Hipgnosis won't declare dividend before new financial year

Music rights owner Hipgnosis said on Monday that having undertaken a review of its financial position, it will not declare dividends before the new financial year as it looks to ensure it has sufficient cash resources.

The company said it has now been determined that the catalogue bonus provision is expected to rise by around $23m to $68m at the end of September, as there are 10 of its 146 catalogues likely to meet performance hurdles as defined in their acquisition agreements.

In addition, Hipgnosis said that its board, advised by the investment adviser, is considering refinements to the methodology adopted in its revenue accrual estimation process for the year0end results which, based on early assessments, may result in an accrual adjustment reducing revenue accruals by up to 10%.

"In light of this information, the board has determined that it will not declare dividends before the new financial year," it said.

Hipgnosis said operating cash flow during this time will be used to ensure it has sufficient cash resources to fund the payment of the catalogue bonuses as required. Suspension of dividend payments will also provide the group with the headroom needed to maintain compliance with its revolving credit facility's fixed charge cover ratio covenant if the accrual adjustment is realised in full.

Last month, Hipgnosis shareholders voted against the company’s planned $440m sale of a music catalogue to a group backed by private equity firm Blackstone.

Shareholders also voted against a Continuation Resolution - meaning the fund could be wound up - and against the re-election of chairman Andrew Sutch.

At 0940 GMT, the shares were down 3.4% at 70.05p.

Russ Mould, investment director at AJ Bell, said: "Just when you thought it couldn’t get any worse for Hipgnosis Songs Fund’s shareholders, along comes another bit of bad news. The music royalty vehicle was originally pitched as an investment that was uncorrelated with markets, offering the potential for capital growth and a steady stream of generous dividends. It has now failed on both accounts.

"Having backtracked on a recently declared dividend to avoid breaching banking covenants after realising it would get less than expected cash flow from certain royalties, Hipgnosis has now said it will not pay dividends for the rest of its financial year as it needs to set aside cash to pay for bonus payments on certain royalties triggered by meeting specific performance criteria.

"Understandably, investors will be peeved at this news, particularly as it has dragged the share price back close to its all-time low.

"The investment company is in a real mess and big decisions need to be made about its future. The board needs to act fast to determine whether some of the portfolio needs to be sold to raise cash to help pay down debt, new people need to be found to manage the assets or if the business should simply be wound up."