.
As of 16 March 2020, all productions of Harry Potter and the Cursed Child across the globe were closed as a result of the Covid-19 pandemic, and remain shut as at the time of signing this report. Even in territories where theatres are permitted to reopen with appropriate social distancing measures – such as the UK – it is not economically viable for Harry Potter and the Cursed Child to reopen whilst these restrictions are in place. Until it is possible for these productions to open safely, the directors are carefully monitoring the cash position of the group with the aim of being able to reopen the production at the appropriate time.
Key performance indicators
For the London production, the key performance indicators are numbers of customers and transactions, along with the number of people trying to buy tickets that have already been sold.
Tickets are sold via our website www.harrypottertheplay.com .
During the year from 1 November 2018 to 31 October 2019, a total of 442,000 tickets were sold (2018: 484,000). During the same period, approximately 2.6m people visited the site (2018: 2.3m), of which 2.5m (2018: 2.1m) were new users.
The principal risk to the group is the ability of the productions of Harry Potter and the Cursed Child across the globe to return once the Covid-19 restrictions are lifted in each territory. The directors – as producers of several of the productions and licensors of the others – are working closely with local management to monitor the cash requirements of each production.
The group’s exposure to the following risks is set out below:
Credit risk |
The Company’s principal financial assets are bank balances, cash and trade and other receivables. Credit is not offered to consumers as all tickets must be paid for prior to the performance. Other amounts owed are principally from the productions and funds are remitted on a regular basis to the group. The credit risk on cash is limited because the counterparties are banks with high credit-ratings. |
Liquidity risk |
Liquidity risk is the risk that the group cannot meet its obligations as they fall due. Many of the payables are pass-through elements, so are not payable onwards until the cash is received and until all other obligations are met. |
Cash flow risk |
The group’s activities expose it to the financial risks of changes in foreign currency exchange rates. Foreign currency receipts have a natural hedge with related payments so the group’s exposure is limited. |
On behalf of the board
The directors present their annual report and financial statements for the year ended 31 October 2019.
The directors who held office during the year and up to the date of signature of the financial statements were as follows:
The results for the year are set out on page 9.
No ordinary dividends were paid. The directors do not recommend payment of a dividend.
Saffery Champness LLP were appointed as auditor to the group during the year.
The group has chosen in accordance with Companies Act 2006, s. 414C(11) to set out in the group 's strategic report information required by Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008, Sch. 7 to be contained in the directors' report.
As of 16 March 2020, all productions of Harry Potter and the Cursed Child across the globe were closed as a result of the Covid-19 pandemic, and remain shut as at the time of signing this report. Even in territories where theatres are permitted to reopen with appropriate social distancing measures – such as the UK – it is not economically viable for Harry Potter and the Cursed Child to reopen whilst these restrictions are in place. Until it is possible for these productions to open safely, the directors are carefully monitoring the cash position of the group with the aim of being able to reopen the production at the appropriate time. As part of this monitoring, the directors have put in place cost saving initiatives and have put in an insurance claim in relation to business disruption. The directors believe the group has sufficient cash available to continue as a going concern for the foreseeable future.
In our opinion the financial statements:
give a true and fair view of the state of the group's and the parent company's affairs as at 31 October 2019 and of the group's loss for the year then ended;
have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and
have been prepared in accordance with the requirements of the Companies Act 2006.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the Auditor's responsibilities for the audit of the financial statements section of our report. We are independent of the company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC’s Ethical Standard , and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Material uncertainty related to going concern
We draw attention to note 1.3 in the financial statements, which describes the impact of the Coronavirus pandemic on the results and financial position of the company.
Note 1.3 discloses that, due to the social distancing restrictions imposed in the UK, the theatre has been dark since mid-March 2020. There is uncertainty as to when theatres will be able to reopen. The forecasts which support the going concern basis of accounting are reliant upon assumptions that the theatre will be able to reopen in 2021 and monies will be received from an insurance claim made in relation to business disruption.
As stated in note 1.3, these events indicate that a material uncertainty exists that may cast significant doubt on the company's ability to continue as a going concern. Our opinion is not modified in respect of this matter.
Other information
The directors are responsible for the other information. The other information comprises the information included in the annual report, other than the financial statements and our auditor’s report thereon. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material misstatement in the financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact.
We have nothing to report in this regard.
