LEI: 213800XJIPNDVKXMOC11
18 March 2024
Hipgnosis
Songs Fund Limited ("Hipgnosis" or the "Company")
Amendment to Operative Net
Asset Value
The Board of Hipgnosis Songs Fund is
providing an amendment to its Operative Net Asset Value
("Operative NAV") following
identification of an error due to the double counting of accrued
revenue in the calculation of Operative NAV by Hipgnosis Song
Management Limited (the "Investment Adviser"). This error
results in a 7.6% reduction in the pro forma Operative NAV per
Ordinary Share from $1.1657 (92.08 pence) as stated on 4 March 2024
to $1.0765 (85.03 pence).
The Board, as part of the strategic
review, have been focused on the impact of
Shot Tower's preliminary valuation, as announced on 4 March 2024.
As part of this work the Board raised concerns with the Investment
Adviser on the double counting of accrued revenue in the
calculation of the Operative NAV, which results in an overstatement
of the Operative NAV. This issue has been raised previously. The
Investment Adviser has now notified the Board that they agree with
the Board's view, contrary to previous
advice.
Since flotation in July 2018, the
Company has reported both an Operative NAV and an IFRS NAV for each
accounting period. The Operative NAV is defined as the NAV as
adjusted for the fair value of the Catalogues of Songs. The
valuation methodology used by the Company's valuers assumes the
transfer of rights to all future cash receipts including any income
accrued at the date of sale. The Operative NAV should therefore
deduct accrued income to avoid double counting. The error relates
to the adjustment made to the IFRS NAV to produce the Operative
NAV, which is prepared by the Investment Adviser, and does not
relate to the valuation methodology used by the Company's
valuer.
The impact of this double counting
is a c.7.6% reduction of the Pro Forma Operative NAV as at 30
September 2023, using the midpoint NAV in Shot Tower's preliminary
valuation report as announced on 4 March 2024, where the Pro-Forma
Operative NAV would be $1.0765 per Ordinary Share (vs. $1.1657 per
Ordinary Share) and 85.03 pence per Ordinary Share (vs. 92.08 pence
per Ordinary Share) based on the Dollar to Sterling exchange rate
of 1.266.
The equivalent impact using the
Operative NAV disclosed in the Interim Results as at 30 September
2023 is a c. 5.1% reduction to $1.6500 per Ordinary Share (vs.
$1.7392 per Ordinary Share) and to 135.19 pence per Ordinary Share
(vs. 142.49 pence per Ordinary Share) based on the Dollar to
Sterling exchange rate of 1.22055. The full change and amendments
to the Operative NAV calculation are set out in the tables
below.
|
|
|
|
|
30 September 2023 (as
amended)
|
30 September 2023 (as
presented)
|
|
|
$'000
|
$'000
|
IFRS NAV
|
|
1,331,529
|
1,331,529
|
Reverse Net Book Value of Catalogues
of Songs
|
(1,850,447)
|
(1,850,447)
|
Reverse Accrued Income
balance
|
(109,581)
|
-
|
Reverse Royalty Accruals on Accrued
Income
|
1,754
|
-
|
Add fair value of Catalogues of
Songs1
|
2,622,000
|
2,622,000
|
Operative NAV
|
|
1,995,255
|
2,103,082
|
No. shares in issue
|
|
1,209,214,286
|
1,209,214,286
|
Operative NAV per share ($)
|
1.6500
|
1.7392
|
Operative NAV per share (£)2
|
1.3519
|
1.4249
|
1Based on the valuation report for 30 September 2023 by Citrin
Cooperman Advisors LLC
2Based on the Dollar to Sterling exchange rate of 1.22055 as at
30 September 2023
|
|
|
|
|
30 September 2023 (RNS as
amended)
|
30 September 2023
(RNS)
|
|
|
$'000
|
$'000
|
IFRS NAV
|
|
1,331,529
|
1,331,529
|
Reverse Net Book Value of Catalogues
of Songs
|
(1,850,447)
|
(1,850,447)
|
Reverse Accrued Income
balance
|
(109,581)
|
-
|
Reverse Royalty Accruals on Accrued
Income
|
1,754
|
-
|
Add fair value of Catalogues of
Songs3,4
|
1,928,500
|
1,928,500
|
Pro
Forma Operative NAV
|
|
1,301,755
|
1,409,582
|
No. shares in issue
|
|
1,209,214,286
|
1,209,214,286
|
Pro
Forma Operative NAV per share ($)
|
1.0765
|
1.1657
|
Pro
Forma Operative NAV per share (£)5
|
0.8503
|
0.9208
|
3 Based on the preliminary valuation report for 28 February 2024
prepared by Shot Tower Capital, LLC
4 Does not include c.20,000 songs sold post period end for $23.1
million, which had a fair value of $26.9m at 30 September
2023
5Based on the Dollar to Sterling exchange rate of 1.266 on 1
March 2024, being the last business day prior to the publication of
the announcement of Shot Tower's preliminary valuation
report
The Board has also sought
confirmation from Shot Tower, who agrees that such adjustments
previously made to produce the Operative NAV by the Investment
Adviser are incorrect. None of the Company's banking covenants are
impacted by the Operative NAV and therefore this
amendment.
As the Operative NAV is a key
valuation metric in defining the market capitalisation of the
Company, the Company has almost certainly been overcharged
investment advisory fees by the Investment Adviser.
The Board has reserved all the Company's rights
against the Investment Adviser.
For further information please
contact:
Hipgnosis Songs
Fund
Robert Naylor
Via Singer Capital
Markets
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+44 (0) 20 7496 3000
|
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.