Annual Report • Mar 31, 2019
Annual Report
Open in ViewerOpens in native device viewer
Annual Report and Audited Consolidated Financial Statements For the period from 8 June 2018 (Date of Incorporation) to 31 March 2019
Registered number: 65158
Founder
Merck Mercuriadis
| Overview | |
|---|---|
| Corporate Summary | 02 |
| Chairman's Statement | 03 |
| Financial and Operational Highlights | 05 |
| Investment Adviser's Report | 07 |
| Investment Objective and Policy | 14 |
| Board of Directors | 16 |
|---|---|
| Report of the Directors | 18 |
| Directors' Responsibilities Statement | 22 |
| Corporate Governance Report | 23 |
| Report of the Audit and Risk Management Committee | 32 |
| Independent Auditor's Report | 35 |
| Consolidated Statement of Comprehensive Income | 41 |
|---|---|
| Consolidated Statement of Financial Position | 42 |
| Consolidated Statement of Changes In Equity | 43 |
| Consolidated Statement of Cash Flows | 44 |
| Notes to the Consolidated Financial Statements | 45 |
| Glossary of Capitalised DeXned Terms | 63 |
|---|---|
| Directors and General Information | 67 |
| Notice of Annual General Meeting | 70 |
The Company's investment objective is to provide Shareholders with an attractive and growing level of income,togetherwith the potentialfor capital growth,from investment in a portfolio of Songs and their associated musical intellectual property rights. The Portfolio has been created by investing in Catalogues of proven established Songs from well-known songwriters and recording artists. However, each Song will be considered to be a separate asset.
TheCompany is an investment company limited by shares, registered and incorporated in Guernsey under the Companies Law on 8 June 2018. The Company is registered with 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.
TheCompany makes and manages its investments directly or indirectly through a number of wholly owned subsidiary companies incorporated in England & Wales, together referred to as the Group.
The Company's Investment Adviser, The Family (Music) Limited, was founded by Merck Mercuriadis. Merck is the manager and/or former manager of globally successful recording artists such as Elton John, Guns N' Roses, Morrissey, Iron Maiden, Nile Rodgers and Beyoncé, and hit songwriters such as Diane Warren, Justin Tranter and The-Dream. Merck Mercuriadis is the former CEO of The Sanctuary Group plc.
The Family (Music) Limited 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 earnings potential ofthe Songs in the portfolio through improved placement and coverage of Songs.
The InvestmentAdviser continues to assemble an advisory board of highly successful music industry experts which include award winning members of the artist, songwriter, publishing, legal, Xnancial, recorded music and music management communities, allwith in-depth knowledge of music publishing and access to a signiXcant network of relationships in the music industry.
The Board has formed a Portfolio Committee which considers the recommendations of the Investment Adviser before granting its approval to purchase the Catalogues of Songs, as well as an Asset Management Committee which considers 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. The Company's page on the AIC's website is at https://www.theaic.co.uk/companydata/ceag2.
The Company's website, which can be found at www.hipgnosissongs.com, includes information on the Company, such as its launch prospectus, past reports and accounts, policies, media coverage and regulatory news announcements.
I am pleased to present your Company's Xrst Annual Report sincewe commenced trading on the London Stock Exchange on 11 July 2018.
Atthat datewe also acquired our XrstCatalogue of Songs, The-Dream Catalogue, and during the Xnancial period ended 31 March 2019, the Portfolio grew to a total of twelveCatalogues,withapproximately£120millioninvested. As at 21 June 2019, the latest practicable date prior to publication of this report, the Portfolio had grown to 22 Catalogues with a total of £241 million invested.
The total capitalraised by yourCompany since launch now stands at £343.7 million, comprising £202.2 million raised at our IPO and a further £141.5 million raised on 12 April 2019 through a placing programme issuance which was largely the product of signiXcant demand from our existing institutional investors.
Performance of your Company over the course of this maiden Xnancial period under review has progressed well and is presented by Merck Mercuriadis, the Company's founder, in the Investment Adviser's Report.
I am pleased to report that recognised net revenues from the Portfolio from incorporation on 8 June 2018 to the Xnancial period end on 31 March 2019 were £7.2 million, equivalent to 6.1 percent gross yield on the invested component of our Portfolio as at 31March 2019,which is in line with our projections at launch.
The Company's NAV is calculated semi-annually on an 'Operative NAV' basis (which reYects the fair value of the Company's Catalogues as valued by an Independent Valuer). The Operative NAV as at 31 March 2019 was 103.27p per Ordinary Share.
As at 31 March 2019 the Ordinary Share price was 107.5p, an increase of 7.5 percent on the IPO issue price of 100p.
The Company has met its objective at launch of declaring dividendsof3.5pperOrdinaryShare(inaggregate)inrelation totheXrst12months followingAdmission.Duringtheperiod theCompanyhaspaiddividendsof2.25pperOrdinaryShare to date, with a Xrst interim dividend for the current Xnancial periodof 1.25p approved by theBoardon 21 June 2019 and payable in August 2019.
TheCompany's future target dividend yield is 5 percent per annum (based on the IPO issue price of 100p) on the Ordinary Shares and the Company expects to grow its dividend yield overtime.TheCompany intends to continue to pay four interim quarterly dividends in November, February, May and August of each year.
TheDirectors considerit a priority thattheCompany's level of gearing should be established at appropriate levels with suZcient Yexibility to enable the Board to adapt at short notice to take advantage of changes in market conditions. The BoardwillreviewtheCompany's level of gearing, if any, on a regular basis.The maximum level of gearing underthe Company's investment restrictions is 20 percent of the Company's net assets.
During the period ended to 31 March 2019 a performance fee of £429,054, equal to 0.21 percent of the Company's Operative NAV, was earned by the Investment Adviser as a result of the Company's outperformance of its 10% per annum total return hurdle. Full details of how this performance fee was calculated are set out in Note 16 on page 59 ofthis Annual Report. It should be noted thatthese fees are subjecttothe higherof a 'highwatermark'(meaning that a performance fee can only be paid ifthe average share price at the end of the year is higher than the price over the lastmonthofthe yearin respectofwhich a performance fee was last paid) and the hurdle of outperforming the 10% total return target. There is also a cap on the aggregate fees that may be paid to the Investment Adviser in any one Xnancial year of 5% of the lower of net assets and the market capitalisations at the end of the relevant period in which the performance feewas calculated.
The Company's Annual General Meeting will be held on 10 September 2019 at 10:30 a.m. at The Tapestry Room, TheNED, 27 Poultry, London.Notice oftheAnnual General Meeting, containing full details of the business to be conducted atthe meeting, is set outin theAGMNotice and Form of Proxy located at the back of the report.
In addition to the formal business, Merck Mercuriadis will provide a short presentation to Shareholders on the performance oftheCompany overthe past Xnancial period as well as an outlook for the future. The Board would welcome your attendance at the Annual General Meeting as it provides Shareholders with an opportunity to ask questions of both the Board and the Investment Adviser.
Conditions for Catalogue acquisition in the music industry are currently favourable. In 2018 the overall globalrecorded music market grewby 9.7 percentin value, according to the International Federation of the Phonographic Industry ('IFPI'). This marks the fourth consecutive year of global growth and the highest rate of growth since IFPI started tracking the market in 1997.
The main driver for growth in the global recorded music market is the growth of streaming, which according to the IFPI increased by 34 percent in 2018.
The Investment Adviser has identiXed a strong pipeline of opportunities and theBoard are conXdentthat our strategy of building a balanced Portfoliowill deliver solid returns over the coming months and years. The pipeline of attractive investment opportunities now exceeds, in value, the Company's remaining cash reserves and accordingly the Boardwill look to growtheCompany through further equity issuances as and when appropriate.
Andrew Sutch Chairman
21 June 2019
The Company completed its IPO and was admitted to trading on the SFS of the Main Market of the London Stock Exchange on 11 July 2018.
As at 31 March 2019, the Company had deployed approximately £120 million of the IPO proceeds to Catalogue acquisitions, as follows:
| Catalogue | Acquisition Date |
Interest Ownership |
Total Songs |
|---|---|---|---|
| The-Dream | 11 July 2018 | 75% | 302 |
| Poo Bear | 16 November 2018 | 100% | 214 |
| Bernard Edwards | 28 November 2018 | 37.5% | 290 |
| TMS | 7 December 2018 | 100% | 121 |
| Tricky Stewart | 17 December 2018 | 100% | 121 |
| Giorgio Tuinfort | 3 January 2019 | 100% | 182 |
| Itaal Shur | 30 January 2019 | 100% | 209 |
| Johnta Austin | 21 March 2019 | 100% | 249 |
| Sean Garrett | 21 March 2019 | 100% | 588 |
| Rico Love | 21 March 2019 | 100% | 245 |
| Ari Levine | 31 March 2019 | 100% | 76 |
| Sam Hollander | 31 March 2019 | 100% | 499 |
| Total | 3,096 |
On 12April 2019 theCompany announced a placing of approximately £141.5 million at a price of 102 pence perOrdinary Share. Accordingly 138,750,000 new Ordinary Shares were admitted to trading on the SFS of the main market of the London Stock Exchange on 17 April 2019.
| Acquisition | Interest | Total | |
|---|---|---|---|
| Catalogue | Date | Ownership | Songs |
| Teddy Geiger | 9 April 2019 | 100% | 6 |
| Starrah | 23 April 2019 | 100% | 73 |
| David A. Stewart | 10 May 2019 | 100% | 1,068 |
| Jamie Scott | 21 May 2019 | 100% | 144 |
| Al Jackson Jr. | 30 May 2019 | 100% | 185 |
| Michael Knox | 10 June 2019 | 100% | 110 |
| Lyric Catalogue | 12 June 2019 | 100% | 571 |
| Brian Kennedy | 12 June 2019 | 100% | 101 |
| Jon Bellion | 12 June 2019 | 100% | 180 |
| Neal Schon | 21 June 2019 | 100% | 357 |
| Total | 2,795 |
Following these acquisitions, as at 21 June 2019, the Company had invested a total of £241 million and is in further advanced stage discussions, with exclusivity over, Catalogues with a value of £146 million.
Revenue streams across the Portfolio have broadly developed within expectations set as part of the acquisition due diligence.Revenue has been recognised by the Group in accordancewith the recognition principles set outin IFRS 15.Due to the revenue contracts in placewith the royalty collection agents and the natural lag in reporting ofrevenue in the music industry, the Group has seen a strong performance for many of the Catalogues during the period.
On 25 October 2018,theCompany announced its Xrstinterim dividend forthe period from Admission to 30 September 2018 of 0.50 pence per share. The dividend was paid to Shareholders, on the register at the close of business on 2 November 2018, on 29 November 2018.
On 23 January 2019,theCompany announced its second interim dividend forthe period from 1Octoberto 31December 2018 of 0.50 pence per share. The dividend was paid to Shareholders, on the register at the close of business on 1 February 2019, on 28 February 2019.
On 25 April 2019,the Company announced its third interim dividend forthe period from 1 January to 31 March 2019 of 1.25 pence per share. The dividend was paid to Shareholders, on the register at the close of business on 3 May 2019, on 31 May 2019.
On 21 June 2019, the Board approved its Xrst interim dividend for the new Xnancial year, for the period from 1 April to 30 June 2019, of 1.25 pence per share. The dividendwill be paid to Shareholders, on the register atthe close of business on 2August 2019, on 30August 2019.This completes theCompany's dividend target of 3.5 pence per share forthe Xrst 12 months following Admission.
The Company intends to continue to pay interim quarterly dividends in November, February, May and August of each year.
| 31 March 2019 £ |
30 September 2018 £ |
|
|---|---|---|
| IFRS NAV(1) | 198,558,826 | 197,484,818 |
| Adjustments for revaluation of Catalogues of Songs to fair value | 8,743,795 | 1,945,636 |
| Reversal of IFRS amortisation | 1,491,922 | 202,243 |
| Operative NAV(2) | 208,794,543 | 199,632,697 |
| Operative NAV(2) per share | 103.27p | 98.74p |
| Middle market share price | 107.50p | 107.62p |
| Premium to Operative NAV | 4.10% | 8.99% |
| Ongoing charges Xgure (%)(3) | 1.70% | 1.72% |
| Total dividends declared in respect of the period | 2.25p | 0.5p |
(1) Catalogues of Songs are classiXed 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 meaningful alternative performance measure and the values of Catalogues of Songs are based on fair values produced by an Independent Valuer.
(3) Alternative performance measure: annualised ongoing charges (£3,467,007) divided by average OperativeNAV £204,213,620. Ongoing charges are those expenses of a type which are likely to recur in the foreseeable future, whether charged to capital or revenue, and which relate to the operation of the Company as a collective fund, excluding the costs of acquisition/disposal of investments, performance fees, Xnancing charges and gains/losses arising on investments. Ongoing charges are based on costs incurred in the year as being the best estimate of future costs.
I am delighted to report on our Xrst Xnancial period as your Company's Investment Adviser. I am very proud to have founded theCompany,which I believe is unique in its scope and opportunity. I would like to thank our Shareholders for all of their support to date.
Hipgnosis was established to oWer investors a pure-play exposure to the predictable and reliable income streams delivered from proven hit songs and associated musical intellectual property rights.TheCompany is the only closed ended fund listed on the London Stock Exchange dedicated exclusively to investing in songs.
On 11 July 2018, yourCompany successfully completed its IPO through the issue of 202.1 million Ordinary Shares at 100p each which were admitted to the SFS of the London Stock Exchange's main market. Since the period end, the Company has raised a further £141.5 million through the placing of new Ordinary Shares pursuant to its ongoing placing programme.
The Company's Investment Adviser, The Family (Music) Limited, was founded by me, Merck Mercuriadis. I am the manager or former manager of globally successful recording artists such as Elton John, Guns N' Roses, Morrissey, Iron Maiden, Nile Rodgers and Beyoncé, hit songwriters such as Diane Warren, Justin Tranter and The-Dream, and formerly,CEOofTheSanctuaryGroup plc.
We have overseen the appointment of the Non Executive Board for the Company comprising Andrew Sutch, Paul Burger, Andrew Wilkinson and Simon Holden.
We also are continuing to build out an informal advisory board of highly successful music industry experts, including award winning members of the artist, songwriter, publishing, legal, Xnancial, recorded music and music management communities, allwith in-depth knowledge of music publishing.Members ofThe Family (Music) Limited's advisory board currently includeNile Rodgers,The-Dream, GiorgioTuinfort, Starrah,Nick Jarjour,DavidA. Stewart, Bill Leibowitz, Ian Montone, and Jason Flom. Certain advisory board members have been appointed following the purchase of their respective Catalogues.
Since launch, we have continued to grow our executive team within our sales and Xnance functions to support and enable our active management strategy and acquisition review processes.
Proven hit songs are a permanent part of our culture and the fabric of our society. As such they produce predictable and reliable income and are therefore highly investable.
I createdHipgnosis Songs Fund Limited in orderto give the Xnancial community access to this new asset class at a point in time when non-correlated opportunities are not only desired, but required.
Fifteen years of technological disruption via illegal downloading have left these highly prized assets available at attractive prices at a point in time when revenues are growing signiXcantly as streaming has made it more convenientforthe consumerto pay for music.
Our thesis is simple, logical and takes advantage of the systemic change in which music is being consumed:
we appraise and acquire Songs) where they have as many as 20,000 Songs for each creative manager. Evenwhen fully investedwe have less than 500 Songs for each executive in the Portfolio managementteam, and therefore have the bandwidth to manage the Songs to even greater levels of success.
As Investment Adviser we are responsible for identifying catalogues forpotential investmentby theCompany.Ahead of any Catalogue acquisition we perform detailed Xnancial due diligence on at least three years of revenue history for each Song and co-ordinate all aspects oflegal due diligence and independent external valuations. All recommended potential acquisitions are then presented to the Portfolio Committee and theCompany's Board ofDirectors fortheir approval.
We, under the Board's supervision, also seek to maximise the earnings from the Portfolio by improving the placement and usage of Songs, and regularly supervise portfolio administrators and royalty collection agents.
In addition, we are continually supplementing the information we receive with the development of in-house tools to monitorthe post-investment performance ofthe Company's Catalogues through data-trend analysis. This will allowus to track and analyse publisher and Performance Rights Organisations (PRO) statements eWectively, enabling us to evaluate, and where necessary, challenge them as to the eZciency and accuracy of their reporting and the levels of revenue collected and paid to the Company.
Our active management strategy has already identiXed an entire album that was registered incorrectly for one of our Catalogues. We have already successfully secured synchronisation licences for a wide range of Songs within the Portfolio. On the Bernard Edwards Catalogue, for example, we achieved over \$512,000 in gross placements in April. In relation to The-Dream's Catalogue we have taken a single Song from \$7,000 in total earnings in 2018 to \$125,000, from synchronisation alone, in calendar year 2019 to date.
We focus on acquiring Catalogues that are built around proven hit songs. As previously mentioned these provide predictable and reliable income that is highly investable. My 35 years of experience managing some ofthe greatest artists and assets in the world have allowed me to form many opinions, but in this endeavour what I bring to the enterprise is access to some of the most talented and important songwriters globally.The key consideration from our due diligence is whether historical performance demonstrates thatthe Songs' earnings are predictable and reliable. These characteristics reduce risk and improve performance as they have long dated income streams that can be analysed and forecasted. In addition,we are focused on helping theCompany to build a Portfoliowhich produces a high proportion of copyright income derived from streaming to take advantage of the rapidly increasing popularity of streaming and paid subscription music services.
Key to reducing and diversifying risk is our strategy of constructing a Portfolio across a broad range of genres and income streams.
We believe thattheCompany has a competitive advantage overthe major publishers due to our combined music industry and Xnancial experience in combination with our advisory board, a carefully assembled panel of leading music industry Xgures and writers.
We also have a lowerratio of Songs to each individual executive in the Portfolio managementteam atThe Family (Music) Limited when compared to the major publishers, thereby allowing us to target synchronisation opportunities more eWectively, generating enhanced returns.
As at 31 March 2019, the Company had acquired twelve Catalogues of Songs; The-Dream, Poo Bear, TMS, Tricky Stewart, Giorgio Tuinfort, Bernard Edwards, Itaal Shur, Rico Love, Sean Garrett, Johnta Austin, Ari Levine and Sam Hollanderfor a total of approximately £120 million,representing a blended acquisition multiple of 12.75x historical annual net income. In total the Portfolio comprised 3,096 Songs. The fair value of the Portfolio as at 31 March 2019 was £128 million, reYecting an increase in the fair value of the Portfolio as determined by the Independent Valuer of £8.7 million.
