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2
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023
Hipgnosis Songs Fund is the first UK investment company offering
investors a pure-play exposure to Songs and associated musical
intellectual property rights. Our focus is building a diversified Portfolio,
acquiring Catalogues that are built around proven hit Songs of
cultural importance by some of the most talented and important
Songwriters globally.
Our shares listed on the Main Market of the London Stock Exchange
in July 2018 and transferred to the Premium Segment of the Main
Market in September 2019. Since March 2020, Hipgnosis Songs Fund
has been a constituent of the FTSE 250 Index.
STRATEGIC REPORT
3 Introduction from Merck
Mercuriadis
8 Financial and Operational
Highlights
10 Portfolio at a Glance
11 The Chair’s Statement
17 Investment Adviser’s Report
32 The Advisory Board
34 Financial Review
42 Our Market
48 The Hipgnosis Song
Management Team
49 Our Senior Management Team
50 Our Purpose, Business Model,
Culture and Values
54 Our Objective, Strategy and
Investment Policy
57 Our Resources and Relationships
62 Our Principal Risks and Uncertainties
67 Key Statements
67 Viability Statement
69 Going Concern
70 Section 172(1) Statement
GOVERNANCE
72 Chair’s Introduction
73 Compliance Statement
74 Application of AIC Code Principles
78 Board Leadership and Company
Purpose
80 Division of Responsibilities
84 Composition, Succession and
Evaluation
85 Biographies
88 Report of the Nomination
Committee
91 Audit, Risk and Internal Control
92 Report of the Audit and Risk
Management Committee
99 Report of the Management
Engagement Committee
101 Report of the Portfolio Committee
103 Report of the Environmental,
Social and Governance Oversight
Committee
104 Directors’ Remuneration Report
108 Report of the Directors
111 Directors’ Responsibilities
Statement
INDEPENDENT AUDITOR’S REPORT
113 Independent Auditor’s Report
FINANCIAL STATEMENTS
122 Consolidated Statement
of Profit and Loss
123 Consolidated Statement
of Comprehensive Income
124 Consolidated Statement
of Financial Position
125 Consolidated Statement
of Changes in Equity
126 Consolidated Statement
of Cash Flows
127 Notes to the Consolidated
Financial Statements
ADDITIONAL INFORMATION
163 Alternative Performance
Measures
171 Glossary of Capitalised
Defined Terms
175 Directors and General
Information
176 Advice to Shareholders
177 Hipgnosis Playlists
CASE STUDY
22 Reviving a forgotten hit
SUPERSTARS • SUPER TOURS
31 Taylor Swift’s The Eras Tour
46 Beyoncé’s Renaissance World Tour
Merck Mercuriadis, Founder, Hipgnosis Songs Fund Ltd and
Hipgnosis Song Management Ltd
STRATEGIC REPORT
3
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023
Introduction from Merck Mercuriadis
These financial results are an important validation of
Hipgnosis Songs Fund’s investment thesis, delivering the
best like-for-like income growth in our short history.
These results demonstrate the value of our strategy,
with Operative NAV per share growth of 3.6% year-
on-year to $1.9153, underpinned by strong increases
in royalty statement income. Taken together with
dividends declared since launch until 31 March 2023,
of 21.6p (27.9¢), we have delivered a 69% Total $ NAV
Return to Shareholders since IPO on 11 July 2018, as we
continue to benefit from the growth in streaming and
higher Synch revenues generated by the Company’s
unparalleled Portfolio of Songs.
Five years ago we predicted that the recovery
of the music industry from the previous 16 years
of technological disruption would be driven by
the convenience and transformational growth of
streaming. In addition, we considered that we could
deliver an exceptional return by acquiring iconic
Songs while they were still attractively priced.
Since then our thesis has become reality and we have
transitioned from an era where almost all consumption of
music was unpaid to one where almost all consumption
of music is being paid for. This set of results is an
early indication of what’s to come in the future.
People listen to iconic Songs whatever the
macroeconomic conditions; the change in the way
in which we consume music means that, increasingly,
when we hear a song, a payment is being generated;
music streaming continues to grow with its utility-like
revenues, with the number of paid subscribers globally
growing by 13% year-on-year to around 600 million,
according to the IFPI, including over 100 million paying
subscribers in the US.
Importantly, around the world the true value of Songs
and Songwriters is increasingly being recognised.
Nevertheless, the current share price does not reflect
the success of our investment strategy and I know all
Shareholders share my frustration and disappointment
that this is the case. When we launched the Company,
we created a new asset class with Songs. It is therefore
perhaps not a surprise, that in a world of incredible
turmoil following a global pandemic, the largest war
in Europe in nearly 80 years and increasing inflation
and interest rates, that some investors have turned
to “risk free” safe havens over exposure to new asset
classes. However, despite these unique macroeconomic
conditions, the strong growth in paid consumption for
music continues. The Music industry is rapidly growing
and thriving while others contract and as a result, Song
catalogues continue to be a highly attractive asset.
We are aligned with Shareholders in believing that the
fundamental value and opportunity of the Company fails
to be reflected in the current share price.
As a result, we have been working with the Board,
following consultation with many of the Company’s
largest Shareholders, on a number of options to enhance
Shareholder value.
We intend to update the market prior to the Annual
General Meeting (AGM) and the Continuation Vote.
Strong underlying growth
IFRS Net Revenue, which is based on the Group’s
accounting policies (including accruals), was $147.2 million
and decreased from $168.3 million due to a number of
non-recurring elements identified and called out in the
prior and current period. These include non-recurring
Right to Income (RTI), the initial recognition of the Usage
Accrual and the impact of the retroactive CRB III revenue
due. Excluding the impact of these adjustments, IFRS
Net Revenue grew by 10.9% year-on-year.
STRATEGIC REPORT
4
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023
In order to provide Shareholders with an understanding
of the like-for-like performance of the Company’s
revenues, by removing the current year impact of
non-recurring items, we provide our Pro forma Annual
Revenue (PFAR) data which is primarily based on actual
royalty statements. In 2022, PFAR increased 12.1% year-
on-year to $130.2 million (2021: $116.2 million). This is
despite the US Dollar’s very strong performance against
almost all other major currencies during the year.
Streaming is a key driver of income growth and grew
by 14.8% year-on-year in 2022, making up just over
40% of our PFAR income. Income from Synch revenue
continues to show strong growth of 24.7% year-on-year
in 2022. Significantly, Performance income, which had
been suppressed since the Covid-19 lockdowns is now
demonstrably coming back as consumption returns to
even greater than pandemic levels. A small year-on-year
decline in the first half of 2022 was more than off-set by a
41% increase in the second half. Taking into consideration
the time lag inherent in the payment of performance
income, this is a very positive indicator for the future and
gives us a 9% year-on-year increase for 2022.
I believe that there are two reasons why the Company’s
income has outperformed this year:
Firstly, the Songs in our Portfolio.
• We have bought carefully and we bought well by
investing in Songs which we believe will stand the
test of time and will be listened to for generations.
The Company’s Portfolio of Songs is unrivalled for its
extraordinary success and cultural importance. We
have a relatively small portfolio with a very high ratio
of success, which makes it efficient to manage as the
Songs are in high demand. Significantly, we selected
catalogues which we believed were well placed
to benefit from the growth in music streaming. The
Company owns nearly 25% of all Songs played over
a billion times on Spotify (“Spotify’s Billions Club”),
over 10% of Rolling Stone’s The 500 Greatest Songs of
All Time and Songs on 16 out of the Top 40 UK best
selling albums of the first six months of 2023.
Secondly, our active Song Management.
• We drive consumption and value through Song
management of the Catalogue to individual listeners,
music creators and business music users, as well as
harnessing consumer platforms through which the
Catalogue can be showcased and consumed.
• We optimize revenue generation, revenue collection
and value by ensuring accurate registration and rights
enforcement of the Songs in the Catalogue, then
collect revenues as efficiently and cost-effectively as
we can.
• We campaign to change the position of Songwriters
in the economic equation by working with politicians,
NGOs and the wider music community to build
support for increased fairness in payments for
Songwriters. For the Songs which we’ve purchased,
the Company stands in the shoes of the Songwriters,
so our interests are perfectly aligned.
Looking at the wider picture, the US Recorded Music
revenues collected by the RIAA show that revenues are
now back above the historic highs at the start of the
millennium. Despite the general economic slowdown
caused by rising interest rates, music and the Songs
that underpin it is prospering. Particularly notable is the
continued growth of music streaming with its utility-like
revenues. The best days of the music industry and rights
ownership are ahead of us and we believe that the
capital appreciation in our portfolio is still in its infancy
as we grow towards 2 billion paid premium streaming
subscribers over the next 10 years. In this context, it’s not
surprising that the market analysts at Goldman Sachs
and J.P. Morgan, amongst others, expect music industry
revenue growth to continue for the foreseeable future.
The net increase in the Fair Value of the Portfolio of
4.0% year-on-year to $2.80 billion and the increase in
the Operative NAV per share of 3.6% year-on-year to
$1.9153 was driven by revenue in excess of the Portfolio
Independent Valuer’s forecast.
Active management of our Portfolio
Whilst we benefit from the wider market growth,
we continually add value through our active Song
Management of the Company’s portfolio. These activities
increase the value of our Songs both by bringing them to
new audiences and ensuring we are paid what we are
due as quickly as possible. Examples for the year include:
• Placing a remix of Journey’s 1983 song Separate Ways
(Worlds Apart) in season 4 of Netflix’s hit Stranger
Things. The Company owns rights for both Jonathan
Cain’s 50% share of the publishing and 66% of the
master recording. The synch generated a six figure
fee and also drove a significant increase in streaming
STRATEGIC REPORT • INTRODUCTION FROM MERCK MERCURIADIS
STRATEGIC REPORT
5
consumption, encouraged further synchs of the Song
and a new cover version. Please see the case study
on pages 22-23 which details how a well-placed
synch can revive a forgotten hit.
• Placing Nile Rodgers as the face of Chanel Eyewear
as well as the first and only “Artist In Residence” at
Apple Music. We have also presented CHIC’s first
five albums and Sister Sledge’s We Are Family in
Spatial Audio on the service, as well as securing a
significant six figure synch for the song Spacer with
Renault in Europe. These initiatives have introduced
our iconic songs, co-written by Bernard Edwards, to
a new generation of fans and are driving increased
streaming consumption.
• Placing a cover version of Blink-182’s All The Small
Things, co-written by Tom Delonge whose catalogue
we purchased in 2019, as the soundtrack for John
Lewis’s 2022 Christmas advert – one of the most
coveted Synchs in the World.
• Rihanna performing four Hipgnosis Songs Fund co-
owned Songs during her set at the 2023 Superbowl:
Birthday Cake (The-Dream), All Of The Lights (Jeff
B ha sker / T he - D ream), Run This Town (Jeff B ha s ker / No
I.D.) and Umbrella (The-Dream / Tricky Stewart). Close
to 119 million viewers tuned in for her performance
on television and streaming services, with each of
the Songs recording gains on streaming platforms
of up to 280% in the week following her performance.
Four months on, Umbrella’s US weekly Streaming-
on-Demand figures are still 1.3 times that pre the
Superbowl; Run This Town is showing 1.5x the demand
and this has led to further synch placements.
• Our new recording of Bon Jovi’s Wanted Dead or
Alive, by Empara Mi was commissioned to specifically
to appeal to the Synch market. It was successfully
placed, as the global trailer for Transformers:
Reactivate, a major forthcoming video game. It
generated six figure fees for both the publishing and
the new recording which we participate in.
• Placing Richie Sambora as a contestant on the UK
version of The Masked Singer. Four of the six Songs that
he performed on the series were from the Company’s
portfolio. When he was revealed in the semi-final, his
profile reached a recent all-time high. There was an
increased streaming consumption of the Bon Jovi
songs as well as the four songs held by the Company
that he performed on the series including Go Your
Own Way and Smooth.
• Nicki Minaj interpolated our iconic Rick James song
Super Freak into Super Freaky Girl making it a Number
1 single in the US and Top 5 in the UK and around the
world, driving over 1 billion new streams across all
digital service. It also increased streaming consumption
on the original Super Freak and U Can’t Touch This
by MC Hammer which is another iconic Super Freak
interpolaton.
• Entering a direct licensing and administration
partnership for digital royalties of reverted catalogues
with Sacem, a world-leading Collection Management
Organisation. This is materially cutting collection
times, reducing collection costs and is delivering an
increase in revenues.
Artificial Intelligence
Recent developments in Artificial Intelligence (AI) tools
offer new opportunities which we are already looking
to use in support of our iconic Songs. The enduring
success of our Songs is down to the strong emotional
connection they have with millions of consumers all over
the world and they are therefore always in demand.
AI enables us and other creators to quickly and cost
effectively deliver new versions of these Songs, create
interpolations or otherwise introduce our music to new
audiences. Global copyright laws provide a significant
degree of protection for our Intellectual Property.
Nonetheless we are working with legislators who are
actively looking at how to fill any gaps which are created
by this new technology and we will support measures
which prevent AI from learning from in-copyright music
and recordings to the detriment of artists and Songwriters.
Our activities within the Songwriter community
Songs are the currency of the music business; without
the Song there simply is no music industry. Yet Songwriters
– who deliver the most important component to the
success of a record company, digital service provider,
music merchandiser or live promoter – are still the lowest
paid people in the economic equation.
We have always been clear that our motive is to
establish Songs as an asset class and to provide a
great return for our investors. Concurrently, our “ulterior”
motive has always been to use our success to help
take the Songwriter from the bottom to the top of the
economic equation. This is in complete alignment with
our Shareholders’ best interest.
Over the last five years we have made demonstrable
progress. We advocated for and welcomed the moves
STRATEGIC REPORT • INTRODUCTION FROM MERCK MERCURIADIS
6
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023
by the US Copyright Royalty Board (CRB) and the wider
music industry in the US to increase the rates paid to
Songwriters and publishers.
CRB III provided for a 44% increase in the headline
rate of Digital Service Providers (DSP) revenues paid to
Songwriters and Publishers in the US, reaching 15.1% in
2022. It was disappointing that some streaming services
appealed the original ruling, delaying much needed
payments to Songwriters, many of whom rely on royalty
payments for everyday living expenses. The appeal was
rejected during 2022 and the industry is now working to
ensure that the higher rate payments due for the CRB III
period reach rights holders. The Company has accrued
$21.7 million to account for the CRB III monies due to date.
We were pleased to support a joint industry proposal
for CRB IV which saw the proportion of DSP revenue
paid to Songwriters further rise, incrementally, to 15.35%
in 2027, while the royalty payable on a physical sale
or download is rising from 9.1 cents to 12 cents with
additional inflationary increases. Whilst there is still a long
way to go before Songwriters are fairly remunerated,
these are important steps in the right direction.
The joint CRB IV proposals, which have now been
confirmed, show there is increasing acceptance across
the music industry that Songwriters should be fairly
rewarded for their work. Whilst the increase is more
modest than the CRB III rises, we support it as it will provide
a background of stability at the highest streaming rates
ever paid in the context of which we can continue our
advocacy efforts for an even bigger share of the pie.
In the UK, the Competition and Markets Authority (CMA)
concluded their market study and recommended
that the Intellectual Property Office (IPO) take forward
a number of workstreams. After the year end, the
IPO announced an agreement on how the music
industry and the Government will work together to
deliver consistent high-quality metadata. We welcome
this first step, however, we believe that far greater
reform is needed and we continue to engage with
the relevant organisations to achieve this change. The
UK Government has also recently announced it has
accepted a recommendation from the Culture, Media
and Sport Select Committee (to whom Hipgnosis gave
evidence) to establish an industry working group to
explore issues around fair pay for creators in the music
streaming industry. Our ultimate goal is for Songwriters’
pay to be determined by the free market, not legislation.
We also supported BMI in its Live Concert rate victory,
which set a new rate 138% higher than the previous one,
reflecting the importance of Songs in the live concert
experience. As we’ve stated before, live concerts would
not exist without Songs.
Outlook
These results highlight the continuing validity of our
investment thesis. Our markets are buoyant and
continue to grow. Streaming, increasingly, provides
a utility-style income for holders of Song royalties
and the increasing demand for Song Catalogues
from Private Equity funds and the major record labels
demonstrates the attractiveness of this asset class.
Hipgnosis Songs Fund, with its portfolio of iconic,
culturally significant Songs, is uniquely placed to benefit
its Shareholders and deliver superior Shareholder
returns over the medium term and we are committed
to taking whatever action is necessary to deliver this.
With year-end results delivered, our focus is on re-rating
the shares, passing the Continuation Vote at the
forthcoming Annual General Meeting and delivering
a great 2024 and beyond.
I take my responsibility to our Shareholders very
seriously. From the 42 institutional investors that we
started with in 2018 to the many hundreds of institutional
and retail Shareholders we have today, I have always
stated that, while iconic Songs with high quality long
term cashflows provide great income for investors, the
real purpose of this Company is for our Shareholders
to be the beneficiaries of the substantial Net Asset
Value growth which we believe will come over the next
10 years as the market in which we operate in grows to
as many as 2 billion paid streaming subscribers around
the world, who will in turn increase the consumption of
our already extraordinarily successful Songs. I strongly
believe we are well on our way to achieving that.
Finally I would like to thank each and every one of
you who have supported us in establishing Songs
as an asset class as well as the great Songwriters
who have entrusted us with being custodians
of their special Songs and Catalogues.
Merck Mercuriadis
Founder, Hipgnosis Songs Fund Ltd and
Founder/CEO, Hipgnosis Song Management Ltd.
12 July 2023
STRATEGIC REPORT • INTRODUCTION FROM MERCK MERCURIADIS
STRATEGIC REPORT
7
1-800-273-8255
• Logic • Andrew Taggart
2002
• Anne-Marie • Benny Blanco, Nelly
A Thousand Years
• Christina Perri • Christina Perri
All I Want For Christmas Is You
• Mariah Carey • Walter Afanasieff
Blueberry Faygo
• Lil Mosey • Kenneth Edmonds
Break My Heart
• Dua Lipa • Stefan Johnson, Jordan Johnson
Californication
• Red Hot Chili Peppers • Red Hot Chili Peppers
Castle On The Hill
• Ed Sheeran • Benny Blanco
Chop Suey!
• System Of A Down • Andy Wallace
Classic
• MKTO • Evan Bogart, Emanuel Kiriakou
Closer (feat. Halsey)
*
• The Chainsmokers • The Chainsmokers,
Isaac Slade, Joe King
Cold Water (feat. Justin Bieber & MØ)
• Major Lazer • Benny Blanco, Jamie Scott
Come As You Are
• Nirvana • Andy Wallace
deja vu
• Olivia Rodrigo • Annie Clark
Despacito – Remix
• Luis Fonsi, Daddy Yankee, Justin Bieber
• Poo Bear
Don’t Let Me Down (feat. Daya)
• The Chainsmokers • Andrew Taggart,
Scott Harris
Don’t Stop Believin’
• Journey • Jonathan Cain, Neal Schon
Eastside (with Halsey & Khalid)
• Benny Blanco, Nathan (Happy) Perez
Feels (feat. Pharrell Williams, Katy Perry
& Big Sean)
• Calvin Harris • Starrah
Galway Girl
• Ed Sheeran • Johnny McDaid
Girls Like You (feat. Cardi B)
• Maroon 5 • Starrah
Grenade
• Bruno Mars • Ari Levine
Halo
• Beyoncé • Evan Bogart
Happier
• Ed Sheeran • Benny Blanco
Havana (feat. Young Thug)
• Camila Cabello • Andrew Watt, Starrah
Heat Waves
*
• Glass Animals • HSG Admin
Hey, Soul Sister
• Train • Espionage
High Hopes
• Panic! At The Disco • Sam Hollander
Hips Don’t Lie (feat. Wyclef Jean)
• Shakira, Wyclef Jean • Shakira
I Don’t Wanna Live Forever (50 Shades Darker)
• ZAYN, Taylor Swift • Jack Antonoff
I’m The One (feat. Justin Bieber, Quavo,
Chance the Rapper & Lil Wayne)
• DJ Khaled • Poo Bear
In da Club
• 50 Cent • 50 Cent
In the End
• Linkin Park • Andy Wallace
In The Name Of Love
• Martin Garrix, Bebe Rexha • Ilsey Juber
Issues
• Julia Michaels • Benny Blanco
It Ain’t Me (feat. Selena Gomez)
• Kygo • Andrew Watt
Just Give Me A Reason
• P!NK • Nate Ruess, Jeff Bhasker
Just The Way You Are
• Bruno Mars • Ari Levine
Lean On (feat. DJ Snake & MØ)
• Major Lazer, MØ, DJ Snake • Martin Bresso
Let It Go
• James Bay • Paul Barry
Let Me Go (with Alesso, Florida Georgia
Line & watt)
• Hailee Steinfeld • Andrew Watt
Let Me Love You (feat. Justin Bieber)
• DJ Snake • Andrew Watt
Livin’ On A Prayer
• Bon Jovi • Richie Sambora
Locked out of Heaven
• Bruno Mars • Ari Levine
Love Yourself
*
• Justin Bieber • Benny Blanco
Maps
• Maroon 5 • Ammar Malik
Me, Myself & I
• G-Eazy • TMS
Memories
• Maroon 5 • Stefan Johnson, Jordan Johnson,
Jon Bellion
Mercy
• Shawn Mendes • Teddy Geiger, Ilsey Juber
Moves Like Jagger
• Maroon 5, Christina Aguilera • Ammar Malik
Needed Me
• Rihanna • Starrah
New Rules
• Dua Lipa • Caroline Ailin, Ian Kirkpatrick
Nice For What
• Drake • Robert Diggs
no tears left to cry
• Ariana Grande • Savan Kotecha
Numb
• Linkin Park • Andy Wallace
One Last Time
• Ariana Grande • Giorgio Tuinfort
Paris
• The Chainsmokers • The Chainsmokers
Payphone
• Maroon 5 • Ammar Malik
Photograph
*
• Ed Sheeran • Johnny McDaid
Rockabye (feat. Sean Paul & Anne-Marie)
• Clean Bandit • Ammar Malik
Royals
• Lorde • Joel Little
Scared to Be Lonely
• Martin Garrix, Dua Lipa • Giorgio Tuinfort,
Kyle Shearer
Señorita
*
• Shawn Mendes, Camila Cabello
• Andrew Watt
Set Fire to the Rain
• Adele • Fraser T. Smith
Shallow
*
• Lady Gaga, Bradley Cooper • Mark Ronson
Shape Of You
**
• Ed Sheeran • Johnny McDaid
Sign Of The Times
• Harry Styles • Jeff Bhasker
Smells Like Teen Spirit
• Nirvana • Andy Wallace
Something Just Like This
*
• The Chainsmokers, Coldplay • Andrew Taggart
Sorry
• Justin Bieber • Julia Michaels, Skrillex
Stereo Hearts (feat. Adam Levine)
• Gym Class Heroes • Ammar Malik
Stitches
• Shawn Mendes • Teddy Geiger
Story of My Life
• One Direction • Julian Bunetta, Jamie Scott
Sugar
• Maroon 5 • Jacob Kasher Hindlin
Sugar (feat. Francesco Yates)
• Robin Schulz, Francesco Yates • Happy Perez
Swalla (feat. Nicki Minaj & Ty Dolla $ign)
• Jason Derulo • RZA/LunchMoney Lewis
Sweet Dreams (Are Made Of This)
• Eurythmics • David A. Stewart
Symphony (feat. Zara Larsson)
• Clean Bandit • Ammar Malik
Talking To The Moon
• Bruno Mars • Ari Levine, Jeff Bhasker
The Middle
• Zedd, Maren Morris, Grey • Stefan Johnson,
Jordan K. Johnson
There’s Nothing Holdin’ Me Back
• Shawn Mendes • Teddy Geiger, Scott Harris
These Days (feat. Jess Glynne, Macklemore
& Dan Caplen)
• Rudimental • Julian Bunetta, Jamie Scott
Titanium (feat. Sia)
• David Guetta, Sia • Giorgio Tuinfort
Treat You Better
• Shawn Mendes • Teddy Geiger, Scott Harris
Umbrella
• Rihanna, JAY-Z • Tricky Stewart, The-Dream
Under The Bridge
• Red Hot Chili Peppers • Red Hot Chili Peppers
Uptown Funk (feat. Bruno Mars)
• Mark Ronson • Mark Ronson, Jeff Bhasker
What Do You Mean?
• Justin Bieber • Poo Bear
What Lovers Do (feat. SZA)
• Maroon 5 • Starrah, Elina Stridh, Victor Rådström
Whatever It Takes
• Imagine Dragons • Joel Little
When I Was Your Man
• Bruno Mars • Ari Levine
Where Are Ü Now (with Justin Bieber)
• Jack Ü, Skrillex, Diplo, Justin Bieber • Skrillex,
Poo Bear
Wolves
• Selena Gomez, Marshmello • Andrew Watt
Yeah! (feat. Lil Jon & Ludacris)
• Usher • Sean Garrett
Young Dumb & Broke
• Khalid • Joel Little
Young, Wild & Free (feat. Bruno Mars)
• Snoop Dogg, Wiz Khalifa • Ari Levine
Youngblood
• 5SOS • Andrew Watt
Spotify’s Billions Club
Hipgnosis has 97 out of 419 Songs
that by June 2023 had surpassed the
Billion Streams mark on Spotify
Song Title • Artist(s) • Hipgnosis contributor(s)
>3 billion streams >2 billion streams. Source: Spotify, 27 June 2023
8
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023
Financial and Operational Highlights 1
Year ended 31 March 2023
As at 31 March 2023, the Company had raised a total of over £1.3 billion (gross equity
capital) through its Initial Public Offering on 11 July 2018, and subsequent placings
in April 2019, August 2019, September 2020, February 2021 and July 2021, as well as
C-Share raises in October 2019 (which converted in January 2020) and July 2020
(which converted in December 2020). Our Revolving Credit Facility stands at
$700 million, of which $600 million is drawn.
As at 31 March 2023, the Company had deployed approximately $2.2 billion in total
since IPO on 146 Catalogues and 65,413 Songs.
Total Assets
$2.12 billion
(31 March 2022: $2.21 billion)
IFRS NAV
2
$1.43 billion
(31 March 2022: $1.58 billion)
IFRS NAV per Ordinary Share
$1.1863
(31 March 2022: $1.3065)
Operative NAV
3
$2.32 billion
(31 March 2022: $2.24 billion)
Operative NAV per Ordinary Share ($)
$1.9153
(31 March 2022: $1.8491)
Operative NAV per Ordinary Share (p)
4
154.91p
(31 March 2022: 140.79p)
12-Month Total NAV Return
6.99%
(31 March 2022: 14.19%)
STRATEGIC REPORT
Total NAV Return since inception
5
69.01%
(31 March 2022: 59.05%)
1. A number of Alternative Performance Measures are used within the Report and
details can be found on page 163.
2. Catalogues of Songs are classified as intangible assets and measured
at amortised cost or cost less any impairment in accordance with IFRS.
3. 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 the Portfolio Independent Valuer.
4. Based on the Sterling to Dollar exchange rate at 31 March 2023 of 1.23645.
5. Since IPO on 11 July 2018. See page 163 for definition.
STRATEGIC REPORT
9
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023
Share Price Discount
6
47.7%
(31 March 2022: 14.2%)
Net Revenue
$147.2 million
(31 March 2022: $168.3 million)
Ongoing Charges figure (%)
7
1.21%
(31 March 2022: 1.54%)
Total dividends declared during the year (p)
5.25p
(31 March 2022: 5.25p)
EBITDA
7
$117.7 million
(31 March 2022: $130.9 million)
Leveraged Free Cash Flow
7
$81.9 million
(31 March 2022: $84.7 million)
EPS (cents)
(7.41)¢
(31 March 2022: (1.65)¢)
Adjusted EPS (cents)
7
4.12¢
(31 March 2022: 7.18¢)
6. Calculated using the middle market share price (SONG) of 81.00p on
31 March 2023 (31 March 2022: 120.80p).
7. The definition/calculation has been updated since the prior year.
Please see page 163 for details.
STRATEGIC REPORT • FINANCIAL AND OPERATIONAL HIGHLIGHTS
10
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023
Portfolio at a Glance
0
20
40
60
80
100
FY 23FY 22FY 21
Portfolio by age (%)
(based on fair value)
 0-3 years
 3-10 years
 10+ years
Portfolio PFAR* income
by source (%)
 Masters
 Other
 Digital
Downloads
 Mechanical
 Performance
 Synchronisation
 Streaming
* Pro Forma Annual Revenue (PFAR)
– see Glossary page 171
† For the 12 months to
0
20
40
60
80
100
H1FY
Dec 22Jun 22Dec 21
†
Jun 21
 Soul
 Hip-Hop
 Christian
 Disco
 Country
 Latin
 Dance
 R&B
 Pop
 Rock
0
20
40
60
80
100
Portfolio by genre (%)
(based on fair value)
FY 23FY 22FY 21
Catalogues
146
Operative NAV
$2.32bn
+3.41%
+
/- Change in portfolio since 31 March 2022
Songs
65,413
Net Revenue
$147. 2m
-12.5%
Grammys
163
+7
Weighted Average
Acquisition Multiple
15.93x
STRATEGIC REPORT
Andrew Sutch, Chair
STRATEGIC REPORT
11
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023
The Chair’s Statement
I am pleased to present the
Company’s Annual Report
and Accounts covering the
12 months ended 31 March
2023.
It is now five years since
your Company was
launched in July 2018 and
its shares were listed on the
London Stock Exchange. We are proud to have been
a FTSE 250 company since March 2020. Our objective
at launch was to create a Company which provided
investors with exposure to Songs and associated
intellectual property rights. We believed then, and have
demonstrated since, that music royalties provide long-
term, stable income streams. Equally importantly, when
the Company was launched, we believed that these
long-term revenue streams were at an inflection point
and would increase significantly as a result of the strong
growth expected in paid for music streaming. Since IPO,
this growth has seen music industry revenues return to
levels not seen in 20 years and we and our Investment
Adviser fully expect that this growth will continue for the
foreseeable future.
The Company’s first five years have not been without their
challenges: the lockdowns put in place by Governments
around the world to combat the spread of Covid-19
had a material impact as clubs, gyms, restaurants and
shopping centres were forced to close and touring
stopped, leading to a decline in performance royalty
revenues. Due to the time lag inherent in publishing
industry payments, it is only now that the Company is
experiencing these revenue streams recovering.
Equally, the increase in global interest rates over the last
24 months, as central banks seek to control inflation,
caused in large part by Covid-19 and the energy crisis
attributable to the war in Ukraine, has been a challenge
both directly and indirectly. Directly, the increase in the
cost of the Company’s debt has had to be managed
and last year the Company refinanced its Revolving
Credit Facility (RCF). Indirectly, increased yields on
government securities have provided income-focused
investors opportunities to invest risk free at yields
approaching the yield on the Net Asset Value of the
Company’s shares. Whilst government securities may
currently provide a similar current income yield, they
do not offer the opportunity for the significant capital
growth that we believe your Company will also provide.
Furthermore, the underlying strength of the business
model has enabled the Board to maintain its target
annual dividend at 5.25p per Ordinary Share.
While these results published demonstrate the strength
of the Company’s business, the Board shares your
disappointment that the Company’s share price is
substantially below its Operative Net Asset Value,
particularly given the quality of the Company’s assets
and the ability of the Investment Adviser to drive
additional value through active Song Management.
Although the majority of London listed investment trusts
are currently trading at a discount, we recognise that
this is of no comfort to our Shareholders. Therefore,
following a consultation, with many of our larger
Shareholders, the Board has been working with the
Investment Adviser on a number of options to enhance
Shareholder value.
The ultimate decision on which options will be
progressed, if any, will be taken in consultation with our
Shareholders. We look forward to updating you further
in due course, and well in advance of the Company’s
AGM this September at which the Company will
table its scheduled five-year Continuation Vote.
The Company has always believed, as reflected
in its Investment Policy, that the best way to
maximise Shareholder value has been to buy
and hold great assets, to enable Shareholders to
benefit from the income and capital growth that
we expect these assets to deliver over time.
Given the options the Board is considering, the current
share price and the upcoming Continuation Vote, the
Board is publishing an estimate of the potential tax
charge, based on certain assumptions, in the event that
a sale of all assets should occur. Full details are provided
in Note 12 to the financial statements.
Despite the disappointing share price performance
over the last year the Board continues to be confident
in our core investment case: the continuing long-term
growth of revenue in the music industry and the ability
of the Investment Adviser to drive additional value
through active Song Management of our incredible
portfolio of iconic Songs.
STRATEGIC REPORT
12
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023
STRATEGIC REPORT • THE CHAIR’S STATEMENT
We continue to be confident that your Company will
provide superior returns over the medium term and we
encourage all Shareholders to support the continuation
of the Company.
Performance
The background to the performance of your Company
over the course of the financial year is discussed in
detail in our Investment Adviser’s Report from page 17.
The IFRS Net Asset Value (NAV) per share as at 31 March
2023 was $1.1863 which is a 9.2% decrease from
$1.3065 as at 31 March 2022, largely reflecting the
amortisation of the Company’s Catalogues in
accordance with applicable accounting protocols and
ignoring their current fair value.
The Board considers that the most relevant financial
indicator for Shareholders is the Operative NAV, which
reflects the Fair Value of the Company’s Catalogues as
valued by the Portfolio Independent Valuer and adds
back the amortisation charge applicable under IFRS.
The Operative NAV per share increased by 3.6% to $1.9153
during the year (31 March 2022: $1.8491). This, together
with total dividends, of 21.6p (27.9¢), takes Total $ NAV
Return to Shareholders since the IPO on 11 July 2018 to
69.01%.
Based on the Sterling to US Dollar exchange rate on
31 March 2023 of 1.236, the Operative NAV presented
in Sterling would be 154.91p per share (31 March 2022:
140.79p based on Sterling to US Dollar exchange rate
of 1.3134).
As a result of the strong performance of certain
Catalogues, a Catalogue bonus provision was
recognised. This is based on actual and expected future
Catalogue performance that is highly probable. Whilst
these liabilities are recognised in the current year, the
Company doesn’t anticipate that these liabilities will be
incurred at a material level in future years.
Our approach to valuation
Although the Board is ultimately and solely responsible
for overseeing the valuation of the Company’s
investments in music Catalogues it has appointed
the Portfolio Independent Valuer to perform this
specialist work.
The Fair Value of the Portfolio increased by 4.0% to
$2.80 billion (31 March 2022: $2.69 billion), mainly as
a result of royalty statements received exceeding
expectations, especially those related to performance
income and streaming income from older vintage
catalogues. This also drove the increase in the Operative
NAV in Dollar terms over the period. Further details on the
valuation methodology and assumptions applied by the
Portfolio Independent Valuer are set out on pages 35-36.
The Board recognises that there are a range of views on
the assumptions that could be applied in the valuation
of the Company’s investment portfolio.
In advance of the last Interim Report published in
December 2022, the Board appointed Kroll Advisory
Limited (“Kroll”), an independent valuation firm, to
consider and advise on the reasonableness of certain
assumptions commonly employed in the valuation
of music catalogues based on data provided by the
Company.
Following year end, in addition to considering the
discount rate and growth assumptions applied by the
Company’s peers as well as observing transaction
comparables, the Board has continued its engagement
of Kroll solely in connection with the ongoing review of
the assumptions used in and calculation of a discount
rate applied in the valuation of the investment portfolio.
We note that Kroll did not review or opine on the
projected cash flows or on a valuation conclusion using
their determined discount rate.
Different valuation practitioners use differing
methodologies, approaches and assumptions to
calculate their discount rates. In particular, valuation
practitioners may select different input assumptions
based on their professional judgement, including,
but not limited to the appropriate set of peer groups,
the length of calculation period for market data
when estimating the equity risk premium, the beta
and the risk-free rate. As a result, there may be
variation amongst valuers, providing the Board with
complementary insights.
The period since 30 September 2022 has seen significant
volatility, as global investors grappled with the impact
of inflationary pressures and the continued hike of
policy interest rates by major central banks. The resulting
equity market uncertainty contributed to a higher
equity risk premium and an increase in the Company’s
STRATEGIC REPORT
13
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023
shares’ correlation to market indices. Meanwhile,
risk-free rate inputs, particularly 10- and 20-year US
Treasury yields, experienced significant volatility during
this period, initially rising and then declining to levels
somewhat lower than in September 2022.
The Board notes that for the period ending 30 September
2022, the discount rate of 8.5% applied by the Portfolio
Independent Valuer was within the range identified by
Kroll at the interim results. For the most recent period
ending 31 March 2023, whilst the Portfolio Independent
Valuer maintained its discount rate of 8.5%, the Kroll
calculation reflected a 50 basis points increase in the
Equity risk premium applied to 6.0% and an increase in
the relative volatility of share prices in the Company’s
music peer group relative to the overall market.
The Board has continued to engage Kroll subsequent to
the year end and note that Kroll has since (as of the end
of June 2023) lowered its Equity risk premium assumption
to the previous level of 5.5%, although their view still
remains slightly higher than the Citrin Cooperman rate.
The Board will continue to keep all assumptions in
its valuation methodology under review. Having
considered all the available information, the Board
believes that the assumptions applied by the Portfolio
Independent Valuer remain appropriate and that this
represents a reasonable assessment as to the value of
the Portfolio.
Revenue
IFRS Net Revenue, which is based on the Group’s
accounting policies (including accruals), was $147.2 million
and decreased from $168.3 million due to a number of
non-recurring elements identified and called out in the
prior and current period. These include non-recurring
Right to Income (RTI), the initial recognition of the
Usage Accrual and the impact of the retroactive CRB
III revenue due. When excluding the impact of these
adjustments, it grew by 10.9% year-on-year.
However, our Pro Forma Annual Revenue (PFAR),
a like-for-like revenue analysis per calendar year, based
primarily on royalty statements, grew 12.1% in 2022 to
$130.2 million (2021: $116.2 million). This reflects strong
growth in Streaming (+14.8% year-on-year) and Synch
(+24.7% year-on-year) income as well as a recovery from
the impact of Covid-19 lock-down in Performance (+9%
year-on-year) income. The Financial Review provides
details of all these movements on page 34.
Revolving Credit Facility
On 30 September 2022, the Company entered into a new
Revolving Credit Facility (RCF) which runs for five years until
30 September 2027, with a commitment of $700 million.
The facility was used to refinance, in full, the Company’s
pre-existing RCF and provide flexibility for additional
working capital where necessary. In accordance with
the Investment Policy, any borrowings by the Company
will not exceed 30% of the value of the net assets of
the Company. As at 31 March 2023, the Company had
$600 million drawn down under the RCF. Net debt as
a percentage of Operative NAV decreased to 24.3%
(31 March 2022: 25.4%).
The Board’s objectives in the refinancing were to
reduce interest rate risk and control variable costs. To
deliver on these objectives, the Company also entered
into interest rate swap agreements. As a result, until
2 January 2023, interest on all the drawn debt was fixed
at 5.71% (including debt margin). Since 3 January 2023,
$340 million has been hedged for the duration of the
RCF (until 30 September 2027) at a fixed rate of 5.67%
(including debt margin); a further $200 million is hedged
until 3 January 2026 at a fixed rate of 5.89% (including
debt margin). The balance remains unhedged to
provide flexibility in the operation of the RCF.
Share buybacks
The Board considers that it is not in Shareholders’ interests
for the Ordinary Shares of the Company to trade at
a significant discount to the prevailing NAV in normal
market conditions. The Board considers that normal
market conditions have not prevailed in the last few years.
Discounts of investment trusts, particularly those investing in
illiquid assets, have generally widened over the last year.
The Board believes that the most effective means
of minimising any discount at which the Ordinary
Shares may trade is for the Company to deliver strong,
consistent, long-term performance from the investment
Portfolio. However, wider market conditions and other
considerations inevitably affect the rating of the
Ordinary Shares from time to time.
In determining whether a share purchase would enhance
shareholder value, the Board will take into account market
conditions, the Company’s performance, any known
third-party investors or sellers, the impact on liquidity and
total expense ratios and of course the level of discount
to net asset value at which the shares are trading.
Any purchases will only be made at prices below the
STRATEGIC REPORT • THE CHAIR’S STATEMENT
14
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023
prevailing net asset value and where the Board believes
that such purchases will enhance shareholder value.
On 14 October 2022, the Board announced a share
buyback programme funded out of free cash flow.
During the financial year under review, a total of 2 million
Shares were purchased into treasury with an aggregate
value of £1.7 million. Ordinary Shares held in treasury may
only be reissued by the Company at prices representing
a premium to NAV per Ordinary Share as at the date of
re-issue.
The Board recognises its modest buyback activities to
date showed intent rather than having a material impact
on the share price discount. We expect more material
share buybacks may play an important part of the
Company’s strategy as we move forward.
Dividends
As set out in last year’s annual report, dividend payment
dates have been adjusted so that payments are made
on or around the last working day of January, April,
July and October, in order to better align dividend
payments with revenue receipts. Dividends will be
declared ex dividend in the month prior to payment
wherever practicable.
Dividends paid in the year of $56.3 million were covered
1.44x by Distributable Revenues recognised during
the year. Dividends declared in the year amount to
$75.9 million, which were covered 1.07x by Distributable
Revenues recognised during the year.
In addition, the Company was covered 1.45x on a
Leveraged Free Cashflow basis, demonstrating the
funds necessary to meet those dividend payments
paid in the year, and 1.08x on a Levered Free Cashflow
necessary to meet those dividends declared in the year.
On 12 October 2022, the Company entered into a
series of US Dollar to Sterling foreign exchange forward
contracts in order to limit its exposure to foreign
exchange rate risk and to provide certainty on the
US Dollar value of future Sterling dividend payments.
This passive rolling hedging strategy ensures that there
are £50 million of forward contracts in place at any
time, broadly equivalent to the Company’s quarterly
Sterling dividend obligation. The foreign exchange
forward contracts were initially in place until April 2024
and have, subsequent to the year end, been rolled
forward to October 2024.
The Board
Following the year end, Vania Schlogel stepped down
as a Non-executive Director on 30 April 2023 in order to
focus on her executive role at Atwater Capital, which
she founded in 2017 and which has recently demanded
a significant increase in her commitment. I thank Vania
for her work and contribution to the Company while she
was a Director.
We have recently announced the appointment of an
additional director, Cindy Rampersaud, with effect from
1 August 2023, and are delighted to welcome Cindy
to the Board. Further information about Cindy and our
recruitment process are set out in the Report of the
Nomination Committee on page 88.
I would like to thank my fellow Directors for their diligence
and dedication on your behalf over the last year. With
the exception of Vania, all Directors who have held office
throughout the financial year are offering themselves for
re-election at the forthcoming Annual General Meeting.
Additionally, I extend my thanks to Merck Mercuriadis and
the team that works with him at our Investment Adviser.
Over the last five years I have seen a transformation in the
sophistication of their operations, but one thing which has
never changed is Merck’s passion, and his team’s hard
work, to deliver value for the Company’s Shareholders. This
has been particularly demonstrated over the last 12 months
where they have continued to invest and improve their
capabilities and the service they provide your Company.
STRATEGIC REPORT • THE CHAIR’S STATEMENT
Hipgnosis owns 13 of the top 30 from YouTube’s
Most Viewed Music Videos of All Time
2
Shape of You
• Ed Sheeran • Johnny McDaid
19
Lean On (feat. MØ & DJ Snake)
• Major Laser, MØ, DJ Snake • Martin Bresso
4
Uptown Funk (feat. Bruno Mars)
• Mark Ronson • Mark Ronson, Jeff Bhasker
20
Bailando (feat. Descemer Bueno, Gente De Zona)
• Enrique Inglesias • Enrique Inglesias
8
Sugar
• Maroon 5 • Jacob Kasher Hindlin
22
Mi Gente
• J Balvin, Willy William • The-Dream
9
Roar
• Katy Perry • Bonnie McKee
28
Baby (feat. Ludacris)
• Justin Bieber • The-Dream, Tricky Stewart
11
Sorry
• Justin Bieber • Skrillex
29
New Rules
• Dua Lipa • Caroline Ailin
13
Waka Waka (This Time for Africa)(The Official 2010
FIFA World Cup
TM
Song)
• Shakira • Shakira
30
Chantaje (feat. Maluma)
• Shakira • Shakira
18
Girls Like You (feat. Cardi B)
• Maroon 5 • Starrah
Song Title • Artist(s) • Hipgnosis contributor(s)
Source: YouTube, 22 June 2023
STRATEGIC REPORT
15
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023
Annual General Meeting
The Company’s Annual General Meeting will be held
before the end of September. Notice of the Annual
General Meeting, containing full details of the business
to be conducted at the meeting, will be published to
Shareholders in due course.
Outlook
Despite the inflationary pressures in the global economy
and the accompanying interest rate rises, consumers
continue to enjoy and, crucially, spend money on music.
Performance revenues, which were severely impacted
by Covid-19 lockdown measures, are returning.
Ongoing growth in paid-for music streaming supports
our belief that this form of entertainment is increasingly
seen as a utility purchase, recognising the exceptional
value for money music streaming services provide their
customers.
Regulatory changes in the US, with the Copyright
Royalty Board affirming their CRB III ruling and an
agreement across the industry on further increases for
the CRB IV period, help to support revenue growth.
Active Song Management, demonstrable by the
Investment Adviser, creates additional value from your
Portfolio of iconic, culturally significant Songs.
As a result, the Board is confident that your Company
will deliver superior returns over the medium term.
The Board continues to engage with Shareholders
and is working hard to demonstrate the value of the
Company’s assets and enhance Shareholder value.
Andrew Sutch Chair
12 July 2023
STRATEGIC REPORT • THE CHAIR’S STATEMENT
16
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023
Hipgnosis has 52 of Rolling Stone’s The 500 Greatest Songs of All Time
5
Smells Like Teen Spirit
• Nirvana • Andy Wallace
228
Single Ladies (Put a Ring on It)
• Beyoncé • The-Dream,
Tricky Stewart
390
Enter Sandman
• Metallica • Bob Rock
8
Get Ur Freak On
• Missy Elliot • Timbaland
238
Are You That Somebody?
• Aaliyah • Timbaland
394
Grace
• Jeff Buckley • Andy Wallace
25
Runaway
• Kanye West feat. Pusha T
• Jeff Bhasker, Emile Haynie, Pusha T
259
Heart Of Gold
• Neil Young • Neil Young
401
Go Your Own Way
• Fleetwood Mac
• Lindsey Buckingham
30
Royals
• Lorde • Joel Little
274
Love And Happiness
• Al Green • Al Jackson Jr.
414
Dreaming
• Blondie • Debbie Harry, Chris Stein
38
(Sittin’ On) The Dock of the Bay
• Otis Redding • Al Jackson Jr
281
Grindin’
• Clipse • Pusha T
417
Uptown Funk
(feat. Bruno Mars)
• Mark Ronson • Mark Ronson
56
Work It
• Missy Elliot • Timbaland
285
Say My Name
• Destiny’s Child • Rodney Jerkins
418
Green Onions
• Booker T and the MGs
• Al Jackson Jr
68
Good Times
• CHIC • Bernard Edwards,
Nile Rodgers
290
Yeah! (feat. Lil John & Ludacris)
• Usher, Lil Jon, Ludacris • Sean
Garrett
427
Rapper’s Delight
• The Sugarhill Gang
• Bernard Edwards, Nile Rodgers
79
Back To Black
• Amy Winehouse
• Mark Ronson
300
Rock Lobster
• The B-52’s • The B-52’s
428
Sign Of The Times
• Harry Styles • Jeff Bhasker
84
Let’s Stay Together
• Al Green • Al Jackson Jr
309
Ain’t No Sunshine
• Bill Withers • Al Jackson Jr
444
In Da Club
• 50 Cent • Curtis Jackson
107
C.R.E.A.M.
• Wu Tang Clan • RZA
322
After The Gold Rush
• Neil Young • Neil Young
450
Powderfinger
• Neil Young • Neil Young
114
Toxic
• Britney Spears • Christian Karlsson
328
Under The Bridge
• Red Hot Chili Peppers
• Red Hot Chili Peppers
453
The Rain (Supa Dupa Fly)
• Missy Elliot • Timbaland
127
Waterfalls
• TLC • Sleepy Brown
332
Umbrella (feat. Jay-Z)
• Rihanna • The-Dream,
Tricky Stewart
456
Summertime Sadness
• Lana Del Ray • Emile Haynie
133
Don’t Stop Believin’
• Journey • Jonathan Cain, Neal
Shon
337
Believe
• Cher • Paul Barry, Brian Higgins
457
Livin’ On A Prayer
• Bon Jovi • Richie Sambora
136
Try a Little Tenderness
• Otis Redding • Al Jackson Jr
353
Sweet Dreams (Are Made Of This)
• Eurythmics • David A. Stewart
467
Come As You Are
• Nirvana • Andy Wallace
138
Heart Of Glass
• Blondie • Debbie Harry, Chris Stein
358
Because The Night
• Patti Smith • Jimmy Iovine
482
Bad Romance
• Lady Gaga • RedOne
153
Super Freak
• Rick James • Rick James
368
Black Hole Sun
• Soundgarden • Chris Cornell
497
Truth Hurts
• Lizzo • HSG Admin
167
Lose Yourself
• Eminem • Jimmy Iovine
385
I’m Coming Out
• Diana Ross • Bernard Edwards, Nile
Rodgers
217
Edge Of Seventeen
• Stevie Nicks • Jimmy Iovine
389
Brass In Pocket
• Pretenders • Chrissie Hynde
Song Title • Artist(s) • Hipgnosis contributor(s)
Source: Rolling Stone, Sep 2021
Merck Mercuriadis, Founder
STRATEGIC REPORT
17
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023
Investment Adviser’s Report
It is now five years since
Hipgnosis Songs Fund was
launched in July 2018 and
its shares were listed on the
London Stock Exchange,
before graduating to
the FTSE 250 in March
2020. Our objective was
to provide investors with
exposure to iconic Songs.
In that time we have demonstrated that music royalties
provide long term cashflows that benefit from the ever
growing consumption of music which has become more
convenient in the streaming paradigm. The growth of
streaming has seen music revenues return to historic
highs after the decade and a half of technological
disruption and as with the last 8 years we expect that this
growth will continue for many years to come.
Our investment case for the Company is anchored
in the belief that long-term, predictable and reliable
income streams delivered by our high-quality portfolio
of Songs, underpinned by the wider growth in global
music consumption and by boosting income and
realising additional value as a result of our active Song
Management activities.
The Company owns a portfolio of iconic and culturally
important Songs. The strength of the portfolio is
demonstrated by the year-on-year increase in the
Operative NAV per share, up 3.6% to $1.9153 (31 March
2022: $1.8491). This increase is primarily due to a 4.0%
increase in the Fair Value of the Portfolio as our carefully
selected Songs outperform the expectations of the Portfolio
Independent Valuer. In Sterling terms, this equates to
154.91p per share (GBP: USD exchange rate 1.236).
IFRS Net Revenue, which is based on the Group’s
accounting policies (including accruals), was $147.2 million
and decreased from $168.3 million due to a number
of non-recurring elements identified and called out
in the prior and current period. These include non-
recurring Right to Income (RTI), the initial recognition of
the Usage Accrual and the impact of the retroactive
CRB III revenue due. When excluding the impact of
these adjustments, it grew by 10.9% year-on-year.
The Financial Review provides full details of all these
adjustments on page 34.
Given the multiple non-recurring elements captured
with the IFRS revenue line and the application of
accruals for revenue required under IFRS, we also
provide PFAR, a like-for-like revenue analysis per
calendar year, which is based primarily on royalties
received (i.e. reflecting royalties collected).
In 2022, PFAR grew by 12.1% year-on-year, to $130.2 million
(2021: $116.2 million). This growth is despite strong currency
headwinds as a result of the strength of the US Dollar
impacting the value of non-US Dollar denominated
source income. Although the Company receives 85% of
its revenues in US Dollars, the original source for around
half of revenues is non-US-Dollar denominated. Since
third parties in the collection chain are converting
currency, a precise constant currency calculation is not
possible. However, based on average FX movements
of the US Dollar in the year against Sterling, Euro and
Yen, we estimate that the impact of the strong Dollar in
2022 was the equivalent of approximately 6 percentage
points of increased differential compared to 2021,
further emphasising the strong underlying growth.
Music demonstrates continued growth
Despite the macroeconomic slowdown caused by
Covid-19, the war in Ukraine and central banks efforts
to deal with inflation, the music industry continues
to demonstrate its resilience. In particular, streaming
remains a highly attractive consumer proposition.
In their first quarter 2023 results, published in April, Spotify
reported 14% year-on-year revenue growth and 15%
annual increase in Premium subscribers. As we have
previously noted, music streaming services probably offer
the best value entertainment product available, therefore
we are not surprised by its resilience. During the year,
we saw the first increase in premium streaming prices for
a number of streaming services including Apple Music,
Amazon Music, Deezer and Tidal moving beyond the
£/$/€ 9.99 per month price point for an individual plan.
Despite these price rises, they are still seeing subscriber
growth and it is expected Spotify and other streaming
platforms will follow suit.
Due in part to our advocacy on behalf of Songwriters
and Artists, the major record labels are increasingly
recognising the value of the content that they allow
streaming platforms to use. Rightsholders and DSPs are
questioning the current streaming business model, which
pays the same per stream for high-quality songs as is paid
for unknown songs. Additionally, there is an increased
focus on solving the problem of digital trappers, stream
farms & bots, which are believed to be distorting the
STRATEGIC REPORT
18
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023
distribution of streaming revenues. Given the quality of
the Company’s Catalogue, we are confident that the
Company’s Shareholders will eventually further benefit from
improvements in the economic equation for Songwriters.
Welcome return of Performance Revenues
The lockdowns to combat the Covid-19 pandemic
forced the closure of shops, bars, gyms and many
other venues where music was played. Additionally,
it resulted in a hiatus for touring. For the music industry,
the combined impact was seen in a marked decline
in Performance income.
The inherent lags in payments, as they migrate through
the revenue collection system alongside the fact that
the summer concert seasons in 2020 and 2021 were
curtailed or cancelled resulted in a slow recovery
in performance income.
In 2022, the PFAR Performance income increased by
41% in the second half of the year. The summer of 2022
saw successful tours by Blondie, Red Hot Chili Peppers,
Lindsey Buckingham, Nile Rodgers & CHIC, Journey and
many others. Live Nation Entertainment, the leading live
entertainment company, reported record attendance
at events in 2022 – with concert attendances up 24%
versus 2019 (pre-pandemic). Encouragingly, they
reported in May 2023 that, for the first time in three
years, all their markets are open and they were seeing
further record levels of activity in their concerts business.
We successfully trialled fast track collections services for
both the Blondie and Red Hot Chili Peppers tours. The
objective was to cut out middlemen, reduce costs and
accelerate payments. As a result, increased income was
received from both tours and paid through faster than
normal. On one tour, in just one country, the Company
saved around $100,000 in costs. Whilst this is unlikely to be
replicated in all territories, it demonstrates the value that
can be created by this proactive approach.
