The directors are pleased to present the report and financial statements of the company since its incorporation on 22 June 2021 to 31 March 2022. There are no comparative results available due to the company being formed on 22 June 2021.
The principal activity of the company is to act as a holding company for its investment in subsidiaries.
The company profit and loss account for the period from 22 June 2021 to 31 March 2022 is set out on page 8.
Audio Network Holdings UK Limited is a direct subsidiary of Melody UK Buyer Limited, which is wholly owned indirect subsidiary of Melody Holdings LP, a US limited partnership, controlled by private equity funds affiliated with Blackstone Group L.P. Melody UK Buyer Limited, on April 25, 2021, the company entered into an equity purchase agreement with Hasbro, Inc. and its related companies (Sellers). The company was part of a larger buyer group, involving other related parties controlled by the ultimate controlling company, to acquire three separate geographical group of entities (each, an acquisition group) from the Sellers. The acquisition was consummated on June 29, 2021. As a result, Melody UK Buyer Limited acquired all outstanding ownership interest in one of the acquisition groups, Audio Network Limited and its wholly owned subsidiaries, for a cash purchase price of US$ 300 million from the Sellers.
The company loss was $36.2m for the period ended 31 March 2022.
The company net assets were $166.5m.
The management team remains committed to delivering further growth both domestically and internationally for our shareholders, customers, composers, employees, and other stakeholders.
On 14 July 2022, the company’s subsidiary, Audio Network Limited, sold all its rights and beneficial interest in its owned or licensed music copyrights and revenue generating assets to Audio Network Rights Limited, a special purpose entity under common control with the company for a cash consideration amounting to US$250 million. Funds for the acquisition were acquired via an issue of Series 2022-1 Class A-2 Loan Notes from indirect subsidiaries of the ultimate controlling party. All rights held by the Company in relation to such assets and agreements, where not legally transferrable as of that date, are to be held in trust on behalf of this special purpose entity, with Audio Network Rights Limited being entitled to any revenue generated from these assets. Audio Network Limited will continue to manage all transferred assets on behalf of the common control parent in exchange for a contractually determined management fee.
The directors (the “Directors” or the “Board”) of the Company must act in accordance with a set of general duties. These duties are detailed in Section 172(1) of the U.K. Companies Act 2006, which is summarised as follows:
A director of a company must act in the way the director considers, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole, and in doing so have regard (amongst other matters) to:
the likely consequences of any decision in the long term;
the interests of the company’s employees;
the need to further the company’s business relationships with suppliers, customers, and others;
the impact of the company’s operations on the community and the environment; and
the desire to maintain a reputation for a high standard of business conduct.
The Board considers it has fulfilled its duties in accordance with section 172(1) of the UK Companies Act 2006 and have acted to promote the success of the Company for the benefit of its stakeholders in the following manner:
Long-term benefit
The Company exists to own equity in and to businesses that elevate and enhance storytelling through world-class and authentic music. To that end, the Board has overseen the creation and execution of an investment strategy, which rests upon the pillars of Music, Licensing, and Service. Within Music, the Company is committed to working with businesses through equity investments to collaborate with talented composers and artists to create the highest-quality music for visual media in the industry, all curated in a catalogue of extensive depth and breadth. The Company invests in businesses that have 100% ownership of its intellectual property, which grants it the flexibility to offer global and in-perpetuity licenses, therefore vastly reducing music licensing complexity for its customers. And in Service, the Company’s portfolio of entities is dedicated to offering industry-leading customer service focused on seamless music discovery and music delivery. The Company supports its portfolio entities efforts to increase the effectiveness and efficiency of its service through the use of technology.
Shareholders
The Board seeks to promote the interests of its sole member by overseeing Management’s execution of its long-term strategy. Since the Company’s formation two years ago, the Board has been committed to an open dialogue by keeping its sole member informed of developments and receiving feedback through meeting or written resolution.
Employees
The Company’s success depends, in large part, on the performance of its portfolio company’s employees. It is of great importance to the Board and Management that employees of portfolio companies are highly motivated and excited to work and see opportunity for long-term career progression. The Board supports the efforts of management teams at their portfolio companies to instill an open culture, where diverse views are valued, appropriate training and guidance is provided, and autonomy and leadership are promoted.
Customers
The Board supports the Company’s investment in entities whose mission is to connect media makers globally with the highest-quality music for video through a seamless experience. The Company’s investments primarily services the market segments of TV and Film, Advertising, Enterprise, and Digital Media from multiple offices in key territories around the world and via a network of sub-publishers in secondary markets. The Company aims to continue to support its portfolio investments efforts to delight its customers by providing world-class authentic music and industry-leading service.
