Hipgnosis Song. Regulatory News (SONG)

LEI: 213800XJIPNDVKXMOC11

  21 December 2023

Hipgnosis Songs Fund Limited ("Hipgnosis" or the "Company")

Interim Results for the year ended 30 September 2023

The Board of Hipgnosis Songs Fund Limited which offers investors a pure-play exposure to songs and associated intellectual property rights, and its Investment Adviser, Hipgnosis Song Management Limited, announce the Company's interim results for the six-months to 30 September 2023.

Financial Headlines

· Operative NAV per share decreased 9.2% to $1.7392 (31 March 2023: $1.9153), driven primarily by a reduction in the Fair Value of the Portfolio

o  As at 30 September 2023, Operative NAV per share in Sterling 142.49p (£:$ exchange rate 1.22055);

o  As at 19 December 2023, Operative NAV per share presented in Sterling 136.53p per Share (£:$ exchange rate 1.274).

· Gross revenue from continuing operations for the period $63.2 million (H1 2022-3: $86.4 million)

· Net revenue from continuing operations fell to $54.0 million (H1 2022-3: $76.8 million) primarily driven by $11.9 million reversal of CRB III accrual due to lower anticipated future retroactive payments

· Underlying net revenue (excluding CRB III accruals) up 14.0% to $65.8 million (H1 2022-23: $57.6 million)

· Pro-forma Annual Revenue (PFAR), which shows the gross royalty statements received or receivable within the reporting period and does not include any revenue accruals under IFRS grew 10.4% to $64.9 million (Six months to 30 Sept 2022: $58.8 million)

· Total dividends of 2.6250p per ordinary share paid

o  October 2023 dividend withdrawn

o  Dividends suspended for at least remainder of financial year

· Total debt of $674.0 million as at 31 September 2023 (31 March 2023: $648.2 million) representing 32.0% of Operative NAV (31 March 2022: 28.0%)

Operational Headlines

· Strategic Review, led by the Board, underway following rejection of the Continuation Resolution at the Company's AGM

o  Shot Tower Capital, LLC as lead adviser to conduct due diligence on the Company's assets

o  Investment Adviser invited to propose alternative terms for their future investment advisory arrangements for the Company

· Robert Naylor appointed non-executive director and Chair of Company's Board following period end; Francis Keeling and Christopher Mills appointed non-executive directors

· Sale of c.20,000 non-Core songs representing approximately 1% by value of the Company's investment portfolio sold for $23.1 million, a 14.2% discount to the Portfolio Independent Valuer's valuation

· KPMG appointed Company's auditors

Robert Naylor, Chairman, Hipgnosis Songs Fund said:

"I am delighted to be appointed to the Board, with strong backing from shareholders. The Board are clear we are acting in their best interests.

"I am pleased with the progress made on the ongoing strategic review. The Board, through its advisers, has begun due diligence on the Company's assets with Shot Tower LLC, a specialist music rights practice, acting as lead adviser. This process will help the new Board bring forward proposals for delivering value to shareholders.

"Notwithstanding this progress, since I joined the Board there has been a regular occurrence of issues raised as a result of ongoing failures in the financial reporting and control process. Whilst we consider substantial progress has been made in identifying and rectifying these issues, we have had to suspend the dividend for at least the remainder of the year in order to ensure compliance with our banking covenants.

"The newly constructed Board are aware of multiple valuation data points. The Board, made up entirely of non-executive directors, has sought advice from the Investment Adviser, as the Company's delegated executive function, for their opinion as to the fair value of the Company's assets.

"Regrettably, the Investment Adviser initially refused to provide an opinion. While the Investment Adviser did eventually provide an opinion to the Board, it was heavily caveated. Whilst the Board sought for correspondence with the Investment Adviser on the matter to be published on the Company's website in order to provide transparency for shareholders, the Investment Adviser has refused to consent under the confidentiality clauses of the Investment Advisory Agreement.