The Portfolio generated 64 percent ofits income from theU.S., 15 percentfrom theUK and 4 percentfrom Australiawith income also being received from a diverse range of countries, including Germany, Japan,Canada and Brazil. We anticipate an increase in revenues from other developed and emerging market countries as streaming services expand in those markets.
| Catalogue | Song Title | Artist | |
|---|---|---|---|
| 1 | Ari Levine | Locked Out of Heaven | Bruno Mars |
| 2 | The-Dream & Tricky Stewart | Single Ladies (Put A Ring on It) | Beyoncé |
| 3 | Itaal Shur | Smooth | Santana, Rob Thomas |
| 4 | Ari Levine | When I Was Your Man | Bruno Mars |
| 5 | Ari Levine | Treasure | Bruno Mars |
| Catalogue | Song Title | Artist | |
|---|---|---|---|
| 1 | The-Dream & Tricky Stewart | Single Ladies (Put A Ring on It) | Beyoncé |
| 2 | TMS | Me, Myself & I | G-Eazy, Bebe Rexha |
| 3 | The-Dream & Tricky Stewart | Baby | Justin Bieber |
| 4 | The-Dream & Tricky Stewart | Umbrella | Rhianna, Jay Z |
| 5 | Sam Hollander | Handclap | Fitz and The Tantrums |
As at 31 March 2019, the Portfolio contained 664 Songs that have heldNumber 1 and/orNumber 2 positions in the global charts, 704 Songs that have held Top 10 chart positions and 10 Grammy award winning Songs.
The new Catalogues acquired post period end are Teddy Geiger, Starrah, David A. Stewart, Jamie Scott, Michael Knox, Jon Bellion, Lyric Financial, Brian Kennedy,Al Jackson and Neal Schon. These Catalogues comprise a further 2,795 Songs and have achieved 247 Number 1 and 801 Top 10 chart positions globally.The vintage ofthese Songs range from the 1960s through to 2019, and have been performed by globally successful artists including Journey, Eurythmics, Shawn Mendes, Camilla Cabello, Maroon 5, Al Green, Booker T & The MG's, Rudimental, Jess Glynne and One Direction.
The Songs in the Portfolio as at 21 June 2019 continue to experience commercial success and receive critical acclaim, including:
CamilaCabello and YoungThug's 'Havana', co-written by Starrah, is nine times Platinum in the U.S. and has been named the IFPI's biggest selling Song of 2018 on a global basis;
'Would You Ever' by Skrillex & Poo Bear was certiXed as a gold selling single on 21 February 2019;
TheCompany receives income from semi-annual publisher distributions,which includes synchronisation income,which are licensed and collected by the publisher for each Catalogue. The Company receives statements on a monthly basis from PROs (performers' rights organisations) who collect and distribute the songwriter's share of performance income. In the Xnancial period under review, the Company received its Xrst publisher distributions on 31 March 2019 for income processed in the second half of the 2018 calendar year, in respect of the majority of the Catalogues held during the period.
Netrevenues recognised forthe Xnancial period ended 31 March 2019 were £7.2 million. Publishing income had increased by 9 percent when compared to the Portfolio's performance in the year priorto acquisition (based on data obtained during the respective Catalogue due diligence processes), driven mainly by an increase in synchronisation and streaming income.
Net revenues include an accrual of £1.9 million for performance income, to account for the songwriter's share of performance royalties which are subject to a signiXcant time lag in reporting in the industry, but which theCompany is entitled to receive in due course. This time lag relates to the collection and processing ofincome from radio as well as the collection and subsequent processing of the songwriter's share of performance royalties from overseas PROs to the local PRO, that ultimately pays through the royalties to the Company. In recommending our estimate of this accrual to the Board and the auditors, we used our analysis of each Catalogue's revenue history as well our knowledge of the respective Catalogue performance trends.
Revenues during the period under review were broadly spread across the twelve Catalogues, with 78 percent of income being delivered from 50 percent oftheCatalogues. It should be noted that the Catalogues were acquired sequentially throughoutthe period underreviewand there was therefore an element of 'cash drag' on revenues from uninvested cash on the Company's balance sheet during this initial Xnancial period.
The breakdown of net revenues by income stream for the prior three calendar year periods, on a like for like basis for the Portfolio as at 31 March 2019, is shown below:
After administration expenses (which include the fees payable to the Investment Adviser, acquisition costs and administration costs), distributable revenues forthe period were £3.5 million. It is anticipated that this Xgure will increase now that the Company's investment Portfolio is more fully invested.
The Company's NAV is calculated both under IFRS (which principally requires the cost of purchasedCatalogues to be amortised downwards to reYectthe reducing copyrightlife of each Catalogue) and on an Operative NAV basis (which reYects the fair value of the Company's Catalogues as valued by an Independent Valuer). The Operative NAV as at 31 March 2019 was £208.8 million or 103.27p per Ordinary Share, reYecting an increase of £8.7 million in the fair value of the Portfolio. The derivation of the Operative NAV from the IFRS NAV is described further in Note 10 on page 54.
The Xnancial period to 31 March 2019 has been another positive period for the music industry, with increasing take up of paid subscription services driving streaming revenues. Streaming became the majority of global recorded music income in 2018 (56 percent) and industry experts continue to forecast further strong growth.
At the end of the Xrst quarter of 2019, Spotify conXrmed thatit had 100 million premium (paying) subscribers,which was up 32 percent (+25 million) year-on-year. Spotify's total MAU (including paying and advertisement funded customers) in Q1 grew 26 percent year-on-year to 217 million and the company conXrmed that it now has more than 2 million users in India. Spotify's main competitor, Apple Music, passed 50 million paying subscribers in Q1 2019, up from 40 million in April 2018.
Streaming made up 56 percent of total U.S. music revenues in 2018 compared to 9 percent in 2011. In the U.S. – the largest music market – paid streaming subscriptions grew 42 percent in 2018:
Paid Subscriptions in the U.S.
Proportion of Total U.S. Music Revenues from Streaming
Source: Recording Industry Association of America (RIAA) 2018 Annual Report
In 2019, JP Morgan forecast that U.S. music subscription revenues are expected to grow at a compound annual growth rate of 27 percent from 2017 to 2022 and that royalty revenues will triple in that time. JP Morgan are predicting that there will be 2 billion paid subscribers to subscriptions services worldwide by 2030.
Apple recently announced the closure ofiTunes,reYecting the migration of consumers from download to streaming services. iTuneswill be rolled into the newApple Music app where consumers will be able to choose whether to download or stream music under one roof.
The International Federation ofthe Phonographic Industry ('IFPI') also recently announced that globalrecorded music revenues grew by nearly 10 percent last year to \$17.3 billion, with nearly half of income now coming from streamed music, reversing an industry decline since 2001 that hit a trough in 2014.
The most recent global publishing data from the International Confederation of Societies of Authors and Composers ('CISAC') (relating to 2017) shows global growth of 6 percent, with Germany (+7.2 percent), Netherlands (+5.1 percent), Australia (+18 percent) and Brazil (+36 percent) performing strongly.More recently,the American Society of Composers, Authors and Publishers ('ASCAP')reported 7 percentrevenue growth in 2018, and UK society PRS for Music (2018 Xnancials, reported April 2019) showed 4.4 percent income growth.
When looking at music publishing holistically (including revenues that do not come from these collecting societies, such as synchronisation), Will Page, Chief Economist at Spotify estimated that publishing had grown 6 percent year-on-year, for the most recent available data (2017 value, published in 2019). Goldman Sachs predict that, on average, publishing revenue will grow at a compound 4 percent per annum to 2030.
Global market data on synchronisation is diZcultto collate, since private transactions are completed on a deal by deal basis. IFPI publish a global Xgure for record labels, which grew 5 percent year-on-year to 2018 and gives an indication oftrend.However,the relational nature ofthese deals presents a signiXcant opportunity for us to claim a larger share of these revenues through pursuing the right kinds of transactions.
All of these positive market indicators and the impact that theywill have on the value of our assets are bestillustrated by the increased valuation of the Universal Music Group, where its corporate owners, Vivendi SA, and subsequently the market have valued Universal at something approaching \$50 billion. This is a company that was valued at \$6 billion less than 3 years ago.
We are continuing to see increased interest from songwriterswhowantto selltheirCatalogue to a company such as ours that understands the cultural importance of theirwork andwhichwill hold their professional legacy in the highest regard. We therefore remain conXdent that there are increasing opportunities for us to continue to make excellent acquisitions.
We are currently in exclusivity and performing due diligence on a signiXcant number of newCatalogue acquisitions.The Company has entered into exclusivity agreements to acquire Catalogues with a value of £146 million and therefore we expect to fully invest our remaining capital, excluding any leverage, by the end of July 2019. We now have a pipeline of Catalogues with an aggregate value in excess of £1 billion. The Board and the Investment Adviser are pleased to announce that, since IPO,theCompany has acquired, or entered into exclusivity agreements to acquire, Catalogues with a total value of £387 million, which represents an aggregate multiple of 12.56x historic annual netincome.
Revenues from these Catalogues, and from those that have been acquired since listing, will be in full evidence in the next 6 to 12 months and we believe that our next full year's accounts to 31 March 2020will be the Xrstto paint a picture of our true potential and illustrate our thesis fully realised.
The music industry is performing well, with experts forecasting continued growth in paid subscription services. We believe that our revenues will continue to increase and overall, we remain positive about the outlook for the Company.
The Company has assembled a Portfolio of some of the Xnest assets in music, each Catalogue proven and handpicked from the Xnest songwriters, and we decline far more catalogues than we buy. Our aim is to become the beneXciaries of what we refer to as "the portfolio eWect" where a premium is placed on a set of assets that have been carefully curated and assembled and the overall value is signiXcantly greater than the sum of its parts.
We would like to thank all of our Shareholders for their support to date and we will continue to do our utmost to deliver against the Company's objectives.
Forthose Shareholders who would like to listen to the Songs that the Company has acquired to date,the following QR code will link your mobile device to a Spotify playlist of thirty of our most successful Songs. Other playlists may be found on the Company's website, www.hipgnosissongs.com.
Founder of Hipgnosis Songs Fund Limited and CEO of The Family (Music) Limited (Investment Adviser to Hipgnosis Songs Fund Limited)
21 June 2019
The Company's investment objective is to provide Shareholders with an attractive and growing level of income,togetherwith the potentialfor capital growth,from investment in a portfolio of Songs and their associated musical intellectual property rights. The Portfolio has been created by investing in Catalogues of proven established Songs from well-known songwriters and recording artists.However, each Songwill be considered to be a separate asset.
The Company's investment policy is to diversify risk through investment in a Catalogue of Songs and associated musical intellectual property rights. The Company will seek, but is not required, to acquire 100 percent of a songwriter's copyright interest in each Song,whichwould comprise their songwriter's share,their publisher's share and their performance rights. In appropriate cases, however,theCompany may not acquire allthree elements ofthe songwriter's interest and may also acquire peripheral interests such as producerroyalties on a songwriter's copyright interest. The Company will acquire interests in Songswhich are sole authored or co-authored. The Company may also acquire interests in Songs jointly with another purchaser.
The Company will, directly or indirectly via collection agents, enter into licensing agreements, under which the Company will receive payments attributable to the copyright interests in the Songs which it owns. Such payments may take the form of royalties and/or licence fees, including:
The Company will focus on delivering income growth and capital growth by pursuing eZciencies 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.
Whilst the Company does not intend to sell the Songs it owns, it may make disposals of Songs where it considers such a disposalto be in the bestinterests of Shareholders.
TheCompanywill at alltimes invest and manage its assets, mindful of spreading risk and in accordance with its published investment policy.
The Company will invest its assets and manage the Songs it acquires with the objective of constructing a high quality and diversiXed Portfolio of Songs. The Company will acquire Catalogues from a number of diWerent songwriters, which will include Songs diversiXed across music genres and sung by numerous recording artists.The Company will be subject to the following investment restrictions:
The Company is fully compliant with these investment restrictions.
TheCompany's uninvested capital may be invested in cash, cash equivalents, near cash instruments and money market instruments.
The Company may utilise derivatives for eZcient portfolio management. In particular,theDirectors may engage in full or partial foreign currency hedging and interest rate hedging. The Company will not enter into such arrangements for investment purposes.
TheCompany may incurindebtedness of up to a maximum of 20 percent of itsNet Asset Value, calculated atthe time of drawdown.
Any material change to the Company's Investment Objective and Policy will be made only with the prior approval of the Shareholders by ordinary resolution.
In the event of a material breach of any of the investment restrictions applicable to the Company, Shareholders will be informed of the actions to be taken by the Company through an announcement issued via London Stock Exchange's Regulatory News Service.
G
Andrew Sutch, Chairman, Non-executive Independent Director and chair of the Asset Management Committee
Experience: Mr Sutch is a corporate lawyer and a consultant to Stephenson Harwood LLP. He was a partner of that Xrm for over 30 years and its senior partner for 10 years. He has extensive experience in advising investmentfunds and investment managers.He is chairman of JPMorgan Claverhouse Investment Trust Plc and Jupiter European Opportunities Trust Plc, and a council member of the Royal Academy of Dramatic Art.
Experience: Mr Burger's career spans more than 40 years working with music artists of very diverse backgrounds in a variety of locations. Having previously served as President, Europe, Middle East, and Africa for Sony Music Europe, his last corporate posting after havingworked for 27 years in senior management positionswithin SonyMusic (including chairman&chief executive oZcer of Sony Music UK & Ireland; president Sony Music Canada; VP Marketing Sony Music Europe), Paul founded SohoArtists in 2003, a boutique artist management company focused largely on new and developing talent. In addition to artist management, SohoArtists runs a consultancy arm for artists, labels and entertainment companies.
From 2012-2018 Paul served as chair of the board of governors of England's BRIT School for Performing Arts & Technology, a state-funded school sponsored by the British music industry focussed on providing training for careers in the creative industries, and he continues to serve as a governor of the school. Some of the school's famous graduates include Adele, Jessie J, Rizzle Kicks, Leona Lewis, Rex Orange County, and Katie Melua. Furthermore, Paul is also a board member of the Music Managers Forum (UK), is a long-time director of The Brit Trust Ltd and continues to serve as a trustee of the University of Pennsylvania Foundation (UK) Ltd.
Experience: Mr Wilkinson is a chartered accountant who has worked at Peat Marwick Mitchell and merchant bankers Leopold Joseph. Mr Wilkinson was a founder ofthe Promo Group, which managed the business aWairs of the Rolling Stones. In 1981, he became a partner of Prince Rupert Loewenstein, providing business management services to clients in the entertainment and sports sectors.
Mr Wilkinson is co-founder and CEO of Music Plus Sport Ltd. and its subsidiary Live at the Races Limited. The group specialises in large-scale concerts at sporting events. Further, Mr Wilkinson was founder and chief executive of KingstreetTours Limited, a company thatwas in the forefront of concert tour production for over 30 years and delivered worldwide concert tours for artists including The Rolling Stones, Pink Floyd, Elton John, Robbie Williams and Shakira. Mr Wilkinson is a member of the fundraising committee and former treasurer of NordoW Robbins, a charity that uses music therapy in the treatment and care of autistic children.
Simon Holden, Non-executive Independent Director
Experience:MrHolden, aGuernsey resident,bringsboardexperiencefrombothprivateequity and portfoliocompanyoperations roles atCandoverInvestments andthenTerraFirmaCapitalPartners. Since2015,Simonhasbecomeanindependentdirectortolistedalternativeinvestment companies (HICL Infrastructure Company Limited, Hipgnosis Songs Fund Limited, Trian Investors 1, Limited and Merian Chrysalis Investment Company Limited), private equity funds and trading company boardswhich include a trading asset owned by the States of Guernsey.
Simon holds the DipIoD in Company Direction from the Institute of Directors, graduated from the University of Cambridge with an MEng and MA in Manufacturing Engineering and is an active member of Guernsey's GIFA, NED Forum and IP Commercial Group.
Merck Mercuriadis, Founder of Hipgnosis Songs Fund Limited and its Investment Adviser, The Family (Music) Ltd.
Mr Mercuriadis is also the CEO and managing partner of Hipgnosis Songs Ltd, an artist management Xrm label based in London and Los Angeles.
Experience:MrMercuriadis is the manager of music legendNileRodgers and the former manager of several notable award winning artists and songwriters including Sir Elton John, Guns'N'Roses, Iron Maiden, Morrissey, Pet Shop Boys, Mary J. Blige, Jane's Addiction, Diane Warren and Justin Tranterto name a few.Additionally,Mercuriadis is notable for serving from 1986-2007 asDirector and CEO of The Sanctuary Group PLC, a major management company, an independent record label, a merchandise company (Bravado) and a booking agency (Helter Skelter nowCAAUK) based in London, New York and Los Angeles.
TheDirectorsherebypresenttheAnnualReportandAudited Consolidated Financial Statements for the Group for the periodfromincorporationon8June2018to31March2019. ThisReportoftheDirectors shouldbereadtogetherwiththe Corporate Governance Report on pages 23 to 31.
TheCompany is a company limited by shares incorporated on 8 June 2018 undertheCompanies Law.TheCompany's registration number is 65158, and it has been registered with the GFSC as a registered collective investment scheme. The Company's Ordinary Shares were admitted to trading on the SFS of the London Stock Exchange on 11 July 2018. With eWectfrom 29April 2019,the registered oZce address is Floor 2, Trafalgar Court, Les Banques, St Peter Port, Guernsey, GY1 4LY.
The principal activity of the Group is to invest in a diverse Portfolio of Catalogues. The investment objective of the Group is to provide Shareholders with an attractive and growing level of income, together with the potential for capital growth,from investmentin a portfolio of Songs and their associated musical intellectual property rights.
A review of the Group's business and its likely future development is provided in the Chairman's Statement on pages 3 to 4 and in the Investment Adviser's Report on pages 7 to 13.
As it is admitted to trading on the SFS, an EU regulated market, the Company is subject to the Prospectus Rules, the Disclosure Guidance and Transparency Rules, the Market Abuse Regulation and the London Stock Exchange's Admission and Disclosure Standards.
Since being admitted on 11 July 2018 to the SFS the Company has also complied with the applicable Listing Rules that it has chosen to comply voluntarily with, as further set out in the IPO prospectus.
The results for the period are set out in the Consolidated Financial Statements on pages 41 to 62.
