TIDMSONG
RNS Number : 8322V
Hipgnosis Songs Fund Limited
16 December 2021
16 December 2021
Hipgnosis Songs Fund Limited ("Hipgnosis" or the "Company")
Interim Results
for the six months ended 30 September 2021 ("H1 21")
The Board of Hipgnosis Songs Fund Limited, the first UK listed
investment company offering investors a pure-play exposure to songs
and associated intellectual property rights, and its Investment
Adviser, Hipgnosis Song Management Limited, are pleased to announce
the Company's interim results for the six months ended 30 September
2021.
Operational Highlights
-- Oversubscribed placing raising over $215 million, GBP156
million, in July 2021 with proceeds used use to acquire some of the
most influential rock Catalogues of all time including:
o The Red Hot Chili Peppers - Flea, John Frusciante, Anthony
Kiedis and Chad Smith, one of the most important and best-selling
bands of all time, with 100 million records sold worldwide
o Christine McVie - best known as one of the principal writers
and vocalists of Fleetwood Mac, one of the most successful bands of
all time. With Lindsey Buckingham, we now own the Song Catalogues
of two of the three principal Songwriters of the most successful
version of Fleetwood Mac
o Ann Wilson - one half of Heart, the female led US rock band
who had multi-platinum success in the 70's and 80's
o Rhett Akins - who was just inducted into the Nashville
Songwriters Hall Of Fame
o Stefan and Jordan Johnson - The Monsters & Strangerz, who
have had enormous pop success with Zedd, Justin Bieber, Miley
Cyrus, Dua Lipa, The Jonas Brothers and Katy Perry
-- As at 30 September 2021, the Portfolio comprises of 146
Catalogues, 65,413 songs, with an aggregate fair value of $2.55
billion (as determined by the Independent Portfolio Valuer),
including:
o 47 out of 190 songs in Spotify's Billions Club
o 51 of Rolling Stone's The 500 Greatest Songs of All Time
o 20 out of Billboard's Greatest of All Time Hot 100 Songs
o 10 of the Top 30 YouTube's Most Viewed Videos of All Time
-- Continued development of the Investment Adviser's Song Management Platform:
o A 20% increase in the number of synch deals in July-September
2021 compared to April-June 2021 alone including :
-- Eurythmics' Sweet Dreams (Are Made of This), co-written by
David A. Stewart, is the main trailer for MGM's major worldwide Q4
release 'House of Gucci', directed by Ridley Scott and starring
Lady Gaga & Adam Driver
-- The initial trailer for the same movie was also soundtracked
by a Hipgnosis song, Heart Of Glass by Blondie, written by Debbie
Harry and Chris Stein
-- Mariah Carey's All I Want For Christmas Is You co-written by
Walter Afanasieff is the focus of McDonald's' Christmas 2021
campaign
-- There's Nothing Holding Me Back by Shawn Mendes, co-written
by Teddy Geiger and Scott Harris, is the main song for the trailer
of Universal Studios' upcoming 'SING 2' feature film
-- Our classic Bond theme Nobody Does it Better by Carly Simon,
co-written by Carole Bayer Sager, is the soundtrack for DHL's
global advertising campaign, which was launched in conjunction with
the long-awaited James Bond blockbuster film '007: No Time To
Die'
o Hipgnosis now has the largest presence on TikTok as a Song
Management company, with over 334,000 followers
o The Peloton exercise classes featuring our great songs by
Beyoncé , Bon Jovi, Britney Spears, The Chainsmokers, Ed Sheeran,
Justin Bieber, Lady Gaga, Red Hot Chili Peppers, Shakira and Chris
Cornell are a massive success
o We launched our first NFT Hack The Borders, a crypto art
collaboration between Blondie and Hackatao
o Continued adoption of innovative technologies to deliver
maximum value across all parts of Song Management
o The US Administration of a further 19 Catalogues have been
transferred to Hipgnosis Songs Group (HSG), taking us to a total of
30
o Continued progress with our advocacy for Songwriters, most
notably with the House of Commons' Digital, Culture, Media &
Sport (DCMS) Committee. Following their report into the Economics
of Music Streaming, the Government referred the case to the
Competition and Markets Authority (CMA), to undertake a full market
study into the economic impact of the major music groups'
dominance
Financial Highlights
-- Operative NAV increased by 2.5% to $1.7242 per Share over the
six month period (31 March 2021: $1.6829)
-- Including dividends paid, this represents a Total Operative
Dollar NAV Return of 4.63% for the six month period, taking Total
NAV Return since IPO to 46.7%
-- Like-for-like valuation uplift across the Portfolio to $2.55
billion (as determined by the Independent Portfolio Valuer) of 3.0%
driven by:
o An increase in expected performance income in 2023 as the
Independent Portfolio Valuer is now forecasting a stronger bounce
back from COVID-19 to pre-pandemic levels
o An increase in streaming growth rates to reflect the continued
growth in paid subscribers in excess of expectations
-- Due to the time lag between the consumption of songs and the
royalty statements being processed, the point at which revenues are
recognised, means that the impact of COVID-19 is now being fully
felt within these results:
o Net revenue grew by 31% to $74.1m (six months ended 30
September 2020: $56.7 million) as a result of the additional
Catalogue acquisitions since the comparative period
o EBITDA increased by 16.2% from $47.0m to $54.6m
o Despite impact of COVID-19, dividends paid were fully covered
by Adjusted Profit after Tax (Net revenue, less operating expenses,
excluding Total Amortisation and excluding Foreign Exchange losses)
by 1.03x and by 1.02x on a Leveraged Free Cash Flow basis
-- PFAR for the full calendar year 2020 (which looks at our
Catalogues' royalty earnings ignoring the ownership period) fell by
7.9% to $121.3 million (12-months to 30 June 2020: $131.7 million)
as a result of:
o Performance income falling by 19.5% due to COVID-19
lockdowns
o Streaming income remaining buoyant through COVID-19, growing
4% in steady state Catalogues compared to 12 months ended 30 June
2020, continuing growth after impressive calendar H1 2020 growth of
22.5% compared to H1 2019, as the shift of consumer behaviour
towards paid streaming has accelerated
-- Net debt at 30 September 2021 was $550.9 million, reflecting 28.7% of Operative NAV
Merck Mercuriadis, Founder of Hipgnosis Songs Fund Limited and
Hipgnosis Song Management Limited said:
"It's incredible to believe we are half way through our fourth
year!
The last 9 months, including this Interim reporting period from
1 April to 30 September 2021, have been a very important and
exciting time in our maturation as you will see throughout this
report.
I am delighted to report year-on-year net revenue growth of 31%,
EBITDA growth of 16% and most importantly NAV growth of 2.5% over
the past six months driven by an increase in the fair value of our
Catalogues. This takes our Total NAV Return delivered since IPO
less than 4 years ago to an incredible 46.7%.
Whilst we are in an incredibly strong position with our
Catalogue of iconic songs, this period has been challenging. As we
have previously stated, the time lag between the consumption of
songs and the royalty statements being processed, which is the
point at which we recognise revenues, means that the impact of
COVID-19 is now being fully felt within these results. In
particular, and along with the wider music industry, the closure of
live music venues, pubs, bars and restaurants during various
lockdowns has impacted the like-for-like performance earnings of
our Catalogues during this period. Our vintage Catalogues have made
up for a fall in their performance earnings with outstanding
streaming performance earnings as consumers turned to classics
during lockdown.
Despite being in one of the most challenging economic and
operationally difficult times of our lives we are delighted that we
were still able to deliver a fully covered dividend - a validation
of the reliability of songs as an asset class.
As we look forward, despite the emergence of the Omicron variant
of COVID-19, we continue to see a promising outlook for the music
industry and our Catalogues. Over the last 6 months we have seen
live venues are fully booked until 2023, pubs, bars and restaurants
are full and streaming growth continues to exceed expectations.
This optimism in growth is shared by our independent valuer who has
increased the future earnings trajectory for our Catalogues in
their valuation models resulting in 3% growth in the fair value of
our Catalogues.
However, we must be proactive and not take this recovery for
granted, something highlighted by the continued uncertainty caused
by the Omicron variant of COVID-19. Therefore, in order to ensure
our Catalogues outperform, no matter the wider market conditions,
we continue to increase our Song Management efforts. We have hired
experts in all parts of Song Management as we explore every
opportunity to innovate and maximise earnings from our songs. Our
focused and conscientious model provides the bandwidth to be able
to manage great songs responsibly, as we maximise their revenues
while enhancing their long-term legacies."
Analyst and Investor Webinar
The Investment Adviser will be providing a webinar for investors
and analysts at 10.30am today through the following link:
https://www.lsegissuerservices.com/spark/HipgnosisSongsFundLtd/events/66602463-811f-41aa-8aa7-d91593108b93
For further information, please contact:
Hipgnosis Song Management Limited Tel: +44 (0)1481
Merck Mercuriadis 742742
Singer Capital Markets - Joint Corporate Broker Tel: +44 (0)20
James Moat / James Maxwell / Amanda Gray (Corporate 7496 3000
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 / Anastasia Mikhailova (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 almost GBP1.3
billion (gross equity capital) through its Initial Public Offering
on 11 July 2018, and subsequent issues in April 2019, August 2019,
October 2019, July 2020, September 2020, February 2021 and July
2021. In September 2019, Hipgnosis transferred its entire issued
share capital to the Premium listing segment of the Official List
of the FCA and to the London Stock Exchange's Premium segment of
the Main Market, and in March 2020 became a constituent of the FTSE
250 Index. Since April 2021, the Company has been resident in the
UK for tax purposes and is recognised as an investment trust under
applicable HMRC regulations.
About Hipgnosis Song Management Limited
The Company's Investment Adviser is Hipgnosis Song Management
Limited , which was founded by Merck Mercuriadis, former manager of
globally successful recording artists, such as Elton John, Guns N'
Roses, Morrissey, Iron Maiden and Beyoncé, and hit songwriters such
as Diane Warren, Justin Tranter and The-Dream, and former CEO of
The Sanctuary Group plc. The Investment Adviser has assembled an
Advisory Board of highly successful music industry experts which
include award winning members of the artist, songwriter,
publishing, legal, financial, recorded music and music management
communities, all with in-depth knowledge of music publishing.
Members of Hipgnosis Song Management Limited Advisory Board include
Nile Rodgers, The-Dream, Giorgio Tuinfort, Starrah, David A.
Stewart, Poo Bear, Bill Leibowitz, Ian Montone and Rodney
Jerkins.
The Chair's Statement
Introduction
This interim report covers the six months ended 30 September
2021 and these results continue to show the effects of the COVID-19
pandemic.
The closure of live music venues, bars, gyms and restaurants in
response to lockdowns introduced globally in 2020 and 2021 caused a
decrease in performance earnings across the music industry and the
impact of this on the Company is discussed in more detail in the
Financial Review.
Despite these challenges seen in performance earnings across the
industry, streaming as seen through paid music subscription has
continued to go from strength to strength, with major Digital
Service Providers consistently reporting growth ahead of
expectations throughout lockdowns and the recovery in 2021.
Looking forward, in the second half of 2021, we have seen
anecdotal evidence of a return to a "new normal" in the music
industry with the re-opening of bars, restaurants, gyms as well as
live concerts going ahead. Whilst this gives us cause for optimism,
we must remain alert to continuing macro economic events - the new
Omicron variant reminding us of the uncertainty as to how COVID-19
will impact live performance in the near future.
Fundraising and Investments
In July 2021, the Company raised a further GBP156 million of
equity capital, bringing the total equity raised since launch to
GBP1.3 billion. I am delighted to see the continued support of our
investors; the overall shareholder base has remained stable since
the IPO, with 50% of the shares held by the top 10 holders and 40%
of holders classified as retail investors.
The Company has fully deployed the equity capital raised during
the period and closed acquisitions for a total consideration of
c$260 million. In total, the Company acquired 8 Catalogues and over
1,300 Songs in the six months to 30 September 2021.
Prior to the last equity raise, a strategic decision was taken,
in consultation with our brokers and after discussion with our
major Shareholders, that the Company does not intend to offer
further shares for cash consideration until after publication of
the net asset value per share as at 31 March 2022.
Consequently, as detailed in the Investment Adviser report, the
Company is focusing increasingly on a wide range of Song Management
activities to optimise and enhance the Portfolio earnings.
Revolving Credit Facility
Following the acquisitions during the period, the Company has
drawn down the full amount of its $600 million credit facility.
The Company's Net Debt as at 30 September 2021 was $550.9
million (31 March 2021: Net Debt $464.6 million), which represents
28.7% of Operative NAV as at 30 September 2021 (31 March 2021:
25.7% of Operative NAV).
Performance
The IFRS NAV per share as at 30 September 2021 was $1.3418,
which is a decrease from $1.3628 as at 31 March 2021.
However, the Board considers that the most relevant NAV for
Shareholders is the 'Operative NAV' which reflects the fair value
of the Company's Catalogues as valued by the Independent Portfolio
Valuer and adds back the material amortisation charge.
The Operative NAV per Share increased by 2.5% to $1.7242 during
the period (31 March 2021: $1.6829) which, when including dividends
paid, represents a Six-Month Total NAV Return of 4.63% over the
prior six month period and 46.7% since IPO on 11 July 2018.
EPS for the six months ended 30 September 2021 is -1.69c (six
months ended 30 September 2020: 2.04c) because of the high
amortisation charged during the period. The Group amortises
Catalogues of Songs with a limited useful life using the
straight-line method of 20 years.
Adjusted EPS, as defined within the Alternative Performance
Measures for the six months ended 30 September 2021, is 3.85c (six
months ended 30 September 2020: 6.71c).
Dividend
In the first half of the financial year, the Company has paid
dividends totalling 2.625p over two instalments as declared in
April and July 2021.
Since the period end, on 20 October 2021 the Company declared a
further dividend of 1.3125p, which was paid on 30 November 2021.
The Company continues to target a total dividend of 5.25p for the
current financial year ending 31 March 2022.
The Board
We welcomed Vania Schlogel as an additional member of the Board
when she was appointed on 11 June 2021 as an independent
Non-executive Director. Vania, who is based in the US, has
considerable private equity, media and entertainment sectors
experience.
I would like to record my appreciation to my fellow Board
members for their dedication and their diligence in supervising and
dealing with all the Company's activities.
AGM
The Annual General Meeting for the Company took place on 15
September 2021 and was our first in-person event for some time. I
am pleased to announce that all ordinary and special resolutions
were passed without amendment by the requisite majority.
Post period events
Since the period end, we announced that our Investment Adviser,
Hipgnosis Song Management Limited, formerly known as The Family
(Music) Ltd, had been appointed to act for a second client,
Blackstone, with Blackstone also taking an ownership stake in the
Investment Adviser. This new partnership will provide new exciting
co-investment opportunities for the Company.
The investment into our investment Adviser, Hipgnosis Song
Management, will bring new scale and resource that will help drive
enhanced returns for our Shareholders.
Overall, we view Blackstone's investment as a vote of confidence
in the strength of our Investment Adviser, and in Songs as an
attractive and investible asset class.
Outlook
Over the past months we have seen some of the largest global
investors committing funds to invest in Songs. In this increasingly
competitive market, Hipgnosis is uniquely well placed having
already acquired a portfolio with a value of approximately $2.55
billion.
In addition, we believe our Investment Adviser's responsible
approach to Song Management will maximise our first mover advantage
and focus on growing our revenues, whilst new entrants are
competing for assets.
Andrew Sutch
Chair
15 December 2021
Investment Adviser's Report
Introduction
The closure of live music venues, bars, gyms and restaurants in
response to lockdowns introduced globally in 2020 and 2021 caused a
decrease in performance earnings across the music industry and this
is seen in these results.
Whilst our accruals reflect the impact of COVID-19 on revenue,
the natural lag time in the music industry from the collections and
subsequent cash payments from PROs and Publishers to Hipgnosis
Songs Fund, means that we continue to feel the full effect of
COVID-19 in these interim results, particularly on Performance
income.
Despite the short-term impact of COVID-19 on revenue, we're
hopeful that as the world continues to come out of the pandemic,
this will reverse out quickly. We've already seen successful tours
from Nile Rodgers & Chic, Journey, Enrique Iglesias, David
Guetta and many of our other artists over the past few months, and
we are expecting to have the biggest touring years of all time
(it's virtually impossible to book a venue over the next three
years!).
Whilst we never would have wished it to be the case, the
COVID-19 pandemic has proven our investment thesis. Despite the
most challenging time of our lives, our hit songs have continued to
be consumed by billions of people all over the globe allowing us to
maintain our targeted and fully covered dividend throughout the
pandemic. The music industry is also in a better place for long
term growth than ever with streaming accelerating through the
pandemic and there are now more than 500 million people paying for
music subscriptions globally compared to 30 million in the US when
we launched in 2018. On top of this, technological innovation
continues to bring ever new ways to monetise our Songs, including
from TikTok, Roblox and Peloton over the last few years and looking
to the future, NFTs and the Metaverse. We are in a golden age when
almost all music consumption, no matter where or how it is
consumed, is paid for.
