Information  X 
Enter a valid email address

Hipgnosis Songs Fund (SONG)

  Print      Mail a friend

Friday 04 December, 2020

Hipgnosis Songs Fund

Interim Results

RNS Number : 5763H
Hipgnosis Songs Fund Limited
04 December 2020
 

4 December 2020

 

Hipgnosis Songs Fund Limited

("Hipgnosis" or the "Company")

 

Interim Results

for the six months ended 30 September 2020 ("H1")

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, The Family (Music) Limited, are pleased to announce  the Company's interim results for the six months ended 30 September 2020.

 

The Investment Adviser will be providing a presentation to investors and analysts at 10am today through the following link: 

https://www.lsegissuerservices.com/spark/HipgnosisSongsFundLtd/events/b821cf49-16dd-4514-a17b-efded7dd00c4

This presentation will be available afterwards on the Company's website  www.hipgnosissongs.com .

A published copy of the Interim Report will also be available through the following link:

http://www.rns-pdf.londonstockexchange.com/rns/5763H_1-2020-12-4.pdf

Merck Mercuriadis, Founder of Hipgnosis Songs Fund Limited and The Family (Music) Limited said :

" 2020 has been a year that the world never contemplated, as both society and the economy have been devastated by the pandemic. It is therefore a wonderful feeling to be able to give our investors, who have given us incredible support, and the songwriting community, who have entrusted us with their incomparable work, an excellent set of results that validate their trust and faith in Hipgnosis.  We've been one of the FTSE 250's biggest yielders and have now reached a £1.25 billion market cap. The case for proven songs as the best uncorrelated asset class gets stronger every day. We have an incredible pipeline and are very excited for 2021."

Operational Highlights

· A s at 30 September 2020 the Company had invested approximately £1.18 billion through the acquisition of 117 Catalogues on a blended acquisition multiple of 14.76x historical annual net income, resulting in interests in 57,836 Songs

2,845 Songs have held Number 1 positions in global charts

10,618 Songs have held Top 10 positions in global charts

119 Songs have won Grammy Awards

o Approximately 45% of the Company's Portfolio is represented by Songs that are between 10 and 58 years old

The Company co-owns ten of Spotify's Top 30 "Most Played Songs Of All Time"

· During the period, £426.4 million of gross equity capital was raised through secondary placings of C Shares in July 2020 and Ordinary Shares in September 2020

The C Shares issued pursuant to the July 2020 equity fundraise have today been converted to Ordinary Shares

· The Company acquired Big Deal Music Group, which rebranded to Hipgnosis Songs Group ("HSG")

· The Company acquired Kobalt Fund 1, a Portfolio with 42 Catalogues and over 33,000 Songs

· The Company's Investment Adviser, The Family (Music) Limited, is currently in advanced stage discussions on an investment pipeline of over £1 billion

Financial Highlights

· Operative NAV increased by 7.4% to 125.35p (31 March 2020: 116.73p)

· The fair value of Catalogues, as determined by the independent valuer, increased by £114.2 million (10%) during the period, excluding losses of £23.3 million due to unfavourable movements in FX rates, due to:

Strong fair value uplifts in the Catalogues acquired during the period;

Streaming revenues starting to be recognised and received from emerging digital platforms including TikTok and Peloton;

A reduction in the discount rate used by the independent valuer from 9% to 8.5%; and

The independent valuer taking a prudent approach to their forecast for 2021 due to COVID-19

· Net revenue from the portfolio increased to £44.8 million (30 September 2019: £22.6 million)

· EPS (adjusted for amortisation) decreased to 4.77p per Ordinary Share, due to the one off costs associated with the acquisition of HSG

· At 30 September 2020, total dividends paid since IPO on 11 July 2018 are 8.5p per Ordinary Share, representing a Total NAV Return of 37.9%

· Dividends of 2.5p were paid during the period, representing a Total NAV Return, excluding the FX impact, of 12.0% for the six month period

· Hipgnosis have increased the annual dividend target1 by 5% to 5.25p per Ordinary Share

· Since 30 September, a second interim dividend of 1.3125p per Ordinary Share has been declared and paid

 

Portfolio Highlights

· 63 Catalogues were acquired during the period, including some of the most successful and culturally significant Songs of all time

Fleetwod Mac's "Go Your Own Way"

Steve Winwood's "Higher Love"

Blondie's "Heart Of Glass"

Rick James' "Super Freak" and "You Can't Touch This"

10cc's "I'm Not In Love"

Mariah Carey's "All I Want For Christmas Is You"

The Spencer Davis Group's "Gimme Some Lovin"

Enrique Iglesias' "Hero"

The B-52's "Love Shack"

50 Cent's "In Da Club"

· Blondie's Song "One Way Or Another" features in this year's M&S Christmas TV advert

· At the time of writing, Mariah Carey's "All I Want For Christmas Is You" sits at Number 3 on the Spotify Global Chart, Number 14 on the Official UK Chart and Number 2 on the Midweek Chart

· Hipgnosis co-own four of the Top 5 Billboard "Songs of the Decade" and 27 of the Top 100

Number 1 - 'Uptown Funk' by Mark Ronson featuring Bruno Mars which was Number 1 in 19 countries and topped the Billboard Hot 100 for 14 weeks, is certified 11x platinum in the US and has been streamed over 1.1 billion times on Spotify alone

Number 3 - 'Shape of You' by Ed Sheeran which was the best performing song of 2017 and was announced as the most streamed song of the decade after becoming the first song to reach 2 billion streams. 'Shape of You' topped the singles charts in 34 countries including the US where it remained Number 1 for a record equalling 16 consecutive weeks and is certified diamond in 5 countries including in the US

Number 4 - 'Closer' by The Chainsmokers featuring Halsey which reached Number 1 in over 10 countries and topped the Billboard Hot 100 for 12 consecutive weeks. It also became only the second song in the history of the Billboard Hot 100 to spend 32 weeks in the Top 10

Number 5 - 'Girls Like You' by Maroon 5 featuring Cardi B which topped the charts in 17 countries including spending 7 consecutive weeks at the top of the Billboard Hot 100

 

(1)   This is a target only and there can be no assurance that the target can or will be met and should not be taken as an indication of the Company's expected or actual future results. Accordingly, potential investors should not place any reliance on this target in deciding whether or not to invest in the Company or assume that the Company will make any distributions at all and should decide for themselves whether or not the target dividend yield is reasonable or achievable.

 

A copy of the Interim Report and Condensed Consolidated Financial Statements has been submitted to the National Storage Mechanism and will shortly be available for inspection at  www.morningstar.co.uk/uk/NSM . The Interim Report and Condensed Consolidated Financial Statements will also shortly be available on the Company's website at  www.hipgnosissongs.com  where further information on the Company can also be found.

 

 

For further information, please contact:

The Family (Music) Limited

Merck Mercuriadis

 

Tel: +44 (0)1481 742742

N+1 Singer - Joint Corporate Broker

James Maxwell / James Moat / Amanda Gray (Corporate Finance)

Alan Geeves / James Waterlow / Sam Greatrex (Sales)

 

Tel: +44 (0)20 7496 3000

J.P. Morgan Cazenove - Joint Corporate Broker

William Simmonds / Jérémie Birnbaum (Corporate Finance)

James Bouverat (Sales)

 

Tel: +44 (0)20 7742 4000

RBC Capital Markets - Joint Corporate Broker

Will Smith / Elliot Thomas / Lauren Davies (Corporate Finance)

Lisa Tugwell (Sales)

 

Tel: +44 (0)20 7635 4000

Ocorian  - Company Secretary & Administrator

Julian Carey

 

Tel: +44 (0) 1481 742742

The Outside Organisation

Alan Edwards / Nick Caley

Tel: +44 (0)7711 081 843

 

FTI Consulting

Neil Doyle/ Paul Harris/ Laura Ewart

 

 

Tel: +44 (0)7771 978220; +44 (0)7809 411882; +44 (0)7761 332646

 

All US music publicity enquiries

Fran Defeo

+1 917 767 5255

 

NOTES TO EDITORS

 

About Hipgnosis Songs Fund Limited

(www.hipgnosissongs.com)

Hipgnosis, which was founded by Merck Mercuriadis, is a Guernsey registered investment company established to offer investors a pure-play exposure to songs and associated musical intellectual property rights. The Company has raised a total of over £1.05 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 and September 2020. 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.

 

About The Family (Music) Limited

The Company's Investment Adviser is The Family (Music) Limited, which was founded by Merck Mercuriadis, former manager of globally successful recording artists, such as Elton John, Guns N' Roses, Morrissey, Iron Maiden and Beyoncé, and hit songwriters such as Diane Warren, Justin Tranter and The-Dream, and former CEO of The Sanctuary Group plc. The Investment Adviser has assembled an Advisory Board of highly successful music industry experts which include award winning members of the artist, songwriter, publishing, legal, financial, recorded music and music management communities, all with in-depth knowledge of music publishing. Members of The Family (Music) Limited Advisory Board include Nile Rodgers, The-Dream, Giorgio Tuinfort, Starrah, Nick Jarjour, David A. Stewart, Bill Leibowitz, Ian Montone, Rodney Jerkins, Bjorn Lindvall and Chris Helm.

 

The Chair's Statement

Introduction

This is the Company's third interim report since its inception and covers the six months ended 30 September 2020. It has been a period that would have been unimaginable a year ago for all of us. The impact of the COVID-19 pandemic on the international economy and global society has been enormous and for many parts of the hospitality, leisure and entertainment sectors it has been traumatic.

Despite this backdrop the Company's performance has been highly resilient, demonstrating the appeal of hit songs to millions of people even in these challenging times. In addition, the Company has made substantial progress in building upon an already impressive Portfolio of proven hit Songs and building its Song Management capabilities. Towards the end of the period the Company finished off a highly successful period of growth with its largest ever acquisition, of Kobalt's Fund 1, for $322.9 million which we acquired in September.

