REG - Hipgnosis Songs Fund - Half-year Report
16/12/2021 07:00
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RNS Number : 8322V Hipgnosis Songs Fund Limited 16 December 2021
16 December 2021
Hipgnosis Songs Fund Limited ("Hipgnosis" or the "Company")
Interim Results
for the six months ended 30 September 2021 ("H1 21")
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, Hipgnosis Song
Management Limited, are pleased to announce the Company's interim results for
the six months ended 30 September 2021.
Operational Highlights
· Oversubscribed placing raising over $215 million, £156 million,
in July 2021 with proceeds used use to acquire some of the most influential
rock Catalogues of all time including:
o The Red Hot Chili Peppers - Flea, John Frusciante, Anthony Kiedis and Chad
Smith, one of the most important and best-selling bands of all time, with 100
million records sold worldwide
o Christine McVie - best known as one of the principal writers and vocalists
of Fleetwood Mac, one of the most successful bands of all time. With Lindsey
Buckingham, we now own the Song Catalogues of two of the three principal
Songwriters of the most successful version of Fleetwood Mac
o Ann Wilson - one half of Heart, the female led US rock band who had
multi-platinum success in the 70's and 80's
o Rhett Akins - who was just inducted into the Nashville Songwriters Hall Of
Fame
o Stefan and Jordan Johnson - The Monsters & Strangerz, who have had
enormous pop success with Zedd, Justin Bieber, Miley Cyrus, Dua Lipa, The
Jonas Brothers and Katy Perry
· As at 30 September 2021, the Portfolio comprises of 146
Catalogues, 65,413 songs, with an aggregate fair value of $2.55 billion (as
determined by the Independent Portfolio Valuer), including:
o 47 out of 190 songs in Spotify's Billions Club
o 51 of Rolling Stone's The 500 Greatest Songs of All Time
o 20 out of Billboard's Greatest of All Time Hot 100 Songs
o 10 of the Top 30 YouTube's Most Viewed Videos of All Time
· Continued development of the Investment Adviser's Song Management
Platform:
o A 20% increase in the number of synch deals in July-September 2021
compared to April-June 2021 alone including:
§ Eurythmics' Sweet Dreams (Are Made of This), co-written by David A.
Stewart, is the main trailer for MGM's major worldwide Q4 release 'House of
Gucci', directed by Ridley Scott and starring Lady Gaga & Adam Driver
§ The initial trailer for the same movie was also soundtracked by a
Hipgnosis song, Heart Of Glass by Blondie, written by Debbie Harry and Chris
Stein
§ Mariah Carey's All I Want For Christmas Is You co-written by Walter
Afanasieff is the focus of McDonald's' Christmas 2021 campaign
§ There's Nothing Holding Me Back by Shawn Mendes, co-written by Teddy
Geiger and Scott Harris, is the main song for the trailer of Universal
Studios' upcoming 'SING 2' feature film
§ Our classic Bond theme Nobody Does it Better by Carly Simon, co-written
by Carole Bayer Sager, is the soundtrack for DHL's global advertising
campaign, which was launched in conjunction with the long-awaited James Bond
blockbuster film '007: No Time To Die'
o Hipgnosis now has the largest presence on TikTok as a Song Management
company, with over 334,000 followers
o The Peloton exercise classes featuring our great songs by Beyoncé , Bon
Jovi, Britney Spears, The Chainsmokers, Ed Sheeran, Justin Bieber, Lady Gaga,
Red Hot Chili Peppers, Shakira and Chris Cornell are a massive success
o We launched our first NFT Hack The Borders, a crypto art collaboration
between Blondie and Hackatao
o Continued adoption of innovative technologies to deliver maximum value
across all parts of Song Management
o The US Administration of a further 19 Catalogues have been transferred to
Hipgnosis Songs Group (HSG), taking us to a total of 30
o Continued progress with our advocacy for Songwriters, most notably with
the House of Commons' Digital, Culture, Media & Sport (DCMS) Committee.
Following their report into the Economics of Music Streaming, the Government
referred the case to the Competition and Markets Authority (CMA), to undertake
a full market study into the economic impact of the major music groups'
dominance
Financial Highlights
· Operative NAV increased by 2.5% to $1.7242 per Share over the six
month period (31 March 2021: $1.6829)
· Including dividends paid, this represents a Total Operative
Dollar NAV Return of 4.63% for the six month period, taking Total NAV Return
since IPO to 46.7%
· Like-for-like valuation uplift across the Portfolio to $2.55
billion (as determined by the Independent Portfolio Valuer) of 3.0% driven by:
o An increase in expected performance income in 2023 as the Independent
Portfolio Valuer is now forecasting a stronger bounce back from COVID-19 to
pre-pandemic levels
o An increase in streaming growth rates to reflect the continued growth in
paid subscribers in excess of expectations
· Due to the time lag between the consumption of songs and the
royalty statements being processed, the point at which revenues are
recognised, means that the impact of COVID-19 is now being fully felt within
these results:
o Net revenue grew by 31% to $74.1m (six months ended 30 September 2020:
$56.7 million) as a result of the additional Catalogue acquisitions since the
comparative period
o EBITDA increased by 16.2% from $47.0m to $54.6m
o Despite impact of COVID-19, dividends paid were fully covered by Adjusted
Profit after Tax (Net revenue, less operating expenses, excluding Total
Amortisation and excluding Foreign Exchange losses) by 1.03x and by 1.02x on a
Leveraged Free Cash Flow basis
· PFAR for the full calendar year 2020 (which looks at our
Catalogues' royalty earnings ignoring the ownership period) fell by 7.9% to
$121.3 million (12-months to 30 June 2020: $131.7 million) as a result of:
o Performance income falling by 19.5% due to COVID-19 lockdowns
o Streaming income remaining buoyant through COVID-19, growing 4% in steady
state Catalogues compared to 12 months ended 30 June 2020, continuing growth
after impressive calendar H1 2020 growth of 22.5% compared to H1 2019, as the
shift of consumer behaviour towards paid streaming has accelerated
· Net debt at 30 September 2021 was $550.9 million, reflecting
28.7% of Operative NAV
Merck Mercuriadis, Founder of Hipgnosis Songs Fund Limited and Hipgnosis Song
Management Limited said:
"It's incredible to believe we are half way through our fourth year!
The last 9 months, including this Interim reporting period from 1 April to 30
September 2021, have been a very important and exciting time in our maturation
as you will see throughout this report.
I am delighted to report year-on-year net revenue growth of 31%, EBITDA growth
of 16% and most importantly NAV growth of 2.5% over the past six months driven
by an increase in the fair value of our Catalogues. This takes our Total NAV
Return delivered since IPO less than 4 years ago to an incredible 46.7%.
Whilst we are in an incredibly strong position with our Catalogue of iconic
songs, this period has been challenging. As we have previously stated, the
time lag between the consumption of songs and the royalty statements being
processed, which is the point at which we recognise revenues, means that the
impact of COVID-19 is now being fully felt within these results. In
particular, and along with the wider music industry, the closure of live music
venues, pubs, bars and restaurants during various lockdowns has impacted the
like-for-like performance earnings of our Catalogues during this period. Our
vintage Catalogues have made up for a fall in their performance earnings with
outstanding streaming performance earnings as consumers turned to classics
during lockdown.
Despite being in one of the most challenging economic and operationally
difficult times of our lives we are delighted that we were still able to
deliver a fully covered dividend - a validation of the reliability of songs as
an asset class.
As we look forward, despite the emergence of the Omicron variant of COVID-19,
we continue to see a promising outlook for the music industry and our
Catalogues. Over the last 6 months we have seen live venues are fully booked
until 2023, pubs, bars and restaurants are full and streaming growth continues
to exceed expectations. This optimism in growth is shared by our independent
valuer who has increased the future earnings trajectory for our Catalogues in
their valuation models resulting in 3% growth in the fair value of our
Catalogues.
However, we must be proactive and not take this recovery for granted,
something highlighted by the continued uncertainty caused by the Omicron
variant of COVID-19. Therefore, in order to ensure our Catalogues outperform,
no matter the wider market conditions, we continue to increase our Song
Management efforts. We have hired experts in all parts of Song Management as
we explore every opportunity to innovate and maximise earnings from our songs.
Our focused and conscientious model provides the bandwidth to be able to
manage great songs responsibly, as we maximise their revenues while enhancing
their long-term legacies."
Analyst and Investor Webinar
The Investment Adviser will be providing a webinar for investors and analysts
at 10.30am today through the following link:
https://www.lsegissuerservices.com/spark/HipgnosisSongsFundLtd/events/66602463-811f-41aa-8aa7-d91593108b93
(https://www.lsegissuerservices.com/spark/HipgnosisSongsFundLtd/events/66602463-811f-41aa-8aa7-d91593108b93)
For further information, please contact:
Hipgnosis Song Management Limited Tel: +44 (0)1481 742742
Merck Mercuriadis
Singer Capital Markets - Joint Corporate Broker Tel: +44 (0)20 7496 3000
James Moat / James Maxwell / Amanda Gray (Corporate Finance)
Alan Geeves / James Waterlow / Sam Greatrex (Sales)
J.P. Morgan Cazenove - Joint Corporate Broker Tel: +44 (0)20 7742 4000
William Simmonds / Jérémie Birnbaum (Corporate Finance)
James Bouverat (Sales)
RBC Capital Markets - Joint Corporate Broker Tel: +44 (0)20 7635 4000
Elliot Thomas / Max Avison / (Corporate Finance)
Lisa Tugwell / Anastasia Mikhailova (Sales)
Ocorian - Company Secretary & Administrator Tel: +44 (0) 28 9693 0222
Lorna Zimny
The Outside Organisation Tel: +44 (0)7711 081 843
Alan Edwards / Nick Caley
FTI Consulting Tel: +44 (0)7771 978220; +44 (0)7809 411882; +44 (0)7761 332646
Neil Doyle/ Paul Harris/ Laura Ewart
All US music publicity enquiries +1 917 767 5255
Fran Defeo
NOTES TO EDITORS
About Hipgnosis Songs Fund Limited
(www.hipgnosissongs.com (http://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 almost £1.3 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, September 2020, February 2021 and July
2021. 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. Since April 2021, the Company has
been resident in the UK for tax purposes and is recognised as an investment
trust under applicable HMRC regulations.
About Hipgnosis Song Management Limited
The Company's Investment Adviser is Hipgnosis Song Management 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 Hipgnosis Song Management
Limited Advisory Board include Nile Rodgers, The-Dream, Giorgio Tuinfort,
Starrah, David A. Stewart, Poo Bear, Bill Leibowitz, Ian Montone and Rodney
Jerkins.
The Chair's Statement
Introduction
This interim report covers the six months ended 30 September 2021 and these
results continue to show the effects of the COVID-19 pandemic.
The closure of live music venues, bars, gyms and restaurants in response to
lockdowns introduced globally in 2020 and 2021 caused a decrease in
performance earnings across the music industry and the impact of this on the
Company is discussed in more detail in the Financial Review.
Despite these challenges seen in performance earnings across the industry,
streaming as seen through paid music subscription has continued to go from
strength to strength, with major Digital Service Providers consistently
reporting growth ahead of expectations throughout lockdowns and the recovery
in 2021.
Looking forward, in the second half of 2021, we have seen anecdotal evidence
of a return to a "new normal" in the music industry with the re-opening of
bars, restaurants, gyms as well as live concerts going ahead. Whilst this
gives us cause for optimism, we must remain alert to continuing macro economic
events - the new Omicron variant reminding us of the uncertainty as to how
COVID-19 will impact live performance in the near future.
Fundraising and Investments
In July 2021, the Company raised a further £156 million of equity capital,
bringing the total equity raised since launch to £1.3 billion. I am delighted
to see the continued support of our investors; the overall shareholder base
has remained stable since the IPO, with 50% of the shares held by the top 10
holders and 40% of holders classified as retail investors.
The Company has fully deployed the equity capital raised during the period and
closed acquisitions for a total consideration of c$260 million. In total, the
Company acquired 8 Catalogues and over 1,300 Songs in the six months to 30
September 2021.
Prior to the last equity raise, a strategic decision was taken, in
consultation with our brokers and after discussion with our major
Shareholders, that the Company does not intend to offer further shares for
cash consideration until after publication of the net asset value per share as
at 31 March 2022.
Consequently, as detailed in the Investment Adviser report, the Company is
focusing increasingly on a wide range of Song Management activities to
optimise and enhance the Portfolio earnings.
Revolving Credit Facility
Following the acquisitions during the period, the Company has drawn down the
full amount of its $600 million credit facility.
The Company's Net Debt as at 30 September 2021 was $550.9 million (31 March
2021: Net Debt $464.6 million), which represents 28.7% of Operative NAV as at
30 September 2021 (31 March 2021: 25.7% of Operative NAV).
Performance
The IFRS NAV per share as at 30 September 2021 was $1.3418, which is a
decrease from $1.3628 as at 31 March 2021.
However, the Board considers that the most relevant NAV for Shareholders is
the 'Operative NAV' which reflects the fair value of the Company's Catalogues
as valued by the Independent Portfolio Valuer and adds back the material
amortisation charge.
The Operative NAV per Share increased by 2.5% to $1.7242 during the period (31
March 2021: $1.6829) which, when including dividends paid, represents a
Six-Month Total NAV Return of 4.63% over the prior six month period and 46.7%
since IPO on 11 July 2018.
EPS for the six months ended 30 September 2021 is -1.69¢ (six months ended 30
September 2020: 2.04¢) because of the high amortisation charged during the
period. The Group amortises Catalogues of Songs with a limited useful life
using the straight-line method of 20 years.
Adjusted EPS, as defined within the Alternative Performance Measures for the
six months ended 30 September 2021, is 3.85¢ (six months ended 30 September
2020: 6.71¢).
Dividend
In the first half of the financial year, the Company has paid dividends
totalling 2.625p over two instalments as declared in April and July 2021.
Since the period end, on 20 October 2021 the Company declared a further
dividend of 1.3125p, which was paid on 30 November 2021. The Company continues
to target a total dividend of 5.25p for the current financial year ending 31
March 2022.
The Board
We welcomed Vania Schlogel as an additional member of the Board when she was
appointed on 11 June 2021 as an independent Non-executive Director. Vania, who
is based in the US, has considerable private equity, media and entertainment
sectors experience.
I would like to record my appreciation to my fellow Board members for their
dedication and their diligence in supervising and dealing with all the
Company's activities.
AGM
The Annual General Meeting for the Company took place on 15 September 2021 and
was our first in-person event for some time. I am pleased to announce that all
ordinary and special resolutions were passed without amendment by the
requisite majority.
Post period events
Since the period end, we announced that our Investment Adviser, Hipgnosis Song
Management Limited, formerly known as The Family (Music) Ltd, had been
appointed to act for a second client, Blackstone, with Blackstone also taking
an ownership stake in the Investment Adviser. This new partnership will
provide new exciting co-investment opportunities for the Company.
The investment into our investment Adviser, Hipgnosis Song Management, will
bring new scale and resource that will help drive enhanced returns for our
Shareholders.
Overall, we view Blackstone's investment as a vote of confidence in the
strength of our Investment Adviser, and in Songs as an attractive and
investible asset class.
Outlook
Over the past months we have seen some of the largest global investors
committing funds to invest in Songs. In this increasingly competitive market,
Hipgnosis is uniquely well placed having already acquired a portfolio with a
value of approximately $2.55 billion.
In addition, we believe our Investment Adviser's responsible approach to Song
Management will maximise our first mover advantage and focus on growing our
revenues, whilst new entrants are competing for assets.
Andrew Sutch
Chair
15 December 2021
Investment Adviser's Report
Introduction
The closure of live music venues, bars, gyms and restaurants in response to
lockdowns introduced globally in 2020 and 2021 caused a decrease in
performance earnings across the music industry and this is seen in these
results.
Whilst our accruals reflect the impact of COVID-19 on revenue, the natural lag
time in the music industry from the collections and subsequent cash payments
from PROs and Publishers to Hipgnosis Songs Fund, means that we continue to
feel the full effect of COVID-19 in these interim results, particularly on
Performance income.
