REG - Hipgnosis Songs Fund - Interim results to 30 September 2023
21/12/2023 07:15
For best results when printing this announcement, please click on link below:
http://newsfile.refinitiv.com/getnewsfile/v1/story?guid=urn:newsml:reuters.com:20231221:nRSU5362Xa&default-theme=true
RNS Number : 5362X Hipgnosis Songs Fund Limited 21 December 2023
LEI: 213800XJIPNDVKXMOC11
21 December 2023
Hipgnosis Songs Fund Limited ("Hipgnosis" or the "Company")
Interim Results for the year ended 30 September 2023
The Board of Hipgnosis Songs Fund Limited which offers investors a pure-play
exposure to songs and associated intellectual property rights, and its
Investment Adviser, Hipgnosis Song Management Limited, announce the Company's
interim results for the six-months to 30 September 2023.
Financial Headlines
· Operative NAV per share decreased 9.2% to $1.7392 (31 March 2023:
$1.9153), driven primarily by a reduction in the Fair Value of the Portfolio
o As at 30 September 2023, Operative NAV per share in Sterling 142.49p (£:$
exchange rate 1.22055);
o As at 19 December 2023, Operative NAV per share presented in Sterling
136.53p per Share (£:$ exchange rate 1.274).
· Gross revenue from continuing operations for the period $63.2
million (H1 2022-3: $86.4 million)
· Net revenue from continuing operations fell to $54.0 million (H1
2022-3: $76.8 million) primarily driven by $11.9 million reversal of CRB III
accrual due to lower anticipated future retroactive payments
· Underlying net revenue (excluding CRB III accruals) up 14.0% to
$65.8 million (H1 2022-23: $57.6 million)
· Pro-forma Annual Revenue (PFAR), which shows the gross royalty
statements received or receivable within the reporting period and does not
include any revenue accruals under IFRS grew 10.4% to $64.9 million (Six
months to 30 Sept 2022: $58.8 million)
· Total dividends of 2.6250p per ordinary share paid
o October 2023 dividend withdrawn
o Dividends suspended for at least remainder of financial year
· Total debt of $674.0 million as at 31 September 2023 (31 March
2023: $648.2 million) representing 32.0% of Operative NAV (31 March 2022:
28.0%)
Operational Headlines
· Strategic Review, led by the Board, underway following rejection
of the Continuation Resolution at the Company's AGM
o Shot Tower Capital, LLC as lead adviser to conduct due diligence on the
Company's assets
o Investment Adviser invited to propose alternative terms for their future
investment advisory arrangements for the Company
· Robert Naylor appointed non-executive director and Chair of
Company's Board following period end; Francis Keeling and Christopher Mills
appointed non-executive directors
· Sale of c.20,000 non-Core songs representing approximately 1% by
value of the Company's investment portfolio sold for $23.1 million, a 14.2%
discount to the Portfolio Independent Valuer's valuation
· KPMG appointed Company's auditors
Robert Naylor, Chairman, Hipgnosis Songs Fund said:
"I am delighted to be appointed to the Board, with strong backing from
shareholders. The Board are clear we are acting in their best interests.
"I am pleased with the progress made on the ongoing strategic review. The
Board, through its advisers, has begun due diligence on the Company's assets
with Shot Tower LLC, a specialist music rights practice, acting as lead
adviser. This process will help the new Board bring forward proposals for
delivering value to shareholders.
"Notwithstanding this progress, since I joined the Board there has been a
regular occurrence of issues raised as a result of ongoing failures in the
financial reporting and control process. Whilst we consider substantial
progress has been made in identifying and rectifying these issues, we have had
to suspend the dividend for at least the remainder of the year in order to
ensure compliance with our banking covenants.
"The newly constructed Board are aware of multiple valuation data points. The
Board, made up entirely of non-executive directors, has sought advice from the
Investment Adviser, as the Company's delegated executive function, for their
opinion as to the fair value of the Company's assets.
"Regrettably, the Investment Adviser initially refused to provide an opinion.
While the Investment Adviser did eventually provide an opinion to the Board,
it was heavily caveated. Whilst the Board sought for correspondence with the
Investment Adviser on the matter to be published on the Company's website in
order to provide transparency for shareholders, the Investment Adviser has
refused to consent under the confidentiality clauses of the Investment
Advisory Agreement.
"We note the announcement from Hipgnosis Song Management stating that they
will 'continue to work in a constructive manner to support the interests of
the Company and its shareholders'. On behalf of the Board, I therefore urge
the Investment Adviser to provide the Board with their opinion as to the fair
value of the Company assets, without caveats, such that we can provide greater
certainty and transparency to our shareholders."
Results call
Dan Pounder, CFO of Hipgnosis Song Management, will be hosting a call for
analysts and investors at 0830 BST on 4 January 2023.
To register to participate, please contact ir@hipgnosissongs.com
(mailto:ir@hipgnosissongs.com) .
A recording of the call will subsequently be placed on the Company's
website www.hipgnosissongs.com/song-investors/
(http://www.hipgnosissongs.com/song-investors/)
-ends-
For further information please contact:
Hipgnosis Songs Fund
Robert Naylor / Sylvia Coleman
+44 (0) 20 7496 3000
Via Singer Capital Markets
Hipgnosis Song Management
Merck Mercuriadis
+44 (0) 20 4542 1530
Ben Katovsky
David Pounder
Giles Croot (Media)
+44 (0) 20 4542 1511
Singer Capital Markets - Corporate Broker
James Moat / Alaina Wong / Angus Campbell (Corporate Finance) +44 (0) 20 7496 3000
Alan Geeves / James Waterlow / Sam Greatrex (Sales)
Headland Consultancy - Financial PR
Susanna Voyle / Charlie Twigg +44 (0) 20 3805 4822
The Chair's Statement
Introduction
This is my first report as Chairman of Hipgnosis Songs Fund, having joined the
Board with Francis Keeling on 7 November 2023. Christopher Mills subsequently
joined the Board on 15 December 2023. These interim results are for the half
year ended 30 September 2023.
Votes against related party transaction and continuation as an investment
company
At the Company's Annual General Meeting held on 26 October 2023, shareholders
overwhelmingly voted against the Company continuing its business as a
closed-ended investment company, with 83% voting against. Shareholders also
rejected, with 84% against, a related party transaction to sell a portfolio of
29 music catalogues to Hipgnosis Songs Capital, the trading name of Hipgnosis
SC IV (Delaware), a limited partnership which is majority owned by funds
managed and/or advised by Blackstone. Hipgnosis Songs Capital is advised by
the same investment adviser as the Company - Hipgnosis Song Management Limited
("Hipgnosis Song Management" or "Investment Adviser"), which is also majority
owned by funds managed and/or advised by Blackstone.
Dividend
On 16 October 2023, the Company announced the suspension of the interim
dividend of 1.3125p per share and further announced on 6 November 2023 that
all dividends will be suspended for the rest of the financial year. This
decision followed the identification, by the Investment Adviser of additional
liabilities and certain over accruals for the prior year revenue.
The Board will act responsibly and only start paying dividends to shareholders
when it believes that we can sustainably meet our banking covenants and
working capital requirements.
The Board believes, based on forecasts provided by the Investment Adviser,
that the Company should have sufficient headroom to operate within its banking
covenants for at least the next 12 months. However, this is qualified by the
continuation of issues around financial reporting and controls. For example,
the Board were made aware on Friday 15 December 2023 of a drafting error in a
contract, whereby the Company received notice of the exercise of a put option
contained within an acquisition contract, which increased the estimated
liability from $4 million to $25 million. The Investment Adviser sought to
remedy this over the subsequent weekend by way of an amendment to the contract
and the Board now understands, from the Investment Adviser, the potential
liability to be in the region of $7.5 million to $8.5 million.
Portfolio Valuation
In spite of the positive music market and like-for-like income growth of the
Company's assets, the Company's Operative NAV, which reflects the Fair Value
of its assets as determined by the Independent Portfolio Valuer, has fallen
9.2%. This primarily reflects the material reduction in expectations of CRBIII
and CRBIV income.
The Board are aware of multiple data points and transactions within the market
which are at material discounts to the implied Fair Value of the Company's
assets. Given these multiple valuation data points and the continued
uncertainty in the wider macro-economic environment, the Board sought advice
from Hipgnosis Song Management Limited, its Investment Adviser, which is
majority owned by funds managed and/or advised by Blackstone on this matter.
Hipgnosis Song Management is the Company's appointed expert on the marketplace
for songs and de facto executive function, and the Board expects them to
provide an opinion as to whether the Fair Value is reasonable.
Hipgnosis Song Management Limited at first declined to give an opinion but,
after repeated requests from the Board, eventually provided an opinion which
was heavily caveated. In the absence of further evidence or insight from the
Investment Adviser, on which to base a judgement on the valuation of the
Company's assets, the Board has concerns as to whether the Fair Value is
reasonable.
Consequently, the Board recommends that investors use the Fair Value and the
Operative NAV with a higher degree of caution and less certainty than might
otherwise be attached to it as an accurate reflection of the fair value of the
Company's assets. The Company confirms that the uncertainty around the Fair
Value and Operative NAV has no impact on its banking covenants.
Strategic Review
As announced previously, the Board, through its advisers, have begun due
diligence on the Company's assets. Shot Tower LLC, a specialist music rights
practice, is acting as lead adviser.
We have requested Hipgnosis Song Management propose alternative terms for
their future investment advisory arrangements of the Company during this
period of due diligence. Should Hipgnosis Songs Management not propose terms
which the Board believes are in the best interests of the future of the
Company and its shareholders, it will explore bringing forward alternative
proposals to shareholders.
I have personally met with shareholders holding, in aggregate, more than 60%
of the Company's shares. There was a high degree of alignment between our
diverse shareholders with two key themes becoming apparent from these
meetings.
Firstly, the failure of the financial reporting and controls at the Investment
Adviser. Dan Pounder, who joined as CFO of the Investment Adviser on 1
September 2023, has begun to improve financial reporting and disclosure, which
has led to short-term negative impacts on reporting. This is evidenced in the
additional catalogue bonus provisions of £23 million, deductions in the prior
year income accrual of £12 million due to a reduction in expected CRB III
receipts and a proposed change to the revenue accrual methodology for the year
end which may result in an adjustment reducing annual revenue by up to 10%.
The Board has faith in Dan and his ability to improve the financial reporting.
Despite this, there is some positive performance in the underlying assets
which shows like-for-like revenue statement growth of 10%.
Secondly, the perceived mismanagement of the conflicts of interest, both in
the recently failed sale of assets to Hipgnosis Songs Capital, a fund that is
majority owned by Blackstone, at a material discount to fair value of those
assets and in the terms of the Investment Advisory Agreement with Hipgnosis
Song Management. This is harder to address, but we will seek to do so in the
coming months.
Board Appointments
There has been significant change on the Board. Andrew Sutch, Andrew Wilkinson
and Paul Burger all resigned as directors either immediately before or as a
result of the vote at the Annual General Meeting. I am delighted that
Christopher Mills joined the Board on 15 December 2023.
All the Directors on the Board last month bought shares in the Company in
order show the alignment of the Board's interests with those of its
shareholders.
Outlook
Further to the due diligence underway, we will be able to better assess the
quality of the Company's assets and prospects from which to put forward
proposals to shareholders for the future of the Company.
Robert Naylor
Chair
20 December 2023
Investment Adviser's Report
The Company's Portfolio as at 30 September 2023 comprised of 146 Catalogues
containing 65,413 song rights acquired, as set out below.
