TIDMSONG
RNS Number : 0395K
Hipgnosis Songs Fund Limited
11 December 2018
11 December 2018
Hipgnosis Songs Fund Limited
("Hipgnosis" or the "Company")
Interim Results for the period from 8 June 2018 to 30 September
2018
The Company is pleased to announce its Interim Results for the
period from 8 June 2018 (Date of Incorporation) to 30 September
2018.
Capitalised terms are defined in the Glossary of Defined Terms
unless separately defined.
Key Metrics
2018
GBP
------------------------------------------------------------------ ------------
IFRS NAV (1) as at 30 September 197,484,818
Adjustments for revaluation of Catalogues of Songs to fair value 1,945,636
Reversal of amortisation 202,243
Operative NAV (2) as at 30 September 199,632,697
IFRS NAV (1) per Share as at 30 September 97.68p
Operative NAV (2) per share as at 30 September 98.74p
Share price at 30 September 1.07
Total comprehensive loss for the period ended 30 September (736,322)
Basic Earnings per Share for the period ended 30 September (0.36)
(1) Catalogues of Songs are classified as intangible assets and
measured at amortised cost or cost less impairment in accordance
with IFRS.
(2) The Directors are of the opinion that an Operative NAV
provides a more meaningful performance measure as the value of
Catalogues of Songs is based on fair values produced by an
Independent Valuer.
Highlights
-- The Company completed an IPO on 11 July 2018, issuing
202,176,800 Ordinary Shares, raising GBP202,176,800 before launch
costs, and was admitted to trading on the Specialist Fund Segment
of the Main Market of the London Stock Exchange.
-- On 11 July 2018 the Company acquired a 75% interest in a
Catalogue from Terius Youngdell Nash, better known by his stage
name The-Dream. The Catalogue comprises 302 Songs in total.
Post period end
-- On 16 November 2018 the Company acquired a 100% interest in a
Catalogue from Jason Boyd, better known by his stage name Poo Bear.
The Catalogue comprises 214 Songs in total.
-- On 28 November 2018 the Company acquired a 37.5% interest in
the Bernard Edwards Catalogue. The Catalogue comprises 290 Songs in
total.
-- On 7 December 2018 the Company acquired a 100% interest in a
Catalogue from TMS, an English song writing and music production
team comprised of Thomas 'Froe' Barnes, Benjamin Kohn and Peter
'Merf' Keller. The Catalogue comprises 121 Songs in total.
-- Following these acquisitions, the Company has invested GBP40.7 million of the IPO proceeds.
Dividends
-- The Company announced its first interim dividend for the
period from Admission to 30 September 2018 of 0.50 pence per
Ordinary Share. The Company is targeting a dividend for the first
12 months following Admission of 3.5 pence per Ordinary Share.
A copy of the Interim Report and Condensed Consolidated
Financial Statements has been submitted to the National Storage
Mechanism and will shortly be available for inspection at
www.morningstar.co.uk/uk/NSM. The Interim Report and Unaudited
Condensed Interim Financial Statements will also shortly be
available on the Company's website at www.hipgnosissongs.com where
further information on the Company can also be found.
For further information, please contact:
The Family (Music) Limited Tel: +44 (0)1481 742742
Merck Mercuriadis
N+1 Singer Tel: +44 (0)20 7496
James Maxwell / James Moat (Corporate 3000
Finance)
Alan Geeves / James Waterlow / Sam Greatrex
(Sales)
The Outside Organisation Tel: +44 (0)207 436
Alan Edwards / Nick Caley 3633
NOTES TO EDITORS
About Hipgnosis Songs Fund Limited
(www.hipgnosissongs.com)
Hipgnosis, which was founded by Merck Mercuriadis, is a Guernsey
registered investment company established to offer investors a
pure-play exposure to songs and associated musical intellectual
property rights. In its Initial Public Offering on the Specialist
Fund Segment of the London Stock Exchange's main market on 11 July
2018, the Company raised approximately GBP200m gross equity
capital.
About The Family (Music) Limited
The Company's Investment Adviser is The Family (Music) Limited,
which was founded by Merck Mercuriadis, former manager of globally
successful recording artists, such as Elton John, Guns N' Roses,
Morrissey, Iron Maiden and Beyoncé, and hit songwriters such as
Diane Warren, Justin Tranter and The-Dream, and former CEO of The
Sanctuary Group plc. The Investment Adviser has assembled an
Advisory Board of highly successful music industry experts which
include award winning members of the artist, songwriter,
publishing, legal, financial, recorded music and music management
communities, all with in-depth knowledge of music publishing.
Members of The Family (Music) Limited Advisory Board include Nile
Rodgers, The-Dream, Bill Leibowitz, Ian Montone, and Jason
Flom.
Corporate Summary
Investment Objective and Policy
The Company's investment objective is to provide Shareholders
with an attractive and growing level of income, together with the
potential for capital growth, from investment in a portfolio of
Songs and their associated musical intellectual property rights.
The portfolio will be acquired by investing in Catalogues of Songs
from well-known songwriters and recording artists; however, each
Song will be considered to be a separate asset.
The Company will seek to acquire 100 per cent. 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 will
acquire interests in Songs which are sole authored or co-authored.
The Company may also acquire interests in Songs jointly with
another purchaser.
The Company will, directly or indirectly via collection agents,
enter into licensing agreements, under which the Company will
receive 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) 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 (e.g. movie, TV show, video game, advertisement).
The Company will focus 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.
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.
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, 1987, as amended. The Company is not authorised or
regulated by the Financial Conduct Authority.
The Company will make, and subsequently manage, its investments
directly or indirectly through a number of wholly owned subsidiary
companies incorporated in Guernsey or the UK.
Investment Process
The Investment Adviser 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 earning potential of the Songs in the
portfolio through improved placement and coverage of Songs.
The Investment Adviser was founded by Merck Mercuriadis, former
manager of globally successful recording artists and hit
songwriters. 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 and access to a
significant network of relationships in the music industry.
The Board has formed a Portfolio Committee which will approve
all purchases of Catalogues of Songs, and an Asset Management
Committee which will consider the ongoing management and revenue
maximisation of the Catalogues of Songs. These committees are
chaired by Paul Burger and Andrew Sutch respectively.
AIC
The Company is a member of the Association of Investment
Companies and complies with the AIC Code.
Website
The Company's website, which can be found at
www.hipgnosissongs.com, includes information on the Company, such
as the prospectus and announcements.
Chairman's Statement
Introduction
I am pleased to present the Company's first Interim Report and
Chairman's Statement since the Company commenced trading on the
London Stock Exchange on 11 July 2018. I welcome as Shareholders
those who invested at the time of listing or who have invested
since.
On 11 July 2018 the Company acquired its first Catalogue of
Songs, The-Dream Catalogue, for approximately $23.8 million, and
since the 30 September 2018 period end acquired a further three
Catalogues of Songs from Poo Bear, Bernard Edwards and TMS.
The Investment Adviser's report reviews the market and provides
more detail on the portfolio.
Performance
The gross issue proceeds raised from the listing were GBP202.2m
and the NAV per share on the first day of trading was 98p per share
reflecting the issue costs relating to the listing. These costs
were principally responsible for the Company's IFRS NAV reducing
during the period to 30 September 2018 by GBP4.7m from GBP202.2m to
GBP197.5m. As at 30 September 2018 the IFRS NAV per share was
97.68p.
