07:00 Fri 04 Dec 2020
Hipgnosis Songs Fund - Interim Results
Hipgnosis Songs Fund Limited
("Hipgnosis" or the "Company")
Interim Results
for the six months ended
The Board of Hipgnosis Songs Fund Limited, the first
The Investment Adviser will be providing a presentation to investors and analysts at
This presentation will be available afterwards on the Company's website www.hipgnosissongs.com.
A published copy of the Interim Report will also be available through the following link:
http://www.rns-pdf.londonstockexchange.com/rns/5763H_1-2020-12-4.pdf
Merck Mercuriadis, Founder of Hipgnosis Songs Fund Limited and The Family (Music) Limited said:
"2020 has been a year that the world never contemplated, as both society and the economy have been devastated by the pandemic. It is therefore a wonderful feeling to be able to give our investors, who have given us incredible support, and the songwriting community, who have entrusted us with their incomparable work, an excellent set of results that validate their trust and faith in Hipgnosis. We've been one of the FTSE 250's biggest yielders and have now reached a
Operational Highlights
· As at
o 2,845 Songs have held Number 1 positions in global charts
o 10,618 Songs have held Top 10 positions in global charts
o 119 Songs have won Grammy Awards
o Approximately 45% of the Company's Portfolio is represented by Songs that are between 10 and 58 years old
o The Company co-owns ten of Spotify's Top 30 "Most Played Songs Of All Time"
· During the period,
o The C Shares issued pursuant to the
· The Company acquired Big Deal Music Group, which rebranded to Hipgnosis Songs Group ("HSG")
· The Company acquired Kobalt Fund 1, a Portfolio with 42 Catalogues and over 33,000 Songs
· The Company's Investment Adviser, The Family (Music) Limited, is currently in advanced stage discussions on an investment pipeline of over
Financial Highlights
· Operative NAV increased by 7.4% to 125.35p (
· The fair value of Catalogues, as determined by the independent valuer, increased by
o Strong fair value uplifts in the Catalogues acquired during the period;
o Streaming revenues starting to be recognised and received from emerging digital platforms including TikTok and Peloton;
o A reduction in the discount rate used by the independent valuer from 9% to 8.5%; and
o The independent valuer taking a prudent approach to their forecast for 2021 due to COVID-19
· Net revenue from the portfolio increased to
· EPS (adjusted for amortisation) decreased to 4.77p per Ordinary Share, due to the one off costs associated with the acquisition of HSG
· At
· Dividends of 2.5p were paid during the period, representing a Total NAV Return, excluding the FX impact, of 12.0% for the six month period
· Hipgnosis have increased the annual dividend target1 by 5% to 5.25p per Ordinary Share
· Since 30 September, a second interim dividend of 1.3125p per Ordinary Share has been declared and paid
Portfolio Highlights
· 63 Catalogues were acquired during the period, including some of the most successful and culturally significant Songs of all time
o Fleetwod Mac's "
o
o Blondie's "Heart Of Glass"
o
o 10cc's "I'm Not In Love"
o
o The Spencer Davis Group's "Gimme Some Lovin"
o
o The B-52's "
o
· Blondie's Song "One Way Or Another" features in this year's M&S Christmas TV advert
· At the time of writing,
· Hipgnosis co-own four of the Top 5 Billboard "Songs of the Decade" and 27 of the Top 100
o Number 1 - 'Uptown Funk' by
o Number 3 - 'Shape of You' by
o Number 4 - 'Closer' by The Chainsmokers featuring Halsey which reached Number 1 in over 10 countries and topped the Billboard Hot 100 for 12 consecutive weeks. It also became only the second song in the history of the Billboard Hot 100 to spend 32 weeks in the Top 10
o Number 5 - 'Girls Like You' by Maroon 5 featuring Cardi B which topped the charts in 17 countries including spending 7 consecutive weeks at the top of the Billboard Hot 100
(1) This is a target only and there can be no assurance that the target can or will be met and should not be taken as an indication of the Company's expected or actual future results. Accordingly, potential investors should not place any reliance on this target in deciding whether or not to invest in the Company or assume that the Company will make any distributions at all and should decide for themselves whether or not the target dividend yield is reasonable or achievable.
A copy of the Interim Report and Condensed Consolidated Financial Statements has been submitted to the National Storage Mechanism and will shortly be available for inspection at www.morningstar.co.uk/uk/NSM. The Interim Report and Condensed Consolidated Financial Statements will also shortly be available on the Company's website at www.hipgnosissongs.com where further information on the Company can also be found.
For further information, please contact:
The Family (Music) Limited Merck Mercuriadis
|
Tel: +44 (0)1481 742742 |
N+1 Singer - Joint Corporate Broker
|
Tel: +44 (0)20 7496 3000 |
J.P. Morgan Cazenove - Joint Corporate Broker
|
Tel: +44 (0)20 7742 4000 |
RBC Capital Markets - Joint Corporate Broker
|
Tel: +44 (0)20 7635 4000 |
Ocorian - Company Secretary & Administrator
|
Tel: +44 (0) 1481 742742 |
The Outside Organisation |
Tel: +44 (0)7711 081 843 |
FTI Consulting
|
Tel: +44 (0)7771 978220; +44 (0)7809 411882; +44 (0)7761 332646
|
All US music publicity enquiries |
+1 917 767 5255 |
NOTES TO EDITORS
About Hipgnosis Songs Fund Limited
Hipgnosis, which was founded by Merck Mercuriadis, is a Guernsey registered investment company established to offer investors a pure-play exposure to songs and associated musical intellectual property rights. The Company has raised a total of over
About The Family (Music) Limited
The Company's Investment Adviser is The Family (Music) Limited, which was founded by Merck Mercuriadis, former manager of globally successful recording artists, such as
The Chair's Statement
Introduction
This is the Company's third interim report since its inception and covers the six months ended
Despite this backdrop the Company's performance has been highly resilient, demonstrating the appeal of hit songs to millions of people even in these challenging times. In addition, the Company has made substantial progress in building upon an already impressive Portfolio of proven hit Songs and building its Song Management capabilities. Towards the end of the period the Company finished off a highly successful period of growth with its largest ever acquisition, of Kobalt's Fund 1, for
During the period, the Company has raised a further
The resilient performance of the Company's Portfolio, with many looking to escape the difficulties of the pandemic by listening to feel good songs, together with streaming continuing to grow ahead of pre-COVID-19 expectations, gave the Board confidence to increase the annual dividend target by 5% to
As detailed more in the Investment Adviser's report below, the Portfolio's value has increased significantly, driven by growth in Song valuations as investors worldwide start to recognise the growing utility like income they produce, leading to a Total NAV Return in the 6 month period ending
In
Investments
During the period the Company has invested c.
Our reach of Songs is deeper and wider than ever before. All of these acquisitions were sourced by our Investment Adviser, The Family (Music) Limited, who together with its Advisory Board allows the Company access to some of the most globally successful artists, songwriters and producers.
In addition to the Catalogue purchases, during the period the Company acquired Big Deal Music, LLC which has since been rebranded Hipgnosis Songs Group (HSG). The acquisition represented a significant step forward in the Company's strategy of delivering income and capital growth by pursuing efficiencies in the collection of payments and active management of its songs. In particular, HSG has a US administration platform to which the Company will transfer the portfolio administration of its Songs' US income at the earliest opportunity. This is expected to generate administration costs savings equal to 1% to 1.5% of income administered and gives Hipgnosis greater control over its Songs. The acquisition also included a Song Management team of 35 employees who will pursue additional synchronisation opportunities for the Company's full Portfolio of Songs in order to maximise income.