We have also proven our responsible approach to Song Management,
which has the resource and bandwidth to manage great songs to their
full potential. As we detail later in this report, we have
immediately been able to improve the promotion, synch activity and
catalogue management of our Songs which had been left to languish
in the hands of publishers.
As a result, we are incredibly excited for the future. Since the
period end, we have seen a number of global investors entering the
market for Songs, and we are delighted that with the support of our
Shareholders, Hipgnosis is uniquely positioned with a portfolio of
over 65,000 Songs, acquired at a blended multiple of less than 16x
net revenue and an established Song Management platform already
working to maximise the value of its Portfolio.
Hipgnosis Song Management
Subsequent to the period end, the Investment Adviser, formerly
The Family (Music) Ltd, changed its name to Hipgnosis Song
Management Ltd. At the same time, it entered into an agreement with
Blackstone who will invest up to $1 billion over the course of the
next year in music assets. Blackstone has also taken an ownership
stake in Hipgnosis Song Management in the context of this
agreement.
This was made possible following several months of extensive
negotiations with the Board of Hipgnosis Songs Fund and discussions
with major Shareholders. This has ensured robust and well thought
out Co-Investment and Conflicts policies. These have been designed
to allow Hipgnosis Songs Fund to participate in every Catalogue we
source when it has sufficient funding. Additionally, the increased
capabilities in the Investment Adviser will allow us to provide an
even better service to Hipgnosis. Blackstone's expertise will help
build on our success by bringing in additional knowledge and skills
specifically in areas such as data analysis, technology, financial
reporting and asset management.
The Portfolio
Over the last six months, Hipgnosis closed eight acquisitions,
including Red Hot Chili Peppers, Christine McVie of Fleetwood Mac,
Rhett Akins, The Monsters & Strangerz (Stefan and Jordan
Johnson), Elliot Lurie, Ann Wilson and Kaiser Chiefs, for a total
consideration of c$260 million.
As a result of these acquisitions, the portfolio as at 30
September 2021 comprises of 146 Catalogues, 65,413 Songs, with an
aggregate value of $2.55 billion (as determined by the Independent
Portfolio Valuer), reflecting a multiple of 19.03x historical
annual net publisher share income, compared to the blended
acquisition multiple of 15.93x.
Our investment strategy has always been only to focus on songs
that are incredibly successful and of great cultural importance,
therefore we are delighted to now own:
-- 47 out of 190 songs in Spotify's Billions Club
-- 51 of Rolling Stone's The 500 Greatest Songs of All Time
-- 20 out of Billboard's Greatest of All Time Hot 100 Songs
-- 10 of the Top 30 YouTube's Most Viewed Videos of All Time
-- 4 of the Top 5 Billboard Songs of the Decade
Hipgnosis now owns 3,854 Songs that have held Number 1 positions
in global charts, 14,381 Songs that have held Top 10 positions in
global charts and 156 Grammy award winning Songs.
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 (Masters) 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 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
------------------------ ------------- ----------- -------
3 Sep
Nikki Sixx 2020 100% 305
------------------------ ------------- ----------- -------
Big Deal Music 10 Sep
"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
------------------------ ------------- ----------- -------
Tricky Stewart 27 Nov
(Masters) 2020 100% 95
------------------------ ------------- ----------- -------
2 Dec
Eric Stewart 2020 100% 255
------------------------ ------------- ----------- -------
4 Dec
Bob Rock 2020 100% 43
------------------------ ------------- ----------- -------
Caroline Ailin 10 Dec
("New 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
Share) 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
------------------------ ------------- ----------- -------
14 Jul
Red Hot Chili Peppers 2021 100% 220
------------------------ ------------- ----------- -------
15 Jul
Kaiser Chiefs 2021 100% 136
------------------------ ------------- ----------- -------
21 Jul
Christine McVie 2021 100% 115
------------------------ ------------- ----------- -------
22 Jul
Jordan Johnson 2021 100% 58
------------------------ ------------- ----------- -------
22 Jul
Stefan Johnson* 2021 100% 58
------------------------ ------------- ----------- -------
23 Jul
Rhett Akins 2021 100% 564
------------------------ ------------- ----------- -------
29 Jul
Ann Wilson 2021 50% 152
------------------------ ------------- ----------- -------
24 Aug
Elliot Lurie 2021 100% 70
------------------------ ------------- ----------- -------
Total Songs 65,413
--------------------------------------- ----------- -------
* Not counted in total song count
Market Conditions
Throughout 2021, the music publishing market has been reporting
on the impact of COVID-19 on the Performance income.
PRS For Music, the Performance Rights Organisation in the UK,
reported a decline in revenue of 19.7% year-on-year in 2020, with a
60% year-on-year decline in public Performance revenues. CISAC, the
International Confederation of Societies of Authors and Composers,
are estimating a global decline in overall collections by 20-35%
for 2020 with further declines to continue in 2021.
Warner Music Group, who report their music publishing revenues
separately from their recorded music revenues, showed a constant
currency decline in Performance income of 17%, for the 12 months
ending 30 September 2021, due to the ongoing COVID-19 related
impact on bars, restaurants, concerts and live events.
In the second half of calendar 2021, we are seeing evidence of
the music industry bouncing back strongly from COVID-19 and it is
well positioned for long term growth. In particular, we have seen
strong evidence of a recovery in the US recorded music market which
grew 27% year-on-year in the first half of 2021 to $7.1 billion
(RIAA). Growth in streaming continues at a rapid pace and now
accounts for 84% of total recorded music revenues. In addition, the
revival of vinyl shows no signs of slowing, effectively doubling
year-on-year and now accounting for 68% of the physical format
revenues.
As restrictions are easing globally, live music is also quickly
recovering with Joe Berchtold, president of Live Nation, the
biggest global promoter, telling CNBC in September 2021 that 8
million people attended its live shows during August 2021, that
2022 "will be bigger than 2019," and noting that their concert
pipeline is up double digits from this time two years ago. He also
said that consumers, who had been unable to gather at live concerts
and shows for more than a year, were "showing up and spending
money".
Putting the lag in collection times aside the signs of a bounce
back are also clear in Performance income for the music publishing
market and rights owners like ourselves. Notably the latest results
from Warner Music Group, for the three months ended 30 September
2021, which as a publisher has less of a time delay on earnings
than the underlying rights holder, showed that Performance income
has increased 3.4% on a constant currency basis, compared to the
prior year period driven by the continued recovery from the
COVID-19 disruption.
However, the live industry is still heavily reliant on a
continued easing of world-wide COVID-19 related government
restrictions, with the new Omicron variant highlighting the
possibility of a re-implementation of restrictions which could once
again close live venues as well as bars, gyms and restaurants.
Fundraising
In July 2021, the Company raised $215 million, GBP156 million,
in an oversubscribed placing. This takes the total amount raised by
the Company in investment to date to GBP1.3 billion in equity and
$600 million in debt.
Prior to the raise a strategic decision was taken in conjunction
with our brokers and major Shareholders to make this the last
fundraise for a 12-month period. The statement that Hipgnosis Songs
Fund does "not currently intend to offer further shares for cash
consideration until after publication of the net asset value per
Share as at 31 March 2022" was agreed in advance and made an
important impact on the success of the fundraise with all of our
major Shareholders participating.
This strategy has removed the impact of fundraises from the
share price and we believe it will continue to encourage secondary
market trading and allow a re-rating of the share price. The
success of the strategy is perhaps best demonstrated by the share
price hitting its highest levels over the last few weeks.
Song Management
With the decision to have a moratorium on fundraising, we have
continued our focus on managing the iconic Songs we have acquired
over the past three and a half years.
Song Management is a new paradigm that we established at
Hipgnosis Song Management, where we manage proven hit songs with
responsibility and ensure that they're on playlists, being put into
movies, TV commercials, video games, that new artists are covering
them and that new Songwriters are interpolating them. This adds
significant value for our Shareholders and enhances the legacies of
the great Songwriters that have entrusted us with their work. In
addition to streaming, the beauty of today's environment is that
almost all consumption of music is being paid for. If the Song is
being used for social media, then fees are being paid via TikTok,
Instagram, and the other social media outlets. If it's exercise,
the same is true of the likes of Peloton. Same with Games and
Roblox. YouTube, despite remaining an anaemic payer, is the world's
biggest platform for the consumption of music. Payments from this
source have already improved nearly fivefold, compared to when
Hipgnosis was created less than four years ago and YouTube paid $4
billion to rights holders like ourselves this year.
Synch team fully operational and revenues growing
Hipgnosis' Synch operation is now fully operational, with a
world class team being developed and expanded into more and more
key territories around the world. As well as establishing an
in-house, global synch team for our Songs, we have built direct
relationships with the world's biggest film studios, advertising
agencies, broadcasters and music supervisors. These relationships
are repeatedly getting our Songs to the front of the queue in the
creative and commercial decision making process. It also means that
we are not reliant on the administrators of our Songs to generate
opportunities for our catalogue.
Our vision of a global, in-house '24 / 7' synch licensing
operation has now also been realised, with our executives able to
respond to the opportunities being generated within a matter of
minutes, right around the clock. For the vast majority of our
repertoire - regardless of who administers the song - we are the
sole approval party for all synch requests. This has allowed us to
comprehensively slash approval / response times on the world's most
iconic songs. Music Supervisors, Studios and Agencies are no longer
being made to wait weeks-on-end for an answer and as a result
favour working with us.
The number of Hipgnosis Songs Fund synch deals generated in the
period July-September 2021 was up some 20% over April-June 2021
alone and our custom-built, internal systems now enable the 'live'
tracking of these opportunities and revenues for the Company.
We have a newly-created, dedicated, in-house sales function,
tasked solely with curating our Catalogue from a synch perspective.
By comprehensively profiling our Catalogue, unearthing previously
underused repertoire, we are enabling our global synch pitching
teams to be ahead of the game, and chase down high-profile
opportunities.
Our own in-house creative studio partnership operation continues
to grow, with new Company-owned master recordings being delivered
each week and in addition, we are entering into a worldwide label
distribution deal for our recorded repertoire, allowing us to
release these master recordings globally.
Here are some of our recent Synch successes from across the
Catalogue:
Film
-- Eurythmics' Sweet Dreams (Are Made of This), co-written by
David A. Stewart, is the main trailer for MGM's major worldwide Q4
release 'House of Gucci', directed by Ridley Scott and starring
Lady Gaga & Adam Driver.
-- The initial trailer for the same movie was also soundtracked
by a Hipgnosis song, Heart Of Glass by Blondie, written by Debbie
Harry and Chris Stein
-- There's Nothing Holding Me Back by Shawn Mendes, co-written
by Teddy Geiger and Scott Harris, is the main song for the trailer
of Universal Studios' upcoming 'SING 2' feature film.
-- The trailer for DC's hotly-anticipated 'Black Adam' is
soundtracked by a remix of the Soundgarden song Black Hole Sun,
which was written by Chris Cornell.
-- Love Shack by the B-52's is featured in Netflix's hugely
successful and critically acclaimed new musical, 'Tick, Tick...
Boom!'.
TV/Streaming
-- The first episode of CBS' 'The Equalizer' features an
on-screen performance of Neil Young's timeless song, Old Ma'.
-- Bad To The Bone by George Thorogood is the soundtrack to a
major promotion for Amazon's global Prime Video streaming
platform.
-- Ciara's Girl Gang, written by Tricky Stewart, soundtracks the
trailer for Amazon Prime's forthcoming comedy, 'Harlem'.
-- Getting Jiggy Wit It by Will Smith (which samples the Nile
Rodgers & Bernard Edwards' He's The Greatest Dancer) has
featured in the brand new season of popular Paramount comedy,
'PEN15'.
-- ABC's brand new musical drama series 'Queens' features Diana
Ross's I'm Coming Out, which was written by Nile Rodgers &
Bernard Edwards.
-- HBO Max's re-boot of 'Gossip Girl' features numerous
Hipgnosis songs, including Jessie Ware's Spotlight and B.O.M.B. by
St. Panther - and a cast performance of Lady Gaga's Shallow, which
was written with Mark Ronson.
-- Season two of HBO's 'We're Here' features Swish Swish by Katy
Perry feat. Nicki Minaj, written by Starrah.
-- Blondie's 'One Way Or Another' was featured in the second
season of Jerry Bruckheimer's TV series, 'Hightown'.
-- BBC's 'Reclaiming Amy' documentary about Amy Winehouse
features Back To Black , which was written by Mark Ronson.
-- In the current season of HBO Max's 'Sex Lives of College
Girls', the cast perform Camila Cabello's Havana (feat. Young Thug)
, which was written by Andrew Watt and Starrah.
-- The latest season of 'Supergirl' features We Are Family by
Sister Sledge, which was written by Nile Rodgers and Bernard
Edwards.
-- Season 10 of Disney's long-running show 'American Horror
Story' featured Heart's Magic Man , written by Hipgnosis' Ann
Wilson.
Advertising
-- Mariah Carey's All I Want For Christmas Is You, co-written by
Walter Afanasieff, is the focus of McDonald's Christmas 2021
campaign.
-- Our classic Bond theme Nobody Does it Better by Carly Simon,
written by Carole Bayer Sager, is the soundtrack for DHL's global
advertising campaign, which was launched in conjunction with the
long-awaited James Bond blockbuster film '007: No Time To Die'.
-- It's My Life (written by Richie Sambora) was selected by
German supermarket chain Penny for their Christmas campaign 2021.
The commercial, which speaks about the difficult times especially
teenagers are going through during the pandemic, went viral
immediately, amassing close to 14 million views on YouTube alone in
the first four weeks after its launch.
-- Burberry's global campaign for their 'Hero' fragrance -
starring Adam Driver, features Two Weeks by FKA Twigs (written by
Emile Haynie) as its soundtrack.
-- Hipgnosis songwriter Birdy has re-recorded Ivor Raymonde's I
Only Want To Be With You (which is owned by Hipgnosis), for a major
Deutsche Telekom advertising campaign.
-- Michael Kors' Christmas commercial for 2021 is soundtracked
by Sister Sledge' We Are Family , which was written by Nile Rodgers
and Bernard Edwards.
-- Tokio Myers' version of Ed Sheeran's Bloodstream (written by
Johnny McDaid) was used as the soundtrack to the NHS' Live 1,000
Lives campaign.
-- Eurythmics' Sweet Dreams (Are Made Of This), written by David
A. Stewart, has been selected for use in a major television
commercial for Kaufland, one of Europe's biggest supermarket
chains.
-- Wells Fargo are using Fitz & The Tantrums' HandClap
(written by Sam Hollander) for their North American brand
campaign.
-- Nelly's Hot In Herre is currently running on Burger King's
North American advertising campaign.
-- Lissie's cover version of Go Your Own Way (written by Lindsey
Buckingham) is soundtracking Swedish financial institution, Svea
Ekonomi's 2021 advertising campaign.
-- Global luxury brand Swarovski have selected Emile Haynie's
Two Weeks by FKA Twigs to soundtrack their worldwide 2021
advertising campaign.
-- Global car brand Genesis are using two of Hipgnosis' songs
for their GV70 and GV80 brand campaigns: FKA Twigs' Video Girl
(written by Emile Haynie) and Ólafur Arnalds' Particles.
-- French fashion brand Celio are using El Michels Affair's
cover of Shimmy Shimmy Ya (written by RZA) for their 2021
advertising campaign.
-- DJ Snake & Lil' Jon's Turn Down For What (written by
Martin Bresso) is currently soundtracking British Gas' 2021 brand
campaign, encouraging customers to reduce their overall domestic
energy usage.
-- Global fashion brand Moncler is using Planet Claire by the
B-52's for the launch of their MONDOGENIUS campaign.
-- In the UK, National Rail are using Love Me Again by John
Newman for their nationwide 2021 brand campaign.
-- Rumours by Lizzo (written by Steve Cheung) is featured in the
YouTube Shorts 'Awareness Campaign'.
-- BMW selected Get After It by The Cadillac Three as the
soundtrack for one of their key 2021 brand campaigns.
-- At the launch of the 2021 Formula E event in London, Raye
performed Call On Me, written by Steve Winwood.
-- Chrissie Hynde's Pretenders song My City Was Gone has been
renewed for its long-standing deal to be used on 'The Rush Limbaugh
Show'.
Games
-- The El-P remix of Supercut by Lorde (written by Jack
Antonoff) features in the soundtrack to EA's 'FIFA 22' video
game.
-- Most by Phoelix as well as The Light and The Fit by Mick
Jenkins all feature in the official soundtrack for 'NBA 2K22', the
newest instalment in 2K Games' hit basketball video game
series.
-- Hipgnosis has now approved the use of over 70 songs in the
mobile game Beatstar, which launched globally in August 2021.