During the period, the Company has raised a further £426.4 million of equity capital and I am delighted to see the continued support of investors as well as pleased to introduce our new retail investors that have been able to participate in our equity raises this year via the PrimaryBid platform. The Company has fully deployed the equity capital raised during the period and post period end has drawn a further $190 million on its credit facility, taking total debt drawn to $297.3 million. This capital has been used to invest £500 million into 63 new Catalogues which contain some of the most influential Songs and albums of our lifetime including: 'Rumours' by Fleetwood Mac, 'Parallel Lines' by Blondie, 'Enter the Wu-Tang' by Wu-Tang Clan, 'Pretenders' by the Pretenders, 'The Fame Monster' by Lady Gaga and 'Superunknown' by Soundgarden.

The resilient performance of the Company's Portfolio, with many looking to escape the difficulties of the pandemic by listening to feel good songs, together with streaming continuing to grow ahead of pre-COVID-19 expectations, gave the Board confidence to increase the annual dividend target by 5% to 5.25 pence per share.

As detailed more in the Investment Adviser's report below, the Portfolio's value has increased significantly, driven by growth in Song valuations as investors worldwide start to recognise the growing utility like income they produce, leading to a Total NAV Return in the 6 month period ending 30 September 2020, excluding the FX impact, for our shareholders of 11.6%.

In August 2020, the Company's market capitalisation (including both the Ordinary and C Shares in issue) exceeded £1 billion for the first time. Reaching this latest milestone in just over 2 years since launch is a testament to the incredible work of our Investment Adviser and the support of our shareholders.

Investments

During the period the Company has invested c. £500 million in 63 Catalogues comprising over 44,000 Songs. This is a substantial extension of the Company's assets creating more diversification while maintaining an incredibly high quality of influential Songs that have already demonstrated their enduring popularity.

Our reach of Songs is deeper and wider than ever before. All of these acquisitions were sourced by our Investment Adviser, The Family (Music) Limited, who together with its Advisory Board allows the Company access to some of the most globally successful artists, songwriters and producers.

In addition to the Catalogue purchases, during the period the Company acquired Big Deal Music, LLC which has since been rebranded Hipgnosis Songs Group (HSG). The acquisition represented a significant step forward in the Company's strategy of delivering income and capital growth by pursuing efficiencies in the collection of payments and active management of its songs. In particular, HSG has a US administration platform to which the Company will transfer the portfolio administration of its Songs' US income at the earliest opportunity. This is expected to generate administration costs savings equal to 1% to 1.5% of income administered and gives Hipgnosis greater control over its Songs. The acquisition also included a Song Management team of 35 employees who will pursue additional synchronisation opportunities for the Company's full Portfolio of Songs in order to maximise income.

Performance

I am pleased to report an increase in net income from the Portfolio to £44.8 million for the period (the financial period ended 30 September 2019: £23.2 million). Adjusted operating costs for the period were £7.5 million (financial period ended 30 September 2019: £4.88 million), owing to the higher costs on a pro-rata basis reflecting the growth of the Company, the increase in costs associated with HSG, the interest costs associated with the leverage facility and increased advisory fees.

The ongoing charges figure of 1.35% (financial period ended 31 March 2020: 1.5%) has decreased slightly reflecting the further increased scale of the Company.

Earnings Per Share (adjusted for Amortisation) were 4.77 pence (financial period ended 31 March 2020: 10.7 pence) and basic EPS were 1.61 pence (financial period ended 31 March 2020: 6.14 pence). This reduction in EPS reflects the costs relating to the acquisition of HSG and expensed costs associated with the two share issues in the period.

The Operative NAV per Ordinary Share, which includes the fair value of the Company's Catalogues and excludes Amortisation, was 125.35 pence as at 30 September 2020, reflecting an increase of 7.4% since 31 March 2020.

As at the same date the Operative NAV per C Share was 112.39 pence, reflecting an increase of 14.7% in the C Share Operative NAV of 98p, which was net of issue costs.

Combining both the Operative Ordinary and C Share NAV, the Total NAV Return, which includes dividends paid, for the 6 months' period from 1 April to 30 September 2020 was 12%. This represents a total growth in Operative NAV of £121.8 million from 31 March 2020, excluding the issue of new shares during the period.

Dividend

The Board were delighted in September to announce an increase in the Company's annual dividend target by 5% to 5.25 pence per Ordinary Share. It has been a difficult year for our shareholders and as a Board we were delighted to repay the support they have showed us over the last 2 years with the Company's first dividend increase since launch.

In the first half of the financial year the Company has paid dividends totalling 2.50 pence per Ordinary Share. The Company's interim dividend for the period from 1 January 2020 to 31 March 2020 of 1.25 pence per Ordinary Share was paid on 27 May 2020. The first interim dividend for the current financial year, from 1 April 2020 to 30 June 2020, of 1.25 pence per Ordinary Share was paid on 31 July 2020.

Since the period end, on 28 October 2020 the Company declared its second interim dividend for the period from 1 July 2020 to 30 September 2020 of 1.3125 pence per Ordinary Share and this was paid to shareholders on 30 November 2020.

Revolving Credit Facility

On 29 May 2020, the Company announced that it was seeking shareholder support to increase the Company's current borrowing limit of 20% of its Operative NAV to a maximum of 30% of its Operative NAV, given that the Company's assets and their associated income streams are well suited to supporting leverage. This approval was given by shareholders at an Extraordinary General Meeting on 11 June 2020.

During the period, the Company entered into an agreement with a syndicated group of lenders, with JPMorgan Chase Bank as Lead Arranger, to increase its Revolving Credit Facility from £150 million to $400 million. During the period, whilst the Company undertook substantial equity capital raising, gearing remained at a low level of £86.9 million ($107.3 million), representing 7% of NAV, at period end. Post period end a further $190 million has been drawn, to finance the consideration for the acquisition of Kobalt Fund 1, taking total drawings to $297.3 million.

The Board reviews the Company's level of gearing on a regular basis.

The Board

I would like to record my appreciation to my fellow Board members for their dedication and their diligence. In addition to the significant corporate activity, including fundraisings and the acquisition of HSG, the Board carefully considers each proposed acquisition, of which there have been many in the past six months, and has therefore met very frequently.

C Share Conversion

On 9 September 2020, the Company announced that it had invested approximately 82% of the net proceeds from its July C Share fundraising in line with its investment objective and policy. Accordingly, the Board announced that it intended to convert the C Shares into Ordinary Shares in accordance with the Company's Articles.

Further to this, the Company announced on 30 November 2020 the conversion ratio of 0.9061 Ordinary Shares for each C Share together with updates to the unaudited NAVs of the Ordinary Shares and C Shares as at 30 September 2020. Admission of the new Ordinary Shares issued as a result of the C Share conversion is expected to occur on 4 December 2020.

Outlook

Although the prospects for live music performance in 2021 remain uncertain, the music industry continues to be an important part of our lives, with more people listening to music through streaming services. The Company is a beneficiary of this trend and expects to see continued growth in royalty income driven principally by the growth in streaming.

The Company still has a significant pipeline of Catalogue acquisitions and the intention is to continue fundraisings, subject to market conditions, to deploy the proceeds in growing the Portfolio and the Company. The Board and the Investment Adviser will continue to work tirelessly to ensure that the implementation of the Company's investment strategy delivers strong returns for Shareholders.

Andrew Sutch

Chair

3 December 2020

 

Investment Adviser's Report

Introduction

The year 2020 has been one of challenges which the world has never before experienced, with a devastating impact on society and much of the economy as a result of the COVID-19 pandemic. We are grateful that despite this it has been a period of profound positive performance and progress for Hipgnosis, which is reflected in our excellent set of results.

Over the period, the Operative NAVs of both the Ordinary Shares and C Shares have grown strongly highlighting our continued ability to execute our investment strategy of buying Catalogues of the highest quality and then generating new revenue opportunities through Song Management. As a result, we are pleased to report strong revenues leading to 1.5x cover of the Ordinary Share dividend by Operating Profit after Tax and a significant increase in the fair values of our Catalogues. The increase
in fair values was primarily driven by:

• strong fair value uplifts in the Catalogues acquired during the period including Kobalt Fund 1, proving that the proceeds of the July 2020 and September 2020 equity fund raises have been deployed well into high quality and attractive Catalogues

• streaming revenues starting to be recognised and received from emerging digital platforms including Peloton and TikTok

• a reduction in the discount rate used by the Independent Valuer to value the Company's Catalogues from 9% to 8.5%.

The reduction in the discount rate used by the Independent Valuer reflects the decreased risk premium associated with music's ever more stable and predictable earnings as a result of the increased consumption of music through paid streaming. We are delighted that music valuers are starting to reflect the true value of music as an asset class and expect this trend to continue as streaming continues to grow and music revenues continue to prove their stability.

Despite these exceptionally challenging times, we have raised £425 million of new equity capital and increased our debt facilities by over £200 million, increased our dividend target securing our place as one of the biggest yielders on the FTSE 250 Index, and since IPO we have outperformed the FTSE 250 index with a share price total return of 26.6%, and a Total NAV Return since IPO of 37.9% and most importantly acquired some of the most successful and culturally significant Songs of all time including Fleetwood Mac's 'Go Your Own Way', Steve Winwood's 'Higher Love', Blondie's 'Heart Of Glass', Rick James' 'Super Freak'/'U Can't Touch This', Enrique Iglesias' 'Hero', 10cc's 'I'm Not In Love', The Pretenders' 'Brass In Pocket', Dusty Springfield's 'I Only Want To Be With You', Barry Manilow's 'Copacabana', B-52s 'Love Shack', Lady Gaga's 'Bad Romance' and fittingly for the season the most successful Christmas song of all time Mariah Carey's 'All I Want For Christmas Is You'.

