TIDMLBOW
RNS Number : 2585A
ICG-Longbow Snr Sec UK Prop DebtInv
22 May 2023
ICG-Longbow Senior Secured UK Property Debt Investments
Limited
Annual Report And Financial Statements
For the year ended 31 January 2023
All capitalised terms are defined in the Glossary of Capitalised
Defined Terms unless separately defined.
Corporate Summary
Investment Objective
In line with the revised Investment Objective and Policy
approved by shareholders at the Extraordinary General Meeting in
January 2021, the Company is undertaking an orderly realisation of
its investments.
Structure
The Company is a non--cellular company limited by shares and
incorporated in Guernsey on 29 November 2012 under the Companies
Law. The Company's registration number is 55917 and it has been
registered with the Guernsey Financial Services Commission (GFSC)
as a registered closed--ended collective investment scheme. The
Company's Ordinary Shares were admitted to the premium segment of
the Financial Conduct Authority's (FCA) Official List and to
trading on the Main Market of the London Stock Exchange as part of
its IPO which completed on 5 February 2013. The issued share
capital comprises the Company's Ordinary Shares denominated in
Pounds Sterling. The Company previously made investments in its
portfolio through ICG--Longbow Senior Debt S.A., the Company's
wholly owned Luxembourg subsidiary. The Board resolved to simplify
its corporate structure by collapsing the subsidiary company which
acted historically as the lender for the Company's investments.
Following this decision, the subsidiary, ICG Longbow Senior Debt
S.A., was dissolved under Luxembourg Law with effect from 18
January 2022. F ollowing the dissolution, the Company assumed the
assets and liabilities of its former subsidiary.
Investment Manager
The Company has appointed ICG Alternative Investment Limited as
external discretionary investment manager, under the Alternative
Investment Fund Management Directive (AIFMD) within a remit set by
the Board.
Financial Highlights
for the year ended 31 January 2023
Portfolio
GBP67.4 Million (1) invested in four loans as at 31 January
2023
GBP 62.1 Million invested in four loans as at 22 May 2023
31 January 2023 31 January 2022
Weighted average
loan coupon (1) 7.43% 7.39%
---------------- ----------------
Weighted average 0.31 years 0.97 years
loan maturity (1)
---------------- ----------------
Weighted average
loan to value ratio
(1) 80.9% 67.8%
---------------- ----------------
Performance
31 January 2023 31 January 2022
Earnings Per Share 1.62 pence 6.05 pence
---------------- ----------------
Total Income Per 5.99 pence 7.85 pence
Share (1)
---------------- ----------------
NAV Per Share (1) 63.77 pence 72.35 pence
---------------- ----------------
Declared Dividend 3.6 pence 5.6 pence
per Share (1)
---------------- ----------------
Capital Distribution 6.0 pence 26.0 pence
per Share (1)
---------------- ----------------
(1) These are Alternative Performance Measures
Financial Summary
Performance
-- The Company is continuing an orderly realisation of its
assets. During the financial year, the Company returned GBP7.3
million of shareholder capital, equating to 6.0 pence per ordinary
share.
-- NAV of GBP77.35 million as at 31 January 2023 (31 January
2022: GBP 87.77 million), equivalent to 63.77 pence per ordinary
share (31 January 2022: 72.35 pence per ordinary share).
-- Total income for the year ended 31 January 2023 was GBP7.27
million (31 January 2022: GBP9.52 million), and profit after tax
was GBP1.96 million (31 January 2022: GBP 7.34 million).
-- The Company raised ECL provisions of GBP3.9 million. GBP2.3
million in respect of the Southport loan which was classified as
Stage 3 following the appointment of an administrator over the
borrower, and GBP1.6 million in respect of the RoyaleLife loan
which was downgraded and is in default.
-- Earnings per share of 1.62 pence (31 January 2022: 6.05
pence) with total dividends paid or declared for the year ended 31
January 2023 of 3.6 pence per share (31 January 2022: 5.6 pence per
share).
-- After allowing for shareholder capital return, pro forma NAV
per share fell by 2.58 pence in the period.
-- Following the year end, the Company returned a further GBP6.7
million of shareholder capital, equating to 5.5 pence per ordinary
share. As at the date of this report, the Company has now returned
37.5 pence per ordinary share to shareholders, equating to GBP45.5
million in total.
Dividend and Capital Distributions
-- Total dividends paid or declared for the year ended 31
January 2023 of 3.6 pence per share (31 January 2022: 5.6 pence per
share), made up as follows:
o Interim dividend of 1.1 pence per share paid in respect of
quarter ended 30 April 2022
o Interim dividend of 1.0 pence per share paid in respect of
quarter ended 31 July 2022
o Interim dividend of 1.0 pence per share paid in respect of
quarter ended 31 October 2022
o Interim dividend of 0.5 pence per share paid in respect of
quarter ended 31 January 2023
-- Total capital distributions paid or declared for the year
ended 31 January 2023 of 6.0 pence per share (31 January 2022: 26.0
pence per share)
Investment Portfolio
-- The portfolio weighted average LTV was 80.9 % (31 January
2022: 67.8%), reflecting revaluations and changes to the
composition of the loan portfolio.
-- The portfolio weighted average residual term was 0.31 years (31 January 2022: 0.97 years).
-- The Company's Northlands loan was partially repaid following
the year end. As a result of these repayments, the Company's
portfolio as at 22 May 2023 comprises four loans with an aggregate
principal balance before impairment of GBP62.1 million and a pro
forma portfolio weighted average LTV of 81.1%.
-- A further return of capital will be made following additional
anticipated repayments of the Northlands loan, expected during June
2023.
-- Notwithstanding the property valuations received in
preparation of this report, debt and property markets remain
challenging and shareholders' attention is drawn to the risks set
out in the accounting policies, the stress analysis and elsewhere
in the notes to the accounts.
-- Following the period end, the Company, in conjunction with
its fellow lenders, appointed an administrator over two of the
companies providing security for the RoyaleLife loan. This is also
discussed in the stress analysis and in Note 5 to the accounts.
*Unless stated otherwise, loan balances are stated gross of ECL
provisions for impairment. A comparison to the carrying value of
the loans is set out in Note 5 to the accounts.
Chairman's Statement
Introduction
On behalf of the Board, I now present the tenth Annual Report
for the Company, for the year ended 31 January 2023.
Economic and market conditions in the period were turbulent.
Concerns over the war in Ukraine, double digit inflation and the
rising interest rate environment led to widespread falls in global
asset prices. In the UK, the impact and aftermath of the doomed
autumn 'mini-budget' led to a rapid sell-off in UK Government
bonds, amplified by forced selling by UK pension funds seeking to
meet margin calls on their Liability Driven Investment portfolios.
This rapidly resulted in a change of Chancellor and, ultimately,
Prime Minister.
While the appointments of Jeremy Hunt and Rishi Sunak assuaged
markets, many of the after-effects remain and, as the Investment
Manager sets out below, the impact on pricing and liquidity in the
property and commercial mortgage markets was marked. Transactional
activity was severely reduced in the second half of 2022, although
there has been a modest improvement in sentiment in 2023 as UK
public finances have largely defied most negative forecasts. This
has narrowed bid-ask spreads and allowed for markets to clear in
certain instances. However, price discovery is still continuing in
many sectors and both sales and refinancing transactions are taking
longer to complete than in the recent past and many are
aborting.
In this difficult period, the Company's investments were not
immune from the dislocation. The sale and refinancing processes of
a number of the Company's borrowers stalled, with the result that
certain loans have now extended beyond their original contractual
maturity dates. While unwelcome, this has been a market-wide rather
than Company-specific phenomenon and the Investment Manager's
approach of working consensually with borrowers towards exits,
while charging increased coupons and fees, has helped in securing
over GBP10 million of repayments since the beginning of the
calendar year 2023 while also modestly improving earnings on those
loans. More assertive action though has had to be taken on two of
the Company's loans and this is discussed more fully below and in
the Investment Manager's report.
As a result, the Company has continued its capital return
programme and, as at the date of these accounts, the Company has
paid capital distributions to shareholders totalling 37.5 pence per
share. During the year, the Board has also been able to continue to
distribute dividends from retained earnings and cashflow. In the
financial year to 31 January 2023, dividends of 3.6 pence per
ordinary share were declared or paid.
The Company's holdings now comprise a small number of remaining
investments and these are undoubtedly those that have been more
challenged by market conditions. The Company placed the Southport
hotel into administration during the period and, following the
receipt of bids by the administrator and an independent surveyor's
revaluation, the Board now considers it prudent to recognise an
impairment in respect of this investment of GBP2.3 million,
equating to 1.8 pence per ordinary share.
The RoyaleLife borrower has faced liquidity issues as a result
of Covid-19 and supply chain constraints delaying its business
plan. As a result, the borrower has been unable to pay interest and
the loan was placed in default. An independent valuation as at 31
December 2022 confirmed the investment remained secure from a loan
to value perspective. However, it appears unlikely that the loan
will repay at its maturity date in October 2023. As a result, the
loan has been downgraded and an ECL provision for interest arrears
and impairment of GBP1.6 million (1.35 pence per share) has been
raised.
The Investment Manager was in discussions to restructure the
loan. However, as a result of working capital challenges, notice of
a winding up petition was filed by a third-party creditor against
certain of the vehicles within the Company's borrower group. As a
consequence, on 11 May 2023, the Investment Manager appointed
administrators over these vehicles in order to protect the
Company's position. The borrower itself and other group entities
continue to operate. The administration process creates a less
certain outlook for the Company's loan both in terms of debt
service and eventual repayment. As a result, interest will be
recognised on a gross basis and an ECL provision will be raised,
and it is now our expectation that the repayment date may extend
significantly. This is more fully discussed in the Investment
Manager's report and notes to the financial statements
While the Board is satisfied with the net carrying values as at
31 January 2023 included in this report and accounts, we are
operating in a market with a heightened level of risk, reduced
credit availability and deteriorating economics in real estate.
Accordingly, shareholders' attention is drawn to the risks to
valuations as discussed in the principal risks, and notes to the
financial statements. The Board believes that the stress analysis
gives some guidance to the possible impact of deterioration in
circumstances to the value of the portfolio, noting that
deterioration may not be limited to the examples given.
The Board and Investment Manager will continue to evaluate any
options to accelerate redemptions.
Portfolio
At 31 January 2023, the portfolio comprised four loans with a
total principal balance outstanding of GBP67.4 million (before
impairment).
During the year the Company received repayment in full of the
LBS Properties Limited (LBS) loan (GBP6.5 million) and the
remaining balance of the Quattro loan (GBP6.0 million). In each
case the loan repayments were accompanied by exit and prepayment
fees, enhancing shareholder returns. A GBP0.9 million partial
repayment of the Northlands loan was also received in the period; a
further GBP5.3 million of this loan repaid after period end, with
further monies anticipated in June.
As highlighted above, while exit processes are underway for the
remaining portfolio loans, some of these may be protracted and the
outlook for the timing of the redemption of the RoyaleLife loan, in
particular, is less certain. Various options are being explored by
the administrator and Investment Manager. The property securing the
Affinity loan is being marketed for sale into what is currently a
difficult market and the sponsor is also pursuing refinance
options. The Southport hotel securing our loan is under conditional
offer, following the appointment of an administrator, albeit there
is no assurance this sale will complete. This is discussed further
in the Investment Manager's report.
Dividend
The Company paid dividends equating to 3.6 pence per share
during the year despite the market disruption, the steadily
reducing loan portfolio and the interruptions in interest income in
certain of the Company's investments.
The dividend outlook for the Company is more challenging in the
near term and is discussed in the outlook section.
Governance and Management
The orderly wind up of the Company's Luxembourg subsidiary
company has helped reduce operating expenses by approximately
GBP0.1 million in the period. The Board believes that the
management structure of the Company remains appropriate for the
reducing portfolio of investments.
Post Year End Trading
Between March and May 2023, the Company received partial
repayments of the Northlands loan totalling GBP5.3 million. In May
2023, two companies connected to the RoyaleLife borrower were
placed into administration.
Outlook
The Company remains committed to the timely realisation of its
investment portfolio and intends to continue to return capital to
shareholders as funds become available, taking account of the
Company's working capital requirements.
However, the remaining loans in the portfolio are those where
exits are currently more challenging due to the property and debt
market conditions discussed in both this and the Investment
Manager's statements as well as the specific issues with the
Southport and RoyaleLife loans highlighted above. Moreover, as the
portfolio reduces in size, the Company's fixed cost base will
absorb a growing proportion of the portfolio income. As a
consequence, the Board and Investment Manager are exploring the
optimum way to manage this cost base and will consider alternative
options for exiting the remaining positions.
The Board has also considered the Company's ability to pay
further quarterly dividends to shareholders. We have previously
signalled that the Company would seek to distribute an amount equal
to an annualised 6% of the prevailing quarter's net asset value,
while it was prudent to do so. Henceforth, the Board, will
distribute dividends from earnings as and when profits and cashflow
prudently allow.
There is no doubt that we are now operating in a more difficult
market than when we reported to you in our last annual and interim
reports. The market correction during the year has been responsible
for a deterioration in the aggregate Loan to Value ratio from 67.8%
to 80.9%. While the Board is satisfied with the net carrying value
of our assets at 31 January 2023, we have in this report discussed
the risks attendant to future realisations. We will continue to
work with the Investment Manager to manage those risks and deliver
the best outcome for shareholders in the most realistic
timeframe.
Investment Manager's Report
The Investment Manager's Report refers to the performance of the
loans and the portfolio for the year to 31 January 2023, and the
general market conditions prevailing at that date. Any
forward-looking statements in this report reflect the latest
information available as at 22 May 2023.
Investment Objective
The investment objective of the Company, as approved by the
shareholders of the Company, is to conduct an orderly realisation
of the assets of the Company.
Fund facts
-------------------- ---------------- ----------- ------------------------
Closed ended investment
Fund launch: 5 February 2013 Fund type: company
-------------------- ---------------- ----------- ------------------------
Investment Manager: ICG-Longbow Domicile: Guernsey
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Base currency: GBP Listing: London Stock Exchange
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Issued shares: 121.3 million ISIN code: GG00B8C23S81
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Management fee: 1.0% LSE code: LBOW
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Website: www.lbow.co.uk
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Share price & NAV at 31 January Key portfolio statistics at
2023 31 January 2023
--------------------------------------------------------- --------------------------------------
Share price (pence per
share): 52.25 Number of investments: 4
---------------------------------------- --------------- ---------------------------- --------
NAV (pence per share) Percentage capital invested
(1) : 63.77 (1) (3) : 83.0%
---------------------------------------- --------------- ---------------------------- --------
Premium / (Discount) Weighted avg. investment
(1) : (18.1%) coupon: 7.43%
---------------------------------------- --------------- ---------------------------- --------
Approved dividend (pence
per share) (2) : 0.5 Weighted avg. LTV: 80.9%
------------------------------------------------ ------- ---------------------------- --------
Dividend payment date
(2) : 4 May 2023
(1) These are Alternative Performance
Measures
(2) For the Quarter ended 31
January 2023
(3) Loans advanced at amortised
cost/Total Equity attributable
to the owners of the Company.
Summary
At 31 January 2023, the investment portfolio comprised four
loans. Principal activity in the period included:
-- Repayment in full of the remaining GBP6.0 million balance of the Quattro loan;
-- Repayment in full of the GBP6.5 million LBS loan;
-- Partial GBP0.9 million repayment of the Northlands loan;
-- Working capital advance of GBP0.2 million on the Southport loan.
As a consequence of the above activity, total commitments at
period end stood at GBP67.4 million* (31 January 2022: GBP80.9
million) with the par value of the loan portfolio being GBP69.9
million (31 January 2022: GBP80.5 million).
The weighted average loan to value ratio increased to 80.9% (31
January 2022: 67.8%) reflecting revaluations and the changes to the
portfolio composition. The loans carry a contractual weighted
average coupon rate of 7.43% (31 January 2022: 7.39%), with returns
supplemented by fees and default interest charges.
At the year end, and as discussed further below, the Company
made a GBP2.29 million provision for impairment against the
Southport loan. The Company also made a GBP1.6 million ECL
provision for impairment against the RoyaleLife loan. As a result,
the current effective weighted average coupon rate is significantly
below the 7.43% per annum stated above.
Following the year end, the Company received further repayments
totalling GBP5.3 million on the Northlands loan. As a result, as at
the date of this report, the Company's portfolio totals four
investments with an aggregate committed balance of GBP62.1 million.
The weighted average LTV is 81.1%.
Company Performance
During a period of considerable dislocation in property and
finance markets, the Investment Manager has continued to focus on
monitoring the credit quality of the portfolio investments and
taking steps to incentivise or deliver exits of the remaining
assets. Certain of the portfolio investments have passed their
contractual maturity dates, and all the lender's rights have been
reserved in respect of these breaches, with default interest being
charged.
During the period we appointed administrators over the borrower
of the Southport loan following a breach in the LTV covenant which
the borrower failed to cure. The hotel remains open and continues
to trade satisfactorily and a sales process is ongoing with the
property currently under conditional offer to a national hotel
brand. There is however no assurance that any sale will complete
and we consider it prudent to recognise an impairment provision of
GBP2.3 million to the carrying value of the loan on an EIR basis to
reflect the level of the current offer, costs of administration and
sale. The Company has also recognised interest on a net basis after
ECL provision on the loan with surplus operating cashflows being
retained by the administrator as working capital for the continuing
hotel operations. It is anticipated that surpluses, if any, will
form part of the redemption proceeds upon exit.
The RoyaleLife borrower pursued a corporate refinance of its
whole business during the period. However, these discussions fell
away in Q4 2022 after a material change in terms offered by the
incoming lender. Following extensive investment in planning and
site infrastructure, the business became cash constrained as a
result of depressed sales momentum during the pandemic and
subsequent supply chain issues hampering completions. We believe
the fundamental business model of the Royale group remains strong
and, based on an independent valuation as at 31 December 2022, the
loan capital remains adequately secured with an updated LTV of 72%
(85.5% including outstanding interest and charges). However,
cashflow constraints have affected interest service and the loan
has been downgraded to sub-standard for the purpose of risk
assessment, resulting in an ECL provision for impairment of GBP1.6
million reflecting the derecognition of accrued interest and the
possibility of loss for a Stage 2 loan under the Company's IFRS 9
policy.
After period end, these cash constraints on the borrower's
business led to winding up petitions being filed by a third-party
creditor against two of the vehicles within the borrower group both
of, which are security providers for the Company's loan. In
response to this, the Company, in conjunction with its co-lenders,
appointed an administrator over these vehicles on 11 May 2023 in
order to protect the lenders' position. It is important to
highlight that, as at the date of this report, the borrowing
vehicle itself and the remaining group companies and security
providers continue to operate.
The Company's loan to RoyaleLife is part of a larger lending
syndication with other ICG private funds. The Investment Manager is
now in discussions with its syndicate partners and the
administrator to consider the next steps for the loan which,
amongst other options, may include the provision of a working
capital facility and extension of the loan beyond its current
October 2023 maturity date. Until such time as a satisfactory
resolution is reached in respect of the above, default interest
will continue to accrue. However, we believe cash for interest
service will be constrained in the near term and, as a result,
recognition of interest will be recognised on a gross basis and an
ECL provision will be raised.
*Unless stated otherwise, loan balances are stated gross of ECL
provisions for impairment. A comparison to the carrying value of
the loans is set out in Note 5 to the accounts.
The property securing the Affinity loan was relaunched for sale
in Q1 2023, following an abortive process in H2 2022 when property
markets became severely dislocated. While the loan has passed its
maturity date and default interest is being charged, the underlying
occupational performance remains strong with occupancy in excess of
90%. In addition to a sale, the Sponsor is also pursuing
refinancing options for the facility. Based on a revaluation in
April 2023, the loan remains adequately secured with an LTV ratio
of 85.9% as at the date of these accounts.
As a result of the repayments received during the year, the
Company's loan commitments at period end stood at approximately
GBP67.4 million, with all commitments fully drawn. Portfolio LTV
was 80.9% on a weighted average basis, all secured by first ranking
mortgage investments. The weighted average loan coupon of 7.43% is
supplemented by default interest and contractual exit fees.
Portfolio
Portfolio statistics 31 January 2023 31 January 2022
Number of loan investments 4 6
---------------- ----------------
Aggregate principal advanced GBP67,443,056 GBP80,543,427
---------------- ----------------
Weighted average LTV 80.9% 67.8%
---------------- ----------------
Weighted average interest coupon 7.43% 7.39%
---------------- ----------------
Weighted average unexpired loan term 0.31 years 0.97 years
---------------- ----------------
Cash held GBP9,209,494 GBP4,801,224
---------------- ----------------
Investment Portfolio Summary as at 31 January 2023
Current
Balance outstanding LTV
Project Region Sector Maturity (GBPm)(2) (%)
Affinity South West Office March 2023 17.30 85.9%
------------ ------------- ------------ -------------------- --------
Southport
(1) North West Hotel Feb 2023 15.20 104.8%
------------ ------------- ------------ -------------------- --------
Northlands London Mixed use Oct 2022 9.56 56.5%
------------ ------------- ------------ -------------------- --------
RoyaleLife National Residential Oct 2023 25.38 72.4%
------------ ------------- ------------ -------------------- --------
Total / weighted average 67.44 80.9%
------------ -------------------- --------
(1) LTV reflects balance outstanding before provision for impairment.
(2) Balance outstanding excludes accrued interest. A comparison
to the carrying value of the loans is set out in Note 5 to the
accounts.
Economy and Financial Market Update
Initial positive market expectations for 2022 were rapidly
derailed by the Russian invasion of Ukraine and an intensifying
energy crisis, leading to a very different year than the recovery
period widely expected following the pandemic. The UK Government's
initial forecasts of 7% economic growth and around 4% inflation
were consequently wide of the mark, with GDP growth essentially
flat during the year and the UK economy still below its
pre-pandemic level.
As a result of both global and domestic inflationary pressures,
the Bank of England commenced a programme of successive and rapid
increases to the Bank rate, from 0.25% in January 2022 to 3.50% in
January 2023 and 4.25% as at the date of these accounts. Given the
lag in these increases feeding through to price changes, inflation
continues to remain elevated, with CPI rising by 10.1% in the 12
months to end-March 2023.
These difficulties were amplified by the resignation of Boris
Johnson in July 2023, and new Prime Minister Liz Truss's ill-fated
September mini budget. The ensuing interest rate shock hit property
markets hard, with significantly reduced transaction volumes as
confidence among market participants fell and price discovery
became challenging. During Q4 the benchmark five-year swap rate,
which is a key market barometer, peaked at over 5%, leaving many
borrowers unwilling or unable to transact on new loans.
Occupational Demand/Supply
Offices
Despite continued debate on the effects on offices of the rise
in flexible working, positive occupational dynamics continued
across many markets. London office leasing was 13% up in 2022, and
regional office leasing was only 8% down on previous years,
according to Savills, a far better result than many expected. We
have observed that much of this take up has been driven by
corporate occupiers seeking space with greater sustainability and
wellbeing credentials, and this has magnified the distinction
between prime and secondary assets, with the latter being more
challenging to lease and sell. The demand/supply imbalance of
ESG-compliant office space and limited development pipeline look
set to continue to drive rental growth for best-in-class assets,
despite subdued economic conditions.
Industrial
After a golden run for industrial property, industry giant
Amazon sent shockwaves through the sector by returning space in
2022. Despite this, the market saw over 30 million sq ft in big box
Grade A take up for the third year running, according to JLL. A
lower proportion was taken by e-commerce tenants over the year, as
manufacturing tenants increased their share of take up, seen by
some as a response to the supply chain crisis and reshoring moves
amid geopolitical uncertainty. In response to continued demand,
prime headline rents increased by 12.9% and big box space under
construction at year end increased by almost 10 million sq ft
relative to the prior year. The wider industrial market (excluding
big box units) mirrored this trend, with Colliers reporting 10%
average rental growth across the sector.
Retail
The past year brought little respite for retail, as the cost of
living crisis put pressure on consumer confidence. Total retail
sales outperformed the prior two years according to Cushman &
Wakefield, however this was considered to be a result of rampant
price inflation rather than increasing volumes. At year end, the
pain was somewhat offset for the high street by the proportion of
December online sales (26.5%) being considerably lower than 2021
(30.5%). Average retail rents are now estimated at 17% below their
2018 peak, according to Carter Jonas, however retail's subsectors
continued to show very disparate performance, with shopping centres
and food stores seeing more pain than high street shops and retail
warehouses in 2022. One green shoot in 2022 was a softening rate of
rental decline, at only 1% over the last 12 months to January
2023.
Hotels
Average daily room rates in the UK recovered to above 2019
levels and while occupancy is lagging slightly, revenue per
available room (RevPAR, a key performance metric) has pushed ahead,
according to industry monitor STR. A key headwind for the sector is
energy prices. By Q3 2022, it was estimated that utilities costs
were 70% up on 2019 levels, and staff pay pressures are also
rising, putting pressure on profitability.
Property Investment Market
After a gain of 20% during 2021, all property capital values
fell by 13.3% in 2022, according to CBRE, reflecting a rapid
repricing in the market in the second half of the year.
