TIDMSONG
RNS Number : 1341E
Hipgnosis Songs Fund Limited
05 July 2021
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BE UNLAWFUL.
This announcement contains inside information for the purposes
of Article 7 of the UK version of Regulation (EU) No 596/2014 which
is part of UK law by virtue of the European Union (Withdrawal) Act
2018, as amended ("MAR").
Monday 5 July 2021
Hipgnosis Songs Fund Limited ("Hipgnosis" or the "Company")
Final Results
The Board of Hipgnosis, the first UK investment company offering
investors a pure-play exposure to songs and associated musical
intellectual property rights, and its Investment Adviser, The
Family (Music) Limited, are pleased to announce the Company's final
results for the year ended 31 March 2021.
Highlights
Operational Highlights
-- 84 Catalogues acquired for $1.089 billion including Rock And
Roll Hall of Fame inductees Neil Young, Lindsey Buckingham /
Fleetwood Mac, Steve Winwood, Debbie Harry and Chris Stein /
Blondie, and Chrissie Hynde / The Pretenders, Songwriters Hall of
Fame inductees Carole Bayer Sager and Barry Manilow as well as the
iconic Songs of Shakira, Rick James, Enrique Iglesias and B-52's,
taking the total Portfolio to approximately $2 billion invested
across 138 Catalogues
-- High calibre recruitments at the Investment Adviser's Song
Management team, including Ted Cockle, Amy Thomson, Tom Stingemore,
Patrick Joest and Joe Maggini, with synch growing to 15% of revenue
from 9% in the prior year
-- Acquisition of Big Deal Music, now Hipgnosis Songs Group,
providing in-house administration in the US leading to significant
savings on third party administration fees
-- Continued to advocate for Songwriters to receive a greater
share of a Song's income at the highest level including the DCMS
hearings taking place in UK Parliament.
Financial Highlights
-- Operative NAV increased by 11.3% to $1.6829 per Share over
the year (31 March 2020: $1.5114)
-- Including dividends paid, this represents a Total Operative
Dollar NAV Return of 15.7% for the year, taking Total NAV Return
since IPO to 40.7%
-- Like-for-like valuation uplift across the Portfolio of 10.4% during the year
-- Catalogue revenues highly resilient through COVID-19 pandemic
and well placed for future growth with acceleration of streaming
adoption:
o Streaming income increased by 18.4% in the second half of the
year from the previous six month period
-- Annual dividend target increased by 5% to 5.25p per Ordinary Share:
o Total dividends of 5.125p paid in respect of the period,
covered 1.58 times by Leveraged Free Cash Flow
o The Company intends to declare its first interim dividend for
the year ending 31 March 2022 following completion of the current
placing
-- Net debt of $464.6 million as at 31 March 2021
-- Change of functional and presentation currency to reflect
significant increase in the proportion of Catalogues, revenue and
transactions denominated in USD
Merck Mercuriadis, Hipgnosis Songs Fund Limited and Founder of
The Family (Music) Limited, said:
"We are delighted to announce a strong set of annual results
which reports on a remarkable year for Hipgnosis. Against one of
the most challenging backdrops of our lives, the Operative NAV per
Share increased by 11.3% to $1.6829, which with dividends paid
reflects a Total Operative Dollar NAV Return of 15.7%. This brings
the Total NAV Return since IPO less than three years ago to 40.7%.
This strong return evidences not only our ability to be able to buy
and manage our culturally important and extraordinarily successful
songs well but also the highly uncorrelated nature of proven
songs.
Whilst we would never have wished for a pandemic, it has not
only demonstrated the predictable, reliable and uncorrelated nature
of the income of proven Songs, but also accelerated the change in
consumer behaviour to consuming music by streaming. Revenues have
been highly resistant during the course of this incredibly
challenging year and are well placed for future growth with global
streaming adoption beating all expectations - seeing the 30 million
paid subscribers when we first started grow to 450 million paid
subscribers today to what are forecast to be 2 billion paid
subscribers by the end of the decade. This has turned music from
being a discretionary or luxury purchase to very much being a
utility as a result of the convenience and access afforded by
streaming. Going forward this accelerated streaming will be
enhanced as revenues from TikTok, Peloton, Triller, Roblox, and
other rapidly emerging digital platforms start to be paid through.
These are new income streams, expected to be a material portion of
our revenue going forward, that are not in the data that we buy
Catalogues on. We are entering an era where now, for the first time
ever, almost all consumption of music is paid for.
During the year, we have significantly enhanced our Song
Management team, now led by Ted Cockle and Amy Thomson, which is
structured to have the bandwidth to be able to apply ourselves and
give our great Songs the attention they deserve . This has had a
significant impact and increased the monetization of our Songs,
with synch revenues exceeding all expectations, and despite film
and TV production being shut down for much of the last 16 months,
increased from 9% to 15% of our revenue. Great examples of our Song
Management team's impact include:
-- our work with Blondie and Miley Cyrus on both versions of
Heart Of Glass, which has introduced this classic song to a new
audience and together have been streamed more than 250 million
times since we brought them together on TikTok last October;
-- helping All I Want For Christmas Is You get to UK Number 1
for the first time in its 26 year history;
-- repositioning Chic's 44 year old Everybody Dance as a Gen Z
hit with the new version by Cedric Gervais and Sound Of Franklin
featuring Nile Rodgers, which we released in January and has been
building in streams and airplay every week and has been all over
the new season of Love Island this week;
-- our copyright management that has identified historic
registrations errors, break downs in income chains and unclaimed
recordings, which when fixed will all create incremental revenue
for the Company. For example, we have identified 76 million views
of unclaimed / unmatched recordings of our Songs on YouTube in the
month of January alone, which would represent a 36% uplift. Further
to this we have done test cases on 5 Catalogues, identifying broken
registrations that indicate that more than 40% income on each has
not been collected previously due to errors in registration that
pre-date our acquisition. These have now been corrected and the
same work is being actioned on all of our Songs.
Furthermore, the legislative efforts - influenced by our
advocacy - that are taking place all over the world to lobby on
behalf of the Songwriter to receive a greater share of the income
combined with our pedigree and effectively unique proposition has
made us the preferred choice for the Songwriting community. In
doing this there is complete alignment between our Shareholders and
the Songwriters as what's in the best interest of the Songwriter is
also in the best interest of our Shareholders. Together with our
Shareholders' support, this has allowed us to grow our Portfolio
from c.13,000 to over 60,000 Songs, investing more than $1 billion
in this fiscal year and approximately $2 billion overall, whilst
maintaining our criteria of the Songs being extraordinarily
successful and of great cultural importance. We have added the
catalogues of Rock And Roll Hall Of Fame inductees Neil Young,
Lindsey Buckingham / Fleetwood Mac, Steve Winwood, Debbie Harry
& Chris Stein / Blondie, and Chrissie Hynde / The Pretenders,
Songwriters Hall Of Fame inductees Carole Bayer Sager and Barry
Manilow as well as iconic artists, songwriters and producers
Shakira, Rick James, Enrique Iglesias, B-52's, Jimmy Iovine, The
RZA / Wu Tang Clan, Chris Cornell / Soundgarden, 50 Cent, George
Benson, Nikki Sixx / Motley Crue, Rodney Jerkins, Kevin Godley
&, Eric Stewart / 10cc, Skrillex, Andy Wallace, Christian
Karlsson, Joel Little, Walter Afanasieff and many others, including
the recently crowned 2021 Grammy Awards Producer Of The Year Andrew
Watt.
Having now grown Hipgnosis to a $1.8 billion market cap FTSE 250
company and invested almost $2 billion in iconic songs that are a
part of the fabric of our society, which have just been
independently valued at $2.2 billion, it is worth re-stating our
ambitions when we listed three years ago, which were to:
1. Establish Songs as an asset class;
2. Use the influence of our Fund and the great Songs in our
Catalogue to be a catalyst to change where the Songwriter sits in
the economic equation for the benefit of the Songwriting community
and our Shareholders;
3. To replace the broken traditional publishing model with Song
Management and add value by managing the Songs with bandwidth and
responsibility.
Having delivered another strong, and index beating, set of
results, having advocated for Songwriters at the highest level
including the DCMS hearings taking place in UK Parliament and
having increased our synch income through Song Management, as a
percentage of total revenue, I'm delighted to say our ambitions are
turning into reality and we are well on our way to Hipgnosis
achieving them all."
For further information, please contact:
The Family (Music) Limited Tel: +44 (0)1481
Merck Mercuriadis 742742
Singer Capital Markets - Joint Corporate Broker Tel: +44 (0)20
James Maxwell / James Moat / Amanda Gray / 7496 3000
Alaina Wong (Corporate Finance)
Alan Geeves / James Waterlow / Sam Greatrex
(Sales)
J.P. Morgan Cazenove - Joint Corporate Broker Tel: +44 (0)20
William Simmonds / Jérémie Birnbaum 7742 4000
(Corporate Finance)
James Bouverat (Sales)
RBC Capital Markets - Joint Corporate Broker Tel: +44 (0)20
Elliot Thomas / Max Avison (Corporate Finance) 7635 4000
Lisa Tugwell / Adam Robertson (Sales)
Ocorian - Company Secretary & Administrator Tel: +44 (0) 28
Lorna Zimny 9693 0222
The Outside Organisation Tel: +44 (0)7711
Alan Edwards / Nick Caley 081 843
FTI Consulting Tel: +44 (0)7771
Neil Doyle/ Paul Harris/ Laura Ewart 978220; +44 (0)7809
411882; +44 (0)7761
332646
All US music publicity enquiries
Fran Defeo +1 917 767 5255
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 GBP1.1
billion (gross equity capital) through its Initial Public Offering
on 11 July 2018, and subsequent issues in April 2019, August 2019,
October 2019, July 2020, September 2020 and February 2021. In
September 2019, Hipgnosis transferred its entire issued share
capital to the Premium listing segment of the Official List of the
FCA and to the London Stock Exchange's Premium segment of the Main
Market, and in March 2020 became a constituent of the FTSE 250
Index. Since April 2021, the Company has been resident in the UK
for tax purposes and is recognised as an investment trust under
applicable HMRC regulations.
About 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, David A. Stewart,
Poo Bear, Bill Leibowitz, Ian Montone and Rodney Jerkins.
Financial Review
Functional currency
The Company and a number of its subsidiaries changed their
functional and presentation currency from Sterling to Dollars with
effect from 1 October 2020. This was required under IFRS, as there
has been a fundamental shift in the primary economic environment in
which the Company operates due to a significant increase in the
proportion of transactions denominated in Dollars. The Kobalt Music
Copyrights Sarl and Big Deal Music Group acquisitions, which
occurred on 30 September 2020 and 10 September 2020 respectively,
and the restructuring of the debt facility from Sterling to
Dollars, have significantly increased the proportion of catalogues,
revenues and transactions denominated in Dollars. Further
disclosure, including the methodology applied to effect this
change, is seen in Note 2n. The Company will continue to pay any
dividends in Pounds Sterling and its primary listing will remain
denominated in Sterling.
NAV
The Company reports two net asset values, an IFRS NAV which is
prepared in accordance with IFRS under which the Company's
investments in Catalogues are held at cost less amortisation, and
an Operative NAV which adjusts the IFRS NAV to reflect the fair
value of the Company's Catalogues as determined by the Portfolio
Independent Valuer.
The Board considers that the most relevant NAV for Shareholders
is the 'Operative NAV', which reflects the fair value of the
Company's Catalogues as valued by the Portfolio Independent
Valuer.
The Operative NAV per Share increased by 11.3% to $1.6829 during
the year (31 March 2020: $1.5114), which, when including dividends
paid, represents a Total Operative Dollar NAV Return of 15.7%.
This brings Total $ NAV Return to Shareholders to 40.7% since
Hipgnosis' IPO on 11 July 2018.
The growth in Operative NAV over the period was 10.4%,
like-for-like uplift in the fair value of Catalogues driven by:
-- an increase in the Portfolio Independent Valuer's
expectations for future streaming income as a result of:
- the acceleration of the change in behaviour to consuming music
by streaming. This has been emphasised further still through the
COVID-19 pandemic where streaming growth has exceeded
expectations;
- royalties starting to be paid by rapidly growing Emerging
Digital Platforms (EDPs) including TikTok and Peloton (whilst
royalties have been paid to Administrators and therefore included
in expected future earnings, they are not expected to start being
received by Hipgnosis until later this year and therefore not yet
recognised in this period's revenue);
-- growth in synchronisation income in excess of the Portfolio
Independent Valuer's expectations despite advertising budget cuts
and the production of films and television programs being at a
standstill;
-- a reduction in the discount rate used by the Portfolio
Independent Valuer to value the Company's Catalogues from 9% to
8.5%, as stated in the half year results.
In line with 30 September 2020, the Catalogue Fair Value as at
31 March 2021 has been calculated using a discount rate of 8.5% (31
March 2020: 9.0%). The reduction in the discount rate during the
period by the Portfolio Independent Valuer reflects the decreased
risk profile associated with music's ever more stable and
predictable earnings as a result of the increased consumption of
music through paid streaming. The Board and the Investment Adviser
are delighted that music valuers are starting to reflect the true
value of music as an asset class and expect this trend to continue
as streaming continues to grow and music revenues continue to prove
their stability.
The Operative NAV has been determined in accordance with the
Company's valuation policy described in the Company's Prospectus,
including the appointment of an independent third-party valuer.
Operative NAV Bridge
from 1 April 2020 to 31 March 2021:
$
-------------------------- --------
Opening Operative NAV per
Ordinary Share 1.5114
-------------------------- --------
Increase in Fair Value of
Catalogues 0.1824
-------------------------- --------
Net income 0.0993
-------------------------- --------
Dividends Paid (0.0485)
-------------------------- --------
FX impact (0.0491)
-------------------------- --------
Share issue costs* (0.0127)
-------------------------- --------
Closing Operative NAV per
Ordinary Share 1.6829
-------------------------- --------
* Share issue costs reflect the costs of share issuances during
the period, which were fully borne out of the gross proceeds of the
respective issue.
The FX impact reflects the effect of movements in Dollars,
Sterling and Euro exchange rates throughout the year, and includes
a one-off adjustment as a result of the Company changing its
functional currency to Dollars.
Based on the Sterling to Dollar exchange rate of 1.3738 on 31
March 2021, the Operative NAV presented in Sterling would be 122.5p
per Share.
Revenue
Net revenue in the year increased substantially to $138.4
million (year ended 31 March 2020: $83.3 million).
A breakdown of the income source of net revenue is set out
below:
Net Revenue
Income Source ($'000) %
-------------------- ----------- ---
Mechanical / Master
Royalties 23,580 17%
-------------------- ----------- ---
Performance 39,864 29%
-------------------- ----------- ---
Digital 3,978 3%
-------------------- ----------- ---
Streaming 43,658 32%
-------------------- ----------- ---
Synchronization 21,057 15%
-------------------- ----------- ---
Other Income 6,256 4%
-------------------- ----------- ---
Total 138,393
-------------------- ----------- ---
During the year, Hipgnosis, like all other companies, has had to
operate and adapt against the backdrop of a challenge that the
world has never before experienced. The COVID-19 pandemic has had a
devastating impact on society and much of the economy. We are
grateful however that music, whilst not wholly impervious to the
virus, has proved to be extremely resilient throughout this time
demonstrating the appeal of hit songs to millions of people even in
the most challenging times.
The COVID-19 pandemic has affected how people consume music with
an acceleration of the adoption of streaming worldwide. During
2020, IFPI reported 18.5% growth in paid music subscriptions to 443
million users globally. This has continued into 2021 with Spotify
reporting a year-on-year increase of 24% in Total Monthly Active
Users in the first quarter.
This is being seen clearly in our Catalogues' royalties, where
streaming income has increased by 18.4% in the second half of the
year from the previous six-month period across all Catalogues and
24.3% on our steady state catalogues, where we would not expect
decay from peak earnings. This growth is without any material
revenue recognised from royalties paid by TikTok and Peloton which,
whilst having been received by Administrators, is only expected to
be received by Hipgnosis from the next semi-annual royalty
statements in August and September 2021 and beyond. This income has
not been accrued as we are not able to reliably estimate it as at
31 March 2021. With global streaming revenues growing 19.9% during
the year, this highlights our steady state Catalogues are
outperforming the market growth of streaming.
We consider that this acceleration of changing consumer
behaviour will lead to higher streaming earnings in future years
than previously expected. This expectation is supported by the
Portfolio Independent Valuer who has increased future streaming
income from our Catalogues in its DCF (Discounted Cash Flow)
valuation models.
As stated in the interim results, performance income (which is
predominantly received from shops, bars and restaurants as well as
Live music) has fallen across the music industry in 2020 as a
result of COVID-19 lockdowns globally, with PRS recently stating
performance revenues fell by 19.7% in 2020.
As a result of these industry wide trends, performance income in
our Catalogues' royalty earnings income decreased by 25.8% in the
second half of the year from the previous six-month period across
all Catalogues, and 21.3% on our steady state Catalogues where we
would not expect decay from peak earnings. The Company expects a
further fall in performance revenues in the first half of the year
ending 31 March 2022.
Overall, royalty statements and cash receipts in the second half
of the year are in line with the revenue accruals recognised in the
first half results and revenues are marginally lower than the
previous year. This is reflected in the Pro-Forma Annual Revenue
(PFAR) of the Catalogues owned on 31 March 2021, which fell by 5.8%
to $118.2 million for the 12 months ending 30 June 2020 compared to
$125.5 million for the 2019 calendar year. Please see Alternative
Performance Measures section for the methodology behind the PFAR
calculation.
In addition, the Variance against Forecast (VAF) which is the
difference between the total of the royalty statements received
from each Catalogue since acquisition, and the acquisition model
forecast over the same period up to 31 March 2021, was -2.8%,
reflecting the decrease in performance income during COVID-19 which
would not have been anticipated in the original forecast
acquisition model on Catalogues as they were acquired before the
COVID-19 pandemic.
However, the long-term changes to music consumption during
COVID-19, combined with proactive Song Management, should
accelerate future earnings growth. This is also supported by the
Portfolio Independent Valuer who has increased future projected
earnings of our Catalogues in their DCF valuation models, resulting
in a 2.1% uplift in fair value since 30 September 2020.
Accruals and Receivables
There is an inherent time lag with royalties between the time a
Song is performed and when the revenue is received by the Copyright
owner. The time lag can be as much as 24 months on some
international income.
Accrued income and Income receivable at 31 March 2021 was $82.1
million (on a gross basis), a breakdown of which is set out
below:
-- A $8.7 million receivable, representing royalty receipts
expected in April and May for royalties where statements were
received in March.
Included in Trade and Other receivables is an Accrued income
balance of $73.4 million which is made up of:
-- $29.5 million for calendar Q1 2021 earnings where, due to the
time lag in royalty reporting, statements are not expected to be
received until calendar Q3 and Q4 2021;
-- $16.9 million for calendar Q4 2020 earnings which are not
reported to the Company until calendar Q2 2021;
-- $9.9 million relating to calendar Q2 2020 to Q3 2020 earnings
for Catalogues where royalty reporting is still in the process of
being redirected/switched over to Hipgnosis. These accruals are
based on royalty statements received with invoices due to be raised
on completion of the Letter of Direction;
-- $4.4 million for 2020 earnings on deals acquired more than
six months ago yet to be reported;
-- $7.5 million income accrual relating to time-lagged
international reporting on PRO earnings. International PRO
reporting has a significant time lag due to the additional
collection time taken for PROs to collect and distribute income
from territories. The lag in collection is due to the nature of
collecting and processing royalties locally, then distributing them
to the domestic PRO, which will in turn process and distribute
these royalties to the Group. Six months of international PRO
earnings are accrued, although can typically result in an earnings
lag of up to 24 months; and
-- $5.2 million HSG gross revenue accrual, bringing the Group in
line with IFRS, which includes the accrued PRO lag. Separately, a
$4.2 million royalty creditor representing contractual royalties
due to writers has been recognised, resulting in net revenue (NPS)
for HSG of $1million.
Right to Income
On the acquisition of a Catalogue, the Company may receive a
Right to Income, which is typically dependent on the timing of the
negotiations and is negotiated by the Investment Adviser on each
acquisition. The Right to Income recognised in the period was $22.7
million.
Costs and EBITDA
Adjusted Operating Costs increased to $25.5 million owing to the
higher costs on a pro-rata basis reflecting the growth of the
Company, the increase in costs associated with HSG and higher legal
and advisory fees associated with growth via acquisition.
Ongoing Charges as a percentage of the average Operative NAV
increased slightly from 1.52% to 1.59% primarily driven by the
timing of share issuances during the year, the additional operating
costs of HSG since its acquisition in September 2020 and higher
legal/professional fees due to the one off acquisition costs of
acquiring HSG.
EBITDA in the year increased by 49.8% to $106.7 million (year
ended 31 March 2020: $71.2 million) reflecting the substantial
increase in revenues.
Debt
Leveraged Free Cash Flow was $82.1 million which covered
dividends paid out during the year by 1.58 times.
On 26 March 2021, the Company drew down $90.0 million under its
Revolving Credit Facility resulting in gross indebtedness of $577
million and net indebtedness of $465 million. This gross
indebtedness represented approximately 32.8% of the last published
Adjusted Operative Net Asset Value at that time and therefore
constituted an inadvertent breach of the Company's borrowing
restriction under its investment policy of 30% of Net Asset Value.
The amount drawn down was held by the Company as cash and was
unutilised, and on 5 April 2021 $50 million of these drawings were
repaid, thereby curing the temporary breach. We have also discussed
this in Note 9.
Since this date the Company has operated in compliance with all
its investment restrictions. The current Loan to Net Asset Value at
time of writing is 29.2%.
Thank You
With your tremendous support we have now grown Hipgnosis to a
$1.8 billion market cap FTSE 250 company.
In Summary, we are delighted to announce a strong set of annual
results which reports on a remarkable year for Hipgnosis. Against
one of the most challenging backdrops of our lives, the Operative
NAV per Share increased by 11.3% to $1.6829, which with dividends
paid reflects a Total Operative Dollar NAV Return of 15.7%. This
brings the Total NAV Return since IPO less than three years ago to
40.7%. This strong return evidences not only our ability to be able
to buy and manage our culturally important and extraordinarily
successful songs well but also the highly uncorrelated nature of
proven songs.
During the year, we have significantly enhanced our Song
Management team, now led by Ted Cockle and Amy Thomson, which is
structured to have the bandwidth to be able to apply ourselves and
give our great Songs the attention they deserve. This has had a
significant impact and increased the monetization of our Songs,
with synch revenues exceeding all expectations, and despite film
and TV production being shut down for much of the last 16 months,
increased from 9% to 15% of our revenue. Great examples of our Song
Management team's impact include:
-- our work with Blondie and Miley Cyrus on both versions of
Heart Of Glass, which has introduced this classic song to a new
audience and together have been streamed more than 250 million
times since we brought them together on TikTok last October;
-- helping All I Want For Christmas Is You get to UK Number 1
for the first time in its 26 year history;
-- repositioning Chic's 44 year old Everybody Dance as a Gen Z
hit with the new version by Cedric Gervais and Sound Of Franklin
featuring Nile Rodgers, which we released in January and has been
building in streams and airplay every week and has been all over
the new season of Love Island this week;
-- our copyright management that has identified historic
registrations errors, break downs in income chains and unclaimed
recordings, which when fixed will all create incremental revenue
for the Company. For example, we have identified 76 million views
of unclaimed / unmatched recordings of our Songs on YouTube in the
month of January alone, which would represent a 36% uplift. Further
to this we have done test cases on 5 Catalogues, identifying broken
registrations that indicate that more than 40% income on each has
not been collected previously due to errors in registration that
pre-date our acquisition. These have now been corrected and the
same work is being actioned on all of our Songs.
Furthermore, the legislative efforts - influenced by our
advocacy - that are taking place all over the world to lobby on
behalf of the Songwriter to receive a greater share of the income
combined with our pedigree and effectively unique proposition has
made us the preferred choice for the Songwriting community.
In doing this there is complete alignment between our
Shareholders and the Songwriters as what's in the best interest of
the Songwriter is also in the best interest of our Shareholders.
Together with our Shareholders' support, this has allowed us to
grow our Portfolio from c.13,000 to over 60,000 Songs, investing
more than
$1 billion in this fiscal year and approximately $2 billion
overall, whilst maintaining our criteria of the Songs being
extraordinarily successful and of great cultural importance. We
have added the catalogues of Rock And Roll Hall Of Fame inductees
Neil Young, Lindsey Buckingham / Fleetwood Mac, Steve Winwood,
Debbie Harry & Chris Stein / Blondie, and Chrissie Hynde / The
Pretenders, Songwriters Hall Of Fame inductees Carole Bayer Sager
and Barry Manilow as well as iconic artists, songwriters and
producers Shakira, Rick James, Enrique Iglesias, B-52's, Jimmy
Iovine, The RZA / Wu Tang Clan, Chris Cornell / Soundgarden, 50
Cent, George Benson, Nikki Sixx / Motley Crue, Rodney Jerkins,
Kevin Godley &, Eric Stewart / 10cc, Skrillex, Andy Wallace,
Christian Karlsson, Joel Little, Walter Afanasieff and many others,
including the recently crowned 2021 Grammy Awards Producer Of The
Year Andrew Watt.
Having now grown Hipgnosis to a $1.8 billion market cap FTSE 250
company and invested almost $2 billion in iconic songs that are a
part of the fabric of our society, which have just been
independently valued at $2.2 billion, it is worth re-stating our
ambitions when we listed three years ago, which were to:
1. Establish Songs as an asset class;
2. Use the influence of our Fund and the great Songs in our
Catalogue to be a catalyst to change where the Songwriter sits in
the economic equation for the benefit of the Songwriting community
and our Shareholders; and
3. To replace the broken traditional music publishing model with
Song Management and add value by managing the Songs with bandwidth
and responsibility.
Having delivered another strong, and index beating, set of
results, having advocated for Songwriters at the highest level
including the DCMS hearings taking place in UK Parliament and
having increased our synch income through Song Management, as a
percentage of total revenue, I'm delighted to say our ambitions are
turning into reality and we are well on our way to Hipgnosis
achieving them all.It remains only for me to thank our incredible
Shareholders, Non-executive Board, the team at The Family (Music)
Limited and its Advisory Board, Hipgnosis Songs Group in the US and
most importantly the great Songwriters that have entrusted us with
their incomparable Songs.
Best wishes,
Merck Mercuriadis
Founder, Hipgnosis Songs Fund Ltd and
The Family (Music) Limited
4 July 2021
Financial and Operational Highlights
As at 31 March 2021, the Company had raised a total of over
GBP1.1 billion (gross equity capital) through its Initial Public
Offering on 11 July 2018, and subsequent placings in April 2019,
August 2019, September 2020, and February 2021 as well as C-Share
raises in October 2019 (which converted in January 2020) and July
2020 (which converted in December 2020). Our revolving credit
facility has now been raised from $150 million to $600 million.