Strong industry performance is already being seen by the
major music publishers, with Universal Music Publishing
reporting a 13.3% year-on-year growth in publishing
revenues for the three months ended 31 March 2023
and Warner Chappell Music reporting a 11.7% year-on-
year growth for the three months ended 31 March 2023.
These administrators sit ahead of the Company in the
payment chain and thus together these indicators give
us confidence of further publishing revenue growth in the
coming years.
We continue to see a buoyant live performance market
as highlighted by sellout summer tours from Beyoncé,
Taylor Swift, Red Hot Chili Peppers, Blink-182, Neil Young,
Nile Rodgers & CHIC, Blondie, The Pretenders and many
others all performing songs from our portfolio.
Impact of Artificial Intelligence
Over the centuries music has adapted to and benefitted
from many developments in technology. In the 20
th
century
distribution moved from sheet music to recorded music,
physically distributed via vinyl or CDs, to any Songs
being available at the touch of a button via streaming;
production of music has gone from hand crafted whistles
to electronic instruments recorded in 48-track studios
to being able to produce global hit songs entirely on
a laptop. Some of these technological changes have
challenged the industry – illegal downloads being the
most existential. We expect Artificial Intelligence (AI) will
have both benefits and drawbacks for the songwriting
community in the 21
st
century.
Specifically, we anticipate that AI will provide
competition for new songs and artists. However, AI
cannot replace the excitement of attending a stadium
concert with a star artist. More importantly, given the
Company’s iconic and culturally significant portfolio,
AI will never replace the emotional connection that
consumers all over the globe have to our Songs. These
Songs are part of the fabric of our lives and part of the
fabric of our society. They will be passed down, as is
already the case, for generations to come.
We expect AI to both interpolate and sample our iconic
Songs and generate new versions of these Songs that
will create new IP and additional revenues streams for
the Company. These revenue streams are expected to
be protected by existing copyright legislation around
the world. If necessary, we will advocate for additional
regulations and protections. As such we look forward
to having a constructive relationship with AI music
developers and sharing in the benefits of another new
technology.
The Company’s Portfolio
The Portfolio as at 31 March 2023 comprised of
146 Catalogues containing the rights to 65,413 Songs.
The overall Fair Value of the Portfolio, as determined by
the Portfolio Independent Valuer, increased by 4.0%
to $2.80 billion (31 March 2022: $2.69 billion), mainly
as a result of royalty statements received exceeding
expectations, especially performance income and
streaming income from older vintage catalogues.
STRATEGIC REPORT • INVESTMENT ADVISER’S REPORT
STRATEGIC REPORT
19
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023
This valuation reflects a multiple of 20.89x historical
annual net Publisher Share income, compared to the
blended acquisition multiple of 15.93x.
The Company’s Portfolio of Songs is, we believe,
unrivalled in its concentration of quality, as
demonstrated by Songs in the Portfolio being:
• 97 of 419 of Spotify’s Billions Club – Songs which have
been played more than a billion times on the service;
• Over 10% of Rolling Stone’s The 500 Greatest Songs
of All Time (52/500);
• Almost half of YouTube’s Most Viewed Music Videos
of all time (13/30); and
• Songs on 16 out of the Top 40 UK best selling albums
of the first six months of 2023.
STRATEGIC REPORT • INVESTMENT ADVISER’S REPORT
Songs performed by globally successful and culturally important artists include:
2 Pac, 5 Seconds of Summer, 10cc, 21 Savage, 50 Cent, 10,000 Maniacs, A$AP Rocky, AC/DC, Adele,
Al Green, Alan Jackson, Alicia Keys, Aluna George, Amy Winehouse, Andrea Bocelli, Anitta, Anthony
Hamilton, Ariana Grande, Aretha Franklin, AudioSlave, Avicii, B-52s, Baby Bash, Backstreet Boys,
Barbra Streisand, Barry Manilow, Bebe Rexha, Benny Blanco, Beyoncé, Biffy Clyro, Big & Rich,
Big Freedia, Birdy, Blind Faith, Blink 182, Blondie, Bon Jovi, Booker T & The MG’s, Boyz II Men,
Britney Spears, Bruce Springsteen, Bruno Mars, Bryan Adams, Camila Cabello, Carly Simon,
Celine Dion, Charli XCX, Cher, CHIC, Chris Brown, Christina Perri, Christopher Cross, Clipse,
Damian Marley, Dave Matthews Band, David Gray, David Guetta, Demi Lovato,
Destiny’s Child, Diana Ross, Dierks Bentley, Dionne Warwick, Diplo, Dire Straits,
DJ Snake, Dua Lipa, Duran Duran, Dusty Springfield, Ed Sheeran, Ellie Goulding, Eminem,
Enrique Iglesias, Erica Banks, Eric Prydz, Ernestine Anderson, Eurythmics, Fantasia, FKA Twigs,
Fleetwood Mac, Florence And The Machine, Flo-Rida, Florida Georgia Line, fun., Galantis,
George Benson, George Thorogood, Gladys Knight, Hailee Steinfeld, Halsey, Harry Styles, Iggy Azalea,
Imagine Dragons, James Bay, James Morrison, Jason Aldean, Jason Derulo, Jay Z, Jennifer Hudson,
Jeff Buckley, Jennifer Lopez, Jess Glynne, Jimmy Buffett, Jodie Harsh, John Legend, John Newman,
Josh Groban, Journey, Juicy J, Justin Bieber, Justin Timberlake, Kaiser Chiefs, Kali Uchis, Kanye West,
Katy Perry, Keith Urban, Kelis, Kelly Clarkson, Kelly Rowland, Khalid, Killswitch Engage,
Kylie Minogue, Lady Gaga, Lana Del Rey, Lara Fabian, Lauv, LeAnn Rimes, Leo Sayer,
Lindsey Buckingham, Linkin Park, Lionel Richie, Little Mix, Lizzo, Lorde, LunchMoney Lewis, M.I.A.,
Madonna, Marc Anthony, Maren Morris, Mariah Carey, Mark Ronson, Maroon 5, Mary J Blige,
Machine Gun Kelly, Massive Attack, Matchbox Twenty, Matt & Kim, MC Hammer, Meatloaf, Meek
Mill, Meghan Trainor, Melissa Manchester, Metallica, Metro Boomin’, MF Doom, Michael Bolton,
Michael Bublé, Michael Jackson, Mick Jagger, Miguel, Miike Snow, Miley Cyrus, Molly Sanden,
Moses Sumney, Mötley Crüe, My Marianne, Natalie Merchant, Nelly, Neil Young, New Kids
On The Block, Nicki Minaj, Nirvana, No Doubt, Ólafur Arnalds, Olivia Rodrigo, One Direction, P!nk,
Paloma Faith, Panic! At The Disco, Papa Roach, Paris Boy, Patti Smith, Paul Anka, Paul McCartney,
Pearl Jam, Pell, Perfume Genius, Phoebe Bridgers, Pitbull, Pop Smoke, Post Malone, Puff Daddy, Pusha T,
Rage Against The Machine, Rebecca Ferguson, Rejjie Snow, Rick James, Rick Ross, Ricky Martin, Rihanna,
Rita Ora, Robbie Williams, Rod Stewart, Rudimental, RZA, Santana, Santigold, Sawyer Brown, Seal,
Selena Gomez, Shakira, Shawn Mendes, Sia, Sigala, Sigma, Silk City, Simple Minds, Sinead O’Connor,
Sister Sledge, Skrillex, Sky Ferreira, Solange, Soundgarden, Spencer Davis Group, Spice Girls,
Steve Aoki, Steve Winwood, Stevie Nicks, Stormzy, Sugarhill Gang, Sum 41, Super Furry Animals,
Swedish House Mafia, SZA, T.I., Taio Cruz, Take That, Taylor Swift, Tchami, Teddy Bears, Teenage Fanclub,
The Chainsmokers, The Editors, The Outfield, The Pretenders, The Wombats, Third Day, Tiesto, Tim McGraw,
Timbaland, Tina Arena, Tinie Tempah, TLC, Toby Keith, Tom Jones, Tom Petty & The Heartbreakers,
The Kid Laroi, The Mindbenders, The Vamps, Theophilus London, Tom Walker, Toto, T-Pain, Tracey
Chapman, Traffic, Train, Trey Songz, Trivium, Troye Sivan, TV On The Radio, Ty Dolla $ign, U2, Usher,
Waka Flocka Flame, Weezer, Westlife, Whitney Houston, Will Ferrell, Wu-Tang Clan, Young The Giant,
Zara Larsson and Zedd.
20
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023
Portfolio as at 31 March 2023
STRATEGIC REPORT • INVESTMENT ADVISER’S REPORT
Catalogue
Acquisition
Date
Total
Songs
The-Dream 13 Jul 2018 302
Poo Bear 21 Nov 2018 214
Bernard Edwards 28 Nov 2018 290
TMS 17 Dec 2018 121
Tricky Stewart 17 Dec 2018 121
Giorgio Tuinfort 21 Dec 2018 182
Rainbow 15 Jan 2019 15
Itaal Shur 31 Jan 2019 209
Rico Love 26 Feb 2019 245
Sean Garrett 21 Mar 2019 588
Johnta Austin 22 Mar 2019 249
Sam Hollander 31 Mar 2019 499
Ari Levine 31 Mar 2019 76
Teddy Geiger 12 Apr 2019 6
Starrah 25 Apr 2019 73
Dave Stewart 7 May 2019 1,068
Al Jackson Jr 8 May 2019 185
Jamie Scott 15 May 2019 144
Michael Knox 28 May 2019 110
Brian Kennedy 14 Jun 2019 101
John Bellion 14 Jun 2019 180
Lyric Catalogue 17 Jun 2019 571
Neal Schon 20 Jun 2019 357
Jason Ingram 10 Jul 2019 462
Eric Bellinger 12 Jul 2019 242
Andy Marvel 23 Jul 2019 740
Benny Blanco 2 Aug 2019 93
The Chainsmokers 22 Aug 2019 42
Timbaland 10 Oct 2019 108
10cc 17 Oct 2019 29
Journey (Publishing) 21 Oct 2019 103
John Newman 5 Nov 2019 47
Jaron Boyer 5 Nov 2019 109
Arthouse 15 Nov 2019 44
Fraser T Smith 5 Dec 2019 298
Jack Antonoff 5 Dec 2019 188
Ammar Malik 5 Dec 2019 90
Catalogue
Acquisition
Date
Total
Songs
Ed Drewett 9 Dec 2019 109
Kaiser Chiefs (Masters) 9 Dec 2019 48
Jeff Bhasker 11 Dec 2019 436
Johnny McDaid 11 Dec 2019 164
Emile Haynie 13 Dec 2019 122
Brendan O’Brien 13 Dec 2019 1,855
Savan Kotecha 18 Dec 2019 49
Tom Delonge 23 Dec 2019 157
Journey (Masters) 10 Jan 2020 389
Rebel One 10 Jan 2020 157
Scott Harris 10 Jan 2020 129
Brian Higgins 22 Jan 2020 362
Gregg Wells 10 Feb 2020 11
Jonathan Cain 28 Feb 2020 216
Jonny Coffer 28 Feb 2020 85
Mark Ronson 28 Feb 2020 315
Richie Sambora 4 Mar 2020 186
Rodney Jerkins 16 Jul 2020 982
Barry Manilow 16 Jul 2020 917
RedOne 16 Jul 2020 334
Eliot Kennedy 16 Jul 2020 217
NO I.D. 24 Jul 2020 273
Pusha T 24 Jul 2020 238
Closer (J King & I Slade) 27 Jul 2020 2
Ian Kirkpatrick 29 Jul 2020 137
Blondie 30 Jul 2020 197
Chris Cornell 10 Aug 2020 241
Robert Diggs “RZA” 12 Aug 2020 814
Ivor Raymonde 13 Aug 2020 505
Nikki Sixx 3 Sep 2020 305
Big Deal Music “BDM” 10 Sep 2020 4,212
Julian Bunetta 10 Sep 2020 188
Chrissie Hynde 10 Sep 2020 162
Steve Robson 17 Sep 2020 1,034
Rick James 18 Sep 2020 97
Kevin Godley 23 Sep 2020 358
Scott Cutler 24 Sep 2020 111
STRATEGIC REPORT
21
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023
Catalogue
Acquisition
Date
Total
Songs
Nate Ruess 30 Sep 2020 59
LA Reid 30 Sep 2020 162
50 Cent 30 Sep 2020 388
Aristotracks 30 Sep 2020 152
B-52’s 30 Sep 2020 96
Bonnie McKee 30 Sep 2020 78
Brill Building 30 Sep 2020 234
Christina Perri 30 Sep 2020 68
Dierks Bentley 30 Sep 2020 113
Editors 30 Sep 2020 64
Eman 30 Sep 2020 97
Enrique Iglesias 30 Sep 2020 157
Evan Bogart 30 Sep 2020 229
George Benson 30 Sep 2020 107
George Thorogood 30 Sep 2020 40
Good Soldier 30 Sep 2020 760
Holy Ghost 30 Sep 2020 62
J-Kash 30 Sep 2020 90
John Rich 30 Sep 2020 7
Kojak 30 Sep 2020 148
Lateral 30 Sep 2020 248
Lindsey Buckingham (Kobalt) 30 Sep 2020 174
LunchMoney Lewis 30 Sep 2020 116
Lyrica Anderson 30 Sep 2020 96
Madcon 30 Sep 2020 173
Mark Batson 30 Sep 2020 210
Mobens 30 Sep 2020 1,034
Nelly (Kobalt) 30 Sep 2020 145
Nettwerk 30 Sep 2020 25,259
PRMD 30 Sep 2020 335
Rob Hatch 30 Sep 2020 167
Rock Mafia 30 Sep 2020 393
Savan Kotecha (Kobalt) 30 Sep 2020 354
SK Music 30 Sep 2020 23
Skrillex 30 Sep 2020 153
Stereoscope 30 Sep 2020 456
Steve Winwood 30 Sep 2020 215
Catalogue
Acquisition
Date
Total
Songs
Tequila 30 Sep 2020 1
Third Day 30 Sep 2020 212
TImeflies (Masters) 30 Sep 2020 80
Walter Afanasieff 30 Sep 2020 213
Wayne Wilkins 30 Sep 2020 113
Yaslina 30 Sep 2020 73
Sacha Skarbek 20 Nov 2020 303
Tricky Stewart (Masters) 27 Nov 2020 95
Eric Stewart 2 Dec 2020 255
Bob Rock 4 Dec 2020 43
Caroline Ailin (“New Rules”) 10 Dec 2020 2
Nelly 15 Dec 2020 240
Lindsey Buckingham 24 Dec 2020 161
Joel Little 24 Dec 2020 178
Jimmy Iovine 24 Dec 2020 259
Neil Young 31 Dec 2020 590
Shakira 31 Dec 2020 145
Brian Kennedy (Writer Share) 31 Dec 2020 139
Andrew Watt 17 Feb 2021 105
Christian Karlsson 2 Mar 2021 255
Carole Bayer Sager 17 Mar 2021 983
Paul Barry 18 Mar 2021 510
Espionage 26 Mar 2021 151
Martin Bresso 31 Mar 2021 51
Andy Wallace 31 Mar 2021 1,242
David Sitek 31 Mar 2021 230
Happy Perez 31 Mar 2021 192
Red Hot Chili Peppers 14 Jul 2021 220
Kaiser Chiefs 15 Jul 2021 136
Christine McVie 21 Jul 2021 115
Jordan Johnson 22 Jul 2021 58
Stefan Johnson* 22 Jul 2021 58
Rhett Akins 23 Jul 2021 564
Ann Wilson 29 Jul 2021 152
Elliot Lurie 24 Aug 2021 70
Total Songs 65,413
* Not counted in total song count
STRATEGIC REPORT • INVESTMENT ADVISER’S REPORT
22
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023
Separate Ways (Worlds Apart)
by Journey is an example of
how our strong relationships with
artists and Songwriters both
within and associated with the
Hipgnosis family can significantly
reinvigorate a hit song that has
nevertheless been allowed to
languish in traditional publishing companies, by
introducing it to an entirely new and younger audience
and in the process earn significant synch fees, increase
steaming consumption and inspire other major artists to
cover it so that it continues to add value.
Hipgnosis Songs Fund owns both the right to receive
two-thirds of the artist royalties from the Master as
well as a majority ownership interest in the Publishing
copyright outside of the US (and equal in the US) for
Separate Ways (Worlds Apart).
It was released by Journey in 1983 as a single on their
album Frontiers and peaked at Number 8 on the
Billboard Hot 100 chart.
Creative Collaborations
Hipgnosis Songs Fund worked with the Producer of
the Netflix series Stranger Things – Season 4, alongside
Steve Perry, the lead singer and co-writer of the Song
with Jonathan Cain. A remix was created specifically
for Stranger Things which thematically exemplified the
growing pains experienced by several characters in
Season 4 of the series, as well as reminding viewers of
the story’s underlying theme of two worlds – the Regular
World and the Upside Down. The result of the creative
endeavour was Separate Ways (Worlds Apart) Extended
Remix, by Steve Perry & Bryce Miller.
This new version of the Song was the soundtrack to the
trailer – attracting additional fees – which launched
and created the anticipation for Season 4.
The trailer was first aired on 12 April 2022. It was then
released as a two-part series; the first aired on Netflix on
27 May 2022 and the second one on 1 July 2022, with
the Song also appearing in the penultimate episode
of the season. TV blog ‘The Wrap’ said, “Episode 8
of Stranger Things – Season 4 introduced another
Case Study
Reviving a forgotten hit
How a well placed Synch can change the fortunes of multiple revenue streams
STRATEGIC REPORT • INVESTMENT ADVISER’S REPORT
0
500,000
1,000,000
1,500,000
2,000,000
2,500,000
3,000,000
3,500,000
JUL 20
AUG 20
SEP 20
OCT 20
NOV 20
DEC 20
JAN 21
FEB 21
MAR 21
APR 21
MAY 21
JUN 21
MAR 20
MAY 20
JUN 20
JUL 21
AUG 21
SEP 21
OCT 21
NOV 21
DEC 21
JAN 22
FEB 22
MAR 22
APR 22
20212020 2022
US Weekly Streaming On-Demand
APR 20
FEB 20
JAN 20
JUL 22
AUG 22
SEP 22
OCT 22
NOV 22
DEC 22
JAN 23
FEB 23
MAR 23
APR 23
MAY 23
MAY 22
JUN 22
US
Weekly Streaming for Journey’s 1983 recording of Separat e Ways (Words Apart)
Source: Luminate
— Average weekly streaming before/after Stranger Things – Season 4
— Se parate W ays (W orlds Apart) – original Journey version
27 May 2022:
Stranger Things –
Season 4 series,
Part 1 aired on
Netflix
12 April 2022:
Remix of Song
released as well as
First official trailer of
St ranger Things –
Season 4 aired
1 July 2022:
Stranger Things –
Season 4 series,
Part 2 aired on
Netflix
5 Jan 2023:
Cover version
of Song
released by
Daughtry
STRATEGIC REPORT
23
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023
1980s musical gem into the show, a dark, eerie remix
of Journey’s 1983 hit Separate Ways (Worlds Apart)
that’s so good it made us re-watch the scene it was
introduced in just to hear it again”.
A soundtrack of the series was also released in physical
format in September 2022, and the remixed Song appears
twice in the two-LP vinyl editions. Additionally, we
collaborated with the band to remaster a special vinyl
reissue of the album Frontiers which is due to be
re-released later this year alongside their Greatest Hits
album, which is one of the biggest selling Greatest Hits
albums of all time. Both feature the original version
of Separate Ways (Worlds Apart) and both will have
exclusive formats for major retailers including Target
and Walmart.
As a result of all the activity the multi-platinum US rock
band and American Idol finalist, Daughtry, released
a cover version of the Song on 5 January 2023, to
celebrate the 40
th
anniversary of the original Journey
hit single, which further fuelled the on-demand streaming
for both the original Song and the remix version.
Impact on Consumption
The use of the remix version of Separate Ways (Worlds
Apart) in Stranger Things, and Daughtry’s subsequent
cover version had a significant impact on the
consumption of the original version.
Prior to the launch of the new series, the original version
of Separate Ways (Worlds Apart) averaged a little over
1 million weekly streams in the US. Following the release
of the trailer, the average number of weekly streams
has risen 68% to 1.82 million streams per week.
Impact on Earnings
This strong collaboration has had a visible impact on all
revenue streams.
We looked at the earnings related to artist royalty
income since H1 2020. Earnings remained fairly constant
until H2 2021. Since then, there has been close to a 4x
uplift in earnings related to artist royalty income relating
to the master recording and more than double since
Stranger Things – Season 4 first aired.
Notwithstanding the inherent lag in receiving payments,
we also analysed the publishing earnings received
within the Jonathan Cain Catalogue, who co-wrote
50% of the Song. This is a Catalogue that is now part
of our in-house administration with HSG.
Royalty statements received to date show there has
been a strong impact on Synch, Streaming, Physical
as well as Performance revenues. In total, earnings for
the calendar year ending 2022, have increased by
184% year-on-year with significant payments still to flow
through.
0
10
20
30
40
50
60
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
— Aggregate US Weekly Streaming (On Demand) – left-hand axis
— Income earned – rebased to H1 2020 – right-hand axis
Source: Hipgnosis Songs Fund, Luminate
Journey’s S eparate Ways (World’s Apart):
analysing artist royalty income
US Streaming On-Demand, millions
Royalty income earned, rebased to H1 2020
H1 2022H2 2021H1 2021H2 2020H1 2020 H2 2022
24
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023
Active Song Management
Due to their iconic nature, the Songs in the Portfolio can
be relied upon to deliver long-term, stable returns, whilst
benefitting from market growth.
However, our ethos has always been that active Song
Management can and will deliver significant additional
benefits to the Company’s Shareholders. We view Song
Management as having three pillars:
• Optimising revenue generation, revenue collection
and value by ensuring accurate registration and rights
enforcement of the Songs in the Catalogue, ensuring
we collect revenues as efficiently and cost-effectively
as we can.
• Driving consumption and value through active
marketing and pitching of the Catalogue to individual
listeners, music creators and business music users, as
well as harnessing consumer platforms through which
the Catalogue can be showcased and consumed.
• Campaigning to change the position of Songwriters
in the economic equation by working with politicians,
NGOs and the wider music community to build support
for increased fairness in payments for Songwriters. As
our Shareholders stand in the shoes of the Songwriters,
what’s in the best interest of Songwriters is also what’s
in the best interest of our Shareholders and there is
complete alignment.
Optimising revenue generation
We have continued to implement its strategy of working
with partners who reduce administration costs, collect
more money, collect it faster and pay it through faster.
At the earliest possible opportunity we look to revert
(i.e. move) Catalogues to these partners, or renegotiate
administration rates where there are compelling reasons
to maintain the current relationships.
Through the Company’s wholly owned subsidiary,
Hipgnosis Songs Group’s (HSG) administration
capabilities, the Company benefits from its own in-house
administration function in the US.
Furthermore, in July 2022, we announced that the
Company had entered into a direct licensing and
administration partnership with Sacem, a world-leading
Collective Management Organisation (CMO), to collect
digital rights for the Writers’ Share and the Company’s
own Publisher Share, primarily in the UK and the
European Union, starting in 2023.
Additionally, the Company entered into a sub-publishing
partnership with peermusic, the world’s largest
independent music publishing and neighbouring rights
administration company, for them to administer specific
Catalogues. Peermusic will collect royalties in territories
not administered by HSG or Sacem, primarily Latin
America and Asia.
Combined, the partnerships with Sacem and peermusic
have resulted in an annualised uplift of relevant
earnings of 6.6%. Further benefits of the move to Sacem
include collection times for some streaming revenues
having been cut to as little as four months from the
point of use.
So far, a total of 43 Catalogues or part Catalogues,
covering over 6,200 Songs, accounting for c.11% of PFAR
have now reverted to these three partnerships.
The transition of Catalogues to Sacem and peermusic
required significant preparation work by the Copyright
team, including scaling up certain administrative
processes, such as becoming Common Works
Registrations (CWR) compliant. Working with our own
in-house administrator in the US, HSG, we ensured
accurate delivery of the data to enable a smooth
transition.
The music industry is notorious for the fragility and
inaccuracy of data. Therefore, it is notable that Sacem
reported that there were no rejections in the 6,200 Songs
which were transferred to them, highlighting the success
and accuracy of the work that our rights administration
team has been carrying out. In practice, this means that
Songs transferred are properly coded so that all due
payments are received and Sacem can immediately
focus on maximising collections for Hipgnosis Songs
Fund.
We will continue to consider Catalogues for reversion
to HSG, Sacem and peermusic as existing administration
agreements expire. Alongside these, we continue to
have a significant administration business with Kobalt
as well as with Sony Music Publishing, Warner Chappell
Music and Universal Music Publishing.
Driving consumption through Synch
The Company’s Portfolio of iconic and culturally important
Songs are naturally in high and constant demand
from producers to feature in their movies, TV shows,
advertisements, video games and online marketing.
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Our global in-house ‘24/7’ Synch licensing operation
actively manages our Songs with responsibility. The
Hipgnosis Song Management team focuses on creating
opportunities which add value to both the Song and
the Songwriter’s legacy, while also responding to
incoming enquiries within a matter of minutes.
The success of our approach is demonstrated by the
24.7% year-on-year increase in synch PFAR income in
calendar 2022 compared to 2021. Overleaf we have
identified a selection of our recent Synchs.
Our case study on pages 22-23 demonstrates, in depth,
the secondary impact on streaming, and thereby
income, which can be achieved by placing the right
Song in the right place.
Another highlight of the year was our placement of
All The Small Things, co-written by Tom Delonge, whose
Catalogue the Company bought in December 2019, as
the sound track for the highly coveted John Lewis 2022
Christmas Advert. The original Blink-182 version of the
Song reached Number six in the Billboard Hot 100 and
Number two in the UK on release in 2000. Our Synch
team saw the potential of a slowed down version of this
track and presented it to John Lewis, who chose it to
soundtrack their seasonal Christmas advert.
Following the John Lewis advert, and the Blink-182
reunion world tour announced in October 2022,
streaming consumption has notably increased,
particularly in the UK. In addition, there have been
several interpolations and samples agreed. These,
in turn, will drive further consumption when they are
released as well as create new IP and revenue streams.
Alongside the John Lewis Christmas advert as one of
the most prestigious placements for Synchs, stands the
Superbowl half time show. This year, Rihanna performed
four of the Company’s co-owned Songs during her
set: Birthday Cake (The-Dream), All Of The Lights (Jeff
Bhasker/The-Dream), Run This Town (Jeff Bhasker/No
I.D.) and Umbrella (The-Dream/Tricky Stewart). Close
to 119 million viewers tuned in for her performance on
television and streaming services, with each of the
Songs recording gains on streaming platforms of up
to 280% in the week following her performance. Four
months on, Umbrella’s US weekly Streaming-on-Demand
figures are still 1.3 times that pre the Superbowl; Run This
Town is showing 1.5x the demand.
During the year, our Synch team enhanced their
Publishing Partner engagement program in order to
further increase the access to and visibility of our Songs.
This proactive approach aims to encourage greater
collaboration with our publishing partners with the
aim to maximise synch activity. In addition, we create
bespoke approval processes, ensuring that we remain
a low friction partner for quickly licensing repertoire.
In addition, the Synch team has taken advantage
of a number of technology solutions that trawl the
global entertainment industry and automatically alert
the team every time a significant synch deal goes on
air. Combining this technological approach with our
proprietary in-house synch and royalties databases
enables us to have an integrated system where a synch
can be followed from its pitching stage, through its
usage and ultimately its collection.
Bringing Songs to new audiences
Putting the spotlight on creating interpolations of our
Songs, having our Songs sampled and nurturing cover
versions of our Songs results in new IP for the Company
as well as new and enhanced revenue streams.
This year, Nicki Minaj delivered another enormous
global hit based on Rick James’s hit Super Freak.
Nicki’s Song Super Freaky Girl went to Number 1 on the
Billboard Hot 100 in the US as well as being a top five
hit in the UK. The original Song was released in 1981
and has been a seminal Song ever since. In 1990, it
was interpolated as U Can’t Touch This by MC Hammer
for the enormous global Grammy award winning hit.
All three Songs have pride of place in the Company’s
portfolio and Nicki Minaj’s recording is not only the
highest charting, having reached Number 1, but also,
once again, helps to revive both the original and the
MC Hammer version. As a result of all this activity we
have already seen a 45% uplift year-on-year for the
combined earnings of Super Freak and Super Freaky Girl,
when comparing the first nine months of 2022 to the first
nine months of 2021.
The three versions have more than 5 billion streams
across all services with approximately half of them
under the Company’s ownership. Super Freaky Girl has
also been awarded an ASCAP POP Award as one of the
most played songs on US radio in the past 12 months.
Through ownership of the Rick James Catalogue, the
Company receives its 50% share of Rick James’ 55% of
the publishing share of Super Freaky Girl.
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Synch
Here are some of our recent Synch approvals from
across the Catalogue:
TV and Streaming
Neil Young’s Out On The Weekend has recently aired on
Netflix’s ‘Outer Banks’.
Netflix’s ongoing smash hit series ‘Sex Education’ will
feature The Pretenders song, Brass In Pocket, written by
Chrissie Hynde.
The current season of ‘Love Island UK’ has featured no
fewer than 15 of Hipgnosis’ songs.
The latest series of DC’s ‘Superman & Lois’ has a
prominent usage of Sugarhill Gang Rapper’s Delight,
which was co-written by Bernard Edwards.
Paramount+ picked Can’t Find My Way Home written
by Steve Winwood for the second season of the series
‘Mayor Of Kingstown’.
The current season of HBO’s ‘We’re Here’ has featured
Bon Jovi’s You Give Love A Bad Name, co-written by
Richie Sambora.
The trailer for Amazon Studios’ ‘Der Greif’ has used
Soundgarden’s Black Hole Sun written by Chris Cornell
as its soundtrack.
Nile Rodgers & Snoop Dogg have collaborated on a
brand-new version of We Are Family co-written with
Bernard Edwards, for the trailer of the YouTube Original
series, ‘Behind The Beats’.
Amazon Prime’s latest season of ‘The Handmaid’s Tale’
features Fleetwood Mac’s The Chain co-written by
Lindsey Buckingham & Christine McVie and Al Green’s
Let’s Stay Together co-written by Al Jackson Jr.
‘The Playlist’ – a Netflix Original series about the creation
of Spotify, features Bruno Mars’ Locked Out Of Heaven,
co-written by Ari Levine and Swedish House Mafia’s
Don’t You Worry Child co-written by Martin John
Lindstrom.
2022’s NFL Sunday Night Football promo featured an
on camera rendition of Neil Young’s song Old Man,
performed by Beck. The recording was nominated for
Best Rock Performance at the 2023 Grammy Awards.
Season 3 of Amazon Studios’ ‘The Boys’ featured an
on-screen performance of Blondie’s song Rapture,
co-written by Debbie Harry and Chris Stein.
Film
The new ‘Barbie Movie’ features an interpolation
of Red Hot Chili Pepper’s Pretty Little Ditty.
Red Hot Chili Peppers’ Can’t Stop was used as the trailer
to the latest ‘Expendables 4’ movie.
Journey’s Don’t Stop Believin’ is being used in the trailer
for ‘Harold And The Purple Crayon’.
‘Glass Onion’, the sequel to the hugely successful Knives
Out’ feature film, features a key use of Under The Bridge
by Red Hot Chili Peppers.
Heart’s Crazy On You, co-written by Ann Wilson is
the main song on the trailer for the latest film in the
‘Guardians of the Galaxy’ franchise.
Fun’s We Are Young, co-written by Jack Antonoff
and Nate Ruess, was placed in the South Korean film
‘Rebound’.
Marvel Studios’ ‘Wakanda Forever’, features a
significant use of Red Hot Chili Peppers’ Can’t Stop.
The trailer for Sony Pictures’ ‘Lyle, Lyle, Crocodile’
features Shawn Mendes’s There’s Nothing Holdin’ Me
Back, co-written by Teddy Geiger and Scott Harris.
The Netflix Original film ‘The Swimmers’ uses David
Guetta feat. Sia’s Titanium, co-written by Hipgnosis’
Giorgio Tuinfort, in both the film and the trailer.
Advertising
No I.D. and Jeff Bhasker were writers on Rihanna and
Jay-Z’s Run This Town Z, which soundtracked Apple
Music’s 2023 Superbowl commercial.
A Spotlight on Synch
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Renault have selected Sheila B. Devotion’s Spacer,
co-written by Bernard Edwards, to soundtrack their
2023 E-space advertising campaign.
Journey’s Any Way You Want It was used for an
Applebee’s TV commercial.
Boyz II Men’s End Of The Road was used to soundtrack
the Infinity QX80 TV advertising campaign.
Gucci Men’s Luggage chose Heart’s Magic Man for
their campaign featuring Ryan Gosling.
Chanel Eyewear picked Chic Cheer, co-written by
Bernard Edwards, for their global campaign.
Isuzu have renewed the deal for their use of
Fleetwood Mac’s Go Your Own Way written by Lindsey
Buckingham in their Australian brand campaign.
The much-coveted 2022 John Lewis Christmas
commercial was soundtracked by a new recording
of Blink-182’s All The Small Things, written by Tom
DeLonge.
Paco Rabanne have renewed their global 1 Million
campaign, featuring Sugarhill Gang’s Rapper’s Delight,
co-written by Bernard Edwards.
Holiday Road by Lindsey Buckingham is soundtracking
the current advertising campaign for The United States
Postal Service.
William Hill selected Rudimental’s Feel The Love co-
written by John Newman as the soundtrack to their
current advertising campaign.
Video Games
Hipgnosis’ new recording of Wanted Dead Or
Alive performed by Empara M is featured on the
global trailer for ‘Transformers: Reactivate’, a major
forthcoming video game.
Black Hole Sun, written by Chris Cornell, was selected
for the trailer for the ‘Red Fall’ game.
Saber Interactive picked You Give Love A Bad Name,
co-written by Richie Sambora, for the trailer of their
game ‘Toxic Commando’.
Red Hot Chili Peppers’ Can’t Stop has been confirmed
for use in the forthcoming WWE 2k23 wrestling video
game.
The trailer for ‘Overwatch 2’ features Yeah Yeah Yeahs’
Spitting Off the Edge of the World, which was co-written
by Dave Sitek.
All I Want for Christmas Is You and Joy to the World,
both co-written by Walter Afanasieff, were performed
by Mariah Carey on her Winter Wonderland concert on
Roblox.
EA Sports chose the RedOne-cowritten Real Madrid
anthem Hala Madrid… Y Nada Mas for their new game
FC24, the replacement for the FIFA series.
John Newman’s Love Me Again features the trailer for
EA’s FC24 the replacement for the FIFA series.
Fitz & The Tantrum’s Handclap, co-written by Sam
Hollander, features in EA’s NHL24.
Red Hot Chili Peppers’ Give It Away features in EA’s
Madden NFL 24.
The Pretenders’ Private Life by Chrissie Hynde will
feature in Grand Theft Auto 6.
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In addition, we continue to focus on creating new master
recordings of selected Songs within the Catalogue
designed to be attractive for synch opportunities.
This approach has already proved successful, with a
new version of Bon Jovi’s Wanted Dead Or Alive. We
partnered with Empara Mi and created a new recording
of this Song, specifically designed for the current trend in
movie and video game trailers of atmospheric, ethereal
recreations of iconic songs. In this case, the Company
owns 50% of the Publishing copyright via the Richie
Sambora Catalogue acquisition and 100% of the master
recording of the new version. We placed the Song for
the trailer of the forthcoming video game Transformers:
Reactivate – earning a six-figure synch fee. In addition,
we released the Song on Streaming services to establish
a base for the record where it has achieved over
1.6 million streams on Spotify alone, and should continue
to grow and generate further income once the game is
released. The trailer has already been viewed 2 million
times on YouTube.
Another example is when we placed Richie Sambora
as a contestant on the UK version of The Masked Singer.
Four of the six songs that he performed on the series
were from the Company’s Portfolio. When he was
revealed in the semi-final, his profile reached a recent
all-time high and there was an increased streaming
consumption of the Bon Jovi songs held by the
Company.
Another initiative aimed at introducing our iconic songs
to a new generation of fans in order to drive increased
streaming consumption is making Nile Rodgers the face
of Chanel Eyewear as well as the first and only “Artist In
Residence” at Apple Music. We have also presented
CHIC’s first five albums and Sister Sledge’s We Are Family
in Spatial Audio on the service, as well as securing a
significant six figure synch for the song Spacer with
Renault in Europe.
Progress made towards ensuring that
Songwriters are fairly remunerated
The 2022-23 financial year saw significant progress in our
campaign for Songwriters to be more fairly rewarded
for their contribution to the success of the music
industry. Without Songwriters there is no music industry
and all Songwriters deserve to go from the bottom of
the economic equation to the top. It cannot be said
often enough that where the Company has purchased
a Catalogue we stand in the shoes of the Songwriter,
so our Shareholders’ interests are entirely aligned with
those of Songwriters. If we can get Songwriters paid
more, our Shareholders benefit equally.
We advocated for, and welcome moves by the US
Copyright Royalty Board (CRB) which, during the year,
disallowed an appeal from certain streaming services
against their CRB III ruling as well as the joint industry
proposal approved by the CRB which provides for
further increases during the CRB IV period.
CRB III provided for a 44% increase in the headline
rate of Digital Service Providers (DSP) revenues paid
to Songwriters and Publishers, reaching 15.1% in 2022.
As a result of the appeal by certain streaming services,
some revenues were not paid contemporaneously.
Following the rejection of the appeal the music industry
and the Mechanical Licencing Collective (MLC) has
started the process to distribute those revenues. As
discussed in the Financial Review on page 34, we have
accrued a total of $16.1 million for the CRB III retroactive
revenue and a further $5.6 million for CRB III uplift during
the financial year.
The joint industry proposals – which have been
confirmed, for CRB IV saw the proportion of DSP
revenue paid to Songwriters further rise incrementally
to 15.35% in 2027, as well as the royalty payable on a
physical sale or download rising from 9.1 cents to 12 cents
with additional inflationary increases. Whilst there is still a
long way to go before Songwriters are fairly remunerated,
these are important steps in the right direction.
The joint CRB IV proposals show there is increasing
acceptance across the music industry that Songwriters
should be fairly rewarded for their work. Although
the increase is more modest than the CRB III rises, we
support it as it will provide a background of stability at
the highest streaming rates ever paid in the context of
which we can continue our advocacy efforts.
In the UK, the Competition and Markets Authority (CMA)
concluded their market study and recommended
that the Intellectual Property Office (IPO) take forward
a number of workstreams. After the year end, the
IPO announced an agreement on how the music
industry and the Government will work together to
deliver consistent high-quality metadata and the
Government has announced a joint industry working
party on music industry remuneration. We welcome
these steps, however, we believe that far greater reform
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is needed and we continue to engage with the relevant
organisations to achieve this change. Our ultimate goal is
for Songwriters’ pay to be determined by the free market,
not legislation.
We also supported BMI in its Live Concert rate victory,
which set a new rate 138% higher than the previous one,
reflecting the importance of Songs in the live concert
experience. As we’ve stated before, live concerts would
not exist without Songs.
Hipgnosis Songs Group (HSG) and new Songs
Prior to being acquired by the Company in September
2020, HSG had two main divisions: Song Creation, which
accounted for 78% of revenues at the time, and third-party
administration which accounted for 22% of revenues.
The chief purpose of acquiring HSG was the ability to
self-administer our acquired Catalogues in the US. This
would reduce third party administration costs, allow us
to collect revenue quicker, reduce revenue leakage,
give us greater visibility over revenue and give us a seat
at the table to negotiate better rates for our Catalogue,
as well as advocate on behalf of Songwriters. It was
an established platform at acquisition and in the
intervening time we have improved its capabilities as
we have shifted its focus to administration. In total, the
Company has reverted 43 Catalogues to HSG, enabling
the Company to benefit from this in-house capability.
In addition to administering Songs in-house for the
Company, HSG continues as a third-party administrator.
In this capacity, HSG administers Catalogues such as
Beggars Banquet, which includes Glass Animals, who
claimed the longest run in Billboard 100 history with
Heat Waves. The Song has gone 5x Platinum in the US,
was the second most streamed Song in 2022 in the US
and is ranked among the Top 15 “most streamed Songs
of all-time on Spotify”.
Song Creation remains a small part of Hipgnosis Songs
Fund’s overall business, at less than 2% of net revenue.
Highlights from the period include continued important
placements by Stefan and Jordan Johnson (the
Monsters & Strangerz) with Selena Gomez; the Jonas
Brothers and Miley Cyrus; as well as Julian Bunetta and
John Ryan with Katy Perry, Shawn Mendes and Sabrina
Carpenter. The expansion of our joint ventures with NO
I.D., including key signings with both Saba and Sonny
Nitez, as well as Hippo Campus are also expected to
deliver hit songs.
During the period, the Company has evolved HSG’s
Song Creation business and in addition to delivering
original hits, its roster of Songwriters are also focused on
interpolating the Company’s iconic Songs into new hits.
This focused strategy will enable more stable returns
off a reduced fixed cost base. As a result, there was a
restructuring of the team, with a $1 million one time cost
which is expected to deliver an estimated annual fixed
cost savings of $0.8 million.
Following the successful implementation of our strategy
to use HSG for self-administration and the subsequent
growth in third party administration, this business is
well balanced and gross revenues are now split evenly
across fund administration, third party administration
and Song Creation.
Recognition through awards
Grammys
The Company’s Songwriters were included in 16 Grammy
nominations for 2022 and won the following:
• Best Dance/Electronic Album: Beyonce’s
RENAISSANCE co-written by Travis Garland and Diplo’s
Diplo, co-written by Phil Scully and David Karbal.
• Best Folk Album: Revealer by Madison Cunningham
co-written by Dan Wilson
• Producer Of The Year (Non Classical): Jack Antonoff
PRO Performance Awards
• Song of the Year SESAC Music Awards 2022:
Heatwaves, by Glass Animals, written by Dave Bayley
• Winners at the ASCAP Pop Awards 2023:
• Ghost by Justin Bieber, co-written by Stefan Johnson
and Jordan Johnson
• Super Freaky Girl by Nicki Minaj, co-written by Rick James
• ASCAP Most Performed Songs of the Year:
Just About Over You performed by Priscilla Block and
co-written by Emily Kroll
• ASCAP Country Awards 2022:
Just About Over You performed by Priscilla Block and
written by Emily Kroll
• BMI Most Performed Songs of The Year:
• It’s Cause I Am performed by Callista Clark and
co-written by Cameron Jaymes
• Baila Conmigo performed by Selena Gomez and
Rauw Alejandro written by Albert Hype
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• Winner in the BMI Pop Awards 2023 for most
performed Song: Ghost by Justin Bieber, co-written by
Stefan Johnson
• Winner in the BMI Country Awards 2022: Tequila
Little Time by Jon Pardi, written by Rhett Akins
• Winner in the BMI Latin Awards 2022: Telepatia by
Kali Uchis, co-written by Albert Hype
Upgraded capabilities
The strategic investment by Blackstone LLP into Hipgnosis
Song Management during 2021 has enabled us to
continue investing in capabilities and expertise despite
the reduction in the management fee received from the
Company as a result of the decline in the share price.
Notably, Ben Katovsky joined on 1 October 2022 as
our new President and Chief Operating Officer. Ben,
who has almost two decades’ experience in the music
industry, most recently as COO at BMG, leads the
operations of Hipgnosis Song Management. He has
particular expertise in the scaling of music companies,
building value from growing Catalogues, digital
business development and using technology and data
to enable this.
Ben’s appointment was part of our on-going
commitment to ensure that we continue to evolve
with the right people in the right roles to maximise
opportunities and value for the Company. As such we
have made a number of additional appointments, most
notably in our Song Management organization to focus
on further driving audience development and licence
revenue for our Songs.
Danny Bennett has been appointed EVP responsible
for Marketing and Audience Development. Danny
has been a leading manager in the music industry
for more than 30 years. He’s widely respected for
using his progressive marketing skills. He famously
redefined the career of his father, Tony Bennett,
including through iconic collaborations with
Lady Gaga and Amy Winehouse. Based in New
York, Danny will support an increased focus on
the United States, the largest music market.
Patrick Joest has been promoted to Head of Synch
leading the IA’s global synch marketing and licensing
operation. Patrick has over two decades’ global
experience and a network in Film & TV/synch licensing
on both the supervision and rights owners’ side. Prior to
Hipgnosis, Patrick spent 11 years at BMG, where he built
the global synch business from scratch to a multi-million
dollar operation, leading a team across 15 offices.
Sara Lord has been appointed EVP Content Creation.
Sara is an entertainment industry executive with over
25 years of experience in the music, film and advertising
industries. Sara joined from Concord Music, where
she had been SVP International Synch and Project
Development. Sara is leading Hipgnosis’ collaborative
work with companies looking to create audio-visual,
theatrical, non-traditional physical and experiential
content showcasing Hipgnosis catalogues.
As part of the ongoing investment and expansion of
the Investment Adviser, additional appointments are
underway including the appointment of an in-house
General Council to be announced in due course.
Last September, we said goodbye to Amy Thomson
and we will shortly be saying goodbye to Ted Cockle.
We would like to thank both of them for their efforts and
wish them all the best for the future.
During the year a particular operational focus for
the Investment Adviser has been the build out of
its proprietary technology and data platform, the
implementation of work processes associated with this
platform and the population of data into new systems.
The platform now includes systems that enable rights
administration, Synch sales, audience development
and royalty collection and assurance and is therefore
designed to optimise the end-to-end value creation
process.
Significant investment has been made into the
development of a proprietary cloud-based royalty
platform. This platform enables the Investment Adviser
to ingest and verify royalty statements received from
publishers, labels, CMOs and other sources rapidly and
to a high level of granularity. The platform will allow
significantly improved royalty analysis and verification
and will power improved insights to drive catalogue
revenue generation. We see technology and data
science as a key priority and will continue to invest
significantly in these areas.
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SUPERSTARS • SUPER TOURS
Taylor Swift’s The Eras Tour
“Swift has sold a staggering 1,186,314 tickets for
her shows, and there’s still more to come.”
†
1st live tour since 2018
41 US concerts performed since
17 March 2023
90 confirmed shows to come
through Summer 2024*
11 of the Songs performed are from the
Hipgnosis Catalogue
Hipgnosis’s Songs that are
part of The Eras Tour:
Look What You Made Me Do • Jack Antonoff
You Need to Calm Down • Joel Little
The Man • Joel Little
Out of the Woods • Jack Antonoff
Getaway Car • Jack Antonoff
Miss Americana & the Heartbreak Prince • Joel Little
A Place in This World • Robert Orrall
Cruel Summer • St. Vincent, Jack Antonoff
Call It What You Want • Jack Antonoff
I Don’t Wanna Live Forever • Jack Antonoff
Me! feat. Brendon Urie • Joel Little
Other Songs by Taylor Swift in our Catalogue:
Dress • Jack Antonoff
New Year’s Day • Jack Antonoff
Only The Young – Featured in Miss Americana • Joel Little
Sweeter Than Fiction – From “One Chance” Soundtrack • Jack Antonoff
The Way I Loved You • John Rich
This Is Why We Can’t Have Nice Things • Jack Antonoff
You Are In Love • Jack Antonoff
† Forbes; Numbers only reflect the first half of 2023 * as at 10 July 2023
Photo by Taylor Hill/TAS23 / Contributor by Getty Images
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The Advisory Board
The Advisory Board assembled by Merck Mercuriadis assists the Investment Adviser.
Nile Rodgers
Rock And Roll Hall Of Fame and
Songwriters Hall Of Fame Inductee,
Chairman Of The Songwriters Hall
Of Fame. Grammy award-winning
Songwriter, producer and musician.
Founder of the band CHIC. Co-
writer and producer of iconic hits
for David Bowie, Madonna, Duran
Duran and Daft Punk.
The-Dream
Grammy award-winning Songwriter,
producer and musician. Wrote and
produced iconic hits for Beyoncé,
Jay Z, Kanye West, Rihanna, Mariah
Carey, Britney Spears and Justin
Bieber.
Poo Bear
Multi-platinum producer, singer
and Songwriter aficionado, Jason
Boyd, better known as Poo Bear,
is a five-time Grammy winning
musical force of nature having sold
over 500 million records worldwide.
Best known for his unforgettable
collaborations with Ed Sheeran and
Justin Bieber.
Rodney “Darkchild” Jerkins
Grammy Award winning super-
producer with a trail of outstanding
accomplishments. He has added
to the hit lists of music talents such
as Whitney Houston, Justin Bieber,
Ariana Grande, Drake, Destiny’s Child
and countless others. These artists
know that having the “Darkchild”
touch on their song puts it on the fast
track toward reaching Number One.
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Starrah
Amongst the most important
young Songwriters having written
14 hit singles thus far including the
Number 1 Song Havana by Camila
Cabello and Girls Like You by
Maroon 5. Havana was the biggest
song in the world in 2018.
David A. Stewart
One of the most successful
Songwriters, Artists and Producers
of all time. His work with Eurythmics,
Tom Petty & The Heartbreakers,
Shakespears Sister, No Doubt,
Mick Jagger, Bob Dylan and Eric
Clapton amongst many others
defines its era.
Giorgio Tuinfort
Grammy award winning Songwriter
and one of the most important
pop writers of the last 10 years. The
partner of choice for David Guetta
and Akon. He has written number 1
Songs for Sia, Gwen Stefani and
Ariana Grande.
Ian Montone
Attorney and founder of Monotone
Management. Manager of Jack
White, The White Stripes, Vampire
Weekend, The Shins and Danger
Mouse.
Bill Leibowitz
Attorney, founding partner of
Roberts, Leibowitz and Hafitz
PLLC. Former COO and General
Counsel for The Sanctuary Group.
Specialises in intellectual property
law and during his legal career
of 35 years he has represented
many renowned artists and major
international intellectual property
companies.
34
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023
Financial Review
NAV
The Company reports two net asset values: an IFRS
NAV which is prepared in accordance with IFRS, under
which the Company’s investments in Catalogues are
held at cost less amortisation and impairment, and an
Operative NAV which adjusts the IFRS NAV to reflect the
Fair Value of the Company’s Catalogues, as determined
by the Portfolio Independent Valuer. The IFRS Net Asset
Value (NAV) per share as at 31 March 2023 was $1.1863
which is a 9.2% decrease from $1.3065 as at 31 March
2022, reflecting the amortisation of the Company’s
Catalogues in accordance with applicable accounting
protocols and ignoring their current fair value.
The Board and the Investment Adviser consider that the
most relevant NAV for Shareholders is the Operative NAV.
The Operative NAV per share increased by 3.58% to
$1.9153 during the year (31 March 2022: $1.8491), driven
primarily by a 4.0% increase in the Fair Value of the
Portfolio. This, together with the dividends, of 21.6p
(27.9¢), takes Total $ NAV Return to Shareholders to 69%
since the IPO on 11 July 2018.
Operative NAV per share Bridge
From 1 April 2022 to 31 March 2023
$
Opening Operative NAV per share 1.8491
Loss for the year (0.0741)
Amortisation and Impairment during the year 0.0955
Dividends paid during the year (0.0465)
Repurchase of shares into treasury 0.0013
Increase in Fair Value of Catalogues 0.0900
Closing Operative NAV per share 1.9153
Based on the Sterling to Dollar exchange rate at
31 March 2023 of 1.236, the Operative NAV per share
presented in Sterling is 154.91p per share (31 March 2022:
140.79p based on Sterling to Dollar exchange rate of
1.3134). As at 11 July 2023, the Operative NAV per share
presented in Sterling would be 148.51p per Share
(GBP: USD 1.2897).
Fair Value of the Portfolio
The Fair Value of the Portfolio increased by 4.0% to
$2.80 billion (31 March 2022: $2.69 billion), mainly as
a result of royalty statements received exceeding
expectations, especially related to performance
income and streaming income from older vintage
catalogues. This also drove the increase in the
Operative NAV in Dollar terms over the period.
The Fair Value is determined by the Portfolio Independent
Valuer, Citrin Cooperman, whose valuation approach is
described in detail further on in this report.
In advance of the last Interim Report published in
December 2022, Kroll Advisory Limited (“Kroll”), an
independent valuation firm, was appointed to consider
and advise on the reasonableness of certain assumptions
commonly employed in the valuation of music
catalogues based on data provided by the Company.
The Board continues to engage and consult with Kroll
in order to obtain a range of views with respect to the
development of inputs that impact the Group’s valuation
methodology, as applied by the Portfolio Independent
Valuer. Details of this are discussed in the Chair’s
Statement.
Tax considerations
The Company is a UK tax resident with Investment Trust
Company (ITC) status. For UK corporation tax purposes,
the Group’s music assets are considered intangible fixed
assets and therefore the Company may be unable to
benefit from an exemption for tax on chargeable gains
due to its ITC status on any potential sale of Catalogues.
Given the options the Board is considering, the current
share price and the upcoming Continuation Vote,
the Company has estimated that in the event that the
Group sells all of its assets, that the Group’s potential
tax charge on these disposals, based on certain
assumptions, could be approximately $245 million.
This potential tax charge reflects both the impact of
the historic amortisation of such assets, where the
Group has already received a tax benefit to the extent
available in each year of ownership and the uplift in
value since purchase. This estimate does not include
any assumptions as to the structure of any disposal,
the utilisation of any brought forward tax losses
potentially available to the Group or from any potential
opportunities to optimise the structure of any sale of
assets, which could both result in a materially lower tax
charge on any future sale of the Group’s assets.
STRATEGIC REPORT • INVESTMENT ADVISER’S REPORT
STRATEGIC REPORT
35
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023
STRATEGIC REPORT • INVESTMENT ADVISER’S REPORT
Citrin Cooperman, the Portfolio Independent Valuer:
• One of the largest valuation providers in the music
transactions marketplace;
• Conducts the valuations of many music publishing
and recorded music assets on behalf of buyers, sellers
and lenders;
• Conducts the annual valuations of most of the major
public and private music funds;
• Values the Fair Value of Hipgnosis Songs Fund twice
a year;
• In 2022 alone, Citrin Cooperman appraised over
400 unique music asset Catalogues valued at over
$9 billion.
Citrin Cooperman’s Valuation Methodolgy
The key inputs to their Discounted Cash Flow (DCF)
methodology include:
Determining a baseline value: This is the earnings
benchmark, applied on a per income type, per
catalogue basis, against which growth rates are
applied. The baseline value, which is taken from royalty
statements, is typically the prior year’s earnings with
the exception of synch, where an average of the prior
two years is taken, given the irregular nature of the
Synch business. Adjustments to these assumptions are
made by the team at Citrin Cooperman dependent
on Catalogue-specific activity, which may include
settlements, audits, black box payments and changes
in administration rates, amongst others.
The revenue provided does not take into account any
future ability of the Company’s active management to
enhance Catalogue revenues.
Applying growth rates: Growth rates of steady state
Catalogues are applied on a per income type, per
catalogue basis.
The income type growth rate applied to each
Catalogue is determined by that Catalogue’s historical
earning trends and expectations of decay.
A terminal growth rate value is applied in year 16.
