Interim / Quarterly Report • Sep 30, 2018
Interim / Quarterly Report
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Interim Report and Condensed Consolidated Financial Statements For the period from 8 June 2018 (Date of Incorporation) to 30 September 2018
| Corporate Summary | 02 |
|---|---|
| Highlights | 04 |
| Chairman's Statement | 05 |
| Investment Adviser's Report | 07 |
| Board Report | 10 |
| Financial Statements | |
| Condensed Consolidated Statement | |
| of Comprehensive Income (unaudited) | 13 |
| Condensed Consolidated Statement | |
| of Financial Position (unaudited) | 14 |
| Condensed Consolidated Statement | |
| of Changes in Equity (unaudited) | 15 |
| Condensed Consolidated Statement | |
| of Cash Flows (unaudited) | 16 |
| Notes to the Condensed Consolidated | |
| Financial Statements | 17 |
| Glossary of Capitalised DeUned Terms | 34 |
| Directors and General Information | 38 |
Capitalisedterms aredeUnedintheGlossaryofDeUnedTermsonpages34to37unless separatelydeUned.
The Company's investment objective is to provide Shareholders with an attractive and growing level of income, together with the potential for capital growth, from investment in a portfolio of Songs and their associated musical intellectual property rights. The portfolio will be acquired by investing inCatalogues of Songs from well-known songwriters and recording artists; however, each Song will be considered to be a separate asset.
The Company will seek to acquire 100 per cent. of a songwriter's copyright interest in each Song, which would comprise their writer's share, their publisher's share and their performance rights. In appropriate cases however, the Company may not acquire all three elements of the songwriter's interest.TheCompanywill acquire interests in Songswhich are sole authored or co-authored.The Company may also acquire interests in Songs jointly with another purchaser.
TheCompanywill, directly orindirectly via collection agents, enterinto licensing agreements, under which theCompanywillreceive payments attributable to the copyrightinterests in the Songswhich it owns. Such payments may take the form of royalties, licence fees and/or advance payments, including:
TheCompanywill focus on delivering income growth and capital growth by pursuing eWciencies in the collection of payments and active management of the Songs it owns.
The Company may acquire Songs for consideration consisting of cash, shares or a combination of cash and shares , and payment of part of the consideration may be on deferred terms.
WhilsttheCompany does notintend to sellthe Songs it owns, it may make disposals of Songswhere it considers such a disposal to be in the best interests of Shareholders.
The Company is an investment company limited by shares, registered and incorporated in Guernsey undertheCompanies Lawon 8 June 2018.TheCompany is registeredwith the Guernsey Financial Services Commission under the Registered Collective Investment Scheme Rules 2015 and the Protection of Investors (Bailiwick of Guernsey) Law, 1987, as amended. The Company is not authorised or regulated by the Financial Conduct Authority.
TheCompanywill make, and subsequently manage, its investments directly orindirectly through a number of wholly owned subsidiary companies incorporated in Guernsey or the UK.
The Investment Adviser has been appointed by the Board to source Songs and provide recommendations to the Board on acquisition and disposal strategies. The Investment Adviser is also responsible for managing and monitoring royalty and/orfee income due to theCompany from its copyrights and collection agents, and developing strategies to maximise the earning potential of the Songs in the portfolio through improved placement and coverage of Songs.
The InvestmentAdviserwas founded byMerckMercuriadis,former manager of globally successful recording artists and hit songwriters. The Investment Adviser has assembled an advisory board of highly successful music industry experts which include award winning members of the artist, songwriter, publishing, legal, Unancial, recorded music and music management communities, all with in-depth knowledge of music publishing and access to a signiUcant network ofrelationships in the music industry.
The Board has formed a Portfolio Committee which will approve all purchases of Catalogues of Songs, and an Asset Management Committee which will consider the ongoing management and revenue maximisation of the Catalogues of Songs. These committees are chaired by Paul Burger and Andrew Sutch respectively.
The Company is a member of the Association of Investment Companies and complies with the AIC Code.
TheCompany'swebsite,which can be found atwww.hipgnosissongs.com, includes information on the Company, such as the prospectus and announcements.
The Company completed an IPO on 11 July 2018, issuing 202,176,800 Ordinary Shares, raising £202,176,800 before launch costs, and was admitted to trading on the Specialist Fund Segment of the Main Market of the London Stock Exchange.
On 11 July 2018 theCompany acquired a 75% interestin aCatalogue from Terius YoungdellNash, better known by his stage name The-Dream. The Catalogue comprises 302 Songs in total.
On 16 November 2018 the Company acquired a 100% interest in a Catalogue from Jason Boyd, better known by his stage name Poo Bear. The Catalogue comprises 214 Songs in total.
On 28November 2018 theCompany acquired a 37.5% interestin the Bernard EdwardsCatalogue. The Catalogue comprises 290 Songs in total.
On 7December 2018 theCompany acquired a 100% interestin aCatalogue from TMS, an English songwriting and music production team comprised of Thomas 'Froe' Barnes, Benjamin Kohn and Peter 'Merf' Keller. The Catalogue comprises 121 Songs in total.
Following these acquisitions, the Company has invested £40.7 million of the IPO proceeds.
TheCompany announced its Urstinterim dividend forthe period from Admission to 30 September 2018 of 0.50 pence per Ordinary Share. The dividend was paid to Shareholders, on the register at the close of business on 2 November 2018, on 29 November 2018.
The Company is targeting a dividend for the Urst 12 months following Admission of 3.5 pence per Ordinary Share and intends to pay interim quarterly dividends in November, February, May and August of each year.
| 2018 £ |
|
|---|---|
| IFRS NAV(1) as at 30 September | 197,484,818 |
| Adjustments for revaluation of Catalogues of Songs to fair value | 1,945,636 |
| Reversal of amortisation | 202,243 |
| Operative NAV(2) as at 30 September | 199,632,697 |
| IFRS NAV(1) per Share as at 30 September | 97.68p |
| Operative NAV(2) per share as at 30 September | 98.74p |
| Share price at 30 September | 1.07 |
| Total comprehensive loss for the period ended 30 September | (736,322) |
| Basic Earnings per Share for the period ended 30 September | (0.36) |
(1) Catalogues of Songs are classiUed as intangible assets and measured at amortised cost or cost less impairment in accordance with IFRS.
(2) The Directors are of the opinion that an Operative NAV provides a more meaningful performance measure as the value of Catalogues of Songs is based on fair values produced by an Independent Valuer.
I am pleased to present the Company's Urst Interim Report and Chairman's Statement since the Company commenced trading on the London Stock Exchange on 11 July 2018. I welcome as Shareholders those who invested at the time of listing or who have invested since.
On 11 July 2018 the Company acquired its Urst Catalogue of Songs, The-Dream Catalogue, for approximately \$23.8 million, and since the 30 September 2018 period end acquired a furtherthree Catalogues of Songs from Poo Bear, Bernard Edwards and TMS.
The Investment Adviser's report on pages 7 to 9 reviews the market and provides more detail on the portfolio.
The gross issue proceeds raised from the listing were £202.2m and the NAV per share on the Urst day oftradingwas 98p per share reVecting the issue costs relating to the listing. These costswere principally responsible for the Company's IFRS NAV reducing during the period to 30 September 2018 by £4.7m from £202.2m to £197.5m. As at 30 September 2018 the IFRS NAV per share was 97.68p.
The Company's NAV is calculated on a semi-annual basis, both under IFRS (which principally requires the cost of purchasedCatalogues to be amortised) and on anOperativeNAVbasis (which reVects the fair value of the Company's Catalogues as valued by an Independent Valuer). The OperativeNAVas at 30 September 2018was £199.6m or 98.74p per share,reVecting the increase in value ofThe-Dream Catalogue, buoyed mostly by the current and predicted growth in streaming income and synchronisation potential of the Catalogue of Songs.