Rights purchased
Composition Rights Sound Recording Rights
Catalogue Name Acquisition Date Number Genre Vintage Publisher Share Writer's Masters Producer Neighbouring Rights
of Songs (t)
Share
10cc 17 Oct 19 29 Rock 10+ X
50 Cent 30 Oct 20 388 R&B 10+ X
Al Jackson Jr 08 May 19 185 Soul 10+ X X X X X
Ammar Malik 05 Dec 19 90 R&B 3-10 X X
Andrew Watt 17 Feb 21 105 Pop 3-10 X X
Andy Marvel 23 Jul 19 740 R&B 10+ X
Andy Wallace 31 Mar 21 1,242 Rock 10+ X X
Ann Wilson 29 Jul 21 152 Rock 10+ X X X X
Ari Levine 31 Mar 19 76 Pop 3-10 X X
Aristrotracks* 30 Oct 20 152 Pop 10+ X
Arthouse 15 Nov 19 44 Pop 3-10 X
B-52's 30 Oct 20 96 Pop 10+ X
Barry Manilow 16 Jul 20 917 Disco 10+ X X
Benny Blanco 02 Aug 19 93 Pop 3-10 X
Bernard Edwards 28 Nov 18 290 Disco 10+ X X
Blondie 30 Jul 20 197 Rock 10+ X X
Bob Rock 04 Dec 20 43 Rock 10+ X
Bonnie McKee 30 Oct 20 78 Pop 10+ X X
Brendan O'Brien 13 Dec 19 1,855 Rock 10+ X X
Brian Higgins 22 Jan 20 362 Dance 10+ X X
Brian Kennedy 14 Jun 19 101 R&B 10+ X
Brian Kennedy (Writer Share) 23 Dec 20 139 R&B 10+ X
Brill Building* 30 Oct 20 234 Pop 3-10 X
Carole Bayer Sager 17 Mar 21 983 Pop 10+ X X
Caroline Ailin 10 Dec 20 2 Dance 3-10 X X
Chris Cornell 10 Aug 20 241 Rock 10+ X X X X
Chrissie Hynde 10 Sep 20 162 Rock 10+ X X
Christian Karlsson 02 Mar 21 255 Dance 10+ X X
Christina Perri 30 Oct 20 68 Pop 3-10 X X
Christine McVie 21 Jul 21 115 Rock 10+ X X X
Closer (J King & I Slade) 27 Jul 20 2 Dance 3-10 X X
Dave Sitek 31 Mar 21 230 Rock 10+ X X
Dave Stewart 07 May 19 1,068 Dance 10+ X X X X X
Dierks Bentley 30 Oct 20 113 Country 3-10 X
Ed Drewett 09 Dec 19 109 Dance 3-10 X
Editors* 30 Oct 20 64 Rock 10+ X
Eliot Kennedy 16 Jul 20 217 Rock 10+ X X
Elliot Lurie 24 Aug 21 70 Pop 10+ X
Eman 30 Oct 20 97 Pop 3-10 X X
Emile Haynie 13 Dec 19 122 Pop 3-10 X X X X
Enrique Iglesias 30 Oct 20 157 Latin 3-10 X X
Eric Bellinger 12 Jul 19 242 R&B 3-10 X X X
Eric Stewart 02 Dec 20 255 Disco 10+ X X
Espionage 26 Mar 21 151 Pop 10+ X X
Evan Bogart 30 Oct 20 229 Pop 3-10 X
Fraser T Smith 05 Dec 19 298 R&B 3-10 X
George Benson 30 Sep 20 107 Jazz 10+ X
George Thorogood 30 Sep 20 40 Country 10+ X
Giorgio Tuinfort 21 Dec 18 182 Dance 3-10 X X
Good Soldier* 30 Sep 20 760 Pop 3-10 X
Greg Wells 10 Feb 20 11 Pop 3-10 X X
Happy Perez 31 Mar 21 192 R&B 3-10 X X
Holy Ghost 30 Sep 20 62 Dance 3-10 X
Ian Kirkpatrick 29 Jul 20 137 Pop 3-10 X X
Itaal Shur 31 Jan 19 209 Latin 10+ X X X
Ivor Raymonde 13 Aug 20 505 Soul 10+ X X
J-Kash 30 Sep 20 90 Pop 3-10 X
Jack Antonoff 05 Dec 19 188 Rock 3-10 X X
Jamie Scott 15 May 19 144 Pop 3-10 X X
Jaron Boyer 05 Nov 19 109 Country 3-10 X X
Jason Ingram 10 Jul 19 462 Christian 3-10 X X
Jeff Bhasker 11 Dec 19 436 Pop 3-10 X X
Jimmy Iovine 24 Dec 20 259 Rock 10+ X
Joel Little 24 Dec 20 178 Rock 3-10 X X
John Newman 05 Nov 19 47 Dance 3-10 X X
John Rich 30 Sep 20 7 Country 3-10 X
Johnny McDaid 11 Dec 19 164 Rock 3-10 X X
Johnta Austin 22 Mar 19 249 R&B 3-10 X X
Jon Bellion 14 Jun 19 180 Pop 10+ X X
Jonathan Cain 28 Feb 20 216 Rock 10+ X X
Jonny Coffer 28 Feb 20 85 Pop 3-10 X X
Jordan Johnson 22 Jul 21 58 Pop 3-10 X X
Journey (Masters) 10 Jan 20 389 Rock 10+ X
Journey (Publishing) 21 Oct 19 103 Rock 10+ X
Julian Bunetta 16 Sep 20 188 Pop 3-10 X
Kaiser Chiefs (Masters) 09 Dec 19 48 Rock 10+ X
Kaiser Chiefs 15 Jul 21 136 Rock 10+ X X
Kevin Godley 23 Sep 20 358 Rock 10+ X X
Kojak 30 Sep 20 148 Pop 3-10 X X
LA Reid 30 Sep 20 162 R&B 10+ X X
Lateral** 30 Sep 20 248 Pop 3-10 X
Lindsey Buckingham 24 Dec 20 161 Rock 10+ X X
Lindsey Buckingham (Kobalt) 30 Sep 20 174 Rock 10+ X
LunchMoney Lewis 30 Sep 20 116 R&B 3-10 X X
Lyric Catalogue 17 Jun 19 571 R&B 10+ X X
Lyrica Anderson 30 Sep 20 96 R&B 3-10 X
Madcon 30 Sep 20 173 R&B 3-10 X X
Mark Batson 30 Sep 20 210 R&B 10+ X
Mark Ronson 14 Apr 20 315 Pop 3-10 X X
Martin Bresso 31 Mar 21 51 Pop 3-10 X X
Michael Knox 28 May 19 110 Country 3-10 X X
Mobens* 30 Sep 20 1,034 Pop 3-10 X
Nate Ruess 30 Sep 20 59 Pop 3-10 X
Neal Schon 20 Jun 19 357 Rock 10+ X X
Neil Young 23 Dec 20 590 Rock 10+ X
Nelly 15 Dec 20 240 R&B 10+ X X
Nelly (Kobalt) 30 Oct 20 145 R&B 10+ X
Nettwerk** 30 Sep 20 25,259 Pop 3-10 X
Nikki Sixx 03 Sep 20 305 Rock 10+ X X
NO I.D. 24 Jul 20 273 R&B 3-10 X X
Paul Barry 18 Mar 21 510 Pop 10+ X X
Poo Bear 21 Nov 18 214 Pop 3-10 X X
PRMD* 30 Sep 20 335 Dance 3-10 X X
Pusha T 24 Jul 20 238 Hip-Hop 3-10 X X X
Rainbow 15 Jan 19 15 Rock 10+ X
Rebel One 10 Jan 20 157 Dance 3-10 X
Red Hot Chili Peppers 14 Jul 21 220 Rock 10+ X X
RedOne 16 Jul 20 334 Pop 10+ X X X X
Rhett Akins 23 Jul 21 564 Country 3-10 X X
Richie Sambora 04 Mar 20 186 Rock 10+ X X
Rick James 18 Sep 20 97 R&B 10+ X X X X X
Rico Love 26 Feb 19 245 R&B 3-10 X
Rob Hatch 30 Sep 20 167 Country 3-10 X X
Robert Diggs "RZA" 12 Aug 20 814 R&B 10+ X X
Rock Mafia 30 Sep 20 393 Pop 10+ X
Rodney Jerkins 16 Jul 20 982 R&B 10+ X X
Sacha Skarbek 20 Nov 20 303 Pop 10+ X X
Sam Hollander 31 Mar 19 499 Pop 3-10 X X
Savan Kotecha 18 Dec 19 49 R&B 3-10 X X
Savan Kotecha (Kobalt) 30 Sep 20 354 R&B 3-10 X X
Scott Cutler 24 Sep 20 111 Pop 10+ X X
Scott Harris 10 Jan 20 129 Dance 3-10 X
Sean Garrett 21 Mar 19 588 R&B 3-10 X X
Shakira 24 Dec 20 145 Latin 3-10 X X
SK Music 30 Sep 20 23 Pop 3-10 X X
Skrillex 30 Sep 20 153 Dance 3-10 X
Starrah 25 Apr 19 73 R&B 3-10 X X
Stefan Johnson 22 Jul 21 58 Pop 3-10 X X
Stereoscope* 30 Sep 20 456 Pop 3-10 X
Steve Robson 17 Sep 20 1,034 Country 3-10 X X X
Steve Winwood 30 Sep 20 215 Pop 10+ X
Teddy Geiger 12 Apr 19 6 Pop 3-10 X
Tequila 30 Sep 20 1 Country 10+ X
The Chainsmokers 22 Aug 19 42 Dance 3-10 X X
The-Dream 13 Jul 18 302 R&B 10+ X X X
Third Day 30 Sep 20 212 Christian 3-10 X
Timbaland 10 Oct 19 108 R&B 10+ X X X
Timeflies* 30 Sep 20 80 Dance 3-10 X
TMS 17 Dec 18 121 Pop 3-10 X
Tom Delonge 23 Dec 19 157 Rock 10+ X X
Tricky Stewart 17 Dec 18 121 R&B 10+ X X
Tricky Stewart (Masters) 27 Nov 20 95 R&B 10+ X X
Walter Afanasieff 30 Sep 20 213 Pop 10+ X
Wayne Wilkins 30 Sep 20 113 Pop 10+ X X
Yaslina 30 Sep 20 73 Pop 10+ X X
* Catalogue included in Second Disposal
** Catalogue partially included in Second Disposal
t Interest in Songs and/or recording rights. Ownership dependent on terms of
acquisition
PFAR by Catalogue
The below table shows PFAR by Catalogue for the top 58 Catalogues, this
represents 80% of total PFAR for the six months to 30 September 2023.
Catalogue Name Genre Vintage Six months to Six months to Six months to Six months to Six months to
30 September
31 March
30 September
31 March
30 September
2021
2022
2022
2023
2023
$ $ $ $ $
Red Hot Chili Peppers Rock 10+ 1,867.5 3,261.7 3,237.1 4,781.4 4,693.8
Nettwerk Pop 3-10 2,888.9 3,300.3 2,783.7 4,066.8 4,273.4
RedOne Pop 10+ 1,305.3 1,854.5 1,985.2 2,624.3 2,867.9
Journey (Masters) Rock 10+ 1,758.6 1,877.1 1,634.9 1,832.2 1,654.2
Shakira Latin 10+ 1,387.3 1,130.1 1,407.2 1,349.8 1,639.8
50 Cent R&B 10+ 795.8 889.5 985.9 1,728.4 1,574.6
The Chainsmokers Dance 3-10 1,173.7 1,324.4 1,280.8 1,555.3 1,245.5
Rick James R&B 10+ 558.3 617.7 716.7 838.4 1,222.4
Richie Sambora Rock 10+ 713.0 1,016.0 933.8 1,338.3 1,147.8
Neil Young Rock 10+ 297.6 769.7 1,015.8 1,223.6 1,136.7
Joel Little Rock 3-10 1,290.5 1,320.1 1,308.4 1,477.1 1,124.8
Ari Levine Pop 10+ 755.0 841.5 1,062.9 1,099.9 1,104.5
Dave Stewart Dance 10+ 831.2 1,166.2 935.1 1,022.6 1,100.3
Christine McVie Rock 10+ 550.4 1,055.5 1,100.0 1,002.1 1,082.3
Johnny McDaid Rock 3-10 874.2 883.7 894.3 1,582.0 1,040.7
Rodney Jerkins R&B 10+ 511.8 716.8 822.3 923.9 1,028.0
Chris Cornell Rock 10+ 932.2 1,102.6 1,166.4 796.4 948.2
The-Dream R&B 10+ 729.0 810.6 892.1 920.8 901.1
Lindsey Buckingham (Kobalt) Rock 10+ 2,081.6 1,066.3 851.5 994.4 877.1
Mark Ronson Pop 3-10 925.1 1,013.9 765.3 897.1 870.4
Steve Winwood Pop 10+ 560.4 574.7 630.5 839.6 858.2
Andrew Watt Pop 3-10 1,230.2 1,255.1 904.8 915.0 834.5
Bernard Edwards Disco 10+ 514.1 569.4 782.1 608.4 811.5
Savan Kotecha R&B 3-10 805.3 829.6 739.4 961.7 805.6
Jack Antonoff Rock 3-10 748.3 798.7 839.9 936.3 798.0
Enrique Iglesias Latin 3-10 490.6 590.7 636.3 901.0 797.4
Jonathan Cain Rock 10+ 696.1 899.0 888.0 929.4 773.2
Starrah R&B 3-10 436.0 716.0 562.6 542.3 759.9
Tricky Stewart R&B 10+ 554.5 568.4 747.1 667.1 718.0
Brendan O'Brien Rock 10+ 574.4 740.2 638.1 606.0 717.2
Jeff Bhasker Pop 3-10 642.9 624.4 669.2 578.7 649.1
Julian Bunetta Pop 3-10 333.2 413.5 353.7 242.0 639.7
Tom Delonge Rock 10+ 382.6 475.3 518.1 536.2 629.7
B-52's Pop 10+ 288.6 357.7 377.3 342.0 597.3
Giorgio Tuinfort Dance 10+ 394.7 509.0 623.3 516.2 587.2
Andy Wallace Rock 10+ 416.3 521.8 585.2 440.5 579.7
Benny Blanco Pop 3-10 771.0 755.2 590.1 626.8 567.1
Good Soldier Pop 3-10 410.0 639.6 456.7 555.7 565.9
Emile Haynie Pop 3-10 441.8 782.0 619.5 571.9 564.0
Timbaland R&B 10+ 332.6 437.2 432.6 472.5 526.2
Neal Schon Rock 10+ 411.2 1,061.1 579.0 782.6 479.4
Happy Perez R&B 10+ 325.4 507.5 359.6 352.9 470.2
Nelly R&B 10+ 400.4 406.3 481.1 493.4 468.3
Ammar Malik R&B 3-10 419.1 544.6 504.0 675.1 459.2
Jamie Scott Pop 3-10 597.9 595.7 584.2 590.1 457.8
Christina Perri Pop 10+ 347.6 430.4 375.6 518.0 452.3
Skrillex Dance 10+ 389.9 475.9 402.4 893.4 443.0
Paul Barry Pop 10+ 107.8 0.2 486.5 479.8 439.1
Blondie Rock 10+ 281.7 381.7 409.3 513.4 437.6
Nikki Sixx Rock 10+ 328.5 346.5 370.2 426.1 431.5
Walter Afanasieff Pop 10+ 310.5 324.8 401.5 328.1 430.8
Lateral Pop 3-10 255.3 308.5 326.8 325.6 412.5
Chrissie Hynde Rock 10+ 585.3 478.3 377.1 453.7 398.3
Rock Mafia Pop 10+ 333.7 314.0 327.5 467.7 389.2
Sam Hollander Pop 3-10 514.6 821.3 486.9 619.8 368.5
Other Catalogues 13,920.1 15,396.0 13,727.7 14,848.5 12,966.7
Total PFAR 52,780.0 61,468.5 58,573.4 67,612.1 64,817.4
Financial Review
NAV
The Company reports two net asset values: an IFRS NAV which is prepared in
accordance with IFRS, under which the Company's Catalogues of Songs are held
at net book value (cost less accumulated amortisation and accumulated
impairment), and an Operative NAV which adjusts the net book value of the
Company's Catalogues to reflect their Fair Value, as determined by the
Portfolio Independent Valuer. The IFRS Net Asset Value (NAV) per share as at
30 September 2023 was $1.1012, which is a 7.2% decrease from $1.1863 as at 31
March 2023.
The Board and the Investment Adviser consider that the most relevant NAV for
Shareholders is the Operative NAV. The Operative NAV per share decreased by
9.2% to $1.7392 at 30 September 2023 (31 March 2023: $1.9153), driven
primarily by a 6.4% decrease in the Fair Value of the Portfolio. This,
together with the dividends, of 22.94p (29.55¢), takes Total NAV Return ($)
to Shareholders to 56.7% since the IPO on 11 July 2018.
Operative NAV Bridge
From 1 April 2023 to 30 September 2023
$'m Per share
($)
Opening Operative NAV 2,316.0 1.9153
Loss for the period (63.2) (0.0523)
Amortisation and impairment during the period 69.1 0.0572
Dividends paid during the period (39.8) (0.0329)
Decrease in Fair Value of Catalogues (179.1) (0.1481)
Closing Operative NAV 2,103.0 1.7392
Based on the Sterling to Dollar exchange rate at 30 September 2023 of 1.221,
the Operative NAV per share presented in Sterling is 142.49p per share (31
March 2023: 154.91p based on Sterling to Dollar exchange rate of 1.236). As at
19 December 2023, the Operative NAV per share presented in Sterling would be
136.53p per Share (GBP: USD 1.274).