During the period, and since the period end, the Directors declared the following dividends:
| Dividend | Quarter Ended | Date of Declaration | Payment Date | Amount per Ordinary Share (pence) |
|---|---|---|---|---|
| Interim dividend | 30 September 2018 | 25 October 2018 | 29 November 2018 | 0.50 |
| Interim dividend | 31 December 2018 | 23 January 2019 | 28 February 2019 | 0.50 |
| Interim dividend | 31 March 2019 | 25 April 2019 | 31 May 2019 | 1.25 |
| Interim dividend | 30 June 2019 | 24 June 2019 | 30 August 2019 | 1.25 |
On 11 July 2018 the Company issued 202,176,800 Ordinary Shares of no par value at £1 per Ordinary Share in an IPO. Subsequently on 12 April 2019, the Company issued a further 138,750,000 Ordinary Shares of no par value at 102 pence per Ordinary Share.
The Company has two classes of share capital: (i) Ordinary Shares; and (ii) C Shares. The issued Ordinary Shares currently represents 100% ofthe total issued share capital, as no C Shares have been issued. C Shares constitute a temporary and separate class of shares which can be issued at a Xxed price determined by the Company. These are subsequently converted into Ordinary Shares, at NAV, once the proceeds of each C Share issue have been invested or substantially invested in accordance with the Company's investment policies.
Under the Company's Articles of Incorporation, each Shareholderpresentinpersonorbyproxyhastherighttoone vote at general meetings. On a poll, each Shareholder is entitledtoonevoteforeveryOrdinaryShareorCShareheld.
Shareholders are entitled to all dividends paid by the Company and, on awinding up, provided theCompany has satisXed all of its liabilities,the Shareholders are entitled to all of the residual assets of the Company.
The Directors with beneXcial interests in the Ordinary Shares of the Company as at 31 March 2019 are detailed below:
| Director | Ordinary Shares held 31 March 2019 |
% holding at 31 March 2019 |
|---|---|---|
| Andrew Sutch | 10,090 | 0.005 |
| Paul Burger | 15,000 | 0.007 |
| Andrew Wilkinson | 15,000 | 0.007 |
| Simon Holden | 15,000 | 0.007 |
In addition, the Company also provides the same information as at 21 June 2019, being the most current information available:
| Director | Ordinary Shares held 21 June 2019 |
% holding at 21 June 2019 |
|---|---|---|
| Andrew Sutch | 10,090 | 0.005 |
| Paul Burger | 22,500 | 0.011 |
| Andrew Wilkinson | 25,000 | 0.012 |
| Simon Holden | 35,000 | 0.017 |
TheDirectorswill consider repurchasing Ordinary Shares in the market if they believe it to be in the Shareholders' interests as a whole and as a means of correcting any imbalance between supply and demand for the Ordinary Shares.
The timing, price and volume of any buy back of Ordinary Shares will be at the absolute discretion of the Directors and is subject to the Company having suZcient working capital for its requirements and surplus cash resources available. Ordinary Shares acquired pursuant to this authority are subject to compliance with the solvency test and any other relevant provisions of the Companies Law.
The Directors have been granted general authority to purchase in the market up to 14.99 percent ofthe number of Ordinary Shares in issue immediately following initial Admissionwith such authority expiring atthe conclusion of the Company's Xrst AGM. The Directors intend to seek annual renewal of this authority from the Shareholders at the Company's AGM.
In the eventthatthe Board decides to repurchaseOrdinary Shares, purchaseswill only be made through the marketfor cash at prices not exceeding the last reported IFRS NAV per Share and such purchases will only be made in accordance with: (a)the Listing Rules, which the Company is voluntarily complying with, which currently provide that the maximum price to be paid perOrdinary Share must not be more than the higher of: (i) Xve percent above the average ofthe mid-market values ofthe relevant Ordinary Shares for the Xve business days before the purchase is made; or (ii) the higher of: (1) the price of the last independent trade; and (2) the highest current independent bid for an Ordinary Share on the trading venues where the market purchases by the Company pursuant to the authority conferred by that resolution will be carried out; and (b)the Companies Law, which provides among other things that any such purchase is subject to the Company passing the solvency test contained in the Companies Law at the relevant time.
TheDirectorswill not buy back any Shares from any class of C Shares in issue prior to Conversion. Therefore, the Company will not assist any class of C Shares in limiting discount volatility or provide an additional source of liquidity.
The Group maintains insurance in respect ofDirectors' and OZcers' liability in relation to their activities on behalf ofthe Group.
As at 31 March 2019, the Company had been notiXed, in accordance with Chapter 5 of the Disclosure and Transparency Rules, of the following substantial voting rights as Shareholders of the Company.
| Shareholder | Shareholding % holding | |
|---|---|---|
| CCLA Investment Mgt (London) | 24,541,098 | 12.14 |
| Investec Asset Mgt (London) | 20,284,015 | 10.03 |
| Invesco Perpetual Asset Mgt | ||
| (Henley-on-Thames) | 20,000,000 | 9.89 |
| JO Hambro Capital Mgt (London) | 18,000,000 | 8.90 |
| Newton Investment Mgt (London) | 14,408,749 | 7.13 |
| Miton Asset Mgt (London) | 12,486,558 | 6.18 |
| RuWer (London) | 11,732,728 | 5.80 |
| Schroder Investment Mgt (London) | 11,181,257 | 5.53 |
In addition, the Company also provides the same information as at 24 May 2019, being the most current information available.
| Shareholder | Shareholding % holding | |
|---|---|---|
| Invesco Perpetual Asset Mgt | ||
| (Henley-on-Thames) | 40,588,235 | 11.91 |
| CCLA Investment Mgt (London) | 35,927,748 | 10.54 |
| Investec Asset Mgt (London) | 33,623,409 | 9.86 |
| Newton Investment Mgt (London) | 31,975,064 | 9.38 |
| JO Hambro Capital Mgt (London) | 30,964,706 | 9.08 |
| Schroder Investment Mgt (London) | 20,116,206 | 5.90 |
The Directors conXrm that there are no securities in issue that carry special rights with regard to the control of the Company.
PricewaterhouseCoopers CI LLP has been the Company's external auditor since the Company's incorporation. The Audit and Risk Management Committee reviews the appointmentoftheexternal auditor, itseWectiveness andits relationship with the Company, which includes monitoring theuseoftheexternal auditorfornon-audit services andthe balance of audit and non-audit fees paid, as included in Note 18. Following a review of the independence and eWectiveness of the external auditor, a resolution will be proposedatthe2019AnnualGeneralMeetingtore-appoint PricewaterhouseCoopers CI LLP. Each Director believes that there is no relevant information of which the external auditor is unaware. Each had taken all steps necessary, as a Director, to be aware of any relevant audit information and to establish that PricewaterhouseCoopers CI LLP is made aware of any pertinent information. This conXrmation is given and should be interpreted in accordance with the provisions of Section 249 of the Companies Law. Further information on the work of the external auditor is set out in the Report of the Audit and Risk Management Committee on pages 32 to 34.
The Company's Articles of Incorporation may only be amended by special resolution of the Shareholders.
Under AEOI Rules the Company continues to comply with both FATCA and CRS requirements to the extentrelevant to the Company.
The Directors monitor the capital and liquidity requirements of the Company on a regular basis. They have also reviewed cash Yow forecasts prepared by the InvestmentAdviserwhich are based in part on assumptions aboutthe future purchase ofCatalogues 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 the Consolidated Financial Statements of the Group on a going concern basis.
As required by the AIC Code, the Directors have assessed the future prospects of the Company.
The Board have conducted a Portfolio reviewfor a period of four years to 31 March 2023 which is deemed appropriate given:
Based on past performance the returns generated within the investment Portfolio are expected to be stable and predictable in both the medium and longer term.
The Investment Adviser has prepared, and the Board has reviewed, the Portfolio projections which forecast the Group's revenue, cashYowandworking capital projections over the next four years and considered the impact of some of the principal risks of the Company.
On a rolling basis, the Directors evaluate the outcome of the Catalogue investments and the Company's Xnancial position as a whole.
In support ofthis statement,theDirectors have taken into account all of the principal risks and their mitigation as identiXed in the risk registerthatis periodically reviewed by the Board. The most relevant potential impacts of the identiXed principal risks and uncertainties on viability were determined to be:
Having conducted a robust analysis ofthe above scenarios and the stresses applied to each,theDirectors are satisXed thattheCompany can meetits liabilities as they fall due and that it remains viable over the period under consideration (to March 2023). Notwithstanding this assessment, forecasting for individual Catalogues can deliver variances versus the actual revenues received, but these variances are considered immaterial in the context of the whole diversiXed Portfolio. Any risk is thus mitigated, and the overallforecast assumptions adopted are considered to be reasonable and sustainable at the present time.
The Investment Adviser and the Board have also considered the possible impact of Brexit on the performance of the Portfolio. Given the strength of the current acquisition pipeline and the fact that the majority of investments are made in the U.S. the Board is satisXed that Brexit does not pose a signiXcant operational risk to the business.
Financial risk management policies and objectives are disclosed in Note 14 on pages 56 to 57.
Principal risks and uncertainties are discussed in the Corporate Governance Report on pages 28 to 31.
SigniXcant subsequent events have been disclosed inNote 19 on pages 61 to 62.
By order of the Board
Andrew Sutch Chairman
21 June 2019
The Directors are responsible for preparing the Annual Report and Financial Statements in accordance with applicable law and regulations.
The Companies Law requires the Directors to prepare Consolidated Financial Statements for each Xnancial year. UndertheCompanies Law,theDirectors must not approve the Consolidated Financial Statements unless they are satisXed that they give a true and fair view of the state of aWairs of the Group and of the proXt or loss of the Group for that period. In preparing these Consolidated Financial Statements, the Directors are required to:
The Directors conXrm that they have complied with the above requirements in preparing the Consolidated Financial Statements.
The Directors are responsible for keeping proper accounting records, which disclose with reasonable accuracy at any time the Xnancial position ofthe Group and enable them to ensure that the Consolidated Financial Statements comply with Companies Law. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud, error and non-compliance with law and regulations.
The Directors are responsible for the maintenance and integrity ofthe corporate and Xnancial information included on the website (www.hipgnosissongs.com).
Legislation in Guernsey governing the preparation and dissemination of the Consolidated Financial Statements may diWer from legislation in other jurisdictions.
Each of the Directors conXrms to the best of their knowledge and belief that:
The Directors are responsible for preparing the Annual Report and Consolidated Financial Statements in accordance with applicable law and regulations. Having taken advice from the Audit and Risk Management Committee,theDirectors considerthe Annual Report and Consolidated Financial Statements, taken as a whole, as fair, balanced and understandable and thatthey provide the information necessary for Shareholders to assess the Group's performance, business model and strategy.
On behalf of the Board
Andrew Sutch Chairman
21 June 2019
The Company's governance policies and procedures are based on the principles oftheCorporate GovernanceCode applying to UK listed companies. The Corporate Governance Code is available on the Financial Reporting Council's website, www.frc.org.uk.
TheCompany became a member ofthe AICon 22 August 2018. It has put in place arrangements to comply with the AICCode and, in accordancewith theAICCode, voluntarily complies with the Corporate Governance Code. The Directors recognise the importance of sound corporate governance, particularly the requirements oftheAICCode. The AIC Code and the AIC Guide are available on the AIC's website, www.theaic.co.uk. We are supportive of the continued enhancement of governance standards that have recently been published for accounting periods beginning on or after 1 January 2019.
The Company is also subject to the GFSC Code, which applies to all companies registered as collective investment schemes in Guernsey. The GFSC has also conXrmed that companies thatreport againsttheCorporate Governance Code or AIC Code are deemed to meet the GFSC Code.
TheBoardmonitorsdevelopments incorporategovernance to ensure the Board remains aligned with best practice especially with respect to the increased focus on diversity. TheBoardacknowledges theimportanceofdiversity,forthe eWective functioning of the Board, and commits to supporting diversity in the boardroom. It is the Board's ongoing aspiration to have awell diversiXed representation. The Board also values diversity of business skills and experience because Directors with diverse skills sets, capabilities and experience gained from diWerent geographical andbusinessbackgroundsenhancetheBoard by bringing awide range of perspectives to theCompany.
TheAICCode, as explained by theAIC Guide, addresses all the principles set out in the Corporate Governance Code, as well as setting out additional principles and recommendations on issues that are of speciXc relevance to investment companies such as theCompany.TheBoard considers that reporting against the principles and recommendations of the AIC Code, by reference to the AIC Guide, provides better information to Shareholders.
Throughoutthe Xnancial period ended 31March 2019,the Company has complied with the recommendations of the AIC Code and the relevant provisions of Section 1 of the Corporate Governance Code, except as set out below.
The Corporate Governance Code includes provisions relating to:
For the reasons set out in the AIC Guide, and as explained in the Corporate Governance Code, the Board considers that the above provisions are not currently relevant to the position of the Company, being an internally managed investment company, which delegates most day-to-day functions to third parties.
As an investment company the Company has no employees, all Directors are non-executive and independent of the Investment Adviser and therefore the Directors considerthe Company has no requirementfor a chief executive or senior independent director and the Board is satisXed that any relevant issues can be properly considered by the Board. The absence of an internal audit function is discussed in the Report of the Audit and Risk Management Committee on page 33.
TheCompany is led and controlled by a Board ofDirectors, which is collectively responsible forthe long-term success oftheCompany. It does so by acting in the interests ofthe Company, creating and preserving value and has as its foremost principle acting in the interests of Shareholders.
We believe that the composition of the Board is a fundamental driver of its success as the Board must provide strong and eWective leadership of the Company. The current Board was selected, as their biographies illustrate, to bring a breadth of knowledge, skills and business experience to theCompany.TheDirectors details are listed on pages 16 to 17 which set out their range of investment, Xnancial and business skills and experience represented.
The Chairman of the Board must be independent and is appointed in accordance with the Company's Articles of Incorporation. Mr Sutch is considered to be independent because he:
The Board meets atleastfourtimes a year and, in addition, there is regular contact between theBoard,the Investment Adviser and the Administrator. Board Portfolio and/or Asset Management Committee meetings (comprising all four non-executive Directors) have been held at least fortnightly since theCompany's launch. Further,the Board is supplied in a timely manner with information by the Investment Adviser, the Company Secretary and other advisers in a form and of a quality appropriate to enable itto discharge its duties.
No member of the Board has served for longer than eight years as the Company was incorporated on 8 June 2018. As such no issue has arisen to be considered by the Board with respect to long tenure. In accordance with the AIC Code, when and if anyDirector shall have been in oZce (or on re-election would at the end of that term have been in oZce) for more than nine years theCompanywill consider further whether there is a risk that such a Director might reasonably be deemed to have lostindependence through such long service. Following the recent publication of the 2019 AIC Code, the Board recognises that Directors serving nine years or more may appear to have their independence impaired. However, the Board may nonetheless considerDirectors to remain independent and will provide a clear explanation with future Annual Report and Consolidated Financial Statements as to their reasoning.
Directors are appointed under letters of appointment, copies of which are available atthe registered oZce ofthe Company. The Board considers its composition and succession planning on an on-going basis.TheCompany's Articles ofIncorporation specify that each oftheDirectors shall retire and may oWer themselves for re-election at each Annual General Meeting of the Company.
The Board welcomes the 2019 AIC Code and is conXdent that its succession plan respects both the letter and the spirit of the Code regarding Board composition, diversity and howeWectively memberswork togetherto achieve the Company's objectives.
The level ofremuneration oftheDirectors reYects the time commitment and responsibilities of their roles. The Chairman is entitled to annual remuneration of £45,000. The Chairmen of the Audit and Risk Management Committee and the Portfolio Committee are entitled to annual remuneration of £40,000. The other Directors are entitled to annual remuneration of £35,000.
During the period ended 31 March 2019 the Directors' remuneration was as follows:
| 31 March 2019 £ |
|
|---|---|
| Andrew Sutch | 36,586 |
| Paul Burger (appointed 30 July 2018) | 24,374 |
| Andrew Wilkinson | 32,521 |
| Simon Holden | 28,455 |
The Company Directors' fees for the period amounted to £121,936with outstanding fees of £nil due to theDirectors at 31 March 2019.
The Directors have resolved that, with eWect from 1 July 2019, the annual remuneration for each Director will be increased to £50,000,with an additional £7,500 per annum for the Chairman and an additional £5,000 per annum for each of the Chairmen of the Audit and Risk Management Committee and the PortfolioCommittee.These increases recognise the considerable commitment and involvement of the Directors, outside the regular quarterly board meetings, in attending committee and ad hoc board meetings largely related to the review of new Catalogue acquisition, as well as oversight of the development of the Investment Adviser's operational infrastructure. This level of commitment can be seen in the number of meetings shown in the table overleaf and is expected to be maintained as the Company continues to grow and to acquire new Catalogues.
TheDirectors intend to conXrm their commitmentto their roles by increasing over time their investment in Ordinary Shares, in accordance with their personal circumstances and individual investment arrangements.
All of the Directors are non-executive and are each considered independentforthe purposes ofChapter 15 of the Listing Rules.
The Board is responsible for the determination of the Company's InvestmentObjective andPolicy and hasoverall responsibility for maximising the Company's success by directing and supervising the aWairs of the business and meeting the appropriate interests of Shareholders and relevant stakeholders, while enhancing the value of the Company and also ensuring the protection of investors. A summary ofthe Board's responsibilities is as follows:
TheDirectors have access to the advice and services ofthe Administrator,whichis responsibletotheBoardforensuring thatBoard procedures are followed and thatit complieswith the Companies Law and applicable rules and regulations of the GFSC and the London Stock Exchange. Where necessary, incarryingouttheirduties,theDirectorsmay seek independentprofessionaladviceandservicesattheexpense of the Company. The Company maintains appropriate Directors' and OZcers' liability insurance in respect of legal action againstitsDirectors on an on-going basis.
The Board's responsibilities for the Annual Report are set out in the Directors' Responsibility Statement on page 22. The Board is also responsible for issuing appropriate Interim Reports and other price-sensitive public reports.
One of the key criteria the Company uses when selecting non-executiveDirectors is their conXrmation priorto their appointmentthattheywill be able to allocate suZcienttime to the Company to discharge their responsibilities in a timely and eWective manner.
The Board formally met three times during the period and the ad-hoc Board meetings were called in relation to speciXc events orto issue approvals, often at short notice, and did not necessarily require full attendance. Each Board memberreceives a comprehensive Board pack atleast Xve days prior to each meeting which incorporates a formal agenda together with supporting papers for items to be discussed atthe meeting.Directorswho have been unable to attend a meeting have, without exception, given the Chairman their views and comments on matters to be discussed, in advance. In addition to their meeting commitments,theDirectors also liaisewith the Investment Adviser whenever required and there is regular contact outside the Board meeting schedule.
