Hipgnosis Songs Fund Limited
Annual Report
For the year ended 31 March 2022
Hipgnosis Songs Fund Limited Annual Report For the year ended 31 March 2022
2
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2022
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
15 Investment Adviser’s Report
36 The Advisory Board
38 Financial Review
47 Our Market
52 Our Purpose, Business Model,
Culture and Values
58 Our Objective, Strategy and
Investment Policy
63 Our Resources and Relationships
68 The Hipgnosis Song Management
Team
69 Our Senior Management Team
70 Our Principal Risks and Uncertainties
74 Key Statements
74 Viability Statement
76 Going Concern
76 Section 172(1) Statement
GOVERNANCE
78 Chair’s Introduction
79 Compliance Statement
80 Application of AIC Code Principles
84 Board Leadership and Company
Purpose
86 Division of Responsibilities
90 Composition, Succession and
Evaluation
91 Board of Directors
94 Report of the Nomination
Committee
97 Audit, Risk and Internal Control
98 Report of the Audit and Risk
Management Committee
104 Report of the Management
Engagement Committee
106 Report of the Portfolio Committee
108 Directors’ Remuneration Report
111 Report of the Directors
115 Directors’ Responsibilities
Statement
INDEPENDENT AUDITOR’S REPORT
117 Independent Auditor’s Report
FINANCIAL STATEMENTS
126 Consolidated Statement
of Profit and Loss
127 Consolidated Statement
of Comprehensive Income
128 Consolidated Statement
of Financial Position
129 Consolidated Statement
of Changes in Equity
130 Consolidated Statement
of Cash Flows
131 Notes to the Consolidated
Financial Statements
ADDITIONAL INFORMATION
164 Alternative Performance
Measures
166 Glossary of Capitalised
Defined Terms
170 Directors and General
Information
171 Corporate Summary
172 Advice to Shareholders
173 Hipgnosis Playlists
CASE STUDY
20 Bringing Songs Back
to Life: Talking to the
Moon, by Bruno Mars
SUPERSTARS • SUPER SONGS
13 Mariah Carey
14 Beyoncé/Destiny’s Child
33 Ariana Grande
34 Ed Sheeran
46 Lady Gaga
51 Ha rr y St yl es/One D irec ti on
56 Enrique iglesias
61 Justin Bieber
62 Bruno Mars
STRATEGIC REPORT
3
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2022
Introduction From Merck Mercuriadis
STRATEGIC REPORT
Introduction and overview
When I started Hipgnosis four years ago, no one could
have predicted where we would be today.
Despite the challenges the world has faced due to the
COVID-19 pandemic and macroeconomic conditions
that have ensued, Hipgnosis, and our investment thesis,
has not only been proven by these challenges, but after
an incredible 2021/2022 is in its most exciting position yet.
With proven Songs firmly established as an asset class,
no investment portfolio is truly complete without at
least some exposure to the predictable, reliable and
uncorrelated revenues they generate.
In 2021/2022, the music industry has gone from strength
to strength. We have seen a continued acceleration of
the adoption of paid for Streaming. Global Streaming
revenue growth rates of 24.3% in 2021 exceeded all
expectations (IFPI). This led Goldman Sachs to further
increase their forecast Streaming revenue growth
rates to 12% per annum for the rest of the decade in
their updated 2022 gold standard Music In The Air
report. There are now 523 million users of paid music
subscription services globally and the market is well on
its way towards 2 billion in the coming decade.
Technological innovation has also continued to create
new ways of consuming and monetising music. Emerging
technologies such as TikTok, Roblox, Social Media and
Peloton not only have provided additional revenue
streams to copyright owners such as Hipgnosis, but have
also created a platform where we can introduce great
hit songs from the past to new generations of listeners.
Music Performance income recovered strongly from
the impact of various global COVID-19 lockdowns in
2021. Live music venues are full, and booked into 2024,
whilst bars, pubs and restaurants have reopened and
are playing music again. As a result, industry experts are
expecting a near complete recovery in Performance
income in 2022.
During COVID-19, Hipgnosis’ resilience against the
challenging market proved the reliability of our income.
In the second half of our fiscal year 2021/2022, as most
global restrictions have eased and market growth has
returned, we have now also shown that our acquisition
strategy and disruptive Song Management approach
leaves us well positioned to outperform. Our strategy to
acquire only the most successful and culturally important
Songs, including 67 of the 271 Songs that have been
played over 1 billion times on Spotify, has delivered like-
for-like Streaming growth of 19% in the second half of our
fiscal year alone.
This Streaming growth outperformed our Independent
Valuer’s expectations, and together with the first time
recognition of the value of revenue generated from
the now established digital lifestyle platforms that have
4
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2022
emerged, led to an annual increase in our Operative
NAV of 9.9% to $1.8491 per share.
Providing uncorrelated income has always been an
important part of our thesis. However, from inception,
we have emphasised that even more significantly, the
opportunity for value growth would deliver an exceptional
total shareholder return. This period’s Operative NAV
growth is an important step on that journey, which will
be fully delivered as paid-for subscriptions continue to
grow and the utility-like income this produces becomes
recognised and valued by investors globally.
Together with our fully cash-covered dividends of
5.25p per share, we have delivered a Total NAV Return
for the 12-months ending 31 March 2022 of 14.2% to
our Shareholders. This takes our Total NAV Return since
inception four years ago to 59.1%.
These returns would not have been possible without our
responsible approach to Song Management which has
the resource and bandwidth to manage great Songs to
their full potential and add significant value.
This year our Song Management team has had
some great successes placing our songs in films,
television shows and adverts; we have worked with
our Songwriters, producers and artists to maximise the
impact of anniversaries and milestones of culturally
important releases; fixed copyright breakages to deliver
new revenues to Hipgnosis which were never built
into our forecasts at the time of acquisition; as well
as negotiated and moved catalogue administration
deals, ensuring we get paid faster while being charged
lower administration fees. In July 2022, we have taken
this one-step further, announcing a ground breaking
new direct administration agreement with Sacem, the
French PRO. Under this first-of-its-kind deal, Sacem will
directly collect and pay digital rights for writers’ share,
primarily in the UK and the EU, eliminating a link in the
royalty collection process. This will materially reduce
third party administration and collection fees and the
length of time it takes to collect digital revenues.
Most notably however, our Song Management team
has continued to embrace new technologies to
promote our incredible songs to new audiences. TikTok
has become an increasingly important channel, with
over 1 billion active users, and has the capacity to
introduce our iconic songs to a new younger audience,
deepen the engagement of a Song and bring hit Songs
back into the mainstream all over again, extending their
life for generations to come. Our team has believed
in the potential of TikTok for a number of years and
focused on using this platform to promote our Songs.
We now have over 2.1 million followers across our TikTok
accounts, well above most traditional publishers, and
have helped deliver huge viral successes for our iconic
Songs. Our early commitment to emerging platforms
such as TikTok positions Hipgnosis perfectly to benefit
from the expected rise in revenues from these emerging
platforms, which are predicted to be as much as 12% of
global music revenues by 2030 from 5% today.
I can’t talk about 2021/2022 without discussing the
progress made in our ulterior motive: to use the
influence of Hipgnosis and our great Songs to be a
catalyst to change where the Songwriter sits in the
economic equation, for the benefit of the Songwriting
community and our Shareholders. When a Catalogue
is acquired our Shareholders sit directly in the shoes of
the Songwriter so there is complete alignment between
the Songwriting community and our Shareholders. This is
unique, as what’s in the best interest of the Songwriters
is also in the best interest of the Company.
The Song is the currency of our business; without the
Song we simply have no music business. Yet for too
long the songwriter – who delivers the most important
component to the success of a record company, digital
service provider, music merchandiser, live promoter
etc. – is the lowest paid person. We aim to take the
Songwriter from the bottom to the top of the economic
equation and our advocacy on this issue, including with
the UK Department for Digital, Culture, Media and Sport
(DCMS), the Competition and Markets Authority (CMA)
and the US Copyright Royalty Board (CRB), is being
felt at every level and is not only gaining support but
provoking real thought and change.
Most importantly, we have helped deliver the
recent decision of the US Copyright Royalty Board
(CRB) to disallow the appeal by various Streaming
services against the CRB III determination to increase
mechanical Streaming royalty rates for songwriters and
publishers. We still have plenty of room for improvement
before we have a rate that’s genuinely fair and
equitable but this is an important step on the road to
finally, properly recognising the value that Songwriters
bring to the industry and the lives of the billions of
people all over the world who rely on great songs to
enrich their lives. The CRB delivered a strong message
STRATEGIC REPORT • INTRODUCTION FROM MERCK MERCURIADIS
STRATEGIC REPORT
5
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
Castle On The Hill
• Ed Sheeran • Benny Blanco
Closer (feat. Halsey) *
†
• The Chainsmokers • The Chainsmokers,
Isaac Slade, Joe King
Cold Water (feat. Justin Bieber & MØ)
• Major Lazer • Benny Blanco, Jamie Scott
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)
• Nathan (Happy) Perez
Galway Girl
• Ed Sheeran • Johnny McDaid
Girls Like You (feat. Cardi B)
†
• Maroon 5 • Starrah
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
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 The Way You Are
• Bruno Mars • Ari Levine
Lean On (feat. DJ Snake & MØ)
†
• Major Lazer, MØ, DJ Snake
• Martin Bresso
Let Me Love You (feat. Justin Bieber)
†
• DJ Snake • Andrew Watt
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
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
Payphone
• Maroon 5 • Ammar Malik
Photograph *
†
• Ed Sheeran • Johnny McDaid
Rockabye (feat. Sean Paul &
Anne-Marie)
• Clean Bandit • Ammar Malik
Scared to Be Lonely
• Martin Garrix, Dua Lipa
• Giorgio Tuinfort, Kyle Shearer
Señorita *
†
• Shawn Mendes, Camila Cabello
• Andrew Watt
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
Stitches
†
• Shawn Mendes • Teddy Geiger
Sugar
†
• Maroon 5 • Jacob Kasher Hindlin
Symphony (feat. Zara Larsson)
• Clean Bandit • Ammar Malik
Titanium (feat. Sia)
• David Guetta, Sia • Giorgio Tuinfort
The Middle
• Zedd, Maren Morris, Grey
• Stefan Johnson, Jordan K. Johnson
There's Nothing Holdin’ Me Back
†
• Shawn Mendes • Teddy Geiger,
Scott Harris
Treat You Better
†
• Shawn Mendes • Teddy Geiger,
Scott Harris
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
WHEN I WAS YOUR MAN
• Bruno Mars • Ari Levine
Without Me
• Halsey • Timbaland
Wolves
• Selena Gomez, Marshmello
• Andrew Watt
Young Dumb & Broke
• Khalid • Joel Little
Young, Wild & Free (feat. Bruno Mars)
• Snoop Dogg, Wiz Khalifa • Ari Levine
Youngblood
†
• 5SOS • Andrew Watt
When I Was Your Man
• Bruno Mars • Ari Levene
Spotify’s Billions Club
Hipgnosis has 67 out of 271 Songs
that by June 2022 had surpassed the
Billion Streams mark on Spotify
Song Title • Artist(s) • Hipgnosis contributor(s)
Over 2 billion streams † 100 most-streamed songs on Spotify
Source: Spotify, 8 July 2022
The Chainsmokers
6
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2022
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
STRATEGIC REPORT
7
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2022
not only to the digital service providers like Spotify
but also to the recorded music companies about
the importance of the Songwriter in our industry. We
congratulate all of the incredible Songwriters that have
entrusted us with their incomparable Songs, as well as
each and every songwriter that goes to work each day
to write great songs and make the world a better place.
This is a victory for all of you. We are prepared for CRB
IV and the challenges it will bring and we will advocate
and fight on behalf of the Songwriting community and
our investors until we have a fair and equitable result.
In October 2021, the Investment Adviser (Hipgnosis Song
Management, formerly known as The Family (Music) Ltd),
was appointed to act for a second fund (Hipgnosis
Songs Capital, which invests funds managed by the
global alternative investment manager, Blackstone).
Additionally, Blackstone has taken an ownership stake
in the Investment Adviser.
We see this investment as a major vote of confidence
for Hipgnosis Songs Fund, Hipgnosis Song Management,
the asset class we have established and our
investment strategy. Additionally, the investment that
Blackstone has made has already enabled us to make
considerable additional investment in the Investment
Adviser’s most important capabilities, including data
analysis, investment processes, Song Management and
communications. Hipgnosis Songs Fund Shareholders
will benefit directly from these upgraded capabilities.
Concurrently we worked closely with the Board to
ensure that the interests of the Company’s Shareholders
were fully protected and agreed a comprehensive co-
investment policy. All investment opportunities identified
by the Investment Adviser are offered to both funds on
identical terms with the Board of the Hipgnosis Songs
Fund having a co-investment right to participate in 20%
of any catalogue purchased. This reflects the expected
investment capital available to both funds.
With the Board, we believe that this will enable the
fund to participate in a wider range of purchases than
would have been possible on a standalone basis and
is an arrangement which is beneficial to Shareholders
in Hipgnosis Songs Fund. The Board has not exercised
any co-investment rights to date as prior to the last
equity raise in the summer of 2021, a strategic decision
was taken, in consultation with our brokers and after
discussion with our major Shareholders, that the
Company did not intend to offer further shares for cash
consideration until after publication of the Net Asset
Value per share as at 31 March 2022 which is outlined
in this report. We now hope that the current challenges
facing the markets will settle in due course so that we
can raise new funds and continue to give Hipgnosis
Songs Fund Shareholders access to the incredible
pipeline of iconic songs we have assembled.
Despite the current challenging macro-economic
environment, with expectations of high inflation and
a squeeze on consumer spending, having built an
incomparable portfolio of iconic songs that yield
uncorrelated income we go into 2022/2023 extremely
confident of our growth prospects. Great songs are
not just entertainment; they are the soundtrack of our
lives and people turn to them for comfort and escape
equally in times of hardship as they celebrate with them
in times of prosperity. As a result, music revenues have
been historically uncorrelated to economic conditions,
and we strongly believe that Streaming growth will
continue uninterrupted over the coming years. Streaming
remains the cheapest form of entertainment, provides
one of the highest quality offerings of all entertainment
subscription services, and has low penetration rates
with significant room for growth in both the developed
markets as well as emerging markets. This view is shared
by the leading voices in our industry including Goldman
Sachs, who are forecasting 9% annual global music
revenue growth through to 2030.
Finally, in a period when both global recorded music and
music publishing grew at the fastest rate in history, it’s
important to emphasise that for the first time ever almost
all consumption of Music is now paid consumption.
It remains only for me to thank you for your continued
support and to also thank our Board, led by Chair
Andrew Sutch, and the incredible Songwriters who have
entrusted us with their incomparable Songs.
Best wishes,
Merck Mercuriadis
Founder, Hipgnosis Songs Fund Ltd and
Founder/CEO, Hipgnosis Song Management Ltd.
13 July 2022
STRATEGIC REPORT • INTRODUCTION FROM MERCK MERCURIADIS
8
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2022
Total NAV Return since inception
5
59.05%
(31 March 2021: 40.66%)
Financial and Operational Highlights
Year ended 31 March 2022
As at 31 March 2022, 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 $600 million,
and is fully drawn.
As at 31 March 2022, the Company had deployed approximately $2.2 billion in total
since IPO on 146 Catalogues and 65,413 Songs.
STRATEGIC REPORT
IFRS NAV
2
$1,582.4 million
(31 March 2021: $1,462.8 million)
IFRS NAV per Ordinary Share
$1.3065
(31 March 2021: $1.3628)
Operative NAV
3
$2,239.6 million
(31 March 2021: $1,806.5 million)
Operative NAV per Ordinary Share ($)
$1.8491
(31 March 2021: $1.6829)
Operative NAV per Ordinary Share (p)
4
140.79p
(31 March 2021: 122.50p)
Share Price (Discount/Premium)
6
(14.2)%
(31 March 2021: 2.4%)
12-Month Total NAV Return
14.19%
(31 March 2021: 11.44%)
STRATEGIC REPORT
9
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2022
EBITDA
$129.9 million
(31 March 2021: $106.7 million)
Catalogues acquired during the period
Catalogue Acquisition Date
Interest
Ownership
Total
Songs
Red Hot Chili Peppers 14 Jul 2021 100% 220
Kaiser Chiefs 15 Jul 2021 100% 136
Christine McVie 21 Jul 2021 100% 115
Jordan Johnson 22 Jul 2021 100% 58
Stefan Johnson * 22 Jul 2021 100% 58
Rhett Akins 23 Jul 2021 100% 564
Ann Wilson 29 Jul 2021 50% 152
Elliot Lurie 24 Aug 2021 100% 70
Total Songs acquired during the period 1,315
* Not counted in total song count
1. A number of Alternative Performance Measures are used within the Report and
details can be found on page 164.
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 2022 of 1.31338
5. Since IPO on 11 July 2018. See page 165 for definition.
6. Calculated using the middle market share price (SONG) of 120.80p on
31 March 2022 (31 March 2021: 125.50p).
7. Adjusted EPS excludes Total Amortisation, depreciation, impairments, FX losses and
provision for HSG advances. See page 164 for definition.
Ongoing charges figure (%)
1.58%
(31 March 2021: 1.59%)
Total dividends paid
in respect of the period (p)
5.25p
(31 March 2021: 5.125p)
Net Revenue
$168.3 million
(31 March 2021: $138.3 million)
Leveraged Free Cash Flow
$84.7 million
(31 March 2021: $82.1 million)
EPS (cents)
(1.65)¢
(31 March 2021: 4.72¢)
Adjusted EPS (cents)
7
9.09¢
(31 March 2021: 12.41¢)
10
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2022
Portfolio at a Glance
STRATEGIC REPORT
0
20
40
60
80
100
FY 22FY 21FY 20
Portfolio by age (%)
(based on fair value)
0-3 years
3-10 years
10+ years
Portfolio PFAR* income
by source (%)
Other Income
Digital
Downloads
Mechanical
Producer
Royalties
Masters
Synchronisation
Performance
Streaming
* Pro-Forma Annual Revenue (PFAR)
– see Glossary page
166
† For the 12 months to
0
20
40
60
80
100
Dec 21Jun 21Dec 20
†
Jun 20
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 22FY 21FY 20
Catalogues
146
+8
Songs
65,413
+1,315
+ Change in portfolio since 31 March 2021
Operative NAV
$2.24bn
+$0.43bn
Net Revenue
$168.3m
+22%
Weighted Average
Acquisition Multiple
15.93x
+0.61x
Grammys
156
+5
Number 1s
3,854
+116
Top 10s
14,381
+413
Andrew Sutch, Chair
STRATEGIC REPORT
11
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2022
The Chair’s Statement
Introduction
In our short history,
Hipgnosis Songs Fund
Limited has grown rapidly,
raised £1.3 billion of
equity and invested in
over 65,000 Songs and
nearly 150 Catalogues.
Since inception we have
cumulatively paid 17.69p
per share to Shareholders in
dividends and led the campaign for songwriters to be
rewarded fairly for the crucial contribution they make
not only to the music industry but to our quality of life.
Many individuals and businesses have been impacted
by the COVID-19 pandemic over the last two years.
Remembering those whose lives ended prematurely or
who are suffering the long-term impact of catching the
virus puts into context the challenges which have been
caused to businesses, including the Company, during
that period.
COVID-19 is the first time that the music royalties asset
class has been tested under a stressed situation and I
believe that these results continue to confirm the quality
of earnings that music royalties offer and the robustness
of Hipgnosis’s business model. Today, with venues
reopened, live music returned and concerts resumed,
Hipgnosis is benefitting from the impact of a sustained
recovery.
In October 2021 our Investment Adviser (Hipgnosis Song
Management, formerly known as The Family (Music)
Ltd), was appointed to act for a second fund (Hipgnosis
Songs Capital, which invests funds managed by the
global alternative investment manager, Blackstone).
Additionally, Blackstone has taken an ownership stake
in the Investment Adviser.
Your Board sees this investment as a major vote of
confidence in Hipgnosis Song Management, our asset
class and our investment strategy. Additionally, the
investment that Blackstone has made in the Investment
Adviser has already enabled it to make considerable
additional investment to its core capabilities,
including data analysis, investment processes, Song
Management and communications. Hipgnosis Songs
Fund Shareholders will benefit directly from these
upgraded capabilities.
Whilst welcoming this investment, your Board and the
Investment Adviser were determined to ensure that the
interests of Hipgnosis Songs Fund Shareholders were
fully protected and appropriate governance practices
put in place. All investment opportunities identified by
the Investment Adviser are offered to both funds with
Hipgnosis Songs Fund having a right to participate in
any transaction on identical financial terms to Hipgnosis
Songs Capital, with a right to invest in 20% of any
catalogue purchased.
Your Board believes that this will enable the Company
to participate in a wider range of purchases than would
have been possible on a standalone basis and is an
arrangement which is beneficial to Shareholders in
Hipgnosis Songs Fund. The Board has not exercised any
co-investment rights to date.
Fundraising
In July 2021, Hipgnosis raised £156 million ($215 million)
in a placement. This takes the total amount raised by
the Company in investment to date to £1.3 billion in
equity and $600 million in debt. These recent funds
were used to acquire eight more Catalogues for a total
consideration of c.$265 million, including Red Hot Chili
Peppers and Christine McVie of Fleetwood Mac.
Prior to the July 2021 equity raise, a strategic decision
was taken, in consultation with our brokers and after
discussion with our major Shareholders, that the
Company did not intend to offer further shares for cash
consideration until after publication of the Net Asset
Value per share as at 31 March 2022 (in this report).
During the year, the Company fully drew down on
its $600 million Revolving Credit Facility, taking Net
Debt as at 31 March 2022 to 25.4% of Operative NAV
(31 March 2021: 25.7%). Since the year end, the
Company has experienced an increase in borrowing
costs as a result of rising interest rates. The Board,
together with the Investment Adviser, is in the process
of a review of its leverage structure with a view to
reducing interest rate risk and control costs for the
Company.
Performance
The IFRS Net Asset Value (NAV) per share as at 31 March
2022 was $1.3065 which is a 4.1% decrease from $1.3628
as at 31 March 2021.
STRATEGIC REPORT
12
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2022
The Board considers that the most relevant NAV 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
amortization charge.
The Operative NAV per share increased by 9.9% to
$1.8491 during the year (31 March 2021: $1.6829), which,
when including dividends paid, represents a Total $ NAV
Return of 14.2% for the year and of 59.1% since IPO on
11 July 2018.
Dividends
During the 12-months ended 31 March 2022 the
Company paid a total of 5.25p in interim dividends per
Ordinary Share. Despite the challenges presented by
COVID-19, the cost of these dividends was covered from
leveraged free cashflow.
Since the period end, on 12 May 2022, the Company
declared a further interim dividend of 1.3125p per share
which was paid on 15 June 2022.
The Board’s current intention is to continue to target a
total of 5.25p in interim dividends per Ordinary Share in
relation to the new financial year ending
31 March 2023.
Going forward, the Company intends to better align
dividend payment dates with revenue receipts and to
pay interim quarterly dividends to Ordinary Shareholders
on or around the last working day of October, January,
April and July of each year, with the dividends declared
in the month prior to payment.
The Board
Vania Schlogel joined the Board as an additional non-
executive director on 11 June 2021. Based in the US,
Vania has considerable experience of private equity,
media and entertainment businesses.
I would, once again, like to place on record my thanks
and appreciation to my fellow Directors for their
diligence and dedication over the last year.
In addition, I would like to thank Merck Mercuriadis
and the whole Hipgnosis team for their hard work.
When I visit the office, I get a true sense of their passion
for music and the effort they put in on a daily basis to
ensure that Hipgnosis Songs Fund Limited performs at its
full potential.
AGM
The Annual General Meeting (AGM) of the Company
will be held at 10.00 BST on 21 September 2022 at United
House, 9 Pembridge Road, Notting Hill, London W11 3JY.
Details of the resolutions to be proposed at the AGM,
together with explanations of the AGM arrangements,
are set out in a separate circular which is sent to
Shareholders with this Annual Report. Members of the
Board and the Investment Adviser will be in attendance
at the AGM and will be available to answer Shareholder
questions.
Outlook
The outperformance of our Portfolio, particularly in the
second half of the year, gives us confidence despite
the challenging macro-economic and geo-political
conditions. The unique quality and cultural importance
of the Songs in our Catalogue provide Hipgnosis
with an unparalleled collection of assets, which are
uncorrelated to the macro-economic environment.
The choice, quality and simplicity of Streaming makes
it, we believe, very attractive to a large number of music
consumers and the Board expects this market to continue
growing despite the slow down in global economic
growth, the rise in inflation and the geopolitical stresses
exacerbated by Russia’s invasion of Ukraine.
Music Streaming represents extremely good value to
the consumer; as such we anticipate that it will continue
to be resilient and that the Streaming providers should
retain pricing power for their services, thus helping to
sustain the Company's royalty income.
Together, this enables the Board to have good
confidence for your Company’s future prospects.
Andrew Sutch
Chair
13 July 2022
STRATEGIC REPORT • THE CHAIR’S STATEMENT
SUPERSTARS • SUPER SONGS
Our Great Songwriters have written Iconic Songs for:
Mariah Carey
All I Want For Christmas
Is You
• Walter Afanasieff
We Belong Together
• J. Austin/K. Edmonds
Obsessed
• The-Dream/Tricky Stewart
One Sweet Day (feat. Boyz
II Men)
• Walter Afanasieff
#Beautiful (feat. Miguel)
• Happy Perez
Touch My Body
• The-Dream/Tricky Stewart
O Holy Night
• Walter Afanasieff
Shake It Off
• Johnta Austin
My All/Stay Awhile
• Walter Afanasieff
It’s Like That (feat. Jermain
Dupri & Fatman Scoop)
• Johnta Austin
I Want To Know What Love Is
• Tricky Stewart
Don’t Forget About Us
• Johnta Austin
Bye Bye
• Johnta Austin
Butterfly
• Walter Afanasieff
Miss You Most (At Christmas
Time)
• Walter Afanasieff
Infinity
• Ilsey Juber
Joy to The World
• Walter Afanasieff
Caution
• No I.D.
Hark The Herald Angels
Sing
• Walter Afanasieff
I Don’t (feat. YG)
• Johnta Austin
Jesus Born On This Day
• Walter Afanasieff
H.A.T.E.U.
• The-Dream/Tricky Stewart
Jesus, Oh What A Wonderful
Child
• Walter Afanasieff
Forever
• Walter Afanasieff
Get Your Number (feat.
Jermaine Dupri)
• Johnta Austin
8th Grade
• Poo Bear
When I Saw You
• Walter Afanasieff
The Art Of Letting Go
• Rodney Jerkins
Cruise Control (feat. Damian
Marley)
• Johnta Austin
I Am Free
• Walter Afanasieff
Whenever You Call
• Walter Afanasieff
Candy Bling
• The-Dream
Close My Eyes
• Walter Afanasieff
Fourth Of July
• Walter Afanasieff
Inseparable
• The-Dream/Tricky Stewart
I’m That Chick
• Johnta Austin
Looking In
• Walter Afanasieff
Love Story
• Johnta Austin
Outside
• Walter Afanasieff
Ribbon
• The-Dream/Tricky Stewart
To The Floor (feat. Nelly)
• Nelly
You’re Mine (Eternal) –
Remix (feat. Trey Songz)
• Rodney Jerkins
Inseparable
• Tricky Stewart
Betcha Gon’ Know (the
prologue)
• The-Dream/Tricky Stewart
God Rest Ye Merry,
Gentlemen
• Walter Afanasieff
Makin’ It Last All Night
(What It Do) – Ultra Album
Version (feat. Jermaine
Dupri)
• Walter Afanasieff/Johnta
Austin
More Than Just Friends
• The-Dream/Tricky Stewart
Standing O
• The-Dream/Tricky Stewart
The Impossible
• The-Dream/Tricky Stewart
Do You Think Of Me
• Walter Afanasieff
Lead The Way
• Walter Afanasieff
Up Out My Face
• The-Dream/Tricky Stewart
MARIAH CAREY FEATURES:
TWISTA
So Lonely (feat. Mariah
Carey)
• Rodney Jerkins
THEDREAM
My Love (feat. Mariah Carey)
• The-Dream
Photo by Romain Maurice/Getty Images
STRATEGIC REPORT
13
SUPERSTARS • SUPER SONGS
Our Great Songwriters have written Iconic Songs for:
Beyoncé/
Destiny’s Child
Halo
• Evan Bogart
Run The World (Girls)
• The-Dream
Irreplaceable
• Espionage
Love On Top
• The-Dream
Single Ladies (Put a Ring on It)
(2x GRAMMY®)
• The-Dream/Tricky Stewart
Partition
• The-Dream
XO
• The-Dream
Countdown
• The-Dream
Sweet Dreams
• Rico Love/Wayne Wilkins
Hold Up
• Emile Haynie
End Of Time
• The-Dream
Dance For You
• The-Dream/Tricky Stewart
Upgrade U (feat. Jay Z)
• Sean Garrett
Diva
• Sean Garrett
Listen (From the Motion Picture
“Dreamgirls”)
• Scott Cutler
Party (feat. André 3000)
• Jeff Bhasker
1+1
• The-Dream/Tricky Stewart
Déjà vu (feat. JAY-Z)
• Rodney Jerkins
All Night
• Ilsey Juber
I Care
• Jeff Bhasker
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
• The-Dream/Tricky Stewart
Video Phone (+ Gaga remix)
• Sean Garrett
Video Phone (feat. Lady Gaga)
• Sean Garrett
Hello
• Evan Bogart
Yoncé
• The-Dream
Rather Die Young
• Jeff Bhasker
Flawless
• The-Dream
Radio
• Rico Love
Get Me Bodied
• Sean Garrett
Green Light
• Sean Garrett
Scared Of Lonely
• Rodney Jerkins/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
JAYZ
Lift Off (feat. Beyoncé & Kanye West)
• Jeff Bhasker
JAYZ
Part II (On The Run) (feat. Beyoncé)
• The-Dream
JAYZ
Family Feud ft 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)
• Sean Garrett/Rodney Jerkins
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
Photo by Kevin Winter/Getty Images
14
Merck Mercuriadis, Founder,
Hipgnosis Songs Fund Ltd and
Hipgnosis Song Management Ltd
STRATEGIC REPORT
15
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2022
Investment Adviser’s Report
Over the last four years
we have acquired an
incomparable portfolio of
some of the most successful
and culturally important
Songs of all time, now
valued at $2.7 billion. The
unique strength of our
Catalogue is demonstrated
by the 9.9% increase in the
Operative NAV to $1.8491
per share, as reported by
our Portfolio Independent
Valuer. This is largely driven as a result of our iconic
Songs outstripping the general market growth in
Streaming, particularly in the second half of 2021,
providing validation for our investment strategy.
This Operative NAV growth is an important initial step
in our thesis that the value of Catalogues would re-
rate as Streaming income grows and investors come
to recognise the utility-like income this produces.
Since inception, we have emphasised that not only
would iconic Songs produce uncorrelated income,
but that the most significant element in delivering an
exceptional Shareholder return was the growth in the
value of these Catalogues. We acquired Catalogues
coming off the back of 15 years of piracy that left them
as undervalued assets, being managed by traditional
publishers whose model to manage these Catalogues
was strictly passive and not suited for the incredible
digital opportunities that allow Song Management
to add value in a post-Streaming world. We are now
seeing this growth start to come through as paid-for
subscriptions exceed 500 million globally.
Not only has this delivered consistent double digit
music revenue growth, it has transformed the quality
of earnings that Songs produce. Iconic Songs no longer
generate a single physical sale as a discretionary
purchase, but a repeating utility income stream as
fans go back to these Songs of great importance to
them in good and bad times, over and over. You pay
your tenner a month and you can push play as often
as you like and iconic Songs win out. This is starting
to be recognised by investors globally, with some of
the largest private equity investors starting their own
music funds in the last year, including the private fund
Hipgnosis Song Management has with Blackstone. This
is not only a validation of our thesis, but importantly
increased competition for access to a limited number
of iconic Catalogues will re-rate prices and deliver
further NAV growth to our Shareholders.
On top of this, our disruptive Song Management is
built around the Streaming paradigm, focused on
managing and promoting our great hit Songs of the
past which have high demand rather than focusing
on promoting continuous new releases with no track
record. There will never be another Good Times by Chic,
Sweet Dreams (Are Made Of This) by Eurythmics, Heart
of Glass by Blondie, Shape Of You by Ed Sheeran, Heart
Of Gold by Neil Young, Under The Bridge by Red Hot
Chili Peppers, Let’s Stay Together by Al Green or Don’t
Stop Believin’ by Journey. In a month when Kate Bush’s
1985 hit Running Up That Hill reached Number 1 in the
UK singles chart, it is proven that these vintage iconic
Songs can be introduced to and will resonate with new
younger audiences. This increases their consumption
and lifespan to deliver further growth in their income
and value.