"We note the announcement from Hipgnosis Song Management stating that they will 'continue to work in a constructive manner to support the interests of the Company and its shareholders'. On behalf of the Board, I therefore urge the Investment Adviser to provide the Board with their opinion as to the fair value of the Company assets, without caveats, such that we can provide greater certainty and transparency to our shareholders."

Results call

Dan Pounder, CFO of Hipgnosis Song Management, will be hosting a call for analysts and investors at 0830 BST on 4 January 2023.

To register to participate, please contact ir@hipgnosissongs.com.

A recording of the call will subsequently be placed on the Company's website www.hipgnosissongs.com/song-investors/

-ends-

The Chair's Statement

Introduction

This is my first report as Chairman of Hipgnosis Songs Fund, having joined the Board with Francis Keeling on 7 November 2023. Christopher Mills subsequently joined the Board on 15 December 2023. These interim results are for the half year ended 30 September 2023.

Votes against related party transaction and continuation as an investment company

At the Company's Annual General Meeting held on 26 October 2023, shareholders overwhelmingly voted against the Company continuing its business as a closed-ended investment company, with 83% voting against. Shareholders also rejected, with 84% against, a related party transaction to sell a portfolio of 29 music catalogues to Hipgnosis Songs Capital, the trading name of Hipgnosis SC IV (Delaware), a limited partnership which is majority owned by funds managed and/or advised by Blackstone. Hipgnosis Songs Capital is advised by the same investment adviser as the Company - Hipgnosis Song Management Limited ("Hipgnosis Song Management" or "Investment Adviser"), which is also majority owned by funds managed and/or advised by Blackstone.

Dividend

On 16 October 2023, the Company announced the suspension of the interim dividend of 1.3125p per share and further announced on 6 November 2023 that all dividends will be suspended for the rest of the financial year. This decision followed the identification, by the Investment Adviser of additional liabilities and certain over accruals for the prior year revenue.

The Board will act responsibly and only start paying dividends to shareholders when it believes that we can sustainably meet our banking covenants and working capital requirements.

The Board believes, based on forecasts provided by the Investment Adviser, that the Company should have sufficient headroom to operate within its banking covenants for at least the next 12 months. However, this is qualified by the continuation of issues around financial reporting and controls. For example, the Board were made aware on Friday 15 December 2023 of a drafting error in a contract, whereby the Company received notice of the exercise of a put option contained within an acquisition contract, which increased the estimated liability from $4 million to $25 million. The Investment Adviser sought to remedy this over the subsequent weekend by way of an amendment to the contract and the Board now understands, from the Investment Adviser, the potential liability to be in the region of $7.5 million to $8.5 million.

Portfolio Valuation

In spite of the positive music market and like-for-like income growth of the Company's assets, the Company's Operative NAV, which reflects the Fair Value of its assets as determined by the Independent Portfolio Valuer, has fallen 9.2%. This primarily reflects the material reduction in expectations of CRBIII and CRBIV income.

The Board are aware of multiple data points and transactions within the market which are at material discounts to the implied Fair Value of the Company's assets. Given these multiple valuation data points and the continued uncertainty in the wider macro-economic environment, the Board sought advice from Hipgnosis Song Management Limited, its Investment Adviser, which is majority owned by funds managed and/or advised by Blackstone on this matter. Hipgnosis Song Management is the Company's appointed expert on the marketplace for songs and de facto executive function, and the Board expects them to provide an opinion as to whether the Fair Value is reasonable.

Hipgnosis Song Management Limited at first declined to give an opinion but, after repeated requests from the Board, eventually provided an opinion which was heavily caveated. In the absence of further evidence or insight from the Investment Adviser, on which to base a judgement on the valuation of the Company's assets, the Board has concerns as to whether the Fair Value is reasonable.

Consequently, the Board recommends that investors use the Fair Value and the Operative NAV with a higher degree of caution and less certainty than might otherwise be attached to it as an accurate reflection of the fair value of the Company's assets. The Company confirms that the uncertainty around the Fair Value and Operative NAV has no impact on its banking covenants.