There has been limited trading in theCompany's shares since the commencement of dealings. As at 30 September 2018 the share price was 107p, a premium of 7% as against the issue price of 100p. The share price as at 7 December 2018 was 107.5p.
TheCompany announced its Urstinterim dividend,forthe period from Admission to 30 September 2018, of 0.50p per share. The Company's target dividend for the Urst 12 months following Admission is 3.5p per share and the target dividend yield, once the Company is substantially invested, is 5% per annum (based on the issue price of 100p): such yields are expected to growover time. The Company intends to pay four interim quarterly dividends each year in November, February, May and August.
We were pleased to announce on 30 July 2018 the appointment of Paul Burger as an additional Director. Paul has extensive music industry experience, having held senior positions in Sony Music. Paul chairs the committee of the Board which approves all purchases of Catalogues of Songs.
Conditions in the music industry, and revenues from Songs, are favourable, particularly boosted by the strong growth in streaming services and the income derived from them. The Investment Adviseris looking for good qualityCatalogues and carries out detailed due diligence on them before recommending any purchase to the Board.
Negotiations forthe acquisition of a number ofCatalogues of Songs are at an advanced stage and since the period end theCompany has purchased three newCatalogues for an aggregate purchase price of approximately £22.7m. The returns on these acquisitions are all in line with the targets set out in the Company's prospectus.
Merck Mercuriadis and his team at the Investment Adviser have identiUed a strong pipeline of opportunities and the Board are conUdent that we will be able to construct a good and balanced portfolio overthe coming months and thattheCompanywill have invested all ofthe issue proceeds within the stated target of 12 months following Admission.
Andrew Sutch Chairman 10 December 2018
The Company was admitted to trading on the Specialist Fund Segment of the London Stock Exchange on 11 July 2018 and there has therefore been less than a complete quarterforwhichwe can report on performance. There are, as yet, no direct benchmarks againstwhich the Investment Adviser can track theCompany's performance, butthis continues to be kept under close reviewas the Company's portfolio develops. In terms of trading activity and liquidity, there have been a number of smaller trades in the stock and notably no large institutional sellers. Pleasingly shares have been trading at a premium since inception.
Given our positioning and signiUcant network, the increased demand for Catalogues in the marketplace is not impacting the pricing points which we are discussing with vendors. We are also receiving a high level ofinbound requests to engagewith vendors ofCatalogues.As a consequence, what already was a signiUcant pipeline of possible acquisitions is increasing further still. It is anticipated that the pipeline of acquisition opportunities will selectively convert into transactions during Q4 2018 and Q1 2019.
We have established an oWce in Tileyard Studios in Kings Cross, London in close proximity to Universal's new UK headquarters, PRS for Music and many of the leading music companies. We expectto launch our Los Angeles based team in Q1 2019 and are in the Unal stages of negotiation with a major Ugure in the U.S. publishing business to lead our eTorts in the U.S..
The music industry continues to showsolid growth;the explosion of streaming services has revived an industry that was once reliant on a declining demand for physical CDs.
More people are listening to music than ever on their mobile phones. Spotify had 87m paying subscribers as at the end of September 2018, with growth of over 30% from the prior year and Apple has an estimated 56m subscribers as at the end of November 2018. These Ugures are forecast to continue to grow. The widely used Global Entertainment & Media Outlook 2018-2022 Report(published by PwCglobally)forecasts an 18% compound annual growth rate (CAGR)forthe coming 5 years in streaming revenues driven by new adopters, emerging markets and improvements in mobile phone connectivity,which is consistentwith the conclusions drawn in the IFPI's Global Music Report 2018 – Annual State of the Industry.
Coupled with the consumer growth, during the Urst quarter of 2018 the U.S. Copyright Royalty Board (CRB) approved an increase in streaming rates paid toU.S. publishers/writers of 44% overthe next 5 years, which will further beneUt the Company's income projections.
As at 30 September 2018 theCompany owned oneCatalogue of Songs,The-Dream Catalogue.At the time ofwriting this reportthe InvestmentAdviser has received the music royalty statements for the Urst half of 2018 from Warner Chappell who administer the catalogue, as well as the earnings Ugures from ASCAP, one of the leading U.S. performing rights organisations. The performance of the catalogue is ahead ofthe Company's forecast performance on acquisition ofthe catalogue by 2%. This is an increase of \$216k representing an increase of 29% on that notiUed by the music royalty statements for equivalent prior period.
Forthe Urst half of 2018,the catalogue generated netrevenue of \$968k. The strong performance is driven most notably by the continued increase in streaming as a source ofrevenue,which sawan increase of over 100% and 82% on the catalogue's forecasted and prior year streaming revenue respectively, bearing outtheCompany's thesiswith regards to this particularrevenue source. This increase in streaming is marginally oTset by the continued decline in more traditionalrevenue sales, such as physical music sales and music downloads.
Whilstthis covers a time period inwhich theCompany did not own the catalogue,the performance is relevant both forthe purpose oftracking the actual performance ofthe asset aswell as being the basis for the fair value calculations done by the Company's Independent Valuer.
Itwas also pleasing to see that opportunistic revenue from synchronisation is up signiUcantly from thatforecasted for The-Dream Catalogue and this looks setto continuewith the Urst high visibility synchronisation deal with a song owned by the Company having been agreed by the Investment Adviser. Beyonce's "XO"is featured in LouisVuitton's newperfume television advertisement. With this one placementtheCompany has already achieved 25% oftheCatalogue's total previous years synchronisation earnings and the synchronisation earnings forthis speciUc song are nowup 1700% versus 2017.
Furtherto this, itis expected that agreementswill soon be reached on a number oftheCompany's Songs to be featured in Beyonce's Coachella TV Special, which will broadcast at Christmas worldwide. This would have signiUcant positive eTect on both synchronisation and performance fees for 2019.
Negotiations forthe acquisition of a number ofCatalogues are at an advanced stage and since the period end the Company has purchased three newCatalogues for an aggregate purchase price of approximately £22.7m.One ofthoseCatalogues, Poo Bear,was announced on 16November 2018. Poo Bear's real name is Jason Boyd a 39 year old writer and producer based in Los Angeles. He is best known as Justin Bieber's constant collaborator and co-wrote 9 out ofthe 13 Songs on Bieber's latest album "Purpose", which has sold over 3 million copies in the U.S. and is one of the biggest selling albums of alltime in theUK at over 5 times platinum with over 1,500,000 copies sold.PooBear has collaborated, and had Top 10 hits, with some of the biggest artists over the last 20 years, including Usher,David Guetta,DJ Khaled, Chris Brown, FifthHarmony, Jennifer Lopez and Skrillex. The Company acquired a 100% interest in the Catalogue, which comprises 214 Songs in total.
On 28November 2018 theCompany announced the acquisition oftheBernard EdwardsCatalogue. Bernard Edwards is best known for his partnership with Nile Rodgers, together founding CHIC in 1976 and co-writingNumber 1 Songs for bands and artists includingCHIC, Sister Sledge andDiana Ross. Nile Rodgers is a member of The Family (Music) Limited's advisory board and continues to promote and perform numerous Songs within the catalogue. The catalogue comprises 290 evergreen songs including Everybody Dance, He's The Greatest Dancer, We Are Family and I'm Coming Out. In addition, many of the songs have been extensively sampled, remixed or reissued leading to new hits that are a part of the catalogue including Rapper's Delight and songs by the Beastie Boys, LLCool J, PuTDaddy and JustinTimberlake.TheCompany acquired a 37.5% interest in the Catalogue.
