TIDMSONG
RNS Number : 5362X
Hipgnosis Songs Fund Limited
21 December 2023
LEI: 213800XJIPNDVKXMOC11
21 December 2023
Hipgnosis Songs Fund Limited ("Hipgnosis" or the "Company")
Interim Results for the year ended 30 September 2023
The Board of Hipgnosis Songs Fund Limited which offers investors
a pure-play exposure to songs and associated intellectual property
rights, and its Investment Adviser, Hipgnosis Song Management
Limited, announce the Company's interim results for the six-months
to 30 September 2023.
Financial Headlines
-- Operative NAV per share decreased 9.2 % to $ 1.7392 (31 March
2023: $1.9153), driven primarily by a reduction in the Fair Value
of the Portfolio
o As at 30 September 2023, Operative NAV per share in Sterling
142.49p (GBP:$ exchange rate 1.22055);
o As at 19 December 2023, Operative NAV per share presented in
Sterling 136.53p per Share (GBP:$ exchange rate 1.274).
-- Gross revenue from continuing operations for the period $63.2
million (H1 2022-3: $86.4 million)
-- Net revenue from continuing operations fell to $54.0 million
(H1 2022-3: $76.8 million) primarily driven by $11.9 million
reversal of CRB III accrual due to lower anticipated future
retroactive payments
-- Underlying net revenue (excluding CRB III accruals) up 14.0 %
to $65.8 million (H1 2022-23: $57.6 million)
-- Pro-forma Annual Revenue (PFAR), which shows the gross
royalty statements received or receivable within the reporting
period and does not include any revenue accruals under IFRS grew
10.4% to $64.9 million (Six months to 30 Sept 2022: $58.8
million)
-- Total dividends of 2.6250p per ordinary share paid
o October 2023 dividend withdrawn
o Dividends suspended for at least remainder of financial
year
-- Total debt of $674.0 million as at 31 September 2023 (31
March 2023: $648.2 million) representing 32.0 % of Operative NAV
(31 March 2022: 28.0%)
Operational Headlines
-- Strategic Review, led by the Board, underway following
rejection of the Continuation Resolution at the Company's AGM
o Shot Tower Capital, LLC as lead adviser to conduct due
diligence on the Company's assets
o Investment Adviser invited to propose alternative terms for
their future investment advisory arrangements for the Company
-- Robert Naylor appointed non-executive director and Chair of
Company's Board following period end; Francis Keeling and
Christopher Mills appointed non-executive directors
-- Sale of c.20,000 non-Core songs representing approximately 1%
by value of the Company's investment portfolio sold for $23.1
million, a 14.2% discount to the Portfolio Independent Valuer's
valuation
-- KPMG appointed Company's auditors
Robert Naylor, Chairman, Hipgnosis Songs Fund said:
"I am delighted to be appointed to the Board, with strong
backing from shareholders. The Board are clear we are acting in
their best interests.
"I am pleased with the progress made on the ongoing strategic
review. The Board, through its advisers, has begun due diligence on
the Company's assets with Shot Tower LLC, a specialist music rights
practice, acting as lead adviser. This process will help the new
Board bring forward proposals for delivering value to
shareholders.
"Notwithstanding this progress, since I joined the Board there
has been a regular occurrence of issues raised as a result of
ongoing failures in the financial reporting and control process.
Whilst we consider substantial progress has been made in
identifying and rectifying these issues, we have had to suspend the
dividend for at least the remainder of the year in order to ensure
compliance with our banking covenants.
"The newly constructed Board are aware of multiple valuation
data points. The Board, made up entirely of non-executive
directors, has sought advice from the Investment Adviser, as the
Company's delegated executive function, for their opinion as to the
fair value of the Company's assets.
"Regrettably, the Investment Adviser initially refused to
provide an opinion. While the Investment Adviser did eventually
provide an opinion to the Board, it was heavily caveated. Whilst
the Board sought for correspondence with the Investment Adviser on
the matter to be published on the Company's website in order to
provide transparency for shareholders, the Investment Adviser has
refused to consent under the confidentiality clauses of the
Investment Advisory Agreement.
"We note the announcement from Hipgnosis Song Management stating
that they will 'continue to work in a constructive manner to
support the interests of the Company and its shareholders'. On
behalf of the Board, I therefore urge the Investment Adviser to
provide the Board with their opinion as to the fair value of the
Company assets, without caveats, such that we can provide greater
certainty and transparency to our shareholders."
Results call
Dan Pounder, CFO of Hipgnosis Song Management, will be hosting a
call for analysts and investors at 0830 BST on 4 January 2023.
To register to participate, please contact ir@hipgnosissongs.com
.
A recording of the call will subsequently be placed on the
Company's website www.hipgnosissongs.com/song-investors/
-ends-
For further information please contact:
Hipgnosis Songs Fund
Robert Naylor / Sylvia Coleman +44 (0) 20 7496 3000
Via Singer Capital Markets
Hipgnosis Song Management
Merck Mercuriadis +44 (0) 20 4542 1530
Ben Katovsky
David Pounder
Giles Croot (Media) +44 (0) 20 4542 1511
Singer Capital Markets - Corporate Broker
James Moat / Alaina Wong / Angus Campbell
(Corporate Finance)
Alan Geeves / James Waterlow / Sam Greatrex
(Sales) +44 (0) 20 7496 3000
Headland Consultancy - Financial PR
Susanna Voyle / Charlie Twigg +44 (0) 20 3805 4822
The Chair's Statement
Introduction
This is my first report as Chairman of Hipgnosis Songs Fund,
having joined the Board with Francis Keeling on 7 November 2023.
Christopher Mills subsequently joined the Board on 15 December
2023. These interim results are for the half year ended 30
September 2023.
Votes against related party transaction and continuation as an
investment company
At the Company's Annual General Meeting held on 26 October 2023,
shareholders overwhelmingly voted against the Company continuing
its business as a closed-ended investment company, with 83% voting
against. Shareholders also rejected, with 84% against, a related
party transaction to sell a portfolio of 29 music catalogues to
Hipgnosis Songs Capital, the trading name of Hipgnosis SC IV
(Delaware), a limited partnership which is majority owned by funds
managed and/or advised by Blackstone. Hipgnosis Songs Capital is
advised by the same investment adviser as the Company - Hipgnosis
Song Management Limited (" Hipgnosis Song Management " or "
Investment Adviser "), which is also majority owned by funds
managed and/or advised by Blackstone.
Dividend
On 16 October 2023, the Company announced the suspension of the
interim dividend of 1.3125p per share and further announced on 6
November 2023 that all dividends will be suspended for the rest of
the financial year. This decision followed the identification, by
the Investment Adviser of additional liabilities and certain over
accruals for the prior year revenue.
The Board will act responsibly and only start paying dividends
to shareholders when it believes that we can sustainably meet our
banking covenants and working capital requirements.
The Board believes, based on forecasts provided by the
Investment Adviser, that the Company should have sufficient
headroom to operate within its banking covenants for at least the
next 12 months. However, this is qualified by the continuation of
issues around financial reporting and controls. For example, the
Board were made aware on Friday 15 December 2023 of a drafting
error in a contract, whereby the Company received notice of the
exercise of a put option contained within an acquisition contract,
which increased the estimated liability from $4 million to $25
million. The Investment Adviser sought to remedy this over the
subsequent weekend by way of an amendment to the contract and the
Board now understands, from the Investment Adviser, the potential
liability to be in the region of $7.5 million to $8.5 million.
Portfolio Valuation
In spite of the positive music market and like-for-like income
growth of the Company's assets, the Company's Operative NAV, which
reflects the Fair Value of its assets as determined by the
Independent Portfolio Valuer, has fallen 9.2%. This primarily
reflects the material reduction in expectations of CRBIII and CRBIV
income.
The Board are aware of multiple data points and transactions
within the market which are at material discounts to the implied
Fair Value of the Company's assets. Given these multiple valuation
data points and the continued uncertainty in the wider
macro-economic environment, the Board sought advice from Hipgnosis
Song Management Limited, its Investment Adviser, which is majority
owned by funds managed and/or advised by Blackstone on this matter.
Hipgnosis Song Management is the Company's appointed expert on the
marketplace for songs and de facto executive function, and the
Board expects them to provide an opinion as to whether the Fair
Value is reasonable.
Hipgnosis Song Management Limited at first declined to give an
opinion but, after repeated requests from the Board, eventually
provided an opinion which was heavily caveated. In the absence of
further evidence or insight from the Investment Adviser, on which
to base a judgement on the valuation of the Company's assets, the
Board has concerns as to whether the Fair Value is reasonable.
Consequently, the Board recommends that investors use the Fair
Value and the Operative NAV with a higher degree of caution and
less certainty than might otherwise be attached to it as an
accurate reflection of the fair value of the Company's assets. The
Company confirms that the uncertainty around the Fair Value and
Operative NAV has no impact on its banking covenants.
Strategic Review
As announced previously, the Board, through its advisers, have
begun due diligence on the Company's assets. Shot Tower LLC, a
specialist music rights practice, is acting as lead adviser.
We have requested Hipgnosis Song Management propose alternative
terms for their future investment advisory arrangements of the
Company during this period of due diligence. Should Hipgnosis Songs
Management not propose terms which the Board believes are in the
best interests of the future of the Company and its shareholders,
it will explore bringing forward alternative proposals to
shareholders.
I have personally met with shareholders holding, in aggregate,
more than 60% of the Company's shares. There was a high degree of
alignment between our diverse shareholders with two key themes
becoming apparent from these meetings.
Firstly, the failure of the financial reporting and controls at
the Investment Adviser. Dan Pounder, who joined as CFO of the
Investment Adviser on 1 September 2023, has begun to improve
financial reporting and disclosure, which has led to short-term
negative impacts on reporting. This is evidenced in the additional
catalogue bonus provisions of GBP23 million, deductions in the
prior year income accrual of GBP12 million due to a reduction in
expected CRB III receipts and a proposed change to the revenue
accrual methodology for the year end which may result in an
adjustment reducing annual revenue by up to 10%. The Board has
faith in Dan and his ability to improve the financial
reporting.
Despite this, there is some positive performance in the
underlying assets which shows like-for-like revenue statement
growth of 10%.
Secondly, the perceived mismanagement of the conflicts of
interest, both in the recently failed sale of assets to Hipgnosis
Songs Capital, a fund that is majority owned by Blackstone, at a
material discount to fair value of those assets and in the terms of
the Investment Advisory Agreement with Hipgnosis Song Management.
This is harder to address, but we will seek to do so in the coming
months.
Board Appointments
There has been significant change on the Board. Andrew Sutch,
Andrew Wilkinson and Paul Burger all resigned as directors either
immediately before or as a result of the vote at the Annual General
Meeting. I am delighted that Christopher Mills joined the Board on
15 December 2023.
All the Directors on the Board last month bought shares in the
Company in order show the alignment of the Board's interests with
those of its shareholders.
Outlook
Further to the due diligence underway, we will be able to better
assess the quality of the Company's assets and prospects from which
to put forward proposals to shareholders for the future of the
Company.
Robert Naylor
Chair
20 December 2023
Investment Adviser's Report
The Company's Portfolio as at 30 September 2023 comprised of 146
Catalogues containing 65,413 song rights acquired, as set out
below.
Rights purchased
----------------------------------------------------
Composition Sound Recording
Rights Rights
Number
Acquisition of Songs Publisher Writer's Neighbouring
Catalogue Name Date (t) Genre Vintage Share Share Masters Producer Rights
----------------- ------------ --------- --------- ------- --------- -------- ------- -------- ------------
17 Oct
10cc 19 29 Rock 10+ X
----------------- ------------ --------- --------- ------- --------- -------- ------- -------- ------------
30 Oct
50 Cent 20 388 R&B 10+ X
----------------- ------------ --------- --------- ------- --------- -------- ------- -------- ------------
08 May
Al Jackson Jr 19 185 Soul 10+ X X X X X
----------------- ------------ --------- --------- ------- --------- -------- ------- -------- ------------
05 Dec
Ammar Malik 19 90 R&B 3-10 X X
----------------- ------------ --------- --------- ------- --------- -------- ------- -------- ------------
17 Feb
Andrew Watt 21 105 Pop 3-10 X X
----------------- ------------ --------- --------- ------- --------- -------- ------- -------- ------------
23 Jul
Andy Marvel 19 740 R&B 10+ X
----------------- ------------ --------- --------- ------- --------- -------- ------- -------- ------------
31 Mar
Andy Wallace 21 1,242 Rock 10+ X X
----------------- ------------ --------- --------- ------- --------- -------- ------- -------- ------------
29 Jul
Ann Wilson 21 152 Rock 10+ X X X X
----------------- ------------ --------- --------- ------- --------- -------- ------- -------- ------------
31 Mar
Ari Levine 19 76 Pop 3-10 X X
----------------- ------------ --------- --------- ------- --------- -------- ------- -------- ------------
30 Oct
Aristrotracks* 20 152 Pop 10+ X
----------------- ------------ --------- --------- ------- --------- -------- ------- -------- ------------
15 Nov
Arthouse 19 44 Pop 3-10 X
----------------- ------------ --------- --------- ------- --------- -------- ------- -------- ------------
30 Oct
B-52's 20 96 Pop 10+ X
----------------- ------------ --------- --------- ------- --------- -------- ------- -------- ------------
16 Jul
Barry Manilow 20 917 Disco 10+ X X
----------------- ------------ --------- --------- ------- --------- -------- ------- -------- ------------
02 Aug
Benny Blanco 19 93 Pop 3-10 X
----------------- ------------ --------- --------- ------- --------- -------- ------- -------- ------------
28 Nov
Bernard Edwards 18 290 Disco 10+ X X
----------------- ------------ --------- --------- ------- --------- -------- ------- -------- ------------
30 Jul
Blondie 20 197 Rock 10+ X X
----------------- ------------ --------- --------- ------- --------- -------- ------- -------- ------------
04 Dec
Bob Rock 20 43 Rock 10+ X
----------------- ------------ --------- --------- ------- --------- -------- ------- -------- ------------
30 Oct
Bonnie McKee 20 78 Pop 10+ X X
----------------- ------------ --------- --------- ------- --------- -------- ------- -------- ------------
13 Dec
Brendan O'Brien 19 1,855 Rock 10+ X X
----------------- ------------ --------- --------- ------- --------- -------- ------- -------- ------------
22 Jan
Brian Higgins 20 362 Dance 10+ X X
----------------- ------------ --------- --------- ------- --------- -------- ------- -------- ------------
14 Jun
Brian Kennedy 19 101 R&B 10+ X
----------------- ------------ --------- --------- ------- --------- -------- ------- -------- ------------
Brian Kennedy
(Writer 23 Dec
Share) 20 139 R&B 10+ X
----------------- ------------ --------- --------- ------- --------- -------- ------- -------- ------------
30 Oct
Brill Building* 20 234 Pop 3-10 X
----------------- ------------ --------- --------- ------- --------- -------- ------- -------- ------------
Carole Bayer 17 Mar
Sager 21 983 Pop 10+ X X
----------------- ------------ --------- --------- ------- --------- -------- ------- -------- ------------
10 Dec
Caroline Ailin 20 2 Dance 3-10 X X
----------------- ------------ --------- --------- ------- --------- -------- ------- -------- ------------
10 Aug
Chris Cornell 20 241 Rock 10+ X X X X
----------------- ------------ --------- --------- ------- --------- -------- ------- -------- ------------
10 Sep
Chrissie Hynde 20 162 Rock 10+ X X
----------------- ------------ --------- --------- ------- --------- -------- ------- -------- ------------
Christian 02 Mar
Karlsson 21 255 Dance 10+ X X
----------------- ------------ --------- --------- ------- --------- -------- ------- -------- ------------
30 Oct
Christina Perri 20 68 Pop 3-10 X X