Strategic Review

As announced previously, the Board, through its advisers, have begun due diligence on the Company's assets. Shot Tower LLC, a specialist music rights practice, is acting as lead adviser.

We have requested Hipgnosis Song Management propose alternative terms for their future investment advisory arrangements of the Company during this period of due diligence. Should Hipgnosis Songs Management not propose terms which the Board believes are in the best interests of the future of the Company and its shareholders, it will explore bringing forward alternative proposals to shareholders.

I have personally met with shareholders holding, in aggregate, more than 60% of the Company's shares. There was a high degree of alignment between our diverse shareholders with two key themes becoming apparent from these meetings.

Firstly, the failure of the financial reporting and controls at the Investment Adviser. Dan Pounder, who joined as CFO of the Investment Adviser on 1 September 2023, has begun to improve financial reporting and disclosure, which has led to short-term negative impacts on reporting. This is evidenced in the additional catalogue bonus provisions of £23 million, deductions in the prior year income accrual of £12 million due to a reduction in expected CRB III receipts and a proposed change to the revenue accrual methodology for the year end which may result in an adjustment reducing annual revenue by up to 10%. The Board has faith in Dan and his ability to improve the financial reporting.

Despite this, there is some positive performance in the underlying assets which shows like-for-like revenue statement growth of 10%.

Secondly, the perceived mismanagement of the conflicts of interest, both in the recently failed sale of assets to Hipgnosis Songs Capital, a fund that is majority owned by Blackstone, at a material discount to fair value of those assets and in the terms of the Investment Advisory Agreement with Hipgnosis Song Management. This is harder to address, but we will seek to do so in the coming months.

Board Appointments

There has been significant change on the Board. Andrew Sutch, Andrew Wilkinson and Paul Burger all resigned as directors either immediately before or as a result of the vote at the Annual General Meeting. I am delighted that Christopher Mills joined the Board on 15 December 2023.

All the Directors on the Board last month bought shares in the Company in order show the alignment of the Board's interests with those of its shareholders.

Outlook

Further to the due diligence underway, we will be able to better assess the quality of the Company's assets and prospects from which to put forward proposals to shareholders for the future of the Company.

Robert Naylor

Chair

20 December 2023

Investment Adviser's Report

The Company's Portfolio as at 30 September 2023 comprised of 146 Catalogues containing 65,413 song rights acquired, as set out below.

PFAR by Catalogue

The below table shows PFAR by Catalogue for the top 58 Catalogues, this represents 80% of total PFAR for the six months to 30 September 2023.

Financial Review

NAV

The Company reports two net asset values: an IFRS NAV which is prepared in accordance with IFRS, under which the Company's Catalogues of Songs are held at net book value (cost less accumulated amortisation and accumulated impairment), and an Operative NAV which adjusts the net book value of the Company's Catalogues to reflect their Fair Value, as determined by the Portfolio Independent Valuer. The IFRS Net Asset Value (NAV) per share as at 30 September 2023 was $1.1012, which is a 7.2% decrease from $1.1863 as at 31 March 2023.

The Board and the Investment Adviser consider that the most relevant NAV for Shareholders is the Operative NAV. The Operative NAV per share decreased by 9.2% to $1.7392 at 30 September 2023 (31 March 2023: $1.9153), driven primarily by a 6.4% decrease in the Fair Value of the Portfolio. This, together with the dividends, of 22.94p (29.55¢), takes Total NAV Return ($) to Shareholders to 56.7% since the IPO on 11 July 2018.

Based on the Sterling to Dollar exchange rate at 30 September 2023 of 1.221, the Operative NAV per share presented in Sterling is 142.49p per share (31 March 2023: 154.91p based on Sterling to Dollar exchange rate of 1.236). As at 19 December 2023, the Operative NAV per share presented in Sterling would be 136.53p per Share (GBP: USD 1.274).

