TIDMSONG
RNS Number : 1117D
Hipgnosis Songs Fund Limited
24 June 2019
24 June 2019
Hipgnosis Songs Fund Limited ("Hipgnosis" or the "Company")
Maiden Final Results
For the period from 8 June 2018 (Date of Incorporation) to 31
March 2019
The Board of Hipgnosis Songs Fund Limited and its Investment
Adviser, The Family (Music) Limited, are pleased to announce the
Company's maiden final results for the period from 8 June 2018, the
date of incorporation, to 31 March 2019, the Company's financial
year end.
Operational
-- As at 31 March 2019 the Company had invested approximately
GBP120 million through the acquisition of 12 Catalogues on a
blended acquisition multiple of 12.75x historical annual net
income, resulting in interests in 3,096 Songs
o As at 21 June the Company has acquired, or entered into
exclusivity agreements to acquire, catalogues with a total value of
GBP387 million, which represents an aggregate multiple of 12.56x
historic annual net income
-- Dividend target of 3.5p per share for the first 12 months
following admission was achieved - a dividend yield of 3.5% based
on the IPO issue price of 100p
o the Company continues to target a total dividend of 5.0p per
annum(1) from the current financial year
-- Funding resources were significantly increased following the
period end, with a further GBP141.5 million raised on 12 April 2019
through a secondary placing due to significant demand from existing
institutional investors
-- At the end of the period, the Portfolio contained 664 Songs
that have held Number 1 and/or Number 2 positions in global charts,
as well as 704 Songs that have held Top 10 chart positions and 10
Grammy award winning Songs
o further Catalogue acquisitions post period end include an
additional 247 Number 1 singles and 801 Top 10 chart positions
globally
-- The Portfolio was independently valued at GBP128.7 million as
at 31 March 2019, reflecting an increase in the fair value of the
Portfolio of GBP8.7 million
-- Notable synchronisation licenses were secured for a wide range of Songs within the Portfolio
Financial
-- Recognised gross revenues from the Portfolio for the period were GBP7.2 million
-- Operative net assets as at 31 March 2019 was GBP208.8
million, representing an operative net asset value ("NAV") per
share of 103.27p, up 4.6% on 30 September 2018
-- IFRS net assets as at 31 March 2019 was GBP198.6 million,
representing an IFRS NAV of 98.21p per share, up 0.5% on 30
September 2018
-- 64% of the Portfolio's revenue was generated in the USA and
15% in the UK, with an increase in revenue from other developed and
emerging market countries expected as streaming services expand in
those markets
-- Dividends of 2.25p per share were paid during the period
Post-period Review and Outlook
-- The first interim dividend for the current financial year of
1.25p per share was approved by the Board on 12 June 2019 and is
payable on 30 August 2019
-- Full commitment of the remaining capital expected by the end of July 2019
-- Conditions for Catalogue acquisition in the music industry remain favourable
-- In 2018 the overall global recorded music market grew by 9.7%
in value, marking the fourth consecutive year of global growth and
the highest rate of growth since IFPI started tracking the market
in 1997
-- The Investment Adviser has identified a pipeline of
attractive investment opportunities with an aggregate value in
excess of GBP1 billion
Portfolio Highlights
The Songs in the Portfolio continue to experience commercial
success and receive critical acclaim, including:
-- Sam Hollander's Songs have been streamed over four billion
times and recently 'High Hopes' became the all-time longest-running
Number 1 Song on Billboard's Hot Rock Songs chart having just
completed its 32nd week at Number 1;
-- 'These Days', by Rudimental featuring Jess Glynne, which was
co-written by Jamie Scott, recently won the 'PRS for Music Most
Performed Work' at the 2019 Ivor Novello awards;
-- Shakespears Sister announced their reformation by performing
their Number 1 single 'Stay', from the recently acquired David A.
Stewart Catalogue, live on the Graham Norton Show. They will be
performing a World Tour this autumn which will generate significant
performance royalties for the Song;
-- Celine Dion gave a World Premiere of her forthcoming new
single 'Lying Down', which was co-written by Giorgio Tuinfort and
is a newly released Song within our Catalogue, on Carpool Karaoke
with James Corden which was broadcast on CBS primetime on 20 May.
This video has already been viewed 15 million times on YouTube;
-- Camila Cabello and Young Thug's 'Havana', co-written by
Starrah, is nine times Platinum in the U.S. and has been named the
IFPI's biggest selling Song of 2018 on a global basis;
-- 'Would You Ever' by Skrillex & Poo Bear was certified as
a gold selling single on 21 February 2019;
-- Michael Knox has the number 1 country single of the year to
date with 'Girl Like You' by Jason Aldean who has been named the
Academy of Country Music's 'Artist of the Decade';
-- 'Girls Like You' by Maroon 5 featuring Cardi B co-written by
Starrah spent 33 weeks in the Hot 100's top 10, tying Ed Sheeran's
'Shape of You' for the longest reign on the Billboard 'Adult
Contemporary Chart';
-- 'Homecoming' is a 2019 American concert film about Beyoncé
and her performance at the 2018 Coachella Valley Music and Arts
Festival, written, directed and executive produced by Beyoncé
herself. The album and the film contain 11 Songs from our Portfolio
which are co-written by The-Dream, Tricky Stewart and Sean Garrett,
with writing credits on 'Single Ladies (Put a Ring On It)', 'Love
On Top', 'Flawless/Feeling Myself', 'Diva' and many others;
-- Notable synchronisation deals were delivered across our
Portfolio, particularly from the Bernard Edwards Catalogue as
highlighted above and The-Dream Catalogue including The Beyoncé
Song 'XO' which was licensed to Louis Vuitton, 'Hard' by Rhianna
and the J. Holiday Song 'Bed' which were both licensed to Universal
Pictures;
-- The Bernard Edwards Catalogue is our most synchronised
Catalogue and is on track to earn synchronisation revenues of more
than $1 million this year;
-- The Eurythmics 'Sweet Dreams (Are Made Of This)' which was
co-written, co-performed and produced by David A. Stewart, and on
which we receive song, artist and producer royalties, was recently
named as the most streamed Song of 1983 by the British Phonographic
Institute (BPI); and
-- Nile Rodgers & CHIC have completed more than 35 shows in
the U.S. with Cher this year performing more than 12 Songs from our
Bernard Edwards Catalogue generating significant songwriter's share
of performance royalties. They are now set to perform 20 headline
and festival shows in the UK and Europe this summer.
A copy of the Annual Report and Audited 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 Annual Report and Audited
Consolidated 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)7711 081
Alan Edwards / Nick Caley 843
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. In its Subsequent Placing under its Placing Programme on
12 April 2019, the Company raised approximately GBP140m of further
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, Giorgio Tuinfort, Starrah, Nick Jarjour, David
A. Stewart, Bill Leibowitz, Ian Montone, and Jason Flom.
(1) This is a target only and there can be no assurance that the
target can or will be met and should not be taken as an indication
of the Company's expected or actual future results. Accordingly,
potential investors should not place any reliance on this target in
deciding whether or not to invest in the Company or assume that the
Company will make any distributions at all and should decide for
themselves whether or not the target dividend yield is reasonable
or achievable.
Corporate Summary
Investment Objective
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 has been created by investing in Catalogues of proven
established Songs from well-known songwriters and recording
artists. However, each Song will be considered to be a separate
asset.
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 makes and manages its investments directly or
indirectly through a number of wholly owned subsidiary companies
incorporated in England & Wales, together referred to as the
Group.
Investment Process
The Company's Investment Adviser, 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 Mercuriadis is the former CEO of The Sanctuary
Group plc.
The Family (Music) 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 Paul Burger and Andrew Sutch, respectively.
AIC
The Company is a member of the Association of Investment
Companies and complies with the AIC Code. The Company's page on the
AIC's website is at https://www.theaic.co.uk/companydata/ceag2.
Website
The Company's website, which can be found at
www.hipgnosissongs.com, includes information on the Company, such
as its launch prospectus, past reports and accounts, policies,
media coverage and regulatory news announcements.
Chairman's Statement
Introduction
I am pleased to present your Company's first Annual Report since
we commenced trading on the London Stock Exchange on 11 July
2018.
At that date we also acquired our first Catalogue of Songs,
The-Dream Catalogue, and during the financial period ended 31 March
2019 the Portfolio grew to a total of twelve Catalogues, with
approximately GBP120 million invested. As at 21 June 2019, the
latest practicable date prior to publication of this report, the
Portfolio had grown to 22 Catalogues with a total of GBP241 million
invested.
The total capital raised by your Company since launch now stands
at GBP343.7 million, comprising GBP202.2 million raised at our IPO
and a further GBP141.5 million raised on 12 April 2019 through a
placing programme issuance which was largely the product of
significant demand from our existing institutional investors.
Performance of your Company over the course of this maiden
financial period under review has progressed well and is presented
by Merck Mercuriadis, the Company's founder, in the Investment
Adviser's Report.
Performance
I am pleased to report that recognised net revenues from the
Portfolio from incorporation on 8 June 2018 to the financial period
end on 31 March 2019 were GBP7.2 million, equivalent to 6.1 percent
gross yield on the invested component of our Portfolio as at 31
March 2019, which is in line with our projections at launch.
The Company's NAV is calculated semi-annually 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 31 March 2019 was 103.27p per Ordinary Share.
As at 31 March 2019 the Ordinary Share price was 107.5p, an
increase of 7.5 percent on the IPO issue price of 100p.
Dividend
The Company has met its objective at launch of declaring
dividends of 3.5p per Ordinary Share (in aggregate) in relation to
the first 12 months following Admission. During the period the
Company has paid dividends of 2.25p per Ordinary Share to date,
with a first interim dividend for the current financial period of
1.25p approved by the Board on 21 June 2019 and payable in August
2019.
The Company's future target dividend yield is 5 percent per
annum (based on the IPO issue price of 100p) on the Ordinary Shares
and the Company expects to grow its dividend yield over time. The
Company intends to continue to pay four interim quarterly dividends
in November, February, May and August of each year.
Working Capital Facility
The Directors consider it a priority that the Company's level of
gearing should be established at appropriate levels with sufficient
flexibility to enable the Board to adapt at short notice to take
advantage of changes in market conditions. The Board will review
the Company's level of gearing, if any, on a regular basis. The
maximum level of gearing under the Company's investment
restrictions is 20 percent of the Company's net assets.
Performance fee
During the period ended 31 March 2019 a performance fee of
GBP429,054, equal to 0.21 percent of the Company's Operative NAV,
was earned by the Investment Adviser as a result of the Company's
outperformance of its 10% per annum total return hurdle. Full
details of how this performance fee was calculated are set out in
Note 16 of this Annual Report. It should be noted that these fees
are subject to the higher of a 'high watermark' (meaning that a
performance fee can only be paid if the average share price at the
end of the year is higher than the price over the last month of the
year in respect of which a performance fee was last paid) and the
hurdle of outperforming the 10% total return target. There is also
a cap on the aggregate fees that may be paid to the Investment
Adviser in any one financial year of 5% of the lower of net assets
and the market capitalisations at the end of the relevant period in
which the performance fee was calculated.
Annual General Meeting
The Company's Annual General Meeting will be held on 10
September 2019 at 10:30 a.m. at The Tapestry Room, The NED, 27
Poultry, London. Notice of the Annual General Meeting, containing
full details of the business to be conducted at the meeting, is set
out in the AGM Notice and Form of Proxy located at the back of the
report.
In addition to the formal business, Merck Mercuriadis will
provide a short presentation to Shareholders on the performance of
the Company over the past financial period as well as an outlook
for the future. The Board would welcome your attendance at the
Annual General Meeting as it provides Shareholders with an
opportunity to ask questions of both the Board and the Investment
Adviser.
Outlook
Conditions for Catalogue acquisition in the music industry are
currently favourable. In 2018 the overall global recorded music
market grew by 9.7 percent in value, according to the International
Federation of the Phonographic Industry ('IFPI'). This marks the
fourth consecutive year of global growth and the highest rate of
growth since IFPI started tracking the market in 1997.
The main driver for growth in the global recorded music market
is the growth of streaming, which according to the IFPI increased
by 34 percent in 2018.
The Investment Adviser has identified a strong pipeline of
opportunities and the Board are confident that our strategy of
building a balanced Portfolio will deliver solid returns over the
coming months and years. The pipeline of attractive investment
opportunities now exceeds, in value, the Company's remaining cash
reserves and accordingly the Board will look to grow the Company
through further equity issuances as and when appropriate.
Andrew Sutch
Chairman
21 June 2019
Financial and Operational Highlights
The Company completed its IPO and was admitted to trading on the
SFS of the Main Market of the London Stock Exchange on 11 July
2018.
Catalogue Acquisitions during the period
As at 31 March 2019, the Company had deployed approximately
GBP120 million of the IPO proceeds to Catalogue acquisitions, as
follows:
Catalogue Acquisition Date Interest Ownership Total Songs
The-Dream 11 July 2018 75% 302
------------------ ------------------- ------------
Poo Bear 16 November 2018 100% 214
------------------ ------------------- ------------
Bernard Edwards 28 November 2018 37.5% 290
------------------ ------------------- ------------
TMS 7 December 2018 100% 121
------------------ ------------------- ------------
Tricky Stewart 17 December 2018 100% 121
------------------ ------------------- ------------
Giorgio Tuinfort 3 January 2019 100% 182
------------------ ------------------- ------------
Itaal Shur 30 January 2019 100% 209
------------------ ------------------- ------------
Johnta Austin 21 March 2019 100% 249
------------------ ------------------- ------------
Sean Garrett 21 March 2019 100% 588
------------------ ------------------- ------------
Rico Love 21 March 2019 100% 245
------------------ ------------------- ------------
Ari Levine 31 March 2019 100% 76
------------------ ------------------- ------------
Sam Hollander 31 March 2019 100% 499
------------------ ------------------- ------------
Total 3,096
------------------- ------------
Subsequent Events
On 12 April 2019 the Company announced a placing of
approximately GBP141.5 million at a price of 102 pence per Ordinary
Share. Accordingly 138,750,000 new Ordinary Shares were admitted to
trading on the SFS of the main market of the London Stock Exchange
on 17 April 2019.
Catalogue Acquisitions subsequent to the period end
Catalogue Acquisition Date Interest Ownership Total Songs
Teddy Geiger 9 April 2019 100% 6
------------------ ------------------- ------------
Starrah 23 April 2019 100% 73
------------------ ------------------- ------------
David A. Stewart 10 May 2019 100% 1,068
------------------ ------------------- ------------
Jamie Scott 21 May 2019 100% 144
------------------ ------------------- ------------
Al Jackson Jr. 30 May 2019 100% 185
------------------ ------------------- ------------
Michael Knox 10 June 2019 100% 110
------------------ ------------------- ------------
Lyric Catalogue 12 June 2019 100% 571
------------------ ------------------- ------------
Brian Kennedy 12 June 2019 100% 101
------------------ ------------------- ------------
Jon Bellion 12 June 2019 100% 180
------------------ ------------------- ------------
Neal Schon 21 June 2019 100% 357
------------------ ------------------- ------------
Total 2,795
------------------- ------------
Following these acquisitions, as at 21 June 2019, the Company
had invested a total of GBP241 million and is in further advanced
stage discussions, with exclusivity over, Catalogues with a value
of GBP146 million.
Revenue streams across the Portfolio have broadly developed
within expectations set as part of the acquisition due diligence.
Revenue has been recognised by the Group in accordance with the
recognition principles set out in IFRS 15. Due to the revenue
contracts in place with the royalty collection agents and the
natural lag in reporting of revenue in the music industry, the
Group has seen a strong performance for many of the Catalogues
during the period.
Dividends
On 25 October 2018, the Company announced its first interim
dividend for the period from Admission to 30 September 2018 of 0.50
pence per share. The dividend was paid to Shareholders, on the
register at the close of business on 2 November 2018, on 29
November 2018.
On 23 January 2019, the Company announced its second interim
dividend for the period from 1 October to 31 December 2018 of 0.50
pence per share. The dividend was paid to Shareholders, on the
register at the close of business on 1 February 2019, on 28
February 2019.
On 25 April 2019, the Company announced its third interim
dividend for the period from 1 January to 31 March 2019 of 1.25
pence per share. The dividend was paid to Shareholders, on the
register at the close of business on 3 May 2019, on 31 May
2019.
On 21 June 2019, the Board approved its first interim dividend
for the new financial year, for the period from 1 April to 30 June
2019, of 1.25 pence per share. The dividend will be paid to
Shareholders, on the register at the close of business on 2 August
2019, on 30 August 2019. This completes the Company's dividend
target of 3.5 pence per share for the first 12 months following
Admission.
The Company intends to continue to pay interim quarterly
dividends in November, February, May and August of each year.
Key Metrics
31 March 2019 30 September 2018
GBP GBP
------------------------------------------------------------------ -------------- ------------------
IFRS NAV (1) 198,558,826 197,484,818
Adjustments for revaluation of Catalogues of Songs to fair value 8,743,795 1,945,636
Reversal of IFRS amortisation 1,491,922 202,243
Operative NAV (2) 208,794,543 199,632,697
Operative NAV (2) per share 103.27p 98.74p
Middle market share price 107.50p 107.62p
Premium to Operative NAV 4.10% 8.99%
Ongoing charges figure (%)(3) 1.70% 1.72%
Total dividends declared in respect of the period 2.25p 0.5p
(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 meaningful alternative performance measure and the
values of Catalogues of Songs are based on fair values produced by
an Independent Valuer.
(3) Alternative performance measure: annualised ongoing charges
(GBP3,467,007) divided by average Operative NAV GBP204,213,620.
Ongoing charges are those expenses of a type which are likely to
recur in the foreseeable future, whether charged to capital or
revenue, and which relate to the operation of the Company as a
collective fund, excluding the costs of acquisition/disposal of
investments, performance fees, financing charges and gains/losses
arising on investments. Ongoing charges are based on costs incurred
in the year as being the best estimate of future costs.
Investment Adviser's Report
Introduction
I am delighted to report on our first financial period as your
Company's Investment Adviser. I am very proud to have founded the
Company, which I believe is unique in its scope and opportunity. I
would like to thank our Shareholders for all of their support to
date.
Hipgnosis was established to offer investors a pure-play
exposure to the predictable and reliable income streams delivered
from proven hit songs and associated musical intellectual property
rights. The Company is the only closed ended fund listed on the
London Stock Exchange dedicated exclusively to investing in
songs.
On 11 July 2018, your Company successfully completed its IPO
through the issue of 202.1 million Ordinary Shares at 100p each
which were admitted to the SFS of the London Stock Exchange's main
market. Since the period end, the Company has raised a further
GBP141.5 million through the placing of new Ordinary Shares
pursuant to its ongoing placing programme.
The Family (Music) Limited
The Company's Investment Adviser, The Family (Music) Limited,
was founded by me, Merck Mercuriadis. I am the manager or former
manager of globally successful recording artists such as Elton
John, Guns N' Roses, Morrissey, Iron Maiden, Nile Rodgers and
Beyoncé, hit songwriters such as Diane Warren, Justin Tranter and
The-Dream, and formerly, CEO of The Sanctuary Group plc.
We have overseen the appointment of the Non Executive Board for
the Company comprising Andrew Sutch, Paul Burger, Andrew Wilkinson
and Simon Holden.
We also are continuing to build out an informal advisory board
of highly successful music industry experts, including 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's advisory board currently include Nile Rodgers,
The-Dream, Giorgio Tuinfort, Starrah, Nick Jarjour, David A.
Stewart, Bill Leibowitz, Ian Montone, and Jason Flom. Certain
advisory board members have been appointed following the purchase
of their respective Catalogues.
Since launch, we have continued to grow our executive team
within our sales and finance functions to support and enable our
active management strategy and acquisition review processes.
Investment Strategy and Active Management
Proven hit songs are a permanent part of our culture and the
fabric of our society. As such they produce predictable and
reliable income and are therefore highly investable.
I created Hipgnosis Songs Fund Limited in order to give the
financial community access to this new asset class at a point in
time when non-correlated opportunities are not only desired, but
required.
Fifteen years of technological disruption via illegal
downloading have left these highly prized assets available at
attractive prices at a point in time when revenues are growing
significantly as streaming has made it more convenient for the
consumer to pay for music.
Our thesis is simple, logical and takes advantage of the
systemic change in which music is being consumed:
1. We have access - This has been demonstrated by the deployment
of just over GBP241 million on some of music's most famous Songs
and important assets!
2. Streaming will grow revenues significantly - Paid subscribers
to music streaming services have grown from 50 million to over 200
million worldwide in the last two years and JP Morgan are
projecting 2 billion paid subscribers by 2030. JP Morgan have
stated, "our assumption of a 27 percent per annum subscription
growth results in a threefold increase in publishing streaming
royalties over the next four years."