Suppliers
While the Company itself, as a holding company, has no suppliers, it strives to provide an environment that allows its portfolio investments to support their supplies. The Company’s portfolio companies are major production music publishers and have benefited tremendously from their long-standing relationships with more than 1,000 world-class authentic composers and artists, who have contributed to its catalogue of musical works. The main benefits to this creative talent pool from working with the Company have been:
Artistic freedom, with unique approach to highest quality production, backed by significant investment from the Company;
Access to a global customer base and distribution platform, as well as to a top-level marketing team;
Strong performing rights organization (“PRO”) relationships, dedicated publishing teams, and world-class royalty collection capabilities;
Relationships managed by dedicated and skilled music and production teams; and
Music creation informed by data analytics, covering demand and usage.
These benefits are underpinned by an industry-competitive remuneration model. It is of utmost importance to the Board and Management that the full relationship is nurtured in the long-term through support of the Company to its portfolio investments. Different customer segments or growth initiatives could have different impacts on composer and artist remunerations and, therefore, the Board and Management ensure that the remuneration model for its portfolio companies is at the forefront of every strategic discussion. That model is set to evolve organically, with the aim of sustaining the Company’s portfolio investments as preferred partners for the best creative talent in the industry.
Community and environment
The Company has supported efforts by its portfolio investments to adopt and implement a number of policies in connection with environmental, social, and governance objectives including:
Develop programs and training to increase inclusiveness, diversity awareness and employee engagement;
Develop a recruiting process that increases diversity in our workforce;
Promote employee wellness and safety;
Expand and customize codes of conduct and ethical business practices for newly acquired business units and offices;
Improve and expand training with respect to codes of conduct and ethical business practices across all divisions;
Establish a third-party, independent avenue for reporting violations and implement whistleblower protection with respect thereto;
Participate in community and non-profit philanthropy; and
Promote environmental sustainability and reduce carbon footprint.
Culture and values
The Board actively seeks to establish and maintain a corporate culture which will attract future investment opportunities. The Company promotes honesty, integrity and respect and all employees of portfolio companies are expected to operate in an ethical manner in all dealings, whether internal or external. The Company does not tolerate behaviour which goes against these values which could cause reputational damage to the business or create conflict or unnecessary tension internally.
On behalf of the board
The directors present their annual report and financial statements for the period ended 31 March 2022.
The results for the period are set out on page 9.
Ordinary dividends were paid amounting to $103,156,320. The directors do not recommend payment of a further dividend.
No preference dividends were paid.
The directors who held office during the period and up to the date of signature of the financial statements were as follows:
HW Fisher LLP were appointed as auditor to the company and in accordance with section 485 of the Companies Act 2006, a resolution proposing that they be re-appointed will be put at a General Meeting.
Basis for opinion
Conclusions relating to going concern
In auditing the financial statements, we have concluded that the directors' use of the going concern basis of accounting in the preparation of the financial statements is appropriate.
Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or collectively, may cast significant doubt on the company's ability to continue as a going concern for a period of at least twelve months from when the financial statements are authorised for issue.
Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report.
Other information
Opinions on other matters prescribed by the Companies Act 2006
In our opinion, based on the work undertaken in the course of our audit:
the information given in the strategic report and the directors' report for the financial period for which the financial statements are prepared is consistent with the financial statements; and
the strategic report and the directors' report have been prepared in accordance with applicable legal requirements.
As explained more fully in the directors' responsibilities statement, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the directors are responsible for assessing the company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the company or to cease operations, or have no realistic alternative but to do so.
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which our procedures are capable of detecting irregularities, including fraud, is detailed below.
As part of our planning process:
We enquired of management the systems and controls the company has in place, the areas of the financial statements that are most susceptible to the risk of irregularities and fraud, and whether there was any known, suspected or alleged fraud. The company did not inform of us of any known, suspected or alleged fraud.
We obtained an understanding of the legal and regulatory frameworks applicable to the company. We determined that the following were most relevant: FRS 102 and Companies Act 2006.
We considered the incentives and opportunities that exist in the company, including the extent of management bias, which present a potential for irregularities and fraud to be perpetuated, and tailored our risk assessment accordingly.
Using our knowledge of the company, together with the discussions held with the company at the planning stage, we formed a conclusion on the risk of misstatement due to irregularities including fraud and tailored our procedures according to this risk assessment.
The key procedures we undertook to detect irregularities including fraud during the course of the audit included
Identifying and testing journal entries and the overall accounting records, in particular those that were significant and unusual.
Reviewing the financial statement disclosures and determining whether accounting policies have been appropriately applied.
Reviewing and challenging the assumptions and judgements used by management in their significant accounting estimates.
Assessing the extent of compliance, or lack of, for evidence of management bias.
Documenting and verifying all significant related party balances and transactions.