As at 31 March 2021, the Company had deployed approximately
$1.94 billion in total since IPO on 138 Catalogues and 64,098
Songs. The Catalogues acquired during the period are below:
Acquisition Interest Total
Catalogue Date Ownership Songs
------------------------- ------------- ----------- -------
16 Jul
Rodney Jerkins 2020 100% 982
------------------------- ------------- ----------- -------
16 Jul
Barry Manilow 2020 100% 917
------------------------- ------------- ----------- -------
16 Jul
RedOne 2020 100% 334
------------------------- ------------- ----------- -------
16 Jul
Eliot Kennedy 2020 100% 217
------------------------- ------------- ----------- -------
Closer (J King & 27 Jul
I Slade) 2020 100% 2
------------------------- ------------- ----------- -------
24 Jul
NO I.D. 2020 100% 273
------------------------- ------------- ----------- -------
24 Jul
Pusha T 2020 100% 238
------------------------- ------------- ----------- -------
29 Jul
Ian Kirkpatrick 2020 100% 137
------------------------- ------------- ----------- -------
30 Jul
Blondie 2020 100% 197
------------------------- ------------- ----------- -------
10 Aug
Chris Cornell 2020 100% 241
------------------------- ------------- ----------- -------
12 Aug
Robert Diggs "RZA" 2020 50% 814
------------------------- ------------- ----------- -------
13 Aug
Ivor Raymonde 2020 100% 505
------------------------- ------------- ----------- -------
Nikki Sixx 3 Sep 2020 100% 305
------------------------- ------------- ----------- -------
10 Sep
Big Deal Music "BDM" 2020 100% 4,400
------------------------- ------------- ----------- -------
10 Sep
Chrissie Hynde 2020 100% 162
------------------------- ------------- ----------- -------
17 Sep
Steve Robson 2020 100% 1,034
------------------------- ------------- ----------- -------
18 Sep
Rick James 2020 50% 97
------------------------- ------------- ----------- -------
23 Sep
Kevin Godley 2020 100% 358
------------------------- ------------- ----------- -------
24 Sep
Scott Cutler 2020 100% 111
------------------------- ------------- ----------- -------
30 Sep
Nate Ruess 2020 100% 59
------------------------- ------------- ----------- -------
30 Sep
LA Reid 2020 100% 162
------------------------- ------------- ----------- -------
30 Sep
50 Cent 2020 100% 388
------------------------- ------------- ----------- -------
30 Sep
Aristotracks 2020 100% 152
------------------------- ------------- ----------- -------
30 Sep
B-52's 2020 100% 96
------------------------- ------------- ----------- -------
30 Sep
Bonnie Mckee 2020 100% 78
------------------------- ------------- ----------- -------
30 Sep
Brill Building 2020 100% 234
------------------------- ------------- ----------- -------
30 Sep
Christina Perri 2020 100% 68
------------------------- ------------- ----------- -------
30 Sep
Dierks Bentley 2020 100% 113
------------------------- ------------- ----------- -------
30 Sep
Editors 2020 100% 64
------------------------- ------------- ----------- -------
30 Sep
Eman 2020 100% 97
------------------------- ------------- ----------- -------
30 Sep
Enrique Iglesias 2020 100% 157
------------------------- ------------- ----------- -------
30 Sep
Evan Bogart 2020 100% 229
------------------------- ------------- ----------- -------
30 Sep
George Benson 2020 100% 107
------------------------- ------------- ----------- -------
30 Sep
George Thorogood 2020 100% 40
------------------------- ------------- ----------- -------
30 Sep
Good Soldier 2020 100% 760
------------------------- ------------- ----------- -------
30 Sep
Holy Ghost 2020 100% 62
------------------------- ------------- ----------- -------
30 Sep
J-Kash 2020 100% 90
------------------------- ------------- ----------- -------
30 Sep
John Rich 2020 100% 7
------------------------- ------------- ----------- -------
30 Sep
Kojak 2020 100% 148
------------------------- ------------- ----------- -------
30 Sep
Lateral 2020 100% 248
------------------------- ------------- ----------- -------
Lindsey Buckingham 30 Sep
( Kobalt) 2020 100% 174
------------------------- ------------- ----------- -------
30 Sep
LunchMoney Lewis 2020 100% 116
------------------------- ------------- ----------- -------
30 Sep
Lyrica Anderson 2020 100% 96
------------------------- ------------- ----------- -------
30 Sep
Madcon 2020 100% 173
------------------------- ------------- ----------- -------
30 Sep
Mark Batson 2020 100% 210
------------------------- ------------- ----------- -------
30 Sep
Mobens 2020 100% 1,034
------------------------- ------------- ----------- -------
30 Sep
Nelly (Kobalt) 2020 100% 145
------------------------- ------------- ----------- -------
30 Sep
Nettwerk 2020 100% 25,339
------------------------- ------------- ----------- -------
30 Sep
PRMD 2020 100% 335
------------------------- ------------- ----------- -------
30 Sep
Rob Hatch 2020 100% 167
------------------------- ------------- ----------- -------
30 Sep
Rock Mafia 2020 100% 393
------------------------- ------------- ----------- -------
30 Sep
Savan Kotecha 2020 100% 354
------------------------- ------------- ----------- -------
30 Sep
SK Music 2020 100% 23
------------------------- ------------- ----------- -------
30 Sep
Skrillex 2020 100% 153
------------------------- ------------- ----------- -------
30 Sep
Stereoscope 2020 100% 456
------------------------- ------------- ----------- -------
30 Sep
Steve Winwood 2020 100% 215
------------------------- ------------- ----------- -------
30 Sep
Tequila 2020 100% 1
------------------------- ------------- ----------- -------
30 Sep
Third Day 2020 100% 212
------------------------- ------------- ----------- -------
30 Sep
Walter Afanasieff 2020 100% 213
------------------------- ------------- ----------- -------
30 Sep
Wayne Wilkins 2020 100% 113
------------------------- ------------- ----------- -------
30 Sep
Yaslina 2020 100% 73
------------------------- ------------- ----------- -------
20 Nov
Sacha Skarbek 2020 100% 303
------------------------- ------------- ----------- -------
27 Nov
Tricky Stewart (Masters) 2020 100% 95
------------------------- ------------- ----------- -------
Eric Stewart 2 Dec 2020 100% 255
------------------------- ------------- ----------- -------
Bob Rock 4 Dec 2020 100% 43
------------------------- ------------- ----------- -------
Caroline Ailin ("New 10 Dec
Rules") 2020 100% 2
------------------------- ------------- ----------- -------
15 Dec
Nelly 2020 100% 240
------------------------- ------------- ----------- -------
24 Dec
Lindsey Buckingham 2020 100% 161
------------------------- ------------- ----------- -------
24 Dec
Joel Little 2020 100% 178
------------------------- ------------- ----------- -------
24 Dec
Jimmy Iovine 2020 100% 259
------------------------- ------------- ----------- -------
31 Dec
Neil Young 2020 50% 590
------------------------- ------------- ----------- -------
31 Dec
Shakira 2020 100% 145
------------------------- ------------- ----------- -------
Brian Kennedy [Writer 31 Dec
Sh.] 2020 100% 139
------------------------- ------------- ----------- -------
17 Feb
Andrew Watt 2021 100% 105
------------------------- ------------- ----------- -------
Christian Karlsson 2 Mar 2021 100% 255
------------------------- ------------- ----------- -------
17 Mar
Carole Bayer Sager 2021 100% 983
------------------------- ------------- ----------- -------
18 Mar
Paul Barry 2021 100% 510
------------------------- ------------- ----------- -------
26 Mar
Espionage 2021 100% 151
------------------------- ------------- ----------- -------
31 Mar
Martin Bresso 2021 100% 51
------------------------- ------------- ----------- -------
31 Mar
Andy Wallace 2021 100% 1,242
------------------------- ------------- ----------- -------
31 Mar
David Sitek 2021 100% 230
------------------------- ------------- ----------- -------
31 Mar
Happy Perez 2021 100% 192
------------------------- ------------- ----------- -------
Financial Highlights (1)
Year ended 31 March 2021
IFRS NAV (2) Middle market share price Net Revenues
(SONG)
$1,462,844,327 125.50p $138,389,473
(31 March 2020: $810,685,312) (31 March 2020: 103.00p) (31 March 2020: $83,329,166)
IFRS NAV per Ordinary (Discount)/Premium to EBITDA
Share Operative NAV
$1.3628 2.4% $106,666,421
(31 March 2020: $1.3164) (31 March 2020: -11.8%) (31 March 2020: $71,189,405)
Operative NAV (3) Total NAV Return (4) Leveraged Free Cash
Flow
$1,806,462,664 40.7% $82,128,572
(31 March 2020: $930,814,994) (31 March 2020: $22,700,638)
Operative NAV per Ongoing Charges figure EPS
Ordinary Share ($) (%)
$1.6829 1.59% 4.72c
(31 March 2020: $1.5114) (31 March 2020: 1.52%) (31 March 2020: 8.13c)
Operative NAV per Total dividends paid EPS excl. Amortisation
Ordinary Share (p) in respect of the period
122.50p 5.125p 13.26c
(31 March 2020: 116.73p) (31 March 2020: 5.00p) (31 March 2020: 14.23c)
1 A number of Alternative Performance Measures are used within
the Report and details can be found further below. Prior Year
comparatives have been restated from Sterling.
2 Catalogues of Songs are classified as intangible assets and
measured at amortised cost or cost less any impairment in
accordance with IFRS.
3 The Directors are of the opinion that an Operative NAV
provides a meaningful alternative performance measure and the
values of Catalogues of Songs are based on fair values produced by
the Portfolio Independent Valuer.
4 Since inception.
The Chair's Statement
I am delighted to issue a report which summarises the
significant continued progress that has been made in building a
Portfolio of proven Songs, which are generating strong investment
returns, delivering the Song Management initiatives by the growing
team within the Investment Adviser and continuing to raise new
equity capital and loans to fund further investments. All of this
with a view to delivering increased value for our Shareholders,
despite a backdrop of COVID-19 and the associated
uncertainties.
During the period, the Company invested a further $1,089 million
and now owns 138 Catalogues.
The Portfolio has been independently valued at $2,214 million,
representing an increase of 13.6% on the aggregate purchase price
of $1,948 million, on a constant currency basis.
Investments
During the period to 31 March 2021 the Company acquired 84
Catalogues. This now brings the total Portfolio to 138 Catalogues
comprising 64,098 Songs.
These acquisitions have continued the diversification of the
Portfolio which now includes Songs performed by hundreds of artists
across multiple genres and vintages. All of the acquisitions were
sourced by our Investment Adviser, The Family (Music) Limited,
which, together with its Advisory Board, provides access to some of
the most successful artists, Songwriters and producers
globally.
Share issuance
During the year the Company raised GBP190 million in September
2020 and GBP75 million in February 2021, as well as GBP233 million
through a C-Share issuance in July 2020 (which converted in
December 2020).
Functional currency change
The Company changed its functional and presentation currency
from Sterling to Dollars with effect from 1 October 2020. This was
required by IFRS, as there has been a fundamental shift in the
primary economic environment in which the Company operates due to
the significant increase in the proportion of transactions
denominated in Dollars. The change will significantly reduce
volatility in revenue collections and investment and loan
valuations arising from foreign exchange fluctuations between
Sterling and Dollars.
Conversion to Investment Trust Company
During the period the Company applied to become an investment
trust company. This move better reflects the increasing UK-centric
substance of the Company, whilst remaining domiciled in
Guernsey.
HMRC accepted the Company's application to be treated as an
investment trust with effect from 1 April 2021. Accordingly, in
respect of each accounting period for which the Company is approved
by HMRC as an investment trust, the Company will be exempt from UK
taxation on its chargeable gains. The Company became UK tax
resident from 1 April 2021 and is therefore liable to UK
corporation tax on its income from that date.
Performance
I am pleased to report an increase in revenue to $138.4 million
for the year (financial year ended 31 March 2020: $83.3
million).
The Ongoing Charges ratio increased slightly from 1.52% to 1.59%
primarily driven by the timing of share issuances during the year,
the additional operating costs of HSG since its acquisition in
September 2020 and higher legal/professional fees due to the one
off acquisition costs of acquiring HSG. It remains the belief of
the Board that the Ongoing Charges ratio will fall over time.
EBITDA in the year increased by 49.8% to $106.7 million (year
ended 31 March 2020: $71.2 million) reflecting the substantial
increase in revenues. Leveraged Free Cash Flow was $82.1 million
which covered dividends paid out during the year by 1.58 times.
The IFRS NAV per share at 31 March 2021 was $1.3628 (31 March
2020: $1.3164). The Board considers that the most relevant NAV for
Shareholders is the 'Operative NAV', which reflects the fair value
of the Company's Catalogues as valued by the Portfolio Independent
Valuer. The Operative NAV per Share increased by 11.3% to $1.6829
during the year (31 March 2020: $1.5114), which, when including
dividends paid, represents a Total Operative Dollar NAV Return of
15.7%. This brings Total $ NAV Return for our Shareholders to 40.7%
since the Company's IPO on 11 July 2018.
Dividend
In the financial year the Company paid total dividends of 5.125p
per Ordinary Share, paid in four quarterly instalments: 1.25p each
at the end of May and July 2020, and 1.3125p in November 2020 and
February 2021.
The Company continues to target a total dividend of 5.25p per
Ordinary Share for the current financial year ending 31 March
2022.
Revolving Credit Facility
On 29 May 2020, the Company announced that it was seeking
Shareholder support to increase the Company's current borrowing
limit of 20% of its Operative NAV to a maximum of 30% of its
Operative NAV.
This approval was given by Shareholders at an Extraordinary
General Meeting on 11 June 2020. During the year, the Company
entered into an agreement with a syndicated group of lenders, to
increase its Revolving Credit Facility from GBP150 million to $400
million and subsequently upsized to $600 million, subject to total
borrowings not exceeding 30% of Net Asset Value.
On 26 March 2021, the Company inadvertently breached the
borrowing restriction under its investment policy of 30% of Net
Asset Value. The amounts drawn down were held by the Company as
cash and were unutilised, and on 5 April 2021 $50 million of these
drawings were repaid, thereby curing the temporary breach. Since
this date the Company has operated in compliance with all of its
investment restrictions.
As the Company grows and given the now significant size of the
Revolving Credit Facility, the Company and its Investment Adviser
continue to explore and evaluate the most appropriate long term
gearing strategy to support growth in Shareholder value.
The Board
Vania Schlogel was appointed on 11 June 2021 as an Independent
Non-executive Director. Vania, who is based in the US, has
considerable private equity and media and entertainment sectors
experience.
I would like to record my appreciation to my fellow Board
members for their dedication and their diligence in supervising and
dealing with all the Company's activities in another busy year. In
addition to the significant corporate activity, including
fundraisings and the acquisition of HSG, the Board carefully
considers each proposed acquisition, of which there have been many
in the past 12 months, and has therefore met very frequently.
Annual General Meeting
This year's AGM will be held on 15 September 2021 at 10.00am
BST, at a venue to be notified to Shareholders in due course.
Subject to the restrictions in place as a result of COVID-19 it
is intended that members of the Board will be in attendance at the
AGM and will be available to answer Shareholder questions.
Outlook
2020 and now 2021 have been dominated by the COVID-19 pandemic.
The long-term effects of the pandemic on the global economy and on
lives, livelihoods and businesses will be felt for some time to
come. The music industry has been noticeably affected by the
pandemic, with performance and live entertainment in particular
having been materially disrupted during the periods of lockdown,
the impact of which has been seen within our PFAR and VAF, as
discussed in the Investment Adviser's Report.
While the Board continues to monitor the impact of COVID-19 on
the Company's revenues and valuations, we believe that the
increases in demand for streaming as a direct result of COVID-19
could replace and exceed the revenues lost from other income
sources as consumers seek in-home alternatives to out-of-home
entertainment. Music has become recognised as a resilient asset
class and I am confident that owners of the rights to songs such as
your Company should continue to benefit from the long-term and
consistent revenues that they can produce.
On behalf of the Board, I would like to express my thanks to all
of our stakeholders including our Songwriters' community and our
Shareholders for their continuing support. The Company has
assembled a solid, diversified Portfolio of proven Songs, across an
increasingly older vintage, sourced by our Investment Adviser. It
is the Board's view that the investment thesis remains as solid now
as at the time of our IPO. Accordingly, the Company announced a
further fundraising on 16 June 2021 and we look forward to
deploying the monies raised from it in pursuance of our investment
objective.
Andrew Sutch
Chair
4 July 2021
Investment Adviser's Report
2020 / 2021 has been another remarkable year for Hipgnosis. At a
point in time when the explosive growth of streaming has
transformed music from a discretionary consumer purchase to a
utility purchase and new heights of consumption we have acquired 84
new Catalogues including some of the most important Songwriter,
artists and producers of all time, for an aggregate purchase price
of $1.06 billion. These include the catalogues of Rock And Roll
Hall Of Fame inductees Neil Young, Lindsey Buckingham / Fleetwood
Mac, Steve Winwood, Debbie Harry & Chris Stein / Blondie, and
Chrissie Hynde / The Pretenders as well as Songwriters Hall Of Fame
members Barry Manilow and Carole Bayer Sager and iconic artists,
Songwriters and producers Shakira, Rick James, Enrique Iglesias,
B-52's, Jimmy Iovine, The RZA / Wu Tang Clan, Chris Cornell /
Soundgarden, 50 Cent, George Benson, Nikki Sixx / Motley Crue,
Rodney Jerkins, Kevin Godley & Eric Stewart / 10cc, Skrillex,
Walter Afanasieff and many others including the recently crowned
2021 Grammy Awards Producer Of The Year Andrew Watt.
Whilst we never would have wished for a pandemic to prove our
thesis, it has accelerated the consumption of classic songs through
streaming and demonstrated exactly what an excellent uncorrelated
asset class proven Songs are. Today, as the market has grown from
30 million paid subscribers to music streaming services in the US
when we started, to the current 450 million globally, there are
over 100 million homes in the United States that are paying for a
premium music streaming service. Add in the explosive growth of
TikTok, Peloton, Triller, NFTs and other new uses of music that are
new income streams, expected to be a material portion of our
revenue going forward, and not part of the data on which we buy
Catalogues, and the investment case becomes stronger with each
passing day. The same goes for emerging markets such as India,
Africa and China whose nascent growth in revenues are also not
included in the data on which we buy. By the time we get to the end
of the decade, there are expected to be 2 billion paid subscribers
worldwide.
The pandemic now looks set to lead us into inflation and again
we are extremely well placed with Songs as an asset class for our
Shareholders to be beneficiaries. With all our Catalogues chosen
due to their extraordinary success and cultural importance, we
believe extra high levels of streaming demand are a natural
feature. As an example, Journey's catalogue has, over the last 4
months, grown from 2.5 million to 3.7 million streams per week on
Apple Music and 13 million monthly listeners on Spotify. Don't Stop
Believin' on its own now has over
1 billion streams on Spotify alone, both incredible achievements
for classic Songs. This accelerated growth leaves us well
positioned for the future, with increased expectations for income
over the long term. Concurrently, we've felt some temporary decline
in our Performance income consistent with the entire industry, but
we expect that to turn around by the autumn.
Our Song Management team, who joined in September led by Ted
Cockle and Amy Thomson, has made a strong impact, growing revenue
and enhancing the legacies of our great Songs, which will make a
positive economic impact to the Company in periods to come. Synch
revenues have exceeded all expectations and, despite film and TV
production being shut down for much of the last 16 months, revenues
have increased. This has highlighted not only that we have bought
well, but also how undervalued our iconic songs have been by
traditional publishers and the massive opportunity this affords
Hipgnosis.
The 138 Catalogues within the Portfolio have been carefully
selected due to their being highly successful and culturally
influential proven hit Songs, which will produce long-term reliable
and predictable income, and high levels of streaming consumption.
Hipgnosis is therefore well placed to benefit from the expected
increase in streaming revenues over the coming years.
The growth in the Operative NAV over the period reflects a 10.4%
like-for-like uplift in the fair value of Catalogues driven by:
-- an increase in the Portfolio Independent Valuer's
expectations for future streaming income as a result of:
- the acceleration of the change in consumer behaviour to
consuming music through streaming. This has been emphasised further
still through the COVID-19 pandemic where streaming growth has
exceeded expectations.
- royalties starting to be paid by rapidly growing Emerging
Digital Platforms (EDPs) including TikTok and Peloton. Whilst
royalties have been paid to Administrators and therefore included
in expected future earnings, due to the lag in reporting, they are
not expected to start being received by Hipgnosis until later this
year and therefore not yet recognised in this period's revenue.
-- growth in synchronisation income in excess of the Portfolio
Independent Valuer's expectations despite advertising budget cuts
and the production of
films and television programs being at a standstill.
-- a reduction in the discount rate used by the Portfolio
Independent Valuer to value the Company's Catalogues from 9% to
8.5%, as stated
in the half year results.
Since acquisition, the fair value of Catalogues has increased by
$265.6 million, representing a 13.6% increase on acquisition
cost.
The strong Operative NAV and Total $ NAV Return continues to
evidence the Company's successful acquisition strategy and the
exceptionally high quality of Catalogues acquired.
Song Management
Song Management, as led by the Investment Adviser, strives to
deliver maximum value from Hipgnosis' Songs via movies, tv shows,
video games, radio content, playlists, interpolations into new
songs, and covers by new artists by active placement. In addition,
we are working with traditional and social media, spotlighting
natural opportunities that surround landmark anniversaries while
seeking to constantly refresh and provide cultural context. All of
which further fuels streaming growth and increases their
profile/value/opportunity for licensing our Songs to film,
television, gaming, and advertising. Making it as easy and fool
proof as possible to use our Songs is an essential ingredient of
our success.
Promoting Catalogues
The Song Management team will be particularly focused in the
coming months on showcasing a number of albums by our key
Songwriters that are celebrating major anniversaries. These
include:
-- Journey's album Escape, which contains the mega hit-song
Don't Stop Believin', which is celebrating its 40(th) anniversary
in July;
-- the 40(th) anniversary of the seminal Pretenders II album in
August which features I Go To Sleep;
-- The 30(th) Anniversary of Nirvana's Nevermind and Smells Like
Teen Spirit in September, arguably the most important album and
single of the 1990's;
-- the 20(th) anniversary of the landmark, latin album, Laundry
Service by Shakira in November 2021; and
-- the 40(th) anniversary of Rick James' album Street Songs,
featuring the funk classic Super Freak. The focus on this album
will be centred around Showtime's documentary: Bitchin': The Sound
and Fury of Rick James, due for broadcast in August of 2021.
Other key areas of activity include developing the licensing of
our Songs into the ever expanding fitness, gaming, dating and photo
messaging services, an area which is virtually devoid of any
earnings from music usage.
Synch revenues are growing significantly
Synchronisation income grew significantly in the second half of
the year, following the appointment of Ted and Amy, and the
addition of former Universal / Virgin's Head of Digital Tony
Barnes, former BMG's Head of Sync Tom Stingemore in the UK, former
BMG's Global Head of Sync Patrick Joest in Europe, former
Universal's Sync Director Joe Maggini, and Nick Jarjour both in LA,
and increased to represent 15% of net income during the year (year
ended 31 March 2020: 9%).
We are affecting the success of our Songs by providing knowledge
and bandwidth thereby making it easier to place them.
In the last 6 months we have created our own Synch platform via
the DISCO server used by Music Supervisors worldwide. This contains
audio of all our Songs, the shares we own and tagging useful
information to help guide the market to our Songs for easy usage.
The department is now fully functioning and actively manages dozens
of Synch opportunities per day, as well as traditional incoming
requests, with a complete overview of every appropriate Song we can
put forward from both within our administration and those Songs
administrated externally. This has not only increased Synch traffic
but also improved our ability to support all our partners with a
deeper understanding of the songs they represent for us. This
increases the likelihood of getting placements and revenue.
Traditional Administrators are over burdened with millions of
songs.
This system has also been adopted by our entire team creating a
fully functioning Synch operation open around the clock.
Growing synchronisation income in a year when advertising was
down and film and TV productions were halted is a testament to the
work performed by the new Song Management team and highlights the
substantial opportunity to further grow income from our Catalogues
which have often been undervalued, neglected and allowed to
languish by the major administrators.
Technology is key in Copyright Management
We continue to explore opportunities to maximise revenues which
include Song Management initiatives to actively work our catalogues
across TikTok, Triller, Peloton, Roblox and other platforms that
have the consumption of music at the centre of their use and
working with strategic technology partners to optimise our
copyright registrations, reverting catalogues to HSG for the United
States and our preferred administrators for the ROW.
-- Within the period, we launched our new internal system to
closely monitor the activity across all of the Songs within the
Hipgnosis Catalogue. This is bespoke technology that enables us to
track activity across various DSPs and social networks. An
important recent example being Love Shack by the B-52's and Britney
Spears' Toxic. The unique 'mash-up' has now exceeded 1 billion
video creations across all platforms. We were able to reproduce the
Song and we own 75% of the mashup on the Publishing side and 100%
on the Master side. It will be released this summer on all DSPs and
into the Synch community. We were able to see it, remake it and own
it.
-- We have adopted AI tagging that ensures we are able to very
quickly match advertising and agency briefs with the closest
matches within our Catalogue. We are then able to propose
alternative or more contemporary versions of Songs to meet the
briefs that we receive or the proposed activity that we are
planning. This is a system that operates within seconds and majorly
increases our response times across the industry.
-- We are also searching for missing YouTube revenues with an
external technology service provider who, in addition to Hipgnosis,
represents 2 of the 3 major publishers. Initial reports are showing
up to 38% of plays have been missed in the reporting and we look
forward to seeing the translation of this into our revenues in the
next fiscal period. We can use this also to locate and claim our
copyrighted material on newer and emerging platforms including
TikTok, Triller, Peloton and Roblox. We expect the latter to be
properly licensed this year.
-- Our strategy to access all portals to see deeper levels of
data at registration level has already led us to discover missing
PRO income from BMI in relation to the Catalogues of Rodney
Jerkins, The-Dream and Emile Haynie in almost all markets since 31
March 2019. This is now being rectified.
-- We have engaged with a new AI technology partner to conduct a
global search looking for missing ISWCs and broken registrations
globally at PRO level. The system provides a complete picture of
the data across 200 outside partners who collect revenue on the
Company's behalf. This will enable us to target where we should
claim missing revenue and conduct deeper audits.
The platform is expected to shorten payment times and increase
accuracy as we identify data breaks in real time. Our initial trial
catalogues have identified 62% of Songs that had data issues and we
estimate a significant uplift on the writer share of performance
income element, projected to be as much as 40% in some cases, which
will be realised by correcting the mistakes in registrations
inherited from previous owners. Every issue fixed is 100%
incremental earnings upside for the Company.
-- The NFT space is also a focus and we aim to ensure our
artists are collaborating with some of the leading creators in the
crypto art space. This includes not only the potentially lucrative
NFT landscape but also increased activity in the production and
release of personalised digitally focused merchandise and
collectibles utilising our copyrights which will lead to
significant upside in revenues.
The revenue from these technology initiatives are not factored
in our valuations by the Portfolio Independent Valuer. We believe
TikTok alone is already 6.5% of Sony Music's revenues and we expect
that in due course these emerging digital platforms such as TikTok,
Triller, Roblox, Peloton and others will generate as much as 15% of
our revenues and crucially are not a part of the data on which we
buy our Catalogues.
Song Administration
The newly formed Hipgnosis Songs Group (HSG), formerly Big Deal
Music, was acquired in September 2020 and has been an important
strategic acquisition for us. It has allowed the Fund to benefit
from its own administration in the US leading to significant
savings as highlighted above and gives us controlled and limited
exposure to Song Creation which will lead to the Catalogues of
tomorrow.
HSG, under the direction of Big Deal Music Founder Kenny
MacPherson, has been designed to consolidate, enhance and leverage
the value of Fund acquisitions in the US providing the necessary
efficiency to maximize return and profitability. The core
infrastructure is provided by the Group's fully integrated
operational pillar of Song Administration, while Song Creation
serves as a contemporary industry complement and a magnet for
current marketplace talent.
Song Administration in the US allows us to leverage our
incomparable catalogue directly with Apple, Spotify, Peloton,
TikTok, Triller and all other large users of our Copyrights.
We continue to move Catalogues into our own Administration via
Hipgnosis Songs Group for the US at a rapid pace. Recently we
welcomed Neil Young, Journey (Neal Schon and Jonathan Cain), Rick
James, Chrissie Hynde, The Chainsmokers, Rodney Jerkins, LA Reid,
Al Jackson Jr, Benny Blanco and David A. Stewart amongst many
others to the fold. To date, we have moved 13 Catalogues to HSG,
with a further 20 Catalogues expected by the end of 2021. A further
26 Catalogues have been moved to our Preferred Portfolio
Administrator outside of the US. To date, we have seen an overall
7% increase by bringing efficiencies in collection from the
previous legacy administration contracts and moving over to our
Preferred Portfolio Administrators.
Song Creation
Song Creation additionally provides ever dynamic catalogue
growth via a stable of active, front-line writers and artists,
procured, nurtured and directed by a best-in-class executive team
led by Casey Robison, Jamie Cerreta (both LA), Dave Ayers (NY) and
Pete Robinson (Nashville). Building future assets at minimal cost,
providing contemporary context, contacts and synergistic
opportunities throughout the industry is the strength and ongoing
mission of the Song Creation team.
As of May 2021, HSG was Number 8 in the Billboard Top 10
publisher chart with 1.05% market share, scoring number 1s in Dance
and Country (Silk City's Electricity written by the Picard Brothers
in Dance; Alison Veltz's Somebody Like That for Tenille Arts and
Steph Jones' Hole In the Bottle for Kelsea Ballerini on the Country
side).
Since the September acquisition, HSG has notched 2 UK Top 10
singles with Justin Bieber's Anyone and Miley Cyrus' featuring Dua
Lipa's Prisoner and a UK Top 5 album with St. Vincent's Daddy's
Home. HSG has also achieved 5 more Top 10s across the various
Billboard charts, seen breakthrough jazz superstar Kamasi
Washington land Grammy and Emmy nominations as well as a 6-figure
pan-European ad campaign with Cupra Motorcars, while in just the
past few weeks 3-time Grammy winner St. Vincent launched her latest
album with a Saturday Night Live performance, and licensing darling
Amber Mark premiered Competition, the first single from her much
anticipated debut LP, on BBC Radio One. Additional licensing
highlights range from Academy Award Best Picture nominee Promising
Young Woman and the celebrated Insecure for HBO and Bridgerton for
Netflix, to ad campaigns for Apple, Pepsi, Samsung, Corona,
Starbucks, Peloton and H&M.
We have also enjoyed considerable success from Song Management
initiatives, examples of which you can see within the case studies
throughout this report.
Chart and Synch Success
We continue to focus on delivering significant value-adds
through Song Management. Below are the key Synchs and chart
successes from the last year:
Film
There's Nothing Holdin' Me Back by Shawn Mendes, co-written by
Teddy Geiger and Scott Harris, was placed in the forthcoming Sing 2
movie, the trailer of which was released in June 2021.
The new Disney Movie Cruella features Call Me Cruella performed
by Florence + The Machine, and written by Steph Jones.
Eurythmics song Sweet Dreams (Are Made Of This), Chic's Good
Times and Beyonce's Single Ladies (Put A Ring On It) have all been
placed in Sony Pictures forthcoming remake of Cinderella.
