REG - Hipgnosis Songs Fund - Net Asset Value and C Share Conversion Ratio

Hipgnosis Songs FundAnnouncement

30/11/2020 08:13

RNS Number : 8405G
  
Hipgnosis Songs Fund Limited
  
30 November 2020
  
 

30 November 2020
 
Hipgnosis Songs Fund Limited ("Hipgnosis" or the "Company")
Net Asset Values, C Share Conversion Ratio and Total Voting Rights
The Board of Hipgnosis Songs Fund Limited, the first UK listed investment company offering investors a pure-play exposure to songs and associated intellectual property rights, and its Investment Adviser, The Family (Music) Limited, are pleased to announce updates to the unaudited Operative NAVs of the Ordinary Shares and C Shares as at 30 September 2020, and the ratio of the C Share conversion.
Merck Mercuriadis, Founder of Hipgnosis Songs Fund Limited and The Family (Music) Limited said: "We are now almost half way through our third year of having established proven Songs as an asset class to be reckoned with. Despite the pandemic, the NAV for the Ordinary Shares grew to 125.35p, a NAV total return of almost 12% before currency movements, in the six month period. The NAV total return since IPO of 38% demonstrates not only the uncorrelated strength of these great Songs, but also Hipgnosis' ability to buy tremendous Songs well and then manage them to add value. It's gratifying that concurrently we have one single in the Top 10 and two in the Top 20 of the Official UK Singles Chart.  'All I Want For Christmas Is You' by Mariah Carey, from our Walter Afanasieff catalogue, moves from Number 31 to Number 14 and 'Prisoner' by Miley Cyrus featuring Dua Lipa,  co-written by our Stefan Johnson,  enters the chart as a new entry at Number 8."
Operative Net Asset Values
Over the period, the Operative NAVs of both the Ordinary Shares and C Shares have grown strongly, highlighting the continued ability of Hipgnosis and its Investment Adviser to execute the Company's investment strategy of buying Catalogues of the highest quality and then generating new revenue opportunities through Active Management. As a result, the Company is pleased to report strong revenues leading to 1.5x cover of the Ordinary Share dividend by Net Income and a significant increase in the fair values of the Company's Catalogues. The increase in fair values was primarily driven by:
·    strong fair value uplifts in the Catalogues acquired during the period, proving that the proceeds of the July 2020 and September 2020 equity fund raises have been deployed well into high quality and attractive Catalogues
·    streaming revenues starting to be recognised and received from emerging digital platforms including TikTok and Peloton
·    a reduction in the discount rate used by the Independent Valuer to value the Company's Catalogues from 9% to 8.5%.
The reduction in the discount rate used by the Independent Valuer reflects the decreased risk premium associated with music's ever more stable and predictable earnings as a result of the increased consumption of music through paid streaming. The Board and the Investment Adviser are delighted that music valuers are starting to reflect the true value of music as an asset class and expect this trend to continue as streaming continues to grow and music revenues continue to prove their stability. 
The Operative NAV per Ordinary Share has increased to 125.35p at 30 September 2020, an increase of 9.8% on a constant currency basis (7.4% including the impact of FX changes) during the half year period, notwithstanding an adverse FX impact of 2.85p per Ordinary Share due to strengthening of GBP / USD FX exchange rates since 31 March 2020. On a constant currency basis, the Operative NAV per Ordinary Share would be 128.20p. 
The total NAV return for the period, represented by the increase in NAV and dividends paid , on a constant currency basis is 12.0% (9.5% including the impact of FX changes). On a cumulative basis since IPO, the NAV total return is 37.9% (including the impact of FX changes). A full bridge of the movement in the Operative NAV per Ordinary Share is set out below.
Ordinary Share Operative NAV Bridge from 31 March 2020:



Opening Operative NAV per Ordinary Share 


116.73p




Increase in FV of Catalogues1 assuming a 9% discount rate


0.64p




Increase in FV of Catalogues resulting from a reduction  in the discount rate to 8.5%


10.48p




Net income2


2.79p




Dividends paid


-1.93p




FX impact


-2.85p




Share issue costs3


-0.50p




Closing Operative NAV per Ordinary Share 


125.35p



The Operative NAV per C Share has increased to 112.39p at 30 September 2020, an increase of 15.5% on a constant currency basis (14.7% including the impact of FX changes) since admission on 15 July 2020, due to an underlying increase in the Fair Value of Catalogues, a reduction in the discount rate from 9.0% to 8.5%, and strong net income, which was offset by a small adverse FX impact of 0.77p per C Share due to strengthening of GBP / USD FX exchange rates since the catalogue acquisitions. On a constant currency basis, the Operative NAV per C Share would be 113.16p. A full bridge of the movement is set out below.
C Share Operative NAV Bridge from 15 July 2020:



Opening Operative NAV per C Share


98.00p




Increase in FV of Catalogues1 assuming a 9% discount rate


3.66p




Increase in FV of Catalogues resulting from a reduction  in the discount rate to 8.5%