Particularly affected were tightly priced industrial assets, which
saw capital values drop 21% during the year, despite rental income
growth. The total investment volume of over GBP52bn represented a
fall from over GBP63bn in 2021 but remained above 2019 and 2020
levels according to RCA.
Property yields rose rapidly over the course of H2 2022. Savills
estimate an increase in prime office yields of 75 bps in London and
the South East in the 12 months to Jan 2023, and 125 bps in the UK
regions. While industrial yields were estimated to have moved out
125 bps regardless of subsector, prime yields on retail vary
widely, with high streets flat at 6.5%, shopping centres moving out
50 bps to 8.0% and retail warehousing a more modest 25 bps to 6.0%.
Estimation of yields became increasingly difficult in the latter
part of the year, with little transactional evidence in many
markets and a number of abortive deals including Abrdn's GBP250m
sale of the Churchill Square Shopping Centre in Brighton and Tesco
Pension Fund's sale of GBP600m of its industrial assets. The most
significant retail transaction of the year, the sale of the
Fenwick's department store in Mayfair, transacted at GBP430m. This
was seen as a redevelopment opportunity, and skewed sector
volumes.
As a result of this market uncertainty and widening bid-ask
spreads, several managers including Schroders, BlackRock and
Columbia Threadneedle gated some of their open-ended property funds
in the latter half of the year, as the market engaged in a period
of repricing.
Finance Markets
Outstanding debt in the property markets grew marginally to
GBP173.8bn over the year to January 2023, according to the Bank of
England, however outstanding debt to development property dropped
over 12% in the period.
The ultra-low interest rate environment which had supported low
yields and rising valuations was eroded over the course of the year
by the successive base rate increases to counter rising inflation.
The biggest shock came in September, as gilt yields rose 120 bps in
three days in response to the UK Government's disastrous mini
budget. The 1.5% increase in the benchmark five-year swap rate seen
in 2021 paled in comparison with last year's 2.25% increase in
rates, with five year money peaking at over 5% in October 2022. We
observed that both borrowers and lenders were unwilling (or unable)
to transact in this period.
Financing conditions became more conservative in the latter part
of the year, a result of asset repricing and a continued decline in
LTV ratios offered by lenders, according to CBRE. This created
particular difficulties for borrowers seeking refinancing, as we
have observed both within our portfolio and across the wider
market. At the end of H1 2022, over GBP35bn of UK real estate debt
was due for refinancing within the following 12 months, according
to the annual Bayes Commercial Real Estate Lending Survey, and we
have seen many loans extended further or fail to repay at
maturity.
Investment Policy
Investment Objective
The investment objective of the Company, as approved by the
shareholders, is to conduct an orderly realisation of the Company's
assets.
Investment Policy
The assets of the Company are being realised in an orderly
manner, returning cash to Shareholders at such times and in such
manner as the Board may, in its absolute discretion, determine. The
Board will endeavour to realise all the Company's investments in a
manner that achieves a balance between maximising the net value
received from those investments and making timely returns to
Shareholders.
The Company may not make any new investments save that:
-- investments may be made to honour commitments under existing
contractual arrangements or to preserve the value of the underlying
property security; and
-- cash held by the Company may be invested in quoted bond and
other debt instruments with a final maturity of less than 365 days
as well as money market funds for the purposes of cash management
provided any such instrument has a minimum credit rating.
The Company will continue to comply with the restrictions
imposed by the Listing Rules in force from time to time.
Any material change to the Company's published investment policy
will be made only with the prior approval of Shareholders by
ordinary resolution at a general meeting of the Company.
Board of Directors
Jack Perry CBE - Chairman and Non-Executive Independent
Director
Appointment: Appointed to the Board and as Chairman in November
2012
Experience: Jack is an independent non-executive board member
and adviser to a number of public and private companies. He is
currently Chairman of European Assets Trust PLC and a director and
chairman of the audit committee of the Witan Investment Trust plc.
He previously served as Chief Executive of Scottish Enterprise,
Scotland's enterprise, innovation and investment agency for six
years until November 2009.
Prior to this, he was the managing partner of Ernst & Young
in Glasgow. In addition, he was Regional Industry Leader for
Scotland and Northern Ireland for Ernst & Young's Technology
& Communications and Consumer Products practices.
He is a former non-executive director of FTSE 250 company,
Robert Wiseman Dairies PLC and Capital for Enterprise Ltd. He also
served as a member of the Advisory Committee of Barclays UK &
Ireland Private Bank.
Jack is a member of the Institute of Chartered Accountants of
Scotland.
Committee Membership: Nomination Committee, Management
Engagement Committee, Remuneration Committee
Stuart Beevor - Non-Executive Independent Director
Appointment: Appointed to the Board in November 2012
Experience: Stuart is an Independent Consultant with various
roles advising clients in real estate fund management, investment,
development and asset management. He is a Trustee Director of the
Legal & General UK Senior Pension Scheme. From 2004 to 2013 he
was a non-executive director at Unite Group Plc and from 2013 to
2020 a non-executive director of Metropolitan Thames Valley
Housing. Furthermore, from 2016 to 2022, he was a non-executive
director of Empiric Student Property plc. From 2002 to 2011 he was
Managing Director of Grosvenor Fund Management Limited and a member
of the Board of Grosvenor Group Limited, the international property
group. Prior to joining Grosvenor, he was Managing Director at
Legal and General Property Limited, having previously held a number
of roles at Norwich Union (now Aviva). Stuart is a Chartered
Surveyor with over 40 years' experience in real estate both in the
UK and overseas.
Committee Membership: Audit and Risk Committee, Nomination
Committee, Management Engagement Committee, Remuneration
Committee
Fiona Le Poidevin - Non-Executive Independent Director
Appointment: Appointed to the Board in September 2020
Experience: A Chartered Director, Fellow of the Institute of
Directors and Chartered Accountant (FCA), Fiona is a non-executive
director with 25 years' experience working in financial services in
both London and the Channel Islands across the accounting and tax
professions with experience in strategy, marketing, PR and the
regulatory and listed company environments. Among her appointments,
Fiona is director of Sequoia Economic Infrastructure Income Fund
Limited, a FTSE 250 company, and Audit Chair of ICG-Longbow Senior
Secured UK Property Debt Investments Limited, both premium listed
companies with shares admitted to trading on the Main Market of the
LSE. She is also director and Chair of Doric Nimrod Air Two Limited
and director of Doric Nimrod Air Three Limited, companies admitted
to trading on the Specialist Fund Segment of the LSE.
Until the end of July 2020, Fiona was Chief Executive Officer of
The International Stock Exchange Group Limited where she was
responsible for the commercial aspects of the listed exchange
group's operation. Previously Fiona was Chief Executive of Guernsey
Finance, the promotional body for Guernsey's finance industry
internationally, and prior to this she was an auditor and latterly
tax adviser at PwC (London and Channel Islands) and KPMG (Channel
Islands) for over 13 years. Fiona is a member of the AIC Channel
Islands Committee and non-executive Chairman of a local Sea Scouts
group.
Committee Membership: Audit and Risk Committee (Chair),
Nomination Committee, Management Engagement Committee, Remuneration
Committee
Paul Meader - Non-Executive Independent Director
Appointment: Appointed to the Board in November 2012
Experience: Paul is an independent director of investment
companies, insurers and investment funds. Until 2012, he was Head
of Portfolio Management for Canaccord Genuity based in Guernsey,
prior to which he was Chief Executive of Corazon Capital. He has
over 35 years' experience in financial markets in London, Dublin
and Guernsey, holding senior positions in portfolio management and
trading. Prior to joining Corazon, he was managing director of
Rothschild's Swiss private banking subsidiary in Guernsey. He is
currently a non-executive director of Schroder Oriental Income Fund
Limited.
Paul is a Chartered Fellow of the Chartered Institute for
Securities & Investments, a past Commissioner of the Guernsey
Financial Services Commission and past Chairman of the Guernsey
International Business Association.
He is a graduate of Hertford College, Oxford. Paul is a resident
of Guernsey.
Committee Membership: Audit and Risk Committee, Nomination
Committee, Management Engagement Committee, Remuneration
Committee
Report of the Directors
The Directors hereby submit the Annual Report and Financial
Statements for the Company for the year ended 31 January 2023. This
Report of the Directors should be read together with the Corporate
Governance Report.
General Information
The Company is a non-cellular company limited by shares
incorporated in Guernsey on 29 November 2012 under the Companies
Law. The Company's registration number is 55917 and it is
registered with the GFSC as a registered closed-ended collective
investment scheme. The Company's Ordinary Shares were admitted to
the premium segment of the FCA's Official List and to trading on
the Main Market of the London Stock Exchange on 5 February 2013. As
previously reported, the Board resolved to simplify its corporate
structure by collapsing the Luxembourg subsidiary company which
acted historically as the lender for the Company's investments.
These investments have now been transferred to the Company at par,
and in a manner understood to be tax neutral for the Company. The
subsidiary, ICG Longbow Senior Debt S.A., was dissolved under
Luxembourg Law with effect from 18 January 2022.
Principal Activities
In line with the revised Investment Objective and Policy
approved by shareholders at the Extraordinary General Meeting in
January 2021, the Company is now undertaking an orderly realisation
of its investments and the Board has commenced capital
distributions.
Business Review
A review of the Company's business and its likely future
development is provided in the Chairman's Statement and in the
Investment Manager's Report.
Listing Requirements
Since being admitted on 5 February 2013 to the Official List
maintained by the FCA, the Company has complied with the applicable
Listing Rules.
Results and Dividends
The results for the year are set out in the Financial
Statements.
During the year, and since the year end, the Directors declared
the following dividends:
Dividend Quarter Ended Date of Declaration Payment Date Amount per Ordinary Share (pence)
Interim dividend 31 January 2022 24 March 2022 29 April 2022 1.1
----------------- --------------------- ----------------- ----------------------------------
Interim dividend 30 April 2022 23 June 2022 29 July 2022 1.1
----------------- --------------------- ----------------- ----------------------------------
Interim dividend 31 July 2022 21 September 2022 26 October 2022 1.0
----------------- --------------------- ----------------- ----------------------------------
Interim dividend 31 October 2022 1 December 2022 5 January 2023 1.0
----------------- --------------------- ----------------- ----------------------------------
Interim dividend 31 January 2023 6 April 2023 19 May 2023 0.5
----------------- --------------------- ----------------- ----------------------------------
Share Capital
The Company has one class of Ordinary Shares. The issued nominal
value of the Ordinary Shares represents 100% of the total issued
nominal value of all share capital. Under the Company's Articles of
Incorporation, on a show of hands, each shareholder present in
person or by proxy has the right to one vote at Annual General
Meetings. On a poll, each shareholder is entitled to one vote for
every share held.
Holders of Ordinary shareholders are entitled to all dividends
paid by the Company and, on a winding up, providing the Company has
satisfied all of its liabilities, the shareholders are entitled to
all of the surplus assets of the Company. The Ordinary Shares have
no right to fixed income.
Under Company Articles the Company may, from time to time, issue
Redeemable B Shares in order to return capital to holders of
Ordinary Shares. The Company made one such issuance during the
year:
No. B Shares issued Purpose Date of Declaration Payment Date Par Value per Redeemable B Share
(pence)
121,302,779 Return of Capital 18 May 2022 13 June 2022 6.0
------------------ -------------------- ------------- ---------------------------------------
As set out in the recent RNS announcement, the Directors
resolved on 26 January 2023 to return a further 5.5 pence per share
with a payment date of 10 February 2023.
Shareholdings of the Directors
The Directors' beneficial interests in the shares of the Company
as at 31 January 2023 and 2022 are detailed below:
Ordinary Shares % holding at Ordinary Shares % holding at
of GBP1 each held 31 January 2023 of GBP1 each held 31 January 2022
Director 31 January 2023 31 January 2022
----------------- ------------------- ----------------- ------------------- -----------------
Mr Perry 108,609 0.09 108,609 0.09
Mr Beevor 30,000 0.02 30,000 0.02
Mr Meader 305,921 0.24 290,766 0.24
Mrs Le Poidevin - 0.00 - 0.00
----------------- ------------------- ----------------- ------------------- -----------------
During the year a person closely associated of Mr Meader ceased
to be closely associated. This person closely associated held
20,766 shares. During the year an additional 35,921 shares were
purchased by another person closely associated. Mr Perry purchased
an additional 22,630 shares after the year end bringing the total
holdings of Mr Meader and Mr Perry at the date of this report to
305,921 shares and 131,239 shares respectively.
Directors' beneficial interests in the shares of the Company as
at 22 May 2023 , being the most current information available, are
unchanged from those disclosed above.
Directors' Authority to Buy Back Shares
The Directors believe that the most effective means of
minimising any discount to Net Asset Value which may arise on the
Company's share price, is to deliver strong, consistent performance
from the Company's investment portfolio in both absolute and
relative terms. However, the Board recognises that wider market
conditions and other considerations will affect the rating of the
shares in the short term and the Board may seek to limit the level
and volatility of any discount to Net Asset Value at which the
shares may trade. The means by which this might be done could
include the Company repurchasing shares. Therefore, subject to the
requirements of the Listing Rules, the Companies Law, the Articles
and other applicable legislation, the Company may purchase shares
in the market in order to address any imbalance between the supply
of and demand for shares or to enhance the Net Asset Value of
shares.
In deciding whether to make any such purchases the Directors
will have regard to what they believe to be in the best interests
of shareholders and in accordance with the applicable Guernsey
legal requirements which require the Directors to be satisfied on
reasonable grounds that the Company will, immediately after any
such repurchase, satisfy a solvency test prescribed by the
Companies Law and any other requirements in its Memorandum and
Articles of Incorporation. The making and timing of any buybacks
will be at the absolute discretion of the Board and not at the
option of the shareholders. Any such repurchases would only be made
through the market for cash at a discount to Net Asset Value.
Annually the Company passes a resolution granting the Directors
general authority to purchase in the market up to 14.99% of the
shares in issue immediately following Admission at a price not
exceeding the higher of (i) 5% above the average mid-market values
of shares for the five business days before the purchase is made or
(ii) the higher of the last independent trade or the highest
current independent bid for shares. The Directors intend to seek
renewal of this authority from the shareholders at the Annual
General Meeting.
Pursuant to this authority, and subject to the Companies Law and
the discretion of the Directors, the Company may purchase shares in
the market on an ongoing basis with a view to addressing any
imbalance between the supply of and demand for shares.
Shares purchased by the Company may be cancelled or held as
treasury shares. The Company may borrow and/or realise investments
in order to finance such share purchases.
The Company has not purchased any shares for treasury or
cancellation during the year or to date. During the year, the Board
considered if such a purchase of shares would be appropriate and
concluded that it would not be in the best interests of
shareholders.
Directors' and Officers' Liability Insurance
The Company maintains insurance in respect of Directors' and
Officers' liability in relation to their acts on behalf of the
Company.
Substantial Shareholdings
As at 31 January 2023, the Company had been notified, in
accordance with Chapter 5 of the Disclosure and Transparency Rules,
of the following substantial voting rights as shareholders of the
Company.
Shareholder Shareholding % holding
---------------------------------------------------- ------------- ----------
Close Brothers Asset Management 21,432,570 17.67%
Almitas Capital 12,943,432 10.67%
Canopius 12,276,107 10.12%
TDC Pensionskasse 10,600,000 8.74%
Premier Miton Investors 10,500,000 8.66%
Intermediate Capital Group 10,000,000 8.24%
Hargreaves Lansdown, stockbrokers (Execution Only) 5,674,988 4.68%
RBC Brewin Dolphin, stockbrokers 5,357,129 4.42%
CG Asset Management 4,882,100 4.02%
Interactive Investor (EO) 3,680,328 3.03%
In addition, the Company also provides the same information as
at 24 April 2023, being the most current information available.
Shareholder Shareholding % holding
---------------------------------------------------- ------------- ----------
Close Brothers Asset Management 21,547,570 17.76%
Almitas Capital 12,372,209 10.20%
Canopius 12,276,107 10.12%
TDC Pensionskasse 10,600,000 8.74%
Premier Miton Investors 10,000,000 8.66%
Intermediate Capital Group 6,113,761 8.24%
Hargreaves Lansdown, stockbrokers (Execution Only) 5,165,459 5.04%
RBC Brewin Dolphin, stockbrokers 4,882,100 4.26%
CG Asset Management 3,737,175 4.02%
Interactive Investor (Execution Only) 3,265,430 3.08%
---------------------------------------------------- ------------- ----------
The Directors confirm that there are no securities in issue that
carry special rights with regard to the control of the Company.
Independent External Auditor
Deloitte LLP has been the Company's external auditor since the
Company's incorporation. The Audit and Risk Committee reviews the
appointment of the external auditor, its effectiveness and its
relationship with the Company, which includes monitoring the use of
the external auditor for non-audit services and the balance of
audit and non-audit fees paid, as included in Note 14 to the
Financial Statements . Following a review of the independence and
effectiveness of the external auditor, a resolution was proposed
and accepted at the 2022 Annual General Meeting to re-appoint
Deloitte LLP. Each Director believes that there is no relevant
information of which the external auditor is unaware. Each had
taken all steps necessary, as a director, to be aware of any
relevant audit information and to establish that Deloitte LLP is
made aware of any pertinent information. This confirmation is given
and should be interpreted in accordance with the provisions of
Section 249 of the Companies Law. Further information on the work
of the external auditor and reasons for not putting the audit
service out to tender is set out in the Report of the Audit and
Risk Committee.
Articles of Incorporation
The Company's Articles of Incorporation may only be amended by
special resolution of the shareholders.
NMPI Status
The Company will no longer meet the criteria to be an exempt
NMPI and the Company expects to be removed from the AIC list of
excluded securities.
AIFMD
The Company is a non-EU domiciled alternative investment fund
and appointed ICG Alternative Investments Limited as its
discretionary Investment Manager on 25 November 2020. Prior to this
appointment the Company was internally managed. Any offer of shares
to prospective investors within selected member states of the
European Economic Area and the UK will be made in accordance with
the applicable national private placement regime, and the Company
will notify its intention to market to the competent authority in
each of the selected member states for the purposes of compliance
with AIFMD.
AEOI Rules
Under AEOI Rules the Company continues to comply with both FATCA
and CRS requirements to the extent relevant to the Company.
The Board is committed to upholding and maintaining a
zero-tolerance policy towards the criminal facilitation of tax
evasion.
Change of Control
There are no agreements that the Company considers significant
and to which the Company is party that may affect its control
following a takeover bid.
Going Concern
The Directors, at the time of approving the Financial
Statements, are required to consider whether they have a reasonable
expectation that the Company has adequate resources to continue in
operational existence for the foreseeable future and do not
consider there to be any threat to the going concern status of the
Company. At the EGM of the Company on 14 January 2021, following a
recommendation from the Board published in a circular on 16
December 2020, shareholders voted by the requisite majority in
favour of a change to the Company's Objectives and Investment
Policy which would lead to an orderly realisation of the Company's
assets and a return of capital to shareholders.
It is intended that the investments will be realised as and when
the loans fall due or a later date by negotiation with the loan
sponsor or as a result of administration processes. Specific
actions taken by the Company to maximise loan recoveries may result
in delays to repayment beyond the original maturity date. Whilst
the Directors are satisfied that the Company has adequate resources
to continue in operation throughout the realisation period and to
meet all liabilities as they fall due, given the Company is now in
a managed wind down the Directors considered it appropriate to
adopt a basis other than a going concern in preparing the financial
statements, as was the case for the year ended 31 January 2022. No
material adjustments to accounting policies or the valuation basis
have arisen as a result of ceasing to apply the going concern
basis.
Viability Statement
The AIC Code requires that, the Directors make a viability
statement in which they assess the prospects of the Company over a
period longer than the 12 months required by the going concern
provision.
A change in Investment Policy was approved by the shareholders
at the EGM on 14 January 2021 with the resultant intention that the
Company undergo an orderly realisation of assets, returning capital
to shareholders.
For this reason, and as discussed above, the Company is
preparing the financial statements on a basis other than going
concern due to the Company being in a managed wind down.
Since the EGM, seven loans have repaid in full and GBP45.5m of
capital has been returned to Shareholders. Based on the maturity
profile of the Company's investments, the Board expects the wind
down of the Company to be completed within two years, although this
cannot be guaranteed.
Cashflow projections have been prepared based on the Board's
current intention to hold all investments to maturity or later
estimated date. The Board intends to return surplus capital to
investors following each loan repayment, whilst it remains prudent
to do so and taking into account the commitments, liabilities and
expected duration of the Company at the time.
Having conducted a robust analysis on this basis, the Directors
remain satisfied that the Company can, in all quarters, meet its
liabilities as they fall due over the period under consideration to
January 2025, if the Company continues in operation up until that
date. The Company considers it likely, given the expected repayment
profile of the remaining loans, that it will operate with a
cashflow deficit in some quarters. Cash reserves will be held to
cover this eventuality and will be re-assessed with each loan
repayment. The Company will, on a prudent basis, maintain working
capital reserves to meet all liabilities as they fall due through
to the latest expected repayment date.
Directors' Responsibilities to Stakeholders
Section 172 of the UK Companies Act 2006 applies directly to UK
domiciled companies. Nonetheless, the AIC Code requires that the
matters set out in section 172 are reported on by all companies,
irrespective of domicile. This requirement does not conflict with
Guernsey company law.
Section 172 recognises that Directors are responsible for acting
in a way that they consider, in good faith, is the most likely to
promote the success of the Company for the benefit of its
shareholders as a whole. In doing so, they are also required to
consider the broader implications of their decisions and operations
on other key stakeholders and their impact on the wider community
and the environment. Key decisions are those that are either
material to the Company or are significant to any of the Company's
key stakeholders. The Company's engagement with key stakeholders
and the key decisions that were made or approved by the Directors
during the year are described below.
Stakeholder Group Methods of Benefits of Engagements
Engagement
Shareholders
Following the Covid-19 pandemic and the Company share price falling to a deep The Company In the financial year
discount to engages the Company issued:
NAV, shareholders supported a recommendation by the Board to wind down the with its * 2 Portfolio updates by way of RNS
Company. shareholders
through the
The Company sought to maintain shareholder satisfaction through: issue * 4 Quarterly fact sheets.
* Transparency of communication of regular
portfolio
updates in the
* Capital preservation form The Company has continued
of RNS to execute the orderly
announcements realisation of assets
* Payment of regular and sustainable dividends for as and quarterly of the Company during
long as considered prudent and factsheets. the year. Discussions
involving Directors,
The Company the Investment Manager
* Return of capital on loan repayments provides and the Company's
in depth brokers have been
commentary held directly with
on the major shareholders
investment during the year.
portfolio, Engagement with shareholders
corporate through regular announcements
governance and and fact sheets enables
corporate shareholders to take
outlook in its informed decision
semi-annual as to the winding
and annual up process and timetable.
financial
statements.
The Board
receives
quarterly
feedback
from its
Broker in
respect of
their investor
engagement and
investor
sentiment.
The engagement
with
shareholders,
including the
AGM,
will continue
through
the wind down
period
as capital is
returned to
investors.
---------------- -----------------------------------------
Borrowers
The Company's principal The Company During the course
clients are its Borrowers engages of the year, the
to whom the Company with its Investment Manager
provides term finance. Borrowers has undertaken and
through its the Board has reviewed
The Board believes Investment four monitoring
that the Company and Manager. reports and the Investment
its Investment Manager Manager provides additional
have a duty to act The Investment updates to the Board
fairly in respect Manager as required.
of its Borrowers and forms and
that strong engagement maintains The Investment Manager
with Borrowers drives a close has regularly engaged
favourable outcomes working with all its borrowers
for stakeholders and relationship during the year in
Borrowers themselves. with Borrowers order to drive timely
through exits from the remaining
the ongoing loan positions. During
quarterly the period, this led
monitoring of to two full loan repayments
loans and one partial repayment.
over their
respective
terms.
The Board
monitors
the timeliness
and
quality of
these
engagements
through its
regular
engagement
with the
Investment
Manager.
The Investment
Manager
works closely
with
borrowers to
support
the delivery
of their
business
plans.
---------------- -----------------------------------------
Service Providers
The Company does not The Company's The feedback given
have any direct employees; Management by the service providers
however, it works Engagement is used to review
closely with a number Committee the Company's policies,
of service providers has identified controls, and procedures
(the Investment Manager, its to ensure open lines
Administrator, Company key service of communication,
Secretary, Broker providers. operational efficiency,
and other professional On an annual robustness and, appropriate
service providers) basis pricing for services
whose interests are it undertakes provided.
aligned to the success a review
of the Company. of performance
based
The quality and timeliness on a
of their service provision questionnaire
is critical to the through which
success of the Company. it also
seeks
feedback.
Furthermore,
the Board
and its
sub-committees
engage
regularly with
its service
providers
on both a
formal and
informal
basis.
The Management
Engagement
Committee will
also
regularly
review all
material
contracts
for service
quality
and value.