-- Hundreds of songs from across the Hipgnosis catalogue are
also being licensed for use in an array of other games, including:
Grand Theft Auto, Fortnite, The Sims, Call of Duty, Let's Sing, NHL
'22, Gran Turismo, WWE 2K22, Roblox, Beat Saber, Rocket League,
Dance Church, Riders Republic, Rock Band and many more.
NFTs
There is no doubt that Non Fungible Tokens (NFTs) are an
important part of the future. They offer new ways for audiences to
connect with the artists and the Songs that they love, which we
believe will in time create valuable new revenue streams for the
Company. There is however still no consensus within the music
industry on what commercial models and royalty streams should be
standardized, and there are still significant questions over
governance and security of assets. Therefore, we are taking our
time and being very selective in our approach. We are working on a
few very special and multi-layered projects which will see some of
our top tier artists collaborating with some of the leading
creators in the crypto art space.
We are in communication with all the leading platforms including
Nifty Gateway, Makers Place, SuperRare, Crypto.com and have also
been reviewing the various options for minting NFTs in the most
carbon friendly way.
Our first NFT 'drop' by Hipgnosis launched on 6 August 2021. It
was a very special and unique collaboration between Blondie's
Debbie Harry and Chris Stein with pioneers of Crypto Art
'Hackatao'. Hack the Borders itself symbolizes a true act, from
both Hackatao and Blondie, of hacking all borders and boundaries,
and ultimately the limits of narrow-mindedness. And like Warhol's
iconic image of Debbie Harry, Hackatao's digital artwork showcased
Debbie's legacy with pop-art colours, albeit with their own
signature style, covered in drawings that often represent our inner
demons and most hidden voices.
Hipgnosis earns revenue on both the primary and secondary sales,
and, at present, the Company has no crypto holdings.
Song Promotion
Given Hipgnosis is focused only on acquiring proven, timeless,
globally iconic Songs, the Song Management team is able to leverage
off the high concentration of platinum-level hits in its portfolio,
which is completely unique in today's music business.
The team works with all the traditional outlets and emerging
areas of social media, spotlighting natural opportunities that
surround landmark anniversaries while seeking to constantly refresh
and provide cultural context. All of which further fuels streaming
growth and increases the profile / value / opportunity for
licensing our Songs to film, television, gaming, and
advertising.
We have focussed heavily on TikTok as a platform, which now has
a user base of over 1 billion people. We have found that the
platform is about a mindset, not a demographic and therefore old
songs are likely to find traction just as much as new releases. We
are pleased to say that we have the largest presence on the
platform as a Song Management company better than most traditional
publishers by quite some margin, with over 334,000 followers. Key
breakout activity on Tik Tok leads directly to YouTube views and
additional streaming of songs. It is an entirely connected
ecosystem.
Song 'Mashups', where very contrasting songs are put together to
create a new version of a song are very popular on social networks
and have the capacity of generating whole new audiences. One such
collaboration we have mentioned before is the mashup of the B52's
Love Shack and Britney Spears' Toxic . A very high percentage of
these songs are controlled by Hipgnosis, and so rather than leaving
this as an unofficial version languishing in the corners of
platforms, we have been able to create a superbly and
professionally created version of this "new" song, securing
approval from our writers in the B52's, Christian Karlsson as well
as the final missing piece from Cathy Dennis. We were able to
reproduce the song and we own 75% of the mashup on the Publishing
side and 100% on the Master side. The unique 'mashup' has now
exceeded 1 billion video creations across all platforms. The song
won the Best Audio Mashup at the 2021 MTV Video Music Awards.
The Song Management team has also been very focussed on
showcasing various albums by our Songwriters that are celebrating
major anniversaries. We fully marked the 40(th) anniversaries of
the Journey album Escape in the summer of 2021, Rick James' Street
Songs and Mötley Crüe's Too Fast For Love as well as the 30(th)
Anniversary of Nirvana's Nevermind , Red Hot Chili Peppers' Blood
Sugar Sex Magik and Soundgarden's Badmotorfinger . We are currently
celebrating the 20-year anniversary of Shakira's Laundry Service
album.
To celebrate the Laundry Service album, we had Facebook
campaigns, a new version of the album, new interviews with the
artist, Twitter listening parties, YouTube shorts campaigns and
Face Swap filters. We saw a nearly 50% increase in streams across
the album during the actual 'birthday week'. More importantly, that
major spike has then helped to increase the base level of streaming
for these key tracks within our catalogue.
We are already looking ahead into 2022. Key album anniversaries
include: Neil Young's Harvest (1972) in February as well as those
by Nelly's Nellyville (2002), Steve Winwood's Talking Back To The
Night (1982), George Thorogood's Bad To The Bone (1982), Booker T's
Green Onions (1962), Neil Young's Harvest Moon (1992), Bon Jovi's
Keep The Faith (1992) and Audioslave's Audioslave (2002) later on
in the year.
Our team also looks to maximise the natural promotion and
excitement around live tours, and we are delighted that tour dates
for many artists that are part of the Hipgnosis family are coming
through. For example, Red Hot Chili Peppers's Global Stadium Tour
starts in June 2022 and is selling out fast. Ed Sheeran's stadiums
shows are selling even faster. Shakira, Journey, Fleetwood Mac,
Taylor Swift, Beyoncé, Justin Bieber and Neil Young all have global
tours in the final stages of planning.
Copyright Management
Our initiatives within Copyright Management, which centre on
searching for missing revenues, continue unabated.
This has involved designing an in house system gathering every
piece of data available around every Song that we own, to help us
build a true picture of our Catalogue. The aim is to make sure our
Synch and Copyright teams have immediate and accurate access to all
relevant information.
Disputes occur when the aggregate compositional shares are
greater than 100% within a song. We flag where the compositional
shares are greater than 100% in order to unlock disputes, which
leads to higher revenues for Hipgnosis.
Having accurate data enables us to continue searching for
missing revenue across some of our major platforms. The average
uplift on revenue found to date on YouTube is 30%.
YouTube remains the world's biggest streaming service, where 25%
of time spent is watching music video. YouTube boasts 50 million
global paid for subscribers and $5 billion was paid to music
industry rights holders last year. We are well positioned to
benefit from growth in this platform, as we have an interest in 11
out of the Top 30 most viewed videos globally on YouTube.
Song Administration
Hipgnosis Songs Group (HSG) has been part of the Group for a
year now and its strategic importance has been felt. It has allowed
the Fund to benefit from its own in-house administration function
in the US, leading to significant savings, as well as giving us
controlled and limited exposure to Song Creation, which will lead
to the Catalogues of tomorrow.
Hipgnosis Songs Group has ingested 19 of the Company's
Catalogues within this financial period alone. These include the US
sourced income from catalogues by Neil Young, Brian Higgins, Sam
Hollander, Johnta Austin, Al Jackson Jr, Neal Schon and Paul Barry.
We anticipate administration for US sourced income for an
additional 6 Catalogues to be brought in-house under HSG in the
coming months, which would optimise copyright registrations and
enhance revenues for US sourced income.
HSG now administers 30 of the Company's Catalogues.
Song Creation
Song Creation additionally delivers dynamic catalogue growth via
a stable of active, front-line writers and artists, procured,
nurtured and directed by a best-in-class executive team led by
Kenny MacPherson, Casey Robison, Jamie Cerreta, Dave Ayers and Pete
Robinson. Building future assets at minimal cost, providing
contemporary context, contacts and synergistic opportunities
throughout the industry is the strength and ongoing mission of the
Song Creation team.
The HSG Song Creation Team continued to attract front line
contemporary writers, in new signings, options and renewals during
the period April to September 2021. Highlights from the period
include signings with The Monsters & Strangerz, Hippo Campus,
and an extension with three-time Grammy winner Annie Clark, AKA St.
Vincent.
HSG has enjoyed US Billboard chart success across its roster of
writers, scoring hits with Olivia Rodrigo, Justin Bieber, Dua Lipa
and Miley Cyrus.
HSG writers have been included within an incredible 18 Grammy
nominations for 2021, including 3 nominations for Album of the Year
with Jon Batiste's We Are (which included Sing co-written by King
Garbage), Justin Bieber's Justice (which included 5 songs
co-written or produced by The Monsters & Strangerz) and Olivia
Rodrigo's SOUR (which included Deja Vu co-written by Annie
Clark).
HSG's The Monsters & Strangerz, who are the writing duo
Stefan and Jordan Johnson, have written songs for Justin Bieber's
album Anyone , which has been nominated across 3 Grammys. As an
example of the opportunities that HSG provides, Hipgnosis Songs
Fund acquired the Catalogue of The Monsters & Strangerz in July
2021 and used the leverage of that deal to sign the writers for
their new songs too.
We were delighted to see that Telepatia by Kali Uchis
(co-written by Albert Hype) was just announced in Billboard
magazine as Number 8 in the 'Best Songs of 2021' chart.
DCMS
The UK Government has responded to the Department for Digital,
Culture, Media & Sport (DCMS) Committee report positively with
their decision to refer the major music companies to the
Competition and Markets Authority (CMA) to investigate "the
dominance of the major music companies". We have advocated since
our inception to improve the Songwriter's position within the
economic equation and we consider this to be a significant and
important move in achieving that. It is a very positive next step
in our collective efforts to rebalance the industry in favour of
Songwriters and artists. The government's recognition of the
imbalance that exists for the Songwriters, artists and producers,
without whom there is no music business, and its willingness to
invest 12 months into ensuring it comes to the right conclusions
gives us many reasons to be cheerful.
The CMA and the government must now act rapidly to tackle these
issues and we are committed to playing an active role in the
important discussions ahead, advocating on behalf of Songwriters
and artists to ensure that the necessary steps are taken to give
them a bigger slice of the economic pie.
During the course of all this we sadly lost our beloved Sara
John Nevrkla to her battle with cancer. She was instrumental in our
relations with the DCMS but many of her friends (aided by important
words from our board member Sylvia Coleman) including strategist
Arlene McCarthy and Esther McVey MP have stepped in to help us
continue the important work she was assisting us in bringing to
fruition.
CRB
In the US we are working closely with both the National Music
Publishers' Association (NMPA) and the Nashville Songwriters
Association International (NSAI) to ensure the appeal against the
Copyright Royalty Board (CRB) 3 is denied and that the 44% increase
for Songwriters passed into law in 2019 is upheld and paid
retroactively. Concurrently CRB 4 which will determine songwriter
payments for 2023-2027 is also underway and is expected to reach a
conclusion by the summer of next year.
It is worth repeating: the song is the currency of our business.
Yet the Songwriter - who delivers the most important component to
the success of a record company, publisher, promoter, manager,
agent, music venue, radio station, broadcaster et al - is the
lowest paid person in the economic equation. An equation that has
made the modern music industry a juggernaut.
Financial Review
NAV
The Company reports two net asset values, an IFRS NAV which is
prepared in accordance with IFRS under which the Company's
investments in Catalogues are held at cost less amortisation, and
an Operative NAV which adjusts the IFRS NAV to reflect the fair
value of the Company's Catalogues, as determined by the Portfolio
Independent Valuer. The Board and the Investment Adviser consider
that the most relevant NAV for Shareholders is the Operative
NAV.
The Operative NAV per share increased by 2.5% to $1.7242 over
the six-month period (31 March 2021: $1.6829), which, when
including dividends paid, represents a Six-Month Total NAV Return
of 4.63%. In total, the Company has delivered a 12-Month Total NAV
Return of 10.82% (including dividends paid of 5.25p per share) and
Total NAV Return of 46.7% (including dividends paid of 13.75p per
share) since Hipgnosis' IPO on 11 July 2018.
The growth in the Operative NAV over the period shows a 3%
like-for-like uplift in the Fair Value of Catalogues to $2.55
billion as appraised by the Portfolio Independent Valuer. The
growth in the value of the Catalogues was driven by:
-- An upward revision of forecast streaming growth rates given
strong growth in paid subscribers, in excess of expectations
-- An anticipated recovery of Performance income, with FY 2023
income projected to recapture FY 2021 levels
The Portfolio Independent Valuer calculated the Catalogue Fair
Value as at 30 September 2021 using a discount rate of 8.5% in line
with 31 March 2021 (30 September 2020: 8.5%). The value uplift is
therefore a function of the fundamental prospects for growth.
Operative NAV Bridge from 1 April 2021 to 30 September 2021:
Opening Operative NAV per Ordinary
Share 1.6829
------------------------------------- --------
Increase in Fair Value of Catalogues 0.0540
------------------------------------- --------
Net income (inc. Taxation) 0.0353
------------------------------------- --------
Dividends Paid (0.0346)
------------------------------------- --------
FX impact (0.0080)
------------------------------------- --------
Share issue costs* (0.0054)
------------------------------------- --------
Closing Operative NAV per Ordinary
Share 1.7242
------------------------------------- --------
* Share issue costs reflect the costs of share issuances during
the period, which were fully borne out of the gross proceeds of the
respective issue.
The FX impact reflects the exposure of the Company to revenue
receipts in different currencies. Based on the Sterling to Dollar
exchange rate at 30 September 2021 of 1.3695, the Operative NAV
presented in Sterling would be 125.90p per Share.
Revenue
Gross revenue increased by 35% year-on-year to $85.3 million
(six months ended 30 September 2020: $63.3 million), primarily due
to the revenue from additional Catalogues acquired since 30
September 2020.
Net revenue of $74.1 million increased by 31% year-on-year (six
months ended 30 September 2020: $56.7 million) which is stated
after royalty cost deductions of $11.2 million and which relate to
contractual royalties due to writers of Hipgnosis Songs Group and
Kobalt Fund One.
There is an inherent time lag with music royalties between the
time a Song is performed and when the revenue is received by the
Copyright owner. The time lag can be as much as 24 months on some
international income.
The statements received in the six months to September 2021,
which are reflected in this period's revenues, predominately relate
to the earnings period for the second half of the calendar year
2020 for international revenues and first half of calendar year
2021 for domestic publishing revenues. Therefore, these results
reflect the disruption created by various lockdowns associated with
the COVID-19 pandemic. As a result, the mix of revenues has changed
against the comparative period.
There is a degree of estimation and uncertainty relating to the
impact of COVID-19 which continues to affect this current period.
In addition, our revenue accruals for this six-month period to 30
September 2021, which estimate the revenue to be paid on royalty
statements yet to be received, takes into account the anticipated
continued effect of the downturn in Performance income, which is
not expected to fully reverse by the end of this financial
period.
A breakdown of net revenue by source (after royalty cost) is set
out below:
Net Revenue
Income Source $'000 %
-------------------- ----------- ---
Streaming 26,895 36%
-------------------- ----------- ---
Performance 19,871 27%
-------------------- ----------- ---
Synchronisation 11,639 16%
-------------------- ----------- ---
Mechanical / Master
Royalties 11,495 16%
-------------------- ----------- ---
Digital 1,725 2%
-------------------- ----------- ---
Other Income 2,415 3%
-------------------- ----------- ---
Total Net Revenue 74,041
-------------------- -----------
As set out in last year's annual report, Performance income,
driven by songs performed in shops, bars, restaurant and live music
was materially impacted by various lockdowns. As a result,
Performance income declined as a percentage of overall net revenue
to 27% (12 months ended 31 March 2021: 29%).
We have recently seen evidence implying a strong bounce back in
Performance income with bars and restaurants full, Live Nation
highlighting that their concert pipeline was up double digits from
two years ago, and the calendar Q3 results from major music
companies, including Warner Music Group, showing a partial recovery
in certain COVID-impacted revenue streams.
Due to the differing timelines of income reporting, it is
difficult to say exactly when the recovery from COVID-19 will be
fully seen in our revenues. This expectation of a bounce back is
shared by Massarsky, the Portfolio Independent Valuer, who is
predicting a full recovery in Performance revenues by 2023.
Lockdowns have accelerated the change in consumer behaviour to
consuming music by streaming which has driven an increase in the
proportion of revenues derived from Streaming, from 32% to 36% of
total net revenue. There has also been an increase in our earnings
from Synchronisation income which includes digital streaming income
from TikTok and Peloton. This is most evident on steady state
Catalogues (where the average release year of the songs is over 10
years old and therefore have no further expected decay in revenue),
where there was +15% growth on streaming and +34% growth on
Synchronisation income, compared to the prior six-month period.
This growth has offset the declines seen in Performance income for
our steady state Catalogues.
It is still the case that the majority of settlements from
emerging platforms are yet to be paid through by the Publishers,
and we expect this to be reflected in future royalty statements. As
an example, a major publisher has started paying through TikTok
settlements within statements received by Hipgnosis Songs Fund in
December 2021.
Digital downloads and Mechanical royalties from CDs, Vinyl etc
continued to decline and now represent a combined share of 18% of
Net Revenue (12 months ended 31 March 2021: 20%).
