HIPGNOSIS SONGS FUND LIMITED

ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023

Hipgnosis Songs Fund is the first UK investment company offering

investors a pure-play exposure to Songs and associated musical

intellectual property rights. Our focus is building a diversified Portfolio,

acquiring Catalogues that are built around proven hit Songs of

cultural importance by some of the most talented and important

Songwriters globally.

Our shares listed on the Main Market of the London Stock Exchange

in July 2018 and transferred to the Premium Segment of the Main

Market in September 2019. Since March 2020, Hipgnosis Songs Fund

has been a constituent of the FTSE 250 Index.

STRATEGIC REPORT

3 Introduction from Merck

Mercuriadis

8 Financial and Operational

Highlights

10 Portfolio at a Glance

11 The Chair’s Statement

17 Investment Adviser’s Report

32 The Advisory Board

34 Financial Review

42 Our Market

48 The Hipgnosis Song

Management Team

49 Our Senior Management Team

50 Our Purpose, Business Model,

Culture and Values

54 Our Objective, Strategy and

Investment Policy

57 Our Resources and Relationships

62 Our Principal Risks and Uncertainties

67 Key Statements

67 Viability Statement

69 Going Concern

70 Section 172(1) Statement

GOVERNANCE

72 Chair’s Introduction

73 Compliance Statement

74 Application of AIC Code Principles

78 Board Leadership and Company

Purpose

80 Division of Responsibilities

84 Composition, Succession and

Evaluation

85 Biographies

88 Report of the Nomination

Committee

91 Audit, Risk and Internal Control

92 Report of the Audit and Risk

Management Committee

99 Report of the Management

Engagement Committee

101 Report of the Portfolio Committee

103 Report of the Environmental,

Social and Governance Oversight

Committee

104 Directors’ Remuneration Report

108 Report of the Directors

111 Directors’ Responsibilities

Statement

INDEPENDENT AUDITOR’S REPORT

113 Independent Auditor’s Report

FINANCIAL STATEMENTS

122 Consolidated Statement

of Profit and Loss

123 Consolidated Statement

of Comprehensive Income

124 Consolidated Statement

of Financial Position

125 Consolidated Statement

of Changes in Equity

126 Consolidated Statement

of Cash Flows

127 Notes to the Consolidated

Financial Statements

ADDITIONAL INFORMATION

163 Alternative Performance

Measures

171 Glossary of Capitalised

Defined Terms

175 Directors and General

Information

176 Advice to Shareholders

177 Hipgnosis Playlists

CASE STUDY

22 Reviving a forgotten hit

SUPERSTARS • SUPER TOURS

31 Taylor Swift’s The Eras Tour

46 Beyoncé’s Renaissance World Tour

Merck Mercuriadis, Founder, Hipgnosis Songs Fund Ltd and

Hipgnosis Song Management Ltd

STRATEGIC REPORT

HIPGNOSIS SONGS FUND LIMITED

ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023

Introduction from Merck Mercuriadis

These financial results are an important validation of

Hipgnosis Songs Fund’s investment thesis, delivering the

best like-for-like income growth in our short history.

These results demonstrate the value of our strategy,

with Operative NAV per share growth of 3.6% year-

on-year to $1.9153, underpinned by strong increases

in royalty statement income. Taken together with

dividends declared since launch until 31 March 2023,

of 21.6p (27.9¢), we have delivered a 69% Total $ NAV

Return to Shareholders since IPO on 11 July 2018, as we

continue to benefit from the growth in streaming and

higher Synch revenues generated by the Company’s

unparalleled Portfolio of Songs.

Five years ago we predicted that the recovery

of the music industry from the previous 16 years

of technological disruption would be driven by

the convenience and transformational growth of

streaming. In addition, we considered that we could

deliver an exceptional return by acquiring iconic

Songs while they were still attractively priced.

Since then our thesis has become reality and we have

transitioned from an era where almost all consumption of

music was unpaid to one where almost all consumption

of music is being paid for. This set of results is an

early indication of what’s to come in the future.

People listen to iconic Songs whatever the

macroeconomic conditions; the change in the way

in which we consume music means that, increasingly,

when we hear a song, a payment is being generated;

music streaming continues to grow with its utility-like

revenues, with the number of paid subscribers globally

growing by 13% year-on-year to around 600 million,

according to the IFPI, including over 100 million paying

subscribers in the US.

Importantly, around the world the true value of Songs

and Songwriters is increasingly being recognised.

Nevertheless, the current share price does not reflect

the success of our investment strategy and I know all

Shareholders share my frustration and disappointment

that this is the case. When we launched the Company,

we created a new asset class with Songs. It is therefore

perhaps not a surprise, that in a world of incredible

turmoil following a global pandemic, the largest war

in Europe in nearly 80 years and increasing inflation

and interest rates, that some investors have turned

to “risk free” safe havens over exposure to new asset

classes. However, despite these unique macroeconomic

conditions, the strong growth in paid consumption for

music continues. The Music industry is rapidly growing

and thriving while others contract and as a result, Song

catalogues continue to be a highly attractive asset.

We are aligned with Shareholders in believing that the

fundamental value and opportunity of the Company fails

to be reflected in the current share price.

As a result, we have been working with the Board,

following consultation with many of the Company’s

largest Shareholders, on a number of options to enhance

Shareholder value.

We intend to update the market prior to the Annual

General Meeting (AGM) and the Continuation Vote.

Strong underlying growth

IFRS Net Revenue, which is based on the Group’s

accounting policies (including accruals), was $147.2 million

and decreased from $168.3 million due to a number of

non-recurring elements identified and called out in the

prior and current period. These include non-recurring

Right to Income (RTI), the initial recognition of the Usage

Accrual and the impact of the retroactive CRB III revenue

due. Excluding the impact of these adjustments, IFRS

Net Revenue grew by 10.9% year-on-year.

STRATEGIC REPORT

HIPGNOSIS SONGS FUND LIMITED

ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023

In order to provide Shareholders with an understanding

of the like-for-like performance of the Company’s

revenues, by removing the current year impact of

non-recurring items, we provide our Pro forma Annual

Revenue (PFAR) data which is primarily based on actual

royalty statements. In 2022, PFAR increased 12.1% year-

on-year to $130.2 million (2021: $116.2 million). This is

despite the US Dollar’s very strong performance against

almost all other major currencies during the year.

Streaming is a key driver of income growth and grew

by 14.8% year-on-year in 2022, making up just over

40% of our PFAR income. Income from Synch revenue

continues to show strong growth of 24.7% year-on-year

in 2022. Significantly, Performance income, which had

been suppressed since the Covid-19 lockdowns is now

demonstrably coming back as consumption returns to

even greater than pandemic levels. A small year-on-year

decline in the first half of 2022 was more than off-set by a

41% increase in the second half. Taking into consideration

the time lag inherent in the payment of performance

income, this is a very positive indicator for the future and

gives us a 9% year-on-year increase for 2022.

I believe that there are two reasons why the Company’s

income has outperformed this year:

Firstly, the Songs in our Portfolio.

• We have bought carefully and we bought well by

investing in Songs which we believe will stand the

test of time and will be listened to for generations.

The Company’s Portfolio of Songs is unrivalled for its

extraordinary success and cultural importance. We

have a relatively small portfolio with a very high ratio

of success, which makes it efficient to manage as the

Songs are in high demand. Significantly, we selected

catalogues which we believed were well placed

to benefit from the growth in music streaming. The

Company owns nearly 25% of all Songs played over

a billion times on Spotify (“Spotify’s Billions Club”),

over 10% of Rolling Stone’s The 500 Greatest Songs of

All Time and Songs on 16 out of the Top 40 UK best

selling albums of the first six months of 2023.

Secondly, our active Song Management.

• We drive consumption and value through Song

management of the Catalogue to individual listeners,

music creators and business music users, as well as

harnessing consumer platforms through which the

Catalogue can be showcased and consumed.

• We optimize revenue generation, revenue collection

and value by ensuring accurate registration and rights

enforcement of the Songs in the Catalogue, then

collect revenues as efficiently and cost-effectively as

we can.

• We campaign to change the position of Songwriters

in the economic equation by working with politicians,

NGOs and the wider music community to build

support for increased fairness in payments for

Songwriters. For the Songs which we’ve purchased,

the Company stands in the shoes of the Songwriters,

so our interests are perfectly aligned.

Looking at the wider picture, the US Recorded Music

revenues collected by the RIAA show that revenues are

now back above the historic highs at the start of the

millennium. Despite the general economic slowdown

caused by rising interest rates, music and the Songs

that underpin it is prospering. Particularly notable is the

continued growth of music streaming with its utility-like

revenues. The best days of the music industry and rights

ownership are ahead of us and we believe that the

capital appreciation in our portfolio is still in its infancy

as we grow towards 2 billion paid premium streaming

subscribers over the next 10 years. In this context, it’s not

surprising that the market analysts at Goldman Sachs

and J.P. Morgan, amongst others, expect music industry

revenue growth to continue for the foreseeable future.

The net increase in the Fair Value of the Portfolio of

4.0% year-on-year to $2.80 billion and the increase in

the Operative NAV per share of 3.6% year-on-year to

$1.9153 was driven by revenue in excess of the Portfolio

Independent Valuer’s forecast.

Active management of our Portfolio

Whilst we benefit from the wider market growth,

we continually add value through our active Song

Management of the Company’s portfolio. These activities

increase the value of our Songs both by bringing them to

new audiences and ensuring we are paid what we are

due as quickly as possible. Examples for the year include:

• Placing a remix of Journey’s 1983 song Separate Ways

(Worlds Apart) in season 4 of Netflix’s hit Stranger

Things. The Company owns rights for both Jonathan

Cain’s 50% share of the publishing and 66% of the

master recording. The synch generated a six figure

fee and also drove a significant increase in streaming

STRATEGIC REPORT • INTRODUCTION FROM MERCK MERCURIADIS

STRATEGIC REPORT

consumption, encouraged further synchs of the Song

and a new cover version. Please see the case study

on pages 22-23 which details how a well-placed

synch can revive a forgotten hit.

• Placing Nile Rodgers as the face of Chanel Eyewear

as well as the first and only “Artist In Residence” at

Apple Music. We have also presented CHIC’s first

five albums and Sister Sledge’s We Are Family in

Spatial Audio on the service, as well as securing a

significant six figure synch for the song Spacer with

Renault in Europe. These initiatives have introduced

our iconic songs, co-written by Bernard Edwards, to

a new generation of fans and are driving increased

streaming consumption.

• Placing a cover version of Blink-182’s All The Small

Things, co-written by Tom Delonge whose catalogue

we purchased in 2019, as the soundtrack for John

Lewis’s 2022 Christmas advert – one of the most

coveted Synchs in the World.

• Rihanna performing four Hipgnosis Songs Fund co-

owned Songs during her set at the 2023 Superbowl:

Birthday Cake (The-Dream), All Of The Lights (Jeff

B ha sker / T he - D ream), Run This Town (Jeff B ha s ker / No

I.D.) and Umbrella (The-Dream / Tricky Stewart). Close

to 119 million viewers tuned in for her performance

on television and streaming services, with each of

the Songs recording gains on streaming platforms

of up to 280% in the week following her performance.

Four months on, Umbrella’s US weekly Streaming-

on-Demand figures are still 1.3 times that pre the

Superbowl; Run This Town is showing 1.5x the demand

and this has led to further synch placements.

• Our new recording of Bon Jovi’s Wanted Dead or

Alive, by Empara Mi was commissioned to specifically

to appeal to the Synch market. It was successfully

placed, as the global trailer for Transformers:

Reactivate, a major forthcoming video game. It

generated six figure fees for both the publishing and

the new recording which we participate in.

• Placing Richie Sambora as a contestant on the UK

version of The Masked Singer. Four of the six Songs that

he performed on the series were from the Company’s

portfolio. When he was revealed in the semi-final, his

profile reached a recent all-time high. There was an

increased streaming consumption of the Bon Jovi

songs as well as the four songs held by the Company

that he performed on the series including Go Your

Own Way and Smooth.

• Nicki Minaj interpolated our iconic Rick James song

Super Freak into Super Freaky Girl making it a Number

1 single in the US and Top 5 in the UK and around the

world, driving over 1 billion new streams across all

digital service. It also increased streaming consumption

on the original Super Freak and U Can’t Touch This

by MC Hammer which is another iconic Super Freak

interpolaton.

• Entering a direct licensing and administration

partnership for digital royalties of reverted catalogues

with Sacem, a world-leading Collection Management

Organisation. This is materially cutting collection

times, reducing collection costs and is delivering an

increase in revenues.

Artificial Intelligence

Recent developments in Artificial Intelligence (AI) tools

offer new opportunities which we are already looking

to use in support of our iconic Songs. The enduring

success of our Songs is down to the strong emotional

connection they have with millions of consumers all over

the world and they are therefore always in demand.

AI enables us and other creators to quickly and cost

effectively deliver new versions of these Songs, create

interpolations or otherwise introduce our music to new

audiences. Global copyright laws provide a significant

degree of protection for our Intellectual Property.

Nonetheless we are working with legislators who are

actively looking at how to fill any gaps which are created

by this new technology and we will support measures

which prevent AI from learning from in-copyright music

and recordings to the detriment of artists and Songwriters.

Our activities within the Songwriter community

Songs are the currency of the music business; without

the Song there simply is no music industry. Yet Songwriters

– who deliver the most important component to the

success of a record company, digital service provider,

music merchandiser or live promoter – are still the lowest

paid people in the economic equation.

We have always been clear that our motive is to

establish Songs as an asset class and to provide a

great return for our investors. Concurrently, our “ulterior”

motive has always been to use our success to help

take the Songwriter from the bottom to the top of the

economic equation. This is in complete alignment with

our Shareholders’ best interest.

Over the last five years we have made demonstrable

progress. We advocated for and welcomed the moves

STRATEGIC REPORT • INTRODUCTION FROM MERCK MERCURIADIS

HIPGNOSIS SONGS FUND LIMITED

ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023

by the US Copyright Royalty Board (CRB) and the wider

music industry in the US to increase the rates paid to

Songwriters and publishers.

CRB III provided for a 44% increase in the headline

rate of Digital Service Providers (DSP) revenues paid to

Songwriters and Publishers in the US, reaching 15.1% in

2022. It was disappointing that some streaming services

appealed the original ruling, delaying much needed

payments to Songwriters, many of whom rely on royalty

payments for everyday living expenses. The appeal was

rejected during 2022 and the industry is now working to

ensure that the higher rate payments due for the CRB III

period reach rights holders. The Company has accrued

$21.7 million to account for the CRB III monies due to date.

We were pleased to support a joint industry proposal

for CRB IV which saw the proportion of DSP revenue

paid to Songwriters further rise, incrementally, to 15.35%

in 2027, while the royalty payable on a physical sale

or download is rising from 9.1 cents to 12 cents with

additional inflationary increases. Whilst there is still a long

way to go before Songwriters are fairly remunerated,

these are important steps in the right direction.

The joint CRB IV proposals, which have now been

confirmed, show there is increasing acceptance across

the music industry that Songwriters should be fairly

rewarded for their work. Whilst the increase is more

modest than the CRB III rises, we support it as it will provide

a background of stability at the highest streaming rates

ever paid in the context of which we can continue our

advocacy efforts for an even bigger share of the pie.

In the UK, the Competition and Markets Authority (CMA)

concluded their market study and recommended

that the Intellectual Property Office (IPO) take forward

a number of workstreams. After the year end, the

IPO announced an agreement on how the music

industry and the Government will work together to

deliver consistent high-quality metadata. We welcome

this first step, however, we believe that far greater

reform is needed and we continue to engage with

the relevant organisations to achieve this change. The

UK Government has also recently announced it has

accepted a recommendation from the Culture, Media

and Sport Select Committee (to whom Hipgnosis gave

evidence) to establish an industry working group to

explore issues around fair pay for creators in the music

streaming industry. Our ultimate goal is for Songwriters’

pay to be determined by the free market, not legislation.

We also supported BMI in its Live Concert rate victory,

which set a new rate 138% higher than the previous one,

reflecting the importance of Songs in the live concert

experience. As we’ve stated before, live concerts would

not exist without Songs.

Outlook

These results highlight the continuing validity of our

investment thesis. Our markets are buoyant and

continue to grow. Streaming, increasingly, provides

a utility-style income for holders of Song royalties

and the increasing demand for Song Catalogues

from Private Equity funds and the major record labels

demonstrates the attractiveness of this asset class.

Hipgnosis Songs Fund, with its portfolio of iconic,

culturally significant Songs, is uniquely placed to benefit

its Shareholders and deliver superior Shareholder

returns over the medium term and we are committed

to taking whatever action is necessary to deliver this.

With year-end results delivered, our focus is on re-rating

the shares, passing the Continuation Vote at the

forthcoming Annual General Meeting and delivering

a great 2024 and beyond.

I take my responsibility to our Shareholders very

seriously. From the 42 institutional investors that we

started with in 2018 to the many hundreds of institutional

and retail Shareholders we have today, I have always

stated that, while iconic Songs with high quality long

term cashflows provide great income for investors, the

real purpose of this Company is for our Shareholders

to be the beneficiaries of the substantial Net Asset

Value growth which we believe will come over the next

10 years as the market in which we operate in grows to

as many as 2 billion paid streaming subscribers around

the world, who will in turn increase the consumption of

our already extraordinarily successful Songs. I strongly

believe we are well on our way to achieving that.

Finally I would like to thank each and every one of

you who have supported us in establishing Songs

as an asset class as well as the great Songwriters

who have entrusted us with being custodians

of their special Songs and Catalogues.

Merck Mercuriadis

Founder, Hipgnosis Songs Fund Ltd and

Founder/CEO, Hipgnosis Song Management Ltd.

12 July 2023

STRATEGIC REPORT • INTRODUCTION FROM MERCK MERCURIADIS

STRATEGIC REPORT

1-800-273-8255

• Logic • Andrew Taggart

2002

• Anne-Marie • Benny Blanco, Nelly

A Thousand Years

• Christina Perri • Christina Perri

All I Want For Christmas Is You

• Mariah Carey • Walter Afanasieff

Blueberry Faygo

• Lil Mosey • Kenneth Edmonds

Break My Heart

• Dua Lipa • Stefan Johnson, Jordan Johnson

Californication

• Red Hot Chili Peppers • Red Hot Chili Peppers

Castle On The Hill

• Ed Sheeran • Benny Blanco

Chop Suey!

• System Of A Down • Andy Wallace

Classic

• MKTO • Evan Bogart, Emanuel Kiriakou

Closer (feat. Halsey)

• The Chainsmokers • The Chainsmokers,

Isaac Slade, Joe King

Cold Water (feat. Justin Bieber & MØ)

• Major Lazer • Benny Blanco, Jamie Scott

Come As You Are

• Nirvana • Andy Wallace

deja vu

• Olivia Rodrigo • Annie Clark

Despacito – Remix

• Luis Fonsi, Daddy Yankee, Justin Bieber

• Poo Bear

Don’t Let Me Down (feat. Daya)

• The Chainsmokers • Andrew Taggart,

Scott Harris

Don’t Stop Believin’

• Journey • Jonathan Cain, Neal Schon

Eastside (with Halsey & Khalid)

• Benny Blanco, Nathan (Happy) Perez

Feels (feat. Pharrell Williams, Katy Perry

& Big Sean)

• Calvin Harris • Starrah

Galway Girl

• Ed Sheeran • Johnny McDaid

Girls Like You (feat. Cardi B)

• Maroon 5 • Starrah

Grenade

• Bruno Mars • Ari Levine

Halo

• Beyoncé • Evan Bogart

Happier

• Ed Sheeran • Benny Blanco

Havana (feat. Young Thug)

• Camila Cabello • Andrew Watt, Starrah

Heat Waves

• Glass Animals • HSG Admin

Hey, Soul Sister

• Train • Espionage

High Hopes

• Panic! At The Disco • Sam Hollander

Hips Don’t Lie (feat. Wyclef Jean)

• Shakira, Wyclef Jean • Shakira

I Don’t Wanna Live Forever (50 Shades Darker)

• ZAYN, Taylor Swift • Jack Antonoff

I’m The One (feat. Justin Bieber, Quavo,

Chance the Rapper & Lil Wayne)

• DJ Khaled • Poo Bear

In da Club

• 50 Cent • 50 Cent

In the End

• Linkin Park • Andy Wallace

In The Name Of Love

• Martin Garrix, Bebe Rexha • Ilsey Juber

Issues

• Julia Michaels • Benny Blanco

It Ain’t Me (feat. Selena Gomez)

• Kygo • Andrew Watt

Just Give Me A Reason

• P!NK • Nate Ruess, Jeff Bhasker

Just The Way You Are

• Bruno Mars • Ari Levine

Lean On (feat. DJ Snake & MØ)

• Major Lazer, MØ, DJ Snake • Martin Bresso

Let It Go

• James Bay • Paul Barry

Let Me Go (with Alesso, Florida Georgia

Line & watt)

• Hailee Steinfeld • Andrew Watt

Let Me Love You (feat. Justin Bieber)

• DJ Snake • Andrew Watt

Livin’ On A Prayer

• Bon Jovi • Richie Sambora

Locked out of Heaven

• Bruno Mars • Ari Levine

Love Yourself

• Justin Bieber • Benny Blanco

Maps

• Maroon 5 • Ammar Malik

Me, Myself & I

• G-Eazy • TMS

Memories

• Maroon 5 • Stefan Johnson, Jordan Johnson,

Jon Bellion

Mercy

• Shawn Mendes • Teddy Geiger, Ilsey Juber

Moves Like Jagger

• Maroon 5, Christina Aguilera • Ammar Malik

Needed Me

• Rihanna • Starrah

New Rules

• Dua Lipa • Caroline Ailin, Ian Kirkpatrick

Nice For What

• Drake • Robert Diggs

no tears left to cry

• Ariana Grande • Savan Kotecha

Numb

• Linkin Park • Andy Wallace

One Last Time

• Ariana Grande • Giorgio Tuinfort

Paris

• The Chainsmokers • The Chainsmokers

Payphone

• Maroon 5 • Ammar Malik

Photograph

• Ed Sheeran • Johnny McDaid

Rockabye (feat. Sean Paul & Anne-Marie)

• Clean Bandit • Ammar Malik

Royals

• Lorde • Joel Little

Scared to Be Lonely

• Martin Garrix, Dua Lipa • Giorgio Tuinfort,

Kyle Shearer

Señorita

• Shawn Mendes, Camila Cabello

• Andrew Watt

Set Fire to the Rain

• Adele • Fraser T. Smith

Shallow

• Lady Gaga, Bradley Cooper • Mark Ronson

Shape Of You

• Ed Sheeran • Johnny McDaid

Sign Of The Times

• Harry Styles • Jeff Bhasker

Smells Like Teen Spirit

• Nirvana • Andy Wallace

Something Just Like This

• The Chainsmokers, Coldplay • Andrew Taggart

Sorry

• Justin Bieber • Julia Michaels, Skrillex

Stereo Hearts (feat. Adam Levine)

• Gym Class Heroes • Ammar Malik

Stitches

• Shawn Mendes • Teddy Geiger

Story of My Life

• One Direction • Julian Bunetta, Jamie Scott

Sugar

• Maroon 5 • Jacob Kasher Hindlin

Sugar (feat. Francesco Yates)

• Robin Schulz, Francesco Yates • Happy Perez

Swalla (feat. Nicki Minaj & Ty Dolla $ign)

• Jason Derulo • RZA/LunchMoney Lewis

Sweet Dreams (Are Made Of This)

• Eurythmics • David A. Stewart

Symphony (feat. Zara Larsson)

• Clean Bandit • Ammar Malik

Talking To The Moon

• Bruno Mars • Ari Levine, Jeff Bhasker

The Middle

• Zedd, Maren Morris, Grey • Stefan Johnson,

Jordan K. Johnson

There’s Nothing Holdin’ Me Back

• Shawn Mendes • Teddy Geiger, Scott Harris

These Days (feat. Jess Glynne, Macklemore

& Dan Caplen)

• Rudimental • Julian Bunetta, Jamie Scott

Titanium (feat. Sia)

• David Guetta, Sia • Giorgio Tuinfort

Treat You Better

• Shawn Mendes • Teddy Geiger, Scott Harris

Umbrella

• Rihanna, JAY-Z • Tricky Stewart, The-Dream

Under The Bridge

• Red Hot Chili Peppers • Red Hot Chili Peppers

Uptown Funk (feat. Bruno Mars)

• Mark Ronson • Mark Ronson, Jeff Bhasker

What Do You Mean?

• Justin Bieber • Poo Bear

What Lovers Do (feat. SZA)

• Maroon 5 • Starrah, Elina Stridh, Victor Rådström

Whatever It Takes

• Imagine Dragons • Joel Little

When I Was Your Man

• Bruno Mars • Ari Levine

Where Are Ü Now (with Justin Bieber)

• Jack Ü, Skrillex, Diplo, Justin Bieber • Skrillex,

Poo Bear

Wolves

• Selena Gomez, Marshmello • Andrew Watt

Yeah! (feat. Lil Jon & Ludacris)

• Usher • Sean Garrett

Young Dumb & Broke

• Khalid • Joel Little

Young, Wild & Free (feat. Bruno Mars)

• Snoop Dogg, Wiz Khalifa • Ari Levine

Youngblood

• 5SOS • Andrew Watt

Spotify’s Billions Club

Hipgnosis has 97 out of 419 Songs

that by June 2023 had surpassed the

Billion Streams mark on Spotify

Song Title • Artist(s) • Hipgnosis contributor(s)

 >3 billion streams  >2 billion streams. Source: Spotify, 27 June 2023

HIPGNOSIS SONGS FUND LIMITED

ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023

Financial and Operational Highlights 1

Year ended 31 March 2023

As at 31 March 2023, the Company had raised a total of over £1.3 billion (gross equity

capital) through its Initial Public Offering on 11 July 2018, and subsequent placings

in April 2019, August 2019, September 2020, February 2021 and July 2021, as well as

C-Share raises in October 2019 (which converted in January 2020) and July 2020

(which converted in December 2020). Our Revolving Credit Facility stands at

$700 million, of which $600 million is drawn.

As at 31 March 2023, the Company had deployed approximately $2.2 billion in total

since IPO on 146 Catalogues and 65,413 Songs.

Total Assets

$2.12 billion

(31 March 2022: $2.21 billion)

IFRS NAV

$1.43 billion

(31 March 2022: $1.58 billion)

IFRS NAV per Ordinary Share

$1.1863

(31 March 2022: $1.3065)

Operative NAV

$2.32 billion

(31 March 2022: $2.24 billion)

Operative NAV per Ordinary Share ($)

$1.9153

(31 March 2022: $1.8491)

Operative NAV per Ordinary Share (p)

154.91p

(31 March 2022: 140.79p)

12-Month Total NAV Return

6.99%

(31 March 2022: 14.19%)

STRATEGIC REPORT

Total NAV Return since inception

69.01%

(31 March 2022: 59.05%)

1. A number of Alternative Performance Measures are used within the Report and

details can be found on page 163.

2. Catalogues of Songs are classified as intangible assets and measured

at amortised cost or cost less any impairment in accordance with IFRS.

3. The Directors are of the opinion that an Operative NAV provides a meaningful

alternative performance measure and the values of Catalogues of Songs are

based on fair values produced by the Portfolio Independent Valuer.

4. Based on the Sterling to Dollar exchange rate at 31 March 2023 of 1.23645.

5. Since IPO on 11 July 2018. See page 163 for definition.

STRATEGIC REPORT

HIPGNOSIS SONGS FUND LIMITED

ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023

Share Price Discount

47.7%

(31 March 2022: 14.2%)

Net Revenue

$147.2 million

(31 March 2022: $168.3 million)

Ongoing Charges figure (%)

1.21%

(31 March 2022: 1.54%)

Total dividends declared during the year (p)

5.25p

(31 March 2022: 5.25p)

EBITDA

$117.7 million

(31 March 2022: $130.9 million)

Leveraged Free Cash Flow

$81.9 million

(31 March 2022: $84.7 million)

EPS (cents)

(7.41)¢

(31 March 2022: (1.65)¢)

Adjusted EPS (cents)

4.12¢

(31 March 2022: 7.18¢)

6. Calculated using the middle market share price (SONG) of 81.00p on

31 March 2023 (31 March 2022: 120.80p).

7. The definition/calculation has been updated since the prior year.

Please see page 163 for details.

STRATEGIC REPORT • FINANCIAL AND OPERATIONAL HIGHLIGHTS

HIPGNOSIS SONGS FUND LIMITED

ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023

Portfolio at a Glance

100

FY 23FY 22FY 21

Portfolio by age (%)

(based on fair value)

 0-3 years

 3-10 years

 10+ years

Portfolio PFAR* income

by source (%)

 Masters

 Other

 Digital

Downloads

 Mechanical

 Performance

 Synchronisation

 Streaming

* Pro Forma Annual Revenue (PFAR)

– see Glossary page 171

† For the 12 months to

100

H1FY

Dec 22Jun 22Dec 21

†

Jun 21

 Soul

 Hip-Hop

 Christian

 Disco

 Country

 Latin

 Dance

 R&B

 Pop

 Rock

100

Portfolio by genre (%)

(based on fair value)

FY 23FY 22FY 21

Catalogues

146

Operative NAV

$2.32bn

+3.41%

/- Change in portfolio since 31 March 2022

Songs

65,413

Net Revenue

$147. 2m

-12.5%

Grammys

163

Weighted Average

Acquisition Multiple

15.93x

STRATEGIC REPORT

Andrew Sutch, Chair

STRATEGIC REPORT

HIPGNOSIS SONGS FUND LIMITED

ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023

The Chair’s Statement

I am pleased to present the

Company’s Annual Report

and Accounts covering the

12 months ended 31 March

2023.

It is now five years since

your Company was

launched in July 2018 and

its shares were listed on the

London Stock Exchange. We are proud to have been

a FTSE 250 company since March 2020. Our objective

at launch was to create a Company which provided

investors with exposure to Songs and associated

intellectual property rights. We believed then, and have

demonstrated since, that music royalties provide long-

term, stable income streams. Equally importantly, when

the Company was launched, we believed that these

long-term revenue streams were at an inflection point

and would increase significantly as a result of the strong

growth expected in paid for music streaming. Since IPO,

this growth has seen music industry revenues return to

levels not seen in 20 years and we and our Investment

Adviser fully expect that this growth will continue for the

foreseeable future.

The Company’s first five years have not been without their

challenges: the lockdowns put in place by Governments

around the world to combat the spread of Covid-19

had a material impact as clubs, gyms, restaurants and

shopping centres were forced to close and touring

stopped, leading to a decline in performance royalty

revenues. Due to the time lag inherent in publishing

industry payments, it is only now that the Company is

experiencing these revenue streams recovering.

Equally, the increase in global interest rates over the last

24 months, as central banks seek to control inflation,

caused in large part by Covid-19 and the energy crisis

attributable to the war in Ukraine, has been a challenge

both directly and indirectly. Directly, the increase in the

cost of the Company’s debt has had to be managed

and last year the Company refinanced its Revolving

Credit Facility (RCF). Indirectly, increased yields on

government securities have provided income-focused

investors opportunities to invest risk free at yields

approaching the yield on the Net Asset Value of the

Company’s shares. Whilst government securities may

currently provide a similar current income yield, they

do not offer the opportunity for the significant capital

growth that we believe your Company will also provide.

Furthermore, the underlying strength of the business

model has enabled the Board to maintain its target

annual dividend at 5.25p per Ordinary Share.

While these results published demonstrate the strength

of the Company’s business, the Board shares your

disappointment that the Company’s share price is

substantially below its Operative Net Asset Value,

particularly given the quality of the Company’s assets

and the ability of the Investment Adviser to drive

additional value through active Song Management.

Although the majority of London listed investment trusts

are currently trading at a discount, we recognise that

this is of no comfort to our Shareholders. Therefore,

following a consultation, with many of our larger

Shareholders, the Board has been working with the

Investment Adviser on a number of options to enhance

Shareholder value.

The ultimate decision on which options will be

progressed, if any, will be taken in consultation with our

Shareholders. We look forward to updating you further

in due course, and well in advance of the Company’s

AGM this September at which the Company will

table its scheduled five-year Continuation Vote.

The Company has always believed, as reflected

in its Investment Policy, that the best way to

maximise Shareholder value has been to buy

and hold great assets, to enable Shareholders to

benefit from the income and capital growth that

we expect these assets to deliver over time.

Given the options the Board is considering, the current

share price and the upcoming Continuation Vote, the

Board is publishing an estimate of the potential tax

charge, based on certain assumptions, in the event that

a sale of all assets should occur. Full details are provided

in Note 12 to the financial statements.

Despite the disappointing share price performance

over the last year the Board continues to be confident

in our core investment case: the continuing long-term

growth of revenue in the music industry and the ability

of the Investment Adviser to drive additional value

through active Song Management of our incredible

portfolio of iconic Songs.

STRATEGIC REPORT

HIPGNOSIS SONGS FUND LIMITED

ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023

STRATEGIC REPORT • THE CHAIR’S STATEMENT

We continue to be confident that your Company will

provide superior returns over the medium term and we

encourage all Shareholders to support the continuation

of the Company.

Performance

The background to the performance of your Company

over the course of the financial year is discussed in

detail in our Investment Adviser’s Report from page 17.

The IFRS Net Asset Value (NAV) per share as at 31 March

2023 was $1.1863 which is a 9.2% decrease from

$1.3065 as at 31 March 2022, largely reflecting the

amortisation of the Company’s Catalogues in

accordance with applicable accounting protocols and

ignoring their current fair value.

The Board considers that the most relevant financial

indicator for Shareholders is the Operative NAV, which

reflects the Fair Value of the Company’s Catalogues as

valued by the Portfolio Independent Valuer and adds

back the amortisation charge applicable under IFRS.

The Operative NAV per share increased by 3.6% to $1.9153

during the year (31 March 2022: $1.8491). This, together

with total dividends, of 21.6p (27.9¢), takes Total $ NAV

Return to Shareholders since the IPO on 11 July 2018 to

69.01%.

Based on the Sterling to US Dollar exchange rate on

31 March 2023 of 1.236, the Operative NAV presented

in Sterling would be 154.91p per share (31 March 2022:

140.79p based on Sterling to US Dollar exchange rate

of 1.3134).

As a result of the strong performance of certain

Catalogues, a Catalogue bonus provision was

recognised. This is based on actual and expected future

Catalogue performance that is highly probable. Whilst

these liabilities are recognised in the current year, the

Company doesn’t anticipate that these liabilities will be

incurred at a material level in future years.

Our approach to valuation

Although the Board is ultimately and solely responsible

for overseeing the valuation of the Company’s

investments in music Catalogues it has appointed

the Portfolio Independent Valuer to perform this

specialist work.

The Fair Value of the Portfolio increased by 4.0% to

$2.80 billion (31 March 2022: $2.69 billion), mainly as

a result of royalty statements received exceeding

expectations, especially those related to performance

income and streaming income from older vintage

catalogues. This also drove the increase in the Operative

NAV in Dollar terms over the period. Further details on the

valuation methodology and assumptions applied by the

Portfolio Independent Valuer are set out on pages 35-36.

The Board recognises that there are a range of views on

the assumptions that could be applied in the valuation

of the Company’s investment portfolio.

In advance of the last Interim Report published in

December 2022, the Board appointed Kroll Advisory

Limited (“Kroll”), an independent valuation firm, to

consider and advise on the reasonableness of certain

assumptions commonly employed in the valuation

of music catalogues based on data provided by the

Company.

Following year end, in addition to considering the

discount rate and growth assumptions applied by the

Company’s peers as well as observing transaction

comparables, the Board has continued its engagement

of Kroll solely in connection with the ongoing review of

the assumptions used in and calculation of a discount

rate applied in the valuation of the investment portfolio.

We note that Kroll did not review or opine on the

projected cash flows or on a valuation conclusion using

their determined discount rate.

Different valuation practitioners use differing

methodologies, approaches and assumptions to

calculate their discount rates. In particular, valuation

practitioners may select different input assumptions

based on their professional judgement, including,

but not limited to the appropriate set of peer groups,

the length of calculation period for market data

when estimating the equity risk premium, the beta

and the risk-free rate. As a result, there may be

variation amongst valuers, providing the Board with

complementary insights.

The period since 30 September 2022 has seen significant

volatility, as global investors grappled with the impact

of inflationary pressures and the continued hike of

policy interest rates by major central banks. The resulting

equity market uncertainty contributed to a higher

equity risk premium and an increase in the Company’s

STRATEGIC REPORT

HIPGNOSIS SONGS FUND LIMITED

ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023

shares’ correlation to market indices. Meanwhile,

risk-free rate inputs, particularly 10- and 20-year US

Treasury yields, experienced significant volatility during

this period, initially rising and then declining to levels

somewhat lower than in September 2022.

The Board notes that for the period ending 30 September

2022, the discount rate of 8.5% applied by the Portfolio

Independent Valuer was within the range identified by

Kroll at the interim results. For the most recent period

ending 31 March 2023, whilst the Portfolio Independent

Valuer maintained its discount rate of 8.5%, the Kroll

calculation reflected a 50 basis points increase in the

Equity risk premium applied to 6.0% and an increase in

the relative volatility of share prices in the Company’s

music peer group relative to the overall market.

The Board has continued to engage Kroll subsequent to

the year end and note that Kroll has since (as of the end

of June 2023) lowered its Equity risk premium assumption

to the previous level of 5.5%, although their view still

remains slightly higher than the Citrin Cooperman rate.

The Board will continue to keep all assumptions in

its valuation methodology under review. Having

considered all the available information, the Board

believes that the assumptions applied by the Portfolio

Independent Valuer remain appropriate and that this

represents a reasonable assessment as to the value of

the Portfolio.

Revenue

IFRS Net Revenue, which is based on the Group’s

accounting policies (including accruals), was $147.2 million

and decreased from $168.3 million due to a number of

non-recurring elements identified and called out in the

prior and current period. These include non-recurring

Right to Income (RTI), the initial recognition of the

Usage Accrual and the impact of the retroactive CRB

III revenue due. When excluding the impact of these

adjustments, it grew by 10.9% year-on-year.

However, our Pro Forma Annual Revenue (PFAR),

a like-for-like revenue analysis per calendar year, based

primarily on royalty statements, grew 12.1% in 2022 to

$130.2 million (2021: $116.2 million). This reflects strong

growth in Streaming (+14.8% year-on-year) and Synch

(+24.7% year-on-year) income as well as a recovery from

the impact of Covid-19 lock-down in Performance (+9%

year-on-year) income. The Financial Review provides

details of all these movements on page 34.

Revolving Credit Facility

On 30 September 2022, the Company entered into a new

Revolving Credit Facility (RCF) which runs for five years until

30 September 2027, with a commitment of $700 million.

The facility was used to refinance, in full, the Company’s

pre-existing RCF and provide flexibility for additional

working capital where necessary. In accordance with

the Investment Policy, any borrowings by the Company

will not exceed 30% of the value of the net assets of

the Company. As at 31 March 2023, the Company had

$600 million drawn down under the RCF. Net debt as

a percentage of Operative NAV decreased to 24.3%

(31 March 2022: 25.4%).

The Board’s objectives in the refinancing were to

reduce interest rate risk and control variable costs. To

deliver on these objectives, the Company also entered

into interest rate swap agreements. As a result, until

2 January 2023, interest on all the drawn debt was fixed

at 5.71% (including debt margin). Since 3 January 2023,

$340 million has been hedged for the duration of the

RCF (until 30 September 2027) at a fixed rate of 5.67%

(including debt margin); a further $200 million is hedged

until 3 January 2026 at a fixed rate of 5.89% (including

debt margin). The balance remains unhedged to

provide flexibility in the operation of the RCF.

Share buybacks

The Board considers that it is not in Shareholders’ interests

for the Ordinary Shares of the Company to trade at

a significant discount to the prevailing NAV in normal

market conditions. The Board considers that normal

market conditions have not prevailed in the last few years.

Discounts of investment trusts, particularly those investing in

illiquid assets, have generally widened over the last year.

The Board believes that the most effective means

of minimising any discount at which the Ordinary

Shares may trade is for the Company to deliver strong,

consistent, long-term performance from the investment

Portfolio. However, wider market conditions and other

considerations inevitably affect the rating of the

Ordinary Shares from time to time.

In determining whether a share purchase would enhance

shareholder value, the Board will take into account market

conditions, the Company’s performance, any known

third-party investors or sellers, the impact on liquidity and

total expense ratios and of course the level of discount

to net asset value at which the shares are trading.

Any purchases will only be made at prices below the

STRATEGIC REPORT • THE CHAIR’S STATEMENT

HIPGNOSIS SONGS FUND LIMITED

ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023

prevailing net asset value and where the Board believes

that such purchases will enhance shareholder value.

On 14 October 2022, the Board announced a share

buyback programme funded out of free cash flow.

During the financial year under review, a total of 2 million

Shares were purchased into treasury with an aggregate

value of £1.7 million. Ordinary Shares held in treasury may

only be reissued by the Company at prices representing

a premium to NAV per Ordinary Share as at the date of

re-issue.

The Board recognises its modest buyback activities to

date showed intent rather than having a material impact

on the share price discount. We expect more material

share buybacks may play an important part of the

Company’s strategy as we move forward.

Dividends

As set out in last year’s annual report, dividend payment

dates have been adjusted so that payments are made

on or around the last working day of January, April,

July and October, in order to better align dividend

payments with revenue receipts. Dividends will be

declared ex dividend in the month prior to payment

wherever practicable.

Dividends paid in the year of $56.3 million were covered

1.44x by Distributable Revenues recognised during

the year. Dividends declared in the year amount to

$75.9 million, which were covered 1.07x by Distributable

Revenues recognised during the year.

In addition, the Company was covered 1.45x on a

Leveraged Free Cashflow basis, demonstrating the

funds necessary to meet those dividend payments

paid in the year, and 1.08x on a Levered Free Cashflow

necessary to meet those dividends declared in the year.

On 12 October 2022, the Company entered into a

series of US Dollar to Sterling foreign exchange forward

contracts in order to limit its exposure to foreign

exchange rate risk and to provide certainty on the

US Dollar value of future Sterling dividend payments.

This passive rolling hedging strategy ensures that there

are £50 million of forward contracts in place at any

time, broadly equivalent to the Company’s quarterly

Sterling dividend obligation. The foreign exchange

forward contracts were initially in place until April 2024

and have, subsequent to the year end, been rolled

forward to October 2024.

The Board

Following the year end, Vania Schlogel stepped down

as a Non-executive Director on 30 April 2023 in order to

focus on her executive role at Atwater Capital, which

she founded in 2017 and which has recently demanded

a significant increase in her commitment. I thank Vania

for her work and contribution to the Company while she

was a Director.

We have recently announced the appointment of an

additional director, Cindy Rampersaud, with effect from

1 August 2023, and are delighted to welcome Cindy

to the Board. Further information about Cindy and our

recruitment process are set out in the Report of the

Nomination Committee on page 88.

I would like to thank my fellow Directors for their diligence

and dedication on your behalf over the last year. With

the exception of Vania, all Directors who have held office

throughout the financial year are offering themselves for

re-election at the forthcoming Annual General Meeting.

Additionally, I extend my thanks to Merck Mercuriadis and

the team that works with him at our Investment Adviser.

Over the last five years I have seen a transformation in the

sophistication of their operations, but one thing which has

never changed is Merck’s passion, and his team’s hard

work, to deliver value for the Company’s Shareholders. This

has been particularly demonstrated over the last 12 months

where they have continued to invest and improve their

capabilities and the service they provide your Company.

STRATEGIC REPORT • THE CHAIR’S STATEMENT

Hipgnosis owns 13 of the top 30 from YouTube’s

Most Viewed Music Videos of All Time

Shape of You

• Ed Sheeran • Johnny McDaid

Lean On (feat. MØ & DJ Snake)

• Major Laser, MØ, DJ Snake • Martin Bresso

Uptown Funk (feat. Bruno Mars)

• Mark Ronson • Mark Ronson, Jeff Bhasker

Bailando (feat. Descemer Bueno, Gente De Zona)

• Enrique Inglesias • Enrique Inglesias

Sugar

• Maroon 5 • Jacob Kasher Hindlin

Mi Gente

• J Balvin, Willy William • The-Dream

Roar

• Katy Perry • Bonnie McKee

Baby (feat. Ludacris)

• Justin Bieber • The-Dream, Tricky Stewart

Sorry

• Justin Bieber • Skrillex

New Rules

• Dua Lipa • Caroline Ailin

Waka Waka (This Time for Africa)(The Official 2010

FIFA World Cup

Song)

• Shakira • Shakira

Chantaje (feat. Maluma)

• Shakira • Shakira

Girls Like You (feat. Cardi B)

• Maroon 5 • Starrah

Song Title • Artist(s) • Hipgnosis contributor(s)

Source: YouTube, 22 June 2023

STRATEGIC REPORT

HIPGNOSIS SONGS FUND LIMITED

ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023

Annual General Meeting

The Company’s Annual General Meeting will be held

before the end of September. Notice of the Annual

General Meeting, containing full details of the business

to be conducted at the meeting, will be published to

Shareholders in due course.

Outlook

Despite the inflationary pressures in the global economy

and the accompanying interest rate rises, consumers

continue to enjoy and, crucially, spend money on music.

Performance revenues, which were severely impacted

by Covid-19 lockdown measures, are returning.

Ongoing growth in paid-for music streaming supports

our belief that this form of entertainment is increasingly

seen as a utility purchase, recognising the exceptional

value for money music streaming services provide their

customers.

Regulatory changes in the US, with the Copyright

Royalty Board affirming their CRB III ruling and an

agreement across the industry on further increases for

the CRB IV period, help to support revenue growth.

Active Song Management, demonstrable by the

Investment Adviser, creates additional value from your

Portfolio of iconic, culturally significant Songs.

As a result, the Board is confident that your Company

will deliver superior returns over the medium term.

The Board continues to engage with Shareholders

and is working hard to demonstrate the value of the

Company’s assets and enhance Shareholder value.

Andrew Sutch Chair

12 July 2023

STRATEGIC REPORT • THE CHAIR’S STATEMENT

HIPGNOSIS SONGS FUND LIMITED

ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023

Hipgnosis has 52 of Rolling Stone’s The 500 Greatest Songs of All Time

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

Get Ur Freak On

• Missy Elliot • Timbaland

238

Are You That Somebody?

• Aaliyah • Timbaland

394

Grace

• Jeff Buckley • Andy Wallace

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

Royals

• Lorde • Joel Little

274

Love And Happiness

• Al Green • Al Jackson Jr.

414

Dreaming

• Blondie • Debbie Harry, Chris Stein

(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

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

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

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

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

453

The Rain (Supa Dupa Fly)

• Missy Elliot • Timbaland

127

Waterfalls

• TLC • Sleepy Brown

332

Umbrella (feat. Jay-Z)

• Rihanna • The-Dream,

Tricky Stewart

456

Summertime Sadness

• Lana Del Ray • Emile Haynie

133

Don’t Stop Believin’

• Journey • Jonathan Cain, Neal

Shon

337

Believe

• Cher • Paul Barry, Brian Higgins

457

Livin’ On A Prayer

• Bon Jovi • Richie Sambora

136

Try a Little Tenderness

• Otis Redding • Al Jackson Jr

353

Sweet Dreams (Are Made Of This)

• Eurythmics • David A. Stewart

467

Come As You Are

• Nirvana • Andy Wallace

138

Heart Of Glass

• Blondie • Debbie Harry, Chris Stein

358

Because The Night

• Patti Smith • Jimmy Iovine

482

Bad Romance

• Lady Gaga • RedOne

153

Super Freak

• Rick James • Rick James

368

Black Hole Sun

• Soundgarden • Chris Cornell

497

Truth Hurts

• Lizzo • HSG Admin

167

Lose Yourself

• Eminem • Jimmy Iovine

385

I’m Coming Out

• Diana Ross • Bernard Edwards, Nile

Rodgers

217

Edge Of Seventeen

• Stevie Nicks • Jimmy Iovine

389

Brass In Pocket

• Pretenders • Chrissie Hynde

Song Title • Artist(s) • Hipgnosis contributor(s)

Source: Rolling Stone, Sep 2021

Merck Mercuriadis, Founder

STRATEGIC REPORT

HIPGNOSIS SONGS FUND LIMITED

ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023

Investment Adviser’s Report

It is now five years since

Hipgnosis Songs Fund was

launched in July 2018 and

its shares were listed on the

London Stock Exchange,

before graduating to

the FTSE 250 in March

2020. Our objective was

to provide investors with

exposure to iconic Songs.

In that time we have demonstrated that music royalties

provide long term cashflows that benefit from the ever

growing consumption of music which has become more

convenient in the streaming paradigm. The growth of

streaming has seen music revenues return to historic

highs after the decade and a half of technological

disruption and as with the last 8 years we expect that this

growth will continue for many years to come.

Our investment case for the Company is anchored

in the belief that long-term, predictable and reliable

income streams delivered by our high-quality portfolio

of Songs, underpinned by the wider growth in global

music consumption and by boosting income and

realising additional value as a result of our active Song

Management activities.

The Company owns a portfolio of iconic and culturally

important Songs. The strength of the portfolio is

demonstrated by the year-on-year increase in the

Operative NAV per share, up 3.6% to $1.9153 (31 March

2022: $1.8491). This increase is primarily due to a 4.0%

increase in the Fair Value of the Portfolio as our carefully

selected Songs outperform the expectations of the Portfolio

Independent Valuer. In Sterling terms, this equates to

154.91p per share (GBP: USD exchange rate 1.236).

IFRS Net Revenue, which is based on the Group’s

accounting policies (including accruals), was $147.2 million

and decreased from $168.3 million due to a number

of non-recurring elements identified and called out

in the prior and current period. These include non-

recurring Right to Income (RTI), the initial recognition of

the Usage Accrual and the impact of the retroactive

CRB III revenue due. When excluding the impact of

these adjustments, it grew by 10.9% year-on-year.

The Financial Review provides full details of all these

adjustments on page 34.

Given the multiple non-recurring elements captured

with the IFRS revenue line and the application of

accruals for revenue required under IFRS, we also

provide PFAR, a like-for-like revenue analysis per

calendar year, which is based primarily on royalties

received (i.e. reflecting royalties collected).

In 2022, PFAR grew by 12.1% year-on-year, to $130.2 million

(2021: $116.2 million). This growth is despite strong currency

headwinds as a result of the strength of the US Dollar

impacting the value of non-US Dollar denominated

source income. Although the Company receives 85% of

its revenues in US Dollars, the original source for around

half of revenues is non-US-Dollar denominated. Since

third parties in the collection chain are converting

currency, a precise constant currency calculation is not

possible. However, based on average FX movements

of the US Dollar in the year against Sterling, Euro and

Yen, we estimate that the impact of the strong Dollar in

2022 was the equivalent of approximately 6 percentage

points of increased differential compared to 2021,

further emphasising the strong underlying growth.

Music demonstrates continued growth

Despite the macroeconomic slowdown caused by

Covid-19, the war in Ukraine and central banks efforts

to deal with inflation, the music industry continues

to demonstrate its resilience. In particular, streaming

remains a highly attractive consumer proposition.

In their first quarter 2023 results, published in April, Spotify

reported 14% year-on-year revenue growth and 15%

annual increase in Premium subscribers. As we have

previously noted, music streaming services probably offer

the best value entertainment product available, therefore

we are not surprised by its resilience. During the year,

we saw the first increase in premium streaming prices for

a number of streaming services including Apple Music,

Amazon Music, Deezer and Tidal moving beyond the

£/$/€ 9.99 per month price point for an individual plan.

Despite these price rises, they are still seeing subscriber

growth and it is expected Spotify and other streaming

platforms will follow suit.

Due in part to our advocacy on behalf of Songwriters

and Artists, the major record labels are increasingly

recognising the value of the content that they allow

streaming platforms to use. Rightsholders and DSPs are

questioning the current streaming business model, which

pays the same per stream for high-quality songs as is paid

for unknown songs. Additionally, there is an increased

focus on solving the problem of digital trappers, stream

farms & bots, which are believed to be distorting the

STRATEGIC REPORT

HIPGNOSIS SONGS FUND LIMITED

ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023

distribution of streaming revenues. Given the quality of

the Company’s Catalogue, we are confident that the

Company’s Shareholders will eventually further benefit from

improvements in the economic equation for Songwriters.

Welcome return of Performance Revenues

The lockdowns to combat the Covid-19 pandemic

forced the closure of shops, bars, gyms and many

other venues where music was played. Additionally,

it resulted in a hiatus for touring. For the music industry,

the combined impact was seen in a marked decline

in Performance income.

The inherent lags in payments, as they migrate through

the revenue collection system alongside the fact that

the summer concert seasons in 2020 and 2021 were

curtailed or cancelled resulted in a slow recovery

in performance income.

In 2022, the PFAR Performance income increased by

41% in the second half of the year. The summer of 2022

saw successful tours by Blondie, Red Hot Chili Peppers,

Lindsey Buckingham, Nile Rodgers & CHIC, Journey and

many others. Live Nation Entertainment, the leading live

entertainment company, reported record attendance

at events in 2022 – with concert attendances up 24%

versus 2019 (pre-pandemic). Encouragingly, they

reported in May 2023 that, for the first time in three

years, all their markets are open and they were seeing

further record levels of activity in their concerts business.

We successfully trialled fast track collections services for

both the Blondie and Red Hot Chili Peppers tours. The

objective was to cut out middlemen, reduce costs and

accelerate payments. As a result, increased income was

received from both tours and paid through faster than

normal. On one tour, in just one country, the Company

saved around $100,000 in costs. Whilst this is unlikely to be

replicated in all territories, it demonstrates the value that

can be created by this proactive approach.

Strong industry performance is already being seen by the

major music publishers, with Universal Music Publishing

reporting a 13.3% year-on-year growth in publishing

revenues for the three months ended 31 March 2023

and Warner Chappell Music reporting a 11.7% year-on-

year growth for the three months ended 31 March 2023.

These administrators sit ahead of the Company in the

payment chain and thus together these indicators give

us confidence of further publishing revenue growth in the

coming years.

We continue to see a buoyant live performance market

as highlighted by sellout summer tours from Beyoncé,

Taylor Swift, Red Hot Chili Peppers, Blink-182, Neil Young,

Nile Rodgers & CHIC, Blondie, The Pretenders and many

others all performing songs from our portfolio.

Impact of Artificial Intelligence

Over the centuries music has adapted to and benefitted

from many developments in technology. In the 20

century

distribution moved from sheet music to recorded music,

physically distributed via vinyl or CDs, to any Songs

being available at the touch of a button via streaming;

production of music has gone from hand crafted whistles

to electronic instruments recorded in 48-track studios

to being able to produce global hit songs entirely on

a laptop. Some of these technological changes have

challenged the industry – illegal downloads being the

most existential. We expect Artificial Intelligence (AI) will

have both benefits and drawbacks for the songwriting

community in the 21

century.

Specifically, we anticipate that AI will provide

competition for new songs and artists. However, AI

cannot replace the excitement of attending a stadium

concert with a star artist. More importantly, given the

Company’s iconic and culturally significant portfolio,

AI will never replace the emotional connection that

consumers all over the globe have to our Songs. These

Songs are part of the fabric of our lives and part of the

fabric of our society. They will be passed down, as is

already the case, for generations to come.

We expect AI to both interpolate and sample our iconic

Songs and generate new versions of these Songs that

will create new IP and additional revenues streams for

the Company. These revenue streams are expected to

be protected by existing copyright legislation around

the world. If necessary, we will advocate for additional

regulations and protections. As such we look forward

to having a constructive relationship with AI music

developers and sharing in the benefits of another new

technology.

The Company’s Portfolio

The Portfolio as at 31 March 2023 comprised of

146 Catalogues containing the rights to 65,413 Songs.

The overall Fair Value of the Portfolio, as determined by

the Portfolio Independent Valuer, increased by 4.0%

to $2.80 billion (31 March 2022: $2.69 billion), mainly

as a result of royalty statements received exceeding

expectations, especially performance income and

streaming income from older vintage catalogues.

STRATEGIC REPORT • INVESTMENT ADVISER’S REPORT

STRATEGIC REPORT

HIPGNOSIS SONGS FUND LIMITED

ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023

This valuation reflects a multiple of 20.89x historical

annual net Publisher Share income, compared to the

blended acquisition multiple of 15.93x.

The Company’s Portfolio of Songs is, we believe,

unrivalled in its concentration of quality, as

demonstrated by Songs in the Portfolio being:

• 97 of 419 of Spotify’s Billions Club – Songs which have

been played more than a billion times on the service;

• Over 10% of Rolling Stone’s The 500 Greatest Songs

of All Time (52/500);

• Almost half of YouTube’s Most Viewed Music Videos

of all time (13/30); and

• Songs on 16 out of the Top 40 UK best selling albums

of the first six months of 2023.