Fair Value of the Portfolio
The Fair Value is determined by the Portfolio Independent Valuer, Citrin
Cooperman. The Fair Value of the Portfolio decreased by 6.4% to $2.62 billion
(31 March 2023: $2.80 billion).
$'m
Fair Value of Portfolio at 31 March 2023 2,802.8
CRB III and CRB IV adjustments (155.0)
Alternative platform licensing adjustment (4.1)
FX rate adjustment 1.5
35-year rule reversions (47.5)
Other 24.3
Fair Value of Portfolio at 30 September 2023 2,622.0
The main drivers of the change in the Fair Value of the Portfolio are:
• A $155.0 million reduction as a result of the Portfolio Independent
Valuer's lower estimate of CRB III retroactive payments (2018-2022) and future
CRB IV (2023-2027) cash flows;
• A $47.5 million reduction, reflecting potentially reduced future cash
flows a result of the US "35-year rule", where artists can request reversion
of their US creative copyrights (composition or sound recording) 35 years
after a contractual grant of rights. This primarily impacts Catalogues bought
as part of the Kobalt Fund 1 acquisition;
• A $4.1 million impact due to reduced cash flow expectations from
alternative platform licensing (licensing on social media, gaming and other
emerging platforms including TikTok); and
• A $24.3 million increase in value due to changes in subscription pricing
of the DSPs, improved baselines and changes to applied future growth rates.
The Portfolio Independent Valuer applied an 8.5% discount rate (31 March 2023:
8.5%), based on a weighted average cost of capital using 50% equity: 50% debt
capital structure; this models the cost of equity at 9.87%. and the cost of
debt at 7.13%. A sensitivity table is set out in Note 5 of the Financial
Statements.
Citrin Cooperman, the Portfolio Independent Valuer:
• One of the largest valuation providers in the music transactions
marketplace;
• Conducts the valuations of many music publishing and recorded music
assets on behalf of buyers, sellers and lenders;
• Conducts the annual valuations of most of the major public and
private music funds;
• Values the Fair Value of Hipgnosis Songs Fund twice a year;
Citrin Cooperman's Valuation Methodology
In determining the Fair Market value of the Portfolio, Citrin Cooperman
("CC"), adopts an income approach utilising a Discounted Cash Flow (DCF)
method which determines the value of the Portfolio based on converting
anticipated future economic benefits into a present single amount. It
considers the expected growth and timing of the benefits, the risk profile of
the benefits stream and the time value of money.
The key inputs to their DCF methodology include:
Determining a baseline value: This is the earnings benchmark, applied on a per
income type, per catalogue basis, against which growth rates are applied. The
baseline value, which is taken from royalty statements, is typically the prior
year's earnings with the exception of synch, where, for the most part, an
average of the prior two years is taken, given the variable earnings of the
Synch business. Adjustments to these assumptions are made by the team at
Citrin Cooperman dependent on Catalogue-specific activity, which may include
settlements, audits, black box payments and changes in administration rates,
amongst others.
The revenue provided does not consider any future ability of the Company's
active management to enhance Catalogue revenues.
Applying growth rates: For Catalogues that contain significant new releases CC
has developed lifecycle growth rates per major income stream that are applied
on a per song basis for significant titles and are then weighted, based on
each song's earnings contribution within each revenue stream. For Catalogues
without significant new releases, referred to as "steady state" Catalogues by
CC, growth rates from a low, mid or high tier are applied on a per income
type, per catalogue basis that decline from an initial growth rate to a
terminal growth rate over the period according to modelled growth curves. The
selection of the growth tier applied to each Catalogue for each of its income
types is determined by that Catalogue's historical earning trends.
Other considerations used by CC in developing their model for anticipated
future cashflows include expectations from Alternative Platform Licensing
(APL), such as TikTok, Facebook and Peloton, and adjustments required to
earlier periods related to settlements, black box payments or other
non-recurring payments.
Discount Rate: The other key assumption used by CC is the discount rate which
it has maintained at 8.5% (31 March 2023: 8.5%). Citrin Cooperman has
consistently taken a long-term view on interest rates. CC determine the
discount rate using a modelled weighted average cost of capital (WACC) based
on a 50:50 equity debt capital structure, with a derived cost of equity of
9.87% and a derived cost of debt of 7.13% utilizing third party data sources
to support their calculation.
The Portfolio Independent Valuer reviews the discount rate regularly and will
adjust the discount rate if it considers it appropriate. A 0.5% increase in
the discount rate to 9.0% would result in a decrease to the Fair Value of the
Catalogue of 7.8% ($203.5 million). Sensitivities relating to the discount
rate, applied growth rates and the terminal growth rate are set out further in
Note 5 of the financial statements.
Revenue
Total revenue from continuing operations decreased to $63.2 million (six month
period ended 30 September 2022: $86.4 million) and Net revenue from continuing
operations decreased to $54.0 million (six month period ended 30 September
2022: $76.8 million). The main driver for the revenue reduction is the
de-recognition of part of the CRB accruals recognised in the prior year.
In the prior period, following the confirmation of the CRB III settlement for
the Songwriters' mechanical portion of US Streaming income, a retroactive
accrual for these payments was made totalling $19.2 million. This accrual was
increased to $21.7 million as at 31 March 2023.
As a result of the Portfolio Independent Valuer materially reducing its
previous expectations across the industry, the Company now expects to receive
significantly lower retroactive payments in relation to CRB III and therefore
reduced this retroactive accrual in the reporting period to $9.9 million,
decreasing Net revenue from continuing operations by $11.8 million.
Excluding these CRB III accruals, the Company saw an increase in IFRS adjusted
Net revenue from continuing operations of $8.2 million, 14.2%
period-on-period. This increase is due to higher royalty statements received
in the period which reflects an underlying increase in consumption of the
Company's music.
Accrued Income
Accrued income as at 30 September 2023 was $121.5 million on a gross basis (31
March 2023: $126.2 million). Within this balance is the CRB III retroactive
accrual of $9.9 million (31 March 2023: $21.7 million). The Company is
exploring refinements to the methodology adopted in the revenue accrual
estimation process for the year end results with an aim to bring consistency
to the description of IFRS revenue and the Pro Forma Annual Revenue measure
through the use of granular data in the underlying calculations, to support an
improved estimation process and enhanced disclosures.
Hipgnosis Songs Group revenue
Hipgnosis Songs Group LLC (HSG) is an operating company within the Fund which
carries out both administration and frontline publishing business activities.
As such, a high proportion of its revenue is paid out to artists as royalty
costs.
We set out Hipgnosis Songs Group LLC's (HSG) standalone Statement of Profit
and Loss in Note 19; below we provide the revenue split by income stream.
HSG's Net revenue has declined to $2.8 million (six month period ended 30
September 2022: $3.5 million) reflecting a lower margin revenue mix. A
breakdown of Total revenue and Net revenue is presented below.
HSG revenue split by income stream Six months to Six months to Variance
30 September 2023
30 September 2022
%
$'m
$'m
Catalogues within the Portfolio reverted to administration at HSG 9.4 7.0 34.3
Third party administration income 6.1 7.0 (12.9)
Frontline publishing income 3.9 4.9 (20.4)
HSG Total revenue 19.4 18.9 2.6
Royalty cost (16.6) (15.4) 7.8
HSG Net revenue 2.8 3.5 (20.0)
Pro Forma Annual Revenue (PFAR)
Given the multiple non-recurring elements captured within IFRS revenue, to
provide Shareholders with an understanding of the like-for-like performance of
the Company's revenue, the Company presents the Pro Forma Annual Revenue
(PFAR) performance measure. This shows the gross royalty statements received
or receivable within the reporting period and does not include any revenue
accruals under IFRS. Although not directly reconcilable with IFRS revenue, the
Company believes this provides a relevant like-for-like full year income
comparison of the Group's Catalogues of Songs held as at the period end.
PFAR is set out by income type for the six month period ended 30 September
2023 against the comparative period below. PFAR does not include any income
from HSG ($2.8 million in the reporting period) but does include PFAR relating
to the Second Disposal of $4.4 million (six month period ended 30 September
2022: $3.1million).
PFAR split by (1) Six months to (1,2) Six months to Variance
income type (1)
30 September
30 September
%
2023
2022
$'m
$'m
Streaming 26.6 23.2 14.7
Synchronisation 9.8 10.0 (2.0)
Performance 14.2 12.8 10.9
Mechanical 2.5 2.5 -
Digital downloads 1.2 1.3 (7.7)
Settlement and other 2.1 1.1 90.9
Total Publishing Income 56.4 50.9 10.8
Masters (3) 8.5 8.1 4.9
Total PFAR 64.9 59.0 10.0
1 This shows the royalty statements received or receivable within the
reporting period.
2 Restated to reflect actual statements received or receivable in the prior
period.
3 Masters income includes Artist Royalties, Producer Royalties and
Neighbouring Rights.
4. PFAR for the 12 months to 30 September 2023 increased by 10.2% year-on-year
to $132.6 million (30 September 2022: $120.3 million).
Streaming revenues increased by 14.7% period-on-period, comparing favourably
with the +11% growth in US streaming revenue as reported by the RIAA.
Synchronisation has seen a small decline in income by 2.0% in part reflective
of the challenges created by the writers and actors strike which impacted
licensing for part of this period. Performance income grew strongly with 10.9%
period-on-period growth with mechanical income remaining consistent
period-on-period. Digital downloads continued a downward trend as streaming
dominates the user consumption market with a 7.7% decrease period-on-period.
Whilst the majority of our revenue is derived from our music composition
rights, the Company also receives revenues from Sound Recording Rights, which
includes both Masters and Producers. These combined revenues increased by 4.9%
period-on-period, from $8.1 million to $8.5 million.
Costs and EBITDA
Operating expenses
Operating expenses from continuing operations increased 25.4% year-on-year to
$117.7 million for the six month period ended 30 September 2023 (six month
period ended 30 September 2022: $93.9 million).
The increase is driven by the recognition of a further Catalogue bonus
provision of $26.5 million, discussed below, and impairment of Catalogues of
Songs of $15.2 million as the application of the Company's asset impairment
policy identified seven Catalogues that required impairment.
Exceptional transaction costs of $5.7 million relating to legal and
professional fees in relation to the proposed asset sales announced on 14
September 2023 were also incurred; these are materially lower than the $13.9
million anticipated at the time the transaction was announced since a high
proportion of the fees were contingent on shareholders approving the
transaction.
HSG's operating costs increased to $5.6 million (six month period ended 30
September 2022: $5.5 million). See Note 19 for a standalone Statement of
Profit and Loss for HSG.
Fees related to the payment of an aborted deal totalling $1.0 million were
paid in the reporting period in addition to further minor costs. Whilst the
Company is not attempting any new acquisitions, no further aborted deal costs
will be incurred.
The increase in operating expenses is offset by a $19.7 million fair value
gain recognised on the Company's held for trading derivative financial
instruments.
Adjusted operating costs less interest expense decreased by 1.9% to $14.3
million (six month period ended 30 September 2022: $14.5 million). This is
primarily a result of the reduction to the Advisory fee of 20.1% year-on-year
to $5.4 million during the period (six month period ended 30 September 2022:
$6.8 million), which decreased due to the Company's lower share price during
the period. Ongoing Charges as a percentage of the average Operative NAV
decreased to 1.19% for the six month period ended 30 September 2023 (six month
period ended 30 September 2022: 1.23%).
Catalogue Bonus Provision
Catalogue bonuses are paid to Songwriters when performance hurdles, defined in
the catalogue acquisition agreements, are met. The decision of the Company to
recognise a Catalogue bonus provision is based on the probability that
expected future performance will achieve the defined performance hurdles (see
Note 10).
During the six month period ended 30 September 2023, the Company has
recognised a further $26.5 million Catalogue bonus provision relating to six
Catalogues. The Company also released Catalogue bonus provisions of $3.3
million relating to two Catalogues where the performance hurdles were not
achieved. The Company paid $0.1 million of Catalogue bonus provision during
the six months to 30 September 2023. This brings the total Catalogue bonus
provision to $68.1 million across 10 Catalogues.
The movement in the Catalogue bonus provision during the reporting period
during the six months to 30 September 2023 is presented below:
$'m
At 1 April 2023 45.0
Increase in provision recognised 26.5
Payments during the period (0.1)
Release of provision previously recognised (3.3)
At 30 September 2023 68.1
In addition to the 10 Catalogues in its Portfolio that have a Catalogue bonus
provision, there are a further 19 Catalogues that have an active Catalogue
bonus clause which the Company considers are unlikely to meet their
performance hurdles. These 19 Catalogues have theoretical bonus provisions
totalling $75.2 million (31 March 2023: nil) and are considered contingent
liabilities; Note 10 provides associated sensitivity analysis.
EBITDA
EBITDA from continuing operations for the six month period ended 30 September
2023 decreased by 36.2% to $39.7 million (six month period ended 30 September
2022: $62.3 million), primarily reflecting the reduction of the CRB III
retroactive active accrual in net revenue.
Leverage
Total debt, as defined within the Alternative Performance Measures, increased
to $674.0 million at 30 September 2023 (31 March 2023: $648.2 million) as a
result of an increase in Catalogue bonus provisions of $23.1 million, a
drawdown from the RCF facility of $4.0 million in July 2023, offset by a
reduction in PRO advances of $1.3 million.
Under the Investment Policy, total debt of the Company should not exceed 30%
of the Operative NAV, equivalent to $630.9 million as at 30 September 2023 (31
March 2023: $694.8 million). During the period the Company exceeds this
threshold, no further drawn downs can be made from the RCF. The current ratio
of total debt to Operative NAV is 32.0% (31 March 2023: 28.0%).
In order to mitigate interest rate risk and provide certainty over interest
payments, the Company holds interest rate swap agreements. Since 3 January
2023, $340 million has been hedged for the duration of the RCF (until 30
September 2027) at a fixed rate of 5.67% (including debt margin); a further
$200 million is hedged until 3 January 2026 at a fixed rate of 5.89%
(including debt margin).
Interest rate swap agreements hedged $540 million at a blended rate of 5.75%,
including debt margin, for a weighted average life of 4.26 years, starting
from 3 January 2023. These interest rate hedging contracts are not subject to
margin calls in the event of movements in underlying interest rates. The
Company received $2.7 million income on the executed interest rate swaps
which, when netted against our interest payments, results in net interest paid
of $18.3 million (six month period ended 30 September 2023: $15.0 million).
