General Text Amendment
Correction to the announcement made at 07:00
(RNS No 3677F): Adjusted solely for the Shot Tower Valuation, the
Pro-Forma Operative NAV per share presented in Sterling would be
92.08 pence per Ordinary Share. All other details remain unchanged.
The corrected announcement is set out below.
LEI: 213800XJIPNDVKXMOC11
4 March
2024
Hipgnosis
Songs Fund Limited ("Hipgnosis" or the "Company")
Update on Due Diligence,
Valuation and Net Asset Value
The newly constituted Board of
Hipgnosis Songs Fund (the "Board") provides the following update on
the preliminary valuation report prepared by Shot Tower Capital,
part of the due diligence work being undertaken as part of the
Strategic Review (the "Strategic Review").
In the interim results for the six
months ended 30 September 2023, the Board stated that there were
multiple data points and transactions within the market which were
at material discounts to the implied Fair Value of the Company's
assets at that time. The Board therefore sought advice on this
matter from Hipgnosis Song Management Limited (the "Investment Adviser"), which is majority
owned by funds managed and/or advised by Blackstone. The Investment
Adviser at first declined to give an opinion but, after repeated
requests from the Board, eventually provided an opinion which was
heavily caveated. As a result, the Board recommended 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 Board appointed Shot Tower
Capital, LLC ("Shot Tower")
as lead adviser to provide an independent valuation of the
Company's assets.
Shot Tower has performed a detailed
review of the Company's portfolio, conducting the valuation on a
bottom-up basis, analysing the royalty statement data of each of
the Company's catalogues. The new valuation range is based on a
variety of factors and assumptions including whether a subject
catalogue was comprised of:
-
copyright interests (control) or passive royalty income
streams;
-
publishing, writer's share, master, artist's share, producer or
neighbouring rights royalties;
-
stable royalty income streams based on vintage;
-
rights benefiting from administration rights or copyrights
returning to the Company in future years;
- well
known works performed by top artists in their respective
genres.
Shot Tower applied specific
valuation assumptions based on the above criteria for each
catalogue with the weighted average for the entire catalogue,
reflecting a mid-point discount rate of 9.63%. Of particular note
is the proportion of cash net revenue generated from passive rights
where the Company does not control administration, distribution or
licensing of a song. Approximately 65% of royalties are currently
generated from passive publishing, performance and recorded music
income streams with this figure expected to decrease to between 40%
and 45% over time as additional control rights return to the
Company upon the expiration of pre-acquisition publishing
agreements.
Shot Tower has now provided the
Board with the preliminary valuation report as at 1 March 2024,
which estimates the fair market value of the Company's Portfolio at
between $1.80 billion and $2.06 billion and $1.74 billion and $2.00
billion after deducting contingent catalogue bonuses of $59.9
million (the "Shot Tower
Valuation").
The Shot Tower Valuation compares to
Fair Value as at 30 September 2023 of $2.62 billion, and $2.55
billion after deducting the catalogue bonus provision of $68.1
million.
Furthermore, Shot Tower have
informed the Board that the Company's cash net revenue after
reduction for third party royalties and administration expenses was
$121.7 million for the 12-month royalty statement period ended 30
June 2023, which is consistent with the $119.4 million cash net
revenue figure for the 12-month period ended 30 September 2023,
derived by BDO as part of its quality of earnings
analysis.
The Shot Tower Valuation midpoint of
$1.93 billion therefore reflects a multiple of 15.9x net royalty
income prior to deducting contingent catalogue bonuses and a
reduction in valuation of 26.3% to the valuation as at 30 September
2023.
Adjusted solely for the Shot Tower
Valuation, the Company's Operative NAV would be approximately $1.17
per Ordinary Share (the "Pro-Forma
Operative NAV per share") as compared to the last reported
Operative NAV of $1.7392 per Ordinary Share as at 30 September
2023. Based on the Dollar to Sterling exchange rate of 1.266 on 1
March 2024, being the last business day prior to the publication of
this announcement, the Pro-Forma Operative NAV per share presented
in Sterling would be 92.08 pence per Ordinary Share.
The Pro-Forma Operative NAV per
share does not include an estimate of any potential corporation tax
charges (or equivalent in the US) that would be incurred by the
Company if it were to dispose of all of its Catalogues at the Shot
Tower Valuation.
Due to the decrease in Operative
NAV, the Board considers it appropriate to reduce gearing and
therefore intends to use the Company's free cashflow to pay down
debt and, therefore, does not intend to recommence paying dividends
for the foreseeable future.
Shot Tower has told the Board that
it expects to present its final due diligence findings to the Board
by Monday, 25th March 2024. The Board expects to be able
to provide a further update on the complete findings of Shot
Tower's due diligence by Friday, 29th March
2024.
Robert Naylor, Chairman of Hipgnosis Songs Fund,
said:
"The newly constituted Board is
making good progress with the due diligence work that will underpin
its strategic review. We are disclosing the valuation at this time
given its material difference to valuations previously disclosed.
The Board will provide further detail on this when the due
diligence is complete. The Board remains focused on identifying all
options to deliver shareholder value."
For further information please
contact:
Hipgnosis Songs
Fund
Robert Naylor
Via Singer Capital
Markets
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+44 (0) 20 7496 3000
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Singer Capital Markets - Corporate Broker
James Moat / Alaina Wong / Angus
Campbell (Corporate Finance)
Alan Geeves / James Waterlow / Sam
Greatrex (Sales)
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|
+44 (0) 20 7496 3000
|
Headland Consultancy - Financial PR
Susanna Voyle / Charlie
Twigg
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+44 (0) 20 3805 4822
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This announcement contains inside information for the purposes
of the UK Market Abuse Regulation.