Market
2021/2022 has been another strong year for the music
industry. According to the IFPI, global recorded music
revenues grew by an impressive 18.5% year-on-year to
$25.9 billion in 2021, driven in large part by a continued
acceleration in the adoption in paid for Streaming.
523 million subscribers globally now pay for music, up
from 35 million in the US when we started four years ago.
Streaming now contributes about 65% of global industry
revenues, firmly establishing music as a utility income stream.
Whilst Streaming growth is not a new story, 2021/2022
saw some Streaming providers increase certain
subscription prices in test markets. These price increases
led to Spotify’s first increase in Average Revenue Per
User (ARPU) for five years, supporting our view that the
DSPs have pricing power.
This strong Streaming market is reflected in these annual
results, with 19% like-for-like Streaming PFAR growth in
the second half of 2021 in our Portfolio compared with
the first half of 2021, as shown in the PFAR analysis within
the Financial Review.
Streaming remains an extremely attractive consumer
proposition: it has the lowest pricing, provides the
highest quality and depth of content and the highest
level of interaction of all entertainment subscription
offerings. With music revenues historically proven to be
uncorrelated to consumer spending, and relatively low
STRATEGIC REPORT
16
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2022
penetration rates in both developed and emerging
markets, we continue to believe that this affordability
and convenience of Streaming will continue to grow
global subscriptions and revenues strongly. This view
is shared by leading industry experts, who have in the
last month upgraded global Streaming revenue growth
forecasts, despite the current macro-economic conditions.
Emerging platforms, such as TikTok, Triller and Twitch,
also continue to be an increasingly important part of
the music industry. TikTok, which few of us had heard
of when we launched Hipgnosis in 2018, now has over
1 billion active users and is delivering a new revenue
stream to copyright owners. Record companies and
publishers, who have a shorter time lag on receiving
income than Hipgnosis, received material revenues
from these platforms in 2021. Due to this time lag,
Hipgnosis received almost no revenue from these
platforms in 2021/22, despite them contributing 5% of
global music industry revenues in 2021. The continued
emergence and increasing popularity of these new
platforms is expected to drive strong growth, with
revenues predicted to hit 12% of industry revenues by
2030. We expect material TikTok revenues to be paid
through to us in this current financial year.
Performance income for the market has shown a strong
recovery, driven by the re-opening of bars, shops and
restaurants as well as the return to live performances.
Live Nation has said it experienced its “best first quarter
ever” for 2022. Based on what we are seeing, we share
the view of the industry experts, our Portfolio Independent
Valuer (Citrin Cooperman Advisors LLC, formerly
Massarsky Consulting Inc.) of a near complete recovery
in performance income in the next financial year.
Due to the time lag in collecting income as an IP owner,
which is the time between the consumption of Songs
and the royalty statements being processed, we have
only just started to see the effects of the recovery of
performance income, with a 9% like-for-like PFAR growth
for the second half of 2021 and we expect to see more
growth in the next financial year.
Overall, we remain very positive, with the global music
Streaming market size expected to reach $103.07 billion
by 2030, a CAGR of 9%.
Finally, and possibly most importantly for Hipgnosis,
there is a continued shift in music consumption towards
Catalogue music (defined by the industry as older than
18 months). Catalogue music reached 75% of all music
consumption in the US in 2021, up from 55% in 2016.
With our Portfolio comprised almost entirely of songs
older than 18 months we are well placed to continue
to benefit from this shift, especially when almost all
consumption of music is paid consumption, a marked
contrast to even five years ago when so much music
consumption was still illicit.
Our Portfolio
Proven hits and culturally important Songs are the
heart of our portfolio and the soundtrack of our lives.
They enjoy high levels of Streaming and are played
on the radio, on TV, in adverts and heard at so many
moments in our everyday lives including our commutes,
exercise, video games, social media etc. We listen to
them in times of celebration and reach for them when
we are seeking comfort. As a result, they deliver high
levels of reliable income over their long life cycle, which
historically has been shown to be uncorrelated to
macroeconomic conditions and consumer spending.
This was demonstrated during the COVID-19 pandemic
where income has been resilient, and able to support a
fully cash covered dividend.
We manage these great Songs to enhance their
legacy, introduce them to new audiences, which
creates value for our Shareholders and reinforces their
cultural significance in a virtuous circle. We also
acquire a select group of the most important younger
Songs that are already culturally significant and show
the highest levels of success in the Streaming market.
These Songs are able to deliver exceptional Streaming
growth as shown in their outperformance in the second
half of the year.
Hipgnosis has bought an incomparable portfolio
of iconic Songs demonstrated by co-owning:
• 67 out of 271 Songs in Spotify’s Billions Club,
• 52 of Rolling Stone’s The 500 Greatest Songs of All Time
• 13 of the Top 30 YouTube’s Most Viewed Music Videos
of All Time
• 3,854 Songs that have held Number 1 positions in
global charts
• 14,381 Songs that have held Top 10 positions in
global chart
• 156 Grammy award winning Songs
STRATEGIC REPORT • INVESTMENT ADVISER’S REPORT
STRATEGIC REPORT
17
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2022
Over the last year, Hipgnosis Songs Fund Ltd closed
eight acquisitions, including Red Hot Chili Peppers,
Christine McVie of Fleetwood Mac, Rhett Akins, The
Monsters & Strangerz (Stefan and Jordan Johnson),
Elliot Lurie, Ann Wilson and Kaiser Chiefs, for a total
consideration of c.$265 million. These were bought
with the proceeds following a successful placing of
£156 million ($215 million) conducted in July 2021. As
a result of these acquisitions, the portfolio as at 31 March
2022 is comprised of 146 Catalogues, 65,413 Songs,
with an aggregate fair value of $2.69 billion (as
determined by the Portfolio Independent Valuer),
reflecting an average fair value multiple of 20.08x
historical annual net publisher share income, compared
to the blended acquisition multiple of 15.93x.
We have showcased a few superstar artists throughout
this report to show the breadth of our many Songwriters
associated with them. Songs performed by globally
successful and culturally important artists include:
2 Pac, 5 Seconds of Summer, 10cc, 21 Savage, 50 Cent, 10,000 Maniacs, A$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.
18
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2022
STRATEGIC REPORT • INVESTMENT ADVISER’S REPORT
Catalogue
Acquisition
Date
Interest
Ownership
Total
Songs
The-Dream Ju l 75%
Poo Bear Nov 100%
Bernard Edwards Nov 38%
TMS Dec 100%
Tricky Stewart Dec 100%
Giorgio Tuinfort Dec 100%
Rainbow Jan 100%
Itaal Shur Jan 100%
Rico Love Feb 100%
Sean Garrett Mar 100%
Johnta Austin Mar 100%
Sam Hollander Mar 100%
Ari Levine Mar 100%
Teddy Geiger Apr 100%
Starrah Apr 100%
Dave Stewart May 100% ,
Al Jackson Jr May 100%
Jamie Scott May 100%
Michael Knox May 100%
Brian Kennedy Jun 100%
John Bellion Jun 100%
Lyric Catalogue Jun 100%
Neal Schon Jun 100%
Jason Ingram Jul 100%
Eric Bellinger J u l 100%
Andy Marvel J u l 100%
Benny Blanco Aug 100%
The Chainsmokers Aug 100%
Timbaland Oct 100%
10cc Oct 100%
Journey (Publishing) Oct 100%
John Newman Nov 100%
Jaron Boyer Nov 100%
Arthouse Nov 100%
Fraser T Smith Dec 100%
Jack Antonoff Dec 99%
Ammar Malik Dec 100%
Ed Drewett Dec 100%
Kaiser Chiefs (Masters) Dec 100%
Catalogue
Acquisition
Date
Interest
Ownership
Total
Songs
Jeff Bhasker Dec 100%
Johnny McDaid Dec 100%
Emile Haynie Dec 100%
Brendan O’Brien Dec 100% ,
Savan Kotecha Dec 100%
Tom Delonge Dec 100%
Journey (Masters) Jan 65%
Rebel One Jan 100%
Scott Harris Jan 100%
Brian Higgins Jan 100%
Gregg Wells Feb 100%
Jonathan Cain Feb 100%
Jonny Coffer Feb 100%
Mark Ronson Feb 100%
Richie Sambora Mar 100%
Rodney Jerkins Jul 100%
Barry Manilow Jul 100%
RedOne Jul 100%
Eliot Kennedy Jul 100%
Closer (J King & I Slade) Jul 100%
NO I.D. Jul 100%
Pusha T Jul 100%
Ian Kirkpatrick Jul 100%
Blondie Jul 100%
Chris Cornell Aug 100%
Robert Diggs “RZA” Aug 50%
Ivor Raymonde Aug 100%
Nikki Sixx Sep 100%
Big Deal Music “BDM” Sep 100% ,
Julian Bunetta Sep 50%
Chrissie Hynde Sep 100%
Steve Robson Sep 100% ,
Rick James Sep 50%
Kevin Godley Sep 100%
Scott Cutler Sep 100%
Nate Ruess Sep 100%
LA Reid Sep 100%
50 Cent
Sep 100%
Aristotracks Sep 100%
Portfolio as at 31 March 2022
STRATEGIC REPORT
19
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2022
Catalogue
Acquisition
Date
Interest
Ownership
Total
Songs
B-52’s Sep 100%
Bonnie McKee Sep 100%
Brill Building Sep 100%
Christina Perri Sep 100%
Dierks Bentley Sep 100%
Editors Sep 100%
Eman Sep 100%
Enrique Iglesias Sep 100%
Evan Bogart Sep 100%
George Benson Sep 100%
George Thorogood Sep 100%
Good Soldier Sep 100%
Holy Ghost Sep 100%
J-Kash Sep 100%
John Rich Sep 100%
Kojak Sep 100%
Lateral Sep 100%
Lindsey Buckingham (Kobalt) Sep 100%
LunchMoney Lewis Sep 100%
Lyrica Anderson Sep 100%
Madcon Sep 100% 173
Mark Batson Sep 100%
Mobens Sep 100% ,
Nelly (Kobalt) Sep 100%
Nettwerk Sep 100% ,
PRMD Sep 100%
Rob Hatch Sep 100%
Rock Mafia Sep 100%
Savan Kotecha (Kobalt) Sep 100%
SK Music Sep 100%
Skrillex Sep 100%
Stereoscope Sep 100%
Steve Winwood Sep 100%
Tequila Sep 100%
Third Day Sep 100%
TImeflies (Masters) Sep 100%
Walter Afanasieff Sep 100%
Wayne Wilkins Sep 100%
Yaslina Sep 100%
Catalogue
Acquisition
Date
Interest
Ownership
Total
Songs
Sacha Skarbek Nov 100%
Tricky Stewart (Masters) Nov 100%
Eric Stewart Dec 100%
Bob Rock Dec 100%
Caroline Ailin (“New Rules”) Dec 100%
Nelly Dec 100%
Lindsey Buckingham Dec 100%
Joel Little Dec 100%
Jimmy Iovine Dec 100%
Neil Young Dec 50%
Shakira Dec 100%
Brian Kennedy (Writer Share) Dec 100%
Andrew Watt Feb 100%
Christian Karlsson Mar 100%
Carole Bayer Sager Mar 100%
Paul Barry Mar 100%
Espionage Mar 100%
Martin Bresso Mar 100%
Andy Wallace Mar 100% ,
David Sitek Mar 100%
Happy Perez Mar 100%
Red Hot Chili Peppers 14 Jul 2021 100% 220
Kaiser Chiefs 15 Jul 2021 100% 136
Christine McVie 21 Jul 2021 100% 115
Jordon Johnson 22 Jul 2021 100% 58
Stefan Johnson* 22 Jul 2021 100% 58
Rhett Akins 23 Jul 2021 100% 564
Ann Wilson 29 Jul 2021 50% 152
Elliot Lurie 24 Aug 2021 100% 70
Total Songs 65,413
* Not counted in total song count
20
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2022
Talking to the Moon, by Bruno Mars, is an example
of a Song that has been brought back to life; part of
the Hipgnosis Catalogue through both the Ari Levine
(publishing share) and the Jeff Bhasker (writer share of
performance) acquisitions, it was released in April 2011.
Ten years on, following a TikTok ‘moment’ in March 2021,
there has been a marked increase in consumption on
YouTube and on the Streaming platforms.
The Song has seen a notable increase in US Streaming
consumption, starting in March 2021 when a single
TikTok post covering 24 seconds of the Song went viral.
Since then, creators globally have started their own
trend using a clip from the Song: there are now over
460,000 TikTok posts associated with Talking to the
Moon, with surges coinciding with the release of
new content.
For example, a dance remix version ended up on
YouTube, which, to date has been viewed more than
29 million times alone. The original clip that went viral in
March 2021 has now been viewed 49.1 million times.
Talking to the Moon entered new charts in 2021 and
also entered the Billboard Global 200 chart where it
spent 27 weeks, peaking at Number 57 in May 2021, an
impressive feat for a 2011 song. It has now been listened
to over 750,000 times on Spotify alone.
In early November 2021, Sam Tompkin’s cover of Talking
to the Moon was sampled by rapper, Jnr Choi. The
sampled version, To The Moon, went viral on TikTok as
well as topping Spotify’s Viral Hits playlist and landing
a Top 10 spot on the Billboard Hot R&B/Hip-Hop Songs
Chart. The original Bruno Mars song peaked once again
at almost 7 million weekly streams across all DSPs in the
US alone [below].
Hipgnosis has its own TikTok channel and has created
a platform in which to showcase the Songs and their
creations.
STRATEGIC REPORT • INVESTMENT ADVISER’S REPORT
Case Study – Bringing Songs Back to Life:
Talking to the Moon, by Bruno Mars
TikTok has the capacity to expose songs, extend their life for new generations to come
and make them hits all over again by introducing them to a new audience.
0
1,000,000
2,000,000
3,000,000
4,000,000
5,000,000
6,000,000
7,000,000
8,000,000
Jul
Aug
Sep
Oct
Nov
Dec
Jan
Feb
Mar
Apr
May
Jun
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Jan
Feb
Mar
Apr
20212020 2022
Weekly US On-Demand Steams
US Streams for Talking to the Moon and To the Moon
Source: Luminate, Weekly US On-Demand Streams
Talking to the Moon, by Bruno Mars
To The Moon, sampled by Jnr Choi
A video sampling
the song appears
on TikTok
Release of
Jnr Choi’sand
Sam Tompkin’s
To the Moon,
on Spotify
Talking to the Moon
certified 2x platinum
RIAA
Sam Tompkins
posts cover version
of Talking to the
Moon on TikTok
Talking to the Moon by Bruno Mars was released
in April 2011 and is part of the Hipgnosis Catalogue
though both the Ari Levine and Jeff Bhasker
catalogues.
STRATEGIC REPORT
21
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2022
By owning a share of the publishing
and writers share, Hipgnosis benefits
from royalty receipts generated by the
success of sample and cover versions
of the 2011 original.
Cumulative Spotify Streams (m)
0
100
200
300
400
500
600
700
800
Weekly Streams (’000s)
0
250
500
750
1000
1250
1500
1750
2000
Jul
Aug
Sep
Oct
Nov
Dec
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Jan
Feb
Mar
Apr
20212020 2022
May
Global Spotify figures for Talking to the Moon
Source: Chartmetric
Cumulative Spotify Streams – LHS
Weekly Streams – RHS
Cumulative TikTok Posts (’000s)
0
100
200
300
400
500
Weekly Posts
0
2,000
4,000
6,000
8,000
10,000
Jul
Aug
Sep
Oct
Nov
Dec
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Jan
Feb
Mar
Apr
20212020 2022
May
TikTok activity for Talking to the Moon
Source: Chartmetric
Cumulative Posts – LHS
Weekly Posts – RHS
22
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2022
Song Management
We continue our focus on proactively managing the
iconic Songs we have acquired.
Song Management is a new paradigm that we have
created at Hipgnosis Song Management, where we
manage proven hit Songs with responsibility and ensure
that they’re being put into movies, TV commercials,
video games, on playlists and on TikTok so that new fans
discover them, that new artists are covering them and
that new Songwriters are interpolating them. This adds
significant value for our Shareholders and enhances the
legacies of the great Songwriters that have entrusted us
with their work. In addition to Streaming, the beauty of
today’s environment is that almost all consumption of
music is being paid for.
Song Promotion
Given Hipgnosis acquires proven, timeless, globally
iconic Catalogues, the Song Management team is able
to leverage off the high concentration of platinum-level
hits in our portfolio. We have a relatively small Portfolio
of Catalogues with a very high ratio of extraordinarily
successful hits within it, which is unparalled in today’s
music business.
The team works with all the traditional outlets as well as
established and emerging areas of digital platforms,
social media, video games and life-style outlets creating
and taking advantage of natural opportunities to
constantly refresh and increase the profile of our Songs.
All of which fuels consumption and Streaming growth
and increases the value and opportunity for licensing
our Songs to film, television, gaming and advertising.
As explained previously, an example of a new emerging
opportunity is TikTok, which has over a billion active
users. Hipgnosis has been proactive in building a presence
to promote our artists and Catalogues and our channel
@Hipgnosissongs has rapidly built a following of over
2.1 million users, considerably more than most traditional
publishers. Early in 2022, we launched three splinter
TikTok channels focusing on Rock (@Tok.Rok), Country
(@Whiskey.Nation) and Gaming (@Joy.Pad), each
already have over 100K followers.
Activity on TikTok leads directly to YouTube views and
additional Streaming of Songs, making it an entirely
connected ecosystem. TikTok has the capacity to
introduce our iconic Songs to a new younger audience
and deepen the engagement of a Song bringing hit
Songs back into the mainstream all over again and
extending their life for generations to come.
As a Short Video Clips content platform, TikTok’s
capacity to amass interest in music of all vintages is
seemingly limitless. According to a recent study by
Luminate, who provide the information for the Billboard
music charts, 66% of Gen Z TikTok users discover new
music via Short Video Clips, making it the Number 1
music discovery source for this group. Creating a viral hit
on TikTok leads to users discovering songs on other Digital
Service Providers (DSPs) and this, in turn, drives Streaming
consumption for both Catalogue and frontline releases.
TikTok is a launch-pad for proven hits of yesterday both
organically and as an industry standard promotional tool.
It is also a platform that has been demonstrated to
extend the lifespan of a song or even reinvigorate songs
which were not successful when they were first launched.
This is a similar trend to the one seen for the Amazon-
owned livestreaming platform Twitch. According to a
study by Luminate, one in three music listeners in the US
now discover new music through Twitch.
We explore in more detail the resurgence in the
consumption of one of our Songs: Talking to the Moon
by Bruno Mars (Ari Levine and Jeff Bhasker Catalogues)
on pages 20-21.
Another classic example is Truth Hurts by Lizzo. The Song,
which Hipgnosis Songs Group administers, was released
in September 2017. It did not chart at the time and only
rose in popularity in 2019 when TikTok users started using
her lyrics (which include “I just took a DNA test, turns
out I’m 100% that b****”) to create new content in a
DNA Test Challenge. Following this, the song reached
Number One on the Billboard Hot 100. It spent seven
weeks at Number One becoming the longest-running
number one for a female solo rapper, earning her a
Guinness World Record. It was also nominated for three
Grammy awards in 2020 and certified 7x platinum by
the RIAA. In 2021 it was included in Rolling Stone’s 500
Greatest Songs of All Time.
The Song Management team actively promotes and
showcases albums by our Songwriters when they celebrate
major anniversaries working with industry partners to secure
the re-release of classic albums, helping to deliver on
the creative and drive supporting marketing activities.
This is proven to deliver significant uplifts in interest in
STRATEGIC REPORT • INVESTMENT ADVISER’S REPORT
Star Power 7
STRATEGIC REPORT
23
We congratulate Shakira, who was awarded the prestigious Special International Award at the
at the Ivor Novello Awards with Apple Music, in May 2022. Hipgnosis Songs Fund bought her
Catalogue in December 2020.
24
We congratulate Richie Sambora who, together with Jon Bon Jovi, was awarded the prestigious
Special International Award at the Ivor Novello Awards with Apple Music in September 2021.
Hipgnosis Songs Fund bought his Catalogue in March 2020.
STRATEGIC REPORT
25
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2022
an artist and their songs, both by reconnecting to the
fans and introducing their music to a new audience. Vinyl
re-releases we have helped to promote in 2021 include
Nirvana’s Nevermind, Journey’s Escape and Shakira’s
Laundry Service.
Nirvana re-released Nevermind in November 2021,
mixed by Andy Wallace. Analysis of the US album sales
(Luminate) shows that their excess sales, i.e. sales over
and above their baseline, jumped ten-fold in the week
of its release and have stayed at a high level ever since.
In fact, for the following 26 weeks, the excess sales have
been equivalent to an additional 12 months of normal
level of sales. The activity and interest around an album
re-release can also drive an uptick in Streaming for the
artist’s music, which is not captured in this analysis.
Journey’s re-release of their Escape album, in the form
of a coloured vinyl, saw strong demand resulting in
the exclusive retailer ordering additional pressings.
A black vinyl release is now planned for August 2022.
Both Nirvana and Journey have a solid baseline
of on-going vinyl sales. However, even where an
artist’s fanbase may be of a demographic which is
not traditionally made up of vinyl purchasers, a high
quality, proactive marketing campaign to promote
an anniversary vinyl can be very successful. This was
the case with Shakira’s Laundry Service where sales
surpassed our expectations.
Additionally, when a strong Synch is placed in a TV
show or film, this can have an impact on all types of
consumption with the power to push a song up to the
top of the charts and create opportunities for more
Synchs.
When Something in the Way, also from Nirvana’s
Nevermind album, enjoyed a prominent feature in the
latest Batman franchise film, The Batman, the level of
consumption via Streaming rose significantly. To complete
the circle, Hipgnosis further boosted the Song using its
TikTok channel. Something in the Way re-entered the
charts, entering the Billboard Hot 100 at number 46, and
it also made the Top 40 in several countries.
Following the excitement around the Journey album
re-release, their Song Separate Ways (World Apart) was
selected for use in the trailer to season 4 of the Netflix hit
series Stranger Things, a major Synch success.
Synch
With our vision of a global, in-house ‘24/7’ Synch
licensing operation now a reality, our executives are
able to respond to the opportunities being generated
within a matter of minutes, right around the clock.
For the vast majority of our repertoire – regardless of
who administers the Song – we are the sole approval
party for all Synch requests. This has allowed us to
comprehensively slash approval/response times on
some of the world’s most iconic Songs. Music supervisors,
studios and agencies are no longer being made to
wait weeks-on-end for an answer and as a result favour
working with us.
We have a dedicated, in-house sales function, tasked
solely with curating our Catalogue from a Synch
perspective. By comprehensively profiling our Catalogue,
unearthing previously underused repertoire, we are
enabling our global Synch pitching teams to be ahead
of the game and chase down high-profile opportunities.
Our team have direct relationships with the world’s
biggest film studios, advertising agencies, broadcasters
and music supervisors. These relationships and our
efficiency in responding to opportunities are effective
in getting our Songs to the front of the queue in the
creative and commercial decision making process. It
also means that we are not reliant on the administrators
of our Songs to generate opportunities for our Catalogue.
During the year, we have invested in growing our
global Synch team, particularly in London and New
York. Additionally, we have built a comprehensive
international network of Synch agents, providing
coverage across all major markets in Europe and Asia.
This has delivered a 20% increase of formal licensing
requests approved in the 6 months to 31 March 2022
vs the prior half year period. We are starting to see our
increasing Synch activity deliver additional income,
with a +7% increase in Synch PFAR in H2 2021 vs H1 2021.
26
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2022
STRATEGIC REPORT • INVESTMENT ADVISER’S REPORT
Here are some of our recent Synch successes
from across the Catalogue:
TV and Streaming
• The trailer for season 4 of Netflix’s smash hit ‘Stranger
Things’ features Journey’s song Separate Ways (Worlds
Apart). The trailer gained over 5.8 million views, in the
first 24 hours.
• Three of the 10 songs featured in Season Two of
Netflix’s ‘Bridgerton’ were written by Hipgnosis
songwriters: P!nk What About Us (co-written by Johnny
McDaid), Miley Cyrus’ Wrecking Ball (co-written by
Sacha Skarbek) and Harry Styles’ Sign of the Times
(co-written by Jeff Bhasker).
• Jill Andrews’ recording of Neil Young’s Only Love Can
Break Your Heart features in the latest season of NBC’s
‘This Is Us’. In another episode, Lorde’s Royals (co-
written by Joel Little) was also used.
• Danny Boyle’s Disney+ series ‘Pistol’ – about the story
of the Sex Pistols, featured The Pretenders’ Kid and Brass
In Pocket, both of which were written by Chrissie Hynde.
• Munich (written by Hipgnosis’ Editors) was featured
in Showtime’s breakout critically-acclaimed series,
‘Yellowjackets’.
• Here In Spirit by Jim James featured in Netflix’s ‘Ozark’
season 4. Following this, the song was on Shazam’s
biggest movers around the launch of the season.
• The first episode of CBS’ ‘The Equalizer’ features an
on-screen performance of Neil Young’s timeless song,
Old Man.
• Bad To The Bone by George Thorogood is the
soundtrack to a major promotion for Amazon’s global
Prime Video Streaming platform.
• Ciara’s Girl Gang, written by Tricky Stewart,
soundtracks the trailer for Amazon Prime’s
forthcoming comedy, ‘Harlem’.
• ABC’s brand-new musical drama series ‘Queens’
features Diana Ross’s I’m Coming Out, which was
written by Nile Rodgers & Bernard Edwards.
• HBO Max’s re-boot of ‘Gossip Girl’ features numerous
Hipgnosis songs, including Jessie Ware’s Spotlight and
B.O.M.B. by St. Panther – and a cast performance of
Lady Gaga’s Shallow, which was written with Mark
Ronson.
• Blondie’s One Way Or Another was featured in the
second season of Jerry Bruckheimer’s TV series,
‘H ightown’.
• BBC’s ‘Reclaiming Amy’ documentary about Amy
Winehouse features Back To Black, which was written
by Mark Ronson.
• The trailer for season 3 of Netflix’s ‘Narcos’ Mexico
featured Soundgarden’s Black Hole Sun, written by
Chris Cornell.
• AppleTV’s ‘WeCrashed’ drama series (about the
WeWork organisation), features Katy Perry’s Roar
(co-written by Bonnie McKee), on multiple occasions
throughout the series. The show also features St
Vincent’s New York (Annie Clark), Baauer’s Harlem
Shake (Harry Rodrigues), Nicolar Jaar’s Three Sides of
Nazareth and Odie’s Utopia (Phil Scully).
• HBO Max’s new series ‘Our Flag Means Death’
features both Heart’s Crazy On You, co-written by
Ann Wilson and Blondie’s Atomic, written by Debbie
Harry and Chris Stein.
• The new season of ABC’s ‘Black-ish’ features Dionne
Warwick’s That’s What Friends Are For (co-written by
Carole Bayer Sager).
Film
• Nirvana’s Something In The Way, mixed by Andy
Wallace, enjoyed a prominent feature throughout
the latest instalment of the Batman franchise.
Consumption of the song surged across all major
platforms following the release of the trailer for the film.
• The Spencer Davis Group Gimme Some Lovin is
the soundtrack to the trailer of Warner Bros’ hotly
anticipated ‘Father of The Bride’ – a 2022 re-make
of the iconic Steve Martin film from 1991.
• ‘Sing 2’ – which was the largest animated film of 2021,
featured no fewer than eight of Hipgnosis’ songs.
Shawn Mendes There’s Nothing Holdin’ Me Back, co-
written by Scott Harris & Teddy Geiger, was the main
song in the film and has gone on to secure numerous
ancillary usages relating to the film’s global marketing
campaign.
• Eurythmics’ Sweet Dreams (Are Made of This), co-
written by Dave Stewart, featured in the main trailer
for MGM‘s major worldwide Q4 release ‘House of
Gucci’, directed by Ridley Scott and starring Lady
Gaga and Adam Driver.
STRATEGIC REPORT
27
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2022
• The initial trailer for the same movie was also
soundtracked by a Hipgnosis song, Heart Of Glass by
Blondie, written by Debbie Harry and Chris Stein.
• The trailer for DC’s hotly-anticipated ‘Black Adam’
was soundtracked by a remix of the Soundgarden
song Black Hole Sun, which was written by Chris
Cornell.
• Love Shack by the B-52’s is featured in Netflix’s hugely
successful and critically acclaimed new musical,
‘Tick, Tick… Boom!’.
• Oscar-winning Will Smith’s film ‘King Richard’ featured
Journey’s Only The Young, which was co-written by
Hipgnosis’ Neal Schon & Jonathan Cain.
• Livin’ On A Prayer by Bon Jovi (co-written by Richie
Sambora) enjoys a key featured usage in the Oscar-
nominated Olivia Coleman movie, ‘The Lost Daughter’.
Advertising
• Amazon’s 2022 Superbowl commercial featured
Fleetwood Mac’s Little Lies (written by Hipgnosis’
Christine McVie).
• 7-Up has selected Bruno Mars’ Uptown Funk, co-written
by Mark Ronson, as the soundtrack to their global 2022
re-launch campaign.
• Carolina Herrera’s new global TV campaign for their
‘Bad Boy’ fragrance, is soundtracked by Mark Ronson’s
Ooh Wee.
• UK retailer Tesco selected Hero by Enrique Iglesias as
the soundtrack to their latest TV advertising campaign.
• Mariah Carey’s All I Want For Christmas Is You,
co-written by Walter Afanasieff, was the focus of
McDonald’s Christmas 2021 campaign.
• Our classic Bond theme Nobody Does it Better by
Carly Simon, co-written by Carole Bayer Sager,
was the soundtrack for DHL’s global advertising
campaign, which was launched in conjunction
with the long-awaited James Bond blockbuster film
‘007: No Time To Die’.
• It’s My Life (written by Richie Sambora) was selected
by German supermarket chain Penny for their
Christmas campaign 2021. The commercial, which
speaks about the difficult times especially teenagers
are going through during the pandemic, went viral
immediately, amassing close to 14 million views on
YouTube alone in the first four weeks after its launch.
• Burberry’s global campaign for their ‘Hero’ fragrance
– starring Adam Driver, featured Two Weeks by FKA
Twigs (written by Emile Haynie) as its soundtrack.
• Hipgnosis songwriter Birdy re-recorded Ivor Raymonde’s
I Only Want To Be With You (which is owned by
Hipgnosis), for a major Deutsche Telekom advertising
campaign.
• Michael Kors’ Christmas commercial for 2021 was
soundtracked by Sister Sledge’s We Are Family, which
was written by Nile Rodgers and Bernard Edwards.
• Wells Fargo selected Fitz & The Tantrums’ HandClap
(written by Sam Hollander) to soundtrack their North
American brand campaign.
• Nelly’s Hot In Here was chosen as the soundtrack for
Burger King’s North American advertising campaign.
• Global car brand Genesis used two of Hipgnosis’
songs for their GV70 and GV80 brand campaigns: FKA
Twigs’ Video Girl (written by Emile Haynie) and Ólafur
Arnalds’ Particles.
• BMW selected Get After It by The Cadillac Three as the
soundtrack for one of their key 2021 brand campaigns.
• In Australia, McDonald’s chose Bon Jovi’s Livin’ On A
Prayer (co-written by Richie Sambora) to soundtrack
their nationwide advertising campaign.
Video Game
• The El-P remix of Supercut by Lorde (written by Jack
Antonoff) features in the soundtrack to EA’s ‘FIFA 22’
video game.
• Hipgnosis has now approved the use of over 70 songs
in the mobile game ‘Beatstar’, which launched
globally in August 2021.
• A number of Hipgnosis songs are currently appearing
in Fortnite, including: Glass Animals’ Heat Waves
(David Bayley), Zella Day’s Dance For Love (Ryan Hahn),
Bruno Mars’ Treasure and Locked Out of Heaven
(Ari Levine), Lennie Squire’s Gold (Bede Kennedy),
Mitski’s The Only Heartbreaker (Dan Wilson) and
Normani’s Motivation (Savan Kotecha).
• Hundreds of songs from across the Hipgnosis catalogue
are also being licensed for use in an array of other
games, including: Grand Theft Auto, Fortnite, The Sims,
Call of Duty, Let’s Sing, NHL ’22, Gran Turismo, WWE 2K22,
Roblox, Beat Saber, Rocket League, Dance Church,
Riders Republic, Rock Band and many more.
28
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2022
Song Administration
A key part of our strategy is to reduce administration
costs and ensure that these payments from Publishers
are received as quickly as possible. We continue
to revert and renegotiate administration rates on
Catalogues at the earliest possible opportunity (unless
there are compelling reasons to partner with existing
administrators) and we continually look for the best solution.
Our acquisition in September 2020 of Hipgnosis Songs
Group (HSG), formerly Big Deal Music, has been
instrumental in that journey. HSG’s administration
capabilities allow the Fund to benefit from its own
efficient in-house administration function in the US. HSG
now administers a total of 32 of the Fund’s Catalogues
across 60 specific agreements, representing 5,483
compositions. These include the US sourced income
from Catalogues by: Red Hot Chili Peppers, Neil Young,
Benny Blanco, Brian Higgins, Itaal Shur, Johnta Austin,
Sam Hollander, Tom DeLonge and Christine McVie.