---------------- -----------------------------------------
Community & Environment
As an investment company Within its In the year to 31
whose purpose is the investment January 2023, the
provision of and investment strategy, the Company made no new
in commercial real environmental loans, but previous
estate debt, the Company's and social loans included substantial
direct engagement impact capital expenditure
with the local community of the facilities, generally
and the environment properties to be applied towards
is limited. on which the the refurbishment
Company's of existing properties
However, the Board loans are which has a substantially
recognises the role secured lower environmental
the Company can play was an impact than demolition
in terms of the environment important and redevelopment.
by supporting and consideration Such refurbishments
guiding Borrowers when it had generally seek to
to find environmentally made its improve the energy
friendly sustainable investments. performance of the
solutions in the maintenance target properties
of their properties as well as providing
and delivery of their improved working or
business plan objectives living environments
more generally. for their occupiers.
The ESG report provides
further information
on the Investment
Manager's approach
to this important
subject.
---------------- -----------------------------------------
Key Decisions
Key decisions are defined as both those that are material to the
Company but also those that are significant to any of our key
stakeholders as discussed above.
In making the following key decisions, the Board considered the
outcome from its stakeholder engagement as well as the need to
maintain a reputation for high standards of business conduct and
the need to act fairly between the members of the Company:
During the year the Board decided to pay a dividend at 1.1 pence
per share for the first quarter, a dividend of 1.0 pence per share
in respect of both quarter two and three, and a dividend of 0.5
pence per share in respect of the final quarter, during which the
portfolio was being transitioned.
Given that some of the Company's loans were fully repaid, the
Board approved one distribution of capital equating to a total of
6.0 pence per share for the year. A second distribution equivalent
to 5.5 pence per Ordinary Share was approved after the year
end.
Following a breach of LTV covenant, a failed sales process, and
continuing default, the Company appointed an administrator in
respect of the Southport hotel and provided a GBP0.2 million
working capital loan to maintain its ongoing operation and preserve
shareholder value.
The Board considered and reviewed the valuations, using
third-party advisors and market evidence, of properties securing
all loans together with the prospect of repayment at maturity given
the dislocation in property and debt markets in 2022. In line with
its IFRS 9 policy, the Board has raised a provision for the
expected credit loss in respect of the Stage 3 Southport hotel and
in respect of potential loss and unpaid interest on the Stage 2
RoyaleLife loan. The Board has permitted the extension of some
loans, or a period of forbearance, during this period of market
dislocation to maximise the potential for shareholder returns as
compared to taking more aggressive action.
The Board has reviewed prospective cashflows under each loan
and, as a result, determined to recognise interest on a net basis
after allowance for ECL on the Stage 3 Southport loan. An ECL
provision has also been raised against interest due on the Stage 2
RoyaleLife loan. Interest due on both loans will continue to be
applied in accordance with the accounting policies set out in note
2, until such time as it is received.
The Board reviewed the performance of the Investment Manager
which was considered to be satisfactory. Accordingly, the
Investment Manager's reappointment was confirmed.
Financial Risk Management Policies and Procedures
Financial Risk Management Policies and Procedures are disclosed
in Note 11 to the Financial Statements.
Principal Risks and Uncertainties
Principal Risks and Uncertainties are discussed in the Corporate
Governance Report.
Subsequent Events
Significant subsequent events have been disclosed in Note 17 to
the Financial Statements.
Alternative Performance Measures
The Directors believe that the performance indicators detailed
in the Financial Highlights and Financial Summary , which are
typical for entities investing in real estate debt, will provide
shareholders with sufficient information to assess how effectively
the Company is meeting its objectives.
Annual General Meeting
The AGM of the Company will be held at 12:00 BST on 20 June 2023
at Floor 2, Trafalgar Court, Les Banques, St Peter Port, Guernsey,
GY1 4LY. Details of the resolutions to be proposed at the AGM,
together with explanations of the AGM arrangements, will appear in
the Notice of Meeting to be distributed to shareholders.
Members of the Board will be in attendance at the AGM and will
be available to answer shareholder questions.
By order of the Board
Jack Perry
Chairman
22 May 2023
Directors' Responsibilities Statement
The Directors are responsible for preparing the Annual Report
and Financial Statements in accordance with applicable law and
regulations.
The Companies Law requires the Directors to prepare Financial
Statements for each financial year. Under that law the Directors
are required to prepare the Financial Statements in accordance with
IFRS. Under the Companies Law, the Directors must not approve the
Financial Statements unless they are satisfied that they give a
true and fair view of the state of affairs of the Company and of
the profit or loss of the Company for that period. In preparing
these Financial Statements, the Directors are required to:
-- select suitable accounting policies in accordance with IAS 8:
Accounting Policies, Changes in Accounting Estimates and Errors and
then apply them consistently;
-- make judgements and estimates that are reasonable and prudent;
-- present information, including accounting policies, in a
manner that provides relevant, reliable, comparable and
understandable information;
-- provide additional disclosures when compliance with the
specific requirements in IFRS are insufficient to enable users to
understand the impact of particular transactions, other events and
conditions on the Company's financial position and financial
performance;
-- state that the Company has complied with IFRS, subject to any
material departures disclosed and explained in the Financial
Statements; and
-- prepare the Financial Statements on a going concern basis
unless it is inappropriate to presume that the Company will
continue in business.
The Directors confirm that they have complied with the above
requirements in preparing the Financial Statements.
The Directors are responsible for keeping proper accounting
records, which disclose with reasonable accuracy at any time, the
financial position of the Company and enable them to ensure that
the Financial Statements comply with Companies Law. They are also
responsible for safeguarding the assets of the Company and hence
for taking reasonable steps for the prevention and detection of
fraud, error and non-compliance with law and regulations.
The Directors are responsible for ensuring that the Annual
Report and Financial Statements, taken as a whole, is fair,
balanced and understandable and provides the information necessary
for shareholders to assess the Company's performance, business
model and strategy.
The Directors are also responsible under the AIC Code to promote
the success of the Company for the benefit of its members as a
whole and in doing so have regard for the needs of wider society
and other stakeholders.
As part of the preparation of the Annual Report and Financial
Statements the Directors have received reports and information from
the Company's Administrator and Investment Manager. The Directors
have considered, reviewed and commented upon the Annual Report and
Financial Statements throughout the drafting process in order to
satisfy themselves in respect of the content.
The Directors are responsible for the maintenance and integrity
of the corporate and financial information included on the website
(www.lbow.co.uk).
Legislation in Guernsey governing the preparation and
dissemination of the Financial Statements may differ from
legislation in other jurisdictions.
Responsibility Statement of the Directors in Respect of the
Annual Report under the Disclosure and Transparency Rules
Each of the Directors confirms to the best of their knowledge
and belief that:
-- the Financial Statements, prepared in accordance with IFRS,
give a true and fair view of the assets, liabilities, financial
position and profit or loss of the Company taken as a whole;
-- the Annual Report includes a fair review of the development
and performance of the business and the position of the Company,
together with a description of the principal risks and
uncertainties faced.
Responsibility Statement of the Directors in Respect of the
Annual Report under the Corporate Governance Code
The Directors are responsible for preparing the Annual Report
and Financial Statements in accordance with applicable law and
regulations. Having taken advice from the Audit and Risk Committee,
the Directors consider the Annual Report and Financial Statements,
taken as a whole, as fair, balanced and understandable and that it
provides the information necessary for shareholders to assess the
Company's performance, business model and strategy.
By order of the Board
Jack Perry Fiona Le Poidevin
Chairman Director
22 May 2023 22 May 2023
Corporate Governance Report
As a UK premium listed Company, ICG-Longbow Senior Secured UK
Property Debt Investment Limited's governance policies and
procedures are based on the principles of the Corporate Governance
Code as required under the Listing Rules. The Corporate Governance
Code is available on the Financial Reporting Council's website,
www.frc.org.uk.
The Company became a member of the AIC effective 27 February
2013 and has therefore put in place arrangements to comply with the
AIC Code of Corporate Governance ("AIC Code") and thereby complies
with the UK Corporate Governance Code. The Directors recognise the
importance of sound corporate governance, particularly the
Principles and Provisions addressed within the AIC Code. The AIC
Code is available on the AIC's website www.theaic.co.uk .
The Company is subject to the GFSC Code, which applies to all
companies registered as collective investment schemes in Guernsey.
The GFSC has also confirmed that companies which report against the
UK Corporate Governance Code or AIC Code are deemed to meet the
GFSC Code.
The AIC Code addresses all the principles set out in the UK
Corporate Governance Code, as well as setting out additional
principles and recommendations on issues that are of specific
relevance to investment companies such as the Company. The Board
considers that reporting against the principles and recommendations
of the AIC Code provides appropriate information to
shareholders.
The Board monitors developments in corporate governance to
ensure the Board remains aligned with best practice.
Throughout the year ended 31 January 2023, the Company has
complied with the recommendations of the AIC Code and the relevant
provisions of Section 1 of the Corporate Governance Code, except as
set out below.
The Corporate Governance Code includes provisions relating
to:
-- the role of the chief executive;
-- executive directors' remuneration; and
-- the need for an internal audit function.
For the reasons set out in the AIC Code, and as explained in the
UK Corporate Governance Code, the Board considers that the above
provisions are not currently relevant to the position of the
Company, which delegates most day-to-day functions to third
parties.
The Directors have access to the services provided by the
Company Secretary, Ocorian Administration (Guernsey) Limited, who
ensure statutory obligations of the Company are achieved.
As an investment company, the Company has no employees, all
Directors are non-executive and independent of the Investment
Manager and, therefore, the Directors consider the Company has no
requirement for a Chief Executive or Senior Independent Director
and the Board is satisfied that any relevant issues can be properly
considered by the Board. The absence of an internal audit function
is discussed in the Report of the Audit and Risk Committee.
Environmental Social and Governance Report
As an investment company, the Company's activities only have a
limited direct impact on the environment.
Following the change in Investment Objective and Policy approved
by shareholders in January 2021, the Company is now conducting an
orderly realisation of its investments. As such, the opportunity to
implement material ESG changes across its portfolio is relatively
limited and ESG considerations are expected to be limited to
monitoring the existing investments for their own performance in
this area.
Nonetheless, the Board continues to believe that it is in
shareholders' interests to consider environmental, social and
governance factors in monitoring its investments. The parent of the
Investment Manager is a longstanding signatory to the UN Principles
for Responsible Investment and has a fully formalised and embedded
Responsible Investing Policy which is applied to all investment
decisions and the monitoring of each investment opportunity.
The parent of the Investment Manager continues to develop its
ESG policies and procedures. Its responsible investment policy is
available to view at: ICG Website
The Board relies on the Investment Manager to apply its
Responsible Investment Policy and any associated ESG considerations
to the investments of the Company. As a lender to, rather than
direct owner of, real estate assets, the Company is generally in a
position only to influence rather than control the ESG impacts of
its borrowers. Moreover, as the Company will no longer make any new
investments, and is actively seeking to realise the remaining
assets in its portfolio, it is considered unlikely there will be
significant opportunities to support borrowers in ESG matters
outside of the delivery of existing business plans.
Culture and Values
The Board recognises that its tone and culture is important and
will greatly impact its interactions with shareholders and service
providers as well as the development of long-term shareholder
value. The importance of sound ethical values and behaviours is
crucial to the ability of the Company to achieve its objectives
successfully.
The Board individually and collectively seeks to act with
diligence, honesty and integrity. It encourages its members to
express differences of perspective and to challenge but always in a
respectful, open and cooperative fashion. The Board encourages
diversity of thought and approach and chooses its members with this
approach in mind. The governance principles that the Board has
adopted are designed to ensure that the Company delivers long term
value to its shareholders and treats all shareholders equally. All
shareholders are encouraged to have an open dialogue with the
Board.
The Board recognises that the Company will take risks in order
to achieve its objectives, but these risks are monitored and
managed. The Company seeks to avoid excessive risk-taking in
pursuit of returns. A large part of the Board's activities are
centred upon what is necessarily an open and respectful dialogue
with the Investment Manager. The Board believes that it has a very
constructive relationship with the Investment Manager whilst
holding them to account and challenging the choices and
recommendations made by them.
The Board
The Company is led and controlled by a Board of Directors, which
is collectively responsible for the remaining realisation period of
the Company. It does so by acting in the interests of the Company,
creating and preserving value and has as its foremost principle to
act in the interests of shareholders.
The Company believes that the composition of the Board is a
fundamental driver of its success as the Board must provide strong
and effective leadership of the Company. The current Board was
selected, as their biographies illustrate, to bring a breadth of
knowledge, skills and business experience to the Company. All
Directors are members of professional bodies and serve on other
boards, which ensures that they are kept abreast of the latest
technical developments in their areas of expertise. The Directors
details, which set out their range of investment, financial and
business skills and experience represented. In terms of gender
balance, the Board has 25% female and 75% male representation.
Fiona Le Poidevin is the Chair of the Audit and Risk Committee.
The Chairman leads the Board and is responsible for its overall
effectiveness in directing the Company. The Chairman must be
independent and is appointed in accordance with the Company's
Articles of Incorporation. In considering the independence of the
Chairman, the Board took note of the provisions of the AIC Code
relating to independence and has determined that Mr Perry is an
independent Director.
The Board meets at least four times a year and, in addition,
there is regular contact between the Board, the Investment Manager
and the Administrator. At each meeting the Board follows a formal
agenda that covers the business to be discussed. Directors meet
regularly with the senior management employed by the Investment
Manager both formally and informally to ensure the Board remains
regularly updated on all issues. Ordinarily, the Board also has
regular contact with the Administrator and the Board is supplied in
a timely manner with information by the Investment Manager, the
Company Secretary and other advisers in a form and of a quality to
enable it to discharge its duties.
The Company has adopted a share dealing code which is complied
with by the Directors of ICG Longbow Senior Secured UK Property
Debt Investments Limited and relevant personnel of the Investment
Manager.
Board Tenure and Re-election
Three of the four remaining Directors were appointed in November
2012 and Fiona Le Poidevin was appointed on 1 September 2020.
Therefore, three of the four members of the Board have served for
longer than nine years to date. The issue with respect to long
tenure has arisen and, in accordance with the AIC Code, when and if
any Director shall have been in office (or on re-election would
have at the end of that term of office) for more than nine years,
the Company will consider further whether there is a risk that such
a Director might reasonably be deemed to have lost independence
through such long service.
The Nomination Committee takes the lead in any discussions
relating to the appointment or re-appointment of Directors and
gives consideration to Board rotation in advance of the nine-year
tenure limit. The Board recognises that Directors serving nine
years or more may appear to have their independence impaired.
However, the Board nonetheless considers the Directors to remain
independent as noted further below. In addition, the Board believes
it is beneficial for shareholders that there is continuity of Board
leadership during this final managed realisation phase before
placing the Company in liquidation.
Directors are appointed under letters of appointment, copies of
which are available at the registered office of the Company. The
Board considers its composition and succession planning on an
ongoing basis. The Company's Articles of Incorporation specify that
at each annual general meeting of the Company all Directors shall
retire from office and may offer themselves for election or
re--election by the Members. Mr Perry, Mr Beevor,
Mr Meader and Mrs Le Poidevin will retire as Directors of the
Company in accordance with the Articles and will be put forward for
re-election at the forthcoming AGM.
Any Director who is elected or re-elected at that meeting is
treated as continuing in office throughout. If they are not elected
or re-elected, they shall retain office until the end of the
meeting or (if earlier) when a resolution is passed to appoint
someone in their place or when a resolution to elect or re-elect
the Director is put to the meeting and lost.
The Board remains confident that its membership respects the
spirit of the Code regarding Board composition, diversity,
particularly with respect to gender, and how effectively members
work together to achieve the Company's objectives.
The Company's policy on Chair tenure is that the Chair should
not normally serve longer than nine years as a Director and/ or
Chair unless it is determined to be in the best interests of the
Company, its shareholders and stakeholders.
On 14 January 2021, the Company's shareholders voted for the
orderly realisation of the Company's assets and the return of
capital to shareholders. As the Company now has a finite remaining
operating life, not expected to exceed one year from the date of
this report, it is considered in the best interests of shareholders
and stakeholders to maintain the continuity and experience of the
existing Board. In addition, it is considered impractical to
attract, recruit and induct new Board members for such a short
period of time. Accordingly, the current Chair of the Company,
barring unforeseen circumstances, is expected to remain in office
until the Company is placed into liquidation. In practice this
means that his tenure will continue to exceed the recommended
nine-year term. Similarly, Mr Beevor and Mr Meader will also
continue to exceed the recommended nine-year term for the reasons
stated, until the Company is placed in liquidation.
Directors' Remuneration
The level of remuneration of the Directors reflects the time
commitment and responsibilities of their roles. The Chairman is
entitled to annual remuneration of GBP 50,000 (31 January 2022:
GBP50,000). The Chair of the Audit and Risk Committee is entitled
to annual remuneration of GBP 40,000 (31 January 2022: GBP40,000).
The other independent Directors are entitled to annual remuneration
of GBP 35,000 (31 January 2022: GBP35,000). These levels of
remuneration have remained unchanged since July 2017.
During the year ended 31 January 2023 and the year ended 31
January 2022, the Directors' remuneration was as follows:
Expected fees 1 February 2022 to 31 January 1 February 2021 to 31 January
1 February 2023 2023 2022
to 31 January
2024
Director GBP GBP GBP
---------------------- -------------------------- -------------------------------- --------------------------------
Jack Perry 50,000 50,000 50,000
Paul Meader 35,000 35,000 35,000
Stuart Beevor 35,000 35,000 35,000
Fiona Le Poidevin(1) 40,000 40,000 38,024
Patrick Firth(2) - - 16,466
---------------------- -------------------------- -------------------------------- --------------------------------
(1) Fiona Le Poidevin appointed 1 September 2020 and was
appointed Audit and Risk Committee Chair on 28 June 2021
(2) Patrick Firth retired 28 June 2021
The Company Directors' fees for the year amounted to GBP160,000
(31 January 2022: GBP171,375) with outstanding fees of GBP31,250
due to the Directors at 31 January 2023 (31 January 2022:
GBP31,250) (see Note 8).
All of the Directors are non-executive and are each considered
independent for the purposes of Chapter 15 of the Listing
Rules.
Duties and Responsibilities
The Board has overall responsibility for maximising the
Company's success by directing and supervising the affairs of the
business and meeting the appropriate interests of shareholders and
relevant stakeholders, while enhancing the value of the Company and
also ensuring the protection of investors. The Board has adopted a
Schedule of Matters which sets out the particular duties of the
Board. Such reserved powers include the following:
-- strategic matters;
-- risk assessment and management including reporting,
compliance, governance, monitoring and control and financial
reporting;
-- statutory obligations and public disclosure;
-- declaring Company dividends;
-- managing the Company's advisers;
-- appointment of a liquidator; and
-- other matters having a material effect on the Company.
The Directors have access to the advice and services of the
Administrator, who is responsible to the Board for ensuring that
Board procedures are followed and that it complies with Companies
Law and applicable rules and regulations of the GFSC and the London
Stock Exchange. Where necessary, in carrying out their duties, the
Directors may seek independent professional advice and services at
the expense of the Company. The Company maintains appropriate
Directors' and Officers' liability insurance in respect of legal
action against its Directors, should this occur.
The Board's responsibilities for the Annual Report are set out
in the Directors' Responsibility Statement. The Board is also
responsible for issuing appropriate Interim Reports and other
price-sensitive public reports.
One of the key criteria the Company uses when selecting
non-executive Directors, is their confirmation prior to their
appointment that they will be able to allocate sufficient time to
the Company to discharge their responsibilities in a timely and
effective manner. The Board assesses the training needs of
Directors on an annual basis.
The Board formally met four times during the year and ad-hoc
Board meetings were called in relation to specific events or to
issue approvals, often at short notice and did not necessarily
require full attendance. Each Board member receives a comprehensive
Board pack at least five days prior to each meeting which
incorporates a formal agenda together with supporting papers for
items to be discussed at the meeting. Directors are encouraged when
they are unable to attend a meeting to give the Chairman their
views and comments on matters to be discussed, in advance.
Representatives of the Investment Manager attend relevant sections
of the Board meetings by invitation and the Directors also liaise
with the Investment Manager whenever required and there is regular
contact outside the Board meeting schedule.
Attendance is further set out below:
Audit and Management
Scheduled Risk Ad-hoc Nomination Engagement Remuneration
Board Ad-hoc Board Committee Committee Committee Committee Committee
Meetings Meetings Meetings Meetings Meeting Meeting Meeting
Director 4 3 4 4 1 1 1
Stuart Beevor 4 3 4 3 1 1 1
Paul Meader 4 3 4 4 1 1 1
Jack Perry
(1) 4 3 - 4 1 1 1
Fiona Le
Poidevin 4 3 4 4 1 1 1
(1) Mr Perry has a standing invitation to Audit and Risk
Committee meetings, however his attendance at the meetings is as an
observer only and is not recorded.
The quorum for any Board meeting is two directors but attendance
by all Directors at each meeting is encouraged.
Conflicts of interest
A Director has a duty to avoid a situation in which he or she
has, or can have, a direct or indirect interest that conflicts, or
possibly may conflict, with the interests of the Company. The Board
requires Directors to declare all appointments and other situations
that could result in a possible conflict of interest and has
adopted appropriate procedures to manage and, if appropriate,
approve any such conflicts. The Board is satisfied that there is no
compromise to the independence of those Directors who have
appointments on the boards of, or relationships with, companies
outside the Company.
Committees of the Board
The Board believes that it and its committees have an
appropriate composition and blend of backgrounds, skills and
experience to discharge their duties effectively. The Board is of
the view that no one individual or small group dominates
decision-making. The Board keeps its membership, and that of its
committees, under review to ensure that an acceptable balance is
maintained and that the collective skills and experience of its
members continue to be refreshed. It is satisfied that all
Directors have sufficient time to devote to their roles and that
undue reliance is not placed on any individual.
Each committee of the Board has written terms of reference,
approved by the Board, summarising its objectives, remit and powers
and are reviewed on an annual basis. Each committee has access to
such external advice as it may consider appropriate.
All committee members are provided with an appropriate induction
on joining their respective committees, as well as ongoing access
to training. Minutes of all meetings of the committees are made
available to all Directors and feedback from each of the committees
is provided to the Board by the respective committee Chairs at the
next Board meeting.
The Board and its committees are supplied with regular,
comprehensive, and timely information in a form and of a quality
that enables them to discharge their duties effectively. All
Directors are able to make further enquiries of the Investment
Manager and Administrator whenever necessary and have access to the
services of the Company Secretary.
Audit and Risk Committee
The Audit and Risk Committee is chaired by Mrs Le Poidevin who
was appointed Chair on 28 June 2021, after Mr Firth's retirement on
28 June 2021. The Committee also comprises Mr Beevor and Mr Meader,
who held office throughout the year. Mr Perry has a standing
invitation to attend meetings. However, his attendance at these
meetings is as an observer only. The Chair of the Audit and Risk
Committee, the Investment Manager and the external auditor,
Deloitte LLP, have held discussions regarding the audit approach
and identified risks. The external auditors attend Audit and Risk
Committee meetings and a private meeting is held routinely with the
external auditor to afford them the opportunity of discussions
without the presence of the Investment Manager or Administrator.
The Audit and Risk Committee's activities are contained in the
Report of the Audit and Risk Committee.
Management Engagement Committee
The Management Engagement Committee is chaired by Mr Perry and
also comprises Mr Meader, Mr Beevor and Mrs Le Poidevin, all of
whom held office throughout the year. The Management Engagement
Committee meets not less than once a year pursuant to its terms of
reference, which are available on the Company's website.
The Management Engagement Committee's main function is to review
and make recommendations in relation to the Company's service
providers. The Management Engagement Committee will review, in
particular, any proposed amendment to the Investment Management
Agreement and will keep under review the performance of the
Investment Manager (including effective and active monitoring and
supervision of the activities of the
Investment Manager) in its role as investment manager to the
Company as well as the performance of other principal service
providers to the Company. The Audit and Risk Committee also reports
on its relationship with the external auditor.
Nomination Committee
The Nomination Committee is chaired by Mr Perry and also
comprises Mr Beevor, Mr Meader and Mrs Le Poidevin, all of whom
held office throughout the year. Given that the Company is in
orderly wind-down and that there is no expectation for the
Committee/Board composition to change for the reasons provided in
this Report, it was no longer deemed necessary for the committee to
meet at least once a year. Therefore, the terms of reference were
updated during the period to reflect that the committee is only
required to meet as and when required, having last met on 22 June
2022. The Nomination Committee's remit is to review regularly the
structure, size and composition of the Board, to give full
consideration to succession planning for Directors, to keep under
review the leadership needs of the Company and be responsible for
identifying and nominating, for the approval of the Board,
candidates to fill Board vacancies as and when they arise.
Board Performance Evaluation
In accordance with Provision 26 of the AIC Code, the Board is
required to undertake a formal and rigorous evaluation of its
performance on an annual basis. The Board believes that annual
evaluations are helpful and provide a valuable opportunity for
continuous improvement. Such an evaluation of the performance of
the Board as whole, the Audit and Risk Committee, the Nomination
Committee, the Management Engagement Committee, the Remuneration
Committee, individual Directors and the Chairman is carried out and
the results are considered by the whole Board.
The internal evaluation conducted by the Board during the year
took the form of self-appraisal questionnaires and discussion to
determine effectiveness and performance as well as the Directors'
continued independence. The responses were consolidated and
anonymised and common themes identified in order for the Board to
determine key actions and next steps for improving Board and
Committee effectiveness and performance.