Attendance is further set out below:
| Director | Scheduled Board Meetings |
Ad-hoc Board Meetings |
Committee of the Board |
Audit and Risk Management Committee Meetings |
Portfolio Committee Meetings |
Tenure as at 31 March 2019 |
|---|---|---|---|---|---|---|
| Andrew Sutch | 3 of 3 | 11 of 11 | 4 of 5 | 2 of 2 | 9 of 9 | 10 months |
| Paul Burger | 2 of 2 | 9 of 9 | 2 of 2 | 2 of 2 | 9 of 9 | 9 months |
| Andrew Wilkinson | 3 of 3 | 9 of 11 | 3 of 5 | 2 of 2 | 7 of 9 | 10 months |
| Simon Holden | 3 of 3 | 10 of 11 | 5 of 5 | 2 of 2 | 7 of 9 | 10 months |
The Board believes that it and its committees have an appropriate composition and blend of backgrounds, skills and experience to discharge their duties eWectively. The Board is of the view that no one individual or small group dominates decision-making. The Board keeps its membership, and that of its committees, under review to ensure that an acceptable balance is maintained, and that the collective skills and experience ofits members continue to be refreshed. It is satisXed that all Directors have suZcient time to devote to their roles and that undue reliance is not placed on any individual.
Each committee of the Board has written terms of reference, approved by the Board, summarising its objectives, remit and powers, which are available on the Company's website (www.hipgnosissongs.com) and are reviewed on an annual basis. Each Committee has access to such external advice as it may consider appropriate.
All committee members are provided with an appropriate induction on joining theirrespective committees, aswell as on-going access to training. Minutes of all meetings ofthe committees are made available to all Directors and feedback from each of the committees is provided to the Board by the respective committee Chairmen at the next Board meeting. TheChairman of each committee attends the AGM to answer any questions on their committee's activities.
The Board and its committees are supplied with regular, comprehensive and timely information in a form and of a quality that enables them to discharge their duties eWectively. All Directors are able to make further enquiries of the Investment Adviser or Administrator whenever necessary, and have access to the services of the Company Secretary.
The Audit and Risk Management Committee is chaired by Mr Wilkinson and also comprises Mr Sutch and Mr Holden who held oZce throughout the period, and Mr Burger who joined on 30 July 2018. TheChairman oftheAudit and Risk ManagementCommittee,the InvestmentAdviser and the external auditor, PricewaterhouseCoopers CI LLP, have held discussions regarding the audit approach and identiXed risks.The external auditors attendAudit and Risk Management Committee meetings and a private meeting is routinely held with the external auditors to aWord them the opportunity of discussionswithoutthe presence ofthe Investment Adviser or Administrator. The Audit and Risk Management Committee activities are contained in the Report of the Audit and Risk Management Committee on pages 32 to 34.
The Portfolio Committee is chaired by Mr Burger, who joined on 30 July 2018, and also comprises Mr Sutch, Mr Wilkinson and Mr Holden, all of whom held oZce throughoutthe period.The principal duties ofthe Portfolio Committee are to undertake the following functions:
company, or similar) including determining any adjustments to the price if necessary or appropriate;
The Portfolio Committee meets on an ad hoc basis when requested on reasonable prior notice from the Investment Adviser. The quorum for any meeting of the Portfolio Committee shall be at least one Director. All Board members shall use reasonable endeavours to attend each meeting of the Portfolio Committee.
TheAssetManagementCommittee is chaired byMr Sutch and also comprises Mr Wilkinson and Mr Holden who held oZce throughoutthe period, and Mr Burger who joined on 30 July 2018. The principal duties of the Asset Management Committee are to consider the ongoing management and revenue maximisation oftheCatalogues of Songs acquired by the Company, which includes performing the following functions:
The Asset Management Committee meets on an ad hoc basis when requested on reasonable prior notice from the Investment Adviser. The quorum for any meeting of the Asset Management Committee shall be at least one Director. All Board members shall use reasonable endeavours to attend each meeting of the Asset Management Committee.
Although the AIC Code recommends that companies appoint a nomination committee and a remuneration committee, the Board has not deemed these necessary, as being wholly comprised of non-executive Directors the full Board considers these matters. The Board will review the actions and judgments of those parties undertaking management, advisory and administration services to the Company in relation to the interim and annual Xnancial statements and the Company's compliance with the UK Corporate Governance Code, the Listing Rules, the Disclosure Guidance andTransparencyRules,MARand the AIC Code. It will review the terms of the Investment Advisory Agreement and the performance of the Investment Adviser, the Administrator, the Registrar and other major service providers such as royalty collection agents and PROs.
In accordance with Principle 7 of the AIC Code which requires a formal and rigorous annual evaluation of its performance, the Board will formally review its performance annually through an internal process.
The assessment will cover the eWectiveness and performance of the Board as a whole, an evaluation of individual Directors and the eWectiveness of the Board Committees. Internal evaluation oftheBoard,theAudit and RiskManagementCommittee,thePortfolioCommittee,the AssetManagementCommittee and individualDirectorswill taketheformof self-appraisalquestionnaires anddiscussion to determine eWectiveness and performance as well as the Directors' continued independence. The responses will be consolidated and anonymised and common themes identiXedinorderfortheBoardtodeterminekey actions and next steps for improving Board and Committee eWectiveness and performance.
The Board believes that annual evaluations are helpful and provide a valuable opportunity for continuous improvement. The Board believes that the current mix of skills, experience, knowledge and age of the Directors is appropriate to the requirements of the Company.
Directors regularly meet with the senior management employed by the Investment Adviser both formally and informally to ensure that the Board remains regularly updated on all issues. All members of the Board are members of professional bodies and serve on other Boards, which ensures they are kept abreast of the latest technical developments in their areas of expertise. The Board arranges for presentations from the Investment Adviser, the Company's brokers and other advisers on matters relevant to the Company's business. The Board assesses the training needs ofDirectors on an annual basis.
The Directors acknowledge that they are responsible for establishing and maintaining the Group's system ofinternal controls and reviewing its eWectiveness. Internal control systems are designed to manage ratherthan eliminate the failure to achieve business objectives and can only provide reasonable but not absolute assurance against material misstatements or loss. The Directors can conXrm they have carried out a robust assessment ofthe principal risks facing the Company, including those that would threaten its business model, future performance, solvency or liquidity. The key procedures which have been established to provide internal control are:
continued
The Board has reviewed the need for an internal audit function and has decided thatthe systems and procedures employed by the Administrator and Investment Adviser, including their own internal controls and procedures, provide suZcient assurance that an appropriate level ofrisk management and internal control, which safeguards Shareholders' investment and the Group's assets, is maintained. An internal audit function speciXc to the Company is therefore considered unnecessary, as explained on page 33.
Internal controls over Xnancial reporting are designed to provide reasonable assurance regarding the reliability of XnancialreportingandthepreparationofXnancialstatements for externalreporting purposes. TheAdministrator operates riskcontrolledframeworksonacontinualongoingbasiswithin a regulated environment. The Administrator undertakes an ISAE 3402: Assurance Reports on Controls at a Service Organisation audit annually which is provided to the Board whenXnalised.TheAdministratoralsoformally reports tothe Boardquarterlythroughacompliancereport.TheInvestment Adviser formally reports to the Board quarterly including updateswithintheGroupandalsoengageswiththeBoardon an ad-hoc basis as required.
The systems of control referred to above are designed to ensure eWectiveness and eZcient operation, internal control and compliance with laws and regulations. In establishing the systems of internal control, regard is paid to the materiality of relevant risks, the likelihood of costs being incurred and costs of control. It follows, therefore, that the systems of internal control can only provide reasonable but not absolute assurance against the risk of material misstatement or loss. This process has been in place for the year under review and up to the date of approval of this Annual Report and Consolidated Financial Statements. It is reviewed by the Board and is in accordance with the FRC's internal control publication: Guidance on Risk Management, Internal Control and Related Financial and Business Reporting.
The Board is responsible for the determination of the Company's Investment Objective and Policy and has overall responsibility for its activities. The Company has, however, entered into an InvestmentAdvisoryAgreement dated 27 June 2018 with the Investment Adviser under which the Investment Adviser will advise the Group in relation to the acquisition, holding, disposal and management of Songs,whether organised intoCatalogues or otherwise, and provide the subsidiaries with certain assets related and other ongoing services.
The Group is responsible for paying an advisory fee to the InvestmentAdviserin return fortheir services, and, subject to the fulXlment of certain conditions, an additional performance fee.
In accordance with Listing Rule 15.6.2(2)R and having formally appraised the performance and resources of the Investment Adviser, in the opinion of the Directors the continuing appointment of the Investment Adviser on the terms agreed is in the interests of the Shareholders as a whole.
The Board welcomes the views of Shareholders and understands the importance of providing information to them.The Board is providedwith information on allrelevant market commentary by the Company's Investment Adviser and Corporate Broker.
All Shareholders can address any concerns to the Company in writing at its registered address. The Annual GeneralMeeting also provides an opportunity to meet and discuss issueswith the Board and InvestmentAdviser.The Company maintains awebsite (www.hipgnosissongs.com) which contains information on company notiXcations, share information, Xnancial reports, investor contacts and other information likely to be useful to Shareholders.
TheBoard has considered theAICCode recommendations inrespectof arrangementsbywhichstaWoftheInvestment AdviserorAdministratormay, in conXdence,raise concerns within their respective organisations about possible improprieties in matters of Xnancial reporting or other matters.
It has concluded that adequate arrangements are in place for the proportionate and independent investigation of such matters and,where necessary,for appropriate followup action to be taken within their organisation.
Each Director is fully aware of the risks inherent in the Company's business and understands the importance of identifying, evaluating and monitoring these risks. The Board has adopted procedures and controls that enable it to carry out a robust assessment of the risks facing the Company, manage these riskswithin acceptable limits and to meet all of its legal and regulatory obligations.
The signiXcant risk factors are fully disclosed in the Company's prospectus which is available on the Company's website www.hipgnosissongs.com and should be reviewed by Shareholders.
The Group's assets consist mainly of intangible assets representing copyright interests in musical compositions and associated intellectual property rights. The primary focus is on what the Investment Adviser considers to be proven songs from well-known songwriters with a suZcient proven track record of producing royalty income to enable them to be viewed as evergreen.
The Company's principal risks are related to market conditions in the music business in general, but also the particular circumstances of the Catalogues of Songs in which itis invested. The Board and the Investment Adviser seek to mitigate these risks through active asset managementinitiatives and carrying out due diligencework on potentialtargets before entering into any investments.
The principalrisks and uncertainties oftheCompanywill be continuously monitored by the Board, with input from the Investment Adviser and its advisory board. There have been no changes to the Company's principal risks and uncertainties since the Initial Public OWering on 11 July 2018. As detailed below the principal risks facing the Company are concentration risk from investing only in the global music copyright sector and inherentrisks associated with the fast-changing landscapewithin the music industry.
The Company has issued share capital denominated in Pounds Sterling and aims to pay regular dividends in that currency. However, much of the Group's revenue is received in other currencies, particularly U.S. Dollars, and exchange rate Yuctuationsmay signiXcantly aWecttheNAV and the ability to pay the targeted dividends.Any disruption relating to the UK's exit from the European Union could cause signiXcant volatility in exchange rates.
The Company's initial target dividend, target annual dividend rate and target total NAV return were based on estimates and assumptions that are inherently subject to signi3cant business and economic uncertainties and contingencies. The actual dividend yield and total NAV return may be materially di2erent to those targeted and payment of dividends from capital reduces the amount of cash that can be deployed forinvestment purposes
The Company's initial target dividend, target annual dividend rate and target total NAV return are targets only and are based on Xnancial projections that are themselves based on estimates and assumptions which depend on a variety offactors including,withoutlimitation, availability of investment opportunities, the price and performance of the Company's investments, the ability to earn royalty income, the mix of investments in the Portfolio, the availability of sale and purchase opportunities in respect of Songs and the Catalogues of which they form part, changes in current market conditions, government regulations or other policies, the worldwide economic environment, changes in law and taxation, failures in technology, terrorism, social unrest and civil disturbances or the occurrence of risks described elsewhere in the Prospectus. These factors involve a signiXcant element of subjective judgment which may be proved incorrect and are inherently subject to signiXcant business, economic and market uncertainties and contingencies, all of which are beyond the Company's control and which may adversely aWect the Company's ability to achieve its targets. The Company's targets are based on current market conditions and economic environment and the assumption thattheCompanywill be able to implementits investment objective and policy and strategy successfully, and are therefore subject to change.
The Directors may determine, in order to maintain the payment of dividends in accordance with the Company's dividend policy,to pay dividends from theCompany's share premium account. Any payment of dividend from the Company's share premium account will only be made in compliance with the Companies Law, which requires the Company to pass a solvency test before paying such dividend. However, where the Company does pay a dividend from its share premium account, such payment reduces the amount of cash that can be deployed for investment purposes.The resulting lowerinvestmentlevel, orthe replenishing ofthe investmentlevelthrough the use of borrowing, could result in the actual returns on investments being materially lower than the targets.
There is no guarantee or assurance that the initial target dividend, target dividend and target total NAV return can be achieved and the actualrates ofreturn achieved may be materially lower than the targets, or may result in a loss. A failure to achieve the initialtarget dividend,target dividend or target total NAV return may have a material adverse eWect on the Company's Xnancial condition, business, prospects and results of operations and, consequently,the Company's NAV and/or the market price of the Ordinary Shares, and theCompany's ability to deliverthe targettotal NAV return to Shareholders.
The due diligence process that the Investment Adviser undertakes in evaluatingCatalogues fortheCompanymay notreveal allfacts that may be relevantin connectionwith such investment opportunities and any mismanagement, fraudor accountingirregularitiesonthepartof any sellerof Catalogues, or their advisers, may materially a2ect the integrity of the Investment Adviser's due diligence on investment opportunities
When conducting due diligence and making an assessment regarding an investment, the Investment Adviser and the Company's legal and Xnancial advisers are required to rely on resources available to them, including internal sources of information as well as information provided by existing and potential sellers of songs. The due diligence process may at times be required to rely on limited or incomplete information.
The InvestmentAdviserwill selectinvestmentopportunities tobetabledtotheDirectors fortheirconsiderationinparton the basis of information and data relating to potential investments that has been made directly available to the Investment Adviser by the sellers. Although the Investment Adviser will evaluate all such information and data, and seek independent corroboration when it considers it appropriate and reasonably available, the Investment Adviser will not be in a position to conXrm the completeness and accuracy of such information and data. The Investment Adviser is dependent upon the integrity of the management of the sellers as regards such information and of such third parties.
Further, investment analysis and decisions by the Investment Adviser may be undertaken on an expedited basis in order to make it possible for the Company to take advantage of short-lived investment opportunities. In such cases, the available information at the time of an investment decision may be limited, inaccurate and/or incomplete. Furthermore,the InvestmentAdviser may not have suZcienttime to evaluate fully such information even if it is available.
The value of the investments made by the Company may be aWected by fraud, misrepresentation or omission on the part of the sellers of the Songs, by parties related to the sellers or by other parties. Such fraud, misrepresentation or omission may increase the likelihood of an intellectual property rights dispute relating to such Songs or may adversely aWect the valuation of the Songs in question or may adversely aWect the Company's ability to enforce its contractual rights in relation to the investment.
Accordingly, due to a number of factors, the Company cannot guarantee that the due diligence investigation carried out by the Investment Adviser and the Company's legal and Xnancial advisers with respect to any investment opportunitywillreveal or highlight allrelevantfacts that may be necessary or helpful to the Directors in evaluating such investment opportunity. Any failure by the Investment Adviser to identify relevant facts through its due diligence process may cause it to recommend inappropriate investments for purchase, orrecommend the purchase at a price which is not appropriate, and therefore lead the Directors to decide to acquire Songs which subsequently fail to perform in line with expectations, which may have a material adverse eWect on the Company's Xnancial condition, business, prospects and results of operations and, consequently,theCompany'sNAVand/orthe market price of the Ordinary Shares, and the Company's ability to deliver the target total NAV return to Shareholders.
PROs represent the rights and interests of publishers and songwriters. They collect royalties, create collection policies and set royalty rates for the use of music copyrights.There are over 120 PROs around theworld and most of them 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 signiXcantly reduced revenues compared to the level it had forecast atthe time of acquiring the relevant Catalogues or Songs.
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 oWerings and general economic circumstances.Consequently, a Song may not prove to be as popular, or as commercially successful, as had been forecast at the time of acquisition. Whilst the Company intends primarily to acquire Catalogues containing evergreen Songs from established recording artists andwill 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 popularwith 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 advances would 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.
TheCompany does not have any employees of its own and relies on service providers for its routine operations. In particular, although the ultimate responsibility for the investment strategy lies with the Board, the Investment Adviser is responsible for sourcing potential opportunities and advising the Board on acquisitions, active management and disposals of Catalogues. The Investment Adviser is a newly-formed company with no operating history. The performanceoftheGroupisdependentonthediligence, skill and judgment of the personnel of the Investment Adviser, and in particular on the key executive, Merck Mercuriadis.
The Group also depends heavily on the specialist administrative services of the Investment Adviser, 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.
A limited number of online streaming and online music stores have achieved a large market share, giving them market power to alter the prices or selection of music oWered to consumers and therefore the royalty revenue received by the Group. Any further market concentration could increase this risk.
The ability of the Company to achieve its investment objective depends heavily on the experience of Merck Mercuriadis as the Investment Adviser. As a result, the success of the Company will depend largely upon the continuing availability of Merck Mercuriadis. The death, incapacity or loss of service of this key individual at the Investment Adviser could have a material adverse impact on the business of the Company and the investments made.
The Company (as with all companies) continues to be exposed to external cyber-security threats.TheCompany recognises the increased incidence of cyber-security threats and has recently reviewed its policies, procedures and defences to mitigate associated risks, as well as those of the Investment Adviser, Administrator and key service providers; engaging market-leading specialists where appropriate.
Emerging risks are regularly considered to assess any potential impactontheGroupandtodeterminewhether any actions arerequired.Emergingrisks includethoserelatedto regulatory/legislative change and macroeconomic and political change, which in the current period have included the ongoing developments in respect of the UK's decision to leave the EuropeanUnion.