We anticipate more catalogues to move across in the
coming months.
Reverted Catalogues for SONG
As at 31 March 2022
Number of
agreements
Number of
Catalogues
To Kobalt 60 29
To HSG 39 32
To Peermusic 2 2
Overall Catalogues Reverted 34*
*In most instances, Catalogues are reverted to more than one Administrator.
We review all options to ensure the administration of
our Catalogues is carried out as efficiently and cost-
effectively as possible. Following the financial year
end, we have agreed a ground-breaking new deal
whereby Sacem, the French CMO, will collect the
digital rights income for the writers’ share, primarily in
the UK and the EU and pay them directly to Hipgnosis.
This direct collection model eliminates one link in the
royalty collection process, materially reducing third
party administration and collection fees and the length
of time it takes to collect digital revenues. Initially, we
are transferring approximately 30 Catalogues where
the Song Administration rights have fully reverted to
Hipgnosis i.e. where existing administration deals have
lapsed. We are thrilled to be partnering on this direct
collection model with Sacem.
Alongside this, we have also signed 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. This deal allows us to help maximise
local Synch markets through their worldwide offices.
Whilst HSG is increasingly administrating the US portions
of our Catalogues, it continues to be a third-party
administrator as well. Noteworthy, this year HSG has
administered Truth Hurts, by Lizzo, as seen earlier, as well
as Glass Animals’ outstanding song Heat Waves. The
latter reached Number One on the US Top 40 Charts
as well as Number One on the Billboard Hot 100 and
Billboard Global 200 Charts, and Number One on both
the Spotify US and Global charts. It also became part
of Spotify’s Billions Club in September 2021.
Song Copyright Management and uplift
Our multi-pronged initiatives within Copyright
Management, which centre on searching for missing
revenues, continue unabated.
This has involved designing an in-house system gathering
data available on every Song that we own, to help us
build a true picture of our Catalogue. This aim serves
various purposes: to make sure our Synch and Copyright
teams have immediate and accurate access to all
relevant information and to give us the ability to search
for missing revenue across some of our major platforms.
Delays in payments occur when the aggregate
compositional shares are greater than 100% within a
song. We flag where this is the case in order to unlock
disputes, which leads to higher revenues for Hipgnosis.
In order to increase monetisation, Hipgnosis has
partnered with a number of third-party providers across
different revenue streams. We set out in the following
table the number of partners that Hipgnosis is working
with. The number depends on the complexities and
opportunities we have identified to seek extra revenues.
Currently all our partners are in a trial period and as
the results come through, we will roll-out successful
partnerships across the Catalogue.
STRATEGIC REPORT • INVESTMENT ADVISER’S REPORT
STRATEGIC REPORT
29
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2022
Third-Party Partnerships
Number of partners
Online Revenues 3 (in trial)
Synch Revenues 1 (in trial)
Mechanical Revenues 4 (in trial)
Neighbouring Rights 1 (in trial)
Writer Share of Performance 1 (in trial)
Live Performance 3 (in trial)
We have partners that are focused on looking for
missing YouTube revenues; in other cases, we are trialling
technology platforms that scan US sports-related
television channels for un-reported Synchronisations.
Preliminary results of the trials are impressive and we are
currently analysing the data in depth.
Our efforts are also centred on maximising revenues
within the payment processing chain. For example,
a variety of services have been commissioned to
search and claim missing royalty streams via The
Mechanical Licensing Collective (The MLC). This involves
identifying registration issues and ensuring revenues are
correctly linked between original and samples, remixes
and cover versions.
The return to Live performances has given us the
chance to trial the PRS Major Concert Service. This
eliminates the standard PRS deductions on gross ticket
sales and speeding up royalty payments.
Song Creation
Song Creation additionally delivers dynamic Catalogue
growth via a stable of active, front-line writers and
artists. Building future assets at a relatively low cost,
providing contemporary context, contacts and
synergistic opportunities throughout the industry is the
strength and ongoing mission of HSG’s Song Creation
team.
The Song Creation team continues to invest in front line
contemporary writers and has invested $13.7 million in
new signings, options and renewals during the financial
year. Highlights from the period include the signings
of Monsters and Strangerz, Normani, as well as a NO ID
Joint Venture.
Highlights from Song Creation
Normani: Within the period, HSG signed six-time BMI
Award winning songwriter Normani, who has also
taken home two iHeartRadio Music Awards, an MTV
VMA and a Soul Train Music Award already.
Jordan and Stefan Johnson (part of the Monsters
& Strangerz) recently had their 4th Top 40 Number 1
with Justin Bieber’s Ghost, and earned a combined
3 Grammy nominations for their work on Bieber’s
album Justice, including one for the single Anyone.
As an example of the opportunities that HSG provides,
Hipgnosis Songs Fund acquired the Catalogue of
Monsters & Strangerz in July 2021 and used the leverage
of that deal to sign the writers for administering their
new songs too. Stand out songwriting involvement
from Monsters and Strangerz includes Dua Lipa’s Break
My Heart which reached Top Ten in 21 countries and
Miley Cyrus featuring Dua Lipa’s Prisoner which hit
Number One slots across Europe. Most recently, their
songwriting involvement with Wild Dreams feat. Khalid,
on Burna Boy’s new album, Love, Damini, is gaining
global traction. The album opened its first week and is
charting at Number 1 in 49 countries and 111 countries
overall on Apple Music.
Jake Sinclair, is one of our publishing Songwriters
and co-wrote all the Songs on Panic! At The Disco’s
forthcoming Viva Las Vengeance album. Their first
single, eponymously titled, has just been released
and went to Number 1 on 30 June 2022 on the US
Alternative radio daily chart.
HSG writers were included in an impressive 18 Grammy
nominations for 2021, and won the following:
• Jon Batiste – Album of the Year for We Are
(Vic Dimotsis/Zach Cooper aka King Garbage,
composers)
• St. Vincent – Best Alternative Music Album for
Daddy's Home
• Angélique Kidjo – Best Global Music Album for
Mother Nature (Shungudzo, composer, guest artist)
• Esperanza Spalding – Best Jazz Vocal Album for
Songwrights Apothecary Lab (Phoelix, producer,
multi-instrumentalist).
30
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2022
Red Hot Chili Peppers 2022 Tour Dates
2022 Tour Dates City Country Stadium/Venue Venue Capacity
Leg 1 – Europe
4 June Sevilla Spain Estadio de La Cartuja 75,000
7 June Barcelona Spain Estadi Olímpic Lluís Companys 60,713
10 June Nijmegen Netherlands Goffertpark –
12 June Bratislava Slovakia Lovestream Festival – Tehelné Pole 22,500
15 June Budapest Hungary Puskás Aréna 52,000
18 June Florence Italy Visarno Arena 11,000
22 June Manchester England Emirates Old Trafford 50,000
25 June London England London Stadium 80,000
26 June London England London Stadium 80,000
29 June Dublin Ireland Marlay Park 40,000
1 July Glasgow Scotland Bellahouston Park 35,000
3 July Werchter Belgium Festivalpark Werchter 88,000
5 July Cologne Germany Müngersdorfer Stadion 80,000
8 July Paris France Stade de France 100,000
9 July Paris France Stade de France 100,000
12 July Hamburg Germany Volksparkstadion 76,000
Leg 2 – North America
23 July Denver United States Empower Field at Mile High 76,125
27 July San Diego United States Petco Park 42,445
29 July Santa Clara United States Levi’s Stadium 68,500
31 July Los Angeles United States SoFi Stadium 70,000
3 August Seattle United States T-Mobile Park 47,943
6 August Paradise United States Allegiant Stadium 65,000
10 August Atlanta United States Truist Park 41,149
12 August Nashville United States Nissan Stadium 69,143
14 August Detroit United States Comerica Park 41,083
17 August East Rutherford United States MetLife Stadium 82,500
19 August Chicago United States Soldier Field 64,500
21 August Toronto Canada Rogers Centre 53,506
30 August Miami Gardens United States Hard Rock Stadium 65,326
1 September Charlotte United States Bank of America Stadium 75,412
3 September Philadelphia United States Citizens Bank Park 43,305
8 September Washington, D.C. United States Nationals Park 41,313
10 September Boston United States Fenway Park 37,731
15 September Orlando United States Camping World Stadium 65,000
18 September Arlington United States Globe Life Field 40,300
25 September Louisville United States Kentucky Exposition Center 19,196
7 October Austin United States Zilker Park –
14 October Austin United States Zilker Park –
Live Music Is Back!
Photo by David Mushegains
STRATEGIC REPORT
31
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2022
Red Hot Chili Peppers,
London Stadium 25-26 June 2022
– SOLD OUT, 160,000 people
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
18
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
21
Waka Waka (This Time for Africa)(The Official 2010
FIFA World Cup
TM
Song)
• Shakira • Shakira
7
Sugar
• Maroon 5 • Jacob Kasher Hindlin
22
Mi Gente
• J Balvin, Willy William • The-Dream
8
Roar
• Katy Perry • Bonnie McKee
27
Baby (feat. Ludacris)
• Justin Bieber • The-Dream, Tricky Stewart
10
Sorry
• Justin Bieber • Skrillex
28
Chantaje (feat. Maluma)
• Shakira • Shakira
13
Girls Like You (feat. Cardi B)
• Maroon 5 • Starrah
30
New Rules
• Dua Lipa • Caroline Ailin
17
Bailando (feat. Descemer Bueno, Gente De Zona)
• Enrique Inglesias • Enrique Inglesias
Song Title • Artist(s) • Hipgnosis contributor(s)
Source: YouTube, 28 May 2022
32
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2022
STRATEGIC REPORT • INVESTMENT ADVISER’S REPORT
Hipgnosis Song Management
During the period, the Investment Adviser, formerly The
Family (Music) Ltd., changed its name to Hipgnosis Song
Management Ltd (HSM). At the same time, it entered
into an agreement with Blackstone, the alternative
investment manager, with Blackstone taking an
ownership stake in HSM. In addition, HSM is acting as
Investment Adviser for Hipgnosis Songs Capital, a fund
investing on behalf of funds managed by Blackstone.
This was made possible following several months of
extensive negotiations with the Board of Hipgnosis Songs
Fund and discussions with major Shareholders. This has
ensured robust and well thought out co-Investment
and conflicts policies. Under the co-investment policy,
Hipgnosis Songs Fund has the right to participate in 20%
of any Catalogue purchased, alongside the Blackstone
backed fund on identical financial terms. This reflects the
expected deployable capital of the two funds over the
medium term. Further, the new arrangement will (when
funds permit) enable Hipgnosis Songs Fund to participate
in more transactions than would have been the case on
a stand-alone basis.
Upgrading management/capabilities
The investment made by Blackstone into Hipgnosis Song
Management has enabled us to make considerable
investment in people and systems across our Song
Management, finance, investment teams and data
analytic functions. This is enabling us to further improve
the sophistication of our approach to acquiring
Catalogues and ensuring that we maximise the
earnings whilst respecting the artistic integrity of the
songs which we curate.
We believe that the combined benefits of these
investments will be demonstrated in future years by our
ability to correctly price new acquisitions, our ability
to reduce costs by carrying out additional functions
in-house and by increased revenues as a result of our
ability to proactively manage our Catalogue.
Respecting our artists
The removal of Neil Young’s Master Recordings from
Spotify in January 2022, at his request, in protest against
misinformation on the COVID-19 virus on the platform
created much comment.
Hipgnosis’ thesis has always been that the longevity
of a song’s income is determined not only by the music,
but equally by its cultural and emotional importance
to listeners. Neil Young is a perfect example of this and
as a result of always conducting himself with integrity
to ensure that the cultural importance of his music
is preserved, his songs are still popular and still have
meaning over 50 years after their release.
No Tears Left To Cry
• Savan Kotecha
One Last Time
• Giorgio Tuinfort
God Is A Woman
• Savan Kotecha
Break Up With Your Girlfriend,
I’m Bored
• Savan Kotecha
Breathin
• Savan Kotecha
Don’t Call Me Angel (Charlie’s Angels)
(with Miley Cyrus & Lana del Rey)
• Savan Kotecha
Bloodline
• Savan Kotecha
Bad Idea
• Savan Kotecha
Fake Smile
• Happy Perez
Greedy
• Savan Kotecha
Ghostin And Everytime
• Savan Kotecha
Everytime
• Savan Kotecha
Honeymoon Avenue
• Rodney Jerkins
Why Try
• Ammar Malik
Break Your Heart Right Back
• Bernard Edwards
They Don’t Know
• Savan Kotecha
Winter Things
• Thomas Brown/Rodney Jerkins
Bad To You (with Normani &
Nicki Minaj)
• Savan Kotecha
I Don’t Care
• Rodney Jerkins
December
• Thomas Brown/Rodney Jerkins
Only 1
• Rodney Jerkins
Daydreamin’
• Rodney Jerkins
Hands On Me
• Rodney Jerkins
True Love
• Rodney Jerkins
Intro
• Rodney Jerkins
Wit It This Christmas
• Rodney Jerkins
Not Just On Christmas
• Rodney Jerkins
How I Look On You
• Savan Kotecha
Nobody (with Chaka Khan)
• Savan Kotecha
SUPERSTARS • SUPER SONGS
Our Great Songwriters have written Iconic Songs for:
Ariana Grande
Photo by Jon Kopaloff/FilmMagic
STRATEGIC REPORT
33
Photo by Jeff Riedel/Contour by Getty Images
Shape Of You
• Johnny McDaid
Photograph
• Johnny McDaid
Castle On The Hill
• Benny Blanco
Galway Girl
• Johnny McDaid
Happier
• Benny Blanco
Dive
• Benny Blanco
Tenerife Sea
• Johnny McDaid
Supermarket Flowers
• Benny Blanco/Johnny McDaid
What Do I Know?
• Johnny McDaid
Kiss Me
• No I.D.
New Man
• Benny Blanco/Ammar Malik
Bloodstream
• Johnny McDaid
Barcelona
• Benny Blanco/Johnny McDaid
All Of The Stars
• Johnny McDaid
Nancy Mulligan
• Benny Blanco/Johnny McDaid
Hearts Don’t Break
Around Here
• Johnny McDaid
Eraser
• Johnny McDaid
Bibia Be Ye Ye
• Benny Blanco
Afire Love
• Johnny McDaid
Nina
• Johnny McDaid
Take It Back
• Johnny McDaid
New York
• Emile Haynie
English Rose
• Johnny McDaid
I Will Take You Home
• Johnny McDaid
ED SHEERAN FEATURES:
EMINEM
River (feat. Ed Sheeran)
• Emile Haynie
CHRISTINA PERRI
Be My Forever
(feat. Ed Sheeran)
• Christina Perri
WRETCH 32
Hush Little Baby
(feat. Ed Sheeran)
• TMS
SUPERSTARS • SUPER SONGS
Our Great Songwriters have written Iconic Songs for:
Ed Sheeran
34
STRATEGIC REPORT
35
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2022
Neil Young asking for his music to be removed from
Spotify not only stands by the artistic integrity of his
songs but further adds to their cultural meaning.
The publicity around his decision led to an immediate
jump in consumption of Neil’s music as established fans
returned, demonstrating their love for his music, and
many new music lovers who had not previously found
Neil’s music discovered it for the first time, using one of
the other platforms which still offered Neil’s music.
Writer advocacy
Songwriters deliver the most important component of
a Song but continue to be paid inequitably. Through our
platform and influence, Hipgnosis continues to campaign
for that to change. We aim to take the Songwriter from
the bottom to the top of the economic equation with our
advocacy on this issue. When a Catalogue is acquired,
our Shareholders sit directly in the shoes of the songwriter
so there is complete alignment between the Songwriting
community and our Shareholders. What is in the best
interest of the songwriter is also in the best interest of the
Company.
In the US, rates for royalty payments are set by the
Copyright Royalty Board (CRB), on a rolling five year
period. We have worked closely with both the National
Music Publishers’ Association (NMPA) and the Nashville
Songwriters Association International (NSAI). On 1 July
2022, the US Copyright Royalty Board (CRB) disallowed
the appeal by various Streaming services against the
CRB III determination to increase mechanical Streaming
royalty rates for songwriters and publishers.
The increase, which is incremental over the period
covered by CRB III (1 January 2018 until 31 December
2022) will culminate in a 44% uplift in the “all in”
(mechanical and performance) statutory minimum
rates for Streaming paid in the US, rising from 10.5%
of Streaming revenues prior to 2018 to 15.1% in 2022.
Additionally, in April 2022, the NMPA and the NSAI
representing artists and Sony Music Entertainment, UMG
Recordings, Inc. and Warner Music Group Corp made a
joint proposal to the CRB for a settlement on mechanical
royalties for the CRB IV period, running from 2023-2027.
The proposed settlement, if confirmed by the CRB,
would result in a 32% uplift from 2023 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. Additionally, these royalty rates would
increase annually in line with the Consumer Price Index.
This is the first increase in the rate since 2006 and this
is a step in the right direction and has been heavily
influenced by our advocacy.
In the UK, an investigation by the Department for
Digital, Culture, Media and Sport Select Committee
(DCMS), published in the summer of 2021, prompted the
Secretary of State for Digital, Culture, Media and Sport
to refer the dominance of the major music groups to the
Competition and Markets Authority (CMA) for a market
study. Hipgnosis has submitted evidence to the CMA
and continues to meet with them on a regular basis
with the belief that the CMA will launch a full market
investigation. A decision is due by the end of July 2022.
It is worth repeating: the Song is the currency of our
business. Yet the Songwriter – who delivers the most
important component to the success of a record
company, publisher, promoter, manager, agent, music
venue, radio station, broadcaster etc. – is the lowest
paid person in the economic equation.
STRATEGIC REPORT • INVESTMENT ADVISER’S REPORT
36
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2022
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.
STRATEGIC REPORT • INVESTMENT ADVISER’S REPORT
Poo Bear
Multi-platinum producer, singer
and Songwriter aficionado, Jason
Boyd, better known to the masses
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.
STRATEGIC REPORT
37
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2022
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.
0.0
0.5
1.0
1.5
2.0
Operative NAV Bridge ($)
from 1 April 2021 to 31 March 2022
1.6829
0.1685
0.0836 (0.0696)
(0.0107) (0.0056)
1.8491
Opening
Operative NAV
per Ordinary Share
Increase in
fair value
of Catalogues
Net income* Dividends paid FX impact Share issue costs**
Closing Operative
NAV per Ordinary Share
38
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2022
STRATEGIC REPORT • INVESTMENT ADVISER’S REPORT
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 Board and the
Investment Adviser consider that the most relevant NAV
for Shareholders is the Operative NAV.
The Operative NAV per share increased by 9.9% to
$1.8491 during the year (31 March 2021: $1.6829), which,
when including dividends paid of 5.25p per Share (7.26¢
per Share) represents a 12-Month Total $ NAV Return of
14.2%. As a testament to the resilience of the Hipgnosis
Portfolio, despite the significant impact of COVID-19
during the period, the dividends paid of 5.25p per Share
were fully covered by Leveraged Free Cash Flow (1.01x).
Total $ NAV Return to Shareholders is 59.1% since the IPO
on 11 July 2018.
Based on the Sterling to Dollar exchange rate at 31 March
2022 of 1.3134, the Operative NAV presented in Sterling
would be 140.79p per Share (31 March 2021: 122.50p
based on Sterling to Dollar exchange rate of 1.3738).
The growth in the Operative NAV over the year was
primarily driven by a 9.5% like-for-like uplift in the Fair
Value of Catalogues as appraised by the Portfolio
Independent Valuer, Citrin Cooperman Advisors LLC
(formerly Massarsky Consulting Inc.). The strong growth
across the portfolio, but in particular in the contemporary
Catalogues evidences the benefits of the Company’s
acquisition strategy of purchasing incredibly successful
and culturally important songs that are at the heart of
Streaming. This growth in the value of the Catalogues
resulted from:
• Strong Streaming growth across the Portfolio particularly
in the second half of the year, in excess of the Portfolio
Independent Valuer expectations and market growth
rates, resulting in an increase in expected future
Streaming revenues; and
• An increase in expected revenues due from
alternative platform licensing, which refers to licensing
on social media, gaming and other emerging
platforms including TikTok, Facebook and Triller, as
material revenues start to be paid by these sources to
publishers and recorded music companies.
The Portfolio Independent Valuer calculated the
Catalogue Fair Value as at 31 March 2022 using
a discount rate of 8.5% (31 March 2021: 8.5%).
The Portfolio Independent Valuer believes that a
* Net income reflects net revenue less operating expenses (excluding foreign exchange loss and amortisation of catalogues) less tax expense.
** Share issue costs reflect the costs of share issuances during the period, which were fully borne out of the gross proceeds of the respective issue and were fully recouped
through the issue price premium to the latest published Operative NAV per Ordinary Share at that time.
STRATEGIC REPORT
39
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2022
discount rate of 8.5% is the correct rate within a rising
interest rate environment, and also reflects music’s
stability as an asset class, given its decreased risk
profile compared to other industry sectors, such as
predictability of earnings.
Revenue
Gross revenue increased by 24.7% year-on-year to
$200.4 million (31 March 2021: $160.7 million). Net
revenue of $168.3 million increased by 21.7% year-on-
year (31 March 2021: $138.3 million), this is after royalty
cost deductions of $32.0 million (31 March 2021:
$22.5 million) which relate to contractual royalties due
to writers in HSG and Kobalt Fund One.
The increase in gross and net revenue were primarily
a result of an increase in the number of Catalogues
owned during the period, with the Company investing
$265.1 million into 8 Catalogues in the year, partly offset
by a reduction in Right To Income (RTI) to $17.97 million
(31 March 2021: $66.6 million).
In addition, in order to present comparable accounts
with listed major music companies, the Company has
optimised its accrual process to also more accurately
recognise earnings based on expected usage (where
appropriate), rather than when earnings were paid to, and
being processed by, collection societies, publishers and
administrators. This change in estimate has affected the
timing of the recognition of certain revenues, with a
$36.0 million additional estimate accrual for the current
year, compared to the prior year basis of estimation. This is
not considered to be a change in accounting policy but
a refinement of the estimate methodology. As this refine-
ment was applied this year for the first time, the like-for-like
increase in the revenue accrual from this year to that in the
prior year is not expected to occur in future periods. Further
detail is provided in the Usage Accrual section below.
In order to provide its Shareholders with an
understanding of the like-for-like performance of the
Company’s revenues, by removing the impact of non-
recurring items, including the impact of new Catalogue
acquisitions, RTI and the Usage Accrual, 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. 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 year end.
There is a significant time lag for music royalties between
the time a song is performed and when the revenue is
received by the copyright owner. As a result, as set out
in the interim report for the period ended 30 September
2021, the reported Pro Forma Annual Revenue (PFAR)
figure for the 12-months to December 2020 that includes
statements received up to 31 March 2021, of $121.26
million was impacted by the restrictions put in place to
combat the COVID-19 pandemic in 2020.
Lockdowns had a material impact on performance
income (which is driven by songs performed in shops,
bars, restaurants and live music) and the income of
younger Catalogues (<10 years old) which are more
reliant on promotional activities surrounding live shows
and new releases.
The table below shows PFAR at six monthly intervals
for Catalogues owned at 31 March 2022. In order to
give investors greater insight into the recovery from the
impact of COVID-19, the Company has also included
the PFAR for the year to 31 December 2021.
In addition, the PFAR for the year to December 2021,
has been broken down into the first and second six
months. Whilst the full year PFAR to 31 December 2021
($114.86 million) shows a COVID-19 impacted 5.3%
decrease compared to the equivalent period in 2020
($121.26 million), the Company has seen strong like-for-
like growth 11.6% in the second half of 2021. This growth
has been driven by a strong increase in Streaming
Pro Forma Annual Revenue for Catalogues owned as at 31 March 2022
12 months to
Jun 20
$m
12 months to
Dec 20
$m
12 months to
Jun 21
$m
12 months to
Dec 21
$m
PFAR for Catalogues owned as at 31 March 2022 131.68 121.26 115.91 114.86
<10 years 65.84 57.14 50.99 49.32
>10 years 65.84 64.12 64.92 65.54
Note. Older or Younger than 10 years of a Catalogue is calculated as the average release year of a Catalogue as at 1 January 2022 weighted on earnings, at time of acquisition.
40
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2022
STRATEGIC REPORT • INVESTMENT ADVISER’S REPORT
income together with a partial recovery in performance
income as COVID-19 restrictions eased.
Historically the Company has provided analysis of its net
revenues split by income type however, due to the high
level of RTI in the prior year and the Usage Accrual in the
current year, this analysis does not provide comparable
results in the current period. As a result the Company
has presented the income type split over its six month
pro forma revenues to provide like-for-like analysis of its
growth drivers.
12-month PFAR to December 2021, split by half year
and by income type
Six months
to Jun 21
$m
Six months
to Dec 21
$m
Change
%
Mechanical Income 2.55 2.31
(9.4)
Performance Income 12.16 13.24
8.9
Digital Downloads Income 1.83 1.68
(8.0)
Streaming Income 21.92 26.18
19.4
Synchronisation Income 7.41 7.93
7.0
Producer Royalties 3.76 3.92
4.2
Masters Income 3.75 4.04
7.6
Other Income 0.91 1.27
38.6
54.29 60.57
11.6
This data shows strong Streaming growth, with 19.4%
increase for the half, which compares favourably
against global Streaming annual market growth of
24.3% as disclosed by IFPI. As a result, Streaming income
represented 43.2% of pro forma revenue between
July and December 2021 (Jan-June 2021: 40.4%). The
Company is now seeing a number of contemporary
Catalogues delivering stabilised earnings indicating
the end of their decay cycle ahead of the Portfolio
Independent Valuer’s original expectations.
This strong growth leaves the Company well positioned
to benefit from the continued expected growth in the
Streaming market. In addition, despite strong user levels,
the Company is yet to receive meaningful revenues from
emerging platforms, such as TikTok, and expects this to
be a material source of revenue growth in future periods.
Record companies and publishers, who experience
a shorter time lag on income, are already recognising
significant revenues from these platforms.
Performance income, which is driven by songs
performed in shops, bars, restaurants and live music, and
was therefore materially impacted by various lockdowns
during COVID-19 grew by 8.9% in the second half of the
year. This growth indicates that the Company is now
starting to see the recovery in performance income
from the impacts of various COVID-19 lockdowns. The
major publishers, who experience a shorter time lag on
performance income than Hipgnosis, have now reported
a full recovery in performance income to pre-COVID-19
levels. The Company therefore expects to see strong
growth and a full bounce back in performance income
in the new financial year. This view is shared by our
Portfolio Independent Valuer who is anticipating a full
recovery in the Company’s performance income in the
financial year ending 31 March 2023.
There has also been an increase in the Company’s Synch
PFAR in the second half of 2021, growing by 7.0% partly
driven by one-time settlements from TikTok and Peloton.
Mechanical income, driven by physical sales of CDs
and vinyl relating to our Portfolio, and digital download
income continued to decline as music consumption
continues to transition from discretionary purchases of
music towards Streaming.
Usage Accrual
As noted above, to bring the Group in line with other
major publishers, the Company has updated its revenue
accrual estimates also to reflect revenue at the point at
which usage by the end customer is expected to occur.
Revenues were previously recognised when earnings
were paid to, and being processed by, collection
societies, publishers and administrators. The Group
now also includes an estimation of revenue to include
the expected usage as of the accrual date, which is
expected to trigger a contractual royalty payment
to The Group. This element of the accrual estimate
royalty statement data to calculate the delay between
usage and subsequent payment to collection societies,
publishers and administrators and applies this factor to
our best reliable estimate of revenue for those periods.
This change in estimate has affected the timing of the
recognition of certain revenues, with a $36.0 million
additional estimate accrual for the current year,
compared to the prior year basis of estimation.
Costs
Adjusted operating costs less interest costs increased to
$38.4 million (31 March 2021: $32.4 million). This is driven
by an increase in Investment Advisory fees due to the
STRATEGIC REPORT
41
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2022
growth of the Company since the prior period, aborted
deal costs and the recognition of a contingent bonus
accrual in relation to specific Catalogue acquisitions.
Ongoing Charges as a percentage of the average
Operative NAV has remained stable at 1.58% for the
year ended 31 March 2022 (31 March 2021: 1.59%),
reflecting the Board’s commitment to control operating
costs and maximise returns to Shareholders. The ongoing
charges include a full year of Hipgnosis Songs Group’s
(HSG) operating costs compared to approximately
seven months in the prior year. HSG has an internal
administration function which enables the Company
to benefit from reduced administration fees and faster
royalty payment processing.
EBITDA
EBITDA for the year ended 31 March 2022 increased by
21.8% to $129.9 million (31 March 2021: $106.7 million),
reflecting the growth in net revenue.
Leverage
Loan interest has increased to $20.4 million (31 March
2021: $7.3 million). The rise in interest costs are due to
the increase in drawn debt as the Company has grown
over the past two years. As at 31 March 2022 gross debt
was $600.0 million (31 March 2021: $577.3 million) and
net debt was $569.9 million (31 March 2021: $464.7 million).
Net debt as a percentage of Operative NAV at 31 March
2022 was 25.4% (31 March 2021: 25.7%).
Leveraged Free Cash Flow was $84.7 million as at
31 March 2022 (31 March 2021: $82.1 million), which covered
dividends paid out during the period by 1.01 times.
The Board, together with the Investment Adviser, is in
the process of a review of its leverage structure with a
view to reducing interest rate risk and control costs for
the Company.
EPS
EPS for the year ended 31 March 2022 is -1.65¢ (31 March
2021: 4.72¢), the year-on-year decrease is largely driven
by the impact of higher RTI in the prior year.
Adjusted EPS, as defined within the Alternative Performance
Measures, removes the impact of Catalogues
amortisation. The Group amortises Catalogues over a
useful life, using a straight-line method of 20 years, which
is in line with industry standard. Adjusted EPS for the year
ended 31 March 2022 is 9.09¢ (31 March 2021: 12.41¢).
Accruals and Receivables
Accrued Income and Receivables at 31 March 2022
were $111.9 million (on a gross basis), a breakdown of
which is set out below:
• $7.2 million receivable representing royalty statements
received in March 2022 with payment received in
April 2022 and May 2022;
• $32.9 million for calendar Q1 2022 earnings where,
due to the time lag in royalty reporting, statements
are not expected to be received until calendar Q3
and Q4 2022;
• $9.7 million for calendar Q4 2021 earnings which are
not reported to the Company until calendar Q2 2022;
• $7.3 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 can
typically result in an earnings lag of up to 24 months;
• $6.8 million HSG gross revenue accrual, which
includes the accrued PRO lag. Separately, a
$5.6 million royalty creditor representing contractual
royalties due to writers has been recognised;
• $36.0 million income Usage Accrual, see Usage
Accrual section for more details; and
• $12.0 million relating to calendar Q2 2021 to Q3 2021
earnings for Catalogues where royalty reporting is still
in the process of being redirected/switched over to
the Company. These accruals are based on royalty
statements received with invoices due to be raised on
completion of the Letter of Direction.
42
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2022
STRATEGIC REPORT • INVESTMENT ADVISER’S REPORT
Right to Income (RTI)
On acquisition of a Catalogue, the accounting
policy of the Company is to allocate the full purchase
consideration to the cost of the Catalogues asset.
Income is recognised on acquisition via two separate
mechanisms as follows:
1. Income derived from cash receipts from the Vendor,
representing royalties collected by the Vendor
starting from the date determined by the purchase
agreement, which precedes the date of acquisition;
and
2. Accrued receivables are recognised for any
revenues generated by ownership of the IP to the
extent that these are not yet collected.
If the income due under these mechanisms is for a
period that precedes the start of the financial year
that the Catalogue is acquired within, that income
is booked within the financial year in which the
Catalogue is acquired.
As discussed in the Interim Report, to provide further
clarity to investors on RTI, the Company is providing
additional disclosure of these revenues. In the prior
Annual Report, RTI was solely defined as including
revenue that was recognised on the acquisition of a
Catalogue that preceded the financial year, so that
investors could clearly identify all revenues which were
not from the financial period being reported on. RTI has
been re-defined to show both revenue recognised in
‘Pre-Financial Year RTI’ and ‘Within Financial Year RTI’.
Within Financial Year RTI is considered as recurring as it
relates to a revenue period that will be collected and
received by SONG in the following financial year.
The combined RTI recognised in the period was
$17.97 million (31 March 2021: $66.6 million), of which the
Pre-Financial Year RTI was $14.09 million and the Within
Financial Year RTI was $3.88 million.
The table opposite shows Recurring Revenue vs. Pre-
Financial Year RTI for each financial year to date.
