REG - ICG-Longbow Senior - Annual Report for the year ended 31 January 2022
20/05/2022 07:00
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RNS Number : 1861M ICG-Longbow Snr Sec UK Prop DebtInv 20 May 2022
ICG-Longbow Senior Secured UK Property Debt Investments Limited
Annual Report And Consolidated Financial Statements
For the year ended 31 January 2022
ICG-Longbow Senior Secured UK Property Debt Investments Limited (the
"Company") is pleased to announce the release of its Annual Financial
Statements for the year ended 31 January 2022 which will shortly be available
on the Company's website at (www.lbow.co.uk) where further information on the
Company can also be found.
All capitalised terms are defined in the Glossary of Capitalised Defined Terms
unless separately defined.
Financial Highlights
for the year ended 31 January 2022
Portfolio
£80.5 Million((1)) committed in six loans as at 31 January 2022
£74.6 Million invested in five loans as at 19 May 2022
31 January 2022 31 January 2021
Weighted average loan coupon((1)) 7.39% 7.19%
Weighted average loan maturity((1)) 0.97 years 1.76 years
Weighted average loan to value ratio((1)) 67.8% 69.3%
Performance
31 January 2022 31 January 2021
Earnings Per Share 6.05 pence 6.11 pence
Total Income Per Share((1)) 7.85 pence 8.21 pence
NAV Per Share((1)) 72.4 pence 98.3 pence
declared Dividend per Share ((1)) 5.60 pence 6.00 pence
Capital Distribution per Share ((1)) 26.0 pence -
((1)) These are Alternative Performance Measures, refer to page 61 below for
details.
Chairman's Statement
Introduction
On behalf of the Board, it is my pleasure to present the ninth Annual Report
for the Company, for the year ended 31 January 2022.
The feeling of increased optimism in the UK economy which was apparent in
early 2022, as a result of the unwinding of all remaining Covid-19
restrictions in England, has in recent months been replaced by concerns over
energy prices, the rising cost of living, and of course the tragic events
resulting from the Russian invasion of Ukraine. The near- and long-term
consequences of this remain uncertain at the time of writing.
At a domestic level, the UK property market has largely shaken off the effects
of the Covid-19 pandemic with occupational, investment and finance market
transactions returning to something like normal levels. Although the trends
seen pre-Covid-19 which had especially impacted some sub-sectors of retail
property have continued. Against this backdrop, several of the Company's
borrowers have been able to secure successful sales and refinancing of their
property holdings and repay the Company's loans in full and this allowed the
Company to commence its programme of returning capital to shareholders.
As at the date of these accounts, the Company has paid capital distributions
of 26.0 pence per share and a further capital distribution equivalent to 6.0
pence per Ordinary Share was approved by the Directors on 18 May 2022.
I am pleased to report that the Company delivered robust earnings performance
during the period, with pre-tax profits substantially in line with the prior
year despite a meaningful reduction in the investment portfolio in the second
half of the reporting period. The declared dividend was fully covered during
the period.
Notwithstanding the reduction in size of the investment portfolio, the Board
has also been able to maintain a robust level of quarterly dividends, with the
total dividend declared of 5.6 pence per share in respect of the financial
year to 31 January 2022. This has been bolstered by the significant prepayment
protection originally negotiated by the Investment Manager on the underlying
loans, which served to generate additional income for the Company following
some of the recent early repayments.
The underlying performance of the Company's portfolio has been steady in
another challenging year, and the Board has been pleased to see that the
Investment Manager has been able to work through some of the difficulties
presented by Covid-19 to improve the Company's risk positioning and in certain
instances secure additional returns.
As the number of remaining investments reduces, the Investment Manager has
been focused on working closely with borrowers to establish likely exit
timetables for the remaining loans, with a particular focus on the likelihood
of any further early repayments. As the critical mass of the portfolio
reduces, the Board and Investment Manager may explore the potential for
negotiated early exits or other solutions which allow for an acceleration of
capital return while preserving shareholder value.
Portfolio
At 31 January 2022, the portfolio comprised six loans with a total principal
balance outstanding of £80.5 million.
The Company received three full repayments during the year. In July 2021 the
remaining £5.7 million balance of the Halcyon loan was repaid, following a
refinancing of the underlying security portfolio. In October 2021 the £7.8
million Knowsley loan repaid, following a sale of the underlying property.