The Company's NAV is calculated on a semi-annual basis, both
under IFRS (which principally requires the cost of purchased
Catalogues to be amortised) and on an Operative NAV basis (which
reflects the fair value of the Company's Catalogues as valued by an
Independent Valuer). The Operative NAV as at 30 September 2018 was
GBP199.6m or 98.74p per share, reflecting the increase in value of
The-Dream Catalogue, buoyed mostly by the current and predicted
growth in streaming income and synchronisation potential of the
Catalogue of Songs.
Share price and dividend
There has been limited trading in the Company's shares since the
commencement of dealings. As at 30 September 2018 the share price
was 107p, a premium of 7% as against the issue price of 100p. The
share price as at 7 December 2018 was 107.5p.
The Company announced its first interim dividend, for the period
from Admission to 30 September 2018, of 0.50p per share. The
Company's target dividend for the first 12 months following
Admission is 3.5p per share and the target dividend yield, once the
Company is substantially invested, is 5% per annum (based on the
issue price of 100p): such yields are expected to grow over time.
The Company intends to pay four interim quarterly dividends each
year in November, February, May and August.
Board appointment
We were pleased to announce on 30 July 2018 the appointment of
Paul Burger as an additional Director. Paul has extensive music
industry experience, having held senior positions in Sony Music.
Paul chairs the committee of the Board which approves all purchases
of Catalogues of Songs.
Outlook
Conditions in the music industry, and revenues from Songs, are
favourable, particularly boosted by the strong growth in streaming
services and the income derived from them. The Investment Adviser
is looking for good quality Catalogues and carries out detailed due
diligence on them before recommending any purchase to the
Board.
Negotiations for the acquisition of a number of Catalogues of
Songs are at an advanced stage and since the period end the Company
has purchased three new Catalogues for an aggregate purchase price
of approximately GBP22.7m. The returns on these acquisitions are
all in line with the targets set out in the Company's
prospectus.
Merck Mercuriadis and his team at the Investment Adviser have
identified a strong pipeline of opportunities and the Board are
confident that we will be able to construct a good and balanced
portfolio over the coming months and that the Company will have
invested all of the issue proceeds within the stated target of 12
months following Admission.
Andrew Sutch
Chairman
10 December 2018
Investment Adviser's Report
Introduction
The Company was admitted to trading on the Specialist Fund
Segment of the London Stock Exchange on 11 July 2018 and there has
therefore been less than a complete quarter for which we can report
on performance. There are, as yet, no direct benchmarks against
which the Investment Adviser can track the Company's performance,
but this continues to be kept under close review as the Company's
portfolio develops. In terms of trading activity and liquidity,
there have been a number of smaller trades in the stock and notably
no large institutional sellers. Pleasingly shares have been trading
at a premium since inception.
Given our positioning and significant network, the increased
demand for Catalogues in the marketplace is not impacting the
pricing points which we are discussing with vendors. We are also
receiving a high level of inbound requests to engage with vendors
of Catalogues. As a consequence, what already was a significant
pipeline of possible acquisitions is increasing further still. It
is anticipated that the pipeline of acquisition opportunities will
selectively convert into transactions during Q4 2018 and Q1
2019.
We have established an office in Tileyard Studios in Kings
Cross, London in close proximity to Universal's new UK
headquarters, PRS for Music and many of the leading music
companies. We expect to launch our Los Angeles based team in Q1
2019 and are in the final stages of negotiation with a major figure
in the U.S. publishing business to lead our efforts in the
U.S..
Current Market Conditions
The music industry continues to show solid growth; the explosion
of streaming services has revived an industry that was once reliant
on a declining demand for physical CDs.
More people are listening to music than ever on their mobile
phones. Spotify had 87m paying subscribers as at the end of
September 2018, with growth of over 30% from the prior year and
Apple has an estimated 56m subscribers as at the end of November
2018. These figures are forecast to continue to grow. The widely
used Global Entertainment & Media Outlook 2018-2022 Report
(published by PwC globally) forecasts an 18% compound annual growth
rate (CAGR) for the coming 5 years in streaming revenues driven by
new adopters, emerging markets and improvements in mobile phone
connectivity, which is consistent with the conclusions drawn in the
IFPI's Global Music Report 2018 - Annual State of the Industry.
Coupled with the consumer growth, during the first quarter of
2018 the U.S. Copyright Royalty Board (CRB) approved an increase in
streaming rates paid to U.S. publishers/writers of 44% over the
next 5 years, which will further benefit the Company's income
projections.
Current Portfolio
As at 30 September 2018 the Company owned one Catalogue of
Songs, The-Dream Catalogue. At the time of writing this report the
Investment Adviser has received the music royalty statements for
the first half of 2018 from Warner Chappell who administer the
catalogue, as well as the earnings figures from ASCAP, one of the
leading U.S. performing rights organisations. The performance of
the catalogue is ahead of the Company's forecast performance on
acquisition of the catalogue by 2%. This is an increase of $216k
representing an increase of 29% on that notified by the music
royalty statements for equivalent prior period.
For the first half of 2018, the catalogue generated net revenue
of $968k. The strong performance is driven most notably by the
continued increase in streaming as a source of revenue, which saw
an increase of over 100% and 82% on the catalogue's forecasted and
prior year streaming revenue respectively, bearing out the
Company's thesis with regards to this particular revenue source.
This increase in streaming is marginally offset by the continued
decline in more traditional revenue sales, such as physical music
sales and music downloads.
Whilst this covers a time period in which the Company did not
own the catalogue, the performance is relevant both for the purpose
of tracking the actual performance of the asset as well as being
the basis for the fair value calculations done by the Company's
Independent Valuer.
It was also pleasing to see that opportunistic revenue from
synchronisation is up significantly from that forecasted for
The-Dream Catalogue and this looks set to continue with the first
high visibility synchronisation deal with a song owned by the
Company having been agreed by the Investment Adviser. Beyonce's
"XO" is featured in Louis Vuitton's new perfume television
advertisement. With this one placement the Company has already
achieved 25% of the Catalogue's total previous years
synchronisation earnings and the synchronisation earnings for this
specific song are now up 1700% versus 2017.
Further to this, it is expected that agreements will soon be
reached on a number of the Company's Songs to be featured in
Beyonce's Coachella TV Special, which will broadcast at Christmas
worldwide. This would have significant positive effect on both
synchronisation and performance fees for 2019.
Subsequent Events and Outlook
Negotiations for the acquisition of a number of Catalogues are
at an advanced stage and since the period end the Company has
purchased three new Catalogues for an aggregate purchase price of
approximately GBP22.7m. One of those Catalogues, Poo Bear, was
announced on 16 November 2018. Poo Bear's real name is Jason Boyd a
39 year old writer and producer based in Los Angeles. He is best
known as Justin Bieber's constant collaborator and co-wrote 9 out
of the 13 Songs on Bieber's latest album "Purpose", which has sold
over 3 million copies in the U.S. and is one of the biggest selling
albums of all time in the UK at over 5 times platinum with over
1,500,000 copies sold. Poo Bear has collaborated, and had Top 10
hits, with some of the biggest artists over the last 20 years,
including Usher, David Guetta, DJ Khaled, Chris Brown, Fifth
Harmony, Jennifer Lopez and Skrillex. The Company acquired a 100%
interest in the Catalogue, which comprises 214 Songs in total.
