TIDMSONG
RNS Number : 9998I
Hipgnosis Songs Fund Limited
08 December 2022
8 December 2022
Hipgnosis Songs Fund Limited ("Hipgnosis" or the "Company")
Interim Results for the six months to 30 September 2022
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 results for the six-months ended 30 September
2022.
Financial Highlights
-- Operative NAV per share remains stable at $1. 8312 (31 March 2022: $1.8491)
o As at 30 September 2022, Operative NAV presented in Sterling
would be 164.06p per share (GBP:USD 1.1162); and
o As at 6 December 2022, Operative NAV presented in Sterling
would be 149.82 p per share (GBP:USD 1.2223); and
o This includes both the dividend paid and the dividend declared
not yet paid in the period
-- Total NAV $ Return to Shareholders at period end, including
19.0 pence per share of dividends, has been 60.0% since the IPO on
11 July 2018
-- Gross revenue increased 7.5% year-on-year to $91.7 million
(six months to 30 September 2021: $85.3 million).
-- Stripping out adjustments such as RTI and the retroactive CRB
III accrual, underlying net revenue grew 5.8% year on year to $65.1
million
-- Pro-forma Annual Revenue (PFAR), which shows royalty revenue
earned during a 12 month period, grew 4.2% to $120.8 million for
the year to 30 June 2022 (12 months to 30 June 2021: $115.9
million) despite currency headwinds as a result of dollar strength
impacting the value of non-US dollar denominated source income,
reflecting:
o >10 year catalogue PFAR up 7.7% to $69.9 million (12 months
to June 2021: $64.9 million);
o <10 year catalogue PFAR flat at $50.9 million (12 months to
June 2021: $51.0 million) evidencing the end of the decay curve and
positioning for future growth; and
o Strong growth in streaming proforma revenue in H1 2022 (+16%
year-on-year) and synch (+32% year-on-year)
-- EBITDA increased 16.9% year-on-year to $63.8 million (six
months to 30 September 2021: $54.6 million) due to growth in
revenue and reduced operating costs
-- New Revolving Credit Facility and Interest Rate Swaps agreed.
These will deliver a reduction in, and greater certainty over,
interest costs
-- Foreign Exchange risk hedged in relation to the cost of the Company's Sterling dividends
-- Net debt as a percentage of Operative NAV stable at 25.7% (31 March 2022: 25.4%)
-- Annual target dividend maintained of 5.25p per share
Operational Highlights
-- Portfolio comprises of 146 Catalogues, 65,413 songs, with an
aggregate fair value of $2.67 billion, and includes some of the
most successful and culturally important songs of all time
-- Blink-182's All the Small Things soundtracks the John Lewis Christmas Advert
-- Nicki Minaj's Super Freaky Girl interpolating Rick James'
Super Freak was a Number 1 US single and Top 5 in the UK and rest
of the world.
-- Administration partnership for reverted catalogues put in
place with Sacem and peermusic to materially reduce third party
administration and collection costs as well as reducing delays in
payments
-- Successful trials of multi-territory live performance direct
revenue collection services completed, to secure faster payment and
lower costs
-- Hipgnosis's advocacy for fairness for songwriters has
contributed to securing improved terms in the US. US Copyright
Royalty Board rejected appeal against CRB III, confirming original
increases which will result in a 44% uplift in the headline
payments on US streaming. Joint industry proposal for CRB IV sees
additional increases and most importantly stability over the
2023-27 period
Commenting on the results, Merck Mercuriadis, CEO and Founder of
Hipgnosis Song Management and Founder of Hipgnosis Songs Fund
said:
"These results demonstrate Hipgnosis' investment thesis remains
robust with continued growth in a challenging environment. Our pro
forma revenues show strong growth from streaming and Synch, proving
our acquisition strategy and demonstrating our ability to maximize
our Portfolio's value with our Song Management. This performance
has ensured that our portfolio valuation, and therefore our NAV,
have remained stable in US $ terms, and grown in GBP. We have also
taken an important step with our new RCF, agreed at the end of the
period. This reduces our interest costs and equally importantly
gives us control over these costs going forward irrespective of
macro-economic conditions.
"In the wider music market, people continue to listen to and pay
for music irrespective of today's cost of living challenges with
annual audio streams in the US passing the one trillion mark for
the first time despite a full month of the year remaining. Paid for
streaming continues to grow, there are now more than 523 million
premium paid subscribers globally. Apple Music has moved beyond the
9.99 price point in major markets and in 2022 we saw a full return
to live music. These are all exciting indicators for the further
growth that we will experience as income flows through the
collection process into Hipgnosis.
"Despite all of this positive news, I share the disappointment
of shareholders that the true value of our iconic songs is not
being reflected in today's share price. Hipgnosis is an asset based
company with a catalogue unrivalled for its extraordinary success
and cultural importance. The current share price implies that our
Company is valued using a 12% discount rate, presenting an
incredible investment opportunity considering this is a deep
discount compared to multiples currently being paid in the
market.
"All that's left is to wish you all a Merry Christmas, just as
Mariah Carey's All I Want for Christmas Is You has gone to Number
1, again, on the Billboard Global chart and is also Number 1 on the
UK Official Midweek Chart and Michael Bublé's Christmas album is
heading for the Top 5 all over the world."
Results Presentation and Capital Markets Day
The Investment Adviser will be hosting a meeting for analysts
and investors at The Maxwell Library, IET London: Savoy Place, 2
Savoy Place, London, WC2R 0BL at 1030GMT today.
Registration for the live webcast is available at:
https://www.lsegissuerservices.com/spark/HipgnosisSongsFundLtd/events/522395c4-b376-45c8-a2c4-d1701fc2447c
A video recording of the event will be made available on the
Company's website at www.hipgnosissongs.com after the event.
(Please note if you are joining via the live stream, you will
not be able to ask questions.)
For further information please contact:
Hipgnosis Song Management
Merck Mercuriadis
Chris Helm
Giles Croot (Media) +44 (0)20 4542 1511
Rufina Pavry ( Investors ) +44 (0)20 4542 1530
Singer Capital Markets - Joint Corporate
Broker
James Moat / James Maxwell / Alex Emslie
(Corporate Finance)
Alan Geeves / James Waterlow / Sam Greatrex
(Sales) +44 (0)20 7496 3000
J.P. Morgan Cazenove - Joint Corporate Broker
William Simmonds / Jérémie Birnbaum
(Corporate Finance)
James Bouverat (Sales) +44 (0)20 7742 4000
RBC Capital Markets - Joint Corporate Broker
Elliot Thomas / Max Avison (Corporate Finance)
Lisa Tugwell / Anastasia Mikhailova (Sales) +44 (0)20 7635 4000
Ocorian - Company Secretary & Administrator
Lorna Zimny +44 (0) 28 9693 0222
The Outside Organisation
Alan Edwards / Nick Caley +44 (0)7711 081 843
+44 (0)7771 978220;
FTI Consulting +44 (0)7809 411882;
Neil Doyle / Paul Harris / Laura Ewart +44 (0)7761 332646
All US music publicity enquiries
Fran Defeo +1 917 767 5255
About Hipgnosis Songs Fund
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 Hipgnosis Songs Fund'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.
Introduction from Merck Mercuriadis
In a very challenging environment, I'm proud that in our work to
establish Songs as an asset class, everything we have told our
investors from IPO has either become reality as stated or been
exceeded. That includes the growth of streaming, our ability to
establish Song Management as a new paradigm and manage the Songs
better to add value, bringing efficiencies to revenue collection,
advocating on behalf of songwriters to get a bigger slice of the
pie and making Hipgnosis the preferred buyer of the songwriting
community, enabling us to acquire well.
This strategy has delivered a Total $ NAV Return to Shareholders
as at 30 September 2022 of 11.8% per year, 60.0% in aggregate since
the IPO on 11 July 2018 (including 19.0p per share of
dividends).
Our thesis has always been that Songs of extraordinary success
and cultural importance produce long term and reliable income
streams, making them highly investable assets.
We built Hipgnosis Songs Fund as an asset backed investment
vehicle with iconic Songs at its heart to deliver value for our
Shareholders off the back of this thesis.
We therefore assembled a Portfolio of Songs that is unrivalled
for its extraordinary success and cultural importance and which are
in high demand. It is a generally accepted theory that most music
companies make their money on 10% of their Songs. I'm confident
that our Catalogue would represent the top 10% of any music
company's portfolio.
We demonstrate this by co-owning nearly a quarter of the Songs
in the "Spotify Billions Club" (Songs streamed over a billion times
on Spotify) and over 10% of Rolling Stone's The 500 Greatest Songs
Of All Time.
Only last month, the Official Chart Company, on behalf of the
BBC, identified the most streamed Songs released in each of the
last 70 years. Hipgnosis co-owns rights to nine of these. Songs
like Don't Stop Believin' (Journey, 1981); Sweet Dreams (Are Made
Of This) (Eurythmics, 1983); Livin' On A Prayer (Bon Jovi, 1986);
and Everywhere (Fleetwood Mac, 1988). You are likely humming at
least one of those Songs as you read this paragraph.
Some of you will hopefully go onto Spotify, Apple Music or
YouTube today to hear these Songs. Others will be prompted to add
them to a playlist. Many, many more will have done so when the BBC
played them all to celebrate its 100(th) anniversary. Each time
this happens a payment is earned by Hipgnosis Songs Fund.
Importantly, people continue to listen to and pay for music
irrespective of the challenges of today's macro-economic
conditions. We often say that when people are living their best
lives they are doing so to a soundtrack of great Songs. Equally,
when they are experiencing life's challenges, they are taking
comfort and escaping with great Songs. Either way, our iconic Songs
are being consumed and are generating revenue.
Indeed, recently published research from the IFPI, who represent
the global record industry, shows that people around the world are
engaging with music in 2022 more than ever, with average listening
up to 20.1 hours each week - an increase of 1.7 hours since
2021.
According to Luminate, as of 26 November, music audio streams in
the United States are now over the one trillion mark for the first
time ever in a single year. That's already an increase of 11.9
billion compared to the previous year. It is also seven times
higher than in 2015. This report also included the Top 5 most
streamed Songs of the year so far; At No.2, Glass Animals' Heat
Waves generated 493 million on-demand US audio streams. This is
administered by Hipgnosis Song Group (HSG) in the US. That's the
second most streamed Song of the year in the world's biggest paying
market.
In a high inflation environment, it is arguable that there is no
better value than c.GBP/$10 per month for a premium music streaming
subscription service.
Paid for streaming - and its utility-like revenues - continues
to grow with more than 523 million premium paid subscribers
globally. In recent months, we have seen Spotify Premium
Subscribers reach 195 million, a 13% increase year-on-year despite
the macro-economic environment. Looking at the wider music market,
the RIAA reported US revenues for recorded music in the first half
of 2022 rising 9.1% year-on-year. Apple Music has recently
increased prices beyond the 9.99 per month price point in the US,
UK and continental Europe. This emphasises the incredible value
that music streaming represents and shows that one of the most
commercially successful businesses in the world recognises the
pricing power that great music gives their platform. We expect
other streaming platforms will follow Apple's move. Increased
revenue to the Digital Service Providers means increased revenues
for Hipgnosis.
We promised investors that we would deliver a new, responsible
approach to Song Management, one where we have the resource and
bandwidth to manage our great Songs to their full potential - and
in doing so add significant value.
All the Small Things performed by Blink-182 reached Number six
in the Billboard Hot 100 and Number two in the UK on release in
2000. This Christmas, it's almost impossible for anyone in the UK
not to be familiar with a new version which is the soundtrack to
the seasonal ritual that is the John Lewis Christmas advert. This
is a great example of our approach in action - our Synch team saw
the potential of the Song and took it to John Lewis, then did
everything they could to make it as efficient as possible for them
to choose and use our Song.
Along with the Superbowl, the John Lewis Christmas advert is
arguably the most coveted synch in the world. In our early days of
meeting potential investors we promised we would procure this and
we have delivered as we said we would.
The results we publish today show the strength of our
Portfolio.
Gross revenue in the period increased by 7.5% year-on-year to
$91.7 million (six months to 30 September 2021: $85.3 million),
while our Operative Net Asset Value per share remained steady at
$1.8312 (31 March 2022: $1.8491). When translated into GBP, at a
Sterling to Dollar exchange rate of $1.2223, our Shareholders
benefitted from the strong dollar, with an equivalent GBP NAV of
149.82p as at 6 December 2022 (31 March 2022: 140.79p).
Like-for-like pro forma (PFAR) revenues in the first half of the
calendar year were $58.5 million, a 7.8% increase on the
comparative period in 2021.
Our PFAR shows that our Streaming performance is strong, up
15.8% to $23.6 million (H1 2021: $20.4 million) - while the
tireless efforts of the Synch team to get Songs placed into
adverts, television shows, films and video games alongside new
revenues from emerging platforms such as TikTok, have resulted in
Synch revenue growing by some 32.0% year-on-year to $9.78 million
(H1 2021: $7.41 million) year-on-year.
Our younger Catalogues continue to demonstrate that they are
reaching the end of their forecasted decay curves and we have
particularly focused on Synch opportunities where the expected life
cycle of a Catalogue means that it moves on from "new music" radio
stations, but is not yet mature enough for "Gold" stations.