3. The Copyright Royalty Board have increased the "song" share
of revenues by 44 percent incrementally over the next 4 years -
This was passed into law in the United States in 2018 and these
dramatic increases in revenue do not form part of the data on which
we buy catalogues. It's important to qualify this point by stating
that both Spotify and Amazon have appealed this ruling while Apple
has not. JP Morgan have stated, "We believe there is a very low
probability of the new rates being overturned."
4. Active Song Management - We add value by placing the Songs in
movies, TV commercials and shows, video games, streaming playlists
as well as having the Songs covered by new artists and made into
hits all over again. Examples are given further below, however in
general the Songs we acquire come from administration houses that
rely solely on passive income (which forms the basis of the data
upon which we appraise and acquire Songs) where they have as many
as 20,000 Songs for each creative manager. Even when fully invested
we have less than 500 Songs for each executive in the Portfolio
management team, and therefore have the bandwidth to manage the
Songs to even greater levels of success.
5. Emerging Markets - China, India and Africa, amongst others,
are all becoming legitimate markets thanks to streaming and for the
first time ever are contributing revenue to our Songs and
copyrights. There is no revenue from these growing emerging markets
in the data on which songs are appraised and acquired. We are also
seeing that emerging markets are becoming a source of undervalued
domestic Catalogues.
6. Strategy - We have focussed predominantly on pop music
originating from the African American community as this music has
been the most successful internationally since the days of The
Beatles covering Chuck Berry and Little Richard songs. Also in a
Donald Trump environment the community is undervalued and we feel
it is important to the future of music to champion, respect and
recognise it. As a result, we have created tremendous loyalty and
are in turn being championed.
7. Ethos / Ulterior Motive - Our plan is to recognise that songs
are the currency on which this business trades and to put the
songwriters and creators first. We will use the critical mass of
our assets to change the place in the economic equation that the
songwriter currently occupies. We want to take them from last to
first and, while this is a long-term goal that will take several
years to achieve, it is in total alignment with what is in the best
interest of our Shareholders. It once again positions us in the
songwriters, producers and artists community as the company of the
future to be aligned with.
As Investment Adviser we are responsible for identifying
catalogues for potential investment by the Company. Ahead of any
Catalogue acquisition we perform detailed financial due diligence
on at least three years of revenue history for each Song and
co-ordinate all aspects of legal due diligence and independent
external valuations. All recommended potential acquisitions are
then presented to the Portfolio Committee and the Company's Board
of Directors for their approval.
We, under the Board's supervision, also seek to maximise the
earnings from the Portfolio by improving the placement and usage of
Songs, and regularly supervise portfolio administrators and royalty
collection agents.
In addition, we are continually supplementing the information we
receive with the development of in-house tools to monitor the
post-investment performance of the Company's Catalogues through
data-trend analysis. This will allow us to track and analyse
publisher and Performance Rights Organisations (PRO) statements
effectively, enabling us to evaluate, and where necessary,
challenge them as to the efficiency and accuracy of their reporting
and the levels of revenue collected and paid to the Company.
Our active management strategy has already identified an entire
album that was registered incorrectly for one of our Catalogues. We
have already successfully secured synchronisation licences for a
wide range of Songs within the Portfolio. On the Bernard Edwards
Catalogue, for example, we achieved over $512,000 in gross
placements in April. In relation to The-Dream's Catalogue we have
taken a single Song from $7,000 in total earnings in 2018 to
$125,000, from synchronisation alone, in calendar year 2019 to
date.
We focus on acquiring Catalogues that are built around proven
hit songs. As previously mentioned these provide predictable and
reliable income that is highly investable. My 35 years of
experience managing some of the greatest artists and assets in the
world have allowed me to form many opinions, but in this endeavour
what I bring to the enterprise is access to some of the most
talented and important songwriters globally. The key consideration
from our due diligence is whether historical performance
demonstrates that the Songs' earnings are predictable and reliable.
These characteristics reduce risk and improve performance as they
have long dated income streams that can be analysed and forecasted.
In addition, we are focused on helping the Company to build a
Portfolio which produces a high proportion of copyright income
derived from streaming to take advantage of the rapidly increasing
popularity of streaming and paid subscription music services.
Key to reducing and diversifying risk is our strategy of
constructing a Portfolio across a broad range of genres and income
streams.
We believe that the Company has a competitive advantage over the
major publishers due to our combined music industry and financial
experience in combination with our advisory board, a carefully
assembled panel of leading music industry figures and writers.
We also have a lower ratio of Songs to each individual executive
in the Portfolio management team at The Family (Music) Limited when
compared to the major publishers, thereby allowing us to target
synchronisation opportunities more effectively, generating enhanced
returns.
Current Portfolio
As at 31 March 2019, the Company had acquired twelve Catalogues
of Songs; The-Dream, Poo Bear, TMS, Tricky Stewart, Giorgio
Tuinfort, Bernard Edwards, Itaal Shur, Rico Love, Sean Garrett,
Johnta Austin, Ari Levine and Sam Hollander for a total of
approximately GBP120 million, representing a blended acquisition
multiple of 12.75x historical three year average net income. In
total the Portfolio comprised 3,096 Songs. The fair value of the
Portfolio as at 31 March 2019 was GBP128 million, reflecting an
increase in the fair value of the Portfolio as determined by the
Independent Valuer of GBP8.7 million.
The Portfolio generated 64 percent of its income from the U.S.,
15 percent from the UK and 4 percent from Australia with income
also being received from a diverse range of countries, including
Germany, Japan, Canada and Brazil. We anticipate an increase in
revenues from other developed and emerging market countries as
streaming services expand in those markets.
Top 5 Songs by Hipgnosis' performance income (Radio, TV) in the
financial period to 31 March 2019:
Catalogue Song Title Artist
-------------------
1 Ari Levine Locked Out of Heaven Bruno Mars
The-Dream & Tricky Single Ladies (Put A
2 Stewart Ring on It) Beyoncé
3 Itaal Shur Smooth Santana, Rob Thomas
4 Ari Levine When I Was Your Man Bruno Mars
5 Ari Levine Treasure Bruno Mars
------------------- --------------------- --------------------
Top 5 Songs by Hipgnosis' streaming income (Digital Service
Providers including Spotify, Apple Music) in the financial period
to 31 March 2019:
Catalogue Song Title Artist
-------------------
The-Dream & Tricky Single Ladies (Put A
1 Stewart Ring on It) Beyoncé
2 TMS Me, Myself & I G-Eazy, Bebe Rexha
The-Dream & Tricky
3 Stewart Baby Justin Bieber
The-Dream & Tricky
4 Stewart Umbrella Rhianna, Jay Z
5 Sam Hollander Handclap Fitz and The Tantrums
------------------- --------------------- ----------------------
As at 31 March 2019, the Portfolio contained 664 Songs that have
held Number 1 and/or Number 2 positions in global charts, 704 Songs
that have held Top 10 chart positions and 10 Grammy award winning
Songs.
The new Catalogues acquired post period end are Teddy Geiger,
Starrah, David A. Stewart, Jamie Scott, Michael Knox, Jon Bellion,
Lyric Financial, Brian Kennedy, Al Jackson and Neal Schon. These
Catalogues comprise a further 2,795 Songs and have achieved 247
Number 1 and 801 Top 10 chart positions globally. The vintage of
these Songs range from the 1960s through to 2019, and have been
performed by globally successful artists including Journey,
Eurythmics, Shawn Mendes, Camilla Cabello, Maroon 5, Al Green,
Booker T & The MG's, Rudimental, Jess Glynne and One
Direction.
The Songs in the Portfolio as at 21 June 2019 continue to
experience commercial success and receive critical acclaim,
including:
-- Sam Hollander's Songs have been streamed over four billion
times and recently 'High Hopes' became the all-time longest-running
Number 1 Song on Billboard's Hot Rock Songs chart having just
completed its 32nd week at Number 1;
-- 'These Days', by Rudimental featuring Jess Glynne, which was
co-written by Jamie Scott, recently won the 'PRS for Music Most
Performed Work' at the 2019 Ivor Novello awards;
-- Shakespears Sister announced their reformation by performing
their Number 1 single 'Stay', from the recently acquired David A.
Stewart Catalogue, live on the Graham Norton Show. They will be
performing a World Tour this autumn which will generate significant
performance royalties for the Song;
-- Celine Dion gave a World Premiere of her forthcoming new
single 'Lying Down', which was co-written by Giorgio Tuinfort and
is a newly released Song within our Catalogue, on Carpool Karaoke
with James Corden which was broadcast on CBS primetime on 20 May.
This video has already been viewed 15 million times on YouTube;
-- Camila Cabello and Young Thug's 'Havana', co-written by
Starrah, is nine times Platinum in the U.S. and has been named the
IFPI's biggest selling Song of 2018 on a global basis;
-- 'Would You Ever' by Skrillex & Poo Bear was certified as
a gold selling single on 21 February 2019;
-- Michael Knox has the number 1 country single of the year to
date with 'Girl Like You' by Jason Aldean who has been named the
Academy of Country Music's 'Artist of the Decade';
-- 'Girls Like You' by Maroon 5 featuring Cardi B co-written by
Starrah spent 33 weeks in the Hot 100's top 10, tying Ed Sheeran's
'Shape of You' for the longest reign on the Billboard 'Adult
Contemporary Chart';
-- 'Homecoming' is a 2019 American concert film about Beyoncé
and her performance at the 2018 Coachella Valley Music and Arts
Festival, written, directed and executive produced by Beyoncé
herself. The album and the film contain 11 Songs from our Portfolio
which are co-written by The-Dream, Tricky Stewart and Sean Garrett,
with writing credits on 'Single Ladies (Put a Ring On It)', 'Love
On Top', 'Flawless/Feeling Myself', 'Diva' and many others;
-- Notable synchronisation deals were delivered across our
Portfolio, particularly from the Bernard Edwards Catalogue as
highlighted above and The-Dream Catalogue including The Beyoncé
Song 'XO' which was licensed to Louis Vuitton, 'Hard' by Rhianna
and the J. Holiday Song 'Bed' which were both licensed to Universal
Pictures;
-- The Bernard Edwards Catalogue is our most synchronised
Catalogue and is on track to earn synchronisation revenues of more
than $1 million this year;
-- The Eurythmics 'Sweet Dreams (Are Made Of This)' which was
co-written, co-performed and produced by David A. Stewart, and on
which we receive song, artist and producer royalties, was recently
named as the most streamed Song of 1983 by the British Phonographic
Institute (BPI); and
-- Nile Rodgers & CHIC have completed more than 35 shows in
the U.S. with Cher this year performing more than 12 Songs from our
Bernard Edwards Catalogue generating significant songwriter's share
of performance royalties. They are now set to perform 20 headline
and festival shows in the UK and Europe this summer.
Financial Review
The Company receives income from semi-annual publisher
distributions, which includes synchronisation income, which are
licensed and collected by the publisher for each Catalogue. The
Company receives statements on a monthly basis from PROs
(performers' rights organisations) who collect and distribute the
songwriter's share of performance income. In the financial period
under review, the Company received its first publisher
distributions on 31 March 2019 for income processed in the second
half of the 2018 calendar year, in respect of the majority of the
Catalogues held during the period.
Net revenues recognised for the financial period ended 31 March
2019 were GBP7.2 million. Publishing income had increased by 9
percent when compared to the Portfolio's performance in the year
prior to acquisition (based on data obtained during the respective
Catalogue due diligence processes), driven mainly by an increase in
synchronisation and streaming income.
Net revenues include an accrual of GBP1.9 million for
performance income, to account for the songwriter's share of
performance royalties which are subject to a significant time lag
in reporting in the industry, but which the Company is entitled to
receive in due course. This time lag relates to the collection and
processing of income from radio as well as the collection and
subsequent processing of the songwriter's share of performance
royalties from overseas PROs to the local PRO, that ultimately pays
through the royalties to the Company. In recommending our estimate
of this accrual to the Board and the auditors, we used our analysis
of each Catalogue's revenue history as well our knowledge of the
respective Catalogue performance trends.
Revenues during the period under review were broadly spread
across the twelve Catalogues, with 78 percent of income being
delivered from 50 percent of the Catalogues. It should be noted
that the Catalogues were acquired sequentially throughout the
period under review and there was therefore an element of 'cash
drag' on revenues from uninvested cash on the Company's balance
sheet during this initial financial period.
After administration expenses (which include the fees payable to
the Investment Adviser, acquisition costs and administration
costs), distributable revenues for the period were GBP3.5 million.
It is anticipated that this figure will increase now that the
Company's investment Portfolio is more fully invested.
The Company's NAV is calculated both under IFRS (which
principally requires the cost of purchased Catalogues to be
amortised downwards to reflect the reducing copyright life of each
Catalogue) 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 31 March 2019 was GBP208.8 million
or 103.27p per Ordinary Share, reflecting an increase of GBP8.7
million in the fair value of the Portfolio. The derivation of the
Operative NAV from the IFRS NAV is described further in Note
10.
Market Conditions
The financial period to 31 March 2019 has been another positive
period for the music industry, with increasing take up of paid
subscription services driving streaming revenues. Streaming became
the majority of global recorded music income in 2018 (56 percent)
and industry experts continue to forecast further strong
growth.
Streaming
At the end of the first quarter of 2019, Spotify confirmed that
it had 100 million premium (paying) subscribers, which was up 32
percent (+25 million) year-on-year. Spotify's total MAU (including
paying and advertisement funded customers) in Q1 grew 26 percent
year-on-year to 217 million and the company confirmed that it now
has more than 2 million users in India. Spotify's main competitor,
Apple Music, passed 50 million paying subscribers in Q1 2019, up
from 40 million in April 2018.
Streaming made up 56 percent of total U.S. music revenues in
2018 compared to 9 percent in 2011. In the U.S. - the largest music
market - paid streaming subscriptions grew 42 percent in 2018:
In 2019, JP Morgan forecast that U.S. music subscription
revenues are expected to grow at a compound annual growth rate of
27 percent from 2017 to 2022 and that royalty revenues will triple
in that time. JP Morgan are predicting that there will be 2 billion
paid subscribers to subscriptions services worldwide by 2030.
Apple recently announced the closure of iTunes, reflecting the
migration of consumers from download to streaming services. iTunes
will be rolled into the new Apple Music app where consumers will be
able to choose whether to download or stream music under one
roof.
The International Federation of the Phonographic Industry
('IFPI') also recently announced that global recorded music
revenues grew by nearly 10 percent last year to $17.3 billion, with
nearly half of income now coming from streamed music, reversing an
industry decline since 2001 that hit a trough in 2014.
The most recent global publishing data from the International
Confederation of Societies of Authors and Composers ('CISAC')
(relating to 2017) shows global growth of 6 percent, with Germany
(+7.2 percent), Netherlands (+5.1 percent), Australia (+18 percent)
and Brazil (+36 percent) performing strongly. More recently, the
American Society of Composers, Authors and Publishers ('ASCAP')
reported 7 percent revenue growth in 2018, and UK society PRS for
Music (2018 financials, reported April 2019) showed 4.4 percent
income growth.
When looking at music publishing holistically (including
revenues that do not come from these collecting societies, such as
synchronisation), Will Page, Chief Economist at Spotify estimated
that publishing had grown 6 percent year-on-year, for the most
recent available data (2017 value, published in 2019). Goldman
Sachs predict that, on average, publishing revenue will grow at a
compound 4 percent per annum to 2030.
Synchronisation
Global market data on synchronisation is difficult to collate,
since private transactions are completed on a deal by deal basis.
IFPI publish a global figure for record labels, which grew 5
percent year-on-year to 2018 and gives an indication of trend.
However, the relational nature of these deals presents a
significant opportunity for us to claim a larger share of these
revenues through pursuing the right kinds of transactions.
Outlook
All of these positive market indicators and the impact that they
will have on the value of our assets are best illustrated by the
increased valuation of the Universal Music Group, where its
corporate owners, Vivendi SA, and subsequently the market have
valued Universal at something approaching $50 billion. This is a
company that was valued at $6 billion less than 3 years ago.
We are continuing to see increased interest from songwriters who
want to sell their Catalogue to a company such as ours that
understands the cultural importance of their work and which will
hold their professional legacy in the highest regard. We therefore
remain confident that there are increasing opportunities for us to
continue to make excellent acquisitions.
We are currently in exclusivity and performing due diligence on
a significant number of new Catalogue acquisitions. The Company has
acquired, or entered into exclusivity agreements to acquire,
Catalogues with a value of GBP146 million and therefore we expect
to fully invest our remaining capital, excluding any leverage, by
the end of July 2019. We now have a pipeline of Catalogues with an
aggregate value in excess of GBP1 billion. The Board and the
Investment Adviser are pleased to announce that, since IPO, the
Company has acquired, or entered into exclusivity agreements to
acquire, Catalogues with a total value of GBP387 million, which
represents an aggregate multiple of 12.56x annual net income.
Revenues from these Catalogues, and from those that have been
acquired since listing, will be in full evidence in the next 6 to
12 months and we believe that our next full year's accounts to 31
March 2020 will be the first to paint a picture of our true
potential and illustrate our thesis fully realised.
The music industry is performing well, with experts forecasting
continued growth in paid subscription services. We believe that our
revenues will continue to increase and, overall, we remain positive
about the outlook for the Company.
The Company has assembled a Portfolio of some of the finest
assets in music, each Catalogue proven and hand-picked from the
finest songwriters, and we decline far more catalogues than we buy.
Our aim to is become the beneficiaries of what we refer to as "the
portfolio effect" where a premium is placed on a set of assets that
have been carefully curated and assembled and the overall value is
significantly greater than the sum of its parts.
We would like to thank all of our Shareholders for their support
to date and we will continue to do our utmost to deliver against
the Company's objectives.
Merck Mercuriadis
Founder of Hipgnosis Songs Fund Limited and CEO of The Family
(Music) Limited (Investment Adviser to Hipgnosis Songs Fund
Limited)
21 June 2019
Investment Objective and Policy
Investment Objective
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 has been created by investing in Catalogues of proven
established Songs from well-known songwriters and recording
artists. However, each Song will be considered to be a separate
asset.
Investment Policy
The Company's investment policy is to diversify risk through
investment in a Catalogue of Songs and associated musical
intellectual property rights. The Company will seek, but is not
required, to acquire 100 percent of a songwriter's copyright
interest in each Song, which would comprise their songwriter'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 and may also acquire
peripheral interests such as producer royalties on a songwriter's
copyright 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
and/or licence fees, 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.
Investment restrictions
The Company will at all times invest and manage its assets,
mindful of spreading risk and in accordance with its published
investment policy.
The Company will invest its assets and manage the Songs it
acquires with the objective of constructing a high quality and
diversified Portfolio of Songs. The Company will acquire Catalogues
from a number of different songwriters, which will include Songs
diversified across music genres and sung by numerous recording
artists. The Company will be subject to the following investment
restrictions:
a) the Company will hold interests in a minimum of 300 Songs once fully invested;
b) the value of any single Song will not represent more than 10
percent 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 will be no requirement to sell any
Song, in whole or in part; and
c) the Company will not invest in closed-ended investment companies or other investment funds.
The Company is fully compliant with these investment
restrictions.
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 will not enter into such arrangements for investment
purposes.
Leverage
The Company may incur indebtedness of up to a maximum of 20
percent of its Net Asset Value, calculated at the time of
drawdown.
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
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 issued via London Stock Exchange's Regulatory News
Service.
Board of Directors
Andrew Sutch, Chairman, Non-executive Independent Director and
chair of the Asset Management Committee
Experience: Mr Sutch is a corporate lawyer and a consultant to
Stephenson Harwood LLP. He was a partner of that firm for over 30
years and its senior partner for 10 years. He has extensive
experience in advising investment funds and investment managers. He
is chairman of JPMorgan Claverhouse Investment Trust Plc and
Jupiter European Opportunities Trust Plc, and a council member of
the Royal Academy of Dramatic Art.
Paul Burger, Non-executive Independent Director and chair of the
Portfolio Committee
Experience: Mr Burger's career spans more than 40 years working
with music artists of very diverse backgrounds in a variety of
locations. Having previously served as President, Europe, Middle
East, and Africa for Sony Music Europe, his last corporate posting
after having worked for 27 years in senior management positions
within Sony Music (including chairman & chief executive officer
of Sony Music UK & Ireland; president Sony Music Canada; VP
Marketing Sony Music Europe), Paul founded SohoArtists in 2003, a
boutique artist management company focused largely on new and
developing talent. In addition to artist management, SohoArtists
runs a consultancy arm for artists, labels and entertainment
companies.
From 2012-2018 Paul served as chair of the board of governors of
England's BRIT School for Performing Arts & Technology, a
state-funded school sponsored by the British music industry
focussed on providing training for careers in the creative
industries, and he continues to serve as a governor of the school.
Some of the school's famous graduates include Adele, Jessie J,
Rizzle Kicks, Leona Lewis, Rex Orange County, and Katie Melua.
Furthermore, Paul is also a board member of the Music Managers
Forum (UK), is a long-time director of The Brit Trust Ltd and
continues to serve as a trustee of the University of Pennsylvania
Foundation (UK) Ltd.
