TIDMSONG
RNS Number : 3842S
Hipgnosis Songs Fund Limited
16 March 2021
16 March 2021
Hipgnosis Songs Fund Limited ("Hipgnosis" or the "Company")
Additional Performance Disclosures
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
additional performance disclosures. These will provide an
additional lens to analyse the Company's performance and financial
prospects, complementing its annual and interim accounts prepared
under IFRS.
New Alternative Performance Measure - Pro-Forma Annual Revenue
(PFAR)
Due to the process of royalty collection, Hipgnosis is required
under IFRS to accrue for a proportion of its revenue where revenue
has been earned but where cash has not yet been received. These
accruals are highly accurate due to the reliable and predictable
nature of song income.
To support investors' understanding of the underlying annual
revenues of its current portfolio of songs, without the impact of
timing of the addition of newly acquired portfolios, estimated IFRS
revenue accruals and non-recurring contractual 'Rights To Income'
(RTI) in relation to periods prior to acquisition, the Company will
provide a Pro-Forma Annual Revenue (PFAR) which comprises revenue
as per royalty statements received.
Definition
Pro-forma Annual Revenue (PFAR) is the royalty revenue earned in
a calendar year by the portfolio of songs held by the Company at a
specific date, based on royalty statements received, irrespective
of whether the songs were owned by the Company over the period
analysed. PFAR disclosures will therefore comprise a revenue year
and a portfolio date in order to facilitate comparisons. PFAR does
not include IFRS revenue accruals or RTI and uses constant FX rates
to remove the impact of currency exchange movements. The PFAR is
presented in US Dollars as 84% of the Company's revenue is received
in US Dollars [1] .
For the purpose of this initial statement of PFAR, for the
portfolio of songs held by the Company on 31 December 2020, the
Company has used royalty statements received in relation to the
2019 calendar year earnings. Royalty statements for the second half
of the 2020 calendar year are expected to be received on or around
31 March 2021. Accordingly the Company will update the PFAR further
around the time of its full year results.
Pro-Forma Annual Revenue - PFAR
The PFAR of the portfolio owned as at 31(st) December 2020 for
the 2019 calendar year was USD 111.7m equal to 11.04 cents per
ordinary share in issue as at that date [2] .
New Key Performance Indicator - Variance Against Forecast
(VAF)
As part of its due diligence prior to acquiring every catalogue,
the Investment Adviser constructs a financial model which analyses
the past performance of a catalogue, removes revenues that it deems
to be non-recurring to establish its baseline earnings, and
forecasts its future earnings. The key assumptions in the financial
model are (1) expected market growth or decay from peak earnings
(in the case of catalogues with a weighted average vintage of less
than 10 years); (2) expected uplifts in revenue from bringing
efficiencies to the collection of royalty payments; and (3) uplifts
from active Song Management.
Whilst administration efficiencies and Song Management are
analysed individually for each catalogue based on its individual
characteristics, the market growth and decay assumptions used in
the Investment Adviser's financial models are as follows:
A. For catalogues with a weighted average vintage greater than
10 years, the Investment Adviser applies steady state market growth
assumptions as follows:
Year 2021E 2022E 2023E 2024E 2025E
---------------- ------ ------ ------ ------ ------
YoY Change
Mechanical (17%) (17%) (17%) (15%) (15%)
Performance 6% 6% 6% 6% 6%
Downloads (20%) (20%) (20%) (20%) (20%)
Streaming 21% 18% 17% 16% 12%
Synchronisation 5% 5% 5% 3% 3%
Other 6% 6% 5% 5% 5%
---------------- ------ ------ ------ ------ ------
Source: The Investment Adviser, Goldman Sachs (2019 )
B. For catalogues with a weighted average younger than 10 years,
the Investment Adviser applies a decay matrix to estimate a songs
steady state earnings, as shown below:
Year of Release
("R") 1 R+1 R+2 R+3 R+4 R+5 R+6 R+7 R+8 R+9
---------------- --- ------ ------ ------ ------ ------ ------ ------ ------ ------
YoY change
Mechanical 25% (51%) (51%) (44%) (18%) (22%) (14%) (17%) (10%)
Performance (28%) (51%) (47%) (18%) (14%) (8%) (9%) 0% 0%
Downloads (64%) (57%) (44%) (20%) (8%) (9%) (10%) (11%) 0%
Streaming (19%) (19%) (5%) (2%) 5% 3% 5% 6% 6%
Synchronisation 19% (28%) (23%) (17%) (15%) (9%) (7%) (5%) (3%)
Other 19% (28%) (23%) (17%) (15%) (9%) (7%) (5%) (3%)
--------------------- ------ ------ ------ ------ ------ ------ ------ ------ ------
Source: Work specifically developed for Hipgnosis' portfolio by
one of its large, global independent music valuation advisers
The Board and the Investment Adviser analyse the actual royalty
statement performance of all catalogues against these forecasts on
an ongoing basis. This analysis is measured on a like-for-like
basis in line with the PFAR described above (i.e. excluding RTI,
IFRS revenue accruals, and FX movements).
