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To provide shareholders with an attractive and growing level of income, together with the potential for capital growth, from investment in songs and associated musical intellectual property rights.
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And in the 2019 report:
“Contingent consideration
Under the terms of the acquisition agreements for Catalogues, contingent consideration may be payable dependent on future independent valuations of the Catalogues or revenue received within a specific time frame of acquiring the Catalogues. Contingent consideration will be recognised when performance conditions are met or the amount is a deferred liability. In such cases, a liability will be recognised alongside an associated finance charge which will be accrued over the respective deferral period.”
As far as I can tell there is no reference to this in the prospectus or accompanying documents.
So it appears that when some catalogues were bought there was an additional amount to the be paid in the future if the catalogue performed better than expected. It would be usual that the performance bonus would be less than the actual performance. Surely the idiots aren’t paying out a bonus that is higher than the actual performance increase? I think the board are duty bound to provide more information about the bonus arrangements.
In the above definitions there are comments about the expected level of future performance bonuses, basically saying there is nothing to worry about. This is what was said in the 2023 annual report:
“As a result of the strong performance of certain Catalogues, a Catalogue bonus provision was
recognised. This is based on actual and expected future Catalogue performance that is highly probable. Whilst these liabilities are recognised in the current year, the Company doesn’t anticipate that these liabilities will be incurred at a material level in future years.”
Compare this to yesterday’s RNS:
“It has been determined that the Catalogue bonus provision is expected to increase by approximately $23 million to $68 million at 30 September 2023 as there are now ten (31 March 2023: six) out of the Company's 146 Catalogues likely to meet performance hurdles as defined in their acquisition agreements.”
Given the completely incompetent assessment of these liabilities this is really worrying:
“In addition, there are a further nineteen Catalogues with active bonus provisions totalling $75 million, that are unlikely to meet performance hurdles; these are not recognised as provisions but are contingent liabilities and will be disclosed in the forthcoming interim results with associated sensitivity analysis.”
The problem is that there is not sufficient information in the pubic domain for shareholders to understand the implications of this. Going back to my main concern, is it possible that the bonus payments are higher than the actual out performance, which would be the only sensible reason to stop the dividend. If the forecasted revenue for the relevant catalogues was below the performance threshold then now that the catalogues have performed better than expected then revenues will be higher, not 10% lower.
As a holder of SONG shares I thought I would share the results of my research into the latest RNS.
As far as I can tell the phrase Catalogue bonus provision first appeared in the 2023 annual report:
“i) Catalogue bonus provision
Under the terms of the acquisition agreements for Catalogues, the Group recognises a financial liability for consideration that may be payable in line with the acquisition agreements that are dependent on the performance of the respective Catalogues. Such financial liabilities are initially recognised at fair value and subsequently carried at amortised cost. Management consider both the revenue forecasts used in the independent valuation and their expectation of revenue expected to be received within the specified performance time frame of acquiring the Catalogues when assessing the initial recognition of this financial liability. At 31 March 2023 a provision for the financial
liability of $45.0 million was recognised as a Catalogue bonus provision given the likelihood of economic outflow being triggered through respective Catalogue performance (31 March 2022: $1.3 million).” Page 133.
Prior to this the phrase used was contingent bonuses in the 2022 annual report:
“The Group have a number of contingent bonuses which are dependent on the individual catalogues meeting certain defined performance hurdles as defined in the catalogue acquisition agreement. Management’s assessment based on the underlying catalogue acquisition agreement and catalogue performance to date, is that there is a remote probability that a number of contingent bonuses will become payable. The fair value of this contingent liability is $5.8 million.” Page 149. Note the actual value in the report $939,000.
Then contingent consideration in the 2021 annual report:
“i) Contingent consideration
Under the terms of the acquisition agreements for Catalogues, contingent consideration may be payable dependent on future independent valuations of the Catalogues or revenue received within a specific time frame of acquiring the Catalogues that reach agreed upon revenue targets. At 31 March 2021 the likelihood of the aforementioned performance condition to be met was deemed remote and hence the possibility of economic outflows remote, and therefore no contingent consideration was disclosed.” Page 133.