On 7 December 2018 the Company announced the acquisition of the TMS Catalogue. TMS is an English songwriting and music production team comprised ofThomas 'Froe'Barnes,Benjamin Kohn and Peter 'Merf' Keller. The catalogue comprises 121 songs including 10 Top 5 UK singles with 5 Number 1 Songs. The Songs have appeared on 13 Top 5 UK albums including 7Number 1 albums. It includes Songs such as "Don't Be So Hard On Yourself" for Jess Glynne, "Wings" and "DNA" for Little Mix,"Read All AboutIt(Part 3)"for Emeli Sandé,"Changing"for Sigma featuring Paloma Faith, "You're Nobody Till Somebody Loves You" for James Arthur, and others for Years And Years and Dua Lipa. The catalogue also includes the global Top 10 hit "Me, Myself & I" by G-Eazy and Bebe Rexha, which has been the recipient of both BMI and ASCAP Awards as a "Most Performed Work". The Company acquired a 100% interest in the Catalogue.
Under the FCA's Disclosure and Transparency Rules, the Directors are required to identify those materialrisks towhich the Group is exposed and take appropriate steps to mitigate those risks.The signiUcant risk factors are also disclosed in the Company's prospectus which is available on the Company's website www.hipgnosissongs.com.
TheCompany's principalrisks are related to market conditions in the music business in general, but also the particular circumstances oftheCatalogues of Songs inwhich itis invested. The Board and the Investment Adviser seek to mitigate these risks through active asset management initiatives and carrying out due diligence work on potential targets before entering into any investments.
The principal risks and uncertainties of the Company will be continuously monitored by the Board, with inputfrom the Investment Adviser and its advisory board. There have been no changes to the Company's principal risks and uncertainties since the Initial Public OTering on 11 July 2018 and no changes are anticipated in the next six months of the year. As detailed below the principal risks facing theCompany are concentration risk from investing only in the global music copyright sector and inherent risks associated with the fast-changing landscape within the music industry.
The commercial success of a Song is dependent upon the public's response to it, which may not always be predictable,the existence and success of competing entertainment oTerings and general economic circumstances.Consequently, a Song may not prove to be as popular, or as commercially successful, as had been forecast atthe time of acquisition. WhilsttheCompany intends primarily to acquire Catalogues containing evergreen Songs from established recording artists and will carry out substantial due diligence on each Catalogue (including on the historic revenues of each Song), there can be no guarantee that the historic performance of a Song will continue in the future.
The Company is heavily reliant on streaming, or an equivalent technology which generates high volumes and rates of royalty revenues for songwriters, continuing to be popular with consumers. Historically the music industry has been shown to be especially innovative, with new technology causing changes in consumer demand and experience. Whilst it is possible that new technology may reduce non-synchronisation related royalty revenues, it is also possible that technological advanceswould lead to a growth in royalties as consumers' access to music continues to improve.
The Company will be heavily reliant on the continuing presence and popularity of DSPs in order to maximise access to the consumer market. However, the business models of DSPs are yet to be proven in the long term and no DSP has yet made a proUt.
Changes in the distribution policies and royalty splits set by the performance rights organisations (PROs) could a0ectthe future revenues received by the Company
Performance rights organisations representthe rights and interests of publishers and songwriters. They collectroyalties, create collection policies and setroyalty rates forthe use of music copyrights. There are over 120 PROs around theworld and most ofthem have agreements and frameworks in place with each other. Should PROs alter the way that they collect royalties, or set lower royalty rates, the Company may receive signiUcantly reduced revenues compared to the level it had forecast at the time of acquiring the relevant Catalogues or Songs.
TheCompany does not have any employees ofits own, and relies on service providers forits routine operations. In particular, although the ultimate responsibility forthe investment strategy lieswith the Board,the Investment Adviseris responsible for sourcing potential opportunities, and advising the Board on acquisitions, exploitation and disposals ofCatalogues.The InvestmentAdviseris a newlyformed company with no operating history. The performance of the Group is dependent on the diligence, skill and judgment ofthe personnel ofthe InvestmentAdviser, and in particular on the key executive, Merck Mercuriadis.
The Group also depends heavily on the specialist administrative services ofthe InvestmentAdviser, the Preferred Portfolio Administrator and other collection agents. In the event that these service providers experience business disruption or cyber security breaches, the ability of the Group to collect revenues due may be limited.
The Directors monitor the capital and liquidity requirements of the Company on a regular basis. They have also reviewed cash Vow forecasts prepared by the Investment Adviser which are based in part on assumptions about the future purchase of Catalogues of Songs, and the returns from existing Catalogues of Songs.
Based on these sources of information and their own judgement, the Directors believe it is appropriate to prepare theCondensedConsolidated Financial Statements ofthe Group on a going concern basis.
The Directors are responsible for preparing this Interim Report in accordance with applicable laws and regulations. The Directors conUrm that to the best of their knowledge:
On behalf of the Board
Andrew Sutch
Chairman
10 December 2018
For the period from incorporation on 8 June 2018 to 30 September 2018
| 8 June 2018 to 30 September |
||
|---|---|---|
| Notes | 2018 £ |
|
| Income | ||
| Total revenue | 11 | 385,014 |
| Interest income | 214,787 | |
| Foreign exchange gains on non-investments | 195 | |
| Total income | 599,996 | |
| Expenses | ||
| Advisory fees | 16 | (500,500) |
| Amortisation of Catalogues of Songs | (202,243) | |
| Administration fees | (40,683) | |
| Directors' remuneration | (43,603) | |
| Broker fees | (13,356) | |
| Audit fees | (39,500) | |
| Legal and professional fees | (419,299) | |
| Other operating expenses | 12 | (77,134) |
| Total expenses | (1,336,318) | |
| Operating loss for the period before taxation | (736,322) | |
| Taxation | — | |
| Loss for the period after tax | (736,322) | |
| Total comprehensive loss for the period | (736,322) | |
| Basic Earnings per Share (pence) | 13 | (0.36) |
| Diluted Earnings per Share (pence) | 13 | (0.36) |
All activities derive from continuing operations.
As at 30 September 2018
| 30 September 2018 |
||
|---|---|---|
| Notes | £ | |
| Assets | ||
| Catalogues of Songs | 5 | 17,814,680 |
| Cash and cash equivalents | 6 | 179,162,530 |
| Trade and other receivables | 7 | 664,436 |
| Total assets | 197,641,646 | |
| Liabilities | ||
| Other payables and accrued expenses | 8 | 156,828 |
| Total liabilities | 156,828 | |
| Net assets | 197,484,818 | |
| Equity | ||
| Share capital | 9 | 198,221,140 |
| Retained earnings | (736,322) | |
| Total equity attributable to the owners of the Company | 197,484,818 | |
| Number of ordinary shares in issue at period end | 202,176,800 | |
| IFRS Net Asset Value per ordinary share (pence) | 10 | 97.68 |
| Operative Fair Value Net Asset Value per ordinary share (pence) | 10 | 98.74 |
Approved and authorised for issue by the Board ofDirectors on 10December 2018 and signed on their behalf by:
Chairman Director
Andrew Sutch Andrew Wilkinson
TheaccompanyingnotesformanintegralpartoftheseCondensedConsolidatedFinancialStatements.
For the period from incorporation on 8 June 2018 to 30 September 2018
| Note | Number of shares |
Share capital £ |
Retained earnings £ |
Total equity £ |
|
|---|---|---|---|---|---|
| As at 8 June 2018 | — | — | — | — | |
| Shares issued | 9 | 202,176,800 | 202,176,800 | — | 202,176,800 |
| Share issue costs | 9 | — | (3,955,660) | — | (3,955,660) |
| Loss for the period | — | — | (736,222) | (736,322) | |
| As at 30 September 2018 | 202,176,800 | 198,221,140 | (736,322) | 197,484,818 |
For the period from incorporation on 8 June 2018 to 30 September 2018
| 8 June 2018 to 30 September 2018 |
||
|---|---|---|
| Notes | £ | |
| Cash Kows used in operating activities | ||
| Operating loss for the period before taxation | (534,274) | |
| Adjustments for non-cash items: | ||
| Movement in other receivables | 7 | (664,436) |
| Movement in other payables and accrued expenses | 8 | 156,828 |
| (1,041,882) | ||
| Purchase of Catalogue of Songs | 5 | (18,016,923) |
| Net cash used in operating activities | (19,058,805) | |
| Cash Kows generated from Jnancing activities | ||
| Proceeds from issue of shares | 9 | 202,176,800 |
| Issue costs paid | 9 | (3,955,660) |
| Net cash generated from Jnancing activities | 198,221,140 | |
| Net movement in cash and cash equivalents | 179,162,335 | |
| Cash and cash equivalents at the start of the period ETect of foreign exchange rate changes |
— 195 |
|
| Cash and cash equivalents at the end of the period | 6 | 179,162,530 |
Forthe period from incorporation on 8 June 2018 to 30 September 2018
TheCondensedConsolidated Financial Statements presentthe results ofthe Group forthe period ended 30 September 2018. The Group is principally engaged in investing in and managing music copyrights and associated musical intellectual property.