Despite the short-term impact of COVID-19 on revenue, we're hopeful that as
the world continues to come out of the pandemic, this will reverse out
quickly. We've already seen successful tours from Nile Rodgers & Chic,
Journey, Enrique Iglesias, David Guetta and many of our other artists over the
past few months, and we are expecting to have the biggest touring years of all
time (it's virtually impossible to book a venue over the next three years!).
Whilst we never would have wished it to be the case, the COVID-19 pandemic has
proven our investment thesis. Despite the most challenging time of our lives,
our hit songs have continued to be consumed by billions of people all over the
globe allowing us to maintain our targeted and fully covered dividend
throughout the pandemic. The music industry is also in a better place for long
term growth than ever with streaming accelerating through the pandemic and
there are now more than 500 million people paying for music subscriptions
globally compared to 30 million in the US when we launched in 2018. On top of
this, technological innovation continues to bring ever new ways to monetise
our Songs, including from TikTok, Roblox and Peloton over the last few years
and looking to the future, NFTs and the Metaverse. We are in a golden age when
almost all music consumption, no matter where or how it is consumed, is paid
for.
We have also proven our responsible approach to Song Management, which has the
resource and bandwidth to manage great songs to their full potential. As we
detail later in this report, we have immediately been able to improve the
promotion, synch activity and catalogue management of our Songs which had been
left to languish in the hands of publishers.
As a result, we are incredibly excited for the future. Since the period end,
we have seen a number of global investors entering the market for Songs, and
we are delighted that with the support of our Shareholders, Hipgnosis is
uniquely positioned with a portfolio of over 65,000 Songs, acquired at a
blended multiple of less than 16x net revenue and an established Song
Management platform already working to maximise the value of its Portfolio.
Hipgnosis Song Management
Subsequent to the period end, the Investment Adviser, formerly The Family
(Music) Ltd, changed its name to Hipgnosis Song Management Ltd. At the same
time, it entered into an agreement with Blackstone who will invest up to $1
billion over the course of the next year in music assets. Blackstone has also
taken an ownership stake in Hipgnosis Song Management in the context of this
agreement.
This was made possible following several months of extensive negotiations with
the Board of Hipgnosis Songs Fund and discussions with major Shareholders.
This has ensured robust and well thought out Co-Investment and Conflicts
policies. These have been designed to allow Hipgnosis Songs Fund to
participate in every Catalogue we source when it has sufficient funding.
Additionally, the increased capabilities in the Investment Adviser will allow
us to provide an even better service to Hipgnosis. Blackstone's expertise will
help build on our success by bringing in additional knowledge and skills
specifically in areas such as data analysis, technology, financial reporting
and asset management.
The Portfolio
Over the last six months, Hipgnosis closed eight acquisitions, including Red
Hot Chili Peppers, Christine McVie of Fleetwood Mac, Rhett Akins, The Monsters
& Strangerz (Stefan and Jordan Johnson), Elliot Lurie, Ann Wilson and
Kaiser Chiefs, for a total consideration of c$260 million.
As a result of these acquisitions, the portfolio as at 30 September 2021
comprises of 146 Catalogues, 65,413 Songs, with an aggregate value of $2.55
billion (as determined by the Independent Portfolio Valuer), reflecting a
multiple of 19.03x historical annual net publisher share income, compared to
the blended acquisition multiple of 15.93x.
Our investment strategy has always been only to focus on songs that are
incredibly successful and of great cultural importance, therefore we are
delighted to now own:
· 47 out of 190 songs in Spotify's Billions Club
· 51 of Rolling Stone's The 500 Greatest Songs of All Time
· 20 out of Billboard's Greatest of All Time Hot 100 Songs
· 10 of the Top 30 YouTube's Most Viewed Videos of All Time
· 4 of the Top 5 Billboard Songs of the Decade
Hipgnosis now owns 3,854 Songs that have held Number 1 positions in global
charts, 14,381 Songs that have held Top 10 positions in global charts and 156
Grammy award winning Songs.
Catalogue Acquisition Interest Ownership Total
Date
Songs
The-Dream 13 Jul 2018 75% 302
Poo Bear 21 Nov 2018 100% 214
Bernard Edwards 28 Nov 2018 38% 290
TMS 17 Dec 2018 100% 121
Tricky Stewart 17 Dec 2018 100% 121
Giorgio Tuinfort 21 Dec 2018 100% 182
Rainbow 15 Jan 2019 100% 15
Itaal Shur 31 Jan 2019 100% 209
Rico Love 26 Feb 2019 100% 245
Sean Garrett 21 Mar 2019 100% 588
Johnta Austin 22 Mar 2019 100% 249
Sam Hollander 31 Mar 2019 100% 499
Ari Levine 31 Mar 2019 100% 76
Teddy Geiger 12 Apr 2019 100% 6
Starrah 25 Apr 2019 100% 73
Dave Stewart 7 May 2019 100% 1,068
Al Jackson Jr 8 May 2019 100% 185
Jamie Scott 15 May 2019 100% 144
Michael Knox 28 May 2019 100% 110
Brian Kennedy 14 Jun 2019 100% 101
John Bellion 14 Jun 2019 100% 180
Lyric Catalogue 17 Jun 2019 100% 571
Neal Schon 20 Jun 2019 100% 357
Jason Ingram 10 Jul 2019 100% 462
Eric Bellinger 12 Jul 2019 100% 242
Andy Marvel 23 Jul 2019 100% 740
Benny Blanco 2 Aug 2019 100% 93
The Chainsmokers 22 Aug 2019 100% 42
Timbaland 10 Oct 2019 100% 108
10cc 17 Oct 2019 100% 29
Journey (Publishing) 21 Oct 2019 100% 103
John Newman 5 Nov 2019 100% 47
Jaron Boyer 5 Nov 2019 100% 109
Arthouse 15 Nov 2019 100% 44
Fraser T Smith 5 Dec 2019 100% 298
Jack Antonoff 5 Dec 2019 99% 188
Ammar Malik 5 Dec 2019 100% 90
Ed Drewett 9 Dec 2019 100% 109
Kaiser Chiefs (Masters) 9 Dec 2019 100% 48
Jeff Bhasker 11 Dec 2019 100% 436
Johnny McDaid 11 Dec 2019 100% 164
Emile Haynie 13 Dec 2019 100% 122
Brendan O'Brien 13 Dec 2019 100% 1,855
Savan Kotecha 18 Dec 2019 100% 49
Tom Delonge 23 Dec 2019 100% 157
Journey (Masters) 10 Jan 2020 65% 389
Rebel One 10 Jan 2020 100% 157
Scott Harris 10 Jan 2020 100% 129
Brian Higgins 22 Jan 2020 100% 362
Gregg Wells 10 Feb 2020 100% 11
Jonathan Cain 28 Feb 2020 100% 216
Jonny Coffer 28 Feb 2020 100% 85
Mark Ronson 28 Feb 2020 100% 315
Richie Sambora 4 Mar 2020 100% 186
Rodney Jerkins 16 Jul 2020 100% 982
Barry Manilow 16 Jul 2020 100% 917
RedOne 16 Jul 2020 100% 334
Eliot Kennedy 16 Jul 2020 100% 217
Closer (J King & I Slade) 27 Jul 2020 100% 2
NO I.D. 24 Jul 2020 100% 273
Pusha T 24 Jul 2020 100% 238
Ian Kirkpatrick 29 Jul 2020 100% 137
Blondie 30 Jul 2020 100% 197
Chris Cornell 10 Aug 2020 100% 241
Robert Diggs "RZA" 12 Aug 2020 50% 814
Ivor Raymonde 13 Aug 2020 100% 505
Nikki Sixx 3 Sep 2020 100% 305
Big Deal Music "BDM" 10 Sep 2020 100% 4,400
Chrissie Hynde 10 Sep 2020 100% 162
Steve Robson 17 Sep 2020 100% 1,034
Rick James 18 Sep 2020 50% 97
Kevin Godley 23 Sep 2020 100% 358
Scott Cutler 24 Sep 2020 100% 111
Nate Ruess 30 Sep 2020 100% 59
LA Reid 30 Sep 2020 100% 162
50 Cent 30 Sep 2020 100% 388
Aristotracks 30 Sep 2020 100% 152
B-52's 30 Sep 2020 100% 96
Bonnie McKee 30 Sep 2020 100% 78
Brill Building 30 Sep 2020 100% 234
Christina Perri 30 Sep 2020 100% 68
Dierks Bentley 30 Sep 2020 100% 113
Editors 30 Sep 2020 100% 64
Eman 30 Sep 2020 100% 97
Enrique Iglesias 30 Sep 2020 100% 157
Evan Bogart 30 Sep 2020 100% 229
George Benson 30 Sep 2020 100% 107
George Thorogood 30 Sep 2020 100% 40
Good Soldier 30 Sep 2020 100% 760
Holy Ghost 30 Sep 2020 100% 62
J-Kash 30 Sep 2020 100% 90
John Rich 30 Sep 2020 100% 7
Kojak 30 Sep 2020 100% 148
Lateral 30 Sep 2020 100% 248
Lindsey Buckingham (Kobalt) 30 Sep 2020 100% 174
LunchMoney Lewis 30 Sep 2020 100% 116
Lyrica Anderson 30 Sep 2020 100% 96
Madcon 30 Sep 2020 100% 173
Mark Batson 30 Sep 2020 100% 210
Mobens 30 Sep 2020 100% 1,034
Nelly (Kobalt) 30 Sep 2020 100% 145
Nettwerk 30 Sep 2020 100% 25,339
PRMD 30 Sep 2020 100% 335
Rob Hatch 30 Sep 2020 100% 167
Rock Mafia 30 Sep 2020 100% 393
Savan Kotecha (Kobalt) 30 Sep 2020 100% 354
SK Music 30 Sep 2020 100% 23
Skrillex 30 Sep 2020 100% 153
Stereoscope 30 Sep 2020 100% 456
Steve Winwood 30 Sep 2020 100% 215
Tequila 30 Sep 2020 100% 1
Third Day 30 Sep 2020 100% 212
Walter Afanasieff 30 Sep 2020 100% 213
Wayne Wilkins 30 Sep 2020 100% 113
Yaslina 30 Sep 2020 100% 73
Sacha Skarbek 20 Nov 2020 100% 303
Tricky Stewart (Masters) 27 Nov 2020 100% 95
Eric Stewart 2 Dec 2020 100% 255
Bob Rock 4 Dec 2020 100% 43
Caroline Ailin ("New Rules") 10 Dec 2020 100% 2
Nelly 15 Dec 2020 100% 240
Lindsey Buckingham 24 Dec 2020 100% 161
Joel Little 24 Dec 2020 100% 178
Jimmy Iovine 24 Dec 2020 100% 259
Neil Young 31 Dec 2020 50% 590
Shakira 31 Dec 2020 100% 145
Brian Kennedy (Writer Share) 31 Dec 2020 100% 139
Andrew Watt 17 Feb 2021 100% 105
Christian Karlsson 2 Mar 2021 100% 255
Carole Bayer Sager 17 Mar 2021 100% 983
Paul Barry 18 Mar 2021 100% 510
Espionage 26 Mar 2021 100% 151
Martin Bresso 31 Mar 2021 100% 51
Andy Wallace 31 Mar 2021 100% 1,242
David Sitek 31 Mar 2021 100% 230
Happy Perez 31 Mar 2021 100% 192
Red Hot Chili Peppers 14 Jul 2021 100% 220
Kaiser Chiefs 15 Jul 2021 100% 136
Christine McVie 21 Jul 2021 100% 115
Jordan Johnson 22 Jul 2021 100% 58
Stefan Johnson* 22 Jul 2021 100% 58
Rhett Akins 23 Jul 2021 100% 564
Ann Wilson 29 Jul 2021 50% 152
Elliot Lurie 24 Aug 2021 100% 70
Total Songs 65,413
* Not counted in total song count
Market Conditions
Throughout 2021, the music publishing market has been reporting on the impact
of COVID-19 on the Performance income.
PRS For Music, the Performance Rights Organisation in the UK, reported a
decline in revenue of 19.7% year-on-year in 2020, with a 60% year-on-year
decline in public Performance revenues. CISAC, the International Confederation
of Societies of Authors and Composers, are estimating a global decline in
overall collections by 20-35% for 2020 with further declines to continue in
2021.
Warner Music Group, who report their music publishing revenues separately from
their recorded music revenues, showed a constant currency decline in
Performance income of 17%, for the 12 months ending 30 September 2021, due to
the ongoing COVID-19 related impact on bars, restaurants, concerts and live
events.
In the second half of calendar 2021, we are seeing evidence of the music
industry bouncing back strongly from COVID-19 and it is well positioned for
long term growth. In particular, we have seen strong evidence of a recovery in
the US recorded music market which grew 27% year-on-year in the first half of
2021 to $7.1 billion (RIAA). Growth in streaming continues at a rapid pace and
now accounts for 84% of total recorded music revenues. In addition, the
revival of vinyl shows no signs of slowing, effectively doubling year-on-year
and now accounting for 68% of the physical format revenues.
As restrictions are easing globally, live music is also quickly recovering
with Joe Berchtold, president of Live Nation, the biggest global promoter,
telling CNBC in September 2021 that 8 million people attended its live shows
during August 2021, that 2022 "will be bigger than 2019," and noting that
their concert pipeline is up double digits from this time two years ago. He
also said that consumers, who had been unable to gather at live concerts and
shows for more than a year, were "showing up and spending money".
Putting the lag in collection times aside the signs of a bounce back are also
clear in Performance income for the music publishing market and rights owners
like ourselves. Notably the latest results from Warner Music Group, for the
three months ended 30 September 2021, which as a publisher has less of a time
delay on earnings than the underlying rights holder, showed that Performance
income has increased 3.4% on a constant currency basis, compared to the prior
year period driven by the continued recovery from the COVID-19 disruption.
However, the live industry is still heavily reliant on a continued easing of
world-wide COVID-19 related government restrictions, with the new Omicron
variant highlighting the possibility of a re-implementation of restrictions
which could once again close live venues as well as bars, gyms and
restaurants.
Fundraising
In July 2021, the Company raised $215 million, £156 million, in an
oversubscribed placing. This takes the total amount raised by the Company in
investment to date to £1.3 billion in equity and $600 million in debt.
Prior to the raise a strategic decision was taken in conjunction with our
brokers and major Shareholders to make this the last fundraise for a 12-month
period. The statement that Hipgnosis Songs Fund does "not currently intend to
offer further shares for cash consideration until after publication of the net
asset value per Share as at 31 March 2022" was agreed in advance and made an
important impact on the success of the fundraise with all of our major
Shareholders participating.
This strategy has removed the impact of fundraises from the share price and we
believe it will continue to encourage secondary market trading and allow a
re-rating of the share price. The success of the strategy is perhaps best
demonstrated by the share price hitting its highest levels over the last few
weeks.
Song Management
With the decision to have a moratorium on fundraising, we have continued our
focus on managing the iconic Songs we have acquired over the past three and a
half years.
Song Management is a new paradigm that we established at Hipgnosis Song
Management, where we manage proven hit songs with responsibility and ensure
that they're on playlists, being put into movies, TV commercials, video games,
that new artists are covering them and that new Songwriters are interpolating
them. This adds significant value for our Shareholders and enhances the
legacies of the great Songwriters that have entrusted us with their work. In
addition to streaming, the beauty of today's environment is that almost all
consumption of music is being paid for. If the Song is being used for social
media, then fees are being paid via TikTok, Instagram, and the other social
media outlets. If it's exercise, the same is true of the likes of Peloton.
Same with Games and Roblox. YouTube, despite remaining an anaemic payer, is
the world's biggest platform for the consumption of music. Payments from this
source have already improved nearly fivefold, compared to when Hipgnosis was
created less than four years ago and YouTube paid $4 billion to rights holders
like ourselves this year.