Discount Rate: The other key assumption used by the
Portfolio Independent Valuer is the discount rate which
it has maintained at 8.5% (31 March 2022: 8.5%). Citrin
Cooperman has consistently taken a long-term view
on interest rates. Since Hipgnosis’ IPO in July 2018, they
have reduced the discount rate on only one occasion
(by 50bps) despite the substantial fall in US treasury
yields between 2018 and end of 2021.
A further consideration in calculating the appropriate
discount rate is the quality of earnings. The proportion of
utility-like revenue from Streaming services has increased
since Hipgnosis’ IPO. This justifies a substantially lower
risk premium applied to music as an asset. These factors
combine to provide a cushion within the historical
discount rate. Citrin Cooperman kept the discount rate
high when interest rates were lower, with the view that
a low interest rate environment would not be sustainable
in the long term. This allowed for the accommodation of
a rise in interest rates without a corresponding increase in
the discount rate.
Evolution of the Discount Rate
— SONG Discount Rate
— Implied ‘Risk Premium’
—
US Benchmark Bond, 10 Year
0%
2%
4%
6%
8%
10%
JAN 23
OCT 22
JUL 22
APR 22
JAN 22
OCT 21
JUL 21
APR 21
JAN 21
OCT 20
JUL 20
APR 20
JAN 20
OCT 19
JUL 19
APR 19
JAN 19
OCT 18
JUL 18
APR 18
JAN 18
APR 23
Source: Factset, Citrin Cooperman
36
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023
The determination of the discount rate is based on an
equally weighted Weighted Average Cost of Capital
(WACC), with the key inputs being Cost of Equity at
9.7% and Cost of Debt at 7.25%.
The Portfolio Independent Valuer reviews the discount
rate regularly and will adjust the discount rate if
it considers it appropriate. A 0.5% increase in the
discount rate to 9.0% would result in a decrease to the
Fair Value of the Catalogue of 7.9% ($222.0 million);
conversely a 0.5% reduction to 8.0% would result in an
increase of 9.4% ($263.0 million). Sensitivities relating to
applied growth rates are set out further in the financial
statements in Note 6.
Market Transactions and Deal Multiples
The Fair Value calculated by the Portfolio Independent
Valuer of $2.80 billion, reflects a multiple of 20.89x
historical annual net Publisher Share income at
the time of acquisition compared to the blended
acquisition multiple of 15.93x.
The table below sets out the transaction multiples for
deals which took place during 2022 and 2023 that
Citrin Cooperman believe most closely resemble the
Portfolio of the Company, in terms of the quality of the
Songs and the genre mix.
The average multiple across this set of 21.9x supports
the Portfolio Independent’s Valuer view on Fair Value.
2022-23 transaction multiples of traded Catalogues that most closely resemble the Portfolio of the Company
Genre Vintage Simplified Vintage Multiple
Rock 1960s, 1970s Standards Music
24.15
Rock 1960s, 1970s, 1980s Standards Music
23.97
Hip Hop, Pop 1990s Standards Music
17.32
Latin, Pop 1990s, 2000s, 2010s Standards Music
23.64
Country, Pop Rock 1990s, 2000s, 2010s Standards Music
20.40
Country, Pop 1970s, 1980s, 1990s Standards Music
24.58
Pop 2000s, 2010s Standards Music
25.46
Rock, R&B 1960s, 2010s Standards Music
18.76
Hip Hop 2010s, 2020s Contemporary Music
24.67
Pop 1980s, 1990s Standards Music
16.73
Country 1970s, 1980s, 1990s Standards Music
21.39
Average Multiple
21.92
Source: Citrin Cooperman. Note: Standards Music is equivalent to Catalogues with a vintage >10 years and Contemporary Music is equivalent to those Catalogues with a vintage
of <10 years.
Citrin Cooperman, the Portfolio Independent Valuer (continued)
STRATEGIC REPORT
37
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023
Revenue
Both in the current and prior period, the Company
recognised a number of non-recurring elements
impacting IFRS revenue, resulting in Total revenue and
Net revenue decreasing to $177.3 million (31 March
2022: $200.4 million) and $147.2 million (31 March 2022:
$168.3 million) respectively. As can be seen below,
the decrease in Net revenue was primarily the result
of the initial recognition of the Usage Accrual in the
prior period ($36.0 million) as well as the non-recurring
element of RTI ($14.1 million) in the prior period, partly
offset by the CRB III retroactive accrual ($16.1 million) in
the current year.
The CRB III retroactive accrual was made in the first
half of the year following the confirmation of the CRB III
rate increase to 15.1% for the Songwriters’ mechanical
portion of US Streaming income by 2023. The accrual
estimates the retroactive payment due to the Company
as a result of revenues in previous accounting periods
not having been recognised at the full CRB III rates.
Excluding these non-recurring elements, the Company
saw an increase in IFRS Net revenues of $12.9 million
or 10.9% year-on-year. This is as a result of an increase
in royalty statements and accruals of $2.4 million, a
movement of $6.2 million related to the Usage Accrual,
a $5.6 million accrual reflecting the revenue attributable
to Hipgnosis in the current year due to the CRB III ruling,
an increase in royalty costs of $1.5 million and an
increase in interest income of $0.2 million.
The chart below bridges the movements in IFRS Net
revenue.
Pro Forma Annual Revenue (PFAR)
Given the multiple non-recurring elements captured
with the IFRS revenue line, to provide Shareholders with
an understanding of the like-for-like performance of
the Company’s revenues, by removing the impact of
new Catalogue acquisitions and these non-recurring
elements, the Company presents the Pro Forma Annual
Revenue (PFAR) performance measure. This shows the
royalty revenue earned by Catalogues in a calendar
year largely based on royalty statements received,
irrespective of whether the Songs were owned by the
Company over the period analysed and does not
include any revenue accruals under IFRS. Although not
directly reconcilable with IFRS revenue, the Company
believes this provides a relevant like-for-like full year
income comparison of the Group’s Catalogues of Songs
held as at the period end.
PFAR is reported for both the <10 year vintage,
i.e. those newer Catalogues where there is typically
an expectation of some natural decay (or loss of
revenues) over time, and for the >10 year vintage,
i.e. those Catalogues which have reached the end
of their natural decay curve.
The table overleaf shows PFAR for Catalogues owned as
at 31 March 2023 over time.
Non-recurring elements FY23 movements
0
50
100
150
200
(36.0)
Movement in IFRS Revenue ($m)
over the financial year ending 31 March 2023
168.3
(14.1) 16.1
6.2
5.6 0.2
Net revenue
FY22
Initial
recognition
of the Usage
accrual in FY22
FY22
non-recurring
RTI
Royalty
statement and
accruals
CRB III
accruals
Interest
income
Net revenue
FY23
(1.5)
147.2
Retroactive
CRB III
accruals
Royalty
costs*
* The Royalty costs attributable to Usage accrual has been included in the Usage accrual analysis
Usage
accrual
2.4
38
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023
Pro Forma Annual Revenue for Catalogues owned
12 months
to Dec 22
$m
12 months*
to Jun 22
$m
12 months*
to Dec 21
$m
12 months
to Jun 21
$m
Total PFAR for
Catalogues owned
as at 31 March 2023 130.2 122.2 116.2 115.9
Vintage <10 years 56.5 52.6 50.0 51.0
Vintage >10 years 73.7 69.6 66.2 64.9
* Restated. Note: Age of a Catalogue is calculated as the average release year of a
Catalogue as at 1 January 2023 weighted on earnings, at time of acquisition. For the
avoidance of doubt, the >10 years now includes some Catalogues that previously were
considered in <10 years
PFAR for the 12 months to December 2022 increased
by 12.1% year-on-year to $130.2 million, a significant
acceleration on growth seen in previous years. PFAR
grew strongly in both categories: by 13.0% year-on-year
in the <10 year to $56.5 million (2021: $50.0 million)
and 11.3% year-on-year in the >10 year vintage to
$73.7 million (2021: $66.2 million). Previously, the Company
has highlighted the stabilisation of the <10 year vintage
PFAR. The significant growth now being seen in this
category highlights that those Catalogues continue
to approach the end of their decay curve and any
remaining decay within certain income streams is being
significantly outpaced by growth.
PFAR does not include any income due to the
Company as a result of the increased royalty rates due
from CRB III ($5.6 million in the financial year) or income
from Hipgnosis Songs Group LLC (HSG) ($5.1 million in
the financial year).
PFAR is set out by income type for calendar year 2022
against the comparative previous calendar year below.
2022 vs 2021 PFAR split by income type
12 months
to Dec 22
$m
12 months
to Dec 21
$m Change %
Streaming 52.11 45.40 +14.8
Synchronisation
19.44 15.59 +24.7
Performance
30.81 28.27 +9.0
Mechanical
4.87 5.01 -2.8
Digital Downloads
2.50 3.59 -30.4
Settlement and Other
3.88 2.20 +76.4
Total Publishing Income
113.61 100.06 +13.5
Masters*
16.63 16.10 +3.3
Total PFAR
130.23 116.16 +12.1
*Masters income includes Artist Royalties, Producer Royalties and Neighbouring Rights.
Streaming income continues to grow strongly, up 14.8%
year-on-year and represented 40.0% of the Portfolio’s
PFAR income for the 12 months to December 2022
(2021: 39.1%). This validates how the Company’s strategy
of acquiring Catalogues with high levels of streaming
consumption benefits from the structural growth in
global paid-for streaming.
Synchronisation income, which includes both fees for the
use of Songs on traditional media outlets as well as digital
licences for social media, gaming and fitness platforms,
grew by 24.7% year-on-year. This reflects the Investment
Adviser’s focus on maximising revenue through pitching,
promoting and procuring synch deals. In addition,
the Company is starting to receive income from digital
licences.
As anticipated in the Interim Report, the Company
received increased performance income in the second
half of the year as recovery from Covid-19 restriction
related declines worked its way through the music
industry payment cycle. This, together with successful
tours from the Red Hot Chili Peppers, Nile Rodgers &
CHIC, Journey and Blondie, amongst many others,
resulted in performance income increasing by 9.0%
year-on-year to $30.8 million, with the second half
up 41% on H1 2022. With all markets now fully open
and major concert tours for all four of the previously
mentioned artists taking place this year, we anticipate
that performance income will continue to recover.
Additionally, Blink-182 are touring and both Beyoncé
and Taylor Swift are performing to sell-out stadiums
with their shows featuring a number of songs in which
Hipgnosis Songs Fund has an interest. Please see our
Super Star features on pages 31, 46-47.
Masters income, which includes income from Artist
Royalties, Producer Royalties and Neighbouring Rights,
increased by 3.3% year-on-year, from $16.1 million to
$16.6 million. This growth was subdued as a result of a
relatively high proportion of younger catalogues within
this income stream continuing to experience some
natural decay.
The Company considers that the PFAR metric will remain
a relevant measure of underlying Portfolio performance
for Shareholders until IFRS revenue reaches a ‘steady
state’ and becomes a comparable measure useful for
the Board and Shareholders.
STRATEGIC REPORT • INVESTMENT ADVISER’S REPORT
STRATEGIC REPORT
39
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023
Costs
Adjusted operating costs, which exclude interest costs
and Catalogue performance bonuses decreased by
21.2% year-on-year to $29.5 million (31 March 2022:
$37.5 million). This is driven by a reduction in Advisory fees
as a function of the Company’s lower share price during
the year, reduced administration, legal and professional
fees as well as lower aborted deal costs.
As a result, Ongoing Charges as a percentage of the
average Operative NAV decreased to 1.21% for the
year ended 31 March 2023 (31 March 2022: 1.54%).
Whilst a significant Catalogue bonus provision is
recognised in the current year, we do not anticipate this
provision to occur at a material level in future years.
Given continuing outperformance on certain
Catalogues, the Company has recognised an
additional Catalogue performance bonus provision
of $43.8 million (31 March 2022: $0.9 million). These
relate to payments to Songwriters where the
recognition of a performance bonus is contingent on
certain performance hurdles defined in the catalogue
acquisition agreements, based on actual and
expected future performance that is highly probable.
Overall operating expenses have increased by 26.4%
year-on-year to $233.9 million (31 March 2022: $185.0
million) due to increased interest costs, as detailed
below, and the increase in Catalogue bonus provisions,
discussed above.
EBITDA
EBITDA for the year ended 31 March 2023 decreased
by 10.1% year-on-year to $117.7 million (31 March 2022:
$130.9 million), reflecting the reduction in net revenue
only partly offset by a reduction in the Advisory fees.
Cash flow and net debt
Net debt decreased to $562.0 million at 31 March 2023
(31 March 2022: $569.9 million) assisted by strong cash
receipts from royalty statements and the change of
dividend timetable, which meant only three dividends
were paid out during the period.
Net cash generated from operating activities increased
to $102.1 million (31 March 2022: $84.9 million).
In addition to the reduction in net debt, due to the
increase in the Operative NAV, net debt as
a percentage of Operative NAV has decreased to
24.3% as at 31 March 2023 (31 March 2022: 25.4%).
Leverage
For the period 1 April 2022 to 29 September 2022 the
Company had a Revolving Credit Facility, led by
J.P. Morgan (the “J.P. Morgan RCF”), which was exposed
to London Inter Bank Overnight Rate (LIBOR) with a
margin of 3.25%.
On 30 September 2022 the Company entered into
a new RCF (the “New RCF”) with a commitment of
$700 million which runs for five years until 30 September
2027. The New RCF, arranged by CNB, bears interest at a
floating rate of interest based on the Secured Overnight
Financing Rate (SOFR), plus an initial fixed margin of
2%. Not only do the terms of the New RCF carry a lower
margin cost, there is also greater operational flexibility
within the facility.
In order to mitigate interest rate risk and provide certainty
over interest payments, the Company completed interest
rate swap agreements. From 30 September 2022 until
2 January 2023, the interest on all the drawn debt was
fixed at 5.71% (including debt margin).
Since 3 January 2023, $340 million has been hedged
for the duration of the RCF (until 30 September 2027) at
a fixed rate of 5.67% (including debt margin); a further
$200 million is hedged until 3 January 2026 at a fixed
rate of 5.89% (including debt margin). The balance
remains unhedged to provide flexibility.
In total, the Company completed interest rate swap
agreements to hedge a total of $540 million at a blended
rate of 5.75%, including debt margin, for a weighted
average life of 4.26 years, starting from 3 January 2023.
These interest rate hedging contracts are not subject
to margin calls in the event of movements in underlying
interest rates.
Loan interest expense increased to $33.7 million
(31 March 2022: $20.4 million) due to the rise in LIBOR
related to the J.P. Morgan RCF which was in place until
29 September 2022.
On derecognition of the pre-existing J.P. Morgan RCF,
$5.0 million was recognised as a borrowing cost
extinguishment charge and represents the unamortised
capitalised borrowing costs on the J.P. Morgan RCF.
STRATEGIC REPORT • INVESTMENT ADVISER’S REPORT
40
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023
Post year end, there was a cash benefit of $1.2 million
received relating to the short-term fair value gain on the
prior quarter’s interest rate swap due to underlying rates
being favourable for that period. As at 31 March 2023,
the fair value of the Held for Trading financial liability was
$3.4 million.
Foreign Exchange Hedge
On 12 October 2022, the Company entered into a
series of US Dollar to Sterling foreign exchange forward
contracts to limit its exposure to foreign exchange rate
risk and to provide certainty on the US Dollar value of
future Sterling dividend payments. This rolling hedging
strategy implemented by the Board ensures there are
£50 million of forward contracts in place at any time.
The foreign exchange forward contracts were in place
until April 2024 and have subsequently been extended
to October 2024.
As at 31 March 2023, the Held for Trading financial asset
relating to the foreign exchange forward contract is
$4.9 million and a fair value gain of $6.0 million is
recognised in the Consolidated Statement of Profit
and Loss.
Dividends
Dividends paid in the year of $56.3 million related
to the periods ending March 2022 (paid 15 June 2022),
June 2022 (paid 28 October 2022) and September 2022
(paid 31 January 2023). An interim dividend for the
period ending December 2022 was declared on
16 March 2023 and paid post year end on 28 April 2023.
The fourth interim dividend in relation to the March 2023
financial year of 1.3125p was declared on 23 June 2023
with a payment date of 28 July 2023.
All dividends were in line with the Company’s annual
target of 5.25p in interim dividends per Ordinary Share.
Dividends paid, of which there were three in the year
of $56.3 million were covered 1.44x by Distributable
Revenues recognised during the year. Dividends
declared, of which there were four in the year,
amount to $75.9 million, which were covered 1.07x by
Distributable Revenues recognised during the year.
In addition, the Company was covered 1.45x on a
Leveraged Free Cashflow measure, necessary to meet
the three dividend payments paid in the year, and 1.08x
the Leveraged Free Cashflow necessary to meet the
four dividends declared in the year.
EPS
EPS for the year ended 31 March 2023 is (7.41¢)
(31 March 2022: (1.65¢)); the reduction to EPS is set out in
the below table:
EPS Bridge Cents
Opening EPS at 1 April 2022 (1.65)
Reduction in Net Revenue
(1.74)
Reduction in Operating Expenses (excluding the
below)
0.36
1. Reduction in Advisory and Performance Fee
0.34
2. Increase in Catalogue bonus Provision
(3.62)
3. Increase in Interest Expenses
(1.10)
Closing EPS at 31 March 2023
(7.41)
As set out previously, the reduction in Total Revenue is
primarily due to the result of the recognition of both the
Usage Accrual ($36.0 million) and the non-recurring RTI
($14.1 million) in the prior year, partly offset by the CRB III
retroactive accrual ($16.1 million) in the current year.
Adjusted EPS, as defined within the Alternative
Performance Measures, which primarily removes the
impact of Catalogue amortisation and other non-
operating costs is 4.12 cents (31 March 2022: 7.18 cents).
Catalogue bonus provision has been included in the
calculation in the current year as the Company does
not anticipate this provision to occur at a material level
in future years. The Group amortises Catalogues over
a useful life, using a straight-line method of 20 years,
which is in line with the industry standard.
Accruals and Receivables
Royalty receivables at 31 March 2023 were $7.1 million
(31 March 2022: $6.6 million), representing royalty
statements received by March 2023 with payment
received subsequent to year end.
Accrued income as at 31 March 2023 was $126.2 million on
a gross basis (31 March 2022: $105.3 million) primarily due
to the recognition of a CRB III accrual. When removing the
accruals relating to the time lag in royalty reporting, CRB III
and Usage accrual, the underlying accrual has reduced
by $7.4 million to $47.2 million (31 March 2022: $54.6 million)
which reflects the efforts of the Investment Adviser to
reduce the working capital cycle to ensure all prior
period revenue has been received.
STRATEGIC REPORT • INVESTMENT ADVISER’S REPORT
STRATEGIC REPORT
41
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023
A breakdown of these accruals is set out below:
• $47.2 million for earnings where, due to the time lag in
royalty reporting, statements are not expected to be
received until calendar Q2 2023 onwards (31 March
2022: $54.6 million);
• $7.8 million income accrual relating to time-lagged
international reporting on PRO earnings. International
PRO reporting has a significant time lag due to the
additional collection time taken for PROs to distribute
income from territories. The lag is due to the nature
of processing royalties locally, then distributing them
to the domestic PRO, which will in turn process and
distribute these royalties to the Group. Six months of
international PRO earnings are accrued, although
PRO processing delays can typically result in an
earnings lag of up to 24 months (31 March 2022:
$7.3 million);
• $21.7 million CRB III accruals (31 March 2022: $Nil).
This is as a result of the confirmation of the CRB III rate
increases in July 2022 for the Songwriters’ mechanical
portion of US Streaming income. Of this, $5.6 million
is the impact of the higher 15.1% rate on the revenue
earned by the Company during the year and
$16.1 million has been recognised as an estimate of
the retroactive payment due as a result of revenues
historically not having been recognised at the full
CRB III rates;
• $42.2 million Usage Accrual, which recognises
revenues that have triggered a contractual payment
but have not been paid to, or processed by,
collection societies, publishers and administrators
(31 March 2022: $36.0 million); and
• $7.3 million HSG gross revenue accrual, (31 March
2022: $7.4 million).
Merck Mercuriadis
Founder, Hipgnosis Songs Fund Ltd and
Founder/CEO, Hipgnosis Song Management Ltd.
12 July 2023
STRATEGIC REPORT • INVESTMENT ADVISER’S REPORT
42
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023
Our Market
Streaming drives music industry growth
Robust growth for the music industry continued to be
exhibited in 2022. This is reflected by the latest figures
from the IFPI showing that global recorded music industry
revenues reached $26.2 billion dollars in 2022, the
eighth successive year of growth and a 9% year-on-year
increase.
The adoption of paid-for music Streaming remained a
significant driver for this growth globally, with revenues
from subscription streaming increasing by 10.3% year-
on-year to a total of $12.7 billion. Paid-for streaming now
accounts for nearly half of all global revenues and this
is also shown by a further 12.6% year-on-year growth in
global paid subscription users, which now stands at 589
million users. In total, Streaming now accounts for 67%
of recorded music revenue, up from 65% last year; as a
result, music is now perceived by many to provide utility-
like revenues.
The growth in Streaming is expected to remain strong
and is part of the Company’s investment case, as
discussed on page 50.
Luminate, which provides the underlying data for the
Billboard music charts, showed that global on-demand
music streaming increased by over a quarter to 5.3 trillion
streams in 2022, with audio on-demand streaming in
the US topping 1 trillion streams for the first time – a 12.1%
year-on-year increase.
The IFPI showed that global revenue from recorded
music performance rights, as known as Neighbouring
Rights – the use of music by broadcasters and public
venues – grew by 8.6% year-on-year, reaching $2.5 billion
in 2022, and surpassing pre-pandemic level. Whilst not
immediately comparable to the performance revenue
seen by Hipgnosis on a PFAR basis on page 37, we note
the growth recovery is on the same trajectory.
The consumer market company Statista highlights that
there are around 6.6 billion smartphone subscriptions
worldwide. With close to 600 million global music
subscribers in 2022, according to the IFPI, market
penetration by Streaming of smartphone owners is
around 10%. This figure is expected to move towards
20% by 2030, according to Goldman Sachs, in their
Music in the Air report. Statista expects the number of
smartphone mobile network subscriptions worldwide
to reach 7.9 billion by 2028 and J.P. Morgan Cazenove
estimates global paid music subscriptions to grow to
1.62 billion by 2030 as a result of an expected rise in paid
subscription penetration.
The smartphone is part of making music the soundtrack
to our lives. Nowhere is this more clearly demonstrated
than in both established and emerging online platforms.
As with Streaming, as connectivity rises and data costs
reduce, the attractiveness and sophistication of social
media sites increases. When music is used on these sites,
royalties are due to the artists who created the music
and therefore to the Company. Additionally, sites like
TikTok, which has over one billion active users, can be
shown to drive traffic to other Digital Service Providers
(DSP) such as Spotify and YouTube where users consume
more of the music they have heard.
4
8
.
3
1
7
.
5
9
.
4
3
.
6
2
.
4
1
8
.
7
Global recorded music revenues
by segment 2022 (%
)
Source: IFPI

Subscription audio streams

Ad-supported streams

Physical
 Performance Rights
 Downloads & other Digital
 Synchronisation
67.0%
Total Streaming
STRATEGIC REPORT
STRATEGIC REPORT
43
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023
Growth strong in Emerging Markets
North America is the largest market for recorded
music with the IFPI reporting 5% year-on-year growth
in revenues in 2022. Europe, the second largest market
saw growth of 7.5% year-on-year. Emerging markets
continue to show strong double digit revenue growth
with South America and Middle East & North Africa
reported as increasing revenues by around a quarter
and Sub-Saharan Africa by over a third. A 28% year-on-
year rise in China saw it move into the top five markets
globally for the first time.
Historically, the music industry received relatively little
revenue from emerging markets, where bootleg copies
which paid no royalties were prevalent. The advent of
streaming, albeit at lower rates than paid in the USA,
Europe or Japan, means that over time royalty revenues
from emerging markets will become increasingly
important for companies such as Hipgnosis, which own
globally iconic Songs that are streamed around the world.
Music Publishing is recovering
A continuation of recovery in music publishing revenues
was seen in 2022, driven by the public performance
segment, which benefitted from the re-opening
of public venues. 2022 has seen further recovery.
Collection revenues now have surpassed 2019, the levels
seen pre-pandemic.
The following chart shows the collection revenues
for the largest collection societies for 2022. It also
shows that the largest US collection management
organisations (CMOs), Ascap and BMI, showed
growth in collections of 14.1% and 15.6% year-on-year
respectively. Each now has collections surpassing
$1.5 billion. In Europe, the collection revenues of
Sacem, another music royalty collection company,
increased by 34% year-on-year in 2022 to €1.4 billion.
Sacem is amongst the largest CMOs and is the entity
that Hipgnosis Songs Fund now uses to collect digital
revenues primarily in Europe. Growth in collections was
driven by digital (i.e. mainly streaming) and the return
of concerts and festivals.
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
Annual total collection in 2022
Gema
(Germany)
Sacem
(France)
BMI
(US to end of Jun)
ASCAP
(US)
PRS for Music
(UK)
+14%
+16%
+34%
+13%
+24%
%
year-on-year growth
Source: Music Business Worldwide, Hipgnosis Songs Fund; ASCAP, BMI,
Gema, PRS,
Sacem; non-USD currencies converted to USD at annual 2022 average exchange
rate per the IRS; all figrues
USD $million
The growth seen by the CMOs is reflective of the overall
music publishing market. Goldman Sachs, in their recent
2023 Music in the Air report, estimates the market enjoyed
another stronger than anticipated year of revenue growth
up 18% year-on-year in 2022, to $8.2 billion. They are
now predicting the global music publishing market to
grow with a CAGR of 7.6% (previously 5.9%) through to
2030, reaching a value of $14.7 billion in 2030.
Live performance has rebounded
The summer of 2022 saw successful tours by Blondie,
Red Hot Chili Peppers, Lindsey Buckingham, Nile
Rodgers & CHIC, Journey and many others within
the Hipgnosis family. Live Nation Entertainment,
the leading live entertainment company, reported
record attendance at events in 2022 – with concert
attendances up 24% versus 2019 (pre-pandemic).
Encouragingly, they reported in May 2023 that, for the
first time in three years, all their markets were open and
they were seeing further record levels of activity in their
concerts business.
Goldman Sachs estimates the market was $26.5 billion in
2022 and predicts the Live Music industry will remain an
attractive market with a steady growth outlook (CAGR
+5% 2023-30).
STRATEGIC REPORT • OUR MARKET
44
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023
STRATEGIC REPORT • OUR MARKET
Price rises at the DSPs
During the year, we saw the first increase in premium
streaming prices for a number of streaming services
including Apple Music, Amazon Music and Deezer
moving beyond the £/$/€ 9.99 per month price point
for an individual plan. For example, in Q4 2022, Apple
Music increased the monthly price of its individual and
family subscription by $/£/€1 to $/£/€10.99 and $/£/€2
to $/£/€16.99 respectively in the US, UK and continental
Europe; Amazon Music has followed suit, with new
pricing plans in place from February 2023 and Spotify is
in the process of introducing Premium pricing. Despite
these price rises, they are still seeing subscriber growth
and it is expected Spotify and other streaming platforms
will follow suit.
Rise of Artificial Intelligence
Over the centuries music has adapted to and
benefitted from many developments in technology,
and as discussed on pages 5 and 18, we expect
Artificial Intelligence (AI) will have both benefits and
drawbacks for the songwriting community.
Specifically, the Company anticipates that AI will
provide competition for new songs and artists. However,
AI cannot replace the excitement of attending a
stadium concert with a star artist. More importantly,
given the Company’s iconic and culturally significant
portfolio, AI will never replace the emotional
connection that consumers all over the globe have to
our Songs.
We expect AI to both interpolate and sample the
Company’s iconic Songs and generate new versions
of these Songs that will create new IP and additional
revenues streams for the Company. Global copyright
laws provide a significant degree of protection for our
Intellectual Property. Nonetheless, we are working with
legislators who are actively looking at how to fill any
gaps which are created by this new technology and we
will support measures which prevent AI from learning
from in-copyright music and recordings to the detriment
of artists and Songwriters.
Copyright Royalty Board
CRB III 2018-22
During the period there were a number of significant
regulatory developments from the Copyright Royalty
Board (CRB), which sets royalty rates for the United
States, the Company’s biggest market.
In July 2022, after a lengthy process, the 2018-22 rate
increases on the Songwriter’s mechanical portion of
US Streaming income, known as CRB III, were finally
agreed. This culminated in the “all in” headline
(mechanical) statutory minimum rates for Streaming
paid in the US to increase by a total of 44%, from 10.5%
to 15.1% over the course of the CRB III period.
The headline rates of the percentage of service
provider revenue agreed by the CRB per royalty year
were as follows:
2017 2018 2019 2020 2021 2022
10.5% 11. 4% 12.3% 13.3% 14.2% 15.1%
As detailed in the Financial Review on page 34, this has
led to a $16.1 million accrual for retroactive revenue
due to the Company for the years 2018-2021 and a
$5.6 million accrual to monies expected to be earned
in 2022.
Whilst some Publishers had different policies on whether
they paid out any higher rates received from DSPs up
to when the CRB III ruling was appealed, the Company
has taken a blanket approach and has not considered
any Publisher specific policies given the lack of clarity
from the various payors.
To provide additional rigour on the calculation, the
CRB III retroactive and uplift accrual estimates were
compared, and benchmarked against, the estimates
provided by the Portfolio Independent Valuer and the Fair
Value appraiser for the CNB-led Revolving Credit Facility.
For the period 2018-20, responsibility to adjust payments
as necessary to these new rates rests with the DSPs or
their historic agents. For the period post January 2021,
the responsibility to collect and distribute these uplift
adjustments falls to the Mechanical Licensing
Collective (MLC).
The transition to the MLC results from the designation
by the U.S. Copyright Office for the MLC to begin
STRATEGIC REPORT
45
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023
administering blanket mechanical licenses to digital
service providers in the United States and paying out
the royalties collected. As a newly formed entity, the
MLC has launched several initiatives to ensure that their
databases correctly reflect who should receive royalties
for each Song. Since 2022, Copyright teams across the
industry have focused on working collaboratively to
improve the accuracy of this registration data. Ensuring
the quality of this data will not only help to ensure
that we maximize the collection of CRB III adjustment
payments but will also maximize collection of future
streaming royalties.
On 22 June 2023, the CRB issued its final determination
for Songwriters’ and publishers’ US Streaming royalty
rates, reaffirming its previous decision to incrementally
increase the rates 44%.
This has now triggered the start of a complex
reconciliation process to account for the past five years
worth of royalties under the new rules. That process will
take place over the next six months with Streamers and
publishers reviewing their accounting for the period.
Assuming there are no further delays, the earliest
possible payment to publishers of historic adjustments
is expected to be end 2023, with settlements due to
Hipgnosis following after that.
CRB IV 2023-27
The next CRB IV settlement period began in 2023.
The joint proposal from The National Music Publishers’
Association (NMPA) and Nashville Songwriters
Association International (NSAI) and the Digital Media
Association (DiMA) approved the headline royalty rate
for mechanical streaming in the US rise further from 15.1%
to 15.35%, phased in over the five-year term from 2023-27.
The headline rates of the percentage of service provider
revenue agreed by the CRB per royalty year are:
2023 2024 2025 2026 2027
15.10% 15.20% 15.25% 15.30% 15.35%
While we believe more significant increases are
warranted and will come, this agreement will provide
the highest royalty rates ever for Songwriters in the
streaming economy and five years of stability from
which to build. Additionally, the deal also includes a
number of changes to other components of the rate,
including increases to the per subscriber minimums
and the “Total Content Costs (TCC)” calculations which
reflect the rates that services pay to record labels and
modernizes the treatment of “bundles” of products or
services that include music streaming.
Separately, we support a 32% uplift in the mechanical
rate paid to publishers and Songwriters for music
purchased as a physical sale from 9.1¢ per track to
12¢ per track from 2023-27 with further annual increases
in line with the Consumer Price Index. The agreement
was proposed by The National Music Publishers’
Association (NMPA) and Nashville Songwriters
Association International (“NSAI”) and Sony Music
Entertainment, UMG Recordings, Inc. and Warner Music
Group Corp to the Copyright Royalty Board (CRB)
as settlement on mechanical royalties for the CRB IV
period, running from 2023 to 2027. This is a significant
upside for our iconic Songwriters and artists such as
Red Hot Chili Peppers, Fleetwood Mac, Soundgarden,
Journey and many others that derive significant
revenue from the sale of physical product.
The joint proposals for CRB IV are significant as they
demonstrate growing acceptance across the industry
that artists and Songwriters should be fairly remunerated
for their work. Hipgnosis will continue to be at the
forefront of the campaign to move Songwriters (and the
owners of songwriting royalties) from the bottom of the
economic equation to the top, recognizing their vital
role within the music industry. At Hipgnosis, our investors
stand in the shoes of Songwriters so there is complete
alignment with the best interests of Songwriters and
Shareholders.
STRATEGIC REPORT • OUR MARKET
46
SUPERSTARS • SUPER TOURS
Beyoncé’s Renaissance World Tour
“She hasn’t just raised the bar – she’s obliterated it”
†
1st solo tour since 2016, started 10 May 2023
21 European concerts performed to 1.04 million fans
37 North American concerts confirmed*
10 of the Songs performed are from the Hipgnosis Catalogue
Hipgnosis’s Songs that are part of the Renaissance Tour:
Love On Top • The-Dream
Run The World (Girls) • The-Dream
Partition • The-Dream
1+1 • The - D ream / Tri cky S tewar t
Diva • Sean Garrett
I Care • Jeff Bhasker
Rather Die Young • Jeff Bhasker
Heated • HSG Admin
Get Me Bodied • Sean Garrett
Lift Off (feat. Beyoncé & Kanye West, by Jay Z) • Jeff Bhasker
Other Songs by Beyoncé in our Catalogue:
Halo • Evan Bogart
Irreplaceable • Espionage
Single Ladies (Put a Ring on It) (2x GRAMMY®)
• Th e - Drea m / Trick y Stewa rt
XO • The-Dream
Countdown • The-Dream
Sweet Dreams • R ico Love / Wayne Wil kins
Hold Up • Emile Haynie
End Of Time • The-Dream
Dance For You • The - D ream / Tric ky S tewar t
Upgrade U (feat. Jay Z) • Sean Garrett
Listen (From the Motion Picture “Dreamgirls”)
• Scott Cutler
Party (feat. André 3000) • Jeff Bhasker
Déjà vu (feat. JAY-Z) • Rodney Jerkins
All Night • Ilsey Juber
Jealous • Lyrica Anderson
6 Inch (feat. The Weeknd) • The-Dream
Schoolin’ Life • The-Dream
Freedom • Jonny Coffer
Ring The Alarm • Sean Garrett
Smash Into You • Th e - Drea m / Tric ky S tewar t
Video Phone (+ Gaga remix) • Sean Garrett
Video Phone (feat. Lady Gaga) • Sean Garrett
Hello • Evan Bogart
Yoncé • The-Dream
† The Guardian * as at 4 July 2023
Photo by Kevin Mazur / Contributor by Getty Images
STRATEGIC REPORT
47
Flawless • The-Dream
Radio • Rico Love
Green Light • Sean Garrett
Scared Of Lonely • Rod ney Je rkin s / Rico Love
Save The Hero • Rico Love
Daddy • Mark Batson
World Wide Woman • Sean Garrett
Check On It (feat. Bun B & Slim Thug) • Sean Garrett
Grown Woman • The-Dream
Lay Up Under Me • Sean Garrett
Lost Yo Mind • Sean Garrett
Poison • Johnta Austin
BEYONCÉ FEATURES:
LADY GAGA
Telephone (feat. Beyoncé) • Rodney Jerkins
J BALVIN
Mi Gente (feat. Beyoncé) • The-Dream
JAY-Z
Lift Off (feat. Beyoncé & Kanye West) • Jeff Bhasker
JAY-Z
Part II (On The Run) (feat. Beyoncé) • The-Dream
JAY-Z
Family Feud feat. Beyoncé • No I.D.
MARY J. BLIGE
Love A Woman (feat. Beyoncé) • Sean Garrett
DESTINY’S CHILD:
Say My Name • Rodney Jerkins
Soldier (feat. TI & Lil’ Wayne) • Sean Garrett
Got’s My Own • Sean Garrett
Cater 2 U • Rodney Jerkins
Lose My Breath (2004) • Se an Ga rret t / Rod ney Jerk ins
The Girl Is Mine • Rodney Jerkins
Brown Eyes • Walter Afanasieff
T-Shirt • Sean Garrett
Through With Love • Sean Garrett
Is She The Reason • Sean Garrett
Feel The Same Way I Do • Rodney Jerkins
Game Over • Sean Garrett
My Heart Still Beats • Walter Afanasieff
48
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023
The Hipgnosis Song Management Team
Our Team is comprised of HSM, its Advisory Board and HSG across multiple locations,
including London, Los Angeles, New York and Nashville.
STRATEGIC REPORT
STRATEGIC REPORT
49
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023
Our Senior Management Team
STRATEGIC REPORT
Patrick Joest
Head of Synch, HSM
Rosa Mercuriadis
Chief Creative Officer, HSM
Sara Lord
EVP Content Creation, HSM
Rufina Pavry
Director, Investor Relations,
on behalf of Hipgnosis Songs Fund
Merck Mercuriadis
Founder & Chief Executive Officer,
HSM
Ben Katovsky
President & Chief Operating Officer,
HSM
Chris Helm
Chief Financial Officer,
on behalf of Hipgnosis Songs Fund
Danny Bennett
EV P, HS M
Giles Croot
Corporate Affairs Director, HSM
Ashley Burns
Chief Strategy Officer, HSG
Kenny MacPherson
Chief Executive Officer, HSG
50
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023
Our Purpose,
Business Model,
Culture and Values
Our Purpose
Hipgnosis was created to give the investment
community access to extraordinarily successful hit
Songs by culturally important artists and to establish
Songs as an uncorrelated asset class with attractive
returns. Our ulterior motive is to use the importance of
our unparalleled Catalogue and our financial clout
as influence to improve the Songwriter’s position in the
economic equation.
A. Our Business Model
The key characteristics of the Hipgnosis business
model are:
1. Sustainable earnings, uncorrelated to global
capital markets, with sources of income from across
the spectrum of music consumption patterns made
up of millions of microtransactions such as Streaming,
physical purchase, downloading, Synchronisation,
performance, licensing and merchandising.
Related principal risks: ①③④⑤⑥⑦⑨
2. A durable and diversified portfolio of high-quality
assets founded on the copyright security – 70 years
after the death of the last co-composer – of works
across a broad range of genres, vintages and
geographies of consumer markets. On average
our Songs have more than 100 years of copyright
protected revenue.
Related principal risks: ⑦
3. The benefits of scale on diversification; giving
smoother income the larger the fund gets; and the
opportunity to drive incremental equity yield over
the contracted period through active management
and appropriate outsourcing of administration.
Related principal risk: ④
4. Exposure to structural growth themes in relation to:
i) the penetration of technology into everyday life;
ii) the growing value of entertainment markets; and
iii) the recognition of the real asset value
of intellectual property rights.
Related principal risk: ⑦
Every Song has two copyrights: Composition (lyrics
& melody), held by the Songwriter and Sound
Recording (the sound heard), held by those involved
in the recording of the Song. Royalties stemming
from the Composition Copyright are referred to as
Publishing Rights (aka Songwriter Rights). Hipgnosis
Songs Fund focuses primarily on acquiring these, but
owns selective Sound Recording Rights as well.
Publishing Rights
These are rights in a
musical composition
(lyrics and/or music) and
generate Mechanical and
Performance Royalties. In
the UK, “blanket licences”
are issued to organisations
including radio and TV.
Mechanical Royalties – These
are triggered when a copy
of a Song is made, whether
physical (e.g. CDs, DVDs)
or digital (e.g. permanent
downloads, Streaming,
webcast). The Streaming of a
Song is a hybrid: a temporary
copy is made, so it generates
a Mechanical Royalty, but
it is also treated as a public
performance of that Song,
generating a Performance
Royalty.
Performance Royalties –
These royalties largely come
from live performances and
licences taken out by shops,
restaurants, clubs and bars
etc to publicly perform or
broadcast a Song.
Sound Recording Rights
Master (Recording)
Royalties – These (aka
Recording Royalties) are
generated on behalf of
a sound/master recording.
This is the most basic royalty
performing artists and labels
earn when their master
recording is downloaded,
physically bought, or
streamed.
Neighbouring rights – These
(aka Related Rights) are
public performance royalties
due to the sound recording
copyright holder. One has to
distinguish between terrestrial
broadcast platforms (like
radio, TV, and venues) and
digital platforms (like Internet
and satellite radio) because
not every country, notably
the US, recognises or pays
terrestrial neighbouring rights.
Synchronisation Fees
These are generated when
a visual image (e.g. TV, film,
advertising or video games)
is matched to a Song.
There are multiple channels
through which royalties are
collected. These are depicted
by the arrows in the diagram
opposite.
The diagram opposite shows
the flows to Hipgnosis Songs
Fund from its ownership of its
Copyrights
The Income Stream for
Copyright Owners
Our principal risks and uncertainties are discussed on
pages 62-66.
STRATEGIC REPORT
Footnote: The logos above are representative of users for illustrative purposes only. The trade mark s are the property of the respective owners.
The Company does not earn revenue directly from these sources, but through third parties, as illustrated.
Collected by the
Societies eg:
• ASCAP
• BMI
• PRS for Music
• SESAC
• PPL
• So und Exchange
• Sacem
Collected by the
Administrators eg:
• Sony Publishing
• Universal Publishing
• Wa r ner Chappell
• K obalt Publishing
• HSG
• BMG
• Peermusic
Earned by the
Record Companies eg:
• Universal Music Group
• Sony Music
• Wa r ner Music Group
Direct
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STRATEGIC REPORT
51
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023
STRATEGIC REPORT • OUR PURPOSE, BUSINESS MODEL, CULTURE AND VALUES
52
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023
B. Our Sources of Advantage
Our Purpose is to achieve great risk-adjusted
returns for Shareholders as well as to use your
Company's influence (and the countless great
Songs owned) to achieve an ulterior motive:
improve the Songwriter’s undervalued position
in the economic equation of the music industry.
1. Access and Culture of our Investment Adviser
• Our Investment Adviser has the relationships,
reputation and expertise in the industry to be
an advocate and catalyst for improving the
Songwriters’ share of income and where they sit in
the economic equation.
• This also enables our team to overcome the high
barriers to entry in relation to the acquisition and
active management of Catalogues.
• We are Song Managers; when compared to
the major publishing houses, we are viewed as
a safer alternative custodian who can protect
the meaning and secure the financial future of
the creator’s Songs, and address the structural
imbalance between payments on recorded music
and payments to the Songwriters.
• We have created an Advisory Board, assembled
from leading music industry figures, who we
believe are well placed to advise on any given
Song’s potential market, reach and popularity.
• Our team’s extensive experience across a broad
spectrum of music genres, together with its
relationships with Songwriters and recording artists
in the music industry, means it is well-positioned to
continue to source opportunities for us to invest in
a diverse range of attractive Catalogues and then
assist us in maximising earnings from them.
• We are positioned as an attractive potential
purchaser of Catalogues from Songwriters and
other owners of music intellectual property rights
who are protective of their legacy and selective
about whom they are willing to sell to. We have
made our reputation by working with Songwriters,
artists and producers, not at their expense.
• Our culture is focused on long lasting relationships,
excellence delivered with integrity and world-
class leadership backed by extensive industry
knowledge that will help create a Songwriter
community rapport and a diverse, innovative,
multi-cultured portfolio of song assets, with a
strong emphasis on the great works of the African-
American Songwriting Community.
Related principal risks: ⑥⑧⑨
2. Streaming
• Technology has changed music consumption.
• The monetisation of music has improved.
• The revenue pie has grown dramatically – the IFPI
reports that there were 589 million global users of
subscription Streaming services at the end of 2022,
compared to 68 million global subscribers in 2015.
• Music is now a utility purchase rather than
discretionary or a luxury spend in many established
global economies.
• High exposure to Streaming and low exposure to
live music, allowing us to tailor our portfolio to fit the
new requirements of popular culture and media,
including playlists, social and virtual reality platforms.
Related principal risks: ⑦
3. Song Management
• Our Investment Adviser has an extensive network
of relationships with broadcasting networks,
TV studios and advertising agencies to create
Synchronisation opportunities for the Company
and enable it to increase its income. Having a
diversified Portfolio of Songs enables the Company
to capitalise on multiple Synch opportunities.
• Our Investment Adviser's expertise results in us being
well-positioned to manage the Songs we own
successfully, increasing royalty collection, improving
the speed and accuracy of collection of royalty
income, and improving Synch placement of the
Songs.
• Our Investment Adviser’s team is specifically
structured to have the bandwidth that allows us
to Song Manage in order to extract incremental
revenue with a focus on a smaller number of
songs per Executive than the publishing majors.
Related principal risks: ⑥
STRATEGIC REPORT • OUR PURPOSE, BUSINESS MODEL, CULTURE AND VALUES
STRATEGIC REPORT
53
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023
4. Efficiencies In collection
• We work to bring efficiencies via faster and more
transparent collection of micro-payments via our
preferred administrators.
• A key part of our strategy is to reduce and
eliminate administration costs and ensure that
payments due are received as quickly as possible.
• The Company continues to revert and renegotiate
administration rates on Catalogues to our
preferred administrators at the earliest possible
opportunity (unless there are compelling reasons
to partner with existing administrators) and
continually looks for the best solution.
• The Company continues to move the
administration for the US component of our
Catalogues to HSG.
• The Investment Adviser and the Directors
acknowldge that HSG can provide US
administration cheaper than a third-party
administrator, generating administration cost
savings of approximately 1.0-1.5% of royalty income
administered.
• Likewise, outside the US, we proactively manage
our options to ensure the administration of our
Catalogues is carried out as efficiently and cost-
effectively as possible.
• The Company has also entered into a direct
licensing and administration partnership with
Sacem, a world-leading Collective Management
Organisation (CMO), to collect digital rights for the
Writers’ Share and the Company’s own Publisher
Share, primarily in the UK and the European
Union, as well as entering into a sub-publishing
partnership with peermusic to collect publishing
rights and other royalties in the rest of the world,
excluding the US.
Related principal risks: ①③⑧
STRATEGIC REPORT • OUR PURPOSE, BUSINESS MODEL, CULTURE AND VALUES
54
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023
Our Objective, Strategy and Investment Policy
Our Investment Objective
The Company’s objective is to provide Shareholders
with an attractive and growing level of income,
together with the potential for capital growth, from
investment in Songs and associated musical intellectual
property rights, in accordance with its investment policy.
Investment Policy
The Company’s Investment Policy is to diversify
risk through investment in a Portfolio of Songs and
associated musical intellectual property rights
(including, but not limited to, master recordings, rights
over future Songs that are acquired by the Group
through the payment of Advances to such Songwriter
and secured against the future Songs, and producer
royalties). The Company seeks to acquire 100% of a
Songwriter’s copyright interest in each Song, which
would comprise their writer’s share, their publisher’s
share and their performance rights. In appropriate
cases, however, the Company may not acquire all
3 elements of the Songwriter’s interest. The Company
acquires interests in Songs which are sole authored or
co-authored. The Company may also acquire interests
in Songs jointly with another purchaser. Each Song is
considered by the Company to be a separate asset.
The Company, directly or indirectly via portfolio
administrators, enters into licensing agreements, under
which the Company receives payments attributable to
the copyright interests in the Songs which it owns. Such
payments may take the form of royalties, licence fees
and/or advance payments, including:
• Mechanical Royalties – when a copy of a Song
is made, whether physical (e.g. CDs, DVDs, vinyl)
or digital (e.g. permanent downloads, Streaming,
webcast);
• Performance Royalties – when a Song is performed
live or broadcast on TV or Radio, or when a song is
streamed online; and
• Synchronisation Fees – when a Song is used in
another form of media or moving picture (e.g. movie,
TV show, video game, advertisement).
The Company also receives royalties and fees payable
in respect of master recordings. Master recordings
are the copyright in the master recording of a
musical composition or Song. Master recordings earn
Synchronisation royalties and generate income from
sales of both physical records and digital downloads as
well as from DSPs.
The Company focuses on delivering income growth
and capital growth by pursuing efficiencies 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. The Company may acquire Songs
or Catalogues directly, or indirectly by acquiring the
entity through which such Songs or Catalogues are held.
Whilst the Company does not intend to sell the Songs it
owns, it may make disposals of Songs where it considers
such a disposal to be in the best interests of Shareholders.
Investment restrictions
The Company invests its assets and manages the Songs
it acquires with the objective of constructing a high
quality and diversified Portfolio of Songs. The Company
acquires Catalogues from a number of different
Songwriters, which includes Songs diversified across
music genres and sung by numerous recording artists.
The Company is subject to the following investment
restrictions:
a) the Company holds interests in a minimum
of 300 Songs;
b) the Advances made to Songwriters in connection
with the acquisition of rights over future Songs
will not represent more than 5% of the Company's
Gross Assets, calculated at the date of the relevant
Advance;
c) the value of any single Song does not, and will not,
represent more than 10% of the Company's Gross
Assets, calculated at the date of the acquisition
of such Song (and re-calculated in the aggregate
upon the acquisition of any additional interest in a
Song). In the event this limit is breached at any point
after the relevant investment has been made or
added to (for example due to a change in valuation
of any Song), there is no requirement to sell any
Song, in whole or in part; and
d) the Company does not, and will not, invest in
closed-ended investment companies or other
investment funds.
STRATEGIC REPORT
STRATEGIC REPORT
55
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023
Cash management
The Company’s uninvested capital may be invested
in cash, cash equivalents, near cash instruments and
money market instruments.
Hedging and derivatives
The Company may utilise derivatives for efficient portfolio
management. In particular, the Directors may engage in
full or partial foreign currency hedging and interest rate
hedging. The Company does not, and will not, enter into
such arrangements for investment purposes.
Leverage
The Company may incur indebtedness of up to a
maximum of 30% of its Operative Net Asset Value,
calculated at the time of drawdown. For these purposes
all bank borrowings and other forms of indebtedness
incurred by any member of the Group (as defined
below), and any non-equity share capital, will be taken
into account. “Group” means the Company and its
subsidiaries (as defined in section 531 of the Companies
(Guernsey) Law, 2008, as amended).
Amendments to and compliance with the Investment
Objective and Policy
Any material change to the Company's Investment
Objective and Policy will be made only with the prior
approval of the FCA and 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 made via
an RNS announcement.
Our Strategy
1. Smart acquisition of Songs or Catalogues
To benefit from the structural growth drivers discussed
in Our Market, we continue to identify Catalogues of
culturally important proven hit Songs which we believe
offer significant value opportunities both from market
growth and Song Management.
Related principal risks: ④⑥⑦⑨
a) A diversified and balanced Portfolio of Songs
Our Portfolio mostly comprises seasoned, classic
Songs (often referred to as ‘evergreen’), which include
Songs released more than 10 years ago. These Songs
accounted for approximately half of the Portfolio
(based on fair value) as at 31 March 2023, and produce
income that is expected to grow progressively in line
with the continued adoption of Streaming, and have
the potential for further growth through being actively
managed by the Investment Adviser.
In addition, with Streaming growth being the backbone
of our investment thesis, we seek to source some
Catalogues that include newer hit Songs which have
demonstrated extraordinary, recent success. As at
31 March 2023, approximately 1% of the Portfolio
(based on fair value) was derived from Songs that were
released less than three years ago. The Investment
Adviser therefore seeks to identify newer Songs from
this group in order to provide the Company with high
exposure to Streaming.
b) Acquisition of rights over Songs through payment
of advances by the Group
We may acquire rights over future (unwritten) Songs
that are acquired by payment of Advances to
Songwriters, with such advanced amounts (in
aggregate) being capped at 5% of the Company’s
Gross assets, calculated at the time of investment.
The non-refundable Advance to a Songwriter is
consideration for them writing Songs and is recoupable
from the future royalties generated by those Songs,
which will include the writer’s share of those royalties but
may also include the performer’s share of such royalties
and the master recording rights. As at 31 March 2023,
we maintain an active roster of over 169 Songwriters.
We consider Advances to be a cost-effective way to
generate royalties in the future from Songs written by
highly regarded Songwriters.
STRATEGIC REPORT • OUR OBJECTIVE, STRATEGY AND INVESTMENT POLICY
56
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023
2. Active Song Management to provide
upside potential
We follow a diligent approach to sourcing potential
Catalogues for acquisition, which includes careful
assessment of the underlying Songs and an assessment
of the opportunity for Song Management. Once a
Catalogue has been acquired by us, the Songs are
pro-actively managed on an ongoing basis in order to
maximise the earning potential and income growth,
including through improved Synch placement and
usage, and through pursuing efficiencies in revenue
collection. This, we hope, will lead to:
Related principal risks: ①②⑥⑦⑧
a) Driving income growth through pursuing
efficiencies in revenue collection
i) Registration audit
On acquisition of a Catalogue we perform a deep
dive exercise into the detailed ownership of all Songs
within the Catalogue to ascertain ownership rights,
income sources and key Songs, in order to determine
an optimal strategy for revenue growth. As part of
this exercise, we seek to identify any issues relating to
the registration of Songs, or the collection of a Song’s
income, and remedial actions are taken.
ii) Efficiencies from improved portfolio
administration agreements
The acquisition of the Administration capabilities
within HSG represented a significant step in the
Group’s strategy of driving income growth through
pursuing efficiencies in the collection of payments
and Song Management. The direct licensing and
administration partnership with Sacem and the sub-
publishing partnership with peermusic also enhance
these collection efficiencies.
iii) Early adoption of technological
advancements to increase collections
The Investment Adviser monitors technological
advances that will enable it to exploit, identify and
locate lost revenues.
b) Improving Synch placement and usage
of Songs to grow income
i) Synchronisation
The Investment Adviser seeks to exploit all variations of
potential Synchronisation opportunities, from placing
Songs in commercials, popular TV shows and films
to encouraging popular recording artists to cover
older Songs within a Catalogue. The Investment
Adviser seeks to source Catalogues for the Company
which it believes contain Songs which have been
overlooked, or Songs that do not have strong,
historic revenue figures but for which the Investment
Adviser sees potential fresh revenue streams through
Synchronisation opportunities. The Investment Adviser
seeks to leverage its expertise and deep relationships,
and to utilise the innovative technology and business
relationships of portfolio administrators, in order to
pursue these Synchronisation opportunities.
ii) Digital review
The Investment Adviser undertakes a full digital
review of each Catalogue to ensure that the
Company’s Songs have maximum exposure on all of
the key digital and social media platforms including
each of the DSPs.
iii) Maximising presence across DSPs globally
The Investment Adviser has relationships with all
key DSPs, digital partners and Synch and creative
networks including YouTube, Spotify, Apple, Deezer,
Amazon, Tencent/QQ and TikTok. Through direct
contact with these platforms, the Investment Adviser is
able to identify opportunities for its Songs to increase
their exposure on the platform.
iv) Promoting Songs to increase usage and
introduce new audiences
The Investment Adviser, and its Advisory Board, due
to their existing position and relationships, are able to
create new opportunities to place and promote the
Company’s Songs. The Investment Adviser believes
that the Company is one of the only investment
companies which invest in Songs that is strategically
using its cultural position in the music industry to
promote the Songs it owns.