Fair Value of the Portfolio

The Fair Value is determined by the Portfolio Independent Valuer, Citrin Cooperman. The Fair Value of the Portfolio decreased by 6.4% to $2.62 billion (31 March 2023: $2.80 billion).

The main drivers of the change in the Fair Value of the Portfolio are:

? A $155.0 million reduction as a result of the Portfolio Independent Valuer's lower estimate of CRB III retroactive payments (2018-2022) and future CRB IV (2023-2027) cash flows;

? A $47.5 million reduction, reflecting potentially reduced future cash flows a result of the US "35-year rule", where artists can request reversion of their US creative copyrights (composition or sound recording) 35 yearsafter a contractual grant of rights. This primarily impacts Catalogues bought as part of the Kobalt Fund 1 acquisition;

? A $4.1 million impact due to reduced cash flow expectations from alternative platform licensing (licensing on social media, gaming and other emerging platforms including TikTok); and

? A $24.3 million increase in value due to changes in subscription pricing of the DSPs, improved baselines and changes to applied future growth rates.

The Portfolio Independent Valuer applied an 8.5% discount rate (31 March 2023: 8.5%), based on a weighted average cost of capital using 50% equity: 50% debt capital structure; this models the cost of equity at 9.87%. and the cost of debt at 7.13%. A sensitivity table is set out in Note 5 of the Financial Statements.

Citrin Cooperman, the Portfolio Independent Valuer:

? One of the largest valuation providers in the music transactions marketplace;

? Conducts the valuations of many music publishing and recorded music assets on behalf of buyers, sellers and lenders;

? Conducts the annual valuations of most of the major public and private music funds;

? Values the Fair Value of Hipgnosis Songs Fund twice a year;

Citrin Cooperman's Valuation Methodology

In determining the Fair Market value of the Portfolio, Citrin Cooperman ("CC"), adopts an income approach utilising a Discounted Cash Flow (DCF) method which determines the value of the Portfolio based on converting anticipated future economic benefits into a present single amount. It considers the expected growth and timing of the benefits, the risk profile of the benefits stream and the time value of money.

The key inputs to their DCF methodology include:

Determining a baseline value: This is the earnings benchmark, applied on a per income type, per catalogue basis, against which growth rates are applied. The baseline value, which is taken from royalty statements, is typically the prior year's earnings with the exception of synch, where, for the most part, an average of the prior two years is taken, given the variable earnings of the Synch business. Adjustments to these assumptions are made by the team at Citrin Cooperman dependent on Catalogue-specific activity, which may include settlements, audits, black box payments and changes in administration rates, amongst others.

The revenue provided does not consider any future ability of the Company's active management to enhance Catalogue revenues.

Applying growth rates: For Catalogues that contain significant new releases CC has developed lifecycle growth rates per major income stream that are applied on a per song basis for significant titles and are then weighted, based on each song's earnings contribution within each revenue stream. For Catalogues without significant new releases, referred to as "steady state" Catalogues by CC, growth rates from a low, mid or high tier are applied on a per income type, per catalogue basis that decline from an initial growth rate to a terminal growth rate over the period according to modelled growth curves. The selection of the growth tier applied to each Catalogue for each of its income types is determined by that Catalogue's historical earning trends.

Other considerations used by CC in developing their model for anticipated future cashflows include expectations from Alternative Platform Licensing (APL), such as TikTok, Facebook and Peloton, and adjustments required to earlier periods related to settlements, black box payments or other non-recurring payments.

Discount Rate: The other key assumption used by CC is the discount rate which it has maintained at 8.5% (31 March 2023: 8.5%). Citrin Cooperman has consistently taken a long-term view on interest rates. CC determine the discount rate using a modelled weighted average cost of capital (WACC) based on a 50:50 equity debt capital structure, with a derived cost of equity of 9.87% and a derived cost of debt of 7.13% utilizing third party data sources to support their calculation.

