Hipgnosis Songs Fund Limited
Annual Report 2021
Hipgnosis Songs Fund Limited Annual Report 2021 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
Governance
Financial Statements
3 Introduction from Merck
Mercuriadis
6 Financial and Operational
Highlights
8 Hipgnosis at a Glance
10 The Chair’s Statement
12 Investment Adviser’s report
16 Our Advisory Board
36 Our Market
42 Our Purpose, Business Model,
Culture and Values
74 Corporate Governance Statement
74 Chair’s Introduction
76 Application of AIC Code
Principles
80 Board Leadership and Company
Purpose
82 Division of Responsibilities
86 Composition, Succession and
Evaluation
87 Board of Directors
90 Report of the Nomination
122 Consolidated Statement
of Comprehensive Income
123 Consolidated Statement
of Financial Position
124 Consolidated Statement
of Changes in Equity
125 Consolidated Statement
of Cash Flows
126 Notes to the Consolidated
Financial Statements
45 Our Objective, Strategy and
Committee
Investment Policy
50 Our Resources and Relationships
57 Our Team
62 Our Principal Risks and Uncertainties
68 Key Statements
68 Going Concern
60 Viability Statement
72 Section 172(1) Statement
93 Audit, Risk and Internal Control
94 Report of the Audit and Risk
Management Committee
101 Report of the Management
Engagement Committee
103 Report of the Portfolio Committee
105 Directors’ Remuneration Report
108 Report of the Directors
111 Directors’ Responsibilities
Statement
113 Independent Auditor’s Report
Additional Information
160 Alternative Performance
Measures
162 Glossary of Capitalised Defined
Terms
166 Directors and General
Information
167 Corporate Summary
168 Advice to Shareholders
Case Studies
Interviews with...
18 The Anatomy of a Song
26 Turning Classics into Hits
(All Over Again)
48 The Chainsmokers: Consumer
Re-Engagement Boosts Revenue
66 Shakira: An Enduring Cultural
Influential Superstar
34 Shakira
40 David A. Stewart
52 Lindsey Buckingham
60 Timbaland
70 Mark Ronson
2
Annual Report 2021 Hipgnosis Songs Fund Limited
Strategic Report
Introduction from Merck Mercuriadis
When I started Hipgnosis only 3 years
ago the benchmark for extraordinary
success in the music business was the
Platinum album or single. In the United
States that is equivalent to 1 million sales in a country
that has almost 360 million people in it. 1 in 360, that
ratio immediately tells you that while people might
love music, they did not love it enough to pay for
it. During this time, the growth in paid subscribers
to music streaming services has been exponential
– from 30 million in the US to the current 450 million
globally. There are now over 100 million homes in the
United States alone that are paying for a premium
music streaming service!
Music has gone from being a discretionary or luxury
purchase to very much being a utility. This is a result of
the convenience and access afforded by streaming.
You can listen to everything from Bach to The Beatles
and Chopin to Chic in one place, it doesn’t take up
space on your phone or computer and you have
access in your home, car, the office, the beach etc.
for only $10 per month or $120 per year. By the time we
get to the end of the decade it is predicted we will
have 2 billion paid subscribers worldwide.
Timing is everything and this is the context in which
we have established Songs as an asset class. We
have given our loyal investors access to some of
the most extraordinarily successful and culturally
important songs of all time at a point when almost
all consumption is now paid for in an industry
that was previously littered with piracy and illegal
consumption. If you add in the explosive growth
of TikTok, Peloton, Triller, NFTs and other new uses of
music that are not part of the data on which we buy
Catalogues, the investment case becomes stronger
with each passing day. The same goes for emerging
markets such as India, Africa and China, whose
nascent growth in revenues are not in the data on
which we buy Catalogues. Songs are very much an
asset class with an incredible future.
This year alone our Shareholders’ support has
allowed us to acquire the Catalogues of Rock And
Roll Hall Of Fame inductees Neil Young, Lindsey
Buckingham / Fleetwood Mac, Steve Winwood,
Debbie Harry & Chris Stein / Blondie, and Chrissie
Hynde / The Pretenders as well as Songwriters Hall
Of Fame members Barry Manilow and Carole
Bayer Sager and iconic artists, Songwriters and
producers Shakira, Rick James, Enrique Iglesias,
B-52’s, Jimmy Iovine, The RZA/Wu Tang Clan, Chris
Cornell / Soundgarden, 50 Cent, George Benson, Nikki
Sixx / Mötley Crüe, Rodney Jerkins, Kevin Godley & Eric
Stewart / 10cc, Skrillex, Walter Afanasieff, and many
others including the recently crowned 2021 Grammy
Awards Producer Of The Year Andrew Watt.
Strategic Report Strategic Report / Introduction from Merck Mercuriadis
These are Catalogues that I believe are going to
significantly appreciate in consumption, revenue
and value for a long time to come, not only from
the growth in streaming and the narrowing of the
discount rate as a result of the certainty of earnings
that it affords, but also from our Song Management
and the efficiencies we bring to collections.
for Songwriters at the highest level including the
DCMS hearings taking place in UK Parliament and
having increased our synch income through Active
Management, as a percentage of total revenue,
from 9% to 15% this fiscal year, I’m delighted to say our
ambitions are turning into reality and we are well on
our way to Hipgnosis achieving them all.
It remains only for me to thank our incredible
Shareholders, our Independent Non-executive
Board, the team at The Family (Music) Limited
and its Advisory Board and most importantly the
great Songwriters that have entrusted us with their
incomparable songs.
Best wishes,
Merck Mercuriadis
Founder, Hipgnosis Songs Fund Ltd and
The Family (Music) Limited
4 July 2021
Furthermore, the legislative efforts – influenced by our
advocacy – that are taking place all over the world to
lobby on behalf of the Songwriter to receive a greater
share of the income combined with our effectively
unique proposition has made us the preferred choice
for the Songwriting community and allows us to “buy
well” as there is complete alignment between our
Shareholders and the Songwriters. You will read about
all of this and more throughout this report.
Having now grown Hipgnosis to a $1.8 billion market
cap FTSE 250 company and invested almost $2 billion
in iconic songs that are a part of the fabric of our
society, which have just been independently valued
at $2.2 billion, it is worth re-stating our ambitions when
we listed three years ago, which were to:
1. Establish Songs as an asset class;
2. Use the influence of our Fund and the great
Songs in our Catalogue to be a catalyst to
change where the Songwriter sits in the economic
equation for the benefit of the Songwriting
community and our Shareholders; and
3. To replace the broken traditional publishing model
with Song Management and add value.
Having given our Shareholders a 41% Total NAV Return
since inception, grown our Operative NAV by more
than 11% across this fiscal year, having advocated
4
Annual Report 2021 Hipgnosis Songs Fund Limited
Spotify’s Billions Club
Hipgnosis has 36 out of the 156 Songs
5SOS • Youngblood • Andrew Watt
Ariana Grande • No Tears Left To Cry • Savan Kotecha
Benny Blanco • Eastside (with Halsey & Khalid) • Nathan (Happy) Perez
Bruno Mars • Just The Way You Are • Ari Levine
Camila Cabello • Havana (ft. Young Thug) • Andrew Watt/Starrah
Clean Bandit • Rockabye (ft. Sean Paul & Anne-Marie) • Ammar Malik
Clean Bandit • Symphony (ft. Zara Larsson) • Ammar Malik
DJ Snake • Let Me Love You (ft. Justin Bieber) • Andrew Watt
Dua Lipa • New Rules • Caroline Ailin /Ian Kirkpatrick
Ed Sheeran • Photograph • Johnny McDaid
Ed Sheeran • Shape Of You • Johnny McDaid
Journey • Don’t Stop Believin’ • Jonathan Cain /Neal Schon
Justin Bieber • Sorry • Julia Michaels/Skrillex
Justin Bieber • What Do YOU Mean? • Poo Bear
Khalid • Young Dumb & Broke • Joel Little
Kygo • It Ain't Me (ft. Selena Gomez) • Andrew Watt
Lady Gaga, Bradley Cooper • Shallow • Mark Ronson
Logic • 1-800 -273-8255 • Andrew Taggart
Luis Fonsi, Daddy Yankee, Justin Bieber • Despacito – Remix • Poo Bear
Major Lazer • Cold Water • Benny Blanco
Major Lazer, MØ, DJ Snake • Lean On (ft. DJ Snake & MO) • Martin Bresso
Mark Ronson • Uptown Funk (ft. Bruno Mars) • Mark Ronson /Jeff Bhasker
Maroon 5 • Girls Like You • Starrah
Maroon 5 • Memories • Stephan Johnson
Maroon 5 • Sugar • Jacob Kasher Hindlin
Martin Garrix, Bebe Rexha • In The Name Of Love • Ilsey Juber
Panic! At The Disco • High Hopes • Sam Hollander
Shawn Mendes, Camila Cabello • Señorita • Andrew Watt
Shawn Mendes • Stitches • Teddy Geiger
Shawn Mendes • There's Nothing Holdin’ Me Back • Teddy Geiger/Scott Harris
Shawn Mendes • Treat You Better • Teddy Geiger / Scott Harris
The Chainsmokers • Closer (ft. Halsey) • Andrew Taggart
The Chainsmokers • Don't Let Me Down (ft. Daya) • Andrew Taggart/Scott Harris
The Chainsmokers, Coldplay • Something Just Like This • Andrew Taggart
ZYAN, Taylor Swift • I Don't Wanna Live Forever (50 Shades) • Jack Antonoff
Zedd, Maren Morris, Grey • The Middle • Stefan Johnson
Source: Every Song on Spotify with over 1 billion streams (as at 23 June 2021)
Over 2 billion streams
Hipgnosis Songs Fund Limited Annual Report 2021
5
Strategic Report Strategic Report
Financial and Operational Highlights
As at 31 March 2021, the Company had raised a total of over £1.1 billion (gross
equity capital) through its Initial Public Offering on 11 July 2018, and subsequent
placings in April 2019, August 2019, September 2020, and February 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 has now been
raised from £150 million to $600 million.
As at 31 March 2021, the Company had deployed approximately $1.94 billion in
total since IPO on 138 Catalogues and 64,098 Songs. The Catalogues acquired
during the period are below:
Catalogue
Acquisition
Date
Interest
Ownership
Total
Songs
Catalogue
Acquisition
Date
Interest
Ownership
Total
Songs
16 J u l 2020
Rodney Jerkins
16 J u l 2020
Barry Manilow
16 J u l 2020
RedOne
16 J u l 2020
Eliot Kennedy
27 J u l 2020
Closer (J King & I Slade)
24 J u l 2020
NO I.D.
24 J u l 2020
Pusha T
29 J u l 2020
Ian Kirkpatrick
30 J u l 2020
Blondie
10 Aug 2020
Chris Cornell
12 Aug 2020
Robert Diggs “RZA”
13 Aug 2020
Ivor Raymonde
3 Sep 2020
Nikki Sixx
10 Sep 2020
Big Deal Music “BDM”
10 Sep 2020
Chrissie Hynde
17 Sep 2020
Steve Robson
18 Sep 2020
Rick James
23 Sep 2020
Kevin Godley
24 Sep 2020
Scott Cutler
30 Sep 2020
Nate Ruess
30 Sep 2020
LA Reid
30 Sep 2020
50 Cent
30 Sep 2020
Aristotracks
30 Sep 2020
B-52’s
30 Sep 2020
Bonnie Mckee
30 Sep 2020
Brill Building
30 Sep 2020
Christina Perri
30 Sep 2020
Dierks Bentley
30 Sep 2020
Editors
30 Sep 2020
Eman
30 Sep 2020
Enrique Iglesias
30 Sep 2020
Evan Bogart
30 Sep 2020
George Benson
30 Sep 2020
George Thorogood
30 Sep 2020
Good Soldier
30 Sep 2020
Holy Ghost
30 Sep 2020
J-Kash
30 Sep 2020
John Rich
30 Sep 2020
Kojak
30 Sep 2020
Lateral
Lindsey Buckingham (Kobalt) 30 Sep 2020
982
100%
917
100%
334
100%
217
100%
2
100%
273
100%
238
100%
137
100%
197
100%
241
100%
814
50%
505
100%
100%
305
100% 4,400
162
100%
1,034
100%
97
50%
358
100%
111
100%
59
100%
162
100%
388
100%
152
100%
96
100%
78
100%
234
100%
68
100%
113
100%
64
100%
97
100%
157
100%
229
100%
107
100%
40
100%
760
100%
62
100%
90
100%
7
100%
148
100%
248
100%
174
100%
LunchMoney Lewis
Lyrica Anderson
Madcon
Mark Batson
Mobens
Nelly (Kobalt)
Nettwerk
PRMD
Rob Hatch
Rock Mafia
Savan Kotecha (Kobalt)
SK Music
Skrillex
Stereoscope
Steve Winwood
Tequila
Third Day
Walter Afanasieff
Wayne Wilkins
Yaslina
Sacha Skarbek
Tricky Stewart (Masters)
Eric Stewart
Bob Rock
Caroline Ailin (“New Rules”)
Nelly
Lindsey Buckingham
Joel Little
Jimmy Iovine
Neil Young
Shakira
Brian Kennedy [Writer Sh.]
Andrew Watt
Christian Karlsson
Carole Bayer Sager
Paul Barry
Espionage
Martin Bresso
Andy Wallace
David Sitek
Happy Perez
30 Sep 2020
30 Sep 2020
30 Sep 2020
30 Sep 2020
30 Sep 2020
30 Sep 2020
30 Sep 2020
30 Sep 2020
30 Sep 2020
30 Sep 2020
30 Sep 2020
30 Sep 2020
30 Sep 2020
30 Sep 2020
30 Sep 2020
30 Sep 2020
30 Sep 2020
30 Sep 2020
30 Sep 2020
30 Sep 2020
20 Nov 2020
27 Nov 2020
2 Dec 2020
4 Dec 2020
10 Dec 2020
15 Dec 2020
24 Dec 2020
24 Dec 2020
24 Dec 2020
31 Dec 2020
31 Dec 2020
31 Dec 2020
17 Feb 2021
2 Mar 2021
17 Mar 2021
18 Mar 2021
26 Mar 2021
31 Mar 2021
31 Mar 2021
31 Mar 2021
31 Mar 2021
100%
100%
100%
116
96
173
100%
210
100% 1,034
100%
145
100% 25,339
335
100%
167
100%
393
100%
354
100%
23
100%
153
100%
456
100%
215
100%
1
100%
212
100%
213
100%
113
100%
73
100%
303
100%
95
100%
255
100%
43
100%
2
100%
240
100%
161
100%
178
100%
259
100%
590
50%
145
100%
139
100%
105
100%
255
100%
983
100%
510
100%
151
100%
51
100%
1,242
100%
230
100%
192
100%
6
Annual Report 2021 Hipgnosis Songs Fund Limited
Financial Highlights 1
Year ended 31 March 2021
IFRS NAV 2
Middle market share price
(SONG)
Net Revenues
$1,462,844,327
125.50p
$138,389,473
(31 March 2020: $810,685,312)
(31 March 2020: 103.00p)
(31 March 2020: $83,329,166)
IFRS NAV per Ordinary Share
(Discount)/Premium to
Operative NAV
EBITDA
$1.3628
2.4%
$106,666,421
(31 March 2020: $1.3164)
(31 March 2020: -11.8%)
(31 March 2020: $71,189,405)
Operative NAV 3
Total NAV Return 4
Leveraged Free Cash Flow
$1,806,462,664 40.7%
(31 March 2020: $930,814,994)
$82,128,572
(31 March 2020: $22,700,638)
Operative NAV per
Ordinary Share ($)
$1.6829
Ongoing Charges figure (%)
EPS
1.59%
4.72¢
(31 March 2020: $1.5114)
(31 March 2020: 1.52%)
(31 March 2020: 8.13¢)
Operative NAV per
Ordinary Share (p)
122.50p
Total dividends paid in
respect of the period
5.125p
EPS excl. Amortisation
13.26¢
(31 March 2020: 116.73p)
(31 March 2020: 5.00p)
(31 March 2020: 14.23¢)
1 A number of Alternative Performance Measures are used within the Report
and details can be found on page 160. Prior Year comparatives have been
restated from Sterling. Full methodology in Note 2n) on page 134.
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 Since inception. See page 161 for definition.
Hipgnosis Songs Fund Limited Annual Report 2021
7
Strategic Report Strategic Report
Hipgnosis at a Glance
138
+84
Catalogues
64,098
+50,807
Songs
+ Change in portfolio since 31 March 2020
$1.81bn
+$0.88bn
Operative NAV
$138.4m
+40%
Net Revenue
15.32x
+1.42x
Weighted Average
Acquisition Multiple
151
+81
Grammys
3,738
+1,969
Number 1s
13,968
+6,955
Top 10s
Portfolio by genre (%)
(based on fair value)
Portfolio income by source (%)
100
80
60
40
20
0
Mechanical/
Master Royalties
Performance
Synchronization
Streaming
Other
Digital
Pop
Rock
R&B
Dance
Hip-Hop
Latin
Country
Disco
Soul
Christian
100
80
60
40
20
0
FY 2020
H1 2021
FY 2021
FY 2020
H1 2021
FY 2021
8
Annual Report 2021 Hipgnosis Songs Fund Limited
7 out of the Top 20
Best Selling Albums in the UK have
involvement from Hipgnosis’ Songwriters
4 out of the Top 5
Billboard Songs of the Decade
and 29 of the Top 100
#1 Dua Lipa • Future Nostalgia
2 Songs • Grimes, Ian Kirkpatrick
#1 Uptown Funk!
Mark Ronson feat. Bruno Mars •
Mark Ronson and Jeff Bhasker
#2 Olivia Rodrigo • Sour
1 Song • Jack Antonoff, Annie Clark
#3 Shape Of You
Ed Sheeran • Johnny McDaid
#6 Fleetwood Mac • 50 Years – Don't Stop
50 Songs • Lindsey Buckingham
#4 Closer
The Chainsmokers Feat. Halsey •
The Chainsmokers
#10 Ed Sheeran • Divide
13 Songs • Benny Blanco, Johnny McDaid
#5 Girls Like You
Maroon 5 feat. Cardi B • Starrah
#11 Justin Bieber • Justice
3 Songs • Stephan Johnson
Source: Billboard
#15 Fleetwood Mac • Rumours
11 Songs • Lindsey Buckingham
#17 Eminem • Curtain Call
1 Song • Mark Batson
Source: Half year UK Albumn Sales, Official Charts, June 2021
10+ years
3-10 years
0-3 years
Portfolio by age (%)
(based on fair value)
100
80
60
40
20
0
12 out of Spotify’s Top 30
Most Played Songs of all Time
and 45 of the Top 200
#1 Shape of You
Ed Sheeran • ÷ (Deluxe) • Johnny McDaid
#6 Closer
The Chainsmokers feat. Halsey • Collage •
The Chainsmokers
#9 Seňorita (feat. Camila Cabello)
Shawn Mendes • Shawn Mendes (Deluxe) •
Andrew Watt
#16 Havana (feat. Young Thug)
Camila Cabello, Young Thug • Camila •
Starrah
#18 Photograph
Ed Sheeran • × (Deluxe Edition) • Johnny
McDaid, Jeff Bhasker and Emile Haynie
#21 Love Yourself
Justin Bieber • Purpose (Deluxe) •
Benny Blanco
#22 Something Just Like This
The Chainsmokers, Coldplay • Memories...
Do Not Open • The Chainsmokers
#23 New Rules
Dua Lipa • New Rules • Ian Kirkpatrick,
Caroline Ailin
#25 Lean On (feat. MØ & DJ Snake)
Major Laser • Peace Is The Mission •
Martin Bresso
#28 Shallow
Lady GaGa • A Star Is Born • Mark Ronson
#29 Despacito – Remix
Luis Fonsi, Daddy Yankee, Justin Bieber •
Vida • Poo Bear
#30 Sorry
Justin Bieber • Purpose (Deluxe) • Skrillex
FY 2020
H1 2021
FY 2021
Source: Spotify, June 2021
Hipgnosis Songs Fund Limited Annual Report 2021
9
Strategic Report Strategic Report
The Chair’s Statement
I am delighted to issue a report which summarises
the significant continued progress that has been
made in building a Portfolio of proven Songs,
which are generating strong investment returns,
delivering the Song Management initiatives by the
growing team within the Investment Adviser and
continuing to raise new equity capital and loans
to fund further investments. All of this with a view
to delivering increased value for our Shareholders,
despite a backdrop of COVID-19 and the associated
uncertainties.
During the period, the Company invested a further
$1,089 million and now owns 138 Catalogues.
The Portfolio has been independently valued at
$2,214 million, representing an increase of 13.6%
on the aggregate purchase price of $1,948 million,
on a constant currency basis.
Investments
During the period to 31 March 2021 the Company
acquired 84 Catalogues. This now brings the total
Portfolio to 138 Catalogues comprising 64,098 Songs.
These acquisitions have continued the diversification
of the Portfolio which now includes Songs performed
by hundreds of artists across multiple genres and
vintages. All of the acquisitions were sourced by our
Investment Adviser, The Family (Music) Limited, which,
together with its Advisory Board, provides access to
some of the most successful artists, Songwriters and
producers globally.
Share issuance
During the year the Company raised £190 million in
September 2020 and £75 million in February 2021,
as well as £233 million through a C-Share issuance
in July 2020 (which converted in December 2020).
Functional currency change
The Company changed its functional and
presentation currency from Sterling to Dollars with
effect from 1 October 2020. This was required by
IFRS, as there has been a fundamental shift in
the primary economic environment in which the
Company operates due to the significant increase
in the proportion of transactions denominated in
Dollars. The change will significantly reduce volatility
in revenue collections and investment and loan
valuations arising from foreign exchange fluctuations
between Sterling and Dollars.
10
Annual Report 2021 Hipgnosis Songs Fund Limited
Conversion to Investment Trust Company
During the period the Company applied to become
an investment trust company. This move better reflects
the increasing UK-centric substance of the Company,
whilst remaining domiciled in Guernsey.
HMRC accepted the Company’s application to be
treated as an investment trust with effect from 1 April
2021. Accordingly, in respect of each accounting
period for which the Company is approved by
HMRC as an investment trust, the Company will be
exempt from UK taxation on its chargeable gains. The
Company became UK tax resident from 1 April 2021
and is therefore liable to UK corporation tax on its
income from that date.
Performance
I am pleased to report an increase in revenue to
$138.4 million for the year (financial year ended
31 March 2020: $83.3 million).
The Ongoing Charges ratio increased slightly from
1.52% to 1.59% primarily driven by the timing of share
issuances during the year, the additional operating
costs of HSG since its acquisition in September 2020
and higher legal/professional fees due to the one off
acquisition costs of acquiring HSG. It remains the belief
of the Board that the Ongoing Charges ratio will fall
over time.
EBITDA in the year increased by 49.8% to $106.7 million
(year ended 31 March 2020: $71.2 million) reflecting
the substantial increase in revenues. Leveraged Free
Cash Flow was $82.1 million which covered dividends
paid out during the year by 1.58 times.
The IFRS NAV per share at 31 March 2021 was $1.3628
(31 March 2020: $1.3164). The Board considers that
the most relevant NAV for Shareholders is the
‘Operative NAV’, which reflects the fair value of the
Company's Catalogues as valued by the Portfolio
Independent Valuer. The Operative NAV per Share
increased by 11.3% to $1.6829 during the year
(31 March 2020: $1.5114), which, when including
dividends paid, represents a Total Operative Dollar
NAV Return of 15.7%. This brings Total $ NAV Return for
our Shareholders to 40.7% since the Company’s IPO
on 11 July 2018.
Dividend
In the financial year the Company paid total dividends
of 5.125p per Ordinary Share, paid in four quarterly
instalments: 1.25p each at the end of May and July 2020,
and 1.3125p in November 2020 and February 2021.
The Company continues to target a total dividend
of 5.25p per Ordinary Share for the current financial
year ending 31 March 2022.
Revolving Credit Facility
On 29 May 2020, the Company announced that
it was seeking Shareholder support to increase
the Company’s current borrowing limit of 20%
of its Operative NAV to a maximum of 30% of its
Operative NAV.
This approval was given by Shareholders at an
Extraordinary General Meeting on 11 June 2020.
During the year, the Company entered into an
agreement with a syndicated group of lenders,
to increase its Revolving Credit Facility from
£150 million to $400 million and subsequently
upsized to $600 million, subject to total borrowings
not exceeding 30% of Net Asset Value.
On 26 March 2021, the Company inadvertently
breached the borrowing restriction under its
investment policy of 30% of Net Asset Value. The
amounts drawn down were held by the Company
as cash and were unutilised, and on 5 April 2021
$50 million of these drawings were repaid, thereby
curing the temporary breach. Since this date the
Company has operated in compliance with all of its
investment restrictions.
As the Company grows and given the now significant
size of the Revolving Credit Facility, the Company
and its Investment Adviser continue to explore and
evaluate the most appropriate long term gearing
strategy to support growth in Shareholder value.
The Board
Vania Schlogel was appointed on 11 June 2021 as
an Independent Non-executive Director. Vania, who
is based in the US, has considerable private equity and
media and entertainment sectors experience. Further
details about Vania are set out on page 88 and we
welcome her as an additional member of the Board.
I would like to record my appreciation to my fellow
Board members for their dedication and their
diligence in supervising and dealing with all the
Company’s activities in another busy year. In addition
to the significant corporate activity, including
fundraisings and the acquisition of HSG, the Board
carefully considers each proposed acquisition, of
which there have been many in the past 12 months,
and has therefore met very frequently.
Annual General Meeting
This year's AGM will be held on 15 September 2021 at
10.00am BST, at a venue to be notified to Shareholders
in due course.
Subject to the restrictions in place as a result of
COVID-19 it is intended that members of the Board will
be in attendance at the AGM and will be available to
answer Shareholder questions.
Outlook
2020 and now 2021 have been dominated by the
COVID-19 pandemic. The long-term effects of the
pandemic on the global economy and on lives,
livelihoods and businesses will be felt for some time
to come. The music industry has been noticeably
affected by the pandemic, with performance and live
entertainment in particular having been materially
disrupted during the periods of lockdown, the impact
of which has been seen within our PFAR and VAF,
as discussed in the Investment Adviser's Report.
While the Board continues to monitor the impact of
COVID-19 on the Company’s revenues and valuations,
we believe that the increases in demand for streaming
as a direct result of COVID-19 could replace and
exceed the revenues lost from other income sources as
consumers seek in-home alternatives to out-of-home
entertainment. Music has become recognised as a
resilient asset class and I am confident that owners
of the rights to songs such as your Company should
continue to benefit from the long-term and consistent
revenues that they can produce.
On behalf of the Board, I would like to express
my thanks to all of our stakeholders including our
Songwriters’ community and our Shareholders for their
continuing support. The Company has assembled a
solid, diversified Portfolio of proven Songs, across an
increasingly older vintage, sourced by our Investment
Adviser. It is the Board’s view that the investment
thesis remains as solid now as at the time of our IPO.
Accordingly, the Company announced a further
fundraising on 16 June 2021 and we look forward to
deploying the monies raised from it in pursuance of
our investment objective.
Andrew Sutch
Chair
4 July 2021
Hipgnosis Songs Fund Limited Annual Report 2021
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Strategic Report Strategic Report
Investment Adviser’s Report
Merck Mercuriadis
Founder, Hipgnosis Songs Fund Ltd
and The Family (Music) Limited
2020 / 2021 has been another remarkable
year for Hipgnosis. At a point in time when
the explosive growth of streaming has trans-
formed music from a discretionary consumer
purchase to a utility purchase and new heights of
consumption we have acquired 84 new Catalogues
including some of the most important Songwriter,
artists and producers of all time, for an aggregate
purchase price of $1,089 million. These include the
catalogues of Rock And Roll Hall Of Fame inductees
Neil Young, Lindsey Buckingham / Fleetwood Mac,
Steve Winwood, Debbie Harry & Chris Stein / Blondie,
and Chrissie Hynde / The Pretenders as well as Song-
writers Hall Of Fame members Barry Manilow and
Carole Bayer Sager and iconic artists, Songwriters
and producers Shakira, Rick James, Enrique Iglesias,
B-52’s, Jimmy Iovine, The RZA / Wu Tang Clan, Chris
Cornell / Soundgarden, 50 Cent, George Benson,
Nikki Sixx / Motley Crue, Rodney Jerkins, Kevin Godley
& Eric Stewart / 10cc, Skrillex, Walter Afanasieff and
many others including the recently crowned 2021
Grammy Awards Producer Of The Year Andrew Watt.
Whilst we never would have wished for a pandemic to
prove our thesis, it has accelerated the consumption
of classic songs through streaming and demonstrated
exactly what an excellent uncorrelated asset class
proven Songs are. Today, as the market has grown
from 30 million paid subscribers to music streaming
services in the US when we started, to the current
450 million globally, there are over 100 million homes
in the United States that are paying for a premium
music streaming service. Add in the explosive growth
of TikTok, Peloton, Triller, NFTs and other new uses of
music that are new income streams, expected to be
a material portion of our revenue going forward, and
not part of the data on which we buy Catalogues,
and the investment case becomes stronger with each
passing day. The same goes for emerging markets
such as India, Africa and China whose nascent
growth in revenues are also not included in the data
on which we buy. By the time we get to the end of
the decade, there are expected to be 2 billion paid
subscribers worldwide.
The pandemic now looks set to lead us into inflation
and again we are extremely well placed with
Songs as an asset class for our Shareholders to be
beneficiaries. With all our Catalogues chosen due to
their extraordinary success and cultural importance,
we believe extra high levels of streaming demand
are a natural feature. As an example, Journey’s
12
Annual Report 2021 Hipgnosis Songs Fund Limited
catalogue has, over the last 4 months, grown from
2.5 million to 3.7 million streams per week on
Apple Music and 13 million monthly listeners on
Spotify. Don’t Stop Believin’ on its own now has over
1 billion streams on Spotify alone, both incredible
achievements for classic Songs. This accelerated
growth leaves us well positioned for the future, with
increased expectations for income over the long
term. Concurrently, we’ve felt some temporary
decline in our Performance income consistent with
the entire industry, but we expect that to turn around
by the autumn.
Our Song Management team, who joined in
September led by Ted Cockle and Amy Thomson,
has made a strong impact, growing revenue and
enhancing the legacies of our great Songs, which will
make a positive economic impact to the Company
in periods to come. Synch revenues have exceeded
all expectations and, despite film and TV production
being shut down for much of the last 16 months,
revenues have increased. This has highlighted not only
that we have bought well, but also how undervalued
our iconic songs have been by traditional publishers
and the massive opportunity this affords Hipgnosis.
The 138 Catalogues within the Portfolio have been
carefully selected due to their being highly successful
and culturally influential proven hit Songs, which will
produce long-term reliable and predictable income,
and high levels of streaming consumption. Hipgnosis
is therefore well placed to benefit from the expected
increase in streaming revenues over the coming years.
The growth in the Operative NAV over the period
reflects a 10.4% like-for-like uplift in the fair value
of Catalogues driven by:
• an increase in the Portfolio Independent Valuer’s
expectations for future streaming income as a
result of:
− the acceleration of the change in consumer
behaviour to consuming music through streaming.
This has been emphasised further still through the
COVID-19 pandemic where streaming growth has
exceeded expectations.
− royalties starting to be paid by rapidly growing
Emerging Digital Platforms (EDPs) including TikTok
and Peloton. Whilst royalties have been paid to
Administrators and therefore included in expected
future earnings, due to the lag in reporting, they
are not expected to start being received by
Hipgnosis until later this year and therefore not yet
recognised in this period's revenue.
• the 20th anniversary of the landmark, Latin album,
Laundry Service by Shakira in November 2021; and
• growth in synchronisation income in excess of the
• the 40th anniversary of Rick James’ album Street
Portfolio Independent Valuer’s expectations despite
advertising budget cuts and the production of
films and television programs being at a standstill.
• a reduction in the discount rate used by the
Portfolio Independent Valuer to value the
Company’s Catalogues from 9% to 8.5%, as stated
in the half year results.
Since acquisition, the fair value of Catalogues has
increased by $265.6 million, representing a 13.6%
increase on acquisition cost.
The strong Operative NAV and Total $ NAV Return
continues to evidence the Company’s successful
acquisition strategy and the exceptionally high
quality of Catalogues acquired.
Song Management
Song Management, as led by the Investment Adviser,
strives to deliver maximum value from Hipgnosis’
Songs via movies, tv shows, video games, radio
content, playlists, interpolations into new songs,
and covers by new artists by active placement.
In addition, we are working with traditional and
social media, spotlighting natural opportunities that
surround landmark anniversaries while seeking to
constantly refresh and provide cultural context. All of
which further fuels streaming growth and increases
their profile/value/opportunity for licensing our Songs
to film, television, gaming, and advertising. Making it
as easy and fool proof as possible to use our Songs is
an essential ingredient of our success.
Promoting Catalogues
The Song Management team will be particularly
focused in the coming months on showcasing a
number of albums by our key Songwriters that are
celebrating major anniversaries. These include:
• Journey’s album Escape, which contains the mega
hit-song Don’t Stop Believin’, which is celebrating its
40th anniversary in July;
• the 40th anniversary of the seminal Pretenders II
album in August which features I Go To Sleep;
Songs, featuring the funk classic Super Freak. The
focus on this album will be centred around Showtime’s
documentary: Bitchin’: The Sound and Fury of Rick
James, due for broadcast in August of 2021.
Other key areas of activity include developing the
licensing of our Songs into the ever expanding fitness,
gaming, dating and photo messaging services, an
area which is virtually devoid of any earnings from
music usage.
Synch revenues are growing significantly
Synchronisation income grew significantly in the
second half of the year, following the appointment
of Ted and Amy, and the addition of former
Universal / Virgin’s Head of Digital Tony Barnes, former
BMG’s Head of Sync Tom Stingemore in the UK, former
BMG’s Global Head of Sync Patrick Joest in Europe,
former Universal’s Sync Director Joe Maggini, and
Nick Jarjour both in LA, and increased to represent
15% of net income during the year (year ended
31 March 2020: 9%).
We are affecting the success of our Catalogue by
providing knowledge and bandwidth thereby making
it easier to place them.
In the last 6 months we have created our own
Synch platform via the DISCO server used by Music
Supervisors worldwide. This contains audio of all
our Songs, the shares we own and tagging useful
information to help guide the market to our Songs for
easy usage. The department is now fully functioning
and actively manages dozens of Synch opportunities
per day, as well as traditional incoming requests, with
a complete overview of every appropriate Song we
can put forward from both within our administration
and those Songs administrated externally. This has
not only increased Synch traffic but also improved
our ability to support all our partners with a deeper
understanding of the songs they represent for us. This
increases the likelihood of getting placements and
revenue. Traditional Administrators are over burdened
with millions of songs.
• The 30th Anniversary of Nirvana’s Nevermind and
Smells Like Teen Spirit in September, arguably the
most important album and single of the 1990’s;
This system has also been adopted by our entire team
creating a fully functioning Synch operation open
around the clock.
Hipgnosis Songs Fund Limited Annual Report 2021
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Strategic Report Strategic Report / Investment Adviser’s Report
Triller, Peloton and Roblox. We expect the latter to be
properly licensed this year.
• Our strategy to access all portals to see deeper levels
of data at registration level has already led us to
discover missing PRO income from BMI in relation to
the Catalogues of Rodney Jerkins, The-Dream and
Emile Haynie in almost all markets since 31 March
2019. This is now being rectified.
• We have engaged with a new AI technology partner
to conduct a global search looking for missing ISWCs
and broken registrations globally at PRO level. The
system provides a complete picture of the data
across 200 outside partners who collect revenue
on the Company’s behalf. This will enable us to
target where we should claim missing revenue and
conduct deeper audits.
The platform is expected to shorten payment times
and increase accuracy as we identify data breaks in
real time. Our initial trial catalogues have identified
62% of Songs that had data issues and we estimate
a significant uplift on the writer share of performance
income element, projected to be as much as 40%
in some cases, which will be realised by correcting
the mistakes in registrations inherited from previous
owners. Every issue fixed is 100% incremental earnings
upside for the Company.
• The NFT space is also a focus and we aim to ensure
our artists are collaborating with some of the leading
creators in the crypto art space. This includes not
only the potentially lucrative NFT landscape but also
increased activity in the production and release of
personalised digitally focused merchandise and
collectibles utilising our copyrights which will lead to
significant upside in revenues.
The revenue from these technology initiatives
are not factored in our valuations by the Portfolio
Independent Valuer. We believe TikTok alone is
already 6.5% of Sony Music’s revenues and we expect
that in due course these emerging digital platforms
such as TikTok, Triller, Roblox, Peloton and others
will generate as much as 15% of our revenues and
crucially are not a part of the data on which we buy
our Catalogues.
Growing synchronisation income in a year when
advertising was down and film and TV productions
were halted is a testament to the work performed by
the new Song Management team and highlights the
substantial opportunity to further grow income from
our Catalogues which have often been undervalued,
neglected and allowed to languish by the major
administators.
Technology is key in Copyright Management
We continue to explore opportunities to maximise
revenues which include Song Management initiatives
to actively work our catalogues across TikTok, Triller,
Peloton, Roblox and other platforms that have the
consumption of music at the center of their use
and working with strategic technology partners to
optimise our copyright registrations, reverting
catalogues to HSG for the United States and our
preferred administrators for the ROW.
• Within the period, we launched our new internal
system to closely monitor the activity across all of the
Songs within the Hipgnosis Catalogue. This is bespoke
technology that enables us to track activity across
various DSPs and social networks. An important
recent example being Love Shack by the B-52’s
and Britney Spears’ Toxic. The unique ‘mash-up’ has
now exceeded 1 billion video creations across all
platforms. We were able to reproduce the Song and
we own 75% of the mashup on the Publishing side
and 100% on the Master side. It will be released this
summer on all DSPs and into the Synch community.
We were able to see it, remake it and own it.
• We have adopted AI tagging that ensures we are
able to very quickly match advertising and agency
briefs with the closest matches within our Catalogue.
We are then able to propose alternative or more
contemporary versions of Songs to meet the briefs
that we receive or the proposed activity that we
are planning. This is a system that operates within
seconds and majorly increases our response times
across the industry.
• We are also searching for missing YouTube revenues
with an external technology service provider who,
in addition to Hipgnosis, represents 2 of the 3 major
publishers. Initial reports are showing up to 38% of
plays have been missed in the reporting and we
look forward to seeing the translation of this into our
revenues in the next fiscal period. We can use this
also to locate and claim our copyrighted material
on newer and emerging platforms including TikTok,
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Annual Report 2021 Hipgnosis Songs Fund Limited
Song Administration
The newly formed Hipgnosis Songs Group (HSG),
formerly Big Deal Music, was acquired in September
2020 and has been an important strategic acquisition
for us. It has allowed the Fund to benefit from its own
administration in the US leading to significant savings
as highlighted above and gives us controlled and
limited exposure to Song Creation which will lead to
the Catalogues of tomorrow.
HSG, under the direction of Big Deal Music Founder
Kenny MacPherson, has been designed to consolidate,
enhance and leverage the value of Fund acquisitions
in the US providing the necessary efficiency to
maximize return and profitability. The core infrastructure
is provided by the Group’s fully integrated operational
pillar of Song Administration, while Song Creation
serves as a contemporary industry complement and
a magnet for current marketplace talent.
Song Administration in the US allows us to leverage
our incomparable catalogue directly with Apple,
Spotify, Peloton, TikTok, Triller and all other large users
of our Copyrights.
We continue to move Catalogues into our own
Administration via Hipgnosis Songs Group for the US
at a rapid pace. Recently we welcomed Neil Young,
Journey (Neal Schon and Jonathan Cain), Rick James,
Chrissie Hynde, The Chainsmokers, Rodney Jerkins,
LA Reid, Al Jackson Jr, Benny Blanco and David A.
Stewart amongst many others to the fold. To date,
we have moved 13 Catalogues to HSG, with a further
20 Catalogues expected by the end of 2021. A further
26 Catalogues have been moved to our Preferred
Portfolio Administrator outside of the US. To date,
we have seen an overall 7% increase by bringing
efficiencies in collection from the previous legacy
administration contracts and moving over to our
Preferred Portfolio Administrators.
Song Creation
Song Creation additionally provides ever
dynamic catalogue growth via a stable of active,
front-line writers and artists, procured, nurtured and
directed by a best-in-class executive team led by
Casey Robison, Jamie Cerreta (both LA), Dave Ayers
(NY) and Pete Robinson (Nashville). Building future
assets at minimal cost, providing contemporary
context, contacts and synergistic opportunities
throughout the industry is the strength and ongoing
mission of the Song Creation team.
As of May 2021, HSG was Number 8 in the Billboard
Top 10 publisher chart with 1.05% market share, scoring
number 1s in Dance and Country (Silk City’s Electricity
written by the Picard Brothers in Dance; Alison Veltz’s
Somebody Like That for Tenille Arts and Steph Jones’ Hole
In the Bottle for Kelsea Ballerini on the Country side).
Since the September acquisition, HSG has notched
2 UK Top 10 singles with Justin Bieber’s Anyone and
Miley Cyrus’ featuring Dua Lipa’s Prisoner and a
UK Top 5 album with St. Vincent’s Daddy’s Home.
HSG has also achieved 5 more Top 10s across the
various Billboard charts, seen breakthrough jazz
superstar Kamasi Washington land Grammy and
Emmy nominations as well as a 6-figure pan-European
ad campaign with Cupra Motorcars, while in just the
past few weeks 3-time Grammy winner St. Vincent
launched her latest album with a Saturday Night
Live performance, and licensing darling Amber Mark
premiered Competition, the first single from her much
anticipated debut LP, on BBC Radio One. Additional
licensing highlights range from Academy Award
Best Picture nominee Promising Young Woman and
the celebrated Insecure for HBO and Bridgerton for
Netflix, to ad campaigns for Apple, Pepsi, Samsung,
Corona, Starbucks, Peloton and H&M.
We have also enjoyed considerable success from
Song Management initiatives, examples of which you
can see within the case studies throughout this report.
Hipgnosis Songs Fund Limited Annual Report 2021
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Strategic Report Strategic Report / Investment Adviser’s Report
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.
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.
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.
16
Annual Report 2021 Hipgnosis Songs Fund Limited
Rodney “Darkchild” Jerkins
Grammy Award winning super-
producer and a formidable musical
force, with a trail of outstanding
accomplishments. He has added to
the hit lists of music talents such as
Whitney Houston, George Michael,
Mariah Carey, Sam Smith, Mary
J. Blige, Beyonce, Rihanna, Justin
Bieber, Ariana Grande, Lady Gaga,
Madonna, Jennifer Lopez, Jay Z,
Notorious B.I.G., Nas, Drake, Big
Sean, Toni Braxton, Britney Spears,
Cher, Destiny's Child, TLC, N'Sync,
Backstreet Boys, The Spice Girls,
Maroon 5 and countless others.