As a testament to the resilience of Hipgnosis, despite feeling
the full force of COVID-19 during the period, dividends paid were
fully covered by Adjusted Profit after Tax (Net revenue, less
operating expenses, excluding Total Amortisation and excluding
Foreign Exchange losses) by 1.03x. The Company continues to target
a total dividend of 5.25p for the current financial year ending 31
March 2022.
Costs
Adjusted Operating Costs increased to $31.2 million from $12.4
million in the comparative period primarily due to recognising a
full six months of operating costs for Hipgnosis Songs Group (HSG),
compared to less than one month in the prior period as well as
increased Investment Advisory fees due to the growth of the Company
since the prior period. Within the period, there was also an
increase in interest costs associated with the higher leverage
facility to reflect the growth of the Company (now $600 million
compared to $400 million in September 2020).
EBITDA for the six months ended 30 September 2021 increased by
16.2% to $54.6 million (six months ended 30 September 2020: $47.0
million), reflecting the growth in net revenue.
EPS for the six months ended 30 September 2021 is -1.69c (six
months ended 30 September 2020: 2.04c) because of the high
amortisation charged during the period. The Group amortises
Catalogues of Songs with a limited useful life using the
straight-line method of 20 years.
Similarly, adjusted EPS, as defined within the Alternative
Performance Measures for the six months ended 30 September 2021 is
3.85c (six months ended 30 September 2020: 6.71c).
Ongoing Charges as a percentage of the average Operative NAV
increased from 1.59% as at the end of March 2021 to 1.77% primarily
driven by the annualised impact of HSG operating costs and higher
fees associated with the leverage facility. If HSG operating costs
of $4.2 million were removed, the ongoing charge ratio would be
1.39% (1.33% as at end of March 2021).
Net Debt
As at 30 September 2021, net debt had increased to $550 million
reflecting a net debt to Operative NAV of 28.7% (31 March 2021:
25.6%). The gross amount drawn down of $600 million was equal to
the cap on the facility.
Leveraged Free Cash Flow was $42.5 million as at 30 September
2021 (30 September 2020: $16.6 million), which covered dividends
paid out during the period by 1.02 times.
Pro-Forma Annual Revenue (PFAR)
Due to the rapid growth of the Company since inception, historic
comparative results do not provide a measure of like-for-like
performance in the underlying Catalogues. In addition, when making
new acquisitions in a period, the first year's revenue may often
include Right To Income (RTI). A greater discussion about the RTI
follows below. The Company therefore discloses the PFAR which shows
the royalty revenue earned in a calendar year based on royalty
statements received, irrespective of the rights of ownership. The
Company believes this provides a relevant like-for-like full year
income comparison.
Due to the time lag on receiving international royalty
statements, the latest PFAR reports the royalty earnings in the 12
months ending 31 December 2020 for Catalogues owned as at 30
September 2021.
As stated in the FY 21 Annual Results, restrictions related to
COVID-19 resulted in a number of changes in the way that listeners
consumed music. In particular, shops, bars, restaurants and live
music venues all closed for long periods in 2020 and the beginning
of 2021 as countries around the world enforced lockdowns to reduce
the spread of COVID-19. Overall, we highlighted our expectations
that this would result in earnings from Catalogues decreasing in
the period on a like-for-like basis from the previous year.
In line with our expectations, the PFAR for 2020, which includes
the most up to date earnings, was $121.3 million compared to $131.7
million from the 12 months ending 30 June 2020, a decline of
-7.9%.
This was primarily driven by Performance income which fell by
19.5% over the same period, due to the disruption caused by
lockdowns. This reduction in Performance income is expected to be
temporary with bars, restaurants and live music bouncing back
strongly in H2 2021 as COVID-19 restrictions have progressively
eased.
COVID-19 restrictions impacted younger Catalogues (<10 years
old) worse than the older vintages (>10 years old) given that
those younger Catalogues require relatively higher promotional
activity around new releases and touring, in order to sustain their
expected decay trajectory. With COVID-19 restrictions being lifted
progressively in 2021, and the bounce-back of Live and promotional
activities, we expect earnings from Performance income across all
vintages to recover.
During the lockdowns in 2020, listeners quickly turned to
consuming music via streaming with an acceleration of paid
subscribers reported by the major streaming platforms. This was
most evidently seen in our Steady State Catalogues (where growth
isn't distorted by its expected decay) which showed streaming
income growth of 4% compared to 12 months ended 30 June 2020. This
shows continued growth after impressive calendar H1 2020 growth of
22.5% compared to H1 2019.
To provide additional analysis of performance across the
catalogues, the table below splits out the PFAR allocated to those
Catalogues that are less than 10 years i.e. in a decaying position
and those above 10 years, which have reached Steady State.
12 mths to 12 mths to 12 mths to
Dec 19 Jun 20 Dec 20
-------------------------------------- ----------- ----------- -----------
Total PFAR for Catalogues owned as at
30 Sep 2021 138,139,909 131,680,182 121,263,041
<10 years 74,499,066 65,835,595 57,143,551
>10 years 63,640,843 65,844,587 64,119,489
-------------------------------------- ----------- ----------- -----------
Older or Younger than 10 years of a Catalogue is calculated as
the average release year of a Catalogue as at 1 January 2021
weighted on earnings, at time of acquisition.
Variance against Forecast (VAF)
The Variance against Forecast (VAF) is the difference between
the total cash of the royalty statements received from each
Catalogue since acquisition, and the internal acquisition model
forecast over the same period.
In the period from acquisition up to 30 September 2021, the VAF
was -7.9% (31 March 2021: -2.8%) reflecting:
-- the decrease in Performance income as a result of the
COVID-19 restrictions which could not have been anticipated in the
original forecast acquisition models as the majority of Catalogues
were acquired before the COVID-19 pandemic
-- the original acquisition model forecast assumed that the
uplifts from CRB ruling (which relates to mechanical US streaming
income) would be fully paid through from acquisition. Due to the
ongoing appeal against the ruling, royalty income is still being
paid on a 10.5% share to songwriters (the CRB ruling increases
Songwriters share to 15.1% in equal increments from 2017 to 2022).
Should the CRB ruling be upheld, the unpaid income to the Company
will be paid through as a retrospective settlement payment.
As highlighted above, the VAF compares the Catalogue performance
against forecasts made at the time of acquisition and therefore in
most instances does not take into account the significant changes
in the music industry caused by COVID-19. These acquisition
forecasts therefore also differ from the up to date forecasts
prepared on a catalogue by catalogue basis by the Investment
Adviser and the Portfolio Independent Valuer. As a result, the
Company no longer considers the VAF to provide useful performance
analysis against forecasts to investors.
Going forward the Company will no longer present the VAF and
will introduce new additional disclosures at the time of the annual
results which will provide a more insightful analysis of how the
Company's Catalogues are performing against current
expectations.
Accruals and Receivables
Despite the uncertainty of COVID-19 on earnings, we are pleased
to report that royalty statements and cash receipts received in the
second half of the year are in line with the revenue accruals
recognised in the previous period.
The conservative accrual process has meant that accruals have
been effectively managed over the earnings time lag, which can be
as much as 24 months on some international income. The Investment
Adviser will continue to manage accruals conservatively as we move
towards full recovery.
Accrued income and Royalty income receivable at 30 September
2021 was $88.2 million, a breakdown of which is set out below:
-- A $11.6 million receivable, representing royalty receipts
expected in October and November for royalties where statements
were received in September.
Included in Trade and Other receivables is an accrued income
balance of $76.6 million which is made up of:
-- $36.0 million for calendar Q3 2021 earnings where, due to the
time lag in royalty reporting, statements are not expected to be
received until calendar Q4 2021 and Q1 2022;
-- $12.9 million for calendar Q2 2020 earnings which are not
reported to the Company until calendar Q4 2021;
-- $7.8 million relating to earnings for newly acquired
Catalogues where royalty reporting is still in the process of being
redirected / switched over to Hipgnosis. These accruals are based
on royalty statements received with invoices due to be raised on
completion of the Letter
of Direction;
-- $7.8 million relating to earnings on deals acquired before
the current financial year, where royalty reporting is still in the
process of being redirected / switched over to Hipgnosis;
-- $5.5 million income accrual relating to time-lagged
international reporting on PRO earnings. International PRO
reporting has a significant time lag due to the additional
collection time taken for PROs to collect and distribute income
from overseas territories. The lag in collection is due to the
nature of collecting and processing royalties locally, then
distributing them to the domestic PRO, which will in turn process
and distribute these royalties to the Group. Six months of
international PRO earnings are accrued, although can typically
result in an earnings lag of up to 24 months; and
-- $6.6 million HSG gross revenue accrual, bringing the Group in
line with IFRS, which includes the accrued PRO lag. Separately, a
$5.1 million royalty credit representing contractual royalties due
to writers has been recognised, resulting in net revenue (NPS) for
HSG of $1.5 million.
Right to Income (RTI)
On acquisition of a Catalogue, the accounting policy of the
Company is to allocate the full purchase consideration to the cost
of the Catalogues asset. Income is recognised on acquisition via
two separate mechanisms as follows:
1. Income derived from cash receipts from the Vendor,
representing royalties collected by the Vendor starting from the
date determined by the purchase agreement, which precedes the date
of acquisition.
2. Accrued receivables are recognised for any revenues generated
by ownership of the IP to the extent that these are not yet
collected. If the income due under these mechanisms is for a period
that precedes the start of the financial year that the Catalogue is
acquired within, that income is booked within the financial year in
which the catalogue is acquired.
In order to provide further clarity to investors on RTI we are
providing additional disclosure of these revenues. Previously RTI
was solely defined as including revenue that was recognised on the
acquisition of a Catalogue that preceded the financial year, so
that investors could clearly identify all revenues which were not
from the financial period being reported on. We have re-defined RTI
to show both revenue recognised in 'Pre-Financial Year RTI' and
'Within Financial Year RTI', which has been split out in the table
opposite. Within Financial Year RTI is considered as recurring as
it relates to a revenue period that will be collected and received
by SONG in the following financial year.
The combined RTI recognised in the period was $17.97 million (30
September 2020: $12.8 million), of which the Pre-Financial Year RTI
was $14.09 million and the Within Financial Year RTI was $3.88
million.
The table below shows Recurring revenue vs. Pre-Financial Year
RTI for each financial year to date.
Financial year revenue ($m)
-------------------------------------------------
Recurring revenue
Prior year Within
(over) / FY, Within
Financial No. of under Pre-FY pre-acq FY, Total
year (FY) Description Catalogues accrual (RTI) (RTI) post-acq revenue
----------- ------------------------ ----------- ---------- ------ -------- --------- --------
New acquisitions in
FY19 year 13 - 2.52 - 6.88 9.39
- 27% - 73% 100%
------------------------------------ ----------- ---------- ------ -------- --------- --------
FY19 Pre-existing Catalogues 0 - - - - -
- - - - -
----------- ------------------------ ----------- ---------- ------ -------- --------- --------
FY19 Total 13 - 2.52 - 6.88 9.39
- 27% - 73% 100%
------------------------------------ ----------- ---------- ------ -------- --------- --------
New acquisitions in
FY20 year 41 - 13.40 27.57 23.56 64.53
- 16% 34% 29% 79%
------------------------------------ ----------- ---------- ------ -------- --------- --------
FY20 Pre-existing Catalogues 13 1.66 - - 15.88 17.55
2% - - 19% 21%
------------------------------------ ----------- ---------- ------ -------- --------- --------
FY20 Total 54 1.66 13.4 27.57 39.45 82.08
2% 16% 34% 48% 100%
------------------------------------ ----------- ---------- ------ -------- --------- --------
New acquisitions in
FY21 year 84 - 28.94 37.66 26.16 92.75
- 21% 27% 19% 67%
------------------------------------ ----------- ---------- ------ -------- --------- --------
FY21 Pre-existing Catalogues 54 (4.90) - - 50.54 45.64
(4%) - - 37% 33%
------------------------------------ ----------- ---------- ------ -------- --------- --------
FY21 Total 138 (4.90) 28.94 37.66 76.70 138.39
(4%) 21% 27% 55% 100%
------------------------------------ ----------- ---------- ------ -------- --------- --------
FY22 Half New acquisitions in
Year period 8 - 14.09 3.88 3.34 21.31
- 19% 5% 5% 29%
------------------------------------ ----------- ---------- ------ -------- --------- --------
FY22 Half
Year Pre-existing Catalogues 138 (1.53) - - 54.26 52.73
(2%) - - 73% 71%
------------------------------------ ----------- ---------- ------ -------- --------- --------
FY22 Total 146 (1.53) 14.09 3.88 57.60 74.04
(2%) 19% 5% 78% 100%
------------------------------------ ----------- ---------- ------ -------- --------- --------
Prior Year over / under accrual is the residual amount
recognised in each financial year for the unwinding of estimates
made for statements yet to come
Pre-FY RTI is revenue recognised in the current financial year
where the entitlement to revenue arose prior to the commencement of
that financial year. The pre-FY RTI is recognised on the date on
closure of the deal
Within FY, pre-acq RTI is revenue recognised in the financial
year for periods within the same financial year, but before the
date of acquisition and recognised on the date on closure of the
deal
Within FY, post-acq is revenue recognised in the financial year
for periods after the date of acquisition
In summary, despite the recent disruptive events of COVID-19,
Hipgnosis Songs Fund remains dividend covered, and even though we
expect further impacts to come in the short term, the outlook for
the asset class remains as strong and resilient as ever.
We are grateful to all of you for helping us to establish Songs
as an asset class, to define Song Management as a new paradigm for
how Songs should be managed with responsibility and to have created
a structure where what's in the best interest of the Songwriter is
also in the best interest of you, our Shareholders.
For that we thank you and it remains only for me to wish you all
a Merry Christmas and a Happy, Healthy and Prosperous 2022!
Merck Mercuriadis
Founder, Hipgnosis Songs Fund Ltd and Founder / CEO
of Hipgnosis Song Management Ltd. (Investment Adviser to
Hipgnosis Songs Fund Limited)
15 December 2021
Investment Objective and Policy
Investment Objective
The Company's objective is to provide Shareholders with an
attractive and growing level of income, together with the potential
for capital growth, from investment in Songs and associated musical
intellectual property rights, in accordance with its investment
policy.
Investment Policy
The Company's Investment Policy is to diversify risk through
investment in a Portfolio of Songs and associated musical
intellectual property rights (including, but not limited to, master
recordings, rights over future Songs that are acquired by the Group
through the payment of Advances to such Songwriter and secured
against the future Songs, and producer royalties). The Company
seeks to acquire 100% of a Songwriter's copyright interest in each
Song, which would comprise their writer's share, their publisher's
share and their performance rights. In appropriate cases, however,
the Company may not acquire all three elements of the Songwriter's
interest. The Company acquires interests in Songs which are sole
authored or co-authored. The Company may also acquire interests in
Songs jointly with another purchaser. Each Song is considered by
the Company to be a separate asset.
The Company, directly or indirectly via portfolio
administrators, enters into licensing agreements, under which the
Company receives payments attributable to the copyright interests
in the Songs which it owns. Such payments may take the form of
royalties, licence fees and / or advance payments, including:
-- mechanical royalties - when a copy of a Song is made, whether
physical (e.g. CDs, DVDs, vinyl) or digital (e.g. permanent
downloads, streaming, webcast);
-- performance royalties - when a Song is performed live or
broadcast on TV or Radio, or when a song is streamed online;
and
-- synchronisation fees - when a Song is used in another form of
media or moving picture (e.g. movie, TV show, video game,
advertisement).
The Company also receives royalties and fees payable in respect
of master recordings. Master recordings are the copyright in the
master recording of a musical composition or Song. Master
recordings earn synchronisation royalties and generate income from
sales of both physical records and digital downloads as well as
from DSPs.
The Company focuses on delivering income growth and capital
growth by pursuing efficiencies in the collection of payments and
active management of the Songs it owns.
The Company may acquire Songs for consideration consisting of
cash, Shares or a combination of cash and Shares, and payment of
part of the consideration may be on deferred terms. The Company may
acquire Songs or Catalogues directly, or indirectly by acquiring
the entity through which such Songs or Catalogues are held.
Whilst the Company does not intend to sell the Songs it owns, it
may make disposals of Songs where it considers such a disposal to
be in the best interests of Shareholders.
Investment restrictions
The Company invests its assets and manages the Songs it acquires
with the objective of constructing a high quality and diversified
Portfolio of Songs. The Company acquires Catalogues from a number
of different Songwriters, which includes Songs diversified across
music genres and sung by numerous recording artists. The Company is
subject to the following investment restrictions:
a. the Company holds interests in a minimum of 300 Songs;
b. the Advances made to Songwriters in connection with the
acquisition of rights over future Songs will not represent more
than 5% of the Company's Gross Assets, calculated at the date of
the relevant Advance;
c. the value of any single Song does not, and will not,
represent more than 10% of the Company's Gross Assets, calculated
at the date of the acquisition of such Song (and re-calculated in
the aggregate upon the acquisition of any additional interest in a
Song). In the event this limit is breached at any point after the
relevant investment has been made or added to (for example due to a
change in valuation of any Song), there is no requirement to sell
any Song, in whole or in part; and
d. the Company does not, and will not, invest in closed-ended
investment companies or other investment funds.