Data from the US, shows that vintage music is an ever increasing
proportion of consumed music - now making up three quarters of
Songs enjoyed, up from a little over a half in 2017. In part, this
is due to the consumer being able to choose what they want to
listen to on demand. We are also seeing the positive impact of
older demographics adopting paid streaming and Songs boosted
through strategic Synch and Playlist placements. This reminds
people of great Songs they can now listen to at will. Last year, we
had four Songs that were released prior to 2010 in the Spotify
Billions Club; this year we have 11!
The Song is the currency of our business; without the Song we
simply have no music industry. Yet for too long the songwriter -
who delivers the most important component to the success of a
record company, digital service provider, music merchandiser or
live promoter - is the lowest paid person in the economic
equation.
I have always been clear that our motive is to establish Songs
as an asset class and to provide a great return for our investors.
Concurrently our "ulterior" motive is to use our success to help
take the songwriter from the bottom to the top of the economic
equation. We advocated for, and welcome the moves by the US
Copyright Royalty Board (CRB) and the wider music industry in the
US to increase the rates paid to songwriters and publishers. CRB
III provided for a 44% increase in the headline rate of DSP
revenues paid to songwriters and Publishers, reaching 15.1% in
2022. The joint industry proposals for CRB IV would see that
proportion rising incrementally to 15.35% in 2027, while the
royalty payable on a physical sale or download would rise from 9.1
cents to 12 cents with additional inflationary increases.
There is still a long way to go before songwriters are fairly
remunerated, but these are important steps in the right direction.
The joint CRB IV proposals show there is increasing acceptance - as
a result of our work - across the music industry that songwriters
should be fairly rewarded for their work. Whilst the increase is
more modest than the CRB III rises, we support it as it will
provide a background of stability at the highest streaming rates
ever paid in the context of which we can continue our advocacy
efforts. Our ultimate goal is for songwriters' pay to be determined
by the free market, not legislation.
When a Catalogue is acquired, our Shareholders sit directly in
the shoes of the songwriter so there is complete alignment between
the songwriting community and our Shareholders. What is in the best
interest of the songwriter is also in the best interest of the
Company.
Despite our successes, I share the disappointment of
Shareholders that the true value of our iconic Songs is not
reflected in today's share price. As Songs are a new asset class,
we understand that the market has concerns about both valuation and
discount rate, particularly when our NAV is stable in a
macroeconomic environment in which the value of many other assets
are declining.
It's important to remember that the music industry went through
a prolonged period of decline for 15 years, between 2001 and 2016,
when technological disruption in the form of illegal downloading
almost killed it off. The only good thing to come out of that era
is that it left these great Song assets at attractive prices, just
as the technology evolved into streaming, which made it more
convenient for consumers to once again listen to and pay for music
legally.
We started buying assets in 2018 when paid US music streaming
subscribers were less than 10% of the 523 million global
subscribers there are today. YouTube had barely paid $2 billion to
rights holders in 2018 compared to the $6 billion it has paid in
2022. Whereas previously, almost all consumption of music was
unpaid for, today, almost all consumption of music is paid for and
music has changed from a discretionary purchase to a utility.
These are all positive factors in our NAV.
As a result of our success in establishing Songs as an asset
class, we are flattered that many other investors have come into
the market.
While Hipgnosis Songs Fund is currently fully invested,
Hipgnosis Song Management (HSM) remains active in the market, which
gives us access to incredible amounts of transactional data and
first-hand knowledge of this growing marketplace. This information
is shared with the Hipgnosis Songs Fund Board who, as a result of
the robust co-investment policy between Hipgnosis Song Management
and its clients, sees everything that HSM sees.
Many Private Equity funds, some of the most successful long-term
investors in the world, are today making high-profile Catalogue
purchases at multiples that reinforce the Fair Value of our
Portfolio and reassure us that we have bought well.
The Fair Value of the Portfolio was calculated by the Portfolio
Independent Valuer, Citrin Cooperman, at $2.67 billion, in line
with the prior year. They have a team of leading experts in music
valuation who have been involved in many recent high profile music
catalogue purchases. For the current NAV, they have continued to
use a discount rate of 8.5%. This Fair Value enables us to
calculate the Operative NAV which remained stable at $2.2 billion.
To provide investors reassurance, the Board also appointed Kroll
Advisory Limited ("Kroll"), an independent valuation firm, to
consider and advise on the reasonableness of certain assumptions
commonly employed in the valuation of music Catalogues based on
data provided by the Company. The results of the analyses by Kroll
provide, in the Board's view, additional support as to the
reasonableness of assumptions employed in arriving at the Fair
Value of the investments. This gives us, and should give investors,
great comfort over the Fair Value of our Songs and therefore the
incredible investment opportunity the current share price
represents.
An increase in the discount rate from 8.5% to 9.0% would reduce
the Operative NAV by $212 million. Our current share price is
trading at a discount to the Operative NAV of over 45%, which
implies a discount rate of nearly 12%. There is considerable
upside.
We go into the second half of the year positioned strongly. Our
re-financed Revolving Credit Facility, interest rate hedges and
currency hedges for our Sterling dividend payments, finalised post
period end, give increased certainty on costs, while the recent
confirmation from CRB that it will enforce the increase in revenues
from US streaming, as proposed in its CRB III settlement, is
further boosting revenue. Additionally, the return of Performance
revenues to pre-COVID-19 levels is yet to be seen in our
revenues.
The statistics continually demonstrate the importance of Music
in all of our lives as a great and affordable source of comfort,
nourishment, sustenance and joy. I'm delighted that it is Songs
owned by Hipgnosis that people are listening to and that are
amongst the most consumed Songs throughout the world.
You are pioneers in establishing an exciting new asset class and
we do not take your belief in the Company lightly. We therefore
take our responsibility to you, our Shareholders, very seriously. I
therefore hope that the information we are sharing in these results
will give you belief in our Fair Value and we are firmly committed
to ensuring that the Company's incredible value is recognised in
the market.
I would like to pay tribute to the incomparable Christine McVie
who passed away last week at the age of 79. She wrote iconic songs
that propelled Fleetwood Mac into one of the biggest artists of all
time. She was our Songbird and it's one of Hipgnosis' greatest
privileges to forever be the custodians of her special songs. It is
clear from the live chart data that millions of people are
streaming her hits with Fleetwood Mac's Rumours having already
returned to the Top 10.
This week Mariah Carey's All I Want For Christmas Is You is
heading for the UK Number One slot and is already Number One on the
Billboard Global 200 chart. Meanwhile, Michael Buble's Christmas
Album is set to be back in to the Top 10, Hipgnosis Songs Fund has
an interest in both and there's another three weeks to go before
the big day. The Company has co-owned All I Want For Christmas Is
You since 2020, one of the seasonal greats. In our first full year
of ownership we saw a 78% increase in revenues compared to the
average of previous three years - buying well, proactive Song
Management and strong market growth delivering once again. Further
to this Fleetwood Mac's Rumours is back in the Top 10 UK album
chart and Heat Waves by Glass Animals has just been named
Billboard's Number 1 Hot 100 song of the year.
It remains only for me to thank you for your support as well as
that of the incredible songwriters that have entrusted us with
their iconic work.
Wishing you, and your loved ones, all the best for a Merry
Christmas, wonderful holidays and a happy, healthy and prosperous
2023!
Merck Mercuriadis
Founder, Hipgnosis Songs Fund Ltd and Founder/CEO, Hipgnosis
Song Management Ltd.
7 December 2022
The Chair's Statement
Introduction
The results we report today show the robustness and potential of
your Company. Both Gross revenue and pro-forma revenues show
healthy growth against the comparative period, operating costs have
been reduced and we have refinanced and fixed the interest cost on
most of the Company's debt.
The total return on our Operative NAV since our launch in July
2018 to 30 September 2022 has been 60.0% (with dividends added
back). Total Shareholder Return, being the change in our share
price over the same period, again with dividends added back, has
been 8.10%. The Board shares the disappointment of Shareholders at
the share price performance during 2022.
As at 6 December 2022, the shares were trading at a discount to
NAV of 46%. Whilst there have undoubtedly been macro factors (the
war in Ukraine, inflation and increases in interest rates) which
have impacted the Company's share price, the Board is continually
assessing all options to ensure that the Company delivers superior
Shareholder value over the medium term.
Our investment case has always been based on three core
pillars:
First, the acquisition of a high-quality Portfolio of culturally
important songs with a proven track record of success, which
provides the strongest possible foundation for the Company. Our
Portfolio is built on quality, with an unrivalled concentration of
evergreen Songs released in every decade since the 1960s. The
Catalogue now includes:
-- 78 out of 324 Songs (24%) in Spotify's Billions Club, being
songs which have been played on the platform over one billion
times;
-- 52 of Rolling Stone's The 500 Greatest Songs of All Time; and
-- 13 out of the 30 YouTube's Most Viewed music videos
of all time.
Second, our Investment Adviser actively manages the Songs in the
Company's Portfolio, with the object of increasing revenues and
maximising the Songs' value. Active song management activities
include:
-- Delivering efficient administration of Catalogues by ensuring
that all due payments are coming through and the collection system
is as efficient and effective as possible;
-- Creating additional revenues by placing Synchs across traditional and new media outlets; and
-- Identifying opportunities to promote our Songs, enabling and
creating new versions and building partnerships which monetise our
Catalogue.
Third, we believe that the music industry will continue to
experience significant structural growth as the adoption of
paid-for streaming increases, pricing increases lead to more
royalties flowing through to rights holders and technology drives
new income streams. We continue to see strong evidence for this in
the market. Since our Annual Report was published in July:
-- Spotify's third quarter results showed premium subscribers up 13.3% year on year;
-- Apple Music announced its intention to increase its pricing
for its standard music tier from 9.99 to 10.99 per month
(in the relevant currency) in the US, UK and Eurozone; and
-- The RIAA (Recording Industry Association of America) reported
that revenues for recorded music in the first half of 2022 rose 9%
compared to the same period in the prior year to $7.7 billion in
the US. Streaming represented 84% of this, an unchanged share, up
10% in revenue terms.
The Board and the Investment Adviser believe that music
streaming represents extremely good value for consumers and that
the Digital Service Providers (DSPs) have pricing power. Many
market commentators expect Spotify to follow Apple's example and
move beyond the 9.99 monthly subscription price point (in the
relevant currency).
In addition to market growth and pricing rises, a number of
regulatory industry developments will further boost the Company's
revenue. These include decisions by the US Copyright Royalty Board
(CRB) with respect to the CRB III settlement, which is now in the
process of being implemented and has been accrued for in these
results, and the joint industry proposal for CRB IV, which will see
further rises in the share of Streaming revenues paid to
Songwriters in the period from 2023-27.
Financial performance
The IFRS NAV per share as at 30 September 2022 was $1.2590,
which is a small decrease from $1.3065 as at 31 March 2022, largely
driven by the amortisation of Catalogues.
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 accumulated amortisation and impairment
charges.
The Operative NAV per Share remained stable at $1.8312 during
the period (31 March 2022: $1.8491) primarily due to adverse
currency movements relating to non-US denominated Catalogues
accounting for c.12% of revenue receipts. When including dividends
paid to date, the Total $ NAV Return was 0.7% over the prior
six-months' period and 60.0% since IPO on 11 July 2018.
Earnings per share for the six months ended 30 September 2022
were -1.66c (broadly unchanged on the EPS for the
six months ended 30 September 2021 of -1.69c). This figure now
reflects all Catalogues being amortised for the full
six month period. The Group amortises Catalogues of Songs with a
limited useful life using a straight-line method over 20 years.
Based on the Sterling to Dollar exchange rate as at 30 September
2022 of 1.116, the Operative NAV presented in Sterling would be
164.06p per share as at that date (compared with 140.79p as at 31
March 2022, based on the then Sterling to Dollar exchange rate of
1.3134).
Adjusted EPS, as defined within the Alternative Performance
Measures for the six months ended 30 September 2022, is 3.76c (six
months ended 30 September 2021: 3.85c).
The structure of the music industry means that revenues can take
some time to flow into Hipgnosis Songs Fund. However, we are
encouraged by the numbers reported recently by the Company's
administration partners and other organisations at the entry point
for music revenues at source, as an indicator of the Company's
future income prospects.
Further issuance
The Board does not anticipate raising additional equity until
its share price again trades at a sustained premium
to its Net Asset Value.
Dividend
In the Annual Report the Board restated its intention to
maintain the target dividend at 5.25p per Ordinary Share for the
financial year 2022-23 and announced that, in order to better align
dividend payments with revenue receipts, dividends would be paid on
or around the last working day of January, April, July and October
with dividends declared around a month prior to the payment date.
The Board currently expects that dividends paid in respect of the
current financial year will be covered from Distributable Revenues
recognised in the period under review.
Valuation
The Board is ultimately and solely responsible for overseeing
the valuation of the Company's investments in music catalogues and
has appointed the Portfolio Independent Valuer to perform this
specialist work.
The Board also appointed Kroll Advisory Limited ("Kroll"), an
independent valuation firm, to consider and advise on the
reasonableness of certain assumptions commonly employed in the
valuation of music catalogues based on data provided by the
Company. The results of the analyses by Kroll provide, in the
Board's view, additional support as to the reasonableness of
assumptions employed in arriving at the Fair Value of the
investments.
As a result of the co-investment policy which the Company enjoys
alongside the Investment Adviser's other client, the Board has
exceptional visibility into the current market for music rights
purchases, providing the Board with additional confidence in the
independent valuation.