Synch team fully operational and revenues growing
Hipgnosis' Synch operation is now fully operational, with a world class team
being developed and expanded into more and more key territories around the
world. As well as establishing an in-house, global synch team for our Songs,
we have built direct relationships with the world's biggest film studios,
advertising agencies, broadcasters and music supervisors. These relationships
are repeatedly getting our Songs to the front of the queue in the creative and
commercial decision making process. It also means that we are not reliant on
the administrators of our Songs to generate opportunities for our catalogue.
Our vision of a global, in-house '24 / 7' synch licensing operation has
now also been realised, with our executives able to respond to the
opportunities being generated within a matter of minutes, right around the
clock. For the vast majority of our repertoire - regardless of who administers
the song - we are the sole approval party for all synch requests. This has
allowed us to comprehensively slash approval / response times on the
world's most iconic songs. Music Supervisors, Studios and Agencies are no
longer being made to wait weeks-on-end for an answer and as a result favour
working with us.
The number of Hipgnosis Songs Fund synch deals generated in the period
July-September 2021 was up some 20% over April-June 2021 alone and our
custom-built, internal systems now enable the 'live' tracking of these
opportunities and revenues for the Company.
We have a newly-created, dedicated, in-house sales function, tasked solely
with curating our Catalogue from a synch perspective. By comprehensively
profiling our Catalogue, unearthing previously underused repertoire, we are
enabling our global synch pitching teams to be ahead of the game, and chase
down high-profile opportunities.
Our own in-house creative studio partnership operation continues to grow, with
new Company-owned master recordings being delivered each week and in addition,
we are entering into a worldwide label distribution deal for our recorded
repertoire, allowing us to release these master recordings globally.
Here are some of our recent Synch successes from across the Catalogue:
Film
· Eurythmics' Sweet Dreams (Are Made of This), co-written by David
A. Stewart, is the main trailer for MGM's major worldwide Q4 release 'House of
Gucci', directed by Ridley Scott and starring Lady Gaga & Adam Driver.
· The initial trailer for the same movie was also soundtracked by a
Hipgnosis song, Heart Of Glass by Blondie, written by Debbie Harry and Chris
Stein
· There's Nothing Holding Me Back by Shawn Mendes, co-written by
Teddy Geiger and Scott Harris, is the main song for the trailer of Universal
Studios' upcoming 'SING 2' feature film.
· The trailer for DC's hotly-anticipated 'Black Adam' is
soundtracked by a remix of the Soundgarden song Black Hole Sun, which was
written by Chris Cornell.
· Love Shack by the B-52's is featured in Netflix's hugely
successful and critically acclaimed new musical, 'Tick, Tick… Boom!'.
TV/Streaming
· The first episode of CBS' 'The Equalizer' features an on-screen
performance of Neil Young's timeless song, Old Ma'.
· Bad To The Bone by George Thorogood is the soundtrack to a major
promotion for Amazon's global Prime Video streaming platform.
· Ciara's Girl Gang, written by Tricky Stewart, soundtracks the
trailer for Amazon Prime's forthcoming comedy, 'Harlem'.
· Getting Jiggy Wit It by Will Smith (which samples the Nile
Rodgers & Bernard Edwards' He's The Greatest Dancer) has featured in the
brand new season of popular Paramount comedy, 'PEN15'.
· ABC's brand new musical drama series 'Queens' features Diana
Ross's I'm Coming Out, which was written by Nile Rodgers & Bernard
Edwards.
· HBO Max's re-boot of 'Gossip Girl' features numerous Hipgnosis
songs, including Jessie Ware's Spotlight and B.O.M.B. by St. Panther - and
a cast performance of Lady Gaga's Shallow, which was written with Mark
Ronson.
· Season two of HBO's 'We're Here' features Swish Swish by Katy
Perry feat. Nicki Minaj, written by Starrah.
· Blondie's 'One Way Or Another' was featured in the second
season of Jerry Bruckheimer's TV series, 'Hightown'.
· BBC's 'Reclaiming Amy' documentary about Amy Winehouse
features Back To Black, which was written by Mark Ronson.
· In the current season of HBO Max's 'Sex Lives of College Girls',
the cast perform Camila Cabello's Havana (feat. Young Thug), which was
written by Andrew Watt and Starrah.
· The latest season of 'Supergirl' features We Are Family by
Sister Sledge, which was written by Nile Rodgers and Bernard Edwards.
· Season 10 of Disney's long-running show 'American Horror Story'
featured Heart's Magic Man, written by Hipgnosis' Ann Wilson.
Advertising
· Mariah Carey's All I Want For Christmas Is You, co-written by
Walter Afanasieff, is the focus of McDonald's Christmas 2021 campaign.
· Our classic Bond theme Nobody Does it Better by Carly Simon,
written by Carole Bayer Sager, is the soundtrack for DHL's global advertising
campaign, which was launched in conjunction with the long-awaited James Bond
blockbuster film '007: No Time To Die'.
· It's My Life (written by Richie Sambora) was selected by German
supermarket chain Penny for their Christmas campaign 2021. The commercial,
which speaks about the difficult times especially teenagers are going through
during the pandemic, went viral immediately, amassing close to 14 million
views on YouTube alone in the first four weeks after its launch.
· Burberry's global campaign for their 'Hero' fragrance - starring
Adam Driver, features Two Weeks by FKA Twigs (written by Emile Haynie) as its
soundtrack.
· Hipgnosis songwriter Birdy has re-recorded Ivor Raymonde's I Only
Want To Be With You (which is owned by Hipgnosis), for a major Deutsche
Telekom advertising campaign.
· Michael Kors' Christmas commercial for 2021 is soundtracked by
Sister Sledge' We Are Family, which was written by Nile Rodgers and Bernard
Edwards.
· Tokio Myers' version of Ed Sheeran's Bloodstream (written by
Johnny McDaid) was used as the soundtrack to the NHS' Live 1,000 Lives
campaign.
· Eurythmics' Sweet Dreams (Are Made Of This), written by David A.
Stewart, has been selected for use in a major television commercial for
Kaufland, one of Europe's biggest supermarket chains.
· Wells Fargo are using Fitz & The Tantrums' HandClap (written
by Sam Hollander) for their North American brand campaign.
· Nelly's Hot In Herre is currently running on Burger King's North
American advertising campaign.
· Lissie's cover version of Go Your Own Way (written by Lindsey
Buckingham) is soundtracking Swedish financial institution, Svea Ekonomi's
2021 advertising campaign.
· Global luxury brand Swarovski have selected Emile Haynie's Two
Weeks by FKA Twigs to soundtrack their worldwide 2021 advertising campaign.
· Global car brand Genesis are using two of Hipgnosis' songs for
their GV70 and GV80 brand campaigns: FKA Twigs' Video Girl (written by Emile
Haynie) and Ólafur Arnalds' Particles.
· French fashion brand Celio are using El Michels Affair's cover of
Shimmy Shimmy Ya (written by RZA) for their 2021 advertising campaign.
· DJ Snake & Lil' Jon's Turn Down For What (written by Martin
Bresso) is currently soundtracking British Gas' 2021 brand campaign,
encouraging customers to reduce their overall domestic energy usage.
· Global fashion brand Moncler is using Planet Claire by the B-52's
for the launch of their MONDOGENIUS campaign.
· In the UK, National Rail are using Love Me Again by John Newman
for their nationwide 2021 brand campaign.
· Rumours by Lizzo (written by Steve Cheung) is featured in the
YouTube Shorts 'Awareness Campaign'.
· BMW selected Get After It by The Cadillac Three as the
soundtrack for one of their key 2021 brand campaigns.
· At the launch of the 2021 Formula E event in London, Raye
performed Call On Me, written by Steve Winwood.
· Chrissie Hynde's Pretenders song My City Was Gone has been
renewed for its long-standing deal to be used on 'The Rush Limbaugh Show'.
Games
· The El-P remix of Supercut by Lorde (written by Jack Antonoff)
features in the soundtrack to EA's 'FIFA 22' video game.
· Most by Phoelix as well as The Light and The Fit by Mick Jenkins
all feature in the official soundtrack for 'NBA 2K22', the newest instalment
in 2K Games' hit basketball video game series.
· Hipgnosis has now approved the use of over 70 songs in the mobile
game Beatstar, which launched globally in August 2021.
· Hundreds of songs from across the Hipgnosis catalogue are also
being licensed for use in an array of other games, including: Grand Theft
Auto, Fortnite, The Sims, Call of Duty, Let's Sing, NHL '22, Gran Turismo, WWE
2K22, Roblox, Beat Saber, Rocket League, Dance Church, Riders Republic, Rock
Band and many more.
NFTs
There is no doubt that Non Fungible Tokens (NFTs) are an important part of the
future. They offer new ways for audiences to connect with the artists and the
Songs that they love, which we believe will in time create valuable new
revenue streams for the Company. There is however still no consensus within
the music industry on what commercial models and royalty streams should be
standardized, and there are still significant questions over governance and
security of assets. Therefore, we are taking our time and being very selective
in our approach. We are working on a few very special and multi-layered
projects which will see some of our top tier artists collaborating with some
of the leading creators in the crypto art space.
We are in communication with all the leading platforms including Nifty
Gateway, Makers Place, SuperRare, Crypto.com and have also been reviewing the
various options for minting NFTs in the most carbon friendly way.
Our first NFT 'drop' by Hipgnosis launched on 6 August 2021. It was a very
special and unique collaboration between Blondie's Debbie Harry and Chris
Stein with pioneers of Crypto Art 'Hackatao'. Hack the Borders itself
symbolizes a true act, from both Hackatao and Blondie, of hacking all borders
and boundaries, and ultimately the limits of narrow-mindedness. And like
Warhol's iconic image of Debbie Harry, Hackatao's digital artwork showcased
Debbie's legacy with pop-art colours, albeit with their own signature style,
covered in drawings that often represent our inner demons and most hidden
voices.
Hipgnosis earns revenue on both the primary and secondary sales, and, at
present, the Company has no crypto holdings.
Song Promotion
Given Hipgnosis is focused only on acquiring proven, timeless, globally iconic
Songs, the Song Management team is able to leverage off the high concentration
of platinum-level hits in its portfolio, which is completely unique in today's
music business.
The team works with all the traditional outlets and emerging areas of social
media, spotlighting natural opportunities that surround landmark anniversaries
while seeking to constantly refresh and provide cultural context. All of which
further fuels streaming growth and increases the
profile / value / opportunity for licensing our Songs to film,
television, gaming, and advertising.
We have focussed heavily on TikTok as a platform, which now has a user base of
over 1 billion people. We have found that the platform is about a mindset, not
a demographic and therefore old songs are likely to find traction just as much
as new releases. We are pleased to say that we have the largest presence on
the platform as a Song Management company better than most traditional
publishers by quite some margin, with over 334,000 followers. Key breakout
activity on Tik Tok leads directly to YouTube views and additional streaming
of songs. It is an entirely connected ecosystem.
Song 'Mashups', where very contrasting songs are put together to create a new
version of a song are very popular on social networks and have the capacity of
generating whole new audiences. One such collaboration we have mentioned
before is the mashup of the B52's Love Shack and Britney Spears' Toxic. A very
high percentage of these songs are controlled by Hipgnosis, and so rather than
leaving this as an unofficial version languishing in the corners of platforms,
we have been able to create a superbly and professionally created version of
this "new" song, securing approval from our writers in the B52's, Christian
Karlsson as well as the final missing piece from Cathy Dennis. We were able
to reproduce the song and we own 75% of the mashup on the Publishing side and
100% on the Master side. The unique 'mashup' has now exceeded 1 billion video
creations across all platforms. The song won the Best Audio Mashup at the 2021
MTV Video Music Awards.
The Song Management team has also been very focussed on showcasing various
albums by our Songwriters that are celebrating major anniversaries. We fully
marked the 40(th) anniversaries of the Journey album Escape in the summer of
2021, Rick James' Street Songs and Mötley Crüe's Too Fast For Love as well
as the 30(th) Anniversary of Nirvana's Nevermind, Red Hot Chili Peppers' Blood
Sugar Sex Magik and Soundgarden's Badmotorfinger. We are currently celebrating
the 20-year anniversary of Shakira's Laundry Service album.
To celebrate the Laundry Service album, we had Facebook campaigns, a new
version of the album, new interviews with the artist, Twitter listening
parties, YouTube shorts campaigns and Face Swap filters. We saw a nearly 50%
increase in streams across the album during the actual 'birthday week'. More
importantly, that major spike has then helped to increase the base level of
streaming for these key tracks within our catalogue.
We are already looking ahead into 2022. Key album anniversaries include: Neil
Young's Harvest (1972) in February as well as those by Nelly's Nellyville
(2002), Steve Winwood's Talking Back To The Night (1982), George Thorogood's
Bad To The Bone (1982), Booker T's Green Onions (1962), Neil Young's Harvest
Moon (1992), Bon Jovi's Keep The Faith (1992) and Audioslave's Audioslave
(2002) later on in the year.
Our team also looks to maximise the natural promotion and excitement around
live tours, and we are delighted that tour dates for many artists that are
part of the Hipgnosis family are coming through. For example, Red Hot Chili
Peppers's Global Stadium Tour starts in June 2022 and is selling out fast. Ed
Sheeran's stadiums shows are selling even faster. Shakira, Journey, Fleetwood
Mac, Taylor Swift, Beyoncé, Justin Bieber and Neil Young all have global
tours in the final stages of planning.
Copyright Management
Our initiatives within Copyright Management, which centre on searching for
missing revenues, continue unabated.
This has involved designing an in house system gathering every piece of data
available around every Song that we own, to help us build a true picture of
our Catalogue. The aim is to make sure our Synch and Copyright teams have
immediate and accurate access to all relevant information.
Disputes occur when the aggregate compositional shares are greater than 100%
within a song. We flag where the compositional shares are greater than 100% in
order to unlock disputes, which leads to higher revenues for Hipgnosis.
Having accurate data enables us to continue searching for missing revenue
across some of our major platforms. The average uplift on revenue found to
date on YouTube is 30%.
YouTube remains the world's biggest streaming service, where 25% of time spent
is watching music video. YouTube boasts 50 million global paid for subscribers
and $5 billion was paid to music industry rights holders last year. We are
well positioned to benefit from growth in this platform, as we have an
interest in 11 out of the Top 30 most viewed videos globally on YouTube.
Song Administration
Hipgnosis Songs Group (HSG) has been part of the Group for a year now and its
strategic importance has been felt. It has allowed the Fund to benefit from
its own in-house administration function in the US, leading to significant
savings, as well as giving us controlled and limited exposure to Song
Creation, which will lead to the Catalogues of tomorrow.
Hipgnosis Songs Group has ingested 19 of the Company's Catalogues within this
financial period alone. These include the US sourced income from catalogues by
Neil Young, Brian Higgins, Sam Hollander, Johnta Austin, Al Jackson Jr, Neal
Schon and Paul Barry. We anticipate administration for US sourced income for
an additional 6 Catalogues to be brought in-house under HSG in the coming
months, which would optimise copyright registrations and enhance revenues for
US sourced income.
HSG now administers 30 of the Company's Catalogues.
Song Creation
Song Creation additionally delivers dynamic catalogue growth via a stable of
active, front-line writers and artists, procured, nurtured and directed by a
best-in-class executive team led by Kenny MacPherson, Casey Robison, Jamie
Cerreta, Dave Ayers and Pete Robinson. Building future assets at minimal cost,
providing contemporary context, contacts and synergistic opportunities
throughout the industry is the strength and ongoing mission of the Song
Creation team.
The HSG Song Creation Team continued to attract front line contemporary
writers, in new signings, options and renewals during the period April to
September 2021. Highlights from the period include signings with The Monsters
& Strangerz, Hippo Campus, and an extension with three-time Grammy winner
Annie Clark, AKA St. Vincent.
HSG has enjoyed US Billboard chart success across its roster of writers,
scoring hits with Olivia Rodrigo, Justin Bieber, Dua Lipa and Miley Cyrus.