The Urst annual Unancial statements ofthe Groupwill be prepared forthe period from incorporation on 8 June 2018 to 31 March 2019. The Condensed Consolidated Financial Statements do not contain allthe information and disclosures thatwill be contained in annual Unancial statements. As the Group has not previously published annual Unancial statements, these Condensed Consolidated Financial Statements contain additional information about the accounting policies applied from incorporation.The Condensed Consolidated Financial Statements are unaudited.
On incorporation,the Company adopted all ofthe IFRS standards and interpretations that were in eTect at that date and are applicable to the Group.
The following are amended standards and interpretations in issue eTective from years beginning on or after 1 January 2019:
| IAS 12 | Income taxes (Amendments resulting from the Annual Improvements: 2015-2017 cycle) |
1 January 2019 |
|---|---|---|
| IAS 28 | Investment in Associates and Joint Ventures (Amendments regarding long-term interests in associates and joint ventures) |
1 January 2019 |
| IFRS 9 | Financial instruments (prepayments feature) | 1 January 2019 |
| IFRIC 23 | Uncertainty over Income Tax Treatments | 1 January 2019 |
| IAS 19 | Employee beneUts | 1 January 2019 |
| IFRS 16 | Leases | 1 January 2019 |
TheCompany has considered the IFRS standards and interpretations that have been issued, but are not yet eTective. None ofthese standards or interpretations are likely to have a material eTect on the Company, as it is the belief of the Board that the activities of the Company are unlikely to be aTected by the changes to these standards, although any disclosures recommended by these standards, where applicable, will be provided as required.
Forthe period from incorporation on 8 June 2018 to 30 September 2018
As at 30 September 2018, 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 SFH I Limited | UK | 100 | 100 | Full |
| Hipgnosis SFH II Limited | UK | 100 | 100 | Full |
| Hipgnosis SFH III Limited | UK | 100 | 100 | Full |
The subsidiaries of the Company are considered tax residents in the UK and are subject to UK corporation tax.
The Directors monitor the capital and liquidity requirements of the Company on a regular basis. They have also reviewed cash Vow forecasts prepared by the Investment Adviser which are based in part on assumptions about the future purchase of Catalogue of Songs, and the returns from existing Catalogue of Songs.
Based on these sources of information and their own judgement, the Directors believe it is appropriate to prepare theCondensedConsolidated Financial Statements ofthe Group on a going concern basis.
The principal accounting policies applied in the preparation of these Condensed Consolidated Financial Statements are set out below. These policies have been consistently applied, unless otherwise stated.
TheCondensedConsolidated Financial Statements have been prepared in accordancewith IAS 34 'Interim Financial Reporting', which comprise standards and interpretations approved by the IASB and IFRIC and applicable Guernsey law. The Condensed Consolidated Financial Statements have been prepared on a historical cost basis as amended from time to time by the fair valuing of certain Unancial assets and liabilities where applicable.
Financial Statements continued
Forthe period from incorporation on 8 June 2018 to 30 September 2018
All companies in which the Company has a controlling interest, namely those in which it has the powerto govern Unancial and operational policies in orderto obtain beneUts from their operations, are fully consolidated. The Control deUned by IFRS 10 is based on the following three criteria to be fulUlled simultaneously to conclude that the parent company exercises control:
Consolidated Unancial statements of a group are presented as ifthe Groupwas a single economic entity. The Group does not include any non-controlling interest.
The decision maker is the Board of Directors. The Directors are of the opinion that the Group is engaged in a single segment of business, being the investment ofthe Group's capital inCatalogues of Songs and associated musical intellectual property rights,with an attractive and growing level of income, together with the potential for capital growth.
Interest income is accounted for on an accruals basis.
Revenues from operations are recorded when it is probable that future economic beneUts will be obtained by the Group and when they can be reliably measured.
Financial Statements continued
Forthe period from incorporation on 8 June 2018 to 30 September 2018
TheCompany enters into licence arrangements in respect ofCatalogues of Songswith third party collection agents. Licences made to collection agents are deemed to constitute usage based,right of use licences as per IFRS 15. Revenue arising from licences entered intowith collection agents is therefore recognised in the period when the usage of the Catalogues of Songs occurs.
Where available at the end of each month or earlier interval to which the revenue relates, revenue is recorded on the basis of royalty statements received from collection agents.
Where notiUcation has not yet been received from collection agents, an estimate is made of the revenue due to the Company at the end of the month to which the usage of the music copyright relates. Estimates are made on the basis ofthe historicaltrack record of music catalogues, ad hoc data provided by collection agents, industry forecasts and expected seasonal variations.
Non recourse Uxed fee arrangements are recognised at the point at which control of the license passes to the collection agents. Variable consideration is recognised in the periodwhen the usage of the Catalogue of Songs occurs.
Expenses are accounted for on an accruals basis. Expenses are charged through the Statement of Comprehensive Income.
Dividends are accounted for in the period in which they are declared and approved by the board of Directors.
The Company's target dividend yield is 5 per cent. per annum once substantially invested and the Company expects to grow such dividend over time. The Company is targeting a dividend for the Urst 12 months following Admission of 3.5 pence per Ordinary Share and intends to pay interim quarterly dividends in November, February, May and August of each year.
Catalogues of Songs include music catalogues, artists' contracts and music publishing rights and are recognised as intangible assets atthe fair value ofthe consideration paid.Catalogues of Songs are subsequently amortised in expenses over the useful life of the asset. Catalogues of Songs with an indeUnite useful life are not amortised but are subject to an annual impairment test. Useful life is separately considered for each Catalogue and is reviewed at the end of each reporting period.
Forthe period from incorporation on 8 June 2018 to 30 September 2018
Under the terms of the acquisition agreements for Catalogues, contingent consideration may be payable dependent on future independent valuations oftheCatalogues.Contingent consideration will be recognised when performance conditions are met.
Each time events or changes in the economic environment indicate a risk of impairment of intangible assets, the Group re-examines the value of these assets. This impairment test is performed to compare the recoverable amountto the carrying value ofthe asset.The recoverable amount is determined as the higher of: (i) the value in use; or (ii) the fair value (less costs to sell) as described hereafter, for each individual asset. The value in use of each asset is determined as the discounted value of future cash Vows by using cash Vowprojections consistentwith the budget of the following year and the most recent forecasts. Applied discount rates are determined by reference to an appropriate benchmark as determined by the Board, and reVect the current assessment by the Group ofthe time value of money and risks speciUc to each asset. Growth rates used for the evaluation of individual assets are based on industry growth rates sourced from independent market reports and other third party sources. The fair value (less costs to sell) is considered to be equal to the value determined under the DCF model, cross referenced, where appropriate, against market multiples for recent transactions for similar assets. If the recoverable amountis lowerthan the carrying value of an asset or group of assets, an impairmentloss equalto the diTerence is recognised in proUt and loss. The impairment losses recognised in respect of intangible assets may be reversed in a later period ifthe recoverable amount becomes greaterthan the carrying value, within the limit of impairment losses previously recognised.
