TIDMSONG
RNS Number : 4805W
Hipgnosis Songs Fund Limited
11 December 2019
11 December 2019
Hipgnosis Songs Fund Limited ("Hipgnosis" or the "Company")
Interim Results
for the six months ended 30 September 2019 ("H1")
The Board of Hipgnosis Songs Fund Limited and its Investment
Adviser, The Family (Music) Limited, are pleased to announce the
Company's interim results for the six months ended 30 September
2019.
Operational Highlights
-- As at 30 September 2019 the Company had invested
approximately GBP319.4 million through the acquisition of 27
Catalogues on a blended acquisition multiple of 12.84x historical
annual net income, resulting in interests in 7,475 Songs
o 1,061 Songs have held Number 1 positions in global charts
o 4,027 Songs have help Top 10 positions in global charts
o 15 Songs have won Grammy Awards
-- During the period GBP192.6 million of gross equity capital
was raised through secondary placings of Ordinary Shares
o Post period end GBP231.0 million of gross equity capital was
raised through our first issue of C Shares
-- In September, the Company transferred its entire issued share
capital to the Premium Listing Segment of the Official List of the
FCA and to the London Stock Exchange's Premium Segment of the Main
Market
-- Since the period end the Company has invested a further
GBP186.1 million through the acquisition of 15 Catalogues taking
the total portfolio to 42 Catalogues, comprising 11,225 Songs, with
a blended acquisition multiple of 12.99x historical annual net
income
-- Our Investment Adviser, The Family (Music) Limited, is
currently in advanced stage discussions on an investment pipeline
of over GBP1 billion
Financial Highlights
-- Operative NAV increased by 5.0% to 108.46p (31 March 2019: 103.27p)
-- Fair value of Catalogues, as determined by the independent
valuer, increased to GBP344.6 million representing
o A fair value increase of GBP16.6 million (5.0%) since 31 March
2019
o A fair value increase of GBP25.4 million (7.9%) on acquisition
cost, of which GBP15.6 million has been driven by like-for-like
valuation increases excluding the impact of changes to USD:GBP
exchange rates
-- Net revenue from the portfolio increased to GBP22.6 million
which was ahead of management expectations
-- Adjusted(1) EPS increased to 3.55 pence per Ordinary Share
and fully covered dividends declared in respect of the period
-- At 30 September 2019, total dividends paid since launch on 11
July 2018 is 3.5p per Ordinary share representing a Total NAV
Return of 11.96%
o Dividends of 2.5p paid during the period representing a Total
NAV Return of 7.45% for the 6 month period
o Hipgnosis remains on track to achieve target dividend(2) of 5
pence per Ordinary Share for the full financial year
-- Since 30 September, a second interim dividend of 1.25 pence
per Ordinary Share has been declared and paid
Portfolio Highlights
-- Hipgnosis co-own five of the Billboard Magazine's recently
announced "Top 10 Songs of the Decade":
o Number 1 - 'Uptown Funk' by Mark Ronson featuring Bruno Mars
which was Number 1 in 19 countries and topped the Billboard Hot 100
for 14 weeks, is certified 11x platinum in the US and has been
streamed over 1.1 billion times on Spotify alone.
o Number 3 - 'Shape of You' by Ed Sheeran which was the best
performing song of 2017 and was announced as the most streamed song
of the decade after becoming the first song to reach 2 billion
streams. 'Shape of You' topped the singles charts in 34 countries
including the US where it remained Number 1 for a record equalling
16 consecutive weeks and is certified diamond in 5 countries
including in the US.
o Number 4 - 'Closer' by The Chainsmokers featuring Halsey which
reached Number 1 in over 10 countries and topped the Billboard Hot
100 for 12 consecutive weeks. It also became only the second song
in the history of the Billboard Hot 100 to spend 32 weeks in the
Top 10.
o Number 5 - 'Girls Like You' by Maroon 5 featuring Cardi B
which topped the charts in 17 countries including spending 7
consecutive weeks at the top of the Billboard Hot 100.
o Number 9 - 'Despacito' by Luis Fonsi and Daddy Yankee
featuring Justin Bieber which topped the Billboard Hot 100 for a
record equalling 16 consecutive weeks and became the first Latin
song to be certified diamond in the US.
-- 'These Days' co-written by Jamie Scott received the Ivor
Novello award for 'Most Performed Work'.
-- At the 2019 Billboard Awards:
o The Chainsmokers took home the "Top Dance/Electronic Album"
for their album 'Sick Boy' and "Top Dance/Electronic Artist".
o Panic! At the Disco were awarded "Top Rock Song" for 'High
Hopes' and "Top Rock Album" for their album 'Pray for the Wicked',
which Sam Hollander wrote nine songs on.
o 'Girls Like You' by Maroon 5 featuring Cardi B, which was
co-written by Starrah, won "Top Hot 100 Song", "Top Selling Song",
"Top Radio Song" and "Top Collaboration".
-- At time of writing, 'High Hopes', co-written by Sam
Hollander, has spent 75 weeks in the Billboard Hot Rock Songs
Chart, with 41 of those being at Number 1. It is also arguably the
most synced song of 2019.
-- Nile Rodgers curated 'Meltdown 2019' where he performed songs
co-written with Bernard Edwards as Chic. David A. Stewart also
launched his live show "The Eurythmics Songbook" at Meltdown 2019
to a sold out audience.
-- Jason Aldean earned his 23rd career and fourth consecutive
radio chart topper with 'Rearview Town' off his Number 1 album
'Rearview Town' which was produced by Michael Knox. His new album
'9', which was included in the Michael Knox deal, is currently the
Number 1 album on the Billboard sales chart and Number 2 on the
Billboard 200 which combines sales and streaming. In addition to
the producer royalties it includes four songs we co-own written by
Jaron Boyer.
-- In November, Journey and David A. Stewart were announced as
nominees for the 2020 Songwriters Hall of Fame.
-- Nile Rodgers & Chic had an incredibly successful summer
tour of the UK and Europe and now continue to tour the US with Cher
performing numerous hits from our Bernard Edwards Catalogue.
-- Celine Dion's new album 'Courage' - including our single
'Lying Down' by Giorgio Tuinfort - is currently Top 5 all over the
world and has just been Number 1 in the US.
-- Beyoncé's 'Homecoming' movie (and album) includes more than
14 of our songs and in addition to being a massive success has just
been nominated for a 2020 Grammy Award.
-- Shawn Mendes continues his world tour - one of the most
successful of 2019 globally - performing all of the songs we co-own
via several of his co-writers.
-- Adele's album '21', which includes 'Set Fire To The Rain'
co-written and produced by Fraser T. Smith, has reached 2.5 billion
streams on Spotify alone.
-- Eurythmics - David A. Stewart and Annie Lennox reunited for
the first time in 14 years for Sting's Rainforest Fund benefit
playing 3 Songs from our Portfolio.
(1) Excluding GBP1.5 million of exceptional expenses relating to
the Working Capital Facility and Migration to the Premium Segment
of the London Stock Exchange.
(2) 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.
A copy of the Interim Report and Condensed Consolidated
Financial Statements has been submitted to the National Storage
Mechanism and will shortly be available for inspection at
www.morningstar.co.uk/uk/NSM. The Interim Report and Condensed
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 - Joint Corporate Broker Tel: +44 (0)20 7496
James Maxwell / James Moat (Corporate 3000
Finance)
Alan Geeves / James Waterlow / Sam Greatrex
(Sales)
J.P. Morgan Cazenove - Joint Corporate Tel: +44 (0)20 7742
Broker 4000
William Simmonds / Ed Murray / Jérémie
Birnbaum (Corporate Finance)
James Bouverat / Eddie Nissen (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. The Company has raised a total of over GBP625
million (gross equity capital) through its Initial Public Offering
on 11 July 2018, and subsequent issues in April 2019, August 2019
and October 2019. In September 2019, Hipgnosis transferred its
entire issued share capital to the Premium listing segment of the
Official List of the FCA and to the London Stock Exchange's Premium
segment of the Main Market.
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
Stewart, Bill Leibowitz, Ian Montone, and Jason Flom.
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 is 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.
Principal Risks and Uncertainties
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.
The risks set out below are taken from the Company's latest
Prospectus published on 27 September 2019. 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.
Key risks relating to the Company:
-- The Company has a limited operating history, and investors
have a limited basis on which to evaluate the Company's ability to
achieve its investment objective; and
-- The Company's target annual dividend yield and target total
NAV return are 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
payments of dividends from capital reduces the amount of cash that
can be deployed for investment purposes.