HSG writers have been included within an incredible 18 Grammy nominations for
2021, including 3 nominations for Album of the Year with Jon Batiste's We Are
(which included Sing co-written by King Garbage), Justin Bieber's Justice
(which included 5 songs co-written or produced by The Monsters &
Strangerz) and Olivia Rodrigo's SOUR (which included Deja Vu co-written by
Annie Clark).
HSG's The Monsters & Strangerz, who are the writing duo Stefan and Jordan
Johnson, have written songs for Justin Bieber's album Anyone, which has been
nominated across 3 Grammys. As an example of the opportunities that HSG
provides, Hipgnosis Songs Fund acquired the Catalogue of The Monsters &
Strangerz in July 2021 and used the leverage of that deal to sign the writers
for their new songs too.
We were delighted to see that Telepatia by Kali Uchis (co-written by Albert
Hype) was just announced in Billboard magazine as Number 8 in the 'Best Songs
of 2021' chart.
DCMS
The UK Government has responded to the Department for Digital, Culture, Media
& Sport (DCMS) Committee report positively with their decision to refer
the major music companies to the Competition and Markets Authority (CMA) to
investigate "the dominance of the major music companies". We have advocated
since our inception to improve the Songwriter's position within the economic
equation and we consider this to be a significant and important move in
achieving that. It is a very positive next step in our collective efforts to
rebalance the industry in favour of Songwriters and artists. The government's
recognition of the imbalance that exists for the Songwriters, artists and
producers, without whom there is no music business, and its willingness to
invest 12 months into ensuring it comes to the right conclusions gives us many
reasons to be cheerful.
The CMA and the government must now act rapidly to tackle these issues and we
are committed to playing an active role in the important discussions ahead,
advocating on behalf of Songwriters and artists to ensure that the necessary
steps are taken to give them a bigger slice of the economic pie.
During the course of all this we sadly lost our beloved Sara John Nevrkla to
her battle with cancer. She was instrumental in our relations with the DCMS
but many of her friends (aided by important words from our board member Sylvia
Coleman) including strategist Arlene McCarthy and Esther McVey MP have stepped
in to help us continue the important work she was assisting us in bringing to
fruition.
CRB
In the US we are working closely with both the National Music Publishers'
Association (NMPA) and the Nashville Songwriters Association International
(NSAI) to ensure the appeal against the Copyright Royalty Board (CRB) 3 is
denied and that the 44% increase for Songwriters passed into law in 2019 is
upheld and paid retroactively. Concurrently CRB 4 which will determine
songwriter payments for 2023-2027 is also underway and is expected to reach a
conclusion by the summer of next year.
It is worth repeating: the song is the currency of our business. Yet the
Songwriter - who delivers the most important component to the success of a
record company, publisher, promoter, manager, agent, music venue, radio
station, broadcaster et al - is the lowest paid person in the economic
equation. An equation that has made the modern music industry a juggernaut.
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 investments in Catalogues are
held at cost less amortisation, and an Operative NAV which adjusts the IFRS
NAV to reflect the fair value of the Company's Catalogues, as determined by
the Portfolio Independent Valuer. The Board and the Investment Adviser
consider that the most relevant NAV for Shareholders is the Operative NAV.
The Operative NAV per share increased by 2.5% to $1.7242 over the six-month
period (31 March 2021: $1.6829), which, when including dividends paid,
represents a Six-Month Total NAV Return of 4.63%. In total, the Company has
delivered a 12-Month Total NAV Return of 10.82% (including dividends paid of
5.25p per share) and Total NAV Return of 46.7% (including dividends paid of
13.75p per share) since Hipgnosis' IPO on 11 July 2018.
The growth in the Operative NAV over the period shows a 3% like-for-like
uplift in the Fair Value of Catalogues to $2.55 billion as appraised by the
Portfolio Independent Valuer. The growth in the value of the Catalogues was
driven by:
· An upward revision of forecast streaming growth rates given
strong growth in paid subscribers, in excess of expectations
· An anticipated recovery of Performance income, with FY 2023
income projected to recapture FY 2021 levels
The Portfolio Independent Valuer calculated the Catalogue Fair Value as at 30
September 2021 using a discount rate of 8.5% in line with 31 March 2021 (30
September 2020: 8.5%). The value uplift is therefore a function of the
fundamental prospects for growth.
Operative NAV Bridge from 1 April 2021 to 30 September 2021:
Opening Operative NAV per Ordinary Share 1.6829
Increase in Fair Value of Catalogues 0.0540
Net income (inc. Taxation) 0.0353
Dividends Paid (0.0346)
FX impact (0.0080)
Share issue costs* (0.0054)
Closing Operative NAV per Ordinary Share 1.7242
* Share issue costs reflect the costs of share issuances during
the period, which were fully borne out of the gross proceeds of the respective
issue.
The FX impact reflects the exposure of the Company to revenue receipts in
different currencies. Based on the Sterling to Dollar exchange rate at 30
September 2021 of 1.3695, the Operative NAV presented in Sterling would be
125.90p per Share.
Revenue
Gross revenue increased by 35% year-on-year to $85.3 million (six months ended
30 September 2020: $63.3 million), primarily due to the revenue from
additional Catalogues acquired since 30 September 2020.
Net revenue of $74.1 million increased by 31% year-on-year (six months ended
30 September 2020: $56.7 million) which is stated after royalty cost
deductions of $11.2 million and which relate to contractual royalties due to
writers of Hipgnosis Songs Group and Kobalt Fund One.
There is an inherent time lag with music royalties between the time a Song is
performed and when the revenue is received by the Copyright owner. The time
lag can be as much as 24 months on some international income.
The statements received in the six months to September 2021, which are
reflected in this period's revenues, predominately relate to the earnings
period for the second half of the calendar year 2020 for international
revenues and first half of calendar year 2021 for domestic publishing
revenues. Therefore, these results reflect the disruption created by various
lockdowns associated with the COVID-19 pandemic. As a result, the mix of
revenues has changed against the comparative period.
There is a degree of estimation and uncertainty relating to the impact of
COVID-19 which continues to affect this current period. In addition, our
revenue accruals for this six-month period to 30 September 2021, which
estimate the revenue to be paid on royalty statements yet to be received,
takes into account the anticipated continued effect of the downturn in
Performance income, which is not expected to fully reverse by the end of this
financial period.
A breakdown of net revenue by source (after royalty cost) is set out below:
Income Source Net Revenue $'000 %
Streaming 26,895 36%
Performance 19,871 27%
Synchronisation 11,639 16%
Mechanical / Master Royalties 11,495 16%
Digital 1,725 2%
Other Income 2,415 3%
Total Net Revenue 74,041
As set out in last year's annual report, Performance income, driven by songs
performed in shops, bars, restaurant and live music was materially impacted by
various lockdowns. As a result, Performance income declined as a percentage of
overall net revenue to 27% (12 months ended 31 March 2021: 29%).
We have recently seen evidence implying a strong bounce back in Performance
income with bars and restaurants full, Live Nation highlighting that their
concert pipeline was up double digits from two years ago, and the calendar Q3
results from major music companies, including Warner Music Group, showing a
partial recovery in certain COVID-impacted revenue streams.
Due to the differing timelines of income reporting, it is difficult to say
exactly when the recovery from COVID-19 will be fully seen in our revenues.
This expectation of a bounce back is shared by Massarsky, the Portfolio
Independent Valuer, who is predicting a full recovery in Performance revenues
by 2023.
Lockdowns have accelerated the change in consumer behaviour to consuming music
by streaming which has driven an increase in the proportion of revenues
derived from Streaming, from 32% to 36% of total net revenue. There has also
been an increase in our earnings from Synchronisation income which includes
digital streaming income from TikTok and Peloton. This is most evident on
steady state Catalogues (where the average release year of the songs is over
10 years old and therefore have no further expected decay in revenue), where
there was +15% growth on streaming and +34% growth on Synchronisation income,
compared to the prior six-month period. This growth has offset the declines
seen in Performance income for our steady state Catalogues.
It is still the case that the majority of settlements from emerging platforms
are yet to be paid through by the Publishers, and we expect this to be
reflected in future royalty statements. As an example, a major publisher has
started paying through TikTok settlements within statements received by
Hipgnosis Songs Fund in December 2021.
Digital downloads and Mechanical royalties from CDs, Vinyl etc continued to
decline and now represent a combined share of 18% of Net Revenue (12 months
ended 31 March 2021: 20%).
As a testament to the resilience of Hipgnosis, despite feeling the full force
of COVID-19 during the period, dividends paid were fully covered by Adjusted
Profit after Tax (Net revenue, less operating expenses, excluding Total
Amortisation and excluding Foreign Exchange losses) by 1.03x. The Company
continues to target a total dividend of 5.25p for the current financial year
ending 31 March 2022.
Costs
Adjusted Operating Costs increased to $31.2 million from $12.4 million in the
comparative period primarily due to recognising a full six months of operating
costs for Hipgnosis Songs Group (HSG), compared to less than one month in the
prior period as well as increased Investment Advisory fees due to the growth
of the Company since the prior period. Within the period, there was also an
increase in interest costs associated with the higher leverage facility to
reflect the growth of the Company (now $600 million compared to $400 million
in September 2020).
EBITDA for the six months ended 30 September 2021 increased by 16.2% to $54.6
million (six months ended 30 September 2020: $47.0 million), reflecting the
growth in net revenue.
EPS for the six months ended 30 September 2021 is -1.69¢ (six months ended 30
September 2020: 2.04¢) because of the high amortisation charged during the
period. The Group amortises Catalogues of Songs with a limited useful life
using the straight-line method of 20 years.
Similarly, adjusted EPS, as defined within the Alternative Performance
Measures for the six months ended 30 September 2021 is 3.85¢ (six months
ended 30 September 2020: 6.71¢).
Ongoing Charges as a percentage of the average Operative NAV increased from
1.59% as at the end of March 2021 to 1.77% primarily driven by the annualised
impact of HSG operating costs and higher fees associated with the leverage
facility. If HSG operating costs of $4.2 million were removed, the ongoing
charge ratio would be 1.39% (1.33% as at end of March 2021).
Net Debt
As at 30 September 2021, net debt had increased to $550 million reflecting a
net debt to Operative NAV of 28.7% (31 March 2021: 25.6%). The gross amount
drawn down of $600 million was equal to the cap on the facility.
Leveraged Free Cash Flow was $42.5 million as at 30 September 2021 (30
September 2020: $16.6 million), which covered dividends paid out during the
period by 1.02 times.
Pro-Forma Annual Revenue (PFAR)
Due to the rapid growth of the Company since inception, historic comparative
results do not provide a measure of like-for-like performance in the
underlying Catalogues. In addition, when making new acquisitions in a period,
the first year's revenue may often include Right To Income (RTI). A greater
discussion about the RTI follows below. The Company therefore discloses the
PFAR which shows the royalty revenue earned in a calendar year based on
royalty statements received, irrespective of the rights of ownership. The
Company believes this provides a relevant like-for-like full year income
comparison.
Due to the time lag on receiving international royalty statements, the latest
PFAR reports the royalty earnings in the 12 months ending 31 December 2020 for
Catalogues owned as at 30 September 2021.
As stated in the FY 21 Annual Results, restrictions related to COVID-19
resulted in a number of changes in the way that listeners consumed music. In
particular, shops, bars, restaurants and live music venues all closed for long
periods in 2020 and the beginning of 2021 as countries around the world
enforced lockdowns to reduce the spread of COVID-19. Overall, we highlighted
our expectations that this would result in earnings from Catalogues decreasing
in the period on a like-for-like basis from the previous year.
In line with our expectations, the PFAR for 2020, which includes the most up
to date earnings, was $121.3 million compared to $131.7 million from the 12
months ending 30 June 2020, a decline of -7.9%.
This was primarily driven by Performance income which fell by 19.5% over the
same period, due to the disruption caused by lockdowns. This reduction in
Performance income is expected to be temporary with bars, restaurants and live
music bouncing back strongly in H2 2021 as COVID-19 restrictions have
progressively eased.
COVID-19 restrictions impacted younger Catalogues (<10 years old) worse
than the older vintages (>10 years old) given that those younger Catalogues
require relatively higher promotional activity around new releases and
touring, in order to sustain their expected decay trajectory. With COVID-19
restrictions being lifted progressively in 2021, and the bounce-back of Live
and promotional activities, we expect earnings from Performance income across
all vintages to recover.
During the lockdowns in 2020, listeners quickly turned to consuming music via
streaming with an acceleration of paid subscribers reported by the major
streaming platforms. This was most evidently seen in our Steady State
Catalogues (where growth isn't distorted by its expected decay) which showed
streaming income growth of 4% compared to 12 months ended 30 June 2020. This
shows continued growth after impressive calendar H1 2020 growth of 22.5%
compared to H1 2019.
To provide additional analysis of performance across the catalogues, the table
below splits out the PFAR allocated to those Catalogues that are less than 10
years i.e. in a decaying position and those above 10 years, which have reached
Steady State.
12 mths to Dec 19 12 mths to Jun 20 12 mths to Dec 20
Total PFAR for Catalogues owned as at 30 Sep 2021 138,139,909 131,680,182 121,263,041
<10 years 74,499,066 65,835,595 57,143,551
>10 years 63,640,843 65,844,587 64,119,489
Older or Younger than 10 years of a Catalogue is calculated as the average
release year of a Catalogue as at 1 January 2021 weighted on earnings, at time
of acquisition.
Variance against Forecast (VAF)
The Variance against Forecast (VAF) is the difference between the total cash
of the royalty statements received from each Catalogue since acquisition, and
the internal acquisition model forecast over the same period.
In the period from acquisition up to 30 September 2021, the VAF was -7.9% (31
March 2021: -2.8%) reflecting:
· the decrease in Performance income as a result of the COVID-19
restrictions which could not have been anticipated in the original forecast
acquisition models as the majority of Catalogues were acquired before the
COVID-19 pandemic
· the original acquisition model forecast assumed that the uplifts
from CRB ruling (which relates to mechanical US streaming income) would be
fully paid through from acquisition. Due to the ongoing appeal against the
ruling, royalty income is still being paid on a 10.5% share to songwriters
(the CRB ruling increases Songwriters share to 15.1% in equal increments from
2017 to 2022). Should the CRB ruling be upheld, the unpaid income to the
Company will be paid through as a retrospective settlement payment.
As highlighted above, the VAF compares the Catalogue performance against
forecasts made at the time of acquisition and therefore in most instances does
not take into account the significant changes in the music industry caused by
COVID-19. These acquisition forecasts therefore also differ from the up to
date forecasts prepared on a catalogue by catalogue basis by the Investment
Adviser and the Portfolio Independent Valuer. As a result, the Company no
longer considers the VAF to provide useful performance analysis against
forecasts to investors.
Going forward the Company will no longer present the VAF and will introduce
new additional disclosures at the time of the annual results which will
provide a more insightful analysis of how the Company's Catalogues are
performing against current expectations.
Accruals and Receivables
Despite the uncertainty of COVID-19 on earnings, we are pleased to report that
royalty statements and cash receipts received in the second half of the year
are in line with the revenue accruals recognised in the previous period.
The conservative accrual process has meant that accruals have been effectively
managed over the earnings time lag, which can be as much as 24 months on some
international income. The Investment Adviser will continue to manage accruals
conservatively as we move towards full recovery.
Accrued income and Royalty income receivable at 30 September 2021 was $88.2
million, a breakdown of which is set out below:
· A $11.6 million receivable, representing royalty receipts
expected in October and November for royalties where statements were received
in September.