Revolving Credit Facility
On 30 September 2022, the Company entered into a new Revolving
Credit Facility (RCF) with a commitment of $700 million which runs
for five years until 30 September 2027. The facility has been used
to refinance, in full, the Company's pre-existing RCF and provide
flexibility for additional working capital where necessary. In
accordance with the Investment Policy, any borrowings by the
Company will not exceed 30% of the value of the net assets of the
Company.
In the Annual Report, the Board set out that the purpose of the
refinancing was to reduce interest rate risk and control costs. To
deliver on these objectives, the Company entered into interest rate
swap agreements, as disclosed on 5 October 2022. As a result, until
2 January 2023, interest on all the drawn debt is fixed at 5.71%
(including debt margin). From 3 January 2023, $340 million is
hedged for the duration of the RCF (until 30 September 2027) at a
fixed rate of 5.67% (including debt margin); a further $200 million
is hedged until 3 January 2026 at a fixed rate of 5.89% (including
debt margin). The balance remains unhedged to provide flexibility
in the operation of the RCF.
Annual General Meeting
The Annual General Meeting for the Company took place on 21
September 2022. I am pleased to announce that all ordinary and
special resolutions were passed by the requisite majority.
Share buy backs
The Board believes that the most effective means of minimising
any discount at which the Ordinary Shares may trade is for the
Company to deliver strong, consistent, long-term performance from
the investment Portfolio. However, wider market conditions and
other considerations inevitably affect the rating of the Ordinary
Shares from time to time.
Following the period end, the Board announced a share buy-back
programme funded out of free cash flow. During the initial period
of its operation an aggregate number of 2 million shares have been
purchased with an aggregate value of GBP1.7 million. The Board will
continue to repurchase Ordinary Shares when they believe it to be
in the interests of Shareholders to do so.
Ordinary Shares held in treasury may only be reissued by the
Company at prices representing a premium to the NAV per Ordinary
Share as at the date of re-issue.
Outlook
Despite inflationary pressures, interest rate rises and the
impact of central banks' actions to control inflation, the leading
economic music indicators continue to point to Hipgnosis'
investment thesis being valid. We anticipate continued strong
growth in the global music market.
In addition, the Company expects to benefit from increasing
revenues from social media, gaming and lifestyle channels. This
market growth, coupled with the Investment Adviser's Song
Management capabilities and our Portfolio of high quality, iconic
and culturally important Songs gives the Board confidence that the
Company is capable of delivering superior Shareholder returns over
the medium term.
Andrew Sutch
Chair
7 December 2022
Investment Adviser's Report
Introduction
This year we've seen a positive impact on revenue from our
active Song Management of the Company's Portfolio.
During the period the Company's Operative Net Asset Value per
share remained stable at $1.8312. The strong Dollar boosted the
Sterling value of the Operative NAV of the Company which, on 6
December 2022, was 149.82p per share, converted using a Sterling to
Dollar exchange rate of $1.2223.
Like-for-like pro forma (PFAR) revenues in the first half of the
calendar year were $58.5 million, a 7.8% increase on the
comparative period in 2021.
Pro forma revenues from Synch during the first half of the
calendar year have been strong, up 32% to $9.78 million (H1 2021:
$7.41 million), illustrating the value we deliver for shareholders
through our active Song Management. This growth is a result of
placing Songs in movies, tv shows and advertisements, video games
and from existing and emerging platforms, such as YouTube and
TikTok. The quality of our Songs, our strategy of building close
relationships with producers and ensuring that working with
Hipgnosis is as smooth and efficient as possible are paying
dividends.
We also continued to see strong growth in pro forma streaming
revenues, up 15.8% year-on-year to $23.56 million in H1 2022 (H1
2021: $20.35 million). This reflects the Company's extraordinary
concentration of Songs with high streaming consumption, as shows by
Hipgnosis's share of Songs in Spotify's Billions Club which has
remained unchanged at 24%, despite the list growing from 190 Songs
12 months ago to 324 today.
The context for Hipgnosis' investments has always been the
massive opportunity afforded by the adoption of and
exponential/long term growth in streaming. The continued rapid
adoption of paid-for streaming not only increases revenues, but
also continues to transform income from being driven by consumers'
discretionary decisions into a utility. In our view, this will
drive a re-rating in the value of our Songs as the perceived risk
profile of the income falls.
2022 saw the full and welcome return of live music after the
hiatus caused by the COVID-19 lockdowns. With record numbers of
people attending concerts, we saw our Songs played at sell-out
shows around the world including performances by Red Hot Chili
Peppers, Nile Rodgers and CHIC, Journey, Lindsey Buckingham and
Blondie.
These performance revenues will be reflected in future reporting
periods as a result of the significant time lag in
collections by Performing Rights Societies and Administrators.
This means that we are still experiencing the impact in earnings
caused by retail and entertainment venues being closed by COVID-19
restrictions during 2020 and 2021. We continue to see evidence that
performance revenue across the music industry is recovering steeply
and we remain confident that, when the time lag in payments to
Hipgnosis works through, this will be a further strong pillar for
revenue growth.
The Portfolio
The Portfolio as at 30 September 2022 is comprised of 146
Catalogues, 65,413 Songs. The overall Fair Value of the Portfolio
of the Catalogues, as determined by the Portfolio Independent
Valuer, remains stable at $2.67 billion
(31 March 2022: $2.69 billion).
This valuation reflects a multiple of 19.93x historical annual
net Publisher Share income, compared to the blended acquisition
multiple of 15.93x.
Hipgnosis' Portfolio of Songs, we believe, is unrivalled in its
concentration of quality. In addition to our standing in Spotify's
Billions Club, this is demonstrated by our Songs being:
-- Over 10% of Rolling Stone's The 500 Greatest Songs
of All Time (52/500);
-- 9 out 70 of the BBC's Most Streamed Chart;
-- 20 out of the Top 100 most streamed songs on Spotify; and
-- Almost half of YouTube's Most Viewed music videos
of all time (13/30).
Portfolio at 30 September 2022
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
------------- ----------- -------
10 Sep
Big Deal Music "BDM" 2020 100% 4,212
------------- ----------- -------
10 Sep
Julian Bunetta 2020 50% 188
------------- ----------- -------
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% 25,259
------------- ----------- -------
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
TImeflies (Masters) 2020 100% 80
------------- ----------- -------
30 Sep
Walter Afanasieff 2020 100% 213
------------- ----------- -------
30 Sep
Wayne Wilkins 2020 100% 113
------------- ----------- -------
30 Sep
Yaslina 2020 100% 73
------------- ----------- -------
20 Nov
Sacha Skarbek 2020 100% 303
------------- ----------- -------
27 Nov
Tricky Stewart (Masters) 2020 100% 95
------------- ----------- -------
2 Dec
Eric Stewart 2020 100% 255
------------- ----------- -------
4 Dec
Bob Rock 2020 100% 43
------------- ----------- -------
Caroline Ailin ("New 10 Dec
Rules") 2020 100% 2
------------- ----------- -------
15 Dec
Nelly 2020 100% 240
------------- ----------- -------
24 Dec
Lindsey Buckingham 2020 100% 161
------------- ----------- -------
24 Dec
Joel Little 2020 100% 178
------------- ----------- -------
24 Dec
Jimmy Iovine 2020 100% 259
------------- ----------- -------
31 Dec
Neil Young 2020 50% 590
------------- ----------- -------
31 Dec
Shakira 2020 100% 145
------------- ----------- -------
Brian Kennedy (Writer 31 Dec
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
---------------------------------------- -------
More people paying more for music streaming services
Reported data from the music industry continues to show growth
despite the wider economic challenges. Furthermore, there are
regulatory and commercial developments which will directly result
in additional revenues for Hipgnosis. For example:
-- The market leading global streaming service, Spotify, beat
expectations with year-on-year premium subscriber growth of 13% to
195 million and Monthly Active Users up 20% to 456 million,
according to their recent Q3 2022 results. Revenues also increased
21% to EUR3.0 billion.
-- Apple Music announced that it would be increasing the monthly
price of its individual and family subscriptions by $/GBP/EUR1 to
$/GBP/EUR10.99 and $/GBP/EUR2 to $/GBP/EUR16.99 respectively in the
US, UK and continental Europe.
-- Spotify and other DSP's have indicated they will also increase prices.
-- The mid-year revenue statistics disclosed by the RIAA
(Recording Industry Association of America) gives us an insight
into the recorded music revenues in the US, our largest market.
Revenues from streaming music, a broad category including formats
such as paid subscription services, ad-supported services, digital
and customized radio, grew 10% to $6.5 billion in the first half of
2022. The share of revenues that came from streaming was virtually
flat at 84% and paid subscriptions account for 78% of streaming
revenue.
We have long believed that music streaming represents
exceptional value for money and, as such, believe that the DSPs
have significant pricing power despite the current macro-economic
conditions. Consequently, in line with many industry commentators,
we expect Spotify will follow Apple's lead and similarly increase
its 9.99 individual price point in major markets. Price increases
leads to more royalties flowing through to rights holders.
Copyright Royalty Board
During the period there were a number of significant regulatory
developments from the Copyright Royalty Board (CRB), which sets
royalty rates for the United States, the Company's biggest single
market.
After a lengthy appeals process, the CRB rejected the appeal of
CRB III brought by some streaming companies. As a result, CRB III,
which proposed to incrementally increase mechanical streaming
royalty rates for songwriters and publishers was confirmed with the
"all in" (mechanical and performance) statutory minimum rates for
streaming paid in the US was confirmed with the headline rate
rising from 10.5% of streaming revenues prior to 2018 to 15.1% in
2022, an overall 44% increase and paid retroactively. As detailed
in the Copyright section, this has led to a $16.1 million accrual
for retroactive revenue due to the Company for the years 2018-2021
and a $6.2 million
accrual to monies expected to be earned in 2022, of which $3.1
million were taken in this financial period.
The next CRB IV settlement period begins in 2023. A joint
proposal from The National Music Publishers' Association (NMPA) and
Nashville Songwriters Association International (NSAI) and the
Digital Media Association (DiMA) has been submitted to the CRB.
Should this be ratified, as is almost certain, this would see the
headline royalty rate for mechanical streaming in the US rise
further from 15.1% to 15.35%, phased in over the five-year term
from 2023-27.
While we believe more significant increases are warranted and
will come, this agreement will provide the highest royalty rates
ever for songwriters in the streaming economy and five years of
stability from which to build from. Additionally, the deal also
includes a number of changes to other components of the rate,
including increases to the per subscriber minimums and the "Total
Content Costs (TCC)" calculations which reflect the rates that
services pay to record labels and modernizes the treatment of
"bundles"
of products or services that include music streaming.
The agreement is supported by DiMA member companies, Amazon,
Apple, Google, Pandora and Spotify, as well as NSAI's Board of
Directors and the NMPA Board, which is comprised of leading
independent and major music publishers.
Separately, we support a 32% uplift in the mechanical rate paid
to publishers and songwriters for music purchased as a physical
sale from 9.1c per track to 12c per track from 2023-27 with further
annual increases in line with the Consumer Price Index. This is a
significant upside for our iconic songwriters and artists such as
Red Hot Chili Peppers, Fleetwood Mac, Soundgarden, Journey and many
others that derive significant revenue from the sale of physical
product.
The joint proposals for CRB IV are significant as they
demonstrate growing acceptance across the industry that artists and
songwriters should be fairly remunerated for their work. Hipgnosis
will continue to be at the forefront of the campaign to move
songwriters (and the owners of songwriting royalties) from the
bottom of the economic equation to the top, recognizing their vital
role within the music industry. At Hipgnosis, our investors stand
in the shoes of Songwriters so there is complete alignment with the
best interest of Songwriters and Shareholders.
Return of Performance Revenues
CISAC - the International Confederation of Societies of Authors
and Composers - is the leading network of authors' societies with
229 member societies in 119 countries. In their recently published
2022 global collections report, which reports data from 2021, CISAC
note global collections returned to growth in 2021, increasing by
+5.8% to reach EUR9.58 billion and reversing the previous year's
decline due to the pandemic. Digital collections grew +27.9% to
EUR3.1 billion driven by organic growth in streaming, rising music
and video on demand subscriptions (SVOD), and deals with digital
platforms. Royalties from live and public performance in 2021 were
still 45.8% below 2019 pre-pandemic levels due to lockdown
restrictions on concerts, exhibitions and live entertainment,
highlighting the long lag in the industry.
This strongly suggests there is considerable opportunity for
upside in collections for 2022 and beyond as normal levels of
activity resume and the collections agencies distribute revenue to
rights holders including Hipgnosis.
This thesis is supported by statements from Live Nation
Entertainment, the world's leading live entertainment company,
which reported in November 2022 that it had delivered the biggest
summer concert season in history, with 44 million attendees across
11,000 concerts in 50 countries. As a result, Live Nation
Entertainment has said it now expects to transfer over $550 million
of additional payments to artists this year and has stated that
ticket sales for shows in 2023 are "pacing even stronger than they
were heading into 2022, up double-digits year-over-year".
Active Song Management
Hipgnosis' Portfolio of iconic and culturally important Songs
are naturally in high and constant demand from producers to feature
in their movies, TV shows and advertisements, video games and
online marketing endeavours. Alongside this, our global in-house
'24/7' Synch licensing operation actively manages our Songs with
responsibility. The Hipgnosis Song Management team focuses on
creating opportunities which add value to both the song and the
songwriter's legacy, while also responding to incoming enquiries
within a matter of minutes. The success of our approach is
demonstrated by the 32% increase in synch PFAR revenue in calendar
H1 2022 compared to H1 2021. Overleaf we have identified a
selection of our recent Synchs.
