Hipgnosis Songs Fund Limited Annual ReportAnnual 2021 Annual ReportAnnual 2021 Hipgnosis Songs Fund Limited Hipgnosis Songs Fund is the first UK investment company offering investors a pure-play exposure to Songs and associated musical intellectual property rights. Our focus is building a diversified Portfolio, acquiring Catalogues that are built around proven hit Songs of cultural importance by some of the most talented and important Songwriters globally. Our shares listed on the Main Market of the London Stock Exchange in July 2018 and transferred to the Premium Segment of the Main Market in September 2019. Since March 2020, Hipgnosis Songs Fund has been a constituent of the FTSE 250 Index. Strategic Report Governance Financial Statements 3 Introduction from Merck 47 Corporate Governance Statement 122 Consolidated Statement Mercuriadis 74 Chair’s Introduction of Comprehensive Income 6 Financial and Operational 76 Application of AIC Code 123 Consolidated Statement Highlights Principles of Financial Position 8 Hipgnosis at a Glance 80 Board Leadership and Company 124 Consolidated Statement 10 The Chair’s Statement Purpose of Changes in Equity 12 Investment Adviser’s report 82 Division of Responsibilities 125 Consolidated Statement 16 Our Advisory Board 86 Composition, Succession and of Cash Flows 36 Our Market Evaluation 126 Notes to the Consolidated 42 Our Purpose, Business Model, 87 Board of Directors Financial Statements Culture and Values 90 Report of the Nomination 45 Our Objective, Strategy and Committee Investment Policy 93 Audit, Risk and Internal Control Additional Information 50 Our Resources and Relationships 94 Report of the Audit and Risk 57 Our Team Management Committee 160 Alternative Performance Measures 62 Our Principal Risks and Uncertainties 101 Report of the Management Engagement Committee 162 Glossary of Capitalised Defined 6 8 Key Statements Terms 103 Report of the Portfolio Committee 68 Going Concern 166 Directors and General 60 Viability Statement 105 Directors’ Remuneration Report Information 72 Section 172(1) Statement 108 Report of the Directors 167 Corporate Summary 111 Directors’ Responsibilities 168 Advice to Shareholders Statement 113 Independent Auditor’s Report Case Studies Interviews with... 81 The Anatomy of a Song 34 Shakira 26 Turning Classics into Hits 40 David A. Stewart (All Over Again) 52 Lindsey Buckingham 48 The Chainsmokers: Consumer 60 Timbaland Re-Engagement Boosts Revenue 70 Mark Ronson 66 Shakira: An Enduring Cultural Influential Superstar 2 Annual Report 2021 Hipgnosis Songs Fund Limited Strategic Report Introduction from Merck Mercuriadis Strategic ReportStrategic hen I started Hipgnosis only 3 years space on your phone or computer and you have ago the benchmark for extraordinary access in your home, car, the office, the beach etc. success in the music business was the for only $10 per month or $120 per year. By the time we WPlatinum album or single. In the United get to the end of the decade it is predicted we will States that is equivalent to 1 million sales in a country have 2 billion paid subscribers worldwide. that has almost 360 million people in it. 1 in 360, that ratio immediately tells you that while people might Timing is everything and this is the context in which love music, they did not love it enough to pay for we have established Songs as an asset class. We it. During this time, the growth in paid subscribers have given our loyal investors access to some of to music streaming services has been exponential the most extraordinarily successful and culturally – from 30 million in the US to the current 450 million important songs of all time at a point when almost globally. There are now over 100 million homes in the all consumption is now paid for in an industry United States alone that are paying for a premium that was previously littered with piracy and illegal music streaming service! consumption. If you add in the explosive growth of TikTok, Peloton, Triller, NFTs and other new uses of Music has gone from being a discretionary or luxury music that are not part of the data on which we buy purchase to very much being a utility. This is a result of Catalogues, the investment case becomes stronger the convenience and access afforded by streaming. with each passing day. The same goes for emerging You can listen to everything from Bach to The Beatles markets such as India, Africa and China, whose and Chopin to Chic in one place, it doesn’t take up nascent growth in revenues are not in the data on which we buy Catalogues. Songs are very much an asset class with an incredible future. This year alone our Shareholders’ support has allowed us to acquire the Catalogues of Rock And Roll Hall Of Fame inductees Neil Young, Lindsey Buckingham / Fleetwood Mac, Steve