The increase in net interest paid over the period is due to an increase in the
effective interest rate. There was a fair value gain recognised on the
remaining interest rate swaps of $21.1 million at 30 September 2023 as a
result of their mark-to-market value at that date.
Foreign Exchange Hedge
The Company holds a series of US Dollar to Sterling foreign exchange forward
contracts to limit its exposure to foreign exchange rate risk and to provide
certainty on the US Dollar value of future Sterling dividend payments. This
rolling hedging strategy implemented by the Board ensures there are up to £50
million of forward contracts in place.
During the period, the Company realised a gain of $3.2 million on the executed
foreign exchange forward contracts. As at 30 September 2023, the Held for
Trading derivative financial asset relating to the foreign exchange forward
contract is $0.2 million.
Dividends
Dividends paid in the period of $39.8 million related to the periods ended
December 2022 (paid 28 April 2023) and March 2023 (paid 28 July 2023); this
was covered 1.38x by available Distributable Revenues.
On 21 September 2023, the Company declared an interim dividend of 1.3125 pence
per share for the period ended 30 June 2023. This dividend was subsequently
withdrawn on 16 October 2023 to ensure on-going compliance with the RCF's
Fixed Charge Coverage Ratio. This was due to the Portfolio Independent Valuer
materially reducing expectations of the CRB III retroactive payments for the
period covering 2018-2022 resulting in the Company partially reversing its CRB
III retroactive active accrual to $9.9 million from $21.7 million as at 31
March 2023, thereby materially reducing its EBITDA for the reporting period.
The Board has determined that it will not declare dividends before the new
financial year.
EPS
EPS from continuing operations for the six month period ended 30 September
2023 is (5.27¢) (six month period ended 30 September 2022: (1.72¢)); the
reduction to EPS is set out in the below table:
EPS Bridge Cents per share
Opening EPS from continuing operations at 1 October 2022 (1.73)
Reduction in Net Revenue (1.89)
Reduction in Operating Expenses (excluding the below) 0.62
1. Exceptional transaction costs (0.48)
2. Increase in Catalogue bonus provision (1.62)
3. Increase in Impairment of Catalogues of Songs (1.09)
4. Increase in loan interest (0.71)
5. Fair value gain on held for trading derivative financial instruments 1.63
Closing EPS from continuing operations at 30 September 2023 (5.27)
As set out previously, the reduction in Net Revenue is primarily due to the
reduction in the CRB III accrual held at 30 September 2023.
Adjusted EPS from continuing operations, as defined within the Alternative
Performance Measures, which primarily removes the impact of Catalogue
amortisation, Catalogue bonus provision, impairment and the fair value gain on
held for trading derivative financial instruments is 1.37 cents (six month
period ended 30 September 2022: 3.63 cents).
Sale of non-core assets
On 14 September 2023, the Company announced the sale of a portfolio of
non-core songs, subject to completion of legal documentation and the consent
of the Company's lending banks, known as the Second Disposal. As this sale is
not conditional on Shareholder approval and meets the requirements of IFRS 5,
the Second Disposal is presented as a discontinued operation in the Condensed
Consolidated Profit and Loss account for the six month period ended 30
September 2023 and a Held for Sale disposal group in the Condensed
Consolidated Balance Sheet as at 30 September 2023.
The large majority of this transaction completed as set out in the
announcement of 11 December 2023.
The profit for the period from discontinued operations is $0.6 million (six
month period ended 30 September 2022: $0.8 million). See Note 20 for further
detail on the Second Disposal.
Merck Mercuriadis
CEO, Hipgnosis Song Management Ltd.
20 December 2023
Condensed Consolidated Statement of Profit and Loss
For the six months ended 30 September 2023 (unaudited)
Notes 1 April 2023 to 1 April 2022 to
30 September
30 September
2023
2022
$'000 $'000
Income
Total revenue 12 63,200 86,392
Interest income 263 40
Royalty costs (9,485) (9,634)
Net revenue from continuing operations 53,978 76,798
Expenses
Advisory and performance fees 15 (5,398) (6,760)
Administration fees (212) (300)
Legal and professional fees (1,711) (1,728)
Audit fees (571) (189)
Brokers' fees (115) (94)
Directors' remuneration 15 (324) (324)
Subscriptions and licences (204) (383)
Other operating expenses 13 (5,949) (6,020)
Exceptional transaction costs 20 (5,747) -
Movement in Catalogue bonus provision (23,257) (3,689)
Movement in ECL provision for HSG advances (42) 375
Amortisation of Catalogues of Songs 5 (53,947) (55,110)
Impairment of Catalogues of Songs 5 (15,194) (2,007)
Amortisation of borrowing expenses 8 (620) (1,001)
Fixed asset depreciation (247) (30)
Loan interest 8 (23,052) (14,473)
Fair value gain on held for trading derivative financial instruments 18 19,652 -
Net loss from joint ventures (446) (48)
Foreign exchange losses (280) (2,083)
Operating expenses (117,664) (93,864)
Operating loss for the period before taxation (63,686) (17,066)
Taxation 4 (78) (3,815)
Loss for the period from continuing operations (63,764) (20,881)
Profit for the period from discontinued operations 20 563 791
Total loss for the period (63,201) (20,090)
From loss for the period from continuing operations
Basic Earnings per Share (cents) 16 (5.27) (1.72)
Diluted Earnings per Share (cents) 16 (5.27) (1.72)
From total loss for the period
Basic Earnings per Share (cents) 16 (5.23) (1.66)
Diluted Earnings per Share (cents) 16 (5.23) (1.66)
The accompanying notes form an integral part of these Condensed Consolidated
Financial Statements.
Condensed Consolidated Statement of Comprehensive Income
For the six months ended 30 September 2023 (unaudited)
Notes 1 April 2023 to 1 April 2022 to
30 September
30 September
2023
2022
$'000 $'000
Loss for the period (63,201) (20,090)
Other comprehensive income:
Movement in foreign currency translation reserve (3) (307)
(3) (307)
Total comprehensive income for the period (63,204) (20,397)
The accompanying notes form an integral part of these Condensed Consolidated
Financial Statements.
Condensed Consolidated Statement of Financial Position
As at 30 September 2023
Notes 30 September 31 March
2023
2023
(Unaudited) (Audited)
$'000 $'000
Assets
Catalogues of Songs 5 1,824,675 1,921,248
Other assets 684 917
Goodwill 272 272
Non-current receivables 6 9,900 13,210
Non-current assets 1,835,531 1,935,647
Trade and other receivables 6 132,430 139,999
Held for trading derivative financial asset 18 15,239 4,914
Assets of disposal group held for sale 20 32,156 -
Cash and cash equivalents 7 34,336 37,965
Current assets 214,161 182,878
Total assets 2,049,692 2,118,525
Liabilities
Loans and borrowings 8 599,048 594,428
Catalogue bonus provision 10 39,604 33,080
Non-current liabilities 638,652 627,508
Held for trading derivative financial liability 18 - 3,395
Catalogue bonus provision 10 28,525 11,962
Liabilities of disposal group held for sale 20 125 -
Other payables and accrued expenses 9 50,861 41,126
Current liabilities 79,511 56,483
Total liabilities 718,163 683,991
Net assets 1,331,529 1,434,534
Equity
Share capital 11 1,692,198 1,692,198
Foreign currency translation reserve (2,244) (2,241)
Treasury share reserve 11 (1,961) (1,961)
Retained earnings (356,464) (253,462)
Total equity attributable to the owners of the Company 1,331,529 1,434,534
Number of Ordinary Shares in issue at period end 1,209,214,286 1,209,214,286
IFRS Net Asset Value per Ordinary Share (cents) 17 110.12 118.63
Operative Net Asset Value per Ordinary Share (cents) 17 173.92 191.53
Approved and authorised for issue by the Board of Directors on 20 December
2023 and signed on their behalf by:
Robert Naylor Chair
Cindy Rampersaud Director
The accompanying notes form an integral part of these Consolidated Financial
Statements.
Condensed Consolidated Statement of Changes in Equity
For the six months ended 30 September 2023 (unaudited)
Notes Number of Share Foreign currency translation reserve Treasury Retained Total
Ordinary Shares
capital
reserve
earnings*
equity
$'000
$'000 $'000 $'000 $'000
As at 1 April 2023 1,209,214,286 1,692,198 (2,241) (1,961) (253,462) 1,434,534
Dividends paid 14 - - - - (39,801) (39,801)
Loss for the year - - - - (63,201) (63,201)
Foreign currency translation reserve movement - - (3) - - (3)
As at 30 September 2023 1,209,214,286 1,692,198 (2,244) (1,961) (356,464) 1,331,529
* Distributable Revenues arising during the period were $11.4 million which,
taken together with the $43.4 million of Distributable Revenue reserves
carried forward from the previous financial year ended 31 March 2023 less
dividends paid during the period, result in available Distributable Revenues
of $15.0 million as at 30 September 2023.
For the six months ended 30 September 2022 (unaudited)
Notes Number of Share Foreign currency translation reserve Treasury Retained Total
Ordinary Shares
capital
reserve
earnings
equity
$'000
(Restated*)
$'000 $'000
$'000
$'000
As at 1 April 2022 1,211,214,286 1,692,198 (2,235) - (107,564) 1,582,399
Dividends paid 14 - - - - (19,312) (19,312)
Loss for the year - - - - (20,090) (20,090)
Foreign currency translation reserve movement - - (307) - - (307)
As at 30 September 2022 1,211,214,286 1,692,198 (2,542) - (146,966) 1,542,690
* Refer to Note 2(e ) for further detail on the prior period restatement.
The accompanying notes form an integral part of these Condensed Consolidated
Financial Statements.
Condensed Consolidated Statement of Cash Flows
For the six months ended 30 September 2023 (unaudited)
Notes 1 April 2023 to 1 April 2022 to
30 September
30 September
2023
2022
$'000 $'000
Cash flows generated from operating activities
Operating loss for the period from continuing operations before taxation (63,686) (17,066)
Operating profit for the period from discontinuing operations before taxation 20 563 791
Adjustments for:
Movement in trade and other receivables 4,819 (18,368)
Movement in other payables and accrued expenses 8,702 5,219
Movement in Catalogue bonus provision 23,257 -
Movement in ECL provision for HSG advances 42 -
Movement in HSG restructuring provision 504 -
Lease liability interest 158 (378)
Amortisation of Catalogues of Songs - Continued 5 53,947 55,110
Amortisation of Catalogues of Songs - Discontinued 20 872 761
Impairment of Catalogue of Songs 5 15,194 2,007
Amortisation of borrowing expenses 620 1,001
Fixed asset depreciation 247 30
Loan interest 8 23,052 14,473
Fair value gain on held for trading derivative financial instruments 18 (19,652) -
Foreign exchange (gains)/losses 280 2,083
Taxation paid 43 (200)
Net cash generated from operating activities 48,962 45,463
Cash flows used in investing activities
Disposal of Catalogues of Songs 788 -
Purchase of other assets (14) (48)
Writer advances paid (1,742) (1,915)
Catalogue bonuses paid (170) -
Deferred consideration paid - (2,500)
Net cash used in investing activities (1,138) (4,463)
Cash flows generated from financing activities
Dividends paid 14 (39,801) (19,312)
Lease interest paid (349) -
Interest paid (21,030) (14,973)
Gain on executed held for trading derivative financial instruments 18 5,932 -
Borrowing costs - (941)
Bank loan drawn down 8 4,000 1,771
Net cash generated from financing activities (51,248) (33,455)
Net movement in cash and cash equivalents (3,424) 7,545
Cash and cash equivalents at the start of the period 37,965 30,067
Effect of foreign exchange rate changes on cash and cash equivalents (205) (1,219)
Cash and cash equivalents at the end of the period 34,336 36,393
The accompanying notes form an integral part of these Condensed Consolidated
Financial Statements.
Notes to the Condensed Consolidated Financial Statements
For the six months ended 30 September 2023 (unaudited)
1. General information
Hipgnosis Songs Fund Limited was incorporated and registered in Guernsey on 8
June 2018 with registered number 65158 and is governed in accordance with the
provisions of the Companies Law. The registered office address is Floor 2,
Trafalgar Court, Les Banques, St Peter Port, Guernsey, GY1 4LY.
The Company is registered with the Guernsey Financial Services Commission
under the Registered Collective Investment Scheme Rules 2015, and the
Protection of Investors (Bailiwick of Guernsey) Law, 2020. The Company is not
authorised or regulated by the Financial Conduct Authority.
The Company's Ordinary Shares were admitted to trading on the Specialist Fund
Segment of the London Stock Exchange on 11 July 2018 and migrated to a Premium
Listing on the Main Market of the London Stock Exchange on 25 September 2019.
The Company was added as a constituent of the FTSE 250 Index effective from
after the market close on 20 March 2020.
The Group is principally engaged in investing in and managing music copyrights
and associated musical intellectual property. The Company makes and manages
its investments through its subsidiaries, which are registered in the UK and
US as limited companies. The Condensed Consolidated Financial Statements
present the results of the Group for the period ended 30 September 2023,
rounded to the nearest US Dollar.
There has been a presentational change in the comparative period in the
Condensed Consolidated Statement of Profit and Loss, as set out in Note 21.
2. Accounting policies
a) Basis of preparation
The Condensed Consolidated Financial Statements included in this Interim
Report have been prepared in accordance with IAS 34 'Interim Financial
Reporting' and the Disclosure and Transparency Rules of the FCA.
The Condensed Consolidated Financial Statements do not include all the
information and disclosures required in the Annual Report and should be read
in conjunction with the Company's Annual Report for the year ended 31 March
2023, which are available on the Company's website (www.hipgnosissongs.com).
The Annual Report has been prepared in accordance with IFRS.