Epilogue, written by Ólafur Arnalds, soundtracks the trailer to
Nomadland, starring Frances McDormand. The film won the best
picture (drama) at the Golden Globe Awards, The Oscars and the EE
British Academy Film Awards.
We Are Young , by fun., written by Jack Antonoff, Nate Ruess and
Jeff Bhasker, featured in The Boss Baby 2.
Coming 2 America , starring Eddie Murphy featured Mark Ronson's
Feel Right and Sister's Sledges's We Are Family, co-written by
Bernard Edwards and Nile Rodgers.
George Thorogood's Bad To Bone has been re-worked for the
trailer of forthcoming movie Gunpowder Milkshake, which launches on
Netflix in July 2021.
Booker T & The MG's Time Is Tight, written by Al Jackson
Jr., features in the forthcoming movie Apollo 10 1/2 .
Will Ferrell & My Marianne's Husavik, from the Eurovision
movie, written by Savan Kotecha was nominated for an Oscar,
Critics' Choice Award and won the Hollywood Critics Association
Awards for Best Original Song.
TV/Streaming
Eurythmics' Sweet Dreams (Are Made Of This) , written by David
A. Stewart, features in both the trailer and the first episode of
It's A Sin on Channel 4 and Amazon Prime. It also appears in the
trailer supporting For All
Mankind Season 2 on Apple TV.
Songs written by Nile Rodgers & Bernard Edwards continue to
be popular. Everybody Dance , written by provided the soundtrack to
Public Health England's NHS x TikTok campaign; We Are Family was
used at the US Presidential inauguration; Nile Rodgers & CHIC
performed Good Times and Everybody Dance on BBC 1 television on New
Year's Eve.
The Investment Adviser with Apple Music and Nile Rodgers created
Deep Hidden Meaning , the only Radio show completely focused on
Songwriters. The reviews and ratings thus far have been
exceptional. There have been 11 episodes so far, profiling numerous
Songwriters including Andrew Watt, Benny Blanco, David A. Stewart,
Fraser T Smith, Jack Antonoff, Julian Bunetta, Lindsey Buckingham,
Rodney Jerkins, RZA, Starrah, Teddy Geiger, Timbaland, Tricky
Stewart and many more.
Booker T And The MG's Green Onions , written by Al Jackson Jr.
and Fleetwood Mac's The Chain , written by Lindsey Buckingham both
featured in 9-1-1 Lonestar on Fox TV.
The Crown featured four of our songs including Blondie's Call Me
, Diana Ross's Upside Down , Eurythmics' Love Is
A Stranger and 10cc's I'm Not In Love .
Bridgerton featured 2 of our songs performed by the Vitamin
String Quartet: Girls Like You - originally performed by Maroon 5
and written by Starrah and
In My Blood - originally performed by Shawn Mendes
and co-written by Teddy Geiger and Scott Harris.
Neil Young's Old Man will feature in CBS, reboot of The
Equaliser and Harvest Moon features in the new season of Netflix's
Sex Education comedy.
We have several songs in the new P!nk documentary
All I Know So Far on Amazon Prime.
Eurythmics' Sisters Are Doin' It For Themselves appears in
Aretha Franklin's Genius documentary.
David Guetta and Sia's Titanium , written by Giorgio Tuinfort,
was performed at the Eurovision Song Contest.
Phoebe Bridgers' I Know The End , written by Christian Lee
Hutson, appeared in Mare of Easttown .
Someone To You performed by Banners and written by Sam Hollander
was used in a TV trailer for Love, Victor
in May.
Nelly performed several songs from our catalogue on Dick Clark's
New Year's Rockin' Eve , the biggest US New Year's Eve Countdown
show on television. Hot In Herre is also the themed soundtrack to a
major new television advertisement for Lay's Potato Chips i.e.
crisps in the US.
Barry Manilow's Can't Smile Without You as well as Blondie's
Call Me appear in an American sitcom TV series Call me Kat , which
premiered on Fox in January 2021.
Advertising
Swarovski's "Ignite Your Dreams" global campaign features FKA
Twigs Two Weeks, written by Emile Haynie.
Anoro's campaign features Fleetwood Mac Go Your Own Way, written
by Lindsey Buckingham.
Money Supermarket are using MC Hammer U Can't Touch This,
written by Rick James. It also features in the Go Compare ad.
Beyoncé's Countdown, written by The-Dream, is being used by
Peloton as part of their broad multi-year content deal with
Beyoncé.
Kaiser Chiefs' I Predict A Riot appears in the new Unibet
campaign.
Pusha T's Burial, written by Pusha T and Skrillex, continues to
feature in the Arby's TV campaign in the US.
The Spencer Davis Group's Gimme Some Lovin', written by Steve
Winwood features in the Premier Inn's campaign.
Teddy Bears' Hey Boy (Taste The Feeling), written by Klas
Ahlund, appears in the new KFC commercial.
Meghan Trainor's I Love Me, written by
LunchMoney Lewis, appears in the new Volkswagen campaign in
Italy.
Silk City's Electricity featuring Dua Lipa, written by Mark
Ronson, appears in the Dua Lipa Puma Campaign.
Rejjie Snow's Relax, written by Dee Lilly, appears in the
current Apple iPhone 12 campaign.
Rihanna's Umbrella from our The-Dream and Tricky Stewart
Catalogues has been placed in a new TV campaign for Nutella,
"Nutella ella ella".
Journey's Don't Stop Believin' has been placed in a new Toyota
commercial as well as local ads for telecommunications companies in
Mexico and
South America.
The Blondie single Heart Of Glass, which was a Number 1 single
on both sides of the Atlantic, has been secured as the soundtrack
to the new Nissan "Rogue" advert, their compact crossover SUV.
Games
We have placed more than 110 Songs from our Portfolio in video
games since January.
Chic's A Warm Summer Night is now in Grand * Auto V Online.
Lorde's Supercut, written by Jack Antonoff, will feature in
Electronic Arts FIFA '22 for all consoles and platforms.
Lizzo's Tempo, written by Toby Wincorn, is featured in Call of
Duty 'Cold War'.
Hipgnosis now exclusively represents the original music in EA
Games.
Fleetwood Mac's The Chain, written by Lindsey Buckingham,
features in the game trailer for It Takes Two on Sony's Playstation
5.
Chart and Songwriter success
Mariah Carey's All I Want For Christmas Is You made it to the
Number 1 slot in the 2020 UK Official Charts as well as the US
Billboard Hot 100, for the first time in its 26-year history. It
also became the global Number 1 streaming song throughout the
festive period setting new consumption records on an almost daily
basis.
Journey's Don't Stop Believin' covered/parodied by LadBaby was
the highly coveted UK Christmas Number 1 song. This song had never
been in the top spot since its release in 1981. This resulted in
Hipgnosis having interests in both the Number 1 and 2 UK Christmas
2020 singles.
Michael Bublé's Christmas, through our Bob Rock catalogue, was
the Number 1 album globally on streaming services in 2020 and also
made Number 1 on the Official UK Album Chart and Number 4 on the
Billboard Top 200.
Miley Cyrus' album Plastic Hearts surpassed more than one
billion streams and includes the Top 10 single Prisoner, written by
Stefan Johnson. It has been streamed 330 million times globally on
Spotify.
Heart of Glass , written by Debbie Harry & Chris Stein, has
now exceeded 150 million streams in Spotify.
New Rules by Dua Lipa, and written by Ian Kirkpatrick and
Caroline Ailin, has now reached 1.54 billion streams on Spotify.
This makes it the third most streamed solo track by a female artist
in the platform's history.
Top Dollar calculated the earnings of the 100 most-played songs
on the service and the top-grossing song is Ed Sheeran's Shape of
You, written by Johnny McDaid.
Lean On by Major Lazer, and written by Martin Bresso, has
surpassed 3 billion streams on YouTube and is approaching 1.5
billion streams on Spotify.
Rick James's In My House was re-imagined by the UK's premier
Drag Queen, Jodie Harsh, in her song My House earlier this year,
showing that the old are managing to see new life entirely.
Justin Bieber's Anyone, written by Stefan Johnson, which was
released on 1 January 2021, has been streamed over 307 million
times and was a Top 5 single all over the world. Stefan Johnson has
also written an additional three songs on Justin Bieber's Justice
album, which was Number 1 all over the world.
Electric by Katy Perry, Selfish by Nick Jonas featuring The
Jonas Brothers as well as 6 songs on the new Julia Michaels' album
are also written by Stefan Johnson.
Erica Banks' Buss It featuring an interpolation of Nelly's Hot
In Herre was certified Gold in the US. Erica Banks's Buss It which
samples Nelly's Hot in Herre was a breakout hit on TikTok and was
Number 2 on the Spotify Viral chart. The chart which is heavily
driven by TikTok also features Blondie's Heart of Glass and Nelly
Furtado's Promiscuous from our Timbaland catalogue.
Telepatia by Kali Uchis, written by Albert Melendez reached
Number 2 in Spotify's Global Top 50.
It is currently on the Billboard Hot 100 for its 18th
consecutive week, making it the longest-running
Latin solo Song of the decade.
A viral mash up of Britney Spears's Toxic and the B-52's Love
Shack has achieved huge support on TikTok. Hipgnosis was able to
harness its ownership in both songs and very quickly provided sign
off on a commercial release to maximise its potential for
success.
Hipgnosis' Songwriters were recognised at the last Grammy
awards. Andrew Watt won the coveted "Producer of the Year", Poo
Bear's song 10 000 hours by Dan + Shay and Justin Bieber won "Best
Country Duo Performance", Kanye West's Jesus is King won "Best
Contemporary Christian album" and involved work by Pusha T and
Timbaland. The-Dream and Starrah won "Best Rap Song" for Megan The
Stallion featuring Beyoncé with Savage. Andrew Watt, Stefan
Johnson, Chelcee Grimes and Iain Kirkpatrick were recognised for
their contribution to Dua Lipa's album Future Nostalgia, which won
"Best Pop Vocal album".
Beyoncé became the most awarded woman in the history of the
Grammys, with 28 awards. A recent newspaper featured her 30
greatest songs, with Hipgnosis owning an interest in half of these
through
the Catalogues of: The-Dream (6), Sean Garrett (2),
Jeff Bhasker (2), Rodney Jerkins, Juber, Jonny Coffer, Emile
Haynie and Tricky Stewart. In total, Hipgnosis owns an interest in
66 songs by Beyoncé/Destiny's Child.
Baila Conmigo by Selena Gomez, written by Albert Melendez
reached Number 1 in Billboard's Latin Rhythm Airplay and Latin Pop
Airplay.
Chic now have 3.5 million monthly listeners on Spotify up from
1.8 million when we acquired an interest in Bernard Edward's
Catalogue. Le Freak is now achieving over 100,000 streams per week
with nearly 1 million streams per week across all Bernard Edward's
songs on Apple Music.
Cedric Gervais x Franklin featuring Nile Rodgers's cover of
Everybody Dance is showing explosive growth on streaming and on the
radio and looks set to be a hit all over again 44 years later.
Eurythmics now have 8.5 million monthly listeners on Spotify,
almost double when we acquired David A. Stewart's Catalogue. They
also achieve over 1 million streams per week across the Catalogue
on Apple Music. Sweet Dreams (Are Made Of This) is streamed over
quarter of a million times on Apple Music alone.
Feels by Jax Jones has just been released using
a sample of Can't Stop, written by LA Reid.
Seeing Green by Nicki Minaj samples Queen Bitch, written by
Carlos Broady and is currently the Number 1 trending song on
Triller.
Problemas by Paris Boy interpolates Umbrella, written by Tricky
Stewart and The-Dream, which has now exceeded 120 million streams
on all platforms online, including 72 million on Spotify.
F*** You Goodbye , by The Kid Laroi featuring Machine Gun Kelly,
which interpolates All The Small Things, written by Tom DeLonge is
almost at 100 million streams on Spotify.
21 Savage's Many Men contains an interpolation
of Many Men (Wish Death), written by 50 Cent.
Pop Smoke's Hotel Lobby also contains an interpolation of Many
Men (Wish Death), written by
50 Cent.
John Legend's Remember Us interpolates Still In Love With You
written by Al Jackson Jnr.
1 Step Forward, 3 Steps Back by Olivia Rodrigo, interpolates New
Year's Day, written by Jack Antonoff and features on her album Sour
which is currently the Number 1 album globally.
Our Patience recorded master with Chris Cornell went to Number 1
at Rock Radio in the US.
Jason Aldean, produced by Michael Knox, enjoyed another Number 1
with Got What I Got with his Albums They Don't Know and Rearview
Town both going Gold in the US.
Mark Ronson's Uptown Funk has now surpassed
4 billion views on YouTube.
The Pop duo Aly & AJ's Potential Breakup Song,
was the Number One trending song on TikTok for two consecutive
weeks.
Our Portfolio
Current Portfolio
During the year, the Company acquired 84 new Catalogues, for an
aggregate purchase price of
$1,089 million, taking the Portfolio as at 31 March 2021 to
64,098 Songs across 138 Catalogues. Hipgnosis now owns 3,738 Songs
that have held Number 1 positions in global charts, 13,968 Songs
that have held Top 10 positions in global charts and 151 Grammy
award winning Songs. The Portfolio has been independently valued at
$2.21 billion, reflecting a multiple of 17.96x historical annual
net publisher share income, compared to the blended acquisition
multiple of 15.32x. Following these acquisitions, the Company's Net
Debt at 31 March 2021 was $464.6 million (31 March 2020: $74.0
million).
The acquisitions include some of the most culturally important
Catalogues of all time, including Neil Young, Steve Winwood,
Lindsey Buckingham / Fleetwood Mac, Barry Manilow, Shakira,
Chrissie Hynde / The Pretenders, Debbie Harry & Chris Stein /
Blondie, Rick James, Carole Bayer Sager, The RZA / Wu Tang Clan, 50
Cent, Chris Cornell / Soundgarden, B-52's, George Benson and Walter
Afanasieff.
Hipgnosis only acquires Catalogues focused around culturally
important Songs. These Songs have a long lasting appeal that
ensures they will produce reliable, predictable and uncorrelated
income long into the future.
Songs performed by globally successful and culturally important
artists including:
10,000 Maniacs , 10cc, 2Pac , 5 Seconds of Summer, 21 Savage ,
50 Cent, 8 Mile , A$AP Rocky, AC/DC , Adele, Al Green , Alan
Jackson, Alicia Keys , Aluna George, Amy Winehouse , Andrea
Bocelli, Anitta , Anthony Hamilton,
Ariana Grande , Aretha Franklin, AudioSlave , Avicii, B-52s ,
Baby Bash, Backstreet Boys , Barbra Streisand, Barry Manilow , Bebe
Rexha, Benny Blanco , Beyoncé, Biffy Clyro , Big & Rich, Big
Freedia , Birdy, Blind Faith , Blink 182, Blondie , Bon Jovi,
Booker T & The MG's , Boyz II Men, Britney Spears , Bruce
Springsteen, Bruno Mars , Bryan Adams, Camila Cabello , Carly
Simon, Celine Dion , Charli XCX, Cher , Chic, Chris Brown ,
Christina Perri, Christopher Cross , Clipse, Damian Marley , Dave
Matthews Band, David Gray , David Guetta, Demi Lovato , Destiny's
Child, Diana Ross , Dierks Bentley, Dionne Warwick , Diplo, Dire
Straits , DJ Snake, Dua Lipa , Duran Duran, Dusty Springfield , Ed
Sheeran, Ellie Goulding , Eminem, Enrique Iglesias , Erica Banks,
Eric Prydz , Ernestine Anderson, Eurythmics , Fantasia, FKA Twigs ,
Fleetwood Mac, Florence And The Machine , Flo-Rida, Florida Georgia
Line , fun., Galantis , George Benson, George Thorogood , Gladys
Knight, Hailee Steinfeld , Halsey, Harry Styles , Iggy Azalea,
Imagine Dragons , James Bay, James Morrison , Jason Aldean, Jason
Derulo , Jay Z, Jennifer Hudson , Jeff Buckley, Jennifer Lopez ,
Jess Glynne, Jimmy Buffett , Jodie Harsh, John Legend , John
Newman, Josh Groban , Journey, Juicy J , Justin Bieber, Justin
Timberlake , Kaiser Chiefs , Kali Uchis, Kanye West , Katy Perry,
Keith Urban , Kelis, Kelly Clarkson , Kelly Rowland, Khalid ,
Killswitch Engage, Kylie Minogue , Lady Gaga, Lana Del Rey , Lara
Fabian, Lauv , LeAnn Rimes, Leo Sayer , Lindsey Buckingham, Linkin
Park , Lionel Richie, Little Mix , Lizzo, Lorde , LunchMoney Lewis,
M.I.A. , Madonna, Marc Anthony , Maren Morris, Mariah Carey , Mark
Ronson, Maroon 5 , Mary J Blige, Machine Gun Kelly , Massive
Attack, Matchbox Twenty , Matt & Kim, MC Hammer , Meatloaf,
Meek Mill , Meghan Trainor, Melissa Manchester , Metallica, Metro
Boomin' , MF Doom, Michael Bolton , Michael Bublé, Michael Jackson
, Mick Jagger, Miguel , Miike Snow, Miley Cyrus , Molly Sanden,
Moses Sumney , Mötley Crüe, My Marianne , Natalie Merchant, Nelly ,
Neil Young, New Kids On The Block , Nicki Minaj, Nirvana , No
Doubt, Ólafur Arnalds , Olivia Rodrigo, One Direction , P!nk,
Paloma Faith , Panic! At The Disco, Papa Roach , Paris Boy, Patti
Smith , Paul Anka, Paul McCartney , Pearl Jam, Pell , Perfume
Genius, Phoebe Bridgers , Pitbull, Pop Smoke , Post Malone, Puff
Daddy , Pusha T, Rage Against The Machine , Rebecca Ferguson,
Rejjie Snow , Rick James, Rick Ross , Ricky Martin, Rihanna , Rita
Ora, Robbie Williams , Rod Stewart, Rudimental , RZA, Santana ,
Santigold, Sawyer Brown , Seal, Selena Gomez , Shakira, Shawn
Mendes , Sia, Sigala , Sigma, Silk City , Simple Minds, Sinead
O'Connor , Sister Sledge, Skrillex , Sky Ferreira, Solange ,
Soundgarden, Spencer Davis Grou p, Spice Girls, Steve Aoki , Steve
Winwood, Stevie Nicks , Stormzy, Sugarhill Gang , Sum 41, Super
Furry Animals , Swedish House Mafia, SZA , T.I., Taio Cruz , Take
That, Taylor Swift , Tchami, Teddy Bears , Teenage Fanclub, The
Chainsmokers , The Editors, The Outfield , The Pretenders, The
Wombats , Third Day, Tiesto , Tim McGraw, Timbaland , Tina Arena,
Tinie Tempah , TLC, Toby Keith , Tom Jones, Tom Petty & The
Heartbreakers , The Kid Laroi, The Mindbenders , The Vamps,
Theophilus London , Tom Walker, Toto , T-Pain, Tracey Chapman ,
Traffic, Train , Trey Songz, Trivium , Troye Sivan, TV On The Radio
, Ty Dolla $ign, U2 , Usher, Waka Flocka Flame , Weezer, Westlife ,
Whitney Houston, Will Ferrell , Wu-Tang Clan, Young The Giant ,
Zara Larsson and Zedd .
Portfolio as at 31 March 2021
-----------------------------------------------------------------
Acquisition Interest Total
Catalogue Date Ownership Songs
-------------------------- ------------- ----------- ---------
13 Jul
The-Dream 2018 75% 302
-------------------------- ------------- ----------- ---------
21 Nov
Poo Bear 2018 100% 214
-------------------------- ------------- ----------- ---------
28 Nov
Bernard Edwards 2018 38% 290
-------------------------- ------------- ----------- ---------
17 Dec
TMS 2018 100% 121
-------------------------- ------------- ----------- ---------
17 Dec
Tricky Stewart 2018 100% 121
-------------------------- ------------- ----------- ---------
21 Dec
Giorgio Tuinfort 2018 100% 182
-------------------------- ------------- ----------- ---------
15 Jan
Rainbow 2019 100% 15
-------------------------- ------------- ----------- ---------
31 Jan
Itaal Shur 2019 100% 209
-------------------------- ------------- ----------- ---------
26 Feb
Rico Love 2019 100% 245
-------------------------- ------------- ----------- ---------
21 Mar
Sean Garrett 2019 100% 588
-------------------------- ------------- ----------- ---------
22 Mar
Johnta Austin 2019 100% 249
-------------------------- ------------- ----------- ---------
31 Mar
Sam Hollander 2019 100% 499
-------------------------- ------------- ----------- ---------
31 Mar
Ari Levine 2019 100% 76
-------------------------- ------------- ----------- ---------
12 Apr
Teddy Geiger 2019 100% 6
-------------------------- ------------- ----------- ---------
25 Apr
Starrah 2019 100% 73
-------------------------- ------------- ----------- ---------
7 May
Dave Stewart 2019 100% 1,068
-------------------------- ------------- ----------- ---------
8 May
Al Jackson Jr 2019 100% 185
-------------------------- ------------- ----------- ---------
15 May
Jamie Scott 2019 100% 144
-------------------------- ------------- ----------- ---------
28 May
Michael Knox 2019 100% 110
-------------------------- ------------- ----------- ---------
14 Jun
Brian Kennedy 2019 100% 101
-------------------------- ------------- ----------- ---------
14 Jun
John Bellion 2019 100% 180
-------------------------- ------------- ----------- ---------
17 Jun
Lyric Catalogue 2019 100% 571
-------------------------- ------------- ----------- ---------
20 Jun
Neal Schon 2019 100% 357
-------------------------- ------------- ----------- ---------
10 Jul
Jason Ingram 2019 100% 462
-------------------------- ------------- ----------- ---------
12 Jul
Eric Bellinger 2019 100% 242
-------------------------- ------------- ----------- ---------
23 Jul
Andy Marvel 2019 100% 740
-------------------------- ------------- ----------- ---------
2 Aug
Benny Blanco 2019 100% 93
-------------------------- ------------- ----------- ---------
22 Aug
The Chainsmokers 2019 100% 42
-------------------------- ------------- ----------- ---------
10 Oct
Timbaland 2019 100% 108
-------------------------- ------------- ----------- ---------
17 Oct
10cc 2019 100% 29
-------------------------- ------------- ----------- ---------
21 Oct
Journey (Publishing) 2019 100% 103
-------------------------- ------------- ----------- ---------
5 Nov
John Newman 2019 100% 47
-------------------------- ------------- ----------- ---------
5 Nov
Jaron Boyer 2019 100% 109
-------------------------- ------------- ----------- ---------
15 Nov
Arthouse 2019 100% 44
-------------------------- ------------- ----------- ---------
5 Dec
Fraser T Smith 2019 100% 298
-------------------------- ------------- ----------- ---------
5 Dec
Jack Antonoff 2019 99% 188
-------------------------- ------------- ----------- ---------
5 Dec
Ammar Malik 2019 100% 90
-------------------------- ------------- ----------- ---------
9 Dec
Ed Drewett 2019 100% 109
-------------------------- ------------- ----------- ---------
9 Dec
Kaiser Chiefs 2019 100% 48
-------------------------- ------------- ----------- ---------
11 Dec
Jeff Bhasker 2019 100% 436
-------------------------- ------------- ----------- ---------
11 Dec
Johnny McDaid 2019 100% 164
-------------------------- ------------- ----------- ---------
13 Dec
Emile Haynie 2019 100% 122
-------------------------- ------------- ----------- ---------
13 Dec
Brendan O'Brien 2019 100% 1,855
-------------------------- ------------- ----------- ---------
18 Dec
Savan Kotecha 2019 100% 49
-------------------------- ------------- ----------- ---------
23 Dec
Tom Delonge 2019 100% 157
-------------------------- ------------- ----------- ---------
10 Jan
Journey (Masters) 2020 65% 389
-------------------------- ------------- ----------- ---------
10 Jan
Rebel One 2020 100% 157
-------------------------- ------------- ----------- ---------
10 Jan
Scott Harris 2020 100% 129
-------------------------- ------------- ----------- ---------
22 Jan
Brian Higgins 2020 100% 362
-------------------------- ------------- ----------- ---------
10 Feb
Gregg Wells 2020 100% 11
-------------------------- ------------- ----------- ---------
28 Feb
Jonathan Cain 2020 100% 216
-------------------------- ------------- ----------- ---------
28 Feb
Jonny Coffer 2020 100% 85
-------------------------- ------------- ----------- ---------
28 Feb
Mark Ronson 2020 100% 315
-------------------------- ------------- ----------- ---------
4 Mar
Richie Sambora 2020 100% 186
-------------------------- ------------- ----------- ---------
16 Jul
Rodney Jerkins 2020 100% 982
-------------------------- ------------- ----------- ---------
16 Jul
Barry Manilow 2020 100% 917
-------------------------- ------------- ----------- ---------
16 Jul
RedOne 2020 100% 334
-------------------------- ------------- ----------- ---------
16 Jul
Eliot Kennedy 2020 100% 217
-------------------------- ------------- ----------- ---------
Closer (J King & I 27 Jul
Slade) 2020 100% 2
-------------------------- ------------- ----------- ---------
24 Jul
NO I.D. 2020 100% 273
-------------------------- ------------- ----------- ---------
24 Jul
Pusha T 2020 100% 238
-------------------------- ------------- ----------- ---------
29 Jul
Ian Kirkpatrick 2020 100% 137
-------------------------- ------------- ----------- ---------
30 Jul
Blondie 2020 100% 197
-------------------------- ------------- ----------- ---------
10 Aug
Chris Cornell 2020 100% 241
-------------------------- ------------- ----------- ---------
12 Aug
Robert Diggs "RZA" 2020 50% 814
-------------------------- ------------- ----------- ---------
13 Aug
Ivor Raymonde 2020 100% 505
-------------------------- ------------- ----------- ---------
3 Sep
Nikki Sixx 2020 100% 305
-------------------------- ------------- ----------- ---------
10 Sep
Big Deal Music "BDM" 2020 100% 4,400
-------------------------- ------------- ----------- ---------
10 Sep
Chrissie Hynde 2020 100% 162
-------------------------- ------------- ----------- ---------
17 Sep
Steve Robson 2020 100% 1,034
-------------------------- ------------- ----------- ---------
18 Sep
Rick James 2020 50% 97
-------------------------- ------------- ----------- ---------
23 Sep
Kevin Godley 2020 100% 358
-------------------------- ------------- ----------- ---------
24 Sep
Scott Cutler 2020 100% 111
-------------------------- ------------- ----------- ---------
30 Sep
Nate Ruess 2020 100% 59
-------------------------- ------------- ----------- ---------
30 Sep
LA Reid 2020 100% 162
-------------------------- ------------- ----------- ---------
30 Sep
50 Cent 2020 100% 388
-------------------------- ------------- ----------- ---------
30 Sep
Aristotracks 2020 100% 152
-------------------------- ------------- ----------- ---------
30 Sep
B-52's 2020 100% 96
-------------------------- ------------- ----------- ---------
30 Sep
Bonnie McKee 2020 100% 78
-------------------------- ------------- ----------- ---------
30 Sep
Brill Building 2020 100% 234
-------------------------- ------------- ----------- ---------
30 Sep
Christina Perri 2020 100% 68
-------------------------- ------------- ----------- ---------
30 Sep
Dierks Bentley 2020 100% 113
-------------------------- ------------- ----------- ---------
30 Sep
Editors 2020 100% 64
-------------------------- ------------- ----------- ---------
30 Sep
Eman 2020 100% 97
-------------------------- ------------- ----------- ---------
30 Sep
Enrique Iglesias 2020 100% 157
-------------------------- ------------- ----------- ---------
30 Sep
Evan Bogart 2020 100% 229
-------------------------- ------------- ----------- ---------
30 Sep
George Benson 2020 100% 107
-------------------------- ------------- ----------- ---------
30 Sep
George Thorogood 2020 100% 40
-------------------------- ------------- ----------- ---------
30 Sep
Good Soldier 2020 100% 760
-------------------------- ------------- ----------- ---------
30 Sep
Holy Ghost 2020 100% 62
-------------------------- ------------- ----------- ---------
30 Sep
J-Kash 2020 100% 90
-------------------------- ------------- ----------- ---------
30 Sep
John Rich 2020 100% 7
-------------------------- ------------- ----------- ---------
30 Sep
Kojak 2020 100% 148
-------------------------- ------------- ----------- ---------
30 Sep
Lateral 2020 100% 248
-------------------------- ------------- ----------- ---------
Lindsey Buckingham 30 Sep
(Kobalt) 2020 100% 174
-------------------------- ------------- ----------- ---------
30 Sep
LunchMoney Lewis 2020 100% 116
-------------------------- ------------- ----------- ---------
30 Sep
Lyrica Anderson 2020 100% 96
-------------------------- ------------- ----------- ---------
30 Sep
Madcon 2020 100% 173
30 Sep
Mark Batson 2020 100% 210
-------------------------- -------------- ----------- -------
30 Sep
Mobens 2020 100% 1,034
-------------------------- -------------- ----------- -------
30 Sep
Nelly (Kobalt) 2020 100% 145
-------------------------- -------------- ----------- -------
30 Sep
Nettwerk 2020 100% 25,339
-------------------------- -------------- ----------- -------
30 Sep
PRMD 2020 100% 335
-------------------------- -------------- ----------- -------
30 Sep
Rob Hatch 2020 100% 167
-------------------------- -------------- ----------- -------
30 Sep
Rock Mafia 2020 100% 393
-------------------------- -------------- ----------- -------
30 Sep
Savan Kotecha (Kobalt) 2020 100% 354
-------------------------- -------------- ----------- -------
30 Sep
SK Music 2020 100% 23
-------------------------- -------------- ----------- -------
30 Sep
Skrillex 2020 100% 153
-------------------------- -------------- ----------- -------
30 Sep
Stereoscope 2020 100% 456
-------------------------- -------------- ----------- -------
30 Sep
Steve Winwood 2020 100% 215
-------------------------- -------------- ----------- -------
30 Sep
Tequila 2020 100% 1
-------------------------- -------------- ----------- -------
30 Sep
Third Day 2020 100% 212
-------------------------- -------------- ----------- -------
30 Sep
Walter Afanasieff 2020 100% 213
-------------------------- -------------- ----------- -------
30 Sep
Wayne Wilkins 2020 100% 113
-------------------------- -------------- ----------- -------
30 Sep
Yaslina 2020 100% 73
-------------------------- -------------- ----------- -------
20 Nov
Sacha Skarbek 2020 100% 303
-------------------------- -------------- ----------- -------
27 Nov
Tricky Stewart (Masters) 2020 100% 95
-------------------------- -------------- ----------- -------
2 Dec
Eric Stewart 2020 100% 255
-------------------------- -------------- ----------- -------
4 Dec
Bob Rock 2020 100% 43
-------------------------- -------------- ----------- -------
Caroline Ailin ("New 10 Dec
Rules") 2020 100% 2
-------------------------- -------------- ----------- -------
15 Dec
Nelly 2020 100% 240
-------------------------- -------------- ----------- -------
24 Dec
Lindsey Buckingham 2020 100% 161
-------------------------- -------------- ----------- -------
24 Dec
Joel Little 2020 100% 178
-------------------------- -------------- ----------- -------
24 Dec
Jimmy Iovine 2020 100% 259
-------------------------- -------------- ----------- -------
31 Dec
Neil Young 2020 50% 590
-------------------------- -------------- ----------- -------
31 Dec
Shakira 2020 100% 145
-------------------------- -------------- ----------- -------
Brian Kennedy [Writer 31 Dec
Sh.] 2020 100% 139
-------------------------- -------------- ----------- -------
17 Feb
Andrew Watt 2021 100% 105
-------------------------- -------------- ----------- -------
2 Mar
Christian Karlsson 2021 100% 255
-------------------------- -------------- ----------- -------
17 Mar
Carole Bayer Sager 2021 100% 983
-------------------------- -------------- ----------- -------
18 Mar
Paul Barry 2021 100% 510
-------------------------- -------------- ----------- -------
26 Mar
Espionage 2021 100% 151
-------------------------- -------------- ----------- -------
31 Mar
Martin Bresso 2021 100% 51
-------------------------- -------------- ----------- -------
31 Mar
Andy Wallace 2021 100% 1,242
-------------------------- -------------- ----------- -------
31 Mar
David Sitek 2021 100% 230
-------------------------- -------------- ----------- -------
31 Mar
Happy Perez 2021 100% 192
-------------------------- -------------- ----------- -------
Total Songs 64,098
------------------------------------------ ----------- -------
Our Principal Risks and Uncertainties
1. Due diligence risk
Probability: Medium; Impact: High
Description
The due diligence process that the Investment Adviser undertakes
in evaluating Catalogues for the Company may not reveal all facts
that may be relevant in connection with such investment
opportunities and any mismanagement, fraud or accounting
irregularities on the part of any seller of Catalogues, or their
advisers, may materially affect the integrity of the Investment
Adviser's due diligence on investment opportunities
Mitigation
When conducting due diligence and making an assessment regarding
an investment, the Investment Adviser and the Company's legal and
financial advisers are required to rely on resources available to
them, including internal sources of information as well as
information provided by existing and potential sellers of Songs.