Key risks relating to the music industry:
-- For a wide number of reasons, a Song may not prove to be as
popular, or as commercially successful, as had been forecast at the
time of acquisition and there can be no guarantee that the historic
performance of a Song will continue in the future;
-- DSPs may alter their current prices for consumers which could
impact on the profitability of the Songs licensed to such DSPs;
and
-- 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, which may affect the pricing structures used by such
DSPs.
Key risks relating to the Company's Investment Adviser:
-- The Company and the other fund entities are reliant on the
expertise of the Investment Adviser and its key personnel
(including Merck Mercuriadis) to source and advise on potential
Catalogues and to implement the Company's investment strategy so as
to meet the target dividend yield and target total NAV return.
Key risks relating to the Company's investment policy:
-- Catalogues and other Songs are difficult to value and Song
valuations are subject to fluctuations. The market standard
valuation method is to value Songs and Catalogues by reference to
historic revenues generated. There can therefore be no guarantee
that the valuation will be justified by reference to future
revenues or that the Company will be able to realise the
acquisition value upon a future sale;
-- The Company's investments may be subject to foreign currency
fluctuations between Sterling and any other currency in which
acquisitions of Catalogues are denominated or income is earned by
the Company, which may have an adverse effect on the performance of
the Company; and
-- The Company may utilise borrowings for working capital,
interest rate hedging purposes, and for short-term bridging
purposes to finance the acquisition of Songs. While such leverage
provides flexibility and presents opportunities for increasing
total NAV return, it can also have the opposite effect of
increasing losses.
Key risks relating to regulation and taxation:
-- If payments to the Group are subject to withholding tax in
any tax jurisdiction, the Company's financial condition and
prospects could be materially and adversely affected; and
-- Changes in law or regulations underpinning the Company's
regulatory environment, or a failure to comply with any laws or
regulations, may adversely affect the businesses, investments and
performance of the Company and the Investment Adviser.
AIC
The Company is a member of the Association of Investment
Companies and complies with the AIC Code. The Company's page can be
found by clicking on this link.
Website
The Company's website, which can be found at
www.hipgnosissongs.com, includes information on the Company, such
as its prospectus, past reports and accounts, policies, media
coverage and regulatory news announcements.
Chairman's Statement
Introduction
This is the Company's second interim report since its launch and
it covers the six months ended 30 September 2019. The report
summarises that significant progress has been made in building a
portfolio of proven Songs which are generating strong investment
returns and in raising new equity capital to fund further
investments with a view to delivering increased value for our
shareholders.
During the period, the Company has invested a further GBP199.5
million across 15 Catalogues utilising the remaining proceeds from
the IPO in 2018 as well as proceeds from the subsequent placing
raising GBP141.5 million in April 2019. Having deployed or
committed our existing capital resources the Company raised a
further GBP51.1 million of equity capital in August 2019.
At the end of September the portfolio consisted of 27 Catalogues
with an aggregate acquisition value of GBP319.4 million. Since the
period end, the Company has acquired a further 15 Catalogues for an
aggregate of GBP186.1 million increasing our current portfolio to
42 Catalogues comprising 11,225 Songs.
In September, the Company transferred its entire issued share
capital to the Premium Listing Segment of the Official List of the
FCA and to the London Stock Exchange's Premium Segment of the Main
Market ahead of a successful C Share issue in October which raised
GBP231.0 million, taking the total equity capital raised since IPO
to over GBP625 million.
Investments
During the period to 30 September 2019, the Company acquired 15
Catalogues comprising 4,379 Songs for a total consideration of
GBP199.5 million. The acquisitions have significantly diversified
the portfolio which now includes Songs performed by hundreds of
artists across multiple genres. All of the acquisitions were
sourced by our Investment Adviser, The Family (Music) Limited, who
together with its Advisory Board provide access to some of the most
successful artists, songwriters and producers globally.
Performance
I am pleased to report an increase in net income from the
portfolio to GBP22.6 million for the period (financial period ended
31 March 2019: GBP7.2 million), which was ahead of management's
expectations for the period. Adjusted([1]) operating profit for the
period before tax increased to GBP14.1 million (financial period
ended 31 March 2019: GBP3.0 million) with an increased ongoing
charges figure of 1.76% (financial period ended 31 March 2019:
1.70%) as a result of increased due diligence and other variable
acquisitions costs as the Company has acquired a greater number of
Catalogues during the period and built a significant pipeline of
Catalogues for acquisition in the second half of our financial
year.
Adjusted Earnings Per Share (EPS)([1]) grew to 3.55p (financial
period ended 31 March 2019: 1.17p) and basic EPS grew to 3.19p
(financial period ended 31 March 2019: 1.17p).
The Board considers that the most relevant NAV for Shareholders
is the 'Operative NAV' which reflects the fair value of the
Company's Catalogues as valued by an Independent Valuer and is
calculated semi-annually. The Operative NAV as at 30 September 2019
increased by 5.03% to 108.46p per Ordinary Share, from 103.27p as
at 31 March 2019. Therefore, together with the dividends of 2.5p
per Ordinary Share paid, the Company has delivered a total NAV
return of 7.45% during the period.
At 30 September 2019 the Company had no C Shares in issue;
therefore the first NAV for the C Shares to be published, unless
already converted, will be as at 31 March 2020.
Dividend
In the first half of the current financial year the Company has
paid dividends of 2.5p per Ordinary Share. The Company's third
interim dividend for the period from 1 January 2019 to 31 March
2019 of 1.25p per Ordinary Share was paid on 31 May 2019. The first
interim dividend for the period from 1 April 2019 to 30 June 2019
of 1.25p per Ordinary Share was paid on 30 August 2019.
Since the period end, on 24 October 2019 the Company declared
its second interim dividend for the period from 1 July 2019 to 30
September 2019 of 1.25p Ordinary Share and which was paid to
shareholders on 29 November 2019.
As previously reported, the Company is targeting a total
dividend of 5.0p(2) per Ordinary Share for the current financial
year ending 31 March 2020.
Working Capital Facility
In its first Annual Report, the Company stated that the
Directors considered 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.
In August 2019, the Company negotiated a GBP65 million Revolving
Credit Facility with JP Morgan Chase Bank, N.A., with an option to
increase this to GBP100 million, subject to certain conditions and
commitments from willing lenders. The facility, which is available
for three years, will provide Hipgnosis with increased flexibility
to fund investments and working capital going forward. At period
end GBP13.75 million was drawn on this facility which has since
been repaid. The Revolving Credit Facility is at present
unutilised.
The maximum level of gearing under the Company's investment
restrictions is 20% of the Company's net asset value. The Board
will continue to review the Company's level of gearing, if any, on
a regular basis.
([1]) Excludes GBP1.5 million of exceptional expenses relating
to the Working Capital Facility and Migration to the Premium
Segment of the London Stock Exchange.
((2) 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.
The Board
As part of the Company's migration to the Premium Listing
Segment of London Stock Exchange's Main Market the Company has made
the following changes to the Board and its committees:
-- Paul Burger was appointed as Senior Independent Director on 9 September 2019;
-- Sylvia Coleman was appointed as an independent Non-Executive
Director with effect from 21 November 2019; and
-- On 9 September 2019, the Board established a nomination
committee and a remuneration committee which will be responsible
for appointment and remuneration of Directors:
o Nomination Committee
Paul Burger has been appointed as the Chairman of the Nomination
Committee. As the Board is comprised wholly of independent
Non-Executive Directors, all members of the Board are members of
the Nomination Committee.
o Remuneration Committee
Simon Holden has been appointed as the Chairman of the
Remuneration Committee. As the Board is comprised wholly of
independent Non-Executive Directors, all members of the Board are
members of the Remuneration Committee.
Outlook
On behalf of the Board I would like to express my thanks to all
of our Shareholders for their continuing support. The Company
continues to work tirelessly to assemble a diversified portfolio of
proven Songs, sourced by our Investment Adviser. Our pipeline of
Catalogues remains very strong with a total investment value of
over GBP1 billion and our investment thesis remains as strong as it
was at the time of our IPO. I look forward to updating you as we
deploy our remaining capital.
Andrew Sutch
Chairman
10 December 2019
Financial and Operational Highlights
As at 30 September 2019, the Company had raised a total of
approximately GBP395 million (gross equity capital) through its
Initial Public Offering on 11 July 2018, and subsequent placings in
April 2019 and August 2019.