The same accounting policies and methods of computation have been followed for
the preparation of these Condensed Consolidated Financial Statements as in the
Annual Report for the year ended 31 March 2023. The principal accounting
policies applied in the preparation of these Consolidated Financial Statements
are set out below. These policies have been consistently applied, unless
otherwise stated.
b) Group information
As at 31 March 2023, the details of the Company's subsidiaries are as follows:
Name of the subsidiary Place of incorporation and operation % of voting rights % interest Consolidation method Functional Currency
Hipgnosis Holdings UK Limited UK 100 100 Full USD
Hipgnosis SFH I Limited UK 100 100 Full USD
Hipgnosis SFH XIII Limited UK 100 100 Full USD
Hipgnosis SFH XIX Limited UK 100 100 Full USD
Hipgnosis SFH XX Limited UK 100 100 Full GBP
RubyRuby (London) Limited 1 UK 100 100 Full GBP
Hipgnosis Songs Group LLC 2 US 100 100 Full USD
Hipgnosis Acquisition Corp 2 US 100 100 Full USD
Kennedy Publishing & Productions Limited 1 UK 100 100 Full GBP
Robot of the Century Music Publishing Company Inc US 100 100 Full USD
Deamon Limited 1 UK 100 100 Full GBP
PB Songs Ltd 1 UK 100 100 Full GBP
1 These companies are subsidiaries of Hipgnosis SFH XX Limited and therefore
an indirect subsidiary of Hipgnosis Songs Fund Limited.
2 On 10 September 2020 the Company acquired the entire share capital of Big
Deal Music Group (rebranded to Hipgnosis Songs Group) which includes BDM
Acquisition Corp (rebranded to Hipgnosis Acquisition Corp) and Big Deal Music
LLC (rebranded to Hipgnosis Songs Group LLC) both incorporated in the US. Big
Deal Music LLC is part of a joint venture with Big Family LLC, a publishing
company which was formed in June 2018 and is equity accounted for in the
Consolidated Financial Statements.
All subsidiaries undertake the same activities as the Group. In addition,
Hipgnosis Songs Group LLC undertakes publishing administration.
The majority of subsidiaries of the Company are considered tax resident in the
UK and are subject to UK corporation tax. Robot of the Century Music
Publishing Inc is registered in New York, Hipgnosis Songs Group LLC and
Hipgnosis Acquisition Corp. are registered in Delaware and all are subject to
applicable State and Federal Taxes.
c) Going concern
The Directors monitor the capital and liquidity requirements of the Company on
a regular basis. They have also reviewed cash flow forecasts prepared by the
Investment Adviser which are based in part on assumptions about the future
returns from existing Catalogues of Songs and annual operating costs.
Based on these sources of information and their judgement, the Directors
believe it is appropriate to prepare the Condensed Consolidated Financial
Statements of the Group on a going concern basis.
As a result of Continuation Resolution not passing the Board will, in
accordance with the Company's Prospectus, put forward proposals for the
reconstruction, reorganisation or winding-up of the Company to Shareholders
for their approval within six months following the AGM held on 26 October
2023. These proposals may or may not involve winding-up the Company or
liquidating all or part of the Company's existing portfolio of investments. On
that basis there is a material uncertainty that may cast significant doubt on
the Company's ability to continue as a going concern in its current form and,
therefore, that it may be unable to realise its assets and discharge its
liabilities in line with the current normal course of business.
d) Segmental reporting
The chief operating decision maker is the Board of Directors. All of the
Company's income is global but received from sources within US, Europe and UK.
While the Company's income is derived internationally, the Directors are of
the opinion that the Group is engaged in a single segment of business, being
the investment of the Company's capital in a Portfolio of Song copyrights,
with an attractive and growing level of income, together with the potential
for capital growth.
e) Restatement of prior period results
The Interim Report for the six months ended 30 September 2022 was reviewed by
the FRC as part of its routine monitoring of corporate reporting. The review
was based on the Interim Report and did not benefit from detailed knowledge of
the business or an understanding of the underlying transactions entered into
and therefore provide no assurance that the Interim Report is correct in all
material respects. It was, however, conducted by staff of the FRC who have an
understanding of the relevant legal and accounting framework.
In the Interim Report for the six months ended 30 September 2022 the Company
recognised an interim dividend at the point when the Board declared the
dividend. As a result of the FRC's review, going forward the Company will
recognise interim dividends when paid because no legal binding liability is
established prior to payment of the interim dividend. A prior year restatement
is presented in the Condensed Consolidated Statement of Changes in Equity for
the six months ended 30 September 2022 where the accrued dividend declared of
$19.3 million has been derecognised. There is no impact to the comparative
period for the Condensed Consolidated Profit and Loss account, Condensed
Consolidated Balance Sheet and the Condensed Consolidated Statement of
Cashflows.
f) Assets held for sale and discontinued operations
On 14 September 2023 the Company announced the sale of a portfolio of non-core
songs, subject to completion of legal documentation and the consent of the
Company's lending banks, known as the Second Disposal. In accordance with IFRS
5, the assets and liabilities of the Second Disposal are reclassified as held
for sale and its results for the period are presented as discontinued
operations. Prior period comparatives in the Condensed Consolidated Statement
of Profit and Loss, Condensed Consolidated Statement of Cash Flows have been
restated accordingly. These assets and liabilities are recognised as assets
held for sale and liabilities associated with assets held for sale, without
offset. The related assets recorded as assets held for sale are valued at the
lower of their fair value and their carrying value (i.e. at their cost less
accumulated depreciation and impairment losses), and they are no longer
depreciated. Further details of this transaction and the implications for the
Condensed Consolidated financial statements can be found in Note 20.
3. Significant accounting judgments, estimates and assumptions
The preparation of the Group's Condensed Consolidated Financial Statements
requires the application of estimates and assumptions which may affect the
results reported in the Condensed Consolidated Financial Statements.
Uncertainty about these estimates and assumptions could result in outcomes
that require a material adjustment to the carrying amount of the asset or
liability affected in future periods. Estimates and underlying assumptions are
reviewed on an ongoing basis. Revisions to accounting estimates are recognised
in the period in which the estimates are revised and in any future periods
affected.
The key assumptions concerning the future and other key sources of estimation
uncertainty at the reporting date, that have a significant risk of resulting
in a material adjustment to the carrying amounts of assets and liabilities
within the next financial period, are discussed below. The Group based its
assumptions and made estimates based on the information available when the
Condensed Consolidated Financial Statements were prepared. However, these
assumptions and estimates may change based on market changes or circumstances
beyond the control of the Group.
Critical estimates in applying the Group's accounting policies - revenue
recognition and
royalty costs
Accrued income as at 30 September 2023 was $121.5 million (31 March 2023:
$126.2 million), a breakdown of which is set out below:
• $69.5 million for earnings where, due to the time lag in royalty
reporting, statements are not expected to be received until calendar Q4 2023
onwards. This includes international PRO reporting and HSG (31 March 2023:
$62.3 million).
• $9.9 million CRB III accruals (31 March 2023: $21.7 million).
• $42.1 million Usage Accrual, which recognises revenues that have
triggered a contractual payment but have not been paid to, and processed by,
collection societies, publishers and administrators. This represents on
average three months of royalty reporting (31 March 2023: $42.2 million).
In calculating accruals, the Company makes judgments around seasonality, over
or under performance, and commercial factors based on historical performance,
and its knowledge of each Catalogue through its regular correspondence with
the various administrators, record labels and international societies. The
Company also makes an estimate of revenue from consumption to reporting.
Estimated royalty revenue receivable is accrued for on the basis of historical
earnings for each Catalogue, which incorporates an element of uncertainty. The
estimated revenue accrual may not therefore directly equal the actual cash
received in respect of each accounting period and adjustments may therefore be
required throughout the financial period when the actual revenue received is
known, and these adjustments may be material.
Net revenue also includes an accrual for performance income, to account for
the writer's share of Performance royalties which are subject to a significant
time lag in reporting in the industry, but which the Group is entitled to
receive in due course. In recommending the estimate of this accrual to the
Board of Directors the Investment Adviser used its analysis of each
Catalogue's revenue history as well its knowledge of the respective Catalogue
performance trends to recommend the estimated accruals.
Net revenue is subject to a royalty cost accrual applied to gross revenue
receipts primarily within the Hipgnosis Songs Group ("HSG") subsidiaries.
Royalty cost accruals represent contractual royalties due to Songwriters and
other rights holders that are payable on a six-monthly basis for writers under
publishing contracts and quarterly for clients under administration contracts.
Royalty rates vary by writer (negotiated by contract) and by revenue stream.
A sensitivity of the significant estimates used in calculating accrued income
and the impact of the sensitivities on the balance is performed below:
Revenue accrual 30 September 2023 Sensitivity Sensitivity
+10%
-10%
Accruals due to the time lag in royalty reporting $69.5 million $7.0 million ($7.0) million
CRB III accruals* $9.9 million $1.0 million ($1.0) million
One month increase One month reduction
Usage accrual $42.1 million $14.0 million ($14.0) million
* The CRB III sensitivity represents the variability of the historical US
streaming mechanical revenue that the contractual rates are applied to.
Expected Credit Loss (ECL) in relation to revenue receivables
Royalty earnings for accruals and receivables recognised in the year ended 30
September 2023 are distributed by PROs, Publishers and Record Labels who
collect royalties at the source of usage and distribute those earnings
directly to Hipgnosis.
The probability of future default has been deemed close to nil, due to the
long-standing history of PROs, Publishers and Record Labels within the music
industry and the existing framework of cash collection amongst the Company's
stakeholders. Whilst there are smaller/newer organisations that have
relatively unproven credit resilience these account for a small minority of
the Group's receivables.
The Company's current risk assessment includes analysis of the exposure to
commercial risk by PROs, Publishers and Record Labels, and the likely impact
of their credit risk on Hipgnosis' revenue streams. This impact is considered
immaterial and a sensitivity analysis on this is performed in Note 6.
Expected Credit Loss (ECL) in relation to HSG advances
Hipgnosis Songs Group LLC advances royalty payments to Songwriters. Management
is required to assess the recoverability of these advances bi-annually in
accordance with IFRS 9 Financial Instruments. Management will consider market
conditions and historic trading patterns affecting the relevant assets.
Management adopts a simplified approach, has analysed their historical loss
ratio data and applied this using a risk based methodology as there are no
defined terms of repayment related to advances. The risk categories against
which the historical loss ratios are assessed and expected credit losses are
calculated are:
• low risk advances where the advance is expected to be recouped in full
under the terms of the writer's agreement (because of the writer's reputation,
previous success etc);
• medium risk advances where there is reasonable expectation that a level
of the advances will be recouped; and
• high risk advances, where management believes that either because of the
writer's unknown potential or other factors, a large level of recoverability
may not be achieved.
A sensitivity analysis on the expected credit loss provision of the HSG
recoupable advances is performed in Note 6.
Assessment of impairment and the calculation of Operative NAV
Intangible assets are subject to a bi-annual review to identify any indicators
of impairment. The Fair Value of the Catalogues as calculated by the Portfolio
Independent Valuer is used to identify any indicators of impairment. The
Portfolio Independent Valuer adopts a DCF valuation approach and applies a
number of significant assumptions to the projected future earnings for all
Catalogues including:
• Market factors impacting revenues;
• Discount rate, currently 8.5% (31 March 2023: 8.5%); and
• Terminal value at 16 years.
As Value-In-Use is calculated for any Catalogues with a residual risk of
impairment. The Value-In-Use is calculated by using the original projected
cash flows used during the Fair Value calculation by the Portfolio Independent
Valuer, with a 0.5% reduction to the discount rate. The reduction in the
discount rate reflects the Company's ability to drive additional value through
active management of a Catalogue and addresses the passive nature of the
Company's cash flows within the Portfolio Independent Valuer's fair value
analysis.
If the Value-In-Use calculation for the Catalogue is lower than the carrying
value of the Catalogue, an impairment loss equal to the difference is
recognised in the Condensed Consolidated Statement of Profit and Loss. The
impairment losses recognised in respect of intangible assets may be reversed
in a later period if the recoverable amount becomes greater than the carrying
value, within the limit of impairment losses previously recognised.
Management's impairment review as at 30 September 2023 concluded that an
impairment of $15.2 million (six month period ended 30 September 2022: $2.0
million) was required to the Group's Catalogues. A sensitivity analysis on the
Value-In-Use calculation and impact on the impairment charge is performed in
Note 5.
4. Taxation
Whilst the Company is incorporated in Guernsey, the majority of the Company's
subsidiaries are incorporated and tax resident in the UK and the majority of
the Group's income and expenditure in incurred is these UK entities. Therefore
is it considered most appropriate to use the standard UK tax rate of 25% (31
March 2023: 19%).
The Group currently has no exposure to US Corporation Tax as the US based
subsidiaries are currently not making a taxable profit. Aside from the US, the
Group has no other foreign subsidiaries.
The taxation charge of $0.1 million (six months ended 30 September 2022: $3.8
million) is based on adjustments in respect of the prior period.
Disposals of Catalogues may give rise to potential tax charges depending on
the availability of tax attributes (tax losses) to offset any taxable gains
otherwise arising. There were no such disposals of Catalogues during the
period and so no such tax liabilities arose.
5. Catalogues of Songs
Note $'000
Cost
At 1 April 2023 2,237,284
Disposals (788)
Transfer to Held for Sale Assets 20 (30,446)
At 30 September 2023 2,206,050
Amortisation and impairment
At 1 April 2023 316,036
Amortisation 53,947
Impairment 15,194
Transfer to Held for Sale Assets 20 (3,802)
At 30 September 2023 381,375
Net book value
At 1 April 2023 1,921,248
At 30 September 2023 1,824,675
Fair value as at 30 September 2023 2,622,000
Cost
At 1 April 2022 2,237,284
Additions -
At 31 March 2023 2,237,284
Amortisation and impairment
At 1 April 2022 200,552
Amortisation 111,583
Impairment 3,901
At 31 March 2023 316,036
Net book value
At 1 April 2022 2,036,732
At 31 March 2023 1,921,248
Fair value as at 31 March 2023 2,802,762
The Group amortises Catalogues of Songs with a limited useful life using the
straight-line method of 20 years (other than in exceptional circumstances for
specific Catalogues of Songs). An assessment of the useful life of Catalogues
is considered at each reporting period, which is 20 years, in line with what
the Board of Directors and the Investment Adviser deem to be industry
standard. At 30 September 2023 accumulated amortisation for Catalogues of
Songs is $365.5 million (31 March 2023: $310.6 million).
As disclosed on page 132 of the Company's Annual Report for the year ended 31
March 2023, Catalogues of Songs are subject to a bi-annual review to identify
any indicators of impairment. For the six month ended 30 September 2023, the
Company has recognised an impairment charge of $15.2 million on 7 Catalogues
of Songs as a result of this review. This brings accumulated impairment to 30
September 2023 to $20.6 million (31 March 2023: $5.4 million).