For a discussion of our performance against our
strategic priorities, see pages 17-41. Our principal risks
and uncertainties are presented on pages 62-66
STRATEGIC REPORT • OUR OBJECTIVE, STRATEGY AND INVESTMENT POLICY
STRATEGIC REPORT
57
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023
To achieve our purpose, Hipgnosis has to generate
attractive financial returns from our business; to do that
we need to have the right resources and relationships in
place and to nurture them.
Our business takes the form of investment in the
intellectual property rights of proven hit Songs of cultural
importance.
While music copyrights do not have any significant
environmental or corporate governance implications,
per se, being abstract legal entitlements rather than
corporate or physical entities, we seek to ensure that
the conduct of our business and the promotion of our
Songs is undertaken in a manner consistent with best
practice in ESG.
This is because our activities have a high profile and
our actions, as custodians of these musical assets,
can have an impact across society and the musical
community.
Which is why our ulterior motive is at the heart of
our stated purpose: to use the importance of our
unparalleled Catalogue and financial clout as
influence to improve the Songwriter’s position in the
economic equation. What is good for Songwriters is
good for all of our stakeholders. This ethos flows into
wider ESG issues, too.
Our ability to continue to grow our business and
be successful is entirely contingent on our integrity
and behaviour. As a consequence, our responsible
investment policy is constantly evolving. As a first mover
in our asset class, we seek to set the benchmark for
responsible investment in music assets for others to
measure themselves against.
Key Decisions
We view key decisions as those that are material to
our success and long-term sustainability, but also as
those that are materially significant to any of our key
stakeholders or that have a material impact on our
community or environment. In making a decision, we
consider the outcome based on our understanding
from our stakeholder engagement activities, as well as
the need to maintain a reputation for high standards
of business conduct.
We invest in a culturally diverse range of Songs, with a
particular emphasis on supporting music from African-
American heritage. The Company has adopted a
responsible investing policy and legal due diligence is
undertaken to make sure the Company acquires assets
from reputable sources.
The Key Decisions that the Board has made are
summarised within the Board Leadership and Company
Purpose section on page 78 and Section 172(1)
Statement on page 70.
Whilst there is still more to do, we are committed to
demonstrating continued and transparent progress
regarding our ESG impacts.
Sustainability Risks and SFDR
The EU Sustainable Finance Disclosure Regulation (SFDR)
is a regulatory framework which applies to us in our
capacity as a self-managed investment trust. We have
therefore made the following sustainability-related
disclosures in accordance with Articles 6(1) of SFDR.
The Company is not considered to be an ‘ESG financial
product’ since it does not promote and does not
maximise portfolio alignment with Sustainability Factors
(as defined in SFDR). The investments underlying this
financial product do not take into account the EU
criteria for environmentally sustainable economic
activities as these assets falls outside their scope.
Nevertheless the Company is exposed to sustainability
risks due to the nature of the assets in which it invests,
but these risks are not material:
• How Sustainability Risks are integrated into our
investment decisions
Sustainability Risks are integrated into our investment
decision making and risk monitoring to the extent
that they represent potential or actual material risks
and/or opportunities for maximizing long-term risk-
adjusted returns for our Shareholders. The Investment
Adviser considers sustainability risks as part of its
broader analysis of potential investments and the
management of the current portfolio. The factors
considered will vary depending on the Catalogue in
question, but we are always seeking to invest in Songs
that have a positive social purpose.
• The assessment and likely impacts of
Sustainability Risks on returns of the Company
The returns generated by our investments are
exposed to varied Sustainability Risks, most of which
are deemed minimal.
Our Resources and Relationships
STRATEGIC REPORT
58
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023
Relations with stakeholders
The culture and success of the music industry are
founded on relationships. We are very much part
of this and we welcome it. We have various groups
of stakeholders with whom we have close and direct
relationships fundamental to our existence, they
include our Shareholders, our service providers, our
Advisory Board, the Songwriting community and the
publishers, administrators and PROs. There are many
others who we recognise as well, even though we may
not engage with them directly – prime amongst these
are the millions who listen to music. Our Investment
Adviser is at the heart of our engagement work and is
responsible for the day-to-day interactions with all of
our stakeholders.
Hipgnosis places great importance on its relationships
with its Shareholders, as they provide us with the
resources to make the acquisitions necessary to
build our portfolio and so support Songwriters and
performers. We undertake both direct and indirect
engagement activities with this group and this is
covered in more detail in the Corporate Governance
Report on page 73.
Following the acquisition of HSG, Hipgnosis Songs Fund
now has 39 employees. None of the employees are
classified as senior executives as they do not report
directly to the Board of the Company. The Board has
delegated responsibility for these employees to the
Investment Adviser, consistent with their policies and
procedures.
Additionally, we operate through, and work closely with,
a number of third-party service providers (see page 99),
including the Investment Adviser, Administrator, Company
Secretary, Corporate Brokers, lawyers and our other
professional advisers. The quality and timeliness of
their service provision is critical to the success of the
Company, as is their adherence to best practice ESG
requirements. Our ESG policies are shared with our
suppliers.
The Investment Adviser manages the vital input of our
Advisory Board, discussed on pages 32, 50 and 54. Our
Investment Adviser also enables us to engage with the
writers and composers of Songs acquired to update
them on management activity around the Catalogues,
explore creative projects, create new interpolations
and discuss new commercial opportunities. An example
of this is placing Songwriters, who are included in our
portfolio, in the recording
studio together to collaborate and create new
compositions.
The Investment Adviser also has regular communication
with Publishers and Administrators and the PROs who
administer the payment of royalties due to a Songwriter
or recording artist in respect of a Song, either directly
from the end user or from royalty collection agents,
in order to assess that the royalties paid through are
accurate and delivered in a timely manner.
The Investment Adviser has procedures in place that
enable them to identify any under/over payments
of revenue and work quickly to resolve this with the
Publishers, collection societies and PROs. These
Copyright Management initiatives are described on
page 24 in more detail; there have been multiple
occasions where we have returned millions of Dollars
which we weren’t entitled to.
Society
We want to help the communities on whom our
success is based
While the Company’s purpose is to give our
Shareholders a strong, reliable and uncorrelated return
on investment, we also have an ulterior motive which is
to use the importance of our unparalleled Catalogue
and financial clout as a platform and leverage for the
Songwriting community and to take Songwriters from
the bottom of the economic equation to the top.
Without the Songwriter there would be no music,
however, as individuals their voices have frequently
not been heard nor their contribution financially
recognised.
The principles of copyright protection are generally
well established and the concept and value of making
it economically feasible for “creators to create” is
widely recognised. This is very much at the heart of our
advocacy but Copyright protection is not enough, the
important societal role of the Songwriter also needs
to be recognised by apportioning them a far more
significant share of the economic pie.
STRATEGIC REPORT • OUR RESOURCES AND RELATIONSHIPS
STRATEGIC REPORT
59
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023
Our advocacy on the part of the Songwriting
community has served to make us a preferred buyer for
that community, which is also in the best interest of our
Shareholders.
The impact of our advocacy is being felt at every level.
As an industry, the US Copyright Royalty Board (CRB)
rejected an appeal from certain streaming companies
aimed at reducing the 44% increase in payments
proposed under CRB III. Additionally, our leadership
and advocacy on behalf of the songwriting community
has resulted in a change of tone and messaging from
both the record music labels and the DSPs. This is best
demonstrated by the joint industry proposals for the
CRB IV settlement which will provide 5 years of stability
from 2023 to 2027 at the highest rates ever paid to
Songwriters.
In the UK, whilst we were disappointed that the
Competition and Markets Authority declined to take
steps to address the market failure which it recognised
in its market study of the music industry, we are pleased
that the Department of Culture, Media and Sport and
the Intellectual Property Office have recently both
announced industry working groups intended to resolve
some of the challenges faced by Songwriters. We
continue to engage with ministers, politicians, officials
and other interested parties to promote the interest of
Songwriters.
Additionally, we have dedicated significant time,
money and resources to supporting the Songwriting
community. Led by Merck Mercuriadis, this includes
work with The Ivors Academy, which nurtures new
Songwriting talent and advocates for the Songwriters
and The Nashville Songwriters Association International,
which works at the highest levels of the US Congress
and Senate on the same themes.
Both in public and in private, Hipgnosis and the
senior management of our Investment Adviser have
established themselves as credible, informed and
reasonable advocates for change. We continue to
engage across government and with regulators to
make the case for and on behalf of Songwriters.
Given the alignment of interests between Songwriters
and Hipgnosis Songs Fund’s Shareholders, our
campaigning, where successful, will deliver value
accretion for the fund’s Shareholders.
The Social Mandate
Our Investment Adviser and its Advisory Board
We fully endorse our Investment Adviser and its
Advisory Board, who believe that any company must
reflect the values and best interests of the communities
it benefits from.
They are active in using their influence as a catalyst
for an end to all discrimination including sex, ethnicity,
background, mental health or other discriminatory
lenses. We endorse their strong Anti-Racist, Anti Gender
and pro LGBTTQQIAAP approach and we welcome
social change organisations and programmes which
struggle for equality such as the Black Lives Matter
Foundation (the charitable foundation within the BLM
movement) and the Black Music Action Coalition.
We support the actions taken by our Investment Adviser
to promote #blacklivesmatter initiatives and calls to
action. Almost all Hipgnosis trade advertising in the last
three years has highlighted #blacklivesmatter and sent
an important message to the wider music industry that
the issue was not confined to a few weeks in June of
2020 but in fact needs to be part of our daily lives.
We support the actions taken by our Investment
Adviser to promote the important achievements of
the We Are Family Foundation founded by Advisory
Board Member, Nile Rodgers, which has created
programmes promoting cultural diversity while nurturing
and mentoring the vision, talents, and ideas of young
people. We support the actions taken by our Investment
Adviser to support the work of Earth Percent who
provide a simple way for the music industry to support
the most impactful organisations addressing Climate
Change initiatives.
We support Merck Mercuriadis in joining Richard
Branson, Mike Novogratz, Arianna Huffington and other
business leaders in the Responsible Business Initiative
For Justice to bring an end to the death penalty which
has taken the lives of many innocent people of colour
purely on the basis of racial and socio-economic
injustices. Further to this we continue to support the
contributions of former HSM Advisory Board Member,
Jason Flom, founding board member of the Innocence
Project, in his work for criminal justice reform and
his advocacy for those who have been wrongfully
convicted and imprisoned.
STRATEGIC REPORT • OUR RESOURCES AND RELATIONSHIPS
60
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023
We are proud to support Nordoff Robbins, whose
ground-breaking work uses music as therapy to enrich
the lives of people with life limiting illnesses, disabilities
and feelings of isolation. Hipgnosis has been involved
for the third year in a row with the annual Christmas
Carol Service, a key highlight of Nordoff Robbins’
fundraising calendar. Our Investment Adviser once
again stepped in with a significant donation to create
a fantastic experience at St Luke’s Church in Chelsea
with Nile Rodgers & CHIC. Merck Mercuriadis and
Andrew Wilkinson were the Executive Producers for the
event and Nile stepped in at the last minute as The Who
were unable to make it. The Who will instead perform
to benefit the charity this summer. Both events are
expected to raise a combined £200,000, approximately
doubling the sum usually raised by this Christmas event.
Our Investment Adviser contributes to the talent of
tomorrow via one of the UK’s leading educational
establishments in the performing and creative arts,
The BRIT School, where Merck Mercuriadis, Nile Rodgers
and Paul Burger are all very active. Next year Nile’s
Night will be launched in conjunction with the Ivor
Novello Awards to raise money that will be shared
between The BRIT School, the We Are Family Foundation
and the Ivors Academy.
We are delighted that our Investment Adviser has
supported Songwriters Hall of Fame, chaired by Nile
Rodgers, and their work celebrating and developing
writing talent as well as MusiCares, which helps music
people in times of need. Given the Song is the currency
of the music business and we believe the Songwriter
should be appreciated, applauded and celebrated
above all, we were delighted the Investment Adviser
sponsored the Song of the Year Category at the
2022 A&R Awards for the third year in a row, as well
as sponsoring the Songwriter of the Year award. This
year our Investment Adviser has also supported the
Elton John Aids Foundation mission to end the Aids
epidemic; Music To Life, which builds on the strong
historical legacy of social movements’ intentional use
of music to educate, recruit, and mobilise; and Music
Support, the charity created by and for music industry
professionals to provide help for UK workers affected by
mental ill-health and/or addiction. Rosa Mercuriadis has
co-created sicksadgirlz an Instagram community with
30,000 followers where young women can find support
for mental health and women’s issues.
Impact on the Environment
Hipgnosis’ direct environmental impact is very
limited. We have considered the materiality of our
environmental risks and have concluded that they
are minimal. The direct impact of our Investment
Adviser is also limited to running office facilities and the
international transport of key personnel.
The portfolio of music copyrights acquired are intangible
assets whose returns are generated by Songs being
listened to through many third-party channels including
retail, hospitality, digital entertainment, advertising,
film and others. Our assets are being consumed and
monetised as an adjunct to other, sometimes more
environmentally impactful business activities, that would
occur whether our assets were used or not.
We keep under consideration the impact on the
environment relating to the shift from the physical
to digital consumption of music. The popularity of
Streaming as the preferred method of enjoying digital
entertainment has generated concerns about a
concomitant increase in the energy consumption of
the required data centre infrastructure. At the moment,
there is considerable debate, with no clear consensus
view, on the relative environmental merits and impacts
of the various channels, physical and virtual, used to
supply music as entertainment. We continue to monitor
the environmental commitments made by DSPs to
reduce the energy intensity of their datacentres.
The necessity for international travel is another area
on which much attention has been focused, brought
into stark practical relief by the necessary responses to
the pandemic. The entertainment industry generally,
and our business model specifically, are heavily reliant
on the establishment and maintenance of personal
relationships; to us, these relationships are amongst
our most valuable assets. Hipgnosis, and its suppliers,
are applying the lessons learned during the pandemic
about the various alternatives to physical meetings
and are working to keep international travel to the level
needed to sustain these key relationships.
To better understand and manage our environmental
impact, our Investment Adviser has worked with third-
party experts to carry out a greenhouse gas (GHG)
emissions assessment using calendar year 2022 data.
This quantifies the greenhouse gases produced directly
STRATEGIC REPORT • OUR RESOURCES AND RELATIONSHIPS
STRATEGIC REPORT
61
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023
and indirectly from a business or organisation’s activities
and is useful to manage its climate-related impacts.
This assessment marks our first-time baselining Scope 1,
Scope 2, and certain Scope 3 emissions.
On a location-based methodology, the Scope 1 and 2
GHG emissions for FY 2022 were approximately
9.6 tCO₂e/yr. Scope 3 includes other indirect emissions,
business travel and staff commuting. In total, it is
estimated that these activities generated 190 tCO₂e/yr.
The Investment Adviser will refine its methodology and
continue to report its emissions going forward.
STRATEGIC REPORT • OUR RESOURCES AND RELATIONSHIPS
62
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023
Our Principal Risks and Uncertainties
Our risk assessment
The graphic below shows the Group’s principal risks
and uncertainties and the changes year-on-year
listed in alphabetical order. Information on our risk
management framework can be found on page 91.
① Adverse change in policies by Collection Societies
and other entities through whom the Company
receives royalty payments
② Cyber security
③ Exchange rate
④ Financial leverage
⑤ Interest rate
⑥ Key person
⑦ Market trends
⑧ Operational reliance on service providers
⑨ Shares continue to trade at discount
Low Medium High
Low Medium
PROBABILITY
IMPACT
High
Movement from last year
1
9
8
6
5
2
3
4
7
Changes to the Principal Risks
Over the year the Board has assessed a number of its
Principal Risks and has put in place numerous mitigation
strategies in order to reduce the risks to the business and
these are discussed in much more detail both in the
Strategic Review and in the Governance sections. They
can be summarised as follows and can be seen from
the heatmap below:
• Interest rate risk has been reduced by the interest rate
swaps that have been put in place on the majority of
the bank debt (see page 34, Financial Review)
• Exchange rates remain volatile; the overall impact
has been reduced by the introduction of a rolling
currency hedge (see page 34, Financial Review)
• Financial leverage risk has been reduced by the
better terms achieved through the refinancing of
the Revolving Credit Facility (see page 34, Financial
Review)
• Key person risk has been reduced given the
expansion in breadth and depth of specialised
personnel within the Investment Adviser
Conversely, the Board felt it appropriate to add new
risk associated to “Shares continuing to trade at a
discount”. This risk has always been present for the
Company and has now been added a Principal Risk
given the forthcoming Continuation Vote. Mitigation of
this risk is a core theme of this report and is addressed in
the Strategic Report 2-71.
In the Interim Report for the period ending 30 September
2022, the Board added a risk referring to “Portfolio returns
do not meet expectations”. On further reflection, the
Board feels that this risk is already encompassed by
Risks 1, 7 and 8.
STRATEGIC REPORT
For a discussion of our market, see page 42; business
model, see page 50; strategy, see page 54; and
resources and relationships, see page 57.
STRATEGIC REPORT
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HIPGNOSIS SONGS FUND LIMITED
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① Adverse change in policies by Collection
Societies and other entities through whom
the Company receives royalty payments
Business Model: A1, B4
Strategy: 2. Song Management
Probability: Low/Medium Impact: Medium
Description
Should Collection Societies or other entities, including
the major music publishers and record companies,
alter the way that they collect royalties, or set lower
royalty rates, or decide to disproportionately favour
major music publishers, the Company may receive
significantly reduced revenues compared to the level
it had forecast at the time of acquiring the relevant
Catalogues or Songs.
Mitigation
The Investment Adviser actively monitors the market
and provides the Company with any data or
intelligence of which it becomes aware. The Investment
Adviser is working on innovations to improve the way
the market works, such as reducing the working capital
cycle. This is achieved in collaboration with our many
Collection partners and is a long-term process. The
financial model, which supports the Board’s assessment
of Going Concern and the Viability Statement,
reflects these regulatory and industry risks should they
materialise.
② Cyber security
Strategy: 2. Song Management
Probability: Medium Impact: Medium
Description
The Company (like all others) is exposed to external
cyber-security threats which have the possible impact
of sensitive information leakage and cyber fraud and, in
a worst case scenario, interruption of royalty payments.
Mitigation
The Company recognises the increased incidence of
cyber-security threats and annually reviews its own
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.
③ Exchange rate
Business Model: A1, B4
Probability: Medium/High Impact: Medium
Description
The Company has issued share capital denominated
in Sterling and aims to pay regular dividends in that
currency. However, the Group’s functional currency is
Dollars, and most of the Group’s revenue is received
in Dollars, and exchange rate fluctuations may
significantly affect the NAV and the ability to pay
targeted Sterling dividends.
Mitigation
The Company considers on a regular basis the benefits
and cost of passive currency hedging. The Company
has engaged in a rolling dollar-hedging strategy to
ensure certainty to the Sterling dividend. The Company
will continue to pay any dividends in Sterling and its
primary listing remains denominated in Pounds.
④ Financial leverage
Business Model: A1, A3
Strategy: 1. Smart Acquisition
Probability: Medium Impact: High
Description
The Company uses leverage and may utilise borrowings
for working capital and interest rate hedging purposes.
In case of default under the relevant financing
arrangement, the Company may face adverse action
from its lenders leading to operating constraints and
increased controls. This may affect the Company’s ability
to pay dividends.
Mitigation
On a quarterly basis, and on the occasion of each
drawdown, and prior to each dividend being paid, the
Company confirms its compliance with key covenants
set out in the loan facility and documented within the
Company's policies and procedures.
Furthermore, the Company has renegotiated its
Revolving Credit Facility with better terms and there is
a greater headroom in the facility.
STRATEGIC REPORT • OUR PRINCIPAL RISKS AND UNCERTAINTIES
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HIPGNOSIS SONGS FUND LIMITED
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⑤ Interest rate
Business Model: A1
Probability: Medium Impact: Medium
Description
The Company is exposed to changes in global interest
rates in several ways. Predominantly, but not exclusively,
the fiscal and monetary decisions of the US Government
and its Central Bank will affect the interest rates of the
Company's floating-rate RCF. It may also impact the
discount rate, which is used to evaluate the current and
forecast value of Catalogues purchased, or has already
invested in. An increase in the discount rate by the
Independent Valuer would reduce NAV. Interest rates
also have an impact on exchange rates, mentioned
above. The interest rate environment is unpredictable
and consequently this could affect our ability to meet
bank covenants and pay dividends.
Mitigation
The Company’s cash resource must be held by
approved banks and deposit rates on cash deposits are
being optimised. Following the refinancing of the debt
facility, interest swaps have been put in place, thereby
fixing the majority of the debt for a tenor between
circa 3 and 5 years.
⑥ Key person
Business Model: B1, B3
Strategy: 1. Smart Acquisition; 2. Song Management
Probability: Low Impact: Medium
Description
The Company depends on the services of the
Investment Adviser, in particular on Merck Mercuriadis,
Chief Executive of the Investment Adviser.
Mitigation
To broaden its expertise within the Investment Adviser,
the Investment Adviser has continued to invest in
growing its staff and systems which has reduced
reliance on any individual especially since the
investment made by Blackstone Inc., which brings
considerable investment experience and resources.
The Investment Adviser is also supported by the
Advisory Board members (named on pages 32-33 of this
report). Both entities bring their considerable industry
experience to bear in support of the Company’s
investment objectives.
Furthermore, the third-party Administrators to the
Company’s Catalogues each have an important role
to play in pursuing efficiencies in the collection of
royalties and active management of the Songs that the
Company owns. The Investment Adviser’s longstanding
relationships with those third-party Administrators bring
with them further music management experience that
adds support for Merck Mercuriadis and his team in the
performance of their services to the Company.
STRATEGIC REPORT • OUR PRINCIPAL RISKS AND UNCERTAINTIES
STRATEGIC REPORT
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HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023
⑦ Market trends
Business Model: A1, A2, A4, B2
Strategy: 1. Smart Acquisition; 2. Song Management
Probability: Medium Impact: High
Description
The Company is heavily reliant on Streaming (or
an equivalent technology) remaining popular with
consumers. Any adverse change in this would affect
revenues. Performance income may be impacted
by a major downturn in the global economies if this
led to closure of venues. Conversely, technological
advances could lead to a growth in royalties as
consumers’ access to music continues to improve.
Mitigation
The Company has a Portfolio well diversified around
vintage, territory, genre and income type and will be
heavily reliant on the continuing presence and popularity
of DSPs in order to maximise access to the consumer
market. The Company is continuously reviewing this risk
and most recently took note of the latest report by the
IFPI, the organization that represents the recorded music
industry worldwide in which they state that there were
589 million users of paid subscription at the end of 2022,
an increase of 13% over the year. The Company also
took note of a recent note by J.P. Morgan Cazenove
(published 20 April 2023) in which they estimate global
paid subscriptions to grow to 1.62 billion by 2030
as a result of an expected rise in paid subscription
penetration.
⑧ Operational reliance on service providers
Business Model: A1, A2, B1, B4
Strategy: 2. Song Management
Probability: Low/Medium Impact: Medium
Description
The Company relies primarily on third-party service
providers for its core operations including oversight of
its subsidiaries under the terms of its Investment Advisory
Agreement. In particular, although the ultimate
responsibility for the investment strategy lies with the
Company, the Investment Adviser is responsible for sourcing
potential opportunities, advising the Company on
acquisitions, active management of Catalogues and
financial reporting.
The Company also depends heavily on the specialist
administrative services of the Investment Adviser, the
Portfolio Administrators and other collection agents as
well as third-party suppliers with whom the Company
conducts business. In the event that these service
providers experience business disruption cyber security
breaches, or fail in their responsibilities, the ability of the
Group to collect revenues due may be limited.
Mitigation
The Investment Adviser is recruiting leading market
specialists in Active Management, Finance and Data
analytics, with extensive experience in maximising
value from the Catalogue Assets.
The Company continually reviews the performance
of its service providers and will raise any concerns
regarding performance or efficiency should the need
arise.
STRATEGIC REPORT • OUR PRINCIPAL RISKS AND UNCERTAINTIES
66
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023
STRATEGIC REPORT • OUR PRINCIPAL RISKS AND UNCERTAINTIES
⑨ Shares continue to trade at discount
Business Model: A, B
Strategy: 1. Smart Acquisition
Probability: Medium/High Impact: High
Description
The Company’s share price may continue to trade at
a discount to the Company’s investments’ underlying
market value. The discount level may remain wide,
and any discount management policy may become
ineffective, eroding shareholder capital and restricting
the ability of the Company to raise further share capital,
or pass the Continuation Vote in September 2023.
Mitigation
Mitigation of this risk is a core theme of this report and
is addressed in the Strategic Report on pages 2-71.
Our business model and strategy are based on active
Song Management as well as the smart acquisition of
Catalogues. The former is one of the key mitigations for
this risk.
NAVs and share price performance are regularly
reviewed at and between board meetings in the context
of market conditions. The Company seeks to test the
reasonableness of assumptions employed in arriving
at the Fair Value of the investments through the use
of valuation peers and also note reports from other
companies investing in our space.
Discount (or premium) is monitored by the Investment
Adviser and Corporate Broker, with an ongoing dialogue
involving the Board to consider how the discount may be
reduced, e.g. through potential further share buybacks
or the strategic disposal of Catalogues.
In the event that a sale of assets should occur, the
Company may be unable to fully benefit as an
investment trust company on any potential sale of
Catalogues, as music Catalogues are considered
intangible fixed assets for UK corporation tax purposes.
The Company has sought and will continue to seek
tax advice with a view to optimising tax in all potential
situations.
The Board is consulting Shareholders ahead of the
Continuation Vote.
Emerging Risks
Emerging risks are regularly considered to assess any
potential impact on the Group and to determine
whether any actions are required. These include
regulatory/legislative change, macroeconomic and
geo-political change, climate risks, the impact of
AI as well as new competitors entering the market.
These are monitored, mitigated and managed where
appropriate, by the Company 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 of the above-mentioned risks. We have
considered the materiality of our environmental risks
and have concluded that they are minimal. The
Company relies on periodic reports provided by the
Investment Adviser and Administrator regarding risks that
the Group faces. When required, experts, including tax
advisers and legal advisers, will be employed to gather
information and to provide advice.
STRATEGIC REPORT
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HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023
Key Statements
STRATEGIC REPORT
Viability Statement
To assess the future prospects of the Company the
Board has conducted a financial and Portfolio review
for a period of three years to 31 March 2026, which is
deemed appropriate for the following reasons:
i. The long-term outlook for music publishing and
recorded music remains very positive;
ii. Three years is often considered the benchmark
of normalised earnings within music publishing;
iii. The remaining copyright term of the Company’s
Portfolio as of 31 March 2023 will give rise to future
income significantly beyond the period of review;
iv. Experience to date provides confidence that the
performance of catalogues will generally continue
to perform in accordance with recent forecasts.
Based on past performance and on the anticipated
growth in the digital consumption of music as publicised
in the wider industry, the returns generated within the
investment Portfolio are expected to be stable and
predictable in both the medium and long term.
The long copyright term combined with the resilience
of music and a continually expanding ecosystem
of consumers underpins the value of catalogues and
provides the basis for assessing the business of the
Company as viable within the three-year forecast period.
The Investment Adviser has prepared, and the Board
has reviewed, the Portfolio projections which forecast
the Company’s revenue, cashflow and working capital
projections over the next three years. The Board has
also considered all the principal risks and significant
emerging risks and their mitigation as identified in the
risk register that is periodically reviewed by the Board.
The Board paid particular attention to the risk of a
deterioration in the short-term economic outlook which
would adversely impact catalogue fundamentals
causing a reduction in cash flows.
The remaining principal risks, whilst having an impact on
the Company’s business model, are not considered by
the Board to have a reasonable likelihood of impacting
the Company’s viability over the three-year period to
31 March 2026.
The Board regularly evaluates the performance of the
portfolio of Songs and the Company’s financial position
as well as assessing sensitivities that impact dividend
cover, credit facility covenants, cash position and
profitability of the Company to assess an ‘extreme but
possible downside scenario’. Based on our principal risks
and uncertainties, an ‘extreme but possible downside
scenario’, reflecting a combination of negative
assumptions (mostly macro-economic rather than
Company specific) was incorporated as follows:
• Revenues remain constant over the next three-year
period, contrary to the increases in prior periods and
predicted market growth.
• A strengthening of Sterling versus US Dollar, to account
for the fact that the majority of revenues are received
from the USA and that the majority of cash outflows
are paid in Sterling. This assessment assumes Sterling
strengthens against the US Dollar and the exchange
rate for £1.00 equals $1.40 (based on the five year high
rate in Q2 2021 as compared to $1.24 in March 2023).
• Secured Overnight Financing Rate (‘SOFR’) increases
to 8% (from 5.1% as at May 2023), taking the all-in
interest rate to 10%. The Company’s debt facility is
based on a fixed rate margin, plus a floating rate
based on SOFR. From 3 January 2023, the Company
entered into interest rate swaps to hedge $540 million
out of the $600m drawn. Of this, $340 million is hedged
for the duration of the RCF (until 30 September 2027)
at a fixed rate of 5.67% (including debt margin); a
further $200 million is hedged until 3 January 2026 at
a fixed rate of 5.89% (including debt margin). Only
the unhedged element of the RCF is susceptible
to increases in the underlying SOFR rate. The Board
expect no covenant breaches in this scenario.
68
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023
Each of these scenarios were incorporated into a
detailed financial model and their impact assessed
on revenues and future cash flows. The results of this
stress testing show that a combination of all these
hypothetical scenarios in the extreme downside
scenario would result in a cash shortfall in FY24 and
impact the ability of the Company to maintain the
current dividend policy. Were this extreme but possible
scenario to occur, the Board would take mitigating
actions to ensure the viability and future cash flows
of the Company, including remedies such as making
changes to the timing or size of future dividend
payments.
Given the liquidity available to the Company and
based on this analysis, the Directors have a reasonable
expectation that, even under these severe stress tests,
the Company will be able to continue in operation and
meet its liabilities as they fall due and remain viable
over the three-year period of assessment.
In arriving at their conclusions, the Board also
considered, amongst other things:
• The Company’s historic consistency in generating
material net cash from operating activities
(12 months to 31 March 2023: $102.1 million, 12 months
to 31 March 2022: $84.9 million).
• The Company’s expected credit loss based
on the probability that future default on trade
receivables has been deemed close to nil, due to
the long-standing history of PROs, Publishers and
Record Labels within the music industry and the
existing framework of cash collection amongst the
Company's stakeholders.
• The Company’s liquidity, given cash balances
of $38.0 million as at 31 March 2023.
• The Company’s headroom under its borrowing policy
as a percentage of NAV.
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
diversified Portfolio. The Board therefore considers that
risk associated with individual Catalogue performance
is mitigated by diversification, and the overall forecast
assumptions adopted are reasonable and sustainable
at the present time.
If the Continuation Vote is not passed, the Directors are
required to put forward proposals for the reconstruction,
reorganisation or winding-up of the Company to
the Shareholders for their approval within six months
following the date on which the Continuation Vote is
not passed. These proposals may or may not involve
winding-up the Company or liquidating all or part of
the Company’s then existing portfolio of investments
and, accordingly, failure to pass a Continuation Vote
will not necessarily result in the winding-up of the
Company or liquidation of all or some of its investments.
The Board is of the opinion that the long-term trends
and outlook for music publishing and the consumption
of recorded music both remain positive as evidenced
throughout this Annual Report.
STRATEGIC REPORT • KEY STATEMENTS
STRATEGIC REPORT
69
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023
Going Concern
The Board monitors the liquidity and capital resilience
of the Company, prepared by the Investment Adviser
monthly, which spans a 12-month forecast horizon. This
provides comfort over the Company’s ability to continue
as a going concern for a period of at least 12 months
from the date the financial statements are signed.
Revenue assumptions for future periods, and therefore
cash receivable, are based on forecasts of royalties and
other revenue receivable combined with the unwinding
of revenue accruals. Sensitivities as noted in the Viability
Statement are applied to revenues to assess market
downside impacts and other economic factors.
Expenses are forecast on both a contractual and non-
contractual basis, where the non-contractual analysis
is derived from the run-rate expenses over the prior
12-month period.
The 12-month forecast assumes a ‘steady state’ so does
not include the impact of any future equity raises, debt
refinancing or acquisitions which is consistent with the
Company’s short to mid-term strategic objectives.
Based on these sources of information and the
Company’s history of positive cashflows, which are
expected to continue, it is the Board’s judgement that
the Company will continue to have a reliable source
of revenue from its Publishers and PROs, sufficient for
the Company to meet its obligations over at least the
next 12 months. Accordingly, the Directors believe it
is appropriate to prepare the Consolidated Financial
Statements of the Company on a going concern basis.
Although the Board are confident that the Company
will have sufficient financial resources, there is a material
uncertainty as to the outcome of the Continuation
Vote which is due to be held in accordance with
Part I, Section 9 of the latest Company prospectus.
Should Shareholders vote against continuation of the
Company or continuation of the Company in its current
form this could impact the longer term viability of the
Company and there is a material uncertainty that
could cause significant doubt as to the ability of the
Group to continue as a going concern.
As a result of the strong fundamentals supporting the
Company’s investment strategy, robust operating
metrics displayed by the Company which include a
consistent dividend yield and stable NAV, combined
with the strong financial position of the Company, the
Directors believe there is a compelling rationale for
Shareholders to vote in favour of the Continuation Vote
and that the Company will continue as constituted.
STRATEGIC REPORT • KEY STATEMENTS
70
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023
Section 172(1) Statement
The purpose of the Strategic Report is to inform
members of the Company and help them assess
how the directors have performed their duty under
section 172. This section 172(1) statement incorporates
information from other areas of the Annual Report to
avoid unnecessary duplication.
Section 172 of the UK Companies Act 2006 applies
directly to UK domiciled companies. Nonetheless the
AIC Code requires that the matters set out in section
172(1) are reported on by all companies, irrespective
of domicile. This requirement does not conflict with
Guernsey company law.
The Directors have had regard for the matters set out
in section 172(1)(a)-(f) of the Companies Act 2006
when performing the duties set out in section 172. The
Directors consider that they have acted in good faith
in the way that would be most likely to promote the
success of the Company for the benefit of its members
as a whole, while also considering the broad range of
stakeholders who interact with and are impacted by
our business.
The table below indicates where the relevant
information is that demonstrates how we act in
accordance with the requirements of s.172(1).
s172 matter
Likely consequences of any decision in the long term
Introduction from Merck Mercuriadis, pages 3-6
The Chair’s Statement, pages 11-15
Investment Adviser’s Report, pages 17-41
Our Resources and Relationships, pages 57-61
Our Principal Risks and Uncertainties, pages 62-66
Viability Statement, pages 67-68
Going Concern, page 69
Application of AIC Code Principles, pages 74-77
Board Leadership and Company Purpose, pages 78-79
Composition, Evaluation and Succession, pages 84-85
Report of the Nomination Committee, pages 88-90
Report of the Audit and Risk Management Committee,
pages 92-98
Report of the Management Engagement Committee,
pages 99-100
Report of the Environmental, Social and Governance
Oversight Committee, page 103
Directors’ Remuneration Report, pages 104-107
The interests of the Company’s employees
Our Resources and Relationships, page 58
Compliance Statement, page 73
Application of AIC Code Principles, pages 74
Board Leadership and Company Purpose, pages 78
Report of the Management Engagement Committee,
pages 99-100
Report of the Environmental, Social and Governance
Oversight Committee, page 103
Directors’ Remuneration Report, pages 104, 106
STRATEGIC REPORT • KEY STATEMENTS
STRATEGIC REPORT
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HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023
STRATEGIC REPORT • KEY STATEMENTS
s172 matter
The need to foster the Company’s business
relationships with suppliers, customers and others
Introduction from Merck Mercuriadis, pages 3-6
The Chair’s Statement, pages 11-15
Investment Adviser’s Report, pages 17-41
Our Market, pages 42-45
Our Purpose, Business Model, Culture and Values,
pages 50-53
Our Objective, Strategy and Investment Policy,
pages 54-56
Our Resources and Relationships, pages 57-61
Our Principal Risks and Uncertainties, pages 63, 65
Application of AIC Code Principles, pages 74, 76
Board Leadership and Company Purpose, pages 79
Report of the Nomination Committee, pages 89
Report of the Audit and Risk Management Committee,
pages 95-97
Report of the Management Engagement Committee,
pages 99-100
Report of the Environmental, Social and Governance
Oversight Committee, page 103
Impact of the Company’s operations on the
community and environment
Introduction from Merck Mercuriadis, pages 4, 5
Investment Adviser’s Report, pages 28
Our Purpose, Business Model, Culture and Values,
pages 52
Our Resources and Relationships, pages 57-61
Principal Risks and Uncertainties 66
Application of AIC Code Principles, page 74
Board Leadership and Company Purpose, pages 78-79
Report of the Audit and Risk Management Committee,
pages 93, 98
Report of the Environmental, Social and Governance
Oversight Committee, page 103
The Company’s reputation for high standards
of business conduct
Introduction from Merck Mercuriadis, pages 5, 6
The Chair’s Statement, pages 11-15
Our Purpose, Business Model, Culture and Values,
pages 52
Our Resources and Relationships, pages 57-61
Our Principal Risks and Uncertainties, pages 64
Governance, pages 72-107
The need to act fairly as between members
of the Company
Introduction from Merck Mercuriadis, pages 3
The Chair’s Statement, pages 11, 13
Our Objective, Strategy and Investment Policy,
pages 54-56
Our Resources and Relationships, pages 58
Application of AIC Code Principles, page 74
Board Leadership and Company Purpose, pages 78, 79
Report of the Directors, pages 108-110
72
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023
Chair’s Introduction
Dear Shareholder,
On behalf of the Board I am pleased to present the Corporate
Governance Report for the year ended 31 March 2023. This report
describes the Corporate Governance structures and procedures
and summarises the work of the Board and its Committees to
illustrate how we have discharged our responsibilities over the
year. The Board is collectively responsible for how the Company is
directed and controlled. Our responsibilities include agreeing the
Company’s strategic aims and values; monitoring and constructively challenging the
Investment Adviser on the operations of the business; ensuring a framework of prudent
and effective controls; and reporting to Shareholders on the Board’s stewardship.
As Chair, I am responsible for leading and ensuring an effective Board.
The Board recognises its duties and responsibilities to our Shareholders and other
stakeholders. Further details of how we take account of Shareholder and wider
stakeholder interests in our strategic planning and decision-making processes are set
out on pages 57 and 78. We will continue to work with the Investment Adviser to deliver
on our strategic goals while ensuring that we continue to engage with all stakeholders.
Andrew Sutch
Chair
12 July 2023
Contents
72 Corporate Governance Statement
72
Chair’s Introduction
73
Corporate Governance Report
73 Compliance Statement
74 Application of the AIC Code Principles
77 Other Key Governance Statements
78
Board Leadership and Company Purpose
80
Division of Responsibilities
84 Composition, Evaluation and Succession
85 Board of Directors
88 Report of the Nomination Committee
91 Audit, Risk and Internal Control
92 Report of the Audit and Risk Management Committee
99 Report of the Management Engagement Committee
101 Report of the Portfolio Committee
103 Report of the Environmental, Social and
Governance Oversight Committee
104 Directors’ Remuneration Report
108 Report of the Directors
108 General Information
108 Principal Activities
108 Results and Dividends
109 Share Capital
109 Shareholdings of the Directors
109 Directors’ Authority to Buy Back Shares
110 Directors’ and Officers’ Liability Insurance
110 Substantial Shareholdings
110 Articles of Incorporation
110 AEOI Rules
111 Directors’ Responsibilities Statement
113 Independent Auditor’s Report
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HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023
Compliance Statement
Hipgnosis Songs Fund Limited is a company registered in
Guernsey and has a Premium Listing on the Main Market
on the London Stock Exchange. The Company became
a member of the AIC on 22 August 2018.
The Board has considered the Principles and Provisions
of the AIC Code of Corporate Governance 2019 (AIC
Code). The AIC Code addresses the relevant Principles
and Provisions set out in the UK Corporate Governance
Code 2018 (the UK Code), as well as setting out
additional Provisions on issues that are of specific
relevance to the Company.
Throughout the year ended 31 March 2023, the
Company has applied the Principles (as explained on
pages 74-77) and complied with the relevant Provisions
of the AIC Code.
The Board considers that reporting against the
Principles and Provisions of the AIC Code, which has
been endorsed by the Financial Reporting Council and
the Guernsey Financial Services Commission, provides
more relevant information to Shareholders. By reporting
against the AIC Code the Company is meeting its
obligations under the UK Code (and associated
disclosure requirements under paragraph 9.8.6 of the
Listing Rules) and as such does not need to report
further on issues contained in the UK Code which are
irrelevant to the Company, as set out below:
• the role of the chief executive;
• executive directors’ remuneration; and
• the need for an internal audit function.
For the reasons set out in the AIC Code, and as
explained in the UK Code, the Board considers that
the above provisions are not currently relevant to the
position of the Company which delegates most day-to-
day functions to third parties.
In September 2020, through acquisition of the assets
of HSG, the Company acquired employees. None
of the employees are classified as Senior Executives
as they do not report directly to the Board, and the
management of the employees has been delegated
to the Investment Adviser in its entirety; however, the
Board retains oversight through the Investment Advisory
Agreement. The decision not to have an internal audit
function is discussed in the Report of the Audit and Risk
Management Committee.
The AIC Code is available on the AIC website
www.theaic.co.uk.
Corporate Governance Report
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HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023
Application of the AIC Code Principles
The AIC Code, and the underlying UK Code, have placed increased emphasis on “apply and explain” with regard
to the Principles of the Codes.
The Company is a member of the Association of Investment Companies and is a constituent of the AIC’s
“Royalties” Specialist Investment Trust sector classification. The Company’s page on the AIC’s website is at
www.theaic.co.uk/companydata/hipgnosis-songs-fund
Our explanations about how we have applied the application of the main principles of the AIC Code can be
found as follows:
Board Leadership and Company Purpose
Principle A. A successful company is led by an
effective Board, whose role is to promote the long-term
sustainable success of the company, generating value
for Shareholders and contributing to wider society.
Strategic Report, pages 2-71
Governance, pages 72-112
Principle B. The Board should establish the company’s
purpose, values and strategy, and satisfy itself that
these and its culture are aligned. All Directors must
act with integrity, lead by example and promote the
desired culture.
Strategic Report, pages 2-71
Board Leadership and Company Purpose, pages 78-79
Principle C. The Board should ensure that the
necessary resources are in place for the company to
meet its objectives and measure performance against
them. The Board should also establish a framework of
prudent and effective controls, which enable risk to be
assessed and managed.
Our Resources and Relationships, pages 57-61
Our Principal Risks and Uncertainties, pages 62-66
Section 172(1) Statement, pages 70-71
Board Leadership and Company Purpose, pages 78-79
Audit, Risk and Internal Control, page 91
Report of the Audit and Risk Management Committee,
pages 92-98
Principle D. In order for the company to meet its
responsibilities to Shareholders and stakeholders, the
Board should ensure effective engagement with, and
encourage participation from, these parties.
Our Resources and Relationships, pages 57-61
Section 172(1) Statement, pages 70-71
Board Leadership and Company Purpose, pages 78-79
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HIPGNOSIS SONGS FUND LIMITED
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Division of responsibilities
Principle F. The Chair leads the Board and is
responsible for its overall effectiveness in directing
the company. They should demonstrate objective
judgment throughout their tenure and promote a
culture of openness and debate. In addition, the Chair
facilitates constructive Board relations and the effective
contribution of all Non-executive Directors, and ensures
that Directors receive accurate, timely and clear
information.
The Chair’s Statement, pages 11-15
The Chair’s Introduction, page 72
Board Leadership and Company Purpose, pages 78-79
Division of Responsibilities, pages 80-83
Principle G. The Board should consist of an appropriate
combination of Directors (and, in particular,
independent Non-executive Directors) such that no one
individual or small group of individuals dominates the
Board’s decision making.
Division of Responsibilities, pages 80-83
Board of Directors, pages 85-87
Principle H. Non-executive Directors should have
sufficient time to meet their Board responsibilities.
They should provide constructive challenge, strategic
guidance, offer specialist advice and hold third-party
service providers to account.
The Chair’s Statement, pages 11-15
Board Leadership and Company Purpose, pages 78-79
Division of Responsibilities, pages 80-83
Report of the Audit and Risk Management Committee,
pages 92-98
Report of the Management Engagement Committee,
page 99-100
Principle I. The Board, supported by the company
secretary, should ensure that it has the policies,
processes, information, time and resources it needs in
order to function effectively and efficiently.
Our Resources and Relationships, pages 57-61
Our Principal Risks and Uncertainties, pages 62-66
Section 172(1) Statement, pages 70-71
Board Leadership and Company Purpose, pages 78-79
Division of Responsibilities, pages 80-83
Audit, Risk and Internal Control, page 91
Report of the Audit and Risk Management Committee,
pages 92-98
Report of the Management Engagement Committee,
page 99-100
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HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023
Composition, succession and evaluation
Principle J. Appointments to the Board should
be subject to a formal, rigorous and transparent
procedure, and an effective succession plan should be
maintained. Both appointments and succession plans
should be based on merit and objective criteria and,
within this context, should promote diversity of gender,
social and ethnic backgrounds, cognitive and personal
strengths.
Report of the Nomination Committee, pages 88-90
Principle K. The Board and its committees should have
a combination of skills, experience and knowledge.
Consideration should be given to the length of service
of the Board as a whole and membership regularly
refreshed.
Board of Directors, pages 85-87
Report of the Nomination Committee, pages 88-90
Principle L. Annual evaluation of the Board should
consider its composition, diversity and how effectively
members work together to achieve objectives.
Individual evaluation should demonstrate whether
each director continues to contribute effectively.
Report of the Nomination Committee, pages 88-90
Audit, risk and internal control
Principle M. The Board should establish formal and
transparent policies and procedures to ensure the
independence and effectiveness of external audit
functions and satisfy itself on the integrity of financial
and narrative statements.
Audit, Risk and Internal Control, page 91
Report of the Audit and Risk Management Committee,
pages 92-98
Principle N. The Board should present a fair, balanced
and understandable assessment of the company’s
position and prospects.
Strategic Report, pages 2-71
Audit, Risk and Internal Control, page 91
Report of the Audit and Risk Management Committee,
pages 92-98
Financial Statements, pages 122-162
Principle O. The Board should establish procedures to
manage risk, oversee the internal control framework,
and determine the nature and extent of the principal
risks the Company is willing to take in order to achieve
its long-term strategic objectives.
Our Principal Risks and Uncertainties, pages 62-66
Viability Statement, pages 67-68
Audit, Risk and Internal Control, page 91
Report of the Audit and Risk Management Committee,
pages 92-98
Notes to the Financial Statements, pages 127-162
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HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023
Remuneration
Principle P. Remuneration policies and practices
should be designed to support strategy and promote
long-term sustainable success.
Strategic Report, pages 2-71
Board Leadership and Company Purpose, pages 78-79
Directors’ Remuneration Report, pages 104-107
Principle Q. A formal and transparent procedure
for developing policy on remuneration should be
established. No director should be involved in deciding
their own remuneration outcome.
Directors’ Remuneration Report, pages 104-107
Principle R. Directors should exercise independent
judgment and discretion when authorising
remuneration outcomes, taking account of company
and individual performance, and wider circumstances.
Directors’ Remuneration Report, pages 104-107
Other Key Governance Statements
The Directors confirm that:
Going Concern
The Going Concern statement is made on page 69.
Viability
The Viability Statement is made on pages 67-68. Further
details of the Board’s assessment of the viability of the
Company are set out in Audit, Risk and Internal Control
on pages 91. The Principal Risks and Uncertainties are
set out on pages 62-66.
Principal and Emerging Risks
The Board has undertaken a robust review of the
Group’s principal and emerging risks, including
those that would threaten its business model, future
performance, solvency or liquidity and reputation.
The Principal Risks and Uncertainties are set out on
pages 62-66.
Risk management and internal control
The Board has monitored the Company’s risk
management and internal control systems and carried
out a review of their effectiveness. Further details are
set out in Audit, Risk and Internal Control on page 91.
The Principal Risks and Uncertainties are set out on
pages 62-66.
Continuing Appointment of the Investment Adviser
The continuing appointment of Hipgnosis Song
Management Limited as the Investment Adviser,
on the terms agreed, is in the interests of the
Shareholders as a whole. Further details on the basis
for this conclusion, and the terms, are set out in the
Report of the Management Engagement Committee
on page 99-100.
Fair, Balanced and Understandable
The annual report and accounts taken as a whole, are
fair, balanced and understandable and provide the
information necessary for Shareholders to assess the
Company’s performance, business model and strategy.
See the Report of the Audit and Risk Management
Committee on page 92 for further information on how
this conclusion was reached.
Section 172(1)
The Section 172(1) statement is made on pages 70-71.
It provides cross-references to the required detail set out
throughout this annual report.
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HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023
The Role of the Board
The Company is led and controlled by a Board of
Directors, who are collectively responsible for the
long-term success of the Company. The Board acts in
the interests of the Company, creating and preserving
value and has as its foremost principle to act in the
interests of Shareholders.
Culture and Values
The Board recognises that tone and culture are set from
the top, and that every interaction with the Company’s
stakeholders has a great influence on the sustainability
of long-term Shareholder value. This can be the
Board’s interaction with its Shareholders, or one of the
Investment Adviser’s junior employees dealing with one
of the Company’s service providers. The importance
of sound ethical values and behaviour is crucial to
the ability of the Company to achieve its objectives
successfully.
The Board individually and collectively seeks to act
with diligence, honesty and integrity and expects the
same values from its service providers. It encourages
its members to express differences of perspective
and to challenge views and opinions but always in a
respectful, open, cooperative and collegiate fashion.
The Board encourages diversity of thought and
approach and chooses its members with this approach
in mind.
The Company’s culture emulates that of the Investment
Adviser, with a focus on long-lasting relationships with
its investor base; investment excellence delivered
with integrity; and world-class leadership backed by
extensive industry knowledge creating a Songwriter
community rapport and a diverse, innovative, multi-
cultured portfolio of Song assets.
The Board is actively involved in defining and driving
strategy whilst ensuring it reflects the Company’s culture
and values. During the year the Board led or supported
a number of key work streams. It was heavily involved
in the refinancing of the Company’s debt facility as
well as discussions regarding operational performance
and active portfolio management. The Board requires
adequate information to address the key issues
faced by the Company and throughout the year has
engaged and consulted with the Investment Adviser,
the Company’s other professional advisers as well as
Shareholders. It has outlined the format and quantum
of information and specific reports to be provided by
advisers to ensure the Board is well informed when
considering recommendations and actions.
Key Decisions
In making its decisions, the Board considered the
need to maintain a reputation for high standards of
business conduct and the outcome from stakeholder
engagement. Investor perceptions and feedback
was obtained through consultation with the
Company’s brokers and additionally through direct
engagement between the Investment Adviser, the
Board and Shareholders. Consideration was given
to the Company’s share price which continued to
trade at a discount to NAV during the year and the
macro-economic environment of high inflation, rising
Interest rates, the increasing unpredictability of debt
markets, and the objective of efficient and effective
management of the Company’s Portfolio.
Key decisions through the year are summarised below:
• Maintaining the Company’s quarterly dividend at
a consistent rate of 1.3125p.
• Entering into a digital administration agreement with
Society of Authors, Composers and Publishers of
Music (Sacem) and a sub-publishing partnership with
peermusic to provide a modern, worldwide network
for the collection of Song royalties for the Company.
• Replacing the previous financing arrangements with
a $700m Revolving Credit Facility to materially reduce
the Company’s interest margins at a time of interest
rate volatility as well as improving its terms.
• Completing interest rate swap agreements to provide
increased certainty over the cost of the Company’s debt.
• Establishing and implementing a Foreign Exchange
strategy to provide increased control around future
dividend payments.
• Engaging an additional Independent valuation firm
to consider and advise on the reasonableness of
assumptions employed in arriving at the Fair Value
of the Company’s Portfolio as at 30 September 2022
and continuing to engage with them through the
year ended 31 March 2023 to the date of this report,
providing the Board with continuing insights.
• Commencing an irrevocable share repurchase
programme resulting in the purchase of 2,000,000
ordinary shares of and by the Company, with a view to
reducing the Company’s share price discount to NAV.
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ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023
• Hosting a Capital Markets Day on 8 December 2022 to
highlight the active management of the Portfolio and
the actions of the Board in managing the Company’s
share price.
• Convening a Strategy Day with the Investment Adviser
and the Company’s brokers to focus on the medium-
and long-term direction and strategy of the Company.
• Approving an increase in the level of Directors’
Remuneration by 10% as further detailed in the
Directors’ Remuneration Report on page 104.
Relations with Shareholders and other
stakeholders
The majority of the key decisions noted above,
including the decision to enter into a share buyback
scheme, were in line with investor sentiment and were
made following consultation with key stakeholders.
The Board places great importance on communication
with its Shareholders and welcomes their views. The
Board is kept fully informed of all relevant market
commentary on the Company by the Investment
Adviser and the Corporate Brokers. The Company’s
refinancing activities were well received, and positive
feedback was also received following the Capital
Markets Day held on 8 December 2022. Stakeholders
reported that they felt the Company had invested in
a high-quality Portfolio and appreciated the insights
gained surrounding the active management of the
Portfolio, although expressed disappointment that
the Company’s share price continued to trade at
a discount to NAV.
In addition, both the Board and the Investment Adviser
implemented a programme of regular consultation with
all major Shareholders which resulted in a number of
productive meetings. The aim of these meetings was to
proactively gauge sentiment and to discuss any questions
Shareholders may have had in relation to the running
of the Company especially in light of the forthcoming
Continuation Vote. The Board obtained a broad
spectrum of feedback which it is actively considering.
The Company reports formally to Shareholders in a
number of ways; regulatory news releases through the
London Stock Exchange’s Regulatory News Service,
annual and interim reports and periodic factsheets
issued in response to events or routine reporting
obligations. In addition, the Company’s website
contains comprehensive information, financial results,
events, corporate reports, webcasts and factsheets;
these are all stored in the Investor Relations section of
the Company’s website: https://www.hipgnosissongs.
com/results-center/
Relationships with other stakeholders are discussed
on page 58.
All Shareholders continue to have direct access to the
Chair and the other Directors, who are available on
request.
Annual General Meeting
The Company’s Annual General Meeting (AGM) will be
held before the end of September. Notice of the Annual
General Meeting, containing full details of the business
to be conducted at the meeting, will be published to
Shareholders in due course.
Members of the Board and the Investment Adviser will
be in attendance at the AGM and available to answer
Shareholder questions.
Whistleblowing
The Board has considered the AIC Code
recommendations in respect of arrangements by which
staff of the Investment Adviser or Administrator may,
in confidence, raise concerns within their respective
organisations about possible improprieties in matters
of financial reporting or other matters anonymously.