These artists know that having the
"Darkchild" touch on their song puts
it on the fast track toward reaching
Number One.
Bill Leibowitz
Attorney, founding partner of
Roberts, Leibowitz and Hafitz PLLC.
Former COO and General Counsel
for The Sanctuary Group (and
continued in this capacity after The
Sanctuary Group was acquired
by Universal Music Group until
Bill returned to private practice).
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.
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 Stafani and
Ariana Grande.
Poo Bear
Multi-platinum producer, singer and
Songwriter aficionado, Jason Boyd,
better known to the masses as Poo
Bear, is a five-time Grammy winning
musical force of nature having sold
over 500 million records worldwide.
Best known for his unforgettable
collaborations with Ed Sheeran and
Justin Bieber.
Ian Montone
Attorney and founder of Monotone
Management. Manager of Jack
White, The White Stripes, Vampire
Weekend, The Shins and Danger
Mouse.
Main image credit: Jill Furmanovsky
Hipgnosis Songs Fund Limited Annual Report 2021
17
Strategic Report Strategic Report / Case Study
The Anatomy
of a Song
David A. Stewart’s
Sweet Dreams (Are Made of This)
• This is an example of a Classic Song, whose
enduring popularity is a beneficiary of the
explosive growth in Streaming.
• David A. Stewart, along with Annie Lennox
formed the iconic duo Eurythmics.
• Sweet Dreams (Are Made of This), is one
of Eurythmics’ most recognizable songs, a
commercial success and still hugely popular
on both sides of the Atlantic. It has been
officially covered and sampled on 182 different
recordings globally.
• We show the income by type over the past
decade.
• The appeal and simplicity of the lyrics and music
keep the Song on regular radio rotation all over
the world, which gives it very stable Performance
income.
• Streaming growth has risen exponentially over
the past few years and Sweet Dreams (Are
Made of This) is a good example. The increase
from streaming in 2020 is the greatest in any time
over the past four years.
• Nearly 40 years after release, this is a Song that
also continues to Synch well. Between 2014 and
2017 there were several material Synch deals.
Larger deals included adverts for Samsung and
Realtor.com, a US Real Estate website. A haunting
orchestral/choir rendition was created for Sony
Playstation for the launch of the game The King
on PS4.
• There are now more Synch opportunities as
more critically acclaimed high quality film and
television content is being approved than ever
before. Sweet Dreams (Are Made Of This) has
been included in the 80s hits soundtrack of the
television drama It’s A Sin by Channel 4. Sizeable
future plans are coming together including
a placement in the forthcoming Cinderella
remake with Sony Pictures.
• We are working closely with the record company
to celebrate the 40th anniversary of each album
in the Eurythmics Catalogue, starting with their
debut album In The Garden in October of this
year followed by the Sweet Dreams (Are Made
of This) album next year, with great activity
expected throughout the decade.
18
Annual Report 2021 Hipgnosis Songs Fund Limited
400
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KEY
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4 3 + Streaming
5 Total income ex Synch
(i.e. Streaming, Mechanical,
Performance, Other)
1
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2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020>
Source: Hipgnosis Songs Fund: Royalty statements from a Major Publisher
1000
Sweet Dreams (Are Made
of This): Revenue
Split by Income Type
5
4
3
2
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KEY
1 Synch
2 Performance
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Source: Hipgnosis Songs Fund: Royalty statements from a Major Publisher
1000Strategic Report
Strategic Report / Investment Adviser’s Report
Chart and Synch Success
We continue to focus on delivering significant value-
adds through Song Management. Below are the key
Synchs and chart successes from the last year:
Film
• There’s Nothing Holdin’ Me Back by Shawn Mendes,
co-written by Teddy Geiger and Scott Harris, was
placed in the forthcoming Sing 2 movie, the trailer of
which was released in June 2021.
• The new Disney Movie Cruella features Call Me Cruella
performed by Florence + The Machine, and written by
Steph Jones.
• Eurythmics song Sweet Dreams (Are Made Of This),
Chic’s Good Times and Beyonce’s Single Ladies (Put
A Ring On It) have all been placed in Sony Pictures’
forthcoming remake of Cinderella.
• Epilogue, written by Ólafur Arnalds, soundtracks the
trailer to Nomadland, starring Frances McDormand.
The film won the best picture (drama) at the Golden
Globe Awards, The Oscars and the EE British Academy
Film Awards.
• We Are Young, by fun., written by Jack Antonoff, Nate
Ruess and Jeff Bhasker, featured in The Boss Baby 2.
• Coming 2 America, starring Eddie Murphy featured
Mark Ronson’s Feel Right and Sister’s Sledges’s We
Are Family, co-written by Bernard Edwards and Nile
Rodgers.
• George Thorogood’s Bad To Bone has been re-worked
for the trailer of forthcoming movie Gunpowder
Milkshake, which launches on Netflix in July 2021.
• Booker T & The MG’s Time Is Tight, written by Al Jackson Jr.,
features in the forthcoming movie Apollo 10½.
• Will Ferrell & My Marianne’s Husavik, from the Eurovision
movie, written by Savan Kotecha was nominated for an
Oscar, Critics’ Choice Award and won the Hollywood
Critics Association Awards for Best Original Song.
TV/Streaming
• Eurythmics’ Sweet Dreams (Are Made Of This), written
by David A. Stewart, features in both the trailer and the
first episode of It’s A Sin on Channel 4 and Amazon Prime.
It also appears in the trailer supporting For All Mankind
Season 2 on Apple TV.
• Songs written by Nile Rodgers & Bernard Edwards continue
to be popular. Everybody Dance, written by provided
the soundtrack to Public Health England’s NHS x TikTok
campaign; We Are Family was used at the US Presidential
inauguration; Nile Rodgers & CHIC performed Good
Times and Everybody Dance on BBC 1 television on New
Year’s Eve.
• The Investment Adviser with Apple Music and Nile Rodgers
created Deep Hidden Meaning, the only Radio show
completely focused on Songwriters. The reviews and
ratings thus far have been exceptional. There have been
11 episodes so far, profiling numerous Songwriters including
Andrew Watt, Benny Blanco, David A. Stewart, Fraser T
Smith, Jack Antonoff, Julian Bunetta, Lindsey Buckingham,
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Annual Report 2021 Hipgnosis Songs Fund Limited
Rodney Jerkins, RZA, Starrah, Teddy Geiger, Timbaland,
Tricky Stewart and many more.
• Booker T And The MG’s Green Onions, written by Al Jackson
Jr. and Fleetwood Mac’s The Chain, written by Lindsey
Buckingham both featured in 9-1-1 Lonestar on Fox TV.
• The Crown featured four of our songs including Blondie’s
Call Me, Diana Ross’s Upside Down, Eurythmics’ Love Is
A Stranger and 10cc’s I’m Not In Love.
• Bridgerton featured 2 of our songs performed by
the Vitamin String Quartet: Girls Like You – originally
performed by Maroon 5 and written by Starrah and
In My Blood – originally performed by Shawn Mendes
and co-written by Teddy Geiger and Scott Harris.
• Neil Young’s Old Man will feature in CBS, reboot of The
Equaliser and Harvest Moon features in the new season
of Netflix’s Sex Education comedy.
• We have several songs in the new P!nk documentary
All I Know So Far on Amazon Prime.
• Eurythmics’ Sisters Are Doin’ It For Themselves appears in
Aretha Franklin’s Genius documentary.
• David Guetta and Sia’s Titanium, written by Giorgio
Tuinfort, was performed at the Eurovision Song Contest.
• Phoebe Bridgers’ I Know The End, written by Christian Lee
Hutson, appeared in Mare of Easttown.
• Someone To You performed by Banners and written by
Sam Hollander was used in a TV trailer for Love, Victor
in May.
• Nelly performed several songs from our catalogue on
Dick Clark’s New Year’s Rockin’ Eve, the biggest US New
Year’s Eve Countdown show on television. Hot In Herre
is also the themed soundtrack to a major new television
advertisement for Lay’s Potato Chips i.e. crisps in the US.
• Barry Manilow’s Can’t Smile Without You as well as
Blondie’s Call Me appear in an American sitcom TV series
Call me Kat, which premiered on Fox in January 2021.
Advertising
• Swarovski’s “Ignite Your Dreams” global campaign
features FKA Twigs Two Weeks, written by Emile Haynie.
• Anoro’s campaign features Fleetwood Mac Go Your
Own Way, written by Lindsey Buckingham.
• Money Supermarket are using MC Hammer U Can’t
Touch This, written by Rick James. It also features in the
Go Compare ad.
• Beyoncé’s Countdown, written by The-Dream, is being
used by Peloton as part of their broad multi-year
content deal with Beyoncé.
• Kaiser Chiefs’ I Predict A Riot appears in the new
Unibet campaign.
• Pusha T’s Burial, written by Pusha T and Skrillex, continues
to feature in the Arby’s TV campaign in the US.
• The Spencer Davis Group’s Gimme Some Lovin’,
written by Steve Winwood features in the Premier Inn’s
campaign.
• Teddy Bears’ Hey Boy (Taste The Feeling), written by
Klas Ahlund, appears in the new KFC commercial.
• Meghan Trainor’s I Love Me, written by
LunchMoney Lewis, appears in the new Volkswagen
campaign in Italy.
• Silk City’s Electricity featuring Dua Lipa, written
by Mark Ronson, appears in the Dua Lipa Puma
Campaign.
• Rejjie Snow’s Relax, written by Dee Lilly, appears in the
current Apple iPhone 12 campaign.
• Rihanna’s Umbrella from our The-Dream and Tricky
Stewart Catalogues has been placed in a new TV
campaign for Nutella, “Nutella ella ella”.
• Journey’s Don’t Stop Believin’ has been placed in
a new Toyota commercial as well as local ads for
telecommunications companies in Mexico and
South America.
• The Blondie single Heart Of Glass, which was a
Number 1 single on both sides of the Atlantic, has
been secured as the soundtrack to the new Nissan
“Rogue” advert, their compact crossover SUV.
Games
• We have placed more than 110 Songs from our
Portfolio in video games since January.
• Chic’s A Warm Summer Night is now in Grand Theft Auto
V Online.
• Lorde’s Supercut, written by Jack Antonoff, will feature
in Electronic Arts FIFA ’22 for all consoles and platforms.
• Lizzo’s Tempo, written by Toby Wincorn, is featured in
Call of Duty ‘Cold War’.
• Hipgnosis now exclusively represents the original music
in EA Games.
• Fleetwood Mac’s The Chain, written by Lindsey
Buckingham, features in the game trailer for It Takes Two
on Sony’s Playstation 5.
Chart and Songwriter success
• Mariah Carey’s All I Want For Christmas Is You made it
to the Number 1 slot in the 2020 UK Official Charts as
well as the US Billboard Hot 100, for the first time in its
26-year history. It also became the global Number 1
streaming song throughout the festive period setting
new consumption records on an almost daily basis.
• Journey’s Don’t Stop Believin’ covered/parodied
by LadBaby was the highly coveted UK Christmas
Number 1 song. This song had never been in the top
spot since its release in 1981. This resulted in Hipgnosis
having interests in both the Number 1 and 2 UK
Christmas 2020 singles.
• Michael Bublé’s Christmas, through our Bob Rock
catalogue, was the Number 1 album globally on
streaming services in 2020 and also made Number 1
on the Official UK Album Chart and Number 4 on the
Billboard Top 200.
• Miley Cyrus' album Plastic Hearts surpassed more
than one billion streams and includes the Top 10
single Prisoner, written by Stefan Johnson. It has been
streamed 330 million times globally on Spotify.
• Heart of Glass, written by Debbie Harry & Chris Stein,
has now exceeded 150 million streams in Spotify.
• New Rules by Dua Lipa, and written by Ian Kirkpatrick
and Caroline Ailin, has now reached 1.54 billion
streams on Spotify. This makes it the third most streamed
solo track by a female artist in the platform’s history.
• Top Dollar calculated the earnings of the 100 most-
played songs on the service and the top-grossing
song is Ed Sheeran’s Shape of You, written by Johnny
McDaid.
• Lean On by Major Lazer, and written by Martin Bresso,
has surpassed 3 billion streams on YouTube and is
approaching 1.5 billion streams on Spotify.
• Rick James’s In My House was re-imagined by the
UK’s premier Drag Queen, Jodie Harsh, in her song
My House earlier this year, showing that the old are
managing to see new life entirely.
• Justin Bieber’s Anyone, written by Stefan Johnson,
which was released on 1 January 2021, has been
streamed over 307 million times and was a Top 5 single
all over the world. Stefan Johnson has also written
an additional three songs on Justin Bieber’s Justice
album, which was Number 1 all over the world.
• Electric by Katy Perry, Selfish by Nick Jonas featuring
The Jonas Brothers as well as 6 songs on the new Julia
Michaels’ album are also written by Stefan Johnson.
• Erica Banks’ Buss It featuring an interpolation of
Nelly’s Hot In Herre was certified Gold in the US. Erica
Banks’s Buss It which samples Nelly’s Hot In Herre was
a breakout hit on TikTok and was Number 2 on the
Spotify Viral chart. The chart which is heavily driven by
TikTok also features Blondie’s Heart of Glass and Nelly
Furtado’s Promiscuous from our Timbaland catalogue.
• Telepatia by Kali Uchis, written by Albert Melendez
reached Number 2 in Spotify’s Global Top 50.
It is currently on the Billboard Hot 100 for its 18th
consecutive week, making it the longest-running
Latin solo Song of the decade.
• A viral mash up of Britney Spears’s Toxic and the
B-52’s Love Shack has achieved huge support on
TikTok. Hipgnosis was able to harness its ownership
in both songs and very quickly provided sign off on
a commercial release to maximise its potential for
success.
• Hipgnosis’ Songwriters were recognised at the last
Grammy awards. Andrew Watt won the coveted
“Producer of the Year”, Poo Bear’s song 10 000 hours
by Dan + Shay and Justin Bieber won “Best Country
Duo Performance”, Kanye West’s Jesus is King won
“Best Contemporary Christian album” and involved
work by Pusha T and Timbaland. The-Dream and
Starrah won “Best Rap Song” for Megan The Stallion
featuring Beyoncé with Savage. Andrew Watt, Stefan
Johnson, Chelcee Grimes and Iain Kirkpatrick were
recognised for their contribution to Dua Lipa’s album
Future Nostalgia, which won “Best Pop Vocal album”.
Hipgnosis Songs Fund Limited Annual Report 2021
21
Strategic Report Strategic Report / Investment Adviser’s Report
• Beyoncé became the most awarded woman in the
history of the Grammys, with 28 awards. A recent
newspaper featured her 30 greatest songs, with
Hipgnosis owning an interest in half of these through
the Catalogues of: The-Dream (6), Sean Garrett (2),
Jeff Bhasker (2), Rodney Jerkins, Juber, Jonny Coffer,
Emile Haynie and Tricky Stewart. In total, Hipgnosis owns
an interest in 66 songs by Beyoncé/Destiny’s Child.
• Baila Conmigo by Selena Gomez, written by Albert
Melendez reached Number 1 in Billboard’s Latin
Rhythm Airplay and Latin Pop Airplay.
• Chic now have 3.5 million monthly listeners on Spotify
up from 1.8 million when we acquired an interest
in Bernard Edward’s Catalogue. Le Freak is now
achieving over 100,000 streams per week with nearly
1 million streams per week across all Bernard Edward’s
songs on Apple Music.
• Cedric Gervais x Franklin featuring Nile Rodgers’s
cover of Everybody Dance is showing explosive
growth on streaming and on the radio and looks set to
be a hit all over again 44 years later.
• Eurythmics now have 8.5 million monthly listeners on
Spotify, almost double when we acquired David A.
Stewart’s Catalogue. They also achieve over 1 million
streams per week across the Catalogue on Apple
Music. Sweet Dreams (Are Made Of This) is streamed
over quarter of a million times on Apple Music alone.
• Feels by Jax Jones has just been released using
a sample of Can’t Stop, written by LA Reid.
• Seeing Green by Nicki Minaj samples Queen Bitch,
written by Carlos Broady and is currently the Number 1
trending song on Triller.
• Problemas by Paris Boy interpolates Umbrella, written
by Tricky Stewart and The-Dream, which has now
exceeded 120 million streams on all platforms online,
including 72 million on Spotify.
• F*** You Goodbye, by The Kid Laroi featuring Machine
Gun Kelly, which interpolates All The Small Things,
written by Tom DeLonge is almost at 100 million
streams on Spotify.
• 21 Savage’s Many Men contains an interpolation
of Many Men (Wish Death), written by 50 Cent.
• Pop Smoke’s Hotel Lobby also contains an
interpolation of Many Men (Wish Death), written by
50 Cent.
• John Legend’s Remember Us interpolates Still In Love
With You written by Al Jackson Jnr.
• 1 Step Forward, 3 Steps Back by Olivia Rodrigo,
interpolates New Year’s Day, written by Jack Antonoff
and features on her album Sour which is currently the
Number 1 album globally.
• Our Patience recorded master with Chris Cornell went
to Number 1 at Rock Radio in the US.
• Jason Aldean, produced by Michael Knox, enjoyed
another Number 1 with Got What I Got with his Albums
They Don’t Know and Rearview Town both going Gold
in the US.
• Mark Ronson’s Uptown Funk has now surpassed
4 billion views on YouTube.
• The Pop duo Aly & AJ’s Potential Breakup Song,
was the Number One trending song on TikTok for two
consecutive weeks.
22
Annual Report 2021 Hipgnosis Songs Fund Limited
Our Portfolio
Current Portfolio
During the year, the Company acquired 84 new
Catalogues, for an aggregate purchase price of
$1,089 million, taking the Portfolio as at 31 March 2021
to 64,098 Songs across 138 Catalogues. Hipgnosis now
owns 3,738 Songs that have held Number 1 positions
in global charts, 13,968 Songs that have held Top 10
positions in global charts and 151 Grammy award
winning Songs. The Portfolio has been independently
valued at $2.21 billion, reflecting a multiple of 17.96x
historical annual net publisher share income, compared
to the blended acquisition multiple of 15.32x. Following
these acquisitions, the Company’s Net Debt at 31 March
2021 was $464.6 million (31 March 2020: $74.0 million).
The acquisitions include some of the most culturally
important Catalogues of all time, including Neil Young,
Steve Winwood, Lindsey Buckingham / Fleetwood Mac,
Barry Manilow, Shakira, Chrissie Hynde / The Pretenders,
Debbie Harry & Chris Stein / Blondie, Rick James, Carole
Bayer Sager, The RZA / Wu Tang Clan, 50 Cent, Chris
Cornell / Soundgarden, B-52’s, George Benson and
Walter Afanasieff.
Hipgnosis only acquires Catalogues focused around
culturally important Songs. These Songs have a long
lasting appeal that ensures they will produce reliable,
predictable and uncorrelated income long into the
future.
Songs performed by globally successful and culturally important artists include:
10,000 Maniacs, 10cc, 2Pac, 5 Seconds of Summer, 21 Savage, 50 Cent, 8 Mile, A$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 2021
23
Strategic Report Strategic Report / Investment Adviser’s Report
Portfolio as at 31 March 2021
Catalogue
The-Dream
Poo Bear
Bernard Edwards
TMS
Tricky Stewart
Giorgio Tuinfort
Rainbow
Itaal Shur
Rico Love
Sean Garrett
Johnta Austin
Sam Hollander
Ari Levine
Teddy Geiger
Starrah
Dave Stewart
Al Jackson Jr
Jamie Scott
Michael Knox
Brian Kennedy
John Bellion
Lyric Catalogue
Neal Schon
Jason Ingram
Eric Bellinger
Andy Marvel
Benny Blanco
The Chainsmokers
Timbaland
10cc
Journey (Publishing)
John Newman
Jaron Boyer
Arthouse
Fraser T Smith
Jack Antonoff
Ammar Malik
Ed Drewett
Kaiser Chiefs
Jeff Bhasker
Johnny McDaid
Emile Haynie
Brendan O’Brien
Savan Kotecha
Tom Delonge
Journey (Masters)
Rebel One
Scott Harris
Brian Higgins
Acquisition
Date
Interest
Ownership
Total
Songs
Catalogue
Acquisition
Date
Interest
Ownership
Total
Songs
13 J u l 2018
21 Nov 2018
28 Nov 2018
17 Dec 2018
17 Dec 2018
21 Dec 2018
15 Jan 2019
31 Jan 2019
26 Feb 2019
21 Mar 2019
22 Mar 2019
31 Mar 2019
31 Mar 2019
12 Apr 2019
25 Apr 2019
7 May 2019
8 May 2019
15 May 2019
28 May 2019
14 Jun 2019
14 Jun 2019
17 Jun 2019
20 Jun 2019
10 J u l 2019
12 J u l 2019
23 J u l 2019
2 Aug 2019
22 Aug 2019
10 Oct 2019
17 Oct 2019
21 Oct 2019
5 Nov 2019
5 Nov 2019
15 Nov 2019
5 Dec 2019
5 Dec 2019
5 Dec 2019
9 Dec 2019
9 Dec 2019
11 Dec 2019
11 Dec 2019
13 Dec 2019
13 Dec 2019
18 Dec 2019
23 Dec 2019
10 Jan 2020
10 Jan 2020
10 Jan 2020
22 Jan 2020
75%
100%
38%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
99%
100%
100%
100%
100%
100%
100%
100%
100%
100%
65%
100%
100%
100%
302
214
290
121
121
182
15
209
245
588
249
499
76
6
73
1,068
185
144
110
101
180
571
357
462
242
740
93
42
108
29
103
47
109
44
298
188
90
109
48
436
164
122
1,855
49
157
389
157
129
362
10 Feb 2020
Gregg Wells
28 Feb 2020
Jonathan Cain
28 Feb 2020
Jonny Coffer
28 Feb 2020
Mark Ronson
4 Mar 2020
Richie Sambora
16 J u l 2020
Rodney Jerkins
16 J u l 2020
Barry Manilow
16 J u l 2020
RedOne
16 J u l 2020
Eliot Kennedy
27 J u l 2020
Closer (J King & I Slade)
24 J u l 2020
NO I.D.
24 J u l 2020
Pusha T
29 J u l 2020
Ian Kirkpatrick
30 J u l 2020
Blondie
10 Aug 2020
Chris Cornell
12 Aug 2020
Robert Diggs “RZA”
13 Aug 2020
Ivor Raymonde
3 Sep 2020
Nikki Sixx
10 Sep 2020
Big Deal Music “BDM”
10 Sep 2020
Chrissie Hynde
17 Sep 2020
Steve Robson
18 Sep 2020
Rick James
23 Sep 2020
Kevin Godley
24 Sep 2020
Scott Cutler
30 Sep 2020
Nate Ruess
30 Sep 2020
LA Reid
30 Sep 2020
50 Cent
30 Sep 2020
Aristotracks
30 Sep 2020
B-52’s
30 Sep 2020
Bonnie McKee
30 Sep 2020
Brill Building
30 Sep 2020
Christina Perri
30 Sep 2020
Dierks Bentley
30 Sep 2020
Editors
30 Sep 2020
Eman
30 Sep 2020
Enrique Iglesias
30 Sep 2020
Evan Bogart
30 Sep 2020
George Benson
30 Sep 2020
George Thorogood
30 Sep 2020
Good Soldier
30 Sep 2020
Holy Ghost
30 Sep 2020
J-Kash
30 Sep 2020
John Rich
30 Sep 2020
Kojak
30 Sep 2020
Lateral
Lindsey Buckingham (Kobalt) 30 Sep 2020
30 Sep 2020
LunchMoney Lewis
30 Sep 2020
Lyrica Anderson
30 Sep 2020
Madcon
11
100%
216
100%
85
100%
315
100%
186
100%
982
100%
917
100%
334
100%
217
100%
2
100%
273
100%
238
100%
137
100%
197
100%
241
100%
814
50%
505
100%
305
100%
100% 4,400
162
100%
1,034
100%
97
50%
358
100%
111
100%
59
100%
162
100%
388
100%
152
100%
96
100%
78
100%
234
100%
68
100%
113
100%
64
100%
97
100%
157
100%
229
100%
107
100%
40
100%
760
100%
62
100%
90
100%
7
100%
148
100%
248
100%
174
100%
116
100%
96
100%
173
100%
24
Annual Report 2021 Hipgnosis Songs Fund Limited
Catalogue
Mark Batson
Mobens
Nelly (Kobalt)
Nettwerk
PRMD
Rob Hatch
Rock Mafia
Savan Kotecha (Kobalt)
SK Music
Skrillex
Stereoscope
Steve Winwood
Tequila
Third Day
Walter Afanasieff
Wayne Wilkins
Yaslina
Sacha Skarbek
Tricky Stewart (Masters)
Eric Stewart
Bob Rock
Caroline Ailin (“New Rules”)
Nelly
Lindsey Buckingham
Joel Little
Jimmy Iovine
Neil Young
Shakira
Brian Kennedy [Writer Sh.]
Andrew Watt
Christian Karlsson
Carole Bayer Sager
Paul Barry
Espionage
Martin Bresso
Andy Wallace
David Sitek
Happy Perez
Total Songs
Acquisition
Date
30 Sep 2020
30 Sep 2020
30 Sep 2020
30 Sep 2020
30 Sep 2020
30 Sep 2020
30 Sep 2020
30 Sep 2020
30 Sep 2020
30 Sep 2020
30 Sep 2020
30 Sep 2020
30 Sep 2020
30 Sep 2020
30 Sep 2020
30 Sep 2020
30 Sep 2020
20 Nov 2020
27 Nov 2020
2 Dec 2020
4 Dec 2020
10 Dec 2020
15 Dec 2020
24 Dec 2020
24 Dec 2020
24 Dec 2020
31 Dec 2020
31 Dec 2020
31 Dec 2020
17 Feb 2021
2 Mar 2021
17 Mar 2021
18 Mar 2021
26 Mar 2021
31 Mar 2021
31 Mar 2021
31 Mar 2021
31 Mar 2021
Interest
Ownership
Total
Songs
100%
210
100% 1,034
100%
145
100% 25,339
335
100%
167
100%
393
100%
354
100%
23
100%
153
100%
456
100%
215
100%
1
100%
212
100%
213
100%
113
100%
73
100%
303
100%
95
100%
255
100%
43
100%
2
100%
240
100%
161
100%
178
100%
259
100%
590
50%
145
100%
139
100%
105
100%
255
100%
983
100%
510
100%
151
100%
51
100%
1,242
100%
230
100%
192
100%
64,098
Hipgnosis Songs Fund Limited Annual Report 2021
25
Strategic Report Strategic Report / Case Study
Turning Classics into Hits (All Over Again)
Blondie: Song Management reaching a new generation
• September 2020 saw the iHeartRadio Music Festival
take place as a two-day virtual mega-concert, where
Miley Cyrus emulated Debbie Harry's appearance
and covered Blondie’s 1979 hit Heart Of Glass.
• The energy around the Song ensured that Heart Of
Glass was added to Miley’s Plastic Hearts album
release in November 2020. Miley's version has now
been streamed over 120 million times.
• We reacted to this moment by introducing the
managers of both artists to each other and created
an opportunity for them and encouraged them to
start collaborating.
• Blondie’s original recording of Heart Of Glass was
being streamed at a steady 0.7 million streams per
week (in the US alone) before Miley’s version was
released.
• We worked with Blondie Management to introduce
Blondie to TikTok and quickly generated content
that merged the two songs to represent both the
classic and the new interpretation of the Song.
Hipgnosis benefits from all versions.
• The key was not to get Blondie and Debbie involved
in any overly juvenile games, but instead to post
the very best rock ‘n’ roll footage of the band
at their most exciting. We also compiled classic
footage of Debbie responding to other stories and
posts. The piece de resistance was a mocked up
photo of 1979-era Debbie with 2020-Miley having
the time of their lives!
• After the release of the cover Song, Blondie’s version
saw an immediate 78% uptick in weekly streaming.
• 37 weeks later, the Blondie version is still streaming
nearly 1 million streams a week, an over 40%
increase on the pre-cover era. It is also showing
a permanent uplift in streams post-campaign.
• Other recent examples of revenue uplift from
covers of our Songs are: Shallow, originally
performed by Lady Gaga and co-written by Mark
Ronson and covered by Country music star, Garth
Brooks; Higher Love by Steve Winwood, has been
remixed by Kygo using unreleased Whitney Houston
vocals and used at the Biden/Harris US election
victory speeches in November 2020. Following this,
the original version has seen a dramatic uplift.
• The additional content helped fuel the interest
Heart of Glass: US Streaming Figures
and appetite in the Song, and the streams took off
exponentially.
KEY
n Miley Cyrus
n Blondie
5
Heart of Glass: US Streaming Figures
)
I
N
O
L
L
M
I
(
I
G
N
M
A
E
R
T
S
S
U
4
3
2
1
0
SEP 20
OCT 20
NOV 20
DEC 20
JAN 21
FEB 21
MAR 21
APR 21
MAY 21
JUN 21
Source: MRC Data
26
Annual Report 2021 Hipgnosis Songs Fund Limited
150m+
Streams of both the
classic and
contemporary versions
Cover included in
Miley Cyrus’
Plastic Hearts
album released in
November 2020
“Artist of the week”
Blondie in their debut
on TikTok in
November 2020
27
Strategic Report Strategic Report / Investment Adviser’s Report
Financial Review
Functional currency
The Company and a number of its subsidiaries changed
their functional and presentation currency from Sterling
to Dollars with effect from 1 October 2020. This was
required under IFRS, as there has been a fundamental
shift in the primary economic environment in which
the Company operates due to a significant increase
in the proportion of transactions denominated in
Dollars. The Kobalt Music Copyrights Sarl and
Big Deal Music Group acquisitions, which occurred on
30 September 2020 and 10 September 2020 respectively,
and the restructuring of the debt facility from
Sterling to Dollars, have significantly increased the
proportion of catalogues, revenues and transactions
denominated in Dollars. Further disclosure, including
the methodology applied to effect this change,
is seen on page 134. The Company will continue to pay
any dividends in Pounds Sterling and its primary listing
will remain denominated in Sterling.
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 an Operative NAV
which adjusts the IFRS NAV to reflect the fair value
of the Company’s Catalogues as determined by the
Portfolio Independent Valuer.
The Board considers that the most relevant NAV for
Shareholders is the ‘Operative NAV’, which reflects the
fair value of the Company's Catalogues as valued by
the Portfolio Independent Valuer.
The Operative NAV per Share increased by 11.3%
to $1.6829 during the year (31 March 2020: $1.5114),
which, when including dividends paid, represents
a Total Operative Dollar NAV Return of 15.7%.
This brings Total $ NAV Return to Shareholders to 40.7%
since Hipgnosis’ IPO on 11 July 2018.
The growth in Operative NAV over the period was
10.4%, like-for-like uplift in the fair value of Catalogues
driven by:
• an increase in the Portfolio Independent Valuer’s
expectations for future streaming income as
a result of:
− the acceleration of the change in behaviour to
consuming music by streaming. This has been
emphasised further still through the COVID-19
pandemic where streaming growth has exceeded
expectations;
− royalties starting to be paid by rapidly growing
Emerging Digital Platforms (EDPs) including TikTok
and Peloton (whilst royalties have been paid to
Administrators and therefore included in expected
future earnings, they are not expected to start
being received by Hipgnosis until later this year
and therefore not yet recognised in this period’s
revenue);
• growth in synchronisation income in excess of the
Portfolio Independent Valuer’s expectations despite
advertising budget cuts and the production of films
and television programs being at a standstill;
• a reduction in the discount rate used by the Portfolio
Independent Valuer to value the Company’s
Catalogues from 9% to 8.5%, as stated in the half year
results.
In line with 30 September 2020, the Catalogue Fair
Value as at 31 March 2021 has been calculated
using a discount rate of 8.5% (31 March 2020: 9.0%).
The reduction in the discount rate during the period
by the Portfolio Independent Valuer reflects the
decreased risk profile associated with music’s ever
more stable and predictable earnings as a result of
the increased consumption of music through paid
streaming. The Board and the Investment Adviser are
delighted that music valuers are starting to reflect the
true value of music as an asset class and expect this
trend to continue as streaming continues to grow and
music revenues continue to prove their stability.
The Operative NAV has been determined in
accordance with the Company's valuation policy
described in the Company’s Prospectus, including the
appointment of an independent third-party valuer.
28
Annual Report 2021 Hipgnosis Songs Fund Limited
Operative NAV Bridge
from 1 April 2020 to 31 March 2021:
Opening Operative NAV per Ordinary Share
1.5114
$
Increase in Fair Value of Catalogues
Net income
Dividends Paid
FX impact
Share issue costs*
0.1824
0.0993
(0.0485)
(0.0491)
(0.0127)
Closing Operative NAV per Ordinary Share
1.6829
* Share issue costs reflect the costs of share issuances during the period, which
were fully borne out of the gross proceeds of the respective issue.
The FX impact reflects the effect of movements in Dollars,
Sterling and Euro exchange rates throughout the year,
and includes a one-off adjustment as a result of
the Company changing its functional currency to Dollars.
Based on the Sterling to Dollar exchange rate of 1.3738
on 31 March 2021, the Operative NAV presented in
Sterling would be 122.5p per Share.
Revenue
Net revenue in the year increased substantially to
$138.4 million (year ended 31 March 2020: $83.3 million).
A breakdown of the income source of net revenue is
set out below:
Income Source
Mechanical / Master Royalties
Performance
Digital
Streaming
Synchronization
Other Income
Total
Net Revenue
($’000)
23,580
39,864
3,978
43,658
21,057
6,256
138,393
%
17%
29%
3%
32%
15%
4%
During the year, Hipgnosis, like all other companies,
has had to operate and adapt against the backdrop
of a challenge that the world has never before
experienced. The COVID-19 pandemic has had
a devastating impact on society and much of the
economy. We are grateful however that music, whilst
not wholly impervious to the virus, has proved to be
extremely resilient throughout this time demonstrating
the appeal of hit songs to millions of people even in
the most challenging times.
The COVID-19 pandemic has affected how people
consume music with an acceleration of the adoption
of streaming worldwide. During 2020, IFPI reported
18.5% growth in paid music subscriptions to 443 million
users globally. This has continued into 2021 with Spotify
reporting a year-on-year increase of 24% in Total
Monthly Active Users in the first quarter.
This is being seen clearly in our Catalogues’ royalties,
where streaming income has increased by 18.4% in
the second half of the year from the previous six-
month period across all Catalogues and 24.3% on our
steady state catalogues, where we would not expect
decay from peak earnings. This growth is without
any material revenue recognised from royalties paid
by TikTok and Peloton which, whilst having been
received by Administrators, is only expected to be
received by Hipgnosis from the next semi-annual
royalty statements in August and September 2021 and
beyond. This income has not been accrued as we are
not able to reliably estimate it as at 31 March 2021.
With global streaming revenues growing 19.9% during
the year, this highlights our steady state Catalogues
are outperforming the market growth of streaming.
We consider that this acceleration of changing
consumer behaviour will lead to higher streaming
earnings in future years than previously expected.
This expectation is supported by the Portfolio
Independent Valuer who has increased future
streaming income from our Catalogues in its DCF
(Discounted Cash Flow) valuation models.
As stated in the interim results, performance income
(which is predominantly received from shops, bars
and restaurants as well as Live music) has fallen across
the music industry in 2020 as a result of COVID-19
lockdowns globally, with PRS recently stating
performance revenues fell by 19.7% in 2020.
As a result of these industry wide trends, performance
income in our Catalogues’ royalty earnings income
decreased by 25.8% in the second half of the year from
the previous six-month period across all Catalogues,
and 21.3% on our steady state Catalogues where we
would not expect decay from peak earnings. The
Company expects a further fall in performance revenues
in the first half of the year ending 31 March 2022.
Overall, royalty statements and cash receipts in the
second half of the year are in line with the revenue
accruals recognised in the first half results and
revenues are marginally lower than the previous year.
Hipgnosis Songs Fund Limited Annual Report 2021
29
Strategic Report
Strategic Report / Investment Adviser’s Report
This is reflected in the Pro-Forma Annual Revenue
(PFAR) of the Catalogues owned on 31 March 2021,
which fell by 5.8% to $118.2 million for the 12 months
ending 30 June 2020 compared to $125.5 million for
the 2019 calendar year. Please see page 164 for the
methodology behind the PFAR calculation.
In addition, the Variance against Forecast (VAF)
which is the difference between the total of the
royalty statements received from each Catalogue
since acquisition, and the acquisition model forecast
over the same period up to 31 March 2021, was -2.8%,
reflecting the decrease in performance income during
COVID-19 which would not have been anticipated in
the original forecast acquisition model on Catalogues
as they were acquired before the COVID-19 pandemic.
However, the long-term changes to music consumption
during COVID-19, combined with proactive Song
Management, should accelerate future earnings
growth. This is also supported by the Portfolio
Independent Valuer who has increased future
projected earnings of our Catalogues in their DCF
valuation models, resulting in a 2.1% uplift in fair value
since 30 September 2020.
Accruals and Receivables
There is an inherent time lag with royalties between
the time a Song is performed and when the revenue is
received by the Copyright owner. The time lag can be
as much as 24 months on some international income.
Accrued income and Income receivable at 31 March
2021 was $82.1 million (on a gross basis), a breakdown
of which is set out below:
• A $8.7 million receivable, representing royalty
receipts expected in April and May for royalties
where statements were received in March.
Included in Trade and Other receivables is an
Accrued income balance of $73.4 million which is
made up of:
• $29.5 million for calendar Q1 2021 earnings where,
due to the time lag in royalty reporting, statements
are not expected to be received until calendar Q3
and Q4 2021;
• $16.9 million for calendar Q4 2020 earnings which
are not reported to the Company until calendar
Q2 2021;
30
Annual Report 2021 Hipgnosis Songs Fund Limited
What do we accrue for?
Hipgnosis accrues for the Processing period
USAGE
AD
SONG Synch
income collected
by Publisher /
Administrator
SONG Mechanical
and Performance
Revenues collected
and processed
by PRO
SONG Mechanical
and “Publisher share
of performance”
revenues collected
by Administrator
Publisher & PRO
“Writer share
of Performance”
revenues
“Writer share of
Performance”
revenues
Reported and paid
to SONG by PROs
and Administrators
Reported and paid
to SONG by PROs
DOMESTIC
PRO & PUBLISHING LAG
3 - 6 MONTHS
INTERNATIONAL
PRO LAG
6 -18 MONTHS
Period-End Reporting Date
Cash conversion cycle: How accruals and invoices are converted into cash
(using FY 2020 revenues, as at 31 March 2021, US$m)
Movement
Movement
X
F
s
e
s
a
e
e
R
l
l
a
u
r
c
c
A
i
s
e
c
o
v
n
I
w
e
N
International lag accrual
i
s
e
c
o
v
n
I
i
s
t
p
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c
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h
s
a
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$90
$80
$70
$60
$50
$40
$30
$20
$10
$0
(1)
(2)
(3)
(4)
(5)
(6)
(7)
1. Invoices and Accruals booked during FY20 to represent
5. FX – this is the impact of FX rate movements between
reporting and accruals at the time.
the time invoices were raised and paid.
2. Accrual Releases – where royalty statements have since
6. Cash Receipts – cash received as at 31 March 2021
been received, accruals were released in whole for those
statements.
3. New Invoices – as royalty statements were received,
accruals were released and replaced with invoices.
A $3.8 million net over-accrual (10% of FY20 accruals
booked or 3.5% of total revenue) was recognised during
FY21 relating to FY20 accruals. These are primarily due
to fixable issues on registrations of songs on account
switch-over.
4. This is the position before applying cash receipts,
showing the conversion of accruals to invoices. There
are a small amount of accruals left to be invoiced,
which are awaiting reporting.
relating to the FY20 financial year.
7. FY20 at 31 March 2021 – the remaining accrual
represents 1.7% of FY20 revenue and have been
assessed to be in line with current expectations
of future recoverability.
International lag accruals are expected within the next
12 months, due to the longer timeline on receipts.
Hipgnosis Songs Fund Limited Annual Report 2021
31
Strategic Report
Strategic Report / Investment Adviser’s Report
• $9.9 million relating to calendar Q2 2020 to Q3 2020
earnings for Catalogues where royalty reporting is
still in the process of being redirected/switched over
to Hipgnosis. These accruals are based on royalty
statements received with invoices due to be raised
on completion of the Letter of Direction;
• $4.4 million for 2020 earnings on deals acquired
more than six months ago yet to be reported;
• $7.5 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 collect and distribute income from
territories. The lag in collection is due to the nature
of collecting and processing royalties locally, then
distributing them to the domestic PRO, which will
in turn process and distribute these royalties to the
Group. Six months of international PRO earnings
are accrued, although can typically result in an
earnings lag of up to 24 months; and
• $5.2 million HSG gross revenue accrual, bringing the
Group in line with IFRS, which includes the accrued
PRO lag. Separately, a $4.2 million royalty creditor
representing contractual royalties due to writers has
been recognised, resulting in net revenue (NPS) for
HSG of $1million.
Right to Income
On the acquisition of a Catalogue, the Company
may receive a Right to Income, which is typically
dependent on the timing of the negotiations and
is negotiated by the Investment Adviser on each
acquisition. The Right to Income recognised in the
period was $22.7 million.
Costs and EBITDA
Adjusted Operating Costs increased to $25.5 million
owing to the higher costs on a pro-rata basis
reflecting the growth of the Company, the increase
in costs associated with HSG and higher legal and
advisory fees associated with growth via acquisition.
Ongoing Charges as a percentage of the average
Operative NAV increased slightly from 1.52% to 1.59%
primarily driven by the timing of share issuances
during the year, the additional operating costs of HSG
since its acquisition in September 2020 and higher
legal/professional fees due to the one off acquisition
costs of acquiring HSG.
32
Annual Report 2021 Hipgnosis Songs Fund Limited
EBITDA in the year increased by 49.8% to $106.7 million
(year ended 31 March 2020: $71.2 million) reflecting
the substantial increase in revenues.
Debt
Leveraged Free Cash Flow was $82.1 million which
covered dividends paid out during the year by 1.58 times.
On 26 March 2021, the Company drew down
$90.0 million under its Revolving Credit Facility resulting in
gross indebtedness of $577 million and net indebtedness
of $465 million. This gross indebtedness represented
approximately 32.8% of the last published Adjusted
Operative Net Asset Value at that time and therefore
constituted an inadvertent breach of the Company’s
borrowing restriction under its investment policy of
30% of Net Asset Value. The amount drawn down was
held by the Company as cash and was unutilised,
and on 5 April 2021 $50 million of these drawings were
repaid, thereby curing the temporary breach. We have
also discussed this in Note 9, page 144.
Since this date the Company has operated in
compliance with all its investment restrictions. The
current Loan to Net Asset Value at time of writing is 29.2%.
Thank You
With your tremendous support we have now grown
Hipgnosis to a $1.8 billion market cap FTSE 250 company.