Opinions on other matters prescribed by the Companies Act 2006
In our opinion, based on the work undertaken in the course of our audit :
the information given in the strategic report and the directors' r eport for the financial year for which the financial statements are prepared is consistent with the financial statements ; and
the strategic report and the directors' report have been prepared in accordance with applicable legal requirements.
In the light of the knowledge and understanding of the group and the parent company and its environment obtained in the course of the audit, we have not identifie d material misstatements in the strategic report and the directors' r eport .
We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion:
adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or
the parent company financial statements are not in agreement with the accounting records and returns; or
certain disclosures of directors' remuneration specified by law are not made; or
we have not received all the information and explanations we require for our audit.
As explained more fully in the directors' r esponsibilities s tatement, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the group's and the parent company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the group or the parent company or to cease operations, or have no realistic alternative but to do so.
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.
A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s website at: http://www.frc.org.uk/auditorsresponsibilities . This description forms part of our auditor's report.
This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company’s members as a body, for our audit work, for this report, or for the opinions we have formed.
As permitted by s408 Companies Act 2006, the c ompany has not presented its own profit and loss account and related notes. The c ompany’s loss for the year was £128,024 (2018 - £0 profit).
HPCC Group Limited (“the company”) is a private limited company incorporated in England and Wales. The registered office is 71 Queen Victoria Street, London, EC4V 4BE.
The Group consists of HPCC Group Limited and its subsidiaries, HP West End Limited and TT Resources Limited.
These financial statements have been prepared in accordance with FRS 102 “The Financial Reporting Standard applicable in the UK and Republic of Ireland” (“FRS 102”) and the requirements of the Companies Act 2006.
The financial statements are prepared in sterling , which is the functional currency of the company. Monetary a mounts in these financial statements are rounded to the nearest £.
The financial statements have been prepared under the historical cost convention. The principal accounting policies adopted are set out below.
The group financial statements incorporate those of HPCC Group Limited and all of its subsidiaries (ie entities that the g roup controls through its power to govern the financial and operating policies so as to obtain economic benefits). Subsidiaries acquired during the year following a share for share exchange have been consolidated using the merger accounting method
All financial statements are made up to 31 October 2019 . Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used into line with those used by other members of the g roup.
All intra-group transactions, balances and unrealised gains on transactions between group companies are eliminated on consolidation. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred.
In January 2019, the parent company acquired 100% of the shareholding in HP West End Limited following a share for share exchange. The ownership was to be effective from 1 November 2018.
Although HPCC Group Limited was incorporated on 4 October 2018, 12 month results have been presented in the consolidated financial statements to provide a true and fair view of the group position for the period following the group reconstruction. Prior period comparatives are also presented for the 12 months of the prior year as if the group has always been in existence. The only exception to this is the disclosure of directors' remuneration which is to be disclosed according to the actual figures for each company in the current and comparative period.
As of 16 March 2020, all productions of Harry Potter and the Cursed Child across the globe were closed as a result of the Covid-19 pandemic, and remain shut as at the time of signing this report. Even in territories where theatres are permitted to reopen with appropriate social distancing measures – such as the UK – it is not economically viable for Harry Potter and the Cursed Child to reopen whilst these restrictions are in place. Until it is possible for these productions to open safely, the directors are carefully monitoring the cash position of the group with the aim of being able to reopen the production at the appropriate time. As part of this monitoring, the directors have put in place cost saving initiatives and have put in an insurance claim in relation to business disruption. The directors believe the group has sufficient cash available to continue as a going concern for the foreseeable future.
The group 's revenue primarily relates to sales of theatre tickets, net of VAT. Ticket revenue is recognised on performance of the show to which tickets relate, as this is the moment the risks and rewards are considered to have transferred.
Revenue arising from the show such as merchandising is recognised at the point of sale.
The licence fees that are generated through the sale of a licence to overseas producers are recognised when specific milestones are met, and once the milestones are met they are non-refundable.
Revenue from contracts for the provision of consultancy services is recognised at the stage of completion which is considered to be when it the service has been delivered or invoiced.
The gain or loss arising on the disposal of an asset is determined as the difference between the sale proceeds and the carrying value of the asset, and is recognised in the income statement.