It has concluded that adequate arrangements are
in place for the proportionate and independent
investigation of such matters and, where necessary, for
appropriate follow-up action to be taken within each
organisation. The Board routinely reviews this and any
reports which may arise from its operation. The Board
confirms that no concerns were raised during the year.
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HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023
Division of Responsibilities
Duties and Responsibilities
The Board is responsible for the determination of the
Company’s Investment Objective and Policy and has
overall responsibility for maximising the Company’s
success by directing and supervising the affairs of
the business, meeting the appropriate interests of
Shareholders and relevant stakeholders, and also
ensuring the protection of investors.
A summary of the matters reserved for the Board is
as follows:
• strategic matters;
• risk assessment and management including reporting,
compliance, governance, monitoring and control
and financial reporting;
• statutory obligations and public disclosure;
• declaring Company dividends;
• managing and assessing the performance of the
Company’s advisers and service providers; and
• other matters having a material effect on the Company.
At 31 March 2023, the Board consisted of six independent
Non-executive Directors; an independent Chair, one
Senior Independent Director and four Independent
Non-executive Directors. The Directors believe that
the composition of the Board is a fundamental driver
of its success as the Board must provide strong and
effective leadership of the Company. The current Board
was selected, as their biographies illustrate, to bring a
breadth of knowledge, skills and business experience
to the Company. The Directors’ details are listed on
pages 85-87 which set out their range of investment,
financial and business skills and experience.
Mr Sutch is the Chair. He leads the Board and is
responsible for its overall effectiveness in directing the
Company. The Chair is appointed in accordance with
the Company’s Articles of Incorporation. In considering
the independence of the Chair, the Board took note of
the provisions of the AIC Code relating to independence
and has determined that Mr Sutch is an independent
director. The Board is satisfied that the Chair has no
relationships that may create a conflict of interest
between his interests and those of Shareholders.
Mr Burger is the Senior Independent Director. The Senior
Independent Director acts as a sounding board for the
Chair and is a trusted intermediary for other Directors.
The Senior Independent Director is available to meet
Shareholders if they have concerns that cannot be
resolved through discussion with the Chair or for matters
where such contact would be inappropriate. In addition,
during the year, the Senior Independent Director leads
the other Directors in evaluating the performance of
the Chair. The Board is fully satisfied that Mr Burger
demonstrates complete independence and robustness
of character in this role.
The Directors have access to the advice and services of
the Administrator, who also assists the Board in ensuring
that Board procedures are followed, and the Board
complies with the Companies Law and applicable
rules and regulations of the GFSC and the London Stock
Exchange. Where necessary, in carrying out their duties,
the Directors may seek independent professional advice
and services at the expense of the Company. The
Company maintains appropriate Directors’ and Officers’
liability insurance in respect of legal action against its
Directors on an on-going basis.
The Board’s responsibilities for the Annual Report are
set out in the Directors’ Responsibilities Statement on
pages 111-112. The Board is also responsible for issuing
appropriate Interim Reports and other price-sensitive
public reports.
The Company has adopted a share dealing code for the
Board and seeks to ensure compliance by the Board and
relevant personnel of the Investment Adviser and other
third-party service providers with the terms of the share
dealing code.
Committees of the Board
As part of the governance framework, the Board
has delegated some of its responsibilities to six
committees: the Nomination Committee, the Audit
& Risk Management Committee, the Management
Engagement Committee, the Remuneration Committee,
the Portfolio Committee, and the Environmental, Social
and Governance Oversight Committee.
The Board is satisfied that the committees have
sufficient time and resources to carry out their
duties effectively. 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 (https://www.
hipgnosissongs.com/governance/) and are reviewed
on an annual basis. Committees are supplied with
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regular, comprehensive and timely information in a form
and of a quality that enables them to discharge their
duties effectively. Each committee has access to such
external advice as it may consider appropriate, and
all committee members 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 respective committee chairs report on their
activities to the Board. Director attendance at Board
and committee meetings is summarised on page 82.
The Board believes that it and its Committees have an
appropriate composition and blend of backgrounds,
skills and experience to discharge their duties effectively.
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 of its members
continue to be refreshed. It is satisfied that all Directors
have sufficient time to devote to their roles and that
undue reliance is not placed on any individual.
Minutes of all meetings of the Committees are made
available to all Directors and feedback from each
of the Committees is provided to the Board by the
respective committee chair at the next Board meeting.
Nomination Committee
The Nomination Committee’s activities are contained in
the Report of the Nomination Committee on page 88.
Audit and Risk Management Committee
The Audit and Risk Management Committee’s activities
are contained in the Report of the Audit and Risk
Management Committee on page 92.
Management Engagement Committee
The Management Engagement Committee’s activities
are contained in the Report of the Management
Engagement Committee on page 99.
Remuneration Committee
The Remuneration Committee’s activities are contained
in the Directors’ Remuneration Report on page 104.
Portfolio Committee
The Portfolio Committee’s activities are contained in the
Report of the Portfolio Committee on page 101.
Environmental, Social and Governance Oversight
Committee
The Environmental, Social and Governance Oversight
Committees activities are contained in the Report of
the Environmental, Social and Governance Oversight
Committee on page 103.
Board of Directors
The Board is accountable for the stewardship of the Company’s business to the Shareholders and other stakeholders
Audit and Risk Management
Committee
Mr Andrew Wilkinson
Chair of the Committee
Mr Paul Burger
Ms Sylvia Coleman
Mr Simon Holden
Ms Vania Schlogel
Mr Andrew Sutch
Management Engagement
Committee
Mr Andrew Sutch
Chair of the Committee
Mr Paul Burger
Ms Sylvia Coleman
Mr Simon Holden
Ms Vania Schlogel
Mr Andrew Wilkinson
Nomination
Committee
Mr Paul Burger
Chair of the Committee
Ms Sylvia Coleman
Mr Simon Holden
Ms Vania Schlogel
Mr Andrew Sutch
Mr Andrew Wilkinson
Remuneration
Committee
Mr Simon Holden
Chair of the Committee
Mr Paul Burger
Ms Sylvia Coleman
Ms Vania Schlogel
Mr Andrew Sutch
Mr Andrew Wilkinson
Portfolio
Committee
Mr Paul Burger
Chair of the Committee
Ms Sylvia Coleman
Mr Simon Holden
Ms Vania Schlogel
Mr Andrew Sutch
Mr Andrew Wilkinson
Environmental, Social and
Governance Oversight Committee
Ms Sylvia Coleman
Chair of the Committee
Mr Paul Burger
Mr Simon Holden
Ms Vania Schlogel
Mr Andrew Sutch
Mr Andrew Wilkinson
GOVERNANCE • DIVISION OF RESPONSIBILITIES
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HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023
Board attendance from 1 April 2022 to 31 March 2023:

Scheduled Board
Meetings
6
Ad-hoc
Board
Meetings
Nomination
Committee
Audit and Risk
Management
Committee
Management
Engagement
Committee
Remuneration
Committee
Environmental,
Social and
Governance
Oversight
Committee
Total
Meetings
attended
Total Meetings 4 12 1 5 1 1 1 25
Paul Burger
2
4 11 1 4 1 1 1 23
Sylvia Coleman
5
4 12 1 5 1 1 1 25
Simon Holden
4
4 12 1 5 1 1 1 25
Andrew Sutch
1
4 11 1 5 1 1 1 24
Andrew Wilkinson
3
4 9 1 5 1 1 1 22
Vania Schlogel
7
3 7 0 3 0 0 0 13
1. Chair of Board and Management Engagement Committee
2. Chair of Portfolio Committee and Nomination Committee
3. Chair of Audit and Risk Management Committee
4. Chair of Remuneration Committee
5. Chair of Environmental, Social and Governance Oversight Committee
6. Includes Strategy Day
7. Resigned 30 April 2023
A quorum for each committee meeting is comprised
of any two or more members of the Board from time
to time.
Directors work extensively with the Investment Adviser,
the Company’s brokers and Administrator on strategy,
acquisitions, disposals, operational, performance
management and reporting related matters between
the formal Board meetings, which is not reflected in the
above table. Compared with typical investment trusts,
this highlights the more in-depth level of management
and oversight commensurate with the intrinsic
opportunities and risks of this high-growth, intangible
asset class.
Attendance
The Board and its committees have a scheduled
forward programme of meetings to ensure that sufficient
time is allocated to each key area and the Board’s time
is used effectively.
The Board meets at least four times a year for scheduled
quarterly Board meetings, plus other ad-hoc Board
meetings. At each meeting the Board follows a formal
agenda that covers the business to be discussed.
There is sufficient flexibility for items to be added to
the agenda which enables the Board to focus on key
matters relating to the Company at the right time. Each
Board member receives a comprehensive Board pack
prior to each meeting together with supporting papers
for items to be discussed at the meeting.
In addition, a number of ad-hoc Board meetings (as
detailed above) were called in relation to specific
events or to issue approvals outside of the regular
quarterly Board meetings. These meetings were
often at short notice and were very well attended by
Board and committee members. In addition to their
meeting commitments, the Directors also liaise with
the Investment Adviser whenever required and there
is regular and frequent contact outside the Board
meeting schedule. The Directors meet regularly with
the senior management employed by the Investment
Adviser both formally and informally to ensure the Board
remains regularly updated on all issues. The Board also
has regular contact with the Administrator, and the
Board requires to be supplied in a timely manner with
information by the Investment Adviser, the Company
Secretary and other advisers in a form and of a quality
to enable it to discharge its duties.
Directors who have been unable to attend a meeting
have given the Chair their views and comments on
matters to be discussed, in advance. The Board have met
in person for all quarterly Board meetings, as well as for the
Annual General Meeting and the Strategy Day convened
in February 2023 and have continued to meet remotely
as and when necessary for ad-hoc Board meetings.
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Time commitment and conflicts of interest
Prior to appointment, each prospective Non-executive
Director confirms that they will have sufficient time
available to be able to discharge their responsibilities
effectively and that they have no conflict of interest.
In addition, the Board reviews and approves in
advance, requests by Directors wishing to undertake
new responsibilities or directorships and considers both
the time commitments involved and any potential
conflicts. A Director has a duty to avoid a situation in
which he or she has, or can have, a direct or indirect
interest that conflicts, or possibly may conflict, with the
interests of the Company. The Board requires Directors
to regularly declare all appointments and other
situations that could result in a possible conflict of
interest and has adopted appropriate procedures
to manage and, if appropriate, approve any such
conflicts. The Board is satisfied that there is no
compromise to the independence of those Directors
who have appointments on the Boards of, or
relationships with, companies outside the Company.
It was recognised towards the end of the year that
Ms Schlogel’s other commitments and responsibilities
had increased significantly resulting in a conflict in terms
of her time available to attend Board meetings and
limiting her participation during the latter part of the
year. Ms Schlogel stepped down from the Company as
a Director with effect from 30 April 2023 and offered to
waive her Director’s remuneration for the period from
1 April 2023 to 30 April 2023, such offer having been
accepted by the Board.
Throughout the year, the other Directors have devoted
sufficient time to undertake their responsibilities
effectively, have had excellent attendance records at
scheduled meetings, and demonstrated high levels of
availability and responsiveness for additional meetings
and discussions where these have been required. The
Board remains confident that these individual members
continue to devote sufficient time to undertake their
responsibilities effectively.
Director Independence
The Board confirms that all Directors should be
considered as independent in accordance with the
provisions of the AIC Code and have the time available
to discharge their duties effectively. Accordingly, the
Board recommends that Shareholders vote in favour of
the re-election of all Directors at the forthcoming AGM.
GOVERNANCE • DIVISION OF RESPONSIBILITIES
84
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023
Composition, Evaluation and Succession
Board Composition and Tenure
Directors are appointed under letters of appointment,
copies of which are available at the registered office
of the Company. The Board considers its composition
and succession planning on an on-going basis. The
Company’s Articles of Incorporation specify that each
of the Directors shall retire and may offer themselves for
re-election at each AGM of the Company.
To ensure that serving Non-executive Directors of the
Company continue to possess the necessary skills and
experience required for the strategy of the business,
the Board has established a Nomination Committee to
consider Board composition and succession planning
on an ongoing basis and to oversee the process of
appointments of Directors. The role of the Nomination
Committee is critical in ensuring that the Company’s
Board and committee composition and balance
support both the Group’s business ambitions and best
practice in the area of corporate governance.
Upon joining the Board, the Directors received induction
programmes which were specifically designed to
complement their background, experience and
knowledge, as well as on-going access to training.
No member of the Board has served for longer
than nine years. As such no issue has arisen to be
considered by the Board with respect to long tenure.
The Company’s policy on Chair tenure is that the Chair
should normally serve no longer than nine years as a
Director and Chair but, where it is in the best interests
of the Company, its Shareholders and stakeholders, the
Chair may serve for a limited time beyond that.
In accordance with the AIC Code, when and if any
Director shall have been in office (or on re-election would
at the end of that term have been in office) for more than
nine years the Company will consider further whether
there is a risk that such a Director might reasonably be
deemed to have lost independence through such long
service. The Board recognises that Directors serving nine
years or more may appear to have their independence
impaired. However, the Board may nonetheless consider
Directors to remain independent and will provide a clear
explanation in the Annual Report and Consolidated
Financial Statements as to their reasoning.
Board Evaluation
As part of the ongoing evaluation of the Board’s
effectiveness the Board carried out an internal
evaluation of its performance and that of its
Committees in December 2022. The Board believes
that annual evaluations are helpful and provide a
valuable opportunity for continuous improvement.
Internal evaluation of the Board, individual Directors
and the Chair is carried out under the mandate of the
Nomination Committee. The internal evaluation was
facilitated by the Company Secretary with input from
the Chair of the Board and the Chair of the committee.
Areas reviewed included: investment matters, Board
composition and independence, relationships and
communication, Shareholder value, knowledge and
skills, Board processes, performance of the Chair, how
the Board works as a collective and contributions of
each individual director. The review required each of the
Directors to submit responses to a series of questionnaires
to reflect their individual performance, the performance
of the Board as a whole and the main areas under
consideration by the Board and its Committees. All
responses were compiled and discussed at the Board
and relevant committee meetings.
The evaluation concluded that the Board should
commence a programme to increase Shareholder
engagement and consultation and should further progress
the Company’s succession plan with regards to Directors
and Chair. The review found that the Board conducts its
business in an environment where freedom of expression,
diversity of opinions and challenge are both encouraged
and accepted. The Board believes that the current mix of
skills, experience, knowledge and age of the Directors is
appropriate to the requirements of the Company, whilst
recognising that that current composition of the Board
does not reflect the FCA’s new diversity guidelines, and
this will be a key focus of succession planning.
GOVERNANCE
GOVERNANCE
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HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023
Board of Directors
Andrew Sutch
Chair, Non-executive Independent
Director and Chair of the Management
Engagement Committee
Tenure at 31 March 2023:
4 years 10 months
Skills and Experience
Mr Sutch is a corporate lawyer
and a consultant to Stephenson
Harwood LLP. He was a partner
of that firm for over 30 years and
its senior partner for 10 years. He
has had extensive experience
in advising investment funds,
investment managers and boards of
investment trusts. This has included
advice on complex fund launches,
restructurings and corporate
actions. He was Chair of two other
investment trusts until last year. He
is a consultant to an art dealer and
until recently a council member of
the Royal Academy of Dramatic Art.
GOVERNANCE • BIOGRAPHIES
Biographies
Succession Planning
As the majority of Directors were appointed shortly
before or after the Initial Public Offering of the
Company in July 2018, the aims of the managed
succession programme are to preserve continuity
whilst ensuring that all of the Board are not required
to retire at the same time after serving nine years.
Following individual discussions with each Director,
a timetable has been set for the phased retirement
and, if appropriate, replacement of Directors. The
Board will also continue to actively consider its size and
composition in light of the developing profile of the
Company, aims to ensure that skills and experience
are regularly refreshed and that the benefits of a
truly diverse Board are further enhanced in terms of
age, gender, ethnicity, educational and professional
backgrounds, cognitive and personal strengths.
86
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ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023
Paul Burger
Senior Non-executive Independent
Director, Chair of the Portfolio Committee
and Chair of the Nomination Committee
Tenure at 31 March 2023:
4 years 9 months
Skills and Experience
Mr Burger has spent more than
40 years in the music business.
As President of Sony Music EMEA,
he sat on the board of most of
Sony’s operating companies in
Europe including the UK. Through
his SohoArtists company he has
nurtured young talent who have
risen to great prominence in both
the World Music and Folk genres.
His marketing skills were recognised
by him being awarded Holland’s
Edison Award for Best Historical
Music Series.
Mr Burger’s board experience
includes stints in both the
commercial and not-for-profit
sectors. He has been a Director of
The BRIT Trust, The Music Managers
Forum, The BPI, as well as a number
of start-ups and small companies.
He serves currently as Chair of the
Finance and Investment committee
of The BRIT Trust and as a Governor
at The BRIT School and served as
Chair of Governors for six years.
He is also a Director of The New
Israel Fund’s Global Board as well
as of The New Israel Fund UK– an
NGO which promotes the values of
human rights and social justice for
all residents of Israel regardless of
race, religion, or ethnicity, as well as
the Hofesh Schechter Company.
Sylvia Coleman
Non-executive Independent Director
and Chair of the Environmental, Social
and Governance Oversight Committee
Tenure at 31 March 2023:
3 years 4 months
Skills and Experience
Ms Coleman, initially a lawyer
with Stephenson Harwood, has
since spent most of her career in
the Music Industry serving, across
25 years, as Senior Vice President
of Legal and Business Affairs at
EMI Music and prior to that, Sony
Music where she was responsible
for overseeing the company’s
International and European legal
and business affairs respectively.
Most recently, she co-founded
BPureSounds, a music management
company developing music artists
and music related properties.
Additionally, Ms Coleman was a
Non-executive Director of FTSE 250
bwin.party digital entertainment
plc until its acquisition by GVC
Holdings plc.
She also served as a long-standing
Chair of Chickenshed Theatre
Company, a not-for-profit music
and theatre company for young
people celebrating diversity and
inclusion and was on the Board
of Reprieve, a charitable human
rights organisation. She also
co-founded Ceroc Enterprises,
a dance company creating and
franchising a contemporary dance
phenomenon across the UK.
Simon Holden
Non-executive Independent Director
and Chair of the Remuneration
Committee
Tenure at 31 March 2023:
4 year 10 months
Skills and Experience
Mr Holden is a Chartered Director
(Cdir) and Fellow of the Institute of
Directors and adds extensive private
equity investing and corporate
operations experience to the
Company’s Board. Previously an
investment director at Terra Firma
Capital Partners and Candover
Investments prior to that, Simon
has been an active independent
director to listed investment trusts,
private equity funds and trading
company boards since 2015. In
addition, Simon acts as the pro-
bono Business Adviser to the States
of Guernsey’s Trading Assets that
operate all of the Bailiwick’s critical
airports, harbours and maritime fuel
supply infrastructure.
Simon graduated from the University
of Cambridge with an Meng and
MA (Cantab) in Manufacturing
Engineering. He is a member of
the Association of Investment
Companies (AIC), Institute of
Directors (IoD), Guernsey Investment
Funds Association (GIFA) and
several other financial services and
intellectual property interest groups.
Listed Company Roles (other than
Hipgnosis Songs Fund)
HICL Infrastructure Plc (HICL),
Chrysalis Investments Ltd. (CHRY),
Trian Investors 1 Ltd. (TI1), J.P. Morgan
Global Core Real Assets Ltd. (JARA)
Board of Directors
GOVERNANCE • BIOGRAPHIES
GOVERNANCE
87
Founder
Vania Schlogel
Non-executive Independent Director
Tenure at 31 March 2023:
1 years 10 months. Resigned 30 April 2023
Skills and Experience
Ms Schlogel has a wealth of
experience of asset management
in the media, creative arts and
entertainment sectors and a
deep understanding of Streaming
technology platforms and content
licencing. Ms Schlogel founded
the global private equity firm
Atwater Capital in 2017, with a vision
of uniting the valuable creative
aspects of evaluating investments
and growing companies with deep
operational and financial expertise.
The firm invests across the media
and entertainment sector with a
focus on companies that foster
cultural diversity, working with
management teams committed to
embracing strong ESG practices.
Previously, she served as an executive
at a number of leading companies,
including as Chief Investment Officer
of Roc Nation, the entertainment
business founded by the artist Jay-Z.
She was previously a member of
KKR’s Private Equity team, where she
specialised in the Media sector and
launched the Growth Equity division.
She began her career at Goldman
Sachs in London and Los Angeles.
She is the Chairwoman of the Board
for Mediawan US (the holding
company of Brad Pitt’s Plan B
Entertainment) and Chairwoman
of the Board for LEONINE Studios.
Andrew Wilkinson
Non-executive Independent Director
and Chair of the Audit and Risk
Management Committee
Tenure at 31 March 2023:
4 years 10 months
Skills and Experience
Mr Wilkinson is a chartered
accountant who qualified with
Peat Marwick Mitchell and
subsequently went on to work with
the music clientele of merchant
bankers Leopold Joseph.
Mr Wilkinson was a founder of the
Promo Group, which managed
the business affairs 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 Kingstreet Tours Limited, a
company that was at the forefront
of concert tour production for over
30 years and delivered worldwide
concert tours for artists including
The Rolling Stones, Pink Floyd, Sir
Elton John, Robbie Williams and
Shakira. Mr Wilkinson is a member
of the fundraising committee
and former treasurer of Nordoff
Robbins, a charity that uses music
therapy in the treatment and care
of autistic children.
Merck Mercuriadis
Founder of Hipgnosis Songs Fund
Limited and its Investment Adviser,
Hipgnosis Song Management Ltd.
Mr Mercuriadis is also the CEO and
managing partner of Hipgnosis Songs
Ltd, an artist management firm label
based in London and Los Angeles.
Experience
Merck has 40 years’ music industry
experience. He has managed
iconic artists including Nile
Rodgers, Sir Elton John, Beyoncé,
Iron Maiden, Pet Shop Boys and
Guns’N’Roses. An unrivalled
network and reputation within
the songwriting community as
a trusted custodian of songs has
enabled him to complete over
150 catalogue purchases. Merck
is a vigorous campaigner for
Songwriters to receive a fair share
of music revenues.
Board of Directors
GOVERNANCE • BIOGRAPHIES
Paul Burger, Chair of the Committee
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HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023
Report of the Nomination Committee
“TThe committee understands the importance of its role
in ensuring the Board contains the right mix of skills and
experience to support the business strategy.”
Dear Shareholder,
I am pleased to present the Nomination Committee
report for the year ended 31 March 2023. The
composition of the Nomination Committee meets with
the requirements of the AIC Code and, in line with good
practice, membership is reviewed annually.
During the year we focussed on the composition of the
Board and membership of its committees, succession
planning, talent and diversity and commenced a
recruitment process for an additional Director.
Purpose and Aim
The terms of reference of the Nomination Committee,
which are reviewed annually, are set out on the
Company’s website: https://www.hipgnosissongs.
com/governance/. Our principal responsibility is to
ensure that, collectively and at any given time, the
members of the Board possess the necessary balance
of knowledge, skills and experience to support and
develop the strategy of the Company. In seeking to
achieve this, we recommend new Board appointments
as and when considered appropriate and ensure
that adequate succession planning procedures are in
place and kept under review. In accordance with our
Terms of Reference, I, as the Chair of the Nomination
Committee, report our conclusions to the Board and it
is the Board as a whole which is responsible for making
new appointments upon our recommendation. We
review the composition of the Board and its Committees
and evaluate if the Board has the appropriate balance
of skills, knowledge, experience and independence to
ensure their continued effectiveness.
Membership and Meetings
During the year we met on one occasion, on
7 December 2022. Attendance is disclosed on page 82.
We also provided a formal update on our work to the
Board at each scheduled quarterly board meeting.
A quorum is two members. Members of the committee
are not involved in matters affecting their own position.
Mr Paul Burger (Chair of the Committee)
Ms Sylvia Coleman
Mr Simon Holden
Ms Vania Schlogel (resigned 30 April 2023)
Mr Andrew Sutch
Mr Andrew Wilkinson
Due to the current size of the Board it is deemed
appropriate and efficient that each Director is a
member of the committee. This ensures that individual
directors are not working in silos and that each Director
has knowledge of the deliberations of the committee.
During the year we:
• Reviewed the results of the annual internal board
performance evaluation, which was conducted
during December 2022, and discussed where
improvements could be made. Further details of
both the internal and external board evaluation are
outlined on page 84.
• Reviewed our longer-term strategy for the succession
of Board members. Further details of succession
planning are outlined on page 84.
• Commenced our programme of succession planning
and engaged Nurole to work with us on this.
• Recommended the appointment of Cindy Rampersaud
to the Board with effect from 1 August 2023.
Board Composition
We give full consideration to succession planning for
Directors of the Company in the course of our work,
considering the challenges and opportunities facing
the Company and determining what skills and expertise
will thus be required on the Board in the future. In
making recommendations for the annual re-election of
the Chair and Non-executive Directors, we consider the
skills, knowledge, experience, independence and also
the time commitments of each Director to ensure that
they have sufficient time to fulfil their responsibilities to
the business.
GOVERNANCE
GOVERNANCE
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HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023
New Directors receive an induction on joining the
Board. During the year the Board arranged for
presentations from the Investment Adviser, the
Company’s brokers and other advisers on matters
relevant to the Company’s business and assessed the
training needs of Directors.
As part of corporate governance, we review our
own performance annually and consider where
improvements can be made. Our performance
was reviewed as part of the annual internal board
performance evaluation which was conducted during
December 2022 as outlined on page 84.
Board Appointment Process
In general terms, when considering candidates for
appointment as Directors of the Company, we draft
a detailed job specification and candidate profile,
and will give consideration to the existing experience,
knowledge and background of Board members as
well as the strategic and business objectives of the
Company.
Once a detailed specification has been agreed with
the Board, we would then work with an appropriate
external search and selection agency to identify
candidates of the appropriate calibre and with whom
an initial candidate shortlist could be agreed. The
consultants are required to work to a specification that
includes the strong desirability of producing a full list
of candidates who meet the essential criteria, whilst
reflecting the benefits of diversity. The Board will only
engage such consultants who are signed up to the
voluntary code of conduct on gender diversity on
corporate boards.
Shortlisted candidates would then be invited to
interview with members of the committee and, if
recommended by us, would be invited to meet the
entire Board before any decision is taken relating to
their appointment. Appointments are therefore made
on personal merit and against objective criteria with
the aim of bringing new skills and different perspectives
to the Board whilst considering the existing balance of
knowledge, experience and diversity. The Board also
believes that diversity of experience and approach,
including gender and racial diversity, amongst
Board members is of great importance and it is the
Company’s policy to give careful consideration to
issues of Board balance and diversity when making new
appointments.
During the year we appointed independent consultants
Nurole to assist with our succession plan. Nurole was
appointed based on its track record and also worked
with the Remuneration Committee during the year to
review Board remuneration. Nurole commenced the
search for an additional director and were requested
to identify candidates with accounting and audit
expertise. There was a requirement for a qualified
accountant, and we were open minded with regards
to sector, as investment trust and music industry
experience was already well represented on the Board.
We were also committed to improving our gender and
ethnic minority representation and as such diversity was
a consideration in the decision-making process.
We interviewed shortlisted candidates and confirmed
that the proposed candidates were independent and
had relevant experience. The process resulted in the
appointment of Cindy Rampersaud to the Board with
effect from 1 August 2023. Cindy brings a wealth of
experience across a broad range of sectors including
education, entertainment, media and charitable
institutions.
Diversity
The Board acknowledges the importance of diversity
in its broadest sense in the boardroom as a driver of
board effectiveness. This encompasses diversity of
perspective, experience, background, directorship style
and personality traits. The Board will keep under review
and evaluate its balance and composition to ensure
that both it and its committees have the appropriate
mix of skills, experience, independence and knowledge
to ensure their continued effectiveness. In doing so,
the Board considers diversity, including age, gender,
ethnicity, educational and professional backgrounds,
cognitive and personal strengths amongst other
relevant factors.
The Board supports the progress being made to improve
the governance of listed companies by increasing
both gender and racial diversity amongst the Directors
who serve these businesses. As at the previous
year-end, 31 March 2022, the Board was compliant
with the Hampton-Alexander and Parker Review
recommendations with 33.33% female representation
and one member from a minority ethnic background.
We have continued to monitor and assess the Board’s
composition and diversity but, as reported in our report
last year, believe that due to the size of the Board,
GOVERNANCE • REPORT OF THE NOMINATION COMMITTEE
90
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023
compliance with the revised targets announced by
the FCA effective 1 April 2022 present a challenge to us
due to the current tenure, knowledge and experience
of our relatively small Board. Further consideration
will be given to these guidelines during the course of
implementing future succession plans which include
reducing the size of the Board to five members.
As at 31 March 2023 our Board composition does not
comply with the revised gender targets which require
at least 40% of the Board to be women and at least one
of the senior board positions to be filled by a woman,
however we continued to meet the ethnic diversity
target of at least one member of the board being from
a minority ethnic background.
Reporting table on gender representation
at 31 March 2023
Number
of Board
members
Percentage
of the Board
Number
of senior
positions on the
Board (Chair
and Senior
Independent
Director)
Men 4 66.67% 2
Women 2 33.33% –
Other categories – – –
Not specified/prefer not
to say – – –
Reporting table on ethnicity representation
at 31 March 2023
Number
of Board
members
Percentage
of the Board
Number
of senior
positions on the
Board (Chair
and Senior
Independent
Director)
White British or other
White (including
minority-white groups) 5 83.33% 2
Mixed/Multiple Ethnic
Groups 1 16.67% –
Asian/Asian British – – –
Black/African/
Caribbean/Black British – – –
Other ethnic group,
including Arab – – –
Not specified/
prefer not to say – – –
The Company’s approach to collecting the data used
for the purposes of the above disclosures was to use
data from the Directors together with permission to use
it for this purpose.
Improving our gender and ethnic minority
representation will continue to be a very important
consideration in our succession planning.
Our objective of driving the benefits of a diverse Board
is underpinned by our Board Diversity Policy which can
be viewed on the Company’s website: https: //www.
hipgnosissongs.com/company-policies/. The Board
keeps the Diversity Policy under review to ensure that
it remains an effective driver of diversity having due
regard to gender, ethnicity, social background, skillset
and breadth of experience.
2024 Objectives
It is our intention to continue to oversee the composition
and structure of the Board, ensuring that the
Company is at all times structured to successfully
deliver its strategy and to compete effectively in the
marketplaces within which it operates.
Our proposed activities for the year ahead are to:
• review the Terms of Reference of the committee to
ensure they reflect best practice under the Code;
• review the membership and composition of
committees of the Board; and
• continue to review longer term strategy for the
succession of Board members which includes
reducing the size of the Board to five Directors and
improving gender and ethnic minority representation.
On behalf of the Nomination Committee,
Paul Burger
Chair of the Nomination Committee
12 July 2023
GOVERNANCE • REPORT OF THE NOMINATION COMMITTEE
GOVERNANCE
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HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023
Internal Control and Financial Reporting
The Directors acknowledge that they are responsible
for establishing and maintaining the Group’s system
of internal controls and reviewing their effectiveness.
Internal control systems are designed to manage rather
than eliminate the failure to achieve business objectives
and can only provide reasonable but not absolute
assurance against material misstatements or loss.
The Board has delegated the day-to-day operations of
the Group to the Investment Adviser, the Administrator
and Portfolio Administrators; however, it remains
accountable for all functions it delegates.
The Board clearly defines the duties and responsibilities
of the Company’s agents and advisers and
appointments are made by the Board after due
and careful consideration. The Board monitors the
on-going performance of such agents and advisers
and will continue to do so through the Management
Engagement Committee.
During the year responsibility for the maintenance
of the Group’s accounting books and records, and
associated internal controls and financial reporting,
transferred from the Administrator to the Investment
Adviser. Subsequently a third party firm was engaged
to independently review controls associated with this
transition (specifically in relation to accounts payable
and receivables) and recommendations from this
review are being addressed by the Investment Adviser.
This is incorporated within the Board monitoring of the
Investment Adviser. The Investment Adviser formally
reports to the Board at quarterly Board meetings and
also engages with the Board on an ad-hoc basis
as required to provide updates on developments,
including relevant updates regarding their policies and
procedures.
The Administrator maintains a system of internal control
and reports to the Board regarding the policies and
procedures in place with regards to the administration
services it provides to the Company and also formally
reports to the Board through a quarterly compliance
report. The Administrator undertakes an ISAE 3402:
Assurance Report on Controls at a Service Organisation
audit which is provided to the Board when finalised.
No weaknesses or failing within the Administrator have
been identified.
The systems of control referred to above are designed
to ensure effectiveness and efficient 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. These
processes have been in place for the year under review
and up to the date of approval of this Annual Report
and Consolidated Financial Statements. They are
reviewed by the Board and are in accordance with the
FRC’s internal control publication: Guidance on Risk
Management, Internal Control and Related Financial
and Business Reporting.
The Board has reviewed the need for an internal
audit function and has decided that the systems and
procedures employed by the Investment Adviser and
the Administrator, including their own internal controls
and procedures, provide sufficient 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 specific to the Company is therefore
considered unnecessary.
Audit, Risk and Internal Control
GOVERNANCE
Andrew Wilkinson, Chair of the Committee
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ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023
Report of the Audit and
Risk Management Committee
“The committee performs a vital role with regards to
financial reporting, monitoring and reviewing internal
controls and assessing the principal risks facing the
Comp a ny.”
Dear Shareholder,
I am pleased to present the Audit and Risk
Management Committee report for the year ended
31 March 2023, which has been approved by both
the Audit and Risk Management Committee and
the Board.
We have continued to support the Board by ensuring
the integrity of the Company’s financial reporting,
providing independent scrutiny and challenging the
judgments made by the Investment Adviser. We have
focussed on valuations of catalogues, individual
catalogue and portfolio performance, economic
outlook, key performance indicators, environmental
and social reporting and ongoing monitoring of the
Company’s risk matrix.
These topics will remain key areas for the year ahead
and we will continue to support the Board.
Purpose and Aim
Our terms of reference, which are reviewed annually,
are set out on the Company’s website (https://www.
hipgnosissongs.com/governance/) and include all
matters indicated by Disclosure and Transparency Rule
7.1, the AIC Code and the UK Code. The Company
complies with the provisions of the Competition and
Markets Authority’s (CMA) Order 2014.
Our primary functions are:
• reviewing and monitoring the integrity of the
Financial Statements of the Group and any formal
announcements relating to the Group’s financial
performance, reviewing significant financial reporting
judgments contained in them;
• reporting to the Board on the appropriateness of the
Group’s accounting policies and practices including
critical judgment areas;
• reviewing the valuations of the Group’s investments
as prepared and presented in report format by the
Portfolio Independent Valuer, and making
a recommendation to the Board on value of the
Group’s investments;
• meeting regularly with the external auditor to review
their proposed audit plan and the subsequent audit
report and assessing the effectiveness of the audit
process and the levels of fees paid in respect of both
audit and non-audit work;
• making recommendations to the Board in relation to
the appointment, re-appointment or removal of the
external auditor and approving their remuneration
and the terms of their engagement;
• monitoring and reviewing annually the auditor’s
independence, objectivity, expertise, resources,
qualification and non-audit work;
• considering annually whether there is a need for the
Group to have its own internal audit function;
• monitoring the internal financial control and risk
management systems on which the Group is reliant;
• reviewing and considering the UK Code, the AIC
Code, the FRC Guidance on audit committees; and
• reviewing the risks facing the Group and monitoring
the risk matrix.
We formally report our findings to the Board, identifying
any matters on which we consider that action or
improvement is needed, and make recommendations
on the steps to be taken.
Membership and Meetings
Composition of the Audit and Risk Management
Committee:
Mr Andrew Wilkinson (Chair of the Committee)
Mr Paul Burger
Ms Sylvia Coleman
Mr Simon Holden
Ms Vania Schlogel (resigned 30 April 2023)
Mr Andrew Sutch
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Due to the current size of the Board it is deemed
appropriate and efficient that each Director is a
member of the committee. This ensures that individual
directors are not working in silos and that each Director
has knowledge of the deliberations of the committee.
The Chair of the Board is currently a member of the
Audit and Risk Management Committee and was
independent on appointment. The varied backgrounds
of the committee’s members and their collective skills,
experience and knowledge of the Company allow
them to fulfil the committee’s remit. As a chartered
accountant with a long professional history in the music
industry, I have the necessary recent and relevant
experience to chair the Audit and Risk Management
Committee. The other members have significant
business experience, both within the music industry and
in the asset management industry. Detailed information
on the experience, qualifications and skillsets of all
committee members can be found on pages 85-87.
Our performance is evaluated as part of the overall
evaluation of the Board and the Board Committees as
further disclosed on page 84.
I am available on request to meet investors in relation to
the Company’s financial reporting and internal controls.
Meeting Schedule
We have an annual work plan, developed from our terms
of reference, with standing items that we consider at
each meeting, in addition to any specific matters arising
and topical items on which we have chosen to focus.
During the year we met formally on five occasions,
and attendance at those meetings is shown on page 82
of the Corporate Governance Report. Third parties,
including the Portfolio Independent Valuer, have
attended meetings as and when deemed appropriate.
In addition to the formally convened meetings during
the year, I have had regular contact and meetings
with the Investment Adviser, the Administrator and the
external auditor. We also provide a formal update on
our work to the Board at each scheduled quarterly
board meeting.
During the year we:
• reviewed our terms of reference for approval by
the Board;
• conducted a detailed review of the Interim Report
and recommended it for approval by the Board;
• reviewed the Group’s updated risk matrix and
associated controls;
• reviewed the Company’s working capital model
prepared by the Investment Adviser focusing on
impact of fluctuations in foreign exchange and rising
interest rates;
• reviewed the performance of catalogues tracked to
the Investment Adviser’s initial business case for each
acquisition by income type, catalogue and as a
portfolio overall with the Investment Adviser;
• reviewed and assessed the assumptions used and
resulting valuation of the portfolio prepared by the
Portfolio Independent Valuer, which encompassed
direct discussions with the Portfolio Independent Valuer,
the Investment Adviser and the external auditor;
• reviewed the Company’s corporate governance
framework, including environmental and social reporting;
• reviewed and approved the audit plan in relation to
the audit of the Group’s Annual Report;
• reviewed and approved the fee for the external audit
as well as non-audit services and associated fees;
• assessed the independence of the external auditor;
• assessed the effectiveness of the external audit
process as described below; and
• reviewed the Group’s system of internal controls and
risk management.
Financial Reporting
Our primary role in relation to financial 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:
• the quality and acceptability of accounting policies
and practices;
• the clarity of the disclosures and compliance with
financial reporting standards and relevant financial,
environmental, social and governance reporting
requirements;
• material areas in which significant judgments have
been applied or there has been discussion with
external consultants;
• the ongoing assessment of the Company as a going
concern;
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• the principal risks and period of assessment for the
longer term viability of the Company;
• whether the Annual Report, taken as a whole, is fair,
balanced and understandable and provides the
information necessary for Shareholders to assess the
Group’s performance, business model and strategy;
and
• any correspondence from regulators in relation to the
Group’s financial reporting.
To aid our review, we consider reports from the
Investment Adviser and the external auditor.
Areas of significance considered by us during
the year:
Valuations of catalogues
We discussed the impact of macroeconomic factors
including rising interest rates and high inflation on the
discount rate applied and the valuation of the portfolio
with the Portfolio Independent Valuer and other industry
experts. The Board engaged the Portfolio Independent
Valuer, Citrin Cooperman, to value the Catalogues as at
31 March 2023. Each income type from each catalogue
was analysed and forecasts prepared in order to derive
the fair value of the catalogues by adopting a discounted
cash flow valuation methodology using a discount rate of
8.5%. Income was analysed and forecast at the level
of each individual catalogue and by income type.
The Portfolio Independent Valuer has also taken into
consideration macro factors including the growth of
streaming revenue, the global growth of the recorded
music industry and the impact of the ongoing Covid-19
recovery in their analysis. The Board received a report
from Citrin Cooperman and held two meetings with
them to discuss the fundamental changes emerging
over the year influencing the value of catalogues, the
discount rate methodology and further factors impacting
the movements in valuations before approving the
valuation. Further detail is disclosed within Note 6 on
pages 139-140.
At the time of the Interim Report the Board also took
into consideration a report by Kroll Advisory Limited,
who considered and advised on the reasonableness of
certain assumptions used by Citrin Cooperman in their
valuation of the Group’s Catalogues. Following year end,
a further analysis was undertaken by Kroll as disclosed in
the Chair’s Statement on pages 11-15.
Internal Control and Risk Management
The Board has overall responsibility for risk management.
The risk management process is designed to manage
rather than eliminate the risk of failure to achieve the
Company’s business objectives and can only provide
reasonable, not absolute assurance against material
misstatement or loss.
On behalf of the Board, we reviewed the effectiveness
of the Group’s risk management processes and the way
in which significant business risks are managed. Our
work is driven primarily by the Company’s assessment
of its principal risks and uncertainties as set out in the
Strategic Report on pages 62-66. We have established
a set of ongoing processes designed to meet the
particular needs of the Company in managing the
risks to which it is exposed. The process is one whereby
the Investment Adviser identifies the principal risks to
which the Company is exposed and discusses them
with me prior to recording them on a risk matrix together
with the controls employed to mitigate these risks. We
have ongoing discussions with the Investment Adviser
and have a process in place to identify emerging risks
and to determine whether any actions are required
and apply a residual risk rating to each risk. We, as
a committee, are responsible for reviewing the risk
matrix and associated controls before recommending
to the Board for consideration and approval, and we
challenge the Investment Adviser’s assumptions to
ensure a robust internal risk management process.
During the year, we discussed and reviewed the internal
controls frameworks in place at the Investment Adviser,
the Administrator, and Hipgnosis Songs Group. Following
the transition of responsibility for the maintenance of the
Group’s accounting books and records and financial
reporting from the Administrator to the Investment
Adviser we received a presentation and report from
Deloitte in relation to their review of the procedures,
processes and internal controls the Investment Adviser
has in place for the Group’s financial reporting.
Furthermore the Administrator holds the International
Standard on Assurance Engagements (ISAE) 3402
Type 2 certification. This entails an independent
rigorous examination and testing of their controls and
processes. The Audit and Risk Management Committee
concluded that these frameworks were appropriate
for the identification, assessment, management and
monitoring of financial, regulatory and other risks, with
particular regard to the protection of the interests of the
Company’s Shareholders.
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FRC
During the year, the Company’s Interim Report for the
six months ending 30 September 2022 was reviewed by
the FRC as part of its routine monitoring of corporate
reporting. On 13 February 2023, the FRC’s Corporate
Reporting Review team requested further information
in relation to the Company’s accounting for accrued
income, Alternative Performance Measures, Impairment
of Catalogues of Songs and accrued dividends.
With assistance from the Investment Adviser we
collaboratively engaged with the FRC, and their
enquiries reached a satisfactory conclusion. The FRC
suggested some disclosure enhancements within the
Interim Report for the six months ending 30 September
2022 which have been included in this Annual Report.
The Directors are pleased to have agreed to adopt
these changes in line with their own objective
of continuous improvement.
The committee reviewed the disclosures and
amendments proposed by management and
concluded that they are appropriate.
When reviewing the Interim Report for the six months
ending 30 September 2022, the FRC has made clear the
limitations of its review as follows:
• The review was based on the interim report and
accounts and did not benefit from detailed
knowledge of the business or an understanding of the
underlying transactions entered into and therefore
provides no assurance that the Interim Report is
correct in all material respects.
• It was, however, conducted by staff of the FRC who
have an understanding of the relevant legal and
accounting framework.
Primary Areas of Judgment and Estimation
The Board, alongside the Investment Adviser, is involved
in various estimates and judgments, as noted below:
• Forecasting income for each Catalogue that
is acquired in order to appraise investment
opportunities. These judgments are based on detailed
reports and management accounts prepared by
the Investment Adviser showing historical earnings
as well as industry projections, published by verified
third parties. For the income that is driven by ‘active
management’, judgments are made based on a
Song-by-Song assessment by the Investment Adviser;
• Accruals, as estimates, are booked in the financial
period based on historical analysis from royalty
statements and a conservative calculation. These
calculations are reviewed by the Board with the
Investment Adviser and the external auditors;
• The estimated amortisation booked per annum is
based on 20 years which is the Company’s judgment
of the useful life of its assets; and
• Indicators of impairment are considered on a
timely basis and a judgment would be made as to
whether a Catalogue should be impaired in line with
the methodology considered appropriate by the
Investment Adviser and the Board.
Fair, Balanced and Understandable
At the request of the Board, we have considered
whether in our opinion, the 31 March 2023 Annual
Report and Financial Statements are fair, balanced
and understandable and whether they provide the
information necessary for Shareholders to address the
Group’s position and performance, business and strategy.
We were provided with a full draft of the report and
reviewed it for consistency and conducted sample
checks and balances and provided feedback
highlighting the elements that would benefit from
further clarity. The draft report was amended ahead
of providing final approval to ensure that the report
reflected the key strategic messages without diluting
the overall transparency in the disclosures. Following
our review, we are of the opinion that the 2023 Annual
Report and Financial Statements are representative
of the year and present a fair, balanced and
understandable overview, providing the necessary
information for the Shareholders to assess the position,
performance, business model and strategy.
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Audit
Internal Audit
We have reviewed the need for an internal audit
function and have decided that the systems,
processes and procedures employed by the Company,
Investment Adviser and Administrator, including
their own internal controls and procedures, provide
sufficient assurance that an appropriate level of risk
management and internal control is maintained.
We have therefore concluded that an internal audit
function specific to the Company is unnecessary.
External Audit
The Audit and Risk Management Committee is the
formal forum through which the external auditor reports
to the Board. The external auditor is invited to attend
our meetings as we deem appropriate. The external
auditor also has the opportunity to meet with us
without representatives of the Investment Adviser or the
Administrator being present at least once per year.
The external audit contract is required to be put to
tender at least every 10 years. We shall give advance
notice of any retendering plans within the Annual
Report. We have considered the re-appointment of the
External Auditor and decided not to put the provision
of the external audit out to tender at this time.
PricewaterhouseCoopers Cl LLP were appointed on
14 January 2019 as the Company’s external auditor with
Mr Roland Mills as the lead audit partner who can serve
as such until the conclusion of the year ended 31 March
2023 in accordance with normal audit partner rota-
tion arrangements at which point a new audit partner
will be introduced to the Company in due course. The
Companies Law requires the reappointment of the
external auditor to be subject to Shareholders’ approval
at the AGM.
Prior to the commencement of their audit,
PricewaterhouseCoopers CI LLP presented their audit
plan to the committee, and we requested further
clarification on the work they would perform in relation
to revenue recognition and accruals, valuation of the
portfolio and disclosures in light of the Company’s
forthcoming Continuation Vote.
Effectiveness of the External Auditors
We evaluated the performance of Pricewaterhouse-
Coopers CI LLP during the year and also reviewed the
effectiveness of the external audit process.
The following factors were considered:
• the quality of the interactions between the audit team
and the committee, the Investment Adviser and the
Administrator;
• key audit risks identified and how the external auditor
addressed these risks;
• the external auditor’s progress achieved against
the agreed audit plan and communication of any
changes to the plan, including changes in perceived
audit risks;
• the competence with which the external auditor
handled the key accounting and audit judgments and
communication of the same with management and
the committee;
• the external auditor’s compliance with relevant
regulatory, ethical and professional guidance on the
rotation of partners;
• the content of the external auditor’s management
letter and audit findings report;
• the external auditor’s qualifications, expertise and
resources and their own assessment of their internal
quality procedures; and
• the stability and continuity that would be provided by
continuing to use PricewaterhouseCoopers Cl LLP.
Details of fees paid to PricewaterhouseCoopers Cl LLP
during the year are disclosed in Note 21. We approved
these fees after a review of the level and nature of
work to be performed and are satisfied that they are
appropriate for the scope of the work required.
The FRC’s Audit Quality Review team (AQR) carried
out a review of the audit of PricewaterhouseCoopers
CI LLP’s financial reporting for the financial year
ended 31 March 2022. The Chairman of the
committee received a full copy of the findings
and met with PricewaterhouseCoopers CI LLP
to discuss the matters raised in the review and
reported back to the committee on this discussion.
PricewaterhouseCoopers CI LLP have acknowledged
and addressed the matters raised in the review,
and we are satisfied they have been appropriately
addressed in the audit for this year end.
We are satisfied with PricewaterhouseCoopers Cl
LLP’s effectiveness and independence as external
auditor having considered the degree of diligence
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and professional scepticism demonstrated by them.
As such, we have not considered it necessary this year
to conduct a tender process for the appointment of
our external auditor. Having carried out the review
described above and having satisfied ourselves
that the external auditor remains independent and
effective, we have recommended to the Board that
PricewaterhouseCoopers CI LLP be reappointed as
external auditor for the year ending 31 March 2024.
A resolution to reappoint PricewaterhouseCoopers Cl LLP
as independent external auditor to the Company will be
proposed at the forthcoming AGM.
Independence of External Auditor
We review the objectivity of the external auditor and
the terms under which the external auditor may be
appointed to perform non-audit services and the level
of non-audit fees. In order to safeguard external auditor
independence and objectivity, we ensure that no other
advisory and/or consulting services are provided by
the external auditor. Any non-audit services conducted
by the external auditor require our consent before
being initiated.
The external auditor may not undertake any work
for the Company in respect of preparation of the
financial statements, preparation of valuations used in
financial statements, provision of investment advice,
taking management decisions or advocacy work in
adversarial situations.
To fulfil our responsibility regarding the independence
of the external auditor, we considered:
• the audit personnel in the audit plan for the current
period;
• a report from the external auditor describing its
arrangements to identify, report and manage any
conflicts of interest; and
• the extent of non-audit services provided by the
external auditor.
Non-audit Services
We seek to ensure that any non-audit services provided
by the external auditor do not conflict with their
statutory and regulatory responsibilities, as well as their
independence, before giving written approval prior to
their engagement.
We regularly monitor non-audit services being
provided by PricewaterhouseCoopers Cl LLP to ensure
there is no impairment to their independence or
objectivity. The only non-audit services provided by
PricewaterhouseCoopers Cl LLP related to an interim
review of the Company’s Interim report for the period
ended 30 September 2022.
Nature of service Fee
Interim Review £44,000/$52,600
Threat(s) to independence Safeguard(s) in place
There may exist a self-interest
threat where the fees from
non-audit services are in excess
of the statutory audit fee or
otherwise considered material to
PricewaterhouseCoopers Cl LLP.
A self review threat may exist
where the audit team places
reliance on work performed by
the interim review team.
The total non-audit fees for
the year are significantly
less than the total audit
fee for the year ended
31 March 2023, and the
total fees paid to the
Group for both audit
and non-audit services
is immaterial to total
PricewaterhouseCoopers
Cl LLP firm revenue.
All approved non-audit services are discussed
and sanctioned at meetings of the Audit and Risk
Management Committee.
Group audit fees were $753,431 (£609,350), including fees
payable in respect of the separate statutory audits of
subsidiaries. The ratio of audit to non-audit work is 14.3:1.
Details of Auditor’s Remuneration are set out in Note 21.
Notwithstanding such services, we consider
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. We were satisfied that
PricewaterhouseCoopers Cl LLP had adequate safeguards
in place and that provision of these non-audit services did
not provide threats to the Auditor’s independence.
I approve all non-audit services in advance, and this year
they were limited to the review of the Company’s Interim
report for the period ended 30 September 2022. The
interim review procedures are generally considered in the
normal course of business, with it being common practice
on having the external auditor to undertake this service.
This service is permitted under FRC’s 2019 Revised Ethical
Standards and included within the whitelist. We considered
the level of audit fees to non-audit fees to be appropriate
and in line with the acceptable threshold applicable to the
Company as a Guernsey domiciled company.
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2024 Objectives
It is our intention to continue to oversee the Company’s
governance framework, providing valuable
independent challenge and oversight.
Our proposed activities for the year ahead, in line with
our core functions, include but are not limited to:
• reviewing and monitoring the integrity of the Company’s
financial reporting, including considering the
appropriateness of environmental and social reporting;
• providing independent scrutiny and challenging the
judgments made by the Investment Adviser;
• reviewing the valuations of the Group’s catalogues
as prepared and presented in report format by
the Portfolio Independent Valuer, and making a
recommendation to the Board on value of the Group’s
catalogues;
• reviewing and monitoring individual catalogue and
portfolio performance;
• reviewing the risks facing the Group and monitoring
the risk matrix;
• monitoring the internal financial control and risk
management systems on which the Group is reliant;
• reviewing and considering the UK Code, the AIC
Code, the FRC Guidance on audit committees; and
• meeting regularly with the external auditor to review
their proposed audit plan and the subsequent audit
report and assessing the effectiveness of the audit
process and the levels of fees paid in respect of both
audit and non-audit work.
I will be available at the AGM to answer any questions
about the work of the Audit and Risk Management
Committee.
On behalf of the Audit and Risk Management Committee,
Andrew Wilkinson
Chair of the Audit and Risk Management Committee
12 July 2023
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Andrew Sutch, Chair of the Committee
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Report of the Management
Engagement Committee
“The Committee continues to monitor and review
the performance of the Investment Adviser and the
Company’s other third-party service providers ensuring
that their terms are competitive, fair and reasonable
for Shareholders.”
Dear Shareholder,
I am pleased to present to you the Management
Engagement Committee Report for the year ended
31 March 2023, which has been approved by both the
Management Engagement Committee and the Board.
During the year, we reviewed the performance of and
contractual arrangements with the Investment Adviser
and the Company’s other third-party service providers.
Overall, we agreed that the services currently provided
by the Company’s key service providers continue
to be delivered in line with their respective terms of
engagement.
Our work for the year ahead will be focussed on the
ongoing review of the performance of the Investment
Adviser and the Company’s other third-party service
providers.
Purpose and Aim
Our terms of reference, which are reviewed annually,
are set out on the Company’s website: https://www.
hipgnosissongs.com/governance/.
We provide a formal mechanism for the review of
the performance of the Investment Adviser and the
Company’s other advisers and service providers.
We carry out this review through consideration of a
number of objective and subjective criteria such as the
accuracy, quality and timeliness of advice, information
and services provided, and through a review of the
terms and conditions of the advisers’ appointments
with the aim of evaluating performance, identifying
any weaknesses and ensuring that their terms are
competitive, fair and reasonable for Shareholders.
Membership and Meetings
As at 31 March 2023, the Committee comprised
the Chair and the five independent Non-executive
Directors of the Company.
Mr Andrew Sutch (Chair of the Committee)
Mr Paul Burger
Ms Sylvia Coleman
Mr Simon Holden
Ms Vania Schlogel (resigned 30 April 2023)
Mr Andrew Wilkinson
We meet at least once a year pursuant to our terms of
reference. During the year we met on one occasion,
on 28 March 2023. Attendance is disclosed on page 82.
A quorum is two members.