In Summary, we are delighted to announce a strong
set of annual results which reports on a remarkable
year for Hipgnosis. Against one of the most
challenging backdrops of our lives, the Operative
NAV per Share increased by 11.3% to $1.6829, which
with dividends paid reflects a Total Operative Dollar
NAV Return of 15.7%. This brings the Total NAV Return
since IPO less than three years ago to 40.7%. This
strong return evidences not only our ability to be
able to buy and manage our culturally important
and extraordinarily successful songs well but also the
highly uncorrelated nature of proven songs.
During the year, we have significantly enhanced our
Song Management team, now led by Ted Cockle
and Amy Thomson, which is structured to have the
bandwidth to be able to apply ourselves and give our
great Songs the attention they deserve. This has had
a significant impact and increased the monetization
of our Songs, with synch revenues exceeding all
expectations, and despite film and TV production
being shut down for much of the last 16 months,
increased from 9% to 15% of our revenue. Great
examples of our Song Management team’s impact
include:
• our work with Blondie and Miley Cyrus on both
versions of Heart Of Glass, which has introduced this
classic song to a new audience and together have
been streamed more than 250 million times since
we brought them together on TikTok last October;
• helping All I Want For Christmas Is You get to UK
Number 1 for the first time in its 26 year history;
• repositioning Chic’s 44 year old Everybody Dance as
a Gen Z hit with the new version by Cedric Gervais
and Sound Of Franklin featuring Nile Rodgers, which
we released in January and has been building in
streams and airplay every week and has been all
over the new season of Love Island this week;
• our copyright management that has identified
historic registrations errors, break downs in income
chains and unclaimed recordings, which when
fixed will all create incremental revenue for the
Company. For example, we have identified 76 million
views of unclaimed / unmatched recordings of our
Songs on YouTube in the month of January alone,
which would represent a 36% uplift. Further to this we
have done test cases on 5 Catalogues, identifying
broken registrations that indicate that more than 40%
income on each has not been collected previously
due to errors in registration that pre-date our
acquisition. These have now been corrected and the
same work is being actioned on all of our Songs.
Furthermore, the legislative efforts – influenced by our
advocacy – that are taking place all over the world to
lobby on behalf of the Songwriter to receive a greater
share of the income combined with our pedigree
and effectively unique proposition has made us the
preferred choice for the Songwriting community.
In doing this there is complete alignment between
our Shareholders and the Songwriters as what’s in the
best interest of the Songwriter is also in the best interest
of our Shareholders. Together with our Shareholders’
support, this has allowed us to grow our Portfolio from
c.13,000 to over 60,000 Songs, investing more than
$1 billion in this fiscal year and approximately $2 billion
overall, whilst maintaining our criteria of the Songs
being extraordinarily successful and of great cultural
importance. We have added the catalogues of Rock
And Roll Hall Of Fame inductees Neil Young, Lindsey
Buckingham / Fleetwood Mac, Steve Winwood, Debbie
Harry & Chris Stein / Blondie, and Chrissie Hynde / The
Pretenders, Songwriters Hall Of Fame inductees Carole
Bayer Sager and Barry Manilow as well as iconic artists,
songwriters and producers Shakira, Rick James, Enrique
Iglesias, B-52’s, Jimmy Iovine, The RZA / Wu Tang Clan,
Chris Cornell / Soundgarden, 50 Cent, George Benson,
Nikki Sixx / Motley Crue, Rodney Jerkins, Kevin Godley
&, Eric Stewart / 10cc, Skrillex, Andy Wallace, Christian
Karlsson, Joel Little, Walter Afanasieff and many others,
including the recently crowned 2021 Grammy Awards
Producer Of The Year Andrew Watt.
Having now grown Hipgnosis to a $1.8 billion market
cap FTSE 250 company and invested almost $2 billion
in iconic songs that are a part of the fabric of our
society, which have just been independently valued
at $2.2 billion, it is worth re-stating our ambitions when
we listed three years ago, which were to:
1. Establish Songs as an asset class;
2. Use the influence of our Fund and the great
Songs in our Catalogue to be a catalyst to
change where the Songwriter sits in the economic
equation for the benefit of the Songwriting
community and our Shareholders; and
3. To replace the broken traditional music publishing
model with Song Management and add value
by managing the Songs with bandwidth and
responsibility.
Having delivered another strong, and index beating,
set of results, having advocated for Songwriters at
the highest level including the DCMS hearings taking
place in UK Parliament and having increased our
synch income through Song Management, as a
percentage of total revenue, I’m delighted to say our
ambitions are turning into reality and we are well on
our way to Hipgnosis achieving them all.It remains
only for me to thank our incredible Shareholders,
Non-executive Board, the team at The Family (Music)
Limited and its Advisory Board, Hipgnosis Songs Group
in the US and most importantly the great Songwriters
that have entrusted us with their incomparable Songs.
Best wishes,
Merck Mercuriadis
Founder, Hipgnosis Songs Fund Ltd and
The Family (Music) Limited
4 July 2021
Hipgnosis Songs Fund Limited Annual Report 2021
33
Strategic Report Strategic Report / Songwriters
S H A K I R A
and I have had a very long career. He always
thinks of the Songwriter first, and I think it has to
do with the fact that he’s such a genuine fan of
the art of songwriting. He’s able to see the value
and timelessness of songs in people’s minds, as
an accompaniment to their milestones, their
emotions, important times in their lives.
Do you feel you still have a connection
with your music now that you are part
of Hipgnosis?
More than ever. Working with them, and the
zeal they have for making sure the songs in my
catalogue continue to shine and find their place
in the culture, has made me look at a lot of these
tracks in a fresh light, and hear them with fresh
ears. Any art form is both a product of its time
and a testament to the moment in which it was
made, and it’s enlightening to see how these
songs evolve over time as the zeitgeist changes.
What writer(s) do you admire that are in the
Hipgnosis family?
Too many to name! Debbie Harry, Kaiser Chiefs,
Poo Bear, and of course Ian Kirkpatrick who
I just did my latest song with!
What would you like to see Hipgnosis do in
the music industry with the platform it has
created?
I think most importantly, continue to advocate
for the rights and careers of Songwriters, but
also, I’d love to see them be pioneers in paving
the way for new uses and exploitations of music
as technology, streaming and social platforms
continue to evolve.
Who has been the greatest influence on your
writing and why?
My Dad is the first one who imparted a love of
writing to me. He wrote for newspapers and has
even published books, and since I was little I was
fascinated with his love of words. When I was 8,
I got my first typewriter for Christmas, they got
it for me to encourage my writing. I still have it
to this day! Throughout my career, especially
when I was learning English, I read a lot of
Leonard Cohen, Bob Dylan, even poets like
Walt Whitman…and I love the use of colloquial
language to describe the divine by masters like
Pablo Neruda and Gustavo Cerati.
You are an incredible Songwriter, artist and
cultural figure, which of those roles is most
important to you?
I would say Songwriter. It’s the one I feel most
represents me and who I am. Even if I weren’t
an artist, or a cultural figure, I would still write.
It’s how I make sense of the world around me.
Why did you choose Hipgnosis (to sell your
catalogue to)?
Selling my catalogue was not a decision I took
lightly! I wanted to ensure that if I did sell it, that
I chose a partner who would take the job of
being my Song’s custodian seriously, who would
work to protect and promote my life’s work and
also be invested in the road ahead. With Merck
and Hipgnosis I knew I had found that partner.
How important was Merck’s advocacy for
the songwriting community and his fight to
ensure the Songwriter is properly recognised
and remunerated?
Merck is truly one of the most knowledgeable
music connoisseurs I’ve ever met in the industry,
34
Annual Report 2021 Hipgnosis Songs Fund Limited
35
Strategic Report Strategic Report
Our Market
Streaming growth surges during pandemic
The COVID-19 pandemic has significantly affected the
music industry with reductions in public performance
and Live income being experienced globally as
lockdowns impact the leisure and live entertainment
industry. Yet despite these negative impacts, the
music industry has continued to grow, buoyed by
digitisation including earnings relating to music
publishing and Songwriters.
The Investment Adviser and the Directors believe
that increases in demand for streaming as a result
of the COVID-19 pandemic could replace and
exceed the revenues lost from other income sources
as consumers seek in-home alternatives to out-of-
home entertainment. The IFPI reports that there were
443 million global users of paid subscription music
streaming accounts at the end of 2020.
Driving this surge in engagement are the ‘silver stream-
ers’, the 55+ age group who, following the 12% increase
in digital entertainment time afforded by the pan-
demic-driven lockdowns, now dominate Music and
TV streaming engagement by virtue of their size and
willingness to engage in seemingly digital-native be-
haviours (MIDiA Research). For Hipgnosis, this engage-
ment translates into a higher royalty per stream given
this demographic are listening to music on paid-for
platforms such as Spotify Premium and Amazon Prime
compared to the ‘Gen-Z’ demographic who consume
via You Tube, which is predominantly ad-supported.
US recorded music revenues grew by 9.2% year-
on-year to $12.2 billion, according to RIAA, and
streaming accounted for 83% of the total revenues.
Paid subscription services, ad-supported on-demand
platforms and customised digital radio providers
grew by 13.4% year-on-year to $10.1 billion, whereas
CD sales continue their structural decline (-23%). The
market is still below its heyday of $14.5 billion in 1999,
before the industry got decimated by piracy and
illegal downloading.
Streaming growth in 2020 was in turn driven by
established DSPs, such as Spotify and Apple Music,
and emerging social platforms that incorporate
music, such as TikTok, Triller and Peloton. Spotify, in
particular, reported a 16% year-on-year increase in
total revenue to €2.15 billion for the first quarter 2021,
with monthly active users growing 24% year-on-year,
now reaching 356 million. Premium Subscribers grew
21% year-on-year to 158 million in the quarter (Source:
Spotify). Encouragingly, Spotify raised prices across
a variety of their Premium offerings in over 30 markets
and early results have shown no material impacts to
gross intake or cancellation rates.
The COVID-19 pandemic has not only affected how
people consume music, but what music they con-
sume. The Investment Adviser and the Directors believe
that the lockdowns and other restrictive measures
imposed in response to the COVID-19 pandemic have
significantly changed music consumption. In particu-
RIAA US Recorded music revenues ($m)
$16,000
$14,000
$12,000
$10,000
$8,000
$6,000
$4,000
$2,000
$0
3
7
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Vinyl Tapes CDs/DVDs Downloads & Kiosk
Streaming (ad-supported)
Paid Subscription
Ringtones & Ringbacks
Source: RIAA
36
Annual Report 2021 Hipgnosis Songs Fund Limited
PPL, the UK collective management organisation
(CMO) that collects Neighbouring Rights recently
reported that collection in 2020 declined by 17%,
due to a 42.2% decline in income from public
performances. Within that, international collections
remained strong in 2020, with only a 0.9% decline
in revenues, which serves as a reminder that
Neighbouring Rights income, like Performance
income, is subject to significant lags. PPL predicted
a 2021 revenue recovery at their June 2021 AGM,
expecting their 2021 numbers to beat their 2020
numbers, although they will not yet exceed pre-
COVID-19 levels.
Expected bounce back in Performance income
The Directors expect that performance income will
quickly return to and exceed pre-COVID-19 levels
as lockdowns are being lifted in our largest revenue
generating markets. The Directors also expect there
will be a surge in live performances over the coming
years as artists seek to recover lost income from
cancelled tours in 2020. This is supported by Live
Nation’s recent announcement that their pipeline of
live music events in 2022 is already significantly higher
than 2019. Live Nation announced that they expect
Q2 2021 to show the first quarter of year-on-year
growth since the pandemic.
lar, there has been an increase in demand on stream-
ing platforms for vintage Songs which evoke nostalgia
among listeners (source: Billboard and Nielsen Music).
The Investment Adviser and the Directors believe that
older Catalogues will continue to represent a signifi-
cant proportion of streaming growth in future periods.
Music Publishing: performance income
impacted by COVID-19
Similar to the Recorded market, the Music Publishing
market continued its steady growth, with Goldman
Sachs expecting the market to grow from $5.6 billion in
2019 to $10.8 billion in 2030. (Source: Music & Copyright)
Global collections by The International Confederation
of Societies of Authors and Composers (CISAC)
member societies reached €10.1 billion in 2019, but
are predicted to decline by up to 20-35% for 2020 as
a result of the COVID-19 pandemic (source: CISAC
Global Collections report).
ASCAP, one of the largest US Performance Rights
Organisations or PROs, and PRS for Music, the UK
collection society for performance rights, showed
resilient distribution for 2020. The latter announced in
April 2021 that many of the royalties paid out last year
were collected before the first lockdown, meaning
that a sharp decline in income may be felt by music
creators through the autumn of 2021, with distributions
related to public performance as well as concerts
expected to fall by 10% year-on-year.
Global mix of creators’ income streams (%)
3
7
4
6 4
1
2
28
TV & Radio
Live & Background
Digital
CD & Video
Private Copying
Other
Source: CISAC 2019
Hipgnosis Songs Fund Limited Annual Report 2021
37
Strategic Report
Strategic Report / Our Market
A Return To Concerts And Festivals
The recent Brit Awards in May 2021 at the O2 Arena
indicates that a hopeful future is ahead for live
concerts and festivals. Through the vaccine(s) roll-out
we will once again see Live performances and, as
a Fund, we remain well positioned to capitalise on
the performance of Songs from our writers and artists
as well as optimising and enhancing the revenues
from the evergreen and ‘steady-state’ catalogues
that will have higher demand than ever within this
exciting and buoyant marketplace. In the weeks to
come we will have Nile Rodgers & CHIC, Journey, The
Chainsmokers, The Pretenders and many other artists
hitting the road and playing our repertoire in concert
halls and at festivals. 2022 looks set to be the busiest
year ever for concerts and festivals according to Live
Nation and AEG.
Technology to fuel further growth in streaming
The Investment Adviser believes that further advances
in technology aimed at simplifying streaming and
increasing ease of use can reasonably be expected
to drive growth in revenues, as seen in emerging
platforms such as TikTok, Peloton and Triller as well
as emerging formats, such as NFTs and Roblox. We
expect the latter to be officially licensed in this fiscal
year and to pay settlements for illicit use to date
similar to Peloton last year.
Advances in technology, including voice recognition
devices and speakers, have also provided access to
particular categories of customers and opened up
potentially attractive new markets. For example, older
users of the internet (known as “silver-surfers”), have
proved to be a lucrative source of additional income.
They increasingly consume music online whereas they
may not have visited high-street stores to buy physical
music records or CDs.
The Investment Adviser and the Directors believe that,
given the Song is no longer restricted by formats used
by the record industry, this provides opportunities for
new partnerships to monetise the use of music. The
delivery of a direct-to-consumer personalised service,
such as “build-your-own playlists” or “favourites”, is
contributing significantly to the increased streaming
revenues through repeat plays of favourite Songs,
which indicates that this is a marketplace that can be
monetised further over time.
38
Annual Report 2021 Hipgnosis Songs Fund Limited
The Investment Adviser and the Directors believe
that material payments from end-users to emerging
social media platforms could start resulting in royalty
payments to the Company from the second half of
2021 and beyond.
Growth in emerging markets
The US is still the biggest music market (c.40% of the
total, source: IFPI). The global growth of streaming has
resulted in an increase in the monetisation of Songs in
jurisdictions in which it has been traditionally difficult
to recover accurate (or any) royalties due to a range
of factors including high piracy rates or poor revenue
collection methods. IFPI saw growth in revenues in
Asia of 9.5% year-on-year, Latin America by 15.9%
year-on-year and Middle East & North Africa by 37.8%
year-on-year.
OMDIA modelled the global Total Addressable
Market ‘TAM’ – i.e. those with a streaming-enabled
smartphone and the means to pay for it – at
3.7 billion in 2020, rising to 5.2 billion in 2030 with Asia
and Africa making up 80% of the growth (source:
Tarzaneconomics). This is consistent with our view that
Africa, China and India will be significant contributors
in the future.
Discount rate lowered
The change in music going from a discretionary
consumer purchase to a utility purchase has reduced
the volatility of royalty revenues across the music
industry. As a result of this trend, the risk premium
applied to Song royalties has decreased in recent
periods. As at the six months ended 30 September
2020, the discount rate used by the Portfolio
Independent Valuer to calculate the fair value of the
Company’s Portfolio decreased from 9.0% to 8.5%.
The Investment Adviser and the Directors believe that
the value of music as an asset class is set to increase
in future periods as paid streaming continues to grow
and the volatility of royalty revenues continues to
decrease.
Payouts to Songwriters and copyright owners
have increased
Certain laws and regulations regarding the rates paid
for streaming activities to content holders dictate
that such rates are set outside of the free market and
are instead determined by an empanelled tribunal,
namely the Copyright Royalty Board in the United
States.
In January 2018, the US Copyright Royalty Board under
CRB 3 ruled to increase Songwriter rates for interactive
streaming by 44% by 2023, rising gradually from 11.4%
of gross revenues in 2018 to 15.1% in 2022. However,
on 15 August 2019, certain DSPs (including Spotify,
Google and Amazon) filed their appeal of this ruling
in the US Court of Appeal for the DC Circuit, arguing
that the US Copyright Royalty Board made numerous
legal errors while adopting a rate structure that was
not justified by explanation or evidence and that, in
any event, the rates should not have been applied
retrospectively to 1 January 2018. The Investment
Adviser and the Directors believe that this appeal will
not be successful.
In January 2021, the CRB announced that it was
starting proceedings, CRB 4, to determine the
distribution rates for the 2023-27 period. It is expected
that at the very least this will uphold the 44% increase
passed into law under CRB 3. This is encouraging but
we believe it’s only the beginning of the Songwriter
being recognised and rewarded properly.
Parliamentary inquiry into Streaming in the UK
The DCMS Select Committee Inquiry (‘the Inquiry’),
which opened on 15 October 2020, has proved a
timely opportunity to highlight the issues facing the
music industry in relation to streaming as well as to
look at potential solutions to address the imbalance
of industry power in favour of major music companies
and the lack of transparency and accountability
which adversely affects Songwriters and other creators.
Our ulterior motive is about taking the Songwriter from
the bottom to the top of the economic equation and
our advocacy on this issue is being felt at every level.
This is discussed in more detail on pages 54-55.
Hipgnosis Songs Fund Limited Annual Report 2021
39
Strategic Report 40
Strategic Report / Songwriters
D A V I D A . S T E W A R T
Who has been the greatest influence on your
writing and why?
Bob Dylan. From a very early age he made me
want to put pen to paper but The Beatles in a
melodic pop sense. It’s a tough question for me
as I have such an eclectic taste. I would need
to add The Rolling Stones and so many Blues,
R&B and Soul Music Songwriters – too many
names to mention in a short answer as I could
write a page or a chapter on each one.
You are an incredible Songwriter, artist and
cultural figure, which of those roles is most
important to you?
I would say first and foremost I’m a Songwriter,
the songs come first, the rest follows.
Why did you choose Hipgnosis (to sell your
catalogue to)?
I have known Merck and his obsession with
music for about 30 years. Merck can recite even
the most obscure Eurythmics lyrics! I also knew
Merck would stay true to his word of keeping me
involved in the decisions about song placements
and future plans. The fact he saw the true value
of the songs obviously helped.
How important was Merck’s advocacy for
the songwriting community and his fight to
ensure the Songwriter is properly recognised
and remunerated?
Very important, not only for me and my
contemporaries and the generations of
Songwriters to come including my children
as they all are Songwriters too!
Do you feel you still have a connection
with your music now that you are part
of Hipgnosis?
Yes I’m informed of every decision Hipgnosis
is thinking of making re my music and feel
I am being heard when I chip in with ideas
and concepts.
What writer(s) do you
admire that are in the Hipgnosis family?
Neil Young, Chrissie Hynde, Steve Winwood,
Debbie Harry, Chris Stein, John Ryan, Julian
Bunetta and many more.
What would you like to see Hipgnosis do in
the music industry with the platform it has
created?
Move to the next level of collection, improving
artist and music industry economics, with
Blockchain and AI.
Hipgnosis Songs Fund Limited Annual Report 2021
41
Strategic Report Strategic Report
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.
Our Business Model
The key characteristics of the Hipgnosis business
model are:
• 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.
• 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.
• 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.
• 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.
Our principal risks and uncertainties are presented on
pages 62-65.
42
Annual Report 2021 Hipgnosis Songs Fund Limited
The income stream for
Copyright owners
Every Song has two copyrights: Composition
(lyrics & melody), held by the Songwriter and
Sound Recording (the sound heard), held by
those involved in the recording of the Song.
Royalties stemming from the Composition
Copyright are referred to as Publishing Rights
(aka Songwriter Rights). Hipgnosis Songs Fund
focuses primarily on acquiring these, but owns
selective Sound Recording Rights as well.
Publishing Rights
These are rights in a musical composition
(lyrics and/or music) and generate
Mechanical and Performance Royalties.
In the UK, “blanket licences” are issued to
organisations including radio and TV.
Mechanical Royalties
These are triggered when a copy of a Song
is made, whether physical (e.g. CDs, DVDs)
or digital (e.g. permanent downloads,
streaming, webcast). The Streaming of
a Song is a hybrid: a temporary copy
is made, so it generates a Mechanical
Royalty, but it is also treated as a public
performance of that Song, generating
a Performance Royalty.
Performance Royalties
These royalties largely come from live
performances and licences taken out by
shops, restaurants, clubs and bars etc to
publicly perform or broadcast a Song.
Sound Recording Rights
Master (Recording) Royalties
These (aka Recording Royalties) are
generated on behalf of a sound/master
recording. This is the most basic royalty
performing artists and labels earn when
their master recording is downloaded,
physically bought, or streamed.
Neighbouring rights
These (aka Related Rights) are public
performance royalties due to the sound
recording copyright holder. One has to
distinguish between terrestrial broadcast
platforms (like radio, TV, and venues) and
digital platforms (like Internet and satellite
radio) because not every country, notably
the US, recognises or pays terrestrial
neighbouring rights.
Synchronisation Fees
These are generated when a visual image
(e.g. TV, film, advertising or video games) is
matched to a Song.
There are multiple channels through which
royalties are collected. These are depicted
by the arrows in the diagram opposite.
The diagram shows the flows to Hipgnosis Songs Fund
from its ownership of its Copyrights
P
s
ltie
a
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o
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l
i
a
c
n
a
h
c
e
M
h i n g R i g h t s
P e r
b lis
u
f o r m ance Royalties
s h a r e
W rit e r
Publisher sh
are
AD
S
y
n
c
h
r
o
n
i
s
a
t
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o
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e
s
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d c
er,
Share Pa i d
u tio ns
t o p e r f o r m
g )
n tri b
aid to artist, (au d i b l e c o
o r d i n
r e c
ontributors t o t h e
n
A
M
rtist / Producer /
Mixer Royalties N e i g h b o u ri n
S o u n d R
aster
g Ri g hts
g Rig hts
o r d i n
c
e
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
Administrators eg:
• Sony Publishing
• Universal Publishing
• Warner Chappell
• Kobalt Publishing
• HSG
• BMG
Collected by the
Societies eg:
• ASCAP
• BMI
• PRS for Music
• SESAC
• PPL
• Sound Exchange
Direct
Earned by the
Record Companies eg:
• Universal Music Group
• Sony Music
• Warner Music Group
Hipgnosis Songs Fund Limited Annual Report 2021
43
Strategic Report
Strategic Report / Our Purpose, Business Model, Culture and Values
Our sources of advantage
Our Purpose is having not only a “motive” of providing
great returns for Shareholders but also an “ulterior
motive” of using the influence of the Company and
our great Songs to improve the Songwriter’s position in
the economic equation.
1. Access and Culture of our Investment Adviser
• We have the relationships, reputation and expertise
in the industry to be advocates and catalysts for
improving the Songwriters’ share of income and
where they sit in the economic equation.
• This also enables our team to overcome the high
barriers to entry in relation to the acquisition and
active management of Catalogues.
• We are Song Managers; when compared to the major
publishing houses, we are viewed as a safer alternative
custodian who can protect the meaning and secure
the financial future of the creator’s songs, and address
the structural imbalance between payments on
recorded music and payments to the Songwriters.
• We have created an Advisory Board, assembled
from leading music industry figures, who we believe
are well placed to advise on any given Song’s
potential market, reach and popularity.
• Our team’s extensive experience across a broad
spectrum of music genres, together with its
relationships with Songwriters and recording artists
in the music industry, means it is well-positioned to
continue to source opportunities for us to invest in
a diverse range of attractive Catalogues and then
assist us in maximising earnings from them.
• We are positioned as an attractive potential
purchaser of Catalogues from Songwriters and
other owners of music intellectual property rights
who are protective of their legacy and selective
about whom they are willing to sell to. We have
made our reputation by working with Songwriters,
artists and producers, not at their expense.
• Our culture is focused on long lasting relationships,
excellence delivered with integrity and world-class
leadership backed by extensive industry knowledge
that will help create a Songwriter community rapport
and a diverse, innovative, multi-cultured portfolio
of song assets, with a strong emphasis on the great
works of the African American Community.
44
Annual Report 2021 Hipgnosis Songs Fund Limited
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 443 million global users of
subscription streaming services at the end of 2020,
compared to 90 million global subscribers in 2016.
• 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
3. Active 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.
4. Efficiencies In collection
• We work to bring efficiencies via faster and more
transparent collection of micro-payments using our
preferred administrators, HSG in the US and Kobalt
for all non-US generated royalties.
• The Company will move the administration for the US
component of our Catalogues to HSG at the earliest
practicable opportunity. The Investment Adviser
and the Directors expect this to enhance returns
for Shareholders as it is anticipated that HSG can
provide US administration cheaper than a third-party
administrator, generating administration cost savings of
approximately 1.0-1.5% of royalty income administered.
• Kobalt continues to be the Company’s preferred
external portfolio administrator outside of the United
States with portfolio administration contracts intended
to be transferred to Kobalt in these jurisdictions as
early as possible following acquisition of a Catalogue.
Strategic Report
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.
Hipgnosis Songs Fund Limited Annual Report 2021
45
Strategic Report Strategic Report / Our Objective, Strategy and Investment Policy
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.
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 60% of the Portfolio
(based on fair value) as at 31 March 2021, 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 2021, approximately 3% of the Portfolio
(based on fair value) was derived from Songs that
were released less than 3 years ago. The Investment
Adviser therefore seeks to identify newer Songs from
this group in order to provide the Company with high
exposure to streaming.
b) Acquisition of rights over Songs through payment
of Advances by the Group
We may acquire rights over future (unwritten)
Songs that are acquired by payment of Advances
to Songwriters, with such advanced amounts (in
aggregate) being capped at 5% of the Company’s
gross assets, calculated at the time of investment.
The non-refundable Advance to a Songwriter
is consideration for them writing Songs and is
recoupable from the future royalties generated by
those Songs, which will include the writer’s share of
those royalties but may also include the performer’s
share of such royalties and the master recording
rights. As at 31 March 2021, we maintain an active
roster of over 395 Songwriters.
We consider Advances to be a cost-effective way to
generate royalties in the future from Songs written by
highly regarded Songwriters.
46
Annual Report 2021 Hipgnosis Songs Fund Limited
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:
a) Driving income growth through pursuing
efficiencies in revenue collection
i) Registration audit
On acquisition of a Catalogue we perform a deep
dive exercise into the detailed ownership of all
Songs within the Catalogue to ascertain ownership
rights, income sources and key Songs, in order
to determine an optimal strategy for revenue
growth. As part of this exercise, we seek to identify
any issues relating to the registration of Songs, or
the collection of a Song’s income, and remedial
actions are taken.
ii) Efficiencies from improved portfolio
administration agreements
The acquisition of the Administration capabilities
within HSG represented a significant step in the
Group’s strategy of driving income growth through
pursuing efficiencies in the collection of payments
and Song management.
iii) Early adoption of technological advancements
to increase collections
The Investment Adviser monitors technological
advances that will enabe it to exploit, identify and
locate lost revenues.
b) Improving synch placement and usage of Songs
to grow income
i) Synchronisation
The Investment Adviser seeks to exploit all variations
of potential synchronisation opportunities, from
placing Songs in commercials, popular TV shows
and films to encouraging popular recording artists
to cover older Songs within a Catalogue. The
Investment Adviser seeks to source Catalogues
for the Company which it believes contain Songs
which have been overlooked, or Songs that do not
have strong, historic revenue figures but for which
the Investment Adviser sees potential fresh revenue
streams through synchronisation opportunities.
The Investment Adviser seeks to leverage its
expertise and deep relationships, and to utilise the
innovative technology and business relationships
of portfolio administrators, in order to pursue these
synchronisation opportunities.
ii) Digital Audit
The Investment Adviser undertakes a full digital
audit of each Catalogue to ensure that the
Company’s Songs have maximum exposure on
all of the key digital and social media platforms
including each
of the DSPs.
iii) Maximising presence across DSPs globally
The Investment Adviser has relationships with all
key DSPs, digital partners and synch and creative
networks including YouTube, Spotify, Apple, Deezer,
Amazon, Tencent/QQ and TikTok. Through direct
contact with these platforms, the Investment Adviser
is able to identify opportunities for its Songs to
increase their exposure on the platform.
iv) Promoting Songs to increase usage and
introduce new audiences
The Investment Adviser, and its Advisory Board, due
to their existing position and relationships, are able
to create new opportunities to place and promote
the Company’s Songs. The Investment Adviser
believes that the Company is one of the only
investment companies which 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 12-33. Our principal risks
and uncertainties are presented on pages 62-65.
Hipgnosis Songs Fund Limited Annual Report 2021
47
Strategic Report KEY
■ Don’t Let Me Down
(Feat. Daya)
Release: Feb 2016
■ Closer (Feat. Halsey)
Release: Jul 2016
■ Something Just Like This
(Feat. Coldplay)
Release: Jan 2017
Strategic Report / Case Study
Strategic Report
The Chainsmokers:
Consumer
Re-Engagement
Boosts Revenue
• In August 2019 Hipgnosis bought the Publishing
and Writer’s Share of Income of 42 songs
written by The Chainsmokers, which contained
53 Number 1 global chart positions and
238 Top 10 global chart positions.
• Here we showcase their top 3 hits: Don’t Let Me
Down (Feat. Daya), Closer (Feat. Halsey) and
Something Just Like This (Feat. Coldplay),
looking at their royalty statements from the
publishing administrator.
• Each of these Songs has over 1 billion streams, on
Spotify alone, making The Chainsmokers one of
the first artists to achieve this with 3 Songs.
• As of April 2021, Closer (feat. Halsey), is one of
only 6 Songs to have achieved 2 billion streams
on Spotify.
• We see that the consumer re-engages with the
Catalogue when there is a new release or touring
from the writers or featured artists and as such
the revenues have been greater than, and the
decay has been slower than anticpated.
• Something Just Like This (feat. Coldplay)
released in January 2017 is Coldplay’s most
streamed song at over 1.6 billion streams and
continues to drive uplift when The Chainsmokers
or Coldplay perform or release new songs.
+200
+175
+150
+125
+100
+75
+50
+25
Base
)
%
(
I
S
G
N
N
R
A
E
Y
T
L
A
Y
O
R
E
S
A
B
M
O
R
F
E
G
N
A
H
C
E
G
A
T
N
E
C
R
E
P
H2 2017
H1 2018
H2 2018
H1 2019
H2 2019
H1 2020
H2 2020
-25
-50
-75
H1 2018
The Chainsmokers release new
songs monthly from Jan to
Apr 2018, ahead of their album
release on 18 Nov
48
Annual Report 2021 Hipgnosis Songs Fund Limited
Source: Hipgnosis Songs Fund: Royalty statements from Sony Publishing
+200
+175
+150
+125
+100
+75
+50
+25
Base
-25
-50
-75
)
%
(
S
G
N
I
N
R
A
E
Y
T
L
A
Y
O
R
E
S
A
B
M
O
R
F
E
G
N
A
H
C
E
G
A
T
N
E
C
R
E
P
Growth of The Chainsmokers Songs
Compared to Base Royalty Earnings
H2 2019
The Chainsmokers perform a 41-city
North American tour and headline
Lollopalooza in Chicago. Coldplay
release new album, Everyday Life
KEY
■ Don’t Let Me Down
(Feat. Daya)
Release: Feb 2016
■ Closer (Feat. Halsey)
Release: Jul 2016
■ Something Just Like This
(Feat. Coldplay)
Release: Jan 2017
H2 2018
Coldplay release tour album
Live in Buenos Aires
and music documentary
A Head Full of Dreams
H2 2020
The Chainsmokers take part in
successful drive-in concert in
the Hamptons, NY in Jul 2020,
Safe and Sound with Goldman
Sachs CEO, David Soloman, aka
DJ D-Sol. They also announce
an album release for 2021
H2 2017
H1 2018
H2 2018
H1 2019
H2 2019
H1 2020
H2 2020
H1 2019
Halsey releases new songs ahead
of upcoming tour and album. The
Chainsmokers headline Ultra music
festival in Sydney, Melbourne
and Miami, and release new
songs ahead of the new album
World War Joy
H1 2020
The Chainsmokers announce
they will take a hiatus from social
media in order to focus on their
“next chapter in music” and
scrub their instagram account,
leaving this announcement as
the sole post for their 8.2 million
followers
Source: Hipgnosis Songs Fund: Royalty statements from Sony Publishing
49
Strategic Report
Strategic Report
Our Resources and Relationships
To achieve our purpose, Hipgnosis has to
generate attractive financial returns from our
business; to do that we need to have the right
resources and relationships in place and to
nurture them.
As a consequence of the nature of what we
do – music – we have a profound influence
on communities and society at large and we
recognise that this privilege carries with it significant
responsibilities. An important facet of this is having
a clear approach to environmental, social and
governance matters.
From the outset, the whole team has been aware
that there is a careful balance to be struck between
our creation of financial value and providing wider
social returns. This is why our ulterior motive is at the
heart of our stated purpose: That motive is 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 issues in society and the
environment.
Key Decisions
We view key decisions as those that are material to
the success and sustainability of Hipgnosis, 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 80.
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 maximize portfolio alignment with Sustainability
Factors (as defined in SFDR). However, the Company is
nevertheless exposed to sustainability risks due to the
nature of the assets in which it invests:
1. How Sustainability Risks are integrated into our
investment decisions
Sustainability Risks are integrated into our investment
decision making and risk monitoring to the extent
that they represent potential or actual material risks
and/or opportunities for maximizing long-term risk-
adjusted returns for our Shareholders. The Investment
Adviser considers sustainability risks as part of its
broader analysis of potential investments and the
management of the current portfolio. The factors
considered will vary depending on the Catalogue in
question, but we are always seeking to invest in Songs
that have a positive social purpose.
2. The assessment and likely impacts of
Sustainability Risks on returns of the Company
The returns generated by our investments are
exposed to varied Sustainability Risks, most of which
are deemed not material due to the nature of our
investment strategy and types of assets we hold.
Relations with Stakeholders
The culture and success of the music industry are
founded on relationships. We are very much part
of this and we welcome it. We have various groups
of stakeholders with whom we have close and direct
relationships fundamental to our existence, they
include our shareholders, our service providers, our
Advisory Board, the songwriting community and the
publishers, administrators and PROs. There are many
others who we recognise as well, even though we
may not interact with them directly – prime amongst
these are the millions who listen to music. Our
Investment Adviser is at the heart of our engagement
work and is responsible for the day-to-day interactions
with all of our stakeholders.
Hipgnosis places great importance on its relationships
with its Shareholders, as they provide us with the
50
Annual Report 2021 Hipgnosis Songs Fund Limited
resources to make the acquisitions necessary to
build our portfolio and so support songwriters and
performers. We undertake both direct and indirect
engagement activities with this group and this is
covered in more detail in the Corporate Governance
Statement on page 74.
Following the acquisition of Hipgnosis Songs Group,
Hipgnosis now has 35 employees. None of the
employees are classified as Senior Executives as they
do not report directly to the Board of the Company.
Whilst they are indeed employees of the Group,
at the time of the acquisition of HSG, the Board
delegated responsibility for HSG’s employees to
the Investment Adviser, consistent with their policies,
procedures, and knowledge of the rights
administration industry.
Additionally, we operate through, and work closely
with, a number of third party service providers,
including the Investment Adviser, Administrator,
Company Secretary, corporate brokers, lawyers
and our other professional advisers. The quality and
timeliness of their service provision is critical to the
success of the Company, as is their adherence to best
practice ESG requirements. The Group’s ESG policies
are shared with our suppliers.
We are very pleased that everyone involved with the
Company worked so well and seamlessly throughout
the COVID-19 pandemic. Our Investment Adviser has
re-opened its offices and has made returning to the
office optional, for the time being.
The Investment Adviser manages the vital input
of our Advisory Board, discussed on pages 10, 16,
42 and 45. Our Investment Adviser also enables
us to engage with the writers and composers
of song Catalogues acquired to update them on
management activity around the Catalogues, explore
creative projects, create new interpolations and
discuss new commercial opportunities. An example
of this is placing songwriters, who are featured in the
Hipgnosis portfolio, in the recording studio together to
collaborate and create new compositions.
The Investment Adviser also has regular
communication with publishers and Administrators
(such as Kobalt) and the PROs (such as ASCAP) 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. There have
been multiple occasions where we have returned
millions of Dollars back to our Stakeholders.
Society
“As the world contends with the COVID-19 pandemic,
we are reminded of the enduring power of music to
console, heal and lift our spirits”
IFPI Chief Executive, Frances Moore
We want to help the communities on whom
our success is based
While the Company’s purpose is to give our
Shareholders a strong, reliable and uncorrelated
return on investment, we also have an ‘ulterior motive’
which is to use the importance of our unparalleled
Catalogue and financial clout as platform and
leverage for the songwriting community and to
take Songwriters from the bottom of the economic
equation to the top. Björn Ulvaeus of Abba
began his recent TED Talk which was more than a
little influenced by Hipgnosis’ advocacy with an
unattributed quote: “Copyright is designed not only
to provide fairness to authors, but also to enhance
the quality of life within a society by promoting the
progress of science, art and culture”. In other words,
the concept of making it economically feasible for
“creators to create” is now globally recognized as a
societal imperative. 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 recognized by apportioning them a far
more significant share of the economic pie.
Our advocacy on the part of the songwriting
community has served to make us the preferred
buyer for that community, which is also in the best
interest of our shareholders. Our advocacy is being
felt at every level from the CRB hearings in the US
to the global headquarters of the major recorded
music companies that are in our view responsible for
the Songwriter’s role not being properly remunerated
and recognized, the Performing Rights Societes, who
have to advocate for songwriters more aggressively
and straight through to the excellent work of DCMS
Committee and the hearings in UK Parliament.
Hipgnosis Songs Fund Limited Annual Report 2021
51
Strategic Report 52
Strategic Report / Songwriters
L I N D S E Y B U C K I N G H A M
Who has been the greatest influence on your
writing and why?
I’ve always felt my songwriting has worked hand
in hand with my producing. For me, when I’m
creating a song, the writing and the production
evolve simultaneously, and in many ways are
indistinguishable from each other. Because of
this, I’ve always gravitated to writers with strong,
individualistic production values. At the top of
my list of influences is Brian Wilson. I’ve never
tried to emulate his writing style, but rather have
been greatly inspired by his creative values, his
willingness to take risks, and his superb marriage
of writing and production.
You are an incredible Songwriter, artist and
cultural figure, which of those roles is most
important to you?
I’ve always aspired to be an artist. One can be
a Songwriter and one can be a cultural figure,
but that in itself doesn’t define you as an artist.
In fact, many have lost touch with their artistry
by allowing their self identities to be defined by
external cultural perceptions and expectations.
Being an artist requires you to continually make
choices that allow you to keep moving forward,
and to work from the inside out, despite cultural
expectations. Long ago I made the choice to
pursue that path, and I’ll remain on that road
as long as I can.
Why did you choose Hipgnosis (to sell your
catalogue to)?
I chose Hipgnosis largely because I connected
so well with Merck, both personally and
philosophically. He’s certainly a fan of my work
in Fleetwood Mac, but he’s also very well versed
in my solo albums. Those solo efforts are some of
my best, most artistic endeavors, and Merck is
interested in increasing the visibility of those works.
I know he will curate my catalogue with heart
and integrity going into the future.
What writer(s) do you admire that are in the
Hipgnosis family?
There are many writers from the Hipgnosis family
that I admire, but for this, I’ll narrow it down to
two – one who’s been around a while, and one
who’s fairly new. First, of course, is Neil Young.
Ever since Buffalo Springfield, Neil has been a
transcendent writer, his songs incorporating
amazing chord changes, melodies and lyrics,
his presentations always artful. His voice
is completely unique, and has influenced
countless others. Neil is a true original. Second
is Jack Antonoff. A few years back I very much
enjoyed his group, fun. But more recently, Jack
has made a name for himself as a sought after
producer, and also in Bleachers. When I first
heard Bleachers’ song I Wanna Get Better, I was
quite taken by it, and thought I could hear a little
of myself in it. It made me feel as if a torch had
been passed.
Do you feel you still have a connection with
your music now that you are part of Hipgnosis?
I believe my music lives within me, and no matter
how it gets disseminated, it will always remain
close to me, in my heart and soul, part of the
fiber of my being.
Hipgnosis Songs Fund Limited Annual Report 2021
53
Strategic Report Strategic Report / Our Resources and Relationships
“At the end of the day [when buying Catalogues]
you have to demonstrate to Songwriters, artists and
producers that you are the right pair of hands for
them to put their children in. That’s not something you
can do if you’ve never spent time – both good times
and bad times – dealing with great artists, Songwriters
and producers in helping them achieve their dreams.”
Merck Mercuriadis, Music Business Worldwide
We have dedicated significant time, money and
resources to supporting the songwriting community.
Led by Merck, this includes work with The Ivors
Academy, who nurture new songwriting talent and
advocate for the songwriters; and The Nashville
Songwriters Association International, who work at the
highest levels of the US Congress and Senate on the
same themes. We have also been a major catalyst for
the DCMS hearings in UK Parliament; Merck has met
with several MPs over the last 6 months to advocate
for the songwriter in aid of Hipgnosis’ publicly stated
ulterior motive which is to take the songwriter from the
bottom of the economic equation to the top.
Our strategy to effect this change represents
engagement on several fronts:
DCMS Cross-Party Select Committee Inquiry
into the Economics of Streaming
The Department for Digital, Culture, Media & Sport
(DCMS) Inquiry in the UK Parliament, which opened
on 15 October 2020, has proven to be a timely
opportunity to highlight the issues facing the music
industry in relation to streaming as well as to look
at potential solutions to address the imbalance of
industry power in favour of major music companies
and the lack of transparency and accountability
which adversely affects Songwriters and other creators.
Hipgnosis made its own written submission with
seven important recommendations to include in
the Committee’s Report, all designed to improve
transparency, increase bargaining power and boost
income share for Songwriters. Advisory Board Member
to the Investment Adviser, Nile Rodgers, also gave
oral evidence to the Committee in support of our
submission.