A core part of our thesis is that Song revenues are uncorrelated as whether in good times or when facing challenges, music is always being consumed and now thanks to streaming almost always being paid for. While we would not have wished for a pandemic to demonstrate this it has indeed done exactly that and that has been reflected in our strong performance.

Music streaming income continues to grow and now makes up 85% of all income in the US where almost every household now has a music streaming subscription. This has replaced and exceeded physical sales which now command only 7% of music income, just slightly higher than the 6% made by digital downloads.

Lockdown has also significantly changed music consumption, with more listeners reaching for songs they grew up with for comfort and escape. This leaves us perfectly placed during these challenging times with a Portfolio concentrated around incredibly successful and culturally influential proven hit songs that are in high demand. 'Don't Stop Believin' by Journey, as just one example from our catalogue, has been streamed at least 10,000,000 times per week every week since March up to the present moment. Data from the H1 2020 global music revenues have confirmed our expectations that the growth in revenue from both existing (Spotify/Apple) and emerging (Peloton/TikTok) streaming platforms is more than offsetting shortfalls elsewhere brought on by the pandemic.

The markets' recognition of the uncorrelated and predictable nature of our songs' income has generated greater momentum and led to further investment. This was most notable at our Capital Markets Day this year, which helped Hipgnosis' share price to its all-time high of 126 pence on 18 September 2020. We also raised more than £425 million in the 2-month period from July to September, which has now been fully deployed, bringing our capital raised since launch 2.5 years ago to £1.05 billion in equity and $297.3 million in debt.

Since April, we have acquired a further 63 Catalogues, including Blondie, Barry Manilow, Lindsey Buckingham/Fleetwood Mac, Chrissie Hynde/The Pretenders, Chris Cornell/Soundgarden/Audioslave, Rick James, Enrique Iglesias, Kevin Godley/10cc, Rodney Jerkins, RZA/Wu Tang Clan, RedOne, Steve Winwood, Walter Afanasieff, Nikki Sixx/Mötley Crüe, Bonnie McKee, Big Deal Music, Kobalt Fund 1,
Pusha T, LA Reid, Scott Cutler, Ivor Raymonde, George Benson, B-52s and No ID.

Since launch we have now acquired 117 Catalogues, comprising over 57,836 Songs, for an aggregate consideration of £1.18 billion, representing a blended acquisition multiple of 14.76x* historic annual income.

During the period we have transformed our Song Management expertise, notably making three appointments of the highest calibre at the Investment Adviser in Ted Cockle, Amy Thomson and Nick Jarjour who have joined as President, Chief Catalogue Officer and Global Head of Song Management respectively. Further to this our acquisition of Big Deal Music, now re-branded Hipgnosis Songs Group, in Los Angeles, gives us Kenny MacPherson, CEO - who is one of the most respected song men in our industry over the last 35 years as well as Co-Presidents Jamie Cerreta and Casey Robison, Dave Ayers EVP in New York and Pete Robinson SVP in Nashville. We have subsequently also appointed Tony Barnes, former Virgin EMI Director, as our EVP of Digital and Innovation. We now have more than 70 people globally, including our Advisory Board.

In little over three months they have already had a significant impact on the business, ensuring accurate ingestion of both the income streams and the active management of our Catalogue of Songs and have proven how effectively we can increase usage and revenues of our incredible hit Songs when they are given the attention and resource they deserve.

During this short time, we have seen immense progress with synchs within our Portfolio, and synch now accounts for 14% of overall revenue up from 9% at 31 March. We are particularly delighted that Blondie's song 'One Way Or Another' features in this year's M&S Christmas TV advert, which is arguably the biggest Christmas advert in the UK. This high profile TV commercial will naturally lead to more streaming and consumption generating incremental income in the second half of the financial year and into 2021. We have also had significant growth in synch income in many of our Catalogues including Bernard Edwards, Journey, David A. Stewart, RedOne, Mark Ronson, Jack Antonoff, Chainsmokers and Sam Hollander.

The pace and quality of Synchronisation licences continued to be unaffected by the pandemic with lost synchronisation from films being replaced by increased demand from TV streaming services. We are therefore positive in our outlook for our Song Management opportunities across the rest of the year.

The Company has also made significant progress in its strategy of pursuing efficiencies in the collection of payments and active management of Songs through the efforts of Amy Thomson and the acquisition of Big Deal Music LLC, in September 2020, now rebranded Hipgnosis Songs Group. This now gives us the ability to self-administer our Catalogue in the United States, the biggest music market in the world. This will generate savings of at least 1-1.5% of administration costs and also put us in a position to negotiate directly with the digital service providers as well as giving us a seat at the table in the various big money settlements that are taking place with the likes of Peloton, TikTok and Facebook.

The recent news of a vaccine(s) has given us all hope that the pandemic will soon be behind us, which will improve performance further still, but for the moment we have to be cognisant that there are important challenges ahead. I believe that we are well positioned to weather them all and to continue to establish ourselves as not only an essential opportunity for investors but also as one of the most important catalysts transforming the Song industry and the Songwriter's place in it globally.

* including the right to income on each acquisition

Market Conditions

Despite some short-term negative impacts due to COVID-19 the music industry continues to grow, including earnings relating to music publishing and songwriters. The '2020 Independent Music Publishers International Forum Report' showed a 7.5% increase in the global value of music publishing, including songwriters and composers, in 2019 to €10.7 billion (£9.63 billion) from €9.95 billion in 2018.

Whilst the ongoing COVID-19 pandemic has shaken up the entire music industry, streaming continues to dominate and is more than making up for the revenues lost from other income sources. Spotify's Q3 20 results showed total revenue growth of 14% year on year to €1.97 billion ($2.29 billion) with total monthly active users rising to 320 million, up 29% year on year, exceeding company expectations.

Lockdowns globally have impacted live and performance revenues; the RIAA 2020 mid-year report showed growth in paid subscription streaming more than offset revenue declines in other areas of the US recorded music market in the first half of the year. In 2020 first half US music revenues increased 5.6% overall led by streaming which grew by 12%. If the second half grows at the same pace US streaming revenues will increase by more than $1 billion in 2020 despite the pandemic. With almost every household in the US now holding a music streaming subscription, streaming now makes up 85% of all revenue in the US. Physical sales now represent just 7% of US music revenues, just slightly higher than the 6% made by digital downloads.

In Europe, Italy's recorded music industry grew 2.1% in H1 2020, with streaming up 26.4%, Spain posted 4% growth and Germany 4.8%, despite the pandemic.

The challenging times in 2020 have not only impacted how people consume music but what music they consume. In particular a report from the University of Leuven, in Belgium, found that lockdown has "significantly changed music consumption", with more listeners reaching for tracks that evoke nostalgia, classed as songs older than three years.

During 2020 emerging social platforms that incorporate music (TikTok, Triller and Peloton) have experienced a surge in growth and payments from these will start flowing into royalty statements in 2021 and beyond.

Recent Portfolio Highlights

Hipgnosis now has interests in 18 Songs that are part of the 'Billion Stream Club' on Spotify, that includes Songs written by The Chainsmokers, Poo Bear, Ian Kirkpatrick and Johnny McDaid.

Our 'Patience' recorded master with Chris Cornell went to Number 1 at Rock Radio in the US.

Eurythmics song 'Sweet Dreams (Are Made Of This)' was recently licensed to promote the upcoming 'For All Mankind Season 2' on Apple TV.

Eurythmics song 'Sweet Dreams (Are Made Of This)', Chic's 'Good Times' and Beyonce's 'Single Ladies (Put A Ring On It)' have all been placed in Sony Pictures forthcoming remake of 'Cinderella'.

Jason Aldean, produced by Michael Knox, enjoyed another Number 1 with 'Got What I Got' with his Albums 'They Don't Know' and 'Rearview Town' both going GOLD.

Ed Sheeran's 'Shape Of You' has now surpassed 5 billion views on YouTube being the 2nd most watched music video in history with 'Despacito' being the Number 1 with close to 7 billion views, both of which we have interests in through the Johnny McDaid and Poo Bear Catalogues respectively.

Miley Cyrus' recent cover of 'Heart of Glass' by Blondie has already been streamed 40 million times with the two now in talks on creating a duet of the song.

As part of our Song Management we have established a Blondie profile on TikTok, with Blondie announced as 'Artist of the Week' on TikTok in November 2020 that now has more than 1 million followers.

We have established the same for Advisory Board member Nile Rodgers to promote our Bernard Edwards Catalogue and he is the current 'Artist of the Week'.

Mark Ronson's 'Uptown Funk' has now surpassed 4 billion views on YouTube.

Journey's 'Don't Stop Believin' has been placed in a new Toyota commercial as well as local ads for telecommunications companies in Mexico and South America.

The Pop duo Aly & AJ's 'Potential Breakup Song', which is part of the recent Kobalt Fund 1 acquisition, has been the Number One trending song on TikTok for two consecutive weeks.

'Someone To You' by Banners from the Sam Hollander Catalogue was used in a TV trailer for 'Love, Victor' in May and is now climbing the charts.

The next Marshmello single comes from one of the unexploited Songs in our Savan Kotecha Catalogue. Other unexploited Songs in the same Catalogue have recently performed well on Camila Cabello 'My Oh My' was a US Number 1 single, Ellie Goulding's latest album which made Number 1 in the UK this summer and in the soundtrack to the Eurovision movie starring Will Ferrell.

The Investment Adviser with Apple Music and Nile Rodgers has created Deep Hidden Meaning, the only Radio show completely focused on Songwriters. The reviews and ratings thus far have been exceptional and each of the first four episodes profiles numerous Songwriters including Poo Bear, Rodney Jerkins, Dave Stewart, Jack Antonoff, Timbaland, RZA and others. This will continue to highlight more exceptional Songwriters from our Portfolio in the months to come.