The evaluation concluded that the Board is performing
satisfactorily and is acquitting its responsibilities well in the
areas reviewed which incorporated: investment matters; Board
composition and independence; relationships and communication;
shareholder value; knowledge and skills; Board processes; and the
performance of the Chairman. The Board believes that the current
mix of skills, experience and knowledge of the Directors is
appropriate to the requirements of the Company.
The Nominations Committee has also reviewed the composition,
structure and diversity of the Board, the independence of the
Directors and whether each of the Directors has sufficient time
available to discharge their duties effectively. The Committee and
the Board confirm that they believe that the Board has an
appropriate mix of skills and backgrounds and that all Directors
should be considered as independent in accordance with the
provisions of the AIC Code and have the time available to discharge
their duties effectively.
Accordingly, the Board recommends that shareholders vote in
favour of the re-election of all Directors at the forthcoming
AGM.
Succession Planning
The Board recognises that Directors serving nine years or more
may appear to have their independence impaired. However, the Board
may nonetheless consider Directors to remain independent. The Board
considers it beneficial for shareholders that there is continuity
of Board leadership during this final, managed realisation phase
before placing the Company in liquidation. Therefore, the Board has
determined that, barring any unforeseen circumstances, the present
complement of Directors will continue in office until the
appointment of a liquidator.
Remuneration Committee
The Remuneration Committee is chaired by Mr Perry and comprises
of Mr Meader and Mr Beevor who have held office from 12 December
2019, when the Remuneration Committee was formed, and Mrs Le
Poidevin who was appointed to the Committee on 10 December 2020.
The Remuneration Committee is responsible for recommending and
monitoring the level and structure of remuneration for all the
Directors, including any compensation payments, taking into account
the time commitments and responsibilities of Directors and any
other factors which it deems necessary, including the
recommendations of the AIC Code.
There had been no changes to the Director fees since they were
set on 1 July 2017 and they were not expected to change, subject to
any unforeseen circumstances, so an annual meeting was no longer
deemed necessary. As such, the terms of reference were updated in
the period to reflect that the committee is only required to meet
as and when required, having last met on 22 June 2022 . It was
agreed that there will be no increase to fees during the
realisation period subject to any unforeseen circumstances. No
change in remuneration is proposed for the year to 31 January
2024.
Internal Control and Financial Reporting
The Directors acknowledge that they are responsible for
establishing and maintaining the Company's system of internal
controls and reviewing its effectiveness. Internal control systems
are designed to manage rather than eliminate the failure to achieve
business objectives and can only provide reasonable but not
absolute assurance against material misstatements or loss. The
Directors can confirm they have carried out a robust assessment of
the principal risks facing the Company, including those that would
threaten its business model, future performance, solvency or
liquidity. The key procedures which have been established to
provide internal control are:
-- the Board has delegated the day-to-day operations of the
Company to the Administrator and Investment Manager, however it
remains accountable for all functions it delegates;
-- the Board clearly defines the duties and responsibilities of
the Company's agents and advisers, and appointments are made by the
Board after due and careful consideration. The Board monitors the
on-going performance of such agents and advisers and continues to
do so through the Management Engagement Committee;
-- the Board monitors the actions of the Investment Manager at
regular Board meetings and is also given frequent updates on
developments arising from the operations and strategic direction of
the underlying borrowers; and
-- the Administrator provides administration and corporate
secretarial services to the Company. The Administrator maintains a
system of internal controls on which it reports to the Board.
The Board has reviewed the need for an internal audit function
and has decided that the systems and procedures employed by the
Administrator and Investment Manager, including their own internal
controls and procedures, provide sufficient assurance that an
appropriate level of risk management and internal control, which
safeguards shareholders' investment and the Company's assets, is
maintained. An internal audit function specific to the Company is
therefore considered unnecessary.
Internal controls over financial reporting are designed to
provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external
reporting purposes. The Administrator and Investment Manager both
operate risk-controlled frameworks on a continual ongoing basis
within a regulated environment. The Administrator undertakes an
ISAE 3402: Assurance Report on Controls at a Service Organisation
audit which is provided to the Board when finalised. The
Administrator also formally reports to the Board quarterly through
a compliance report. The Investment Manager formally reports to the
Board quarterly, including relevant updates regarding their
policies and procedures, and also engages with the Board on an
ad-hoc basis as required. No major weaknesses or failings within
the Administrator or Investment Manager have been identified.
The systems of control referred to above are designed to ensure
effectiveness and efficient operation, internal control and
compliance with laws and regulations. In establishing the systems
of internal control, regard is paid to the materiality of relevant
risks, the likelihood of costs being incurred and costs of control.
It follows, therefore, that the systems of internal control can
only provide reasonable but not absolute assurance against the risk
of material misstatement or loss. This process has been in place
for the year under review and up to the date of approval of this
Annual Report and Financial Statements. It is reviewed by the Board
and is in accordance with the FRC's internal control publication:
Guidance on Risk Management, Internal Control and Related Financial
and Business Reporting.
The Company has delegated the provision of services to external
service providers whose work is overseen by the Management
Engagement Committee at its regular scheduled meetings. Each year a
detailed review of performance pursuant to their terms of
engagement is undertaken by the Management Engagement Committee. An
on-site review of the Investment Manager was undertaken by the
Directors in January 2022 as part of the internal control
environment, however, given the expected remaining life of the
Company, it was not deemed necessary to undergo a visit in 2023.
The conclusions of these reviews have been highly satisfactory,
providing assurance to the Board. In addition, the Company
maintains a website which contains comprehensive information,
including regulatory announcements, share price information,
financial reports, investment objectives and strategy, investor
contacts and information on the Board.
Investment Management Agreement
The Company has entered into an agreement with the Investment
Manager. This sets out the Investment Manager's key
responsibilities, this includes being responsible to the Board for
all issues relating to the maintenance and monitoring of existing
investments.
In accordance with Listing Rule 15.6.2(2) R and having formally
appraised the performance and resources of the Investment Manager,
in the opinion of the Directors the continuing appointment of the
Investment Manager on the terms agreed is in the interest of the
shareholders as a whole.
Whistleblowing
The Board has considered the AIC Code recommendations in respect
of arrangements by which staff of the Investment Manager or
Administrator may, in confidence, raise concerns within their
respective organisations about possible improprieties in matters of
financial reporting or other matters.
It has concluded that adequate arrangements are in place for the
proportionate and independent investigation of such matters and,
where necessary, for appropriate follow-up action to be taken
within their organisation.
Principal risks and uncertainties
During the year the Board has overseen the Company's risk
management framework and risk culture. The Audit and Risk Committee
undertook a robust assessment of the Company's principal risks and
associated risk appetite, taking into account changes in the
business and the external environment. Determination of the risk
appetite allows the Company to assess the nature and extent of
principal risks that it is exposed to and/or willing to take to
achieve objectives.
The Board considers the process for identifying, evaluating and
managing any significant risks faced by the Company on an ongoing
basis and these risks are reported and discussed at Board meetings.
This ensures that effective controls are in place to mitigate these
risks and that a satisfactory compliance regime exists to ensure
all applicable local and international laws and regulations are
adhered to.
The Board can confirm that it has undertaken a robust assessment
of the principal risks facing the Company. The risks set out below
represent a snapshot of the Company's current principal risk
profile. These risks have been ranked considering the magnitude of
potential impact, probability and taking into account the
effectiveness of existing controls. This is not an exhaustive list
of all risks the Company faces. As the macro environment changes
and country and industry circumstances evolve, new risks may arise
or existing risks may recede or the rankings of these risks may
change.
For each material risk, the likelihood and potential impact are
identified. The Company's financial instrument risks are discussed
in Note 11 to the Financial Statements.
The Directors have identified the following as the key risks
faced by the Company:
Description Nature of Potential Impact Mitigation
Risk
Inability to As market and This could result The Company has
secure sales economic conditions in delayed repayment the ability to extend
or refinancing are currently of loans and loans where its
of underlying volatile, the therefore delayed borrowers are unable
properties to Company's borrowers repayment of to sell or refinance
facilitate timely may find it capital to the properties due to
capital repayments challenging Company's investors a market dislocation.
to secure sales which could, The Investment Manager
or refinancing as a consequence, maintains an active
of underlying impact its share dialogue with all
properties. price. remaining borrowers
and keeps the Board
and shareholders
informed of any
issues arising.
Loans are monitored
on at least a quarterly
basis to identify
any deterioration
and look for signs
of underperformance
or distress.
All loans include
covenants which
give the Company
the opportunity
to intervene and
take protective
action at an early
stage if the value
of the underlying
property or the
income profile reduces
materially. The
Investment Manager
remains an active
participant in the
UK CRE financing
market and as such
is continually monitoring
property and finance
market conditions,
meaning it is well
placed to anticipate
any issues.
Delays are being
experienced with
the Affinity loan
repayment and the
borrowers for the
RoyaleLife loan
and the Southport
loans are in administration.
Impairment provisions
have been raised
against the Southport
and RoyaleLife loans
which will likely
result in a deferral
of repayment. The
Board recognises
that such uncertainty
may cause concern
amongst shareholders
and ultimately share
price weakness.
---------------------- ------------------------ ------------------------------
Non-payment of Economic conditions Should a material The Board and the
interest or other challenges number of the Investment Manager
may mean that tenants in the work pro-actively
some businesses, properties securing with borrowers to
including tenants the Company's monitor, mitigate
of the Company's investments fail and manage any issues
borrowers, to pay rents, and, where appropriate,
are unwilling the Company may, will capitalise
or unable to consequently, interest and/or
pay rents when experience a reserve its rights.
due. shortfall in
receipts of interest Currently, the Southport
over the coming hotel is in administration
quarters. and therefore the
Company is not receiving
interest. The RoyaleLife
loan is behind on
interest payments
and the borrower
faces liquidity
issues, with certain
of the borrower
group companies
placed into administration
after period end.
Both of these developments
are being monitored
closely by the Investment
Manager and the
Board. Given these
developments and
the diminishing
portfolio, the Company
will recognise interest
on the above two
loans on a receipts
basis only, and
has amended its
working capital
forecasts and dividend
policy accordingly,
to ensure the Company
is able to meet
its liabilities
as they fall due.
---------------------- ------------------------ ------------------------------
Fall in collateral Commercial This may impact The current volatile
values, and accuracy property values the Company's market conditions
of valuations are typically ability to accurately make the accuracy
linked to a determine collateral of valuations somewhat
property's values, to test less reliable. All
ability to financial covenants the loans are now
generate cashflows. and to appropriately due for repayment
The property consider the or will be due within
industry may permanent impairment 6 months of the
not therefore of any particular date of this report,
be able to investment. with only 4 loans
value accurately outstanding. As
certain UK things stand at
commercial the time of review,
real estate the market for refinancing
assets. Economic loans or the sale
and market of underlying properties
volatility is uncertain and
create material constrained.
uncertainty
in terms of
property valuations.
---------------------- ------------------------ ------------------------------
Portfolio Diversification As loans repay As the loan portfolio As part of the orderly
and capital reduces, the realisation, the
is returned effect on the Investment Manager
to shareholders Company of any and the Board have
over time, challenges experienced stepped up monitoring
the value of on the remaining of the individual
the Company's investments (such investments and
assets has as non-payment the Investment Manager
reduced and of interest or provides updates
is concentrated inability to to the Board on
in fewer holdings. refinance or at least a quarterly
sell) will be basis.
magnified and
could lead to The Board also continues
increased volatility to closely monitor
in cashflows the Company's costs,
or net asset to ensure best value
values. is obtained during
the realisation
Furthermore, of the portfolio.
some of the Company's
costs are fixed However, with only
and will therefore 4 loans outstanding,
comprise a greater the portfolio's
proportion of concentration risk
the Company's has increased significantly
revenues which and will continue
may impact the to increase as loans
amount of funds are repaid.
available for
distribution
to shareholders.
---------------------- ------------------------ ------------------------------
Liquidation process The Company's Liquidation may The performance
and timeliness liquidation be delayed and of all loans and
of final capital is expected the Company may timings of repayment
distribution to follow repayment continue to operate is monitored closely.
of the final with high fixed
loan and the costs relative The Board and Investment
discharge of to the remaining Manager will continue
all creditors income streams. to weigh the merits
and claims, of accelerated exits
timings of versus orderly repayment
which is uncertain to maximise shareholder
for the reasons returns where possible.
set out above.
Potential claims
and liabilities
will be identified
and addressed in
advance wherever
possible.
---------------------- ------------------------ ------------------------------
The Company's principal risk factors are fully set out in the
Company's 2018 Prospectus available on the Company's website
(www.lbow.co.uk) and should be reviewed by shareholders, together
with the supplemental prospectus issued in 2019, albeit in the
context that the Company has now adopted a new Investment Policy
and is in managed wind down which has changed the nature of the
principal risk factors to some extent, as described above.
Emerging risks are regularly considered to assess any potential
impact on the Company and to determine whether any actions are
required. Emerging risks include those related to
regulatory/legislative change, the Ukrainian Crisis, and
macroeconomic and political change.
In summary, the above risks are mitigated and managed by the
Board through continual review, policy setting and updating of the
Company's detailed risk matrix to ensure that procedures are in
place with the intention of minimising the impact of the
above-mentioned risks. The Board relies on periodic reports
provided by the Investment Manager and Administrator regarding
risks that the Company faces. When required, experts will be
employed to gather information, including property surveyors, tax
managers, legal managers or environmental managers as
appropriate.
By order of the Board
Jack Perry Fiona Le Poidevin
Chairman Director
22 May 2023 22 May 2023
Report of the Audit and Risk Committee
The Audit and Risk Committee, chaired by Mrs Le Poidevin,
operates within clearly defined terms of reference (which are
available from the Company's website) and includes all matters
indicated by Disclosure and Transparency Rule 7.1, the AIC Code and
the UK Code. Its other members are Mr Beevor and Mr Meader.
Only independent Directors can serve on the Audit and Risk
Committee. Members of the Audit and Risk Committee must be
independent of the Company's external auditor and Investment
Manager. The Audit and Risk Committee will meet no less than twice
a year, and at such other times as the Audit and Risk Committee
Chair shall require.
The Committee members have considerable financial and business
experience and the Board has determined that the membership as a
whole has sufficient recent and relevant sector and financial
experience to discharge its responsibilities. The Board has taken
note of the requirement that at least one member of the Audit and
Risk Committee should have recent and relevant financial experience
and is satisfied that the Audit and Risk Committee is properly
constituted in that respect, with all members being highly
experienced and, in particular, with one member having a background
as a chartered accountant.
The duties of the Audit and Risk Committee in discharging its
responsibilities include reviewing the Annual Report and Financial
Statements and the Interim Report, the system of internal controls,
and the terms of appointment of the Company's independent auditor
together with their remuneration. It is also the formal forum
through which the auditor will report to the Board of Directors.
The objectivity of the auditor is reviewed by the Audit and Risk
Committee which will also review the terms under which the external
auditor is appointed to perform non-audit services and the fees
paid to them or their affiliated firms overseas.
Responsibilities
The main duties of the Audit and Risk Committee are:
-- reviewing and monitoring the integrity of the Financial
Statements of the Company and any formal announcements relating to
the Company's financial performance, reviewing significant
financial reporting judgements contained in them;
-- reporting to the Board on the appropriateness of the
Company's accounting policies and practices including critical
judgement areas;
-- reviewing any draft impairment reviews of the Company's
investments prepared by the Investment Manager, and making a
recommendation to the Board on any impairment in the value of the
Company's investments;
-- meeting regularly with the external auditor to review their
proposed audit plan and the subsequent audit report and assess the
effectiveness of the audit process and the levels of fees paid in
respect of both audit and non-audit work;
-- making recommendations to the Board in relation to the
appointment, re-appointment or removal of the external auditor and
approving their remuneration and the terms of their engagement;
-- monitoring and reviewing annually the auditor's independence,
objectivity, expertise, resources, qualification and non-audit
work;
-- considering annually whether there is a need for the Company
to have its own internal audit function;
-- monitoring the internal financial control and risk management
systems on which the Company is reliant;
-- reviewing and considering the UK Code, the AIC Code and the
FRC Guidance on Audit and Risk Committees; and
-- reviewing the risks facing the Company and monitoring the risk matrix.
The Audit and Risk Committee is required to report its findings
formally to the Board, identifying any matters on which it
considers that action or improvement is needed, and make
recommendations on the steps to be taken.
The external auditor is invited to attend the Audit and Risk
Committee meetings as the Directors deem appropriate and the Audit
and Risk Committee has the opportunity to meet the external auditor
without representatives of the Investment Manager or the
Administrator being present at least once per year.
Financial Reporting
The primary role of the Audit and Risk Committee in relation to
the financial reporting is to review with the Administrator,
Investment Manager and the auditor the appropriateness of the
Annual Report and Financial Statements, concentrating on, amongst
other matters:
-- the quality and acceptability of accounting policies and practices;
-- the clarity of the disclosures and compliance with financial
reporting standards and relevant financial and governance reporting
requirements;
-- material areas in which significant judgements have been
applied or where there has been discussion with the external
auditor including the going concern status and viability
statement;
-- whether the Annual Report and Financial Statements, taken as
a whole, is fair, balanced and understandable and provides the
information necessary for shareholders to assess the Company's
performance, business model and strategy; and
-- any correspondence from regulators in relation to the Company's financial reporting.
To aid its review, the Audit and Risk Committee considers
reports from the Administrator and Investment Manager and also
reports from the auditor on the outcome of their annual audit. The
Audit and Risk Committee supports the external auditor and
recognises the necessary professional scepticism their role
requires.
Meetings
During the year ended 31 January 2023, the Audit and Risk
Committee met formally on four occasions. The matters discussed at
those meetings included:
-- review of the terms of reference of the Audit and Risk
Committee for approval by the Board;
-- review of the accounting policies and format of the Financial Statements;
-- detailed review of the Annual Report and Financial
Statements, Interim Report and recommendation for approval by the
Board including the basis other than that of a going concern and
the viability statement;
-- detailed review and updating of the Company's risk matrix;
-- review and approval of the audit plan and final Audit and
Risk Committee report of the auditor;
-- discussion and approval of the fee for the external audit;
-- assessment of the independence of the external auditor;
-- assessment of the effectiveness of the external audit process as described below; and
-- review of the Company's key risks and internal controls.
Primary Area of Judgement
The Audit and Risk Committee determined that the key risk of
misstatement of the Company's Financial Statements relates to the
valuation and recoverability of the loans, in the context of the
judgements necessary to evaluate any related impairment of the
loans and associated credit loss.
The Company's loans are the key value driver for the Company's
NAV and interest income. Judgements over the level of any
impairment and recoverability of loan principal and interest could
significantly affect the NAV.
The Board reviews the compliance of all loans with terms and
covenants at each Board meeting. The Board also receives updates
from the Investment Manager regarding the trading performance for
each borrower, the borrower's performance under the loans and on
the general UK property market. As a result, the Board seeks to
determine the level, if any, of impairment to the loans.
The Audit and Risk Committee notes that critical judgements have
been made in relation to the assessment of the staging of the loans
together with the estimation of the probability of default and also
the loss given default.
The incorrect treatment of any arrangement, exit and prepayment
fees and the impact of loan impairments in the effective interest
rate calculations may significantly affect the level of income
recorded in the year thus affecting the level of distributable
income.
The Audit and Risk Committee focused their work on disclosures
required in the Annual Report following requirements under the AIC
Code, consideration of emerging risks, environmental, social and
governance matters and on subsequent event disclosures.
The Audit and Risk Committee also focused on IFRS 9 and in
particular the assessment of the credit risk changes, probability
of default and loss given default in relation to the loan
portfolio. The Audit and Risk Committee has reviewed detailed
impairment analysis and current loan performance reports prepared
by the Investment Manager together with the consideration of the
current collateral values underpinning the loan portfolio.
The Audit and Risk Committee considered the potential for
impairment of the portfolio in the longer term, in accordance with
IFRS 9, based on an agreed credit rating methodology which is
benchmarked against the Investment Manager's previous experience in
managing senior debt and whole loan portfolios.
The Audit and Risk Committee also reviewed the income
recognition and the treatment of arrangement and exit fees which
were based on effective interest rate calculations prepared by the
Investment Manager and the Administrator. The internal credit
rating of each loan as at 31 January 2023 was reviewed . Whilst
past due, and in default, the Northlands loan was considered to be
Stage 1, with no risk of loss, given the advanced stage of
realisation through sales. Two loans, Affinity and RoyaleLife were
identified as Stage 2 and as such have an ECL over a twelve-month
period of GBP0.61 million together with a provision against accrued
and unpaid interest of GBP1.03 million. The Southport loan has been
identified as Stage 3 as the Company has appointed an administrator
in respect of this loan and considers it prudent to recognise an
impairment provision of GBP2.3 million on that investment. All
loans were discussed at the Audit and Risk Committee meeting to
review the Annual Report, with the Investment Manager, the
Administrator and Auditor. In line with requirements of IFRS as set
out in the accounting policies, interest accruing and unpaid on
Stage 3
loans is not recognised as income in the Statement of
Comprehensive Income, whilst interest accrued and unpaid on the
Stage 2 loan RoyaleLife has been recognised as income and impaired
as an ECL provision.
The Audit and Risk Committee has reviewed the judgements and
estimations in determining the fair value of prepayment options
embedded within the contracts for loans advanced. The key factors
considered in the valuation of prepayment options include the
exercise price, the interest rate of the host loan contract,
differential to current market interest rates, the risk-free rate
of interest, contractual terms of the prepayment option, and the
expected term of the option. In response to these factors, it has
been evaluated that the probability of exercise by the borrower is
low and the timing of exercise is indeterminable. As a result, the
Audit and Risk Committee has concluded that it is appropriate no
value is attributed to embedded prepayment options.
Risk Management
The Company's risk assessment process and the way in which
significant business risks are managed is a key area of focus for
the Audit and Risk Committee. The work of the Audit and Risk
Committee is driven primarily by the Company's assessment of its
principal risks and uncertainties as set out in the Corporate
Governance Report, and it receives reports from the Investment
Manager and Administrator on the Company's risk evaluation process
and reviews changes to significant risks identified. Furthermore,
the Investment Manager monitors the risks associated with the
investments and the compliance of the investment portfolio with the
investment restrictions of the Company.
Internal Audit
The Audit and Risk Committee continues to review the need for an
internal audit function and has decided that the systems and
procedures employed by the Administrator and the Investment
Manager, including their own internal controls and procedures,
provide sufficient assurance that an appropriate level of risk
management and internal control, which safeguards shareholders'
investment and the Company's assets, is maintained. Furthermore,
the visit to the Investment Manager's London office in January 2022
gave the board assurance around the Investment Manager's internal
controls and included a discussion with the Investment Manager's
head of internal audit. An internal audit function specific to the
Company is therefore considered unnecessary.
External Audit
Deloitte LLP has been the Company's external auditor since the
Company's inception. This is the tenth audit period and therefore
the Company is obliged to consider tendering for a new audit firm.
As the Company is in a managed realisation, the Audit and Risk
Committee has determined that Deloitte LLP should remain as auditor
until the Company has wound up.
The external auditor is required to rotate the audit partner
every five years. The current Deloitte LLP lead audit partner, Mr
David Becker, started his tenure in 2020 (in respect of the year
ended 31 January 2020) and his current rotation will end with the
audit of the 2024 Annual Report and Financial Statements. The Audit
and Risk Committee has considered the re-appointment of the auditor
and decided not to put the provision of the external audit out to
tender, given the limited life of the Company.
The objectivity of the auditor is reviewed by the Audit and Risk
Committee which also reviews the terms under which the external
auditor may be appointed to perform non-audit services. The Audit
and Risk Committee reviews the scope and results of the audit, its
cost effectiveness and the independence and objectivity of the
auditor, with particular regard to any non-audit work that the
auditor may undertake. In order to safeguard auditor independence
and objectivity, the Audit and Risk Committee ensures that any
other advisory and/or consulting services provided by the external
auditor do not conflict with its statutory audit responsibilities.
Advisory and/or consulting services will generally only cover
reviews of Interim Reports and capital raising work. Any non-audit
services conducted by the auditor outside of these areas will
require the consent of the Audit and Risk Committee before being
initiated.
The external auditor may not undertake any work for the Company
in respect of the following matters - preparation of the Financial
Statements, provision of investment advice, taking management
decisions or advocacy work in adversarial situations.
The Committee reviews the scope and results of the audit, its
cost effectiveness and the independence and objectivity of the
auditor, with particular regard to the level of non-audit fees.
The Committee regularly monitors non-audit services being
provided by the external auditor to ensure there is no impairment
to their independence or objectivity.
Notwithstanding such services, the Audit and Risk Committee
considers Deloitte LLP to be independent of the Company and that
the provision of such non-audit services is not a threat to the
objectivity and independence of the conduct of the audit as
appropriate safeguards are in place.
To fulfil its responsibility regarding the independence of the
auditor, the Audit and Risk Committee will consider:
-- discussions with or reports from the auditor describing its
arrangements to identify, report and manage any conflicts of
interest; and
-- the extent of non-audit services provided by the auditor and
arrangements for ensuring the independence, objectivity, robustness
and perceptiveness of the auditor and their handling of key
accounting and audit judgements.