Definition
Variance Against Forecast (VAF) is the difference between the
total of the royalty statements received from each catalogue since
acquisition, and the acquisition model forecast over the same
period.
The VAF is expressed as a percentage point deviation from zero,
where a positive number means that the actual performance of the
portfolio is tracking ahead of the cumulative forecast. A negative
number indicates that the portfolio is falling behind forecast.
Variance Against Forecast (VAF)
VAF is relevant once the Company has owned the catalogue for at
least one royalty statement period. The VAF therefore currently
analyses all catalogues owned by the Company as at 30(th) September
2020.
The VAF for all catalogues owned as at the 30(th) September 2020
was +0.4%, meaning that royalty statement revenue is, in aggregate,
higher than forecast at the time of acquisition.
Merck Mercuriadis the Founder of Hipgnosis Songs Fund Limited
and The Family (Music) Limited said :
"As we approach our third annual report since launch in 2018, we
are committed to providing additional disclosure to our
shareholders which seeks to look through our rapid growth, and give
a consistent basis to evaluate our performance and prospects.
Whilst we are working on providing new detailed analysis of our
portfolio of songs and their performance, the additional
performance disclosures announced today will offer rich analysis as
we present like-for-like data points over time.
This work, led by our Chief Financial Officer, Chris Helm, Chief
Operating Officer, Björn Lindvall and Commercial Finance Director,
Samantha Garcia, represents an important step in our commitment to
improving and delivering best in class market disclosures. This
will be enhanced further in the future with the contribution of our
new Executive Vice President Richard Rowe."
For further information, please contact:
The Family (Music) Limited Tel: +44 (0)1481 742742
Merck Mercuriadis
N+1 Singer - Joint Corporate Broker Tel: +44 (0)20 7496
James Maxwell / James Moat / Amanda 3000
Gray (Corporate Finance)
Alan Geeves / James Waterlow / Sam Greatrex
(Sales)
J.P. Morgan Cazenove - Joint Corporate Tel: +44 (0)20 7742
Broker 4000
William Simmonds / Jérémie
Birnbaum (Corporate Finance)
James Bouverat (Sales)
RBC Capital Markets - Joint Corporate Tel: +44 (0)20 7635
Broker 4000
Will Smith / Elliot Thomas / Lauren
Davies (Corporate Finance)
Lisa Tugwell (Sales)
Ocorian - Company Secretary & Administrator Tel: +44 (0) 1481
Julian Carey 742742
The Outside Organisation Tel: +44 (0)7711 081
Alan Edwards / Nick Caley 843
FTI Consulting Tel: +44 (0)7771 978220;
Neil Doyle/ Paul Harris/ Laura Ewart +44 (0)7809 411882;
+44 (0)7761 332646
All US music publicity enquiries Tel: +1 917 767 5255
Fran Defeo
NOTES TO EDITORS
About Hipgnosis Songs Fund Limited
( www.hipgnosissongs.com )
Hipgnosis, which was founded by Merck Mercuriadis, is a Guernsey
registered investment company established to offer investors a
pure-play exposure to songs and associated musical intellectual
property rights. The Company has raised a total of over GBP1.1
billion (gross equity capital) through its Initial Public Offering
on 11 July 2018, and subsequent issues in April 2019, August 2019,
October 2019, July 2020, September 2020 and February 2021. In
September 2019, Hipgnosis transferred its entire issued share
capital to the premium listing segment of the Official List of the
FCA and to the London Stock Exchange's premium segment of the Main
Market, and in March 2020 became a constituent of the FTSE 250
Index.
About The Family (Music) Limited
The Company's Investment Adviser is The Family (Music) Limited,
which was founded by Merck Mercuriadis, manager or former manager
of globally successful recording artists, such as Nile Rodgers,
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, Björn Lindvall and Chris Helm.
[1] For the year ending 31 March 2020
[2] 1,011,456,797 ordinary shares were in issue as at 31
December 2020
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