Investment Adviser
The Board is responsible for the determination of the
Company’s Investment Objective and Policy and has
overall responsibility for its activities. The Company
entered into an Investment Advisory Agreement dated
27 June 2018 with the Investment Adviser pursuant to
which the Investment Adviser will source Songs and
provide recommendations to the Board on acquisition
and disposal strategies to maximise the earnings
potential of the Songs in the portfolio through improved
placement and coverage of Songs.
The Company is responsible for paying an advisory fee
to the Investment Adviser in return for their services,
and, subject to the fulfilment of certain conditions, an
additional performance fee.
The committee considered the performance of
the Investment Adviser throughout the year both in
respect of their implementation of the Company’s
strategy, operational performance and active portfolio
management, and engaged with the Investment
Adviser to discuss key performance indicators and
provide direction regarding information and specific
reports required to ensure the Board is well informed
and kept up to date.
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
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Adviser on the terms agreed is in the interests of the
Shareholders as a whole.
The Company has become aware that it, Merck
Mercuriadis and Hipgnosis Song Management are
named as defendants in a claim form issued in the
High Court. The details have not been particularised,
nor has the claim been served. It is assumed that the
claim refers to matters before the incorporation of the
Company in June 2018, as the claimant is a company
which was put into liquidation in February 2018. The
Company has taken independent legal advice and will
continue to monitor the situation.
Third-Party Service Provider Review
The Company works closely with and has delegated
the provision of services to a number of service
providers (the Administrator, Company Secretary,
brokers and other professional advisers) whose
interests are aligned to the success of the Company.
The quality and timeliness of their service provision
is critical to the success of the Company. We review
all material contracts for service quality and value
and on an annual basis conduct a detailed review of
the performance of key third-party service providers
pursuant to their terms of engagement, with the
exception of the external auditor as their performance
review is conducted by the Audit and Risk Management
Committee and is discussed on pages 92-98.
We conducted a service provider evaluation in March
2023, based on a questionnaire which also gave service
providers an opportunity to provide feedback to the
Company. The evaluation results were used to review
the Company’s policies and procedures to ensure
open lines of communication, operational efficiency
and appropriate pricing for services provided.
Each service provider completed the questionnaires
outlining how they had fulfilled their responsibilities
and detailed their relationship with the Board, the
Investment Adviser and other service providers.
We reviewed and discussed their responses and
communicated our conclusions to the Investment
Adviser and requested the Investment Adviser
to advise the service providers of areas of the
service we believed worked well and of areas
we believe could be improved or enhanced.
Overall, we agreed that the services currently provided
by the Company’s key service providers continued
to be delivered in line with their respective terms of
engagement and concluded that the services were of
a satisfactory level, providing assurance to the Board.
2024 Objectives
It is our intention to continue to oversee the terms and
conditions of the advisers’ appointments with the aim
of evaluating performance, identifying any weaknesses
and ensuring value for money for the Shareholders.
Our proposed activities for the year ahead are to:
• review the terms of the Investment Advisory
Agreement between the Company and the
Investment Adviser, and to ensure that the terms are
competitive, fair and reasonable for the Shareholders;
• review the performance of the Investment Adviser
including the on-going suitability of the Investment
Adviser to manage the assets of the Company, on at
least an annual basis;
• review the performance of, and the terms of the
Company’s arrangements with, other third-party
service providers (other than the external auditors),
and to ensure that the terms are competitive, fair and
reasonable for Shareholders.
On behalf of the Management Engagement
Committee,
Andrew Sutch
Chair of the Management Engagement Committee
12 July 2023
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Paul Burger, Chair of the Committee
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ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023
Report of the Portfolio Committee
“The committee is focussed on evaluating investment
pipeline opportunities and making the final decision
as to the acquisition or disposal of any Catalogue
of S ong s.”
Dear Shareholder,
I am pleased to present to you the Report of the
Portfolio Committee for the year ended 31 March
2023 which has been approved by both the Portfolio
Committee and the Board.
The committee has focussed on investing In Catalogues
of the highest calibre and the Company is now
fully invested in a high-quality Portfolio of culturally
important songs with a proven track record of
success. Due to the macro-economic environment,
the Company has not been in a position to raise
further capital for reinvesting this year and there were
no acquisitions or disposals. The focus has been on
considering the potential of the investment pipeline
and monitoring and evaluating the performance of the
current Portfolio.
The Investment Adviser has continued to make the
committee aware of the investment pipeline and the
committee has had the opportunity to consider and
review investment proposals on a co-investment basis
with the Investment Adviser’s additional client Hipgnosis
Songs Capital. It is worth noting that the committee
reviewed a number of such co-investment opportunities,
namely Nile Rodgers, Erika Ender, Tobias Jesso Jr., TMS
and Justin Bieber, but that these were ultimately not
progressed due to the lack of investible funds.
Our work for the year ahead will be focussed on
the ongoing review of recommendations from the
Investment Adviser on the acquisition of Songs, the
investment pipeline and evaluating investment
performance reports.
Purpose and Aim
Our terms of reference, which are reviewed annually,
are set out on the Company’s website: https: //www.
hipgnosissongs.com/governance/.
We provide a formal mechanism for the following
functions:
• making the final decision as to the acquisition of
Catalogues of Songs based on a comprehensive
investment paper, financial model, and legal due
diligence report as presented by the Investment
Adviser along with an Independent Valuation Report;
• determining, in collaboration with the Company’s
legal, tax or corporate finance advisers, the most
appropriate means for acquiring the Catalogues of
Songs in the event that such Catalogues of Songs
are not directly transferable, but are available in
an intermediated form (such as a special purpose
company, or similar) including determining any
adjustments to the price if necessary or appropriate;
• making enquiries, at any stage, of the Investment
Adviser with regards to the pipeline opportunities
identified by the Investment Adviser from time to time;
• making the final decision as to the disposal of any
Catalogue of Songs; and
• determining, in collaboration with its legal, tax or
corporate finance advisers, the most appropriate
means for disposal of the Catalogues of Songs in the
event that such Catalogues of Songs are not directly
transferable but are held in an intermediated form
(such as a special purpose company, or similar).
Membership and Meetings
As at 31 March 2023, given the current size of the Board
the composition of the committee is all Directors.
Mr Paul Burger (Chair of the Committee)
Ms Sylvia Coleman
Mr Simon Holden
Ms Vania Schlogel (resigned 30 April 2023)
Mr Andrew Sutch
Mr Andrew Wilkinson
We meet 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 two Directors. All Board members shall
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HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023
use reasonable endeavours to attend each meeting
of the Portfolio Committee.
Meeting Schedule
As there were no acquisitions or disposals to consider
during the year, the committee did not formally
meet, though the committee was made aware of
the investment pipeline and had the opportunity
to consider and review investment proposals on a
co-Investment basis with the Investment Adviser’s
additional client Hipgnosis Songs Capital. A formal
update on the performance of the Company’s portfolio
was presented to the Board at each scheduled
quarterly Board meeting.
2024 Objectives
Our proposed activities for the year ahead are to:
• review the Terms of Reference of the committee to
ensure they reflect best practice under the AIC Code;
• review the recommendations from the Investment
Adviser on the acquisitions and disposals of
Catalogues of Songs;
• review the quarterly investment performance reports
as prepared by the Investment Adviser, including the
pipeline report.
On behalf of the Portfolio Committee,
Paul Burger
Chair of the Portfolio Committee
12 July 2023
GOVERNANCE • REPORT OF THE PORTFOLIO COMMITTEE
Sylvia Coleman, Chair of the Committee
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HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023
Report of the Environmental,
Social and Governance
Oversight Committee
“The Committee was established to define our
Environmental, Social and Governance (“ESG”) strategy
and ensure compliance with our ESG obligations.”
Dear Shareholder,
I am pleased to present to you the Environmental, Social
and Governance Oversight Committee Report for the
year ended 31 March 2023, which has been approved
by both the committee and the Board.
During the year, we approved the committee’s Terms of
Reference and Code of Conduct as well as defining our
working relationship with the Investment Adviser, having
also reviewed their Supplier Code of Conduct and
Responsible Investment Policy.
Our work for the year ahead will be focussed on
developing an ESG element to the third-party
service provider review, reviewing and validating the
Investment Adviser’s ESG policies and considerations,
ensuring acknowledgement of and adherence (insofar
as the Board is able) to the Investment Adviser’s Supplier
Code of Conduct, thereby allowing the Company
oversight of all suppliers, both direct and indirect, from
an ESG capacity.
Purpose and Aim
Our terms of reference, which are reviewed annually,
are set out on the Company’s website: https://www.
hipgnosissongs.com/governance/.
We provide a formal mechanism for the oversight of
the Investment Adviser in terms of their Environmental,
Social and Governance responsibilities. We monitor
the policies in place in terms of the Supplier Code of
Conduct and the Responsible Investment Policy and
carry out this function through regular meetings with
and updates from the Investment Adviser including
consideration on a quarterly basis of a compliance
certificate confirming the guidelines and principles
being adhered to as well as the responsibilities
beholden in consequence thereof.
Membership and Meetings
As at 31 March 2023, the Committee comprised
the Chair and the five independent Non-executive
Directors of the Company.
Ms Sylvia Coleman (Chair of the Committee)
Mr Paul Burger
Mr Simon Holden
Ms Vania Schlogel (resigned 30 April 2023)
Mr Andrew Sutch
Mr Andrew Wilkinson
We meet at least once a year pursuant to our terms
of reference. During the year we met on one occasion,
on 7 December 2022. Attendance is disclosed on
page 82. A quorum is two members.
2024 Objectives
It is our intention to continue to work with the Investment
Adviser in defining and delivering their ESG policies and
processes and how they integrate with the corporate
strategy.
Our proposed activities for the year ahead are to:
• review the Investment Adviser’s Supplier Code of
Conduct and adherence to by the suppliers thereto.
• review the Investment Adviser’s Responsible
Investment Policy.
• review the Committee’s Terms of Reference.
On behalf of the Environmental, Social and
Governance Oversight Committee,
Sylvia Coleman
Chair of the Environmental, Social and Governance Oversight
Committee
12 July 2023
GOVERNANCE
Simon Holden, Chair of the Committee
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HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023
“The Committee oversees the remuneration of the
independent Board of Directors. Board remuneration
must align the intellectual capital and time
commitments required of Directors in fulfilling their
fiduciary responsibilities, overseeing key operational
projects, and ensuring the Company achieves strategic
milestones and continues generating underlying
operational performance for Shareholders and
stakeholders alike.”
Dear Shareholder,
I am pleased to present to you the Directors’
Remuneration Report for the year ended 31 March 2023,
which has been approved by both the Remuneration
Committee and the Board.
During the year we reviewed our Terms of Reference to
re-confirm it reflects best practice under the AIC Code
including periodic, independent review of Director
Remuneration.
The Company is a self-managed Alternative Investment
Fund (“AIF”) for the purposes of AIFMD regulations. The
Investment Adviser’s business is the management of
song rights and associated intellectual property rights,
activities which mean it is not an FCA regulated firm. For
both reasons, the Board have enhanced responsibilities
for both portfolio and risk management in addition to
those of being a premium listed main market constituent
member of the FTSE 250 Index since March 2020.
During 2023, the Committee completed its triennial
review of Director remuneration with the assistance
of independent consultants Nurole. Having given
consideration to the time, skill and effort required
of Directors in fulfilling their duties to the Company,
which is discussed in further detail below, as well
as the fact that remuneration has not increased in
nominal terms over the last three years despite high
inflation, the Committee has recommended that
Directors’ remuneration should increase by 10%,
a recommendation supported by Nurole.
As disclosed on page 83 in recognition of the reduced
time available to Ms Vania Schlogel to devote to
the Company, Ms Schlogel has waived her Director’s
remuneration for the period post year-end from 1 April
2023 to her effective resignation date of 30 April 2023.
Purpose and Aim
Our terms of reference, which are reviewed annually,
are set out on the Company’s website: https: //www.
hipgnosissongs.com/governance/. We are responsible
for recommending and monitoring the level and structure
of remuneration for all the Directors, taking into account
the time commitments and responsibilities of Directors and
any other factors which we deem necessary, including
the recommendations of the AIC Code.
We are also responsible for the review of any workforce
remuneration and related policies and the alignment
of incentives and rewards with culture and consider
these when setting the policy for executive director
remuneration. At the moment this involves oversight of
the arrangements for the employees of HSG, managed
by Hipgnosis Song Management Limited. As at the
year ended 31 March 2023 although the Company
has employees within HSG, none of the employees are
classified as Senior Executives as they do not report
directly to the Board of Hipgnosis Songs Fund Limited.
At the time of the acquisition of HSG, the Board clarified
certain elements of both the Investment Advisory
Agreement and the Financial Position and Prospects
Procedures in order to delegate full responsibility
for the operations of HSG to the Investment Adviser.
Accordingly, the Investment Adviser is responsible for
HSG’s operations, including its executive remuneration,
budgeting and performance management.
Membership and Meetings
As at 31 March 2023, the Committee comprised:
Mr Simon Holden (Chair of the Committee)
Mr Paul Burger
Ms Sylvia Coleman
Ms Vania Schlogel (resigned 30 April 2023)
Mr Andrew Sutch
Mr Andrew Wilkinson
Due to the current size of the Board it is deemed
appropriate and efficient that each Director is
Directors’ Remuneration Report
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HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023
a member of the committee, this ensures that individual
directors are not working in silos and that each Director
has knowledge of the deliberations of the committee.
We meet at least once a year pursuant to our terms of
reference. During the year we met on one occasion, on
7 December 2022. Attendance is disclosed on page 82.
A quorum is two members. Members of the Committee
are not involved in matters affecting their individual
position.
Increase in Directors’ Remuneration
Each Director receives a fixed fee per annum based
on their roles and responsibility within the Company
and the effective time commitment required. For the
last three years, since 1 April 2020 the Chair has been
entitled to annual remuneration of £85,000, the chairs
of the Audit and Risk Management Committee and
the Portfolio Committee have been entitled to annual
remuneration of £81,500, and the other Directors have
been entitled to annual remuneration of £75,000.
In preparation of the triennial remuneration review, the
Committee Chair asked Directors to track the hours they
spent between Q4 2022 and Q1 2023 on detailed work,
discharging what are often day-to-day responsibiltiies
for the oversight and management of the Company and
its many related projects. Taken as an average, Directors
are giving 50 days full-time equivalent per annum to their
role, the vast majority of which are strategic workstreams,
monthly internal performance reporting and advisory
discussions. None of these constitute formal Board
Meetings that are otherwise captured in the Directors’
individual attendance record.
Directors’ remuneration was last calibrated in 2020,
three years ago. Since then:
• the Company’s board remuneration has remained
fixed in nominal terms
• Generally, compound inflation in the period February
2020 to February 2023 has been 23.9%
1
• Specifically, a respected survey amongst
Guernsey investment companies with assets under
management of >£1bn shows board remuneration
over the same period has increased by a compound
16.1%, or 5.1% p.a.
2
• Had Directors’ fees simply tracked pre-Pandemic RPI
inflation of 2.4%, they would be 7.5% higher in nominal
terms as of March 2023.
Triangulating between these two data points, the
Committee concluded that a 10% increase in Directors’
remuneration was appropriate (effective from 1 April
2023), such conclusion having been supported
by independent scrutiny provided by Nurole. The
Committee is mindful of the priority to evidence Board
remuneration as a source of Shareholder value and
therefore draws Shareholders’ attention to the fact that
after this uplift, your Board’s fees are now:
• 13% lower in real terms over the three-year period
• 6% lower against the index of equivalent board
remuneration levels over the same period; and
• Continuing to reflect a sustained and justifiable level
of time commitment that remains at the very upper
end of what is expected of directors in the closed end
alternative fund sector.
Therefore, from 1 April 2023, the Chair has been entitled
to annual remuneration of £93,500, the chairs of the
Audit and Risk Management Committee and the
Portfolio Committee have been entitled to annual
remuneration of £89,650, and the other Directors have
been entitled to annual remuneration of £82,500.
The schedule of the Directors’ attendance in the year
under review as disclosed on page 82 evidences the
breadth and depth of investment, strategy and other
project work we have supported or led during the
year. In addition to the formally convened meetings
during the year, despite a lower deal flow, we have
continued to have a high and sustained workload
and have dealt with a number of matters that
required fresh thinking and consideration in assisting
the Investment Adviser in the management of the
Company. In particular we were heavily involved in the
refinancing of the Company’s debt facility, attended
regular and frequent meetings with the Investment
Adviser to discuss operational performance and active
portfolio management, increased engagement and
consultation with the Company’s professional advisers
and Shareholders, and considered appropriate
actions to take with a view to reducing the Company’s
share price discount to NAV, whilst addressing a fast-
developing macro-economic environment.
1. Office of National Statistics RPI time series MM23 (www.gov.uk)
2. Source: Trust Associates “Investment Company Non-Executive Directors’ Fees
Review” 2020, 2021, 2022
GOVERNANCE • DIRECTORS’ REMUNERATION REPORT
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HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023
Fixed Element
FY2023
£
31 March 2023
Total
£
31 March2023
Total
$
Fixed Element
FY2022
£
31 March 2022
Total
£
31 March 2022
Total
$
Andrew Sutch 85,000 85,000 103,573 85,000 85,000 113,811
Paul Burger 81,500 81,500 99,309 81,500 81,500 109,124
Andrew Wilkinson 81,500 81,500 99,309 81,500 81,500 109,124
Simon Holden 75,000 75,000 91,388 75,000 75,000 100,421
Sylvia Coleman 75,000 75,000 91,388 75,000 75,000 100,421
Vania Schlogel 75,000 75,000 91,388 60,360 60,360 80,819
All Directors are non-executive. The Directors’
remuneration, excluding disbursements, for the year
ended 31 March 2023 amounted to £473,000/$576,355,
with no outstanding fees due to the Directors at
31 March 2023 (31 March 2022: £458,360/$613,720 with
outstanding fees of £18,750/$24,745 due at 31 March
2022). There were no supplementary fees paid to
Directors in the year ended 31 March 2023. Directors
are reimbursed for out-of-pocket expenses incurred
in fulfilling their roles, including costs of travel and
accommodation (as required).
In accordance with the AIC Code, we consider the
level of the Directors’ fees at least annually.
During the year ended 31 March 2023 the Directors’
remuneration was as shown in the table below.
The Company’s investment proposition of acquiring,
integrating and overseeing the active management
of a diverse portfolio of song copyrights necessarily
requires a more operational mandate of its Board than
typical investment trusts. Albeit that all Directors are
non-executive, distinguishing responsibilities of our
Board include oversight and consideration of:
• the status of both contractual and registration
rights that require resolving as part of the ongoing
optimisation of current and past acquisitions;
• the Investment Adviser’s function in the tracking and
collection of royalty and licence obligations from a
complex supply chain of global revenue sources;
• the disclosure and measurement of performance
relative to the Investment Adviser’s initial business
case for each acquisition (by income type,
catalogue and at a portfolio level);
• the business case for value enhancement from
internalising certain functions (such as copyright
administration via HSG and digital administration
via Sacem)
• ensuring that assets are securely under the
Company’s custody within reasonable timeframes
post-acquisition; and
• an efficient capitalisation and credit strategy for the
Company to enhance and safeguard returns on
investment for Shareholders.
The remuneration of employees in the Company’s
subsidiary, HSG, which undertakes administration and
Song management activities in the United States, is
delegated to the Investment Adviser under the terms
of the Investment Advisory Agreement.
Remuneration Policy
The Company’s remuneration policy, as published on
the Company’s website (https://www.hipgnosissongs.
com/governance/ alongside the terms of reference
for the Remuneration Committee), is put to a vote by
Shareholders every three years and was ratified by
Ordinary Resolution at the Annual General Meeting
of the Company on 21 September 2022.
GOVERNANCE • DIRECTORS’ REMUNERATION REPORT
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HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023
2024 Objectives
It is our intention to continue to oversee the remuneration
arrangements in a manner which is aligned with the
delivery of key operational goals and continued positive
strategic outcome for our Shareholders and stakeholders.
Our proposed activities for the year ahead are:
• review the Terms of Reference of the Committee to
ensure they reflect best practice under the Code;
• revert to an annual, more gradual, cycle of reviewing
factors that influence Director remuneration; this is
more typical across the closed-ended funds sector
and would also be fairer to the Board who have
historically only recalibrated their fees after performing
their roles in steering the Company towards its current
steady-state scale and operational performance;
• engage with Shareholders on any future review of the
remuneration policy.
On behalf of the Remuneration Committee,
Simon Holden
Chair of the Remuneration Committee
12 July 2023
GOVERNANCE • DIRECTORS’ REMUNERATION REPORT
108
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023
Report of the Directors
The Directors hereby present the Annual Report and
Audited Consolidated Financial Statements for the
Group, Hipgnosis Songs Fund Limited and its subsidiaries,
for the year ended 31 March 2023. This Report of the
Directors should be read together with the Strategic
Report on pages 2-71 and the Corporate Governance
Report on pages 72-107, which are both incorporated
into this Report of the Directors by reference.
General Information
The Company is a company limited by shares
incorporated on 8 June 2018 under the Companies
Law. The Company’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 Specialist Fund
Segment of the London Stock Exchange on 11 July 2018,
and migrated to a Premium Listing on the Main Market
of the London Stock Exchange on 25 September 2019.
The Company was promoted to the FTSE 250 Index
on 20 March 2020. The Company converted to an
investment trust company with effect from 1 April 2021
and is therefore treated as being resident in the UK for
tax purposes and has ceased to be a Guernsey tax
exempt vehicle under The Income Tax (Exempt Bodies)
(Guernsey) Ordinance, 1989, as amended.
The registered office address is Floor 2, Trafalgar Court,
Les Banques, St Peter Port, Guernsey, GY1 4LY.
Principal Activities
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 investment in a portfolio of Songs and
their associated musical intellectual property rights.
The Group’s principal activities are to invest in a diverse
Portfolio of Song Catalogues, to collect income
generated across a wide variety of sources from the
ongoing exploitation of those copyrights, and to
manage the development of those assets as intensively
as possible to broaden awareness and stimulate
consumption.
Provision of information elsewhere in this
annual report
Business Review
A review of the Group’s business and its likely future
development is provided in the Strategic Report on
pages 2-71.
Financial Risk Management Policies and Objectives
Financial risk management policies and objectives are
disclosed in Note 17.
Section 172(1) Statement
The Section 172(1) statement is made on page 70.
Going Concern and Viability Statements
Going Concern and Viability Statements are made on
pages 67-69.
Principal and Emerging Risks
Principal and emerging risks are discussed in the
Strategic Report on pages 62-66.
Subsequent Events
Significant subsequent events have been disclosed in
Note 24.
Alternative Performance Measures and/or Key
Performance Indicators
The Directors believe that the performance indicators
detailed in the Financial Highlights, on pages 8-9,
and Financial Review on pages 34-41, will provide
Shareholders with sufficient information to assess how
effectively the Company is meeting its objectives. The
Alternative Performance Measures are described on
pages 163-170.
Listing Requirements
Since being admitted to the Official List of the UK Listing
Authority, as maintained by the FCA, the Company has
been required to comply with the applicable Listing
Rules.
Results and Dividends
The results for the year are set out in the Consolidated
Financial Statements on pages 122-162. Dividends are
set out on Note 16.
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109
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023
During the year, and since the year end, the Directors
declared the following dividends to Ordinary
Shareholders:
Dividend
Quarter
Ended
Date of
Declaration
Payment
Date
Amount
per
Ordinary
Share
(pence)
Interim dividend 30 Jun 2022 21 Sep 2022 28 Oct 2022 1.3125
Interim dividend 30 Sep 2022 8 Dec 2022 31 Jan 2023 1.3125
Interim dividend 31 Dec 2022 16 Mar 2023 28 Apr 2023 1. 31 2 5
Interim dividend 31 Mar 2023 23 Jun 2023 28 Jul 2023 1. 31 2 5
Share Capital
The Company has two classes of share capital:
(i) Ordinary Shares; and (ii) C Shares. C Shares constitute
a temporary and separate class of shares which can
be issued at a fixed 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. There are no
C-shares in issue at 31 March 2023.
Under the Company’s Articles of Incorporation, each
Shareholder present in person or by proxy has the
right to one vote at general meetings. On a poll, each
Shareholder is entitled to one vote for every Ordinary
Share or C Share held.
Shareholders are entitled to all dividends paid by the
Company and, on a winding up, provided the Company
has satisfied all of its liabilities, the Shareholders are
entitled to all of the residual assets of the Company.
Shareholdings of the Directors
The Directors with beneficial interests in the Ordinary
Shares of the Company as at 31 March 2023 are
detailed below:
Director
Ordinary
Shares held
31 March
2023
% holding at
31 March
2023
Ordinary
Shares held
31 March
2022
% holding at
31 March
2022
Paul Burger 66,000 0.005 66,000 0.005
Sylvia Coleman 61,201 0.005 38,701 0.003
Simon Holden 100,796 0.008 100,796 0.008
Andrew Sutch 63,953 0.005 60,668 0.005
Vania Schlogel* 10,000 0.001 10,000 0.001
Andrew Wilkinson 97,258 0.008 72,973 0.006
* Resigned 30 April 2023
In addition, the Company also provides the same
information as at 12 July 2023, being the most current
information available:
Director
OrdinaryShares
held 12 July
2023
% holding at
12 July
2023
Paul Burger 66,000 0.005
Sylvia Coleman 61,201 0.005
Simon Holden 100,796 0.008
Andrew Sutch 64,925 0.005
Andrew Wilkinson 97,258 0.008
Directors’ Authority to Buy Back Shares
The Directors will 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
sufficient 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. Annually the Company passes
a resolution granting the Directors general authority to
purchase in the market up to 14.99% of the number of
Ordinary Shares in issue. During the year the Directors
exercised the authority granted at the Annual General
Meeting of the Company held on 21 September 2022 to
repurchase a total of 2 million shares with an aggregate
value of £1.7million. The Directors intend to seek renewal
of this authority from the Shareholders at the AGM.
In the event that the Board decides to repurchase
Ordinary Shares, purchases will only be made through
the market for cash at prices not exceeding the last
reported Operative NAV per Share and such purchases
will only be made in accordance with: (a) the Listing
Rules, which currently provide that the maximum price
to be paid per Ordinary Share must not be more than
the higher of: (i) 5% above the average of the mid-
market values of the relevant Ordinary Shares for the five
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
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110
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023
(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.
The Directors will 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.
Directors’ and Officers’ Liability Insurance
The Company maintains insurance in respect of
Directors’ and Officers’ liability in relation to their
activities on behalf of the Group.
Substantial Shareholdings
As at 31 March 2023, the Company had been notified,
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
Investec Wealth & Investment 116,792,830 9.66%
Newton Investment Management 108,489,848 8.97%
Aviva Investors 81,790,812 6.76%
Cazenove Capital Management 78,357,597 6.48%
RBC Brewin Dolphin 73,144,523 6.05%
CCLA Investment Management 58,688,592 4.85%
BlackRock 39,868,886 3.30%
Brooks Macdonald 38,120,744 3.15%
In addition, the Company also provides the same
information as at 30 June 2023, being the most current
information available.
Shareholder Shareholding % holding
Investec Wealth & Investment 116,565,828 9.64%
Newton Investment Management 105,329,783 8.71%
Aviva Investors 81,790,812 6.76%
Cazenove Capital Management 76,276,653 6.31%
Brewin Dolphin 72,136,781 5.97%
CCLA Investment Management 59,079,304 4.89%
BlackRock 38,920,378 3.22%
The Directors confirm that there are no securities in issue
that carry special rights with regard to the control of the
Company.
Independent External Auditor
PricewaterhouseCoopers CI LLP has been the
Company’s external auditor since the Company’s
incorporation. The Audit and Risk Management
Committee reviews the appointment of the external
auditor, its effectiveness and its relationship with
the Company, which includes monitoring the use
of the external auditor for non-audit services and
the balance of audit and non-audit fees paid,
as included in Note 21. Following a review of the
independence and effectiveness of the external auditor,
a resolution will be proposed at the AGM to re-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
confirmation 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 page 92.
Articles of Incorporation
The Company’s Articles of Incorporation may only be
amended by special resolution of the Shareholders.
AEOI Rules
Under AEOI Rules the Company continues to comply
with both FATCA and CRS requirements to the extent
relevant to the Company.
Annual General Meeting
The Company’s Annual General Meeting will be held
before the end of September. Notice of the Annual
General Meeting, containing full details of the business
to be conducted at the meeting, will be published to
Shareholders in due course.
Members of the Board and the Investment Adviser will
be in attendance at the AGM and will be available to
answer Shareholder questions.
By order of the Board,
Andrew Sutch
Chair
12 July 2023
GOVERNANCE • REPORT OF THE DIRECTORS
GOVERNANCE
111
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023
The Directors are responsible for preparing the Annual
Report and Consolidated Financial Statements in
accordance with applicable law and regulations.
The Companies Law requires the Directors to prepare
the Annual Report and Consolidated Financial
Statements for each financial year. Under the
Companies Law, the Directors must not approve the
Consolidated Financial Statements unless they are
satisfied that they give a true and fair view of the state
of affairs of the Group and of the profit or loss of the
Group for that period.
In preparing these Consolidated Financial Statements,
the Directors are required to:
• select suitable accounting policies in accordance
with IAS 8 Accounting Policies, Changes in
Accounting Estimates and Errors and then apply them
consistently;
• make judgments and accounting estimates that are
reasonable and prudent;
• present information, including accounting policies,
in a manner that provides relevant, reliable,
comparable and understandable information;
• provide additional disclosures when compliance
with the specific requirements in IFRS is insufficient to
enable users to understand the impact of particular
transactions, other events and conditions on the
Group’s financial position and financial performance;
• state that the Group has complied with IFRS, subject
to any material departures disclosed and explained in
the Consolidated Financial Statements; and
• prepare the Consolidated Financial Statements on
a going concern basis unless it is inappropriate to
presume that the Group will continue in business.
The Directors confirm that they have complied with the
above requirements in preparing the Annual Report
and Consolidated Financial Statements.
The Directors are responsible for keeping proper
accounting records, which disclose with reasonable
accuracy at any time the financial position of
the Group and enable them to ensure that the
Consolidated Financial Statements comply with
the Companies Law. They are also responsible for
safeguarding the assets of the Group 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 ensuring that
the Annual Report and Consolidated Financial
Statements, taken as a whole, are fair, balanced and
understandable and provide the information necessary
for Shareholders to assess the Group’s performance,
business model and strategy.
The Directors are also responsible under the AIC Code
to promote the success of the Group for the benefit of
its members as a whole and in doing so have regard for
the needs of wider society and other stakeholders.
As part of the preparation of the Annual Report and
Consolidated Financial Statements the Directors have
received reports and information from the Company’s
Investment Adviser and Administrator. The Directors
have considered, reviewed and commented upon the
Annual Report and Financial Statements throughout the
drafting process in order to satisfy themselves in respect
of the content.
The Directors are responsible for the maintenance and
integrity of the corporate and financial information
included on the website: www.hipgnosissongs.com)
Legislation in Guernsey governing the preparation and
dissemination of the Consolidated Financial Statements
may differ from legislation in other jurisdictions.
Directors’ Responsibilities Statement
GOVERNANCE
112
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023
Responsibility Statement of the Directors
in Respect of the Annual Report under the
Disclosure and Transparency Rules
Each of the Directors confirms to the best of their
knowledge that:
• the Consolidated Financial Statements, prepared in
accordance with IFRS, give a true and fair view of the
assets, liabilities, financial position and profit or loss of
the Company and the undertakings included in the
consolidation taken as a whole;
• the Annual Report includes a fair review of the
development and performance of the business and
the position of the Company and its subsidiaries,
together with a description of the principal risks and
uncertainties faced; and
• the Annual Report and Consolidated Financial
Statements include information required by the
FCA ensuring that the Company complies with the
provisions of the Listing Rules, Disclosure Guidelines
and Transparency Rules of the FCA. With regard to
corporate governance, the Company is required
to disclose how it has applied the principles and
complied with the provisions of the AIC Code
applicable to the Company with which it has agreed
to comply. In addition, there is no information that is
required to be disclosed under Listing Rule 9.8.4.
By order of the Board
Andrew Sutch
Chair
12 July 2023
Hipgnosis Songs Fund Limited
GOVERNANCE • DIRECTORS’ RESPONSIBILITIES STATEMENT
GOVERNANCE
113
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023
Report on the audit of the consolidated
financial statements
Our opinion
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
2023, and of their consolidated financial performance
and their consolidated cash flows for the year then
ended in accordance with International Financial
Reporting Standards and have been properly prepared
in accordance with the requirements of the Companies
(Guernsey) Law, 2008.
What we have audited
The group’s consolidated financial statements comprise:
• the consolidated statement of financial position as at
31 March 2023;
• the consolidated statement of profit and loss for the
year then ended;
• the consolidated statement of comprehensive income
for the year then ended;
• the consolidated statement of changes in equity for the
year then ended;
• the consolidated statement of cash flows for the year
then ended; and
• the notes to the consolidated financial statements,
which include significant accounting policies and other
explanatory information.
Basis for opinion
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.
Independence
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.
Material Uncertainty Related to Going Concern
We draw attention to note 2(b) to the financial statements,
which indicates that a continuation vote is due to be held
by the end of September 2023. Should shareholders vote
against continuation of the company or continuation
of the company in its current form this would impact the
longer term viability of the group. As stated in note 2(b)
these events or conditions along with other matters set
forth in note 2(b), indicate that a material uncertainty
exists that may cast significant doubt on the group’s
ability to continue as a going concern. Our opinion is not
modified in respect of this matter.
Our audit approach
Overview
Audit scope
• The company is incorporated in Guernsey and has
underlying subsidiaries incorporated in the United
Kingdom (“UK”) and the United States of America
(“USA”). The consolidated financial statements are a
consolidation of the company and all of the underlying
subsidiaries.
• We conducted our audit of the consolidated financial
statements based on information provided by Hipgnosis
Song Management Limited (the “Investment Adviser”),
to whom the board of directors has delegated the
provision of certain functions.
• We conducted our audit work in Guernsey and we
tailored the scope of our audit taking into account the
types of investments within the group, and the industry
in which the group operates.
• The components of the group in Guernsey, UK and
USA, to which we applied full audit scoping and audit
procedures, accounted for 100% of the net assets and
total comprehensive income.
Key audit matters
• Material uncertainty related to going concern
• Risk of fraud in revenue recognition and accuracy
of revenue accruals
• Carrying value and fair value disclosure of intangible
assets
Materiality
• Overall group materiality: $17.5 million (2022: $17.8 million)
based on 1% of the group’s Adjusted Net Asset Value
• Performance materiality: $13.1 million (2022: $13.4 million)
• The group’s Adjusted Net Asset Value is calculated using
the Net Asset Value determined in accordance with
International Financial Reporting Standards (“IFRS”),
adjusted by adding back the cumulative amortisation
of intangible assets and any cumulative impairment of
intangible assets
Independent Auditor’s Report to the Members
of Hipgnosis Songs Fund Limited
INDEPENDENT AUDITOR’S REPORT
114
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023
The scope of our audit
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.
Key audit matters
Key audit matters are those matters that, in the auditor’s
professional judgement, were of most significance in the
audit of the consolidated financial statements of the
current period and include the most significant assessed
risks of material misstatement (whether or not due to fraud)
identified by the auditor, including those which had the
greatest effect on: the overall audit strategy; the allocation
of resources in the audit; and directing the efforts of the
engagement team. These matters, and any comments
we make on the results of our procedures thereon, 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. In addition to the matter described in the
Material Uncertainty related to going concern, we have
determined the matters described below to be the key
audit matters to be communicated in our report.
This is not a complete list of all risks identified by our audit.
Key audit matter How our audit addressed the key audit matter
Risk of fraud in revenue recognition and accuracy
of revenue accruals

Please refer to Notes 4 and 13 to the consolidated
financial statements.
The group earns revenue from the rights it owns over
its catalogues of songs. Such revenue takes the form
of royalties, licence fees and/or other receipts such
as mechanical royalties, performance royalties, and
synchronisation fees, as examples.
Revenue is collected by the portfolio
administrators / royalty collection agents, reported on
a periodic basis and paid based on predetermined
revenue payment dates thereafter.
In addition, because of the time lag between 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. These accruals
include an estimate of revenue not yet reported
to the group by the portfolio administrators / royalty
collection agents and, where appropriate, an
estimate of unreported usage related to the expected
consumption of the group’s songs that have yet to be
presented in statements received from the portfolio
ad m in i st rator s / royal t y co ll ect io n ag ent s .
We met with the directors and Investment Adviser and
understood and evaluated the group’s relevant processes,
internal controls and revenue recognition policies relating
to the various music royalty, license fees and other revenue
earned from the catalogues of songs owned by the group.
We also assessed the group’s revenue recognition
accounting policies for compliance with IFRS, and in par-
ticular IFRS 15 – Revenue from Contracts with Customers.
Our audit procedures over revenue recognition, in so far
as they addressed the specific risk of fraud in revenue
recognition included:
• We confirmed any changes to key contracts with
portfolio administrators / royalty collection agents or
of existing catalogues of songs and understood the
impact to revenue recognised by the group;
• We reconciled the revenue listing to the general
ledger. We also selected a sample of catalogues
from the revenue listing and tested these to portfolio
administration statements / royalty collection agent
statements and investigated any differences;
• We performed a year on year analytical review
over total revenue by catalogue and discussed with
management any unusual movements, taking into
consideration changes in catalogue performance and
other factors impacting revenue during the year; and
• We identified and evaluated all unusual combinations
of revenue journals that occurred during the year, as well
as material period 13 revenue journals for reasonableness
based upon underlying supporting evidence.
INDEPENDENT AUDITOR’S REPORT
GOVERNANCE
115
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023
For the year ended 31 March 2023, the group has also
reflected an accrual at the year-end relating to the final
US Copyright Royalty Board (“CRB”) III ruling announced
on 1 July 2022. This accrual includes both a portion
related to the current financial year’s expected revenue
increase at the higher rate enacted by the ruling, and
an accrual for an expected retroactive payment related
to historic periods back to the implementation date,
that has not been previously recognised by the group
because of the outcome of the CRB III ruling.
The directors seek the input of the Investment Adviser in
making these revenue estimates and accruals, which
involve significant estimates and judgements (see
Note 4). The period end accruals are based on the
catalogues of songs’ historic performance, adjusted for
the Investment Adviser’s and directors’ assessment of
the expected performance of the various catalogues
of songs and by taking into account the latest available
music consumption information, the lag inherent in
the industry and the understanding of the limitations
of the usage data presented to the group by the
portfolio administrators / royalty collection agents. These
judgements and estimates could pose an increased risk
of fraud in revenue recognition.
Revenue is also one of the key performance indicators
of the group and significant changes in contractual
arrangements with the portfolio administrators / royalty
collection agents, changes in royalty and license rates
and catalogue of songs’ performance can have a
significant impact on the recognition of revenue by the
group and the estimates and judgements applied by the
directors. As a result, there is a heightened risk of material
misstatement as a result of fraud or error and therefore
the risk of fraud in revenue recognition and the accuracy
of revenue accruals are considered to be a key audit
matter for audit purposes.
We also performed the following procedures with respect
to the period end revenue accruals:
• We evaluated the methodology applied by the
Investment Adviser in developing the year end revenue
accruals recommended to the directors;
• We evaluated the underlying information used by the
Investment Adviser in the revenue accrual calculations
by comparing this to the revenue information audited;
• We evaluated and challenged the reasonableness of
the revenue accrual assumptions made by the directors
and Investment Adviser;
• We reconciled a sample of the most recent royalty
statements received by the group post year end to
the corresponding revenue accrual, and obtained
supporting evidence to challenge and understand any
differences noted from the sample selected;
• We tested a sample of data used as the basis of
the unreported song usage calculation to source
documentation and for the sample selected, we also
reperformed the calculation of the unreported usage
gaps related to the expected consumption of the
group’s songs but not yet reported by the portfolio
administrators / royalty collection agents;
• We tested the inputs used within the CRB III accrual by
agreeing the data to supporting documentation and
challenged any assumptions made by management;
and
• We performed back testing by comparing the prior
year revenue accruals to subsequently received royalty
statements in order to assess the reliability of the prior
year revenue accrual estimates and judgements.
Based on our work performed, we did not identify
any material matters to report to those charged with
governance.
INDEPENDENT AUDITOR’S REPORT
116
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023
Carrying value and fair value disclosure
of intangible assets
Please refer to Notes 4 and 6 to the consolidated
financial statements.
The group’s portfolio of catalogues of songs are classified as
intangible assets under IAS 38 – Intangible Assets (“IAS 38”).
The catalogues of songs are held at cost and amortised over
their useful life less any 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 directors determine the useful life of the catalogues at
acquisition using what they consider to be industry practice
(see Note 4).
Whilst other factors are considered, the directors and the
Investment Adviser have determined that one of the most
relevant indicators of impairment for a catalogue of songs
would be where the fair value as determined by the Portfolio
Independent Valuer is lower than the carrying value of that
catalogue of songs (as determined in accordance with IFRS)
for a sustained period of at least two years. Such catalogues
of songs are subjected to the group’s impairment assessment
procedures.
The directors disclose the fair value of the catalogues
of songs (see Note 6) and also present an ‘Operative
Net Asset Value’, which takes into account the
catalogues of songs at this fair value rather than at the
IFRS carrying value. The directors have, in consultation
with the Investment Adviser, engaged the Portfolio
Independent Valuer to assess the fair value of each
catalogue of songs. The fair value of each catalogue
of songs is determined using a discounted cash flow
model and incorporates assumptions that are subject
to significant judgement by the Portfolio Independent
Valuer, Investment Adviser and directors. These estimates
and assumptions include forecast catalogue royalty
receipts, music industry growth rates by revenue type
(e.g. mechanical, performance, digital downloads,
streaming, synchronisation etc.) and the determination
of an appropriate discount rate. The fair value of the
catalogues of songs as disclosed in Note 6 reflects the
fair value as calculated by the Portfolio Independent
Valuer, recommended by the Investment Adviser and
adopted by the board of directors.
We met with the Investment Adviser and updated our
understanding of the relevant processes and controls
related to the assessment and calculation of the
carrying value of the catalogues of songs. We also
sought to update our understanding of and evaluate
the group’s impairment process related to catalogues
of songs where an indicator of impairment had been
identified, which included also meeting with the Portfolio
Independent Valuer to update our understanding and
evaluation of the valuation process applied by them in
calculating the fair value of the catalogues of songs.
As part of our audit procedures:
• We discussed the selection of the useful life applied to
the catalogues of songs with the Investment Advisor and
directors and considered the ongoing appropriateness
in light of other publicly available information that
reflects industry practice and performance of the
catalogues; and
• For all catalogues of songs, we recalculated the
carrying value in accordance with the useful life
determined by the directors.
With regard to the fair value of the catalogues of
songs disclosed in Note 6 to the consolidated financial
statements, used in determining the Operative Net Asset
Value of the group by the directors, and used as an initial
indicator of impairment, we performed the following
procedures:
• We contacted the Portfolio Independent Valuer directly
and obtained their valuation model for each catalogue
of songs. We also held discussions with the Portfolio
Independent Valuer, assessed their competence,
capabilities and objectivity;
• We obtained an understanding of the assumptions
applied by the Portfolio Independent Valuer in
projecting growth rates used to determine future
revenue across a sample of catalogues of songs and
of the discount rate applied to the projected revenue /
cash flow streams and challenged the reasonableness
of these by using available industry data;
• On a sample basis, we agreed the baseline revenue
used by the Portfolio Independent Valuer in their model
to the revenue recognised by the group and assessed
and challenged the rationale for any adjustments
made thereto;
INDEPENDENT AUDITOR’S REPORT
GOVERNANCE
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HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023
As part of the impairment assessment process, the
directors calculate a value in use for each of the
catalogues of songs which have shown indicators of
impairment as described above. The original projected
cash flows used during the fair value calculation by
the Independent Portfolio Valuer are applied but the
directors use an amended discount rate to reflect the
group’s ability to actively manage the catalogues
of songs (whereas the fair value determined by the
Independent Portfolio Valuer reflects cash flows on
a passive holding basis).
As the catalogues of songs are significant to the
net asset value of the group and given the level of
estimation applied in the consideration of impairment
and in determining the fair value and value in use
of each catalogue, there is a heightened risk of
misstatement. As a result, the carrying value of the
catalogues of songs carried at cost less accumulated
amortisation and any accumulated impairment
losses and the fair value of the catalogues of songs
as disclosed in the notes to the consolidated financial
statements (and used in the determination of the
Operative NAV and used as an initial basis as an
indicator of impairment) are considered to be key
audit matters.
• Through engagement with our auditor’s expert,
we independently recalculated and validated the
components of the discount rate applied by the Portfolio
Independent Valuer to external sources, and where
necessary, challenged the methodology adopted.
Through the involvement of the auditor’s expert, we also
evaluated and challenged the appropriateness of the
overall valuation methodology and the reasonableness
of the terminal growth rates to external sources;
• In addition to the work undertaken by our auditor’s
expert, we also assessed and challenged the growth
rates applied by the Portfolio Independent Valuer to
independently obtained music industry market growth
data on a sample basis;
• We recalculated the arithmetic accuracy of the
valuation of all the catalogues of songs; and
• We reperformed the sensitivity analysis of the discount
rate and the terminal growth rate as disclosed in note 6
to the consolidated financial statements.
With regard to the impairment assessment and the
determination of the value in use that is used by
management, we performed the following procedures:
• We obtained, discussed and challenged the directors
and Investment Adviser on their impairment assessment
undertaken;
• We obtained the schedule of catalogues of songs
with indicators of impairment from management and
assessed this list for completeness by independently
comparing the carrying value of the catalogues of
songs to their fair values, ensuring all of these had been
included in the impairment assessment;
• We challenged management and the directors on the
assumptions used to amend the discount rate used
in determining the fair value when applying this to
and calculating the value in use which is used in the
impairment assessment;
• We evaluated the impact of, and challenged
management on application of the 2 year minimum
period applied (where the fair value is below the
carrying value) before an impairment assessment is
undertaken; and
• For all catalogues that were impaired, we checked the
mathematical accuracy of the value in use and the
impairment assessment calculations.
Based on our work performed, we did not identify
any material matters to report to those charged with
governance.
INDEPENDENT AUDITOR’S REPORT
118
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023
How we tailored the audit scope
We tailored the scope of our audit to ensure that we
performed enough work to be able to give an opinion on
the consolidated financial statements as a whole, taking
into account the structure of the group, the accounting
processes and controls, the industry in which the group
operates, and we considered the risk of climate change
and the potential impact thereof on our audit approach.
The company is based in Guernsey and has subsidiaries
in the UK and the USA. The consolidated financial
statements are a consolidation of the company and all
the 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 many
of the subsidiaries are maintained by the Investment
Adviser, or were made directly available to us by
the management of the remaining subsidiaries,
and therefore we were not required to engage with
component auditors operating under our instruction.
Our testing was therefore performed on a consolidated
basis using thresholds which were 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 consolidated net assets
and total consolidated comprehensive income.
Materiality
The scope of our audit was influenced by our application
of materiality. We set certain quantitative thresholds
for materiality. These, together with qualitative
considerations, helped us to determine the scope of
our audit and the nature, timing and extent of our audit
procedures on the individual financial statement line
items and disclosures and in evaluating the effect of
misstatements, both individually and in aggregate on
the consolidated financial statements as a whole.
Based on our professional judgement, we determined
materiality for the consolidated financial statements as
a whole as follows:
Overall group
materiality
$17.5 million (2022: $17.8 million)
How we
determined it
1% of Adjusted Net Asset Value
Rationale for
benchmark
applied
We believe that Adjusted Net
Asset Value represents the most
appropriate 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 $1.75 billion (2022:
$1.78 billion)
We use performance materiality to reduce to
an appropriately low level the probability that
the aggregate of uncorrected and undetected
misstatements exceeds overall materiality. Specifically,
we use performance materiality in determining the
scope of our audit and the nature and extent of our
testing of account balances, classes of transactions
and disclosures, for example in determining sample
sizes. Our performance materiality was 75% (2022: 75%)
of overall materiality, amounting to $13.1 million (2022:
$13.4 million) for the group financial statements.
In determining the performance materiality, we considered
a number of factors – the history of misstatements, risk
assessment and aggregation risk and the effectiveness
of controls – and concluded that an amount at the
upper end of our normal range was appropriate.
We agreed with the Audit and Risk Committee that we
would report to them misstatements identified during
our audit above $875,000 (2022: $890,000) as well as
misstatements below that amount that, in our view,
warranted reporting for qualitative reasons.
Reporting on other information
The other information comprises all the information
included in the Annual Report (the “Annual Report”) but
does not include the consolidated financial statements
and our auditor’s report thereon. The directors are
responsible for the other information.
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
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
INDEPENDENT AUDITOR’S REPORT
PROO F 14 - 12/7/2023
GOVERNANCE
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HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023
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
based on these responsibilities.
Responsibilities for the consolidated financial
statements and the audit
Responsibilities of the directors for the consolidated
financial statements
As explained more fully in the Directors Responsibilities’
statement, 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 related 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.
Auditor’s responsibilities for the audit of the
consolidated financial statements
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.
Our audit testing might include testing complete
populations of certain transactions and balances,
possibly using data auditing techniques. However, it
typically involves selecting a limited number of items for
testing, rather than testing complete populations. We
will often seek to target particular items for testing based
on their size or risk characteristics. In other cases, we will
use audit sampling to enable us to draw a conclusion
about the population from which the sample is selected.
As part of an audit in accordance with ISAs, we exercise
professional judgement and maintain professional
scepticism throughout the audit. We also:
• Identify and assess the risks of material misstatement
of the consolidated financial statements, whether due
to fraud or error, design and perform audit procedures
responsive to those risks, and obtain audit evidence
that is sufficient and appropriate to provide a basis
for our opinion. The risk of not detecting a material
misstatement resulting from fraud is higher than for
one resulting from error, as fraud may involve collusion,
forgery, intentional omissions, misrepresentations, or the
override of internal control.
• Obtain an understanding of internal control relevant
to the audit in order to design audit procedures that
are appropriate in the circumstances, but not for the
purpose of expressing an opinion on the effectiveness
of the group’s internal control.
• Evaluate the appropriateness of accounting policies
used and the reasonableness of accounting estimates
and related disclosures made by the directors.
• Conclude on the appropriateness of the directors’ use
of the going concern basis of accounting and, based
on the audit evidence obtained, whether a material
uncertainty exists related to events or conditions that
may cast significant doubt on the group’s ability to
continue as a going concern over a period of at
least twelve months from the date of approval of the
consolidated financial statements. If we conclude
that a material uncertainty exists, we are required to
draw attention in our auditor’s report to the related
disclosures in the consolidated financial statements
or, if such disclosures are inadequate, to modify our
opinion. Our conclusions are based on the audit
evidence obtained up to the date of our auditor’s
report. However, future events or conditions may cause
the group to cease to continue as a going concern.
• Evaluate the overall presentation, structure and content
of the consolidated financial statements, including the
disclosures, and whether the consolidated financial
statements represent the underlying transactions and
events in a manner that achieves fair presentation.
• Obtain sufficient appropriate audit evidence
regarding the financial information of the entities
or business activities within the group to express an
opinion on the consolidated financial statements.
We are responsible for the direction, supervision
and performance of the group audit. We remain
solely responsible for our audit opinion.
INDEPENDENT AUDITOR’S REPORT
120
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023
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.
Use of this report
This report, including the opinions, 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
these opinions, 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.
Report on other legal and regulatory
requirements
Company Law exception reporting
Under The Companies (Guernsey) Law, 2008 we are
required to report to you if, in our opinion:
• we have not received all the information and
explanations we require for our audit;
• proper accounting records have not been kept; or
• the consolidated financial statements are not in
agreement with the accounting records.
We have no exceptions to report arising from this
responsibility.
Corporate governance statement
The Listing Rules require us to review the directors’
statements in relation to going concern, longer-term
viability and that part of the corporate governance
statement relating to the company’s compliance with
the provisions of the UK Corporate Governance Code
specified for our review. Our additional responsibilities
with respect to the corporate governance statement
as other information are described in the Reporting on
other information section of this report.
The company has reported compliance against the
2019 AIC Code of Corporate Governance (the “Code”)
which has been endorsed by the UK Financial Reporting
Council as being consistent with the UK Corporate
Governance Code for the purposes of meeting the
company’s obligations, as an investment company,
under the Listing Rules of the FCA.
Based on the work undertaken as part of our audit, we
have concluded that each of the following elements of
the corporate governance statement and the strategic
report is materially consistent with the consolidated
financial statements and our knowledge obtained
during the audit, and we have nothing material to add
or draw attention to in relation to:
• The directors’ confirmation that they have carried out
a robust assessment of the emerging and principal risks;
• The disclosures in the Annual Report that describe those
principal risks, what procedures are in place to identify
emerging risks and an explanation of how these are
being managed or mitigated;
• The directors’ statement in the consolidated financial
statements about whether they considered it
INDEPENDENT AUDITOR’S REPORT
GOVERNANCE
121
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023
appropriate to adopt the going concern basis of
accounting in preparing them, and their identification
of any material uncertainties to the group’s ability
to continue to do so over a period of at least twelve
months from the date of approval of the consolidated
financial statements;
• The directors’ explanation as to their assessment of the
group’s prospects, the period this assessment covers
and why the period is appropriate; and
• The directors’ statement as to whether they have a
reasonable expectation that the company will be able
to continue in operation and meet its liabilities as they
fall due over the period of its assessment, including any
related disclosures drawing attention to any necessary
qualifications or assumptions.
Our review of the directors’ statement regarding the
longer-term viability of the group was substantially
less in scope than an audit and only consisted of
making inquiries and considering the directors’
process supporting their statements; checking that the
statements are in alignment with the relevant provisions
of the Code; and considering whether the statement is
consistent with the consolidated financial statements
and our knowledge and understanding of the group
and its environment obtained in the course of the audit.
In addition, based on the work undertaken as part
of our audit, we have concluded that each of the
following elements of the corporate governance
statement is materially consistent with the consolidated
financial statements and our knowledge obtained
during the audit:
• The directors’ statement that they consider the
Annual Report, taken as a whole, is fair, balanced
and understandable, and provides the information
necessary for the members to assess the group’s
position, performance, business model and strategy;
• The section of the Annual Report that describes the
review of effectiveness of risk management and internal
control systems; and
• The section of the Annual Report describing the work
of the Audit and Risk Management Committee.
We have nothing to report in respect of our
responsibility to report when the directors’ statement
relating to the company’s compliance with the Code
does not properly disclose a departure from a relevant
provision of the Code specified under the Listing Rules
for review by the auditors.
Other matter
In due course, as required by the Financial Conduct
Authority Disclosure Guidance and Transparency
Rule 4.1.14R, these consolidated financial statements
will form part of the ESEF-prepared annual financial
report filed on the National Storage Mechanism of the
Financial Conduct Authority in accordance with the
ESEF Regulatory Technical Standard (“ESEF RTS”). This
auditor’s report provides no assurance over whether the
annual financial report will be prepared using the single
electronic format specified in the ESEF RTS.