A further description of our responsibilities is available on the Financial Reporting Council’s website at: https://www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor's report.
Use of our report
This report is made solely to the company's members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company's members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company's members, as a body, for our audit work, for this report, or for the opinions we have formed.
The profit and loss account has been prepared on the basis that all operations are continuing operations.
Audio Network Holding UK Limited is a private company limited by shares incorporated in England and Wales. The registered office is 1 Bartholomew Lane, London, England, EC2N 2AX.
The financial statements are prepared in United States Dollar, which is the functional currency of the company. Monetary amounts in these financial statements are rounded to the nearest $.
The company has taken advantage of the exemption under section 400 of the Companies Act 2006 not to prepare consolidated accounts. The financial statements present information about the company as an individual entity and not about its group.
Audio Network Holding UK Limited is a wholly owned subsidiary of Melody UK Buyer Limited and the results of Audio Network Holding UK Limited are included in the consolidated financial statements of Melody UK Buyer Limited which are available from Companies House.
This is the first year of accounts prepared for the entity, and hence the financial statements are for the period from incorporation, being the 22 June 2021, to 31 March 2022.
Basic financial assets, which include debtors, are initially measured at transaction price including transaction costs and are subsequently carried at amortised cost using the effective interest method unless the arrangement constitutes a financing transaction, where the transaction is measured at the present value of the future receipts discounted at a market rate of interest. Financial assets classified as receivable within one year are not amortised.
Other financial assets, including investments in equity instruments which are not subsidiaries, associates or joint ventures, are initially measured at fair value, which is normally the transaction price. Such assets are subsequently carried at fair value and the changes in fair value are recognised in profit or loss, except that investments in equity instruments that are not publicly traded and whose fair values cannot be measured reliably are measured at cost less impairment.
Financial assets are derecognised only when the contractual rights to the cash flows from the asset expire or are settled, or when the company transfers the financial asset and substantially all the risks and rewards of ownership to another entity, or if some significant risks and rewards of ownership are retained but control of the asset has transferred to another party that is able to sell the asset in its entirety to an unrelated third party.
Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An equity instrument is any contract that evidences a residual interest in the assets of the company after deducting all of its liabilities.
Financial liabilities are derecognised when the company’s contractual obligations expire or are discharged or cancelled.
Equity instruments issued by the company are recorded at the proceeds received, net of transaction costs. Dividends payable on equity instruments are recognised as liabilities once they are no longer at the discretion of the company.
In the application of the company’s accounting policies, the directors are required to make judgements, estimates and assumptions about the carrying amount of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised where the revision affects only that period, or in the period of the revision and future periods where the revision affects both current and future periods.
The estimates and assumptions which have a significant risk of causing a material adjustment to the carrying amount of assets and liabilities are as follows.
There is an element of uncertainty for the determined fair value of the investment in the Audio Network Group, in relation to the assumptions used by management for the forecasts used in the discounted cash flow valuations.
The average monthly number of persons (including directors) employed by the company during the period was:
The actual charge for the period can be reconciled to the expected credit for the period based on the profit or loss and the standard rate of tax as follows:
Details of the company's subsidiaries at 31 March 2022 are as follows:
Registered office addresses (all UK unless otherwise indicated):
The preference shares are redeemable at par, 3 years from the date of issue.
Included within share capital is $1 ordinary share which remains unpaid at the period end.
Audio Network Holding UK has $101,000,000 in preference shares held by Melody UK Buyer Limited and are 7.4% redeemable preference shares of $1 each. These shares were paid in full by way of dividend at the period end.
On 14 July 2022, the company's subsidiary, Audio Network Limited, sold all its rights and beneficial interest in its owned or licensed music copyrights and revenue generating assets to Audio Network Rights Limited, a special purpose entity under common control with the company for a cash consideration amounting to US$250 million. Funds for the acquisition were acquired via an issue of Series 2022-1 Class A-2 Loan Notes from indirect subsidiaries of the ultimate controlling party. All rights held by the Company in relation to such assets and agreements, where not legally transferrable as of that date, are to be held in trust on behalf of this special purpose entity, with Audio Network Rights Limited being entitled to any revenue generated from these assets. Audio Network Limited will continue to manage all transferred assets on behalf of the common control parent in exchange for a contractually determined management fee.
During the period the company entered into the following transactions with related parties:
The company received a dividend from Audio Network Limited, a direct wholly owned subsidiary, of $2,156,320.
The company paid dividends to Melody UK Buyer Limited, the direct parent company, of $103,156,320.
Audio Network Holding UK Limited is a wholly owned direct subsidiary of Melody UK Buyer Limited, which is in turn a wholly owned indirect subsidiary of Melody Holdings LP, a US limited partnership, controlled by private equity funds affiliated with Blackstone Group LP.