To assess the effectiveness of the auditor, the Audit and Risk
Committee will review:
-- the auditor's fulfilment of the agreed audit plan and variations from it;
-- discussions or reports highlighting the major issues that
arose during the course of the audit;
-- feedback from other service providers evaluating the performance of the audit team;
-- arrangements for ensuring independence and objectivity;
-- the robustness of the auditor in handling key accounting and audit judgements; and
-- a summary of the FRC's Audit Quality Review report for
Deloitte and discuss the findings with the audit partner to
determine if any of the indicators in that report had particular
relevance to this year's audit of the Company. Specifically, the
Audit and Risk Committee discuss the extent of the auditor's
challenge of key estimates and assumptions in key areas of
judgement, including asset valuations and impairment testing and
the quality of the firm's audit of revenue.
The Audit and Risk Committee is satisfied with Deloitte LLP's
effectiveness and independence as auditor having considered the
degree of diligence and professional scepticism demonstrated by
them. Having carried out the review described above and having
satisfied itself that the auditor remains independent and
effective, the Audit and Risk Committee has recommended to the
Board that Deloitte LLP be reappointed as auditor for the year
ending 31 January 2024.
The Board's recommendation to shareholders on the re-appointment
of Deloitte LLP as external auditor will be put to shareholders at
the Annual General Meeting.
The Chair of the Audit and Risk Committee will be available at
the Annual General Meeting to answer any questions about the work
of the Committee.
On behalf of the Audit and Risk Committee
Fiona Le Poidevin
Chair of the Audit and Risk Committee
22 May 2023
INDEPENT AUDITOR'S REPORT TO THE MEMBERS OF ICG-LONGBOW SENIOR
SECURED UK PROPERTY DEBT INVESTMENTS LIMITED
Report on the audit of the financial statements
1. Opinion
In our opinion the financial statements of ICG-Longbow Senior
Secured UK Property Debt Investments Limited (the 'Company'):
-- give a true and fair view of the state of the company's
affairs as at 31 January 2023 and of its profit for the year then
ended;
-- have been properly prepared in accordance with United Kingdom
adopted international accounting standards; and
-- have been prepared in accordance with the requirements of the
Companies (Guernsey) Law, 2008.
We have audited the financial statements which comprise:
-- the statement of comprehensive income;
-- the statement of financial position;
-- the statement of changes in equity;
-- the statement of cash flows; and
-- the related notes 1 to 17.
The financial reporting framework that has been applied in their
preparation is applicable law and United Kingdom adopted
international accounting standards.
2. Basis for opinion
We conducted our audit in accordance with International
Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our
responsibilities under those standards are further described in the
auditor's responsibilities for the audit of the financial
statements section of our report.
We are independent of the company in accordance with the ethical
requirements that are relevant to our audit of the financial
statements in the UK, including the Financial Reporting Council's
(the 'FRC's') Ethical Standard as applied to listed public interest
entities, and we have fulfilled our other ethical responsibilities
in accordance with these requirements. We confirm that we have not
provided any non-audit services prohibited by the FRC's Ethical
Standard to the company.
We believe that the audit evidence we have obtained is
sufficient and appropriate to provide a basis for our opinion.
3. Emphasis of matter - Financial statements prepared other than on a going concern basis
We draw attention to Note 2b) of the financial statements, which
indicates that the financial statements have been prepared on a
basis other than that of a going concern. Our opinion is not
modified in respect of this matter.
4. Summary of our audit approach
Key audit matters The key audit matters that we identified in the current
year were:
* The assessment of expected credit losses (ECL) on
loans advanced; and
* Income recognition.
Within this report, key audit matters are identified
as follows: Newly identified
Increased level of risk
Similar level of risk
Decreased level of risk
------------------- --------------------------------------------------------
Materiality The materiality that we used in the current year
was GBP1.6 million which was determined on the basis
of approximately 2% of the forecast net asset value.
------------------- --------------------------------------------------------
Scoping We preformed a full scope audit to respond to the
risks of material misstatement.
------------------- --------------------------------------------------------
Significant changes As described in in note 2a), the Company has taken
in our approach responsibility for the remaining assets and liabilities
of its previous sole subsidiary. Our approach has
been adapted to the extent required to reflect the
fact that the Company no longer prepares consolidated
financial statements.
------------------- --------------------------------------------------------
5. Key audit matters
Key audit matters are those matters that, in our professional
judgement, were of most significance in our audit of the financial
statements of the current period and include the most significant
assessed risks of material misstatement (whether or not due to
fraud) that we identified. These matters included those which had
the greatest effect on: the overall audit strategy, the allocation
of resources in the audit; and directing the efforts of the
engagement team.
These matters were addressed in the context of our audit of the
financial statements as a whole, and in forming our opinion
thereon, and we do not provide a separate opinion on these
matters.
5.1. The assessment of expected credit losses (ECL) on loans
advanced
Key audit matter As at 31 January 2023, the aggregate value of loans
description advanced at amortised cost amounted to GBP69.0 million
(2022: GBP83.3 million) representing 89% of total
assets (2022: 94%).
As described in the Report of the Audit and Risk
Committee, the Company's loans are the key value
driver for the net asset value and income from loans.
Judgements over the level of potential impairment
of loan values using the expected credit losses (ECL)
model under IFRS 9, and the recoverability thereof,
has been identified as a key audit matter.
As the contractual maturity of all loans is within
the next 12 months, a key source of estimation uncertainty
within in the ECL model is the determination of the
loss given default ('LGD'), which is made with reference
to collateral asset values and net proceeds receivable
from the sale or refinance of those assets. Management
may seek to manipulate the assumptions adopted to
influence key performance indicators. As such, there
is an incentive to overstate the value of loans and
we identified this as a potential area for fraud.
The estimate also considers the impact of loan-specific
matters included in the loan monitoring reports such
as:
* movement in loan to value and interest cover ratios
since date of initial recognition (i.e. deterioration
in assets security);
* covenant breaches;
* delinquency in contractual payments including
unexpected modifications to contractual cash flows;
* a borrower's actual performance in relation to its
business plan;
* changes to the contractual documentation that could
indicate financial stress on the part of the
borrower; and
* other signs of financial stress.
This matter is explained further in the Report of
the Audit and Risk Committee. Note 2(k) and note
3 to the financial statements set out the associated
accounting policy and disclosure in respect of critical
judgements and key sources of estimation uncertainty,
note 5 set out the composition of the debt portfolio
as well as the stress analysis and note 11 sets out
details of the associated risk factors, including
credit risk.
----------------------- ------------------------------------------------------------
How the scope We have:
of our audit responded * Obtained an understanding of relevant controls
to the key audit relating to the loan loss provisioning review
matter process;
* Challenged the estimated net proceeds receivable for
the underlying collateral of loans. For realised
disposals, this was performed with reference to
actual proceeds received. For unrealised disposals,
we involved our internal valuation specialists to
challenge assumptions made by management in respect
of the collateral valuation;
* In light of the above procedure and with the
involvement of our internal credit specialists,
challenged the estimation of LGD by performing
scenario analysis, including the impact of
discounting, and recalculating the headroom or
deficit to carrying value;
* With the involvement of our internal credit
specialists, challenged the judgments (including
evaluation of qualitative and quantitative criteria)
related to the categorisation of loans into the
various credit stages required under IFRS 9. We
considered this in the context of management's
definition of Significant Increase in Credit Risk and
performed an assessment of the Loan Monitoring
Reports to assess evidence of changes in credit risk;
* Obtained evidence to assess the reasonableness of
estimates applied to determine the Probability of
Default and Exposure at Default for each stage within
which loans are classified and their compliance with
IFRS 9 requirements;
* Tested the clerical accuracy of the expected credit
loss provision based on the above inputs; and
* Evaluated the appropriateness of disclosures made in
the financial statements in light of the requirements
of IFRS 9.
----------------------- ------------------------------------------------------------
Key observations Having carried out the procedures, we concluded that
the resulting ECL provision was appropriately accounted
for.
----------------------- ------------------------------------------------------------
5.2. Income recognition
Key audit matter Interest income from loans advanced totalled GBP7.1
description million for the year ended 31 January 2023 (2022:
GBP9.3 million), with other fee income from loans
of GBP0.1 million (2022: GBP0.2 million). Management
applies the effective interest rate ('EIR') method
to amortise any premium/discount over the loan asset
life with further assumptions made as to these loan
assets' future cash flows.
There is a risk that revenue may be recognised in
the incorrect period due to differences in the timing
between cash receipts of interest and investment
principal repayments, and the application of the
EIR method. In addition the existence of prepayments
and exits arising from early repayments in the period
will have an impact on the recorded income and may
not be correctly recorded in accordance with the
EIR requirements set out in IFRS 9.
The timing of recognition of these one-off fees including
the consideration of any contractual restriction
is considered a potential fraud risk given the involvement
of management judgement.
The key accounting policies related to this key audit
matter can be found in note 2(e), 2(f) and note 3
to the financial statements. This matter is also
described in the Report of the Audit and Risk Committee.
----------------------- -------------------------------------------------------------
How the scope We have:
of our audit responded * Obtained an understanding of and tested the relevant
to the key audit controls relating to the recognition of income from
matter loans advanced;
* Assessed management's judgements in respect of the
inclusion of the upfront fees and exit fees in the
EIR calculation;
* Recalculated the interest income from loans accrued
under the EIR method, taking into account any
prepayments on the investments and the impact on
interest income recognised;
* Evaluated the impact of any loan loss provisioning on
the recognition and valuation of interest income
recorded in the period;
* Evaluated the impact of any prepayments or exit fees
from early repayments on the interest income recorded
in the period; and
* Agreed cash receipts in the year to and from the bank
statements.
----------------------- -------------------------------------------------------------
Key observations Having carried out the procedures, we determined
that interest income and loan related fees are appropriately
accounted for in the financial statements.
----------------------- -------------------------------------------------------------
6. Our application of materiality
6.1. Materiality
We define materiality as the magnitude of misstatement in the
financial statements that makes it probable that the economic
decisions of a reasonably knowledgeable person would be changed or
influenced. We use materiality both in planning the scope of our
audit work and in evaluating the results of our work.
Based on our professional judgement, we determined materiality
for the financial statements as a whole as follows:
Materiality GBP1.6 million (2022: GBP1.8 million)
----------------------------------- ---------------------------------------------------------------------------------
Basis for determining materiality 2% (2022: 2%) of net asset value
----------------------------------- ---------------------------------------------------------------------------------
Rationale for the benchmark applied We believe net asset value is the most appropriate benchmark as it is considered
one of the
principal considerations in assessing financial performance.
Furthermore, as the focus of the Company is on the realisation of its loan
investments and
expected to be the key driver of future distributions to investors, we no longer
consider
it necessary to apply a lower threshold to loan interest income and expenses.
----------------------------------- ---------------------------------------------------------------------------------
6.2. Performance materiality
We set performance materiality at a level lower than materiality
to reduce the probability that, in aggregate, uncorrected and
undetected misstatements exceed the materiality for the financial
statements as a whole. Performance materiality was set at 70% of
materiality for the 2023 audit (2022: 70%). In determining
performance materiality, we considered the following factors:
-- our risk assessment, including our assessment of the overall control environment; and
-- our past experience of the audit, which has indicated a low
number of corrected and uncorrected misstatements identified in
prior periods.
6.3. Error reporting threshold
We agreed with the Audit and Risk Committee that we would report
to the Committee all audit differences in excess of GBP80,000
(2022: GBP87,000), as well as differences below that threshold
that, in our view, warranted reporting on qualitative grounds. We
also report to the Audit and Risk Committee on disclosure matters
that we identified when assessing the overall presentation of the
financial statements.
7. An overview of the scope of our audit
7.1. Scoping
Our audit was scoped by obtaining an understanding of the
company and its environment, including internal control, and
assessing the risks of material misstatement of the company. We
performed a full scope audit.
7.2. Our consideration of the control environment
The Company is administered by a third party Guernsey regulated
service provider. As part of our audit, we obtained an
understanding of relevant controls established at the service
provider.
8. Other information
The other information comprises the information included in the
annual report, other than the financial statements and our
auditor's report thereon. The directors are responsible for the
other information contained within the annual report.
Our opinion on the financial statements does not cover the other
information and we do not express any form of assurance conclusion
thereon.
Our responsibility is to read the other information and, in
doing so, consider whether the other information is materially
inconsistent with the financial statements or our knowledge
obtained in the course of the audit, or otherwise appears to be
materially misstated.
If we identify such material inconsistencies or apparent
material misstatements, we are required to determine whether this
gives rise to a material misstatement in the financial statements
themselves. If, based on the work we have performed, we conclude
that there is a material misstatement of this other information, we
are required to report that fact.
We have nothing to report in this regard.
9. Responsibilities of directors
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.
10. Auditor's responsibilities for the audit of the financial
statements
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.
A further description of our responsibilities for the audit of
the financial statements is located on the FRC's website at:
www.frc.org.uk/auditorsresponsibilities . This description forms
part of our auditor's report.
11. Extent to which the audit was considered capable of
detecting irregularities, including fraud
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.
11.1. Identifying and assessing potential risks related to
irregularities
In identifying and assessing risks of material misstatement in
respect of irregularities, including fraud and non-compliance with
laws and regulations, we considered the following:
-- the nature of the industry and sector, control environment
and business performance including the design of the company's
remuneration policies, key drivers for directors' remuneration,
bonus levels and performance targets;
-- the company's own assessment of the risks that irregularities
may occur either as a result of fraud or error that was approved by
the board on 1 December 2022;
-- results of our enquiries of management and the Audit and Risk
Committee about their own identification and assessment of the
risks of irregularities,
-- any matters we identified having obtained and reviewed the
company's documentation of their policies and procedures relating
to:
o identifying, evaluating and complying with laws and
regulations and whether they were aware of any instances of
non-compliance;
o detecting and responding to the risks of fraud and whether
they have knowledge of any actual, suspected or alleged fraud;
o the internal controls established to mitigate risks of fraud
or non-compliance with laws and regulations;
-- the matters discussed among the audit engagement team and
relevant internal specialists, including credit specialists,
regarding how and where fraud might occur in the financial
statements and any potential indicators of fraud.
As a result of these procedures, we considered the opportunities
and incentives that may exist within the organisation for fraud and
identified the greatest potential for fraud in the following
areas:
-- The assessment of expected credit losses (ECL) on loans advanced; and
-- Income recognition.
In common with all audits under ISAs (UK), we are also required
to perform specific procedures to respond to the risk of management
override.
We also obtained an understanding of the legal and regulatory
frameworks that the Company operates in, focusing on provisions of
those laws and regulations that had a direct effect on the
determination of material amounts and disclosures in the financial
statements. The key laws and regulations we considered in this
context included the Companies (Guernsey) Law, 2008, the Listing
Rules and relevant tax legislation.
In addition, we considered provisions of other laws and
regulations that do not have a direct effect on the financial
statements but compliance with which may be fundamental to the
Group's ability to operate or to avoid a material penalty. These
included the Company's regulatory licences and The Protection of
Investors (Bailiwick of Guernsey) Law, 2020.
11.2. Audit response to risks identified
As a result of performing the above, we identified the
assessment of ECL on loans advanced and income recognition as key
audit matters related to the potential risk of fraud. The key audit
matters section of our report explains the matters in more detail
and also describes the specific procedures we performed in response
to those key audit matters.
In addition to the above, our procedures to respond to risks
identified included the following:
-- reviewing the financial statement disclosures and testing to
supporting documentation to assess compliance with provisions of
relevant laws and regulations described as having a direct effect
on the financial statements;
-- enquiring of management and the Audit and Risk Committee
concerning actual and potential litigation and claims;
-- performing analytical procedures to identify any unusual or
unexpected relationships that may indicate risks of material
misstatement due to fraud;
-- reading minutes of meetings of those charged with governance
and reviewing correspondence with Guernsey Financial Services
Commission; and
-- in addressing the risk of fraud through management override
of controls, testing the appropriateness of journal entries and
other adjustments; assessing whether the judgements made in making
accounting estimates are indicative of a potential bias; and
evaluating the business rationale of any significant transactions
that are unusual or outside the normal course of business.
We also communicated relevant identified laws and regulations
and potential fraud risks to all engagement team members including
internal specialists, and remained alert to any indications of
fraud or non-compliance with laws and regulations throughout the
audit.
Report on other legal and regulatory requirements
12. Corporate Governance Statement
The Listing Rules require us to review the directors' statement
in relation to going concern, longer-term viability and that part
of the Corporate Governance Statement relating to the company's
compliance with the provisions of the UK Corporate Governance Code
specified for our review.
Based on the work undertaken as part of our audit, we have
concluded that each of the following elements of the Corporate
Governance Statement is materially consistent with the financial
statements and our knowledge obtained during the audit:
-- the directors' statement with regards to the appropriateness
of adopting the going concern basis of accounting and any material
uncertainties identified;
-- the directors' explanation as to its assessment of the
company's prospects, the period this assessment covers and why the
period is appropriate;
-- the directors' statement on fair, balanced and understandable;
-- the board's confirmation that it has carried out a robust
assessment of the emerging and principal risks;
-- the section of the annual report that describes the review of
effectiveness of risk management and internal control systems;
and
-- the section describing the work of the Audit and Risk Committee.
13. Matters on which we are required to report by exception
13.1. Adequacy of explanations received and accounting
records
Under the Companies (Guernsey) Law, 2008 we are required to
report to you if, in our opinion:
-- we have not received all the information and explanations we require for our audit; or
-- proper accounting records have not been kept by the parent company; or
-- the financial statements are not in agreement with the accounting records.
We have nothing to report in respect of these matters.
14. Other matters which we are required to address
14.1. Auditor tenure
Following the recommendation of the Audit and Risk Committee, we
were re-appointed by board on 9 May 2023 to audit the financial
statements for the year ending 31 January 2023. The period of total
uninterrupted engagement including previous renewals and
reappointments of the firm is 10 years, covering the years ending
31 January 2014 to 31 January 2023.
14.2. Consistency of the audit report with the additional report
to the Audit and Risk Committee
Our audit opinion is consistent with the additional report to
the Audit and Risk Committee we are required to provide in
accordance with ISAs (UK).
15. Use of our report
This report is made solely to the Company's members, as a body,
in accordance with Section 262 of the Companies (Guernsey) Law,
2008. 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.
David Becker
For and on behalf of Deloitte LLP
Recognised Auditor
St Peter Port, Guernsey
22 May 2023
Statement of Comprehensive Income
For the year ended 31 January 2023
1 February 2022 to 1 February 2021 to
Notes 31 January 2023 31 January 2022
GBP GBP
Income
Income from loans 2 e) 7,136,574 9,310,030
Other fee income from loans 2 f) 133,051 207,739
Income from cash and cash equivalents 2,864 -
Total income 7,272,489 9,517,769
---------------------------------------------- ------ ------------------- ----------------------------------------
Expenses
Investment Management fees 13 761,047 1,165,922
Directors' remuneration 12 160,000 171,375
Audit fees for the Company 14 42,353 46,454
Finance cost 16 - 63,351
Reorganisation Costs - 129,941
ECL provision on financial assets 5 3,940,181 -
Other expenses 15 409,085 594,049
Total expenses 5,312,666 2,171,092
---------------------------------------------- ------ ------------------- ----------------------------------------
Profit for the year before tax 1,959,823 7,346,677
---------------------------------------------- ------ ------------------- ----------------------------------------
Taxation charge 4 - 10,912
Profit for the year after tax 1,959,823 7,335,765
---------------------------------------------- ------ ------------------- ----------------------------------------
Total comprehensive income for the year 1,959,823 7,335,765
---------------------------------------------- ------ ------------------- ----------------------------------------
Basic and diluted Earnings per Share (pence) 9 1.62 6.05
---------------------------------------------- ------ ------------------- ----------------------------------------
All items within the above statement have been derived from
discontinuing activities on the basis of the orderly realisation of
the Company's assets.
The Company had no recognised gains or losses for either period
other than those included in the results above.
The accompanying notes from 1 to 17 form an integral part of
these Financial Statements.
Statement of Financial Position
As at 31 January 2023
Notes 31 January 2023 31 January 2022
GBP GBP
Assets
Current Assets
Loans advanced at amortised cost 5 68,963,675 83,257,529
Trade and other receivables 6 43,435 502,485
Cash and cash equivalents 7 9,209,494 4,801,224
-------------------------------------------------------- ------ ---------------- -----------------------------
Total current assets 78,216,604 88,561,238
Total assets 78,216,604 88,561,238
-------------------------------------------------------- ------ ---------------- -----------------------------
Liabilities
Current Liabilities
Trade and other payables 8 861,653 793,223
-------------------------------------------------------- ------ ---------------- -----------------------------
Total current liabilities 861,653 793,223
Total liabilities 861,653 793,223
-------------------------------------------------------- ------ ---------------- -----------------------------
Net assets 77,354,951 87,768,015
-------------------------------------------------------- ------ ---------------- -----------------------------
Equity
Share capital 10 80,298,419 87,576,589
Retained (loss) / earnings (2,943,468) 191,426
-------------------------------------------------------- ------ ---------------- -----------------------------
Total equity attributable to the owners of the Company 77,354,951 87,768,015
-------------------------------------------------------- ------ ---------------- -----------------------------
Number of Ordinary Shares in issue at year end 10 121,302,779 121,302,779
-------------------------------------------------------- ------ ---------------- -----------------------------
Net Asset Value per Ordinary Share (pence) 9 63.77 72.35
-------------------------------------------------------- ------ ---------------- -----------------------------
The Financial Statements were approved by the Board of Directors
on 22 May 2023 and signed on their behalf by:
Jack Perry Fiona Le Poidevin
Chairman Director
22 May 2023 22 May 2023
The accompanying notes from 1 to 17 form an integral part of
these Financial Statements.
Statement of Changes in Equity
For the year ended 31 January 2023
Number Ordinary Share B Share Retained
(loss) /
Notes of shares capital capital earnings Total
GBP GBP GBP GBP
As at 1
February 2022 121,302,779 87,576,589 - 191,426 87,768,015
Total
comprehensive
income - - - 1,959,823 1,959,823
Dividends paid 10 - - - (5,094,717) (5,094,717)
B Shares
issued May
2022 10 121,302,779 (7,278,170) 7,278,170 - -
B Shares
redeemed &
cancelled May
2022 10 (121,302,779) - (7,278,170) - (7,278,170)
As at 31
January 2023 121,302,779 80,298,419 - (2,943,468) 77,354,951
=============== ====== ======================= ============================= ========================== ================== ======================
For the year ended 31 January 2022
Number Ordinary Share B Share Retained
Notes of shares capital capital earnings Total
GBP GBP GBP GBP
As at 1
February 2021 121,302,779 119,115,310 133,829 119,249,139
Total
comprehensive
income - - - 7,335,765 7,335,765
Dividends paid 10 - - - (7,278,168) (7,278,168)
B Shares
issued Sept
2021 10 121,302,779 (6,671,651) 6,671,651 - -
B Shares
redeemed &
cancelled
Sept 2021 10 (121,302,779) - (6,671,651) - (6,671,651)
B Shares
issued Dec
2021 10 121,302,779 (7,884,681) 7,884,681 - -
B Shares
redeemed &
cancelled Dec
2021 10 (121,302,779) - (7,884,681) - (7,884,681)
B Shares
issued Jan
2022 10 121,302,779 (16,982,389 ) 16,982,389 - -
B Shares
redeemed &
cancelled Jan
2022 10 (121,302,779) - (16,982,389) - (16,982,389)
As at 31
January 2022 121,302,779 87,576,589 - 191,426 87,768,015
=============== ====== ======================= ============================= ========================== ================== =============================
The accompanying notes from 1 to 17 form an integral part of
these Financial Statements.
Statement of Cash Flows
For the year ended 31 January 2023
1 February 2022 to 1 February 2021 to
Notes 31 January 2023 31 January 2022
GBP GBP
Cash flows generated from operating activities
Profit for the year 1,959,823 7,335,765
Adjustments for non-cash items and working capital movements:
Movement in other receivables 459,050 731,350
Movement in other payables and accrued expenses 68,430 (675,545)
Movement in tax payable - (1,679)
Loan amortisation 1,193,484 (1,321,983)
--------------------------------------------------------------- ------
3,680,787 6,067,908
Loans advanced less arrangement fees (487,610) (1,643,473)
Arrangement fees received 64,740 -
Loans repaid at par 13,523,240 30,420,038
------
Net loans repaid less arrangement fees 13,100,370 28,776,565
--------------------------------------------------------------- ------ ------------------- -------------------
Net cash generated from operating activities 16,781,157 34,844,473
--------------------------------------------------------------- ------ ------------------- -------------------
Cash flows used in financing activities
Dividends paid 10 (5,094,717) (7,278,168)
Return of Capital paid 10 (7,278,170) (31,538,721)
--------------------------------------------------------------- ------ ------------------- -------------------
Net cash (used in) financing activities (12,372,887) (38,816,889)
--------------------------------------------------------------- ------ ------------------- -------------------
Net increase / (decrease) in cash and cash equivalents 4,408,270 (3,972,416)
Cash and cash equivalents at the start of the year 4,801,224 8,773,640
Cash and cash equivalents at the end of the year 9,209,494 4,801,224
--------------------------------------------------------------- ------ ------------------- -------------------
The accompanying notes from 1 to 17 form an integral part of
these Financial Statements.