The due diligence process may at times be required to rely on
limited or incomplete information.
The Investment Adviser will select investment opportunities to
be tabled to the Directors for their consideration in part on the
basis of information and data relating to potential investments
that have been made directly available to the Investment Adviser by
the sellers. Although the Investment Adviser will verify and
evaluate all such information and data, and seek independent
corroboration when it considers it appropriate and reasonably
available, the Investment Adviser may not be in a position to
confirm the completeness and accuracy of such information and data.
Further, investment analysis and decisions by the Investment
Adviser may be undertaken on an expedited basis in order to make it
possible for the Company to take advantage of short-lived
investment opportunities. Where there is lack of time or
information the Investment Adviser is dependent upon the integrity
of the management of the sellers as regards such information and of
such third parties.
The Company conducts a thorough review of all due diligence
conducted on potential Catalogue purchases. However, due to a
number of factors, the Company cannot guarantee that the due
diligence investigation carried out by the Investment Adviser and
the Company's legal and financial advisers with respect to any
investment opportunity will reveal or highlight all relevant facts
that may be necessary or helpful to the Directors in evaluating
such investment opportunity, which may therefore lead the Directors
to decide to acquire Songs which subsequently fail to perform in
line with expectations and may have a material adverse effect on
the Company's financial situation.
2. Key person risk
Probability: Low; Impact: High
Description
The ability of the Company to achieve its Investment Objective
and Policy depends on the diligence, skill, judgment and experience
of Merck Mercuriadis, the Key Person, as the chief executive of the
Investment Adviser, t he services and reputation of the Investment
Adviser and the investment pipeline generated through the
Investment Adviser's business development efforts. The Company also
depends on the ability of the Investment Adviser's team to meet the
strains of a rapidly growing Portfolio of Catalogues. The death,
incapacity or loss of service of Merck Mercuriadis at the
Investment Adviser, could have a material adverse impact on the
Company and the investments made.
Mitigation
In order to meet the continuing rapid growth of the Portfolio of
Catalogues and to broaden the expertise within the Investment
Adviser, the Investment Adviser has continued to invest in growing
its staff and systems. The Investment Adviser is also supported by
the Advisory Board members. Both bring their considerable industry
experience to bear in support of the Company's investment
objectives. Furthermore, the third-party Administrators to the
Company's Catalogues (e.g. Kobalt) each have an important role to
play in pursuing efficiencies in the collection of payments and
active management of the Songs that the Company owns. The
Investment Adviser's longstanding relationships with those
third-party Administrators bring with them further music management
experience that adds support for Merck Mercuriadis and his team in
the performance of their services to the Company.
3. Adverse change in policies by Collection Societies and other
entities through whom the Company receives royalty payments
Probability: Low/Medium; Impact: Medium
Description
Collection Societies, which include Performing Rights
Organisations (PROs), represent the rights and interests of
publishers and Songwriters. They collect royalties, create
collection policies and set royalty rates for the use of music
copyrights. There are over 120 PROs around the world and most of
them have agreements and frameworks in place with each other. The
Company also receives royalty payments from a variety of other
sources, including the major music publishers and record
companies.
Historically, the major music publishers represented a
significant proportion of the membership of PROs and therefore
controlled a significant percentage of any votes of such PROs.
Accordingly, the governance of the PROs is capable of being
influenced or directed by the major music publishers and minority
stakeholders, such as the Company, may be forced to follow royalty
collection practices which do not favour the Company as much as
they favour the major music publishers.
Should PROs alter the way that they collect royalties, or set
lower royalty rates, or decide to disproportionately favour major
music publishers, the Company may receive significantly reduced
revenues compared to the level it had forecast at the time of
acquiring the relevant Catalogues or Songs.
Mitigation
The Investment Adviser actively monitors the market and will
provide the Company with any data or intelligence of which it
becomes aware. Updates to the financial model will be made to
reflect any such regulatory or industry changes.
4. Exchange rate risks
Probability: Medium; Impact: Medium
Description
The Company has issued share capital denominated in Sterling and
aims to pay regular dividends in that currency. However, the
Group's functional currency, and most of the Group's revenue is
received in other currencies, particularly Dollars, and exchange
rate fluctuations may significantly affect the NAV and the ability
to pay the targeted dividends.
Mitigation
The Company considers on a regular basis the benefits and cost
of passive currency hedging. To date the Company has not
implemented passive currency overlay strategies. The Company will
continue to pay any dividends in Sterling and its primary listing
will remain denominated in Pounds.
The Company has moved its functional currency from Pound
Sterling to US Dollar in relation to this and future reports and
accounts which reduces the volatility of overall revenues.
5. Advance payments to Songwriters don't yield projected
returns
Probability: Medium; Impact: Low
Description
Investment in Songs that are yet to be written or proven
commercially over a sustained period of time is considered more
speculative than investment in proven Songs, and it is harder to
accurately forecast revenues that such Songs will generate over
time. Such Songs may not be commercially successful or generate
sufficient royalties to repay the Advance (together with the
projected returns thereon) over the forecasted period or at
all.
Mitigation
The Advances made to Songwriters in connection with the
acquisition of rights over future Songs will not represent more
than 5% of the Company's Gross Assets, calculated at the date of
the relevant Advance; as at 31 March 2021, HSG had made Advances to
Songwriters totalling $10.1 million, which are expected to be
recouped from the future royalty income generated by the Songs
written by the Songwriters over time.
6. Financial leverage risk
Probability: Low; Impact: High
Description
The Company uses leverage to finance the acquisition (directly
or indirectly) of Songs or Catalogues in accordance with the
Investment Objective and Policy. In addition, the Company may
utilise borrowings, which may include a securitisation, for working
capital and interest rate hedging purposes, as well as to pay
transaction costs and expenses. In the case of default under the
relevant financing arrangement, this could result in the lenders
enforcing their security and selling the Group's assets, which in
either case could adversely impact the value of the Portfolio.
Please see Note 17 for more details.
Mitigation
On a quarterly basis, and on the occasion of each drawdown, the
Company confirms its compliance with key covenants set out in the
loan facility and documented within the Company's policies and
procedures.
7. Risks associated with market trends
Probability: Medium; Impact: High
Description
The Company is heavily reliant on the continuing presence and
popularity of music streaming, or an equivalent technology which
generates high volumes and rates of royalty revenues for
Songwriters, continuing to be popular with consumers. Historically
the music industry has been shown to be especially innovative, with
new technology causing changes in consumer demand and experience.
Whilst it is possible that new technology may reduce
non-synchronisation related royalty revenues, it is also possible
that technological advances would lead to a growth in royalties as
consumers' access to music continues to improve. A limited number
of online streaming and online music stores have achieved a large
market share, giving them market power to alter the prices or
selection of music offered to consumers and therefore the royalty
revenue received by the Group. Any further market concentration
could increase this risk.
Mitigation
The Company will be heavily reliant on the continuing presence
and popularity of DSPs in order to maximise access to the consumer
market. The Company is continuously reviewing this risk and most
recently took note from the Goldman Sachs "Music in the Air" report
(published 26 April 2021) where they have increased their global
streaming subscriptions estimates by 5%, to 1.22 billion by 2030,
from 443 million in 2020, as paid subscription penetration is
expected to rise from 10% in 2020 to 22% in 2030 on the back of
faster-than-expected streaming adoption and a proliferation of new
streaming services.
8. Operational reliance on service providers
Probability: Low; Impact: Medium
Description
The Company relies on third-party service providers for its
routine operations. In particular, although the ultimate
responsibility for the investment strategy lies with the Company,
the Investment Adviser is responsible for sourcing potential
opportunities and advising the Company on acquisitions and active
management of Catalogues.
The Company also depends heavily on the specialist
administrative services of the Investment Adviser, the Preferred
Portfolio Administrators and other collection agents as well as
third-party suppliers with whom the Company conducts business. In
the event that these service providers experience business
disruption or cyber security breaches, the ability of the Group to
collect revenues due may be limited.
Mitigation
The Company continually reviews the performance of its service
providers and will raise any concerns regarding performance or
efficiency should the need arise.
9. Cyber Risk
Probability: Medium; Impact: Medium
Description
The Company (as with all companies) continues to be exposed to
external cyber-security threats which have the possible impact of
sensitive information leakage, cyber fraud and, in a worst case
scenario, interruption of royalty payments.
Mitigation
The Company recognises the increased incidence of cyber-security
threats and annually reviews its own policies, procedures and
defences to mitigate associated risks, as well as those of the
Investment Adviser, Administrator and key service providers,
engaging market-leading specialists where appropriate.
10. Impact due to the COVID-19 pandemic
Probability: High, Impact: Medium
Description
The business and economic disruption as a result of the COVID-19
pandemic and associated lockdowns has had a material adverse effect
on certain income streams, in particular performance revenues,
which relate to revenues collected from shops, bars, gyms and live
performances.
Mitigation
The majority of revenues are sourced in the US and in the UK,
and as those countries move towards being vaccinated, the impact of
the risk of COVID-19 is reducing. Nevertheless, the full extent of
the impact on the Company's revenues remains unknown, given the
reporting and processing cycles with the major publishers and PROs
and the resulting significant time lag between the usage of a Song
and the payment of revenue to the copyright owner.
Emerging Risks
Emerging risks are regularly considered to assess any potential
impact on the Group and to determine whether any actions are
required. Emerging risks include those related to
regulatory/legislative change and macroeconomic and political
change. These are mitigated and managed by the Company through
continual review, policy setting and updating of the Company's risk
matrix at each quarterly meeting to ensure that procedures are in
place with the intention of minimising the impact of the
above-mentioned risks. The Company relies on periodic reports
provided by the Investment Adviser and Administrator regarding
risks that the Group faces. When required, experts, including tax
advisers and legal advisers, will be employed to gather information
and to provide advice.
Directors' Responsibilities Statement
The Directors are responsible for preparing the Annual Report
and Consolidated Financial Statements in accordance with applicable
law and regulations.
The Companies Law requires the Directors to prepare the Annual
Report and Consolidated Financial Statements for each financial
year. Under the Companies Law, the Directors must not approve the
Consolidated Financial Statements unless they are satisfied that
they give a true and fair view of the state of affairs of the Group
and of the profit or loss of the Group for that period.
In preparing these Consolidated Financial Statements, the
Directors are required to:
select suitable accounting policies in accordance with IAS 8
Accounting Policies, Changes in Accounting Estimates and Errors and
then apply them consistently;
make judgments and accounting estimates that are reasonable and
prudent;
present information, including accounting policies, in a manner
that provides relevant, reliable, comparable and understandable
information;
provide additional disclosures when compliance with the specific
requirements in IFRS is insufficient to enable users to understand
the impact of particular transactions, other events and conditions
on the Group's financial position and financial performance;
state that the Group has complied with IFRS, subject to any
material departures disclosed and explained in the Consolidated
Financial Statements; and
prepare the Consolidated Financial Statements on a going concern
basis unless it is inappropriate to presume that the Group will
continue in business.
The Directors confirm that they have complied with the above
requirements in preparing the Annual Report and Consolidated
Financial Statements. The Directors have considered the immediate
and potential impacts of COVID-19 on the Company as reflected in
the Viability Statement.
The Directors are responsible for keeping proper accounting
records, which disclose with reasonable accuracy at any time the
financial position of the Group and enable them to ensure that the
Consolidated Financial Statements comply with the Companies Law.
They are also responsible for safeguarding the assets of the Group
and hence for taking reasonable steps for the prevention and
detection of fraud, error and non-compliance with law and
regulations.
The Directors are responsible for ensuring that the Annual
Report and Consolidated Financial Statements, taken as a whole, are
fair, balanced and understandable and provide the information
necessary for Shareholders to assess the Group's performance,
business model and strategy.
The Directors are also responsible under the AIC Code to promote
the success of the Group for the benefit of its members as a whole
and in doing so have regard for the needs of wider society and
other stakeholders.
As part of the preparation of the Annual Report and Consolidated
Financial Statements the Directors have received reports and
information from the Company's Administrator and Investment
Adviser. The Directors have considered, reviewed and commented upon
the Annual Report and Financial Statements throughout the drafting
process in order to satisfy themselves in respect of the
content.
The Directors are responsible for the
maintenance and integrity of the corporate and financial
information included on the website
(www.hipgnosissongs.com).
Legislation in Guernsey governing the preparation and
dissemination of the Consolidated Financial Statements may differ
from legislation in other jurisdictions.
Responsibility Statement of the Directors in Respect of the
Annual Report under the Disclosure, Guidance and Transparency
Rules
Each of the Directors confirms to the best of their knowledge
and belief that:
the Consolidated Financial Statements, prepared in accordance
with IFRS, give a true and fair view of the assets, liabilities,
financial position and profit or loss of the Company and the
undertakings included in the consolidation taken as a whole;
the Annual Report includes a fair review of the development and
performance of the business and the position of the Company and its
subsidiaries, together with a description of the principal risks
and uncertainties faced; and
the Annual Report and Consolidated Financial Statements include
information required by the FCA ensuring that the Company complies
with the provisions of the Listing Rules, Disclosure Guidelines and
Transparency Rules of the FCA. With regard to corporate governance,
the Company is required to disclose how it has applied the
principles and complied with the provisions of the AIC Code
applicable to the Company with which it has voluntarily agreed to
comply. In addition, there is no information that is required to be
disclosed under Listing Rules 9.8.4.
By order of the Board
Andrew Sutch
Chair
4 July 2021
Hipgnosis Songs Fund Limited
Independent Auditor's Report to the members of Hipgnosis Songs
Fund Limited
Report on the audit of the consolidated financial statements
Our opinion
In our opinion, the consolidated financial statements give a
true and fair view of the consolidated financial position of
Hipgnosis Songs Fund Limited (the "company") and its subsidiaries
(together "the group") as at 31 March 2021, and of their
consolidated financial performance and their consolidated cash
flows for the year then ended in accordance with International
Financial Reporting Standards and have been properly prepared in
accordance with the requirements of The Companies (Guernsey) Law,
2008.
What we have audited
The group's consolidated financial statements comprise:
-- the consolidated statement of financial position
as at 31 March 2021;
-- the consolidated statement of comprehensive income for the
year then ended;
-- the consolidated statement of changes in equity
for the year then ended;
-- the consolidated statement of cash flows for the year then
ended; and
-- the notes to the consolidated financial statements, which
include significant accounting policies and other explanatory
information.
Basis for opinion
We conducted our audit in accordance with International
Standards on Auditing ("ISAs"). Our responsibilities under those
standards are further described in the Auditor's responsibilities
for the audit of the consolidated financial statements section of
our report.
We believe that the audit evidence we have obtained is
sufficient and appropriate to provide a basis for our opinion.
Independence
We are independent of the group in accordance with the ethical
requirements that are relevant to our audit of the consolidated
financial statements of the group, as required by the Crown
Dependencies' Audit Rules and Guidance. We have fulfilled our other
ethical responsibilities in accordance with these requirements.
Our audit approach
Overview
Audit scope
* The company is incorporated in Guernsey and has
underlying subsidiaries incorporated in the United
Kingdom ("UK") and the United States of America
("USA"). The consolidated financial statements are a
consolidation of the company and all of the
underlying subsidiaries.
* We conducted our audit of the consolidated financial
statements based on information provided by Ocorian
Administration (Guernsey) Limited (the
"Administrator") and The Family (Music) Limited (the
"Investment Adviser"), to whom the board of directors
has delegated the provision of certain functions.
* We conducted our audit work in Guernsey and we
tailored the scope of our audit taking into account
the types of investments within the group, the
involvement of the third parties referred to above,
and the industry in which the group operates.
* The components of the group in Guernsey, UK and USA
to which we applied full audit scoping and audit
procedures accounted for 100% of the net assets and
total comprehensive income.
------------------------------------------------------------
Key audit matters
* Risk of fraud in revenue recognition
* Carrying value and fair value disclosure of
intangible assets
* Change in functional and presentation currency
------------------------------------------------------------
Materiality
* Overall group materiality: $15.6 million (2020: $7.9
million*) based on 1% of the group's Adjusted Net
Asset Value.
* Performance materiality: $11.7 million (2020: $5.9
million**).
* The group's Adjusted Net Asset Value is calculated in
accordance with International Financial Reporting
Standards, adjusted by adding back the cumulative
amortisation of intangible assets and retaining any
cumulative impairment of intangible assets.
* GBP6.4 million translated at the
rate used to restate the statement
of financial position for the comparative
year ended 31 March 2020 to US Dollars
** GBP4.8 million translated at
the rate used to restate the statement
of financial position for the comparative
year ended 31 March 2020 to US Dollars
------------------------------------------------------------
The scope of our audit
As part of designing our audit, we determined materiality and
assessed the risks of material misstatement in the consolidated
financial statements. In particular, we considered where the
directors made subjective judgements; for example, in respect of
significant accounting estimates that involved making assumptions
and considering future events that are inherently uncertain. As in
all of our audits, we also addressed the risk of management
override of internal controls, including among other matters,
consideration of whether there was evidence of bias that
represented a risk of material misstatement due to fraud.
Key audit matters
Key audit matters are those matters that, in our professional
judgement, were of most significance in our audit of the
consolidated financial statements of the current period. These
matters, and any comments we make on the results of our procedures
thereon, were addressed in the context of our audit of the
consolidated financial statements as a whole, and in forming our
opinion thereon, and we do not provide a separate opinion on these
matters.
This is not a complete list of all risks identified by our
audit.
Key audit matter
Risk of fraud in revenue recognition
Please refer to Notes 4 and 13 to the consolidated financial
statements.
The group earns revenue from the catalogues of songs in which it
owns interests. Such revenue takes the form of royalties, license
fees and/or other payments including mechanical royalties,
performance royalties, and synchronisation fees.
Revenue is collected by the portfolio administrators/ royalty
collection agents, reported on a quarterly or semi-annual basis and
paid based on predetermined revenue payments dates thereafter.
These contractual revenue arrangements entered into by the group
with the portfolio administrators/royalty collection agents may be
complex in nature and there is therefore a risk of error in that
revenue may be incorrectly recognised in the accounting records of
the group, or subject to manipulation.
In addition, because of the contractual reporting and revenue
payment dates with the various portfolio administrators/royalty
collection agents, the directors make an estimate of the revenue
accrued to the group at the period end, but for which revenue
reports from the portfolio administrators/royalty collection agents
are unavailable at the time of reporting. The directors seek the
input of the Investment Adviser in making these revenue estimates
and accrual, which involves significant judgement (see Note 3). The
period end accrual is based on the catalogues of songs' historic
performance for previous periods, adjusted for the Investment
Adviser's and directors' assessment of the expected performance of
the various catalogues of songs and by taking into account the
latest available music consumption information.
Revenue is also one of the key performance indicators for the
group and changes to the contractual arrangements with the
portfolio administrators/royalty collection agents, which may
report on a basis that is not coterminous with the period end, and
the associated accrual determined by the directors, can have a
significant impact on the recognition of revenue by the group. As a
result, there is a heightened risk of material misstatement and
revenue received during the year and the revenue accrual are
considered to be key audit matters for audit purposes.
How our audit addressed the key audit matter
We met with the directors and Investment Adviser and understood
and evaluated the group's processes, internal controls and revenue
recognition policies as a result of the various music royalty,
license fee and other payments earned from the catalogues of songs
owned by the group.
We also assessed the group's revenue recognition accounting
policies for compliance with International Financial Reporting
Standards ("IFRS"), and in particular IFRS 15 - Revenue from
Contracts with Customers.
Our procedures included:
-- We have reviewed the contractual basis for recognising
revenue from each catalogue of songs on acquisition of each
catalogue of songs by reading and understanding each catalogue
agreement and the contracts in place with each portfolio
administrator/royalty collection agent;
-- We documented and understood the control processes in place
over revenue recognition;
-- We selected a sample of portfolio administrator/ royalty
collection agent statements from the general ledger listing and
reconciled these to the revenue recognised by the group for each of
these respective catalogues of songs. In addition, we traced these
amounts to the subsequent cash receipts (where applicable);
-- We identified, evaluated and verified a sample of journal
entries that impacted revenue; and
-- We independently observed the download of a sample of royalty
statements from the relevant online portals for a sample of
portfolio administrators, and obtained direct confirmations from
the portfolio administrators of a sample of royalty statements to
confirm their authenticity.
We also performed the following procedures in assessing the
period end revenue accrual determined by the directors with the
input of the Investment Adviser:
-- We evaluated the methodology applied by the Investment
Adviser in developing the period end revenue accrual recommended to
the directors;
-- We evaluated the underlying information used by the
Investment Adviser in the revenue accrual calculations by comparing
this to the revenue information already audited (as discussed
above);
-- We evaluated the reasonableness of the revenue accrual
assumptions made by the directors and Investment Adviser against
supporting information, such as the fair value models provided by
the Portfolio Independent Valuer;
-- We reconciled the details of the last royalty statements
received by the group to those included in the revenue accrual
model and checked the arithmetic accuracy of the revenue accrual
calculation; and
-- We performed back testing by comparing the prior year revenue
accruals to subsequently received royalty statements in order to
assess the accuracy of the estimates made by the Investment
Manager.
We did not identify any material issues from our procedures.
Carrying value and fair value disclosure of intangible
assets
Please refer to Notes 4 and 6 to the consolidated financial
statements.
The primary activity of the group is to acquire and hold
catalogues of songs and earn the music royalty, license fees and
other revenue associated with its ownership.
The group's portfolio of songs are classified as intangible
assets under IAS 38 - Intangible Assets ("IAS38"). The various
catalogues of songs are held at cost and amortised over their
useful life (which is determined at acquisition of each of the
catalogue of songs) less impairment. The catalogues of songs are
subject to an impairment assessment at the earlier of the end of
each accounting period and when an indicator of impairment is
identified. The determination of the useful life of each catalogue
requires the application of significant judgement by the directors
(see Note 4).
The directors have chosen to voluntarily disclose the fair value
of the catalogues of songs (see Note 6). The directors also present
an 'Operative Net Asset Value', which takes into account the
Catalogues of Songs at this fair value rather than at the IFRS
amortised cost value, as included in consolidated financial
statements and reflected in the IFRS Net Asset Value.
The directors have, in consultation with the Investment Adviser,
engaged the Portfolio Independent Valuer to assess the fair value
of each catalogue. In general, the fair value of each catalogue is
determined using a discounted cash flow model and incorporates
assumptions that are subject to significant judgement by the
Portfolio Independent Valuer, Investment Adviser and directors.
These estimates and assumptions include future catalogue revenue
and cash flow projections; aggregate catalogue maturity; music
industry growth rates by revenue type (e.g. physical sales,
downloads, streaming etc.); and the determination of an appropriate
discount rate. The fair value of the catalogues of songs as
disclosed in Note 6 reflects the fair value as calculated by the
Portfolio Independent Valuer, recommended by the Investment Adviser
and adopted by the board of directors.
The directors use the fair value determined by the Portfolio
Independent Valuer as an input into their consideration of the
impairment assessment of the catalogues of songs held at amortised
cost, based on a comparison of the fair value of each catalogue to
the carrying value calculated under IFRS.
As the catalogues of songs are significant to the net asset
value of the group and because of the level of judgement applied in
determining the useful life, the need for impairment and in
determining the fair value of each catalogue, there is a heightened
risk of misstatement. As a result, the carrying value of the
catalogues of songs carried at amortised cost in the consolidated
financial statements (including any applicable impairment) is
considered to be a significant audit risk and the fair value of the
catalogues of songs, as disclosed in the notes to the consolidated
financial statements, used as an initial basis of consideration for
impairment and used in determining the Operative Net Asset Value by
the directors are considered to be key audit matters from an audit
perspective.
With regard to the catalogues of songs recognised as intangibles
and carried at amortised cost, we evaluated management's processes
and assumptions used to initially recognise and measure the
catalogues of songs at amortised cost and used to assess the need
for impairment (if any) of the respective catalogues of songs. Our
procedures included:
-- We obtained and read the purchase agreements for each
catalogue of songs held by the group to ensure they have been
accounted for correctly, and agreed to the cash payments made;
-- We also discussed with management any deferred compensation
terms within the purchase contracts and assessed whether these have
been appropriately recognised and/or disclosed within the
consolidated financial statements;
-- We discussed the useful life of each catalogue with the
Investment Adviser and considered these in light of industry
benchmarks;
-- We recalculated the carrying value in accordance with the
useful life determined by the directors and the purchase agreements
for each catalogue of songs; and
-- We obtained, discussed and challenged the directors and
Investment Adviser on their impairment assessment undertaken with
respect to each catalogue of songs.
Based on our work performed, we did not identify any material
differences.