----------------- ------------ --------- --------- ------- --------- -------- ------- -------- ------------
21 Jul
Christine McVie 21 115 Rock 10+ X X X
----------------- ------------ --------- --------- ------- --------- -------- ------- -------- ------------
Closer (J King 27 Jul
& I Slade) 20 2 Dance 3-10 X X
----------------- ------------ --------- --------- ------- --------- -------- ------- -------- ------------
31 Mar
Dave Sitek 21 230 Rock 10+ X X
----------------- ------------ --------- --------- ------- --------- -------- ------- -------- ------------
07 May
Dave Stewart 19 1,068 Dance 10+ X X X X X
----------------- ------------ --------- --------- ------- --------- -------- ------- -------- ------------
30 Oct
Dierks Bentley 20 113 Country 3-10 X
----------------- ------------ --------- --------- ------- --------- -------- ------- -------- ------------
09 Dec
Ed Drewett 19 109 Dance 3-10 X
----------------- ------------ --------- --------- ------- --------- -------- ------- -------- ------------
30 Oct
Editors* 20 64 Rock 10+ X
----------------- ------------ --------- --------- ------- --------- -------- ------- -------- ------------
16 Jul
Eliot Kennedy 20 217 Rock 10+ X X
----------------- ------------ --------- --------- ------- --------- -------- ------- -------- ------------
24 Aug
Elliot Lurie 21 70 Pop 10+ X
----------------- ------------ --------- --------- ------- --------- -------- ------- -------- ------------
30 Oct
Eman 20 97 Pop 3-10 X X
----------------- ------------ --------- --------- ------- --------- -------- ------- -------- ------------
13 Dec
Emile Haynie 19 122 Pop 3-10 X X X X
----------------- ------------ --------- --------- ------- --------- -------- ------- -------- ------------
30 Oct
Enrique Iglesias 20 157 Latin 3-10 X X
----------------- ------------ --------- --------- ------- --------- -------- ------- -------- ------------
12 Jul
Eric Bellinger 19 242 R&B 3-10 X X X
----------------- ------------ --------- --------- ------- --------- -------- ------- -------- ------------
02 Dec
Eric Stewart 20 255 Disco 10+ X X
----------------- ------------ --------- --------- ------- --------- -------- ------- -------- ------------
26 Mar
Espionage 21 151 Pop 10+ X X
----------------- ------------ --------- --------- ------- --------- -------- ------- -------- ------------
30 Oct
Evan Bogart 20 229 Pop 3-10 X
----------------- ------------ --------- --------- ------- --------- -------- ------- -------- ------------
05 Dec
Fraser T Smith 19 298 R&B 3-10 X
----------------- ------------ --------- --------- ------- --------- -------- ------- -------- ------------
30 Sep
George Benson 20 107 Jazz 10+ X
----------------- ------------ --------- --------- ------- --------- -------- ------- -------- ------------
30 Sep
George Thorogood 20 40 Country 10+ X
----------------- ------------ --------- --------- ------- --------- -------- ------- -------- ------------
21 Dec
Giorgio Tuinfort 18 182 Dance 3-10 X X
----------------- ------------ --------- --------- ------- --------- -------- ------- -------- ------------
30 Sep
Good Soldier* 20 760 Pop 3-10 X
----------------- ------------ --------- --------- ------- --------- -------- ------- -------- ------------
10 Feb
Greg Wells 20 11 Pop 3-10 X X
----------------- ------------ --------- --------- ------- --------- -------- ------- -------- ------------
31 Mar
Happy Perez 21 192 R&B 3-10 X X
----------------- ------------ --------- --------- ------- --------- -------- ------- -------- ------------
30 Sep
Holy Ghost 20 62 Dance 3-10 X
----------------- ------------ --------- --------- ------- --------- -------- ------- -------- ------------
29 Jul
Ian Kirkpatrick 20 137 Pop 3-10 X X
----------------- ------------ --------- --------- ------- --------- -------- ------- -------- ------------
31 Jan
Itaal Shur 19 209 Latin 10+ X X X
----------------- ------------ --------- --------- ------- --------- -------- ------- -------- ------------
13 Aug
Ivor Raymonde 20 505 Soul 10+ X X
----------------- ------------ --------- --------- ------- --------- -------- ------- -------- ------------
30 Sep
J-Kash 20 90 Pop 3-10 X
----------------- ------------ --------- --------- ------- --------- -------- ------- -------- ------------
05 Dec
Jack Antonoff 19 188 Rock 3-10 X X
----------------- ------------ --------- --------- ------- --------- -------- ------- -------- ------------
15 May
Jamie Scott 19 144 Pop 3-10 X X
----------------- ------------ --------- --------- ------- --------- -------- ------- -------- ------------
05 Nov
Jaron Boyer 19 109 Country 3-10 X X
----------------- ------------ --------- --------- ------- --------- -------- ------- -------- ------------
10 Jul
Jason Ingram 19 462 Christian 3-10 X X
----------------- ------------ --------- --------- ------- --------- -------- ------- -------- ------------
11 Dec
Jeff Bhasker 19 436 Pop 3-10 X X
----------------- ------------ --------- --------- ------- --------- -------- ------- -------- ------------
24 Dec
Jimmy Iovine 20 259 Rock 10+ X
----------------- ------------ --------- --------- ------- --------- -------- ------- -------- ------------
24 Dec
Joel Little 20 178 Rock 3-10 X X
----------------- ------------ --------- --------- ------- --------- -------- ------- -------- ------------
05 Nov
John Newman 19 47 Dance 3-10 X X
----------------- ------------ --------- --------- ------- --------- -------- ------- -------- ------------
30 Sep
John Rich 20 7 Country 3-10 X
----------------- ------------ --------- --------- ------- --------- -------- ------- -------- ------------
11 Dec
Johnny McDaid 19 164 Rock 3-10 X X
----------------- ------------ --------- --------- ------- --------- -------- ------- -------- ------------
22 Mar
Johnta Austin 19 249 R&B 3-10 X X
----------------- ------------ --------- --------- ------- --------- -------- ------- -------- ------------
14 Jun
Jon Bellion 19 180 Pop 10+ X X
----------------- ------------ --------- --------- ------- --------- -------- ------- -------- ------------
28 Feb
Jonathan Cain 20 216 Rock 10+ X X
----------------- ------------ --------- --------- ------- --------- -------- ------- -------- ------------
28 Feb
Jonny Coffer 20 85 Pop 3-10 X X
----------------- ------------ --------- --------- ------- --------- -------- ------- -------- ------------
22 Jul
Jordan Johnson 21 58 Pop 3-10 X X
----------------- ------------ --------- --------- ------- --------- -------- ------- -------- ------------
10 Jan
Journey (Masters) 20 389 Rock 10+ X
----------------- ------------ --------- --------- ------- --------- -------- ------- -------- ------------
Journey 21 Oct
(Publishing) 19 103 Rock 10+ X
----------------- ------------ --------- --------- ------- --------- -------- ------- -------- ------------
16 Sep
Julian Bunetta 20 188 Pop 3-10 X
----------------- ------------ --------- --------- ------- --------- -------- ------- -------- ------------
Kaiser Chiefs 09 Dec
(Masters) 19 48 Rock 10+ X
----------------- ------------ --------- --------- ------- --------- -------- ------- -------- ------------
15 Jul
Kaiser Chiefs 21 136 Rock 10+ X X
----------------- ------------ --------- --------- ------- --------- -------- ------- -------- ------------
23 Sep
Kevin Godley 20 358 Rock 10+ X X
----------------- ------------ --------- --------- ------- --------- -------- ------- -------- ------------
30 Sep
Kojak 20 148 Pop 3-10 X X
----------------- ------------ --------- --------- ------- --------- -------- ------- -------- ------------
30 Sep
LA Reid 20 162 R&B 10+ X X
----------------- ------------ --------- --------- ------- --------- -------- ------- -------- ------------
30 Sep
Lateral** 20 248 Pop 3-10 X
----------------- ------------ --------- --------- ------- --------- -------- ------- -------- ------------
Lindsey 24 Dec
Buckingham 20 161 Rock 10+ X X
----------------- ------------ --------- --------- ------- --------- -------- ------- -------- ------------
Lindsey
Buckingham 30 Sep
(Kobalt) 20 174 Rock 10+ X
----------------- ------------ --------- --------- ------- --------- -------- ------- -------- ------------
30 Sep
LunchMoney Lewis 20 116 R&B 3-10 X X
----------------- ------------ --------- --------- ------- --------- -------- ------- -------- ------------
17 Jun
Lyric Catalogue 19 571 R&B 10+ X X
----------------- ------------ --------- --------- ------- --------- -------- ------- -------- ------------
30 Sep
Lyrica Anderson 20 96 R&B 3-10 X
----------------- ------------ --------- --------- ------- --------- -------- ------- -------- ------------
30 Sep
Madcon 20 173 R&B 3-10 X X
----------------- ------------ --------- --------- ------- --------- -------- ------- -------- ------------
30 Sep
Mark Batson 20 210 R&B 10+ X
----------------- ------------ --------- --------- ------- --------- -------- ------- -------- ------------
14 Apr
Mark Ronson 20 315 Pop 3-10 X X
----------------- ------------ --------- --------- ------- --------- -------- ------- -------- ------------
31 Mar
Martin Bresso 21 51 Pop 3-10 X X
----------------- ------------ --------- --------- ------- --------- -------- ------- -------- ------------
28 May
Michael Knox 19 110 Country 3-10 X X
----------------- ------------ --------- --------- ------- --------- -------- ------- -------- ------------
30 Sep
Mobens* 20 1,034 Pop 3-10 X
----------------- ------------ --------- --------- ------- --------- -------- ------- -------- ------------
30 Sep
Nate Ruess 20 59 Pop 3-10 X
----------------- ------------ --------- --------- ------- --------- -------- ------- -------- ------------
20 Jun
Neal Schon 19 357 Rock 10+ X X
----------------- ------------ --------- --------- ------- --------- -------- ------- -------- ------------
23 Dec
Neil Young 20 590 Rock 10+ X
----------------- ------------ --------- --------- ------- --------- -------- ------- -------- ------------
15 Dec
Nelly 20 240 R&B 10+ X X
----------------- ------------ --------- --------- ------- --------- -------- ------- -------- ------------
30 Oct
Nelly (Kobalt) 20 145 R&B 10+ X
----------------- ------------ --------- --------- ------- --------- -------- ------- -------- ------------
30 Sep
Nettwerk** 20 25,259 Pop 3-10 X
----------------- ------------ --------- --------- ------- --------- -------- ------- -------- ------------
03 Sep
Nikki Sixx 20 305 Rock 10+ X X
----------------- ------------ --------- --------- ------- --------- -------- ------- -------- ------------
24 Jul
NO I.D. 20 273 R&B 3-10 X X
----------------- ------------ --------- --------- ------- --------- -------- ------- -------- ------------
18 Mar
Paul Barry 21 510 Pop 10+ X X
----------------- ------------ --------- --------- ------- --------- -------- ------- -------- ------------
21 Nov
Poo Bear 18 214 Pop 3-10 X X
----------------- ------------ --------- --------- ------- --------- -------- ------- -------- ------------
30 Sep
PRMD* 20 335 Dance 3-10 X X
----------------- ------------ --------- --------- ------- --------- -------- ------- -------- ------------
24 Jul
Pusha T 20 238 Hip-Hop 3-10 X X X
----------------- ------------ --------- --------- ------- --------- -------- ------- -------- ------------
15 Jan
Rainbow 19 15 Rock 10+ X
----------------- ------------ --------- --------- ------- --------- -------- ------- -------- ------------
10 Jan
Rebel One 20 157 Dance 3-10 X
----------------- ------------ --------- --------- ------- --------- -------- ------- -------- ------------
Red Hot Chili 14 Jul
Peppers 21 220 Rock 10+ X X
----------------- ------------ --------- --------- ------- --------- -------- ------- -------- ------------
16 Jul
RedOne 20 334 Pop 10+ X X X X
----------------- ------------ --------- --------- ------- --------- -------- ------- -------- ------------
23 Jul
Rhett Akins 21 564 Country 3-10 X X
----------------- ------------ --------- --------- ------- --------- -------- ------- -------- ------------
04 Mar
Richie Sambora 20 186 Rock 10+ X X
----------------- ------------ --------- --------- ------- --------- -------- ------- -------- ------------
18 Sep
Rick James 20 97 R&B 10+ X X X X X
----------------- ------------ --------- --------- ------- --------- -------- ------- -------- ------------
26 Feb
Rico Love 19 245 R&B 3-10 X
----------------- ------------ --------- --------- ------- --------- -------- ------- -------- ------------
30 Sep
Rob Hatch 20 167 Country 3-10 X X
----------------- ------------ --------- --------- ------- --------- -------- ------- -------- ------------
Robert Diggs 12 Aug
"RZA" 20 814 R&B 10+ X X
----------------- ------------ --------- --------- ------- --------- -------- ------- -------- ------------
30 Sep
Rock Mafia 20 393 Pop 10+ X
----------------- ------------ --------- --------- ------- --------- -------- ------- -------- ------------
16 Jul
Rodney Jerkins 20 982 R&B 10+ X X
----------------- ------------ --------- --------- ------- --------- -------- ------- -------- ------------
20 Nov
Sacha Skarbek 20 303 Pop 10+ X X
----------------- ------------ --------- --------- ------- --------- -------- ------- -------- ------------
31 Mar
Sam Hollander 19 499 Pop 3-10 X X
----------------- ------------ --------- --------- ------- --------- -------- ------- -------- ------------
18 Dec
Savan Kotecha 19 49 R&B 3-10 X X
----------------- ------------ --------- --------- ------- --------- -------- ------- -------- ------------
Savan Kotecha 30 Sep
(Kobalt) 20 354 R&B 3-10 X X
----------------- ------------ --------- --------- ------- --------- -------- ------- -------- ------------
24 Sep
Scott Cutler 20 111 Pop 10+ X X
----------------- ------------ --------- --------- ------- --------- -------- ------- -------- ------------
10 Jan
Scott Harris 20 129 Dance 3-10 X
----------------- ------------ --------- --------- ------- --------- -------- ------- -------- ------------
21 Mar
Sean Garrett 19 588 R&B 3-10 X X
----------------- ------------ --------- --------- ------- --------- -------- ------- -------- ------------
24 Dec
Shakira 20 145 Latin 3-10 X X
----------------- ------------ --------- --------- ------- --------- -------- ------- -------- ------------
30 Sep
SK Music 20 23 Pop 3-10 X X
----------------- ------------ --------- --------- ------- --------- -------- ------- -------- ------------
30 Sep
Skrillex 20 153 Dance 3-10 X
----------------- ------------ --------- --------- ------- --------- -------- ------- -------- ------------
25 Apr
Starrah 19 73 R&B 3-10 X X
----------------- ------------ --------- --------- ------- --------- -------- ------- -------- ------------
22 Jul
Stefan Johnson 21 58 Pop 3-10 X X
----------------- ------------ --------- --------- ------- --------- -------- ------- -------- ------------
30 Sep
Stereoscope* 20 456 Pop 3-10 X
----------------- ------------ --------- --------- ------- --------- -------- ------- -------- ------------
17 Sep
Steve Robson 20 1,034 Country 3-10 X X X
----------------- ------------ --------- --------- ------- --------- -------- ------- -------- ------------
30 Sep
Steve Winwood 20 215 Pop 10+ X
----------------- ------------ --------- --------- ------- --------- -------- ------- -------- ------------
12 Apr
Teddy Geiger 19 6 Pop 3-10 X
----------------- ------------ --------- --------- ------- --------- -------- ------- -------- ------------
30 Sep
Tequila 20 1 Country 10+ X
----------------- ------------ --------- --------- ------- --------- -------- ------- -------- ------------
22 Aug
The Chainsmokers 19 42 Dance 3-10 X X
----------------- ------------ --------- --------- ------- --------- -------- ------- -------- ------------
13 Jul
The-Dream 18 302 R&B 10+ X X X
----------------- ------------ --------- --------- ------- --------- -------- ------- -------- ------------
30 Sep
Third Day 20 212 Christian 3-10 X
----------------- ------------ --------- --------- ------- --------- -------- ------- -------- ------------
10 Oct
Timbaland 19 108 R&B 10+ X X X
----------------- ------------ --------- --------- ------- --------- -------- ------- -------- ------------
30 Sep
Timeflies* 20 80 Dance 3-10 X
----------------- ------------ --------- --------- ------- --------- -------- ------- -------- ------------
17 Dec
TMS 18 121 Pop 3-10 X
----------------- ------------ --------- --------- ------- --------- -------- ------- -------- ------------
23 Dec
Tom Delonge 19 157 Rock 10+ X X
----------------- ------------ --------- --------- ------- --------- -------- ------- -------- ------------
17 Dec
Tricky Stewart 18 121 R&B 10+ X X
----------------- ------------ --------- --------- ------- --------- -------- ------- -------- ------------
Tricky Stewart 27 Nov
(Masters) 20 95 R&B 10+ X X
----------------- ------------ --------- --------- ------- --------- -------- ------- -------- ------------
30 Sep
Walter Afanasieff 20 213 Pop 10+ X
----------------- ------------ --------- --------- ------- --------- -------- ------- -------- ------------
30 Sep
Wayne Wilkins 20 113 Pop 10+ X X
----------------- ------------ --------- --------- ------- --------- -------- ------- -------- ------------
30 Sep
Yaslina 20 73 Pop 10+ X X
----------------- ------------ --------- --------- ------- --------- -------- ------- -------- ------------
* Catalogue included in Second Disposal
** Catalogue partially included in Second Disposal
t Interest in Songs and/or recording rights. Ownership dependent on terms of acquisition