Trade receivables, loans, and other receivables that have Uxed or determinable payments that are not quoted in an active market are classiUed as 'loans and receivables'. Loans and receivables are measured at amortised cost using the eTective interest method, less any impairment. Interest income is recognised by applying the eTective interestrate, exceptfor shortterm receivableswhen the recognition of interest would be immaterial.
The Group derecognises an asset onlywhen the contractualrights to the cash Vows from the asset expire, or when ittransfers the asset and substantially allthe risks and rewards of ownership ofthe asset to another entity.
If the Group neither transfers nor retains substantially all the risks and rewards of ownership and continues to control the transferred asset, the Group recognises its retained interest in the asset and an associated liability for amounts it may have to pay.
On derecognition of an asset in its entirety, the diTerence between the asset's carrying amount and the sum of the consideration received is recognised in proUt or loss.
Forthe period from incorporation on 8 June 2018 to 30 September 2018
Debt and equity instruments are classiUed as either Unancial liabilities or as equity in accordance with the substance of the contractual arrangement.
An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments issued by theCompany are recognised atthe value of proceeds received, net of direct issue costs.
Repurchase oftheCompany's own equity instruments is recognised and deducted directly in equity. No gain or loss is recognised in proUt or loss on the purchase, sale, issue or cancellation of the Company's own equity instruments.
Financial liabilities, including borrowings, are initially measured atfair value, net oftransaction costs.
Financial liabilities are subsequently measured at amortised cost using the eTective interest method, with interest expense recognised on an eTective yield basis.
The Group derecognises Unancial liabilities when, and only when, the Group's obligations are discharged, cancelled or they expire.
The Group recognises the variable fee for the services received in a share-based payment transaction as the Group becomes liable to the variable fee on an accruals basis.
The fair value of the performance fee, as deUned in the Investment Advisory Agreement, which is payable to the InvestmentAdviserin Shares is recognised as an expensewhen the fees are earned with a corresponding increase in equity.
Cash at bank and shortterm depositswhich are held to maturity are carried at cost.Cash and cash equivalents are deUned as call deposits, short term deposits with a term of no more than three months from the start of the deposit and highly liquid investments readily convertible to known amounts of cash and subject to insigniUcant risk of changes in value. Cash and cash equivalents consist of cash in hand and short-term deposits in banks with an original maturity ofthree months or less.
Forthe period from incorporation on 8 June 2018 to 30 September 2018
Otherreceivables do not carry interest and are short-term in nature and are accordingly recognised at fair value.
Items included in theCondensedConsolidated Financial Statements of each ofthe Group's entities are measured using the currency of the primary economic environment in which each entity operates ('the functional currency'). The Condensed Consolidated Financial Statements are presented in Sterling, which is the Group's functional and presentation currency.
At each balance sheet date, monetary assets and liabilities that are denominated in foreign currencies are translated at the rates prevailing at that date. Non-monetary items carried at fair value that are denominated in foreign currencies are translated at the rates prevailing at the date when the fair value was determined.Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated. Exchange diTerences are recognised in proUt or loss in the period inwhich they arise.Transactions denominated in foreign currencies are translated into sterling at the rate of exchange ruling at the date of the transaction.
The preparation of the Group's Condensed Consolidated Financial Statements requires the application of estimates and assumptions which may aTect the results reported in the Unancial 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 aTected 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 aTected.
The key assumptions concerning the future and other key sources of estimation uncertainty atthe reporting date, that have a signiUcant risk of resulting in a material adjustment to the carrying amounts of assets and liabilitieswithin the next Unancial 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.
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 Unancial year when the actual revenue received is known, and these adjustments may be material.
Forthe period from incorporation on 8 June 2018 to 30 September 2018
In orderto calculate the amortised cost ofthe intangible assets, itis 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 signiUcant uncertainties as the ongoing popularity of a composition can Vuctuate unexpectedly.
The actual useful life of a Catalogue depends on the Catalogue's genre and listener demographic. Analysis of earnings shows that payback periods of purchase prices at industry standard multiples generally range from 10-15 years. Additionally, the term of administration deals in the market betweenwriters and publishers are no longerthan 25 years, and generally range from 15-20 years. This reVects the general consensus that the beneUts from exploiting revenues from the work of Anglo-American musicwriters can be reliably estimated over a period of 10-20 years and no longer, due to uncertainty in forecasting over a longer period of time and the level of technological disruption that the industry is subject to. The Board will separately consider the useful life of each Catalogue of Songs, which is expected to be within the range of 10-20 years.
In order to calculate the Operative NAV and Operative NAV per Share, the intangible assets are revalued to an estimate offair value.The fair value estimates are also used to assesswhetherthere is evidence that the intangible assets are impaired.
Valuations of music publishing rights typically adopt two valuations methods where the Board considers both when deriving the Operative NAV.
The Urst method adopts a DCF valuation which measures the present value of anticipated future revenues from acquiring the Catalogues, which are discounted at a 'market cost of capital' and a terminal value in 10 years. This method is seen accepted as an objective way of measuring future beneUts; taking into account income projections from various music industry sources across various revenue Vows whilst also factoring in the associated cost of capital.
The second method is based on a multiple of the NPS or gross proUt. NPS is commonly accepted as gross publishing income less direct costs including for writers and administration.
It is the intention of the Board that Catalogues of Songs will be valued on an ongoing basis using a consistentDCF valuation methodology, cross referenced to recent markettransactions underthe NPS multiple approach for similar assets where considered appropriate.
As disclosed in note 2(e) above, intangible assets with an indeUnite useful life are subjectto annual impairment review which relies on assumptions made by the Board. Assumptions are updated annually, speciUcally those relating to future cash Vows and discount rates.
Financial Statements continued
Forthe period from incorporation on 8 June 2018 to 30 September 2018
TheCompany is exemptfrom taxation in Guernsey underthe provisions ofthe IncomeTax (Exempt Bodies) (Guernsey) Ordinance, 2008 and is charged an annual fee of £1,200.
The Directors have been advised that following certain changes to the United Kingdom tax rules regarding "alternative investment funds" implemented by the Finance Act 2014 and contained in section 363A of the Taxation (International and other Provisions) Act 2010 the Company should not be residentin theUnited Kingdom forUnited Kingdom tax purposes.Accordingly, and provided thattheCompany does not carry on a trade in theUK (whether or notthrough a branch, agency or permanent establishment situated therein), the Company will not be subject to UK income tax or corporation tax other than on any UK source income.
The UK subsidiaries of the Company are tax resident in the UK and are subject to UK corporation tax.
| 5. Catalogues of Songs |
|
|---|---|
| £ | |
| Cost | |
| At 8 June 2018 | — |
| Additions | 18,016,923 |
| At 30 September 2018 | 18,016,923 |
| Amortisation and impairment | |
| At 8 June 2018 | — |
| Amortisation | 202,243 |
| Impairment | — |
| At 30 September 2018 | 202,243 |
| Net book value | |
| At 8 June 2018 | — |
| At 30 September 2018 | 17,814,680 |
Forthe period from incorporation on 8 June 2018 to 30 September 2018
The Board and the InvestmentAdviser have deemed the useful life ofThe-Dream Catalogue to be 20 years.
The Board engaged an Independent Valuer, MGR Weston Kay LLP to value The-Dream Catalogue as at 30 September 2018. A mid-point approach between theDCF valuation and theNPS multiple valuation was adopted to derive the fair value of the Catalogue. The valuation delivered by the multiple approach,whichwas approved by the Board,was \$24m versus theDCF valuation of \$28m, resulting in a mid-point Ugure of \$26m.