7.13p




Net income2


4.37p




FX impact


-0.77p




Closing Operative NAV per C Share 


112.39p



The Operative NAVs have been determined in accordance with the Company's valuation policy described in the Prospectus, including the appointment of an independent third party valuer. 
Conversion Ratio
The Conversion Ratio, as calculated in accordance with the terms set out in the articles of incorporation and as summarised in the Placing of C Shares announcement dated 2 July 2020, is 0.9061 Ordinary Shares for each C Share which is held on the record date of 3 December 2020, which will be the last day for trading in the C Shares on the London Stock Exchange. The calculation of the Conversion Ratio is based on the net assets attributable to the Ordinary Shares and C Shares as at close of business on 30 September 2020, as described above, with an adjustment for the dividend declared on 8 October 2020 and paid to Ordinary Shareholders on the register as at 6 November 2020. Entitlements will be rounded down to the nearest whole Ordinary Share.
On the basis of the Conversion Ratio, a holder of 1,000 C Shares will receive 906 new Ordinary Shares upon Conversion.
Accordingly, applications have been made for 214,202,503 new Ordinary Shares to be admitted to the Official List of the FCA and to the Premium segment of the London Stock Exchange's Main Market for listed securities ("Admission"). Admission is expected to occur at 8.00 a.m. on 4 December 2020.
The Ordinary Shares arising on Conversion will rank pari passu with, and will have the same rights as, the Ordinary Shares of the Company already in issue, including the right to receive dividends declared subsequent to Admission.
Total Voting Rights
Following the issuance of the new Ordinary Shares, the Company's total issued share capital will consist of 1,011,456,797 Ordinary Shares with one voting right per share. The Company does not hold any Ordinary Shares in Treasury. The above figure of 1,011,456,797 may be used by shareholders as the denominator for the calculations by which they will determine if they are required to notify their interest in, or a change to their interest in, the Company under the FCA's Disclosure Guidance and Transparency Rules.
Unless otherwise defined, capitalised terms in this announcement shall have the meaning given to them in the prospectus dated 27 September 2019.
Interim Results
The Interim Results for the six months ended 30 September 2020 are expected to be published on 4 December 2020. The Investment Adviser will be providing a presentation to investors and analysts at 10am on that day through the following link: https://www.lsegissuerservices.com/spark/HipgnosisSongsFundLtd/events/b821cf49-16dd-4514-a17b-efded7dd00c4.  
This presentation will be available afterwards on the Company's website www.hipgnosissongs.com.
1 Including any right to income on acquisition of Catalogue
2 Including amortisation
3 Relating to September 2020 fundraise which was priced at a sufficient premium to NAV such that the share issue costs were not dilutive to the existing shareholders
Note: This announcement contains inside information for the purposes of Article 7 of Regulation 596/2014 (MAR).
 
 
For further information, please contact:



The Family (Music) Limited
Merck Mercuriadis
 


Tel: +44 (0)1481 742742




N+1 Singer - Joint Corporate Broker
James Maxwell / James Moat / Amanda Gray (Corporate Finance)
Alan Geeves / James Waterlow / Sam Greatrex (Sales)
 


Tel: +44 (0)20 7496 3000




J.P. Morgan Cazenove - Joint Corporate Broker
William Simmonds / Jérémie Birnbaum (Corporate Finance)
James Bouverat (Sales)
 


Tel: +44 (0)20 7742 4000




RBC Capital Markets - Joint Corporate Broker
Will Smith / Elliot Thomas / Lauren Davies (Corporate Finance)
Lisa Tugwell (Sales)
 


Tel: +44 (0)20 7635 4000




Ocorian - Company Secretary & Administrator
Julian Carey
 


Tel: +44 (0) 1481 742742




The Outside Organisation
Alan Edwards / Nick Caley


Tel: +44 (0)7711 081 843




 
FTI Consulting
Neil Doyle/ Paul Harris/ Laura Ewart
 


 
Tel: +44 (0)7771 978220; +44 (0)7809 411882; +44 (0)7761 332646
 




All US music publicity enquiries
Fran Defeo


+1 917 767 5255



 
NOTES TO EDITORS
 
About Hipgnosis Songs Fund Limited
(www.hipgnosissongs.com)
Hipgnosis, which was founded by Merck Mercuriadis, is a Guernsey registered investment company established to offer investors a pure-play exposure to songs and associated musical intellectual property rights. The Company has raised a total of over £1.05 billion (gross equity capital) through its Initial Public Offering on 11 July 2018, and subsequent issues in April 2019, August 2019, October 2019, July 2020 and September 2020. In September 2019, Hipgnosis transferred its entire issued share capital to the Premium listing segment of the Official List of the FCA and to the London Stock Exchange's Premium segment of the Main Market, and in March 2020 became a constituent of the FTSE 250 Index.
 
About The Family (Music) Limited
The Company's Investment Adviser is The Family (Music) Limited, which was founded by Merck Mercuriadis, former manager of globally successful recording artists, such as Elton John, Guns N' Roses, Morrissey, Iron Maiden and Beyoncé, and hit songwriters such as Diane Warren, Justin Tranter and The-Dream, and former CEO of The Sanctuary Group plc. The Investment Adviser has assembled an Advisory Board of highly successful music industry experts which include award winning members of the artist, songwriter, publishing, legal, financial, recorded music and music management communities, all with in-depth knowledge of music publishing. Members of The Family (Music) Limited Advisory Board include Nile Rodgers, The-Dream, Giorgio Tuinfort, Starrah, Nick Jarjour, David A. Stewart, Bill Leibowitz, Ian Montone, Rodney Jerkins, Bjorn Lindvall and Chris Helm.

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