STRATEGIC REPORT
43
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2022
Financial year revenue ($m)
Recurring revenue
Financial Year Description
No. of
Catalogues
Prior year
(over)/under
accrual Pre-FY (RTI)
Within FY,
pre-acq
(RTI)
Within FY,
Post-acq
Total
revenue
FY19 New acquisitions in year 13 – 2.52 – 6.88 9.40
– 27% – 73% 100%
FY19 Pre-existing Catalogues – – – – – –
– – – – –
FY19 Total 13 – 2.52 – 6.88 9.40
– 27% – 73% 100%
FY20 New acquisitions in year 41 – 13.40 27.57 23.56 64.53
– 16% 34% 29% 79%
FY20 Pre-existing Catalogues 13 1.66 – – 15.88 17.54
2% – – 19% 21%
FY20 Total 54 1.66 13.40 27.57 39.44 82.07
2% 16% 34% 48% 100%
FY21 New acquisitions in year 84 – 28.94 37.6 6 26.16 92.76
– 21% 27% 19% 67%
FY21 Pre-existing Catalogues 54 (4.90) – – 50.54 45.64
(4%) – – 37% 33%
FY21 Total 138 (4.90) 28.94 37.66 76.70 138.40
(4%) 21% 27% 56% 100%
FY22 New acquisitions in year 8 – 14.09 3.88 9.32 27.29
– 8% 2% 6% 16%
FY22 Pre-existing Catalogues 138 (5.21) – – 146.27 141.06
(3%) – – 87% 84%
FY22 Total 146 (5.21) 14.09 3.88 155.59 168.35
(3%) 8% 2% 93% 100%
• Prior Year over/under accrual is the residual amount recognised in each financial year for the unwinding
of estimates made for statements yet to come.
• Pre-FY RTI is revenue recognised in the current financial year where the entitlement to revenue arose prior to the
commencement of that financial year. The pre-FY RTI is recognised on the date on closure of the deal.
• Within FY, pre-acq RTI is revenue recognised in the financial year for periods within the same financial year, but
before the date of acquisition and recognised on the date on closure of the deal.
• Within FY, post-acq is revenue recognised in the financial year for periods after the date of acquisition.
44
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2022
Outlook
Despite the current challenging macro-economic
environment, with expectations of high inflation and
a squeeze on consumer spending, we believe in the
uncorrelated nature and growth opportunities of music
and we therefore go into 2022/2023 extremely confident
of our future. Great Songs are not just entertainment.
They are the soundtrack of our lives and people turn
to them for comfort and escape equally in times
of hardship as they celebrate with them in times of
prosperity. As a result, music revenues have been
historically uncorrelated to economic conditions, and
we strongly believe that Streaming growth will continue
uninterrupted over the coming years.
Music Streaming remains the most inexpensive form of
entertainment with the highest value return. It provides
one of the highest quality offerings of all entertainment
subscription services and has low penetration rates
with significant room for growth in both the developed
markets as well as emerging markets. The recent 2022
Goldman Sachs update to their Music in the Air series,
which is recognised as the gold standard since its first
iteration almost 5 years ago, concurs with our views.
Add into this the confirmed songwriter royalty rates
uplift from CRB III, the efficiencies that our own US
administration and the new agreements that Sacem
and Peermusic bring to our collections, combined with
the value that’s added as a result of our strong Song
Management focus and Songs as an asset class have
a very bright future.
We will continue to deliver on our promises to you in the
years to come that will leave you singing Sweet Dreams
(Are Made Of This) and Good Times.
Thank you once again to you, our Shareholders for
your tremendous support, to our Board for their tireless
efforts and to the incomparable Songwriters, artists and
producers who have not only entrusted us with their
great Songs but have also helped us make Hipgnosis
the preferred choice of the Songwriting community.
Best wishes,
Merck Mercuriadis
Founder, Hipgnosis Songs Fund Ltd and
Founder/CEO, Hipgnosis Song Management Ltd.
13 July 2022
STRATEGIC REPORT • INVESTMENT ADVISER’S REPORT
31 out of the Top 100 Best Selling Albums in the UK
have involvement from Hipgnosis’ Songwriters
3
SOUR • Olivia Rodrigo
1 Song • Jack Antonoff
55
Best Of 50 Cent • 50 Cent
19 Songs • Curtis Jackson, Mark Batson
5
Between Us • Little Mix
4 Songs • Ed Drewett, TMS
57
Nevermind • Nirvana
13 Songs • Andy Wallace
6
50 Years – Don’t Stop • Fleetwood Mac
50 Songs • Lindsey Buckingham, Christine McVie
58
In The Lonely Hour • Sam Smith
1 Song • Fraser T. Smith
8
Divide • Ed Sheeran
13 Songs • Benny Blanco, Johnny McDaid
59
Greatest Hits • Red Hot Chili Peppers
15 Songs • Red Hot Chili Peppers
9
Curtain Call: The Hits • Eminem
2 Songs • Jimmy Iovine, Mark Batson
66
Justice • Justin Bieber
4 Songs • Jordan K. Johnson, Stefan Johnson
20
23 • Central Cee
1 Song • Bernard Edwards, Thomas Richardson
77
No. 6 Collaborations Project • Ed Sheeran
1 Song • Benny Blanco
21
Rumours • Fleetwood Mac
11 S o ng s • Lindsey Buckingham, Christine McVie
81
21 • Adele
1 Song • Fraser T. Smith
22
Future Nostalgia • Dua Lipa
2 Songs • Grimes, Jordan K. Johnson, Stefan Johnson
83
Get Rich or Die Tryin’ • 50 Cent
21 Songs • Curtis Jackson
35
I Will Always Love You: The Best Of Whitney Houston
• Whitney Houston
5 Songs • Steve Winwood, Rodney Jerkins, Tricky
Stewart, LA Reid
85
Teenage Dream • Katy Perry
11 S o ng s • Tricky Stewart, Bonnie McKee
36
Shoot For The Stars • Pop Smoke
1 Song • Curtis Jackson
86
The Singles Collection • Britney Spears
11 S o ng s • Savan Kotecha, Tricky Stewart, The-Dream,
Rodney Jerkins, Christian Karlsson, Marcella Araica
41
Singles • Maroon 5
5 Songs • Ammar Malik, Savan Kotecha, JKash
95
Back To Black • Amy Winehouse
1 Song • Mark Ronson
42
Dua Lipa • Dua Lipa
5 Songs • Grimes, Ian Kirkpatrick, Caroline Ailin, Ilsey
Juber, Banx & Ranx
96
Without Fear • Dermot Kennedy
7 Songs • Scott Harris, Nate Ruess
43
1989 • Taylor Swift
3 Songs • Jack Antonoff
97
Reputation • Taylor Swift
6 Songs • Jack Antonoff
49
Doo-Wops & Hooligans • Bruno Mars
11 S o ng s • Ari Levine, Jeff Bhasker
99
Greatest Hits • Pitbull
3 Songs • Ilsey Juber, Bernard Edwards, RedOne
51
X • Ed Sheeran
9 Songs • Benny Blanco, Johnny McDaid, Emile Haynie
100
The Stars Beneath My Feet • James Blunt
10 Songs • Mark Batson, Sacha Skarbek, Steve
Robson
52
Lover • Taylor Swift
7 Songs • Jack Antonoff, Joel Little, Scott Harris
Album Title • Artist • Number of Songs • Hipgnosis contributor(s)
Source: Half year UK Album Sales, Official Charts, June 2022
STRATEGIC REPORT
45
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2022
SUPERSTARS • SUPER SONGS
Our Great Songwriters have written Iconic Songs for:
Lady Gaga
Shallow (feat. Bradley
Cooper)
• Mark Ronson
Million Reasons
• Mark Ronson
Bad Romance
• RedOne
Poker Face
• RedOne
Just Dance
• RedOne
Telephone (feat. Beyoncé)
• Rodney Jerkins
Stupid Love
• Martin Bresso
Applause
• Martin Bresso
Alejandro
• RedOne
Perfect Illusion
• Mark Ronson
Judas
• RedOne
Love Game
• RedOne
John Wayne
• Mark Ronson
A-YO
• Mark Ronson
Joanne
• Mark Ronson
Dancin’ In Circles
• Mark Ronson
Diamond Heart
• Mark Ronson
Monster
• RedOne
Hey Girl (feat. Florence
Welch)
• Mark Ronson
Sinners Prayer
• Mark Ronson
So Happy I Could Die
• RedOne
Come To Mama
• Emile Haynie
Grigio Girls
• Mark Ronson
Boys, Boys, Boys
• RedOne
Sexxx Dreams
• Martin Bresso
Angel Down
• RedOne
Schei(ß)e
• RedOne
Hair
• RedOne
Gypsy
• RedOne
Paper Gangsta
• RedOne
Fashion
• RedOne/Giorgio Tuinfort
Money Honey
• RedOne
Highway Unicorn (Road To
Love)
• RedOne
LADY GAGA FEATURES:
NEW KIDS ON THE BLOCK
• Big Girl Now (feat. Lady
Gaga)
• Redone
46
Photo by Lindsey Byrnes/Contour by Getty Images
STRATEGIC REPORT
47
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2022
Our Market
STRATEGIC REPORT
Streaming continues to grow
As discussed on pages 3 and 15, 2021 was another
strong year for the music industry. Global recorded
music revenues grew by an impressive 18.5% year-on-
year to $25.9 billion, according to IFPI, driven in large
part by a continued acceleration in the adoption
in paid-for Streaming, where revenues grew by 21%
year-on-year. Overall global Streaming revenues grew
by 24.3% year-on-year. 523 million subscribers globally
now pay for music, an 18.5% increase on last year, with
Streaming now contributing 65% of all revenues; music
is now perceived by many to be a utility.
The US continues to be the largest single market.
US recorded music revenues, as reported by the RIAA,
grew by 24% year-on-year in 2021 to $15 billion, versus
the prior year’s growth of 9% year-on-year. Streaming
growth outperformed, growing at 24% year-on-year in
2021. In the US, over 80% of music is now consumed via
Streaming, with over three-quarters of that being paid-
for Streaming.
US recorded market revenue has now reached the
same level seen in 1999, before the industry was
decimated by piracy and illegal downloading. However,
on an inflation-adjusted basis the industry has only
reached two-thirds of this historic peak suggesting there
is still room for significant revenue growth.
Growth in Streaming is expected to remain strong and
is part of Hipgnosis’ strategy, as discussed on pages 54
and 73. The consumer market company Statista highlights
there are over six billion smartphone subscriptions
worldwide. With 523 million global music subscribers in
2021, market penetration by Streaming of smartphone
owners is under 10%. This figure is expected to more than
double by 2030, according to Goldman Sachs.
$0
$2,000
$4,000
$6,000
$8,000
$10,000
$12,000
$14,000
$16,000
RIAA US Recorded Music Revenues ($m)
Source: RIAA Vinyl Tapes CDs/DVDs Downloads & Ringtones Streaming (ad-supported) Paid Subscription
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
4
7
.
3
9
.
2
9
.
4
4
.
3
2
.
1
1
7
.
7
Global recorded music revenues
by segment 2021(%
)
Source: IFPI
Subscription audio streams
Ad-supported streams
Physical
Performance Rights
Downloads & other Digital
Synchronisation
65.0%
Total Streaming
48
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2022
In their 2022 Music In the Air report, Goldman Sachs
forecasts global music market revenues will reach
$103 billion by 2030, a 9% CAGR 2021-2030, with
Streaming revenues growing at a CAGR of 12% over
the same timeframe.
Significantly for Hipgnosis, as an older demographic
increasingly embrace Streaming and subscriptions,
the Hipgnosis Catalogue of iconic, culturally significant
Songs is likely to be increasingly in demand as more
casual music lovers become subscribers.
Music publishing
The latest Global Collections Report, published by
The International Confederation of Societies of Authors
and Composers (CISAC) in October 2021, reported that
worldwide royalty collection in 2020 fell by 9.9% as a
result of the pandemic reducing music consumption.
Since then, the music publishing market has seen a
gradual recovery in revenues throughout 2021, driven by
the public performance segment, which has benefited
from the re-opening of public venues. For example,
in the UK, the Collection Society PRS for Music reported
a 59.6% increase in public performance revenues
in 2021 to £137.6 million, even though the UK was in
lockdown for over five months of the year. Despite this,
their revenues are still 38.1% below 2019 levels.
Looking forward, Goldman Sachs predict the global
music publishing market will grow by 6-7% in 2022/23
with a CAGR of 6% through to 2030, reaching a value
of $11.7 billion in 2030.
Consumption of music is evolving
Music is 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 Hipgnosis. 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 YouTube where users consume more of the music
they have heard.
TikTok’s music 2021 report states that around 430 Songs
reached one billion views on their platform during 2021,
triple the total for 2020, with the most popular Songs
exceeding 20 billion views on videos they soundtrack.
Over 175 Songs that trended on TikTok in 2021 charted
on the Billboard Hot 100, double the 2020 number.
Hipgnosis has been proactive in building a presence
to promote our artists and catalogue and our channel
@Hipgnosissongs has 2.1 million subscribers and
11.3 million likes on TikTok. More details on the impact
of TikTok can be found on page 22.
Importantly, the monetisation of music on emerging
platforms is accelerating. As noted by the Portfolio
Independent Valuer, revenues from these emerging
platforms are increasingly being captured by the music
industry as licences are agreed.
The Directors expect this trend to continue and believe
it is highly likely that new platforms will emerge and
music will become an increasingly important element
of the content on other social media platforms.
Live performance
The pandemic decimated the Live sector in 2020 and
2021. According to the UK’s PRS for Music, royalties from
the Live sector declined further in 2021, and have seen
an overall 85.2% reduction since 2019.
As anticipated in last year’s annual report, the
relaxation or ending of restrictions put in place by
Governments to slow the spread of COVID-19 has seen
a widespread return of live music as artists who had
delayed tours reschedule, new tours are arranged and
music festivals, once again, take place.
For the first quarter of 2022, Live Nation revenues (which
mainly come from concerts) was $1.8 billion (Q1 2021:
$290.5 million), with all leading indicators pointing to
double digit growth in fan attendance at concerts this
year compared to the prior year.
On 24 May 2022, CTS Eventim, a live entertainment
market leader in Europe, announced that “ticket sales
in April 2022 and so far in May too have been well
above the level seen in the same period of 2019, which
had been a record year.”
As a result, the Directors expect 2022 to be a record year
for concerts and festivals with many of our artists such
as Nile Rodgers and CHIC, Blondie, The Chainsmokers,
The Wombats and the Red Hot Chili Peppers touring, the
latter having already sold over a million tickets.
STRATEGIC REPORT • OUR MARKET
STRATEGIC REPORT
49
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2022
Emerging Markets
The US & Canada is still the biggest music market (c.40%
of the total, source: IFPI).
Elsewhere, the global growth of Streaming has
resulted in an increase in the monetisation of Songs in
jurisdictions in which it has historically been difficult to
recover royalties due to factors including high piracy
rates or poor revenue collection methods.
IFPI saw growth in revenues in Asia of 16.1% year-on-
year, Latin America by 31.2% year-on-year and Middle
East & North Africa by 35% year-on-year.
According to the IPFI Global Music Report 2022,
recorded music revenues grew in every region around
the world in 2021. Both the Middle East and North Africa
region and Latin America enjoyed growth in excess of
30%, with Asia excluding Japan growing at 25%.
Payments to Songwriters
Hipgnosis has been, and continues to, be an advocate
for Songwriters to be fairly rewarded for their work.
Partly as a result of this campaign, in the UK, the
Government asked the Competition and Markets
Authority (CMA) to carry out a market study into music and
Streaming. The CMA is due to announce by the 26 July 2022
whether they will carry out a full market investigation.
In April 2022, in the US, The National Music Publishers’
Association (NMPA) and Nashville Songwriters
Association International (NSAI), representing artists,
and Sony Music Entertainment, UMG Recordings, Inc.
and Warner Music Group Corp have proposed to
the Copyright Royalty Board (CRB) a settlement on
mechanical royalties for the CRB IV period, running from
2023-2027 which would see the mechanical rate paid
to publishers and songwriters for music purchased as
a physical sale increase from 9.1¢ per track to 12¢ per
track from 2023-2027. Additionally, these royalties will
increase annually in line with the Consumer Price Index.
On 1 July 2022, The US Copyright Royalty Board (CRB)
announced it had disallowed the appeal by various
Streaming services against the CRB III determination
to increase mechanical Streaming royalty rates for
songwriters and publishers.
The increase, which is incremental over the period
covered by CRB III (1 January 2018 until 31 December
2022) will culminate in a 44% uplift in the “all in”
(mechanical and performance) statutory minimum
rates for Streaming paid in the US, rising from 10.5% of
Streaming revenues prior to 2018 to 15.1% in 2022.
For most of the period since the appeal was launched
in 2020, the majority of the increased revenue due to
the owner of song copyrights has been withheld and
revenues have been paid off the CRB II rate of 10.5%
in most cases. Hipgnosis will now receive US Streaming
revenues based on the royalty rates set out in CRB III.
In addition, Hipgnosis has not accounted for any
withheld revenue since 2020. This is expected to be
received by Hipgnosis in the coming periods, as money
flows from the Digital Service Providers (DSPs) to the
publishers and then copyright owners.
The Board welcomes the decision of the CRB and
believes that it is a positive indicator of their thinking
as they consider the outcome of all facets relating
to CRB IV. CRB IV, which will determine songwriter
payments for 2023-2027, is currently underway.
4
0
.
0
2
3
.
0
3
.
9
3
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.
1
0
.
3
2
.
2
0
.
1
Global music revenues by region, 2021(%)
Source: IFPI
USA & Canada
Europe
Asia
Latin America
Australasia
Middle East & North Africa
Sub-Saharan Africa
50
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2022
Macroeconomic conditions
One of the strengths of Hipgnosis’ investment thesis
is the belief that listening to music and therefore the
revenues this now generates is uncorrelated to macro-
economic conditions.
Streaming revenues make up the largest proportion
of Hipgnosis’ income and the Directors believe that,
notwithstanding current macroeconomic conditions
and given the unsaturated nature of the market,
Streaming subscriber numbers are likely to continue
to grow rapidly. Given the very good consumer value
that Streaming represents, the Directors are optimistic
that, as has been the case in previous economic
slowdowns, consumers will choose to maintain lower
ticket entertainment items (such as Streaming) even if
they need to cut back on more expensive items.
As such, the Directors believe that the DSPs have
significant pricing power which will, over time, offset the
impact of inflation.
Ukraine
When considering the suffering created by the war in
Ukraine, it feels inappropriate to consider the financial
implications.
Hipgnosis is fully compliant with the sanctions
introduced by the US and UK governments. The
Company did not receive any revenues directly from
Russia or Belarus. Revenues received indirectly via
collection societies are immaterial.
At a practical level, the Directors are delighted that
HSM was able to sponsor five Ukrainian refugees to
come to the UK, one of whom, who has considerable
musical knowledge and experience, has been
employed by HSM.
The victory for Ukraine in the Eurovision Song Contest
demonstrates the important role that music can have
in bringing comfort and demonstrating support even in
the most terrible of situations.
STRATEGIC REPORT • OUR MARKET
SUPERSTARS • SUPER SONGS
Our Great Songwriters have written Iconic Songs for:
Harry Styles/
One Direction
Sign Of The Times
• Jeff Bhasker
Kiwi
• Jeff Bhasker
Two Ghosts
• Julian Bunetta/John Ryan
From The Dining Table
• Jeff Bhasker
Meet Me In The Hallway
• Jeff Bhasker
Carolina
• Jeff Bhasker
Woman
• Jeff Bhasker
Ever Since New York
• Jeff Bhasker
Only Angel
• Jeff Bhasker
ONE DIRECTION
Drag Me Down
• JB / J S / J R
Story Of My Life
• JB / J S / J R
Perfect
• Julian Bunetta/John Ryan
What Makes You Beautiful
• Savan Kotecha
Night Changes
• JB / J S / J R
History
• JB / E D / J R
Steal My Girl
• Ed Drewett
You and I
• JB / J S / J R
Best Song Ever
• JB / E D / J R
Kiss You
• Kristoffer Fogelmark/Albin
Nedler
18
• Steve Robson
One Thing
• Savan Kotecha
No Control
• JB / J S / J R
Infinity
• Julian Bunetta/Jamie Scott
Love You Goodbye
• Julian Bunetta
AM
• JB / E D / J R
Olivia
• Julian Bunetta/John Ryan
Midnight Memories
• JB / J S / J R
End Of The Day
• JB / E D / LL / J R
Half A Heart
• Ed Drewett/Steve Robson
Stockholm Syndrome
• Julian Bunetta/John Ryan
Where Do Broken Hearts Go
• Julian Bunetta
Fireproof
• JB / J S / J R
What A Feeling
• Jamie Scott
More Than This
• Jamie Scott
Strong
• JB / J S / J R
Fools Gold
• Jamie Scott
Last First Kiss
• Kristoffer Fogelmark/
Albin Nedler
Rock Me
• Sam Hollander/Kool Kojak
Diana
• JB / J S / J R
Ready To Run
• JB / J S / J R
Never Enough
• JB / J S / J R
Girl Almighty
• JB / J S / J R
Up All Night
• Savan Kotecha
Temporary Fix
• TMS
I Want To Write You A Song
• Julian Bunetta/Ammar
Malik/John Ryan
Hey Angel
• JB / E D / J R
Walking In The Wind
• JB / J S / J R
She’s Not Afraid
• JB / J S / J R
Act My Age
• JB / E D / J R
C’mon, C’mon
• Julian Bunetta/John Ryan
Long Way Down
• JB / J S / J R
Through The Dark
• Jamie Scott
I Wish
• Savan Kotecha
Better Than Words
• JB / J S / J R
Spaces
• JB / J S / J R
Clouds
• JB / J S / J R
Little White Lies
• JB / E D / J R
Summer Love
• Steve Robson
Home
• Jamie Scott
Once In A Lifetime
• JB / J S / J R
Back For You
• Kristoffer Fogelmark/
Albin Nedler
Does He Know
• JB / J S / J R
Little Black Dress
• Julian Bunetta
Change Your Ticket
• Julian Bunetta
Same Mistake
• Steve Robson
Illusion
• JB / J S / J R
Loved You First
• Julian Bunetta/John Ryan
Alive
• Julian Bunetta/Jamie Scott
Stole My Heart
• Jamie Scott
Why Don’t We Go There
• Steve Robson
Save You Tonight
• Savan Kotecha/RedOne
Everything About You
• Steve Robson
Na Na Na
• Savan Kotecha
I Should Have Kissed You
• Steve Robson
Another World
• RedOne
STRATEGIC REPORT
51
Key: JB – Julian Bunetta; ED – Ed Drewett; JR – John Ryan; JS – Jamie Scott Photo by Kevin Mazur/Getty Images
52
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2022
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: ①③④⑤⑥⑦⑨⑩⑪
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: ③⑩
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: ③⑤
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: ⑨
STRATEGIC REPORT
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 70-73.
Footnote: The logos above are representative of users for illustrative purposes only. The trade marks 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
• Sound Exchange
• Sacem
Collected by the
Administrators eg:
• Sony Publishing
• Universal Publishing
• Warner Chappell
• Kobalt Publishing
• HSG
• BMG
• Peermusic
Earned by the
Record Companies eg:
• Universal Music Group
• Sony Music
• Warner Music Group
Direct
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STRATEGIC REPORT
53
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2022
54
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2022
STRATEGIC REPORT • OUR PURPOSE, BUSINESS MODEL, CULTURE AND VALUES
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
• We have the relationships, reputation and expertise
in the industry to be advocates and catalysts 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: ⑧⑩
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 523 million global users of
subscription Streaming services at the end of 2021,
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: ③⑨⑪
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 risk: ⑧
STRATEGIC REPORT
55
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2022
4. Efficiencies In collection
• We work to bring efficiencies via faster and more
transparent collection of micro-payments via our
preferred administrators.
• The Company is moving the administration for the
US component of our Catalogues to HSG at the
earliest practicable opportunity. The Investment
Adviser and the Directors expect this to enhance
returns for Shareholders as it is anticipated 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. We look to minimise third-
party administration fees, reduce the time taken
to collect payments, maximise Synch opportunities
and increase transparency over distributions.
Related principal risks: ①④⑩
SUPERSTARS • SUPER SONGS
Our Great Songwriters have written Iconic Songs for:
Enrique Iglesias
56
Bailando (feat. Descemer
Bueno, Gente De Zona)
Enrique Iglesias
SUBEME LA RADIO (feat.
Descemer Bueno, Zion,
Lennox)
Enrique Iglesias
Bailando – English Version
(feat. Sean Paul)
• Enrique Iglesias
SUBEME LA RADIO
(feat. Sean Paul)
• Enrique Iglesias
DUELE EL CORAZON
(feat. Wisin)
• Enrique Iglesias
Hero
• Enrique Iglesias/Paul Barry
Cuando Me Enamoro
• Enrique Iglesias
Tonight (I’m Fuckin You)
(feat. Ludacris)
• Enrique Iglesias
Loco (feat. Romeo Santos)
• Enrique Iglesias
I Like It (feat. Pitbull)
• RedOne
El Perdedor
• Enrique Iglesias
I’m A Freak (feat. Pitbull)
• Enrique Iglesias
Do You Know? (The Ping
Pong Song)
• Sean Garrett/Enrique
Iglesias
Escape
• Enrique Iglesias
Heart Attack
• Enrique Iglesias
Finally Found You
• Enrique Iglesias
Heartbeat (feat. Nicole
Scherzinger)
• Jamie Scott
Dímelo
• Sean Garrett/Enrique
Iglesias
I Like How It Feels (feat.
Pitbull, The WAV.s)
RedOne/Adam Baptiste/
Enrique Iglesias
Be With You
• Paul Barry/Enrique Iglesias
Dirty Dancer (ft Usher,
Lil Wayne)
• Enrique Iglesias/Evan Bogart
No Me Digas Que No
(feat. Wisin, Yandel)
• Enrique Iglesias
There Goes My Baby
(feat. Flo Rida)
• Enrique Iglesias/Paul Barry
Por Amarte
• Enrique Iglesias
Si Tu Te Vas
• Enrique Iglesias
Nunca Te Olvidaré
• Enrique Iglesias
Dónde Están Corazón?
• Enrique Iglesias
Loco (feat. India Martinez)
• Enrique Iglesias
Takin Back My Love
(feat. Ciara)
• Enrique Iglesias
You And I
• Enrique Iglesias
Quizas
• Enrique Iglesias
Escapar
• Enrique Iglesias
Turn The Night Up
• Enrique Iglesias
Lloro Por Ti
• Enrique Iglesias
Ayer
• Enrique Iglesias
No Llores Por Mi
• Enrique Iglesias
Somebody's Me
• Enrique Iglesias
Alguien Soy Yo
• Enrique Iglesias
Enamorado Por Primera Vez
• Enrique Iglesias
One Day At A Time (feat. Akon)
• Enrique Iglesias
Ring My Bells
• Savan Kotecha/Enrique
Iglesias
Mentiroso
• Enrique Iglesias
Let Me Be Your Lover
• Enrique Iglesias
Push (feat. Lil Wayne)
• Enrique Iglesias
Why Not Me?
• RedOne/Enrique Iglesias/
Evan Bogart
Solo En Ti
• Enrique Iglesias
Can You Hear Me
• Enrique Iglesias
Don’t Turn Off The Lights
• Paul Barry
Only A Woman
• Enrique Iglesias
Dile Que
• Enrique Iglesias
Addicted
• Paul Barry/Enrique Iglesias
Physical (feat. Jennifer
Lopez)
• Enrique Iglesias
Still Your King
(feat. The Cataracs)
• Enrique Iglesias
Esperanza
• Enrique Iglesias
Tu Y Yo
• Enrique Iglesias
Love To See You Cry
• Paul Barry/Enrique Iglesias
Para Que La Video
• Enrique Iglesias
Maybe
• Enrique Iglesias
Heartbreaker
• Enrique Iglesias
Wish I Was Your Lover
• Enrique Iglesias/Arnthor
Birgisson
Falta Tanto Amor
• Enrique Iglesias
No Apagues La Luz
• Enrique Iglesias
Away (feat. Sean Garrett)
• Sean Garrett
Coming Home
• Enrique Iglesias/Jamie Scott
Don’t You Forget About Me
• Paul Barry/Enrique Iglesias
Everythings Gonna Be Alright
• Enrique IglesiasI
Will Survive
• Enrique Iglesias
Little Girl
• Paul Barry/Enrique Iglesias
Not In Love (feat. Kelis)
• Paul Barry/Enrique Iglesias
On Top Of You
• Johnta Austin/Enrique
Iglesias
Stay Here Tonight
• Enrique Iglesias
The Way You Touch Me
• Enrique Iglesias
Inalcanzable
• Enrique Iglesias
If the World Crashes Down
• Enrique Iglesias
I’m Your Man
• Enrique Iglesias
Miss You
• Enrique Iglesias/Arnthor
Birgisson
One Night Stand
• Paul Barry/Enrique Iglesias
She Be The One
• Paul Barry/Enrique Iglesias
You’re My #1
• Enrique Iglesias
Adicto
• Enrique Iglesias/Paul Barry
Alguien Como Tú
• Enrique Iglesias
Contigo
• Enrique Iglesias
Lluvia Cae
• Enrique Iglesias
Marta
• Enrique Iglesias
Oyeme
• Enrique Iglesias
Pienso En Tí
• Enrique Iglesias
Tres Palabras
• Enrique Iglesias
Noche Y De Día
• Enrique Iglesias
Be Yourself
• Paul Barry/Enrique Iglesias
Break Me Shake Me
• Enrique Iglesias
California Callin’
• Paul Barry
Free
• Paul Barry/Enrique Iglesias
Live It Up Tonight
• Enrique Iglesias
Roamer
• Enrique Iglesias
Wish You Were Here With me
• Paul Barry/Enrique Iglesias
You Rock Me
• Enrique Iglesias
Alabao
• Enrique Iglesias
Al Despertar
• Enrique Iglesias
Dicen Por Ahí
• Enrique Iglesias
Gracias A Ti Remix
• Enrique Iglesias
Mamacita
• Enrique Iglesias
Para De Jugar
• Enrique Iglesias
Suéltame Las Riendas
• Enrique Iglesias
Viviré Y Moriré
• Enrique Iglesias
Volveré
• Enrique Iglesias
ENRIQUE IGLESIAS
FEATURES:
NICKY JAM
El Perdón (feat. Enrique
Iglesias)
• Enrique Iglesias
PITBULL
Messin’ Around (feat.
Enrique Iglesias)
• Enrique Iglesias
REDONE
Don’t You Need Somebody
(feat. Enrique Iglesias,
R. City, Serayah & Shaggy)
• Enrique Iglesias
DESCEMER BUENO
Nos Fuimos Lejos
(feat. Enrique Iglesias)
• Enrique Iglesias
DEV
Naked (feat. Enrique
Iglesias)
• Enrique Iglesias
PITBULL
Come N Go (feat. Enrique
Iglesias)
• Enrique Iglesias
LIONEL RICHIE
To Love A Woman
(feat. Enrique Iglesias)
• Enrique Iglesias/Paul Barry
STRATEGIC REPORT
57
Photo by Kevin Winter/WireImage
58
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2022
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
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HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2022
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: ③⑤⑨⑪
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 2022, 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 2022, approximately 1% of the Portfolio
(based on fair value) was derived from Songs that were
released less than 3 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 2022,
we maintain an active roster of over 175 Songwriters.
We consider Advances to be a cost-effective way to
generate royalties in the future from Songs written by
highly regarded Songwriters.
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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: ①②⑥⑧⑨⑩
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.
iii) Early adoption of technological
advancements to increase collections
The Investment Adviser monitors technological
advances that will enabe 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 audit
The Investment Adviser undertakes a full digital audit
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 invests 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 15-44. Our principal risks
and uncertainties are presented on pages 70-73.
STRATEGIC REPORT • OUR OBJECTIVE, STRATEGY AND INVESTMENT POLICY
SUPERSTARS • SUPER SONGS
Our Great Songwriters have written Iconic Songs for:
Justin Bieber
Love Yourself
• Benny Blanco
Sorry – Latino Remix
(feat. J Balvin)
• Sonny Moore
What Do You Mean
• Poo Bear
Ghost
• Jordan K. Johnson
Company
• Poo Bear
I’ll Show You
• Sonny Moore
Baby (feat. Ludacris)
• The-Dream/Tricky Stewart
Purpose
• Poo Bear
As Long As You Love Me
(feat. Big Sean)
• Rodney Jerkins/Andre
Lindal
The Feeling (feat. Halsey)
• Ian Kirkpatrick/Sonny
Moore
One Time
• Tricky Stewart
As I Am (feat. Khalid)
• Jordan K. Johnson
No Pressure (feat. Big Sean)
• Poo Bear
Mark My Words
• Poo Bear/Rodney Jerkins
Home To Mama (feat. Cody
Simpson)
• Andrew Watt
All That Matters
• Poo Bear
Life Is Worth Living
• Poo Bear
No Sense (feat. Travis Scott)
• Poo Bear
Anyone
• Jordan K. Johnson
Children
• Poo Bear/Sonny Moore
Been You
• Poo Bear
Get Used To It
• Poo Bear
We Are (feat. Nas)
• Poo Bear
Hold Tight
• Poo Bear
Trust
• Poo Bear
All In It
• Poo Bear
Love You Different
• Jordan K. Johnson
Die In Your Arms
• Rodney Jerkins
Right Here (feat. Drake)
• Eric Bellinger
Rollercoaster
• Rodney Jerkins
Recovery
• Poo Bear
Never Let You Go
• Johnta Austin
Thought Of You
• Eric Bellinger
Bad Day
• Poo Bear
Maria
• Rodney Jerkins
All Bad
• Poo Bear
Change Me
• Poo Bear
Swap It Out
• Poo Bear
PYD (feat. R. Kelly)
• Poo Bear
She Don’t Like The Lights
• Rodney Jerkins
Name (feat. Tori Kelly)
• Stefan Johnson
JUSTIN BEIBER FEATURES:
LUIS FONSI
Despacito – Remix (feat.