The Portfolio Independent Valuer reviews the discount rate regularly and will adjust the discount rate if it considers it appropriate. A 0.5% increase in the discount rate to 9.0% would result in a decrease to the Fair Value of the Catalogue of 7.8% ($203.5 million). Sensitivities relating to the discount rate, applied growth rates and the terminal growth rate are set out further in Note 5 of the financial statements.

Revenue

Total revenue from continuing operations decreased to $63.2 million (six month period ended 30 September 2022: $86.4 million) and Net revenue from continuing operations decreased to $54.0 million (six month period ended 30 September 2022: $76.8 million). The main driver for the revenue reduction is the de-recognition of part of the CRB accruals recognised in the prior year.

In the prior period, following the confirmation of the CRB III settlement for the Songwriters' mechanical portion of US Streaming income, a retroactive accrual for these payments was made totalling $19.2 million. This accrual was increased to $21.7 million as at 31 March 2023.

As a result of the Portfolio Independent Valuer materially reducing its previous expectations across the industry, the Company now expects to receive significantly lower retroactive payments in relation to CRB III and therefore reduced this retroactive accrual in the reporting period to $9.9 million, decreasing Net revenue from continuing operations by $11.8 million.

Excluding these CRB III accruals, the Company saw an increase in IFRS adjusted Net revenue from continuing operations of $8.2 million, 14.2% period-on-period. This increase is due to higher royalty statements received in the period which reflects an underlying increase in consumption of the Company's music.

Accrued Income

Accrued income as at 30 September 2023 was $121.5 million on a gross basis (31 March 2023: $126.2 million). Within this balance is the CRB III retroactive accrual of $9.9 million (31 March 2023: $21.7 million). The Company is exploring refinements to the methodology adopted in the revenue accrual estimation process for the year end results with an aim to bring consistency to the description of IFRS revenue and the Pro Forma Annual Revenue measure through the use of granular data in the underlying calculations, to support an improved estimation process and enhanced disclosures.

Hipgnosis Songs Group revenue

Hipgnosis Songs Group LLC (HSG) is an operating company within the Fund which carries out both administration and frontline publishing business activities. As such, a high proportion of its revenue is paid out to artists as royalty costs.

We set out Hipgnosis Songs Group LLC's (HSG) standalone Statement of Profit and Loss in Note 19; below we provide the revenue split by income stream. HSG's Net revenue has declined to $2.8 million (six month period ended 30 September 2022: $3.5 million) reflecting a lower margin revenue mix. A breakdown of Total revenue and Net revenue is presented below.

Pro Forma Annual Revenue (PFAR)

Given the multiple non-recurring elements captured within IFRS revenue, to provide Shareholders with an understanding of the like-for-like performance of the Company's revenue, the Company presents the Pro Forma Annual Revenue (PFAR) performance measure. This shows the gross royalty statements received or receivable within the reporting period and does not include any revenue accruals under IFRS. Although not directly reconcilable with IFRS revenue, the Company believes this provides a relevant like-for-like full year income comparison of the Group's Catalogues of Songs held as at the period end.

PFAR is set out by income type for the six month period ended 30 September 2023 against the comparative period below. PFAR does not include any income from HSG ($2.8 million in the reporting period) but does include PFAR relating to the Second Disposal of $4.4 million (six month period ended 30 September 2022: $3.1million).

1 This shows the royalty statements received or receivable within the reporting period.

2 Restated to reflect actual statements received or receivable in the prior period.

3 Masters income includes Artist Royalties, Producer Royalties and Neighbouring Rights.

4. PFAR for the 12 months to 30 September 2023 increased by 10.2% year-on-year to $132.6 million (30 September 2022: $120.3 million).

Streaming revenues increased by 14.7% period-on-period, comparing favourably with the +11% growth in US streaming revenue as reported by the RIAA. Synchronisation has seen a small decline in income by 2.0% in part reflective of the challenges created by the writers and actors strike which impacted licensing for part of this period. Performance income grew strongly with 10.9% period-on-period growth with mechanical income remaining consistent period-on-period. Digital downloads continued a downward trend as streaming dominates the user consumption market with a 7.7% decrease period-on-period.