The £16.3m remaining balance of the GMG loan was repaid in full in December
2021, again following a sale of the underlying property. The latter came
with interest, exit and prepayment fees of £0.8 million, which was modestly
accretive to overall NAV.
During the period, the Company received a partial repayment of the Southport
loan, representing the pay down of previously capitalised loan interest, and a
series of partial repayments of the Quattro loan (which repaid in full after
period end). Also, during the year the Investment Manager negotiated a number
of amendments to the RoyaleLife loan, with the associated amendment to fees
being both accretive to NAV during the period and improving the prepayment
protection provisions.
Dividend
As a result of its strong performance the Company delivered a fully covered
5.6 pence per share dividend with respect to the financial year to 31 January
2022, despite the challenges presented by Covid-19 and notwithstanding the
reduction in the size of the loan portfolio upon which the Company is reliant
for its income.
At the date of these accounts, and based on the current outlook, the Board is
targeting payment of dividends equating to 6% (on an annualised basis) of the
preceding quarter's net asset value, for as long as it is prudent and economic
to do so.
Governance and Management
As reported last year, the Board resolved to simplify the Group's corporate
structure by collapsing the Luxembourg subsidiary company which has
historically acted as the lender for the Company's investments. These
investments have been transferred to the Company following the dissolution of
the Luxembourg subsidiary. Over time, the Company expects this restructuring
to reduce pro forma operating expenses by approximately £200,000 per annum.
Post Year End Trading
In April 2022, the Company received full repayment of the outstanding £6.0
million balance of the Quattro loan, together with interest and fees totalling
£0.5 million in aggregate.
Following this repayment, on 18 May 2022 the Board resolved to make a further
capital distribution to shareholders equivalent to 6.0 pence per Ordinary
Share.
Outlook
The Company is continuing the orderly realisation of its investment
portfolio. As funds become available the Board intends to continue to return
capital to shareholders, taking account of the Company's working capital
requirements.
The Board is mindful that shareholders will be eager to understand the likely
quantum and timing of capital distributions. Forecasting repayments from the
underlying loan investments is uncertain given the borrowers' rights to repay
early. As noted in the Investment Manager's report below, certain of the
Company's borrowers have already commenced sales processes or refinance
searches. The Board's current expectation is for the LBS and Affinity loans to
repay in H2 2022, with both properties currently on the market for sale, and
the Northlands loan to repay later in 2022. The RoyaleLife and Southport
loans have legal maturity dates in 2023. The unexpired term to maturity of
the investments, as set out on page 7, may also provide a degree of
guidance. We will continue to keep shareholders updated on the timing and
likelihood of any repayments and associated capital distributions.
The Company's financial position remains strong, with all remaining
investments expected to be repaid in full together with interest and exit
fees. As such, the Board expects to be able to return to shareholders all,
or substantially all, of the Company's current net asset value, based on
prudent assumptions on the Company's ongoing cost base and the level of the
ongoing dividend. As set out in last year's report, as the Company's
portfolio further reduces, the Board and Investment Manager may begin to
consider opportunities which might accelerate the return of capital while
seeking to preserve shareholder value.
Jack Perry
Chairman
19 May 2022
Financial Summary
Performance
· In line with its objective of an orderly realisation of its
assets, during the year the Company returned £31.5 million of shareholder
capital, equating to 26.0 pence per Ordinary Share.
· On 18 May 2022 the Directors approved a further return of
capital equivalent to 6.0 pence per Ordinary Share.
· NAV of £87.77 million as at 31 January 2022 (31 January 2021:
£119.25 million), equivalent to 72.35 pence per Ordinary Share (31 January
2021: 98.30 pence per Ordinary Share).
· Notwithstanding the capital returns, total income for the year
ended 31 January 2022 was £9.52 million (31 January 2021: £9.95 million),
and profit after tax was £7.34 million (31 January 2021: £7.41 million).
· Earnings per share of 6.05 pence (31 January 2021: 6.11 pence)
with total dividends paid or declared for the year ended 31 January 2022 of
5.6 pence per share (31 January 2021: 6.0 pence per share).
· Following dividend distributions and the return of capital in
the year, retained earnings increased by £57,597, representing 0.05 pence per
Ordinary Share.
· There have been no credit losses or impairments in the
investment portfolio.
