According to a new earnings report, the Hipgnosis Songs Fund (LON: SONG) had net sales of $147.23 million for the most recent completed fiscal year — down nearly 13 percent from the previous twelve-month period.
The Hipgnosis Songs Fund (HSF) today released its performance breakdown for the 12 months ended March 31, 2023, ahead of the much-anticipated AGM and continuation vote in September. The expansive report spans a staggering 180 pages and covers everything from the publicly traded company’s financials, its diversity commitments and its top sync deals, to its plans for future share buyback initiatives.
But let’s start with the hard numbers behind Hipgnosis’ performance: The fund has spent about $2.2 billion acquiring 146 catalogs (containing 65,413 songs) since its inception in 2018, according to the source.
The “fair value” of this intellectual property — at least as determined by the supposedly independent catalog appraiser Citrin Cooperman — rose four percent year-to-date to $2.8 billion, according to Text. Executives attributed the increase in part to “received royalty billings exceeding expectations, particularly performance and streaming revenue from legacy vintage catalogs.”
With 39 employees at the end of March, HSF reported net sales of $147.23 million, again down 12.54 percent year-on-year. Meanwhile, an increase in “catalog bonus accrual” payments ($43.76 million, up from less than $1 million in the prior fiscal year) and loan interest ($33.70 million) contributed to a significant increase in operating expenses during the year YoY comparison ($233.86 million) with again after-tax losses ($89.64 million), the text reads.
(These bonuses specifically relate to “a financial liability for consideration that may be payable” based on the terms of catalog acquisition and the commercial performance of the IP in question, the resource explains.)
Finally, turning to key financials for the fiscal year, according to the document, EBITDA came in at $117.72 million — down about 10.08 percent year-on-year — and Blackstone-run Hipgnosis Song Management is said to be a whopping 12 $.5 million in advisory fees came from his role as the fund’s “investment advisor.”
As the market closed today, Hipgnosis stock was even worth GBX74 ($0.97) per share — significantly down from the same point in 2022.
HSF’s stock price woes and possible plans for a partial catalog sale
“Nevertheless,” wrote Hipgnosis CEO Merck Mercuriadis, “the current share price does not reflect the success of our investment strategy, and I know all shareholders share my frustration and disappointment that this is the case.” … As a result, we have with the Board worked on a number of options to increase shareholder value after consultation with many of the company’s largest shareholders.”
“The final decision as to which options, if any, to pursue,” added Andrew Sutch, Chairman of Hipgnosis, “will be made in consultation with our shareholders.” We look forward to seeing you in due course and well in advance of the Company’s annual general meeting in September, when the company will present its planned five-year continuation vote.”
Compensation of the Director of Hipgnosis
The company’s non-executive directors “are giving up 50 full-time days annually to their role,” the text reads, and received a 10 percent pay increase effective April 1. As a result, the chair is expected to take home £93,500/$122,756 annually, compared to £89,650/$117,701 for the chairs of the audit/risk management committee and portfolio committee and £82,500/$108,314 for everyone else, the report said.
HSF’s share buyback program and investments by major investors
Hipgnosis “bought in the box” a relatively small two million shares for a total of £1.7m/$2.23m during the financial year. the document.
“The Board recognizes that its modest repurchase activity to date has shown intent and has not had a material impact on the stock price discount,” the text continues. “We anticipate that further large-scale share buybacks will play an important role in the company’s strategy going forward.”
Additionally, BlackRock quietly sold 948,508 shares between March 31 and June 30, according to the report, with the company still owning 38,920,378 shares at the time.
Hipgnosis’ sync income
Dubbing revenue, including that attributed to visual media placements, as well as revenue from licensing deals with social services and fitness platforms, is reported to have posted 24.7 percent year-over-year growth in the preceding calendar (non-fiscal) year, compared to 14.8 percent in streaming last year, based on an accompanying “pro forma annual revenue” analysis.
A newly commissioned recording of “Wanted Dead or Alive”, this time performed by Empara Mi, earned Hipgnosis “a six-figure dubbing fee” for the recording a short film for the coming Transformers: Reactivate video game, the report said.
HSF’s response to a little-discussed lawsuit against Mercuriadis
Although the topic hardly gets any attention in the industry, Mercuriadis and others do is reportedly facing a lawsuit “raised by liquidators of Hipgnosis Music Limited,” which is said to have collapsed in 2018. According to reports from across the pond, the allegations at hand include breach of fiduciary duty.
“The Company has learned that a Supreme Court Complaint Form names it, Merck Mercuriadis and Hipgnosis Song Management as defendants,” read the Defendants’ comments on the matter. “The details were not specified, nor was the lawsuit served.
“The lawsuit is believed to relate to matters prior to the company’s incorporation in June 2018 as the plaintiff is a company that went into liquidation in February 2018. The company has sought independent legal advice and will continue to monitor the situation.”