REG - Hipgnosis Songs Fund - Amendment to Operative Net Asset Value

Hipgnosis Songs FundAnnouncement

18/03/2024 07:00

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RNS Number : 1560H  Hipgnosis Songs Fund Limited  18 March 2024

LEI: 213800XJIPNDVKXMOC11

18 March 2024

Hipgnosis Songs Fund Limited ("Hipgnosis" or the "Company")

Amendment to Operative Net Asset Value

The Board of Hipgnosis Songs Fund is providing an amendment to its Operative
Net Asset Value ("Operative NAV") following identification of an error due to
the double counting of accrued revenue in the calculation of Operative NAV by
Hipgnosis Song Management Limited (the "Investment Adviser"). This error
results in a 7.6% reduction in the pro forma Operative NAV per Ordinary Share
from $1.1657 (92.08 pence) as stated on 4 March 2024 to $1.0765 (85.03 pence).

 

The Board, as part of the strategic review, have been focused on the impact of
Shot Tower's preliminary valuation, as announced on 4 March 2024. As part of
this work the Board raised concerns with the Investment Adviser on the double
counting of accrued revenue in the calculation of the Operative NAV, which
results in an overstatement of the Operative NAV. This issue has been raised
previously. The Investment Adviser has now notified the Board that they agree
with the Board's view, contrary to previous advice.

 

Since flotation in July 2018, the Company has reported both an Operative NAV
and an IFRS NAV for each accounting period. The Operative NAV is defined as
the NAV as adjusted for the fair value of the Catalogues of Songs. The
valuation methodology used by the Company's valuers assumes the transfer of
rights to all future cash receipts including any income accrued at the date of
sale. The Operative NAV should therefore deduct accrued income to avoid double
counting. The error relates to the adjustment made to the IFRS NAV to produce
the Operative NAV, which is prepared by the Investment Adviser, and does not
relate to the valuation methodology used by the Company's valuer.

 

The impact of this double counting is a c.7.6% reduction of the Pro Forma
Operative NAV as at 30 September 2023, using the midpoint NAV in Shot Tower's
preliminary valuation report as announced on 4 March 2024, where the Pro-Forma
Operative NAV would be $1.0765 per Ordinary Share (vs. $1.1657 per Ordinary
Share) and 85.03 pence per Ordinary Share (vs. 92.08 pence per Ordinary Share)
based on the Dollar to Sterling exchange rate of 1.266.

 

The equivalent impact using the Operative NAV disclosed in the Interim Results
as at 30 September 2023 is a c. 5.1% reduction to $1.6500 per Ordinary Share
(vs. $1.7392 per Ordinary Share) and to 135.19 pence per Ordinary Share (vs.
142.49 pence per Ordinary Share) based on the Dollar to Sterling exchange rate
of 1.22055. The full change and amendments to the Operative NAV calculation
are set out in the tables below.

 

                                                   30 September 2023 (as amended)  30 September 2023 (as presented)
                                                   $'000                           $'000
 IFRS NAV                                          1,331,529                       1,331,529
 Reverse Net Book Value of Catalogues of Songs     (1,850,447)                     (1,850,447)
 Reverse Accrued Income balance                    (109,581)                              -
 Reverse Royalty Accruals on Accrued Income        1,754                           -
 Add fair value of Catalogues of Songs(1)          2,622,000                       2,622,000
 Operative NAV                                     1,995,255                       2,103,082

 No. shares in issue                               1,209,214,286                   1,209,214,286
 Operative NAV per share ($)                       1.6500                          1.7392
 Operative NAV per share (£)(2)                    1.3519                              1.4249

(1)Based on the valuation report for 30 September 2023 by Citrin Cooperman
Advisors LLC

(2)Based on the Dollar to Sterling exchange rate of 1.22055 as at 30 September
2023

 

                                                   30 September 2023 (RNS as amended)               30 September 2023 (RNS)
                                                   $'000                                            $'000
 IFRS NAV                                          1,331,529                                        1,331,529
 Reverse Net Book Value of Catalogues of Songs     (1,850,447)                                      (1,850,447)
 Reverse Accrued Income balance                    (109,581)                                        -
 Reverse Royalty Accruals on Accrued Income        1,754                                            -
 Add fair value of Catalogues of Songs(3,4)        1,928,500                                        1,928,500
 Pro Forma Operative NAV                           1,301,755                                        1,409,582

 No. shares in issue                               1,209,214,286                                    1,209,214,286
 Pro Forma Operative NAV per share ($)                                  1.0765                                           1.1657
 Pro Forma Operative NAV per share (£)(5)                               0.8503                                           0.9208

(3) Based on the preliminary valuation report for 28 February 2024 prepared by
Shot Tower Capital, LLC

(4) Does not include c.20,000 songs sold post period end for $23.1 million,
which had a fair value of $26.9m at 30 September 2023

(5)Based on the Dollar to Sterling exchange rate of 1.266 on 1 March 2024,
being the last business day prior to the publication of the announcement of
Shot Tower's preliminary valuation report

The Board has also sought confirmation from Shot Tower, who agrees that such
adjustments previously made to produce the Operative NAV by the Investment
Adviser are incorrect. None of the Company's banking covenants are impacted by
the Operative NAV and therefore this amendment.

 

As the Operative NAV is a key valuation metric in defining the market
capitalisation of the Company, the Company has almost certainly been
overcharged investment advisory fees by the Investment Adviser. The Board has
reserved all the Company's rights against the Investment Adviser.

 

 For further information please contact:

Hipgnosis Songs Fund

                                +44 (0) 20 7496 3000
 Robert Naylor

 Via Singer Capital Markets

 Singer Capital Markets - Corporate Broker                         +44 (0) 20 7496 3000

 James Moat / Alaina Wong / Angus Campbell (Corporate Finance)

 Alan Geeves / James Waterlow / Sam Greatrex (Sales)
 Headland Consultancy - Financial PR                               +44 (0) 20 3805 4822

 Susanna Voyle / Charlie Twigg

This announcement contains inside information for the purposes of the UK
Market Abuse Regulation.

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