PFAR by Catalogue
The below table shows PFAR by Catalogue for the top 58
Catalogues, this represents 80% of total PFAR for the six months to
30 September 2023.
Six months Six months Six months Six months Six months
to to to to to
30 September 31 March 30 September 31 March 30 September
2021 2022 2022 2023 2023
Catalogue
Name Genre Vintage $ $ $ $ $
------------------ -------- --------- --------------- ------------ --------------- ------------ ---------------
Red Hot
Chili Peppers Rock 10+ 1,867.5 3,261.7 3,237.1 4,781.4 4,693.8
------------------ -------- --------- --------------- ------------ --------------- ------------ ---------------
Nettwerk Pop 3-10 2,888.9 3,300.3 2,783.7 4,066.8 4,273.4
------------------ -------- --------- --------------- ------------ --------------- ------------ ---------------
RedOne Pop 10+ 1,305.3 1,854.5 1,985.2 2,624.3 2,867.9
------------------ -------- --------- --------------- ------------ --------------- ------------ ---------------
Journey
(Masters) Rock 10+ 1,758.6 1,877.1 1,634.9 1,832.2 1,654.2
------------------ -------- --------- --------------- ------------ --------------- ------------ ---------------
Shakira Latin 10+ 1,387.3 1,130.1 1,407.2 1,349.8 1,639.8
------------------ -------- --------- --------------- ------------ --------------- ------------ ---------------
50 Cent R&B 10+ 795.8 889.5 985.9 1,728.4 1,574.6
------------------ -------- --------- --------------- ------------ --------------- ------------ ---------------
The Chainsmokers Dance 3-10 1,173.7 1,324.4 1,280.8 1,555.3 1,245.5
------------------ -------- --------- --------------- ------------ --------------- ------------ ---------------
Rick James R&B 10+ 558.3 617.7 716.7 838.4 1,222.4
------------------ -------- --------- --------------- ------------ --------------- ------------ ---------------
Richie Sambora Rock 10+ 713.0 1,016.0 933.8 1,338.3 1,147.8
------------------ -------- --------- --------------- ------------ --------------- ------------ ---------------
Neil Young Rock 10+ 297.6 769.7 1,015.8 1,223.6 1,136.7
------------------ -------- --------- --------------- ------------ --------------- ------------ ---------------
Joel Little Rock 3-10 1,290.5 1,320.1 1,308.4 1,477.1 1,124.8
------------------ -------- --------- --------------- ------------ --------------- ------------ ---------------
Ari Levine Pop 10+ 755.0 841.5 1,062.9 1,099.9 1,104.5
------------------ -------- --------- --------------- ------------ --------------- ------------ ---------------
Dave Stewart Dance 10+ 831.2 1,166.2 935.1 1,022.6 1,100.3
------------------ -------- --------- --------------- ------------ --------------- ------------ ---------------
Christine
McVie Rock 10+ 550.4 1,055.5 1,100.0 1,002.1 1,082.3
------------------ -------- --------- --------------- ------------ --------------- ------------ ---------------
Johnny McDaid Rock 3-10 874.2 883.7 894.3 1,582.0 1,040.7
------------------ -------- --------- --------------- ------------ --------------- ------------ ---------------
Rodney Jerkins R&B 10+ 511.8 716.8 822.3 923.9 1,028.0
------------------ -------- --------- --------------- ------------ --------------- ------------ ---------------
Chris Cornell Rock 10+ 932.2 1,102.6 1,166.4 796.4 948.2
------------------ -------- --------- --------------- ------------ --------------- ------------ ---------------
The-Dream R&B 10+ 729.0 810.6 892.1 920.8 901.1
------------------ -------- --------- --------------- ------------ --------------- ------------ ---------------
Lindsey
Buckingham
(Kobalt) Rock 10+ 2,081.6 1,066.3 851.5 994.4 877.1
------------------ -------- --------- --------------- ------------ --------------- ------------ ---------------
Mark Ronson Pop 3-10 925.1 1,013.9 765.3 897.1 870.4
------------------ -------- --------- --------------- ------------ --------------- ------------ ---------------
Steve Winwood Pop 10+ 560.4 574.7 630.5 839.6 858.2
------------------ -------- --------- --------------- ------------ --------------- ------------ ---------------
Andrew Watt Pop 3-10 1,230.2 1,255.1 904.8 915.0 834.5
------------------ -------- --------- --------------- ------------ --------------- ------------ ---------------
Bernard
Edwards Disco 10+ 514.1 569.4 782.1 608.4 811.5
------------------ -------- --------- --------------- ------------ --------------- ------------ ---------------
Savan Kotecha R&B 3-10 805.3 829.6 739.4 961.7 805.6
------------------ -------- --------- --------------- ------------ --------------- ------------ ---------------
Jack Antonoff Rock 3-10 748.3 798.7 839.9 936.3 798.0
------------------ -------- --------- --------------- ------------ --------------- ------------ ---------------
Enrique
Iglesias Latin 3-10 490.6 590.7 636.3 901.0 797.4
------------------ -------- --------- --------------- ------------ --------------- ------------ ---------------
Jonathan
Cain Rock 10+ 696.1 899.0 888.0 929.4 773.2
------------------ -------- --------- --------------- ------------ --------------- ------------ ---------------
Starrah R&B 3-10 436.0 716.0 562.6 542.3 759.9
------------------ -------- --------- --------------- ------------ --------------- ------------ ---------------
Tricky Stewart R&B 10+ 554.5 568.4 747.1 667.1 718.0
------------------ -------- --------- --------------- ------------ --------------- ------------ ---------------
Brendan
O'Brien Rock 10+ 574.4 740.2 638.1 606.0 717.2
------------------ -------- --------- --------------- ------------ --------------- ------------ ---------------
Jeff Bhasker Pop 3-10 642.9 624.4 669.2 578.7 649.1
------------------ -------- --------- --------------- ------------ --------------- ------------ ---------------
Julian Bunetta Pop 3-10 333.2 413.5 353.7 242.0 639.7
------------------ -------- --------- --------------- ------------ --------------- ------------ ---------------
Tom Delonge Rock 10+ 382.6 475.3 518.1 536.2 629.7
------------------ -------- --------- --------------- ------------ --------------- ------------ ---------------
B-52's Pop 10+ 288.6 357.7 377.3 342.0 597.3
------------------ -------- --------- --------------- ------------ --------------- ------------ ---------------
Giorgio
Tuinfort Dance 10+ 394.7 509.0 623.3 516.2 587.2
------------------ -------- --------- --------------- ------------ --------------- ------------ ---------------
Andy Wallace Rock 10+ 416.3 521.8 585.2 440.5 579.7
------------------ -------- --------- --------------- ------------ --------------- ------------ ---------------
Benny Blanco Pop 3-10 771.0 755.2 590.1 626.8 567.1
------------------ -------- --------- --------------- ------------ --------------- ------------ ---------------
Good Soldier Pop 3-10 410.0 639.6 456.7 555.7 565.9
------------------ -------- --------- --------------- ------------ --------------- ------------ ---------------
Emile Haynie Pop 3-10 441.8 782.0 619.5 571.9 564.0
------------------ -------- --------- --------------- ------------ --------------- ------------ ---------------
Timbaland R&B 10+ 332.6 437.2 432.6 472.5 526.2
------------------ -------- --------- --------------- ------------ --------------- ------------ ---------------
Neal Schon Rock 10+ 411.2 1,061.1 579.0 782.6 479.4
------------------ -------- --------- --------------- ------------ --------------- ------------ ---------------
Happy Perez R&B 10+ 325.4 507.5 359.6 352.9 470.2
------------------ -------- --------- --------------- ------------ --------------- ------------ ---------------
Nelly R&B 10+ 400.4 406.3 481.1 493.4 468.3
------------------ -------- --------- --------------- ------------ --------------- ------------ ---------------
Ammar Malik R&B 3-10 419.1 544.6 504.0 675.1 459.2
------------------ -------- --------- --------------- ------------ --------------- ------------ ---------------
Jamie Scott Pop 3-10 597.9 595.7 584.2 590.1 457.8
------------------ -------- --------- --------------- ------------ --------------- ------------ ---------------
Christina
Perri Pop 10+ 347.6 430.4 375.6 518.0 452.3
------------------ -------- --------- --------------- ------------ --------------- ------------ ---------------
Skrillex Dance 10+ 389.9 475.9 402.4 893.4 443.0
------------------ -------- --------- --------------- ------------ --------------- ------------ ---------------
Paul Barry Pop 10+ 107.8 0.2 486.5 479.8 439.1
------------------ -------- --------- --------------- ------------ --------------- ------------ ---------------
Blondie Rock 10+ 281.7 381.7 409.3 513.4 437.6
------------------ -------- --------- --------------- ------------ --------------- ------------ ---------------
Nikki Sixx Rock 10+ 328.5 346.5 370.2 426.1 431.5
------------------ -------- --------- --------------- ------------ --------------- ------------ ---------------
Walter Afanasieff Pop 10+ 310.5 324.8 401.5 328.1 430.8
------------------ -------- --------- --------------- ------------ --------------- ------------ ---------------
Lateral Pop 3-10 255.3 308.5 326.8 325.6 412.5
------------------ -------- --------- --------------- ------------ --------------- ------------ ---------------
Chrissie
Hynde Rock 10+ 585.3 478.3 377.1 453.7 398.3
------------------ -------- --------- --------------- ------------ --------------- ------------ ---------------
Rock Mafia Pop 10+ 333.7 314.0 327.5 467.7 389.2
------------------ -------- --------- --------------- ------------ --------------- ------------ ---------------
Sam Hollander Pop 3-10 514.6 821.3 486.9 619.8 368.5
------------------ -------- --------- --------------- ------------ --------------- ------------ ---------------
Other Catalogues 13,920.1 15,396.0 13,727.7 14,848.5 12,966.7
---------------------------- --------- --------------- ------------ --------------- ------------ ---------------
Total PFAR 52,780.0 61,468.5 58,573.4 67,612.1 64,817.4
---------------------------- --------- --------------- ------------ --------------- ------------ ---------------
Financial Review
NAV
The Company reports two net asset values: an IFRS NAV which is
prepared in accordance with IFRS, under which the Company's
Catalogues of Songs are held at net book value (cost less
accumulated amortisation and accumulated impairment), and an
Operative NAV which adjusts the net book value of the Company's
Catalogues to reflect their Fair Value, as determined by the
Portfolio Independent Valuer. The IFRS Net Asset Value (NAV) per
share as at 30 September 2023 was $1.1012, which is a 7.2% decrease
from $1.1863 as at 31 March 2023.
The Board and the Investment Adviser consider that the most
relevant NAV for Shareholders is the Operative NAV. The Operative
NAV per share decreased by 9.2% to $1.7392 at 30 September 2023 (31
March 2023: $1.9153), driven primarily by a 6.4% decrease in the
Fair Value of the Portfolio. This, together with the dividends, of
22.94p (29.55c), takes Total NAV Return ($) to Shareholders to
56.7% since the IPO on 11 July 2018.
Operative NAV Bridge
From 1 April 2023 to 30 September 2023 Per share
$'m ($)
------------------------------------- ------- ---------
Opening Operative NAV 2,316.0 1.9153
Loss for the period (63.2) (0.0523)
Amortisation and impairment during
the period 69.1 0.0572
Dividends paid during the period (39.8) (0.0329)
Decrease in Fair Value of Catalogues (179.1) (0.1481)
------------------------------------- ------- ---------
Closing Operative NAV 2,103.0 1.7392
------------------------------------- ------- ---------
Based on the Sterling to Dollar exchange rate at 30 September
2023 of 1.221, the Operative NAV per share presented in Sterling is
142.49p per share (31 March 2023: 154.91p based on Sterling to
Dollar exchange rate of 1.236). As at 19 December 2023, the
Operative NAV per share presented in Sterling would be 136.53p per
Share (GBP: USD 1.274).
Fair Value of the Portfolio
The Fair Value is determined by the Portfolio Independent
Valuer, Citrin Cooperman. The Fair Value of the Portfolio decreased
by 6.4% to $2.62 billion (31 March 2023: $2.80 billion).
$'m
--------------------------------------------- -------
Fair Value of Portfolio at 31 March 2023 2,802.8
CRB III and CRB IV adjustments (155.0)
Alternative platform licensing adjustment (4.1)
FX rate adjustment 1.5
35-year rule reversions (47.5)
Other 24.3
--------------------------------------------- -------
Fair Value of Portfolio at 30 September 2023 2,622.0
--------------------------------------------- -------
The main drivers of the change in the Fair Value of the
Portfolio are:
-- A $155.0 million reduction as a result of the Portfolio
Independent Valuer's lower estimate of CRB III retroactive payments
(2018-2022) and future CRB IV (2023-2027) cash flows;
-- A $47.5 million reduction, reflecting potentially reduced
future cash flows a result of the US "35-year rule", where artists
can request reversion of their US creative copyrights (composition
or sound recording) 35 years
after a contractual grant of rights. This primarily impacts
Catalogues bought as part of the Kobalt Fund 1 acquisition;
-- A $4.1 million impact due to reduced cash flow expectations
from alternative platform licensing (licensing on social media,
gaming and other emerging platforms including TikTok); and
-- A $24.3 million increase in value due to changes in
subscription pricing of the DSPs, improved baselines and changes to
applied future growth rates.
The Portfolio Independent Valuer applied an 8.5% discount rate
(31 March 2023: 8.5%), based on a weighted average cost of capital
using 50% equity: 50% debt capital structure; this models the cost
of equity at 9.87%. and the cost of debt at 7.13%. A sensitivity
table is set out in Note 5 of the Financial Statements.
Citrin Cooperman, the Portfolio Independent Valuer:
-- One of the largest valuation providers in the music transactions marketplace;
-- Conducts the valuations of many music publishing and recorded
music assets on behalf of buyers, sellers and lenders;
-- Conducts the annual valuations of most of the major public and private music funds;
-- Values the Fair Value of Hipgnosis Songs Fund twice a year;
Citrin Cooperman's Valuation Methodology
In determining the Fair Market value of the Portfolio, Citrin
Cooperman ("CC"), adopts an income approach utilising a Discounted
Cash Flow (DCF) method which determines the value of the Portfolio
based on converting anticipated future economic benefits into a
present single amount. It considers the expected growth and timing
of the benefits, the risk profile of the benefits stream and the
time value of money.
The key inputs to their DCF methodology include:
Determining a baseline value: This is the earnings benchmark,
applied on a per income type, per catalogue basis, against which
growth rates are applied. The baseline value, which is taken from
royalty statements, is typically the prior year's earnings with the
exception of synch, where, for the most part, an average of the
prior two years is taken, given the variable earnings of the Synch
business. Adjustments to these assumptions are made by the team at
Citrin Cooperman dependent on Catalogue-specific activity, which
may include settlements, audits, black box payments and changes in
administration rates, amongst others.
The revenue provided does not consider any future ability of the
Company's active management to enhance Catalogue revenues.
Applying growth rates: For Catalogues that contain significant
new releases CC has developed lifecycle growth rates per major
income stream that are applied on a per song basis for significant
titles and are then weighted, based on each song's earnings
contribution within each revenue stream. For Catalogues without
significant new releases, referred to as "steady state" Catalogues
by CC, growth rates from a low, mid or high tier are applied on a
per income type, per catalogue basis that decline from an initial
growth rate to a terminal growth rate over the period according to
modelled growth curves. The selection of the growth tier applied to
each Catalogue for each of its income types is determined by that
Catalogue's historical earning trends.
Other considerations used by CC in developing their model for
anticipated future cashflows include expectations from Alternative
Platform Licensing (APL), such as TikTok, Facebook and Peloton, and
adjustments required to earlier periods related to settlements,
black box payments or other non-recurring payments.
Discount Rate: The other key assumption used by CC is the
discount rate which it has maintained at 8.5% (31 March 2023:
8.5%). Citrin Cooperman has consistently taken a long-term view on
interest rates. CC determine the discount rate using a modelled
weighted average cost of capital (WACC) based on a 50:50 equity
debt capital structure, with a derived cost of equity of 9.87% and
a derived cost of debt of 7.13% utilizing third party data sources
to support their calculation.
The Portfolio Independent Valuer reviews the discount rate
regularly and will adjust the discount rate if it considers it
appropriate. A 0.5% increase in the discount rate to 9.0% would
result in a decrease to the Fair Value of the Catalogue of 7.8%
($203.5 million). Sensitivities relating to the discount rate,
applied growth rates and the terminal growth rate are set out
further in Note 5 of the financial statements.
Revenue
Total revenue from continuing operations decreased to $63.2
million (six month period ended 30 September 2022: $86.4 million)
and Net revenue from continuing operations decreased to $54.0
million (six month period ended 30 September 2022: $76.8 million).
The main driver for the revenue reduction is the de-recognition of
part of the CRB accruals recognised in the prior year.
In the prior period, following the confirmation of the CRB III
settlement for the Songwriters' mechanical portion of US Streaming
income, a retroactive accrual for these payments was made totalling
$19.2 million. This accrual was increased to $21.7 million as at 31
March 2023.
As a result of the Portfolio Independent Valuer materially
reducing its previous expectations across the industry, the Company
now expects to receive significantly lower retroactive payments in
relation to CRB III and therefore reduced this retroactive accrual
in the reporting period to $9.9 million, decreasing Net revenue
from continuing operations by $11.8 million.
Excluding these CRB III accruals, the Company saw an increase in
IFRS adjusted Net revenue from continuing operations of $8.2
million, 14.2% period-on-period. This increase is due to higher
royalty statements received in the period which reflects an
underlying increase in consumption of the Company's music.
Accrued Income
Accrued income as at 30 September 2023 was $121.5 million on a
gross basis (31 March 2023: $126.2 million). Within this balance is
the CRB III retroactive accrual of $9.9 million (31 March 2023:
$21.7 million). The Company is exploring refinements to the
methodology adopted in the revenue accrual estimation process for
the year end results with an aim to bring consistency to the
description of IFRS revenue and the Pro Forma Annual Revenue
measure through the use of granular data in the underlying
calculations, to support an improved estimation process and
enhanced disclosures.
Hipgnosis Songs Group revenue
Hipgnosis Songs Group LLC (HSG) is an operating company within
the Fund which carries out both administration and frontline
publishing business activities. As such, a high proportion of its
revenue is paid out to artists as royalty costs.
We set out Hipgnosis Songs Group LLC's (HSG) standalone
Statement of Profit and Loss in Note 19; below we provide the
revenue split by income stream. HSG's Net revenue has declined to
$2.8 million (six month period ended 30 September 2022: $3.5
million) reflecting a lower margin revenue mix. A breakdown of
Total revenue and Net revenue is presented below.