Justin Bieber, Daddy
Yankee)
• Poo Bear
DJ SNAKE
Let Me Love You (feat.
Justin Bieber)
• Andrew Watt
MAJOR LAZER
Cold Water (feat. Justin
Bieber, Mo)
• Benny Blanco
JACK U
Where Are You Now
(feat. Justin Bieber)
• Poo Bear/Sonny Moore
DAVID GUETTA
2U (feat. Justin Bieber)
• Poo Bear
DJ KHALED
I’m The One (feat. Justin
Bieber, Quavo, Chance the
Rapper, Lil Wayne)
• Poo Bear
FAR EAST MOVEMENT
Live My Life (feat. Justin
Bieber)
• RedOne
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Photo by Mike Rosenthal/Getty Images
SUPERSTARS • SUPER SONGS
Our Great Songwriters have written Iconic Songs for:
Bruno Mars
Just The Way You Are
• Ari Levine
When I Was Your Man
• Ari Levine
Locked Out Of Heaven
• Ari Levine
Grenade
• Ari Levine
Treasure
• Ari Levine
Lazy Song
• Ari Levine
The Lazy Song
• Ari Levine
Marry You
• Ari Levine
Talking To The Moon
• Jeff Bhasker/Ari Levine
Count On Me
• Ari Levine
It Will Rain
• Ari Levine
Young Girls
• Jeff Bhasker/Emile Haynie/
Ari Levine
Gorilla
• Ari Levine
Runaway Baby
• Ari Levine
Too Good To Say Goodbye
• Jeff Bhasker
Liquor Store Blues (feat.
Damian Marley)
• Ari Levine
Calling All My Lovelies
• Bhasker/Haynie
If I Knew
• Ari Levine
Versace (feat. David
Guetta)
• Giorgio Tuinfort
Moonshine
• Ari Levine
The Other Side (feat. B.o.B,
CeeLo Green)
• Ari Levine
Show Me
• Ari Levine
Our First Time
• Ari Levine
Money Make Her Smile
• Ari Levine
Somewhere In Brooklyn
• Ari Levine
BRUNO MARS FEATURES:
B.O.B
Nothin’ On You (feat. Bruno
Mars)
• Ari Levine
TRAVIE MCCOY
Billionaire (feat. Bruno
Mars)
• Ari Levine
MARK RONSON
Uptown Funk (feat. Bruno
Mars)
• Jeff Bhasker/Mark Ronson
SNOOP DOGG
Young, Wild & Free (feat.
Bruno Mars, Wiz Khalifa)
• Ari Levine
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Photo by John Russo/Contour by Getty Images
STRATEGIC REPORT
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HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2022
Our business takes the form of investment in the
intellectual property rights of proven hit Songs of cultural
importance, primarily inNorth America and Europe.
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 deep implications 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 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 84.
Whilst there is still more to do, we are committed to
demonstrating continued and transparent progress
regarding Hipgnosis' 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. However, the Company is nevertheless
exposed to sustainability risks due to the nature of the
assets in which it invests:
1. 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.
2. 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, which include, but are not limited to: brand
and reputational issues, shift in cultural mores, changes
to regulation, environmental threats, physical threats
and work practices of our suppliers.
Our Resources and Relationships
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.
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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 interact 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 Statement on page 78.
Following the acquisition of HSG, Hipgnosis Songs Fund
now has 41 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, 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 11, 36, 52 and 58. Our
Investment Adviser also enables us to engage with the
writers and composers of Song Catalogues 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
featured in the Hipgnosis 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 28 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 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 voice has 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.
Our advocacy on the part of the Songwriting
community has served to make us the 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
from the Copyright Royalty Board (CRB) hearings in the
US to the global headquarters of the major recorded
STRATEGIC REPORT • OUR RESOURCES AND RELATIONSHIPS
STRATEGIC REPORT
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HIPGNOSIS SONGS FUND LIMITED
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music companies that are, in our view, responsible for
the Songwriter’s role not being properly remunerated
and recognised, the Performing Rights Societies, who
have to advocate for Songwriters more aggressively and
straight through to the excellent work of DCMS Select
Committee which prompted the UK Department of
Digital, Culture, Media (DCMS) and sport to engage
the Competition and Markets Authority to conduct a
market study. Hipgnosis has submitted evidence to the
CMA and continues to meet with them on a regular
basis with the belief that the CMA will launch a full
market investigation. A decision is due by the end of
July 2022.
We have dedicated significant time, money and
resources to supporting the Songwriting community.
Led by Merck Mercuriadis, this includes work with The
Ivors Academy, who nurture new Songwriting talent
and advocate for the Songwriters and The Nashville
Songwriters Association International, who work at the
highest levels of the US Congress and Senate on the
same themes.
We have been proactive with engagement with UK
ministers, members of the DCMS Select Committee
and MPs. Our Chief Catalogue Officer sits on the DCMS
metadata transparency committee, which meets
monthly.
We welcomed the announcement in the Government’s
legislative plans set out in May 2022 for legislation to
create the legal framework for the statutory Digital
Markets Unit. This is a huge opportunity to redress the
current imbalance in the music Streaming market which
favours digital platforms over Songwriters and Artists. By
including digital music platforms, this new draft law will
pave the way for a major boost to Songwriters, the UK’s
music industry and its creative potential.
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, where we are
successful in our campaigning it will also deliver value
accretion for the fund’s Shareholders.
Broader music industry engagement
We are working to gain enough influence in the
music rights space to bring about a change in the
recompense seen by Songwriters in the Streaming age.
We are working with like-minded individuals and
organisations across the industry to support each
other’s initiatives and increase general awareness
of the issues arising.
If our mission is successful it will benefit both Songwriters
and our investors as the value of Songs grows. Our
interests are naturally aligned with what’s best for the
Songwriter also being best for our Shareholders (as the
direct owners of some of the world’s most culturally
important Songs).
Following the Russian invasion of the Ukraine and the
humanitarian crisis that has ensued, the Directors
are delighted that Merck Mercuriadis and HSM have
sponsored five Ukrainian refugees coming to the UK and
provided not only for their travel and housing, but in the
case of one of them, who has music experience, also a
full time position at HSM.
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).
We support the actions taken by our Investment
Adviser to promote #blacklivesmatter initiatives and
calls to action. All Hipgnosis trade advertising in the last
25 months 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.
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STRATEGIC REPORT • OUR RESOURCES AND RELATIONSHIPS
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 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.
We are proud to support Nordoff Robbins, whose
groundbreaking work uses music as therapy to enrich the
lives of people with life limiting illnesses, disabilities and
feelings of isolation. In 2021, we produced the annual
Christmas Carol Service for the second year in a row
which is a key highlight of Nordoff Robbins’ fundraising
calendar. Our Investment Adviser once again stepped
in with a significant donation to create an incredible
experience at St Luke’s Church in Chelsea with Sir Rod
Stewart as well as a virtual event. Merck Mercuriadis and
Andrew Wilkinson were the Executive Producers for the
event and Nile Rodgers not only hosted the online event,
but also performed along with Neil Young, Shakira,
Enrique Iglesias, Tony Bennett, Eurythmics Songbook
featuring David A. Stewart, Lindsey Buckingham and
many other Hipgnosis’ friends. Entitled The Stars Come
Out To Sing Again At Christmas, we once again brought
on board our friends at Open Exchange and the
London Stock Exchange to bring the biggest viewership
possible and raised over $200,000, approximately
double what the event usually achieves.
Our Investment Adviser contributes to the talent of
tomorrow via one of the UK’s leading educational
establishments in 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 thatwill 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 2021
A&R Awards.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 25,000 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.
We acquire a growing portfolio of music copyrights.
As intangible assets, 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
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HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2022
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 will monitor its
greenhouse gas (GHG) emissions to manage its
climate-related impacts. This will initially focus on
Scope 1, 2 and certain Scope 3 emissions.
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HIPGNOSIS SONGS FUND LIMITED
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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. In total we are now 89 strong.
STRATEGIC REPORT
STRATEGIC REPORT
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HIPGNOSIS SONGS FUND LIMITED
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Our Senior Management Team
Ted Cockle
President, HSM
Rosa Mercuriadis
Chief Creative, Marketing & Culture
Officer, HSM
Merck Mercuriadis
Founder & CEO, HSM
Chris Helm
CFO & Executive Vice President Business
Development, HSM
Amy Thomson
Chief Catalogue Officer, HSM
Markku Lonnqvist
Chief Investment Officer, HSM
Kenny MacPherson
CEO, HSG
Rufina Pavry
Director, Investor Relations, HSM
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ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2022
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.
Information on our risk management framework can be
found on page 97.
① Adverse change in policies by Collection Societies
and other entities through whom the Company
receives royalty payments
② Cyber security
③ Due diligence
④ Exchange rate
⑤ Financial leverage
⑥ Impact due to the COVID-19 pandemic
⑦ Interest rate
⑧ Key person
⑨ Market trends
⑩ Operational reliance on service providers
⑪ Payments as advances to Songwriters don’t yield
projected returns
Low Medium High
Low Medium
PROBABILITY
IMPACT
High
Movement from last year
1
6
11
9
10
8
7
2
4
5
3
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 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.
STRATEGIC REPORT
For a discussion of our market, see page 47; business
model, see page 52; strategy, see page 58; and
resources and relationships, see page 63.
STRATEGIC REPORT
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HIPGNOSIS SONGS FUND LIMITED
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③ Due diligence
Business Model: A1, A2, A3, B2
Strategy: 1. Smart Acquisition
Probability: Low Impact: High
Description
The due diligence process may not reveal all facts
that may be relevant in connection with investment
opportunities and any mismanagement, fraud, or
accounting irregularities on the part of any seller of
Catalogues, or their advisers, may materially affect the
integrity of the Investment Adviser’s due diligence on
such investment opportunities.
When conducting due diligence and making an
assessment regarding an investment, the Investment
Adviser and the Company’s legal and financial advisers
are required to rely on resources available to them,
including internal sources of information as well as
information provided by existing and potential sellers
of Songs. The due diligence process may at times be
required to rely on limited or incomplete information.
Due to the lower rate of acquisitions, the increasing
length of ownership of our Catalogues, and the
continuation in the investment into our investment
team, the probability of this risk has reduced.
Mitigation
The Investment Adviser will select investment
opportunities to be tabled to the Directors for their
consideration.
Before recommending a deal to the Board, the
Investment Adviser carries out detailed financial
modelling and due diligence which includes: analysing
publicly available market information, reviewing three
years’ worth of royalty statements, corroborating data
back to third-party sources, conducting independent
financial and legal due diligence and sourcing third-
party valuation.
④ Exchange rate
Business Model: A1, B4
Probability: Medium 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, 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. To date the
Company has not implemented passive currency
overlay strategies. The Company will continue to pay
any dividends in Sterling and its primary listing will
remain denominated in Pounds. The Company moved
its functional currency from Pound Sterling to US Dollar in
the financial year ending 31 March 2021, which reduces
the volatility of overall revenues.
⑤ 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. Due to the current expectations
of inflation and the increased US interest rates, the
probability of this risk has increased.
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.
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⑥ Impact due to the COVID-19 pandemic
Business Model: A1
Strategy: 2. Song Management
Probability: Medium/Low Impact: Medium/Low
Description
The business and economic disruption as a result of the
COVID-19 pandemic and associated lockdowns had
a material adverse effect on certain income streams,
in particular performance revenues, which relate to
revenues collected from shops, bars, gyms and live
performances. Whilst the impact of COVID-19 on
music royalties is diminishing, the occurrence of a new
vaccine-resistant variant may lead to a re-introduction
of lockdowns.
Mitigation
The Company has invested in proven hit Songs that are
of cultural importance, which have benefited from the
growth in Streaming that accelerated during COVID-19.
Revenues from these Songs have been historically
uncorrelated to macro-economic conditions, limiting
the impact on earnings.
⑦ Interest rate
Business Model: A1
Probability: High Impact: High
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 it is
purchasing, or has already invested in. Interest rates also
have an impact on currency, mentioned above. The
interest rate environment is now very 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. Interest rates in connection with any
debt facility are monitored on a frequent basis by the
Investment Adviser. Interest risk and sensitivity are also
monitored on a monthly basis, aligned with the JPM Fed
rate forecast. The Board and the Investment Adviser
regularly consider using interest rate hedging tools
available within the debt facility.
⑧ Key person
Business Model: B1, B3
Strategy: 2. Song Management
Probability: Low Impact: High/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 the 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. The Investment Adviser is also supported
by the Advisory Board members (named on page 16
of this report). Both entities bring their considerable
industry experience to bear in support of the Company’s
investment objectives.
Subsequent to the period end, Blackstone Inc.,
which brings considerable investment experience
and resources, has taken an ownership stake in the
Investment Adviser, reducing this risk.
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 2022
⑨ Market trends
Business Model: A1, 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 from the Goldman Sachs
Music in the Air report (published 13 June 2022) in which
they estimate global paid subscriptions increasing to
1.26 billion in 2030, from 523 million in 2021, as a result of
an expected rise in paid subscription penetration (as
a percentage of smartphone population), from 11% in
2021 to 20% in 2030, as well as a proliferation of new
Streaming services.
⑩ Operational reliance on service providers
Business Model: A1, A2, B1, B4
Strategy: 2. Song Management
Probability: Low 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 and advising the Company on
acquisitions and active management of Catalogues.
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 or cyber
security breaches, the ability of the Group to collect
revenues due may be limited.
Mitigation
The Company continually reviews the performance of its
service providers and will raise any concerns regarding
performance or efficiency should the need arise.
⑪ Payments to Songwriters don’t yield
projected returns
Business Model: A1, B2
Strategy: 1. Smart Acquisition
Probability: Medium Impact: Low
Description
Investment in Songs that are yet to be written or
proven commercially over a sustained period of time,
is considered more speculative than investment in
proven Songs and may not be commercially successful
or generate sufficient royalties to recoup the Advance
over the forecast period or at all.
Mitigation
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; as at
31 March 2022, HSG had made Advances to Songwriters
totalling $18.6 million, which are expected to be
recouped from the future royalty income generated by
the Songs written by the Songwriters over time.
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 as well as new
competitors entering the market. These are monitored,
mitigated and managed 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.
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HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2022
Key Statements
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 2025, 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 2022 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 their acquisition
business plans.
Based on past performance, the returns generated
within the investment Portfolio are expected to be
stable and predictable in both the medium and
longer term. Music royalties remain a stable asset
class, which has demonstrated resilience during the
COVID-19 pandemic. The previous short-term impact
on Performance income is now showing strong signs of
recovery and many PROs are reporting revenues levels
equal to those prior to the pandemic.
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 and has
considered the impact of the principal risks and some
of the emerging risks of the Company.
In support of this statement, 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 2025.
On a rolling basis, and at times of issuing a new
Prospectus, the Board evaluates the performance of
the portfolio of Songs and the Company’s financial
position as well as assessing sensitivities that impact
dividend cover, credit covenants and profitability of the
Company to assess an ‘extreme downside scenario’.
The ‘extreme downside scenario’, reflecting a severe
short term economic downturn, incorporated the
following assumptions based on our principal risks and
uncertainties:
• The strengthening of Sterling versus US Dollar, to
account for the 86% of revenues that are received
from the USA. This assessment assumes Sterling
strengthens against the US Dollar and the exchange
rate for £1.00 equals $1.40 (based on rates in Q2
2021). The Board considered this a medium risk, and
cash reserves would remain sufficient to maintain the
dividend at the current level. The base case scenario
assumes no change in exchange rates so that, as a
result no covenant breaches are expected.
• The extreme downside scenario assumes an
accelerated increase in 1 month LIBOR to 2.7% by
September 2022. The Company’s debt facility is
based on a fixed rate, plus a floating rate based on
the London Interbank Offered Rate (LIBOR). The base
case scenario assumed expected increases in LIBOR,
which shows no covenant breaches.
• Cash collections are delayed due to late payment
by Publishers and Collection Societies. Cash
payment is based on usage already occurred and
the delay in payment would lead to a reduction in
operational cash flow. The risk associated with non-
payment from Publishers and Collection Societies is
deemed low as reported in Note 17. In the unlikely
event that this scenario occurs then this could lead to
potential events of default relating to the Company’s
debt covenants. The time lag between the Company
recognising the Revenue and cash collection is
something that the Company is actively looking to
reduce.
STRATEGIC REPORT
STRATEGIC REPORT
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HIPGNOSIS SONGS FUND LIMITED
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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 could result in a cash shortfall
and impact the ability of the Company to maintain
the current dividend policy. Were this unlikely scenario
to occur the Board would take mitigating actions
to ensure the viability and future cash flows of the
Company, including making changes to the timing or
size of future dividend payments.
However, in light of 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 considered,
amongst other things:
• The Company’s historic consistency in generating
material net cash generated from operating
activities (Year to 31 March 2022 of $84.9 million,
31 March 2021 of $85.9 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
$30.1 million as at 31 March 2022.
• The Company’s headroom under its borrowing policy
as a percentage of NAV.
• The majority of the Company’s operational expenses
are based on fixed contracts and are not linked to
future inflationary pressure or increased trading. This
gives the Company a high degree of operational
leverage.
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. Any risk is thus mitigated, and the
overall forecast assumptions adopted are reasonable
and sustainable at the present time.
The Board is of the opinion that the long-term outlook
for music publishing and recorded music remains very
positive as evidenced throughout this Annual Report.
As further explained in principal risks and uncertainties
in the Corporate Governance Report on pages 76-114
the Board do not consider the effects of COVID-19 to
have had a material impact on their assessment of the
Company as a going concern or the prospects of the
Company.
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HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2022
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.
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 plus revenues forecast from new
catalogue acquisitions. Sensitivities are also applied to
revenues to assess the impacts of COVID-19 and other
economic factors on contractual obligations.
Expenses and acquisition costs are forecast on both
a contractual and non-contractual basis, whereby 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.
Based on these sources of information and the
Company’s history of profitable operations, 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.
The Directors have also considered the ongoing impact
of COVID-19, increased interest rates and other relevant
factors on the Company as reflected in the Viability
Statement.
STRATEGIC REPORT • KEY STATEMENTS
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).
STRATEGIC REPORT
77
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2022
s172 matter
Likely consequences of any decision in the long term
Introduction from Merck Mercuriadis, pages 3-7
The Chair’s Statement, pages 11-12
Investment Adviser’s Report, pages 15-19, 22-29, 32, 35, 38-44
Our Market, pages 47-51
Our Purpose, Business Model, Culture and Values, pages 52-57
Our Objective, Strategy, Investment Policy, pages 58-62
Our Resources and Relationships, pages 63-67
Our Principal Risks and Uncertainties, pages 70-73
Viability Statement, pages 74
Chair’s Introduction, page 78
Application of AIC Code Principles, pages 80-83
Board Leadership and Company Purpose, pages 84-85
Composition, Succession and Evaluation, pages 90-91
Report of the Nomination Committee, pages 94-96
Audit, Risk and Internal Control, page 97
Report of the Audit and Risk Management Committee,
pages 98-101
Report of the Management Engagement Committee,
pages 104-105
Report of the Portfolio Committee, page 106-107
Directors’ Remuneration Report, pages 108-110
The interests of the Company's employees
Our Resources and Relationships, pages 63-67
Compliance Statement, page 79
Application of AIC Code Principles, pages 80-83
Board Leadership and Company Purpose, pages 84-85
Report of the Management Engagement
Committee, pages 104-105
Directors’ Remuneration Report, pages 108-110
The need to foster the Company’s business
relationships with suppliers, customers and others
Introduction from Merck Mercuriadis, pages 3-7
The Chair’s Statement, pages 11-12
Investment Adviser’s Report, pages 15-19, 22-29, 32, 35, 38-44
Our Purpose, Business Model, Culture and Values, pages 52-57
Our Objective, Strategy, Investment Policy, pages 58-62
Our Resources and Relationships, pages 63-67
Our Principal Risks and Uncertainties, pages 70-73
Chair’s Introduction, page 78
Application of AIC Code Principles, pages 80-83
Board Leadership and Company Purpose, pages 84-85
Division of Responsibilities, pages 86-89
Report of the Audit and Risk Management Committee,
pages 98-101
Report of the Management Engagement Committee,
pages 104-105
Impact of the Company’s operations on the
community and environment
Introduction from Merck Mercuriadis, pages 3-7
Investment Adviser’s Report, pages 15-19, 22-29, 32, 35, 38-44
Our Market, pages 47-51
Our Purpose, Business Model, Culture and Values, pages 52-57
Our Resources and Relationships, pages 63-67
Application of AIC Code Principles, page 80
Board Leadership and Company Purpose, pages 84-85
The Company’s reputation for high standards
of business conduct
Introduction from Merck Mercuriadis, pages 3-7
The Chair’s Statement, pages 11-12
Our Purpose, Business Model, Culture and Values, pages 52-57
Our Resources and Relationships, pages 63-67
Our Principal Risks and Uncertainties, pages 70-73
Governance, pages 78-110
The need to act fairly as between members
of the Company
The Chair’s Statement, pages 11-12
Our Objective, Strategy, Investment Policy, pages 58-62
Application of AIC Code Principles, page 80
Board Leadership and Company Purpose, pages 84-85
Division of Responsibilities, pages 86-89
Report of the Management Engagement Committee,
pages 104-105
Report of the Directors, pages 111-114
78
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2022
Chair’s Introduction
GOVERNANCE
Dear Shareholder,
On behalf of the Board I am pleased to present the Corporate
Governance Report for the year ended 31 March 2022. 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 84 and 63. 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
13 July 2022
Contents
78 Corporate Governance Statement
78
Chair’s Introduction
79 Corporate Governance Report
79 Compliance Statement
80 Application of AIC Code Principles
83 Other Key Governance Statements
84 Board Leadership and Company Purpose
86 Division of Responsibilities
90 Composition, Succession and Evaluation
91 Board of Directors
94 Report of the Nomination Committee
97 Audit, Risk and Internal Control
98 Report of the Audit and Risk Management Committee
104 Report of the Management Engagement Committee
106 Report of the Portfolio Committee
108 Directors’ Remuneration Report
111 Report of the Directors
111 General Information
111 Principal Activities
112 Results and Dividends
112 Share Capital
112 Shareholdings of the Directors
113 Directors’ Authority to Buy Back Shares
113 Directors’ and Officers’ Liability Insurance
113 Substantial Shareholdings
114 Articles of Incorporation
114 AEOI Rules
115
Directors’ Responsibilities Statement
117 Independent Auditor’s Report
GOVERNANCE
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HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2022
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.
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 we are meeting our obligations
under the UK Code (and associated disclosure
requirements under paragraph 9.8.6 of the Listing Rules)
and as such do not need to report further on issues
contained in the UK Code which are irrelevant to us.
Throughout the year ended 31 March 2022, the
Company has applied the Principles (as explained on
pages 80-83), and complied with the relevant Provisions
of the AIC Code.
Throughout the year ended 31 March 2022, the
Company has complied with the recommendations of
the AIC Code and the relevant provisions of Section 1
of the UK Code, except as set out below.
The UK Code includes provisions relating to:
• 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 Big Deal Music (renamed Hipgnosis Songs Group, or
HSG), the Company acquired employees. However,
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 absence of 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
(https://www.theaic.co.uk/).
Corporate Governance Report
GOVERNANCE
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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.
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 2-77
Governance, pages 78-110
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 2-77
Board Leadership and Company Purpose, pages 84-85
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 63-67
Our Principal Risks and Uncertainties, pages 70-73
Section 172(1) Statement, pages 76-77
Board Leadership and Company Purpose, pages 84-85
Audit, Risk and Internal Control, page 97
Report of the Audit and Risk Management Committee,
pages 98-103
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 63-67
Section 172(1) Statement, pages 76-77
Board Leadership and Company Purpose, pages 84-85
GOVERNANCE • CORPORATE GOVERNANCE REPORT
GOVERNANCE
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HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2022
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 11-12
The Chair’s Introduction, page 78
Board Leadership and Company Purpose, pages 84-85
Division of Responsibilities, pages 86-89
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 86-89
Board of Directors, pages 91-93
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 11-12
Board Leadership and Company Purpose, pages 84-85
Division of Responsibilities, pages 86-89
Report of the Audit and Risk Management Committee,
pages 98-103
Report of the Management Engagement Committee,
page 104-105
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 63-67
Our Principal Risks and Uncertainties, pages 70-73
Section 172(1) Statement, pages 76-77
Board Leadership and Company Purpose, pages 84-85
Division of Responsibilities, pages 86-89
Audit, Risk and Internal Control, page 97
Report of the Audit and Risk Management Committee,
pages 98-103
Report of the Management Engagement Committee,
page 104-105
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ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2022
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 94-96
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 91-93
Report of the Nomination Committee, pages 94-96
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 94-96
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 97
Report of the Audit and Risk Management Committee,
pages 98-103
Principle N. The Board should present a fair, balanced
and understandable assessment of the company’s
position and prospects.
Strategic Report, pages 2-77
Audit, Risk and Internal Control, page 97
Report of the Audit and Risk Management Committee,
pages 98-103
Financial Statements, pages 126-161
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 70-73
Viability Statement, pages 74-75
Audit, Risk and Internal Control, page 97
Report of the Audit and Risk Management Committee,
pages 98-103
Notes to the Financial Statements, pages 131-161
GOVERNANCE • CORPORATE GOVERNANCE REPORT
GOVERNANCE
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HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2022
Remuneration
Principle P. Remuneration policies and practices
should be designed to support strategy and promote
long-term sustainable success.
Strategic Report, pages 2-77
Board Leadership and Company Purpose, pages 84-85
Directors’ Remuneration Report, pages 108-110
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 108-110
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 108-110
Other Key Governance Statements
The Directors confirm that:
Going Concern
The Going Concern statement is made on page 76.
Viability
The Viability Statement is made on pages 74-75. Further
details of the Board’s assessment of the viability of the
Company are set out in Audit, Risk and Internal Control
on page 97. The Principal Risks and Uncertainties are set
out on pages 70-73.
Principal 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 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 97.
The Principal Risks and Uncertainties are set out on
pages 70-73.
Continuing Appointment of the Investment Adviser
The continuing appointment of Hipgnosis Song
Management Ltd, formerly known as The Family (Music)
Ltd, 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 pages 104-105.
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 98 for further information on how
this conclusion was reached.
Section 172(1)
The Section 172(1) statement is made on page 76.
It provides cross-references to the required detail set out
throughout this annual report.
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ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2022
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 that will help create
a Songwriter community rapport and a diverse,
innovative, multi-cultured portfolio of Song assets.
Key Decisions
In making its decisions, the Board considered the
outcome from stakeholder engagement.
It also considered the need to maintain a reputation for
high standards of business conduct. Key decisions are
summarised below and are discussed in more detail as
indicated:
• To issue 9,000,000 new Ordinary Shares (at a price
of 119.5p per Ordinary Share) to fund a specific
investment opportunity.
• To initiate a placing of new Ordinary Shares to raise
£150 million to acquire a substantial pipeline of some
of the most influential and successful Songs of all time.
• To announce the Company’s intention to not offer
further shares for cash consideration until after
publication of the net asset value per share as at
31 March 2022.
• To acquire eight further Catalogues after individual
review (see pages 106-107).
• To distribute quarterly dividends and amend timing
of payments to be in line with the Company’s revenue
receipts (see page 112).
• To continue to engage, through the Investment
Adviser, with the UK DCMS Parliamentary Committee
Inquiry into the economics of music Streaming (see
pages 64-65).
• To agree to an amendment to the Investment
Advisory Agreement which provided consent for the
Investment Adviser to provide investment advisory
services to Blackstone as an additional client and
which provide co-investment opportunities for the
Company. In depth discussions were held with key
stakeholders to ensure that a robust conflicts of
interest policy was put in place.
• To host a virtual Capital Markets Day on 17 November
2021 to present the Company’s overall strategy.
• To appoint Vania Schlogel as Non-executive
Director and as a member of all of the Company’s
committees.
• To explore potential refinancing options and reduce
the Company’s exposure to floating interest rates in
light of the current macro economic environment.
GOVERNANCE
Board Leadership and Company Purpose
GOVERNANCE
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Relations with Shareholders and other
stakeholders
Certain of the key decisions noted above, such as those
around fund raising activity, were based on investor
feedback and were made following consultation with
key stakeholders.
Positive feedback was received following the
Capital Markets Day held on 17 November 2021, with
stakeholders reporting that they have a better insight
into how the Investment Adviser approaches and
manages Song promotion and enhancement, and that
they found the focus on Synch activities of particular
interest. They also welcomed the detail provided about
the conflicts of interest policy put in place and potential
co-investment opportunities with Blackstone.
Relationships with other stakeholders are discussed on
page 64.
The Board welcomes Shareholders’ views and
places great importance on communication with
its Shareholders. 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, including Company
notifications, share information, financial reports,
investment objectives and policy, investor contacts and
information on the Board and corporate governance.
All major Shareholders were invited to meet with the
Chair and committee chairs during the year and
meetings were set up accordingly. The Board is also
kept fully informed of all relevant market commentary
on the Company by the Investment Adviser and the
Corporate Brokers.
The Investment Adviser has regular contact with
Shareholders and any views that they may have are
communicated to the Board. All Shareholders have
direct access to the Chair and the other Directors, who
are available to discuss any questions which they may
have in relation to the running of the Company.
Financial results, events, corporate reports, webcasts
and factsheets are all stored in the Investor Relations
section of our website: https://www.hipgnosissongs.
com/
Annual General Meeting
The Annual General Meeting (AGM) of the Company
will be held at 10.00 BST on 21 September 2022 at United
House, 9 Pembridge Road, Notting Hill, London W11 3JY.
Details of the resolutions to be proposed at the AGM,
together with explanations of the AGM arrangements
are set out in a separate circular which is sent to
Shareholders with this Annual Report.
Members of the Board and the Investment Adviser will
be in attendance at the AGM and will be 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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GOVERNANCE
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 2022, 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 91-93 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.
As part of the governance framework, the Board has
delegated some of its responsibilities to six Committees:
the Audit and Risk Management Committee, the
Nomination Committee, the Management Engagement
Committee, the Remuneration Committee, the Portfolio
Committee and the Asset Management Committee.
The Asset Management Committee was disbanded,
and the ESG Oversight Committee was formed on 28
June 2022. The Board is satisfied that the Committees
have sufficient time and resources to carry out their
duties effectively. Their terms of reference are reviewed
and approved annually by the Board and the
respective Committee Chairs report on their activities to
the Board. Director attendance at Board and committee
meetings is summarised on page 88.
The Directors have access to the advice and services of
the Administrator, who also assist 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 115-116. 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
The Board believes that it and its Committees have an
appropriate composition and blend of backgrounds,
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ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2022
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.
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. Each committee has access to such external
advice as it may consider appropriate.
Committees are supplied with regular, comprehensive
and timely information in a form and of a quality that
enables them to discharge their duties effectively. 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.
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 94.
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 98.
Management Engagement Committee
The Management Engagement Committee’s activities
are contained in the Report of the Management
Engagement Committee on page 104.
Remuneration Committee
The Remuneration Committee’s activities are contained
in the Directors’ Remuneration Report on page 108.
Portfolio Committee
The Portfolio Committee’s activities are contained in the
Report of the Portfolio Committee on page 106.
Asset Management Committee
The Board resolved to disband the Asset Management
Committee with effect from 28 June 2022 and to allow
the full Board to deal with matters which the Asset
Management Committee was established for.
ESG Oversight Committee
The Board resolved to form an ESG Oversight Committee
with effect from 28 June 2022.
The principal function of the ESG Oversight Committee is
to assist the Investment Adviser in defining its ESG strategy
and ensuring the Fund meets its own ESG obligations.
One of our priorities for this year has been to develop
our ESG strategy with regard to material focus areas
for our stakeholders and unique investment philosophy
and asset class. The Committee is being supported by
a specialist external ESG consultant.
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
The Asset Management Committee was disbanded and the ESG Oversight Committee was formed on 28 June 2022.