On 28 November 2018 the Company announced the acquisition of the
Bernard Edwards Catalogue. Bernard Edwards is best known for his
partnership with Nile Rodgers, together founding CHIC in 1976 and
co-writing Number 1 Songs for bands and artists including CHIC,
Sister Sledge and Diana Ross. Nile Rodgers is a member of The
Family (Music) Limited's advisory board and continues to promote
and perform numerous Songs within the catalogue. The catalogue
comprises 290 evergreen songs including Everybody Dance, He's The
Greatest Dancer, We Are Family and I'm Coming Out. In addition,
many of the songs have been extensively sampled, remixed or
reissued leading to new hits that are a part of the catalogue
including Rapper's Delight and songs by the Beastie Boys, LL Cool
J, Puff Daddy and Justin Timberlake. The Company acquired a 37.5%
interest in the Catalogue.
On 7 December 2018 the Company announced the acquisition of the
TMS Catalogue. TMS is an English songwriting and music production
team comprised of Thomas 'Froe' Barnes, Benjamin Kohn and Peter
'Merf' Keller. The catalogue comprises 121 songs including 10 Top 5
UK singles with 5 Number 1 Songs. The Songs have appeared on 13 Top
5 UK albums including 7 Number 1 albums. It includes Songs such as
"Don't Be So Hard On Yourself" for Jess Glynne, "Wings" and "DNA"
for Little Mix, "Read All About It (Part 3)" for Emeli Sandé,
"Changing" for Sigma featuring Paloma Faith, "You're Nobody Till
Somebody Loves You" for James Arthur, and others for Years And
Years and Dua Lipa. The catalogue also includes the global Top 10
hit "Me, Myself & I" by G-Eazy and Bebe Rexha, which has been
the recipient of both BMI and ASCAP Awards as a "Most Performed
Work". The Company acquired a 100% interest in the Catalogue.
Board Report
Principal Risks and Uncertainties
Under the FCA's Disclosure and Transparency Rules, the Directors
are required to identify those material risks to which the Group is
exposed and take appropriate steps to mitigate those risks. The
significant risk factors are also disclosed in the Company's
prospectus which is available on the Company's website
www.hipgnosissongs.com.
The Company's principal risks are related to market conditions
in the music business in general, but also the particular
circumstances of the Catalogues of Songs in which it is invested.
The Board and the Investment Adviser seek to mitigate these risks
through active asset management initiatives and carrying out due
diligence work on potential targets before entering into any
investments.
The principal risks and uncertainties of the Company will be
continuously monitored by the Board, with input from the Investment
Adviser and its advisory board. There have been no changes to the
Company's principal risks and uncertainties since the Initial
Public Offering on 11 July 2018 and no changes are anticipated in
the next six months of the year. As detailed below the principal
risks facing the Company are concentration risk from investing only
in the global music copyright sector and inherent risks associated
with the fast-changing landscape within the music industry.
Risks associated with the lack of commercial success of
individual Songs
The commercial success of a Song is dependent upon the public's
response to it, which may not always be predictable, the existence
and success of competing entertainment offerings and general
economic circumstances. Consequently, a Song may not prove to be as
popular, or as commercially successful, as had been forecast at the
time of acquisition. Whilst the Company intends primarily to
acquire Catalogues containing evergreen Songs from established
recording artists and will carry out substantial due diligence on
each Catalogue (including on the historic revenues of each Song),
there can be no guarantee that the historic performance of a Song
will continue in the future.
The music industry is highly innovative and new technology may
be introduced
The Company is heavily reliant on streaming, or an equivalent
technology which generates high volumes and rates of royalty
revenues for songwriters, continuing to be popular with consumers.
Historically the music industry has been shown to be especially
innovative, with new technology causing changes in consumer demand
and experience. Whilst it is possible that new technology may
reduce non-synchronisation related royalty revenues, it is also
possible that technological advances would lead to a growth in
royalties as consumers' access to music continues to improve.
The streaming business model is yet to be proven in the long
term and the streaming market is vulnerable to online domination by
one DSP
The Company will be heavily reliant on the continuing presence
and popularity of DSPs in order to maximise access to the consumer
market. However, the business models of DSPs are yet to be proven
in the long term and no DSP has yet made a profit.
Changes in the distribution policies and royalty splits set by
the performance rights organisations (PROs) could affect the future
revenues received by the Company
Performance rights organisations represent the rights and
interests of publishers and songwriters. They collect royalties,
create collection policies and set royalty rates for the use of
music copyrights. There are over 120 PROs around the world and most
of them have agreements and frameworks in place with each other.
Should PROs alter the way that they collect royalties, or set lower
royalty rates, the Company may receive significantly reduced
revenues compared to the level it had forecast at the time of
acquiring the relevant Catalogues or Songs.
Operational reliance on service providers
The Company does not have any employees of its own, and relies
on service providers for its routine operations. In particular,
although the ultimate responsibility for the investment strategy
lies with the Board, the Investment Adviser is responsible for
sourcing potential opportunities, and advising the Board on
acquisitions, exploitation and disposals of Catalogues. The
Investment Adviser is a newly-formed company with no operating
history. The performance of the Group is dependent on the
diligence, skill and judgment of the personnel of the Investment
Adviser, and in particular on the key executive, Merck
Mercuriadis.
The Group also depends heavily on the specialist administrative
services of the Investment Adviser, the Preferred Portfolio
Administrator and other collection agents. In the event that these
service providers experience business disruption or cyber security
breaches, the ability of the Group to collect revenues due may be
limited.
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 of Catalogues of
Songs, and the returns from existing Catalogues of Songs.
Based on these sources of information and their own judgement,
the Directors believe it is appropriate to prepare the Condensed
Consolidated Financial Statements of the Group on a going concern
basis.
Directors' Responsibilities Statement
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 Chairman's Statement, Investment Adviser's Report and
Board 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 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.
On behalf of the Board
Andrew Sutch
Chairman
10 December 2018
Condensed Consolidated Statement of Comprehensive Income
(unaudited)
For the period from incorporation on 8 June 2018 to 30 September
2018
8 June 2018 to
30 September 2018
Notes GBP
Income
Total revenue 11 385,014
Interest income 214,787
Foreign exchange gains on non-investments 195
------------------
Total income 599,996
------------------
Expenses
Advisory fees 16 (500,500)
Amortisation of Catalogues of Songs (202,243)
Administration fees (40,683)
Directors' remuneration (43,603)
Broker fees (13,356)
Audit fees (39,500)
Legal and professional fees (419,299)
Other operating expenses 12 (77,134)
------------------
Total expenses (1,336,318)
------------------
Operating loss for the period before taxation (736,322)
------------------
Taxation -
------------------
Loss for the period after tax (736,322)
------------------
Total comprehensive loss for the period (736,322)
------------------
Basic Earnings per Share (pence) 13 (0.36)
Diluted Earnings per Share (pence) 13 (0.36)
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
(unaudited)
As at 30 September 2018
30 September 2018
Notes GBP
Assets
Catalogues of Songs 5 17,814,680
Cash and cash equivalents 6 179,162,530
Trade and other receivables 7 664,436
------------------
Total assets 197,641,646
------------------
Liabilities
Other payables and accrued expenses 8 156,828
------------------
Total liabilities 156,828
------------------
Net assets 197,484,818
------------------
Equity
Share capital 9 198,221,140
Retained earnings (736,322)
------------------
Total equity attributable to the owners of the Company 197,484,818
------------------
Number of ordinary shares in issue at period end 202,176,800
------------------
IFRS Net Asset Value per ordinary share (pence) 10 97.68
Operative Fair Value Net Asset Value per ordinary share (pence) 10 98.74
Approved and authorised for issue by the Board of Directors on
10 December 2018 and signed on their behalf by:
Andrew Sutch Andrew Wilkinson
Chairman Director
The accompanying notes form an integral part of these Condensed
Consolidated Financial Statements.