Members of the DCMS Committee will play a crucial
role in shaping the Inquiry’s final recommendations,
and Hipgnosis has written to or held positive meetings
with all of them, including Committee Chair, Julian
Knight MP (Con) and other leading MP Committee
members. We have briefed them on Hipgnosis’
business and given our perspective on evidence given
to the Committee and the music market in general,
with a view to setting the context in which decisions will
be taken by the Committee. We feel the response to
our engagement on this has been very positive.
The DCMS Select Committee is due to publish its
Report shortly and it will then go to the Secretary
of State for Digital, Media, Culture and Sport, Oliver
Dowden MP, for review. Mr Dowden will have two
months in which to coordinate a formal response
from the UK Government to the Report and
recommendations proposed by the Committee,
detailing what, if any, action it will take. We will
be on hand offering insights and further evidence
to ministers and their advisers to inform their
decisionmaking. Hipgnosis has already been in touch
with lead officials within DCMS with the aim of:
• Briefing them on Hipgnosis’ position and
recommendations (Please see: https://committees.
parliament.uk/writtenevidence/16721/pdf/);
• Establishing positive working relationships between
Hipgnosis and the Department; and
• Positioning Hipgnosis as an authoritative voice,
a solutions-focused industry expert, and potential
partner of government.
Broader political engagement in the UK
“The importance of the Songwriter has never been
more pronounced” in the music business, and they are
treated as the “low man or woman on the totem pole”
Merck Mercuriadis, Music Business Worldwide
There will, of course, be a need to sustain momentum
after the Committee has concluded its work. We
have therefore put in place a broader programme
of political engagement and activities, with a view
to ensuring that the issues and recommendations
highlighted as part of the Inquiry remain high
on the government and broader political agenda.
Our engagement will focus primarily on:
• Government decision-makers (DCMS, BEIS,
Competition and Markets Authority)
• Influential parliamentarians (Opposition
parliamentarians, select committees, powerful
regional voices)
54
Annual Report 2021 Hipgnosis Songs Fund Limited
• Known music advocates within Parliament (APPG
on Music, parliamentarians with a known interest in
creative industries)
• We have already held positive meetings with key
contacts and meetings will be stepped up following
publication of the DCMS Select Committee’s
Streaming Report.
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).
Engagement with the Intellectual Property
Office in the UK
In parallel with the Inquiry, the UK Intellectual Property
Office (IPO) – an executive body of the Department
for Business, Energy and Industrial Strategy (BEIS)
– is undertaking its own piece of research on how
‘music creators’ are paid within the global streaming
environment. This work is likely to feed into the
government’s response to the Inquiry, and its approach
to intellectual property rights for artists and musicians
in a post-Brexit environment following the UK’s decision
not to implement the EU Copyright Directive.
Hipgnosis has proactively engaged with the IPO to
help support this work ahead of the publication of the
research findings this summer and has established a
good working relationship with the IPO and its academic
research team carrying out this important work.
Broader music industry engagement
Our “ulterior motive” with Hipgnosis is to gain enough
influence in the music rights space to bring about a
change in the recompense seen by Songwriters in the
streaming age.
We are working with like-minded individuals and
organisations across the industry to support each
other’s initiatives and increase general awareness
of the issues arising.
If our mission is successful it will benefit not only
Songwriters but also our investors as the value of
Songs grows. Our interests are naturally aligned with
what’s best for the Songwriter also being best for our
Shareholders (as the direct owners of some of the
world’s most culturally important Songs).
The Social Mandate
Our Investment Adviser and its Advisory Board
We fully support 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
We support the actions taken by our Investment
Adviser to promote #blacklivesmatter initiatives and
calls to action and the important achievements of
the We Are Family Foundation founded by Advisory
Board Member, Nile Rodgers, which has created
programmes to amplify the voices of diverse
youth leaders across the globe addressing issues
surrounding basic human needs including the
fight against systemic racism. All Hipgnosis trade
advertising in the last 13 months has highlighted
#blacklivesmatter and sent an important message
to the wider music industry that the issue was not
confined to a few weeks in June of 2020 but in
fact needs to be part of our daily lives. We support
Merck Mercuriadis in joining Richard Branson, Mike
Novogratz, Arianna Huffington and other business
leaders in the newly launched 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 TFM Advisory
Board Member, Jason Flom, founding board member
of the Innocence Project, in his work for criminal
justice reform and his advocacy for those who have
been wrongfully convicted and imprisoned.
We are proud to support Nordoff Robbins, whose
groundbreaking work uses music as therapy to enrich
the lives of people with life limiting illnesses, disabilities
and feelings of isolation. While the pandemic
prevented our traditional sponsorship of the MITS
(Music Industry Trusts Award), it also threatened the
annual Christmas Carol Service which is the other key
highlight of Nordoff Robbins’ fundraising calendar.
In order to avert the disaster of a cancellation, our
Investment Adviser stepped in with a significant
donation to create a virtual event. Merck Mercuriadis
and Andrew Wilkinson were the Executive Producers
for the event and Nile Rodgers not only hosted the
event, but also performed along with Neil Young,
Rod Stewart, Simple Minds, Tony Bennett, Kaiser Chiefs,
Sir Cliff Richard, Florence And The Machine and
Hipgnosis Songs Fund Limited Annual Report 2021
55
Strategic Report Strategic Report / Our Resources and Relationships
many other Hipgnosis’ friends. Entitled The Stars Come
Out To Sing At Christmas, we also brought on board
our friends at Open Exchange and the London Stock
Exchange to bring the biggest viewership possible
and raised over $300,000, approximately three times
what the event usually achieves. As a result, the event
has been awarded the Third Sector / Business Charity
Awards Award for “Charity Partnership - Media &
Entertainment” for 2021, bringing further attention to
the important work of Nordoff Robbins.
Our Investment Adviser contributes to the talent of
tomorrow via one of the UK’s leading educational
establishments in performing and creative arts, The BRIT
School, where Merck Mercuriadis, Nile Rodgers and
Paul Burger are all very active. We are grateful that
in the last 28 months the ‘Nile Rodgers BRIT Awards
Viewing Party’, established and funded by our
Investment Adviser to give our institutional investors
the opportunity of celebrating the UK Music Industry’s
biggest night of the year, has raised over £750,000.
This is shared between The BRIT School and the We
Are Family Foundation and the important work they
undertake. While the pandemic prohibited the party
in 2021 (which will hopefully return in 2022), we have
continued to support the beneficiaries at this
difficult time.
Our Investment Adviser has been delighted to support
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. 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; 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, and we have contributed to
the publication of Sound Advice- The Ultimate Guide
To A Healthy And Successful Career In Music by Rhian
Jones and Lucy Heyman, which helps to support all
aspects of mental health in the Music Industry.
Our Impact on The Environment
Hipgnosis’ direct environmental impact is very limited
and the direct impact of our Investment Adviser is also
limited to running office facilities and the international
transport of key personnel.
We acquire, curate and creatively manage a growing
portfolio of music copyrights. As intangible assets,
returns are generated by the provision of Songs into
a variety of third-party channels including retail,
hospitality, digital entertainment, advertising, film and
others. With the exception of digital service providers
(DSPs) specialised exclusively in music entertainment
(e.g. Spotify), 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.
Indirectly, 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 focussed, 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.
56
Annual Report 2021 Hipgnosis Songs Fund Limited
Strategic Report
Our Team
Our Team is comprised of TFM, its
Advisory Board and HSG across
multiple locations, including
London, Los Angeles, New York
and Nashville. In total we are now 88 strong.
Merck Mercuriadis
Founder & CEO, TFM
Björn Lindvall
COO, TFM
Chris Helm
CFO & Executive Vice
President Business
Development, TFM
Amy Thomson
Chief Catalogue Officer, TFM
Ted Cockle
President, TFM
Kenny MacPherson
CEO, HSG
Richard Rowe
Executive Vice President, TFM
Rosa Mercuriadis
Chief Creative, Marketing
& Culture Officer, TFM
Nick Jarjour
Global Head of Song
Management, TFM
Tom Stingemore
Executive Vice President
Global Synch & Creative, TFM
Joe Maggini
Executive Vice President
Global Synch, HSG
Tony Barnes
Executive Vice President of
Digital and Innovation, TFM
Hipgnosis Songs Fund Limited Annual Report 2021
57
Strategic Report Strategic Report / Our Team
Rufina Pavry
Director, Investor Relations,
TFM
Jamie Cerreta
Co-President, HSG
Casey Robison
Co-President, HSG
Samantha Garcia
Commercial Finance
Director, TFM
Dave Ayers
Executive Vice President,
New York, HSG
Pete Robinson
Senior Vice President,
Nashville, HSG
Adrienne Willen
Vice President of Copyright,
TFM
Melody Mercuriadis
General Manager, TFM
Shiv Prakash
VP of Investments, TFM
Patrick Thornton
Financial Controller, TFM
Serkan Dervis
Royalties Administration
Manager, TFM
Helen Anderson
Office Manager, EA, TFM
58
Annual Report 2021 Hipgnosis Songs Fund Limited
Tobias Lindvall
VP Operations, TFM
Katie Enevoldsen
Catalogue Project Manager,
TFM
Jordan Bent
Copyright Manger, TFM
Dom Scialo
Copyright Manager, TFM
Harvey Cowburn
Copyright Admin Assistant,
TFM
David Rudolph
Compliance & Reporting
Accountant, TFM
Aaron Dunmore
Senior Management
Accountant, TFM
Sophie Benjamin
Accounts Payable Manager,
TFM
Oscar Shepherd
Copyright Admin Assistant,
TFM
Emilie Massimiani
Investment Analyst, TFM
Chris Wilson
Investment Analyst, TFM
Martyn Mackenzie
Investment Associate, TFM
Hipgnosis Songs Fund Limited Annual Report 2021
59
Strategic Report Strategic Report / Songwriters
T I M B A L A N D
Who has been the greatest influence on your
writing and why?
Missy Elliot, her work ethic and being such
a perfectionist.
You are an incredible Songwriter, artist and
cultural figure, which of those roles is most
important to you?
Cultural impact.
Why did you choose Hipgnosis?
I felt Merck was the right person to do this deal
with. Merck is a manager first and foremost and
appreciates creatives.
How important was Merck’s advocacy for
the songwriting community and his fight to
ensure the Songwriter is properly recognised
and remunerated?
Extremely important, he’s been fighting for all
of us.
Do you feel you still have a connection
with your music now that you are part
of Hipgnosis?
Absolutely, when I performed on Verzuz a few
weeks ago and went through my catalogue I still
felt connected to everything.
What writer(s) do you admire that are in the
Hipgnosis family?
So many… Jimmy Iovine, LA Reid, Benny Blanco,
The-Dream, Jack Antonoff, Jeff Bhasker, Poo
Bear, Mark Ronson, No I.D. and Starrah.
What would you like to see Hipgnosis do in
the music industry with the platform it has
created?
I would like to see Hipgnosis allow
fractionalization ownership to fans.
60
Annual Report 2021 Hipgnosis Songs Fund Limited
61
Strategic Report Strategic Report
Our Principal Risks and Uncertainties
Our risk assessment
The graphic below shows the Group’s post-mitigation
principal risks and uncertainties. Information on
our risk management framework can be found on
pages 93.
1. Due diligence risk
2. Key person risk
3. Adverse change in policies by Collection Societies
and other entities through whom the Company
receives royalty paymentss
4. Exchange rate risks
5. Advance payments to Songwriters don’t yield
projected returns
6. Financial leverage risk
7. Risks associated with market trends
8. Operational reliance on service providers
9. Cyber Risk
10. Impact due to the COVID-19 pandemic
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Low
Medium
High
PROBABILITY
0
Principal Risk
Movement from last year
For a discussion of our market, see page 36; business
model, see page 42; strategy, see page 45; and
resources and relationships, see page 50.
1. Due diligence risk
Probability: Medium; Impact: High
Description
The due diligence process that the Investment
Adviser undertakes in evaluating Catalogues for
the Company may not reveal all facts that may
be relevant in connection with such investment
opportunities and any mismanagement, fraud or
accounting irregularities on the part of any seller of
Catalogues, or their advisers, may materially affect
the integrity of the Investment Adviser’s due diligence
on investment opportunities
Mitigation
When conducting due diligence and making an
assessment regarding an investment, the Investment
Adviser and the Company’s legal and financial
advisers are required to rely on resources available to
them, including internal sources of information as well
as information provided by existing and potential sellers
of Songs. The due diligence process may at times be
required to rely on limited or incomplete information.
The Investment Adviser will select investment
opportunities to be tabled to the Directors for their
consideration in part on the basis of information and
data relating to potential investments that have been
made directly available to the Investment Adviser by
the sellers. Although the Investment Adviser will verify
and evaluate all such information and data, and
seek independent corroboration when it considers
it appropriate and reasonably available, the
Investment Adviser may not be in a position to confirm
the completeness and accuracy of such information
and data. Further, investment analysis and decisions
by the Investment Adviser may be undertaken on
an expedited basis in order to make it possible for
the Company to take advantage of short-lived
investment opportunities. Where there is lack of time
or information the Investment Adviser is dependent
upon the integrity of the management of the sellers
as regards such information and of such third parties.
The Company conducts a thorough review of all
due diligence conducted on potential Catalogue
purchases. However, due to a number of factors, the
Company cannot guarantee that the due diligence
investigation carried out by the Investment Adviser
and the Company’s legal and financial advisers with
respect to any investment opportunity will reveal or
highlight all relevant facts that may be necessary or
helpful to the Directors in evaluating such investment
opportunity, which may therefore lead the Directors
to decide to acquire Songs which subsequently fail
to perform in line with expectations and may have a
material adverse effect on the Company’s financial
situation.
62
Annual Report 2021 Hipgnosis Songs Fund Limited
2. Key person risk
Probability: Low; Impact: High
Description
The ability of the Company to achieve its Investment
Objective and Policy depends on the diligence, skill,
judgment and experience of Merck Mercuriadis, the Key
Person, as the chief executive of the Investment Adviser,
the services and reputation of the Investment Adviser
and the investment pipeline generated through the
Investment Adviser’s business development efforts.
The Company also depends on the ability of the
Investment Adviser’s team to meet the strains of a
rapidly growing Portfolio of Catalogues. The death,
incapacity or loss of service of Merck Mercuriadis at
the Investment Adviser, could have a material adverse
impact on the Company and the investments made.
Mitigation
In order to meet the continuing rapid growth of the
Portfolio of Catalogues and to broaden the expertise
within the Investment Adviser, the Investment Adviser
has continued to invest in growing its staff and
systems. The Investment Adviser is also supported by
the Advisory Board members (named on page 16
of this report). Both 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
(e.g. Kobalt) each have an important role to play in
pursuing efficiencies in the collection of payments
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.
3. Adverse change in policies by Collection
Societies and other entities through whom the
Company receives royalty payments
Probability: Low/Medium; Impact: Medium
Description
Collection Societies, which include Performing Rights
Organisations (PROs), represent the rights and interests
of publishers and Songwriters. They collect royalties,
create collection policies and set royalty rates for
the use of music copyrights. There are over 120 PROs
around the world and most of them have agreements
and frameworks in place with each other. The
Company also receives royalty payments from a
variety of other sources, including the major music
publishers and record companies.
Historically, the major music publishers represented
a significant proportion of the membership of PROs
and therefore controlled a significant percentage of
any votes of such PROs. Accordingly, the governance
of the PROs is capable of being influenced or
directed by the major music publishers and minority
stakeholders, such as the Company, may be forced to
follow royalty collection practices which do not favour
the Company as much as they favour the major music
publishers.
Should PROs 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 will provide the Company with any data or
intelligence of which it becomes aware. Updates to
the financial model will be made to reflect any such
regulatory or industry changes.
Hipgnosis Songs Fund Limited Annual Report 2021
63
Strategic Report Strategic Report / Our Principal Risks and Uncertainties
4. Exchange rate risks
Probability: Medium; Impact: Medium
6. Financial leverage risk
Probability: Low; Impact: High
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,
and most of the Group’s revenue is received in other
currencies, particularly Dollars, and exchange rate
fluctuations may significantly affect the NAV and the
ability to pay the targeted dividends.
Mitigation
The Company considers on a regular basis the
benefits and cost of passive currency hedging. To
date the Company has not implemented passive
currency overlay strategies. The Company will
continue to pay any dividends in Sterling and its
primary listing will remain denominated in Pounds.
The Company has moved its functional currency
from Pound Sterling to US Dollar in relation to this
and future reports and accounts which reduces
the volatility of overall revenues.
Description
The Company uses leverage to finance the acquisition
(directly or indirectly) of Songs or Catalogues in
accordance with the Investment Objective and Policy.
In addition, the Company may utilise borrowings,
which may include a securitisation, for working capital
and interest rate hedging purposes, as well as to
pay transaction costs and expenses. In the case of
default under the relevant financing arrangement, this
could result in the lenders enforcing their security and
selling the Group’s assets, which in either case could
adversely impact the value of the Portfolio. Please see
Note 17 on pages 150-153 for more details.
Mitigation
On a quarterly basis, and on the occasion of each
drawdown, the Company confirms its compliance
with key covenants set out in the loan facility and
documented within the Company's policies and
procedures.
5. Advance payments to Songwriters don’t
yield projected returns
Probability: Medium; Impact: Low
7. Risks associated with market trends
Probability: Medium; Impact: High
Description
Investment in Songs that are yet to be written or
proven commercially over a sustained period of time
is considered more speculative than investment in
proven Songs, and it is harder to accurately forecast
revenues that such Songs will generate over time.
Such Songs may not be commercially successful or
generate sufficient royalties to repay the Advance
(together with the projected returns thereon) over the
forecasted period or at all.
Mitigation
The Advances made to Songwriters in connection
with the acquisition of rights over future Songs will
not represent more than 5% of the Company’s
Gross Assets, calculated at the date of the relevant
Advance; as at 31 March 2021, HSG had made
Advances to Songwriters totalling $10.1 million,
which are expected to be recouped from the future
royalty income generated by the Songs written by
the Songwriters over time.
64
Annual Report 2021 Hipgnosis Songs Fund Limited
Description
The Company is heavily reliant on the continuing
presence and popularity of music streaming, or
an equivalent technology which generates high
volumes and rates of royalty revenues for Songwriters,
continuing to be popular with consumers. Historically
the music industry has been shown to be especially
innovative, with new technology causing changes in
consumer demand and experience. Whilst it is possible
that new technology may reduce non-synchronisation
related royalty revenues, it is also possible that
technological advances would lead to a growth in
royalties as consumers’ access to music continues to
improve. A limited number of online streaming and
online music stores have achieved a large market
share, giving them market power to alter the prices or
selection of music offered to consumers and therefore
the royalty revenue received by the Group. Any further
market concentration could increase this risk.
Mitigation
The Company will be heavily reliant on the continuing
presence and popularity of DSPs in order to maximise
access to the consumer market. The Company is
continuously reviewing this risk and most recently
took note from the Goldman Sachs “Music in the
Air” report (published 26 April 2021) where they
have increased their global streaming subscriptions
estimates by 5%, to 1.22 billion by 2030, from
443 million in 2020, as paid subscription penetration
is expected to rise from 10% in 2020 to 22% in 2030 on
the back of faster-than-expected streaming adoption
and a proliferation of new streaming services.
8. Operational reliance on service providers
Probability: Low; Impact: Medium
10. Impact due to the COVID-19 pandemic
Probability: High; Impact: Medium
Description
The Company relies on third-party service providers
for its routine operations. In particular, although the
ultimate responsibility for the investment strategy
lies with the Company, the Investment Adviser is
responsible for sourcing potential opportunities and
advising the Company on acquisitions and active
management of Catalogues.
The Company also depends heavily on the specialist
administrative services of the Investment Adviser, the
Preferred Portfolio Administrators and other collection
agents as well as third-party suppliers with whom the
Company conducts business. In the event that these
service providers experience business disruption or
cyber security breaches, the ability of the Group to
collect revenues due may be limited.
Mitigation
The Company continually reviews the performance
of its service providers and will raise any concerns
regarding performance or efficiency should the
need arise.
9. Cyber Risk
Probability: Medium; Impact: Medium
Description
The Company (as with all companies) continues to
be exposed to external cyber-security threats which
have the possible impact of sensitive information
leakage, 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.
Description
The business and economic disruption as a result of
the COVID-19 pandemic and associated lockdowns
has had a material adverse effect on certain income
streams, in particular performance revenues, which
relate to revenues collected from shops, bars, gyms
and live performances.
Mitigation
The majority of revenues are sourced in the US and in
the UK, and as those countries move towards being
vaccinated, the impact of the risk of COVID-19 is
reducing. Nevertheless, the full extent of the impact
on the Company’s revenues remains unknown, given
the reporting and processing cycles with the major
publishers and PROs and the resulting significant
time lag between the usage of a Song and the
payment of revenue to the copyright owner. We
discuss the impact COVID-19 has had on our business
on page 12.
Emerging Risks
Emerging risks are regularly considered to assess any
potential impact on the Group and to determine
whether any actions are required. Emerging risks
include those related to regulatory/legislative change
and macroeconomic and political change. These are
mitigated and managed by the Company through
continual review, policy setting and updating of the
Company’s risk matrix at each quarterly meeting to
ensure that procedures are in place with the intention
of minimising the impact of the above-mentioned
risks. 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.
Hipgnosis Songs Fund Limited Annual Report 2021
65
Strategic Report Strategic Report / Case Study
Shakira: An Enduring Culturally Influential
Superstar
Cultural Importance and Influence
New platforms emerge that prove to be great ways
to present music and to connect with fans. Often,
successful artists from previous decades are unable
to connect on the new platforms. This is anything but
with Shakira.
• Delivering both the hits and the albums:
Shakira has 3 songs which have streamed over
1.5 billion times each worldwide and a further
7 songs that have streamed over half a billion times
each.
• Trend setter: The new Latin superstars, J Balvin and
Maluma are gathering momentum on Instagram,
but their 47 and 59 million followers respectively still
lag Shakira’s 70 million.
• Capitalising on new platforms: 35 million monthly
listeners on Spotify and 14 million followers on
TikTok shows she is culturally important to a new
generation of listeners.
Working with Shakira
The combination of her growing streaming base,
the fresh flow of key vinyl re-releases, and her super
active and engaged fan bases across both new and
developing social platforms, means that we look to
further harness the strong and growing returns from
her exceptional catalogue of songs.
• Hipgnosis is helping Shakira re-release her entire
Catalogue on vinyl. This has been led by the
She Wolf album (2009), in association with Urban
Outfitters. Plans for a coloured vinyl with full
distribution to coincide with the 20th anniversary
of the album Laundry Service are also underway.
• Shakira is back in the studio writing material with
other Hipgnosis Songwriters for her forthcoming
album, scheduled for spring of 2022. This will be tied
in with an epic world tour.
• As Latin music continues to grow around the world,
Shakira, as the Queen of Latin Music, will naturally
be amongst the first go-to artists.
1995
Columbian artist Shakira releases
her third album Pies Descalazos,
which goes to number one in
8 different countries. She is just
13 years old.
This catapults Shakira into a true
global superstar, proving that
the combination of Songwriter,
musician, singer, performer,
dancer and glamorous pop star
is irresistible.
2010
Shakira – Waka Waka (This
Time for Africa) (The Official
2010 FIFA World Cup™ Song)
accompanies the 2010 FIFA World
Cup, which is held in South Africa.
1998
Her next album, Dondo Estan
Los Landrones, sells over 1 million
copies in the US and proves
effective in galvanising the Latino
communities globally.
Subsequent albums combined
both English and Spanish
language songs, and this has
helped her take a very strong
lead amongst so many of her
Latin contemporaries.
2001
Her first English language
album, Laundry Service, sells
over 13 million copies and helps
her establish a multi continent
touring base.
2005
Hips Don’t Lie is released
and becomes her first number 1
US single.
2016
Try Everything appears on the
soundtrack album to Walt Disney
Animation Studio’s Zootopia.
2017
Eldorado goes Top 10 all over
the world and is followed up with
Shakira in Concert: Eldorado
World Tour commemorating the
global tour of the same name.
2009
The She Wolf Album and its first
single of the same name is Top 10
all over the world.
2021
Black Eyed Peas, Shakira –
GIRL LIKE ME, has been a hit
single all over the world.
3 songs
>500m streams, each
3
12
75m
Grammys
Latin Grammys
Total record sales
66
Annual Report 2021 Hipgnosis Songs Fund Limited
Latin music consumption is
increasing
In 2015, there were 2 Latin
songs in the Top 500, or 0.32%
total consumption
In 2020, there were 16 Latin
songs in the Top 500, or 2.54%
total consumption
The most streamed Album
of the Year on Spotify
in 2020 was YHLQMDLG by
leading Latin artist Bad Bunny
Latin America maintained
its position as the fastest
growing region in 2021, led by
Brazil, growing by 15.9%
Video viewers will reach
117.2 million in 2021 in Latin
America alone
67
Strategic Report Strategic Report
Key Statements
Going Concern
The Directors monitor the capital and liquidity
requirements of the Company, prepared by the
Investment Adviser, monthly, which spans a 12-month
forecast horizon.
Viability Statement
The Directors have assessed the future prospects
of the Group. The Board have conducted a Portfolio
review for a period of three years to 31 March 2024
which is deemed appropriate given:
Revenue assumptions, and therefore cash received,
is based on the unwinding of earnings, accruals and
when the cash on those accruals will be received,
as well as the acquisition forecast assumptions for
future periods on Catalogues of Songs. Expenses and
acquisition costs are forecast on both a contractual
and non-contractual basis, whereby the non-
contractual analysis is derived from the run-rate
expenses over the prior 12-month period. The 12-month
forecast assumes a ‘steady state’ so does not include
the impact of any future equity raises and acquisitions.
Sensitivities are also applied to revenues to assess the
impacts of COVID-19 on contractual obligations.
Based on these sources of information and their
own judgement and given the Company has a
history of profitable operations which are expected
to continue and have ready access to financial
resources, which includes immediate access to cash
from major Publishers, sufficient for the Company to
meet its obligations over at least the next 12 months,
the Directors believe it is appropriate to prepare the
Consolidated Financial Statements of the Company
on a going concern basis.
The Directors have also considered the immediate
and medium-term impacts of COVID-19 and other
relevant factors on the Company as reflected in the
Viability Statement below.
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 at 31 March 2021;
iv. The accuracy of external forecasts to support the
income projections; and
v. Experience to date regarding the performance of
the Portfolio of Catalogues against their acquisition
business plans.
Based on past performance, the returns generated
within the investment Portfolio are expected to be
stable and predictable in both the medium and
longer term. Music royalties remain a stable and
resilient asset class, which has been proven during
the COVID-19 pandemic. The short-term impact on
Performance income is expected to recover and
return to previous levels in the Autumn of 2021, as
restraints related to lockdown are lifted in both the US
and the UK.
Given the long copyright term, the resilience of music,
as well as the mature ecosystem of consumers and
brands willing to pay for music, the asset class has
been assessed as viable within the forecast period.
The Investment Adviser has prepared, and the Board
has reviewed, the Portfolio projections which forecast
the Group’s revenue, cashflow and working capital
projections over the next three years and considered
the impact of the principal risks and some of the
emerging risks of the Company.
In support of this statement, the Directors have also
considered all the principal risks and some of the
emerging risks and their mitigation as identified in the
risk register that is periodically reviewed by the Board.
68
Annual Report 2021 Hipgnosis Songs Fund Limited
The Directors paid particular attention to the risk of
a deterioration in the short-term economic outlook
primarily driven by COVID-19, which would adversely
impact catalogue fundamentals causing a reduction
in cash flows.
scenario’, the Directors confirm that they have a
reasonable expectation that the Group will be able
to continue in operation and meet its liabilities as they
fall due over the period ending 31 March 2024.
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 are of the opinion that the long-term
outlook for music publishing and recorded music
remains very positive as evidenced throughout this
Annual Report. As further explained in principal risks
and uncertainties on pages 62-65 the Directors do
not consider the effects of COVID-19 to have had an
impact on their assessment of the Company as a
going concern or the prospects of the Company.
The Investment Adviser and the Board are actively
monitoring COVID-19, as a material risk on revenues
and its potential effect on the Company and its
Catalogues. It is believed that impacts will be
continued to be felt in the short term because of the
decline in live music, commercial radio, retail outlet
licence revenues and reduced leisure facility offerings.
The remaining principal risks, whilst having an impact
on the Group’s business model, are not considered
by the Directors to have a reasonable likelihood of
impacting the Group’s viability over the three-year
period to 31 March 2024.
On a rolling basis, and at times of issuing a new
Prospectus, the Directors evaluate the outcome of
the Portfolio of Songs and the Company’s financial
position as well as assessing sensitivities that impact
dividend cover, credit covenants and profitability
of the Company to assess an ‘extreme downside
scenario’.
The extreme downside scenario, reflecting a severe
short term economic downturn, incorporated the
following assumptions:
• A material reduction of 50% across all income,
excluding Streaming, for the 16-month period
ending July 2022 driven by COVID-19;
• The strengthening of GBP versus USD by 10%,
which would impact dividends and expenses given
84% of revenues are received in USD; and
• The reversal of the entire CRB ruling which
adversely impacts future revenues versus forecast
expectations which represents a decrease of future
revenues by 1.12% each year.
Having considered the forecast cash flows, the
current working capital, and the impact of the
sensitivities in combination in the ‘extreme downside
Hipgnosis Songs Fund Limited Annual Report 2021
69
Strategic Report 70
Strategic Report / Songwriters
M A R K R O N S O N
Do you feel you still have a connection
with your music now that you are part
of Hipgnosis?
Of course. Those songs are still my babies.
I have an emotional attachment to all of them
to different degrees – how they were created,
the first time I heard one on the radio, playing
them at a festival… and on and on. That will
never change.
What writer(s) do you admire that are in the
Hipgnosis family?
RZA. Jeff Bhasker. Al Jackson Jr. Nile and Bernard.
Steve Winwood. Timbaland.
What would you like to see Hipgnosis do in
the music industry with the platform it has
created?
I thought Timbaland’s answer was pretty
amazing. Fractionalized ownership to fans.
I would buy a sliver of Al Green’s I’m Still In Love
With You in a heartbeat.
Who has been the greatest influence on
your writing and why?
Stevie Wonder. I bought a Stevie Wonder
songbook for piano when I was 20 and most
of my chords and voicings still come from
that book.
You are an incredible Songwriter, artist and
cultural figure: which of those roles is most
important to you?
I value all of them but Songwriter is the thing I
work hardest at. The thing I do everyday when
I go to work. And the thing I’d most like to be
remembered for.
Why did you choose Hipgnosis (to sell your
catalogue to)?
I trust Merck. I have a lot of respect for him, as
a person and in my dealings with him in the
industry. I also liked the kind of roster they were
amassing, immensely popular but impeccably
credible music. And the money was good, I’m
not going to lie.
How important was Merck’s advocacy for
the songwriting community and his fight to
ensure the Songwriter is properly recognised
and remunerated?
It’s incredibly important. You know Merck will
fight for that as he has A LOT of skin in the game.
Hipgnosis Songs Fund Limited Annual Report 2021
71
Strategic Report Strategic Report / Key Statements
Key Statements
Section 172(1) Statement
The purpose of the Strategic Report is to inform members
of the Company and help them assess how the directors
have performed their duty under section 172. This section
172(1) statement incorporates information from other
areas of the Annual Report to avoid unnecessary
duplication.
Section 172 of the UK Companies Act 2006 applies
directly to UK domiciled companies. Nonetheless the
AIC Code requires that the matters set out in section
172(1) are reported on by all companies, irrespective
of domicile. This requirement does not conflict with
Guernsey company law.
The Directors have had regard for the matters set
out in section 172(1)(a)-(f) of the Companies Act
2006 when performing the duties set out in section
172. The Directors consider that they have acted in
good faith in the way that would be most likely to
promote the success of the Company for the benefit
of its members as a whole, while also considering the
broad range of stakeholders who interact with and
are impacted by our business.
The table below indicates where the relevant
information is that demonstrates how we act in
accordance with the requirements of s.172(1).
s172 matter
Likely consequences of any decision in the long term
Introduction from Merck Mercuriadis, pages 3-4
The Chair’s Statement, pages 10-11
Investment Adviser’s report, pages 12-15, 20-25, 28-33
Our Market, pages 36-39
Our Purpose, Business Model, Culture and Values, pages 42-44
Our Objective, Strategy, Investment Policy, pages 45-47
Our Resources and Relationships, pages 50-59
Principal Risks and Uncertainties, pages 62-65
Viability Statement, pages 68-69
Chair’s Introduction, page 74
Application of AIC Code Principles, pages 76-79
Board Leadership and Company Purpose, pages 80-81
Composition, Succession and Evaluation, page 86
Report of the Nomination Committee, pages 90-92
Audit, Risk and Internal Control, page 93
Report of the Audit and Risk Management
Committee, pages 94-100
Report of the Management Engagement
Committee, pages 101-102
Report of the Portfolio Committee, page 103-104
Directors’ Remuneration Report, pages 105-107
The interests of the Company's employees
Our Resources and Relationships, pages 50-59
Compliance Statement, page 75
Application of AIC Code Principles, pages 76 and 79
Board Leadership and Company Purpose, pages 80-81
Report of the Management Engagement
Committee, pages 101-102
Directors’ Remuneration Report, pages 105
72
Annual Report 2021 Hipgnosis Songs Fund Limited
The need to foster the Company’s business
relationships with suppliers, customers and others
Introduction from Merck Mercuriadis, pages 3-4
The Chair’s Statement, pages 10-11
Investment Adviser’s report, pages 12-15, 20-25, 28-33
Our Purpose, Business Model, Culture and Values, pages 42-44
Our Objective, Strategy, Investment Policy, pages 45-47
Our Resources and Relationships, pages 50-59
Principal Risks and Uncertainties, pages 62-65
Chair’s Introduction, page 74
Application of AIC Code Principles, pages 76 and 79
Board Leadership and Company Purpose, pages 80-81
Division of Responsibilities, pages 82-85
Report of the Audit and Risk Management
Committee, pages 97-100
Report of the Management Engagement
Committee, pages 101-102
Impact of the Company’s operations on the
community and environment
Introduction from Merck Mercuriadis, pages 3-4
Investment Adviser’s report, pages 12-15, 20-25, 28-33
Our Market, pages 36-39
Our Purpose, Business Model, Culture and Values, pages 42-44
Our Resources and Relationships, pages 50-59
Application of AIC Code Principles, page 76
Board Leadership and Company Purpose, pages 80-81
The Company’s reputation for high standards
of business conduct
Introduction from Merck Mercuriadis, pages 3-4
The Chair’s Statement, page 11
Our Purpose, Business Model, Culture and Values, pages 42-44
Our Resources and Relationships, pages 50-59
Principal Risks and Uncertainties, pages 62-65
Governance, pages 74-108
The need to act fairly as between members
of the Company
The Chair’s Statement, pages 10-11
Our Objective, Strategy, Investment Policy, pages 45-47
Application of AIC Code Principles, pages 76-79
Board Leadership and Company Purpose, pages 80-81
Division of Responsibilities, pages 82-85
Report of the Management Engagement
Committee, pages 101-102
Report of the Directors, pages 108-112
Governance
Contents
74 Corporate Governance Statement
74 Chair’s Introduction
75 Compliance Statement
76 Application of AIC Code Principles
79 Other Key Governance Statements
80 Board Leadership and Company Purpose
82 Division of Responsibilities
86 Composition, Succession and Evaluation
87 Board of Directors
90 Report of the Nomination Committee
93 Audit, Risk and Internal Control
94 Report of the Audit and Risk Management Committee
101 Report of the Management Engagement Committee
103 Report of the Portfolio Committee
105 Directors’ Remuneration Report
108 Report of the Directors
108 General Information
108 Principal Activities
109 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
Hipgnosis Songs Fund Limited Annual Report 2021
73
Governance Corporate Governance Statement
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 2021. 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 this 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 operational
running 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 80 and 50. 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
4 July 2021
74
Annual Report 2021 Hipgnosis Songs Fund Limited
Compliance Statement
Hipgnosis Songs Fund Limited is a company registered
in Guernsey and has a Premium Listing on the Main
Market on the London Stock Exchange. The Company
became a member of the AIC on 22 August 2018.
The Board has considered the Principles and
Provisions of the AIC Code of Corporate Governance
2019 (AIC Code). The AIC Code addresses the
relevant Principles and Provisions set out in the UK
Corporate Governance Code 2018 (the UK Code), as
well as setting out additional Provisions on issues that
are of specific relevance to the Company.
The Board considers that reporting against the
Principles and Provisions of the AIC Code, which has
been endorsed by the Financial Reporting Council
and the Guernsey Financial Services Commission,
provides more relevant information to Shareholders.
By reporting against the AIC Code we are meeting
our obligations under the UK Code (and associated
disclosure requirements under paragraph 9.8.6 of
the Listing Rules) and as such do not need to report
further on issues contained in the UK Code which are
irrelevant to us.
Throughout the year ended 31 March 2021, the
Company has applied the Principles (as explained
on pages 76-79), and complied with the relevant
Provisions of the AIC Code.
Throughout the year ended 31 March 2021, the
Company has complied with the recommendations
of the AIC Code and the relevant provisions of the
UK Code, except as set out below.
The Corporate Governance Code includes provisions
relating to:
• the role of the chief executive;
• executive directors’ remuneration; and
• the need for an internal audit function.
For the reasons set out in the AIC Code, and as
explained in the UK Code, the Board considers that
the above provisions are not currently relevant to the
position of the Company which delegates most day-
to-day functions to third parties.
During the year, through acquisition of the assets
of Big Deal Music (renamed Hipgnosis Songs Group, or
HSG), the Group has acquired employees. However,
none of the employees are classified as Senior
Executives as they do not report directly to the Board,
and the management of the employees has been
delegated to the Investment Adviser in its entirety
but retains oversight through the Investment Advisory
agreement. The absence of an internal audit function
is discussed in the Report of the Audit and Risk
Management Committee.
The AIC Code is available on the AIC website
(www.theaic.co.uk). It includes an explanation of how
the AIC Code adapts the Principles and Provisions
set out in the UK Code to make them relevant for
investment not considered necessary.
Hipgnosis Songs Fund Limited Annual Report 2021
75
Governance Corporate Governance Statement
Application of the AIC Code Principles
The AIC Code, and the underlying UK Code, have placed increased emphasis on “apply and explain” with
regard to the Principles of the Codes.
Our explanations about how we have applied the application of the main principles of the AIC Code can be
found as follows:
Board Leadership and Company Purpose
Principle A. A successful company is led by an
effective Board, whose role is to promote the
long-term sustainable success of the company,
generating value for Shareholders and contributing
to wider society.
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.
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.
Strategic Report, pages 2-72
Governance, pages 74-112
Strategic Report, pages 2-72
Board Leadership and Company Purpose,
pages 80-81
Our Resources and Relationships, pages 50-59
Principal Risks and Uncertainties, pages 62-65
Section 172(1) Statement, page 72
Board Leadership and Company Purpose,
pages 80-81
Audit, Risk and Internal Control, page 93
Report of the Audit and Risk Management
Committee, pages 94-100
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 50-59
Section 172(1) Statement, page 72
Board Leadership and Company Purpose,
pages 80-81
76
Annual Report 2021 Hipgnosis Songs Fund Limited
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.
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.
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.
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.
The Chair’s Statement, pages 10-11
The Chair’s Introduction, page 74
Board Leadership and Company Purpose,
pages 80-81
Division of Responsibilities, pages 82-85
Division of Responsibilities, pages 82-85
Board of Directors, pages 87-89
The Chair’s Statement, pages 10-11
Board Leadership and Company Purpose,
pages 80-81
Division of Responsibilities, pages 82-85
Report of the Audit and Risk Management
Committee, pages 94-100
Report of the Management Engagement Committee,
pages 101-102
Our Resources and Relationships, pages 50-59
Principal Risks and Uncertainties, pages 62-65
Section 172(1) Statement, page 72
Board Leadership and Company Purpose,
pages 80-81
Division of Responsibilities, pages 82-85
Audit, Risk and Internal Control, page 93
Report of the Audit and Risk Management
Committee, pages 94-100
Report of the Management Engagement Committee,
pages 101-102
Hipgnosis Songs Fund Limited Annual Report 2021
77
Governance Corporate Governance Statement / Application of the AIC Code Principles
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.
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.
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.
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.
Principle N. The Board should present a fair,
balanced and understandable assessment of the
company’s position and prospects.
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.
Report of the Nomination Committee, pages 90-92
Board of Directors, pages 87-89
Report of the Nomination Committee, pages 90-92
Report of the Nomination Committee, pages 90-92
Audit, Risk and Internal Control, page 93
Report of the Audit and Risk Management
Committee, pages 94-100
Strategic Report, pages 2-72
Audit, Risk and Internal Control, page 93
Report of the Audit and Risk Management
Committee, pages 94-100
Financial Statements, pages 122-157
Principal Risks and Uncertainties, pages 62-65
Viability Statement, pages 68-69
Audit, Risk and Internal Control, page 93
Report of the Audit and Risk Management
Committee, pages 94-100
Notes to the Financial Statements, pages 126-157
78
Annual Report 2021 Hipgnosis Songs Fund Limited
Remuneration
Principle P. Remuneration policies and practices
should be designed to support strategy and
promote long-term sustainable success.
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.
Principle R. Directors should exercise independent
judgment and discretion when authorising
remuneration outcomes, taking account of
company and individual performance, and wider
circumstances.
Other Key Governance Statements
The Directors confirm that:
Going Concern
The Going Concern statement is made on page 68.
Viability
The Viability Statement is made on page 68. Further
details of the Board’s assessment of the viability
of the Company are set out in Audit, Risk and
Internal Control on page 93. The Principal Risks and
Uncertainties are set out on page 62.
Principal Risks
The Board has undertaken a robust review of the
Group’s principal and emerging risks, including
those that would threaten its business model, future
performance, solvency or liquidity and reputation.
The Board has monitored the Company’s risk
management and internal control systems and
carried out a review of their effectiveness. Further
details are set out in Audit, Risk and Internal Control
on page 93. The Principal Risks and Uncertainties are
set out on page 62.
Strategic Report, pages 2-72
Board Leadership and Company Purpose,
pages 80-81
Directors’ Remuneration Report, pages 105-107
Directors’ Remuneration Report, pages 105-107
Directors’ Remuneration Report, pages 105-107
Continuing Appointment of the Investment Adviser
The continuing appointment of The Family (Music)
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 101.
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 94 for further
information on how this conclusion was reached.
Section 172(1)
The Section 172(1) statement is made on page 72.
It provides cross-references to the required detail set
out throughout this annual report.
Hipgnosis Songs Fund Limited Annual Report 2021
79
Governance Corporate Governance Statement
Board Leadership and Company Purpose
The Role of the Board
The Company is led and controlled by a Board of
Directors, which is collectively responsible for the long-
term success of the Company. It does so by acting in
the interests of the Company, creating and preserving
value and has as its foremost principle to act in the
interests of Shareholders.