1. General information
ICG-Longbow Senior Secured UK Property Debt Investments Limited
is a non-cellular company limited by shares and was incorporated in
Guernsey under the Companies Law on 29 November 2012 with
registered number 55917 as a closed-ended investment company. T he
registered office address is Floor 2, PO Box 286, Trafalgar Court,
Les Banques, St Peter Port, Guernsey, GY1 4LY.
The Company's shares were admitted to the Premium Segment of the
Official List and to trading on the Main Market of the London Stock
Exchange on 5 February 2013.
In line with the revised Investment Objective and Policy
approved by shareholders in the Extraordinary General Meeting in
January 2021, the Company is now undertaking an orderly realisation
of its investments. As sufficient funds become available the Board
intends to return capital to shareholders, taking account of the
Company's working capital requirements and funding commitments.
ICG Alternative Investment Limited is the external discretionary
investment manager. The Board resolved to simplify its corporate
structure by collapsing the Luxembourg subsidiary company which has
historically acted as the lender for the Company's investments. The
subsidiary was dissolved on 18 January 2022. Under Luxembourg Law,
and as sole shareholder, the Company has taken responsibility for
the remaining assets and liabilities of its subsidiary following
its dissolution .
2. Accounting policies
a) Basis of preparation
The Financial Statements for the year ended 31 January 2023 have
been prepared in accordance with UK adopted IFRS and the Companies
(Guernsey) Law, 2008.
Prior to its dissolution on 18 January 2022, the Subsidiary (ICG
Longbow Senior Debt S.A.), was consolidated into the Company's
accounts and the Company's financial statements were prepared on a
consolidated basis, as the Group existed for the majority of the
financial year ended 31 January 2022. The financial statements for
the year ended 31 January 2023 have been prepared for the Company
only, with comparative information comprising the results of the
Group. Since the Company has taken responsibility for the remaining
assets and liabilities of its subsidiary following its dissolution,
the Directors consider these comparatives to be appropriate.
Other than as set out above, the same accounting policies and
methods of computation have been followed in the preparation of
these Financial Statements as in the Annual Report and Financial
Statements for the year ended 31 January 2022.
At the date of approval of these Financial Statements, the
Company has reviewed the following new and revised IFRS standards
and interpretations that have been issued and are now
effective:
The adoption of these standards and interpretations has had no
impact on the Financial Statements of the Company.
Effective for periods commencing
------- -------------------------------------------------------------------------- ---------------------------------
IFRS 3 Business Combinations (Amendments regarding updating references to the 01 January 2022
Conceptual Framework
for Financial Reporting)
IFRS 9 Financial Instruments (Amendments regarding fees to be included in the 01 January 2022
10% test for derecognition
of financial liabilities)
IAS 16 Property, Plant and Equipment (Amendments prohibiting a company from 01 January 2022
deducting from the cost
of property, plant and equipment amounts received from selling items
produced while the company
is preparing the asset for its intended use)
IAS 37 Provisions, Contingent Liabilities and Contingent Assets (Amendments 01 January 2022
regarding the costs to
include when assessing whether a contract is onerous)
The following new and revised IFRS standards and interpretations
that have been issued and are not yet effective. The Company
intends to adopt these new and amended standards and
interpretations, if applicable, when they become effective.
Effective for
periods commencing
----- --------------------------------------------------------------------------------------------------------------------------------- ---------------------
IFRS Insurance Contracts (Amendments to address concerns and implementation challenges that were 01 January 2023
17 identified after IFRS 17 was published (includes a deferral of the effective date to annual
periods beginning on or after 1 January 2023))
IAS Presentation of Financial Statements (Amendments regarding the classification of liabilities) 01 January 2024
1
IAS Presentation of Financial Statements (Amendments regarding the classification of debt with 01 January 2024
1 covenants)
----- ------------------------------------------------------------------------------------------------------------------------------- ---------------------
IAS Accounting Policies, Changes in Accounting Estimates and Errors (Amendments regarding the 01 January 2023
8 definition of accounting estimates)
IAS Income Taxes (Amendments regarding deferred tax on leases and decommissioning obligations 01 January 2023
12
b) Going concern
The Directors, at the time of approving the Financial
Statements, are required to satisfy themselves that they have a
reasonable expectation that the Company has adequate resources to
continue in operational existence for the foreseeable future and
whether there is any threat to the going concern status of the
Company. At the EGM of the Company on 14 January 2021, following a
recommendation from the Board published in a circular on 16
December 2020, shareholders voted by the requisite majority in
favour of a change to the Company's Objectives and Investment
Policy which would lead to an orderly realisation of the Company's
assets and a return of capital to shareholders.
It is intended that the investments will be realised as and when
the loans fall due and the Directors expect that the investments
will be held to maturity with the last loan currently due for
repayment by the end of 2023. The Company may take actions with the
consequence of accelerating or delaying repayment in order to
optimise shareholder's returns in the context of the Company's
size. Whilst the Directors are satisfied that the Company has
adequate resources to continue in operation throughout the
realisation period and to meet all liabilities as they fall due,
given the Company is now in a managed wind down, the Directors
consider it appropriate to adopt a basis other that of going
concern in preparing the financial statements. In the absence of a
ready secondary market in real estate loans by which to assess
market value, the basis of valuation for investments is amortised
cost net of impairment, recognising the realisable value of each
investment in the orderly wind down of the Company. In accordance
with the Company's IFRS 9 Policy there has been a change in the
carrying value of some investments following the need for a
lifetime ECL allowance on two Stage two loans and a lifetime ECL on
one Stage three loan, as detailed in note 5. No material
adjustments have arisen solely as a result of ceasing to apply the
going concern basis.
c) Functional and presentation currency
The Financial Statements are presented in Pounds Sterling, which
is the functional currency as well as the presentation currency as
all the Company's investments and most transactions are denominated
in Pounds Sterling.
d) Foreign currencies
Transactions in foreign currencies are translated at the foreign
exchange rate ruling at the date of the transaction. Monetary
assets and liabilities denominated in foreign currencies at the
reporting date are translated at the foreign exchange rate ruling
at that date. Foreign exchange differences arising on translation
are recognised in the Statement of Comprehensive Income.
e) Interest income
In accordance with IFRS 9 interest income is recognised when it
is probable that the economic benefits will flow to the Company and
the amount of revenue can be measured reliably. Interest income is
accrued on a time basis, by reference to the principal outstanding
and at the effective interest rate applicable, which is the rate
that exactly discounts estimated future cash receipts through the
expected life of the financial asset to that asset's net carrying
amount on initial recognition. Arrangement and exit fees which are
considered to be an integral part of the contract are included in
the effective interest rate calculation.
For financial assets in stage 3, interest is recognised on a net
basis after allowance for ECL. For financial assets in Stage 2,
where the Company considers that the quantum or timeliness of the
economic benefit cannot be measured reliably, in accordance with
IFRS, interest will be recognised on a gross basis and an ECL
provision will be raised.
Interest on cash and cash equivalents is recognised on an
accruals basis.
f) Other fee income
Other fee income includes prepayment and other fees due under
the contractual terms of the debt instruments. Such fees and
related cash receipts are not considered to form an integral part
of the effective interest rate and are accounted for on an accruals
basis.
g) Operating expenses
Operating expenses are the Company's costs incurred in
connection with the ongoing management of the Company's investments
and administrative costs. Operating expenses are accounted for on
an accruals basis.
h) Taxation
The Company is exempt from Guernsey taxation under the Income
Tax (Exempt Bodies) (Guernsey) Ordinance 1989 for which it pays an
annual fee of GBP1,200 which is included within other expenses. The
Company is required to apply annually to obtain exempt status for
the purposes of Guernsey Taxation.
i) Dividends
Dividends payable are recognised as distributions in the
financial statements when the Company's obligation to make payment
has been established. Dividends paid during the year are disclosed
in the Statement of Changes in Equity. Dividends declared post year
end are disclosed in Note 17.
j) Segmental reporting
Operating segments are reported in a manner consistent with the
internal reporting provided to the chief operating decision-maker.
The chief operating decision-maker, who is responsible for
allocating resources and assessing performance of the operating
segments, has been identified as the Board of Directors, as a
whole. The key measure of performance used by the Board to assess
the Company's performance and to allocate resources is the total
return on the Company's Net Asset Value, as calculated under IFRS,
and therefore no reconciliation is required between the measure of
profit or loss used by the Board and that contained in the
Financial Statements.
For management purposes, the Company is organised into one main
operating segment, being the provision of a diversified portfolio
of UK commercial property backed senior debt investments.
The majority of the Company's income is derived from loans
secured on commercial and residential property in the United
Kingdom.
Due to the Company's nature, it has no employees.
k) Financial instruments
Financial assets and financial liabilities are recognised in the
Company's Statement of Financial Position when the Company becomes
a party to the contractual provisions of the instrument. Financial
assets and financial liabilities are only offset and the net amount
reported in the Statement of Financial Position and Statement of
Comprehensive Income when there is a currently enforceable legal
right to offset the recognised amounts and the Company intends to
settle on a net basis or realise the asset and liability
simultaneously.
Financial Assets
All financial assets are recognised and de-recognised on a trade
date where the purchase or sale of a financial asset is under a
contract whose terms require delivery of the financial asset within
the timeframe established by the market concerned, and are
initially measured at fair value, plus transaction costs, except
for those financial assets classified as at fair value through
profit or loss, which are initially measured at fair value.
Financial assets are classified into the following specified
categories: financial assets at fair value through profit or loss,
financial assets at fair value through Other Comprehensive Income
or financial assets at amortised cost.
The classification depends on the nature and purpose of the
financial assets and is determined at the time of initial
recognition.
The Company's financial assets currently comprise loans, trade
and other receivables and cash and cash equivalents.
i) Loans and receivables
These assets are non-derivative financial assets with fixed or
determinable payments that are not quoted in an active market. They
comprise loans and trade and other receivables.
They are initially recognised at fair value plus transaction
costs that are directly attributable to the acquisition, and
subsequently carried at amortised cost using the effective interest
rate method, less allowance for Expected Credit Loss (ECL). The
effect of discounting on trade and other receivables is not
considered to be material.
ii) Cash and cash equivalents
Cash and cash equivalents comprise cash on hand and demand
deposits and other short-term highly liquid investments with an
original maturity of three months or less that are readily
convertible to a known amount of cash and are subject to an
insignificant risk of changes in value.
iii) Effective interest rate method
The effective interest rate method is a method of calculating
the amortised cost of a debt instrument and of allocating interest
income over the relevant period. The effective interest rate is the
rate that exactly discounts estimated future cash receipts
(including all fees paid or received that form an integral part of
the effective interest rate, transaction costs and other premiums
or discounts) through the expected life of the debt instrument, or,
where appropriate, a shorter period, to the net carrying amount on
initial recognition.
iv) Impairment of financial assets
The Company recognises a loss allowance for ECL on trade
receivables and loan receivables. The amount of ECL is updated at
each reporting date to reflect changes in credit risk since initial
recognition of the respective financial instrument. The Company
always recognises 12-month ECL for trade receivables and loan
receivables that fall under stage 1 assets. For stage 2 assets, the
Company recognises lifetime ECL when there has been a significant
increase in credit risk since initial recognition. The ECL on these
financial assets are estimated using a provision matrix based on
the Investment Manager's historical credit loss experience,
adjusted for factors that are specific to the debtors, general
economic conditions and an assessment of both the current as well
as the forecast direction of conditions at the reporting date,
including time value of money where appropriate. The Company has
adopted a simplified model for trade receivables where lifetime ECL
is estimated and does not materially differ from the twelve-month
ECL.
v) Significant increase in credit risk
In assessing whether the credit risk on a financial instrument
has increased significantly since initial recognition, the Company
compares the risk of a default occurring on the financial
instrument at the reporting date with the risk of a default
occurring on the financial instrument at the date of initial
recognition. In making this assessment, the Company considers both
quantitative and qualitative information that is reasonable and
supportable, including historical experience and forward-looking
information that is available without undue cost or effort.
Forward-looking information considered includes the future
prospects of the industries in which the Company's debtors operate,
obtained from economic expert reports, financial analysts,
governmental bodies, relevant think -- tanks and other similar
organisations, as well as consideration of various external sources
of actual and forecast economic information that relate to the
Company's core operations.
In particular, the following information is taken into account
when assessing whether credit risk has increased significantly
since initial recognition:
-- an actual or expected significant deterioration in the
financial instrument's external (if available) or internal credit
rating;
-- significant deterioration in external market indicators of
credit risk for a particular financial instrument,
e.g. a significant increase in the credit spread, the credit
default swap prices for the debtor , or the length of time or the
extent to which the fair value of a financial asset has been less
than its amortised cost;
-- existing or forecast adverse changes in business, financial
or economic conditions that are expected to cause a significant
decrease in the debtor's ability to meet its debt obligations;
-- any actual or expected significant deterioration in the
operating results of the debtor;
-- significant increases in credit risk on other financial
instruments of the same debtor; or
-- an actual or expected significant adverse change in the
regulatory, economic, or technological environment of the debtor
that results in a significant decrease in the debtor's ability to
meet its debt obligations.
Despite the foregoing, the Company assumes that the credit risk
on a financial instrument has not increased significantly since
initial recognition if the financial instrument is determined to
have low credit risk at the reporting date. A financial instrument
is determined to have low credit risk if:
(1) The financial instrument has a low risk of default;
(2) The debtor has a strong capacity to meet its contractual
cash flow obligations in the near term; and
(3) Adverse changes in economic and business conditions have
not, or will not in the foreseeable future, reduce the ability of
the borrower to fulfil its contractual cash flow obligations. Where
the ability to meet cashflow obligations, including payment of
interest, are impacted the risk associated with the financial
instrument may be considered to have increased.
The Company considers a financial asset to have low credit risk
when the asset has external credit rating of 'investment grade' in
accordance with the globally understood definition or if an
external rating is not available, the asset has an internal rating
of 'performing'. Performing means that the counterparty has a
strong financial position and there are no past due amounts.
The Company regularly monitors the effectiveness of the criteria
used to identify whether there has been a significant increase in
credit risk and revises them as appropriate to ensure that the
criteria are capable of identifying significant increase in credit
risk before the amount becomes past due.
vi) Definition of default
The Company considers the following as constituting an event of
default for internal credit risk management purposes as historical
experience indicates that financial assets that meet either of the
following criteria may not be fully recoverable:
-- when there is a breach of financial covenants by the debtor
which has not be waived or where the lender's rights have not be
reserved pending action by the borrower; or
-- information developed internally or obtained from external
sources indicates that the debtor is unlikely to pay its creditors,
including the Company, in full (without taking into account any
collateral held by the Company).
There is a rebuttable presumption that where loans are past due
or interest is unpaid for more than 30 days, this leads to a
significant increase in credit risk or that if unpaid for more than
90 days this leads to an event of default. However, the Company may
elect to waive the default or give a period of forbearance and
reserve its rights in respect of the default to enhance returns and
hence may rebut the presumption that there is a significant
increase in credit risk or an event of default.
vii) Credit-impaired financial assets
A financial asset is credit -- impaired when one or more events
that have a detrimental impact on the estimated future cash flows
of that financial asset have occurred. Evidence that a financial
asset is credit -- impaired includes observable data about the
following events:
(a) significant financial difficulty of the issuer or the
borrower;
(b) a breach of contract, such as a default or past due event
(see (vi));
(c) the lenders to the borrower, for economic or contractual
reasons relating to the borrower's financial difficulty having
granted to the borrower concessions that the lenders would not
otherwise consider;
(d) it is becoming probable that the borrower will enter
bankruptcy or other financial reorganisation; or
(e) the disappearance of an active market for that financial
asset because of financial difficulties.
viii) Write-off policy
The Company writes off a financial asset when there is
information indicating that the debtor is in severe financial
difficulty and there is no realistic prospect of recovery, e.g.
when the debtor has been placed under liquidation or has entered
into bankruptcy proceedings, or in the case of loan receivables,
when the amounts are over two years past due, whichever occurs
sooner. Financial assets written off may still be subject to
enforcement activities under the Company's recovery procedures,
taking into account legal advice where appropriate. Any recoveries
made are recognised in profit or loss.
ix) Measurement and recognition of ECL
The measurement of ECL is a function of the probability of
default, loss given default (i.e. the magnitude of the loss if
there is a default) and the exposure at default. The assessment of
the probability of default and loss given default is based on
historical data adjusted by forward -- looking information as
described above. As for the exposure at default, for financial
assets, this is represented by the asset's gross carrying amount at
the reporting date.
For financial assets, the ECL is estimated as the difference
between all contractual cash flows that are due to the Company in
accordance with the contract and all the cash flows that the
Company expects to receive, discounted at the original effective
interest rate.
If the Company has measured the loss allowance for a financial
instrument at an amount equal to lifetime ECL in the previous
reporting period but determines at the current reporting date that
the conditions for lifetime ECL are no longer met, the Company
measures the loss allowance at an amount equal to 12 -- month ECL
at the current reporting date, except for assets for which a
simplified approach was used.
The Company's measurement of ECL reflects an unbiased and
probability-weighted amount that is determined by evaluating the
range of possible outcomes as well as incorporating the time value
of money. The Company has also considered reasonable and
supportable information from past events, current conditions and
reasonable and supportable forecasts for future economic conditions
when measuring ECL.
-- Stage 1 covers financial assets that have not deteriorated
significantly in credit risk since initial recognition;
-- Stage 2 covers financial assets that have significantly
deteriorated in credit quality since initial recognition; and
-- Stage 3 covers financial assets that have objective evidence
of impairment at the reporting date.
Twelve-month ECL are recognised in stage 1, while lifetime ECL
are recognised in stages 2 and 3. The Company's remaining loan book
has a residual contractual maturity of less than one year and as a
result 12 month and lifetime ECL will be the same.
x) Modification of cash flows
Having performed adequate due diligence procedures, the Company
may negotiate or otherwise modify the contractual cash flows of
loans to customers, usually as a result of loan extensions. When
this happens, the Company assesses whether or not the new terms are
substantially different to the original terms.
If the terms are not substantially different, the renegotiation
or modification does not result in derecognition, and the Company
recalculates the gross carrying amount based on the revised cash
flows of the financial asset and recognises a modification gain or
loss in profit or loss. The new gross carrying amount is
recalculated by discounting the modified cash flows at the original
effective interest rate.
If terms are substantially different the original asset is
derecognised and a new financial asset is recognised. It is assumed
that the terms are substantially different if the discounted
present value of the cash flows under the new terms, including any
fees paid net of any fees received and discounted using the
original effective rate is at least 10 per cent different from the
discounted present value of the remaining cash flows of the
original financial asset. If the modification is not substantial,
the difference between: (1) the carrying amount of the liability
before the modification; and (2) the present value of the
cash flows after modification is recognised in profit or loss as
the modification gain or loss within other gains and losses as
explained in paragraph above.
xi) Derecognition of financial assets
The Company derecognises a financial asset only when the
contractual rights to the cash flows from the asset expire, or when
it transfers the financial asset and substantially all the risks
and rewards of ownership of the asset to another entity. If the
Company neither transfers nor retains substantially all the risks
and rewards of ownership and continues to control the transferred
asset, the Company recognises its retained interest in the asset
and an associated liability for amounts it may have to pay. If the
Company retains substantially all the risks and rewards of
ownership of a transferred financial asset, the Company continues
to recognise the financial asset and also recognises a
collateralised borrowing for the proceeds received.
On derecognition of a financial asset measured at amortised
cost, the difference between the asset's carrying amount and the
sum of the consideration received and receivable, is recognised in
profit or loss.
Financial liabilities
The classification of financial liabilities at initial
recognition depends on the purpose for which the financial
liability was issued and its characteristics.
All financial liabilities are initially recognised at fair value
net of transaction costs incurred. All purchases of financial
liabilities are recorded on a trade date, being the date on which
the Company becomes party to the contractual requirements of the
financial liability. Unless otherwise indicated the carrying
amounts of the Company's financial liabilities approximate to their
fair values.
The Company's financial liabilities consist of only financial
liabilities measured at amortised cost.
i) Financial liabilities measured at amortised cost
These include trade payables and other short-term monetary
liabilities, which are initially recognised at fair value and
subsequently carried at amortised cost using the effective interest
rate method.
ii) Derecognition of financial liabilities
The Company derecognises financial liabilities when, and only
when, the Company's obligations are discharged, cancelled or have
expired. The difference between the carrying amount of the
financial liability derecognised and the consideration paid and
payable is recognised in profit or loss.
l) Equity instruments
An equity instrument is any contract that evidences a residual
interest in the assets of an entity after deducting all of its
liabilities. Equity instruments issued by the Company are
recognised as the proceeds received, net of direct issue costs.
3. Critical accounting judgements and estimates in applying the
Company's accounting policies
The preparation of the Financial Statements under IFRS requires
management to make judgements, estimates and assumptions that
affect the application of policies and reported amounts of assets
and liabilities, income and expenses. The estimates and associated
assumptions are based on historical experience and other factors
that are believed to be reasonable under the circumstances, the
results of which form the basis of making judgements about carrying
values of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an
on-going basis. Revisions to accounting estimates are recognised in
the period in which the estimate is revised if the revision affects
only that period or in the period of the revision and future
periods if the revision affects both current and future
periods.
Critical judgements
In assessing the ECL, the Board have made critical judgements in
relation to the staging of the loans and assessments which impact
the loss given default. In assessing whether the loans have
incurred a significant increase in credit risk the Investment
Manager, on behalf of the Board, assesses the credit risk attaching
to each of the loans. The Company has adopted the Investment
Manager's internal credit rating methodology and has used its loss
experience to benchmark investment performance and potential
impairment for Stage 1, Stage 2 and Stage 3 loans under IFRS 9
considering both probability of default and loss given default. The
judgement applied in allocating each investment to Stage 1, 2 or 3
is key in deciding whether losses are considered for the next 12
months or over the residual life of the loan. It is noted that the
Company's remaining loans all have a residual contractual maturity
of less than one year. The Investment Manager and the Board will
also take into consideration the likely repayment term of loans
that have become past due, and of actions taken to repay such
loans. Consequently a loan which is past due, but otherwise
performing, may continue to be assessed as Stage 1 where there is
an active repayment plan in place, or supporting evidence that the
loan can be repaid in full and the Company has given a period of
forbearance whilst reserving its rights to, or charging, default
interest.
The Board identified three of the remaining loans as having
shown evidence of heightened credit risk since origination
reflecting the prolonged impacts of Covid-19 on the property
markets and, more recently, the increase in UK interest rates. In
considering the staging of loans with heightened credit risk the
Board, advised by the Investment Manager, has made assumptions,
supported by third party valuation evidence, regarding the
realisable collateral value and headroom over the principal loan
amounts as well as the residual term of the loans. Two of these
loans have been identified as Stage 2 assets, one as a Stage 3
asset. Whilst all loans have a residual contractual maturity of
less than one year the 12 months and lifetime assessment of ECL
shall be the same.
The Board has also considered the likelihood and timeliness of
future interest payments under all remaining loans. For Stage 3
loans interest will be recognised on a net basis after allowance
for ECL, where payment is likely to be sourced from any surplus on
the realisation of the loan. In the case of the Stage 2 RoyaleLife
loan, the Board recognises that interest payments are unlikely in
the near term and has, and will continue to, raise ECL provisions
against accrued interest which in its judgement is unlikely to be
received in the near term.
Critical accounting estimates
The measurement of both the initial and ongoing ECL allowance
for loan receivables measured at amortised cost is an area that
requires the use of significant assumptions about credit behaviour
such as likelihood of borrowers defaulting and the resulting
losses. In assessing the probability of default, the Board has
taken note of the experience and loss history of the Investment
Manager which may not be indicative of future losses. The default
probabilities are based on a number of factors including rental
income trends, interest cover and LTV headroom and sectoral trends
which the Investment Manager believes to be a good predictor of the
probability of default, in accordance with recent market studies of
European commercial real estate loans.
In line with the Company's investment strategy at the time, most
benefited from significant LTV headroom at origination, with
business plans designed to deliver further value increases over
time. This combined with tight covenants have, to date, enabled the
Investment Manager to manage risk over the term of the loans.
Following the change in Investment Strategy to one of orderly wind
down, the Investment Manager and the Board have placed greater
emphasis on the source and delivery of repayment over the residual
term of each loan when assessing valuation and the risk of capital
loss.
Inflation rates in the UK, and the fiscal and monetary
tightening that has followed, remain a concern for the portfolio
given its short residual duration and the Company's intention to
wind down. The UK base rate increased from 0.1% during Covid-19 to
4.25% as at the date of this report and is now forecast to remain
higher for longer. Higher interest rates are having a material
impact on refinancing and property sales and hence the timing of
repayment of the Company's remaining loans. Property values have
fallen generally, as the cost of finance impacts investor returns
and LTV headroom in the remaining loans has been eroded as a
result.