Performance
I am pleased to report an increase in net income from the Portfolio to
The ongoing charges figure of 1.35% (financial period ended
Earnings Per Share (adjusted for Amortisation) were
The Operative NAV per Ordinary Share, which includes the fair value of the Company's Catalogues and excludes Amortisation, was
As at the same date the Operative NAV per C Share was
Combining both the Operative Ordinary and C Share NAV, the Total NAV Return, which includes dividends paid, for the 6 months' period from 1 April to
Dividend
The Board were delighted in September to announce an increase in the Company's annual dividend target by 5% to
In the first half of the financial year the Company has paid dividends totalling
Since the period end, on
Revolving Credit Facility
On
During the period, the Company entered into an agreement with a syndicated group of lenders, with JPMorgan Chase Bank as Lead Arranger, to increase its Revolving Credit Facility from
The Board reviews the Company's level of gearing on a regular basis.
The Board
I would like to record my appreciation to my fellow Board members for their dedication and their diligence. In addition to the significant corporate activity, including fundraisings and the acquisition of HSG, the Board carefully considers each proposed acquisition, of which there have been many in the past six months, and has therefore met very frequently.
C Share Conversion
On
Further to this, the Company announced on
Outlook
Although the prospects for live music performance in 2021 remain uncertain, the music industry continues to be an important part of our lives, with more people listening to music through streaming services. The Company is a beneficiary of this trend and expects to see continued growth in royalty income driven principally by the growth in streaming.
The Company still has a significant pipeline of Catalogue acquisitions and the intention is to continue fundraisings, subject to market conditions, to deploy the proceeds in growing the Portfolio and the Company. The Board and the Investment Adviser will continue to work tirelessly to ensure that the implementation of the Company's investment strategy delivers strong returns for Shareholders.
Chair
Investment Adviser's Report
Introduction
The year 2020 has been one of challenges which the world has never before experienced, with a devastating impact on society and much of the economy as a result of the COVID-19 pandemic. We are grateful that despite this it has been a period of profound positive performance and progress for Hipgnosis, which is reflected in our excellent set of results.
Over the period, the Operative NAVs of both the Ordinary Shares and C Shares have grown strongly highlighting our continued ability to execute our investment strategy of buying Catalogues of the highest quality and then generating new revenue opportunities through Song Management. As a result, we are pleased to report strong revenues leading to 1.5x cover of the Ordinary Share dividend by Operating Profit after Tax and a significant increase in the fair values of our Catalogues. The increase
in fair values was primarily driven by:
• strong fair value uplifts in the Catalogues acquired during the period including Kobalt Fund 1, proving that the proceeds of the
• streaming revenues starting to be recognised and received from emerging digital platforms including Peloton and TikTok
• a reduction in the discount rate used by the Independent Valuer to value the Company's Catalogues from 9% to 8.5%.
The reduction in the discount rate used by the Independent Valuer reflects the decreased risk premium associated with music's ever more stable and predictable earnings as a result of the increased consumption of music through paid streaming. We are delighted that music valuers are starting to reflect the true value of music as an asset class and expect this trend to continue as streaming continues to grow and music revenues continue to prove their stability.
Despite these exceptionally challenging times, we have raised
A core part of our thesis is that Song revenues are uncorrelated as whether in good times or when facing challenges, music is always being consumed and now thanks to streaming almost always being paid for. While we would not have wished for a pandemic to demonstrate this it has indeed done exactly that and that has been reflected in our strong performance.
Music streaming income continues to grow and now makes up 85% of all income in the US where almost every household now has a music streaming subscription. This has replaced and exceeded physical sales which now command only 7% of music income, just slightly higher than the 6% made by digital downloads.
Lockdown has also significantly changed music consumption, with more listeners reaching for songs they grew up with for comfort and escape. This leaves us perfectly placed during these challenging times with a Portfolio concentrated around incredibly successful and culturally influential proven hit songs that are in high demand. 'Don't Stop Believin' by Journey, as just one example from our catalogue, has been streamed at least 10,000,000 times per week every week since March up to the present moment. Data from the H1 2020 global music revenues have confirmed our expectations that the growth in revenue from both existing (Spotify/Apple) and emerging (Peloton/TikTok) streaming platforms is more than offsetting shortfalls elsewhere brought on by the pandemic.
The markets' recognition of the uncorrelated and predictable nature of our songs' income has generated greater momentum and led to further investment. This was most notable at our Capital Markets Day this year, which helped Hipgnosis' share price to its all-time high of
Since April, we have acquired a further 63 Catalogues, including Blondie,
Pusha T, LA Reid,
Since launch we have now acquired 117 Catalogues, comprising over 57,836 Songs, for an aggregate consideration of
During the period we have transformed our Song Management expertise, notably making three appointments of the highest calibre at the Investment Adviser in Ted Cockle,
In little over three months they have already had a significant impact on the business, ensuring accurate ingestion of both the income streams and the active management of our Catalogue of Songs and have proven how effectively we can increase usage and revenues of our incredible hit Songs when they are given the attention and resource they deserve.
During this short time, we have seen immense progress with synchs within our Portfolio, and synch now accounts for 14% of overall revenue up from 9% at 31 March. We are particularly delighted that Blondie's song 'One Way Or Another' features in this year's M&S Christmas TV advert, which is arguably the biggest Christmas advert in the
The pace and quality of Synchronisation licences continued to be unaffected by the pandemic with lost synchronisation from films being replaced by increased demand from TV streaming services. We are therefore positive in our outlook for our Song Management opportunities across the rest of the year.
The Company has also made significant progress in its strategy of pursuing efficiencies in the collection of payments and active management of Songs through the efforts of
The recent news of a vaccine(s) has given us all hope that the pandemic will soon be behind us, which will improve performance further still, but for the moment we have to be cognisant that there are important challenges ahead. I believe that we are well positioned to weather them all and to continue to establish ourselves as not only an essential opportunity for investors but also as one of the most important catalysts transforming the Song industry and the Songwriter's place in it globally.
* including the right to income on each acquisition
Market Conditions
Despite some short-term negative impacts due to COVID-19 the music industry continues to grow, including earnings relating to music publishing and songwriters. The '2020 Independent Music Publishers International Forum Report' showed a 7.5% increase in the global value of music publishing, including songwriters and composers, in 2019 to
Whilst the ongoing COVID-19 pandemic has shaken up the entire music industry, streaming continues to dominate and is more than making up for the revenues lost from other income sources. Spotify's Q3 20 results showed total revenue growth of 14% year on year to
Lockdowns globally have impacted live and performance revenues; the RIAA 2020 mid-year report showed growth in paid subscription streaming more than offset revenue declines in other areas of the US recorded music market in the first half of the year. In 2020 first half US music revenues increased 5.6% overall led by streaming which grew by 12%. If the second half grows at the same pace US streaming revenues will increase by more than
In
The challenging times in 2020 have not only impacted how people consume music but what music they consume. In particular a report from the University of Leuven, in
During 2020 emerging social platforms that incorporate music (TikTok, Triller and Peloton) have experienced a surge in growth and payments from these will start flowing into royalty statements in 2021 and beyond.
Recent Portfolio Highlights
Hipgnosis now has interests in 18 Songs that are part of the 'Billion Stream Club' on Spotify, that includes Songs written by The Chainsmokers,
Our 'Patience' recorded master with
Eurythmics song 'Sweet Dreams (Are Made Of This)' was recently licensed to promote the upcoming 'For All Mankind Season 2' on Apple TV.
Eurythmics song 'Sweet Dreams (Are Made Of This)', Chic's 'Good Times' and
As part of our Song Management we have established a Blondie profile on TikTok, with Blondie announced as 'Artist of the Week' on TikTok in
We have established the same for Advisory Board member
Journey's 'Don't Stop Believin' has been placed in a new Toyota commercial as well as local ads for telecommunications companies in
The Pop duo Aly & AJ's 'Potential Breakup Song', which is part of the recent Kobalt Fund 1 acquisition, has been the Number One trending song on TikTok for two consecutive weeks.