Dividend and Capital Distributions
· Total dividends paid or declared for the year ended 31 January
2022 of 5.6 pence per share (31 January 2021: 6.0 pence per share), made up as
follows:
o Interim dividend of 1.5 pence per share paid in respect of quarter ended
30 April 2021
o Interim dividend of 1.5 pence per share paid in respect of quarter ended
31 July 2021
o Interim dividend of 1.5 pence per share paid in respect of quarter ended
31 October 2021
o Interim dividend of 1.1 pence per share paid in respect of quarter ended
31 January 2022
· Total capital distributions paid or declared for the year ended
31 January 2022 of 26.0 pence per share (31 January 2021: nil), made up as
follows:
o Return of capital equivalent to 5.5 pence per Ordinary Share paid in
September 2021
o Return of capital equivalent to 6.5 pence per Ordinary Share paid in
December 2021
o Return of capital equivalent to 14.0 pence per Ordinary Share paid in
January 2022
· Total capital distributions paid or declared post year ended 31
January 2022 of 6.0 pence per share made up as follows:
o On 18 May 2022 the Directors approved a further return of capital
equivalent to 6.0 pence per Ordinary Share.
Investment Portfolio
· As at 31 January 2022, the Company's investment portfolio
comprised six loans with an aggregate principal balance of £80.54 million,
representing 91.77% of the shareholders' equity (31 January 2021: nine loans
with aggregate principal balance of £109.32 million, representing 91.67% of
the shareholders' equity).
· The weighted average coupon on drawn capital, before
recognition of arrangement and exit fees, was 7.39% (31 January 2021: 7.19%).
· The portfolio weighted average LTV was 67.8% (31 January 2021:
69.1%), reflecting revaluations and changes to the composition of the loan
portfolio.
· The portfolio weighted average residual term was 0.97 years (31
January 2021: 1.76 years).
· As a result of certain loan redemptions after the financial
year end, the Company's portfolio as at 19 May 2022 comprises five loans with
an aggregate principal balance of £74.6 million.
· The pro forma portfolio weighted average LTV as at 19 May 2022
is 67.3%, the weighted average residual loan term is 0.75 years, and the
weighted average loan coupon is 7.34%.
· The Directors do not consider there to have been any
impairments or incurred losses on loan balances as at 19 May 2022.
For further information, please contact:
Ocorian Administration (Guernsey) Limited:
Louise Manklow +44 (0)14 8174 2742
Cenkos Securities plc:
Will Rogers +44 (0)20 7397 1920
Will Talkington
Andrew Worne
ICG Real Estate:
David Mortimer +44 (0)20 3201 7532
Clare Glynn +44 (0)20 3545 1395
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 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 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 as part of its IPO
which completed on 5 February 2013. The issued 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 has
historically acted 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. Following the dissolution,
the Company has assumed the assets and liabilities of its former subsidiary.
Investment Manager
During the year ended 31 January 2021, the Company's management arrangements
were amended and the Company 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. Previously,
the Company was internally managed by the Board, after receiving advice from
Intermediate Capital Managers Limited (an affiliate of ICG Alternative
Investment Limited) under the terms of a non‑discretionary Investment
Advisory agreement.
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 2022, and the general market conditions
prevailing at that date. Any forward-looking statements in this report
reflect the latest information available as at 19 May 2022.
Investment Objective
The investment objective of the Company, as approved by the shareholders of
the Company, was revised during the prior year and is now to conduct an
orderly realisation of the assets of the Company.
Fund facts
Fund launch: 5 February 2013 Fund type: Closed ended investment company
Investment Manager: ICG-Longbow Domicile: Guernsey
Base currency: GBP Listing: London Stock Exchange
Issued shares: 121.3 million ISIN code: GG00B8C23S81
Management fee: 1.0% LSE code: LBOW
Website: www.lbow.co.uk (http://www.lbow.co.uk)
Share price & NAV at 31 January 2022 Key portfolio statistics at 31 January 2022
Share price (pence per share): 71.40 Number of investments: 6
NAV (pence per share) ((1)): 72.35 Percentage capital invested((1) (3)): 94.9%
Premium / (Discount) ((1)): (1.3%) Weighted avg. investment coupon: 7.39%
Approved dividend (pence per share)((2)): 1.1 Weighted avg. LTV: 67.8%
Dividend payment date((2)): 29 April 2022
((1) ) These are Alternative Performance Measures, refer to page 61 for
details.