However, the Stage 1 and Stage 2 loans continue to benefit from
a lower but still adequate equity buffers. No loss allowance has
been recognised based on 12-month expected credit losses for the
loan in Stage 1. A GBP1,651,530 (31 January 2022: GBPnil) provision
for lifetime losses has been recognised for the in Stage 2 loans
which includes a provision for the non-receipt of accrued interest
in the case of the RoyaleLife loan. The Southport loan has been
assessed as Stage 3 following the appointment of an administrator
over the hotel, which continues to trade, and a provision for
impairment of GBP2,288,651 (31 January 2022: GBPnil) has been
recognised, reflecting the estimated net present value of the sales
proceeds expected from the current offer to purchase the hotel,
less the Company's estimate of sales and administrative costs.
Revenue recognition is considered a significant accounting
judgement and estimate that the Directors make in the process of
applying the Company's accounting policies (see Notes 2e) and 2
f)). In view of the trading conditions of the Southport hotel and
liquidity challenges facing the RoyaleLife loan, the Directors
consider it prudent to recognise interest on a net basis after
allowance for ECL in respect of the Stage 3 Southport loan, and to
make a provision against the potential non-receipt of accrued
interest in respect of the Stage 2 RoyaleLife loan. In both cases
interest on these loans will be recognised in the Statement of
Comprehensive Income as set out in Accounting Policies Note 2
above. Following the period end, certain of the companies providing
security to the RoyaleLife loan were placed into administration by
the lenders, however an independent valuation undertaken at 31
December 2022 confirms that the aggregate property values continue
to exhibit an equity buffer above the carrying value of the
Company's loan participation. The assumptions and sensitivities in
assessing ECL of the loan portfolio are set out in note 5
below.
4. Taxation
The tax charge of GBP10,912 for the previous year ended 31
January 2022 consisted of taxes levied on Luxco, before it was
dissolved. As a result, no tax was chargeable for the current year
ended 31 January 2023. The net wealth tax charge, set at a rate of
0.5 % for the year ended 31 January 2022 on Luxco's global assets
(net worth), was determined as at the 1 January of each calendar
year before dissolution of Luxco.
1 February 2022 to 31 January 2023 1 February 2021 to 31 January 2022
GBP GBP
Net wealth tax - current year - 7,199
Net wealth tax - prior year - 3,713
-----------------------------------
- 10,912
===================================== -----------------------------------
5. Loans advanced at amortised cost
(i) Loans advanced
1 February 2022 to 31 January 2023 1 February 2021 to 31 January 2022
GBP GBP
Loans Advanced: 72,903,856 83,257,529
Less: Expected Credit Losses ( 3,940,181 ) -
68,963,675 83,257,529
=================================== ===================================
31 January 31 January 31 January 31 January
2023 2023 2022 2022
Principal At amortised Principal At amortised
advanced cost advanced cost
GBP GBP GBP GBP
------------ ----------- ------------- ------------------------- ---------------------
Northlands 9,561,076 9,829,286 10,431,143 10,548,056
Quattro* - - 5,956,304 5,984,263
Affinity 17,299,963 17,774,436 17,299,963 17,706,033
Southport 15,200,000 15,988,651 15,000,000 15,348,830
RoyaleLife 25,382,017 29,311,483 25,382,017 27,145,110
LBS* - - 6,474,000 6,525,237
67,443,056 72,903,856 80,543,427 83,257,529
------------ ----------- ------------- ------------------------- ---------------------
*repaid in full during the period
(ii) Valuation considerations
As noted above the Company is now in the process of an orderly
wind down. It remains the intention of the Investment Manager and
Directors to hold loans through to their repayment date. The
Directors consider that the carrying value amounts of the loans,
recorded at amortised cost in the Financial Statements, are
approximately equal to their fair value. For further information
regarding the status of each loan and the associated risks see the
Investment Manager's Report.
Amortised cost is calculated using the effective interest rate
method which takes into account all contractual terms (including
arrangement and exit fees) that are an integral part of the loan
agreement. As these fees are taken into account when determining
initial net carrying value, their recognition in profit or loss is
effectively spread over the life of the loan.
The Company's investments are in the form of bilateral loans,
and as such are illiquid investments with no readily available
secondary market. Whilst the terms of each loan includes repayment
and prepayment fees, in the absence of a liquid secondary market,
the Directors do not believe a willing buyer would pay a premium to
the par value of the loans to recognise such terms and as such the
amortised cost is considered representative of the fair value of
the loans.
Each property on which investments are secured was subject to an
independent, third-party valuation at the time the investment was
entered into and updated valuations are obtained as deemed
appropriate. All investments are made on a hold to maturity basis.
Each investment is monitored on a quarterly basis, in line with the
underlying property rental cycle, including a review of the
performance of the underlying property security. Other than the
Stage 3 Southport loan, no market or other events have been
identified through this review process which would result in a fair
value of the investments significantly different to the carrying
value after allowance for expected credit losses as set out in this
note. The Board now considers it prudent to recognise an impairment
in respect of the Southport loan of GBP2.28 million (31 January
2022: GBPnil) representing accrued outstanding interest and the net
present value of the expected net sales proceeds.
(iii) IFRS 9 - Impairment of Financial Assets
Whilst the UK economy has largely recovered from the immediate
impacts of Covid-19, supply pressures, exacerbated by the impact of
the devasting war in Ukraine, have led to spiralling inflation in
the energy, food and raw material sectors and consequently The Bank
of England has, in line with most central banks, embarked upon a
policy of monetary tightening in an attempt to reduce inflation,
with base rate now at 4.25% and inflation forecast to remain above
the 2% target through to 2025. The Investment Manager has reviewed
the plans in place and prospects for repayment of each loan over
its residual term, and whilst the prospect of a recession looks
less unlikely, the economic outlook is less certain than at 31
January 2022, impacting property values. However, with respect to
the Stage 1 and Stage 2 loans, the balance outstanding in each case
remains at an adequate discount to the value of the underlying real
estate on which they are secured. The Southport loan has been
subject to an ECL allowance of GBP0.53 million in respect of
arrears of interest and GBP1.75 million in respect of the expected
loss as set out in the table below. Whilst the RoyaleLife loan
remains Stage 2 reflecting the level of equity surplus in the
independent property valuation, the loan's credit rating has been
downgraded to substandard resulting in an ECL provision of GBP0.61
million against the loan and GBP1.03 million against the unpaid
accrued interest. The Directors do not currently consider any loan,
other than Southport and RoyaleLife, to be subject to specific
impairment, or for there to be an immediate risk of not achieving
full repayment, including arrears of interest, over the residual
term of each loan.
On 11 May 2023 the Company, acting together with its co-lenders,
appointed an administrator over two of the companies providing
security to the RoyaleLife loan. This was a defensive measure
following the filing of winding up petitions, against these two
group companies, by a third-party creditor. Whilst the appointment
was a post balance sheet event and the 31 December 2022 property
valuation pointed to there being an adequate equity buffer above
the carrying value of the Company's participation in the loan, the
Board and the Investment Manager have considered the potential
impact of administration on the Company's investment, and this is
discussed further in the sensitivity analysis below.
The internal credit rating of each loan as at 31 January 2023
has been reviewed. Of the two loans identified as Stage 2 assets at
31 January 2022, one has since repaid in full while the other is
now identified as Stage 3, with an ECL provision of GBP2,288,651
(31 January 2022: GBPnil). Two other loans that were identified as
Stage 1 assets showed deterioration and are considered as Stage 2
assets with an ECL over a twelve-month period of GBP1,651,530 (31
January 2022: GBPnil).
As at 31 January 2023
Stage 1 Stage 2 Stage 3 Total
Principal advanced 9,561,076 42,681,981 15,200,000 67,443,056
---------- ------------ ------------ ------------
Gross carrying value 9,829,286 47,085,919 15,988,651 72,903,856
Less ECL allowance - (1,651,530) (2,288,651) (3,940,181)
---------- ------------ ------------ ------------
9,829,286 45,434,389 13,700,000 68,963,675
---------- ------------ ------------ ------------
As at 31 January 2022
Stage 1 Stage 2 Stage 3 Total
Principal advanced 59,587,122 20,956,304 - 80,543,426
----------- ----------- -------- -----------
Gross carrying value 61,924,436 21,333,093 - 83,257,529
Less ECL allowance - - - -
----------- ----------- -------- -----------
61,924,436 21,333,093 - 83,257,529
----------- ----------- -------- -----------
Two loans were considered as Stage 2 loan as at 31 January 2023
(31 January 2022: two loans).
The Quattro loan, identified as Stage 2 as at 31 January 2022,
was repaid in full in April 2022, following the combination of
property sales and a refinance by the borrower.
Southport, the second Stage 2 loan as at 31 January 2022, has
been recognised as Stage 3 as at 31 January 2023. This follows an
unsuccessful sales process by the borrower and the subsequent
appointment of an administrator by the Company. The administrator
has remarketed the property on behalf of the creditors, of which
the Company is the first ranking senior secured creditor, and is
progressing a conditional offer for sale at GBP14.5 million. The
administrator and advisors are working with the prospective
purchaser to satisfy the conditions to completion of the sale.
The Affinity loan has been identified as Stage 2 as at 31
January 2023 following a fall in its internal credit rating
reflecting a reduction in the underlying property value in line
with the wider UK property market.
The RoyaleLife Loan has been identified as Stage 2, following a
13% fall in the valuation of the underlying properties reflecting
lower expected profits on the sale of residential units and a
higher discount rate being applied to the long-term income they
generate.
The LBS loan, identified as stage 1 as at 31 January 2022, was
repaid in full in January 2023 following a refinancing of the
property securing the loan.
The Northlands loan has shown no material deterioration since
inception or over the course of the financial period and has been
significantly de-risked following the financial year end through
the sale of a number of properties, with further sales contracted
which are expected to repay the loan in full together with interest
and fees. The Northlands loan, whilst past due, is considered as
Stage 1 asset with no ECL over a twelve-month period reflecting the
advanced sales process.
A reconciliation of the ECL allowance is presented as
follows:
Expected Credit Loss
Allowances
GBP
------------ ---------------------
Affinity 12,702
Southport 2,288,651
RoyaleLife 1,638,828
3,940,181
------------ ---------------------
(iv) IFRS 9 Impairment - Stress Analysis
As discussed above, the Company's ECL is a function of the
probability of default ("PD") and loss given default ("LGD"), where
PD is benchmarked against ICG Real Estate's internal credit rating
model and LGD is based on ICG Real Estate's track record of over
GBP5.7 billion of senior and whole loans which would satisfy the
Company's investment parameters.
Other than Southport, loans are currently expected to be capable
of repayment in full in due course at their carrying value. The
Company, together with its co-lenders and the administrator, is
considering its next steps in respect of the RoyaleLife loan,
however it is anticipated an extended period will be required to
allow for realisation.
In respect of its Stage 1 and Stage 2 assets, the Company has
performed stress analysis on its expected credit loss by
considering the impact of a one, two and three grade deterioration
in the credit rating and considered the impact of impairment over
the life of the loans.
As discussed above the recent rise in UK interest rates and
worsening near term economic outlook have impacted the UK property
market in most sectors, reducing value and liquidity. As a
consequence, the Company's equity buffer has been eroded. However,
based on the latest market valuations all loans, except the
Southport loan, could withstand a further 10% fall in property
values before the Company faced risk of loss. Notwithstanding the
valuation of the underlying collateral represents the most
significant judgement, any delays in realising this collateral or
increases in the costs of realisation could also impact on the
eventual proceeds from each loan position.
Within ICG's benchmark portfolio the Covid-19 pandemic, and its
impact on valuation of retail sector properties in particular,
lowered ICG's recovery expectations for non--performing loans. As a
result, the application of stress tests in accordance with the
Company's policy results in a significantly higher risk profile
than pre Covid-19, reflecting ICG's loss experience. It should be
noted that the Company has very limited exposure to the retail
sector.
Stress test impact on Expected Credit Loss at 31 January
2023
Stage 1 and Stage 2 Loans 31 January 31 January
2023 2022
------------- -------------
One grade deterioration GBP3,286,000 GBP166,000
in credit rating
-------------
Two grade deterioration GBP5,072,000 GBP654,000
in credit rating
-------------
Three grade deterioration GBP5,412,000 GBP3,137,000
in credit rating
-------------
In addition to the standard stress tests described above, the
Company has considered the potential impact of the post balance
sheet appointment of an administrator over two of the RoyaleLife
group companies. The Company has considered a number of scenarios
with respect to timeframe for repayment and potential net
realisable value relative to the latest valuation as well as
ability to service debt during that period. The downside outcomes
of those scenarios fall within the bounds of the standard stress
test impacts set out above.
The Southport loan has been recognised as a Stage 3 asset with a
provision for impairment of GBP 2,288 ,651 based on the current
conditional offer for sale being progressed by the administrator. A
further 10% fall in the property value, would result in an
additional ECL of GBP1,450,000.
The current performance of each loan is discussed in the
Investment Manager's report.
6. Trade and other receivables
31 January 2023 31 January 2022
GBP GBP
Other receivables 43,435 502,485
================ ================
Other receivables include accrued interest on loans receivable.
There were no factors to indicate significant increase in credit
risk or objective evidence of impairment or default at year end,
hence no lifetime ECL was recognised on the balances. Please see
comments in note 5 above in respect of the loan portfolio.
The Company has management policies in place to ensure that all
receivables are received within the credit time frame. The
Directors consider that the carrying amount of all receivables
approximates to their fair value.
During the period we appointed administrators over the borrower
of the Southport loan following a breach in the LTV covenant.
While, the hotel remains open and continues to trade with a sale
process ongoing, it was decided to recognise interest on a net
basis after allowance for ECL.
Following the date of this report an administrator was appointed
over two of the companies providing security for the RoyaleLife
loan. Payment of the accrued interest receivable to date is likely
to be delayed due to the administration process. Whilst the loan
will continue to accrue default interest, such interest income will
be subject to ongoing ECL provisions for impairment and recognised
as and when received.
7. Cash and cash equivalents
Cash and cash equivalents comprise cash held by the Company and
short-term bank deposits held with maturities of twelve months or
less. The carrying amounts of these assets approximate their fair
value.
The table shows the Company's cash balances and the banks in
which they are held:
31 January 2023 31 January 2022
GBP GBP
--------------------------------------------------------- ---------------- ----------------
Royal Bank of Scotland Global Banking (Luxembourg) S.A. - 1,266,096
Lloyds Bank International Limited 581,954 396,016
Barclays Bank plc 581,983 396,056
Butterfield Bank (Guernsey) Limited 582,571 396,076
Royal Bank of Scotland International Limited 7,462,986 2,346,980
9,209,494 4,801,224
--------------------------------------------------------- ---------------- ----------------
8. Trade and other payables
31 January 2023 31 January 2022
GBP GBP
Investment Management fees (see Note 13) 517,343 289,107
Directors' remuneration (see Note 12) 31,250 31,250
Administration fees (see Note 13) 43,283 22,188
Broker fees - 51,650
Audit fees (see note 14) 50,138 29,723
Other expenses 40,465 44,419
Trade creditors 179,174 324,886
861,653 793,223
================ ================
Trade creditors comprise amounts payable to borrowers. The
Company has management policies in place to ensure that all
payables are paid within the credit time frame. The Directors
consider that the carrying amount of all payables approximates to
their fair value.
9. Earnings per share and Net Asset Value per share
Earnings per share
1 February 2022 to 1 February 2021 to
31 January 2023 31 January 2022
Profit for the year (GBP) 1,959,823 7,335,765
Weighted average number of Ordinary Shares in issue 121,302,779 121,302,779
=================== ===================
Basic and diluted EPS (pence) 1.62 6.05
Adjusted basic and diluted EPS (pence) 1.50 5.25
=================== ===================
The calculation of basic and diluted earnings per share is based
on the profit for the year and on the weighted average number of
Ordinary Shares in issue in for the year ended 31 January 2023.
There are no dilutive shares in issue at 31 January 2023 (31
January 2022: none).
Net Asset Value per share
31 January 2023 31 January 2022
NAV (GBP) 77,354,951 87,768,015
Number of Ordinary Shares in issue 121,302,779 121,302,779
---------------- ----------------
NAV per share (pence) 63.77 72.35
================ ================
The calculation of NAV per share is based on Net Asset Value and
the number of Ordinary Shares in issue at the year end.
10. Share capital
The authorised share capital of the Company is represented by an
unlimited number of Ordinary Shares with or without a par value
which, upon issue, the Directors may designate as (a) Ordinary
Shares; (b) B Shares; and (c) C Shares, in each case of such
classes and denominated in such currencies as the Directors may
determine.
31 January 2023 31 January 2022
Number of shares Number of shares
Authorised
Ordinary Shares of no par value Unlimited Unlimited
B Shares of no par value Unlimited Unlimited
================= =================
Total No Total No
Ordinary Shares 121,302,779 121,302,779
================= =================
B Shares
B Shares issued September 2021 - 121,302,779
B Shares redeemed and cancelled September 2021 - (121,302,779)
B Shares issued December 2021 - 121,302,779
B Shares redeemed and cancelled December 2021 - (121,302,779)
B Shares issued January 2022 - 121,302,779
B Shares redeemed and cancelled January 2022 - (121,302,779)
B Shares issued May 2022 121,302,779 -
B Shares redeemed and cancelled May 2022 (121,302,779) -
- -
------------------------------------------------ ----------------- -----------------
GBP GBP
Share capital brought forward 87,576,589 119,115,310
Repaid in the year (7,278,170) (31,538,721)
Share capital carried forward 80,298,419 87,576,589
================= =================
Dividends
Dividends are recognised by the Company in the quarterly NAV
calculation following the declaration date. A summary of the
dividends declared and/or paid during the year ended 31 January
2023 and 31 January 2022 are set out below:
Dividend per share Total dividend
1 February 2022 to 31 January 2023 Pence GBP
Interim dividend in respect of quarter ended 31 January 2022 1.10 1,334,331
Interim dividend in respect of quarter ended 30 April 2022 1.10 1,334,331
Interim dividend in respect of quarter ended 31 July 2022 1.00 1,213,028
Interim dividend in respect of quarter ended 31 October 2022 1.00 1,213,027
4.20 5,094,717
============================= ===================
Dividend per share Total dividend
1 February 2021 to 31 January 2022 Pence GBP
Interim dividend in respect of quarter ended 31 January
2021 1.50 1,819,542
Interim dividend in respect of quarter ended 30 April 2021 1.50 1,819,542
Interim dividend in respect of quarter ended 31 July 2021 1.50 1,819,542
Interim dividend in respect of quarter ended 31 October
2021 1.50 1,819,542
6.00 7,278,168
================================= =================
As two of the remaining investments have significant ECL
provisions, there is projected to be a significantly reduced level
of operating cashflow in the next two quarters, and no forecast
cash inflows thereafter until investments repay. This will have a
considerable impact on the Company's ability to pay a dividend.
The Company has a predictable cost base and the ability to hold
back capital from the imminent (contracted) and prospective future
repayments to meet costs and preserve working capital over the
medium to long-term. However, it is no longer considered
appropriate to distribute a regular dividend until and unless
profits and cashflow prudently allow.
Return of Capital
Return of Capital is recognised by the Company in the quarterly
NAV calculation following the declaration date.
The Directors announced one return in the year and have returned
a total amount of 6 pence per Ordinary Share to shareholders, being
121,302,779 in total based on the current number of Ordinary Shares
in issue. This return of capital was ef fec ted by way of an issue
of redeemable B Shares to existing shareholders pro rata to their
shareholding on the record date set out below and the subsequent
redemption of those B Shares.
Return of Capital per share Total Return of Capital
1 February 2022 to 31 January 2023 Pence GBP
Return of Capital May 2022 6.00 7,278,170
6.00 7,278,170
============================ =========================
1 February 2021 to 31 January 2022 Pence GBP
Return of Capital September 2021 5.50 GBP 6,671,651
Return of Capital December 2021 6.50 GBP 7,884,681
Return of Capital January 2022 14.00 GBP 16,982,389
26.00 GBP 31,538,721
====== ================
Rights attaching to Shares
The Company has a single class of Ordinary Shares which are not
entitled to a fixed dividend. The company had one issue of
redeemable B shares which were redeemed throughout the year on a
Return of Capital payment to shareholders of the redeemable B
shares. At any General Meeting of the Company each Ordinary
Shareholder is entitled to have one vote for each share held. The
Ordinary Shares also have the right to receive all income
attributable to those shares and participate in distributions made
and such income shall be divided pari passu among the holders of
Ordinary Shares in proportion to the number of Ordinary Shares held
by them.
The Company's Articles include a B Share mechanism for returning
capital to Shareholders and following Shareholder approval on 14
January 2021, the Company has and will continue to utilise this
mechanism in future. When the Board determin es to return capital
to Shareholders, the Company has issued B Shares, paid up out
of
the Company's assets, to existing Shareholders pro rata to their
holding of Ordinary Shares at the time of such issue. The amount
paid up on the B Shares will be equal to the cash distribution to
be made to Shareholders via the B Share mechanism. The B Shares
shall be redeemable at the option of the Company following issue
and the redemption proceeds (being equal to the amount paid up on
such B Shares) paid to the holders of such B Shares
on such terms and in such manner as the Directors may from time
to time determine. It is therefore expected that the B Shares will
only ever be in issue for a short period of time and will be
redeemed for cash shortly after their issue in order to make the
return of capital to Shareholders.
It is intended that following each return of capital the Company
will publish a revised estimated Net Asset Value and Net Asset
Value per Ordinary Share based on the prevailing published amounts
adjusted to take into account the return of capital. The number of
Ordinary Shares in issue will remain unchanged.
11. Risk Management Policies and Procedures
The Company through its investment in senior loans is exposed to
a variety of financial risks, including market risk (including
currency risk and interest rate risk), credit risk and liquidity
risk. The Company's overall risk management procedures focus on the
unpredictability of operational performance of the borrowers and on
property fundamentals and seek to minimise potential adverse
effects on the Company's financial performance.
The Directors are ultimately responsible for the overall risk
management approach within the Company. The Directors have
established procedures for monitoring and controlling risk. The
Company has investment guidelines that set out its overall business
strategies, its tolerance for risk and its general risk management
philosophy.
In addition, the Investment Manager monitors and measures the
overall risk bearing capacity in relation to the aggregate risk
exposure across all risk types and activities. Further details
regarding these policies are set out below:
Market risk
Market risk includes market price risk, currency risk and
interest rate risk. If a borrower defaults on a loan and the real
estate market enters a downturn it could materially and adversely
affect the value of the collateral over which loans are secured.
This risk is considered by the Board to be as a result of credit
risk as it relates to the borrower defaulting on the loan.
Market risk is moderated through a careful selection of loans
within specified limits. The Company's overall market position is
monitored by the Investment Manager and is reviewed by the
Directors on an ongoing basis.
Currency risk
The Company's currency risk exposure is considered to be
immaterial as all investments have been and will be made in Pounds
Sterling.
Interest rate risk
Interest rate risk is the risk that the value of financial
instruments and related income from cash and cash equivalents will
fluctuate due to changes in market interest rates.
The majority of the Company's financial assets are loans
advanced, which are at a fixed rate of interest, and cash and cash
equivalents. The Company's interest rate risk is limited to
interest earned on cash deposits.
The following table shows the portfolio profile of the material
financial assets as at 31 January 2023 and 31 January 2022:
31 January 2023 31 January 2022
GBP GBP
Floating rate
Cash 9,209,494 4,801,224
Fixed rate
Loans advanced at amortised cost, net of ECL allowance 68,968,675 83,257,529
78,178,169 88,058,753
================ ================
Credit risk
Credit risk is the risk that a counterparty will be unable to
pay amounts in full when due. The Company's main credit risk
exposure are on the loans advanced, where the Company invests in
secured senior debt, and in respect of monies held with banks.
Outside of its investment portfolio, discussed, in order to
minimise credit risk, the Company has adopted a policy, where
possible, of only dealing with creditworthy counterparties as a
means of mitigating the risk of financial loss from defaults. The
Company only transacts with entities that are rated the equivalent
of investment grade and investments in these instruments, including
bills of exchange, debentures and redeemable notes, where the
counterparties have minimum BBB- credit rating, are considered to
have low credit risk for the purpose of impairment assessment. The
credit rating information is supplied by independent rating
agencies where available and, if not available, the Company uses
other publicly available financial information and its own trading
records to rate its major customers. The Company's exposure and the
credit ratings of its counterparties are continuously monitored and
the aggregate value of transactions concluded is spread amongst
approved counterparties.
With respect to its loan portfolio the Company has adopted the
Investment Manager's internal credit rating methodology to assess
and monitor the creditworthiness of each loan and resultant credit
risk, PD and LGD. The model takes into account factors below such
as:
-- financial risk of the borrower - considers the financial
position of the borrower in general and considers LTV, ICR and
amortisation profile/debt maturity;
-- property risk - where the property location, quality
(specification, condition) and letting risk are considered;
-- income risk - the income risk category considers, tenant
diversity, tenant credit quality and lease length ratio, sector
diversity and geographical diversity; and
-- borrower/structure risk - where factors such as history of
the borrower/sponsor, loan control (security package) and covenants
are considered.