A Value-In-Use is calculated for any Catalogue with a residual risk of
impairment following the impairment review. The Value-In-Use is calculated by
using the original projected cash flows used during the Fair Value calculation
by the Portfolio Independent Valuer, with a 0.5% reduction to the discount
rate.
The sensitivity of the discount rate and the Value-In-Use calculation to the
impairment charge is as follows:
Sensitivity to the reduction to the discount rate used in the Value-In-Use
calculation
Discount Rate -0.50% Current +0.50%
Impairment of Catalogues of Songs ($'000) 8.50% 6,532 15,194 23,738
9.00% 15,194 23,738 30,942
9.50% 23,738 30,942 37,096
The Board engaged Portfolio Independent Valuer, Citrin Cooperman Advisors LLC,
to value the Catalogues as at 30 September 2023. The Board has approved and
adopted the valuations prepared by the Portfolio Independent Valuer which are
used as an input into the impairment review process and for the Operative NAV.
The sensitivity of the discount rate to the fair value of the Portfolio is as
follows:
Discount Rate 8.50% 9.00% 9.50%
Portfolio Value ($'000) 2,622,000 2,418,533 2,243,899
Variance to Fair Value ($'000) - (203,467) (378,100)
Variance to Fair Value (%) - (7.8%) (14.4%)
The sensitivity of the terminal value growth rate to the fair value of the
Portfolio is as follows:
Sensitivity to the Terminal Value Growth Rate Current Rate Current Rate -1.00% 2.00% Rate Current Rate +1.00%
Portfolio Value ($'000) 2,622,000 2,476,587 2,537,198 2,826,184
Variance to Fair Value ($'000) - (145,413) (84,801) 204,185
Variance to Fair Value (%) - (5.5%) (3.25%) 7.8%
The sensitivity of the applied growth rate to the fair value of the Portfolio
is as follows:
Sensitivity to the Growth Rate Current Rate Current Rate Current Rate
-1.00%
+1.00%
Portfolio Value ($'000) 2,622,000 2,360,337 2,922,061
Variance to Fair Value ($'000) - (261,663) 300,061
Variance to Fair Value (%) - (10.0%) 11.4%
6. Trade and other receivables
30 September 31 March
2023
2023
$'000 $'000
Non-current receivables
Accrued income 9,900 13,210
9,900 13,210
Current receivables
Accrued income 105,236 112,943
Royalties receivable 7,680 7,078
Net recoupable advances 16,280 16,436
Prepayments and other debtors 3,132 3,542
Corporation tax 102 -
132,430 139,999
The material reduction to accrued income for the six months ended 30 September
2023 is due to the reduction of the CRB III retroactive accrual. As at 31
March 2023, $21.7 million was accrued following the confirmation of the CRB
III rate increase to 15.1% for the Songwriters' mechanical portion of US
Streaming income. This accrual estimated the retroactive payment due to the
Company as a result of revenues in previous accounting periods not having been
recognised at the full CRB III rates. The Company's Portfolio Independent
Valuer materially reduced its expectations of these industry-wide retroactive
payments for its valuation of the Company's portfolio as at 30 September 2023.
As a result, the Company now expects to receive significantly lower
retroactive payments in relation to CRB III and therefore reduced its CRB III
retroactive accrual to $9.9 million.
Credit Risk and Provision for Expected Credit Losses (ECL)
As disclosed in Note 3, the probability of future default against revenue
receivable balances has been deemed close to nil. At 30 September 2023, an ECL
provision is recognised against the recoupable advances as below:
At 30 September 2023 High Risk Medium Risk Low Risk Total
$'000 $'000 $'000 $'000
Expected loss rates 100.0% 22.7% 0.0% 48.9%
Gross carrying amounts 13,295 10,053 8,506 31,853
Provision for expected credit losses (13,295) (2,278) - (15,573)
Net carrying amounts - 7,775 8,506 16,280
At 31 March 2023 High Risk Medium Risk Low Risk Total
$'000 $'000 $'000 $'000
Expected loss rates 100.0% 24.0% 0.0% 48.6%
Gross carrying amounts 13,000 10,520 8,436 31,956
Provision for expected credit losses (13,000) (2,520) - (15,520)
Net carrying amounts - 8,000 8,436 16,436
Net recoupable advances relating to HSG amount to $16.26 million (31 March
2023: $16.35 million).
If the probability of future default against the royalties receivable balances
were to be 5% higher, this would result in a $0.4 million ECL provision on
royalties receivable. If the probability of future default against the medium
risk recoupable advances were to be 10% higher, this would result in a $1.0
million increase to the ECL provision on recoupable advances.
7. Cash and cash equivalents
30 September 31 March
2022
2023
$'000
$'000
Cash available on demand 34,336 37,965
34,336 37,965
8. Loans and borrowings
During the period, the Company entered into an amendment relating to the
calculation of the fixed charge coverage covenant. There are no other changes
to the terms of the Company's RCF as disclosed on page 144 of the Company's
Annual Report for the year ended 31 March 2023.
Key financial covenant Description 30 September 31 March Lender Covenants
2023
2023
Actual Actual
i) Total debt to Catalogue value as determined by the lender Represents total debt as a percentage of Catalogue value as determined by the 33.0% 31.5% Must not exceed 40%
lender.
ii) Total debt leverage Represents the ratio of pro forma EBITDA to total debt. 6.6:1.0 5.5:1.0 Not greater than 7:1
iii) Fixed charge coverage Represents the ratio of pro forma EBITDA to trailing tax, interest and 1.1:1.0 1.3:1.0 Not less than 1:1
dividend declaration and payments over the last 12 months.
The Catalogue value as determined by the lender is specifically prepared for
the banking syndicate based on a set of assumptions that reflect an immediate
sale of the portfolio in order to provide maximum loan security.
The covenants are reviewed quarterly and are secured by, inter alia, a charge
over the shares in all the subsidiaries of the Company, a charge over all of
their assets including all Catalogues of Songs of the Company held through
these subsidiaries and a charge over the bank accounts of the Company and its
subsidiaries. The Company has also provided a parent company guarantee. Under
the Investment Policy total debt of the Company should not exceed 30% of the
Operative NAV which is $630.9 million (31 March 2023: $694.8 million); any
excess to this threshold prevents the Company from drawing down further
amounts from the RCF. The current ratio of total debt to Operative NAV is
32.0% (31 March 2023: 28.0%). Loans and borrowings are initially measured at
Fair Value, net of transaction costs.
30 September 31 March
2023
2023
$'000 $'000
Opening balance 600,000 600,000
Amounts drawn down during the period 4,000 607,000
Amounts repaid during the year - pre-existing RCF - (600,000)
Amounts repaid during the year - new RCF - (7,000)
Total loan drawn down 604,000 600,000
Cumulative borrowing costs (4,952) (5,572)
Closing balance 599,048 594,428
The interest expense recognised in the Condensed Consolidated Profit and Loss
account of $23.0 million is calculated on an accruals basis (six month period
ended 30 September 2022: $14.5 million). As disclosed on page 154 of the
Company's Annual Report for the year ended 31 March 2023, the Company has
entered into interest rate swap arrangements to mitigate interest rate risk.
An analysis of the interest paid and income on the interest swap arrangements
during the period ended 30 September 2023 is detailed below:
1 April 2023 to 1 April 2022 to
30 September
30 September
2023
2022
$'000 $'000
Interest expense paid 21,030 14,973
Income on interest swap arrangements (2,696) -
Total interest paid (net of swap arrangements) 18,334 14,973
9. Liabilities and accrued expenses
30 September 31 March
2023
2023
$'000 $'000
Amounts owed to Songwriters 22,507 18,799
Loan interest payable 11,913 9,891
Trade creditors and accruals 11,682 5,846
PRO advances 1,862 3,178
Corporation tax payable - 67
VAT 1,365 1,789
Lease liability 545 735
Directors fees payable 44 27
Other creditors 943 794
50,861 41,126
10. Catalogue bonus provision
30 September 31 March
2023
2023
$'000 $'000
Non-current liabilities
Catalogue bonus provision 39,604 33,080
39,604 33,080
Current liabilities
Catalogue bonus provision 28,525 11,962
28,525 11,962
The Group has a number of Catalogue bonuses which are dependent on the
individual Catalogues meeting performance hurdles defined in their respective
acquisition agreements. There are 10 Catalogues (31 March 2023: 6 Catalogues)
likely to meet the performance hurdles defined in their acquisition agreements
triggering the recognition of Catalogue bonus provisions. The movement in the
Catalogue bonus provision during the period is presented below:
Number of
Catalogues
$'000
At 1 April 2023 6 45,042
Increase in provision recognised 6 26,537
Payments during the period - (100)
Release of provision recognised (2) (3,350)
At 30 September 2023 10 68,129
Catalogue bonus contingent liabilities
There are a further 19 Catalogues with active bonus clauses totalling $75.2
million (31 March 2023: $Nil) which are unlikely to meet the performance
hurdles defined in their acquisition agreements; the Company has disclosed
these as contingent liabilities. Catalogues forming the remainder of the
Portfolio either do not include Catalogue bonus clauses, or the Catalogue
bonus clauses are no longer active as performance hurdles have not been
achieved and bonus obligations no longer exist. The performance hurdles of the
19 Catalogues with active bonus clauses are calculated on three different
bases:
1. NAV basis
There are 3 Catalogues with performance hurdles based on achieving a
contractually specified NAV target which trigger a Catalogue bonus obligation.
Detailed below is the total current NAV valuation by the Portfolio Independent
Valuer, alongside the aggregate target NAV required to trigger the Catalogue
bonus obligations.
Portfolio Independent Valuer:
Number of Catalogues Latest date required to meet performance hurdles Total Catalogue bonus contingent liability NAV at Target NAV to achieve bonus
$'000
30 September
2023 $'000
$'000
1 May 2024 5,000 53,352 71,600
1 November 2028 2,500 12,136 26,251
1 January 2029 1,000 8,875 11,200
8,500
2. Defined cash income amount basis
There are 4 Catalogues with performance hurdles based on a
contractually-specified cash amount received by the Company at a specified
point in time, which triggers a Catalogue bonus obligation. Details of the
number of performance hurdles, the Compound Annual Growth Rate (CAGR) required
to achieve the performance hurdles, CAGR forecast by the Portfolio Independent
Valuer and the associated contingent liabilities are detailed below.
Number of performance hurdles Latest date required to meet performance hurdles CAGR required Total Catalogue Portfolio Independent Valuer:
to meet performance
bonus contingent
hurdles
liability Forecast range in CAGR %
%
$'000
- - 0-60% - -
2 December 2027 61-100% 4,500 14.5-15.8%
1 December 2025 101-200% 2,000 20.2%
1 September 2024 201-300% 525 6.1%
2 April 2024 > 300% 4,275 (31.2)-39.4%
11,300
3. Cash income growth rate basis
There are 12 Catalogues with performance hurdles based on a calculated growth
rate that must be achieved to trigger a Catalogue bonus. Details of the number
of performance hurdles, CAGR required to achieve the performance hurdles, CAGR
forecast by the Portfolio Independent Valuer, and the associated contingent
liabilities are detailed below.
Number of performance hurdles Latest date required to meet performance hurdles CAGR required Total Catalogue Portfolio Independent Valuer:
to meet performance
bonus contingent
hurdles
liability Forecast range in CAGR %
%
$'000
- - 0-15% - -
1 March 2025 16-20% 1,400 9.0%
1 December 2024 21-25% 4,175 16.4%
5 December 2025 26-50% 15,075 5.8-20.7%
2 June 2025 51-100% 8,250 1.6-7.9%
3 October 2025 101-150% 9,344 3.0-37.4%
4 October 2024 151-200% 1,286 5.5-27.6%
7 July 2024 > 200% 15,913 2.6-25.7%
55,443
11. Share capital and capital management
Ordinary Share Capital
The share capital of the Company may consist of an unlimited number of:
(i) Ordinary Shares of no par value which upon issue the Directors may
classify as Ordinary Shares;
(ii) C Shares denominated in such currencies as the Directors may determine;
and
(iii) Ordinary Shares purchased by the Company through share repurchase and
held as Treasury Shares.
As at 30 September 2023 the Company's authorised and issued share capital
consisted of 1,211,214,286 Ordinary Shares, of which 2,000,000 were held in
treasury. Treasury shares hold no voting rights, are not entitled to a
dividend and are excluded from the EPS, IFRS and Operative Net Asset Value per
share calculation.
Ordinary Shares of no par value
No. of Units outstanding Share Capital Treasury Reserve
$'000 $'000
Issued and fully paid:
Shares as at 1 April 2023 1,209,214,286 1,692,198 (1,961)
Shares as at 30 September 2023 1,209,214,286 1,692,198 (1,961)
No. of Units outstanding Share Capital Treasury Reserve
$'000 $'000
Issued and fully paid:
Shares as at 1 April 2022 1,211,214,286 1,692,198 -
Repurchase of ordinary shares into treasury (2,000,000) - (1,961)
Shares as at 31 March 2023 1,209,214,286 1,692,198 (1,961)
Under the Company's Articles of Incorporation, each Shareholder present in
person or by proxy has the right to one vote at general meetings. On a poll,
each Shareholder is entitled to one vote for every Ordinary Share held.
Shareholders are entitled to all dividends paid by the Company and, on a
winding up, provided the Company has satisfied all of its liabilities, the
Shareholders are entitled to all of the residual assets of the Company.
12. Revenue
1 April 2023 to 1 April 2022 to
30 September
30 September
2023
2022
$'000 $'000
Mechanical income 3,888 2,641
Performance income 6,343 4,209
Digital downloads income 1,224 2,282
Streaming income 14,170 46,923
Synchronization income 10,565 12,199
Publishing admin income 237 154
Masters income 3,749 1,424
Writer share income 15,622 12,839
Neighbouring rights income 974 663
Other income 1,266 (498)
Producer royalties 5,162 3,556
63,200 86,392
There is an inherent time lag with royalties between the time a song is
performed, and the revenue being received by the copyright owner. The revenue
accruals are disclosed in Note 6 Trade and other receivables. There is a
material reduction in streaming income as a result of the reduction in income
arising from CRB III accruals (see note 6).