Andrew Wilkinson, Non-executive Independent Director and chair
of the Audit and Risk Management Committee
Experience: Mr Wilkinson is a chartered accountant who has
worked at Peat Marwick Mitchell and merchant bankers Leopold
Joseph. Mr Wilkinson was a founder of the Promo Group, which
managed the business affairs of the Rolling Stones. In 1981, he
became a partner of Prince Rupert Loewenstein, providing business
management services to clients in the entertainment and sports
sectors.
Mr Wilkinson is co-founder and CEO of Music Plus Sport Ltd. and
its subsidiary Live at the Races Limited. The group specialises in
large-scale concerts at sporting events. Further, Mr Wilkinson was
founder and chief executive of Kingstreet Tours Limited, a company
that was in the forefront of concert tour production for over 30
years and delivered worldwide concert tours for artists including
The Rolling Stones, Pink Floyd, Elton John, Robbie Williams and
Shakira. Mr Wilkinson is a member of the fundraising committee and
former treasurer of Nordoff Robbins, a charity that uses music
therapy in the treatment and care of autistic children.
Simon Holden, Non-executive Independent Director
Experience: Mr Holden, a Guernsey resident, brings board
experience from both private equity and portfolio company
operations roles at Candover Investments and then Terra Firma
Capital Partners. Since 2015, Simon has become an independent
director to listed alternative investment companies (HICL
Infrastructure Company Limited, Hipgnosis Songs Fund Limited, Trian
Investors 1, Limited and Merian Chrysalis Investment Company
Limited), private equity funds and trading company boards which
include a trading asset owned by the States of Guernsey.
Simon holds the DipIoD in Company Direction from the Institute
of Directors, graduated from the University of Cambridge with an
MEng and MA in Manufacturing Engineering and is an active member of
Guernsey's GIFA, NED Forum and IP Commercial Group.
Founder
Merck Mercuriadis, Founder of Hipgnosis Songs Fund Limited and
its Investment Adviser, The Family (Music) Ltd.
Mr Mercuriadis is also the CEO and managing partner of Hipgnosis
Songs Ltd, an artist management firm label based in London and Los
Angeles.
Experience: Mr Mercuriadis is the manager of music legend Nile
Rodgers and the former manager of several notable award winning
artists and songwriters including Sir Elton John, Guns'N'Roses,
Iron Maiden, Morrissey, Pet Shop Boys, Mary J. Blige, Jane's
Addiction, Diane Warren and Justin Tranter to name a few.
Additionally, Mercuriadis is notable for serving from 1986-2007 as
Director and CEO of The Sanctuary Group PLC, a major management
company, an independent record label, a merchandise company
(Bravado) and a booking agency (Helter Skelter now CAA UK) based in
London, New York and Los Angeles.
Report of the Directors
The Directors hereby present the Annual Report and Audited
Consolidated Financial Statements for the Group for the period from
incorporation on 8 June 2018 to 31 March 2019. This Report of the
Directors should be read together with the Corporate Governance
Report.
General Information
The Company is a company limited by shares incorporated on 8
June 2018 under the Companies Law. The Company's registration
number is 65158, and it has been registered with the GFSC as a
registered collective investment scheme. The Company's Ordinary
Shares were admitted to trading on the SFS of the London Stock
Exchange on 11 July 2018. With effect from 29 April 2019, the
registered office address is Floor 2, Trafalgar Court, Les Banques,
St Peter Port, Guernsey, GY1 4LY.
Principal Activities
The principal activity of the Group is to invest in a diverse
Portfolio of Catalogues. The investment objective of the Group 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.
Business Review
A review of the Group's business and its likely future
development is provided in the Chairman's Statement and in the
Investment Adviser's Report.
Listing Requirements
As it is admitted to trading on the SFS, an EU regulated market,
the Company is subject to the Prospectus Rules, the Disclosure
Guidance and Transparency Rules, the Market Abuse Regulation and
the London Stock Exchange's Admission and Disclosure Standards.
Since being admitted on 11 July 2018 to the SFS the Company has
also complied with the applicable Listing Rules that it has chosen
to comply voluntarily with, as further set out in the IPO
prospectus.
Results and Dividends
The results for the period are set out in the Consolidated
Financial Statements.
During the period, and since the period end, the Directors
declared the following dividends:
Dividend Quarter Ended Date of Declaration Payment Date Amount per Ordinary Share (pence)
Interim dividend 30 September 2018 25 October 2018 29 November 2018 0.50
------------------- --------------------- ------------------ ----------------------------------
Interim dividend 31 December 2018 23 January 2019 28 February 2019 0.50
------------------- --------------------- ------------------ ----------------------------------
Interim dividend 31 March 2019 25 April 2019 31 May 2019 1.25
------------------- --------------------- ------------------ ----------------------------------
Interim dividend 30 June 2019 24 June 2019 30 August 2019 1.25
------------------- --------------------- ------------------ ----------------------------------
Share Capital
On 11 July 2018 the Company issued 202,176,800 Ordinary Shares
of no par value at GBP1 per Ordinary Share in an IPO. Subsequently
on 12 April 2019, the Company issued a further 138,750,000 Ordinary
Shares of no par value at 102 pence per Ordinary Share.
The Company has two classes of share capital: (i) Ordinary
Shares; and (ii) C Shares. The issued Ordinary Shares currently
represents 100% of the total issued share capital, as no C Shares
have been issued. C Shares constitute a temporary and separate
class of shares which can be issued at a fixed price determined by
the Company. These are subsequently converted into Ordinary Shares,
at NAV, once the proceeds of each C Share issue have been invested
or substantially invested in accordance with the Company's
investment policies.
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 or C 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.
Shareholdings of the Directors
The Directors with beneficial interests in the Ordinary Shares
of the Company as at 31 March 2019 are detailed below:
Ordinary Shares % holding at
held 31 March 2019
Director 31 March 2019
------------------ ---------------- ---------------
Andrew Sutch 10,090 0.005
Paul Burger 15,000 0.007
Andrew Wilkinson 15,000 0.007
Simon Holden 15,000 0.007
-------------------- ---------------- ---------------
In addition, the Company also provides the same information as
at 21 June 2019, being the most current information available:
Ordinary Shares % holding at
held 21 June 2019
Director 21 June 2019
------------------ ---------------- --------------
Andrew Sutch 10,090 0.005
Paul Burger 22,500 0.011
Andrew Wilkinson 25,000 0.012
Simon Holden 35,000 0.017
-------------------- ---------------- --------------
Directors' Authority to Buy Back Shares
The Directors will consider repurchasing Ordinary Shares in the
market if they believe it to be in the Shareholders' interests as a
whole and as a means of correcting any imbalance between supply and
demand for the Ordinary Shares.
The timing, price and volume of any buy back of Ordinary Shares
will be at the absolute discretion of the Directors and is subject
to the Company having sufficient working capital for its
requirements and surplus cash resources available. Ordinary Shares
acquired pursuant to this authority are subject to compliance with
the solvency test and any other relevant provisions of the
Companies Law.
The Directors have been granted general authority to purchase in
the market up to 14.99 percent of the number of Ordinary Shares in
issue immediately following initial Admission with such authority
expiring at the conclusion of the Company's first AGM. The
Directors intend to seek annual renewal of this authority from the
Shareholders at the Company's AGM.
In the event that the Board decides to repurchase Ordinary
Shares, purchases will only be made through the market for cash at
prices not exceeding the last reported IFRS NAV per Share and such
purchases will only be made in accordance with: (a) the Listing
Rules, which the Company is voluntarily complying with, which
currently provide that the maximum price to be paid per Ordinary
Share must not be more than the higher of: (i) five percent above
the average of the mid-market values of the relevant Ordinary
Shares for the five business days before the purchase is made; or
(ii) the higher of: (1) the price of the last independent trade;
and (2) the highest current independent bid for an Ordinary Share
on the trading venues where the market purchases by the Company
pursuant to the authority conferred by that resolution will be
carried out; and (b) the Companies Law, which provides among other
things that any such purchase is subject to the Company passing the
solvency test contained in the Companies Law at the relevant
time.
The Directors will not buy back any Shares from any class of C
Shares in issue prior to Conversion. Therefore, the Company will
not assist any class of C Shares in limiting discount volatility or
provide an additional source of liquidity.
Directors' and Officers' Liability Insurance
The Group maintains insurance in respect of Directors' and
Officers' liability in relation to their activities on behalf of
the Group.
Substantial Shareholdings
As at 31 March 2019, the Company had been notified, in
accordance with Chapter 5 of the Disclosure and Transparency Rules,
of the following substantial voting rights as Shareholders of the
Company.
Shareholder Shareholding % holding
------------------------------------------------ ------------- ----------
CCLA Investment Mgt (London) 24,541,098 12.14
Investec Asset Mgt (London) 20,284,015 10.03
Invesco Perpetual Asset Mgt (Henley-on-Thames) 20,000,000 9.89
JO Hambro Capital Mgt (London) 18,000,000 8.90
Newton Investment Mgt (London) 14,408,749 7.13
Miton Asset Mgt (London) 12,486,558 6.18
Ruffer (London) 11,732,728 5.80
Schroder Investment Mgt (London) 11,181,257 5.53
------------------------------------------------ ------------- ----------
In addition, the Company also provides the same information as
at 24 May 2019, being the most current information available.
Shareholder Shareholding % holding
------------------------------------------------ ------------- ----------
Invesco Perpetual Asset Mgt (Henley-on-Thames) 40,588,235 11.91
CCLA Investment Mgt (London) 35,927,748 10.54
Investec Asset Mgt (London) 33,623,409 9.86
Newton Investment Mgt (London) 31,975,064 9.38
JO Hambro Capital Mgt (London) 30,964,706 9.08
Schroder Investment Mgt (London) 20,116,206 5.90
------------------------------------------------ ------------- ----------
The Directors confirm that there are no securities in issue that
carry special rights with regard to the control of the Company.
Independent External Auditor
PricewaterhouseCoopers CI LLP has been the Company's external
auditor since the Company's incorporation. The Audit and Risk
Management Committee reviews the appointment of the external
auditor, its effectiveness and its relationship with the Company,
which includes monitoring the use of the external auditor for
non-audit services and the balance of audit and non-audit fees
paid, as included in Note 18. Following a review of the
independence and effectiveness of the external auditor, a
resolution will be proposed at the 2019 Annual General Meeting to
re-appoint PricewaterhouseCoopers CI LLP. Each Director believes
that there is no relevant information of which the external auditor
is unaware. Each had taken all steps necessary, as a Director, to
be aware of any relevant audit information and to establish that
PricewaterhouseCoopers CI LLP is made aware of any pertinent
information. This confirmation is given and should be interpreted
in accordance with the provisions of Section 249 of the Companies
Law. Further information on the work of the external auditor is set
out in the Report of the Audit and Risk Management Committee.
Articles of Incorporation
The Company's Articles of Incorporation may only be amended by
special resolution of the Shareholders.
AEOI Rules
Under AEOI Rules the Company continues to comply with both FATCA
and CRS requirements to the extent relevant to the Company.
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 Consolidated
Financial Statements of the Group on a going concern basis.
Viability Statement
As required by the AIC Code, the Directors have assessed the
future prospects of the Company.
The Board have conducted a Portfolio review for a period of four
years to 31 March 2023 which is deemed appropriate given:
(i) The remaining copyright term of the Company's Portfolio as at 31 March 2019; and
(ii) The accuracy of external forecasts to support the income projections.
Based on past performance the returns generated within the
investment Portfolio are expected to be stable and predictable in
both the medium and longer term.
The Investment Adviser has prepared, and the Board has reviewed,
the Portfolio projections which forecast the Group's revenue,
cashflow and working capital projections over the next four years
and considered the impact of some of the principal risks of the
Company.
On a rolling basis, the Directors evaluate the outcome of the
Catalogue investments and the Company's financial position as a
whole.
In support of this statement, the Directors have taken into
account all of the principal risks and their mitigation as
identified in the risk register that is periodically reviewed by
the Board. The most relevant potential impacts of the identified
principal risks and uncertainties on viability were determined to
be:
-- Royalties are earned globally and paid in global currencies.
The Ordinary Shares are denominated in Sterling and therefore
adverse currency movements in revenues held in currencies other
than Sterling may impact the Company's ability to meet its dividend
targets as these will only be paid in Sterling;
-- Risk of delays in deployment of capital, resulting in an
adverse impact on dividend yield from cash drag;
-- The due diligence process that the Investment Adviser
undertakes in evaluating Catalogues for the Company may not reveal
all facts that may be relevant in connection with such 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 investment opportunities;
-- Risk of decreasing royalty rates being paid to rights
holders, such risks not being detected or analysed resulting in
underperformance or a higher risk profile than investors expect;
and
-- The ability of the Company to achieve its investment
objective depends heavily on the experience of Merck Mercuriadis as
the Investment Adviser. As a result, the success of the Company
will depend largely upon the continuing availability of Merck
Mercuriadis. The death, incapacity or loss of service of this key
individual at the Investment Adviser could have a material adverse
impact on the business of the Company and the investments made.
Having conducted a robust analysis of the above scenarios and
the stresses applied to each, the Directors are satisfied that the
Company can meet its liabilities as they fall due and that it
remains viable over the period under consideration (to March 2023).
Notwithstanding this assessment, forecasting for individual
Catalogues can deliver variances versus the actual revenues
received, but these variances are considered immaterial in the
context of the whole diversified Portfolio. Any risk is thus
mitigated, and the overall forecast assumptions adopted are
considered to be reasonable and sustainable at the present
time.
The Investment Adviser and the Board have also considered the
possible impact of Brexit on the performance of the Portfolio.
Given the strength of the current acquisition pipeline and the fact
that the majority of investments are made in the U.S. the Board is
satisfied that Brexit does not pose a significant operational risk
to the business.
Financial Risk Management Policies and Objectives
Financial risk management policies and objectives are disclosed
in Note 14.
Principal Risks and Uncertainties
Principal risks and uncertainties are discussed in the Corporate
Governance Report.
Subsequent Events
Significant subsequent events have been disclosed in Note
19.
By order of the Board
Andrew Sutch
Chairman
21 June 2019
Directors' Responsibility Statement
The Directors are responsible for preparing the Annual Report
and Financial Statements in accordance with applicable law and
regulations.
The Companies Law requires the Directors to prepare Consolidated
Financial Statements for each financial year. Under the Companies
Law, the Directors must not approve the Consolidated Financial
Statements unless they are satisfied that they give a true and fair
view of the state of affairs of the Group and of the profit or loss
of the Group for that period. In preparing these Consolidated
Financial Statements, the Directors are required to:
-- select suitable accounting policies and then apply them consistently;
-- make judgements and estimates that are reasonable and prudent;
-- present information, including accounting policies, in a
manner that provides relevant, reliable, comparable and
understandable information;
-- provide additional disclosures when compliance with the
specific requirements in IFRS is insufficient to enable users to
understand the impact of particular transactions, other events and
conditions on the Group's financial position and financial
performance;
-- state that the Group has complied with IFRS, subject to any
material departures disclosed and explained in the Consolidated
Financial Statements; and
-- prepare the Consolidated Financial Statements on a going
concern basis unless it is inappropriate to presume that the Group
will continue in business.
The Directors confirm that they have complied with the above
requirements in preparing the Consolidated Financial
Statements.
The Directors are responsible for keeping proper accounting
records, which disclose with reasonable accuracy at any time the
financial position of the Group and enable them to ensure that the
Consolidated Financial Statements comply with 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).
Legislation in Guernsey governing the preparation and
dissemination of the Consolidated Financial Statements may differ
from legislation in other jurisdictions.
Responsibility Statement of the Directors in Respect of the
Annual Report under the Disclosure and Transparency Rules
Each of the Directors confirms to the best of their knowledge
and belief that:
-- the Consolidated Financial Statements, prepared in accordance
with IFRS, give a true and fair view of the assets, liabilities,
financial position and profit or loss of the Company and the
undertakings included in the consolidation taken as a whole;
-- the Annual Report includes a fair review of the development
and performance of the business and the position of the Company and
its subsidiaries, together with a description of the principal
risks and uncertainties faced; and
-- the Annual Report and Consolidated Financial Statements
include information required by the FCA and ensuring that the
Company complies with the provisions of the Listing Rules,
Disclosure Guidelines and Transparency Rules of the FCA. With
regard to corporate governance, the Company is required to disclose
how it has applied the principles and complied with the provisions
of the Corporate Governance Code applicable to the Company with
which it has voluntarily agreed to comply. In addition, there is no
information that is required to be disclosed under Listing Rules
9.8.4.
Responsibility Statement of the Directors in Respect of the
Annual Report under the Corporate Governance Code
The Directors are responsible for preparing the Annual Report
and Consolidated Financial Statements in accordance with applicable
law and regulations. Having taken advice from the Audit and Risk
Management Committee, the Directors consider the Annual Report and
Consolidated Financial Statements, taken as a whole, as fair,
balanced and understandable and that they provide the information
necessary for Shareholders to assess the Group's performance,
business model and strategy.
On behalf of the Board
Andrew Sutch
Chairman
21 June 2019
Corporate Governance Report
The Company's governance policies and procedures are based on
the principles of the Corporate Governance Code applying to UK
listed companies. The Corporate Governance Code is available on the
Financial Reporting Council's website, www.frc.org.uk.
The Company became a member of the AIC on 22 August 2018. It has
put in place arrangements to comply with the AIC Code and, in
accordance with the AIC Code, voluntarily complies with the
Corporate Governance Code. The Directors recognise the importance
of sound corporate governance, particularly the requirements of the
AIC Code. The AIC Code and the AIC Guide are available on the AIC's
website, www.theaic.co.uk. We are supportive of the continued
enhancement of governance standards that have recently been
published for accounting periods beginning on or after 1 January
2019.
The Company is also subject to the GFSC Code, which applies to
all companies registered as collective investment schemes in
Guernsey. The GFSC has also confirmed that companies that report
against the Corporate Governance Code or AIC Code are deemed to
meet the GFSC Code.
The Board monitors developments in corporate governance to
ensure the Board remains aligned with best practice especially with
respect to the increased focus on diversity. The Board acknowledges
the importance of diversity, for the effective functioning of the
Board, and commits to supporting diversity in the boardroom. It is
the Board's ongoing aspiration to have a well diversified
representation. The Board also values diversity of business skills
and experience because Directors with diverse skills sets,
capabilities and experience gained from different geographical and
business backgrounds enhance the Board by bringing a wide range of
perspectives to the Company.
The AIC Code, as explained by the AIC Guide, addresses all the
principles set out in the Corporate Governance Code, as well as
setting out additional principles and recommendations on issues
that are of specific relevance to investment companies such as the
Company. The Board considers that reporting against the principles
and recommendations of the AIC Code, by reference to the AIC Guide,
provides better information to Shareholders.
Throughout the financial period ended 31 March 2019, the Company
has complied with the recommendations of the AIC Code and the
relevant provisions of Section 1 of the Corporate Governance Code,
except as set out below.
The Corporate Governance Code includes provisions relating
to:
-- the role of the chief executive;
-- executive directors' remuneration; and
-- the need for an internal audit function.
For the reasons set out in the AIC Guide, and as explained in
the Corporate Governance Code, the Board considers that the above
provisions are not currently relevant to the position of the
Company, being an internally managed investment company, which
delegates most day-to-day functions to third parties.
As an investment company the Company has no employees, all
Directors are non-executive and independent of the Investment
Adviser and therefore the Directors consider the Company has no
requirement for a chief executive or senior independent director
and the Board is satisfied that any relevant issues can be properly
considered by the Board. The absence of an internal audit function
is discussed in the Report of the Audit and Risk Management
Committee.
The Board
The Company is led and controlled by a Board of Directors, which
is collectively responsible for the long-term success of the
Company. It does so by acting in the interests of the Company,
creating and preserving value and has as its foremost principle
acting in the interests of Shareholders.
We believe that the composition of the Board is a fundamental
driver of its success as the Board must provide strong and
effective leadership of the Company. The current Board was
selected, as their biographies illustrate, to bring a breadth of
knowledge, skills and business experience to the Company. The
Directors details set out their range of investment, financial and
business skills and experience represented.
The Chairman of the Board must be independent and is appointed
in accordance with the Company's Articles of Incorporation. Mr
Sutch is considered to be independent because he:
-- has no current or historical employment with the Investment Adviser;
-- has no current directorships in any other investment funds
managed by the Investment Adviser; and
-- is not an executive of a self-managed company or an
ex-employee who has left the executive team of a self-managed
company within the last five years.
The Board meets at least four times a year and, in addition,
there is regular contact between the Board, the Investment Adviser
and the Administrator. Board Portfolio and/or Asset Management
Committee meetings (comprising all four non-executive Directors)
have been held at least fortnightly since the Company's launch.
Further, the Board is supplied in a timely manner with information
by the Investment Adviser, the Company Secretary and other advisers
in a form and of a quality appropriate to enable it to discharge
its duties.