Rihanna's 'Umbrella' from our The-Dream and Tricky Stewart Catalogues has been placed in a new TV campaign for Nutella, "Nutella ella ella".

The new Shawn Mendes documentary and live special has just debuted and includes 6 of our songs and 'There's Nothing Holdin' Me Back' has just been placed in the forthcoming Sing 2 movie.

Stefan Johnson has co-written Dua Lipa's 'Break My Heart' which has been Top 10 all over the world and has had 10 Number 1's globally including the US. It has been streamed more than 1 billion times since being released in March and is the 3rd most played song on the radio in 2020.

Stefan Johnson has also co-written the new single from Miley Cyrus featuring Dua Lipa which has had over 20 million plays in its first 7 days on video alone and has entered the Official UK Singles Chart at Number 8.

Nile Rodgers' new recording of Chic's 'Everybody Dance' with DJ Cedric is Capital Radio's and Mista Jam's 'Record Of The Week' and looks like it's on its way to being a hit all over again.

Grammy nominations have just been released and Hipgnosis writers who have been nominated include The-Dream, Starrah, Ian Kirkpatrick, Jack Antonoff, Rodney Jerkins, Pusha T, Timbaland, Kamasi Washington, Jeff Bhaskar, Savan Kotecha, Poo Bear and Stefan Johnson.

We have 3 Songs in the new series of The Crown including Blondie 'Call Me', Diana Ross 'Upside Down', and Eurythmics 'Love is a Stranger'.

Mariah Carey's 'All I Want For Christmas Is You' sits at Number 3 on the Spotify Global Chart and has moved from 31 to 14 on the Official UK Chart and as I write has just climbed to Number 2 on the midweek chart with more than 3 weeks to go before the big day. Could we take the Christmas Number 1 spot for the first time in this song's history?

Current Portfolio

As at 30 September 2020, the Company has, since inception, acquired 117 Catalogues, for a total consideration of £1.18 billion, representing a blended acquisition multiple of 14.76x* annual historic earnings.

The Investment Adviser has now moved 15 Catalogues in total to the Preferred Portfolio Administrator and 9 in the period July to September 2020 which will generate a higher income flow-through to the Company.

Financial Review

The Company reports two net asset values, an IFRS NAV which is prepared in accordance with IFRS under which the Company's investments in Catalogues are held at cost less amortisation, and an Operative NAV which adjusts the IFRS NAV to reflect the fair value of the Company's Catalogues as determined by an independent valuer.

As at 30 September 2020, the IFRS NAV per Ordinary Share was 103.37 pence, reflecting an increase of 2.4% during the period.

The Operative NAV per Ordinary Share increased by 7.4% during the period to 125.35 pence. As shown within the Operative NAV Bridge per Ordinary Share, there was an adverse FX impact on the Fair Value of £22.5 million, due to strengthening of GBP/USD FX exchange rates since 31 March 2020. Adjusting for this, the Operative NAV per Ordinary Share would have been 128.2 pence, which shows underlying growth of 9.8%. In addition, dividends of 2.5 pence per Ordinary Share were paid during the period, therefore the Total NAV Return for the 6 month period ending 30 September 2020 for Ordinary Shareholders, excluding the FX impact, was 12.0% (9.5% when including impact of FX movements).

In total, since IPO on 11 July 2018, Hipgnosis has produced a Total NAV Return of 37.9%. The Operative NAV per C Share at 30 September 2020 was 112.39 pence, reflecting an increase of 14.7% in the C Share Operative NAV since admission on 15 July 2020 of 98.00 pence. As announced on 30 November 2020, the C Shares will convert into Ordinary Shares on 4 December 2020.

The Total NAV Return for the six month period 1 April to 30 September 2020, for both Ordinary and C Shareholders, which includes dividends paid and excluding the FX impact, was 11.6%.

At 30 September 2020, the Company had only drawn £86.9 million (excluding capitalised borrowing costs) on its leverage facility, given the significant equity raised in the period. Post period end, the Company has drawn another $190 million on its leverage facility to (partially) fund the acquisition of Kobalt Fund 1. Therefore, the returns generated can largely be considered to be unlevered returns, which makes them even more remarkable. We continue to see the use of modest leverage as an integral part of our business strategy going forward. We believe that this is in the best interest of the shareholders and represents a significant opportunity to drive further growth, both in dividends and capital returns.

The growth in the Operative NAVs is primarily a result of a £114.2 million, 10%, increase in the fair value of the Catalogues during the period, excluding losses of £23.3 million as a result of unfavourable movements in FX rates. As a result, the fair value of the Catalogues has now increased by 15.5% since acquisition. The key underlying movements in fair values during the period were:

· strong fair value uplifts in the Catalogues acquired during the period, proving that the proceeds of the July 2020 and September 2020 equity fund raises have been deployed well into high quality and attractive Catalogues;

· streaming revenues starting to be recognised and received from emerging digital platforms including TikTok and Peloton;

· a reduction in the discount rate used by the Independent Valuer to value the Company's Catalogues from 9% to 8.5% resulting in a 9% uplift to the fair value of the Company's Catalogues; and

· the independent valuer taking a prudent approach to their forecast for 2021 due to COVID-19 by assuming flat growth for that period across the majority of Catalogues.

The growth of streaming is increasingly turning music consumption into a utility rather than a discretionary purchase. After another strong period of streaming growth, and with approximately one third of income in the period generated by streaming, the Independent Valuer has reduced the discount rate used to value the Portfolio from 9% to 8.5%. This reflects the decreased risk premium associated with the increasingly stable and predictable earnings of the asset class. We are delighted that music valuers are starting to reflect what we consider to be the true value of music as an asset class and we expect this trend to continue as streaming continues to grow and music revenues continue to prove their stability.

The growth in fair value on the C Share Catalogues was higher than the Ordinary Share Catalogues as there was a greater proportion of new Catalogues acquired during the period which saw a significant fair value uplift reflecting our successful acquisition strategy. The full breakdown of the movements in the Ordinary Share Operative NAV set out in the bridge below highlights that the dividend was 1.5x covered by net income from the Ordinary share portfolio:

Operative NAV Bridge per Ordinary Share from 1 April 2020 to 30 September 2020:

Opening Operative NAV per Ordinary Share:  

116.73p

Increase in FV of Catalogues at 9% Discount Rate 

0.64p

Impact of Discount Rate reduction to 8.5% 

10.48p

Net Income  

2.79p

Dividends Paid 

-1.93p

FX Impact  

-2.85p

Share Issue Costs 

-0.50p

Closing Operative NAV per Ordinary Share:  

125.35p

The Operative NAV per C Share has increased to 112.39 pence at 30 September 2020, an increase of 15.5% excluding the impact of FX and 14.7% including the impact of FX changes since admission on 15 July 2020. On a constant currency basis, the Operative NAV per C Share would be 113.16 pence.

A full bridge of the movement is set out below.

Operative NAV Bridge per C Share from 15 July 2020 to 30 September 2020:

Opening Operative NAV per C Share:  

98.00p

Increase in FV of Catalogues at 9% Discount Rate 

3.66p

Impact of Discount Rate reduction to 8.5% 

7.13p

Net Income  

4.37p

FX Impact 

-0.77p

Closing Operative NAV per C Share:  

112.39p

During the period, net revenues (after royalty costs) grew to £44.8 million, an increase of 93% from the first half of FY20, primarily due to the increased scale of the Company.

The royalty costs in the period of £5.3 million relate to the writer's royalties against Hipgnosis Songs Group revenue, which are contractual royalties paid out to their writers' roster on recoupment of advance payments.

During the period, the Company has received royalty statements for the 1 January 2020 to 30 June 2020 income, on which the international element has a time lag and therefore doesn't yet show the exact impact of COVID-19.

From these royalty statements received, in line with Company's expectations, there has been a decrease in performance royalties, reflecting the closure of bars and restaurants during lockdown, however streaming income has continued to grow strongly.

Due to the time lag on international income the exact impact of COVID-19 remains unknown. Accordingly, accruals have been marked down on expected income by up to 25% for the quarter period, which will be reassessed at the full year when calendar H2 2020 statements are received.

Despite the approach applied to the July to September 2020 accruals, our current income analysis, taking into account the 6 month period ended 30 September 2020, shows that on a like-for-like basis, income is in line with the prior 12 months actuals on the Catalogues. Given that there will be decay as expected in some of our younger catalogues, this implies strong underlying growth in steady state income.

Revenues and costs associated with Hipgnosis Songs Group (formerly known as Big Deal Music) were consolidated for the period from 10 to 30 September 2020. The associated costs of HSG are disclosed within the notes to these interim financial statements.

A breakdown of the income source of all revenues is set out below:

For the period ended 30 September 2020 (Gross revenues before Royalty Costs)

 

£'000

%

Mechanical

8,185

16

Performance

13,040

26

Digital

19,201

38

Synchronisation

6,924

14

Other

2,821

6

The percentage of Digital income from publishing copyrights has decreased slightly as Mechanical income which includes revenues from Masters and Producers income, and also includes revenue from Digital) has increased as a proportion of income within the interim period.

Streaming revenues from Publishing catalogues for the latest 12 month period to 30 September 2020 increased by 24%, with streaming growth from the catalogues in the 10+ years vintage increasing by 32%.

Importantly, Synchronisation income has increased from 9% to 14% of gross income driven by strong synchronisation demand generated through Song Management across our Portfolio, including the following notable catalogues; Eurythmics, Journey, Mark Ronson, Chrissie Hynde, Sam Hollander and Scott Harris.

The Company interrogates revenue on an annual fiscal year basis in order to extract more meaningful analysis, given the processing cycles and payment lags associated with the Publishers and PROs.

Our current revenue analysis, taking into account the 6 month period ended 30 September 2020 shows that on a like-for-like basis income is in line with the prior 12 months. The expected continued decay of the younger vintage catalogues and the conservative accruals approach for the period July to September 2020, which have adversely impacted Performance and Writer Share income, are offset by the underlying growth in streaming revenues.