13. Other operating expenses
1 April 2023 to 1 April 2022 to
30 September
30 September
2023
2022
$'000 $'000
Aborted deal expenses 1,099 332
Debt financing fees 176 53
Public relations fees 181 136
Marketing & events 373 355
Listing fees 32 41
Bank charges 15 26
Record label costs 18 -
Charitable donations 20 28
Directors' and officers' insurance 31 42
Lease liability interest 158 378
HSG staff payroll and expenses 3,029 3,154
HSG office expenses 223 198
HSG restructuring provision 504 925
Travel, accommodation and entertainment expenses - 23
HSG travel, accommodation and entertainment expenses 103 258
Sundry (13) 71
5,949 6,020
14. Dividends
The Company, being a Guernsey-regulated entity, is able to pay dividends out
of capital, subject to the assessment of solvency in accordance with the
Companies Law and subject to a levered free cashflow test as required by the
Revolving Credit Facility.
A summary of the dividends paid are set out below:
Dividend Total
per share
Dividend
Pence $'000
1 April 2023 to 30 September 2023
Interim dividend in respect of quarter ended 31 December 2022 1.3125 20,177
Interim dividend in respect of quarter ended 31 March 2023 1.3125 19,624
2.6250 39,801
1 April 2022 to 30 September 2022
Interim dividend in respect of quarter ended 31 March 2022 1.3125 19,312
1.3125 19,312
15. Related party transactions and Directors' remuneration
Parties are considered to be related if one party has the ability to control
the other party or exercise significant influence over the party in making
financial or operational decisions.
Directors
All Directors are non-executive. The Directors' remuneration, excluding
disbursements, for the period ended 30 September 2023 amounted to $0.3 million
with no outstanding fees due to the Directors at 30 September 2023 (six month
period ended 30 September 2022: $0.3 million, with no outstanding fees).
Directors are reimbursed for out-of-pocket expenses incurred in fulfilling
their roles, including costs of travel and accommodation (as required).
Directors' transactions in or holdings in shares of the Company are not
disclosed as related party transactions as they do not receive shares as part
of their remuneration. Any shares held or transacted are acquired or disposed
of in their own right as Shareholders and as result, it is management's
assessment that the Company has not transacted with the Directors as related
parties in this regard.
Investment Adviser
The Company has entered into an Investment Advisory Agreement with the
Investment Adviser pursuant to which the Investment Adviser will source Songs
and provide recommendations to the Board on acquisition and disposal
strategies, manage and monitor royalty and/or fee income due to the Company
from its copyrights and collection agents, and develop strategies to maximise
the earning potential of the Songs in the portfolio through improved placement
and coverage of Songs.
Investment Adviser fees for the six month period ended 30 September 2023 were
$5.4 million (six month period ended 30 September 2022: $6.8 million) with
$0.4 million outstanding at 30 September 2023 (31 March 2023: $0.4 million).
16. Earnings per share
30 September 30 September
2023
2023
Basic Diluted
Loss for the period from continuing operations ($'000) (63,764) (63,764)
Total loss for the period ($'000) (63,201) (63,201)
Weighted average number of Ordinary Shares outstanding 1,209,214,286 1,209,214,286
Earnings per share (cents) from continuing operations (5.27) (5.27)
Earnings per share (cents) from total loss for the period (5.23) (5.23)
30 September 30 September
2022
2022
Basic Diluted
Loss for the period from continuing operations ($'000) (20,881) (20,881)
Total loss for the period ($'000) (20,090) (20,090)
Weighted average number of Ordinary Shares outstanding 1,211,214,286 1,211,214,286
Earnings per share (cents) from continuing operations (1.72) (1.72)
Earnings per share (cents) from total loss for the period (1.66) (1.66)
The earnings per share is based on the loss of the Group from continuing
operations for the period, the total loss of the Group for the period and on
the weighted average number of Ordinary Shares outstanding for the period
ended 30 September 2023. The Company holds 2 million Treasury Shares as at 30
September 2023; these shares are not included the EPS calculation.
17. Net Asset Value per share and Operative Net Asset Value per share
30 September 31 March
2023
2023
Number of Ordinary Shares in issue 1,209,214,286 1,209,214,286
IFRS NAV per share (cents) 110.12 118.63
Operative NAV per share (cents) 173.92 191.53
The IFRS NAV per share and the Operative NAV per share are arrived at by
dividing the IFRS Net Assets and Operative Net Assets (respectively) by the
number of Ordinary Shares in issue.
Catalogues of Songs are classified as intangible assets and measured at
amortised cost or cost less impairment in accordance with IFRS.
The Directors are of the opinion that an Operative NAV provides a meaningful
Alternative Performance Measure and the values of Catalogues of Songs are
based on fair values produced by the Portfolio Independent Valuer.
Reconciliation of IFRS NAV to Operative NAV
30 September 31 March
2023
2023
$'000 $'000
IFRS NAV 1,331,529 1,434,534
Adjustments for revaluations of Catalogues of Songs to fair value 385,504 565,478
Reversal of accumulated amortisation and impairment 386,049 316,036
Operative NAV 2,103,082 2,316,048
Tax considerations
The Company's Investment Trust Company (ITC) status may allow for the Company
to make disposals of shares or certain other capital assets on a tax-exempt
basis for UK corporation tax purposes. However, a disposal of Catalogues,
considered intangible fixed assets for UK corporation tax purposes, would not
qualify for exemption in the same way.
A disposal of Catalogues by way of a sale of shares of a Group subsidiary
company by the Company, in order to take advantage of its ITC tax-exempt
status, would not necessarily result in greater value for the Group, depending
on the attractiveness of such a transaction structure to the prospective
purchaser and their other potential tax considerations on future sales of the
acquired shares.
If the Group were to dispose of all of its Catalogues, an indicative tax
calculation (subject to a number of assumptions in its preparation - see
below) estimates that a potential corporation tax charge (or equivalent in the
US) could be incurred by the Group subsidiary companies, of approximately
$215.6 million. This has been calculated based on comparing the Fair Value
determined by the Portfolio Independent Valuer (as a representation of
indicative sales proceeds) to the Catalogues' carrying value as at 30
September 2023.
The calculations assumes a 25% tax rate as: (a) the prevailing rate of UK
corporation tax from 1 April 2023 and (b) a proxy for US Federal and State
corporate income tax. This indicative tax calculation does not take into
account attributes such as UK tax losses, which could be used to offset some
of the taxable gains, or where the tax treatment of an element of sale
proceeds may be considered to be the sale of a receivable aligned with a
Catalogue rather than part of the disposal value of that Catalogue, which
could result in a materially lower tax charge.
As the Company has not disposed of any catalogues to date, no such tax
liability currently exists.
18. Held for trading derivative financial instruments
The Company has the following derivative financial instruments:
30 September 31 March
2023
2023
$'000 $'000
Held for trading derivative financial asset
Foreign exchange forward contracts 225 4,914
Interest rate swap arrangements 15,014 -
15,239 4,914
Held for trading derivative financial liability
Interest rate swap arrangements - (3,395)
The carrying value of the held for trading financial instruments represent
their fair value at the period end.
The fair value gain on held for trading derivative financial instruments
recognised in the Condensed Consolidated Statement of Profit and Loss relates
to the following:
1 April 2023 to 1 April 2022 to
30 September
30 September
2023
2022
$'000 $'000
Foreign exchange forward contracts (1,454) -
Interest rate swap arrangements 21,106 -
19,652 -
19. Hipgnosis Songs Group LLC
As disclosed in Note 2(d) the Directors are of the opinion that the Group is
engaged in a single segment of business, being the investment of the Company's
capital in a Portfolio of Song copyrights, together with the potential for
capital growth. Hipgnosis Songs Group LLC is a US based subsidiary which
undertakes publishing administration on behalf of the Group as well as third
parties and its results are presented within the consolidated results of the
Group.
The Statement of Profit and Loss of Hipgnosis Songs Group LLC for the six
months ended 30 September 2023 are presented below, together with its
comparative period.
1 April 2023 to 1 April 2022 to
30 September
30 September
2023
2022
$'000 $'000
Income
Total revenue 19,318 18,933
Royalty costs (16,552) (15,400)
Net revenue 2,766 3,533
Expenses
Legal and professional fees (506) (507)
Audit fees (128) -
Subscriptions and licences (140) (119)
Travel, accommodation and entertainment expenses (103) (259)
Public relations fees (30) (54)
Marketing & events (35) -
HSG office expenses (223) (198)
HSG Staff payroll and expenses (3,029) (3,154)
Sundry (52) (54)
Bank charges (1) (4)
Lease liability interest (158) (378)
HSG restructuring provision (504) (925)
Movement in ECL provision for HSG advances (42) 375
Amortisation of Catalogues of Songs (5) (143)
Fixed asset depreciation (224) (30)
Net loss from joint ventures (446) (48)
Foreign exchange losses (1) -
Operating expenses (5,627) (5,498)
Operating loss for the period before taxation (2,861) (1,965)
Taxation (231) (8)
Loss for the period (3,092) (1,973)
20. Assets held for sale
On 14 September 2023, the Company announced the sale of 29 Catalogues, known
as the First Disposal. This was conditional upon the approval of the sale by
Shareholders at the EGM and the approval by Shareholders of the Continuation
Resolution at the Company's 2023 AGM, both held on 26 October 2023. As the
sale was not approved by Shareholders by 30 September 2023, the First Disposal
is presented as a continuing operation in the Consolidated Statement of Profit
and Loss for the six months ended 30 September 2023.
Also, on 14 September 2023, the Company announced the sale of a portfolio of
non-core songs, subject to completion of legal documentation and the consent
of the Company's lending banks, known as the Second Disposal. As this sale is
not conditional on Shareholder approval and meets the requirements of IFRS 5,
the Second Disposal is presented as a discontinued operation in the
Consolidated Profit and Loss account for the six months ended 30 September
2023 and a Held for Sale disposal group in the Consolidated Balance Sheet as
at 30 September 2023.
1 April 2023 to 1 April 2022 to
30 September
30 September
2023
2022
$'000 $'000
Income
Total revenue 5,013 5,286
Royalty costs (3,578) (3,734)
Net revenue 1,435 1,552
Expenses
Amortisation of Catalogues of Songs (872) (761)
Operating expenses (872) (761)
Profit for the period from discontinued operations 563 791
The assets and liabilities of the Second Disposal are below:
30 September 31 March
2023
2023
$'000 $'000
Catalogues of Songs - Cost 30,446 -
Catalogues of Songs - Accumulated amortisation (4,674) -
Accrued income 6,532 -
Net recoupable advances 32 -
Total held for sale assets 32,156 -
30 September 31 March
2023
2023
$'000 $'000
Trade creditors and accruals 125 -
Total held for sale liabilities 125 -
Total held for sale assets and liabilities 32,031 -
The Company has incurred exceptional transaction costs of $5.7 million
relating to legal and professional fees incurred in relation to First Disposal
and Second Disposal.
21. Presentation changes
The Company has made immaterial changes to the presentation of the Condensed
Consolidated Statement of Profit and Loss and accompanying notes during the
period. This has resulted in the following changes of the comparative figures.
Condensed Consolidated Statement of Profit and Loss
As reported in Presentation change Discontinued operation As reported in
30 September 2022 Interim Report
30 September 2023 Interim Report
$'000 $'000
1 April 2022 to 30 September 2022 1 April 2022 to 30 September 2022
$'000 $'000
Income
Total revenue 91,678 - (5,286) 86,392
Interest income 40 - - 40
Royalty costs (13,368) - 3,734 (9,634)
Net revenue 78,350 - (1,552) 76,798
Expenses
Advisory and performance fees (6,760) - - (6,760)
Administration fees (300) - - (300)
Legal and professional fees (1,728) - - (1,728)
Audit fees (189) - - (189)
Brokers' fees (147) 53 - (94)
Directors' remuneration (324) - - (324)
Listing fees (41) 41 - -
Subscriptions and licences (383) - - (383)
Public relations fees (326) 326 - -
Other operating expenses (4,847) (1,173) - (6,020)
Exceptional transaction costs - - - -
Catalogue bonus provision (3,689) - - (3,689)
Movement in ECL provision for HSG advances - 375 - 375
Amortisation of Catalogues of Songs (55,871) - 761 (55,110)
Impairment of Catalogues of Songs (2,007) - - (2,007)
Amortisation of borrowing expenses (1,001) - - (1,001)
Fixed asset depreciation (30) - - (30)
Loan interest (14,473) - - (14,473)
Finance charges for deferred consideration (378) 378 - -
Fair value gain on held for trading derivative - - - -
financial instruments
Net loss from joint ventures (48) - - (48)
Foreign exchange losses (2,083) - - (2,083)
Operating expenses (94,625) - 761 (93,864)
Operating loss for the year before taxation (16,275) - (791) (17,066)
Taxation (3,815) - - (3,815)
Loss for the period from continuing operations (20,090) - (791) (20,881)
Profit for the period from discontinued operations 791
Total loss for the period (20,090) - 791 (20,090)
Other operating expenses
1 April 2022 to Presentation change Discontinued operation 1 April 2022 to
30 September 2022 $'000 $'000 30 September 2022
$'000 $'000
Aborted deal expenses 332 - - 332
Debt financing fees - 53 - 53
Public relations fees - 136 - 136
Marketing & events - 355 - 355
Listing fees - 41 - 41
Bank charges 26 - - 26
Charitable donations 28 - - 28
Directors' and officers' insurance 160 (118) - 42
Lease liability interest - 378 - 378
HSG staff payroll and expenses 3,154 - - 3,154
HSG office expenses 79 119 - 198
HSG restructuring provision 925 - - 925
Movement in ECL provision for HSG advances (375) 375 - -
Travel, accommodation and entertainment expenses 187 (164) - 23
HSG travel, accommodation and entertainment expenses 258 - - 258
Sundry 73 (2) - 71
Operating expenses 4,847 1,173 - 6,020
22. Litigations and claims
The Company is a defendant in a case brought against it, Merck Mercuriadis and
Hipgnosis Songs Management Limited, alleging a diversion and unlawful
assistance in the diversion of a business opportunity from Hipgnosis Music
Limited to the Hipgnosis Songs Fund Limited. Proceedings are at a preliminary
stage, and it is not possible for the Hipgnosis Songs Fund Limited to
determine the likelihood or costs associated with this claim.
Furthermore, in the normal course of its business, the Company is subject to
various lawsuits, arbitrations and governmental, administrative or other
proceedings. However, based on the information currently available, it
believes that the outcome from these legal proceedings will not have a
material impact on its consolidated results of operations and financial
position.
23. Subsequent Events
On 13 October 2023, the Portfolio Independent Valuer materially reduced its
expectations of the CRB III retroactive payments for the period covering
2018-2022 and as a result, the Company reduced its CRB III retroactive accrual
to $9.9 million, from $21.7 million as at 31 March 2023. In consequence of
this unwinding, on 16 October 2023, the Board withdrew the proposed interim
dividend of 1.3125 pence per share announced on 21 September 2023 with a
payment date of 27 October 2023. As disclosed in Note 8, an amendment to the
RCF was agreed to return the Company to compliance with the Fixed Charge
Coverage covenant.