The credit rating methodology is dynamic and recognises the
interplay between diversity and quality as a risk mitigant. The
Company's current credit risk grading framework comprises the
following categories and portfolio weightings:
Grade Description Maximum credit risk exposure 2023 Maximum credit risk exposure 2022
AAA, AA+ Virtually no risk - -
------------------- ---------------------------------- ----------------------------------
AA to A Low risk - -
------------------- ---------------------------------- ----------------------------------
BBB Moderate risk 9,595,622 10,548,056
------------------- ---------------------------------- ----------------------------------
BB Average risk 17,182,749 49,155,980
------------------- ---------------------------------- ----------------------------------
B Acceptable risk - 20,956,304
------------------- ---------------------------------- ----------------------------------
CCC+ Borderline Risk - -
------------------- ---------------------------------- ----------------------------------
CCC Special Mention - -
------------------- ---------------------------------- ----------------------------------
CC Substandard 26,405,642 -
------------------- ---------------------------------- ----------------------------------
D Doubtful 15,734,452 -
------------------- ---------------------------------- ----------------------------------
D Loss - -
------------------- ---------------------------------- ----------------------------------
The classification of loans for the purpose of considering
expected credit loss are discussed in the company's accounting
policies and in note 5 above, these include a deterioration in
credit rating from the date of initial recognition and are not
based solely on the absolute credit rating at a point in time.
The Company has used the Investment Manager's loss experience to
benchmark investment performance and potential impairment for both
Stage 1 and Stage 2 loans under IFRS 9 considering both probability
of default and expected credit loss. The total exposure to credit
risk arises from default of the loan counterparty and the carrying
amounts of other financial assets best represent the maximum credit
risk exposure at the year-end date, including the principal
advanced on loans, interest outstanding on loans and cash and cash
equivalents. As at 31 January 2023, the maximum credit risk
exposure was GBP68,918,465 (31 January 2022: GBP80,660,340).
The Investment Manager has adopted procedures to reduce credit
risk exposure through the inclusion of covenants in loans issued,
along with conducting credit analysis of the counterparties, their
business and reputation, which is monitored on an on-going basis.
The Investment Manager routinely analyses the profile of the
Company's underlying risk in terms of exposure to significant
tenants, reviewing market data and forecast economic trends to
benchmark borrower performance and to assist in identifying
potential future stress points.
Collateral held as security
Each loan is secured by a charge of commercial real estate
property pledged by the borrower. The current valuations for these
properties and LTV information for each loan (and for the portfolio
as a whole) are detailed in the loan summary section in the
Investment Manager's report.
To diversify credit risk the Company maintains its cash and cash
equivalents across four (31 January 2022: four) different banking
groups as shown below. In order to cover operational expenses, a
working capital balance at Royal Bank of Scotland International
Limited is maintained and monitored. This is subject to the
Company's credit risk monitoring policies.
The table below shows the Company's cash balances and the credit
rating for each counterparty:
Rating 31 January 2023 31 January 2022
GBP GBP
--------------------------------------------------------- -------- ---------------- ----------------
Royal Bank of Scotland Global Banking (Luxembourg) S.A. A- - 1,266,096
Lloyds Bank International Limited A 581,954 396,016
Barclays Bank plc A 581,983 396,056
Butterfield Bank (Guernsey) Limited BBB+ 582,571 396,076
Royal Bank of Scotland International Limited A- 7,462,986 2,346,980
9,209,494 4,801,224
------------------------------------------------------------------ ---------------- ----------------
The carrying amount of these assets approximates their fair
value.
Liquidity risk
Liquidity risk is the risk that the Company will not be able to
meet its liabilities as they fall due. The Company's loans advanced
are illiquid and may be difficult or impossible to realise for cash
at short notice.
The Company manages its liquidity risks through the regular
preparation and monitoring of cash flow forecasts to ensure that it
can meet its obligations as they fall due.
Liquidity risks arise in respect of other financial liabilities
of the Company due to counterparties. The Company expects to meet
its ongoing obligations from cash flows generated by the loan
portfolio. The Company's financial assets and financial liabilities
all have maturity dates within one year. An analysis of the
maturity of financial assets classified as loans advanced is shown
in the table:
Less than one year Between one and five years Total as at
31 January 2023
GBP GBP GBP
Northlands - principal 9,561,076 - 9,561,076
Northlands - interest and exit fees 316,874 - 316,874
Affinity - principal 17,299,963 - 17,299,963
Affinity - interest and exit fees 326,231 - 326,231
Southport - principal 15,200,000 - 15,200,000
Southport - interest and exit fees 534,452 - 534,452
RoyaleLife - principal 25,382,017 - 25,382,017
RoyaleLife - interest and exit fees 4,261,464 - 4,261,464
72,882,077 - 72,882,077
=================== =========================== =================
Less than one year Between one and five years Total as at
31 January 2022
GBP GBP GBP
Northlands - principal 10,431,142 - 10,431,142
Northlands - interest and exit fees 715,242 - 715,242
Quattro - principal 5,956,304 - 5,956,304
Quattro - interest and exit fees 203,167 - 203,167
Affinity - principal 17,299,963 - 17,299,963
Affinity - interest and exit fees 801,862 - 801,862
Southport - principal - 15,000,000 15,000,000
Southport - interest and exit fees 1,050,000 483,904 1,533,904
RoyaleLife - principal - 25,382,017 25,382,017
RoyaleLife - interest and exit fees 2,030,561 5,268,400 7,298,961
LBS - principal 6,474,000 - 6,474,000
LBS - interest and exit fees 571,451 - 571,451
45,533,692 46,134,321 91,668,013
=================== =========================== =================
The Company could also be exposed to prepayment risk, being the
risk that the principal may be repaid earlier than anticipated,
causing the return on certain investments to be less than expected.
The Company, where possible, seeks to mitigate this risk by
inclusion of income protection clauses that protect the Company
against any prepayment risk on the loans advanced for some of the
period of the loan. To date, all loans advanced have included
income protection clauses in the event of prepayment of the loans
for the majority of the loan term.
The Company has loans and receivables with a prepayment option
embedded. Given the low probability of exercise and indeterminable
exercise date, the value attributed to these embedded derivatives
is considered to be GBPnil (31 January 2022: GBPnil).
Capital management policies and procedures
The Company's capital management objectives are to ensure that
the Company will be able to continue to meet all of its liabilities
as they fall due and to maximise the income and capital return to
equity shareholders.
In accordance with the Company's investment policy, the
Company's principal use of cash has been to fund investments in the
form of loans sourced by the Investment Manager, as well as
on-going operational expenses and payment of dividends and other
distributions to shareholders in accordance with the Company's
dividend policy.
The Board, with the assistance of the Investment Manager,
monitors and reviews the broad structure of the Company's capital
on an on-going basis.
The Company has no externally imposed capital requirements. The
Company's capital at the year-end comprised equity share capital
and reserves.
12. Related Party Transactions and Directors' Remuneration
Parties are considered to be related if one party has the
ability to control the other party or exercise significant
influence over the party in making financial or operational
decisions.
In the opinion of the Directors, on the basis of shareholdings
advised to them, the Company has no immediate or ultimate
controlling party.
Directors
The Directors' fees for the year amounted to GBP 160,000 (31
January 2022: GBP 171,375 ) with outstanding fees of GBP 31,250 due
to the Directors at 31 January 2023 (31 January 2022: GBP 31,250 )
(see Note 8).
13. Material Agreements
Investment Manager Agreement
Investment Management fees for the year amounted to GBP 761,047
(31 January 2022: GBP 1,165,922 ), of which GBP 517,343 (31 January
2022: GBP 289,107 ) was outstanding at the year-end (see Note
8).
The Investment Manager is entitled to a management fee at a rate
equivalent to 1% per annum of the Net Asset Value paid quarterly in
arrears based on the average Net Asset Value as at the last
business day of each month in each relevant quarter.
The Investment Manager's agreement became effective from 25
November 2020 and shall continue thereafter unless terminated in
accordance with the terms of the agreement. The Investment
Manager's appointment cannot be terminated by the Company with less
than 12 months' notice. The Company may terminate the Investment
Management Agreement with immediate effect if the Investment
Manager has committed any material, irremediable breach of the
Investment Management Agreement or has committed a material breach
and fails to remedy such breach within 30 days of receiving notice
from the Company requiring it to do so; or the Investment Manager
is no longer authorised and regulated by the FCA or is no longer
permitted by the FCA to carry on any regulated activity necessary
to perform its duties under the Investment Management Agreement.
The Investment Manager may terminate their appointment immediately
if the Company has committed any material, irremediable breach of
the Investment Management Agreement or has committed a material
breach and fails to remedy such breach within 30 days of receiving
notice from the Company requiring it to do so.
Administration Agreement
The Administrator has been appointed to provide day to day
administration and company secretarial services to the Company, as
set out in the Administration Agreement. Under the terms of the
Administration Agreement, the Administrator is entitled to a fixed
fee of GBP90,000 per annum for services such as administration,
corporate secretarial services, corporate governance, regulatory
compliance and stock exchange continuing obligations provided to
the Company. The Administrator will also be entitled to an
accounting fee charged on a time spent basis with a minimum fee of
GBP40,000 per annum. Administration and accounting fees for the
year amounted to GBP155,832 (31 January 2022: GBP205,285) of which
GBP43,283 (31 January 2022: GBP22,188) was outstanding at the year
end.
Registrar Agreement
The Registrar has been appointed to provide registration
services to the Company and maintain the necessary books and
records, as set out in the Registrar Agreement.
Under the terms of the Registrar Agreement, the Registrar is
entitled to an annual fee from the Company equal to GBP1.78 per
shareholder per annum or part thereof, subject to a minimum of
GBP7,500 per annum. Other Registrar activities will be charged for
in accordance with the Registrar's normal tariff as published from
time to time.
Depositary Agreement
The Depositary has been appointed from 25 November 2020 to
provide depositary services under the AIFMD to the Company, which
include cash monitoring, asset verification and oversight, as set
out in the Depositary Agreement.
Under the terms of the Depositary Agreement, the Depositary is
entitled to a fixed fee from the Company of GBP25,000 per
annum.
14. Auditor's Remuneration
Audit and non-audit fees payable to the auditors can be analysed
as follows:
31 January 31 January
2023 2022
GBP GBP
Audit fees for the Company 48,025 46,454
Total Audit fees 48,025 46,454
=========== =============
There were no non-audit fees paid during the year.
15. Other Expenses
31 January 31 January
2023 2022
GBP GBP
Luxco operating expenses - 95,358
Broker fees 25,550 76,925
Administration fees 155,832 205,285
Regulatory fees 21,415 16,524
Listing fees 15,239 14,573
Legal and professional fees 71,296 122,555
Other expenses 119,753 62,829
----------- -----------
409,085 594,049
=========== ===========
16. Finance Costs
Finance costs comprise GBPNil (31 January 2022: GBP63,351)
relating to the amortisation of arrangement fees on a revolving
credit facility.
17. Subsequent events
On 6 April 2023, the Company declared a dividend of 0.5 pence
per Ordinary Share, GBP606,513.90, in respect of the quarter ended
31 January 2023, which was paid on 4 May 2023.
On 11 May 2023, the Company, together with its co-lenders,
appointed an administrator over two of the companies providing
security for the RoyaleLife loan. This is discussed further in the
Chairman's Statement, Investment Manager's Report, the Accounting
Policies and in Note 3 and 5.
alternative performance measures
Performance Definition Reason for Use
Measure
Weighted Average The money weighted average To provide shareholders
Loan Coupon rate of interest being charged with a means to assess
on each investment at the whether the interest
relevant reporting date. payable on the Company's
loans reflects the
risk of such loans;
and whether this is
in line with the Company's
investment parameters
and shareholders'
return expectations.
----------------------------------- ------------------------------
Capital Distribution The total annual Return To assist shareholders
Per Share of Capital to shareholders in assessing the performance
divided by the number of of the Company in
Shares in issue (other than relation to its Investment
shares held in treasury). Objectives.
----------------------------------- ------------------------------
Weighted Average The money weighted average To provide transparency
Loan Maturity/ period from the relevant to the Company's investment
Portfolio Weighted reporting date until the outlook and likely
Average Residual Company's investments reach level of loan repayments,
Term their contractual repayment and to assist shareholders
date. in identifying whether
the remaining duration
of the loans reflects
their own investment
time frames.
----------------------------------- ------------------------------
Weighted Average The money weighted average To provide transparency
Loan to Value Loan to Value ratio at the to the Company's risk
Ratio/Portfolio relevant reporting date, positioning and to
Weighted Average calculated on the basis demonstrate compliance
LTV of the outstanding loan with the investment
amount for each investment restrictions.
as a percentage of the most
recent Market Value of the
properties securing each
investment.
----------------------------------- ------------------------------
Current LTV The current Loan to Value To provide transparency
ratio for each individual to the Company's risk
loan at the relevant reporting positioning and to
date, calculated on the demonstrate compliance
basis of the outstanding with the investment
loan amount for each investment restrictions.
as a percentage of the most
recent Market Value of the
property securing the investment.
----------------------------------- ------------------------------
Total Income The total income of the To provide transparency
per Share Company as disclosed in to the Company's investment
the Statement of Comprehensive returns.
Income divided by the number
of Ordinary Shares in issuance
at the relevant reporting
date.
----------------------------------- ------------------------------
NAV per Share The net asset value of the To assist shareholders
Company divided by the number in assessing the performance
of Ordinary Shares in issuance of the Company over
at the relevant reporting a period in relation
date. to its Investment
Objectives.
----------------------------------- ------------------------------
Dividend per The total dividends per To assist shareholders
Share Ordinary Share declared in assessing the performance
and/or paid during the relevant of the Company in
reporting period. relation to its Investment
Objectives.
----------------------------------- ------------------------------
Shareholder Share price movements combined To assist shareholders
Total Return with dividends paid on the in assessing the total
since IPO assumption that dividends return earned over
have been reinvested. the life of the Company.
----------------------------------- ------------------------------
Share Price The percentage difference To assist shareholders
Premium / Discount between the NAV per share in identifying and
and the quoted price of monitoring the performance
each Ordinary Share as at of the Company.
the relevant reporting date.
----------------------------------- ------------------------------
Percentage Capital The aggregate value of the To assist shareholders
Invested investments at amortised in identifying and
cost divided by total shareholder monitoring the performance
equity. Where the figure of the Company and
exceeds 100%, the investments the level of gearing.
will be partially funded
by the Company's debt facility.
----------------------------------- ------------------------------
glossary of capitalised defined terms
"Administrator" means Ocorian Administration (Guernsey)
Limited;
"Administration Agreement" means the Administration Agreement
dated 23 January 2013 between the Company and the
Administrator;
"Admission" means the admission of the shares to the premium
listing segment of the Official List and to trading on the London
Stock Exchange;
" AEOI " means Automatic Exchange of Information;
" Affinity " means Impact Spectrum Limited;
" AGM " or " Annual General Meeting " means the general meeting
of the Company;
"AIC" means the Association of Investment Companies;
"AIC Code" means the AIC Code of Corporate Governance;
"AIFMD" means the Alternative Investment Fund Managers
Directive;
"Annual Report" or "Annual Report and Financial Statements"
means the annual publication of the Company provided to the
shareholders to describe their operations and financial conditions,
together with their Financial Statements;
"Articles of Incorporation" or "Articles" means the articles of
incorporation of the Company, as amended from time to time;
"Board" or "Directors" or "Board of Directors" means the
directors of the Company from time to time;
"B shares" means a redeemable Ordinary Share of no par value in
the capital of the Company issued and designated as a B Share of
such class, and denominated in such currency, as may be determined
by the Directors at the time of issue. Issued for the purpose of
returning capital in accordance with Article 8;
"Capital Distribution Per Share" means the total annual Return
of Capital to shareholders divided by the number of Shares in issue
(other than shares held in treasury);
"CMBS" means commercial mortgage-backed security;
"Code" or "Corporate Governance Code" means the UK Corporate
Governance Code 2019 as published by the Financial Reporting
Council;
"Companies Law" means the Companies (Guernsey) Law, 2008, (as
amended);
"Company" means ICG-Longbow Senior Secured UK Property Debt
Investments Limited;
"Covid-19" means the global coronavirus pandemic;
"CRS" means Common Reporting Standard;
"ECL" means expected credit losses;
"EPS" or "Earnings per share" means Earnings per Ordinary Share
of the Company and is expressed in Pounds Sterling;
"ESG" means Environmental, Social and Governance;
"EU" means the European Union;
"Euro" or "EUR" means Euro;
"FATCA" means Foreign Account Tax Compliance Act;
"FCA" means the UK Financial Conduct Authority (or its successor
bodies);
"Financial Statements" means the audited financial statements of
the Company, including the Statement of Comprehensive Income, the
Statement of Financial Position, the Statement of Changes in
Equity, the Statement of Cash Flows, and associated notes;
"FRC" means the Financial Reporting Council;
"FTSE" means the Financial Times Stock Exchange;
"GDP" means gross domestic product;
"GFSC" means the Guernsey Financial Services Commission;
"GIIN" means Global Intermediary Identification Number;
"Group" means the Company, ICG Longbow Senior Secured UK
Property Debt Investments Limited together with its previously
wholly owned subsidiary, ICG Longbow Senior Debt S.A (Luxco) which
was liquidated on 18 January 2022;
"GFSC Code" means the GFSC Finance Sector Code of Corporate
Governance;
"IAS" means international accounting standards as issued by the
Board of the International Accounting Standards Committee;
"ICG" means Intermediate Capital Group PLC;
"ICR" means interest coverage ratio;
"IFRS" means the International Financial Reporting Standards,
being the principles-based accounting standards, interpretations
and the framework by that name issued by the International
Accounting Standards Board;
"Interest Cover Rati o " or "ICR" means the debt/profitability
ratio used to determine how easily a company can pay interest on
outstanding debt;
"Interim Report" means the Company's interim report and
unaudited interim condensed financial statements for the period
ended 31 July;
"Investment Manager" or "ICG-Longbow" means ICG Alternative
Investment Limited or its associates;
"Investment Manager Agreement" means Investment Management
Agreement dated 25 November 2020 between the Company and the
Investment Manager;
"IoD" means Institute of Directors;
"IPO" means the Company's initial public offering of shares to
the public which completed on 5 February 2013 ;
"ISAE 3402" means International Standard on Assurance
Engagements 3402, "Assurance Reports on Controls at a Service
Organisation";
"ISIN" means an International Securities Identification
Number;
"LBS" means LBS Properties Limited;
"LGD" means loss given default;
"Listing Rules" means the listing rules made by the FCA under
section 73A Financial Services and Markets Act 2000;
"London Stock Exchange" or "LSE" means London Stock Exchange
plc;
"LTV" means Loan to Value ratio;
"Luxco" means the Company's wholly owned subsidiary, ICG Longbow
Senior Debt S.A.;
"Main Market" means the main securities market of the London
Stock Exchange;
"Management Engagement Committee" means a formal committee of
the Board with defined terms of reference;
"Memorandum" means the Company's memorandum;
"NAV per share" means the Net Asset Value per Ordinary Share
divided by the number of Shares in issue (other than shares held in
treasury);
"Net Asset Value" or "NAV" means the value of the assets of the
Company less its liabilities, calculated in accordance with the
valuation guidelines laid down by the Board, further details of
which are set out in the 2017 Prospectus;
"Northlands" means London & Guildford Properties Limited,
London & Weybridge Properties Limited, Lamborfore Limited,
Northlands Holdings Limited, Peeble Stone Limited, Auldana Limited,
Felixstow Limited, Richmond Lodge Construction Limited, Piperton
Finance Limited and Alton & Farnham Properties Limited;
"NMPIs" means Non-Mainstream Pooled Investments;
"OBR" means the Office of Budget Responsibility;
"Official List" is the Premium Segment of the FCA's Official
List;
"ONS" means Office for National Statistics;
"PD" means probability of default;
"Quattro" means the CNM Estates (New Malden) Limited, CNM
Estates (Ewell Road) Limited, CNM Estates (Coombe Road) Limited and
CNM Estates (Cox Lane) Limited;
"Registrar" means Link Asset Services (Guernsey) Limited
(formerly Capita Registrars (Guernsey) Limited);
"Registrar Agreement" means the Registrar Agreement dated 31
January 2013 between the Company and the Registrar;
"RevPar" means revenue per available room;
"RoyaleLife" means the Time GB Properties LendCo Limited;
"Schedule of Matters" means the Schedule of Matters Reserved for
the Board, adopted 23 January 2013, amended 25 September 2020;
"Southport" means the Waterfront Southport Properties Limited
and Waterfront Hotels (Southport) Limited - now in
administration;
"Sq ft" means square feet;
"UK" or "United Kingdom" means the United Kingdom of Great
Britain and Northern Ireland;
"UK Government Bond" means a gilt, a type of bond issued by HM
Treasury and listed on the London Stock Exchange;
"2017 Placing Programme" means the placing programme in
connection with the 2017 Prospectus published in April 2017;
"2017 Prospectus" means the prospectus published in April 2017
by the Company in connection with the 2017 Placing Programme;
and
"GBP" or "Pounds Sterling" means British pound sterling and
"pence" means British pence.
directors and general information
Board of Directors Independent Auditor English Solicitors
Jack Perry (Chair) Stuart Deloitte LLP to the Company
Beevor PO Box 137 Gowlings WLG
Paul Meader Regency Court (UK) LLP
Fiona Le Poidevin Glategny Esplanade 4 More London
St. Peter Port Riverside
Audit and Risk Committee Guernsey London
Fiona Le Poidevin (Chair) GY1 3HW United Kingdom
Stuart Beevor SE1 2AU
Paul Meader Guernsey Administrator
and Company Secretary Guernsey Advocates
Management Engagement Committee Ocorian Administration to the Company
Jack Perry (Chair) (Guernsey) Limited Carey Olsen
Paul Meader P.O. Box 286 Carey House
Fiona Le Poidevin Floor 2 PO Box 98
Stuart Beevor Trafalgar Court Les Banques
Les Banques St Peter Port
Nomination Committee St Peter Port Guernsey
Jack Perry (Chair) Guernsey GY1 4BZ
Stuart Beevor GY1 4LY
Paul Meader Bankers
Fiona Le Poidevin Depositary Butterfield Bank
Ocorian Depositary (Guernsey) Limited
Remuneration Committee (UK) Limited PO Box 25
Paul Meader (Chair) 5th Floor Regency Court
Jack Perry 20 Fenchurch Street Glategny Esplanade
Stuart Beevor London St Peter Port
Fiona Le Poidevin England Guernsey
EC3M 3BY GY1 3AP
Investment Manager
ICG Alternative Investment Registrar Barclays Bank
Limited Link Asset Services plc
Procession House (Guernsey) Limited 6-8 High Street
55 Ludgate Hill Mont Crevelt House St Peter Port
London Bulwer Avenue Guernsey
United Kingdom St Sampson GY1 3BE
EC4M 7JW Guernsey
GY2 4LH Lloyds Bank International
Registered office Limited
P.O. Box 286 Corporate Broker PO Box 136
Floor 2 and Financial Adviser Sarnia House
Trafalgar Court Cenkos Securities Le Truchot
Les Banques plc St Peter Port
St Peter Port 6-8 Tokenhouse Guernsey
Guernsey Yard GY1 4EN
GY1 4LY London
United Kingdom The Royal Bank
EC2R 7AS of Scotland International
Royal Bank Place
1 Glategny Esplanade
Identifiers St Peter Port
GIIN: 6IG8VS.99999.SL.831 Guernsey
ISIN: GG00B8C23S81 GY1 4BQ
Sedol: B8C23S8
Ticker: LBOW
Website: www.lbow.co.uk
cautionary statement
The Chairman's Statement and Investment Manager's Report have
been prepared solely to provide additional information for
shareholders to assess the Company's strategies and the potential
for those strategies to succeed. These should not be relied on by
any other party or for any other purpose.
The Chairman's Statement and Investment Manager's Report may
include statements that are, or may be deemed to be,
"forward-looking statements". These forward-looking statements can
be identified by the use of forward-looking terminology, including
the terms "believes", "estimates", "anticipates", "expects",
"intends", "may", "will" or "should" or, in each case, their
negative or other variations or comparable terminology.
These forward-looking statements include all matters that are
not historical facts. They appear in a number of places throughout
this document and include statements regarding the intentions,
beliefs or current expectations of the Directors and the Investment
Manager, concerning, amongst other things, the investment
objectives and investment policy, financing strategies, investment
performance, results of operations, financial condition, liquidity,
prospects, and distribution policy of the Company and the markets
in which it invests.
By their nature, forward-looking statements involve risks and
uncertainties because they relate to events and depend on
circumstances that may or may not occur in the future.
Forward-looking statements are not guarantees of future
performance.
The Company's actual investment performance, results of
operations, financial condition, liquidity, distribution policy and
the development of its financing strategies may differ materially
from the impression created by the forward-looking statements
contained in this document.
Subject to their legal and regulatory obligations, the Directors
and the Investment Manager expressly disclaim any obligations to
update or revise any forward-looking statement contained herein to
reflect any change in expectations with regard thereto or any
change in events, conditions or circumstances on which any
statement is based.
ICG-Longbow Senior Secured UK Property Debt Investments
Limited
P.O. Box 286
Floor 2, Trafalgar Court
Les Banques, St Peter Port, Guernsey
GY1 4LY, Channel Islands.
T +44 (0) 1481 742742
F +44 (0) 1481 742698
Further information available online:
www.lbow.co.uk
This information is provided by RNS, the news service of the
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END
ACSBRGDULDDDGXD
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