Hipgnosis Songs Fund has published its interim results for the six-months to 30 September 2023.

Financial headlines

• Operative NAV per share decreased 9.2% to $1.7392 (31 March 2023: $1.9153), driven primarily by a reduction in the fair value of the portfolio
  • As at 30 September 2023, Operative NAV per share in Sterling 142.49p (£:$ exchange rate 1.22055);
  • As at 19 December 2023, Operative NAV per share presented in Sterling 136.53p (£:$ exchange rate 1.274).
• Gross revenue from continuing operations for the period $63.2m (H1 2022-3: $86.4m)
• Net revenue from continuing operations fell to $54.0m (H1 2022-3: $76.8m) primarily driven by $11.9m reversal of CRB III accrual due to lower anticipated future retroactive payments
• Underlying net revenue (excluding CRB III accruals) up 14.0% to $65.8m (H1 2022-23: $57.6m)
• Pro-forma annual revenue (which shows the gross royalty statements received or receivable within the reporting period and does not include any revenue accruals under IFRS) grew by 10.4% to $64.9m (Six months to 30 Sept 2022: $58.8m)
• Total dividends of 2.6250p (paid)
  • October 2023 dividend withdrawn
  • Dividends suspended for at least remainder of financial year
• Total debt of $674.0m as at 31 September 2023 (31 March 2023: $648.2m) representing 32.0% of Operative NAV (31 March 2022: 28.0%)

Operational headlines

• Strategic review, led by the board, underway following rejection of the continuation resolution at the AGM
• Shot Tower Capital, LLC as lead adviser to conduct due diligence on the company’s assets
• Investment adviser invited to propose alternative terms for their future investment advisory arrangements for the company
• Robert Naylor appointed non-executive director and chair following period end; Francis Keeling and Christopher Mills appointed non-executive directors
• Sale of about 20,000 non-core songs representing approximately 1% by value of the investment portfolio. These were sold for $23.1m, a 14.2% discount to the portfolio independent valuer’s valuation
• KPMG appointed as auditor

Robert Naylor said: “I am delighted to be appointed to the board, with strong backing from shareholders. The board are clear we are acting in their best interests. I am pleased with the progress made on the ongoing strategic review. The board, through its advisers, has begun due diligence on the company’s assets with Shot Tower LLC, a specialist music rights practice, acting as lead adviser. This process will help the new board bring forward proposals for delivering value to shareholders. Notwithstanding this progress, since I joined the board there has been a regular occurrence of issues raised as a result of ongoing failures in the financial reporting and control process. Whilst we consider substantial progress has been made in identifying and rectifying these issues, we have had to suspend the dividend for at least the remainder of the year in order to ensure compliance with our banking covenants.

The newly constructed Board are aware of multiple valuation data points. The board, made up entirely of non-executive directors, has sought advice from the investment adviser, as the company’s delegated executive function, for their opinion as to the fair value of the company’s assets. Regrettably, the investment adviser initially refused to provide an opinion. While the investment adviser did eventually provide an opinion to the board, it was heavily caveated. Whilst the board sought for correspondence with the investment adviser on the matter to be published on the company’s website in order to provide transparency for shareholders, the investment adviser has refused to consent under the confidentiality clauses of the investment advisory agreement.

We note the announcement from Hipgnosis Song Management stating that they will ‘continue to work in a constructive manner to support the interests of the company and its shareholders’. On behalf of the board, I therefore urge the investment adviser to provide the board with their opinion as to the fair value of the company assets, without caveats, such that we can provide greater certainty and transparency to our shareholders.”

[The 14% increase in underlying revenue is encouraging, but as usual, we went to the cash flow statement to see what was going on there. Net cash generated from operating activities was up by 7.7% to about £49m. The interest bill was £21m and, even with the dividend suspension, the amount paid out in dividends was £39.8m. The net effect of this and other factors was that cash fell by about £2m. We continue to suspect that after interest costs, the company is not making any money on the songs that it financed with debt. There are a £39.6m short-term and £28.5m long-term provision for bonus payments on the prices of catalogues acquired – ensuring that there was cash available to fund this was one reason for the dividend suspension. The board has its work cut out to put the fund’s affairs in order but the gap between the 70.7p current share price and 136.5p written down NAV leaves plenty of room for manoeuvre.]

SONG : Hipgnosis dollar NAV falls by 9.2%