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Hipgnosis Songs‘ Mid-Year Results Report 7.5% Rise In Revenues Despite ‘Challenging Environment’

At an investor presentation in London, founder Merck Mercuriadis said the company's current share price "fundamentally undervalues the company."

LONDON — Hipgnosis Songs Funds reported a 7.5% year-on-year rise in gross revenue to $91.7 million for the six months ended Sept. 30, up from $85.3 million in the same period the previous year, at the company’s bi-annual presentation to investors, held in London Thursday (Dec. 8).

Net revenue — gross revenue minus royalties paid to songwriters under contract and administered catalogs — grew 5.8% to $78.4 million during the same period, while earnings before interest, taxes, depreciation and amortization (EBITDA) increased 16.9% year-on-year to $63.8 million.

Hipgnosis’ portfolio of over 65,000 songs, which includes hits by Dave Stewart, Timbaland, Journey, Mark Ronson and Barry Manilow, and includes the writer’s and/or publisher’s share of 13 of YouTube’s top 30 most viewed videos, has a net asset value (NAV) of $1.52 billion, down from $1.58 billion on March 31, according to the company’s mid-year financial results.

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They report its “operative” net asset value as $2.22 billion, down from $2.24 billion six months prior. The aggregate fair value of Hipgnosis’ extensive portfolio was calculated by independent valuer Citrin Cooperman at $2.67 billion.

Speaking at the investor presentation, held at London’s Savoy Place, Hipgnosis’ founder and chief executive Merck Mercuriadis said he shared investors’ concern over the Guernsey-registered company’s share price, which has fallen by nearly 30% on the London Stock Exchange over the past six months as investor interest in music stocks has cooled. The share price at the close of trading on Monday was £0.81.5, down from £1.26.0 at the start of the year.

“I’m not going to pretend that the current share price is anything other than disappointing,” said Mercuriadis at the start of an almost three-hour presentation, which also included talks by Hipgnosis Songs Fund chief financial officer Chris Helm, Hipgnosis Song Management president and COO Ben Katovsky and chief music officer Ted Cockle, as well as a brief live music performance by rock guitarist Richie Sambora.

(Hipgnosis Songs Fund is the acquirer of music publishing and recording rights, while Hipgnosis Songs Management manages the publicly traded company’s catalog. There is also Hipgnosis Songs Capital ICAV, an investment vehicle established in partnership with Blackstone that earlier this year acquired Justin Timberlake’s back catalog, but is separate from the London-listed Hipgnosis Songs Fund.)

Mercuriadis said that Hipgnosis’ current share price “fundamentally undervalues the company” and he was confident the company’s extensive portfolio and proactive drive to grow revenues from its 146 catalogs, coupled with the continued growth of the global music industry, “supports our longer-term expectations for substantial revenue growth” and “will deliver superior shareholder returns over the medium term.”

Despite what Mercuriadis said was a “very challenging environment,” Hipgnosis operative net asset value per share remained steady at $1.8312 in the six months ended Sept. 30, which, when translated into pound sterling (at a sterling to dollar exchange rate of $1.2223), gave an equivalent net asset value of 149.82p as of Dec. 6.

Like-for-like pro forma (PFAR) revenues in the first half of the calendar year was $58.5 million, a 7.8% increase on the comparative period in 2021.

Total pro forma annual revenues for the 12 months to June were £120.8 million, up 4.2% year-on-year.

Mercuriadis said the company’s strong half-year results were boosted by July’s Copyright Royalty Board (CRB) ruling, which raised mechanical streaming rates from 10.5% to 15.1% over the years 2018-2022. That resulted in a one-time retroactive payment of $16.1 million with a further $3.1 million earned from the higher streaming rate.

Breaking down Hipgnosis’ mid-year results, revenues from streaming grew 15.8% to $23.6 million (compared to $20.4 million in the corresponding period of last year) and synch revenues were up 32% year-on-year to $9.78 million (from $7.41 million) in the first half of the calendar year.

Performance income was $13.1 million, down 4.5% year-on-year from $13.7 million. Hipgnosis said the fall in performance rights was partly down to a decline in U.S. radio airplay of its portfolio, along with the natural ageing of some its younger catalogs. Global currency fluctuations also had a negative impact on performance rights income along with a slower-than expected post-pandemic bounce back in live music and touring, said Hipgnosis.

Adjusted operating costs fell to $14.5 million, down from $18.6 million in the first half of 2021, due to reduced administration, legal and professional fees as a result of Hipgnosis not acquiring any catalogs in the six-month reporting period. Hipgnosis’ gross debt as of Sept. 30 was $607.0 million (net debt was $570.6 million).

“Despite inflationary pressures, interest rate rises and the impact of central banks’ actions to control inflation, the leading economic music indicators continue to point to Hipgnosis’ investment thesis being valid,” wrote Hipgnosis’ chair Andrew Sutch in the mid-year financial report. “We anticipate continued strong growth in the global music market,” he added.

“We think this is a strong set of results,” Mercuriadis told investors in London. “But in music business terms, I would say we’ve made it to the top 10. We’ve got something that is well on its way to where we want it to be. But we’re not at number one yet and we’re going to get this fund to number one.”