Winwood, Debbie Harry & Chris Stein / Blondie, and Chrissie Hynde / The Pretenders as well as Songwriters Hall Of Fame members Barry Manilow and Carole Bayer Sager and iconic artists, Songwriters and producers Shakira, Rick James, Enrique Iglesias, B-52’s, Jimmy Iovine, The RZA/Wu Tang Clan, Chris Cornell / Soundgarden, 50 Cent, George Benson, Nikki Sixx / Mötley Crüe, Rodney Jerkins, Kevin Godley & Eric Stewart / 10cc, Skrillex, Walter Afanasieff, and many others including the recently crowned 2021 Grammy Awards Producer Of The Year Andrew Watt. Strategic Report / Introduction from Merck Mercuriadis These are Catalogues that I believe are going to for Songwriters at the highest level including the significantly appreciate in consumption, revenue DCMS hearings taking place in UK Parliament and and value for a long time to come, not only from having increased our synch income through Active the growth in streaming and the narrowing of the Management, as a percentage of total revenue, discount rate as a result of the certainty of earnings from 9% to 15% this fiscal year, I’m delighted to say our that it affords, but also from our Song Management ambitions are turning into reality and we are well on and the efficiencies we bring to collections. our way to Hipgnosis achieving them all. Furthermore, the legislative efforts – influenced by our It remains only for me to thank our incredible advocacy – that are taking place all over the world to Shareholders, our Independent Non-executive lobby on behalf of the Songwriter to receive a greater Board, the team at The Family (Music) Limited share of the income combined with our effectively and its Advisory Board and most importantly the unique proposition has made us the preferred choice great Songwriters that have entrusted us with their for the Songwriting community and allows us to “buy incomparable songs. well” as there is complete alignment between our Shareholders and the Songwriters. You will read about Best wishes, all of this and more throughout this report. Merck Mercuriadis Having now grown Hipgnosis to a $1.8 billion market Founder, Hipgnosis Songs Fund Ltd and The Family (Music) Limited cap FTSE 250 company and invested almost $2 billion in iconic songs that are a part of the fabric of our 4 July 2021 society, which have just been independently valued at $2.2 billion, it is worth re-stating our ambitions when we listed three years ago, which were to: 1. Establish Songs as an asset class; 2. Use the influence of our Fund and the great Songs in our Catalogue to be a catalyst to change where the Songwriter sits in the economic equation for the benefit of the Songwriting community and our Shareholders; and 3. To replace the broken traditional publishing model with Song Management and add value. Having given our Shareholders a 41% Total NAV Return since inception, grown our Operative NAV by more than 11% across this fiscal year, having advocated 4 Annual Report 2021 Hipgnosis Songs Fund Limited Spotify’s Billions Club Strategic ReportStrategic Hipgnosis has 36 out of the 156 Songs 5SOS • Youngblood • Andrew Watt Ariana Grande • No Tears Left To Cry • Savan Kotecha Benny Blanco • Eastside (with Halsey & Khalid) • Nathan (Happy) Perez Bruno Mars • Just The Way You Are • Ari Levine Camila Cabello • Havana (ft. Young Thug) • Andrew Watt/Starrah Clean Bandit • Rockabye (ft. Sean Paul & Anne-Marie) • Ammar Malik Clean Bandit • Symphony (ft. Zara Larsson) • Ammar Malik DJ Snake • Let Me Love You (ft. Justin Bieber) • Andrew Watt Dua Lipa • New Rules • Caroline Ailin /Ian Kirkpatrick Ed Sheeran • Photograph • Johnny McDaid Ed Sheeran • Shape Of You • Johnny McDaid Journey • Don’t Stop Believin’ • Jonathan Cain /Neal Schon Justin Bieber • Sorry • Julia Michaels/Skrillex Justin Bieber • What Do YOU Mean? • Poo Bear Khalid • Young Dumb & Broke • Joel Little Kygo • It Ain't Me (ft. Selena Gomez) • Andrew Watt Lady Gaga, Bradley Cooper • Shallow • Mark Ronson Logic • 1-800-273-8255 • Andrew Taggart Luis Fonsi, Daddy Yankee, Justin Bieber • Despacito – Remix • Poo Bear Major Lazer • Cold Water • Benny Blanco Major Lazer, MØ, DJ Snake • Lean On (ft. DJ Snake & MO) • Martin Bresso Mark Ronson • Uptown Funk (ft. Bruno Mars) • Mark Ronson /Jeff Bhasker Maroon 5 • Girls Like You • Starrah Maroon 5 • Memories • Stephan Johnson Maroon 5 • Sugar • Jacob Kasher Hindlin Martin Garrix, Bebe Rexha • In The Name Of Love • Ilsey Juber Panic! At The Disco • High Hopes • Sam Hollander Shawn Mendes, Camila Cabello • Señorita • Andrew Watt Shawn Mendes • Stitches • Teddy Geiger Shawn Mendes • There's Nothing Holdin’ Me Back • Teddy Geiger/Scott Harris Shawn Mendes • Treat You Better • Teddy Geiger / Scott Harris The Chainsmokers • Closer (ft. Halsey) • Andrew Taggart The Chainsmokers • Don't