STRATEGIC REPORT • INVESTMENT ADVISER’S REPORT

Songs performed by globally successful and culturally important artists include:

2 Pac, 5 Seconds of Summer, 10cc, 21 Savage, 50 Cent, 10,000 Maniacs, A$AP Rocky, AC/DC, Adele,

Al Green, Alan Jackson, Alicia Keys, Aluna George, Amy Winehouse, Andrea Bocelli, Anitta, Anthony

Hamilton, Ariana Grande, Aretha Franklin, AudioSlave, Avicii, B-52s, Baby Bash, Backstreet Boys,

Barbra Streisand, Barry Manilow, Bebe Rexha, Benny Blanco, Beyoncé, Biffy Clyro, Big & Rich,

Big Freedia, Birdy, Blind Faith, Blink 182, Blondie, Bon Jovi, Booker T & The MG’s, Boyz II Men,

Britney Spears, Bruce Springsteen, Bruno Mars, Bryan Adams, Camila Cabello, Carly Simon,

Celine Dion, Charli XCX, Cher, CHIC, Chris Brown, Christina Perri, Christopher Cross, Clipse,

Damian Marley, Dave Matthews Band, David Gray, David Guetta, Demi Lovato,

Destiny’s Child, Diana Ross, Dierks Bentley, Dionne Warwick, Diplo, Dire Straits,

DJ Snake, Dua Lipa, Duran Duran, Dusty Springfield, Ed Sheeran, Ellie Goulding, Eminem,

Enrique Iglesias, Erica Banks, Eric Prydz, Ernestine Anderson, Eurythmics, Fantasia, FKA Twigs,

Fleetwood Mac, Florence And The Machine, Flo-Rida, Florida Georgia Line, fun., Galantis,

George Benson, George Thorogood, Gladys Knight, Hailee Steinfeld, Halsey, Harry Styles, Iggy Azalea,

Imagine Dragons, James Bay, James Morrison, Jason Aldean, Jason Derulo, Jay Z, Jennifer Hudson,

Jeff Buckley, Jennifer Lopez, Jess Glynne, Jimmy Buffett, Jodie Harsh, John Legend, John Newman,

Josh Groban, Journey, Juicy J, Justin Bieber, Justin Timberlake, Kaiser Chiefs, Kali Uchis, Kanye West,

Katy Perry, Keith Urban, Kelis, Kelly Clarkson, Kelly Rowland, Khalid, Killswitch Engage,

Kylie Minogue, Lady Gaga, Lana Del Rey, Lara Fabian, Lauv, LeAnn Rimes, Leo Sayer,

Lindsey Buckingham, Linkin Park, Lionel Richie, Little Mix, Lizzo, Lorde, LunchMoney Lewis, M.I.A.,

Madonna, Marc Anthony, Maren Morris, Mariah Carey, Mark Ronson, Maroon 5, Mary J Blige,

Machine Gun Kelly, Massive Attack, Matchbox Twenty, Matt & Kim, MC Hammer, Meatloaf, Meek

Mill, Meghan Trainor, Melissa Manchester, Metallica, Metro Boomin’, MF Doom, Michael Bolton,

Michael Bublé, Michael Jackson, Mick Jagger, Miguel, Miike Snow, Miley Cyrus, Molly Sanden,

Moses Sumney, Mötley Crüe, My Marianne, Natalie Merchant, Nelly, Neil Young, New Kids

On The Block, Nicki Minaj, Nirvana, No Doubt, Ólafur Arnalds, Olivia Rodrigo, One Direction, P!nk,

Paloma Faith, Panic! At The Disco, Papa Roach, Paris Boy, Patti Smith, Paul Anka, Paul McCartney,

Pearl Jam, Pell, Perfume Genius, Phoebe Bridgers, Pitbull, Pop Smoke, Post Malone, Puff Daddy, Pusha T,

Rage Against The Machine, Rebecca Ferguson, Rejjie Snow, Rick James, Rick Ross, Ricky Martin, Rihanna,

Rita Ora, Robbie Williams, Rod Stewart, Rudimental, RZA, Santana, Santigold, Sawyer Brown, Seal,

Selena Gomez, Shakira, Shawn Mendes, Sia, Sigala, Sigma, Silk City, Simple Minds, Sinead O’Connor,

Sister Sledge, Skrillex, Sky Ferreira, Solange, Soundgarden, Spencer Davis Group, Spice Girls,

Steve Aoki, Steve Winwood, Stevie Nicks, Stormzy, Sugarhill Gang, Sum 41, Super Furry Animals,

Swedish House Mafia, SZA, T.I., Taio Cruz, Take That, Taylor Swift, Tchami, Teddy Bears, Teenage Fanclub,

The Chainsmokers, The Editors, The Outfield, The Pretenders, The Wombats, Third Day, Tiesto, Tim McGraw,

Timbaland, Tina Arena, Tinie Tempah, TLC, Toby Keith, Tom Jones, Tom Petty & The Heartbreakers,

The Kid Laroi, The Mindbenders, The Vamps, Theophilus London, Tom Walker, Toto, T-Pain, Tracey

Chapman, Traffic, Train, Trey Songz, Trivium, Troye Sivan, TV On The Radio, Ty Dolla $ign, U2, Usher,

Waka Flocka Flame, Weezer, Westlife, Whitney Houston, Will Ferrell, Wu-Tang Clan, Young The Giant,

Zara Larsson and Zedd.

HIPGNOSIS SONGS FUND LIMITED

ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023

Portfolio as at 31 March 2023

STRATEGIC REPORT • INVESTMENT ADVISER’S REPORT

Catalogue

Acquisition

Date

Total

Songs

The-Dream 13 Jul 2018 302

Poo Bear 21 Nov 2018 214

Bernard Edwards 28 Nov 2018 290

TMS 17 Dec 2018 121

Tricky Stewart 17 Dec 2018 121

Giorgio Tuinfort 21 Dec 2018 182

Rainbow 15 Jan 2019 15

Itaal Shur 31 Jan 2019 209

Rico Love 26 Feb 2019 245

Sean Garrett 21 Mar 2019 588

Johnta Austin 22 Mar 2019 249

Sam Hollander 31 Mar 2019 499

Ari Levine 31 Mar 2019 76

Teddy Geiger 12 Apr 2019 6

Starrah 25 Apr 2019 73

Dave Stewart 7 May 2019 1,068

Al Jackson Jr 8 May 2019 185

Jamie Scott 15 May 2019 144

Michael Knox 28 May 2019 110

Brian Kennedy 14 Jun 2019 101

John Bellion 14 Jun 2019 180

Lyric Catalogue 17 Jun 2019 571

Neal Schon 20 Jun 2019 357

Jason Ingram 10 Jul 2019 462

Eric Bellinger 12 Jul 2019 242

Andy Marvel 23 Jul 2019 740

Benny Blanco 2 Aug 2019 93

The Chainsmokers 22 Aug 2019 42

Timbaland 10 Oct 2019 108

10cc 17 Oct 2019 29

Journey (Publishing) 21 Oct 2019 103

John Newman 5 Nov 2019 47

Jaron Boyer 5 Nov 2019 109

Arthouse 15 Nov 2019 44

Fraser T Smith 5 Dec 2019 298

Jack Antonoff 5 Dec 2019 188

Ammar Malik 5 Dec 2019 90

Catalogue

Acquisition

Date

Total

Songs

Ed Drewett 9 Dec 2019 109

Kaiser Chiefs (Masters) 9 Dec 2019 48

Jeff Bhasker 11 Dec 2019 436

Johnny McDaid 11 Dec 2019 164

Emile Haynie 13 Dec 2019 122

Brendan O’Brien 13 Dec 2019 1,855

Savan Kotecha 18 Dec 2019 49

Tom Delonge 23 Dec 2019 157

Journey (Masters) 10 Jan 2020 389

Rebel One 10 Jan 2020 157

Scott Harris 10 Jan 2020 129

Brian Higgins 22 Jan 2020 362

Gregg Wells 10 Feb 2020 11

Jonathan Cain 28 Feb 2020 216

Jonny Coffer 28 Feb 2020 85

Mark Ronson 28 Feb 2020 315

Richie Sambora 4 Mar 2020 186

Rodney Jerkins 16 Jul 2020 982

Barry Manilow 16 Jul 2020 917

RedOne 16 Jul 2020 334

Eliot Kennedy 16 Jul 2020 217

NO I.D. 24 Jul 2020 273

Pusha T 24 Jul 2020 238

Closer (J King & I Slade) 27 Jul 2020 2

Ian Kirkpatrick 29 Jul 2020 137

Blondie 30 Jul 2020 197

Chris Cornell 10 Aug 2020 241

Robert Diggs “RZA” 12 Aug 2020 814

Ivor Raymonde 13 Aug 2020 505

Nikki Sixx 3 Sep 2020 305

Big Deal Music “BDM” 10 Sep 2020 4,212

Julian Bunetta 10 Sep 2020 188

Chrissie Hynde 10 Sep 2020 162

Steve Robson 17 Sep 2020 1,034

Rick James 18 Sep 2020 97

Kevin Godley 23 Sep 2020 358

Scott Cutler 24 Sep 2020 111

STRATEGIC REPORT

HIPGNOSIS SONGS FUND LIMITED

ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023

Catalogue

Acquisition

Date

Total

Songs

Nate Ruess 30 Sep 2020 59

LA Reid 30 Sep 2020 162

50 Cent 30 Sep 2020 388

Aristotracks 30 Sep 2020 152

B-52’s 30 Sep 2020 96

Bonnie McKee 30 Sep 2020 78

Brill Building 30 Sep 2020 234

Christina Perri 30 Sep 2020 68

Dierks Bentley 30 Sep 2020 113

Editors 30 Sep 2020 64

Eman 30 Sep 2020 97

Enrique Iglesias 30 Sep 2020 157

Evan Bogart 30 Sep 2020 229

George Benson 30 Sep 2020 107

George Thorogood 30 Sep 2020 40

Good Soldier 30 Sep 2020 760

Holy Ghost 30 Sep 2020 62

J-Kash 30 Sep 2020 90

John Rich 30 Sep 2020 7

Kojak 30 Sep 2020 148

Lateral 30 Sep 2020 248

Lindsey Buckingham (Kobalt) 30 Sep 2020 174

LunchMoney Lewis 30 Sep 2020 116

Lyrica Anderson 30 Sep 2020 96

Madcon 30 Sep 2020 173

Mark Batson 30 Sep 2020 210

Mobens 30 Sep 2020 1,034

Nelly (Kobalt) 30 Sep 2020 145

Nettwerk 30 Sep 2020 25,259

PRMD 30 Sep 2020 335

Rob Hatch 30 Sep 2020 167

Rock Mafia 30 Sep 2020 393

Savan Kotecha (Kobalt) 30 Sep 2020 354

SK Music 30 Sep 2020 23

Skrillex 30 Sep 2020 153

Stereoscope 30 Sep 2020 456

Steve Winwood 30 Sep 2020 215

Catalogue

Acquisition

Date

Total

Songs

Tequila 30 Sep 2020 1

Third Day 30 Sep 2020 212

TImeflies (Masters) 30 Sep 2020 80

Walter Afanasieff 30 Sep 2020 213

Wayne Wilkins 30 Sep 2020 113

Yaslina 30 Sep 2020 73

Sacha Skarbek 20 Nov 2020 303

Tricky Stewart (Masters) 27 Nov 2020 95

Eric Stewart 2 Dec 2020 255

Bob Rock 4 Dec 2020 43

Caroline Ailin (“New Rules”) 10 Dec 2020 2

Nelly 15 Dec 2020 240

Lindsey Buckingham 24 Dec 2020 161

Joel Little 24 Dec 2020 178

Jimmy Iovine 24 Dec 2020 259

Neil Young 31 Dec 2020 590

Shakira 31 Dec 2020 145

Brian Kennedy (Writer Share) 31 Dec 2020 139

Andrew Watt 17 Feb 2021 105

Christian Karlsson 2 Mar 2021 255

Carole Bayer Sager 17 Mar 2021 983

Paul Barry 18 Mar 2021 510

Espionage 26 Mar 2021 151

Martin Bresso 31 Mar 2021 51

Andy Wallace 31 Mar 2021 1,242

David Sitek 31 Mar 2021 230

Happy Perez 31 Mar 2021 192

Red Hot Chili Peppers 14 Jul 2021 220

Kaiser Chiefs 15 Jul 2021 136

Christine McVie 21 Jul 2021 115

Jordan Johnson 22 Jul 2021 58

Stefan Johnson* 22 Jul 2021 58

Rhett Akins 23 Jul 2021 564

Ann Wilson 29 Jul 2021 152

Elliot Lurie 24 Aug 2021 70

Total Songs 65,413

* Not counted in total song count

STRATEGIC REPORT • INVESTMENT ADVISER’S REPORT

HIPGNOSIS SONGS FUND LIMITED

ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023

Separate Ways (Worlds Apart)

by Journey is an example of

how our strong relationships with

artists and Songwriters both

within and associated with the

Hipgnosis family can significantly

reinvigorate a hit song that has

nevertheless been allowed to

languish in traditional publishing companies, by

introducing it to an entirely new and younger audience

and in the process earn significant synch fees, increase

steaming consumption and inspire other major artists to

cover it so that it continues to add value.

Hipgnosis Songs Fund owns both the right to receive

two-thirds of the artist royalties from the Master as

well as a majority ownership interest in the Publishing

Separate Ways (Worlds Apart).

It was released by Journey in 1983 as a single on their

album Frontiers and peaked at Number 8 on the

Billboard Hot 100 chart.

Creative Collaborations

Hipgnosis Songs Fund worked with the Producer of

the Netflix series Stranger Things – Season 4, alongside

Steve Perry, the lead singer and co-writer of the Song

with Jonathan Cain. A remix was created specifically

for Stranger Things which thematically exemplified the

growing pains experienced by several characters in

Season 4 of the series, as well as reminding viewers of

the story’s underlying theme of two worlds – the Regular

World and the Upside Down. The result of the creative

endeavour was Separate Ways (Worlds Apart) Extended

Remix, by Steve Perry & Bryce Miller.

This new version of the Song was the soundtrack to the

trailer – attracting additional fees – which launched

and created the anticipation for Season 4.

The trailer was first aired on 12 April 2022. It was then

released as a two-part series; the first aired on Netflix on

27 May 2022 and the second one on 1 July 2022, with

the Song also appearing in the penultimate episode

of the season. TV blog ‘The Wrap’ said, “Episode 8

of Stranger Things – Season 4 introduced another

Case Study

Reviving a forgotten hit

How a well placed Synch can change the fortunes of multiple revenue streams

STRATEGIC REPORT • INVESTMENT ADVISER’S REPORT

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

3,500,000

JUL 20

AUG 20

SEP 20

OCT 20

NOV 20

DEC 20

JAN 21

FEB 21

MAR 21

APR 21

MAY 21

JUN 21

MAR 20

MAY 20

JUN 20

JUL 21

AUG 21

SEP 21

OCT 21

NOV 21

DEC 21

JAN 22

FEB 22

MAR 22

APR 22

20212020 2022

US Weekly Streaming On-Demand

APR 20

FEB 20

JAN 20

JUL 22

AUG 22

SEP 22

OCT 22

NOV 22

DEC 22

JAN 23

FEB 23

MAR 23

APR 23

MAY 23

MAY 22

JUN 22

Weekly Streaming for Journey’s 1983 recording of Separate Ways (Words Apart)

Source: Luminate

— Average weekly streaming before/after Stranger Things – Season 4

— Separate Ways (Worlds Apart) – original Journey version

27 May 2022:

Stranger Things –

Season 4 series,

Part 1 aired on

Netflix

12 April 2022:

Remix of Song

released as well as

First official trailer of

Stranger Things –

Season 4 aired

1 July 2022:

Stranger Things –

Season 4 series,

Part 2 aired on

Netflix

5 Jan 2023:

Cover version

of Song

released by

Daughtry

STRATEGIC REPORT

HIPGNOSIS SONGS FUND LIMITED

ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023

1980s musical gem into the show, a dark, eerie remix

of Journey’s 1983 hit Separate Ways (Worlds Apart)

that’s so good it made us re-watch the scene it was

introduced in just to hear it again”.

A soundtrack of the series was also released in physical

format in September 2022, and the remixed Song appears

twice in the two-LP vinyl editions. Additionally, we

collaborated with the band to remaster a special vinyl

reissue of the album Frontiers which is due to be

re-released later this year alongside their Greatest Hits

album, which is one of the biggest selling Greatest Hits

albums of all time. Both feature the original version

of Separate Ways (Worlds Apart) and both will have

exclusive formats for major retailers including Target

and Walmart.

As a result of all the activity the multi-platinum US rock

band and American Idol finalist, Daughtry, released

a cover version of the Song on 5 January 2023, to

celebrate the 40

anniversary of the original Journey

hit single, which further fuelled the on-demand streaming

for both the original Song and the remix version.

Impact on Consumption

The use of the remix version of Separate Ways (Worlds

Apart) in Stranger Things, and Daughtry’s subsequent

cover version had a significant impact on the

consumption of the original version.

Prior to the launch of the new series, the original version

of Separate Ways (Worlds Apart) averaged a little over

1 million weekly streams in the US. Following the release

of the trailer, the average number of weekly streams

has risen 68% to 1.82 million streams per week.

Impact on Earnings

This strong collaboration has had a visible impact on all

revenue streams.

We looked at the earnings related to artist royalty

income since H1 2020. Earnings remained fairly constant

until H2 2021. Since then, there has been close to a 4x

uplift in earnings related to artist royalty income relating

to the master recording and more than double since

Stranger Things – Season 4 first aired.

Notwithstanding the inherent lag in receiving payments,

we also analysed the publishing earnings received

within the Jonathan Cain Catalogue, who co-wrote

50% of the Song. This is a Catalogue that is now part

of our in-house administration with HSG.

Royalty statements received to date show there has

been a strong impact on Synch, Streaming, Physical

as well as Performance revenues. In total, earnings for

the calendar year ending 2022, have increased by

184% year-on-year with significant payments still to flow

through.

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

— Aggregate US Weekly Streaming (On Demand) – left-hand axis

— Income earned – rebased to H1 2020 – right-hand axis

Source: Hipgnosis Songs Fund, Luminate

Journey’s Separate Ways (World’s Apart):

analysing artist royalty income

US Streaming On-Demand, millions

Royalty income earned, rebased to H1 2020

H1 2022H2 2021H1 2021H2 2020H1 2020 H2 2022

HIPGNOSIS SONGS FUND LIMITED

ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023

Active Song Management

Due to their iconic nature, the Songs in the Portfolio can

be relied upon to deliver long-term, stable returns, whilst

benefitting from market growth.

However, our ethos has always been that active Song

Management can and will deliver significant additional

benefits to the Company’s Shareholders. We view Song

Management as having three pillars:

• Optimising revenue generation, revenue collection

and value by ensuring accurate registration and rights

enforcement of the Songs in the Catalogue, ensuring

we collect revenues as efficiently and cost-effectively

as we can.

• Driving consumption and value through active

marketing and pitching of the Catalogue to individual

listeners, music creators and business music users, as

well as harnessing consumer platforms through which

the Catalogue can be showcased and consumed.

• Campaigning to change the position of Songwriters

in the economic equation by working with politicians,

NGOs and the wider music community to build support

for increased fairness in payments for Songwriters. As

our Shareholders stand in the shoes of the Songwriters,

what’s in the best interest of Songwriters is also what’s

in the best interest of our Shareholders and there is

complete alignment.

Optimising revenue generation

We have continued to implement its strategy of working

with partners who reduce administration costs, collect

more money, collect it faster and pay it through faster.

At the earliest possible opportunity we look to revert

(i.e. move) Catalogues to these partners, or renegotiate

administration rates where there are compelling reasons

to maintain the current relationships.

Through the Company’s wholly owned subsidiary,

Hipgnosis Songs Group’s (HSG) administration

capabilities, the Company benefits from its own in-house

administration function in the US.

Furthermore, in July 2022, we announced that the

Company had entered into a direct licensing and

administration partnership with Sacem, a world-leading

Collective Management Organisation (CMO), to collect

digital rights for the Writers’ Share and the Company’s

own Publisher Share, primarily in the UK and the

European Union, starting in 2023.

Additionally, the Company entered into a sub-publishing

partnership with peermusic, the world’s largest

independent music publishing and neighbouring rights

administration company, for them to administer specific

Catalogues. Peermusic will collect royalties in territories

not administered by HSG or Sacem, primarily Latin

America and Asia.

Combined, the partnerships with Sacem and peermusic

have resulted in an annualised uplift of relevant

earnings of 6.6%. Further benefits of the move to Sacem

include collection times for some streaming revenues

having been cut to as little as four months from the

point of use.

So far, a total of 43 Catalogues or part Catalogues,

covering over 6,200 Songs, accounting for c.11% of PFAR

have now reverted to these three partnerships.

The transition of Catalogues to Sacem and peermusic

required significant preparation work by the Copyright

team, including scaling up certain administrative

processes, such as becoming Common Works

Registrations (CWR) compliant. Working with our own

in-house administrator in the US, HSG, we ensured

accurate delivery of the data to enable a smooth

transition.

The music industry is notorious for the fragility and

inaccuracy of data. Therefore, it is notable that Sacem

reported that there were no rejections in the 6,200 Songs

which were transferred to them, highlighting the success

and accuracy of the work that our rights administration

team has been carrying out. In practice, this means that

Songs transferred are properly coded so that all due

payments are received and Sacem can immediately

focus on maximising collections for Hipgnosis Songs

Fund.

We will continue to consider Catalogues for reversion

to HSG, Sacem and peermusic as existing administration

agreements expire. Alongside these, we continue to

have a significant administration business with Kobalt

as well as with Sony Music Publishing, Warner Chappell

Music and Universal Music Publishing.

Driving consumption through Synch

The Company’s Portfolio of iconic and culturally important

Songs are naturally in high and constant demand

from producers to feature in their movies, TV shows,

advertisements, video games and online marketing.

STRATEGIC REPORT • INVESTMENT ADVISER’S REPORT

STRATEGIC REPORT

HIPGNOSIS SONGS FUND LIMITED

ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023

Our global in-house ‘24/7’ Synch licensing operation

actively manages our Songs with responsibility. The

Hipgnosis Song Management team focuses on creating

opportunities which add value to both the Song and

the Songwriter’s legacy, while also responding to

incoming enquiries within a matter of minutes.

The success of our approach is demonstrated by the

24.7% year-on-year increase in synch PFAR income in

calendar 2022 compared to 2021. Overleaf we have

identified a selection of our recent Synchs.

Our case study on pages 22-23 demonstrates, in depth,

the secondary impact on streaming, and thereby

income, which can be achieved by placing the right

Song in the right place.

Another highlight of the year was our placement of

All The Small Things, co-written by Tom Delonge, whose

Catalogue the Company bought in December 2019, as

the sound track for the highly coveted John Lewis 2022

Christmas Advert. The original Blink-182 version of the

Song reached Number six in the Billboard Hot 100 and

Number two in the UK on release in 2000. Our Synch

team saw the potential of a slowed down version of this

track and presented it to John Lewis, who chose it to

soundtrack their seasonal Christmas advert.

Following the John Lewis advert, and the Blink-182

reunion world tour announced in October 2022,

streaming consumption has notably increased,

particularly in the UK. In addition, there have been

several interpolations and samples agreed. These,

in turn, will drive further consumption when they are

released as well as create new IP and revenue streams.

Alongside the John Lewis Christmas advert as one of

the most prestigious placements for Synchs, stands the

Superbowl half time show. This year, Rihanna performed

four of the Company’s co-owned Songs during her

set: Birthday Cake (The-Dream), All Of The Lights (Jeff

Bhasker/The-Dream), Run This Town (Jeff Bhasker/No

I.D.) and Umbrella (The-Dream/Tricky Stewart). Close

to 119 million viewers tuned in for her performance on

television and streaming services, with each of the

Songs recording gains on streaming platforms of up

to 280% in the week following her performance. Four

months on, Umbrella’s US weekly Streaming-on-Demand

figures are still 1.3 times that pre the Superbowl; Run This

Town is showing 1.5x the demand.

During the year, our Synch team enhanced their

Publishing Partner engagement program in order to

further increase the access to and visibility of our Songs.

This proactive approach aims to encourage greater

collaboration with our publishing partners with the

aim to maximise synch activity. In addition, we create

bespoke approval processes, ensuring that we remain

a low friction partner for quickly licensing repertoire.

In addition, the Synch team has taken advantage

of a number of technology solutions that trawl the

global entertainment industry and automatically alert

the team every time a significant synch deal goes on

air. Combining this technological approach with our

proprietary in-house synch and royalties databases

enables us to have an integrated system where a synch

can be followed from its pitching stage, through its

usage and ultimately its collection.

Bringing Songs to new audiences

Putting the spotlight on creating interpolations of our

Songs, having our Songs sampled and nurturing cover

versions of our Songs results in new IP for the Company

as well as new and enhanced revenue streams.

This year, Nicki Minaj delivered another enormous

global hit based on Rick James’s hit Super Freak.

Nicki’s Song Super Freaky Girl went to Number 1 on the

Billboard Hot 100 in the US as well as being a top five

hit in the UK. The original Song was released in 1981

and has been a seminal Song ever since. In 1990, it

was interpolated as U Can’t Touch This by MC Hammer

for the enormous global Grammy award winning hit.

All three Songs have pride of place in the Company’s

portfolio and Nicki Minaj’s recording is not only the

highest charting, having reached Number 1, but also,

once again, helps to revive both the original and the

MC Hammer version. As a result of all this activity we

have already seen a 45% uplift year-on-year for the

combined earnings of Super Freak and Super Freaky Girl,

when comparing the first nine months of 2022 to the first

nine months of 2021.

The three versions have more than 5 billion streams

across all services with approximately half of them

under the Company’s ownership. Super Freaky Girl has

also been awarded an ASCAP POP Award as one of the

most played songs on US radio in the past 12 months.

Through ownership of the Rick James Catalogue, the

Company receives its 50% share of Rick James’ 55% of

the publishing share of Super Freaky Girl.

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Synch

Here are some of our recent Synch approvals from

across the Catalogue:

TV and Streaming

Neil Young’s Out On The Weekend has recently aired on

Netflix’s ‘Outer Banks’.

Netflix’s ongoing smash hit series ‘Sex Education’ will

feature The Pretenders song, Brass In Pocket, written by

Chrissie Hynde.

The current season of ‘Love Island UK’ has featured no

fewer than 15 of Hipgnosis’ songs.

The latest series of DC’s ‘Superman & Lois’ has a

prominent usage of Sugarhill Gang Rapper’s Delight,

which was co-written by Bernard Edwards.

Paramount+ picked Can’t Find My Way Home written

by Steve Winwood for the second season of the series

‘Mayor Of Kingstown’.

The current season of HBO’s ‘We’re Here’ has featured

Bon Jovi’s You Give Love A Bad Name, co-written by

Richie Sambora.

The trailer for Amazon Studios’ ‘Der Greif’ has used

Soundgarden’s Black Hole Sun written by Chris Cornell

as its soundtrack.

Nile Rodgers & Snoop Dogg have collaborated on a

brand-new version of We Are Family co-written with

Bernard Edwards, for the trailer of the YouTube Original

series, ‘Behind The Beats’.

Amazon Prime’s latest season of ‘The Handmaid’s Tale’

features Fleetwood Mac’s The Chain co-written by

Lindsey Buckingham & Christine McVie and Al Green’s

Let’s Stay Together co-written by Al Jackson Jr.

‘The Playlist’ – a Netflix Original series about the creation

of Spotify, features Bruno Mars’ Locked Out Of Heaven,

co-written by Ari Levine and Swedish House Mafia’s

Don’t You Worry Child co-written by Martin John

Lindstrom.

2022’s NFL Sunday Night Football promo featured an

on camera rendition of Neil Young’s song Old Man,

performed by Beck. The recording was nominated for

Best Rock Performance at the 2023 Grammy Awards.

Season 3 of Amazon Studios’ ‘The Boys’ featured an

on-screen performance of Blondie’s song Rapture,

co-written by Debbie Harry and Chris Stein.

Film

The new ‘Barbie Movie’ features an interpolation

of Red Hot Chili Pepper’s Pretty Little Ditty.

Red Hot Chili Peppers’ Can’t Stop was used as the trailer

to the latest ‘Expendables 4’ movie.

Journey’s Don’t Stop Believin’ is being used in the trailer

for ‘Harold And The Purple Crayon’.

‘Glass Onion’, the sequel to the hugely successful Knives

Out’ feature film, features a key use of Under The Bridge

by Red Hot Chili Peppers.

Heart’s Crazy On You, co-written by Ann Wilson is

the main song on the trailer for the latest film in the

‘Guardians of the Galaxy’ franchise.

Fun’s We Are Young, co-written by Jack Antonoff

and Nate Ruess, was placed in the South Korean film

‘Rebound’.

Marvel Studios’ ‘Wakanda Forever’, features a

significant use of Red Hot Chili Peppers’ Can’t Stop.

The trailer for Sony Pictures’ ‘Lyle, Lyle, Crocodile’

features Shawn Mendes’s There’s Nothing Holdin’ Me

Back, co-written by Teddy Geiger and Scott Harris.

The Netflix Original film ‘The Swimmers’ uses David

Guetta feat. Sia’s Titanium, co-written by Hipgnosis’

Giorgio Tuinfort, in both the film and the trailer.

Advertising

No I.D. and Jeff Bhasker were writers on Rihanna and

Jay-Z’s Run This Town Z, which soundtracked Apple

Music’s 2023 Superbowl commercial.

A Spotlight on Synch

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STRATEGIC REPORT • INVESTMENT ADVISER’S REPORT

Renault have selected Sheila B. Devotion’s Spacer,

co-written by Bernard Edwards, to soundtrack their

2023 E-space advertising campaign.

Journey’s Any Way You Want It was used for an

Applebee’s TV commercial.

Boyz II Men’s End Of The Road was used to soundtrack

the Infinity QX80 TV advertising campaign.

Gucci Men’s Luggage chose Heart’s Magic Man for

their campaign featuring Ryan Gosling.

Chanel Eyewear picked Chic Cheer, co-written by

Bernard Edwards, for their global campaign.

Isuzu have renewed the deal for their use of

Fleetwood Mac’s Go Your Own Way written by Lindsey

Buckingham in their Australian brand campaign.

The much-coveted 2022 John Lewis Christmas

commercial was soundtracked by a new recording

of Blink-182’s All The Small Things, written by Tom

DeLonge.

Paco Rabanne have renewed their global 1 Million

campaign, featuring Sugarhill Gang’s Rapper’s Delight,

co-written by Bernard Edwards.

Holiday Road by Lindsey Buckingham is soundtracking

the current advertising campaign for The United States

Postal Service.

William Hill selected Rudimental’s Feel The Love co-

written by John Newman as the soundtrack to their

current advertising campaign.

Video Games

Hipgnosis’ new recording of Wanted Dead Or

Alive performed by Empara M is featured on the

global trailer for ‘Transformers: Reactivate’, a major

forthcoming video game.

Black Hole Sun, written by Chris Cornell, was selected

for the trailer for the ‘Red Fall’ game.

Saber Interactive picked You Give Love A Bad Name,

co-written by Richie Sambora, for the trailer of their

game ‘Toxic Commando’.

Red Hot Chili Peppers’ Can’t Stop has been confirmed

for use in the forthcoming WWE 2k23 wrestling video

game.

The trailer for ‘Overwatch 2’ features Yeah Yeah Yeahs’

Spitting Off the Edge of the World, which was co-written

by Dave Sitek.

All I Want for Christmas Is You and Joy to the World,

both co-written by Walter Afanasieff, were performed

by Mariah Carey on her Winter Wonderland concert on

Roblox.

EA Sports chose the RedOne-cowritten Real Madrid

anthem Hala Madrid… Y Nada Mas for their new game

FC24, the replacement for the FIFA series.

John Newman’s Love Me Again features the trailer for

EA’s FC24 the replacement for the FIFA series.

Fitz & The Tantrum’s Handclap, co-written by Sam

Hollander, features in EA’s NHL24.

Red Hot Chili Peppers’ Give It Away features in EA’s

Madden NFL 24.

The Pretenders’ Private Life by Chrissie Hynde will

feature in Grand Theft Auto 6.

HIPGNOSIS SONGS FUND LIMITED

ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023

In addition, we continue to focus on creating new master

recordings of selected Songs within the Catalogue

designed to be attractive for synch opportunities.

This approach has already proved successful, with a

new version of Bon Jovi’s Wanted Dead Or Alive. We

partnered with Empara Mi and created a new recording

of this Song, specifically designed for the current trend in

movie and video game trailers of atmospheric, ethereal

recreations of iconic songs. In this case, the Company

owns 50% of the Publishing copyright via the Richie

Sambora Catalogue acquisition and 100% of the master

recording of the new version. We placed the Song for

the trailer of the forthcoming video game Transformers:

Reactivate – earning a six-figure synch fee. In addition,

we released the Song on Streaming services to establish

a base for the record where it has achieved over

1.6 million streams on Spotify alone, and should continue

to grow and generate further income once the game is

released. The trailer has already been viewed 2 million

times on YouTube.

Another example is when we placed Richie Sambora

as a contestant on the UK version of The Masked Singer.

Four of the six songs that he performed on the series

were from the Company’s Portfolio. When he was

revealed in the semi-final, his profile reached a recent

all-time high and there was an increased streaming

consumption of the Bon Jovi songs held by the

Company.

Another initiative aimed at introducing our iconic songs

to a new generation of fans in order to drive increased

streaming consumption is making Nile Rodgers the face

of Chanel Eyewear as well as the first and only “Artist In

Residence” at Apple Music. We have also presented

CHIC’s first five albums and Sister Sledge’s We Are Family

in Spatial Audio on the service, as well as securing a

significant six figure synch for the song Spacer with

Renault in Europe.

Progress made towards ensuring that

Songwriters are fairly remunerated

The 2022-23 financial year saw significant progress in our

campaign for Songwriters to be more fairly rewarded

for their contribution to the success of the music

industry. Without Songwriters there is no music industry

and all Songwriters deserve to go from the bottom of

the economic equation to the top. It cannot be said

often enough that where the Company has purchased

a Catalogue we stand in the shoes of the Songwriter,

so our Shareholders’ interests are entirely aligned with

those of Songwriters. If we can get Songwriters paid

more, our Shareholders benefit equally.

We advocated for, and welcome moves by the US

disallowed an appeal from certain streaming services

against their CRB III ruling as well as the joint industry

proposal approved by the CRB which provides for

further increases during the CRB IV period.

CRB III provided for a 44% increase in the headline

rate of Digital Service Providers (DSP) revenues paid

to Songwriters and Publishers, reaching 15.1% in 2022.

As a result of the appeal by certain streaming services,

some revenues were not paid contemporaneously.

Following the rejection of the appeal the music industry

and the Mechanical Licencing Collective (MLC) has

started the process to distribute those revenues. As

discussed in the Financial Review on page 34, we have

accrued a total of $16.1 million for the CRB III retroactive

revenue and a further $5.6 million for CRB III uplift during

the financial year.

The joint industry proposals – which have been

confirmed, for CRB IV saw the proportion of DSP

revenue paid to Songwriters further rise incrementally

to 15.35% in 2027, as well as the royalty payable on a

physical sale or download rising from 9.1 cents to 12 cents

with additional inflationary increases. Whilst there is still a

long way to go before Songwriters are fairly remunerated,

these are important steps in the right direction.

The joint CRB IV proposals show there is increasing

acceptance across the music industry that Songwriters

should be fairly rewarded for their work. Although

the increase is more modest than the CRB III rises, we

support it as it will provide a background of stability at

the highest streaming rates ever paid in the context of

which we can continue our advocacy efforts.

In the UK, the Competition and Markets Authority (CMA)

concluded their market study and recommended

that the Intellectual Property Office (IPO) take forward

a number of workstreams. After the year end, the

IPO announced an agreement on how the music

industry and the Government will work together to

deliver consistent high-quality metadata and the

Government has announced a joint industry working

party on music industry remuneration. We welcome

these steps, however, we believe that far greater reform

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ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023

is needed and we continue to engage with the relevant

organisations to achieve this change. Our ultimate goal is

for Songwriters’ pay to be determined by the free market,

not legislation.

We also supported BMI in its Live Concert rate victory,

which set a new rate 138% higher than the previous one,

reflecting the importance of Songs in the live concert

experience. As we’ve stated before, live concerts would

not exist without Songs.

Hipgnosis Songs Group (HSG) and new Songs

Prior to being acquired by the Company in September

2020, HSG had two main divisions: Song Creation, which

accounted for 78% of revenues at the time, and third-party

administration which accounted for 22% of revenues.

The chief purpose of acquiring HSG was the ability to

self-administer our acquired Catalogues in the US. This

would reduce third party administration costs, allow us

to collect revenue quicker, reduce revenue leakage,

give us greater visibility over revenue and give us a seat

at the table to negotiate better rates for our Catalogue,

as well as advocate on behalf of Songwriters. It was

an established platform at acquisition and in the

intervening time we have improved its capabilities as

we have shifted its focus to administration. In total, the

Company has reverted 43 Catalogues to HSG, enabling

the Company to benefit from this in-house capability.

In addition to administering Songs in-house for the

Company, HSG continues as a third-party administrator.

In this capacity, HSG administers Catalogues such as

Beggars Banquet, which includes Glass Animals, who

claimed the longest run in Billboard 100 history with

Heat Waves. The Song has gone 5x Platinum in the US,

was the second most streamed Song in 2022 in the US

and is ranked among the Top 15 “most streamed Songs

of all-time on Spotify”.

Song Creation remains a small part of Hipgnosis Songs

Fund’s overall business, at less than 2% of net revenue.

Highlights from the period include continued important

placements by Stefan and Jordan Johnson (the

Monsters & Strangerz) with Selena Gomez; the Jonas

Brothers and Miley Cyrus; as well as Julian Bunetta and

John Ryan with Katy Perry, Shawn Mendes and Sabrina

Carpenter. The expansion of our joint ventures with NO

I.D., including key signings with both Saba and Sonny

Nitez, as well as Hippo Campus are also expected to

deliver hit songs.

During the period, the Company has evolved HSG’s

Song Creation business and in addition to delivering

original hits, its roster of Songwriters are also focused on

interpolating the Company’s iconic Songs into new hits.

This focused strategy will enable more stable returns

off a reduced fixed cost base. As a result, there was a

restructuring of the team, with a $1 million one time cost

which is expected to deliver an estimated annual fixed

cost savings of $0.8 million.

Following the successful implementation of our strategy

to use HSG for self-administration and the subsequent

growth in third party administration, this business is

well balanced and gross revenues are now split evenly

across fund administration, third party administration

and Song Creation.

Recognition through awards

Grammys

The Company’s Songwriters were included in 16 Grammy

nominations for 2022 and won the following:

• Best Dance/Electronic Album: Beyonce’s

RENAISSANCE co-written by Travis Garland and Diplo’s

Diplo, co-written by Phil Scully and David Karbal.

• Best Folk Album: Revealer by Madison Cunningham

co-written by Dan Wilson

• Producer Of The Year (Non Classical): Jack Antonoff

PRO Performance Awards

• Song of the Year SESAC Music Awards 2022:

Heatwaves, by Glass Animals, written by Dave Bayley

• Winners at the ASCAP Pop Awards 2023:

• Ghost by Justin Bieber, co-written by Stefan Johnson

and Jordan Johnson

• Super Freaky Girl by Nicki Minaj, co-written by Rick James

• ASCAP Most Performed Songs of the Year:

Just About Over You performed by Priscilla Block and

co-written by Emily Kroll

• ASCAP Country Awards 2022:

Just About Over You performed by Priscilla Block and

written by Emily Kroll

• BMI Most Performed Songs of The Year:

• It’s Cause I Am performed by Callista Clark and

co-written by Cameron Jaymes

• Baila Conmigo performed by Selena Gomez and

Rauw Alejandro written by Albert Hype

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HIPGNOSIS SONGS FUND LIMITED

ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023

• Winner in the BMI Pop Awards 2023 for most

performed Song: Ghost by Justin Bieber, co-written by

Stefan Johnson

• Winner in the BMI Country Awards 2022: Tequila

Little Time by Jon Pardi, written by Rhett Akins

• Winner in the BMI Latin Awards 2022: Telepatia by

Kali Uchis, co-written by Albert Hype

Upgraded capabilities

The strategic investment by Blackstone LLP into Hipgnosis

Song Management during 2021 has enabled us to

continue investing in capabilities and expertise despite

the reduction in the management fee received from the

Company as a result of the decline in the share price.

Notably, Ben Katovsky joined on 1 October 2022 as

our new President and Chief Operating Officer. Ben,

who has almost two decades’ experience in the music

industry, most recently as COO at BMG, leads the

operations of Hipgnosis Song Management. He has

particular expertise in the scaling of music companies,

building value from growing Catalogues, digital

business development and using technology and data

to enable this.

Ben’s appointment was part of our on-going

commitment to ensure that we continue to evolve

with the right people in the right roles to maximise

opportunities and value for the Company. As such we

have made a number of additional appointments, most

notably in our Song Management organization to focus

on further driving audience development and licence

revenue for our Songs.

Danny Bennett has been appointed EVP responsible

for Marketing and Audience Development. Danny

has been a leading manager in the music industry

for more than 30 years. He’s widely respected for

using his progressive marketing skills. He famously

redefined the career of his father, Tony Bennett,

including through iconic collaborations with

Lady Gaga and Amy Winehouse. Based in New

York, Danny will support an increased focus on

the United States, the largest music market.

Patrick Joest has been promoted to Head of Synch

leading the IA’s global synch marketing and licensing

operation. Patrick has over two decades’ global

experience and a network in Film & TV/synch licensing

on both the supervision and rights owners’ side. Prior to

Hipgnosis, Patrick spent 11 years at BMG, where he built

the global synch business from scratch to a multi-million

dollar operation, leading a team across 15 offices.

Sara Lord has been appointed EVP Content Creation.

Sara is an entertainment industry executive with over

25 years of experience in the music, film and advertising

industries. Sara joined from Concord Music, where

she had been SVP International Synch and Project

Development. Sara is leading Hipgnosis’ collaborative

work with companies looking to create audio-visual,

theatrical, non-traditional physical and experiential

content showcasing Hipgnosis catalogues.

As part of the ongoing investment and expansion of

the Investment Adviser, additional appointments are

underway including the appointment of an in-house

General Council to be announced in due course.

Last September, we said goodbye to Amy Thomson

and we will shortly be saying goodbye to Ted Cockle.

We would like to thank both of them for their efforts and

wish them all the best for the future.

During the year a particular operational focus for

the Investment Adviser has been the build out of

its proprietary technology and data platform, the

implementation of work processes associated with this

platform and the population of data into new systems.

The platform now includes systems that enable rights

administration, Synch sales, audience development

and royalty collection and assurance and is therefore

designed to optimise the end-to-end value creation

process.

Significant investment has been made into the

development of a proprietary cloud-based royalty

platform. This platform enables the Investment Adviser

to ingest and verify royalty statements received from

publishers, labels, CMOs and other sources rapidly and

to a high level of granularity. The platform will allow

significantly improved royalty analysis and verification

and will power improved insights to drive catalogue

revenue generation. We see technology and data

science as a key priority and will continue to invest

significantly in these areas.

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STRATEGIC REPORT

SUPERSTARS • SUPER TOURS

Taylor Swift’s The Eras Tour

“Swift has sold a staggering 1,186,314 tickets for

her shows, and there’s still more to come.”

†

1st live tour since 2018

41 US concerts performed since

17 March 2023

90 confirmed shows to come

through Summer 2024*

11 of the Songs performed are from the

Hipgnosis Catalogue

Hipgnosis’s Songs that are

part of The Eras Tour:

Look What You Made Me Do • Jack Antonoff

You Need to Calm Down • Joel Little

The Man • Joel Little

Out of the Woods • Jack Antonoff

Getaway Car • Jack Antonoff

Miss Americana & the Heartbreak Prince • Joel Little

A Place in This World • Robert Orrall

Cruel Summer • St. Vincent, Jack Antonoff

Call It What You Want • Jack Antonoff

I Don’t Wanna Live Forever • Jack Antonoff

Me! feat. Brendon Urie • Joel Little

Other Songs by Taylor Swift in our Catalogue:

Dress • Jack Antonoff

New Year’s Day • Jack Antonoff

Only The Young – Featured in Miss Americana • Joel Little

Sweeter Than Fiction – From “One Chance” Soundtrack • Jack Antonoff

The Way I Loved You • John Rich

This Is Why We Can’t Have Nice Things • Jack Antonoff

You Are In Love • Jack Antonoff

† Forbes; Numbers only reflect the first half of 2023 * as at 10 July 2023

Photo by Taylor Hill/TAS23 / Contributor by Getty Images

HIPGNOSIS SONGS FUND LIMITED

ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023

The Advisory Board

The Advisory Board assembled by Merck Mercuriadis assists the Investment Adviser.

Nile Rodgers

Rock And Roll Hall Of Fame and

Songwriters Hall Of Fame Inductee,

Chairman Of The Songwriters Hall

Of Fame. Grammy award-winning

Songwriter, producer and musician.

Founder of the band CHIC. Co-

writer and producer of iconic hits

for David Bowie, Madonna, Duran

Duran and Daft Punk.

The-Dream

Grammy award-winning Songwriter,

producer and musician. Wrote and

produced iconic hits for Beyoncé,

Jay Z, Kanye West, Rihanna, Mariah

Carey, Britney Spears and Justin

Bieber.

Poo Bear

Multi-platinum producer, singer

and Songwriter aficionado, Jason

Boyd, better known as Poo Bear,

is a five-time Grammy winning

musical force of nature having sold

over 500 million records worldwide.

Best known for his unforgettable

collaborations with Ed Sheeran and

Justin Bieber.

Rodney “Darkchild” Jerkins

Grammy Award winning super-

producer with a trail of outstanding

accomplishments. He has added

to the hit lists of music talents such

as Whitney Houston, Justin Bieber,

Ariana Grande, Drake, Destiny’s Child

and countless others. These artists

know that having the “Darkchild”

touch on their song puts it on the fast

track toward reaching Number One.

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Starrah

Amongst the most important

young Songwriters having written

14 hit singles thus far including the

Number 1 Song Havana by Camila

Cabello and Girls Like You by

Maroon 5. Havana was the biggest

song in the world in 2018.

David A. Stewart

One of the most successful

Songwriters, Artists and Producers

of all time. His work with Eurythmics,

Tom Petty & The Heartbreakers,

Shakespears Sister, No Doubt,

Mick Jagger, Bob Dylan and Eric

Clapton amongst many others

defines its era.

Giorgio Tuinfort

Grammy award winning Songwriter

and one of the most important

pop writers of the last 10 years. The

partner of choice for David Guetta

and Akon. He has written number 1

Songs for Sia, Gwen Stefani and

Ariana Grande.

Ian Montone

Attorney and founder of Monotone

Management. Manager of Jack

White, The White Stripes, Vampire

Weekend, The Shins and Danger

Mouse.

Bill Leibowitz

Attorney, founding partner of

Roberts, Leibowitz and Hafitz

PLLC. Former COO and General

Counsel for The Sanctuary Group.

Specialises in intellectual property

law and during his legal career

of 35 years he has represented

many renowned artists and major

international intellectual property

companies.

HIPGNOSIS SONGS FUND LIMITED

ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023

Financial Review

NAV

The Company reports two net asset values: an IFRS

NAV which is prepared in accordance with IFRS, under

which the Company’s investments in Catalogues are

held at cost less amortisation and impairment, and an

Operative NAV which adjusts the IFRS NAV to reflect the

Fair Value of the Company’s Catalogues, as determined

by the Portfolio Independent Valuer. The IFRS Net Asset

Value (NAV) per share as at 31 March 2023 was $1.1863

which is a 9.2% decrease from $1.3065 as at 31 March

2022, reflecting the amortisation of the Company’s

Catalogues in accordance with applicable accounting

protocols and ignoring their current fair value.

The Board and the Investment Adviser consider that the

most relevant NAV for Shareholders is the Operative NAV.

The Operative NAV per share increased by 3.58% to

$1.9153 during the year (31 March 2022: $1.8491), driven

primarily by a 4.0% increase in the Fair Value of the

Portfolio. This, together with the dividends, of 21.6p

(27.9¢), takes Total $ NAV Return to Shareholders to 69%

since the IPO on 11 July 2018.

Operative NAV per share Bridge

From 1 April 2022 to 31 March 2023

Opening Operative NAV per share 1.8491

Loss for the year (0.0741)

Amortisation and Impairment during the year 0.0955

Dividends paid during the year (0.0465)

Repurchase of shares into treasury 0.0013

Increase in Fair Value of Catalogues 0.0900

Closing Operative NAV per share 1.9153

Based on the Sterling to Dollar exchange rate at

31 March 2023 of 1.236, the Operative NAV per share

presented in Sterling is 154.91p per share (31 March 2022:

140.79p based on Sterling to Dollar exchange rate of

1.3134). As at 11 July 2023, the Operative NAV per share

presented in Sterling would be 148.51p per Share

(GBP: USD 1.2897).

Fair Value of the Portfolio

The Fair Value of the Portfolio increased by 4.0% to

$2.80 billion (31 March 2022: $2.69 billion), mainly as

a result of royalty statements received exceeding

expectations, especially related to performance

income and streaming income from older vintage

catalogues. This also drove the increase in the

Operative NAV in Dollar terms over the period.

The Fair Value is determined by the Portfolio Independent

Valuer, Citrin Cooperman, whose valuation approach is

described in detail further on in this report.

In advance of the last Interim Report published in

December 2022, Kroll Advisory Limited (“Kroll”), an

independent valuation firm, was appointed to consider

and advise on the reasonableness of certain assumptions

commonly employed in the valuation of music

catalogues based on data provided by the Company.

The Board continues to engage and consult with Kroll

in order to obtain a range of views with respect to the

development of inputs that impact the Group’s valuation

methodology, as applied by the Portfolio Independent

Valuer. Details of this are discussed in the Chair’s

Statement.

Tax considerations

The Company is a UK tax resident with Investment Trust

Company (ITC) status. For UK corporation tax purposes,

the Group’s music assets are considered intangible fixed

assets and therefore the Company may be unable to

benefit from an exemption for tax on chargeable gains

due to its ITC status on any potential sale of Catalogues.

Given the options the Board is considering, the current

share price and the upcoming Continuation Vote,

the Company has estimated that in the event that the

Group sells all of its assets, that the Group’s potential

tax charge on these disposals, based on certain

assumptions, could be approximately $245 million.

This potential tax charge reflects both the impact of

the historic amortisation of such assets, where the

Group has already received a tax benefit to the extent

available in each year of ownership and the uplift in

value since purchase. This estimate does not include

any assumptions as to the structure of any disposal,

the utilisation of any brought forward tax losses

potentially available to the Group or from any potential

opportunities to optimise the structure of any sale of

assets, which could both result in a materially lower tax

charge on any future sale of the Group’s assets.

STRATEGIC REPORT • INVESTMENT ADVISER’S REPORT

STRATEGIC REPORT

HIPGNOSIS SONGS FUND LIMITED

ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023

STRATEGIC REPORT • INVESTMENT ADVISER’S REPORT

Citrin Cooperman, the Portfolio Independent Valuer:

• One of the largest valuation providers in the music

transactions marketplace;

• Conducts the valuations of many music publishing

and recorded music assets on behalf of buyers, sellers

and lenders;

• Conducts the annual valuations of most of the major

public and private music funds;

• Values the Fair Value of Hipgnosis Songs Fund twice

a year;

• In 2022 alone, Citrin Cooperman appraised over

400 unique music asset Catalogues valued at over

$9 billion.

Citrin Cooperman’s Valuation Methodolgy

The key inputs to their Discounted Cash Flow (DCF)

methodology include:

Determining a baseline value: This is the earnings

benchmark, applied on a per income type, per

catalogue basis, against which growth rates are

applied. The baseline value, which is taken from royalty

statements, is typically the prior year’s earnings with

the exception of synch, where an average of the prior

two years is taken, given the irregular nature of the

Synch business. Adjustments to these assumptions are

made by the team at Citrin Cooperman dependent

on Catalogue-specific activity, which may include

settlements, audits, black box payments and changes

in administration rates, amongst others.

The revenue provided does not take into account any

future ability of the Company’s active management to

enhance Catalogue revenues.

Applying growth rates: Growth rates of steady state

Catalogues are applied on a per income type, per

catalogue basis.

The income type growth rate applied to each

Catalogue is determined by that Catalogue’s historical

earning trends and expectations of decay.

A terminal growth rate value is applied in year 16.

Discount Rate: The other key assumption used by the

Portfolio Independent Valuer is the discount rate which

it has maintained at 8.5% (31 March 2022: 8.5%). Citrin

Cooperman has consistently taken a long-term view

on interest rates. Since Hipgnosis’ IPO in July 2018, they

have reduced the discount rate on only one occasion

(by 50bps) despite the substantial fall in US treasury

yields between 2018 and end of 2021.

A further consideration in calculating the appropriate

discount rate is the quality of earnings. The proportion of

utility-like revenue from Streaming services has increased

since Hipgnosis’ IPO. This justifies a substantially lower

risk premium applied to music as an asset. These factors

combine to provide a cushion within the historical

discount rate. Citrin Cooperman kept the discount rate

high when interest rates were lower, with the view that

a low interest rate environment would not be sustainable

in the long term. This allowed for the accommodation of

a rise in interest rates without a corresponding increase in

the discount rate.

Evolution of the Discount Rate

— SONG Discount Rate

— Implied ‘Risk Premium’

—

US Benchmark Bond, 10 Year

10%

JAN 23

OCT 22

JUL 22

APR 22

JAN 22

OCT 21

JUL 21

APR 21

JAN 21

OCT 20

JUL 20

APR 20

JAN 20

OCT 19

JUL 19

APR 19

JAN 19

OCT 18

JUL 18

APR 18

JAN 18

APR 23

Source: Factset, Citrin Cooperman

HIPGNOSIS SONGS FUND LIMITED

ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023

The determination of the discount rate is based on an

equally weighted Weighted Average Cost of Capital

(WACC), with the key inputs being Cost of Equity at

9.7% and Cost of Debt at 7.25%.

The Portfolio Independent Valuer reviews the discount

rate regularly and will adjust the discount rate if

it considers it appropriate. A 0.5% increase in the

discount rate to 9.0% would result in a decrease to the

Fair Value of the Catalogue of 7.9% ($222.0 million);

conversely a 0.5% reduction to 8.0% would result in an

increase of 9.4% ($263.0 million). Sensitivities relating to

applied growth rates are set out further in the financial

statements in Note 6.

Market Transactions and Deal Multiples

The Fair Value calculated by the Portfolio Independent

Valuer of $2.80 billion, reflects a multiple of 20.89x

historical annual net Publisher Share income at

the time of acquisition compared to the blended

acquisition multiple of 15.93x.

The table below sets out the transaction multiples for

deals which took place during 2022 and 2023 that

Citrin Cooperman believe most closely resemble the

Portfolio of the Company, in terms of the quality of the

Songs and the genre mix.

The average multiple across this set of 21.9x supports

the Portfolio Independent’s Valuer view on Fair Value.

2022-23 transaction multiples of traded Catalogues that most closely resemble the Portfolio of the Company

Genre Vintage Simplified Vintage Multiple

Rock 1960s, 1970s Standards Music

24.15

Rock 1960s, 1970s, 1980s Standards Music

23.97

Hip Hop, Pop 1990s Standards Music

17.32

Latin, Pop 1990s, 2000s, 2010s Standards Music

23.64

Country, Pop Rock 1990s, 2000s, 2010s Standards Music

20.40

Country, Pop 1970s, 1980s, 1990s Standards Music

24.58

Pop 2000s, 2010s Standards Music

25.46

Rock, R&B 1960s, 2010s Standards Music

18.76

Hip Hop 2010s, 2020s Contemporary Music

24.67

Pop 1980s, 1990s Standards Music

16.73

Country 1970s, 1980s, 1990s Standards Music

21.39

Average Multiple

21.92

Source: Citrin Cooperman. Note: Standards Music is equivalent to Catalogues with a vintage >10 years and Contemporary Music is equivalent to those Catalogues with a vintage

of <10 years.

Citrin Cooperman, the Portfolio Independent Valuer (continued)

STRATEGIC REPORT

HIPGNOSIS SONGS FUND LIMITED

ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023

Revenue

Both in the current and prior period, the Company

recognised a number of non-recurring elements

impacting IFRS revenue, resulting in Total revenue and

Net revenue decreasing to $177.3 million (31 March

2022: $200.4 million) and $147.2 million (31 March 2022:

$168.3 million) respectively. As can be seen below,

the decrease in Net revenue was primarily the result

of the initial recognition of the Usage Accrual in the

prior period ($36.0 million) as well as the non-recurring

element of RTI ($14.1 million) in the prior period, partly

offset by the CRB III retroactive accrual ($16.1 million) in

the current year.

The CRB III retroactive accrual was made in the first

half of the year following the confirmation of the CRB III

rate increase to 15.1% for the Songwriters’ mechanical

portion of US Streaming income by 2023. The accrual

estimates the retroactive payment due to the Company

as a result of revenues in previous accounting periods

not having been recognised at the full CRB III rates.

Excluding these non-recurring elements, the Company

saw an increase in IFRS Net revenues of $12.9 million

or 10.9% year-on-year. This is as a result of an increase

in royalty statements and accruals of $2.4 million, a

movement of $6.2 million related to the Usage Accrual,

a $5.6 million accrual reflecting the revenue attributable

to Hipgnosis in the current year due to the CRB III ruling,

an increase in royalty costs of $1.5 million and an

increase in interest income of $0.2 million.

The chart below bridges the movements in IFRS Net

revenue.

Pro Forma Annual Revenue (PFAR)

Given the multiple non-recurring elements captured

with the IFRS revenue line, to provide Shareholders with

an understanding of the like-for-like performance of

the Company’s revenues, by removing the impact of

new Catalogue acquisitions and these non-recurring

elements, the Company presents the Pro Forma Annual

Revenue (PFAR) performance measure. This shows the

royalty revenue earned by Catalogues in a calendar

year largely based on royalty statements received,

irrespective of whether the Songs were owned by the

Company over the period analysed and does not

include any revenue accruals under IFRS. Although not

directly reconcilable with IFRS revenue, the Company

believes this provides a relevant like-for-like full year

income comparison of the Group’s Catalogues of Songs

held as at the period end.

PFAR is reported for both the <10 year vintage,

i.e. those newer Catalogues where there is typically

an expectation of some natural decay (or loss of

revenues) over time, and for the >10 year vintage,

i.e. those Catalogues which have reached the end

of their natural decay curve.

The table overleaf shows PFAR for Catalogues owned as

at 31 March 2023 over time.