In summary,the above risks are mitigated and managed by the Board through continual review, policy setting and updating of the Company's risk matrix at each quarterly meeting to ensure that procedures are in place with the intention of minimising the impact ofthe above mentioned risks. The Board relies on periodic reports provided by the Investment Adviser and Administrator regarding risks that the Group faces. When required, experts will be employed to gather information, including tax advisers and legal advisers.
Andrew Sutch Chairman
21 June 2019
The Audit and Risk Management Committee (the Audit Committee), chaired by Mr Wilkinson, operates within clearly deXned terms ofreference (which are available from the Company's website) and includes all matters indicated byDisclosure andTransparencyRule 7.1,theAICCode and the UK Code. Its other members are Mr Sutch, Mr Burger and Mr Holden. Given the size of the Board, and the fact that all of the Directors are independent, it is considered that establishing a separate audit committee would be unnecessarily burdensome.
The Audit Committee members have considerable Xnancial and business experience and the Board has determined thatthe membership as awhole has suZcient recent and relevant sector and Xnancial experience to discharge its responsibilities.The Board is satisXed thatthe Audit Committee has recent and relevant Xnancial experience given that the Chairman is a chartered accountant and other members have signiXcant business experience, bothwithin the music industry and in the asset management industry.
The duties of the Audit Committee in discharging its responsibilities include reviewing the Annual Report and Consolidated Financial Statements and the Interim Report, the system of internal controls, and the terms of appointment of the Company's independent auditor togetherwith theirremuneration. Itis also the formalforum through which the auditor will report to the Board of Directors. The objectivity of the auditor is reviewed by the Audit Committee which will also review the terms under which the external auditor is appointed to perform nonaudit services and the fees paid to them or their aZliated Xrms overseas.
The main duties of the Audit Committee are:
reviewing the valuations of the Group's investments prepared by the Independent Valuer, and making a recommendation to the Board on value ofthe Group's investments;
meeting regularly with the external auditor to review their proposed audit plan and the subsequent audit report and assess the eWectiveness of the audit process and the levels of fees paid in respect of both audit and non-audit work;
The Audit Committee is required to report formally its Xndings to the Board, identifying any matters on which it considers that action orimprovementis needed, and make recommendations on the steps to be taken.
The external auditor is invited to attend the Audit Committee meetings as the Directors deem appropriate and at which they have the opportunity to meet with the Audit Committee without representatives of the Investment Adviser or the Administrator being present at least once per year.
The primary role of the Audit Committee in relation to Xnancial reporting is to review with the Administrator, the Investment Adviser and the external auditor the appropriateness of Interim Reports and Annual Reports, concentrating on, amongst other matters:
To aid its review, the Audit Committee considers reports from the Investment Adviser and also reports from the external auditor on the outcomes oftheir annual audit.The Audit Committee supports PricewaterhouseCoopers CI LLP in displaying the necessary professional scepticism their role requires.
During the period ended 31 March 2019, the Audit Committee met formally on two occasions. The matters discussed at those meetings include:
The Company has issued share capital denominated in Pounds Sterling and aims to pay regular dividends in that currency. However, much of the Group's revenue is received in other currencies, particularly U.S. Dollars, and exchange rate Yuctuations may aWect the NAV and the ability to pay the targeted dividends.Any disruption relating to the UK's exit from the European Union could cause signiXcant volatility in exchange rates.
The Company, alongside the Investment Adviser, is involved in various judgements, as noted below:
The Board is accountable for carrying out a robust assessment of the principal risks facing the Group, including those threatening its business model, future performance, solvency and liquidity.On behalf oftheBoard, the Audit Committee reviews the eWectiveness of the Group's risk management processes. The Group's risk assessment process and the way in which signiXcant business risks are managed is a key area of focus for the Audit Committee. The work of the Audit Committee was driven primarily by the Company's assessment of its principalrisks and uncertainties as set outin theCorporate Governance Report. The Audit Committee receives reports from the InvestmentAdviser andAdministrator on the Company's risk evaluation process and reviews changes to signiXcant risks identiXed.
The Audit Committee continues to review the need for an internal audit function and has decided that the systems and procedures employed by the Administrator and the Investment Adviser, including their own internal controls and procedures, provide suZcient assurance that an appropriate level of risk management and internal control, which safeguards Shareholders' investment and the Group's assets, is maintained. An internal audit function speciXc to the Company is therefore considered unnecessary.
PricewaterhouseCoopers Cl LLP has been appointed as theCompany's external auditorwithRolandMills as the lead audit partner. Roland Mills can serve as the lead audit partner until the year ended 31 March 2024 in accordance with normal audit partner rotation arrangements. The Companies Law requires the reappointment of the external auditorto be subjectto Shareholders' approval at the Annual General Meeting.
The objectivity of the external auditor is reviewed by the AuditCommitteewhich also reviews the terms underwhich the external auditor may be appointed to perform nonaudit services. In order to safeguard external auditor independence and objectivity, the Audit Committee ensures that any other advisory and/or consulting services provided by the external auditor does not conYict with its statutory auditresponsibilities.Advisory and/or consulting serviceswill generally only coverreviews ofinterim Xnancial statements, tax compliance and capital raising work. Any non-audit services conducted by the external auditor outside of these areas require the consent of the Audit Committee before being initiated.
The external auditor may not undertake any work for the Company in respect of preparation of the Xnancial statements, preparation of valuations used in Xnancial statements, provision of investment advice, taking management decisions or advocacy work in adversarial situations.
TheAuditCommittee reviews the scope and results ofthe audit, its cost eWectiveness and the independence and objectivity ofthe auditor, with particular regard to the level of non-audit fees.
TheAuditCommittee regularly monitors non audit services being provided by PricewaterhouseCoopers Cl LLP to ensure there is no impairment to their independence or objectivity. The only non-audit service provided by PricewaterhouseCoopers Cl LLP related to the role as reporting accountant on the listing of the Company.
Notwithstanding such services, the Audit Committee considers PricewaterhouseCoopers Cl LLP to be independent of the Company and that the provision of such non-audit services is not a threat to the objectivity and independence of the conduct of the audit as appropriate safeguards are in place.
To fulXl its responsibility regarding the independence ofthe external auditor, the Audit Committee considered:
To assess the eWectiveness of the external auditor, the Audit Committee reviewed:
The Audit Committee is satisXed with PricewaterhouseCoopers Cl LLP's eWectiveness and independence as external auditor having considered the degree of diligence and professional scepticism demonstrated by them.As such,theAuditCommittee has not considered it necessary this year to conduct a tender process forthe appointment ofits external auditor.Having carried outthe reviewdescribed above and having satisXed itself that the external auditor remains independent and eWective, the Audit Committee has recommended to the Board that PricewaterhouseCoopers Cl LLP be reappointed as external auditor for the year ending 31 March 2020.
Aresolution to reappoint PricewaterhouseCoopersCl LLP as independent external auditor to the Company will be proposed at the forthcoming Annual General Meeting.
The Chairman of the Audit Committee will be available at theAnnual GeneralMeeting to answer any questions about the work of the Audit Committee.
On behalf of the Audit Committee,
Andrew Wilkinson Chairman ofthe Audit and Risk Management Committee
21 June 2019
To the members of Hipgnosis Songs Fund Limited
In our opinion, the consolidated financial statements give a true and fair view of the consolidated financial position of Hipgnosis Songs Fund Limited (the "Company") and its subsidiaries (together "the Group") as at 31 March 2019, and of their consolidated financial performance and their consolidated cash flows for the period from 8 June 2018 to 31 March 2019 (the "period") in accordance with International Financial Reporting Standards and have been properly prepared in accordance with the requirements of The Companies (Guernsey) Law, 2008.
The Group's consolidated financial statements comprise:
We conducted our audit in accordance with International Standards on Auditing ("ISAs"). Our responsibilities under those standards are further described in the Auditor's responsibilities for the audit of the consolidated financial statements section of our report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
We are independent of the Group in accordance with the ethical requirements that are relevant to our audit of the consolidated financial statements of the Group, as required by the Crown Dependencies' Audit Rules and Guidance. We have fulfilled our other ethical responsibilities in accordance with these requirements.
As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the consolidated financial statements. In particular, we considered where the directors made subjective judgements; for example, in respect of significant accounting estimates that involved making assumptions and considering future events that are inherently uncertain. As in all of our audits, we also addressed the risk of management override of internal controls, including among other matters, consideration of whether there was evidence of bias that represented a risk of material misstatement due to fraud.
We tailored the scope of our audit in order to perform sufficient work to enable us to provide an opinion on the consolidated financial statements as a whole, taking into account the structure of the Group, the accounting processes and controls, and the industry in which the Group operates.
The Company is based in Guernsey with its subsidiaries located in the UK. The consolidated financial statements are a consolidation of the Company and all of the underlying subsidiaries.
Scoping was performed at the Group level, irrespective of whether the underlying transactions took place within the Company or within the subsidiaries. The Group audit was led, directed and controlled by PricewaterhouseCoopers CI LLP and all audit work for material items within the consolidated financial statements was performed in Guernsey by PricewaterhouseCoopers CI LLP.
The transactions relating to the Company and the subsidiaries are maintained by the Administrator and therefore we were not required to engage with component auditors from another PwC global network firm operating under our instruction. Our testing was therefore performed on a consolidated basis using thresholds which are determined with reference to the overall Group materiality and the risks of material misstatement identified.
As noted in the overview, the components of the Group for which we performed full scope audit procedures accounted for 100% of net assets and total comprehensive income.
The scope of our audit was influenced by our application of materiality. An audit is designed to obtain reasonable assurance whether the consolidated financial statements are free from material misstatement. Misstatements may arise due to fraud or error. They are considered material if individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the consolidated financial statements.
Based on our professional judgement, we determined certain quantitative thresholds for materiality, including the overall Group materiality for the consolidated financial statements as a whole as set out in the table below. These, together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures and to evaluate the effect of misstatements, both individually and in aggregate on the consolidated financial statements as a whole.
| Overall Group materiality | £2 million |
|---|---|
| How we determined it | 1% of Adjusted Net Asset Value |
| Rationale for the materiality benchmark | We believe that Adjusted Net Asset Value represents the most appropriate materiality benchmark given the nature and activities of the Group, and that this is a key consideration for investors when assessing the financial performance. |
| The Group's Adjusted Net Asset Value is calculated as £200 million, being the Net Asset Value of the Group calculated in accordance with International Financial Reporting Standards, adjusted for by adding back the cumulative amortisation of intangible assets and deducting any cumulative impairment of intangible assets |
We agreed with the Audit Committee that we would report to them misstatements identified during our audit above £100,000, as well as misstatements below that amount that, in our view, warranted reporting for qualitative reasons.
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements of the current period. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
| Key audit matter | How our audit addressed the Key audit matter |
|---|---|
| Risk of fraud and error in revenue recognition | We met with the directors and Investment Adviser and |
Please refer to Notes 3 and 11 to the consolidated financial statements.
The Group earns revenue from the catalogues of songs in which it owns interests. Such revenue takes the form of royalties, licence fees and/or other payments including mechanical royalties, performance royalties, and synchronisation fees.
Revenue is collected by the portfolio administrators/ royalty collection agents, reported on a quarterly or semiannual basis and paid based on pre-determined revenue payments dates thereafter. These contractual revenue arrangements entered into by the Group with the portfolio administrators/royalty collection agents may be complex in nature and there is therefore a risk of error in that revenue may be incorrectly recognised in the accounting records of the Group, or subject to manipulation.
In addition, because of the contractual reporting and revenue payment dates with the various portfolio administrators/royalty collection agents, the directors make an estimate of the revenue accrued to the Group at the period end, but for which revenue reports from the portfolio administrators/royalty collection agents may be unavailable. The directors seek the input of the Investment Adviser in making these estimates and accrual, which involves significant judgement (see Note 3). The period end accrual is based on the catalogues of songs' historic performance for previous periods, adjusted for the Investment Adviser's and directors' assessment of the expected performance of the various catalogues of songs, based on the latest available music consumption information.
Revenue is also one of the key performance indicators for the Group and changes to the contractual arrangements with the portfolio administrators/royalty collection agents, which may report on a basis that is not coterminous with the period end, and the associated accrual determined by the directors, can have a significant impact on the recognition of revenue by the Group. As a result, there is a heightened risk of material misstatement and hence this is considered a significant risk for audit purposes.
understood and evaluated the Group's processes, internal controls and revenue recognition policies as a result of the various music royalty, license fee and other payments earned from the catalogues of songs owned by the Group.
We also assessed the Group's revenue recognition accounting policies for compliance with International Financial Reporting Standards, and in particular IFRS 15 – Revenue from Contracts with Customers, which has been applied by the Group since its inception on 8 June 2018.
Our procedures included:
We also performed the following procedures in assessing the period end revenue accrual determined by the directors with the input of the Investment Adviser:
We did not identify any material issues from our procedures.
Please refer to Notes 3 and 5 to the consolidated financial statements.
The primary activity of the Group is to acquire and hold catalogues of songs and earn the music royalty, license fee and other revenue associated with its ownership.
The Group's portfolio of songs are classified as intangible assets under IAS 38. The various catalogues of songs are held at cost and amortised over their useful life (which is determined at acquisition of each of the catalogue of songs) less impairment. The catalogues of songs are subject to an impairment assessment at the earlier of the end of each accounting period and when an indicator of impairment is identified. The determination of the useful life of each catalogue requires the application of significant judgement by the directors (see Note 3).
The directors have also chosen to voluntarily disclose the fair value of the catalogues of songs (see Note 5). The directors also present an 'Operative Net Asset Value', which takes into account the catalogue of songs at this fair value rather than at the IFRS amortised cost value, as included in consolidated financial statements and reflected in the IFRS Net Asset Value.
The directors have, in consultation with the Investment Adviser, engaged the Independent Valuer to assess the fair value of each catalogue. In general, the fair value of each catalogue is determined using a discounted cash flow model and incorporate assumptions that are subject to significant judgement by the Independent Valuer, Investment Adviser and directors. These estimates and assumptions include future catalogue revenue and cash flow projections; aggregate catalogue maturity; music industry growth rates by revenue type (e.g. physical sales, downloads, streaming etc.); and the determination of an appropriate discount rate. The fair value of the catalogues of songs as disclosed in Note 5 reflects the fair value as calculated by the Independent Valuer, recommended by the Investment Adviser and adopted by the board of directors.
The directors have also used the fair value determined by the Independent Valuer as an initial point of consideration in their impairment assessment of the catalogues of songs held at amortised cost, based on a comparison of the fair value of each catalogue to the carrying value calculated under International Financial Reporting Standards.
As the catalogues of songs are significant to the net asset value of the Group and because of the level of judgement applied in determining the useful life, the need for impairment and in determining the fair value of each catalogue, there is a heightened risk of misstatement. As a result, both the carrying value at which the catalogues of songs are measured in the consolidated financial statements and the fair value as disclosed in the notes to the consolidated financial statements (and used in determining the Operative Net Asset Value by the directors) are considered significant risks from an audit perspective.
Key audit matter How our audit addressed the Key audit matter
With regard to the catalogues of songs recognised as intangibles and carried at amortised cost, we evaluated management's processes and assumptions used to initially recognise and measure the catalogues of songs at amortised cost and used to assess the need for impairment (if any) of the respective catalogues of songs. Our procedures included:
Based on our work performed, we did not identify any material differences.
With regard to the fair value of the catalogues of songs disclosed in Note 5 to the financial statements and used in determining the Operative Net Asset Value of the Group by the directors, we performed the following procedures:
| Key audit matter | How our audit addressed the Key audit matter |
|---|---|
| We performed a benchmark analysis of the valuation ● by obtaining independently obtained music industry market growth data by revenue stream, applying this to the baseline revenue/cash flow projections, discounting at the assessed discount rate and comparing this to the Independent Valuer's determination of fair value. |
|
| Based on our work performed, we did not identify any material differences. |
The directors are responsible for the other information. The other information comprises all the information included in the Annual Report and Audited Consolidated Financial Statements but does not include the consolidated financial statements and our auditor's report thereon.
Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of assurance conclusion thereon.
In connection with our audit of the consolidated financial statements, our responsibility is to read the other information identified above and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.
The directors are responsible for the preparation of the consolidated financial statements that give a true and fair view in accordance with International Financial Reporting Standards, the requirements of Guernsey law and for such internal control as the directors determine is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, the directors are responsible for assessing the Group's ability to continue as a going concern, disclosing, as applicable, matters relating to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so.
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.
As part of an audit in accordance with ISAs, we exercise professional judgement and maintain professional scepticism throughout the audit. We also:
date of our auditor's report. However, future events or conditions may cause the Group to cease to continue as a going concern. For example, the terms on which the United Kingdom may withdraw from the European Union are not clear, and it is difficult to evaluate all of the potential implications on the Group and the wider economy.
We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.
From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor's report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.
Under The Companies (Guernsey) Law, 2008 we are required to report to you if, in our opinion:
We have no exceptions to report arising from this responsibility.
The directors have volunteered to report on how they have applied the UK Corporate Governance Code (the "Code").
We have nothing to report in respect of the following matters which we have reviewed:
This report, including the opinion, has been prepared for and only for the members as a body in accordance with Section 262 of The Companies (Guernsey) Law, 2008 and for no other purpose. We do not, in giving this opinion, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.
Roland Mills For and on behalf of PricewaterhouseCoopers CI LLP Chartered Accountants and Recognised Auditor Guernsey, Channel Islands
For the period from incorporation on 8 June 2018 to 31 March 2019
| Notes £ 11 7,218,852 682,491 104,773 8,006,116 16 (1,579,190) 16 (429,054) (1,491,922) (155,954) (121,936) (44,550) (110,000) (813,714) 12 (267,821) (5,014,141) 2,991,975 4 (632,521) 2,359,454 2,359,454 Basic Earnings per Share (pence) 17 1.17 |
8 June 2018 to | ||
|---|---|---|---|
| 31 March 2019 | |||
| Income | |||
| Total revenue | |||
| Interest income | |||
| Foreign exchange gains (Non-investments) | |||
| Total income | |||
| Expenses | |||
| Advisory fees | |||
| Performance fee | |||
| Amortisation of Catalogues of Songs | |||
| Administration fees | |||
| Directors' remuneration | |||
| Broker fees | |||
| Audit fees | |||
| Legal and professional fees | |||
| Other operating expenses | |||
| Total expenses | |||
| Operating proOt for the period before taxation | |||
| Taxation | |||
| ProOt for the period after tax | |||
| Total comprehensive income for the period | |||
| Diluted Earnings per Share (pence) | 17 | 1.17 |
All activities derive from continuing operations.
verview G
o
vernance
O
The accompanying notes form an integral part oftheseCondensedConsolidated Financial Statements.
