Sherman Cymru facelift was £800,000 over budget
A Cardiff theatre was asked to explain by the Arts Council of Wales why there was no plan to tackle an £800,000 overspend, it has emerged.
Concerns about Sherman Cymru's ability to pay for a £5.4m re-development were raised after it reopened last year.
Last week it received a £500,000 donation to attract a wider range of audiences and in 2012 it was loaned £500,000 towards the redevelopment.
The theatre said finances had improved and it had dealt with cost issues.
Sherman Cymru in Cardiff underwent a large rebuilding project that took two years to complete, and was projected to cost £5.4m.
Most of the cost was covered by the Arts Council of Wales (ACW), which contributed £3.9m of public money, leaving Sherman Cymru to raise the outstanding amount.
But BBC Wales has learned that the project went £800,000 over budget.
Also, in the months following the reopening, ACW wrote to Sherman Cymru director Chris Ricketts saying it was "particularly concerned" that there was no plan to deal with its budget shortfalls.
The formal letter stated that Sherman Cymru had requested advance payment of its revenue funding from ACW on two occasions, meaning that in the first quarter of the 2012/2013 financial year, it had already received 39% of its total annual grant.
The letter detailed how Sherman Cymru had miscalculated payments to creditors in its original cash flow plan, with a revised version showing a £200,000 increase (31%) in these payments compared to its original estimates.
In its annual review report into Sherman Cymru for 2011/2012, ACW said the "financial resilience of [Sherman Cymru's] business plan rests heavily on the 60,000 ticket sales target".
But BBC Wales has learned that fewer than 40,000 tickets were sold in the 12 months to April 2013.
Both Sherman Cymru and ACW say the theatre's financial situation has improved since those concerns were raised.
They added that the economic climate and the unpredictable nature of large building work contributed to the Sherman's cash flow problems.
The theatre was given a loan by the Charity Bank for £500,000 in 2012 to contribute towards the cost of the redevelopment.
Last week it was given a £500,000 donation by the Paul Hamlyn Foundation to attract a wider range of audiences.
Mr Ricketts said: "We are an independent charity. We haven't got anyone standing behind us that can necessarily ease the cash flow when the cash needs easing.
"So we've dealt with cash flow issues over the past year, we've dealt with cost control issues.
"I think we've learned over the last year that it's going to take a longer period of time to get some of our previous audience back into the building.
"But that's happening now, so we're building up that database of visitors back to the building."
Sherman Cymru's accounts for 2012 show it owed £1.3m to its creditors. They said "the company's cash position has been severely eroded by the cost of the capital project".
It went on to state that "cash flow remains an acute issue for the company to manage into future years".
ACW raised concerns about Sherman Cymru's cash flow situation last year, according to minutes of its meetings.
ACW chief executive Nick Capaldi told BBC Wales: "With all capital projects it's an interactive process between ourselves and the organisation, so during the course of a project things will change and will develop."
"I think it's always difficult when you're closed for a period to be certain about the speed and pace with which audiences will return, and it's a challenge that all projects of this sort will face.
"And let's remember that we've been faced with this unprecedented period of economic austerity, and I think that's added additional pressures."
'Wanting to explore'
Culture Minister John Griffiths AM said he also believed the Sherman's financial situation had improved.
Mr Griffiths said: "I think these matters are back on track now and I think that's very important for the local arts scene."
Mr Ricketts has announced his intention to stand down as director of Sherman Cymru in the summer, in order to pursue other interests in the arts sector.
He told BBC Wales that the Sherman was being left in an improved financial position.
"I feel like we have weathered some storm and we are going into the future with that behind us now, and with a real sense of wanting to explore what the future's going to be," he said.