((2) ) For the Quarter ended 31 January 2022
((3) ) Loans advanced at amortised cost/Total Equity attributable to the
owners of the Company.
Summary
At 31 January 2022, the investment portfolio comprised six loans. Principal
activity in the period included:
· Repayment in full of the £5.7 million Halcyon loan, together
with exit and prepayment fees of £0.1 million;
· Repayment in full of the £7.8 million Knowsley loan, together
with exit and prepayment fees of £0.2 million;
· Repayment in full of the £16.3 million GMG loan, together with
exit and prepayment fees of £0.8 million;
· Partial £4.0 million repayment of the Quattro loan;
· Partial £1.5 million repayment of the Southport loan;
· Amendment to terms of the £25.4 million RoyaleLife loan,
securing additional returns for the Company.
As a consequence of the above activity, total commitments at period end stood
at £80.9 million (31 January 2021: £117.3 million) with the par value of the
loan portfolio being £80.5 million (31 January 2021: £109.3 million).
The weighted average loan to value ratio reduced to 67.8% (31 January 2021:
69.3%) reflecting the changes to the portfolio composition. The weighted
average coupon rate at year end was 7.39% (31 January 2021: 7.19%), with
returns supplemented by contractual arrangement and exit fees.
Following the year end, the Company received repayment of the remaining £6.0
million balance of the Quattro loan, together with interest and fees totalling
£0.5 million in aggregate.
As at the date of this report, the Company's portfolio totals five investments
with an aggregate committed balance of £74.6 million, which is now fully
drawn. The weighted average LTV is 67.3%, with a weighted average interest
coupon of 7.34% and weighted average loan maturity of 0.75 years.
Company Performance
The Investment Manager's focus during the period was monitoring and seeking to
maintain the credit quality of the portfolio investments while encouraging the
underlying borrowers towards early exits, where possible. We summarise the
status of each investment in more detail below but would highlight that we
continue to believe the Company has a satisfactory security position on all
its investments and does not expect any shortfall in interest, principal or
fees on any of the investments.
As a result of the repayments received during the year, the Company's loan
commitments at year end stood at approximately £80.9 million, of which £80.5
million was drawn. Portfolio LTV was 67.8% on a weighted average basis, all
secured by first ranking mortgage investments. The weighted average loan
coupon of 7.39% is supplemented by contractual arrangement and exit fees,
along with the possibility of ad hoc returns from repricing loans or receiving
prepayment fees.
Our borrowers have continued to progress their business plans during the year:
· The sponsor of the Affinity loan had a successful period of
leasing activity, with occupancy at the property now at its highest level
during the loan term.
· The RoyaleLife sponsor secured further planning permissions
across its portfolio and took advantage of easing Covid-19 restrictions to
achieve an acceleration in sales velocities in Q1 2022 in particular.
· The Northlands sponsor substantially completed a residential
development project within its portfolio.
· The LBS loan sponsor invested further capital in its asset to fit
out space for flexible offices.
· The Quattro sponsor secured planning permission for redevelopment
of one of its portfolio assets.
The most challenging investment remains the Southport loan, due to disruption
in the hotel sector. A strong summer of trading was offset by headwinds
caused by the Omicron variant and, while interest has been paid, we have seen
a value reduction during the period. Nonetheless, the Sponsor remains
confident of a return to stabilised trade over the coming quarters and the
Investment Manager is monitoring the position closely.