'Someone To You' by Banners from the Sam Hollander Catalogue was used in a TV trailer for 'Love, Victor' in May and is now climbing the charts.
The next Marshmello single comes from one of the unexploited Songs in our Savan Kotecha Catalogue. Other unexploited Songs in the same Catalogue have recently performed well on
The Investment Adviser with Apple Music and
The new
Grammy nominations have just been released and Hipgnosis writers who have been nominated include The-Dream, Starrah,
We have 3 Songs in the new series of The Crown including Blondie 'Call Me',
Current Portfolio
As at
The Investment Adviser has now moved 15 Catalogues in total to the Preferred Portfolio Administrator and 9 in the period July to
Financial Review
The Company reports two net asset values, an IFRS NAV which is prepared in accordance with IFRS under which the Company's investments in Catalogues are held at cost less amortisation, and an Operative NAV which adjusts the IFRS NAV to reflect the fair value of the Company's Catalogues as determined by an independent valuer.
As at
The Operative NAV per Ordinary Share increased by 7.4% during the period to
In total, since IPO on
The Total NAV Return for the six month period 1 April to
At
The growth in the Operative NAVs is primarily a result of a
· strong fair value uplifts in the Catalogues acquired during the period, proving that the proceeds of the
· streaming revenues starting to be recognised and received from emerging digital platforms including TikTok and Peloton;
· a reduction in the discount rate used by the Independent Valuer to value the Company's Catalogues from 9% to 8.5% resulting in a 9% uplift to the fair value of the Company's Catalogues; and
· the independent valuer taking a prudent approach to their forecast for 2021 due to COVID-19 by assuming flat growth for that period across the majority of Catalogues.
The growth of streaming is increasingly turning music consumption into a utility rather than a discretionary purchase. After another strong period of streaming growth, and with approximately one third of income in the period generated by streaming, the Independent Valuer has reduced the discount rate used to value the Portfolio from 9% to 8.5%. This reflects the decreased risk premium associated with the increasingly stable and predictable earnings of the asset class. We are delighted that music valuers are starting to reflect what we consider to be the true value of music as an asset class and we expect this trend to continue as streaming continues to grow and music revenues continue to prove their stability.
The growth in fair value on the C Share Catalogues was higher than the Ordinary Share Catalogues as there was a greater proportion of new Catalogues acquired during the period which saw a significant fair value uplift reflecting our successful acquisition strategy. The full breakdown of the movements in the Ordinary Share Operative NAV set out in the bridge below highlights that the dividend was 1.5x covered by net income from the Ordinary share portfolio:
Opening Operative NAV per Ordinary Share: |
116.73p |
Increase in FV of Catalogues at 9% Discount Rate |
0.64p |
Impact of Discount Rate reduction to 8.5% |
10.48p |
Net Income |
2.79p |
Dividends Paid |
-1.93p |
FX Impact |
-2.85p |
Share Issue Costs |
-0.50p |
Closing Operative NAV per Ordinary Share: |
125.35p |
The Operative NAV per C Share has increased to
A full bridge of the movement is set out below.
Opening Operative NAV per C Share: |
98.00p |
Increase in FV of Catalogues at 9% Discount Rate |
3.66p |
Impact of Discount Rate reduction to 8.5% |
7.13p |
Net Income |
4.37p |
FX Impact |
-0.77p |
Closing Operative NAV per C Share: |
112.39p |
During the period, net revenues (after royalty costs) grew to
The royalty costs in the period of
During the period, the Company has received royalty statements for the
From these royalty statements received, in line with Company's expectations, there has been a decrease in performance royalties, reflecting the closure of bars and restaurants during lockdown, however streaming income has continued to grow strongly.
Due to the time lag on international income the exact impact of COVID-19 remains unknown. Accordingly, accruals have been marked down on expected income by up to 25% for the quarter period, which will be reassessed at the full year when calendar H2 2020 statements are received.
Despite the approach applied to the July to
Revenues and costs associated with Hipgnosis Songs Group (formerly known as Big Deal Music) were consolidated for the period from 10 to
A breakdown of the income source of all revenues is set out below:
For the period ended
|
£'000 |
% |
Mechanical |
8,185 |
16 |
Performance |
13,040 |
26 |
Digital |
19,201 |
38 |
Synchronisation |
6,924 |
14 |
Other |
2,821 |
6 |
The percentage of Digital income from publishing copyrights has decreased slightly as Mechanical income which includes revenues from Masters and Producers income, and also includes revenue from Digital) has increased as a proportion of income within the interim period.
Streaming revenues from Publishing catalogues for the latest 12 month period to
Importantly, Synchronisation income has increased from 9% to 14% of gross income driven by strong synchronisation demand generated through Song Management across our Portfolio, including the following notable catalogues; Eurythmics, Journey, Mark Ronson, Chrissie Hynde, Sam Hollander and Scott Harris.
The Company interrogates revenue on an annual fiscal year basis in order to extract more meaningful analysis, given the processing cycles and payment lags associated with the Publishers and PROs.
Our current revenue analysis, taking into account the 6 month period ended
Accruals and Receivables
There is an inherent time lag with royalties between the time a Song is performed and when the revenue is received by the Copyright owner. The time lag can be as much as 24 months on international income.
Accrued Income and Receivables at
A
Included in trade and other receivables is an accrued income balance of
·
·
·
·
·
·
Right To Income
On the acquisition of a Catalogue, the Company may receive a Right To Income, which is typically dependent on the timing of the negotiations. The Right To Income relating to acquisitions before the interim period was
Costs
Adjusted Operating Costs increased to
The Costs directly associated with the HSG acquisition were
Ongoing Charges decreased as a percentage of the Weighted Average Operative NAV, from 1.76% to 1.35%, reflecting the operational gearing in the Company as it has scaled over the period.
Following the acquisition of HSG, the expectation is that Operating Costs as a percentage of Operative NAV will continue to fall, in particular once costs related to acquisitions decrease when the Company reaches stabilisation/steady state.
The Operative Profit before Tax, which excludes amortisation, grew to
At
Calendar 2021 is very much a year we are all looking forward to. We have assembled an enviable pipeline of more than
Once again, I would sincerely like to thank all of our investors who continue to support us through this exciting and special time as well as the great songwriters that have entrusted us with their iconic Songs as we continue to establish proven Songs as an asset class.
Merck Mercuriadis
Founder of Hipgnosis Songs Fund Limited and Founder/CEO of The Family (Music) Limited (Investment Adviser to Hipgnosis Songs Fund Limited)
3 December 2020
Condensed Consolidated Statement of Comprehensive Income
For the six months ended 30 September 2020 (unaudited)
|
|
1 April 2020 to |
1 April 2019 to |
|
|
30 September 2020 |
30 September 2019 |
|
|
£ |
£ |
|
Notes |
|
|
Income |
|
|
|
Total revenue |
11 |
50,036,643 |
22,641,230 |
Interest income |
|
55,328 |
584,507 |
Royalty costs |
4 |
(5,292,032) |
- |
Net operating income |
|
44,799,939 |
23,225,737 |
|
|
|
|
Expenses |
|
|
|
Advisory fees |
15 |
(3,553,890) |
(1,781,447) |
Amortisation of Catalogues of Songs |
6 |
(19,045,656) |
(5,995,918) |
Amortisation of capitalised borrowing costs |
|
(1,047,534) |
- |
Administration fees |
|
(467,206) |
(344,918) |
Directors' remuneration |
15 |
(199,000) |
(94,375) |
Broker fees |
|
(31,724) |
(31,289) |
Audit fees |
|
(145,368) |
(55,000) |
Legal and professional fees |
|
(3,263,082) |
(2,186,968) |
Finance charges for deferred consideration |
|
(529,769) |
- |
Loan interest |
|
(1,609,801) |
(52,109) |
HSG FV Gain |
3 |
1,396,607 |
- |
Other operating expenses |
12 |
(1,415,076) |
(333,258) |
Foreign exchange (losses)/gains |
|
(2,894,691) |
281,461 |
Total expenses |
|
(32,806,190) |
(10,593,821) |
|
|
|
|
Operating profit for the period before taxation |
|
11,993,749 |
12,631,916 |
|
|
|
|
Taxation |
5 |
(1,743,476) |
(1,909,309) |
Profit for the period after tax |
|
10,250,273 |
10,722,607 |
Total comprehensive income for the period |
|
10,250,273 |
10,722,607 |
|
|
|
|
Basic Earnings per Share (pence) |
16 |
1.61 |
3.19 |
Diluted Earnings per Share (pence) |
16 |
1.61 |
3.19 |
All activities derive from continuing operations.