Board Tenure and Re-election
No member of the Board has served for longer than eight years as
the Company was incorporated on 8 June 2018. As such no issue has
arisen to be considered by the Board with respect to long tenure.
In accordance with the AIC Code, when and if any Director shall
have been in office (or on re-election would at the end of that
term have been in office) for more than nine years the Company will
consider further whether there is a risk that such a Director might
reasonably be deemed to have lost independence through such long
service. Following the recent publication of the 2019 AIC Code, the
Board recognises that Directors serving nine years or more may
appear to have their independence impaired. However, the Board may
nonetheless consider Directors to remain independent and will
provide a clear explanation with future Annual Report and
Consolidated Financial Statements as to their reasoning.
Directors are appointed under letters of appointment, copies of
which are available at the registered office of the Company. The
Board considers its composition and succession planning on an
on-going basis. The Company's Articles of Incorporation specify
that each of the Directors shall retire and may offer themselves
for re-election at each Annual General Meeting of the Company.
The Board welcomes the 2019 AIC Code and is confident that its
succession plan respects both the letter and the spirit of the Code
regarding Board composition, diversity and how effectively members
work together to achieve the Company's objectives.
Directors' Remuneration
The level of remuneration of the Directors reflects the time
commitment and responsibilities of their roles. The Chairman is
entitled to annual remuneration of GBP45,000. The Chairmen of the
Audit and Risk Management Committee and the Portfolio Committee are
entitled to annual remuneration of GBP40,000. The other Directors
are entitled to annual remuneration of GBP35,000.
During the period ended 31 March 2019 the Directors'
remuneration was as follows:
31 March 2019
GBP
Andrew Sutch 36,586
Paul Burger (appointed 30 July 2018) 24,374
Andrew Wilkinson 32,521
Simon Holden 28,455
--------------------------------------- --------------
The Company Directors' fees for the period amounted to
GBP121,936 with outstanding fees of GBPnil due to the Directors at
31 March 2019.
The Directors have resolved that, with effect from 1 July 2019,
the annual remuneration for each Director will be increased to
GBP50,000, with an additional GBP7,500 per annum for the Chairman
and an additional GBP5,000 per annum for each of the Chairmen of
the Audit and Risk Management Committee and the Portfolio
Committee. These increases recognise the considerable commitment
and involvement of the Directors, outside the regular quarterly
board meetings, in attending committee and ad hoc board meetings
largely related to the review of new Catalogue acquisition, as well
as oversight of the development of the Investment Adviser's
operational infrastructure. This level of commitment can be seen in
the number of meetings shown in the table below and is expected to
be maintained as the Company continues to grow and to acquire new
Catalogues.
The Directors intend to confirm their commitment to their roles
by increasing over time their investment in Ordinary Shares, in
accordance with their personal circumstances and individual
investment arrangements.
All of the Directors are non-executive and are each considered
independent for the purposes of Chapter 15 of the Listing
Rules.
Duties and Responsibilities
The Board is responsible for the determination of the Company's
Investment Objective and Policy and has overall responsibility for
maximising the Company's success by directing and supervising the
affairs of the business and meeting the appropriate interests of
Shareholders and relevant stakeholders, while enhancing the value
of the Company and also ensuring the protection of investors. A
summary of the Board's responsibilities is as follows:
-- strategic matters;
-- risk assessment and management including reporting,
compliance, governance, monitoring and control and financial
reporting;
-- statutory obligations and public disclosure;
-- declaring Company dividends;
-- managing the Company's advisers; and
-- other matters having a material effect on the Company.
The Directors have access to the advice and services of the
Administrator, which is responsible to the Board for ensuring that
Board procedures are followed and that it complies with the
Companies Law and applicable rules and regulations of the GFSC and
the London Stock Exchange. Where necessary, in carrying out their
duties, the Directors may seek independent professional advice and
services at the expense of the Company. The Company maintains
appropriate Directors' and Officers' liability insurance in respect
of legal action against its Directors on an on-going basis.
The Board's responsibilities for the Annual Report are set out
in the Directors' Responsibility Statement. The Board is also
responsible for issuing appropriate Interim Reports and other
price-sensitive public reports.
One of the key criteria the Company uses when selecting
non-executive Directors is their confirmation prior to their
appointment that they will be able to allocate sufficient time to
the Company to discharge their responsibilities in a timely and
effective manner.
The Board formally met three times during the period and the
ad-hoc Board meetings were called in relation to specific events or
to issue approvals, often at short notice, and did not necessarily
require full attendance. Each Board member receives a comprehensive
Board pack at least five days prior to each meeting which
incorporates a formal agenda together with supporting papers for
items to be discussed at the meeting. Directors who have been
unable to attend a meeting have, without exception, given the
Chairman their views and comments on matters to be discussed, in
advance. In addition to their meeting commitments, the Directors
also liaise with the Investment Adviser whenever required and there
is regular contact outside the Board meeting schedule.
Attendance is further set out below:
Committee Audit and Tenure
Scheduled Ad-hoc of the Risk Management Portfolio as at
Board Board Board Committee Committee 31 March
Director Meetings Meetings Meetings Meetings 2019
----------------- ---------- ---------- ------------ ----------------- ----------- -----------
Andrew Sutch 3 of 3 11 of 4 of 5 2 of 2 9 of 9 10 months
11
Paul Burger 2 of 2 9 of 9 2 of 2 2 of 2 9 of 9 9 months
Andrew Wilkinson 3 of 3 9 of 11 3 of 5 2 of 2 7 of 9 10 months
Simon Holden 3 of 3 10 of 5 of 5 2 of 2 7 of 9 10 months
11
----------------- ---------- ---------- ------------ ----------------- ----------- -----------
Committees of the Board
The Board believes that it and its committees have an
appropriate composition and blend of backgrounds, skills and
experience to discharge their duties effectively. The Board is of
the view that no one individual or small group dominates
decision-making. The Board keeps its membership, and that of its
committees, under review to ensure that an acceptable balance is
maintained, and that the collective skills and experience of its
members continue to be refreshed. It is satisfied that all
Directors have sufficient time to devote to their roles and that
undue reliance is not placed on any individual.
Each committee of the Board has written terms of reference,
approved by the Board, summarising its objectives, remit and
powers, which are available on the Company's website
(www.hipgnosissongs.com) and are reviewed on an annual basis. Each
Committee has access to such external advice as it may consider
appropriate.
All committee members are provided with an appropriate induction
on joining their respective committees, as well as on-going access
to training. Minutes of all meetings of the committees are made
available to all Directors and feedback from each of the committees
is provided to the Board by the respective committee Chairmen at
the next Board meeting. The Chairman of each committee attends the
AGM to answer any questions on their committee's activities.
The Board and its committees are supplied with regular,
comprehensive and timely information in a form and of a quality
that enables them to discharge their duties effectively. All
Directors are able to make further enquiries of the Investment
Adviser or Administrator whenever necessary, and have access to the
services of the Company Secretary.
Audit and Risk Management Committee
The Audit and Risk Management Committee is chaired by Mr
Wilkinson and also comprises Mr Sutch and Mr Holden who held office
throughout the period, and Mr Burger who joined on 30 July 2018.
The Chairman of the Audit and Risk Management Committee, the
Investment Adviser and the external auditor, PricewaterhouseCoopers
CI LLP, have held discussions regarding the audit approach and
identified risks. The external auditors attend Audit and Risk
Management Committee meetings and a private meeting is routinely
held with the external auditors to afford them the opportunity of
discussions without the presence of the Investment Adviser or
Administrator. The Audit and Risk Management Committee activities
are contained in the Report of the Audit and Risk Management
Committee.
Portfolio Committee
The Portfolio Committee is chaired by Mr Burger, who joined on
30 July 2018, and also comprises Mr Sutch, Mr Wilkinson and Mr
Holden, all of whom held office throughout the period. The
principal duties of the Portfolio Committee are to undertake the
following functions:
-- making the final decision as to the acquisition of Catalogues of Songs;
-- determining, in collaboration with the Company's legal, tax
or corporate finance advisers, the most appropriate means for
acquiring the Catalogues of Songs in the event that such Catalogues
of Songs are not directly transferable, but are available in an
intermediated form (such as a special purpose company, or similar)
including determining any adjustments to the price if necessary or
appropriate;
-- making enquiries, at any stage, of the Investment Adviser
with regards to the pipeline opportunities identified by the
Investment Adviser from time to time;
-- making the final decision as to the disposal of any Catalogue of Songs; and
-- determining, in collaboration with its legal, tax or
corporate finance advisers, the most appropriate means for disposal
of the Catalogues of Songs in the event that such Catalogues of
Songs are not directly transferable, but are held in an
intermediated form (such as a special purpose company, or
similar).
The Portfolio Committee meets on an ad hoc basis when requested
on reasonable prior notice from the Investment Adviser. The quorum
for any meeting of the Portfolio Committee shall be at least one
Director. All Board members shall use reasonable endeavours to
attend each meeting of the Portfolio Committee.
Asset Management Committee
The Asset Management Committee is chaired by Mr Sutch and also
comprises Mr Wilkinson and Mr Holden who held office throughout the
period, and Mr Burger who joined on 30 July 2018. The principal
duties of the Asset Management Committee are to consider the
ongoing management and revenue maximisation of the Catalogues of
Songs acquired by the Company, which includes performing the
following functions:
-- making any final decision required to be made as to the
allocation of assets that might arise under the arrangements with
portfolio administrators;
-- making any final decision required to be made as to whether
or not to enter into or terminate any contract with a portfolio
administrator or other royalty collection agent;
-- reviewing and, if considered appropriate, approving any
updates to the strategies to maximise revenue collection from the
Portfolio; and
-- making any final decision required to be made as to whether
or not to pursue any recommended revenue maximisation opportunity
which exceeds GBP500,000 in revenues, provided that such decisions
will be made in a timely manner and the Asset Management Committee
shall use all reasonable endeavours to effect such decisions within
the timetables proposed by the Investment Adviser.
The Asset Management Committee meets on an ad hoc basis when
requested on reasonable prior notice from the Investment Adviser.
The quorum for any meeting of the Asset Management Committee shall
be at least one Director. All Board members shall use reasonable
endeavours to attend each meeting of the Asset Management
Committee.
Other Committees
Although the AIC Code recommends that companies appoint a
nomination committee and a remuneration committee, the Board has
not deemed these necessary, as being wholly comprised of
non-executive Directors the full Board considers these matters. The
Board will review the actions and judgments of those parties
undertaking management, advisory and administration services to the
Company in relation to the interim and annual financial statements
and the Company's compliance with the UK Corporate Governance Code,
the Listing Rules, the Disclosure Guidance and Transparency Rules,
MAR and the AIC Code. It will review the terms of the Investment
Advisory Agreement and the performance of the Investment Adviser,
the Administrator, the Registrar and other major service providers
such as royalty collection agents and PROs.
Board performance and evaluation
In accordance with Principle 7 of the AIC Code which requires a
formal and rigorous annual evaluation of its performance, the Board
will formally review its performance annually through an internal
process.
The assessment will cover the effectiveness and performance of
the Board as a whole, an evaluation of individual Directors and the
effectiveness of the Board Committees. Internal evaluation of the
Board, the Audit and Risk Management Committee, the Portfolio
Committee, the Asset Management Committee and individual Directors
will take the form of self-appraisal questionnaires and discussion
to determine effectiveness and performance as well as the
Directors' continued independence. The responses will be
consolidated and anonymised and common themes identified in order
for the Board to determine key actions and next steps for improving
Board and Committee effectiveness and performance.
The Board believes that annual evaluations are helpful and
provide a valuable opportunity for continuous improvement. The
Board believes that the current mix of skills, experience,
knowledge and age of the Directors is appropriate to the
requirements of the Company.
Directors regularly meet with the senior management employed by
the Investment Adviser both formally and informally to ensure that
the Board remains regularly updated on all issues. All members of
the Board are members of professional bodies and serve on other
Boards, which ensures they are kept abreast of the latest technical
developments in their areas of expertise. The Board arranges for
presentations from the Investment Adviser, the Company's brokers
and other advisers on matters relevant to the Company's business.
The Board assesses the training needs of Directors on an annual
basis.
Internal Control and Financial Reporting
The Directors acknowledge that they are responsible for
establishing and maintaining the Group's system of internal
controls and reviewing its effectiveness. Internal control systems
are designed to manage rather than eliminate the failure to achieve
business objectives and can only provide reasonable but not
absolute assurance against material misstatements or loss. The
Directors can confirm they have carried out a robust assessment of
the principal risks facing the Company, including those that would
threaten its business model, future performance, solvency or
liquidity. The key procedures which have been established to
provide internal control are:
-- the Board has delegated the day to day operations of the
Group to the Administrator, Investment Adviser and Preferred
Portfolio Administrator; however, it remains accountable for all
functions it delegates.
-- the Board clearly defines the duties and responsibilities of
the Company's agents and advisers and appointments are made by the
Board after due and careful consideration. The Board monitors the
on-going performance of such agents and advisers and will continue
to do so through the management engagement committee;
-- the Board monitors the actions of the Investment Adviser at
regular Board meetings and is also given frequent updates on
developments arising from the operations and strategic direction of
the underlying borrowers; and
-- the Administrator provides administration and company
secretarial services to the Company. The Administrator maintains a
system of internal control on which it reports to the Board.
The Board has reviewed the need for an internal audit function
and has decided that the systems and procedures employed by the
Administrator and Investment Adviser, including their own internal
controls and procedures, provide sufficient assurance that an
appropriate level of risk management and internal control, which
safeguards Shareholders' investment and the Group's assets, is
maintained. An internal audit function specific to the Company is
therefore considered unnecessary.
Internal controls over financial reporting are designed to
provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external
reporting purposes. The Administrator operates risk controlled
frameworks on a continual ongoing basis within a regulated
environment. The Administrator undertakes an ISAE 3402: Assurance
Reports on Controls at a Service Organisation audit annually which
is provided to the Board when finalised. The Administrator also
formally reports to the Board quarterly through a compliance
report. The Investment Adviser formally reports to the Board
quarterly including updates within the Group and also engages with
the Board on an ad-hoc basis as required.
The systems of control referred to above are designed to ensure
effectiveness and efficient operation, internal control and
compliance with laws and regulations. In establishing the systems
of internal control, regard is paid to the materiality of relevant
risks, the likelihood of costs being incurred and costs of control.
It follows, therefore, that the systems of internal control can
only provide reasonable but not absolute assurance against the risk
of material misstatement or loss. This process has been in place
for the year under review and up to the date of approval of this
Annual Report and Consolidated Financial Statements. It is reviewed
by the Board and is in accordance with the FRC's internal control
publication: Guidance on Risk Management, Internal Control and
Related Financial and Business Reporting.
Investment Advisory Agreement
The Board is responsible for the determination of the Company's
Investment Objective and Policy and has overall responsibility for
its activities. The Company has, however, entered into an
Investment Advisory Agreement dated 27 June 2018 with the
Investment Adviser under which the Investment Adviser will advise
the Group in relation to the acquisition, holding, disposal and
management of Songs, whether organised into Catalogues or
otherwise, and provide the subsidiaries with certain assets related
and other ongoing services.
The Group is responsible for paying an advisory fee to the
Investment Adviser in return for their services, and, subject to
the fulfilment of certain conditions, an additional performance
fee.
In accordance with Listing Rule 15.6.2(2)R and having formally
appraised the performance and resources of the Investment Adviser,
in the opinion of the Directors the continuing appointment of the
Investment Adviser on the terms agreed is in the interests of the
Shareholders as a whole.
Relations with Shareholders
The Board welcomes the views of Shareholders and understands the
importance of providing information to them. The Board is provided
with information on all relevant market commentary by the Company's
Investment Adviser and Corporate Broker.
All Shareholders can address any concerns to the Company in
writing at its registered address. The Annual General Meeting also
provides an opportunity to meet and discuss issues with the Board
and Investment Adviser. The Company maintains a website
(www.hipgnosissongs.com) which contains information on company
notifications, share information, financial reports, investor
contacts and other information likely to be useful to
Shareholders.
Whistleblowing
The Board has considered the AIC Code recommendations in respect
of arrangements by which staff of the Investment Adviser or
Administrator may, in confidence, raise concerns within their
respective organisations about possible improprieties in matters of
financial reporting or other matters.
It has concluded that adequate arrangements are in place for the
proportionate and independent investigation of such matters and,
where necessary, for appropriate follow-up action to be taken
within their organisation.
Principal Risks and Uncertainties
Each Director is fully aware of the risks inherent in the
Company's business and understands the importance of identifying,
evaluating and monitoring these risks. The Board has adopted
procedures and controls that enable it to carry out a robust
assessment of the risks facing the Company, manage these risks
within acceptable limits and to meet all of its legal and
regulatory obligations. The significant risk factors are fully
disclosed in the Company's prospectus which is available on the
Company's website www.hipgnosissongs.com and should be reviewed by
Shareholders.
The Group's assets consist mainly of intangible assets
representing copyright interests in musical compositions and
associated intellectual property rights. The primary focus is on
what the Investment Adviser considers to be proven songs from
well-known songwriters with a sufficient proven track record of
producing royalty income to enable them to be viewed as
evergreen.
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. 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.
Exchange rate risks
The Company has issued share capital denominated in Pounds
Sterling and aims to pay regular dividends in that currency.
However, much of the Group's revenue is received in other
currencies, particularly U.S. Dollars, and exchange rate
fluctuations may significantly affect the NAV and the ability to
pay the targeted dividends. Any disruption relating to the UK's
exit from the European Union could cause significant volatility in
exchange rates.
The Company's initial target dividend, target annual dividend
rate and target total NAV return were based on estimates and
assumptions that are inherently subject to significant business and
economic uncertainties and contingencies. The actual dividend yield
and total NAV return may be materially different to those targeted
and payment of dividends from capital reduces the amount of cash
that can be deployed for investment purposes
The Company's initial target dividend, target annual dividend
rate and target total NAV return are targets only and are based on
financial projections that are themselves based on estimates and
assumptions which depend on a variety of factors including, without
limitation, availability of investment opportunities, the price and
performance of the Company's investments, the ability to earn
royalty income, the mix of investments in the Portfolio, the
availability of sale and purchase opportunities in respect of Songs
and the Catalogues of which they form part, changes in current
market conditions, government regulations or other policies, the
worldwide economic environment, changes in law and taxation,
failures in technology, terrorism, social unrest and civil
disturbances or the occurrence of risks described elsewhere in the
Prospectus. These factors involve a significant element of
subjective judgment which may be proved incorrect and are
inherently subject to significant business, economic and market
uncertainties and contingencies, all of which are beyond the
Company's control and which may adversely affect the Company's
ability to achieve its targets. The Company's targets are based on
current market conditions and economic environment and the
assumption that the Company will be able to implement its
investment objective and policy and strategy successfully, and are
therefore subject to change.
The Directors may determine, in order to maintain the payment of
dividends in accordance with the Company's dividend policy, to pay
dividends from the Company's share premium account. Any payment of
dividend from the Company's share premium account will only be made
in compliance with the Companies Law, which requires the Company to
pass a solvency test before paying such dividend. However, where
the Company does pay a dividend from its share premium account,
such payment reduces the amount of cash that can be deployed for
investment purposes. The resulting lower investment level, or the
replenishing of the investment level through the use of borrowing,
could result in the actual returns on investments being materially
lower than the targets.
There is no guarantee or assurance that the initial target
dividend, target dividend and target total NAV return can be
achieved and the actual rates of return achieved may be materially
lower than the targets, or may result in a loss. A failure to
achieve the initial target dividend, target dividend or target
total NAV return may have a material adverse effect on the
Company's financial condition, business, prospects and results of
operations and, consequently, the Company's NAV and/or the market
price of the Ordinary Shares, and the Company's ability to deliver
the target total NAV return to Shareholders.
The due diligence process that the Investment Adviser undertakes
in evaluating Catalogues for the Company may not reveal all facts
that may be relevant in connection with such 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 investment opportunities
When conducting due diligence and making an assessment regarding
an investment, the Investment Adviser and the Company's legal and
financial advisers are required to rely on resources available to
them, including internal sources of information as well as
information provided by existing and potential sellers of songs.
The due diligence process may at times be required to rely on
limited or incomplete information.
The Investment Adviser will select investment opportunities to
be tabled to the Directors for their consideration in part on the
basis of information and data relating to potential investments
that has been made directly available to the Investment Adviser by
the sellers. Although the Investment Adviser will evaluate all such
information and data, and seek independent corroboration when it
considers it appropriate and reasonably available, the Investment
Adviser will not be in a position to confirm the completeness and
accuracy of such information and data. The Investment Adviser is
dependent upon the integrity of the management of the sellers as
regards such information and of such third parties.
Further, investment analysis and decisions by the Investment
Adviser may be undertaken on an expedited basis in order to make it
possible for the Company to take advantage of short-lived
investment opportunities. In such cases, the available information
at the time of an investment decision may be limited, inaccurate
and/or incomplete. Furthermore, the Investment Adviser may not have
sufficient time to evaluate fully such information even if it is
available.