Cash and cash equivalents comprises of cash held by the Group available on demand, cash held in deposits and cash in a money market fund. Cash and cash equivalents were as follows:
| 30 September 2018 £ |
|
|---|---|
| Cash available on demand | 11,033,034 |
| Cash held in deposits | 94,028,588 |
| Money market fund | 74,100,908 |
| Cash and cash equivalents | 179,162,530 |
| 30 September 2018 £ |
|
|---|---|
| Accrued income | 320,009 |
| Receivables | 119,622 |
| Prepayments | 224,805 |
| Trade and otherreceivables | 664,436 |
Forthe period from incorporation on 8 June 2018 to 30 September 2018
| 30 September 2018 £ |
|
|---|---|
| Administration fees | 40,683 |
| Legal & professional fees | 63,819 |
| Audit fees | 39,500 |
| Other expenses | 12,826 |
| Other payables and accrued expenses | 156,828 |
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; and (ii) C Shares denominated in such currencies as the Directors may determine.
| Shares as at 30 September 2018 | 198,221,140 |
|---|---|
| Share issue costs | (3,955,660) |
| Shares issued on 11 July 2018 | 202,176,800 |
| Issued and fully paid: | |
| £ | |
| Shares as at 30 September 2018 | 202,176,800 |
| Issued and fully paid: Shares issued on 11 July 2018 |
202,176,800 |
| No. |
Under the Company's Articles of Incorporation, each Shareholder present in person or by proxy has the rightto one vote at general meetings.On a poll, each Shareholderis 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 satisUed all of its liabilities, the Shareholders are entitled to all of the residual assets of the Company.
Forthe period from incorporation on 8 June 2018 to 30 September 2018
| 30 September 2018 |
|
|---|---|
| Number of Ordinary Shares in issue | 202,176,800 |
| IFRS NAV per Share (pence) Operative NAV per Share (pence) |
97.68 98.74 |
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 classiUed 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 more meaningful performance measure as the value of Catalogues of Songs is based on fair values produced by an Independent Valuer.
| 30 September 2018 £ |
||
|---|---|---|
| IFRS NAV | 197,484,818 | |
| Adjustments for revaluation of Catalogues of Songs to fair value Reversal of amortisation |
1,945,636 202,243 |
|
| Operative NAV | 199,632,697 |
Total revenue of £385,014 is revenue recognised from The-Dream catalogue from acquisition on 11 July 2018 to 30 September 2018 and includes Synchronisation income of £41,795 and recoupment upside income of £65,006, which is earnings over and above the amount required to recoup the outstanding advance balance agreed to be settled by the Company.
Forthe period from incorporation on 8 June 2018 to 30 September 2018
| 8 June to 30 September 2018 £ |
|
|---|---|
| Regulatory fees | (5,939) |
| Listing fees | (9,747) |
| D&O Insurance | (4,381) |
| Directors expenses | (656) |
| Registrar fees | (1,585) |
| Postage, stationery and printing | (13,727) |
| Public relation fees | (14,625) |
| Bank charges | (1,480) |
| Other expenses | (24,994) |
| Total other operating expenses | (77,134) |
| 30 September 2018 | ||
|---|---|---|
| Basic | Diluted | |
| Loss for the period (£) | (736,322) | (736,322) |
| Weighted average number of Ordinary Shares in issue | 202,176,800 | 202,176,800 |
| Earnings per share (pence) | (0.36) | (0.36) |
The earnings per share is based on the proUt orloss ofthe Group forthe period and on theweighted average number of Ordinary Shares for the period ended 30 September 2018.
There are no dilutive shares at 30 September 2018.
A summary of the dividends are set out below:
| 8 June 2018 to 30 September 2018 | Dividend per share Pence |
Total dividend £ |
|---|---|---|
| Interim dividend in respect of period ended 30 September 2018 | 0.50 | 1,010,884 |
Subsequent to the period end, the Company announced its Urst interim dividend for the period from Admission to 30 September 2018 of 0.50 pence perOrdinary Share.The dividendwas paid to Shareholders, on the register atthe close of business on 2November 2018, on 29November 2018.
Forthe period from incorporation on 8 June 2018 to 30 September 2018
TheCompany's activities expose itto various types of Unancialrisk, principally marketrisk, creditrisk, and liquidity risk. The Board has overallresponsibility fortheCompany's risk management and sets policies to manage those risks at an acceptable level.
Management assessed that the fair values of cash and cash equivalents, trade and other receivables, trade and other payables and royalty advances approximate their carrying amount largely due to the short-term maturities and high credit quality of these instruments.
Market risk is the risk that the fair value or future cash Vows of a Unancial instrument will Vuctuate as a result of changes in market prices.The Group is exposed to currency risk and interestrate risk.
Currency risk is the risk thatthe fair values of future cashVows will Vuctuate because of changes in foreign exchange rates.The revenue earned from theCatalogue of Songs may be subjectto foreign currency Vuctuations.Royalties are earned globally and paid in a number of currencies,therefore the Company may be impacted by adverse currency movements. The Company will convert the majority of overseas currency receipts into Sterling by agreeing to currency exchange arrangementswith collection agents, or otherwise itself undertaking foreign exchange conversions. TheCompany may engage in full or partialforeign currency hedging and interestrate hedging.The Company will not enter into such arrangements for investment purposes.
The currencies in which Unancial assets and liabilities are denominated are shown below:
| GBP | USD | Total | |
|---|---|---|---|
| Converted to | |||
| As at 30 September 2018 | £ | £ | £ |
| Trade and other receivables | 664,436 | — | 664,436 |
| Cash and cash equivalents | 179,097,334 | 65,196 | 179,162,530 |
| Total Jnancial assets | 179,761,770 | 65,196 | 179,826,996 |
| Trade and other payables | 156,828 | — | 156,828 |
| Total Jnancial liabilities | 156,828 | — | 156,828 |
| Net asset position | 179,304,942 | 65,196* | 179,670,138 |
*At the reporting date, if the USD had strengthened/weakened by 10% against GBP with all other variables held constant, the net assets and movement in the translation reserve would have been £5,927 lower/ higher.
Forthe period from incorporation on 8 June 2018 to 30 September 2018
b) Cash 2ow and fair value interestrate risk
The Company is exposed to cash Vow interest rate risk only on cash and cash equivalents.
Credit risk is the risk of loss due to failure of a counterparty to fulUl its contractual obligations. The Group is exposed to creditrisk in respect ofits contractswith PROs. This exposure is minimised by dealing with reputable PROs whose credit rating is deemed to be low risk.
The Group is exposed to credit risk through its balances with banks and its indirect holdings of money market instruments through those money market funds which are classiUed as cash equivalents for the purposes of these Condensed Consolidated Financial Statements.
The table below shows the Group's material cash balances and the short-term issuer creditrating or money-market fund credit rating as at the period end date:
| Location | Rating* | 30 September 2018 £ |
|
|---|---|---|---|
| Barclays Bank plc | Guernsey | A-1 | 105,061,622 |
| Blackrock Institutional Sterling Liquidity Fund | UK | AAAm | 74,100,908 |
*Rated by Standard & Poor's
Liquidity risk is the risk thatthe Group may not be able to meettheir Unancial obligations as they fall due.TheCompany maintains a prudent approach to liquidity management by maintaining suWcient cash reserves to meet foreseeable working capital requirements.
During the period ended 30 September 2018,the Group had no Unancial liabilities otherthan trade and other payables.
TheDirectorswill be remunerated fortheir services at a fee of £35,000 per annum (£45,000 forthe Chairman). The chairman of the Audit and Risk Management Committee will receive an additional £5,000 for his services in this role.
Directors'fees and expenses forthe period to 30 September 2018 amounted to £44,259, ofwhich £nil was outstanding at the period end.
Forthe period from incorporation on 8 June 2018 to 30 September 2018
The Company has entered into an Investment Advisory Agreement with the Investment Adviser pursuantto 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 theCompany from its copyrights and collection agents, and develop strategies to maximise the earning potential ofthe Songs in the portfolio through improved placement and coverage of Songs.