As at 31 March 2019
| Notes | 31 March 2019 £ |
|
|---|---|---|
| Assets | ||
| Catalogues of Songs | 5 | 118,458,818 |
| Cash and cash equivalents | 6 | 108,483,752 |
| Trade and other receivables | 7 | 10,808,398 |
| Total assets | 237,750,968 | |
| Liabilities | ||
| Other payables and accrued expenses | 8 | 39,192,142 |
| Total liabilities | 39,192,142 | |
| Net assets | 198,558,826 | |
| Equity | ||
| Share capital | 9 | 198,221,140 |
| Retained earnings | 337,686 | |
| Total equity attributable to the owners of the Company | 198,558,826 | |
| Number of ordinary shares in issue at period end | 202,176,800 | |
| IFRS Net Asset Value per ordinary share (pence) | 10 | 98.21 |
| Operative Net Asset Value per ordinary share (pence) | 10 | 103.27 |
Approved and authorised for issue by the Board of Directors on 21 June 2019 and signed on their behalf by:
Chairman Director
Andrew Sutch Andrew Wilkinson
The accompanying notes form an integral part oftheseCondensedConsolidated Financial Statements.
For the period from incorporation on 8 June 2018 to 31 March 2019
| 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) |
| Dividends paid | 14 | — | — | (2,021,768) | (2,021,768) |
| ProXt for the period | — | — | 2,359,454 | 2,359,454 | |
| As at 31 March 2019 | 202,176,800 | 198,221,140 | 337,686 | 198,558,826 |
o
O verview
The accompanying notes form an integral part oftheseCondensedConsolidated Financial Statements.
For the period from incorporation on 8 June 2018 to 31 March 2019
| Notes | 8 June 2018 to 31 March 2019 £ |
|
|---|---|---|
| Cash Pows used in operating activities | ||
| Operating proXt for the period before taxation | 2,991,975 | |
| Adjustments for non-cash items: | ||
| Movement in other receivables | 7 | (10,808,398) |
| Movement in other payables and accrued expenses | 8 | 38,559,621 |
| Amortisation of Catalogues of Songs | 1,491,922 | |
| Foreign exchange gains on non-investments | (104,773) | |
| 32,130,347 | ||
| Purchase of Catalogue of Songs | 5 | (119,950,740) |
| Net cash used in operating activities | (87,820,393) | |
| Cash Pows generated from Onancing activities | ||
| Proceeds from issue of shares | 9 | 202,176,800 |
| Issue costs paid | 9 | (3,955,660) |
| Dividends paid | 13 | (2,021,768) |
| Net cash generated from Onancing activities | 196,199,372 | |
| Net movement in cash and cash equivalents | 108,378,979 | |
| Cash and cash equivalents at the start of the period | — | |
| EWect of foreign exchange rate changes | 104,773 | |
| Cash and cash equivalents at the end of the period | 6 | 108,483,752 |
For the period from incorporation on 8 June 2018 to 31 March 2019
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. With eWect from 29 April 2019, the registered oZce address is Floor 2, Trafalgar Court, Les Banques, St Peter Port, Guernsey, GY1 4LY.
The Company's shares were admitted to the SFS of the Main Market of the London Stock Exchange on 11 July 2018.
The Company makes its investments through its subsidiaries, which are registered in the UK as limited companies, in which the Company is the sole shareholder. The principal place of business of the subsidiaries is the UK.
The Consolidated Financial Statements present the results of the Group for the period from incorporation on 8 June 2018 to 31 March 2019. The Group is principally engaged in investing in and managing music copyrights and associated musical intellectual property.
The principal accounting policies applied in the preparation oftheseConsolidated Financial Statements are set out below. These policies have been consistently applied, unless otherwise stated.
On incorporation,theCompany adopted all ofthe IFRS standards and interpretations thatwere in eWect atthat date and are applicable to the Group.
The following are amended standards and interpretations in issue eWective from years beginning on or after 1 January 2019:
| Amended standards and interpretations | ENective date | |
|---|---|---|
| IFRS 9 | Financial Instruments (Amendments regarding prepayment features with negative compensation and modiXcations of Xnancial liabilities) |
1 January 2019 |
| IFRS 11 | Joint arrangements (Amendments resulting from Annual Improvements 2015-2017 Cycle) |
1 January 2019 |
| IFRS 16 | Leases | 1 January 2019 |
| IFRS 17 | Insurance Contracts | 1 January 2021 |
| IAS 1 | Presentation of Financial Statements (Amendments regarding the deXnition of material) |
1 January 2020 |
| IAS 8 | Accounting Policies, Changes in Accounting Estimates and Errors (Amendments regarding the deXnition of material) |
1 January 2020 |
| IAS 12 | Income Taxes (Amendments resulting from Annual Improvements 2015-2017 Cycle) | 1 January 2019 |
| IFRIC 23 | Uncertainty over Income Tax Treatments | 1 January 2019 |
The Company has considered the IFRS standards and interpretations that have been issued but are not yet eWective. None of these standards or interpretations are likely to have a material eWect on the Company, as it is the belief of the Board that the activities of the Company are unlikely to be aWected by the changes to these standards, although any disclosures recommended by these standards, where applicable, will be provided as required.
O verview
For the period from incorporation on 8 June 2018 to 31 March 2019
As at 31 March 2019, 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 |
| 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 |
* These subsidiaries were dormant as at 31 March 2019 in anticipation of new Catalogues being acquired.
The subsidiaries of the Company are considered tax resident in the UK and are subject to UK corporation tax.
TheDirectors monitorthe capital and liquidity requirements oftheCompany on a regular basis.They have also reviewed cash Yow 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 Consolidated Financial Statements of the Group on a going concern basis.
The Consolidated Financial Statements have been prepared in accordance with IFRS and applicable company law. The Consolidated Financial Statements have been prepared on a historical cost basis as amended from time to time by the fair valuing of certain Xnancial assets and liabilities where applicable.
For the period from incorporation on 8 June 2018 to 31 March 2019
In accordancewith section 244 oftheCompanies Law,theDirectors have elected to prepare consolidated accounts for the Xnancial period for the Group. Therefore, there is no requirement to present individual accounts for the Company within the Consolidated Financial Statements.
TheCompany is not considered to be an Investment Entity, as deXned in IFRS 10.TheCompany, in addition to evaluating the Portfolio on a fair value basis, also manages the acquisitions and revenue of those Songs.
All companies inwhich theCompany has a controlling interest, namely those inwhich it has the powerto govern Xnancial and operational policies in order to obtain beneXts from their operations, are fully consolidated. The Control deXned by IFRS 10 is based on the following three criteria to be fulXlled simultaneously to conclude that the parent company exercises control:
Consolidated Xnancial statements of a group are presented as if the Group were a single economic entity. The Group does not include any non-controlling interest.
The chief operating decision makeris the Board ofDirectors.TheDirectors are ofthe opinion thatthe Group is engaged in a single segment of business, being the investment ofthe Group's capital in the Portfolio,with an attractive and growing level of income, together with the potential for capital growth.
All of the Company's income is derived from within U.S., Europe, UK and Guernsey.
All of the Company's non-current assets are located in UK and Guernsey.
Interest income is accounted for on an accruals basis.
Revenues from operations are recordedwhen itis probable thatfuture economic beneXtswill be obtained by the Group and when they can be reliably measured.
The Company enters into licence arrangements in respect of Catalogues of Songs with third party collection agents. Licences made to collection agents are deemed to constitute usage based,right of use licences as perIFRS 15. Revenue arising from licences entered into with collection agents is therefore recognised in the period when the usage of the Catalogues of Songs occurs.The contractual basis ofthe licence arrangements are such thatthe agents are deemed as 'principals' for tax purposes, therefore the Company recognises its revenue net of administration fees.
For the period from incorporation on 8 June 2018 to 31 March 2019
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 notiXcation 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 of the historical track record of music catalogues, ad hoc data provided by collection agents, industry forecasts and expected seasonal variations.
Non recourse Xxed fee arrangements are recognised atthe point atwhich control ofthe licence passes to the collection agents. Variable consideration is recognised in the period when the usage of the Catalogues 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.
Catalogues of Songs include music catalogues, artists' contracts and music publishing rights and are recognised as intangible assets measured initially at the fair value of the consideration paid. Catalogues of Songs are subsequently amortised in expenses overthe useful life ofthe asset.Catalogues of Songswith an indeXnite 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.
Underthe terms ofthe acquisition agreements forCatalogues, contingent consideration may be payable dependent on future independent valuations of the Catalogues or revenue received within a speciXc time frame of acquiring the Catalogues. Contingent consideration will be recognised when performance conditions are met or the amount is a deferred liability. In such cases, a liability will be recognised alongside an associated Xnance charge which will be accrued over the respective deferral period.
Each time events or changes in the economic environmentindicate 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 amount to the carrying value ofthe asset. The recoverable amountis 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 Yows by using cash Yow projections consistent with the expected Portfolio cash Yows and the most recent forecasts. Applied discount rates are determined by reference to an appropriate benchmark as determined by the Board and reYectthe current assessment by the Group ofthe time value of money and risks speciXc to each asset. Growth rates used forthe evaluation ofindividual 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. Ifthe recoverable amountis lowerthan the carrying value of an asset or group of assets, an impairmentloss equalto the diWerence is recognised in proXt and loss. The impairmentlosses recognised in respect ofintangible assets may be reversed in a later period ifthe recoverable amount becomes greaterthan the carrying value, within the limit of impairment losses previously recognised.
For the period from incorporation on 8 June 2018 to 31 March 2019
Trade receivables, loans, and otherreceivables that have Xxed or determinable payments that are not quoted in an active market are classiXed as 'loans and receivables'. Loans and receivables are initially measured atfair value plus transaction costs directly attributable to the acquisition, and subsequently measured at amortised cost using the eWective interest method, less allowance for ECL. Interest income is recognised by applying the eWective interest rate, except for short term receivables when the recognition of interest would be immaterial.
The Group derecognises an asset only when the contractual rights to the cash Yows from the asset expire, or when it transfers the asset and substantially all the risks and rewards of ownership of the 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 diWerence between the asset's carrying amount and the sum of the consideration received is recognised in proXt or loss.
Debt and equity instruments are classiXed as either Xnancial 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 directissue costs.
Repurchase of the Company's own equity instruments is recognised and deducted directly in equity. No gain or loss is recognised in proXt or loss on the purchase, sale, issue or cancellation of the Company's own equity instruments.
Financial liabilities, including borrowings, are initially measured at fair value, net of transaction costs.
Financial liabilities are subsequently measured at amortised cost using the eWective interest method, with interest expense recognised on an eWective yield basis.
The Group derecognises Xnancial 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 deXned in the Investment Advisory Agreement, which is payable to the Investment Adviser in Shares is recognised as an expense when the fees are earned with a corresponding increase in equity.
For the period from incorporation on 8 June 2018 to 31 March 2019
Cash at bank and shortterm depositswhich are held to maturity are carried at cost.Cash and cash equivalents are deXned 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 subjectto insigniXcantrisk 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.
Other receivables do not carry interest and are short-term in nature and are accordingly recognised at fair value.
Items included in theConsolidated Financial Statements of each ofthe Group's entities are measured using the currency ofthe primary economic environmentinwhich each entity operates ('the functional currency').TheConsolidated 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 atthat date.Non-monetary items carried atfair value that are denominated in foreign currencies are translated atthe rates prevailing atthe datewhen the fair valuewas determined.Non-monetary items that are measured in terms of historical costin a foreign currency are notretranslated. Exchange diWerences are recognised in proXt orloss in the period in which 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 ofthe Group'sConsolidated Financial Statements requires the application of estimates and assumptions which may aWect the results reported in the Xnancial 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 aWected 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 aWected.
The key assumptions concerning the future and other key sources of estimation uncertainty atthe reporting date,that have a signiXcantrisk ofresulting in a material adjustmentto the carrying amounts of assets and liabilitieswithin the next Xnancial year, are discussed below. The Group based its assumptions and made estimates based on the information available when the 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 nottherefore directly equalthe actual cash received in respect of each accounting period and adjustments may therefore be required throughout the Xnancial 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 subjectto a signiXcanttime lag in reporting in the industry, but which the Company is entitled to receive in due course. In recommending the estimate ofthis accrualto the Board ofDirectors and the auditors,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 PROincome accrual is based on analysis of each Catalogue's revenue history as well as knowledge of the respective Catalogue's performance trends.
For the period from incorporation on 8 June 2018 to 31 March 2019
In orderto calculate the amortised cost ofthe intangible assets itis necessary to assess the useful economic life of the copyrightinterests in Songs.This requires forecasts ofthe expected future revenue from the copyrightinterests, which contains signiXcant uncertainties as the ongoing popularity of a Song can Yuctuate 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 atindustry standard multiples generally range from 10-15 years.Additionally,the term of administration deals in the market between songwriters and publishers are no longer than 25 years, and generally range from 15-20 years. This reYects the general consensus that the beneXts from exploiting revenues from thework of Anglo-American music songwriters 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 20 years, except on an exceptions basis.
In order to calculate the Operative NAV and Operative NAV per Share, the intangible assets are revalued to an estimate of fair value. The fair value estimates are also used to assesswhetherthere is evidence thatthe intangible assets may be impaired.
Valuations of music publishing rights typically adopttheDCF valuation approachwhich measures the present value of anticipated future revenues from acquiring theCatalogues,which are discounted at a 'market cost of capital' and a terminal value in 10 years. This method is accepted as an objective way of measuring future beneXts; taking into accountincome projections from various music industry sources across various revenue Yowswhilst 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.
As disclosed inNote 2(g) above, intangible assetswith an indeXnite useful life are subjectto annual impairmentreview which relies on assumptions made by the Board. Assumptions are updated annually, speciXcally those relating to future cash Yows and discount rates.
TheCompany is exemptfrom taxation in Guernsey underthe provisions ofthe Income Tax (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 resident in the United Kingdom for United Kingdom tax purposes. Accordingly, and provided that the Company does not carry on a trade in the UK (whether or not through 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.
For the period from incorporation on 8 June 2018 to 31 March 2019
The UK subsidiaries of the Company are tax resident in the UK and are subject to UK corporation tax. During the period the subsidiaries incurred irrecoverable corporation tax expense of £632,521.
| 8 June to 31 March |
|
|---|---|
| 2019 £ |
|
| The Group's proXt for the period before taxation | 2,991,975 |
| Remove: The Company's loss for the period before taxation | 2,558,011 |
| Add: Management recharge from the Company | (2,220,928) |
| ProOts chargeable to corporation tax | 3,329,058 |
| 19% corporation tax | 632,521 |
| 5. Catalogues of Songs |
£ |
| Cost | |
| At 8 June 2018 | — |
| Additions | 119,950,740 |
| At 31 March 2019 | 119,950,740 |
| Amortisation and impairment | |
| At 8 June 2018 | — |
| Amortisation | 1,491,922 |
| Impairment | — |
| At 31 March 2019 | 1,491,922 |
| Net book value | |
| At 8 June 2018 | — |
| At 31 March 2019 | 118,458,818 |
| Fair value as at 31 March 2019 | 128,694,535 |
The Group amortisesCatalogues of Songswith a limited useful life using the straight-line method of 20 years (otherthan in exceptional circumstances for speciXc Catalogues of Songs). Useful life is separately considered for each Catalogue of Songs and is reviewed at the end of each reporting period.
The Board engaged an Independent Valuer, Massarsky Consulting, Inc., to value the Catalogues as at 31 March 2019. Each income type from each Catalogue was analysed and forecasted to derive the fair value of the Catalogues by adopting a DCF valuation methodology. Income was analysed and forecast atthe 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 and the global growth ofthe recorded music industry in their analysis.The Board has approved and adopted the valuations prepared by the Independent Valuer.
For the period from incorporation on 8 June 2018 to 31 March 2019
Cash and cash equivalents comprises 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:
| 31 March 2019 £ |
|
|---|---|
| Cash available on demand | 3,720,550 |
| Cash held in deposits | 37,064,106 |
| Money market fund | 67,699,096 |
| Cash and cash equivalents | 108,483,752 |
| 31 March 2019 £ |
|
|---|---|
| Loan receivable | 3,957,500 |
| Income receivable | 2,040,135 |
| Accrued income | 3,847,679 |
| Receivables | 852,201 |
| Prepayments | 110,883 |
| Trade and otherreceivables | 10,808,398 |
The loan receivable amount of £3,957,500 relates to 90 days exclusivity for the purchase of a Catalogue, with 100% of this Catalogue as security. The loan has a maturity of one year, where the Xrst six months are interest free and the following six months are interest bearing at 5%.This loanwas subsequently repaid in full on 7May 2019 upon completion of the acquisition of the Catalogue concerned.
| 31 March 2019 £ |
|
|---|---|
| Investment acquisition payable | 37,711,582 |
| Performance fee | 429,054 |
| Amounts owed to songwriter | 97,352 |
| Administration fees | 101,528 |
| Legal & professional fees | 110,533 |
| Audit fees | 100,000 |
| Corporation tax | 632,521 |
| Other expenses | 9,572 |
| Other payables and accrued expenses | 39,192,142 |
As at 31 March 2019, an amount of £37,711,582 relating to the acquisition prices for three Catalogues remained outstanding. These were all subsequently paid by 17 May 2019.
For the period from incorporation on 8 June 2018 to 31 March 2019
The share capital of the Company may consist of an unlimited number of: (i) ordinary shares of no par value which upon issue theDirectors may classify asOrdinary Shares; and (ii)CShares denominated in such currencies as theDirectors may determine.
| No. | |
|---|---|
| Issued and fully paid: | |
| Shares issued on 11 July 2018 | 202,176,800 |
| Shares as at 31 March 2019 | 202,176,800 |
| £ | |
| Issued and fully paid: | |
| Shares issued on 11 July 2018 | 202,176,800 |
| Share issue costs | (3,955,660) |
| Shares as at 31 March 2019 | 198,221,140 |
UndertheCompany'sArticles ofIncorporation, each Shareholder presentin person or by proxy has the rightto 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 theCompany and, on awinding up, provided theCompany has satisXed all of its liabilities, the Shareholders are entitled to all of the residual assets of the Company.
| 31 March 2019 | |
|---|---|
| Number of Ordinary Shares in issue | 202,176,800 |
| IFRS NAV per share (pence) | 98.21 |
| Operative NAV per share (pence) | 103.27 |
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 classiXed as intangible assets and measured at amortised cost or cost less impairment in accordance with IFRS.