The value of the investments made by the Company may be affected
by fraud, misrepresentation or omission on the part of the sellers
of the Songs, by parties related to the sellers or by other
parties. Such fraud, misrepresentation or omission may increase the
likelihood of an intellectual property rights dispute relating to
such Songs or may adversely affect the valuation of the Songs in
question or may adversely affect the Company's ability to enforce
its contractual rights in relation to the investment.
Accordingly, due to a number of factors, the Company cannot
guarantee that the due diligence investigation carried out by the
Investment Adviser and the Company's legal and financial advisers
with respect to any investment opportunity will reveal or highlight
all relevant facts that may be necessary or helpful to the
Directors in evaluating such investment opportunity. Any failure by
the Investment Adviser to identify relevant facts through its due
diligence process may cause it to recommend inappropriate
investments for purchase, or recommend the purchase at a price
which is not appropriate, and therefore lead the Directors to
decide to acquire Songs which subsequently fail to perform in line
with expectations, which may have a material adverse effect on the
Company's financial condition, business, prospects and results of
operations and, consequently, the Company's NAV and/or the market
price of the Ordinary Shares, and the Company's ability to deliver
the target total NAV return to Shareholders.
Changes in the distribution policies and royalty splits set by
the PROs could affect the future revenues received by the
Company
PROs 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.
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.
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, active management 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.
Concentration in the market for online streaming and online
music stores
A limited number of online streaming and online music stores
have achieved a large market share, giving them market power to
alter the prices or selection of music offered to consumers and
therefore the royalty revenue received by the Group. Any further
market concentration could increase this risk.
Other risks
The ability of the Company to achieve its investment objective
depends heavily on the experience of Merck Mercuriadis as the
Investment Adviser. As a result, the success of the Company will
depend largely upon the continuing availability of Merck
Mercuriadis. The death, incapacity or loss of service of this key
individual at the Investment Adviser could have a material adverse
impact on the business of the Company and the investments made.
The Company (as with all companies) continues to be exposed to
external cyber-security threats. The Company recognises the
increased incidence of cyber-security threats and has recently
reviewed its policies, procedures and defences to mitigate
associated risks, as well as those of the Investment Adviser,
Administrator and key service providers; engaging market-leading
specialists where appropriate.
Emerging risks are regularly considered to assess any potential
impact on the Group and to determine whether any actions are
required. Emerging risks include those related to
regulatory/legislative change and macroeconomic and political
change, which in the current period have included the ongoing
developments in respect of the UK's decision to leave the European
Union.
In summary, the above risks are mitigated and managed by the
Board through continual review, policy setting and updating of the
Company's risk matrix at each quarterly meeting to ensure that
procedures are in place with the intention of minimising the impact
of the above mentioned risks. The Board relies on periodic reports
provided by the Investment Adviser and Administrator regarding
risks that the Group faces. When required, experts will be employed
to gather information, including tax advisers and legal
advisers.
Andrew Sutch
Chairman
21 June 2019
Report of the Audit and Risk Management Committee
The Audit and Risk Management Committee (the Audit Committee),
chaired by Mr Wilkinson, operates within clearly defined terms of
reference (which are available from the Company's website) and
includes all matters indicated by Disclosure and Transparency Rule
7.1, the AIC Code and the UK Code. Its other members are Mr Sutch,
Mr Burger and Mr Holden. Given the size of the Board, and the fact
that all of the Directors are independent, it is considered that
establishing a separate audit committee would be unnecessarily
burdensome.
The Audit Committee members have considerable financial and
business experience and the Board has determined that the
membership as a whole has sufficient recent and relevant sector and
financial experience to discharge its responsibilities. The Board
is satisfied that the Audit Committee has recent and relevant
financial experience given that the Chairman is a chartered
accountant and other members have significant business experience,
both within the music industry and in the asset management
industry.
The duties of the Audit Committee in discharging its
responsibilities include reviewing the Annual Report and
Consolidated Financial Statements and the Interim Report, the
system of internal controls, and the terms of appointment of the
Company's independent auditor together with their remuneration. It
is also the formal forum through which the auditor will report to
the Board of Directors. The objectivity of the auditor is reviewed
by the Audit Committee which will also review the terms under which
the external auditor is appointed to perform non-audit services and
the fees paid to them or their affiliated firms overseas.
Responsibilities
The main duties of the Audit Committee are:
-- reviewing and monitoring the integrity of the Financial Statements of the Group and any formal announcements relating to the Group's financial performance, reviewing significant financial reporting judgements contained in them;
-- reporting to the Board on the appropriateness of our
accounting policies and practices including critical judgement
areas;
-- reviewing the valuations of the Group's investments prepared
by the Independent Valuer, and making a recommendation to the Board
on value of the Group's investments;
-- meeting regularly with the external auditor to review their
proposed audit plan and the subsequent audit report and assess the
effectiveness of the audit process and the levels of fees paid in
respect of both audit and non-audit work;
-- making recommendations to the Board in relation to the
appointment, re-appointment or removal of the external auditor and
approving their remuneration and the terms of their engagement;
-- monitoring and reviewing annually the auditor's independence,
objectivity, expertise, resources, qualification and non-audit
work;
-- considering annually whether there is a need for the Group to
have its own internal audit function;
-- monitoring the internal financial control and risk management
systems on which the Group is reliant;
-- reviewing and considering the UK Code, the AIC Code, the FRC
Guidance on audit committees; and
-- reviewing the risks facing the Group and monitoring the risk matrix.
The Audit Committee is required to report formally its findings
to the Board, identifying any matters on which it considers that
action or improvement is needed, and make recommendations on the
steps to be taken.
The external auditor is invited to attend the Audit Committee
meetings as the Directors deem appropriate and at which they have
the opportunity to meet with the Audit Committee without
representatives of the Investment Adviser or the Administrator
being present at least once per year.
Financial Reporting
The primary role of the Audit Committee in relation to financial
reporting is to review with the Administrator, the Investment
Adviser and the external auditor the appropriateness of Interim
Reports and Annual Reports, concentrating on, amongst other
matters:
-- the quality and acceptability of accounting policies and practices;
-- the clarity of the disclosures and compliance with financial
reporting standards and relevant financial and governance reporting
requirements;
-- material areas in which significant judgements have been
applied or there has been discussion with both any external
consultant as appointed by the Investment Adviser and the external
auditor;
-- whether the Annual Report, taken as a whole, is fair,
balanced and understandable and provides the information necessary
for Shareholders to assess the Group's performance, business model
and strategy; and
-- any correspondence from regulators in relation to the Group's financial reporting.
To aid its review, the Audit Committee considers reports from
the Investment Adviser and also reports from the external auditor
on the outcomes of their annual audit. The Audit Committee supports
PricewaterhouseCoopers CI LLP in displaying the necessary
professional scepticism their role requires.
Meetings
During the period ended 31 March 2019, the Audit Committee met
formally on two occasions. The matters discussed at those meetings
include:
-- review of the terms of reference of the Audit Committee for approval by the Board;
-- review of the accounting policies and format of the Interim Financial Statements;
-- detailed review of the Interim Report and recommendation for
approval by the Board including the going concern basis and the
viability statement;
-- review of the Group's risk matrix;
-- review and approval of the audit plan and final Audit Committee report of the auditor;
-- discussion and approval of the fee for the external audit;
-- assessment of the independence of the external auditor;
-- assessment of the effectiveness of the external audit process as described below; and
-- review of the Group's key risks and internal controls.
Primary Areas of Judgement and Estimation
The Company has issued share capital denominated in Pounds
Sterling and aims to pay regular dividends in that currency.
However, much of the Group's revenue is received in other
currencies, particularly U.S. Dollars, and exchange rate
fluctuations may affect the NAV and the ability to pay the targeted
dividends. Any disruption relating to the UK's exit from the
European Union could cause significant volatility in exchange
rates.
The Company, alongside the Investment Adviser, is involved in
various judgements, as noted below:
-- Forecasting income for each Catalogue that is acquired in
order to appraise investment opportunities. These judgements are
based on historical earnings as well as industry projections,
published by verified third parties. For the income that is driven
by 'active management', judgements are made based on a Song by Song
assessment by the Investment Adviser;
-- Accruals booked in the financial period are based on
historical analysis and a prudent calculation is derived;
-- Amortisation booked per annum is based on 20 years which is
the Company's judgement of the useful life of the asset; and
-- Impairment is considered on a timely basis and a judgement
would be made as to whether a Catalogue should be written down.
Risk Management
The Board is accountable for carrying out a robust assessment of
the principal risks facing the Group, including those threatening
its business model, future performance, solvency and liquidity. On
behalf of the Board, the Audit Committee reviews the effectiveness
of the Group's risk management processes. The Group's risk
assessment process and the way in which significant business risks
are managed is a key area of focus for the Audit Committee. The
work of the Audit Committee was driven primarily by the Company's
assessment of its principal risks and uncertainties as set out in
the Corporate Governance Report. The Audit Committee receives
reports from the Investment Adviser and Administrator on the
Company's risk evaluation process and reviews changes to
significant risks identified.
Internal Audit
The Audit Committee continues to review the need for an internal
audit function and has decided that the systems and procedures
employed by the Administrator and the Investment Adviser, including
their own internal controls and procedures, provide sufficient
assurance that an appropriate level of risk management and internal
control, which safeguards Shareholders' investment and the Group's
assets, is maintained. An internal audit function specific to the
Company is therefore considered unnecessary.
External Audit
PricewaterhouseCoopers Cl LLP has been appointed as the
Company's external auditor with Roland Mills as the lead audit
partner. Roland Mills can serve as the lead audit partner until the
year ended 31 March 2024 in accordance with normal audit partner
rotation arrangements. The Companies Law requires the reappointment
of the external auditor to be subject to Shareholders' approval at
the Annual General Meeting.
The objectivity of the external auditor is reviewed by the Audit
Committee which also reviews the terms under which the external
auditor may be appointed to perform non-audit services. In order to
safeguard external auditor independence and objectivity, the Audit
Committee ensures that any other advisory and/or consulting
services provided by the external auditor does not conflict with
its statutory audit responsibilities. Advisory and/or consulting
services will generally only cover reviews of interim financial
statements, tax compliance and capital raising work. Any non-audit
services conducted by the external auditor outside of these areas
require the consent of the Audit Committee before being
initiated.
The external auditor may not undertake any work for the Company
in respect of preparation of the financial statements, preparation
of valuations used in financial statements, provision of investment
advice, taking management decisions or advocacy work in adversarial
situations.
The Audit Committee reviews the scope and results of the audit,
its cost effectiveness and the independence and objectivity of the
auditor, with particular regard to the level of non-audit fees.
The Audit Committee regularly monitors non audit services being
provided by PricewaterhouseCoopers Cl LLP to ensure there is no
impairment to their independence or objectivity. The only non-audit
service provided by PricewaterhouseCoopers Cl LLP related to the
role as reporting accountant on the listing of the Company.
Notwithstanding such services, the Audit Committee considers
PricewaterhouseCoopers Cl LLP to be independent of the Company and
that the provision of such non-audit services is not a threat to
the objectivity and independence of the conduct of the audit as
appropriate safeguards are in place.
To fulfil its responsibility regarding the independence of the
external auditor, the Audit Committee considered:
-- the audit personnel in the audit plan for the current period;
-- a report from the external auditor describing its
arrangements to identify, report and manage any conflicts of
interest; and
-- the extent of non-audit services provided by the external auditor.
To assess the effectiveness of the external auditor, the Audit
Committee reviewed:
-- the external auditor's fulfilment of the agreed audit plan and variations from it;
-- reports highlighting the major issues that arose during the course of the audit; and
-- feedback from the Investment Adviser and Administrator
evaluating the performance of the audit team.
The Audit Committee is satisfied with PricewaterhouseCoopers Cl
LLP's effectiveness and independence as external auditor having
considered the degree of diligence and professional scepticism
demonstrated by them. As such, the Audit Committee has not
considered it necessary this year to conduct a tender process for
the appointment of its external auditor. Having carried out the
review described above and having satisfied itself that the
external auditor remains independent and effective, the Audit
Committee has recommended to the Board that PricewaterhouseCoopers
Cl LLP be reappointed as external auditor for the year ending 31
March 2020.
A resolution to reappoint PricewaterhouseCoopers Cl LLP as
independent external auditor to the Company will be proposed at the
forthcoming Annual General Meeting.
The Chairman of the Audit Committee will be available at the
Annual General Meeting to answer any questions about the work of
the Audit Committee.
On behalf of the Audit Committee,
Andrew Wilkinson
Chairman of the Audit and Risk Management Committee
21 June 2019
INDEPENT AUDITOR'S REPORT TO THE MEMBERS OF HIPGNOSIS SONGS FUND
LIMITED
Report on the audit of the consolidated financial statements
_________________________________________________________________________
Our opinion
In our opinion, the consolidated financial statements give a
true and fair view of the consolidated financial position of
Hipgnosis Songs Fund Limited (the "Company") and its subsidiaries
(together "the Group") as at 31 March 2019, and of their
consolidated financial performance and their consolidated cash
flows for the period from 8 June 2018 to 31 March 2019 (the
"period") in accordance with International Financial Reporting
Standards and have been properly prepared in accordance with the
requirements of The Companies (Guernsey) Law, 2008.
_________________________________________________________________________
What we have audited
The Group's consolidated financial statements comprise:
-- the consolidated statement of financial position as at 31 March 2019;
-- the consolidated statement of comprehensive income for the period then ended;
-- the consolidated statement of changes in equity for the period then ended;
-- the consolidated statement of cash flows for the period then ended; and
-- the notes to the consolidated financial statements, which
include a summary of significant accounting policies.
______________________________________________________________________
Basis for opinion
We conducted our audit in accordance with International
Standards on Auditing ("ISAs"). Our responsibilities under those
standards are further described in the Auditor's responsibilities
for the audit of the consolidated financial statements section of
our report.
We believe that the audit evidence we have obtained is
sufficient and appropriate to provide a basis for our opinion.
________________________________________________________________________________
Independence
We are independent of the Group in accordance with the ethical
requirements that are relevant to our audit of the consolidated
financial statements of the Group, as required by the Crown
Dependencies' Audit Rules and Guidance. We have fulfilled our other
ethical responsibilities in accordance with these requirements.
________________________________________________________________________________
Our audit approach
Overview
Materiality
* Overall group materiality was GBP2 million which
represents 1% of the Group's Adjusted Net Asset
Value.
* The Group's Adjusted Net Asset Value is calculated as
GBP200 million, being the Net Asset Value of the
Group calculated in accordance with International
Financial Reporting Standards, adjusted for by adding
back the cumulative amortisation of intangible assets
and deducting any cumulative impairment of intangible
assets.
==================================================================
Audit scope
* The Company is incorporated in Guernsey and has
underlying subsidiaries incorporated in the United
Kingdom ("UK"). The consolidated financial statements
are a consolidation of the Company and all of the
underlying subsidiaries.
* We conducted our audit of the consolidated financial
statements based on information provided by Estera
International Fund Managers (Guernsey) Limited (the
'Administrator') and The Family (Music) Limited (the
'Investment Advisor'), to whom the board of directors
has delegated the provision of certain functions.
* We conducted our audit work in Guernsey and we
tailored the scope of our audit taking into account
the types of investments within the Group, the
involvement of the third parties referred to above,
and the industry in which the Group operates.
* We performed an audit of the complete financial
information of the Guernsey and UK components of the
Group.
* The components of the Group where we performed full
scope audit procedures accounted for 100% of the net
assets and total comprehensive income.
==================================================================
Key audit matters
* Risk of fraud and error in revenue recognition
* Impairment and fair value disclosure of intangible
assets
==================================================================
Audit scope
As part of designing our audit, we determined materiality and
assessed the risks of material misstatement in the consolidated
financial statements. In particular, we considered where the
directors made subjective judgements; for example, in respect of
significant accounting estimates that involved making assumptions
and considering future events that are inherently uncertain. As in
all of our audits, we also addressed the risk of management
override of internal controls, including among other matters,
consideration of whether there was evidence of bias that
represented a risk of material misstatement due to fraud.
We tailored the scope of our audit in order to perform
sufficient work to enable us to provide an opinion on the
consolidated financial statements as a whole, taking into account
the structure of the Group, the accounting processes and controls,
and the industry in which the Group operates.
The Company is based in Guernsey with its subsidiaries located
in the UK. The consolidated financial statements are a
consolidation of the Company and all of the underlying
subsidiaries.
Scoping was performed at the Group level, irrespective of
whether the underlying transactions took place within the Company
or within the subsidiaries. The Group audit was led, directed and
controlled by PricewaterhouseCoopers CI LLP and all audit work for
material items within the consolidated financial statements was
performed in Guernsey by PricewaterhouseCoopers CI LLP.
The transactions relating to the Company and the subsidiaries
are maintained by the Administrator and therefore we were not
required to engage with component auditors from another PwC global
network firm operating under our instruction. Our testing was
therefore performed on a consolidated basis using thresholds which
are determined with reference to the overall Group materiality and
the risks of material misstatement identified.
As noted in the overview, the components of the Group for which
we performed full scope audit procedures accounted for 100% of net
assets and total comprehensive income.
________________________________________________________________________________
Materiality
The scope of our audit was influenced by our application of
materiality. An audit is designed to obtain reasonable assurance
whether the consolidated financial statements are free from
material misstatement. Misstatements may arise due to fraud or
error. They are considered material if individually or in
aggregate, they could reasonably be expected to influence the
economic decisions of users taken on the basis of the consolidated
financial statements.
Based on our professional judgement, we determined certain
quantitative thresholds for materiality, including the overall
Group materiality for the consolidated financial statements as a
whole as set out in the table below. These, together with
qualitative considerations, helped us to determine the scope of our
audit and the nature, timing and extent of our audit procedures and
to evaluate the effect of misstatements, both individually and in
aggregate on the consolidated financial statements as a whole.
Overall Group materiality GBP2 million
How we determined it 1% of Adjusted Net Asset Value
---------------------------------------
Rationale for the materiality We believe that Adjusted Net
benchmark Asset Value represents the most
appropriate materiality benchmark
given the nature and activities
of the Group, and that this is
a key consideration for investors
when assessing the financial
performance.
The Group's Adjusted Net Asset
Value is calculated as GBP200
millon, being the Net Asset Value
of the Group calculated in accordance
with International Financial
Reporting Standards, adjusted
for by adding back the cumulative
amortisation of intangible assets
and deducting any cumulative
impairment of intangible assets
---------------------------------------
We agreed with the Audit Committee that we would report to them
misstatements identified during our audit above GBP100,000, as well
as misstatements below that amount that, in our view, warranted
reporting for qualitative reasons.
________________________________________________________________________________
Key audit matters
Key audit matters are those matters that, in our professional
judgment, were of most significance in our audit of the
consolidated financial statements of the current period. These
matters were addressed in the context of our audit of the
consolidated financial statements as a whole, and in forming our
opinion thereon, and we do not provide a separate opinion on these
matters.
Key audit matter How our audit addressed the Key
audit matter
============================================ =============================================================
Risk of fraud and error in revenue We met with the directors and
recognition Investment Advisor and understood
Please refer to Notes 2 and 11 and evaluated the Group's processes,
to the consolidated financial internal controls and revenue
statements. recognition policies as a result
of the various music royalty,
The Group earns revenue from license fee and other payments
the catalogues of songs in which earned from the catalogues of
it owns interests. Such revenue songs owned by the Group.
takes the form of royalties,
licence fees and/or other payments We also assessed the Group's
including mechanical royalties, revenue recognition accounting
performance royalties, and synchronisation policies for compliance with
fees. International Financial Reporting
Standards, and in particular
Revenue is collected by the portfolio IFRS 15 - Revenue from Contracts
administrators / royalty collection with Customers, which has been
agents, reported on a quarterly applied by the Group since its
or semi-annual basis and paid inception on 8 June 2018.
based on pre-determined revenue
payments dates thereafter. These Our procedures included:
contractual revenue arrangements * We reviewed the contractual basis for recognising
entered into by the Group with revenue from each catalogue of songs by reading and
the portfolio administrators/royalty understanding the contracts in place with each
collection agents may be complex portfolio administrator/royalty collection agent;
in nature and there is therefore
a risk of error in that revenue
may be incorrectly recognised * We selected a sample of portfolio
in the accounting records of administrator/royalty collection agent statements,
the Group, or subject to manipulation. which we obtained through download from the
respective portfolio administrator/royalty collection
In addition, because of the contractual agent websites, and reconciled these to the revenue
reporting and revenue payment recognised by the Group for each of these respective
dates with the various portfolio catalogues of songs. In addition, we traced these
administrators/royalty collection amounts to the subsequent cash receipts (where
agents, the directors make an applicable);
estimate of the revenue accrued
to the Group at the period end,
but for which revenue reports * We identified, evaluated and verified journal entries
from the portfolio administrators/royalty that impacted revenue; and
collection agents may be unavailable.