Accruals and Receivables

There is an inherent time lag with royalties between the time a Song is performed and when the revenue is received by the Copyright owner. The time lag can be as much as 24 months on international income.

Accrued Income and Receivables at 30 September 2020 were £50.2 million, a breakdown of which is set out below:

A £2.7 million receivable representing royalty receipts expected in October and November for royalties where statements were received in September.

Included in trade and other receivables is an accrued income balance of £47.5 million which is made up of:

· £11.3 million relating to calendar Q4 2019 to Q2 2020 earnings for Catalogues where royalty reporting is still in the process of being redirected/switched over to Hipgnosis. These accruals are based on royalty statements received with invoices due to be raised on completion of the Letter of Direction;

· £5.9 million for 2019 earnings on deals acquired more than six months ago yet to be reported (largely PRO earnings expected within the coming quarter);

· £5.2 million for calendar Q2 2020 earnings which are not reported to Hipgnosis until calendar Q4 2020;

· £15.5 million for calendar Q3 2020 earnings where, due to the time lag in royalty reporting, statements are not expected to be received until calendar Q1 and Q2 2021;

· £5.1 million income accrual relating to time-lagged international reporting on PRO earnings. International PRO reporting has a significant time lag due to the additional collection time taken for PROs to collect and distribute income from territories. The lag in collection is due to the nature of collecting and processing royalties locally, then distributing them to the domestic PRO, which will in turn process and distribute these royalties to Hipgnosis. Six months of international PRO earnings are accrued, although can typically result in earnings lag of up to 24 months; and

· £4.5 million HSG revenue accrual, bringing the Group in line with IFRS, which includes the accrued PRO lag.

Right To Income

On the acquisition of a Catalogue, the Company may receive a Right To Income, which is typically dependent on the timing of the negotiations. The Right To Income relating to acquisitions before the interim period was £8.5 million, with £0.5 million relating to Ordinary Share acquisitions and £8 million to the C Share acquisitions.

Costs

Adjusted Operating Costs increased to £7.5 million reflecting the added scale of the Company, the acquisition of HSG and related to costs that are not expected to reoccur.

The Costs directly associated with the HSG acquisition were £2.2 million and the HSG operational costs in the period were £0.3 million, with a net revenue contribution of £3.3 million. This resulted a net positive impact of £0.8 million.

Ongoing Charges decreased as a percentage of the Weighted Average Operative NAV, from 1.76% to 1.35%, reflecting the operational gearing in the Company as it has scaled over the period.

Following the acquisition of HSG, the expectation is that Operating Costs as a percentage of Operative NAV will continue to fall, in particular once costs related to acquisitions decrease when the Company reaches stabilisation/steady state.

The Operative Profit before Tax, which excludes amortisation, grew to £32.1 million from £18.6 million in H1 FY20. The Operative Earnings Per Share which excludes amortisation, was 4.76 pence.

At 30 September 2020, the amount drawn-down was £86.9 million ($107.3 million) - excluding capitalised borrowing costs - with facility headroom of £233 million ($297.3 million).

Calendar 2021 is very much a year we are all looking forward to. We have assembled an enviable pipeline of more than £1 billion that we believe will complement our existing portfolio perfectly. We are attracting executives of the highest calibre and we are focused on delivering significant value-adds through Song Management, continuing to generate dividends for our shareholders and growing the NAV of our song catalogue. In addition to this our ulterior motive of changing where the songwriter sits in the economic equation and taking them from the bottom to the top is starting to bear fruit. There are challenges ahead, our business model remains robust and we believe that the future is very bright.

Once again, I would sincerely like to thank all of our investors who continue to support us through this exciting and special time as well as the great songwriters that have entrusted us with their iconic Songs as we continue to establish proven Songs as an asset class.

Merck Mercuriadis

Founder of Hipgnosis Songs Fund Limited and Founder/CEO of The Family (Music) Limited (Investment Adviser to Hipgnosis Songs Fund Limited)

3 December 2020

 

 

 

Condensed Consolidated Statement of Comprehensive Income

For the six months ended 30 September 2020 (unaudited)

 

 

1 April 2020 to

1 April 2019 to

 

 

30 September

2020

30 September

2019

 

 

£

£

 

Notes

 

 

Income

 

 

 

Total revenue

11

50,036,643

 22,641,230

Interest income

 

55,328

 584,507

Royalty costs

4

(5,292,032)

-

Net operating income

 

44,799,939

 23,225,737

 

 

 

 

Expenses

 

 

 

Advisory fees

15

(3,553,890)

(1,781,447)

Amortisation of Catalogues of Songs

6

(19,045,656)

(5,995,918)

Amortisation of capitalised borrowing costs

 

(1,047,534)

-

Administration fees

 

(467,206)

(344,918)

Directors' remuneration

15

(199,000)

(94,375)

Broker fees

 

(31,724)

(31,289)

Audit fees

 

(145,368)

(55,000)

Legal and professional fees

 

(3,263,082)

(2,186,968)

Finance charges for deferred consideration

 

(529,769)

-

Loan interest

 

(1,609,801)

(52,109)

HSG FV Gain

3

1,396,607

-

Other operating expenses

12

(1,415,076)

(333,258)

Foreign exchange (losses)/gains

 

(2,894,691)

281,461

Total expenses

 

(32,806,190)

(10,593,821)

 

 

 

 

Operating profit for the period before taxation

 

11,993,749

12,631,916

 

 

 

 

Taxation

5

(1,743,476)

(1,909,309)

Profit for the period after tax

 

10,250,273

10,722,607

Total comprehensive income for the period

 

10,250,273

10,722,607

 

 

 

 

Basic Earnings per Share (pence)

16

1.61

3.19

Diluted Earnings per Share (pence)

16

1.61

3.19

 

All activities derive from continuing operations.

 

 

The accompanying notes form an integral part of these Condensed Consolidated Financial Statements.

 

 

 

Condensed Consolidated Statement of Financial Position

As at 30 September 2020

 

 

 

30 September

2020

31 March

2020

 

 

£

£

 

Notes

(Unaudited) 

(Audited)

Assets

 

 

 

Catalogues of Songs

6

1,162,276,428

659,435,205

Other assets

 

1,189,225

-

Goodwill

 

204,266

-

Trade and other receivables

 

61,497,148

42,440,593

Cash and cash equivalents

8

203,719,478

14,098,374

Total assets

 

1,428,886,545

715,974,172

 

 

 

 

Liabilities

 

 

 

C Shares

10

232,024,167

-

Other payables and accrued expenses

9

292,107,133

38,411,448

Bank loan

7

80,658,490

56,082,763

Total liabilities

 

604,789,790

94,494,211

Net assets

 

824,096,755

621,479,961

 

 

 

 

Equity

 

 

 

Share capital

10

821,970,860

614,208,042

Retained earnings

 

2,125,895

7,271,919

Total equity attributable to the owners of the Company

 

824,096,755

621,479,961

 

 

 

 

Number of ordinary shares in issue at period end

10

797,254,294

615,851,887

 

 

 

 

IFRS Net Asset Value per ordinary share (pence)

 

103.37

100.91

IFRS Net Asset Value per C share (pence)

 

100.66

-

Operative Net Asset Value per ordinary share (pence)

 

125.35

116.73

Operative Net Asset Value per C Share (pence)

 

112.39

-

     

 

Approved and authorised for issue by the Board of Directors on 3 December 2020 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 2020 (unaudited)

 

 

 

 

Number

of Ordinary Shares

Share

capital

Retained earnings

Total
equity

 

Notes

 

£

£

£

As at 1 April 2020

 

615,851,887

614,208,042

7,271,919

621,479,961

Shares issued

10

181,402,407

211,245,624

-

211,245,624

Share issue costs

10

-

(3,482,806)

-

(3,482,806)

Dividends paid

13

-

-

(15,396,297)

(15,396,297)

Profit for the period

 

-

-

10,250,273

10,250,273

As at 30 September 2020

 

797,254,294

821,970,860

2,125,895

824,096,755

 

For the six months ended 30 September 2019 (unaudited)

 

 

 

 

Number

of Ordinary Shares

Share

capital

Retained

earnings

Total
equity

 

Notes

 

£

£

£

As at 1 April 2019

 

202,176,800

198,221,140

337,686

198,558,826

Shares issued

10

187,179,541

192,618,166

-

192,618,166

Share issue costs

10

-

(3,928,077)

-

(3,928,077)

Dividends paid

13

-

-

(8,523,170)

(8,523,170)

Profit for the period

 

-

-

10,722,607

10,722,607

As at 30 September 2019

 

389,356,341

386,911,229

2,537,123

389,448,352

 

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 2020 (unaudited)

 

 

 

1 April 2020 to
 30 September 2020

1 April 2019 to
 30 September 2019

 

Notes

£

£

Cash flows used in operating activities

 

 

 

Operating profit/(loss) for the period before taxation

 

11,993,749

12,631,916

Adjustments for non-cash items:

 

 

 

Movement in trade and other receivables

 

(29,426,685)

(21,490,340)

Movement in other payables and accrued expenses

 

260,384,802

(33,716,890)

Amortisation of Catalogues of Songs and borrowing costs

 

20,093,190

5,995,918

Foreign exchange (gains)/losses

 

2,894,691

(281,461)

 

 

265,939,747

(36,860,857)

Taxation

 

(1,743,476)

-

Purchase of Catalogues of Songs

 

(497,393,922)

(199,481,680)

Net cash used in operating activities

 

(233,197,651)

(236,342,537)

 

 

 

 

Cash flows generated from financing activities

 

 

 

Proceeds from issue of shares*

10

426,400,510

192,618,166

Issue costs paid

10

(7,859,151)

(3,928,077)

Dividends paid

13

(15,396,297)

(8,523,170)

Interest paid

 

(1,609,801)

(52,109)

Borrowing costs

 

(3,367,049)

-

Bank loan

7

26,895,243

13,697,891

Net cash generated from financing activities

 

425,063,455

193,812,701

 

 

 

 

Net movement in cash and cash equivalents

 

191,865,804

(42,529,836)

 

 

 

 

Cash and cash equivalents at the start of the period

 

14,098,374

108,483,752

Effect of foreign exchange rate changes on cash and cash equivalents

 

(2,244,700)

281,462

Cash and cash equivalents at the end of the period

 

203,719,478

66,235,378

 

 

 

 

The accompanying notes form an integral part of these Condensed Consolidated Financial Statements.