HSG revenue split by income
stream Six months to Six months to
30 September 30 September
2023 2022 Variance
$'m $'m %
---------------------------------- -------------- -------------- --------
Catalogues within the Portfolio
reverted to administration at
HSG 9.4 7.0 34.3
Third party administration income 6.1 7.0 (12.9)
Frontline publishing income 3.9 4.9 (20.4)
---------------------------------- -------------- -------------- --------
HSG Total revenue 19.4 18.9 2.6
Royalty cost (16.6) (15.4) 7.8
---------------------------------- -------------- -------------- --------
HSG Net revenue 2.8 3.5 (20.0)
---------------------------------- -------------- -------------- --------
Pro Forma Annual Revenue (PFAR)
Given the multiple non-recurring elements captured within IFRS
revenue, to provide Shareholders with an understanding of the
like-for-like performance of the Company's revenue, the Company
presents the Pro Forma Annual Revenue (PFAR) performance measure.
This shows the gross royalty statements received or receivable
within the reporting period and does not include any revenue
accruals under IFRS. Although not directly reconcilable with IFRS
revenue, the Company believes this provides a relevant
like-for-like full year income comparison of the Group's Catalogues
of Songs held as at the period end.
PFAR is set out by income type for the six month period ended 30
September 2023 against the comparative period below. PFAR does not
include any income from HSG ($2.8 million in the reporting period)
but does include PFAR relating to the Second Disposal of $4.4
million (six month period ended 30 September 2022:
$3.1million).
PFAR split by (1) Six months (1,2) Six months
to to
income type (1) 30 September 30 September
2023 2022 Variance
$'m $'m %
------------------------ --------------- ----------------- --------
Streaming 26.6 23.2 14.7
Synchronisation 9.8 10.0 (2.0)
Performance 14.2 12.8 10.9
Mechanical 2.5 2.5 -
Digital downloads 1.2 1.3 (7.7)
Settlement and other 2.1 1.1 90.9
------------------------ --------------- ----------------- --------
Total Publishing Income 56.4 50.9 10.8
Masters (3) 8.5 8.1 4.9
------------------------ --------------- ----------------- --------
Total PFAR 64.9 59.0 10.0
------------------------ --------------- ----------------- --------
1 This shows the royalty statements received or receivable
within the reporting period.
2 Restated to reflect actual statements received or receivable
in the prior period.
3 Masters income includes Artist Royalties, Producer Royalties
and Neighbouring Rights.
4. PFAR for the 12 months to 30 September 2023 increased by
10.2% year-on-year to $132.6 million (30 September 2022: $120.3
million).
Streaming revenues increased by 14.7% period-on-period,
comparing favourably with the +11% growth in US streaming revenue
as reported by the RIAA. Synchronisation has seen a small decline
in income by 2.0% in part reflective of the challenges created by
the writers and actors strike which impacted licensing for part of
this period. Performance income grew strongly with 10.9%
period-on-period growth with mechanical income remaining consistent
period-on-period. Digital downloads continued a downward trend as
streaming dominates the user consumption market with a 7.7%
decrease period-on-period.
Whilst the majority of our revenue is derived from our music
composition rights, the Company also receives revenues from Sound
Recording Rights, which includes both Masters and Producers. These
combined revenues increased by 4.9% period-on-period, from $8.1
million to $8.5 million.
Costs and EBITDA
Operating expenses
Operating expenses from continuing operations increased 25.4%
year-on-year to $117.7 million for the six month period ended 30
September 2023 (six month period ended 30 September 2022: $93.9
million).
The increase is driven by the recognition of a further Catalogue
bonus provision of $26.5 million, discussed below, and impairment
of Catalogues of Songs of $15.2 million as the application of the
Company's asset impairment policy identified seven Catalogues that
required impairment.
Exceptional transaction costs of $5.7 million relating to legal
and professional fees in relation to the proposed asset sales
announced on 14 September 2023 were also incurred; these are
materially lower than the $13.9 million anticipated at the time the
transaction was announced since a high proportion of the fees were
contingent on shareholders approving the transaction.
HSG's operating costs increased to $5.6 million (six month
period ended 30 September 2022: $5.5 million). See Note 19 for a
standalone Statement of Profit and Loss for HSG.
Fees related to the payment of an aborted deal totalling $1.0
million were paid in the reporting period in addition to further
minor costs. Whilst the Company is not attempting any new
acquisitions, no further aborted deal costs will be incurred.
The increase in operating expenses is offset by a $19.7 million
fair value gain recognised on the Company's held for trading
derivative financial instruments.
Adjusted operating costs less interest expense decreased by 1.9%
to $14.3 million (six month period ended 30 September 2022: $14.5
million). This is primarily a result of the reduction to the
Advisory fee of 20.1% year-on-year to $5.4 million during the
period (six month period ended 30 September 2022: $6.8 million),
which decreased due to the Company's lower share price during the
period. Ongoing Charges as a percentage of the average Operative
NAV decreased to 1.19% for the six month period ended 30 September
2023 (six month period ended 30 September 2022: 1.23%).
Catalogue Bonus Provision
Catalogue bonuses are paid to Songwriters when performance
hurdles, defined in the catalogue acquisition agreements, are met.
The decision of the Company to recognise a Catalogue bonus
provision is based on the probability that expected future
performance will achieve the defined performance hurdles (see Note
10).
During the six month period ended 30 September 2023, the Company
has recognised a further $26.5 million Catalogue bonus provision
relating to six Catalogues. The Company also released Catalogue
bonus provisions of $3.3 million relating to two Catalogues where
the performance hurdles were not achieved. The Company paid $0.1
million of Catalogue bonus provision during the six months to 30
September 2023. This brings the total Catalogue bonus provision to
$68.1 million across 10 Catalogues.
The movement in the Catalogue bonus provision during the
reporting period during the six months to 30 September 2023 is
presented below:
$'m
------------------------------------------- -----
At 1 April 2023 45.0
Increase in provision recognised 26.5
Payments during the period (0.1)
Release of provision previously recognised (3.3)
------------------------------------------- -----
At 30 September 2023 68.1
------------------------------------------- -----
In addition to the 10 Catalogues in its Portfolio that have a
Catalogue bonus provision, there are a further 19 Catalogues that
have an active Catalogue bonus clause which the Company considers
are unlikely to meet their performance hurdles. These 19 Catalogues
have theoretical bonus provisions totalling $75.2 million (31 March
2023: nil) and are considered contingent liabilities; Note 10
provides associated sensitivity analysis.
EBITDA
EBITDA from continuing operations for the six month period ended
30 September 2023 decreased by 36.2% to $39.7 million (six month
period ended 30 September 2022: $62.3 million), primarily
reflecting the reduction of the CRB III retroactive active accrual
in net revenue.
Leverage
Total debt, as defined within the Alternative Performance
Measures, increased to $674.0 million at 30 September 2023 (31
March 2023: $648.2 million) as a result of an increase in Catalogue
bonus provisions of $23.1 million, a drawdown from the RCF facility
of $4.0 million in July 2023, offset by a reduction in PRO advances
of $1.3 million.
Under the Investment Policy, total debt of the Company should
not exceed 30% of the Operative NAV, equivalent to $630.9 million
as at 30 September 2023 (31 March 2023: $694.8 million). During the
period the Company exceeds this threshold, no further drawn downs
can be made from the RCF. The current ratio of total debt to
Operative NAV is 32.0% (31 March 2023: 28.0%).
In order to mitigate interest rate risk and provide certainty
over interest payments, the Company holds interest rate swap
agreements. Since 3 January 2023, $340 million has been hedged for
the duration of the RCF (until 30 September 2027) at a fixed rate
of 5.67% (including debt margin); a further $200 million is hedged
until 3 January 2026 at a fixed rate of 5.89% (including debt
margin).
Interest rate swap agreements hedged $540 million at a blended
rate of 5.75%, including debt margin, for a weighted average life
of 4.26 years, starting from 3 January 2023. These interest rate
hedging contracts are not subject to margin calls in the event of
movements in underlying interest rates. The Company received $2.7
million income on the executed interest rate swaps which, when
netted against our interest payments, results in net interest paid
of $18.3 million (six month period ended 30 September 2023: $15.0
million). The increase in net interest paid over the period is due
to an increase in the effective interest rate. There was a fair
value gain recognised on the remaining interest rate swaps of $21.1
million at 30 September 2023 as a result of their mark-to-market
value at that date.
Foreign Exchange Hedge
The Company holds a series of US Dollar to Sterling foreign
exchange forward contracts to limit its exposure to foreign
exchange rate risk and to provide certainty on the US Dollar value
of future Sterling dividend payments. This rolling hedging strategy
implemented by the Board ensures there are up to GBP50 million of
forward contracts in place.
During the period, the Company realised a gain of $3.2 million
on the executed foreign exchange forward contracts. As at 30
September 2023, the Held for Trading derivative financial asset
relating to the foreign exchange forward contract is $0.2
million.
Dividends
Dividends paid in the period of $39.8 million related to the
periods ended December 2022 (paid 28 April 2023) and March 2023
(paid 28 July 2023); this was covered 1.38x by available
Distributable Revenues.
On 21 September 2023, the Company declared an interim dividend
of 1.3125 pence per share for the period ended 30 June 2023. This
dividend was subsequently withdrawn on 16 October 2023 to ensure
on-going compliance with the RCF's Fixed Charge Coverage Ratio.
This was due to the Portfolio Independent Valuer materially
reducing expectations of the CRB III retroactive payments for the
period covering 2018-2022 resulting in the Company partially
reversing its CRB III retroactive active accrual to $9.9 million
from $21.7 million as at 31 March 2023, thereby materially reducing
its EBITDA for the reporting period. The Board has determined that
it will not declare dividends before the new financial year.
EPS
EPS from continuing operations for the six month period ended 30
September 2023 is (5.27c) (six month period ended 30 September
2022: (1.72c)); the reduction to EPS is set out in the below
table:
EPS Bridge Cents per share
--------------------------------------------------------------- ---------------
Opening EPS from continuing operations at 1 October
2022 (1.73)
Reduction in Net Revenue (1.89)
Reduction in Operating Expenses (excluding the below) 0.62
1. Exceptional transaction costs (0.48)
2. Increase in Catalogue bonus provision (1.62)
3. Increase in Impairment of Catalogues of Songs (1.09)
4. Increase in loan interest (0.71)
5. Fair value gain on held for trading derivative financial
instruments 1.63
--------------------------------------------------------------- ---------------
Closing EPS from continuing operations at 30 September
2023 (5.27)
--------------------------------------------------------------- ---------------
As set out previously, the reduction in Net Revenue is primarily
due to the reduction in the CRB III accrual held at 30 September
2023.
Adjusted EPS from continuing operations, as defined within the
Alternative Performance Measures, which primarily removes the
impact of Catalogue amortisation, Catalogue bonus provision,
impairment and the fair value gain on held for trading derivative
financial instruments is 1.37 cents (six month period ended 30
September 2022: 3.63 cents).
Sale of non-core assets
On 14 September 2023, the Company announced the sale of a
portfolio of non-core songs, subject to completion of legal
documentation and the consent of the Company's lending banks, known
as the Second Disposal. As this sale is not conditional on
Shareholder approval and meets the requirements of IFRS 5, the
Second Disposal is presented as a discontinued operation in the
Condensed Consolidated Profit and Loss account for the six month
period ended 30 September 2023 and a Held for Sale disposal group
in the Condensed Consolidated Balance Sheet as at 30 September
2023.
The large majority of this transaction completed as set out in
the announcement of 11 December 2023.
The profit for the period from discontinued operations is $0.6
million (six month period ended 30 September 2022: $0.8 million).
See Note 20 for further detail on the Second Disposal.
Merck Mercuriadis
CEO, Hipgnosis Song Management Ltd.
20 December 2023
Condensed Consolidated Statement of Profit and Loss
For the six months ended 30 September 2023 (unaudited)
1 April 2023 1 April 2022
to to
30 September 30 September
2023 2022
Notes $'000 $'000
----------------------------------------------- ----- -------------- --------------
Income
Total revenue 12 63,200 86,392
Interest income 263 40
Royalty costs (9,485) (9,634)
----------------------------------------------- ----- -------------- --------------
Net revenue from continuing operations 53,978 76,798
----------------------------------------------- ----- -------------- --------------
Expenses
Advisory and performance fees 15 (5,398) (6,760)
Administration fees (212) (300)
Legal and professional fees (1,711) (1,728)
Audit fees (571) (189)
Brokers' fees (115) (94)
Directors' remuneration 15 (324) (324)
Subscriptions and licences (204) (383)
Other operating expenses 13 (5,949) (6,020)
Exceptional transaction costs 20 (5,747) -
Movement in Catalogue bonus provision (23,257) (3,689)
Movement in ECL provision for HSG advances (42) 375
Amortisation of Catalogues of Songs 5 (53,947) (55,110)
Impairment of Catalogues of Songs 5 (15,194) (2,007)
Amortisation of borrowing expenses 8 (620) (1,001)
Fixed asset depreciation (247) (30)
Loan interest 8 (23,052) (14,473)
Fair value gain on held for trading derivative
financial instruments 18 19,652 -
Net loss from joint ventures (446) (48)
Foreign exchange losses (280) (2,083)
----------------------------------------------- ----- -------------- --------------
Operating expenses (117,664) (93,864)
----------------------------------------------- ----- -------------- --------------
Operating loss for the period before taxation (63,686) (17,066)
Taxation 4 (78) (3,815)
----------------------------------------------- ----- -------------- --------------
Loss for the period from continuing operations (63,764) (20,881)
----------------------------------------------- ----- -------------- --------------
Profit for the period from discontinued
operations 20 563 791
----------------------------------------------- ----- -------------- --------------
Total loss for the period (63,201) (20,090)
----------------------------------------------- ----- -------------- --------------
From loss for the period from continuing
operations
----------------------------------------------- ----- -------------- --------------
Basic Earnings per Share (cents) 16 (5.27) (1.72)
Diluted Earnings per Share (cents) 16 (5.27) (1.72)
----------------------------------------------- ----- -------------- --------------
From total loss for the period
----------------------------------------------- ----- -------------- --------------
Basic Earnings per Share (cents) 16 (5.23) (1.66)
Diluted Earnings per Share (cents) 16 (5.23) (1.66)
----------------------------------------------- ----- -------------- --------------
The accompanying notes form an integral part of these Condensed
Consolidated Financial Statements.
Condensed Consolidated Statement of Comprehensive Income
For the six months ended 30 September 2023 (unaudited)
1 April 2023 1 April 2022
to to
30 September 30 September
2023 2022
Notes $'000 $'000
------------------------------------------ ------ -------------- --------------
Loss for the period (63,201) (20,090)
Other comprehensive income:
Movement in foreign currency translation
reserve (3) (307)
-------------------------------------------------- -------------- --------------
(3) (307)
------------------------------------------------- -------------- --------------
Total comprehensive income for the period (63,204) (20,397)
-------------------------------------------------- -------------- --------------
The accompanying notes form an integral part of these Condensed
Consolidated Financial Statements.
Condensed Consolidated Statement of Financial Position
As at 30 September 2023
30 September 31 March
2023 2023
(Unaudited) (Audited)
Notes $'000 $'000
------------------------------------------------ ----- ------------- -------------
Assets
Catalogues of Songs 5 1,824,675 1,921,248
Other assets 684 917
Goodwill 272 272
Non-current receivables 6 9,900 13,210
------------------------------------------------ ----- ------------- -------------
Non-current assets 1,835,531 1,935,647
Trade and other receivables 6 132,430 139,999
Held for trading derivative financial asset 18 15,239 4,914
Assets of disposal group held for sale 20 32,156 -
Cash and cash equivalents 7 34,336 37,965
------------------------------------------------ ----- ------------- -------------
Current assets 214,161 182,878
------------------------------------------------ ----- ------------- -------------
Total assets 2,049,692 2,118,525
------------------------------------------------ ----- ------------- -------------
Liabilities
Loans and borrowings 8 599,048 594,428
Catalogue bonus provision 10 39,604 33,080
------------------------------------------------ ----- ------------- -------------
Non-current liabilities 638,652 627,508
Held for trading derivative financial liability 18 - 3,395
Catalogue bonus provision 10 28,525 11,962
Liabilities of disposal group held for sale 20 125 -
Other payables and accrued expenses 9 50,861 41,126
------------------------------------------------ ----- ------------- -------------
Current liabilities 79,511 56,483
------------------------------------------------ ----- ------------- -------------
Total liabilities 718,163 683,991
------------------------------------------------ ----- ------------- -------------
Net assets 1,331,529 1,434,534
------------------------------------------------ ----- ------------- -------------
Equity
Share capital 11 1,692,198 1,692,198
Foreign currency translation reserve (2,244) (2,241)
Treasury share reserve 11 (1,961) (1,961)
Retained earnings (356,464) (253,462)
------------------------------------------------ ----- ------------- -------------
Total equity attributable to the owners
of the Company 1,331,529 1,434,534
------------------------------------------------ ----- ------------- -------------
Number of Ordinary Shares in issue at period
end 1,209,214,286 1,209,214,286
------------------------------------------------ ----- ------------- -------------
IFRS Net Asset Value per Ordinary Share
(cents) 17 110.12 118.63
Operative Net Asset Value per Ordinary Share
(cents) 17 173.92 191.53
------------------------------------------------ ----- ------------- -------------
Approved and authorised for issue by the Board of Directors on
20 December 2023 and signed on their behalf by:
Robert Naylor Chair Cindy Rampersaud Director
The accompanying notes form an integral part of these
Consolidated Financial Statements.