Catalogue Acquisitions during the period
As at 30 September 2019, the Company had deployed approximately
GBP199.5 million during the interim period and GBP319.4 million in
total since IPO on 27 Catalogues (7,475 Songs).
The Catalogues acquired as at 30 September 2019 are as
below:
Catalogue Acquisition Date Interest Ownership Total Songs
Terius Nash (The-Dream 11 July 2018 75% 302
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Jason Boyd (Poo
Bear 16 November 2018 100% 214
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Bernard Edwards 28 November 2018 37.5% 290
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TMS 7 December 2018 100% 121
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Tricky Stewart 17 December 2018 100% 121
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Giorgio Tuinfort 3 January 2019 100% 182
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Itaal Shur 30 January 2019 100% 209
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Rico Love 21 March 2019 100% 245
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Sean Garrett 21 March 2019 100% 588
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Johnta Austin 21 March 2019 100% 249
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Ari Levine 31 March 2019 100% 76
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Sam Hollander 31 March 2019 100% 499
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Teddy Geiger 9 April 2019 100% 6
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Starrah 23 April 2019 100% 73
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David A. Stewart 10 May 2019 100% 1,068
------------------ ------------------- ------------
Jamie Scott 21 May 2019 100% 144
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Al Jackson Jr. 30 May 2019 100% 185
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Michael Knox 10 June 2019 100% 110
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Lyric Catalogue 12 June 2019 100% 571
------------------ ------------------- ------------
Brian Kennedy 12 June 2019 100% 101
------------------ ------------------- ------------
Jon Bellion 12 June 2019 100% 180
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Neal Schon 21 June 2019 100% 357
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Eric Bellinger 1 July 2019 100% 242
------------------ ------------------- ------------
Jason Ingram 1 July 2019 100% 462
------------------ ------------------- ------------
Andy Marvel 26 July 2019 100% 740
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Benny Blanco 7 August 2019 100% 93
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The Chainsmokers 20 August 2019 100% 47
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Total 7,475
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Key Metrics
30 September 2019 31 March 2019
GBP GBP
------------------------------------------------------------------ ------------------ ----------------
IFRS NAV (1) 389,448,352 198,558,826
Adjustments for revaluation of Catalogues of Songs to fair value 25,353,642 8,743,795
Reversal of IFRS amortisation 7,487,840 1,491,922
Operative NAV (2) 422,289,834 208,794,543
Operative NAV (2) per share 108.46p 103.27p
Middle market share price 107.50p 107.50p
(Discount) / Premium to Operative NAV (0.9%) 4.10%
Ongoing charges figure (%)(3)(4) 1.76% 1.70%
Total dividends declared in respect of the period 2.5p 2.25p
(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
(GBP6,819,369) divided by average Operative NAV GBP387,161,801.
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.
(4) The ongoing charges figure has been adjusted to exclude
GBP1.5 million of exceptional expenses relating to the Working
Capital Facility and Migration to the Premium Segment of the London
Stock Exchange
Subsequent Events
At the end of September 2019, Hipgnosis transferred its entire
issued share capital to the Premium Listing Segment of the Official
List of the FCA and to the London Stock Exchange's Premium segment
of the Main Market ahead of a successful C Share raise in October
of GBP231.0 million. The total capital raised since launch now
stands at over GBP625 million.
Catalogue Acquisitions subsequent to the period end
As at 10 December 2019, the Company had deployed approximately
GBP505.6 million on 42 Catalogues (11,225 Songs).
Catalogue Acquisition Date Interest Ownership Total Songs
Timbaland 9 October 2019 100% 108
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Journey* 17 October 2019 100% 103
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10cc 17 October 2019 100% 29
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Jaron Boyer 5 November 2019 100% 109
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John Newman 7 November 2019 100% 47
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Arthouse 15 November 2019 100% 44
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Fraser T Smith* 25 November 2019 100% 298
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Ammar Malik* 5 December 2019 100% 90
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Kaiser Chiefs* 9 December 2019 100% 48
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Ed Drewett* 9 December 2019 100% 109
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Jack Antonoff* 10 December 2019 99% 188
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Emile Haynie* 10 December 2019 100% 122
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Jeff Bhasker* 10 December 2019 100% 436
------------------ ------------------- ------------
Brendan O'Brien* 10 December 2019 100% 1,855
------------------ ------------------- ------------
Johnny McDaid* 10 December 2019 100% 164
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Total to date 3,750
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* These Catalogues have been allocated to the C Shares
Investment Adviser's Report
Introduction
I created the Company to establish proven songs as an asset
class and give the investment community access to the predictable
and reliable revenues generated by these incredible Songs. I am
delighted to report on our second interim period where we are
seeing excellent returns being generated from the Catalogues that
we have acquired.
Since 31 March 2019, we have acquired a further 30 Catalogues
which contain some of the most culturally important and
commercially successful Songs of all time including Eurythmics'
'Sweet Dreams (Are Made of This)', Journey's 'Don't Stop Believin",
The Chainsmokers' 'Closer', Al Green's 'Let's Stay Together' and Ed
Sheeran's 'Shape of You' and 'Castle On The Hill'.
I am thrilled that we now co-own five of the "Top 10 Songs of
the Decade" as recently announced by Billboard Magazine. This
includes the record breaking Number 1 hit of the decade 'Uptown
Funk' which topped the singles charts in 19 countries including
staying at Number 1 on the Billboard Hot 100 for 14 consecutive
weeks making it one of the longest running Number 1 singles of the
decade. It also broke the US and worldwide streaming record whilst
being certified 11x platinum in the US.
I am delighted that we have transferred our entire share capital
to the gold standard of stock exchanges, the Premium Listing
Segment of the London Stock Exchange. By complying with the highest
standards of corporate governance I hope Hipgnosis is more
accessible for all investors who want exposure to our incredible
portfolio of Songs.
I must thank all of our Shareholders for their endorsement of
our thesis and their continued support, particularly backing us
with GBP282.1 million of new equity capital in the last four
months, taking our total funds raised since launch 16 months ago to
over GBP625 million. We remain the only listed fund globally that
exclusively offers exposure to the uncorrelated returns generated
from proven hit songs and we have lined up the finest available
song Catalogues to quickly invest our remaining funds.
Market Conditions
The song and recorded music industry continues to grow driven by
increasing streaming revenue as the number of paid subscribers to
streaming platforms grows rapidly, both within the established
platforms and with new entrants moving into the marketplace.
Spotify recently announced that it had 113 million premium
subscribers at 30 September 2019, up 31% year-on-year. Spotify's
total MAU (including paying and advertisement funded customers) in
Q3 grew 30% year-on-year to 248 million. Apple Music, the other
market leader, announced in June 2019 that it had passed 60 million
paying subscribers, up from 50 million in June 2018. We expect
another big announcement from them soon.
Whilst the U.S. remains the dominant territory in music
streaming, accounting for 39% of global streaming revenue in 2019,
Southeast Asia (excluding India) remains Spotify's fastest growing
region, whilst India outperformed their forecasts by 30% this third
quarter 2019. This continues to support the thesis that streaming
will provide legitimate music revenues from emerging markets which
were previously dominated by illegitimate consumption of music.
ByteDance, the company behind the social media platform TikTok,
is expected to launch a music streaming app next month with the aim
of challenging Spotify, TencentMusic and Apple Music in Asia and
India. ByteDance have held talks with several global music
companies to strike deals for the new platform and it was recently
revealed that it has amassed more than one billion monthly active
users across its apps. The songs we have acquired by The
Chainsmokers, Ariana Grande, Taylor Swift, Ed Sheeran, Camilla
Cabello, Shawn Mendes and Justin Bieber are particularly important
in this space.
Portfolio
As at 30 September 2019, the Company had acquired 27 Catalogues
comprising 7,475 songs for a total of GBP319.4 million,
representing a blended acquisition multiple of 12.84x historical
average net income.
The Portfolio contained 1,061 Songs that have held Number 1
positions in global charts, 4,027 Songs that have held Top 10 chart
positions and 15 Grammy award winning Songs. The Songs have been
performed by globally successful artists including Eurythmics, Al
Green, Diana Ross, Beyoncé, Rihanna, Adele, Justin Timberlake,
Madonna, Britney Spears, Jay Z, Bruno Mars, Journey, Chic, Sister
Sledge, Booker T & The MG's, Rudimental, Jess Glynne, One
Direction, Mick Jagger, Tom Petty & The Heartbreakers, 10cc,
Little Mix, Justin Bieber, The Chainsmokers, Sugarhill Gang,
Camilla Cabello, Mariah Carey, Mary J. Blige, No Doubt, Gwen
Stefani, Sia, David Guetta, Shaun Mendes, Maroon 5, Gwen Stefani,
Stormzy, John Newman, James Morrison, Jason Aldean, Ariana Grande,
Ed Sheeran, Taylor Swift, Mark Ronson, Kanye West, Pearl Jam, Bruce
Springsteen, Red Hot Chilli Peppers, Harry Styles, Rick Ross, Rage
Against The Machine, Panic At The Disco, TLC, Michael Jackson,
Robbie Williams and Santana. The full list of the portfolio is
detailed in the Financial and Operational Highlights.