Portfolio
Portfolio statistics 31 January 2022 31 January 2021
Number of loan investments 6 9
Aggregate principal advanced £80,543,427 £109,258,944
Weighted average LTV 67.8% 69.1%
Weighted average interest coupon 7.39% 7.19%
Weighted average unexpired loan term 0.97 years 1.76 years
Cash held £4,801,224 £8,773,640
Drawings on Working Capital Facility £nil £nil
Investment Portfolio as at 31 January 2022
Project Region Sector Term start Unexpired Day 1 Day 1 Balance outstanding ((1, 2)) Balance undrawn (£m) Current
term balance LTV (£m) LTV
(years) (£m) (%) (%)
Quattro South East Mixed use Oct-17 0.00 9.00 83.7 5.96 74.0
Affinity South West Office Mar-18 0.28 14.20 67.3 17.30 0.40 68.4
Southport North West Hotel Feb-19 1.20 12.50 59.5 15.00 85.7
Northlands London Mixed use Aug-19 0.70 9.00 55.3 10.43 58.3
RoyaleLife National Residential Sept-19 1.70 20.27 74.3 25.38 61.5
LBS London Office Oct-19 0.70 4.92 69.3 6.47 58.9
Total / weighted average 0.97 86.14 68.2 80.54 0.40 67.8
((1) ) For the RoyaleLife facility, Balance outstanding includes
capitalised interest
Economy and Financial Market Update
In 2021 the UK economy bounced back to its pre-pandemic (February 2020) level,
with 7.5% GDP growth on the year. After a drop in December resulting from
the Omicron variant, January 2022 saw a rebound with a 0.8% GDP rise, and
growth reported across all sectors, according to the ONS. This slowed to
0.1% in February 2022 and latest Bank of England growth forecasts indicate the
UK economy will contract from Q4 2022 and into 2023.
Despite the sedate level of growth, the high and rising inflation levels have
led to four increases in Bank rate over the past few months, from 0.1% in Q4
2021 to 1.0% currently. The MPC seems to be walking a tightrope on rates
between rising inflation, driven by rocketing energy prices on the one hand
and sluggish economic growth on the other, with an increasingly challenging
global economic outlook. The market is nonetheless pricing in at least three
more rate rises by year end.
Labour markets however continue to show strength and have largely shaken off
the Covid-19 disruption. The UK employment rate rose by 0.1% to 75.5% in Q4
2021, with a further 108,000 jobs added in January, taking payrolled employees
to a record 29.5 million. The unemployment rate was 3.8% in the three months
to February 2022 and job vacancies also remain high.
Nominal wages are growing, with average pay including bonuses rising 5.4% in
the three months to February. The challenge for the UK economy is that this
rate of growth is not keeping up with inflation. With CPI at 7.0% in March
2022 and RPI still higher, and tax rises and further energy price hikes to
come, many households will see their finances come under pressure this year.
Occupational Demand/Supply
Offices
The prevailing Government narrative through the latter part of 2021 and coming
into 2022 is supporting a 'return to work' policy, reversing the work from
home Covid-19 policy prevalent over the previous two years.
Whilst this change in guidance - combined with steady momentum of employers
encouraging a return to the workplace - should bolster office demand relative
to the previous two years, the more widespread acceptance of flexible working
generally may impact absolute levels of office demand. As highlighted in
last year's report, some commentators such as Savills consider that this will
be offset by reducing densities (i.e. offering more space per worker and
greater amenity provision). Knight Frank's latest occupational survey, for
example, highlights that 65% of businesses surveyed plan to either increase or
maintain the amount of office space they occupy, but change how the space is
utilised, with fewer desks and more common areas, amenity and collaborative
spaces.
In the leasing markets, Manchester City Centre leasing statistics for FY2021,
reported by Knight Frank, note a positive rebound in take-up to levels close
to the 5 and 10 year averages, both in terms of square footage and number of
deals, together with c.750k sq ft of active requirements in the market.
Conversely, Savills report that, whilst Central London has also seen a rebound
in demand (+54% YoY as at the end of November 2021), take-up remains c.22%
below the long-term average. Bristol had a steady year, with take up being
7% below the 10-year average but Q4 2021 being the second-highest quarterly
figure in the past five years. The strength of the Bristol occupational
market has been evidenced by the letting success seen in the property securing
the Company's Affinity loan.
A developing trend is that of employers seeking to provide higher quality
workplaces to continue to maintain the attraction of the office to employees
and coax them back into the cities. Additionally, firms are increasingly
realising the importance of their office estates in delivering - and
signalling - their commitments to sustainability and climate goals. We
therefore expect a polarisation in the market between best-in-class (Grade A)
offerings and the Grade B / C market. This is supported by the major
consultancies, including JLL who comment that they expect the rental
differential between prime space and the rest to widen as occupiers focus on
best-in-class offices, particularly those with a high focus on sustainability,
wellness and smart technology.
According to JLL, in their 'Big 6' regional office market review, overall
vacancy rates are 6.2% across all classes of office, but only 2.8% in Grade A
stock and forecast to fall further. Prime rents continued to increase across
the regional markets, with all now showing record rents and Edinburgh and
Glasgow showing the strongest growth on the year. JLL forecast further
increases in 2022, supported by favourable supply/demand dynamics, with a
number of cities expected to breach the £40 per sq ft level in the coming
months.