Key Decisions
In making its decisions, the Board considered the
outcome from its stakeholder engagement. It also
considered the need to maintain a reputation for high
standards of business conduct. These are summarised
below and discussed in more detail as indicated:
• To initiate multiple fundraising activities, including
the issuing of C Shares and their subsequent
Conversion into Ordinary Shares [see page 10].
• To acquire 84 further Catalogues after individual
review [see page 103]. We rejected multiple
Catalogues as they did not meet our investment
criteria.
• To delegate controls over HSG’s employees to the
Investment Adviser [see page 50].
• To distribute quarterly dividends [see page 108].
• To change the Company’s functional and
presentation currency from Sterling to Dollars [see
page 10].
• To convert the Company to an to Investment Trust
Company [see page 10].
• To engage, through the Investment Adviser, with
the UK DCMS Parliamentary Committee Inquiry into
the economics of music streaming [see page 50].
• To continue to support Black Lives Matters as part
of our engagement with striving for racial equality
[see page 50].
• To recruit a new Non-executive Director
[see page 90].
• To increase the Directors’ Remuneration following
an external review [see page 105].
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 listed on
pages 87-89 set out their range of investment,
financial and business skills and experience.
Culture and Values
The Board recognises that tone and culture are set
from the top, and that every interaction with the
Company’s stakeholders all have a great influence on
the sustainability of long-term Shareholder value. This
can be the Board’s interaction with its Shareholders
or one of the Investment Adviser’s junior employees
dealing with one of the Company’s service providers.
The importance of sound ethical values and
behaviour is crucial to the ability of the Company to
achieve its objectives successfully.
The Board individually and collectively seeks to act
with diligence, honesty and integrity and expects the
same values from its service providers. It encourages
its members to express differences of perspective
and to challenge views and opinions but always
in a respectful, open, cooperative and collegiate
fashion. The Board encourages diversity of thought
and approach and chooses its members with this
approach in mind.
The Company’s culture emulates that of the
Investment Adviser, with a focus on long lasting
relationships with its investor base; investment
excellence delivered with integrity; and world-class
leadership backed by extensive industry knowledge
that will help create a Songwriter community rapport
and a diverse, innovative, multi-cultured portfolio of
Song assets.
80
Annual Report 2021 Hipgnosis Songs Fund Limited
Relations with Stakeholders
Relationships with stakeholders are discussed on
page 50.
The Board welcomes Shareholders’ views and
places great importance on communication with
its Shareholders. The Company reports formally to
Shareholders in a number of ways; regulatory news
releases through the London Stock Exchange’s
Regulatory News Service, annual and interim reports
and periodic factsheets issued in response to
events or routine reporting obligations. In addition,
the Company’s website contains comprehensive
information, including Company notifications, share
information, financial reports, investment objectives
and policy, investor contacts and information on the
Board and corporate governance. The Company
also holds an annual Capital Markets Day. It is the
Company’s intention to provide Shareholders with
a chance to engage with and learn more about the
opportunities for rights owners in the growing market
for music.
All major Shareholders were invited to meet with the
Chair and Committee Chairs during the year and
meetings were set up accordingly. The Board is also
kept fully informed of all relevant market commentary
on the Company by the Investment Adviser and
the Corporate Brokers. The Directors and Investment
Adviser receive informal feedback from analysts
and investors, which is presented to the Board by the
Corporate Brokers.
The Investment Adviser has regular contact with
Shareholders and any views that they may have are
communicated to the Board. All Shareholders have
direct access to the Chair and the other Directors,
who are available to discuss any questions which they
may have in relation to the running of the Company.
Following feedback on the disclosure and complexity
of the music royalties market, the Board decided
to ask the Investment Adviser to review how data
is presented. This resulted in enhanced information
in our financial presentation, as discussed with
the market in an online workshop on 16 March
2021, available on our website: https://www.
hipgnosissongs.com, and explained on page 28.
Financial results, events, corporate reports, webcasts
and factsheets are all stored in the Investor Relations
section of our website: https://www.hipgnosissongs.
com/investorinfo
Annual General Meeting
The Annual General Meeting (‘AGM’) will be held
on 15 September 2021. Due to the ongoing situation
surrounding COVID-19 and the restrictions on public
meetings, the Company will announce details of the
AGM later in the summer and will send the Notice of
AGM to Shareholders at that time.
It is hoped that Shareholders will be able to attend
the AGM in person should they wish to do so, although
this may be subject to Government restrictions and
advice in force at the time.
In the event that the situation changes and the
arrangements for the AGM have to be amended
after the Notice of the AGM has been issued, the
Company will update Shareholders through an
announcement to the London Stock Exchange and
on the Company’s website.
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.
Hipgnosis Songs Fund Limited Annual Report 2021
81
Governance Corporate Governance Statement
Division of Responsibilities
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 independence and
robustness of character in this role.
As part of the governance framework, the Board has
delegated some of its responsibilities to five committees:
the Audit and Risk Management Committee,
the Nomination Committee, the Management
Engagement Committee, Remuneration Committee
and the Portfolio Committee. The Board is satisfied
that the committees have sufficient time and
resources to carry out their duties effectively. Their
terms of reference are reviewed and approved
annually by the Board and the respective committee
Chairs report on their activities to the Board. Director
attendance at Board and committee meetings is
summarised on page 84.
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.
At 31 March 2021, the Board consisted of five
independent Non-executive Directors; an independent
Chair, one Senior Independent Director and three
independent Non-executive Directors. On 11 June 2021
an additional independent Non-executive Director
was appointed to the Board. 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 87-89, 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.
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
Management
Engagement
Committee
Nomination
Committee
Remuneration
Committee
Portfolio
Committee
Mr Andrew Wilkinson
Chair of the Committee
Mr Andrew Sutch
Chair of the Committee
Mr Paul Burger
Chair of the Committee
Mr Simon Holden
Chair of the Committee
Mr Paul Burger
Chair of the Committee
Mr Paul Burger
Ms Sylvia Coleman
Mr Simon Holden
Mr Andrew Sutch
Mr Paul Burger
Ms Sylvia Coleman
Mr Simon Holden
Mr Andrew Wilkinson
Ms Sylvia Coleman
Mr Simon Holden
Mr Andrew Sutch
Mr Andrew Wilkinson
Mr Paul Burger
Ms Sylvia Coleman
Mr Andrew Sutch
Mr Andrew Wilkinson
Ms Sylvia Coleman
Mr Simon Holden
Mr Andrew Sutch
Mr Andrew Wilkinson
Correct as of 31 March 2021
82
Annual Report 2021 Hipgnosis Songs Fund Limited
Committees of the Board
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.
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 (www.hipgnosissongs.com)
and are reviewed on an annual basis. Each
Committee has access to such external advice as it
may consider appropriate.
Committees are supplied with regular, comprehensive
and timely information in a form and of a quality that
enables them to discharge their duties effectively.
All committee members are able to make further
enquiries of the Investment Adviser or Administrator
whenever necessary and have access to the services
of the Company Secretary.
Minutes of all meetings of the committees are
made available to all Directors and feedback from
each of the committees is provided to the Board
by the respective committee Chair at the next Board
meeting.
Nomination Committee
The Nomination Committee’s activities are contained
in the Report of the Nomination Committee on
page 90.
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 94.
Management Engagement Committee
The Management Engagement Committee’s
activities are contained in the Report of the
Management Engagement Committee on page 101.
Remuneration Committee
The Remuneration Committee’s activities are
contained in the Report on Remuneration on
page 105.
Portfolio Committee
The Portfolio Committee’s activities are contained in
the Report of the Portfolio Committee on page 103.
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.
The Directors have access to the advice and services
of the Administrator, who also assist the Board in
ensuring that Board procedures are followed and
the Board complies with the Companies Law and
applicable rules and regulations of the GFSC and the
London Stock Exchange. Where necessary, in carrying
out their duties, the Directors may seek independent
professional advice and services at the expense of
the Company. The Company maintains appropriate
Directors’ and Officers’ liability insurance in respect of
legal action against its Directors on an on-going basis.
The Board’s responsibilities for the Annual Report are
set out in the Directors’ Responsibilities Statement
on page 111. 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.
Hipgnosis Songs Fund Limited Annual Report 2021
83
Governance Corporate Governance Statement / Divison of Responsibilities
Board committee attendance from 1 April 2020 to 31 March 2021:
Paul Burger 2
Sylvia Coleman
Simon Holden4
Andrew Sutch 1
Andrew Wilkinson3
Scheduled
Ad-hoc
Board
Board
Meetings
Meetings
4 of 4 29 of 30
4 of 4 30 of 30
4 of 4 30 of 30
4 of 4 30 of 30
4 of 4 28 of 30
Committee
of the Board
1 of 2
1 of 2
1 of 2
2 of 2
1 of 2
Audit and Risk
Management
Committee
Portfolio
Committee
3 of 3 33 of 33
3 of 3 33 of 33
3 of 3 33 of 33
3 of 3 33 of 33
3 of 3 31 of 33
Nomination
Committee
4 of 4
4 of 4
4 of 4
4 of 4
4 of 4
Management
Engagement
Committee
2 of 2
2 of 2
2 of 2
2 of 2
2 of 2
Remuneration
Committee
Total5
Meetings
attended
1 of 1 77 of 79
1 of 1 78 of 79
1 of 1 78 of 79
1 of 1 79 of 79
1 of 1 74 of 79
1. Chair of Board Meetings
2. Chair of Portfolio Committee Meetings and Nomination Committee Meetings
3. Chair of Audit and Risk Management Committee Meetings
4. Chair of Remuneration Committee
5. Directors work extensively with the Investment Adviser, brokers and administrator on strategy, acquisition, operating and reporting related
matters between the formal Board meetings recorded herewith. Compared with typical investment trusts, this highlights the more executive
level of management and oversight commensurate with the intrinsic opportunities and risks of this high-growth, intangible asset class
A quorum is comprised of any two or more members of the Board from time to time, to perform administrative
and other routine functions on behalf of the Board.
Attendance
The Board and its Committees have a scheduled
forward programme of meetings to ensure that
sufficient time is allocated to each key area and the
Board’s time is used effectively.
The Board meets at least four times a year for regular
quarterly Board meetings. At each meeting the Board
follows a formal agenda that covers the business to
be discussed. There is sufficient flexibility for items to
be added to the agenda which enables the Board
to focus on key matters relating to the Company
at the right time. Each Board member receives a
comprehensive Board pack prior to each meeting
together with supporting papers for items to be
discussed at the meeting.
In addition, a considerable number of ad-hoc
Board meetings and Portfolio Committee meetings
(as detailed on page 104), were called in relation
to specific events or to issue approvals and did not
necessarily require full attendance. These meetings
were often at short notice and were very well
attended by Board and Committee members. 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. In response to the level of
activity during the year the Board and certain of its
committees met more frequently than usual and also
held a number
of calls between meetings.
Directors who have been unable to attend a meeting
have, without exception, given the Chair their
views and comments on matters to be discussed, in
advance. In addition to their meeting commitments,
the Directors also liaise with the Investment Adviser
whenever required and there is regular contact
outside the Board meeting schedule. Due to the
restrictions imposed by the COVID-19 pandemic, all
of these meetings were held via video-conference.
Whilst the the Directors have appreciated the
continuity of online meetings, they wish to exploit
the value of face-to-face meetings with the
Investment Adviser.
In the future, Directors are likely to split their
attendance between meetings for routine work that
can be performed effectively remotely, versus in-
person meetings to discuss strategic matters, as well
as the formal quarterly Board meetings.
84
Annual Report 2021 Hipgnosis Songs Fund Limited
Time Commitment and Conflicts of Interest
Prior to appointment, each prospective Non-
executive Director confirms that they will have
sufficient time available to be able to discharge their
responsibilities effectively and that they have no
conflict of interest. In addition, the Board reviews and
approves in advance, requests by Directors wishing
to undertake new responsibilities or directorships
and considers both the time commitments involved
and any potential conflicts. A Director has a duty
to avoid a situation in which he or she has, or can
have, a direct or indirect interest that conflicts,
or possibly may conflict, with the interests of the
Company. The Board requires Directors to regularly
declare all appointments and other situations that
could result in a possible conflict of interest and
has adopted appropriate procedures to manage
and, if appropriate, approve any such conflicts.
The Board is satisfied that there is no compromise
to the independence of those Directors who have
appointments on the Boards of, or relationships with,
companies outside the Company.
Throughout the year, all Directors have excellent
attendance records at scheduled meetings,
and demonstrated high levels of availability
and responsiveness for additional meetings and
discussions where these have been required. The
Board remains confident that individual members
continue to devote sufficient time to undertake their
responsibilities effectively.
Director Independence
The Board confirms that all Directors should be
considered as independent in accordance with
the provisions of the AIC Code and have the time
available to discharge their duties effectively.
Accordingly, the Board recommends that Shareholders
vote in favour of the re-election of all Directors at the
forthcoming AGM.
Hipgnosis Songs Fund Limited Annual Report 2021
85
Governance Corporate Governance Statement
Composition, Succession and Evaluation
will provide a clear explanation with future 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 2021. The Board believes that annual
evaluations are helpful and provide a valuable
opportunity for continuous improvement. Internal
evaluation of the Board, individual Directors and
the Chair is carried out under the mandate of the
Nomination Committee. Plans are being made for
the performance of external Board evaluations in
the future. The internal evaluation was facilitated by
the Company Secretary with input from the Chair of
the Board, the Senior Independent Director and the
Chair of the Committees. The review required each
of the Directors to submit responses to a series of
questionnaires to reflect their individual performance,
the performance of the Board as a whole and the
main areas under consideration by the Board and
its Committees. All responses were compiled and
discussed at the Board and relevant Committee
meetings.
The evaluation concluded that the Board is
performing well and is carrying out its responsibilities
in the areas reviewed which incorporated: investment
matters, Board composition and independence,
relationships and communication, Shareholder
value, knowledge and skills, Board processes and
the performance of the Chair. The review found that
the Board conducts its business in an environment
where freedom of expression, diversity of opinions
and challenge are both encouraged and accepted.
The Board believes that the current mix of skills,
experience, knowledge and age of the Directors is
now appropriate to the requirements of the Company
following the appointment of Vania Schlogel on
11 June 2021. The review identified some areas for
further development and actions have already been
created for key areas and incorporated into planning
for 2022. These include a strategy for improved
engagements with specific stakeholders and the
further development of the long-term strategy of the
business and its associated risks.
Board composition and tenure
To ensure that serving Non-executive Directors of the
Company continue to possess the necessary skills and
experience required for the strategy of the business,
the Board has established a Nomination Committee to
oversee the process of appointments and succession
planning for Directors. The role of the Nomination
Committee is critical in ensuring that the Company’s
Board and Committee composition and balance
support both the Group’s business ambitions and
best practice in the area of corporate governance.
There were no changes to the Board during the
year ended 31 March 2021. However, on 11 June 2021
Vania Schlogel was appointed as a Non-executive
Independent Director; further information is included
in the Report of the Nomination Committee on
pages 90-92.
Upon joining the Board, the Directors received induction
programmes which were specifically designed to
complement their background, experience and
knowledge, as well as on-going access to training.
Directors are appointed under letters of appointment,
copies of which are available at the registered office
of the Company. The Board considers its composition
and succession planning on an on-going basis. The
Company’s Articles of Incorporation specify that each
of the Directors shall retire and may offer themselves
for re-election at each AGM of the Company.
No member of the Board has served for longer
than nine years. As such no issue has arisen to be
considered by the Board with respect to long tenure.
The Company’s policy on Chair tenure is that the Chair
should normally serve no longer than nine years as a
Director and Chair but, where it is in the best interests
of the Company, its Shareholders and stakeholders,
the Chair may serve for a limited time beyond that.
In accordance with the AIC Code, when and if
any Director shall have been in office (or on re-
election would at the end of that term have been
in office) for more than nine years the Company will
consider further whether there is a risk that such a
Director might reasonably be deemed to have lost
independence through such long service. The
Board recognises that Directors serving nine years
or more may appear to have their independence
impaired. However, the Board may nonetheless
consider Directors to remain independent and
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Corporate Governance Statement
Biographies
Board of Directors
Governors at The BRIT School for
six years, a State-funded school
for 1400 students aged 14-19,
dedicated to the performing and
creative arts, where he continues
to serve as a Governor. He is also
a Director of The New Israel Fund
UK and a member of their global
International Council – an NGO
which promotes the values of
human rights and social justice for
all residents of Israel regardless of
race, religion, or ethnicity.
Andrew Sutch
Chair, Non-executive Independent
Director and Chair of the Management
Engagement Committee
Paul Burger
Senior Non-executive Independent
Director, Chair of the Portfolio
Committee and Chair of the
Nomination Committee
Tenure: 2 years 10 months
Tenure: 2 years 9 months
Skills and Experience
Mr Sutch is a corporate lawyer
and a consultant to Stephenson
Harwood LLP. He was a partner
of that firm for over 30 years and
its senior partner for 10 years. He
has had extensive experience
in advising investment funds,
investment managers and boards
of investment trusts. This has
included advice on complex
fund launches, restructurings
and corporate actions. He is a
consultant to an art dealer and
a council member of the Royal
Academy of Dramatic Art.
Listed Company Roles (other
than Hipgnosis Songs Fund)
Chair of two other investment
trusts: JPMorgan Claverhouse
Investment Trust plc and European
Opportunities Trust plc.
Skills and Experience
Mr Burger has spent more than
40 years in the music business
working closely with artists from
Leonard Cohen to Celine Dion
amongst many others. 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 while
winning and being nominated
for awards including The Mercury
Music Prize, The USA Songwriting
Competition, The BBC Radio Folk
Awards and many others. His
marketing skills were recognised
by him being awarded Holland’s
Edison Award for Best Historical
Music Series.
Mr Burger began his career after
graduating from The Wharton
School with honours and he
rose through the ranks within
Sony Music in Tel Aviv, Paris,
London, and Toronto. His 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, as well as Chair of the Music
Managers Forum Governance
and Nomination Committee.
Mr Burger served as Chair of
Hipgnosis Songs Fund Limited Annual Report 2021
87
Governance Corporate Governance Statement / Biographies
Board of Directors
Sylvia Coleman
Non-executive Independent Director
Simon Holden
Non-executive Independent Director
and Chair of the Remuneration
Committee
Tenure: 1 year 4 months
Tenure: 2 years 10 months
Skills and Experience
Ms Coleman, initially a lawyer
with Stephenson Harwood, has
since spent most of her career in
the Music Industry serving, across
25 years, as Senior Vice President
of Legal and Business Affairs at
EMI Music and prior to that, Sony
Music where she was responsible
for overseeing the company’s
International and European legal
and business affairs respectively.
Most recently, she co-founded
BPureSounds, a boutique IP rights
company developing music
related properties. Additionally,
Ms Coleman was a Non-executive
Director of FTSE 250 bwin.party
digital entertainment plc until its
acquisition by GVC Holdings plc.
She also served as a long-standing
Chair of Chickenshed Theatre
Company, a not for profit music
and theatre company for young
people celebrating diversity and
inclusion and was on the Board
of Reprieve, a charitable human
rights organisation. She also
co-founded Ceroc Enterprises,
a dance company creating and
franchising a contemporary dance
phenomenon across the UK.
Skills and Experience
Mr Holden (British, Guernsey
Resident) 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, Mr Holden 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.
He graduated from the University
of Cambridge with an MEng and
MA (Cantab) in Manufacturing
Engineering. He is a member of
the Association of Investment
Companies (‘AIC’), Institute
of Directors (‘IoD’), Guernsey
Investment Funds Association
(‘GIFA’) and several other financial
services and intellectual property
interest groups.
Listed Company Roles (other
than Hipgnosis Songs Fund)
HICL Plc. (HICL), Chrysalis
Investments Ltd. (CHRY), Trian
Investors 1 Ltd. (TI1), JPMorgan
Global Core Real Assets Ltd. (JARA)
Vania Schlogel
Non-executive Independent Director
Tenure: 0 months
(Appointed on 11 June 2021)
Skills and Experience
Ms Scholgel brings 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
licensing. 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. Before
that, she was 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 LA.
She is the Chairwoman of the
Board for Epidemic Sound and
Chairwoman of the Board for
LEONINE Studios.
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Annual Report 2021 Hipgnosis Songs Fund Limited
Andrew Wilkinson
Non-executive Independent Director
and Chair of the Audit and Risk
Management Committee
Tenure: 2 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.
Founder
Merck Mercuriadis
Founder of Hipgnosis Songs Fund
Limited and its Investment Adviser,
The Family (Music) Limited
Mr Mercuriadis is also the CEO and
managing partner of Hipgnosis Songs
Ltd, an artist management firm label
based in London and Los Angeles.
Experience
Mr Mercuriadis is the manager
of music legend Nile Rodgers and
the former manager of several
notable award-winning artists
and Songwriters including Sir
Elton John, Guns’N’Roses, Iron
Maiden, Morrissey, Pet Shop Boys,
Mary J. Blige, Jane’s Addiction,
Diane Warren and Justin Tranter
to name a few. Additionally,
Mercuriadis is notable for serving
from 1986-2007 as Director and
CEO of The Sanctuary Group PLC,
a major management company,
an independent record label, a
merchandise company (Bravado)
and a booking agency (Helter
Skelter now CAA UK) based in
London, New York and Los Angeles.
Hipgnosis Songs Fund Limited Annual Report 2021
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Governance Corporate Governance Statement
Report of the Nomination Committee
Purpose and Aim
The terms of reference of the Nomination Committee,
which are reviewed annually, are set out on the
Company’s website (www.hipgnosissongs.com). The
principal responsibility of the Nomination Committee
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, the Nomination Committee
recommends new Board appointments as and
when considered appropriate and ensures that
appropriate succession planning procedures are in
place. In accordance with our Terms of Reference,
I, as the Chair of the Nomination Committee,
report our conclusions to the Board and it is the
Board as a whole which is responsible for making
new appointments upon our recommendation.
The committee keeps under review and evaluates
the composition of the Board and its committees
to maintain the appropriate balance of skills,
knowledge, experience and independence to ensure
their continued effectiveness. Appropriate succession
plans are also kept under review.
Membership and Meetings
During the year the Nomination Committee met on
four occasions, on 16 June 2020, 13 October 2020,
27 October 2020 and 15 December 2020. Attendance
is disclosed on page 84. The committee also provides
a formal update on their work to the Board at each
scheduled quarterly board meeting. A quorum is
two members. Members of the committee are not
involved in matters affecting their own position. As at
31 March 2021, 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
Mr Andrew Sutch
Mr Andrew Wilkinson
During the year, the Nomination Committee
considered the Board’s composition, diversity and
structure and engaged with the executive search firm
Tyzack Associates resulting in the appointment of an
additional Director, Vania Schlogel on 11 June 2021.
Board Composition
The Nomination Committee gives full consideration to
succession planning for Directors of the Company in
the course of its work, considering the challenges and
“The committee understands the
importance of its role in ensuring the Board
contains the right mix of skills and experience
to support the business strategy.”
Dear Shareholder,
I am pleased to present the Nomination Committee
report for the year ended 31 March 2021. The
composition of the Nomination Committee meets
with the requirements of the AIC Code and, in line
with good practice, membership is reviewed annually.
The committee’s work for 2022 will be focussed on
composition of the Board and membership of its
committees, succession planning, talent and diversity.
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Annual Report 2021 Hipgnosis Songs Fund Limited
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, the committee considers the skills,
knowledge, experience, independence and also the
time commitments of each Director to ensure that
they have sufficient time to fulfil their responsibilities to
the business.
Directors regularly meet with the senior management
employed by the Investment Adviser both formally
and informally to ensure that the Board remains
regularly updated on all issues. New Directors receive
an induction on joining the Board. The Board arranges
for presentations from the Investment Adviser, the
Company’s brokers and other advisers on matters
relevant to the Company’s business. The Board assesses
the training needs of Directors on an annual basis.
As part of corporate governance, the committee
reviews its own performance annually and considers
where improvements can be made. The committee's
performance was reviewed in March 2021 as part of
the Board and committee effectiveness as outlined
on page 96.
Board Appointment Process
In general terms, when considering candidates
for appointment as Directors of the Company,
the Nomination Committee drafts a detailed job
specification and candidate profile. In drafting this,
consideration is given 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, the committee 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 the committee, would be invited
to meet the entire Board before any decision is
taken relating to the appointment. Appointments
are therefore made on personal merit and against
objective criteria with the aim of bringing new
skills and different perspectives to the Board whilst
considering the existing balance of knowledge,
experience and diversity. The Board also believes
that diversity of experience and approach, including
gender and racial diversity, amongst Board members
is of great importance and it is the Company’s
policy to give careful consideration to issues of
Board balance and diversity when making new
appointments.
During the year, the committee dealt with the search
for an additional Director. The Nomination Committee
worked closely with Tyzack Associates to identify
candidates with particular music-market related
financial skills and knowledge of the streaming
industry, while also seeking to increase Board
diversity and considering the strategic objective of
the Company to further expand in the USA. Tzyack
Associates, who were appointed after a survey of
potential outside advisors and after interviewing
three search firms, worked earlier in the year with
the Remuneration Committee on an independent
Board remuneration review. They have no known
relationships with the Directors. In advance of
making their proposal, the Nomination Committee,
presented the three most suitable candidates to the
Chair of the Board for an interview. The Nomination
Committee had confirmed to the Board that the
proposed candidates were independent and had
relevant experience. The Chair advised that following
the interview process, each candidate had met with
the Directors either in person or had spoken with
them on the telephone. This process resulted in the
appointment of Vania Schlogel to the Board on
11 June 2021. Vania brings 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
licensing.
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
Hipgnosis Songs Fund Limited Annual Report 2021
91
Governance Corporate Governance Statement / Report of the Nomination Committee
its committees have the appropriate mix of skills,
experience, independence and knowledge to
ensure their continued effectiveness. In doing so,
the Board considers diversity, including diversity of
age, gender and cultural background, amongst
other relevant factors. The Board recognises the
progress being made to improve the governance
of listed companies by increasing both gender and
racial diversity amongst the Directors who serve
these businesses. The Board supports the Hampton-
Alexander recommendations and Parker Review
recommendations. Female representation on the
Board is currently at 33% following Vania Schlogel’s
appointment.
Our objective of driving the benefits of a diverse
Board is underpinned by our Board Diversity Policy
which was implemented during the year and
which can be viewed on the Company’s website
(www.hipgnosissongs.com). 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.
2022 Objectives
It is the Nomination Committee’s 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.
The proposed activities for the committee for the year
ahead are to:
• review the Terms of Reference of the committee to
ensure they reflect best practice under the Code;
• continue to monitor and assess the Board’s
composition and diversity;
• review the membership and composition
of committees of the Board; and
• review longer-term strategy for the succession
of Board members.
On behalf of the Nomination Committee,
Paul Burger
Chair of the Nomination Committee
4 July 2021
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Annual Report 2021 Hipgnosis Songs Fund Limited
Corporate Governance Statement
Audit, Risk and Internal Control
Internal Control and Financial Reporting
The Directors acknowledge that they are responsible
for establishing and maintaining the Group’s system
of internal controls and reviewing their effectiveness.
Internal control systems are designed to manage
rather than eliminate the failure to achieve business
objectives and can only provide reasonable but not
absolute assurance against material misstatements or
loss. The key procedures which have been established
to provide internal control are:
• the Board has delegated the day to day operations
of the Group to the Administrator, Investment
Adviser and Preferred Portfolio Administrators;
however, it remains accountable for all functions it
delegates;
• the Board clearly defines the duties and
responsibilities of the Company’s agents and
advisers and appointments are made by the Board
after due and careful consideration. The Board
monitors the on-going performance of such agents
and advisers and will continue to do so through the
Management Engagement Committee;
• the Board monitors the actions of the Investment
Adviser at regular Board meetings and is also given
frequent updates on developments; and
• the Administrator provides administration and
company secretarial services to the Company. The
Administrator maintains a system of internal control
on which it reports to the Board.
The Company’s key service providers demonstrated
a resilience of controls under COVID-19, as in order to
comply with restrictions their employees continued to
assume their day-to-day responsibilities remotely.
Internal controls over financial reporting, which also
include oversight of the covenants, are designed
to provide reasonable assurance regarding the
reliability of financial reporting and the preparation
of financial statements for external reporting
purposes. The Administrator and Investment
Adviser both operate risk controlled frameworks
on a continual ongoing basis within a regulated
environment. The Administrator undertakes an
ISAE 3402: Assurance Report on Controls at a Service
Organisation audit annually which is provided to
the Board when finalised. The Administrator formally
reports to the Board quarterly through a compliance
report. The Investment Adviser also formally reports
to the Board quarterly, including relevant updates
regarding their policies and procedures, and also
engages with the Board on an ad-hoc basis as required.
No weaknesses or failing within the Administrator or
Investment Adviser have been identified.
Following the inadvertent temporary breach
discussed on page 10, the Directors acknowledge
that the Investment Adviser has enhanced the
internal control process with regards to the specific
matter.
The systems of control referred to above are designed
to ensure effectiveness and efficient operation,
internal control and compliance with laws and
regulations. In establishing the systems of internal
control, regard is paid to the materiality of relevant
risks, the likelihood of costs being incurred and costs
of control. It follows, therefore, that the systems of
internal control can only provide reasonable but
not absolute assurance against the risk of material
misstatement or loss. This process has been in place
for the year under review and up to the date of
approval of this Annual Report and Consolidated
Financial Statements. It is reviewed by the Board
and is in accordance with the FRC’s internal control
publication: Guidance on Risk Management, Internal
Control and Related Financial and Business Reporting.
The Board has reviewed the need for an internal
audit function and has decided that the systems
and procedures employed by the Administrator
and Investment Adviser, including their own internal
controls and procedures, provide sufficient assurance
that an appropriate level of risk management and
internal control, which safeguards Shareholders’
investment and the Group’s assets, is maintained.
An internal audit function specific to the Company is
therefore considered unnecessary.
Hipgnosis Songs Fund Limited Annual Report 2021
93
Governance Corporate Governance Statement
Report of the Audit and Risk Management
Committee
Purpose and Aim
The terms of reference of the Audit and Risk
Management Committee, which are reviewed
annually, are set out on the Company’s website
(www.hipgnosissongs.com) 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.
The primary functions of the Audit and Risk
Management Committee 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
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.
The Audit and Risk Management Committee
formally reports its findings to the Board,
identifying any matters on which it considers that
action or improvement is needed, and makes
recommendations on the steps to be taken.
“The committee performs a vital role with
regards to financial reporting, monitoring
and reviewing internal controls and assessing
the principal risks facing the Company.”
Dear Shareholder,
I am pleased to present the Audit and Risk
Management Committee report for the year ended
31 March 2021, which has been approved by both
the Audit and Risk Management Committee and
the Board.
The committee has 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. The main aspects considered by
the committee included valuations of catalogues,
change in presentation and functional currency and
a review of the Company’s risk matrix.
These topics will remain key areas for the year
ahead and the committee will continue to support
the Board.
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Annual Report 2021 Hipgnosis Songs Fund Limited
Membership and Meetings
During the year the committee:
Composition of the Audit and Risk
Management Committee
As at 31 March 2021, given the current size of the Board,
the composition of the committee is all Directors.
• reviewed the terms of reference of the Audit and Risk
Management Committee for approval by the Board;
• conducted a detailed review of the Interim Report
and recommended it for approval by the Board;
Mr Andrew Wilkinson (Chair of the committee)
Mr Paul Burger
Ms Sylvia Coleman
Mr Simon Holden
Mr Andrew Sutch
The Chair of the Board is currently a member of
the Audit and Risk Management Committee and
the Board as a whole considers Mr Sutch to be an
independent Non-executive Director. Due to the
further expansion of the Board the composition and
membership of the Audit and Risk Management
Committee is under review by the Nomination
Committee and the membership will be adjusted,
if considered advisable, following that review. 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. Mr Andrew Wilkinson, as Chair, is a chartered
accountant and is deemed to have recent and
relevant experience. 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 87-89. The Audit and Risk Management
Committee’s performance is evaluated as part of
the overall evaluation of the Board and the Board
committees as further disclosed on page 86.
Meeting Schedule
The committee has an annual work plan, developed
from its terms of reference, with standing items
that the committee considers at each meeting, in
addition to any specific matters arising and topical
items on which the committee has chosen to focus.
During the year the Audit and Risk Management
Committee met formally on three occasions, on 2 July
2020, 3 December 2020 and 29 January 2021, and
attendance at those meetings is shown on page 84
of the Corporate Governance Report. The committee
also provides a formal update on their work to the
Board at each scheduled quarterly Board meeting.
• reviewed the Group’s risk matrix and made
observations for further consideration;
• reviewed and approved the audit plan and final
Audit and Risk Management Committee report
of the auditor;
• 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;
• reviewed the Group’s key risks and internal controls;
and
• after the interim financial statements were released,
reviewed the accounting policies and format of
the Interim Financial Statements, which included
approving a change in presentation and functional
currency.
Financial Reporting
The primary role of the Audit and Risk Management
Committee 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
and governance reporting requirements;
• material areas in which significant judgments have
been applied or there has been discussion with
external consultants;
• 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.
Hipgnosis Songs Fund Limited Annual Report 2021
95
Governance Corporate Governance Statement / Report of the Audit and Risk Management Committee
To aid its review, the Audit and Risk Management
Committee considers reports from the Investment
Adviser and the external auditor.
Significant issues considered by the Audit and
Risk Management Committee during the year:
Presentation and Functional Currency Change
As disclosed in Note 2n) on pages 134-135, the
Company changed its presentation and functional
currency from Sterling to Dollars with effect from
1 October 2020. The Board approved this change
following consultation with the Investment Adviser,
the Administrator and the external auditor. Following
assessment, the Board agreed with the conclusion
that as the majority of catalogues, revenues and
transactions are denominated in Dollars, the primary
economic environment in which the Company
operates had fundamentally shifted. The share
capital of the Company is denominated in Sterling
and dividends will continue to be paid in Sterling.
Under IFRS these are considered to be secondary
indicators of functional currency and the Company
was acquiring proportionally more Dollar than Sterling
catalogues. The fundamental shift was triggered by
the acquisition of Big Deal Music Group (which has
since been rebranded Hipgnosis Songs Group) and
the Kobalt Music Copyrights Sarl on 10 September
2020 and 30 September 2020 respectively. The
acquisition of the former has led to a Dollar operating
company being part of the Group. The restructuring
of the debt facility from Sterling to Dollars pays further
testament to this fundamental shift and is a result
of the Company’s strategic objective of deeper
expansion in the US market. The Board also reviewed
and approved the methodology applied to effect this
change as disclosed on page 80.
Valuations of Catalogues
The Board engaged the Portfolio Independent Valuer,
Massarsky Consulting, Inc., to value the Catalogues as
at 30 September 2020 and as at 31 March 2021. Each
income type from each Catalogue was analysed and
forecast to derive the fair value of the Catalogues
by adopting a DCF valuation methodology using a
discount rate of 8.5%, unchanged since the interim
results of 30 September 2020 (31 March 2020: 9.0%).
Income was analysed and forecast at the level of
each individual Catalogue (Kobalt was analysed at a
Fund level) and by income type. Future revenues were
also estimated, often at the level of individual Songs,
and incorporated into their valuation. Massarsky
Consulting, Inc., has also taken into consideration
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Annual Report 2021 Hipgnosis Songs Fund Limited
macro factors including the growth of streaming
revenue, the global growth of the recorded music
industry and the short- and medium-term impact
of COVID-19 in their analysis. The Board received
a report from Massarsky Consulting, Inc., 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 141-142..
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, the Audit and Risk
Management Committee reviewed the effectiveness
of the Group’s risk management processes and the
way in which significant business risks are managed.
The work of the Audit and Risk Management
Committee is driven primarily by the Company’s
assessment of its principal risks and uncertainties as
set out in the Strategic Report on page 62. The Audit
and Risk Management Committee has 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 records them on
a risk matrix together with the controls employed
to mitigate these risks. It has a process in place to
identify emerging risks and determines whether any
actions are required. A residual risk rating has been
applied to each risk. The Audit and Risk Management
Committee is responsible for reviewing the risk matrix
and associated controls before recommending to the
Board for consideration and approval, challenging
the Investment Adviser’s assumptions to ensure a
robust internal risk management process.
During the year the Audit and Risk Management
Committee reviewed the risk matrix and made some
observations for further consideration, in respect of
cyber security, expansion into USA exchange rate risk
and the impact of the COVID-19 pandemic. More
details on all of these key risk management activities
are provided on pages 62-65.
During the year, the Audit and Risk Management
Committee discussed and reviewed the internal
controls frameworks in place at the Investment
Adviser, the Administrator and Hipgnosis Songs
Group. 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, manage-
ment and monitoring of financial, regulatory and
other risks, with particular regard to the protection
of the interests of the Company’s Shareholders.
Internal Audit
The Audit and Risk Management Committee continues
to review the need for an internal audit function
and has 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. The Audit and Risk
Management Committee has therefore concluded
that an internal audit function specific to the Company
is considered unnecessary. The Chair of the Audit and
Risk Management Committee is available on request
to meet investors in relation to the Company’s financial
reporting and internal controls.
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 prudent calculation. These
calculations are reviewed by the Board with the
Investment Adviser and the Auditors;
• The estimated amortisation booked per annum
is based on 20 years which is the Company’s
judgment of the useful life of the asset; and
• Indicators of impairment are considered on a
timely basis and a judgment would be made as to
whether a Catalogue should be written down.
Fair, Balanced and Understandable
At the request of the Board, the committee has
considered whether in its opinion the 31 March 2021
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.
The committee was provided with a full draft of the
report 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
its review, the committee was of the opinion that
the 2021 Annual Report and Financial Statements
are representative of the year and present a fair,
balanced and understandable overview, providing
the necessary information for the Shareholders to
assess the position, performance, business model
and strategy.
External Audit
The Audit and Risk Management Committee is the
formal forum through which the external auditor
reports to the Board. The external auditor is invited to
attend the Audit and Risk Management Committee
meetings as the Board deems appropriate. The
external auditor also has the opportunity to meet with
the Audit and Risk Management Committee 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. The Audit and Risk
Management Committee shall give advance notice
of any retendering plans within the Annual Report.
The Audit and Risk Management Committee has
considered the re-appointment of the Auditor and
decided not to put the provision of the external audit
out to tender at this time.
Hipgnosis Songs Fund Limited Annual Report 2021
97
Governance Corporate Governance Statement / Report of the Audit and Risk Management Committee
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 its responsibility regarding the independence
of the external auditor, the Audit and Risk
Management Committee 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
The Audit and Risk Management Committee seeks 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.
The Audit and Risk Management Committee
regularly monitors 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 their role
as reporting accountant for the Prospectus issued
in January 2021 and respective comfort letters in
September 2020 for a retail offer via PrimaryBid of
up to 3,642,583 new Ordinary Shares and the non-
pre-emptive placing of Ordinary Shares under the
Company’s existing placing programme pursuant
to the previous prospectus, published by the
Company in September 2019.
PricewaterhouseCoopers Cl LLP were appointed on
14 January 2019 as the Company’s external auditor
with Mr Roland Mills as the lead audit partner who
can serve as such until the year ended 31 March 2024
in accordance with normal audit partner rotation
arrangements at which point a new audit partner will
be introduced to the Company. The Companies Law
requires the reappointment of the external auditor to
be subject to Shareholders’ approval at the AGM.
Effectiveness of the External Auditors
The committee evaluated the performance of
PricewaterhouseCoopers Cl LLP during the year
and also reviewed the effectiveness of the external
audit process.
The following factors were considered:
• the quality of the interactions between the audit
team and the committee and other Board members
involved in the preparation of the accounts;
• the external auditors’ progress achieved against
the agreed audit plan and communication of
any changes to the plan, including changes in
perceived audit risks;
• the competence with which the external auditors
handled the key accounting and audit judgments
and communication of the same with management
and the committee;
• the external auditors’ compliance with relevant
regulatory, ethical and professional guidance on
the rotation of partners;
• the external auditors’ qualifications, expertise and
resources and their own assessment of their internal
quality procedures; and
• the stability and continuity that would be provided
by continuing to use PricewaterhouseCoopers Cl LLP.
Independence of External Auditor
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 is reviewed by the Audit and
Risk Management Committee. In order to safeguard
external auditor independence and objectivity, the
Audit and Risk Management Committee ensures
that no other advisory and/or consulting services
are provided by the external auditor. Any non-audit
services conducted by the external auditor outside of
these areas require the consent of the Audit and Risk
Management Committee before being initiated.
98
Annual Report 2021 Hipgnosis Songs Fund Limited
Nature of service
Fee ($’000)
Threat(s) to independence
Safeguard(s) in place
$11 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.
The total non-audit fees for the year are less
than the total proposed audit fee for the year
ended 31 March 2021, and the total fees paid to
the Group for both audit and non-audit services
is immaterial to total PricewaterhouseCoopers
Cl LLP firm revenue.
C Share
conversion
Reporting
accountant
services
$346 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 reporting accountant team.
Interim review
$54 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.
$411
The total non-audit fees for the year are less
than the total proposed audit fee for the year
ended 31 March 2021, and the total fees paid to
the Group for both audit and non-audit services
is immaterial to total PricewaterhouseCoopers
Cl LLP firm revenue.
The reporting accountant services rendered
are delivered and supervised by a separate
independent team, including a partner and
manager fully independent of the audit team,
to ensure appropriate segregation.
The total non-audit fees for the year are less
than the total proposed audit fee for the year
ended 31 March 2021, and the total fees paid to
the Group for both audit and non-audit services
is immaterial to total PricewaterhouseCoopers
Cl LLP firm revenue.
Non audit services are all pre approved by the Chair
of the Audit and Risk Management Committee, and
were limited to reporting accountant work regarding
the fund raising in December 2020 and the execution
of the Company’s first Interim Review Report. Both
these non-audit services are permissible under the
FRC’s Revised Ethical Standard 2019. Additionally, the
level of audit fees to non-audit fees was considered
appropriate and in line with the acceptable threshold
applicable to the Company as a Guernsey domiciled
company.
All approved non-audit services are discussed
and sanctioned at meetings of the Audit and Risk
Management Committee.
Audit fees were $732,000 and non audit fees were
$411,000 for the year ending 31 March 2021. Details
of Auditor’s Remuneration are set out in Note 21, on
page 157. The ratio of audit to non-audit work is 1.78:1
Notwithstanding such services, the Audit
and Risk Management Committee considers
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. The
Audit and Risk Management Committee was 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.
Hipgnosis Songs Fund Limited Annual Report 2021
99
Governance Corporate Governance Statement / Report of the Audit and Risk Management Committee
• 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.
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
4 July 2021
Review of External Auditor
Details of fees paid to PricewaterhouseCoopers Cl LLP
during the year are disclosed in Note 21 on page
157. The Audit and Risk Management Committee
approved these fees after a review of the level and
nature of work to be performed, and is satisfied
that they are appropriate for the scope of the work
required.