The fair value of the Portfolio increased to GBP344.8 million
(31 March 2019: GBP128.7 million), which reflects a fair value
increase in the Portfolio, as determined by the Independent Valuer,
of GBP16.6 million (+5.1%) since 31 March 2019 and GBP25.4 million
(+7.9%) on acquisition cost, of which GBP15.6 million has been
driven by like for like valuation increase excluding the impact of
favourable changes to USD:GBP exchange rates. The increase in like
for like valuation is primarily the result of the revenues being
above forecasts impacting the expected earnings in the valuations
prepared by the Independent Valuer.
Since the period end, we have acquired 15 new Catalogues for a
total value of GBP186.1 million fully deploying all remaining
investible cash attributable to the Ordinary Shares and deploying
over 75% of the net proceeds of the October C Share raise.
Following these acquisitions the blended acquisition multiple for
the total portfolio will be 12.99x historical average net income.
This slight increase is a result of some of the Catalogues acquired
being of an older vintage than the period end portfolio.
The full list of Catalogues acquired subsequent to the period
end is set out in the Financial and Operational Highlights.
These newly acquired Catalogues include the diamond certified
'Shape of You' by Ed Sheeran, 'Uptown Funk' by Mark Ronson
featuring Bruno Mars and 'We Are Young' by Fun featuring Janelle
Monáe representing that each of these hits has sold over 10 million
copies in the US alone.
The new Catalogues also include the US or UK Number 1 or
Platinum certified Songs: 'Promiscuous', 'Say It Right' and
'Maneater' by Nelly Furtado; 'Sexy Back', 'My Love', 'What Goes
Around...Comes Around' and 'Suit & Tie' by Justin Timberlake; '
Holy Grail' by Jay-Z featuring Justin Timberlake; 'Give It To Me'
by Timbaland featuring Nelly Furtado and Justin Timberlake; 'Try
Again' by Aaliyah; 'Apologize' by Timbaland featuring OneRepublic;
'The Way I Are' by Timbaland featuring Keri Hilson, D.O.E. vs.
Sebastian; 'Talking To The Moon', 'Power' and 'Love Lockdown' by
Kanye West; 'Amazing' by Kanye West featuring Young Jeezy;
'Runaway' by Kanye West featuring Pusha T; 'All Of The Lights' by
Kanye West featuring Rihanna; 'Monster' by Kanye West featuring
Jay-Z, Rick Ross, Nicki Minaj and Bon Iver; 'Run This Town' by Jay
Z featuring Rihanna and Kanye West; 'Kiss It Better' by Rihanna;
'Girl On Fire' by Alicia Keys; 'Love Me Again' by John Newman;
'Locked Out Of Heaven', 'Young Girls' and 'Gorilla' by Bruno Mars;
'Summertime Sadness' by Lana Del Rey; 'Set Fire To The Rain' by
Adele; 'Blinded By Your Grace, Pt. 2' by Stormzy featuring MNEK,
'Broken Strings' by James Morrison featuring Nelly Furtado; 'Number
1' by Tinchy Stryder featuring N-Dubz; 'Break Your Heart' by Taio
Cruz; 'Just Give Me A Reason' by Pink featuring Nate Ruess;
'Headlights' by Eminem featuring Nate Ruess; 'Some Nights' and
'Carry On' by Fun; 'Look What You Made Me Do' and 'Out Of The
Woods' by Taylor Swift; 'Green Light' by Lorde; 'Stand By You' by
Rachael Platten; Brave' by Sara Bareilles; 'Best Song Ever', 'Steal
My Girl' and 'History' by One Direction; 'Sign Of The Times' by
Harry Styles; 'All Time Low' and 'Glad You Came' by The Wanted;
'Black Magic' by Little Mix; 'Dear Darlin" by Olly Murs; 'Rise' by
Jonas Blue featuring Jack & Jack; 'Mama' by Jonas Blue
featuring William Single; 'What About Us' and 'Beautiful Trauma' by
Pink; 'Castle On The Hill', 'Photograph', 'Bloodstream', 'Tenerife
Sea', 'What Do I Know', 'Supermarket Flowers' and 'Galway Girl' by
Ed Sheehan; 'River' by Eminem featuring Ed Sheehan; 'Girls Like
You' by Jason Aldean; 'Somewhere On A Beach' by Dierks Bentley; and
'Burning House' by Cam.
In addition the Catalogues include some of the most influential
albums in the history of rock music with the Red Hot Chilli
Peppers' 'Blood Sugar Sex Magik', Pearl Jam's 'Vitology', Rage
Against the Machine's 'Evil Empire' Stone Temple Pilots' 'Purple',
and Bruce Springsteen's 'The Rising', 'Devils and Dust', 'Magic'
and 'Working on a Dream' as well as the multi-platinum certified
'Born to Die' by Lana Del Rey and Kid Cudi's 'Man on the Moon: The
End of Day' and 'Man on the Moon II: The Legend of Mr. Rager'. We
have also increased our exposure to arguably the most popular
American band of the last 35 years with our Journey Catalogue
acquisition, which includes the Songs 'Don't Stop Believin", the
best-selling digital track from the 20th century with over seven
million copies sold in the US alone, as well as 'Anyway You Want
It', 'Faithfully', 'Wheels In The Sky', 'Open Arms', and 'Who's
Crying Now'.
Following these acquisitions we are very proud that Hipgnosis
co-own five of the Billboard Magazine's "Top 10 Songs of the
Decade" which was announced in November. The Songs were:
-- Number 1 - 'Uptown Funk' by Mark Ronson featuring Bruno Mars
which was Number 1 in 19 countries and topped the Billboard Hot 100
for 14 weeks, is certified 11x platinum in the US and has been
streamed over 1.1 billion times on Spotify alone.
-- Number 3 - 'Shape of You' by Ed Sheeran which was the best
performing song of 2017 and was announced as the most streamed song
of the decade after becoming the first song to reach 2 billion
streams. 'Shape of You' topped the singles charts in 34 countries
including the US where it remained Number 1 for a record equalling
16 consecutive weeks and is certified diamond in 5 countries
including in the US.
-- Number 4 - 'Closer' by The Chainsmokers featuring Halsey
which reached Number 1 in over 10 countries and topped the
Billboard Hot 100 for 12 consecutive weeks. It also became only the
second song in the history of the Billboard Hot 100 to spend 32
weeks in the Top 10.
-- Number 5 - ' Girls Like You' by Maroon 5 featuring Cardi B
which topped the charts in 17 countries including spending 7
consecutive weeks at the top of the Billboard Hot 100.
-- Number 9 - 'Despacito' by Luis Fonsi and Daddy Yankee
featuring Justin Bieber which topped the Billboard Hot 100 for a
record equalling 16 consecutive weeks and became the first Latin
song to be certified diamond in the US.
Throughout our portfolio our Songs continue to experience
commercial success and receive critical acclaim:
-- 'These Days' co-written by Jamie Scott received the Ivor
Novello award for 'Most Performed Work'.
-- At the 2019 Billboard Awards:
o The Chainsmokers took home the "Top Dance/Electronic Album"
for their album 'Sick Boy' and "Top Dance/Electronic Artist".
o Panic! At the Disco were awarded "Top Rock Song" for 'High
Hopes' and "Top Rock Album" for their album 'Pray for the Wicked',
which Sam Hollander wrote nine songs on.
o 'Girls Like You' by Maroon 5 featuring Cardi B, which was
co-written by Starrah, won "Top Hot 100 Song", "Top Selling Song",
"Top Radio Song" and "Top Collaboration".
-- At time of writing, 'High Hopes', co-written by Sam
Hollander, has spent 75 weeks in the Billboard Hot Rock Songs
Chart, with 41 of those being at Number 1. It is also arguably the
most synced song of 2019.
-- Nile Rodgers curated 'Meltdown 2019' where he performed songs
co-written with Bernard Edwards as Chic. David A. Stewart also
launched his live show "The Eurythmics Songbook" at Meltdown 2019
to a sold out audience.