TheDirectors are ofthe opinion that anOperativeNAVprovides a meaningful alternative performance measure and the values of Catalogues of Songs are based on fair values produced by an Independent Valuer.
| 31 March 2019 £ |
|
|---|---|
| IFRS NAV | 198,558,826 |
| Adjustments for revaluation of Catalogues of Songs to fair value | 8,743,795 |
| Reversal of amortisation | 1,491,922 |
| Operative NAV | 208,794,543 |
For the period from incorporation on 8 June 2018 to 31 March 2019
| 11. Revenue | |
|---|---|
| 8 June to 31 March 2019 £ |
|
| Mechanical income | 417,487 |
| Performance income | 1,104,493 |
| Digital downloads income | 232,741 |
| Streaming income | 1,285,485 |
| Synchronisation income | 1,212,161 |
| Writer's share income | 2,914,228 |
| Other income | 52,257 |
| Totalrevenue | 7,218,852 |
The revenue accrual includes accruals of £1,917,176 for the calendar Q1 2019 for both PROs and Publisher earnings that have yet to be collected.
An additional accrual of £1,930,810, relating to lagged reporting on the PRO income, was also booked in the Xnancial period to align with IFRS, the estimate of which is noted in the Estimates section under Note 3.
| Total other operating expenses | 267,821 |
|---|---|
| Other expenses | 65,755 |
| Bank charges | 4,469 |
| Travel and accommodation fees | 88,438 |
| Public relation fees | 48,371 |
| Postage, stationery and printing | 12,777 |
| Registrar fees | 6,306 |
| Directors expenses | 1,329 |
| D&O Insurance | 14,104 |
| Listing fees | 17,667 |
| Regulatory fees | 8,605 |
| 8 June to 31 March 2019 £ |
A summary of the dividends is set out below:
| 8 June 2018 to 31 March 2019 | Dividend per share Pence |
Total dividend £ |
|---|---|---|
| Interim dividend in respect of period ended 30 September 2018 | 0.50 | 1,010,884 |
| Interim dividend in respect of period ended 31 December 2018 | 0.50 | 1,010,884 |
| 1.00 | 2,021,768 |
The Company announced its Xrst 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 29 November 2018.
O verview
For the period from incorporation on 8 June 2018 to 31 March 2019
TheCompany announced its second interim dividend forthe period from 1Octoberto 31December 2018 of 0.50 pence per Ordinary Share. The dividend was paid to Shareholders, on the register atthe close of business on 1 February 2019, on 28 February 2019.
Subsequent to the period end, the Company announced its third interim dividend for the period from 1 January to 31 March 2019 of 1.25 pence per Ordinary Share, and its Xrst interim dividend for the new Xnancial year, for the period from 1 April to 30 June 2019, of 1.25 pence per Ordinary Share. The third interim dividend was paid to Shareholders on the register at the close of business on 3 May 2019 on 31 May 2019; and the Xrst interim dividend for the new Xnancial year will be paid to Shareholders, on the register at the close of business on 2 August 2019, on 30 August 2019.
TheCompany's activities expose itto various types of Xnancialrisk, principally marketrisk, creditrisk, 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.
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 amountlargely due to the short-term maturities and high credit quality of these instruments.
The Company manages its capital to ensure that the Company will be able to continue as a going concern while maximising the capitalreturn to Shareholders.The capital structure oftheCompany consists ofissued share capital and retained earnings, as stated in the Statement of Financial Position.
In orderto maintain or adjustthe capital structure,theCompany may buy back shares orissue newshares. There are no external capital requirements imposed on the Company.
During the period ended 31 March 2019, the Company itself had no borrowings.
The Company's investment policy is set out in the Investment Objective and Policy section of the Annual Report.
Market risk is the risk that the fair value or future cash Yows of a Xnancial instrument will Yuctuate as a result of changes in market prices. The Group is exposed to currency risk and interest rate risk.
Currency risk is the risk that the fair values of future cashYows will Yuctuate because of changes in foreign exchange rates. The revenue earned from the Catalogue of Songs may be subject to foreign currency Yuctuations. Royalties are earned globally and paid in a number of currencies, therefore the Company may be impacted by adverse currency movements. The Companywill convertthe majority of overseas currency receipts into Sterling by agreeing to currency exchange arrangements with collection agents, or otherwise itself undertaking foreign exchange conversions. The Company may engage in full or partial foreign currency hedging and interest rate hedging. The Company will not enter into such arrangements for investment purposes.
For the period from incorporation on 8 June 2018 to 31 March 2019
Market Risk continued
The currencies in which Xnancial assets and liabilities are denominated are shown below:
| As at 31 March 2019 | GBP £ |
USD Converted to £ |
EUR Converted to £ |
Total £ |
|---|---|---|---|---|
| Trade and other receivables | 1,185,147 | 9,623,168 | 83 | 10,808,398 |
| Cash and cash equivalents | 27,217,708 | 81,266,044 | — | 108,483,752 |
| Total Onancial assets | 28,402,855 | 90,889,212 | 83 | 119,292,150 |
| Trade and other payables | 39,154,329 | 37,813 | — | 39,192,142 |
| Total Onancial liabilities | 39,154,329 | 37,813 | — | 39,192,142 |
| Net asset position | (10,751,474) | 90,851,399* | 83** | 80,100,008 |
* 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 £9,085,140 lower/higher.
** At the reporting date, if the EUR 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 £8 lower/higher.
The Company is exposed to cash Yow interest rate risk only on cash and cash equivalents.
Credit risk is the risk of loss due to failure of a counterparty to fulXl its contractual obligations. The Group is exposed to creditrisk in respect ofits contractswith PROs. This exposure is minimised by dealingwith reputable PROswhose credit risk is deemed to be low given their respective position in the industry.
The Group is exposed to creditrisk through its balanceswith banks and its indirect holdings of money marketinstruments through those money market funds which are classiXed as cash equivalents for the purposes of these Consolidated Financial Statements.
The table below shows the Group's material cash balances and the short-term issuer credit rating or money-market fund credit rating as at the period end date:
| 31 March 2019 | |||
|---|---|---|---|
| Location | Rating | £ | |
| Barclays Bank plc | Guernsey | A* | 3,720,550 |
| Investec Bank plc | UK | P-1** | 37,064,106 |
| Blackrock Institutional Sterling Liquidity Fund | UK | AAAm* | 67,699,096 |
* Rated by Standard & Poor's
** Rated by Moody's
Liquidity risk is the risk that the Group may not be able to meet their Xnancial obligations as they fall due. The Company maintains a prudent approach to liquidity management by maintaining suZcient cash reserves to meet foreseeable working capital requirements.
During the period ended 31 March 2019, the Group had no Xnancial liabilities other than trade and other payables.
For the period from incorporation on 8 June 2018 to 31 March 2019
The interests ofthe Directors in the share capital ofthe Company atthe period end and as atthe date ofthis report are as follows:
| 31 March 2019 | |||
|---|---|---|---|
| Number of Ordinary Shares |
Total voting rights |
||
| Andrew Sutch | 10,090 | 0.005% | |
| Paul Burger | 15,000 | 0.007% | |
| Andrew Wilkinson | 15,000 | 0.007% | |
| Simon Holden | 15,000 | 0.007% | |
| Total | 55,090 | 0.026% |
During the period, the Directors earning the following remuneration in the form of Director's fees from the Company: 31 March 2019
| £ | |
|---|---|
| Andrew Sutch | 36,586 |
| Paul Burger | 24,374 |
| Andrew Wilkinson | 32,521 |
| Simon Holden | 28,455 |
| Total | 121,936 |
The Directors will be remunerated for their services at a fee of £35,000 per annum (£45,000 for the Chairman). The chairmen of the Audit and Risk Management Committee and the Portfolio Committee will receive an additional £5,000 for their services in these roles.
Directors' fees and expenses for the period to 31 March 2019 amounted to £123,265, of which £nil was outstanding at the period end.
TheDirectors have resolved that,with eWectfrom 1 July 2019,the annualremuneration for eachDirectorwill be increased to £50,000, with an additional £7,500 per annum for the Chairman and an additional £5,000 per annum for each of the Chairmen of the Audit and Risk Management Committee and the Portfolio Committee. These increases recognise the considerable commitment and involvement oftheDirectors, outside the regular quarterly board meetings, in attending committee and ad hoc board meetings largely related to the reviewof newCatalogue acquisition, aswell as oversight of the development of the Investment Adviser's operational infrastructure. This level of commitment can be seen in the number of meetings shown in the table on page 25 and is expected to be maintained as theCompany continues to grow and to acquire new Catalogues.
The Directors intend to conXrm their commitment to their roles by increasing over time their investment in Ordinary Shares, in accordance with their personal circumstances and individual investment arrangements.
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 monitorroyalty and/orfee income due to theCompany from its copyrights and collection agents, and develop strategiestomaximisetheearningpotentialoftheSongsintheportfoliothroughimprovedplacementandcoverageofSongs.
The Investment Adviser is entitled to receive an advisory fee (payable in cash) and a performance fee (usually payable predominantly in Shares subject to 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:
For the period from incorporation on 8 June 2018 to 31 March 2019
Investment Adviser continued
The advisory fee is calculated at the rate of:
Advisory fees for the period were £1,579,190 with £nil outstanding at the reporting date. The Board also approved an advance of £200,000 paid to the Investment Adviser which will be oWset in equal instalments over 12 months and is currently included in Note 7 as a prepayment.
In respect of each accounting period,the InvestmentAdviser(or,where the InvestmentAdviser so directs, any member ofthe Investment Adviser's team) is entitled to receive a performance fee (the "Performance Fee") equalto 10 percent of the Excess Total Return relating to that accounting period provided that the Performance Fee shall be capped such that the sum of the advisory Fee (payable in respect of the Average Market Capitalisation of Ordinary Shares only) and the Performance Fee paid in respect of that accounting period is no more than 5 percent of the lower of: (i) Net Asset Value; or (ii) Closing Market Capitalisation at the end of that accounting period.
The Excess Total Return for an accounting period is calculated by reference to: (i) the diWerence between the Performance Share Price atthe end ofthatAccounting Period and the higher of: (a)the PerformanceHurdle (being issue price compounded by 10 percent per annum from initial Admission subject to appropriate adjustments in certain situations); and (b) highwatermark (being the Performance Share Price atthe end ofthe last Accounting Periodwhere a Performance Feewas payable); multiplied by (ii)theweighted average ofthe number ofOrdinary Shares in issue (excluding any shares held in treasury) at the end of each day during that accounting period.
For the purposes of calculating the Performance Fee:
"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 (which shall be adjusted as appropriate: (i) to include any dividend declared but not paid where the Ordinary Shares are quoted ex such dividend at any time during that month; (ii) to exclude any dividend paid in respect of the shares during that month; and (iii) for the PSP Adjustments). During the period, the average of the middle market quotations was 108.27 pence; and
"PSP Adjustments" means adjustments to the Performance Share Price to (i) include the gross amount of any dividends and/or distributions paid in respect of an Ordinary Share since initial Admission; and (ii) make such adjustments to take account of C Shares as were agreed between the Company and the Investment Adviser, acting reasonably and in good faith, at the time of issuance of such C Shares.
The amount of Performance Fee payable to the InvestmentAdviser shall be paid in the form of a combination of: (a) cash equalto alltaxes or charges payablewith respectto the Performance Fee by the InvestmentAdviser or member(s) ofthe Investment Adviser's Team; and (b) Ordinary Shares ("Performance Shares") which are either issued by the Company where theOrdinary Shares are on average trading at par or at a premium to the lastreportedOperativeNAVperOrdinary Share at the relevant time or purchased from the secondary market where the Ordinary Shares are on average trading at a discount to the last reported Operative NAV per Ordinary Share at the relevant time and transferred to, the Investment Adviser or member(s) of the Investment Adviser's Team.
The Performance Shares is subject to 18 month lock-up arrangements.
A performance fee forthe period of £429,054 has been accruedwith thewhole amount outstanding as atthe reporting date. This accrual will be settled in accordance with the Investment Advisory Agreement in due course.
For the period from incorporation on 8 June 2018 to 31 March 2019
Pursuant to the Administration Agreements: (i) Estera International Fund Managers (Guernsey) Limited has been appointed as Administrator of the Company; and (ii) Estera Administration (UK) Limited has been appointed as administratorto the subsidiaries.TheAdministrator or EsteraAdministration (UK) Limited (as applicable) are responsible for the 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 oftheCompany's accounting and statutory records). Forthe purposes ofthe RCIS Rules,the Administrator is the designated manager of the Company.
Investors should note that it is not possible for the Administrator or Estera Administration (UK) Limited to provide any investment advice to investors.
Under the terms of the Administration Agreement between the Administrator and the Company, the Administrator is entitled to a Xxed fee of £139,000 per annum for services such as administration, corporate secretarial, corporate governance,regulatory compliance and stock exchange continuing obligations.TheAdministratorwill also be entitled to an accounting fee charged on a time spent basis with a minimum fee of £40,000 per annum and a cap of £80,000 per annum. Administration fees for the period amounted to £104,470 of which £50,045 was outstanding at the period end.
Underthe terms oftheAdministrationAgreement between EsteraAdministration (UK) Limited and the subsidiaries,the administrator is entitled to a Xxed fee of £15,000 per annum (£14,000 per annum eWective from 1 January 2019) per subsidiary for services such as administration, corporate secretarial and accounting. Administration fees for the subsidiaries for the period amounted to £51,484, all of which was outstanding at the period end.
Computershare Investor Services (Guernsey) Limited (a company incorporated in Guernsey on 3 September 2009with registered number 50855) has been appointed as registrar to the Company pursuant to the Registrar Agreement. In such capacity, the Registrar will be responsible for the transfer and settlement of Shares held in certiXcated and uncertiXcated form. The Registrar is also entitled to reimbursement of all out of pocket costs, expenses and charges properly incurred on behalf of the Company.
Underthe terms ofthe RegistrarAgreement,the Registraris entitled to a Xxed fee of £7,500 per annum in respect ofthe Ordinary Shares and £5,500 per annum in respect of the C Shares (if applicable), together with additional ad hoc fees in respect of additional out of scope services provided by the Registrar. Registrar fees for the period were £6,306 with £1,440 outstanding at the reporting date.
| 31 March 2019 | |||
|---|---|---|---|
| Basic | Diluted | ||
| ProXt for the period (£) | 2,359,454 | 2,359,454 | |
| Weighted average number of Ordinary Shares in issue | 202,176,800 | 202,176,800 | |
| Earnings per share (pence) | 1.17 | 1.17 |
The earnings per share is based on the proXt orloss ofthe Group forthe period and on theweighted average number of Ordinary Shares for the period ended 31 March 2019.
There are no dilutive shares at 31 March 2019.
For the period from incorporation on 8 June 2018 to 31 March 2019
Audit and non-audit fees payable to the auditors can be analysed as follows:
PricewaterhouseCoopers Cl LLP professional fees in relation to the IPO
| 31 March 2019 | ||
|---|---|---|
PricewaterhouseCoopers Cl LLP audit fees 110,000
£
in theirrole as reporting accountants 80,000
On 9April 2019 theCompany announced the acquisition oftheTeddy GeigerCatalogue.Teddy Geigeris best known for her co-writingworkwith the global super-star, and multi-platinum selling,Canadian singer and artist ShawnMendes.The Company acquired 100% interest in the Catalogue, which comprises six Songs in total that have achieved 145 Top 10, 83 Top 5 and 23 Number 1 chart positions globally, and have over Xve billion streams on Spotify and Apple Music.
On 12 April 2019 the Company announced a placing of approximately £141.5 million at a price of 102 pence per share. 138,750,000 Ordinary Shares were admitted to trading on the SFS of the London Stock Exchange on 17 April 2019.
On 17 April 2019 three Directors acquired Ordinary Shares in the Company following the placing announced on 12 April 2019 at 102 pence per share. Simon Holden acquired 20,000 Ordinary Shares and now holds 35,000 Ordinary Shares; Andrew Wilkinson acquired 10,000 Ordinary Shares and now holds 25,000 Ordinary Shares; and Paul Burger acquired 7,500 Ordinary Shares and now holds 22,500 Ordinary Shares.
On 23 April 2019 the Company announced the acquisition of the Starrah Catalogue from Brittany Hazzard, a U.S. songwriter, producer and singer whose songs have achieved 94 Number 1, 199 Top 5 and 277 Top 10 Chart positions globally. The Company acquired 100% interest in the Catalogue, which comprises 73 Songs in total.
On 25 April 2019 the Company announced its third interim dividend for the period from 1 January to 31 March 2019 of 1.25 pence per Ordinary Share. The dividendwas paid to Shareholders, on the register atthe close of business on 3 May 2019, on 31 May 2019.
On 29 April 2019 the Company announced that it has changed its registered oZce to PO Box 286, Floor 2, Trafalgar Court, Les Banques, St Peter Port, Guernsey, GY1 4LY with immediate eWect.
On 10 May 2019 the Company announced the acquisition of the David A. Stewart Catalogue. David A. Stewart is an English musician, songwriter, and record producer, best known for Eurythmics, his successful partnership with Annie Lennox. The Company acquired 100% interest in the Catalogue, which comprises 1,068 Songs in total, which includes his songwriter's, artist's and producer's share of income.
On 21 May 2019 the Company announced the acquisition of the Jamie Scott Catalogue. Jamie Scott has co-written multiple platinum certiXed singles including the fourtimes platinum certiXed 'Cold Water' byMajor Lazerfeaturing Justin Bieber and the platinum certiXed 'Skin' byRag'n'BoneMan. Jamie Scott has notably co-written 29 songs forOneDirection, including the UK Number 1 and U.S. Top 10 'Drag Me Down' and 'Story of My Life'. The Company has acquired 100% interest in the Catalogue including all BMI and PRS income in his Catalogue which comprises 144 Songs.
On 28 May 2019 the Company announced the acquisition of the Ari Levine Catalogue, which was acquired during the Xnancial periodwith the rights to income including the six months period to 31March 2019.Ari Levine is a multi-Grammy nominated songwriter and producer, best known for his work as a member of the three-piece writing and producing group The Smeezingtons. Ari Levine has achieved 99Number 1, 256 Top 5 and 361 Top 10Chart positions globallywith numerous artists including Bruno Mars, Ce Lo Green, Diplo and Mark Ronson. The Company acquired 100% interest in the Catalogue, which comprises 76 Songs in total.