Non-recurring elements FY23 movements

100

150

200

(36.0)

Movement in IFRS Revenue ($m)

over the financial year ending 31 March 2023

168.3

(14.1) 16.1

6.2

5.6 0.2

Net revenue

FY22

Initial

recognition

of the Usage

accrual in FY22

FY22

non-recurring

RTI

Royalty

statement and

accruals

CRB III

accruals

Interest

income

Net revenue

FY23

(1.5)

147.2

Retroactive

CRB III

accruals

Royalty

costs*

* The Royalty costs attributable to Usage accrual has been included in the Usage accrual analysis

Usage

accrual

2.4

HIPGNOSIS SONGS FUND LIMITED

ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023

Pro Forma Annual Revenue for Catalogues owned

12 months

to Dec 22

12 months*

to Jun 22

12 months*

to Dec 21

12 months

to Jun 21

Total PFAR for

Catalogues owned

as at 31 March 2023 130.2 122.2 116.2 115.9

Vintage <10 years 56.5 52.6 50.0 51.0

Vintage >10 years 73.7 69.6 66.2 64.9

* Restated. Note: Age of a Catalogue is calculated as the average release year of a

Catalogue as at 1 January 2023 weighted on earnings, at time of acquisition. For the

avoidance of doubt, the >10 years now includes some Catalogues that previously were

considered in <10 years

PFAR for the 12 months to December 2022 increased

by 12.1% year-on-year to $130.2 million, a significant

acceleration on growth seen in previous years. PFAR

grew strongly in both categories: by 13.0% year-on-year

in the <10 year to $56.5 million (2021: $50.0 million)

and 11.3% year-on-year in the >10 year vintage to

$73.7 million (2021: $66.2 million). Previously, the Company

has highlighted the stabilisation of the <10 year vintage

PFAR. The significant growth now being seen in this

category highlights that those Catalogues continue

to approach the end of their decay curve and any

remaining decay within certain income streams is being

significantly outpaced by growth.

PFAR does not include any income due to the

Company as a result of the increased royalty rates due

from CRB III ($5.6 million in the financial year) or income

from Hipgnosis Songs Group LLC (HSG) ($5.1 million in

the financial year).

PFAR is set out by income type for calendar year 2022

against the comparative previous calendar year below.

2022 vs 2021 PFAR split by income type

12 months

to Dec 22

12 months

to Dec 21

$m Change %

Streaming 52.11 45.40 +14.8

Synchronisation

19.44 15.59 +24.7

Performance

30.81 28.27 +9.0

Mechanical

4.87 5.01 -2.8

Digital Downloads

2.50 3.59 -30.4

Settlement and Other

3.88 2.20 +76.4

Total Publishing Income

113.61 100.06 +13.5

Masters*

16.63 16.10 +3.3

Total PFAR

130.23 116.16 +12.1

*Masters income includes Artist Royalties, Producer Royalties and Neighbouring Rights.

Streaming income continues to grow strongly, up 14.8%

year-on-year and represented 40.0% of the Portfolio’s

PFAR income for the 12 months to December 2022

(2021: 39.1%). This validates how the Company’s strategy

of acquiring Catalogues with high levels of streaming

consumption benefits from the structural growth in

global paid-for streaming.

Synchronisation income, which includes both fees for the

use of Songs on traditional media outlets as well as digital

licences for social media, gaming and fitness platforms,

grew by 24.7% year-on-year. This reflects the Investment

Adviser’s focus on maximising revenue through pitching,

promoting and procuring synch deals. In addition,

the Company is starting to receive income from digital

licences.

As anticipated in the Interim Report, the Company

received increased performance income in the second

half of the year as recovery from Covid-19 restriction

related declines worked its way through the music

industry payment cycle. This, together with successful

tours from the Red Hot Chili Peppers, Nile Rodgers &

CHIC, Journey and Blondie, amongst many others,

resulted in performance income increasing by 9.0%

year-on-year to $30.8 million, with the second half

up 41% on H1 2022. With all markets now fully open

and major concert tours for all four of the previously

mentioned artists taking place this year, we anticipate

that performance income will continue to recover.

Additionally, Blink-182 are touring and both Beyoncé

and Taylor Swift are performing to sell-out stadiums

with their shows featuring a number of songs in which

Hipgnosis Songs Fund has an interest. Please see our

Super Star features on pages 31, 46-47.

Masters income, which includes income from Artist

Royalties, Producer Royalties and Neighbouring Rights,

increased by 3.3% year-on-year, from $16.1 million to

$16.6 million. This growth was subdued as a result of a

relatively high proportion of younger catalogues within

this income stream continuing to experience some

natural decay.

The Company considers that the PFAR metric will remain

a relevant measure of underlying Portfolio performance

for Shareholders until IFRS revenue reaches a ‘steady

state’ and becomes a comparable measure useful for

the Board and Shareholders.

STRATEGIC REPORT • INVESTMENT ADVISER’S REPORT

STRATEGIC REPORT

HIPGNOSIS SONGS FUND LIMITED

ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023

Costs

Adjusted operating costs, which exclude interest costs

and Catalogue performance bonuses decreased by

21.2% year-on-year to $29.5 million (31 March 2022:

$37.5 million). This is driven by a reduction in Advisory fees

as a function of the Company’s lower share price during

the year, reduced administration, legal and professional

fees as well as lower aborted deal costs.

As a result, Ongoing Charges as a percentage of the

average Operative NAV decreased to 1.21% for the

year ended 31 March 2023 (31 March 2022: 1.54%).

Whilst a significant Catalogue bonus provision is

recognised in the current year, we do not anticipate this

provision to occur at a material level in future years.

Given continuing outperformance on certain

Catalogues, the Company has recognised an

additional Catalogue performance bonus provision

of $43.8 million (31 March 2022: $0.9 million). These

relate to payments to Songwriters where the

recognition of a performance bonus is contingent on

certain performance hurdles defined in the catalogue

acquisition agreements, based on actual and

expected future performance that is highly probable.

Overall operating expenses have increased by 26.4%

year-on-year to $233.9 million (31 March 2022: $185.0

million) due to increased interest costs, as detailed

below, and the increase in Catalogue bonus provisions,

discussed above.

EBITDA

EBITDA for the year ended 31 March 2023 decreased

by 10.1% year-on-year to $117.7 million (31 March 2022:

$130.9 million), reflecting the reduction in net revenue

only partly offset by a reduction in the Advisory fees.

Cash flow and net debt

Net debt decreased to $562.0 million at 31 March 2023

(31 March 2022: $569.9 million) assisted by strong cash

receipts from royalty statements and the change of

dividend timetable, which meant only three dividends

were paid out during the period.

Net cash generated from operating activities increased

to $102.1 million (31 March 2022: $84.9 million).

In addition to the reduction in net debt, due to the

increase in the Operative NAV, net debt as

a percentage of Operative NAV has decreased to

24.3% as at 31 March 2023 (31 March 2022: 25.4%).

Leverage

For the period 1 April 2022 to 29 September 2022 the

Company had a Revolving Credit Facility, led by

J.P. Morgan (the “J.P. Morgan RCF”), which was exposed

to London Inter Bank Overnight Rate (LIBOR) with a

margin of 3.25%.

On 30 September 2022 the Company entered into

a new RCF (the “New RCF”) with a commitment of

$700 million which runs for five years until 30 September

2027. The New RCF, arranged by CNB, bears interest at a

floating rate of interest based on the Secured Overnight

Financing Rate (SOFR), plus an initial fixed margin of

2%. Not only do the terms of the New RCF carry a lower

margin cost, there is also greater operational flexibility

within the facility.

In order to mitigate interest rate risk and provide certainty

over interest payments, the Company completed interest

rate swap agreements. From 30 September 2022 until

2 January 2023, the interest on all the drawn debt was

fixed at 5.71% (including debt margin).

Since 3 January 2023, $340 million has been hedged

for the duration of the RCF (until 30 September 2027) at

a fixed rate of 5.67% (including debt margin); a further

$200 million is hedged until 3 January 2026 at a fixed

rate of 5.89% (including debt margin). The balance

remains unhedged to provide flexibility.

In total, the Company completed interest rate swap

agreements to hedge a total of $540 million at a blended

rate of 5.75%, including debt margin, for a weighted

average life of 4.26 years, starting from 3 January 2023.

These interest rate hedging contracts are not subject

to margin calls in the event of movements in underlying

interest rates.

Loan interest expense increased to $33.7 million

(31 March 2022: $20.4 million) due to the rise in LIBOR

related to the J.P. Morgan RCF which was in place until

29 September 2022.

On derecognition of the pre-existing J.P. Morgan RCF,

$5.0 million was recognised as a borrowing cost

extinguishment charge and represents the unamortised

capitalised borrowing costs on the J.P. Morgan RCF.

STRATEGIC REPORT • INVESTMENT ADVISER’S REPORT

HIPGNOSIS SONGS FUND LIMITED

ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023

Post year end, there was a cash benefit of $1.2 million

received relating to the short-term fair value gain on the

prior quarter’s interest rate swap due to underlying rates

being favourable for that period. As at 31 March 2023,

the fair value of the Held for Trading financial liability was

$3.4 million.

Foreign Exchange Hedge

On 12 October 2022, the Company entered into a

series of US Dollar to Sterling foreign exchange forward

contracts to limit its exposure to foreign exchange rate

risk and to provide certainty on the US Dollar value of

future Sterling dividend payments. This rolling hedging

strategy implemented by the Board ensures there are

£50 million of forward contracts in place at any time.

The foreign exchange forward contracts were in place

until April 2024 and have subsequently been extended

to October 2024.

As at 31 March 2023, the Held for Trading financial asset

relating to the foreign exchange forward contract is

$4.9 million and a fair value gain of $6.0 million is

recognised in the Consolidated Statement of Profit

and Loss.

Dividends

Dividends paid in the year of $56.3 million related

to the periods ending March 2022 (paid 15 June 2022),

June 2022 (paid 28 October 2022) and September 2022

(paid 31 January 2023). An interim dividend for the

period ending December 2022 was declared on

16 March 2023 and paid post year end on 28 April 2023.

The fourth interim dividend in relation to the March 2023

financial year of 1.3125p was declared on 23 June 2023

with a payment date of 28 July 2023.

All dividends were in line with the Company’s annual

target of 5.25p in interim dividends per Ordinary Share.

Dividends paid, of which there were three in the year

of $56.3 million were covered 1.44x by Distributable

Revenues recognised during the year. Dividends

declared, of which there were four in the year,

amount to $75.9 million, which were covered 1.07x by

Distributable Revenues recognised during the year.

In addition, the Company was covered 1.45x on a

Leveraged Free Cashflow measure, necessary to meet

the three dividend payments paid in the year, and 1.08x

the Leveraged Free Cashflow necessary to meet the

four dividends declared in the year.

EPS

EPS for the year ended 31 March 2023 is (7.41¢)

(31 March 2022: (1.65¢)); the reduction to EPS is set out in

the below table:

EPS Bridge Cents

Opening EPS at 1 April 2022 (1.65)

Reduction in Net Revenue

(1.74)

Reduction in Operating Expenses (excluding the

below)

0.36

1. Reduction in Advisory and Performance Fee

0.34

2. Increase in Catalogue bonus Provision

(3.62)

3. Increase in Interest Expenses

(1.10)

Closing EPS at 31 March 2023

(7.41)

As set out previously, the reduction in Total Revenue is

primarily due to the result of the recognition of both the

Usage Accrual ($36.0 million) and the non-recurring RTI

($14.1 million) in the prior year, partly offset by the CRB III

retroactive accrual ($16.1 million) in the current year.

Adjusted EPS, as defined within the Alternative

Performance Measures, which primarily removes the

impact of Catalogue amortisation and other non-

operating costs is 4.12 cents (31 March 2022: 7.18 cents).

Catalogue bonus provision has been included in the

calculation in the current year as the Company does

not anticipate this provision to occur at a material level

in future years. The Group amortises Catalogues over

a useful life, using a straight-line method of 20 years,

which is in line with the industry standard.

Accruals and Receivables

Royalty receivables at 31 March 2023 were $7.1 million

(31 March 2022: $6.6 million), representing royalty

statements received by March 2023 with payment

received subsequent to year end.

Accrued income as at 31 March 2023 was $126.2 million on

a gross basis (31 March 2022: $105.3 million) primarily due

to the recognition of a CRB III accrual. When removing the

accruals relating to the time lag in royalty reporting, CRB III

and Usage accrual, the underlying accrual has reduced

by $7.4 million to $47.2 million (31 March 2022: $54.6 million)

which reflects the efforts of the Investment Adviser to

reduce the working capital cycle to ensure all prior

period revenue has been received.

STRATEGIC REPORT • INVESTMENT ADVISER’S REPORT

STRATEGIC REPORT

HIPGNOSIS SONGS FUND LIMITED

ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023

A breakdown of these accruals is set out below:

• $47.2 million for earnings where, due to the time lag in

royalty reporting, statements are not expected to be

received until calendar Q2 2023 onwards (31 March

2022: $54.6 million);

• $7.8 million income accrual relating to time-lagged

international reporting on PRO earnings. International

PRO reporting has a significant time lag due to the

additional collection time taken for PROs to distribute

income from territories. The lag is due to the nature

of processing royalties locally, then distributing them

to the domestic PRO, which will in turn process and

distribute these royalties to the Group. Six months of

international PRO earnings are accrued, although

PRO processing delays can typically result in an

earnings lag of up to 24 months (31 March 2022:

$7.3 million);

• $21.7 million CRB III accruals (31 March 2022: $Nil).

This is as a result of the confirmation of the CRB III rate

increases in July 2022 for the Songwriters’ mechanical

portion of US Streaming income. Of this, $5.6 million

is the impact of the higher 15.1% rate on the revenue

earned by the Company during the year and

$16.1 million has been recognised as an estimate of

the retroactive payment due as a result of revenues

historically not having been recognised at the full

CRB III rates;

• $42.2 million Usage Accrual, which recognises

revenues that have triggered a contractual payment

but have not been paid to, or processed by,

collection societies, publishers and administrators

(31 March 2022: $36.0 million); and

• $7.3 million HSG gross revenue accrual, (31 March

2022: $7.4 million).

Merck Mercuriadis

Founder, Hipgnosis Songs Fund Ltd and

Founder/CEO, Hipgnosis Song Management Ltd.

12 July 2023

STRATEGIC REPORT • INVESTMENT ADVISER’S REPORT

HIPGNOSIS SONGS FUND LIMITED

ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023

Our Market

Streaming drives music industry growth

Robust growth for the music industry continued to be

exhibited in 2022. This is reflected by the latest figures

from the IFPI showing that global recorded music industry

revenues reached $26.2 billion dollars in 2022, the

eighth successive year of growth and a 9% year-on-year

increase.

The adoption of paid-for music Streaming remained a

significant driver for this growth globally, with revenues

from subscription streaming increasing by 10.3% year-

on-year to a total of $12.7 billion. Paid-for streaming now

accounts for nearly half of all global revenues and this

is also shown by a further 12.6% year-on-year growth in

global paid subscription users, which now stands at 589

million users. In total, Streaming now accounts for 67%

of recorded music revenue, up from 65% last year; as a

result, music is now perceived by many to provide utility-

like revenues.

The growth in Streaming is expected to remain strong

and is part of the Company’s investment case, as

discussed on page 50.

Luminate, which provides the underlying data for the

Billboard music charts, showed that global on-demand

music streaming increased by over a quarter to 5.3 trillion

streams in 2022, with audio on-demand streaming in

the US topping 1 trillion streams for the first time – a 12.1%

year-on-year increase.

The IFPI showed that global revenue from recorded

music performance rights, as known as Neighbouring

Rights – the use of music by broadcasters and public

venues – grew by 8.6% year-on-year, reaching $2.5 billion

in 2022, and surpassing pre-pandemic level. Whilst not

immediately comparable to the performance revenue

seen by Hipgnosis on a PFAR basis on page 37, we note

the growth recovery is on the same trajectory.

The consumer market company Statista highlights that

there are around 6.6 billion smartphone subscriptions

worldwide. With close to 600 million global music

subscribers in 2022, according to the IFPI, market

penetration by Streaming of smartphone owners is

around 10%. This figure is expected to move towards

20% by 2030, according to Goldman Sachs, in their

Music in the Air report. Statista expects the number of

smartphone mobile network subscriptions worldwide

to reach 7.9 billion by 2028 and J.P. Morgan Cazenove

estimates global paid music subscriptions to grow to

1.62 billion by 2030 as a result of an expected rise in paid

subscription penetration.

The smartphone is part of making music the soundtrack

to our lives. Nowhere is this more clearly demonstrated

than in both established and emerging online platforms.

As with Streaming, as connectivity rises and data costs

reduce, the attractiveness and sophistication of social

media sites increases. When music is used on these sites,

royalties are due to the artists who created the music

and therefore to the Company. Additionally, sites like

TikTok, which has over one billion active users, can be

shown to drive traffic to other Digital Service Providers

(DSP) such as Spotify and YouTube where users consume

more of the music they have heard.

Global recorded music revenues

by segment 2022 (%

)

Source: IFPI



Subscription audio streams



Ad-supported streams



Physical

 Performance Rights

 Downloads & other Digital

 Synchronisation

67.0%

Total Streaming

STRATEGIC REPORT

HIPGNOSIS SONGS FUND LIMITED

ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023

Growth strong in Emerging Markets

North America is the largest market for recorded

music with the IFPI reporting 5% year-on-year growth

in revenues in 2022. Europe, the second largest market

saw growth of 7.5% year-on-year. Emerging markets

continue to show strong double digit revenue growth

with South America and Middle East & North Africa

reported as increasing revenues by around a quarter

and Sub-Saharan Africa by over a third. A 28% year-on-

year rise in China saw it move into the top five markets

globally for the first time.

Historically, the music industry received relatively little

revenue from emerging markets, where bootleg copies

which paid no royalties were prevalent. The advent of

streaming, albeit at lower rates than paid in the USA,

Europe or Japan, means that over time royalty revenues

from emerging markets will become increasingly

important for companies such as Hipgnosis, which own

globally iconic Songs that are streamed around the world.

Music Publishing is recovering

A continuation of recovery in music publishing revenues

was seen in 2022, driven by the public performance

segment, which benefitted from the re-opening

of public venues. 2022 has seen further recovery.

Collection revenues now have surpassed 2019, the levels

seen pre-pandemic.

The following chart shows the collection revenues

for the largest collection societies for 2022. It also

shows that the largest US collection management

organisations (CMOs), Ascap and BMI, showed

growth in collections of 14.1% and 15.6% year-on-year

respectively. Each now has collections surpassing

$1.5 billion. In Europe, the collection revenues of

Sacem, another music royalty collection company,

increased by 34% year-on-year in 2022 to €1.4 billion.

Sacem is amongst the largest CMOs and is the entity

that Hipgnosis Songs Fund now uses to collect digital

revenues primarily in Europe. Growth in collections was

driven by digital (i.e. mainly streaming) and the return

of concerts and festivals.

200

400

600

800

1,000

1,200

1,400

1,600

1,800

Annual total collection in 2022

Gema

(Germany)

Sacem

(France)

BMI

(US to end of Jun)

ASCAP

(US)

PRS for Music

(UK)

+14%

+16%

+34%

+13%

+24%

year-on-year growth

Source: Music Business Worldwide, Hipgnosis Songs Fund; ASCAP, BMI,

Gema, PRS,

Sacem; non-USD currencies converted to USD at annual 2022 average exchange

rate per the IRS; all figrues

USD $million

The growth seen by the CMOs is reflective of the overall

music publishing market. Goldman Sachs, in their recent

2023 Music in the Air report, estimates the market enjoyed

another stronger than anticipated year of revenue growth

up 18% year-on-year in 2022, to $8.2 billion. They are

now predicting the global music publishing market to

grow with a CAGR of 7.6% (previously 5.9%) through to

2030, reaching a value of $14.7 billion in 2030.

Live performance has rebounded

The summer of 2022 saw successful tours by Blondie,

Red Hot Chili Peppers, Lindsey Buckingham, Nile

Rodgers & CHIC, Journey and many others within

the Hipgnosis family. Live Nation Entertainment,

the leading live entertainment company, reported

record attendance at events in 2022 – with concert

attendances up 24% versus 2019 (pre-pandemic).

Encouragingly, they reported in May 2023 that, for the

first time in three years, all their markets were open and

they were seeing further record levels of activity in their

concerts business.

Goldman Sachs estimates the market was $26.5 billion in

2022 and predicts the Live Music industry will remain an

attractive market with a steady growth outlook (CAGR

+5% 2023-30).

STRATEGIC REPORT • OUR MARKET

HIPGNOSIS SONGS FUND LIMITED

ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023

STRATEGIC REPORT • OUR MARKET

Price rises at the DSPs

During the year, we saw the first increase in premium

streaming prices for a number of streaming services

including Apple Music, Amazon Music and Deezer

moving beyond the £/$/€ 9.99 per month price point

for an individual plan. For example, in Q4 2022, Apple

Music increased the monthly price of its individual and

family subscription by $/£/€1 to $/£/€10.99 and $/£/€2

to $/£/€16.99 respectively in the US, UK and continental

Europe; Amazon Music has followed suit, with new

pricing plans in place from February 2023 and Spotify is

in the process of introducing Premium pricing. Despite

these price rises, they are still seeing subscriber growth

and it is expected Spotify and other streaming platforms

will follow suit.

Rise of Artificial Intelligence

Over the centuries music has adapted to and

benefitted from many developments in technology,

and as discussed on pages 5 and 18, we expect

Artificial Intelligence (AI) will have both benefits and

drawbacks for the songwriting community.

Specifically, the Company anticipates that AI will

provide competition for new songs and artists. However,

AI cannot replace the excitement of attending a

stadium concert with a star artist. More importantly,

given the Company’s iconic and culturally significant

portfolio, AI will never replace the emotional

connection that consumers all over the globe have to

our Songs.

We expect AI to both interpolate and sample the

Company’s iconic Songs and generate new versions

of these Songs that will create new IP and additional

revenues streams for the Company. Global copyright

laws provide a significant degree of protection for our

Intellectual Property. Nonetheless, we are working with

legislators who are actively looking at how to fill any

gaps which are created by this new technology and we

will support measures which prevent AI from learning

from in-copyright music and recordings to the detriment

of artists and Songwriters.

CRB III 2018-22

During the period there were a number of significant

regulatory developments from the Copyright Royalty

Board (CRB), which sets royalty rates for the United

States, the Company’s biggest market.

In July 2022, after a lengthy process, the 2018-22 rate

increases on the Songwriter’s mechanical portion of

US Streaming income, known as CRB III, were finally

agreed. This culminated in the “all in” headline

(mechanical) statutory minimum rates for Streaming

paid in the US to increase by a total of 44%, from 10.5%

to 15.1% over the course of the CRB III period.

The headline rates of the percentage of service

provider revenue agreed by the CRB per royalty year

were as follows:

2017 2018 2019 2020 2021 2022

10.5% 11. 4% 12.3% 13.3% 14.2% 15.1%

As detailed in the Financial Review on page 34, this has

led to a $16.1 million accrual for retroactive revenue

due to the Company for the years 2018-2021 and a

$5.6 million accrual to monies expected to be earned

in 2022.

Whilst some Publishers had different policies on whether

they paid out any higher rates received from DSPs up

to when the CRB III ruling was appealed, the Company

has taken a blanket approach and has not considered

any Publisher specific policies given the lack of clarity

from the various payors.

To provide additional rigour on the calculation, the

CRB III retroactive and uplift accrual estimates were

compared, and benchmarked against, the estimates

provided by the Portfolio Independent Valuer and the Fair

Value appraiser for the CNB-led Revolving Credit Facility.

For the period 2018-20, responsibility to adjust payments

as necessary to these new rates rests with the DSPs or

their historic agents. For the period post January 2021,

the responsibility to collect and distribute these uplift

adjustments falls to the Mechanical Licensing

Collective (MLC).

The transition to the MLC results from the designation

by the U.S. Copyright Office for the MLC to begin

STRATEGIC REPORT

HIPGNOSIS SONGS FUND LIMITED

ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023

administering blanket mechanical licenses to digital

service providers in the United States and paying out

the royalties collected. As a newly formed entity, the

MLC has launched several initiatives to ensure that their

databases correctly reflect who should receive royalties

for each Song. Since 2022, Copyright teams across the

industry have focused on working collaboratively to

improve the accuracy of this registration data. Ensuring

the quality of this data will not only help to ensure

that we maximize the collection of CRB III adjustment

payments but will also maximize collection of future

streaming royalties.

On 22 June 2023, the CRB issued its final determination

for Songwriters’ and publishers’ US Streaming royalty

rates, reaffirming its previous decision to incrementally

increase the rates 44%.

This has now triggered the start of a complex

reconciliation process to account for the past five years

worth of royalties under the new rules. That process will

take place over the next six months with Streamers and

publishers reviewing their accounting for the period.

Assuming there are no further delays, the earliest

possible payment to publishers of historic adjustments

is expected to be end 2023, with settlements due to

Hipgnosis following after that.

CRB IV 2023-27

The next CRB IV settlement period began in 2023.

The joint proposal from The National Music Publishers’

Association (NMPA) and Nashville Songwriters

Association International (NSAI) and the Digital Media

Association (DiMA) approved the headline royalty rate

for mechanical streaming in the US rise further from 15.1%

to 15.35%, phased in over the five-year term from 2023-27.

The headline rates of the percentage of service provider

revenue agreed by the CRB per royalty year are:

2023 2024 2025 2026 2027

15.10% 15.20% 15.25% 15.30% 15.35%

While we believe more significant increases are

warranted and will come, this agreement will provide

the highest royalty rates ever for Songwriters in the

streaming economy and five years of stability from

which to build. Additionally, the deal also includes a

number of changes to other components of the rate,

including increases to the per subscriber minimums

and the “Total Content Costs (TCC)” calculations which

reflect the rates that services pay to record labels and

modernizes the treatment of “bundles” of products or

services that include music streaming.

Separately, we support a 32% uplift in the mechanical

rate paid to publishers and Songwriters for music

purchased as a physical sale from 9.1¢ per track to

12¢ per track from 2023-27 with further annual increases

in line with the Consumer Price Index. The agreement

was proposed by The National Music Publishers’

Association (NMPA) and Nashville Songwriters

Association International (“NSAI”) and Sony Music

Entertainment, UMG Recordings, Inc. and Warner Music

Group Corp to the Copyright Royalty Board (CRB)

as settlement on mechanical royalties for the CRB IV

period, running from 2023 to 2027. This is a significant

upside for our iconic Songwriters and artists such as

Red Hot Chili Peppers, Fleetwood Mac, Soundgarden,

Journey and many others that derive significant

revenue from the sale of physical product.

The joint proposals for CRB IV are significant as they

demonstrate growing acceptance across the industry

that artists and Songwriters should be fairly remunerated

for their work. Hipgnosis will continue to be at the

forefront of the campaign to move Songwriters (and the

owners of songwriting royalties) from the bottom of the

economic equation to the top, recognizing their vital

role within the music industry. At Hipgnosis, our investors

stand in the shoes of Songwriters so there is complete

alignment with the best interests of Songwriters and

Shareholders.

STRATEGIC REPORT • OUR MARKET

SUPERSTARS • SUPER TOURS

Beyoncé’s Renaissance World Tour

“She hasn’t just raised the bar – she’s obliterated it”

†

1st solo tour since 2016, started 10 May 2023

21 European concerts performed to 1.04 million fans

37 North American concerts confirmed*

10 of the Songs performed are from the Hipgnosis Catalogue

Hipgnosis’s Songs that are part of the Renaissance Tour:

Love On Top • The-Dream

Run The World (Girls) • The-Dream

Partition • The-Dream

1+1 • The - D ream / Tri cky S tewar t

Diva • Sean Garrett

I Care • Jeff Bhasker

Rather Die Young • Jeff Bhasker

Heated • HSG Admin

Get Me Bodied • Sean Garrett

Lift Off (feat. Beyoncé & Kanye West, by Jay Z) • Jeff Bhasker

Other Songs by Beyoncé in our Catalogue:

Halo • Evan Bogart

Irreplaceable • Espionage

Single Ladies (Put a Ring on It) (2x GRAMMY®)

• Th e - Drea m / Trick y Stewa rt

XO • The-Dream

Countdown • The-Dream

Sweet Dreams • R ico Love / Wayne Wil kins

Hold Up • Emile Haynie

End Of Time • The-Dream

Dance For You • The - D ream / Tric ky S tewar t

Upgrade U (feat. Jay Z) • Sean Garrett

Listen (From the Motion Picture “Dreamgirls”)

• Scott Cutler

Party (feat. André 3000) • Jeff Bhasker

Déjà vu (feat. JAY-Z) • Rodney Jerkins

All Night • Ilsey Juber

Jealous • Lyrica Anderson

6 Inch (feat. The Weeknd) • The-Dream

Schoolin’ Life • The-Dream

Freedom • Jonny Coffer

Ring The Alarm • Sean Garrett

Smash Into You • Th e - Drea m / Tric ky S tewar t

Video Phone (+ Gaga remix) • Sean Garrett

Video Phone (feat. Lady Gaga) • Sean Garrett

Hello • Evan Bogart

Yoncé • The-Dream

† The Guardian * as at 4 July 2023

Photo by Kevin Mazur / Contributor by Getty Images

STRATEGIC REPORT

Flawless • The-Dream

Radio • Rico Love

Green Light • Sean Garrett

Scared Of Lonely • Rod ney Je rkin s / Rico Love

Save The Hero • Rico Love

Daddy • Mark Batson

World Wide Woman • Sean Garrett

Check On It (feat. Bun B & Slim Thug) • Sean Garrett

Grown Woman • The-Dream

Lay Up Under Me • Sean Garrett

Lost Yo Mind • Sean Garrett

Poison • Johnta Austin

BEYONCÉ FEATURES:

LADY GAGA

Telephone (feat. Beyoncé) • Rodney Jerkins

J BALVIN

Mi Gente (feat. Beyoncé) • The-Dream

JAY-Z

Lift Off (feat. Beyoncé & Kanye West) • Jeff Bhasker

JAY-Z

Part II (On The Run) (feat. Beyoncé) • The-Dream

JAY-Z

Family Feud feat. Beyoncé • No I.D.

MARY J. BLIGE

Love A Woman (feat. Beyoncé) • Sean Garrett

DESTINY’S CHILD:

Say My Name • Rodney Jerkins

Soldier (feat. TI & Lil’ Wayne) • Sean Garrett

Got’s My Own • Sean Garrett

Cater 2 U • Rodney Jerkins

Lose My Breath (2004) • Se an Ga rret t / Rod ney Jerk ins

The Girl Is Mine • Rodney Jerkins

Brown Eyes • Walter Afanasieff

T-Shirt • Sean Garrett

Through With Love • Sean Garrett

Is She The Reason • Sean Garrett

Feel The Same Way I Do • Rodney Jerkins

Game Over • Sean Garrett

My Heart Still Beats • Walter Afanasieff

HIPGNOSIS SONGS FUND LIMITED

ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023

The Hipgnosis Song Management Team

Our Team is comprised of HSM, its Advisory Board and HSG across multiple locations,

including London, Los Angeles, New York and Nashville.

STRATEGIC REPORT

HIPGNOSIS SONGS FUND LIMITED

ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023

Our Senior Management Team

STRATEGIC REPORT

Patrick Joest

Head of Synch, HSM

Rosa Mercuriadis

Chief Creative Officer, HSM

Sara Lord

EVP Content Creation, HSM

Rufina Pavry

Director, Investor Relations,

on behalf of Hipgnosis Songs Fund

Merck Mercuriadis

Founder & Chief Executive Officer,

HSM

Ben Katovsky

President & Chief Operating Officer,

HSM

Chris Helm

Chief Financial Officer,

on behalf of Hipgnosis Songs Fund

Danny Bennett

EV P, HS M

Giles Croot

Corporate Affairs Director, HSM

Ashley Burns

Chief Strategy Officer, HSG

Kenny MacPherson

Chief Executive Officer, HSG

HIPGNOSIS SONGS FUND LIMITED

ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023

Our Purpose,

Business Model,

Culture and Values

Our Purpose

Hipgnosis was created to give the investment

community access to extraordinarily successful hit

Songs by culturally important artists and to establish

Songs as an uncorrelated asset class with attractive

returns. Our ulterior motive is to use the importance of

our unparalleled Catalogue and our financial clout

as influence to improve the Songwriter’s position in the

economic equation.

A. Our Business Model

The key characteristics of the Hipgnosis business

model are:

1. Sustainable earnings, uncorrelated to global

capital markets, with sources of income from across

the spectrum of music consumption patterns made

up of millions of microtransactions such as Streaming,

physical purchase, downloading, Synchronisation,

performance, licensing and merchandising.

Related principal risks: ①③④⑤⑥⑦⑨

2. A durable and diversified portfolio of high-quality

assets founded on the copyright security – 70 years

after the death of the last co-composer – of works

across a broad range of genres, vintages and

geographies of consumer markets. On average

our Songs have more than 100 years of copyright

protected revenue.

Related principal risks: ⑦

3. The benefits of scale on diversification; giving

smoother income the larger the fund gets; and the

opportunity to drive incremental equity yield over

the contracted period through active management

and appropriate outsourcing of administration.

Related principal risk: ④

4. Exposure to structural growth themes in relation to:

i) the penetration of technology into everyday life;

ii) the growing value of entertainment markets; and

iii) the recognition of the real asset value

of intellectual property rights.

Related principal risk: ⑦

Every Song has two copyrights: Composition (lyrics

& melody), held by the Songwriter and Sound

Recording (the sound heard), held by those involved

in the recording of the Song. Royalties stemming

from the Composition Copyright are referred to as

Publishing Rights (aka Songwriter Rights). Hipgnosis

Songs Fund focuses primarily on acquiring these, but

owns selective Sound Recording Rights as well.

Publishing Rights

These are rights in a

musical composition

(lyrics and/or music) and

generate Mechanical and

Performance Royalties. In

the UK, “blanket licences”

are issued to organisations

including radio and TV.

Mechanical Royalties – These

are triggered when a copy

of a Song is made, whether

physical (e.g. CDs, DVDs)

or digital (e.g. permanent

downloads, Streaming,

webcast). The Streaming of a

Song is a hybrid: a temporary

copy is made, so it generates

a Mechanical Royalty, but

it is also treated as a public

performance of that Song,

generating a Performance

Royalty.

Performance Royalties –

These royalties largely come

from live performances and

licences taken out by shops,

restaurants, clubs and bars

etc to publicly perform or

broadcast a Song.

Sound Recording Rights

Master (Recording)

Royalties – These (aka

Recording Royalties) are

generated on behalf of

a sound/master recording.

This is the most basic royalty

performing artists and labels

earn when their master

recording is downloaded,

physically bought, or

streamed.

Neighbouring rights – These

(aka Related Rights) are

public performance royalties

due to the sound recording

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

Our principal risks and uncertainties are discussed on

pages 62-66.

STRATEGIC REPORT

Footnote: The logos above are representative of users for illustrative purposes only. The trade 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

(

)

STRATEGIC REPORT

HIPGNOSIS SONGS FUND LIMITED

ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023

STRATEGIC REPORT • OUR PURPOSE, BUSINESS MODEL, CULTURE AND VALUES

HIPGNOSIS SONGS FUND LIMITED

ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023

B. Our Sources of Advantage

Our Purpose is to achieve great risk-adjusted

returns for Shareholders as well as to use your

Company's influence (and the countless great

Songs owned) to achieve an ulterior motive:

improve the Songwriter’s undervalued position

in the economic equation of the music industry.

1. Access and Culture of our Investment Adviser

• Our Investment Adviser has the relationships,

reputation and expertise in the industry to be

an advocate and catalyst for improving the

Songwriters’ share of income and where they sit in

the economic equation.

• This also enables our team to overcome the high

barriers to entry in relation to the acquisition and

active management of Catalogues.

• We are Song Managers; when compared to

the major publishing houses, we are viewed as

a safer alternative custodian who can protect

the meaning and secure the financial future of

the creator’s Songs, and address the structural

imbalance between payments on recorded music

and payments to the Songwriters.

• We have created an Advisory Board, assembled

from leading music industry figures, who we

believe are well placed to advise on any given

Song’s potential market, reach and popularity.

• Our team’s extensive experience across a broad

spectrum of music genres, together with its

relationships with Songwriters and recording artists

in the music industry, means it is well-positioned to

continue to source opportunities for us to invest in

a diverse range of attractive Catalogues and then

assist us in maximising earnings from them.

• We are positioned as an attractive potential

purchaser of Catalogues from Songwriters and

other owners of music intellectual property rights

who are protective of their legacy and selective

about whom they are willing to sell to. We have

made our reputation by working with Songwriters,

artists and producers, not at their expense.

• Our culture is focused on long lasting relationships,

excellence delivered with integrity and world-

class leadership backed by extensive industry

knowledge that will help create a Songwriter

community rapport and a diverse, innovative,

multi-cultured portfolio of song assets, with a

strong emphasis on the great works of the African-

American Songwriting Community.

Related principal risks: ⑥⑧⑨

2. Streaming

• Technology has changed music consumption.

• The monetisation of music has improved.

• The revenue pie has grown dramatically – the IFPI

reports that there were 589 million global users of

subscription Streaming services at the end of 2022,

compared to 68 million global subscribers in 2015.

• Music is now a utility purchase rather than

discretionary or a luxury spend in many established

global economies.

• High exposure to Streaming and low exposure to

live music, allowing us to tailor our portfolio to fit the

new requirements of popular culture and media,

including playlists, social and virtual reality platforms.

Related principal risks: ⑦

3. Song Management

• Our Investment Adviser has an extensive network

of relationships with broadcasting networks,

TV studios and advertising agencies to create

Synchronisation opportunities for the Company

and enable it to increase its income. Having a

diversified Portfolio of Songs enables the Company

to capitalise on multiple Synch opportunities.

• Our Investment Adviser's expertise results in us being

well-positioned to manage the Songs we own

successfully, increasing royalty collection, improving

the speed and accuracy of collection of royalty

income, and improving Synch placement of the

Songs.

• Our Investment Adviser’s team is specifically

structured to have the bandwidth that allows us

to Song Manage in order to extract incremental

revenue with a focus on a smaller number of

songs per Executive than the publishing majors.

Related principal risks: ⑥

STRATEGIC REPORT • OUR PURPOSE, BUSINESS MODEL, CULTURE AND VALUES

STRATEGIC REPORT

HIPGNOSIS SONGS FUND LIMITED

ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023

4. Efficiencies In collection

• We work to bring efficiencies via faster and more

transparent collection of micro-payments via our

preferred administrators.

• A key part of our strategy is to reduce and

eliminate administration costs and ensure that

payments due are received as quickly as possible.

• The Company continues to revert and renegotiate

administration rates on Catalogues to our

preferred administrators at the earliest possible

opportunity (unless there are compelling reasons

to partner with existing administrators) and

continually looks for the best solution.

• The Company continues to move the

administration for the US component of our

Catalogues to HSG.

• The Investment Adviser and the Directors

acknowldge that HSG can provide US

administration cheaper than a third-party

administrator, generating administration cost

savings of approximately 1.0-1.5% of royalty income

administered.

• Likewise, outside the US, we proactively manage

our options to ensure the administration of our

Catalogues is carried out as efficiently and cost-

effectively as possible.

• The Company has also entered into a direct

licensing and administration partnership with

Sacem, a world-leading Collective Management

Organisation (CMO), to collect digital rights for the

Writers’ Share and the Company’s own Publisher

Share, primarily in the UK and the European

Union, as well as entering into a sub-publishing

partnership with peermusic to collect publishing

rights and other royalties in the rest of the world,

excluding the US.

Related principal risks: ①③⑧

STRATEGIC REPORT • OUR PURPOSE, BUSINESS MODEL, CULTURE AND VALUES

HIPGNOSIS SONGS FUND LIMITED

ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023

Our Objective, Strategy and Investment Policy

Our Investment Objective

The Company’s objective is to provide Shareholders

with an attractive and growing level of income,

together with the potential for capital growth, from

investment in Songs and associated musical intellectual

property rights, in accordance with its investment policy.

Investment Policy

The Company’s Investment Policy is to diversify

risk through investment in a Portfolio of Songs and

associated musical intellectual property rights

(including, but not limited to, master recordings, rights

over future Songs that are acquired by the Group

through the payment of Advances to such Songwriter

and secured against the future Songs, and producer

royalties). The Company seeks to acquire 100% of a

Songwriter’s copyright interest in each Song, which

would comprise their writer’s share, their publisher’s

share and their performance rights. In appropriate

cases, however, the Company may not acquire all

3 elements of the Songwriter’s interest. The Company

acquires interests in Songs which are sole authored or

co-authored. The Company may also acquire interests

in Songs jointly with another purchaser. Each Song is

considered by the Company to be a separate asset.

The Company, directly or indirectly via portfolio

administrators, enters into licensing agreements, under

which the Company receives payments attributable to

the copyright interests in the Songs which it owns. Such

payments may take the form of royalties, licence fees

and/or advance payments, including:

• Mechanical Royalties – when a copy of a Song

is made, whether physical (e.g. CDs, DVDs, vinyl)

or digital (e.g. permanent downloads, Streaming,

webcast);

• Performance Royalties – when a Song is performed

live or broadcast on TV or Radio, or when a song is

streamed online; and

• Synchronisation Fees – when a Song is used in

another form of media or moving picture (e.g. movie,

TV show, video game, advertisement).

The Company also receives royalties and fees payable

in respect of master recordings. Master recordings

are the copyright in the master recording of a

musical composition or Song. Master recordings earn

Synchronisation royalties and generate income from

sales of both physical records and digital downloads as

well as from DSPs.

The Company focuses on delivering income growth

and capital growth by pursuing efficiencies in the

collection of payments and active management of the

Songs it owns.

The Company may acquire Songs for consideration

consisting of cash, Shares or a combination of cash and

Shares, and payment of part of the consideration may

be on deferred terms. The Company may acquire Songs

or Catalogues directly, or indirectly by acquiring the

entity through which such Songs or Catalogues are held.

Whilst the Company does not intend to sell the Songs it

owns, it may make disposals of Songs where it considers

such a disposal to be in the best interests of Shareholders.

Investment restrictions

The Company invests its assets and manages the Songs

it acquires with the objective of constructing a high

quality and diversified Portfolio of Songs. The Company

acquires Catalogues from a number of different

Songwriters, which includes Songs diversified across

music genres and sung by numerous recording artists.

The Company is subject to the following investment

restrictions:

a) the Company holds interests in a minimum

of 300 Songs;

b) the Advances made to Songwriters in connection

with the acquisition of rights over future Songs

will not represent more than 5% of the Company's

Gross Assets, calculated at the date of the relevant

Advance;

c) the value of any single Song does not, and will not,

represent more than 10% of the Company's Gross

Assets, calculated at the date of the acquisition

of such Song (and re-calculated in the aggregate

upon the acquisition of any additional interest in a

Song). In the event this limit is breached at any point

after the relevant investment has been made or

added to (for example due to a change in valuation

of any Song), there is no requirement to sell any

Song, in whole or in part; and

d) the Company does not, and will not, invest in

closed-ended investment companies or other

investment funds.

STRATEGIC REPORT

HIPGNOSIS SONGS FUND LIMITED

ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023

Cash management

The Company’s uninvested capital may be invested

in cash, cash equivalents, near cash instruments and

money market instruments.

Hedging and derivatives

The Company may utilise derivatives for efficient portfolio

management. In particular, the Directors may engage in

full or partial foreign currency hedging and interest rate

hedging. The Company does not, and will not, enter into

such arrangements for investment purposes.

Leverage

The Company may incur indebtedness of up to a

maximum of 30% of its Operative Net Asset Value,

calculated at the time of drawdown. For these purposes

all bank borrowings and other forms of indebtedness

incurred by any member of the Group (as defined

below), and any non-equity share capital, will be taken

into account. “Group” means the Company and its

subsidiaries (as defined in section 531 of the Companies

(Guernsey) Law, 2008, as amended).

Amendments to and compliance with the Investment

Objective and Policy

Any material change to the Company's Investment

Objective and Policy will be made only with the prior

approval of the FCA and the Shareholders by ordinary

resolution.

In the event of a material breach of any of the

investment restrictions applicable to the Company,

Shareholders will be informed of the actions to be taken

by the Company through an announcement made via

an RNS announcement.

Our Strategy

1. Smart acquisition of Songs or Catalogues

To benefit from the structural growth drivers discussed

in Our Market, we continue to identify Catalogues of

culturally important proven hit Songs which we believe

offer significant value opportunities both from market

growth and Song Management.

Related principal risks: ④⑥⑦⑨

a) A diversified and balanced Portfolio of Songs

Our Portfolio mostly comprises seasoned, classic

Songs (often referred to as ‘evergreen’), which include

Songs released more than 10 years ago. These Songs

accounted for approximately half of the Portfolio

(based on fair value) as at 31 March 2023, and produce

income that is expected to grow progressively in line

with the continued adoption of Streaming, and have

the potential for further growth through being actively

managed by the Investment Adviser.

In addition, with Streaming growth being the backbone

of our investment thesis, we seek to source some

Catalogues that include newer hit Songs which have

demonstrated extraordinary, recent success. As at

31 March 2023, approximately 1% of the Portfolio

(based on fair value) was derived from Songs that were

released less than three years ago. The Investment

Adviser therefore seeks to identify newer Songs from

this group in order to provide the Company with high

exposure to Streaming.

b) Acquisition of rights over Songs through payment

of advances by the Group

We may acquire rights over future (unwritten) Songs

that are acquired by payment of Advances to

Songwriters, with such advanced amounts (in

aggregate) being capped at 5% of the Company’s

Gross assets, calculated at the time of investment.

The non-refundable Advance to a Songwriter is

consideration for them writing Songs and is recoupable

from the future royalties generated by those Songs,

which will include the writer’s share of those royalties but

may also include the performer’s share of such royalties

and the master recording rights. As at 31 March 2023,

we maintain an active roster of over 169 Songwriters.

We consider Advances to be a cost-effective way to

generate royalties in the future from Songs written by

highly regarded Songwriters.

STRATEGIC REPORT • OUR OBJECTIVE, STRATEGY AND INVESTMENT POLICY

HIPGNOSIS SONGS FUND LIMITED

ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023

2. Active Song Management to provide

upside potential

We follow a diligent approach to sourcing potential

Catalogues for acquisition, which includes careful

assessment of the underlying Songs and an assessment

of the opportunity for Song Management. Once a

Catalogue has been acquired by us, the Songs are

pro-actively managed on an ongoing basis in order to

maximise the earning potential and income growth,

including through improved Synch placement and

usage, and through pursuing efficiencies in revenue

collection. This, we hope, will lead to:

Related principal risks: ①②⑥⑦⑧

a) Driving income growth through pursuing

efficiencies in revenue collection

i) Registration audit

On acquisition of a Catalogue we perform a deep

dive exercise into the detailed ownership of all Songs

within the Catalogue to ascertain ownership rights,

income sources and key Songs, in order to determine

an optimal strategy for revenue growth. As part of

this exercise, we seek to identify any issues relating to

the registration of Songs, or the collection of a Song’s

income, and remedial actions are taken.

ii) Efficiencies from improved portfolio

administration agreements

The acquisition of the Administration capabilities

within HSG represented a significant step in the

Group’s strategy of driving income growth through

pursuing efficiencies in the collection of payments

and Song Management. The direct licensing and

administration partnership with Sacem and the sub-

publishing partnership with peermusic also enhance

these collection efficiencies.

iii) Early adoption of technological

advancements to increase collections

The Investment Adviser monitors technological

advances that will enable it to exploit, identify and

locate lost revenues.

b) Improving Synch placement and usage

of Songs to grow income

i) Synchronisation

The Investment Adviser seeks to exploit all variations of

potential Synchronisation opportunities, from placing

Songs in commercials, popular TV shows and films

to encouraging popular recording artists to cover

older Songs within a Catalogue. The Investment

Adviser seeks to source Catalogues for the Company

which it believes contain Songs which have been

overlooked, or Songs that do not have strong,

historic revenue figures but for which the Investment

Adviser sees potential fresh revenue streams through

Synchronisation opportunities. The Investment Adviser

seeks to leverage its expertise and deep relationships,

and to utilise the innovative technology and business

relationships of portfolio administrators, in order to

pursue these Synchronisation opportunities.

ii) Digital review

The Investment Adviser undertakes a full digital

review of each Catalogue to ensure that the

Company’s Songs have maximum exposure on all of

the key digital and social media platforms including

each of the DSPs.

iii) Maximising presence across DSPs globally

The Investment Adviser has relationships with all

key DSPs, digital partners and Synch and creative

networks including YouTube, Spotify, Apple, Deezer,

Amazon, Tencent/QQ and TikTok. Through direct

contact with these platforms, the Investment Adviser is

able to identify opportunities for its Songs to increase

their exposure on the platform.

iv) Promoting Songs to increase usage and

introduce new audiences

The Investment Adviser, and its Advisory Board, due

to their existing position and relationships, are able to

create new opportunities to place and promote the

Company’s Songs. The Investment Adviser believes

that the Company is one of the only investment

companies which invest in Songs that is strategically

using its cultural position in the music industry to

promote the Songs it owns.

For a discussion of our performance against our

strategic priorities, see pages 17-41. Our principal risks

and uncertainties are presented on pages 62-66

STRATEGIC REPORT • OUR OBJECTIVE, STRATEGY AND INVESTMENT POLICY

STRATEGIC REPORT

HIPGNOSIS SONGS FUND LIMITED

ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023

To achieve our purpose, Hipgnosis has to generate

attractive financial returns from our business; to do that

we need to have the right resources and relationships in

place and to nurture them.

Our business takes the form of investment in the

intellectual property rights of proven hit Songs of cultural

importance.

While music copyrights do not have any significant

environmental or corporate governance implications,

per se, being abstract legal entitlements rather than

corporate or physical entities, we seek to ensure that

the conduct of our business and the promotion of our

Songs is undertaken in a manner consistent with best

practice in ESG.

This is because our activities have a high profile and

our actions, as custodians of these musical assets,

can have an impact across society and the musical

community.

Which is why our ulterior motive is at the heart of

our stated purpose: to use the importance of our

unparalleled Catalogue and financial clout as

influence to improve the Songwriter’s position in the

economic equation. What is good for Songwriters is

good for all of our stakeholders. This ethos flows into

wider ESG issues, too.

Our ability to continue to grow our business and

be successful is entirely contingent on our integrity

and behaviour. As a consequence, our responsible

investment policy is constantly evolving. As a first mover

in our asset class, we seek to set the benchmark for

responsible investment in music assets for others to

measure themselves against.

Key Decisions

We view key decisions as those that are material to

our success and long-term sustainability, but also as

those that are materially significant to any of our key

stakeholders or that have a material impact on our

community or environment. In making a decision, we

consider the outcome based on our understanding

from our stakeholder engagement activities, as well as

the need to maintain a reputation for high standards

of business conduct.

We invest in a culturally diverse range of Songs, with a

particular emphasis on supporting music from African-

American heritage. The Company has adopted a

responsible investing policy and legal due diligence is

undertaken to make sure the Company acquires assets

from reputable sources.

The Key Decisions that the Board has made are

summarised within the Board Leadership and Company

Purpose section on page 78 and Section 172(1)

Statement on page 70.

Whilst there is still more to do, we are committed to

demonstrating continued and transparent progress

regarding our ESG impacts.

Sustainability Risks and SFDR

The EU Sustainable Finance Disclosure Regulation (SFDR)

is a regulatory framework which applies to us in our

capacity as a self-managed investment trust. We have

therefore made the following sustainability-related

disclosures in accordance with Articles 6(1) of SFDR.

The Company is not considered to be an ‘ESG financial

product’ since it does not promote and does not

maximise portfolio alignment with Sustainability Factors

(as defined in SFDR). The investments underlying this

financial product do not take into account the EU

criteria for environmentally sustainable economic

activities as these assets falls outside their scope.

Nevertheless the Company is exposed to sustainability

risks due to the nature of the assets in which it invests,

but these risks are not material:

• How Sustainability Risks are integrated into our

investment decisions

Sustainability Risks are integrated into our investment

decision making and risk monitoring to the extent

that they represent potential or actual material risks

and/or opportunities for maximizing long-term risk-

adjusted returns for our Shareholders. The Investment

Adviser considers sustainability risks as part of its

broader analysis of potential investments and the

management of the current portfolio. The factors

considered will vary depending on the Catalogue in

question, but we are always seeking to invest in Songs

that have a positive social purpose.

• The assessment and likely impacts of

Sustainability Risks on returns of the Company

The returns generated by our investments are

exposed to varied Sustainability Risks, most of which

are deemed minimal.

Our Resources and Relationships

STRATEGIC REPORT

HIPGNOSIS SONGS FUND LIMITED

ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023

Relations with stakeholders

The culture and success of the music industry are

founded on relationships. We are very much part

of this and we welcome it. We have various groups

of stakeholders with whom we have close and direct

relationships fundamental to our existence, they

include our Shareholders, our service providers, our

Advisory Board, the Songwriting community and the

publishers, administrators and PROs. There are many

others who we recognise as well, even though we may

not engage with them directly – prime amongst these

are the millions who listen to music. Our Investment

Adviser is at the heart of our engagement work and is

responsible for the day-to-day interactions with all of

our stakeholders.

Hipgnosis places great importance on its relationships

with its Shareholders, as they provide us with the

resources to make the acquisitions necessary to

build our portfolio and so support Songwriters and

performers. We undertake both direct and indirect

engagement activities with this group and this is

covered in more detail in the Corporate Governance

Report on page 73.

Following the acquisition of HSG, Hipgnosis Songs Fund

now has 39 employees. None of the employees are

classified as senior executives as they do not report

directly to the Board of the Company. The Board has

delegated responsibility for these employees to the

Investment Adviser, consistent with their policies and

procedures.

Additionally, we operate through, and work closely with,

a number of third-party service providers (see page 99),

including the Investment Adviser, Administrator, Company

Secretary, Corporate Brokers, lawyers and our other

professional advisers. The quality and timeliness of

their service provision is critical to the success of the

Company, as is their adherence to best practice ESG

requirements. Our ESG policies are shared with our

suppliers.

The Investment Adviser manages the vital input of our

Advisory Board, discussed on pages 32, 50 and 54. Our

Investment Adviser also enables us to engage with the

writers and composers of Songs acquired to update

them on management activity around the Catalogues,

explore creative projects, create new interpolations

and discuss new commercial opportunities. An example

of this is placing Songwriters, who are included in our

portfolio, in the recording

studio together to collaborate and create new

compositions.

The Investment Adviser also has regular communication

with Publishers and Administrators and the PROs who

administer the payment of royalties due to a Songwriter

or recording artist in respect of a Song, either directly

from the end user or from royalty collection agents,

in order to assess that the royalties paid through are

accurate and delivered in a timely manner.

The Investment Adviser has procedures in place that

enable them to identify any under/over payments

of revenue and work quickly to resolve this with the

Publishers, collection societies and PROs. These

page 24 in more detail; there have been multiple

occasions where we have returned millions of Dollars

which we weren’t entitled to.

Society

We want to help the communities on whom our

success is based

While the Company’s purpose is to give our

Shareholders a strong, reliable and uncorrelated return

on investment, we also have an ulterior motive which is

to use the importance of our unparalleled Catalogue

and financial clout as a platform and leverage for the

Songwriting community and to take Songwriters from

the bottom of the economic equation to the top.

Without the Songwriter there would be no music,

however, as individuals their voices have frequently

not been heard nor their contribution financially

recognised.

The principles of copyright protection are generally

well established and the concept and value of making

it economically feasible for “creators to create” is

widely recognised. This is very much at the heart of our

advocacy but Copyright protection is not enough, the

important societal role of the Songwriter also needs

to be recognised by apportioning them a far more

significant share of the economic pie.

STRATEGIC REPORT • OUR RESOURCES AND RELATIONSHIPS

STRATEGIC REPORT

HIPGNOSIS SONGS FUND LIMITED

ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023

Our advocacy on the part of the Songwriting

community has served to make us a preferred buyer for

that community, which is also in the best interest of our

Shareholders.

The impact of our advocacy is being felt at every level.

As an industry, the US Copyright Royalty Board (CRB)

rejected an appeal from certain streaming companies

aimed at reducing the 44% increase in payments

proposed under CRB III. Additionally, our leadership

and advocacy on behalf of the songwriting community

has resulted in a change of tone and messaging from

both the record music labels and the DSPs. This is best

demonstrated by the joint industry proposals for the

CRB IV settlement which will provide 5 years of stability

from 2023 to 2027 at the highest rates ever paid to

Songwriters.

In the UK, whilst we were disappointed that the

Competition and Markets Authority declined to take

steps to address the market failure which it recognised

in its market study of the music industry, we are pleased

that the Department of Culture, Media and Sport and

the Intellectual Property Office have recently both

announced industry working groups intended to resolve

some of the challenges faced by Songwriters. We

continue to engage with ministers, politicians, officials

and other interested parties to promote the interest of

Songwriters.

Additionally, we have dedicated significant time,

money and resources to supporting the Songwriting

community. Led by Merck Mercuriadis, this includes

work with The Ivors Academy, which nurtures new

Songwriting talent and advocates for the Songwriters

and The Nashville Songwriters Association International,

which works at the highest levels of the US Congress

and Senate on the same themes.

Both in public and in private, Hipgnosis and the

senior management of our Investment Adviser have

established themselves as credible, informed and

reasonable advocates for change. We continue to

engage across government and with regulators to

make the case for and on behalf of Songwriters.

Given the alignment of interests between Songwriters

and Hipgnosis Songs Fund’s Shareholders, our

campaigning, where successful, will deliver value

accretion for the fund’s Shareholders.

The Social Mandate

Our Investment Adviser and its Advisory Board

We fully endorse our Investment Adviser and its

Advisory Board, who believe that any company must

reflect the values and best interests of the communities

it benefits from.

They are active in using their influence as a catalyst

for an end to all discrimination including sex, ethnicity,

background, mental health or other discriminatory

lenses. We endorse their strong Anti-Racist, Anti Gender

and pro LGBTTQQIAAP approach and we welcome

social change organisations and programmes which

struggle for equality such as the Black Lives Matter

Foundation (the charitable foundation within the BLM

movement) and the Black Music Action Coalition.

We support the actions taken by our Investment Adviser

to promote #blacklivesmatter initiatives and calls to

action. Almost all Hipgnosis trade advertising in the last

three years has highlighted #blacklivesmatter and sent

an important message to the wider music industry that

the issue was not confined to a few weeks in June of

2020 but in fact needs to be part of our daily lives.

We support the actions taken by our Investment

Adviser to promote the important achievements of

the We Are Family Foundation founded by Advisory

Board Member, Nile Rodgers, which has created

programmes promoting cultural diversity while nurturing

and mentoring the vision, talents, and ideas of young

people. We support the actions taken by our Investment

Adviser to support the work of Earth Percent who

provide a simple way for the music industry to support

the most impactful organisations addressing Climate

Change initiatives.