-- Jason Aldean earned his 23rd career and fourth consecutive
radio chart topper with 'Rearview Town' off his Number 1 album
'Rearview Town' which was produced by Michael Knox. His new album
'9' which was included in the Michael Knox deal is currently the
Number 1 album on the Billboard sales chart and Number 2 on the
Billboard 200 which combines sales and streaming. In addition to
the producer royalties it includes four songs we co-own written by
Jaron Boyer.
-- In November, Journey and David A. Stewart were announced as
nominees for the 2020 Songwriters Hall of Fame.
-- Nile Rodgers & Chic had an incredibly successful summer
tour of the UK and Europe and now continue to tour the US with Cher
performing numerous hits from our Bernard Edwards Catalogue.
-- Celine Dion's new album 'Courage' - including our single
'Lying Down' by Giorgio Tuinfort - is currently Top 5 all over the
world and has just been Number 1 in the US.
-- Beyoncé's 'Homecoming' movie (and album) includes more than
14 of our songs and in addition to being a massive success has just
been nominated for a 2020 Grammy Award.
-- Shawn Mendes continues his world tour - one of the most
successful of 2019 globally - performing all of the songs we co-own
via several of his co-writers.
-- Adele's album '21', which includes 'Set Fire To The Rain'
co-written and produced by Fraser T. Smith, has reached 2.5 billion
streams on Spotify alone.
-- Eurythmics - David A. Stewart and Annie Lennox reunited for
the first time in 14 years for Sting's Rainforest Fund benefit
playing 3 Songs from our Portfolio.
Financial Review
Net income for the portfolio increased to GBP22.6 million
(Financial period from incorporation to 31 March 2019: GBP7.2
million).
The portfolio net income include some non-recurring revenues on
Catalogues acquired during the period, most notably due to:
-- The right-to-income received as part of the Catalogue
acquisition, which is typically dependent on the timing of the
negotiations;
-- On acquisition, the Company is required to accrue for all
revenues due to the Company for which PRO revenue statements have
not yet been received, but where the Company is already entitled to
the share. Due to the significant timing differences inherent with
PRO revenues, this one off accrual can be material.
Due to these non-recurring revenue items, the most meaningful
way of monitoring performance of our Catalogues is by comparing
revenue statements received with our internal forecasts and prior
period actuals. We are pleased that the revenue statements received
during the period have been ahead of our forecasts with Benny
Blanco's and The Chainsmokers' Catalogues performing particularly
well as well as our Ari Levine, Neal Schon, Bernard Edwards and
Itaal Shur Catalogues all growing strongly on the comparative
period in the prior year. In addition, streaming revenues have
performed well, and ahead of our forecasts, with 15% growth in the
first half of 2019 compared to the second half of 2018.
Administration expenses (which include the fees payable to the
Investment Adviser, acquisition costs and administration costs)
increased to GBP3.4 million reflecting the increased size of the
Company. These do not include GBP1.5 million of exceptional
expenses relating to the Working Capital Facility and Migration to
the Premium Segment of the London Stock Exchange. Our ongoing
charges figure increased to 1.76% (Financial period from
incorporation to 31 March 2019: 1.70%) as a result of increased due
diligence and other acquisition costs as we made a greater number
of acquisitions compared to the prior period and commenced work on
a significant pipeline of Catalogues for acquisition in the second
half of the year.
After administration expenses the adjusted operating profit for
the period before tax (1) was GBP14.1m leading to an adjusted
EPS(1) of 3.55p per Ordinary Share. Our basic EPS grew to 3.19p,
fully covering our dividends totalling 2.5p per Ordinary Share
relating to the period.
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 30 September 2019 was GBP422.3
million or 108.46p per Ordinary Share, reflecting an increase per
Ordinary Share of 5.03% compared to the end of the prior financial
year. The fair value of the Portfolio, as determined by an
Independent Valuer, increased to GBP344.8 million.
Including the dividends of 2.5p per Ordinary Shares paid during
the period the total NAV return was 7.45% for the interim period
and 11.96% since IPO (these figures do not include the dividend of
1.25p per Ordinary Share paid after the period end on 29 November
2019).
Subsequent Events and Outlook
Our excellent first half is a testament to the quality of the
Songs that we have acquired to date and are proud to see so many of
our Catalogues performing so well. The latest results from Spotify
and Apple continue to show unbelievable growth in premium streaming
as the world changes the way it consumes music. Streaming growth,
both in the Western world and emerging markets, is driving proven
hit Songs revenues and therefore drives values up. Most excitingly
with forecasts of 2 billion paid subscribers by 2030, we are only
at the start.
One step at a time, we are amassing the leverage and the support
necessary to bring positive change to where the songwriter sits in
the economic equation. The songwriter is more responsible than
anyone for the success of an artist and the music industry in 2019
and they and their songs must be properly recognized. Important
steps have been taken by the Copyright Board and with the Music
Modernisation Act to acknowledge this but this is just the tip of
the iceberg. We will use our leverage and support to positively
impact where the songwriter sits which is not only important for
the creative community but is in total alignment with the best
interest of our investors.
With investors needing uncorrelated assets more than ever, and
proven Songs producing reliable and predictable income, the new
asset class of proven Songs is, in our view, now more investible
than gold and oil.
With over GBP1 billion in our investment pipeline, the Songs and
Catalogues we are acquiring over the next days, weeks and months
are just as impressive as what we have put together in our first 16
months and will also skew the vintage of the overall portfolio
older.
We would like to thank all our Shareholders for supporting our
thesis that songs are a new highly investible asset class and we
look forward to updating them as we acquire some of the greatest
songs of our time in the coming months. Equally well we would like
to thank all of the incredible songwriters for entrusting us as
custodians of these great songs which are not only the currency of
the music industry but such a special and important part of
everyone's life.
Merck Mercuriadis
Founder of Hipgnosis Songs Fund Limited and CEO of The Family
(Music) Limited (Investment Adviser to Hipgnosis Songs Fund
Limited)
10 December 2019
(1) Excludes GBP1.5 million of exceptional expenses relating to
the Working Capital Facility and Migration to the Premium Segment
of the London Stock Exchange.
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.
Directors' Responsibility Statement
The Directors are responsible for preparing this Interim Report
in accordance with applicable laws and regulations. The Directors
confirm that to the best of their knowledge:
-- The Condensed Consolidated Financial Statements have been
prepared in accordance with IAS 34 Interim Financial Reporting;
and
-- The Chairman's Statement and Investment Adviser's Report
include a fair review of the information required by:
(i) DTR 4.2.7R of the Disclosure Guidance and Transparency
Rules, being an indication of important events that have occurred
during the first period of the financial year; their impact on the
condensed set of consolidated financial statements; and a
description of the principal risks and uncertainties of the
remaining six months of the year; and
(ii) DTR 4.2.8R of the Disclosure Guidance and Transparency
Rules, being related party transactions that have taken place in
the first period of the current financial year and that have
materially affected the financial position or performance of the
Company during that period.
On behalf of the Board
Andrew Sutch
Chairman
10 December 2019
Consolidated Statement of Comprehensive Income
For the six months ended 30 September 2019 (unaudited)
1 April 2019 to 8 June 2018 to
30 September 2019 31 March 2019
GBP GBP
Notes (Audited)
Income
Total revenue 8 22,641,230 7,218,852
Interest income 584,507 682,491
Foreign exchange gains on non-investments 281,461 104,773
Total income 23,507,198 8,006,116
Expenses
Advisory fees 12 (1,781,447) (1,579,190)
Amortisation of Catalogues of Songs 5 (5,995,918) (1,491,922)
Performance fee - (429,054)
Administration fees (344,918) (155,954)
Directors' remuneration (94,375) (121,936)
Broker fees (31,289) (44,550)
Audit fees (55,000) (110,000)
Legal & professional fees (726,631) (813,714)
Exceptional Costs 9 (1,460,337) -
Loan interest (52,109) -
Other operating expenses (333,258) (267,821)
Total expenses (10,875,282) (5,014,141)
Operating profit for the period before tax 12,631,916 2,991,975
Taxation 4 (1,909,309) (632,521)
Profit for the period after tax 10,722,607 2,359,454
Total comprehensive income for the period 10,722,607 2,359,454
Basic Earnings per Share (pence) 13 3.19 1.17
Diluted Earnings per Share (pence) 13 3.19 1.17
All activities derive from continuing operations.
The accompanying notes form an integral part of these Condensed
Consolidated Financial Statements.