Cash management
The Company's uninvested capital may be invested in cash, cash
equivalents, near cash instruments and money market
instruments.
Hedging and derivatives
The Company may utilise derivatives for efficient portfolio
management. In particular, the Directors may engage in full or
partial foreign currency hedging and interest rate hedging. The
Company does not, and will not, enter into such arrangements for
investment purposes.
Leverage
The Company may incur indebtedness of up to a maximum of 30% of
its Operative Net Asset Value, calculated at the time of drawdown.
For these purposes all bank borrowings and other forms of
indebtedness incurred by any member of the Group (as defined
below), and any non-equity share capital, will be taken into
account. "Group" means the Company and its subsidiaries (as defined
in section 531 of the Companies (Guernsey) Law, 2008, as
amended).
Amendments to and compliance with the Investment Objective and
Policy
Any material change to the Company's Investment Objective and
Policy will be made only with the prior approval of the FCA and the
Shareholders by ordinary resolution.
In the event of a material breach of any of the investment
restrictions applicable to the Company, Shareholders will be
informed of the actions to be taken by the Company through an
announcement made via an RNS announcement.
Principal Risks and Uncertainties
The following is a description of the principal risks and
uncertainties for the remaining six months of the financial year,
listed in alphabetical order.
Advance payments to Songwriters don't yield projected
returns
Investment in Songs that are yet to be written or proven
commercially over a sustained period of time, is considered more
speculative than investment in proven Songs and may not be
commercially successful or generate sufficient royalties to recoup
the Advance over the forecast period or at all.
Adverse change in policies by Collection Societies and other
entities through whom the Company receives royalty payments
Should Collection Societies or other entities, including the
major music publishers and record companies, alter the way that
they collect royalties, or set lower royalty rates, or decide to
disproportionately favour major music publishers, the Company may
receive significantly reduced revenues compared to the level it had
forecast at the time of acquiring the relevant Catalogues or
Songs.
Cyber Risk
The Company (like all others) is exposed to external
cyber-security threats which have the possible impact of sensitive
information leakage and cyber fraud and, in a worst case scenario,
interruption of royalty payments.
Due diligence risk
The due diligence process may not reveal all facts that may be
relevant in connection with investment opportunities and any
mismanagement, fraud, or accounting irregularities on the part of
any seller of Catalogues, or their advisers, may materially affect
the integrity of the Investment Adviser's due diligence on such
investment opportunities.
Exchange rate risk
The Company has issued share capital denominated in Sterling and
aims to pay regular dividends in that currency. However, the
Group's functional currency is Dollars, and most of the Group's
revenue is received in Dollars, and exchange rate fluctuations may
significantly affect the NAV and the ability to pay targeted
dividends.
Financial leverage risk
The Company uses leverage and may utilise borrowings for working
capital and interest rate hedging purposes. In case of default
under the relevant financing arrangement the Company may face
adverse action from its lenders leading to operating constraints
and increased controls. This may affect the Company's ability to
pay dividends.
Impact due to the Covid-19 pandemic
The business and economic disruption as a result of the COVID-19
pandemic and associated lockdowns still has had a material adverse
effect on certain income streams, in particular performance
revenues, which relate to revenues collected from shops, bars, gyms
and live performances.
Interest Rate risk
The Company is exposed to changes in global interest rates in
several ways. Predominantly, but not exclusively, the fiscal and
monetary decisions of the US Government and its Central Bank may
affect the interest rates at which the Company can borrow money. It
may also impact the discount rate, which is used to evaluate the
current and forecast value of Catalogues it is purchasing, or has
already invested in. Interest rates also have an impact on exchange
rates, mentioned above.
Key person risk
The Company depends on the services of the Investment Adviser,
in particular on Merck Mercuriadis, Chief Executive of the
Investment Adviser. Subsequent to the period end, Blackstone Inc.,
which brings considerable investment experience and resources, has
purchased a controlling stake in the Investment Adviser.
Market trends
The Company is heavily reliant on streaming (or an equivalent
technology) remaining popular with consumers. Any adverse change in
this would affect revenues. Conversely, technological advances
could lead to a growth in royalties as consumers' access to music
continues to improve.
Operational reliance on service providers
The Company relies primarily on third-party service providers
for its core operations including oversight of its subsidiaries
under the terms of its Investment Advisory Agreement.
Emerging Risks
Emerging risks are regularly considered to assess any potential
impact on the Group and to determine whether any actions are
required. These include regulatory / legislative change,
macroeconomic and political change as well as new competitors
entering the market.
The principal risks and uncertainties of the Company were
identified in further detail in the Annual Report and Financial
Statements for the year ended 31 March 2021. The Company's
principal risk factors are fully discussed in the Company's
Prospectus, available on the Company's website
(www.hipgnosissongs.com) and should be reviewed by
Shareholders.
Directors' Responsibilities
The Directors are responsible for preparing this Interim Report
in accordance with applicable laws and regulations. The Directors
confirm that to the best of their knowledge:
-- The Condensed Consolidated Financial Statements have been
prepared in accordance with IAS 34 Interim Financial Reporting;
and
-- The Chair's Statement and Investment Adviser's Report include
a fair review of the information required by:
i ) DTR 4.2.7R of the Disclosure Guidance and Transparency
Rules, being an indication of important events that have occurred
during the first period of the financial year; their impact on the
condensed set of consolidated financial statements; and a
description of the principal risks and uncertainties of the
remaining six months of the year; and
ii ) DTR 4.2.8R of the Disclosure Guidance and Transparency
Rules, being related party transactions that have taken place in
the first period of the current financial year and that have
materially affected the financial position or performance of the
Company during that period.
The Directors are responsible for keeping proper accounting
records, which disclose with reasonable accuracy at any time the
financial position of the Company and enable them to ensure that
the Financial Statements comply with the Companies Law. They are
also responsible for safeguarding the assets of the Company and
hence for taking reasonable steps for the prevention and detection
of fraud, error and non-compliance with law and regulations.
The Directors are responsible for the maintenance and integrity
of the corporate and financial information included on the website
(www.hipgnosissongs.com).
On behalf of the Board
Andrew Sutch
Chair
15 December 2021
Independent Review Report to Hipgnosis Songs Fund Limited
Report on the condensed consolidated financial statements
Our conclusion
We have reviewed Hipgnosis Songs Fund Limited's condensed
consolidated financial statements (the "interim financial
statements") in the Interim Report of Hipgnosis Songs Fund Limited
for the 6-month period ended 30 September 2021. Based on our
review, nothing has come to our attention that causes us to believe
that the interim financial statements are not prepared, in all
material respects, in accordance with International Accounting
Standard 34, 'Interim Financial Reporting' and the Disclosure
Guidance and Transparency Rules sourcebook of the United Kingdom's
Financial Conduct Authority.
What we have reviewed
The interim financial statements comprise:
-- the condensed consolidated statement of financial position as at 30 September 2021;
-- the condensed consolidated statement of comprehensive income for the period then ended;
-- the condensed consolidated statement of cash flows for the period then ended;
-- the condensed consolidated statement of changes in equity for the period then ended; and
-- the explanatory notes to the interim financial statements.
The interim financial statements included in the Interim Report
have been prepared in accordance with International Accounting
Standard 34, 'Interim Financial Reporting' and the Disclosure
Guidance and Transparency Rules sourcebook of the United Kingdom's
Financial Conduct Authority.
As disclosed in note 2 to the interim financial statements, the
financial reporting framework that has been applied in the
preparation of the full annual financial statements of the Group is
The Companies (Guernsey) Law, 2008 and International Financial
Reporting Standards (IFRSs).
Responsibilities for the interim financial statements and the
review
Our responsibilities and those of the directors
The Interim Report, including the interim financial statements,
is the responsibility of, and has been approved by, the directors.
The directors are responsible for preparing the Interim Report in
accordance with International Accounting Standard 34, 'Interim
Financial Reporting' and the Disclosure Guidance and Transparency
Rules sourcebook of the United Kingdom's Financial Conduct
Authority.
Our responsibility is to express a conclusion on the interim
financial statements in the Interim Report based on our review.
This report, including the conclusion, has been prepared for and
only for the Company for the purpose of complying with the
Disclosure Guidance and Transparency Rules sourcebook of the United
Kingdom's Financial Conduct Authority and for no other purpose. We
do not, in giving this conclusion, accept or assume responsibility
for any other purpose or to any other person to whom this report is
shown or into whose hands it may come save where expressly agreed
by our prior consent in writing.
What a review of interim financial statements involves
We conducted our review in accordance with International
Standard on Review Engagements 2410, 'Review of Interim Financial
Information Performed by the Independent Auditor of the Entity'
issued by the International Auditing and Assurance Standards
Board.
A review of interim financial information consists of making
enquiries, primarily of persons responsible for financial and
accounting matters, and applying analytical and other review
procedures.
A review is substantially less in scope than an audit conducted
in accordance with International Standards on Auditing and,
consequently, does not enable us to obtain assurance that we would
become aware of all significant matters that might be identified in
an audit. Accordingly, we do not express an audit opinion.
We have read the other information contained in the Interim
Report and considered whether it contains any apparent
misstatements or material inconsistencies with the information in
the interim financial statements.
PricewaterhouseCoopers CI LLP
Chartered Accountants
Guernsey, Channel Islands
15 December 2021
Condensed Consolidated Statement of Comprehensive Income
For the six months ended 30 September 2021 (unaudited)
1 April 1 April
2021 to 2020 to
30 September 30 September
2021 2020
Note $'000 $'000
---------------------------------------------- ---- ------------- -------------
Income
Total revenue 10 85,271 63,314
Interest income 2 70
Royalty costs 3 (11,232) (6,696)
---------------------------------------------- ---- ------------- -------------
Net revenue 74,041 56,688
---------------------------------------------- ---- ------------- -------------
Expenses
Advisory and performance fees 13 (8,220) (4,497)
Administration fees (639) (591)
Amortisation of Catalogues of Songs 5 (52,124) (24,100)
Amortisation of capitalised borrowing costs (1,622) (1,326)
Directors' remuneration 13 (315) (252)
Brokers' fees (1) (40)
Auditor remuneration (499) (184)
Legal and professional fees (2,955) (4,129)
Finance charges for deferred consideration (672) (670)
Loan Interest (10,002) (2,037)
Subscriptions and Licences (249) -
Charitable Donations (20) -
HSG FV Gain - 1,767
Other operating expenses 11 (6,885) (1,791)
Foreign exchange (losses) (7,841) (3,663)
---------------------------------------------- ---- ------------- -------------
Operating expenses (92,044) (41,513)
---------------------------------------------- ---- ------------- -------------
Operating (loss)/profit for the period before
taxation (18,003) 15,175
Taxation 4 (1,240) (2,206)
---------------------------------------------- ---- ------------- -------------
(Loss)/Profit for the period after tax (19,243) 12,969
---------------------------------------------- ---- ------------- -------------
Total comprehensive income for the period (19,243) 12,969
---------------------------------------------- ---- ------------- -------------
Basic and Diluted Earnings per Share (cents) 14 (1.69) 2.04
Adjusted Earnings per Share (cents) 14 3.85 6.61
---------------------------------------------- ---- ------------- -------------
All activities derive from continuing operations.
The accompanying notes form an integral part of these Condensed
Consolidated Financial Statements.
Condensed Consolidated Statement of Financial Position
As at 30 September 2021
30 September 31 March
2021 2021
$'000 $'000
Note (Unaudited) (Audited)
--------------------------------------------- ---- ------------- -------------
Assets
Catalogues of Songs 5 2,090,834 1,878,924
Other assets 1,182 3,740
Goodwill 272 272
Trade and other receivables 110,663 107,628
Cash and cash equivalents 7 49,108 112,634
--------------------------------------------- ---- ------------- -------------
Total assets 2,252,059 2,103,198
--------------------------------------------- ---- ------------- -------------
Liabilities
Loans and borrowings 6 589,596 565,860
Other payables and accrued expenses 8 37,221 74,493
--------------------------------------------- ---- ------------- -------------
Total liabilities 626,817 640,353
--------------------------------------------- ---- ------------- -------------
Net assets 1,625,242 1,462,845
--------------------------------------------- ---- ------------- -------------
Equity
Share capital 9 1,692,451 1,466,851
Other reserves - 234
Foreign currency translation reserve (2,245) (419)
Retained losses (64,964) (3,821)
--------------------------------------------- ---- ------------- -------------
Total equity attributable to the owners
of the Company 1,625,242 1,462,845
--------------------------------------------- ---- ------------- -------------
Number of Ordinary Shares in issue at period
end 9 1,211,214,286 1,073,440,268
--------------------------------------------- ---- ------------- -------------
IFRS Net Asset Value per Ordinary Share
(cents) 134.18 136.28
Operative Net Asset Value per Ordinary Share
(cents) 172.42 168.29
--------------------------------------------- ---- ------------- -------------
Approved and authorised for issue by the Board of Directors on
15 December 2021 and signed on their behalf by:
Andrew Sutch Chair Andrew Wilkinson Director
The accompanying notes form an integral part of these Condensed
Consolidated Financial Statements.
Condensed Consolidated Statement of Changes in Equity
For the six months ended 30 September 2021 (unaudited)
Foreign
Number currency
of translation Retained
Ordinary Share capital Other reserves reserve losses Total Equity
Note Shares $'000 $'000 $'000 $'000 $'000
---------------------- ----- ------------- ------------- -------------- ------------ -------- ------------
As at 1 April 2021 1,073,440,268 1,466,851 234 (419) (3,821) 1,462,845
Shares issued 9 137,774,018 229,702 (234) - - 229,468
Share issue costs 9 - (4,102) - - - (4,102)
Dividends Paid 12 - - - - (41,900) (41,900)
Foreign currency
translation reserves
movement - - - (1,826) - (1,826)
Loss for the period - - - (19,243) (19,243)
---------------------- ----- ------------- ------------- -------------- ------------ -------- ------------
As at 30 September
2021 1,211,214,286 1,692,451 - (2,245) (64,964) 1,625,242
---------------------- ----- ------------- ------------- -------------- ------------ -------- ------------
For the six months ended 30 September 2020 (unaudited)
Foreign
currency
Number of translation Retained
Ordinary Share Capital reserve earnings Total Equity
Note Shares $'000 $'000 $'000 $'000
---------------------- ----- ----------- ------------- ------------ --------- ------------
As at 1 April 2020 615,851,887 801,844 (412) 9,253 810,685
Shares issued 9 181,402,407 269,302 - - 269,302
Share issue costs 9 - (4,430) - - (4,430)
Dividends paid 12 - - - (19,593) (19,593)
Foreign currency
translation
reserve movement - - (8,743) - (8,743)
Profit for the period - - - 12,969 12,969
---------------------- ----- ----------- ------------- ------------ --------- ------------
As at 30 September
2020 797,254,294 1,066,716 (9,155) 2,629 1,060,190
---------------------- ----- ----------- ------------- ------------ --------- ------------
The Loss for the six-month period ending 30 September 2021 of
$19.243 million is calculated net of Total Amortisation and Foreign
Exchange Losses which together amount to $62.259 million. Adjusting
for Total Amortisation and Foreign Exchange Losses the Net Income
(inc. Taxation) is therefore $43.016 million, which represents
1.03x dividend cover on the dividends paid of $41.900 million.
The accompanying notes form an integral part of these Condensed
Consolidated Financial Statements.
Condensed Consolidated Statement of Cash Flows
For the six months ended 30 September 2021 (unaudited)
1 April 2021 1 April
to 2020 to
30 September 30 September
2021 2020
Note $'000 $'000
--------------------------------------------------- ------ -------------- --------------
Cash flows used in operating activities
Operating profit/(loss) for the period before
taxation (18,003) 15,175
Adjustments for non-cash items:
Loan interest 10,002 2,037
Provision for writer advances 916 -
Movement in writer advances (6,560) -
Movement in trade and other receivables 2,608 (37,235)
Movement in other payables and accrued expenses (3,387) 9,748
Amortisation of Catalogues of Songs and borrowing
costs 54,749 25,425
Foreign exchange (gains)/losses 443 3,663
Taxation (4,798) (2,206)
--------------------------------------------------- ------ -------------- --------------
Net cash generated from operating activities 35,970 16,607
--------------------------------------------------- ------ -------------- --------------
Cash flows used in investing activities
Purchase of Catalogues of Songs (294,374) (306,247)
--------------------------------------------------- ------ -------------- --------------
Net cash used in investing activities (294,374) (306,247)
--------------------------------------------------- ------ -------------- --------------
Cash flows generated from financing activities
Proceeds from issue of shares* 9 229,468 539,548
Issue costs paid 9 (4,102) (9,834)
Dividends paid 12 (41,900) (19,593)
Interest paid (10,660) (2,037)
Borrowing costs (594) (4,261)
Bank loan 12 22,708 34,032
--------------------------------------------------- ------ -------------- --------------
Net cash generated from financing activities 194,920 537,855
--------------------------------------------------- ------ -------------- --------------
Net movement in cash and cash equivalents (63,484) 248,215
--------------------------------------------------- ------ -------------- --------------
Cash and cash equivalents at the start of the
period 112,634 17,454
Effect of foreign exchange rate changes on cash
and cash equivalents (42) 1,855
--------------------------------------------------- ------ -------------- --------------
Cash and cash equivalents at the end of the period 49,108 267,524
--------------------------------------------------- ------ -------------- --------------
* Includes C Shares and Ordinary Shares
The accompanying notes form an integral part of these Condensed
Consolidated Financial Statements.