We support Merck Mercuriadis in joining Richard

Branson, Mike Novogratz, Arianna Huffington and other

business leaders in the Responsible Business Initiative

For Justice to bring an end to the death penalty which

has taken the lives of many innocent people of colour

purely on the basis of racial and socio-economic

injustices. Further to this we continue to support the

contributions of former HSM Advisory Board Member,

Jason Flom, founding board member of the Innocence

Project, in his work for criminal justice reform and

his advocacy for those who have been wrongfully

convicted and imprisoned.

STRATEGIC REPORT • OUR RESOURCES AND RELATIONSHIPS

HIPGNOSIS SONGS FUND LIMITED

ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023

We are proud to support Nordoff Robbins, whose

ground-breaking work uses music as therapy to enrich

the lives of people with life limiting illnesses, disabilities

and feelings of isolation. Hipgnosis has been involved

for the third year in a row with the annual Christmas

Carol Service, a key highlight of Nordoff Robbins’

fundraising calendar. Our Investment Adviser once

again stepped in with a significant donation to create

a fantastic experience at St Luke’s Church in Chelsea

with Nile Rodgers & CHIC. Merck Mercuriadis and

Andrew Wilkinson were the Executive Producers for the

event and Nile stepped in at the last minute as The Who

were unable to make it. The Who will instead perform

to benefit the charity this summer. Both events are

expected to raise a combined £200,000, approximately

doubling the sum usually raised by this Christmas event.

Our Investment Adviser contributes to the talent of

tomorrow via one of the UK’s leading educational

establishments in the performing and creative arts,

The BRIT School, where Merck Mercuriadis, Nile Rodgers

and Paul Burger are all very active. Next year Nile’s

Night will be launched in conjunction with the Ivor

Novello Awards to raise money that will be shared

between The BRIT School, the We Are Family Foundation

and the Ivors Academy.

We are delighted that our Investment Adviser has

supported Songwriters Hall of Fame, chaired by Nile

Rodgers, and their work celebrating and developing

writing talent as well as MusiCares, which helps music

people in times of need. Given the Song is the currency

of the music business and we believe the Songwriter

should be appreciated, applauded and celebrated

above all, we were delighted the Investment Adviser

sponsored the Song of the Year Category at the

2022 A&R Awards for the third year in a row, as well

as sponsoring the Songwriter of the Year award. This

year our Investment Adviser has also supported the

Elton John Aids Foundation mission to end the Aids

epidemic; Music To Life, which builds on the strong

historical legacy of social movements’ intentional use

of music to educate, recruit, and mobilise; and Music

Support, the charity created by and for music industry

professionals to provide help for UK workers affected by

mental ill-health and/or addiction. Rosa Mercuriadis has

co-created sicksadgirlz an Instagram community with

30,000 followers where young women can find support

for mental health and women’s issues.

Impact on the Environment

Hipgnosis’ direct environmental impact is very

limited. We have considered the materiality of our

environmental risks and have concluded that they

are minimal. The direct impact of our Investment

Adviser is also limited to running office facilities and the

international transport of key personnel.

The portfolio of music copyrights acquired are intangible

assets whose returns are generated by Songs being

listened to through many third-party channels including

retail, hospitality, digital entertainment, advertising,

film and others. Our assets are being consumed and

monetised as an adjunct to other, sometimes more

environmentally impactful business activities, that would

occur whether our assets were used or not.

We keep under consideration the impact on the

environment relating to the shift from the physical

to digital consumption of music. The popularity of

Streaming as the preferred method of enjoying digital

entertainment has generated concerns about a

concomitant increase in the energy consumption of

the required data centre infrastructure. At the moment,

there is considerable debate, with no clear consensus

view, on the relative environmental merits and impacts

of the various channels, physical and virtual, used to

supply music as entertainment. We continue to monitor

the environmental commitments made by DSPs to

reduce the energy intensity of their datacentres.

The necessity for international travel is another area

on which much attention has been focused, brought

into stark practical relief by the necessary responses to

the pandemic. The entertainment industry generally,

and our business model specifically, are heavily reliant

on the establishment and maintenance of personal

relationships; to us, these relationships are amongst

our most valuable assets. Hipgnosis, and its suppliers,

are applying the lessons learned during the pandemic

about the various alternatives to physical meetings

and are working to keep international travel to the level

needed to sustain these key relationships.

To better understand and manage our environmental

impact, our Investment Adviser has worked with third-

party experts to carry out a greenhouse gas (GHG)

emissions assessment using calendar year 2022 data.

This quantifies the greenhouse gases produced directly

STRATEGIC REPORT • OUR RESOURCES AND RELATIONSHIPS

STRATEGIC REPORT

HIPGNOSIS SONGS FUND LIMITED

ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023

and indirectly from a business or organisation’s activities

and is useful to manage its climate-related impacts.

This assessment marks our first-time baselining Scope 1,

Scope 2, and certain Scope 3 emissions.

On a location-based methodology, the Scope 1 and 2

GHG emissions for FY 2022 were approximately

9.6 tCO₂e/yr. Scope 3 includes other indirect emissions,

business travel and staff commuting. In total, it is

estimated that these activities generated 190 tCO₂e/yr.

The Investment Adviser will refine its methodology and

continue to report its emissions going forward.

STRATEGIC REPORT • OUR RESOURCES AND RELATIONSHIPS

HIPGNOSIS SONGS FUND LIMITED

ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023

Our Principal Risks and Uncertainties

Our risk assessment

The graphic below shows the Group’s principal risks

and uncertainties and the changes year-on-year

listed in alphabetical order. Information on our risk

management framework can be found on page 91.

① Adverse change in policies by Collection Societies

and other entities through whom the Company

receives royalty payments

② Cyber security

③ Exchange rate

④ Financial leverage

⑤ Interest rate

⑥ Key person

⑦ Market trends

⑧ Operational reliance on service providers

⑨ Shares continue to trade at discount

Low Medium High

Low Medium

PROBABILITY

IMPACT

High

Movement from last year

Changes to the Principal Risks

Over the year the Board has assessed a number of its

Principal Risks and has put in place numerous mitigation

strategies in order to reduce the risks to the business and

these are discussed in much more detail both in the

Strategic Review and in the Governance sections. They

can be summarised as follows and can be seen from

the heatmap below:

• Interest rate risk has been reduced by the interest rate

swaps that have been put in place on the majority of

the bank debt (see page 34, Financial Review)

• Exchange rates remain volatile; the overall impact

has been reduced by the introduction of a rolling

currency hedge (see page 34, Financial Review)

• Financial leverage risk has been reduced by the

better terms achieved through the refinancing of

the Revolving Credit Facility (see page 34, Financial

Review)

• Key person risk has been reduced given the

expansion in breadth and depth of specialised

personnel within the Investment Adviser

Conversely, the Board felt it appropriate to add new

risk associated to “Shares continuing to trade at a

discount”. This risk has always been present for the

Company and has now been added a Principal Risk

given the forthcoming Continuation Vote. Mitigation of

this risk is a core theme of this report and is addressed in

the Strategic Report 2-71.

In the Interim Report for the period ending 30 September

2022, the Board added a risk referring to “Portfolio returns

do not meet expectations”. On further reflection, the

Board feels that this risk is already encompassed by

Risks 1, 7 and 8.

STRATEGIC REPORT

For a discussion of our market, see page 42; business

model, see page 50; strategy, see page 54; and

resources and relationships, see page 57.

STRATEGIC REPORT

HIPGNOSIS SONGS FUND LIMITED

ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023

① Adverse change in policies by Collection

Societies and other entities through whom

the Company receives royalty payments

Business Model: A1, B4

Strategy: 2. Song Management

Probability: Low/Medium Impact: Medium

Description

Should Collection Societies or other entities, including

the major music publishers and record companies,

alter the way that they collect royalties, or set lower

royalty rates, or decide to disproportionately favour

major music publishers, the Company may receive

significantly reduced revenues compared to the level

it had forecast at the time of acquiring the relevant

Catalogues or Songs.

Mitigation

The Investment Adviser actively monitors the market

and provides the Company with any data or

intelligence of which it becomes aware. The Investment

Adviser is working on innovations to improve the way

the market works, such as reducing the working capital

cycle. This is achieved in collaboration with our many

Collection partners and is a long-term process. The

financial model, which supports the Board’s assessment

of Going Concern and the Viability Statement,

reflects these regulatory and industry risks should they

materialise.

② Cyber security

Strategy: 2. Song Management

Probability: Medium Impact: Medium

Description

The Company (like all others) is exposed to external

cyber-security threats which have the possible impact

of sensitive information leakage and cyber fraud and, in

a worst case scenario, interruption of royalty payments.

Mitigation

The Company recognises the increased incidence of

cyber-security threats and annually reviews its own

policies, procedures and defences to mitigate associated

risks, as well as those of the Investment Adviser,

Administrator and key service providers, engaging

market-leading specialists where appropriate.

③ Exchange rate

Business Model: A1, B4

Probability: Medium/High Impact: Medium

Description

The Company has issued share capital denominated

in Sterling and aims to pay regular dividends in that

currency. However, the Group’s functional currency is

Dollars, and most of the Group’s revenue is received

in Dollars, and exchange rate fluctuations may

significantly affect the NAV and the ability to pay

targeted Sterling dividends.

Mitigation

The Company considers on a regular basis the benefits

and cost of passive currency hedging. The Company

has engaged in a rolling dollar-hedging strategy to

ensure certainty to the Sterling dividend. The Company

will continue to pay any dividends in Sterling and its

primary listing remains denominated in Pounds.

④ Financial leverage

Business Model: A1, A3

Strategy: 1. Smart Acquisition

Probability: Medium Impact: High

Description

The Company uses leverage and may utilise borrowings

for working capital and interest rate hedging purposes.

In case of default under the relevant financing

arrangement, the Company may face adverse action

from its lenders leading to operating constraints and

increased controls. This may affect the Company’s ability

to pay dividends.

Mitigation

On a quarterly basis, and on the occasion of each

drawdown, and prior to each dividend being paid, the

Company confirms its compliance with key covenants

set out in the loan facility and documented within the

Company's policies and procedures.

Furthermore, the Company has renegotiated its

Revolving Credit Facility with better terms and there is

a greater headroom in the facility.

STRATEGIC REPORT • OUR PRINCIPAL RISKS AND UNCERTAINTIES

HIPGNOSIS SONGS FUND LIMITED

ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023

⑤ Interest rate

Business Model: A1

Probability: Medium Impact: Medium

Description

The Company is exposed to changes in global interest

rates in several ways. Predominantly, but not exclusively,

the fiscal and monetary decisions of the US Government

and its Central Bank will affect the interest rates of the

Company's floating-rate RCF. It may also impact the

discount rate, which is used to evaluate the current and

forecast value of Catalogues purchased, or has already

invested in. An increase in the discount rate by the

Independent Valuer would reduce NAV. Interest rates

also have an impact on exchange rates, mentioned

above. The interest rate environment is unpredictable

and consequently this could affect our ability to meet

bank covenants and pay dividends.

Mitigation

The Company’s cash resource must be held by

approved banks and deposit rates on cash deposits are

being optimised. Following the refinancing of the debt

facility, interest swaps have been put in place, thereby

fixing the majority of the debt for a tenor between

circa 3 and 5 years.

⑥ Key person

Business Model: B1, B3

Strategy: 1. Smart Acquisition; 2. Song Management

Probability: Low Impact: Medium

Description

The Company depends on the services of the

Investment Adviser, in particular on Merck Mercuriadis,

Chief Executive of the Investment Adviser.

Mitigation

To broaden its expertise within the Investment Adviser,

the Investment Adviser has continued to invest in

growing its staff and systems which has reduced

reliance on any individual especially since the

investment made by Blackstone Inc., which brings

considerable investment experience and resources.

The Investment Adviser is also supported by the

Advisory Board members (named on pages 32-33 of this

report). Both entities bring their considerable industry

experience to bear in support of the Company’s

investment objectives.

Furthermore, the third-party Administrators to the

Company’s Catalogues each have an important role

to play in pursuing efficiencies in the collection of

royalties and active management of the Songs that the

Company owns. The Investment Adviser’s longstanding

relationships with those third-party Administrators bring

with them further music management experience that

adds support for Merck Mercuriadis and his team in the

performance of their services to the Company.

STRATEGIC REPORT • OUR PRINCIPAL RISKS AND UNCERTAINTIES

STRATEGIC REPORT

HIPGNOSIS SONGS FUND LIMITED

ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023

⑦ Market trends

Business Model: A1, A2, A4, B2

Strategy: 1. Smart Acquisition; 2. Song Management

Probability: Medium Impact: High

Description

The Company is heavily reliant on Streaming (or

an equivalent technology) remaining popular with

consumers. Any adverse change in this would affect

revenues. Performance income may be impacted

by a major downturn in the global economies if this

led to closure of venues. Conversely, technological

advances could lead to a growth in royalties as

consumers’ access to music continues to improve.

Mitigation

The Company has a Portfolio well diversified around

vintage, territory, genre and income type and will be

heavily reliant on the continuing presence and popularity

of DSPs in order to maximise access to the consumer

market. The Company is continuously reviewing this risk

and most recently took note of the latest report by the

IFPI, the organization that represents the recorded music

industry worldwide in which they state that there were

589 million users of paid subscription at the end of 2022,

an increase of 13% over the year. The Company also

took note of a recent note by J.P. Morgan Cazenove

(published 20 April 2023) in which they estimate global

paid subscriptions to grow to 1.62 billion by 2030

as a result of an expected rise in paid subscription

penetration.

⑧ Operational reliance on service providers

Business Model: A1, A2, B1, B4

Strategy: 2. Song Management

Probability: Low/Medium Impact: Medium

Description

The Company relies primarily on third-party service

providers for its core operations including oversight of

its subsidiaries under the terms of its Investment Advisory

Agreement. In particular, although the ultimate

responsibility for the investment strategy lies with the

Company, the Investment Adviser is responsible for sourcing

potential opportunities, advising the Company on

acquisitions, active management of Catalogues and

financial reporting.

The Company also depends heavily on the specialist

administrative services of the Investment Adviser, the

Portfolio Administrators and other collection agents as

well as third-party suppliers with whom the Company

conducts business. In the event that these service

providers experience business disruption cyber security

breaches, or fail in their responsibilities, the ability of the

Group to collect revenues due may be limited.

Mitigation

The Investment Adviser is recruiting leading market

specialists in Active Management, Finance and Data

analytics, with extensive experience in maximising

value from the Catalogue Assets.

The Company continually reviews the performance

of its service providers and will raise any concerns

regarding performance or efficiency should the need

arise.

STRATEGIC REPORT • OUR PRINCIPAL RISKS AND UNCERTAINTIES

HIPGNOSIS SONGS FUND LIMITED

ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023

STRATEGIC REPORT • OUR PRINCIPAL RISKS AND UNCERTAINTIES

⑨ Shares continue to trade at discount

Business Model: A, B

Strategy: 1. Smart Acquisition

Probability: Medium/High Impact: High

Description

The Company’s share price may continue to trade at

a discount to the Company’s investments’ underlying

market value. The discount level may remain wide,

and any discount management policy may become

ineffective, eroding shareholder capital and restricting

the ability of the Company to raise further share capital,

or pass the Continuation Vote in September 2023.

Mitigation

Mitigation of this risk is a core theme of this report and

is addressed in the Strategic Report on pages 2-71.

Our business model and strategy are based on active

Song Management as well as the smart acquisition of

Catalogues. The former is one of the key mitigations for

this risk.

NAVs and share price performance are regularly

reviewed at and between board meetings in the context

of market conditions. The Company seeks to test the

reasonableness of assumptions employed in arriving

at the Fair Value of the investments through the use

of valuation peers and also note reports from other

companies investing in our space.

Discount (or premium) is monitored by the Investment

Adviser and Corporate Broker, with an ongoing dialogue

involving the Board to consider how the discount may be

reduced, e.g. through potential further share buybacks

or the strategic disposal of Catalogues.

In the event that a sale of assets should occur, the

Company may be unable to fully benefit as an

investment trust company on any potential sale of

Catalogues, as music Catalogues are considered

intangible fixed assets for UK corporation tax purposes.

The Company has sought and will continue to seek

tax advice with a view to optimising tax in all potential

situations.

The Board is consulting Shareholders ahead of the

Continuation Vote.

Emerging Risks

Emerging risks are regularly considered to assess any

potential impact on the Group and to determine

whether any actions are required. These include

regulatory/legislative change, macroeconomic and

geo-political change, climate risks, the impact of

AI as well as new competitors entering the market.

These are monitored, mitigated and managed where

appropriate, by the Company through continual

review, policy setting and updating of the Company’s

risk matrix at each quarterly meeting to ensure that

procedures are in place with the intention of minimising

the impact of the above-mentioned risks. We have

considered the materiality of our environmental risks

and have concluded that they are minimal. The

Company relies on periodic reports provided by the

Investment Adviser and Administrator regarding risks that

the Group faces. When required, experts, including tax

advisers and legal advisers, will be employed to gather

information and to provide advice.

STRATEGIC REPORT

HIPGNOSIS SONGS FUND LIMITED

ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023

Key Statements

STRATEGIC REPORT

Viability Statement

To assess the future prospects of the Company the

Board has conducted a financial and Portfolio review

for a period of three years to 31 March 2026, which is

deemed appropriate for the following reasons:

i. The long-term outlook for music publishing and

recorded music remains very positive;

ii. Three years is often considered the benchmark

of normalised earnings within music publishing;

iii. The remaining copyright term of the Company’s

Portfolio as of 31 March 2023 will give rise to future

income significantly beyond the period of review;

iv. Experience to date provides confidence that the

performance of catalogues will generally continue

to perform in accordance with recent forecasts.

Based on past performance and on the anticipated

growth in the digital consumption of music as publicised

in the wider industry, the returns generated within the

investment Portfolio are expected to be stable and

predictable in both the medium and long term.

The long copyright term combined with the resilience

of music and a continually expanding ecosystem

of consumers underpins the value of catalogues and

provides the basis for assessing the business of the

Company as viable within the three-year forecast period.

The Investment Adviser has prepared, and the Board

has reviewed, the Portfolio projections which forecast

the Company’s revenue, cashflow and working capital

projections over the next three years. The Board has

also considered all the principal risks and significant

emerging risks and their mitigation as identified in the

risk register that is periodically reviewed by the Board.

The Board paid particular attention to the risk of a

deterioration in the short-term economic outlook which

would adversely impact catalogue fundamentals

causing a reduction in cash flows.

The remaining principal risks, whilst having an impact on

the Company’s business model, are not considered by

the Board to have a reasonable likelihood of impacting

the Company’s viability over the three-year period to

31 March 2026.

The Board regularly evaluates the performance of the

portfolio of Songs and the Company’s financial position

as well as assessing sensitivities that impact dividend

cover, credit facility covenants, cash position and

profitability of the Company to assess an ‘extreme but

possible downside scenario’. Based on our principal risks

and uncertainties, an ‘extreme but possible downside

scenario’, reflecting a combination of negative

assumptions (mostly macro-economic rather than

Company specific) was incorporated as follows:

• Revenues remain constant over the next three-year

period, contrary to the increases in prior periods and

predicted market growth.

• A strengthening of Sterling versus US Dollar, to account

for the fact that the majority of revenues are received

from the USA and that the majority of cash outflows

are paid in Sterling. This assessment assumes Sterling

strengthens against the US Dollar and the exchange

rate for £1.00 equals $1.40 (based on the five year high

rate in Q2 2021 as compared to $1.24 in March 2023).

• Secured Overnight Financing Rate (‘SOFR’) increases

to 8% (from 5.1% as at May 2023), taking the all-in

interest rate to 10%. The Company’s debt facility is

based on a fixed rate margin, plus a floating rate

based on SOFR. From 3 January 2023, the Company

entered into interest rate swaps to hedge $540 million

out of the $600m drawn. Of this, $340 million is hedged

for the duration of the RCF (until 30 September 2027)

at a fixed rate of 5.67% (including debt margin); a

further $200 million is hedged until 3 January 2026 at

a fixed rate of 5.89% (including debt margin). Only

the unhedged element of the RCF is susceptible

to increases in the underlying SOFR rate. The Board

expect no covenant breaches in this scenario.

HIPGNOSIS SONGS FUND LIMITED

ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023

Each of these scenarios were incorporated into a

detailed financial model and their impact assessed

on revenues and future cash flows. The results of this

stress testing show that a combination of all these

hypothetical scenarios in the extreme downside

scenario would result in a cash shortfall in FY24 and

impact the ability of the Company to maintain the

current dividend policy. Were this extreme but possible

scenario to occur, the Board would take mitigating

actions to ensure the viability and future cash flows

of the Company, including remedies such as making

changes to the timing or size of future dividend

payments.

Given the liquidity available to the Company and

based on this analysis, the Directors have a reasonable

expectation that, even under these severe stress tests,

the Company will be able to continue in operation and

meet its liabilities as they fall due and remain viable

over the three-year period of assessment.

In arriving at their conclusions, the Board also

considered, amongst other things:

• The Company’s historic consistency in generating

material net cash from operating activities

(12 months to 31 March 2023: $102.1 million, 12 months

to 31 March 2022: $84.9 million).

• The Company’s expected credit loss based

on the probability that future default on trade

receivables has been deemed close to nil, due to

the long-standing history of PROs, Publishers and

Record Labels within the music industry and the

existing framework of cash collection amongst the

Company's stakeholders.

• The Company’s liquidity, given cash balances

of $38.0 million as at 31 March 2023.

• The Company’s headroom under its borrowing policy

as a percentage of NAV.

Notwithstanding this assessment, forecasting for

individual Catalogues can deliver variances versus

the actual revenues received but these variances are

considered immaterial in the context of the whole

diversified Portfolio. The Board therefore considers that

risk associated with individual Catalogue performance

is mitigated by diversification, and the overall forecast

assumptions adopted are reasonable and sustainable

at the present time.

If the Continuation Vote is not passed, the Directors are

required to put forward proposals for the reconstruction,

reorganisation or winding-up of the Company to

the Shareholders for their approval within six months

following the date on which the Continuation Vote is

not passed. These proposals may or may not involve

winding-up the Company or liquidating all or part of

the Company’s then existing portfolio of investments

and, accordingly, failure to pass a Continuation Vote

will not necessarily result in the winding-up of the

Company or liquidation of all or some of its investments.

The Board is of the opinion that the long-term trends

and outlook for music publishing and the consumption

of recorded music both remain positive as evidenced

throughout this Annual Report.

STRATEGIC REPORT • KEY STATEMENTS

STRATEGIC REPORT

HIPGNOSIS SONGS FUND LIMITED

ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023

Going Concern

The Board monitors the liquidity and capital resilience

of the Company, prepared by the Investment Adviser

monthly, which spans a 12-month forecast horizon. This

provides comfort over the Company’s ability to continue

as a going concern for a period of at least 12 months

from the date the financial statements are signed.

Revenue assumptions for future periods, and therefore

cash receivable, are based on forecasts of royalties and

other revenue receivable combined with the unwinding

of revenue accruals. Sensitivities as noted in the Viability

Statement are applied to revenues to assess market

downside impacts and other economic factors.

Expenses are forecast on both a contractual and non-

contractual basis, where the non-contractual analysis

is derived from the run-rate expenses over the prior

12-month period.

The 12-month forecast assumes a ‘steady state’ so does

not include the impact of any future equity raises, debt

refinancing or acquisitions which is consistent with the

Company’s short to mid-term strategic objectives.

Based on these sources of information and the

Company’s history of positive cashflows, which are

expected to continue, it is the Board’s judgement that

the Company will continue to have a reliable source

of revenue from its Publishers and PROs, sufficient for

the Company to meet its obligations over at least the

next 12 months. Accordingly, the Directors believe it

is appropriate to prepare the Consolidated Financial

Statements of the Company on a going concern basis.

Although the Board are confident that the Company

will have sufficient financial resources, there is a material

uncertainty as to the outcome of the Continuation

Vote which is due to be held in accordance with

Part I, Section 9 of the latest Company prospectus.

Should Shareholders vote against continuation of the

Company or continuation of the Company in its current

form this could impact the longer term viability of the

Company and there is a material uncertainty that

could cause significant doubt as to the ability of the

Group to continue as a going concern.

As a result of the strong fundamentals supporting the

Company’s investment strategy, robust operating

metrics displayed by the Company which include a

consistent dividend yield and stable NAV, combined

with the strong financial position of the Company, the

Directors believe there is a compelling rationale for

Shareholders to vote in favour of the Continuation Vote

and that the Company will continue as constituted.

STRATEGIC REPORT • KEY STATEMENTS

HIPGNOSIS SONGS FUND LIMITED

ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023

Section 172(1) Statement

The purpose of the Strategic Report is to inform

members of the Company and help them assess

how the directors have performed their duty under

section 172. This section 172(1) statement incorporates

information from other areas of the Annual Report to

avoid unnecessary duplication.

Section 172 of the UK Companies Act 2006 applies

directly to UK domiciled companies. Nonetheless the

AIC Code requires that the matters set out in section

172(1) are reported on by all companies, irrespective

of domicile. This requirement does not conflict with

Guernsey company law.

The Directors have had regard for the matters set out

in section 172(1)(a)-(f) of the Companies Act 2006

when performing the duties set out in section 172. The

Directors consider that they have acted in good faith

in the way that would be most likely to promote the

success of the Company for the benefit of its members

as a whole, while also considering the broad range of

stakeholders who interact with and are impacted by

our business.

The table below indicates where the relevant

information is that demonstrates how we act in

accordance with the requirements of s.172(1).

s172 matter

Likely consequences of any decision in the long term

Introduction from Merck Mercuriadis, pages 3-6

The Chair’s Statement, pages 11-15

Investment Adviser’s Report, pages 17-41

Our Resources and Relationships, pages 57-61

Our Principal Risks and Uncertainties, pages 62-66

Viability Statement, pages 67-68

Going Concern, page 69

Application of AIC Code Principles, pages 74-77

Board Leadership and Company Purpose, pages 78-79

Composition, Evaluation and Succession, pages 84-85

Report of the Nomination Committee, pages 88-90

Report of the Audit and Risk Management Committee,

pages 92-98

Report of the Management Engagement Committee,

pages 99-100

Report of the Environmental, Social and Governance

Oversight Committee, page 103

Directors’ Remuneration Report, pages 104-107

The interests of the Company’s employees

Our Resources and Relationships, page 58

Compliance Statement, page 73

Application of AIC Code Principles, pages 74

Board Leadership and Company Purpose, pages 78

Report of the Management Engagement Committee,

pages 99-100

Report of the Environmental, Social and Governance

Oversight Committee, page 103

Directors’ Remuneration Report, pages 104, 106

STRATEGIC REPORT • KEY STATEMENTS

STRATEGIC REPORT

HIPGNOSIS SONGS FUND LIMITED

ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023

STRATEGIC REPORT • KEY STATEMENTS

s172 matter

The need to foster the Company’s business

relationships with suppliers, customers and others

Introduction from Merck Mercuriadis, pages 3-6

The Chair’s Statement, pages 11-15

Investment Adviser’s Report, pages 17-41

Our Market, pages 42-45

Our Purpose, Business Model, Culture and Values,

pages 50-53

Our Objective, Strategy and Investment Policy,

pages 54-56

Our Resources and Relationships, pages 57-61

Our Principal Risks and Uncertainties, pages 63, 65

Application of AIC Code Principles, pages 74, 76

Board Leadership and Company Purpose, pages 79

Report of the Nomination Committee, pages 89

Report of the Audit and Risk Management Committee,

pages 95-97

Report of the Management Engagement Committee,

pages 99-100

Report of the Environmental, Social and Governance

Oversight Committee, page 103

Impact of the Company’s operations on the

community and environment

Introduction from Merck Mercuriadis, pages 4, 5

Investment Adviser’s Report, pages 28

Our Purpose, Business Model, Culture and Values,

pages 52

Our Resources and Relationships, pages 57-61

Principal Risks and Uncertainties 66

Application of AIC Code Principles, page 74

Board Leadership and Company Purpose, pages 78-79

Report of the Audit and Risk Management Committee,

pages 93, 98

Report of the Environmental, Social and Governance

Oversight Committee, page 103

The Company’s reputation for high standards

of business conduct

Introduction from Merck Mercuriadis, pages 5, 6

The Chair’s Statement, pages 11-15

Our Purpose, Business Model, Culture and Values,

pages 52

Our Resources and Relationships, pages 57-61

Our Principal Risks and Uncertainties, pages 64

Governance, pages 72-107

The need to act fairly as between members

of the Company

Introduction from Merck Mercuriadis, pages 3

The Chair’s Statement, pages 11, 13

Our Objective, Strategy and Investment Policy,

pages 54-56

Our Resources and Relationships, pages 58

Application of AIC Code Principles, page 74

Board Leadership and Company Purpose, pages 78, 79

Report of the Directors, pages 108-110

HIPGNOSIS SONGS FUND LIMITED

ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023

Chair’s Introduction

Dear Shareholder,

On behalf of the Board I am pleased to present the Corporate

Governance Report for the year ended 31 March 2023. This report

describes the Corporate Governance structures and procedures

and summarises the work of the Board and its Committees to

illustrate how we have discharged our responsibilities over the

year. The Board is collectively responsible for how the Company is

directed and controlled. Our responsibilities include agreeing the

Company’s strategic aims and values; monitoring and constructively challenging the

Investment Adviser on the operations of the business; ensuring a framework of prudent

and effective controls; and reporting to Shareholders on the Board’s stewardship.

As Chair, I am responsible for leading and ensuring an effective Board.

The Board recognises its duties and responsibilities to our Shareholders and other

stakeholders. Further details of how we take account of Shareholder and wider

stakeholder interests in our strategic planning and decision-making processes are set

out on pages 57 and 78. We will continue to work with the Investment Adviser to deliver

on our strategic goals while ensuring that we continue to engage with all stakeholders.

Andrew Sutch

Chair

12 July 2023

Contents

72 Corporate Governance Statement

Chair’s Introduction

Corporate Governance Report

73 Compliance Statement

74 Application of the AIC Code Principles

77 Other Key Governance Statements

Board Leadership and Company Purpose

Division of Responsibilities

84 Composition, Evaluation and Succession

85 Board of Directors

88 Report of the Nomination Committee

91 Audit, Risk and Internal Control

92 Report of the Audit and Risk Management Committee

99 Report of the Management Engagement Committee

101 Report of the Portfolio Committee

103 Report of the Environmental, Social and

Governance Oversight Committee

104 Directors’ Remuneration Report

108 Report of the Directors

108 General Information

108 Principal Activities

108 Results and Dividends

109 Share Capital

109 Shareholdings of the Directors

109 Directors’ Authority to Buy Back Shares

110 Directors’ and Officers’ Liability Insurance

110 Substantial Shareholdings

110 Articles of Incorporation

110 AEOI Rules

111 Directors’ Responsibilities Statement

113 Independent Auditor’s Report

GOVERNANCE

HIPGNOSIS SONGS FUND LIMITED

ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023

Compliance Statement

Hipgnosis Songs Fund Limited is a company registered in

Guernsey and has a Premium Listing on the Main Market

on the London Stock Exchange. The Company became

a member of the AIC on 22 August 2018.

The Board has considered the Principles and Provisions

of the AIC Code of Corporate Governance 2019 (AIC

Code). The AIC Code addresses the relevant Principles

and Provisions set out in the UK Corporate Governance

Code 2018 (the UK Code), as well as setting out

additional Provisions on issues that are of specific

relevance to the Company.

Throughout the year ended 31 March 2023, the

Company has applied the Principles (as explained on

pages 74-77) and complied with the relevant Provisions

of the AIC Code.

The Board considers that reporting against the

Principles and Provisions of the AIC Code, which has

been endorsed by the Financial Reporting Council and

the Guernsey Financial Services Commission, provides

more relevant information to Shareholders. By reporting

against the AIC Code the Company is meeting its

obligations under the UK Code (and associated

disclosure requirements under paragraph 9.8.6 of the

Listing Rules) and as such does not need to report

further on issues contained in the UK Code which are

irrelevant to the Company, as set out below:

• the role of the chief executive;

• executive directors’ remuneration; and

• the need for an internal audit function.

For the reasons set out in the AIC Code, and as

explained in the UK Code, the Board considers that

the above provisions are not currently relevant to the

position of the Company which delegates most day-to-

day functions to third parties.

In September 2020, through acquisition of the assets

of HSG, the Company acquired employees. None

of the employees are classified as Senior Executives

as they do not report directly to the Board, and the

management of the employees has been delegated

to the Investment Adviser in its entirety; however, the

Board retains oversight through the Investment Advisory

Agreement. The decision not to have an internal audit

function is discussed in the Report of the Audit and Risk

Management Committee.

The AIC Code is available on the AIC website

www.theaic.co.uk.

Corporate Governance Report

GOVERNANCE

HIPGNOSIS SONGS FUND LIMITED

ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023

Application of the AIC Code Principles

The AIC Code, and the underlying UK Code, have placed increased emphasis on “apply and explain” with regard

to the Principles of the Codes.

The Company is a member of the Association of Investment Companies and is a constituent of the AIC’s

“Royalties” Specialist Investment Trust sector classification. The Company’s page on the AIC’s website is at

www.theaic.co.uk/companydata/hipgnosis-songs-fund

Our explanations about how we have applied the application of the main principles of the AIC Code can be

found as follows:

Board Leadership and Company Purpose

Principle A. A successful company is led by an

effective Board, whose role is to promote the long-term

sustainable success of the company, generating value

for Shareholders and contributing to wider society.

Strategic Report, pages 2-71

Governance, pages 72-112

Principle B. The Board should establish the company’s

purpose, values and strategy, and satisfy itself that

these and its culture are aligned. All Directors must

act with integrity, lead by example and promote the

desired culture.

Strategic Report, pages 2-71

Board Leadership and Company Purpose, pages 78-79

Principle C. The Board should ensure that the

necessary resources are in place for the company to

meet its objectives and measure performance against

them. The Board should also establish a framework of

prudent and effective controls, which enable risk to be

assessed and managed.

Our Resources and Relationships, pages 57-61

Our Principal Risks and Uncertainties, pages 62-66

Section 172(1) Statement, pages 70-71

Board Leadership and Company Purpose, pages 78-79

Audit, Risk and Internal Control, page 91

Report of the Audit and Risk Management Committee,

pages 92-98

Principle D. In order for the company to meet its

responsibilities to Shareholders and stakeholders, the

Board should ensure effective engagement with, and

encourage participation from, these parties.

Our Resources and Relationships, pages 57-61

Section 172(1) Statement, pages 70-71

Board Leadership and Company Purpose, pages 78-79

GOVERNANCE • CORPORATE GOVERNANCE REPORT

GOVERNANCE

HIPGNOSIS SONGS FUND LIMITED

ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023

Division of responsibilities

Principle F. The Chair leads the Board and is

responsible for its overall effectiveness in directing

the company. They should demonstrate objective

judgment throughout their tenure and promote a

culture of openness and debate. In addition, the Chair

facilitates constructive Board relations and the effective

contribution of all Non-executive Directors, and ensures

that Directors receive accurate, timely and clear

information.

The Chair’s Statement, pages 11-15

The Chair’s Introduction, page 72

Board Leadership and Company Purpose, pages 78-79

Division of Responsibilities, pages 80-83

Principle G. The Board should consist of an appropriate

combination of Directors (and, in particular,

independent Non-executive Directors) such that no one

individual or small group of individuals dominates the

Board’s decision making.

Division of Responsibilities, pages 80-83

Board of Directors, pages 85-87

Principle H. Non-executive Directors should have

sufficient time to meet their Board responsibilities.

They should provide constructive challenge, strategic

guidance, offer specialist advice and hold third-party

service providers to account.

The Chair’s Statement, pages 11-15

Board Leadership and Company Purpose, pages 78-79

Division of Responsibilities, pages 80-83

Report of the Audit and Risk Management Committee,

pages 92-98

Report of the Management Engagement Committee,

page 99-100

Principle I. The Board, supported by the company

secretary, should ensure that it has the policies,

processes, information, time and resources it needs in

order to function effectively and efficiently.

Our Resources and Relationships, pages 57-61

Our Principal Risks and Uncertainties, pages 62-66

Section 172(1) Statement, pages 70-71

Board Leadership and Company Purpose, pages 78-79

Division of Responsibilities, pages 80-83

Audit, Risk and Internal Control, page 91

Report of the Audit and Risk Management Committee,

pages 92-98

Report of the Management Engagement Committee,

page 99-100

GOVERNANCE • CORPORATE GOVERNANCE REPORT

HIPGNOSIS SONGS FUND LIMITED

ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023

Composition, succession and evaluation

Principle J. Appointments to the Board should

be subject to a formal, rigorous and transparent

procedure, and an effective succession plan should be

maintained. Both appointments and succession plans

should be based on merit and objective criteria and,

within this context, should promote diversity of gender,

social and ethnic backgrounds, cognitive and personal

strengths.

Report of the Nomination Committee, pages 88-90

Principle K. The Board and its committees should have

a combination of skills, experience and knowledge.

Consideration should be given to the length of service

of the Board as a whole and membership regularly

refreshed.

Board of Directors, pages 85-87

Report of the Nomination Committee, pages 88-90

Principle L. Annual evaluation of the Board should

consider its composition, diversity and how effectively

members work together to achieve objectives.

Individual evaluation should demonstrate whether

each director continues to contribute effectively.

Report of the Nomination Committee, pages 88-90

Audit, risk and internal control

Principle M. The Board should establish formal and

transparent policies and procedures to ensure the

independence and effectiveness of external audit

functions and satisfy itself on the integrity of financial

and narrative statements.

Audit, Risk and Internal Control, page 91

Report of the Audit and Risk Management Committee,

pages 92-98

Principle N. The Board should present a fair, balanced

and understandable assessment of the company’s

position and prospects.

Strategic Report, pages 2-71

Audit, Risk and Internal Control, page 91

Report of the Audit and Risk Management Committee,

pages 92-98

Financial Statements, pages 122-162

Principle O. The Board should establish procedures to

manage risk, oversee the internal control framework,

and determine the nature and extent of the principal

risks the Company is willing to take in order to achieve

its long-term strategic objectives.

Our Principal Risks and Uncertainties, pages 62-66

Viability Statement, pages 67-68

Audit, Risk and Internal Control, page 91

Report of the Audit and Risk Management Committee,

pages 92-98

Notes to the Financial Statements, pages 127-162

GOVERNANCE • CORPORATE GOVERNANCE REPORT

GOVERNANCE

HIPGNOSIS SONGS FUND LIMITED

ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023

Remuneration

Principle P. Remuneration policies and practices

should be designed to support strategy and promote

long-term sustainable success.

Strategic Report, pages 2-71

Board Leadership and Company Purpose, pages 78-79

Directors’ Remuneration Report, pages 104-107

Principle Q. A formal and transparent procedure

for developing policy on remuneration should be

established. No director should be involved in deciding

their own remuneration outcome.

Directors’ Remuneration Report, pages 104-107

Principle R. Directors should exercise independent

judgment and discretion when authorising

remuneration outcomes, taking account of company

and individual performance, and wider circumstances.

Directors’ Remuneration Report, pages 104-107

Other Key Governance Statements

The Directors confirm that:

Going Concern

The Going Concern statement is made on page 69.

Viability

The Viability Statement is made on pages 67-68. Further

details of the Board’s assessment of the viability of the

Company are set out in Audit, Risk and Internal Control

on pages 91. The Principal Risks and Uncertainties are

set out on pages 62-66.

Principal and Emerging Risks

The Board has undertaken a robust review of the

Group’s principal and emerging risks, including

those that would threaten its business model, future

performance, solvency or liquidity and reputation.

The Principal Risks and Uncertainties are set out on

pages 62-66.

Risk management and internal control

The Board has monitored the Company’s risk

management and internal control systems and carried

out a review of their effectiveness. Further details are

set out in Audit, Risk and Internal Control on page 91.

The Principal Risks and Uncertainties are set out on

pages 62-66.

Continuing Appointment of the Investment Adviser

The continuing appointment of Hipgnosis Song

Management Limited as the Investment Adviser,

on the terms agreed, is in the interests of the

Shareholders as a whole. Further details on the basis

for this conclusion, and the terms, are set out in the

Report of the Management Engagement Committee

on page 99-100.

Fair, Balanced and Understandable

The annual report and accounts taken as a whole, are

fair, balanced and understandable and provide the

information necessary for Shareholders to assess the

Company’s performance, business model and strategy.

See the Report of the Audit and Risk Management

Committee on page 92 for further information on how

this conclusion was reached.

Section 172(1)

The Section 172(1) statement is made on pages 70-71.

It provides cross-references to the required detail set out

throughout this annual report.

GOVERNANCE • CORPORATE GOVERNANCE REPORT

HIPGNOSIS SONGS FUND LIMITED

ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023

The Role of the Board

The Company is led and controlled by a Board of

Directors, who are collectively responsible for the

long-term success of the Company. The Board acts in

the interests of the Company, creating and preserving

value and has as its foremost principle to act in the

interests of Shareholders.

Culture and Values

The Board recognises that tone and culture are set from

the top, and that every interaction with the Company’s

stakeholders has a great influence on the sustainability

of long-term Shareholder value. This can be the

Board’s interaction with its Shareholders, or one of the

Investment Adviser’s junior employees dealing with one

of the Company’s service providers. The importance

of sound ethical values and behaviour is crucial to

the ability of the Company to achieve its objectives

successfully.

The Board individually and collectively seeks to act

with diligence, honesty and integrity and expects the

same values from its service providers. It encourages

its members to express differences of perspective

and to challenge views and opinions but always in a

respectful, open, cooperative and collegiate fashion.

The Board encourages diversity of thought and

approach and chooses its members with this approach

in mind.

The Company’s culture emulates that of the Investment

Adviser, with a focus on long-lasting relationships with

its investor base; investment excellence delivered

with integrity; and world-class leadership backed by

extensive industry knowledge creating a Songwriter

community rapport and a diverse, innovative, multi-

cultured portfolio of Song assets.

The Board is actively involved in defining and driving

strategy whilst ensuring it reflects the Company’s culture

and values. During the year the Board led or supported

a number of key work streams. It was heavily involved

in the refinancing of the Company’s debt facility as

well as discussions regarding operational performance

and active portfolio management. The Board requires

adequate information to address the key issues

faced by the Company and throughout the year has

engaged and consulted with the Investment Adviser,

the Company’s other professional advisers as well as

Shareholders. It has outlined the format and quantum

of information and specific reports to be provided by

advisers to ensure the Board is well informed when

considering recommendations and actions.

Key Decisions

In making its decisions, the Board considered the

need to maintain a reputation for high standards of

business conduct and the outcome from stakeholder

engagement. Investor perceptions and feedback

was obtained through consultation with the

Company’s brokers and additionally through direct

engagement between the Investment Adviser, the

Board and Shareholders. Consideration was given

to the Company’s share price which continued to

trade at a discount to NAV during the year and the

macro-economic environment of high inflation, rising

Interest rates, the increasing unpredictability of debt

markets, and the objective of efficient and effective

management of the Company’s Portfolio.

Key decisions through the year are summarised below:

• Maintaining the Company’s quarterly dividend at

a consistent rate of 1.3125p.

• Entering into a digital administration agreement with

Society of Authors, Composers and Publishers of

Music (Sacem) and a sub-publishing partnership with

peermusic to provide a modern, worldwide network

for the collection of Song royalties for the Company.

• Replacing the previous financing arrangements with

a $700m Revolving Credit Facility to materially reduce

the Company’s interest margins at a time of interest

rate volatility as well as improving its terms.

• Completing interest rate swap agreements to provide

increased certainty over the cost of the Company’s debt.

• Establishing and implementing a Foreign Exchange

strategy to provide increased control around future

dividend payments.

• Engaging an additional Independent valuation firm

to consider and advise on the reasonableness of

assumptions employed in arriving at the Fair Value

of the Company’s Portfolio as at 30 September 2022

and continuing to engage with them through the

year ended 31 March 2023 to the date of this report,

providing the Board with continuing insights.

• Commencing an irrevocable share repurchase

programme resulting in the purchase of 2,000,000

ordinary shares of and by the Company, with a view to

reducing the Company’s share price discount to NAV.

GOVERNANCE

Board Leadership and Company Purpose

GOVERNANCE

HIPGNOSIS SONGS FUND LIMITED

ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023

• Hosting a Capital Markets Day on 8 December 2022 to

highlight the active management of the Portfolio and

the actions of the Board in managing the Company’s

share price.

• Convening a Strategy Day with the Investment Adviser

and the Company’s brokers to focus on the medium-

and long-term direction and strategy of the Company.

• Approving an increase in the level of Directors’

Remuneration by 10% as further detailed in the

Directors’ Remuneration Report on page 104.

Relations with Shareholders and other

stakeholders

The majority of the key decisions noted above,

including the decision to enter into a share buyback

scheme, were in line with investor sentiment and were

made following consultation with key stakeholders.

The Board places great importance on communication

with its Shareholders and welcomes their views. The

Board is kept fully informed of all relevant market

commentary on the Company by the Investment

Adviser and the Corporate Brokers. The Company’s

refinancing activities were well received, and positive

feedback was also received following the Capital

Markets Day held on 8 December 2022. Stakeholders

reported that they felt the Company had invested in

a high-quality Portfolio and appreciated the insights

gained surrounding the active management of the

Portfolio, although expressed disappointment that

the Company’s share price continued to trade at

a discount to NAV.

In addition, both the Board and the Investment Adviser

implemented a programme of regular consultation with

all major Shareholders which resulted in a number of

productive meetings. The aim of these meetings was to

proactively gauge sentiment and to discuss any questions

Shareholders may have had in relation to the running

of the Company especially in light of the forthcoming

Continuation Vote. The Board obtained a broad

spectrum of feedback which it is actively considering.

The Company reports formally to Shareholders in a

number of ways; regulatory news releases through the

London Stock Exchange’s Regulatory News Service,

annual and interim reports and periodic factsheets

issued in response to events or routine reporting

obligations. In addition, the Company’s website

contains comprehensive information, financial results,

events, corporate reports, webcasts and factsheets;

these are all stored in the Investor Relations section of

the Company’s website: https://www.hipgnosissongs.

com/results-center/

Relationships with other stakeholders are discussed

on page 58.

All Shareholders continue to have direct access to the

Chair and the other Directors, who are available on

request.

Annual General Meeting

The Company’s Annual General Meeting (AGM) will be

held before the end of September. Notice of the Annual

General Meeting, containing full details of the business

to be conducted at the meeting, will be published to

Shareholders in due course.

Members of the Board and the Investment Adviser will

be in attendance at the AGM and available to answer

Shareholder questions.

Whistleblowing

The Board has considered the AIC Code

recommendations in respect of arrangements by which

staff of the Investment Adviser or Administrator may,

in confidence, raise concerns within their respective

organisations about possible improprieties in matters

of financial reporting or other matters anonymously.

It has concluded that adequate arrangements are

in place for the proportionate and independent

investigation of such matters and, where necessary, for

appropriate follow-up action to be taken within each

organisation. The Board routinely reviews this and any

reports which may arise from its operation. The Board

confirms that no concerns were raised during the year.

GOVERNANCE • BOARD LEADERSHIP AND COMPANY PURPOSE

HIPGNOSIS SONGS FUND LIMITED

ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023

Division of Responsibilities

Duties and Responsibilities

The Board is responsible for the determination of the

Company’s Investment Objective and Policy and has

overall responsibility for maximising the Company’s

success by directing and supervising the affairs of

the business, meeting the appropriate interests of

Shareholders and relevant stakeholders, and also

ensuring the protection of investors.

A summary of the matters reserved for the Board is

as follows:

• strategic matters;

• risk assessment and management including reporting,

compliance, governance, monitoring and control

and financial reporting;

• statutory obligations and public disclosure;

• declaring Company dividends;

• managing and assessing the performance of the

Company’s advisers and service providers; and

• other matters having a material effect on the Company.

At 31 March 2023, the Board consisted of six independent

Non-executive Directors; an independent Chair, one

Senior Independent Director and four Independent

Non-executive Directors. The Directors believe that

the composition of the Board is a fundamental driver

of its success as the Board must provide strong and

effective leadership of the Company. The current Board

was selected, as their biographies illustrate, to bring a

breadth of knowledge, skills and business experience

to the Company. The Directors’ details are listed on

pages 85-87 which set out their range of investment,

financial and business skills and experience.

Mr Sutch is the Chair. He leads the Board and is

responsible for its overall effectiveness in directing the

Company. The Chair is appointed in accordance with

the Company’s Articles of Incorporation. In considering

the independence of the Chair, the Board took note of

the provisions of the AIC Code relating to independence

and has determined that Mr Sutch is an independent

director. The Board is satisfied that the Chair has no

relationships that may create a conflict of interest

between his interests and those of Shareholders.

Mr Burger is the Senior Independent Director. The Senior

Independent Director acts as a sounding board for the

Chair and is a trusted intermediary for other Directors.

The Senior Independent Director is available to meet

Shareholders if they have concerns that cannot be

resolved through discussion with the Chair or for matters

where such contact would be inappropriate. In addition,

during the year, the Senior Independent Director leads

the other Directors in evaluating the performance of

the Chair. The Board is fully satisfied that Mr Burger

demonstrates complete independence and robustness

of character in this role.

The Directors have access to the advice and services of

the Administrator, who also assists the Board in ensuring

that Board procedures are followed, and the Board

complies with the Companies Law and applicable

rules and regulations of the GFSC and the London Stock

Exchange. Where necessary, in carrying out their duties,

the Directors may seek independent professional advice

and services at the expense of the Company. The

Company maintains appropriate Directors’ and Officers’

liability insurance in respect of legal action against its

Directors on an on-going basis.

The Board’s responsibilities for the Annual Report are

set out in the Directors’ Responsibilities Statement on

pages 111-112. The Board is also responsible for issuing

appropriate Interim Reports and other price-sensitive

public reports.

The Company has adopted a share dealing code for the

Board and seeks to ensure compliance by the Board and

relevant personnel of the Investment Adviser and other

third-party service providers with the terms of the share

dealing code.

Committees of the Board

As part of the governance framework, the Board

has delegated some of its responsibilities to six

committees: the Nomination Committee, the Audit

& Risk Management Committee, the Management

Engagement Committee, the Remuneration Committee,

the Portfolio Committee, and the Environmental, Social

and Governance Oversight Committee.

The Board is satisfied that the committees have

sufficient time and resources to carry out their

duties effectively. Each committee of the Board has

written terms of reference, approved by the Board,

summarising its objectives, remit and powers, which

are available on the Company’s website (https://www.

hipgnosissongs.com/governance/) and are reviewed

on an annual basis. Committees are supplied with

GOVERNANCE

HIPGNOSIS SONGS FUND LIMITED

ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023

regular, comprehensive and timely information in a form

and of a quality that enables them to discharge their

duties effectively. Each committee has access to such

external advice as it may consider appropriate, and

all committee members are able to make further

enquiries of the Investment Adviser or Administrator

whenever necessary and have access to the services

of the Company Secretary.

The respective committee chairs report on their

activities to the Board. Director attendance at Board

and committee meetings is summarised on page 82.

The Board believes that it and its Committees have an

appropriate composition and blend of backgrounds,

skills and experience to discharge their duties effectively.

The Board is of the view that no one individual or small

group dominates decision-making. The Board keeps its

membership, and that of its Committees, under review to

ensure that an acceptable balance is maintained, and

that the collective skills and experience of its members

continue to be refreshed. It is satisfied that all Directors

have sufficient time to devote to their roles and that

undue reliance is not placed on any individual.

Minutes of all meetings of the Committees are made

available to all Directors and feedback from each

of the Committees is provided to the Board by the

respective committee chair at the next Board meeting.

Nomination Committee

The Nomination Committee’s activities are contained in

the Report of the Nomination Committee on page 88.

Audit and Risk Management Committee

The Audit and Risk Management Committee’s activities

are contained in the Report of the Audit and Risk

Management Committee on page 92.

Management Engagement Committee

The Management Engagement Committee’s activities

are contained in the Report of the Management

Engagement Committee on page 99.

Remuneration Committee

The Remuneration Committee’s activities are contained

in the Directors’ Remuneration Report on page 104.

Portfolio Committee

The Portfolio Committee’s activities are contained in the

Report of the Portfolio Committee on page 101.

Environmental, Social and Governance Oversight

Committee

The Environmental, Social and Governance Oversight

Committees activities are contained in the Report of

the Environmental, Social and Governance Oversight

Committee on page 103.

Board of Directors

The Board is accountable for the stewardship of the Company’s business to the Shareholders and other stakeholders

Audit and Risk Management

Committee

Mr Andrew Wilkinson

Chair of the Committee

Mr Paul Burger

Ms Sylvia Coleman

Mr Simon Holden

Ms Vania Schlogel

Mr Andrew Sutch

Management Engagement

Committee

Mr Andrew Sutch

Chair of the Committee

Mr Paul Burger

Ms Sylvia Coleman

Mr Simon Holden

Ms Vania Schlogel

Mr Andrew Wilkinson

Nomination

Committee

Mr Paul Burger

Chair of the Committee

Ms Sylvia Coleman

Mr Simon Holden

Ms Vania Schlogel

Mr Andrew Sutch

Mr Andrew Wilkinson

Remuneration

Committee

Mr Simon Holden

Chair of the Committee

Mr Paul Burger

Ms Sylvia Coleman

Ms Vania Schlogel

Mr Andrew Sutch

Mr Andrew Wilkinson

Portfolio

Committee

Mr Paul Burger

Chair of the Committee

Ms Sylvia Coleman

Mr Simon Holden

Ms Vania Schlogel

Mr Andrew Sutch

Mr Andrew Wilkinson

Environmental, Social and

Governance Oversight Committee

Ms Sylvia Coleman

Chair of the Committee

Mr Paul Burger

Mr Simon Holden

Ms Vania Schlogel

Mr Andrew Sutch

Mr Andrew Wilkinson

GOVERNANCE • DIVISION OF RESPONSIBILITIES

HIPGNOSIS SONGS FUND LIMITED

ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023

Board attendance from 1 April 2022 to 31 March 2023:



Scheduled Board

Meetings

Ad-hoc

Board

Meetings

Nomination

Committee

Audit and Risk

Management

Committee

Management

Engagement

Committee

Remuneration

Committee

Environmental,

Social and

Governance

Oversight

Committee

Total

Meetings

attended

Total Meetings 4 12 1 5 1 1 1 25

Paul Burger

4 11 1 4 1 1 1 23

Sylvia Coleman

4 12 1 5 1 1 1 25

Simon Holden

4 12 1 5 1 1 1 25

Andrew Sutch

4 11 1 5 1 1 1 24

Andrew Wilkinson

4 9 1 5 1 1 1 22

Vania Schlogel

3 7 0 3 0 0 0 13

1. Chair of Board and Management Engagement Committee

2. Chair of Portfolio Committee and Nomination Committee

3. Chair of Audit and Risk Management Committee

4. Chair of Remuneration Committee

5. Chair of Environmental, Social and Governance Oversight Committee

6. Includes Strategy Day

7. Resigned 30 April 2023

A quorum for each committee meeting is comprised

of any two or more members of the Board from time

to time.

Directors work extensively with the Investment Adviser,

the Company’s brokers and Administrator on strategy,

acquisitions, disposals, operational, performance

management and reporting related matters between

the formal Board meetings, which is not reflected in the

above table. Compared with typical investment trusts,

this highlights the more in-depth level of management

and oversight commensurate with the intrinsic

opportunities and risks of this high-growth, intangible

asset class.

Attendance

The Board and its committees have a scheduled

forward programme of meetings to ensure that sufficient

time is allocated to each key area and the Board’s time

is used effectively.

The Board meets at least four times a year for scheduled

quarterly Board meetings, plus other ad-hoc Board

meetings. At each meeting the Board follows a formal

agenda that covers the business to be discussed.

There is sufficient flexibility for items to be added to

the agenda which enables the Board to focus on key

matters relating to the Company at the right time. Each

Board member receives a comprehensive Board pack

prior to each meeting together with supporting papers

for items to be discussed at the meeting.

In addition, a number of ad-hoc Board meetings (as

detailed above) were called in relation to specific

events or to issue approvals outside of the regular

quarterly Board meetings. These meetings were

often at short notice and were very well attended by

Board and committee members. In addition to their

meeting commitments, the Directors also liaise with

the Investment Adviser whenever required and there

is regular and frequent contact outside the Board

meeting schedule. The Directors meet regularly with

the senior management employed by the Investment

Adviser both formally and informally to ensure the Board

remains regularly updated on all issues. The Board also

has regular contact with the Administrator, and the

Board requires to be supplied in a timely manner with

information by the Investment Adviser, the Company

Secretary and other advisers in a form and of a quality

to enable it to discharge its duties.

Directors who have been unable to attend a meeting

have given the Chair their views and comments on

matters to be discussed, in advance. The Board have met

in person for all quarterly Board meetings, as well as for the

Annual General Meeting and the Strategy Day convened

in February 2023 and have continued to meet remotely

as and when necessary for ad-hoc Board meetings.

GOVERNANCE • DIVISION OF RESPONSIBILITIES

GOVERNANCE

HIPGNOSIS SONGS FUND LIMITED

ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023

Time commitment and conflicts of interest

Prior to appointment, each prospective Non-executive

Director confirms that they will have sufficient time

available to be able to discharge their responsibilities

effectively and that they have no conflict of interest.

In addition, the Board reviews and approves in

advance, requests by Directors wishing to undertake

new responsibilities or directorships and considers both

the time commitments involved and any potential

conflicts. A Director has a duty to avoid a situation in

which he or she has, or can have, a direct or indirect

interest that conflicts, or possibly may conflict, with the

interests of the Company. The Board requires Directors

to regularly declare all appointments and other

situations that could result in a possible conflict of

interest and has adopted appropriate procedures

to manage and, if appropriate, approve any such

conflicts. The Board is satisfied that there is no

compromise to the independence of those Directors

who have appointments on the Boards of, or

relationships with, companies outside the Company.

It was recognised towards the end of the year that

Ms Schlogel’s other commitments and responsibilities

had increased significantly resulting in a conflict in terms

of her time available to attend Board meetings and

limiting her participation during the latter part of the

year. Ms Schlogel stepped down from the Company as

a Director with effect from 30 April 2023 and offered to

waive her Director’s remuneration for the period from

1 April 2023 to 30 April 2023, such offer having been

accepted by the Board.