We promised investors that we would deliver a new, responsible
approach to Song Management, one where we have the resource and
bandwidth to manage great Songs to their full potential - and in
doing so add significant value. We share some examples here:
Firstly, we begin to better utilise alternative interpretations
of our repertoire. All the Small Things was a Song created by
Blink-182, co-written by Tom Delonge, whose Catalogue we bought in
December 2019. The Song reached Number six in the Billboard Hot 100
and Number two in the UK on release in 2000. Our Synch team saw the
potential of a slowed down version of this track by Scott Bradlee
Post Modern Jukebox and presented it to John Lewis, who chose it to
be their seasonal Christmas advert. By really putting the spotlight
on alternative representations of our Songs we deliver new ways to
gain exposure for our Songs.
Secondly, we have created new master recordings of selected
Songs within the Catalogue. These new interpretations are designed
to be attractive for synch opportunities. In addition to our
existing ownership in the Song, Hipgnosis owns 100% of these master
recordings.
This approach has already proved successful, with a new version
of Bon Jovi's Wanted Dead Or Alive. We utilised the musical skill
sets of a Channel Island based artist Empara Mi and the team
created a whole new rendition of this Song, which we released in
May 2022. In this case, Hipgnosis owns 50% of the Publishing
copyright and 100% of the master recording. We released the Song on
Streaming services to establish a base for the record and it has
already achieved over a million streams. However, more importantly,
and financially far more successful, we have also secured the
placement of the Song with a major gaming studio, earning a
six-figure synch fee.
Thirdly, we focus on contemporary artists proving new
interpolations of Songs. For example, in 2022 Nicki Minaj has
delivered another enormous global hit based on Rick James's hit
Super Freak. We have always known the hidden value of Rick's
catalogue. This year Nicki's Song Super Freaky Girl went to Number
1 on the Billboard Hot 100 in the US as well as being a top five
hit in the UK. The original Song was released in 1981, superbly
capturing Rick's raw funk beauty and this has been a seminal track
ever since. Almost 10 years later MC Hammer utilized this track for
the enormous global Grammy award winning hit U Can't Touch This.
Nicki Minaj's new recording helps to again revive the original
Catalogue. Rick James saw a 59% increase in people listening to his
music on Spotify alone last month and an 26% increase in US
consumption of the original Super Freak version. Hipgnosis has 55%
of the new work. Hipgnosis also has over 20 major tracks and
another 14 features with Nicki Minaj with other writers including
Redone, Starrah and Lunchmoney Lewis.
We also continue to work to promote our Songs for use on social
media and lifestyle platforms. For example, Hipgnosis' main TikTok
channel now has 2.1 million followers, one of the highest
performing music company channels on the platform. This allows us
at no cost to reach this very active audience with our music, our
Songs, and with contemporary uses of the track to help magnify
their attractiveness and levels of consumption. We have several
additional splinter channels which focus on particular music moods
and genres (Rock, Gaming and Country) and these are all at over
100,000 followers. As discussed in detail in the Annual Report,
TikTok, as a platform, has demonstrated the capacity to expose
Songs, extend their life for new generations to come and to make
them hits all over again by introducing them to a new audience.
Grammy
Hipgnosis writers were included in 16 Grammy nominations for
2022, as follows:
-- Album Of The Year: Beyonce's RENAISSANCE (Travis Garland) and
Lizzo's, Special (The Monsters & Strangerz; Phoelix; Thomas
Brenneck)
-- Best Alternative Performance and Best Alternative Album: Yeah Yeah Yeahs (Dave Sitek)
-- Best Compilation Soundtrack for Visual Media: The soundtrack
to 'Stranger Things': Separate Ways (Journey/Cain/Schon)
-- Best Dance/Electronic Album: Beyonce's RENAISSANCE (Travis
Garland) and Diplo's Diplo, (Phil Scully/David Karbal)
-- Best Folk Album: Revealer by Madison Cunningham
(Dan Wilson)
-- Best Historical Album: Against the Odds: 1974-1982 by Blondie (Debbie Harry and Chris Stein)
-- Best Immersive Audio Album: Aguilera by Christina Aguilera (Tobias Wincorn)
-- Best Latin Pop Album: De Adentro Pa Afuer by Camilo
(production by Juan Ariza) and Aguilera by Christina Aguilera
(Tobias Wincorn)
-- Best Music Film: Neil Young & Crazy Horse, Barn (Neil Young)
-- Best Pop Vocal Album: Lizzo's Special (The Monsters & Strangerz; Phoelix; Thomas Brenneck)
-- Best Progressive R&B Album: Terrace Martin's, DRONES (Kamasi Washington)
-- Best Rap Album: Come Home The Kids Miss You by Jack Harlow (Tobias Wincorn)
-- Best Rock Performance: Beck's Old Man (Neil Young).
Song Administration
Hipgnosis has continued to implement its strategy to reduce
administration costs and ensure that payments are received as
quickly as possible by reverting (i.e. moving) Catalogues and
renegotiating administration rates at the earliest possible
opportunity (except where there are compelling reasons to maintain
the current administration relationships).
During the period we announced that Hipgnosis had entered into a
direct licensing and administration partnership with Sacem, a
world-leading Collective Management Organisation (CMO), to collect
digital rights for the Writers' Share and Hipgnosis' own Publisher
Share, primarily in the UK and the European Union. Initially 36
full-or part Catalogues were transferred to Sacem on 1 July 2022,
accounting for c.6.5% of our publisher's share of revenue.
Additionally, Hipgnosis entered into a sub-publishing
partnership with peermusic to collect publishing rights and other
royalties in the rest of the world, excluding the US. These
arrangements are expected to result in relevant revenues being
uplifted by over 7% starting in 2023, as underlying rights revert
into these partnerships and we will start to receive those
statements. Further administration arrangements are due for
reversion to Sacem and peermusic in the second half of this
financial year.
Hipgnosis will continue to use Hipgnosis Songs Group (HSG) for
royalty collection in the United States and will revert Catalogues
when possible, for the collection of US income. During the period
under review, a further eight administration arrangements have been
reverted to HSG.
In addition to administering Songs for the Company, HSG is a
third-party administrator. In this capacity, HSG administers
Catalogues such as Glass Animals (Beggars), who claimed the longest
run in Billboard 100 history with Heat Waves. The Song has gone 5x
Platinum and amassed 9.5 billion global streams. It was the second
most streamed Song in 2022 in the US, generating 493 million
on-demand US audio streams alone, and is ranked among the Top 20
"most streamed Songs of all-time on Spotify". Additionally, the
Song took home the honour of "Song of the Year" at the 2022 SESAC
Music Awards.
Alongside our HSG, Sacem and peermusic structures, we continue
to have significant administration business at Kobalt as well as at
Sony Music Publishing, Warner Chappell and Universal
Publishing.
Song Copyright Management
The recent focus of Song Copyright team has been on the CRB
settlements, described above.
In July 2022, after a lengthy process, the 2018-22 rate
increases on the songwriter's and publisher's mechanical portion of
US Streaming income, known as CRB III, were finally agreed. This
culminated in the "all in" headline (mechanical and performance)
statutory minimum rates for Streaming paid in the US to increase by
a total of 44%, from 10.5% to 15.1% over the course of the CRB III
period.
The headline rates agreed by the CRB were as follows:
2018 2019 2020 2021 2022
----- ----- ----- ----- -----
11.4% 12.3% 13.3% 14.2% 15.1%
----- ----- ----- ----- -----
In August 2019, certain DSPs (including Spotify, Google and
Amazon) filed their appeal of this ruling in the US Court of Appeal
for the DC Circuit, arguing that the US Copyright Royalty Board
made numerous legal errors while adopting a rate structure that was
not justified by explanation or evidence and that, in any event,
the rates should not have been applied retrospectively to 1 January
2018. This appeal was disallowed on 1 July 2022, although the Total
Content Cost (TCC) and bundle definitions were returned to the
CRBII levels. During much of the time the remand was pending and,
from October 2020, the headline rate paid out by the DSPs to the
Publishers dropped back to the lower rate of 10.5%.
As a result of the above appeal, a portion of DSP revenue for
the CRB III period has not been paid to songwriters and publishers
at the newly set rates. As detailed in the financial review, we
have accrued income for the retroactive fiscal periods for a total
of $16.1 million. We are also accruing a $6.2 million annualized
accrual for 2022, to account for the higher headline rate of 15.1%,
recognising half of this amount in these financial results.
Both the CRB III retroactive and uplift accruals are based off
historical earnings paid through to the Company by Publishers. In
order to calculate the accrual, the US mechanical portion of those
earnings were analysed and uplifted accordingly based on the CRB
III rates over the five year period from 2018 to 2022.
Whilst some Publishers had different policies on whether they
paid out any higher rates received from DSPs up to when the CRB III
ruling was appealed, the Company has taken a blanket approach and
has not considered any Publisher specific policies given the lack
of clarity from the various payors.
In order to provide additional rigour on the calculation, the
CRB III retroactive and uplift accrual estimates were compared and
benchmarked against the estimates provided by the Portfolio
Independent Valuer and the Fair Value appraiser for the CNB-led
Revolving Credit Facility.
For the period 2018-20 responsibility to adjust payments as
necessary to these new rates rests with the DSPs or their historic
agents. For the period post January 2021, the responsibility to
collect and distribute these uplift adjustments falls to the
Mechanical Licensing Collective (MLC).
The transition to the MLC results from the designation by the
U.S. Copyright Office for the MLC to begin administering blanket
mechanical licenses to digital service providers in the United
States and paying out the royalties collected. As a newly formed
entity, the MLC has launched several initiatives to ensure that
their databases correctly reflect who should receive royalties for
each Song. Since the summer, Copyright teams across the industry
have focused on working collaboratively to improve the accuracy of
this registration data. Ensuring the quality of this data will not
only help to ensure that we maximize the collection of CRB III
adjustment payments but will also maximize collection of future
streaming royalties.
To this end, our Copyright Team has continued its efforts to
identify incorrect or missing registrations in the MLC's database
and to ensure revenues are correctly linked between original and
samples, remixes and cover versions. The team has also trialled a
number of external services to support this process to further
improve data quality and have now chosen a preferred partner.
The DSPs have been given time to deliver revised data to the MLC
for usages post 2021. Assuming there are no delays, the earliest
possible payment to publishers of historic adjustments is expected
to be end 2023, with settlements due to Hipgnosis following after
that.
Separately, the return of live music concerts allowed Hipgnosis
to trial the PRS Major Concert Service and PACE Rights Management
to collect rights for the Red Hot Chili Peppers and Blondie concert
tours respectively. Both trials were successful, with reduced fees
and payments being processed more quickly than the traditional
solutions. As a result, we are in the process of identifying
additional tours to be signed up to these, or similar,
services.
Song Creation
Song Creation delivers dynamic Catalogue growth via a stable of
active, front-line writers and artists. Building future assets at a
relatively low cost, providing contemporary context and synergistic
opportunities throughout the industry is the strength and ongoing
mission of HSG's Song Creation team.
Highlights from the period include the phenomenal success of
Stefan and Jordan Johnson - The Monsters & Strangerz - and the
extension of HSG's deals with Sharon Van Etten, Amber Mark and
signing Latin Grammy nominated songwriter Albert Hype and artist
Bruses. The Song Creation team also has strategically focused on
recent signings and further development of its roster in the
marketplace including Normani and joint ventures with
NO I.D. and other major songwriters and producers.
Highlights from Song Creation
Jordan and Stefan Johnson (of The Monsters & Strangerz): On
the heels of Hipgnosis Songs Fund (in 2021) acquiring Jordan and
Stefan's Catalogue and concurrently agreeing a new moving forward
deal via HSG Jordan and Stefan hit the ground running in 2022. They
kicked off the year celebrating their 4(th) Top 40 Number 1 with
Justin Bieber's Ghost and earned 3 Grammy nominations for their
work on Bieber's album Justice, including one for the single
Anyone.
Further success has been achieved with Selena Gomez's My Mind
& Me, Lizzo's Birthday Girl, whose album reached Number 2 on
the Billboard 200 and Burna Boy's Wild Dreams which drove his album
to Number 2 in the UK and Number 14 in the US.
Albert Hype - has been in the Billboard Top 10 Latin producers'
list every month for the past 24 months. He has recently
collaborated on various Songs on Bad Bunny's Un Verano Sin Ti,
including Tarot, La Corriente and Party. The album was voted the
most streamed album of 2022 by both Apple Music and Spotify. He has
also collaborated on Shakira's Te Felicito, featuring Rau Alejandro
and Monotonia, featuring Ozuna.
Steph Jones : A prolific year of output across multiple genres
for Steph which culminated in her making the short list for the
inaugural Grammy category 'Songwriter Of The Year - Non
Classical'.
Jake Sinclair : co-wrote all the Songs on Panic! At The Disco's
Viva Las Vengeance album. The first single, eponymously titled,
spent three weeks at Number 1 beginning 30 June 2022 on the US
Alternative radio daily chart.
Amber Mark : Has enjoyed a stellar run of placements across the
TV landscape. These include 'Euphoria', 'Insecure', 'Empire', 'And
Just Like That', 'Grays Anatomy', 'Ballers', 'Bel Air', across a
selection of her Songs.