Condensed Consolidated Statement of Changes in Equity
(unaudited)
For the period from incorporation on 8 June 2018 to 30 September
2018
Note Number Share Retained earnings Total
of shares capital equity
GBP GBP GBP
As at 8 June 2018 - - - -
Shares issued 9 202,176,800 202,176,800 - 202,176,800
Share issue costs 9 - (3,955,660) - (3,955,660)
Loss for the period - - (736,222) (736,322)
As at 30 September 2018 202,176,800 198,221,140 (736,322) 197,484,818
------------ ------------ ------------------ ------------
The accompanying notes form an integral part of these Condensed
Consolidated Financial Statements.
Condensed Consolidated Statement of Cash Flows (unaudited)
For the period from incorporation on 8 June 2018 to 30 September
2018
8 June 2018 to
30 September 2018
Notes GBP
Cash flows used in operating activities
Operating loss for the period before taxation (534,274)
Adjustments for non-cash items:
Movement in other receivables 7 (664,436)
Movement in other payables and accrued expenses 8 156,828
------------------
(1,041,882)
Purchase of Catalogue of Songs 5 (18,016,923)
Net cash used in operating activities (19,058,805)
------------------
Cash flows generated from financing activities
Proceeds from issue of shares 9 202,176,800
Issue costs paid 9 (3,955,660)
------------------
Net cash generated from financing activities 198,221,140
------------------
Net movement in cash and cash equivalents 179,162,335
------------------
Cash and cash equivalents at the start of the period -
Effect of foreign exchange rate changes 195
------------------
Cash and cash equivalents at the end of the period 6 179,162,530
------------------
The accompanying notes form an integral part of these Condensed
Consolidated Financial Statements.
Notes to the Condensed Consolidated Financial Statements
For the period from incorporation on 8 June 2018 to 30 September
2018
1. General information
The Condensed Consolidated Financial Statements present the
results of the Group for the period ended 30 September 2018. The
Group is principally engaged in investing in and managing music
copyrights and associated musical intellectual property.
The first annual financial statements of the Group will be
prepared for the period from incorporation on 8 June 2018 to 31
March 2019. The Condensed Consolidated Financial Statements do not
contain all the information and disclosures that will be contained
in annual financial statements. As the Group has not previously
published annual financial statements, these Condensed Consolidated
Financial Statements contain additional information about the
accounting policies applied from incorporation. The Condensed
Consolidated Financial Statements are unaudited.
New and amended standards and interpretations applied
On incorporation, the Company adopted all of the IFRS standards
and interpretations that were in effect at that date and are
applicable to the Group.
Amended standards and interpretations not applied
The following are amended standards and interpretations in issue
effective from years beginning on or after 1 January 2019:
Amended standards and interpretations
------------------------------------------------------- ---------------
IAS 12 Income taxes (Amendments resulting from 1 January 2019
the Annual Improvements: 2015-2017 cycle)
IAS 28 Investment in Associates and Joint Ventures 1 January 2019
(Amendments regarding long-term interests
in associates and joint ventures)
IFRS 9 Financial instruments (prepayments feature) 1 January 2019
IFRIC 23 Uncertainty over Income Tax Treatments 1 January 2019
IAS 19 Employee benefits 1 January 2019
IFRS 16 Leases 1 January 2019
The Company has considered the IFRS standards and
interpretations that have been issued, but are not yet effective.
None of these standards or interpretations are likely to have a
material effect on the Company, as it is the belief of the Board
that the activities of the Company are unlikely to be affected by
the changes to these standards, although any disclosures
recommended by these standards, where applicable, will be provided
as required.
a) Group information
As at 30 September 2018, the details of the Company's
subsidiaries are as follows:
Name of the subsidiary Place of incorporation % of voting % Interest Consolidation
and operation rights method
Hipgnosis SFH I
Limited UK 100 100 Full
Hipgnosis SFH II
Limited UK 100 100 Full
Hipgnosis SFH III
Limited UK 100 100 Full
======================== ======================== ============ =========== ==============
The subsidiaries of the Company are considered tax residents in
the UK and are subject to UK corporation tax.
b) 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 of Catalogue of
Songs, and the returns from existing Catalogue of Songs.
Based on these sources of information and their own judgement,
the Directors believe it is appropriate to prepare the Condensed
Consolidated Financial Statements of the Group on a going concern
basis.
2. Accounting policies
The principal accounting policies applied in the preparation of
these Condensed Consolidated Financial Statements are set out
below. These policies have been consistently applied, unless
otherwise stated.
a) Basis of preparation
Basis of Accounting
The Condensed Consolidated Financial Statements have been
prepared in accordance with IAS 34 'Interim Financial Reporting',
which comprise standards and interpretations approved by the IASB
and IFRIC and applicable Guernsey law. The Condensed Consolidated
Financial Statements have been prepared on a historical cost basis
as amended from time to time by the fair valuing of certain
financial assets and liabilities where applicable.
Consolidation
All companies in which the Company has a controlling interest,
namely those in which it has the power to govern financial and
operational policies in order to obtain benefits from their
operations, are fully consolidated. The Control defined by IFRS 10
is based on the following three criteria to be fulfilled
simultaneously to conclude that the parent company exercises
control:
-- a parent company has power over a subsidiary when the parent
company has existing rights that give it the current ability to
direct the relevant activities of the subsidiary, i.e., the
activities that significantly affect the subsidiary's returns.
Power may arise from existing or potential voting rights, or
contractual arrangements. Voting rights must be substantial, i.e.,
they shall be exercisable at any time without limitation,
particularly during decision making related to significant
activities. The assessment of the exercise of power depends on the
nature of the subsidiary's relevant activities, the internal
decision-making process, and the allocation of rights among the
subsidiary's other shareowners;
-- the parent company is exposed, or has rights, to variable
returns from its involvement with the subsidiary which may vary as
a result of the subsidiary's performance. The concept of returns is
broadly defined and includes, among other things, dividends and
other economic benefit distributions, changes in the value of the
investment in the subsidiary, economies of scale, and business
synergies; and
-- the parent company has the ability to use its power to affect
the returns. Exercising power without having any impact on returns
does not qualify as control.
Consolidated financial statements of a group are presented as if
the Group was a single economic entity. The Group does not include
any non-controlling interest.
Segmental reporting
The decision maker is the Board of Directors. The Directors are
of the opinion that the Group is engaged in a single segment of
business, being the investment of the Group's capital in Catalogues
of Songs and associated musical intellectual property rights, with
an attractive and growing level of income, together with the
potential for capital growth.
b) Revenue Recognition
Bank Interest Income
Interest income is accounted for on an accruals basis.
Revenue from operations and associated costs
Revenues from operations are recorded when it is probable that
future economic benefits will be obtained by the Group and when
they can be reliably measured.