With regard to the fair value of the catalogues of songs
disclosed in Note 6 to the financial statements and used in
determining the Operative Net Asset Value of the group by the
directors, and as an input into the impairment assessment, we
performed the following procedures:
-- We discussed with the directors and Investment Adviser the
process of appointment of the Portfolio Independent Valuer;
-- We contacted the Portfolio Independent Valuer directly and
obtained their valuation model for each catalogue of songs;
-- We held discussions with the Portfolio Independent Valuer,
confirmed their independence and evaluated their experience and
objectivity;
-- We gained an understanding of the assumptions the Portfolio
Independent Valuer adopted to determine the projected growth rates
for revenue streams across a sample of catalogues of songs and of
the discount rate applied to the projected revenue/cash flow
streams;
-- We discussed the impact of COVID-19 on the valuations of the
catalogues of songs with the Portfolio Independent Valuer, and in
particular considered the appropriateness of the assumptions made
by them on future cash flows by revenue type for the catalogues of
songs sampled;
-- We agreed the forecasted revenue assumptions used by the
Portfolio Independent Valuer in their model to the revenue
recognised by the group and the latest revenue reports from the
portfolio administrators/royalty collection agents with respect to
the sample of catalogues of songs. We assessed the rationale for
any adjustments made thereto against supportable data;
-- We compared the discount rate used to available independent
industry benchmarks;
-- We recalculated the arithmetic accuracy of the valuation for
the catalogues sampled; and
-- We performed a benchmark analysis of the valuation by
obtaining independent music industry market growth data by revenue
stream, applying this to the baseline revenue / cash flow
projections, discounting at the assessed discount rate and
comparing this to the Portfolio Independent Valuer's determination
of fair value.
Based on our work performed, we did not identify any material
differences.
Change in functional and presentation currency
Please refer to Note 2(n) and 4 of the financial statements.
The directors determined that as at 1 October 2020, a
fundamental shift in the primary economic environment of the
company and certain of its subsidiaries had occurred, and that the
functional currency of the company and these subsidiaries should be
changed to US Dollars from Sterling ("GBP"), in accordance with the
requirements of IFRS. Simultaneously, the directors determined that
the presentation currency for the group should be changed to US
Dollars.
For the company and subsidiaries impacted by this decision, the
change in functional currency to US Dollars has been recognised
prospectively from 1 October 2020 and all periods prior to 1
October 2020 have been represented and restated to US Dollars as a
result of the change in presentation currency.
The risk exists that the change in functional currency
determined by the directors is not appropriate or consistent with
IFRS. There is also a risk that the change in functional and
presentation currency, which can be complex, has not been processed
correctly in accordance with IAS 21 - The effects of foreign
exchange rates ("IAS 21"). As a result, the change in functional
and presentation currency during the year is a key audit matter
from an audit perspective.
We performed the following procedures:
-- Where a change in functional currency had been made for the
company or a subsidiary (the "affected entities"), we reviewed
management's rationale for the change in line with the criteria set
out in IAS 21;
-- We reviewed the methodology adopted by management in
preparing the workings for the change in presentation currency to
ensure that these are consistent with IAS 21 with respect to the
affected entities;
-- We recalculated management's workings for the restatement of
periods prior to 1 October 2020 due to the change in presentation
currency and confirmed the reasonableness of the foreign exchange
rates used to independent market sources for each period
selected;
-- Where a change in functional currency had been made, we
recalculated transactions in foreign currencies on a sample basis
to independently sourced foreign exchange rates; and
-- We obtained, reviewed and considered the adequacy of the
disclosures made by the directors in the consolidated financial
statements in respect of the changes to the functional and
presentation currency from GBP to US Dollars.
We did not identify any material issues from our procedures.
How we tailored the audit scope
We tailored the scope of our audit to ensure that we performed
enough work to be able to give an opinion on the consolidated
financial statements as a whole, taking into account the structure
of the group, the accounting processes and controls, and the
industry in which the group operates.
The company is based in Guernsey and has subsidiaries in the UK
and the USA. The consolidated financial statements are a
consolidation of the company and all the subsidiaries.
Scoping was performed at the group level, irrespective of
whether the underlying transactions took place within the company
or within the subsidiaries. The group audit was led, directed and
controlled by PricewaterhouseCoopers CI LLP and all audit work for
material items within the consolidated financial statements was
performed in Guernsey by PricewaterhouseCoopers CI LLP.
The transactions relating to the company and many of the
subsidiaries are maintained by the Administrator (and its related
group entities) or were made directly available to us by the
management of the remaining subsidiaries, and therefore we were not
required to engage with component auditors operating under our
instruction. Our testing was therefore performed on a consolidated
basis using thresholds which are determined with reference to the
overall group materiality and the risks of material misstatement
identified.
As noted in the overview, the components of the group for which
we performed full scope audit procedures accounted for 100% of
consolidated net assets and total comprehensive income.
Materiality
The scope of our audit was influenced by our application of
materiality. We set certain quantitative thresholds for
materiality. These, together with qualitative considerations,
helped us to determine the scope of our audit and the nature,
timing and extent of our audit procedures on the individual
financial statement line items and disclosures and in evaluating
the effect of misstatements, both individually and in aggregate on
the consolidated financial statements as a whole.
Based on our professional judgement, we determined materiality
for the consolidated financial statements as a whole as
follows:
Overall group $15.6 million (2020:
materiality $7.9 million*)
How we determined 1% of Adjusted Net
it Asset Value
----------------------------
Rationale for We believe that
benchmark applied Adjusted Net Asset
Value represents
the most appropriate
benchmark given
the nature and activities
of the group, and
that this is a key
consideration for
investors when assessing
the financial performance.
The group's Adjusted
Net Asset Value
is calculated as
$1,556 million (2020:
$791 million**)
----------------------------
We use performance materiality to reduce to an appropriately low
level the probability that the aggregate of uncorrected and
undetected misstatements exceeds overall materiality. Specifically,
we use performance materiality in determining the scope of our
audit and the nature and extent of our testing of account balances,
classes of transactions and disclosures, for example in determining
sample sizes. Our performance materiality was 75% of overall
materiality, amounting to $11.6 million for the group financial
statements.
In determining the performance materiality, we considered a
number of factors - the history of misstatements, risk assessment
and aggregation risk and the effectiveness of controls - and
concluded that an amount at the upper end of our normal range was
appropriate.
We agreed with the Audit and Risk Committee that we would report
to them misstatements identified during our audit above $778,000
(2020: $395,000***) as well as misstatements below that amount
that, in our view, warranted reporting for qualitative reasons.
* GBP6.4 million translated at the rate used to restate the
Statement of Financial Position for the comparative year ended 31
March 2020 to US Dollars
** GBP641 million translated at the rate used to restate the
Statement of Financial Position for the comparative year ended 31
March 2020 to US Dollars
*** GBP320,000 translated at the rate used to restate the
Statement of Financial Position for the comparative year ended 31
March 2020 to US Dollars
Reporting on other information
The directors are responsible for the other information. The
other information comprises all the information included in the
Annual Report 2021 (the "Annual Report") but does not include the
consolidated financial statements and our auditor's report
thereon.
Our opinion on the consolidated financial statements does not
cover the other information and we do not express any form of
assurance conclusion thereon.
In connection with our audit of the consolidated financial
statements, our responsibility is to read the other information
and, in doing so, consider whether the other information is
materially inconsistent with the consolidated financial statements
or our knowledge obtained in the audit, or otherwise appears to be
materially misstated. If, based on the work we have performed, we
conclude that there is a material misstatement of this other
information, we are required to report that fact. We have nothing
to report based on these responsibilities.
Responsibilities for the consolidated financial statements and
the audit
Responsibilities of the directors for the consolidated financial
statements
As explained more fully in the Directors' Responsibilities'
Statement, the directors are responsible for the preparation of the
consolidated financial statements that give a true and fair view in
accordance with International Financial Reporting Standards, the
requirements of Guernsey law and for such internal control as the
directors determine is necessary to enable the preparation of
consolidated financial statements that are free from material
misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, the
directors are responsible for assessing the group's ability to
continue as a going concern, disclosing, as applicable, matters
related to going concern and using the going concern basis of
accounting unless the directors either intend to liquidate the
group or to cease operations, or have no realistic alternative but
to do so.
Auditor's responsibilities for the audit of the consolidated
financial statements
Our objectives are to obtain reasonable assurance about whether
the consolidated financial statements as a whole are free from
material misstatement, whether due to fraud or error, and to issue
an auditor's report that includes our opinion. Reasonable assurance
is a high level of assurance, but is not a guarantee that an audit
conducted in accordance with ISAs will always detect a material
misstatement when it exists. Misstatements can arise from fraud or
error and are considered material if, individually or in aggregate,
they could reasonably be expected to influence the economic
decisions of users taken on the basis of these consolidated
financial statements.
Our audit testing might include testing complete populations of
certain transactions and balances, possibly using data auditing
techniques. However, it typically involves selecting a limited
number of items for testing, rather than testing complete
populations. We will often seek to target particular items for
testing based on their size or risk characteristics. In other
cases, we will use audit sampling to enable us to draw a conclusion
about the population from which the sample is selected.
As part of an audit in accordance with ISAs, we exercise
professional judgement and maintain professional scepticism
throughout the audit. We also:
-- Identify and assess the risks of material misstatement of the
consolidated financial statements, whether due to fraud or error,
design and perform audit procedures responsive to those risks, and
obtain audit evidence that is sufficient and appropriate to provide
a basis for our opinion. The risk of not detecting a material
misstatement resulting from fraud is higher than for one resulting
from error, as fraud may involve collusion, forgery, intentional
omissions, misrepresentations, or the override of internal
control.
-- Obtain an understanding of internal control relevant to the
audit in order to design audit procedures that are appropriate in
the circumstances, but not for the purpose of expressing an opinion
on the effectiveness of the group's internal control.
-- Evaluate the appropriateness of accounting policies used and
the reasonableness of accounting estimates and related disclosures
made by the directors.
-- Conclude on the appropriateness of the directors' use of the
going concern basis of accounting and, based on the audit evidence
obtained, whether a material uncertainty exists related to events
or conditions that may cast significant doubt on the group's
ability to continue as a going concern over a period of at least
twelve months from the date of approval of the financial
statements. If we conclude that a material uncertainty exists, we
are required to draw attention in our auditor's report to the
related disclosures in the consolidated financial statements or, if
such disclosures are inadequate, to modify our opinion. Our
conclusions are based on the audit evidence obtained up to the date
of our auditor's report. However, future events or conditions may
cause the group to cease to continue as a going concern.
-- Evaluate the overall presentation, structure and content of
the consolidated financial statements, including the disclosures,
and whether the consolidated financial statements represent the
underlying transactions and events in a manner
that achieves fair presentation.
-- Obtain sufficient appropriate audit evidence regarding the
financial information of the entities or business activities within
the group to express an opinion on the consolidated financial
statements. We are responsible for the direction, supervision and
performance of the group audit. We remain solely responsible for
our audit opinion.
We communicate with those charged with governance regarding,
among other matters, the planned scope and timing of the audit and
significant audit findings, including any significant deficiencies
in internal control that we identify during our audit.
We also provide those charged with governance with a statement
that we have complied with relevant ethical requirements regarding
independence, and to communicate with them all relationships and
other matters that may reasonably be thought to bear on our
independence, and where applicable, related safeguards.
From the matters communicated with those charged with
governance, we determine those matters that were of most
significance in the audit of the consolidated financial statements
of the current period and are therefore the key audit matters. We
describe these matters in our auditor's report unless law or
regulation precludes public disclosure about the matter or when, in
extremely rare circumstances, we determine that a matter should not
be communicated in our report because the adverse consequences of
doing so would reasonably be expected to outweigh the public
interest benefits of such communication.
Use of this report
This report, including the opinions, has been prepared for and
only for the members as a body in accordance with Section 262 of
The Companies (Guernsey) Law, 2008 and for no other purpose. We do
not, in giving these opinions, accept or assume responsibility for
any other purpose or to any other person to whom this report is
shown or into whose hands it may come save where expressly agreed
by our prior consent in writing.
Report on other legal and regulatory requirements
Company Law exception reporting
Under The Companies (Guernsey) Law, 2008 we are required to
report to you if, in our opinion:
-- we have not received all the information and explanations we
require for our audit;
-- proper accounting records have not been kept; or
-- the consolidated financial statements are not in agreement
with the accounting records.
We have no exceptions to report arising from this
responsibility.
Corporate governance statement
The Listing Rules require us to review the directors' statements
in relation to going concern, longer-term viability and that part
of the corporate governance statement relating to the company's
compliance with the provisions of the UK Corporate Governance Code
specified for our review. Our additional responsibilities with
respect to the corporate governance statement as other information
are described in the Reporting on other information section of this
report.
The company has reported compliance against the 2019 AIC Code of
Corporate Governance (the "Code") which has been endorsed by the UK
Financial Reporting Council as being consistent with the UK
Corporate Governance Code for the purposes of meeting the company's
obligations, as an investment company, under the Listing Rules of
the FCA.
Based on the work undertaken as part of our audit, we have
concluded that each of the following elements of the corporate
governance statement is materially consistent with the consolidated
financial statements and our knowledge obtained during the audit,
and we have nothing material to add or draw attention to in
relation to:
-- The directors' confirmation that they have carried out a
robust assessment of the emerging and principal risks;
-- The disclosures in the Annual Report that describe those
principal risks, what procedures are in place to identify emerging
risks and an explanation of how these are being managed or
mitigated;
-- The directors' statement in the financial statements about
whether they considered it appropriate to adopt the going concern
basis of accounting in preparing them, and their identification of
any material uncertainties to the group's ability to continue to do
so over a period of at least twelve months from the date of
approval of the financial statements;
-- The directors' explanation as to their assessment of the
group's prospects, the period this assessment covers and why the
period is appropriate; and
-- The directors' statement as to whether they have a reasonable
expectation that the company will be able to continue in operation
and meet its liabilities as they fall due over the period of its
assessment, including any related disclosures drawing attention to
any necessary qualifications or assumptions.
Our review of the directors' statement regarding the longer-term
viability of the group was substantially less in scope than an
audit and only consisted of making inquiries and considering the
directors' process supporting their statements; checking that the
statements are in alignment with the relevant provisions of the
Code; and considering whether the statement is consistent with the
consolidated financial statements and our knowledge and
understanding of the group and its environment obtained in the
course of the audit.
In addition, based on the work undertaken as part of our audit,
we have concluded that each of the following elements of the
corporate governance statement is materially consistent with the
financial statements and our knowledge obtained during the
audit:
-- The directors' statement that they consider the Annual
Report, taken as a whole, is fair, balanced and understandable, and
provides the information necessary for the members to assess the
group's position, performance, business model and strategy;
-- The section of the Annual Report that describes the review of
effectiveness of risk management and internal control systems;
and
-- The section describing the work of the Audit and Risk
Management Committee.
We have nothing to report in respect of our responsibility to
report when the directors' statement relating to the company's
compliance with the Code does not properly disclose a departure
from a relevant provision of the Code specified under the Listing
Rules for review by the auditors.
Roland Mills
For and on behalf of PricewaterhouseCoopers CI LLP
Chartered Accountants and Recognised Auditor
Guernsey, Channel Islands
5 July 2021
Consolidated Statement of Comprehensive Income
For the year ended 31 March 2021
1 April 2020 1 April 2019
to to
31 March 31 March
2021 2020
Notes $'000 $'000
---------------------------------------------- ----- ------------ ------------
Income
Total revenue 13 160,752 82,207
Interest income 88 1,254
Royalty costs (22,450) (132)
---------------------------------------------- ----- ------------ ------------
Net revenue 138,390 83,329
---------------------------------------------- ----- ------------ ------------
Expenses
Advisory, performance and administration
fees 19 (13,236) (6,881)
Amortisation of Catalogues of Songs 6 (67,875) (23,462)
Directors' remuneration 18 (666) (331)
Brokers' fees (81) (132)
Auditor remuneration 21 (732) (365)
Legal and professional fees (7,840) (2,491)
Finance charges for deferred consideration (339) -
Loan Interest 9 (9,931) (1,065)
Subscriptions and Licences (236) -
Charitable Donations (307) -
HSG FV Gain 3 2,139 -
Other operating expenses 14 (10,561) (1,940)
Foreign exchange gains/(losses) 15 15,814 (5,151)
---------------------------------------------- ----- ------------ ------------
Operating expenses (93,851) (41,818)
---------------------------------------------- ----- ------------ ------------
Operating profit for the year before taxation 44,539 41,511
Taxation 5 (5,604) (9,498)
---------------------------------------------- ----- ------------ ------------
Profit for the year after tax 38,935 32,013
---------------------------------------------- ----- ------------ ------------
Total comprehensive income for the year 38,935 32,013
Basic Earnings per Share (cents) 20 4.72 8.13
---------------------------------------------- ----- ------------ ------------
Diluted Earnings per Share (cents) 20 4.72 8.13
---------------------------------------------- ----- ------------ ------------
All activities derive from continuing operations.
The accompanying notes form an integral part of these
Consolidated Financial Statements.
Consolidated Statement
of Financial Position
As at 31 March 2021
31 March 31 March
2021 2020
Notes $'000 $'000
---------------------------------------- ----- ------------- -----------
Assets
Catalogues of Songs 6 1,878,924 857,506
Other assets 3,740 -
Goodwill 3 272 -
Trade and other receivables 8 107,628 52,354
Cash and cash equivalents 7 112,634 17,391
---------------------------------------- ----- ------------- -----------
Total assets 2,103,198 927,251
---------------------------------------- ----- ------------- -----------
Liabilities
Loans and borrowings 9 565,860 69,182
Other payables and accrued expenses 10 74,493 47,384
---------------------------------------- ----- ------------- -----------
Total liabilities 640,353 116,566
---------------------------------------- ----- ------------- -----------
Net assets 1,462,845 810,685
---------------------------------------- ----- ------------- -----------
Equity
Share capital 11 1,466,851 801,844
Other reserves 19 234 -
Foreign currency translation reserve (419) (412)
Retained earnings (3,821) 9,253
---------------------------------------- ----- ------------- -----------
Total equity attributable to the owners
of the Company 1,462,845 810,685
---------------------------------------- ----- ------------- -----------
Number of Ordinary Shares in issue at
year end 1,073,440,268 615,851,887
---------------------------------------- ----- ------------- -----------
IFRS Net Asset Value per Ordinary Share
(cents) 12 136.28 131.64
Operative Net Asset Value per Ordinary
Share (cents) 12 168.29 151.14
---------------------------------------- ----- ------------- -----------
Approved and authorised for issue by the Board of Directors on 4
July 2021 and signed on their behalf by:
Andrew Sutch Chair Andrew Wilkinson Director
The accompanying notes form an integral part of these
Consolidated Financial Statements.
Consolidated Statement
of Changes in Equity
For the year ended 31 March 2021
Foreign
currency
Number of Share translation Retained Other Total
Ordinary capital reserve earnings reserves equity
Note Shares $'000 $'000 $'000 $'000 $'000
--------------------- ---- ------------- --------- ------------ --------- --------- ---------
As at 1 April
2020 615,851,887 801,844 (412) 9,253 - 810,685
Shares issued 11 457,588,381 677,056 - - - 677,056
Share issue costs 11 - (12,049) - - - (12,049)
Performance fees
to be paid in
shares 19 - - - - 234 234
Dividends paid 16 - - - (52,009) - (52,009)
Profit for the
year - - - 38,935 - 38,935
Foreign currency
translation reserve
movement - - (7) - - (7)
--------------------- ---- ------------- --------- ------------ --------- --------- ---------
As at 31 March
2021 1,073,440,268 1,466,851 (419) (3,821) 234 1,462,845
--------------------- ---- ------------- --------- ------------ --------- --------- ---------
*The underlying retained earnings figure has been shown to be in
a deficit position due to the foreign currency translation
therefore does not show the true nature of retained earnings. The
Sterling retained earnings position at 31 March 2021 is GBP6.3
million. This is entirely linked to the functional currency change,
and the strengthening of Sterling against the Dollar.
Profit for the Year of $38.935 million is calculated net of
Amortisation of Catalogues of Songs, which is $67.875 million. The
Profit, when adjusted for Amortisation, is therefore $106.8 million
which represents 2.05x dividend cover on the dividends paid of
$52.009 million."
For the year ended 31 March 2020
Number of Currency Retained
Ordinary Share capital change reserve earnings Total equity
Note Shares $'000 $'000 $'000 $'000
--------------------- ---- ----------- ------------- --------------- --------- ------------
As at 1 April 2019 202,176,800 262,919 (4,308) 363 258,974
Shares issued 11 187,387,487 247,324 - - 247,324
C Share conversion 226,287,600 301,777 - 301,777
Share issue costs 11 - (10,176) - - (10,176)
Dividends paid 16 - - - (23,123) (23,123)
Profit for the
year - - - 32,013 32,013
Foreign currency
translation reserve
movement - - 3,896 - 3,896
--------------------- ---- ----------- ------------- --------------- --------- ------------
As at 31 March
2020 615,851,887 801,844 (412) 9,253 810,685
--------------------- ---- ----------- ------------- --------------- --------- ------------
The accompanying notes form an integral part of these
Consolidated Financial Statements.
Consolidated Statement
of Cash Flows
For the year ended 31 March 2021
1 April 2020 1 April 2019
to to
31 March 31 March
2021 2020
Notes $'000 $'000
---------------------------------------------------- ----- ------------ ------------
Cash flows generated in operating activities
Operating profit for the year before taxation 44,539 41,511
Adjustments for non-cash items:
Loan interest 9,931 1,065
Movement in trade and other receivables 8 (54,005) (34,985)
Movement in other payables and accrued expenses 10 38,712 (4,251)
Movement in equity for share-based payments 19 234 295
Amortisation of Catalogues of Songs and borrowing
costs 67,875 23,462
Foreign exchange (losses)/gains 15 (15,814) 5,151
Taxation (5,604) (9,498)
---------------------------------------------------- ----- ------------ ------------
Net cash generated from operating activities 85,868 22,750
---------------------------------------------------- ----- ------------ ------------
Cash flows used in investing activities
Purchase of Catalogues of Songs 6 (1,089,293) (726,466)
Purchase of other assets (3,740) -
Goodwill paid on acquisition (272) -
Net cash used in investing activities (1,093,305) (726,466)
---------------------------------------------------- ----- ------------ ------------
Cash flows generated from financing activities
Proceeds from issue of shares 11 677,056 548,805
Issue costs paid 11 (12,049) (10,176)
Dividends paid 16 (52,009) (23,123)
Interest paid 9 (8,942) (777)
Borrowing costs 9 (9,199) (5,421)
Bank loan 9 503,278 74,014
---------------------------------------------------- ----- ------------ ------------
Net cash generated from financing activities 1,098,135 583,322
---------------------------------------------------- ----- ------------ ------------
Net movement in cash and cash equivalents 90,698 (120,394)
---------------------------------------------------- ----- ------------ ------------
Cash and cash equivalents at the start of
the year 17,391 141,492
Effect of foreign exchange rate changes on
cash and cash equivalents 15 4,545 (3,707)
---------------------------------------------------- ----- ------------ ------------
Cash and cash equivalents at the end of the
year 7 112,634 17,391
---------------------------------------------------- ----- ------------ ------------
HSG had a net cash balance of $5.6 million as at 31 March 2021
and these flows are included in the above consolidated cash flow
statement.
The accompanying notes form an integral part of these
Consolidated Financial Statements.
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.
The registered office address is Floor 2, Trafalgar Court, Les
Banques, St Peter Port, Guernsey, GY1 4LY.
The Company's Ordinary Shares were admitted to trading on the
Specialist Fund Segment of the London Stock Exchange on 11 July
2018 and migrated to a Premium Listing on the Main Market of the
London Stock Exchange on 25 September 2019. The Company was added
as a constituent of the FTSE 250 Index effective from after the
market close on 20 March 2020.
On 10 September 2020 the Company acquired the entire share
capital of Big Deal Music Group. Whilst this was a significant
acquisition in expanding operations, the size of acquisition does
not warrant a separate segment but a complementary one to the
primary segment of royalty collection/Catalogue ownership.
Accounting recognition and measurement policies have only been
included where material to the consolidated results and financial
position of the Company.
The consideration for this acquisition was funded from the
proceeds of Hipgnosis' equity fundraise in July 2020 and through
the issue of 17,609,304 new Ordinary Shares ("Consideration
Shares") issued at a price of 120.65p per Ordinary Share. 6,248,351
of the Consideration Shares were subject to lock up restrictions to
1 October 2020, with 10,123,219 Consideration Shares subject to
lock up restrictions to 1 April 2021. The acquisition provides the
Company with a full service US music platform, which is expected to
enhance royalty income from its growing portfolio of songs, create
new songs at an attractive cost and provide in-house US
administration, and therefore increasing control over its
portfolio's income.
On 30 September 2020 the Company acquired a portfolio of 42
Catalogues from Kobalt Music Copyrights S.à.r.l., an investment
fund advised by Kobalt Capital Limited, for a total consideration
of $322.9 million. The consideration, net of right to income,
represents a blended acquisition multiple of 18.3x average annual
income and was funded with the net proceeds from the Company's
September equity fundraising together with the Company's existing
leverage facility. The accounting for the acquisition of the Kobalt
Music Copyrights Portfolio is consistent with the accounting
treatment of all other Catalogue acquisitions.
The Company makes its investments through its subsidiaries,
which are registered in the UK and US as limited companies.
The Consolidated Financial Statements present the results of the
Group for the year to 31 March 2021, rounded to the nearest Dollar;
the change in functional and presentation currency from Sterling to
Dollars is discussed further in Note 2(m), Note 4, the Chairman's
Statement and the Audit and Risk Management Committee Report. The
Group is principally engaged in investing in and managing music
copyrights and associated musical intellectual property.
2.
Accounting policies
The principal accounting policies applied in the preparation of
these Consolidated Financial Statements are set out below. These
policies have been consistently applied, unless otherwise
stated.
New and amended standards and interpretations applied
On incorporation, the Company adopted all of the IFRS standards
and interpretations that were in effect at that date and are
applicable to the Group. No new standards during the year ended 31
March 2021 had a material impact on the Consolidated Financial
Statements.
Amended standards and interpretations not applied
The following are amended standards and interpretations in issue
effective from years beginning on or after 1 June 2020:
Amended standards and interpretations Effective date
------------------------------------------------------------------ --------------
IFRS Leases (Amendments regarding COVID-19 related rent
16 concessions) 1 June 2020
IFRS Financial Instruments (Amendments regarding pre-replacement
9 issues in the context of the LIBOR reform) 1 January 2023
IFRS
17 Insurance Contracts 1 January 2023
IAS 1 Presentation of Financial Statements (Amendments
regarding financial statements' on classification
of liabilities) 1 January 2022
----- ----------------------------------------------------------- --------------
The Group has considered the IFRS standards and interpretations
that have been issued but are not yet effective. None of these
standards or interpretations are likely to have a material effect
on the Group, as it is the belief of the Board that the activities
of the Group are unlikely to be affected by the changes to these
standards, although any disclosures recommended by these standards,
where applicable, will be provided as required.
Group information
As at 31 March 2021, the details of the Company's subsidiaries
are as follows:
Place of
incorporation % of voting Consolidation Functional
Name of the subsidiary and operation rights % Interest method Currency
--------------------------------- --------------- ----------- ---------- ------------- ----------
Hipgnosis Holdings UK Limited UK 100 100 Full USD
--------------------------------- --------------- ----------- ---------- ------------- ----------
Hipgnosis SFH I Limited UK 100 100 Full USD
--------------------------------- --------------- ----------- ---------- ------------- ----------
Hipgnosis SFH XIII Limited UK 100 100 Full USD
--------------------------------- --------------- ----------- ---------- ------------- ----------
Hipgnosis SFH XIX Limited UK 100 100 Full USD
--------------------------------- --------------- ----------- ---------- ------------- ----------
Hipgnosis SFH XX Limited UK 100 100 Full GBP
--------------------------------- --------------- ----------- ---------- ------------- ----------
RubyRuby (London) Limited UK 100 100 Full GBP
--------------------------------- --------------- ----------- ---------- ------------- ----------
Big Deal Music Group, rebranded
Hipgnosis Songs Group LLC* US 100 100 Full USD
--------------------------------- --------------- ----------- ---------- ------------- ----------
BDM Acquisition Corp, LLC,
rebranded Hipgnosis Acquisition
Corp US 100 100 Full USD
--------------------------------- --------------- ----------- ---------- ------------- ----------
Kennedy Publishing & Productions
Limited UK 100 100 Full GBP
--------------------------------- --------------- ----------- ---------- ------------- ----------
F.S. Music Limited UK 100 100 Full USD
--------------------------------- --------------- ----------- ---------- ------------- ----------
Robot of the Century Music
Publishing Inc US 100 100 Full USD
--------------------------------- --------------- ----------- ---------- ------------- ----------
C H Publishing Limited UK 100 100 Full GBP
--------------------------------- --------------- ----------- ---------- ------------- ----------
Deamon Limited UK 100 100 Full GBP
--------------------------------- --------------- ----------- ---------- ------------- ----------
PB Songs Ltd UK 100 100 Full GBP
--------------------------------- --------------- ----------- ---------- ------------- ----------
* On 10 September 2020 the Company acquired the entire share
capital of Big Deal Music Group which includes BDM Acquisition Corp
and Big Deal Music LLC both incorporated in the US. Big Deal Music
LLC is part of a joint venture with Big Family LLC, a publishing
company which was formed in June 2018 and is equity accounted for
in the Consolidated Financial Statements. Big Deal Music has been
rebranded Hipgnosis Songs Group.