The directors seek the input
of the Investment Advisor in * We incorporated an element of unpredictability and
making these estimates and accrual, obtained an independent written confirmation of the
which involves significant judgement revenue received from one of the portfolio
(see Note 3). The period end administrators/royalty collection agents for the
accrual is based on the catalogues period over which the Group held that respective
of songs' historic performance catalogue
for previous periods, adjusted
for the Investment Advisor's
and directors' assessment of
the expected performance of the We also performed the following
various catalogues of songs, procedures in assessing the period
based on the latest available end revenue accrual determined
music consumption information. by the directors with the input
of the Investment Adviser:
Revenue is also one of the key * We evaluated the methodology applied by the
performance indicators for the Investment Advisor in developing the period end
Group and changes to the contractual revenue accrual recommended to the directors;
arrangements with the portfolio
administrators/royalty collection
agents, which may report on a * We evaluated the underlying information used by the
basis that is not coterminous Investment Advisor in the revenue accrual model by
with the period end, and the comparing this to the revenue information already
associated accrual determined audited (as discussed above);
by the directors, can have a
significant impact on the recognition
of revenue by the Group. As a * We evaluated the reasonableness of the revenue
result, there is a heightened accrual assumptions made by the directors and
risk of material misstatement Investment Adviser against supporting information,
and hence this is considered such as the fair value models provided by the
a significant risk for audit Independent Valuer; and
purposes.
* We reconciled the details of the last royalty
statements received by the Group to those included in
the revenue accrual model and checked the arithmetic
accuracy of the revenue accrual calculation.
We did not identify any material
issues from our procedures.
============================================ =============================================================
Impairment and fair value disclosure With regard to the catalogues
of intangible assets of songs recognised as intangibles
Please refer to Notes 2 and 5 and carried at amortised cost,
to the consolidated financial we evaluated management's processes
statements. and assumptions used to initially
recognise and measure the catalogues
The primary activity of the Group of songs at amortised cost and
is to acquire and hold catalogues used to assess the need for impairment
of songs and earn the music royalty, (if any) of the respective catalogues
license fee and other revenue of songs. Our procedures included:
associated with its ownership. * We obtained and read the purchase agreements for each
catalogue of songs held by the Group to ensure they
The Group's portfolio of songs have been accounted for correctly, and agreed to the
are classified as intangible cash payments made;
assets under IAS 38. The various
catalogues of songs are held
at cost and amortised over their * We also discussed with management any deferred
useful life (which is determined compensation terms within the purchase contracts and
at acquisition of each of the assessed whether these have been appropriately
catalogue of songs) less impairment. recognised and/or disclosed within the consolidated
The catalogues of songs are subject financial statements;
to an impairment assessment at
the earlier of the end of each
accounting period and when an * We discussed the useful life of each catalogue with
indicator of impairment is identified. the Investment Adviser and in light of industry
The determination of the useful benchmarks;
life of each catalogue requires
the application of significant
judgement by the directors (see * We recalculated the carrying value in accordance with
Note 3). the useful life determined by the directors and the
purchase agreements for each catalogue of songs; and
The directors have also chosen
to voluntarily disclose the fair
value of the catalogues of songs * We obtained and discussed with the directors and
(see Note 5). The directors also Investment Advisor the impairment assessment
present an 'Operative Net Asset undertaken with respect to the each catalogue of
Value', which takes into account songs.
the catalogue of songs at this
fair value rather than at the
IFRS amortised cost value, as
included in consolidated financial Based on our work performed,
statements and reflected in the we did not identify any material
IFRS Net Asset Value. differences.
The directors have, in consultation
with the Investment Advisor, With regard to the fair value
engaged the Independent Valuer of the catalogues of songs disclosed
to assess the fair value of each in Note 5 to the financial statements
catalogue. In general, the fair and used in determining the Operative
value of each catalogue is determined Net Asset Value of the Group
using a discounted cash flow by the directors, we performed
model and incorporate assumptions the following procedures:
that are subject to significant * We discussed with the directors and Investment
judgement by the Independent Advisor the process of appointment of the Independent
Valuer, Investment Advisor and Valuer;
directors. These estimates and
assumptions include future catalogue
revenue and cash flow projections; * We contacted the Independent Valuer directly and
aggregate catalogue maturity; obtained their valuation model for each catalogue of
music industry growth rates by songs;
revenue type (e.g. physical sales,
downloads, streaming etc.); and
the determination of an appropriate * We held discussions with the Independent Valuer,
discount rate. The fair value confirmed their independence and evaluated their
of the catalogues of songs as experience and objectivity;
disclosed in Note 5 reflects
the fair value as calculated
by the Independent Valuer, recommended * We gained an understanding of the assumptions the
by the Investment Advisor and Independent Valuer adopted to determine the projected
adopted by the board of directors. growth rates for each revenue stream and catalogue,
and in determining the discount rate applied to the
The directors have also used projected revenue/cash flow streams;
the fair value determined by
the Independent Valuer as an
initial point of consideration * We agreed the forecasted revenue assumptions used by
in their impairment assessment the Independent Valuer in their model to the revenue
of the catalogues of songs held recognised by the Group with respect to each
at amortised cost, based on a catalogue and the latest revenue reports from the
comparison of the fair value portfolio administrators/royalty collection agents.
of each catalogue to the carrying We assessed the rationale for any adjustments made
value calculated under International thereto against supportable data;
Financial Reporting Standards.
As the catalogues of songs are * We compared the discount rate used to independent
significant to the net asset industry benchmarks;
value and operations of the Group,
are significant to investors
and because of the level of judgement * We recalculated the arithmetic accuracy of the
applied in determining the useful valuation for each catalogue of songs; and
life, the need for impairment
and in determining the fair value
of each catalogue, there is a * We performed a benchmark analysis of the valuation by
heightened risk of misstatement. obtaining independently obtained music industry
As a result, both the carrying market growth data by revenue stream, applying this
value at which the catalogues to the baseline revenue/cash flow projections,
of songs are measured in the discounting at the assessed discount rate and
consolidated financial statements comparing this to the Independent Valuer's
and the fair value as disclosed determination of fair value.
in the notes to the consolidated
financial statements (and used
in determining the Operative
Net Asset Value by the directors) Based on our work performed,
are considered significant risks we did not identify any material
from an audit perspective. differences.
============================================ =============================================================
Other information
The directors are responsible for the other information. The
other information comprises all the information included in the
Annual Report and Audited Consolidated Financial Statements but
does not include the consolidated financial statements and our
auditor's report thereon.
Our opinion on the consolidated financial statements does not
cover the other information and we do not express any form of
assurance conclusion thereon.
In connection with our audit of the consolidated financial
statements, our responsibility is to read the other information
identified above and, in doing so, consider whether the other
information is materially inconsistent with the consolidated
financial statements or our knowledge obtained in the audit, or
otherwise appears to be materially misstated. If, based on the work
we have performed, we conclude that there is a material
misstatement of this other information, we are required to report
that fact. We have nothing to report in this regard.
________________________________________________________________________________
Responsibilities of the directors for the consolidated financial
statements
The directors are responsible for the preparation of the
consolidated financial statements that give a true and fair view in
accordance with International Financial Reporting Standards, the
requirements of Guernsey law and for such internal control as the
directors determine is necessary to enable the preparation of
consolidated financial statements that are free from material
misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, the
directors are responsible for assessing the Group's ability to
continue as a going concern, disclosing, as applicable, matters
relating to going concern and using the going concern basis of
accounting unless the directors either intend to liquidate the
Group or to cease operations, or have no realistic alternative but
to do so.
________________________________________________________________________________
Auditor's responsibilities for the audit of the consolidated
financial statements
Our objectives are to obtain reasonable assurance about whether
the consolidated financial statements as a whole are free from
material misstatement, whether due to fraud or error, and to issue
an auditor's report that includes our opinion. Reasonable assurance
is a high level of assurance, but is not a guarantee that an audit
conducted in accordance with ISAs will always detect a material
misstatement when it exists. Misstatements can arise from fraud or
error and are considered material if, individually or in aggregate,
they could reasonably be expected to influence the economic
decisions of users taken on the basis of these consolidated
financial statements.
As part of an audit in accordance with ISAs, we exercise
professional judgement and maintain professional scepticism
throughout the audit. We also:
-- Identify and assess the risks of material misstatement of the
consolidated financial statements, whether due to fraud or error,
design and perform audit procedures responsive to those risks, and
obtain audit evidence that is sufficient and appropriate to provide
a basis for our opinion. The risk of not detecting a material
misstatement resulting from fraud is higher than for one resulting
from error, as fraud may involve collusion, forgery, intentional
omissions, misrepresentations, or the override of internal
control.
-- Obtain an understanding of internal control relevant to the
audit in order to design audit procedures that are appropriate in
the circumstances, but not for the purpose of expressing an opinion
on the effectiveness of the Group's internal control.
-- Evaluate the appropriateness of accounting policies used and
the reasonableness of accounting estimates and related disclosures
made by the directors.
-- Conclude on the appropriateness of the directors' use of the
going concern basis of accounting and, based on the audit evidence
obtained, whether a material uncertainty exists related to events
or conditions that may cast significant doubt on the Group's
ability to continue as a going concern. If we conclude that a
material uncertainty exists, we are required to draw attention in
our auditor's report to the related disclosures in the consolidated
financial statements or, if such disclosures are inadequate, to
modify our opinion. Our conclusions are based on the audit evidence
obtained up to the date of our auditor's report. However, future
events or conditions may cause the Group to cease to continue as a
going concern. For example, the terms on which the United Kingdom
may withdraw from the European Union are not clear, and it is
difficult to evaluate all of the potential implications on the
Group and the wider economy.
-- Evaluate the overall presentation, structure and content of
the consolidated financial statements, including the disclosures,
and whether the consolidated financial statements represent the
underlying transactions and events in a manner that achieves fair
presentation.
-- Obtain sufficient appropriate audit evidence regarding the
financial information of the entities or business activities within
the Group to express an opinion on the consolidated financial
statements. We are responsible for the direction, supervision and
performance of the Group audit. We remain solely responsible for
our audit opinion.
We communicate with those charged with governance regarding,
among other matters, the planned scope and timing of the audit and
significant audit findings, including any significant deficiencies
in internal control that we identify during our audit.
We also provide those charged with governance with a statement
that we have complied with relevant ethical requirements regarding
independence, and to communicate with them all relationships and
other matters that may reasonably be thought to bear on our
independence, and where applicable, related safeguards.
From the matters communicated with those charged with
governance, we determine those matters that were of most
significance in the audit of the consolidated financial statements
of the current period and are therefore the key audit matters. We
describe these matters in our auditor's report unless law or
regulation precludes public disclosure about the matter or when, in
extremely rare circumstances, we determine that a matter should not
be communicated in our report because the adverse consequences of
doing so would reasonably be expected to outweigh the public
interest benefits of such communication.
________________________________________________________________________________
Report on other legal and regulatory requirements
Under The Companies (Guernsey) Law, 2008 we are required to
report to you if, in our opinion:
-- we have not received all the information and explanations we require for our audit;
-- proper accounting records have not been kept; or
-- the consolidated financial statements are not in agreement with the accounting records.
We have no exceptions to report arising from this
responsibility.
The directors have volunteered to report on how they have
applied the UK Corporate Governance Code (the "Code").
We have nothing to report in respect of the following matters
which we have reviewed:
-- the directors' statement in relation to going concern. As
noted in the directors' statement, the directors have concluded
that it is appropriate to adopt the going concern basis in
preparing the consolidated financial statements. The going concern
basis presumes that the Group has adequate resources to remain in
operation, and that the directors intend it to do so, for at least
one year from the date the consolidated financial statements were
signed. As part of our audit we have concluded that the directors'
use of the going concern basis is appropriate. However, because not
all future events or conditions can be predicted, these statements
are not a guarantee as to the Group's ability to continue as a
going concern;
-- the directors' statement that they have carried out a robust
assessment of the principal risks facing the Group and the
directors' statement in relation to the longer-term viability of
the Group. Our review was substantially less in scope than an audit
and only consisted of making inquiries and considering the
directors' process supporting their statements; checking that the
statements are in alignment with the relevant provisions of the UK
Corporate Governance Code; and considering whether the statements
are consistent with the knowledge acquired by us in the course of
performing our audit; and
-- the part of the Corporate Governance Statement relating to
the parent Company's compliance with the ten further provisions of
the UK Corporate Governance Code specified for our review.
This report, including the opinion, has been prepared for and
only for the members as a body in accordance with Section 262 of
The Companies (Guernsey) Law, 2008 and for no other purpose. We do
not, in giving this opinion, 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.
Roland Mills
For and on behalf of PricewaterhouseCoopers CI LLP
Chartered Accountants and Recognised Auditor
Guernsey, Channel Islands
21 June 2019
Consolidated Statement of Comprehensive Income
For the period from incorporation on 8 June 2018 to 31 March
2019
8 June 2018 to
31 March 2019
Notes GBP
Income
Total revenue 11 7,218,852
Interest income 682,491
Foreign exchange gains (Non-investments) 104,773
-------------------------------
Total income 8,006,116
-------------------------------
Expenses
Advisory fees 16 (1,579,190)
Performance fee 16 (429,054)
Amortisation of Catalogues of Songs (1,491,922)
Administration fees (155,954)
Directors' remuneration (121,936)
Broker fees (44,550)
Audit fees (110,000)
Legal and professional fees (813,714)
Other operating expenses 12 (267,821)
-------------------------------
Total expenses (5,014,141)
-------------------------------
Operating profit for the period before taxation 2,991,975
-------------------------------
Taxation 4 (632,521)
-------------------------------
Profit for the period after tax 2,359,454
-------------------------------
Total comprehensive income for the period 2,359,454
-------------------------------
Basic Earnings per Share (pence) 17 1.17
Diluted Earnings per Share (pence) 17 1.17
All activities derive from continuing operations.
The accompanying notes form an integral part of these
Consolidated Financial Statements.
Consolidated Statement of Financial Position
As at 31 March 2019
31 March 2019
Notes GBP
Assets
Catalogues of Songs 5 118,458,818
Cash and cash equivalents 6 108,483,752
Trade and other receivables 7 10,808,398
--------------
Total assets 237,750,968
--------------
Liabilities
Other payables and accrued expenses 8 39,192,142
--------------
Total liabilities 39,192,142
--------------
Net assets 198,558,826
--------------
Equity
Share capital 9 198,221,140
Retained earnings 337,686
--------------
Total equity attributable to the owners of the Company 198,558,826
--------------
Number of ordinary shares in issue at period end 202,176,800
--------------
IFRS Net Asset Value per ordinary share (pence) 10 98.21
Operative Net Asset Value per ordinary share (pence) 10 103.27
Approved and authorised for issue by the Board of Directors on
21 June 2019 and signed on their behalf by:
Andrew Sutch Andrew Wilkinson
Chairman Director
Consolidated Statement of Changes in Equity
For the period from incorporation on 8 June 2018 to 31 March
2019
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)
Dividends paid 14 - - (2,021,768) (2,021,768)
Profit for the period - - 2,359,454 2,359,454
As at 31 March 2019 202,176,800 198,221,140 337,686 198,558,826
------------ ------------ ------------------ ------------
Consolidated Statement of Cash Flows
For the period from incorporation on 8 June 2018 to 31 March
2019
8 June 2018 to
31 March 2019
Notes GBP
Cash flows used in operating activities
Operating profit for the period before taxation 2,991,975
Adjustments for non-cash items:
Movement in other receivables 7 (10,808,398)
Movement in other payables and accrued expenses 8 38,559,621
Amortisation of Catalogues of Songs 1,491,922
Foreign exchange gains on non-investments (104,773)
32,130,347
Purchase of Catalogue of Songs 5 (119,950,740)
Net cash used in operating activities (87,820,393)
---------------
Cash flows generated from financing activities
Proceeds from issue of shares 9 202,176,800
Issue costs paid 9 (3,955,660)
Dividends paid 13 (2,021,768)
---------------
Net cash generated from financing activities 196,199,372
---------------
Net movement in cash and cash equivalents 108,378,979
---------------
Cash and cash equivalents at the start of the period -
Effect of foreign exchange rate changes 104,773
---------------
Cash and cash equivalents at the end of the period 6 108,483,752
---------------
Notes to the Consolidated Financial Statements
For the period from incorporation on 8 June 2018 to 31 March
2019
1. General information
Hipgnosis Songs Fund Limited was incorporated and registered in
Guernsey on 8 June 2018 with registered number 65158 and is
governed in accordance with the provisions of the Companies Law.
With effect from 29 April 2019, the registered office address is
Floor 2, Trafalgar Court, Les Banques, St Peter Port, Guernsey, GY1
4LY.
The Company's shares were admitted to the SFS of the Main Market
of the London Stock Exchange on 11 July 2018.
The Company makes its investments through its subsidiaries,
which are registered in the UK as limited companies, in which the
Company is the sole shareholder. The principal place of business of
the subsidiaries is the UK.
The Consolidated Financial Statements present the results of the
Group for the period from incorporation on 8 June 2018 to 31 March
2019. The Group is principally engaged in investing in and managing
music copyrights and associated musical intellectual property.
2. Accounting policies
The principal accounting policies applied in the preparation of
these Consolidated Financial Statements are set out below. These
policies have been consistently applied, unless otherwise
stated.
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 Effective
date
----------------------------------------------------------- ----------
IFRS 9 Financial Instruments (Amendments regarding 1 January
prepayment features with negative compensation 2019
and modifications of financial liabilities)
IFRS 11 Joint arrangements (Amendments resulting 1 January
from Annual Improvements 2015-2017 Cycle) 2019
IFRS 16 Leases 1 January
2019
IFRS 17 Insurance Contracts 1 January
2021
IAS 1 Presentation of Financial Statements 1 January
(Amendments regarding the definition 2020
of material)
IAS 8 Accounting Policies, Changes in Accounting 1 January
Estimates and Errors (Amendments regarding 2020
the definition of material)
IAS 12 Income Taxes (Amendments resulting from 1 January
Annual Improvements 2015-2017 Cycle) 2019
IFRIC 23 Uncertainty over Income Tax Treatments 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 31 March 2019, 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
Hipgnosis SFH IV
Limited UK 100 100 Full
Hipgnosis SFH V Limited UK 100 100 Full
Hipgnosis SFH VI
Limited UK 100 100 Full
Hipgnosis SFH VII
Limited UK 100 100 Full
Hipgnosis SFH VIII
Limited UK 100 100 Full
Hipgnosis SFH IX
Limited UK 100 100 Full
Hipgnosis SFH X Limited UK 100 100 Full
Hipgnosis SFH XI
Limited* UK 100 100 Full
Hipgnosis SFH XII
Limited UK 100 100 Full
Hipgnosis SFH XIII
Limited UK 100 100 Full
Hipgnosis SFH XIV
Limited* UK 100 100 Full
Hipgnosis SFH XV
Limited UK 100 100 Full
Hipgnosis SFH XVI
Limited UK 100 100 Full
Hipgnosis SFH XVII
Limited* UK 100 100 Full
Hipgnosis SFH XVIII
Limited* UK 100 100 Full
========================= ======================== ============ =========== ==============
*These subsidiaries were dormant as at 31 March 2019 in
anticipation of new Catalogues being acquired.
The subsidiaries of the Company are considered tax resident 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 and returns from
existing Catalogues of Songs and the annual operating cost.
Based on these sources of information and their own judgement,
the Directors believe it is appropriate to prepare the Consolidated
Financial Statements of the Group on a going concern basis.
c) Basis of preparation
Basis of Accounting
The Consolidated Financial Statements have been prepared in
accordance with IFRS and applicable company law. The 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
In accordance with section 244 of the Companies Law, the
Directors have elected to prepare consolidated accounts for the
financial period for the Group. Therefore, there is no requirement
to present individual accounts for the Company within the
Consolidated Financial Statements.
The Company is not considered to be an Investment Entity, as
defined in IFRS 10. The Company, in addition to evaluating the
Portfolio on a fair value basis, also manages the acquisitions and
revenue of those Songs.
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 were a single economic entity. The Group does not include
any non-controlling interest.
Segmental reporting
The chief operating 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 the Portfolio, with an attractive and growing level of
income, together with the potential for capital growth.
All of the Company's income is derived from within U.S., Europe,
UK and Guernsey.
All of the Company's non-current assets are located in UK and
Guernsey.
d) 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. The
contractual basis of the licence arrangements are such that the
agents are deemed as 'principals' for tax purposes, therefore the
Company recognises its revenue net of administration fees.
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 licence passes to the collection agents.