The Central London market, according to Savills, will see material development
and refurbishment activity over the next three years, with a record level of
7.4m sq ft scheduled for delivery in 2023, and a similar level anticipated for
2024. Total forecast deliveries over the next five years are only 17%
pre-let, with Savills estimating that the speculative pipeline for the next
five years equates to c.43 months of average estimated post-Covid-19 take-up
of 7m sq ft per annum. This highlights a potential oversupply issue in parts
of the Central London market that may put pressure on prime rental levels.
Industrial and warehousing
The structural tailwinds supporting the UK industrial and warehousing market
continued in 2021, with a new annual record take-up of 55.1m sq ft reported by
Savills, surpassing the previously exceptional total of 51.6m sq ft in 2020
and 86% above the long-term average. The take-up in terms of square footage
was mirrored by the number of deals, with 220 separate transactions recorded
in the +50,000 sq ft bracket; the first time there has been more than 200
transactions in a calendar year.
Supply continues to fall with the vacancy rate standing at 2.9%, the lowest
level ever recorded, with market conditions supportive of speculative
development with the result that 18.6m sq ft is under construction.
The supply / demand dynamics have promoted significant year-on-year rental
growth in almost all key UK markets, with quoted Grade A rents increasing in
the East Midlands (+29% YoY), West Midlands (+26%), Yorkshire & North East
(+20%) and East of England (+16%).
The positive market conditions have also been seen in the multi-let
sub-sector, with Gerald Eve reporting a continued decline in void rates and
annualised rental growth in London (+7.4% YoY) and across the wider UK market
(+5%). Although Amazon's recent announcement of falling year-on-year sales may
take some of the heat out of the sector.
Retail
The Covid-19 pandemic accelerated pre-existing trends of online sales growth,
with the ONS reporting that online sales penetration peaked at c.38% of total
sales in January 2021 (versus pre-pandemic penetration of c.20%). Clothing /
fashion retailers appear to have been more heavily affected by the pandemic,
with more defensive areas such as food retail and DIY faring better.
With Covid-19 restrictions now ended, Google mobility data indicates that
footfall is now close to pre-pandemic levels on an aggregate basis, however
PwC note that the footfall recovery is more polarised at sub-sector level,
with retail parks outperforming shopping centres and the high street.
Owing to their projected growth in online sales and what is viewed as still an
oversupply of physical real estate in the sector, PwC forecast rental declines
in 2022, albeit at a reduced pace than has been seen in the previous five
years. More recently, there were some reports of green shoots on the high
street; the Local Data Company reported vacancy rates dropped in H2 2021 to
14.4% of all shops, the first decline in three years, with a 0.3% reduction in
the shopping centre vacancy rate.
Hotel
Perhaps the starkest indication of the effect of the pandemic on UK hotel
markets is in occupancy figures. According to Lambert Smith Hampton (LSH),
during the peak of the pandemic where hotels were only able to accommodate
guests for essential, legally permitted reasons, occupancy rates dipped down
to 25-35% in most UK markets. An immediate bounce-back in occupancy rates was
seen after hotels were able to reopen, and strong demand for staycations
pushed nationwide occupancy to above 70% in August.
Unsurprisingly, summer 2021 occupancy rates were highest in markets driven by
domestic tourism and leisure such as Brighton, Bournemouth and York. Each of
these saw occupancy rise above 80%, while average daily rates and RevPAR were
well in excess of pre-pandemic norms. Larger cities, more reliant on
international and business travel, continued to struggle - occupancy levels in
Manchester and Birmingham were below the national average in August and London
had the lowest occupancy rate of any major UK market at 56%.
With UK Government policy in 2022 easing travel restrictions, an approach that
is mirrored in the EU for vaccinated travellers, a recovery in international
travel is expected albeit with PwC estimating that travel volumes will not
return to normal until 2023/24. As a result, it is expected that the 2021
trend will continue into 2022, with 'staycation' markets faring better than
city markets, which should bode well for the Company's Southport Hotel loan.
Property Investment Market
According to Lambert Smith Hampton's investment transactions report, sales
volumes in the UK were a respectable £57bn, some 6% above the five year
average and a 40% rebound on the 2020 figure. LSH report that Q4 2021 saw
£17.3bn of trades (although Savills has a higher figure, of £19.7bn) which
gave the market strong momentum coming into 2022.