Notes to the Condensed Consolidated Financial Statements
For the six months ended 30 September 2021
1. General information
Hipgnosis Songs Fund Limited was incorporated and registered in
Guernsey on 8 June 2018 with registered number 65158
and is governed in accordance with the provisions of the
Companies (Guernsey), Law, 2008. The registered office address is
Floor 2, Trafalgar Court, Les Banques, St Peter Port, Guernsey, GY1
4LY.
The Company's Ordinary Shares were admitted to trading on the
Specialist Fund Segment of the London Stock Exchange on 11 July
2018, and migrated to a Premium Listing on the Main Market of the
London Stock Exchange on 25 September 2019. The Company was added
as a constituent of the FTSE 250 Index effective from after the
market close on 20 March 2020.
Accounting recognition and measurement policies have only been
included where material to the consolidated results and financial
position of the Company.
The Company makes its investments through its subsidiaries,
which are registered in the UK and US as limited companies.
The Consolidated Financial Statements present the results of the
Group for the six months ended 30 September 2021 and are unaudited.
The Group is principally engaged in investing in and managing music
copyrights and associated musical intellectual property.
2. Accounting policies
Basis of preparation
The Condensed Consolidated Financial Statements included in this
Interim Report have been prepared in accordance with IAS 34
'Interim Financial Reporting' and the Disclosure and Transparency
Rules of the FCA.
The Condensed Consolidated Financial Statements do not include
all the information and disclosures required in the Annual Report
and should be read in conjunction with the Company's Annual Report
for the year ended 31 March 2021, which are available on the
Company's website ( www.hipgnosissongs.com ). The Annual Report has
been prepared in accordance with IFRS.
The same accounting policies and methods of computation have
been followed for the preparation of these Condensed Consolidated
Financial Statements as in the Annual Report for the year ended 31
March 2021.
Group information
As at 30 September 2021, the details of the Company's
subsidiaries are as follows:
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
Hipgnosis Songs Group LLC * US 100 100 Full USD
BDM Acquisition Corp, LLC, rebranded
Hipgnosis Acquisition Corp US 100 100 Full USD
Kennedy Publishing & Productions Limited UK 100 100 Full GBP
F.S. Music Limited (1) UK 100 100 Full USD
Robot of the Century Music Publishing
Inc US 100 100 Full USD
C H Publishing Limited (1) UK 100 100 Full GBP
Deamon Limited UK 100 100 Full GBP
PB Songs Ltd UK 100 100 Full GBP
----------------------------------------- --------------- ----------- ---------- ------------- ----------
* Hipgnosis Songs Group is a publishing company which was formed
in June 2018 and it is equity accounted for in the Consolidated
Financial Statements.
This is a subsidiary of Hipgnosis SFH XX Limited and therefore
an indirect subsidiary of Hipgnosis Songs Fund Limited.
1 Dissolved 2 November 2021
The majority of subsidiaries of the Company are considered tax
resident in the UK and are subject to UK corporation tax. Robot of
the Century Music Publishing Inc is registered in New York,
Hipgnosis Songs Group LLC and Hipgnosis Acquisition Corp. are
registered in Delaware and are subject to applicable State and
Federal Taxes.
Going concern
The Directors monitor the capital and liquidity requirements of
the Company on a regular basis. They have also reviewed cash flow
forecasts prepared by the Investment Adviser which are based in
part on assumptions about the future purchase and returns from
existing Catalogues of Songs and the annual operating cost.
Based on these sources of information and their own judgment,
the Directors believe it is appropriate to prepare the Condensed
Consolidated Financial Statements of the Group on a going concern
basis.
Segmental reporting
The chief operating decision maker is the Investment Adviser.
All of the Company's income is global but received from sources
within US, Europe, UK and Guernsey. While the Company's income is
derived internationally, the Directors are of the opinion that the
Group is engaged in a single segment of business, being the
investment of the Company's capital in a Portfolio of Song
copyrights, with an attractive and growing level of income,
together with the potential for capital growth.
3. Significant accounting judgments, estimates and assumptions
The preparation of the Group's Condensed Consolidated Financial
Statements requires the application of estimates and assumptions
which may affect the results reported in the financial statements.
Uncertainty about these estimates and assumptions could result in
outcomes that require a material adjustment to the carrying amount
of the asset or liability affected in future periods. Estimates and
underlying assumptions are reviewed on an ongoing basis. Revisions
to accounting estimates are recognised in the period in which the
estimates are revised and in any future periods affected.
The key assumptions concerning the future and other key sources
of estimation uncertainty at the reporting date, that have a
significant risk of resulting in a material adjustment to the
carrying amounts of assets and liabilities within the next
financial year, are discussed below. The Group based its
assumptions and made estimates based on the information available
when the Condensed Consolidated Financial Statements were prepared.
However, these assumptions and estimates may change based on market
changes or circumstances beyond the control of the Group.
Critical estimates in applying the Group's accounting policies -
revenue recognition and royalty costs:
In calculating accruals, the Investment Adviser makes judgments
around seasonality, over or under performance, and commercial
factors based on historical performance, and its knowledge of each
Catalogue through its regular correspondence with the various
administrators, record labels and international societies.
Estimated royalty revenue receivable is accrued for on the basis
of historical earnings for each Catalogue, which incorporates an
element of uncertainty. The estimated revenue accrual may not
therefore directly equal the actual cash received in respect of
each accounting period and adjustments may therefore be required
throughout the financial period when the actual revenue received is
known, and these adjustments may be material.
Net revenues also include an accrual for performance income, to
account for the writer's share of performance royalties which are
subject to a significant time lag in reporting in the industry, but
which the Group is entitled to receive in due course. In
recommending the estimate of this accrual to the Board of Directors
the Investment Adviser used its analysis of each Catalogue's
revenue history as well as its knowledge of the respective
Catalogue performance trends to recommend the estimated accruals.
The PRO income accrual is based on analysis of each Catalogue's
revenue history as well as knowledge of the respective Catalogue's
performance trends.
Net revenue is subject to a royalty cost accrual applied to
gross revenue receipts primarily within the Hipgnosis Songs Group
LLC subsidiaries. Royalty cost accruals represent contractual
royalties due to songwriters and other rights holders that are
payable on a six-monthly basis for writers under publishing
contracts and quarterly for clients under administration contracts.
Royalty rates vary by writer (negotiated by contract) and by
revenue stream.
Expected Credit Loss (ECL) in relation to revenue
receivables:
Royalty earnings for accruals and receivables recognised in the
period ending 30 September 2021 are distributed by PROs, Publishers
and Record Labels who collect royalties at the source of usage and
distribute those earnings directly to the Company.
The probability of future default has been deemed close to nil,
due to the long-standing history of PROs, Publishers and Record
Labels within the music industry and the existing framework of cash
collection amongst the Company's stakeholders. Whilst there are
smaller/newer organisations that have relatively unproven credit
resilience these account for a small minority of our
receivables.
The Company's current risk assessment includes analysis of the
exposure to commercial risk by PROs, Publishers and Record Labels,
and the likely impact of their credit risk on Hipgnosis' revenue
streams.
Assessment of useful life of intangible assets
In order to calculate the amortised cost of the intangible
assets it is necessary to assess the useful economic life of the
copyright interests in Songs. This requires forecasts of the
expected future revenue from the copyright interests, which
contains significant uncertainties as the ongoing popularity of a
Song can fluctuate unexpectedly. An assessment of the useful life
of each Catalogue is considered at acquisition and at each
reporting period, and the Board has consistently considered the
useful life of each Catalogue acquired to be 20 years, in line with
industry standard.
Assessment of impairment and the Calculation of Operative
NAV
Intangible assets are subject to a semi-annual impairment review
which relies on assumptions made by the Board. Assumptions are
updated annually, specifically those relating to future cash flows
and discount rates.
The fair value estimates that are prepared in order to calculate
the Operative NAV and Operative NAV per Share are also used to
assess whether there is evidence that the intangible assets may be
impaired. Management's impairment review as at 30 September 2021
concluded that no impairment was required to the Group's Catalogue
Investments.
Valuations of music publishing rights typically adopt the DCF
valuation approach which measures the present value of anticipated
future revenues from acquiring the Catalogues, which are discounted
at the Company's weighted average cost of capital of 8.5% and a
terminal value in 16 years based on the calculated stable growth
rate of a catalogue after that 16-year period. This method is
accepted as an objective way of measuring future benefits; taking
into account income projections from various music industry sources
across various revenue flows whilst also factoring in the
associated cost of capital.
It is the intention of the Board that Catalogues of Songs will
be valued on an ongoing basis using a consistent DCF valuation
methodology, and that this be used as an initial indicator of
impairment for each Catalogue of Songs.
4. Taxes
Whilst the Company is incorporated in Guernsey, the majority of
the Company's subsidiaries are incorporated and tax resident in the
UK and the majority of the Group's income and expenditure is
incurred in these UK entities. The Group has exposure to US
taxation through ownership of Robot of the Century Music Publishing
Inc, Hipgnosis Songs Group LLC and Hipgnosis Acquisition Corp, and
through the generation of revenues by UK-domiciled companies in the
United States, however this exposure is not considered to be
material. Aside from the US, the Group has no other foreign
subsidiaries.
The Company's conversion to an investment trust company took
effect from 1 April 2021 and therefore the Company has been treated
as being resident in the UK for tax purposes and ceased to be a
Guernsey tax exempt vehicle under The Income Tax (Exempt Bodies)
(Guernsey) Ordinance, 1989, as amended from this date.
The taxation charge of $1,240,000 (period to 30 September 2020:
$2,206,000) Is based upon an estimate of the full year results to
31 March 2022.
5. Catalogues of Songs
$'000
----------------------------------- ---------
Cost
At 1 April 2021 1,972,199
Additions 264,034
------------------------------------ ---------
At 30 September 2021 2,236,233
------------------------------------ ---------
Amortisation and impairment
At 1 April 2021 93,275
Amortisation 52,124
Impairment -
----------------------------------- ---------
At 30 September 2021 145,399
------------------------------------ ---------
Net book value
At 1 April 2021 1,878,924
At 30 September 2021 2,090,834
------------------------------------ ---------
Fair value as at 30 September 2021 2,553,983
------------------------------------ ---------
Cost
At 1 April 2020 882,906
Additions 1,089,293
------------------------------------ ---------
At 31 March 2021 1,972,199
------------------------------------ ---------
Amortisation and impairment
At 1 April 2020 25,400
Amortisation 67,875
Impairment -
----------------------------------- ---------
At 31 March 2021 93,275
------------------------------------ ---------
Net book value
At 1 April 2020 857,506
At 31 March 2021 1,878,924
------------------------------------ ---------
Fair value as at 31 March 2021 2,213,719
------------------------------------ ---------
The Group amortises Catalogues of Songs with a limited useful
life using the straight-line method of 20 years (other than in
exceptional circumstances for specific Catalogues of Songs). At 30
September 2021 the Portfolio consisted of Catalogues of Songs held
for no longer than four years. An assessment of the useful life of
each Catalogue is considered at each reporting period, which is 20
years in line with industry standard. At 30 September 2021
accumulated amortisation for Catalogue of Songs is $145,398,554 (31
March 2021: $93,274,850) and the accumulated impairment to date is
$nil (31 March 2021: $nil).
The Board engaged portfolio Independent Valuer, Massarsky
Consulting, Inc., to value the Catalogues as at 30 September 2021.
Each income type from each Catalogue was analysed and forecast to
derive the fair value of the Catalogues by adopting a DCF valuation
methodology using a discount rate of 8.5% (31 March 2021: 8.5%)
that would be categorised under Level 3 within the fair value
hierarchy of IFRS 13 "Fair Value Measurement". Income was analysed
and forecast at the level of each individual Catalogue and by
income type with the exception of Kobalt, which was evaluated as a
whole. Future revenues were also estimated, often at the level of
individual Songs, and incorporated into their valuation. Massarsky
Consulting has also taken into consideration macro factors
including the growth of streaming revenue, the global growth of the
recorded music industry and the short- and medium-term impact of
COVID-19 in their analysis. The Board has approved and adopted the
valuations prepared by the Portfolio Independent Valuer which are
used as an input into the impairment review process and for the
Operative NAV.
The sensitivity to the discount rate used in the Operative NAV
is as follows:
-0.5% discount rate will grow the fair value of the Portfolio by
9.3%, increasing the Operative NAV by $283 million which represents
an increase of $0.20 Operative NAV per share.
+0.5% discount rate will reduce the fair value of the Portfolio
by 7.9%, reducing the Operative NAV by $200.7 million which
represents a decrease of -$0.17 Operative NAV per share.
6. Loans and borrowings
There are no changes to the terms of the Company's RCF as
disclosed on page 144 of the Company's Annual report for the year
ended 31 March 2021
30 September 31 March
2021 2021
$'000 $'000
------------------------------------- --- ------------ --------
Opening balance - loan drawn 577,292 74,014
Amounts drawn down during the period 22,708 503,278
------------------------------------------ ------------ --------
Total loan drawn down 600,000 577,292
Cumulative Borrowing Costs (10,404) (11,432)
------------------------------------------ ------------ --------
Closing balance 589,596 565,860
------------------------------------------ ------------ --------
7. Cash and cash equivalents
Cash and cash equivalents comprises cash held by the Group
available on demand and cash held in deposits.
8. Other payables and accrued expenses
30 September 31 March
2021 2021
$'000 $'000
----------------------------- ------------ --------
Amounts owed to Songwriters 18,167 18,522
VAT payable 340 2,609
Loan interest payable 619 1,277
Administration fees 189 227
Legal and professional fees 678 1,932
Audit fees 597 523
Corporation tax 1,240 4,798
Other expenses 3,022 2,568
Deferred investment payables 12,369 42,037
----------------------------- ------------ --------
37,221 74,493
----------------------------- ------------ --------
Amounts owed to Songwriters represent royalties payable in
relation to HSG and Kobalt new releases.
9. Share capital and capital management
The share capital of the Company may consist of an unlimited
number of: (i) Ordinary Shares of no par value which upon issue the
Directors may classify as Ordinary Shares; and (ii) C Shares
denominated in such currencies as the Directors may determine.
Ordinary Shares of no par value No. of Units
---------------------------------------- --------------
Issued and fully paid:
Shares as at 1 April 2021 1,073,440,268
Shares issued on 29 April 2021 9,000,000
Shares issued on 9 July 2021 128,774,018
------------------------------------------ --------------
Ordinary Shares as at 30 September 2021 1,211,214,286
------------------------------------------ --------------
$
---------------------------------------- --------------
Issued and fully paid:
Share capital at 1 April 2021 1,466,850,825
Shares issued on 29 April 2021 14,937,846
Shares issued on 9 July 2021 214,764,243
Share issue costs (4,102,278)
------------------------------------------ --------------
Shares as at 30 September 2021 1,692,450,636
------------------------------------------ --------------
No. of Units
-------------------------------------- -------------
Issued and fully paid:
Shares as at 1 April 2020 615,851,887
Shares issued on 10 September 2020 17,609,304
Shares issued on 24 September 2020 163,793,103
Shares issued on 30 November 2020 (1) 214,202,503
Shares issued on 5 February 2021 61,983,471
---------------------------------------- -------------
Ordinary Shares as at 31 March 2021 1,073,440,268
---------------------------------------- -------------
$
-------------------------------------- -------------
Issued and fully paid:
Share capital at 1 April 2020 801,843,874
Shares issued on 10 September 2020 27,599,686
Shares issued on 24 September 2020 241,702,336
Share issue costs (4,430,446)
Shares issued on 30 November 2020 (1) 304,132,072
Share issue costs (5,630,220)
Shares issued on 5 February 2021 103,621,811
Share issue costs (1,988,288)
---------------------------------------- -------------
Shares as at 31 March 2021 1,466,850,825
---------------------------------------- -------------
1 236,400,512 C Shares converted to 214,202,503 Ordinary
Shares
Under the Company's Articles of Incorporation, each Shareholder
present in person or by proxy has the right to one vote at general
meetings. On a poll, each Shareholder is entitled to one vote for
every Ordinary Share held.