Bruses (Amalia Ramirez) a Latin Grammy-nominated
artist/songwriter from Tijuana currently based in Mexico City. Her
Song Dueles Tan Bien went viral on TikTok earning her more than 3
million followers. Her debut album Monstruos was recently nominated
for Best Album Pop/Rock at the Latin Grammys 2022.
Sharon Van Etten : Sharon's majestic 5th full-length included
new radio high-water mark, Mistake, while further boosting her into
a major concert draw and fueling a truly remarkable rise in the
film & television communities, both as composer and creator of
licensed work spanning her entire Hipgnosis-controlled
catalogue.
Songwriter Advocacy
Songwriters deliver the most important component of a Song but
continue to be paid inequitably. Through our platform and
influence, Hipgnosis continues to campaign for that to change. We
aim to take the songwriter from the bottom to the top of the
economic equation with our advocacy on this issue. When a Catalogue
is acquired, our Shareholders sit directly in the shoes of the
songwriter so there is complete alignment between the song writing
community and our Shareholders. What is in the best interest of the
songwriter is also in the best interest of the Company.
In the US our leadership, tone and advocacy on behalf of the
song writing community has resulted in a change of tone and
messaging from both the recorded music labels and DSPs. This is
best demonstrated in the proposed CRB IV settlement which will
provide 5 years of stability between 2023 and 2027 at the highest
rates ever paid to Songwriters. This stability will provide the
platform to advocate further and take Songwriters to a far more
fair and equitable share of the income going forward.
In the UK we were disappointed that, whilst the Competition and
Markets Authority (CMA) recognised the market failures, they have,
as yet, declined to take the steps which would have addressed these
problems, despite the original report from the DCMS Select
Committee which ultimately prompted their market study.
Nevertheless, we continue to work with the DCMS, regulators and
legislators to seek solutions and a fair outcome for
songwriters.
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
impairment, 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 reduced by 1.0% to $1.8312 during
the six-month period (31 March 2022: $1.8491). This, together with
the dividends, of 19p, takes Total $ NAV Return to Shareholders to
60.0% since the IPO on 11 July 2018.
Based on the Sterling to Dollar exchange rate at 30 September
2022 of 1.116, the Operative NAV presented in Sterling is 164.06p
per share (31 March 2022: 140.79p based on Sterling to Dollar
exchange rate of 1.3134). As at 6 December 2022, the Operative NAV
presented in Sterling would be 149.82p per Share (GBP: USD
1.2223).
The strength of the Dollar, and in particular the Sterling to
Dollar exchange rate, has been beneficial to the Sterling NAV and
the dividend.
The fall in the Operative NAV in Dollar terms over the six-month
period was driven by a small reduction in the Fair Value
of the Portfolio to $2.67 billion (31 March 2022: $2.69
billion). This is driven by the strength of the Dollar reducing the
value of non-Dollar denominated royalty statements.
The vast majority of the Company's cash receipts are received in
Dollars, with c.12% received in other currencies, primarily
Sterling and Euros.
The Portfolio Independent Valuer calculated the Catalogue Fair
Value as of 30 September 2022 maintaining a discount rate of 8.5%
(31 March 2022: 8.5%).
The Portfolio Independent Valuer has consistently taken a
long-term view on expected interest rates since Hipgnosis's IPO in
July 2018. They therefore reduced the discount rate by just 50bp
since the IPO despite the substantial fall in US treasury yields we
have experienced until this year.
Additionally, the proportion of utility-like revenue from
Streaming has increased since Hipgnosis was launched and justifies
a substantially lower risk premium applied to music as an asset.
These factors provide a cushion within the discount rate against
the global interest rates rises over the last 12-months.
The Portfolio Independent Valuer reviews the discount rate
regularly and will adjust the discount rate if it considers it
appropriate. A 0.5% increase in the discount rate to 9.0% would
result in a decline to the Fair Value of the Catalogue of 7.9%
($212.2 million); conversely a reduction to 8.0% would result in an
increase of 9.4% ($251.5 million).
Operative NAV per Ordinary Share Bridge ($) from 1 April 2022 to
30 September 2022
Opening Operative NAV per Ordinary
Share 1.8491
------------------------------------- --------
Profit After Tax excluding
amortisation and impairment
of Catalogues 0.0309
------------------------------------- --------
Decrease in Fair Value of Catalogues (0.0182)
------------------------------------- --------
Dividends Paid (0.0159)
------------------------------------- --------
Dividends Declared not yet
Paid (0.0147)
------------------------------------- --------
Closing Operative NAV per Ordinary
Share 1.8312
------------------------------------- --------
Revenue
Gross revenue increased by 7.5% year-on-year to $91.7 million
(six months ended 30 September 2021: $85.3 million).
The Company has reflected accruals of $19.2 million, as a result
of the confirmation of the CRB III rate increases for the
Songwriters' mechanical portion of US Streaming income. Of this,
$3.1 million is the impact of the higher 15.1% rate on
the revenue earned by the Company during this six-month period
and $16.1 million has been recognised as an estimate of the
retroactive payment due as a result of revenues historically not
having been recognised at the full CRB III rates.
Furthermore, this gross revenue increase occurred despite no
Right To Income (RTI), due to no acquisitions in the period (30
September 2021: $14.1 million).
Net revenue of $78.4 million increased by 5.8% year-on-year (six
months ended 30 September 2021: $74.1 million), after royalty cost
deductions of $13.3 million (six months ended 30 September 2021:
$11.2 million) which relate to contractual royalties due to writers
in HSG and Kobalt Fund One.
After stripping out exceptional adjustments including RTI in the
prior period, the CRB III retro-active payment and accrual
adjustments, the Company has shown strong underlying net revenue
growth of 5.8% year-on-year, to $65.1 million.
Pro-Forma Annual Revenue (PFAR)
To provide its Shareholders with an understanding of the
like-for-like performance of the Company's revenues, by removing
the impact of new Catalogue acquisitions and the Usage Accrual, the
Company presents the Pro-Forma Annual Revenue (PFAR) performance
measure. This shows the royalty revenue earned by Catalogues in a
calendar year largely based on royalty statements received,
irrespective of whether the Songs were owned by the Company over
the period analysed. The Company believes this provides a relevant
like-for-like full year income comparison of the Group's Catalogues
of Songs held as at the period end.
The table below shows PFAR for Catalogues owned as at 30
September 2022 over time.
Pro Forma Annual Revenue for Catalogues owned
12 months to
-------------------------------------------------
Jun 2020 Dec 2020 Jun 2021 Dec 2021* Jun 2022
$m $m $m $m $m
--------------------------- -------- -------- -------- --------- --------
Total PFAR for Catalogues
owned as at 30 Sep 2022 131.7 121.3 115.9 116.6 120.8
<10 years 65.9 57.2 51.0 49.9 50.9
>10 years 65.8 64.1 64.9 66.7 69.9
--------------------------- -------- -------- -------- --------- ------------
* Restated to reflect actual receipts
Note: Greater or Less than 10 years of a Catalogue is calculated
as the average release year of a Catalogue as at January 2022
weighted on earnings at time of acquisition.
PFAR does not include NPS revenues from HSG.
The PFAR for the 12 months to December 2021, has been restated
from $114.9 million to $116.6 million to reflect royalty statements
relating to the period that were received after the publication of
the Annual Report.
PFAR for the 12 months to June 2022 increased by 4.2%
year-on-year to $120.8 million, despite headwinds on income from
non-US Dollar denominated sources described below. Indeed, not only
has there been continued growth in our >10 year catalogues by
7.7% year-on-year to $69.9 million, the data also shows that the
PFAR of our <10 year catalogues is broadly flat year-on-year at
$50.9 million supporting the statement made in our Annual Report,
that overall we are approaching the end of the decay curve in the
younger catalogues.
Whilst the majority of our cash receipts are received in Dollars
(88%), it is worth noting that the original source of our revenues
is in multiple different currencies. Approximately 54% of the
Company's income is generated in the US, 14% in the UK and 21% in
the EU and there are exchange rate differences at all points along
the value chain, which are not directly seen in our receipts.
Notably these results do not include any revenue due to the
Company as a result of CRB III, which would have been equal to
approximately $6.2 million in the most recent PFAR, providing a
strong tailwind for further PFAR growth.
We have set out below the PFAR by income type for the first half
of calendar 2022 compared against the comparative period in
2021.
H1 2022 vs H1 2021 PFAR split by income type
H1 H1
2021 2022 Change
Income Type $m $m %
------------------- ------ ------ --------
Streaming Income 20.35 23.56 +15.8
------------------- ------ ------ --------
Synchronisation
Income 7.41 9.78 +32.0
------------------- ------ ------ --------
Performance Income 13.73 13.12 -4.5
------------------- ------ ------ --------
Mechanical Income 2.55 2.47 -3.2
------------------- ------ ------ --------
Digital Downloads
Income 1.83 1.28 -29.9
------------------- ------ ------ --------
Other Publishing
Income 0.91 1.05 +15.4
------------------- ------ ------ --------
Producer Royalties 3.76 3.83 +1.9
------------------- ------ ------ --------
Masters Income 3.75 3.45 -8.1
------------------- ------ ------ --------
54.29 58.54 +7.8
------------------- ------ ------ --------
Note: Writer's Share of Performance has been allocated to
Streaming and Performance income
Streaming revenues increased by 15.8% year-on-year, comparing
favourably with the +10% year-on-year growth in US streaming
revenue as reported by the RIAA. This is a testament to the
strategy of acquiring Catalogues with high levels of streaming
consumption.
Synchronisation has seen the largest increase in growth across
all income types, growing 32% year-on-year. This is partly driven
by a marked increase in procured direct synchronisation deals. An
increasing number of these licenses have been procured via the
collaboration between the Synch teams of the Investment Adviser and
Hipgnosis Songs Group (HSG) on the Catalogues that have reverted to
HSG.
Synch revenues include both fees for the use of Songs on
traditional media outlets and digital licences for social media,
gaming and fitness platforms. In line with our expectations at the
full year, we can now see meaningful revenues from these emerging
platforms for the first time.
Performance income declined by 4.5% year-on-year to $13.1
million. This is largely driven by a decline in US radio airplay in
line with the natural ageing of some our younger Catalogues, which
resulted in some of those Catalogues no longer qualifying for radio
bonus payments. Adverse foreign exchange movements from source
revenue would also have had a negative impact.
The Company expected to see partial bounce-back in general
performance revenues during the period as a result of the
post-COVID-19 recovery, but these were not seen during the period.
With continued strong performance income recovery reported by the
major publishers, who sit ahead of Hipgnosis in the music payment
chain, this provides confidence of a healthy bounce-back in general
Performance revenues.
Within Performance income, revenues from Live performance have
remained subdued as live concerts were impacted by COVID-19
restrictions with a full resurgence not being seen until Summer
2022. However, a number of our Songwriters have been on tour this
summer, including the Red Hot Chili Peppers, Nile Rodgers &
CHIC, 50 Cent, Blondie, Journey and Lindsey Buckingham.
Mechanical revenues of $2.5 million declined less than expected
(-3.2% year-on-year) as a result of an improvement in physical
revenues driven by the continued resurgence of vinyl.
While the majority of revenue is derived from our Publishing
rights, the Company receives revenue from Sound Recording Rights,
which includes both Masters and Producers. These combined revenues
declined by 3.1% year-on-year, from $7.5 million to $7.3 million.
This is largely a result of the timing of settlement
statements.
Costs
Adjusted operating costs, excluding interest costs, decreased to
$14.5 million (six months ended 30 September 2021: $18.6 million).
This is driven by a reduction in Advisory fees as a function of the
Company's lower share price during the six-month period and reduced
administration, legal and professional fees as a result of no
acquisition activity during the six-month period.
Annualised Ongoing Charges as a percentage of the average
Operative NAV decreased to 1.23% for the six months ended 30
September 2022 (six months ended 30 September 2021: 1.77%),
reflecting the Board's commitment to reduce operating costs and
maximise returns to Shareholders.
As a result of strong performance on certain Catalogues, the
Company has recognised an additional contingent bonus provision of
$3.7 million (prior period nil) relating to bonuses to Songwriters,
based on certain defined performance hurdles defined in the
catalogue acquisition agreement.
Included within Operating expenses during the six-month period
is a one-off provision of $0.9 million relating to a restructuring
of HSG's Song Creation division.
EBITDA
EBITDA for the six months ended 30 September 2022 increased by
16.9% to $63.8 million (six months ended 30 September 2021: $54.6
million), reflecting the growth in net revenue and reduced
operating costs.
Leverage
Loan interest has increased to $14.5 million (six months ended
30 September 2021: $10.0 million) due to the rise in interest
rates. In order to address the interest rate risk and to control
costs, on 30 September 2022 the Company entered into a new
Revolving Credit Facility (RCF) with a commitment of $700 million
which runs for five years until 30 September 2027. This RCF
materially reduces the margin from 3.25% to an initial margin of
2.00%.
In addition, on 5 October 2022, the Company completed interest
rate swap agreements to hedge a total of $540 million at a blended
rate of 5.75%, including debt margin, for a weighted average life
of 4.26 years, starting from 3 January 2023.
As at 30 September 2022, gross debt was $607.0 million (31 March
2022: $600.0 million) and net debt was $570.6 million (31 March
2022: $569.9 million). Net debt as a percentage of Operative NAV
has remained stable at 25.7% as at 30 September 2022 (31 March
2022: 25.4%).