Throughout the year, the other Directors have devoted

sufficient time to undertake their responsibilities

effectively, have had excellent attendance records at

scheduled meetings, and demonstrated high levels of

availability and responsiveness for additional meetings

and discussions where these have been required. The

Board remains confident that these individual members

continue to devote sufficient time to undertake their

responsibilities effectively.

Director Independence

The Board confirms that all Directors should be

considered as independent in accordance with the

provisions of the AIC Code and have the time available

to discharge their duties effectively. Accordingly, the

Board recommends that Shareholders vote in favour of

the re-election of all Directors at the forthcoming AGM.

GOVERNANCE • DIVISION OF RESPONSIBILITIES

HIPGNOSIS SONGS FUND LIMITED

ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023

Composition, Evaluation and Succession

Board Composition and Tenure

Directors are appointed under letters of appointment,

copies of which are available at the registered office

of the Company. The Board considers its composition

and succession planning on an on-going basis. The

Company’s Articles of Incorporation specify that each

of the Directors shall retire and may offer themselves for

re-election at each AGM of the Company.

To ensure that serving Non-executive Directors of the

Company continue to possess the necessary skills and

experience required for the strategy of the business,

the Board has established a Nomination Committee to

consider Board composition and succession planning

on an ongoing basis and to oversee the process of

appointments of Directors. The role of the Nomination

Committee is critical in ensuring that the Company’s

Board and committee composition and balance

support both the Group’s business ambitions and best

practice in the area of corporate governance.

Upon joining the Board, the Directors received induction

programmes which were specifically designed to

complement their background, experience and

knowledge, as well as on-going access to training.

No member of the Board has served for longer

than nine years. As such no issue has arisen to be

considered by the Board with respect to long tenure.

The Company’s policy on Chair tenure is that the Chair

should normally serve no longer than nine years as a

Director and Chair but, where it is in the best interests

of the Company, its Shareholders and stakeholders, the

Chair may serve for a limited time beyond that.

In accordance with the AIC Code, when and if any

Director shall have been in office (or on re-election would

at the end of that term have been in office) for more than

nine years the Company will consider further whether

there is a risk that such a Director might reasonably be

deemed to have lost independence through such long

service. The Board recognises that Directors serving nine

years or more may appear to have their independence

impaired. However, the Board may nonetheless consider

Directors to remain independent and will provide a clear

explanation in the Annual Report and Consolidated

Financial Statements as to their reasoning.

Board Evaluation

As part of the ongoing evaluation of the Board’s

effectiveness the Board carried out an internal

evaluation of its performance and that of its

Committees in December 2022. The Board believes

that annual evaluations are helpful and provide a

valuable opportunity for continuous improvement.

Internal evaluation of the Board, individual Directors

and the Chair is carried out under the mandate of the

Nomination Committee. The internal evaluation was

facilitated by the Company Secretary with input from

the Chair of the Board and the Chair of the committee.

Areas reviewed included: investment matters, Board

composition and independence, relationships and

communication, Shareholder value, knowledge and

skills, Board processes, performance of the Chair, how

the Board works as a collective and contributions of

each individual director. The review required each of the

Directors to submit responses to a series of questionnaires

to reflect their individual performance, the performance

of the Board as a whole and the main areas under

consideration by the Board and its Committees. All

responses were compiled and discussed at the Board

and relevant committee meetings.

The evaluation concluded that the Board should

commence a programme to increase Shareholder

engagement and consultation and should further progress

the Company’s succession plan with regards to Directors

and Chair. The review found that the Board conducts its

business in an environment where freedom of expression,

diversity of opinions and challenge are both encouraged

and accepted. The Board believes that the current mix of

skills, experience, knowledge and age of the Directors is

appropriate to the requirements of the Company, whilst

recognising that that current composition of the Board

does not reflect the FCA’s new diversity guidelines, and

this will be a key focus of succession planning.

GOVERNANCE

HIPGNOSIS SONGS FUND LIMITED

ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023

Board of Directors

Andrew Sutch

Chair, Non-executive Independent

Director and Chair of the Management

Engagement Committee

Tenure at 31 March 2023:

4 years 10 months

Skills and Experience

Mr Sutch is a corporate lawyer

and a consultant to Stephenson

Harwood LLP. He was a partner

of that firm for over 30 years and

its senior partner for 10 years. He

has had extensive experience

in advising investment funds,

investment managers and boards of

investment trusts. This has included

advice on complex fund launches,

restructurings and corporate

actions. He was Chair of two other

investment trusts until last year. He

is a consultant to an art dealer and

until recently a council member of

the Royal Academy of Dramatic Art.

GOVERNANCE • BIOGRAPHIES

Biographies

Succession Planning

As the majority of Directors were appointed shortly

before or after the Initial Public Offering of the

Company in July 2018, the aims of the managed

succession programme are to preserve continuity

whilst ensuring that all of the Board are not required

to retire at the same time after serving nine years.

Following individual discussions with each Director,

a timetable has been set for the phased retirement

and, if appropriate, replacement of Directors. The

Board will also continue to actively consider its size and

composition in light of the developing profile of the

Company, aims to ensure that skills and experience

are regularly refreshed and that the benefits of a

truly diverse Board are further enhanced in terms of

age, gender, ethnicity, educational and professional

backgrounds, cognitive and personal strengths.

HIPGNOSIS SONGS FUND LIMITED

ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023

Paul Burger

Senior Non-executive Independent

Director, Chair of the Portfolio Committee

and Chair of the Nomination Committee

Tenure at 31 March 2023:

4 years 9 months

Skills and Experience

Mr Burger has spent more than

40 years in the music business.

As President of Sony Music EMEA,

he sat on the board of most of

Sony’s operating companies in

Europe including the UK. Through

his SohoArtists company he has

nurtured young talent who have

risen to great prominence in both

the World Music and Folk genres.

His marketing skills were recognised

by him being awarded Holland’s

Edison Award for Best Historical

Music Series.

Mr Burger’s board experience

includes stints in both the

commercial and not-for-profit

sectors. He has been a Director of

The BRIT Trust, The Music Managers

Forum, The BPI, as well as a number

of start-ups and small companies.

He serves currently as Chair of the

Finance and Investment committee

of The BRIT Trust and as a Governor

at The BRIT School and served as

Chair of Governors for six years.

He is also a Director of The New

Israel Fund’s Global Board as well

as of The New Israel Fund UK– an

NGO which promotes the values of

human rights and social justice for

all residents of Israel regardless of

race, religion, or ethnicity, as well as

the Hofesh Schechter Company.

Sylvia Coleman

Non-executive Independent Director

and Chair of the Environmental, Social

and Governance Oversight Committee

Tenure at 31 March 2023:

3 years 4 months

Skills and Experience

Ms Coleman, initially a lawyer

with Stephenson Harwood, has

since spent most of her career in

the Music Industry serving, across

25 years, as Senior Vice President

of Legal and Business Affairs at

EMI Music and prior to that, Sony

Music where she was responsible

for overseeing the company’s

International and European legal

and business affairs respectively.

Most recently, she co-founded

BPureSounds, a music management

company developing music artists

and music related properties.

Additionally, Ms Coleman was a

Non-executive Director of FTSE 250

bwin.party digital entertainment

plc until its acquisition by GVC

Holdings plc.

She also served as a long-standing

Chair of Chickenshed Theatre

Company, a not-for-profit music

and theatre company for young

people celebrating diversity and

inclusion and was on the Board

of Reprieve, a charitable human

rights organisation. She also

co-founded Ceroc Enterprises,

a dance company creating and

franchising a contemporary dance

phenomenon across the UK.

Simon Holden

Non-executive Independent Director

and Chair of the Remuneration

Committee

Tenure at 31 March 2023:

4 year 10 months

Skills and Experience

Mr Holden is a Chartered Director

(Cdir) and Fellow of the Institute of

Directors and adds extensive private

equity investing and corporate

operations experience to the

Company’s Board. Previously an

investment director at Terra Firma

Capital Partners and Candover

Investments prior to that, Simon

has been an active independent

director to listed investment trusts,

private equity funds and trading

company boards since 2015. In

addition, Simon acts as the pro-

bono Business Adviser to the States

of Guernsey’s Trading Assets that

operate all of the Bailiwick’s critical

airports, harbours and maritime fuel

supply infrastructure.

Simon graduated from the University

of Cambridge with an Meng and

MA (Cantab) in Manufacturing

Engineering. He is a member of

the Association of Investment

Companies (AIC), Institute of

Directors (IoD), Guernsey Investment

Funds Association (GIFA) and

several other financial services and

intellectual property interest groups.

Listed Company Roles (other than

Hipgnosis Songs Fund)

HICL Infrastructure Plc (HICL),

Chrysalis Investments Ltd. (CHRY),

Trian Investors 1 Ltd. (TI1), J.P. Morgan

Global Core Real Assets Ltd. (JARA)

Board of Directors

GOVERNANCE • BIOGRAPHIES

GOVERNANCE

Founder

Vania Schlogel

Non-executive Independent Director

Tenure at 31 March 2023:

1 years 10 months. Resigned 30 April 2023

Skills and Experience

Ms Schlogel has a wealth of

experience of asset management

in the media, creative arts and

entertainment sectors and a

deep understanding of Streaming

technology platforms and content

licencing. Ms Schlogel founded

the global private equity firm

Atwater Capital in 2017, with a vision

of uniting the valuable creative

aspects of evaluating investments

and growing companies with deep

operational and financial expertise.

The firm invests across the media

and entertainment sector with a

focus on companies that foster

cultural diversity, working with

management teams committed to

embracing strong ESG practices.

Previously, she served as an executive

at a number of leading companies,

including as Chief Investment Officer

of Roc Nation, the entertainment

business founded by the artist Jay-Z.

She was previously a member of

KKR’s Private Equity team, where she

specialised in the Media sector and

launched the Growth Equity division.

She began her career at Goldman

Sachs in London and Los Angeles.

She is the Chairwoman of the Board

for Mediawan US (the holding

company of Brad Pitt’s Plan B

Entertainment) and Chairwoman

of the Board for LEONINE Studios.

Andrew Wilkinson

Non-executive Independent Director

and Chair of the Audit and Risk

Management Committee

Tenure at 31 March 2023:

4 years 10 months

Skills and Experience

Mr Wilkinson is a chartered

accountant who qualified with

Peat Marwick Mitchell and

subsequently went on to work with

the music clientele of merchant

bankers Leopold Joseph.

Mr Wilkinson was a founder of the

Promo Group, which managed

the business affairs of the Rolling

Stones. In 1981, he became

a partner of Prince Rupert

Loewenstein, providing business

management services to clients

in the entertainment and sports

sectors. Mr Wilkinson is co-founder

and CEO of Music Plus Sport Ltd.

and its subsidiary Live at the Races

Limited. The group specialises in

large-scale concerts at sporting

events. Further, Mr Wilkinson was

founder and chief executive

of Kingstreet Tours Limited, a

company that was at the forefront

of concert tour production for over

30 years and delivered worldwide

concert tours for artists including

The Rolling Stones, Pink Floyd, Sir

Elton John, Robbie Williams and

Shakira. Mr Wilkinson is a member

of the fundraising committee

and former treasurer of Nordoff

Robbins, a charity that uses music

therapy in the treatment and care

of autistic children.

Merck Mercuriadis

Founder of Hipgnosis Songs Fund

Limited and its Investment Adviser,

Hipgnosis Song Management Ltd.

Mr Mercuriadis is also the CEO and

managing partner of Hipgnosis Songs

Ltd, an artist management firm label

based in London and Los Angeles.

Experience

Merck has 40 years’ music industry

experience. He has managed

iconic artists including Nile

Rodgers, Sir Elton John, Beyoncé,

Iron Maiden, Pet Shop Boys and

Guns’N’Roses. An unrivalled

network and reputation within

the songwriting community as

a trusted custodian of songs has

enabled him to complete over

150 catalogue purchases. Merck

is a vigorous campaigner for

Songwriters to receive a fair share

of music revenues.

Board of Directors

GOVERNANCE • BIOGRAPHIES

Paul Burger, Chair of the Committee

HIPGNOSIS SONGS FUND LIMITED

ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023

Report of the Nomination Committee

“TThe committee understands the importance of its role

in ensuring the Board contains the right mix of skills and

experience to support the business strategy.”

Dear Shareholder,

I am pleased to present the Nomination Committee

report for the year ended 31 March 2023. The

composition of the Nomination Committee meets with

the requirements of the AIC Code and, in line with good

practice, membership is reviewed annually.

During the year we focussed on the composition of the

Board and membership of its committees, succession

planning, talent and diversity and commenced a

recruitment process for an additional Director.

Purpose and Aim

The terms of reference of the Nomination Committee,

which are reviewed annually, are set out on the

Company’s website: https://www.hipgnosissongs.

com/governance/. Our principal responsibility is to

ensure that, collectively and at any given time, the

members of the Board possess the necessary balance

of knowledge, skills and experience to support and

develop the strategy of the Company. In seeking to

achieve this, we recommend new Board appointments

as and when considered appropriate and ensure

that adequate succession planning procedures are in

place and kept under review. In accordance with our

Terms of Reference, I, as the Chair of the Nomination

Committee, report our conclusions to the Board and it

is the Board as a whole which is responsible for making

new appointments upon our recommendation. We

review the composition of the Board and its Committees

and evaluate if the Board has the appropriate balance

of skills, knowledge, experience and independence to

ensure their continued effectiveness.

Membership and Meetings

During the year we met on one occasion, on

7 December 2022. Attendance is disclosed on page 82.

We also provided a formal update on our work to the

Board at each scheduled quarterly board meeting.

A quorum is two members. Members of the committee

are not involved in matters affecting their own position.

Mr Paul Burger (Chair of the Committee)

Ms Sylvia Coleman

Mr Simon Holden

Ms Vania Schlogel (resigned 30 April 2023)

Mr Andrew Sutch

Mr Andrew Wilkinson

Due to the current size of the Board it is deemed

appropriate and efficient that each Director is a

member of the committee. This ensures that individual

directors are not working in silos and that each Director

has knowledge of the deliberations of the committee.

During the year we:

• Reviewed the results of the annual internal board

performance evaluation, which was conducted

during December 2022, and discussed where

improvements could be made. Further details of

both the internal and external board evaluation are

outlined on page 84.

• Reviewed our longer-term strategy for the succession

of Board members. Further details of succession

planning are outlined on page 84.

• Commenced our programme of succession planning

and engaged Nurole to work with us on this.

• Recommended the appointment of Cindy Rampersaud

to the Board with effect from 1 August 2023.

Board Composition

We give full consideration to succession planning for

Directors of the Company in the course of our work,

considering the challenges and opportunities facing

the Company and determining what skills and expertise

will thus be required on the Board in the future. In

making recommendations for the annual re-election of

the Chair and Non-executive Directors, we consider the

skills, knowledge, experience, independence and also

the time commitments of each Director to ensure that

they have sufficient time to fulfil their responsibilities to

the business.

GOVERNANCE

HIPGNOSIS SONGS FUND LIMITED

ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023

New Directors receive an induction on joining the

Board. During the year the Board arranged for

presentations from the Investment Adviser, the

Company’s brokers and other advisers on matters

relevant to the Company’s business and assessed the

training needs of Directors.

As part of corporate governance, we review our

own performance annually and consider where

improvements can be made. Our performance

was reviewed as part of the annual internal board

performance evaluation which was conducted during

December 2022 as outlined on page 84.

Board Appointment Process

In general terms, when considering candidates for

appointment as Directors of the Company, we draft

a detailed job specification and candidate profile,

and will give consideration to the existing experience,

knowledge and background of Board members as

well as the strategic and business objectives of the

Company.

Once a detailed specification has been agreed with

the Board, we would then work with an appropriate

external search and selection agency to identify

candidates of the appropriate calibre and with whom

an initial candidate shortlist could be agreed. The

consultants are required to work to a specification that

includes the strong desirability of producing a full list

of candidates who meet the essential criteria, whilst

reflecting the benefits of diversity. The Board will only

engage such consultants who are signed up to the

voluntary code of conduct on gender diversity on

corporate boards.

Shortlisted candidates would then be invited to

interview with members of the committee and, if

recommended by us, would be invited to meet the

entire Board before any decision is taken relating to

their appointment. Appointments are therefore made

on personal merit and against objective criteria with

the aim of bringing new skills and different perspectives

to the Board whilst considering the existing balance of

knowledge, experience and diversity. The Board also

believes that diversity of experience and approach,

including gender and racial diversity, amongst

Board members is of great importance and it is the

Company’s policy to give careful consideration to

issues of Board balance and diversity when making new

appointments.

During the year we appointed independent consultants

Nurole to assist with our succession plan. Nurole was

appointed based on its track record and also worked

with the Remuneration Committee during the year to

review Board remuneration. Nurole commenced the

search for an additional director and were requested

to identify candidates with accounting and audit

expertise. There was a requirement for a qualified

accountant, and we were open minded with regards

to sector, as investment trust and music industry

experience was already well represented on the Board.

We were also committed to improving our gender and

ethnic minority representation and as such diversity was

a consideration in the decision-making process.

We interviewed shortlisted candidates and confirmed

that the proposed candidates were independent and

had relevant experience. The process resulted in the

appointment of Cindy Rampersaud to the Board with

effect from 1 August 2023. Cindy brings a wealth of

experience across a broad range of sectors including

education, entertainment, media and charitable

institutions.

Diversity

The Board acknowledges the importance of diversity

in its broadest sense in the boardroom as a driver of

board effectiveness. This encompasses diversity of

perspective, experience, background, directorship style

and personality traits. The Board will keep under review

and evaluate its balance and composition to ensure

that both it and its committees have the appropriate

mix of skills, experience, independence and knowledge

to ensure their continued effectiveness. In doing so,

the Board considers diversity, including age, gender,

ethnicity, educational and professional backgrounds,

cognitive and personal strengths amongst other

relevant factors.

The Board supports the progress being made to improve

the governance of listed companies by increasing

both gender and racial diversity amongst the Directors

who serve these businesses. As at the previous

year-end, 31 March 2022, the Board was compliant

with the Hampton-Alexander and Parker Review

recommendations with 33.33% female representation

and one member from a minority ethnic background.

We have continued to monitor and assess the Board’s

composition and diversity but, as reported in our report

last year, believe that due to the size of the Board,

GOVERNANCE • REPORT OF THE NOMINATION COMMITTEE

HIPGNOSIS SONGS FUND LIMITED

ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023

compliance with the revised targets announced by

the FCA effective 1 April 2022 present a challenge to us

due to the current tenure, knowledge and experience

of our relatively small Board. Further consideration

will be given to these guidelines during the course of

implementing future succession plans which include

reducing the size of the Board to five members.

As at 31 March 2023 our Board composition does not

comply with the revised gender targets which require

at least 40% of the Board to be women and at least one

of the senior board positions to be filled by a woman,

however we continued to meet the ethnic diversity

target of at least one member of the board being from

a minority ethnic background.

Reporting table on gender representation

at 31 March 2023

Number

of Board

members

Percentage

of the Board

Number

of senior

positions on the

Board (Chair

and Senior

Independent

Director)

Men 4 66.67% 2

Women 2 33.33% –

Other categories – – –

Not specified/prefer not

to say – – –

Reporting table on ethnicity representation

at 31 March 2023

Number

of Board

members

Percentage

of the Board

Number

of senior

positions on the

Board (Chair

and Senior

Independent

Director)

White British or other

White (including

minority-white groups) 5 83.33% 2

Mixed/Multiple Ethnic

Groups 1 16.67% –

Asian/Asian British – – –

Black/African/

Caribbean/Black British – – –

Other ethnic group,

including Arab – – –

Not specified/

prefer not to say – – –

The Company’s approach to collecting the data used

for the purposes of the above disclosures was to use

data from the Directors together with permission to use

it for this purpose.

Improving our gender and ethnic minority

representation will continue to be a very important

consideration in our succession planning.

Our objective of driving the benefits of a diverse Board

is underpinned by our Board Diversity Policy which can

be viewed on the Company’s website: https: //www.

hipgnosissongs.com/company-policies/. The Board

keeps the Diversity Policy under review to ensure that

it remains an effective driver of diversity having due

regard to gender, ethnicity, social background, skillset

and breadth of experience.

2024 Objectives

It is our intention to continue to oversee the composition

and structure of the Board, ensuring that the

Company is at all times structured to successfully

deliver its strategy and to compete effectively in the

marketplaces within which it operates.

Our proposed activities for the year ahead are to:

• review the Terms of Reference of the committee to

ensure they reflect best practice under the Code;

• review the membership and composition of

committees of the Board; and

• continue to review longer term strategy for the

succession of Board members which includes

reducing the size of the Board to five Directors and

improving gender and ethnic minority representation.

On behalf of the Nomination Committee,

Paul Burger

Chair of the Nomination Committee

12 July 2023

GOVERNANCE • REPORT OF THE NOMINATION COMMITTEE

GOVERNANCE

HIPGNOSIS SONGS FUND LIMITED

ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023

Internal Control and Financial Reporting

The Directors acknowledge that they are responsible

for establishing and maintaining the Group’s system

of internal controls and reviewing their effectiveness.

Internal control systems are designed to manage rather

than eliminate the failure to achieve business objectives

and can only provide reasonable but not absolute

assurance against material misstatements or loss.

The Board has delegated the day-to-day operations of

the Group to the Investment Adviser, the Administrator

and Portfolio Administrators; however, it remains

accountable for all functions it delegates.

The Board clearly defines the duties and responsibilities

of the Company’s agents and advisers and

appointments are made by the Board after due

and careful consideration. The Board monitors the

on-going performance of such agents and advisers

and will continue to do so through the Management

Engagement Committee.

During the year responsibility for the maintenance

of the Group’s accounting books and records, and

associated internal controls and financial reporting,

transferred from the Administrator to the Investment

Adviser. Subsequently a third party firm was engaged

to independently review controls associated with this

transition (specifically in relation to accounts payable

and receivables) and recommendations from this

review are being addressed by the Investment Adviser.

This is incorporated within the Board monitoring of the

Investment Adviser. The Investment Adviser formally

reports to the Board at quarterly Board meetings and

also engages with the Board on an ad-hoc basis

as required to provide updates on developments,

including relevant updates regarding their policies and

procedures.

The Administrator maintains a system of internal control

and reports to the Board regarding the policies and

procedures in place with regards to the administration

services it provides to the Company and also formally

reports to the Board through a quarterly compliance

report. The Administrator undertakes an ISAE 3402:

Assurance Report on Controls at a Service Organisation

audit which is provided to the Board when finalised.

No weaknesses or failing within the Administrator have

been identified.

The systems of control referred to above are designed

to ensure effectiveness and efficient operation, internal

control and compliance with laws and regulations. In

establishing the systems of internal control, regard is

paid to the materiality of relevant risks, the likelihood

of costs being incurred and costs of control. It follows,

therefore, that the systems of internal control can

only provide reasonable but not absolute assurance

against the risk of material misstatement or loss. These

processes have been in place for the year under review

and up to the date of approval of this Annual Report

and Consolidated Financial Statements. They are

reviewed by the Board and are in accordance with the

FRC’s internal control publication: Guidance on Risk

Management, Internal Control and Related Financial

and Business Reporting.

The Board has reviewed the need for an internal

audit function and has decided that the systems and

procedures employed by the Investment Adviser and

the Administrator, including their own internal controls

and procedures, provide sufficient assurance that an

appropriate level of risk management and internal

control, which safeguards Shareholders’ investment

and the Group’s assets, is maintained. An internal

audit function specific to the Company is therefore

considered unnecessary.

Audit, Risk and Internal Control

GOVERNANCE

Andrew Wilkinson, Chair of the Committee

HIPGNOSIS SONGS FUND LIMITED

ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023

Report of the Audit and

Risk Management Committee

“The committee performs a vital role with regards to

financial reporting, monitoring and reviewing internal

controls and assessing the principal risks facing the

Comp a ny.”

Dear Shareholder,

I am pleased to present the Audit and Risk

Management Committee report for the year ended

31 March 2023, which has been approved by both

the Audit and Risk Management Committee and

the Board.

We have continued to support the Board by ensuring

the integrity of the Company’s financial reporting,

providing independent scrutiny and challenging the

judgments made by the Investment Adviser. We have

focussed on valuations of catalogues, individual

catalogue and portfolio performance, economic

outlook, key performance indicators, environmental

and social reporting and ongoing monitoring of the

Company’s risk matrix.

These topics will remain key areas for the year ahead

and we will continue to support the Board.

Purpose and Aim

Our terms of reference, which are reviewed annually,

are set out on the Company’s website (https://www.

hipgnosissongs.com/governance/) and include all

matters indicated by Disclosure and Transparency Rule

7.1, the AIC Code and the UK Code. The Company

complies with the provisions of the Competition and

Markets Authority’s (CMA) Order 2014.

Our primary functions are:

• reviewing and monitoring the integrity of the

Financial Statements of the Group and any formal

announcements relating to the Group’s financial

performance, reviewing significant financial reporting

judgments contained in them;

• reporting to the Board on the appropriateness of the

Group’s accounting policies and practices including

critical judgment areas;

• reviewing the valuations of the Group’s investments

as prepared and presented in report format by the

Portfolio Independent Valuer, and making

a recommendation to the Board on value of the

Group’s investments;

• meeting regularly with the external auditor to review

their proposed audit plan and the subsequent audit

report and assessing the effectiveness of the audit

process and the levels of fees paid in respect of both

audit and non-audit work;

• making recommendations to the Board in relation to

the appointment, re-appointment or removal of the

external auditor and approving their remuneration

and the terms of their engagement;

• monitoring and reviewing annually the auditor’s

independence, objectivity, expertise, resources,

qualification and non-audit work;

• considering annually whether there is a need for the

Group to have its own internal audit function;

• monitoring the internal financial control and risk

management systems on which the Group is reliant;

• reviewing and considering the UK Code, the AIC

Code, the FRC Guidance on audit committees; and

• reviewing the risks facing the Group and monitoring

the risk matrix.

We formally report our findings to the Board, identifying

any matters on which we consider that action or

improvement is needed, and make recommendations

on the steps to be taken.

Membership and Meetings

Composition of the Audit and Risk Management

Committee:

Mr Andrew Wilkinson (Chair of the Committee)

Mr Paul Burger

Ms Sylvia Coleman

Mr Simon Holden

Ms Vania Schlogel (resigned 30 April 2023)

Mr Andrew Sutch

GOVERNANCE

HIPGNOSIS SONGS FUND LIMITED

ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023

Due to the current size of the Board it is deemed

appropriate and efficient that each Director is a

member of the committee. This ensures that individual

directors are not working in silos and that each Director

has knowledge of the deliberations of the committee.

The Chair of the Board is currently a member of the

Audit and Risk Management Committee and was

independent on appointment. The varied backgrounds

of the committee’s members and their collective skills,

experience and knowledge of the Company allow

them to fulfil the committee’s remit. As a chartered

accountant with a long professional history in the music

industry, I have the necessary recent and relevant

experience to chair the Audit and Risk Management

Committee. The other members have significant

business experience, both within the music industry and

in the asset management industry. Detailed information

on the experience, qualifications and skillsets of all

committee members can be found on pages 85-87.

Our performance is evaluated as part of the overall

evaluation of the Board and the Board Committees as

further disclosed on page 84.

I am available on request to meet investors in relation to

the Company’s financial reporting and internal controls.

Meeting Schedule

We have an annual work plan, developed from our terms

of reference, with standing items that we consider at

each meeting, in addition to any specific matters arising

and topical items on which we have chosen to focus.

During the year we met formally on five occasions,

and attendance at those meetings is shown on page 82

of the Corporate Governance Report. Third parties,

including the Portfolio Independent Valuer, have

attended meetings as and when deemed appropriate.

In addition to the formally convened meetings during

the year, I have had regular contact and meetings

with the Investment Adviser, the Administrator and the

external auditor. We also provide a formal update on

our work to the Board at each scheduled quarterly

board meeting.

During the year we:

• reviewed our terms of reference for approval by

the Board;

• conducted a detailed review of the Interim Report

and recommended it for approval by the Board;

• reviewed the Group’s updated risk matrix and

associated controls;

• reviewed the Company’s working capital model

prepared by the Investment Adviser focusing on

impact of fluctuations in foreign exchange and rising

interest rates;

• reviewed the performance of catalogues tracked to

the Investment Adviser’s initial business case for each

acquisition by income type, catalogue and as a

portfolio overall with the Investment Adviser;

• reviewed and assessed the assumptions used and

resulting valuation of the portfolio prepared by the

Portfolio Independent Valuer, which encompassed

direct discussions with the Portfolio Independent Valuer,

the Investment Adviser and the external auditor;

• reviewed the Company’s corporate governance

framework, including environmental and social reporting;

• reviewed and approved the audit plan in relation to

the audit of the Group’s Annual Report;

• reviewed and approved the fee for the external audit

as well as non-audit services and associated fees;

• assessed the independence of the external auditor;

• assessed the effectiveness of the external audit

process as described below; and

• reviewed the Group’s system of internal controls and

risk management.

Financial Reporting

Our primary role in relation to financial reporting is to

review with the Administrator, the Investment Adviser

and the external auditor the appropriateness of

Interim Reports and Annual Reports, concentrating on,

amongst other matters:

• the quality and acceptability of accounting policies

and practices;

• the clarity of the disclosures and compliance with

financial reporting standards and relevant financial,

environmental, social and governance reporting

requirements;

• material areas in which significant judgments have

been applied or there has been discussion with

external consultants;

• the ongoing assessment of the Company as a going

concern;

GOVERNANCE • REPORT OF THE AUDIT AND RISK MANAGEMENT COMMITTEE

HIPGNOSIS SONGS FUND LIMITED

ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023

• the principal risks and period of assessment for the

longer term viability of the Company;

• whether the Annual Report, taken as a whole, is fair,

balanced and understandable and provides the

information necessary for Shareholders to assess the

Group’s performance, business model and strategy;

and

• any correspondence from regulators in relation to the

Group’s financial reporting.

To aid our review, we consider reports from the

Investment Adviser and the external auditor.

Areas of significance considered by us during

the year:

Valuations of catalogues

We discussed the impact of macroeconomic factors

including rising interest rates and high inflation on the

discount rate applied and the valuation of the portfolio

with the Portfolio Independent Valuer and other industry

experts. The Board engaged the Portfolio Independent

Valuer, Citrin Cooperman, to value the Catalogues as at

31 March 2023. Each income type from each catalogue

was analysed and forecasts prepared in order to derive

the fair value of the catalogues by adopting a discounted

cash flow valuation methodology using a discount rate of

8.5%. Income was analysed and forecast at the level

of each individual catalogue and by income type.

The Portfolio Independent Valuer has also taken into

consideration macro factors including the growth of

streaming revenue, the global growth of the recorded

music industry and the impact of the ongoing Covid-19

recovery in their analysis. The Board received a report

from Citrin Cooperman and held two meetings with

them to discuss the fundamental changes emerging

over the year influencing the value of catalogues, the

discount rate methodology and further factors impacting

the movements in valuations before approving the

valuation. Further detail is disclosed within Note 6 on

pages 139-140.

At the time of the Interim Report the Board also took

into consideration a report by Kroll Advisory Limited,

who considered and advised on the reasonableness of

certain assumptions used by Citrin Cooperman in their

valuation of the Group’s Catalogues. Following year end,

a further analysis was undertaken by Kroll as disclosed in

the Chair’s Statement on pages 11-15.

Internal Control and Risk Management

The Board has overall responsibility for risk management.

The risk management process is designed to manage

rather than eliminate the risk of failure to achieve the

Company’s business objectives and can only provide

reasonable, not absolute assurance against material

misstatement or loss.

On behalf of the Board, we reviewed the effectiveness

of the Group’s risk management processes and the way

in which significant business risks are managed. Our

work is driven primarily by the Company’s assessment

of its principal risks and uncertainties as set out in the

Strategic Report on pages 62-66. We have established

a set of ongoing processes designed to meet the

particular needs of the Company in managing the

risks to which it is exposed. The process is one whereby

the Investment Adviser identifies the principal risks to

which the Company is exposed and discusses them

with me prior to recording them on a risk matrix together

with the controls employed to mitigate these risks. We

have ongoing discussions with the Investment Adviser

and have a process in place to identify emerging risks

and to determine whether any actions are required

and apply a residual risk rating to each risk. We, as

a committee, are responsible for reviewing the risk

matrix and associated controls before recommending

to the Board for consideration and approval, and we

challenge the Investment Adviser’s assumptions to

ensure a robust internal risk management process.

During the year, we discussed and reviewed the internal

controls frameworks in place at the Investment Adviser,

the Administrator, and Hipgnosis Songs Group. Following

the transition of responsibility for the maintenance of the

Group’s accounting books and records and financial

reporting from the Administrator to the Investment

Adviser we received a presentation and report from

Deloitte in relation to their review of the procedures,

processes and internal controls the Investment Adviser

has in place for the Group’s financial reporting.

Furthermore the Administrator holds the International

Standard on Assurance Engagements (ISAE) 3402

Type 2 certification. This entails an independent

rigorous examination and testing of their controls and

processes. The Audit and Risk Management Committee

concluded that these frameworks were appropriate

for the identification, assessment, management and

monitoring of financial, regulatory and other risks, with

particular regard to the protection of the interests of the

Company’s Shareholders.

GOVERNANCE • REPORT OF THE AUDIT AND RISK MANAGEMENT COMMITTEE

GOVERNANCE

HIPGNOSIS SONGS FUND LIMITED

ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023

FRC

During the year, the Company’s Interim Report for the

six months ending 30 September 2022 was reviewed by

the FRC as part of its routine monitoring of corporate

reporting. On 13 February 2023, the FRC’s Corporate

Reporting Review team requested further information

in relation to the Company’s accounting for accrued

income, Alternative Performance Measures, Impairment

of Catalogues of Songs and accrued dividends.

With assistance from the Investment Adviser we

collaboratively engaged with the FRC, and their

enquiries reached a satisfactory conclusion. The FRC

suggested some disclosure enhancements within the

Interim Report for the six months ending 30 September

2022 which have been included in this Annual Report.

The Directors are pleased to have agreed to adopt

these changes in line with their own objective

of continuous improvement.

The committee reviewed the disclosures and

amendments proposed by management and

concluded that they are appropriate.

When reviewing the Interim Report for the six months

ending 30 September 2022, the FRC has made clear the

limitations of its review as follows:

• The review was based on the interim report and

accounts and did not benefit from detailed

knowledge of the business or an understanding of the

underlying transactions entered into and therefore

provides no assurance that the Interim Report is

correct in all material respects.

• It was, however, conducted by staff of the FRC who

have an understanding of the relevant legal and

accounting framework.

Primary Areas of Judgment and Estimation

The Board, alongside the Investment Adviser, is involved

in various estimates and judgments, as noted below:

• Forecasting income for each Catalogue that

is acquired in order to appraise investment

opportunities. These judgments are based on detailed

reports and management accounts prepared by

the Investment Adviser showing historical earnings

as well as industry projections, published by verified

third parties. For the income that is driven by ‘active

management’, judgments are made based on a

Song-by-Song assessment by the Investment Adviser;

• Accruals, as estimates, are booked in the financial

period based on historical analysis from royalty

statements and a conservative calculation. These

calculations are reviewed by the Board with the

Investment Adviser and the external auditors;

• The estimated amortisation booked per annum is

based on 20 years which is the Company’s judgment

of the useful life of its assets; and

• Indicators of impairment are considered on a

timely basis and a judgment would be made as to

whether a Catalogue should be impaired in line with

the methodology considered appropriate by the

Investment Adviser and the Board.

Fair, Balanced and Understandable

At the request of the Board, we have considered

whether in our opinion, the 31 March 2023 Annual

Report and Financial Statements are fair, balanced

and understandable and whether they provide the

information necessary for Shareholders to address the

Group’s position and performance, business and strategy.

We were provided with a full draft of the report and

reviewed it for consistency and conducted sample

checks and balances and provided feedback

highlighting the elements that would benefit from

further clarity. The draft report was amended ahead

of providing final approval to ensure that the report

reflected the key strategic messages without diluting

the overall transparency in the disclosures. Following

our review, we are of the opinion that the 2023 Annual

Report and Financial Statements are representative

of the year and present a fair, balanced and

understandable overview, providing the necessary

information for the Shareholders to assess the position,

performance, business model and strategy.

GOVERNANCE • REPORT OF THE AUDIT AND RISK MANAGEMENT COMMITTEE

HIPGNOSIS SONGS FUND LIMITED

ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023

Audit

Internal Audit

We have reviewed the need for an internal audit

function and have decided that the systems,

processes and procedures employed by the Company,

Investment Adviser and Administrator, including

their own internal controls and procedures, provide

sufficient assurance that an appropriate level of risk

management and internal control is maintained.

We have therefore concluded that an internal audit

function specific to the Company is unnecessary.

External Audit

The Audit and Risk Management Committee is the

formal forum through which the external auditor reports

to the Board. The external auditor is invited to attend

our meetings as we deem appropriate. The external

auditor also has the opportunity to meet with us

without representatives of the Investment Adviser or the

Administrator being present at least once per year.

The external audit contract is required to be put to

tender at least every 10 years. We shall give advance

notice of any retendering plans within the Annual

Report. We have considered the re-appointment of the

External Auditor and decided not to put the provision

of the external audit out to tender at this time.

PricewaterhouseCoopers Cl LLP were appointed on

14 January 2019 as the Company’s external auditor with

Mr Roland Mills as the lead audit partner who can serve

as such until the conclusion of the year ended 31 March

2023 in accordance with normal audit partner rota-

tion arrangements at which point a new audit partner

will be introduced to the Company in due course. The

Companies Law requires the reappointment of the

external auditor to be subject to Shareholders’ approval

at the AGM.

Prior to the commencement of their audit,

PricewaterhouseCoopers CI LLP presented their audit

plan to the committee, and we requested further

clarification on the work they would perform in relation

to revenue recognition and accruals, valuation of the

portfolio and disclosures in light of the Company’s

forthcoming Continuation Vote.

Effectiveness of the External Auditors

We evaluated the performance of Pricewaterhouse-

Coopers CI LLP during the year and also reviewed the

effectiveness of the external audit process.

The following factors were considered:

• the quality of the interactions between the audit team

and the committee, the Investment Adviser and the

Administrator;

• key audit risks identified and how the external auditor

addressed these risks;

• the external auditor’s progress achieved against

the agreed audit plan and communication of any

changes to the plan, including changes in perceived

audit risks;

• the competence with which the external auditor

handled the key accounting and audit judgments and

communication of the same with management and

the committee;

• the external auditor’s compliance with relevant

regulatory, ethical and professional guidance on the

rotation of partners;

• the content of the external auditor’s management

letter and audit findings report;

• the external auditor’s qualifications, expertise and

resources and their own assessment of their internal

quality procedures; and

• the stability and continuity that would be provided by

continuing to use PricewaterhouseCoopers Cl LLP.

Details of fees paid to PricewaterhouseCoopers Cl LLP

during the year are disclosed in Note 21. We approved

these fees after a review of the level and nature of

work to be performed and are satisfied that they are

appropriate for the scope of the work required.

The FRC’s Audit Quality Review team (AQR) carried

out a review of the audit of PricewaterhouseCoopers

CI LLP’s financial reporting for the financial year

ended 31 March 2022. The Chairman of the

committee received a full copy of the findings

and met with PricewaterhouseCoopers CI LLP

to discuss the matters raised in the review and

reported back to the committee on this discussion.

PricewaterhouseCoopers CI LLP have acknowledged

and addressed the matters raised in the review,

and we are satisfied they have been appropriately

addressed in the audit for this year end.

We are satisfied with PricewaterhouseCoopers Cl

LLP’s effectiveness and independence as external

auditor having considered the degree of diligence

GOVERNANCE • REPORT OF THE AUDIT AND RISK MANAGEMENT COMMITTEE

GOVERNANCE

HIPGNOSIS SONGS FUND LIMITED

ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023

and professional scepticism demonstrated by them.

As such, we have not considered it necessary this year

to conduct a tender process for the appointment of

our external auditor. Having carried out the review

described above and having satisfied ourselves

that the external auditor remains independent and

effective, we have recommended to the Board that

PricewaterhouseCoopers CI LLP be reappointed as

external auditor for the year ending 31 March 2024.

A resolution to reappoint PricewaterhouseCoopers Cl LLP

as independent external auditor to the Company will be

proposed at the forthcoming AGM.

Independence of External Auditor

We review the objectivity of the external auditor and

the terms under which the external auditor may be

appointed to perform non-audit services and the level

of non-audit fees. In order to safeguard external auditor

independence and objectivity, we ensure that no other

advisory and/or consulting services are provided by

the external auditor. Any non-audit services conducted

by the external auditor require our consent before

being initiated.

The external auditor may not undertake any work

for the Company in respect of preparation of the

financial statements, preparation of valuations used in

financial statements, provision of investment advice,

taking management decisions or advocacy work in

adversarial situations.

To fulfil our responsibility regarding the independence

of the external auditor, we considered:

• the audit personnel in the audit plan for the current

period;

• a report from the external auditor describing its

arrangements to identify, report and manage any

conflicts of interest; and

• the extent of non-audit services provided by the

external auditor.

Non-audit Services

We seek to ensure that any non-audit services provided

by the external auditor do not conflict with their

statutory and regulatory responsibilities, as well as their

independence, before giving written approval prior to

their engagement.

We regularly monitor non-audit services being

provided by PricewaterhouseCoopers Cl LLP to ensure

there is no impairment to their independence or

objectivity. The only non-audit services provided by

PricewaterhouseCoopers Cl LLP related to an interim

review of the Company’s Interim report for the period

ended 30 September 2022.

Nature of service Fee

Interim Review £44,000/$52,600

Threat(s) to independence Safeguard(s) in place

There may exist a self-interest

threat where the fees from

non-audit services are in excess

of the statutory audit fee or

otherwise considered material to

PricewaterhouseCoopers Cl LLP.

A self review threat may exist

where the audit team places

reliance on work performed by

the interim review team.

The total non-audit fees for

the year are significantly

less than the total audit

fee for the year ended

31 March 2023, and the

total fees paid to the

Group for both audit

and non-audit services

is immaterial to total

PricewaterhouseCoopers

Cl LLP firm revenue.

All approved non-audit services are discussed

and sanctioned at meetings of the Audit and Risk

Management Committee.

Group audit fees were $753,431 (£609,350), including fees

payable in respect of the separate statutory audits of

subsidiaries. The ratio of audit to non-audit work is 14.3:1.

Details of Auditor’s Remuneration are set out in Note 21.

Notwithstanding such services, we consider

PricewaterhouseCoopers Cl LLP to be independent of the

Company and that the provision of such non-audit services

is not a threat to the objectivity and independence

of the conduct of the audit. We were satisfied that

PricewaterhouseCoopers Cl LLP had adequate safeguards

in place and that provision of these non-audit services did

not provide threats to the Auditor’s independence.

I approve all non-audit services in advance, and this year

they were limited to the review of the Company’s Interim

report for the period ended 30 September 2022. The

interim review procedures are generally considered in the

normal course of business, with it being common practice

on having the external auditor to undertake this service.

This service is permitted under FRC’s 2019 Revised Ethical

Standards and included within the whitelist. We considered

the level of audit fees to non-audit fees to be appropriate

and in line with the acceptable threshold applicable to the

Company as a Guernsey domiciled company.

GOVERNANCE • REPORT OF THE AUDIT AND RISK MANAGEMENT COMMITTEE

HIPGNOSIS SONGS FUND LIMITED

ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023

2024 Objectives

It is our intention to continue to oversee the Company’s

governance framework, providing valuable

independent challenge and oversight.

Our proposed activities for the year ahead, in line with

our core functions, include but are not limited to:

• reviewing and monitoring the integrity of the Company’s

financial reporting, including considering the

appropriateness of environmental and social reporting;

• providing independent scrutiny and challenging the

judgments made by the Investment Adviser;

• reviewing the valuations of the Group’s catalogues

as prepared and presented in report format by

the Portfolio Independent Valuer, and making a

recommendation to the Board on value of the Group’s

catalogues;

• reviewing and monitoring individual catalogue and

portfolio performance;

• reviewing the risks facing the Group and monitoring

the risk matrix;

• monitoring the internal financial control and risk

management systems on which the Group is reliant;

• reviewing and considering the UK Code, the AIC

Code, the FRC Guidance on audit committees; and

• meeting regularly with the external auditor to review

their proposed audit plan and the subsequent audit

report and assessing the effectiveness of the audit

process and the levels of fees paid in respect of both

audit and non-audit work.

I will be available at the AGM to answer any questions

about the work of the Audit and Risk Management

Committee.

On behalf of the Audit and Risk Management Committee,

Andrew Wilkinson

Chair of the Audit and Risk Management Committee

12 July 2023

GOVERNANCE • REPORT OF THE AUDIT AND RISK MANAGEMENT COMMITTEE

Andrew Sutch, Chair of the Committee

GOVERNANCE

HIPGNOSIS SONGS FUND LIMITED

ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023

Report of the Management

Engagement Committee

“The Committee continues to monitor and review

the performance of the Investment Adviser and the

Company’s other third-party service providers ensuring

that their terms are competitive, fair and reasonable

for Shareholders.”

Dear Shareholder,

I am pleased to present to you the Management

Engagement Committee Report for the year ended

31 March 2023, which has been approved by both the

Management Engagement Committee and the Board.

During the year, we reviewed the performance of and

contractual arrangements with the Investment Adviser

and the Company’s other third-party service providers.

Overall, we agreed that the services currently provided

by the Company’s key service providers continue

to be delivered in line with their respective terms of

engagement.

Our work for the year ahead will be focussed on the

ongoing review of the performance of the Investment

Adviser and the Company’s other third-party service

providers.

Purpose and Aim

Our terms of reference, which are reviewed annually,

are set out on the Company’s website: https://www.

hipgnosissongs.com/governance/.

We provide a formal mechanism for the review of

the performance of the Investment Adviser and the

Company’s other advisers and service providers.

We carry out this review through consideration of a

number of objective and subjective criteria such as the

accuracy, quality and timeliness of advice, information

and services provided, and through a review of the

terms and conditions of the advisers’ appointments

with the aim of evaluating performance, identifying

any weaknesses and ensuring that their terms are

competitive, fair and reasonable for Shareholders.

Membership and Meetings

As at 31 March 2023, the Committee comprised

the Chair and the five independent Non-executive

Directors of the Company.

Mr Andrew Sutch (Chair of the Committee)

Mr Paul Burger

Ms Sylvia Coleman

Mr Simon Holden

Ms Vania Schlogel (resigned 30 April 2023)

Mr Andrew Wilkinson

We meet at least once a year pursuant to our terms of

reference. During the year we met on one occasion,

on 28 March 2023. Attendance is disclosed on page 82.

A quorum is two members.

Investment Adviser

The Board is responsible for the determination of the

Company’s Investment Objective and Policy and has

overall responsibility for its activities. The Company

entered into an Investment Advisory Agreement dated

27 June 2018 with the Investment Adviser pursuant to

which the Investment Adviser will source Songs and

provide recommendations to the Board on acquisition

and disposal strategies to maximise the earnings

potential of the Songs in the portfolio through improved

placement and coverage of Songs.

The Company is responsible for paying an advisory fee

to the Investment Adviser in return for their services,

and, subject to the fulfilment of certain conditions, an

additional performance fee.

The committee considered the performance of

the Investment Adviser throughout the year both in

respect of their implementation of the Company’s

strategy, operational performance and active portfolio

management, and engaged with the Investment

Adviser to discuss key performance indicators and

provide direction regarding information and specific

reports required to ensure the Board is well informed

and kept up to date.

In accordance with Listing Rule 15.6.2(2)R and having

formally appraised the performance and resources of

the Investment Adviser, in the opinion of the Directors

the continuing appointment of the Investment

GOVERNANCE

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HIPGNOSIS SONGS FUND LIMITED

ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023

Adviser on the terms agreed is in the interests of the

Shareholders as a whole.

The Company has become aware that it, Merck

Mercuriadis and Hipgnosis Song Management are

named as defendants in a claim form issued in the

High Court. The details have not been particularised,

nor has the claim been served. It is assumed that the

claim refers to matters before the incorporation of the

Company in June 2018, as the claimant is a company

which was put into liquidation in February 2018. The

Company has taken independent legal advice and will

continue to monitor the situation.

Third-Party Service Provider Review

The Company works closely with and has delegated

the provision of services to a number of service

providers (the Administrator, Company Secretary,

brokers and other professional advisers) whose

interests are aligned to the success of the Company.

The quality and timeliness of their service provision

is critical to the success of the Company. We review

all material contracts for service quality and value

and on an annual basis conduct a detailed review of

the performance of key third-party service providers

pursuant to their terms of engagement, with the

exception of the external auditor as their performance

review is conducted by the Audit and Risk Management

Committee and is discussed on pages 92-98.

We conducted a service provider evaluation in March

2023, based on a questionnaire which also gave service

providers an opportunity to provide feedback to the

Company. The evaluation results were used to review

the Company’s policies and procedures to ensure

open lines of communication, operational efficiency

and appropriate pricing for services provided.

Each service provider completed the questionnaires

outlining how they had fulfilled their responsibilities

and detailed their relationship with the Board, the

Investment Adviser and other service providers.

We reviewed and discussed their responses and

communicated our conclusions to the Investment

Adviser and requested the Investment Adviser

to advise the service providers of areas of the

service we believed worked well and of areas

we believe could be improved or enhanced.

Overall, we agreed that the services currently provided

by the Company’s key service providers continued

to be delivered in line with their respective terms of

engagement and concluded that the services were of

a satisfactory level, providing assurance to the Board.

2024 Objectives

It is our intention to continue to oversee the terms and

conditions of the advisers’ appointments with the aim

of evaluating performance, identifying any weaknesses

and ensuring value for money for the Shareholders.

Our proposed activities for the year ahead are to:

• review the terms of the Investment Advisory

Agreement between the Company and the

Investment Adviser, and to ensure that the terms are

competitive, fair and reasonable for the Shareholders;

• review the performance of the Investment Adviser

including the on-going suitability of the Investment

Adviser to manage the assets of the Company, on at

least an annual basis;

• review the performance of, and the terms of the

Company’s arrangements with, other third-party

service providers (other than the external auditors),

and to ensure that the terms are competitive, fair and

reasonable for Shareholders.

On behalf of the Management Engagement

Committee,

Andrew Sutch

Chair of the Management Engagement Committee

12 July 2023

GOVERNANCE • REPORT OF THE MANAGEMENT ENGAGEMENT COMMITTEE

Paul Burger, Chair of the Committee

GOVERNANCE

101

HIPGNOSIS SONGS FUND LIMITED

ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023

Report of the Portfolio Committee

“The committee is focussed on evaluating investment

pipeline opportunities and making the final decision

as to the acquisition or disposal of any Catalogue

of S ong s.”

Dear Shareholder,

I am pleased to present to you the Report of the

Portfolio Committee for the year ended 31 March

2023 which has been approved by both the Portfolio

Committee and the Board.

The committee has focussed on investing In Catalogues

of the highest calibre and the Company is now

fully invested in a high-quality Portfolio of culturally

important songs with a proven track record of

success. Due to the macro-economic environment,

the Company has not been in a position to raise

further capital for reinvesting this year and there were

no acquisitions or disposals. The focus has been on

considering the potential of the investment pipeline

and monitoring and evaluating the performance of the

current Portfolio.

The Investment Adviser has continued to make the

committee aware of the investment pipeline and the

committee has had the opportunity to consider and

review investment proposals on a co-investment basis

with the Investment Adviser’s additional client Hipgnosis

Songs Capital. It is worth noting that the committee

reviewed a number of such co-investment opportunities,

namely Nile Rodgers, Erika Ender, Tobias Jesso Jr., TMS

and Justin Bieber, but that these were ultimately not

progressed due to the lack of investible funds.

Our work for the year ahead will be focussed on

the ongoing review of recommendations from the

Investment Adviser on the acquisition of Songs, the

investment pipeline and evaluating investment

performance reports.

Purpose and Aim

Our terms of reference, which are reviewed annually,

are set out on the Company’s website: https: //www.

hipgnosissongs.com/governance/.

We provide a formal mechanism for the following

functions:

• making the final decision as to the acquisition of

Catalogues of Songs based on a comprehensive

investment paper, financial model, and legal due

diligence report as presented by the Investment

Adviser along with an Independent Valuation Report;

• determining, in collaboration with the Company’s

legal, tax or corporate finance advisers, the most

appropriate means for acquiring the Catalogues of

Songs in the event that such Catalogues of Songs

are not directly transferable, but are available in

an intermediated form (such as a special purpose

company, or similar) including determining any

adjustments to the price if necessary or appropriate;

• making enquiries, at any stage, of the Investment

Adviser with regards to the pipeline opportunities

identified by the Investment Adviser from time to time;

• making the final decision as to the disposal of any

Catalogue of Songs; and

• determining, in collaboration with its legal, tax or

corporate finance advisers, the most appropriate

means for disposal of the Catalogues of Songs in the

event that such Catalogues of Songs are not directly

transferable but are held in an intermediated form

(such as a special purpose company, or similar).

Membership and Meetings

As at 31 March 2023, given the current size of the Board

the composition of the committee is all Directors.

Mr Paul Burger (Chair of the Committee)

Ms Sylvia Coleman

Mr Simon Holden

Ms Vania Schlogel (resigned 30 April 2023)

Mr Andrew Sutch

Mr Andrew Wilkinson

We meet on an ad hoc basis when requested on

reasonable prior notice from the Investment Adviser.

The quorum for any meeting of the Portfolio Committee

shall be at least two Directors. All Board members shall

GOVERNANCE

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HIPGNOSIS SONGS FUND LIMITED

ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023

use reasonable endeavours to attend each meeting

of the Portfolio Committee.

Meeting Schedule

As there were no acquisitions or disposals to consider

during the year, the committee did not formally

meet, though the committee was made aware of

the investment pipeline and had the opportunity

to consider and review investment proposals on a

co-Investment basis with the Investment Adviser’s

additional client Hipgnosis Songs Capital. A formal

update on the performance of the Company’s portfolio

was presented to the Board at each scheduled

quarterly Board meeting.

2024 Objectives

Our proposed activities for the year ahead are to:

• review the Terms of Reference of the committee to

ensure they reflect best practice under the AIC Code;

• review the recommendations from the Investment

Adviser on the acquisitions and disposals of

Catalogues of Songs;

• review the quarterly investment performance reports

as prepared by the Investment Adviser, including the

pipeline report.

On behalf of the Portfolio Committee,

Paul Burger

Chair of the Portfolio Committee

12 July 2023

GOVERNANCE • REPORT OF THE PORTFOLIO COMMITTEE

Sylvia Coleman, Chair of the Committee

GOVERNANCE

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HIPGNOSIS SONGS FUND LIMITED

ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023

Report of the Environmental,

Social and Governance

Oversight Committee

“The Committee was established to define our

Environmental, Social and Governance (“ESG”) strategy

and ensure compliance with our ESG obligations.”

Dear Shareholder,

I am pleased to present to you the Environmental, Social

and Governance Oversight Committee Report for the

year ended 31 March 2023, which has been approved

by both the committee and the Board.

During the year, we approved the committee’s Terms of

Reference and Code of Conduct as well as defining our

working relationship with the Investment Adviser, having

also reviewed their Supplier Code of Conduct and

Responsible Investment Policy.

Our work for the year ahead will be focussed on

developing an ESG element to the third-party

service provider review, reviewing and validating the

Investment Adviser’s ESG policies and considerations,

ensuring acknowledgement of and adherence (insofar

as the Board is able) to the Investment Adviser’s Supplier

Code of Conduct, thereby allowing the Company

oversight of all suppliers, both direct and indirect, from

an ESG capacity.

Purpose and Aim

Our terms of reference, which are reviewed annually,

are set out on the Company’s website: https://www.

hipgnosissongs.com/governance/.

We provide a formal mechanism for the oversight of

the Investment Adviser in terms of their Environmental,

Social and Governance responsibilities. We monitor

the policies in place in terms of the Supplier Code of

Conduct and the Responsible Investment Policy and

carry out this function through regular meetings with

and updates from the Investment Adviser including

consideration on a quarterly basis of a compliance

certificate confirming the guidelines and principles

being adhered to as well as the responsibilities

beholden in consequence thereof.

Membership and Meetings

As at 31 March 2023, the Committee comprised

the Chair and the five independent Non-executive

Directors of the Company.

Ms Sylvia Coleman (Chair of the Committee)

Mr Paul Burger

Mr Simon Holden

Ms Vania Schlogel (resigned 30 April 2023)

Mr Andrew Sutch

Mr Andrew Wilkinson

We meet at least once a year pursuant to our terms

of reference. During the year we met on one occasion,

on 7 December 2022. Attendance is disclosed on

page 82. A quorum is two members.

2024 Objectives

It is our intention to continue to work with the Investment

Adviser in defining and delivering their ESG policies and

processes and how they integrate with the corporate

strategy.

Our proposed activities for the year ahead are to:

• review the Investment Adviser’s Supplier Code of

Conduct and adherence to by the suppliers thereto.

• review the Investment Adviser’s Responsible

Investment Policy.

• review the Committee’s Terms of Reference.

On behalf of the Environmental, Social and

Governance Oversight Committee,

Sylvia Coleman

Chair of the Environmental, Social and Governance Oversight

Committee

12 July 2023

GOVERNANCE

Simon Holden, Chair of the Committee

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HIPGNOSIS SONGS FUND LIMITED

ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023

“The Committee oversees the remuneration of the

independent Board of Directors. Board remuneration

must align the intellectual capital and time

commitments required of Directors in fulfilling their

fiduciary responsibilities, overseeing key operational

projects, and ensuring the Company achieves strategic

milestones and continues generating underlying

operational performance for Shareholders and

stakeholders alike.”

Dear Shareholder,

I am pleased to present to you the Directors’

Remuneration Report for the year ended 31 March 2023,

which has been approved by both the Remuneration

Committee and the Board.

During the year we reviewed our Terms of Reference to

re-confirm it reflects best practice under the AIC Code

including periodic, independent review of Director

Remuneration.

The Company is a self-managed Alternative Investment

Fund (“AIF”) for the purposes of AIFMD regulations. The

Investment Adviser’s business is the management of

song rights and associated intellectual property rights,

activities which mean it is not an FCA regulated firm. For

both reasons, the Board have enhanced responsibilities

for both portfolio and risk management in addition to

those of being a premium listed main market constituent

member of the FTSE 250 Index since March 2020.