Shareholders are entitled to all dividends paid by the Company
and, on a winding up, provided the Company has satisfied all of its
liabilities, the Shareholders are entitled to all of the residual
assets of the Company.
10. Revenue
1 April 2021 1 April 2020
to to
30 September 30 September
2021 2020
$'000 $'000
------------------------- ------------- -------------
Mechanical Income 5,530 6,033
Performance Income 11,194 11,061
Digital Downloads Income 1,999 1,552
Streaming Income 19,858 10,144
Synchronisation Income 14,921 8,739
Publishing Admin Income 108 43
Producer Royalties 3,964 2,981
Masters Income 3,939 3,789
Other Income 2,365 3,457
Writer Share Income 21,393 15,515
------------------------- ------------- -------------
Total revenue 85,271 63,314
------------------------- ------------- -------------
There is an inherent time lag with royalties between the time a
Song is performed, and the revenue being received by the Copyright
owner. The time lag ranges from 3-6 months on domestic income and
12-18 months on international income. The revenue accruals booked
in the period are included within the Accruals and Receivables.
All revenue streams disclosed in this note are in scope of IFRS
15.
11. Other operating expenses
1 April 2021 1 April
to 2020 to
30 September 30 September
2021 2020
$'000 $'000
--------------------------------- ------------- -------------
Aborted deal expenses 367 224
Bank charges 23 20
Directors and officers Insurance 163 68
Disbursements and sundry 582 221
Fixed Asset depreciation 331 14
Listing Fees 299 570
Postage, stationery and printing 53 16
Provision for HSG Advances (1) 915 -
Public relation fees 504 217
Regulatory fees 59 44
Staff payroll and expenses 3,335 257
Travel and accommodation fees 254 140
--------------------------------- ------------- -------------
Total other operating expenses 6,885 1,791
--------------------------------- ------------- -------------
1 The Provision for HSG Advances relates to HSG Advances that
have been provided for in the financial period. Baby Writers
(Writers with no established history) are provided for in full.
Provisions are also made against unrecouped balances for
established writers where the recoupment rates may not lead to a
full recoupment of the initial Advance payment.
HSG was acquired on 10 September 2020 and therefore the
comparatives, for example staff payroll and expenses, are not for a
full period.
12. Dividends
A summary of the dividends is set out below:
Dividend
per share Total Dividend
1 April 2021 to 30 September 2021 Pence $'000
------------------------------------------------------ ---------- --------------
Interim dividend in respect of quarter ended 31 March
2021 1.3125 20,093
Interim dividend in respect of quarter ended 30 June
2021 1.3125 21,807
------------------------------------------------------ ---------- --------------
2.63 41,900
------------------------------------------------------ ---------- --------------
Dividend
per share Total Dividend
1 April 2020 to 30 September 2020 Pence $'000
------------------------------------------------------ ---------- --------------
Interim dividend in respect of quarter ended 31 March
2020 1.25 9,485
Interim dividend in respect of quarter ended 30 June
2020 1.25 10,108
------------------------------------------------------ ---------- --------------
2.50 19,593
------------------------------------------------------ ---------- --------------
Subsequent to the period end, the Company announced an interim
dividend for the quarter from 1 July 2021 to 30 September 2021 of
1.3125p per Ordinary Share, paid on 30 November 2021.
13. Related Party Transactions and Directors' Remuneration
Parties are considered to be related if one party has the
ability to control the other party or exercise significant
influence over the party in making financial or operational
decisions.
Directors
The Company Directors' fees for the period to 30 September 2021
amounted to $314,811 (30 September 2020: $251,806).
Outstanding fees amounted to $nil at the reporting date (30
September 2020: $nil).
Investment Adviser
Merck Mercuriadis is the founder of the Investment Adviser.
The Company has entered into an Investment Advisory Agreement
with the Investment Adviser pursuant to which the Investment
Adviser will source Songs and provide recommendations to the Board
on acquisition and disposal strategies, manage and monitor royalty
and/or fee income due to the Company from its copyrights and
collection agents, and develop strategies to maximise the earning
potential of the Songs in the portfolio through improved placement
and coverage of Songs.
Investment Adviser fees for the period to 30 September 2021
amounted to $8,219,606 (30 September 2020: $4,496,933) of which
$nil was outstanding at the reporting date (31 March 2021: GBPnil)
and 137,655 performance fee shares were Issued to the Investment
Adviser on 9 July 2021.
14. Earnings per share
30 September 30 September
2021 2021
Basic Diluted
---------------------------------------------------- ------------- -------------
Loss for the period ($'000) (19,243) (19,243)
Weighted average number of Ordinary Shares in issue 1,140,172,604 1,140,172,604
Earnings per share (cents) (1.69) (1.69)
---------------------------------------------------- ------------- -------------
30 September 30 September
2020 2020
Basic Diluted
---------------------------------------------------- ------------- -------------
Profit for the period ($'000) 12,969 12,969
Weighted average number of Ordinary Shares in issue 636,479,578 636,479,578
Earnings per share (cents) 2.04 2.04
---------------------------------------------------- ------------- -------------
30 September 30 September
2021 2020
Adjusted Adjusted
---------------------------------------------------- ------------- ------------
(Loss)/profit for the period ($'000) (19,243) 12,969
Amortisation of catalogues 52,124 24,100
Amortisation of borrowing costs 1,622 1,326
Finance charges for deferred consideration 672 670
Foreign exchange losses 7,841 3,663
Provision for HSG advances 916 -
---------------------------------------------------- ------------- ------------
Adjusted earnings 43,932 42,728
Weighted average number of Ordinary Shares in issue 1,140,172,604 636,479,578
---------------------------------------------------- ------------- ------------
Adjusted Earnings per Share (cents) 3.85 6.71
---------------------------------------------------- ------------- ------------
The earnings per share is based on the profit or loss of the
Group for the period and on the weighted average number of Ordinary
Shares for the period ended 30 September 2021.
There are no dilutive shares at 30 September 2021.
15. Net Asset Value per Share and Operative Net Asset Value per Share
30 September 31 March
2021 2021
----------------------------------- ------------- -------------
Number of Ordinary Shares in issue 1,211,214,286 1,073,440,268
IFRS NAV per share (cents) 134.18 136.28
Operative NAV per share (cents) 172.42 168.29
----------------------------------- ------------- -------------
The IFRS NAV per share and the Operative NAV per share are
arrived at by dividing the IFRS Net Assets and Operative Net Assets
(respectively) by the number of Ordinary Shares in issue.
Catalogues of Songs are classified as intangible assets and
measured at amortised cost or cost less impairment in accordance
with IFRS.
The Directors are of the opinion that an Operative NAV provides
a meaningful alternative performance measure and the values of
Catalogues of Songs are based on fair values produced by the
Portfolio Independent Valuer.
Reconciliation of IFRS NAV to Operative NAV
30 September 31 March
2021 2021
$'000 $'000
--------------------------------------------------- ------------ ---------
IFRS NAV 1,625,242 1,462,845
--------------------------------------------------- ------------ ---------
Adjustments for revaluation of Catalogues of Songs
to fair value 317,750 250,343
Reversal of cumulative Catalogue Amortisation 145,399 93,275
--------------------------------------------------- ------------ ---------
Operative NAV 2,088,391 1,806,463
--------------------------------------------------- ------------ ---------
16. Subsequent events
On 8 October 2021 the directors agreed an amendment to the
Investment Advisory Agreement which provided consent for the
Investment Adviser to provide investment advisory services to
Blackstone as an additional client.
On 12 October 2021 the Investment Adviser issued a press release
announcing that it had entered into an agreement with Blackstone to
invest up to $1 billion over the course of the next year in music
assets. Blackstone has taken an ownership stake in the investment
Adviser in the context of this agreement. Furthermore, the
Investment Adviser, formerly The Family (Music) Ltd, changed its
name to Hipgnosis Song Management Ltd.
On 20 October 2021 the Company declared a dividend of 1.3125p
per Ordinary Share in respect of the quarter ended 30 September
2021 payable on 30 November 2021.
Alternative Performance Measures
Performance measure Definition Reason for use
------------------- --------------------------------------- ------------------------------------
Annualised ongoing Adjusted Operating Costs Ongoing Charges are an indicator
charges ($31,229,768), less Non Recurring of expenses likely to recur
administrative expenses ($13,920,404) in the
over a 12-month period pro-rated foreseeable future
for 12 months ($34,524,145)
------------------- --------------------------------------- ------------------------------------
Adjusted operating Operational expenses ($92,111,022) Ongoing Charges are an indicator
costs less Total Amortisation ($54,417,618) of expenses likely to recur
less Foreign exchange losses in the
($7,841,231) less Provision foreseeable future
for HSG Advances ($916,229)
------------------- --------------------------------------- ------------------------------------
Operative NAV The IFRS NAV ($1,625,241,848) The Operative NAV reflects
adjusted for the fair value the values of Catalogues
of Catalogues of Songs ($463,148,951) of Songs based on fair values
produced by the Portfolio
Independent Valuer
------------------- --------------------------------------- ------------------------------------
Average Operative Average of the Operative The average was taken given
NAV NAV as at the further share issuance
31 March 2021 ($1,806,462,664) in the period
and the Operative NAV as
at 30 September 2021 ($2,088,390,799)
------------------- --------------------------------------- ------------------------------------
Adjusted EPS Profit after Tax excluding The Operating profit adjusted
Total Amortisation ($54,417,618), for Amortisation aligns with
foreign exchange losses ($7,841,321) the Operative NAV which reflects
and provision for HSG advances that the values of Catalogues
($916,229) divided by weighted of Songs are based on fair
average number of Ordinary values produced by the Portfolio
Shares in issue (1,140,172,604) Independent Valuer
------------------- --------------------------------------- ------------------------------------
EBITDA The operating loss before An indicator of company performance
tax ($18,002,807) plus Total and profitability removing
Amortisation, Loan interest accounting adjustments
and depreciation and FX gain/loss
($72,592,200), being $54,589,393
------------------- --------------------------------------- ------------------------------------
Leveraged Free Net Cash from Operating Activities An indicator of the cash
Cash Flow ($35,979,425) plus Writer position of the Company and
Advances ($6,559,805) the availability of cash
flows to fund interest and
dividend payments
------------------- --------------------------------------- ------------------------------------
Six-Month Total Operative NAV per share as To show how the assets have
NAV Return at 30 September 2021 ($1.7242) performed over the past six
plus dividends paid from months to Shareholders
31 March 2021 to 30 September
2021 ($0.0336) divided by
the Operative NAV per share
as at 31 March 2021 ($1.6829)
equals 4.63%
------------------- --------------------------------------- ------------------------------------
12-Month Total Operative NAV per share as To show how the assets have
NAV Return at 30 September 2021 ($1.7242) performed over the past 12
plus dividends paid from months to Shareholders
30 September 2020 to 30 September
2021 ($0.0717) divided by
the Operative NAV per share
as at 30 September 2020 ($1.6205)
equals 10.82%
------------------- --------------------------------------- ------------------------------------
Total NAV Return Operative NAV per share as To show how the assets have
at 30 September 2021 ($1.7242) performed since inception
plus cumulative dividends to Shareholders
paid to date up to 30 September
2021 ($0.1799), divided by
the Operative NAV as at 11
July 2018 ($1.2983) equals
46.67%
------------------- --------------------------------------- ------------------------------------
Net Debt Amount drawn down on loan Liquidity metric used to
facility ($600,000,000) less determine how well a company
cash on deposit ($49,108,321) can pay all of its debts
if they were due immediately
------------------- --------------------------------------- ------------------------------------
Non Recurring Exceptional Costs included An indicator of expenses
administrative within Legal and professional not likely to recur in the
expenses and listing fees ($1,256,701) foreseeable future
plus Aborted deal expenses
($367,326) plus Interest
Costs ($11,624,055) plus
deferred consideration finance
charges ($672,321)
------------------- --------------------------------------- ------------------------------------
Ongoing Charges Annualised Ongoing Charges To monitor the expenses,
% ($34,524,145) divided by which are likely to recur,
Average Operative NAV ($1,947,426,732) relative to the fund size
over time
------------------- --------------------------------------- ------------------------------------
Total Amortisation Amortisation of catalogues Total amortisation is the
of songs ($52,123,704) plus measure of the non-cash items
amortisation of capitalised arising from accounting treatment
borrowing costs ($1,621,593) and includes the amortisation
plus finance charges for of borrowing costs - and
deferred consideration ($672,321) is used to evaluate the performance
without any amortisation
------------------- --------------------------------------- ------------------------------------
Glossary of Capital Defined Terms
"Administrator" means Ocorian Administration (Guernsey)
Limited;
"Admission" means admission, on 11 July 2018, to trading on the
SFS of the London Stock Exchange, of the Ordinary Shares becoming
effective in accordance with the Listing Rules and/or the LSE
Admission Standards and on 25 September 2019 to a Premium Listing
on the Main Market ;
"AEOI" means Automatic Exchange of Information;
"AIC" means the Association of Investment Companies;
"AIC Code" means the AIC Corporate Governance Code 2019;
"Annual General Meeting" or "AGM" means the annual general
meeting of the Company;
"Annual Report" or "Annual Report and Consolidated Financial
Statements" means the annual publication of the Company provided to
the Shareholders to describe their operations and financial
conditions, together with their Consolidated Financial
Statements;
"Apple Music" means the music and video streaming service
developed by Apple Inc.;
"Articles of Incorporation" or "Articles" means the articles of
incorporation of the Company;
"ASCAP" means the American Society of Composers, Authors and
Publishers;
"Average Market Capitalisation" means, in relation to each month
where the advisory fee is payable, ("A" multiplied by "B") plus
("C" multiplied by "D"), where:
"A" is the average of the middle market quotations of the
Ordinary Shares for the five day period ending on the last business
day of that month (adjusted as appropriate to exclude any dividend
where the Ordinary Shares are quoted ex such dividend at any time
during that five
day period); "B" is weighted average of the number of Ordinary
Shares in issue (excluding any Shares held in treasury) at the end
of each day during that month;
"C" is the average of the middle market quotations of a class of
C Shares in issue for the five day period ending on the last
business day of that month (adjusted as appropriate to exclude any
dividend where the C Shares of that class are quoted ex such
dividend at any time during that five day period); and "D" is
weighted average of the number of that class of C Shares in issue
(excluding any Shares held in treasury) at the end
of each day during that month;
"Board" or "Directors" means the Directors of the Company;
"BMI" means Broadcast Music, Inc;
"BPI" means the British Phonographic Institute;
"C Shares" means a temporary and separate class of shares which
are issued at a fixed price determined by the Company;
"Catalogue" means one or more Songs acquired from a single
Songwriter, artist or company;
"CBS" means the US commercial broadcast television and radio
network;
"CD" means compact disc;
"Closing Market Capitalisation' ' means, in relation to each
Accounting Period, "E" multiplied by "F", where:
"E" is the Performance Share Price; and "F" is the weighted
average of the number of Ordinary Shares in issue (excluding any
Shares held in treasury) at the end of each day during the
Accounting Period;
"Companies Law" means the Companies (Guernsey) Law, 2008, (as
amended);
"Company" means Hipgnosis Songs Fund Limited. References to the
Company are also considered to be references to the Group, where
applicable;
"Company Secretary" means Ocorian Administration (Guernsey)
Limited;
"Consolidated Financial Statements" means the audited financial
statements of the Company, including the Statement of Financial
Position, the Statement of Comprehensive Income, the Statement of
Cash Flows, the Statement of Changes in Equity and associated
notes;
"Conversion" means the conversion of C Shares to Ordinary
Shares;
"Copyright Royalty Board" or "CRB" means the US Copyright
Royalty Board;
"Corporate Brokers" means Singer Capital Markets Advisory LLP,
J.P. Morgan Securities plc and
RBC Europe Limited;
"COVID-19" means the global coronavirus pandemic;
"DCF" means discounted cash flow;
"DCMS" means The Department for Digital, Culture, Media &
Sport, a department of the UK government;
"Disclosure Guidance and Transparency Rules" or "DTRs" mean the
disclosure guidance published by the FCA and the transparency rules
made by the FCA under section 73A of FSMA;
"Downloads" means royalties for the permanent digital mechanical
transfer of music;
"DSP" means digital service providers;
"Earnings per Share" or "EPS" means the Earnings per Ordinary
Share and is expressed in pounds Sterling;
"EU" means European Union;
"FCA" means the UK Financial Conduct Authority
(or its successor bodies);
"FRC" means the UK Financial Reporting Council;
"FSMA" means the UK Financial Services and
Markets Act 2000;
"GFSC" means the Guernsey Financial Services Commission;
"Grammy" means an award presented by the Recording Academy to
recognise achievements in the music industry;
"Group" means Hipgnosis Songs Fund Limited and its
subsidiaries;
"HSG" means Hipgnosis Songs Group, which was rebranded from Big
Deal Music Group (BDM) on acquisition;
"IAS" means international accounting standards as issued by the
Board of the International Accounting Standards Committee;
"IFPI" means International Federation of the Phonographic
Industry;
"IFRS" means the International Financial Reporting Standards,
being the principles-based accounting standards, interpretations
and the framework by that name issued by the International
Accounting Standards Board;
"IFRS NAV" means the value of the Gross Assets of the Company
less its liabilities (including accrued but unpaid fees) in
accordance with the accounting policies adopted by the
Directors;
"Interim Report" means the Company's half yearly report and
unaudited condensed consolidated financial statements for the
period ended
30 September;
"Investment Adviser" means Hipgnosis Song Management Limited,
formerly The Family (Music) Limited;
"Investment Advisory Agreement" means the investment advisory
agreement dated 27 June 2018 , as amended, between Hipgnosis Song
Management Limited, formerly known as The Family (Music) Limited,
the Company and its subsidiaries;
"Investment Entity" means an entity whose business purpose is to
invest funds solely for returns from capital appreciation,
investment income or both;
"IPO" means the initial public offering of shares by
a private company to the public;
"ISAE 3402" means International Standard on Assurance
Engagements 3402, "Assurance Reports on Controls at a Service
Organisation";
"ISIN" means an International Securities Identification
Number;
"ISWC" means International Standard Musical Work Code. It is a
unique, permanent and internationally recognized reference number
for the identification of musical works;
"Kobalt" means Kobalt Music Copyrights S.à.r.l.,;
"Kobalt Fund 1" means a portfolio of 42 Catalogues acquired in
September 2020, from Kobalt Music Copyrights S.à.r.l., an
investment fund advised by Kobalt Capital Limited;
"Letter of Direction" means a document sent by the current
copyright owner or the recipient of music royalties to the
Publisher, Record company or Collection Society requesting a
re-direction of royalties to be paid. It is sent from the current
owner/recipient who is selling the assets, directing that all
future payments should go to the buyer of the assets;
"Listing Rules" means the Listing Rules made by the
UK Listing Authority under section 73A FSMA;
"Live" means publishing revenue derived from the live
performance of music copyrights at concerts;
"London Stock Exchange" or "LSE" means London Stock Exchange
Plc;
"MAR" means EU regulation 596/2014 on market abuse;
"Master Recording royalties" aka "Recording Royalties" mean
royalties that are generated on behalf of a sound/master recording.