The Investment Adviser is entitled to receive an advisory fee (payable in cash) and a performance fee (usually payable predominantly in Shares subjectto an 18 month lock up arrangement). The full terms and conditions of the calculation of the Advisory and performance fees are disclosed in the Company's prospectus, which is available on the Company's website (www.hipgnosissongs.com). However in summary:
The advisory fee is calculated at the rate of:
Advisory fees for the period were £500,500 with £nil outstanding at the reporting date. The Board also approved an advance of £200,000 paid to the Investment Adviser which will be oTset in equal instalments over 12 months and is currently included in note 7 as a prepayment.
The performance fee is equal to 10 per cent. of the Excess Total Return relating to that accounting periodprovidedthatthePerformance Fee shall becappedsuch thatthe sumoftheAdvisory Fee and thePerformanceFeepaidinrespectofthat accountingperiodisnomorethan5per cent.ofthelower of: (i)Net Asset Value; or(ii)Closing MarketCapitalisation atthe end ofthat Accounting Period.
Pursuant to the Administration Agreements: (i) Estera International Fund Managers (Guernsey) Limited has been appointed as Fund Administrator of the Company; and (ii) Estera Administration (UK) Limited has been appointed as administrator to the subsidiaries. The Fund Administrator or EsteraAdministration (UK) Limited (as applicable) are responsible forthe day to day administration of the Company and the subsidiaries which accedes to the relevant Administration Agreement (including but not limited to the calculation and publication of the semi-annual NAV and the IFRS NAV) and general secretarialfunctions required by theCompanies Law(including but notlimited to maintenance of the Company's accounting and statutory records). For the purposes of the RCIS Rules, the Fund Administrator is the designated manager of the Company.
Forthe period from incorporation on 8 June 2018 to 30 September 2018
Investors should note that it is not possible for the Fund Administrator or Estera Administration (UK) Limited to provide any investment advice to investors.
Administration fees for the period were £40,683 with £29,433 outstanding at the reporting date.
Computershare Investor Services (Guernsey) Limited (a company incorporated in Guernsey on 3 September 2009with registered number 50855) has been appointed as registrarto theCompany pursuant to the Registrar Agreement. In such capacity, the Registrar will be responsible for the transfer and settlement of Shares held in certiUcated and uncertiUcated form. The Registraris also entitled to reimbursement of all out of pocket costs, expenses and charges properly incurred on behalf of the Company.
Registrar fees for the period were £1,585 with £552 outstanding at the reporting date.
Subsequent to the period end, the Company announced its Urst interim dividend for the period from Admission to 30 September 2018 of 0.50 pence perOrdinary Share.The dividendwas paid to Shareholders, on the register atthe close of business on 2November 2018, on 29November 2018.
On 16 November 2018 the Company announced the acquisition of the Poo Bear Catalogue from Jason Boyd, a U.S. songwriter and producer better known by his professional name Poo Bear. Poo Bear has collaborated, and had Top 10 hits, with some ofthe biggest artists overthe last 20 years, including Usher,David Guetta,DJ Khaled, Chris Brown, Fifth Harmony, Jennifer Lopez and Skrillex, but is best known as one of Justin Bieber's closest collaborators. The Company acquired 100% interest in the Catalogue, which comprises 214 Songs in total.
On 28November 2018 theCompany announced the acquisition oftheBernard EdwardsCatalogue. Bernard Edwards is best known for his partnership with Nile Rodgers, together founding CHIC in 1976 and co-writingNumber 1 Songs for bands and artists includingCHIC, Sister Sledge andDiana Ross. Nile Rodgers is a member of The Family (Music) Limited's advisory board and continues to promote and perform numerous Songs within the catalogue. The Company acquired a 37.5% interest in the Catalogue, which comprises 290 Songs in total.
On 7 December 2018 the Company announced the acquisition of the TMS Catalogue. TMS is an English songwriting and music production team comprised ofThomas 'Froe'Barnes,Benjamin Kohn and Peter 'Merf' Keller. The Company acquired a 100% interestin the Catalogue,which comprises 121 Songs in total.
There were no other material events after the period end to the date on which these Condensed Consolidated Financial Statement were approved.
"Administrator" means Estera International Fund Managers (Guernsey) Limited;
"Admission" means admission, on 11 July 2018,to trading on the Specialist Fund Segment ofthe London Stock Exchange, oftheOrdinary Shares becoming eTective in accordancewith the Listing Rules and/or the LSE Admission Standards;
"AIC" means the Association of Investment Companies;
"AIC Code" means the AIC Code of Corporate Governance;
"AIC Guide" means the AIC Corporate Governance Guide for Investment Companies;
"AIF" means Alternative Investment Funds;
"AIFM" means AIF Manager;
"AIFMD" means EU Alternative Investment Fund Managers Directive (No. 2011/61EU);
"Annual General Meeting" or "AGM" means the annual general meeting of the Company;
"Annual Report" or "Annual Report and Consolidated Financial Statements" means the annual publication oftheCompany provided to the Shareholders to describe their operations and Unancial conditions, together with their Financial Statements;
"Articles of Incorporation" or "Articles" means the articles of incorporation of the Company;
"ASCAP" means American Society of Composers, Authors and Publishers;
"Audit Committee" means a formal committee of the Board with deUned terms of reference;
"Average Market Capitalisation'' means, in relation to each month where the advisory fee is payable, (''A'' multiplied by ''B'') plus (''C'' multiplied by ''D''), where:
''A'' is the average of the middle market quotations of the Ordinary Shares for the Uve day period ending on the last business day of that month (adjusted as appropriate to exclude any dividend where the Ordinary Shares are quoted ex such dividend at any time during that Uve day period); ''B'' is weighted average of the number of Ordinary Shares in issue (excluding any Shares held in treasury) at the end of each day during that month; ''C'' is the average of the middle market quotations of a class of C Shares in issue for the Uve day period ending on the last business day of that month (adjusted as appropriate to exclude any dividend where the C Shares of that class are quoted ex such dividend at any time during that Uve day period); and ''D'' isweighted average ofthe number ofthat class of C Shares in issue (excluding any Shares held in treasury) atthe end of each day during that month;
"Board" or "Directors" means the Directors of the Company;
"Catalogue" means one or more Songs acquired from a single songwriter or artist;
"CD" means compact disc;
''ClosingMarketCapitalisation'' means, in relation to eachAccounting Period, ''E'' multiplied by ''F'', where: ''E'' is the Performance Share Price; and ''F'' is the weighted average of the number of Ordinary Shares in issue (excluding any Shares held in treasury) at the end of each day during the Accounting Period;
"Companies Law" means the Companies (Guernsey) Law, 2008, (as amended);
"Company" means Hipgnosis Songs Fund Limited. References to the Company are also considered to be references to the Group, where applicable;
"Company Secretary" means Estera International Fund Managers (Guernsey) Limited;
"Condensed Consolidated Financial Statements" means the unaudited Unancial statements of the Company, including the Statement of Financial Position, the Statement of Comprehensive Income, the Statement of Cash Flows, the Statement of Changes in Equity and associated notes;
"Corporate GovernanceCode" meansTheUKCorporate GovernanceCode 2016 as published by the Financial Reporting Council;
"DCF" means discounted cash Vow;
"Discount to NAV" means the situationwhere the Ordinary Shares oftheCompany are trading at a price lower than the Company's Net Asset Value;
"Disclosure Guidance and Transparency Rules" or "DTRs" mean the disclosure guidance published by the FCA and the transparency rules made by the FCA under section 73A of FSMA;
"DSP" means digital service providers;
"Earnings per Share" or "EPS" means the Earnings perOrdinary Share and is expressed in pounds Sterling;
"Excess Total Return" means for an Accounting Period, it is calculated by reference to: (i) the diTerence between the Performance Share Price at the end of that Accounting Period and the higher of: (a) the Performance Hurdle (being Issue Price compounded by 10 per cent. per annum from Initial Admission subject to appropriate adjustments in certain situations); and (b) High Watermark (being the Performance Share Price at the end of the last Accounting Period where a Performance Fee was payable); multiplied by (ii) the weighted average of the number of Ordinary Shares in issue (excluding any Shares held in treasury) atthe end of each day during thatAccounting Period;