During the year, the directors reviewed the basis of depreciation in relation to tangible fixed assets. The useful economic lives of costumes was amended from 6 years to 3 years, and sets & props was amended from 6 years to either 12 years or 3 years depending on the specific item. It is the opinion of the directors that this is a more appropriate useful economic life.
Equity in vest ments are measured at fair value through profit or loss , except for those equity investments that are not publicly traded and whose fair value cannot otherwise be measured reliably , which are recognised at cost less impairment until a reliable measure of fair value becomes available.
I n the parent company financial statements, investments in subsidiaries, associates and jointly controlled entities are initially measured at cost and subsequently measured at cost less any accumulated impairment losses.
A subsidiary is an entity controlled by the group. Control is the power to govern the financial and operating policies of the entity so as to obtain benefits from its activities.
At each reporting period end date, the group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount of an individual asset, the company estimates the recoverable amount of the cash-generating unit to which the asset belongs.
The carrying amount of the investments accounted for using the equity method is tested for impairment as a single asset. Any goodwill included in the carrying amount of the investment is not tested separately for impairment.
Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.
If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease.
Recognised impairment losses are reversed if, and only if, the reasons for the impairment loss have ceased to apply. Where an impairment loss subsequently reverses, the carrying amount of the asset (or cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (or cash-generating unit) in prior years. A reversal of an impairment loss is recognised immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the reversal of the impairment loss is treated as a revaluation increase.
The group has elected to apply the provisions of Section 11 ‘Basic Financial Instruments’ and Section 12 ‘Other Financial Instruments Issues’ of FRS 102 to all of its financial instruments.
Financial instruments are recognised in the group's statement of financial position when the group becomes party to the contractual provisions of the instrument.
Financial assets and liabilities are offset and the net amounts presented in the financial statements when there is a legally enforceable right to set off the recognised amounts and there is an intention to settle on a net basis or to realise the asset and settle the liability simultaneously.
Basic financial assets, which include debtors, are initially measured at transaction price including transaction costs and are subsequently carried at amortised cost using the effective interest method unless the arrangement constitutes a financing transaction, where the transaction is measured at the present value of the future receipts discounted at a market rate of interest. Financial assets classified as receivable within one year are not amortised.
Financial assets, other than those held at fair value through profit and loss , are assessed for indicators of impairment at each reporting end date.
Financial assets are impaired where there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows have been affected. If an asset is impaired, the impairment loss is the difference between the carrying amount and the present value of the estimated cash flows discounted at the asset’s original effective interest rate. The impairment loss is recognised in profit or loss.
If there is a decrease in the impairment loss arising from an event occurring after the impairment was recognised, the impairment is reversed. The reversal is such that the current carrying amount does not exceed what the carrying amount would have been, had the impairment not previously been recognised. The impairment reversal is recognised in profit or loss.
Financial assets are derecognised only when the contractual rights to the cash flows from the asset expire or are settled, or when the group transfers the financial asset and substantially all the risks and rewards of ownership to another entity, or if some significant risks and rewards of ownership are retained but control of the asset has transferred to another party that is able to sell the asset in its entirety to an unrelated third party.
Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An equity instrument is any contract that evidences a residual interest in the assets of the group after deducting all of its liabilities.
Basic financial liabilities, including creditors, bank loans, loans from fellow group companies and preference shares that are classified as debt, are initially recognised at transaction price unless the arrangement constitutes a financing transaction, where the debt instrument is measured at the present value of the future paymen ts discounted at a market rate of interest. Financial liabilities classified as payable within one year are not amortised.
Debt instruments are subsequently carried at amortised cost, using the effective interest rate method.
Trade creditors are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Amounts payable are classified as current liabilities if payment is due within one year or less. If not, they are presented as non-current liabilities. Trade creditors are recognised initially at transaction price and subsequently measured at amortised cost using the effective interest method.
Financial liabilities are derecognised when the group's contractual obligations expire or are discharged or cancelled.
Equity instruments issued by the group are recorded at the proceeds received, net of transaction costs. Dividends payable on equity instruments are recognised as liabilities once they are no longer at the discretion of the group.
The tax expense represents the sum of the tax currently payable and deferred tax.
The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the reporting end date.
Deferred tax liabilities are generally recognised for all timing differences and deferred tax assets are recognised to the extent that it is probable that they will be recovered against the reversal of deferred tax liabilities or other future taxable profits. Such assets and liabilities are not recognised if the timing difference arises from goodwill or from the initial recognition of other assets and liabilities in a transaction that affects neither the tax profit nor the accounting profit.