This is the most basic royalty performing artists and labels earn
when their master recording is downloaded, physically bought, or
streamed.
"Mechanical" means royalties for reproducing music, for example
CD, vinyl, etc. (excluding mechanical downloads and mechanical
streaming);
"NAV per Share" means the Net Asset Value attributable to the
Ordinary Shares in issue divided by the number of Ordinary Shares
in issue (excluding any Shares held in treasury) at the relevant
time and expressed in Dollars;
"Neighbouring Rights Income" is the payment to the recording
artist or performer for the public performance usage related to the
Master Recording;
"Net Asset Value" or "NAV" means the value of the assets of the
Company less its liabilities as calculated in accordance with the
Company's valuation policy and expressed in Dollars;
"Net revenue" or "NPS" means Net Publisher Share and refers to
revenue collected by Publishers from PROs, net of contractual
royalties due to writers i.e. deductions for administration and
publishing fees;
"NFT" means Non Fungible Token;
"Operative NAV" means NAV as adjusted for the fair value of
Catalogues of Songs;
"Ordinary Shares" means redeemable Ordinary Shares of no par
value in the capital of the Company issued and designated as
"Ordinary Shares" and having the rights, restrictions and
entitlements set out in the Articles;
"Other income" means any income not covered by the other income
types, for example sheet income and lyric exploitation;
"Performance" means royalties for playing music in public, for
example TV/radio broadcasts, live performance, etc. and paid
through to the publisher;
"Performance Fee Shares" means Ordinary Shares issued to the
order of the Investment Adviser in accordance with the performance
fee arrangements in the Investment Advisory Agreement;
"Performance Rights Organisations" or "PROs" means a performing
rights organisation, such as PRS or BMI, which represents and
collects performance royalties for and on behalf of each of its
members;
"Performance Share Price" means in relation to each accounting
period, the average of the middle market quotations of the Ordinary
Shares for the 1 month period ending on the last business day of
that accounting period;
"Portfolio" means the portfolio of Songs (whether organised into
Catalogues or otherwise) held by the Company directly or indirectly
from time to time;
"Portfolio Independent Valuer" means Massarsky Consulting, Inc.,
appointed by the Board to independently value the Company's
Catalogues within the Portfolio;
"Preferred Portfolio Administrator(s)" means the portfolio
administrators appointed by the Company in order to assist with the
administration of the Portfolio including Kobalt Music Services
Limited and Hipgnosis Songs Group;
"Premium Listing" means the a Premium Listing on the Main Market
of the London Stock Exchange;
"Premium / Discount to Operative NAV" means the situation where
the Ordinary Shares of the Company are trading at a price higher /
lower than the Company's Operative NAV;
"Prospectus" means the most recent prospectus issued by the
Company unless the context refers to a version of the prospectus
published at an earlier date;
"Pro-Forma Annual Revenue" or "PFAR" - Pro-forma Annual Revenue
(PFAR) means the royalty revenue earned in a calendar year by the
portfolio of songs held by the Company at a specific date, based on
royalty statements received, irrespective of whether the songs were
owned by the Company over the period analysed.
"Public Performance" means revenue generated from licenses for
the right to play music publicly in a commercial environment e.g.
shops, bars, restaurants and shopping malls;
"Publishing Share" means the share of the rights in a music
composition (lyrics and/or music) which generate Mechanical and
Performance Royalties. In the UK, "blanket licences" are issued to
organisations including radio and TV.
"RCF" means the Revolving Credit Facility arranged from JPMorgan
Chase Bank, as Lead Arranger.
"RCIS Rules" means the Registered Collective Investment Scheme
Rules 2015;
"Record Labels" means a company that owns, distributes and
promotes musical recordings;
"Recording Academy" means a US academy of musicians, producers,
recording engineers and other musical professionals;
"Registrar" means Computershare Investor Services (Guernsey)
Limited;
"RIAA" means Recording Industry Association of America;
"Right To Income" means a right to income recognised as part of
the Catalogue acquisition, which is typically dependent on the
timing of the negotiations and relates to royalty income paid over
to the Company on closing of the acquisition and the accrued
receivables. The right to income related to the period before the
start of the financial year is now defined as "Pre-FY (RTI)"; the
portion of RTI that falls within the Financial Year is now defined
as "Within FY, pre-acq (RTI)";
"SFS" means London Stock Exchange's specialist fund segment of
the Main Market for listed securities;
"Shareholder" means the holder of one or more Ordinary
Shares;
"Song" means a Songwriter's and/or publisher's share of
copyright interest in a song, being a musical composition of words
and/or music and the Songwriter's proportion of the publishing
rights of a single musical track, and when construction permits,
the collection of words and/or music as purchased by consumers;
"Song Management" Active Management of the placing of songs in
Films, TV Adverts, TV Programs, Video Games and streaming playlists
also including promoting the Interpolation of our songs by new
Songwriters and Covers of our songs by new artists;
"Streaming" means performance and mechanical royalties for
digitally playing music in real-time, for example through
Spotify;
"Synchronisation" means royalties for playing music in
connection with visual media (for example Film, TV,
advertisements);
"TV" means television;
"UK" or "United Kingdom" means the United Kingdom of Great
Britain and Northern Ireland;
"UK Code" means The UK Corporate Governance Code 2019 as
published by the Financial Reporting Council;
"UKLA" means UK Listing Authority;
"US" or "United States" means the United States
of America, its territories and possessions, any state
of the United States and the District of Columbia;
"VAF" or "Variance Against Forecasts" means the difference
between the total of the royalty statements received from each
catalogue since acquisition, and the acquisition model forecast
over the same period. The VAF is expressed as a percentage point
deviation from zero, where a positive number means that the actual
performance of the portfolio is tracking ahead of the cumulative
forecast. A negative number indicates that the portfolio is falling
behind forecast.
"Writer's Share" means performance royalties collected by a
Performance Rights Organisation and paid through directly to the
Songwriter as opposed to the Publisher Share of performance;
"YouTube" means the US video-sharing website;
"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" is the currency of the majority of member states
of the EU.
Directors and General Information
Company Registration Number: 65158
Board of Directors Corporate Brokers Principal Banker
Andrew Sutch, Chair Singer Capital Markets Barclays Bank PLC
Paul Burger, Senior Independent Advisory LLP PO Box 41
Director 1 Bartholomew Lane Le Marchant House
Andrew Wilkinson London St Peter Port
Simon Holden EC2N 2AX Guernsey
Sylvia Coleman J.P. Morgan Securities GY1 3BE
Vania Schlogel (Appointed plc Registrar
11 June 2021) 25 Bank Street, Canary Computershare Investor
Founder Wharf Services (Guernsey) Limited
Merck Mercuriadis London 1st Floor
Advisory Board E14 5JP Tudor House
Nile Rodgers RBC Europe Limited Le Bordage
The-Dream 100 Bishopsgate St Peter Port
Giorgio Tuinfort London EC2N 4AA Guernsey
Starrah Independent Auditor GY1 1DB
David A. Stewart PricewaterhouseCoopers Identifiers
Poo Bear Cl LLP ISIN: GG00BFYT9H72
Bill Leibowitz Royal Bank Place Ticker: SONG
Ian Montone 1 Glategny Esplanade SEDOL: BFYT9H7
Rodney Jerkins St Peter Port Website: www.hipgnosissongs.com
Investment Adviser Guernsey LEI: 213800XJIPNDVKXMOC11
Hipgnosis Song Management GY1 4ND GIIN: 5XGPC8.99999.SL.831
Limited Music Specialist Legal Managing your account
(formerly The Family (Music) Counsel online
Limited) Bill Leibowitz The Company's registrar,
Merck Mercuriadis, CEO 271 Madison Avenue Computershare Investor
Björn Lindvall , COO 20th Floor Services (Guernsey) Limited,
Chris Helm, CFO New York allows you to manage
United House New York 10016 your shareholding online.
9 Pembridge Road Legal Advisers to the If you are a direct investor
Notting Hill Company you can view your shareholding,
London Herbert Smith Freehills change the way the Registrar
W11 3JY LLP communicates with you
www.hipgnosissongs.com Exchange House and buy and sell shares.
Registered Office Primrose Street If you haven't used this
PO Box 286 London service before, all you
Trafalgar Court EC2A 2EG need to do is enter the
Les Banques Legal Advisers to the name of the Company and
St Peter Port Company as to Guernsey register your account
Guernsey Law at:
GY1 4LY Ogier (Guernsey) LLP https://www-uk.computershare.com/investor
Administrator and Company Redwood House You'll need your Investor
Secretary St Julian's Avenue code (IVC) printed on
Ocorian Administration St Peter Port your share certificate
(Guernsey) Limited Guernsey in order to register.
PO Box 286 GY1 1WA
Trafalgar Court
Les Banques
St Peter Port
Guernsey
GY1 4LY
Corporate Summary
Structure
The Company is an investment company limited by shares,
registered and incorporated in Guernsey under the Companies Law on
8 June 2018. The Company is registered with the Guernsey Financial
Services Commission under the Registered Collective Investment
Scheme Rules 2015, and the Protection of Investors (Bailiwick of
Guernsey) Law, 2020. The Company is not authorised or regulated by
the Financial Conduct Authority.
The Company makes and manages its investments directly or
indirectly through a number of wholly owned subsidiary companies
incorporated in England & Wales and the US, together referred
to as the Group.
The Company was granted HMRC approval as an investment trust
company with effect from 1 April 2021. The Company is therefore
treated as being resident in the UK for tax purposes from this date
and ceased to be a Guernsey tax exempt vehicle under The Income Tax
(Exempt Bodies) (Guernsey) Ordinance, 1989, as amended.
Investment Process
The Company's Investment Adviser, Hipgnosis Song Management
Limited, formerly The Family (Music) Limited, was founded by Merck
Mercuriadis. Merck is the manager and/or former manager of globally
successful recording artists such as Elton John, Guns N' Roses,
Morrissey, Iron Maiden, Nile Rodgers and Beyoncé, and hit
Songwriters such as Diane Warren, Justin Tranter and The-Dream.
Merck is the former CEO of The Sanctuary Group plc.
Hipgnosis Song Management Limited has been appointed by the
Board to source Songs and provide recommendations to the Board on
acquisition and disposal strategies. The Investment Adviser is also
responsible for managing and monitoring royalty and/or fee income
due to the Company from its copyrights and collection agents, and
developing strategies to maximise the earnings potential of the
Songs in the portfolio through improved placement and coverage of
Songs.
The Investment Adviser continues to assemble an Advisory Board
of highly successful music industry experts which include award
winning members of the artist, Songwriter, publishing, legal,
financial, recorded music and music management communities, all
with in-depth knowledge of music publishing and access to a
significant network of relationships in the music industry.
The Board has formed a Portfolio Committee which considers the
recommendations of the Investment Adviser before granting its
approval to purchase the Catalogues of Songs, as well as an Asset
Management Committee which considers the ongoing management and
revenue maximisation of the Catalogues of Songs. These committees
are chaired by Mr Burger and Mr Sutch, respectively.
AIC
The Company is a member of the Association of Investment
Companies, complies with the AIC Code and is a constituent of the
AIC's "Royalties" Specialist Investment Trusts sector
classification. The Company's page on the AIC's website is at
https://www.theaic.co.uk/companydata/0P0001BL9D
Website
The Company's website, which can be found at
www.hipgnosissongs.com, includes information on the Company, such
as its Prospectus, past reports and accounts, policies, media
coverage and regulatory news announcements.
Advice to Shareholders
In recent years investment related scams have become
increasingly sophisticated and difficult to spot. We are therefore
warning all our Shareholders to be cautious so that they can
protect themselves and spot the warning signs.
Fraudsters will often:
-- contact you out of the blue
-- apply pressure to invest quickly
-- downplay the risks to your money
-- promise tempting returns that sound
too good to be true
-- say that they are only making the offer
available to you
-- ask you to not tell anyone else about it
You can avoid investment scams by:
-- Rejecting unexpected offers - Scammers usually cold call but
contact can also come by email, post, word of mouth or at a
seminar. If you have been offered an investment out of the blue,
chances are it's a high-risk investment or a scam.
-- Checking the FCA Warning List - Use the FCA Warning List to
check the risks of a potential investment. You can also search to
see if the firm is known to be operating without proper FCA
authorisation.
-- Getting impartial advice - Before investing get impartial
advice and don't use an adviser from the firm that contacted you.
If you are suspicious, report it
-- You can report the firm or scam to the FCA by contacting
their Consumer Helpline on 0800 111 6768 or using their online
reporting form.
-- If you have lost money in a scam, contact Action Fraud on
0300 123 2040 or www.actionfraud.police.uk
For further helpful information about investment scams and how
to avoid them please visit:
www.fca.org.uk/scamsmart
Cautionary Statement
The Chair's Statement, the Investment Adviser's Report and the
Report of the Directors have been prepared solely to provide
additional information for shareholders to assess the Company's
strategies and the potential for those strategies to succeed. These
should not be relied on by any other party or for any other
purpose.
The Chair's Statement, Investment Adviser's Report and the
Report of the Directors may include statements that are, or may be
deemed to be, "forward-looking statements". These forward-looking
statements can be identified by the use of forward-looking
terminology, including the terms "believes", "estimates",
"anticipates", "expects", "intends", "may", "will" or "should" or,
in each case, their negative or other variations or comparable
terminology.
These forward-looking statements include all matters that are
not historical facts. They appear in a number of places throughout
this document and include statements regarding the intentions,
beliefs or current expectations of the Directors and the Investment
Adviser, concerning, amongst other things, the investment
objectives and investment policy, financing strategies, investment
performance, results of operations, financial condition, liquidity,
prospects, and distribution policy of the Company and the markets
in which it invests.
By their nature, forward-looking statements involve risks and
uncertainties because they relate to events and depend on
circumstances that may or may not occur in the future.
Forward-looking statements are not guarantees of future
performance.
The Company's actual investment performance, results of
operations, financial condition, liquidity, distribution policy and
the development of its financing strategies may differ materially
from the impression created by the forward-looking statements
contained in this document.
Subject to their legal and regulatory obligations, the Directors
and the Investment Adviser expressly disclaim any obligations to
update or revise any forward-looking statement contained herein to
reflect any change in expectations with regard thereto or any
change in events, conditions or circumstances on which any
statement is based.
Hipgnosis Songs Fund Limited
PO Box 286, Floor 2, Trafalgar Court, Les Banques, St Peter
Port, Guernsey GY1 4LY. Further information available online:
www.hipgnosissongs.com
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END
IR GBBDDRSBDGBL
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