"FCA" means the UK Financial Conduct Authority (or its successor bodies);
"FRC" means Financial Reporting Council;
"GFSC" or "Commission" means the Guernsey Financial Services Commission;
"GFSC Code" means the GFSC Finance Sector Code of Corporate Governance;
"Group" means Hipgnosis Songs Fund Limited and its subsidiaries;
"IAS" means international accounting standards as issued by the Board of the International Accounting Standards Committee;
"IASB" means the International Accounting Standards Board;
"IFRIC" means International Financial Reporting Interpretations Committee;
"IFRS" means the International Financial Reporting Standards, being the principles-based accounting standards, interpretations and the framework by that name issued by the International Accounting Standards Board;
"IFRS NAV" means the value of the Gross Assets of the Company less its liabilities (including accrued but unpaid fees) in accordance with the accounting policies adopted by the Directors;
"Independent Valuer" means third party appointed by the Board to independently value the Company Catalogues;
"Interim Report" means theCompany's half yearly report and unauditedCondensedConsolidated Financial Statements for the period ended 30 September;
"Investment Adviser" means The Family (Music) Limited;
"Investment Advisory Agreement" means the investment advisory agreement dated 27 June 2018 between The Family (Music) Limited, the Company and Hipgnosis SFH I Limited;
"IPO" means the initial public oTering of shares by a private company to the public;
"ISA" means International Standards on Auditing (UK and Ireland);
"ISIN" means an International Securities IdentiUcation Number;
"Listing Rules" means the listing rules made by theUK ListingAuthority under section 73AFinancial Services and Markets Act 2000;
"London Stock Exchange" or "LSE" means London Stock Exchange Plc;
"NAV per Share" means the Net Asset Value attributable to the Ordinary Shares in issue divided by the number of Ordinary Shares in issue (excluding any Shares held in treasury) at the relevant time and expressed in Sterling;
"Net Asset Value" or "NAV" means the value of the assets of the Company less its liabilities as calculated in accordance with the Company's valuation policy and expressed in pounds Sterling;
"NPS" means net publisher share;
"Operative NAV" means NAV as adjusted for the fair value of Catalogues of Songs;
"OrdinaryShares" means redeemable ordinary shares of no par value in the capital oftheCompany issued and designated as "Ordinary Shares" and having the rights,restrictions and entitlements set out in the Articles;
"Portfolio" means the portfolio of Songs (whether organised intoCatalogues or otherwise) held by the Company directly or indirectly from time to time;
"Performance Right Organisations" or "PROs" means a performing rights organisation, such as PRS or BMI, which represents and collects performance royalties for and on behalf of each of its members;
"Performance Share Price" means in relation to each accounting period,the average ofthe middle market quotations of the Ordinary Shares for the one month period ending on the last business day of that accounting period;
"Preferred Portfolio Administrator" means the portfolio administrators appointed by the Company in orderto assistwith the administration ofthe Portfolio including Kobalt Music Services Limited, the Company's preferred portfolio administrator;
"Premium to NAV" means the situationwhere the Ordinary Shares oftheCompany are trading at a price higher than the Company's Net Asset Value;
"RCIS Rules" means the Registered Collective Investment Scheme Rules 2015;
"Shareholder" means the holder of one or more Ordinary Shares;
"Song" means a songwriter's and/or publisher's share of copyright interest in a song, being a musical composition ofwords and/or music and the songwriter's proportion ofthe publishing rights of a single musical track, and when construction permits, the collection of words and/or music as purchased by consumers;
"The-Dream" means theCatalogue purchased from TeriusNash, better known by his stage name 'The-Dream';
"UK" or "United Kingdom" means the United Kingdom of Great Britain and Northern Ireland;
"U.S." or "United States" means theUnited States ofAmerica, its territories and possessions, any state of the United States and the District of Columbia;
"£" or "Pounds Sterling" or "Sterling" means British pound sterling and "pence" means British pence; and
"\$" means United States dollars and "cents" means United States cents.
Andrew Sutch (Chairman) (Appointed 8 June 2018) Simon Holden (Appointed 8 June 2018) Andrew Wilkinson (Chairman of the Audit Committee) (Appointed 8 June 2018) Paul Burger (Appointed 30 July 2018)
Heritage Hall PO Box 225 Le Marchant Street St Peter Port Guernsey GY1 4HY
The Family (Music) Limited Lansdowne House 1b Lansdowne Road Holland Park London W11 3LP www.hipgnosissongs.com
Estera International Fund Managers (Guernsey) Limited Heritage Hall PO Box 225 Le Marchant Street St Peter Port Guernsey GY1 4HY
Computershare Investor Services (Guernsey) Limited 1st Floor Tudor House Le Bordage St Peter Port Guernsey GY1 1DB
N+1 Singer Advisory LLP 1 Bartholomew Lane London EC2N 2AX
PricewaterhouseCoopers Cl LLP Royal Bank Place 1 Glategny Esplanade St Peter Port Guernsey GY1 2HJ
CTABL Inc. 9460 Sunrise Lakes Boulevard Suite 302 Sunrise Florida 33322
Herbert Smith Freehills LLP Exchange House Primrose Street London EC2A 2EG
Ogier (Guernsey) LLP Redwood House St Julian's Avenue St Peter Port Guernsey GY1 1WA
Barclays Bank PO Box 41 Le Marchant House St Peter Port Guernsey GY1 3BE
Kobalt Music Services Limited The River Building 1 Cousin Lane London EC4R 3TE
ISIN: GG00BFYT9H72 Ticker: SONG SEDOL: BFYT9H7 Website: www.hipgnosissongs.com
The Company's registrar, Computershare Investor Services (Guernsey) Limited, allows you to manage your shareholding online. If you are a direct investor you can view your shareholding, change the way the registrar communicates with you and buy and sell shares. If you haven't used this service before, all you need to do is enter the name of the Company and register your account at https://www-uk.computershare.com/investor. You'll need your Investor code (IVC) printed on your share certiUcate in order to register.
The Chairman's Statement, the Investment Adviser's Report and Board Report have been prepared solely to provide additional information for shareholders to assess the Company's strategies and the potential for those strategies to succeed. These should not be relied on by any other party or for any other purpose.
The Chairman's Statement, Investment Adviser's Report and Board Report may include statements that are, or may be deemed to be,"forward-looking statements".These forwardlooking statements can be identiUed by the use offorward-looking terminology, including the terms "believes","estimates","anticipates","expects","intends","may","will" or"should" or, in each case, their negative or other variations or comparable terminology.
These forward-looking statements include all matters that are not historical facts. They appear in a number of places throughout this document and include statements regarding the intentions, beliefs or current expectations of the Directors and the Investment Adviser, concerning, amongst otherthings,the investment objectives and investment policy, Unancing strategies, investment performance, results of operations, Unancial condition, liquidity, prospects, and distribution policy of the Company and the markets in which it invests.
By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. Forward-looking statements are not guarantees of future performance.
The Company's actual investment performance, results of operations, Unancial condition, liquidity, distribution policy and the development ofits Unancing strategies may diTer materially from the impression created by the forward-looking statements contained in this document.
Subject to their legal and regulatory obligations, the Directors and the Investment Adviser expressly disclaim any obligations to update or revise any forward-looking statement contained herein to reVect any change in expectations with regard thereto or any change in events, conditions or circumstances on which any statement is based.
Heritage Hall, PO Box 225, Le Marchant Street, St Peter Port, Guernsey, GY1 4HY, Channel Islands.
T +44 (0) 1481 742742 F +44 (0) 1481 742698
Further information available online: www.hipgnosissongs.com
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