Across the property sectors, industrial was the standout performer, once again
dominating the headlines from both a volume and pricing perspective. LSH
report that Q4 2021 volumes of £4.3bn were a new all-time high, with the
annual volume of £15.2bn being almost double the previous annual record.
Prime industrial yields fell from 3.75% to 3.25% during the year, according to
Savills, however we are aware of several deals in London which traded at
yields below this level, driven by relentless investor demand and rising
rental growth expectations.
Retail warehousing was another success story. Savills headline yields fell
from 6.5% to 5.5% on the year, as UK institutions returned to the market in
earnest, however, there have been individual outperformers. The Investment
Manager financed one retail park in Q1 2021 at a price of £28m, with a sale
due to complete in Q2 2022 at a headline price of £44m. LSH describe the
run of deals as 'meteoric', with 2021 volumes of £3.0bn being a six-year
high. An element of liquidity also returned to the shopping centre market,
particularly with smaller lot sizes of sub-£25m where the double-digit yields
available finally attracted private buyers. While there were certain
well-publicised larger deals, such as the sale of a 25% stake in Bluewater to
Landsec for a reported £172m, some of these deals were not to true
third-party buyers (Landsec already had a stake in Bluewater, for example).
The office sector overall had a solid year, with a strong Q4 (dominated by the
£1.25bn acquisition of 5 Broadgate in London) offsetting a weak Q1 2021
during the Covid-19 lockdown. Manchester saw the largest-ever single asset
deal in the UK regions, when NatWest acquired its existing office at One
Hardman Boulevard, and the Assembly building in Bristol traded for £135m.
City of London and regional offices each saw modest (25bp) compression in
prime yields during the year, to 3.75% and 4.75% respectively, driven largely
by demand from international buyers, such as the National Pension Service of
Korea (NPS) in the case of 5 Broadgate.
Encouragingly for the Company's RoyaleLife loan, there has been increasing
investor interest in the bungalow, holiday home and manufactured housing
sector. Park Holidays and Park Leisure have each been acquired during recent
months, with investors including Blackstone reportedly mulling bids for
Parkdean Resorts.
Finance Markets
The principal changes to the finance markets during the year were driven by a
renewed confidence in the economic outlook, particularly in the second half,
and latterly the changes in inflation and interest rate expectations, with
around a 1.5% increase in the benchmark five year swap rate during the
period.
Outstanding debt to the UK property markets, as reported to the Bank of
England, was up on the year. Lending stood at £169.9 billion at the end of
January 2022, up from £167.6 billion in the prior year. This was led by a
very strong month of deployment in December (+£1.35bn), as lenders sought to
close deals prior to year-end.
In certain sectors - particularly the sought after 'beds and sheds' - we have
seen lending margins compressed and we are aware of industrial loans being
quoted at sub-175bps for 60% LTV and 250 - 275bp for 70% LTV. Even at these
levels, with swap rates in excess of 2% again the overall cost of debt is
still notably higher for borrowers now than in 2020 and 2021. In some
instances, debt is not accretive to equity returns in these markets.
An element of liquidity returned to the UK shopping centre finance market,
with Abrdn, OakNorth Bank and Bentall GreenOak among those reportedly closing
loans during the year. LTVs remain conservative and spreads far wider than
in other sectors, reflecting the uncertain income outlook and valuation
challenges.
Portfolio Outlook
The Portfolio is now firmly in run off, and as at the date of this report over
35% of the loan commitments in place when the decision was taken to realise
the Company's assets have now been repaid. Of the remainder, all of the
security has either been revalued during the year or we have clear line of
sight towards a repayment.
The Hotel securing the Southport investment has seen its valuation decline
during the period, although this was not unexpected given the challenges
facing the hotel sector. The sponsor reports trading ahead of budget with a
favourable level of reservation for the coming months and has continued to
service interest. As a result, and assuming no further Covid-19 disruption to
the sector, the outlook for the hotel appears more positive.
Our focus remains on managing the portfolio towards exit, supporting borrowers
in their sales or refinancing strategies, and ensuring the portfolio continues
to generate optimal returns during the period of run off. In doing so we
will continue to balance the returns from the loans against timely return of
capital to shareholders.