Condensed Consolidated Statement of Changes in Equity
For the six months ended 30 September 2023 (unaudited)
Foreign
currency
Number of Share translation Treasury Retained Total
Ordinary capital reserve reserve earnings* equity
Notes Shares $'000 $'000 $'000 $'000 $'000
--------------------- ----- ------------- --------- ------------ -------- ---------- ---------
As at 1 April 2023 1,209,214,286 1,692,198 (2,241) (1,961) (253,462) 1,434,534
Dividends paid 14 - - - - (39,801) (39,801)
Loss for the year - - - - (63,201) (63,201)
Foreign currency
translation reserve
movement - - (3) - - (3)
--------------------- ----- ------------- --------- ------------ -------- ---------- ---------
As at 30 September
2023 1,209,214,286 1,692,198 (2,244) (1,961) (356,464) 1,331,529
--------------------- ----- ------------- --------- ------------ -------- ---------- ---------
* Distributable Revenues arising during the period were $11.4
million which, taken together with the $43.4 million of
Distributable Revenue reserves carried forward from the previous
financial year ended 31 March 2023 less dividends paid during the
period, result in available Distributable Revenues of $15.0 million
as at 30 September 2023.
For the six months ended 30 September 2022 (unaudited)
Retained
Share Treasury earnings Total
Foreign
currency
translation
Number of capital reserve reserve (Restated*) equity
Ordinary
Notes Shares $'000 $'000 $'000 $'000 $'000
--------------------- ----- ------------- --------- ------------ --------- ------------- ---------
As at 1 April 2022 1,211,214,286 1,692,198 (2,235) - (107,564) 1,582,399
Dividends paid 14 - - - - (19,312) (19,312)
Loss for the year - - - - (20,090) (20,090)
Foreign currency
translation reserve
movement - - (307) - - (307)
--------------------- ----- ------------- --------- ------------ --------- ------------- ---------
As at 30 September
2022 1,211,214,286 1,692,198 (2,542) - (146,966) 1,542,690
--------------------- ----- ------------- --------- ------------ --------- ------------- ---------
* Refer to Note 2(e ) for further detail on the prior period
restatement.
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 2023 (unaudited)
1 April 2023 1 April 2022
to to
30 September 30 September
2023 2022
Notes $'000 $'000
----------------------------------------------------- ----- -------------- --------------
Cash flows generated from operating activities
Operating loss for the period from continuing
operations before taxation (63,686) (17,066)
Operating profit for the period from discontinuing
operations before taxation 20 563 791
Adjustments for:
Movement in trade and other receivables 4,819 (18,368)
Movement in other payables and accrued expenses 8,702 5,219
Movement in Catalogue bonus provision 23,257 -
Movement in ECL provision for HSG advances 42 -
Movement in HSG restructuring provision 504 -
Lease liability interest 158 (378)
Amortisation of Catalogues of Songs - Continued 5 53,947 55,110
Amortisation of Catalogues of Songs - Discontinued 20 872 761
Impairment of Catalogue of Songs 5 15,194 2,007
Amortisation of borrowing expenses 620 1,001
Fixed asset depreciation 247 30
Loan interest 8 23,052 14,473
Fair value gain on held for trading derivative
financial instruments 18 (19,652) -
Foreign exchange (gains)/losses 280 2,083
Taxation paid 43 (200)
----------------------------------------------------- ----- -------------- --------------
Net cash generated from operating activities 48,962 45,463
----------------------------------------------------- ----- -------------- --------------
Cash flows used in investing activities
Disposal of Catalogues of Songs 788 -
Purchase of other assets (14) (48)
Writer advances paid (1,742) (1,915)
Catalogue bonuses paid (170) -
Deferred consideration paid - (2,500)
----------------------------------------------------- ----- -------------- --------------
Net cash used in investing activities (1,138) (4,463)
----------------------------------------------------- ----- -------------- --------------
Cash flows generated from financing activities
Dividends paid 14 (39,801) (19,312)
Lease interest paid (349) -
Interest paid (21,030) (14,973)
Gain on executed held for trading derivative
financial instruments 18 5,932 -
Borrowing costs - (941)
Bank loan drawn down 8 4,000 1,771
----------------------------------------------------- ----- -------------- --------------
Net cash generated from financing activities (51,248) (33,455)
----------------------------------------------------- ----- -------------- --------------
Net movement in cash and cash equivalents (3,424) 7,545
----------------------------------------------------- ----- -------------- --------------
Cash and cash equivalents at the start of the
period 37,965 30,067
Effect of foreign exchange rate changes on cash
and cash equivalents (205) (1,219)
----------------------------------------------------- ----- -------------- --------------
Cash and cash equivalents at the end of the period 34,336 36,393
----------------------------------------------------- ----- -------------- --------------
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 2023 (unaudited)
1. General information
Hipgnosis Songs Fund Limited was incorporated and registered in
Guernsey on 8 June 2018 with registered number 65158 and is
governed in accordance with the provisions of the Companies Law.
The registered office address is Floor 2, Trafalgar Court, Les
Banques, St Peter Port, Guernsey, GY1 4LY.
The Company is registered with the Guernsey Financial Services
Commission under the Registered Collective Investment Scheme Rules
2015, and the Protection of Investors (Bailiwick of Guernsey) Law,
2020. The Company is not authorised or regulated by the Financial
Conduct Authority.
The Company's Ordinary Shares were admitted to trading on the
Specialist Fund Segment of the London Stock Exchange on 11 July
2018 and migrated to a Premium Listing on the Main Market of the
London Stock Exchange on 25 September 2019. The Company was added
as a constituent of the FTSE 250 Index effective from after the
market close on 20 March 2020.
The Group is principally engaged in investing in and managing
music copyrights and associated musical intellectual property. The
Company makes and manages its investments through its subsidiaries,
which are registered in the UK and US as limited companies. The
Condensed Consolidated Financial Statements present the results of
the Group for the period ended 30 September 2023, rounded to the
nearest US Dollar.
There has been a presentational change in the comparative period
in the Condensed Consolidated Statement of Profit and Loss, as set
out in Note 21.
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 2023, which are available on the
Company's website (www.hipgnosissongs.com). The Annual Report has
been prepared in accordance with IFRS.
The same accounting policies and methods of computation have
been followed for the preparation of these Condensed Consolidated
Financial Statements as in the Annual Report for the year ended 31
March 2023. The principal accounting policies applied in the
preparation of these Consolidated Financial Statements are set out
below. These policies have been consistently applied, unless
otherwise stated.
b) Group information
As at 31 March 2023, the details of the Company's subsidiaries
are as follows:
Place of
incorporation % of voting Consolidation Functional
Name of the subsidiary and operation rights % interest method Currency
-------------------------------------- ---------------- ------------ ----------- -------------- -----------
Hipgnosis Holdings UK Limited UK 100 100 Full USD
Hipgnosis SFH I Limited UK 100 100 Full USD
Hipgnosis SFH XIII Limited UK 100 100 Full USD
Hipgnosis SFH XIX Limited UK 100 100 Full USD
Hipgnosis SFH XX Limited UK 100 100 Full GBP
RubyRuby (London) Limited 1 UK 100 100 Full GBP
Hipgnosis Songs Group LLC 2 US 100 100 Full USD
Hipgnosis Acquisition Corp 2 US 100 100 Full USD
Kennedy Publishing & Productions
Limited 1 UK 100 100 Full GBP
Robot of the Century Music Publishing
Company Inc US 100 100 Full USD
Deamon Limited 1 UK 100 100 Full GBP
PB Songs Ltd 1 UK 100 100 Full GBP
-------------------------------------- ---------------- ------------ ----------- -------------- -----------
1 These companies are subsidiaries of Hipgnosis SFH XX Limited
and therefore an indirect subsidiary of Hipgnosis Songs Fund
Limited.
2 On 10 September 2020 the Company acquired the entire share
capital of Big Deal Music Group (rebranded to Hipgnosis Songs
Group) which includes BDM Acquisition Corp (rebranded to Hipgnosis
Acquisition Corp) and Big Deal Music LLC (rebranded to Hipgnosis
Songs Group LLC) both incorporated in the US. Big Deal Music LLC is
part of a joint venture with Big Family LLC, a publishing company
which was formed in June 2018 and is equity accounted for in the
Consolidated Financial Statements.
All subsidiaries undertake the same activities as the Group. In
addition, Hipgnosis Songs Group LLC undertakes publishing
administration.
The majority of subsidiaries of the Company are considered tax
resident in the UK and are subject to UK corporation tax. Robot of
the Century Music Publishing Inc is registered in New York,
Hipgnosis Songs Group LLC and Hipgnosis Acquisition Corp. are
registered in Delaware and all are subject to applicable State and
Federal Taxes.
c) Going concern
The Directors monitor the capital and liquidity requirements of
the Company on a regular basis. They have also reviewed cash flow
forecasts prepared by the Investment Adviser which are based in
part on assumptions about the future returns from existing
Catalogues of Songs and annual operating costs.
Based on these sources of information and their judgement, the
Directors believe it is appropriate to prepare the Condensed
Consolidated Financial Statements of the Group on a going concern
basis.
As a result of Continuation Resolution not passing the Board
will, in accordance with the Company's Prospectus, put forward
proposals for the reconstruction, reorganisation or winding-up of
the Company to Shareholders for their approval within six months
following the AGM held on 26 October 2023. These proposals may or
may not involve winding-up the Company or liquidating all or part
of the Company's existing portfolio of investments. On that basis
there is a material uncertainty that may cast significant doubt on
the Company's ability to continue as a going concern in its current
form and, therefore, that it may be unable to realise its assets
and discharge its liabilities in line with the current normal
course of business.
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 and UK. While the Company's income is derived
internationally, the Directors are of the opinion that the Group is
engaged in a single segment of business, being the investment of
the Company's capital in a Portfolio of Song copyrights, with an
attractive and growing level of income, together with the potential
for capital growth.
e) Restatement of prior period results
The Interim Report for the six months ended 30 September 2022
was reviewed by the FRC as part of its routine monitoring of
corporate reporting. The review was based on the Interim Report and
did not benefit from detailed knowledge of the business or an
understanding of the underlying transactions entered into and
therefore provide no assurance that the Interim Report is correct
in all material respects. It was, however, conducted by staff of
the FRC who have an understanding of the relevant legal and
accounting framework.
In the Interim Report for the six months ended 30 September 2022
the Company recognised an interim dividend at the point when the
Board declared the dividend. As a result of the FRC's review, going
forward the Company will recognise interim dividends when paid
because no legal binding liability is established prior to payment
of the interim dividend. A prior year restatement is presented in
the Condensed Consolidated Statement of Changes in Equity for the
six months ended 30 September 2022 where the accrued dividend
declared of $19.3 million has been derecognised. There is no impact
to the comparative period for the Condensed Consolidated Profit and
Loss account, Condensed Consolidated Balance Sheet and the
Condensed Consolidated Statement of Cashflows.
f) Assets held for sale and discontinued operations
On 14 September 2023 the Company announced the sale of a
portfolio of non-core songs, subject to completion of legal
documentation and the consent of the Company's lending banks, known
as the Second Disposal. In accordance with IFRS 5, the assets and
liabilities of the Second Disposal are reclassified as held for
sale and its results for the period are presented as discontinued
operations. Prior period comparatives in the Condensed Consolidated
Statement of Profit and Loss, Condensed Consolidated Statement of
Cash Flows have been restated accordingly. These assets and
liabilities are recognised as assets held for sale and liabilities
associated with assets held for sale, without offset. The related
assets recorded as assets held for sale are valued at the lower of
their fair value and their carrying value (i.e. at their cost less
accumulated depreciation and impairment losses), and they are no
longer depreciated. Further details of this transaction and the
implications for the Condensed Consolidated financial statements
can be found in Note 20.
3. Significant accounting judgments, estimates and
assumptions
The preparation of the Group's Condensed Consolidated Financial
Statements requires the application of estimates and assumptions
which may affect the results reported in the Condensed Consolidated
Financial Statements. Uncertainty about these estimates and
assumptions could result in outcomes that require a material
adjustment to the carrying amount of the asset or liability
affected in future periods. Estimates and underlying assumptions
are reviewed on an ongoing basis. Revisions to accounting estimates
are recognised in the period in which the estimates are revised and
in any future periods affected.
The key assumptions concerning the future and other key sources
of estimation uncertainty at the reporting date, that have a
significant risk of resulting in a material adjustment to the
carrying amounts of assets and liabilities within the next
financial period, 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
Accrued income as at 30 September 2023 was $121.5 million (31
March 2023: $126.2 million), a breakdown of which is set out
below:
-- $69.5 million for earnings where, due to the time lag in
royalty reporting, statements are not expected to be received until
calendar Q4 2023 onwards. This includes international PRO reporting
and HSG (31 March 2023: $62.3 million).
-- $9.9 million CRB III accruals (31 March 2023: $21.7
million).
-- $42.1 million Usage Accrual, which recognises revenues that
have triggered a contractual payment but have not been paid to, and
processed by, collection societies, publishers and administrators.
This represents on average three months of royalty reporting (31
March 2023: $42.2 million).
In calculating accruals, the Company makes judgments around
seasonality, over or under performance, and commercial factors
based on historical performance, and its knowledge of each
Catalogue through its regular correspondence with the various
administrators, record labels and international societies. The
Company also makes an estimate of revenue from consumption to
reporting.
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 revenue also includes an accrual for performance income, to
account for the writer's share of Performance royalties which are
subject to a significant time lag in reporting in the industry, but
which the Group is entitled to receive in due course. In
recommending the estimate of this accrual to the Board of Directors
the Investment Adviser used its analysis of each Catalogue's
revenue history as well its knowledge of the respective Catalogue
performance trends to recommend the estimated accruals.
Net revenue is subject to a royalty cost accrual applied to
gross revenue receipts primarily within the Hipgnosis Songs Group
("HSG") subsidiaries. Royalty cost accruals represent contractual
royalties due to Songwriters and other rights holders that are
payable on a six-monthly basis for writers under publishing
contracts and quarterly for clients under administration contracts.
Royalty rates vary by writer (negotiated by contract) and by
revenue stream.
A sensitivity of the significant estimates used in calculating
accrued income and the impact of the sensitivities on the balance
is performed below:
30 September Sensitivity Sensitivity
Revenue accrual 2023 +10% -10%
---------------------------------------- ------------- ------------------ -------------------
Accruals due to the time lag in royalty
reporting $69.5 million $7.0 million ($7.0) million
CRB III accruals* $9.9 million $1.0 million ($1.0) million
---------------------------------------- ------------- ------------------ -------------------
One month increase One month reduction
---------------------------------------- ------------- ------------------ -------------------
Usage accrual $42.1 million $14.0 million ($14.0) million
---------------------------------------- ------------- ------------------ -------------------
* The CRB III sensitivity represents the variability of the
historical US streaming mechanical revenue that the contractual
rates are applied to.
Expected Credit Loss (ECL) in relation to revenue
receivables
Royalty earnings for accruals and receivables recognised in the
year ended 30 September 2023 are distributed by PROs, Publishers
and Record Labels who collect royalties at the source of usage and
distribute those earnings directly to Hipgnosis.
The probability of future default has been deemed close to nil,
due to the long-standing history of PROs, Publishers and Record
Labels within the music industry and the existing framework of cash
collection amongst the Company's stakeholders. Whilst there are
smaller/newer organisations that have relatively unproven credit
resilience these account for a small minority of the Group's
receivables.
The Company's current risk assessment includes analysis of the
exposure to commercial risk by PROs, Publishers and Record Labels,
and the likely impact of their credit risk on Hipgnosis' revenue
streams. This impact is considered immaterial and a sensitivity
analysis on this is performed in Note 6.
Expected Credit Loss (ECL) in relation to HSG advances
Hipgnosis Songs Group LLC advances royalty payments to
Songwriters. Management is required to assess the recoverability of
these advances bi-annually in accordance with IFRS 9 Financial
Instruments. Management will consider market conditions and
historic trading patterns affecting the relevant assets.
Management adopts a simplified approach, has analysed their
historical loss ratio data and applied this using a risk based
methodology as there are no defined terms of repayment related to
advances. The risk categories against which the historical loss
ratios are assessed and expected credit losses are calculated
are:
-- low risk advances where the advance is expected to be
recouped in full under the terms of the writer's agreement (because
of the writer's reputation, previous success etc);
-- medium risk advances where there is reasonable expectation
that a level of the advances will be recouped; and
-- high risk advances, where management believes that either
because of the writer's unknown potential or other factors, a large
level of recoverability may not be achieved.
A sensitivity analysis on the expected credit loss provision of
the HSG recoupable advances is performed in Note 6.
Assessment of impairment and the calculation of Operative
NAV
Intangible assets are subject to a bi-annual review to identify
any indicators of impairment. The Fair Value of the Catalogues as
calculated by the Portfolio Independent Valuer is used to identify
any indicators of impairment. The Portfolio Independent Valuer
adopts a DCF valuation approach and applies a number of significant
assumptions to the projected future earnings for all Catalogues
including:
-- Market factors impacting revenues;
-- Discount rate, currently 8.5% (31 March 2023: 8.5%); and
-- Terminal value at 16 years.
As Value-In-Use is calculated for any Catalogues with a residual
risk of impairment. The Value-In-Use is calculated by using the
original projected cash flows used during the Fair Value
calculation by the Portfolio Independent Valuer, with a 0.5%
reduction to the discount rate. The reduction in the discount rate
reflects the Company's ability to drive additional value through
active management of a Catalogue and addresses the passive nature
of the Company's cash flows within the Portfolio Independent
Valuer's fair value analysis.