The Audit and Risk Management Committee is
satisfied with PricewaterhouseCoopers Cl LLP’s
effectiveness and independence as external
auditor having considered the degree of diligence
and professional scepticism demonstrated by
them. As such, the Audit and Risk Management
Committee has not considered it necessary this year
to conduct a tender process for the appointment
of its external auditor. Having carried out the
review described above and having satisfied itself
that the external auditor remains independent
and effective, the Audit and Risk Management
Committee has recommended to the Board that
PricewaterhouseCoopers Cl LLP be reappointed as
external auditor for the year ending 31 March 2022.
A resolution to reappoint PricewaterhouseCoopers Cl
LLP as independent external auditor to the Company
will be proposed at the forthcoming AGM.
2022 Objectives
It is the Audit and Risk Management Committee’s
intention to continue to oversee the Company’s
governance framework, providing valuable
independent challenge and oversight.
The proposed activities for the Committee for the year
ahead, in line with the core functions, include but are
not limited to:
• 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;
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Annual Report 2021 Hipgnosis Songs Fund Limited
Corporate Governance Statement
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 Report for the year ended 31 March 2021,
which has been approved by both the Management
Engagement Committee and the Board.
During the year, the Committee reviewed the
performance of and contractual arrangements with
the Investment Adviser and the Company’s other
third-party service providers. Overall, the Committee
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.
The Committee’s 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
The terms of reference of the Management
Engagement Committee, which are reviewed
annually, are set out on the Company’s website
(www.hipgnosissongs.com).
The Management Engagement Committee
provides a formal mechanism for the review of the
performance of the Investment Adviser and the
Company’s other advisers and service providers.
It carries out this review through consideration of
a number of objective and subjective criteria 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 2021, the Committee comprised:
Mr Andrew Sutch (Chair of the Committee)
Mr Paul Burger
Ms Sylvia Coleman
Mr Simon Holden
Mr Andrew Wilkinson
The Management Engagement Committee meets at
least once a year pursuant to its terms of reference.
During the year the Management Engagement
Committee met on two occasions, on 16 June 2020
and 16 March 2021. Attendance is disclosed on
page 84. 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
has, however, entered into an Investment Advisory
Agreement dated 27 June 2018 with the Investment
Adviser under which the Investment Adviser will
advise the Company in relation to the acquisition,
holding, disposal and management of Songs,
whether organised into Catalogues or otherwise.
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.
Hipgnosis Songs Fund Limited Annual Report 2021
101
Governance Corporate Governance Statement / Report of the Management Engagement Committee
2022 Objectives
It is the Management Engagement Committee’s
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.
The proposed activities for the Committee for the year
ahead are:
• 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
4 July 2021
The Board is responsible for monitoring and evaluating
the Investment Adviser’s performance annually.
During the year the Board reviewed the terms of the
Investment Advisory Agreement, the termination
clause and the level of remuneration including the
performance related element. In accordance with
Listing Rule 15.6.2(2)R and having formally appraised
the performance and resources of the Investment
Adviser, in the opinion of the Directors the continuing
appointment of the Investment Adviser on the terms
agreed is in the interests of the Shareholders as a whole.
Third-Party Service Provider Review
The Company works closely with and has delegated
the provision of services to a number of service
providers (the Administrator, Company Secretary,
brokers and other professional advisers) whose
interests are aligned to the success of the Company.
The quality and timeliness of their service provision
is critical to the success of the Company. The
Management Engagement Committee reviews
all material contracts for service quality and value
and on an annual basis conducts 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
page 94.
A service provider evaluation was undertaken in
March 2021. The review was based on a questionnaire
which also gave service providers an opportunity
to provide feedback to the Company. Each service
provider completed the questionnaire outlining how
they had fulfilled their responsibilities and detailed their
relationship with the Board, the Investment Adviser
and other service providers. These were reviewed
and discussed by the Management Engagement
Committee who communicated their conclusions to
the Investment Adviser and requested the Investment
Adviser to advise the service providers areas of the
service they believed worked well and areas they
believed could be improved or enhanced. Overall, the
Management Engagement Committee 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.
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Annual Report 2021 Hipgnosis Songs Fund Limited
Corporate Governance Statement
Report of the Portfolio Committee
“The Committee continues to monitor,
review and provide approval regarding
the acquisitions or disposals of Catalogues
of Songs.”
Dear Shareholder,
I am pleased to present to you the Report of the
Portfolio Committee for the year ended 31 March
2021, which has been approved by both the Portfolio
Committee and the Board.
During the year, the Committee reviewed and
recommended the acquisition of 84 Catalogues of
Songs. No disposals occurred during the year.
The Committee’s work for the year ahead will be
focussed on the ongoing review of recommendations
from the Investment Adviser on the acquisitions
and if applicable disposals of Catalogues of Songs,
reviewing the pipeline as provided by the Investment
Adviser, and on a quarterly basis reviewing the
investment performance reports as prepared by the
Investment Adviser.
Purpose and Aim
The terms of reference of the Portfolio Committee,
which are reviewed annually, are set out on the
Company’s website (www.hipgnosissongs.com).
The Portfolio Committee provides 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
Catalogues 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 2021, given the current size of the
Board the composition of the committee is all
Directors. Due to the further expansion of the Board
the composition and membership of the Portfolio
Committee is under review by the Nomination
Committee and the membership will be adjusted,
if considered advisable, following that review.
Mr Paul Burger (Chair of the Committee)
Ms Sylvia Coleman
Mr Simon Holden
Mr Andrew Sutch
Mr Andrew Wilkinson
Hipgnosis Songs Fund Limited Annual Report 2021
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Governance Corporate Governance Statement / Report of the Portfolio Committee
2022 Objectives
The proposed activities for the Committee for the year
ahead are:
• review the Terms of Reference of the committee to
ensure they reflect best practice under the Code;
• review the recommendations from the Investment
Adviser on the acquisitions and if applicable
disposals of Catalogues of Songs;
• review the quarterly investment performance
reports as prepared by the Investment Adviser,
including the pipeline report.
On behalf of the Portfolio Committee,
Paul Burger
Chair of the Portfolio Committee
4 July 2021
The Portfolio Committee meets on an ad hoc basis
when requested on reasonable prior notice from the
Investment Adviser. The quorum for any meeting of the
Portfolio Committee shall be at least two Directors. All
Board members shall use reasonable endeavours to
attend each meeting of the Portfolio Committee.
Meeting Schedule
During the year ended 31 March 2021, the Portfolio
Committee met formally on 33 occasions and
attendance at those meetings is shown on page 84
of the Corporate Governance Report. The committee
also provides a formal update on their work to the
Board at each scheduled quarterly Board meeting.
During the year the committee:
• reviewed the terms of reference of the Portfolio
Committee for approval by the Board;
• assessed all investment proposals against the
investment policy and restrictions;
• made enquiries, throughout the year, of the
Investment Adviser regarding the pipeline
opportunities as identified by the Investment
Adviser;
• provided approval on the acquisition of
84 Catalogues of Songs during the year based on
comprehensive investment papers as provided by
the Investment Adviser which included:
1. a summary of the due diligence findings;
2. the financial history of the Song or Catalogue;
3. the Portfolio Independent Valuer’s report;
4. the Investment Adviser’s strategy for managing
the Songs in the Catalogue and potential
exploitation opportunities;
5. details of any structuring arrangements that the
Investment Adviser considers necessary;
6. details of any conflicts of interest of the
Investment Adviser or its Advisory Board in relation
to the acquisition;
7. details on the financial consideration structure;
and
8. any other information that the Investment Adviser
considers relevant to the Board in deciding to
acquire the particular Song or Catalogue.
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Annual Report 2021 Hipgnosis Songs Fund Limited
Corporate Governance Statement
Directors’ Remuneration Report
Purpose and Aim
The terms of reference of the Remuneration
Committee, which are reviewed annually, are set
out on the Company’s website (www.hipgnosissongs.
com). The Remuneration Committee is 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 it deems necessary, including the
recommendations of the AIC Code.
The Remuneration Committee is also responsible
for the review of any workforce remuneration and
related policies, and the alignment of incentives and
rewards with culture and taking these into account
when setting the policy for any executive director
remuneration. At the moment this involves oversight
of the arrangements for the employees of Hipgnosis
Songs Group, managed by The Family (Music) Limited.
As at the year ended 31 March 2021, 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 Ltd. 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 Memorandum.
This introduced delegated controls over HSG’s
executive remuneration (amongst financial budget
and performance management) to the Investment
Adviser consistent with their policies, procedures and
knowledge of the rights administration industry.
Membership and Meetings
As at 31 March 2021, the Committee comprised:
Mr Simon Holden (Chair of the Committee)
Mr Paul Burger
Ms Sylvia Coleman
Mr Andrew Sutch
Mr Andrew Wilkinson
The Remuneration Committee meets at least once a
year pursuant to its terms of reference. During the year
the Remuneration Committee met on one occasion,
on 16 June 2020. Attendance is disclosed on
page 84. A quorum is two members. Members of the
Committee are not involved in matters affecting their
individual position.
Hipgnosis Songs Fund Limited Annual Report 2021
105
“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
robust 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
2021, which has been approved by both the
Remuneration Committee and the Board.
The Committee reviews its Terms of Reference
annually to re-confirm it reflects best practice under
the AIC Code including periodic, independent review
of Director Remuneration.
The Directors of the Company, a constituent member
of the FTSE250 Index since March 2020, have
enhanced fiduciary responsibilities as the Board of
a self-managed fund and collectively, provide a
diverse body of expertise relevant to the acquisition,
management and value enhancement of intangible
music copyright assets.
The Committee’s work for the year ahead will
continue to ensure there is a clear linkage between
the Board’s work and Shareholder outcomes so that
Directors are remunerated fairly for the particular
commitments of time, skill and effort required of them
by your Company.
Simon Holden
Chair of the Remuneration Committee
4 July 2021
Governance Corporate Governance Statement / Directors’ Remuneration Report
Directors’ Remuneration
The Directors continue to be paid in Sterling.
During the year ended 31 March 2021 the Directors’ remuneration was as follows:
Andrew Sutch
Paul Burger
Andrew Wilkinson
Simon Holden
Sylvia Coleman
Fixed
Element
£
85,000
81,500
81,500
75,000
75,000
Bonus
Catch-up
FY 2020
£
25,000
25,000
25,000
25,000
9,000
Additional
Payment
£
31 March 2021
Total
£
31 March 2021
Total
$
31 March 2020
£
31 March 2020
$
15,000
15,000
15,000
15,000
15,000
125,000
163,458
121,500
159,105
121,500
158,865
115,000
150,338
99,000
130,302
64,375
61,250
61,250
56,250
17,295
81,801
77,830
77,830
71,477
21,977
As disclosed in last year’s report the Remuneration
Committee commissioned Tyzack Associates in
London to perform an independent remuneration
review of appropriate levels and models for Directors’
fees, from first principles based on the specific
requirements of their roles and commitments for the
Company rather than just benchmarked to other
investment companies. An increase in Director fees
was recommended by Tyzack Associates on 28 April
2020, backdated to 1 April 2020 following the
Shareholder approval of the increase in the Directors’
Remuneration cap, as contained in the Articles of
Incorporation, at the AGM on 8 September 2020.
From 1 April 2020 the Chair was entitled to annual
remuneration of £85,000 (1 April 2019: £45,000). The
Chairs of the Audit and Risk Management Committee
and the Portfolio Committee were entitled to annual
remuneration of £81,500 (1 April 2019: £40,000). The
other Directors were entitled to annual remuneration
of £75,000 (1 April 2019: £35,000).
A supplement of £25,000 was paid to Andrew Sutch,
Andrew Wilkinson, Paul Burger and Simon Holden on
29 April 2020 and a pro rata supplement of £9,000
was paid to Sylvia Coleman on 29 April 2020. This
one-off payment was in past recognition of the
Directors workload throughout the financial year
ending 31 March 2020 when the Directors fee cap
provided no flexibility whilst the Company’s scale,
competencies, reporting processes and capital
structure each developed significantly.
In light of the work undertaken for the publication of
a new Prospectus to support subsequent fundraising,
leading to the placing of 61,983,471 Ordinary Shares
under the Company's Placing Programme pursuant
to the prospectus published by the Company on
21 January 2021, a supplementary payment of
106
Annual Report 2021 Hipgnosis Songs Fund Limited
£15,000 was granted to each of the Directors on
12 February 2021. The Directors agreed to reinvest this
amount, net of income taxes, in the Company’s shares.
The Directors’ remuneration, excluding disbursements,
for the year amounted to £582,000 / $762,068 with
outstanding fees of £nil due to the Directors at
31 March 2021 (31 March 2020: £260,420 / $296,292 with
outstanding fees of £nil due at 31 March 2020).
The level of remuneration of the Directors reflects
a high and sustained workload for the Company.
There are limited direct comparisons between
the operational mandate this Board has over the
Company’s business model for acquiring, integrating
and managing a portfolio of song copyrights with
the less operational and more predictable workload
of the majority of investment company boards.
Key responsibilities include:
• Scrutinising, through due diligence, the status of
both contractual and registration rights that require
resolving as part of each acquisition;
• Oversight of a finance function that tracks and
collects royalty and licence obligations from a
complex supply chain of global revenue sources;
• Defining the disclosure and measurement of how
well performance is tracking to the Investment
Adviser’s initial business case for each acquisition by
income type, catalogue and as a portfolio overall;
• Assessing the business case for value enhancement
from internalising certain functions (such as
copyright administration via HSG);
• Ensuring assets are securely under the Company’s
custody within reasonable timeframes post acquisition;
• And finally, the efficient capitalisation of the
Company to enhance and safeguard returns on
investment for Shareholders.
The schedule of the Directors’ attendance evidences
the breadth and depth of investment, strategy and
other project work they have supported or led during
the year. Whilst deal volumes will not be consistent
every quarter, in between periods of investment
activity the Directors are closely involved in planning
work to evolve the Company’s capital structure to
scale its asset base and improve Shareholder returns.
The Remuneration Committee will continue to review
the levels of remuneration in the light of the level of
the commitment and involvement of the Directors
beyond quarterly Board meetings.
For the avoidance of doubt, Directors are reimbursed
for out of pocket expenses incurred in fulfilling their
roles, including costs of travel and accommodation
(as required).
2022 Objectives
It is the Remuneration Committee’s 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.
The proposed activities for the Committee for the year
ahead are:
• review the Terms of Reference of the Committee to
ensure they reflect best practice under the Code;
• continue to monitor and assess Director
remuneration and review any applicable workforce
remuneration and related policies including the
alignment of incentives and rewards with culture;
• engagement with Shareholders on any future
review of the remuneration policy.
On behalf of the Remuneration Committee,
Simon Holden
Chair of the Remuneration Committee
4 July 2021
Hipgnosis Songs Fund Limited Annual Report 2021
107
Governance 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 2021.
This Report of the Directors should be read together
with the Strategic Report on pages 3-72, and the
Corporate Governance Report on pages 74-104,
which are both incorporated into this Report of the
Directors by reference.
General Information
The Company is a company limited by shares
incorporated on 8 June 2018 under the Companies
Law. The Company’s registration number is 65158, and
it has been registered with the GFSC as a registered
collective investment scheme. The Company’s
Ordinary Shares were admitted to trading on the
Specialist Fund Segment of the London Stock
Exchange on 11 July 2018 and migrated to a Premium
Listing on the Main Market of the London Stock
Exchange on 25 September 2019. The Company was
promoted to the FTSE 250 Index on 20 March 2020.
The Company’s conversion to an investment trust
company took effect from 1 April 2021. Subsequently
the Company has been treated as being resident in
the UK for tax purposes and 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 3-72.
Financial Risk Management Policies and
Objectives
Financial risk management policies and objectives
are disclosed in Note 17 on page 150.
Section 172(1) Statement
The Section 172(1) statement is made on page 72.
Going Concern and Viability Statements
Going Concern and Viability Statements are made on
pages 68-69.
Principal and Emerging Risks
Principal and emerging risks are discussed in the
Strategic Report on pages 62-65.
Subsequent Events
Significant subsequent events have been disclosed in
Note 22 on page 157.
Alternative Performance Measures and/or
Key Performance Indicators
The Directors believe that the performance indicators
detailed in the Financial Highlights, on page 7,
and Financial Review on page 28, will provide
Shareholders with sufficient information to assess how
effectively the Company is meeting its objectives. The
alternative performance measures are described in
the table on page 160.
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.
108
Annual Report 2021 Hipgnosis Songs Fund Limited
Results and Dividends
The results for the year are set out in the Consolidated Financial Statements on page 122. Dividends are set out
on Note 16 on page 150.
During the year, and since the year end, the Directors declared the following dividends to Ordinary Shareholders:
Dividend
Interim dividend
Interim dividend
Interim dividend
Interim dividend
Interim dividend
Quarter Ended
31 March 2020
30 June 2020
30 September 2020
31 December 2020
31 March 2021
Date of Declaration
29 April 2020
3 July 2020
28 October 2020
21 January 2021
27 April 2021
Payment Date
27 May 2020
31 July 2020
30 November 2020
18 February 2021
28 May 2021
Amount per
Ordinary Share (pence)
1.25
1.25
1.3125
1.3125
1.3125
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. The Company’s
Prospectus currently accommodates C-share
issuance and this authority expires on 25 September
2021. There were no C-shares in issue at 31 March 2021.
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 2021 are
detailed below:
Director
Paul Burger
Sylvia Coleman
Simon Holden
Andrew Sutch
Andrew Wilkinson
Ordinary
Shares held
31 March
2021
66,000
38,701
100,796
50,624
79,522
% holding
at 31 March
2021
0.006
0.004
0.009
0.005
0.007
Ordinary
Shares held
31 March
2020
32,296
25,000
64,796
30,041
51,462
% holding
at 31 March
2020
0.005
0.004
0.010
0.005
0.008
In addition, the Company also provides the same
information as at 29 June 2021, being the most current
information available:
Director
Paul Burger
Sylvia Coleman
Simon Holden
Andrew Sutch
Andrew Wilkinson
Vania Schlogel
Ordinary Shares held
2 July 2021
66,000
38,701
100,796
59,435
79,522
10,000
% holding at
2 July 2021
0.006
0.004
0.009
0.006
0.007
0.001
Directors’ Authority to Buy Back Shares
The Directors will consider repurchasing Ordinary
Shares in the market if they believe it to be in the
Shareholders’ interests as a whole and as a means
of correcting any imbalance between supply and
demand for the Ordinary Shares.
The timing, price and volume of any buy back of
Ordinary Shares will be at the absolute discretion of
the Directors and is subject to the Company having
sufficient working capital for its requirements and
surplus cash resources available. Ordinary Shares
acquired pursuant to this authority are subject to
compliance with the solvency test and any other
relevant provisions of the Companies Law.
Annually, the Company passes a resolution granting
the Directors general authority to purchase in the
market up to 14.99% of the number of Ordinary Shares
in issue. The Directors intend to seek renewal of this
authority from the Shareholders at the AGM.
In the event that the Board decides to repurchase
Ordinary Shares, purchases will only be made through
the market for cash at prices not exceeding the
last reported Operative NAV per Share and such
purchases will only be made in accordance with:
(a) the Listing Rules, which currently provide that the
maximum price to be paid per Ordinary Share must
not be more than the higher of: (i) 5% above the
average of the mid-market values of the relevant
Hipgnosis Songs Fund Limited Annual Report 2021
109
Governance Report of the Directors
Ordinary Shares for the five business days before the
purchase is made; or (ii) the higher of: (1) the price of
the last independent trade; and (2) the highest current
independent bid for an Ordinary Share on the trading
venues where the market purchases by the Company
pursuant to the authority conferred by that resolution
will be carried out; and (b) the Companies Law, which
provides among other things that any such purchase
is subject to the Company passing the solvency test
contained in the Companies Law at the relevant time.
The Directors will not buy back any Shares from
any class of C Shares in issue prior to Conversion.
Therefore, the Company will not assist any class of
C Shares in limiting discount volatility or provide an
additional source of liquidity.
Directors’ and Officers’ Liability Insurance
The Company maintains insurance in respect of
Directors’ and Officers’ liability in relation to their
activities on behalf of the Group.
Substantial Shareholdings
As at 31 March 2021, the Company had been notified, in
accordance with Chapter 5 of the Disclosure, Guidance
and Transparency Rules, of the following substantial
voting rights as Shareholders of the Company.
Shareholder
Newton Investment Management 106,802,379
Cazenove Capital Management
Investec Wealth & Investment
Aviva Investors
Brewin Dolphin Stockbrokers
Heartwood Group
CCLA Investment Management
Swedbank Robur
JO Hambro Capital
Shareholding % holding
9.95%
77,295,547 7.20%
76,389,075
7.12%
72,911,952 6.79%
46,866,484 4.37%
37,173,692 3.46%
35,349,344 3.29%
33,000,000 3.07%
32,769,474 3.05%
In addition, the Company also provides the same
information as at 31 May 2021, being the most current
information available.
Shareholding % holding
Shareholder
9.87%
Newton Investment Management 106,802,379
7.49%
81,071,352
Investec Wealth & Investment
76,566,025
Cazenove Capital Management
7.07%
72,733,306 6.72%
Aviva Investors
48,654,408 4.48%
Brewin Dolphin Stockbrokers
36,594,763 3.38%
Handeslbanken Wealth & AM
3 5,578,173 3.29%
CCLA Investment Management
33,000,000 3.05%
Swedbank Robur
110
Annual Report 2021 Hipgnosis Songs Fund Limited
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 on page 157. 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 94.
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 AGM is at 10am BST on 15 September 2021.
Subject to the restrictions in place as a result of
COVID-19 it is intended that members of the Board will
be in attendance at the AGM and will be available to
answer Shareholder questions.
By order of the Board,
Andrew Sutch
Chair
4 July 2021
Report of the Directors
Directors’ Responsibilities Statement
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 have considered the immediate and
potential impacts of COVID-19 on the Company as
reflected in the Viability Statement on page 68.
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
Administrator and Investment Adviser. The Directors
have considered, reviewed and commented
upon the Annual Report and Financial Statements
throughout the drafting process in order to satisfy
themselves in respect of the content.
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.
Hipgnosis Songs Fund Limited Annual Report 2021
111
Governance Report of the Directors / Directors’ Responsibilities Statement
Responsibility Statement of the Directors
in Respect of the Annual Report under the
Disclosure, Guidance and Transparency Rules
Each of the Directors confirms to the best of their
knowledge and belief that:
• the Consolidated Financial Statements, prepared in
accordance with IFRS, give a true and fair view of
the assets, liabilities, financial position and profit or
loss of the Company and the undertakings included
in the consolidation taken as a whole;
• the Annual Report includes a fair review of the
development and performance of the business and
the position of the Company and its subsidiaries,
together with a description of the principal risks and
uncertainties faced; and
• the Annual Report and Consolidated Financial
Statements include information required by the
FCA ensuring that the Company complies with the
provisions of the Listing Rules, Disclosure Guidelines
and Transparency Rules of the FCA. With regard to
corporate governance, the Company is required
to disclose how it has applied the principles and
complied with the provisions of the AIC Code
applicable to the Company with which it has
voluntarily agreed to comply. In addition, there is no
information that is required to be disclosed under
Listing Rules 9.8.4.
By order of the Board
Andrew Sutch
Chair
4 July 2021
Hipgnosis Songs Fund Limited
112
Annual Report 2021 Hipgnosis Songs Fund Limited
Independent Auditor’s Report to the members
of Hipgnosis Songs Fund Limited
Report on the audit of the consolidated
financial statements
Our audit approach
Overview
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 2021, 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 2021;
• 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.
Audit scope
• The company is incorporated in Guernsey and has
underlying subsidiaries incorporated in the United
Kingdom (“UK”) and the United States of America
(“USA”). The consolidated financial statements
are a consolidation of the company and all of the
underlying subsidiaries.
• We conducted our audit of the consolidated
financial statements based on information provided
by Ocorian Administration (Guernsey) Limited (the
“Administrator”) and The Family (Music) Limited
(the “Investment Adviser”), to whom the board of
directors has delegated the provision of certain
functions.
• We conducted our audit work in Guernsey and we
tailored the scope of our audit taking into account
the types of investments within the group, the
involvement of the third parties referred to above,
and the industry in which the group operates.
• The components of the group in Guernsey, UK and
USA to which we applied full audit scoping and
audit procedures accounted for 100% of the net
assets and total comprehensive income.
Key audit matters
• Risk of fraud in revenue recognition
• Carrying value and fair value disclosure of
intangible assets
• Change in functional and presentation currency
Materiality
• Overall group materiality: $15.6 million (2020:
$7.9 million*) based on 1% of the group’s Adjusted
Net Asset Value.
• Performance materiality: $11.7 million (2020:
$5.9 million**).
• The group’s Adjusted Net Asset Value is calculated
in accordance with International Financial Reporting
Standards, adjusted by adding back the cumulative
amortisation of intangible assets and retaining any
cumulative impairment of intangible assets.
* £6.4 million translated at the rate used to restate the statement of financial
position for the comparative year ended 31 March 2020 to US Dollars
** £4.8 million translated at the rate used to restate the statement of financial
position for the comparative year ended 31 March 2020 to US Dollars
Hipgnosis Songs Fund Limited Annual Report 2021
113
Governance Independent Auditor’s Report to the members of Hipgnosis Songs Fund Limited (continued)
The scope of our audit
As part of designing our audit, we determined mate-
riality 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 assump-
tions 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 our
professional judgement, were of most significance in
our audit of the consolidated financial statements of
the current period. These matters, and any comments
we make on the results of our procedures thereon,
were addressed in the context of our audit of the
consolidated financial statements as a whole, and in
forming our opinion thereon, and we do not provide
a separate opinion on these matters.
This is not a complete list of all risks identified by
our audit.
Key audit matter
How our audit addressed the key audit matter
Risk of fraud in revenue recognition
Please refer to Notes 4 and 13 to the consolidated
financial statements.
The group earns revenue from the catalogues of songs
in which it owns interests. Such revenue takes the
form of royalties, license fees and/or other payments
including mechanical royalties, performance royalties,
and synchronisation fees.
Revenue is collected by the portfolio administrators/
royalty collection agents, reported on a quarterly or
semi-annual basis and paid based on predetermined
revenue payments dates thereafter. These contractual
revenue arrangements entered into by the group with
the portfolio administrators/royalty collection agents
may be complex in nature and there is therefore a risk
of error in that revenue may be incorrectly recognised
in the accounting records of the group, or subject to
manipulation.
In addition, because of the contractual reporting
and revenue payment dates with the various portfolio
administrators/royalty collection agents, the directors
make an estimate of the revenue accrued to the
group at the period end, but for which revenue reports
from the portfolio administrators/royalty collection
agents are unavailable at the time of reporting. The
directors seek the input of the Investment Adviser in
making these revenue estimates and accrual, which
involves significant judgement (see Note 3). The period
end accrual is based on the catalogues of songs’
historic performance for previous periods, adjusted for
the Investment Adviser’s and directors’ assessment of
the expected performance of the various catalogues
of songs and by taking into account the latest
available music consumption information.
Revenue is also one of the key performance indicators
for the group and changes to the contractual
arrangements with the portfolio administrators/
114
Annual Report 2021 Hipgnosis Songs Fund Limited
We met with the directors and Investment Adviser and
understood and evaluated the group’s processes,
internal controls and revenue recognition policies as a
result of the various music royalty, license fee and other
payments earned from the catalogues of songs owned
by the group.
We also assessed the group’s revenue recognition
accounting policies for compliance with International
Financial Reporting Standards (“IFRS”), and in particular
IFRS 15 – Revenue from Contracts with Customers.
Our procedures included:
• We have reviewed the contractual basis for
recognising revenue from each catalogue of
songs on acquisition of each catalogue of songs
by reading and understanding each catalogue
agreement and the contracts in place with each
portfolio administrator/royalty collection agent;
• We documented and understood the control
processes in place over revenue recognition;
• We selected a sample of portfolio administrator/
royalty collection agent statements statements from
the general ledger listing and reconciled these to
the revenue recognised by the group for each of
these respective catalogues of songs. In addition,
we traced these amounts to the subsequent cash
receipts (where applicable);
• We identified, evaluated and verified a sample
of journal entries that impacted revenue; and
• We independently observed the download
of a sample of royalty statements from the
relevant online portals for a sample of portfolio
administrators, and obtained direct confirmations
from the portfolio administrators of a sample of
royalty statements to confirm their authenticity.
royalty collection agents, which may report on a
basis that is not coterminous with the period end, and
the associated accrual determined by the directors,
can have a significant impact on the recognition
of revenue by the group. As a result, there is a
heightened risk of material misstatement and revenue
received during the year and the revenue accrual are
considered to be key audit matters for audit purposes.
We also performed the following procedures in
assessing the period end revenue accrual
determined by the directors with the input of the
Investment Adviser:
• We evaluated the methodology applied by the
Investment Adviser in developing the period end
revenue accrual recommended to the directors;
• We evaluated the underlying information used
by the Investment Adviser in the revenue accrual
calculations by comparing this to the revenue
information already audited (as discussed above);
• We evaluated the reasonableness of the revenue
accrual assumptions made by the directors and
Investment Adviser against supporting information,
such as the fair value models provided by the
Portfolio Independent Valuer;
• We reconciled the details of the last royalty statements
received by the group to those included in the
revenue accrual model and checked the arithmetic
accuracy of the revenue accrual calculation; and
• We performed back testing by comparing the prior
year revenue accruals to subsequently received
royalty statements in order to assess the accuracy
of the estimates made by the Investment Manager.
We did not identify any material issues from our
procedures.
Carrying value and fair value disclosure
of intangible assets
Please refer to Notes 4 and 6 to the consolidated
financial statements.
The primary activity of the group is to acquire and hold
catalogues of songs and earn the music royalty, license
fees and other revenue associated with its ownership.
The group’s portfolio of songs are classified as intan-
gible assets under IAS 38 - Intangible Assets (“IAS38”).
The various catalogues of songs are held at cost and
amortised over their useful life (which is determined
at acquisition of each of the catalogue of songs) less
impairment. The catalogues of songs are subject to
an impairment assessment at the earlier of the end
of each accounting period and when an indicator of
impairment is identified. The determination of the useful
life of each catalogue requires the application of
significant judgement by the directors (see Note 4).
The directors have chosen to voluntarily disclose the
fair value of the catalogues of songs (see Note 6). The
directors also present an ‘Operative Net Asset Value’,
which takes into account the Catalogues of Songs at
this fair value rather than at the IFRS amortised cost
value, as included in consolidated financial statements
and reflected in the IFRS Net Asset Value.
With regard to the catalogues of songs recognised
as intangibles and carried at amortised cost, we
evaluated management’s processes and assumptions
used to initially recognise and measure the catalogues
of songs at amortised cost and used to assess the need
for impairment (if any) of the respective catalogues of
songs. Our procedures included:
• We obtained and read the purchase agreements
for each catalogue of songs held by the group to
ensure they have been accounted for correctly,
and agreed to the cash payments made;
• We also discussed with management any
deferred compensation terms within the purchase
contracts and assessed whether these have been
appropriately recognised and/or disclosed within
the consolidated financial statements;
• We discussed the useful life of each catalogue with
the Investment Adviser and considered these in light
of industry benchmarks;
• We recalculated the carrying value in accordance
with the useful life determined by the directors and
the purchase agreements for each catalogue
of songs; and
Hipgnosis Songs Fund Limited Annual Report 2021
115
Governance
Independent Auditor’s Report to the members of Hipgnosis Songs Fund Limited (continued)
The directors have, in consultation with the Investment
Adviser, engaged the Portfolio Independent Valuer
to assess the fair value of each catalogue. In general,
the fair value of each catalogue is determined using
a discounted cash flow model and incorporates
assumptions that are subject to significant judgement
by the Portfolio Independent Valuer, Investment
Adviser and directors. These estimates and
assumptions include future catalogue revenue and
cash flow projections; aggregate catalogue maturity;
music industry growth rates by revenue type
(e.g. physical sales, downloads, streaming etc.); and
the determination of an appropriate discount rate.
The fair value of the catalogues of songs as disclosed
in Note 6 reflects the fair value as calculated by the
Portfolio Independent Valuer, recommended by the
Investment Adviser and adopted by the board of
directors.
The directors use the fair value determined by the
Portfolio Independent Valuer as an input into their
consideration of the impairment assessment of the
catalogues of songs held at amortised cost, based on
a comparison of the fair value of each catalogue to
the carrying value calculated under IFRS.
As the catalogues of songs are significant to the net
asset value of the group and because of the level
of judgement applied in determining the useful life,
the need for impairment and in determining the fair
value of each catalogue, there is a heightened risk
of misstatement. As a result, the carrying value of
the catalogues of songs carried at amortised cost
in the consolidated financial statements (including
any applicable impairment) is considered to be
a significant audit risk and the fair value of the
catalogues of songs, as disclosed in the notes to the
consolidated financial statements, used as an initial
basis of consideration for impairment and used in
determining the Operative Net Asset Value by the
directors are considered to be key audit matters from
an audit perspective.
116
Annual Report 2021 Hipgnosis Songs Fund Limited
• We obtained, discussed and challenged
the directors and Investment Adviser on their
impairment assessment undertaken with respect to
each catalogue of songs.
Based on our work performed, we did not identify any
material differences.
With regard to the fair value of the catalogues of songs
disclosed in Note 6 to the financial statements and
used in determining the Operative Net Asset Value of
the group by the directors, and as an input into the
impairment assessment, we performed the following
procedures:
• We discussed with the directors and Investment
Adviser the process of appointment of the Portfolio
Independent Valuer;
• We contacted the Portfolio Independent Valuer
directly and obtained their valuation model for
each catalogue of songs;
• We held discussions with the Portfolio Independent
Valuer, confirmed their independence and
evaluated their experience and objectivity;
• We gained an understanding of the assumptions the
Portfolio Independent Valuer adopted to determine
the projected growth rates for revenue streams across
a sample of catalogues of songs and of the discount
rate applied to the projected revenue/cash flow streams;
• We discussed the impact of COVID-19 on the
valuations of the catalogues of songs with the
Portfolio Independent Valuer, and in particular
considered the appropriateness of the assumptions
made by them on future cash flows by revenue type
for the catalogues of songs sampled;
• We agreed the forecasted revenue assumptions used
by the Portfolio Independent Valuer in their model to
the revenue recognised by the group and the latest
revenue reports from the portfolio administrators/
royalty collection agents with respect to the sample of
catalogues of songs. We assessed the rationale for any
adjustments made thereto against supportable data;
• We compared the discount rate used to available
independent industry benchmarks;
• We recalculated the arithmetic accuracy of the
valuation for the catalogues sampled; and
• We performed a benchmark analysis of the valuation
by obtaining independent music industry market
growth data by revenue stream, applying this to the
baseline revenue / cash flow projections, discounting
at the assessed discount rate and comparing this to
the Portfolio Independent Valuer's determination of
fair value.
Based on our work performed, we did not identify any
material differences.
Change in functional and presentation currency
Please refer to Note 2(n) and 4 of the financial
statements.
The directors determined that as at 1 October
2020, a fundamental shift in the primary economic
environment of the company and certain of its
subsidiaries had occurred, and that the functional
currency of the company and these subsidiaries
should be changed to US Dollars from Sterling
(“GBP”), in accordance with the requirements of
IFRS. Simultaneously, the directors determined that
the presentation currency for the group should be
changed to US Dollars.
For the company and subsidiaries impacted
by this decision, the change in functional currency to
US Dollars has been recognised prospectively from
1 October 2020 and all periods prior to 1 October 2020
have been represented and restated to US Dollars as
a result of the change in presentation currency.
The risk exists that the change in functional currency
determined by the directors is not appropriate or
consistent with IFRS. There is also a risk that the change
in functional and presentation currency, which can
be complex, has not been processed correctly
in accordance with IAS 21 – The effects of foreign
exchange rates (“IAS 21”). As a result, the change in
functional and presentation currency during the year is
a key audit matter from an audit perspective.
We performed the following procedures:
• Where a change in functional currency had
been made for the company or a subsidiary (the
“affected entities”), we reviewed management’s
rationale for the change in line with the criteria set
out in IAS 21;
• We reviewed the methodology adopted by
management in preparing the workings for the
change in presentation currency to ensure that
these are consistent with IAS 21 with respect to the
affected entities;
• We recalculated management’s workings for the
restatement of periods prior to 1 October 2020
due to the change in presentation currency and
confirmed the reasonableness of the foreign
exchange rates used to independent market
sources for each period selected;
• Where a change in functional currency had been
made, we recalculated transactions in foreign
currencies on a sample basis to independently
sourced foreign exchange rates; and
• We obtained, reviewed and considered the
adequacy of the disclosures made by the directors
in the consolidated financial statements in respect
of the changes to the functional and presentation
currency from GBP to US Dollars.
We did not identify any material issues from our
procedures.
How we tailored the audit scope
We tailored the scope of our audit to ensure that we
performed enough work to be able to give an opinion
on the consolidated financial statements as a whole,
taking into account the structure of the group, the
accounting processes and controls, and the industry in
which the group operates.
The company is based in Guernsey and has
subsidiaries in the UK and the USA. The consolidated
financial statements are a consolidation of the
company and all the subsidiaries.
Scoping was performed at the group level, irrespective
of whether the underlying transactions took place
within the company or within the subsidiaries.
The group audit was led, directed and controlled
by PricewaterhouseCoopers CI LLP and all audit
work for material items within the consolidated
financial statements was performed in Guernsey by
PricewaterhouseCoopers CI LLP.
The transactions relating to the company and many
of the subsidiaries are maintained by the Administrator
(and its related group entities) or were made directly
available to us by the management of the remaining
subsidiaries, and therefore we were not required to
engage with component auditors operating under
our instruction. Our testing was therefore performed
on a consolidated basis using thresholds which are
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 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
Hipgnosis Songs Fund Limited Annual Report 2021
117
Governance
Independent Auditor’s Report to the members of Hipgnosis Songs Fund Limited (continued)
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.
Reporting on other information
The directors are responsible for the other information.
The other information comprises all the information
included in the Annual Report 2021 (the “Annual
Report”) but does not include the consolidated
financial statements and our auditor’s report thereon.
Based on our professional judgement, we determined
materiality for the consolidated financial statements as
a whole as follows:
Our opinion on the consolidated financial statements
does not cover the other information and we do not
express any form of assurance conclusion thereon.
Overall group
materiality
$15.6 million (2020: $7.9 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 $1,556
million (2020: $791 million**)
We use performance materiality to reduce to
an appropriately low level the probability that
the aggregate of uncorrected and undetected
misstatements exceeds overall materiality. Specifically,
we use performance materiality in determining the
scope of our audit and the nature and extent of our
testing of account balances, classes of transactions
and disclosures, for example in determining sample
sizes. Our performance materiality was 75% of overall
materiality, amounting to $11.6 million for the group
financial statements.
In determining the performance materiality, we
considered a number of factors – the history of
misstatements, risk assessment and aggregation risk
and the effectiveness of controls – and concluded that
an amount at the upper 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 $778,000 (2020: $395,000***) as well
as misstatements below that amount that, in our view,
warranted reporting for qualitative reasons.
* £6.4 million translated at the rate used to restate the Statement of Financial
Position for the comparative year ended 31 March 2020 to US Dollars
** £641 million translated at the rate used to restate the Statement of Financial
Position for the comparative year ended 31 March 2020 to US Dollars
*** £320,000 translated at the rate used to restate the Statement of Financial
Position for the comparative year ended 31 March 2020 to US Dollars
118
Annual Report 2021 Hipgnosis Songs Fund Limited
In connection with our audit of the consolidated
financial statements, our responsibility is to read the
other information and, in doing so, consider whether
the other information is materially inconsistent with the
consolidated financial statements or our knowledge
obtained in the audit, or otherwise appears to be
materially misstated. If, based on the work we have
performed, we conclude that there is a material
misstatement of this other information, we are required
to report that fact. We have nothing to report based
on these responsibilities.
Responsibilities for the consolidated financial
statements and the audit
Responsibilities of the directors for the
consolidated financial statements
As explained more fully in the Directors’ Responsibilities’
Statement, the directors are responsible for the
preparation of the consolidated financial statements
that give a true and fair view in accordance with
International Financial Reporting Standards, the
requirements of Guernsey law and for such internal
control as the directors determine is necessary to
enable the preparation of consolidated financial
statements that are free from material misstatement,
whether due to fraud or error.
In preparing the consolidated financial statements,
the directors are responsible for assessing the group’s
ability to continue as a going concern, disclosing, as
applicable, matters related to going concern and
using the going concern basis of accounting unless the
directors either intend to liquidate the group or to cease
operations, or have no realistic alternative but to do so.
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.
including the disclosures, and whether the
consolidated financial statements represent the
underlying transactions and events in a manner
that achieves fair presentation.
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 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,
• Obtain sufficient appropriate audit evidence
regarding the financial information of the entities
or business activities within the group to express an
opinion on the consolidated financial statements.
We are responsible for the direction, supervision and
performance of the group audit. We remain solely
responsible for our audit opinion.
We communicate with those charged with
governance regarding, among other matters, the
planned scope and timing of the audit and significant
audit findings, including any significant deficiencies in
internal control that we identify during our audit.
We also provide those charged with governance with
a statement that we have complied with relevant
ethical requirements regarding independence, and
to communicate with them all relationships and other
matters that may reasonably be thought to bear on
our independence, and where applicable, related
safeguards.
From the matters communicated with those charged
with governance, we determine those matters
that were of most significance in the audit of the
consolidated financial statements of the current
period and are therefore the key audit matters. We
describe these matters in our auditor’s report unless
law or regulation precludes public disclosure about the
matter or when, in extremely rare circumstances, we
determine that a matter should not be communicated
in our 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.
Hipgnosis Songs Fund Limited Annual Report 2021
119
Governance Independent Auditor’s Report to the members of Hipgnosis Songs Fund Limited (continued)
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 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 financial statements
about whether they considered it appropriate to
adopt the going concern basis of accounting in
preparing them, and their identification of any
120
Annual Report 2021 Hipgnosis Songs Fund Limited
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 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 financial statements and
our knowledge obtained during the audit:
• The directors’ statement that they consider the
Annual Report, taken as a whole, is fair, balanced
and understandable, and provides the information
necessary for the members to assess the group's
position, performance, business model and strategy;
• The section of the Annual Report that describes the
review of effectiveness of risk management and
internal control systems; and
• The section describing the work of the Audit and
Risk Management Committee.
We have nothing to report in respect of our responsibility
to report when the directors’ statement relating to
the company’s compliance with the Code does not
properly disclose a departure from a relevant provision
of the Code specified under the Listing Rules for review
by the auditors.