Variable consideration is recognised in the period when the usage
of the Catalogues of Songs occurs.
e) Expenses
Expenses are accounted for on an accruals basis. Expenses are
charged through the Statement of Comprehensive Income.
f) Dividends to Shareholders
Dividends are accounted for in the period in which they are
declared and approved by the Board of Directors.
g) Assets
Catalogues of Songs
Catalogues of Songs include music catalogues, artists' contracts
and music publishing rights and are recognised as intangible assets
measured initially 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 or revenue received within
a specific time frame of acquiring the Catalogues. Contingent
consideration will be recognised when performance conditions are
met or the amount is a deferred liability. In such cases, a
liability will be recognised alongside an associated finance charge
which will be accrued over the respective deferral period.
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 expected
Portfolio cash flows 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 initially measured at fair value plus transaction costs
directly attributable to the acquisition, and subsequently measured
at amortised cost using the effective interest method, less
allowance for ECL. 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.
h) 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.
i) 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.
j) 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.
k) Other Receivables
Other receivables do not carry interest and are short-term in
nature and are accordingly recognised at fair value.
l) Functional and Foreign currency
Items included in the 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 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 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 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 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 Company is entitled to receive in due course. In
recommending the estimate of this accrual to the Board of Directors
and the auditors, the Investment Adviser used its analysis of each
Catalogue's revenue history as well its knowledge of the respective
Catalogue performance trends to recommend the estimated accruals.
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.
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.
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 songwriters 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
songwriters 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 20
years, except on an exceptions basis.
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 may be impaired.
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 a 'market cost of capital' and a terminal value in 10 years.
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.
Assessment of impairment
As disclosed in Note 2(g) 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. During the period the
subsidiaries incurred irrecoverable corporation tax expense of
GBP632,521.
8 June to
31 March
2019
GBP
The Group's profit for the period before
taxation 2,991,975
Remove: The Company's loss for the period
before taxation 2,558,011
Add: Management recharge from the Company (2,220,928)
------------------------------------------- ------------
Profits chargeable to corporation tax 3,329,058
19% corporation tax 632,521
------------------------------------------- ------------
5. Catalogues of Songs
GBP
Cost
At 8 June 2018 -
Additions 119,950,740
At 31 March 2019 119,950,740
============
Amortisation and impairment
At 8 June 2018 -
Amortisation 1,491,922
Impairment -
At 31 March 2019 1,491,922
============
Net book value
At 8 June 2018 -
------------
At 31 March 2019 118,458,818
============
Fair value as at 31 March 2019 128,694,535
============
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). Useful
life is separately considered for each Catalogue of Songs and is
reviewed at the end of each reporting period.
The Board engaged an Independent Valuer, Massarsky Consulting,
Inc., to value the Catalogues as at 31 March 2019. Each income type
from each Catalogue was analysed and forecasted to derive the fair
value of the Catalogues by adopting a DCF valuation methodology.
Income was analysed and forecast at the level of each individual
Catalogue and by income type. 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 and the
global growth of the recorded music industry in their analysis. The
Board has approved and adopted the valuations prepared by the
Independent Valuer.
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:
31 March 2019
GBP
Cash available on demand 3,720,550
Cash held in deposits 37,064,106
Money market fund 67,699,096
--------------
Cash and cash equivalents 108,483,752
--------------
7. Trade and other receivables
31 March 2019
GBP
Loan receivable 3,957,500
Income receivable 2,040,135
Accrued income 3,847,679
Receivables 852,201
Prepayments 110,883
--------------
Trade and other receivables 10,808,398
--------------
The loan receivable amount of GBP3,957,500 relates to 90 days
exclusivity for the purchase of a Catalogue, with 100% of this
Catalogue as security. The loan has a maturity of one year, where
the first six months are interest free and the following six months
are interest bearing at 5%. This loan was subsequently repaid in
full on 7 May 2019 upon completion of the acquisition of the
Catalogue concerned.
8. Other payables and accrued expenses
31 March 2019
GBP
Investment acquisition payable 37,711,582
Performance fee 429,054
Amounts owed to songwriter 97,352
Administration fees 101,528
Legal & professional fees 110,533
Audit fees 100,000
Corporation tax 632,521
Other expenses 9,572
--------------
Other payables and accrued expenses 39,192,142
--------------
As at 31 March 2019, an amount of GBP37,711,582 relating to the
acquisition prices for three Catalogues remained outstanding. These
were all subsequently paid by 17 May 2019.
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 31 March 2019 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 31 March 2019 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
31 March
2019
Number of Ordinary Shares in issue 202,176,800
IFRS NAV per share (pence) 98.21
Operative NAV per share (pence) 103.27
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 an
Independent Valuer.
Reconciliation of IFRS NAV to Operative NAV
31 March
2019
GBP
------------
IFRS NAV 198,558,826
------------
Adjustments for revaluation of Catalogues
of Songs to fair value 8,743,795
Reversal of amortisation 1,491,922
------------
Operative NAV 208,794,543
------------
11. Revenue
8 June to
31 March
2019
GBP
Mechanical income 417,487
Performance income 1,104,493
Digital downloads income 232,741
Streaming income 1,285,485
Synchronisation income 1,212,161
Writer's share income 2,914,228
Other income 52,257
Total revenue 7,218,852
----------
The revenue accrual includes accruals of GBP1,917,176 for the
calendar Q1 2019 for both PROs and Publisher earnings that have yet
to be collected.
An additional accrual of GBP1,930,810, relating to lagged
reporting on the PRO income, was also booked in the financial
period to align with IFRS, the estimate of which is noted in the
Estimates section under Note 3.
12. Other operating expenses
8 June to
31 March
2019
GBP
Regulatory fees 8,605
Listing fees 17,667
D&O Insurance 14,104
Directors expenses 1,329
Registrar fees 6,306
Postage, stationery and printing 12,777
Public relation fees 48,371
Travel and accommodation fees 88,438
Bank charges 4,469
Other expenses 65,755
Total other operating expenses 267,821
----------
13. Dividends
A summary of the dividends is set out below:
Dividend per Total dividend
8 June 2018 to 31 March 2019 share GBP
Pence
--------------------------------- --------------- -----------------
Interim dividend in respect of
period ended 30 September 2018 0.50 1,010,884
Interim dividend in respect of
period ended 31 December 2018 0.50 1,010,884
--------------------------------- --------------- -----------------
1.00 2,021,768
--------------------------------- --------------- -----------------
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.
The Company announced its second interim dividend for the period
from 1 October to 31 December 2018 of 0.50 pence per Ordinary
Share. The dividend was paid to Shareholders, on the register at
the close of business on 1 February 2019, on 28 February 2019.
Subsequent to the period end, the Company announced its third
interim dividend for the period from 1 January to 31 March 2019 of
1.25 pence per Ordinary Share, and its first interim dividend for
the new financial year, for the period from 1 April to 30 June
2019, of 1.25 pence per Ordinary Share. The third interim dividend
was paid to Shareholders on the register at the close of business
on 3 May 2019 on 31 May 2019; and the first interim dividend for
the new financial year will be paid to Shareholders, on the
register at the close of business on 2 August 2019, on 30 August
2019.
14. 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.
Capital Risk Management
The Company manages its capital to ensure that the Company will
be able to continue as a going concern while maximising the capital
return to Shareholders. The capital structure of the Company
consists of issued share capital and retained earnings, as stated
in the Statement of Financial Position.
In order to maintain or adjust the capital structure, the
Company may buy back shares or issue new shares. There are no
external capital requirements imposed on the Company.
During the period ended 31 March 2019, the Company itself had no
borrowings.
The Company's investment policy is set out in the Investment
Objective and Policy section of the Annual Report.
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 31 March 2019 GBP USD EUR Total
Converted to Converted to
GBP GBP GBP GBP
Trade and other receivables 1,185,147 9,623,168 83 10,808,398
Cash and cash equivalents 27,217,708 81,266,044 - 108,483,752
------------- ------------- ------------- ------------
Total financial assets 28,402,855 90,889,212 83 119,292,150
Trade and other payables 39,154,329 37,813 - 39,192,142
Total financial liabilities 39,154,329 37,813 - 39,192,142
Net asset position (10,751,474) 90,851,399* 83** 80,100,008
============= ============= ============= ============
*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
GBP9,085,140 lower / higher.
**At the reporting date, if the EUR 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 GBP8
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 risk is
deemed to be low given their respective position in the
industry.
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 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:
31 March
Location Rating 2019
GBP
-------------------------------------------------- ---------- -------- ------------
Barclays Bank plc Guernsey A* 3,720,550
Investec Bank plc UK P-1** 37,064,106
Blackrock Institutional Sterling Liquidity Fund UK AAAm* 67,699,096
*Rated by Standard & Poor's
** Rated by Moody'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 31 March 2019, the Group had no
financial liabilities other than trade and other payables.
15. Directors' interests and remuneration
The interests of the Directors in the share capital of the
Company at the period end and as at the date of this report are as
follows:
31 March 2019
Number of Ordinary Shares Total voting rights
Andrew Sutch 10,090 0.005%
Paul Burger 15,000 0.007%
Andrew Wilkinson 15,000 0.007%
Simon Holden 15,000 0.007%
------------------ -------------------------- --------------------
Total 55,090 0.026%
------------------ -------------------------- --------------------
During the period, the Directors earning the following
remuneration in the form of Director's fees from the Company:
31 March 2019
GBP
Andrew Sutch 36,586
Paul Burger 24,374
Andrew Wilkinson 32,521
Simon Holden 28,455
------------------- --------------
Total 121,936
------------------- --------------
The Directors will be remunerated for their services at a fee of
GBP35,000 per annum (GBP45,000 for the Chairman). The chairmen of
the Audit and Risk Management Committee and the Portfolio Committee
will receive an additional GBP5,000 for their services in these
roles.
Directors' fees and expenses for the period to 31 March 2019
amounted to GBP123,265, of which GBPnil was outstanding at the
period end.
The Directors have resolved that, with effect from 1 July 2019,
the annual remuneration for each Director will be increased to
GBP50,000, with an additional GBP7,500 per annum for the Chairman
and an additional GBP5,000 per annum for each of the Chairmen of
the Audit and Risk Management Committee and the Portfolio
Committee. These increases recognise the considerable commitment
and involvement of the Directors, outside the regular quarterly
board meetings, in attending committee and ad hoc board meetings
largely related to the review of new Catalogue acquisition, as well
as oversight of the development of the Investment Adviser's
operational infrastructure. This level of commitment can be seen in
the number of meetings shown in the table in the Corporate
Governance Report and is expected to be maintained as the Company
continues to grow and to acquire new Catalogues.
The Directors intend to confirm their commitment to their roles
by increasing over time their investment in Ordinary Shares, in
accordance with their personal circumstances and individual
investment arrangements.
16. Material Agreements
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 percent per annum of the Average Market Capitalisation up
to, and including, GBP250 million;
(ii) 0.90 percent per annum of the Average Market Capitalisation
in excess of GBP250 million and up to and including GBP500 million;
and
(iii) 0.80 percent per annum of the Average Market
Capitalisation in excess of GBP500 million.
Advisory fees for the period were GBP1,579,190 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
In respect of each accounting period, the Investment Adviser
(or, where the Investment Adviser so directs, any member of the
Investment Adviser's team) is entitled to receive a performance fee
(the "Performance Fee") equal to 10 percent 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 (payable in respect of the Average Market Capitalisation of
Ordinary Shares only) and the Performance Fee paid in respect of
that accounting period is no more than 5 percent of the lower of:
(i) Net Asset Value; or (ii) Closing Market Capitalisation at the
end of that accounting period.
The Excess Total Return for an accounting period 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 percent
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.
For the purposes of calculating the Performance Fee:
"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 (which shall be adjusted as appropriate: (i)
to include any dividend declared but not paid where the Ordinary
Shares are quoted ex such dividend at any time during that month;
(ii) to exclude any dividend paid in respect of the shares during
that month; and (iii) for the PSP Adjustments). During the period,
the average of the middle market quotations was 108.27 pence;
and
"PSP Adjustments" means adjustments to the Performance Share
Price to (i) include the gross amount of any dividends and/ or
distributions paid in respect of an Ordinary Share since initial
Admission; and (ii) make such adjustments to take account of C
Shares as were agreed between the Company and the Investment
Adviser, acting reasonably and in good faith, at the time of
issuance of such C Shares.
The amount of Performance Fee payable to the Investment Adviser
shall be paid in the form of a combination of: (a) cash equal to
all taxes or charges payable with respect to the Performance Fee by
the Investment Adviser or member(s) of the Investment Adviser's
Team; and (b) Ordinary Shares ("Performance Shares") which are
either issued by the Company where the Ordinary Shares are on
average trading at par or at a premium to the last reported
Operative NAV per Ordinary Share at the relevant time or purchased
from the secondary market where the Ordinary Shares are on average
trading at a discount to the last reported Operative NAV per
Ordinary Share at the relevant time and transferred to, the
Investment Adviser or member(s) of the Investment Adviser's
Team.
The Performance Shares is subject to 18 month lock-up
arrangements.
A performance fee for the period of GBP429,054 has been accrued
with the whole amount outstanding as at the reporting date. This
accrual will be settled in accordance with the Investment Advisory
Agreement in due course.
Administration Agreement
Pursuant to the Administration Agreements: (i) Estera
International Fund Managers (Guernsey) Limited has been appointed
as Administrator of the Company; and (ii) Estera Administration
(UK) Limited has been appointed as administrator to the
subsidiaries. The 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 Administrator is the designated manager of the
Company.
Investors should note that it is not possible for the
Administrator or Estera Administration (UK) Limited to provide any
investment advice to investors.
Under the terms of the Administration Agreement between the
Administrator and the Company, the Administrator is entitled to a
fixed fee of GBP139,000 per annum for services such as
administration, corporate secretarial, corporate governance,
regulatory compliance and stock exchange continuing obligations.
The Administrator will also be entitled to an accounting fee
charged on a time spent basis with a minimum fee of GBP40,000 per
annum and a cap of GBP80,000 per annum. Administration fees for the
period amounted to GBP104,470 of which GBP50,045 was outstanding at
the period end.
Under the terms of the Administration Agreement between Estera
Administration (UK) Limited and the subsidiaries, the administrator
is entitled to a fixed fee of GBP15,000 per annum (GBP14,000 per
annum effective from 1 January 2019) per subsidiary for services
such as administration, corporate secretarial and accounting.
Administration fees for the subsidiaries for the period amounted to
GBP51,484, all of which was outstanding at the period end.
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.
Under the terms of the Registrar Agreement, the Registrar is
entitled to a fixed fee of GBP7,500 per annum in respect of the
Ordinary Shares and GBP5,500 per annum in respect of the C Shares
(if applicable), together with additional ad hoc fees in respect of
additional out of scope services provided by the Registrar.
Registrar fees for the period were GBP6,306 with GBP1,440
outstanding at the reporting date.
17. Earnings per share
31 March 2019
Basic Diluted
----------------------------------------------------- ------------ ------------
Profit for the period (GBP) 2,359,454 2,359,454
Weighted average number of Ordinary Shares in issue 202,176,800 202,176,800
Earnings per share (pence) 1.17 1.17
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 31 March 2019.
There are no dilutive shares at 31 March 2019.
18. Auditor's Remuneration
Audit and non-audit fees payable to the auditors can be analysed
as follows:
31 March
2019
GBP
--------------------------------------------------------------------------------------------------- ---------
PricewaterhouseCoopers Cl LLP audit fees 110,000
PricewaterhouseCoopers Cl LLP professional fees in relation to the IPO in their role as reporting
accountants 80,000
19. Subsequent events
On 9 April 2019 the Company announced the acquisition of the
Teddy Geiger Catalogue. Teddy Geiger is best known for her
co-writing work with the global super-star, and multi-platinum
selling, Canadian singer and artist Shawn Mendes. The Company
acquired 100% interest in the Catalogue, which comprises six Songs
in total that have achieved 145 Top 10, 83 Top 5 and 23 Number 1
chart positions globally, and have over five billion streams on
Spotify and Apple Music.
On 12 April 2019 the Company announced a placing of
approximately GBP141.5 million at a price of 102 pence per share.
138,750,000 Ordinary Shares were admitted to trading on the SFS of
the London Stock Exchange on 17 April 2019.
On 17 April 2019 three Directors acquired Ordinary Shares in the
Company following the placing announced on 12 April 2019 at 102
pence per share. Simon Holden acquired 20,000 Ordinary Shares and
now holds 35,000 Ordinary Shares; Andrew Wilkinson acquired 10,000
Ordinary Shares and now holds 25,000 Ordinary Shares; and Paul
Burger acquired 7,500 Ordinary Shares and now holds 22,500 Ordinary
Shares.
On 23 April 2019 the Company announced the acquisition of the
Starrah Catalogue from Brittany Hazzard, a U.S. songwriter,
producer and singer whose songs have achieved 94 Number 1, 199 Top
5 and 277 Top 10 Chart positions globally. The Company acquired
100% interest in the Catalogue, which comprises 73 Songs in
total.
On 25 April 2019 the Company announced its third interim
dividend for the period from 1 January to 31 March 2019 of 1.25
pence per Ordinary Share. The dividend was paid to Shareholders, on
the register at the close of business on 3 May 2019, on 31 May
2019.
On 29 April 2019 the Company announced that it has changed its
registered office to PO Box 286, Floor 2, Trafalgar Court, Les
Banques, St Peter Port, Guernsey, GY1 4LY with immediate
effect.
On 10 May 2019 the Company announced the acquisition of the
David A. Stewart Catalogue. David A. Stewart is an English
musician, songwriter, and record producer, best known for
Eurythmics, his successful partnership with Annie Lennox. The
Company acquired 100% interest in the Catalogue, which comprises
1,068 Songs in total, which includes his songwriter's, artist's and
producer's share of income.
On 21 May 2019 the Company announced the acquisition of the
Jamie Scott Catalogue. Jamie Scott has co-written multiple platinum
certified singles including the four times platinum certified 'Cold
Water' by Major Lazer featuring Justin Bieber and the platinum
certified 'Skin' by Rag'n'Bone Man. Jamie Scott has notably
co-written 29 songs for One Direction, including the UK Number 1
and U.S. Top 10 'Drag Me Down' and 'Story of My Life'. The Company
has acquired 100% interest in the Catalogue including all BMI and
PRS income in his Catalogue which comprises 144 Songs.
On 28 May 2019 the Company announced the acquisition of the Ari
Levine Catalogue, which was acquired during the financial period
with the rights to income including the six months period to 31
March 2019. Ari Levine is a multi-Grammy nominated songwriter and
producer, best known for his work as a member of the three-piece
writing and producing group The Smeezingtons. Ari Levine has
achieved 99 Number 1, 256 Top 5 and 361 Top 10 Chart positions
globally with numerous artists including Bruno Mars, Ce Lo Green,
Diplo and Mark Ronson. The Company acquired 100% interest in the
Catalogue, which comprises 76 Songs in total.
On 30 May 2019 the Company announced the acquisition of the Al
Jackson Jr. Catalogue. Al Jackson Jr. is one of the most
influential and revered songwriters, producers and musicians of the
classic soul era of the 1960s and 1970s. The Company acquired 100%
interest in the Catalogue, which comprises 185 compositions and 199
recordings.
On 11 June 2019 the Company announced the acquisition of the
Michael Knox Catalogue. Michael Knox is an American music producer
and music publisher best known for discovering and producing for
the American country music singer Jason Aldean. The Company
acquired 100% interest in the Catalogue, which comprises 110 Songs
in total.
On 12 June 2019 the Company announced the acquisition of the Sam
Hollander Catalogue, which was acquired during the financial period
with the rights to income including the six months period to 31
March 2019. Sam Hollander is an American songwriter and producer
whose Songs have achieved 10 Number 1, 47 Top 5 and 74 Top 10 Chart
positions globally. At the heart of his Catalogue are 14 Songs that
Sam has written with his long-standing collaborators in Panic! At
The Disco. The Company acquired 100% interest in the Catalogue,
which comprises 499 Songs in total.
On the 12 June 2019 the Company acquired the Brian Kennedy
Catalogue. Brian Kennedy is an American songwriter and record
producer. Kennedy is best known for his work on 'Disturbia', which
was recorded by Rihanna for her 'Good Girl Gone Bad: Reloaded'
album, as well as for 'Forever', which was recorded by Chris Brown
for his 'Exclusive: The Forever Edition' album. The Company
acquired 100% interest in the Catalogue, which comprises 101 Songs
in total.
On the 12 June 2019 the Company acquired the Jon Bellion
Catalogue. Jon Bellion is an American songwriter, singer, rapper
and record producer best known for having co-written the global hit
single "The Monster" for Eminem featuring Rihanna topping the
charts in more than 30 countries including the UK and U.S.. The
Company acquired 100% interest in the Catalogue including all BMI
income which comprises 180 Songs in total.
On the 12 June 2019 the Company acquired the Lyric Financial
Catalogue. The Lyric Financial Catalogue comprises three catalogues
by the songwriters Patrick Brown, Carlos Broady, and Zephire
Williams. The Lyric Catalogue has achieved 12 Number 1 and 47 Top
10 chart positions globally. The Company acquired 100% interest in
the Catalogue including all BMI income which comprises 571 Songs in
total.