During 2023, the Committee completed its triennial

review of Director remuneration with the assistance

of independent consultants Nurole. Having given

consideration to the time, skill and effort required

of Directors in fulfilling their duties to the Company,

which is discussed in further detail below, as well

as the fact that remuneration has not increased in

nominal terms over the last three years despite high

inflation, the Committee has recommended that

Directors’ remuneration should increase by 10%,

a recommendation supported by Nurole.

As disclosed on page 83 in recognition of the reduced

time available to Ms Vania Schlogel to devote to

the Company, Ms Schlogel has waived her Director’s

remuneration for the period post year-end from 1 April

2023 to her effective resignation date of 30 April 2023.

Purpose and Aim

Our terms of reference, which are reviewed annually,

are set out on the Company’s website: https: //www.

hipgnosissongs.com/governance/. We are responsible

for recommending and monitoring the level and structure

of remuneration for all the Directors, taking into account

the time commitments and responsibilities of Directors and

any other factors which we deem necessary, including

the recommendations of the AIC Code.

We are also responsible for the review of any workforce

remuneration and related policies and the alignment

of incentives and rewards with culture and consider

these when setting the policy for executive director

remuneration. At the moment this involves oversight of

the arrangements for the employees of HSG, managed

by Hipgnosis Song Management Limited. As at the

year ended 31 March 2023 although the Company

has employees within HSG, none of the employees are

classified as Senior Executives as they do not report

directly to the Board of Hipgnosis Songs Fund Limited.

At the time of the acquisition of HSG, the Board clarified

certain elements of both the Investment Advisory

Agreement and the Financial Position and Prospects

Procedures in order to delegate full responsibility

for the operations of HSG to the Investment Adviser.

Accordingly, the Investment Adviser is responsible for

HSG’s operations, including its executive remuneration,

budgeting and performance management.

Membership and Meetings

As at 31 March 2023, the Committee comprised:

Mr Simon Holden (Chair of the Committee)

Mr Paul Burger

Ms Sylvia Coleman

Ms Vania Schlogel (resigned 30 April 2023)

Mr Andrew Sutch

Mr Andrew Wilkinson

Due to the current size of the Board it is deemed

appropriate and efficient that each Director is

Directors’ Remuneration Report

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HIPGNOSIS SONGS FUND LIMITED

ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023

a member of the committee, this ensures that individual

directors are not working in silos and that each Director

has knowledge of the deliberations of the committee.

We meet at least once a year pursuant to our terms of

reference. During the year we met on one occasion, on

7 December 2022. Attendance is disclosed on page 82.

A quorum is two members. Members of the Committee

are not involved in matters affecting their individual

position.

Increase in Directors’ Remuneration

Each Director receives a fixed fee per annum based

on their roles and responsibility within the Company

and the effective time commitment required. For the

last three years, since 1 April 2020 the Chair has been

entitled to annual remuneration of £85,000, the chairs

of the Audit and Risk Management Committee and

the Portfolio Committee have been entitled to annual

remuneration of £81,500, and the other Directors have

been entitled to annual remuneration of £75,000.

In preparation of the triennial remuneration review, the

Committee Chair asked Directors to track the hours they

spent between Q4 2022 and Q1 2023 on detailed work,

discharging what are often day-to-day responsibiltiies

for the oversight and management of the Company and

its many related projects. Taken as an average, Directors

are giving 50 days full-time equivalent per annum to their

role, the vast majority of which are strategic workstreams,

monthly internal performance reporting and advisory

discussions. None of these constitute formal Board

Meetings that are otherwise captured in the Directors’

individual attendance record.

Directors’ remuneration was last calibrated in 2020,

three years ago. Since then:

• the Company’s board remuneration has remained

fixed in nominal terms

• Generally, compound inflation in the period February

2020 to February 2023 has been 23.9%

• Specifically, a respected survey amongst

Guernsey investment companies with assets under

management of >£1bn shows board remuneration

over the same period has increased by a compound

16.1%, or 5.1% p.a.

• Had Directors’ fees simply tracked pre-Pandemic RPI

inflation of 2.4%, they would be 7.5% higher in nominal

terms as of March 2023.

Triangulating between these two data points, the

Committee concluded that a 10% increase in Directors’

remuneration was appropriate (effective from 1 April

2023), such conclusion having been supported

by independent scrutiny provided by Nurole. The

Committee is mindful of the priority to evidence Board

remuneration as a source of Shareholder value and

therefore draws Shareholders’ attention to the fact that

after this uplift, your Board’s fees are now:

• 13% lower in real terms over the three-year period

• 6% lower against the index of equivalent board

remuneration levels over the same period; and

• Continuing to reflect a sustained and justifiable level

of time commitment that remains at the very upper

end of what is expected of directors in the closed end

alternative fund sector.

Therefore, from 1 April 2023, the Chair has been entitled

to annual remuneration of £93,500, the chairs of the

Audit and Risk Management Committee and the

Portfolio Committee have been entitled to annual

remuneration of £89,650, and the other Directors have

been entitled to annual remuneration of £82,500.

The schedule of the Directors’ attendance in the year

under review as disclosed on page 82 evidences the

breadth and depth of investment, strategy and other

project work we have supported or led during the

year. In addition to the formally convened meetings

during the year, despite a lower deal flow, we have

continued to have a high and sustained workload

and have dealt with a number of matters that

required fresh thinking and consideration in assisting

the Investment Adviser in the management of the

Company. In particular we were heavily involved in the

refinancing of the Company’s debt facility, attended

regular and frequent meetings with the Investment

Adviser to discuss operational performance and active

portfolio management, increased engagement and

consultation with the Company’s professional advisers

and Shareholders, and considered appropriate

actions to take with a view to reducing the Company’s

share price discount to NAV, whilst addressing a fast-

developing macro-economic environment.

1. Office of National Statistics RPI time series MM23 (www.gov.uk)

2. Source: Trust Associates “Investment Company Non-Executive Directors’ Fees

Review” 2020, 2021, 2022

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Fixed Element

FY2023

31 March 2023

Total

31 March2023

Total

Fixed Element

FY2022

31 March 2022

Total

31 March 2022

Total

Andrew Sutch 85,000 85,000 103,573 85,000 85,000 113,811

Paul Burger 81,500 81,500 99,309 81,500 81,500 109,124

Andrew Wilkinson 81,500 81,500 99,309 81,500 81,500 109,124

Simon Holden 75,000 75,000 91,388 75,000 75,000 100,421

Sylvia Coleman 75,000 75,000 91,388 75,000 75,000 100,421

Vania Schlogel 75,000 75,000 91,388 60,360 60,360 80,819

All Directors are non-executive. The Directors’

remuneration, excluding disbursements, for the year

ended 31 March 2023 amounted to £473,000/$576,355,

with no outstanding fees due to the Directors at

31 March 2023 (31 March 2022: £458,360/$613,720 with

outstanding fees of £18,750/$24,745 due at 31 March

2022). There were no supplementary fees paid to

Directors in the year ended 31 March 2023. Directors

are reimbursed for out-of-pocket expenses incurred

in fulfilling their roles, including costs of travel and

accommodation (as required).

In accordance with the AIC Code, we consider the

level of the Directors’ fees at least annually.

During the year ended 31 March 2023 the Directors’

remuneration was as shown in the table below.

The Company’s investment proposition of acquiring,

integrating and overseeing the active management

of a diverse portfolio of song copyrights necessarily

requires a more operational mandate of its Board than

typical investment trusts. Albeit that all Directors are

non-executive, distinguishing responsibilities of our

Board include oversight and consideration of:

• the status of both contractual and registration

rights that require resolving as part of the ongoing

optimisation of current and past acquisitions;

• the Investment Adviser’s function in the tracking and

collection of royalty and licence obligations from a

complex supply chain of global revenue sources;

• the disclosure and measurement of performance

relative to the Investment Adviser’s initial business

case for each acquisition (by income type,

catalogue and at a portfolio level);

• the business case for value enhancement from

internalising certain functions (such as copyright

administration via HSG and digital administration

via Sacem)

• ensuring that assets are securely under the

Company’s custody within reasonable timeframes

post-acquisition; and

• an efficient capitalisation and credit strategy for the

Company to enhance and safeguard returns on

investment for Shareholders.

The remuneration of employees in the Company’s

subsidiary, HSG, which undertakes administration and

Song management activities in the United States, is

delegated to the Investment Adviser under the terms

of the Investment Advisory Agreement.

Remuneration Policy

The Company’s remuneration policy, as published on

the Company’s website (https://www.hipgnosissongs.

com/governance/ alongside the terms of reference

for the Remuneration Committee), is put to a vote by

Shareholders every three years and was ratified by

Ordinary Resolution at the Annual General Meeting

of the Company on 21 September 2022.

GOVERNANCE • DIRECTORS’ REMUNERATION REPORT

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2024 Objectives

It is our intention to continue to oversee the remuneration

arrangements in a manner which is aligned with the

delivery of key operational goals and continued positive

strategic outcome for our Shareholders and stakeholders.

Our proposed activities for the year ahead are:

• review the Terms of Reference of the Committee to

ensure they reflect best practice under the Code;

• revert to an annual, more gradual, cycle of reviewing

factors that influence Director remuneration; this is

more typical across the closed-ended funds sector

and would also be fairer to the Board who have

historically only recalibrated their fees after performing

their roles in steering the Company towards its current

steady-state scale and operational performance;

• engage with Shareholders on any future review of the

remuneration policy.

On behalf of the Remuneration Committee,

Simon Holden

Chair of the Remuneration Committee

12 July 2023

GOVERNANCE • DIRECTORS’ REMUNERATION REPORT

108

HIPGNOSIS SONGS FUND LIMITED

ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023

Report of the Directors

The Directors hereby present the Annual Report and

Audited Consolidated Financial Statements for the

Group, Hipgnosis Songs Fund Limited and its subsidiaries,

for the year ended 31 March 2023. This Report of the

Directors should be read together with the Strategic

Report on pages 2-71 and the Corporate Governance

Report on pages 72-107, which are both incorporated

into this Report of the Directors by reference.

General Information

The Company is a company limited by shares

incorporated on 8 June 2018 under the Companies

Law. The Company’s registration number is 65158, and

it has been registered with the GFSC as a registered

collective investment scheme. The Company’s Ordinary

Shares were admitted to trading on the Specialist Fund

Segment of the London Stock Exchange on 11 July 2018,

and migrated to a Premium Listing on the Main Market

of the London Stock Exchange on 25 September 2019.

The Company was promoted to the FTSE 250 Index

on 20 March 2020. The Company converted to an

investment trust company with effect from 1 April 2021

and is therefore treated as being resident in the UK for

tax purposes and has ceased to be a Guernsey tax

exempt vehicle under The Income Tax (Exempt Bodies)

(Guernsey) Ordinance, 1989, as amended.

The registered office address is Floor 2, Trafalgar Court,

Les Banques, St Peter Port, Guernsey, GY1 4LY.

Principal Activities

The investment objective of the Group is to provide

Shareholders with an attractive and growing level

of income, together with the potential for capital

growth, from investment in a portfolio of Songs and

their associated musical intellectual property rights.

The Group’s principal activities are to invest in a diverse

Portfolio of Song Catalogues, to collect income

generated across a wide variety of sources from the

ongoing exploitation of those copyrights, and to

manage the development of those assets as intensively

as possible to broaden awareness and stimulate

consumption.

Provision of information elsewhere in this

annual report

Business Review

A review of the Group’s business and its likely future

development is provided in the Strategic Report on

pages 2-71.

Financial Risk Management Policies and Objectives

Financial risk management policies and objectives are

disclosed in Note 17.

Section 172(1) Statement

The Section 172(1) statement is made on page 70.

Going Concern and Viability Statements

Going Concern and Viability Statements are made on

pages 67-69.

Principal and Emerging Risks

Principal and emerging risks are discussed in the

Strategic Report on pages 62-66.

Subsequent Events

Significant subsequent events have been disclosed in

Note 24.

Alternative Performance Measures and/or Key

Performance Indicators

The Directors believe that the performance indicators

detailed in the Financial Highlights, on pages 8-9,

and Financial Review on pages 34-41, will provide

Shareholders with sufficient information to assess how

effectively the Company is meeting its objectives. The

Alternative Performance Measures are described on

pages 163-170.

Listing Requirements

Since being admitted to the Official List of the UK Listing

Authority, as maintained by the FCA, the Company has

been required to comply with the applicable Listing

Rules.

Results and Dividends

The results for the year are set out in the Consolidated

Financial Statements on pages 122-162. Dividends are

set out on Note 16.

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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

(pence)

Interim dividend 30 Jun 2022 21 Sep 2022 28 Oct 2022 1.3125

Interim dividend 30 Sep 2022 8 Dec 2022 31 Jan 2023 1.3125

Interim dividend 31 Dec 2022 16 Mar 2023 28 Apr 2023 1. 31 2 5

Interim dividend 31 Mar 2023 23 Jun 2023 28 Jul 2023 1. 31 2 5

Share Capital

The Company has two classes of share capital:

(i) Ordinary Shares; and (ii) C Shares. C Shares constitute

a temporary and separate class of shares which can

be issued at a fixed price determined by the Company.

These are subsequently converted into Ordinary Shares,

at NAV, once the proceeds of each C Share issue have

been invested or substantially invested in accordance

with the Company’s investment policies. There are no

C-shares in issue at 31 March 2023.

Under the Company’s Articles of Incorporation, each

Shareholder present in person or by proxy has the

right to one vote at general meetings. On a poll, each

Shareholder is entitled to one vote for every Ordinary

Share or C Share held.

Shareholders are entitled to all dividends paid by the

Company and, on a winding up, provided the Company

has satisfied all of its liabilities, the Shareholders are

entitled to all of the residual assets of the Company.

Shareholdings of the Directors

The Directors with beneficial interests in the Ordinary

Shares of the Company as at 31 March 2023 are

detailed below:

Director

Ordinary

Shares held

31 March

2023

% holding at

31 March

2023

Ordinary

Shares held

31 March

2022

% holding at

31 March

2022

Paul Burger 66,000 0.005 66,000 0.005

Sylvia Coleman 61,201 0.005 38,701 0.003

Simon Holden 100,796 0.008 100,796 0.008

Andrew Sutch 63,953 0.005 60,668 0.005

Vania Schlogel* 10,000 0.001 10,000 0.001

Andrew Wilkinson 97,258 0.008 72,973 0.006

* Resigned 30 April 2023

In addition, the Company also provides the same

information as at 12 July 2023, being the most current

information available:

Director

OrdinaryShares

held 12 July

2023

% holding at

12 July

2023

Paul Burger 66,000 0.005

Sylvia Coleman 61,201 0.005

Simon Holden 100,796 0.008

Andrew Sutch 64,925 0.005

Andrew Wilkinson 97,258 0.008

Directors’ Authority to Buy Back Shares

The Directors will consider repurchasing Ordinary Shares

in the market if they believe it to be in the Shareholders’

interests as a whole and as a means of correcting

any imbalance between supply and demand for the

Ordinary Shares.

The timing, price and volume of any buy back of

Ordinary Shares will be at the absolute discretion of

the Directors and is subject to the Company having

sufficient working capital for its requirements and surplus

cash resources available. Ordinary Shares acquired

pursuant to this authority are subject to compliance

with the solvency test and any other relevant provisions

of the Companies Law. Annually the Company passes

a resolution granting the Directors general authority to

purchase in the market up to 14.99% of the number of

Ordinary Shares in issue. During the year the Directors

exercised the authority granted at the Annual General

Meeting of the Company held on 21 September 2022 to

repurchase a total of 2 million shares with an aggregate

value of £1.7million. The Directors intend to seek renewal

of this authority from the Shareholders at the AGM.

In the event that the Board decides to repurchase

Ordinary Shares, purchases will only be made through

the market for cash at prices not exceeding the last

reported Operative NAV per Share and such purchases

will only be made in accordance with: (a) the Listing

Rules, which currently provide that the maximum price

to be paid per Ordinary Share must not be more than

the higher of: (i) 5% above the average of the mid-

market values of the relevant Ordinary Shares for the five

business days before the purchase is made; or (ii) the

higher of: (1) the price of the last independent trade;

and (2) the highest current independent bid for an

Ordinary Share on the trading venues where the market

purchases by the Company pursuant to the authority

conferred by that resolution will be carried out; and

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HIPGNOSIS SONGS FUND LIMITED

ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023

(b) the Companies Law, which provides among

other things that any such purchase is subject to the

Company passing the solvency test contained in the

Companies Law at the relevant time.

The Directors will not buy back any Shares from any

class of C Shares in issue prior to Conversion. Therefore,

the Company will not assist any class of C Shares in

limiting discount volatility or provide an additional

source of liquidity.

Directors’ and Officers’ Liability Insurance

The Company maintains insurance in respect of

Directors’ and Officers’ liability in relation to their

activities on behalf of the Group.

Substantial Shareholdings

As at 31 March 2023, the Company had been notified,

in accordance with Chapter 5 of the Disclosure and

Transparency Rules of the following substantial voting

rights as Shareholders of the Company.

Shareholder Shareholding % holding

Investec Wealth & Investment 116,792,830 9.66%

Newton Investment Management 108,489,848 8.97%

Aviva Investors 81,790,812 6.76%

Cazenove Capital Management 78,357,597 6.48%

RBC Brewin Dolphin 73,144,523 6.05%

CCLA Investment Management 58,688,592 4.85%

BlackRock 39,868,886 3.30%

Brooks Macdonald 38,120,744 3.15%

In addition, the Company also provides the same

information as at 30 June 2023, being the most current

information available.

Shareholder Shareholding % holding

Investec Wealth & Investment 116,565,828 9.64%

Newton Investment Management 105,329,783 8.71%

Aviva Investors 81,790,812 6.76%

Cazenove Capital Management 76,276,653 6.31%

Brewin Dolphin 72,136,781 5.97%

CCLA Investment Management 59,079,304 4.89%

BlackRock 38,920,378 3.22%

The Directors confirm that there are no securities in issue

that carry special rights with regard to the control of the

Company.

Independent External Auditor

PricewaterhouseCoopers CI LLP has been the

Company’s external auditor since the Company’s

incorporation. The Audit and Risk Management

Committee reviews the appointment of the external

auditor, its effectiveness and its relationship with

the Company, which includes monitoring the use

of the external auditor for non-audit services and

the balance of audit and non-audit fees paid,

as included in Note 21. Following a review of the

independence and effectiveness of the external auditor,

a resolution will be proposed at the AGM to re-appoint

PricewaterhouseCoopers CI LLP. Each Director believes

that there is no relevant information of which the external

auditor is unaware. Each had taken all steps necessary, as

a Director, to be aware of any relevant audit information

and to establish that PricewaterhouseCoopers CI LLP

is made aware of any pertinent information. This

confirmation is given and should be interpreted in

accordance with the provisions of Section 249 of the

Companies Law. Further information on the work of the

external auditor is set out in the Report of the Audit and

Risk Management Committee on page 92.

Articles of Incorporation

The Company’s Articles of Incorporation may only be

amended by special resolution of the Shareholders.

AEOI Rules

Under AEOI Rules the Company continues to comply

with both FATCA and CRS requirements to the extent

relevant to the Company.

Annual General Meeting

The Company’s Annual General Meeting will be held

before the end of September. Notice of the Annual

General Meeting, containing full details of the business

to be conducted at the meeting, will be published to

Shareholders in due course.

Members of the Board and the Investment Adviser will

be in attendance at the AGM and will be available to

answer Shareholder questions.

By order of the Board,

Andrew Sutch

Chair

12 July 2023

GOVERNANCE • REPORT OF THE DIRECTORS

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HIPGNOSIS SONGS FUND LIMITED

ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023

The Directors are responsible for preparing the Annual

Report and Consolidated Financial Statements in

accordance with applicable law and regulations.

The Companies Law requires the Directors to prepare

the Annual Report and Consolidated Financial

Statements for each financial year. Under the

Companies Law, the Directors must not approve the

Consolidated Financial Statements unless they are

satisfied that they give a true and fair view of the state

of affairs of the Group and of the profit or loss of the

Group for that period.

In preparing these Consolidated Financial Statements,

the Directors are required to:

• select suitable accounting policies in accordance

with IAS 8 Accounting Policies, Changes in

Accounting Estimates and Errors and then apply them

consistently;

• make judgments and accounting estimates that are

reasonable and prudent;

• present information, including accounting policies,

in a manner that provides relevant, reliable,

comparable and understandable information;

• provide additional disclosures when compliance

with the specific requirements in IFRS is insufficient to

enable users to understand the impact of particular

transactions, other events and conditions on the

Group’s financial position and financial performance;

• state that the Group has complied with IFRS, subject

to any material departures disclosed and explained in

the Consolidated Financial Statements; and

• prepare the Consolidated Financial Statements on

a going concern basis unless it is inappropriate to

presume that the Group will continue in business.

The Directors confirm that they have complied with the

above requirements in preparing the Annual Report

and Consolidated Financial Statements.

The Directors are responsible for keeping proper

accounting records, which disclose with reasonable

accuracy at any time the financial position of

the Group and enable them to ensure that the

Consolidated Financial Statements comply with

the Companies Law. They are also responsible for

safeguarding the assets of the Group and hence

for taking reasonable steps for the prevention and

detection of fraud, error and non-compliance with law

and regulations.

The Directors are responsible for ensuring that

the Annual Report and Consolidated Financial

Statements, taken as a whole, are fair, balanced and

understandable and provide the information necessary

for Shareholders to assess the Group’s performance,

business model and strategy.

The Directors are also responsible under the AIC Code

to promote the success of the Group for the benefit of

its members as a whole and in doing so have regard for

the needs of wider society and other stakeholders.

As part of the preparation of the Annual Report and

Consolidated Financial Statements the Directors have

received reports and information from the Company’s

Investment Adviser and Administrator. The Directors

have considered, reviewed and commented upon the

Annual Report and Financial Statements throughout the

drafting process in order to satisfy themselves in respect

of the content.

The Directors are responsible for the maintenance and

integrity of the corporate and financial information

included on the website: www.hipgnosissongs.com)

Legislation in Guernsey governing the preparation and

dissemination of the Consolidated Financial Statements

may differ from legislation in other jurisdictions.

Directors’ Responsibilities Statement

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HIPGNOSIS SONGS FUND LIMITED

ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023

Responsibility Statement of the Directors

in Respect of the Annual Report under the

Disclosure and Transparency Rules

Each of the Directors confirms to the best of their

knowledge that:

• the Consolidated Financial Statements, prepared in

accordance with IFRS, give a true and fair view of the

assets, liabilities, financial position and profit or loss of

the Company and the undertakings included in the

consolidation taken as a whole;

• the Annual Report includes a fair review of the

development and performance of the business and

the position of the Company and its subsidiaries,

together with a description of the principal risks and

uncertainties faced; and

• the Annual Report and Consolidated Financial

Statements include information required by the

FCA ensuring that the Company complies with the

provisions of the Listing Rules, Disclosure Guidelines

and Transparency Rules of the FCA. With regard to

corporate governance, the Company is required

to disclose how it has applied the principles and

complied with the provisions of the AIC Code

applicable to the Company with which it has agreed

to comply. In addition, there is no information that is

required to be disclosed under Listing Rule 9.8.4.

By order of the Board

Andrew Sutch

Chair

12 July 2023

Hipgnosis Songs Fund Limited

GOVERNANCE • DIRECTORS’ RESPONSIBILITIES STATEMENT

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HIPGNOSIS SONGS FUND LIMITED

ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023

Report on the audit of the consolidated

financial statements

Our opinion

In our opinion, the consolidated financial statements

give a true and fair view of the consolidated financial

position of Hipgnosis Songs Fund Limited (the “company”)

and its subsidiaries (together “the group”) as at 31 March

2023, and of their consolidated financial performance

and their consolidated cash flows for the year then

ended in accordance with International Financial

Reporting Standards and have been properly prepared

in accordance with the requirements of the Companies

(Guernsey) Law, 2008.

What we have audited

The group’s consolidated financial statements comprise:

• the consolidated statement of financial position as at

31 March 2023;

• the consolidated statement of profit and loss for the

year then ended;

• the consolidated statement of comprehensive income

for the year then ended;

• the consolidated statement of changes in equity for the

year then ended;

• the consolidated statement of cash flows for the year

then ended; and

• the notes to the consolidated financial statements,

which include significant accounting policies and other

explanatory information.

Basis for opinion

We conducted our audit in accordance with International

Standards on Auditing (“ISAs”). Our responsibilities under

those standards are further described in the

Auditor’s

responsibilities for the audit of the consolidated financial

statements

section of our report.

We believe that the audit evidence we have obtained is

sufficient and appropriate to provide a basis for our opinion.

Independence

We are independent of the group in accordance with

the ethical requirements that are relevant to our audit

of the consolidated financial statements of the group,

as required by the Crown Dependencies’ Audit Rules

and Guidance. We have fulfilled our other ethical

responsibilities in accordance with these requirements.

Material Uncertainty Related to Going Concern

We draw attention to note 2(b) to the financial statements,

which indicates that a continuation vote is due to be held

by the end of September 2023. Should shareholders vote

against continuation of the company or continuation

of the company in its current form this would impact the

longer term viability of the group. As stated in note 2(b)

these events or conditions along with other matters set

forth in note 2(b), indicate that a material uncertainty

exists that may cast significant doubt on the group’s

ability to continue as a going concern. Our opinion is not

modified in respect of this matter.

Our audit approach

Overview

Audit scope

• The company is incorporated in Guernsey and has

underlying subsidiaries incorporated in the United

Kingdom (“UK”) and the United States of America

(“USA”). The consolidated financial statements are a

consolidation of the company and all of the underlying

subsidiaries.

• We conducted our audit of the consolidated financial

statements based on information provided by Hipgnosis

Song Management Limited (the “Investment Adviser”),

to whom the board of directors has delegated the

provision of certain functions.

• We conducted our audit work in Guernsey and we

tailored the scope of our audit taking into account the

types of investments within the group, and the industry

in which the group operates.

• The components of the group in Guernsey, UK and

USA, to which we applied full audit scoping and audit

procedures, accounted for 100% of the net assets and

total comprehensive income.

Key audit matters

• Material uncertainty related to going concern

• Risk of fraud in revenue recognition and accuracy

of revenue accruals

• Carrying value and fair value disclosure of intangible

assets

Materiality

• Overall group materiality: $17.5 million (2022: $17.8 million)

based on 1% of the group’s Adjusted Net Asset Value

• Performance materiality: $13.1 million (2022: $13.4 million)

• The group’s Adjusted Net Asset Value is calculated using

the Net Asset Value determined in accordance with

International Financial Reporting Standards (“IFRS”),

adjusted by adding back the cumulative amortisation

of intangible assets and any cumulative impairment of

intangible assets

Independent Auditor’s Report to the Members

of Hipgnosis Songs Fund Limited

INDEPENDENT AUDITOR’S REPORT

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HIPGNOSIS SONGS FUND LIMITED

ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023

The scope of our audit

As part of designing our audit, we determined materiality

and assessed the risks of material misstatement in

the consolidated financial statements. In particular,

we considered where the directors made subjective

judgements; for example, in respect of significant

accounting estimates that involved making assumptions

and considering future events that are inherently

uncertain. As in all of our audits, we also addressed

the risk of management override of internal controls,

including among other matters, consideration of

whether there was evidence of bias that represented

a risk of material misstatement due to fraud.

Key audit matters

Key audit matters are those matters that, in the auditor’s

professional judgement, were of most significance in the

audit of the consolidated financial statements of the

current period and include the most significant assessed

risks of material misstatement (whether or not due to fraud)

identified by the auditor, including those which had the

greatest effect on: the overall audit strategy; the allocation

of resources in the audit; and directing the efforts of the

engagement team. These matters, and any comments

we make on the results of our procedures thereon, were

addressed in the context of our audit of the consolidated

financial statements as a whole, and in forming our opinion

thereon, and we do not provide a separate opinion on

these matters. In addition to the matter described in the

Material Uncertainty related to going concern, we have

determined the matters described below to be the key

audit matters to be communicated in our report.

This is not a complete list of all risks identified by our audit.

Key audit matter How our audit addressed the key audit matter

Risk of fraud in revenue recognition and accuracy

of revenue accruals



Please refer to Notes 4 and 13 to the consolidated

financial statements.

The group earns revenue from the rights it owns over

its catalogues of songs. Such revenue takes the form

of royalties, licence fees and/or other receipts such

as mechanical royalties, performance royalties, and

synchronisation fees, as examples.

Revenue is collected by the portfolio

administrators / royalty collection agents, reported on

a periodic basis and paid based on predetermined

revenue payment dates thereafter.

In addition, because of the time lag between the

contractual reporting and revenue payment dates with

the various portfolio administrators / royalty collection

agents, the directors make an estimate of the revenue

accrued to the group at the period end. These accruals

include an estimate of revenue not yet reported

to the group by the portfolio administrators / royalty

collection agents and, where appropriate, an

estimate of unreported usage related to the expected

consumption of the group’s songs that have yet to be

presented in statements received from the portfolio

ad m in i st rator s / royal t y co ll ect io n ag ent s .

We met with the directors and Investment Adviser and

understood and evaluated the group’s relevant processes,

internal controls and revenue recognition policies relating

to the various music royalty, license fees and other revenue

earned from the catalogues of songs owned by the group.

We also assessed the group’s revenue recognition

accounting policies for compliance with IFRS, and in par-

ticular IFRS 15 – Revenue from Contracts with Customers.

Our audit procedures over revenue recognition, in so far

as they addressed the specific risk of fraud in revenue

recognition included:

• We confirmed any changes to key contracts with

portfolio administrators / royalty collection agents or

of existing catalogues of songs and understood the

impact to revenue recognised by the group;

• We reconciled the revenue listing to the general

ledger. We also selected a sample of catalogues

from the revenue listing and tested these to portfolio

administration statements / royalty collection agent

statements and investigated any differences;

• We performed a year on year analytical review

over total revenue by catalogue and discussed with

management any unusual movements, taking into

consideration changes in catalogue performance and

other factors impacting revenue during the year; and

• We identified and evaluated all unusual combinations

of revenue journals that occurred during the year, as well

as material period 13 revenue journals for reasonableness

based upon underlying supporting evidence.

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For the year ended 31 March 2023, the group has also

reflected an accrual at the year-end relating to the final

US Copyright Royalty Board (“CRB”) III ruling announced

on 1 July 2022. This accrual includes both a portion

related to the current financial year’s expected revenue

increase at the higher rate enacted by the ruling, and

an accrual for an expected retroactive payment related

to historic periods back to the implementation date,

that has not been previously recognised by the group

because of the outcome of the CRB III ruling.

The directors seek the input of the Investment Adviser in

making these revenue estimates and accruals, which

involve significant estimates and judgements (see

Note 4). The period end accruals are based on the

catalogues of songs’ historic performance, adjusted for

the Investment Adviser’s and directors’ assessment of

the expected performance of the various catalogues

of songs and by taking into account the latest available

music consumption information, the lag inherent in

the industry and the understanding of the limitations

of the usage data presented to the group by the

portfolio administrators / royalty collection agents. These

judgements and estimates could pose an increased risk

of fraud in revenue recognition.

Revenue is also one of the key performance indicators

of the group and significant changes in contractual

arrangements with the portfolio administrators / royalty

collection agents, changes in royalty and license rates

and catalogue of songs’ performance can have a

significant impact on the recognition of revenue by the

group and the estimates and judgements applied by the

directors. As a result, there is a heightened risk of material

misstatement as a result of fraud or error and therefore

the risk of fraud in revenue recognition and the accuracy

of revenue accruals are considered to be a key audit

matter for audit purposes.

We also performed the following procedures with respect

to the period end revenue accruals:

• We evaluated the methodology applied by the

Investment Adviser in developing the year end revenue

accruals recommended to the directors;

• We evaluated the underlying information used by the

Investment Adviser in the revenue accrual calculations

by comparing this to the revenue information audited;

• We evaluated and challenged the reasonableness of

the revenue accrual assumptions made by the directors

and Investment Adviser;

• We reconciled a sample of the most recent royalty

statements received by the group post year end to

the corresponding revenue accrual, and obtained

supporting evidence to challenge and understand any

differences noted from the sample selected;

• We tested a sample of data used as the basis of

the unreported song usage calculation to source

documentation and for the sample selected, we also

reperformed the calculation of the unreported usage

gaps related to the expected consumption of the

group’s songs but not yet reported by the portfolio

administrators / royalty collection agents;

• We tested the inputs used within the CRB III accrual by

agreeing the data to supporting documentation and

challenged any assumptions made by management;

and

• We performed back testing by comparing the prior

year revenue accruals to subsequently received royalty

statements in order to assess the reliability of the prior

year revenue accrual estimates and judgements.

Based on our work performed, we did not identify

any material matters to report to those charged with

governance.

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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 group’s portfolio of catalogues of songs are classified as

intangible assets under IAS 38 – Intangible Assets (“IAS 38”).

The catalogues of songs are held at cost and amortised over

their useful life less any impairment. The catalogues of songs

are subject to an impairment assessment at the earlier of the

end of each accounting period and when an indicator of

impairment is identified.

The directors determine the useful life of the catalogues at

acquisition using what they consider to be industry practice

(see Note 4).

Whilst other factors are considered, the directors and the

Investment Adviser have determined that one of the most

relevant indicators of impairment for a catalogue of songs

would be where the fair value as determined by the Portfolio

Independent Valuer is lower than the carrying value of that

catalogue of songs (as determined in accordance with IFRS)

for a sustained period of at least two years. Such catalogues

of songs are subjected to the group’s impairment assessment

procedures.

The directors disclose the fair value of the catalogues

of songs (see Note 6) and also present an ‘Operative

Net Asset Value’, which takes into account the

catalogues of songs at this fair value rather than at the

IFRS carrying value. The directors have, in consultation

with the Investment Adviser, engaged the Portfolio

Independent Valuer to assess the fair value of each

catalogue of songs. The fair value of each catalogue

of songs is determined using a discounted cash flow

model and incorporates assumptions that are subject

to significant judgement by the Portfolio Independent

Valuer, Investment Adviser and directors. These estimates

and assumptions include forecast catalogue royalty

receipts, music industry growth rates by revenue type

(e.g. mechanical, performance, digital downloads,

streaming, synchronisation etc.) and the determination

of an appropriate discount rate. The fair value of the

catalogues of songs as disclosed in Note 6 reflects the

fair value as calculated by the Portfolio Independent

Valuer, recommended by the Investment Adviser and

adopted by the board of directors.

We met with the Investment Adviser and updated our

understanding of the relevant processes and controls

related to the assessment and calculation of the

carrying value of the catalogues of songs. We also

sought to update our understanding of and evaluate

the group’s impairment process related to catalogues

of songs where an indicator of impairment had been

identified, which included also meeting with the Portfolio

Independent Valuer to update our understanding and

evaluation of the valuation process applied by them in

calculating the fair value of the catalogues of songs.

As part of our audit procedures:

• We discussed the selection of the useful life applied to

the catalogues of songs with the Investment Advisor and

directors and considered the ongoing appropriateness

in light of other publicly available information that

reflects industry practice and performance of the

catalogues; and

• For all catalogues of songs, we recalculated the

carrying value in accordance with the useful life

determined by the directors.

With regard to the fair value of the catalogues of

songs disclosed in Note 6 to the consolidated financial

statements, used in determining the Operative Net Asset

Value of the group by the directors, and used as an initial

indicator of impairment, we performed the following

procedures:

• We contacted the Portfolio Independent Valuer directly

and obtained their valuation model for each catalogue

of songs. We also held discussions with the Portfolio

Independent Valuer, assessed their competence,

capabilities and objectivity;

• We obtained an understanding of the assumptions

applied by the Portfolio Independent Valuer in

projecting growth rates used to determine future

revenue across a sample of catalogues of songs and

of the discount rate applied to the projected revenue /

cash flow streams and challenged the reasonableness

of these by using available industry data;

• On a sample basis, we agreed the baseline revenue

used by the Portfolio Independent Valuer in their model

to the revenue recognised by the group and assessed

and challenged the rationale for any adjustments

made thereto;

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As part of the impairment assessment process, the

directors calculate a value in use for each of the

catalogues of songs which have shown indicators of

impairment as described above. The original projected

cash flows used during the fair value calculation by

the Independent Portfolio Valuer are applied but the

directors use an amended discount rate to reflect the

group’s ability to actively manage the catalogues

of songs (whereas the fair value determined by the

Independent Portfolio Valuer reflects cash flows on

a passive holding basis).

As the catalogues of songs are significant to the

net asset value of the group and given the level of

estimation applied in the consideration of impairment

and in determining the fair value and value in use

of each catalogue, there is a heightened risk of

misstatement. As a result, the carrying value of the

catalogues of songs carried at cost less accumulated

amortisation and any accumulated impairment

losses and the fair value of the catalogues of songs

as disclosed in the notes to the consolidated financial

statements (and used in the determination of the

Operative NAV and used as an initial basis as an

indicator of impairment) are considered to be key

audit matters.

• Through engagement with our auditor’s expert,

we independently recalculated and validated the

components of the discount rate applied by the Portfolio

Independent Valuer to external sources, and where

necessary, challenged the methodology adopted.

Through the involvement of the auditor’s expert, we also

evaluated and challenged the appropriateness of the

overall valuation methodology and the reasonableness

of the terminal growth rates to external sources;

• In addition to the work undertaken by our auditor’s

expert, we also assessed and challenged the growth

rates applied by the Portfolio Independent Valuer to

independently obtained music industry market growth

data on a sample basis;

• We recalculated the arithmetic accuracy of the

valuation of all the catalogues of songs; and

• We reperformed the sensitivity analysis of the discount

rate and the terminal growth rate as disclosed in note 6

to the consolidated financial statements.

With regard to the impairment assessment and the

determination of the value in use that is used by

management, we performed the following procedures:

• We obtained, discussed and challenged the directors

and Investment Adviser on their impairment assessment

undertaken;

• We obtained the schedule of catalogues of songs

with indicators of impairment from management and

assessed this list for completeness by independently

comparing the carrying value of the catalogues of

songs to their fair values, ensuring all of these had been

included in the impairment assessment;

• We challenged management and the directors on the

assumptions used to amend the discount rate used

in determining the fair value when applying this to

and calculating the value in use which is used in the

impairment assessment;

• We evaluated the impact of, and challenged

management on application of the 2 year minimum

period applied (where the fair value is below the

carrying value) before an impairment assessment is

undertaken; and

• For all catalogues that were impaired, we checked the

mathematical accuracy of the value in use and the

impairment assessment calculations.

Based on our work performed, we did not identify

any material matters to report to those charged with

governance.

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How we tailored the audit scope

We tailored the scope of our audit to ensure that we

performed enough work to be able to give an opinion on

the consolidated financial statements as a whole, taking

into account the structure of the group, the accounting

processes and controls, the industry in which the group

operates, and we considered the risk of climate change

and the potential impact thereof on our audit approach.

The company is based in Guernsey and has subsidiaries

in the UK and the USA. The consolidated financial

statements are a consolidation of the company and all

the subsidiaries.

Scoping was performed at the group level,

irrespective of whether the underlying transactions

took place within the company or within the

subsidiaries. The group audit was led, directed

and controlled by PricewaterhouseCoopers CI

LLP and all audit work for material items within the

consolidated financial statements was performed

in Guernsey by PricewaterhouseCoopers CI LLP.

The transactions relating to the company and many

of the subsidiaries are maintained by the Investment

Adviser, or were made directly available to us by

the management of the remaining subsidiaries,

and therefore we were not required to engage with

component auditors operating under our instruction.

Our testing was therefore performed on a consolidated

basis using thresholds which were determined

with reference to the overall group materiality and

the risks of material misstatement identified.

As noted in the overview, the components of the group

for which we performed full scope audit procedures

accounted for 100% of consolidated net assets

and total consolidated comprehensive income.

Materiality

The scope of our audit was influenced by our application

of materiality. We set certain quantitative thresholds

for materiality. These, together with qualitative

considerations, helped us to determine the scope of

our audit and the nature, timing and extent of our audit

procedures on the individual financial statement line

items and disclosures and in evaluating the effect of

misstatements, both individually and in aggregate on

the consolidated financial statements as a whole.

Based on our professional judgement, we determined

materiality for the consolidated financial statements as

a whole as follows:

Overall group

materiality

$17.5 million (2022: $17.8 million)

How we

determined it

1% of Adjusted Net Asset Value

Rationale for

benchmark

applied

We believe that Adjusted Net

Asset Value represents the most

appropriate benchmark given the

nature and activities of the group,

and that this is a key consideration

for investors when assessing

the financial performance. The

group’s Adjusted Net Asset Value

is calculated as $1.75 billion (2022:

$1.78 billion)

We use performance materiality to reduce to

an appropriately low level the probability that

the aggregate of uncorrected and undetected

misstatements exceeds overall materiality. Specifically,

we use performance materiality in determining the

scope of our audit and the nature and extent of our

testing of account balances, classes of transactions

and disclosures, for example in determining sample

sizes. Our performance materiality was 75% (2022: 75%)

of overall materiality, amounting to $13.1 million (2022:

$13.4 million) for the group financial statements.

In determining the performance materiality, we considered

a number of factors – the history of misstatements, risk

assessment and aggregation risk and the effectiveness

of controls – and concluded that an amount at the

upper end of our normal range was appropriate.

We agreed with the Audit and Risk Committee that we

would report to them misstatements identified during

our audit above $875,000 (2022: $890,000) as well as

misstatements below that amount that, in our view,

warranted reporting for qualitative reasons.

Reporting on other information

The other information comprises all the information

included in the Annual Report (the “Annual Report”) but

does not include the consolidated financial statements

and our auditor’s report thereon. The directors are

responsible for the other information.

Our opinion on the consolidated financial statements

does not cover the other information and we do not

express any form of assurance conclusion thereon.

In connection with our audit of the consolidated financial

statements, our responsibility is to read the other information

and, in doing so, consider whether the other information

is materially inconsistent with the consolidated financial

statements or our knowledge obtained in the audit, or

INDEPENDENT AUDITOR’S REPORT

PROO F 14 - 12/7/2023

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HIPGNOSIS SONGS FUND LIMITED

ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023

otherwise appears to be materially misstated. If, based on

the work we have performed, we conclude that there is

a material misstatement of this other information, we are

required to report that fact. We have nothing to report

based on these responsibilities.

Responsibilities for the consolidated financial

statements and the audit

Responsibilities of the directors for the consolidated

financial statements

As explained more fully in the Directors Responsibilities’

statement, the directors are responsible for the

preparation of the consolidated financial statements that

give a true and fair view in accordance with International

Financial Reporting Standards, the requirements of

Guernsey law and for such internal control as the directors

determine is necessary to enable the preparation of

consolidated financial statements that are free from

material misstatement, whether due to fraud or error.

In preparing the consolidated financial statements,

the directors are responsible for assessing the group’s

ability to continue as a going concern, disclosing, as

applicable, matters related to going concern and

using the going concern basis of accounting unless the

directors either intend to liquidate the group or to cease

operations, or have no realistic alternative but to do so.

Auditor’s responsibilities for the audit of the

consolidated financial statements

Our objectives are to obtain reasonable assurance

about whether the consolidated financial statements as

a whole are free from material misstatement, whether

due to fraud or error, and to issue an auditor’s report that

includes our opinion. Reasonable assurance is a high

level of assurance, but is not a guarantee that an audit

conducted in accordance with ISAs will always detect a

material misstatement when it exists. Misstatements can

arise from fraud or error and are considered material

if, individually or in aggregate, they could reasonably

be expected to influence the economic decisions of

users taken on the basis of these consolidated financial

statements.

Our audit testing might include testing complete

populations of certain transactions and balances,

possibly using data auditing techniques. However, it

typically involves selecting a limited number of items for

testing, rather than testing complete populations. We

will often seek to target particular items for testing based

on their size or risk characteristics. In other cases, we will

use audit sampling to enable us to draw a conclusion

about the population from which the sample is selected.

As part of an audit in accordance with ISAs, we exercise

professional judgement and maintain professional

scepticism throughout the audit. We also:

• Identify and assess the risks of material misstatement

of the consolidated financial statements, whether due

to fraud or error, design and perform audit procedures

responsive to those risks, and obtain audit evidence

that is sufficient and appropriate to provide a basis

for our opinion. The risk of not detecting a material

misstatement resulting from fraud is higher than for

one resulting from error, as fraud may involve collusion,

forgery, intentional omissions, misrepresentations, or the

override of internal control.

• Obtain an understanding of internal control relevant

to the audit in order to design audit procedures that

are appropriate in the circumstances, but not for the

purpose of expressing an opinion on the effectiveness

of the group’s internal control.

• Evaluate the appropriateness of accounting policies

used and the reasonableness of accounting estimates

and related disclosures made by the directors.

• Conclude on the appropriateness of the directors’ use

of the going concern basis of accounting and, based

on the audit evidence obtained, whether a material

uncertainty exists related to events or conditions that

may cast significant doubt on the group’s ability to

continue as a going concern over a period of at

least twelve months from the date of approval of the

consolidated financial statements. If we conclude

that a material uncertainty exists, we are required to

draw attention in our auditor’s report to the related

disclosures in the consolidated financial statements

or, if such disclosures are inadequate, to modify our

opinion. Our conclusions are based on the audit

evidence obtained up to the date of our auditor’s

report. However, future events or conditions may cause

the group to cease to continue as a going concern.

• Evaluate the overall presentation, structure and content

of the consolidated financial statements, including the

disclosures, and whether the consolidated financial

statements represent the underlying transactions and

events in a manner that achieves fair presentation.

• Obtain sufficient appropriate audit evidence

regarding the financial information of the entities

or business activities within the group to express an

opinion on the consolidated financial statements.

We are responsible for the direction, supervision

and performance of the group audit. We remain

solely responsible for our audit opinion.

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We communicate with those charged with governance

regarding, among other matters, the planned scope

and timing of the audit and significant audit findings,

including any significant deficiencies in internal control

that we identify during our audit.

We also provide those charged with governance with

a statement that we have complied with relevant

ethical requirements regarding independence, and

to communicate with them all relationships and other

matters that may reasonably be thought to bear on

our independence, and where applicable, related

safeguards.

From the matters communicated with those charged

with governance, we determine those matters

that were of most significance in the audit of the

consolidated financial statements of the current period

and are therefore the key audit matters. We describe

these matters in our auditor’s report unless law or

regulation precludes public disclosure about the matter

or when, in extremely rare circumstances, we determine

that a matter should not be communicated in our

report because the adverse consequences of doing so

would reasonably be expected to outweigh the public

interest benefits of such communication.

Use of this report

This report, including the opinions, has been prepared

for and only for the members as a body in accordance

with Section 262 of The Companies (Guernsey) Law,

2008 and for no other purpose. We do not, in giving

these opinions, accept or assume responsibility for

any other purpose or to any other person to whom this

report is shown or into whose hands it may come save

where expressly agreed by our prior consent in writing.

Report on other legal and regulatory

requirements

Company Law exception reporting

Under The Companies (Guernsey) Law, 2008 we are

required to report to you if, in our opinion:

• we have not received all the information and

explanations we require for our audit;

• proper accounting records have not been kept; or

• the consolidated financial statements are not in

agreement with the accounting records.

We have no exceptions to report arising from this

responsibility.

Corporate governance statement

The Listing Rules require us to review the directors’

statements in relation to going concern, longer-term

viability and that part of the corporate governance

statement relating to the company’s compliance with

the provisions of the UK Corporate Governance Code

specified for our review. Our additional responsibilities

with respect to the corporate governance statement

as other information are described in the Reporting on

other information section of this report.

The company has reported compliance against the

2019 AIC Code of Corporate Governance (the “Code”)

which has been endorsed by the UK Financial Reporting

Council as being consistent with the UK Corporate

Governance Code for the purposes of meeting the

company’s obligations, as an investment company,

under the Listing Rules of the FCA.

Based on the work undertaken as part of our audit, we

have concluded that each of the following elements of

the corporate governance statement and the strategic

report is materially consistent with the consolidated

financial statements and our knowledge obtained

during the audit, and we have nothing material to add

or draw attention to in relation to:

• The directors’ confirmation that they have carried out

a robust assessment of the emerging and principal risks;

• The disclosures in the Annual Report that describe those

principal risks, what procedures are in place to identify

emerging risks and an explanation of how these are

being managed or mitigated;

• The directors’ statement in the consolidated financial

statements about whether they considered it

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appropriate to adopt the going concern basis of

accounting in preparing them, and their identification

of any material uncertainties to the group’s ability

to continue to do so over a period of at least twelve

months from the date of approval of the consolidated

financial statements;

• The directors’ explanation as to their assessment of the

group’s prospects, the period this assessment covers

and why the period is appropriate; and

• The directors’ statement as to whether they have a

reasonable expectation that the company will be able

to continue in operation and meet its liabilities as they

fall due over the period of its assessment, including any

related disclosures drawing attention to any necessary

qualifications or assumptions.

Our review of the directors’ statement regarding the

longer-term viability of the group was substantially

less in scope than an audit and only consisted of

making inquiries and considering the directors’

process supporting their statements; checking that the

statements are in alignment with the relevant provisions

of the Code; and considering whether the statement is

consistent with the consolidated financial statements

and our knowledge and understanding of the group

and its environment obtained in the course of the audit.

In addition, based on the work undertaken as part

of our audit, we have concluded that each of the

following elements of the corporate governance

statement is materially consistent with the consolidated

financial statements and our knowledge obtained

during the audit:

• The directors’ statement that they consider the

Annual Report, taken as a whole, is fair, balanced

and understandable, and provides the information

necessary for the members to assess the group’s

position, performance, business model and strategy;

• The section of the Annual Report that describes the

review of effectiveness of risk management and internal

control systems; and

• The section of the Annual Report describing the work

of the Audit and Risk Management Committee.

We have nothing to report in respect of our

responsibility to report when the directors’ statement

relating to the company’s compliance with the Code

does not properly disclose a departure from a relevant

provision of the Code specified under the Listing Rules

for review by the auditors.

Other matter

In due course, as required by the Financial Conduct

Authority Disclosure Guidance and Transparency

Rule 4.1.14R, these consolidated financial statements

will form part of the ESEF-prepared annual financial

report filed on the National Storage Mechanism of the

Financial Conduct Authority in accordance with the

ESEF Regulatory Technical Standard (“ESEF RTS”). This

auditor’s report provides no assurance over whether the

annual financial report will be prepared using the single

electronic format specified in the ESEF RTS.

Roland Mills

For and on behalf of PricewaterhouseCoopers CI LLP

Chartered Accountants and Recognised Auditor

Guernsey, Channel Islands

12 July 2023

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ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023

FINANCIAL STATEMENTS

Consolidated Statement of Profit and Loss

For the year ended 31 March 2023

Notes

1 April 2022 to

31 March 2023

$’000

1 April 2021 to

31 March 2022

$’000

Income

Total revenue 13 177,312 200,384

Interest income 237 5

Royalty costs (30,316) (32,041)

Net revenue 147,233 168,348

Expenses

Advisory and performance fees 19 (12,472) (16,548)

Administration fees (608) (1,152)

Legal and professional fees (3,794) (5,999)

Audit fees 21 (753) (600)

Brokers’ fees (554) (274)

Directors’ remuneration 18 (643) (696)

Listing fees (84) (34)

Subscriptions and licences (607) (526)

Public relations fees (780) (702)

Catalogue bonus provision 10 (43,757) (936)

Movement in ECL provision for HSG advances (2,196) (1,570)

Other operating expenses 14 (10,354) (10,105)

Amortisation of Catalogues of Songs 6 (111,583) (105,787)

Impairment of Catalogues of Songs 6 (3,901) (1,490)

Amortisation of borrowing expenses (1,618) (1,635)

Borrowing cost extinguishment 9 (5,007) –

Fixed asset depreciation (653) (712)

Loan interest 9 (33,700) (20,377)

Fair value gain on held for trading derivative financial instruments 22 2,622 –

Finance charges for deferred consideration – (212)

Net loss from joint ventures (264) (836)

Foreign exchange losses 15 (3,157) (14,857)

Operating expenses (233,863) (185,048)

Operating loss for the year before taxation (86,630) (16,700)

Taxation 5 (3,008) (2,743)

Loss for the year after tax (89,638) (19,443)

Basic Earnings per Share (cents) 20 (7.41) (1.65)

Diluted Earnings per Share (cents) 20 (7.41) (1.65)

All activities derive from continuing operations.

The accompanying notes form an integral part of these Consolidated Financial Statements.

Financial Statements

123

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ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023

FINANCIAL STATEMENTS

Notes

1 April 2022 to

31 March 2023

$’000

1 April 2021 to

31 March 2022

$’000

Loss for the year after tax (89,638) (19,443)

Other comprehensive income:

Movement in foreign currency translation reserve (6) (1,816)

(6) (1,816)

Total comprehensive loss for the year (89,644) (21,259)

The accompanying notes form an integral part of these Consolidated Financial Statements.

Consolidated Statement of

Comprehensive Income

For the year ended 31 March 2023

124

HIPGNOSIS SONGS FUND LIMITED

ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023

FINANCIAL STATEMENTS

Consolidated Statement of Financial Position

As at 31 March 2023

Notes

31 March 2023

$’000

31 March 2022

$’000

Assets

Catalogues of Songs 6 1,921,248 2,036,732

Other assets

917 568

Goodwill 3 272 272

Non-current receivables 8 13,210 640

Non-current assets

1,935,647 2,038,212

Trade and other receivables 8 139,999 144,450

Held for trading derivative financial asset 22 4,914 –

Cash and cash equivalents 7 37,965 30,067

Current assets

182,878 174,517

Total assets

2,118,525 2,212,729

Liabilities

Loans and borrowings 9 594,428 593,992

Catalogue bonus provision 10 33,080 925

Non-current liabilities

627,508 594,917

Held for trading derivative financial liability 22 3,395 –

Other payables and accrued expenses 10 53,088 35,413

Current liabilities

56,483 35,413

Total liabilities

683,991 630,330

Net assets

1,434,534 1,582,399

Equity

Share capital 11 1,692,198 1,692,198

Foreign currency translation reserve

(2,241) (2,235)

Treasury share reserve 11 (1,961) –

Retained earnings

(253,462) (107,564)

Total equity attributable to the owners of the Company

1,434,534 1,582,399

Number of Ordinary Shares in issue at year end

(excludingTreasury Shares) 1,209,214,286 1,211,214,286

IFRS Net Asset Value per Ordinary Share (cents) 12 118.63 130.65

Operative Net Asset Value per Ordinary Share (cents) 12 191.53 184.91

Approved and authorised for issue by the Board of Directors on 12 July 2023 and signed on their behalf by:

Andrew Sutch Chair Andrew Wilkinson Director

The accompanying notes form an integral part of these Consolidated Financial Statements.

Financial Statements

125

HIPGNOSIS SONGS FUND LIMITED

ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023

FINANCIAL STATEMENTS

Notes

Number of

Ordinary Shares

capital

$’000

Other

reserves

$’000

Foreign

currency

translation

reserve

$’000

Treasury

reserve

$’000

Retained

earnings*

$’000

Total

equity

$’000

As at 1 April 2022 1,211,214,286 1,692,198 – (2,235) – (107,564) 1,582,399

Dividends paid 16 – – – – – (56,260) (56,260)

Repurchase of

ordinary shares into

treasury 11 (2,000,000) – – – (1,961) – (1,961)

Loss for the year – – – – – (89,638) (89,638)

Foreign currency

translation reserve

movement – – – (6) – – (6)

As at 31 March 2023 1,209,214,286 1,692,198 – (2,241) (1,961) (253,462) 1,434,534

* Distributable Revenues (as defined in the Alternative Performance Measures on page 163) arising during the year were $81 .0 million which, taken together with the $18.7 million of

Distributable Revenue reserves carried forward from the previous financial year ended 31 March 2022, result in Distributable Revenue Reserves of $43.4 million as at 31 March 2023.

For the year ended 31 March 2022

Notes

Number of

Ordinary Shares



capital

$’000

Other

reserves

$’000

Foreign

currency

translation

reserve

$’000

Treasury

reserve

$’000

Retained

earnings

$’000

Total

equity

$’000

As at 1 April 2021 1,073,440,268 1,466,851 234 (419) – (3,821) 1,462,845

Shares issued 11 137,774,018 229,702 (234) – – – 229,468

Share issue costs 11 – (4,355) – – – – (4,355)

Dividends paid 16 – – – – – (84,300) (84,300)

Loss for the year – – – – – (19,443) (19,443)

Foreign currency

translation reserve

movement – – – (1,816) – – (1,816)

As at 31 March 2022 1,211,214,286 1,692,198 – (2,235) – (107,564) 1,582,399

The accompanying notes form an integral part of these Consolidated Financial Statements.

Consolidated Statement of Changes in Equity

For the year ended 31 March 2023

126

HIPGNOSIS SONGS FUND LIMITED

ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023

FINANCIAL STATEMENTS

Notes

31 March 2023

$’000

31 March 2022

$’000

Cash flows generated from operating activities

Operating loss for the year before taxation (86,630) (16,700)

Adjustments for:

Movement in trade and other receivables (14,018) (37,274)

Movement in other payables and accrued expenses 3,890 (1,545)

Lease liability interest 369 –

Loan interest 9 33,700 20,377

Movement in ECL provision for HSG advances 2,196 1,570

HSG restructuring provision 1,028 –

Catalogue bonus provision 43,719 –

Depreciation of fixed assets 653 712

Amortisation of Catalogues of Songs and borrowing costs 113,201 107,422

Impairment of Catalogue of Songs 6 3,901 1,490

Borrowing cost extinguishment 9 5,007 –

Fair value gain on held for trading derivative financial assets (2,622) –

Foreign exchange losses 15 3,157 14,857

Taxation paid (5,422) (6,040)

Net cash generated from operating activities 102,129 84,869

Cash flows used in investing activities

Purchase of Catalogues of Songs – (300,455)

Purchase of other assets (51) (173)

Writer advances paid (4,040) (8,509)

Deferred consideration paid (2,500) –

Net cash used in investing activities (6,591) (309,137)

Cash flows generated from financing activities

Proceeds from issue of shares – 229,468

Repurchase of ordinary shares into treasury 11 (1,961) –

Issue costs paid – (4,355)

Dividends paid 16 (56,260) (84,300)

Lease interest paid (592) –

Interest paid (23,433) (20,775)

Borrowing costs 9 (960) (1,274)

Bank loan repaid 9 (7,000) (50,000)

Bank loan drawn down 9 1,771 72,708

Net cash (used)/generated from financing activities (88,435) 141,472

Net movement in cash and cash equivalents 7,103 (82,796)

Cash and cash equivalents at the start of the year 30,067 112,635

Effect of foreign exchange rate changes on cash and cash equivalents 795 228

Cash and cash equivalents at the end of the year 37,965 30,067

The accompanying notes form an integral part of these Consolidated Financial Statements.