If the Value-In-Use calculation for the Catalogue is lower than
the carrying value of the Catalogue, an impairment loss equal to
the difference is recognised in the Condensed Consolidated
Statement of Profit and Loss. The impairment losses recognised in
respect of intangible assets may be reversed in a later period if
the recoverable amount becomes greater than the carrying value,
within the limit of impairment losses previously recognised.
Management's impairment review as at 30 September 2023 concluded
that an impairment of $15.2 million (six month period ended 30
September 2022: $2.0 million) was required to the Group's
Catalogues. A sensitivity analysis on the Value-In-Use calculation
and impact on the impairment charge is performed in Note 5.
4. Taxation
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 in
incurred is these UK entities. Therefore is it considered most
appropriate to use the standard UK tax rate of 25% (31 March 2023:
19%).
The Group currently has no exposure to US Corporation Tax as the
US based subsidiaries are currently not making a taxable profit.
Aside from the US, the Group has no other foreign subsidiaries.
The taxation charge of $0.1 million (six months ended 30
September 2022: $3.8 million) is based on adjustments in respect of
the prior period.
Disposals of Catalogues may give rise to potential tax charges
depending on the availability of tax attributes (tax losses) to
offset any taxable gains otherwise arising. There were no such
disposals of Catalogues during the period and so no such tax
liabilities arose.
5. Catalogues of Songs
Note $'000
----------------------------------- ---- ---------
Cost
At 1 April 2023 2,237,284
Disposals (788)
Transfer to Held for Sale Assets 20 (30,446)
----------------------------------- ---- ---------
At 30 September 2023 2,206,050
----------------------------------- ---- ---------
Amortisation and impairment
At 1 April 2023 316,036
Amortisation 53,947
Impairment 15,194
Transfer to Held for Sale Assets 20 (3,802)
----------------------------------- ---- ---------
At 30 September 2023 381,375
----------------------------------- ---- ---------
Net book value
At 1 April 2023 1,921,248
At 30 September 2023 1,824,675
----------------------------------- ---- ---------
Fair value as at 30 September 2023 2,622,000
----------------------------------- ---- ---------
Cost
At 1 April 2022 2,237,284
Additions -
----------------------------------- ---- ---------
At 31 March 2023 2,237,284
----------------------------------- ---- ---------
Amortisation and impairment
At 1 April 2022 200,552
Amortisation 111,583
Impairment 3,901
----------------------------------- ---- ---------
At 31 March 2023 316,036
----------------------------------- ---- ---------
Net book value
At 1 April 2022 2,036,732
At 31 March 2023 1,921,248
----------------------------------- ---- ---------
Fair value as at 31 March 2023 2,802,762
----------------------------------- ---- ---------
The Group amortises Catalogues of Songs with a limited useful
life using the straight-line method of 20 years (other than in
exceptional circumstances for specific Catalogues of Songs). An
assessment of the useful life of Catalogues is considered at each
reporting period, which is 20 years, in line with what the Board of
Directors and the Investment Adviser deem to be industry standard.
At 30 September 2023 accumulated amortisation for Catalogues of
Songs is $365.5 million (31 March 2023: $310.6 million).
As disclosed on page 132 of the Company's Annual Report for the
year ended 31 March 2023, Catalogues of Songs are subject to a
bi-annual review to identify any indicators of impairment. For the
six month ended 30 September 2023, the Company has recognised an
impairment charge of $15.2 million on 7 Catalogues of Songs as a
result of this review. This brings accumulated impairment to 30
September 2023 to $20.6 million (31 March 2023: $5.4 million).
A Value-In-Use is calculated for any Catalogue with a residual
risk of impairment following the impairment review. The
Value-In-Use is calculated by using the original projected cash
flows used during the Fair Value calculation by the Portfolio
Independent Valuer, with a 0.5% reduction to the discount rate.
The sensitivity of the discount rate and the Value-In-Use
calculation to the impairment charge is as follows:
Sensitivity to the reduction
to the discount rate used in
the Value-In-Use calculation
Discount
Rate -0.50% Current +0.50%
---------------------------------- -------- ---------- ---------- ---------
Impairment of Catalogues of Songs
($'000) 8.50% 6,532 15,194 23,738
9.00% 15,194 23,738 30,942
9.50% 23,738 30,942 37,096
---------------------------------- -------- ---------- ---------- ---------
The Board engaged Portfolio Independent Valuer, Citrin Cooperman
Advisors LLC, to value the Catalogues as at 30 September 2023. The
Board has approved and adopted the valuations prepared by the
Portfolio Independent Valuer which are used as an input into the
impairment review process and for the Operative NAV.
The sensitivity of the discount rate to the fair value of the
Portfolio is as follows:
Discount Rate 8.50% 9.00% 9.50%
------------------------------- --------- --------- ---------
Portfolio Value ($'000) 2,622,000 2,418,533 2,243,899
Variance to Fair Value ($'000) - (203,467) (378,100)
Variance to Fair Value (%) - (7.8%) (14.4%)
------------------------------- --------- --------- ---------
The sensitivity of the terminal value growth rate to the fair
value of the Portfolio is as follows:
Sensitivity to the Terminal Value Current Rate Current Rate
Growth Rate Current Rate -1.00% 2.00% Rate +1.00%
---------------------------------- ------------ ------------ ---------- ------------
Portfolio Value ($'000) 2,622,000 2,476,587 2,537,198 2,826,184
Variance to Fair Value ($'000) - (145,413) (84,801) 204,185
Variance to Fair Value (%) - (5.5%) (3.25%) 7.8%
---------------------------------- ------------ ------------ ---------- ------------
The sensitivity of the applied growth rate to the fair value of
the Portfolio is as follows:
Current Rate Current Rate
Sensitivity to the Growth Rate Current Rate -1.00% +1.00%
------------------------------- ------------ ------------ ------------
Portfolio Value ($'000) 2,622,000 2,360,337 2,922,061
Variance to Fair Value ($'000) - (261,663) 300,061
Variance to Fair Value (%) - (10.0%) 11.4%
------------------------------- ------------ ------------ ------------
6. Trade and other receivables
30 September 31 March
2023 2023
$'000 $'000
------------------------------ ------------ --------
Non-current receivables
Accrued income 9,900 13,210
------------------------------ ------------ --------
9,900 13,210
------------------------------ ------------ --------
Current receivables
Accrued income 105,236 112,943
Royalties receivable 7,680 7,078
Net recoupable advances 16,280 16,436
Prepayments and other debtors 3,132 3,542
Corporation tax 102 -
------------------------------ ------------ --------
132,430 139,999
------------------------------ ------------ --------
The material reduction to accrued income for the six months
ended 30 September 2023 is due to the reduction of the CRB III
retroactive accrual. As at 31 March 2023, $21.7 million was accrued
following the confirmation of the CRB III rate increase to 15.1%
for the Songwriters' mechanical portion of US Streaming income.
This accrual estimated the retroactive payment due to the Company
as a result of revenues in previous accounting periods not having
been recognised at the full CRB III rates. The Company's Portfolio
Independent Valuer materially reduced its expectations of these
industry-wide retroactive payments for its valuation of the
Company's portfolio as at 30 September 2023. As a result, the
Company now expects to receive significantly lower retroactive
payments in relation to CRB III and therefore reduced its CRB III
retroactive accrual to $9.9 million.
Credit Risk and Provision for Expected Credit Losses (ECL)
As disclosed in Note 3, the probability of future default
against revenue receivable balances has been deemed close to nil.
At 30 September 2023, an ECL provision is recognised against the
recoupable advances as below:
High Risk Medium Risk Low Risk Total
At 30 September 2023 $'000 $'000 $'000 $'000
------------------------------------- --------- ----------- -------- --------
Expected loss rates 100.0% 22.7% 0.0% 48.9%
Gross carrying amounts 13,295 10,053 8,506 31,853
Provision for expected credit losses (13,295) (2,278) - (15,573)
------------------------------------- --------- ----------- -------- --------
Net carrying amounts - 7,775 8,506 16,280
------------------------------------- --------- ----------- -------- --------
High Risk Medium Risk Low Risk Total
At 31 March 2023 $'000 $'000 $'000 $'000
------------------------------------- --------- ----------- -------- --------
Expected loss rates 100.0% 24.0% 0.0% 48.6%
Gross carrying amounts 13,000 10,520 8,436 31,956
Provision for expected credit losses (13,000) (2,520) - (15,520)
------------------------------------- --------- ----------- -------- --------
Net carrying amounts - 8,000 8,436 16,436
------------------------------------- --------- ----------- -------- --------
Net recoupable advances relating to HSG amount to $16.26 million
(31 March 2023: $16.35 million).
If the probability of future default against the royalties
receivable balances were to be 5% higher, this would result in a
$0.4 million ECL provision on royalties receivable. If the
probability of future default against the medium risk recoupable
advances were to be 10% higher, this would result in a $1.0 million
increase to the ECL provision on recoupable advances.
7. Cash and cash equivalents
30 September 31 March
2023 2022
$'000 $'000
------------------------- ------------ --------
Cash available on demand 34,336 37,965
------------------------- ------------ --------
34,336 37,965
------------------------- ------------ --------
8. Loans and borrowings
During the period, the Company entered into an amendment
relating to the calculation of the fixed charge coverage covenant.
There are no other changes to the terms of the Company's RCF as
disclosed on page 144 of the Company's Annual Report for the year
ended 31 March 2023.
30 September 31 March
2023 2023
Key financial covenant Description Actual Actual Lender Covenants
--------------------------- --------------------------- ------------ -------- ----------------
Represents total debt
as a percentage of
i) Total debt to Catalogue Catalogue value as
value as determined by determined by the Must not
the lender lender. 33.0% 31.5% exceed 40%
ii) Total debt leverage Represents the ratio 6.6:1.0 5.5:1.0 Not greater
of pro forma EBITDA than 7:1
to total debt.
iii) Fixed charge coverage Represents the ratio 1.1:1.0 1.3:1.0 Not less
of pro forma EBITDA than 1:1
to trailing tax, interest
and dividend declaration
and payments over
the last 12 months.
--------------------------- --------------------------- ------------ -------- ----------------
The Catalogue value as determined by the lender is specifically
prepared for the banking syndicate based on a set of assumptions
that reflect an immediate sale of the portfolio in order to provide
maximum loan security.
The covenants are reviewed quarterly and are secured by, inter
alia, a charge over the shares in all the subsidiaries of the
Company, a charge over all of their assets including all Catalogues
of Songs of the Company held through these subsidiaries and a
charge over the bank accounts of the Company and its subsidiaries.
The Company has also provided a parent company guarantee. Under the
Investment Policy total debt of the Company should not exceed 30%
of the Operative NAV which is $630.9 million (31 March 2023: $694.8
million); any excess to this threshold prevents the Company from
drawing down further amounts from the RCF. The current ratio of
total debt to Operative NAV is 32.0% (31 March 2023: 28.0%). Loans
and borrowings are initially measured at Fair Value, net of
transaction costs.
30 September 31 March
2023 2023
$'000 $'000
-------------------------------------------------- ------------ ---------
Opening balance 600,000 600,000
Amounts drawn down during the period 4,000 607,000
Amounts repaid during the year - pre-existing RCF - (600,000)
Amounts repaid during the year - new RCF - (7,000)
-------------------------------------------------- ------------ ---------
Total loan drawn down 604,000 600,000
-------------------------------------------------- ------------ ---------
Cumulative borrowing costs (4,952) (5,572)
-------------------------------------------------- ------------ ---------
Closing balance 599,048 594,428
-------------------------------------------------- ------------ ---------
The interest expense recognised in the Condensed Consolidated
Profit and Loss account of $23.0 million is calculated on an
accruals basis (six month period ended 30 September 2022: $14.5
million). As disclosed on page 154 of the Company's Annual Report
for the year ended 31 March 2023, the Company has entered into
interest rate swap arrangements to mitigate interest rate risk. An
analysis of the interest paid and income on the interest swap
arrangements during the period ended 30 September 2023 is detailed
below:
1 April 2023 1 April 2022
to to
30 September 30 September
2023 2022
$'000 $'000
----------------------------------------------- -------------- --------------
Interest expense paid 21,030 14,973
Income on interest swap arrangements (2,696) -
----------------------------------------------- -------------- --------------
Total interest paid (net of swap arrangements) 18,334 14,973
----------------------------------------------- -------------- --------------
9. Liabilities and accrued expenses
30 September 31 March
2023 2023
$'000 $'000
----------------------------- ------------ --------
Amounts owed to Songwriters 22,507 18,799
Loan interest payable 11,913 9,891
Trade creditors and accruals 11,682 5,846
PRO advances 1,862 3,178
Corporation tax payable - 67
VAT 1,365 1,789
Lease liability 545 735
Directors fees payable 44 27
Other creditors 943 794
----------------------------- ------------ --------
50,861 41,126
----------------------------- ------------ --------
10. Catalogue bonus provision
30 September 31 March
2023 2023
$'000 $'000
-------------------------- ------------ --------
Non-current liabilities
Catalogue bonus provision 39,604 33,080
-------------------------- ------------ --------
39,604 33,080
-------------------------- ------------ --------
Current liabilities
Catalogue bonus provision 28,525 11,962
-------------------------- ------------ --------
28,525 11,962
-------------------------- ------------ --------
The Group has a number of Catalogue bonuses which are dependent
on the individual Catalogues meeting performance hurdles defined in
their respective acquisition agreements. There are 10 Catalogues
(31 March 2023: 6 Catalogues) likely to meet the performance
hurdles defined in their acquisition agreements triggering the
recognition of Catalogue bonus provisions. The movement in the
Catalogue bonus provision during the period is presented below:
Number of
Catalogues $'000
--------------------------------- ----------- -------
At 1 April 2023 6 45,042
Increase in provision recognised 6 26,537
Payments during the period - (100)
Release of provision recognised (2) (3,350)
--------------------------------- ----------- -------
At 30 September 2023 10 68,129
--------------------------------- ----------- -------
Catalogue bonus contingent liabilities
There are a further 19 Catalogues with active bonus clauses
totalling $75.2 million (31 March 2023: $Nil) which are unlikely to
meet the performance hurdles defined in their acquisition
agreements; the Company has disclosed these as contingent
liabilities. Catalogues forming the remainder of the Portfolio
either do not include Catalogue bonus clauses, or the Catalogue
bonus clauses are no longer active as performance hurdles have not
been achieved and bonus obligations no longer exist. The
performance hurdles of the 19 Catalogues with active bonus clauses
are calculated on three different bases:
1. NAV basis
There are 3 Catalogues with performance hurdles based on
achieving a contractually specified NAV target which trigger a
Catalogue bonus obligation. Detailed below is the total current NAV
valuation by the Portfolio Independent Valuer, alongside the
aggregate target NAV required to trigger the Catalogue bonus
obligations.
Portfolio Independent
Valuer:
NAV at
30 September
Total Catalogue Target NAV
bonus contingent to achieve
liability 2023 bonus
Latest date required
to meet performance
Number of Catalogues hurdles $'000 $'000 $'000
-------------------- -------------------- ----------------- -------------- -----------
1 May 2024 5,000 53,352 71,600
1 November 2028 2,500 12,136 26,251
1 January 2029 1,000 8,875 11,200
-------------------- -------------------- ----------------- -------------- -----------
8,500
-------------------- -------------------- ----------------- -------------- -----------
2. Defined cash income amount basis
There are 4 Catalogues with performance hurdles based on a
contractually-specified cash amount received by the Company at a
specified point in time, which triggers a Catalogue bonus
obligation. Details of the number of performance hurdles, the
Compound Annual Growth Rate (CAGR) required to achieve the
performance hurdles, CAGR forecast by the Portfolio Independent
Valuer and the associated contingent liabilities are detailed
below.
CAGR required
to meet Total Catalogue Portfolio Independent
Latest date required performance bonus contingent Valuer:
Number of performance to meet performance hurdles liability Forecast range
hurdles hurdles % $'000 in CAGR %
--------------------- -------------------- ------------- ----------------- ---------------------
- - 0-60% - -
2 December 2027 61-100% 4,500 14.5-15.8%
1 December 2025 101-200% 2,000 20.2%
1 September 2024 201-300% 525 6.1%
2 April 2024 > 300% 4,275 (31.2)-39.4%
--------------------- -------------------- ------------- ----------------- ---------------------
11,300
--------------------- -------------------- ------------- ----------------- ---------------------
3. Cash income growth rate basis
There are 12 Catalogues with performance hurdles based on a
calculated growth rate that must be achieved to trigger a Catalogue
bonus. Details of the number of performance hurdles, CAGR required
to achieve the performance hurdles, CAGR forecast by the Portfolio
Independent Valuer, and the associated contingent liabilities are
detailed below.
CAGR required
to meet Total Catalogue Portfolio Independent
Latest date required performance bonus contingent Valuer:
Number of performance to meet performance hurdles liability Forecast range
hurdles hurdles % $'000 in CAGR %
--------------------- -------------------- ------------- ----------------- ---------------------
- - 0-15% - -
1 March 2025 16-20% 1,400 9.0%
1 December 2024 21-25% 4,175 16.4%
5 December 2025 26-50% 15,075 5.8-20.7%
2 June 2025 51-100% 8,250 1.6-7.9%
3 October 2025 101-150% 9,344 3.0-37.4%
4 October 2024 151-200% 1,286 5.5-27.6%
7 July 2024 > 200% 15,913 2.6-25.7%
--------------------- -------------------- ------------- ----------------- ---------------------
55,443
--------------------- -------------------- ------------- ----------------- ---------------------
11. Share capital and capital management
Ordinary Share Capital
The share capital of the Company may consist of an unlimited
number of:
(i) Ordinary Shares of no par value which upon issue the
Directors may classify as Ordinary Shares;
(ii) C Shares denominated in such currencies as the Directors
may determine; and
(iii) Ordinary Shares purchased by the Company through share
repurchase and held as Treasury Shares.