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ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2022
Board committee attendance from 1 April 2021 to 31 March 2022:
Scheduled
Board
Meetings
Ad-hoc
Board
Meetings
Committee
of the Board
Audit and Risk
Management
Committee
Portfolio
Committee
Nomination
Committee
Management
Engagement
Committee
Remuneration
Committee
Asset
Management
Committee
Total
Meetings
attended
Total Meetings 5 11 3 9 6 1 1 1 1 38
Paul Burger
2
5 11 2 9 6 1 1 1 1 37
Sylvia Coleman 5 11 1 9 6 1 1 1 1 36
Simon Holden
4
5 9 0 8 5 1 1 1 1 31
Andrew Sutch
1 5
5 10 2 9 6 1 1 1 1 36
Andrew Wilkinson
3
5 8 2 9 4 1 1 1 1 32
Vania Schlogel* 3 3 0 5 3 0 1 0 0 15
* Note, Vania Schlogel appointed to Board on 11 June 2021 and Committees on 19 October 2021
1. Chair of Board
2. Chair of Portfolio Committee Meetings and Nomination Committee
3. Chair of Audit and Risk Management Committee
4. Chair of Remuneration Committee
5. Chair of Asset Management Committee
GOVERNANCE • DIVISON OF RESPONSIBILITIES
Directors work extensively with the Investment Adviser,
brokers and Administrator on strategy, acquisition,
operating and reporting related matters between
the formal Board meetings. 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.
A quorum is comprised of any two or more members of
the Board from time to time, to perform administrative
and other routine functions on behalf of the Board.
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 regular
quarterly 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 and
Portfolio Committee meetings (as detailed above),
were called in relation to specific events or to
issue approvals and did not necessarily require full
attendance. These meetings were often at short
notice and were very well attended by Board and
Committee members. Furthermore Directors devote
a substantial amount of time to the Company outside
of the convened meetings listed above and meet
frequently with the senior management employed by
the Investment Adviser both formally and informally
to ensure the Board provides significant input and
consideration to all matters and remains regularly
updated on all topics. 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, without exception, given the Chair their views
and comments on matters to be discussed, in advance.
In addition to their meeting commitments, the Directors
also liaise with the Investment Adviser whenever
required and there is regular contact outside the Board
meeting schedule. As the restrictions imposed by the
COVID-19 pandemic started to ease, the Directors have
appreciated the value of face-to-face meetings as a
Board and with the Investment Adviser and other key
service providers. Going forward the Directors are likely
GOVERNANCE
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to split their attendance between meetings for routine
work that can be performed effectively remotely, versus
in-person meetings to discuss strategic matters, as well
as the formal quarterly Board meetings.
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.
Throughout the year, all Directors have 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 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.
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GOVERNANCE
Composition, Succession and Evaluation
Board Composition and Tenure
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
oversee the process of appointments and succession
planning for 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. As
disclosed in last year’s Annual Report Vania Schlogel was
appointed as a Non-executive Independent Director on
11 June 2021 and she was appointed as a member of all
of the Company’s Committees on 19 October 2021.
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.
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.
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 September 2021. 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.
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 is performing
well and is carrying out its responsibilities in the areas
reviewed which incorporated: investment matters,
Board composition and independence, relationships
and communication, Shareholder value, knowledge
and skills, Board processes and the performance of
the 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.
As a FTSE 250 company, in keeping with the provisions
of the AIC Code the Nomination Committee engaged
an external consultant, Tyzack Associates, to conduct a
formal independent review of the Board’s performance
during the year. Tyzack Associates has no connection
with the Company and is independent of the Board
and each of its Directors. This independent review,
which involved individual interviews with each
director and attendance at a Board meeting to make
observations, concluded that the Directors work closely
with a strong committed Investment Adviser to promote
the success of the Company. The Board embraced the
recommendations that were made, including improving
the efficiency of Board meetings by requesting the
Investment Adviser to provide more information to
the Board in advance of meetings thereby allowing
the Board to focus on strategic options with advance
GOVERNANCE
91
knowledge of certain key issues. Steps have already
been implemented by the Investment Adviser to
address this. Other recommendations included setting
a timetable for succession planning with regards
Directors and Chair. The Chair has, during the period,
held a series of one-on-one sessions with each Director
to review their individual performance and contribution.
Andrew Sutch
Chair, Non-executive Independent
Director and Chair of the Management
Engagement Committee
Tenure at 31 March 2022:
3 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 is a
consultant to an art dealer and until
recently a council member of the
Royal Academy of Dramatic Art.
Listed Company Roles (other than
Hipgnosis Songs Fund)
Chair of one other investment trust:
European Opportunities Trust plc
(EOT)
Biographies
GOVERNANCE
Board of Directors
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HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2022
GOVERNANCE • BIOGRAPHIES
Board of Directors
Paul Burger
Senior Non-executive Independent
Director, Chair of the Portfolio Committee
and Chair of the Nomination Committee
Tenure at 31 March 2022:
3 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 UK and a member of their
global International Council – an
NGO which promotes the values
of human rights and social justice
for all residents of Israel regardless
of race, religion, or ethnicity.
Sylvia Coleman
Non-executive Independent Director
Tenure at 31 March 2022:
2 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 boutique IP rights
company developing 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 2022:
3 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 Plc. (HICL), Chrysalis
Investments Ltd. (CHRY), Trian
Investors 1 Ltd. (TI1), JPMorgan
Global Core Real Assets Ltd. (JARA)
GOVERNANCE
93
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2022
Vania Schlogel
Non-executive Independent Director
Tenure at 31 March 2022:
10 months
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 Epidemic Sound 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 2022:
3 years 10 months
Skills and Experience
Mr Wilkinson is a chartered
accountant who qualified
withPeat 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
Mr Mercuriadis is the manager of
music legend Nile Rodgers and
the former manager of several
notable award-winning artists
and songwriters including Sir Elton
John, Guns’N’Roses, Iron Maiden,
Morrissey, Pet Shop Boys, Mary
J. Blige, Jane’s Addiction, Diane
Warren and Justin Tranter to name
a few. Additionally, Mercuriadis
is notable for serving from 1986-
2007 as Director and CEO of The
Sanctuary Group PLC, a major
management company, an
independent record label, a
merchandise company (Bravado)
and a booking agency (Helter
Skelter now CAA UK) based in
London, New York and Los Angeles.
FounderBoard of Directors
Paul Burger, Chair of the Committee
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HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2022
GOVERNANCE
Report of the Nomination Committee
“The 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
2022. 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 recommended the
appointment of an additional Director to the
Board. Following executive search by Tyzack
Associates, Vania Schlogel was appointed to the
Board on 11 June 2021.
Our work for 2023 will be focussed on composition
of the Board and membership of its Committees,
succession planning, talent and diversity.
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 appropriate succession
planning procedures are in place. 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. Appropriate
succession plans are also kept under review.
Membership and Meetings
During the year we met on one occasion, on
8 December 2021. Attendance is disclosed on page 88.
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.
As at 31 March 2022, 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 (appointed 19 October 2021)
Mr Andrew Sutch
Mr Andrew Wilkinson
During the year we reviewed the results of the annual
internal Board performance evaluation which was
conducted during September 2021, and discussed
where improvements could be made.
We also engaged Tyzack Associates to conduct an
external Board evaluation which involved individual
interviews with each Director and attendance at a
Board meeting to make observations.
Further details of both the internal and external Board
evaluation are outlined on page 90.
GOVERNANCE
95
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2022
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.
Directors regularly meet with the senior management
employed by the Investment Adviser both formally and
informally to ensure that the Board remains regularly
updated on all issues. New Directors received 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
September 2021 as outlined on page 90.
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
the 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.
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 diversity of
age, gender and cultural background, amongst other
relevant factors.
The Board recognises 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. The Board
supports and is compliant with the Hampton-Alexander
and Parker Review recommendations with 33.33%
female representation and one member from an ethnic
minority background.
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 ht tps://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.
96
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2022
2023 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;
• continue to monitor and assess the Board’s
composition and diversity particularly with regard
to the FCA’s changes to the Listing Rules and the
Disclosure Guidance and Transparency Rules
announced in April 2022, as given the size of the
Board this will present a challenge to us;
• review the membership and composition
of Committees of the Board; and
• continue to review longer term strategy for the
succession of Board members.
On behalf of the Nomination Committee,
Paul Burger
Chair of the Nomination Committee
13 July 2022
GOVERNANCE • REPORT OF THE NOMINATION COMMITTEE
GOVERNANCE
97
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2022
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 key procedures which have been established to
provide internal control are:
• the Board has delegated the day to day operations
of the Group to the Administrator, Investment Adviser
and Preferred 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;
• the Board monitors the actions of the Investment
Adviser at regular Board meetings and is also given
frequent updates on developments; and
• the Administrator provides administration and
company secretarial services to the Company.
The Administrator maintains a system of internal
control on which it reports to the Board.
The Company’s key service providers demonstrated
a resilience of controls under COVID-19, as in order to
comply with restrictions their employees continued to
assume their day-to-day responsibilities remotely.
Internal controls over financial reporting are designed
to provide reasonable assurance regarding the
reliability of financial reporting and the preparation
of financial statements for external reporting purposes.
The Administrator and Investment Adviser both operate
risk controlled frameworks on a continual ongoing
basis within a regulated environment. The Administrator
undertakes an ISAE 3402: Assurance Report on Controls
at a Service Organisation audit which is provided to the
Board when finalised. The Administrator formally reports
to the Board quarterly through a compliance report.
The Investment Adviser also formally reports to the
Board quarterly, including relevant updates regarding
their policies and procedures, and also engages
with the Board on an ad-hoc basis as required. No
weaknesses or failing within the Administrator or
Investment Adviser 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. This process
has been in place for the year under review and up
to the date of approval of this Annual Report and
Consolidated Financial Statements. It is reviewed by
the Board and is in accordance with the FRC’s internal
control publication: Guidance on Risk Management,
Internal Control and Related Financial and Business
Reporting.
The Board has reviewed the need for an internal
audit function and has decided that the systems
and procedures employed by the Administrator and
Investment Adviser, 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 2022
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 Company.”
Dear Shareholder,
I am pleased to present the Audit and Risk
Management Committee report for the year
ended 31 March 2022, 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.
GOVERNANCE
GOVERNANCE
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HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2022
Membership and Meetings
Composition of the Audit and Risk Management
Committee
As at 31 March 2022, given the current size of the Board
the composition of the committee is all Directors.
Mr Andrew Wilkinson (Chair of the Committee)
Mr Paul Burger
Ms Sylvia Coleman
Mr Simon Holden
Ms Vania Schlogel (appointed 19 October 2021)
Mr Andrew Sutch
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 91-93.
Our performance is evaluated as part of the overall
evaluation of the Board and the Board Committees as
further disclosed on page 90.
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 hawse have chosen to focus.
During the year we met formally on nine occasions,
and attendance at those meetings is shown on page 88
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;
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HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2022
• 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;
• 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
such as 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, The Massarsky Group at Citrin Cooperman
Advisors LLC (formerly Massarsky Consulting, Inc.), to
value the Catalogues as at 31 March 2022. Each income
type from each Catalogue was analysed and forecast
to derive the fair value of the Catalogues by adopting
a DCF 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.
Future revenues were also estimated and incorporated
into their valuation. 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 short- and
medium-term impact of COVID-19 in their analysis. The
Board received a report from The Massarsky Group at
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 145-146.
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 70-73. 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. I have
ongoing discussions with the Investment Adviser and
we 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 HSG. The Administrator
seeks regular Type 2 certification in accordance
with the International Standard on Assurance
Engagements (ISAE) 3402. 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.
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
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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 considered unnecessary.
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 2022 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 2022 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.
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 year ended 31 March 2024
in accordance with normal audit partner rotation
arrangements at which point a new audit partner will
be introduced to the Company. The Companies Law
requires the reappointment of the external auditor to be
subject to Shareholders’ approval at the AGM.
Effectiveness of the External Auditors
We evaluated the performance of
PricewaterhouseCoopers Cl 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 auditors’ 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 auditors
handled the key accounting and audit judgments
and communication of the same with management
and the committee;
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ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2022
• the external auditors’ 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 auditors’ 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.
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 2021.
GOVERNANCE • REPORT OF THE AUDIT AND RISK MANAGEMENT COMMITTEE
Nature of service Fee Threat(s) to independence Safeguard(s) in place
Interim Review £40,000/$52,535 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 2022, and the total fees paid
to the Group for both audit and
non-audit services is immaterial to
total PricewaterhouseCoopers Cl
LLP firm revenue.
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All approved non-audit services are discussed
and sanctioned at meetings of the Audit and Risk
Management Committee.
Audit fees were £451,906/$600,000 and non-audit fees
were £40,000/$52,535 for the year ended 31 March 2022.
The ratio of audit to non-audit work is 8.20:1. Details
of Auditor’s Remuneration are set out in Note 21, on
page 160.
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 2021.
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 Standard’s 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.
Review of External Auditor
Details of fees paid to PricewaterhouseCoopers Cl LLP
during the year are disclosed in Note 21 on page 160.
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.
We are satisfied with PricewaterhouseCoopers Cl LLP’s
effectiveness and independence as external auditor
having considered the degree of diligence 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 Cl LLP be reappointed as
external auditor for the year ending 31 March 2023.
A resolution to reappoint PricewaterhouseCoopers Cl LLP
as independent external auditor to the Company will
be proposed at the forthcoming AGM.
2023 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
13 July 2022
Andrew Sutch, Chair of the Committee
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ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2022
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 2022, 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 2022, 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 (appointed 19 October 2021)
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 15 March 2022. Attendance is disclosed on page 88.
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 Board held in depth discussions with the Investment
Adviser prior to agreeing to an amendment to the
Investment Advisory Agreement which provided
consent for the Investment Adviser to provide
investment advisory services to Blackstone as an
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HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2022
additional client from 8 October 2021. During the
discussions, the Board focussed on ensuring they
were acting in the best interests of the Company’s
Shareholders, and ensured that a robust conflicts of
interest policy was put in place.
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.
In accordance with Listing Rule 15.6.2(2)R and having
formally appraised the performance and resources of
the Investment Adviser, in the opinion of the Directors
the continuing appointment of the Investment
Adviser on the terms agreed is in the interests of the
Shareholders as a whole.
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 98-103.
We conducted a service provider evaluation in March
2022, 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 questionnaire
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.
2023 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
13 July 2022
Paul Burger, Chair of the Committee
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HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2022
Report of the Portfolio Committee
“The Committee continues to monitor,
review and provide approval regarding
the acquisitions or disposals of Catalogues
of Songs.”
Dear Shareholder,
I am pleased to present to you the Report of the
Portfolio Committee for the year ended 31 March
2022 which has been approved by both the
Portfolio Committee and the Board.
During the year, we reviewed and recommended
the acquisition of 11 Catalogues of Songs of
which eight were eventually closed. No disposals
occurred during the year.
Our work for the year ahead will be focussed
on the ongoing review of recommendations
from the Investment Adviser on the acquisitions
and if applicable disposals of Catalogues of
Songs, reviewing the pipeline as provided by
the Investment Adviser, and on a quarterly basis
reviewing the investment performance reports as
prepared by the Investment Adviser.
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 2022, 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 (appointed 19 October 2021)
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
use reasonable endeavours to attend each meeting of
the Portfolio Committee.
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HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2022
Meeting Schedule
During the year ended 31 March 2022, we met formally
on six occasions and attendance at those meetings is
shown on page 88. We also provided a formal update
on our work to the Board at each scheduled quarterly
Board meeting.
We focussed on reinvesting proceeds raised from the
issuance of Ordinary Shares in April and July 2021 in
Catalogues of the highest possible calibre, mindful of
the Company’s intention to not offer further shares for
cash consideration until after the publication of the
Company’s net asset value as at 31 March 2022 as
further discussed on page 11.
As further disclosed on page 11, in October 2021 the
Investment Adviser obtained Board consent to provide
investment advisory services to Blackstone as an
additional client. The Portfolio Committee therefore has
the opportunity to review investment proposals on a
co-investment basis with Blackstone.
During the year we:
• reviewed the terms of reference of the Portfolio
Committee for approval by the Board;
• assessed all investment proposals against the
investment policy and restrictions;
• made enquiries, throughout the year, of the
Investment Adviser regarding the pipeline
opportunities as identified by the Investment Adviser;
• provided approval on the acquisition of eleven
Catalogues of Songs based on comprehensive
investment papers as provided by the Investment
Adviser which included:
1. a summary of the due diligence findings;
2. the financial history of the Song or Catalogue;
3. the Portfolio Independent Valuer’s report;
4. the Investment Adviser’s strategy for managing the
Songs in the Catalogue and potential exploitation
opportunities;
5. details of any structuring arrangements that the
Investment Adviser considers necessary;
6. details of any conflicts of interest of the Investment
Adviser or its Advisory Board in relation to the
acquisition;
7. details on the financial consideration structure; and
8. any other information that the Investment Adviser
considers relevant to the Board in deciding to
acquire the particular Song or Catalogue.
2023 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 if applicable 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
13 July 2022
Simon Holden, Chair of the Committee
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ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2022
Directors’ Remuneration Report
“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
2022, 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 Directors of the Company, a constituent
member of the FTSE250 Index since March 2020,
have enhanced fiduciary responsibilities as the
Board of a self-managed fund and collectively,
provide a diverse body of expertise relevant
to the acquisition, management and value
enhancement of intangible music copyright assets.
Having due regard for the time, skill and effort
required of Directors in fulfilling their duties to your
Company, it is the Committee’s view that Directors
were fairly remunerated for their work during the
past year and their fees have remained flat for the
second year in a row.
The Committee will complete a triennial,
independent review of director remuneration
during the year ending March 2023.
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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 Ltd. As at the year
ended 31 March 2022 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 2022, the Committee comprised:
Mr Simon Holden (Chair of the Committee)
Mr Paul Burger
Ms Sylvia Coleman
Ms Vania Schlogel (appointed 19 October 2021)
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
8 December 2021. Attendance is disclosed on page 88.
A quorum is two members. Members of the Committee
are not involved in matters affecting their individual
position.
Directors’ Remuneration
The Directors continue to be paid in Sterling.
Each Director receives a fixed fee per annum based
on their roles and responsibility within the Company
and the time commitment required. 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.
All Directors are non-executive. The Directors’
remuneration, excluding disbursements, for the year
ended 31 March 2022 amounted to £458,360/$613,720,
with outstanding fees of £18,750/$24,745 due to
the Directors at 31 March 2022 (31 March 2021:
£582,000/$762,068 with outstanding fees of £nil due at
31 March 2021). There were no supplementary fees paid
to Directors in the year ended 31 March 2022. 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 2022 the Directors’
remuneration was as follows:
Fixed Element
FY2022
£
31 March 2022
Total
£
31 March2022
Total
$
Fixed
Element FY2021
£
Supplement
FY2020
£
Additional
Payment FY2021
£
31 March 2021
Total
£
31 March 2021
Total
$
Andrew Sutch 85,000 85,000 113,811 85,000 25,000 15,000 125,000 163,458
Paul Burger 81,500 81,500 109,124 81,500 25,000 15,000 121,500 159,105t
Andrew Wilkinson 81,500 81,500 109,124 81,500 25,000 15,000 121,500 158,865t
Simon Holden 75,000 75,000 100,421 75,000 25,000 15,000 115,000 150,338
Sylvia Coleman 75,000 75,000 100,421 75,000 9,000 15,000 99,000 130,302
Vania Schlogel* 60,360 60,360 80,819 N/A N/A N/A N/A N/A
* Note, Vania Schlogel appointed to Board on 11 June 2021 and Committees on 19 October 2021
t US Dollar variance due to a timing difference in payment
110
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2022
During the year under review the Company was less
acquisitive, nonetheless the Directors have continued to
have a high and sustained workload and, in particular,
have been heavily involved in discussions with the
Investment Adviser (regarding the amendment to
the Investment Advisory Agreement) and with the
Company’s professional advisers (in light of changes in
the current macro-economic environment). However,
mindful of the Board’s decision not to issue further
shares for cash consideration until after the publication
of the Company’s net asset value as at 31 March 2022,
we concluded that the level of fees for Directors’ should
currently remain unchanged in the year under review.
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 each acquisition;
• 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)
• 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.
The schedule of the Directors’ attendance in the year
under review evidences the breadth and depth of
investment, strategy and other project work they
have supported or led during the year. In addition
to the formally convened meetings during the year,
the Directors have had regular contact and meetings
with the Investment Adviser and other service providers
as the Directors are closely involved in planning work to
evolve the Company’s capital structure to scale its asset
base and improve Shareholder returns.
Remuneration Policy
The Company’s remuneration policy, as published
on the Company’s website (alongside the terms of
reference for the Remuneration Committee), has been
the subject of shareholder consultation and will be
submitted to the forthcoming Annual General Meeting
for ratification by Ordinary Resolution. Shareholders
will also be requested to approve an increase in the
overall cap on Directors’ remuneration from £500,000 to
£550,000 to accommodate the possibility of appointing
a further non-executive director in the event that a
suitable candidate is identified which will also allow for
flexibility and the capacity to overlap directors as part
of a managed succession program.
2023 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;
• undertake a triennial, independent review of Director
remuneration levels for the financial year ending
31 March 2023;
• engage with Shareholders on any future review of the
remuneration policy.
On behalf of the Remuneration Committee,
Simon Holden
Chair of the Remuneration Committee
13 July 2022
GOVERNANCE • DIRECTORS’ REMUNERATION REPORT
GOVERNANCE
111
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2022
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 2022. This Report of the
Directors should be read together with the Strategic
Report on pages 2-77 and the Corporate Governance
Report on pages 78-110, 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’s 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 2-77.
Financial Risk Management Policies and
Objectives
Financial risk management policies and objectives are
disclosed in Note 17 on page 154.
Section 172(1) Statement
The Section 172(1) statement is made on page 76.
Going Concern and Viability Statements
Going Concern and Viability Statements are made on
pages 74-76.
Principal and Emerging Risks
Principal and emerging risks are discussed in the
Strategic Report on pages 70-73.
Subsequent Events
Significant subsequent events have been disclosed in
Note 23 on page 161.
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 38-43, will provide
Shareholders with sufficient information to assess how
effectively the Company is meeting its objectives. The
alternative performance measures are described in the
table on pages 164-165.
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.
Report of the Directors
GOVERNANCE
112
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2022
Results and Dividends
The results for the year are set out in the Consolidated Financial Statements on pages 126-130. Dividends are set out
on Note 16 and on page 153.
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 June 2021 20 July 2021 31 August 2021 1.3125
Interim dividend 30 September 2021 20 October 2021 30 November 2021 1.3125
Interim dividend 31 December 2021 8 February 2022 15 March 2022 1.3125
Interim dividend 31 March 2022 12 May 2022 15 June 2022 1.3125
GOVERNANCE • REPORT OF THE DIRECTORS
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 2022.
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 2022 are
detailed below. In addition, the Company also provides
the same information as at 13 July 2022, being the most
current information available:
Director
Ordinary
Shares held
13 July
2022
% holding at
13 July
2022
Ordinary
Shares held
31 March
2022
% holding at
31 March
2022
Ordinary
Shares held
31 March
2021
% holding at
31 March
2021
Paul Burger 66,000 0.006 66,000 0.006 66,000 0.006
Sylvia Coleman 38,701 0.004 38,701 0.004 38,701 0.004
Simon Holden 100,796 0.009 100,796 0.009 100,796 0.009
Andrew Sutch 62,055 0.005 60,668 0.005 50,624 0.005
Vania Schlogel* 10,000 0.001 10,000 0.001 N/A N/A
Andrew Wilkinson 79,522 0.007 79,522 0.007 79,522 0.007
* Appointed to the Board on 11 June 2021
GOVERNANCE
113
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2022
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. 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 (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 2022, 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
Newton Investment Management 120,124,434 9.92%
Investec Wealth & Investment 117,376,786 9.69%
Aviva Investors 76,077,701 6.28%
Cazenove Capital Management 75,877,666 6.26%
Brewin Dolphin 59,750,328 4.93%
CCLA Investment Management 50,280,780 4.15%
Brooks Macdonald 41,476,708 3.42%
Handelsbanken Wealth & Asset
Management
40,277,613
3.33%
In addition, the Company also provides the same
information as at 30 June 2022, being the most current
information available.
Shareholder Shareholding % holding
Investec Wealth & Investment
119,090,578 9.83%
Newton Investment Management 118,8 32 ,15 4 9.81%
Aviva Investors 76,034,020 6.28%
Cazenove Capital Management 75,586,747 6.24%
Brewin Dolphin 65,425,077 5.40%
CCLA Investment Management 58,522,359 4.83%
Brooks Macdonald 42,425,116 3.50%
BlackRock 42,235,296 3.49%
Handelsbanken Wealth & Asset
Management
37,224,107
3.07%
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
114
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2022
of audit and non-audit fees paid, as included in
Note 21 on page 160. 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 pages 98-103.
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 Annual General Meeting (AGM) of the Company
will be held at 10.00 BST on 21 September 2022 at United
House, 9 Pembridge Road, Notting Hill, London W11 3JY.
Details of the resolutions to be proposed at the AGM,
together with explanations of the AGM arrangements
are set out in a separate circular which is sent to
Shareholders with this Annual Report.
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
13 July 2022
GOVERNANCE • REPORT OF THE DIRECTORS
GOVERNANCE
115
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2022
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 Guernsey
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 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
Administrator and Investment Adviser. 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. Please check spacing in document here
The Directors are responsible for the maintenance and
integrity of the corporate and financial information
included on the website (https://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
116
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2022
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 and belief 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 Rules 9.8.4.
By order of the Board
Andrew Sutch
Chair
13 July 2022
Hipgnosis Songs Fund Limited
GOVERNANCE • DIRECTORS’RESPONSIBILITIES STATEMENT
GOVERNANCE
117
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2022
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 2022, 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 2022;
• 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.
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 Ocorian Administration (Guernsey) Limited (the
“Administrator”) and Hipgnosis Song Management
Limited (formerly The Family (Music) 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, the
involvement of the third parties referred to above, 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
• Risk of fraud in revenue recognition
• Carrying value and fair value disclosure of intangible
assets
Materiality
• Overall group materiality: $17.8 million (2021: $15.6 million)
based on 1% of the group’s Adjusted Net Asset Value.
• Performance materiality: $13.4 million (2021: $11.7 million).
• The group’s Adjusted Net Asset Value is calculated in
accordance with International Financial Reporting
Standards (“IFRS”), adjusted by adding back the
cumulative amortisation of intangible assets and
retaining any cumulative impairment of intangible
assets.
Independent Auditor’s Report to the Members
of Hipgnosis Songs Fund Limited
INDEPENDENT AUDITOR’S REPORT
118
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2022
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, and we considered the risk of
climate change and the potential impact thereof on
our audit approach. 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 our professional
judgement, were of most significance in our 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 auditors, 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.
This is not a complete list of all risks identified by our audit.
INDEPENDENT AUDITOR’S REPORT
Key audit matter How our audit addressed the key audit matter
Risk of fraud in revenue recognition
Please refer to Notes 4 and 13 to the consolidated
financial statements.
The group earns revenue from the catalogues of songs
in which it owns interests. Such revenue takes the
form of royalties, license fees and/or other payments
including mechanical royalties, performance royalties,
and Synchronisation fees.
Revenue is collected by the portfolio administrators/
royalty collection agents, reported on a periodic
basis and paid based on predetermined revenue
payments dates thereafter. These contractual revenue
arrangements entered into by the group with the
portfolio administrators/royalty collection agents may
be complex in nature and there is therefore a risk of
error in that revenue may be incorrectly recognised in
the accounting records of the group.
In addition, because of the contractual reporting
and revenue payment dates with the various portfolio
administrators/royalty collection agents, the directors
make an estimate of the revenue accrued to the group
at the period end, but for which revenue reports from
the portfolio administrators/royalty collection agents
are unavailable at the time of reporting, and where
appropriate, estimate an accrual for expected but
unreported usage of the group’s songs.
We met with the directors and Investment Adviser and
understood and evaluated the group’s processes, internal
controls and revenue recognition policies as a result of
the various music royalty, license fee and other payments
earned from the catalogues of songs owned by the group.
We also assessed the group’s revenue recognition
accounting policies for compliance with IFRS, and
in particular IFRS 15 – Revenue from Contracts with
Customers.
Our procedures included:
• We have reviewed the contractual basis for
recognising revenue from each catalogue of songs
on acquisition by reading and understanding each
catalogue agreement;
• We documented and understood the control
processes in place over revenue recognition;
• We selected a sample of portfolio administrators/royalty
collection agent statements from the general ledger
listing and reconciled these to the revenue recognised
by the group for each of these respective catalogues
of songs. In addition, we traced these amounts to the
subsequent cash receipts, where applicable;
• We identified, evaluated and verified a sample of
journal entries that impacted revenue; and
• We independently observed the download of a
sample of royalty statements from the relevant online
portals for a sample of portfolio administrators to
confirm their authenticity.
GOVERNANCE
119
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2022
The directors seek the input of the Investment Adviser
in making these revenue estimates and accrual, which
involve significant estimate and judgement (see Note
4). The period end accrual is based on the catalogues
of songs’ historic performance for previous periods,
adjusted for the Investment Adviser’s and directors’
assessment of the expected performance of the various
catalogues of songs and by taking into account the
latest available music consumption information.
Revenue is also one of the key performance indicators
for the group and changes to the contractual
arrangements with the portfolio administrators/royalty
collection agents, which may report on a basis that
is not coterminous with the period end, and the
associated accrual determined by the directors, can
have a significant impact on the recognition of revenue
by the group. As a result, there is a heightened risk of
material misstatement and revenue received during the
year and the revenue accrual are considered to be key
audit matters for audit purposes.
We also performed the following procedures in
assessing the period end revenue accrual determined
by the directors with the input of the Investment Adviser:
• We evaluated the methodology applied by the
Investment Adviser in developing the year end
revenue accrual 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 the reasonableness of the revenue
accrual assumptions made by the directors and
Investment Adviser against supporting information,
such as the fair value models provided by the
Portfolio Independent Valuer;
• We reconciled the details of the last royalty
statements received by the group to those included
in the revenue accrual model and checked the
arithmetic accuracy of the revenue accrual
calculation;
• We analysed the assumptions in respect of expected
but unreported song usage used by management in
calculating the year end accrual, and agreed these
to the underlying data per the royalty statements
received to date on a sample basis; and
• We performed back testing by comparing the prior
year revenue accruals to subsequently received
royalty statements in order to assess the accuracy of
the estimates made by the Investment Manager.
Based on our work performed, we did not identify any
material differences.
120
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Carrying value and fair value disclosure
of intangible assets
Please refer to Notes 4 and 6 to the consolidated
financial statements.
The primary activity of the group is to acquire and hold
catalogues of songs and earn the music royalty, license
fees and other revenue associated with its ownership.
The group’s portfolio of catalogues of songs are
classified as intangible assets under IAS 38 – Intangible
Assets (“IAS 38”). The various catalogues of songs are
held at cost and amortised over their useful life (which
is determined at acquisition of each of the catalogues
of songs) less impairment. The catalogues of songs are
subject to an impairment assessment at the earlier of the
end of each accounting period and when an indicator
of impairment is identified. The determination of the
useful life of each catalogue requires the application
of significant judgement by the directors (see Note 4).
The directors have chosen to voluntarily disclose the
fair value of the catalogues of songs (see Note 6). The
directors also present an ‘Operative Net Asset Value’,
which takes into account the catalogues of songs at
this fair value rather than at the IFRS amortised cost
value, as included in consolidated financial statements
and reflected in the IFRS Net Asset Value.
The directors have, in consultation with the Investment
Adviser, engaged the Portfolio Independent Valuer
to assess the fair value of each catalogue of songs. In
general, 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 future catalogue revenue and
cash flow projections; aggregate catalogue maturity;
music industry growth rates by revenue type (e.g.
physical sales, downloads, Streaming etc.); and the
determination of an appropriate discount rate. The fair
value of the catalogues of songs as disclosed in Note 6
reflects the fair value as calculated by the Portfolio
Independent Valuer, recommended by the Investment
Adviser and adopted by the board of directors.
With regard to the catalogues of songs recognised as
intangible assets and carried at amortised cost, we
evaluated management’s processes and assumptions
used to initially recognise and measure the catalogues
of songs at amortised cost and used to assess the need
for impairment (if any) of the respective catalogues of
songs. Our procedures included:
• We obtained and read the purchase agreements
for each catalogue of songs acquired by the group
during the year to ensure they have been accounted
for correctly, and agreed settlement to the cash
payments made;
• We discussed with management any deferred
compensation terms within the purchase contracts
and assessed whether these have been appropriately
recognised and/or disclosed within the consolidated
financial statements;
• We discussed the useful life applied to the catalogues
of songs with the directors and considered its
appropriateness in light of industry benchmarks;
• For all catalogues of songs, we recalculated the
carrying value in accordance with the useful life
determined by the Directors; and
• We obtained, discussed and challenged the
directors and Investment Adviser on their impairment
assessment undertaken with respect to the
catalogues of songs.