Roland Mills
For and on behalf of PricewaterhouseCoopers CI LLP
Chartered Accountants and Recognised Auditor
Guernsey, Channel Islands
5 July 2021
Financial Statements
Contents
122 Consolidated Statement of Comprehensive Income
123 Consolidated Statement of Financial Position
124 Consolidated Statement of Changes in Equity
125 Consolidated Statement of Cash Flows
126 Notes to the Consolidated Financial Statements
Hipgnosis Songs Fund Limited Annual Report 2021
121
Financial Statements Consolidated Statement
of Comprehensive Income
For the year ended 31 March 2021
Income
Total revenue
Interest income
Royalty costs
Net revenue
Expenses
Advisory, performance and administration fees
Amortisation of Catalogues of Songs
Directors’ remuneration
Brokers’ fees
Auditor remuneration
Legal and professional fees
Finance charges for deferred consideration
Loan Interest
Subscriptions and Licences
Charitable Donations
HSG FV Gain
Other operating expenses
Foreign exchange gains/(losses)
Operating expenses
Operating profit for the year before taxation
Taxation
Profit for the year after tax
Total comprehensive income for the year
Basic Earnings per Share (cents)
Diluted Earnings per Share (cents)
All activities derive from continuing operations.
1 April 2020 to
31 March 2021
$’000
1 April 2019 to
31 March 2020
$’000
160,752
88
(22,450)
82,207
1,254
(132)
138,390
83,329
(13,236)
(67,875)
(666)
(81)
(732)
(7,840)
(339)
(9,931)
(236)
(307)
2,139
(10,561)
15,814
(6,881)
(23,462)
(331)
(132)
(365)
(2,491)
–
(1,065)
–
–
–
(1,940)
(5,151)
(93,851)
(41,818)
44,539
(5,604)
38,935
38,935
4.72
41,511
(9,498)
32,013
32,013
8.13
4.72
8.13
Notes
13
19
6
18
21
9
3
14
15
5
20
20
The accompanying notes form an integral part of these Consolidated Financial Statements.
122
Annual Report 2021
Hipgnosis Songs Fund Limited
Consolidated Statement
of Financial Position
As at 31 March 2021
Assets
Catalogues of Songs
Other assets
Goodwill
Trade and other receivables
Cash and cash equivalents
Total assets
Liabilities
Loans and borrowings
Other payables and accrued expenses
Total liabilities
Net assets
Equity
Share capital
Other reserves
Foreign currency translation reserve
Retained earnings
Total equity attributable to the owners of the Company
Number of Ordinary Shares in issue at year end
IFRS Net Asset Value per Ordinary Share (cents)
Operative Net Asset Value per Ordinary Share (cents)
Notes
31 March 2021
$’000
31 March 2020
$’000
6
3
8
7
9
10
11
19
12
12
1,878,924
3,740
272
107,628
112,634
857,506
–
–
52,354
17,391
2,103,198
927,251
565,860
74,493
69,182
47,384
640,353
116,566
1,462,845
810,685
1,466,851
234
(419)
(3,821)
801,844
–
(412)
9,253
1,462,845
810,685
1,073,440,268
615,851,887
136.28
168.29
131.64
151.14
Approved and authorised for issue by the Board of Directors on 4 July 2021 and signed on their behalf by:
Andrew Sutch Chair
Andrew Wilkinson Director
The accompanying notes form an integral part of these Consolidated Financial Statements.
Hipgnosis Songs Fund Limited
Annual Report 2021
123
Financial Statements
Consolidated Statement
of Changes in Equity
For the year ended 31 March 2021
Note
Number of
Ordinary Shares
As at 1 April 2020
Shares issued
Share issue costs
Performance fees to
be paid in shares
Dividends paid
Profit for the year
Foreign currency
translation reserve
movement
11
11
19
16
615,851,887
457,588,381
–
–
–
–
–
Share
capital
$’000
801,844
677,056
(12,049)
–
–
–
–
Foreign
currency
translation
reserve
$’000
(412)
–
–
–
–
–
Retained
earnings
$’000
9,253
–
–
–
(52,009)
38,935
Other
reserves
$’000
–
–
–
234
–
–
Total
equity
$’000
810,685
677,056
(12,049)
234
(52,009)
38,935
(7)
–
–
(7)
As at 31 March 2021
1,073,440,268
1,466,851
(419)
*
(3,821)
234
1,462,845
* The underlying retained earnings figure has been shown to be in a deficit position due to the foreign currency translation therefore does not show the true nature
of retained earnings. The Sterling retained earnings position at 31 March 2021 is £6.3 million. This is entirely linked to the functional currency change, and the strengthening
of Sterling against the Dollar.
Profit for the Year of $38.935 million is calculated net of Amortisation of Catalogues of Songs, which is $67.875 million. The Profit, when adjusted for Amortisation, is therefore
$106.8 million which represents 2.05x dividend cover on the dividends paid of $52.009 million.
For the year ended 31 March 2020
Note
Number of
Ordinary Shares
Share capital
$’000
Currency
change reserve
$’000
11
11
16
202,176,800
187,387,487
226,287,600
–
–
–
262,919
247,324
301,777
(10,176)
–
–
(4,308)
–
–
–
–
–
Retained
earnings
$’000
363
–
–
(23,123)
32,013
Total equity
$’000
258,974
247,324
301,777
(10,176)
(23,123)
32,013
As at 1 April 2019
Shares issued
C Share conversion
Share issue costs
Dividends paid
Profit for the year
Foreign currency
translation reserve
movement
As at 31 March 2020
615,851,887
801,844
–
–
3,896
(412)
–
3,896
9,253
810,685
The accompanying notes form an integral part of these Consolidated Financial Statements.
124
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Hipgnosis Songs Fund Limited
Consolidated Statement
of Cash Flows
For the year ended 31 March 2021
Cash flows generated in operating activities
Operating profit for the year before taxation
Adjustments for non-cash items:
Loan interest
Movement in trade and other receivables
Movement in other payables and accrued expenses
Movement in equity for share-based payments
Amortisation of Catalogues of Songs and borrowing costs
Foreign exchange (losses)/gains
Taxation
Net cash generated from operating activities
Cash flows used in investing activities
Purchase of Catalogues of Songs
Purchase of other assets
Goodwill paid on acquisition
Net cash used in investing activities
Cash flows generated from financing activities
Proceeds from issue of shares
Issue costs paid
Dividends paid
Interest paid
Borrowing costs
Bank loan
Net cash generated from financing activities
Net movement in cash and cash equivalents
Cash and cash equivalents at the start of the year
Effect of foreign exchange rate changes on cash and cash equivalents
Cash and cash equivalents at the end of the year
1 April 2020 to
31 March 2021
$’000
1 April 2019 to
31 March 2020
$’000
Notes
44,539
41,511
9,931
(54,005)
38,712
234
67,875
(15,814)
(5,604)
85,868
(1,089,293)
(3,740)
(272)
(1,093,305)
677,056
(12,049)
(52,009)
(8,942)
(9,199)
503,278
1,098,135
1,065
(34,985)
(4,251)
295
23,462
5,151
(9,498)
22,750
(726,466)
–
–
(726,466)
548,805
(10,176)
(23,123)
(777)
(5,421)
74,014
583,322
90,698
(120,394)
17,391
4,545
112,634
141,492
(3,707)
17,391
8
10
19
15
6
11
11
16
9
9
9
15
7
HSG had a net cash balance of $5.6 million as at 31 March 2021 and these flows are included in the above
consolidated cash flow statement.
The accompanying notes form an integral part of these Consolidated Financial Statements.
Hipgnosis Songs Fund Limited
Annual Report 2021
125
Financial Statements
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’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.
On 10 September 2020 the Company acquired the entire share capital of Big Deal Music Group. Whilst this
was a significant acquisition in expanding operations, the size of acquisition does not warrant a separate segment
but a complementary one to the primary segment of royalty collection/Catalogue ownership. Accounting
recognition and measurement policies have only been included where material to the consolidated results and
financial position of the Company.
The consideration for this acquisition was funded from the proceeds of Hipgnosis’ equity fundraise in July 2020
and through the issue of 17,609,304 new Ordinary Shares (“Consideration Shares”) issued at a price of 120.65p per
Ordinary Share. 6,248,351 of the Consideration Shares were subject to lock up restrictions to 1 October 2020, with
10,123,219 Consideration Shares subject to lock up restrictions to 1 April 2021. The acquisition provides the Company
with a full service US music platform, which is expected to enhance royalty income from its growing portfolio
of songs, create new songs at an attractive cost and provide in-house US administration, and therefore increasing
control over its portfolio’s income.
On 30 September 2020 the Company acquired a portfolio of 42 Catalogues from Kobalt Music Copyrights S.à.r.l.,
an investment fund advised by Kobalt Capital Limited, for a total consideration of $322.9 million. The consideration,
net of right to income, represents a blended acquisition multiple of 18.3x average annual income and was funded
with the net proceeds from the Company’s September equity fundraising together with the Company’s existing
leverage facility. The accounting for the acquisition of the Kobalt Music Copyrights Portfolio is consistent with the
accounting treatment of all other Catalogue acquisitions.
The Company makes its investments through its subsidiaries, which are registered in the UK and US
as limited companies.
The Consolidated Financial Statements present the results of the Group for the year to 31 March 2021, rounded
to the nearest Dollar; the change in functional and presentation currency from Sterling to Dollars is discussed
further in Note 2(m), Note 4, the Chairman’s Statement and the Audit and Risk Management Committee
Report. The Group is principally engaged in investing in and managing music copyrights and associated musical
intellectual property.
126
Annual Report 2021
Hipgnosis Songs Fund Limited
Notes to the Consolidated Financial StatementsFor the year ended 31 March 2021 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 2021 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 June 2020:
Amended standards and interpretations
IFRS 16
IFRS 9
IFRS 17
IAS 1
Leases (Amendments regarding COVID-19 related rent concessions)
Financial Instruments (Amendments regarding pre-replacement issues in the context
of the LIBOR reform)
Insurance Contracts
Presentation of Financial Statements (Amendments regarding financial statements’
on classification of liabilities)
Effective date
1 June 2020
1 January 2023
1 January 2023
1 January 2022
The Group has considered the IFRS standards and interpretations that have been issued but are not yet effective.
None of these standards or interpretations are likely to have a material effect on the Group, as it is the belief of the
Board that the activities of the Group are unlikely to be affected by the changes to these standards, although any
disclosures recommended by these standards, where applicable, will be provided as required.
Hipgnosis Songs Fund Limited
Annual Report 2021
127
Financial Statements 2. Accounting policies (continued)
a) Group information
As at 31 March 2021, the details of the Company’s subsidiaries are as follows:
Name of the subsidiary
Hipgnosis Holdings UK Limited
Hipgnosis SFH I Limited
Hipgnosis SFH XIII Limited
Hipgnosis SFH XIX Limited
Hipgnosis SFH XX Limited
RubyRuby (London) Limited†
Big Deal Music Group, rebranded Hipgnosis
Songs Group LLC*
BDM Acquisition Corp, LLC, rebranded
Hipgnosis Acquisition Corp
Kennedy Publishing & Productions Limited†
F.S. Music Limited†
Robot of the Century Music Publishing Inc
C H Publishing Limited†
Deamon Limited†
PB Songs Ltd†
Place of
incorporation
and operation
% of voting
rights
% Interest
Consolidation
method
Functional
Currency
UK
UK
UK
UK
UK
UK
US
US
UK
UK
US
UK
UK
UK
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
Full
Full
Full
Full
Full
Full
Full
Full
Full
Full
Full
Full
Full
Full
USD
USD
USD
USD
GBP
GBP
USD
USD
GBP
USD
USD
GBP
GBP
GBP
* On 10 September 2020 the Company acquired the entire share capital of Big Deal Music Group which includes BDM Acquisition Corp and Big Deal Music 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. Big Deal Music has been rebranded Hipgnosis Songs Group.
†This is a subsidiary of Hipgnosis SFH XX Limited and therefore an indirect subsidiary of Hipgnosis Songs Fund Limited.
The following additional companies were acquired during the year (all were copyright asset-holding companies
with the exception of Big Deal Music, which is an operating company):
• Kennedy Publishing & Productions Limited on 16 July 2020;
• Big Deal Music on 10 September 2020;
• F.S. Music Limited on 30 September 2020;
• Robot of the Century Music Publishing Inc on 30 September 2020;
• C H Publishing Limited on 20 November 2020;
• Deamon Limited on 20 November 2020; and
• PB Songs Ltd on 18 March 2021.
The majority of subsidiaries of the Company are considered tax resident in the UK and are subject to UK corporation
tax. Robot of the Century Music Publishing Inc is registered in New York, Hipgnosis Songs Group LLC and Hipgnosis
Acquisition Corp. are registered in Delaware and are subject to applicable State and Federal Taxes.
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Hipgnosis Songs Fund Limited
Notes to the Consolidated Financial StatementsFor the year ended 31 March 2021 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 own judgment, the Directors believe it is appropriate to prepare
the Consolidated Financial Statements of the Group on a going concern basis.
c) Basis of preparation
Basis of accounting
The Consolidated Financial Statements have been prepared in accordance with IFRS and applicable company
law. The Consolidated Financial Statements have been prepared on a historical cost basis as amended from time
to time by the fair valuing of certain financial assets and liabilities where applicable.
Consolidation
In accordance with section 244 of the Companies Law, the Directors have elected to prepare consolidated
accounts for the financial period for the Group. Therefore, there is no requirement to present individual accounts for
the Company within the Consolidated Financial Statements.
The Company is not considered to be an Investment Entity, as defined in 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.
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. The
Control 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.
Hipgnosis Songs Fund Limited
Annual Report 2021
129
Financial Statements 2. Accounting policies (continued)
Segmental reporting
The chief operating decision maker is the Board of Directors. All of the Company’s income is global but received
from sources within US, Europe, UK and Guernsey. While the Company’s income is derived internationally, the
Directors are of the opinion that the Group is engaged in a single segment of business, being the investment of the
Company’s capital in a Portfolio of Song copyrights, with an attractive and growing level of income, together with
the potential for capital growth.
d) Revenue recognition
Bank interest income
Interest income from cash deposits is recognised as it accrues by reference to the effective interest rate applicable,
which is the rate that exactly discounts the estimated future cash flows through the expected life of the financial
asset to the asset’s carrying value or principal amount, and is accounted for on an accruals basis.
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 three main revenue categories:
i) Mechanical royalties – these are collected by PROs worldwide which represent songwriters and other copyright
owners. Mechanical royalties are also collected by royalty collection agents or the portfolio administrators with
whom the Group contracts;
ii) Performance royalties – these are collected by various PROs worldwide which represent songwriters and other
copyright owners; and
iii) Synchronisation fees – these are typically paid directly to the owner of the relevant copyright or its publisher,
on the terms and in the amounts agreed with the relevant film or television production company, advertising
agency or end customer.
These revenue categories are further disaggregated into individual revenue streams which are disclosed
in detail in Note 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 (3-6 months for mechanical royalties and 6-12 months for performance royalties)
and where statements have not been received at the year end, the Group accrues for those reporting delays
by assessing historic and forecasted earnings over the equivalent reporting period based on evidenced historic
revenue reporting, seasonality and industry consumption and growth rates since the last statement date.
Licence arrangements for all income types which include publishing income (mechanical, performance,
downloads, streaming, synchronisation and writer share income), income derived from master recordings and
producer royalties.
The Group enters into licence arrangements in respect of Catalogues of Songs with third party collection agents.
Licences granted to collection agents are deemed to constitute usage based, right of use licences as per IFRS 15.
Revenue arising from licences entered into with collection agents is therefore recognised in the period. Payment
is made upon reporting of those usages within royalty statements delivered typically 3-6 months after usage. The
significant payment terms are 60-90 days.
130
Annual Report 2021
Hipgnosis Songs Fund Limited
Notes to the Consolidated Financial StatementsFor the year ended 31 March 2021 This revenue, which is net of the administration fee retained by the collection agent, is disaggregated to be
reviewed by song usage period, source of income, work title, reporting period and any third party royalty
entitlements where necessary.
The contractual basis of the licence arrangements are such that the agents are deemed as ‘principals’ for tax
purposes, therefore the Group recognises its revenue net of administration fees.
Where available at the end of each month or 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 paid to songwriters, on a quarterly or semi-annual basis, that are
in a recouped position, and these are deducted from gross revenue when calculating net revenue. These royalty
costs are associated with songwriters that are published or administered by HSG or Kobalt.
f) Expenses
Expenses are accounted for on an accruals basis. Expenses are charged through the Statement
of Comprehensive Income.
g) Dividends to Shareholders
Dividends are accounted for in the period in which they are declared and approved by the Board of Directors.
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 Statement of Comprehensive Income 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 industry standard.
Asset impairment
Each time events or changes in the respective Catalogues of Songs or economic environment indicate a risk
of impairment of intangible assets, the Group re-examines the value of these assets for indicators of impairment.
When there are indicators of impairment, the impairment test is performed to compare the recoverable amount
to the carrying value of the asset. The recoverable amount is determined as the higher of: (i) the value in use;
or (ii) the fair value (less costs to sell) as described hereafter, for each individual asset.
Hipgnosis Songs Fund Limited
Annual Report 2021
131
Financial Statements 2. Accounting policies (continued)
The value in use of each asset is determined by the Board and Investment Adviser with the support of independent
third parties commissioned to appraise the Catalogue value at time of acquisition, which is the discounted value
of future cash flows using cash flow projections consistent with the expected portfolio cash flows and the most
recent forecasts as at that time. Applied discount rates are determined by reference to an appropriate benchmark
as determined by the Board and reflect the current assessment by the Group of the time value of money and
risks specific to each asset. Growth rates used for the evaluation of individual assets are based on industry growth
rates sourced from independent market reports and other third-party sources. This value in use methodology
applies to all except very small acquisitions that don’t warrant the independent valuation, given the related
expense. In these instances, the value in use is established from the Investment Adviser’s internal discounted
cash flow method.
The fair value (less costs to sell) is considered to be equal to the fair value determined by the Portfolio Independent
Valuer, which is also the discounted value of future cash flows by using cash flow projections consistent with the
expected Portfolio cash flows and the most recent forecasts as at that time cross referenced, where appropriate,
against market multiples for recent transactions for similar assets. The Portfolio Independent Valuer use their own
proprietary analysis to project out income streams, which is based on independent market reports and third-party
sources. The discount rate used by the Portfolio Independent Valuer is 8.50% and unchanged since the interim
results of 30 September 2020 (31 March 2020: 9.0%)
Whilst the Board and Investment Adviser regularly assess other indicators of impairment (such as a songwriter’s
or key performance artist’s reputation etc.), the Board and Investment Adviser typically use the fair value of the
assets, being the Catalogues of Songs, as an initial indicator of impairment. For assets that are currently valued
below their fair value, the Board and Investment Adviser will review the prevailing qualitative and quantitative
factors that determine the value in use in assessing whether the indication of impairment holds true.
If the recoverable amount is still lower than the carrying value of an asset or group of assets and the qualitative and
quantitative aspects do not support a recoverable amount higher than the carrying amount, an impairment loss
equal to the difference is recognised in profit and loss. The impairment losses recognised in respect of intangible
assets may be reversed in a later period if the recoverable amount becomes greater than the carrying value,
within the limit of impairment losses previously recognised.
Loans and receivables
Trade receivables, loans, and other receivables that have fixed or determinable payments that are not quoted
in an active market are initially measured at fair value plus transaction costs directly attributable to the acquisition
and subsequently measured at amortised cost using the effective interest method, less allowance for Expected
Credit Loss (Note 4). Interest income is recognised by applying the effective interest rate, except for short term
receivables when the recognition of interest would be immaterial.
Derecognition of assets
The Group derecognises an asset only when the contractual rights to the cash flows from the asset expire, or when
it transfers the asset and substantially all the risks and rewards of ownership of the asset to another entity.
If the Group neither transfers nor retains substantially all the risks and rewards of ownership and continues to control
the transferred asset, the Group recognises its retained interest in the asset and an associated liability for amounts
it may have to pay.
On derecognition of an asset in its entirety, the difference between the asset’s carrying amount and the sum of the
consideration received is recognised in profit or loss.
132
Annual Report 2021
Hipgnosis Songs Fund Limited
Notes to the Consolidated Financial StatementsFor the year ended 31 March 2021 i) Contingent consideration
Under the terms of the acquisition agreements for Catalogues, contingent consideration may be payable
dependent on future independent valuations of the Catalogues or revenue received within a specific time frame
of acquiring the Catalogues that reach agreed upon revenue targets. At 31 March 2021 the likelihood of the
aforementioned performance condition to be met was deemed remote and hence the possibility of economic
outflows remote, and therefore no contingent consideration was disclosed.
j) Deferred consideration
In such cases where payment is deferred under the terms of the acquisition agreements for Catalogues, a liability
will be recognised at net present value with any associated finance charge to be accrued over the respective
deferral period.
k) Financial liabilities and equity
Debt and equity instruments are classified as either financial liabilities or as equity in accordance with the substance
of the contractual arrangement.
Equity instruments
An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all
of its liabilities. Equity instruments issued by the Company are recognised at the value of proceeds received, net
of direct issue costs.
Repurchase of the Company’s own equity instruments is recognised and deducted directly in equity. No gain or loss
is recognised in profit or loss on the purchase, sale, issue or cancellation of the Company’s own equity instruments.
Financial liabilities
Financial liabilities, including borrowings, are initially measured at fair value, net of transaction costs.
Financial liabilities are subsequently measured at amortised cost using the effective interest method, with interest
expense recognised on an effective yield basis.
Derecognition of financial liabilities
The Group derecognises financial liabilities when, and only when, the Group’s obligations are discharged,
cancelled or they expire.
l) Share-based payments
Investment Adviser’s performance fee
The Group recognises the variable fee for the services received in a share-based payment transaction as the
Group becomes liable to the variable fee on an accruals basis.
The fair value of the performance fee, as defined in the Investment Advisory Agreement, which is payable
to the Investment Adviser in Shares is recognised as an expense when the fees are earned with a corresponding
increase in equity.
m) Cash and cash equivalents
Cash at bank and short-term deposits which are held to maturity are carried at cost. Cash and cash equivalents
are defined as call deposits, short term deposits with a term of no more than 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.
Hipgnosis Songs Fund Limited
Annual Report 2021
133
Financial Statements 2. Accounting policies (continued)
n) Functional and foreign currency
The Company’s and a number of its subsidiaries’ functional and presentation currency changed from Sterling
to Dollars with effect from 1 October 2020. The functional currency change is mandatory in line with IAS 21 due
to a fundamental shift in the primary economic environment in which the Company operates and reflects the
fact that Dollar has become the Company’s predominant currency accounting for a significant proportion of the
Company’s revenue, expenses and financing. This is discussed further in the Chairman’s Statement and the Audit and
Risk Management Committee Report. The change in presentation currency is a voluntary change with retrospective
application. Accordingly, these Consolidated Financial Statements are prepared in Dollars and the comparative
information for the 12-month period ended 31 March 2020 has been restated for presentation in Dollars.
The financial report has been restated to Dollars using the procedure outlined below:
Period since 1 October 2020
All movements in the Consolidated Statement of Comprehensive Income, Consolidated Statement of Financial
Position, Consolidated Statement of Changes in Equity and Consolidated Statement of Cash Flows, have been
translated using the prevailing daily foreign exchange rates.
Period from 1 April 2020 to 30 September 2020
All movements in relation to the Consolidated Statement of Comprehensive Income and the Consolidated
Statement of Changes in Equity have been translated using the prevailing daily foreign exchange rates. All Equity
reserves in the Consolidated Statement of Financial Position are also translated using the prevailing daily foreign
exchange rates.
Assets and liabilities in the Consolidated Statement of Financial Position have been translated into Dollars at the
closing foreign currency rates as at 30 September 2020, with the exception of the Catalogues of Songs figure which
has been fully recalculated using applicable daily rates.
The movement in the Foreign currency translation reserve in this period is calculated as the difference
between the movement in the net asset position and the total Equity reserves as translated at 1 April 2020 and
30 September 2020.
The Consolidated Statement of Cash Flows is translated as follows; movements which relate to the Consolidated
Statement of Comprehensive Income and those in relation to Equity reserves are translated using the prevailing
daily foreign exchange rates, movements which relate to assets and liabilities are calculated as the movements
using the rates at 1 April 2020 and 30 September 2020.
Periods ending before or on 31 March 2020
All movements in relation to the Consolidated Statement of Comprehensive Income are translated at the
average prevailing daily rates for the relevant accounting period, this is also the basis for the historical profit or loss
held in Retained earnings per the Consolidated Statement of Financial Position and Consolidated Statement
of Changes in Equity.
All historical capital raises and dividend payments have been translated at the prevailing daily foreign
exchange rates.
Assets and liabilities in the Consolidated Statement of Financial Position have been translated into Dollars at the
closing foreign exchange rates as at each reporting date, with the exception of the Catalogues of Songs figure
which has been fully recalculated using applicable daily rates.
134
Annual Report 2021
Hipgnosis Songs Fund Limited
Notes to the Consolidated Financial StatementsFor the year ended 31 March 2021 The Foreign currency translation reserve is calculated as the difference between the net asset position and the total
Equity reserves as stated at each reporting date.
The Consolidated Statement of Cash Flows is translated as follows; movements which relate to the Consolidated
Statement of Comprehensive Income are translated at the average prevailing daily rates for the relevant
accounting period, those in relation to dividend payments or capital raises are translated at the prevailing daily
foreign exchange rates, and movements which relate to assets and liabilities are calculated as the movements
using the closing foreign exchange rates as at each reporting date.
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 each balance sheet date, monetary assets and liabilities that are denominated in foreign currencies are
translated at the rates prevailing at that date. Non-monetary items carried at fair value that are denominated
in foreign currencies are translated at the rates prevailing at the date when the fair value was determined.
Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated.
Exchange differences are recognised in profit or loss in the period in which they arise. Transactions denominated
in foreign currencies are translated into Dollars at the rate of exchange ruling at the date of the transaction.
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 profit or loss
as a bargain purchase.
Hipgnosis Songs Fund Limited
Annual Report 2021
135
Financial Statements 3. Business combinations (continued)
Where settlement of any part of cash consideration is deferred, the amounts payable in the future are discounted
to their present value as at the date of exchange. Contingent consideration is classified either as equity
or a financial liability. Amounts classified as a financial liability are subsequently remeasured to fair value, with
changes in fair value recognised in profit or loss.
On 10 September 2020, the Company acquired the entire share capital of Big Deal Music Group (rebranded
as Hipgnosis Songs Group) a boutique full-service song company which owns a portfolio of copyright interests and
is headquartered in the US. The consideration for the acquisition was funded from the proceeds of the Company’s
C Share equity fundraise in July 2020 and through the issue of 17,609,304 new Ordinary Shares issued at a price
of 120.65p per Ordinary Share. As part of the business combination, the assets were revalued to fair value on the
date of the business combination and liabilities evaluated and recognised in the respective balances in the
consolidated financial statements. The fair value gain of $2,139,624 as a result of this process has been recognised
in the Consolidated Statement of Comprehensive Income. As a result of the remaining purchase price allocation
on the Hipgnosis Songs Group balance sheet an immaterial amount of goodwill at $0.3 million was recorded.
The acquisition of Big Deal Music, a US music publishing company, on 10 September 2020 was acquired for total
consideration of $88.18 million based on the fair value of assets transferred into the Group of $87.91 million, resulting
in $0.27 million of Goodwill being recognised on acquisition (including $1.641 million cash, advances, copyright
investments and operating company working capital items).
Gross Revenue for the period since acquisition of BDM, since rebranded as HSG, was $18.8 million with NPS
of $4.0 million and a loss after tax of $2.3 million.
On an annualised pro-rata basis, the Gross Revenue is estimated to be $30 million, NPS $6.1 million and the overall
loss after tax of $3.2 million.
The results of BDM are not disclosed separately in the Statement of Comprehensive Income as these are deemed
immaterial on a consolidated Group basis.
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 Condensed Consolidated Financial Statements were prepared.
However, these assumptions and estimates may change based on market changes or circumstances beyond the
control of the Group.
Functional currency
Functional currency is defined as the currency of the primary economic environment in which the Company
operates, and IAS 21 outlines primary and secondary factors a Company should consider when determining its
functional currency. The functional currency of the Company on incorporation was determined to be Sterling,
primarily because share capital was issued in Sterling, dividends were payable in Sterling, the RCF was in Sterling,
there was a high concentration of Sterling expenses and Catalogue purchases and associated royalties and
136
Annual Report 2021
Hipgnosis Songs Fund Limited
Notes to the Consolidated Financial StatementsFor the year ended 31 March 2021 revenue streams were a mixture of Sterling, Dollar and Euro. As the Company has grown and expanded there
has been an increase in Dollar denominated acquisitions and therefore a larger proportion of royalties and other
revenues have been received in Dollars.
During the year the Directors concluded that there had been a fundamental shift in the primary economic
environment in which the Company operates and that the Company’s functional currency had changed
from Sterling to Dollars with effect from 1 October 2020. It was agreed that after considering the primary
and secondary indicators of functional currency per IFRS that the criteria as outlined in IAS 21 indicated that
the Company’s functional currency had changed to Dollars due to a significant increase in the proportion
of transactions denominated in Dollars. The Board concluded that Dollars had become the predominant
currency, triggered by the Kobalt Music Copyrights S.à.r.l., and Big Deal Music Group acquisitions which occurred
on 30 September 2020 and 10 September 2020 respectively and the restructuring of the debt facility from Sterling
to Dollars on 23 July 2020. Shares will continue to be issued in Sterling and dividends will continue to be paid
in Sterling, however the majority of Catalogue revenue and cash receipts are denominated in Dollars, and there
is a higher concentration of Dollar expenses, and a strong indication that this trend will continue. Furthermore,
the BDM Acquisition (which has since been rebranded Hipgnosis Songs Group) has led to a US operating
company being part of the Group, which is consistent with the Company’s strategic objective of expansion and
growth in the US market. The Directors have also elected to change the Company’s presentation currency from
Sterling to Dollars; this represents a change in accounting policy in terms of IAS 8 and requires the restatement
of comparative information. Accordingly, these Consolidated Financial Statements are prepared in Dollars and the
comparative information for the 12 months period ended 31 March 2020 is presented in Dollars. The methodology
used to apply the presentation currency change is outlined in Note 2(n).
Critical estimates in applying the Group’s accounting policies – revenue recognition and royalty costs:
In calculating accruals, the Investment Adviser makes judgments around seasonality, over or under performance,
and commercial factors based on historical performance, and its knowledge of each Catalogue through its
regular correspondence with the various administrators, record labels and international societies.
Estimated royalty revenue receivable is accrued for on the basis of historical earnings for each Catalogue, which
incorporates an element of uncertainty. The estimated revenue accrual may not therefore directly equal the actual
cash received in respect of each accounting period and adjustments may therefore be required throughout the
financial period when the actual revenue received is known, and these adjustments may be material.
Net revenues also include an accrual for performance income, to account for the writer’s share of performance
royalties which are subject to a significant time lag in reporting in the industry, but which the Group is entitled
to receive in due course. In recommending the estimate of this accrual to the Board of Directors the Investment
Adviser used its analysis of each Catalogue's revenue history as well its knowledge of the respective Catalogue
performance trends to recommend the estimated accruals. The PRO income accrual is based on analysis of each
Catalogue’s revenue history as well as knowledge of the respective Catalogue’s performance trends.
Net revenue is subject to a royalty cost accrual applied to gross revenue receipts primarily within the Big Deal
Music 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.
Hipgnosis Songs Fund Limited
Annual Report 2021
137
Financial Statements 4. Significant accounting judgments, estimates and assumptions (continued)
Expected Credit Loss (ECL) in relation to revenue receivables:
Royalty earnings for accruals and receivables recognised in the year ending 31 March 2021 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 our receivables.
The Company’s current risk assessment includes analysis of the exposure to commercial risk by PROs, Publishers and
Record Labels, and the likely impact of their credit risk on Hipgnosis’ revenue streams.
Findings from the Company's sensitivity analysis demonstrates revenue by source from the following types
of organisations:
• 33% Major publishers (US & UK)
• 25% Independent publishers
• 23% US PROs
• 12% Record labels
• 7% European PROs
As demonstrated in the following breakdown of Accrued Income and Income Receivable, 89% ($7.7 million) of the
$8.7 million Income receivable balance outlined in Note 8, has been received at the time of writing, with the
remainder expected within 30 days. As demonstrated in Note 17, all Accrued income is expected to be received
within 12 months from the date of the Statement of Financial Position. To date, there has been no default of debt for
royalty payments by PROs, Publishers or Record Labels.
Additional credit risk with regards to Accrued income is taken into consideration at the point of calculating each
accrued amount. On calculation, latest forecast earnings are considered and adjusted down for the latest trend
of cash receipted earnings if there Is any suggestion of a downwards performance indicator.
Accrued Income and Receivables at 31 March 2021 were $82.1 million (on a gross basis), a breakdown of which
is set out below:
• An $8.7 million receivable representing royalty receipts expected in April and May for royalties where statements
were received in March.
Included in Trade and Other receivables is an accrued income balance of $73.4 million which is made up of:
• $29.5 million for calendar Q1 2021 earnings where, due to the time lag in royalty reporting, statements are not
expected to be received until calendar Q3 and Q4 2021;
• $16.9 million for calendar Q4 2020 earnings which are not reported to the Company until calendar Q2 2021;
• $9.9 million relating to calendar Q2 2020 to Q3 2020 earnings for Catalogues where royalty reporting is still in the
process of being redirected/switched over to the Company. These accruals are based on royalty statements
received with invoices due to be raised on completion of the Letter of Direction;
138
Annual Report 2021
Hipgnosis Songs Fund Limited
Notes to the Consolidated Financial StatementsFor the year ended 31 March 2021 • $4.4 million for 2020 earnings on deals acquired more than six months ago yet to be reported;
• $7.5 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 collect and distribute
income from territories. The lag in collection is due to the nature of collecting and processing royalties locally,
then distributing them to the domestic PRO, which will in turn process and distribute these royalties to the Group.
Six months of international PRO earnings are accrued, although can typically result in an earnings lag of up
to 24 months; and
• $5.2 million HSG gross revenue accrual, bringing the Group in line with IFRS, which includes the accrued PRO lag.
Separately, a $4.2 million royalty creditor representing contractual royalties due to writers has been recognised,
resulting in net revenue (NPS) for HSG of $1 million.
Performance income throughout the full financial year period is exposed to the impact of COVID. The major
Collection Societies and PROs have released statements since the financial year end date attesting to their
ability to meet their obligations, in both the short and mid-term, despite the impact of COVID-19. The Audit and
Risk Management Committee continues to evaluate credit risk during COVID-19 and has not become aware
of any issues with cash collections or changes in the existing royalty collection arrangements. The accrual held
is a conservative accrual, reflecting the COVID-19 impact on performance income within prior periods further
mitigating the potential for credit risk.
Assessment of useful life of intangible assets
In order to calculate the amortised cost of the intangible assets it is necessary to assess the useful economic
life of the copyright interests in Songs. This requires forecasts of the expected future revenue from the copyright
interests, which contains significant uncertainties as the ongoing popularity of a Song can fluctuate unexpectedly.
An assessment of the useful life of each Catalogue is considered at each reporting period, which is 20 years, in line
with industry standard.
Assessment of impairment and the calculation of Operative NAV
As disclosed in Note 2(g) above, intangible assets are subject to annual impairment review which relies
on assumptions made by the Board. Assumptions are updated annually, specifically those relating to future cash
flows and discount rates.
The fair value estimates that are prepared in order to calculate the Operative NAV and Operative NAV per Share
are also used to assess whether there is evidence that the intangible assets may be impaired. Management’s
impairment review as at 31 March 2021 concluded that $nil impairment was required to the Group’s
Catalogue Investments.
Valuations of music publishing rights typically adopt the DCF valuation approach which measures the present value
of anticipated future revenues from acquiring the Catalogues, which are discounted at a ‘market cost of capital',
8.5% and unchanged since the interim results of 30 September 2020 (31 March 2020: 9.0%) and a terminal value
in 12 years. This method is accepted as an objective way of measuring future benefits; taking into account income
projections from various music industry sources across various revenue flows whilst also factoring in the associated
cost of capital.
It is the intention of the Board that Catalogues of Songs will be valued on an ongoing basis using a consistent DCF
valuation methodology, and that this be used as an initial indicator of impairment for each Catalogue of Songs.
Hipgnosis Songs Fund Limited
Annual Report 2021
139
Financial Statements 5. Taxes
The major components of income tax expense for the year ended 31 March 2021 and year ended
31 March 2020 are:
Current income tax
United Kingdom corporation tax based on the profit for the year at 19% (2020: 19%)
Non-reclaimable withholding tax on royalty payments received
Total current tax
Deferred taxation
Origination and reversal of timings differences
Total tax
Year ended
31 March 2021
$’000
Year ended
31 March 2020
$’000
5,604
–
5,604
9,403
95
9,498
–
–
5,604
9,498
The Company was Guernsey tax resident for the current and previous periods but exempt from taxation
in Guernsey under the provisions of the Income Tax (Exempt Bodies) (Guernsey) Ordinance, 1989 and was charged
an annual fee of £1,200.
Whilst the Company is incorporated in Guernsey, the majority of the Company’s subsidiaries are incorporated
and tax resident in the UK and the majority of the Group’s income and expenditure is incurred in these UK entities.
Therefore, it is considered most appropriate to prepare the tax reconciliation below at the standard UK tax rate for
the year of 19% (2020: 19%).
The Group currently has no exposure to US Tax given HSG is currently not making a taxable profit. Aside from the US,
the Group has no other foreign subsidiaries.
It is noted that the Company applied to Her Majesty’s Revenue & Customs (HMRC) for approval of the Company
as an investment trust company and such approval was granted. The Company’s conversion to an investment trust
company took effect from 1 April 2021 (and shall continue for such time as the Company maintains this status). The
Company will be treated as being resident in the UK for tax purposes from such date. With effect from this change,
the Company will cease to be a Guernsey tax exempt vehicle under The Income Tax (Exempt Bodies) (Guernsey)
Ordinance, 1989, as amended.
The March 2021 Budget announced an increase to the main rate of UK corporation tax to 25% from April 2023. This
rate had not been substantively enacted at the balance sheet date and as a result the impact of this proposed
change is not included within these financial statements.
140
Annual Report 2021
Hipgnosis Songs Fund Limited
Notes to the Consolidated Financial StatementsFor the year ended 31 March 2021
The actual tax charge for the current year and the previous period differs from the standard rate for the reasons set
out in the following reconciliation:
Profit on the Group’s ordinary activities before tax
Tax on the profit on the Group’s ordinary activity at the standard UK rate of 19%
Factors affecting charge for the year:
Losses incurred by the Company in the period on which no tax credit is recorded
Net non-reclaimable withholding tax on royalty payments received
Tax effect on non-taxable income
Total actual amount of current tax
Year ended
31 March 2021
$’000
Year ended
31 March 2020
$’000
44,538
8,462
–
–
(2,858)
5,604
41,511
7,887
1,516
95
–
9,498
6. Catalogues of Songs
Cost
At 1 April 2020
Additions
At 31 March 2021
Amortisation and impairment
At 1 April 2020
Amortisation
Impairment
At 31 March 2021
Net book value
At 1 April 2020
At 31 March 2021
Fair value as at 31 March 2021 (used in Operative NAV)
Cost
At 1 April 2019
Additions
At 31 March 2020
Amortisation and impairment
At 1 April 2019
Amortisation
Impairment
At 31 March 2020
Net book value
At 1 April 2019
At 31 March 2020
Fair value as at 31 March 2020 (used in Operative NAV)
$’000
882,906
1,089,293
1,972,199
25,400
67,875
–
93,275
857,506
1,878,924
2,213,719
156,441
726,465
882,906
1,938
23,462
–
25,400
154,502
857,506
933,593
Hipgnosis Songs Fund Limited
Annual Report 2021
141
Financial Statements
6. Catalogues of Songs (continued)
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). At 31 March 2021 the Portfolio consisted
of Catalogues of Songs held for no longer than 3 years. An assessment of the useful life of each Catalogue
is considered at each reporting period, which is 20 years, in line with industry standard. At 31 March 2021
accumulated amortisation for Catalogue of Songs is $93,274,850 (31 March 2020: $25,400,148) and the accumulated
impairment to date is $nil (31 March 2020: $nil).
The Board engaged Portfolio Independent Valuer, Massarsky Consulting, Inc., to value the Catalogues
as at 31 March 2021. Each income type from each Catalogue was analysed and forecast to derive the fair value
of the Catalogues by adopting a DCF valuation methodology using a discount rate of 8.5%, unchanged since
the interim results of 30 September 2020 (31 March 2020: 9%) that would be categorised under Level 3 within the
fair value hierarchy of IFRS 13 "Fair Value Measurement". Income was analysed and forecast at the level of each
individual Catalogue and by income type with the exception of Kobalt, which was evaluated as a whole. Future
revenues were also estimated, often at the level of individual Songs, and incorporated into their valuation.
Massarsky Consulting has also taken into consideration macro factors including the growth of streaming revenue,
the global growth of the recorded music industry and the short- and medium-term impact of COVID-19 in their
analysis. The Board has approved and adopted the valuations prepared by the Portfolio Independent Valuer which
are used as an input into the impairment review process and for the Operative NAV.
The sensitivity to the discount rate used in the Operative NAV is as follows:
-0.5% discount rate will grow the FV of the Portfolio by 9.2%, increasing the Operative NAV by $204 million which
represents an increase of $0.19 Operative NAV per share.
+0.5% discount rate will reduce the FV of the Portfolio by 7.8%, reducing the Operative NAV by $172.4 million which
represents a decrease of -$0.16 Operative NAV per share.
142
Annual Report 2021
Hipgnosis Songs Fund Limited
Notes to the Consolidated Financial StatementsFor the year ended 31 March 2021 7. Cash and cash equivalents
Cash and cash equivalents comprise cash held by the Group available on demand and cash held in deposits.
Cash and cash equivalents were as follows:
Cash available on demand
Cash held in deposits
Money market fund
8. Trade and other receivables
Accrued income
Royalties receivable
HSG net recoupable advances
Prepayments and other debtors
31 March 2021
$’000
31 March 2020
$’000
112,634
–
–
6,960
4
10,427
112,634
17,391
31 March 2021
$’000
31 March 2020
$’000
73,398
8,687
10,095
15,448
35,717
15,287
–
1,350
107,628
52,354
Hipgnosis Songs Fund Limited
Annual Report 2021
143
Financial Statements
9. Loans and borrowings
On 2 September 2019 the Company entered into a Revolving Credit Facility (RCF) with JPMorgan Chase Bank
(JPM) as Lead Arranger of £100 million. On 29 May 2020, the Company announced that it was seeking Shareholder
support to increase the Company’s current borrowing limit of 20% of its Operative NAV to a maximum of 30% of its
Operative NAV, given that the Company’s assets and their associated income streams are well suited to supporting
leverage. This approval was given by Shareholders at an Extraordinary General Meeting on 11 June 2020. During the
year, the Company entered into an agreement with a syndicated group of lenders, with JPM as Lead Arranger,
to increase its RCF from £150 million to $400 million. On 6 January 2021 it was announced that the facility was upsized
to $600 million subject to total borrowings not exceeding 30% of Net Asset Value. On 26 March 2021, the Company
drew down $90.0 million under its RCF resulting in gross indebtedness of $577 million and net indebtedness
of $465 million. This gross indebtedness represented approximately 32.8% of the last published Adjusted Operative
Net Asset Value at that time and therefore constituted an inadvertent breach of the Company’s borrowing
restriction under its investment policy of 30% of Net Asset Value. The amounts drawn down were held by the
Company as cash and were unutilised, and on 5 April 2021 $50 million of these drawings were repaid thereby curing
the temporary breach. Since this date the Company has complied with all of its investment restrictions.