Included in Trade and Other receivables is an accrued income balance of $76.6
million which is made up of:
· $36.0 million for calendar Q3 2021 earnings where, due to the
time lag in royalty reporting, statements are not expected to be received
until calendar Q4 2021 and Q1 2022;
· $12.9 million for calendar Q2 2020 earnings which are not
reported to the Company until calendar Q4 2021;
· $7.8 million relating to earnings for newly acquired Catalogues
where royalty reporting is still in the process of being
redirected / switched over to Hipgnosis. These accruals are based on
royalty statements received with invoices due to be raised on completion of
the Letter
of Direction;
· $7.8 million relating to earnings on deals acquired before the
current financial year, where royalty reporting is still in the process of
being redirected / switched over to Hipgnosis;
· $5.5 million income accrual relating to time-lagged international
reporting on PRO earnings. International PRO reporting has a significant time
lag due to the additional collection time taken for PROs to collect and
distribute income from overseas territories. The lag in collection is due to
the nature of collecting and processing royalties locally, then distributing
them to the domestic PRO, which will in turn process and distribute these
royalties to the Group. Six months of international PRO earnings are accrued,
although can typically result in an earnings lag of up to 24 months; and
· $6.6 million HSG gross revenue accrual, bringing the Group in
line with IFRS, which includes the accrued PRO lag. Separately, a $5.1 million
royalty credit representing contractual royalties due to writers has been
recognised, resulting in net revenue (NPS) for HSG of $1.5 million.
Right to Income (RTI)
On acquisition of a Catalogue, the accounting policy of the Company is to
allocate the full purchase consideration to the cost of the Catalogues asset.
Income is recognised on acquisition via two separate mechanisms as follows:
1. Income derived from cash receipts from the Vendor,
representing royalties collected by the Vendor starting from the date
determined by the purchase agreement, which precedes the date of acquisition.
2. Accrued receivables are recognised for any revenues generated
by ownership of the IP to the extent that these are not yet collected. If the
income due under these mechanisms is for a period that precedes the start of
the financial year that the Catalogue is acquired within, that income is
booked within the financial year in which the catalogue is acquired.
In order to provide further clarity to investors on RTI we are providing
additional disclosure of these revenues. Previously RTI was solely defined as
including revenue that was recognised on the acquisition of a Catalogue that
preceded the financial year, so that investors could clearly identify all
revenues which were not from the financial period being reported on. We have
re-defined RTI to show both revenue recognised in 'Pre-Financial Year RTI' and
'Within Financial Year RTI', which has been split out in the table opposite.
Within Financial Year RTI is considered as recurring as it relates to a
revenue period that will be collected and received by SONG in the following
financial year.
The combined RTI recognised in the period was $17.97 million (30 September
2020: $12.8 million), of which the Pre-Financial Year RTI was $14.09 million
and the Within Financial Year RTI was $3.88 million.
The table below shows Recurring revenue vs. Pre-Financial Year RTI for each
financial year to date.
Financial year revenue ($m)
Recurring revenue
Financial year (FY) Description No. of Catalogues Prior year Pre-FY (RTI) Within FY, Within FY, Total
(over) / under pre-acq (RTI) post-acq revenue
accrual
FY19 New acquisitions in year 13 - 2.52 - 6.88 9.39
- 27% - 73% 100%
FY19 Pre-existing Catalogues 0 - - - - -
- - - - -
FY19 Total 13 - 2.52 - 6.88 9.39
- 27% - 73% 100%
FY20 New acquisitions in year 41 - 13.40 27.57 23.56 64.53
- 16% 34% 29% 79%
FY20 Pre-existing Catalogues 13 1.66 - - 15.88 17.55
2% - - 19% 21%
FY20 Total 54 1.66 13.4 27.57 39.45 82.08
2% 16% 34% 48% 100%
FY21 New acquisitions in year 84 - 28.94 37.66 26.16 92.75
- 21% 27% 19% 67%
FY21 Pre-existing Catalogues 54 (4.90) - - 50.54 45.64
(4%) - - 37% 33%
FY21 Total 138 (4.90) 28.94 37.66 76.70 138.39
(4%) 21% 27% 55% 100%
FY22 Half Year New acquisitions in period 8 - 14.09 3.88 3.34 21.31
- 19% 5% 5% 29%
FY22 Half Year Pre-existing Catalogues 138 (1.53) - - 54.26 52.73
(2%) - - 73% 71%
FY22 Total 146 (1.53) 14.09 3.88 57.60 74.04
(2%) 19% 5% 78% 100%
Prior Year over / under accrual is the residual amount recognised in each
financial year for the unwinding of estimates made for statements yet to come
Pre-FY RTI is revenue recognised in the current financial year where the
entitlement to revenue arose prior to the commencement of that financial year.
The pre-FY RTI is recognised on the date on closure of the deal
Within FY, pre-acq RTI is revenue recognised in the financial year for
periods within the same financial year, but before the date of acquisition and
recognised on the date on closure of the deal
Within FY, post-acq is revenue recognised in the financial year for periods
after the date of acquisition
In summary, despite the recent disruptive events of COVID-19, Hipgnosis Songs
Fund remains dividend covered, and even though we expect further impacts to
come in the short term, the outlook for the asset class remains as strong and
resilient as ever.
We are grateful to all of you for helping us to establish Songs as an asset
class, to define Song Management as a new paradigm for how Songs should be
managed with responsibility and to have created a structure where what's in
the best interest of the Songwriter is also in the best interest of you, our
Shareholders.
For that we thank you and it remains only for me to wish you all a Merry
Christmas and a Happy, Healthy and Prosperous 2022!
Merck Mercuriadis
Founder, Hipgnosis Songs Fund Ltd and Founder / CEO
of Hipgnosis Song Management Ltd. (Investment Adviser to Hipgnosis Songs Fund
Limited)
15 December 2021
Investment Objective and Policy
Investment Objective
The Company's objective is to provide Shareholders with an attractive and
growing level of income, together with the potential for capital growth, from
investment in Songs and associated musical intellectual property rights, in
accordance with its investment policy.
Investment Policy
The Company's Investment Policy is to diversify risk through investment in a
Portfolio of Songs and associated musical intellectual property rights
(including, but not limited to, master recordings, rights over future Songs
that are acquired by the Group through the payment of Advances to such
Songwriter and secured against the future Songs, and producer royalties). The
Company seeks to acquire 100% of a Songwriter's copyright interest in each
Song, which would comprise their writer's share, their publisher's share and
their performance rights. In appropriate cases, however, the Company may not
acquire all three elements of the Songwriter's interest. The Company acquires
interests in Songs which are sole authored or co-authored. The Company may
also acquire interests in Songs jointly with another purchaser. Each Song is
considered by the Company to be a separate asset.
The Company, directly or indirectly via portfolio administrators, enters into
licensing agreements, under which the Company receives payments attributable
to the copyright interests in the Songs which it owns. Such payments may take
the form of royalties, licence fees and / or advance payments, including:
· mechanical royalties - when a copy of a Song is made, whether
physical (e.g. CDs, DVDs, vinyl) or digital (e.g. permanent downloads,
streaming, webcast);
· performance royalties - when a Song is performed live or
broadcast on TV or Radio, or when a song is streamed online; and
· synchronisation fees - when a Song is used in another form of
media or moving picture (e.g. movie, TV show, video game, advertisement).
The Company also receives royalties and fees payable in respect of master
recordings. Master recordings are the copyright in the master recording of a
musical composition or Song. Master recordings earn synchronisation royalties
and generate income from sales of both physical records and digital downloads
as well as from DSPs.
The Company focuses on delivering income growth and capital growth by pursuing
efficiencies in the collection of payments and active management of the Songs
it owns.
The Company may acquire Songs for consideration consisting of cash, Shares or
a combination of cash and Shares, and payment of part of the consideration may
be on deferred terms. The Company may acquire Songs or Catalogues directly, or
indirectly by acquiring the entity through which such Songs or Catalogues are
held.
Whilst the Company does not intend to sell the Songs it owns, it may make
disposals of Songs where it considers such a disposal to be in the best
interests of Shareholders.
Investment restrictions
The Company invests its assets and manages the Songs it acquires with the
objective of constructing a high quality and diversified Portfolio of Songs.
The Company acquires Catalogues from a number of different Songwriters, which
includes Songs diversified across music genres and sung by numerous recording
artists. The Company is subject to the following investment restrictions:
a. the Company holds interests in a minimum of 300 Songs;
b. the Advances made to Songwriters in connection with the
acquisition of rights over future Songs will not represent more than 5% of the
Company's Gross Assets, calculated at the date of the relevant Advance;
c. the value of any single Song does not, and will not,
represent more than 10% of the Company's Gross Assets, calculated at the date
of the acquisition of such Song (and re-calculated in the aggregate upon the
acquisition of any additional interest in a Song). In the event this limit is
breached at any point after the relevant investment has been made or added to
(for example due to a change in valuation of any Song), there is no
requirement to sell any Song, in whole or in part; and
d. the Company does not, and will not, invest in closed-ended
investment companies or other investment funds.
Cash management
The Company's uninvested capital may be invested in cash, cash equivalents,
near cash instruments and money market instruments.
Hedging and derivatives
The Company may utilise derivatives for efficient portfolio management. In
particular, the Directors may engage in full or partial foreign currency
hedging and interest rate hedging. The Company does not, and will not, enter
into such arrangements for investment purposes.
Leverage
The Company may incur indebtedness of up to a maximum of 30% of its Operative
Net Asset Value, calculated at the time of drawdown. For these purposes all
bank borrowings and other forms of indebtedness incurred by any member of the
Group (as defined below), and any non-equity share capital, will be taken into
account. "Group" means the Company and its subsidiaries (as defined in section
531 of the Companies (Guernsey) Law, 2008, as amended).
Amendments to and compliance with the Investment Objective and Policy
Any material change to the Company's Investment Objective and Policy will be
made only with the prior approval of the FCA and the Shareholders by ordinary
resolution.
In the event of a material breach of any of the investment restrictions
applicable to the Company, Shareholders will be informed of the actions to be
taken by the Company through an announcement made via an RNS announcement.
Principal Risks and Uncertainties
The following is a description of the principal risks and uncertainties for
the remaining six months of the financial year, listed in alphabetical order.
Advance payments to Songwriters don't yield projected returns
Investment in Songs that are yet to be written or proven commercially over a
sustained period of time, is considered more speculative than investment in
proven Songs and may not be commercially successful or generate sufficient
royalties to recoup the Advance over the forecast period or at all.
Adverse change in policies by Collection Societies and other entities through
whom the Company receives royalty payments
Should Collection Societies or other entities, including the major music
publishers and record companies, alter the way that they collect royalties, or
set lower royalty rates, or decide to disproportionately favour major music
publishers, the Company may receive significantly reduced revenues compared to
the level it had forecast at the time of acquiring the relevant Catalogues or
Songs.
Cyber Risk
The Company (like all others) is exposed to external cyber-security threats
which have the possible impact of sensitive information leakage and cyber
fraud and, in a worst case scenario, interruption of royalty payments.
Due diligence risk
The due diligence process may not reveal all facts that may be relevant in
connection with investment opportunities and any mismanagement, fraud, or
accounting irregularities on the part of any seller of Catalogues, or their
advisers, may materially affect the integrity of the Investment Adviser's due
diligence on such investment opportunities.
Exchange rate risk
The Company has issued share capital denominated in Sterling and aims to pay
regular dividends in that currency. However, the Group's functional currency
is Dollars, and most of the Group's revenue is received in Dollars, and
exchange rate fluctuations may significantly affect the NAV and the ability to
pay targeted dividends.
Financial leverage risk
The Company uses leverage and may utilise borrowings for working capital and
interest rate hedging purposes. In case of default under the relevant
financing arrangement the Company may face adverse action from its lenders
leading to operating constraints and increased controls. This may affect the
Company's ability to pay dividends.
Impact due to the Covid-19 pandemic
The business and economic disruption as a result of the COVID-19 pandemic and
associated lockdowns still has had a material adverse effect on certain income
streams, in particular performance revenues, which relate to revenues
collected from shops, bars, gyms and live performances.
Interest Rate risk
The Company is exposed to changes in global interest rates in several ways.
Predominantly, but not exclusively, the fiscal and monetary decisions of the
US Government and its Central Bank may affect the interest rates at which the
Company can borrow money. It may also impact the discount rate, which is used
to evaluate the current and forecast value of Catalogues it is purchasing, or
has already invested in. Interest rates also have an impact on exchange rates,
mentioned above.
Key person risk
The Company depends on the services of the Investment Adviser, in particular
on Merck Mercuriadis, Chief Executive of the Investment Adviser. Subsequent to
the period end, Blackstone Inc., which brings considerable investment
experience and resources, has purchased a controlling stake in the Investment
Adviser.
Market trends
The Company is heavily reliant on streaming (or an equivalent technology)
remaining popular with consumers. Any adverse change in this would affect
revenues. Conversely, technological advances could lead to a growth in
royalties as consumers' access to music continues to improve.
Operational reliance on service providers
The Company relies primarily on third-party service providers for its core
operations including oversight of its subsidiaries under the terms of its
Investment Advisory Agreement.
Emerging Risks
Emerging risks are regularly considered to assess any potential impact on the
Group and to determine whether any actions are required. These include
regulatory / legislative change, macroeconomic and political change as
well as new competitors entering the market.
The principal risks and uncertainties of the Company were identified in
further detail in the Annual Report and Financial Statements for the year
ended 31 March 2021. The Company's principal risk factors are fully discussed
in the Company's Prospectus, available on the Company's website
(www.hipgnosissongs.com) and should be reviewed by Shareholders.
Directors' Responsibilities
The Directors are responsible for preparing this Interim Report in accordance
with applicable laws and regulations. The Directors confirm that to the best
of their knowledge:
· The Condensed Consolidated Financial Statements have been prepared
in accordance with IAS 34 Interim Financial Reporting; and
· The Chair's Statement and Investment Adviser's Report include a
fair review of the information required by:
i ) DTR 4.2.7R of the Disclosure Guidance and Transparency Rules,
being an indication of important events that have occurred during the first
period of the financial year; their impact on the condensed set of
consolidated financial statements; and a description of the principal risks
and uncertainties of the remaining six months of the year; and
ii ) DTR 4.2.8R of the Disclosure Guidance and Transparency Rules,
being related party transactions that have taken place in the first period of
the current financial year and that have materially affected the financial
position or performance of the Company during that period.
The Directors are responsible for keeping proper accounting records, which
disclose with reasonable accuracy at any time the financial position of the
Company and enable them to ensure that the Financial Statements comply with
the Companies Law. They are also responsible for safeguarding the assets of
the Company and hence for taking reasonable steps for the prevention and
detection of fraud, error and non-compliance with law and regulations.
The Directors are responsible for the maintenance and integrity of the
corporate and financial information included on the website
(www.hipgnosissongs.com).
On behalf of the Board
Andrew Sutch
Chair
15 December 2021
Independent Review Report to Hipgnosis Songs Fund Limited
Report on the condensed consolidated financial statements
Our conclusion
We have reviewed Hipgnosis Songs Fund Limited's condensed consolidated
financial statements (the "interim financial statements") in the Interim
Report of Hipgnosis Songs Fund Limited for the 6-month period ended 30
September 2021. Based on our review, nothing has come to our attention that
causes us to believe that the interim financial statements are not prepared,
in all material respects, in accordance with International Accounting Standard
34, 'Interim Financial Reporting' and the Disclosure Guidance and Transparency
Rules sourcebook of the United Kingdom's Financial Conduct Authority.
What we have reviewed
The interim financial statements comprise:
· the condensed consolidated statement of financial position as at
30 September 2021;
· the condensed consolidated statement of comprehensive income for
the period then ended;
· the condensed consolidated statement of cash flows for the period
then ended;
· the condensed consolidated statement of changes in equity for the
period then ended; and
· the explanatory notes to the interim financial statements.
The interim financial statements included in the Interim Report have been
prepared in accordance with International Accounting Standard 34, 'Interim
Financial Reporting' and the Disclosure Guidance and Transparency Rules
sourcebook of the United Kingdom's Financial Conduct Authority.
As disclosed in note 2 to the interim financial statements, the financial
reporting framework that has been applied in the preparation of the full
annual financial statements of the Group is The Companies (Guernsey) Law, 2008
and International Financial Reporting Standards (IFRSs).