Consolidated Statement of Financial Position
As at 30 September 2019
30 September
2019 31 March 2019
GBP GBP
Notes (Audited)
------------------------------------- ------ -------------------------------- -----------------------
Assets
Catalogues of Songs 5 311,944,580 118,458,818
Cash and cash equivalents 66,235,378 108,483,752
Trade and other receivables 32,298,738 10,808,398
Total assets 410,478,696 237,750,968
------------------------------------- ------ -------------------------------- -----------------------
Liabilities
Bank loan 6 13,750,000 -
Other payables and accrued expenses 7,280,344 39,192,142
------------------------------------- ------ -------------------------------- -----------------------
Total liabilities 21,030,344 39,192,142
------------------------------------- ------ -------------------------------- -----------------------
Net assets 389,448,352 198,558,826
------------------------------------- ------ -------------------------------- -----------------------
Equity
Share capital 7 386,911,229 198,221,140
Retained earnings 2,537,123 337,686
------------------------------------- ------ -------------------------------- -----------------------
Total equity attributable to the
owners of the Company 389,448,352 198,558,826
------------------------------------- ------ -------------------------------- -----------------------
Number of ordinary shares in issue
at period end 7 389,356,341 202,176,800
------------------------------------- ------ -------------------------------- -----------------------
Bridge to Operative NAV
------------------------------------- ------ -------------------------------- -----------------------
IFRS Net Asset Value per ordinary
share (pence) 100.02 98.21
------------------------------------- ------ -------------------------------- -----------------------
Adjustments for revaluation of
Catalogues of Songs to fair value
(pence) 6.51 4.32
------------------------------------- ------ -------------------------------- -----------------------
Reversal of amortisation (pence) 1.93 0.74
Operative Net Asset Value per
ordinary share (pence) 108.46 103.27
------------------------------------- ------ -------------------------------- -----------------------
Approved and authorised for issue by the Board of Directors on
10 December 2019 and signed on their behalf by:
Andrew Sutch Andrew Wilkinson
Chairman Director
The accompanying notes form an integral part of these Condensed
Consolidated Financial Statements.
Consolidated Statement of Changes in Equity
For the six months ended 30 September 2019 (unaudited)
Number Share Retained
Total
of shares capital earnings equity
Notes GBP GBP GBP
-------------------- ------ ------------ ------------ ------------ ------------
As at 1 April
2019 202,176,800 198,221,140 337,686 198,558,826
Shares issued 7 187,179,541 192,618,166 - 192,618,166
Share issue costs 7 - (3,928,077) - (3,928,077)
Dividends paid 10 - - (8,523,170) (8,523,170)
Profit for the
period - - 10,722,607 10,722,607
As at 30 September
2019 389,356,341 386,911,229 2,537,123 389,448,352
-------------------- ------ ------------ ------------ ------------ ------------
Number Share Retained
Total
of shares capital earnings equity
GBP GBP GBP
Notes (Audited) (Audited) (Audited) (Audited)
-------------------- ------ ------------ ------------ ------------ ------------
As at 8 June 2018 - - - -
Shares issued 7 202,176,800 202,176,800 - 202,176,800
Share issue costs 7 - (3,955,660) - (3,955,660)
Dividends paid 10 - - (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
-------------------- ------ ------------ ------------ ------------ ------------
The accompanying notes form an integral part of these Condensed
Consolidated Financial Statements.
Consolidated Statement of Cash Flows
For the six months ended 30 September 2019 (unaudited)
1 April 2019 to 8 June 2018 to
30 September 2019 30 September 2018
Notes GBP GBP
-------------------------------------------------------- ------ ------------------- -------------------
Net cash used in operating activities
Operating profit/(loss) for the period before taxation 12,631,916 (534,274)
Adjustments for non-cash items:
Movement in other receivables (21,490,340) (664,436)
Movement in other payables and accrued expenses (33,768,998) 156,828
Amortisation of Catalogues of Songs 5 5,995,918 -
Foreign exchange losses on non-investments (281,461) -
-------------------------------------------------------- ------ ------------------- -------------------
(36,912,965) (1,041,882)
Purchase of Catalogues of Songs 5 (199,481,680) (18,016,923)
Net cash used in operating activities (236,394,645) (19,058,805)
-------------------------------------------------------- ------ ------------------- -------------------
Net cash generated from financing activities
Proceeds from issue of shares 7 192,618,166 202,176,800
Issue costs paid 7 (3,928,077) (3,955,660)
Dividends paid 10 (8,523,170) -
Bank loan 6 13,697,891 -
Net cash generated from financing activities 193,864,810 198,221,140
-------------------------------------------------------- ------ ------------------- -------------------
Net movement in cash and cash equivalents (42,529,835) 179,162,335
-------------------------------------------------------- ------ ------------------- -------------------
Cash and cash equivalents at the start of the period 108,483,752 -
Effect of foreign exchange rate changes 281,461 195
Cash and cash equivalents at the end of the period 66,235,378 179,162,530
-------------------------------------------------------- ------ ------------------- -------------------
The accompanying notes form an integral part of these Condensed
Consolidated Financial Statements.
Notes to the Condensed Consolidated Financial Statements
For the six months ended 30 September 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, PO Box 286, 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. Subsequently, the
Company's shares were admitted to the Premium Listing Segment of
the Official List of the FCA from 19 September 2019
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 Condensed Consolidated Financial Statements present the
results of the Group for the six months ended 30 September 2019.
The Group is principally engaged in investing in and managing music
copyrights and associated musical intellectual property.
2. Accounting policies
a) Basis of preparation
The Condensed Consolidated Financial Statements included in this
Interim Report have been prepared in accordance with IAS 34
'Interim Financial Reporting' and the Disclosure and Transparency
Rules of the FCA.
The Condensed Consolidated Financial Statements do not include
all the information and disclosures required in the Annual Report
and should be read in conjunction with the Company's Annual Report
for the year ended 31 March 2019, which are available on the
Company's website (www.hipgnosissongs.com). The Annual Report has
been prepared in accordance with IFRS.
The same accounting policies and methods of computation have
been followed in the preparation of these Condensed Consolidated
Financial Statements as in the Annual Report for the year ended 31
March 2019.
The Company applied, for the first time, certain standards and
amendments, which are effective for annual periods beginning on or
after 1 January 2019. The new standards or amendments to existing
standards and interpretations, effective from 1 January 2019, did
not have a material impact on the Company's Condensed Consolidated
Financial Statements. It is not anticipated that any standard which
is not yet effective, will have a material impact on the Company's
financial position or on the performance of the Company's
statements.
b) Group information
As at 30 September 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 Holdings
UK Limited UK 100 100 Full
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
Hipgnosis SFH XIX
Limited* UK 100 100 Full
Hipgnosis SFH XX
Limited UK 100 100 Full
========================= ======================== ============ =========== ==============
*This subsidiary was dormant as at 30 September 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.
c) Going concern
The Directors monitor the capital and liquidity requirements of
the Company and its subsidiaries 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 Condensed
Consolidated Financial Statements of the Group on a going concern
basis.
d) Segmental reporting
The chief operating decision maker is the Board of Directors.
While the Company's income is derived internationally, the
Directors are of the opinion that the Group is engaged in a single
segment of business, being the investment of the Group's capital in
the Portfolio, with an attractive and growing level of income,
together with the potential for capital growth.
3. Significant accounting judgements, estimates and assumptions
The preparation of the Group's Condensed Consolidated Financial
Statements requires the application of estimates and assumptions
which may affect the results reported in the financial statements.
Uncertainty about these estimates and assumptions could result in
outcomes that require a material adjustment to the carrying amount
of the asset or liability affected in future periods. Estimates and
underlying assumptions are reviewed on an ongoing basis. Revisions
to accounting estimates are recognised in the period in which the
estimates are revised and in any future periods affected.
The key assumptions concerning the future and other key sources
of estimation uncertainty at the reporting date, that have a
significant risk of resulting in a material adjustment to the
carrying amounts of assets and liabilities within the next
financial year, are discussed below. The Group based its
assumptions and made estimates based on the information available
when the Condensed Consolidated Financial Statements were prepared.
However these assumptions and estimates may change based on market
changes or circumstances beyond the control of the Group.
Critical estimates in applying the Group's accounting policies -
revenue recognition:
Estimated royalty revenue receivable is accrued for on the basis
of historical earnings for each catalogue, which incorporates an
element of uncertainty. The estimated revenue accrual may not
therefore directly equal the actual cash received in respect of
each accounting period and adjustments may therefore be required
throughout the financial 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.