The loan bears interest at LIBOR Rate of 3.375% on the utilised facility and 0.375% on the unutilised facility. The
RCF, which had its maturity date extended to 2 April 2025 on 15 April 2020, provides the Company with greater
flexibility to fund investments and provide additional working capital. The RCF’s key covenant imposes a loan
to value test and a liquidity test reviewed quarterly and is secured by, inter alia, a charge over the shares in all the
subsidiaries of the Company and over all of their assets including all Catalogues of Songs of the Company held
through these subsidiaries, a charge over the bank accounts of the Company and a floating charge at the fair
value deemed by J.P. Morgan. The Company has also provided a parent company guarantee. In accordance
with the Investment Policy, any borrowings by the Company will not exceed 30% of the value of the net assets
of the Company.
Opening balance – loan drawn
Amounts drawn down during the period
Total loan drawn down
Cumulative Borrowing Costs
Closing balance
31 March 2021
$’000
31 March 2020
$’000
74,014
503,278
577,292
–
74,014
74,014
(11,432)
(4,832)
565,860
69,182
During the year $7,330,576 (31 March 2020: $476,099) was charged as interest on the amounts drawn down.
During the year $9,199,375 (31 March 2020: $5,421,163) of costs relating to the set-up of the RCF were capitalised,
to be amortised over the 5 year length of the agreement.
144
Annual Report 2021
Hipgnosis Songs Fund Limited
Notes to the Consolidated Financial StatementsFor the year ended 31 March 2021
10. Other payables and accrued expenses
Amounts owed to Songwriters
VAT payable
Accrued borrowing costs
Loan interest payable
Administration fees
Legal and professional fees
Advisory fees
Audit fees
Corporation tax
Other expenses
Deferred investment payables
31 March 2021
$’000
31 March 2020
$’000
18,522
2,609
–
1,277
227
1,932
–
523
4,798
2,568
42,037
128
15
3,538
288
209
484
675
298
3,241
166
38,342
74,493
47,384
As at 31 March 2021 an amount of $42,036,861 relating to the acquisition of 10 catalogues remained outstanding
(31 March 2020: $38,341,220 relating to the acquisition of 5 catalogues).
Hipgnosis Songs Fund Limited
Annual Report 2021
145
Financial Statements
11. Share capital and capital management
The share capital of the Company may consist of an unlimited number of: (i) Ordinary Shares of no par value which
upon issue the Directors may classify as Ordinary Shares; and (ii) C Shares denominated in such currencies as the
Directors may determine.
Ordinary Shares of no par value
Issued and fully paid:
Shares as at 1 April 2020
Shares issued on 10 September 2020
Shares issued on 24 September 2020
Shares issued on 30 November 20201
Shares issued on 5 February 2021
Shares as at 31 March 2021
Issued and fully paid:
Share capital at 1 April 2020
Shares issued on 10 September 2020
Shares issued on 24 September 2020
Share issue costs
Shares issued on 30 November 20201
Share issue costs
Shares issued on 5 February 2021
Share issue costs
Shares as at 31 March 2021
No. of Units
615,851,887
17,609,304
163,793,103
214,202,503
61,983,471
1,073,440,268
$
801,843,874
27,599,686
241,702,336
(4,430,446)
304,132,072
(5,630,220)
103,621,811
(1,988,288)
1,466,850,825
146
Annual Report 2021
Hipgnosis Songs Fund Limited
Notes to the Consolidated Financial StatementsFor the year ended 31 March 2021
Issued and fully paid:
Shares as at 1 April 2019
Shares issued on 17 April 2019
Shares issued on 29 August 2019
Shares issued on 30 December 20192
Shares issued on 10 February 20203
Shares as at 31 March 2020
Issued and fully paid:
Share capital at 1 April 2019
Shares issued on 17 April 2019
Share issue costs
Shares issued on 29 August 2019
Share issue costs
Shares issued on 30 December 20192
Share issue costs
Shares issued on 10 February 20203
Share issue costs
Shares as at 31 March 2020
No. of Units
202,176,800
138,750,000
48,429,541
207,946
226,287,600
615,851,887
$
262,919,089
184,649,721
(3,723,462)
62,378,117
(1,198,561)
296,078
–
301,776,642
(5,253,750)
801,843,874
1. 236,400,512 C Shares converted to 214,202,503 Ordinary Shares
2. Shares issued as performance fee in respect of year ended 31 March 2019
3. 231,000,000 C Shares converted to 226,287,600 Ordinary Shares
On 10 July 2020 236,400,512 C Shares were issued and converted on 30 November 2020 to 214,202,503 Ordinary
Shares at a conversion rate of 0.9061 Ordinary Shares for each C Share held.
Under the Company’s Articles of Incorporation, each Shareholder present in person or by proxy has the right
to one vote at general meetings. On a poll, each Shareholder is entitled to one vote for every Ordinary Share held.
Shareholders are entitled to all dividends paid by the Company and, on a winding up, provided the Company has
satisfied all of its liabilities, the Shareholders are entitled to all of the residual assets of the Company.
Hipgnosis Songs Fund Limited
Annual Report 2021
147
Financial Statements
12. Net Asset Value per Share and Operative Net Asset Value per Share
Number of Ordinary Shares in issue
IFRS NAV per share (cents)
Operative NAV per share (cents)
31 March 2021
31 March 2020
1,073,440,268
136.28
168.29
615,851,887
131.64
151.14
The IFRS NAV per share and the Operative NAV per share are arrived at by dividing the IFRS Net Assets and
Operative Net Assets (respectively) by the number of Ordinary Shares in issue.
Catalogues of Songs are classified as intangible assets and measured at amortised cost or cost less impairment
in accordance with IFRS.
The Directors are of the opinion that an Operative NAV provides a meaningful alternative performance measure
and the values of Catalogues of Songs are based on fair values produced by the Portfolio Independent Valuer.
Reconciliation of IFRS NAV to Operative NAV
IFRS NAV
Adjustments for revaluation of Catalogues of Songs to fair value
Reversal of amortisation
Operative NAV
13. Revenue
Writer’s share Income
Streaming Income
Synchronization Income
Performance Income
Mechanical Income
Producer Royalties
Masters Income
Other Income
Digital Downloads Income
Net JV Income
Publishing Admin Income
Total revenue
31 March 2021
$’000
31 March 2020
$’000
1,462,845
810,685
250,343
93,275
94,941
25,189
1,806,463
930,815
1 April 2020 to
31 March 2021
$’000
1 April 2019 to
31 March 2020
$’000
34,889
34,348
28,020
24,652
9,535
8,445
8,424
7,675
4,480
85
199
27,313
15,230
7,673
12,802
4,390
4,998
5,433
1,458
2,910
–
–
160,752
82,207
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 time lag ranges from 3-6 months on domestic income and 12-18 months
on international income. The revenue accruals booked in the year are disclosed in detail within the Accruals
and Receivables.
All revenue streams disclosed in this note are in scope of IFRS 15.
148
Annual Report 2021
Hipgnosis Songs Fund Limited
Notes to the Consolidated Financial StatementsFor the year ended 31 March 2021
14. Other operating expenses
Regulatory fees
Listing fees
Directors and officers Insurance
Directors expenses
Registrar fees
Postage, stationery and printing
Public relation fees
Travel and accommodation fees
Bank charges
Credit facility bank charges
Aborted deal expenses
Disbursements and sundry
Salaries and wages
Staff expenses
Property expenses
Provision for HSG Advances
Fixed asset depreciation
Total other operating expenses
1 April 2020 to
31 March 2021
$’000
1 April 2019 to
31 March 2020
$’000
57
625
61
6
70
59
430
184
42
–
848
549
2,556
370
322
4,247
135
43
490
26
3
46
21
350
432
25
24
301
179
–
–
–
–
–
10,561
1,940
The Provision for HSG Advances relates to HSG Advances that have been provided for in the financial year. Baby
Writers (Writers with no established history) are provided for in full. Provisions are also made against unrecouped
balances for established writers where the recoupment rates may not lead to a full recoupment of the initial
Advance payment.
15. FX Gains and losses in Profit or Loss
FX Gain/(loss) creditors/debtors
FX Gain/(loss) cash and cash equivalents
1 April 2020 to
31 March 2021
$’000
1 April 2019 to
31 March 2020
$’000
11,269
4,545
15,814
(1,444)
(3,707)
(5,151)
The FX impact reflects the effect of movements in Sterling and EUR exchange rates throughout the year, and
includes an adjustment as a result of the Company changing its functional currency to Dollars.
Currency risk is discussed further in Note 17.
Hipgnosis Songs Fund Limited
Annual Report 2021
149
Financial Statements
16. Dividends
A summary of the dividends is set out below:
1 April 2020 to 31 March 2021
Interim dividend in respect of quarter ended 30 March 2020
Interim dividend in respect of quarter ended 30 June 2020
Interim dividend in respect of quarter ended 30 September 2020
Interim dividend in respect of quarter ended 31 December 2020
1 April 2019 to 31 March 2020
Interim dividend in respect of quarter ended 30 March 2019
Interim dividend in respect of quarter ended 30 June 2019
Interim dividend in respect of quarter ended 30 September 2019
Interim dividend in respect of quarter ended 31 December 2019
Dividend per share
Pence
Total Dividend
$’000
1.25
1.25
1.3125
1.3125
5.125
9,485
10,108
13,979
18,437
52,009
Dividend per share
Pence
Total Dividend
$’000
1.25
1.25
1.25
1.25
5.00
5,375
5,191
6,283
6,274
23,123
Subsequent to the year end, the Company announced an interim dividend for the quarter from 1 January 2021
to 31 March 2021 of 1.3125p per Ordinary Share, paid on 28 May 2021. The Company continues to pay
dividends in Sterling.
17. Financial risk management
Financial risk management objectives
The Group’s activities expose it to various types of financial risk, principally market risk, credit risk, and liquidity
risk. The Board has overall responsibility for the Group’s risk management and sets policies to manage those risks
at an acceptable level.
Fair values
Management assessed that the fair values of cash and cash equivalents, trade and other receivables, trade and
other payables and royalty advances approximate their carrying amount largely due to the short-term maturities
and high credit quality of these instruments.
Capital risk management
The Group manages its capital to ensure that it will be able to continue as a going concern while maximising the
capital return to Shareholders. The capital structure of the Group consists of issued share capital and retained
earnings, as stated in the Statement of Financial Position.
In order to maintain or adjust the capital structure, the Group may buy back shares or issue new shares. There are
no external capital requirements imposed on the Group.
During the year ended 31 March 2021, the Group drew down $503,277,478 (31 March 2020: $74,014,522) from the RCF
which remained drawn down as at 31 March 2021 by $577,292,000 (31 March 2020: $74,014,522).
The Group’s investment policy is set out in the Investment Objective and Policy section of the Annual Report.
150
Annual Report 2021
Hipgnosis Songs Fund Limited
Notes to the Consolidated Financial StatementsFor the year ended 31 March 2021
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 Sterling by agreeing
to currency exchange arrangements with collection agents, or otherwise itself undertaking foreign exchange
conversions. The Group may engage in full or partial foreign currency hedging and interest rate hedging. The
Group will not enter into such arrangements for investment purposes.
The currencies in which financial assets and liabilities are denominated are shown below:
As at 31 March 2021
USD
$
GBP
Converted to
$
Trade and other receivables
Cash and cash equivalents
158,928,673
117,349,227
(54,090,437)
(6,549,651)
EUR
Converted to
$
2,342,940
1,834,603
Other
Converted to
$
Total
$
446,482
–
107,627,658
112,634,179
Total financial assets
276,277,900
(60,640,088)
4,177,543
446,482
220,261,837
Revolving Credit Facility
Trade and other payables
577,292,000
140,174,178
–
(66,307,194)
–
625,732
–
(165)
577,292,000
74,492,551
Total financial liabilities
717,466,178
(66,307,194)
625,732
(165) 651,784,551
Net asset/(liability) position
(441,188,278)
*
5,667,106
3,551,811
**
446,647 (431,522,714)
*At the reporting date 31 March 2021, if Sterling had strengthened/weakened by 10% against the Dollar with all other variables held constant, the net assets and movement
in profit and loss would have been $566,711 higher/lower.
**At the reporting date 31 March 2021, if the EUR had strengthened/weakened by 10% against the Dollar with all other variables held constant, the net assets and movement
in profit and loss would have been £355,181 higher/lower.
As at 31 March 2020
Trade and other receivables
Cash and cash equivalents
USD
$
43,329,294
6,206,135
GBP
Converted to
$
8,067,741
10,893,221
EUR
Converted to
$
Other
Converted to
$
956,635
292,051
Total financial assets
49,535,429
18,960,962
1,248,686
Revolving Credit Facility
Trade and other payables
–
38,453,981
74,014,522
8,834,753
Total financial liabilities
38,453,981
82,849,275
–
94,682
94,682
Net (liability)/asset position
11,081,448
(63,888,313)
*
1,154,004
**
Total
$
52,353,670
17,391,407
69,745,077
74,014,522
47,383,416
121,397,938
(51,652,861)
–
–
–
–
–
–
–
*At the reporting date 31 March 2020, if Sterling had strengthened/weakened by 10% against the Dollar with all other variables held constant, the net assets and movement
in profit and loss would have been $6,388,831 higher/lower.
**At the reporting date 31 March 2020, if the EUR had strengthened/weakened by 10% against Dollar with all other variables held constant, the net assets and movement
in profit and loss would have been $115,401 higher/lower.
Hipgnosis Songs Fund Limited
Annual Report 2021
151
Financial Statements
17. Financial risk management (continued)
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 interest at 3.375% which when annualised for the $577.3 million drawn down at the year end
would have been covered 5.4 times by the closing cash balance at 31 March 2021. This interest rate is the London
Interbank Offered Rate (LIBOR) rolling over at 7 November 2020, the Group is able to elect 1, 3 or 6 month rollovers,
with no change expected.
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 has been deemed close to nil.
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:
Barclays Bank plc
City National Bank
Pinnacle Financial Partners
Santander UK Plc
JPMorgan Chase Bank, N.A.
Royal Bank of Scotland plc
Investec Bank plc
Blackrock Institutional Sterling Liquidity Fund
*Rated by Standard & Poor’s
** Rated by Moody’s
Location
Rating
Guernsey
US
US
UK
US
UK
UK
UK
A-1
A+*
A-1
A-1*
A-1*
A-1*
P-1
AAAm
*
**
*
31 March
2021
$’000
106,889
5,241
461
30
12
1
–
–
31 March
2020
$’000
6,960
–
–
–
–
–
4
10,427
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. In order to mitigate liquidity risk, the Group aims to have sufficient cash
balances to meet its obligations for a period of at least 12 months.
152
Annual Report 2021
Hipgnosis Songs Fund Limited
Notes to the Consolidated Financial StatementsFor the year ended 31 March 2021
The Group prepares a 12 month rolling cash forecast, which is reviewed by the Board on a monthly basis.
The cash flow forecast includes a sensitivity analysis with downside scenarios on income streams impacted
specifically relating to COVID-19. Cash is delivered with royalty statements, and the majority are delivered quarterly
or semi-annually. A small number of collections are delivered monthly. Cash is collected and processed throughout
calendar quarters or half years by the administrators and paid out on either 60/90 day accounting.
During the year ended 31 March 2021, the Group had no financial liabilities other than the RCF: $577,292,000
(31 March 2020: $74,014,522) and trade and other payables: $74,493,046 (31 March 2020: $47,383,416).
At the reporting date, the Group’s financial assets and financial liabilities are:
Trade and other receivables
Carrying
amount
assets
$’000
Less than
1 month
$’000
1-3
months
$’000
3-12
months
$’000
Between
1 and
2 years
$’000
Between
2 and
5 years
$’000
Over
5 years
$’000
Total
contractual
cash flows
$’000
Income receivable
8,687
7,270
348
1,069
–
Accrued income
73,398
HSG net recoupable advances
10,095
Prepayments and other debtors
15,448
–
–
–
13,289
57,811
2,298
–
–
9,095
1,000
15,448
–
Total
107,628
7,270
13,637
83,423
3,298
–
–
–
–
–
–
–
–
–
8,687
73,398
10,095
15,448
– 107,628
Other payables, accrued expenses,
loans and borrowings
Carrying
amount
assets
£’000
Less than
1 month
£’000
1-3
months
£’000
3-12
months
£’000
Between
1 and
2 years
£’000
Between
2 and
5 years
£’000
Over
5 years
£’000
Total
contractual
cash flows
£’000
Bank loan
(565,860)
–
–
–
–
(565,860)
Investment acquisition payable (42,037)
(28,135)
(2,126)
(10,188)
(1,588)
–
–
–
–
–
–
–
–
–
–
(565,860)
(42,037)
(18,522)
(1,277)
(227)
(1,932)
(523)
(2,609)
(4,798)
(2,568)
–
–
–
–
–
–
–
–
–
Royalty creditor
(18,522)
–
Loan interest payable
(1,277)
(1,277)
Administration fees
(227)
(227)
–
–
–
Legal & professional fees
(1,932)
(988)
(944)
(18,522)
–
–
–
–
–
–
–
–
–
–
–
–
–
(523)
(2,609)
(4,798)
–
–
–
(523)
(2,609)
(1,500)
(3,298)
(2,568)
(2,568)
–
–
Audit fees
VAT
Corporation tax
Other expenses
Total
(640,353) (33,195)
(7,702) (32,008)
(1,588)(565,860)
– (640,353)
Net receivable/(payable)
(532,725) (25,925)
(5,935) 51,415
1,710 (565,860)
– (532,725)
Hipgnosis Songs Fund Limited
Annual Report 2021
153
Financial Statements
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.
The Company Directors’ fees for the year amounted to £582,000 ($762,068). The total remuneration included
an accrual reversal of £109,000 relating to the bonus catch up for FY 2020 and an accrual of £27,000, totalling
£500,000 ($666,153). Outstanding fees amounted to £nil at year end (31 March 2020: £260,420, $330,915, with
outstanding fees of £nil due to at year end). Further detail on the additional payments made to the Directors
is disclosed in the Directors' Remuneration Report.
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.
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 (www.hipgnosissongs.com). However in summary:
Advisory fee
The advisory fee is calculated at the rate of:
(i) 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 £8,769,613 ($11,516,042) (31 March 2020: £4,597,567, $5,842,672) with £nil outstanding
at the reporting date (31 March 2020: nil).
Performance Fee
In respect of each accounting period, the Investment Adviser (or, where the Investment Adviser so directs, any
member of the Investment Adviser’s team) is entitled to receive a performance fee (the ‘‘Performance Fee’’) equal
to 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
154
Annual Report 2021
Hipgnosis Songs Fund Limited
Notes to the Consolidated Financial StatementsFor the year ended 31 March 2021 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 period, the average of the middle
market quotations was 108.27p; 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.
Performance fee for the year was calculated and accrued as £388,460 ($533,658) with cash amount £218,119
($299,647) accrued as payable and an amount to be paid as shares recognised as Performance fee to be paid
in shares for £170,341 ($234,011) amount accrued at the reporting date. (31 March 2020: £nil, no performance fee
was paid in respect of year ended 31 March 2020).
Administration Agreement
Pursuant to the Administration Agreements: (i) Ocorian Administration (Guernsey) Limited has been appointed
as Administrator of the Company; and (ii) Ocorian Administration (UK) Limited has been appointed as administrator
to the subsidiaries. The Administrator or Ocorian Administration (UK) Limited (as applicable) are responsible for the
day to day administration of the Company and the subsidiaries which accedes to the relevant Administration
Agreement (including but not limited to the calculation and publication of the semi-annual NAV, the IFRS NAV
and Operative NAV) and general secretarial functions required by the Companies Law (including but not limited
to maintenance of the Company’s accounting and statutory records). For the purposes of the RCIS Rules, the
Administrator is the designated manager of the Company.
Under the terms of the Administration Agreement between the Administrator and the Company, the Administrator
is entitled to a fixed fee as at 31 March 2021 of £172,500 ($236,977) (31 March 2020: £172,500, $219,195) per annum for
services such as administration, accounting, corporate secretarial, corporate governance, regulatory compliance
and stock exchange continuing obligations. Additional ad hoc fees are payable in respect of certain additional
services, these amounted to £275,300 ($345,829) (31 March 2020: £246,160, $312,795). Administration fees for the year
to 31 March 2021 amounted to £447,800 ($582,806) (31 March 2020: £418,660, $531,990) of which £20,822 ($28,593)
(31 March 2020: £50,045, $61,734) was outstanding at the year end.
Hipgnosis Songs Fund Limited
Annual Report 2021
155
Financial Statements 19. Material agreements (continued)
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 2021 of £14,000 ($19,233) per subsidiary and a variable
incremental fee per annum per additional Catalogue held by a subsidiary for services such as administration,
corporate secretarial and accounting. Administration fees for the subsidiaries for the year amounted to £455,877
($602,770) (31 March 2020: £398,336, $506,165) of which £145,117 ($196,743) (31 March 2020: £140,521, $173,343) was
outstanding at the year end.
Registrar Agreement
Computershare Investor Services (Guernsey) Limited (a company incorporated in Guernsey on 3 September 2009
with registered number 50855) has been appointed as registrar to the Company pursuant to the Registrar
Agreement. In such capacity, the Registrar will be responsible for the transfer and settlement of Shares held
in certificated and uncertificated form. The Registrar is also entitled to reimbursement of all out of pocket costs,
expenses and charges properly incurred on behalf of the Company.
Under the terms of the Registrar Agreement, the Registrar is entitled to a fixed fee as at 31 March 2021 of £7,500
($10,303) per annum in respect of the Ordinary Shares (31 March 2020: £7,500, $9,530) and £5,500 ($7,556) per
annum in respect of the C Shares (if applicable), together with additional ad hoc fees in respect of additional out
of scope services provided by the Registrar of £39,284 ($51,641) (31 March 2020: £23,329, $29,644). Registrar fees for
the year were £52,284 ($69,500) (31 March 2020: £36,329, $46,163) with £10,875 ($15,154) outstanding at the reporting
date (31 March 2020: £1,440, $1,776).
20. Earnings per share
Profit for the year ($)
Weighted average number of Ordinary Shares in issue
Earnings per share (cents)
Profit for the year ($)
Weighted average number of Ordinary Shares in issue
Earnings per share (cents)
31 March 2021
Basic
31 March 2021
Diluted
38,935
825,090,869
4.72
38,935
825,090,869
4.72
31 March 2020
Basic
31 March 2020
Diluted
32,013
393,897,052
8.13
32,013
393,897,052
8.13
The earnings per share is based on the profit or loss of the Group for the year and on the weighted average number
of Ordinary Shares for the year ended 31 March 2021.
There are no dilutive shares at 31 March 2021.
156
Annual Report 2021
Hipgnosis Songs Fund Limited
Notes to the Consolidated Financial StatementsFor the year ended 31 March 2021
21. Auditor’s Remuneration
Audit and non-audit fees payable to the Auditors can be analysed as follows:
PricewaterhouseCoopers CI LLP annual audit fees
PricewaterhouseCoopers CI LLP annual audit fees
Pricewaterhouse Coopers CI LLP project accounting fees relating to the migration
to premium segment
Pricewaterhouse Coopers CI LLP C Share conversion fees
Pricewaterhouse Coopers CI LLP reporting accounting services
Pricewaterhouse Coopers CI LLP Interim review fees
PricewaterhouseCoopers CI LLP non audit fees
1 April 2020 to
31 March 2021
$’000
1 April 2019 to
31 March 2020
$’000
732
732
11
346
54
411
365
365
187
13
200
22. Subsequent events
The Company’s conversion to an investment trust company took effect from 1 April 2021 and therefore the
Company has been treated as being resident in the UK for tax purposes and ceased to be a Guernsey tax exempt
vehicle under The Income Tax (Exempt Bodies) (Guernsey) Ordinance, 1989, as amended from this date.
On 27 April 2021 the Company declared a dividend of 1.3125p per Ordinary Share in respect of the quarter ended
31 March 2021 which was paid on 28 May 2021.
On 29 April 2021 the Company issued 9,000,000 new Ordinary Shares at a price of 119.5p per Ordinary Share;
these shares rank pari passu with the existing Ordinary Shares in issue. The issue price equates to a premium to the
Adjusted Operative NAV as at 28 April 2021. The net proceeds will be used to fund an investment in accordance
with the Company’s investment policy.
On 11 June 2021 Vania Schlogel was appointed to the Board.
On 16 June 2021 the Company announced a further fund raise. For further information please refer to the Company
website www.Hipgnosissongs.com.
On 19 June 2021 there was an additional drawdown on the existing RCF of $13 million.
Hipgnosis Songs Fund Limited
Annual Report 2021
157
Financial Statements
158
Annual Report 2021 Hipgnosis Songs Fund Limited
Additional Information
Contents
160 Alternative Performance Measures
162 Glossary of Capitalised Defined Terms
166 Directors and General Information
167 Corporate Summary
168 Advice to Shareholders
Hipgnosis Songs Fund Limited Annual Report 2021
159
Additional Information Additional Information
Alternative Performance Measures
Performance measure
Definition
Reason for use
Annualised ongoing charges Adjusted Operating Costs
Adjusted Operating Costs
Average Operative NAV
EBITDA
EPS excluding total
Amortisation
Leveraged Free Cash Flow
NAV Return
Net Debt
($39,681,824) less Non Recurring
administrative expenses ($16,582,485)
over a 12-month period
Operational expenses ($93,851,062)
less the Amortisation of Catalogues
of Songs ($67,874,702) plus Foreign
exchange gains/losses ($15,814,243)
plus HSG FV Gain ($2,138,624)
less Provision for HSG Advances
($4,247,404)
Average of the Operative NAV as at
31 March 2021 ($1,806,463,000) the
Operative NAV as at 30 September
2020 ($1,627,552,468) and the
Operative NAV as at 31 March 2020
($930,814,994)
The Operating Profit before Tax
($44,538,411) plus Amortisation, Loan
interest, Depreciation and FX gain/
loss ($62,128,010)
Profit after Tax excluding total
amortisation ($109,409,495) divided
by Weighted average number of
Ordinary Shares in issue (825,090,869)
Net Cash from Operating Activities
($85,868,120) less the Purchase of
other assets ($3,739,548)
Latest published Operative NAV per
share ($1.6829 as at 31 March 2021)
increase as a percentage of the
initial published Operative NAV per
share ($1.5114 as at 31 March 2020)
equals 11.34%
Loan facility amount ($577,292,000)
utilised less cash held at bank
($112,634,179)
Ongoing Charges are a good
indicator of expenses likely to recur
in the foreseeable future
Ongoing Charges are a good
indicator of expenses likely to recur
in the foreseeable future
The average was taken given that
share issuance has grown rapidly
over the year
A strong indicator of company
performance and profitability
removing accounting adjustments
The Operating profit adjusted
for Amortisation aligns with the
Operative NAV which reflects that
the values of Catalogues of Songs
are based on fair values produced
by the Portfolio Independent
Valuer
A good indicator of the cash
position of the Company and the
availability of cash flows to fund
interest and dividend payments
To show how the assets have
performed over time to
Shareholders
Liquidity metric used to determine
how well a company can pay
all of its debts if they were due
immediately
160
Annual Report 2021 Hipgnosis Songs Fund Limited
Performance measure
Definition
Reason for use
Non Recurring administrative
expenses
Exceptional Costs included within
Legal and professional fees
($5,270,215) plus Aborted deal
expenses ($848,057) plus Interest
Costs ($9,930,591) plus Performance
fee ($533,622)
Good indicator of expenses not
likely to recur in the foreseeable
future
Ongoing Charges %
Annualised Ongoing Charges
($23,099,339) divided by Average
Operative NAV ($1,456,466,998)
To monitor the expenses, which are
likely to recur, relative to the fund
size over time
The Operative NAV Profit
before Tax
Operating profit for the year before
taxation ($44,538,411) plus total
amortisation ($70,474,716)
Total NAV Return
Operative NAV as at 31 March 2021
($1.6829) plus cumulative dividends
paid up to 31 March 2021 ($0.1433),
divided by the Operative NAV as at
11 July 2018 ($1.2983)
The Operating profit adjusted
for Amortisation aligns with the
Operative NAV which reflects that
the values of Catalogues of Songs
are based on fair values produced
by the Portfolio Independent
Valuer
To show how the assets have
performed since IPO to
Shareholders
Hipgnosis Songs Fund Limited Annual Report 2021
161
Additional Information Additional Information
Glossary of Capitalised Defined Terms
“Administrator” means Ocorian Administration
(Guernsey) Limited;
“Board” or “Directors” means the Directors
of the Company;
“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;
“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 a US commercial broadcast television
and radio network;
“CD” means compact disc;
“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;
‘‘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;
“Companies Law” means the Companies (Guernsey)
Law, 2008, (as amended);
“Company” means Hipgnosis Songs Fund Limited.
References to the Company are also considered to be
references to the Group, where applicable;
“ASCAP” means the American Society of Composers,
Authors and Publishers;
“Company Secretary” means Ocorian Administration
(Guernsey) Limited;
“Audit Committee” or “Audit and Risk Management
Committee” means a formal committee of the Board
with defined terms of reference;
“Average Market Capitalisation’’ means, in relation
to each month where the advisory fee is payable, (‘‘A’’
multiplied by ‘‘B’’) plus (‘‘C’’ multiplied by ‘‘D’’), where:
“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;
‘‘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;
“Conversion” means the conversion of C Shares
to Ordinary Shares;
“Copyright Royalty Board” 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;
“DCF” means discounted cash flow;
“DCMS” means The Department for Digital, Culture,
Media & Sport, a department of the UK government;
“Disclosure Guidance and Transparency Rules”
or “DTRs” mean the disclosure guidance published
by the FCA and the transparency rules made by the
FCA under section 73A of FSMA;
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Annual Report 2021 Hipgnosis Songs Fund Limited
“Downloads” means royalties for the permanent
digital mechanical transfer of music;
“IPO” means the initial public offering of shares by
a private company to the public;
“DSP” means digital service providers;
“Earnings per Share” or “EPS” means the Earnings per
Ordinary Share and is expressed in pounds Sterling;
“ISAE 3402” means International Standard
on Assurance Engagements 3402, “Assurance Reports
on Controls at a Service Organisation”;
“EU” means European Union;
“FCA” means the UK Financial Conduct Authority
(or its successor bodies);
“FRC” means the UK Financial Reporting Council;
“FSMA” means the UK Financial Services and
Markets Act 2000;
“GFSC” means the Guernsey Financial
Services Commission;
“Grammy” means an award presented by the
Recording Academy to recognise achievements in the
music industry;
“Group” means Hipgnosis Songs Fund Limited and
its subsidiaries;
“HSG” means Hipgnosis Songs Group, which was
rebranded from Big Deal Music Group (BDM)
on acquisition;
“IAS” means international accounting standards
as issued by the Board of the International Accounting
Standards Committee;
“IFPI” means International Federation of the
Phonographic Industry;
“IFRS” means the International Financial Reporting
Standards, being the principles-based accounting
standards, interpretations and the framework by that
name issued by the International Accounting
Standards Board;
“IFRS NAV” means the value of the Gross Assets
of the Company less its liabilities (including accrued
but unpaid fees) in accordance with the accounting
policies adopted by the Directors;
“Interim Report” means the Company’s half yearly
report and unaudited condensed consolidated
financial statements for the period ended
30 September;
“Investment Adviser” means The Family
(Music) Limited;
“Investment Advisory Agreement” means the
investment advisory agreement dated 27 June 2018
between 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;
“ISIN” means an International Securities
Identification Number;
“ISWC” means International Standard Musical Work
Code. It is a unique, permanent and internationally
recognized reference number for the identification
of musical works;
“Kobalt” means Kobalt Music Copyrights S.à.r.l.,;
“Kobalt Fund 1” Following the equity fundraise
in July 2020 the Company, as at 30 September,
acquired a portfolio of 42 Catalogues from Kobalt
Music Copyrights S.à.r.l., an investment fund advised
by Kobalt Capital Limited;
“Letter of Direction” means a document sent by the
current copyright owner or the recipient of music
royalties to the Publisher, Record company or Collection
Society requesting a re-direction of royalties to be paid.
It is sent from the current owner/recipient who is selling
the assets, directing that all future payments should go
to the buyer of the assets;
“LGBTTQQIAAP” means the abbreviation of ‘lesbian,
gay, bisexual, transgender, transsexual, queer,
questioning, intersex, asexual, allies, and pansexual’;
“LIBOR” means the London Interbank Offered Rate
the basic rate of interest used in lending between
banks on the London interbank market and also
used as a reference for setting the interest rate
on other loans.
“Listing Rules” means the Listing Rules made by the
UK Listing Authority under section 73A FSMA;
“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;
“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.
Hipgnosis Songs Fund Limited Annual Report 2021
163
Additional Information Additional Information / Glossary of Capitalised Defined Terms
“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 pounds 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 Right Organisations” or “PROs”
means a performing rights organisation, such as PRS
or BMI, which represents and collects performance
royalties for and on behalf of each of its members;
“Performance Share Price” means in relation to each
accounting period, the average of the middle market
quotations of the Ordinary Shares for the
1 month period ending on the last business day
of that accounting period;
“Portfolio” means the portfolio of Songs (whether
organised into Catalogues or otherwise) held by the
Company directly or indirectly from time to time;
“Portfolio Committee” means a committee which
approves all purchases of Catalogues of Songs;
“Portfolio Independent Valuer” means Massarsky
Consulting, Inc., appointed by the Board
to independently value the Company’s Catalogues
within the Portfolio;
“Preferred Portfolio Administrator(s)” means the
portfolio administrators appointed by the Company
in order to assist with the administration of the
Portfolio including Kobalt Music Services Limited and
Hipgnosis Songs Group;
“Premium Listing” means the a Premium Listing on the
Main Market of the London Stock Exchange;
“Premium to Operative NAV” means the situation
where the Ordinary Shares of the Company are trading
at a price higher than the Company’s Operative NAV;
“Prospectus” means the most recent prospectus
issued by the Company unless the context
refers to a version of the prospectus published
at an earlier date;
“Pro-Forma Annual Revenue” or “PFAR” – Pro-forma
Annual Revenue (PFAR) means the royalty revenue
earned in a calendar year by the portfolio of songs
held by the Company at a specific date, based
on royalty statements received, irrespective of whether
the songs were owned by the Company over the
period analysed.
“Public Performance” means revenue generated
from licenses for the right to play music publicly
in a commercial environment e.g. shops, bars,
restaurants and shopping malls;
“RCIS Rules” means the Registered Collective
Investment Scheme Rules 2015;
“Record Labels” means a company that owns,
distributes and promotes musical recordings;
“Recording Academy” means a US academy
of musicians, producers, recording engineers and other
musical professionals;
“Registrar” means Computershare Investor Services
(Guernsey) Limited;
“Remuneration Committee” means
a formal committee of the Board with defined
terms of reference;
“RIAA” means Recording Industry
Association of America;
“Right To Income” The Company sometimes receives
a right to income 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. This
right to income is related to the period before the start
of the financial year;
“SFS” means London Stock Exchange’s specialist fund
segment of the Main Market for listed securities;
“Shareholder” means the holder of one or more
Ordinary Shares;
“Song” means a Songwriter’s and/or publisher's
share of copyright interest in a song, being
a musical composition of words and/or music and
the Songwriter's proportion of the publishing rights
of a single musical track, and when construction
permits, the collection of words and/or music
as purchased by consumers;
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Annual Report 2021 Hipgnosis Songs Fund Limited
“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” means royalties for playing music
in connection with visual media (for example film, TV,
advertisements);
“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;
“VAF” or “Variance Against Forecasts” means the
difference between the total of the royalty statements
received from each catalogue since acquisition,
and the acquisition model forecast over the same
period. The VAF is expressed as a percentage point
deviation from zero, where a positive number means
that the actual performance of the portfolio is tracking
ahead of the cumulative forecast. A negative number
indicates that the portfolio is falling behind forecast.
“Writer’s Share” means performance royalties
collected by a Performance Rights Organisation and
paid through directly to the Songwriter as opposed
to the publisher share of performance;
“YouTube” means the US video-sharing website;
“£” or “Pounds Sterling” or “Sterling” or “GBP”
means British pounds sterling and “p” or “pence”
means British pence;
“$” or “USD” or “Dollar” or “Dollars” means
United States dollars and “cents” means United
States cents; and
“€” or “EUR” means the currency of the majority
of member states of the EU.
Hipgnosis Songs Fund Limited Annual Report 2021
165
Additional Information Additional Information
Directors and General Information
Company Registration Number: 65158
Board of Directors
Andrew Sutch, Chair
Paul Burger, Senior Independent
Director
Andrew Wilkinson
Simon Holden
Sylvia Coleman
Vania Schlogel (Appointed 11 June
2021)
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
The Family (Music) Limited
Merck Mercuriadis, CEO
Björn Lindvall , COO
Chris Helm, CFO
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
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:
https://www-uk.computershare.
com/investor
You’ll need your Investor code
(IVC) printed on your share
certificate in order to register.
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
(Appointed 17 September 2020)
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
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Annual Report 2021 Hipgnosis Songs Fund Limited
Additional Information
Corporate Summary
Structure
The Company is an investment company limited
by shares, registered and incorporated in Guernsey
under the Companies Law on 8 June 2018. The
Company is registered with the Guernsey Financial
Services Commission under the Registered Collective
Investment Scheme Rules 2015, and the Protection
of Investors (Bailiwick of Guernsey) Law, 1987, as
amended. The Company is not authorised or
regulated by the Financial Conduct Authority.
The Company makes and manages its investments
directly or indirectly through a number of wholly
owned subsidiary companies incorporated in
England & Wales and the US, together referred to as
the Group.
The Company was granted HMRC approval as an
investment trust company with effect from 1 April 2021.
The Company was therefore treated as being resident
in the UK for tax purposes from this date and ceased
to be a Guernsey tax exempt vehicle under The
Income Tax (Exempt Bodies) (Guernsey) Ordinance,
1989, as amended.
Investment Process
The Company's Investment Adviser, The Family (Music)
Limited, was founded by Merck Mercuriadis. Merck
is the manager and/or former manager of globally
successful recording artists such as Elton John, Guns
N' Roses, Morrissey, Iron Maiden, Nile Rodgers and
Beyoncé, and hit Songwriters such as Diane Warren,
Justin Tranter and The-Dream. Merck is the former
CEO of The Sanctuary Group plc.
The Family (Music) Limited has been appointed by the
Board to source Songs and provide recommendations
to the Board on acquisition and disposal strategies.
The Investment Adviser is also responsible for managing
and monitoring royalty and/or fee income due to the
Company from its copyrights and collection agents,
and developing strategies to maximise the earnings
potential of the Songs in the portfolio through
improved placement and coverage of Songs.
The Investment Adviser continues to assemble an
Advisory Board of highly successful music industry
experts which include award winning members of the
artist, Songwriter, publishing, legal, financial, recorded
music and music management communities, all with
in-depth knowledge of music publishing and access
to a significant network of relationships in the music
industry.
The Board has formed a Portfolio Committee which
considers the recommendations of the Investment
Adviser before granting its approval to purchase
the Catalogues of Songs, as well as an Asset
Management Committee which considers the
ongoing management and revenue maximisation
of the Catalogues of Songs. These committees are
chaired by Mr Burger and Mr Sutch, respectively.
AIC
The Company is a member of the Association of
Investment Companies, complies with the AIC Code
and is the sole constituent of the AIC’s “Royalties”
Specialist Investment Trusts sector classification. The
Company’s page on the AIC’s website is at https://
www.theaic.co.uk/companydata/0P0001BL9D
Website
The Company’s website, which can be found at
www.hipgnosissongs.com, includes information on
the Company, such as its Prospectus, past reports and
accounts, policies, media coverage and regulatory
news announcements.
Hipgnosis Songs Fund Limited Annual Report 2021
167
Additional Information Additional Information
Advice to Shareholders
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
0800 111 6768 or using their online reporting form.
• If you have lost money in a scam, contact Action
Fraud on 0300 123 2040 or www.actionfraud.police.uk
For further helpful information about investment
scams and how to avoid them please visit
www.fca.org.uk/scamsmart
Cautionary Statement
The Chair’s Statement, the Investment Adviser’s Report and the Report of the Directors have been prepared solely to provide
additional information for shareholders to assess the Company’s strategies and the potential for those strategies to succeed.
These should not be relied on by any other party or for any other purpose.
The Chair’s Statement, Investment Adviser’s Report and the Report of the Directors may include statements that are, or may
be deemed to be, “forward-looking statements”. These forward-looking statements can be identified by the use of forward-
looking terminology, including the terms “believes”, “estimates”, “anticipates”, “expects”, “intends”, “may”, “will” or “should”
or, in each case, their negative or other variations or comparable terminology.
These forward-looking statements include all matters that are not historical facts. They appear in a number of places
throughout this document and include statements regarding the intentions, beliefs or current expectations of the Directors
and the Investment Adviser, concerning, amongst other things, the investment objectives and investment policy, financing
strategies, investment performance, results of operations, financial condition, liquidity, prospects, and distribution policy of the
Company and the markets in which it invests.
By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on
circumstances that may or may not occur in the future. Forward-looking statements are not guarantees of future performance.
The Company’s actual investment performance, results of operations, financial condition, liquidity, distribution policy
and the development of its financing strategies may differ materially from the impression created by the forward-looking
statements contained in this document.
Subject to their legal and regulatory obligations, the Directors and the Investment Adviser expressly disclaim any obligations
to update or revise any forward-looking statement contained herein to reflect any change in expectations with regard
thereto or any change in events, conditions or circumstances on which any statement is based.
Hipgnosis Songs Fund Limited
PO Box 286, Floor 2, Trafalgar Court, Les Banques, St Peter Port, Guernsey GY1 4LY
Further information available online: www.hipgnosissongs.com
168
Annual Report 2021 Hipgnosis Songs Fund Limited
Hipgnosis Songs Fund Limited
Floor 2, Trafalgar Court, Les Banques
St Peter Port, Guernsey GY1 4LY
www.hipgnosissongs.com
Hipgnosis Songs Fund Limited
Annual Report 2021
Hipgnosis Songs Fund Limited Annual Report 2021