As at 30 September 2023 the Company's authorised and issued
share capital consisted of 1,211,214,286 Ordinary Shares, of which
2,000,000 were held in treasury. Treasury shares hold no voting
rights, are not entitled to a dividend and are excluded from the
EPS, IFRS and Operative Net Asset Value per share calculation.
Ordinary Shares of no par value
Treasury
No. of Units Share Capital Reserve
outstanding $'000 $'000
-------------------------------------------- ------------- ------------- --------
Issued and fully paid:
Shares as at 1 April 2023 1,209,214,286 1,692,198 (1,961)
-------------------------------------------- ------------- ------------- --------
Shares as at 30 September 2023 1,209,214,286 1,692,198 (1,961)
-------------------------------------------- ------------- ------------- --------
Treasury
No. of Units Share Capital Reserve
outstanding $'000 $'000
-------------------------------------------- ------------- ------------- --------
Issued and fully paid:
Shares as at 1 April 2022 1,211,214,286 1,692,198 -
Repurchase of ordinary shares into treasury (2,000,000) - (1,961)
-------------------------------------------- ------------- ------------- --------
Shares as at 31 March 2023 1,209,214,286 1,692,198 (1,961)
-------------------------------------------- ------------- ------------- --------
Under the Company's Articles of Incorporation, each Shareholder
present in person or by proxy has the right to one vote at general
meetings. On a poll, each Shareholder is entitled to one vote for
every Ordinary Share held.
Shareholders are entitled to all dividends paid by the Company
and, on a winding up, provided the Company has satisfied all of its
liabilities, the Shareholders are entitled to all of the residual
assets of the Company.
12. Revenue
1 April 2023 1 April 2022
to to
30 September 30 September
2023 2022
$'000 $'000
--------------------------- -------------- --------------
Mechanical income 3,888 2,641
Performance income 6,343 4,209
Digital downloads income 1,224 2,282
Streaming income 14,170 46,923
Synchronization income 10,565 12,199
Publishing admin income 237 154
Masters income 3,749 1,424
Writer share income 15,622 12,839
Neighbouring rights income 974 663
Other income 1,266 (498)
Producer royalties 5,162 3,556
--------------------------- -------------- --------------
63,200 86,392
--------------------------- -------------- --------------
There is an inherent time lag with royalties between the time a
song is performed, and the revenue being received by the copyright
owner. The revenue accruals are disclosed in Note 6 Trade and other
receivables. There is a material reduction in streaming income as a
result of the reduction in income arising from CRB III accruals
(see note 6).
13. Other operating expenses
1 April 2023 1 April 2022
to to
30 September 30 September
2023 2022
$'000 $'000
----------------------------------------------------- -------------- --------------
Aborted deal expenses 1,099 332
Debt financing fees 176 53
Public relations fees 181 136
Marketing & events 373 355
Listing fees 32 41
Bank charges 15 26
Record label costs 18 -
Charitable donations 20 28
Directors' and officers' insurance 31 42
Lease liability interest 158 378
HSG staff payroll and expenses 3,029 3,154
HSG office expenses 223 198
HSG restructuring provision 504 925
Travel, accommodation and entertainment expenses - 23
HSG travel, accommodation and entertainment expenses 103 258
Sundry (13) 71
----------------------------------------------------- -------------- --------------
5,949 6,020
----------------------------------------------------- -------------- --------------
14. Dividends
The Company, being a Guernsey-regulated entity, is able to pay
dividends out of capital, subject to the assessment of solvency in
accordance with the Companies Law and subject to a levered free
cashflow test as required by the Revolving Credit Facility.
A summary of the dividends paid are set out below:
Dividend Total
per share Dividend
Pence $'000
--------------------------------------------------------- ---------- ---------
1 April 2023 to 30 September 2023
Interim dividend in respect of quarter ended 31 December
2022 1.3125 20,177
Interim dividend in respect of quarter ended 31 March
2023 1.3125 19,624
--------------------------------------------------------- ---------- ---------
2.6250 39,801
--------------------------------------------------------- ---------- ---------
1 April 2022 to 30 September 2022
Interim dividend in respect of quarter ended 31 March
2022 1.3125 19,312
------------------------------------------------------ ------ ------
1.3125 19,312
------------------------------------------------------ ------ ------
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
All Directors are non-executive. The Directors' remuneration,
excluding disbursements, for the period ended 30 September 2023
amounted to $0.3 million with no outstanding fees due to the
Directors at 30 September 2023 (six month period ended 30 September
2022: $0.3 million, with no outstanding fees). Directors are
reimbursed for out-of-pocket expenses incurred in fulfilling their
roles, including costs of travel and accommodation (as
required).
Directors' transactions in or holdings in shares of the Company
are not disclosed as related party transactions as they do not
receive shares as part of their remuneration. Any shares held or
transacted are acquired or disposed of in their own right as
Shareholders and as result, it is management's assessment that the
Company has not transacted with the Directors as related parties in
this regard.
Investment Adviser
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 six month period ended 30
September 2023 were $5.4 million (six month period ended 30
September 2022: $6.8 million) with $0.4 million outstanding at 30
September 2023 (31 March 2023: $0.4 million).
16. Earnings per share
30 September 30 September
2023 2023
Basic Diluted
------------------------------------------------------- ------------- -------------
Loss for the period from continuing operations ($'000) (63,764) (63,764)
Total loss for the period ($'000) (63,201) (63,201)
Weighted average number of Ordinary Shares outstanding 1,209,214,286 1,209,214,286
------------------------------------------------------- ------------- -------------
Earnings per share (cents) from continuing operations (5.27) (5.27)
------------------------------------------------------- ------------- -------------
Earnings per share (cents) from total loss for the
period (5.23) (5.23)
------------------------------------------------------- ------------- -------------
30 September 30 September
2022 2022
Basic Diluted
------------------------------------------------------- ------------- -------------
Loss for the period from continuing operations ($'000) (20,881) (20,881)
Total loss for the period ($'000) (20,090) (20,090)
Weighted average number of Ordinary Shares outstanding 1,211,214,286 1,211,214,286
------------------------------------------------------- ------------- -------------
Earnings per share (cents) from continuing operations (1.72) (1.72)
------------------------------------------------------- ------------- -------------
Earnings per share (cents) from total loss for the
period (1.66) (1.66)
------------------------------------------------------- ------------- -------------
The earnings per share is based on the loss of the Group from
continuing operations for the period, the total loss of the Group
for the period and on the weighted average number of Ordinary
Shares outstanding for the period ended 30 September 2023. The
Company holds 2 million Treasury Shares as at 30 September 2023;
these shares are not included the EPS calculation.
17. Net Asset Value per share and Operative Net Asset Value per
share
30 September 31 March
2023 2023
----------------------------------- ------------- -------------
Number of Ordinary Shares in issue 1,209,214,286 1,209,214,286
IFRS NAV per share (cents) 110.12 118.63
Operative NAV per share (cents) 173.92 191.53
----------------------------------- ------------- -------------
The IFRS NAV per share and the Operative NAV per share are
arrived at by dividing the IFRS Net Assets and Operative Net Assets
(respectively) by the number of Ordinary Shares in issue.
Catalogues of Songs are classified as intangible assets and
measured at amortised cost or cost less impairment in accordance
with IFRS.
The Directors are of the opinion that an Operative NAV provides
a meaningful Alternative Performance Measure and the values of
Catalogues of Songs are based on fair values produced by the
Portfolio Independent Valuer.
Reconciliation of IFRS NAV to Operative NAV
30 September 31 March
2023 2023
$'000 $'000
---------------------------------------------------- ------------ ---------
IFRS NAV 1,331,529 1,434,534
---------------------------------------------------- ------------ ---------
Adjustments for revaluations of Catalogues of Songs
to fair value 385,504 565,478
Reversal of accumulated amortisation and impairment 386,049 316,036
---------------------------------------------------- ------------ ---------
Operative NAV 2,103,082 2,316,048
---------------------------------------------------- ------------ ---------
Tax considerations
The Company's Investment Trust Company (ITC) status may allow
for the Company to make disposals of shares or certain other
capital assets on a tax-exempt basis for UK corporation tax
purposes. However, a disposal of Catalogues, considered intangible
fixed assets for UK corporation tax purposes, would not qualify for
exemption in the same way.
A disposal of Catalogues by way of a sale of shares of a Group
subsidiary company by the Company, in order to take advantage of
its ITC tax-exempt status, would not necessarily result in greater
value for the Group, depending on the attractiveness of such a
transaction structure to the prospective purchaser and their other
potential tax considerations on future sales of the acquired
shares.
If the Group were to dispose of all of its Catalogues, an
indicative tax calculation (subject to a number of assumptions in
its preparation - see below) estimates that a potential corporation
tax charge (or equivalent in the US) could be incurred by the Group
subsidiary companies, of approximately $215.6 million. This has
been calculated based on comparing the Fair Value determined by the
Portfolio Independent Valuer (as a representation of indicative
sales proceeds) to the Catalogues' carrying value as at 30
September 2023.
The calculations assumes a 25% tax rate as: (a) the prevailing
rate of UK corporation tax from 1 April 2023 and (b) a proxy for US
Federal and State corporate income tax. This indicative tax
calculation does not take into account attributes such as UK tax
losses, which could be used to offset some of the taxable gains, or
where the tax treatment of an element of sale proceeds may be
considered to be the sale of a receivable aligned with a Catalogue
rather than part of the disposal value of that Catalogue, which
could result in a materially lower tax charge.
As the Company has not disposed of any catalogues to date, no
such tax liability currently exists.
18. Held for trading derivative financial instruments
The Company has the following derivative financial
instruments:
30 September 31 March
2023 2023
$'000 $'000
------------------------------------------------ ------------ --------
Held for trading derivative financial asset
Foreign exchange forward contracts 225 4,914
Interest rate swap arrangements 15,014 -
------------------------------------------------ ------------ --------
15,239 4,914
------------------------------------------------ ------------ --------
Held for trading derivative financial liability
Interest rate swap arrangements - (3,395)
------------------------------------------------ ------------ --------
The carrying value of the held for trading financial instruments
represent their fair value at the period end.
The fair value gain on held for trading derivative financial
instruments recognised in the Condensed Consolidated Statement of
Profit and Loss relates to the following:
1 April 2023 1 April 2022
to to
30 September 30 September
2023 2022
$'000 $'000
----------------------------------- -------------- --------------
Foreign exchange forward contracts (1,454) -
Interest rate swap arrangements 21,106 -
----------------------------------- -------------- --------------
19,652 -
----------------------------------- -------------- --------------
19. Hipgnosis Songs Group LLC
As disclosed in Note 2(d) the Directors are of the opinion that
the Group is engaged in a single segment of business, being the
investment of the Company's capital in a Portfolio of Song
copyrights, together with the potential for capital growth.
Hipgnosis Songs Group LLC is a US based subsidiary which undertakes
publishing administration on behalf of the Group as well as third
parties and its results are presented within the consolidated
results of the Group.
The Statement of Profit and Loss of Hipgnosis Songs Group LLC
for the six months ended 30 September 2023 are presented below,
together with its comparative period.
1 April 2023 1 April 2022
to to
30 September 30 September
2023 2022
$'000 $'000
------------------------------------------------- -------------- --------------
Income
Total revenue 19,318 18,933
Royalty costs (16,552) (15,400)
------------------------------------------------- -------------- --------------
Net revenue 2,766 3,533
------------------------------------------------- -------------- --------------
Expenses
Legal and professional fees (506) (507)
Audit fees (128) -
Subscriptions and licences (140) (119)
Travel, accommodation and entertainment expenses (103) (259)
Public relations fees (30) (54)
Marketing & events (35) -
HSG office expenses (223) (198)
HSG Staff payroll and expenses (3,029) (3,154)
Sundry (52) (54)
Bank charges (1) (4)
Lease liability interest (158) (378)
HSG restructuring provision (504) (925)
Movement in ECL provision for HSG advances (42) 375
Amortisation of Catalogues of Songs (5) (143)
Fixed asset depreciation (224) (30)
Net loss from joint ventures (446) (48)
Foreign exchange losses (1) -
------------------------------------------------- -------------- --------------
Operating expenses (5,627) (5,498)
------------------------------------------------- -------------- --------------
Operating loss for the period before taxation (2,861) (1,965)
Taxation (231) (8)
------------------------------------------------- -------------- --------------
Loss for the period (3,092) (1,973)
------------------------------------------------- -------------- --------------
20. Assets held for sale
On 14 September 2023, the Company announced the sale of 29
Catalogues, known as the First Disposal. This was conditional upon
the approval of the sale by Shareholders at the EGM and the
approval by Shareholders of the Continuation Resolution at the
Company's 2023 AGM, both held on 26 October 2023. As the sale was
not approved by Shareholders by 30 September 2023, the First
Disposal is presented as a continuing operation in the Consolidated
Statement of Profit and Loss for the six months ended 30 September
2023.
Also, on 14 September 2023, the Company announced the sale of a
portfolio of non-core songs, subject to completion of legal
documentation and the consent of the Company's lending banks, known
as the Second Disposal. As this sale is not conditional on
Shareholder approval and meets the requirements of IFRS 5, the
Second Disposal is presented as a discontinued operation in the
Consolidated Profit and Loss account for the six months ended 30
September 2023 and a Held for Sale disposal group in the
Consolidated Balance Sheet as at 30 September 2023.
1 April 2023 1 April 2022
to to
30 September 30 September
2023 2022
$'000 $'000
--------------------------------------------------- -------------- --------------
Income
Total revenue 5,013 5,286
Royalty costs (3,578) (3,734)
--------------------------------------------------- -------------- --------------
Net revenue 1,435 1,552
--------------------------------------------------- -------------- --------------
Expenses
Amortisation of Catalogues of Songs (872) (761)
--------------------------------------------------- -------------- --------------
Operating expenses (872) (761)
--------------------------------------------------- -------------- --------------
Profit for the period from discontinued operations 563 791
--------------------------------------------------- -------------- --------------
The assets and liabilities of the Second Disposal are below:
30 September 31 March
2023 2023
$'000 $'000
----------------------------------------------- ------------ --------
Catalogues of Songs - Cost 30,446 -
Catalogues of Songs - Accumulated amortisation (4,674) -
Accrued income 6,532 -
Net recoupable advances 32 -
----------------------------------------------- ------------ --------
Total held for sale assets 32,156 -
----------------------------------------------- ------------ --------
30 September 31 March
2023 2023
$'000 $'000
------------------------------------------- ------------ --------
Trade creditors and accruals 125 -
------------------------------------------- ------------ --------
Total held for sale liabilities 125 -
------------------------------------------- ------------ --------
Total held for sale assets and liabilities 32,031 -
------------------------------------------- ------------ --------
The Company has incurred exceptional transaction costs of $5.7
million relating to legal and professional fees incurred in
relation to First Disposal and Second Disposal.
21. Presentation changes
The Company has made immaterial changes to the presentation of
the Condensed Consolidated Statement of Profit and Loss and
accompanying notes during the period. This has resulted in the
following changes of the comparative figures.