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.
Catalogues of Songs are valued on an ongoing basis using a DCF
valuation methodology which is consistent with the Independent
Valuers.
Assessment of impairment
Intangible assets with an indefinite useful life are subject to
annual impairment review which relies on assumptions made by the
Board. Assumptions are updated annually, specifically those
relating to future cash flows and discount rates.
4. Taxes
The Company is exempt from taxation in Guernsey under the
provisions of the Income Tax (Exempt Bodies) (Guernsey) Ordinance,
2008 and is charged an annual fee of GBP1,200.
The Directors have been advised that following certain changes
to the United Kingdom tax rules regarding "alternative investment
funds" implemented by the Finance Act 2014 and contained in section
363A of the Taxation (International and other Provisions) Act 2010
the Company should not be resident in the United Kingdom for United
Kingdom tax purposes. Accordingly, and provided that the Company
does not carry on a trade in the UK (whether or not through a
branch, agency or permanent establishment situated therein), the
Company will not be subject to UK income tax or corporation tax
other than on any UK source income.
The UK subsidiaries of the Company are tax resident in the UK
and are subject to UK corporation tax.
5. Catalogues of Songs
GBP
Cost
At 1 April 2019 119,950,740
Additions 199,481,680
At 30 September 2019 319,432,420
===================================== =======================================
Amortisation and impairment
At 1 April 2019 1,491,922
Amortisation 5,995,918
Impairment -
At 30 September 2019 7,487,840
===================================== =======================================
Net book value
At 1 April 2019 118,458,818
At 30 September 2019 311,944,580
===================================== =======================================
Fair value as at 30 September 2019 344,786,060
===================================== =======================================
GBP
(Audited)
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 30 September 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. Bank loan
On 29 August 2019, the Company signed a Revolving Credit
Facility of GBP65 million with JPMorgan Chase Bank. The facility is
available for three years and the Company may request to increase
the commitment by a further GBP35 million, subject to certain
conditions. On 30 September 2019, principal of GBP13,750,000
remained outstanding, which was initially drawn down on 30 August
2019. This was subsequently repaid on 31 October 2019. Interest in
the amount of GBP52,109 was paid on 30 September 2019.
7. 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 issued on 17 April 2019 138,750,000
Shares issued on 29 August 2019 48,429,541
Shares as at 30 September 2019 389,356,341
---------------------------------- -------------------------------
GBP
Issued and fully paid
----------------------------------------------- -------------------------------
Proceeds from shares issued on 11 July 2018 202,176,800
Proceeds from shares issued on 17 April 2019 141,525,000
Proceeds from shares issued on 29 August 2019 51,093,166
Share issue costs (7,883,737)
Shares as at 30 September 2019 386,911,229
------------------------------------------------ -------------------------------
No.
--------------------------------------------- -----------------------------
Issued and fully paid
Shares issued on 11 July 2018 202,176,800
Shares as at 31 March 2019 202,176,800
---------------------------------------------- -----------------------------
GBP
(Audited)
--------------------------------------------- -----------------------------
Issued and fully paid
Proceeds from 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.
8. Revenue
1 April 2019 to 8 June 2018 to
30 September 2019 30 September 2018
GBP GBP
-------------------------- ----------------------------------- ---------------------------------------
Mechanical income 1,391,295 21,249
Performance income 4,201,061 33,925
Digital downloads income 1,028,665 27,674
Streaming income 4,653,236 74,614
Synchronization income 2,030,838 41,795
Writer's Share income 8,189,913 119,591
Producer royalties 577,165 -
Masters income 32,336 -
Other income 536,721 66,166
Total revenue 22,641,230 385,014
-------------------------- ----------------------------------- ---------------------------------------
9. Exceptional Costs
Included within exceptional costs of GBP1.5 million are
non-recurring amounts relating to the arrangement of the Company's
Revolving Credit Facility with JP Morgan Chase Bank.
10. Dividends
A summary of the dividends is set out below:
Dividend per Total dividend
1 April 2019 to 30 September share GBP
2019 Pence
-------------------------------- --------------- -----------------
Interim dividend in respect
of period ended 31 March 2019 1.25 4,261,585
Interim dividend in respect
of period ended 30 June 2019 1.25 4,261,585
-------------------------------- --------------- -----------------
2.50 8,523,170
-------------------------------- --------------- -----------------
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 third interim dividend for the
previous financial year, for the period from 1 January to 31 March
2019 of 1.25 pence per Ordinary Share. The interim dividend was
paid to Shareholders on the register at the close of business on 3
May 2019 on 31 May 2019.
The Company announced its first interim dividend for the current
financial year, for the period from 1 April to 30 June 2019, of
1.25 pence per Ordinary Share. The interim dividend was paid to
Shareholders, on the register at the close of business on 2 August
2019, on 30 August 2019.
Subsequent to the period end, the Company announced its second
interim dividend for the period from 1 July 2019 to 30 September
2019 of 1.25 pence per Ordinary Share. The dividend was paid to
Shareholders, on the register at the close of business on 1
November 2019, on 29 November 2019.
11. 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.
The Company's principal risk factors are fully discussed in the
Company's Prospectus, available on the Company's website
(www.hipgnosissongs.com) and should be reviewed by
Shareholders.
12. Related Party Transactions and Directors' Remuneration
Parties are considered to be related if one party has the
ability to control the other party or exercise significant
influence over the party in making financial or operational
decisions.
Directors
As at 30 September 2019 the Company has four Directors (31 March
2019: four).
Directors' fees for the period to 30 September 2019 amounted to
GBP94,375 (30 September 2018: GBP43,603), of which GBPnil (31 March
2019: GBPnil) was outstanding at the period end.
Investment Adviser
The Company has entered into an Investment Advisory Agreement
with the Investment Adviser pursuant to which the Investment
Adviser will source Songs and provide recommendations to the Board
on acquisition and disposal strategies, manage and monitor royalty
and/or fee income due to the Company from its copyrights and
collection agents, and develop strategies to maximise the earning
potential of the Songs in the portfolio through improved placement
and coverage of Songs.
Investment Adviser fees for the period were GBP1,781,447 (30
September 2018: GBP500,500) with GBP305,897 (31 March 2019: GBPnil)
outstanding at the reporting date.
13. Earnings per share
30 September 2019 30 September 2018
Basic Diluted Basic Diluted
------------------------- ------------ ------------ ------------ ------------
Profit/(Loss) for
the period (GBP) 10,722,607 10,722,607 (736,322) (736,322)
Weighted average number
of Ordinary Shares
in issue 336,506,009 336,506,009 202,176,800 202,176,800
Earnings/(Loss) per
Share (pence) 3.19 3.19 (0.36) (0.36)
The earnings per share is based on the profit or loss of the
Group for the period and on the weighted average number of Ordinary
Shares for the period.
14. Subsequent events
On 22 October 2019 the Company issued 231 million new C Shares.
These shares were issued at a price of 100 pence per C Share,
raising gross proceeds of GBP231 million. Following the issue,
there are 389,356,341 Ordinary Shares and 231,000,000 C Shares in
issue. The C Shares carry the right to receive notice of, attend
and vote at general meetings of the Company. The Company does not
hold any Ordinary Shares in treasury. Therefore, the total number
of voting rights of the Company will be 620,356,341 and this figure
may be used by Shareholders as the denominator for the calculations
by which they will determine if they are required to notify their
interest, or a change to their interest in, the Company under the
FCA's Disclosure Guidance and Transparency Rules.
Following the issue of C Shares on 22 October 2019, Andrew Sutch
purchased 20,000 C Shares. Paul Burger, Andrew Wilkinson and Simon
Holden each purchased 10,000 C Shares on the same day.
On 24 October 2019 the Company announced its second interim
dividend for the period from 1 July 2019 to 30 September 2019 of
1.25 pence per Ordinary Share. The dividend was paid to
Shareholders, on the register at the close of business on 1
November 2019, on 29 November 2019.
Further catalogues were acquired after the period ended 30
September 2019, as set out in Financial and Operational
Highlights.
There were no other material events after the period end to the
date on which these Condensed Consolidated Financial Statements
were approved.
