6th Nov 2023 10:59
(Alliance News) - Hipgnosis Songs Fund Ltd on Monday ruled out paying a dividend any time soon, sending its shares lower once again, in yet another blow to the music intellectual property investor after its shareholders failed to sing from its hymn sheet last month.
Hipgnosis Song Management, its investment adviser, has been reviewing the firm's financial position. Catalogue bonus provisions are expected to increase by roughly USD23 million to USD68 million at September 30.
It now expects 10 out of the firm's 146 catalogues will meet "performance hurdles".
Hipgnosis added: "The USD68 million would be payable over a period of three years from 30 September 2023, with USD40 million due within 12 months, USD24 million due within 1-2 years and USD4 million due within 2-3 years. In addition, there are a further nineteen catalogues with active bonus provisions totalling USD75 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.
"In light of this information, the board has determined that it will not declare dividends before the new financial year. The operating cash flow of the company during this time will therefore be used to ensure that the company has sufficient cash resources to fund the payment of the catalogue bonuses as required."
Last month, two key votes on the music intellectual property rights investor's future, including a poll on its continuation, did not go its way.
Roughly 83% of votes cast were against the company's continuation. Hipgnosis said it will now table put proposals for the reconstruction, reorganisation or winding-up of the fund. In addition, Hipgnosis said around 84% of votes rejected a planned portfolio sale. In September, Hipgnosis said it was selling off 29 of its music catalogues for USD440 million to Hipgnosis Songs Capital.
In addition, Hipgnosis on Monday said its investment adviser is "exploring refinements to the methodology" of its revenue accrual estimation process. Based on early assessments, this could "result in an accrual adjustment reducing revenue accruals by up to 10%".
Hipgnosis shares fell 2.9% to 70.38 pence each in London on Monday. The stock has fallen some 20% since it announced the catalogue sales plans in September.
AJ Bell analyst Russ Mould commented: "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.
"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."
By Eric Cunha, Alliance News news editor
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