Condensed Consolidated Statement of Profit and Loss
As reported As reported
in in
30 September 30 September
2022 Interim 2023 Interim
Report Report
1 April 2022 1 April 2022
to 30 September Presentation Discontinued to 30 September
2022 change operation 2022
$'000 $'000 $'000 $'000
------------------------------------------- ---------------- ------------ ------------ ----------------
Income
Total revenue 91,678 - (5,286) 86,392
Interest income 40 - - 40
Royalty costs (13,368) - 3,734 (9,634)
------------------------------------------- ---------------- ------------ ------------ ----------------
Net revenue 78,350 - (1,552) 76,798
------------------------------------------- ---------------- ------------ ------------ ----------------
Expenses
Advisory and performance fees (6,760) - - (6,760)
Administration fees (300) - - (300)
Legal and professional fees (1,728) - - (1,728)
Audit fees (189) - - (189)
Brokers' fees (147) 53 - (94)
Directors' remuneration (324) - - (324)
Listing fees (41) 41 - -
Subscriptions and licences (383) - - (383)
Public relations fees (326) 326 - -
Other operating expenses (4,847) (1,173) - (6,020)
Exceptional transaction costs - - - -
Catalogue bonus provision (3,689) - - (3,689)
Movement in ECL provision for HSG
advances - 375 - 375
Amortisation of Catalogues of Songs (55,871) - 761 (55,110)
Impairment of Catalogues of Songs (2,007) - - (2,007)
Amortisation of borrowing expenses (1,001) - - (1,001)
Fixed asset depreciation (30) - - (30)
Loan interest (14,473) - - (14,473)
Finance charges for deferred consideration (378) 378 - -
Fair value gain on held for trading
derivative
financial instruments - - - -
Net loss from joint ventures (48) - - (48)
Foreign exchange losses (2,083) - - (2,083)
------------------------------------------- ---------------- ------------ ------------ ----------------
Operating expenses (94,625) - 761 (93,864)
------------------------------------------- ---------------- ------------ ------------ ----------------
Operating loss for the year before
taxation (16,275) - (791) (17,066)
Taxation (3,815) - - (3,815)
------------------------------------------- ---------------- ------------ ------------ ----------------
Loss for the period from continuing
operations (20,090) - (791) (20,881)
------------------------------------------- ---------------- ------------ ------------ ----------------
Profit for the period from discontinued
operations 791
------------------------------------------- ---------------- ------------ ------------ ----------------
Total loss for the period (20,090) - 791 (20,090)
------------------------------------------- ---------------- ------------ ------------ ----------------
Other operating expenses
1 April 2022 1 April 2022
to to
30 September Presentation Discontinued 30 September
2022 change operation 2022
$'000 $'000 $'000 $'000
-------------------------------------------- ------------- ------------ ------------ -------------
Aborted deal expenses 332 - - 332
Debt financing fees - 53 - 53
Public relations fees - 136 - 136
Marketing & events - 355 - 355
Listing fees - 41 - 41
Bank charges 26 - - 26
Charitable donations 28 - - 28
Directors' and officers' insurance 160 (118) - 42
Lease liability interest - 378 - 378
HSG staff payroll and expenses 3,154 - - 3,154
HSG office expenses 79 119 - 198
HSG restructuring provision 925 - - 925
Movement in ECL provision for HSG
advances (375) 375 - -
Travel, accommodation and entertainment
expenses 187 (164) - 23
HSG travel, accommodation and entertainment
expenses 258 - - 258
Sundry 73 (2) - 71
-------------------------------------------- ------------- ------------ ------------ -------------
Operating expenses 4,847 1,173 - 6,020
-------------------------------------------- ------------- ------------ ------------ -------------
22. Litigations and claims
The Company is a defendant in a case brought against it, Merck
Mercuriadis and Hipgnosis Songs Management Limited, alleging a
diversion and unlawful assistance in the diversion of a business
opportunity from Hipgnosis Music Limited to the Hipgnosis Songs
Fund Limited. Proceedings are at a preliminary stage, and it is not
possible for the Hipgnosis Songs Fund Limited to determine the
likelihood or costs associated with this claim.
Furthermore, in the normal course of its business, the Company
is subject to various lawsuits, arbitrations and governmental,
administrative or other proceedings. However, based on the
information currently available, it believes that the outcome from
these legal proceedings will not have a material impact on its
consolidated results of operations and financial position.
23. Subsequent Events
On 13 October 2023, the Portfolio Independent Valuer materially
reduced its expectations of the CRB III retroactive payments for
the period covering 2018-2022 and as a result, the Company reduced
its CRB III retroactive accrual to $9.9 million, from $21.7 million
as at 31 March 2023. In consequence of this unwinding, on 16
October 2023, the Board withdrew the proposed interim dividend of
1.3125 pence per share announced on 21 September 2023 with a
payment date of 27 October 2023. As disclosed in Note 8, an
amendment to the RCF was agreed to return the Company to compliance
with the Fixed Charge Coverage covenant.
On 19 October 2023, the Board initiated a Strategic Review. The
Strategic Review will look at all options to be considered for the
future of the Company with the aim of maximising value for
Shareholders including, among other things, a review of the future
management arrangements of the Company.
On 24 October 2023, the result of the Go-Shop period in relation
to the First Disposal was announced: no Superior Offer was received
by the Company. At the EGM held on 26 October 2023, Shareholders
voted against the First Disposal.
On 25 October 2023, the Company announced that Andrew Wilkinson
and Paul Burger resigned as Non-Executive Directors of the
Company.
On 26 October 2023, at the Company's AGM, Shareholders voted
against the Continuation Resolution. The Board will, in accordance
with the Company's Prospectus, put forward proposals for the
reconstruction, reorganisation or winding-up of the Company to
Shareholders for their approval within six months following the
date of the AGM.
On 26 October 2023, Andrew Sutch was not re-elected as a
Director of the Company and therefore ceased being a Director and
Chair of the Board from the conclusion of the AGM.
On 6 November 2023, as a result of undertaking a review of the
Company's financial position, the Board has determined that it
would not declare dividends before the new financial year.
On 7 November 2023, the Company announced the appointment of
Robert Naylor as Chairman of the Board and Non-Executive Director
and Francis Keeling as Non-Executive Director, with immediate
effect.
On 11 December 2023, the Company announced the completion of the
sale of a portfolio of non-core songs. This portfolio represents
the majority of the Held for Sale disposal group recognised at 30
September 2023.
On 11 December 2023, the Company announced the appointment of
Singer Capital Markets as sole corporate broker and financial
adviser and Shot Tower Capital, LLC as lead adviser to conduct due
diligence on the Company's assets as part of its strategic
review.
On 15 December 2023, the Company announced the appointment of
Christopher Mills as Non-Executive Director, with immediate
effect.
On 20 December 2023 the Company announced the appointment of
KPMG Channel Islands Limited, Guernsey (KPMG CI) as its auditor
with immediate effect for the financial year ended 31 March 2024.
KPMG CI succeed PricewaterhouseCoopers CI LLP, Guernsey (PWC CI),
who were the previous auditors. The re-appointment of KPMG CI as
auditor will be subject to approval by the Company's shareholders
at General Meeting of the Company to be convened in due course.
Post period end the Company will be acquiring the remaining
rights to an existing Catalogue within the Company's portfolio.
This acquisition arises due to an exercisable option in the
existing Catalogue acquisition contract.
Alternative Performance Measures
For the six months ended 30 September 2023 (unaudited)
Adjusted EPS from continuing operations
Definition
Loss for the period from continuing operations excluding Total
Amortisation, impairment, depreciation, Catalogue bonus provision,
restructuring costs, foreign exchange losses and provision for HSG
advances divided by weighted average number of Ordinary Shares
outstanding.
Reason for Use
Adjusted EPS from continuing operations is a strong indicator of
Company performance and profitability after adjusting for non cash
and financing items.
1 April 2023 1 April 2022 to
to
30 September 30 September
2023 2022*
Calculation $'000 $'000
----------------------------------------------- --------------- ----------------
Loss after tax from continuing operations (63,764) (20,881)
Total Amortisation 54,567 56,111
Impairment of Catalogues of Songs 15,194 2,007
Fixed asset depreciation 247 30
Lease liability interest 158 378
Exceptional transaction costs 5,747 -
Movement in Catalogue bonus provision 23,257 3,689
HSG restructuring costs 504 925
Foreign exchange losses 280 2,083
Fair value gain on held for trading derivative (19,652) -
financial instruments
Movement in ECL provision for HSG advances 42 (375)
----------------------------------------------- --------------- ----------------
Adjusted earnings 16,580 43,967
Weighted Average number of Ordinary Shares
outstanding (number) 1,209,214,286 1,211,214,286
----------------------------------------------- --------------- ----------------
Adjusted Earnings per Share (cents) 1.37 3.63
----------------------------------------------- --------------- ----------------
* Definition changed since the prior period, refer to page 170
of the Company's Annual Report for the year ended 31 March
2023.
Tax arising on above adjusting items amounts to $18.3 million
(six month period ended 30 September 2022: $11.7 million). This
figure is the sum of the tax effects of individual adjusting items
other than permanent differences, calculated using the prevailing
25% corporation tax rate for the periods for UK items and 21% rate
of US Federal corporate income tax for US items.
Adjusted Operating Costs less Interest Expense
Definition
Operational expenses excluding Total Amortisation, impairment,
depreciation, Catalogue bonus provision, restructuring costs,
foreign exchange losses, provision for HSG advances and interest
expense.
Reason for Use
An indicator to Shareholders of the Company's underlying
operational expenditure excluding non cash and financing items.
1 April 1 April
2023 to 2022 to
30 September 30 September
2023 2022
Calculation $'000 $'000
----------------------------------------------------- -------------- --------------
Advisory and performance fees 5,398 6,760
Administration fees 212 300
Legal and professional fees 1,711 1,728
Audit fees 571 189
Brokers' fees 115 94
Directors' remuneration 324 324
Subscriptions and licences 204 383
Aborted deal expenses 1,099 332
Debt financing fees 176 53
Public relations fees 181 136
Marketing & events 373 355
Listing fees 32 41
Bank charges 15 26
Record label costs 18 -
Charitable donations 20 28
Directors' and officers' insurance 31 42
HSG staff payroll and expenses 3,029 3,154
HSG office expenses 223 198
Travel, accommodation and entertainment expenses - 23
HSG travel, accommodation and entertainment expenses 103 258
Sundry (13) 71
Net loss from joint ventures 446 48
----------------------------------------------------- -------------- --------------
14,268 14,543
----------------------------------------------------- -------------- --------------
Annualised Ongoing Charges
Definition
Adjusted Operating Costs less Interest Expense and non-recurring
administrative expenses annualised over a 12-month period.
Reason for Use
Ongoing Charges are a good indicator to Shareholders of the
Company's continuing operating expenses excluding the cost of
financing. These operating expenses are likely to recur in the
foreseeable future.
1 April 1 April
2023 to 2022 to
30 September 30 September
2023 2022
Calculation $'000 $'000
-------------------------------------------------- -------------- --------------
Adjusted operating costs less interest expense 14,268 14,543
Non recurring operating expenses (1,153) (854)
Total ongoing charges over a six-month period 13,115 13,689
-------------------------------------------------- -------------- --------------
Annualised ongoing charges over a 12-month period 26,230 27,378
-------------------------------------------------- -------------- --------------
Distributable Revenues
Definition
Distributable Revenue is the total loss for the period excluding
Total Amortisation, impairment, depreciation, Catalogue bonus
provision, restructuring costs, foreign exchange losses and
provision for HSG advances.
Reason for Use
Distributable Revenues are profits, after adjusting for non-cash
and financing items, attributable to the Company's revenue
activities and are an indicator of the Company's ongoing ability to
pay its dividends.
1 April 1 April
2023 to 2022 to
30 September 30 September
2023 2022
Calculation $'000 $'000
--------------------------------------------------------- -------------- --------------
Total loss for the period (63,201) (20,090)
Total Amortisation 54,567 56,111
Impairment of Catalogues of Songs 15,194 2,007
Fixed asset depreciation 247 30
Lease liability interest 158 378
Catalogue bonus provision 23,257 3,689
HSG restructuring provision 504 925
Foreign exchange losses 280 2,083
Fair value gain on held for trading derivative financial
instruments (19,652) -
Movement in ECL provision for HSG advances 42 (375)
11,396 44,758
--------------------------------------------------------- -------------- --------------
Dividend Cover
Definition
Distributable Revenues generated during the period divided by
the dividend paid during the period.
Reason for Use
A strong indicator to Shareholders of the Company's ability to
pay a dividend from retained earnings.
1 April 1 April
2023 to 2022 to
30 September 30 September
2023 2022
Calculation $'000 $'000
----------------------- -------------- --------------
Distributable Revenues 11,396 44,758
Dividend Paid 39,801 19,312
0.29 2.32
----------------------- -------------- --------------
EBITDA
Definition
The Operating loss for the period before taxation from
continuing operations plus Total Amortisation, impairment,
depreciation, Catalogue bonus provision, restructuring costs,
foreign exchange losses, provision for HSG advances and interest
expense.
Reason for Use
A strong indicator to Shareholders of Company performance and
profitability after adjusting for non cash and financing items.
1 April 1 April
2023 to 2022 to
30 September 30 September
2023 2022*
Calculation $'000 $'000
-------------------------------------------------------------- -------------- --------------
Operating loss for the period before taxation from continuing
operations (63,686) (17,066)
Total Amortisation 54,567 56,111
Impairment of Catalogues of Songs 15,194 2,007
Fixed asset depreciation 247 30
Lease liability interest 158 378
Exceptional transaction costs 5,747 -
Catalogue bonus provision 23,257 3,689
HSG restructuring provision 504 925
Foreign exchange losses 280 2,083
Fair value gain on held for trading derivative financial
instruments (19,652) -
Movement in ECL provision for HSG advances 42 (375)
Interest expense 23,052 14,473
39,710 62,255
-------------------------------------------------------------- -------------- --------------
* Definition changed since the prior period, refer to page 170
of the Company's Annual Report for the year ended 31 March
2023.
Leveraged Free Cash Flow
Definition
Net cash generated from operating activities less interest paid,
acquisition related balances and foreign exchange losses.
Reason for Use
A good indicator to Shareholders of the cash position of the
Company and the availability of cash flows to fund dividend
payments.
1 April 1 April
2023 to 2022 to
30 September 30 September
2023 2022*
Calculation $'000 $'000
--------------------------------------------- -------------- --------------
Net cash generated from operating activities 48,962 45,463
Foreign exchange losses (280) (2,083)
Interest paid (net of swap arrangements) (18,334) (14,973)
30,348 28,407
--------------------------------------------- -------------- --------------
* Definition changed since the prior period, refer to page 170
of the Company's Annual Report for the year ended 31 March
2023.
NAV Total Return
Definition
Operative NAV per share plus cumulative dividends paid up to the
period end less the Operative NAV per share as at 11 July 2018,
divided by the Operative NAV as at 11 July 2018.
Reason for Use
To show how the assets have performed since IPO to
Shareholders.
As at As at
30 September 31 March
2023 2023
Calculation $'000 $'000
-------------------------------------- -------------- ----------
Operative NAV per share 1.7392 1.9153
Cumulative dividends paid to year end 0.2955 0.2789
Operative NAV at IPO (1.2983) (1.2983)
-------------------------------------- -------------- ----------
0.7364 0.8959
Operative NAV at IPO 1.2983 1.2983
56.72% 69.01%
-------------------------------------- -------------- ----------
Non recurring operating expenses
Definition
Non recurring expenditure included within operating
expenses.
Reason for Use
A good indicator to Shareholders of expenses not likely to recur
in the foreseeable future.
1 April 1 April
2023 to 2022 to
30 September 30 September
2023 2022
Calculation $'000 $'000
-------------------------------------------------- -------------- --------------
Non recurring expenses included within:
Legal and professional fees 39 116
Subscriptions and licences - 8
Listing fees - 4
Aborted deal expenses 1,099 332
Debt financing fees - 53
Marketing and events - 266
Travel, accommodation and entertainment expenses - 23
Charitable donations - 42
Public relations fees 15 10
-------------------------------------------------- -------------- --------------
1,153 854
-------------------------------------------------- -------------- --------------
Ongoing Charges %
Definition
Annualised ongoing charges divided by Average Operative NAV.
Reason for Use
To monitor the expenses, which are likely to recur, relative to
the fund size over time.
1 April 1 April
2023 to 2022 to
30 September 30 September
2023 2022
Calculation $'000 $'000
--------------------------- -------------- --------------
Annualised Ongoing Charges 26,230 27,378
Average Operative NAV 2,209,564 2,228,806
1.19% 1.23%
--------------------------- -------------- --------------
Operative NAV
Definition
The IFRS NAV adjusted for the Fair Value of the Catalogues of
Songs.
Reason for Use
The Operative NAV reflects the values of the Catalogues of Songs
based on fair values produced by the Portfolio Independent
Valuer.
As at
As at 31 March
30 September
2023 2023
Calculation $'000 $'000
---------------------------------------------------- -------------- ----------
IFRS NAV 1,331,529 1,434,534
---------------------------------------------------- -------------- ----------
Adjustments for revaluations of Catalogues of Songs
to fair value 385,504 565,478
Reversal of accumulated amortisation and impairment 386,049 316,036
---------------------------------------------------- -------------- ----------
Operative NAV 2,103,082 2,316,048
---------------------------------------------------- -------------- ----------
Total Amortisation
Definition
Amortisation of Catalogues of Songs plus amortisation of
capitalised borrowing costs.
Reason for Use
Total amortisation is the measure of the non-cash items arising
from accounting treatment and includes the amortisation of
borrowing costs, and is used to evaluate the performance without
any amortisation.
1 April 1 April
2023 to 2022 to
30 September 30 September
2023 2022
Calculation $'000 $'000
------------------------------------ -------------- --------------
Amortisation of Catalogues of Songs 53,947 55,110
Amortisation of borrowing expenses 620 1,001
54,567 56,111
------------------------------------ -------------- --------------
Total Debt
Definition
Total gross indebtedness of the Company including the drawdown
RCF balance, PRO advances and Catalogue bonus provision.
Reason for Use
Total debt is used as a measure in the Company's covenant
compliance reporting and in the Company's Investment Policy.
As at As at
30 September 31 March
2023 2023
Calculation $'000 $'000
-------------------------- -------------- ----------
Loans and borrowings 604,000 600,000
PRO advances 1,862 3,178
Catalogue bonus provision 68,129 45,042
673,991 648,220
-------------------------- -------------- ----------
6 Month NAV Total Return
Definition
Operative NAV per share as at year end plus dividend paid during
the six-month to 30 September 2023 less the Operative NAV per share
as at the beginning of the year divided by the Operative NAV per
share as at the beginning of the year.
Reason for Use
To show how the assets have performed over the past six months
to Shareholders.
1 April 1 April
2023 to 2022 to
30 September 30 September
2023 2022
Calculation $'000 $'000
---------------------------------------------------------- -------------- --------------
Operative NAV per share at year end 1.7392 1.8312
Dividend paid during the six-month period to 30 September
2023 0.0166 0.0308
---------------------------------------------------------- -------------- --------------
1.7558 1.8620
Operative NAV per share at beginning of year 1.9153 1.8491
(8.33%) 0.70%
---------------------------------------------------------- -------------- --------------
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END
IR DDBDDXXDDGXG
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