Similar in 2020:
“h) Contingent consideration
Under the terms of the acquisition agreements for Catalogues, contingent consideration may be payable dependent on future independent valuations of the Catalogues or revenue received within a specific time frame of acquiring the Catalogues that reach agreed upon revenue targets. At 31 March 2020 the likelihood of the aforementioned performance condition to be met was deemed remote and hence the possibility of economic outflows remote, and therefore no contingent consideration was disclosed.” Page 94.
Interesting that after todays announcement the share price has come back up, despite there being no dividends for a while. Seems to be a lot of buyers at these prices.
If I've understood the rns correctly, when Hipgnosis bought the catalogues there was provision for extra payments if the catalogue performed above a certain hurdle. Some of these are now due for payment and there might be some due at a later date which means no dividends will be paid this financial year. Before buying this share I did some research but didn't spot this. Was this information publically available before today?
Good summary from AJ Bell.
"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."
I guess the income funds will be dumping this if they haven't already.
Best hope must be a buyout by someone who can run it better.
You naughty shareholders - you voted against us so now we're going to stop paying you dividends.
See how you like that!
So following latest update the shares are down another 6%.. But looks like a better story than recent updates on royalties side. Dividend miss disappointing but should be back next year. Think I've missed the boat tk sell so looks like I'll have to hang in there. Anybody know any more
And on a more positive note:-
https://www.recordoftheday.com/news-and-press/global-creators-collections-grow-by-a-record-267-to-eur121-billion-in-2022-paris
Yes, those copyrights really do have a value!
If I remember correctly, the musicians were underpaid and the royalty board recalculated giving them a boost (after SONG bought them), then it seems this number has been reduced but still above the original royalties.
The London-listed company said an independent valuer of its portfolio had “materially reduced” its assessment of industry-wide royalty payments after a decision last year by the US Copyright Royalty Board to recalculate the rate.
So a group of musicians sold the rights to their catalogues of music for top dollar, then the copyright royalty board reduces earnings a few months later ( Was that anticipated) Then the lower priced assets after all the musicians had got their money out pre price review.This needs investigating.If this was on the cards isn’t it a form of insider trading ? Just asking !
What did this team pay for the dings to their friends in the industry ? Are they selling them for less than they paid ? Or more than they paid ? That’s a very important point ?
These block of songs will have an expected income stream which is important…If they are in the market they must not sell if they have lost confidence they should go away.
Only sell the company not the assets….Or someone will be cherry picking
There is subtly in the wording. No-one was prepared to offer more than the existing offer.
Nobody else interested in buying the portfolio - does this confirm it was overvalued?
Interesting to see AVI putting their money where their mouth is, they've moved from 3.13% ownership to 5.01%, with 1209m shares in issue I make that about 22m shares. The timing is interesting, 13th October before the bombshell, so maybe they bought at 74p or lower over the counter. So it could have been about £16m or less.
"The dividend rate was noted as 1.1325 pence per share instead of the correct figure of 1.3125 pence per share"
The nerves showing??
AVI has come out against continuation. That story also has a good summary of the situation.
https://www.lse.co.uk/news/SONG/update-hipgnosis-songs-fund-investor-backs-rejecting-continuation-jvtv0mvn7sfulv9.html
Judging by what happened with Round Hill Music Royalty fund (67% premium to share price take over), there's a lot of value in the assets. I haven't been directly involved in the closure of an IT but as far as I can tell it isn't a fire sale just a long slow painful process of selling. So I'm gambling on a close to NAV return.
I wonder if Alchemy will put in a bid.
I'm holding too. I'd even consider a top-up if I had any spare cash. However I'm still a concerned what else they have mis-valued. It doesn't inspire confidence.
While I agree a 50% discount is probably excessive, I'm not expecting to get anything close to the stated NAV in the fire sale which now seems inevitable.
"the NAV then it will be a 9.75/2391*100 = 0.4% reduction"
Be that as it may: but why cancel the dividend and why make a statement that future dividend payments will require approval of the lenders if it is indeed going to be just a 0.4% of the NAV? Something does not add up here.
So it looks like the valuers have made a £9.75m mistake, assuming this counts towards the NAV then it will be a 9.75/2391*100 = 0.4% reduction. As far as I can see the divi will be recalculated, maybe a bit less. The discount widens to more than 50% so either a take over or assets sale if the continuation vote fails, which lets face it there's no chance of it succeeding at a 50% discount. I'm holding.
Mis-managed dog turd (Should say)