Hipgnosis Songs Fund Limited
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;
"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" 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;
"Asset Management Committee" means a committee which considers
the ongoing management and revenue maximisation of the Catalogues
of Songs;
"Audit and Risk Management Committee" means a formal committee
of the Board with defined terms of reference;
"Board" or "Directors" means the Directors of the Company;
"BMI" means Broadcast Music, Inc.;
"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;
"CD" means compact disc;
"CEO" means Chief Executive Officer;
"Companies Law" means the Companies (Guernsey) Law, 2008, (as
amended);
"Company" means Hipgnosis Songs Fund Limited. References to the
Company are also considered to be references to the Group, where
applicable;
"Company Secretary" means Estera International Fund Managers
(Guernsey) Limited;
"Condensed Consolidated Financial Statements" means the
unaudited financial statements of the Company, including the
Statement of Financial Position, the Statement of Comprehensive
Income, the Statement of Cash Flows, the Statement of Changes in
Equity and associated notes;
"Corporate Broker" means Nplus1 Singer Advisory LLP (N+1 Singer)
and J.P. Morgan Securities plc (JPM);
"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;
"Discount to Operative NAV" means the situation where the
Ordinary Shares of the Company are trading at a price lower than
the Company's Operative NAV;
"Downloads" means royalties for the permanent digital mechanical
transfer of music;
"DSP" means Digital Service Providers;
"Earnings per Share" or "EPS" means the Earnings per Ordinary
Share and is expressed in pounds Sterling;
"EU" means European Union;
"FCA" means the UK Financial Conduct Authority (or its successor
bodies);
"FRC" means 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;
"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;
"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;
"IPO" means the initial public offering of shares by a private
company to the public;
"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;
"Main Market" means London's flagship market for larger, more
established companies, and is home to some of the world's largest
and most well-known companies;
"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;
"Nomination Committee" means a formal committee of the Board
with defined terms of reference;
"Official list" means the list maintained by the Financial
Conduct Authority (acting in its capacity as the UK Listing
Authority) in accordance with Section 74(1) of the Financial
Services and Markets Act 2000 (the Act) for the purposes of Part VI
of the Act;
"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;
"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, and as amended and restated on 27 September 2019;
"PRS" means Performing Rights Society;
"RCIS Rules" means the Registered Collective Investment Scheme
Rules 2018;
"Recording Academy" means a U.S. academy of musicians,
producers, recording engineers and other musical professionals;
"Registrar" means Computershare Investor Services (Guernsey)
Limited;
"Remuneration Committee" means a formal committee of the Board
with defined terms of reference;
"Revolving Credit Facility" means a line of credit that is
arranged between a bank and a business. It has an established
maximum amount, where the business has access to the funds at any
time when needed;
"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);
"TV" means television;
"UK" or "United Kingdom" means the United Kingdom of Great
Britain and Northern Ireland;
"U.S." or "United States" means the United States of America,
its territories and possessions, any state of the United States and
the District of Columbia;
"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; and
"$" or "USD" means United States dollars and "cents" means
United States cents.
Hipgnosis Songs Fund Limited
Directors and General Information
Board of Directors Corporate Brokers
Andrew Sutch (Chairman) N+1 Singer Advisory LLP
Paul Burger (Senior Independent 1 Bartholomew Lane
Director from 9 September 2019) London
Andrew Wilkinson EC2N 2AX
Simon Holden
Sylvia Coleman (appointed 21 J.P. Morgan Securities plc (Appointed
November) 10 September 2019)
25 Bank Street, Canary Wharf
Audit and Risk Management Committee London
Andrew Wilkinson (Chairman) E14 5JP
Paul Burger
Sylvia Coleman (appointed 21 Independent Auditor
November) PricewaterhouseCoopers Cl LLP
Simon Holden Royal Bank Place
Andrew Sutch 1 Glategny Esplanade
St Peter Port
Portfolio Committee Guernsey
Paul Burger (Chairman) GY1 4ND
Sylvia Coleman (appointed 21
November) Music Specialist Legal Counsel
Simon Holden CTABL Inc.
Andrew Sutch 9460 Sunrise Lakes Boulevard
Andrew Wilkinson Suite 302
Sunrise
Asset Management Committee Florida 33322
Andrew Sutch (Chairman) USA
Paul Burger
Sylvia Coleman (appointed 21 Legal Advisers to the Company
November) Herbert Smith Freehills LLP
Simon Holden Exchange House
Andrew Wilkinson Primrose Street
London
Nomination Committee (established EC2A 2EG
9 September 2019)
Paul Burger (Chairman) Legal Advisers to the Company
Sylvia Coleman (appointed 21 as to Guernsey Law
November) Ogier (Guernsey) LLP
Simon Holden Redwood House
Andrew Sutch St Julian's Avenue
Andrew Wilkinson St Peter Port
Guernsey
Remuneration Committee (established GY1 1WA
9 September 2019)
Simon Holden (Chairman) Principal Banker
Paul Burger Barclays Bank
Sylvia Coleman (appointed 21 PO Box 41
November) Le Marchant House
Andrew Sutch St Peter Port
Andrew Wilkinson Guernsey
GY1 3BE
Advisory Board
Nile Rodgers Preferred Portfolio Administrator
The-Dream Kobalt Music Services Limited
Giorgio Tuinfort The River Building
Starrah 1 Cousin Lane
Nick Jarjour London
David Stewart EC4R 3TE
Bill Leibowitz
Ian Montone Identifiers
Jason Flom ISIN: GG00BFYT9H72
Ticker: SONG
Registered Office SEDOL: BFYT9H7
Effective from 29 April 2019 Website: www.hipgnosissongs.com
Floor 2 LEI: 213800XJIPNDVKXMOC11
PO Box 286 GIIN: 5XGPC8.99999.SL.831
Trafalgar Court
Les Banques Managing your account online
St Peter Port
Guernsey The Company's registrar, Computershare
GY1 4LY Investor Services (Guernsey)
Prior to 29 April 2019 Limited, allows you to manage
Heritage Hall your shareholding online. If
PO Box 225 you are a direct investor you
Le Marchant Street can view your shareholding,
St Peter Port change the way the registrar
Guernsey communicates with you and buy
GY1 4HY and sell shares. If you haven't
used this service before, all
Investment Adviser you need to do is enter the
The Family (Music) Limited name of the Company and register
4th Floor your account at
East Wing https://www-uk.computershare.com/investor.
Chancery House You'll need your Investor code
53-64 Chancery Lane (IVC) printed on your share
London certificate in order to register.
WC2A 1QS
www.hipgnosissongs.com
Administrator and
Company Secretary
Effective from 29 April 2019
Estera International Fund Managers
(Guernsey) Limited
Floor 2
PO Box 286
Trafalgar Court
Les Banques
St Peter Port
Guernsey
GY1 4LY
Prior to 29 April 2019
Estera International Fund Managers
(Guernsey) Limited
Heritage Hall
PO Box 225
Le Marchant Street
St Peter Port
Guernsey
GY1 4HY
Registrar
Computershare Investor Services
(Guernsey) Limited
1st Floor
Tudor House
Le Bordage
St Peter Port
Guernsey
GY1 1DB
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 and the Investment Adviser's Report
have been prepared solely to provide additional information for
shareholders to assess the Company's strategies and the potential
for those strategies to succeed. These should not be relied on by
any other party or for any other purpose.
The Chairman's Statement and Investment Adviser's Report may
include statements that are, or may be deemed to be,
"forward-looking statements". These forward-looking statements can
be identified by the use of forward-looking terminology, including
the terms "believes", "estimates", "anticipates", "expects",
"intends", "may", "will" or "should" or, in each case, their
negative or other variations or comparable terminology.
These forward-looking statements include all matters that are
not historical facts. They appear in a number of places throughout
this document and include statements regarding the intentions,
beliefs or current expectations of the Directors and the Investment
Adviser, concerning, amongst other things, the investment
objectives and investment policy, financing strategies, investment
performance, results of operations, financial condition, liquidity,
prospects, and distribution policy of the Company and the markets
in which it invests.
By their nature, forward-looking statements involve risks and
uncertainties because they relate to events and depend on
circumstances that may or may not occur in the future.
Forward-looking statements are not guarantees of future
performance.
The Company's actual investment performance, results of
operations, financial condition, liquidity, distribution policy and
the development of its financing strategies may differ materially
from the impression created by the forward-looking statements
contained in this document.
Subject to their legal and regulatory obligations, the Directors
and the Investment Adviser expressly disclaim any obligations to
update or revise any forward-looking statement contained herein to
reflect any change in expectations with regard thereto or any
change in events, conditions or circumstances on which any
statement is based.
Hipgnosis Songs Fund Limited
Floor 2
PO Box 286
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
IR QFLBFKLFFFBK
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December 11, 2019 02:00 ET (07:00 GMT)
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