On 19 October 2023, the Board initiated a Strategic Review. The Strategic
Review will look at all options to be considered for the future of the Company
with the aim of maximising value for Shareholders including, among other
things, a review of the future management arrangements of the Company.
On 24 October 2023, the result of the Go-Shop period in relation to the First
Disposal was announced: no Superior Offer was received by the Company. At the
EGM held on 26 October 2023, Shareholders voted against the First Disposal.
On 25 October 2023, the Company announced that Andrew Wilkinson and Paul
Burger resigned as Non-Executive Directors of the Company.
On 26 October 2023, at the Company's AGM, Shareholders voted against the
Continuation Resolution. The Board will, in accordance with the Company's
Prospectus, put forward proposals for the reconstruction, reorganisation or
winding-up of the Company to Shareholders for their approval within six months
following the date of the AGM.
On 26 October 2023, Andrew Sutch was not re-elected as a Director of the
Company and therefore ceased being a Director and Chair of the Board from the
conclusion of the AGM.
On 6 November 2023, as a result of undertaking a review of the Company's
financial position, the Board has determined that it would not declare
dividends before the new financial year.
On 7 November 2023, the Company announced the appointment of Robert Naylor as
Chairman of the Board and Non-Executive Director and Francis Keeling as
Non-Executive Director, with immediate effect.
On 11 December 2023, the Company announced the completion of the sale of a
portfolio of non-core songs. This portfolio represents the majority of the
Held for Sale disposal group recognised at 30 September 2023.
On 11 December 2023, the Company announced the appointment of Singer Capital
Markets as sole corporate broker and financial adviser and Shot Tower Capital,
LLC as lead adviser to conduct due diligence on the Company's assets as part
of its strategic review.
On 15 December 2023, the Company announced the appointment of Christopher
Mills as Non-Executive Director, with immediate effect.
On 20 December 2023 the Company announced the appointment of KPMG Channel
Islands Limited, Guernsey (KPMG CI) as its auditor with immediate effect for
the financial year ended 31 March 2024. KPMG CI succeed PricewaterhouseCoopers
CI LLP, Guernsey (PWC CI), who were the previous auditors. The re-appointment
of KPMG CI as auditor will be subject to approval by the Company's
shareholders at General Meeting of the Company to be convened in due course.
Post period end the Company will be acquiring the remaining rights to an
existing Catalogue within the Company's portfolio. This acquisition arises due
to an exercisable option in the existing Catalogue acquisition contract.
Alternative Performance Measures
For the six months ended 30 September 2023 (unaudited)
Adjusted EPS from continuing operations
Definition
Loss for the period from continuing operations excluding Total Amortisation,
impairment, depreciation, Catalogue bonus provision, restructuring costs,
foreign exchange losses and provision for HSG advances divided by weighted
average number of Ordinary Shares outstanding.
Reason for Use
Adjusted EPS from continuing operations is a strong indicator of Company
performance and profitability after adjusting for non cash and financing
items.
Calculation 1 April 2023 to 1 April 2022 to
30 September
30 September
2023
2022*
$'000
$'000
Loss after tax from continuing operations (63,764) (20,881)
Total Amortisation 54,567 56,111
Impairment of Catalogues of Songs 15,194 2,007
Fixed asset depreciation 247 30
Lease liability interest 158 378
Exceptional transaction costs 5,747 -
Movement in Catalogue bonus provision 23,257 3,689
HSG restructuring costs 504 925
Foreign exchange losses 280 2,083
Fair value gain on held for trading derivative financial instruments (19,652) -
Movement in ECL provision for HSG advances 42 (375)
Adjusted earnings 16,580 43,967
Weighted Average number of Ordinary Shares outstanding (number) 1,209,214,286 1,211,214,286
Adjusted Earnings per Share (cents) 1.37 3.63
* Definition changed since the prior period, refer to page 170 of the
Company's Annual Report for the year ended 31 March 2023.
† Tax arising on above adjusting items amounts to $18.3 million (six month
period ended 30 September 2022: $11.7 million). This figure is the sum of the
tax effects of individual adjusting items other than permanent differences,
calculated using the prevailing 25% corporation tax rate for the periods for
UK items and 21% rate of US Federal corporate income tax for US items.
Adjusted Operating Costs less Interest Expense
Definition
Operational expenses excluding Total Amortisation, impairment, depreciation,
Catalogue bonus provision, restructuring costs, foreign exchange losses,
provision for HSG advances and interest expense.
Reason for Use
An indicator to Shareholders of the Company's underlying operational
expenditure excluding non cash and financing items.
Calculation 1 April 2023 to 1 April 2022 to
30 September
30 September
2023
2022
$'000
$'000
Advisory and performance fees 5,398 6,760
Administration fees 212 300
Legal and professional fees 1,711 1,728
Audit fees 571 189
Brokers' fees 115 94
Directors' remuneration 324 324
Subscriptions and licences 204 383
Aborted deal expenses 1,099 332
Debt financing fees 176 53
Public relations fees 181 136
Marketing & events 373 355
Listing fees 32 41
Bank charges 15 26
Record label costs 18 -
Charitable donations 20 28
Directors' and officers' insurance 31 42
HSG staff payroll and expenses 3,029 3,154
HSG office expenses 223 198
Travel, accommodation and entertainment expenses - 23
HSG travel, accommodation and entertainment expenses 103 258
Sundry (13) 71
Net loss from joint ventures 446 48
14,268 14,543
Annualised Ongoing Charges
Definition
Adjusted Operating Costs less Interest Expense and non-recurring
administrative expenses annualised over a 12-month period.
Reason for Use
Ongoing Charges are a good indicator to Shareholders of the Company's
continuing operating expenses excluding the cost of financing. These operating
expenses are likely to recur in the foreseeable future.
Calculation 1 April 2023 to 1 April 2022 to
30 September
30 September
2023
2022
$'000
$'000
Adjusted operating costs less interest expense 14,268 14,543
Non recurring operating expenses (1,153) (854)
Total ongoing charges over a six-month period 13,115 13,689
Annualised ongoing charges over a 12-month period 26,230 27,378
Distributable Revenues
Definition
Distributable Revenue is the total loss for the period excluding Total
Amortisation, impairment, depreciation, Catalogue bonus provision,
restructuring costs, foreign exchange losses and provision for HSG advances.
Reason for Use
Distributable Revenues are profits, after adjusting for non-cash and financing
items, attributable to the Company's revenue activities and are an indicator
of the Company's ongoing ability to pay its dividends.
Calculation 1 April 2023 to 1 April 2022 to
30 September
30 September
2023
2022
$'000
$'000
Total loss for the period (63,201) (20,090)
Total Amortisation 54,567 56,111
Impairment of Catalogues of Songs 15,194 2,007
Fixed asset depreciation 247 30
Lease liability interest 158 378
Catalogue bonus provision 23,257 3,689
HSG restructuring provision 504 925
Foreign exchange losses 280 2,083
Fair value gain on held for trading derivative financial instruments (19,652) -
Movement in ECL provision for HSG advances 42 (375)
11,396 44,758
Dividend Cover
Definition
Distributable Revenues generated during the period divided by the dividend
paid during the period.
Reason for Use
A strong indicator to Shareholders of the Company's ability to pay a dividend
from retained earnings.
Calculation 1 April 2023 to 1 April 2022 to
30 September
30 September
2023
2022
$'000
$'000
Distributable Revenues 11,396 44,758
Dividend Paid 39,801 19,312
0.29 2.32
EBITDA
Definition
The Operating loss for the period before taxation from continuing operations
plus Total Amortisation, impairment, depreciation, Catalogue bonus provision,
restructuring costs, foreign exchange losses, provision for HSG advances and
interest expense.
Reason for Use
A strong indicator to Shareholders of Company performance and profitability
after adjusting for non cash and financing items.
Calculation 1 April 2023 to 1 April 2022 to
30 September
30 September
2023
2022*
$'000
$'000
Operating loss for the period before taxation from continuing operations (63,686) (17,066)
Total Amortisation 54,567 56,111
Impairment of Catalogues of Songs 15,194 2,007
Fixed asset depreciation 247 30
Lease liability interest 158 378
Exceptional transaction costs 5,747 -
Catalogue bonus provision 23,257 3,689
HSG restructuring provision 504 925
Foreign exchange losses 280 2,083
Fair value gain on held for trading derivative financial instruments (19,652) -
Movement in ECL provision for HSG advances 42 (375)
Interest expense 23,052 14,473
39,710 62,255
* Definition changed since the prior period, refer to page 170 of the
Company's Annual Report for the year ended 31 March 2023.
Leveraged Free Cash Flow
Definition
Net cash generated from operating activities less interest paid, acquisition
related balances and foreign exchange losses.
Reason for Use
A good indicator to Shareholders of the cash position of the Company and the
availability of cash flows to fund dividend payments.
Calculation 1 April 2023 to 1 April 2022 to
30 September
30 September
2023
2022*
$'000
$'000
Net cash generated from operating activities 48,962 45,463
Foreign exchange losses (280) (2,083)
Interest paid (net of swap arrangements) (18,334) (14,973)
30,348 28,407
* Definition changed since the prior period, refer to page 170 of the
Company's Annual Report for the year ended 31 March 2023.
NAV Total Return
Definition
Operative NAV per share plus cumulative dividends paid up to the period end
less the Operative NAV per share as at 11 July 2018, divided by the Operative
NAV as at 11 July 2018.
Reason for Use
To show how the assets have performed since IPO to Shareholders.
Calculation As at As at
30 September
31 March
2023
2023
$'000
$'000
Operative NAV per share 1.7392 1.9153
Cumulative dividends paid to year end 0.2955 0.2789
Operative NAV at IPO (1.2983) (1.2983)
0.7364 0.8959
Operative NAV at IPO 1.2983 1.2983
56.72% 69.01%
Non recurring operating expenses
Definition
Non recurring expenditure included within operating expenses.
Reason for Use
A good indicator to Shareholders of expenses not likely to recur in the
foreseeable future.
Calculation 1 April 2023 to 1 April 2022 to
30 September
30 September
2023
2022
$'000
$'000
Non recurring expenses included within:
Legal and professional fees 39 116
Subscriptions and licences - 8
Listing fees - 4
Aborted deal expenses 1,099 332
Debt financing fees - 53
Marketing and events - 266
Travel, accommodation and entertainment expenses - 23
Charitable donations - 42
Public relations fees 15 10
1,153 854
Ongoing Charges %
Definition
Annualised ongoing charges divided by Average Operative NAV.
Reason for Use
To monitor the expenses, which are likely to recur, relative to the fund size
over time.
Calculation 1 April 2023 to 1 April 2022 to
30 September
30 September
2023
2022
$'000
$'000
Annualised Ongoing Charges 26,230 27,378
Average Operative NAV 2,209,564 2,228,806
1.19% 1.23%
Operative NAV
Definition
The IFRS NAV adjusted for the Fair Value of the Catalogues of Songs.
Reason for Use
The Operative NAV reflects the values of the Catalogues of Songs based on fair
values produced by the Portfolio Independent Valuer.
Calculation As at As at
30 September 2023
31 March
$'000
2023
$'000
IFRS NAV 1,331,529 1,434,534
Adjustments for revaluations of Catalogues of Songs to fair value 385,504 565,478
Reversal of accumulated amortisation and impairment 386,049 316,036
Operative NAV 2,103,082 2,316,048
Total Amortisation
Definition
Amortisation of Catalogues of Songs plus amortisation of capitalised borrowing
costs.
Reason for Use
Total amortisation is the measure of the non-cash items arising from
accounting treatment and includes the amortisation of borrowing costs, and is
used to evaluate the performance without any amortisation.
Calculation 1 April 2023 to 1 April 2022 to
30 September
30 September
2023
2022
$'000
$'000
Amortisation of Catalogues of Songs 53,947 55,110
Amortisation of borrowing expenses 620 1,001
54,567 56,111
Total Debt
Definition
Total gross indebtedness of the Company including the drawdown RCF balance,
PRO advances and Catalogue bonus provision.
Reason for Use
Total debt is used as a measure in the Company's covenant compliance reporting
and in the Company's Investment Policy.
Calculation As at As at
30 September
31 March
2023
2023
$'000
$'000
Loans and borrowings 604,000 600,000
PRO advances 1,862 3,178
Catalogue bonus provision 68,129 45,042
673,991 648,220
6 Month NAV Total Return
Definition
Operative NAV per share as at year end plus dividend paid during the six-month
to 30 September 2023 less the Operative NAV per share as at the beginning of
the year divided by the Operative NAV per share as at the beginning of the
year.
Reason for Use
To show how the assets have performed over the past six months to
Shareholders.
Calculation 1 April 2023 to 1 April 2022 to
30 September
30 September
2023
2022
$'000
$'000
Operative NAV per share at year end 1.7392 1.8312
Dividend paid during the six-month period to 30 September 2023 0.0166 0.0308
1.7558 1.8620
Operative NAV per share at beginning of year 1.9153 1.8491
(8.33%) 0.70%
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact
rns@lseg.com (mailto:rns@lseg.com)
or visit
www.rns.com (http://www.rns.com/)
.
RNS may use your IP address to confirm compliance with the terms and conditions, to analyse how you engage with the information contained in this communication, and to share such analysis on an anonymised basis with others as part of our commercial services. For further information about how RNS and the London Stock Exchange use the personal data you provide us, please see our
Privacy Policy (https://www.lseg.com/privacy-and-cookie-policy)
. END IR DDBDDXXDDGXGRecent news on Hipgnosis Songs Fund
See all newsREG - Jefferies Int Ltd. Hipgnosis Songs Fund - Form 8.5 (EPT/NON-RI) Hipgnosis Songs Fund Limited
AnnouncementREG - JPMorgan Sec.Plc Hipgnosis Songs Fund - Form 8.5 (EPT/RI)-Hipgnosis Songs Fund Limited
AnnouncementREG - J.P. Morgan SE Hipgnosis Songs Fund - Form 8.5 (EPT/NON-RI)-Hipgnosis Songs Fund Limited
AnnouncementREG - Hipgnosis Songs Fund - Holding(s) in Company
AnnouncementREG - BNP Paribas London Hipgnosis Songs Fund - Form 8.3 - Hipgnosis Songs Fund Limited
Announcement