Based on our work performed, we did not identify any
material differences.
With regard to the fair value of the catalogues of songs
disclosed in Note 6 to the financial statements and
used in determining the Operative Net Asset Value of
the group by the directors, and as an input into the
impairment assessment, we performed the following
procedures:
• We discussed with the directors and Investment
Adviser the process of appointment of the Portfolio
Independent Valuer;
• We contacted the Portfolio Independent Valuer
directly and obtained their valuation model for each
catalogue of songs;
INDEPENDENT AUDITOR’S REPORT
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The directors use the fair value determined by the
Portfolio Independent Valuer as an input into their
consideration of the impairment assessment of the
catalogues of songs held at amortised cost, based on
a comparison of the fair value of each catalogue to
the carrying value calculated under IFRS.
As the catalogues of songs are significant to the net
asset value of the group and given the level of estimate
in the consideration of impairment and in determining
the fair value of each catalogue, there is a heightened
risk of misstatement. As a result, the carrying value of
the catalogues of songs carried at amortised cost
in the consolidated financial statements (including
any applicable impairment) and the fair value of the
catalogues of songs, as disclosed in the notes to the
consolidated financial statements, used as an initial
basis of consideration for impairment and used in
determining the Operative Net Asset Value by the
directors, are considered to be key audit matters from
an audit perspective.
• We held discussions with the Portfolio Independent
Valuer, confirmed their independence and evaluated
their experience and objectivity;
• We gained an understanding of the assumptions the
Portfolio Independent Valuer adopted to determine
the projected growth rates for revenue streams across
a sample of catalogues of songs and of the discount
rate applied to the projected revenue/cash flow streams;
• We discussed the impact of COVID-19 on the
valuations of the catalogues of songs with the
Portfolio Independent Valuer, and in particular
considered the appropriateness of the assumptions
made by them on future cash flows by revenue type
for the catalogues of songs sampled;
• 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 with respect
to the sample of catalogues of songs and assessed the
rationale for any adjustments made thereto;
• We compared the discount rate used to available
independent industry benchmarks/sources;
• We recalculated the arithmetic accuracy of the
valuation for the catalogues of songs sampled;
• We obtained independent music industry market
growth data by revenue stream and compared this to
the growth rates applied by the Portfolio Independent
Valuer, and assessed the rationale for any variances
identified.
Based on our work performed, we did not identify any
material differences.
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, and the industry in
which the group operates.
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 Administrator (and
its related group entities) 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.
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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
$17.8 million (2021: $15.6 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 $1,781 million
(2021: $1,556 million)
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% (2021: 75%)
of overall materiality, amounting to $13.4 million (2021:
$11.6 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
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 $890,000 (2021: $778,000) 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 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.
INDEPENDENT AUDITOR’S REPORT
GOVERNANCE
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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.
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
124
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2022
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
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.
INDEPENDENT AUDITOR’S REPORT
GOVERNANCE
125
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2022
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 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
13 July 2022
126
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ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2022
FINANCIAL STATEMENTS
Consolidated Statement of Profit and Loss
For the year ended March
Notes
1 April 2021 to
31 March 2022
$’000
1 April 2020 to
31 March 2021
$’000
Income
Total revenue 13 200,384 160,667
Interest income 5 88
Royalty costs (32,041 ) (22,450 )
Net revenue 168,348 138,305
Expenses
Advisory and performance fees 19 (16,548 ) (12,050 )
Administration fees (1,152 ) (1,186 )
Legal and professional fees (5,999 ) (7,381 )
Audit fees 21 (600 ) (732 )
Brokers' fees (274 ) (128 )
Directors’ remuneration 18 (696 ) (680 )
Listing fees (34 ) (625 )
Subscriptions and licences (526 ) (236 )
Public relations fees (702 ) (36 )
Charitable donations (208 ) (307 )
Other operating expenses 14 (12,403 ) (10,161 )
Amortisation of catalogues of songs 6 (105,787 ) (67,875 )
Impairment of catalogues of songs 6 (1,490 ) –
Amortisation of borrowing expenses (1,635 ) (2,600 )
Fixed asset depreciation (712 ) (137 )
Finance charges for deferred consideration (212 ) (339 )
Loan interest 9 (20,377 ) (7,331 )
HSG FV gain – 2,139
Net (loss)/profit from joint ventures (836 ) 85
Foreign exchange (losses)/gains 15 (14,857 ) 15,814
Operating expenses (185,048 ) (93,766 )
Operating (loss)/profit for the year before taxation (16,700 ) 44,539
Taxation 5 (2,743 ) (5,604 )
(Loss)/profit for the year after tax (19,443 ) 38,935
Basic Earnings per Share (cents) 20 (1.65 ) 4.72
Diluted Earnings per Share (cents) 20 (1.65 ) 4.72
All activities derive from continuing operations.
The accompanying notes form an integral part of these Consolidated Financial Statements.
Financial Statements
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HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2022
Consolidated Statement
of Comprehensive Income
For the year ended March
Notes
1 April 2021 to
31 March 2022
$’000
1 April 2020 to
31 March 2021
$’000
(Loss)/profit for the year after tax (19,443 ) 38,935
Other comprehensive income:
Movement in foreign currency translation reserve (1,816 ) (7 )
(1,816 ) (7 )
Total comprehensive income for the year (21,259 ) 38,928
The accompanying notes form an integral part of these Consolidated Financial Statements.
FINANCIAL STATEMENTS
128
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ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2022
FINANCIAL STATEMENTS
Consolidated Statement of Financial Position
As at March
Notes
31 March 2022
$’000
31 March 2021
$’000
Assets
Catalogues of Songs 6 2,036,732 1,878,924
Other assets 568 3,740
Goodwill 3 272 272
Non-current receivables 8 640 3,298
Non-current assets 2,038,212 1,886,234
Trade and other receivables 8 144,450 104,330
Cash and cash equivalents 7 30,067 112,634
Current assets 174,517 216,964
Total assets 2,212,729 2,103,198
Liabilities
Loans and borrowings 9 593,992 565,860
Non-current deferred investment payables 10 925 1,588
Non-current liabilities 593,992 565,860
Other payables and accrued expenses 10 35,413 72,905
Current liabilities 35,413 72,905
Total liabilities 630,330 640,353
Net assets 1,582,399 1,462,845
Equity
Share capital 11 1,692,198 1,466,851
Other reserves – 234
Foreign currency translation reserve (2,235 ) (419 )
Retained earnings (107,564 ) (3,821 )
Total equity attributable to the owners of the Company 1,582,399 1,462,845
Number of Ordinary Shares in issue at year end 1,211,214,286 1,073,440,268
IFRS Net Asset Value per Ordinary Share (cents) 12 130.65 136.28
Operative Net Asset Value per Ordinary Share (cents) 12 184.91 168.29
Approved and authorised for issue by the Board of Directors on July 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
129
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ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2022
Consolidated Statement of Changes in Equity
For the year ended March
Note
Number of
Ordinary Shares
Share
capital
$’000
Foreign
currency
translation
reserve
$’000
Retained
earnings
$’000
Other
reserves
$’000
Total
equity
$’000
As at April 1,073,440,268 1,466,851 (419 ) (3,821 ) 234 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 March 1,211,214,286 1,692,198 (2,235 ) (107,564 ) – 1,582,399
*
The loss for the period ending 31 March 2022 of $19.4 million is calculated net of total amortisation, foreign exchange losses, finance charges for deferred consideration
and impairment which amount to $126.3 million. This results in net income of $106.8 million which represents 1.27 x dividend cover on the dividends paid of $84.3 million.
Retained earnings as at 31 March 2022, when adjusted for total amortisation, foreign exchange losses, finance charges for deferred consideration and impairment is
$18.7 million.
For the year ended March
Note
Number of
Ordinary Shares
Share
capital
$’000
Foreign
currency
translation
reserve
$’000
Retained
earnings
$’000
Other
reserves
$’000
Total
equity
$’000
As at April 615,851,887 801,844 (412 ) 9,253 – 810,685
Shares issued 11 457,588,381 677,056 – – – 677,056
Share issue costs 11 – (12,049 ) – – – (12,049 )
Performance fees to be
paid in shares 19 – – – – 234 234
Dividends paid 16 – – – (52,009 ) – (52,009 )
Profit for the year – – – 38,935 – 38,935
Foreign currency
translation reserve
movement – – (7 ) – – (7 )
As at March 1,073,440,268 1,466,851 (419 ) (3,821 ) 234 1,462,845
*
The underlying retained earnings figure has been shown to be in a deficit position due to the foreign currency translation therefore does not show the true nature of
retained earnings. The Sterling retained earnings position at 31 March 2021 is £6.3 million. This is entirely linked to the functional currency change, and the strengthening of
Sterling against the Dollar. Profit for the Year of $38.9 million is calculated net of Amortisation of Catalogues of Songs, which is $67.9 million. The Profit, when adjusted for
Amortisation, is therefore $106.8 million which represents 2.05 x dividend cover on the dividends paid of $52.0 million.
FINANCIAL STATEMENTS
*
*
130
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2022
FINANCIAL STATEMENTS
Consolidated Statement of Cash Flows
For the year ended March
Notes
1 April 2021 to
31 March 2022
$’000
1 April 2020 to
31 March 2021
$’000
Cash flows generated from operating activities
Operating (loss)/profit for the year before taxation (16,700 ) 44,539
Adjustments for non-cash items:
Loan interest 20,377 7,331
Movement in trade and other receivables 8 (35,704 ) (54,005 )
Movement in other payables and accrued expenses 10 (1,545 ) 38,712
Movement in equity for share-based payments 19 – 234
Depreciation of fixed assets 712 –
Amortisation of Catalogues of Songs and borrowing costs 107,422 70,475
Impairment on catalogue of songs 1,490 –
Foreign exchange losses/(gains) 15 14,857 (15,814 )
Taxation paid (6,040 ) (5,604 )
Net cash generated from operating activities 84,869 85,868
Cash flows used in investing activities
Purchase of Catalogues of Songs 6 (300,455 ) (1,089,293 )
Purchase of other assets (173 ) (3,740 )
Movement in writer advances (8,509 ) –
Goodwill paid on acquisition – (272 )
Net cash used in investing activities (309,137 ) (1,093,305 )
Cash flows generated from financing activities
Proceeds from issue of shares 11 229,468 677,056
Issue costs paid 11 (4,355 ) (12,049 )
Dividends paid 16 (84,300 ) (52,009 )
Interest paid 9 (20,775 ) (8,942 )
Borrowing costs 9 (1,274 ) (9,199 )
Bank loan repaid 9 (50,000 ) –
Bank loan drawn down 9 72,708 503,278
Net cash generated from financing activities 141,472 1,098,135
Net movement in cash and cash equivalents (82,796 ) 90,698
Cash and cash equivalents at the start of the year 112,635 17,391
Effect of foreign exchange rate changes on cash and
cash equivalents 228 4,545
Cash and cash equivalents at the end of the year 7 30,067 112,634
The accompanying notes form an Integral part of these Consolidated Financial Statements.
Financial Statements
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ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2022
Notes to the Consolidated Financial Statements
For the year ended 31 March 2022
. General information
and is governed in accordance with the provisions of the Companies Law. The registered office address is
Floor , Trafalgar Court, Les Banques, St Peter Port, Guernsey, GY LY.
The Company’s Ordinary Shares were admitted to trading on the Specialist Fund Segment of the London Stock
Exchange on July and migrated to a Premium Listing on the Main Market of the London Stock Exchange
on September . The Company was added as a constituent of the FTSE Index effective from after the
market close on March .
The Company makes 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 to March , rounded to the
nearest US Dollar. As disclosed in the prior year Annual Report, the functional and presentation currency changed
from Sterling to US Dollars. 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 .
. 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 March 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
January :
Amended standards and interpretations Effective date
IFRS Financial Instruments (Amendments regarding pre-replacement issues in the context
of the LIBOR reform) 1 January 2023
IFRS Insurance Contracts 1 January 2023
IAS Presentation of Financial Statements (Amendments regarding financial statements’
on classification of liabilities) 1 January 2022
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.
FINANCIAL STATEMENTS
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HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2022
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements
For the year ended 31 March 2022
. Accounting policies (continued)
a) Group information
As at March , the details of the Company’s subsidiaries are as follows:
Name of the subsidiary
3
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
UK 100 100 Full GBP
Hipgnosis Songs Group LLC
US 100 100 Full USD
Hipgnosis Acquisition Corp
US 100 100 Full USD
Kennedy Publishing & Productions Limited
UK 100 100 Full GBP
Robot of the Century Music Publishing Company Inc US 100 100 Full USD
Deamon Limited
UK 100 100 Full GBP
PB Songs Ltd
UK 100 100 Full GBP
These companies are subsidiaries of Hipgnosis SFH XX Limited and therefore an indirect subsidiary of Hipgnosis Songs Fund Limited.
On September 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 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.
During the year, the Company dissolved F.S. Music Limited and C H Publishing Limited on November .
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 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.
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 of the Companies Law, the Directors have elected to prepare consolidated
accounts for the financial period for the Group. Therefore, there is no requirement to present individual accounts for
the Company within the Consolidated Financial Statements.
Financial Statements
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HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2022
The Company is not considered to be an Investment Entity, as defined in IFRS . 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 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, UK and Guernsey. 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.
d) Revenue recognition
Bank interest income
Interest income from cash deposits is recognised as it accrues by reference to the effective interest rate applicable,
which is the rate that exactly discounts the estimated future cash flows through the expected life of the financial
asset to the asset’s carrying value or principal amount, and is accounted for on an accruals basis.
134
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2022
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements
For the year ended 31 March 2022
. Accounting policies (continued)
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 and solely consists of royalty income, which is divided into three 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;
ii) Performance royalties – these are collected by various PROs worldwide which represent songwriters and other
copyright owners; and
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.
These revenue categories are further disaggregated into individual revenue streams which are disclosed in detail
in Note . 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 those reporting delays 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 .
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.
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.
Financial Statements
135
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2022
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 HSG or Kobalt.
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 period in which they are declared and approved by the Board of Directors. The
Company, being a Guernsey regulated entity, is able to pay dividends out of capital, subject to the assessment
of solvency in accordance with Companies Law. 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 years, in line with what the
Board of Directors and Investment Adviser deem to be industry standard.
Asset impairment
Each time events or changes in the respective Catalogues of Songs or economic environment indicate a risk
of impairment of intangible assets, the Group re-examines the value of these assets for indicators of impairment.
When there are indicators of impairment, the impairment test is performed to compare the recoverable amount
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 (less costs to sell) as described hereafter, for each individual asset.
The value in use of each asset is determined by the Board and Investment Adviser with the support of independent
third parties commissioned to appraise the Catalogue value at time of acquisition, which is the discounted value
of future cash flows using cash flow projections consistent with the expected portfolio cash flows and the most
recent forecasts as at that time. Applied discount rates are determined by reference to an appropriate benchmark
as determined by the Board and reflect the current assessment by the Group of the time value of money and risks
specific to each asset. Growth rates used for the evaluation of individual assets are based on industry growth rates
sourced from independent market reports and other third-party sources.
The fair value is determined by the Portfolio Independent Valuer, which is also the discounted value of future cash
flows by using cash flow projections consistent with the expected Portfolio cash flows and the most recent forecasts
as at that time cross referenced, where appropriate, against market multiples for recent transactions for similar assets.
The Portfolio Independent Valuer use their own proprietary analysis to project out income streams, which is based
on independent market reports and third-party sources. The discount rate used by the Portfolio Independent Valuer
is .% and unchanged since the interim results of September ( March : .%).
136
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2022
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements
For the year ended 31 March 2022
. Accounting policies (continued)
Whilst the Board and Investment Adviser regularly assess other indicators of impairment (such as a songwriter’s or key
performance artist’s reputation etc.), the Board and Investment Adviser typically use the fair value of the assets,
being the Catalogues of Songs, as an initial indicator of impairment. For assets that are currently valued below
their fair value, the Board and Investment Adviser will review the prevailing qualitative and quantitative factors that
determine the value in use in assessing whether the indication of impairment holds true.
Given the potential delays within the music industry, of copyright registrations and LOD assignments, an impairment
is only considered when the recoverable value is less than fair value after a two year period. A co-efficient analysis,
which incorporates various factors including the time remaining when the recoverable value equals the fair value
based on the rate of amortisation, the ability for the Company to renegotiate administration rates and the active
management that is undertaken, which then informs the asset impairment to be made. If the recoverable amount
is still lower than the carrying value of an asset or group of assets and the qualitative and quantitative aspects do
not support a recoverable amount higher than the carrying amount, an impairment loss equal to the difference
is recognised in 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.
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 ). Interest income is recognised by applying the effective interest rate, except for short term
receivables when the recognition of interest would be immaterial.
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) Contingent consideration
Under the terms of the acquisition agreements for Catalogues, contingent consideration may be payable dependent
on future independent valuations of the Catalogues or revenue received within a specific time frame of acquiring
the Catalogues that reach agreed upon revenue targets. At March a provision of $. million was recognised
as contingent consideration as it is likely the performance conditions will be met and an economic outflow will arise.
j) Deferred consideration
In such cases where payment is deferred 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
Debt and equity instruments are classified as either financial liabilities or as equity in accordance with the substance
of the contractual arrangement.
Financial Statements
137
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2022
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 profit or loss on the purchase, sale, issue or cancellation of the Company’s own equity instruments.
Financial liabilities
Financial liabilities, including 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.
Derecognition of financial liabilities
The Group derecognises financial liabilities when, and only when, the Group’s obligations are discharged, cancelled
or they expire.
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 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 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 (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 profit or loss in the period 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.
138
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2022
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements
For the year ended 31 March 2022
. Accounting policies (continued)
As disclosed in the prior year Annual Report, the functional and presentation currency of the Company and
a number of its subsidiaries changed from Sterling to US Dollars with effect from October . The change
in presentation currency is a voluntary change with retrospective application. The accounting policy for the change
in functional and presentation currency is outlined below:
Period to 31 March 2021
All movements in the Consolidated Statement of Profit and Loss, Consolidated Statement of Comprehensive Income,
Consolidated Statement of Financial Position, Consolidated Statement of Changes in Equity and Consolidated
Statement of Cash Flows, have been translated using the prevailing daily foreign exchange rates.
Period from 1 April 2020 to 30 September 2020
All movements in relation to the Consolidated Statement of Profit and Loss, Consolidated Statement
of Comprehensive Income and the Consolidated Statement of Changes in Equity were translated using the
prevailing daily foreign exchange rates. All Equity reserves in the Consolidated Statement of Financial Position were
also translated using the prevailing daily foreign exchange rates.
Assets and liabilities in the Consolidated Statement of Financial Position were translated into Dollars at the closing
foreign currency rates as at September , with the exception of the Catalogues of Songs figure which was fully
recalculated using applicable daily rates.
The movement in the Foreign currency translation reserve in this period was calculated as the difference
between the movement in the net asset position and the total Equity reserves as translated at April and
September .
The Consolidated Statement of Cash Flows was translated as follows; movements which related to the Consolidated
Statement of Profit and Loss, Consolidated Statement of Comprehensive Income and those in relation to Equity
reserves were translated using the prevailing daily foreign exchange rates, movements which related to assets and
liabilities are calculated as the movements using the rates at April and September .
Periods ended before or on 31 March 2020
All movements in relation to the Consolidated Statement of Profit and Loss, Consolidated Statement
of Comprehensive Income were translated at the average prevailing daily rates for the relevant accounting
period, this is also the basis for the historical profit or loss held in Retained earnings per the Consolidated Statement
of Financial Position and Consolidated Statement of Changes in Equity.
All historical capital raises and dividend payments were translated at the prevailing daily foreign exchange rates.
Assets and liabilities in the Consolidated Statement of Financial Position were translated into Dollars at the closing
foreign exchange rates as at each reporting date, with the exception of the Catalogues of Songs figure which was
fully recalculated using applicable daily rates.
The Foreign currency translation reserve was calculated as the difference between the net asset position and the
total Equity reserves as stated at each reporting date.
The Consolidated Statement of Cash Flows was translated as follows; movements which related to the Consolidated
Statement of Profit and Loss were translated at the average prevailing daily rates for the relevant accounting period,
those in relation to dividend payments or capital raises were translated at the prevailing daily foreign exchange
rates, and movements which related to assets and liabilities were calculated as the movements using the closing
foreign exchange rates as at each reporting date.
Financial Statements
139
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2022
. 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 profit or 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 profit or loss.
On September , the Company acquired the entire share capital of Big Deal Music Group (rebranded
as Hipgnosis Songs Group) a boutique full-service song company which owns a portfolio of copyright interests and
is headquartered in the US. It was acquired for total consideration of $. million based on the fair value of assets
transferred into the Group of $. million, resulting in $. million of Goodwill being recognised on acquisition
(including $. million cash, advances, copyright investments and operating company working capital items). The
consideration for the acquisition was funded from the proceeds of the Company’s C Share equity fundraise in July
and through the issue of ,, new Ordinary Shares issued at a price of .p per Ordinary Share. As part
of the business combination, the assets were revalued to fair value on the date of the business combination and
liabilities evaluated and recognised in the respective balances in the Consolidated Financial Statements.
The results of Hipgnosis Songs Group are not disclosed separately in the Consolidated Statement of Profit and Loss
as these are deemed immaterial on a consolidated Group basis.
140
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2022
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements
For the year ended 31 March 2022
. 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 Condensed Consolidated Financial Statements were prepared. However, these assumptions and
estimates may change based on market changes or circumstances beyond the control of the Group.
Functional currency
Functional currency is defined as the currency of the primary economic environment in which the Company
operates, and IAS outlines primary and secondary factors a Company should consider when determining its
functional currency.
As disclosed in the prior year Annual Report, the functional and presentation currency of the Company and
a number of its subsidiaries changed from Sterling to US Dollars with effect from October . The change
in presentation currency is a voluntary change with retrospective application. The methodology used to apply the
presentation currency change in the prior year is outlined in Note (n).
Critical estimates in applying the Group’s accounting policies – revenue recognition and royalty costs:
In calculating accruals, the Investment Adviser 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.
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. In the current year, the Investment Adviser
recommended changes to the revenue accrual estimation methodology to include a PRO income accrual based
on each Catalogue’s revenue history and a Usage Accrual based on the expected usage lag for each PRO and
publisher, which was adopted by the Board of Directors.
Net revenue is subject to a royalty cost accrual applied to gross revenue receipts primarily within the Hipgnosis
Songs Group subsidiaries. Royalty cost accruals represent contractual royalties due to songwriters and other rights
holders that are payable on a -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.
Expected Credit Loss (ECL) in relation to revenue receivables:
Royalty earnings for accruals and receivables recognised in the year ending March are distributed
by PROs, Publishers and Record Labels who collect royalties at the source of usage and distribute those earnings
directly to Hipgnosis.
Financial Statements
141
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2022
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 our 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.
Findings from the Company’s sensitivity analysis demonstrates revenue by source from the following types
of organisations:
• % Independent publishers
• % Major publishers (US & UK)
• % US PROs
• % Record labels
• % Ex-US PROs
As demonstrated in the following breakdown of Accrued Income and Income Receivable, % ($. million)
of the $. million Income receivable balance outlined in Note , has been received at the time of signing the
Consolidated Financial Statements, with the remainder expected within days. To date, there has been no default
of debt for royalty payments by PROs, Publishers or Record Labels.
Additional credit risk with regards to Accrued income is taken into consideration at the point of calculating each
accrued amount. On calculation, latest forecast earnings are considered and adjusted down for the latest trend
of cash receipted earnings if there Is any suggestion of a downwards performance indicator.
Accrued Income and Receivables at March were $. million (on a gross basis), a breakdown of which
is set out below:
• $. million receivable representing royalty statements received in March with payment received in
April and May .
• $. million for calendar Q earnings where, due to the time lag in royalty reporting, statements are not
expected to be received until calendar Q and Q ;
• $. million for calendar Q earnings which are not reported to the Company until calendar Q ;
• $. 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 can typically result in an earnings lag of up to months;
• $. million HSG gross revenue accrual, which includes the accrued PRO lag. Separately, a $. million royalty
creditor representing contractual royalties due to writers has been recognised;
• $. million income Usage Accrual, see Usage Accrual section for more details; and
• $. million relating to calendar Q to Q earnings for Catalogues where royalty reporting is still in the
process of being redirected/switched over to the Company. These accruals are based on royalty statements
received with invoices due to be raised on completion of the Letter of Direction.
The Audit and Risk Management Committee continues to evaluate credit risk during COVID- and has not become
aware of any issues with cash collections or changes in the existing royalty collection arrangements.
142
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2022
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements
For the year ended 31 March 2022
. Significant accounting judgments, estimates and assumptions (continued)
Expected Credit Loss (ECL) in relation to HSG advances
Hipgnosis Songs Group LLC advance royalty payments to songwriters. Management are required to assess the
recoverability of these advances bi-annually in accordance with IFRS Financial Instruments. Management will
consider market conditions and historic trading patterns effecting the relevant assets.
Management have analysed their historical loss ratio data and apply this using the risk based methodology as there
are no defined terms of repayment related to advances. The risk categories to which the historical loss ratios
assessed and expected credit losses 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.
At year end HSG gross recoupable advances are $. million with an expected credit loss provision of $. million
recognised against the advances. The movement in the provision for expected credit losses is included as an other
operating expense in the Consolidated Statement of Comprehensive Income.
Assessment of 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 significant uncertainties as the ongoing popularity of a Song can fluctuate unexpectedly.
An assessment of the useful life of each Catalogue is considered at each reporting period, which is years, in line
with industry standard.
Assessment of impairment and the calculation of Operative NAV
As disclosed in Note (h) above, intangible assets are subject to bi-annual impairment review which relies
on assumptions made by the Board. Assumptions are updated bi-annually, specifically those relating to future cash
flows and discount rates.
The fair value estimates that are prepared in order to calculate the Operative NAV and Operative NAV per Share
are also used to assess whether there is evidence that the intangible assets may be impaired. Management’s
impairment review as at March concluded that $. million ( March : $nil) impairment was required
to the Group’s Catalogues.
Valuations of music publishing rights typically adopt the DCF valuation approach which measures the present
value of anticipated future revenues from acquiring the Catalogues, which are discounted at a ‘market cost
of capital’ of .% ( March : .%) and a terminal value in years. This method is accepted as an objective
way of measuring future benefits; taking into account income projections from various music industry sources across
various revenue flows whilst also factoring in the associated cost of capital.
Financial Statements
143
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2022
It is the intention of the Board that Catalogues of Songs will be valued on an ongoing basis using a consistent DCF
valuation methodology, and that this be used as an initial indicator of impairment for each Catalogue of Songs.
When considering whether a Catalogue of Songs should be impaired, the Board considers a co-efficient analysis
that incorporates various factors, including the time remaining of when the recoverable value equals the fair value
based on the rate of amortisation, the ability for the Company to renegotiate administration rates and the active
management that is undertaken.
Future revenue derived from active song management is not reflected in the fair value of each Catalogue of Songs
as determined in accordance with IFRS .
. Taxes
The major components of income tax expense for the year ended March and year ended March are:
Current income tax
Year ended
31 March 2022
$’000
Year ended
31 March 2021
$’000
United Kingdom corporation tax based on the profit for the year at % (: %) 123 5,604
Adjustments in respect of prior periods 2,369 –
Non-reclaimable withholding tax on royalty payments received 251 –
Total current tax 2,743 5,604
Deferred taxation
Origination and reversal of timings differences – –
Total tax 2,743 5,604
The Company was Guernsey tax resident for the current and previous periods but exempt from taxation in Guernsey
under the provisions of the Income Tax (Exempt Bodies) (Guernsey) Ordinance, and was charged an annual
fee of £,.
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 is incurred in these UK entities.
Therefore, it is considered most appropriate to prepare the tax reconciliation below at the standard UK tax rate for
the year of % (: %).
The Group currently has no exposure to US Tax given HSG is currently not making a taxable profit. Aside from the US,
the Group has no other foreign subsidiaries.
It is noted that the Company applied to Her Majesty’s Revenue & Customs (HMRC) for approval of the Company
as an investment trust company and such approval was granted. The Company’s conversion to an investment trust
company took effect from April (and shall continue for such time as the Company maintains this status). The
Company will be treated as being resident in the UK for tax purposes from such date. With effect from this change,
the Company will cease to be a Guernsey tax exempt vehicle under The Income Tax (Exempt Bodies) (Guernsey)
Ordinance, , as amended.
144
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2022
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements
For the year ended 31 March 2022
. Taxes (continued)
The March Budget announced an increase to the main rate of UK corporation tax to % from April . This
rate which is substantively enacted at the statement of financial position date, however the impact of this proposed
change is not included within these Consolidated Financial Statements.
The actual tax charge for the current year and the previous period differs from the standard rate for the reasons set
out in the following reconciliation:
Year ended
31 March 2022
$’000
Year ended
31 March 2021
$’000
(Loss)/Profit on the Group’s ordinary activities before tax (16,700) 44,538
Tax on the (loss)/profit on the Group’s ordinary activity at the standard UK rate of % (3,173) 8,462
Factors affecting charge for the year:
Expenses not deductible for tax purposes 887 –
Adjustment in respect of previous periods 2,369 –
Effect of overseas tax rate (760) –
Deferred tax not recognised 3,169 –
Net non-reclaimable withholding tax on royalty payments received 251 –
Tax effect on non-taxable income – (2,858)
Total actual amount of current tax 2,743 5,604
Financial Statements
145
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2022
. Catalogues of Songs
$’000
Cost
At April 1,972,199
Additions 265,085
At March 2,237,284
Amortisation and impairment
At April 93,275
Amortisation 105,787
Impairment 1,490
At March 200,552
Net book value
At April 1,878,924
At March 2,036,732
Fair value as at March (used in Operative NAV) 2,693,974
Cost
At April 882,906
Additions 1,089,293
At March 1,972,199
Amortisation and impairment
At April 25,400
Amortisation 67,875
Impairment –
At March 93,275
Net book value
At April 857,506
At March 1,878,924
Fair value as at March (used in Operative NAV) 2,213,719
The Group amortises Catalogues of Songs with a limited useful life using the straight-line method of years
(other than in exceptional circumstances for specific Catalogues of Songs). At March the Portfolio
consisted of Catalogues of Songs held for no longer than years. An assessment of the useful life of each
Catalogue is considered at each reporting period, which is years, in line with industry standard. At March
accumulated amortisation for Catalogue of Songs is $.million ( March : $. million) and the accumulated
impairment to date is $. million ( March : $nil).
146
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2022
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements
For the year ended 31 March 2022
. Catalogues of Songs (continued)
The Board engaged Portfolio Independent Valuer, Citrin Cooperman Advisors LLC (formerly Massarsky Consulting,
Inc.), to value the Catalogues as at March . Each income type from each Catalogue was analysed and
forecast to derive the fair value of the Catalogues by adopting a DCF valuation methodology using a discount rate
of .% ( March : .%) that would be categorised under Level within the fair value hierarchy of IFRS “Fair
Value Measurement”. Income was analysed and forecast at the level of each individual Catalogue and by income
type with the exception of Kobalt, which was evaluated as a whole. The Board are comfortable that Kobalt is valued
on this basis as the Kobalt Catalogue was purchased as a whole. Future revenues were also estimated, often at the
level of individual Songs, and incorporated into their valuation. Citrin Cooperman has also taken into consideration
macro factors including the growth of Streaming revenue, the global growth of the recorded music industry and the
short – and medium-term impact of COVID- in their analysis. 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 to the discount rate used in the Operative NAV is as follows:
-.% discount rate will grow the FV of the Portfolio by .%, increasing the Operative NAV by $. million which
represents an increase of . cents Operative NAV per share.
+.% discount rate will reduce the FV of the Portfolio by .%, reducing the Operative NAV by $. million which
represents a decrease of . cents Operative NAV per share.
. Cash and cash equivalents
Cash and cash equivalents comprise cash held by the Group available on demand and cash held in deposits. Cash
and cash equivalents were as follows:
31 March 2022
$’000
31 March 2021
$’000
Cash available on demand 30,067 112,634
30,067 112,634
Financial Statements
147
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2022
. Non-current receivables, trade and other receivables
31 March 2022
$’000
31 March 2021
$’000
Non-current receivables 640 3,298
Accrued income 104,658 71,100
Royalties receivable 6,605 8,687
HSG net recoupable advances 18,604 9,095
Prepayments and other debtors 7,274 15,448
VAT Receivable 7,309 –
145,090 107,628
Credit Risk and Provision for Expected Credit Losses
The Group has applied IFRS , Financial Instruments, during the year, which includes the requirements for
calculating a provision for expected credit losses on financial assets. As disclosed in Note , the probability of future
default against revenue receivable balances has been deemed close to nil. At March , an ECL provision
is recognised against the HSG recoupable advances as below:
High Risk Medium Risk Low Risk Total
Expected loss rates -100.0% -41.1% – -41.1%
Gross carrying amounts 6,712 15,324 9,576 31,612
Provision for expected credit losses (6,712) (6,296) – (13,007)
Net carrying amounts – 9,028 9,576 18,604
148
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2022
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements
For the year ended 31 March 2022
. Loans and borrowings
During , the Company entered into an agreement with a syndicated group of lenders, with JPMorgan
Chase Bank (JPM) as Lead Arranger, to increase its Revolving Credit Facility (RCF) from £ million to $ million.