On the 21 June 2019 the Company acquired the Neal Schon
Catalogue. Neal Schon is an American rock guitarist, songwriter,
and vocalist inducted into the Rock And Roll Hall Of Fame in 2017.
He was a member of the seminal version of Santana as well as Bad
English and a respected solo career but he is best known for his
work Journey, one of the most important American bands of the 70's
and 80's which continues to sell out arenas all over the world to
this very day. The song 'Don't Stop Believin" by Journey is the
best-selling digital track from the 20th century with over 7
million copies sold in the United States and is but one of their
more than 15 U.S. Top 30 hits. The Company acquired 100% interest
in the Catalogue including all BMI, GMR and ASCAP income which
comprises 357 Songs in total.
On 21 June 2019, the Board approved its first interim dividend
for the new financial year, for the period from 1 April to 30 June
2019, of 1.25 pence per share. The dividend will be paid to
Shareholders, on the register at the close of business on 2 August
2019, on 30 August 2019. This completes the Company's dividend
target of 3.5 pence per share for the first 12 months following
Admission.
There were no other material events after the period end to the
date on which these 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
SFS of the London Stock Exchange, of the Ordinary Shares becoming
effective in accordance with the Listing Rules and/or the LSE
Admission Standards;
"AEOI" means Automatic Exchange of Information;
"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;
"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;
"Asset Management Committee" means a committee which considers
the ongoing management and revenue maximisation of the Catalogues
of Songs;
"Audit Committee" or "Audit and Risk Management 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;
"BMI" means Broadcast Music, Inc;
"BPI" means the British Phonographic Institute;
"Brexit" means the potential departure of the UK from the
EU;
"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 or artist;
"CBS" means a U.S. commercial broadcast television and radio
network;
"CD" means compact disc;
"CEO" means chief executive officer;
"CISAC" means the International Confederation of Societies of
Authors and Composers;
"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;
"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" means the U.S. Copyright Royalty
Board;
"Corporate Broker" means Nplus1 Singer Advisory LLP (N+1
Singer);
"Corporate Governance Code" means The UK Corporate Governance
Code 2016 as published by the Financial Reporting Council;
"DCF" means discounted cash flow;
"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;
"ECL" means expected credit losses;
"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 percent 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;
"EU" means European Union;
"FCA" means the UK Financial Conduct Authority (or its successor
bodies);
"FRC" means Financial Reporting Council;
"FSMA" means the UK Financial Services and Markets Act 2000;
"GFSC" or "Commission" means the Guernsey Financial Services
Commission;
"GFSC Code" means the GFSC Finance Sector Code of Corporate
Governance;
"GMR" means Global Music Rights;
"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;
"IAS" means international accounting standards as issued by the
Board of the International Accounting Standards Committee;
"IFPI" means International Federation of the Phonographic
Industry;
"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 Massarsky Consulting, Inc., appointed
by the Board to independently value the Company's Catalogues within
the Portfolio;
"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;
"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;
"Listing Rules" means the listing rules made by the UK Listing
Authority under section 73A FSMA;
"London Stock Exchange" or "LSE" means London Stock Exchange
Plc;
"MAR" means EU regulation 596/2014 on market abuse;
"MAU" means monthly active users;
"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 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;
"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 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;
"Portfolio" means the portfolio of Songs (whether organised into
Catalogues or otherwise) held by the Company directly or indirectly
from time to time;
"Portfolio Committee" means a committee which approves all
purchases of Catalogues of Songs;
"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 Listing" means the Premium Listing Segment of the
London Stock Exchange;
"Premium to Operative NAV" means the situation where the
Ordinary Shares of the Company are trading at a price higher than
the Company's Operative NAV;
"Prospectus" means the prospectus issued by the Company on 27
June 2018;
"PRS" means performing right society;
"PSP Adjustment" means adjustments to the Performance Share
Price to (i) include the gross amount of any dividends and/ or
distributions paid in respect of an Ordinary Share since initial
Admission; and (ii) make such adjustments to take account of C
Shares as were agreed between the Company and the Investment
Adviser, acting reasonably and in good faith, at the time of
issuance of such C Shares.
"RCIS Rules" means the Registered Collective Investment Scheme
Rules 2015;
"Recording Academy" means a U.S. academy of musicians,
producers, recording engineers and other musical professionals;
"Registrar" means Computershare Investor Services (Guernsey)
Limited;
"RIAA" means Recording Industry Association of America;
"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;
"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);
"The-Dream" means the Catalogue purchased from Terius Nash,
better known by his stage name 'The-Dream';
"TMS" means the Catalogue purchased from an English songwriting
and music production team comprised of Thomas 'Froe' Barnes,
Benjamin Kohn and Peter 'Merf' Keller;
"TV" means television;
"UK" or "United Kingdom" means the United Kingdom of Great
Britain and Northern Ireland;
"UKLA" means UK Listing Authority;
"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;
"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 U.S. video-sharing website;
"GBP" or "Pounds Sterling" or "Sterling" means British pound
sterling and "pence" means British pence;
"$" or "USD" means United States dollars and "cents" means
United States cents; and
"EUR" or "EUR" means the official currency of the majority of
member states of the EU.
Directors and General Information
Board of Directors Corporate Broker
Andrew Sutch (Chairman)(Appointed N+1 Singer Advisory LLP
8 June 2018) 1 Bartholomew Lane
Paul Burger (Appointed 30 July London
2018) EC2N 2AX
Andrew Wilkinson (Appointed
8 June 2018) Independent Auditor
Simon Holden (Appointed 8 June PricewaterhouseCoopers Cl LLP
2018) Royal Bank Place
1 Glategny Esplanade
Audit and Risk Management Committee St Peter Port
Andrew Wilkinson (Chairman)(Appointed Guernsey
8 June 2018) GY1 2HJ
Andrew Sutch (Appointed 8 June
2018) Music Specialist Legal Counsel
Paul Burger (Appointed 30 July CTABL Inc.
2018) 9460 Sunrise Lakes Boulevard
Simon Holden (Appointed 8 June Suite 302
2018) Sunrise
Florida 33322
Portfolio Committee USA
Paul Burger (Chairman)(Appointed
30 July 2018) Legal Advisers to the Company
Andrew Sutch (Appointed 8 June Herbert Smith Freehills LLP
2018) Exchange House
Andrew Wilkinson (Appointed Primrose Street
8 June 2018) London
Simon Holden (Appointed 8 June EC2A 2EG
2018)
Legal Advisers to the Company
Asset Management Committee as to Guernsey Law
Andrew Sutch (Chairman)(Appointed Ogier (Guernsey) LLP
8 June 2018) Redwood House
Paul Burger (Appointed 30 July St Julian's Avenue
2018) St Peter Port
Andrew Wilkinson (Appointed Guernsey
8 June 2018) GY1 1WA
Simon Holden (Appointed 8 June
2018) Principal Banker
Barclays Bank
Registered Office PO Box 41
Heritage Hall Le Marchant House
PO Box 225 St Peter Port
Le Marchant Street Guernsey
St Peter Port GY1 3BE
Guernsey
GY1 4HY Preferred Portfolio Administrator
Kobalt Music Services Limited
Effective from 29 April 2019 The River Building
Floor 2 1 Cousin Lane
Trafalgar Court London
Les Banques EC4R 3TE
St Peter Port
Guernsey Identifiers
GY1 4LY ISIN: GG00BFYT9H72
Ticker: SONG
Investment Adviser SEDOL: BFYT9H7
The Family (Music) Limited Website: www.hipgnosissongs.com
Lansdowne House LEI: 213800XJIPNDVKXMOC11
1b Lansdowne Road GIIN: 5XGPC8.99999.SL.831
Holland Park
London Managing your account online
W11 3LP
www.hipgnosissongs.com The Company's registrar, Computershare
Investor Services (Guernsey)
Administrator and Limited, allows you to manage
Company Secretary your shareholding online. If
Estera International Fund Managers you are a direct investor you
(Guernsey) Limited can view your shareholding,
Heritage Hall change the way the registrar
PO Box 225 communicates with you and buy
Le Marchant Street and sell shares. If you haven't
St Peter Port used this service before, all
Guernsey you need to do is enter the
GY1 4HY name of the Company and register
your account at
Effective from 29 April 2019 https://www-uk.computershare.com/investor.
Estera International Fund Managers You'll need your Investor code
(Guernsey) Limited (IVC) printed on your share
Floor 2 certificate in order to register.
Trafalgar Court
Les Banques
St Peter Port
Guernsey
GY1 4LY
Registrar
Computershare Investor Services
(Guernsey) Limited
1st Floor
Tudor House
Le Bordage
St Peter Port
Guernsey
GY1 1DB
Hipgnosis Songs Fund Limited
(the "Company")
NOTICE is hereby given that the First Annual General Meeting of
Hipgnosis Songs Fund Limited is to be held at The Tapestry Room,
The Ned, 27 Poultry, London, on 10 September 2019 at 10:30 am for
the transaction of the following business:
Ordinary Resolutions
1. TO receive and adopt the Annual Report and Audited Financial
Statements of the Company for the year ended 31 March 2019.
2. THAT the Directors' remuneration for the period ended 31
March 2019 as provided in the Directors' report be approved.
3. TO re-appoint PricewaterhouseCoopers CI LLP, who have
indicated their willingness to continue in office, as Auditor of
the Company to hold office until the conclusion of the next Annual
General Meeting.
4. TO authorise the Directors to determine the remuneration of PricewaterhouseCoopers CI LLP.
5. TO elect Andrew Sutch, retiring in accordance with the
Company's Articles of Incorporation (the "Articles"), as a Director
of the Company.
6. TO elect Andrew Wilkinson, retiring in accordance with the
Articles, as a Director of the Company.
7. TO elect Simon Holden, retiring in accordance with the
Articles, as a Director of the Company.
8. TO elect Paul Burger, retiring in accordance with the Articles, as a Director of the Company.
9. THAT the Company's dividend policy be approved.
10. As special business, THAT the Company, in accordance with
Section 315 of The Companies (Guernsey) Law 2008 as amended (the
"Law") be approved to make market acquisitions (as defined in
Section 316 of the Law) of its ordinary shares either for retention
as treasury shares, insofar as permitted by the Law, or
cancellation, provided that:-
i) the maximum number of shares authorised to be purchased in
the market is up to 51,104,927 of the Company's ordinary shares
(Ordinary Shares) (or, if lower, up to 14.99 per cent. of the
Ordinary Shares in issue (excluding treasury shares in issue) as at
the time immediately following the passing of the resolution);
ii) the minimum price (exclusive of expenses) which may be paid
for an ordinary share is GBP0.01;
iii) the maximum price (exclusive of expenses) which may be paid
for an ordinary share is an amount equal to the higher of: (i) 5
per cent above the average of the mid-market values for an ordinary
share (as derived from the regulated market on which the repurchase
is carried out) for the five business days immediately preceding
the day on which that purchase is made; and (ii) the higher of: (a)
the price of the last independent trade; or (b) the highest current
independent bid at the time of purchase, in each case on the
regulated market where the purchase is carried out;
iv) subject to paragraph (v), such authority shall expire at the
annual general meeting of the Company to be held in 2020 (unless
previously varied, revoked or renewed by the Company in general
meeting) or, if earlier, the date falling 18 months from the
passing of this resolution;
v) notwithstanding paragraph (iv), the Company may make a
contract to purchase its ordinary shares pursuant to the authority
hereby conferred prior to the expiry of such authority which will
or may be executed wholly or partly after the expiry of such
authority and may make a purchase of its own ordinary shares in
pursuance of any such contract notwithstanding the authority given
by this resolution.
Estera International Fund Managers (Guernsey) Limited
Company Secretary
24 June 2019
PO Box 286
Floor 2
Trafalgar Court
Les Banques
St Peter Port
Guernsey
GY1 4LY
Notes to the Notice of the Annual General Meeting:
1. A member is entitled to attend and vote at the Meeting
provided that all calls due from him in respect of his shares have
been paid. A member is also entitled to appoint one or more proxies
to attend and, on a poll, vote instead of him. The proxy need not
be a member of the Company.
2. A form of proxy is enclosed with this notice. To be
effective, the instrument appointing a proxy (together with any
power of attorney or other authority under which it is executed or
a duly certified copy of such power) must be sent to Computershare
Investor Services PLC, The Pavillions, Bridgwater Road, Bristol,
BS99 6ZY not less than 48 hours (excluding non-working days) before
the time for holding the meeting (10.30am 6 September 2019) or
adjourned meeting as the case may be. A corporation may execute a
proxy under its common seal or by the hand of a duly authorised
officer or other agent. Completion and return of the form of proxy
will not preclude shareholders from attending and voting in person
at the meeting.
3. The quorum for the Meeting is at least two members present in
person or by proxy. An ordinary resolution means a resolution
passed by a simple majority of those present at the meeting in
person or by proxy and voting on the resolution. A special
resolution means a resolution passed by a majority of not less than
75% of those present at the meeting in person or by proxy and
voting on the resolution. An extraordinary resolution means a
resolution passed by a majority of not less than 75% of those
present at the meeting in person or by proxy and voting on the
resolution.
4. To appoint a proxy or to give or amend an instruction to a
previously appointed proxy via the CREST system, the CREST message
must be received by the Issuer's agent 3RA50 by 10.30 am on 6
September 2019. For this purpose, the time of receipt will be taken
to be the time (as determined by the timestamp applied to the
message by the CREST Applications Host) from which the Issuer's
agent is able to retrieve the message. After this time any change
of instructions to a proxy appointed through CREST should be
communicated to the proxy by other means. CREST Personal Members or
other CREST sponsored members, and those CREST Members who have
appointed voting service provider(s) should contact their CREST
sponsor or voting service provider(s) for assistance with
appointing proxies via CREST. For further information on CREST
procedures, limitations and system timings please refer to the
CREST Manual. We may treat as invalid a proxy appointment sent by
CREST in the circumstances set out in Regulation 35(5) (a) of the
Uncertificated Securities Regulations 2001. In any case your proxy
form must be received by the Company's Registrars no later than
10.30 am on 6 September 2019.
5. In accordance with Regulation 41 of the Uncertificated
Securities Regulations 2001 and Article 14.4 of the Company's
Articles of Incorporation, only those members entered in the
Register of Members of the Company at close of business on 6
September 2019 shall be entitled to attend or vote at the Meeting
in respect of the number of shares registered in their name at that
time. Changes to entries on the Register of Members after that time
shall be disregarded in determining the rights of any person to
attend or vote at the Meeting.
6. The Register of Directors' Interests kept by the Company
shall be available for inspection at the Registered Office of the
Company by any member between the hours of 10 am and 12 noon on any
business day for a period of 14 days before and ending 3 days after
the Annual General Meeting. The Register of Directors' Interests
shall be produced at the commencement of the Annual General Meeting
and shall remain open and accessible during the continuance of the
Annual General Meeting to any person attending such meeting.
7. Resolution 2, Directors' remuneration: Guernsey-registered
companies are not obliged to prepare and publish a Directors'
Remuneration Report. However, the Company has included details of
its Directors' remuneration within the Annual Report and Accounts
and an ordinary resolution will be put to shareholders seeking
approval of the Directors' remuneration and will be advisory
only.
8. Resolutions 5 - 8, Election of Directors: Pursuant to Article
23.5 of the Company's Articles, each director shall retire from
office at each Annual General Meeting and each director may offer
themselves for election or re-election by the members.
9. Resolution 9, Approval of Interim Dividends: Interim
dividends do not require shareholder approval under the Law.
However, the Board wishes to afford the shareholders the ability to
approve the Company's dividend policy, as set out in the Prospectus
and summarized in the Chairman's Statement.
10. Resolution 10, Market acquisitions: This resolution gives
the Board authority to make market purchases of the Company's own
shares, up to 14.99 per cent. of the Company's issued share capital
(as at the time immediately following the passing of the
resolution) and subject to minimum and maximum purchase prices. The
Board are seeking renewal of this authority as disclosed on pages
64 and 65 of the Prospectus.
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 Chairman'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 Chairman'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
Form of Proxy
The First Annual General Meeting of Hipgnosis Songs Fund Limited
is to be held at The Tapestry Room, The Ned, 27 Poultry, London, on
10 September 2019 at 10.30 am.
Name of Registered Shareholder
---------------------------------
I/We, being a member of the Company, hereby appoint the Chairman
of the Meeting and/or a representative of Estera International Fund
Managers (Guernsey) Limited or
________________________________________ to be my/our proxy to
attend and, on a poll, vote on my/our behalf at the Annual General
Meeting of Hipgnosis Songs Fund Limited to be held on 10 September
2019 at 10.30 am or at any adjournment thereof. I request my/our
proxy to vote in the manner indicated below:
Ordinary Resolutions For Against Withheld
------------------------------------------------------- ---- -------- ---------
1. To receive and adopt the Annual Report
and Audited Financial Statements of the
Company for the year ended 31 March 2019
(the "Annual Report").
------------------------------------------------------- ---- -------- ---------
2. That the Directors' remuneration for
the period ended 31 March 2019 as provided
in the Director's report contained in the
Annual Report be approved.
---- -------- ---------
3. To re-appoint PricewaterhouseCoopers
CI LLP, who have indicated their willingness
to continue in office, as Auditor of the
Company to hold office until the conclusion
of the next Annual General Meeting.
---- -------- ---------
4. To authorise the Directors to determine
the remuneration of PricewaterhouseCoopers
CI LLP.
------------------------------------------------------- ---- -------- ---------
5. To elect Andrew Sutch, retiring in accordance
with the Company's Articles of Incorporation
(the "Articles"), as a Director of the Company.
---- -------- ---------
6. To elect Andrew Wilkinson, retiring in
accordance with the Articles, as a Director
of the Company.
---- -------- ---------
7. To elect Simon Holden, retiring in accordance
with the Articles, as a Director of the
Company.
---- -------- ---------
8. To elect Paul Burger, retiring in accordance
with the Articles, as a Director of the
Company.
---- -------- ---------
9. THAT the Company's dividend policy be
approved.
---- -------- ---------
10. To authorise the Company in accordance
with Section 315 of The Companies (Guernsey)
Law 2008 as amended (the "Law") to make
market acquisitions (as defined in Section
316 of the Law) of its ordinary shares,
or any different classes of shares, either
for retention as treasury shares or cancellation
in line with the provisions stated in the
Notice.
---- -------- ---------
Date:_______________________ Signature:__________________________________________
Notes
1. Only holders of Ordinary Shares, or their duly appointed
representatives, are entitled to attend and vote at the Meeting. A
member so entitled may appoint one or more proxies to attend and,
on a poll, vote instead of him. The proxy need not be a member of
the Company. To appoint more than one proxy you may photocopy this
form
2. Shares held in uncertified form (i.e. in CREST) may be voted
through the CREST Proxy Voting Service in accordance with the
procedures set out in the CREST manual.
3. To appoint more than one proxy you may photocopy this form.
In the 'Name of Registered Shareholder' box on page 1, please
indicate the shareholder's name and the number of shares in
relation to which your proxy is authorised to act (which, in
aggregate, should not exceed the number of shares held by you).
Please also indicate if the proxy instruction is one of multiple
instructions being given. All forms must be signed and should be
returned together in the same envelope.
4. If you wish to appoint someone other than the Chairman of the
Meeting as your proxy, please insert his/her name in the space
provided and delete "the Chairman of the Meeting or".
5. Please indicate with an "X" in the boxes how you wish your
vote to be cast. Unless otherwise instructed, the person appointed
as a Proxy will exercise his/her discretion as to how he/she votes
or whether he/she abstains from voting on any particular resolution
and on any other business (including amendments to resolutions and
procedural business) which may come before the Meeting.
6. The "Withheld" option on the Form of Proxy is provided to
enable you to abstain on any particular resolution. However, a vote
withheld is not a vote in law and will not be counted in the
calculation of the proportion of votes "For" and "Against" a
resolution.
7. A corporation must seal the Form of Proxy or have it signed
by an officer or attorney or any other person authorised to sign on
its behalf.
8. In the case of joint holders, only one need sign this Form of
Proxy, but the vote of the senior who tenders a vote, whether in
person or by proxy, will be accepted to the exclusion of the votes
of the other joint holders. For this purpose, seniority shall be
determined by the order in which the names stand in the Register of
Members of the Company in respect of the joint holding.
9. To be valid this Form of Proxy must reach Computershare
Investor Services PLC, by no later than 48 hours (excluding
non-working days) before the time for holding the meeting (10.30 am
on 6 September 2019) or adjourned meeting as the case may be.
Lodgment of a Form of Proxy does not prevent a member from
attending the Meeting in person. Please return this Form of Proxy
to the following address: Computershare Investor Services PLC, The
Pavillions, Bridgwater Road, Bristol, BS99 6ZY.
Hipgnosis Songs Fund Limited
Floor 2
Trafalgar Court
Les Banques
St Peter Port
Guernsey
GY1 4LY
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
FR FJMTTMBATTBL
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June 24, 2019 02:01 ET (06:01 GMT)
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