Consolidated Statement of Cash Flows

For the year ended 31 March 2023

Financial Statements

127

HIPGNOSIS SONGS FUND LIMITED

ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023

FINANCIAL STATEMENTS

Notes to the Consolidated Financial Statements

For the year ended 31 March 2023

1. General information

Hipgnosis Songs Fund Limited was incorporated and registered in Guernsey on 8 June 2018 with registered number

65158 and is governed in accordance with the provisions of the Companies Law. The registered office address is Floor 2,

Trafalgar Court, Les Banques, St Peter Port, Guernsey, GY1 4LY .

The Company is registered with the Guernsey Financial Services Commission under the Registered Collective

Investment Scheme Rules 2015, and the Protection of Investors (Bailiwick of Guernsey) Law, 2020. The Company is not

authorised or regulated by the Financial Conduct Authority.

The Company’s Ordinary Shares were admitted to trading on the Specialist Fund Segment of the London Stock

Exchange on 11 July 2018 and migrated to a Premium Listing on the Main Market of the London Stock Exchange on

25 September 2019. The Company was added as a constituent of the FTSE 250 Index effective from after the market

close on 20 March 2020.

The Company makes and manages its investments through its subsidiaries, which are registered in the UK and US

as limited companies. The Consolidated Financial Statements present the results of the Group for the year ended

31 March 2023, rounded to the nearest US Dollar. The Group is principally engaged in investing in and managing music

copyrights and associated musical intellectual property.

There has been a presentational change in the comparative period in the Consolidated Statement of Profit and Loss,

as set out in Note 23.

2. Accounting policies

The principal accounting policies applied in the preparation of these Consolidated Financial Statements are set out

below. These policies have been consistently applied, unless otherwise stated.

New and amended standards and interpretations applied

On incorporation, the Company adopted all of the IFRS standards and interpretations that were in effect at that date

and are applicable to the Group. No new standards during the year ended 31 March 2023 had a material impact on

the Consolidated Financial Statements.

Amended standards and interpretations not applied

The following are amended standards and interpretations in issue effective from years beginning on or after

1 January 2023:

Amended standards and interpretations Effective date

IFRS 17 Insurance Contracts 1 January 2023

IAS 1 Presentation of Financial Statements (Amendments regarding financial statements’

on classification of liabilities and disclosure of accounting policies) 1 January 2023

IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors (Definition of

Accounting Estimates) 1 January 2023

IAS 12 Income Taxes (Deferred Tax related to Assets and Liabilities arising from a Single Transaction) 1 January 2023

The Group has considered the IFRS standards and interpretations that have been issued but are not yet effective.

None of these standards or interpretations are likely to have a material effect on the Group, as it is the belief of the

Board that the activities of the Group are unlikely to be affected by the changes to these standards, although any

disclosures recommended by these standards, where applicable, will be provided as required.

128

HIPGNOSIS SONGS FUND LIMITED

ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023

FINANCIAL STATEMENTS

Notes to the Consolidated Financial Statements

For the year ended 31 March 2023

Notes to the Consolidated Financial Statements

For the year ended 31 March 2023

2. Accounting policies (continued)

a) Group information

As at 31 March 2023, the details of the Company’s subsidiaries are as follows:

Name of the subsidiary

Place of

incorporation and

operation % of voting rights % interest

Consolidation

method

Functional

Currency

Hipgnosis Holdings UK Limited UK 100 100 Full USD

Hipgnosis SFH I Limited UK 100 100 Full USD

Hipgnosis SFH XIII Limited UK 100 100 Full USD

Hipgnosis SFH XIX Limited UK 100 100 Full USD

Hipgnosis SFH XX Limited UK 100 100 Full GBP

RubyRuby (London) Limited

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

1 These companies are subsidiaries of Hipgnosis SFH XX Limited and therefore an indirect subsidiary of Hipgnosis Songs Fund Limited.

2 On 10 September 2020 the Company acquired the entire share capital of Big Deal Music Group (rebranded to Hipgnosis Songs Group) which includes BDM Acquisition Corp

(rebranded to Hipgnosis Acquisition Corp) and Big Deal Music LLC (rebranded to Hipgnosis Songs Group LLC) both incorporated in the US. Big Deal Music LLC is part of a joint

venture with Big Family LLC, a publishing company which was formed in June 2018 and is equity accounted for in the Consolidated Financial Statements.

All subsidiaries undertake the same activities as the Group. In addition, Hipgnosis Songs Group LLC undertakes

publishing administration.

The majority of subsidiaries of the Company are considered tax resident in the UK and are subject to UK corporation

tax. Robot of the Century Music Publishing Inc is registered in New York, Hipgnosis Songs Group LLC and Hipgnosis

Acquisition Corp. are registered in Delaware and all are subject to applicable State and Federal Taxes.

b) Going concern

The Directors monitor the capital and liquidity requirements of the Company on a regular basis. They have also

reviewed cash flow forecasts prepared by the Investment Adviser which are based in part on assumptions about the

future purchase and returns from existing Catalogues of Songs and the annual operating cost.

Based on these sources of information and their judgement, the Directors believe it is appropriate to prepare the

Consolidated Financial Statements of the Group on a going concern basis.

Although the Board is confident that the Company will have sufficient financial resources to meet their obligations

due within 12 months of the reporting date, the outcome of the Continuation Vote which is due to be held before the

end of September 2023 in accordance with Part I, Section 9 of the latest Company prospectus creates a material

uncertainty that may cast significant doubt on the Group’s ability to continue as a going concern or in its current

form and, therefore, that it may be unable to realize its assets and discharge its liabilities in line with the current normal

course of business.

Financial Statements

129

HIPGNOSIS SONGS FUND LIMITED

ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023

FINANCIAL STATEMENTS

Notes to the Consolidated Financial Statements

For the year ended 31 March 2023

2. Accounting policies (continued)

c) Basis of preparation

Basis of accounting

The Consolidated Financial Statements have been prepared in accordance with IFRS and applicable company law.

The Consolidated Financial Statements have been prepared on a historical cost basis as amended from time to time

by the fair valuing of certain financial assets and liabilities where applicable.

Consolidation

In accordance with section 244 of the Companies Law, the Directors have elected to prepare only consolidated

accounts for the financial year for the Group. Therefore, there is no requirement to present individual accounts for the

Company within the Consolidated Financial Statements.

The Company is not considered to be an Investment Entity, as defined by IFRS 10. Whilst the Company evaluates the

Portfolio on a fair value basis as demonstrated by the Operating NAV provided as an alternate performance measure,

the Company also actively manages the Songs to add further value and has no defined exit strategy for any of

its investments.

All companies in which the Company has a controlling interest, namely those in which it has the power to govern

financial and operational policies in order to obtain benefits from their operations, are fully consolidated. Control as

defined by IFRS 10 is based on the following three criteria to be fulfilled simultaneously to conclude that the parent

company exercises control:

• a parent company has power over a subsidiary when the parent company has existing rights that give it the current

ability to direct the relevant activities of the subsidiary, i.e. the activities that significantly affect the subsidiary’s

returns. Power may arise from existing or potential voting rights, or contractual arrangements. Voting rights must be

substantial, i.e. they shall be exercisable at any time without limitation, particularly during decision making related

to significant activities. The assessment of the exercise of power depends on the nature of the subsidiary’s relevant

activities, the internal decision-making process, and the allocation of rights among the subsidiary’s other shareowners;

• the parent company is exposed, or has rights, to variable returns from its involvement with the subsidiary which may

vary as a result of the subsidiary’s performance. The concept of returns is broadly defined and includes, among other

things, dividends and other economic benefit distributions, changes in the value of the investment in the subsidiary,

economies of scale, and business synergies; and

• the parent company has the ability to use its power to affect the returns. Exercising power without having any impact

on returns does not qualify as control.

Consolidated Financial Statements of a group are presented as if the Group were a single economic entity. The Group

does not include any non-controlling interest.

Segmental reporting

The chief operating decision maker is the Board of Directors. All of the Company’s income is global but received from

sources within US, Europe and UK. While the Company’s income is derived internationally, the Directors are of the

opinion that the Group is engaged in a single segment of business, being the investment of the Company’s capital in

a Portfolio of Song copyrights, together with the potential for capital growth.

130

HIPGNOSIS SONGS FUND LIMITED

ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023

FINANCIAL STATEMENTS

Notes to the Consolidated Financial Statements

For the year ended 31 March 2023

Notes to the Consolidated Financial Statements

For the year ended 31 March 2023

2. Accounting policies (continued)

d) Revenue recognition

Bank interest income

Interest income from cash deposits is recognised as it accrues by reference to the effective interest rate applicable.

Revenue from operations and associated costs

Revenues from operations are recorded when it is probable that future economic benefits will be obtained by the

Group and when they can be reliably measured. The revenue earned by the Group is recognised in accordance with

IFRS 15 and solely consists of royalty income, which is divided into these main revenue categories:

i) Mechanical royalties – these are collected by PROs worldwide which represent Songwriters and other copyright

owners. Mechanical royalties are also collected by royalty collection agents or the portfolio administrators with whom

the Group contracts. This includes mechanical income, an element of streaming income and publishing admin income

and digital downloads income;

ii) Performance royalties – these are collected by various PROs worldwide which represent Songwriters and other

and writer share income;

iii) Synchronisation fees – these are typically paid directly to the owner of the relevant copyright or its publisher, on the

terms and in the amounts agreed with the relevant film or television production company, advertising agency or end

customer. This includes synchronization income and an element of publishing admin income; and

iv) Masters royalties – these are royalties collected on our masters rights. These are collected by record companies and

collection agencies and paid to master rights owners based on their contractual rates. This revenue category includes

masters income, neighbouring rights income and producer royalties.

These revenue categories are further disaggregated into individual revenue streams which are disclosed in detail in

Note 13. The Group follows the same accounting policies in respect of all revenue streams, unless otherwise disclosed.

As royalty income is typically reported by the royalty collection agents/performance rights organisations on an arrears

basis via statement and where statements have not been received at the year end, the Group accrues for revenue

relating to processing delays (outstanding royalty statements/time lag in royalty reporting) and for the period between

consumption and reporting. This is done by assessing historic and forecasted earnings over the equivalent reporting

period based on evidenced historic revenue reporting, seasonality and industry consumption and growth rates since

the last statement date.

Licence arrangements for all income types which include publishing income (mechanical, performance, downloads,

Streaming, Synchronisation and writer share income), income derived from master recordings and producer royalties.

The Group enters into licence arrangements in respect of Catalogues of Songs with third-party collection agents.

Licences granted to collection agents are deemed to constitute usage based, right of use licences as per IFRS 15.

Revenue arising from licences entered into with collection agents is therefore recognised in the period. Payment is

received once the royalty statement is delivered, the royalty statement includes amounts covered by both the usage

and processing accrual.

This revenue, which is net of the administration fee retained by the collection agent, is disaggregated to be reviewed

by song usage period, source of income, work title, reporting period and any third-party royalty entitlements

where necessary.

The contractual basis of the licence arrangements are such that the agents are deemed as ‘principals’ for tax

purposes, therefore the Group recognises its revenue net of administration fees.

Financial Statements

131

HIPGNOSIS SONGS FUND LIMITED

ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023

FINANCIAL STATEMENTS

Notes to the Consolidated Financial Statements

For the year ended 31 March 2023

2. Accounting policies (continued)

Where available at the end of each month or at an earlier interval to which the revenue relates, revenue is recorded

on the basis of royalty statements received from collection agents.

Where notification has not yet been received from collection agents, an estimate is made of the revenue due to the

Group at the end of the month to which the usage of the music copyright relates. Estimates are made on the basis

of the historical track record of music Catalogues, ad hoc data provided by collection agents, industry forecasts and

expected seasonal variations.

Non-recourse fixed fee arrangements are recognised at the point at which control of the licence passes to

the collection agents. Variable consideration is recognised in the period when the usage of the Catalogues

of Songs occurs.

e) Royalty costs

Royalty costs are contractual royalties due to Songwriters, calculated on a quarterly or semi-annual basis, and these

are deducted from gross revenue when calculating net revenue. Royalty costs are paid when the Songwriter is

in a recouped position. These royalty costs are associated with Songwriters that are published or administered by

Kobalt or HSG.

f) Expenses

Expenses are accounted for on an accruals basis. Expenses are charged through the Consolidated Statement of

Profit and Loss.

g) Dividends to Shareholders

Dividends are accounted for in the year in which they are paid. The Company, being a Guernsey regulated entity,

is able to pay dividends out of capital, subject to the assessment of solvency in accordance with the Companies

Law and subject to a levered free cashflow test as required by the Revolving Credit Facility. Nonetheless, the Board of

Directors carefully consider any dividend payments made to ensure the Company’s capital is maintained in the longer

term. Careful consideration is also given to ensuring sufficient cash is available to meet the Company’s liabilities as

they fall due.

h) Assets

Catalogues of Songs

Catalogues of Songs include music Catalogues, artists’ contracts and music publishing rights and are recognised as

intangible assets measured initially at the fair value of the consideration paid. Catalogues of Songs are subsequently

amortised in expenses over the useful life of the asset and shown net of any impairment considered. This amortisation is

shown in the Consolidated Statement of Profit and Loss as ‘Amortisation of Catalogues of Songs’. An assessment of the

useful life of each Catalogue is considered at each reporting period, which is 20 years, in line with what the Board of

Directors and Investment Adviser deem to be industry standard.

Useful life of intangible assets

In order to calculate the amortised cost of the intangible assets it is necessary to assess the useful economic life of the

contains uncertainties as the ongoing popularity of a song can fluctuate unexpectedly. An assessment of the useful life

of Catalogues is considered initially at acquisition, which is 20 years, and assessed for continued applicability at each

reporting period. A useful life of 20 years is what the Board of Directors and the Investment Adviser deem to be industry

standard. Although an estimate, the Board do not believe that there is significant judgement applied and as a result no

sensitivity has been performed.

132

HIPGNOSIS SONGS FUND LIMITED

ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023

FINANCIAL STATEMENTS

Notes to the Consolidated Financial Statements

For the year ended 31 March 2023

Notes to the Consolidated Financial Statements

For the year ended 31 March 2023

2. Accounting policies (continued)

Asset impairment

Intangible assets are subject to a bi-annual review to identify any indicators of impairment; this review can also be

performed when events or the economic environment indicate a risk of impairment. When there are indicators of

impairment, the recoverable amount of the asset is compared to the carrying value of the asset. The recoverable

amount is determined as the higher of: (i) the value in use; or (ii) the fair value as described hereafter, for each

individual asset.

The Fair Value of the Catalogues as calculated by the Independent Portfolio Valuer is used to identify any indicators

of impairment. The Independent Portfolio Valuer adopts a DCF valuation approach and applies a number of significant

assumptions to the projected future earnings for all Catalogues including:

• Market factors impacting revenues;

• Discount rate, currently 8.5% (31 March 2022: 8.5%); and

• Terminal value at 16 years.

The fair value uses an IFRS 13 approach that a market participant might apply and does not factor in the impact of

any future active management by the Investment Adviser or other planned activities to increase the revenue of those

Catalogues. Any Catalogues which have a carrying value higher than their Fair Value are at risk of impairment.

As part of the bi-annual impairment review, the Company then considers whether there are mitigating factors

relevant to the Catalogues which have a carrying value higher than their Fair Value to assess if there is a residual risk

of impairment in the Catalogues. These factors include a requirement that the Catalogue’s Fair Value has been lower

than its carrying value for a period of at least 2 years and any future planned activities by the artist which are not

factored into the fair value model but could reasonably be expected to increase the future earnings of the Catalogue.

After the above mitigating factors have been applied, a Value-In-Use is calculated for any Catalogues with a residual

risk of impairment. The Value-In-Use is calculated by using the original projected cash flows used during the Fair Value

calculation by the Independent Portfolio Valuer, with a 0.5% reduction to the discount rate. The reduction in the

discount rate reflects the Company’s ability to drive additional value through active management of a Catalogue

and addresses the passive nature of the Company’s cash flows. If the Value-In-Use calculation for the Catalogue is

lower than the carrying value of the Catalogue, an impairment loss equal to the difference between the Value-In-Use

calculated and the carrying value is recognised in the Consolidated Statement of Profit and Loss. The impairment

losses recognised in respect of intangible assets may be reversed in a later period if the recoverable amount becomes

greater than the carrying value, within the limit of impairment losses previously recognised.

The impairment review is performed at an individual Catalogue level with the exception of Kobalt. The Kobalt portfolio

contains a number of Catalogues; the Company identifies a number of these Catalogues as ‘key Catalogues’. The

Company has performed a purchase price allocation within the Kobalt portfolio between the key Catalogues and

the other Catalogues. The key Catalogues represent 91% of the carrying value of the Kobalt portfolio. The Portfolio

Independent Valuer values both the key Catalogues and the remaining Catalogues within the Kobalt portfolio under

the same methodology as the other Catalogues held by the Company. The impairment review for both the key

Catalogues and the remaining Catalogues within the Kobalt portfolio follow the same process as the other Catalogues

held by the Company.

Loans and receivables

Trade receivables, loans, and other receivables that have fixed or determinable payments that are not quoted in

an active market are initially measured at fair value plus transaction costs directly attributable to the acquisition and

subsequently measured at amortised cost using the effective interest method, less allowance for Expected Credit Loss

(Note 4). Interest income is recognised by applying the effective interest rate, except for short term receivables when

the recognition of interest would be immaterial.

Financial Statements

133

HIPGNOSIS SONGS FUND LIMITED

ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023

FINANCIAL STATEMENTS

Notes to the Consolidated Financial Statements

For the year ended 31 March 2023

2. Accounting policies (continued)

Held for trading derivative financial assets

Derivative financial assets that are held for trading and whose performance is evaluated on a fair value basis are

measured at fair value through profit and loss (FVTPL). Net unrealised and realised gains and net unrealised and realised

losses (including any interest expense if applicable) are recognised in the Consolidated Statement of Profit and Loss.

Derecognition of assets

The Group derecognises an asset only when the contractual rights to the cash flows from the asset expire, or when it

transfers the asset and substantially all the risks and rewards of ownership of the asset to another entity.

If the Group neither transfers nor retains substantially all the risks and rewards of ownership and continues to control

the transferred asset, the Group recognises its retained interest in the asset and an associated liability for amounts it

may have to pay.

On derecognition of an asset in its entirety, the difference between the asset’s carrying amount and the sum of the

consideration received is recognised in the Consolidated Statement of Profit and Loss.

i) Catalogue bonus provision

Under the terms of the acquisition agreements for Catalogues, the Group recognises a financial liability for

consideration that may be payable in line with the acquisition agreements that are dependent on the performance

of the respective Catalogues. Such financial liabilities are initially recognised at fair value and subsequently carried

at amortised cost. Management consider both the revenue forecasts used in the independent valuation and their

expectation of revenue expected to be received within the specified performance time frame of acquiring the

Catalogues when assessing the initial recognition of this financial liability. At 31 March 2023 a provision for the financial

liability of $45.0 million was recognised as a Catalogue bonus provision given the likelihood of economic outflow being

triggered through respective Catalogue performance (31 March 2022: $1.3 million).

j) Deferred consideration

In such cases where payment is deferred and capitalised under the terms of the acquisition agreements for

Catalogues, a liability will be recognised at net present value with any associated finance charge to be accrued over

the respective deferral period.

k) Financial liabilities and equity

Financial liabilities are classified as either financial liabilities or as equity in accordance with the substance of the

contractual arrangement.

Equity instruments

An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all

of its liabilities. Equity instruments issued by the Company are recognised at the value of proceeds received, net of

direct issue costs.

Repurchase of the Company’s own equity instruments is recognised and deducted directly in equity. No gain or

loss is recognised in the Consolidated Statement of Profit and Loss on the purchase, sale, issue or cancellation of the

Company’s own equity instruments.

Loans and borrowings

Loans and borrowings are initially measured at fair value, net of transaction costs.

Financial liabilities are subsequently measured at amortised cost using the effective interest method, with interest

expense recognised on an effective yield basis.

134

HIPGNOSIS SONGS FUND LIMITED

ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023

FINANCIAL STATEMENTS

Notes to the Consolidated Financial Statements

For the year ended 31 March 2023

Notes to the Consolidated Financial Statements

For the year ended 31 March 2023

2. Accounting policies (continued)

Held for trading derivative financial liabilities

Held for trading derivative financial liabilities are classified as measured at fair value through profit and loss (FVTPL).

Financial liabilities at FVTPL are measured at fair value. Net unrealised and realised gains and net unrealised and

realised losses (including any interest expense if applicable) are recognised in the Consolidated Statement of

Profit and Loss.

Derecognition of financial liabilities

The Group derecognises financial liabilities when, and only when, the Group’s obligations are discharged, cancelled or

they expire. On derecognition of a financial liability, the difference between the carrying amount extinguished and the

consideration paid (including any non-cash assets transferred or liabilities assumed) is recognised in the Consolidated

Statement of Profit and Loss.

l) Share-based payments

Investment Adviser’s performance fee

The Group recognises the variable fee for the services received in a share-based payment transaction as the Group

becomes liable to the variable fee on an accruals basis.

The fair value of the performance fee, as defined in the Investment Advisory Agreement, which is payable to

the Investment Adviser in Shares is recognised as an expense when the fees are earned with a corresponding

increase in equity.

m) Cash and cash equivalents

Cash at bank and short-term deposits which are held to maturity are carried at cost. Cash and cash equivalents are

defined as call deposits, short term deposits with a term of no more than 3 months from the start of the deposit and

highly liquid investments readily convertible to known amounts of cash and subject to insignificant risk of changes in

value. Cash and cash equivalents consist of cash in hand and short-term deposits in banks with an original maturity

of 3 months or less.

n) Functional and foreign currency

Determination of functional currency

Whilst the functional currency of the Company is Dollars, some subsidiaries have a functional currency of Sterling which

is translated into the presentation currency. The entities which continue to have a functional currency of Sterling are

shown in Note 2(a).

Items included in the Consolidated Financial Statements of each of the Group’s entities are measured using the

currency of the primary economic environment in which each entity operates (“the functional currency”). The

Consolidated Financial Statements are presented in Dollars, which is the Group’s functional and presentation currency

of the Company and each of its subsidiaries.

Treatment of foreign currency

At the balance sheet date, monetary assets and liabilities that are denominated in foreign currencies are translated at

the rates prevailing at that date. Non-monetary items carried at fair value that are denominated in foreign currencies

are translated at the rates prevailing at the date when the fair value was determined. Non-monetary items that are

measured in terms of historical cost in a foreign currency are not retranslated. Exchange differences are recognised

in the Consolidated Statement of Profit and Loss in the year in which they arise. Transactions denominated in foreign

currencies are translated into Dollars at the rate of exchange ruling at the date of the transaction.

Financial Statements

135

HIPGNOSIS SONGS FUND LIMITED

ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023

FINANCIAL STATEMENTS

Notes to the Consolidated Financial Statements

For the year ended 31 March 2023

3. Business combinations

The acquisition method of accounting is used to account for all business combinations, regardless of whether equity

instruments or other assets are acquired. The consideration transferred for the acquisition of a subsidiary comprises the:

• fair values of the assets transferred;

• liabilities incurred to the former owners of the acquired business;

• equity interests issued by the Group;

• fair value of any asset or liability resulting from a contingent consideration arrangement; and

• fair value of any pre-existing equity interest in the subsidiary.

Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are, with limited

exceptions, measured initially at their fair values at the acquisition date.

The excess of the:

• consideration transferred; and

• acquisition-date fair value of any previous equity interest in the acquired entity over the fair value of the net

identifiable assets acquired is recorded as goodwill. If those amounts are less than the fair value of the net identifiable

assets of the business acquired, the difference is recognised directly in Consolidated Statement of Profit and Loss as

a bargain purchase.

Where settlement of any part of cash consideration is deferred, the amounts payable in the future are discounted to

their present value as at the date of exchange. Contingent consideration is classified either as equity or a financial

liability. Amounts classified as a financial liability are subsequently remeasured to fair value, with changes in fair value

recognised in the Consolidated Statement of Profit and Loss.

4. Significant accounting judgments, estimates and assumptions

The preparation of the Group’s Consolidated Financial Statements requires the application of estimates and

assumptions which may affect the results reported in the Consolidated Financial Statements. Uncertainty about these

estimates and assumptions could result in outcomes that require a material adjustment to the carrying amount of the

asset or liability affected in future periods. Estimates and underlying assumptions are reviewed on an ongoing basis.

Revisions to accounting estimates are recognised in the period in which the estimates are revised and in any future

periods affected.

The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date, that

have a significant risk of resulting in a material adjustment to the carrying amounts of assets and liabilities within the next

financial year, are discussed below. The Group based its assumptions and made estimates based on the information

available when the Consolidated Financial Statements were prepared. However, these assumptions and estimates may

change based on market changes or circumstances beyond the control of the Group.

136

HIPGNOSIS SONGS FUND LIMITED

ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023

FINANCIAL STATEMENTS

Notes to the Consolidated Financial Statements

For the year ended 31 March 2023

Notes to the Consolidated Financial Statements

For the year ended 31 March 2023

4. Significant accounting judgments, estimates and assumptions (continued)

Critical estimates in applying the Group’s accounting policies – revenue recognition and royalty costs

Accrued income as at 31 March 2023 was $126.2 million (31 March 2022: $105.3 million), a breakdown of which is set out below:

• $62.3 million for earnings where, due to the time lag in royalty reporting. Statements are not expected to be received

until calendar Q2 2023 onwards. This includes international PRO reporting and HSG (31 March 2022: $69.3 million).

• $21.7 million CRB III accruals (31 March 2022: $Nil) as discussed below.

• $42.2 million Usage Accrual, which recognises revenues that have triggered a contractual payment but have not

been paid to, and processed by, collection societies, publishers and administrators (31 March 2022: $36.0 million).

In calculating accruals, the Company makes judgments around seasonality, over or under performance, and

commercial factors based on historical performance, and its knowledge of each Catalogue through its regular

correspondence with the various administrators, record labels and international societies. The Company also makes an

estimate of revenue from consumption to reporting.

Estimated royalty revenue receivable is accrued for on the basis of historical earnings for each Catalogue, which

incorporates an element of uncertainty. The estimated revenue accrual may not therefore directly equal the actual

cash received in respect of each accounting period and adjustments may therefore be required throughout the

financial period when the actual revenue received is known, and these adjustments may be material.

Net revenues also include an accrual for performance income, to account for the writer’s share of Performance

royalties which are subject to a significant time lag in reporting in the industry, but which the Group is entitled to receive

in due course. In recommending the estimate of this accrual to the Board of Directors the Investment Adviser used its

analysis of each Catalogue’s revenue history as well its knowledge of the respective Catalogue performance trends to

recommend the estimated accruals.

Net revenue is subject to a royalty cost accrual applied to gross revenue receipts primarily within the Hipgnosis Songs

Group (“HSG”) subsidiaries. Royalty cost accruals represent contractual royalties due to Songwriters and other rights

holders that are payable on a 6-monthly basis for writers under publishing contracts and quarterly for clients under

administration contracts. Royalty rates vary by writer (negotiated by contract) and by revenue stream.

In July 2022, after a lengthy process, the 2018-22 rate increases on the Songwriter’s and publisher’s mechanical portion

of US Streaming income, known as CRB III, were finally agreed. The Group has reflected accruals of $21.7 million for the

year ended 31 March 2023 as a result of the confirmation of the CRB III rate increases for the Songwriters’ mechanical

portion of US Streaming income. Of this, $5.6 million is the impact of the higher 15.1% rate on the income earned by

the Company during the year and $16.1 million has been recognised for the retro-active payment due as a result of

revenues historically not having been recognised at the full CRB III rates. The amount recognised in relation to the

retro-active payment will not recur in future years. As the ruling was made final in July 2022 there was no CRB III revenue

recognised in the prior year.

Both the CRB III retroactive and uplift accruals are based off historical earnings paid through to the Company by

Publishers. In order to calculate the accrual, the US mechanical portion of those earnings were analysed and uplifted

accordingly based on the CRB III rates over the five year period from 2018 to 2022.

Financial Statements

137

HIPGNOSIS SONGS FUND LIMITED

ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023

FINANCIAL STATEMENTS

Notes to the Consolidated Financial Statements

For the year ended 31 March 2023

4. Significant accounting judgments, estimates and assumptions (continued)

Whilst some Publishers had different policies regarding the distribution of the higher rates received from DSPs up to

when the CRB III ruling was appealed, the Company has applied a consistent approach and has not considered any

Publisher specific policies given the lack of clarity from the various payors.

In order to provide additional rigour on the calculation, the CRB III retroactive and uplift accrual estimates were

compared and benchmarked against the estimates provided by the Portfolio Independent Valuer and the fair value

appraiser for the CNB Revolving Credit Facility.

A sensitivity of the significant estimates used in calculating accrued income and the impact of the sensitivities on the

balance is performed below:

Name of the subsidiary 31 March 2023

Sensitivity

+10%

Sensitivity

-10%

Accruals due to the time lag in royalty reporting $62.3 million $6.2 million ($6.2) million

CRB III accruals* $21.7 million $2.2 million ($2.2) million

One quarter

increase

One quarter

reduction

Usage accrual 42.2 million $10.8 million ($10.1 million)

* The CRB III sensitivity represents the variability of the historical US streaming mechanical revenue that the contractual rates are applied to.

Expected Credit Loss (ECL) in relation to revenue receivables

Royalty earnings for accruals and receivables recognised in the year ended 31 March 2023 are distributed by

PROs, Publishers and Record Labels who collect royalties at the source of usage and distribute those earnings

directly to Hipgnosis.

The probability of future default has been deemed close to nil, due to the long-standing history of PROs, Publishers

and Record Labels within the music industry and the existing framework of cash collection amongst the Company’s

stakeholders. Whilst there are smaller/newer organisations that have relatively unproven credit resilience these account

for a small minority of the Group’s receivables.

The Company’s current risk assessment includes analysis of the exposure to commercial risk by PROs, Publishers and

Record Labels, and the likely impact of their credit risk on Hipgnosis’ revenue streams. This impact is considered

immaterial and a sensitivity analysis on this is performed in Note 8.

Expected Credit Loss (ECL) in relation to HSG advances

Hipgnosis Songs Group LLC advances royalty payments to Songwriters. Management are required to assess the

recoverability of these advances bi-annually in accordance with IFRS 9 Financial Instruments. Management will

consider market conditions and historic trading patterns affecting the relevant assets.

Management adopts a simplified approach, has analysed their historical loss ratio data and applied this using a risk

based methodology as there are no defined terms of repayment related to advances. The risk categories against

which the historical loss ratios are assessed and expected credit losses are calculated are:

• low risk advances where the advance is expected to be recouped in full under the terms of the writer’s agreement

(because of the writer’s reputation, previous success etc);

• medium risk advances where there is reasonable expectation that a level of the advances will be recouped; and

• high risk advances, where management believe that either because of the writer’s unknown potential or other

factors, a large level of recoverability may not be achieved.

138

HIPGNOSIS SONGS FUND LIMITED

ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023

FINANCIAL STATEMENTS

Notes to the Consolidated Financial Statements

For the year ended 31 March 2023

Notes to the Consolidated Financial Statements

For the year ended 31 March 2023

4. Significant accounting judgments, estimates and assumptions (continued)

At 31 March 2023 HSG gross recoupable advances are $32.0 million (31 March 2022: $31.6 million) with an expected

credit loss provision of $15.5 million (31 March 2022: $13.0 million) recognised against the advances. A sensitivity analysis

on this provision is performed in Note 8.

Assessment of impairment and the calculation of Operative NAV

As disclosed in Note 2(h) intangible assets are subject to a bi-annual review to identify any indicators of impairment.

The Fair Value of the Catalogues as calculated by the Independent Portfolio Valuer is used to identify any indicators of

impairment. The Portfolio Independent Valuer adopts a DCF valuation approach and applies a number of significant

assumptions to the projected future earnings for all Catalogues including:

• Market factors impacting revenues;

• Discount rate, currently 8.5% (31 March 2022: 8.5%); and

• Terminal value at 16 years.

As disclosed in Note 2(h) a Value-In-Use is calculated for any Catalogues with a residual risk of impairment. The Value-In-

Use is calculated by using the original projected cash flows used during the Fair Value calculation by the Independent

Portfolio Valuer, with a 0.5% reduction to the discount rate. The reduction in the discount rate reflects the Company’s

ability to drive additional value through active management of a Catalogue and addresses the passive nature of the

Company’s cash flows within the Portfolio Independent Valuer’s fair value analysis.

If the Value-In-Use calculation for the Catalogue is lower than the carrying value of the Catalogue, an impairment

loss equal to the difference is recognised in the Consolidated Statement of Profit and Loss. The impairment losses

recognised in respect of intangible assets may be reversed in a later period if the recoverable amount becomes

greater than the carrying value, within the limit of impairment losses previously recognised.

Management’s impairment review as at 31 March 2023 concluded that an impairment of $3.9 million

(31 March 2022: $1.5 million) was required to the Group’s Catalogues. A sensitivity analysis on the Value-In-Use

calculation and impact on the impairment charge is performed in Note 6.

Financial Statements

139

HIPGNOSIS SONGS FUND LIMITED

ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023

FINANCIAL STATEMENTS

Notes to the Consolidated Financial Statements

For the year ended 31 March 2023

5. Taxation

The major components of income tax expense for the years ended 31 March 2023 and 31 March 2022 are:

Current tax

1 April 2022 to

31 March 2023

$’000

1 April 2021 to

31 March 2022

$’000

United Kingdom corporation tax based on the loss for the year at 19%

(31 March 2022: 19%) – 123

Adjustments in respect of prior periods 2,837 2,369

Non-reclaimable withholding tax on royalty payments received 171 251

Total current tax 3,008 2,743

Deferred tax

Origination and reversal of timings differences 656 –

Deferred tax asset recognised to extent of liability on timing difference (656) –

Total deferred tax – –

Total tax 3,008 2,743

Prior to 1 April 2021 the Company was Guernsey tax resident but exempt from taxation in Guernsey under the provisions

of the Income Tax (Exempt Bodies) (Guernsey) Ordinance, 1989.

From 1 April 2021 the Company was granted investment trust company status by HMRC and is UK tax resident

from that date.

Whilst the Company is incorporated in Guernsey, the majority of the Company’s subsidiaries are incorporated

and tax resident in the UK and the majority of the Group’s income and expenditure in incurred in these UK entities.

Therefore is it considered most appropriate to prepare the tax reconciliation below at the standard UK tax rate of 19%

(31 March 2022: 19%).

The March 2021 UK Budget announced an increase to the main rate of UK corporation tax to 25% from April 2023. This

rate was substantively enacted prior to the balance sheet date and consequently this rate has been considered when

assessing items of deferred tax.

140

HIPGNOSIS SONGS FUND LIMITED

ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023

FINANCIAL STATEMENTS

Notes to the Consolidated Financial Statements

For the year ended 31 March 2023

Notes to the Consolidated Financial Statements

For the year ended 31 March 2023

5. Taxation (continued)

The actual tax charge differs from the standard rate for the reasons set out in the following reconciliation:

1 April 2022 to

31 March 2023

$’000

1 April 2021 to

31 March 2022

$’000

Loss on the Group’s ordinary activities before tax (86,630) (16,700)

Tax on the loss on the Group’s ordinary activity at the standard UK rate of 19% (16,460) (3,173)

Factors affecting charge for the year:

Expenses not deductible for tax purposes 3,405 887

Adjustment in respect of previous periods 2,837 2,369

Effect of overseas tax rate (649) (760)

Deferred tax not recognised – US 2,704 3,169

Deferred tax not recognised – UK 11,000 –

Net non-reclaimable withholding tax on royalty payments received 171 251

Total actual amount of current tax 3,008 2,743

Deferred tax

1 April 2022 to

31 March 2023

$’000

1 April 2021 to

31 March 2022

$’000

Short term timing differences related to hedging arrangements 656 –

Deferred tax asset recognised in relation to UK tax losses (656) –

Total deferred tax – –

The following potential deferred tax assets have not been recognised as it is not considered suitably probable that such

assets will be utilised based on forecasts.

Deferred tax

31 March 2023

$’000

31 March 2022

$’000

Unrecognised deferred tax asset in relation to UK tax losses (14,474) –

Unrecognised deferred tax asset in relation to US tax losses (5,873) (3,169)

There is currently no expiry date for the utilisation of UK tax losses.

The unrecognised deferred tax asset in relation to UK and US losses arise on the following tax losses:

31 March 2023

$’000

31 March 2022

$’000

UK tax losses (57,895) –

US tax losses (23,490) (12,676)

Disposals of Catalogues may give rise to potential tax charges depending on the availability of tax attributes (tax losses)

to offset any taxable gains otherwise arising. There were no such disposals of Catalogues in the year (or prior year) and

so no such tax liabilities arose.

Financial Statements

141

HIPGNOSIS SONGS FUND LIMITED

ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023

FINANCIAL STATEMENTS

Notes to the Consolidated Financial Statements

For the year ended 31 March 2023

6. Catalogues of Songs

$’000

Cost

At 1 April 2022 2,237,284

Additions –

At 31 March 2023 2,237,284

Amortisation and impairment

At 1 April 2022 200,552

Amortisation 111,583

Impairment 3,901

At 31 March 2023 316,036

Net book value

At 1 April 2022 2,036,732

At 31 March 2023 1,921,248

Fair value as at 31 March 2023 2,802,762

Cost

At 1 April 2021 1,972,199

Additions 265,085

At 31 March 2022 2,237,284

Amortisation and impairment

At 1 April 2021 93,275

Amortisation 105,787

Impairment 1,490

At 31 March 2022 200,552

Net book value

At 1 April 2021 1,878,924

At 31 March 2022 2,036,732

Fair value as at 31 March 2022 2,693,974

The Group amortises Catalogues of Songs with a limited useful life using the straight-line method of 20 years (other

than in exceptional circumstances for specific Catalogues of Songs). An assessment of the useful life of Catalogues

is considered at each reporting period, which is 20 years, in line with what the Board of Directors and the Investment

Adviser deem to be industry standard. The Company performs an impairment review as disclosed in Note 2(h).

At 31 March 2023 accumulated amortisation for Catalogues of Songs is $310.6 million (31 March 2022: $199.1 million) and

the accumulated impairment to date is $5.4 million (31 March 2022: $1.5 million).

142

HIPGNOSIS SONGS FUND LIMITED

ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023

FINANCIAL STATEMENTS

Notes to the Consolidated Financial Statements

For the year ended 31 March 2023

Notes to the Consolidated Financial Statements

For the year ended 31 March 2023

6. Catalogues of Songs (continued)

The Board engaged Portfolio Independent Valuer, Citrin Cooperman Advisors LLC, to value the Catalogues as at

31 March 2023. The Board has approved and adopted the valuations prepared by the Portfolio Independent Valuer

which are used as an input into the impairment review process and for the Operative NAV.

The sensitivity of the discount rate to the fair value of the Portfolio is as follows:

Discount Rate 8.00% 8.50% 9.00%

Portfolio Value ($’000) 3,065,753 2,802,762 2,580,725

Variance to Fair Value ($’000) 262,991 – (222,037)

Variance to Fair Value (%) 9.4% – (7.9%)

The sensitivity of the terminal value growth rate to the fair value of the Portfolio is as follows:

Sensitivity to the Terminal Value Growth Rate –1.00% Current +1.00%

Portfolio Value ($’000) 2,637,623 2,802,762 3,035,424

Variance to Fair Value ($’000) (165,139) – 232,662

Variance to Fair Value (%) (5.9%) – 8.3%

The sensitivity of the applied growth rate to the fair value of the Portfolio is as follows:

Growth Rate –1.00% Current +1.00%

Portfolio Value ($’000) 2,573,221 2,802,762 3,048,641

Variance to Fair Value ($’000) (229,541) – 245,879

Variance to Fair Value (%) (8.2%) – 8.8%

A Value-In-Use is calculated for any Catalogue with a residual risk of impairment following the impairment review.

The Value-In-Use is calculated by using the original projected cash flows used during the Fair Value calculation by the

Portfolio Independent Valuer, with a 0.5% reduction to the discount rate.

The sensitivity of the Value-In-Use calculation to the impairment charge is as follows:

Discount Rate used in the Value-In-Use calculation -0.50% Current +0.50%

Impairment of Catalogues of Songs ($’000) 1,378 3,901 11,934

7. Cash and cash equivalents

31 March 2023

$’000

31 March 2022

$’000

Cash available on demand 37,965 30,067

37,965 30,067

Financial Statements

143

HIPGNOSIS SONGS FUND LIMITED

ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023

FINANCIAL STATEMENTS

Notes to the Consolidated Financial Statements

For the year ended 31 March 2023

8. Trade and other receivables

31 March 2023

$’000

31 March 2022

$’000

Non-current receivables

Accrued income 13,210 640

13,210 640

Current receivables

Accrued income 112,943 104,658

Royalties receivable 7,078 6,605

HSG net recoupable advances 16,436 18,604

Prepayments and other debtors 3,542 7,274

VAT Receivable – 7,309

139,999 144,450

In the current year, an accrual for $21.7 million has been recognised as a result of the confirmation of the CRB III

rate increases for the Songwriters’ mechanical portion of US Streaming income. Of this, $5.6 million is the impact of

the higher 15.1% rate on the income earned by the Company during this financial year and $16.1 million has been

recognised for the retro-active payment due as a result of revenues historically not having been recognised at the full

CRB III rates.

At 31 March 2023, the aging of the Company’s trade and other receivables are:

Less than

1 month

$’000

1-3

months

$’000

3-12

months

$’000

Between

1 and

2 years

$’000

Between

2 and

5 years

$’000

Over

5 years

$’000

Total

contractual

cash flows

$’000

Accrued income 4,430 34,593 73,920 13,210 – – 126,153

Royalties receivable 2,960 2,701 1,417 – – – 7,078

HSG net recoupable advances 99 119 16,218 – – – 16,436

Prepayments and other debtors 86 142 3,314 – – – 3,542

Total 7,575 37,555 94,869 13,210 – – 153,209

144

HIPGNOSIS SONGS FUND LIMITED

ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023

FINANCIAL STATEMENTS

Notes to the Consolidated Financial Statements

For the year ended 31 March 2023

Notes to the Consolidated Financial Statements

For the year ended 31 March 2023

8. Trade and other receivables (continued)

Credit Risk and Provision for Expected Credit Losses

The Group has applied IFRS 9, Financial Instruments, during the year, which includes the requirements for calculating

a provision for expected credit losses on financial assets. As disclosed in Note 4, the probability of future default against

revenue receivable balances has been deemed close to nil. At 31 March 2023, an ECL provision is recognised against

the HSG recoupable advances as below:

At 31 March 2023

High Risk

$’000

Medium Risk

$’000

Low Risk

$’000

Total

$’000

Expected loss rates -100.0% -24.0% 0.0% -48.6%

Gross carrying amounts 13,000 10,520 8,436 31,956

Provision for expected credit losses (13,000) (2,520) – (15,520)

Net carrying amounts – 8,000 8,436 16,436

At 31 March 2022

High Risk

$’000

Medium Risk

$’000

Low Risk

$’000

Total

$’000

Expected loss rates -100.0% -41.1% 0.0% -41.1%

Gross carrying amounts 6,712 15,324 9,576 31,612

Provision for expected credit losses (6,712) (6,296) – (13,008)

Net carrying amounts – 9,028 9,576 18,604

If the probability of future default against the revenue receivable balances was 5% higher, this would result in

a $0.4 million increase to the ECL provision on revenue receivables. If the probability of future default against the

medium risk HSG recoupable advances was 41.1%, which is consistent with the prior year, this would result in a $1.8 million

increase to the ECL provision on HSG recoupable advances.

9. Loans and borrowings

On 30 September 2022 the Company entered into a new Revolving Credit Facility (RCF) with a commitment of

$700 million which runs for five years until 30 September 2027. City National Bank is lead arranger and sole bookrunner

for the new debt facility with Truist Securities, Inc., MUFG Union Bank, N.A. and Fifth Third Bank as co-leads. On the

same day the Company drew down $607 million, as part of the arrangement City National Bank repaid in full the

Company’s pre-existing J.P. Morgan RCF of $600 million directly to J.P. Morgan and paid $5.2 million of fees on behalf

of the Company. The remaining $1.8 million was received as cash by the Company. During the year $6.2 million of costs

relating to the set-up of the new RCF were capitalised, to be amortised over the five year length of the agreement.

On derecognition of the pre-existing J.P. Morgan RCF, $5.0 million was recognised as a borrowing cost extinguishment

charge and represents the unamortised capitalised borrowing costs on the pre-existing J.P. Morgan RCF.

On 31 March 2023 the Company repaid $7 million of the new RCF. $100 million remains available under the new RCF

which provides the Company with flexibility to fund investments and provide additional working capital.

Financial Statements

145

HIPGNOSIS SONGS FUND LIMITED

ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023

FINANCIAL STATEMENTS

Notes to the Consolidated Financial Statements

For the year ended 31 March 2023

9. Loans and borrowings (continued)

Interest on the new facility charged is based on the Secured Overnight Financing Rate (SOFR), published by the New

York Federal Reserve, plus a margin of either 2.00% or 2.25% depending on the gross drawn debt. The current margin is

2.00%. As disclosed in Note 17, the Company has entered into an interest rate swap agreement to manage its exposure

to interest rate risk.

The RCF’s key covenants are set out in the below table:

Key financial covenant

31 March 2023

Actual Lender Covenants

i) Total debt to Catalogue value as determined by the lender 31.5% Must not exceed 40%

ii) Total debt leverage 5.5:1.0 Not greater than 7:1

iii) Fixed charge coverage 1.3:1.0 Not less than 1:1

The Catalogue value as determined by the lender is specifically prepared for the banking syndicate based on a set of

assumptions that reflect an immediate sale of the portfolio in order to provide maximum loan security.

The covenants are reviewed quarterly and are secured by, inter alia, a charge over the shares in all the subsidiaries

of the Company, a charge over all of their assets including all Catalogues of Songs of the Company held through

these subsidiaries and a charge over the bank accounts of the Company and its subsidiaries. The Company has also

provided a parent company guarantee. In accordance with the Investment Policy, any borrowings by the Company

will not exceed 30% of the Operative NAV which is $694.8 million.

31 March 2023

$’000

31 March 2022

$’000

Opening balance 600,000 577,292

Amounts drawn down during the period 607,000 72,708

Amounts repaid during the year – pre-existing RCF (600,000) (50,000)

Amounts repaid during the year – new RCF (7,000) –

Total loan drawn down 600,000 600,000

Cumulative borrowing costs (5,572) (6,008)

Closing balance 594,428 593,992

During the year ended 31 March 2023 $33.7 million (31 March 2022: $20.4 million) was charged as interest on the

amounts drawn down.

146

HIPGNOSIS SONGS FUND LIMITED

ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023

FINANCIAL STATEMENTS

Notes to the Consolidated Financial Statements

For the year ended 31 March 2023

Notes to the Consolidated Financial Statements

For the year ended 31 March 2023

10. Liabilities and accrued expenses

31 March 2023

$’000

31 March 2022

$’000

Non-current liabilities

Catalogue bonus provision 33,080 925

33,080 925

Current liabilities

Amounts owed to Songwriters 18,799 16,957

Catalogue bonus provision 11,962 398

Deferred investment payable – 10,799

Loan interest payable 9,891 500

Trade creditors and accruals 5,846 4,106

PRO Advances 3,178 –

Corporation tax payable 67 2,570

VAT 1,789 –

Lease liability 735 –

Directors fees payable 27 83

Other creditors 794 –

53,088 35,413

The Group has a number of Catalogue bonuses which are dependent on the individual Catalogues meeting certain

defined performance hurdles as defined in the Catalogue acquisition agreements which the Group consider when

assessing the recognition of the Catalogue bonus provision as a financial liability. As at 31 March 2023, the Group

recognised a financial liability of $45.0 million relating to the bonuses on 6 Catalogues (31 March 2022: $1.3 million

relating to 2 Catalogues). Management consider that the carrying value of this financial liability would not differ

significantly from its fair value. The last performance hurdle period to be assessed across the remaining Catalogues is

29 January 2029.

Financial Statements

147

HIPGNOSIS SONGS FUND LIMITED

ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023

FINANCIAL STATEMENTS

Notes to the Consolidated Financial Statements

For the year ended 31 March 2023

11. Share capital and capital management

Ordinary Share Capital

The share capital of the Company may consist of an unlimited number of:

i) Ordinary Shares of no par value which upon issue the Directors may classify as Ordinary Shares;

ii) C Shares denominated in such currencies as the Directors may determine; and

iii) Ordinary Shares purchased by the Company through share repurchases and held as Treasury Shares.

Ordinary Shares of no par value

No. of Units

outstanding

Share Capital

$’000

Treasury Reserve

$’000

Issued and fully paid:

Shares as at 1 April 2022 1,211,214,286 1,692,198 –

Repurchase of ordinary shares into treasury (2,000,000) –

(1,961)

Shares as at 31 March 2023 1,209,214,286 1,692,198 (1,961)

No. of Units

outstanding

Share Capital

$’000

Treasury Reserve

$’000

Issued and fully paid:

Shares as at 1 April 2021 1,073,440,268 1,466,851 –

Shares issued on 29 April 2021 9,000,000 14,938 –

Shares issued on 9 July 2021 128,774,018 214,764

–

Share issue costs – (4,355) –

Shares as at 31 March 2022 1,211,214,286 1,692,198 –

As at 31 March 2023 the Company’s authorised and issued share capital consisted of 1,211,214,286 ordinary shares,

of which 2,000,000 were held In treasury.

On 29 April 2021 the Company issued 9,000,000 new Ordinary Shares at a price of 119.5p per Ordinary Share and on

9 July 2021 the Company issued 128,774,018 new Ordinary Shares at a price of 121p per Ordinary Share. These shares

rank pari passu with the existing Ordinary Shares in issue. The net proceeds have been used to fund an investment in

accordance with the Company’s Investment Policy.

Under the Company’s Articles of Incorporation, each Shareholder present in person or by proxy has the right to one

vote at general meetings. On a poll, each Shareholder is entitled to one vote for every Ordinary Share held.

Shareholders are entitled to all dividends paid by the Company and, on a winding up, provided the Company has

satisfied all of its liabilities, the Shareholders are entitled to all of the residual assets of the Company.

148

HIPGNOSIS SONGS FUND LIMITED

ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023

FINANCIAL STATEMENTS

Notes to the Consolidated Financial Statements

For the year ended 31 March 2023

Notes to the Consolidated Financial Statements

For the year ended 31 March 2023

11. Share capital and capital management (continued)

Treasury Share Reserve

During the year, the Company launched a Share Repurchase Program to repurchase Ordinary Shares. The repurchased

shares are not cancelled but held as Treasury Shares by the Company. Treasury shares hold no voting rights, are not

entitled to a dividend and are excluded from the EPS, IFRS and Operative net asset value per share calculation. The

consideration for the shares repurchased are detailed below:

No. of Shares

repurchased

Consideration per

Amount

$’000

Shares repurchased on 18 October 2022 250,000 0.85850 240

Shares repurchased on 19 October 2022 250,000 0.84320 235

Shares repurchased on 28 October 2022 250,000 0.88000 252

Shares repurchased on 31 October 2022 250,000 0.88000 252

Shares repurchased on 1 November 2022 250,000 0.87200 250

Shares repurchased on 2 November 2022 250,000 0.85826 246

Shares repurchased on 17 November 2022 250,000 0.82890 238

Shares repurchased on 2 December 2022 250,000 0.83400 248

Treasury Shares as at 31 March 2023 2,000,000 1,961

12. Net Asset Value per share and Operative Net Asset Value per share

31 March 2023 31 March 2022

Number of Ordinary Shares outstanding 1,209,214,286 1,211,214,286

IFRS NAV per share (cents) 118.63 130.65

Operative NAV per share (cents) 191.53 184.91

The IFRS NAV per share and the Operative NAV per share are arrived at by dividing the IFRS Net Assets and Operative

Net Assets (respectively) by the number of Ordinary Shares outstanding.

Catalogues of Songs are classified as intangible assets and measured at amortised cost or cost less impairment in

accordance with IFRS.

The Directors are of the opinion that an Operative NAV provides a meaningful alternative performance measure and

the values of Catalogues of Songs are based on fair values produced by the Portfolio Independent Valuer.

Reconciliation of IFRS NAV to Operative NAV

31 March 2023

$’000

31 March 2022

$’000

IFRS NAV 1,434,534 1,582,399

Adjustments for revaluations of Catalogues of Songs to fair value 565,478 457,441

Reversal of accumulated amortisation and impairment 316,036 199,800

Operative NAV 2,316,048 2,239,640

Financial Statements

149

HIPGNOSIS SONGS FUND LIMITED

ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023

FINANCIAL STATEMENTS

Notes to the Consolidated Financial Statements

For the year ended 31 March 2023

12. Net Asset Value per share and Operative Net Asset Value per share (continued)

Tax considerations

As noted in the Chair’s Statement, the Board are considering a number of options to enhance Shareholder value which

may include the potential strategic sale of Catalogues of Songs. The Company’s Investment Trust Company (ITC)

status may allow for the Company to make disposals of shares or certain other capital assets on a tax-exempt basis

for UK corporation tax purposes. However, a disposal of music Catalogues, considered intangible fixed assets for UK

corporation tax purposes, would not qualify for exemption in the same way.

A disposal of music Catalogues by way of a sale of shares of a Group subsidiary company by the Company, in order

to take advantage of its ITC tax-exempt status, would not necessarily result in greater value for the Group, depending

on the attractiveness of such a transaction structure to the prospective purchaser and their other potential tax

considerations on future sales of the acquired shares.

If the Group were to dispose of all of its Catalogues, an indicative tax calculation (subject to a number of assumptions

in its preparation – see below) estimates that a potential corporation tax charge (or equivalent in the US) could be

incurred by the Group subsidiary companies, of approximately $245 million. This has been calculated based on

comparing the Fair Value determined by the Portfolio Independent Valuer (as a representation of indicative sales

proceeds) to the Catalogues’ carrying value as at 31 March 2023.

The calculations assumes a 25% tax rate as: (a) the prevailing rate of UK corporation tax from 1 April 2023 and

(b) a proxy for US Federal and State corporate income tax. This indicative tax calculation does not take into account

attributes such as UK tax losses, which could be used to offset some of the taxable gains, or where the tax treatment of

an element of sale proceeds may be considered to be the sale of a receivable aligned with a Catalogue rather than

part of the disposal value of that Catalogue, which could result in a materially lower tax charge.

As the Company has not disposed of any catalogues to date, no such tax liability currently exists.

13. Revenue

1 April 2022 to

31 March 2023

$’000

1 April 2021 to

31 March 2022

$’000

Mechanical income 5,465 10,657

Performance income 17,972 22,291

Digital downloads income 3,635 4,405

Streaming income 83,886 72,850

Synchronization income 19,381 22,530

Publishing admin income 406 300

Masters income 7,582 8,448

Writer share income 26,076 45,103

Neighbouring rights income 4,120 –

Other income 715 6,037

Producer royalties 8,074 7,763

177,312 200,384

There is an inherent time lag with royalties between the time a song is performed, and the revenue being received by

the copyright owner. The revenue accruals are disclosed in Note 8 Trade and other receivables.

150

HIPGNOSIS SONGS FUND LIMITED

ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023

FINANCIAL STATEMENTS

Notes to the Consolidated Financial Statements

For the year ended 31 March 2023

Notes to the Consolidated Financial Statements

For the year ended 31 March 2023

14. Other operating expenses

1 April 2022 to

31 March 2023

$’000

1 April 2021 to

31 March 2022

$’000

Aborted deal expenses 468 1,951

Bank charges 50 34

Record label costs 98 –

Charitable donations 293 208

Directors’ and officers’ insurance 347 366

Disbursements 411 355

Postage, stationery and printing 153 41

Lease liability interest 369 –

HSG staff payroll and expenses 6,244 6,598

HSG restructuring provision 1,028 –

Travel and accommodation fees 499 162

HSG travel and accommodation fees 362 389

Sundry 32 1

10,354 10,105

15. Foreign exchange

1 April 2022 to

31 March 2023

$’000

1 April 2021 to

31 March 2022

$’000

Foreign exchange losses 3,157 14,857

3,157 14,857

The foreign exchange impact reflects the effect of movements in foreign currency exchange rates throughout the year.

Currency risk is discussed further in Note 17 .

Financial Statements

151

HIPGNOSIS SONGS FUND LIMITED

ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023

FINANCIAL STATEMENTS

Notes to the Consolidated Financial Statements

For the year ended 31 March 2023

16. Dividends

A summary of the dividends paid are set out below:

Dividend per share

Pence

Total Dividend

$’000

1 April 2022 to 31 March 2023

Interim dividend in respect of quarter ended 31 March 2022 1.3125 19,313

Interim dividend in respect of quarter ended 30 June 2022 1.3125 17,744

Interim dividend in respect of quarter ended 30 September 2022 1.3125 19,203

3.9375 56,260

On 16 March 2023, the Company announced an interim dividend for the quarter from 1 October 2022 to

31 December 2022 of 1.3125p per Ordinary Share, paid on 28 April 2023.

Dividend per share

Pence

Total Dividend

$’000

1 April 2021 to 31 March 2022

Interim dividend in respect of quarter ended 31 March 2021 1.3125 20,093

Interim dividend in respect of quarter ended 30 June 2021 1.3125 21,807

Interim dividend in respect of quarter ended 30 September 2021 1.3125 21,214

Interim dividend in respect of quarter ended 31 December 2021 1.3125 21,186

5.250 84,300

The Company, being a Guernsey regulated entity, is able to pay dividends out of capital, subject to the assessment

of solvency in accordance with the Companies Law and subject to a levered free cashflow test as required by the

Revolving Credit Facility.