The carrying amount of deferred tax assets is reviewed at each reporting end date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised.
The costs of short-term employee benefits are recognised as a liability and an expense, unless those costs are required to be recognised as part of the cost of stock or fixed assets.
The cost of any unused holiday entitlement is recognised in the period in which the employee’s services are received.
Termination benefits are recognised immediately as an expense when the company is demonstrably committed to terminate the employment of an employee or to provide termination benefits.
Payments to defined contribution retirement benefit schemes are charged as an expense as they fall due.
Rentals payable under operating leases, including any lease incentives received, are charged to profit or loss on a straight line basis over the term of the relevant lease except where another more systematic basis is more representative of the time pattern in which economic benefits from the lease d asset are consumed.
Transactions in currencies other than pounds sterling are recorded at the rates of exchange prevailing at the dates of the transactions. At each reporting end date, monetary assets and liabilities that are denominated in foreign currencies are retranslated at the rates prevailing on the reporting end date. Gains and losses arising on translation are included in the income statement for the period.
In the application of the group’s accounting policies, the directors are required to make judgements, estimates and assumptions about the carrying amount of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised where the revision affects only that period, or in the period of the revision and future periods where the revision affects both current and future periods.
The following judgements (apart from those involving estimates) have had the most significant effect on amounts recognised in the financial statements.
Useful economic lives have been amended in the year for costumes and set & props. The estimation of useful economic life is based on expectations about future use. The fixed asset policy in note 1.5 details the estimated useful lives of the assets used in the production.
The average monthly number of persons (including directors) employed by the group and company during the year was:
Their aggregate remuneration comprised:
During the year the directors received no remuneration (2018: £nil)
The actual credit for the year can be reconciled to the expected credit for the year based on the profit or loss and the standard rate of tax as follows:
On 29 January 2019, HPCC Group Limited acquired HP West End Limited by way of a share for share exchange.
HP West End Limited transferred their shares in TT Resources to HPCC Group Limited on 14 January 2019 at fair value, which was impaired at the year end to par value of £1.
Details of the company's subsidiaries at 31 October 2019 are as follows:
A defined contribution pension scheme is operated for all qualifying employees. The assets of the scheme are held separately from those of the group in an independently administered fund.
The following are the major deferred tax liabilities and assets recognised by the group and company, and movements thereon:
T he deferred tax liability set out above is expected to reverse in the coming years and relates to accelerated capital allowances that are expected to mature within the same period.
During the year, 100 ordinary shares were issued at par as part of a share for share exchange to acquire 100% ownership in HP West End Limited.
Each share has full rights in respect to voting, dividends and distributions.
At the reporting end date the group had outstanding commitments for future minimum lease payments under non-cancellable operating leases, which fall due as follows:
No key personnel received any form of remuneration during the year.
The Company is owned by Harry Potter Theatrical Productions Limited (50%) (“HPTP”), Sonia Friedman Productions Limited (25%) (“SFP”), a wholly owned subsidiary of The Ambassador Theatre Group (“ATG”), each registered in England and Wales, along with Playground Stage UK Limited (25%) ("PSUK”), an entity incorporated in England and Wales on 5 March 2019.
The company has taken advantage of the exemptions available under FRS 102 section 33 "related party disclosures" whereby it has not disclosed transactions with any wholly owned subsidiary undertaking.
During the year, aggregate fees, royalties, merchandising and ancillary income amounting to £2,695,422 (2018: £7,431,283) were payable to the above related parties.
Additionally, the above related parties were entitled, under specific contractual arrangements to receive a share of profits totalling £5,472,689 (2018: £5,848,744).
At the year end, an aggregate amount of £4,859,963 (2018: £4,383,244) was due to the above related parties.
At 31 October 2019, there was £104,618 outstanding between ATG and the group, as well as £15,824 outstanding between ATG and other group companies (2018: £19,497 outstanding).
During 2018, the Company incurred costs on behalf of the New York and Australia productions and also anticipated future productions. Amounts incurred of £240,000 remained outstanding at the year end.
On 1 November 2019, the shares in TT Resources were sold to by HPCC Group Limited to Gary Beestone Limited.