Foreign Exchange Hedge
On 12 October 2022, the Company entered into a series of US
Dollar to Sterling foreign exchange forward contracts to limit its
exposure to foreign exchange rate risk relating to future Sterling
dividend payments until April 2024 as part of a rolling hedge
strategy.
Dividends
In line with the Company's target of 5.25p in interim dividends
per Ordinary Share in relation to the current financial year, two
dividends have been declared in the period totalling 2.625p per
Share.
The dividends declared in the financial year to date amount to
$37.1 million, which was covered 1.2x by Distributable Revenues
recognised during the period. In addition, the Company had 1.6x the
leveraged free cash flow, necessary to meet those dividend payments
paid in the period.
EPS
EPS for the six months ended 30 September 2022 is -1.66c (six
months ended 30 September 2021: -1.69c); this marginal improvement
reflects the growth in net revenue and reduced operating costs,
offsetting the increased interest costs.
Adjusted EPS, as defined within the Alternative Performance
Measures, primarily removes the impact of Catalogues amortisation
and other non-operating costs. The Group amortises Catalogues over
a useful life, using a straight-line method of 20 years, which is
in line with industry standard. Adjusted EPS for the six months
ended 30 September 2022 is 3.76c (six months ended 30 September
2021: 3.85c); the decrease in adjusted EPS is driven primarily by
the increased interest expense for the period.
Accruals and Receivables
Royalty receivables at 30 September 2022 were $5.0 million,
representing royalty statements received by September 2022 with
payment received subsequent to period end.
Accrued income as at 30 September 2022 was $125.1 million (on a
gross basis), a breakdown of which is set out below:
-- $51.9 million for earnings where, due to the time lag in
royalty reporting, statements are not expected to be received until
calendar Q4 2022 onwards.
-- $8.3 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 distribute income from
territories. The lag is due to the nature of 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 PRO
processing delays can typically result in an earnings lag of up
to
24 months;
-- $16.1 million relating to retro-active payment of the CRB III ruling;
-- $3.1 million for the CRB III ruling rate uplift due for the
six-month period ending 30 September 2022;
-- $37.5 million Usage Accrual, which recognises revenues that
have triggered a contractual payment but have not been paid to, and
processed by, collection societies, publishers and
administrators.;
-- $8.2 million HSG gross revenue accrual, which includes the accrued PRO lag.
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; and
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.
RTI shows both revenue recognised in 'Pre-Financial Year RTI'
and 'Within Financial Year RTI.' Within Financial Year RTI is
considered as recurring as it relates to a revenue period that will
be collected and received by the Company in the following financial
year.
There is no combined RTI recognised in the period (30 September
2021: $17.97 million, of which the Pre-Financial Year RTI was
$14.09 million and the Within Financial Year RTI was $3.88
million).
Recurring Revenue vs. Pre-Financial Year RTI for each financial
year to date
Financial year revenue ($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
FY19 in year 13 - 2.52 - 6.88 9.39
- 27% - 73% 100%
----------------------------- ----------- -------- ------ -------- --------- --------
Pre-existing
FY19 Catalogues 0 - - - - -
- - - - -
----------- ----------------- ----------- -------- ------ -------- --------- --------
FY19 Total 13 - 2.52 - 6.88 9.39
- 27% - 73% 100%
----------------------------- ----------- -------- ------ -------- --------- --------
New acquisitions
FY20 in year 41 - 13.40 27.57 23.56 64.53
- 16% 34% 29% 79%
----------------------------- ----------- -------- ------ -------- --------- --------
Pre-existing
FY20 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
FY21 in year 84 - 28.94 37.66 26.16 92.75
- 21% 27% 19% 67%
----------------------------- ----------- -------- ------ -------- --------- --------
Pre-existing
FY21 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%
----------------------------- ----------- -------- ------ -------- --------- --------
New acquisitions
FY22 in year 8 - 14.09 3.88 3.34 21.31
- 19% 5% 5% 29%
----------------------------- ----------- -------- ------ -------- --------- --------
Pre-existing
FY22 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%
----------------------------- ----------- -------- ------ -------- --------- --------
FY23 Half New acquisitions
Year in year 0 - - - - -
- - - - -
----------- ----------------- ----------- -------- ------ -------- --------- --------
FY23 Half Pre-existing
Year Catalogues 146 (2.83) - - 81.18 78.35
(4%) - - 104% 100%
----------------------------- ----------- -------- ------ -------- --------- --------
FY23 Total 146 (2.83) - - 81.18 78.35
(2%) - - 48% 47%
----------------------------- ----------- -------- ------ -------- --------- --------
Outlook
These results demonstrate our focus on efforts that maximize the
value of our portfolio. Our pro forma revenues show strong growth
from streaming and Synch, despite currency headwinds from the
exceptional strength of the US Dollar. While the lag in collections
before we receive performance payments means that the upside
following the world reopening from COVID-19 lockdowns is not yet
included in our revenues, our refinancing and hedging of interest
and exchange rates provides greater certainty on the Company's
costs.
All the leading indicators demonstrate Hipgnosis' investment
thesis and establishing Songs as an asset class as being valid and
strong with further continued revenue growth in the global music
market. Nevertheless, I share the disappointment of shareholders
that the true value of our iconic songs is not reflected in today's
share price and I am firmly committed to do whatever is necessary
to ensure the Company's value is recognised.
With Apple Music moving beyond the 9.99 price point in major
markets and the most recently available public data showing strong
on-going growth in streaming subscribers; positive regulatory moves
in the US to increase payments to holders of Songwriters rights;
increasing revenues from social media, gaming and lifestyle
channels all coupled to strong market growth, Hipgnosis' Song
Management capabilities and a portfolio packed with high quality,
iconic and culturally important Songs.
Merck Mercuriadis
Founder, Hipgnosis Songs Fund Ltd and
Founder/CEO, Hipgnosis Song Management Ltd.
7 December 2022
Condensed Consolidated Statement of Comprehensive Income
For the six months ended 30 September 2022 (unaudited)
1 April 2022 1 April 2021
to to
30 September 30 September
2022 2021
Notes $'000 $'000
------------------------------------------- ----- ------------- -------------
Income
Total revenue 11 91,678 85,320
Interest income 40 2
Royalty costs (13,368) (11,232)
------------------------------------------- ----- ------------- -------------
Net revenue 78,350 74,090
------------------------------------------- ----- ------------- -------------
Expenses
Advisory and performance fees 14 (6,760) (8,173)
Administration fees (300) (663)
Legal and professional fees (1,728) (2,955)
Audit fees (189) (499)
Brokers' fees (147) (156)
Directors' remuneration 14 (324) (268)
Listing fees (41) (249)
Subscriptions and licences (383) (248)
Public relations fees (326) (505)
Contingent bonuses (3,689) -
Other operating expenses 12 (4,847) (5,736)
Amortisation of Catalogues of Songs 5 (55,871) (52,124)
Impairment of Catalogues of Songs 5 (2,007) -
Amortisation of borrowing expenses (1,001) (1,622)
Fixed asset depreciation (30) (331)
Loan interest (14,473) (10,002)
Finance charges for deferred consideration (378) (672)
Net loss from joint ventures (48) (49)
Foreign exchange losses (2,083) (7,841)
------------------------------------------- ----- ------------- -------------
Operating expenses (94,625) (92,093)
------------------------------------------- ----- ------------- -------------
Operating loss for the period before
taxation (16,275) (18,003)
Taxation 4 (3,815) (1,240)
------------------------------------------- ----- ------------- -------------
Loss for the period after tax (20,090) (19,243)
------------------------------------------- ----- ------------- -------------
Total comprehensive income for the
period (20,090) (19,243)
Basic Earnings per Share (cents) 15 (1.66) (1.69)
------------------------------------------- ----- ------------- -------------
Diluted Earnings per Share (cents) 15 (1.66) (1.69)
------------------------------------------- ----- ------------- -------------
All activities derive from continuing operations.
The accompanying notes form an integral part of these Condensed
Consolidated Financial Statements.
Condensed Consolidated Statement of Comprehensive Income
For the six months ended 30 September 2022 (unaudited)
1 April 2022 1 April 2021
to to
30 September 30 September
2022 2021
Notes $'000 $'000
----------------------------------------- ------ ------------- -------------
Loss for the period after tax (20,090) (19,243)
Other comprehensive income:
Movement in foreign currency translation
reserve (307) -
------------------------------------------------- ------------- -------------
(307) -
------------------------------------------------ ------------- -------------
Total comprehensive income for the
year (20,397) (19,243)
------------------------------------------------- ------------- -------------
The accompanying notes form an integral part of these Condensed
Consolidated Financial Statements.
Condensed Consolidated Statement of Financial Position
For the six months ended 30 September 2022 (unaudited)
30 September 31 March
2022 2022
(Unaudited) (Audited)
Notes $'000 $'000
------------------------------------------ --------- ------------- -------------
Assets
Catalogues of Songs 5 1,978,854 2,036,732
Other assets 1,143 568
Goodwill 272 272
Non-current receivables 6 19,197 640
------------------------------------------ --------- ------------- -------------
Non-current assets 1,999,466 2,038,212
Trade and other receivables 6 136,384 144,450
Cash and cash equivalents 7 36,392 30,067
------------------------------------------ --------- ------------- -------------
Current assets 172,776 174,517
Total assets 2,172,242 2,212,729
------------------------------------------ --------- ------------- -------------
Liabilities
Loans and borrowings 8 595,823 593,992
Deferred investment payables 9 100 925
------------------------------------------ --------- ------------- -------------
Non-current liabilities 595,923 594,917
Other payables and accrued expenses 9 51,374 35,413
------------------------------------------ --------- ------------- -------------
Current liabilities 51,374 35,413
Total liabilities 647,297 630,330
------------------------------------------ --------- ------------- -------------
Net assets 1,524,945 1,582,399
------------------------------------------ --------- ------------- -------------
Equity
Share capital 10 1,692,198 1,692,198
Foreign currency translation reserve (2,542) (2,235)
Retained earnings (164,711) (107,564)
------------------------------------------ --------- ------------- -------------
Total equity attributable to the
owners of the Company 1,524,945 1,582,399
------------------------------------------ --------- ------------- -------------
Number of Ordinary Shares in issue
at period end 1,211,214,286 1,211,214,286
------------------------------------------ --------- ------------- -------------
IFRS Net Asset Value per Ordinary
Share (cent) 125.90 130.65
Operative Net Asset Value per Ordinary
Share (cent) 183.12 184.91
------------------------------------------ --------- ------------- -------------
Approved and authorised for issue by the Board of Directors
on 7 December 2022 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 2022 (unaudited)
Foreign
currency
Number of Share Other translation Retained
Ordinary capital reserves reserve earnings* Total equity
Notes Shares $'000 $'000 $'000 $'000 $'000
--------------------- ----- -------------- --------- --------- ------------ ---------- ------------
As at 1 April 2022 1,211,214,286 1,692,198 - (2,235) (107,564) 1,582,399
Dividends paid 13 - - - - (19,313) (19,313)
Dividends declared 9 - - - - (17,744) (17,744)
Loss for the year - - - - (20,090) (20,090)
Foreign currency
translation reserve
movement - - - (307) - (307)
--------------------- ----- -------------- --------- --------- ------------ ---------- ------------
As at 30 September
2022 1,211,214,286 1,692,198 - (2,542) (164,711) 1,524,945
--------------------- ----- -------------- --------- --------- ------------ ---------- ------------
* Distributable Revenues arising during the period were $45.5
million which, taken together with the $18.7 million of
Distributable Revenue Reserves carried forward from the previous
financial year ended 31 March 2022, result in available
Distributable Revenues of $64.2 million.
For the six months ended 30 September 2021 (unaudited)
Foreign
currency
Number of Share Other translation Retained
Ordinary capital reserves reserve earnings Total equity
Notes 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 10 137,774,018 229,702 (234) - - 229,468
Share issue costs 10 - (4,102) - - - (4,102)
Dividends paid 13 - - - - (41,900) (41,900)
Loss for the year - - - - (19,243) (19,243)
Foreign currency
translation reserve
movement - - - (1,826) - (1,826)
--------------------- ----- ------------- --------- --------- ------------ --------- ------------
As at 30 September
2021 1,211,214,286 1,692,451 - (2,245) (64,964) 1,625,242
--------------------- ----- ------------- --------- --------- ------------ --------- ------------
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 2022 (unaudited)
1 April 2022 1 April 2021
to to
30 September 30 September
2022 2021
Notes $'000 $'000
----------------------------------------------- ----- ------------- -------------
Cash flows generated from operating activities
Operating loss for the period before taxation (16,275) (18,003)
Adjustments for non-cash items:
Loan interest 14,473 10,002
Provision for writer advances - 916
Movement in trade and other receivables (18,368) 2,608
Movement in other payables and accrued
expenses 5,219 (3,387)
Depreciation of fixed assets 30 -
Amortisation of Catalogues of Songs and
borrowing costs 56,872 54,749
Impairment of Catalogues of Songs 5 2,007 -
Foreign exchange losses 2,083 443
Lease interest paid (378) -
Taxation paid (200) (4,798)
----------------------------------------------- ----- ------------- -------------
Net cash generated from operating activities 45,463 42,530
----------------------------------------------- ----- ------------- -------------
Cash flows used in investing activities
Purchase of Catalogues of Songs - (294,374)
Purchase of other assets (48) -
Movement in writer advances (1,915) (6,560)
Deferred acquisition payments (2,500) -
----------------------------------------------- ----- ------------- -------------
Net cash used in investing activities (4,463) (300,934)
----------------------------------------------- ----- ------------- -------------
Cash flows generated from financing activities
Proceeds from issue of shares - 229,468
Issue costs paid - (4,102)
Dividends paid 13 (19,313) (41,900)
Interest paid (14,973) (10,660)
Borrowing costs 8 (6,170) (594)
Bank loan repaid 8 (600,000) -
Bank loan drawn down 8 607,000 22,708
----------------------------------------------- ----- ------------- -------------
Net cash (used in)/generated from financing
activities (33,456) 194,920
----------------------------------------------- ----- ------------- -------------
Net movement in cash and cash equivalents 7,544 (63,484)
----------------------------------------------- ----- ------------- -------------
Cash and cash equivalents at the start
of the period 30,067 112,634
Effect of foreign exchange rate changes
on cash and cash equivalents (1,219) (42)
----------------------------------------------- ----- ------------- -------------
Cash and cash equivalents at the end of
the period 7 36,392 49,108
----------------------------------------------- ----- ------------- -------------
The accompanying notes form an integral part of these Condensed
Consolidated Financial Statements.