The accompanying notes form an integral part of these Condensed Consolidated Financial Statements.
Condensed Consolidated Statement of Financial Position
As at 30 September 2020
|
|
30 September 2020 |
31 March 2020 |
|
|
|
£ |
£ |
|
|
Notes |
(Unaudited) |
(Audited) |
|
Assets |
|
|
|
|
Catalogues of Songs |
6 |
1,162,276,428 |
659,435,205 |
|
Other assets |
|
1,189,225 |
- |
|
Goodwill |
|
204,266 |
- |
|
Trade and other receivables |
|
61,497,148 |
42,440,593 |
|
Cash and cash equivalents |
8 |
203,719,478 |
14,098,374 |
|
Total assets |
|
1,428,886,545 |
715,974,172 |
|
|
|
|
|
|
Liabilities |
|
|
|
|
C Shares |
10 |
232,024,167 |
- |
|
Other payables and accrued expenses |
9 |
292,107,133 |
38,411,448 |
|
Bank loan |
7 |
80,658,490 |
56,082,763 |
|
Total liabilities |
|
604,789,790 |
94,494,211 |
|
Net assets |
|
824,096,755 |
621,479,961 |
|
|
|
|
|
|
Equity |
|
|
|
|
Share capital |
10 |
821,970,860 |
614,208,042 |
|
Retained earnings |
|
2,125,895 |
7,271,919 |
|
Total equity attributable to the owners of the Company |
|
824,096,755 |
621,479,961 |
|
|
|
|
|
|
Number of ordinary shares in issue at period end |
10 |
797,254,294 |
615,851,887 |
|
|
|
|
|
|
IFRS Net Asset Value per ordinary share (pence) |
|
103.37 |
100.91 |
|
IFRS Net Asset Value per C share (pence) |
|
100.66 |
- |
|
Operative Net Asset Value per ordinary share (pence) |
|
125.35 |
116.73 |
|
Operative Net Asset Value per C Share (pence) |
|
112.39 |
- |
|
Approved and authorised for issue by the Board of Directors on 3 December 2020 and signed on their behalf by:
Andrew Sutch Chair Andrew Wilkinson Director
The accompanying notes form an integral part of these Condensed Consolidated Financial Statements.
Condensed Consolidated Statement of Changes in Equity
For the six months ended 30 September 2020 (unaudited)
|
|
Number of Ordinary Shares |
Share capital |
Retained earnings |
Total |
|
Notes |
|
£ |
£ |
£ |
As at 1 April 2020 |
|
615,851,887 |
614,208,042 |
7,271,919 |
621,479,961 |
Shares issued |
10 |
181,402,407 |
211,245,624 |
- |
211,245,624 |
Share issue costs |
10 |
- |
(3,482,806) |
- |
(3,482,806) |
Dividends paid |
13 |
- |
- |
(15,396,297) |
(15,396,297) |
Profit for the period |
|
- |
- |
10,250,273 |
10,250,273 |
As at 30 September 2020 |
|
797,254,294 |
821,970,860 |
2,125,895 |
824,096,755 |
For the six months ended 30 September 2019 (unaudited)
|
|
Number of Ordinary Shares |
Share capital |
Retained earnings |
Total |
|
Notes |
|
£ |
£ |
£ |
As at 1 April 2019 |
|
202,176,800 |
198,221,140 |
337,686 |
198,558,826 |
Shares issued |
10 |
187,179,541 |
192,618,166 |
- |
192,618,166 |
Share issue costs |
10 |
- |
(3,928,077) |
- |
(3,928,077) |
Dividends paid |
13 |
- |
- |
(8,523,170) |
(8,523,170) |
Profit for the period |
|
- |
- |
10,722,607 |
10,722,607 |
As at 30 September 2019 |
|
389,356,341 |
386,911,229 |
2,537,123 |
389,448,352 |
The accompanying notes form an integral part of these Condensed Consolidated Financial Statements.
Condensed Consolidated Statement of Cash Flows
For the six months ended 30 September 2020 (unaudited)
|
|
1 April 2020 to |
1 April 2019 to |
|
Notes |
£ |
£ |
Cash flows used in operating activities |
|
|
|
Operating profit/(loss) for the period before taxation |
|
11,993,749 |
12,631,916 |
Adjustments for non-cash items: |
|
|
|
Movement in trade and other receivables |
|
(29,426,685) |
(21,490,340) |
Movement in other payables and accrued expenses |
|
260,384,802 |
(33,716,890) |
Amortisation of Catalogues of Songs and borrowing costs |
|
20,093,190 |
5,995,918 |
Foreign exchange (gains)/losses |
|
2,894,691 |
(281,461) |
|
|
265,939,747 |
(36,860,857) |
Taxation |
|
(1,743,476) |
- |
Purchase of Catalogues of Songs |
|
(497,393,922) |
(199,481,680) |
Net cash used in operating activities |
|
(233,197,651) |
(236,342,537) |
|
|
|
|
Cash flows generated from financing activities |
|
|
|
Proceeds from issue of shares* |
10 |
426,400,510 |
192,618,166 |
Issue costs paid |
10 |
(7,859,151) |
(3,928,077) |
Dividends paid |
13 |
(15,396,297) |
(8,523,170) |
Interest paid |
|
(1,609,801) |
(52,109) |
Borrowing costs |
|
(3,367,049) |
- |
Bank loan |
7 |
26,895,243 |
13,697,891 |
Net cash generated from financing activities |
|
425,063,455 |
193,812,701 |
|
|
|
|
Net movement in cash and cash equivalents |
|
191,865,804 |
(42,529,836) |
|
|
|
|
Cash and cash equivalents at the start of the period |
|
14,098,374 |
108,483,752 |
Effect of foreign exchange rate changes on cash and cash equivalents |
|
(2,244,700) |
281,462 |
Cash and cash equivalents at the end of the period |
|
203,719,478 |
66,235,378 |
*Includes C Shares and Ordinary Shares
The accompanying notes form an integral part of these Condensed Consolidated Financial Statements.
Notes to the Condensed Consolidated Financial Statements
For the six months ended 30 September 2020
1. General information
Hipgnosis Songs Fund Limited was incorporated and registered in Guernsey on 8 June 2018 with registered number 65158 and is governed in accordance with the provisions of the Companies Law. The registered office address is Floor 2, Trafalgar Court, Les Banques, St Peter Port, Guernsey, GY1 4LY.
The Company's Ordinary Shares were admitted to trading on the Specialist Fund Segment of the London Stock Exchange on 11 July 2018, and migrated to a Premium Listing on the Main Market of the London Stock Exchange on 25 September 2019. The Company was added as a constituent of the FTSE 250 Index effective from after the market close on 20 March 2020.