Responsibilities for the interim financial statements and the review
Our responsibilities and those of the directors
The Interim Report, including the interim financial statements, is the
responsibility of, and has been approved by, the directors. The directors are
responsible for preparing the Interim Report in accordance with International
Accounting Standard 34, 'Interim Financial Reporting' and the Disclosure
Guidance and Transparency Rules sourcebook of the United Kingdom's Financial
Conduct Authority.
Our responsibility is to express a conclusion on the interim financial
statements in the Interim Report based on our review. This report, including
the conclusion, has been prepared for and only for the Company for the purpose
of complying with the Disclosure Guidance and Transparency Rules sourcebook of
the United Kingdom's Financial Conduct Authority and for no other purpose. We
do not, in giving this conclusion, accept or assume responsibility for any
other purpose or to any other person to whom this report is shown or into
whose hands it may come save where expressly agreed by our prior consent in
writing.
What a review of interim financial statements involves
We conducted our review in accordance with International Standard on Review
Engagements 2410, 'Review of Interim Financial Information Performed by the
Independent Auditor of the Entity' issued by the International Auditing and
Assurance Standards Board.
A review of interim financial information consists of making enquiries,
primarily of persons responsible for financial and accounting matters, and
applying analytical and other review procedures.
A review is substantially less in scope than an audit conducted in accordance
with International Standards on Auditing and, consequently, does not enable us
to obtain assurance that we would become aware of all significant matters that
might be identified in an audit. Accordingly, we do not express an audit
opinion.
We have read the other information contained in the Interim Report and
considered whether it contains any apparent misstatements or material
inconsistencies with the information in the interim financial statements.
PricewaterhouseCoopers CI LLP
Chartered Accountants
Guernsey, Channel Islands
15 December 2021
Condensed Consolidated Statement of Comprehensive Income
For the six months ended 30 September 2021 (unaudited)
Note 1 April 2021 to 1 April 2020 to
30 September 2021 30 September 2020
$'000 $'000
Income
Total revenue 10 85,271 63,314
Interest income 2 70
Royalty costs 3 (11,232) (6,696)
Net revenue 74,041 56,688
Expenses
Advisory and performance fees 13 (8,220) (4,497)
Administration fees (639) (591)
Amortisation of Catalogues of Songs 5 (52,124) (24,100)
Amortisation of capitalised borrowing costs (1,622) (1,326)
Directors' remuneration 13 (315) (252)
Brokers' fees (1) (40)
Auditor remuneration (499) (184)
Legal and professional fees (2,955) (4,129)
Finance charges for deferred consideration (672) (670)
Loan Interest (10,002) (2,037)
Subscriptions and Licences (249) -
Charitable Donations (20) -
HSG FV Gain - 1,767
Other operating expenses 11 (6,885) (1,791)
Foreign exchange (losses) (7,841) (3,663)
Operating expenses (92,044) (41,513)
Operating (loss)/profit for the period before taxation (18,003) 15,175
Taxation 4 (1,240) (2,206)
(Loss)/Profit for the period after tax (19,243) 12,969
Total comprehensive income for the period (19,243) 12,969
Basic and Diluted Earnings per Share (cents) 14 (1.69) 2.04
Adjusted Earnings per Share (cents) 14 3.85 6.61
All activities derive from continuing operations.
The accompanying notes form an integral part of these Condensed Consolidated
Financial Statements.
Condensed Consolidated Statement of Financial Position
As at 30 September 2021
Note 30 September 2021 31 March 2021
$'000 $'000
(Unaudited) (Audited)
Assets
Catalogues of Songs 5 2,090,834 1,878,924
Other assets 1,182 3,740
Goodwill 272 272
Trade and other receivables 110,663 107,628
Cash and cash equivalents 7 49,108 112,634
Total assets 2,252,059 2,103,198
Liabilities
Loans and borrowings 6 589,596 565,860
Other payables and accrued expenses 8 37,221 74,493
Total liabilities 626,817 640,353
Net assets 1,625,242 1,462,845
Equity
Share capital 9 1,692,451 1,466,851
Other reserves - 234
Foreign currency translation reserve (2,245) (419)
Retained losses (64,964) (3,821)
Total equity attributable to the owners of the Company 1,625,242 1,462,845
Number of Ordinary Shares in issue at period end 9 1,211,214,286 1,073,440,268
IFRS Net Asset Value per Ordinary Share (cents) 134.18 136.28
Operative Net Asset Value per Ordinary Share (cents) 172.42 168.29
Approved and authorised for issue by the Board of Directors on 15 December
2021 and signed on their behalf by:
Andrew Sutch Chair Andrew
Wilkinson Director
The accompanying notes form an integral part of these Condensed Consolidated
Financial Statements.
Condensed Consolidated Statement of Changes in Equity
For the six months ended 30 September 2021 (unaudited)
Note Number of Share capital Other reserves Foreign currency Retained Total Equity
Ordinary $'000 $'000 translation losses $'000
Shares reserve $'000
$'000
As at 1 April 2021 1,073,440,268 1,466,851 234 (419) (3,821) 1,462,845
Shares issued 9 137,774,018 229,702 (234) - - 229,468
Share issue costs 9 - (4,102) - - - (4,102)
Dividends Paid 12 - - - - (41,900) (41,900)
Foreign currency translation reserves movement - - - (1,826) - (1,826)
Loss for the period - - - (19,243) (19,243)
As at 30 September 2021 1,211,214,286 1,692,451 - (2,245) (64,964) 1,625,242
For the six months ended 30 September 2020 (unaudited)
Note Number of Share Capital Foreign currency Retained Total Equity
Ordinary Shares $'000 translation earnings $'000
reserve $'000
$'000
As at 1 April 2020 615,851,887 801,844 (412) 9,253 810,685
Shares issued 9 181,402,407 269,302 - - 269,302
Share issue costs 9 - (4,430) - - (4,430)
Dividends paid 12 - - - (19,593) (19,593)
Foreign currency translation - - (8,743) - (8,743)
reserve movement
Profit for the period - - - 12,969 12,969
As at 30 September 2020 797,254,294 1,066,716 (9,155) 2,629 1,060,190
The Loss for the six-month period ending 30 September 2021 of $19.243 million
is calculated net of Total Amortisation and Foreign Exchange Losses which
together amount to $62.259 million. Adjusting for Total Amortisation and
Foreign Exchange Losses the Net Income (inc. Taxation) is therefore $43.016
million, which represents 1.03x dividend cover on the dividends paid of
$41.900 million.
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 2021 (unaudited)
Note 1 April 2020 to
1 April 2021 to 30 September 2020
30 September 2021 $'000
$'000
Cash flows used in operating activities
Operating profit/(loss) for the period before taxation (18,003) 15,175
Adjustments for non-cash items:
Loan interest 10,002 2,037
Provision for writer advances 916 -
Movement in writer advances (6,560) -
Movement in trade and other receivables 2,608 (37,235)
Movement in other payables and accrued expenses (3,387) 9,748
Amortisation of Catalogues of Songs and borrowing costs 54,749 25,425
Foreign exchange (gains)/losses 443 3,663
Taxation (4,798) (2,206)
Net cash generated from operating activities 35,970 16,607
Cash flows used in investing activities
Purchase of Catalogues of Songs (294,374) (306,247)
Net cash used in investing activities (294,374) (306,247)
Cash flows generated from financing activities
Proceeds from issue of shares* 9 229,468 539,548
Issue costs paid 9 (4,102) (9,834)
Dividends paid 12 (41,900) (19,593)
Interest paid (10,660) (2,037)
Borrowing costs (594) (4,261)
Bank loan 12 22,708 34,032
Net cash generated from financing activities 194,920 537,855
Net movement in cash and cash equivalents (63,484) 248,215
Cash and cash equivalents at the start of the period 112,634 17,454
Effect of foreign exchange rate changes on cash and cash equivalents (42) 1,855
Cash and cash equivalents at the end of the period 49,108 267,524
* Includes C Shares and Ordinary Shares
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 2021
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 (Guernsey),
Law, 2008. The registered office address is Floor 2, Trafalgar Court, Les
Banques, St Peter Port, Guernsey, GY1 4LY.
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.
Accounting recognition and measurement policies have only been included where
material to the consolidated results and financial position of the Company.
The Company makes its investments through its subsidiaries, which are
registered in the UK and US as limited companies.
The Consolidated Financial Statements present the results of the Group for the
six months ended 30 September 2021 and are unaudited. The Group is principally
engaged in investing in and managing music copyrights and associated musical
intellectual property.
2. Accounting policies
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
2021, which are available on the Company's website (www.hipgnosissongs.com
(http://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 2021.
Group information
As at 30 September 2021, the details of the Company's subsidiaries are as
follows:
Name of the subsidiary Place of % of voting % Interest Consolidation Functional
incorporation rights method Currency
and operation
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 (†) UK 100 100 Full GBP
Hipgnosis Songs Group LLC * US 100 100 Full USD
BDM Acquisition Corp, LLC, rebranded Hipgnosis Acquisition Corp US 100 100 Full USD
Kennedy Publishing & Productions Limited (†) UK 100 100 Full GBP
F.S. Music Limited († 1) UK 100 100 Full USD
Robot of the Century Music Publishing Inc US 100 100 Full USD
C H Publishing Limited († 1) UK 100 100 Full GBP
Deamon Limited (†) UK 100 100 Full GBP
PB Songs Ltd (†) UK 100 100 Full GBP
* Hipgnosis Songs Group is a publishing
company which was formed in June 2018 and it is equity accounted for in the
Consolidated Financial Statements.
† This is a subsidiary of Hipgnosis
SFH XX Limited and therefore an indirect subsidiary of Hipgnosis Songs Fund
Limited.
1 Dissolved 2 November 2021
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 are subject to
applicable State and Federal Taxes.
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
purchase and returns from existing Catalogues of Songs and the annual
operating cost.
Based on these sources of information and their own judgment, the Directors
believe it is appropriate to prepare the Condensed Consolidated Financial
Statements of the Group on a going concern basis.
Segmental reporting
The chief operating decision maker is the Investment Adviser. All of the
Company's income is global but received from sources within US, Europe, UK and
Guernsey. 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.
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 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 year, 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:
In calculating accruals, the Investment Adviser 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.
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 revenues also include 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 as its knowledge of the respective
Catalogue performance trends to recommend the estimated accruals. The PRO
income accrual is based on analysis of each Catalogue's revenue history as
well as knowledge of the respective Catalogue's performance trends.
Net revenue is subject to a royalty cost accrual applied to gross revenue
receipts primarily within the Hipgnosis Songs Group LLC 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.
Expected Credit Loss (ECL) in relation to revenue receivables:
Royalty earnings for accruals and receivables recognised in the period ending
30 September 2021 are distributed by PROs, Publishers and Record Labels who
collect royalties at the source of usage and distribute those earnings
directly to the Company.
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
our 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.
Assessment of useful life of intangible assets
In order to calculate the amortised cost of the intangible assets it is
necessary to assess the useful economic life of the copyright interests in
Songs. This requires forecasts of the expected future revenue from the
copyright interests, which contains significant uncertainties as the ongoing
popularity of a Song can fluctuate unexpectedly. An assessment of the useful
life of each Catalogue is considered at acquisition and at each reporting
period, and the Board has consistently considered the useful life of each
Catalogue acquired to be 20 years, in line with industry standard.
Assessment of impairment and the Calculation of Operative NAV
Intangible assets are subject to a semi-annual impairment review which relies
on assumptions made by the Board. Assumptions are updated annually,
specifically those relating to future cash flows and discount rates.
The fair value estimates that are prepared in order to calculate the Operative
NAV and Operative NAV per Share are also used to assess whether there is
evidence that the intangible assets may be impaired. Management's impairment
review as at 30 September 2021 concluded that no impairment was required to
the Group's Catalogue Investments.
Valuations of music publishing rights typically adopt the DCF valuation
approach which measures the present value of anticipated future revenues from
acquiring the Catalogues, which are discounted at the Company's weighted
average cost of capital of 8.5% and a terminal value in 16 years based on the
calculated stable growth rate of a catalogue after that 16-year period. This
method is accepted as an objective way of measuring future benefits; taking
into account income projections from various music industry sources across
various revenue flows whilst also factoring in the associated cost of capital.
It is the intention of the Board that Catalogues of Songs will be valued on an
ongoing basis using a consistent DCF valuation methodology, and that this be
used as an initial indicator of impairment for each Catalogue of Songs.
4. Taxes
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 is incurred in these UK entities. The Group
has exposure to US taxation through ownership of Robot of the Century Music
Publishing Inc, Hipgnosis Songs Group LLC and Hipgnosis Acquisition Corp, and
through the generation of revenues by UK-domiciled companies in the United
States, however this exposure is not considered to be material. Aside from the
US, the Group has no other foreign subsidiaries.
The Company's conversion to an investment trust company took effect from 1
April 2021 and therefore the Company has been treated as being resident in the
UK for tax purposes and ceased to be a Guernsey tax exempt vehicle under The
Income Tax (Exempt Bodies) (Guernsey) Ordinance, 1989, as amended from this
date.
The taxation charge of $1,240,000 (period to 30 September 2020: $2,206,000) Is
based upon an estimate of the full year results to 31 March 2022.
5. Catalogues of Songs
$'000
Cost
At 1 April 2021 1,972,199
Additions 264,034
At 30 September 2021 2,236,233
Amortisation and impairment
At 1 April 2021 93,275
Amortisation 52,124
Impairment -
At 30 September 2021 145,399
Net book value
At 1 April 2021 1,878,924
At 30 September 2021 2,090,834
Fair value as at 30 September 2021 2,553,983
Cost
At 1 April 2020 882,906
Additions 1,089,293
At 31 March 2021 1,972,199
Amortisation and impairment
At 1 April 2020 25,400
Amortisation 67,875
Impairment -
At 31 March 2021 93,275
Net book value
At 1 April 2020 857,506
At 31 March 2021 1,878,924
Fair value as at 31 March 2021 2,213,719
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). At 30 September 2021 the Portfolio consisted of
Catalogues of Songs held for no longer than four years. An assessment of the
useful life of each Catalogue is considered at each reporting period, which is
20 years in line with industry standard. At 30 September 2021 accumulated
amortisation for Catalogue of Songs is $145,398,554 (31 March 2021:
$93,274,850) and the accumulated impairment to date is $nil (31 March 2021:
$nil).
The Board engaged portfolio Independent Valuer, Massarsky Consulting, Inc., to
value the Catalogues as at 30 September 2021. Each income type from each
Catalogue was analysed and forecast to derive the fair value of the Catalogues
by adopting a DCF valuation methodology using a discount rate of 8.5% (31
March 2021: 8.5%) that would be categorised under Level 3 within the fair
value hierarchy of IFRS 13 "Fair Value Measurement". Income was analysed and
forecast at the level of each individual Catalogue and by income type with the
exception of Kobalt, which was evaluated as a whole. Future revenues were also
estimated, often at the level of individual Songs, and incorporated into their
valuation. Massarsky Consulting has also taken into consideration macro
factors including the growth of streaming revenue, the global growth of the
recorded music industry and the short- and medium-term impact of COVID-19 in
their analysis. 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 to the discount rate used in the Operative NAV is as follows:
-0.5% discount rate will grow the fair value of the Portfolio by 9.3%,
increasing the Operative NAV by $283 million which represents an increase of
$0.20 Operative NAV per share.
+0.5% discount rate will reduce the fair value of the Portfolio by 7.9%,
reducing the Operative NAV by $200.7 million which represents a decrease of
-$0.17 Operative NAV per share.
6. Loans and borrowings
There are no 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 2021
30 September 2021 31 March 2021
$'000 $'000
Opening balance - loan drawn 577,292 74,014
Amounts drawn down during the period 22,708 503,278
Total loan drawn down 600,000 577,292
Cumulative Borrowing Costs (10,404) (11,432)
Closing balance 589,596 565,860
7. Cash and cash equivalents
Cash and cash equivalents comprises cash held by the Group available on demand
and cash held in deposits.