Whilst the majority of our revenue is derived from our music composition rights, the Company also receives revenues from Sound Recording Rights, which includes both Masters and Producers. These combined revenues increased by 4.9% period-on-period, from $8.1 million to $8.5 million.

Costs and EBITDA

Operating expenses

Operating expenses from continuing operations increased 25.4% year-on-year to $117.7 million for the six month period ended 30 September 2023 (six month period ended 30 September 2022: $93.9 million).

The increase is driven by the recognition of a further Catalogue bonus provision of $26.5 million, discussed below, and impairment of Catalogues of Songs of $15.2 million as the application of the Company's asset impairment policy identified seven Catalogues that required impairment.

Exceptional transaction costs of $5.7 million relating to legal and professional fees in relation to the proposed asset sales announced on 14 September 2023 were also incurred; these are materially lower than the $13.9 million anticipated at the time the transaction was announced since a high proportion of the fees were contingent on shareholders approving the transaction.

HSG's operating costs increased to $5.6 million (six month period ended 30 September 2022: $5.5 million). See Note 19 for a standalone Statement of Profit and Loss for HSG.

Fees related to the payment of an aborted deal totalling $1.0 million were paid in the reporting period in addition to further minor costs. Whilst the Company is not attempting any new acquisitions, no further aborted deal costs will be incurred.

The increase in operating expenses is offset by a $19.7 million fair value gain recognised on the Company's held for trading derivative financial instruments.

Adjusted operating costs less interest expense decreased by 1.9% to $14.3 million (six month period ended 30 September 2022: $14.5 million). This is primarily a result of the reduction to the Advisory fee of 20.1% year-on-year to $5.4 million during the period (six month period ended 30 September 2022: $6.8 million), which decreased due to the Company's lower share price during the period. Ongoing Charges as a percentage of the average Operative NAV decreased to 1.19% for the six month period ended 30 September 2023 (six month period ended 30 September 2022: 1.23%).

Catalogue Bonus Provision

Catalogue bonuses are paid to Songwriters when performance hurdles, defined in the catalogue acquisition agreements, are met. The decision of the Company to recognise a Catalogue bonus provision is based on the probability that expected future performance will achieve the defined performance hurdles (see Note 10).

During the six month period ended 30 September 2023, the Company has recognised a further $26.5 million Catalogue bonus provision relating to six Catalogues. The Company also released Catalogue bonus provisions of $3.3 million relating to two Catalogues where the performance hurdles were not achieved. The Company paid $0.1 million of Catalogue bonus provision during the six months to 30 September 2023. This brings the total Catalogue bonus provision to $68.1 million across 10 Catalogues.

The movement in the Catalogue bonus provision during the reporting period during the six months to 30 September 2023 is presented below:

In addition to the 10 Catalogues in its Portfolio that have a Catalogue bonus provision, there are a further 19 Catalogues that have an active Catalogue bonus clause which the Company considers are unlikely to meet their performance hurdles. These 19 Catalogues have theoretical bonus provisions totalling $75.2 million (31 March 2023: nil) and are considered contingent liabilities; Note 10 provides associated sensitivity analysis.

EBITDA

EBITDA from continuing operations for the six month period ended 30 September 2023 decreased by 36.2% to $39.7 million (six month period ended 30 September 2022: $62.3 million), primarily reflecting the reduction of the CRB III retroactive active accrual in net revenue.

Leverage

Total debt, as defined within the Alternative Performance Measures, increased to $674.0 million at 30 September 2023 (31 March 2023: $648.2 million) as a result of an increase in Catalogue bonus provisions of $23.1 million, a drawdown from the RCF facility of $4.0 million in July 2023, offset by a reduction in PRO advances of $1.3 million.

Under the Investment Policy, total debt of the Company should not exceed 30% of the Operative NAV, equivalent to $630.9 million as at 30 September 2023 (31 March 2023: $694.8 million). During the period the Company exceeds this threshold, no further drawn downs can be made from the RCF. The current ratio of total debt to Operative NAV is 32.0% (31 March 2023: 28.0%).