On 10 September 2020 the Company acquired the entire share capital of Big Deal Music Group. Whilst this was a significant acquisition in expanding operations, the size of acquisition does not warrant a separate segment but a complementary one to the primary segment of royalty collection/catalogue ownership. Accounting recognition and measurement policies have only been included where material to the consolidated results and financial position of the Company.
The consideration for this acquisition was funded from the proceeds of Hipgnosis' equity fundraise in July 2020 and through the issue of 17,609,304 new Ordinary Shares ("Consideration Shares") issued at a price of 120.65 pence per Ordinary Share. 6,248,351 of the Consideration Shares were subject to lock up restrictions to 1 October 2020, with 10,123,219 Consideration Shares subject to lock up restrictions to 1 April 2021. The acquisition provides the Company with a full service US music platform, which is expected to enhance royalty income from its growing portfolio of songs, create new songs at an attractive cost and provide in-house US administration, and therefore increase control over its portfolio's income.
Following the equity fundraise in July 2020 the Company, as at 30 September, acquired a portfolio of 42 Catalogues, (Kobalt Fund 1), from Kobalt Music Copyrights S.à.r.l., an investment fund advised by Kobalt Capital Limited, for a total consideration of $322.9 million. The consideration, net of right to income, represents a blended acquisition multiple of 18.3x average annual income and was funded with the net proceeds from the Company's September equity fundraising together with the Company's existing leverage facility. The accounting for the acquisition of the Kobalt Music Copyrights Portfolio is consistent with the accounting treatment of all other catalogue acquisitions.
The Company makes its investments through its subsidiaries, which are predominantly registered in the UK and US as limited companies, in which the Company is the sole shareholder. The principal place of business of the subsidiaries is the UK.
The Condensed Consolidated Financial Statements present the results of the Group for the six months ended 30 September 2020 and are unaudited. The Group is principally engaged in investing in and managing music copyrights and associated musical intellectual property.
2. Accounting policies
a) Basis of preparation
The Condensed Consolidated Financial Statements included in this Interim Report have been prepared in accordance with IAS 34 'Interim Financial Reporting' and the Disclosure and Transparency Rules of the FCA.
The Condensed Consolidated Financial Statements do not include all the information and disclosures required in the Annual Report and should be read in conjunction with the Company's Annual Report for the year ended 31 March 2020, which are available on the Company's website (www.hipgnosissongs.com). The Annual Report has been prepared in accordance with IFRS.
The same accounting policies and methods of computation have been followed (in addition to a new accounting policiy in respect of IFRS 3 Business Combinations) for the preparation of these Condensed Consolidated Financial Statements as in the Annual Report for the year ended 31 March 2020.
The Company applied, for the first time, certain standards and amendments, which are effective for annual periods beginning on or after 1 April 2020. The new standards or amendments to existing standards and interpretations, effective from 1 April 2020, did not have a material impact on the Company's Condensed Consolidated Financial Statements. It is not anticipated that any standard which is not yet effective, will have a material impact on the Company's financial position or on the performance of the Company's statements.
2. Accounting policies (continued)
b) Group information
As at 30 September 2020, the details of the Company's subsidiaries are as follows:
Name of the subsidiary |
Place of incorporation and operation |
% of voting rights |
% Interest |
Consolidation method |
Hipgnosis Holdings UK Limited |
UK |
100 |
100 |
Full |
Hipgnosis SFH I Limited |
UK |
100 |
100 |
Full |
Hipgnosis SFH II Limited* |
UK |
100 |
100 |
Full |
Hipgnosis SFH III Limited* |
UK |
100 |
100 |
Full |
Hipgnosis SFH IV Limited* |
UK |
100 |
100 |
Full |
Hipgnosis SFH V Limited* |
UK |
100 |
100 |
Full |
Hipgnosis SFH VI Limited* |
UK |
100 |
100 |
Full |
Hipgnosis SFH VII Limited* |
UK |
100 |
100 |
Full |
Hipgnosis SFH VIII Limited* |
UK |
100 |
100 |
Full |
Hipgnosis SFH IX Limited* |
UK |
100 |
100 |
Full |
Hipgnosis SFH X Limited* |
UK |
100 |
100 |
Full |
Hipgnosis SFH XI Limited* |
UK |
100 |
100 |
Full |
Hipgnosis SFH XII Limited* |
UK |
100 |
100 |
Full |
Hipgnosis SFH XIII Limited |
UK |
100 |
100 |
Full |
Hipgnosis SFH XIV Limited* |
UK |
100 |
100 |
Full |
Hipgnosis SFH XV Limited* |
UK |
100 |
100 |
Full |
Hipgnosis SFH XVI Limited* |
UK |
100 |
100 |
Full |
Hipgnosis SFH XVII Limited* |
UK |
100 |
100 |
Full |
Hipgnosis SFH XVIII Limited* |
UK |
100 |
100 |
Full |
Hipgnosis SFH XIX Limited |
UK |
100 |
100 |
Full |
Hipgnosis SFH XX Limited |
UK |
100 |
100 |
Full |
Ruby Ruby (London) Limited† |
UK |
100 |
100 |
Full |
Big Deal Music Group # |
US |
100 |
100 |
Full |
BDM Acquisition Corp, LLC |
US |
100 |
100 |
Full |
*During the financial year ended 31 March 2020 a restructuring took place and the subsidiaries as highlighted above transferred their catalogues and all other assets and liabilities to Hipgnosis SFH 1 Limited. These subsidiaries are dissolved with effect from 6 October 2020.
†This is a subsidiary of Hipgnosis SFH XX Limited and therefore an indirect subsidiary of Hipgnosis Songs Fund Limited.
#On 10 September 2020 the Company acquired the entire share capital of Big Deal Music Group which includes BDM Acquisition Corp and Big Deal Music LLC both incorporated in the US. Big Deal Music LLC is part of a joint venture with Big Family LLC, a publishing company which was formed in June 2018 and is equity accounted for in the financial statements.
The subsidiaries of the Company are considered tax resident in the UK and are subject to UK corporation tax. The Company acquired Big Deal Music on 10 September 2020 which is domiciled in Los Angeles, California and is subject to applicable State and Federal Taxes.
2. Accounting policies (continued)
c) Going concern
The Directors monitor the capital and liquidity requirements of the Company and its subsidiaries on a regular basis. They have also reviewed cash flow forecasts prepared by the Investment Adviser which are based in part on assumptions about the future purchase and returns from existing Catalogues of Songs and the annual operating cost.
Based on these sources of information and their own judgement, the Directors believe it is appropriate to prepare the Condensed Consolidated Financial Statements of the Group on a going concern basis.
d) Segmental reporting
The chief operating decision maker is the Board of Directors. All of the Company's income is global but received from sources within US, Europe, UK and Guernsey. While the Company's income is derived internationally, the Directors are of the opinion that the Group is engaged in a single segment of business, being the investment of the Company's capital in the Portfolio, with an attractive and growing level of income, together with the potential for capital growth.
The Directors believe that the acquisition of BDM is wholly complementary and does not require segmental reporting at this time.
3. Business Combinations
The acquisition method of accounting is used to account for all business combinations, regardless of whether equity instruments or other assets are acquired. The consideration transferred for the acquisition of a subsidiary comprises the:
• fair values of the assets transferred;
• liabilities incurred to the former owners of the acquired business;
• equity interests issued by the group;
• fair value of any asset or liability resulting from a contingent consideration arrangement; and
• fair value of any pre-existing equity interest in the subsidiary.
Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are, with limited exceptions, measured initially at their fair values at the acquisition date.
