Hipgnosis Songs Fund Limited (LSE:SONG)’s spat with its own investment adviser rumbled on after the latter continued to refuse to provide an unqualified value of the company’s assets.
The embattled investor in music rights delayed publication of its results due to the dispute as the adviser, Hipgnosis Song Management, declined to give its opinion on the fair value of the assets, without caveats.
Chair Robert Naylor said: “While the investment adviser did eventually provide an opinion to the board, it was heavily caveated,” citing “confidentiality clauses of the investment advisory agreement”.
Naylor urged the adviser to provide their opinion as to the fair value of the assets, without caveats, “such that we can provide greater certainty and transparency to our shareholders".
Naylor said that since he joined the board issues have been raised “as a result of ongoing failures in the financial reporting and control process”.
This led the firm to suspend the dividend for at least the remainder of the year in order to ensure compliance with banking covenants.
The confused financial picture led the company to issue four different measures of revenue in the half-year results released today.
Net revenue from continuing operations fell to US$54.0 million in the six months to 30 September from US$76.8 million the year before while underlying net revenue climbed 14.0% to US$65.8 million from US$57.6 million.
The operative NAV per share decreased 9.2% to US$1.7392 from US$1.9153 at 31 March, driven primarily by a reduction in the fair value of the portfolio.
Hipgnosis said it 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, it stressed.
It highlighted one example where the board was made aware on 15 December of a drafting error in a contract which increased the estimated liability from US$4 million to US$25 million.
This potential liability is now estimated at US$7.5 million to US$8.5 million after the contract was amended.