Hipgnosis Songs Fund Limited ("Hipgnosis" or the "Company")

Final Results

The Board of Hipgnosis, the first UK investment company offering investors a pure-play exposure to songs and associated musical intellectual property rights, and its Investment Adviser, The Family (Music) Limited, are pleased to announce the Company's final results for the year ended 31 March 2021.

Highlights

Operational Highlights

• 84 Catalogues acquired for $1.089 billion including Rock And Roll Hall of Fame inductees Neil Young, Lindsey Buckingham / Fleetwood Mac, Steve Winwood, Debbie Harry and Chris Stein / Blondie, and Chrissie Hynde / The Pretenders, Songwriters Hall of Fame inductees Carole Bayer Sager and Barry Manilow as well as the iconic Songs of Shakira, Rick James, Enrique Iglesias and B-52’s, taking the total Portfolio to approximately $2 billion invested across 138 Catalogues
• High calibre recruitments at the Investment Adviser’s Song Management team, including Ted Cockle, Amy Thomson, Tom Stingemore, Patrick Joest and Joe Maggini, with synch growing to 15% of revenue from 9% in the prior year
• Acquisition of Big Deal Music, now Hipgnosis Songs Group, providing in-house administration in the US leading to significant savings on third party administration fees
• Continued to advocate for Songwriters to receive a greater share of a Song’s income at the highest level including the DCMS hearings taking place in UK Parliament.

Financial Highlights

• Operative NAV increased by 11.3% to $1.6829 per Share over the year (31 March 2020: $1.5114)
• Including dividends paid, this represents a Total Operative Dollar NAV Return of 15.7% for the year, taking Total NAV Return since IPO to 40.7%
• Like-for-like valuation uplift across the Portfolio of 10.4% during the year
• Catalogue revenues highly resilient through COVID-19 pandemic and well placed for future growth with acceleration of streaming adoption:
• Streaming income increased by 18.4% in the second half of the year from the previous six month period
• Annual dividend target increased by 5% to 5.25p per Ordinary Share: 
• Total dividends of 5.125p paid in respect of the period, covered 1.58 times by Leveraged Free Cash Flow
• The Company intends to declare its first interim dividend for the year ending 31 March 2022 following completion of the current placing
• Net debt of $464.6 million as at 31 March 2021
• Change of functional and presentation currency to reflect significant increase in the proportion of Catalogues, revenue and transactions denominated in USD

Merck Mercuriadis, Hipgnosis Songs Fund Limited and Founder of The Family (Music) Limited, said:

“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.

Whilst we would never have wished for a pandemic, it has not only demonstrated the predictable, reliable and uncorrelated nature of the income of proven Songs, but also accelerated the change in consumer behaviour to consuming music by streaming. Revenues have been highly resistant during the course of this incredibly challenging year and are well placed for future growth with global streaming adoption beating all expectations - seeing the 30 million paid subscribers when we first started grow to 450 million paid subscribers today to what are forecast to be 2 billion paid subscribers by the end of the decade. This has turned music from being a discretionary or luxury purchase to very much being a utility as a result of the convenience and access afforded by streaming.  Going forward this accelerated streaming will be enhanced as revenues from TikTok, Peloton, Triller, Roblox, and other rapidly emerging digital platforms start to be paid through. These are new income streams, expected to be a material portion of our revenue going forward, that are not in the data that we buy Catalogues on. We are entering an era where now, for the first time ever, almost all consumption of music is paid for.

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; 

3. To replace the broken traditional 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.”