Roland Mills
For and on behalf of PricewaterhouseCoopers CI LLP
Chartered Accountants and Recognised Auditor
Guernsey, Channel Islands
12 July 2023
INDEPENDENT AUDITOR’S REPORT
122
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023
FINANCIAL STATEMENTS
Consolidated Statement of Profit and Loss
For the year ended 31 March 2023
Notes
1 April 2022 to
31 March 2023
$’000
1 April 2021 to
31 March 2022
$’000
Income
Total revenue 13 177,312 200,384
Interest income 237 5
Royalty costs (30,316) (32,041)
Net revenue 147,233 168,348
Expenses
Advisory and performance fees 19 (12,472) (16,548)
Administration fees (608) (1,152)
Legal and professional fees (3,794) (5,999)
Audit fees 21 (753) (600)
Brokers’ fees (554) (274)
Directors’ remuneration 18 (643) (696)
Listing fees (84) (34)
Subscriptions and licences (607) (526)
Public relations fees (780) (702)
Catalogue bonus provision 10 (43,757) (936)
Movement in ECL provision for HSG advances (2,196) (1,570)
Other operating expenses 14 (10,354) (10,105)
Amortisation of Catalogues of Songs 6 (111,583) (105,787)
Impairment of Catalogues of Songs 6 (3,901) (1,490)
Amortisation of borrowing expenses (1,618) (1,635)
Borrowing cost extinguishment 9 (5,007) –
Fixed asset depreciation (653) (712)
Loan interest 9 (33,700) (20,377)
Fair value gain on held for trading derivative financial instruments 22 2,622 –
Finance charges for deferred consideration – (212)
Net loss from joint ventures (264) (836)
Foreign exchange losses 15 (3,157) (14,857)
Operating expenses (233,863) (185,048)
Operating loss for the year before taxation (86,630) (16,700)
Taxation 5 (3,008) (2,743)
Loss for the year after tax (89,638) (19,443)
Basic Earnings per Share (cents) 20 (7.41) (1.65)
Diluted Earnings per Share (cents) 20 (7.41) (1.65)
All activities derive from continuing operations.
The accompanying notes form an integral part of these Consolidated Financial Statements.
Financial Statements
123
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023
FINANCIAL STATEMENTS
Notes
1 April 2022 to
31 March 2023
$’000
1 April 2021 to
31 March 2022
$’000
Loss for the year after tax (89,638) (19,443)
Other comprehensive income:
Movement in foreign currency translation reserve (6) (1,816)
(6) (1,816)
Total comprehensive loss for the year (89,644) (21,259)
The accompanying notes form an integral part of these Consolidated Financial Statements.
Consolidated Statement of
Comprehensive Income
For the year ended 31 March 2023
124
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023
FINANCIAL STATEMENTS
Consolidated Statement of Financial Position
As at 31 March 2023
Notes
31 March 2023
$’000
31 March 2022
$’000
Assets
Catalogues of Songs 6 1,921,248 2,036,732
Other assets
917 568
Goodwill 3 272 272
Non-current receivables 8 13,210 640
Non-current assets
1,935,647 2,038,212
Trade and other receivables 8 139,999 144,450
Held for trading derivative financial asset 22 4,914 –
Cash and cash equivalents 7 37,965 30,067
Current assets
182,878 174,517
Total assets
2,118,525 2,212,729
Liabilities
Loans and borrowings 9 594,428 593,992
Catalogue bonus provision 10 33,080 925
Non-current liabilities
627,508 594,917
Held for trading derivative financial liability 22 3,395 –
Other payables and accrued expenses 10 53,088 35,413
Current liabilities
56,483 35,413
Total liabilities
683,991 630,330
Net assets
1,434,534 1,582,399
Equity
Share capital 11 1,692,198 1,692,198
Foreign currency translation reserve
(2,241) (2,235)
Treasury share reserve 11 (1,961) –
Retained earnings
(253,462) (107,564)
Total equity attributable to the owners of the Company
1,434,534 1,582,399
Number of Ordinary Shares in issue at year end
(excludingTreasury Shares) 1,209,214,286 1,211,214,286
IFRS Net Asset Value per Ordinary Share (cents) 12 118.63 130.65
Operative Net Asset Value per Ordinary Share (cents) 12 191.53 184.91
Approved and authorised for issue by the Board of Directors on 12 July 2023 and signed on their behalf by:
Andrew Sutch Chair Andrew Wilkinson Director
The accompanying notes form an integral part of these Consolidated Financial Statements.
Financial Statements
125
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023
FINANCIAL STATEMENTS
Notes
Number of
Ordinary Shares
Share
capital
$’000
Other
reserves
$’000
Foreign
currency
translation
reserve
$’000
Treasury
reserve
$’000
Retained
earnings*
$’000
Total
equity
$’000
As at 1 April 2022 1,211,214,286 1,692,198 – (2,235) – (107,564) 1,582,399
Dividends paid 16 – – – – – (56,260) (56,260)
Repurchase of
ordinary shares into
treasury 11 (2,000,000) – – – (1,961) – (1,961)
Loss for the year – – – – – (89,638) (89,638)
Foreign currency
translation reserve
movement – – – (6) – – (6)
As at 31 March 2023 1,209,214,286 1,692,198 – (2,241) (1,961) (253,462) 1,434,534
* Distributable Revenues (as defined in the Alternative Performance Measures on page 163) arising during the year were $81 .0 million which, taken together with the $18.7 million of
Distributable Revenue reserves carried forward from the previous financial year ended 31 March 2022, result in Distributable Revenue Reserves of $43.4 million as at 31 March 2023.
For the year ended 31 March 2022
Notes
Number of
Ordinary Shares

Share
capital
$’000
Other
reserves
$’000
Foreign
currency
translation
reserve
$’000
Treasury
reserve
$’000
Retained
earnings
$’000
Total
equity
$’000
As at 1 April 2021 1,073,440,268 1,466,851 234 (419) – (3,821) 1,462,845
Shares issued 11 137,774,018 229,702 (234) – – – 229,468
Share issue costs 11 – (4,355) – – – – (4,355)
Dividends paid 16 – – – – – (84,300) (84,300)
Loss for the year – – – – – (19,443) (19,443)
Foreign currency
translation reserve
movement – – – (1,816) – – (1,816)
As at 31 March 2022 1,211,214,286 1,692,198 – (2,235) – (107,564) 1,582,399
The accompanying notes form an integral part of these Consolidated Financial Statements.
Consolidated Statement of Changes in Equity
For the year ended 31 March 2023
126
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023
FINANCIAL STATEMENTS
Notes
31 March 2023
$’000
31 March 2022
$’000
Cash flows generated from operating activities
Operating loss for the year before taxation (86,630) (16,700)
Adjustments for:
Movement in trade and other receivables (14,018) (37,274)
Movement in other payables and accrued expenses 3,890 (1,545)
Lease liability interest 369 –
Loan interest 9 33,700 20,377
Movement in ECL provision for HSG advances 2,196 1,570
HSG restructuring provision 1,028 –
Catalogue bonus provision 43,719 –
Depreciation of fixed assets 653 712
Amortisation of Catalogues of Songs and borrowing costs 113,201 107,422
Impairment of Catalogue of Songs 6 3,901 1,490
Borrowing cost extinguishment 9 5,007 –
Fair value gain on held for trading derivative financial assets (2,622) –
Foreign exchange losses 15 3,157 14,857
Taxation paid (5,422) (6,040)
Net cash generated from operating activities 102,129 84,869
Cash flows used in investing activities
Purchase of Catalogues of Songs – (300,455)
Purchase of other assets (51) (173)
Writer advances paid (4,040) (8,509)
Deferred consideration paid (2,500) –
Net cash used in investing activities (6,591) (309,137)
Cash flows generated from financing activities
Proceeds from issue of shares – 229,468
Repurchase of ordinary shares into treasury 11 (1,961) –
Issue costs paid – (4,355)
Dividends paid 16 (56,260) (84,300)
Lease interest paid (592) –
Interest paid (23,433) (20,775)
Borrowing costs 9 (960) (1,274)
Bank loan repaid 9 (7,000) (50,000)
Bank loan drawn down 9 1,771 72,708
Net cash (used)/generated from financing activities (88,435) 141,472
Net movement in cash and cash equivalents 7,103 (82,796)
Cash and cash equivalents at the start of the year 30,067 112,635
Effect of foreign exchange rate changes on cash and cash equivalents 795 228
Cash and cash equivalents at the end of the year 37,965 30,067
The accompanying notes form an integral part of these Consolidated Financial Statements.
Consolidated Statement of Cash Flows
For the year ended 31 March 2023
Financial Statements
127
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements
For the year ended 31 March 2023
1. General information
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. The registered office address is Floor 2,
Trafalgar Court, Les Banques, St Peter Port, Guernsey, GY1 4LY .
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, 2020. The Company is not
authorised or regulated by the Financial Conduct Authority.
The Company’s Ordinary Shares were admitted to trading on the Specialist Fund Segment of the London Stock
Exchange on 11 July 2018 and migrated to a Premium Listing on the Main Market of the London Stock Exchange on
25 September 2019. The Company was added as a constituent of the FTSE 250 Index effective from after the market
close on 20 March 2020.
The Company makes and manages its investments through its subsidiaries, which are registered in the UK and US
as limited companies. The Consolidated Financial Statements present the results of the Group for the year ended
31 March 2023, rounded to the nearest US Dollar. The Group is principally engaged in investing in and managing music
copyrights and associated musical intellectual property.
There has been a presentational change in the comparative period in the Consolidated Statement of Profit and Loss,
as set out in Note 23.
2. Accounting policies
The principal accounting policies applied in the preparation of these Consolidated Financial Statements are set out
below. These policies have been consistently applied, unless otherwise stated.
New and amended standards and interpretations applied
On incorporation, the Company adopted all of the IFRS standards and interpretations that were in effect at that date
and are applicable to the Group. No new standards during the year ended 31 March 2023 had a material impact on
the Consolidated Financial Statements.
Amended standards and interpretations not applied
The following are amended standards and interpretations in issue effective from years beginning on or after
1 January 2023:
Amended standards and interpretations Effective date
IFRS 17 Insurance Contracts 1 January 2023
IAS 1 Presentation of Financial Statements (Amendments regarding financial statements’
on classification of liabilities and disclosure of accounting policies) 1 January 2023
IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors (Definition of
Accounting Estimates) 1 January 2023
IAS 12 Income Taxes (Deferred Tax related to Assets and Liabilities arising from a Single Transaction) 1 January 2023
The Group has considered the IFRS standards and interpretations that have been issued but are not yet effective.
None of these standards or interpretations are likely to have a material effect on the Group, as it is the belief of the
Board that the activities of the Group are unlikely to be affected by the changes to these standards, although any
disclosures recommended by these standards, where applicable, will be provided as required.
128
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements
For the year ended 31 March 2023
Notes to the Consolidated Financial Statements
For the year ended 31 March 2023
2. Accounting policies (continued)
a) Group information
As at 31 March 2023, 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
Functional
Currency
Hipgnosis Holdings UK Limited UK 100 100 Full USD
Hipgnosis SFH I Limited UK 100 100 Full USD
Hipgnosis SFH XIII Limited UK 100 100 Full USD
Hipgnosis SFH XIX Limited UK 100 100 Full USD
Hipgnosis SFH XX Limited UK 100 100 Full GBP
RubyRuby (London) Limited
1
UK 100 100 Full GBP
Hipgnosis Songs Group LLC
2
US 100 100 Full USD
Hipgnosis Acquisition Corp
2
US 100 100 Full USD
Kennedy Publishing & Productions
Limited
1
UK 100 100 Full GBP
Robot of the Century Music Publishing
Company Inc US 100 100 Full USD
Deamon Limited
1
UK 100 100 Full GBP
PB Songs Ltd
1
UK 100 100 Full GBP
1 These companies are subsidiaries of Hipgnosis SFH XX Limited and therefore an indirect subsidiary of Hipgnosis Songs Fund Limited.
2 On 10 September 2020 the Company acquired the entire share capital of Big Deal Music Group (rebranded to Hipgnosis Songs Group) which includes BDM Acquisition Corp
(rebranded to Hipgnosis Acquisition Corp) and Big Deal Music LLC (rebranded to Hipgnosis Songs Group LLC) both incorporated in the US. Big Deal Music LLC is part of a joint
venture with Big Family LLC, a publishing company which was formed in June 2018 and is equity accounted for in the Consolidated Financial Statements.
All subsidiaries undertake the same activities as the Group. In addition, Hipgnosis Songs Group LLC undertakes
publishing administration.
The majority of subsidiaries of the Company are considered tax resident in the UK and are subject to UK corporation
tax. Robot of the Century Music Publishing Inc is registered in New York, Hipgnosis Songs Group LLC and Hipgnosis
Acquisition Corp. are registered in Delaware and all are subject to applicable State and Federal Taxes.
b) Going concern
The Directors monitor the capital and liquidity requirements of the Company on a regular basis. They have also
reviewed cash flow 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 judgement, the Directors believe it is appropriate to prepare the
Consolidated Financial Statements of the Group on a going concern basis.
Although the Board is confident that the Company will have sufficient financial resources to meet their obligations
due within 12 months of the reporting date, the outcome of the Continuation Vote which is due to be held before the
end of September 2023 in accordance with Part I, Section 9 of the latest Company prospectus creates a material
uncertainty that may cast significant doubt on the Group’s ability to continue as a going concern or in its current
form and, therefore, that it may be unable to realize its assets and discharge its liabilities in line with the current normal
course of business.
Financial Statements
129
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements
For the year ended 31 March 2023
2. Accounting policies (continued)
c) Basis of preparation
Basis of accounting
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 financial assets and liabilities where applicable.
Consolidation
In accordance with section 244 of the Companies Law, the Directors have elected to prepare only consolidated
accounts for the financial year for the Group. Therefore, there is no requirement to present individual accounts for the
Company within the Consolidated Financial Statements.
The Company is not considered to be an Investment Entity, as defined by IFRS 10. Whilst the Company evaluates the
Portfolio on a fair value basis as demonstrated by the Operating NAV provided as an alternate performance measure,
the Company also actively manages the Songs to add further value and has no defined exit strategy for any of
its investments.
All companies in which the Company has a controlling interest, namely those in which it has the power to govern
financial and operational policies in order to obtain benefits from their operations, are fully consolidated. Control as
defined by IFRS 10 is based on the following three criteria to be fulfilled simultaneously to conclude that the parent
company exercises control:
• a parent company has power over a subsidiary when the parent company has existing rights that give it the current
ability to direct the relevant activities of the subsidiary, i.e. the activities that significantly affect the subsidiary’s
returns. Power may arise from existing or potential voting rights, or contractual arrangements. Voting rights must be
substantial, i.e. they shall be exercisable at any time without limitation, particularly during decision making related
to significant activities. The assessment of the exercise of power depends on the nature of the subsidiary’s relevant
activities, the internal decision-making process, and the allocation of rights among the subsidiary’s other shareowners;
• the parent company is exposed, or has rights, to variable returns from its involvement with the subsidiary which may
vary as a result of the subsidiary’s performance. The concept of returns is broadly defined and includes, among other
things, dividends and other economic benefit distributions, changes in the value of the investment in the subsidiary,
economies of scale, and business synergies; and
• the parent company has the ability to use its power to affect the returns. Exercising power without having any impact
on returns does not qualify as control.
Consolidated Financial Statements of a group are presented as if the Group were a single economic entity. The Group
does not include any non-controlling interest.
Segmental reporting
The chief operating decision maker is the Board of Directors. All of the Company’s income is global but received from
sources within US, Europe and UK. While the Company’s income is derived internationally, the Directors are of the
opinion that the Group is engaged in a single segment of business, being the investment of the Company’s capital in
a Portfolio of Song copyrights, together with the potential for capital growth.
130
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements
For the year ended 31 March 2023
Notes to the Consolidated Financial Statements
For the year ended 31 March 2023
2. Accounting policies (continued)
d) Revenue recognition
Bank interest income
Interest income from cash deposits is recognised as it accrues by reference to the effective interest rate applicable.
Revenue from operations and associated costs
Revenues from operations are recorded when it is probable that future economic benefits will be obtained by the
Group and when they can be reliably measured. The revenue earned by the Group is recognised in accordance with
IFRS 15 and solely consists of royalty income, which is divided into these main revenue categories:
i) Mechanical royalties – these are collected by PROs worldwide which represent Songwriters and other copyright
owners. Mechanical royalties are also collected by royalty collection agents or the portfolio administrators with whom
the Group contracts. This includes mechanical income, an element of streaming income and publishing admin income
and digital downloads income;
ii) Performance royalties – these are collected by various PROs worldwide which represent Songwriters and other
copyright owners. This includes performance income, an element of streaming income and publishing admin income
and writer share income;
iii) Synchronisation fees – these are typically paid directly to the owner of the relevant copyright or its publisher, on the
terms and in the amounts agreed with the relevant film or television production company, advertising agency or end
customer. This includes synchronization income and an element of publishing admin income; and
iv) Masters royalties – these are royalties collected on our masters rights. These are collected by record companies and
collection agencies and paid to master rights owners based on their contractual rates. This revenue category includes
masters income, neighbouring rights income and producer royalties.
These revenue categories are further disaggregated into individual revenue streams which are disclosed in detail in
Note 13. The Group follows the same accounting policies in respect of all revenue streams, unless otherwise disclosed.
As royalty income is typically reported by the royalty collection agents/performance rights organisations on an arrears
basis via statement and where statements have not been received at the year end, the Group accrues for revenue
relating to processing delays (outstanding royalty statements/time lag in royalty reporting) and for the period between
consumption and reporting. This is done by assessing historic and forecasted earnings over the equivalent reporting
period based on evidenced historic revenue reporting, seasonality and industry consumption and growth rates since
the last statement date.
Licence arrangements for all income types which include publishing income (mechanical, performance, downloads,
Streaming, Synchronisation and writer share income), income derived from master recordings and producer royalties.
The Group enters into licence arrangements in respect of Catalogues of Songs with third-party collection agents.
Licences granted to collection agents are deemed to constitute usage based, right of use licences as per IFRS 15.
Revenue arising from licences entered into with collection agents is therefore recognised in the period. Payment is
received once the royalty statement is delivered, the royalty statement includes amounts covered by both the usage
and processing accrual.
This revenue, which is net of the administration fee retained by the collection agent, is disaggregated to be reviewed
by song usage period, source of income, work title, reporting period and any third-party royalty entitlements
where necessary.
The contractual basis of the licence arrangements are such that the agents are deemed as ‘principals’ for tax
purposes, therefore the Group recognises its revenue net of administration fees.
Financial Statements
131
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements
For the year ended 31 March 2023
2. Accounting policies (continued)
Where available at the end of each month or at an earlier interval to which the revenue relates, revenue is recorded
on the basis of royalty statements received from collection agents.
Where notification has not yet been received from collection agents, an estimate is made of the revenue due to the
Group 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 fixed fee arrangements are recognised at the point at which control of the licence passes to
the collection agents. Variable consideration is recognised in the period when the usage of the Catalogues
of Songs occurs.
e) Royalty costs
Royalty costs are contractual royalties due to Songwriters, calculated on a quarterly or semi-annual basis, and these
are deducted from gross revenue when calculating net revenue. Royalty costs are paid when the Songwriter is
in a recouped position. These royalty costs are associated with Songwriters that are published or administered by
Kobalt or HSG.
f) Expenses
Expenses are accounted for on an accruals basis. Expenses are charged through the Consolidated Statement of
Profit and Loss.
g) Dividends to Shareholders
Dividends are accounted for in the year in which they are paid. The Company, being a Guernsey regulated entity,
is able to pay dividends out of capital, subject to the assessment of solvency in accordance with the Companies
Law and subject to a levered free cashflow test as required by the Revolving Credit Facility. Nonetheless, the Board of
Directors carefully consider any dividend payments made to ensure the Company’s capital is maintained in the longer
term. Careful consideration is also given to ensuring sufficient cash is available to meet the Company’s liabilities as
they fall due.
h) Assets
Catalogues of Songs
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 over the useful life of the asset and shown net of any impairment considered. This amortisation is
shown in the Consolidated Statement of Profit and Loss as ‘Amortisation of Catalogues of Songs’. An assessment of the
useful life of each Catalogue is considered at each reporting period, which is 20 years, in line with what the Board of
Directors and Investment Adviser deem to be industry standard.
Useful life of intangible assets
In order to calculate the amortised cost of the intangible assets it is necessary to assess the useful economic life of the
copyright interests in Songs. This requires forecasts of the expected future revenue from the copyright interests, which
contains uncertainties as the ongoing popularity of a song can fluctuate unexpectedly. An assessment of the useful life
of Catalogues is considered initially at acquisition, which is 20 years, and assessed for continued applicability at each
reporting period. A useful life of 20 years is what the Board of Directors and the Investment Adviser deem to be industry
standard. Although an estimate, the Board do not believe that there is significant judgement applied and as a result no
sensitivity has been performed.
132
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements
For the year ended 31 March 2023
Notes to the Consolidated Financial Statements
For the year ended 31 March 2023
2. Accounting policies (continued)
Asset impairment
Intangible assets are subject to a bi-annual review to identify any indicators of impairment; this review can also be
performed when events or the economic environment indicate a risk of impairment. When there are indicators of
impairment, the recoverable amount of the asset is compared to the carrying value of the asset. The recoverable
amount is determined as the higher of: (i) the value in use; or (ii) the fair value as described hereafter, for each
individual asset.
The Fair Value of the Catalogues as calculated by the Independent Portfolio Valuer is used to identify any indicators
of impairment. The Independent Portfolio Valuer adopts a DCF valuation approach and applies a number of significant
assumptions to the projected future earnings for all Catalogues including:
• Market factors impacting revenues;
• Discount rate, currently 8.5% (31 March 2022: 8.5%); and
• Terminal value at 16 years.
The fair value uses an IFRS 13 approach that a market participant might apply and does not factor in the impact of
any future active management by the Investment Adviser or other planned activities to increase the revenue of those
Catalogues. Any Catalogues which have a carrying value higher than their Fair Value are at risk of impairment.
As part of the bi-annual impairment review, the Company then considers whether there are mitigating factors
relevant to the Catalogues which have a carrying value higher than their Fair Value to assess if there is a residual risk
of impairment in the Catalogues. These factors include a requirement that the Catalogue’s Fair Value has been lower
than its carrying value for a period of at least 2 years and any future planned activities by the artist which are not
factored into the fair value model but could reasonably be expected to increase the future earnings of the Catalogue.
After the above mitigating factors have been applied, a Value-In-Use is calculated for any Catalogues with a residual
risk of impairment. The Value-In-Use is calculated by using the original projected cash flows used during the Fair Value
calculation by the Independent Portfolio Valuer, with a 0.5% reduction to the discount rate. The reduction in the
discount rate reflects the Company’s ability to drive additional value through active management of a Catalogue
and addresses the passive nature of the Company’s cash flows. If the Value-In-Use calculation for the Catalogue is
lower than the carrying value of the Catalogue, an impairment loss equal to the difference between the Value-In-Use
calculated and the carrying value is recognised in the Consolidated Statement of Profit and Loss. The impairment
losses recognised in respect of intangible assets may be reversed in a later period if the recoverable amount becomes
greater than the carrying value, within the limit of impairment losses previously recognised.
The impairment review is performed at an individual Catalogue level with the exception of Kobalt. The Kobalt portfolio
contains a number of Catalogues; the Company identifies a number of these Catalogues as ‘key Catalogues’. The
Company has performed a purchase price allocation within the Kobalt portfolio between the key Catalogues and
the other Catalogues. The key Catalogues represent 91% of the carrying value of the Kobalt portfolio. The Portfolio
Independent Valuer values both the key Catalogues and the remaining Catalogues within the Kobalt portfolio under
the same methodology as the other Catalogues held by the Company. The impairment review for both the key
Catalogues and the remaining Catalogues within the Kobalt portfolio follow the same process as the other Catalogues
held by the Company.
Loans and receivables
Trade receivables, loans, and other receivables that have fixed or determinable payments that are not quoted in
an active market are initially measured at fair value plus transaction costs directly attributable to the acquisition and
subsequently measured at amortised cost using the effective interest method, less allowance for Expected Credit Loss
(Note 4). Interest income is recognised by applying the effective interest rate, except for short term receivables when
the recognition of interest would be immaterial.
Financial Statements
133
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements
For the year ended 31 March 2023
2. Accounting policies (continued)
Held for trading derivative financial assets
Derivative financial assets that are held for trading and whose performance is evaluated on a fair value basis are
measured at fair value through profit and loss (FVTPL). Net unrealised and realised gains and net unrealised and realised
losses (including any interest expense if applicable) are recognised in the Consolidated Statement of Profit and Loss.
Derecognition of assets
The Group derecognises an asset only when the contractual rights to the cash flows 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 difference between the asset’s carrying amount and the sum of the
consideration received is recognised in the Consolidated Statement of Profit and Loss.
i) Catalogue bonus provision
Under the terms of the acquisition agreements for Catalogues, the Group recognises a financial liability for
consideration that may be payable in line with the acquisition agreements that are dependent on the performance
of the respective Catalogues. Such financial liabilities are initially recognised at fair value and subsequently carried
at amortised cost. Management consider both the revenue forecasts used in the independent valuation and their
expectation of revenue expected to be received within the specified performance time frame of acquiring the
Catalogues when assessing the initial recognition of this financial liability. At 31 March 2023 a provision for the financial
liability of $45.0 million was recognised as a Catalogue bonus provision given the likelihood of economic outflow being
triggered through respective Catalogue performance (31 March 2022: $1.3 million).
j) Deferred consideration
In such cases where payment is deferred and capitalised under the terms of the acquisition agreements for
Catalogues, a liability will be recognised at net present value with any associated finance charge to be accrued over
the respective deferral period.
k) Financial liabilities and equity
Financial liabilities are classified as either financial liabilities or as equity in accordance with the substance of the
contractual arrangement.
Equity instruments
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 the Company are recognised at the value of proceeds received, net of
direct issue costs.
Repurchase of the Company’s own equity instruments is recognised and deducted directly in equity. No gain or
loss is recognised in the Consolidated Statement of Profit and Loss on the purchase, sale, issue or cancellation of the
Company’s own equity instruments.
Loans and borrowings
Loans and borrowings are initially measured at fair value, net of transaction costs.
Financial liabilities are subsequently measured at amortised cost using the effective interest method, with interest
expense recognised on an effective yield basis.
134
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements
For the year ended 31 March 2023
Notes to the Consolidated Financial Statements
For the year ended 31 March 2023
2. Accounting policies (continued)
Held for trading derivative financial liabilities
Held for trading derivative financial liabilities are classified as measured at fair value through profit and loss (FVTPL).
Financial liabilities at FVTPL are measured at fair value. Net unrealised and realised gains and net unrealised and
realised losses (including any interest expense if applicable) are recognised in the Consolidated Statement of
Profit and Loss.
Derecognition of financial liabilities
The Group derecognises financial liabilities when, and only when, the Group’s obligations are discharged, cancelled or
they expire. On derecognition of a financial liability, the difference between the carrying amount extinguished and the
consideration paid (including any non-cash assets transferred or liabilities assumed) is recognised in the Consolidated
Statement of Profit and Loss.
l) Share-based payments
Investment Adviser’s performance fee
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 defined 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.
m) Cash and cash equivalents
Cash at bank and short-term deposits which are held to maturity are carried at cost. Cash and cash equivalents are
defined as call deposits, short term deposits with a term of no more than 3 months from the start of the deposit and
highly liquid investments readily convertible to known amounts of cash and subject to insignificant risk of changes in
value. Cash and cash equivalents consist of cash in hand and short-term deposits in banks with an original maturity
of 3 months or less.
n) Functional and foreign currency
Determination of functional currency
Whilst the functional currency of the Company is Dollars, some subsidiaries have a functional currency of Sterling which
is translated into the presentation currency. The entities which continue to have a functional currency of Sterling are
shown in Note 2(a).
Items included in the Consolidated Financial Statements of each of the Group’s entities are measured using the
currency of the primary economic environment in which each entity operates (“the functional currency”). The
Consolidated Financial Statements are presented in Dollars, which is the Group’s functional and presentation currency
of the Company and each of its subsidiaries.
Treatment of foreign currency
At the balance sheet date, monetary assets and liabilities that are denominated in foreign currencies are translated at
the rates prevailing at that date. Non-monetary items carried at fair value that are denominated in foreign currencies
are translated at the rates prevailing at the date when the fair value was determined. Non-monetary items that are
measured in terms of historical cost in a foreign currency are not retranslated. Exchange differences are recognised
in the Consolidated Statement of Profit and Loss in the year in which they arise. Transactions denominated in foreign
currencies are translated into Dollars at the rate of exchange ruling at the date of the transaction.
Financial Statements
135
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements
For the year ended 31 March 2023
3. Business combinations
The acquisition method of accounting is used to account for all business combinations, regardless of whether equity
instruments or other assets are acquired. The consideration transferred for the acquisition of a subsidiary comprises the:
• fair values of the assets transferred;
• liabilities incurred to the former owners of the acquired business;
• equity interests issued by the Group;
• fair value of any asset or liability resulting from a contingent consideration arrangement; and
• fair value of any pre-existing equity interest in the subsidiary.
Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are, with limited
exceptions, measured initially at their fair values at the acquisition date.
The excess of the:
• consideration transferred; and
• acquisition-date fair value of any previous equity interest in the acquired entity over the fair value of the net
identifiable assets acquired is recorded as goodwill. If those amounts are less than the fair value of the net identifiable
assets of the business acquired, the difference is recognised directly in Consolidated Statement of Profit and Loss as
a bargain purchase.
Where settlement of any part of cash consideration is deferred, the amounts payable in the future are discounted to
their present value as at the date of exchange. Contingent consideration is classified either as equity or a financial
liability. Amounts classified as a financial liability are subsequently remeasured to fair value, with changes in fair value
recognised in the Consolidated Statement of Profit and Loss.
4. Significant accounting judgments, estimates and assumptions
The preparation of the Group’s Consolidated Financial Statements requires the application of estimates and
assumptions which may affect the results reported in the Consolidated Financial 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 affected 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 affected.
The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date, that
have a significant risk of resulting in a material adjustment to the carrying amounts of assets and liabilities within the next
financial 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.
136
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements
For the year ended 31 March 2023
Notes to the Consolidated Financial Statements
For the year ended 31 March 2023
4. Significant accounting judgments, estimates and assumptions (continued)
Critical estimates in applying the Group’s accounting policies – revenue recognition and royalty costs
Accrued income as at 31 March 2023 was $126.2 million (31 March 2022: $105.3 million), a breakdown of which is set out below:
• $62.3 million for earnings where, due to the time lag in royalty reporting. Statements are not expected to be received
until calendar Q2 2023 onwards. This includes international PRO reporting and HSG (31 March 2022: $69.3 million).
• $21.7 million CRB III accruals (31 March 2022: $Nil) as discussed below.
• $42.2 million Usage Accrual, which recognises revenues that have triggered a contractual payment but have not
been paid to, and processed by, collection societies, publishers and administrators (31 March 2022: $36.0 million).
In calculating accruals, the Company makes judgments around seasonality, over or under performance, and
commercial factors based on historical performance, and its knowledge of each Catalogue through its regular
correspondence with the various administrators, record labels and international societies. The Company also makes an
estimate of revenue from consumption to reporting.
Estimated royalty revenue receivable is accrued for on the basis of historical earnings for each Catalogue, which
incorporates an element of uncertainty. The estimated revenue accrual may not therefore directly equal the actual
cash received in respect of each accounting period and adjustments may therefore be required throughout the
financial 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 subject to a significant time lag in reporting in the industry, but which the Group is entitled to receive
in due course. In recommending the estimate of this accrual to the Board of Directors 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.
Net revenue is subject to a royalty cost accrual applied to gross revenue receipts primarily within the Hipgnosis Songs
Group (“HSG”) subsidiaries. Royalty cost accruals represent contractual royalties due to Songwriters and other rights
holders that are payable on a 6-monthly basis for writers under publishing contracts and quarterly for clients under
administration contracts. Royalty rates vary by writer (negotiated by contract) and by revenue stream.
In July 2022, after a lengthy process, the 2018-22 rate increases on the Songwriter’s and publisher’s mechanical portion
of US Streaming income, known as CRB III, were finally agreed. The Group has reflected accruals of $21.7 million for the
year ended 31 March 2023 as a result of the confirmation of the CRB III rate increases for the Songwriters’ mechanical
portion of US Streaming income. Of this, $5.6 million is the impact of the higher 15.1% rate on the income earned by
the Company during the year and $16.1 million has been recognised for the retro-active payment due as a result of
revenues historically not having been recognised at the full CRB III rates. The amount recognised in relation to the
retro-active payment will not recur in future years. As the ruling was made final in July 2022 there was no CRB III revenue
recognised in the prior year.
Both the CRB III retroactive and uplift accruals are based off historical earnings paid through to the Company by
Publishers. In order to calculate the accrual, the US mechanical portion of those earnings were analysed and uplifted
accordingly based on the CRB III rates over the five year period from 2018 to 2022.
Financial Statements
137
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements
For the year ended 31 March 2023
4. Significant accounting judgments, estimates and assumptions (continued)
Whilst some Publishers had different policies regarding the distribution of the higher rates received from DSPs up to
when the CRB III ruling was appealed, the Company has applied a consistent approach and has not considered any
Publisher specific policies given the lack of clarity from the various payors.
In order to provide additional rigour on the calculation, the CRB III retroactive and uplift accrual estimates were
compared and benchmarked against the estimates provided by the Portfolio Independent Valuer and the fair value
appraiser for the CNB Revolving Credit Facility.
A sensitivity of the significant estimates used in calculating accrued income and the impact of the sensitivities on the
balance is performed below:
Name of the subsidiary 31 March 2023
Sensitivity
+10%
Sensitivity
-10%
Accruals due to the time lag in royalty reporting $62.3 million $6.2 million ($6.2) million
CRB III accruals* $21.7 million $2.2 million ($2.2) million
One quarter
increase
One quarter
reduction
Usage accrual 42.2 million $10.8 million ($10.1 million)
* The CRB III sensitivity represents the variability of the historical US streaming mechanical revenue that the contractual rates are applied to.
Expected Credit Loss (ECL) in relation to revenue receivables
Royalty earnings for accruals and receivables recognised in the year ended 31 March 2023 are distributed by
PROs, Publishers and Record Labels who collect royalties at the source of usage and distribute those earnings
directly to Hipgnosis.
The probability of future default has been deemed close to nil, due to the long-standing history of PROs, Publishers
and Record Labels within the music industry and the existing framework of cash collection amongst the Company’s
stakeholders. Whilst there are smaller/newer organisations that have relatively unproven credit resilience these account
for a small minority of the Group’s receivables.
The Company’s current risk assessment includes analysis of the exposure to commercial risk by PROs, Publishers and
Record Labels, and the likely impact of their credit risk on Hipgnosis’ revenue streams. This impact is considered
immaterial and a sensitivity analysis on this is performed in Note 8.
Expected Credit Loss (ECL) in relation to HSG advances
Hipgnosis Songs Group LLC advances royalty payments to Songwriters. Management are required to assess the
recoverability of these advances bi-annually in accordance with IFRS 9 Financial Instruments. Management will
consider market conditions and historic trading patterns affecting the relevant assets.
Management adopts a simplified approach, has analysed their historical loss ratio data and applied this using a risk
based methodology as there are no defined terms of repayment related to advances. The risk categories against
which the historical loss ratios are assessed and expected credit losses are calculated are:
• low risk advances where the advance is expected to be recouped in full under the terms of the writer’s agreement
(because of the writer’s reputation, previous success etc);
• medium risk advances where there is reasonable expectation that a level of the advances will be recouped; and
• high risk advances, where management believe that either because of the writer’s unknown potential or other
factors, a large level of recoverability may not be achieved.
138
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements
For the year ended 31 March 2023
Notes to the Consolidated Financial Statements
For the year ended 31 March 2023
4. Significant accounting judgments, estimates and assumptions (continued)
At 31 March 2023 HSG gross recoupable advances are $32.0 million (31 March 2022: $31.6 million) with an expected
credit loss provision of $15.5 million (31 March 2022: $13.0 million) recognised against the advances. A sensitivity analysis
on this provision is performed in Note 8.
Assessment of impairment and the calculation of Operative NAV
As disclosed in Note 2(h) intangible assets are subject to a bi-annual review to identify any indicators of impairment.
The Fair Value of the Catalogues as calculated by the Independent Portfolio Valuer is used to identify any indicators of
impairment. The Portfolio Independent Valuer adopts a DCF valuation approach and applies a number of significant
assumptions to the projected future earnings for all Catalogues including:
• Market factors impacting revenues;
• Discount rate, currently 8.5% (31 March 2022: 8.5%); and
• Terminal value at 16 years.
As disclosed in Note 2(h) a Value-In-Use is calculated for any Catalogues with a residual risk of impairment. The Value-In-
Use is calculated by using the original projected cash flows used during the Fair Value calculation by the Independent
Portfolio Valuer, with a 0.5% reduction to the discount rate. The reduction in the discount rate reflects the Company’s
ability to drive additional value through active management of a Catalogue and addresses the passive nature of the
Company’s cash flows within the Portfolio Independent Valuer’s fair value analysis.
If the Value-In-Use calculation for the Catalogue is lower than the carrying value of the Catalogue, an impairment
loss equal to the difference is recognised in the Consolidated Statement of Profit and Loss. The impairment losses
recognised in respect of intangible assets may be reversed in a later period if the recoverable amount becomes
greater than the carrying value, within the limit of impairment losses previously recognised.
Management’s impairment review as at 31 March 2023 concluded that an impairment of $3.9 million
(31 March 2022: $1.5 million) was required to the Group’s Catalogues. A sensitivity analysis on the Value-In-Use
calculation and impact on the impairment charge is performed in Note 6.
Financial Statements
139
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements
For the year ended 31 March 2023
5. Taxation
The major components of income tax expense for the years ended 31 March 2023 and 31 March 2022 are:
Current tax
1 April 2022 to
31 March 2023
$’000
1 April 2021 to
31 March 2022
$’000
United Kingdom corporation tax based on the loss for the year at 19%
(31 March 2022: 19%) – 123
Adjustments in respect of prior periods 2,837 2,369
Non-reclaimable withholding tax on royalty payments received 171 251
Total current tax 3,008 2,743
Deferred tax
Origination and reversal of timings differences 656 –
Deferred tax asset recognised to extent of liability on timing difference (656) –
Total deferred tax – –
Total tax 3,008 2,743
Prior to 1 April 2021 the Company was Guernsey tax resident but exempt from taxation in Guernsey under the provisions
of the Income Tax (Exempt Bodies) (Guernsey) Ordinance, 1989.
From 1 April 2021 the Company was granted investment trust company status by HMRC and is UK tax resident
from that date.
Whilst the Company is incorporated in Guernsey, the majority of the Company’s subsidiaries are incorporated
and tax resident in the UK and the majority of the Group’s income and expenditure in incurred in these UK entities.
Therefore is it considered most appropriate to prepare the tax reconciliation below at the standard UK tax rate of 19%
(31 March 2022: 19%).
The March 2021 UK Budget announced an increase to the main rate of UK corporation tax to 25% from April 2023. This
rate was substantively enacted prior to the balance sheet date and consequently this rate has been considered when
assessing items of deferred tax.
140
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements
For the year ended 31 March 2023
Notes to the Consolidated Financial Statements
For the year ended 31 March 2023
5. Taxation (continued)
The actual tax charge differs from the standard rate for the reasons set out in the following reconciliation:
1 April 2022 to
31 March 2023
$’000
1 April 2021 to
31 March 2022
$’000
Loss on the Group’s ordinary activities before tax (86,630) (16,700)
Tax on the loss on the Group’s ordinary activity at the standard UK rate of 19% (16,460) (3,173)
Factors affecting charge for the year:
Expenses not deductible for tax purposes 3,405 887
Adjustment in respect of previous periods 2,837 2,369
Effect of overseas tax rate (649) (760)
Deferred tax not recognised – US 2,704 3,169
Deferred tax not recognised – UK 11,000 –
Net non-reclaimable withholding tax on royalty payments received 171 251
Total actual amount of current tax 3,008 2,743
Deferred tax
1 April 2022 to
31 March 2023
$’000
1 April 2021 to
31 March 2022
$’000
Short term timing differences related to hedging arrangements 656 –
Deferred tax asset recognised in relation to UK tax losses (656) –
Total deferred tax – –
The following potential deferred tax assets have not been recognised as it is not considered suitably probable that such
assets will be utilised based on forecasts.
Deferred tax
31 March 2023
$’000
31 March 2022
$’000
Unrecognised deferred tax asset in relation to UK tax losses (14,474) –
Unrecognised deferred tax asset in relation to US tax losses (5,873) (3,169)
There is currently no expiry date for the utilisation of UK tax losses.
The unrecognised deferred tax asset in relation to UK and US losses arise on the following tax losses:
31 March 2023
$’000
31 March 2022
$’000
UK tax losses (57,895) –
US tax losses (23,490) (12,676)
Disposals of Catalogues may give rise to potential tax charges depending on the availability of tax attributes (tax losses)
to offset any taxable gains otherwise arising. There were no such disposals of Catalogues in the year (or prior year) and
so no such tax liabilities arose.
Financial Statements
141
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements
For the year ended 31 March 2023
6. Catalogues of Songs
$’000
Cost
At 1 April 2022 2,237,284
Additions –
At 31 March 2023 2,237,284
Amortisation and impairment
At 1 April 2022 200,552
Amortisation 111,583
Impairment 3,901
At 31 March 2023 316,036
Net book value
At 1 April 2022 2,036,732
At 31 March 2023 1,921,248
Fair value as at 31 March 2023 2,802,762
Cost
At 1 April 2021 1,972,199
Additions 265,085
At 31 March 2022 2,237,284
Amortisation and impairment
At 1 April 2021 93,275
Amortisation 105,787
Impairment 1,490
At 31 March 2022 200,552
Net book value
At 1 April 2021 1,878,924
At 31 March 2022 2,036,732
Fair value as at 31 March 2022 2,693,974
The Group amortises Catalogues of Songs with a limited useful life using the straight-line method of 20 years (other
than in exceptional circumstances for specific Catalogues of Songs). An assessment of the useful life of Catalogues
is considered at each reporting period, which is 20 years, in line with what the Board of Directors and the Investment
Adviser deem to be industry standard. The Company performs an impairment review as disclosed in Note 2(h).
At 31 March 2023 accumulated amortisation for Catalogues of Songs is $310.6 million (31 March 2022: $199.1 million) and
the accumulated impairment to date is $5.4 million (31 March 2022: $1.5 million).
142
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements
For the year ended 31 March 2023
Notes to the Consolidated Financial Statements
For the year ended 31 March 2023
6. Catalogues of Songs (continued)
The Board engaged Portfolio Independent Valuer, Citrin Cooperman Advisors LLC, to value the Catalogues as at
31 March 2023. The Board has approved and adopted the valuations prepared by the Portfolio Independent Valuer
which are used as an input into the impairment review process and for the Operative NAV.
The sensitivity of the discount rate to the fair value of the Portfolio is as follows:
Discount Rate 8.00% 8.50% 9.00%
Portfolio Value ($’000) 3,065,753 2,802,762 2,580,725
Variance to Fair Value ($’000) 262,991 – (222,037)
Variance to Fair Value (%) 9.4% – (7.9%)
The sensitivity of the terminal value growth rate to the fair value of the Portfolio is as follows:
Sensitivity to the Terminal Value Growth Rate –1.00% Current +1.00%
Portfolio Value ($’000) 2,637,623 2,802,762 3,035,424
Variance to Fair Value ($’000) (165,139) – 232,662
Variance to Fair Value (%) (5.9%) – 8.3%
The sensitivity of the applied growth rate to the fair value of the Portfolio is as follows:
Growth Rate –1.00% Current +1.00%
Portfolio Value ($’000) 2,573,221 2,802,762 3,048,641
Variance to Fair Value ($’000) (229,541) – 245,879
Variance to Fair Value (%) (8.2%) – 8.8%
A Value-In-Use is calculated for any Catalogue with a residual risk of impairment following the impairment review.
The Value-In-Use is calculated by using the original projected cash flows used during the Fair Value calculation by the
Portfolio Independent Valuer, with a 0.5% reduction to the discount rate.
The sensitivity of the Value-In-Use calculation to the impairment charge is as follows:
Discount Rate used in the Value-In-Use calculation -0.50% Current +0.50%
Impairment of Catalogues of Songs ($’000) 1,378 3,901 11,934
7. Cash and cash equivalents
31 March 2023
$’000
31 March 2022
$’000
Cash available on demand 37,965 30,067
37,965 30,067
Financial Statements
143
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements
For the year ended 31 March 2023
8. Trade and other receivables
31 March 2023
$’000
31 March 2022
$’000
Non-current receivables
Accrued income 13,210 640
13,210 640
Current receivables
Accrued income 112,943 104,658
Royalties receivable 7,078 6,605
HSG net recoupable advances 16,436 18,604
Prepayments and other debtors 3,542 7,274
VAT Receivable – 7,309
139,999 144,450
In the current year, an accrual for $21.7 million has been recognised as a result of the confirmation of the CRB III
rate increases for the Songwriters’ mechanical portion of US Streaming income. Of this, $5.6 million is the impact of
the higher 15.1% rate on the income earned by the Company during this financial year and $16.1 million has been
recognised for the retro-active payment due as a result of revenues historically not having been recognised at the full
CRB III rates.
At 31 March 2023, the aging of the Company’s trade and other receivables are:
Less than
1 month
$’000
1-3
months
$’000
3-12
months
$’000
Between
1 and
2 years
$’000
Between
2 and
5 years
$’000
Over
5 years
$’000
Total
contractual
cash flows
$’000
Accrued income 4,430 34,593 73,920 13,210 – – 126,153
Royalties receivable 2,960 2,701 1,417 – – – 7,078
HSG net recoupable advances 99 119 16,218 – – – 16,436
Prepayments and other debtors 86 142 3,314 – – – 3,542
Total 7,575 37,555 94,869 13,210 – – 153,209
144
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements
For the year ended 31 March 2023
Notes to the Consolidated Financial Statements
For the year ended 31 March 2023
8. Trade and other receivables (continued)
Credit Risk and Provision for Expected Credit Losses
The Group has applied IFRS 9, Financial Instruments, during the year, which includes the requirements for calculating
a provision for expected credit losses on financial assets. As disclosed in Note 4, the probability of future default against
revenue receivable balances has been deemed close to nil. At 31 March 2023, an ECL provision is recognised against
the HSG recoupable advances as below:
At 31 March 2023
High Risk
$’000
Medium Risk
$’000
Low Risk
$’000
Total
$’000
Expected loss rates -100.0% -24.0% 0.0% -48.6%
Gross carrying amounts 13,000 10,520 8,436 31,956
Provision for expected credit losses (13,000) (2,520) – (15,520)
Net carrying amounts – 8,000 8,436 16,436
At 31 March 2022
High Risk
$’000
Medium Risk
$’000
Low Risk
$’000
Total
$’000
Expected loss rates -100.0% -41.1% 0.0% -41.1%
Gross carrying amounts 6,712 15,324 9,576 31,612
Provision for expected credit losses (6,712) (6,296) – (13,008)
Net carrying amounts – 9,028 9,576 18,604
If the probability of future default against the revenue receivable balances was 5% higher, this would result in
a $0.4 million increase to the ECL provision on revenue receivables. If the probability of future default against the
medium risk HSG recoupable advances was 41.1%, which is consistent with the prior year, this would result in a $1.8 million
increase to the ECL provision on HSG recoupable advances.
9. Loans and borrowings
On 30 September 2022 the Company entered into a new Revolving Credit Facility (RCF) with a commitment of
$700 million which runs for five years until 30 September 2027. City National Bank is lead arranger and sole bookrunner
for the new debt facility with Truist Securities, Inc., MUFG Union Bank, N.A. and Fifth Third Bank as co-leads. On the
same day the Company drew down $607 million, as part of the arrangement City National Bank repaid in full the
Company’s pre-existing J.P. Morgan RCF of $600 million directly to J.P. Morgan and paid $5.2 million of fees on behalf
of the Company. The remaining $1.8 million was received as cash by the Company. During the year $6.2 million of costs
relating to the set-up of the new RCF were capitalised, to be amortised over the five year length of the agreement.
On derecognition of the pre-existing J.P. Morgan RCF, $5.0 million was recognised as a borrowing cost extinguishment
charge and represents the unamortised capitalised borrowing costs on the pre-existing J.P. Morgan RCF.
On 31 March 2023 the Company repaid $7 million of the new RCF. $100 million remains available under the new RCF
which provides the Company with flexibility to fund investments and provide additional working capital.
Financial Statements
145
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements
For the year ended 31 March 2023
9. Loans and borrowings (continued)
Interest on the new facility charged is based on the Secured Overnight Financing Rate (SOFR), published by the New
York Federal Reserve, plus a margin of either 2.00% or 2.25% depending on the gross drawn debt. The current margin is
2.00%. As disclosed in Note 17, the Company has entered into an interest rate swap agreement to manage its exposure
to interest rate risk.
The RCF’s key covenants are set out in the below table:
Key financial covenant
31 March 2023
Actual Lender Covenants
i) Total debt to Catalogue value as determined by the lender 31.5% Must not exceed 40%
ii) Total debt leverage 5.5:1.0 Not greater than 7:1
iii) Fixed charge coverage 1.3:1.0 Not less than 1:1
The Catalogue value as determined by the lender is specifically prepared for the banking syndicate based on a set of
assumptions that reflect an immediate sale of the portfolio in order to provide maximum loan security.
The covenants are reviewed quarterly and are secured by, inter alia, a charge over the shares in all the subsidiaries
of the Company, a charge over all of their assets including all Catalogues of Songs of the Company held through
these subsidiaries and a charge over the bank accounts of the Company and its subsidiaries. The Company has also
provided a parent company guarantee. In accordance with the Investment Policy, any borrowings by the Company
will not exceed 30% of the Operative NAV which is $694.8 million.
31 March 2023
$’000
31 March 2022
$’000
Opening balance 600,000 577,292
Amounts drawn down during the period 607,000 72,708
Amounts repaid during the year – pre-existing RCF (600,000) (50,000)
Amounts repaid during the year – new RCF (7,000) –
Total loan drawn down 600,000 600,000
Cumulative borrowing costs (5,572) (6,008)
Closing balance 594,428 593,992
During the year ended 31 March 2023 $33.7 million (31 March 2022: $20.4 million) was charged as interest on the
amounts drawn down.
146
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements
For the year ended 31 March 2023
Notes to the Consolidated Financial Statements
For the year ended 31 March 2023
10. Liabilities and accrued expenses
31 March 2023
$’000
31 March 2022
$’000
Non-current liabilities
Catalogue bonus provision 33,080 925
33,080 925
Current liabilities
Amounts owed to Songwriters 18,799 16,957
Catalogue bonus provision 11,962 398
Deferred investment payable – 10,799
Loan interest payable 9,891 500
Trade creditors and accruals 5,846 4,106
PRO Advances 3,178 –
Corporation tax payable 67 2,570
VAT 1,789 –
Lease liability 735 –
Directors fees payable 27 83
Other creditors 794 –
53,088 35,413
The Group has a number of Catalogue bonuses which are dependent on the individual Catalogues meeting certain
defined performance hurdles as defined in the Catalogue acquisition agreements which the Group consider when
assessing the recognition of the Catalogue bonus provision as a financial liability. As at 31 March 2023, the Group
recognised a financial liability of $45.0 million relating to the bonuses on 6 Catalogues (31 March 2022: $1.3 million
relating to 2 Catalogues). Management consider that the carrying value of this financial liability would not differ
significantly from its fair value. The last performance hurdle period to be assessed across the remaining Catalogues is
29 January 2029.
Financial Statements
147
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements
For the year ended 31 March 2023
11. Share capital and capital management
Ordinary Share Capital
The share capital of the Company may consist of an unlimited number of:
i) Ordinary Shares of no par value which upon issue the Directors may classify as Ordinary Shares;
ii) C Shares denominated in such currencies as the Directors may determine; and
iii) Ordinary Shares purchased by the Company through share repurchases and held as Treasury Shares.
Ordinary Shares of no par value
No. of Units
outstanding
Share Capital
$’000
Treasury Reserve
$’000
Issued and fully paid:
Shares as at 1 April 2022 1,211,214,286 1,692,198 –
Repurchase of ordinary shares into treasury (2,000,000) –
(1,961)
Shares as at 31 March 2023 1,209,214,286 1,692,198 (1,961)
No. of Units
outstanding
Share Capital
$’000
Treasury Reserve
$’000
Issued and fully paid:
Shares as at 1 April 2021 1,073,440,268 1,466,851 –
Shares issued on 29 April 2021 9,000,000 14,938 –
Shares issued on 9 July 2021 128,774,018 214,764
–
Share issue costs – (4,355) –
Shares as at 31 March 2022 1,211,214,286 1,692,198 –
As at 31 March 2023 the Company’s authorised and issued share capital consisted of 1,211,214,286 ordinary shares,
of which 2,000,000 were held In treasury.
On 29 April 2021 the Company issued 9,000,000 new Ordinary Shares at a price of 119.5p per Ordinary Share and on
9 July 2021 the Company issued 128,774,018 new Ordinary Shares at a price of 121p per Ordinary Share. These shares
rank pari passu with the existing Ordinary Shares in issue. The net proceeds have been used to fund an investment in
accordance with the Company’s Investment Policy.
Under the Company’s Articles of Incorporation, each Shareholder present in person or by proxy has the right to 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 the Company and, on a winding up, provided the Company has
satisfied all of its liabilities, the Shareholders are entitled to all of the residual assets of the Company.
148
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements
For the year ended 31 March 2023
Notes to the Consolidated Financial Statements
For the year ended 31 March 2023
11. Share capital and capital management (continued)
Treasury Share Reserve
During the year, the Company launched a Share Repurchase Program to repurchase Ordinary Shares. The repurchased
shares are not cancelled but held as Treasury Shares by the Company. Treasury shares hold no voting rights, are not
entitled to a dividend and are excluded from the EPS, IFRS and Operative net asset value per share calculation. The
consideration for the shares repurchased are detailed below:
No. of Shares
repurchased
Consideration per
Share
£
Amount
$’000
Shares repurchased on 18 October 2022 250,000 0.85850 240
Shares repurchased on 19 October 2022 250,000 0.84320 235
Shares repurchased on 28 October 2022 250,000 0.88000 252
Shares repurchased on 31 October 2022 250,000 0.88000 252
Shares repurchased on 1 November 2022 250,000 0.87200 250
Shares repurchased on 2 November 2022 250,000 0.85826 246
Shares repurchased on 17 November 2022 250,000 0.82890 238
Shares repurchased on 2 December 2022 250,000 0.83400 248
Treasury Shares as at 31 March 2023 2,000,000 1,961
12. Net Asset Value per share and Operative Net Asset Value per share
31 March 2023 31 March 2022
Number of Ordinary Shares outstanding 1,209,214,286 1,211,214,286
IFRS NAV per share (cents) 118.63 130.65
Operative NAV per share (cents) 191.53 184.91
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 outstanding.