Licence arrangements - mechanical, performance and
synchronisation income
The Company enters into licence arrangements in respect of
Catalogues of Songs with third party collection agents. Licences
made to collection agents are deemed to constitute usage based,
right of use licences as per IFRS 15. Revenue arising from licences
entered into with collection agents is therefore recognised in the
period when the usage of the Catalogues of Songs occurs.
Where available at the end of each month or earlier interval to
which the revenue relates, revenue is recorded on the basis of
royalty statements received from collection agents.
Where notification has not yet been received from collection
agents, an estimate is made of the revenue due to the Company at
the end of the month to which the usage of the music copyright
relates. Estimates are made on the basis of the historical track
record of music catalogues, ad hoc data provided by collection
agents, industry forecasts and expected seasonal variations.
Non recourse fixed fee arrangements are recognised at the point
at which control of the license passes to the collection agents.
Variable consideration is recognised in the period when the usage
of the Catalogue of Songs occurs.
c) Expenses
Expenses are accounted for on an accruals basis. Expenses are
charged through the Statement of Comprehensive Income.
d) Dividends to Shareholders
Dividends are accounted for in the period in which they are
declared and approved by the board of Directors.
The Company's target dividend yield is 5 per cent. per annum
once substantially invested and the Company expects to grow such
dividend over time. The Company is targeting a dividend for the
first 12 months following Admission of 3.5 pence per Ordinary Share
and intends to pay interim quarterly dividends in November,
February, May and August of each year.
e) Assets
Catalogues of Songs
Catalogues of Songs include music catalogues, artists' contracts
and music publishing rights and are recognised as intangible assets
at the fair value of the consideration paid. Catalogues of Songs
are subsequently amortised in expenses over the useful life of the
asset. Catalogues of Songs with an indefinite useful life are not
amortised but are subject to an annual impairment test. Useful life
is separately considered for each Catalogue and is reviewed at the
end of each reporting period.
Contingent consideration
Under the terms of the acquisition agreements for Catalogues,
contingent consideration may be payable dependent on future
independent valuations of the Catalogues. Contingent consideration
will be recognised when performance conditions are met.
Asset impairment
Each time events or changes in the economic environment indicate
a risk of impairment of intangible assets, the Group re-examines
the value of these assets. This impairment test is performed to
compare the recoverable amount to the carrying value of the asset.
The recoverable amount is determined as the higher of: (i) the
value in use; or (ii) the fair value (less costs to sell) as
described hereafter, for each individual asset. The value in use of
each asset is determined as the discounted value of future cash
flows by using cash flow projections consistent with the budget of
the following year and the most recent forecasts. Applied discount
rates are determined by reference to an appropriate benchmark as
determined by the Board, and reflect the current assessment by the
Group of the time value of money and risks specific to each asset.
Growth rates used for the evaluation of individual assets are based
on industry growth rates sourced from independent market reports
and other third party sources. The fair value (less costs to sell)
is considered to be equal to the value determined under the DCF
model, cross referenced, where appropriate, against market
multiples for recent transactions for similar assets. If the
recoverable amount is lower than the carrying value of an asset or
group of assets, an impairment loss equal to the difference is
recognised in profit and loss. The impairment losses recognised in
respect of intangible assets may be reversed in a later period if
the recoverable amount becomes greater than the carrying value,
within the limit of impairment losses previously recognised.
Loans and receivables
Trade receivables, loans, and other receivables that have fixed
or determinable payments that are not quoted in an active market
are classified as 'loans and receivables'. Loans and receivables
are measured at amortised cost using the effective interest method,
less any impairment. Interest income is recognised by applying the
effective interest rate, except for short term receivables when the
recognition of interest would be immaterial.
Derecognition of assets
The Group derecognises an asset only when the contractual rights
to the cash flows from the asset expire, or when it transfers the
asset and substantially all the risks and rewards of ownership of
the asset to another entity.
If the Group neither transfers nor retains substantially all the
risks and rewards of ownership and continues to control the
transferred asset, the Group recognises its retained interest in
the asset and an associated liability for amounts it may have to
pay.
On derecognition of an asset in its entirety, the difference
between the asset's carrying amount and the sum of the
consideration received is recognised in profit or loss.
f) Financial liabilities and equity
Debt and equity instruments are classified as either financial
liabilities or as equity in accordance with the substance of the
contractual arrangement.
Equity instruments
An equity instrument is any contract that evidences a residual
interest in the assets of an entity after deducting all of its
liabilities. Equity instruments issued by the Company are
recognised at the value of proceeds received, net of direct issue
costs.
Repurchase of the Company's own equity instruments is recognised
and deducted directly in equity. No gain or loss is recognised in
profit or loss on the purchase, sale, issue or cancellation of the
Company's own equity instruments.
Financial liabilities
Financial liabilities, including borrowings, are initially
measured at fair value, net of transaction costs.
Financial liabilities are subsequently measured at amortised
cost using the effective interest method, with interest expense
recognised on an effective yield basis.
Derecognition of financial liabilities
The Group derecognises financial liabilities when, and only
when, the Group's obligations are discharged, cancelled or they
expire.
g) Share based payments
Investment Adviser's Performance fee
The Group recognises the variable fee for the services received
in a share-based payment transaction as the Group becomes liable to
the variable fee on an accruals basis.
The fair value of the performance fee, as defined in the
Investment Advisory Agreement, which is payable to the Investment
Adviser in Shares is recognised as an expense when the fees are
earned with a corresponding increase in equity.
h) Cash and Cash Equivalents
Cash at bank and short term deposits which are held to maturity
are carried at cost. Cash and cash equivalents are defined as call
deposits, short term deposits with a term of no more than three
months from the start of the deposit and highly liquid investments
readily convertible to known amounts of cash and subject to
insignificant risk of changes in value. Cash and cash equivalents
consist of cash in hand and short-term deposits in banks with an
original maturity of three months or less.
i) Other Receivables
Other receivables do not carry interest and are short-term in
nature and are accordingly recognised at fair value.
j) Functional and Foreign currency
Items included in the Condensed Consolidated Financial
Statements of each of the Group's entities are measured using the
currency of the primary economic environment in which each entity
operates ('the functional currency'). The Condensed Consolidated
Financial Statements are presented in Sterling, which is the
Group's functional and presentation currency.
At each balance sheet date, monetary assets and liabilities that
are denominated in foreign currencies are translated at the rates
prevailing at that date. Non-monetary items carried at fair value
that are denominated in foreign currencies are translated at the
rates prevailing at the date when the fair value was determined.
Non-monetary items that are measured in terms of historical cost in
a foreign currency are not retranslated. Exchange differences are
recognised in profit or loss in the period in which they arise.
Transactions denominated in foreign currencies are translated into
sterling at the rate of exchange ruling at the date of the
transaction.
3. Significant accounting judgements, 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:
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 year when the actual revenue received is
known, and these adjustments may be material.
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
composition can fluctuate unexpectedly.
The actual useful life of a Catalogue depends on the Catalogue's
genre and listener demographic. Analysis of earnings shows that
payback periods of purchase prices at industry standard multiples
generally range from 10-15 years. Additionally, the term of
administration deals in the market between writers and publishers
are no longer than 25 years, and generally range from 15-20 years.
