Hipgnosis posts solid growth, inks two new partnerships

Music rights investor Hipgnosis Songs Fund reported a 9.9% improvement in operative net asset value in its final results on Thursday, to $1.8491 per share.

The company also separately announced new, “ground-breaking” digital administration and sub-publishing partnerships with the Society of Authors, Composers and Publishers of Music (Sacem) and Peermusic.

It said that at year-end on 31 March, its operative net asset value in sterling would be 140.79p per Share, and as at 13 July it would be 154.76p.

Including dividends paid, the total operative dollar net asset value return was 14.2% for the year, taking the total net asset value return since initial public offering to 59.1%.

Hipgnosis said the net asset value growth was driven by a 9.5% like-for-like value uplift across the portfolio to $2.7bn.

That itself was the result of “strong” like-for-like streaming growth of 19.4% in the second half compared to the first half, in excess of the independent valuer's expectations, resulting in an increase in expected future streaming revenues.

It also arose from an Increase in expected revenues due from emerging technology platforms, as material revenues started to be paid into publishers and record companies.

Gross Revenue increased 24.7% year-on-year to $200.4m, which the board said was partly due to catalogue acquisitions during the period.

Pro-forma annual revenue, which shows royalty earnings during a 12-month period irrespective of ownership, grew “strongly” in the second half.

While for the full 2021 calendar year it fell 5.3% to $114.9m, largely due to the impact of Covid-19 restrictions, there was an 11.6% pro forma revenue increase in the second half compared to the first, driven by streaming revenue growth and the re-opening of performance venues.

EBITDA improved by 21.8% to $129.9m, and total dividends of 5.25p per share paid were fully covered 1.01x by leveraged free cash flow.

Net debt totalled $569.9m as at 31 March, reflecting 25.4% of the operative net asset value.

“Over the last four years we have acquired an incomparable portfolio of some of the most successful and culturally important songs of all time, now valued at $2.7bn,” said Merck Mercuriadis, chief executive officer and founder of Hipgnosis Song Management.

“As we look forward, we continue to expect strong global revenue growth driven by the continued adoption of paid-for streaming.

“Despite the macro-economic environment, the attractiveness of the music streaming proposition continues to grow.”

Mercuriadis said that, with “clear evidence” of a “strong recovery” in global performance income, the recent CRB III determination to increase streaming royalty rates for songwriters, and potential for further improvements in the upcoming CRB IV determination, all in addition to “extremely strong growth” in streaming, he believed the company was looking at “very attractive” market conditions going forward.

“Given our incomparable collection of iconic songs, I believe Hipgnosis is perfectly placed and will continue to deliver excellent returns for our shareholders.”

In its other announcement on Thursday, Hipgnosis said it had entered into a “direct administration partnership” with collective management organisation (CMO) Sacem to collect digital rights for the writers' share and Hipgnosis' own publisher share, primarily in the UK and the European Union.

In addition, it had entered into a sub-publishing partnership with Peermusic to collect publishing rights and other royalties in the rest of the world, excluding the United States.

Hipgnosis said it would continue to use Hipgnosis Songs Group (HSG) for royalty collection in the US.

“These are groundbreaking, future thinking deals,” Merck Mercuriadis said.

“Sacem will directly collect and pay digital rights for writers' share, primarily in the UK and the EU, eliminating a link in the royalty collection process.

“This will materially reduce third party administration and collection fees and the length of time it takes to collect digital revenues.”

At 0833 BST, shares in Hipgnosis Songs Fund were up 4.07% at 112.6p.

Reporting by Josh White at Sharecast.com.