 

Notes to the Condensed Consolidated Financial Statements

For the six months ended 30 September 2020

 

1.  General information

 

Hipgnosis Songs Fund Limited was incorporated and registered in Guernsey on 8 June 2018 with registered number 65158 and is governed in accordance with the provisions of the Companies Law. The registered office address is Floor 2, Trafalgar Court, Les Banques, St Peter Port, Guernsey, GY1 4LY.

 

The Company's Ordinary Shares were admitted to trading on the Specialist Fund Segment of the London Stock Exchange on 11 July 2018, and migrated to a Premium Listing on the Main Market of the London Stock Exchange on 25 September 2019. The Company was added as a constituent of the FTSE 250 Index effective from after the market close on 20 March 2020.

 

On 10 September 2020 the Company acquired the entire share capital of Big Deal Music Group.Whilst this was a significant acquisition in expanding operations, the size of acquisition does not warrant a separate segment but a complementary one to the primary segment of royalty collection/catalogue ownership. Accounting recognition and measurement policies have only been included where material to the consolidated results and financial position of the Company.

 

The consideration for this acquisition was funded from the proceeds of Hipgnosis' equity fundraise in July 2020 and through the issue of 17,609,304 new Ordinary Shares ("Consideration Shares") issued at a price of 120.65 pence per Ordinary Share. 6,248,351 of the Consideration Shares were subject to lock up restrictions to 1 October 2020, with 10,123,219 Consideration Shares subject to lock up restrictions to 1 April 2021.The acquisition provides the Company with a full service US music platform, which is expected to enhance royalty income from its growing portfolio of songs, create new songs at an attractive cost and provide in-house US administration, and therefore increase control over its portfolio's income.

 

Following the equity fundraise in July 2020 the Company, as at 30 September, acquired a portfolio of 42 Catalogues, (Kobalt Fund 1),  from Kobalt Music Copyrights S.à.r.l., an investment fund advised by Kobalt Capital Limited, for a total consideration of $322.9 million. The consideration, net of right to income, represents a blended acquisition multiple of 18.3x average annual income and was funded with the net proceeds from the Company's September equity fundraising together with the Company's existing leverage facility. The accounting for the acquisition of the Kobalt Music Copyrights Portfolio is consistent with the accounting treatment of all other catalogue acquisitions.

 

The Company makes its investments through its subsidiaries, which are predominantly registered in the UK and US as limited companies, in which the Company is the sole shareholder. The principal place of business of the subsidiaries is the UK.

 

The Condensed Consolidated Financial Statements present the results of the Group for the six months ended 30 September 2020 and are unaudited. 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 2020, which are available on the Company's website (www.hipgnosissongs.com). The Annual Report has been prepared in accordance with IFRS.

 

The same accounting policies and methods of computation have been followed (in addition to a new accounting policiy in respect of IFRS 3 Business Combinations) for the preparation of these Condensed Consolidated Financial Statements as in the Annual Report for the year ended 31 March 2020.

 

The Company applied, for the first time, certain standards and amendments, which are effective for annual periods beginning on or after 1 April 2020. The new standards or amendments to existing standards and interpretations, effective from 1 April 2020, did not have a material impact on the Company's Condensed Consolidated Financial Statements. It is not anticipated that any standard which is not yet effective, will have a material impact on the Company's financial position or on the performance of the Company's statements.

 

2.  Accounting policies (continued)

b)  Group information

As at 30 September 2020, the details of the Company's subsidiaries are as follows:

Name of the subsidiary

Place of incorporation and operation

% of voting rights

% Interest

Consolidation method

Hipgnosis Holdings UK Limited

UK

100

100

Full

Hipgnosis SFH I Limited

UK

100

100

Full

Hipgnosis SFH II Limited*

UK

100

100

Full

Hipgnosis SFH III Limited*

UK

100

100

Full

Hipgnosis SFH IV Limited*

UK

100

100

Full

Hipgnosis SFH V Limited*

UK

100

100

Full

Hipgnosis SFH VI Limited*

UK

100

100

Full

Hipgnosis SFH VII Limited*

UK

100

100

Full

Hipgnosis SFH VIII Limited*

UK

100

100

Full

Hipgnosis SFH IX Limited*

UK

100

100

Full

Hipgnosis SFH X Limited*

UK

100

100

Full

Hipgnosis SFH XI Limited*

UK

100

100

Full

Hipgnosis SFH XII Limited*

UK

100

100

Full

Hipgnosis SFH XIII Limited

UK

100

100

Full

Hipgnosis SFH XIV Limited*

UK

100

100

Full

Hipgnosis SFH XV Limited*

UK

100

100

Full

Hipgnosis SFH XVI Limited*

UK

100

100

Full

Hipgnosis SFH XVII Limited*

UK

100

100

Full

Hipgnosis SFH XVIII Limited*

UK

100

100

Full

Hipgnosis SFH XIX Limited

UK

100

100

Full

Hipgnosis SFH XX Limited

UK

100

100

Full

Ruby Ruby (London) Limited†

UK

100

100

Full

Big Deal Music Group #

US

100

100

Full

BDM Acquisition Corp, LLC

US

100

100

Full

 

*During the financial year ended 31 March 2020 a restructuring took place and the subsidiaries as highlighted above transferred their catalogues and all other assets and liabilities to Hipgnosis SFH 1 Limited. These subsidiaries are dissolved with effect from 6 October 2020.

 

†This is a subsidiary of Hipgnosis SFH XX Limited and therefore an indirect subsidiary of Hipgnosis Songs Fund Limited.

 

#On 10 September 2020 the Company acquired the entire share capital of Big Deal Music Group which includes BDM Acquisition Corp and Big Deal Music LLC both incorporated in the US. Big Deal Music LLC is part of a joint venture with Big Family LLC, a publishing company which was formed in June 2018 and is equity accounted for in the financial statements.

 

The subsidiaries of the Company are considered tax resident in the UK and are subject to UK corporation tax. The Company acquired Big Deal Music on 10 September 2020 which is domiciled in Los Angeles, California and is subject to applicable State and Federal Taxes.

 

 

2.  Accounting policies (continued)

c)  Going concern

The Directors monitor the capital and liquidity requirements of the Company and its subsidiaries on a regular basis. They have also reviewed cash flow forecasts prepared by the Investment Adviser which are based in part on assumptions about the future purchase and returns from existing Catalogues of Songs and the annual operating cost. 

 

Based on these sources of information and their own judgement, the Directors believe it is appropriate to prepare the Condensed Consolidated Financial Statements of the Group on a going concern basis.

 

d)  Segmental reporting

The chief operating decision maker is the Board of Directors. 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 the Portfolio, with an attractive and growing level of income, together with the potential for capital growth.

 

The Directors believe that the acquisition of BDM is wholly complementary and does not require segmental reporting at this time.

 

 

 

3.  Business Combinations

 

The acquisition method of accounting is used to account for all business combinations, regardless of whether equity instruments or other assets are acquired. The consideration transferred for the acquisition of a subsidiary comprises the:

  fair values of the assets transferred;

  liabilities incurred to the former owners of the acquired business;

  equity interests issued by the group;

  fair value of any asset or liability resulting from a contingent consideration arrangement; and

  fair value of any pre-existing equity interest in the subsidiary. 

Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are, with limited exceptions, measured initially at their fair values at the acquisition date.

The excess of the:

  consideration transferred; and

  acquisition-date fair value of any previous equity interest in the acquired entity over the fair value of the net identifiable assets acquired is recorded as goodwill. If those amounts are less than the fair value of the net identifiable assets of the business acquired, the difference is recognised directly in profit or loss as a bargain purchase. 

Where settlement of any part of cash consideration is deferred, the amounts payable in the future are discounted to their present value as at the date of exchange.  Contingent consideration is classified either as equity or a financial liability. Amounts classified as a financial liability are subsequently remeasured to fair value, with changes in fair value recognised in profit or loss. 

On 10 September 2020, the Company acquired the entire share capital of Big Deal Music Group (rebranded as Hipgnosis Songs Group) a boutique full-service song company which owns a portfolio of copyright interests, and is headquartered in the US. The consideration for the acquisition was funded from the proceeds of the Company's C Share equity fundraise in July 2020 and through the issue of 17,609,304 new Ordinary Shares issued at a price of 120.65 pence per Ordinary Share.  As part of the business combination, the assets were revalued to fair value on the date of the business combination and liabilities evaluated, and recognised in the respective balances in the consolidated financial statements. The fair value gain as a result of this process has been recognised in the statement of comprehensive income. As a result of the remaining purchase price allocation on the Hipgnosis Songs Group balance sheet an immaterial amount of goodwill at $0.3 million was recorded.  The Company has not disclosed the allocation of the purchase price in accordance with IFRS 3 because of non-disclosure legal restrictions set out in the purchase agreement. The Board also believes such information is not material to the users of the financial statements.

 

4.  Significant accounting judgements, estimates and assumptions

The preparation of the Group's Condensed Consolidated Financial Statements requires the application of estimates and assumptions which may affect the results reported in the financial statements. Uncertainty about these estimates and assumptions could result in outcomes that require a material adjustment to the carrying amount of the asset or liability affected in future periods. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimates are revised and in any future periods affected.