Notes to the Consolidated Financial Statements
For the six months ended 30 September 2022 (unaudited)
1. General information
Hipgnosis Songs Fund Limited was incorporated and registered in
Guernsey on 8 June 2018 with registered number 65158 and is
governed in accordance with the provisions of the Companies Law.
The registered office address is Floor 2, Trafalgar Court, Les
Banques, St Peter Port, Guernsey, GY1 4LY.
The Company's Ordinary Shares were admitted to trading on the
Specialist Fund Segment of the London Stock Exchange on 11 July
2018 and migrated to a Premium Listing on the Main Market of the
London Stock Exchange on 25 September 2019. The Company was added
as a constituent of the FTSE 250 Index effective from after the
market close on 20 March 2020.
The Company makes its investments through its subsidiaries,
which are registered in the UK and US as limited companies.
The Condensed Consolidated Financial Statements present the
results of the Group for the six months ended 30 September 2022 and
are unaudited. The Condensed Consolidated Financial Statements are
rounded to the nearest US Dollar. The Group is principally engaged
in investing in and managing music copyrights and associated
musical intellectual property.
2. Accounting policies
a) Basis of preparation
The Condensed Consolidated Financial Statements included in this
Interim Report have been prepared in accordance with IAS 34
'Interim Financial Reporting' and the Disclosure and Transparency
Rules of the FCA.
The Condensed Consolidated Financial Statements do not include
all the information and disclosures required in the Annual Report
and should be read in conjunction with the Company's Annual Report
for the year ended 31 March 2022, 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 2022.
b) Group information
As at 30 September 2022, 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 (1) UK 100 100 Full GBP
Hipgnosis Songs Group LLC US 100 100 Full USD
Hipgnosis Acquisition Corp US 100 100 Full USD
Kennedy Publishing & Productions
Limited (1) UK 100 100 Full GBP
Robot of the Century Music Publishing
Inc US 100 100 Full USD
Deamon Limited (1) UK 100 100 Full GBP
PB Songs Ltd (1) UK 100 100 Full GBP
-------------------------------------- --------------- ----------- ---------- ------------- ----------
1 This is a subsidiary of Hipgnosis SFH XX Limited and therefore
an indirect subsidiary of Hipgnosis Songs Fund Limited. 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.
c) 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 judgement, the
Directors believe it is appropriate to prepare the Condensed
Consolidated Financial Statements of the Group on a going concern
basis.
d) Segmental reporting
The chief operating decision maker is the Board of Directors.
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, 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 Condensed Consolidated
Financial Statements. Uncertainty about these estimates and
assumptions could result in outcomes that require a material
adjustment to the carrying amount of the asset or liability
affected in future periods. Estimates and underlying assumptions
are reviewed on an ongoing basis. Revisions to accounting estimates
are recognised in the period in which the estimates are revised and
in any future periods affected.
The key assumptions concerning the future and other key sources
of estimation uncertainty at the reporting date, that have a
significant risk of resulting in a material adjustment to the
carrying amounts of assets and liabilities within the next
financial year,
are discussed below. The Group based its assumptions and made
estimates based on the information available when the Condensed
Consolidated Financial Statements were prepared. However, these
assumptions and estimates may change based on market changes or
circumstances beyond the control of the Group.
Critical estimates in applying the Group's accounting policies -
revenue recognition and royalty costs
In calculating accruals, the Investment Adviser makes judgments
around seasonality, over or under performance, and commercial
factors based on historical performance, and its knowledge of each
Catalogue through its regular correspondence with the various
administrators, record labels and international societies.
Estimated royalty revenue receivable is accrued for on the basis
of historical earnings for each Catalogue, which incorporates an
element of uncertainty. The estimated revenue accrual may not
therefore directly equal the actual cash received in respect of
each accounting period and adjustments may therefore be required
throughout the financial period when the actual revenue received is
known, and these adjustments may be material.
Net revenues also include an accrual for performance income, to
account for the writer's share of Performance royalties which are
subject to a significant time lag in reporting in the industry, but
which the Group is entitled to receive in due course. In
recommending the estimate of this accrual to the Board of Directors
the Investment Adviser used its analysis of each Catalogue's
revenue history as well its knowledge of the respective Catalogue
performance trends to recommend the estimated accruals.
The Group has reflected accruals of $19.2 million, as a result
of the confirmation of the CRB III rate increases for the
Songwriters' mechanical portion of US Streaming income. Of this,
$3.1 million is the impact of the higher 15.1% rate on the income
earned by the Company during this six-month period and $16.1
million has been recognised for the retro-active payment due as a
result of revenues historically not having been recognised at the
full CRB III rates.
Both the CRB III retroactive and uplift accruals are based off
historical earnings paid through to the Company by Publishers. In
order to calculate the accrual, the US mechanical portion of those
earnings were analysed and uplifted accordingly based on the CRB
III rates over the five year period from 2018 to 2022.
Whilst some Publishers had different policies on whether they
paid out any higher rates received from DSPs up to when the CRB III
ruling was appealed, the Company has taken a blanket approach and
has not considered any Publisher specific policies given the lack
of clarity from the various payors.
In order to provide additional rigour on the calculation, the
CRB III retroactive and uplift accrual estimates were compared and
benchmarked against the estimates provided by the Portfolio
Independent Valuer and the Fair Value appraiser for the CNB-led
Revolving Credit Facility. Net revenue is subject to a royalty cost
accrual applied to gross revenue receipts primarily within the
Hipgnosis Songs Group ("HSG") subsidiaries. Royalty cost accruals
represent contractual royalties due to songwriters and other rights
holders that are payable on a 6-monthly basis for writers under
publishing contracts and quarterly for clients under administration
contracts. Royalty rates vary by writer (negotiated by contract)
and by revenue stream.
Expected Credit Loss (ECL) in relation to revenue
receivables
Royalty earnings for accruals and receivables recognised in the
period ending 30 September 2022 are distributed by PROs, Publishers
and Record Labels who collect royalties at the source of usage and
distribute those earnings directly to Hipgnosis.
The probability of future default has been deemed close to nil,
due to the long-standing history of PROs, Publishers and Record
Labels within the music industry and the existing framework of cash
collection amongst the Company's stakeholders. Whilst there are
smaller/newer organisations that have relatively unproven credit
resilience these account for a small minority of our
receivables.
The Company's current risk assessment includes analysis of the
exposure to commercial risk by PROs, Publishers and Record Labels,
and the likely impact of their credit risk on Hipgnosis' revenue
streams.
Expected Credit Loss (ECL) in relation to HSG advances
Hipgnosis Songs Group LLC advance royalty payments to
songwriters. Management are required to assess the recoverability
of these advances bi-annually in accordance with IFRS 9 Financial
Instruments. Management will consider market conditions and
historic trading patterns affecting the relevant assets.
Management have analysed their historical loss ratio data and
apply this using the risk based methodology as there are no defined
terms of repayment related to advances. The risk categories against
which the historical loss ratios are assessed and expected credit
losses are calculated are:
-- low risk advances where the advance is expected to be
recouped in full under the terms of the writer's agreement (because
of the writer's reputation, previous success etc);
-- medium risk advances where there is reasonable expectation
that a level of the advances will be recouped; and
-- high risk advances, where management believe that either
because of the writer's unknown potential or other factors, a large
level of recoverability may not be achieved.
At 30 September 2022 HSG gross recoupable advances are $30.6
million (31 March 2022: $31.6 million) with an expected credit loss
provision of $12.6 million (31 March 2022: $13.0 million)
recognised against the advances. The movement in the provision for
expected credit losses is included under Other Operating Expense in
the Condensed Consolidated Statement of Comprehensive Income.
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 Catalogues is considered at each reporting period, which is 20
years, in line with industry standard.
Assessment of impairment and the calculation of Operative
NAV
Intangible assets are subject to a bi-annual impairment review
which relies on assumptions made by the Board. Assumptions are
updated bi-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 2022
concluded that $2.0 million (31 March 2022: $1.5 million)
impairment was required to the Group's Catalogues.
Valuations of music publishing rights typically adopt the DCF
valuation approach which measures the present value of anticipated
future revenues from acquiring the Catalogues, which are discounted
at a 'market cost of capital' of 8.5% (31 March 2022: 8.5%) and a
terminal value in 16 years. This method is accepted as an objective
way of measuring future benefits; taking into account income
projections from various music industry sources across various
revenue flows whilst also factoring in the associated cost of
capital.
It is the intention of the Board that Catalogues of Songs will
be valued on an ongoing basis using a consistent DCF valuation
methodology, and that this be used as an initial indicator of
impairment for each Catalogue of Songs.
When considering whether a Catalogue of Songs should be
impaired, the Board considers a co-efficient analysis that
incorporates various factors, including the time remaining of when
the carrying value equals the fair value based on the rate of
amortisation, the ability for the Company to renegotiate
administration rates and the active management that is
undertaken.
Future revenue derived from active song management by the
Investment Adviser is not reflected in the fair value of each
Catalogue of Songs as determined in accordance with IFRS 13.
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. Therefore, it is considered
appropriate to use the standard UK tax rate for the year of 19%
(2021: 19%). On 14 October 2022 the UK government confirmed an
increase to the main rate of UK corporation tax to 25% from April
2023, however the impact of this proposed change is not included
within these Condensed Consolidated Financial Statements.
The Group currently has no exposure to US Corporation Tax as the
US based subsidiaries are currently not making a taxable profit.
Aside from the US, the Group has no other foreign subsidiaries.
The taxation charge of $3.8 million (six months ended 30
September 2021: $1.2 million) is based on adjustments in respect of
the prior year.
5. Catalogues of Songs
$'000
----------------------------------- ----------
Cost
At 1 April 2022 2,237,284
Additions -
Impairment -
----------------------------------- ----------
At 30 September 2022 2,237,284
----------------------------------- ----------
Amortisation and impairment
At 1 April 2022 200,552
Amortisation 55,871
Impairment 2,007
----------------------------------- ----------
At 30 September 2022 258,430
----------------------------------- ----------
Net book value
At 1 April 2022 2,036,732
At 30 September 2022 1,978,854
----------------------------------- ----------
Fair value as at 30 September 2022 2,671,881
----------------------------------- ----------
Cost
At 1 April 2021 1,972,199
Additions 265,085
----------------------------------- ----------
At 31 March 2022 2,237,284
----------------------------------- ----------
Amortisation and impairment
At 1 April 2021 93,275
Amortisation 105,787
Impairment 1,490
----------------------------------- ----------
At 31 March 2022 200,552
----------------------------------- ----------
Net book value
At 1 April 2021 1,878,924
At 31 March 2022 2,036,732
----------------------------------- ----------
Fair value as at 31 March 2022 2,693,974
----------------------------------- ----------
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). An
assessment of the useful life of Catalogues is considered at each
reporting period, which is 20 years, in line with industry
standard. At 30 September 2022 accumulated amortisation for
Catalogues of Songs is $254.9 million (31 March 2022: $199.1
million) and the accumulated impairment to date is $3.5 million (31
March 2022: $1.5 million).