G o
O verview
For the period from incorporation on 8 June 2018 to 31 March 2019
On 30May 2019 theCompany announced the acquisition oftheAl Jackson Jr.Catalogue.Al Jackson Jr. is one ofthe most inYuential and revered songwriters, producers and musicians ofthe classic soul era ofthe 1960s and 1970s.TheCompany acquired 100% interest in the Catalogue, which comprises 185 compositions and 199 recordings.
On 11 June 2019 the Company announced the acquisition ofthe Michael Knox Catalogue. Michael Knox is an American music producer and music publisher best known for discovering and producing for the American country music singer Jason Aldean. The Company acquired 100% interest in the Catalogue, which comprises 110 Songs in total.
On 12 June 2019 the Company announced the acquisition of the Sam Hollander Catalogue, which was acquired during the Xnancial period with the rights to income including the six months period to 31 March 2019. Sam Hollander is an American songwriter and producer whose Songs have achieved 10 Number 1, 47 Top 5 and 74 Top 10 Chart positions globally.Atthe heart of hisCatalogue are 14 Songs that Sam haswrittenwith his long-standing collaborators in Panic!At The Disco. The Company acquired 100% interest in the Catalogue, which comprises 499 Songs in total.
On the 12 June 2019 theCompany acquired the Brian KennedyCatalogue. Brian Kennedy is anAmerican songwriter and record producer. Kennedy is best known for his work on 'Disturbia', which was recorded by Rihanna for her 'Good Girl Gone Bad: Reloaded' album, as well as for 'Forever', which was recorded by Chris Brown for his 'Exclusive: The Forever Edition' album. The Company acquired 100% interest in the Catalogue, which comprises 101 Songs in total.
On the 12 June 2019 the Company acquired the Jon Bellion Catalogue. Jon Bellion is an American songwriter, singer, rapper and record producer best known for having co-written the global hit single "The Monster" for Eminem featuring Rihanna topping the charts in more than 30 countries including the UK and U.S.. The Company acquired 100% interest in the Catalogue including all BMI income which comprises 180 Songs in total.
On the 12 June 2019 theCompany acquired the Lyric FinancialCatalogue.The Lyric FinancialCatalogue comprises three catalogues by the songwriters Patrick Brown,Carlos Broady, and Zephire Williams. The LyricCatalogue has achieved 12 Number 1 and 47 Top 10 chart positions globally. The Company acquired 100% interest in the Catalogue including all BMI income which comprises 571 Songs in total.
On the 21 June 2019 the Company acquired the Neal Schon Catalogue. Neal Schon is an American rock guitarist, songwriter, and vocalist inducted into the Rock And Roll Hall Of Fame in 2017. He was a member of the seminal version of Santana aswell as Bad English and a respected solo career but he is best known for hiswork Journey, one ofthe most important American bands ofthe 70's and 80's which continues to sell out arenas all overthe world to this very day. The song 'Don't Stop Believin'' by Journey is the best-selling digitaltrack from the 20th centurywith over 7 million copies sold in the United States and is but one of their more than 15 U.S. Top 30 hits. The Company acquired 100% interest in the Catalogue including all BMI, GMR and ASCAP income which comprises 357 Songs in total.
On 21 June 2019, the Board approved its Xrst interim dividend for the new Xnancial year, for the period from 1 April to 30 June 2019, of 1.25 pence per share. The dividendwill be paid to Shareholders, on the register atthe close of business on 2August 2019, on 30August 2019.This completes theCompany's dividend target of 3.5 pence per share forthe Xrst 12 months following Admission.
There were no other material events afterthe period end to the date on which these Consolidated Financial Statement were approved.
"Administrator" means Estera International Fund Managers (Guernsey) Limited;
"Admission" means admission, on 11 July 2018,to trading on the SFS ofthe London Stock Exchange, oftheOrdinary Shares becoming eWective in accordance with the Listing Rules and/or the LSE Admission Standards;
"AEOI" means Automatic Exchange of Information;
"AIC" means the Association of Investment Companies;
"AIC Code" means the AIC Code of Corporate Governance;
"AIC Guide" means the AICCorporate Governance Guide for Investment Companies;
"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 of the Company provided to the Shareholders to describe their operations and Xnancial conditions, together with their Consolidated Financial Statements;
"Apple Music" means the music and video streaming service developed by Apple Inc.;
"Articles of Incorporation" or "Articles" means the articles of incorporation of the Company;
"ASCAP" means the American Society of Composers, Authors and Publishers;
"Asset Management Committee" means a committee which considers the ongoing management and revenue maximisation of the Catalogues of Songs;
"Audit Committee" or "Audit and Risk Management Committee" means a formal committee ofthe Boardwith deXned 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 Xve 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 Xve day period);"B"isweighted average ofthe 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 forthe Xve 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 Xve day period); and "D" is weighted average of the number of that class of C Shares in issue (excluding any Shares held in treasury) at the end of each day during that month;
"Board" or "Directors" means the Directors of the Company;
"BMI" means Broadcast Music, Inc;
"BPI" means the British Phonographic Institute;
"Brexit" means the potential departure oftheUK from the EU;
"C Shares" means a temporary and separate class of shares which are issued at a Xxed price determined by the Company;
"Catalogue" means one or more Songs acquired from a single songwriter or artist;
"CBS" means a U.S. commercial broadcast television and radio network;
"CD" means compact disc;
"CEO" means chief executive oZcer;
"CISAC" means the International Confederation of Societies of Authors and Composers;
"ClosingMarketCapitalisation" means, in relation to each Accounting 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 theCompanies (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;
"Consolidated Financial Statements" means the audited Xnancial statements of the Company, including the Statement of Financial Position, the Statement of Comprehensive Income,the Statement ofCash Flows,the Statement of Changes in Equity and associated notes;
"Conversion" means the conversion of C Shares to Ordinary Shares;
"Copyright Royalty Board" means the U.S. Copyright Royalty Board;
"Corporate Broker" means Nplus1 Singer Advisory LLP (N+1 Singer);
"Corporate GovernanceCode" meansTheUKCorporate Governance Code 2016 as published by the Financial Reporting Council;
"DCF" means discounted cash Yow;
"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;
"Downloads" means royalties for the permanent digital mechanical transfer of music;
"DSP" means digital service providers;
"Earnings per Share" or "EPS" means the Earnings per Ordinary Share and is expressed in pounds Sterling;
"ECL" means expected credit losses;
"Excess Total Return" means for an accounting period, it is calculated by reference to: (i)the diWerence between the Performance Share Price at the end of that accounting period and the higher of: (a)the PerformanceHurdle (being issue price compounded by 10 percent per annum from initial Admission subject to appropriate adjustments in certain situations); and (b) high watermark (being the Performance Share Price atthe end ofthe 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) at the end of each day during that accounting period;
"EU" means European Union;
"FCA" means the UK Financial Conduct Authority (or its successor bodies);
"FRC" means Financial Reporting Council;
"FSMA" means the UK Financial Services and Markets Act 2000;
"GFSC" or "Commission" means the Guernsey Financial Services Commission;
"GFSC Code" means the GFSC Finance Sector Code of Corporate Governance;
"GMR" means Global Music Rights;
"Grammy" means an award presented by the Recording Academy to recognise achievements in the music industry;
"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;
"IFPI" means International Federation ofthe Phonographic Industry;
"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 Massarsky Consulting, Inc., appointed by the Board to independently value the Company'sCatalogueswithin the Portfolio;
"Interim Report" means the Company's half yearly report and unaudited condensed consolidated Xnancial statements for the period ended 30 September;
"Investment Adviser" means The Family (Music) Limited;
"InvestmentAdvisoryAgreement"means the investment advisory agreement dated 27 June 2018 between The Family (Music) Limited, the Company and Hipgnosis SFH I Limited;
"Investment Entity" means an entity whose business purpose is to invest funds solely for returns from capital appreciation, investmentincome or both;
"IPO" means the initial public oWering of shares by a private company to the public;
"ISAE 3402" means International Standard on Assurance Engagements 3402, "Assurance Reports on Controls at a Service Organisation;
"ISIN" means an International Securities IdentiXcation Number;
"Listing Rules" means the listing rules made by the UK Listing Authority under section 73A FSMA;
"London Stock Exchange" or "LSE" means London Stock Exchange Plc;
"MAR" means EU regulation 596/2014 on market abuse;
"MAU" means monthly active users;
"Mechanical" means royalties for reproducing music, for example CD, vinyl, etc. (excluding mechanical downloads and mechanical streaming);
"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;
"NetAssetValue" or"NAV" means the value ofthe assets of the Company less its liabilities as calculated in accordance with the Company's valuation policy and expressed in pounds Sterling;
"Operative NAV" meansNAVas adjusted forthe fair value of Catalogues of Songs;
"Ordinary Shares" means redeemable ordinary shares of no par value in the capital of the Company issued and designated as "Ordinary Shares" and having the rights, restrictions and entitlements set out in the Articles;
"Other income" means any income not covered by the other income types, for example sheet income and lyric exploitation;
"Performance" means royalties for playing music in public, for example TV/radio broadcasts, live performance, etc. and paid through to the publisher;
"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 of the middle market quotations of the Ordinary Shares for the one month period ending on the last business day of that accounting period;
"Portfolio" means the portfolio of Songs (whether organised into Catalogues or otherwise) held by the Company directly or indirectly from time to time;
"Portfolio Committee" means a committee which approves all purchases of Catalogues of Songs;
"Preferred Portfolio Administrator" means the portfolio administrators appointed by the Company in order to assist with the administration of the Portfolio including Kobalt Music Services Limited, the Company's preferred portfolio administrator;
"Premium Listing" means the Premium Listing Segment of the London Stock Exchange;
"Premium to Operative NAV" means the situation where the Ordinary Shares ofthe Company are trading at a price higher than the Company's Operative NAV;
"Prospectus" means the prospectus issued by the Company on 27 June 2018;
"PRS" means performing right society;
"PSPAdjustment"means adjustments tothePerformance SharePrice to (i) include the gross amount of any dividends and/or distributions paid in respect of an Ordinary Share since initial Admission; and (ii) make such adjustments to take account of C Shares as were agreed between the Company and the Investment Adviser, acting reasonably and in good faith, atthe time of issuance of such C Shares.
"QR" means quick response;
"RCIS Rules" means the RegisteredCollective Investment Scheme Rules 2015;
"Recording Academy" means a U.S. academy of musicians, producers, recording engineers and other musical professionals;
"Registrar" means Computershare Investor Services (Guernsey) Limited;
"RIAA" means Recording IndustryAssociation ofAmerica;
"SFS" means London Stock Exchange's specialist fund segment of the main market for listed securities;
"Shareholder" means the holder of one or more Ordinary Shares;
"Song" means a songwriter's and/or publisher's share of copyrightinterestin a song, being a musical composition of words and/or music and the songwriter's proportion ofthe publishing rights of a single musical track, and when construction permits,the collection ofwords and/or music as purchased by consumers;
"Streaming" means performance and mechanicalroyalties for digitally playing music in real-time,for example through Spotify;
"Synchronisation" means royalties for playing music in connection with visual media (for example Xlm, TV, advertisements);
O
"The-Dream" means the Catalogue purchased from TeriusNash, better known by his stage name 'The-Dream';
"TMS" means the Catalogue purchased from an English songwriting and music production team comprised of Thomas 'Froe' Barnes, Benjamin Kohn and Peter 'Merf' Keller;
"TV" means television;
"UK" or "United Kingdom" means the United Kingdom of Great Britain and Northern Ireland;
"UKLA" means UK Listing Authority;
"U.S." or "United States" means the United States of America, its territories and possessions, any state of the United States and the District of Columbia;
"Writer's Share" means performance royalties collected by a Performance Rights Organisation and paid through directly to the songwriter as opposed to the publisher share of performance;
"YouTube" means the U.S. video-sharing website;
"£" or"Pounds Sterling" or"Sterling" means British pound sterling and "pence" means British pence;
"\$" or "USD" means United States dollars and "cents" means United States cents; and
"€" or "EUR" means the oZcial currency of the majority of member states of the EU.
Andrew Sutch (Chairman) (Appointed 8 June 2018) Paul Burger (Appointed 30 July 2018) Andrew Wilkinson (Appointed 8 June 2018) Simon Holden (Appointed 8 June 2018)
Andrew Wilkinson (Chairman) (Appointed 8 June 2018) Andrew Sutch (Appointed 8 June 2018) Paul Burger (Appointed 30 July 2018) Simon Holden (Appointed 8 June 2018)
Paul Burger (Chairman) (Appointed 30 July 2018) Andrew Sutch (Appointed 8 June 2018) Andrew Wilkinson (Appointed 8 June 2018) Simon Holden (Appointed 8 June 2018)
Andrew Sutch (Chairman) (Appointed 8 June 2018) Paul Burger (Appointed 30 July 2018) Andrew Wilkinson (Appointed 8 June 2018) Simon Holden (Appointed 8 June 2018)
Heritage Hall PO Box 225 Le Marchant Street St Peter Port Guernsey GY1 4HY
E"ective from 29 April 2019 Floor 2 Trafalgar Court Les Banques St Peter Port Guernsey GY1 4LY
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 USA
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
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
E"ective from 29 April 2019 Floor 2 Trafalgar Court Les Banques St Peter Port Guernsey GY1 4LY
Computershare Investor Services (Guernsey) Limited 1st Floor Tudor House Le Bordage St Peter Port Guernsey GY1 1DB
Kobalt Music Services Limited The River Building 1 Cousin Lane London EC4R 3TE
| ISIN: | GG00BFYT9H72 |
|---|---|
| Ticker: | SONG |
| SEDOL: | BFYT9H7 |
| Website: | www.hipgnosissongs.com |
| LEI: | 213800XJIPNDVKXMOC11 |
| GIIN: | 5XGPC8.99999.SL.831 |
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 yourInvestor code (IVC) printed on your share certiXcate in order to register.
NOTICE is hereby given that the First Annual General Meeting of Hipgnosis Songs Fund Limited is to be held at The Tapestry Room, The Ned, 27 Poultry, London, on 10 September 2019 at 10:30 am forthe transaction ofthe following business:
i) the maximum number of shares authorised to be purchasedinthemarketisupto51,104,927ofthe Company'sordinary shares (OrdinaryShares)(or, if lower, up to 14.99 per cent. of the Ordinary Shares in issue (excluding treasury shares in issue) asatthetimeimmediately followingthepassingof the resolution);
ii) the minimum price (exclusive of expenses)which may be paid for an ordinary share is £0.01;
Estera International Fund Managers (Guernsey) Limited Company Secretary
24 June 2019 PO Box 286 Floor 2 Trafalgar Court Les Banques St Peter Port Guernsey GY1 4LY
attend or vote at the Meeting in respect of the number of shares registered in their name at that time. Changes to entries on the Register of Members after that time shall be disregarded in determining the rights of any person to attend or vote at the Meeting.
In recent years investment related scams have become increasingly sophisticated and diZcult to spot. We are thereforewarning all our Shareholders to be cautious so thatthey can protectthemselves and spotthewarning signs.
Fraudsters will often:
You can avoid investment scams by:
For further helpful information about investment scams and how to avoid them please visit www.fca.org.uk/scamsmart.
The Chairman's Statement, the Investment Adviser's Report and the Report of the Directors 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 the Report of the Directors may include statements that are, or may be deemed to be,"forward-looking statements".These forward-looking statements can be identiXed by the use of forward-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 historicalfacts. They appearin 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, Xnancing strategies, investment performance, results of operations, Xnancial 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 occurin the future. Forward-looking statements are not guarantees of future performance.
TheCompany's actual investment performance,results of operations, Xnancial condition, liquidity, distribution policy and the development of its Xnancing strategies may diWer materially from the impression created by the forwardlooking statements contained in this document.
Subject to their legal and regulatory obligations, the Directors and the Investment Adviser expressly disclaim any obligations to update orrevise any forward-looking statement contained herein to reYect any change in expectations with regard thereto or any change in events, conditions or circumstances on which any statement is based.
The First Annual General Meeting of Hipgnosis Songs Fund Limited is to be held at The Tapestry Room, The Ned, 27 Poultry, London, on 10 September 2019 at 10.30 am.
Name of Registered Shareholder ..................................................................................................................................................................
I/We, being a member of the Company, hereby appoint the Chairman of the Meeting and/or a representative of
Estera International Fund Managers (Guernsey) Limited or ..................................................................................................................
to be my/our proxy to attend and, on a poll, vote on my/our behalf attheAnnual GeneralMeeting ofHipgnosis Songs Fund Limited to be held on 10 September 2019 at 10.30 am or at any adjournment thereof. I request my/our proxy to vote in the manner indicated below:
| Ordinary Resolutions | For | Against | Withheld | |
|---|---|---|---|---|
| 1. | To receive and adopt the Annual Report and Audited Financial Statements of the Company for the year ended 31 March 2019 (the "Annual Report"). |
|||
| 2. | That the Directors' remuneration for the period ended 31 March 2019 as provided in the Director's report contained in the Annual Report be approved. |
|||
| 3. | To re-appoint PricewaterhouseCoopers CI LLP, who have indicated their willingness to continue in oZce, as Auditor of the Company to hold oZce until the conclusion of the next Annual General Meeting. |
|||
| 4. | To authorise the Directors to determine the remuneration of PricewaterhouseCoopers CI LLP. |
|||
| 5. | To elect Andrew Sutch, retiring in accordance with the Company's Articles of Incorporation (the "Articles"), as a Director of the Company. |
|||
| 6. | To electAndrew Wilkinson,retiring in accordancewith theArticles, as aDirector of the Company. |
|||
| 7. | To elect SimonHolden,retiring in accordancewith theArticles, as aDirector of the Company. |
|||
| 8. | To elect Paul Burger, retiring in accordance with the Articles, as a Director of the Company. |
|||
| 9. | THAT the Company's dividend policy be approved. | |||
| 10. | To authorise the Company in accordance with Section 315 of The Companies (Guernsey) Law2008 as amended (the "Law")to make market acquisitions (as deXned in Section 316 ofthe Law) ofits ordinary shares, or any diWerent classes of shares, either for retention as treasury shares or cancellation in linewith the provisions stated in the Notice. |
Date:................................................................... Signature:..........................................................................................................................
✂
Floor 2 Trafalgar Court Les Banques St Peter Port Guernsey GY1 4LY
Further information available online: www.hipgnosissongs.com
Building tools?
Free accounts include 100 API calls/year for testing.
Have a question? We'll get back to you promptly.