This is a subsidiary of Hipgnosis SFH XX Limited and therefore
an indirect subsidiary of Hipgnosis Songs Fund Limited.
The following additional companies were acquired during the year
(all were copyright asset-holding companies with the exception of
Big Deal Music, which is an operating company):
-- Kennedy Publishing & Productions Limited on 16 July
2020;
-- Big Deal Music on 10 September 2020;
-- F.S. Music Limited on 30 September 2020;
-- Robot of the Century Music Publishing Inc on 30 September
2020;
-- C H Publishing Limited on 20 November 2020;
-- Deamon Limited on 20 November 2020; and
-- PB Songs Ltd on 18 March 2021.
The majority of subsidiaries of the Company are considered tax
resident in the UK and are subject to UK corporation tax. Robot of
the Century Music Publishing Inc is registered in New York,
Hipgnosis Songs Group LLC and Hipgnosis Acquisition Corp. are
registered in Delaware and are subject to applicable State and
Federal Taxes.
a) Going concern
The Directors monitor the capital and liquidity requirements of
the Company on a regular basis. They have also reviewed cash flow
forecasts prepared by the Investment Adviser which are based in
part on assumptions about the future purchase and returns from
existing Catalogues of Songs and the annual operating cost.
Based on these sources of information and their own judgment,
the Directors believe it is appropriate to prepare the Consolidated
Financial Statements of the Group on a going concern basis.
b) Basis of preparation
Basis of accounting
The Consolidated Financial Statements have been prepared in
accordance with IFRS and applicable company law. The Consolidated
Financial Statements have been prepared on a historical cost basis
as amended from time to time by the fair valuing of certain
financial assets and liabilities where applicable.
Consolidation
In accordance with section 244 of the Companies Law, the
Directors have elected to prepare consolidated accounts for the
financial period for the Group. Therefore, there is no requirement
to present individual accounts for the Company within the
Consolidated Financial Statements.
The Company is not considered to be an Investment Entity, as
defined in IFRS 10. Whilst the Company evaluates the Portfolio on a
fair value basis as demonstrated by the Operating NAV provided as
an alternate performance measure, the Company also actively manages
the Songs to add further value.
All companies in which the Company has a controlling interest,
namely those in which it has the power to govern financial and
operational policies in order to obtain benefits from their
operations, are fully consolidated. The Control defined by IFRS 10
is based on the following three criteria to be fulfilled
simultaneously to conclude that the parent company exercises
control:
-- a parent company has power over a subsidiary when the parent
company has existing rights that give it the current ability to
direct the relevant activities of the subsidiary, i.e. the
activities that significantly affect the subsidiary's returns.
Power may arise from existing or potential voting rights, or
contractual arrangements. Voting rights must be substantial, i.e.
they shall be exercisable at any time without limitation,
particularly during decision making related to significant
activities. The assessment of the exercise of power depends on the
nature of the subsidiary's relevant activities, the internal
decision-making process, and the allocation of rights among the
subsidiary's other shareowners;
-- the parent company is exposed, or has rights, to variable
returns from its involvement with the subsidiary which may vary as
a result of the subsidiary's performance. The concept of returns is
broadly defined and includes, among other things, dividends and
other economic benefit distributions, changes in the value of the
investment in the subsidiary, economies of scale, and business
synergies; and
-- the parent company has the ability to use its power to affect
the returns. Exercising power without having any impact on returns
does not qualify as control.
Consolidated financial statements of a group are presented as if
the Group were a single economic entity. The Group does not include
any non-controlling interest.
Segmental reporting
The chief operating decision maker is the Board of Directors.
All of the Company's income is global but received from sources
within US, Europe, UK and Guernsey. While the Company's income is
derived internationally, the Directors are of the opinion that the
Group is engaged in a single segment of business, being the
investment of the Company's capital in a Portfolio of Song
copyrights, with an attractive and growing level of income,
together with the potential for capital growth.
c) Revenue recognition
Bank interest income
Interest income from cash deposits is recognised as it accrues
by reference to the effective interest rate applicable, which is
the rate that exactly discounts the estimated future cash flows
through the expected life of the financial asset to the asset's
carrying value or principal amount, and is accounted for on an
accruals basis.
Revenue from operations and associated costs
Revenues from operations are recorded when it is probable that
future economic benefits will be obtained by the Group and when
they can be reliably measured. The revenue earned by the Group is
recognised in accordance with IFRS 15 and solely consists of
royalty income, which is divided into three main revenue
categories:
i) Mechanical royalties - these are collected by PROs worldwide
which represent songwriters and other copyright owners. Mechanical
royalties are also collected by royalty collection agents or the
portfolio administrators with whom the Group contracts;
ii) Performance royalties - these are collected by various PROs
worldwide which represent songwriters and other copyright owners;
and
iii) Synchronisation fees - these are typically paid directly to
the owner of the relevant copyright or its publisher, on the terms
and in the amounts agreed with the relevant film or television
production company, advertising agency or end customer.
These revenue categories are further disaggregated into
individual revenue streams which are disclosed in detail in Note
13. The Group follows the same accounting policies in respect of
all revenue streams, unless otherwise disclosed.
As royalty income is typically reported by the royalty
collection agents/performance rights organisations on an arrears
basis via statement (3-6 months for mechanical royalties and 6-12
months for performance royalties) and where statements have not
been received at the year end, the Group accrues for those
reporting delays by assessing historic and forecasted earnings over
the equivalent reporting period based on evidenced historic revenue
reporting, seasonality and industry consumption and growth rates
since the last statement date.
Licence arrangements for all income types which include
publishing income (mechanical, performance, downloads, streaming,
synchronisation and writer share income), income derived from
master recordings and producer royalties.
The Group enters into licence arrangements in respect of
Catalogues of Songs with third party collection agents. Licences
granted to collection agents are deemed to constitute usage based,
right of use licences as per IFRS 15.
Revenue arising from licences entered into with collection
agents is therefore recognised in the period. Payment is made upon
reporting of those usages within royalty statements delivered
typically 3-6 months after usage. The significant payment terms are
60-90 days.
This revenue, which is net of the administration fee retained by
the collection agent, is disaggregated to be reviewed by song usage
period, source of income, work title, reporting period and any
third party royalty entitlements where necessary.
The contractual basis of the licence arrangements are such that
the agents are deemed as 'principals' for tax purposes, therefore
the Group recognises its revenue net of administration fees.
Where available at the end of each month or earlier interval to
which the revenue relates, revenue is recorded on the basis of
royalty statements received from collection agents.
Where notification has not yet been received from collection
agents, an estimate is made of the revenue due to the Group at the
end of the month to which the usage of the music copyright relates.
Estimates are made on the basis of the historical track record of
music catalogues, ad hoc data provided by collection agents,
industry forecasts and expected seasonal variations.
Non-recourse fixed fee arrangements are recognised at the point
at which control of the licence passes to the collection agents.
Variable consideration is recognised in the period when the usage
of the Catalogues of Songs occurs.
d) Royalty costs
Royalty costs are contractual royalties paid to songwriters, on
a quarterly or semi-annual basis, that are in a recouped position,
and these are deducted from gross revenue when calculating net
revenue. These royalty costs are associated with songwriters that
are published or administered by HSG or Kobalt.
e) Expenses
Expenses are accounted for on an accruals basis. Expenses are
charged through the Statement of Comprehensive Income.
f) Dividends to Shareholders
Dividends are accounted for in the period in which they are
declared and approved by the Board of Directors.
g) Assets
Catalogues of Songs
Catalogues of Songs include music catalogues, artists' contracts
and music publishing rights and are recognised as intangible assets
measured initially at the fair value of the consideration paid.
Catalogues of Songs are subsequently amortised in expenses over the
useful life of the asset and shown net of any impairment
considered. This amortisation is shown in the Statement of
Comprehensive Income as 'amortisation of Catalogues of Songs'. An
assessment of the useful life of each Catalogue is considered at
each reporting period, which is 20 years, in line with industry
standard.
Asset impairment
Each time events or changes in the respective Catalogues of
Songs or economic environment indicate a risk of impairment of
intangible assets, the Group re-examines the value of these assets
for indicators of impairment. When there are indicators of
impairment, the impairment test is performed to compare the
recoverable amount to the carrying value of the asset. The
recoverable amount is determined as the higher of: (i) the value in
use; or (ii) the fair value (less costs to sell) as described
hereafter, for each individual asset.
The value in use of each asset is determined by the Board and
Investment Adviser with the support of independent third parties
commissioned to appraise the Catalogue value at time of
acquisition, which is the discounted value of future cash flows
using cash flow projections consistent with the expected portfolio
cash flows and the most recent forecasts as at that time. Applied
discount rates are determined by reference to an appropriate
benchmark as determined by the Board and reflect the current
assessment by the Group of the time value of money and risks
specific to each asset. Growth rates used for the evaluation of
individual assets are based on industry growth rates sourced from
independent market reports and other third-party sources. This
value in use methodology applies to all except very small
acquisitions that don't warrant the independent valuation, given
the related expense. In these instances, the value in use is
established from the Investment Adviser's internal discounted cash
flow method.
The fair value (less costs to sell) is considered to be equal to
the fair value determined by the Portfolio Independent Valuer,
which is also the discounted value of future cash flows by using
cash flow projections consistent with the expected Portfolio cash
flows and the most recent forecasts as at that time cross
referenced, where appropriate, against market multiples for recent
transactions for similar assets. The Portfolio Independent Valuer
use their own proprietary analysis to project out income streams,
which is based on independent market reports and third-party
sources. The discount rate used by the Portfolio Independent Valuer
is 8.50% and unchanged since the interim results of 30 September
2020 (31 March 2020: 9.0%)
Whilst the Board and Investment Adviser regularly assess other
indicators of impairment (such as a songwriter's or key performance
artist's reputation etc.), the Board and Investment Adviser
typically use the fair value of the assets, being the Catalogues of
Songs, as an initial indicator of impairment. For assets that are
currently valued below their fair value, the Board and Investment
Adviser will review the prevailing qualitative and quantitative
factors that determine the value in use in assessing whether the
indication of impairment holds true.
If the recoverable amount is still lower than the carrying value
of an asset or group of assets and the qualitative and quantitative
aspects do not support a recoverable amount higher than the
carrying amount, an impairment loss equal to the difference is
recognised in profit and loss. The impairment losses recognised in
respect of intangible assets may be reversed in a later period if
the recoverable amount becomes greater than the carrying value,
within the limit of impairment losses previously recognised.
Loans and receivables
Trade receivables, loans, and other receivables that have fixed
or determinable payments that are not quoted in an active market
are initially measured at fair value plus transaction costs
directly attributable to the acquisition and subsequently measured
at amortised cost using the effective interest method, less
allowance for Expected Credit Loss (Note 4). Interest income is
recognised by applying the effective interest rate, except for
short term receivables when the recognition of interest would be
immaterial.
Derecognition of assets
The Group derecognises an asset only when the contractual rights
to the cash flows from the asset expire, or when it transfers the
asset and substantially all the risks and rewards of ownership of
the asset to another entity.
If the Group neither transfers nor retains substantially all the
risks and rewards of ownership and continues to control the
transferred asset, the Group recognises its retained interest in
the asset and an associated liability for amounts it may have to
pay.
On derecognition of an asset in its entirety, the difference
between the asset's carrying amount and the sum of the
consideration received is recognised in profit or loss.
h) Contingent consideration
Under the terms of the acquisition agreements for Catalogues,
contingent consideration may be payable dependent on future
independent valuations of the Catalogues or revenue received within
a specific time frame of acquiring the Catalogues that reach agreed
upon revenue targets. At 31 March 2021 the likelihood of the
aforementioned performance condition to be met was deemed remote
and hence the possibility of economic outflows remote, and
therefore no contingent consideration was disclosed.
i) Deferred consideration
In such cases where payment is deferred under the terms of the
acquisition agreements for Catalogues, a liability will be
recognised at net present value with any associated finance charge
to be accrued over the respective deferral period.
j) Financial liabilities and equity
Debt and equity instruments are classified as either financial
liabilities or as equity in accordance with the substance of the
contractual arrangement.
Equity instruments
An equity instrument is any contract that evidences a residual
interest in the assets of an entity after deducting all of its
liabilities. Equity instruments issued by the Company are
recognised at the value of proceeds received, net of direct issue
costs.
Repurchase of the Company's own equity instruments is recognised
and deducted directly in equity. No gain or loss is recognised in
profit or loss on the purchase, sale, issue or cancellation of the
Company's own equity instruments.
Financial liabilities
Financial liabilities, including borrowings, are initially
measured at fair value, net of transaction costs.
Financial liabilities are subsequently measured at amortised
cost using the effective interest method, with interest expense
recognised on an effective yield basis.
Derecognition of financial liabilities
The Group derecognises financial liabilities when, and only
when, the Group's obligations are discharged, cancelled or they
expire.
k) Share-based payments
Investment Adviser's performance fee
The Group recognises the variable fee for the services received
in a share-based payment transaction as the Group becomes liable to
the variable fee on an accruals basis.
The fair value of the performance fee, as defined in the
Investment Advisory Agreement, which is payable to the Investment
Adviser in Shares is recognised as an expense when the fees are
earned with a corresponding increase in equity.
l) Cash and cash equivalents
Cash at bank and short-term deposits which are held to maturity
are carried at cost. Cash and cash equivalents are defined as call
deposits, short term deposits with a term of no more than 3 months
from the start of the deposit and highly liquid investments readily
convertible to known amounts of cash and subject to insignificant
risk of changes in value. Cash and cash equivalents consist of cash
in hand and short-term deposits in banks with an original maturity
of 3 months or less.
m) Functional and foreign currency
The Company's and a number of its subsidiaries' functional and
presentation currency changed from Sterling to Dollars with effect
from 1 October 2020. The functional currency change is mandatory in
line with IAS 21 due to a fundamental shift in the primary economic
environment in which the Company operates and reflects the fact
that Dollar has become the Company's predominant currency
accounting for a significant proportion of the Company's revenue,
expenses and financing. This is discussed further in the Chairman's
Statement and the Audit and Risk Management Committee Report. The
change in presentation currency is a voluntary change with
retrospective application. Accordingly, these Consolidated
Financial Statements are prepared in Dollars and the comparative
information for the 12-month period ended 31 March 2020 has been
restated for presentation in Dollars.
The financial report has been restated to Dollars using the
procedure outlined below:
Period since 1 October 2020
All movements in the Consolidated Statement of Comprehensive
Income, Consolidated Statement of Financial Position, Consolidated
Statement of Changes in Equity and Consolidated Statement of Cash
Flows, have been translated using the prevailing daily foreign
exchange rates.
Period from 1 April 2020 to 30 September 2020
All movements in relation to the Consolidated Statement of
Comprehensive Income and the Consolidated Statement of Changes in
Equity have been translated using the prevailing daily foreign
exchange rates. All Equity reserves in the Consolidated Statement
of Financial Position are also translated using the prevailing
daily foreign exchange rates.
Assets and liabilities in the Consolidated Statement of
Financial Position have been translated into Dollars at the closing
foreign currency rates as at 30 September 2020, with the exception
of the Catalogues of Songs figure which has been fully recalculated
using applicable daily rates.
The movement in the Foreign currency translation reserve in this
period is calculated as the difference between the movement in the
net asset position and the total Equity reserves as translated at 1
April 2020 and 30 September 2020.
The Consolidated Statement of Cash Flows is translated as
follows; movements which relate to the Consolidated Statement of
Comprehensive Income and those in relation to Equity reserves are
translated using the prevailing daily foreign exchange rates,
movements which relate to assets and liabilities are calculated as
the movements using the rates at 1 April 2020 and 30 September
2020.
Periods ending before or on 31 March 2020
All movements in relation to the Consolidated Statement of
Comprehensive Income are translated at the average prevailing daily
rates for the relevant accounting period, this is also the basis
for the historical profit or loss held in Retained earnings per the
Consolidated Statement of Financial Position and Consolidated
Statement of Changes in Equity.
All historical capital raises and dividend payments have been
translated at the prevailing daily foreign exchange rates.
Assets and liabilities in the Consolidated Statement of
Financial Position have been translated into Dollars at the closing
foreign exchange rates as at each reporting date, with the
exception of the Catalogues of Songs figure which has been fully
recalculated using applicable daily rates.
The Foreign currency translation reserve is calculated as the
difference between the net asset position and the total Equity
reserves as stated at each reporting date.
The Consolidated Statement of Cash Flows is translated as
follows; movements which relate to the Consolidated Statement of
Comprehensive Income are translated at the average prevailing daily
rates for the relevant accounting period, those in relation to
dividend payments or capital raises are translated at the
prevailing daily foreign exchange rates, and movements which relate
to assets and liabilities are calculated as the movements using the
closing foreign exchange rates as at each reporting date.
Determination of functional currency
Whilst the functional currency of the Company is Dollars, some
subsidiaries have a functional currency of Sterling which is
translated into the presentation currency. The entities which
continue to have a functional currency of Sterling are shown in
Note 2(a).
Items included in the Consolidated Financial Statements of each
of the Group's entities are measured using the currency of the
primary economic environment in which each entity operates ('the
functional currency'). The Consolidated Financial Statements are
presented in Dollars, which is the Group's functional and
presentation currency of the Company and each of its
subsidiaries.
Treatment of foreign currency
At each balance sheet date, monetary assets and liabilities that
are denominated in foreign currencies are translated at the rates
prevailing at that date. Non-monetary items carried at fair value
that are denominated in foreign currencies are translated at the
rates prevailing at the date when the fair value was determined.
Non-monetary items that are measured in terms of historical cost in
a foreign currency are not retranslated. Exchange differences are
recognised in profit or loss in the period in which they arise.
Transactions denominated in foreign currencies are translated into
Dollars at the rate of exchange ruling at the date of the
transaction.
3. Business combinations
The acquisition method of accounting is used to account for all
business combinations, regardless of whether equity instruments or
other assets are acquired. The consideration transferred for the
acquisition of a subsidiary comprises the:
-- fair values of the assets transferred;
-- liabilities incurred to the former owners of the acquired
business;
-- equity interests issued by the Group;
-- fair value of any asset or liability resulting from a
contingent consideration arrangement; and
-- fair value of any pre-existing equity interest in the
subsidiary.
Identifiable assets acquired and liabilities and contingent
liabilities assumed in a business combination are, with limited
exceptions, measured initially at their fair values at the
acquisition date.
The excess of the:
-- consideration transferred; and
-- acquisition-date fair value of any previous equity interest
in the acquired entity over the fair value of the net identifiable
assets acquired is recorded as goodwill. If those amounts are less
than the fair value of the net identifiable assets of the business
acquired, the difference is recognised directly in profit or loss
as a bargain purchase.
Where settlement of any part of cash consideration is deferred,
the amounts payable in the future are discounted to their present
value as at the date of exchange. Contingent consideration is
classified either as equity or a financial liability. Amounts
classified as a financial liability are subsequently remeasured to
fair value, with changes in fair value recognised in profit or
loss.
On 10 September 2020, the Company acquired the entire share
capital of Big Deal Music Group (rebranded as Hipgnosis Songs
Group) a boutique full-service song company which owns a portfolio
of copyright interests and is headquartered in the US. The
consideration for the acquisition was funded from the proceeds of
the Company's C Share equity fundraise in July 2020 and through the
issue of 17,609,304 new Ordinary Shares issued at a price of
120.65p per Ordinary Share. As part of the business combination,
the assets were revalued to fair value on the date of the business
combination and liabilities evaluated and recognised in the
respective balances in the consolidated financial statements. The
fair value gain of $2,139,624 as a result of this process has been
recognised in the Consolidated Statement of Comprehensive Income.
As a result of the remaining purchase price allocation on the
Hipgnosis Songs Group balance sheet an immaterial amount of
goodwill at $0.3 million was recorded. The acquisition of Big Deal
Music, a US music publishing company, on 10 September 2020 was
acquired for total consideration of $88.18 million based on the
fair value of assets transferred into the Group of $87.91 million,
resulting in $0.27 million of Goodwill being recognised on
acquisition (including $1.641 million cash, advances, copyright
investments and operating company working capital items).
Gross Revenue for the period since acquisition of BDM, since
rebranded as HSG, was $18.8 million with NPS of $4.0 million and a
loss after tax of $2.3 million.
On an annualised pro-rata basis, the Gross Revenue is estimated
to be $30 million, NPS $6.1 million and the overall loss after tax
of $3.2 million.
The results of BDM are not disclosed separately in the Statement
of Comprehensive Income as these are deemed immaterial on a
consolidated Group basis.
4. Significant accounting judgments, estimates and
assumptions
The preparation of the Group's Consolidated Financial Statements
requires the application of estimates and assumptions which may
affect the results reported in the Consolidated 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.
Functional currency
Functional currency is defined as the currency of the primary
economic environment in which the Company operates, and IAS 21
outlines primary and secondary factors a Company should consider
when determining its functional currency. The functional currency
of the Company on incorporation was determined to be Sterling,
primarily because share capital was issued in Sterling, dividends
were payable in Sterling, the RCF was in Sterling, there was a high
concentration of Sterling expenses and Catalogue purchases and
associated royalties and revenue streams were a mixture of
Sterling, Dollar and Euro. As the Company has grown and expanded
there has been an increase in Dollar denominated acquisitions and
therefore a larger proportion of royalties and other revenues have
been received in Dollars.
During the year the Directors concluded that there had been a
fundamental shift in the primary economic environment in which the
Company operates and that the Company's functional currency had
changed from Sterling to Dollars with effect from 1 October 2020.
It was agreed that after considering the primary and secondary
indicators of functional currency per IFRS that the criteria as
outlined in IAS 21 indicated that the Company's functional currency
had changed to Dollars due to a significant increase in the
proportion of transactions denominated in Dollars. The Board
concluded that Dollars had become the predominant currency,
triggered by the Kobalt Music Copyrights S.à.r.l., and Big Deal
Music Group acquisitions which occurred on 30 September 2020 and 10
September 2020 respectively and the restructuring of the debt
facility from Sterling to Dollars on 23 July 2020. Shares will
continue to be issued in Sterling and dividends will continue to be
paid in Sterling, however the majority of Catalogue revenue and
cash receipts are denominated in Dollars, and there is a higher
concentration of Dollar expenses, and a strong indication that this
trend will continue. Furthermore, the BDM Acquisition (which has
since been rebranded Hipgnosis Songs Group) has led to a US
operating company being part of the Group, which is consistent with
the Company's strategic objective of expansion and growth in the US
market. The Directors have also elected to change the Company's
presentation currency from Sterling to Dollars; this represents a
change in accounting policy in terms of IAS 8 and requires the
restatement of comparative information. Accordingly, these
Consolidated Financial Statements are prepared in Dollars and the
comparative information for the 12 months period ended 31 March
2020 is presented in Dollars. The methodology used to apply the
presentation currency change is outlined in Note 2(n).
Critical estimates in applying the Group's accounting policies -
revenue recognition and royalty costs:
In calculating accruals, the Investment Adviser makes judgments
around seasonality, over or under performance, and commercial
factors based on historical performance, and its knowledge of each
Catalogue through its regular correspondence with the various
administrators, record labels and international societies.
Estimated royalty revenue receivable is accrued for on the basis
of historical earnings for each Catalogue, which incorporates an
element of uncertainty. The estimated revenue accrual may not
therefore directly equal the actual cash received in respect of
each accounting period and adjustments may therefore be required
throughout the financial period when the actual revenue received is
known, and these adjustments may be material.
Net revenues also include an accrual for performance income, to
account for the writer's share of performance royalties which are
subject to a significant time lag in reporting in the industry, but
which the Group is entitled to receive in due course. In
recommending the estimate of this accrual to the Board of Directors
the Investment Adviser used its analysis of each Catalogue's
revenue history as well its knowledge of the respective Catalogue
performance trends to recommend the estimated accruals. The PRO
income accrual is based on analysis of each Catalogue's revenue
history as well as knowledge of the respective Catalogue's
performance trends.
Net revenue is subject to a royalty cost accrual applied to
gross revenue receipts primarily within the Big Deal Music
subsidiaries. Royalty cost accruals represent contractual royalties
due to songwriters and other rights holders that are payable on a
6-monthly basis for writers under publishing contracts and
quarterly for clients under administration contracts. Royalty rates
vary by writer (negotiated by contract) and by revenue stream.
Expected Credit Loss (ECL) in relation to revenue
receivables:
Royalty earnings for accruals and receivables recognised in the
year ending 31 March 2021 are distributed by PROs, Publishers and
Record Labels who collect royalties at the source of usage and
distribute those earnings directly to Hipgnosis.
The probability of future default has been deemed close to nil,
due to the long-standing history of PROs, Publishers and Record
Labels within the music industry and the existing framework of cash
collection amongst the Company's stakeholders. Whilst there are
smaller/newer organisations that have relatively unproven credit
resilience these account for a small minority of our
receivables.
The Company's current risk assessment includes analysis of the
exposure to commercial risk by PROs, Publishers and Record Labels,
and the likely impact of their credit risk on Hipgnosis' revenue
streams.
Findings from the Company's sensitivity analysis demonstrates
revenue by source from the following types of organisations:
-- 33% Major publishers (US & UK)
-- 25% Independent publishers
-- 23% US PROs
-- 12% Record labels
-- 7% European PROs
As demonstrated in the following breakdown of Accrued Income and
Income Receivable, 89% ($7.7 million) of the $8.7 million Income
receivable balance outlined in Note 8, has been received at the
time of writing, with the remainder expected within 30 days. As
demonstrated in Note 17, all Accrued income is expected to be
received within 12 months from the date of the Statement of
Financial Position. To date, there has been no default of debt for
royalty payments by PROs, Publishers or Record Labels.
Additional credit risk with regards to Accrued income is taken
into consideration at the point of calculating each accrued amount.
On calculation, latest forecast earnings are considered and
adjusted down for the latest trend of cash receipted earnings if
there Is any suggestion of a downwards performance indicator.
Accrued Income and Receivables at 31 March 2021 were $82.1
million (on a gross basis), a breakdown of which is set out
below:
-- An $8.7 million receivable representing royalty receipts
expected in April and May for royalties where statements were
received in March.
Included in Trade and Other receivables is an accrued income
balance of $73.4 million which is made up of:
-- $29.5 million for calendar Q1 2021 earnings where, due to the
time lag in royalty reporting, statements are not expected to be
received until calendar Q3 and Q4 2021;
-- $16.9 million for calendar Q4 2020 earnings which are not
reported to the Company until calendar Q2 2021;
-- $9.9 million relating to calendar Q2 2020 to Q3 2020 earnings
for Catalogues where royalty reporting is still in the process of
being redirected/switched over to the Company. These accruals are
based on royalty statements received with invoices due to be raised
on completion of the Letter of Direction;
-- $4.4 million for 2020 earnings on deals acquired more than
six months ago yet to be reported;
-- $7.5 million income accrual relating to time-lagged
international reporting on PRO earnings. International PRO
reporting has a significant time lag due to the additional
collection time taken for PROs to collect and distribute income
from territories. The lag in collection is due to the nature of
collecting and processing royalties locally, then distributing them
to the domestic PRO, which will in turn process and distribute
these royalties to the Group. Six months of international PRO
earnings are accrued, although can typically result in an earnings
lag of up to 24 months; and
-- $5.2 million HSG gross revenue accrual, bringing the Group in
line with IFRS, which includes the accrued PRO lag. Separately, a
$4.2 million royalty creditor representing contractual royalties
due to writers has been recognised, resulting in net revenue (NPS)
for HSG of $1 million.
Performance income throughout the full financial year period is
exposed to the impact of COVID. The major Collection Societies and
PROs have released statements since the financial year end date
attesting to their ability to meet their obligations, in both the
short and mid-term, despite the impact of COVID-19. The Audit and
Risk Management Committee continues to evaluate credit risk during
COVID-19 and has not become aware of any issues with cash
collections or changes in the existing royalty collection
arrangements. The accrual held is a conservative accrual,
reflecting the COVID-19 impact on performance income within prior
periods further mitigating the potential for credit risk.
Assessment of useful life of intangible assets
In order to calculate the amortised cost of the intangible
assets it is necessary to assess the useful economic life of the
copyright interests in Songs. This requires forecasts of the
expected future revenue from the copyright interests, which
contains significant uncertainties as the ongoing popularity of a
Song can fluctuate unexpectedly. An assessment of the useful life
of each Catalogue is considered at each reporting period, which is
20 years, in line with industry standard.
Assessment of impairment and the calculation of Operative
NAV
As disclosed in Note 2(g) above, intangible assets 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.
The fair value estimates that are prepared in order to calculate
the Operative NAV and Operative NAV per Share are also used to
assess whether there is evidence that the intangible assets may be
impaired. Management's impairment review as at 31 March 2021
concluded that $nil impairment was required to the Group's
Catalogue Investments.
Valuations of music publishing rights typically adopt the DCF
valuation approach which measures the present value of anticipated
future revenues from acquiring the Catalogues, which are discounted
at a 'market cost of capital', 8.5% and unchanged since the interim
results of 30 September 2020 (31 March 2020: 9.0%) and a terminal
value in 12 years. This method is accepted as an objective way of
measuring future benefits; taking into account income projections
from various music industry sources across various revenue flows
whilst also factoring in the associated cost of capital.