On January it was announced that the facility was upsized to $ million subject to total borrowings not
exceeding % of Net Asset Value. On March , the Company drew down $. million under its RCF resulting
in gross indebtedness of $. million and net indebtedness of $ million. This gross indebtedness represented
approximately .% of the last published Adjusted Operative Net Asset Value at that time and therefore constituted
an inadvertent breach of the Company’s borrowing restriction under its investment policy of % of Net Asset Value.
The amounts drawn down were held by the Company as cash and were unutilised, and on April $. million
of these drawings were repaid thereby curing the temporary breach.
On June the Company drew down $. million of the RCF and on July the Company drew down
a further $. million of the RCF. This results in gross indebtedness of $ million which is the maximum available
limit of the RCF.
The RCF, which had its maturity date extended to April on April , provides the Company with greater
flexibility to fund investments and provide additional working capital.
The RCF’s key covenant imposes a loan to value test, a fixed charge coverage test and a liquidity test reviewed
quarterly and is secured by, inter alia, a charge over the shares in all the subsidiaries of the Company and over all
of their assets including all Catalogues of Songs of the Company held through these subsidiaries, a charge over the
bank accounts of the Company and a floating charge at the fair value deemed by J.P. Morgan. The Company
has also provided a parent company guarantee. In accordance with the Investment Policy, any borrowings by the
Company will not exceed % of the value of the net assets of the Company.
The RCF bears interest at a fixed rate of .% plus a floating rate of interest based on London Interbank Offered
Rate (LIBOR). In the financial year ending March , the RCF will transition from a floating rate of interest
based on LIBOR to a floating rate of interest based on Secured Overnight Financing Rate (SOFR). The Company
has considered the impact this will have on interest payments and it is not expected to have a material impact.
The Board, together with the Investment Adviser, is in the process of reviewing its leverage structure with a view
to reducing interest rate risk and controlling costs for the Company.
31 March 2022
$’000
31 March 2021
$’000
Opening balance – loan drawn down 577,292 74,014
Amounts drawn down during the period 72,708 503,278
Amounts repaid during the year (50,000) –
Total loan drawn down 600,000 577,292
Cumulative borrowing costs (6,008) (11,432)
Closing balance 593,992 565,860
During the year, $. million ( March : $. million) was charged as interest on the amounts drawn down.
Financial Statements
149
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2022
. Non-current deferred investment payables, other payables and
accrued expenses
31 March 2022
$’000
31 March 2021
$’000
Non-current investment acquisition payables 925 1,588
Amounts owed to songwriters 16,957 18,522
Investment acquisition payables 11,197 40,459
Trade payables and accruals 4,106 5,250
VAT payable – 2,609
Loan interest payable 500 1,277
Corporation tax payable 2,570 4,798
Directors’ fees payable 83 –
36,338 74,493
As at March an amount of $. million relating to the acquisition of Catalogues remained outstanding
( March : $. million relating to the acquisition of Catalogues).
The Group have a number of contingent bonuses which are dependent on the individual catalogues meeting
certain defined performance hurdles as defined in the catalogue acquisition agreement. Management’s
assessment based on the underlying catalogue acquisition agreement and catalogue performance to date,
is that there is a remote probability that a number of contingent bonuses will become payable. The fair value of this
contingent liability is $. million.
. Share capital and capital management
The share capital of the Company may consist of an unlimited number of: (i) Ordinary Shares of no par value which
upon issue the Directors may classify as Ordinary Shares; and (ii) C Shares denominated in such currencies as the
Directors may determine.
Ordinary Shares of no par value
No. of Units
Issued and fully paid:
Shares as at April 1,073,440,268
Shares issued on April 9,000,000
Shares issued on July 128,774,018
Shares as at March 1,211,214,286
$'000
Issued and fully paid:
Share capital at April 1,466,851
Shares issued on April 14,938
Shares issued on July 214,764
Share issue costs (4,355)
Shares as at March 1,692,198
150
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2022
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements
For the year ended 31 March 2022
. Share capital and capital management (continued)
On April the Company issued ,, new Ordinary Shares at a price of .p per Ordinary Share
and on July the Company issued ,, new Ordinary Shares at a price of p 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.
No. of Units
Issued and fully paid:
Shares as at April 615,851,887
Shares issued on September 17,609,304
Shares issued on September 163,793,103
Shares issued on November
214,202,503
Shares issued on February 61,983,471
Shares as at March 1,073,440,268
$'000
Issued and fully paid:
Share capital at April 801,844
Shares issued on September 27,600
Shares issued on September 241,702
Shares issued on November
304,132
Shares issued on February 103,622
Share issue costs (12,049)
Shares as at March 1,466,851
,, C Shares converted to ,, Ordinary Shares
On July ,, C Shares were issued and converted on November to ,, Ordinary
Shares at a conversion rate of . Ordinary Shares for each C Share held.
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.
Financial Statements
151
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2022
. Net Asset Value per Share and Operative Net Asset Value per Share
31 March 2022 31 March 2021
Number of ordinary shares in issue 1,211,214,286 1,073,440,268
IFRS NAV per share (cents) 130.65 136.28
Operative NAV per share (cents) 184.91 168.29
The IFRS NAV per share and the Operative NAV per share are arrived at by dividing the IFRS Net Assets and Operative
Net Assets (respectively) by the number of Ordinary Shares in issue.
Catalogues of Songs are 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 2022
$’000
31 March 2021
$’000
IFRS NAV 1,582,399 1,462,845
Adjustments for revaluation of Catalogues of Songs to fair value 457,441 250,343
Reversal of amortisation 199,800 93,275
Operative NAV 2,239,640 1,806,463
152
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2022
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements
For the year ended 31 March 2022
. Revenue
1 April 2021 to
31 March 2022
$’000
1 April 2020 to
31 March 2021
$’000
Mechanical income 10,657 9,535
Performance income 22,291 24,652
Digital downloads income 4,405 4,480
Streaming income 72,850 34,348
Synchronisation income 22,530 28,020
Publishing admin income 300 199
Masters income 8,448 8,424
Writer share income 45,103 34,889
Other income 6,037 7,675
Producer royalties 7,763 8,445
Total revenue 200,384 160,667
All revenue streams disclosed in this note are in scope of IFRS .
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 Trade and other receivables.
. Other operating expenses
1 April 2021 to
31 March 2022
$’000
1 April 2020 to
31 March 2021
$’000
Aborted deal expenses 1,951 848
Bank charges 34 42
Contingent bonuses 936 –
Directors' and officers' insurance 366 512
Disbursements and sundry expenses 355 594
Postage, stationery and printing 42 59
Movement in ECL provision for HSG advances 1,570 4,247
HSG staff payroll and expenses 6,598 3,678
Travel and accommodation fees 551 184
Total other operating expenses 12,403 10,164
Financial Statements
153
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2022
. Foreign exchange
1 April 2021 to
31 March 2022
$’000
1 April 2020 to
31 March 2021
$’000
Foreign exchange (losses)/gains (14,857) 15,814
(14,857) 15,814
The foreign exchange impact reflects the effect of movements in foreign currency exchange rates throughout the
year. In the prior year, the foreign exchange gain includes an adjustment as a result of the Company changing its
functional currency from GBP to USD.
Currency risk is discussed further in Note .
. Dividends
A summary of the dividends is set out below:
1 April 2021 to 31 March 2022
Dividend per
share
Pence
Total Dividend
$’000
Interim dividend in respect of quarter ended March 1.3125 20,093
Interim dividend in respect of quarter ended June 1.3125 21,807
Interim dividend in respect of quarter ended September 1.3125 21,214
Interim dividend in respect of quarter ended December 1.3125 21,186
5.25 84,300
1 April 2020 to 31 March 2021
Dividend per
share
Pence
Total Dividend
$’000
Interim dividend in respect of quarter ended March 1.25 9,485
Interim dividend in respect of quarter ended June 1.25 10,108
Interim dividend in respect of quarter ended September 1.3125 13,979
Interim dividend in respect of quarter ended December 1.3125 18,437
5.125 52,009
Subsequent to the year end, the Company announced an interim dividend for the quarter from January
to March of .p per Ordinary Share, paid on June . The Company continues to pay
dividends in Sterling.
154
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2022
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements
For the year ended 31 March 2022
. Financial risk management
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, trade and other receivables and trade
and other payables approximate their carrying amount largely due to the short-term maturities and high credit
quality of these instruments.
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 buy back shares or issue new shares. There are no
external capital requirements imposed on the Group.
During the year ended March , the Group drew down $. million ( March : $. million)
and repaid $. million of the RCF which remained drawn down as at March by $ million
( March : $. million).
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. The Group may engage in full or partial foreign currency hedging and interest rate hedging. The Group
will not enter into such arrangements for investment purposes.
Financial Statements
155
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2022
The currencies in which financial assets and liabilities are denominated are shown below:
As at 31 March 2022
USD
$
GBP
Converted to
$
EUR
Converted to
$
Other
Converted to
$
Total
$
Current and non-current receivables 132,276,352 10,502,849 1,744,705 565,596 145,089,502
Cash and cash equivalents 25,453,842 4,314,025 298,750 – 30,066,617
Total financial assets 157,730,194 14,816,874 2,043,455 565,596 175,156,119
Revolving Credit Facility 600,000,000 – – – 600,000,000
Current and non-current payables 31,448,059 4,882,926 7,259 – 36,338,244
Total financial liabilities 631,448,059 4,882,926 7,259 – 636,338,244
Net asset/(liability) position (473,717,865) 9,933,948 2,036,196 565,596 (461,182,125)
*At the reporting date March , if Sterling had strengthened/weakened by % against the Dollar with all other variables held constant, the net assets and movement
in profit and loss would have been $, higher/lower.
**At the reporting date March , if the EUR had strengthened/weakened by % against the Dollar with all other variables held constant, the net assets and movement
in profit and loss would have been $, higher/lower.
As at 31 March 2021
USD
$
GBP
Converted to
$
EUR
Converted to
$
Other
Converted to
$
Total
$
Current and non-current receivables 158,928,673 (54,090,437) 2,342,940 446,482 107,627,658
Cash and cash equivalents 117,349,227 (6,549,651) 1,834,603 – 112,634,179
Total financial assets 276,277,900 (60,640,088) 4,177,543 446,482 220,261,837
Revolving Credit Facility 577,292,000 – – – 577,292,000
Current and non-current payables 140,174,178 (66,307,194) 625,732 (165) 74,492,551
Total financial liabilities 717,466,178 (66,307,194) 625,732 (165) 651,784,551
Net (liability)/asset position (441,188,278) 5,667,106 3,551,811 446,647 (431,522,714)
*At the reporting date March , if Sterling had strengthened/weakened by % against the Dollar with all other variables held constant, the net assets and movement
in profit and loss would have been $, higher/lower.
**At the reporting date March , if the EUR had strengthened/weakened by % against Dollar with all other variables held constant, the net assets and movement
in profit and loss would have been $, 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 London Interbank Offered Rate
(LIBOR). This interest rate is LIBOR rolling over at November , the Group is able to elect , or month rollovers,
with no change expected.
At March , based on the value of interest-bearing RCF balance held at that date, if interest rates had been
basis points higher/lower and all other variables were held constant, the Company’s loss after tax for the year
would not have been materially impacted.
156
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2022
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements
For the year ended 31 March 2022
. Financial risk management (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 , 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
$. million ( March : $. 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
2022
$’000
31 March
2021
$’000
Barclays Bank plc Guernsey/UK A-1
*
27,367 106,889
City National Bank US A+* 2,599 5,241
Pinnacle Financial Partners US Baa1 79 461
JPMorgan Chase Bank, N.A. US A-1* 12 12
*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.
The Group prepares a year rolling cash forecast, which is reviewed by the Board on a monthly basis. The cash flow
forecast includes a sensitivity analysis with downside scenarios on income streams impacted specifically relating
to COVID- 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 calendar quarters or half years by the administrators and paid out on either / day accounting.
During the year ended March , the Group had no financial liabilities other than the RCF: $ million
( March : $. million) and trade and other payables: $. million ( March : $. million).
Financial Statements
157
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2022
At the reporting date, the Group’s financial assets and financial liabilities are:
Current and non-current receivables
Carrying
amount
assets
$’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
Accrued income 104,750 4,882 51,381 48,395 92 – – 104,750
Royalties receivable 7,153 4,977 241 1,387 411 137 – 7,153
HSG net recoupable advances 18,604 – – 18,604 – – – 18,604
Prepayments and other debtors 7,274 1,442 – 5,831 – – – 7,274
VAT Receivable 7,309 – (1,383) 8,692 – – – 7,309
Total 145,090 11,301 50,239 82,909 503 137 – 145,090
Other payables, accrued expenses,
loans and borrowings
Carrying
amount
assets
$’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
$’000
Bank loan (593,992) – – – – (593,992) – (593,992)
Amounts owed to songwriters (16,957) – – (16,957) – – – (16,957)
Investment acquisition
payable (12,122) (2,500) – (8,697) (925) – – (12,122)
Trade payables and accruals (4,106) (829) (3,250) (27) (4,106)
Loan interest payable (500) (500) – – – – – (500)
Corporation tax (2,570) – – (2,570) – – – (2,570)
Directors' fees payable (83) (83) – – – – – (83)
Total (630,330) (3,912) (3,250) (28,251) (925)(593,992) – (630,330)
Net receivable/(payable) (485,240) 7,389 46,989 54,658 (422)(593,855) – (485,240)
. Related party transactions and Directors’ remuneration
Parties are considered to be related if one party has the ability to control the other party or exercise significant
influence over the party in making financial or operational decisions.
All Directors are non-executive. The Directors’ remuneration, excluding disbursements, for the year ended
March amounted to £,/$,, with outstanding fees of £,/$, due to the Directors
at March ( March : £,/$, with outstanding fees of £nil due at March ). There were
no supplementary fees paid to Directors in the year ended March . 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.
158
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2022
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements
For the year ended 31 March 2022
. 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.
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 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:
i) % per annum of the Average Market Capitalisation up to, and including, £ million;
ii) .% per annum of the Average Market Capitalisation in excess of £ million and up to and including
£ million; and
iii) .% per annum of the Average Market Capitalisation in excess of £ million.
Advisory fees for the year were $. million ( March : $. million) with $nil outstanding at the reporting date
( March : $nil).
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 % 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 % 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 % 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 month period ending on the last business day of that accounting period
(which shall be adjusted as appropriate: (i) to include any dividend declared but not paid where the Ordinary
Shares are quoted ex such dividend at any time during that month; (ii) to exclude any dividend paid in respect
of the shares during that month; and (iii) for the PSP Adjustments). During the period, the average of the middle
market quotations was .p; and
FINANCIAL STATEMENTS
Financial Statements
159
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2022
“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 -month lock-up arrangements.
The performance fee for the year was calculated and accrued as below:
31 March 2022
$'000
31 March 2021
$'000
Cash amount accrued as payable – 300
Amount to be paid as shares – 234
Total performance fee – 534
Administration Agreement
Pursuant to the Administration Agreements: (i) Ocorian Administration (Guernsey) Limited has been appointed
as Administrator of the Company; and (ii) Ocorian Administration (UK) Limited has been appointed as administrator
to the subsidiaries. The Administrator or Ocorian Administration (UK) Limited (as applicable) are responsible for the
day-to-day administration of the Company and the subsidiaries which accedes to the relevant Administration
Agreement (including but not limited to the calculation and publication of the semi-annual NAV, the IFRS NAV
and Operative NAV) and general secretarial functions required by the Companies Law (including but not limited
to maintenance of the Company’s accounting and statutory records). For the purposes of the RCIS Rules, the
Administrator is the designated manager of the Company.
Under the terms of the Administration Agreement between the Administrator and the Company, the Administrator
is entitled to a fixed fee as at March of £, ($,) ( March : £,, $,) per annum for
services such as administration, accounting, corporate secretarial, corporate governance, regulatory compliance
and stock exchange continuing obligations. Additional ad hoc fees are payable in respect of certain additional
services, these amounted to £, ($,) ( March : £,, $,). Administration fees for the year
to March amounted to £, ($,) ( March : £,, $,) of which £, ($,)
( March : £,, $,) was outstanding at the year end.
Under the terms of the Administration Agreement between Ocorian Administration (UK) Limited and the subsidiaries
the Administrator is entitled to a fixed fee as at March of £, ($,) ( March : £,, $,)
per subsidiary and a variable incremental fee per annum per additional Catalogue held by a subsidiary for
services such as administration, corporate secretarial and accounting. Administration fees for the subsidiaries
for the year amounted to £, ($,) ( March : £,, $,) of which £, ($,)
( March : £,, $,) was outstanding at the year end.
160
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2022
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements
For the year ended 31 March 2022
. Material agreements (continued)
Registrar Agreement
Computershare Investor Services (Guernsey) Limited (a company incorporated in Guernsey on September
with registered number ) has been appointed as registrar to the Company pursuant to the Registrar
Agreement. In such capacity, the Registrar will be responsible for the transfer and settlement of Shares held
in certificated and uncertificated form. The Registrar is also entitled to reimbursement of all out-of-pocket costs,
expenses and charges properly incurred on behalf of the Company.
Under the terms of the Registrar Agreement, the Registrar is entitled to a fixed fee as at March of £,
($,) per annum in respect of the Ordinary Shares ( March : £,, $,), together with additional
ad hoc fees in respect of additional out of scope services provided by the Registrar of £, ($,)
( March : £,, $,). Registrar fees for the year were £, ($,) ( March : £,, $,)
with £, ($,) outstanding at the reporting date ( March : £,, $,).
. Earnings per share
31 March 2022
Basic
31 March 2022
Diluted
Loss for the year ($‘) (19,443) (19,443)
Weighted average number of Ordinary Shares in issue 1,175,596,128 1,175,596,128
Earnings per share (cents) (1.65) (1.65)
31 March 2021
Basic
31 March 2021
Diluted
Loss for the year ($‘) 38,935 38,935
Weighted average number of Ordinary Shares in issue 825,090,869 825,090,869
Earnings per share (cents) 4.72 4.72
The earnings per share is based on the profit or loss of the Group for the year and on the weighted average number
of Ordinary Shares for the year ended March .
There are no dilutive shares at March .
. Auditor’s remuneration
Audit and non-audit fees payable to the Auditors can be analysed as follows:
1 April 2021 to
31 March 2022
$’000
1 April 2020 to
31 March 2021
$’000
PricewaterhouseCoopers CI LLP annual audit fees 600 732
PricewaterhouseCoopers CI LLP annual audit fees 600 732
Pricewaterhouse Coopers CI LLP C Share conversion fees – 11
Pricewaterhouse Coopers CI LLP reporting accounting services – 346
Pricewaterhouse Coopers CI LLP Interim review fees 53 54
PricewaterhouseCoopers CI LLP non-audit fees 53 411
Financial Statements
161
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2022
. Presentation change
The Company has made the following immaterial changes to the presentation of the Consolidated Statement
of Profit and Loss and Consolidated Statement of Financial Position during the year. This has resulted in the following
presentation changes of the comparative figures.
Consolidated Statement of Profit and Loss
As reported in
31 March 2021
Annual Report
1 April 2020 to
31 March 2021
$’000
Presentation
change
$’000
As reported in
31 March 2022
Annual Report
1 April 2020 to
31 March 2021
$’000
Income
Total revenue 160,752 (85) 160,667
Interest income 88 – 88
Royalty costs (22,450) – (22,450)
Net revenue 138,390 (85) 138,305
Expenses
Advisory and performance fees (13,236) 1,186 (12,050)
Administration fees – (1,186) (1,186)
Legal and professional fees (7,840) 459 (7,381)
Audit fees (732) – (732)
Brokers' fees (81) (47) (128)
Directors' remuneration (666) (14) (680)
Listing fees – (625) (625)
Subscriptions and licences (236) – (236)
Public relations fees – (36) (36)
Charitable donations (307) – (307)
Other operating expenses (10,561) 400 (10,161)
Amortisation of Catalogues (67,875) – (67,875)
Impairment loss of Catalogues – – –
Amortisation of borrowing expenses (2,600) – (2,600)
Fixed asset depreciation – (137) (137)
Loan interest (7,331) – (7,331)
Finance charges for deferred consideration (339) – (339)
HSG FV gain 2,139 – 2,139
Net JV income – 85 85
Foreign exchange gain/(losses) 15,814 – 15,814
Operating expenses (93,851) 85 (93,766)
Operating (loss)/profit for the period before taxation 44,539 – 44,539
Taxation (5,604) – (5,604)
(Loss)/profit for the period after tax 38,935 – 38,935
162
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2022
FINANCIAL STATEMENTS
Notes to the Consolidated Financial Statements
For the year ended 31 March 2022
. Presentation change (continued)
Consolidated Statement of Financial Position
As reported in
31 March 2021
Annual Report
1 April 2020 to
31 March 2021
$’000
Presentation
change
$’000
As reported in
31 March 2022
Annual Report
1 April 2020 to
31 March 2021
$’000
Assets
Catalogues of Songs 1,878,924 – 1,878,924
Other assets 3,740 – 3,740
Goodwill 272 – 272
Non-current receivables – 3,298 3,298
Non-current assets 1,882,936 3,298 1,886,234
Trade and other receivables 107,628 (3,298) 104,330
Cash and cash equivalents 112,634 – 112,634
Current assets 220,262 (3,298) 216,964
Total assets 2,103,198 – 2,103,198
Liabilities
Loans and borrowings 565,860 – 565,860
Non-current deferred investment payables – 1,588 1,588
Non-current liabilities 565,860 1,588 567,448
Other payables and accrued expenses 74,493 (1,588) 72,905
Current liabilities 74,493 (1,588) 72,905
Total liabilities 640,353 – 640,353
Net assets 1,462,845 – 1,462,845
Equity
Share capital 1,466,851 – 1,466,851
Other reserves 234 – 234
Foreign currency translation reserve (419) – (419)
Retained earnings (3,821) – (3,821)
Total equity attributable to the owners of the Company 1,462,845 – 1,462,845
Financial Statements
163
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2022
. Subsequent events
On May the Company declared a dividend of .p per Ordinary Share in respect of the quarter ended
March which was paid on June .
164
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2022
ADDITIONAL INFORMATION
Performance Measure Definition Reason for Use
Adjusted EPS
Loss after Tax ($19,442,777) excluding Total
Amortisation ($107,633,333), Impairment
of Catalogue of Songs ($1,490,475),
Depreciation ($711,932), Foreign Exchange
Losses ($14,857,232) and Provision for
HSG advances ($1,570,144) divided by
weighted average number of Ordinary
Shares in issue (1,175,596,128)
The operating loss adjusted for amortisation
aligns with the operative NAV which reflects
that the values of Catalogues of Songs
are based on fair values produced by the
Portfolio Independent Valuer
Adjusted Operating
Costs less Interest
Expense
Operational expenses ($185,048,198)
less Total Amortisation ($107,633,333),
Depreciation ($711,932), Impairment
($1,490,475), Foreign Exchange Losses
($14,857,232) and Provision for HSG
Advances ($1,570,144) less Interest Expense
($20,377,176)
Ongoing Charges are a good indicator of
expenses likely to recur in the foreseeable
future
Annualised Ongoing
Charges
Adjusted Operating Costs ($58,785,083)
less Non Recurring administrative expenses
($26,440,910) over a 12-month period
Ongoing Charges are a good indicator of
expenses likely to recur in the foreseeable
future
Average Operative
NAV
Average of the Operative NAV as at:
– Year end ($2,239,639,666)
– Interim Period ($2,088,390,799)
– Prior year ($1,806,462,327)
The average was taken given that share
issuance has grown rapidly over the year
EBITDA
The Operating Loss before Tax ($16,700,286)
plus Total Amortisation ($107,633,333),
Impairment ($1,490,475), Loan Interest
($20,377,176), Depreciation ($711,932),
Foreign Exchange Losses ($14,857,232) and
Provision for HSG Advances ($1,570,144)
A strong indicator of company
performance and profitability removing
accounting adjustments
Leveraged Free
Cash Flow
Net Cash from Operating Activities
($84,868,964) less Purchase of Fixed Assets
($173,244)
A good indicator of the cash position of the
Company and the availability of cash flows
to fund dividend payments
Alternative Performance Measures
Additional Information
165
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2022
Performance Measure Definition Reason for Use
Net Debt
Loan facility amount ($600,000,000)
utilised less cash held at bank
($30,066,620)
Liquidity metric used to determine how well
a company can pay all of its debts if they
were due immediately
Non Recurring
administrative
expenses
Exceptional costs included within
legal and professional and listing fees
($4,112,315) plus Aborted deal expenses
($1,951,418) plus interest costs ($20,377,176)
Good indicator of expenses not likely to
recur in the foreseeable future
Ongoing Charges %
Annualised ongoing charges ($32,344,173)
divided by Average Operative NAV
($2,044,830,931)
To monitor the expenses, which are likely
to recur, relative to the fund size over time
Operative NAV
The IFRS NAV ($1,582,399,170) adjusted
for the fair value of Catalogues of Songs
($657,241,496)
The Operative NAV reflects the values of
Catalogues of Songs based on fair values
produced by the Portfolio Independent
Valuer
Total Amortisation
Amortisation of catalogue of songs
($105,786,809) plus amortisation of
capitalised borrowing costs ($1,634,648)
plus finance charges for deferred
consideration ($211,877)
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
Total NAV Return
Operative NAV per share ($1.8491) plus
cumulative dividends paid up to year end
($0.2159) less the Operative NAV per share
as at 11 July 2018 ($1.2983), divided by the
Operative NAV as at 11 July 2018 ($1.2983)
To show how the assets have performed
since IPO to Shareholders
12 Month Total NAV
Return
Operative NAV per share as at year end
($1.8491) plus dividend paid during the
12-month period to year end (7.2561 cents)
less the Operative NAV per share as at the
beginning of the year ($1.6829) divided
by the Operative NAV per share as at the
beginning of the year ($1.6829)
To show how the assets have performed
over the past 12 months to Shareholders
166
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2022
“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” means 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;
“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;
Glossary of Capitalised Defined Terms
ADDITIONAL INFORMATION
Additional Information
167
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2022
“COVID-19” means the global coronavirus pandemic;
“DCF” means discounted cash flow;
“DCMS” means The Department for Digital, Culture,
Media & Sport, a department of the UK government;
“Disclosure Guidance and Transparency Rules”
or “DTRs” mean the disclosure guidance published
by the FCA and the transparency rules made by the FCA
under section 73A of FSMA;
“Downloads” means royalties for the permanent digital
mechanical transfer of music;
“DSP” means digital service providers;
“Earnings per Share” or “EPS” means the Earnings per
Ordinary Share and is expressed in pounds Sterling;
“EU” means European Union;
“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;
“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;
“LGBTTQQIAAP” means the abbreviation of ‘lesbian,
gay, bisexual, transgender, transsexual, queer,
questioning, intersex, asexual, allies, and pansexual’;
“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;
“Listing Rules” means the Listing Rules made by the
UK Listing Authority under section 73A FSMA;
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HIPGNOSIS SONGS FUND LIMITED
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“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;
“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 1 month
period ending on the last business day of that
accounting period;
“Portfolio” means the portfolio of Songs (whether
organised into Catalogues or otherwise) held by the
Company directly or indirectly from time to time;
“Portfolio Committee” means a committee which
approves all purchases of Catalogues of Songs;
“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 the 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) means the royalty revenue
earned in a 12-month period by the portfolio of songs
held by the Company at a specific date, based
on royalty statements received, irrespective of whether
the songs were owned by the Company over the
period analysed.
“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;
ADDITIONAL INFORMATION • GLOSSARY OF CAPITALISED DEFINED TERMS
Additional Information
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HIPGNOSIS SONGS FUND LIMITED
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“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
JPMorgan Chase Bank, as Lead Arranger.
“RCIS Rules” means the Registered Collective
Investment Scheme Rules 2015;
“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;
“RIAA” means Recording Industry
Association of America;
“Right To Income” 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;
“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 reflect the estimated revenue
at the point at which usage is expected to occur;
“VAF” or “Variance Against Forecasts” means the
difference between the total of the royalty statements
received from each catalogue since acquisition, and
the acquisition model forecast over the same period.
The VAF is expressed as a percentage point deviation
from zero, where a positive number means that the
actual performance of the portfolio is tracking ahead
of the cumulative forecast. A negative number indicates
that the portfolio is falling behind forecast;
“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.
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HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2022
ADDITIONAL INFORMATION
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
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, CEO
Chris Helm, CFO
United House
9 Pembridge Road
Notting Hill
London
W11 3 J Y
www.hipgnosissongs.com
Registered Office
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 Information
171
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2022
Structure
The Company is an investment company limited by
the Companies Law on 8 June 2018. The Company
is registered with the Guernsey Financial Services
Commission under the Registered Collective Investment
Scheme Rules 2015, and the Protection of Investors
(Bailiwick of Guernsey) Law, 1987, as amended.
The Company is not authorised or regulated by the
Financial Conduct Authority.
The Company makes and manages its investments
directly or indirectly through a number of wholly owned
subsidiary companies incorporated in England & Wales
and the US, together referred to as the Group.
The Company was granted HMRC approval as an
investment trust company with effect from 1 April 2021.
The Company was therefore treated as being resident
in the UK for tax purposes from this date and ceased to
be a Guernsey tax exempt vehicle under The Income
Tax (Exempt Bodies) (Guernsey) Ordinance, 1989, as
amended.
Investment Process
The Company’s Investment Adviser, Hipgnosis Song
Management Ltd, was founded by Merck Mercuriadis.
Merck is the manager and/or former manager of
globally successful recording artists such as Elton John,
Guns N' Roses, Morrissey, Iron Maiden, Nile Rodgers and
Beyoncé, and hit Songwriters such as Diane Warren,
Justin Tranter and The-Dream. Merck is the former
CEO of The Sanctuary Group plc.
Hipgnosis Song Management Ltd has been
appointed by the Board to source Songs and provide
recommendations to the Board on acquisition and
disposal strategies. The Investment Adviser is also
responsible for managing and monitoring royalty and/or
fee income due to the Company from its copyrights
and collection agents, and developing strategies to
maximise the earnings potential of the Songs in the
portfolio through improved placement and coverage
of Songs.
The Investment Adviser continues to assemble an
Advisory Board of highly successful music industry
experts which include award winning members of the
artist, Songwriter, publishing, legal, financial, recorded
music and music management communities, all with
in-depth knowledge of music publishing and access
to a significant network of relationships in the music
industry.
The Board has formed a Portfolio Committee which
considers the recommendations of the Investment
Adviser before granting its approval to purchase the
Catalogues of Songs, as well as an Asset Management
Committee which considers the ongoing management
and revenue maximisation of the Catalogues of Songs.
These committees are chaired by Mr Burger and
Mr Sutch, respectively.
AIC
The Company is a member of the Association of
Investment Companies, complies with the AIC Code
and is the sole constituent of the AIC’s “Royalties”
Specialist Investment Trusts sector classification.
The Company’s page on the AIC’s website is at
www.theaic.co.uk/companydata/0P0001BL9D
Website
The Company’s website, which can be found at
www.hipgnosissongs.com, includes information
on the Company, such as its Prospectus, past reports
and accounts, policies, media coverage and
regulatory news announcements.
ADDITIONAL INFORMATION
Corporate Summary
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HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2022
Advice to Shareholders
ADDITIONAL INFORMATION
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
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
173
HIPGNOSIS SONGS FUND LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2022
Hipgnosis Playlists
ADDITIONAL INFORMATION
Star Power, Biggest Artists
Ariana Grande
Apple Music Spotify
Beyoncé/Destiny’s Child
Apple Music Spotify
Bruno Mars
Apple Music Spotify
Ed Sheeran
Apple Music Spotify
Enrique Iglesias
Apple Music Spotify
Harry Styles/One Direction
Apple Music Spotify
Justin Bieber
Apple Music Spotify
Lady Gaga
Apple Music Spotify
Mariah Carey
Apple Music Spotify
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
Hipgnosis – Billboard Top 5
Songs of the Decade
Apple Music Spotify
Hipgnosis – Top 100 Best
Selling Albums in the UK
Apple Music Spotify
Hipgnosis Songs Fund Limited
Floor 2, Trafalgar Court, Les Banques
St Peter Port, Guernsey GY1 4LY
www.hipgnosissongs.com
Hipgnosis Songs Fund Limited
Annual Report
For the year ended 31 March 2022
Hipgnosis Songs Fund Limited Annual Report For the year ended 31 March 2022