The excess of the:
• consideration transferred; and
• acquisition-date fair value of any previous equity interest in the acquired entity over the fair value of the net identifiable assets acquired is recorded as goodwill. If those amounts are less than the fair value of the net identifiable assets of the business acquired, the difference is recognised directly in profit or loss as a bargain purchase.
Where settlement of any part of cash consideration is deferred, the amounts payable in the future are discounted to their present value as at the date of exchange. Contingent consideration is classified either as equity or a financial liability. Amounts classified as a financial liability are subsequently remeasured to fair value, with changes in fair value recognised in profit or loss.
On 10 September 2020, the Company acquired the entire share capital of Big Deal Music Group (rebranded as Hipgnosis Songs Group) a boutique full-service song company which owns a portfolio of copyright interests, and is headquartered in the US. The consideration for the acquisition was funded from the proceeds of the Company's C Share equity fundraise in July 2020 and through the issue of 17,609,304 new Ordinary Shares issued at a price of 120.65 pence per Ordinary Share. As part of the business combination, the assets were revalued to fair value on the date of the business combination and liabilities evaluated, and recognised in the respective balances in the consolidated financial statements. The fair value gain as a result of this process has been recognised in the statement of comprehensive income. As a result of the remaining purchase price allocation on the Hipgnosis Songs Group balance sheet an immaterial amount of goodwill at $0.3 million was recorded. The Company has not disclosed the allocation of the purchase price in accordance with IFRS 3 because of non-disclosure legal restrictions set out in the purchase agreement. The Board also believes such information is not material to the users of the financial statements.
4. Significant accounting judgements, estimates and assumptions
The preparation of the Group's Condensed Consolidated Financial Statements requires the application of estimates and assumptions which may affect the results reported in the financial statements. Uncertainty about these estimates and assumptions could result in outcomes that require a material adjustment to the carrying amount of the asset or liability affected in future periods. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimates are revised and in any future periods affected.
The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date, that have a significant risk of resulting in a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are discussed below. The Group based its assumptions and made estimates based on the information available when the Condensed Consolidated Financial Statements were prepared. However these assumptions and estimates may change based on market changes or circumstances beyond the control of the Group.
Critical estimates in applying the Group's accounting policies - revenue recognition and royalty costs:
In calculating accruals, we make judgments around seasonality, over or under performance, and commercial factors based on historical performance, our knowledge of each catalogue and our regular correspondence with the various administrators, record labels and international societies.
Estimated royalty revenue receivable is accrued for on the basis of historical earnings for each catalogue, which incorporates an element of uncertainty. The estimated revenue accrual may not therefore directly equal the actual cash received in respect of each accounting period and adjustments may therefore be required throughout the financial period when the actual revenue received is known, and these adjustments may be material.
Net revenues also include an accrual for performance income, to account for the writer's share of performance royalties which are subject to a significant time lag in reporting in the industry, but which the Company is entitled to receive in due course. In recommending the estimate of this accrual to the Board of Directors and the Investment Adviser used its analysis of each Catalogue's revenue history as well its knowledge of the respective Catalogue performance trends to recommend the estimated accruals. The PRO income accrual is based on analysis of each Catalogue's revenue history as well as knowledge of the respective Catalogue's performance trends.
Net revenue is subject to a royalty cost accrual applied to gross revenue receipts primarily within the Big Deal Music subsidiaries. Royalty cost accruals represent contractual royalties due to songwriters and other rights holders that are payable on a 6-monthly basis for writers under publishing contracts and quarterly for clients under administration contracts. Royalty rates vary by writer (negotiated by contract) and by revenue stream.
Assessment of useful life of intangible assets
In order to calculate the amortised cost of the intangible assets it is necessary to assess the useful economic life of the copyright interests in Songs. This requires forecasts of the expected future revenue from the copyright interests, which contains significant uncertainties as the ongoing popularity of a Song can fluctuate unexpectedly.
Assessment of impairment and the Calculation of Operative NAV
Intangible assets are subject to annual impairment review which relies on assumptions made by the Board. Assumptions are updated annually, specifically those relating to future cash flows and discount rates.
The fair value estimates that are prepared in order to calculate the Operative NAV and Operative NAV per Share are also used to assess whether there is evidence that the intangible assets may be impaired.
Valuations of music publishing rights typically adopt the DCF valuation approach which measures the present value of anticipated future revenues from acquiring the Catalogues, which are discounted at a 'market cost of capital', 8.5% and a terminal value in 10 years. This method is accepted as an objective way of measuring future benefits; taking into account income projections from various music industry sources across various revenue flows whilst also factoring in the associated cost of capital.
It is the intention of the Board that Catalogues of Songs will be valued on an ongoing basis using a consistent DCF valuation methodology, and that this be used as an initial indicator of impairment for each Catalogue of Songs.
5. Taxes
The Company is exempt from taxation in Guernsey under the provisions of the Income Tax (Exempt Bodies) (Guernsey) Ordinance, 2008 and is charged an annual fee of £1,200.
Whilst the Company is incorporated in Guernsey, the majority of the Company's subsidiaries are incorporated and tax resident in the UK and the majority of the Group's income and expenditure is incurred in these entities.
One of the Company's UK subsidiaries incorporated BDM Acquisition Corp Inc. (an entity incorporated under the law of Delaware, USA) which acquired the membership interests in Big Deal Music LLC on 10 September 2020.
Big Deal Music Group is subject to applicable federal, state and local taxes in the US.
6. Catalogues of Songs
|
£ |
Cost |
|
At 1 April 2020 |
679,390,925 |
Additions |
521,886,879 |
At 30 September 2020 |
1,201,277,804 |
|
|
Amortisation and impairment |
|
At 1 April 2020 |
19,955,720 |
Amortisation |
19,045,656 |
Impairment |
- |
At 30 September 2020 |
39,001,376 |
|
|
Net book value |
|
At 1 April 2020 |
659,435,205 |
At 30 September 2020 |
1,162,276,428 |
|
|
Fair value as at 30 September 2020 |
1,371,244,828 |
Cost |
£ |
At 1 April 2019 |
119,950,740 |
Additions |
559,440,185 |
At 31 March 2020 |
679,390,925 |
|
|
Amortisation and impairment |
|
At 1 April 2019 |
1,491,922 |
Amortisation |
18,463,798 |
Impairment |
- |
At 31 March 2020 |
19,955,720 |
|
|
Net book value |
|
At 1 April 2019 |
118,458,818 |
At 31 March 2020 |
659,435,205 |
Fair value as at 31 March 2020 |
756,818,538 |
The Group amortises Catalogues of Songs with a limited useful life using the straight-line method of 20 years (other than in exceptional circumstances for specific Catalogues of Songs). Useful life is separately considered for each Catalogue of Songs and is reviewed at the end of each reporting period. At 30 September 2020 accumulated amortisation for Catalogue of Songs is £ 38,993,471 (31 March 2020: £19,955,720) and the accumulated impairment to date is £nil (31 March 2020: £nil).
The Board engaged portfolio Independent Valuer, Massarsky Consulting, Inc., to value the Catalogues as at 30 September 2020. Each income type from each Catalogue was analysed and forecasted to derive the fair value of the Catalogues by adopting a DCF valuation methodology using a discount rate of 8.5% (31 March 2020: 9%). Income was analysed and forecast at the level of each individual Catalogue and by income type. Future revenues were also estimated, often at the level of individual Songs, and incorporated into their valuation. Massarsky Consulting has also taken into consideration macro factors including the growth of streaming revenue, the global growth of the recorded music industry and the short- and medium-term impact of COVID-19 in their analysis. The Board has approved and adopted the valuations prepared by the portfolio Independent Valuer.
The sensitivity to the discount rate used in the Operative NAV is as follows:
-1% discount rate will grow the FV of the Portfolio by 19.57%, increasing the Operative NAV by £266.79 million which represents an increase of +26.4 pence Operative NAV per share.