 

The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date, that have a significant risk of resulting in a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are discussed below. The Group based its assumptions and made estimates based on the information available when the Condensed Consolidated Financial Statements were prepared. However these assumptions and estimates may change based on market changes or circumstances beyond the control of the Group.

 

 

Critical estimates in applying the Group's accounting policies - revenue recognition and royalty costs:

In calculating accruals, we make judgments around seasonality, over or under performance, and commercial factors based on historical performance, our knowledge of each catalogue and our 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 Company is entitled to receive in due course. In recommending the estimate of this accrual to the Board of Directors and the Investment Adviser used its analysis of each Catalogue's revenue history as well its knowledge of the respective Catalogue performance trends to recommend the estimated accruals. The PRO income accrual is based on analysis of each Catalogue's revenue history as well as knowledge of the respective Catalogue's performance trends.

 

Net revenue is subject to a royalty cost accrual applied to gross revenue receipts primarily within the Big Deal Music subsidiaries. Royalty cost accruals represent contractual royalties due to songwriters and other rights holders that are payable on a 6-monthly basis for writers under publishing contracts and quarterly for clients under administration contracts. Royalty rates vary by writer (negotiated by contract) and by revenue stream.

 

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.

 

Assessment of impairment and the Calculation of Operative NAV

 

Intangible assets are subject to annual impairment review which relies on assumptions made by the Board. Assumptions are updated annually, specifically those relating to future cash flows and discount rates.

The fair value estimates that are prepared in order to calculate the Operative NAV and Operative NAV per Share are also used to assess whether there is evidence that the intangible assets may be impaired.

Valuations of music publishing rights typically adopt the DCF valuation approach which measures the present value of anticipated future revenues from acquiring the Catalogues, which are discounted at a 'market cost of capital', 8.5% and a terminal value in 10 years. This method is accepted as an objective way of measuring future benefits; taking into account income projections from various music industry sources across various revenue flows whilst also factoring in the associated cost of capital.

 

It is the intention of the Board that Catalogues of Songs will be valued on an ongoing basis using a consistent DCF valuation methodology, and that this be used as an initial indicator of impairment for each Catalogue of Songs.

 

5.  Taxes

The Company is exempt from taxation in Guernsey under the provisions of the Income Tax (Exempt Bodies) (Guernsey) Ordinance, 2008 and is charged an annual fee of £1,200.

 

Whilst the Company is incorporated in Guernsey, the majority of the Company's subsidiaries are incorporated and tax resident in the UK and the majority of the Group's income and expenditure is incurred in these entities.

 

One of the Company's UK subsidiaries incorporated BDM Acquisition Corp Inc. (an entity incorporated under the law of Delaware, USA) which acquired the membership interests in Big Deal Music LLC on 10 September 2020. 

Big Deal Music Group is subject to applicable federal, state and local taxes in the US.

6.  Catalogues of Songs

 

£

Cost

 

At 1 April 2020

679,390,925

Additions

521,886,879

At 30 September 2020

1,201,277,804

 

 

Amortisation and impairment

 

At 1 April 2020

19,955,720

Amortisation

19,045,656

Impairment

 -

At 30 September 2020

39,001,376

 

 

Net book value

 

At 1 April 2020

659,435,205

At 30 September 2020

1,162,276,428

 

 

Fair value as at 30 September 2020

1,371,244,828

 

Cost

£

At 1 April 2019

119,950,740

Additions

559,440,185

At 31 March 2020

679,390,925

 

 

Amortisation and impairment

 

At 1 April 2019

1,491,922

Amortisation

18,463,798

Impairment

-

At 31 March 2020

19,955,720

 

 

Net book value

 

At 1 April 2019

118,458,818

At 31 March 2020

659,435,205

Fair value as at 31 March 2020

756,818,538

 

The Group amortises Catalogues of Songs with a limited useful life using the straight-line method of 20 years (other than in exceptional circumstances for specific Catalogues of Songs). Useful life is separately considered for each Catalogue of Songs and is reviewed at the end of each reporting period. At 30 September 2020 accumulated amortisation for Catalogue of Songs is £ 38,993,471 (31 March 2020: £19,955,720) and the accumulated impairment to date is £nil (31 March 2020: £nil).

The Board engaged portfolio Independent Valuer, Massarsky Consulting, Inc., to value the Catalogues as at 30 September 2020. Each income type from each Catalogue was analysed and forecasted to derive the fair value of the Catalogues by adopting a DCF valuation methodology using a discount rate of 8.5% (31 March 2020: 9%). Income was analysed and forecast at the level of each individual Catalogue and by income type. Future revenues were also estimated, often at the level of individual Songs, and incorporated into their valuation. Massarsky Consulting has also taken into consideration macro factors including the growth of streaming revenue, the global growth of the recorded music industry and the short- and medium-term impact of COVID-19 in their analysis. The Board has approved and adopted the valuations prepared by the portfolio Independent Valuer.

 

The sensitivity to the discount rate used in the Operative NAV is as follows:

 

-1% discount rate will grow the FV of the Portfolio by 19.57%, increasing the Operative NAV by 266.79 million which represents an increase of +26.4 pence Operative NAV per share.

+1% discount rate will reduce the FV of the Portfolio by 14.57%, reducing the Operative NAV by £198.56 million which represents a decrease of -19.7 pence Operative NAV per share.

 

7.  Revolving credit facility

On 2 September 2019 it was announced the Company had entered into a Revolving Credit Facility (RCF), with JPMorgan Chase Bank (JPM) as Lead Arranger of £100 million which was uplifted on 15 April 2020 to £150 million and uplifted to $400 million on 23 July 2020. The loan bears interest at 3.75%. The Revolving Credit Facility, which had an original maturity date of 29 August 2022 and has been extended for a further three years to 2 April 2025 on 15 April 2020, provides the Company with greater flexibility to fund investments and provide additional working capital.

 

At the period end £86,895,243 ($107,292,000) (which excludes capitalised borrowing costs), remained drawn down with £2,608,256, paid in interest. This figure is drawn in Sterling as both Hipgnosis Holdings UK Limited and Hipgnosis Songs Fund Limited, which are the principal Group companies party to the RCF, are English and Guernsey companies respectively.

 

8.  Cash and cash equivalents

Cash and cash equivalents comprises cash held by the Group and portfolios of securities.

 

9.  Other payables and accrued expenses

 

1 April 2020 to

1 April 2019 to

 

30 September 2020

31 March 2020

 

£

£

 

 

 

Trade and other payables

 (1,194,082)

 (1,460,635)

Investment payable

(280,973,213)

(33,341,553)

Intercompany loans

 (3,029)

 - 

Royalty creditor

 (7,737,401)

-

Other royalty creditors

 (810,145)

 - 

Property leases

(902,038)

 

Accruals

 (288,189)

-

Current portion of long term borrowing

 (193,359)

 (254,559)

Current tax payable

 - 

 - 

Tax Provision

 (5,677)

(3,354,701)

Total other payables and accrued expenses

292,107,133

38,411,448

 

 

10.  Share capital and capital management

The Company may issue 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

 

 

30 September 2020

31 March 2020

 Issued and fully paid:

 

No. of Shares

No. of Shares

Shares issued on 11 July 2018

 

 202,176,800

 202,176,800

Shares issued on 17 April 2019

 

 138,750,000

 138,750,000

Shares issued on 29 August 2019

 

 48,429,541

 48,429,541

Shares issued on 30 December 2019

 

207,946

207,946

Shares issued on 10 January 2020

 

226,287,600

226,287,600

Shares issued on 10 September 2020

 

17,609,304

-

Shares issued on 24 September 2020

 

163,793,103

-

Ordinary Shares as at 30 September 2020

 

797,254,294

 615,851,887

 

 

 

 

 

 

 

 

Issued and fully paid:

 

£

£

Share capital at 1 April 2019

 

198,221,140

198,221,140

Shares issued on 17 April 2019

 

141,525,000

141,525,000

Share issue costs

 

(2,853,852)

(2,853,852)

Shares issued on 29 August 2019

 

51,093,168

51,093,168

Share issue costs

 

(981,727)

(981,727)

Shares issued on 30 December 20191

 

225,884

225,884

Share issue costs

 

-

-

Shares issued on 10 January 20202

 

231,000,000

231,000,000

Share issue costs

 

(4,021,571)

(4,021,571)

Shares issued on 10 September 20203

 

21,245,625

-

Share issue costs

 

-

-

Shares issued on 24 September 20204

 

189,999,999

-

Share issue costs

 

(3,482,806)

-

Ordinary share capital as at 30 September 2020

 

821,970,860

 614,208,042

Shares issued on 30 September 20205

 

236,400,512

 

Share issue costs

 

(4,376,345)

 

Total share capital as at 30 September 2020

 

1,053,995,027

 614,208,042

 

 

 

 

1  Shares issued as performance fee in respect of year ended 31 March 2019

2  231,000,000 C Shares calculated at 10 January 2020 to convert to 226,287,600 Ordinary Shares at a conversion rate of 0.9796 Ordinary Shares for each C Share held on 10 February 2020

3  17,609,304 Ordinary Shares issued at £1.2065 for the consideration of the acquisition of Big Deal Music on 10 September 2020

4  163,793,103 Ordinary Shares issued at £1.16 per Ordinary Share

5  236,400,512 C Shares calculated at 30 September to convert to 214,202,503 Ordinary Shares at a conversion rate of 0.9061 Ordinary Shares for each C Share held on 4 December 2020

 

On 24 September 2020, the Company issued an additional 163,793,103 Ordinary Shares at an issue price of 116 pence each and raised gross proceeds of £190 million. 

On 10 September 2020, the Company issued an additional 17,609,304 Ordinary Shares at an issue price of 120.65 pence each to the sellers of Big Deal Music, LLC (which was rebranded to The Hipgnosis Songs Group following acquisition) ("HSG"), in connection with the Company's acquisition of HSG.

