Hipgnosis Songs Fund Limited (“Hipgnosis” or the “Company”)
Interim Results
for the six months ended 30 September 2021 (“H1 21”)
The Board of Hipgnosis Songs Fund Limited, the first UK listed investment company offering investors a pure-play exposure to songs and associated intellectual property rights, and its Investment Adviser, Hipgnosis Song Management Limited, are pleased to announce the Company's interim results for the six months ended 30 September 2021.
Operational Highlights
Oversubscribed placing raising over $215 million, £156 million, in July 2021 with proceeds used use to acquire some of the most influential rock Catalogues of all time including:
- The Red Hot Chili Peppers – Flea, John Frusciante, Anthony Kiedis and Chad Smith, one of the most important and best-selling bands of all time, with 100 million records sold worldwide
- Christine McVie – best known as one of the principal writers and vocalists of Fleetwood Mac, one of the most successful bands of all time. With Lindsey Buckingham, we now own the Song Catalogues of two of the three principal Songwriters of the most successful version of Fleetwood Mac
- Ann Wilson – one half of Heart, the female led US rock band who had multi-platinum success in the 70's and 80's
- Rhett Akins – who was just inducted into the Nashville Songwriters Hall Of Fame
- Stefan and Jordan Johnson – The Monsters & Strangerz, who have had enormous pop success with Zedd, Justin Bieber, Miley Cyrus, Dua Lipa, The Jonas Brothers and Katy Perry
As at 30 September 2021, the Portfolio comprises of 146 Catalogues, 65,413 songs, with an aggregate fair value of $2.55 billion (as determined by the Independent Portfolio Valuer), including:
- 47 out of 190 songs in Spotify's Billions Club
- 51 of Rolling Stone's The 500 Greatest Songs of All Time
- 20 out of Billboard's Greatest of All Time Hot 100 Songs
- 10 of the Top 30 YouTube's Most Viewed Videos of All Time
Continued development of the Investment Adviser's Song Management Platform:
- A 20% increase in the number of synch deals in July-September 2021 compared to April-June 2021 alone including :
- Eurythmics' Sweet Dreams (Are Made of This), co-written by David A. Stewart, is the main trailer for MGM's major worldwide Q4 release 'House of Gucci', directed by Ridley Scott and starring Lady Gaga & Adam Driver
- The initial trailer for the same movie was also soundtracked by a Hipgnosis song, Heart Of Glass by Blondie, written by Debbie Harry and Chris Stein
- Mariah Carey's All I Want For Christmas Is You co-written by Walter Afanasieff is the focus of McDonald's' Christmas 2021 campaign
- There's Nothing Holding Me Back by Shawn Mendes, co-written by Teddy Geiger and Scott Harris, is the main song for the trailer of Universal Studios' upcoming 'SING 2' feature film
- Our classic Bond theme Nobody Does it Better by Carly Simon, co-written by Carole Bayer Sager, is the soundtrack for DHL's global advertising campaign, which was launched in conjunction with the long-awaited James Bond blockbuster film '007: No Time To Die'
Hipgnosis now has the largest presence on TikTok as a Song Management company, with over 334,000 followers
The Peloton exercise classes featuring our great songs by Beyoncé , Bon Jovi, Britney Spears, The Chainsmokers, Ed Sheeran, Justin Bieber, Lady Gaga, Red Hot Chili Peppers, Shakira and Chris Cornell are a massive success
We launched our first NFT Hack The Borders, a crypto art collaboration between Blondie and Hackatao
Continued adoption of innovative technologies to deliver maximum value across all parts of Song Management
The US Administration of a further 19 Catalogues have been transferred to Hipgnosis Songs Group (HSG), taking us to a total of 30
Continued progress with our advocacy for Songwriters, most notably with the House of Commons' Digital, Culture, Media & Sport (DCMS) Committee. Following their report into the Economics of Music Streaming, the Government referred the case to the Competition and Markets Authority (CMA), to undertake a full market study into the economic impact of the major music groups' dominance
Financial Highlights
Operative NAV increased by 2.5% to $1.7242 per Share over the six month period (31 March 2021: $1.6829)
Including dividends paid, this represents a Total Operative Dollar NAV Return of 4.63% for the six month period, taking Total NAV Return since IPO to 46.7%
Like-for-like valuation uplift across the Portfolio to $2.55 billion (as determined by the Independent Portfolio Valuer) of 3.0% driven by:
- An increase in expected performance income in 2023 as the Independent Portfolio Valuer is now forecasting a stronger bounce back from COVID-19 to pre-pandemic levels
- An increase in streaming growth rates to reflect the continued growth in paid subscribers in excess of expectations
Due to the time lag between the consumption of songs and the royalty statements being processed, the point at which revenues are recognised, means that the impact of COVID-19 is now being fully felt within these results:
- Net revenue grew by 31% to $74.1m (six months ended 30 September 2020: $56.7 million) as a result of the additional Catalogue acquisitions since the comparative period
- EBITDA increased by 16.2% from $47.0m to $54.6m
- Despite impact of COVID-19, dividends paid were fully covered by Adjusted Profit after Tax (Net revenue, less operating expenses, excluding Total Amortisation and excluding Foreign Exchange losses) by 1.03x and by 1.02x on a Leveraged Free Cash Flow basis
PFAR for the full calendar year 2020 (which looks at our Catalogues' royalty earnings ignoring the ownership period) fell by 7.9% to $121.3 million (12-months to 30 June 2020: $131.7 million) as a result of:
- Performance income falling by 19.5% due to COVID-19 lockdowns
- Streaming income remaining buoyant through COVID-19, growing 4% in steady state Catalogues compared to 12 months ended 30 June 2020, continuing growth after impressive calendar H1 2020 growth of 22.5% compared to H1 2019, as the shift of consumer behaviour towards paid streaming has accelerated
Net debt at 30 September 2021 was $550.9 million, reflecting 28.7% of Operative NAV
Merck Mercuriadis, Founder of Hipgnosis Songs Fund Limited and Hipgnosis Song Management Limited said:
“It's incredible to believe we are half way through our fourth year!
The last 9 months, including this Interim reporting period from 1 April to 30 September 2021, have been a very important and exciting time in our maturation as you will see throughout this report.
I am delighted to report year-on-year net revenue growth of 31%, EBITDA growth of 16% and most importantly NAV growth of 2.5% over the past six months driven by an increase in the fair value of our Catalogues. This takes our Total NAV Return delivered since IPO less than 4 years ago to an incredible 46.7%.
Whilst we are in an incredibly strong position with our Catalogue of iconic songs, this period has been challenging. As we have previously stated, the time lag between the consumption of songs and the royalty statements being processed, which is the point at which we recognise revenues, means that the impact of COVID-19 is now being fully felt within these results. In particular, and along with the wider music industry, the closure of live music venues, pubs, bars and restaurants during various lockdowns has impacted the like-for-like performance earnings of our Catalogues during this period. Our vintage Catalogues have made up for a fall in their performance earnings with outstanding streaming performance earnings as consumers turned to classics during lockdown.
Despite being in one of the most challenging economic and operationally difficult times of our lives we are delighted that we were still able to deliver a fully covered dividend – a validation of the reliability of songs as an asset class.
As we look forward, despite the emergence of the Omicron variant of COVID-19, we continue to see a promising outlook for the music industry and our Catalogues. Over the last 6 months we have seen live venues are fully booked until 2023, pubs, bars and restaurants are full and streaming growth continues to exceed expectations. This optimism in growth is shared by our independent valuer who has increased the future earnings trajectory for our Catalogues in their valuation models resulting in 3% growth in the fair value of our Catalogues.
However, we must be proactive and not take this recovery for granted, something highlighted by the continued uncertainty caused by the Omicron variant of COVID-19. Therefore, in order to ensure our Catalogues outperform, no matter the wider market conditions, we continue to increase our Song Management efforts. We have hired experts in all parts of Song Management as we explore every opportunity to innovate and maximise earnings from our songs. Our focused and conscientious model provides the bandwidth to be able to manage great songs responsibly, as we maximise their revenues while enhancing their long-term legacies.”