8. Other payables and accrued expenses
30 September 2021 31 March 2021
$'000 $'000
Amounts owed to Songwriters 18,167 18,522
VAT payable 340 2,609
Loan interest payable 619 1,277
Administration fees 189 227
Legal and professional fees 678 1,932
Audit fees 597 523
Corporation tax 1,240 4,798
Other expenses 3,022 2,568
Deferred investment payables 12,369 42,037
37,221 74,493
Amounts owed to Songwriters represent royalties payable in relation to HSG and
Kobalt new releases.
9. Share capital and capital management
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; and (ii) C Shares denominated in such currencies as the
Directors may determine.
Ordinary Shares of no par value No. of Units
Issued and fully paid:
Shares as at 1 April 2021 1,073,440,268
Shares issued on 29 April 2021 9,000,000
Shares issued on 9 July 2021 128,774,018
Ordinary Shares as at 30 September 2021 1,211,214,286
$
Issued and fully paid:
Share capital at 1 April 2021 1,466,850,825
Shares issued on 29 April 2021 14,937,846
Shares issued on 9 July 2021 214,764,243
Share issue costs (4,102,278)
Shares as at 30 September 2021 1,692,450,636
No. of Units
Issued and fully paid:
Shares as at 1 April 2020 615,851,887
Shares issued on 10 September 2020 17,609,304
Shares issued on 24 September 2020 163,793,103
Shares issued on 30 November 2020 (1) 214,202,503
Shares issued on 5 February 2021 61,983,471
Ordinary Shares as at 31 March 2021 1,073,440,268
$
Issued and fully paid:
Share capital at 1 April 2020 801,843,874
Shares issued on 10 September 2020 27,599,686
Shares issued on 24 September 2020 241,702,336
Share issue costs (4,430,446)
Shares issued on 30 November 2020 (1) 304,132,072
Share issue costs (5,630,220)
Shares issued on 5 February 2021 103,621,811
Share issue costs (1,988,288)
Shares as at 31 March 2021 1,466,850,825
1 236,400,512 C Shares converted to 214,202,503 Ordinary Shares
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.
10. Revenue
1 April 2021 to 1 April 2020 to
30 September 2021 30 September 2020
$'000 $'000
Mechanical Income 5,530 6,033
Performance Income 11,194 11,061
Digital Downloads Income 1,999 1,552
Streaming Income 19,858 10,144
Synchronisation Income 14,921 8,739
Publishing Admin Income 108 43
Producer Royalties 3,964 2,981
Masters Income 3,939 3,789
Other Income 2,365 3,457
Writer Share Income 21,393 15,515
Total revenue 85,271 63,314
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 time lag
ranges from 3-6 months on domestic income and 12-18 months on international
income. The revenue accruals booked in the period are included within the
Accruals and Receivables.
All revenue streams disclosed in this note are in scope of IFRS 15.
11. Other operating expenses
1 April 2021 to 1 April 2020 to
30 September 2021 30 September 2020
$'000 $'000
Aborted deal expenses 367 224
Bank charges 23 20
Directors and officers Insurance 163 68
Disbursements and sundry 582 221
Fixed Asset depreciation 331 14
Listing Fees 299 570
Postage, stationery and printing 53 16
Provision for HSG Advances (1) 915 -
Public relation fees 504 217
Regulatory fees 59 44
Staff payroll and expenses 3,335 257
Travel and accommodation fees 254 140
Total other operating expenses 6,885 1,791
1 The Provision for HSG Advances relates to HSG Advances that have been
provided for in the financial period. Baby Writers (Writers with no
established history) are provided for in full. Provisions are also made
against unrecouped balances for established writers where the recoupment rates
may not lead to a full recoupment of the initial Advance payment.
HSG was acquired on 10 September 2020 and therefore the comparatives, for
example staff payroll and expenses, are not for a full period.
12. Dividends
A summary of the dividends is set out below:
1 April 2021 to 30 September 2021 Dividend per share Total Dividend
Pence $'000
Interim dividend in respect of quarter ended 31 March 2021 1.3125 20,093
Interim dividend in respect of quarter ended 30 June 2021 1.3125 21,807
2.63 41,900
1 April 2020 to 30 September 2020 Dividend per share Total Dividend
Pence $'000
Interim dividend in respect of quarter ended 31 March 2020 1.25 9,485
Interim dividend in respect of quarter ended 30 June 2020 1.25 10,108
2.50 19,593
Subsequent to the period end, the Company announced an interim dividend for
the quarter from 1 July 2021 to 30 September 2021 of 1.3125p per Ordinary
Share, paid on 30 November 2021.
13. 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
The Company Directors' fees for the period to 30 September 2021 amounted to
$314,811 (30 September 2020: $251,806).
Outstanding fees amounted to $nil at the reporting date (30 September 2020:
$nil).
Investment Adviser
Merck Mercuriadis is the founder of the 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 period to 30 September 2021 amounted to
$8,219,606 (30 September 2020: $4,496,933) of which $nil was outstanding at
the reporting date (31 March 2021: £nil) and 137,655 performance fee shares
were Issued to the Investment Adviser on 9 July 2021.
14. Earnings per share
30 September 2021 30 September 2021
Basic Diluted
Loss for the period ($'000) (19,243) (19,243)
Weighted average number of Ordinary Shares in issue 1,140,172,604 1,140,172,604
Earnings per share (cents) (1.69) (1.69)
30 September 2020 30 September 2020
Basic Diluted
Profit for the period ($'000) 12,969 12,969
Weighted average number of Ordinary Shares in issue 636,479,578 636,479,578
Earnings per share (cents) 2.04 2.04
30 September 2021 30 September 2020
Adjusted Adjusted
(Loss)/profit for the period ($'000) (19,243) 12,969
Amortisation of catalogues 52,124 24,100
Amortisation of borrowing costs 1,622 1,326
Finance charges for deferred consideration 672 670
Foreign exchange losses 7,841 3,663
Provision for HSG advances 916 -
Adjusted earnings 43,932 42,728
Weighted average number of Ordinary Shares in issue 1,140,172,604 636,479,578
Adjusted Earnings per Share (cents) 3.85 6.71
The earnings per share is based on the profit or loss of the Group for the
period and on the weighted average number of Ordinary Shares for the period
ended 30 September 2021.
There are no dilutive shares at 30 September 2021.
15. Net Asset Value per Share and Operative Net Asset Value per Share
30 September 2021 31 March 2021
Number of Ordinary Shares in issue 1,211,214,286 1,073,440,268
IFRS NAV per share (cents) 134.18 136.28
Operative NAV per share (cents) 172.42 168.29
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 2021 31 March 2021
$'000 $'000
IFRS NAV 1,625,242 1,462,845
Adjustments for revaluation of Catalogues of Songs to fair value 317,750 250,343
Reversal of cumulative Catalogue Amortisation 145,399 93,275
Operative NAV 2,088,391 1,806,463
16. Subsequent events
On 8 October 2021 the directors agreed an amendment to the Investment Advisory
Agreement which provided consent for the Investment Adviser to provide
investment advisory services to Blackstone as an additional client.
On 12 October 2021 the Investment Adviser issued a press release announcing
that it had entered into an agreement with Blackstone to invest up to $1
billion over the course of the next year in music assets. Blackstone has taken
an ownership stake in the investment Adviser in the context of this agreement.
Furthermore, the Investment Adviser, formerly The Family (Music) Ltd, changed
its name to Hipgnosis Song Management Ltd.
On 20 October 2021 the Company declared a dividend of 1.3125p per Ordinary
Share in respect of the quarter ended 30 September 2021 payable on 30 November
2021.
Alternative Performance Measures
Performance measure Definition Reason for use
Annualised ongoing charges Adjusted Operating Costs ($31,229,768), less Non Recurring administrative Ongoing Charges are an indicator
expenses ($13,920,404) over a 12-month period pro-rated for 12 months
of expenses likely to recur in the
($34,524,145)
foreseeable future
Adjusted operating costs Operational expenses ($92,111,022) less Total Amortisation ($54,417,618) less Ongoing Charges are an indicator
Foreign exchange losses ($7,841,231) less Provision for HSG Advances
of expenses likely to recur in the
($916,229)
foreseeable future
Operative NAV The IFRS NAV ($1,625,241,848) adjusted for the fair value of Catalogues of The Operative NAV reflects the values of Catalogues of Songs based on fair
Songs ($463,148,951) values produced by the Portfolio Independent Valuer
Average Operative NAV Average of the Operative NAV as at The average was taken given the further share issuance in the period
31 March 2021 ($1,806,462,664) and the Operative NAV as at 30 September 2021
($2,088,390,799)
Adjusted EPS Profit after Tax excluding Total Amortisation ($54,417,618), foreign exchange The Operating profit adjusted for Amortisation aligns with the Operative NAV
losses ($7,841,321) and provision for HSG advances ($916,229) divided by which reflects that the values of Catalogues of Songs are based on fair values
weighted average number of Ordinary Shares in issue (1,140,172,604) produced by the Portfolio Independent Valuer
EBITDA The operating loss before tax ($18,002,807) plus Total Amortisation, Loan An indicator of company performance and profitability removing accounting
interest and depreciation and FX gain/loss ($72,592,200), being $54,589,393 adjustments
Leveraged Free Net Cash from Operating Activities ($35,979,425) plus Writer Advances An indicator of the cash position of the Company and the availability of cash
Cash Flow ($6,559,805) flows to fund interest and dividend payments
Six-Month Total NAV Return Operative NAV per share as at 30 September 2021 ($1.7242) plus dividends paid To show how the assets have performed over the past six months to Shareholders
from 31 March 2021 to 30 September 2021 ($0.0336) divided by the Operative NAV
per share as at 31 March 2021 ($1.6829) equals 4.63%
12-Month Total NAV Return Operative NAV per share as at 30 September 2021 ($1.7242) plus dividends paid To show how the assets have performed over the past 12 months to Shareholders
from 30 September 2020 to 30 September 2021 ($0.0717) divided by the Operative
NAV per share as at 30 September 2020 ($1.6205) equals 10.82%
Total NAV Return Operative NAV per share as at 30 September 2021 ($1.7242) plus cumulative To show how the assets have performed since inception to Shareholders
dividends paid to date up to 30 September 2021 ($0.1799), divided by the
Operative NAV as at 11 July 2018 ($1.2983) equals 46.67%
Net Debt Amount drawn down on loan facility ($600,000,000) less cash on deposit Liquidity metric used to determine how well a company can pay all of its debts
($49,108,321) if they were due immediately
Non Recurring administrative expenses Exceptional Costs included within Legal and professional and listing fees An indicator of expenses not likely to recur in the foreseeable future
($1,256,701) plus Aborted deal expenses ($367,326) plus Interest Costs
($11,624,055) plus deferred consideration finance charges ($672,321)
Ongoing Charges % Annualised Ongoing Charges ($34,524,145) divided by Average Operative NAV To monitor the expenses, which are likely to recur, relative to the fund size
($1,947,426,732) over time
Total Amortisation Amortisation of catalogues of songs ($52,123,704) plus amortisation of Total amortisation is the measure of the non-cash items arising from
capitalised borrowing costs ($1,621,593) plus finance charges for deferred accounting treatment and includes the amortisation
consideration ($672,321)
of borrowing costs - and is used to evaluate the performance without any
amortisation
Glossary of Capital Defined Terms
"Administrator" means Ocorian Administration (Guernsey) Limited;
"Admission" means admission, on 11 July 2018, to trading on the SFS of the
London Stock Exchange, of the Ordinary Shares becoming effective in accordance
with the Listing Rules and/or the LSE Admission Standards and on 25 September
2019 to a Premium Listing on the Main Market ;
"AEOI" means Automatic Exchange of Information;
"AIC" means the Association of Investment Companies;
"AIC Code" means the AIC Corporate Governance Code 2019;
"Annual General Meeting" or "AGM" means the annual general meeting of the
Company;
"Annual Report" or "Annual Report and Consolidated Financial Statements" means
the annual publication of the Company provided to the Shareholders to describe
their operations and financial conditions, together with their Consolidated
Financial Statements;
"Apple Music" means the music and video streaming service developed by Apple
Inc.;
"Articles of Incorporation" or "Articles" means the articles of incorporation
of the Company;
"ASCAP" means the American Society of Composers, Authors and Publishers;
"Average Market Capitalisation'' means, in relation to each month where the
advisory fee is payable, (''A'' multiplied by ''B'') plus (''C'' multiplied by
''D''), where:
''A'' is the average of the middle market quotations of the Ordinary Shares
for the five day period ending on the last business day of that month
(adjusted as appropriate to exclude any dividend where the Ordinary Shares are
quoted ex such dividend at any time during that five
day period); ''B'' is weighted average of the number of Ordinary Shares in
issue (excluding any Shares held in treasury) at the end of each day during
that month;
''C'' is the average of the middle market quotations of a class of C Shares in
issue for the five day period ending on the last business day of that month
(adjusted as appropriate to exclude any dividend where the C Shares of that
class are quoted ex such dividend at any time during that five day period);
and ''D'' is weighted average of the number of that class of C Shares in issue
(excluding any Shares held in treasury) at the end
of each day during that month;
"Board" or "Directors" means the Directors of the Company;
"BMI" means Broadcast Music, Inc;
"BPI" means the British Phonographic Institute;
"C Shares" means a temporary and separate class of shares which are issued at
a fixed price determined by the Company;
"Catalogue" means one or more Songs acquired from a single Songwriter, artist
or company;
"CBS" means the US commercial broadcast television and radio network;
"CD" means compact disc;
''Closing Market Capitalisation'' means, in relation to each Accounting
Period, ''E'' multiplied by ''F'', where:
''E'' is the Performance Share Price; and ''F'' is the weighted average of the
number of Ordinary Shares in issue (excluding any Shares held in treasury) at
the end of each day during the Accounting Period;
"Companies Law" means the Companies (Guernsey) Law, 2008, (as amended);
"Company" means Hipgnosis Songs Fund Limited. References to the Company are
also considered to be references to the Group, where applicable;
"Company Secretary" means Ocorian Administration (Guernsey) Limited;
"Consolidated Financial Statements" means the audited financial statements of
the Company, including the Statement of Financial Position, the Statement of
Comprehensive Income, the Statement of Cash Flows, the Statement of Changes in
Equity and associated notes;
"Conversion" means the conversion of C Shares to Ordinary Shares;
"Copyright Royalty Board" or "CRB" means the US Copyright Royalty Board;
"Corporate Brokers" means Singer Capital Markets Advisory LLP, J.P. Morgan
Securities plc and
RBC Europe Limited;
"COVID-19" means the global coronavirus pandemic;
"DCF" means discounted cash flow;
"DCMS" means The Department for Digital, Culture, Media & Sport, a
department of the UK government;
"Disclosure Guidance and Transparency Rules" or "DTRs" mean the disclosure
guidance published by the FCA and the transparency rules made by the FCA under
section 73A of FSMA;
"Downloads" means royalties for the permanent digital mechanical transfer of
music;
"DSP" means digital service providers;
"Earnings per Share" or "EPS" means the Earnings per Ordinary Share and is
expressed in pounds Sterling;
"EU" means European Union;
"FCA" means the UK Financial Conduct Authority
(or its successor bodies);
"FRC" means the UK Financial Reporting Council;
"FSMA" means the UK Financial Services and
Markets Act 2000;
"GFSC" means the Guernsey Financial Services Commission;
"Grammy" means an award presented by the Recording Academy to recognise
achievements in the music industry;
"Group" means Hipgnosis Songs Fund Limited and its subsidiaries;
"HSG" means Hipgnosis Songs Group, which was rebranded from Big Deal Music
Group (BDM) on acquisition;
"IAS" means international accounting standards as issued by the Board of the
International Accounting Standards Committee;
"IFPI" means International Federation of the Phonographic Industry;
"IFRS" means the International Financial Reporting Standards, being the
principles-based accounting standards, interpretations and the framework by
that name issued by the International Accounting Standards Board;
"IFRS NAV" means the value of the Gross Assets of the Company less its
liabilities (including accrued but unpaid fees) in accordance with the
accounting policies adopted by the Directors;
"Interim Report" means the Company's half yearly report and unaudited
condensed consolidated financial statements for the period ended
30 September;
"Investment Adviser" means Hipgnosis Song Management Limited, formerly The
Family (Music) Limited;
"Investment Advisory Agreement" means the investment advisory agreement dated
27 June 2018 , as amended, between Hipgnosis Song Management Limited, formerly
known as The Family (Music) Limited, the Company and its subsidiaries;
"Investment Entity" means an entity whose business purpose is to invest funds
solely for returns from capital appreciation, investment income or both;
"IPO" means the initial public offering of shares by
a private company to the public;
"ISAE 3402" means International Standard on Assurance Engagements 3402,
"Assurance Reports on Controls at a Service Organisation";
"ISIN" means an International Securities Identification Number;
"ISWC" means International Standard Musical Work Code. It is a unique,
permanent and internationally recognized reference number for the
identification of musical works;
"Kobalt" means Kobalt Music Copyrights S.à.r.l.,;
"Kobalt Fund 1" means a portfolio of 42 Catalogues acquired in September 2020,
from Kobalt Music Copyrights S.à.r.l., an investment fund advised by Kobalt
Capital Limited;
"Letter of Direction" means a document sent by the current copyright owner or
the recipient of music royalties to the Publisher, Record company or
Collection Society requesting a re-direction of royalties to be paid. It is
sent from the current owner/recipient who is selling the assets, directing
that all future payments should go to the buyer of the assets;
"Listing Rules" means the Listing Rules made by the
UK Listing Authority under section 73A FSMA;
"Live" means publishing revenue derived from the live performance of music
copyrights at concerts;
"London Stock Exchange" or "LSE" means London Stock Exchange Plc;
"MAR" means EU regulation 596/2014 on market abuse;
"Master Recording royalties" aka "Recording Royalties" mean royalties that are
generated on behalf of a sound/master recording. This is the most basic
royalty performing artists and labels earn when their master recording is
downloaded, physically bought, or streamed.