On 15 July 2020, the Company issued 233,446,307 C Shares at an issue price of 100 pence per C Share, raising gross proceeds of approximately £233.4 million and the Company issued an additional 2,954,205 C Shares at an issue price of 100 pence per C Share, raising further gross proceeds of just under £3.0 million.

C Shares of 236,400,512, are reflected as a liability until converted on 4 December 2020 to 214,202,503 Ordinary Shares at a conversion rate of 0.9061 Ordinary Shares for each C Share held.

 

Under the Company's Articles of Incorporation, each Shareholder present in person or by proxy has the right to one vote at general meetings. On a poll, each Shareholder is entitled to one vote for every Ordinary Share held.

 

Shareholders are entitled to all dividends paid by the Company and, on a winding up, provided the Company has satisfied all of its liabilities, the Shareholders are entitled to all of the residual assets of the Company.

 

11.  Revenue

 

 

1 April 2020 to

1 April 2019 to

 

30 September 2020

30 September 2019

 

£

£

Mechanical income

4,767,559

 1,391,295

Performance income

8,742,008

 4,201,061

Digital downloads income

1,226,746

 1,028,665

Streaming income

8,016,641

 4,653,236

Synchronization income

6,906,096

 2,030,838

Publishing admin income

33,658

-

Writer's Share income

12,261,743

 8,189,913

Producer royalties

2,355,839

 577,165

Masters income

2,994,089

 32,336

Other income*

2,732,264

 536,721

Total revenue**

50,036,643

 22,641,230

*  Other Income refers to any income not covered by the other income types, for example sheet Black Box income (associated with the Kobalt Fund 1 acquisition) sheet music and lyric exploitation.

**Excludes royalty costs and bank interest received.

 

There is an inherent time lag with royalties between the time a Song is performed, and the revenue being received by the Copyright owner. The time lag ranges from 3-6 months on domestic income and 12-18 months on international income. The revenue accruals booked in the period are included within trade and other receivables. Revenue includes publishing and administration income generated by HSG.

All revenue streams disclosed in this note are in scope of IFRS 15.

12.  Other operating expenses

 

1 April 2020 to

1 April 2019 to

 

30 September 2020

30 September 2019

 

£

£

 

 

 

Regulatory fees

12,218

13,239

Listing fees

450,269

11,748

Directors and officers Insurance

49,359

10,101

Directors expenses

4,536

921

Registrar fees

22,575

11,978

Public relation fees

171,414

153,412

Travel and accommodation fees

110,811

92,019

Bank charges

16,149

13,474

Aborted deal expenses

176,922

-

Disbursements and sundry

174,626

10,430

Postage; printing and stationery

12,411

15,936

HSG payroll (salaries)

129,495

-

HSG staff expenses

51,912

-

HSG other expenses

21,284

-

HSG depreciation fixed assets

11,095

-

Total other operating expenses

1,415,076

333,258

 

 

13.  Dividends

A summary of the dividends is set out below:

 

 

 

1 April 2020 to 30 September 2020

 

Dividend per share

Pence

 

Total dividend

£

Interim dividend in respect of quarter ended 31 March 2020

1.25

7,698,148

Interim dividend in respect of quarter ended 30 June 2020

1.25

7,698,149

 

2.50

15,396,297

 

 

 

1 April 2019 to 30 September 2019

 

Dividend per share

Pence

 

Total dividend

£

Interim dividend in respect of quarter ended 31 March 2019

1.25

4,261,585

Interim dividend in respect of quarter ended 30 June 2019

1.25

4,261,585

 

2.50

8,523,170

 

The Company announced its fourth interim dividend for the previous financial year, for the period from 1 January to 31 March 2020 of 1.25 pence per Ordinary Share. The interim dividend was paid to Shareholders on the register at the close of business on 11 May 2020, on 27 May 2020.

 

The Company announced its first interim dividend for the current financial year, for the period from 1 April to 30 June 2020, of 1.25 pence per Ordinary Share. The interim dividend was paid to Shareholders, on the register at the close of business on 17 July 2020, on 31 July 2020.

 

Subsequent to the period end, the Company announced its second interim dividend for the period from 1 July 2020 to 30 September 2020 of 1.3125 pence per Ordinary Share. The dividend was paid to Shareholders, on the register at the close of business on 6 November 2020, on 30 November 2020.

 

Dividend payments during the year were paid only to Ordinary Shareholders.

 

14.  Financial Risk Management

 

Financial Risk Management Objectives

The Company's activities expose it to various types of financial risk, principally market risk, credit risk, and liquidity risk. The Board has overall responsibility for the Company's risk management and sets policies to manage those risks at an acceptable level.

 

The Company's principal risk factors are fully discussed in the Company's Prospectus, available on the Company's website (www.hipgnosissongs.com) and should be reviewed by Shareholders.

 

15.  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 2020 amounted to £199,000 (30 September 2019: £94,375), of which £nil (30 September 2019: £nil) was outstanding at the period end. Following conclusion of the independent remuneration review by Tyzack Associates, the Remuneration Committee resolved on 28 April 2020 to grant an additional payment to each of the Directors of £25,000, and £9,000 to Ms Coleman reflecting her appointment on 27 November 2019, in consideration of the variable elements of workload during FY2020. The additional payment was paid on 29 April 2020 and is included as an operating cost of the Company. The Directors have each undertaken to reinvest the net amount of these additional payments (after tax) in Ordinary Shares of the Company. Tyzack Associates also recommended an increase in the Directors' normal annual fees effective from 1 April 2020. The Non Executive fees are £75,000 (30 September 2019: £50,000), the Chair of the Portfolio Committee and the Chair Audit and Risk Management Committee are £81,500 (30 September 2019: £55,000) and the annual fee for the Chair of the Board is £85,000 (30 September 2019: £57,500).

 

Investment Adviser

Merck Mercuriadis is the founder and owner of the Investment Adviser. Merck stepped down from his duties as a Director of Jonny Coffer Limited and RubyRuby (London) Limited on the 13 May 2020.

 

The Company has entered into an Investment Advisory Agreement with the Investment Adviser pursuant to which the Investment Adviser will source Songs and provide recommendations to the Board on acquisition and disposal strategies, manage and monitor royalty and/or fee income due to the Company from its copyrights and collection agents, and develop strategies to maximise the earning potential of the Songs in the portfolio through improved placement and coverage of Songs.

 

Investment Adviser fees for the period to 30 September 2020 amounted to 3,553,890 (30 September 2019: £1,781,447) of which £nil (31 March 2020: £nil) outstanding at the reporting date.

 

16.  Earnings per share

 

30 September 2020

30 September 2019

 

Basic

Diluted

Basic

Diluted

Profit for the period (£)

10,250,273

10,250,273

10,722,607

10,722,607

 

 

 

 

 

Weighted average number of Ordinary Shares in issue

636,479,578

636,479,578

336,506,009

336,506,009

 

 

 

 

 

Earnings per Share (pence)

1.61

1.61

3.19

3.19

 

The earnings per share is based on the profit or loss of the Group for the period and on the weighted average number of Ordinary Shares for the period assuming the C Shares converted on 30 September 2020.

 

There are no dilutive shares at 30 September 2020.It should be noted that the profit for the period to 30 September 2020 stated above is attributable to the Ordinary Shares and the C Shares, whereas the Earnings per Share figure for the same period is based only upon Ordinary Shares in issue. This limits comparability of Earnings per Share for the two periods shown above.

 

 

17.  Subsequent events

On 28 October 2020 the Company declared a dividend of 1.3125 pence per Ordinary Share in respect of the quarter ended 30 September 2020 payable on 30 November 2020.

On 20 November 2020 The Company acquired the 100% interest of Sacha Skarbek's publishing catalogue and Writer's share of performance.

On 27 November 2020 The Company acquired the rights to Tricky Stewart's earnings from producer royalties on a defined number of songs.

On 2 December 2020 the Company acquired 100% of Eric Stewart's Writer's Share of Performance and Neighbouring Rights income.

With effect from 4 December 2020, 236,400,512 C Shares were converted to 214,202,503 Ordinary Shares at a conversion rate of 0.9061 Ordinary Shares for each C Share.

A further $210 million has been drawn on the RCF to finance the consideration for the acquisition of Kobalt Fund 1, taking total drawings to $297.3 million.

At time of writing, the United Kingdom is in a second lockdown due to COVID-19 which continues to have an impact on the wider music industry, especially the Live sector which forms part of Performance and Writer Share income received by the Company.

The estimate of Performance income and Writer's Share income received since April 2020 has been reduced in line with the Company's revised expectations at the start of this financial year. This reduction in expected income is driven by a drop in Public Performance income, which relates to revenues collected from bars, shops and restaurants etc. Despite this, revenues remain stable and the impact is expected to be short term with a pick-up in earnings within 2021.

The Company continues to assess the impact of COVID-19 and consequently has reflected a greater level of caution within the accruals for the Calendar Q3 (July-September) earnings period, for which statements will be received over the coming months.

Music streaming remains buoyant; it is expected that this will outpace the decline in other revenue streams, and this is reflected in Goldman Sachs' post COVID-19 report which projects that song related revenues, across music publishing, will grow by 3.5% overall in 2020.

There were no other material events after the period end to the date on which these Condensed Consolidated Financial Statements were approved.

* Source: Goldman Sachs (Equity Research), 'Music in the Air, The show must go on'

 

 

 

This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact [email protected] or visit www.rns.com.

RNS may use your IP address to confirm compliance with the terms and conditions, to analyse how you engage with the information contained in this communication, and to share such analysis on an anonymised basis with others as part of our commercial services. For further information about how RNS and the London Stock Exchange use the personal data you provide us, please see our Privacy Policy.
 
END
 
 
IR QZLBBBLLZFBV

a d v e r t i s e m e n t