Catalogues of Songs are classified as intangible assets and measured at amortised cost or cost less impairment in
accordance with IFRS.
The Directors are of the opinion that an Operative NAV provides a meaningful alternative performance measure and
the values of Catalogues of Songs are based on fair values produced by the Portfolio Independent Valuer.
Reconciliation of IFRS NAV to Operative NAV
31 March 2023
$’000
31 March 2022
$’000
IFRS NAV 1,434,534 1,582,399
Adjustments for revaluations of Catalogues of Songs to fair value 565,478 457,441
Reversal of accumulated amortisation and impairment 316,036 199,800
Operative NAV 2,316,048 2,239,640
Financial Statements
149
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements
For the year ended 31 March 2023
12. Net Asset Value per share and Operative Net Asset Value per share (continued)
Tax considerations
As noted in the Chair’s Statement, the Board are considering a number of options to enhance Shareholder value which
may include the potential strategic sale of Catalogues of Songs. The Company’s Investment Trust Company (ITC)
status may allow for the Company to make disposals of shares or certain other capital assets on a tax-exempt basis
for UK corporation tax purposes. However, a disposal of music Catalogues, considered intangible fixed assets for UK
corporation tax purposes, would not qualify for exemption in the same way.
A disposal of music Catalogues by way of a sale of shares of a Group subsidiary company by the Company, in order
to take advantage of its ITC tax-exempt status, would not necessarily result in greater value for the Group, depending
on the attractiveness of such a transaction structure to the prospective purchaser and their other potential tax
considerations on future sales of the acquired shares.
If the Group were to dispose of all of its Catalogues, an indicative tax calculation (subject to a number of assumptions
in its preparation – see below) estimates that a potential corporation tax charge (or equivalent in the US) could be
incurred by the Group subsidiary companies, of approximately $245 million. This has been calculated based on
comparing the Fair Value determined by the Portfolio Independent Valuer (as a representation of indicative sales
proceeds) to the Catalogues’ carrying value as at 31 March 2023.
The calculations assumes a 25% tax rate as: (a) the prevailing rate of UK corporation tax from 1 April 2023 and
(b) a proxy for US Federal and State corporate income tax. This indicative tax calculation does not take into account
attributes such as UK tax losses, which could be used to offset some of the taxable gains, or where the tax treatment of
an element of sale proceeds may be considered to be the sale of a receivable aligned with a Catalogue rather than
part of the disposal value of that Catalogue, which could result in a materially lower tax charge.
As the Company has not disposed of any catalogues to date, no such tax liability currently exists.
13. Revenue
1 April 2022 to
31 March 2023
$’000
1 April 2021 to
31 March 2022
$’000
Mechanical income 5,465 10,657
Performance income 17,972 22,291
Digital downloads income 3,635 4,405
Streaming income 83,886 72,850
Synchronization income 19,381 22,530
Publishing admin income 406 300
Masters income 7,582 8,448
Writer share income 26,076 45,103
Neighbouring rights income 4,120 –
Other income 715 6,037
Producer royalties 8,074 7,763
177,312 200,384
There is an inherent time lag with royalties between the time a song is performed, and the revenue being received by
the copyright owner. The revenue accruals are disclosed in Note 8 Trade and other receivables.
150
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements
For the year ended 31 March 2023
Notes to the Consolidated Financial Statements
For the year ended 31 March 2023
14. Other operating expenses
1 April 2022 to
31 March 2023
$’000
1 April 2021 to
31 March 2022
$’000
Aborted deal expenses 468 1,951
Bank charges 50 34
Record label costs 98 –
Charitable donations 293 208
Directors’ and officers’ insurance 347 366
Disbursements 411 355
Postage, stationery and printing 153 41
Lease liability interest 369 –
HSG staff payroll and expenses 6,244 6,598
HSG restructuring provision 1,028 –
Travel and accommodation fees 499 162
HSG travel and accommodation fees 362 389
Sundry 32 1
10,354 10,105
15. Foreign exchange
1 April 2022 to
31 March 2023
$’000
1 April 2021 to
31 March 2022
$’000
Foreign exchange losses 3,157 14,857
3,157 14,857
The foreign exchange impact reflects the effect of movements in foreign currency exchange rates throughout the year.
Currency risk is discussed further in Note 17 .
Financial Statements
151
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements
For the year ended 31 March 2023
16. Dividends
A summary of the dividends paid are set out below:
Dividend per share
Pence
Total Dividend
$’000
1 April 2022 to 31 March 2023
Interim dividend in respect of quarter ended 31 March 2022 1.3125 19,313
Interim dividend in respect of quarter ended 30 June 2022 1.3125 17,744
Interim dividend in respect of quarter ended 30 September 2022 1.3125 19,203
3.9375 56,260
On 16 March 2023, the Company announced an interim dividend for the quarter from 1 October 2022 to
31 December 2022 of 1.3125p per Ordinary Share, paid on 28 April 2023.
Dividend per share
Pence
Total Dividend
$’000
1 April 2021 to 31 March 2022
Interim dividend in respect of quarter ended 31 March 2021 1.3125 20,093
Interim dividend in respect of quarter ended 30 June 2021 1.3125 21,807
Interim dividend in respect of quarter ended 30 September 2021 1.3125 21,214
Interim dividend in respect of quarter ended 31 December 2021 1.3125 21,186
5.250 84,300
The Company, being a Guernsey regulated entity, is able to pay dividends out of capital, subject to the assessment
of solvency in accordance with the Companies Law and subject to a levered free cashflow test as required by the
Revolving Credit Facility.
152
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements
For the year ended 31 March 2023
Notes to the Consolidated Financial Statements
For the year ended 31 March 2023
17. Financial risk management objectives
Financial risk management objectives
The Group’s activities expose it to various types of financial risk, principally market risk, credit risk, and liquidity risk.
The Board has overall responsibility for the Group’s risk management and sets policies to manage those risks at an
acceptable level.
Fair values
Management assessed that the fair values of cash and cash equivalents, current trade and other receivables and
current trade and other payables approximate their carrying amount largely due to the short-term maturities and high
credit quality of these instruments. The carrying value of the non-current accrued income and non-current Catalogue
bonus provision reflect their fair value.
Capital risk management
The Group manages its capital to ensure that it will be able to continue as a going concern while maximising the
capital return to Shareholders. The capital structure of the Group consists of issued share capital and retained earnings,
as stated in the Consolidated Statement of Financial Position. In order to maintain or adjust the capital structure, the
Group may repurchase shares or issue new shares. There are no external capital requirements imposed on the Group.
As detailed in Note 9, on 30 September 2022 the Company entered into a new Revolving Credit Facility (RCF) with
a commitment of $700 million which runs for five years until 30 September 2027. On the same day the Company drew
down $607 million to repay in full the Company’s pre-existing J.P. Morgan RCF ($600 million). On 31 March 2023 the
Company repaid $7 million of the new RCF.
The Group’s investment policy is set out in the Investment Objective and Policy section of the Annual Report.
Market risk
Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate as a result of changes
in market prices. The Group is exposed to currency risk and interest rate risk.
a) Currency risk
Currency risk is the risk that the fair values of future cashflows will fluctuate because of changes in foreign exchange
rates. The revenue earned from the Catalogue of Songs may be subject to foreign currency fluctuations. Royalties
are earned globally and paid in a number of currencies, therefore the Group may be impacted by adverse currency
movements. The Group will convert the majority of overseas currency receipts into US Dollars by agreeing to currency
exchange arrangements with collection agents, or otherwise itself undertaking foreign exchange conversions.
Financial Statements
153
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements
For the year ended 31 March 2023
17. Financial risk management objectives (continued)
Dividend payments are denominated in Sterling and also may be impacted by adverse currency movements. In order
to mitigate currency risk and provide certainty over the US Dollar value of future Sterling dividend payments the
Company entered into US Dollar to Sterling foreign exchange forward contracts as discussed in Note 22.
Settlement Date
Contract Value
£’000
Outstanding
Contracts
$’000
Mark to Market
equivalent
$’000
Unrealised
(losses)/gains
$’000
17 April 2023 11,250 12,501 13,883 1,382
17 July 2023 11,250 12,477 13,906 1,429
16 October 2023 7,500 8,305 9,278 973
16 January 2024 5,000 5,528 6,189 661
15 April 2024 3,750 4,139 4,640 501
16 October 2024 3,750 4,644 4,639 (5)
16 January 2025 2,500 3,101 3,094 (7)
15 April 2025 1,250 1,552 1,546 (6)
15 July 2025 3,750 4,656 4,642 (14)
50,000 56,903 61,817 4,914
The currencies in which financial assets and liabilities are denominated are shown below:
As at 31 March 2023
USD
$’000
GBP converted to
USD*
$’000
EUR converted to
USD**
$’000
Other converted to
USD
$’000
Total
$’000
Non current and current receivables 147,955 4,987 205 62 153,209
Held for trading derivative
financial asset 4,914 – – – 4,914
Cash and cash equivalents 32,530 4,074 1,361 – 37,965
Total financial assets 185,399 9,061 1,566 62 196,088
Revolving Credit Facility 600,000 – – – 600,000
Held for trading derivative financial
liability 3,395 – – – 3,395
Non current and current payables 81,958 3,736 232 241 86,167
Total financial liabilities 685,353 3,736 232 241 689,562
Net asset/(liability) position (499,954) 5,325 1,334 (179) (493,474)
*At the reporting date 31 March 2023, if Sterling had strengthened/weakened by 10% against the Dollar with
all other variables held constant, the impact on post tax loss and components of equity would have been
$0.5 million higher/lower.
**At the reporting date 31 March 2023, if the EUR had strengthened/weakened by 10% against the Dollar with
all other variables held constant, the impact on post tax loss and components of equity would have been
$0.1 million higher/lower .
154
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements
For the year ended 31 March 2023
Notes to the Consolidated Financial Statements
For the year ended 31 March 2023
17. Financial risk management objectives (continued)
As at 31 March 2022
USD
$’000
GBP converted to
USD*
$’000
EUR converted to
USD**
$’000
Other converted
to USD
$’000
Total
$’000
Non current and current receivables 132,276 10,503 1,745 566 145,090
Cash and cash equivalents 25,454 4,314 299 – 30,067
Total financial assets 157,730 14,817 2,044 566 175,157
Revolving Credit Facility 600,000 – – – 600,000
Non current and current payables 31,448 4,883 7 – 36,338
Total financial liabilities 631,448 4,883 7 – 636,338
Net asset/(liability) position (473,718) 9,934 2,037 566 (461,181)
*At the reporting date 31 March 2022, if Sterling had strengthened/weakened by 10% against the Dollar with
all other variables held constant, the impact on post tax loss and components of equity would have been
$1.0 million higher/lower.
**At the reporting date 31 March 2022, if the EUR had strengthened/weakened by 10% against the Dollar with
all other variables held constant, the impact on post tax loss and components of equity would have been
$0.2 million higher/lower.
b) Cash flow and fair value interest rate risk
The Group is exposed to cash flow interest rate risk on cash and cash equivalents and also on the interest bearing RCF.
The RCF bears a fixed rate of interest plus a floating rate of interest based on Secured Overnight Financing Rate (SOFR).
In order to mitigate interest rate risk and provide certainty over interest payments, the Company entered into interest
rate swap agreements as detailed below:
• From 3 October 2022 until 2 January 2023, interest on all the drawn debt is based on a three-month fixed SOFR of
5.71% (including debt margin); and
• From 3 January 2023, the Company has agreed to enter into interest rate swaps to hedge $540 million. Of this,
$340 million is hedged for the duration of the RCF (until 30 September 2027) at a fixed rate of 5.67% (including debt
margin); a further $200 million is hedged until 3 January 2026 at a fixed rate of 5.89% (including debt margin). The
balance remains unhedged to provide flexibility in the operation of the RCF facility.
At 31 March 2023, the unhedged RCF balance exposed to interest rate risk was $60 million.
The average interest rate during the year was 5.58%. If interest rates had been 100 basis points higher and all other
variables were held constant, the Company’s loan interest expense would have been $6.0 million higher .
Financial Statements
155
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements
For the year ended 31 March 2023
17. Financial risk management objectives (continued)
Credit Risk
Credit risk is the risk of loss due to failure of a counterparty to fulfil its contractual obligations. The Group is exposed to
credit risk in respect of its contracts with PROs and other collection societies. This exposure is minimised by dealing with
reputable PROs whose credit risk is deemed to be low given their respective position in the industry.
As reported in Note 4, there is no impairment of the receivables balance, credit risk of third parties has been taken into
account when calculating accruals and expected credit loss charge for the year on HSG advances was $2.2 million
(31 March 2022: $1.6 million). The Group is exposed to credit risk through its balances with banks and its indirect holdings
of money market instruments through those money market funds which are classified 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 year-end date:
Location Rating*
31 March 2023
$’000
31 March 2022
$’000
Barclays Bank UK plc Guernsey/UK A-1 25,063 27,367
BlackRock US AA– 8,435 –
City National Bank US A-2 3,950 2,599
* Rated by Standard & Poor’s
Liquidity Risk
Liquidity risk is the risk that the Group will encounter in realising assets or otherwise raising funds to meet financial
commitments. The Group’s liquidity risk is managed by the Investment Adviser and Directors on a monthly basis.
Liquidity risk is also the risk that the Group may not be able to meet their financial obligations as they fall due. The Group
maintains a prudent approach to liquidity management by maintaining sufficient cash reserves to meet foreseeable
working capital requirements.
156
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements
For the year ended 31 March 2023
Notes to the Consolidated Financial Statements
For the year ended 31 March 2023
17. Financial risk management objectives (continued)
Liquidity Risk (continued)
The Group prepares a 3 year rolling cash forecast, which is reviewed by the Board. The cash flow forecast includes
a sensitivity analysis with downside scenarios on income streams, foreign exchange rate movements and interest
rate movements. Cash is delivered with royalty statements, and the majority are delivered quarterly or semi-annually.
A small number of collections are delivered monthly. Cash is collected and processed throughout the year by the
administrators.
At the reporting date, the Group’s financial liabilities are:
Carrying
amount
$’000
Less than
1 month
$’000
1-3
months
$’000
3-12
months
$’000
Between
1 and
2 years
$’000
Between
2 and
5 years
$’000
Over
5 years
$’000
Total
contractual
cash flows
$’000
Bank loan and future interest
payments (600,000) – – (30,684) (40,912) (712,507) – (784,103)
Held for trading financial
liability (3,395) 1,139 – (4,534) – – – (3,395)
Amounts owed to
Songwriters (18,799) – (640) (18,159) – – – (18,799)
Catalogue bonus provision (45,042) – (3,450) (8,512) (16,540) (16,540) – (45,042)
Trade creditors and accruals (5,846) (4,168) (1,040) (638) – – – (5,846)
Loan interest payable (9,891) (9,891) – – – – – (9,891)
PRO Advances (3,178) – (3,178) – – – – (3,178)
VAT (1,789) (1,789) – – – – – (1,789)
Other creditors (794) (415) – (379) – – – (794)
Lease liability (735) (28) (61) (646) – – – (735)
Corporation tax payable (67) – (67) – – – – (67)
Directors fees payable (27) (27) – – – – – (27)
(689,563) (15,179) (8,436) (63,552) (57,452) (729,047) – (873,666)
Financial Statements
157
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements
For the year ended 31 March 2023
18. Related party transactions and Directors’ remuneration
Parties are considered to be related if one party has the ability to control the other party or exercise significant
influence over the party in making financial or operational decisions.
All Directors are non-executive. The Directors’ remuneration, excluding disbursements, for the year ended
31 March 2023 amounted to £473,000/$576,355 with no outstanding fees due to the Directors at 31 March 2023
(31 March 2022: £458,360/$613,720, with outstanding fees of £18,750/$24,745). There were no supplementary fees paid to
Directors in the year ended 31 March 2023. Directors are reimbursed for out-of-pocket expenses incurred in fulfilling their
roles, including costs of travel and accommodation (as required).
Directors’ transactions in or holdings in shares of the Company are not disclosed as related party transactions as they
do not receive shares as part of their remuneration. Any shares held or transacted are acquired or disposed of in their
own right as Shareholders and as result, it is management’s assessment that the Company has not transacted with the
Directors as related parties in this regard.
19. Material Agreements
Investment Adviser
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 monitor royalty and/or fee income due to the Company from its copyrights and collection agents, and
develop strategies to maximise the earning potential of the Songs in the portfolio through improved placement and
coverage of Songs.
During the year responsibility for the maintenance of the Group’s accounting books and records, systems of internal
control and financial reporting transferred from the Administrator to the Investment Adviser.
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 (https://www.hipgnosissongs.com/). However in summary:
Advisory fee
The advisory fee is calculated at the rate of:
1% per annum of the Average Market Capitalisation up to, and including, £250 million;
ii) 0.90% per annum of the Average Market Capitalisation in excess of £250 million and up to and including
£500 million; and
iii) 0.80% per annum of the Average Market Capitalisation in excess of £500 million.
Advisory fees for the year were $12.5 million (31 March 2022: $16.5 million) with $0.4 million outstanding at 31 March 2023
(31 March 2022: $Nil).
158
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements
For the year ended 31 March 2023
Notes to the Consolidated Financial Statements
For the year ended 31 March 2023
19. Material Agreements (continued)
Performance Fee
In respect of each accounting period, the Investment Adviser (or, where the Investment Adviser so directs, any member
of the Investment Adviser’s team) is entitled to receive a performance fee (the “Performance Fee”) equal to 10% 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% 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 difference between the
Performance Share Price at the end of that Accounting Period and the higher of: (a) the Performance Hurdle (being
issue price compounded by 10% per annum from initial Admission subject to appropriate adjustments in certain
situations); and (b) high watermark (being the Performance Share Price at the end of the last Accounting Period where
a Performance Fee was payable); multiplied by (ii) the weighted average of the number of Ordinary Shares in issue
(excluding any shares held in treasury) 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 of the middle market
quotations of the Ordinary Shares for the 1 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 year, the average of the middle market quotations
was 81.0p; and
“Performance Share Price 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 Investment Adviser shall be paid in the form of a combination of:
a) cash equal to all taxes or charges payable with respect to the Performance Fee by the Investment Adviser or
member(s) of the Investment Adviser’s Team; and b) Ordinary Shares (“Performance Shares”) which are either issued by
the Company where the Ordinary Shares are on average trading at par or at a premium to the last reported Operative
NAV per Ordinary 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 are subject to 18-month lock-up arrangements. The performance fee for the year ended
31 March 2023 was $Nil (31 March 2022: $Nil).
Financial Statements
159
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements
For the year ended 31 March 2023
19. Material Agreements (continued)
Administration Agreement
Pursuant to the Administration Agreements: (i) Ocorian Administration (Guernsey) Limited has been appointed as
Administrator of the Company; and (ii) Ocorian Administration (UK) Limited has been appointed as administrator
to the subsidiaries. The Administrator or Ocorian Administration (UK) Limited (as applicable) are responsible for the
day-to-day administration of the Company and its subsidiaries subject to the relevant Administration Agreement and
general secretarial functions required by the Companies Law. During the year responsibility for the maintenance of
the Group’s accounting books and records, systems of internal control and financial reporting transferred from the
Administrator to the Investment Adviser. For the purposes of the RCIS Rules, the Administrator is the designated manager
of the Company.
Under the terms of the Administration Agreement between the Administrator and the Company, the Administrator
is entitled to a fixed fee as at 31 March 2023 of £193,000 ($231,600) (31 March 2022: £187,500, $246,259) per annum
for services such as administration, corporate secretarial, corporate governance, regulatory compliance and stock
exchange continuing obligations. Additional ad hoc fees are payable in respect of certain additional services
as determined by the Administration Agreement. Administration fees for the year to 31 March 2023 amounted to
£209,873 ($251,848) (31 March 2022: £364,612, $478,875) of which nil (31 March 2022: £43,125, $56,639) was outstanding
at the year end.
Under the terms of the Administration Agreement between Ocorian Administration (UK) Limited and the subsidiaries
the Administrator is entitled to a fixed fee as at 31 March 2023 of £3,500 ($4,200) (31 March 2022: £14,000, $18,387)
per subsidiary and a variable incremental fee per annum per additional Catalogue held by a subsidiary for services
such as administration and corporate secretarial. Administration fees for the subsidiaries for the year amounted to
£296,595 ($355,914) (31 March 2022: £489,683, $673,007) of which nil (31 March 2022: £237,490, $311,916) was outstanding
at the year end.
20. Earnings per share
31 March 2023
Basic
31 March 2023
Diluted
Loss for the year ($’000) (89,638) (89,638)
Weighted average number of Ordinary Shares outstanding 1,210,360,176 1,210,360,176
Earnings per share (cents) (7.41) (7.41)
31 March 2022
Basic
31 March 2022
Diluted
Loss for the year ($’000) (19,443) (19,443)
Weighted average number of Ordinary Shares outstanding 1,175,596,128 1,175,596,128
Earnings per share (cents) (1.65) (1.65)
The earnings per share is based on the loss of the Group for the year and on the weighted average number of
Ordinary Shares outstanding for the year ended 31 March 2023. As disclosed in Note 11, the Company repurchased
Ordinary Shares during the year which are held as Treasury Shares at year end and these shares are not included the
EPS calculation.
160
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements
For the year ended 31 March 2023
Notes to the Consolidated Financial Statements
For the year ended 31 March 2023
21. Auditor’s remuneration
Audit and non-audit fees payable to the Auditors can be analysed as follows:
1 April 2022 to
31 March 2023
$’000
1 April 2021 to
31 March 2022
$’000
PricewaterhouseCoopers CI LLP annual audit fees 753 600
PricewaterhouseCoopers CI LLP annual audit fees 753 600
Pricewaterhouse Coopers CI LLP Interim review fees 53 53
PricewaterhouseCoopers CI LLP non audit fees 53 53
22. Fair value gain on held for trading derivative financial instruments
The Company has the following derivative financial instruments in the following line items in the Consolidated
Balance Sheet:
31 March 2023
$’000
31 March 2022
$’000
Held for trading financial assets
Foreign exchange forward contracts 4,914 –
Held for trading financial liabilities
Interest rate swap arrangements (3,395) –
The carrying value of the held for trading financial instruments represent their fair value at year end.
The fair value gain on the held for trading derivative financial instruments are set out in the below table:
1 April 2022 to
31 March 2023
$’000
1 April 2021 to
31 March 2022
$’000
Fair value gain on foreign exchange forward contracts 6,017 –
Fair value loss on interest rate swap arrangements (3,395) –
2,622 –
Financial Statements
161
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements
For the year ended 31 March 2023
23. Presentation Change
The Company has made immaterial changes to the presentation of the Consolidated Statement of Profit and Loss and
accompanying notes during the year. This has resulted in the following changes of the comparative figures.
Consolidated Statement of Profit and Loss
As reported in
31 March 2022
Annual Report
1 April 2021 to
31 March 2022
$’000
Presentation
change
$’000
As reported in
31 March 2023
Annual Report
1 April 2021 to
31 March 2022
$’000
Income
Total revenue 200,384 – 200,384
Interest income 5 – 5
Royalty costs (32,041) – (32,041)
Net revenue 168,348 – 168,348
Expenses
Advisory and performance fees (16,548) – (16,548)
Administration fees (1,152) – (1,152)
Legal and professional fees (5,999) – (5,999)
Audit fees (600) – (600)
Brokers’ fees (274) – (274)
Directors’ remuneration (696) – (696)
Listing fees (34) – (34)
Subscriptions and licences (526) – (526)
Public relations fees (702) – (702)
Catalogue bonus provision – (936) (936)
Charitable donations (208) 208 –
Movement in ECL provision for HSG advances – (1,570) (1,570)
Other operating expenses (12,403) 2,298 (10,105)
Amortisation of Catalogues of Songs (105,787) – (105,787)
Impairment of Catalogues of Songs (1,490) – (1,490)
Amortisation of borrowing expenses (1,635) – (1,635)
Borrowing cost extinguishment – – –
Fixed asset depreciation (712) – (712)
Loan interest (20,377) – (20,377)
Fair value gain on held for trading derivative financial assets – – –
Finance charges for deferred consideration (212) – (212)
Net loss from joint ventures (836) – (836)
Foreign exchange losses (14,857) – (14,857)
Operating expenses (185,048) – (185,048)
Operating loss for the year before taxation (16,700) – (16,700)
Taxation (2,743) – (2,743)
Loss for the year after tax (19,443) – (19,443)
162
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements
For the year ended 31 March 2023
Notes to the Consolidated Financial Statements
For the year ended 31 March 2023
24. Subsequent Events
On 28 April 2023 the Company’s interim dividend of 1.3125 pence per Ordinary Share in respect of the period from
1 October 2022 to 31 December 2022 was paid.
On 23 June 2023 the Company’s interim dividend of 1.3125 pence per Ordinary Share in respect of the period from
1 January 2023 to 31 March 2023 was declared.
ADDITIONAL INFORMATION
163
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023
Adjusted EPS
Definition
Loss after tax excluding Total Amortisation, Impairment, Depreciation, Catalogue Bonus Provision, Restructuring
Costs, Foreign Exchange Losses and Provision for HSG Advances divided by weighted average number of Ordinary
Shares outstanding.
Reason for Use
Adjusted EPS is a strong indicator of Company performance and profitability after adjusting for non cash and
financing items. Catalogue Bonus Provision has been included in the calculation in the current year as the
Company does not anticipate this provision to occur at a material level in future years.
Calculation
31 March
2023
$’000
31 March
2022*
$’000
Loss after tax (89,638) (19,443)
Total Amortisation 113 ,2 01 107,633
Impairment of Catalogues of Songs 3,901 1,490
Borrowing cost extinguishment 5,007 –
Depreciation 653 712
Lease liability interest 369 –
Catalogue bonus provision 43,757 936
HSG restructuring costs 1,028 –
Foreign exchange losses 3,157 14,857
Fair value gain on held for trading financial instruments (2,622) –
Movement in ECL provision for HSG advances 2,196 1,570
Adjusted earnings 81,009 107,755
Tax arising on above adjusting items
†
(31,169) (23,348)
49,840 84,407
Weighted Average number of Ordinary Shares outstanding (number) 1,210,360,176 1,175,596,128
Adjusted Earnings per Share (cents) 4.12 7.18
† This figure is the sum of the tax effects of individual adjusting items other than permanent differences, calculated using the prevailing 19% corporation tax rate for the periods
for UK items and 21% rate of US Federal corporate income tax for US items.
Alternative Performance Measures
For the year ended 31 March 2023
ADDITIONAL I NFORMATION
164
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023
Adjusted Operating Costs less Interest Expense
Definition
Operational expenses less Total Amortisation, Impairment, Depreciation, Catalogue Bonus Provision, Restructuring
Costs, Foreign Exchange Losses, Provision for HSG Advances and Interest Expense.
Reason for Use
An indicator to Shareholders of the Company’s underlying operational expenditure excluding non cash and
financing items. Catalogue Bonus Provision has been included in the calculation in the current year as the
Company does not anticipate this provision to occur at a material level in future years.
Calculation
31 March
2023
$’000
31 March
2022*
$’000
Operational expenses
233,863 185,048
Total Amortisation (113 ,2 01) (107,6 33)
Impairment of Catalogues of Songs (3,901) (1,490)
Borrowing cost extinguishment (5,007) –
Depreciation (653) (712)
Lease liability interest
(369)
–
Catalogue bonus provision (43,757) (936)
HSG restructuring costs (1,028) –
Foreign exchange losses (3,157) (14,857)
Fair value gain on held for trading financial instruments 2,622 –
Provision for HSG advances (2,196) (1,570)
Interest expense (33,700) (20,377)
29,516 37,473
* Refer to change in definitions on Alternative Performance Measures
Annualised Ongoing Charges
Definition
Adjusted Operating Costs less Interest Expense and non-recurring administrative expenses over a 12-month period.
Reason for Use
Ongoing Charges are a good indicator to Shareholders of the Company’s continuing operating expenses excluding the cost
of financing. These operating expenses are likely to recur in the foreseeable future.
Calculation
31 March
2023
$’000
31 March
2022
$’000
Adjusted Operating Costs less Interest Expense* 29,516 37,474
Non Recurring Administrative Expenses (2,195) (6,063)
27,321 31,411
* Refer to change in Adjusted Operating Costs definition on Alternative Performance Measures
ADDITIONAL INFORMATION • ALTERNATIVE PERFORMANCE MEASURES
ADDITIONAL INFORMATION
165
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023
Distributable Revenues
Definition
Distributable Revenues are the Loss after Tax excluding Total Amortisation, Impairment, Depreciation, Catalogue
Bonus Provision, Restructuring Costs, Foreign Exchange Losses and Provision for HSG Advances.
Reason for Use
Distributable Revenues are the adjusted profits attributable to the Company’s revenue activities and are an
indicator of the Company’s ongoing ability to pay its dividends, thereby excluding the impact of IFRS accounting
matters, liabilities and costs not expected to occur at levels of current year.
Calculation
31 March
2023
$’000
31 March
2022
$’000
Loss after tax (89,638) (19,443)
Total Amortisation 113 ,2 01 107,633
Impairment of Catalogues of Songs 3,901 1,490
Borrowing cost extinguishment 5,007 –
Depreciation 653 712
Lease liability interest 369 –
Catalogue bonus provision 43,757 936
HSG restructuring costs 1,028 –
Foreign exchange losses 3,157 14,857
Fair value gain on held for trading financial instruments (2,622) –
Movement in ECL provision for HSG advances 2,196 1,570
81,009 107,755
Dividend Cover
Definition
Distributable Revenues divided by the dividend paid during the year.
Reason for Use
A strong indicator to Shareholders of the Company's ability to pay a dividend from retained earnings.
Calculation
31 March
2023
$’000
31 March
2022
$’000
Distributable Revenues 81,009 107,755
Dividend Paid 56,260 84,300
1.44 1.28
ADDITIONAL INFORMATION • ALTERNATIVE PERFORMANCE MEASURES
166
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023
EBITDA
Definition
The Operating loss before Tax plus Total Amortisation, Impairment, Depreciation, Catalogue Bonus Provision,
Restructuring Costs, Foreign Exchange Losses, Provision for HSG Advances and Interest Expense.
Reason for Use
A strong indicator to Shareholders of Company performance and profitability after adjusting for non cash and
financing items. Catalogue Bonus Provision has been included in the calculation in the current year as the
Company does not anticipate this provision to occur at a material level in future years.
Calculation
31 March
2023
$’000
31 March
2022*
$’000
Operating loss (86,630) (16,700)
Total Amortisation 113 ,2 01 107,633
Impairment of Catalogues of Songs 3,901 1,490
Borrowing cost extinguishment 5,007 –
Depreciation 653 712
Lease liability interest 369 –
Catalogue bonus provision 43,757 936
Restructuring costs 1,028 –
Foreign exchange losses 3,157 14,857
Fair value gain on held for trading financial instruments (2,622) –
Movement in ECL provision for HSG advances 2,196 1,570
Interest expense 33,700 20,377
117,717 130,875
* Refer to change in definitions on Alternative Performance Measures
Leveraged Free Cash Flow
Definition
Net Cash from operating activities less interest paid, acquisition related balances and foreign exchange losses.
Reason for Use
A good indicator to Shareholders of the cash position of the Company and the availability of cash flows to fund
dividend payments.
Calculation
31 March
2023
$’000
31 March
2022•
$’000
Net Cash from operating activities 102,129 84,869
Acquisition related balances – 9,505
Foreign exchange losses 3,157 11,0 98
Interest paid (23,433) (20,775)
81,853 84,697
* Refer to change in definitions on Alternative Performance Measures
ADDITIONAL INFORMATION • ALTERNATIVE PERFORMANCE MEASURES
ADDITIONAL INFORMATION
167
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023
Net Debt
Definition
Loan facility amount utilised less cash held at bank.
Reason for Use
Liquidity metric used to determine how well a company can pay all of its debts if they were due immediately.
Calculation
31 March
2023
$’000
31 March
2022
$’000
Loan facility amount 600,000 600,000
Cash at bank (37,96 5) (30,067)
562,035 569,933
Non recurring administrative expenses
Definition
Non recurring expenditure included within operating expense.
Reason for Use
A good indicator to Shareholders of expenses not likely to recur in the foreseeable future.
Calculation
31 March
2023
$’000
31 March
2022*
$’000
Non recurring expenses included within:
Legal and professional fees 546 2,099
Brokers’ fees 122 18
Public relations fees 100 145
Advisory and performance fees – 43
Other operating expenses 1,427 3,758
2,195 6,063
* Refer to change in definitions on Alternative Performance Measures
Ongoing Charges %
Definition
Annualised ongoing charges divided by Average Operative NAV.
Reason for Use
To monitor the expenses, which are likely to recur, relative to the fund size over time.
Calculation
31 March
2023
$’000
31 March
2022
$’000
Annualised Ongoing Charges* 27,321 31,411
Average Operative NAV 2,257,887 2,044,831
1.21% 1.54%
* Refer to change in Adjusted Operating Costs definition on Alternative Performance Measures
ADDITIONAL INFORMATION • ALTERNATIVE PERFORMANCE MEASURES
168
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023
Operative NAV
Definition
The IFRS NAV adjusted for the Fair Value of the Catalogues of Songs.
Reason for Use
The Operative NAV reflects the values of the Catalogues of Songs based on fair values produced by the Portfolio
Independent Valuer.
31 March 2023
$’000
31 March 2022
$’000
IFRS NAV
1,434,534
1,582,399
Adjustments for revaluations of Catalogues of Songs to fair value
565,478
457,4 41
Reversal of accumulated amortisation and impairment
316,036
199,800
Operative NAV
2,316,048
2,239,640
Total Amortisation
Definition
Amortisation of Catalogues of Songs plus amortisation of capitalised borrowing costs plus finance charges for
deferred consideration.
Reason for Use
Total amortisation is the measure of the non-cash items arising from accounting treatment and includes the
amortisation of borrowing costs, and is used to evaluate the performance without any amortisation.
Calculation
31 March
2023
$’000
31 March
2022
$’000
Amortisation of Catalogues of Songs 111,5 8 3 105,787
Amortisation of capitalised borrowing costs 1,618 1,635
Finance charges for deferred consideration – 212
113,201 107,634
ADDITIONAL INFORMATION • ALTERNATIVE PERFORMANCE MEASURES
ADDITIONAL INFORMATION
169
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023
NAV Total Return
Definition
Operative NAV per share plus cumulative dividends paid up to year end less the Operative NAV per share as at
11 July 2018, divided by the Operative NAV as at 11 July 2018.
Reason for Use
To show how the assets have performed since IPO to Shareholders.
Calculation
31 March
2023
$’000
31 March
2022
$’000
Operative NAV per share 1.9153 1.8491
Cumulative dividends paid to year end 0.2789 0.2159
Operative NAV at IPO (1.2983) (1.2983)
0.8959 0.7667
Operative NAV at IPO 1.2983 1.2983
69.01% 59.05%
12 Month NAV Total Return
Definition
Operative NAV per share as at year end plus dividend paid during the 12-month to year end less the Operative NAV
per share as at the beginning of the year divided by the Operative NAV per share as at the beginning of the year.
Reason for Use
To show how the assets have performed over the past 12 months to Shareholders.
Calculation
31 March
2023
$’000
31 March
2022
$’000
Operative NAV per share at year end 1.9153 1.8491
Dividend paid during the 12-month period to year end 0.0631 0.0726
1.9784 1.9217
Operative NAV per share at beginning of year
1.8491 1.6829
6.99% 14.19%
ADDITIONAL INFORMATION • ALTERNATIVE PERFORMANCE MEASURES
170
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023
Performance Measure
Definition as reported in
March 2023 Annual Report
Definition as reported in
March 2022 Annual Report Reason for change
Adjusted EPS
Loss after tax excluding Total
Amortisation, Impairment
of Catalogues of Songs,
Depreciation, Catalogue
Bonus Provision, Restructuring
Costs, Foreign Exchange
Losses and Provision for
HSG Advances divided
by weighted average
number of Ordinary Shares
outstanding.
Loss after tax excluding Total
Amortisation, Impairment
of Catalogues of Songs,
Depreciation, Foreign
Exchange Losses and
Provision for HSG Advances
divided by weighted
average number of Ordinary
Shares outstanding.
Catalogue Bonus Provision and
Restructuring Costs are now included
in the Adjusted EPS calculation as
they are liabilities recognised based
on Catalogue performance in the
current year which the Company
doesn’t anticipate will incur at a
material level in future years.
Adjusted
Operating Costs
less Interest
Expense
Operational expenses
less Total Amortisation,
Impairment, Depreciation,
Catalogue Bonus Provision,
Restructuring Costs, Foreign
Exchange Losses, Provision
for HSG Advances and
Interest Expense.
Operational expenses
less Total Amortisation,
Depreciation, Impairment,
Foreign Exchange Losses and
Provision for HSG Advances
less Interest Expense.
Catalogue Bonus Provision and
Restructuring Costs are now included
in the Adjusted Operating Costs
less interest calculation as they are
liabilities, and costs not expected to
occur to current year’s levels, in the
current year which the Company
doesn’t anticipate will incur at a
material level in future years.
EBITDA
The Operating loss before
Tax plus Total Amortisation,
Impairment, Depreciation,
Catalogue Bonus Provision,
Restructuring Costs, Foreign
Exchange Losses, Provision
for HSG Advances and
Interest Expense.
The Operating loss before
Tax plus Total Amortisation,
Impairment, Loan Interest,
Depreciation, Foreign
Exchange Losses and
Provision for HSG Advances
Catalogue Bonus Provision and
Restructuring Costs are now excluded
from the EBITDA calculation as they
are liabilities recognised based on
Catalogue performance outside
of the operating activities of the
Company which the Company
doesn’t anticipate will incur at
a material level in future years.
Leveraged Free
Cash Flow
Net Cash from Operating
Activities less interest paid,
acquisition related balances
and foreign exchange losses.
Net Cash from Operating
Activities less Purchase of
Fixed Assets.
To provide increased clarity to
investors that interest is considered to
be a levered payment. The purchase
of fixed assets is not significant to
the calculation and was removed.
The calculation disclosure has been
expanded to include Acquisition
related balances and the impact
of Foreign Exchange to provide
clarity to investors on the Company’s
calculation methodology of
Leveraged Free Cash Flow.
Non recurring
administrative
expenses
Non recurring expenditure
included within operating
expenses.
Exceptional costs included
within legal and professional
and listing fees plus Aborted
deal expenses plus interest
costs.
Non recurring expenditure in the
current year is included throughout
operating expenses and is not
isolated to legal and professional
and listing fees. Interest costs have
been removed from the calculation
as this calculation seeks to present
the leveraged free non-recurring
administrative expenses.
Change in definitions on Alternative
Performance Measures
ADDITIONAL I NFORMATION
ADDITIONAL INFORMATION
171
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023
“Administrator” means Ocorian Administration
(Guernsey) Limited;
“Admission” means admission, on 11 July 2018,
to trading on the SFS of the London Stock Exchange,
of the Ordinary Shares becoming effective
in accordance with the Listing Rules and/or the LSE
Admission Standards and on 25 September 2019
to a Premium Listing on the Main Market;
“AEOI” means Automatic Exchange of Information;
“AIC” means the Association of Investment Companies;
“AIC Code” means the AIC Corporate Governance
Code 2019;
“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 financial 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;
“Audit Committee” or “Audit and Risk Management
Committee” menas a formal committee of the Board
with defined 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 five 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
five day period);
“B” is weighted average of the number of Ordinary
Shares in issue (excluding any Shares held in treasury)
at the end of each day during that month;
“C” is the average of the middle market quotations
of a class of C Shares in issue for the five 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 five 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;
“C Shares” means a temporary and separate class
of shares which are issued at a fixed price determined
by the Company;
“Catalogue” means one or more Songs acquired from
a single Songwriter, artist or company;
“CBS” means the US commercial broadcast television
and radio network;
“CD” means compact disc;
“Closing Market Capitalisation” 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;
“CMO” means Collection Management Organisation.
A CMO is appointed by copyright holders to manage
both the mechanical and performance rights in their
copyright works;
“Companies Law” means the Companies
(Guernsey) Law, 2008;
“Company” means Hipgnosis Songs Fund Limited.
References to the Company are also considered to be
references to the Group, where applicable;
“Company Secretary” means Ocorian Administration
(Guernsey) Limited;
“Consolidated Financial Statements” means the
audited financial statements of the Company, including
the Statement of Financial Position, the Statement
of Comprehensive Income, the Statement of Cash Flows,
the Statement of Changes in Equity and associated notes;
“Continuation Vote” means the ordinary resolution that
the Company continues its business as a closed-end
investment company;
“Conversion” means the conversion of C Shares
to Ordinary Shares;
“Copyright Royalty Board” or “CRB” means the
US Copyright Royalty Board;
“Corporate Brokers” means Singer Capital Markets
Advisory LLP, J.P. Morgan Securities plc and RBC
Europe Limited;
“Covid-19” means the global coronavirus pandemic;
Glossary of Capitalised Defined Terms
ADDITIONAL I NFORMATION
172
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023
“DCF” means discounted cash flow;
“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;
“Distributable Revenues” means profit after tax
attributable to the Company’s revenue activities;
“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;
“EU” means European Union;
“Fair Value” means the fair value as calculated by the
Portfolio Independent Valuer;
“FCA” means the UK Financial Conduct Authority (or its
successor bodies);
“FRC” means the UK Financial Reporting Council;
“FSMA” means the UK Financial Services and
Markets Act 2000;
“GFSC” means the Guernsey Financial
Services Commission;
“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;
“HSG” means Hipgnosis Songs Group, which was
rebranded from Big Deal Music Group (BDM)
on acquisition;
“IAS” means international accounting standards
as issued by the Board of the International Accounting
Standards Committee;
“IFPI” means International Federation of the
Phonographic Industry which measure global recorded
market revnues;
“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;
“Interim Report” means the Company’s half yearly
report and unaudited condensed consolidated financial
statements for the period ended 30 September;
“Investment Adviser” means Hipgnosis Song
Management Ltd, formerly The Family (Music) Limited;
“Investment Advisory Agreement” means the
investment advisory agreement dated 27 June 2018,
as amended, between Hipgnosis Song Management
Ltd, formerly known as The Family (Music) Limited, the
Company and its subsidiaries;
“Investment Entity” means an entity whose business
purpose is to invest funds solely for returns from capital
appreciation, investment income or both;
“IPO” means the initial public offering 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
Identification Number;
“ISWC” means International Standard Musical Work
Code. It is a unique, permanent and internationally
recognised reference number for the identification
of musical works;
“Kobalt” means Kobalt Music Copyrights S.à.r.l.;
“Kobalt Fund 1” means a portfolio of 42 Catalogues
acquired in September 2020, from Kobalt Music
Copyrights S.à.r.l., an investment fund advised by Kobalt
Capital Limited;
“Letter of Direction” means a document sent by the
current copyright owner or the recipient of music royalties
to the Publisher, Record company or Collection Society
requesting a re-direction of royalties to be paid. It is sent
from the current owner/recipient who is selling the assets,
directing that all future payments should go to the buyer
of the assets;
“LIBOR” means the London Interbank Offered Rate
the basic rate of interest used in lending between
banks on the London interbank market and also used
as a reference for setting the interest rate on other loans;
“Listing Rules” means the Listing Rules made by the UK
Listing Authority under section 73A FSMA;
“Live” means publishing revenue derived from the live
performance of music copyrights at concerts;
“London Stock Exchange” or “LSE” means London
Stock Exchange Plc;
“MAR” means EU regulation 596/2014 on market abuse;
ADDITIONAL INFORMATION • GLOSSARY OF CAPITALISED DEFINED TERMS
ADDITIONAL INFORMATION
173
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023
“Master Recording royalties” aka “Recording
Royalties” mean royalties that are generated
on behalf of a sound/master recording. This is the
most basic royalty performing artists and labels earn
when their master recording is downloaded, physically
bought, or streamed;
“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 Dollars;
“Neighbouring Rights Income” is the payment to the
recording artist or performer for the public performance
usage related to the Master Recording;
“Net Asset Value” or “NAV” means the value of the
assets of the Company less its liabilities as calculated
in accordance with the Company’s valuation policy and
expressed in Dollars;
“Net revenue” or “NPS” means Net Publisher Share and
refers to revenue collected by Publishers from PROs, net
of contractual royalties due to writers i.e. deductions for
administration and publishing fees;
“NFT” means Non Fungible Token;
“Nomination Committee” means a formal committee
of the Board with defined terms of reference;
“Operative NAV” means NAV as adjusted for the 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 Fee Shares” means Ordinary
Shares issued to the order of the Investment Adviser
in accordance with the performance fee arrangements
in the Investment Advisory Agreement;
“Performance Rights 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 of the Board
which approves all purchases of Catalogues of Songs;
“Portfolio Independent Valuer” means Citrin
Cooperman Advisors LLC, formerly Massarsky Consulting,
Inc., appointed by the Board to independently value the
Company’s Catalogues within the Portfolio;
“Portfolio Administrator(s)” means portfolio
administrators appointed by the Company in order
to assist with the administration of the Portfolio;
“Premium Listing” means a Premium Listing on the Main
Market of the London Stock Exchange;
“Premium / Discount to Operative NAV” means the
situation where the Ordinary Shares of the Company
are trading at a price higher / lower than the Company’s
Operative NAV;
“Prospectus” means the most recent prospectus issued
by the Company unless the context refers to a version
of the prospectus published at an earlier date;
“Pro Forma Annual Revenue” or “PFAR” – Pro Forma
Annual Revenue (PFAR) is a non IFRS measure and
represents the royalty revenue earned in a 12-month
period by the Portfolio of Songs held by the Company
at a specific date, largely based on royalty statements
received, irrespective of whether the songs were owned
by the Company over the period analysed. This is unlike
IFRS 15 revenue which is accounted for from acquisition
date and PFAR doesn’t include any revenue accruals
as these are accounted for under IFRS;
“Public Performance” means revenue generated
from licenses for the right to play music publicly
in a commercial environment e.g. shops, bars,
restaurants and shopping malls;
“Publishing Share” means the share of the rights
in a music composition (lyrics and/or music) which
generate Mechanical and Performance royalties.
In the UK, “blanket licences” are issued to organisations
including radio and TV;
“RCF” means the Revolving Credit Facility arranged from
City National Bank, as Lead Arranger;
“RCIS Rules” means the Registered Collective
Investment Scheme Rules 2015;
ADDITIONAL INFORMATION • GLOSSARY OF CAPITALISED DEFINED TERMS
174
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023
“Record Labels” means a company that owns,
distributes and promotes musical recordings;
“Recording Academy” means a US academy
of musicians, producers, recording engineers and other
musical professionals;
“Registrar” means Computershare Investor Services
(Guernsey) Limited;
“Remuneration Committee” means a formal
committee of the Board with defined terms of reference;
“Revenue activities” means all revenues generated
from the Company's principal activities which is investing
in and managing music copyrights and associated
musical intellectual property;
“RIAA” means Recording Industry
Association of America;
“Right To Income” or “RTI” means a right to income
recognised as part of the Catalogue acquisition,
which is typically dependent on the timing of the
negotiations and relates to royalty income paid over
to the Company on closing of the acquisition and the
accrued receivables. The right to income related to the
period before the start of the financial year is now
defined as “Pre-FY (RTI)”; the portion of RTI that falls
within the Financial Year is now defined as “Within FY,
pre-acq (RTI)”;
“Sacem” – Société des auteurs, compositeurs et éditeurs
de musique, the French Collection Society;
“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;
“SOFR” means the Secured Overnight Financing Rate,
a benchmark interest rate for dollar-denominated
derivatives and loans;
“Song” means a Songwriter’s and/or publisher’s
share of copyright interest in a song, being a musical
composition of words and/or music and the Songwriter’s
proportion of the publishing rights of a single musical
track, and when construction permits, the collection
of words and/or music as purchased by consumers;
“Song Management” Active Management of the
placing of songs in Films, TV Adverts, TV Programs, Video
Games and Streaming playlists also including promoting
the Interpolation of our songs by new Songwriters and
Covers of our songs by new artists;
“Streaming” means performance and Mechanical
royalties for digitally playing music in real-time, for
example through Spotify;
“Synchronisation” or “Synch” means royalties for
playing music in connection with visual media (for
example Film, TV, advertisements);
“The MLC” is a collection society designated by the
U.S. Copyright Office, that since January 2021 has begun
administering blanket mechanical licenses to digital
service providers in the United States, and then paying
out the royalties collected;
“TV” means television;
“UK” or “United Kingdom” means the United Kingdom
of Great Britain and Northern Ireland;
“UK Code” means The UK Corporate Governance Code
2019 as published by the Financial Reporting Council;
“UKLA” means UK Listing Authority;
“US” or “United States” means the United States
of America, its territories and possessions, any state of the
United States and the District of Columbia;
“Usage Accrual” the Usage Accrual is an element
of the revenue accrual to recognise the estimated
revenue at the point at which usage is expected
to occur;
“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 US video-sharing website;
“£” or “Pounds Sterling” or “Sterling” or “GBP” means
British pounds sterling and “p” or “pence” means
British pence;
“$” or “USD” or “Dollar” or “Dollars” means
United States dollars and “cents” means United
States cents; and
“€” or “EUR” is the currency of the majority of member
states of the EU.
ADDITIONAL INFORMATION • GLOSSARY OF CAPITALISED DEFINED TERMS
ADDITIONAL INFORMATION
175
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023
Directors and General Information
Company Registration Number: 65158
Board of Directors
Andrew Sutch, Chair
Paul Burger, Senior Independent
Director
Andrew Wilkinson
Simon Holden
Sylvia Coleman
Vania Schlogel*
* Resigned 30 April 2023
Founder
Merck Mercuriadis
Advisory Board
Nile Rodgers
The-Dream
Giorgio Tuinfort
Starrah
David A. Stewart
Poo Bear
Bill Leibowitz
Ian Montone
Rodney Jerkins
Investment Adviser
Hipgnosis Song Management
Merck Mercuriadis, Chief
Executive Officer
Ben Katovsky, President & Chief
Operating Officer
Chris Helm, Chief Financial
Officer, on behalf of SONG
United House
9 Pembridge Road
Notting Hill
London W11 3JY
www.hipgnosissongs.com
Registered Office
PO Box 286
Floor 2
Trafalgar Court
Les Banques
St Peter Port
Guernsey GY1 4LY
Administrator and
Company Secretary
Ocorian Administration (Guernsey)
Limited
PO Box 286
Floor 2
Trafalgar Court
Les Banques
St Peter Port
Guernsey GY1 4LY
Corporate Brokers
Singer Capital Markets Advisory LLP
1 Bartholomew Lane
London EC2N 2AX
J.P. Morgan Securities plc
25 Bank Street
Canary Wharf
London E14 5JP
RBC Europe Limited
100 Bishopsgate
London EC2N 4AA
Independent Auditor
PricewaterhouseCoopers Cl LLP
Royal Bank Place
1 Glategny Esplanade
St Peter Port
Guernsey GY1 4ND
Music Specialist Legal
Counsel
Bill Leibowitz
271 Madison Avenue
20th Floor
New York
New York 10016
Legal Advisers to the Company
Herbert Smith Freehills LLP
Exchange House
Primrose Street
London EC2A 2EG
Legal Advisers to the Company
as to Guernsey Law
Ogier (Guernsey) LLP
Redwood House
St Julian’s Avenue
St Peter Port
Guernsey GY1 1WA
Principal Banker
Barclays Bank PLC
PO Box 41
Le Marchant House
St Peter Port
Guernsey GY1 3BE
Registrar
Computershare Investor Services
(Guernsey) Limited
1st Floor
Tudor House
Le Bordage
St Peter Port
Guernsey GY1 1DB
Identifiers
ISIN: GG00BFYT9H72
Ticker: SONG
SEDOL: BFYT9H7
Website: www.hipgnosissongs.com
LEI: 213800XJIPNDVKXMOC11
GIIN: 5XGPC8.99999.SL.831
Managing your account online
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:
www-uk.computershare.com/investor
You’ll need your Investor code (IVC)
printed on your share certificate in order to
register.
ADDITIONAL I NFORMATION
176
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023
In recent years investment related scams have become
increasingly sophisticated and difficult to spot. We are
therefore warning all our Shareholders to be cautious
so that they can protect themselves and spot the
warning signs.
Fraudsters will often:
• contact you out of the blue
• apply pressure to invest quickly
• downplay the risks to your money
• promise tempting returns that sound
too good to be true
• say that they are only making the offer
available to you
• ask you to not tell anyone else about it
You can avoid investment scams by:
• Rejecting unexpected offers – Scammers usually
cold call but contact can also come by email, post,
word of mouth or at a seminar. If you have been
offered an investment out of the blue, chances are it’s
a high-risk investment or a scam.
• Checking the FCA Warning List – Use the FCA
Warning List to check the risks of a potential
investment. You can also search to see if the firm
is known to be operating without proper FCA
authorisation.
• Getting impartial advice – Before investing get
impartial advice and don’t use an adviser from the
firm that contacted you. If you are suspicious, report it.
• You can report the firm or scam to the FCA by
contacting their Consumer Helpline on 0 8 0 0 111 676 8
or using their online reporting form.
• If you have lost money in a scam, contact Action
Fraud on 0300 123 2040 or www.actionfraud.police.uk.
For further helpful information about investment scams
and how to avoid them please visit www.fca.org.uk/
scamsmart
Advice to Shareholders
ADDITIONAL I NFORMATION
Cautionary Statement
The Chair’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 Chair’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 identified 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 historical facts. They appear in a number of places throughout this document and include statements
regarding the intentions, beliefs or current expectations of the Directors and the Investment Adviser, concerning, amongst other things, the investment objectives and
investment policy, financing strategies, investment performance, results of operations, financial condition, liquidity, prospects, and distribution policy of the Company and
the markets in which it invests.
By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future.
Forward-looking statements are not guarantees of future performance.
The Company’s actual investment performance, results of operations, financial condition, liquidity, distribution policy and the development of its financing strategies
may differ materially from the impression created by the forward-looking statements contained in this document.
Subject to their legal and regulatory obligations, the Directors and the Investment Adviser expressly disclaim any obligations to update or revise any forward-looking
statement contained herein to reflect any change in expectations with regard thereto or any change in events, conditions or circumstances on which any statement is
based.
Hipgnosis Songs Fund Limited
PO Box 286, Floor 2, Trafalgar Court, Les Banques, St Peter Port, Guernsey GY1 4LY
Further information available online: www.hipgnosissongs.com
ADDITIONAL INFORMATION
177
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023
Hipgnosis Playlists
Hipgnosis
Billion Streamers
Apple Music Spotify
Hipgnosis
Rolling Stones’ 500 Greatest Songs of All Time
Apple Music Spotify
Hipgnosis
YouTube’s Most Viewed Music Videos of All Time
Apple Music Spotify
Superstars, Super Tours
Taylor Swift
Apple Music Spotify
Beyoncé
Apple Music Spotify
ADDITIONAL I NFORMATION