+1% discount rate will reduce the FV of the Portfolio by 14.57%, reducing the Operative NAV by £198.56 million which represents a decrease of -19.7 pence Operative NAV per share.
7. Revolving credit facility
On 2 September 2019 it was announced the Company had entered into a Revolving Credit Facility (RCF), with JPMorgan Chase Bank (JPM) as Lead Arranger of £100 million which was uplifted on 15 April 2020 to £150 million and uplifted to $400 million on 23 July 2020. The loan bears interest at 3.75%. The Revolving Credit Facility, which had an original maturity date of 29 August 2022 and has been extended for a further three years to 2 April 2025 on 15 April 2020, provides the Company with greater flexibility to fund investments and provide additional working capital.
At the period end £86,895,243 ($107,292,000) (which excludes capitalised borrowing costs), remained drawn down with £2,608,256, paid in interest. This figure is drawn in Sterling as both Hipgnosis Holdings UK Limited and Hipgnosis Songs Fund Limited, which are the principal Group companies party to the RCF, are English and Guernsey companies respectively.
8. Cash and cash equivalents
Cash and cash equivalents comprises cash held by the Group and portfolios of securities.
9. Other payables and accrued expenses
|
1 April 2020 to |
1 April 2019 to |
|
30 September 2020 |
31 March 2020 |
|
£ |
£ |
|
|
|
Trade and other payables |
(1,194,082) |
(1,460,635) |
Investment payable |
(280,973,213) |
(33,341,553) |
Intercompany loans |
(3,029) |
- |
Royalty creditor |
(7,737,401) |
- |
Other royalty creditors |
(810,145) |
- |
Property leases |
(902,038) |
|
Accruals |
(288,189) |
- |
Current portion of long term borrowing |
(193,359) |
(254,559) |
Current tax payable |
- |
- |
Tax Provision |
(5,677) |
(3,354,701) |
Total other payables and accrued expenses |
292,107,133 |
38,411,448 |
10. Share capital and capital management
The Company may issue an unlimited number of: (i) ordinary shares of no par value which upon issue the Directors may classify as Ordinary Shares; and (ii) C Shares denominated in such currencies as the Directors may determine.
Ordinary Shares of no par value
|
|
30 September 2020 |
31 March 2020 |
Issued and fully paid: |
|
No. of Shares |
No. of Shares |
Shares issued on 11 July 2018 |
|
202,176,800 |
202,176,800 |
Shares issued on 17 April 2019 |
|
138,750,000 |
138,750,000 |
Shares issued on 29 August 2019 |
|
48,429,541 |
48,429,541 |
Shares issued on 30 December 2019 |
|
207,946 |
207,946 |
Shares issued on 10 January 2020 |
|
226,287,600 |
226,287,600 |
Shares issued on 10 September 2020 |
|
17,609,304 |
- |
Shares issued on 24 September 2020 |
|
163,793,103 |
- |
Ordinary Shares as at 30 September 2020 |
|
797,254,294 |
615,851,887 |
|
|
|
|
|
|
|
|
Issued and fully paid: |
|
£ |
£ |
Share capital at 1 April 2019 |
|
198,221,140 |
198,221,140 |
Shares issued on 17 April 2019 |
|
141,525,000 |
141,525,000 |
Share issue costs |
|
(2,853,852) |
(2,853,852) |
Shares issued on 29 August 2019 |
|
51,093,168 |
51,093,168 |
Share issue costs |
|
(981,727) |
(981,727) |
Shares issued on 30 December 20191 |
|
225,884 |
225,884 |
Share issue costs |
|
- |
- |
Shares issued on 10 January 20202 |
|
231,000,000 |
231,000,000 |
Share issue costs |
|
(4,021,571) |
(4,021,571) |
Shares issued on 10 September 20203 |
|
21,245,625 |
- |
Share issue costs |
|
- |
- |
Shares issued on 24 September 20204 |
|
189,999,999 |
- |
Share issue costs |
|
(3,482,806) |
- |
Ordinary share capital as at 30 September 2020 |
|
821,970,860 |
614,208,042 |
Shares issued on 30 September 20205 |
|
236,400,512 |
|
Share issue costs |
|
(4,376,345) |
|
Total share capital as at 30 September 2020 |
|
1,053,995,027 |
614,208,042 |
|
|
|
|
1 Shares issued as performance fee in respect of year ended 31 March 2019
2 231,000,000 C Shares calculated at 10 January 2020 to convert to 226,287,600 Ordinary Shares at a conversion rate of 0.9796 Ordinary Shares for each C Share held on 10 February 2020
3 17,609,304 Ordinary Shares issued at £1.2065 for the consideration of the acquisition of Big Deal Music on 10 September 2020
4 163,793,103 Ordinary Shares issued at £1.16 per Ordinary Share
5 236,400,512 C Shares calculated at 30 September to convert to 214,202,503 Ordinary Shares at a conversion rate of 0.9061 Ordinary Shares for each C Share held on 4 December 2020
On 24 September 2020, the Company issued an additional 163,793,103 Ordinary Shares at an issue price of 116 pence each and raised gross proceeds of £190 million.
On 10 September 2020, the Company issued an additional 17,609,304 Ordinary Shares at an issue price of 120.65 pence each to the sellers of Big Deal Music, LLC (which was rebranded to The Hipgnosis Songs Group following acquisition) ("HSG"), in connection with the Company's acquisition of HSG.
On 15 July 2020, the Company issued 233,446,307 C Shares at an issue price of 100 pence per C Share, raising gross proceeds of approximately £233.4 million and the Company issued an additional 2,954,205 C Shares at an issue price of 100 pence per C Share, raising further gross proceeds of just under £3.0 million.
C Shares of 236,400,512, are reflected as a liability until converted on 4 December 2020 to 214,202,503 Ordinary Shares at a conversion rate of 0.9061 Ordinary Shares for each C Share held.
Under the Company's Articles of Incorporation, each Shareholder present in person or by proxy has the right to one vote at general meetings. On a poll, each Shareholder is entitled to one vote for every Ordinary Share held.
Shareholders are entitled to all dividends paid by the Company and, on a winding up, provided the Company has satisfied all of its liabilities, the Shareholders are entitled to all of the residual assets of the Company.
11. Revenue
|
1 April 2020 to |
1 April 2019 to |
|
30 September 2020 |
30 September 2019 |
|
£ |
£ |
Mechanical income |
4,767,559 |
1,391,295 |
Performance income |
8,742,008 |
4,201,061 |
Digital downloads income |
1,226,746 |
1,028,665 |
Streaming income |
8,016,641 |
4,653,236 |
Synchronization income |
6,906,096 |
2,030,838 |
Publishing admin income |
33,658 |
- |
Writer's Share income |
12,261,743 |
8,189,913 |
Producer royalties |
2,355,839 |
577,165 |
Masters income |
2,994,089 |
32,336 |
Other income* |
2,732,264 |
536,721 |
Total revenue** |
50,036,643 |
22,641,230 |
* Other Income refers to any income not covered by the other income types, for example sheet Black Box income (associated with the Kobalt Fund 1 acquisition) sheet music and lyric exploitation.
**Excludes royalty costs and bank interest received.
There is an inherent time lag with royalties between the time a Song is performed, and the revenue being received by the Copyright owner. The time lag ranges from 3-6 months on domestic income and 12-18 months on international income. The revenue accruals booked in the period are included within trade and other receivables. Revenue includes publishing and administration income generated by HSG.
All revenue streams disclosed in this note are in scope of IFRS 15.