152

HIPGNOSIS SONGS FUND LIMITED

ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023

FINANCIAL STATEMENTS

Notes to the Consolidated Financial Statements

For the year ended 31 March 2023

Notes to the Consolidated Financial Statements

For the year ended 31 March 2023

17. Financial risk management objectives

Financial risk management objectives

The Group’s activities expose it to various types of financial risk, principally market risk, credit risk, and liquidity risk.

The Board has overall responsibility for the Group’s risk management and sets policies to manage those risks at an

acceptable level.

Fair values

Management assessed that the fair values of cash and cash equivalents, current trade and other receivables and

current trade and other payables approximate their carrying amount largely due to the short-term maturities and high

credit quality of these instruments. The carrying value of the non-current accrued income and non-current Catalogue

bonus provision reflect their fair value.

Capital risk management

The Group manages its capital to ensure that it will be able to continue as a going concern while maximising the

capital return to Shareholders. The capital structure of the Group consists of issued share capital and retained earnings,

as stated in the Consolidated Statement of Financial Position. In order to maintain or adjust the capital structure, the

Group may repurchase shares or issue new shares. There are no external capital requirements imposed on the Group.

As detailed in Note 9, on 30 September 2022 the Company entered into a new Revolving Credit Facility (RCF) with

a commitment of $700 million which runs for five years until 30 September 2027. On the same day the Company drew

down $607 million to repay in full the Company’s pre-existing J.P. Morgan RCF ($600 million). On 31 March 2023 the

Company repaid $7 million of the new RCF.

The Group’s investment policy is set out in the Investment Objective and Policy section of the Annual Report.

Market risk

Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate as a result of changes

in market prices. The Group is exposed to currency risk and interest rate risk.

a) Currency risk

Currency risk is the risk that the fair values of future cashflows will fluctuate because of changes in foreign exchange

rates. The revenue earned from the Catalogue of Songs may be subject to foreign currency fluctuations. Royalties

are earned globally and paid in a number of currencies, therefore the Group may be impacted by adverse currency

movements. The Group will convert the majority of overseas currency receipts into US Dollars by agreeing to currency

exchange arrangements with collection agents, or otherwise itself undertaking foreign exchange conversions.

Financial Statements

153

HIPGNOSIS SONGS FUND LIMITED

ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023

FINANCIAL STATEMENTS

Notes to the Consolidated Financial Statements

For the year ended 31 March 2023

17. Financial risk management objectives (continued)

Dividend payments are denominated in Sterling and also may be impacted by adverse currency movements. In order

to mitigate currency risk and provide certainty over the US Dollar value of future Sterling dividend payments the

Company entered into US Dollar to Sterling foreign exchange forward contracts as discussed in Note 22.

Settlement Date

Contract Value

£’000

Outstanding

Contracts

$’000

Mark to Market

equivalent

$’000

Unrealised

(losses)/gains

$’000

17 April 2023 11,250 12,501 13,883 1,382

17 July 2023 11,250 12,477 13,906 1,429

16 October 2023 7,500 8,305 9,278 973

16 January 2024 5,000 5,528 6,189 661

15 April 2024 3,750 4,139 4,640 501

16 October 2024 3,750 4,644 4,639 (5)

16 January 2025 2,500 3,101 3,094 (7)

15 April 2025 1,250 1,552 1,546 (6)

15 July 2025 3,750 4,656 4,642 (14)

50,000 56,903 61,817 4,914

The currencies in which financial assets and liabilities are denominated are shown below:

As at 31 March 2023

USD

$’000

GBP converted to

USD*

$’000

EUR converted to

USD**

$’000

Other converted to

USD

$’000

Total

$’000

Non current and current receivables 147,955 4,987 205 62 153,209

Held for trading derivative

financial asset 4,914 – – – 4,914

Cash and cash equivalents 32,530 4,074 1,361 – 37,965

Total financial assets 185,399 9,061 1,566 62 196,088

Revolving Credit Facility 600,000 – – – 600,000

Held for trading derivative financial

liability 3,395 – – – 3,395

Non current and current payables 81,958 3,736 232 241 86,167

Total financial liabilities 685,353 3,736 232 241 689,562

Net asset/(liability) position (499,954) 5,325 1,334 (179) (493,474)

*At the reporting date 31 March 2023, if Sterling had strengthened/weakened by 10% against the Dollar with

all other variables held constant, the impact on post tax loss and components of equity would have been

$0.5 million higher/lower.

**At the reporting date 31 March 2023, if the EUR had strengthened/weakened by 10% against the Dollar with

all other variables held constant, the impact on post tax loss and components of equity would have been

$0.1 million higher/lower .

154

HIPGNOSIS SONGS FUND LIMITED

ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023

FINANCIAL STATEMENTS

Notes to the Consolidated Financial Statements

For the year ended 31 March 2023

Notes to the Consolidated Financial Statements

For the year ended 31 March 2023

17. Financial risk management objectives (continued)

As at 31 March 2022

USD

$’000

GBP converted to

USD*

$’000

EUR converted to

USD**

$’000

Other converted

to USD

$’000

Total

$’000

Non current and current receivables 132,276 10,503 1,745 566 145,090

Cash and cash equivalents 25,454 4,314 299 – 30,067

Total financial assets 157,730 14,817 2,044 566 175,157

Revolving Credit Facility 600,000 – – – 600,000

Non current and current payables 31,448 4,883 7 – 36,338

Total financial liabilities 631,448 4,883 7 – 636,338

Net asset/(liability) position (473,718) 9,934 2,037 566 (461,181)

*At the reporting date 31 March 2022, if Sterling had strengthened/weakened by 10% against the Dollar with

all other variables held constant, the impact on post tax loss and components of equity would have been

$1.0 million higher/lower.

**At the reporting date 31 March 2022, if the EUR had strengthened/weakened by 10% against the Dollar with

all other variables held constant, the impact on post tax loss and components of equity would have been

$0.2 million higher/lower.

b) Cash flow and fair value interest rate risk

The Group is exposed to cash flow interest rate risk on cash and cash equivalents and also on the interest bearing RCF.

The RCF bears a fixed rate of interest plus a floating rate of interest based on Secured Overnight Financing Rate (SOFR).

In order to mitigate interest rate risk and provide certainty over interest payments, the Company entered into interest

rate swap agreements as detailed below:

• From 3 October 2022 until 2 January 2023, interest on all the drawn debt is based on a three-month fixed SOFR of

5.71% (including debt margin); and

• From 3 January 2023, the Company has agreed to enter into interest rate swaps to hedge $540 million. Of this,

$340 million is hedged for the duration of the RCF (until 30 September 2027) at a fixed rate of 5.67% (including debt

margin); a further $200 million is hedged until 3 January 2026 at a fixed rate of 5.89% (including debt margin). The

balance remains unhedged to provide flexibility in the operation of the RCF facility.

At 31 March 2023, the unhedged RCF balance exposed to interest rate risk was $60 million.

The average interest rate during the year was 5.58%. If interest rates had been 100 basis points higher and all other

variables were held constant, the Company’s loan interest expense would have been $6.0 million higher .

Financial Statements

155

HIPGNOSIS SONGS FUND LIMITED

ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023

FINANCIAL STATEMENTS

Notes to the Consolidated Financial Statements

For the year ended 31 March 2023

17. Financial risk management objectives (continued)

Credit Risk

Credit risk is the risk of loss due to failure of a counterparty to fulfil its contractual obligations. The Group is exposed to

credit risk in respect of its contracts with PROs and other collection societies. This exposure is minimised by dealing with

reputable PROs whose credit risk is deemed to be low given their respective position in the industry.

As reported in Note 4, there is no impairment of the receivables balance, credit risk of third parties has been taken into

account when calculating accruals and expected credit loss charge for the year on HSG advances was $2.2 million

(31 March 2022: $1.6 million). The Group is exposed to credit risk through its balances with banks and its indirect holdings

of money market instruments through those money market funds which are classified as cash equivalents for the

purposes of these Consolidated Financial Statements.

The table below shows the Group’s material cash balances and the short-term issuer credit rating or money-market

fund credit rating as at the year-end date:

Location Rating*

31 March 2023

$’000

31 March 2022

$’000

Barclays Bank UK plc Guernsey/UK A-1 25,063 27,367

BlackRock US AA– 8,435 –

City National Bank US A-2 3,950 2,599

* Rated by Standard & Poor’s

Liquidity Risk

Liquidity risk is the risk that the Group will encounter in realising assets or otherwise raising funds to meet financial

commitments. The Group’s liquidity risk is managed by the Investment Adviser and Directors on a monthly basis.

Liquidity risk is also the risk that the Group may not be able to meet their financial obligations as they fall due. The Group

maintains a prudent approach to liquidity management by maintaining sufficient cash reserves to meet foreseeable

working capital requirements.

156

HIPGNOSIS SONGS FUND LIMITED

ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023

FINANCIAL STATEMENTS

Notes to the Consolidated Financial Statements

For the year ended 31 March 2023

Notes to the Consolidated Financial Statements

For the year ended 31 March 2023

17. Financial risk management objectives (continued)

Liquidity Risk (continued)

The Group prepares a 3 year rolling cash forecast, which is reviewed by the Board. The cash flow forecast includes

a sensitivity analysis with downside scenarios on income streams, foreign exchange rate movements and interest

rate movements. Cash is delivered with royalty statements, and the majority are delivered quarterly or semi-annually.

A small number of collections are delivered monthly. Cash is collected and processed throughout the year by the

administrators.

At the reporting date, the Group’s financial liabilities are:

Carrying

amount

$’000

Less than

1 month

$’000

1-3

months

$’000

3-12

months

$’000

Between

1 and

2 years

$’000

Between

2 and

5 years

$’000

Over

5 years

$’000

Total

contractual

cash flows

$’000

Bank loan and future interest

payments (600,000) – – (30,684) (40,912) (712,507) – (784,103)

Held for trading financial

liability (3,395) 1,139 – (4,534) – – – (3,395)

Amounts owed to

Songwriters (18,799) – (640) (18,159) – – – (18,799)

Catalogue bonus provision (45,042) – (3,450) (8,512) (16,540) (16,540) – (45,042)

Trade creditors and accruals (5,846) (4,168) (1,040) (638) – – – (5,846)

Loan interest payable (9,891) (9,891) – – – – – (9,891)

PRO Advances (3,178) – (3,178) – – – – (3,178)

VAT (1,789) (1,789) – – – – – (1,789)

Other creditors (794) (415) – (379) – – – (794)

Lease liability (735) (28) (61) (646) – – – (735)

Corporation tax payable (67) – (67) – – – – (67)

Directors fees payable (27) (27) – – – – – (27)

(689,563) (15,179) (8,436) (63,552) (57,452) (729,047) – (873,666)

Financial Statements

157

HIPGNOSIS SONGS FUND LIMITED

ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023

FINANCIAL STATEMENTS

Notes to the Consolidated Financial Statements

For the year ended 31 March 2023

18. Related party transactions and Directors’ remuneration

Parties are considered to be related if one party has the ability to control the other party or exercise significant

influence over the party in making financial or operational decisions.

All Directors are non-executive. The Directors’ remuneration, excluding disbursements, for the year ended

31 March 2023 amounted to £473,000/$576,355 with no outstanding fees due to the Directors at 31 March 2023

(31 March 2022: £458,360/$613,720, with outstanding fees of £18,750/$24,745). There were no supplementary fees paid to

Directors in the year ended 31 March 2023. Directors are reimbursed for out-of-pocket expenses incurred in fulfilling their

roles, including costs of travel and accommodation (as required).

Directors’ transactions in or holdings in shares of the Company are not disclosed as related party transactions as they

do not receive shares as part of their remuneration. Any shares held or transacted are acquired or disposed of in their

own right as Shareholders and as result, it is management’s assessment that the Company has not transacted with the

Directors as related parties in this regard.

19. Material Agreements

Investment Adviser

The Company has entered into an Investment Advisory Agreement with the Investment Adviser pursuant to which the

Investment Adviser will source Songs and provide recommendations to the Board on acquisition and disposal strategies,

manage and monitor royalty and/or fee income due to the Company from its copyrights and collection agents, and

develop strategies to maximise the earning potential of the Songs in the portfolio through improved placement and

coverage of Songs.

During the year responsibility for the maintenance of the Group’s accounting books and records, systems of internal

control and financial reporting transferred from the Administrator to the Investment Adviser.

The Investment Adviser is entitled to receive an advisory fee (payable in cash) and a performance fee (usually

payable predominantly in Shares subject to an 18 month lock up arrangement). The full terms and conditions of the

calculation of the advisory and performance fees are disclosed in the Company’s prospectus, which is available on

the Company’s website (https://www.hipgnosissongs.com/). However in summary:

Advisory fee

The advisory fee is calculated at the rate of:

1% per annum of the Average Market Capitalisation up to, and including, £250 million;

ii) 0.90% per annum of the Average Market Capitalisation in excess of £250 million and up to and including

£500 million; and

iii) 0.80% per annum of the Average Market Capitalisation in excess of £500 million.

Advisory fees for the year were $12.5 million (31 March 2022: $16.5 million) with $0.4 million outstanding at 31 March 2023

(31 March 2022: $Nil).

158

HIPGNOSIS SONGS FUND LIMITED

ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023

FINANCIAL STATEMENTS

Notes to the Consolidated Financial Statements

For the year ended 31 March 2023

Notes to the Consolidated Financial Statements

For the year ended 31 March 2023

19. Material Agreements (continued)

Performance Fee

In respect of each accounting period, the Investment Adviser (or, where the Investment Adviser so directs, any member

of the Investment Adviser’s team) is entitled to receive a performance fee (the “Performance Fee”) equal to 10% of the

Excess Total Return relating to that accounting period provided that the Performance Fee shall be capped such that

the sum of the advisory fee (payable in respect of the Average Market Capitalisation of Ordinary Shares only) and the

Performance Fee paid in respect of that accounting period is no more than 5% of the lower of: (i) Net Asset Value; or (ii)

Closing Market Capitalisation at the end of that accounting period.

The Excess Total Return for an accounting period is calculated by reference to: (i) the difference between the

Performance Share Price at the end of that Accounting Period and the higher of: (a) the Performance Hurdle (being

issue price compounded by 10% per annum from initial Admission subject to appropriate adjustments in certain

situations); and (b) high watermark (being the Performance Share Price at the end of the last Accounting Period where

a Performance Fee was payable); multiplied by (ii) the weighted average of the number of Ordinary Shares in issue

(excluding any shares held in treasury) at the end of each day during that accounting period.

For the purposes of calculating the Performance Fee:

“Performance Share Price” means, in relation to each accounting period, the average of the middle market

quotations of the Ordinary Shares for the 1 month period ending on the last business day of that accounting period

(which shall be adjusted as appropriate: (i) to include any dividend declared but not paid where the Ordinary Shares

are quoted ex such dividend at any time during that month; (ii) to exclude any dividend paid in respect of the shares

during that month; and (iii) for the PSP Adjustments). During the year, the average of the middle market quotations

was 81.0p; and

“Performance Share Price Adjustments” means adjustments to the Performance Share Price to (i) include the gross

amount of any dividends and/or distributions paid in respect of an Ordinary Share since initial Admission; and (ii) make

such adjustments to take account of C Shares as were agreed between the Company and the Investment Adviser,

acting reasonably and in good faith, at the time of issuance of such C Shares.

The amount of Performance Fee payable to the Investment Adviser shall be paid in the form of a combination of:

a) cash equal to all taxes or charges payable with respect to the Performance Fee by the Investment Adviser or

member(s) of the Investment Adviser’s Team; and b) Ordinary Shares (“Performance Shares”) which are either issued by

the Company where the Ordinary Shares are on average trading at par or at a premium to the last reported Operative

NAV per Ordinary Share at the relevant time or purchased from the secondary market where the Ordinary Shares are

on average trading at a discount to the last reported Operative NAV per Ordinary Share at the relevant time and

transferred to, the Investment Adviser or member(s) of the Investment Adviser’s Team.

The Performance Shares are subject to 18-month lock-up arrangements. The performance fee for the year ended

31 March 2023 was $Nil (31 March 2022: $Nil).

Financial Statements

159

HIPGNOSIS SONGS FUND LIMITED

ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023

FINANCIAL STATEMENTS

Notes to the Consolidated Financial Statements

For the year ended 31 March 2023

19. Material Agreements (continued)

Administration Agreement

Pursuant to the Administration Agreements: (i) Ocorian Administration (Guernsey) Limited has been appointed as

Administrator of the Company; and (ii) Ocorian Administration (UK) Limited has been appointed as administrator

to the subsidiaries. The Administrator or Ocorian Administration (UK) Limited (as applicable) are responsible for the

day-to-day administration of the Company and its subsidiaries subject to the relevant Administration Agreement and

general secretarial functions required by the Companies Law. During the year responsibility for the maintenance of

the Group’s accounting books and records, systems of internal control and financial reporting transferred from the

Administrator to the Investment Adviser. For the purposes of the RCIS Rules, the Administrator is the designated manager

of the Company.

Under the terms of the Administration Agreement between the Administrator and the Company, the Administrator

is entitled to a fixed fee as at 31 March 2023 of £193,000 ($231,600) (31 March 2022: £187,500, $246,259) per annum

for services such as administration, corporate secretarial, corporate governance, regulatory compliance and stock

exchange continuing obligations. Additional ad hoc fees are payable in respect of certain additional services

as determined by the Administration Agreement. Administration fees for the year to 31 March 2023 amounted to

£209,873 ($251,848) (31 March 2022: £364,612, $478,875) of which nil (31 March 2022: £43,125, $56,639) was outstanding

at the year end.

Under the terms of the Administration Agreement between Ocorian Administration (UK) Limited and the subsidiaries

the Administrator is entitled to a fixed fee as at 31 March 2023 of £3,500 ($4,200) (31 March 2022: £14,000, $18,387)

per subsidiary and a variable incremental fee per annum per additional Catalogue held by a subsidiary for services

such as administration and corporate secretarial. Administration fees for the subsidiaries for the year amounted to

£296,595 ($355,914) (31 March 2022: £489,683, $673,007) of which nil (31 March 2022: £237,490, $311,916) was outstanding

at the year end.

20. Earnings per share

31 March 2023

Basic

31 March 2023

Diluted

Loss for the year ($’000) (89,638) (89,638)

Weighted average number of Ordinary Shares outstanding 1,210,360,176 1,210,360,176

Earnings per share (cents) (7.41) (7.41)

31 March 2022

Basic

31 March 2022

Diluted

Loss for the year ($’000) (19,443) (19,443)

Weighted average number of Ordinary Shares outstanding 1,175,596,128 1,175,596,128

Earnings per share (cents) (1.65) (1.65)

The earnings per share is based on the loss of the Group for the year and on the weighted average number of

Ordinary Shares outstanding for the year ended 31 March 2023. As disclosed in Note 11, the Company repurchased

Ordinary Shares during the year which are held as Treasury Shares at year end and these shares are not included the

EPS calculation.

160

HIPGNOSIS SONGS FUND LIMITED

ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023

FINANCIAL STATEMENTS

Notes to the Consolidated Financial Statements

For the year ended 31 March 2023

Notes to the Consolidated Financial Statements

For the year ended 31 March 2023

21. Auditor’s remuneration

Audit and non-audit fees payable to the Auditors can be analysed as follows:

1 April 2022 to

31 March 2023

$’000

1 April 2021 to

31 March 2022

$’000

PricewaterhouseCoopers CI LLP annual audit fees 753 600

Pricewaterhouse Coopers CI LLP Interim review fees 53 53

PricewaterhouseCoopers CI LLP non audit fees 53 53

22. Fair value gain on held for trading derivative financial instruments

The Company has the following derivative financial instruments in the following line items in the Consolidated

Balance Sheet:

31 March 2023

$’000

31 March 2022

$’000

Held for trading financial assets

Foreign exchange forward contracts 4,914 –

Held for trading financial liabilities

Interest rate swap arrangements (3,395) –

The carrying value of the held for trading financial instruments represent their fair value at year end.

The fair value gain on the held for trading derivative financial instruments are set out in the below table:

1 April 2022 to

31 March 2023

$’000

1 April 2021 to

31 March 2022

$’000

Fair value gain on foreign exchange forward contracts 6,017 –

Fair value loss on interest rate swap arrangements (3,395) –

2,622 –

Financial Statements

161

HIPGNOSIS SONGS FUND LIMITED

ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023

FINANCIAL STATEMENTS

Notes to the Consolidated Financial Statements

For the year ended 31 March 2023

23. Presentation Change

The Company has made immaterial changes to the presentation of the Consolidated Statement of Profit and Loss and

accompanying notes during the year. This has resulted in the following changes of the comparative figures.

Consolidated Statement of Profit and Loss

As reported in

31 March 2022

Annual Report

1 April 2021 to

31 March 2022

$’000

Presentation

change

$’000

As reported in

31 March 2023

Annual Report

1 April 2021 to

31 March 2022

$’000

Income

Total revenue 200,384 – 200,384

Interest income 5 – 5

Royalty costs (32,041) – (32,041)

Net revenue 168,348 – 168,348

Expenses

Advisory and performance fees (16,548) – (16,548)

Administration fees (1,152) – (1,152)

Legal and professional fees (5,999) – (5,999)

Audit fees (600) – (600)

Brokers’ fees (274) – (274)

Directors’ remuneration (696) – (696)

Listing fees (34) – (34)

Subscriptions and licences (526) – (526)

Public relations fees (702) – (702)

Catalogue bonus provision – (936) (936)

Charitable donations (208) 208 –

Movement in ECL provision for HSG advances – (1,570) (1,570)

Other operating expenses (12,403) 2,298 (10,105)

Amortisation of Catalogues of Songs (105,787) – (105,787)

Impairment of Catalogues of Songs (1,490) – (1,490)

Amortisation of borrowing expenses (1,635) – (1,635)

Borrowing cost extinguishment – – –

Fixed asset depreciation (712) – (712)

Loan interest (20,377) – (20,377)

Fair value gain on held for trading derivative financial assets – – –

Finance charges for deferred consideration (212) – (212)

Net loss from joint ventures (836) – (836)

Foreign exchange losses (14,857) – (14,857)

Operating expenses (185,048) – (185,048)

Operating loss for the year before taxation (16,700) – (16,700)

Taxation (2,743) – (2,743)

Loss for the year after tax (19,443) – (19,443)

162

HIPGNOSIS SONGS FUND LIMITED

ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023

FINANCIAL STATEMENTS

Notes to the Consolidated Financial Statements

For the year ended 31 March 2023

Notes to the Consolidated Financial Statements

For the year ended 31 March 2023

24. Subsequent Events

On 28 April 2023 the Company’s interim dividend of 1.3125 pence per Ordinary Share in respect of the period from

1 October 2022 to 31 December 2022 was paid.

On 23 June 2023 the Company’s interim dividend of 1.3125 pence per Ordinary Share in respect of the period from

1 January 2023 to 31 March 2023 was declared.

ADDITIONAL INFORMATION

163

HIPGNOSIS SONGS FUND LIMITED

ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023

Adjusted EPS

Definition

Loss after tax excluding Total Amortisation, Impairment, Depreciation, Catalogue Bonus Provision, Restructuring

Costs, Foreign Exchange Losses and Provision for HSG Advances divided by weighted average number of Ordinary

Shares outstanding.

Reason for Use

Adjusted EPS is a strong indicator of Company performance and profitability after adjusting for non cash and

financing items. Catalogue Bonus Provision has been included in the calculation in the current year as the

Company does not anticipate this provision to occur at a material level in future years.

Calculation

31 March

2023

$’000

31 March

2022*

$’000

Loss after tax (89,638) (19,443)

Total Amortisation 113 ,2 01 107,633

Impairment of Catalogues of Songs 3,901 1,490

Borrowing cost extinguishment 5,007 –

Depreciation 653 712

Lease liability interest 369 –

Catalogue bonus provision 43,757 936

HSG restructuring costs 1,028 –

Foreign exchange losses 3,157 14,857

Fair value gain on held for trading financial instruments (2,622) –

Movement in ECL provision for HSG advances 2,196 1,570

Adjusted earnings 81,009 107,755

Tax arising on above adjusting items

†

(31,169) (23,348)

49,840 84,407

Weighted Average number of Ordinary Shares outstanding (number) 1,210,360,176 1,175,596,128

Adjusted Earnings per Share (cents) 4.12 7.18

† This figure is the sum of the tax effects of individual adjusting items other than permanent differences, calculated using the prevailing 19% corporation tax rate for the periods

for UK items and 21% rate of US Federal corporate income tax for US items.

Alternative Performance Measures

For the year ended 31 March 2023

ADDITIONAL I NFORMATION

164

HIPGNOSIS SONGS FUND LIMITED

ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023

Adjusted Operating Costs less Interest Expense

Definition

Operational expenses less Total Amortisation, Impairment, Depreciation, Catalogue Bonus Provision, Restructuring

Costs, Foreign Exchange Losses, Provision for HSG Advances and Interest Expense.

Reason for Use

An indicator to Shareholders of the Company’s underlying operational expenditure excluding non cash and

financing items. Catalogue Bonus Provision has been included in the calculation in the current year as the

Company does not anticipate this provision to occur at a material level in future years.

Calculation

31 March

2023

$’000

31 March

2022*

$’000

Operational expenses

233,863 185,048

Total Amortisation (113 ,2 01) (107,6 33)

Impairment of Catalogues of Songs (3,901) (1,490)

Borrowing cost extinguishment (5,007) –

Depreciation (653) (712)

Lease liability interest

(369)

–

Catalogue bonus provision (43,757) (936)

HSG restructuring costs (1,028) –

Foreign exchange losses (3,157) (14,857)

Fair value gain on held for trading financial instruments 2,622 –

Provision for HSG advances (2,196) (1,570)

Interest expense (33,700) (20,377)

29,516 37,473

* Refer to change in definitions on Alternative Performance Measures

Annualised Ongoing Charges

Definition

Adjusted Operating Costs less Interest Expense and non-recurring administrative expenses over a 12-month period.

Reason for Use

Ongoing Charges are a good indicator to Shareholders of the Company’s continuing operating expenses excluding the cost

of financing. These operating expenses are likely to recur in the foreseeable future.

Calculation

31 March

2023

$’000

31 March

2022

$’000

Adjusted Operating Costs less Interest Expense* 29,516 37,474

Non Recurring Administrative Expenses (2,195) (6,063)

27,321 31,411

* Refer to change in Adjusted Operating Costs definition on Alternative Performance Measures

ADDITIONAL INFORMATION • ALTERNATIVE PERFORMANCE MEASURES

ADDITIONAL INFORMATION

165

HIPGNOSIS SONGS FUND LIMITED

ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023

Distributable Revenues

Definition

Distributable Revenues are the Loss after Tax excluding Total Amortisation, Impairment, Depreciation, Catalogue

Bonus Provision, Restructuring Costs, Foreign Exchange Losses and Provision for HSG Advances.

Reason for Use

Distributable Revenues are the adjusted profits attributable to the Company’s revenue activities and are an

indicator of the Company’s ongoing ability to pay its dividends, thereby excluding the impact of IFRS accounting

matters, liabilities and costs not expected to occur at levels of current year.

Calculation

31 March

2023

$’000

31 March

2022

$’000

Loss after tax (89,638) (19,443)

Total Amortisation 113 ,2 01 107,633

Impairment of Catalogues of Songs 3,901 1,490

Borrowing cost extinguishment 5,007 –

Depreciation 653 712

Lease liability interest 369 –

Catalogue bonus provision 43,757 936

HSG restructuring costs 1,028 –

Foreign exchange losses 3,157 14,857

Fair value gain on held for trading financial instruments (2,622) –

Movement in ECL provision for HSG advances 2,196 1,570

81,009 107,755

Dividend Cover

Definition

Distributable Revenues divided by the dividend paid during the year.

Reason for Use

A strong indicator to Shareholders of the Company's ability to pay a dividend from retained earnings.

Calculation

31 March

2023

$’000

31 March

2022

$’000

Distributable Revenues 81,009 107,755

Dividend Paid 56,260 84,300

1.44 1.28

ADDITIONAL INFORMATION • ALTERNATIVE PERFORMANCE MEASURES

166

HIPGNOSIS SONGS FUND LIMITED

ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023

EBITDA

Definition

The Operating loss before Tax plus Total Amortisation, Impairment, Depreciation, Catalogue Bonus Provision,

Restructuring Costs, Foreign Exchange Losses, Provision for HSG Advances and Interest Expense.

Reason for Use

A strong indicator to Shareholders of Company performance and profitability after adjusting for non cash and

financing items. Catalogue Bonus Provision has been included in the calculation in the current year as the

Company does not anticipate this provision to occur at a material level in future years.

Calculation

31 March

2023

$’000

31 March

2022*

$’000

Operating loss (86,630) (16,700)

Total Amortisation 113 ,2 01 107,633

Impairment of Catalogues of Songs 3,901 1,490

Borrowing cost extinguishment 5,007 –

Depreciation 653 712

Lease liability interest 369 –

Catalogue bonus provision 43,757 936

Restructuring costs 1,028 –

Foreign exchange losses 3,157 14,857

Fair value gain on held for trading financial instruments (2,622) –

Movement in ECL provision for HSG advances 2,196 1,570

Interest expense 33,700 20,377

117,717 130,875

* Refer to change in definitions on Alternative Performance Measures

Leveraged Free Cash Flow

Definition

Net Cash from operating activities less interest paid, acquisition related balances and foreign exchange losses.

Reason for Use

A good indicator to Shareholders of the cash position of the Company and the availability of cash flows to fund

dividend payments.

Calculation

31 March

2023

$’000

31 March

2022•

$’000

Net Cash from operating activities 102,129 84,869

Acquisition related balances – 9,505

Foreign exchange losses 3,157 11,0 98

Interest paid (23,433) (20,775)

81,853 84,697

* Refer to change in definitions on Alternative Performance Measures

ADDITIONAL INFORMATION • ALTERNATIVE PERFORMANCE MEASURES

ADDITIONAL INFORMATION

167

HIPGNOSIS SONGS FUND LIMITED

ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023

Net Debt

Definition

Loan facility amount utilised less cash held at bank.

Reason for Use

Liquidity metric used to determine how well a company can pay all of its debts if they were due immediately.

Calculation

31 March

2023

$’000

31 March

2022

$’000

Loan facility amount 600,000 600,000

Cash at bank (37,96 5) (30,067)

562,035 569,933

Non recurring administrative expenses

Definition

Non recurring expenditure included within operating expense.

Reason for Use

A good indicator to Shareholders of expenses not likely to recur in the foreseeable future.

Calculation

31 March

2023

$’000

31 March

2022*

$’000

Non recurring expenses included within:

Legal and professional fees 546 2,099

Brokers’ fees 122 18

Public relations fees 100 145

Advisory and performance fees – 43

Other operating expenses 1,427 3,758

2,195 6,063

* Refer to change in definitions on Alternative Performance Measures

Ongoing Charges %

Definition

Annualised ongoing charges divided by Average Operative NAV.

Reason for Use

To monitor the expenses, which are likely to recur, relative to the fund size over time.

Calculation

31 March

2023

$’000

31 March

2022

$’000

Annualised Ongoing Charges* 27,321 31,411

Average Operative NAV 2,257,887 2,044,831

1.21% 1.54%

* Refer to change in Adjusted Operating Costs definition on Alternative Performance Measures

ADDITIONAL INFORMATION • ALTERNATIVE PERFORMANCE MEASURES

168

HIPGNOSIS SONGS FUND LIMITED

ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023

Operative NAV

Definition

The IFRS NAV adjusted for the Fair Value of the Catalogues of Songs.

Reason for Use

The Operative NAV reflects the values of the Catalogues of Songs based on fair values produced by the Portfolio

Independent Valuer.

31 March 2023

$’000

31 March 2022

$’000

IFRS NAV

1,434,534

1,582,399

Adjustments for revaluations of Catalogues of Songs to fair value

565,478

457,4 41

Reversal of accumulated amortisation and impairment

316,036

199,800

Operative NAV

2,316,048

2,239,640

Total Amortisation

Definition

Amortisation of Catalogues of Songs plus amortisation of capitalised borrowing costs plus finance charges for

deferred consideration.

Reason for Use

Total amortisation is the measure of the non-cash items arising from accounting treatment and includes the

amortisation of borrowing costs, and is used to evaluate the performance without any amortisation.

Calculation

31 March

2023

$’000

31 March

2022

$’000

Amortisation of Catalogues of Songs 111,5 8 3 105,787

Amortisation of capitalised borrowing costs 1,618 1,635

Finance charges for deferred consideration – 212

113,201 107,634

ADDITIONAL INFORMATION • ALTERNATIVE PERFORMANCE MEASURES

ADDITIONAL INFORMATION

169

HIPGNOSIS SONGS FUND LIMITED

ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023

NAV Total Return

Definition

Operative NAV per share plus cumulative dividends paid up to year end less the Operative NAV per share as at

11 July 2018, divided by the Operative NAV as at 11 July 2018.

Reason for Use

To show how the assets have performed since IPO to Shareholders.

Calculation

31 March

2023

$’000

31 March

2022

$’000

Operative NAV per share 1.9153 1.8491

Cumulative dividends paid to year end 0.2789 0.2159

Operative NAV at IPO (1.2983) (1.2983)

0.8959 0.7667

Operative NAV at IPO 1.2983 1.2983

69.01% 59.05%

12 Month NAV Total Return

Definition

Operative NAV per share as at year end plus dividend paid during the 12-month to year end less the Operative NAV

per share as at the beginning of the year divided by the Operative NAV per share as at the beginning of the year.

Reason for Use

To show how the assets have performed over the past 12 months to Shareholders.

Calculation

31 March

2023

$’000

31 March

2022

$’000

Operative NAV per share at year end 1.9153 1.8491

Dividend paid during the 12-month period to year end 0.0631 0.0726

1.9784 1.9217

Operative NAV per share at beginning of year

1.8491 1.6829

6.99% 14.19%

ADDITIONAL INFORMATION • ALTERNATIVE PERFORMANCE MEASURES

170

HIPGNOSIS SONGS FUND LIMITED

ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023

Performance Measure

Definition as reported in

March 2023 Annual Report

Definition as reported in

March 2022 Annual Report Reason for change

Adjusted EPS

Loss after tax excluding Total

Amortisation, Impairment

of Catalogues of Songs,

Depreciation, Catalogue

Bonus Provision, Restructuring

Costs, Foreign Exchange

Losses and Provision for

HSG Advances divided

by weighted average

number of Ordinary Shares

outstanding.

Loss after tax excluding Total

Amortisation, Impairment

of Catalogues of Songs,

Depreciation, Foreign

Exchange Losses and

Provision for HSG Advances

divided by weighted

average number of Ordinary

Shares outstanding.

Catalogue Bonus Provision and

Restructuring Costs are now included

in the Adjusted EPS calculation as

they are liabilities recognised based

on Catalogue performance in the

current year which the Company

doesn’t anticipate will incur at a

material level in future years.

Adjusted

Operating Costs

less Interest

Expense

Operational expenses

less Total Amortisation,

Impairment, Depreciation,

Catalogue Bonus Provision,

Restructuring Costs, Foreign

Exchange Losses, Provision

for HSG Advances and

Interest Expense.

Operational expenses

less Total Amortisation,

Depreciation, Impairment,

Foreign Exchange Losses and

Provision for HSG Advances

less Interest Expense.

Catalogue Bonus Provision and

Restructuring Costs are now included

in the Adjusted Operating Costs

less interest calculation as they are

liabilities, and costs not expected to

occur to current year’s levels, in the

current year which the Company

doesn’t anticipate will incur at a

material level in future years.

EBITDA

The Operating loss before

Tax plus Total Amortisation,

Impairment, Depreciation,

Catalogue Bonus Provision,

Restructuring Costs, Foreign

Exchange Losses, Provision

for HSG Advances and

Interest Expense.

The Operating loss before

Tax plus Total Amortisation,

Impairment, Loan Interest,

Depreciation, Foreign

Exchange Losses and

Provision for HSG Advances

Catalogue Bonus Provision and

Restructuring Costs are now excluded

from the EBITDA calculation as they

are liabilities recognised based on

Catalogue performance outside

of the operating activities of the

Company which the Company

doesn’t anticipate will incur at

a material level in future years.

Leveraged Free

Cash Flow

Net Cash from Operating

Activities less interest paid,

acquisition related balances

and foreign exchange losses.

Net Cash from Operating

Activities less Purchase of

Fixed Assets.

To provide increased clarity to

investors that interest is considered to

be a levered payment. The purchase

of fixed assets is not significant to

the calculation and was removed.

The calculation disclosure has been

expanded to include Acquisition

related balances and the impact

of Foreign Exchange to provide

clarity to investors on the Company’s

calculation methodology of

Leveraged Free Cash Flow.

Non recurring

administrative

expenses

Non recurring expenditure

included within operating

expenses.

Exceptional costs included

within legal and professional

and listing fees plus Aborted

deal expenses plus interest

costs.

Non recurring expenditure in the

current year is included throughout

operating expenses and is not

isolated to legal and professional

and listing fees. Interest costs have

been removed from the calculation

as this calculation seeks to present

the leveraged free non-recurring

administrative expenses.

Change in definitions on Alternative

Performance Measures

ADDITIONAL I NFORMATION

ADDITIONAL INFORMATION

171

HIPGNOSIS SONGS FUND LIMITED

ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023

“Administrator” means Ocorian Administration

(Guernsey) Limited;

“Admission” means admission, on 11 July 2018,

to trading on the SFS of the London Stock Exchange,

of the Ordinary Shares becoming effective

in accordance with the Listing Rules and/or the LSE

Admission Standards and on 25 September 2019

to a Premium Listing on the Main Market;

“AEOI” means Automatic Exchange of Information;

“AIC” means the Association of Investment Companies;

“AIC Code” means the AIC Corporate Governance

Code 2019;

“Annual General Meeting” or “AGM” means the annual

general meeting of the Company;

“Annual Report” or “Annual Report and Consolidated

Financial Statements” means the annual publication

of the Company provided to the Shareholders

to describe their operations and financial conditions,

together with their Consolidated Financial Statements;

“Apple Music” means the music and video Streaming

service developed by Apple Inc.;

“Articles of Incorporation” or “Articles” means the

articles of incorporation of the Company;

“ASCAP” means the American Society of Composers,

Authors and Publishers;

“Audit Committee” or “Audit and Risk Management

Committee” menas a formal committee of the Board

with defined terms of reference;

“Average Market Capitalisation” means, in relation

to each month where the advisory fee is payable, (“A”

multiplied by “B”) plus (“C” multiplied by “D”), where:

“A” is the average of the middle market quotations of the

Ordinary Shares for the five day period ending on the

last business day of that month (adjusted as appropriate

to exclude any dividend where the Ordinary Shares

are quoted ex such dividend at any time during that

five day period);

“B” is weighted average of the number of Ordinary

Shares in issue (excluding any Shares held in treasury)

at the end of each day during that month;

“C” is the average of the middle market quotations

of a class of C Shares in issue for the five day period

ending on the last business day of that month (adjusted

as appropriate to exclude any dividend where the C

Shares of that class are quoted ex such dividend at any

time during that five day period); and “D” is weighted

average of the number of that class of C Shares in issue

(excluding any Shares held in treasury) at the end

of each day during that month;

“Board” or “Directors” means the Directors

of the Company;

“BMI” means Broadcast Music, Inc;

“BPI” means the British Phonographic Institute;

“C Shares” means a temporary and separate class

of shares which are issued at a fixed price determined

by the Company;

“Catalogue” means one or more Songs acquired from

a single Songwriter, artist or company;

“CBS” means the US commercial broadcast television

and radio network;

“CD” means compact disc;

“Closing Market Capitalisation” means, in relation

to each Accounting Period, “E” multiplied by “F”, where:

“E” is the Performance Share Price; and “F” is the

weighted average of the number of Ordinary Shares

in issue (excluding any Shares held in treasury) at the end

of each day during the Accounting Period;

“CMO” means Collection Management Organisation.

A CMO is appointed by copyright holders to manage

both the mechanical and performance rights in their

“Companies Law” means the Companies

(Guernsey) Law, 2008;

“Company” means Hipgnosis Songs Fund Limited.

References to the Company are also considered to be

references to the Group, where applicable;

“Company Secretary” means Ocorian Administration

(Guernsey) Limited;

“Consolidated Financial Statements” means the

audited financial statements of the Company, including

the Statement of Financial Position, the Statement

of Comprehensive Income, the Statement of Cash Flows,

the Statement of Changes in Equity and associated notes;

“Continuation Vote” means the ordinary resolution that

the Company continues its business as a closed-end

investment company;

“Conversion” means the conversion of C Shares

to Ordinary Shares;

“Copyright Royalty Board” or “CRB” means the

US Copyright Royalty Board;

“Corporate Brokers” means Singer Capital Markets

Advisory LLP, J.P. Morgan Securities plc and RBC

Europe Limited;

“Covid-19” means the global coronavirus pandemic;

Glossary of Capitalised Defined Terms

ADDITIONAL I NFORMATION

172

HIPGNOSIS SONGS FUND LIMITED

ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2023

“DCF” means discounted cash flow;

“Disclosure Guidance and Transparency Rules”

or “DTRs” mean the disclosure guidance published

by the FCA and the transparency rules made by the FCA

under section 73A of FSMA;

“Distributable Revenues” means profit after tax

attributable to the Company’s revenue activities;

“Downloads” means royalties for the permanent digital

mechanical transfer of music;

“DSP” means digital service providers;

“Earnings per Share” or “EPS” means the Earnings per

Ordinary Share and is expressed in pounds Sterling;

“EU” means European Union;

“Fair Value” means the fair value as calculated by the

Portfolio Independent Valuer;

“FCA” means the UK Financial Conduct Authority (or its

successor bodies);

“FRC” means the UK Financial Reporting Council;

“FSMA” means the UK Financial Services and

Markets Act 2000;

“GFSC” means the Guernsey Financial

Services Commission;

“Grammy” means an award presented by the

Recording Academy to recognise achievements in the

music industry;

“Group” means Hipgnosis Songs Fund Limited and

its subsidiaries;

“HSG” means Hipgnosis Songs Group, which was

rebranded from Big Deal Music Group (BDM)

on acquisition;

“IAS” means international accounting standards

as issued by the Board of the International Accounting

Standards Committee;

“IFPI” means International Federation of the

Phonographic Industry which measure global recorded

market revnues;

“IFRS” means the International Financial Reporting

Standards, being the principles-based accounting

standards, interpretations and the framework

by that name issued by the International Accounting

Standards Board;

“IFRS NAV” means the value of the Gross Assets of the

Company less its liabilities (including accrued but unpaid

fees) in accordance with the accounting policies

adopted by the Directors;

“Interim Report” means the Company’s half yearly

report and unaudited condensed consolidated financial

statements for the period ended 30 September;

“Investment Adviser” means Hipgnosis Song

Management Ltd, formerly The Family (Music) Limited;

“Investment Advisory Agreement” means the

investment advisory agreement dated 27 June 2018,

as amended, between Hipgnosis Song Management

Ltd, formerly known as The Family (Music) Limited, the

Company and its subsidiaries;

“Investment Entity” means an entity whose business

purpose is to invest funds solely for returns from capital

appreciation, investment income or both;

“IPO” means the initial public offering of shares

by a private company to the public;

“ISAE 3402” means International Standard on Assurance

Engagements 3402, “Assurance Reports on Controls

at a Service Organisation”;

“ISIN” means an International Securities

Identification Number;

“ISWC” means International Standard Musical Work

Code. It is a unique, permanent and internationally

recognised reference number for the identification

of musical works;

“Kobalt” means Kobalt Music Copyrights S.à.r.l.;

“Kobalt Fund 1” means a portfolio of 42 Catalogues

acquired in September 2020, from Kobalt Music

Copyrights S.à.r.l., an investment fund advised by Kobalt

Capital Limited;

“Letter of Direction” means a document sent by the

current copyright owner or the recipient of music royalties

to the Publisher, Record company or Collection Society

requesting a re-direction of royalties to be paid. It is sent

from the current owner/recipient who is selling the assets,

directing that all future payments should go to the buyer

of the assets;

“LIBOR” means the London Interbank Offered Rate

the basic rate of interest used in lending between

banks on the London interbank market and also used

as a reference for setting the interest rate on other loans;

“Listing Rules” means the Listing Rules made by the UK

Listing Authority under section 73A FSMA;

“Live” means publishing revenue derived from the live

performance of music copyrights at concerts;

“London Stock Exchange” or “LSE” means London

Stock Exchange Plc;

“MAR” means EU regulation 596/2014 on market abuse;

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“Master Recording royalties” aka “Recording

Royalties” mean royalties that are generated

on behalf of a sound/master recording. This is the

most basic royalty performing artists and labels earn

when their master recording is downloaded, physically

bought, or streamed;

“Mechanical” means royalties for reproducing music,

for example CD, vinyl, etc. (excluding mechanical

downloads and mechanical Streaming);

“NAV per Share” means the Net Asset Value attributable

to the Ordinary Shares in issue divided by the number

of Ordinary Shares in issue (excluding any Shares held

in treasury) at the relevant time and expressed in Dollars;

“Neighbouring Rights Income” is the payment to the

recording artist or performer for the public performance

usage related to the Master Recording;

“Net Asset Value” or “NAV” means the value of the

assets of the Company less its liabilities as calculated

in accordance with the Company’s valuation policy and

expressed in Dollars;

“Net revenue” or “NPS” means Net Publisher Share and

refers to revenue collected by Publishers from PROs, net

of contractual royalties due to writers i.e. deductions for

administration and publishing fees;

“NFT” means Non Fungible Token;

“Nomination Committee” means a formal committee

of the Board with defined terms of reference;

“Operative NAV” means NAV as adjusted for the fair

value of Catalogues of Songs;

“Ordinary Shares” means redeemable Ordinary Shares

of no par value in the capital of the Company issued

and designated as “Ordinary Shares” and having the

rights, restrictions and entitlements set out in the Articles;

“Other income” means any income not covered by the

other income types, for example sheet income and

lyric exploitation;

“Performance” means royalties for playing music

in public, for example TV/radio broadcasts, live

performance, etc. and paid through to the publisher;

“Performance Fee Shares” means Ordinary

Shares issued to the order of the Investment Adviser

in accordance with the performance fee arrangements

in the Investment Advisory Agreement;

“Performance Rights Organisations” or “PROs” means

a performing rights organisation, such as PRS or BMI,

which represents and collects Performance royalties for

and on behalf of each of its members;

“Performance Share Price” means in relation to each

accounting period, the average of the middle market

quotations of the Ordinary Shares for the one month period

ending on the last business day of that accounting period;

“Portfolio” means the portfolio of Songs (whether

organised into Catalogues or otherwise) held by the

Company directly or indirectly from time to time;

“Portfolio Committee” means a committee of the Board

which approves all purchases of Catalogues of Songs;

“Portfolio Independent Valuer” means Citrin

Cooperman Advisors LLC, formerly Massarsky Consulting,

Inc., appointed by the Board to independently value the

Company’s Catalogues within the Portfolio;

“Portfolio Administrator(s)” means portfolio

administrators appointed by the Company in order

to assist with the administration of the Portfolio;

“Premium Listing” means a Premium Listing on the Main

Market of the London Stock Exchange;

“Premium / Discount to Operative NAV” means the

situation where the Ordinary Shares of the Company

are trading at a price higher / lower than the Company’s

Operative NAV;

“Prospectus” means the most recent prospectus issued

by the Company unless the context refers to a version

of the prospectus published at an earlier date;

“Pro Forma Annual Revenue” or “PFAR” – Pro Forma

Annual Revenue (PFAR) is a non IFRS measure and

represents the royalty revenue earned in a 12-month

period by the Portfolio of Songs held by the Company

at a specific date, largely based on royalty statements

received, irrespective of whether the songs were owned

by the Company over the period analysed. This is unlike

IFRS 15 revenue which is accounted for from acquisition

date and PFAR doesn’t include any revenue accruals

as these are accounted for under IFRS;

“Public Performance” means revenue generated

from licenses for the right to play music publicly

in a commercial environment e.g. shops, bars,

restaurants and shopping malls;

“Publishing Share” means the share of the rights

in a music composition (lyrics and/or music) which

generate Mechanical and Performance royalties.

In the UK, “blanket licences” are issued to organisations

including radio and TV;

“RCF” means the Revolving Credit Facility arranged from

City National Bank, as Lead Arranger;

“RCIS Rules” means the Registered Collective

Investment Scheme Rules 2015;

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“Record Labels” means a company that owns,

distributes and promotes musical recordings;

“Recording Academy” means a US academy

of musicians, producers, recording engineers and other

musical professionals;

“Registrar” means Computershare Investor Services

(Guernsey) Limited;

“Remuneration Committee” means a formal

committee of the Board with defined terms of reference;

“Revenue activities” means all revenues generated

from the Company's principal activities which is investing

in and managing music copyrights and associated

musical intellectual property;

“RIAA” means Recording Industry

Association of America;

“Right To Income” or “RTI” means a right to income

recognised as part of the Catalogue acquisition,

which is typically dependent on the timing of the

negotiations and relates to royalty income paid over

to the Company on closing of the acquisition and the

accrued receivables. The right to income related to the

period before the start of the financial year is now

defined as “Pre-FY (RTI)”; the portion of RTI that falls

within the Financial Year is now defined as “Within FY,

pre-acq (RTI)”;

“Sacem” – Société des auteurs, compositeurs et éditeurs

de musique, the French Collection Society;

“SFS” means London Stock Exchange’s specialist fund

segment of the Main Market for listed securities;

“Shareholder” means the holder of one or more

Ordinary Shares;

“SOFR” means the Secured Overnight Financing Rate,

a benchmark interest rate for dollar-denominated

derivatives and loans;

“Song” means a Songwriter’s and/or publisher’s

share of copyright interest in a song, being a musical

composition of words and/or music and the Songwriter’s

proportion of the publishing rights of a single musical

track, and when construction permits, the collection

of words and/or music as purchased by consumers;

“Song Management” Active Management of the

placing of songs in Films, TV Adverts, TV Programs, Video

Games and Streaming playlists also including promoting

the Interpolation of our songs by new Songwriters and

Covers of our songs by new artists;

“Streaming” means performance and Mechanical

royalties for digitally playing music in real-time, for

example through Spotify;

“Synchronisation” or “Synch” means royalties for

playing music in connection with visual media (for

example Film, TV, advertisements);

“The MLC” is a collection society designated by the

administering blanket mechanical licenses to digital

service providers in the United States, and then paying

out the royalties collected;

“TV” means television;

“UK” or “United Kingdom” means the United Kingdom

of Great Britain and Northern Ireland;

“UK Code” means The UK Corporate Governance Code

2019 as published by the Financial Reporting Council;

“UKLA” means UK Listing Authority;

“US” or “United States” means the United States

of America, its territories and possessions, any state of the

United States and the District of Columbia;

“Usage Accrual” the Usage Accrual is an element

of the revenue accrual to recognise the estimated

revenue at the point at which usage is expected

to occur;

“Writer’s Share” means Performance royalties collected

by a Performance Rights Organisation and paid through

directly to the Songwriter as opposed to the Publisher

Share of performance;

“YouTube” means the US video-sharing website;

“£” or “Pounds Sterling” or “Sterling” or “GBP” means

British pounds sterling and “p” or “pence” means

British pence;

“$” or “USD” or “Dollar” or “Dollars” means

United States dollars and “cents” means United

States cents; and

“€” or “EUR” is the currency of the majority of member

states of the EU.

ADDITIONAL INFORMATION • GLOSSARY OF CAPITALISED DEFINED TERMS

ADDITIONAL INFORMATION

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Directors and General Information

Company Registration Number: 65158

Board of Directors

Andrew Sutch, Chair

Paul Burger, Senior Independent

Director

Andrew Wilkinson

Simon Holden

Sylvia Coleman

Vania Schlogel*

* Resigned 30 April 2023

Founder

Merck Mercuriadis

Advisory Board

Nile Rodgers

The-Dream

Giorgio Tuinfort

Starrah

David A. Stewart

Poo Bear

Bill Leibowitz

Ian Montone

Rodney Jerkins

Investment Adviser

Hipgnosis Song Management

Merck Mercuriadis, Chief

Executive Officer

Ben Katovsky, President & Chief

Operating Officer

Chris Helm, Chief Financial

Officer, on behalf of SONG

United House

9 Pembridge Road

Notting Hill

London W11 3JY

www.hipgnosissongs.com

Registered Office

PO Box 286

Floor 2

Trafalgar Court

Les Banques

St Peter Port

Guernsey GY1 4LY

Administrator and

Company Secretary

Ocorian Administration (Guernsey)

Limited

PO Box 286

Floor 2

Trafalgar Court

Les Banques

St Peter Port

Guernsey GY1 4LY

Corporate Brokers

Singer Capital Markets Advisory LLP

1 Bartholomew Lane

London EC2N 2AX

J.P. Morgan Securities plc

25 Bank Street

Canary Wharf

London E14 5JP

RBC Europe Limited

100 Bishopsgate

London EC2N 4AA

Independent Auditor

PricewaterhouseCoopers Cl LLP

Royal Bank Place

1 Glategny Esplanade

St Peter Port

Guernsey GY1 4ND

Music Specialist Legal

Counsel

Bill Leibowitz

271 Madison Avenue

20th Floor

New York

New York 10016

Legal Advisers to the Company

Herbert Smith Freehills LLP

Exchange House

Primrose Street

London EC2A 2EG

Legal Advisers to the Company

as to Guernsey Law

Ogier (Guernsey) LLP

Redwood House

St Julian’s Avenue

St Peter Port

Guernsey GY1 1WA

Principal Banker

Barclays Bank PLC

PO Box 41

Le Marchant House

St Peter Port

Guernsey GY1 3BE

Registrar

Computershare Investor Services

(Guernsey) Limited

1st Floor

Tudor House

Le Bordage

St Peter Port

Guernsey GY1 1DB

Identifiers

ISIN: GG00BFYT9H72

Ticker: SONG

SEDOL: BFYT9H7

Website: www.hipgnosissongs.com

LEI: 213800XJIPNDVKXMOC11

GIIN: 5XGPC8.99999.SL.831

Managing your account online

The Company’s registrar, Computershare

Investor Services (Guernsey) Limited, allows

you to manage your shareholding online.

If you are a direct investor you can view

your shareholding, change the way the

Registrar communicates with you and buy

and sell shares. If you haven’t used this

service before, all you need to do is enter

the name of the Company and register

your account at:

www-uk.computershare.com/investor

You’ll need your Investor code (IVC)

printed on your share certificate in order to

ADDITIONAL I NFORMATION

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HIPGNOSIS SONGS FUND LIMITED

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In recent years investment related scams have become

increasingly sophisticated and difficult to spot. We are

therefore warning all our Shareholders to be cautious

so that they can protect themselves and spot the

warning signs.

Fraudsters will often:

• contact you out of the blue

• apply pressure to invest quickly

• downplay the risks to your money

• promise tempting returns that sound

too good to be true

• say that they are only making the offer

available to you

• ask you to not tell anyone else about it

You can avoid investment scams by:

• Rejecting unexpected offers – Scammers usually

cold call but contact can also come by email, post,

word of mouth or at a seminar. If you have been

offered an investment out of the blue, chances are it’s

a high-risk investment or a scam.

• Checking the FCA Warning List – Use the FCA

Warning List to check the risks of a potential

investment. You can also search to see if the firm

is known to be operating without proper FCA

authorisation.

• Getting impartial advice – Before investing get

impartial advice and don’t use an adviser from the

firm that contacted you. If you are suspicious, report it.

• You can report the firm or scam to the FCA by

contacting their Consumer Helpline on 0 8 0 0 111 676 8

or using their online reporting form.

• If you have lost money in a scam, contact Action

Fraud on 0300 123 2040 or www.actionfraud.police.uk.

For further helpful information about investment scams

and how to avoid them please visit www.fca.org.uk/

scamsmart

Advice to Shareholders

ADDITIONAL I NFORMATION

Cautionary Statement

The Chair’s Statement, the Investment Adviser’s Report and the Report of the Directors have been prepared solely to provide additional information for Shareholders to

assess the Company’s strategies and the potential for those strategies to succeed. These should not be relied on by any other party or for any other purpose.

The Chair’s Statement, Investment Adviser’s Report and the Report of the Directors may include statements that are, or may be deemed to be, “forward-looking

statements”. These forward-looking statements can be identified by the use of forward-looking terminology, including the terms “believes”, “estimates”, “anticipates”,

“expects”, “intends”, “may”, “will” or “should” or, in each case, their negative or other variations or comparable terminology.

These forward-looking statements include all matters that are not historical facts. They appear in a number of places throughout this document and include statements

regarding the intentions, beliefs or current expectations of the Directors and the Investment Adviser, concerning, amongst other things, the investment objectives and

investment policy, financing strategies, investment performance, results of operations, financial condition, liquidity, prospects, and distribution policy of the Company and

the markets in which it invests.

By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future.

Forward-looking statements are not guarantees of future performance.

The Company’s actual investment performance, results of operations, financial condition, liquidity, distribution policy and the development of its financing strategies

may differ materially from the impression created by the forward-looking statements contained in this document.

Subject to their legal and regulatory obligations, the Directors and the Investment Adviser expressly disclaim any obligations to update or revise any forward-looking

statement contained herein to reflect any change in expectations with regard thereto or any change in events, conditions or circumstances on which any statement is

based.

Hipgnosis Songs Fund Limited

PO Box 286, Floor 2, Trafalgar Court, Les Banques, St Peter Port, Guernsey GY1 4LY

Further information available online: www.hipgnosissongs.com

ADDITIONAL INFORMATION

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Hipgnosis Playlists

Hipgnosis

Billion Streamers

Apple Music Spotify

Hipgnosis

Rolling Stones’ 500 Greatest Songs of All Time

Apple Music Spotify

Hipgnosis

YouTube’s Most Viewed Music Videos of All Time

Apple Music Spotify

Superstars, Super Tours

Taylor Swift

Apple Music Spotify

Beyoncé

Apple Music Spotify

ADDITIONAL I NFORMATION