It is the intention of the Board that Catalogues of Songs will
be valued on an ongoing basis using a consistent DCF valuation
methodology, and that this be used as an initial indicator of
impairment for each Catalogue of Songs.
5. Taxes
The major components of income tax expense for the year ended 31
March 2021 and year ended 31 March 2020 are:
Current income tax
Year ended Year ended
31 March 31 March
2021 2020
$'000 $'000
---------------------------------------------------- ---------- ----------
United Kingdom corporation tax based on the profit
for the year at 19% (2020: 19%) 5,604 9,403
Non-reclaimable withholding tax on royalty payments
received - 95
---------------------------------------------------- ---------- ----------
Total current tax 5,604 9,498
---------------------------------------------------- ---------- ----------
Deferred taxation
Origination and reversal of timings differences - -
---------------------------------------------------- ---------- ----------
Total tax 5,604 9,498
---------------------------------------------------- ---------- ----------
The Company was Guernsey tax resident for the current and
previous periods but exempt from taxation in Guernsey under the
provisions of the Income Tax (Exempt Bodies) (Guernsey) Ordinance,
1989 and was charged an annual fee of GBP1,200.
Whilst the Company is incorporated in Guernsey, the majority of
the Company's subsidiaries are incorporated and tax resident in the
UK and the majority of the Group's income and expenditure is
incurred in these UK entities. Therefore, it is considered most
appropriate to prepare the tax reconciliation below at the standard
UK tax rate for the year of 19% (2020: 19%).
The Group currently has no exposure to US Tax given HSG is
currently not making a taxable profit. Aside from the US, the Group
has no other foreign subsidiaries.
It is noted that the Company applied to Her Majesty's Revenue
& Customs (HMRC) for approval of the Company as an investment
trust company and such approval was granted. The Company's
conversion to an investment trust company took effect from 1 April
2021 (and shall continue for such time as the Company maintains
this status). The Company will be treated as being resident in the
UK for tax purposes from such date. With effect from this change,
the Company will cease to be a Guernsey tax exempt vehicle under
The Income Tax (Exempt Bodies) (Guernsey) Ordinance, 1989, as
amended.
The March 2021 Budget announced an increase to the main rate of
UK corporation tax to 25% from April 2023. This rate had not been
substantively enacted at the balance sheet date and as a result the
impact of this proposed change is not included within these
financial statements.
The actual tax charge for the current year and the previous
period differs from the standard rate for the reasons set out in
the following reconciliation:
Year ended Year ended
31 March 31 March
2021 2020
$'000 $'000
--------------------------------------------------- ---------- ----------
Profit on the Group's ordinary activities before
tax 44,538 41,511
Tax on the profit on the Group's ordinary activity
at the standard UK rate of 19% 8,462 7,887
Factors affecting charge for the year:
Losses incurred by the Company in the period on
which no tax credit is recorded - 1,516
Net non-reclaimable withholding tax on royalty
payments received - 95
Tax effect on non-taxable income (2,858) -
--------------------------------------------------- ---------- ----------
Total actual amount of current tax 5,604 9,498
--------------------------------------------------- ---------- ----------
6. Catalogues of Songs
$'000
-------------------------------------------------- ---------
Cost
At 1 April 2020 882,906
Additions 1,089,293
At 31 March 2021 1,972,199
Amortisation and impairment
At 1 April 2020 25,400
Amortisation 67,875
Impairment -
At 31 March 2021 93,275
Net book value
At 1 April 2020 857,506
At 31 March 2021 1,878,924
Fair value as at 31 March 2021 (used in Operative
NAV) 2,213,719
--------------------------------------------------- ---------
Cost
At 1 April 2019 156,441
Additions 726,465
At 31 March 2020 882,906
Amortisation and impairment
At 1 April 2019 1,938
Amortisation 23,462
Impairment -
At 31 March 2020 25,400
Net book value
At 1 April 2019 154,502
At 31 March 2020 857,506
Fair value as at 31 March 2020 (used in Operative
NAV) 933,593
--------------------------------------------------- ---------
The Group amortises Catalogues of Songs with a limited useful
life using the straight-line method of 20 years (other than in
exceptional circumstances for specific Catalogues of Songs). At 31
March 2021 the Portfolio consisted of Catalogues of Songs held for
no longer than 3 years. An assessment of the useful life of each
Catalogue is considered at each reporting period, which is 20
years, in line with industry standard. At 31 March 2021 accumulated
amortisation for Catalogue of Songs is $93,274,850 (31 March 2020:
$25,400,148) and the accumulated impairment to date is $nil (31
March 2020: $nil).
The Board engaged Portfolio Independent Valuer, Massarsky
Consulting, Inc., to value the Catalogues as at 31 March 2021. Each
income type from each Catalogue was analysed and forecast to derive
the fair value of the Catalogues by adopting a DCF valuation
methodology using a discount rate of 8.5%, unchanged since the
interim results of 30 September 2020 (31 March 2020: 9%) that would
be categorised under Level 3 within the fair value hierarchy of
IFRS 13 "Fair Value Measurement". Income was analysed and forecast
at the level of each individual Catalogue and by income type with
the exception of Kobalt, which was evaluated as a whole. Future
revenues were also estimated, often at the level of individual
Songs, and incorporated into their valuation. Massarsky Consulting
has also taken into consideration macro factors including the
growth of streaming revenue, the global growth of the recorded
music industry and the short- and medium-term impact of COVID-19 in
their analysis. The Board has approved and adopted the valuations
prepared by the Portfolio Independent Valuer which are used as an
input into the impairment review process and for the Operative
NAV.
The sensitivity to the discount rate used in the Operative NAV
is as follows:
-0.5% discount rate will grow the FV of the Portfolio by 9.2%,
increasing the Operative NAV by $204 million which represents an
increase of $0.19 Operative NAV per share.
+0.5% discount rate will reduce the FV of the Portfolio by 7.8%,
reducing the Operative NAV by $172.4 million which represents a
decrease of -$0.16 Operative NAV per share.
7. Cash and cash equivalents
Cash and cash equivalents comprise cash held by the Group
available on demand and cash held in deposits. Cash and cash
equivalents were as follows:
31 March 31 March
2021 2020
$'000 $'000
------------------------- -------- --------
Cash available on demand 112,634 6,960
Cash held in deposits - 4
Money market fund - 10,427
------------------------- -------- --------
112,634 17,391
------------------------- -------- --------
8. Trade and other receivables
31 March 31 March
2021 2020
$'000 $'000
------------------------------ -------- --------
Accrued income 73,398 35,717
Royalties receivable 8,687 15,287
HSG net recoupable advances 10,095 -
Prepayments and other debtors 15,448 1,350
------------------------------ -------- --------
107,628 52,354
------------------------------ -------- --------
9. Loans and borrowings
On 2 September 2019 the Company entered into a Revolving Credit
Facility (RCF) with JPMorgan Chase Bank (JPM) as Lead Arranger of
GBP100 million. On 29 May 2020, the Company announced that it was
seeking Shareholder support to increase the Company's current
borrowing limit of 20% of its Operative NAV to a maximum of 30% of
its Operative NAV, given that the Company's assets and their
associated income streams are well suited to supporting leverage.
This approval was given by Shareholders at an Extraordinary General
Meeting on 11 June 2020. During the year, the Company entered into
an agreement with a syndicated group of lenders, with JPM as Lead
Arranger, to increase its RCF from GBP150 million to $400 million.
On 6 January 2021 it was announced that the facility was upsized to
$600 million subject to total borrowings not exceeding 30% of Net
Asset Value. On 26 March 2021, the Company drew down $90.0 million
under its RCF resulting in gross indebtedness of $577 million and
net indebtedness of $438 million. This gross indebtedness
represented approximately 32.8% of the last published Adjusted
Operative Net Asset Value at that time and therefore constituted an
inadvertent breach of the Company's borrowing restriction under its
investment policy of 30% of Net Asset Value. The amounts drawn down
were held by the Company as cash and were unutilised, and on 5
April 2021 $50 million of these drawings were repaid thereby curing
the temporary breach. Since this date the Company has complied with
all of its investment restrictions.
The loan bears interest at LIBOR Rate of 3.375% on the utilised
facility and 0.375% on the unutilised facility. The RCF, which had
its maturity date extended to 2 April 2025 on 15 April 2020,
provides the Company with greater flexibility to fund investments
and provide additional working capital. The RCF's key covenant
imposes a loan to value test and a liquidity test reviewed
quarterly and is secured by, inter alia, a charge over the shares
in all the subsidiaries of the Company and over all of their assets
including all Catalogues of Songs of the Company held through these
subsidiaries, a charge over the bank accounts of the Company and a
floating charge at the fair value deemed by J.P. Morgan. The
Company has also provided a parent company guarantee. In accordance
with the Investment Policy, any borrowings by the Company will not
exceed 30% of the value of the net assets of the Company.
31 March 31 March
2021 2020
$'000 $'000
------------------------------------- -------- --------
Opening balance - loan drawn 74,014 -
Amounts drawn down during the period 503,278 74,014
------------------------------------- -------- --------
Total loan drawn down 577,292 74,014
Cumulative Borrowing Costs (11,432) (4,832)
Closing balance 565,860 69,182
------------------------------------- -------- --------
During the year $7,330,576 (31 March 2020: $476,099) was charged
as interest on the amounts drawn down.
During the year $9,199,375 (31 March 2020: $5,421,163) of costs
relating to the set-up of the RCF were capitalised, to be amortised
over the 5 year length of the agreement.
$'000
---------------------------- ------
Cost
At 1 April 2020 5,421
Additions 9,199
At 31 March 2021 14,620
Amortisation and impairment
At 1 April 2020 589
Amortisation 2,600
Impairment -
At 31 March 2021 3,189
Net book value
At 1 April 2020 4,832
At 31 March 2021 11,431
----------------------------- ------
Cost
At 1 April 2019 -
Additions 5,421
At 31 March 2020 5,421
Amortisation and impairment
At 1 April 2019 -
Amortisation 589
Impairment -
At 31 March 2020 589
Net book value
At 1 April 2019 -
At 31 March 2020 4,832
----------------------------- ------
10. Other payables and accrued expenses
31 March 31 March
2021 2020
$'000 $'000
----------------------------- -------- --------
Amounts owed to Songwriters 18,522 128
VAT payable 2,609 15
Accrued borrowing costs - 3,538
Loan interest payable 1,277 288
Administration fees 227 209
Legal and professional fees 1,932 484
Advisory fees - 675
Audit fees 523 298
Corporation tax 4,798 3,241
Other expenses 2,568 166
Deferred investment payables 42,037 38,342
----------------------------- -------- --------
74,493 47,384
----------------------------- -------- --------
As at 31 March 2021 an amount of $42,036,861 relating to the
acquisition of 10 catalogues remained outstanding (31 March 2020:
$38,341,220 relating to the acquisition of 5 catalogues).
11.
Share capital and capital management
The share capital of the Company may consist of an unlimited
number of: (i) Ordinary Shares of no par value which upon issue the
Directors may classify as Ordinary Shares; and (ii) C Shares
denominated in such currencies as the Directors may determine.
Ordinary Shares of no par value
No. of Units
----------------------------------- -------------
Issued and fully paid:
Shares as at 1 April 2020 615,851,887
Shares issued on 10 September 2020 17,609,304
Shares issued on 24 September 2020 163,793,103
Shares issued on 30 November 20201 214,202,503
Shares issued on 5 February 2021 61,983,471
------------------------------------- -------------
Shares as at 31 March 2021 1,073,440,268
------------------------------------- -------------
$
----------------------------------- -------------
Issued and fully paid:
Share capital at 1 April 2020 801,843,874
Shares issued on 10 September 2020 27,599,686
Shares issued on 24 September 2020 241,702,336
Share issue costs (4,430,446)
Shares issued on 30 November 20201 304,132,072
Share issue costs (5,630,220)
Shares issued on 5 February 2021 103,621,811
Share issue costs (1,988,288)
------------------------------------- -------------
Shares as at 31 March 2021 1,466,850,825
------------------------------------- -------------
No. of Units
----------------------------------- -------------
Issued and fully paid:
Shares as at 1 April 2019 202,176,800
Shares issued on 17 April 2019 138,750,000
Shares issued on 29 August 2019 48,429,541
Shares issued on 30 December 20192 207,946
Shares issued on 10 February 20203 226,287,600
------------------------------------- -------------
Shares as at 31 March 2020 615,851,887
------------------------------------- -------------
$
----------------------------------- -------------
Issued and fully paid:
Share capital at 1 April 2019 262,919,089
Shares issued on 17 April 2019 184,649,721
Share issue costs (3,723,462)
Shares issued on 29 August 2019 62,378,117
Share issue costs (1,198,561)
Shares issued on 30 December 20192 296,078
Share issue costs -
Shares issued on 10 February 20203 301,776,642
Share issue costs (5,253,750)
------------------------------------- -------------
Shares as at 31 March 2020 801,843,874
------------------------------------- -------------
1. 236,400,512 C Shares converted to 214,202,503 Ordinary
Shares
2. Shares issued as performance fee in respect of year ended 31
March 2019
3. 231,000,000 C Shares converted to 226,287,600 Ordinary
Shares
On 10 July 2020 236,400,512 C Shares were issued and converted
on 30 November 2020 to 214,202,503 Ordinary Shares at a conversion
rate of 0.9061 Ordinary Shares for each C Share held.
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.
12. Net Asset Value per Share and Operative Net Asset Value per
Share
31 March 31 March
2021 2020
----------------------------------- ------------- -----------
Number of Ordinary Shares in issue 1,073,440,268 615,851,887
IFRS NAV per share (cents) 136.28 131.64
Operative NAV per share (cents) 168.29 151.14
----------------------------------- ------------- -----------
The IFRS NAV per share and the Operative NAV per share are
arrived at by dividing the IFRS Net Assets and Operative Net Assets
(respectively) by the number of Ordinary Shares in issue.
Catalogues of Songs are classified as intangible assets and
measured at amortised cost or cost less impairment in accordance
with IFRS.
The Directors are of the opinion that an Operative NAV provides
a meaningful alternative performance measure and the values of
Catalogues of Songs are based on fair values produced by the
Portfolio Independent Valuer.
Reconciliation of IFRS NAV to Operative NAV
31 March 31 March
2021 2020
$'000 $'000
--------------------------------------------------- --------- --------
IFRS NAV 1,462,845 810,685
--------------------------------------------------- --------- --------
Adjustments for revaluation of Catalogues of Songs
to fair value 250,343 94,941
Reversal of amortisation 93,275 25,189
--------------------------------------------------- --------- --------
Operative NAV 1,806,463 930,815
--------------------------------------------------- --------- --------
13. Revenue
1 April 2020 1 April 2019
to to
31 March 31 March
2021 2020
$'000 $'000
------------------------- ------------ ------------
Writer's share Income 34,889 27,313
Streaming Income 34,348 15,230
Synchronization Income 28,020 7,673
Performance Income 24,652 12,802
Mechanical Income 9,535 4,390
Producer Royalties 8,445 4,998
Masters Income 8,424 5,433
Other Income 7,675 1,458
Digital Downloads Income 4,480 2,910
Net JV Income 85 -
Publishing Admin Income 199 -
------------------------- ------------ ------------
Total revenue 160,752 82,207
------------------------- ------------ ------------
There is an inherent time lag with royalties between the time a
Song is performed, and the revenue being received by the Copyright
owner. The time lag ranges from 3-6 months on domestic income and
12-18 months on international income. The revenue accruals booked
in the year are disclosed in detail within the Accruals and
Receivables.
All revenue streams disclosed in this note are in scope of IFRS
15.
14. Other operating expenses
1 April 2020 1 April 2019
to to
31 March 31 March
2021 2020
$'000 $'000
--------------------------------- ------------ ------------
Regulatory fees 57 43
Listing fees 625 490
Directors and officers Insurance 61 26
Directors expenses 6 3
Registrar fees 70 46
Postage, stationery and printing 59 21
Public relation fees 430 350
Travel and accommodation fees 184 432
Bank charges 42 25
Credit facility bank charges - 24
Aborted deal expenses 848 301
Disbursements and sundry 549 179
Salaries and wages 2,556 -
Staff expenses 370 -
Property expenses 322 -
Provision for HSG Advances 4,247 -
Fixed asset depreciation 135 -
--------------------------------- ------------ ------------
Total other operating expenses 10,561 1,940
--------------------------------- ------------ ------------
The Provision for HSG Advances relates to HSG Advances that have
been provided for in the financial year. Baby Writers (Writers with
no established history) are provided for in full. Provisions are
also made against unrecouped balances for established writers where
the recoupment rates may not lead to a full recoupment of the
initial Advance payment.
15. FX Gains and losses in Profit or Loss
1 April 2020 1 April 2019
to to
31 March 31 March
2021 2020
$'000 $'000
----------------------------------------- ------------ ------------
FX Gain/(loss) creditors/debtors 11,269 (1,444)
FX Gain/(loss) cash and cash equivalents 4,545 (3,707)
----------------------------------------- ------------ ------------
15,814 (5,151)
----------------------------------------- ------------ ------------
The FX impact reflects the effect of movements in Sterling and
EUR exchange rates throughout the year, and includes an adjustment
as a result of the Company changing its functional currency to
Dollars.
Currency risk is discussed further in Note 17.
16. Dividends
A summary of the dividends is set out below:
Dividend
per share Total Dividend
1 April 2020 to 31 March 2021 Pence $'000
------------------------------------------------ ---------- --------------
Interim dividend in respect of quarter ended 30
March 2020 1.25 9,485
Interim dividend in respect of quarter ended 30
June 2020 1.25 10,108
Interim dividend in respect of quarter ended 30
September 2020 1.3125 13,979
Interim dividend in respect of quarter ended 31
December 2020 1.3125 18,437
------------------------------------------------ ---------- --------------
5.125 52,009
------------------------------------------------ ---------- --------------
Dividend
per share Total Dividend
1 April 2019 to 31 March 2020 Pence $'000
------------------------------------------------ ---------- --------------
Interim dividend in respect of quarter ended 30
March 2019 1.25 5,375
Interim dividend in respect of quarter ended 30
June 2019 1.25 5,191
Interim dividend in respect of quarter ended 30
September 2019 1.25 6,283
Interim dividend in respect of quarter ended 31
December 2019 1.25 6,274
------------------------------------------------ ---------- --------------
5.00 23,123
------------------------------------------------ ---------- --------------
Subsequent to the year end, the Company announced an interim
dividend for the quarter from 1 January 2021 to 31 March 2021 of
1.3125p per Ordinary Share, paid on 28 May 2021. The Company
continues to pay dividends in Sterling.
17. Financial risk management
Financial risk management objectives
The Group'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 Group's risk management
and sets policies to manage those risks at an acceptable level.
Fair values
Management assessed that the fair values of cash and cash
equivalents, trade and other receivables, trade and other payables
and royalty advances approximate their carrying amount largely due
to the short-term maturities and high credit quality of these
instruments.
Capital risk management
The Group manages its capital to ensure that it will be able to
continue as a going concern while maximising the capital return to
Shareholders. The capital structure of the Group consists of issued
share capital and retained earnings, as stated in the Statement of
Financial Position.
In order to maintain or adjust the capital structure, the Group
may buy back shares or issue new shares. There are no external
capital requirements imposed on the Group.
During the year ended 31 March 2021, the Group drew down
$503,277,478 (31 March 2020: $74,014,522) from the RCF which
remained drawn down as at 31 March 2021 by $577,292,000 (31 March
2020: $74,014,522).
The Group's investment policy is set out in the Investment
Objective and Policy section of the Annual Report.
Market risk
Market risk is the risk that the fair value or future cash flows
of a financial instrument will fluctuate as a result of changes in
market prices. The Group is exposed to currency risk and interest
rate risk.
a) Currency risk
Currency risk is the risk that the fair values of future
cashflows will fluctuate because of changes in foreign exchange
rates. The revenue earned from the Catalogue of Songs may be
subject to foreign currency fluctuations. Royalties are earned
globally and paid in a number of currencies, therefore the Group
may be impacted by adverse currency movements. The Group will
convert the majority of overseas currency receipts into Sterling by
agreeing to currency exchange arrangements with collection agents,
or otherwise itself undertaking foreign exchange conversions. The
Group may engage in full or partial foreign currency hedging and
interest rate hedging. The Group will not enter into such
arrangements for investment purposes.
The currencies in which financial assets and liabilities are
denominated are shown below:
GBP EUR Other
Converted Converted Converted
USD to to to Total
As at 31 March 2021 $ $ $ $ $
---------------------------- ------------- ------------- ---------- ---------- -------------
Trade and other receivables 158,928,673 (54,090,437) 2,342,940 446,482 107,627,658
Cash and cash equivalents 117,349,227 (6,549,651) 1,834,603 - 112,634,179
---------------------------- ------------- ------------- ---------- ---------- -------------
Total financial assets 276,277,900 (60,640,088) 4,177,543 446,482 220,261,837
---------------------------- ------------- ------------- ---------- ---------- -------------
Revolving Credit Facility 577,292,000 - - - 577,292,000
Trade and other payables 140,174,178 (66,307,194) 625,732 (165) 74,492,551
---------------------------- ------------- ------------- ---------- ---------- -------------
Total financial liabilities 717,466,178 (66,307,194) 625,732 (165) 651,784,551
---------------------------- ------------- ------------- ---------- ---------- -------------
Net asset/(liability)
position (441,188,278) 5,667,106 3,551,811 446,647 (431,522,714)
---------------------------- ------------- ------------- ---------- ---------- -------------
*At the reporting date 31 March 2021, if Sterling had
strengthened/weakened by 10% against the Dollar with all other
variables held constant, the net assets and movement in profit and
loss would have been $566,711 higher/lower.
**At the reporting date 31 March 2021, if the EUR had
strengthened/weakened by 10% against the Dollar with all other
variables held constant, the net assets and movement in profit and
loss would have been GBP355,181 higher/lower.
GBP EUR Other
Converted Converted Converted
USD to to to Total
As at 31 March 2020 $ $ $ $ $
---------------------------- ---------- ------------ ---------- ---------- ------------
Trade and other receivables 43,329,294 8,067,741 956,635 - 52,353,670
Cash and cash equivalents 6,206,135 10,893,221 292,051 - 17,391,407
---------------------------- ---------- ------------ ---------- ---------- ------------
Total financial assets 49,535,429 18,960,962 1,248,686 - 69,745,077
---------------------------- ---------- ------------ ---------- ---------- ------------
Revolving Credit Facility - 74,014,522 - - 74,014,522
Trade and other payables 38,453,981 8,834,753 94,682 - 47,383,416
---------------------------- ---------- ------------ ---------- ---------- ------------
Total financial liabilities 38,453,981 82,849,275 94,682 - 121,397,938
---------------------------- ---------- ------------ ---------- ---------- ------------
Net (liability)/asset
position 11,081,448 (63,888,313) 1,154,004 - (51,652,861)
---------------------------- ---------- ------------ ---------- ---------- ------------
*At the reporting date 31 March 2020, if Sterling had
strengthened/weakened by 10% against the Dollar with all other
variables held constant, the net assets and movement in profit and
loss would have been $6,388,831 higher/lower.
**At the reporting date 31 March 2020, if the EUR had
strengthened/weakened by 10% against Dollar with all other
variables held constant, the net assets and movement in profit and
loss would have been $115,401 higher/lower.
b) Cash flow and fair value interest rate risk
The Group is exposed to cash flow interest rate risk on cash and
cash equivalents and also on the interest bearing RCF. The RCF
bears interest at 3.375% which when annualised for the $577.3
million drawn down at the year end would have been covered 5.4
times by the closing cash balance at 31 March 2021. This interest
rate is the London Interbank Offered Rate (LIBOR) rolling over at 7
November 2020, the Group is able to elect 1, 3 or 6 month
rollovers, with no change expected.
Credit risk
Credit risk is the risk of loss due to failure of a counterparty
to fulfil its contractual obligations. The Group is exposed to
credit risk in respect of its contracts with PROs and other
Collection Societies. This exposure is minimised by dealing with
reputable PROs whose credit risk is deemed to be low given their
respective position in the industry.
As reported in Note 4, there is no impairment of the receivables
balance, credit risk of third parties has been taken into account
when calculating accruals, and expected credit loss has been deemed
close to nil.
The Group is exposed to credit risk through its balances with
banks and its indirect holdings of money market instruments through
those money market funds which are classified as cash equivalents
for the purposes of these Consolidated Financial Statements.
The table below shows the Group's material cash balances and the
short-term issuer credit rating or money-market fund credit rating
as at the year end date:
Location Rating 31 March 31 March
2021 2020
$'000 $'000
--------------------------------- --------- ------- -------- --------
Barclays Bank plc Guernsey A-1 106,889 6,960
City National Bank US A+* 5,241 -
Pinnacle Financial Partners US A-1 461 -
Santander UK Plc UK A-1* 30 -
JPMorgan Chase Bank, N.A. US A-1* 12 -
Royal Bank of Scotland plc UK A-1* 1 -
Investec Bank plc UK P-1 - 4
Blackrock Institutional Sterling
Liquidity Fund UK AAAm - 10,427
--------------------------------- --------- ------- -------- --------
*Rated by Standard & Poor's
** Rated by Moody's
Liquidity risk
Liquidity risk is the risk that the Group will encounter in
realising assets or otherwise raising funds to meet financial
commitments. The Group's liquidity risk is managed by the
Investment Adviser and Directors on a monthly basis.
Liquidity risk is also the risk that the Group may not be able
to meet their financial obligations as they fall due. The Group
maintains a prudent approach to liquidity management by maintaining
sufficient cash reserves to meet foreseeable working capital
requirements. In order to mitigate liquidity risk, the Group aims
to have sufficient cash balances to meet its obligations for a
period of at least 12 months.
The Group prepares a 12 month rolling cash forecast, which is
reviewed by the Board on a monthly basis. The cash flow forecast
includes a sensitivity analysis with downside scenarios on income
streams impacted specifically relating to COVID-19. Cash is
delivered with royalty statements, and the majority are delivered
quarterly or semi-annually. A small number of collections are
delivered monthly. Cash is collected and processed throughout
calendar quarters or half years by the administrators and paid out
on either 60/90 day accounting.
During the year ended 31 March 2021, the Group had no financial
liabilities other than the RCF: $577,292,000 (31 March 2020:
$74,014,522) and trade and other payables: $74,493,046 (31 March
2020: $47,383,416).
At the reporting date, the Group's financial assets and
financial liabilities are:
Total
Carrying Less Between Between contractual
amount than 1-3 3-12 1 and 2 and Over cash
assets 1 month months months 2 years 5 years 5 years flows
Trade and other receivables $'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000
---------------------------- -------- -------- ------- ------- -------- -------- -------- ------------
Income receivable 8,687 7,270 348 1,069 - - - 8,687
Accrued income 73,398 - 13,289 57,811 2,298 - - 73,398
HSG net recoupable
advances 10,095 - - 9,095 1,000 - - 10,095
Prepayments and other
debtors 15,448 - - 15,448 - - - 15,448
---------------------------- -------- -------- ------- ------- -------- -------- -------- ------------
Total 107,628 7,270 13,637 83,423 3,298 - - 107,628
---------------------------- -------- -------- ------- ------- -------- -------- -------- ------------
Carrying Less Between Between Total
Other payables, accrued amount than 1-3 3-12 1 and 2 and Over contractual
expenses, loans and assets 1 month months months 2 years 5 years 5 years cash flows
borrowings GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------- --------- -------- -------- -------- -------- --------- -------- ------------
Bank loan (565,860) - - - - (565,860) - (565,860)
Investment acquisition
payable (42,037) (28,135) (2,126) (10,188) (1,588) - - (42,037)
Royalty creditor (18,522) - - (18,522) - - - (18,522)
Loan interest payable (1,277) (1,277) - - - - - (1,277)
Administration fees (227) (227) - - - - - (227)
Legal & professional
fees (1,932) (988) (944) - - - - (1,932)
Audit fees (523) - (523) - - - - (523)
VAT (2,609) - (2,609) - - - - (2,609)
Corporation tax (4,798) - (1,500) (3,298) - - - (4,798)
Other expenses (2,568) (2,568) - - - - - (2,568)
------------------------- --------- -------- -------- -------- -------- --------- -------- ------------
Total (640,353) (33,195) (7,702) (32,008) (1,588) (565,860) - (640,353)
------------------------- --------- -------- -------- -------- -------- --------- -------- ------------
Net receivable/(payable) (532,725) (25,925) (5,935) 51,415 1,710 (565,860) - (532,725)
------------------------- --------- -------- -------- -------- -------- --------- -------- ------------
18. 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.
The Company Directors' fees for the year amounted to GBP582,000
($762,068). The total remuneration included an accrual reversal of
GBP109,000 relating to the bonus catch up for FY 2020 and an
accrual of GBP27,000, totalling GBP500,000 ($666,153). Outstanding
fees amounted to GBPnil at year end (31 March 2020: GBP260,420,
$330,915, with outstanding fees of GBPnil due to at year end).
Further detail on the additional payments made to the Directors is
disclosed in the Directors' Remuneration Report.