The Board engaged Portfolio Independent Valuer, Citrin Cooperman
Advisors LLC, to value the Catalogues as at 30 September 2022. 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 2022: 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. The Board are comfortable that Kobalt is valued on this
basis as the Kobalt Catalogue was purchased as a whole. Future
revenues of Catalogues are also estimated and incorporated into
their valuation. Citrin Cooperman has also taken into consideration
macro factors including the growth of Streaming revenue and the
global growth of the recorded music industry in their analysis. The
Board has approved and adopted the valuations prepared by the
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 and foreign exchange rate
to the fair value of the Portfolio is as follows:
Foreign Exchange Rate
----------------- ----------------------------------
EUR:USD 1.02 1.12 1.22
GBP:USD 1.18 1.28 1.38
----------------- ---------- ---------- ----------
Discount Rate
----------------- ---------- ---------- ----------
8.0% 2,894,449 2,923,377 2,952,306
Variance to Fair
Value 8.3% 9.4% 10.5%
----------------- ---------- ---------- ----------
8.50% 2,645,485 2,671,881 2,698,278
Variance to Fair
Value -1.0% - 1.0%
----------------- ---------- ---------- ----------
9.0% 2,435,411 2,459,673 2,483,936
Variance to Fair
Value -8.9% -7.9% -7.0%
----------------- ---------- ---------- ----------
6. Trade and other receivables
30 September 31 March
2022 2022
$'000 $'000
------------------------------ ------------ --------
Non-current receivables
Non-current accrued income 19,197 640
------------------------------ ------------ --------
19,197 640
------------------------------ ------------ --------
Current receivables
Accrued income 105,930 104,658
Royalties receivable 4,952 6,605
HSG net recoupable advances 17,985 18,604
Prepayments and other debtors 7,517 7,274
VAT receivable - 7,309
------------------------------ ------------ --------
136,384 144,450
------------------------------ ------------ --------
In the current year, an accrual for $19.2 million has been
recognised as a result of the confirmation of the CRB III rate
increases for the Songwriters' mechanical portion of US Streaming
income. Of this, $3.1 million is the impact of the higher 15.1%
rate on the income earned by the Company during this six-month
period and $16.1 million has been recognised for the retro-active
payment due as a result of revenues historically not having been
recognised at the full CRB III rates. This is presented as a
non-current receivable and calculated as described in Note 3.
7. Cash and cash equivalents
30 September 31 March
2022 2022
$'000 $'000
------------------------- ------------ --------
Cash available on demand 36,392 30,067
------------------------- ------------ --------
36,392 30,067
------------------------- ------------ --------
8. Loans and borrowings
On 30 September 2022 the Company entered into a new Revolving
Credit Facility (RCF) with a commitment of $700 million which runs
for five years until 30 September 2027. City National Bank is lead
arranger and sole bookrunner for the new debt facility with Truist
Securities, Inc., MUFG Union Bank, N.A. and Fifth Third Bank as
co-leads. On the same day the Company drew down $607 million to
repay in full the Company's pre-existing JP Morgan RCF ($600
million). $93 million remains available under the new RCF which
provides the Company with flexibility to fund investments and
provide additional working capital. During the year $6.2 million of
costs relating to the set-up of the new RCF were capitalised, to be
amortised over the five year length of the agreement.
The RCF's key covenants include a total debt to Catalogue value
test, a total debt leverage test and a fixed charge coverage test
reviewed quarterly and is secured by, inter alia, a charge over the
shares in all the subsidiaries of the Company, a charge over all of
their assets including all Catalogues of Songs of the Company held
through these subsidiaries and a charge over the bank accounts of
the Company and its subsidiaries. The Company has also provided a
parent company guarantee. In accordance with the Investment Policy,
any borrowings by the Company will not exceed 30% of the Operative
NAV.
Interest on the new facility charged is based on the Secured
Overnight Financing Rate (SOFR), published by the New York Federal
Reserve, plus a margin of either 2.00% or 2.25% depending on the
gross drawn debt. The initial margin will be 2.00%. As disclosed in
Note 18, the Company has entered into an interest rate swap
agreement post period end to manage its exposure to interest rate
risk.
30 September 31 March
2022 2022
$'000 $'000
------------------------------------- ------------ --------
Opening balance - loan drawn down 600,000 577,292
Amounts drawn down during the period 607,000 72,708
Amounts repaid during the year (600,000) (50,000)
------------------------------------- ------------ --------
Total loan drawn down 607,000 600,000
------------------------------------- ------------ --------
Cumulative borrowing costs (11,177) (6,008)
------------------------------------- ------------ --------
Closing balance 595,823 593,992
------------------------------------- ------------ --------
During the period ended 30 September 2022 $14.5 million (30
September 2021: $10.0 million) was charged as interest on the
amounts drawn down.
9. Liabilities and accrued expenses
30 September 31 March
2022 2022
$'000 $'000
----------------------------- ------------ --------
Non-current liabilities
Deferred investment payables 100 925
----------------------------- ------------ --------
100 925
----------------------------- ------------ --------
Current liabilities
Dividend declared 17,744 -
Amounts owed to songwriters 15,773 16,957
Deferred investment payables 4,912 11,197
Trade creditors and accruals 5,473 4,106
Corporation tax 6,184 2,570
VAT payable 1,243 -
Directors fees payable 45 83
Loan interest payable - 500
----------------------------- ------------ --------
51,374 35,413
----------------------------- ------------ --------
10. 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 2022 1,211,214,286
-------------------------------- -------------
Shares as at 30 September 2022 1,211,214,286
-------------------------------- -------------
$'000
-------------------------------- -------------
Issued and fully paid:
Shares as at 1 April 2022 1,692,198
-------------------------------- -------------
Shares as at 30 September 2022 1,692,198
-------------------------------- -------------
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
-------------------------------- -------------
Shares as at 31 March 2022 1,211,214,286
-------------------------------- -------------
$'000
-------------------------------- -------------
Issued and fully paid:
Shares as at 1 April 2021 1,466,851
Shares issued on 29 April 2021 14,938
Shares issued on 9 July 2021 214,764
Share issue costs (4,355)
-------------------------------- -------------
Shares as at 31 March 2022 1,692,198
-------------------------------- -------------
On 29 April 2021 the Company issued 9,000,000 new Ordinary
Shares at a price of 119.5p per Ordinary Share and on 9 July 2021
the Company issued 128,774,018 new Ordinary Shares at a price of
121p per Ordinary Share. These shares rank pari passu with the
existing Ordinary Shares in issue. The net proceeds were used to
fund an investment in accordance with the Company's Investment
Policy.
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.
11. Total revenue
1 April 2022 1 April 2021
to to
30 September 30 September
2022 2021
$'000 $'000
--------------------------- ------------- -------------
Mechanical income 2,893 5,530
Performance income 4,729 11,194
Digital downloads income 2,736 1,999
Streaming income 50,028 19,858
Synchronization income 12,546 14,921
Publishing admin income 154 108
Masters income 2,184 3,939
Writer share income 12,817 21,393
Neighbouring rights income 663 0
Other income (628) 2,414
Producer royalties 3,556 3,964
--------------------------- ------------- -------------
Total revenue 91,678 85,320
--------------------------- ------------- -------------
All revenue streams disclosed in this note are in scope of IFRS
15 and include all revenue related accruals, unlike PFAR which
provides like-for-like analysis.
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 revenue accruals are disclosed in Note 6 Trade and other
receivables.
12. Other operating expenses
1 April 2022 1 April 2021
to to
30 September 30 September
2022 2021
$'000 $'000
------------------------------------------- ------------- -------------
Aborted deal expenses 332 367
Bank charges 26 23
Charitable donations 28 20
Directors' and officers' insurance 160 163
Disbursements and sundry 73 629
Postage, stationery and printing 79 28
Movement in ECL provision for HSG advances (375) 916
HSG staff payroll and expenses 3,154 3,335
HSG restructuring provision 925 -
Travel and accommodation fees 187 110
HSG travel and accommodation fees 258 145
------------------------------------------- ------------- -------------
4,847 5,736
------------------------------------------- ------------- -------------
13. Dividends paid
A summary of the dividends paid are set out below:
Dividend
per share Total Dividend
Pence $'000
--------------------------------------------- ---------- --------------
1 April 2022 to 30 September 2022
Interim dividend in respect of quarter ended
31 March 2022 1.3125 19,313
--------------------------------------------- ---------- --------------
1.313 19,313
--------------------------------------------- ---------- --------------
1 April 2021 to 30 September 2021
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
--------------------------------------------- ---------- --------------
2.625 41,900
--------------------------------------------- ---------- --------------
14. 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 2022
amounted to $323,763 (30 September 2021: $314,811). Outstanding
fees amounted to $nil at the reporting date (30 September 2021:
$nil).
Directors' transactions in or holdings in shares of the Company
are not disclosed as related party transactions as they do not
receive shares as part of their remuneration. Any shares held or
transacted are acquired or disposed of in their own right as
Shareholders and as result, it is management's assessment that the
Company has not transacted with the Directors as related parties in
this regard.
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, maintain financial records and a system of
internal controls for the financial reporting for the Company, 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 2022
amounted to $6.8 million (30 September 2021: $8.2 million) of which
$nil was outstanding at the reporting date (31 March 2022:
$nil).
15. Earnings per share
30 September 30 September
2022 2022
Basic Diluted
------------------------------------------- ------------- -------------
Loss for the period ($'000) (20,090) (20,090)
Weighted average number of Ordinary Shares
in issue 1,211,214,286 1,211,214,286
------------------------------------------- ------------- -------------
Earnings per share (cents) (1.66) (1.66)
------------------------------------------- ------------- -------------
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)
------------------------------------------- ------------- -------------
The earnings per share is based on the loss of the Group for the
period year and on the weighted average number of Ordinary Shares
for the period ended 30 September 2022.
There are no diluted shares at 30 September 2022.
16. Net Asset Value per share and Operative Net Asset Value per
share
30 September 31 March
2022 2022
----------------------------------- ------------- -------------
Number of Ordinary Shares in issue 1,211,214,286 1,211,214,286
IFRS NAV per share (cents) 125.90 130.65
Operative NAV per share (cents) 183.12 184.91
----------------------------------- ------------- -------------
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.
30 September 31 March
2022 2022
Reconciliation of IFRS NAV to Operative NAV $'000 $'000
---------------------------------------------------- ------------ ---------
IFRS NAV 1,524,945 1,582,399
Adjustments for revaluations of Catalogues of
Songs to fair value 434,597 457,441
Reversal of accumulated amortisation and impairment 258,430 199,800
---------------------------------------------------- ------------ ---------
Operative NAV 2,217,972 2,239,640
---------------------------------------------------- ------------ ---------
17. Presentation change
The Company has made immaterial changes to the presentation of
the Consolidated Statement of Profit and Loss and accompanying
notes during the period. This has resulted in the following changes
of the comparative figures.
Consolidated Statement of Profit and As reported As reported
Loss in in
30 September 30 September
2021 2022
Interim Interim
Report Report
1 April 2021 1 April 2021
to to
30 September Presentation 30 September
2021 change 2021
$'000 $'000 $'000
------------------------------------------- ------------- ------------ -------------
Income
Total revenue 85,271 49 85,320
Interest income 2 - 2
Royalty costs (11,232) - (11,232)
------------------------------------------- ------------- ------------ -------------
Net revenue 74,041 49 74,090
------------------------------------------- ------------- ------------ -------------
Expenses
Advisory and performance fees (8,220) 47 (8,173)
Administration fees (639) (24) (663)
Legal and professional fees (2,955) - (2,955)
Audit fees (499) - (499)
Brokers' fees (1) (155) (156)
Directors' remuneration (315) 47 (268)
Listing fees - (249) (249)
Subscriptions and licences (249) 1 (248)
Public relations fees - (505) (505)
Charitable donations (20) 20 -
Other operating expenses (6,885) 1,149 (5,736)
Amortisation of Catalogues of Songs (52,124) - (52,124)
Amortisation of borrowing expenses (1,622) - (1,622)
Fixed asset depreciation - (331) (331)
Loan interest (10,002) - (10,002)
Finance charges for deferred consideration (672) - (672)
Net loss from joint ventures - (49) (49)
Foreign exchange losses (7,841) - (7,841)
------------------------------------------- ------------- ------------ -------------
Operating expenses (92,044) (49) (92,093)
------------------------------------------- ------------- ------------ -------------
Operating loss for the period before
taxation (18,003) - (18,003)
Taxation (1,240) - (1,240)
------------------------------------------- ------------- ------------ -------------
Loss for the period after tax (19,243) - (19,243)
------------------------------------------- ------------- ------------ -------------
18. Subsequent events
As announced on 5 October 2022, the Company entered into
interest rate swap agreements as detailed below:
-- From 3 October 2022 until 2 January 2023, interest on all the
drawn debt is based on a three-month fixed SOFR of 5.71% (including
debt margin); and
-- From 3 January 2023, the company has agreed to enter into
interest rate swaps to hedge $540 million. Of this, $340 million is
hedged for the duration of the RCF (until 30 September 2027) at a
fixed rate of 5.67% (including debt margin); a further $200 million
is hedged until 3 January 2026 at a fixed rate of 5.89% (including
debt margin). The balance remains unhedged to provide flexibility
in the operation of the RCF facility.
The interest rate hedging contracts are not subject to margin
calls in the event of movements in underlying interest rates.
Accordingly, the Company now has certainty as to the quantum of its
fixed interest payment obligations over the term of those
contracts.
On 12 October 2022, the Company entered into US Dollar to
Sterling foreign exchange forward contracts to manage its exposure
to foreign exchange rate risk relating to future Sterling dividend
payments.
Both the interest rate swap and the foreign exchange hedge will
be designated as Held for Trading Financial Assets.
On 14 October 2022 the Company announced an irrevocable share
repurchase programme to buy back Ordinary Shares within certain
pre-set parameters. The Share Purchase Programme will run until 8
December 2022. Any shares purchased pursuant to the Share
Repurchase Programme will count towards Hipgnosis' general buy back
authority of 14.99% of the Company's issued share capital, as
approved at the Company's 2022 AGM.
On 28 October 2022 the Company's interim dividend of 1.3125p per
Ordinary Share in respect of the period from 1 April to 30 June
2022 was paid.
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END
IR GGBDDXXGDGDI
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December 08, 2022 02:00 ET (07:00 GMT)
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