In order to mitigate interest rate risk and provide certainty over interest payments, the Company holds interest rate swap agreements. Since 3 January 2023, $340 million has been hedged for the duration of the RCF (until 30 September 2027) at a fixed rate of 5.67% (including debt margin); a further $200 million is hedged until 3 January 2026 at a fixed rate of 5.89% (including debt margin).

Interest rate swap agreements hedged $540 million at a blended rate of 5.75%, including debt margin, for a weighted average life of 4.26 years, starting from 3 January 2023. These interest rate hedging contracts are not subject to margin calls in the event of movements in underlying interest rates. The Company received $2.7 million income on the executed interest rate swaps which, when netted against our interest payments, results in net interest paid of $18.3 million (six month period ended 30 September 2023: $15.0 million). The increase in net interest paid over the period is due to an increase in the effective interest rate. There was a fair value gain recognised on the remaining interest rate swaps of $21.1 million at 30 September 2023 as a result of their mark-to-market value at that date.

Foreign Exchange Hedge

The Company holds a series of US Dollar to Sterling foreign exchange forward contracts to limit its exposure to foreign exchange rate risk and to provide certainty on the US Dollar value of future Sterling dividend payments. This rolling hedging strategy implemented by the Board ensures there are up to £50 million of forward contracts in place.

During the period, the Company realised a gain of $3.2 million on the executed foreign exchange forward contracts. As at 30 September 2023, the Held for Trading derivative financial asset relating to the foreign exchange forward contract is $0.2 million.

Dividends

Dividends paid in the period of $39.8 million related to the periods ended December 2022 (paid 28 April 2023) and March 2023 (paid 28 July 2023); this was covered 1.38x by available Distributable Revenues.

On 21 September 2023, the Company declared an interim dividend of 1.3125 pence per share for the period ended 30 June 2023. This dividend was subsequently withdrawn on 16 October 2023 to ensure on-going compliance with the RCF's Fixed Charge Coverage Ratio. This was due to the Portfolio Independent Valuer materially reducing expectations of the CRB III retroactive payments for the period covering 2018-2022 resulting in the Company partially reversing its CRB III retroactive active accrual to $9.9 million from $21.7 million as at 31 March 2023, thereby materially reducing its EBITDA for the reporting period. The Board has determined that it will not declare dividends before the new financial year.

EPS

EPS from continuing operations for the six month period ended 30 September 2023 is (5.27¢) (six month period ended 30 September 2022: (1.72¢)); the reduction to EPS is set out in the below table:

As set out previously, the reduction in Net Revenue is primarily due to the reduction in the CRB III accrual held at 30 September 2023.

Adjusted EPS from continuing operations, as defined within the Alternative Performance Measures, which primarily removes the impact of Catalogue amortisation, Catalogue bonus provision, impairment and the fair value gain on held for trading derivative financial instruments is 1.37 cents (six month period ended 30 September 2022: 3.63 cents).

Sale of non-core assets

On 14 September 2023, the Company announced the sale of a portfolio of non-core songs, subject to completion of legal documentation and the consent of the Company's lending banks, known as the Second Disposal. As this sale is not conditional on Shareholder approval and meets the requirements of IFRS 5, the Second Disposal is presented as a discontinued operation in the Condensed Consolidated Profit and Loss account for the six month period ended 30 September 2023 and a Held for Sale disposal group in the Condensed Consolidated Balance Sheet as at 30 September 2023.

The large majority of this transaction completed as set out in the announcement of 11 December 2023.

The profit for the period from discontinued operations is $0.6 million (six month period ended 30 September 2022: $0.8 million). See Note 20 for further detail on the Second Disposal.

Merck Mercuriadis

CEO, Hipgnosis Song Management Ltd.

20 December 2023

Condensed Consolidated Statement of Profit and Loss

For the six months ended 30 September 2023 (unaudited)