19. Material agreements
Investment Adviser
The Company has entered into an Investment Advisory Agreement
with the Investment Adviser pursuant to which the Investment
Adviser will source Songs and provide recommendations to the Board
on acquisition and disposal strategies, manage and monitor royalty
and/or fee income due to the Company from its copyrights and
collection agents, and develop strategies to maximise the earning
potential of the Songs in the portfolio through improved placement
and coverage of Songs.
The Investment Adviser is entitled to receive an advisory fee
(payable in cash) and a performance fee (usually payable
predominantly in Shares subject to an 18 month lock up
arrangement). The full terms and conditions of the calculation of
the advisory and performance fees are disclosed in the Company's
prospectus, which is available on the Company's website
(www.hipgnosissongs.com). However in summary:
Advisory fee
The advisory fee is calculated at the rate of:
(i) 1% per annum of the Average Market Capitalisation up to, and
including, GBP250 million;
(ii) 0.90% per annum of the Average Market Capitalisation in
excess of GBP250 million and up to and including GBP500 million;
and
(iii) 0.80% per annum of the Average Market Capitalisation in
excess of GBP500 million.
Advisory fees for the year were GBP8,769,613 ($11,516,042) (31
March 2020: GBP4,597,567, $5,842,672) with GBPnil outstanding at
the reporting date (31 March 2020: nil).
Performance Fee
In respect of each accounting period, the Investment Adviser
(or, where the Investment Adviser so directs, any member of the
Investment Adviser's team) is entitled to receive a performance fee
(the "Performance Fee") equal to 10% of the Excess Total Return
relating to that accounting period provided that the Performance
Fee shall be capped such that the sum of the advisory fee (payable
in respect of the Average Market Capitalisation of Ordinary Shares
only) and the Performance Fee paid in respect of that accounting
period is no more than 5% of the lower of: (i) Net Asset Value; or
(ii) Closing Market Capitalisation at the end of that accounting
period.
The Excess Total Return for an accounting period is calculated
by reference to: (i) the difference between the Performance Share
Price at the end of that Accounting Period and the higher of: (a)
the Performance Hurdle (being issue price compounded by 10% per
annum from initial Admission subject to appropriate adjustments in
certain situations); and (b) high watermark (being the Performance
Share Price at the end of the last Accounting Period where a
Performance Fee was payable); multiplied by (ii) the weighted
average of the number of Ordinary Shares in issue (excluding any
shares held in treasury) at the end of each day during that
accounting period.
For the purposes of calculating the Performance Fee:
"Performance Share Price" means, in relation to each accounting
period, the average of the middle market quotations of the Ordinary
Shares for the 1 month period ending on the last business day of
that accounting period (which shall be adjusted as appropriate: (i)
to include any dividend declared but not paid where the Ordinary
Shares are quoted ex such dividend at any time during that month;
(ii) to exclude any dividend paid in respect of the shares during
that month; and (iii) for the PSP Adjustments). During the period,
the average of the middle market quotations was 108.27p; and
"Performance Share Price Adjustments" means adjustments to the
Performance Share Price to (i) include the gross amount of any
dividends and/or distributions paid in respect of an Ordinary Share
since initial Admission; and (ii) make such adjustments to take
account of C Shares as were agreed between the Company and the
Investment Adviser, acting reasonably and in good faith, at the
time of issuance of such C Shares.
The amount of Performance Fee payable to the Investment Adviser
shall be paid in the form of a combination of: (a) cash equal to
all taxes or charges payable with respect to the Performance Fee by
the Investment Adviser or member(s) of the Investment Adviser's
Team; and (b) Ordinary Shares ("Performance Shares") which are
either issued by the Company where the Ordinary Shares are on
average trading at par or at a premium to the last reported
Operative NAV per Ordinary Share at the relevant time or purchased
from the secondary market where the Ordinary Shares are on average
trading at a discount to the last reported Operative NAV per
Ordinary Share at the relevant time and transferred to, the
Investment Adviser or member(s) of the Investment Adviser's
Team.
The Performance Shares are subject to 18 month lock-up
arrangements.
Performance fee for the year was calculated and accrued as
GBP388,460 ($533,658) with cash amount GBP218,119 ($299,647)
accrued as payable and an amount to be paid as shares recognised as
Performance fee to be paid in shares for GBP170,341 ($234,011)
amount accrued at the reporting date. (31 March 2020: GBPnil, no
performance fee was paid in respect of year ended 31 March
2020).
Administration Agreement
Pursuant to the Administration Agreements: (i) Ocorian
Administration (Guernsey) Limited has been appointed as
Administrator of the Company; and (ii) Ocorian Administration (UK)
Limited has been appointed as administrator to the subsidiaries.
The Administrator or Ocorian Administration (UK) Limited (as
applicable) are responsible for the day to day administration of
the Company and the subsidiaries which accedes to the relevant
Administration Agreement (including but not limited to the
calculation and publication of the semi-annual NAV, the IFRS NAV
and Operative NAV) and general secretarial functions required by
the Companies Law (including but not limited to maintenance of the
Company's accounting and statutory records). For the purposes of
the RCIS Rules, the Administrator is the designated manager of the
Company.
Under the terms of the Administration Agreement between the
Administrator and the Company, the Administrator is entitled to a
fixed fee as at 31 March 2021 of GBP172,500 ($236,977) (31 March
2020: GBP172,500, $219,195) per annum for services such as
administration, accounting, corporate secretarial, corporate
governance, regulatory compliance and stock exchange continuing
obligations. Additional ad hoc fees are payable in respect of
certain additional services, these amounted to GBP275,300
($345,829) (31 March 2020: GBP246,160, $312,795). Administration
fees for the year to 31 March 2021 amounted to GBP447,800
($582,806) (31 March 2020: GBP418,660, $531,990) of which GBP20,822
($28,593) (31 March 2020: GBP50,045, $61,734) was outstanding at
the year end.
Under the terms of the Administration Agreement between Ocorian
Administration (UK) Limited and the subsidiaries the Administrator
is entitled to a fixed fee as at 31 March 2021 of GBP14,000
($19,233) per subsidiary and a variable incremental fee per annum
per additional Catalogue held by a subsidiary for services such as
administration, corporate secretarial and accounting.
Administration fees for the subsidiaries for the year amounted to
GBP455,877 ($602,770) (31 March 2020: GBP398,336, $506,165) of
which GBP145,117 ($196,743) (31 March 2020: GBP140,521, $173,343)
was outstanding at the year end.
Registrar Agreement
Computershare Investor Services (Guernsey) Limited (a company
incorporated in Guernsey on 3 September 2009 with registered number
50855) has been appointed as registrar to the Company pursuant to
the Registrar Agreement. In such capacity, the Registrar will be
responsible for the transfer and settlement of Shares held in
certificated and uncertificated form. The Registrar is also
entitled to reimbursement of all out of pocket costs, expenses and
charges properly incurred on behalf of the Company.
Under the terms of the Registrar Agreement, the Registrar is
entitled to a fixed fee as at 31 March 2021 of GBP7,500 ($10,303)
per annum in respect of the Ordinary Shares (31 March 2020:
GBP7,500, $9,530) and GBP5,500 ($7,556) per annum in respect of the
C Shares (if applicable), together with additional ad hoc fees in
respect of additional out of scope services provided by the
Registrar of GBP39,284 ($51,641) (31 March 2020: GBP23,329,
$29,644). Registrar fees for the year were GBP52,284 ($69,500) (31
March 2020: GBP36,329, $46,163) with GBP10,875 ($15,154)
outstanding at the reporting date (31 March 2020: GBP1,440,
$1,776).
20. Earnings per share
31 March 31 March
2021 2021
Basic Diluted
---------------------------------------------------- ----------- -----------
Profit for the year ($) 38,935 38,935
Weighted average number of Ordinary Shares in issue 825,090,869 825,090,869
Earnings per share (cents) 4.72 4.72
---------------------------------------------------- ----------- -----------
31 March 31 March
2020 2020
Basic Diluted
---------------------------------------------------- ----------- -----------
Profit for the year ($) 32,013 32,013
Weighted average number of Ordinary Shares in issue 393,897,052 393,897,052
Earnings per share (cents) 8.13 8.13
---------------------------------------------------- ----------- -----------
The earnings per share is based on the profit or loss of the
Group for the year and on the weighted average number of Ordinary
Shares for the year ended 31 March 2021.
There are no dilutive shares at 31 March 2021.
21. Auditor's Remuneration
Audit and non-audit fees payable to the Auditors can be analysed
as follows:
1 April 2020 1 April 2019
to to
31 March 31 March
2021 2020
$'000 $'000
---------------------------------------------------- ------------ ------------
PricewaterhouseCoopers CI LLP annual audit fees 732 365
---------------------------------------------------- ------------ ------------
PricewaterhouseCoopers CI LLP annual audit fees 732 365
---------------------------------------------------- ------------ ------------
Pricewaterhouse Coopers CI LLP project accounting
fees relating to the migration to premium segment 187
Pricewaterhouse Coopers CI LLP C Share conversion
fees 11 13
Pricewaterhouse Coopers CI LLP reporting accounting
services 346
Pricewaterhouse Coopers CI LLP Interim review fees 54
---------------------------------------------------- ------------ ------------
PricewaterhouseCoopers CI LLP non audit fees 411 200
---------------------------------------------------- ------------ ------------
22. Subsequent events
The Company's conversion to an investment trust company took
effect from 1 April 2021 and therefore the Company has been treated
as being resident in the UK for tax purposes and ceased to be a
Guernsey tax exempt vehicle under The Income Tax (Exempt Bodies)
(Guernsey) Ordinance, 1989, as amended from this date.
On 27 April 2021 the Company declared a dividend of 1.3125p per
Ordinary Share in respect of the quarter ended 31 March 2021 which
was paid on 28 May 2021.
On 29 April 2021 the Company issued 9,000,000 new Ordinary
Shares at a price of 119.5p per Ordinary Share; these shares rank
pari passu with the existing Ordinary Shares in issue. The issue
price equates to a premium to the Adjusted Operative NAV as at 28
April 2021. The net proceeds will be used to fund an investment in
accordance with the Company's investment policy.
On 11 June 2021 Vania Schlogel was appointed to the Board.
On 16 June 2021 the Company announced a further fund raise. For
further information please refer to the Company website
www.Hipgnosissongs.com.
On 19 June 2021 there was an additional drawdown on the existing
RCF of $13 million.
Alternative Performance Measures
Performance measure Definition Reason for use
Annualised ongoing Adjusted Operating Costs Ongoing Charges are
charges ($39,681,824) less Non a good indicator of
Recurring administrative expenses likely to recur
expenses ($16,582,485) in the foreseeable future
over a 12-month period
----------------------------------- -----------------------------
Adjusted Operating Operational expenses ($93,851,062) Ongoing Charges are
Costs less the Amortisation a good indicator of
of Catalogues of Songs expenses likely to recur
($67,874,702) plus Foreign in the foreseeable future
exchange gains/losses
($15,814,243) plus HSG
FV Gain ($2,138,624) less
Provision for HSG Advances
($4,247,404)
----------------------------------- -----------------------------
Average Operative NAV Average of the Operative The average was taken
NAV as at 31 March 2021 given that share issuance
($1,806,463,000) the Operative has grown rapidly over
NAV as at 30 September the year
2020 ($1,627,552,468)
and the Operative NAV
as at 31 March 2020 ($930,814,994)
----------------------------------- -----------------------------
EBITDA The Operating Profit before A strong indicator of
Tax ($44,538,411) plus company performance
Amortisation, Loan interest, and profitability removing
Depreciation and FX gain/loss accounting adjustments
($62,128,010)
----------------------------------- -----------------------------
EPS excluding total Profit after Tax excluding The Operating profit
Amortisation total amortisation ($109,409,495) adjusted for Amortisation
divided by Weighted average aligns with the Operative
number of Ordinary Shares NAV which reflects that
in issue (825,090,869) the values of Catalogues
of Songs are based on
fair values produced
by the Portfolio Independent
Valuer
----------------------------------- -----------------------------
Leveraged Free Cash Net Cash from Operating A good indicator of
Flow Activities ($85,868,120) the cash position of
less the Purchase of other the Company and the
assets ($3,739,548) availability of cash
flows to fund interest
and dividend payments
----------------------------------- -----------------------------
NAV Return Latest published Operative To show how the assets
NAV per share ($1.6829 have performed over
as at 31 March 2021) increase time to Shareholders
as a percentage of the
initial published Operative
NAV per share ($1.5114
as at 31 March 2020) equals
11.34%
----------------------------------- -----------------------------
Net Debt Loan facility amount ($577,292,000) Liquidity metric used
utilised less cash held to determine how well
at bank ($112,634,179) a company can pay all
of its debts if they
were due immediately
----------------------------------- -----------------------------
Performance measure Definition Reason for use
----------------------------------- -----------------------------
Non Recurring administrative Exceptional Costs included Good indicator of expenses
expenses within Legal and professional not likely to recur
fees ($5,270,215) plus in the foreseeable future
Aborted deal expenses
($848,057) plus Interest
Costs ($9,930,591) plus
Performance fee ($533,622)
----------------------------------- -----------------------------
Ongoing Charges % Annualised Ongoing Charges To monitor the expenses,
($23,099,339) divided which are likely to
by Average Operative NAV recur, relative to the
($1,456,466,998) fund size over time
----------------------------------- -----------------------------
The Operative NAV Profit Operating profit for the The Operating profit
before Tax year before taxation ($44,538,411) adjusted for Amortisation
plus total amortisation aligns with the Operative
($70,474,716) NAV which reflects that
the values of Catalogues
of Songs are based on
fair values produced
by the Portfolio Independent
Valuer
----------------------------------- -----------------------------
Total NAV Return Operative NAV as at 31 To show how the assets
March 2021 ($1.6829) plus have performed since
cumulative dividends paid IPO to Shareholders
up to 31 March 2021 ($0.1433),
divided by the Operative
NAV as at 11 July 2018
($1.2983)
----------------------------------- -----------------------------
Glossary of Capitalised Defined Terms
"Administrator" means Ocorian Administration (Guernsey)
Limited;
"Admission" means admission, on 11 July 2018, to trading on the
SFS of the London Stock Exchange, of the Ordinary Shares becoming
effective in accordance with the Listing Rules and/or the LSE
Admission Standards and on 25 September 2019 to
a Premium Listing on the Main Market ;
"AEOI" means Automatic Exchange of Information;
"AIC" means the Association of Investment Companies;
"AIC Code" means the AIC Corporate Governance Code 2019;
"Annual General Meeting" or "AGM" means the annual general
meeting of the Company;
"Annual Report" or "Annual Report and Consolidated Financial
Statements" means the annual publication of the Company provided to
the Shareholders to describe their operations and financial
conditions, together with their Consolidated Financial
Statements;
"Apple Music" means the music and video streaming service
developed by Apple Inc.;
"Articles of Incorporation" or "Articles" means the articles of
incorporation of the Company;
"ASCAP" means the American Society of Composers, Authors and
Publishers;
"Audit Committee" or "Audit and Risk Management Committee" means
a formal committee of the Board with defined terms of
reference;
"Average Market Capitalisation" means, in relation to each month
where the advisory fee is payable, ("A" multiplied by "B") plus
("C" multiplied by "D"), where:
"A" is the average of the middle market quotations of the
Ordinary Shares for the five day period ending on the last business
day of that month (adjusted as appropriate to exclude any dividend
where the Ordinary Shares are quoted ex such dividend at any time
during that five day period); "B" is weighted average of the number
of Ordinary Shares in issue (excluding any Shares held in treasury)
at the end of each day during that month; "C" is the average of the
middle market quotations of a class of C Shares in issue for the
five day period ending on the last business day of that month
(adjusted as appropriate to exclude any dividend where the C Shares
of that class are quoted ex such dividend at any time during that
five day period); and "D" is weighted average of the number of that
class of C Shares in issue (excluding any Shares held in treasury)
at the end
of each day during that month;
"Board" or "Directors" means the Directors of the Company;
"BMI" means Broadcast Music, Inc;
"BPI" means the British Phonographic Institute;
"C Shares" means a temporary and separate class of shares which
are issued at a fixed price determined by the Company;
"Catalogue" means one or more Songs acquired from a single
Songwriter, artist or company;
"CBS" means a US commercial broadcast television and radio
network;
"CD" means compact disc;
"Closing Market Capitalisation' ' means, in relation to each
Accounting Period, "E" multiplied by "F", where:
"E" is the Performance Share Price; and "F" is the weighted
average of the number of Ordinary Shares in issue (excluding any
Shares held in treasury) at the end of each day during the
Accounting Period;
"Companies Law" means the Companies (Guernsey) Law, 2008, (as
amended);
"Company" means Hipgnosis Songs Fund Limited. References to the
Company are also considered to be references to the Group, where
applicable;
"Company Secretary" means Ocorian Administration (Guernsey)
Limited;
"Consolidated Financial Statements" means the audited financial
statements of the Company, including the Statement of Financial
Position, the Statement of Comprehensive Income, the Statement of
Cash Flows, the Statement of Changes in Equity and associated
notes;
"Conversion" means the conversion of C Shares to Ordinary
Shares;
"Copyright Royalty Board" means the US Copyright Royalty
Board;
"Corporate Brokers" means Singer Capital Markets Advisory LLP,
J.P. Morgan Securities plc and
RBC Europe Limited;
"COVID-19" means the global coronavirus pandemic;
"DCF" means discounted cash flow;
"DCMS" means The Department for Digital, Culture, Media &
Sport, a department of the UK government;
"Disclosure Guidance and Transparency Rules" or "DTRs" mean the
disclosure guidance published by the FCA and the transparency rules
made by the FCA under section 73A of FSMA;
"Downloads" means royalties for the permanent digital mechanical
transfer of music;
"DSP" means digital service providers;
"Earnings per Share" or "EPS" means the Earnings per Ordinary
Share and is expressed in pounds Sterling;
"EU" means European Union;
"FCA" means the UK Financial Conduct Authority
(or its successor bodies);
"FRC" means the UK Financial Reporting Council;
"FSMA" means the UK Financial Services and
Markets Act 2000;
"GFSC" means the Guernsey Financial Services Commission;
"Grammy" means an award presented by the Recording Academy to
recognise achievements in the music industry;
"Group" means Hipgnosis Songs Fund Limited and its
subsidiaries;
"HSG" means Hipgnosis Songs Group, which was rebranded from Big
Deal Music Group (BDM) on acquisition;
"IAS" means international accounting standards as issued by the
Board of the International Accounting Standards Committee;
"IFPI" means International Federation of the Phonographic
Industry;
"IFRS" means the International Financial Reporting Standards,
being the principles-based accounting standards, interpretations
and the framework by that name issued by the International
Accounting Standards Board;
"IFRS NAV" means the value of the Gross Assets of the Company
less its liabilities (including accrued but unpaid fees) in
accordance with the accounting policies adopted by the
Directors;
"Interim Report" means the Company's half yearly report and
unaudited condensed consolidated financial statements for the
period ended
30 September;
"Investment Adviser" means The Family (Music) Limited;
"Investment Advisory Agreement" means the investment advisory
agreement dated 27 June 2018 between The Family (Music) Limited,
the Company and its subsidiaries;
"Investment Entity" means an entity whose business purpose is to
invest funds solely for returns from capital appreciation,
investment income or both;
"IPO" means the initial public offering of shares by
a private company to the public;
"ISAE 3402" means International Standard on Assurance
Engagements 3402, "Assurance Reports on Controls at a Service
Organisation";
"ISIN" means an International Securities Identification
Number;
"ISWC" means International Standard Musical Work Code. It is a
unique, permanent and internationally recognized reference number
for the identification of musical works;
"Kobalt" means Kobalt Music Copyrights S.à.r.l.,;
"Kobalt Fund 1" Following the equity fundraise in July 2020 the
Company, as at 30 September, acquired a portfolio of 42 Catalogues
from Kobalt Music Copyrights S.à.r.l., an investment fund advised
by Kobalt Capital Limited;
"Letter of Direction" means a document sent by the current
copyright owner or the recipient of music royalties to the
Publisher, Record company or Collection Society requesting a
re-direction of royalties to be paid. It is sent from the current
owner/recipient who is selling the assets, directing that all
future payments should go to the buyer of the assets;
"LGBTTQQIAAP" means the abbreviation of 'lesbian, gay, bisexual,
transgender, transsexual, queer, questioning, intersex, asexual,
allies, and pansexual';
"LIBOR" means the London Interbank Offered Rate the basic rate
of interest used in lending between banks on the London interbank
market and also used as a reference for setting the interest rate
on other loans.
"Listing Rules" means the Listing Rules made by the
UK Listing Authority under section 73A FSMA;
"Live" means publishing revenue derived from the live
performance of music copyrights at concerts;
"London Stock Exchange" or "LSE" means London Stock Exchange
Plc;
"MAR" means EU regulation 596/2014 on market abuse;
"Mechanical" means royalties for reproducing music, for example
CD, vinyl, etc. (excluding mechanical downloads and mechanical
streaming);
"NAV per Share" means the Net Asset Value attributable to the
Ordinary Shares in issue divided by the number of Ordinary Shares
in issue (excluding any Shares held in treasury) at the relevant
time and expressed in Dollars;
"Neighbouring Rights Income" is the payment to the recording
artist or performer for the public performance usage related to the
Master Recording.
"Net Asset Value" or "NAV" means the value of the assets of the
Company less its liabilities as calculated in accordance with the
Company's valuation policy and expressed in pounds Dollars;
"Net revenue" or "NPS" means Net Publisher Share and refers to
revenue collected by Publishers from PROs, net of contractual
royalties due to writers
i.e. deductions for administration and publishing fees;
"NFT" means Non Fungible Token;
"Nomination Committee" means a formal committee of the Board
with defined terms of reference;
"Operative NAV" means NAV as adjusted for the fair value of
Catalogues of Songs;
"Ordinary Shares" means redeemable Ordinary Shares of no par
value in the capital of the Company issued and designated as
"Ordinary Shares" and having the rights, restrictions and
entitlements set out in the Articles;
"Other income" means any income not covered by the other income
types, for example sheet income and lyric exploitation;
"Performance" means royalties for playing music in public, for
example TV/radio broadcasts, live performance, etc. and paid
through to the publisher;
"Performance Right Organisations" or "PROs" means a performing
rights organisation, such as PRS or BMI, which represents and
collects performance royalties for and on behalf of each of its
members;
"Performance Share Price" means in relation to each accounting
period, the average of the middle market quotations of the Ordinary
Shares for the
1 month period ending on the last business day
of that accounting period;
"Portfolio" means the portfolio of Songs (whether organised into
Catalogues or otherwise) held by the Company directly or indirectly
from time to time;
"Portfolio Committee" means a committee which approves all
purchases of Catalogues of Songs;
"Portfolio Independent Valuer" means Massarsky Consulting, Inc.,
appointed by the Board to independently value the Company's
Catalogues within the Portfolio;
"Preferred Portfolio Administrator(s)" means the portfolio
administrators appointed by the Company in order to assist with the
administration of the Portfolio including Kobalt Music Services
Limited and Hipgnosis Songs Group;
"Premium Listing" means the a Premium Listing on the Main Market
of the London Stock Exchange;
"Premium 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 most recent prospectus issued by the
Company unless the context refers to a version of the prospectus
published at an earlier date;
"Pro-Forma Annual Revenue" or "PFAR" - Pro-forma Annual Revenue
(PFAR) means the royalty revenue earned in a calendar year by the
portfolio of songs held by the Company at a specific date, based on
royalty statements received, irrespective of whether the songs were
owned by the Company over the period analysed.
"Public Performance" means revenue generated from licenses for
the right to play music publicly in a commercial environment e.g.
shops, bars, restaurants and shopping malls;
"RCIS Rules" means the Registered Collective Investment Scheme
Rules 2015;
"Record Labels" means a company that owns, distributes and
promotes musical recordings;
"Recording Academy" means a US academy of musicians, producers,
recording engineers and other musical professionals;
"Registrar" means Computershare Investor Services (Guernsey)
Limited;
"Remuneration Committee" means a formal committee of the Board
with defined terms of reference;
"RIAA" means Recording Industry Association of America;
"Right To Income" The Company sometimes receives a right to
income as part of the Catalogue acquisition, which is typically
dependent on the timing of the negotiations and relates to royalty
income paid over to the Company on closing of the acquisition. This
right to income is related to the period before the start of the
financial year;
"SFS" means London Stock Exchange's specialist fund segment of
the Main Market for listed securities;
"Shareholder" means the holder of one or more Ordinary
Shares;
"Song" means a Songwriter's and/or publisher's share of
copyright interest in a song, being a musical composition of words
and/or music and the Songwriter's proportion of the publishing
rights of a single musical track, and when construction permits,
the collection of words and/or music as purchased by consumers;
"Song Management" Active Management of the placing of songs in
Films, TV Adverts, TV Programs, Video Games and streaming playlists
also including promoting the Interpolation of our songs by new
Songwriters and Covers of our songs by new artists;
"Streaming" means performance and mechanical royalties for
digitally playing music in real-time, for example through
Spotify;
"Synchronisation" means royalties for playing music in
connection with visual media (for example film, TV,
advertisements);
"TV" means television;
"UK" or "United Kingdom" means the United Kingdom of Great
Britain and Northern Ireland;
"UK Code" means The UK Corporate Governance Code 2019 as
published by the Financial Reporting Council;
"UKLA" means UK Listing Authority;
"US" or "United States" means the United States
of America, its territories and possessions, any state
of the United States and the District of Columbia;
"VAF" or "Variance Against Forecasts" means the difference
between the total of the royalty statements received from each
catalogue since acquisition, and the acquisition model forecast
over the same period. The VAF is expressed as a percentage point
deviation from zero, where a positive number means that the actual
performance of the portfolio is tracking ahead of the cumulative
forecast. A negative number indicates that the portfolio is falling
behind forecast.
"Writer's Share" means performance royalties collected by a
Performance Rights Organisation and paid through directly to the
Songwriter as opposed to the publisher share of performance;
"YouTube" means the US video-sharing website;
"GBP" or "Pounds Sterling" or "Sterling" or "GBP" means British
pounds sterling and "p" or "pence" means British pence;
"$" or "USD" or "Dollar" or "Dollars" means United States
dollars and "cents" means United States cents; and
"EUR" or "EUR" means the currency of the majority
of member states of the EU.
Directors and General Information
Company Registration Number: 65158
Board of Directors Administrator and Principal Banker
Andrew Sutch, Chair Company Secretary Barclays Bank PLC
Paul Burger, Senior Ocorian Administration PO Box 41
Independent Director (Guernsey) Limited Le Marchant House
Andrew Wilkinson PO Box 286 St Peter Port
Simon Holden Floor 2 Guernsey
Sylvia Coleman Trafalgar Court GY1 3BE
Vania Schlogel (Appointed Les Banques Registrar
11 June 2021) St Peter Port Computershare Investor
Founder Guernsey Services (Guernsey)
Merck Mercuriadis GY1 4LY Limited
Advisory Board Corporate Brokers 1st Floor
Nile Rodgers Singer Capital Markets Tudor House
The-Dream Advisory LLP Le Bordage
Giorgio Tuinfort 1 Bartholomew Lane St Peter Port
Starrah London Guernsey
David A. Stewart EC2N 2AX GY1 1DB
Poo Bear J.P. Morgan Securities Identifiers
Bill Leibowitz plc ISIN: GG00BFYT9H72
Ian Montone 25 Bank Street, Canary Ticker: SONG
Rodney Jerkins Wharf SEDOL: BFYT9H7
Investment Adviser London Website: www.hipgnosissongs.com
The Family (Music) Limited E14 5JP LEI: 213800XJIPNDVKXMOC11
Merck Mercuriadis, CEO RBC Europe Limited GIIN: 5XGPC8.99999.SL.831
Björn Lindvall (Appointed 17 September Managing your account
, COO 2020) online
Chris Helm, CFO 100 Bishopsgate The Company's registrar,
United House London EC2N 4AA Computershare Investor
9 Pembridge Road Independent Auditor Services (Guernsey)
Notting Hill PricewaterhouseCoopers Limited, allows you
London Cl LLP to manage your shareholding
W11 3JY Royal Bank Place online. If you are a
www.hipgnosissongs.com 1 Glategny Esplanade direct investor you
Registered Office St Peter Port can view your shareholding,
PO Box 286 Guernsey change the way the Registrar
Floor 2 GY1 4ND communicates with you
Trafalgar Court Music Specialist Legal and buy and sell shares.
Les Banques Counsel If you haven't used
St Peter Port Bill Leibowitz this service before,
Guernsey 271 Madison Avenue all you need to do is
GY1 4LY 20th Floor enter the name of the
New York Company and register
New York 10016 your account at:
Legal Advisers to the https://www-uk.computershare.com/investor
Company You'll need your Investor
Herbert Smith Freehills code (IVC) printed on
LLP your share certificate
Exchange House in order to register.
Primrose Street
London
EC2A 2EG
Legal Advisers to the
Company as to Guernsey
Law
Ogier (Guernsey) LLP
Redwood House
St Julian's Avenue
St Peter Port
Guernsey
GY1 1WA
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