12. Other operating expenses
|
1 April 2020 to |
1 April 2019 to |
|
30 September 2020 |
30 September 2019 |
|
£ |
£ |
|
|
|
Regulatory fees |
12,218 |
13,239 |
Listing fees |
450,269 |
11,748 |
Directors and officers Insurance |
49,359 |
10,101 |
Directors expenses |
4,536 |
921 |
Registrar fees |
22,575 |
11,978 |
Public relation fees |
171,414 |
153,412 |
Travel and accommodation fees |
110,811 |
92,019 |
Bank charges |
16,149 |
13,474 |
Aborted deal expenses |
176,922 |
- |
Disbursements and sundry |
174,626 |
10,430 |
Postage; printing and stationery |
12,411 |
15,936 |
HSG payroll (salaries) |
129,495 |
- |
HSG staff expenses |
51,912 |
- |
HSG other expenses |
21,284 |
- |
HSG depreciation fixed assets |
11,095 |
- |
Total other operating expenses |
1,415,076 |
333,258 |
13. Dividends
A summary of the dividends is set out below:
1 April 2020 to 30 September 2020 |
Dividend per share Pence |
Total dividend £ |
Interim dividend in respect of quarter ended 31 March 2020 |
1.25 |
7,698,148 |
Interim dividend in respect of quarter ended 30 June 2020 |
1.25 |
7,698,149 |
|
2.50 |
15,396,297 |
1 April 2019 to 30 September 2019 |
Dividend per share Pence |
Total dividend £ |
Interim dividend in respect of quarter ended 31 March 2019 |
1.25 |
4,261,585 |
Interim dividend in respect of quarter ended 30 June 2019 |
1.25 |
4,261,585 |
|
2.50 |
8,523,170 |
The Company announced its fourth interim dividend for the previous financial year, for the period from 1 January to 31 March 2020 of 1.25 pence per Ordinary Share. The interim dividend was paid to Shareholders on the register at the close of business on 11 May 2020, on 27 May 2020.
The Company announced its first interim dividend for the current financial year, for the period from 1 April to 30 June 2020, of 1.25 pence per Ordinary Share. The interim dividend was paid to Shareholders, on the register at the close of business on 17 July 2020, on 31 July 2020.
Subsequent to the period end, the Company announced its second interim dividend for the period from 1 July 2020 to 30 September 2020 of 1.3125 pence per Ordinary Share. The dividend was paid to Shareholders, on the register at the close of business on 6 November 2020, on 30 November 2020.
Dividend payments during the year were paid only to Ordinary Shareholders.
14. Financial Risk Management
Financial Risk Management Objectives
The Company's activities expose it to various types of financial risk, principally market risk, credit risk, and liquidity risk. The Board has overall responsibility for the Company's risk management and sets policies to manage those risks at an acceptable level.
The Company's principal risk factors are fully discussed in the Company's Prospectus, available on the Company's website (www.hipgnosissongs.com) and should be reviewed by Shareholders.
15. Related Party Transactions and Directors' Remuneration
Parties are considered to be related if one party has the ability to control the other party or exercise significant influence over the party in making financial or operational decisions.
Directors
The Company Directors' fees for the period to 30 September 2020 amounted to £199,000 (30 September 2019: £94,375), of which £nil (30 September 2019: £nil) was outstanding at the period end. Following conclusion of the independent remuneration review by Tyzack Associates, the Remuneration Committee resolved on 28 April 2020 to grant an additional payment to each of the Directors of £25,000, and £9,000 to Ms Coleman reflecting her appointment on 27 November 2019, in consideration of the variable elements of workload during FY2020. The additional payment was paid on 29 April 2020 and is included as an operating cost of the Company. The Directors have each undertaken to reinvest the net amount of these additional payments (after tax) in Ordinary Shares of the Company. Tyzack Associates also recommended an increase in the Directors' normal annual fees effective from 1 April 2020. The Non Executive fees are £75,000 (30 September 2019: £50,000), the Chair of the Portfolio Committee and the Chair Audit and Risk Management Committee are £81,500 (30 September 2019: £55,000) and the annual fee for the Chair of the Board is £85,000 (30 September 2019: £57,500).
Investment Adviser
Merck Mercuriadis is the founder and owner of the Investment Adviser. Merck stepped down from his duties as a Director of Jonny Coffer Limited and RubyRuby (London) Limited on the 13 May 2020.
The Company has entered into an Investment Advisory Agreement with the Investment Adviser pursuant to which the Investment Adviser will source Songs and provide recommendations to the Board on acquisition and disposal strategies, manage and monitor royalty and/or fee income due to the Company from its copyrights and collection agents, and develop strategies to maximise the earning potential of the Songs in the portfolio through improved placement and coverage of Songs.
Investment Adviser fees for the period to 30 September 2020 amounted to £3,553,890 (30 September 2019: £1,781,447) of which £nil (31 March 2020: £nil) outstanding at the reporting date.
16. Earnings per share
|
30 September 2020 |
30 September 2019 |
||
|
Basic |
Diluted |
Basic |
Diluted |
Profit for the period (£) |
10,250,273 |
10,250,273 |
10,722,607 |
10,722,607 |
|
|
|
|
|
Weighted average number of Ordinary Shares in issue |
636,479,578 |
636,479,578 |
336,506,009 |
336,506,009 |
|
|
|
|
|
Earnings per Share (pence) |
1.61 |
1.61 |
3.19 |
3.19 |
The earnings per share is based on the profit or loss of the Group for the period and on the weighted average number of Ordinary Shares for the period assuming the C Shares converted on 30 September 2020.
There are no dilutive shares at 30 September 2020. It should be noted that the profit for the period to 30 September 2020 stated above is attributable to the Ordinary Shares and the C Shares, whereas the Earnings per Share figure for the same period is based only upon Ordinary Shares in issue. This limits comparability of Earnings per Share for the two periods shown above.
17. Subsequent events
On 28 October 2020 the Company declared a dividend of 1.3125 pence per Ordinary Share in respect of the quarter ended 30 September 2020 payable on 30 November 2020.
On 20 November 2020 The Company acquired the 100% interest of Sacha Skarbek's publishing catalogue and Writer's share of performance.
On 27 November 2020 The Company acquired the rights to Tricky Stewart's earnings from producer royalties on a defined number of songs.
On 2 December 2020 the Company acquired 100% of Eric Stewart's Writer's Share of Performance and Neighbouring Rights income.
With effect from 4 December 2020, 236,400,512 C Shares were converted to 214,202,503 Ordinary Shares at a conversion rate of 0.9061 Ordinary Shares for each C Share.
A further $210 million has been drawn on the RCF to finance the consideration for the acquisition of Kobalt Fund 1, taking total drawings to $297.3 million.
At time of writing, the United Kingdom is in a second lockdown due to COVID-19 which continues to have an impact on the wider music industry, especially the Live sector which forms part of Performance and Writer Share income received by the Company.
The estimate of Performance income and Writer's Share income received since April 2020 has been reduced in line with the Company's revised expectations at the start of this financial year. This reduction in expected income is driven by a drop in Public Performance income, which relates to revenues collected from bars, shops and restaurants etc. Despite this, revenues remain stable and the impact is expected to be short term with a pick-up in earnings within 2021.
The Company continues to assess the impact of COVID-19 and consequently has reflected a greater level of caution within the accruals for the Calendar Q3 (July-September) earnings period, for which statements will be received over the coming months.
Music streaming remains buoyant; it is expected that this will outpace the decline in other revenue streams, and this is reflected in Goldman Sachs' post COVID-19 report which projects that song related revenues, across music publishing, will grow by 3.5% overall in 2020.
There were no other material events after the period end to the date on which these Condensed Consolidated Financial Statements were approved.
* Source: Goldman Sachs (Equity Research), 'Music in the Air, The show must go on'
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