"Mechanical" means royalties for reproducing music, for example CD, vinyl,
etc. (excluding mechanical downloads and mechanical streaming);
"NAV per Share" means the Net Asset Value attributable to the Ordinary Shares
in issue divided by the number of Ordinary Shares in issue (excluding any
Shares held in treasury) at the relevant time and expressed in Dollars;
"Neighbouring Rights Income" is the payment to the recording artist or
performer for the public performance usage related to the Master Recording;
"Net Asset Value" or "NAV" means the value of the assets of the Company less
its liabilities as calculated in accordance with the Company's valuation
policy and expressed in Dollars;
"Net revenue" or "NPS" means Net Publisher Share and refers to revenue
collected by Publishers from PROs, net of contractual royalties due to writers
i.e. deductions for administration and publishing fees;
"NFT" means Non Fungible Token;
"Operative NAV" means NAV as adjusted for the fair value of Catalogues of
Songs;
"Ordinary Shares" means redeemable Ordinary Shares of no par value in the
capital of the Company issued and designated as "Ordinary Shares" and having
the rights, restrictions and entitlements set out in the Articles;
"Other income" means any income not covered by the other income types, for
example sheet income and lyric exploitation;
"Performance" means royalties for playing music in public, for example
TV/radio broadcasts, live performance, etc. and paid through to the publisher;
"Performance Fee Shares" means Ordinary Shares issued to the order of the
Investment Adviser in accordance with the performance fee arrangements in the
Investment Advisory Agreement;
"Performance Rights Organisations" or "PROs" means a performing rights
organisation, such as PRS or BMI, which represents and collects performance
royalties for and on behalf of each of its members;
"Performance Share Price" means in relation to each accounting period, the
average of the middle market quotations of the Ordinary Shares for the 1 month
period ending on the last business day of that accounting period;
"Portfolio" means the portfolio of Songs (whether organised into Catalogues or
otherwise) held by the Company directly or indirectly from time to time;
"Portfolio Independent Valuer" means Massarsky Consulting, Inc., appointed by
the Board to independently value the Company's Catalogues within the
Portfolio;
"Preferred Portfolio Administrator(s)" means the portfolio administrators
appointed by the Company in order to assist with the administration of the
Portfolio including Kobalt Music Services Limited and Hipgnosis Songs Group;
"Premium Listing" means the a Premium Listing on the Main Market of the London
Stock Exchange;
"Premium / Discount to Operative NAV" means the situation where the
Ordinary Shares of the Company are trading at a price higher / lower than
the Company's Operative NAV;
"Prospectus" means the most recent prospectus issued by the Company unless the
context refers to a version of the prospectus published at an earlier date;
"Pro-Forma Annual Revenue" or "PFAR" - Pro-forma Annual Revenue (PFAR) means
the royalty revenue earned in a calendar year by the portfolio of songs held
by the Company at a specific date, based on royalty statements received,
irrespective of whether the songs were owned by the Company over the period
analysed.
"Public Performance" means revenue generated from licenses for the right to
play music publicly in a commercial environment e.g. shops, bars, restaurants
and shopping malls;
"Publishing Share" means the share of the rights in a music composition
(lyrics and/or music) which generate Mechanical and Performance Royalties. In
the UK, "blanket licences" are issued to organisations including radio and TV.
"RCF" means the Revolving Credit Facility arranged from JPMorgan Chase Bank,
as Lead Arranger.
"RCIS Rules" means the Registered Collective Investment Scheme Rules 2015;
"Record Labels" means a company that owns, distributes and promotes musical
recordings;
"Recording Academy" means a US academy of musicians, producers, recording
engineers and other musical professionals;
"Registrar" means Computershare Investor Services (Guernsey) Limited;
"RIAA" means Recording Industry Association of America;
"Right To Income" means a right to income recognised as part of the Catalogue
acquisition, which is typically dependent on the timing of the negotiations
and relates to royalty income paid over to the Company on closing of the
acquisition and the accrued receivables. The right to income related to the
period before the start of the financial year is now defined as "Pre-FY
(RTI)"; the portion of RTI that falls within the Financial Year is now defined
as "Within FY, pre-acq (RTI)";
"SFS" means London Stock Exchange's specialist fund segment of the Main Market
for listed securities;
"Shareholder" means the holder of one or more Ordinary Shares;
"Song" means a Songwriter's and/or publisher's share of copyright interest in
a song, being a musical composition of words and/or music and the Songwriter's
proportion of the publishing rights of a single musical track, and when
construction permits, the collection of words and/or music as purchased by
consumers;
"Song Management" Active Management of the placing of songs in Films, TV
Adverts, TV Programs, Video Games and streaming playlists also including
promoting the Interpolation of our songs by new Songwriters and Covers of our
songs by new artists;
"Streaming" means performance and mechanical royalties for digitally playing
music in real-time, for example through Spotify;
"Synchronisation" means royalties for playing music in connection with visual
media (for example Film, TV, advertisements);
"TV" means television;
"UK" or "United Kingdom" means the United Kingdom of Great Britain and
Northern Ireland;
"UK Code" means The UK Corporate Governance Code 2019 as published by the
Financial Reporting Council;
"UKLA" means UK Listing Authority;
"US" or "United States" means the United States
of America, its territories and possessions, any state
of the United States and the District of Columbia;
"VAF" or "Variance Against Forecasts" means the difference between the total
of the royalty statements received from each catalogue since acquisition, and
the acquisition model forecast over the same period. The VAF is expressed as a
percentage point deviation from zero, where a positive number means that the
actual performance of the portfolio is tracking ahead of the cumulative
forecast. A negative number indicates that the portfolio is falling behind
forecast.
"Writer's Share" means performance royalties collected by a Performance Rights
Organisation and paid through directly to the Songwriter as opposed to the
Publisher Share of performance;
"YouTube" means the US video-sharing website;
"£" or "Pounds Sterling" or "Sterling" or "GBP" means British pounds sterling
and "p" or "pence" means British pence;
"$" or "USD" or "Dollar" or "Dollars" means United States dollars and "cents"
means United States cents; and
"€" or "EUR" is the currency of the majority of member states of the EU.
Directors and General Information
Company Registration Number: 65158
Board of Directors Corporate Brokers Principal Banker
Andrew Sutch, Chair Singer Capital Markets Advisory LLP Barclays Bank PLC
Paul Burger, Senior Independent Director 1 Bartholomew Lane PO Box 41
Andrew Wilkinson London Le Marchant House
Simon Holden EC2N 2AX St Peter Port
Sylvia Coleman J.P. Morgan Securities plc Guernsey
Vania Schlogel (Appointed 11 June 2021) 25 Bank Street, Canary Wharf GY1 3BE
Founder London Registrar
Merck Mercuriadis E14 5JP Computershare Investor Services (Guernsey) Limited
Advisory Board RBC Europe Limited 1st Floor
Nile Rodgers 100 Bishopsgate Tudor House
The-Dream London EC2N 4AA Le Bordage
Giorgio Tuinfort Independent Auditor St Peter Port
Starrah PricewaterhouseCoopers Cl LLP Guernsey
David A. Stewart Royal Bank Place GY1 1DB
Poo Bear 1 Glategny Esplanade Identifiers
Bill Leibowitz St Peter Port ISIN: GG00BFYT9H72
Ian Montone Guernsey Ticker: SONG
Rodney Jerkins GY1 4ND SEDOL: BFYT9H7
Investment Adviser Music Specialist Legal Counsel Website: www.hipgnosissongs.com
Hipgnosis Song Management Limited Bill Leibowitz LEI: 213800XJIPNDVKXMOC11
(formerly The Family (Music) Limited) 271 Madison Avenue GIIN: 5XGPC8.99999.SL.831
Merck Mercuriadis, CEO 20th Floor Managing your account online
Björn Lindvall , COO New York The Company's registrar, Computershare Investor Services (Guernsey) Limited,
allows you to manage your shareholding online. If you are a direct investor
Chris Helm, CFO New York 10016 you can view your shareholding, change the way the Registrar communicates with
you and buy and sell shares. If you haven't used this service before, all you
United House Legal Advisers to the Company need to do is enter the name of the Company and register your account at:
9 Pembridge Road Herbert Smith Freehills LLP https://www-uk.computershare.com/investor
Notting Hill Exchange House You'll need your Investor code (IVC) printed on your share certificate in
order to register.
London Primrose Street
W11 3JY London
www.hipgnosissongs.com EC2A 2EG
Registered Office Legal Advisers to the Company as to Guernsey Law
PO Box 286 Ogier (Guernsey) LLP
Trafalgar Court Redwood House
Les Banques St Julian's Avenue
St Peter Port St Peter Port
Guernsey Guernsey
GY1 4LY GY1 1WA
Administrator and Company Secretary
Ocorian Administration (Guernsey) Limited
PO Box 286
Trafalgar Court
Les Banques
St Peter Port
Guernsey
GY1 4LY
Corporate Summary
Structure
The Company is an investment company limited by shares, registered and
incorporated in Guernsey under the Companies Law on 8 June 2018. 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 makes and manages its investments directly or indirectly through a
number of wholly owned subsidiary companies incorporated in England &
Wales and the US, together referred to as the Group.
The Company was granted HMRC approval as an investment trust company with
effect from 1 April 2021. The Company is therefore treated as being resident
in the UK for tax purposes from this date and ceased to be a Guernsey tax
exempt vehicle under The Income Tax (Exempt Bodies) (Guernsey) Ordinance,
1989, as amended.
Investment Process
The Company's Investment Adviser, Hipgnosis Song Management Limited, formerly
The Family (Music) Limited, was founded by Merck Mercuriadis. Merck is the
manager and/or former manager of globally successful recording artists such as
Elton John, Guns N' Roses, Morrissey, Iron Maiden, Nile Rodgers and Beyoncé,
and hit Songwriters such as Diane Warren, Justin Tranter and The-Dream. Merck
is the former CEO of The Sanctuary Group plc.
Hipgnosis Song Management Limited has been appointed by the Board to source
Songs and provide recommendations to the Board on acquisition and disposal
strategies. The Investment Adviser is also responsible for managing and
monitoring royalty and/or fee income due to the Company from its copyrights
and collection agents, and developing strategies to maximise the earnings
potential of the Songs in the portfolio through improved placement and
coverage of Songs.
The Investment Adviser continues to assemble 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 and
access to a significant network of relationships in the music industry.
The Board has formed a Portfolio Committee which considers the recommendations
of the Investment Adviser before granting its approval to purchase the
Catalogues of Songs, as well as an Asset Management Committee which considers
the ongoing management and revenue maximisation of the Catalogues of Songs.
These committees are chaired by Mr Burger and Mr Sutch, respectively.
AIC
The Company is a member of the Association of Investment Companies, complies
with the AIC Code and is a constituent of the AIC's "Royalties" Specialist
Investment Trusts sector classification. The Company's page on the AIC's
website is at https://www.theaic.co.uk/companydata/0P0001BL9D
Website
The Company's website, which can be found at www.hipgnosissongs.com, includes
information on the Company, such as its Prospectus, past reports and accounts,
policies, media coverage and regulatory news announcements.
Advice to Shareholders
In recent years investment related scams have become increasingly
sophisticated and difficult to spot. We are therefore warning all our
Shareholders to be cautious so that they can protect themselves and spot the
warning signs.
Fraudsters will often:
· contact you out of the blue
· apply pressure to invest quickly
· downplay the risks to your money
· promise tempting returns that sound
too good to be true
· say that they are only making the offer
available to you
· ask you to not tell anyone else about it
You can avoid investment scams by:
· Rejecting unexpected offers - Scammers usually cold call but
contact can also come by email, post, word of mouth or at a seminar. If you
have been offered an investment out of the blue, chances are it's a high-risk
investment or a scam.
· Checking the FCA Warning List - Use the FCA Warning List to check
the risks of a potential investment. You can also search to see if the firm is
known to be operating without proper FCA authorisation.
· Getting impartial advice - Before investing get impartial advice
and don't use an adviser from the firm that contacted you. If you are
suspicious, report it
· You can report the firm or scam to the FCA by contacting their
Consumer Helpline on 0800 111 6768 or using their online reporting form.
· If you have lost money in a scam, contact Action Fraud on 0300
123 2040 or www.actionfraud.police.uk
For further helpful information about investment scams and how to avoid them
please visit:
www.fca.org.uk/scamsmart
Cautionary Statement
The Chair's Statement, the Investment Adviser's Report and the Report of the
Directors have been prepared solely to provide additional information for
shareholders to assess the Company's strategies and the potential for those
strategies to succeed. These should not be relied on by any other party or for
any other purpose.
The Chair's Statement, Investment Adviser's Report and the Report of the
Directors may include statements that are, or may be deemed to be,
"forward-looking statements". These forward-looking statements can be
identified by the use of forward-looking terminology, including the terms
"believes", "estimates", "anticipates", "expects", "intends", "may", "will" or
"should" or, in each case, their negative or other variations or comparable
terminology.
These forward-looking statements include all matters that are not historical
facts. They appear in a number of places throughout this document and include
statements regarding the intentions, beliefs or current expectations of the
Directors and the Investment Adviser, concerning, amongst other things, the
investment objectives and investment policy, financing strategies, investment
performance, results of operations, financial condition, liquidity, prospects,
and distribution policy of the Company and the markets in which it invests.
By their nature, forward-looking statements involve risks and uncertainties
because they relate to events and depend on circumstances that may or may not
occur in the future. Forward-looking statements are not guarantees of future
performance.
The Company's actual investment performance, results of operations, financial
condition, liquidity, distribution policy and the development of its financing
strategies may differ materially from the impression created by the
forward-looking statements contained in this document.
Subject to their legal and regulatory obligations, the Directors and the
Investment Adviser expressly disclaim any obligations to update or revise any
forward-looking statement contained herein to reflect any change in
expectations with regard thereto or any change in events, conditions or
circumstances on which any statement is based.
Hipgnosis Songs Fund Limited
PO Box 286, Floor 2, Trafalgar Court, Les Banques, St Peter Port, Guernsey GY1
4LY. Further information available online: www.hipgnosissongs.com
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. END IR GBBDDRSBDGBLRecent news on Hipgnosis Songs Fund
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