This reflects the general consensus that the benefits from
exploiting revenues from the work of Anglo-American music writers
can be reliably estimated over a period of 10-20 years and no
longer, due to uncertainty in forecasting over a longer period of
time and the level of technological disruption that the industry is
subject to. The Board will separately consider the useful life of
each Catalogue of Songs, which is expected to be within the range
of 10-20 years.
Calculation of Operative NAV
In order to calculate the Operative NAV and Operative NAV per
Share, the intangible assets are revalued to an estimate of fair
value. The fair value estimates are also used to assess whether
there is evidence that the intangible assets are impaired.
Valuations of music publishing rights typically adopt two
valuations methods where the Board considers both when deriving the
Operative NAV.
The first method adopts a DCF valuation which measures the
present value of anticipated future revenues from acquiring the
Catalogues, which are discounted at a 'market cost of capital' and
a terminal value in 10 years. This method is seen 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.
The second method is based on a multiple of the NPS or gross
profit. NPS is commonly accepted as gross publishing income less
direct costs including for writers and administration.
It is the intention of the Board that Catalogues of Songs will
be valued on an ongoing basis using a consistent DCF valuation
methodology, cross referenced to recent market transactions under
the NPS multiple approach for similar assets where considered
appropriate.
Assessment of impairment
As disclosed in note 2(e) above, intangible assets with an
indefinite useful life are subject to 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.
4. Taxes
The Company is exempt from taxation in Guernsey under the
provisions of the Income Tax (Exempt Bodies) (Guernsey) Ordinance,
2008 and is charged an annual fee of GBP1,200.
The Directors have been advised that following certain changes
to the United Kingdom tax rules regarding "alternative investment
funds" implemented by the Finance Act 2014 and contained in section
363A of the Taxation (International and other Provisions) Act 2010
the Company should not be resident in the United Kingdom for United
Kingdom tax purposes. Accordingly, and provided that the Company
does not carry on a trade in the UK (whether or not through a
branch, agency or permanent establishment situated therein), the
Company will not be subject to UK income tax or corporation tax
other than on any UK source income.
The UK subsidiaries of the Company are tax resident in the UK
and are subject to UK corporation tax.
5. Catalogues of Songs
GBP
Cost
At 8 June 2018 -
Additions 18,016,923
At 30 September 2018 18,016,923
===========
Amortisation and impairment
At 8 June 2018 -
Amortisation 202,243
Impairment -
At 30 September 2018 202,243
===========
Net book value
At 8 June 2018 -
-----------
At 30 September 2018 17,814,680
===========
The Board and the Investment Adviser have deemed the useful life
of The-Dream Catalogue to be 20 years.
The Board engaged an Independent Valuer, MGR Weston Kay LLP to
value The-Dream Catalogue as at 30 September 2018. A mid-point
approach between the DCF valuation and the NPS multiple valuation
was adopted to derive the fair value of the Catalogue. The
valuation delivered by the multiple approach, which was approved by
the Board, was $24m versus the DCF valuation of $28m, resulting in
a mid-point figure of $26m.
6. Cash and cash equivalents
Cash and cash equivalents comprises cash held by the Group
available on demand, cash held in deposits and cash in a money
market fund. Cash and cash equivalents were as follows:
30 September 2018
GBP
Cash available on demand 11,033,034
Cash held in deposits 94,028,588
Money market fund 74,100,908
------------------
Cash and cash equivalents 179,162,530
------------------
7. Trade and other receivables
30 September 2018
GBP
Accrued income 320,009
Receivables 119,622
Prepayments 224,805
------------------
Trade and other receivables 664,436
------------------
8. Other payables and accrued expenses
30 September 2018
GBP
Administration fees 40,683
Legal & professional fees 63,819
Audit fees 39,500
Other expenses 12,826
------------------
Other payables and accrued expenses 156,828
------------------
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.
Issued and fully paid:
Shares issued on 11 July 2018 202,176,800
------------
Shares as at 30 September 2018 202,176,800
GBP
Issued and fully paid:
Shares issued on 11 July 2018 202,176,800
Share issue costs (3,955,660)
------------
Shares as at 30 September 2018 198,221,140
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. Net Asset Value per Share and Operative Net Asset Value per Share
30 September
2018
Number of Ordinary Shares in issue 202,176,800
IFRS NAV per Share (pence) 97.68
Operative NAV per Share (pence) 98.74
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 more meaningful performance measure as the value of Catalogues of
Songs is based on fair values produced by an Independent
Valuer.
Reconciliation of IFRS NAV to Operating NAV
30 September
2018
GBP
-------------
IFRS NAV 197,484,818
-------------
Adjustments for revaluation of Catalogues
of Songs to fair value 1,945,636
Reversal of amortisation 202,243
-------------
Operative NAV 199,632,697
-------------
11. Revenue
Total revenue of GBP385,014 is revenue recognised from The-Dream
catalogue from acquisition on 11 July 2018 to 30 September 2018 and
includes Synchronisation income of GBP41,795 and recoupment upside
income of GBP65,006, which is earnings over and above the amount
required to recoup the outstanding advance balance agreed to be
settled by the Company.
12. Other operating expenses
8 June to
30 September
2018
GBP
Regulatory fees (5,939)
Listing fees (9,747)
D&O Insurance (4,381)
Directors expenses (656)
Registrar fees (1,585)
Postage, stationery and printing (13,727)
Public relation fees (14,625)
Bank charges (1,480)
Other expenses (24,994)
Total other operating expenses (77,134)
-------------
13. Earnings per share
30 September 2018
Basic Diluted
----------------------------------------------------- ------------ ------------
Loss for the period (GBP) (736,322) (736,322)
Weighted average number of Ordinary Shares in issue 202,176,800 202,176,800
Earnings per share (pence) (0.36) (0.36)
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 2018.
There are no dilutive shares at 30 September 2018.
14. Dividends
A summary of the dividends are set out below:
Dividend per
share Total dividend
8 June 2018 to 30 September 2018 Pence GBP
------------------------------------ ------------- -----------------
Interim dividend in respect of
period ended 30 September 2018 0.50 1,010,884
------------------------------------ ------------- -----------------
Subsequent to the period end, the Company announced its first
interim dividend for the period from Admission to 30 September 2018
of 0.50 pence per Ordinary Share. The dividend was paid to
Shareholders, on the register at the close of business on 2
November 2018, on 29 November 2018.
15. Financial Risk Management
Financial Risk Management Objectives
The Company's activities expose it to various types of financial
risk, principally market risk, credit risk, and liquidity risk. The
Board has overall responsibility for the Company's risk management
and sets policies to manage those risks at an acceptable level.
Fair values
Management assessed that the fair values of cash and cash
equivalents, trade and other receivables, trade and other payables
and royalty advances approximate their carrying amount largely due
to the short-term maturities and high credit quality of these
instruments.
Market Risk
Market risk is the risk that the fair value or future cash flows
of a financial instrument will fluctuate as a result of changes in
market prices. The Group is exposed to currency risk and interest
rate risk.
a) Currency risk
Currency risk is the risk that the fair values of future
cashflows will fluctuate because of changes in foreign exchange
rates. The revenue earned from the Catalogue of Songs may be
subject to foreign currency fluctuations. Royalties are earned
globally and paid in a number of currencies, therefore the Company
may be impacted by adverse currency movements. The Company will
convert the majority of overseas currency receipts into Sterling by
agreeing to currency exchange arrangements with collection agents,
or otherwise itself undertaking foreign exchange conversions. The
Company may engage in full or partial foreign currency hedging and
interest rate hedging. The Company will not enter into such
arrangements for investment purposes.
