Hipgnosis Songs Fund Limited has announced that it will not declare dividends before the new financial year. The decision comes after a review of the company's financial position. The review revealed that the Catalogue bonus provision is expected to increase by approximately $23 million to $68 million at the end of September 2023. This increase is due to more Catalogues meeting performance hurdles as defined in their acquisition agreements. The $68 million will be payable over a period of three years, with $40 million due within 12 months, $24 million due within 1-2 years, and $4 million due within 2-3 years.
In addition, there are nineteen Catalogues with active bonus provisions totaling $75 million that are unlikely to meet performance hurdles. These provisions are not recognized as provisions but are contingent liabilities and will be disclosed in the forthcoming interim results with associated sensitivity analysis.
The Board, advised by the Investment Adviser, is exploring refinements to the methodology adopted in the Company's revenue accrual estimation process for the year-end results. This may result in an accrual adjustment reducing revenue accruals by up to 10%. The aim of these changes is 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.
As a result of these findings, the Board has decided to suspend dividend payments until the new financial year. The operating cash flow of the company will be used to ensure that there are sufficient cash resources to fund the payment of the Catalogue bonuses. The suspension of dividends will also provide the company with the headroom required to maintain compliance with its revolving credit facility's Fixed Charge Cover Ratio covenant if the accrual adjustment is realized in full.
The Board plans to update the company's dividend policy as part of proposals that will be made to shareholders by April 26, 2024, following the completion of the Strategic Review.