The currencies in which financial assets and liabilities are
denominated are shown below:
As at 30 September 2018 GBP USD Total
Converted to
GBP GBP GBP
Trade and other receivables 664,436 - 664,436
Cash and cash equivalents 179,097,334 65,196 179,162,530
------------ ------------- ------------
Total financial assets 179,761,770 65,196 179,826,996
Trade and other payables 156,828 - 156,828
Total financial liabilities 156,828 - 156,828
Net asset position 179,304,942 65,196* 179,670,138
============ ============= ============
*At the reporting date, if the USD had strengthened/weakened by
10% against GBP with all other variables held constant, the net
assets and movement in the translation reserve would have been
GBP5,927 lower / higher.
b) Cash flow and fair value interest rate risk
The Company is exposed to cash flow interest rate risk only on
cash and cash equivalents.
Credit Risk
Credit risk is the risk of loss due to failure of a counterparty
to fulfil its contractual obligations. The Group is exposed to
credit risk in respect of its contracts with PROs. This exposure is
minimised by dealing with reputable PROs whose credit rating is
deemed to be low risk.
The Group is exposed to credit risk through its balances with
banks and its indirect holdings of money market instruments through
those money market funds which are classified as cash equivalents
for the purposes of these Condensed Consolidated Financial
Statements.
The table below shows the Group's material cash balances and the
short-term issuer credit rating or money-market fund credit rating
as at the period end date:
30 September
Location Rating* 2018
GBP
------------------------------------------------- ---------- --------- -------------
Barclays Bank plc Guernsey A-1 105,061,622
Blackrock Institutional Sterling Liquidity Fund UK AAAm 74,100,908
*Rated by Standard & Poor's
Liquidity Risk
Liquidity risk is the risk that the Group may not be able to
meet their financial obligations as they fall due. The Company
maintains a prudent approach to liquidity management by maintaining
sufficient cash reserves to meet foreseeable working capital
requirements.
During the period ended 30 September 2018, the Group had no
financial liabilities other than trade and other payables.
16. Material Agreements
Directors
The Directors will be remunerated for their services at a fee of
GBP35,000 per annum (GBP45,000 for the Chairman). The chairman of
the Audit and Risk Management Committee will receive an additional
GBP5,000 for his services in this role.
Directors' fees and expenses for the period to 30 September 2018
amounted to GBP44,259, of which GBPnil was outstanding at the
period end.
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.
The Investment Adviser is entitled to receive an advisory fee
(payable in cash) and a performance fee (usually payable
predominantly in Shares subject to an 18 month lock up
arrangement). The full terms and conditions of the calculation of
the Advisory and performance fees are disclosed in the Company's
prospectus, which is available on the Company's website
(www.hipgnosissongs.com). However in summary:
Advisory Fee
The advisory fee is calculated at the rate of:
(i) 1 per cent. per annum of the Average Market Capitalisation
up to, and including, GBP250 million;
(ii) 0.90 per cent. per annum of the Average Market
Capitalisation in excess of GBP250 million and up to and including
GBP500 million; and
(iii) 0.80 per cent. per annum of the Average Market
Capitalisation in excess of GBP500 million.
Advisory fees for the period were GBP500,500 with GBPnil
outstanding at the reporting date. The Board also approved an
advance of GBP200,000 paid to the Investment Adviser which will be
offset in equal instalments over 12 months and is currently
included in note 7 as a prepayment.
Performance fee
The performance fee is equal to 10 per cent. of the Excess Total
Return relating to that accounting period provided that the
Performance Fee shall be capped such that the sum of the Advisory
Fee and the Performance Fee paid in respect of that accounting
period is no more than 5 per cent. of the lower of: (i) Net Asset
Value; or (ii) Closing Market Capitalisation at the end of that
Accounting Period.
Administration Agreement
Pursuant to the Administration Agreements: (i) Estera
International Fund Managers (Guernsey) Limited has been appointed
as Fund Administrator of the Company; and (ii) Estera
Administration (UK) Limited has been appointed as administrator to
the subsidiaries. The Fund Administrator or Estera Administration
(UK) Limited (as applicable) are responsible for the day to day
administration of the Company and the subsidiaries which accedes to
the relevant Administration Agreement (including but not limited to
the calculation and publication of the semi-annual NAV and the IFRS
NAV) and general secretarial functions required by the Companies
Law (including but not limited to maintenance of the Company's
accounting and statutory records). For the purposes of the RCIS
Rules, the Fund Administrator is the designated manager of the
Company.
Investors should note that it is not possible for the Fund
Administrator or Estera Administration (UK) Limited to provide any
investment advice to investors.
Administration fees for the period were GBP40,683 with GBP29,433
outstanding at the reporting date.
Registrar Agreement
Computershare Investor Services (Guernsey) Limited (a company
incorporated in Guernsey on 3 September 2009 with registered number
50855) has been appointed as registrar to the Company pursuant to
the Registrar Agreement. In such capacity, the Registrar will be
responsible for the transfer and settlement of Shares held in
certificated and uncertificated form. The Registrar is also
entitled to reimbursement of all out of pocket costs, expenses and
charges properly incurred on behalf of the Company.
Registrar fees for the period were GBP1,585 with GBP552
outstanding at the reporting date.
17. Subsequent events
Subsequent to the period end, the Company announced its first
interim dividend for the period from Admission to 30 September 2018
of 0.50 pence per Ordinary Share. The dividend was paid to
Shareholders, on the register at the close of business on 2
November 2018, on 29 November 2018.
On 16 November 2018 the Company announced the acquisition of the
Poo Bear Catalogue from Jason Boyd, a U.S. songwriter and producer
better known by his professional name Poo Bear. Poo Bear has
collaborated, and had Top 10 hits, with some of the biggest artists
over the last 20 years, including Usher, David Guetta, DJ Khaled,
Chris Brown, Fifth Harmony, Jennifer Lopez and Skrillex, but is
best known as one of Justin Bieber's closest collaborators. The
Company acquired 100% interest in the Catalogue, which comprises
214 Songs in total.
On 28 November 2018 the Company announced the acquisition of the
Bernard Edwards Catalogue. Bernard Edwards is best known for his
partnership with Nile Rodgers, together founding CHIC in 1976 and
co-writing Number 1 Songs for bands and artists including CHIC,
Sister Sledge and Diana Ross. Nile Rodgers is a member of The
Family (Music) Limited's advisory board and continues to promote
and perform numerous Songs within the catalogue. The Company
acquired a 37.5% interest in the Catalogue, which comprises 290
Songs in total.
On 7 December 2018 the Company announced the acquisition of the
TMS Catalogue. TMS is an English songwriting and music production
team comprised of Thomas 'Froe' Barnes, Benjamin Kohn and Peter
'Merf' Keller. The Company acquired a 100% interest in the
Catalogue, which comprises 121 Songs in total.
There were no other material events after the period end to the
date on which these Condensed Consolidated Financial Statement were
approved.
Glossary of Capitalised Defined Terms
"Administrator" means Estera International Fund Managers
(Guernsey) Limited;
"Admission" means admission, on 11 July 2018, to trading on the
Specialist Fund Segment of the London Stock Exchange, of the
Ordinary Shares becoming effective in accordance with the Listing
Rules and/or the LSE Admission Standards;
"AIC" means the Association of Investment Companies;
"AIC Code" means the AIC Code of Corporate Governance;
"AIC Guide" means the AIC Corporate Governance Guide for
Investment Companies;
"AIF" means Alternative Investment Funds;
"AIFM" means AIF Manager;
"AIFMD" means EU Alternative Investment Fund Managers Directive
(No. 2011/61EU);
"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 Financial Statements;
"Articles of Incorporation" or "Articles" means the articles of
incorporation of the Company;
"ASCAP" means American Society of Composers, Authors and
Publishers;
"Audit Committee" means a formal committee of the Board with
defined terms of reference;
"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;
"Catalogue" means one or more Songs acquired from a single
songwriter or artist;
"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 Estera International Fund Managers
(Guernsey) Limited;
"Condensed Consolidated Financial Statements" means the
unaudited 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;
"Corporate Governance Code" means The UK Corporate Governance
Code 2016 as published by the Financial Reporting Council;
"DCF" means discounted cash flow;
"Discount to NAV" means the situation where the Ordinary Shares
of the Company are trading at a price lower than the Company's Net
Asset Value;
"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;
"DSP" means digital service providers;
"Earnings per Share" or "EPS" means the Earnings per Ordinary
Share and is expressed in pounds Sterling;
"Excess Total Return" means for an Accounting Period, it is
calculated by reference to: (i) the difference between the
Performance Share Price at the end of that Accounting Period and
the higher of: (a) the Performance Hurdle (being Issue Price
compounded by 10 per cent. per annum from Initial Admission subject
to appropriate adjustments in certain situations); and (b) High
Watermark (being the Performance Share Price at the end of the last
Accounting Period where a Performance Fee was payable); multiplied
by (ii) the weighted average of the number of Ordinary Shares in
issue (excluding any Shares held in treasury) at the end of each
day during that Accounting Period;
"FCA" means the UK Financial Conduct Authority (or its successor
bodies);
"FRC" means Financial Reporting Council;
"GFSC" or "Commission" means the Guernsey Financial Services
Commission;
"GFSC Code" means the GFSC Finance Sector Code of Corporate
Governance;
"Group" means Hipgnosis Songs Fund Limited and its
subsidiaries;
"IAS" means international accounting standards as issued by the
Board of the International Accounting Standards Committee;
"IASB" means the International Accounting Standards Board;
"IFRIC" means International Financial Reporting Interpretations
Committee;
"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;
"Independent Valuer" means third party appointed by the Board to
independently value the Company Catalogues;
"Interim Report" means the Company's half yearly report and
unaudited Condensed Consolidated Financial Statements for the
period ended 30 September;
"Investment Adviser" means The Family (Music) Limited;
"Investment Advisory Agreement" means the investment advisory
agreement dated 27 June 2018 between The Family (Music) Limited,
the Company and Hipgnosis SFH I Limited;
"IPO" means the initial public offering of shares by a private
company to the public;
"ISA" means International Standards on Auditing (UK and
Ireland);
"ISIN" means an International Securities Identification
Number;
"Listing Rules" means the listing rules made by the UK Listing
Authority under section 73A Financial Services and Markets Act
2000;
"London Stock Exchange" or "LSE" means London Stock Exchange
Plc;
"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 Sterling;
"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 pounds Sterling;
"NPS" means net publisher share;
"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;
"Portfolio" means the portfolio of Songs (whether organised into
Catalogues or otherwise) held by the Company directly or indirectly
from time to time;
"Performance Right 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 one month period ending on the last business day of
that accounting period;
"Preferred Portfolio Administrator" means the portfolio
administrators appointed by the Company in order to assist with the
administration of the Portfolio including Kobalt Music Services
Limited, the Company's preferred portfolio administrator;
"Premium to NAV" means the situation where the Ordinary Shares
of the Company are trading at a price higher than the Company's Net
Asset Value;
"RCIS Rules" means the Registered Collective Investment Scheme
Rules 2015;
"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;
"The-Dream" means the Catalogue purchased from Terius Nash,
better known by his stage name 'The-Dream';
"UK" or "United Kingdom" means the United Kingdom of Great
Britain and Northern Ireland;
"U.S." or "United States" means the United States of America,
its territories and possessions, any state of the United States and
the District of Columbia;
"GBP" or "Pounds Sterling" or "Sterling" means British pound
sterling and "pence" means British pence; and
"$" means United States dollars and "cents" means United States
cents.
Directors and General Information
Directors (all non-executive) Independent Auditor
Andrew Sutch (Chairman)(Appointed PricewaterhouseCoopers Cl LLP
8 June 2018) Royal Bank Place
Simon Holden (Appointed 8 June 1 Glategny Esplanade
2018) St Peter Port
Andrew Wilkinson (Chairman of Guernsey
the Audit Committee) (Appointed GY1 2HJ
8 June 2018)
Paul Burger (Appointed 30 July Music Specialist Legal Counsel
2018) CTABL Inc.
9460 Sunrise Lakes Boulevard
Registered Office Suite 302
Heritage Hall Sunrise
PO Box 225 Florida
Le Marchant Street 33322
St Peter Port
Guernsey Legal Advisers to the Company
GY1 4HY Herbert Smith Freehills LLP
Exchange House
Investment Adviser Primrose Street
The Family (Music) Limited London
Lansdowne House EC2A 2EG
1b Lansdowne Road
Holland Park Legal Advisers to the Company
London as to Guernsey Law
W11 3LP Ogier (Guernsey) LLP
www.hipgnosissongs.com Redwood House
St Julian's Avenue
Fund Administrator and St Peter Port
Company Secretary Guernsey
Estera International Fund Managers GY1 1WA
(Guernsey) Limited
Heritage Hall Principal Banker
PO Box 225 Barclays Bank
Le Marchant Street PO Box 41
St Peter Port Le Marchant House
Guernsey St Peter Port
GY1 4HY Guernsey
GY1 3BE
Registrar
Computershare Investor Services Preferred Portfolio Administrator
(Guernsey) Limited Kobalt Music Services Limited
1st Floor The River Building
Tudor House 1 Cousin Lane
Le Bordage London
St Peter Port EC4R 3TE
Guernsey
GY1 1DB Identifiers
ISIN: GG00BFYT9H72
Corporate Broker Ticker: SONG
N+1 Singer Advisory LLP SEDOL: BFYT9H7
1 Bartholomew Lane Website: www.hipgnosissongs.com
London
EC2N 2AX Managing your account online
The Company's registrar, Computershare
Investor Services (Guernsey)
Limited, allows you to manage
your shareholding online. If
you are a direct investor 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 need to do is enter the
name of the Company and register
your account at https://www-uk.computershare.com/investor.
You'll need your Investor code
(IVC) printed on your share
certificate in order to register.
cautionary statement
The Chairman's Statement, the Investment Adviser's Report and
Board Report 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 Chairman's Statement, Investment Adviser's Report and Board
Report 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
Heritage Hall, PO Box 225,
Le Marchant Street, St Peter Port, Guernsey,
GY1 4HY, Channel Islands.
T +44 (0) 1481 742742
F +44 (0) 1481 742698
Further information available online:
www.hipgnosissongs.com
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
IR FBLLFVLFFFBD
(END) Dow Jones Newswires
December 11, 2018 02:01 ET (07:01 GMT)
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