Loan Portfolio
A summary of each of the individual loans as at 31 January 2022 is set out
below:
Quattro
In October 2017, the Group advanced a new £9.00 million loan to a private
property company, secured by three mixed use assets in and around the London
Borough of Kingston. The Group initially financed a £6.00 million
participation in the loan subsequently acquiring the minority £3.00 million
position from ICG following an equity issuance under the 2017 Placing
Programme. The initial LTV ratio was 83.7%.
The loan passed its maturity date in the period and we have been working with
the sponsor in good faith towards an exit strategy to maximise shareholder
value. Strong progress has been made with several sales and one asset
refinancing reducing the outstanding loan balance. Further, planning
permission was secured in the period for the redevelopment of the largest
remaining asset, which should be accretive to value.
The loan repaid in full after the period end.
Property profile Debt profile
Number of properties 2 Day one debt £9,000,000
Property value £8,050,000 Debt outstanding £5,956,304
Property value per sq. ft. £235 Original term 3.2 years
Property area (sq. ft.) 34,209 Maturity January 2021
Number of tenants 7 LTV as at 31 January 74.0%
Weighted lease length 6.03 years Loan exposure per sq. ft. £174
Affinity
On 28 February 2018, a new £16.20 million commitment was made, of which
£14.20 million was advanced, to refinance a multi-let office property in
Bristol, and to provide a £2.00 million capital expenditure facility to fund
a refurbishment programme. Subsequently, the loan commitment was increased
to £17.70 million in support of the borrower's business plan, of which
£17.30 million has been drawn.
During the period the Sponsor made substantial leasing progress in line with
its business plan, capitalising on refurbishment works undertaken earlier in
the loan term. As a result, the property was fully occupied at period end,
and the Sponsor is pursuing a sale of the asset. The Company has agreed to a
short-term extension of the loan facility to allow for the sales process to
conclude, with the expectation of repayment in the coming months.
Property profile Debt profile
Number of properties 1 Day one debt £14,200,000
Property value £25,300,000 Debt outstanding £16,700,000
Property value per sq. ft. £221 Original term 4.2 years
Property area (sq. ft.) 114,364 Maturity May 2022
Number of tenants 12 LTV as at 31 January 68.1%
Weighted lease length 6.46 years Loan exposure per sq. ft. £146
Southport
A £15.00 million loan commitment, secured by a hotel and leisure complex in
Southport, Merseyside. The initial loan to value ratio was 59.5%. The
business plan focused on investing in improving the asset, renovating the
bedrooms and thereafter driving room rates. Substantially all business plan
works across the hotel were completed prior to the onset of Covid-19.
The hotel again suffered from the Government-mandated closure of all hotels
for substantially all of the first half of 2021. It re-opened for trade in
July 2021 and enjoyed a strong summer of trade, albeit the winter period has
suffered owing to the effects of the Omicron variant.
During the period, the Company agreed to the Sponsor entering into a lease
surrender arrangement with one of the commercial tenants; the proceeds
received allowed for the repayment of previously capitalised interest, with
the balance of £15.00 million in line with the original loan commitment.
In Q4 2021 the asset was revalued which resulted in an 85.7% LTV, in breach of
the lending covenant. The Company has reserved its rights in respect of this
breach and is in discussions with the Sponsor as to next steps.
Property profile Debt profile
Number of properties 1 Day one debt £12,500,000
Property value (£) £17,500,000 Debt outstanding £15,000,000
Property value (£/bedroom) £131,579 Original term 4 years
Property value (£/sq. ft.) £385 Maturity April 2023
Bedrooms 133 LTV as at 31 January 85.7%
Property area (sq. ft.) 45,430 Loan exposure per bedroom £112,781
Northlands
In October 2019 the Company provided a £12.50 million commitment to the
sponsor, secured by a highly diversified portfolio of high street retail,
office and tenanted residential units located predominantly in London and the
South East. The initial loan amount was £9.00 million with an LTV ratio of
55.3%.
The sponsor's business plan includes implementation of a planning consent to
develop residential apartments on one of the sites in the portfolio, and in
support of this the Company has provided a £3.50 million capital expenditure
commitment. This commitment was partially drawn during the period, with the
outstanding balance now £10.43 million and LTV 58.3%.
Property profile Debt profile
Number of properties 14 Day one debt £9,000,000
Property value £17,910,650 Debt outstanding £10,431,142
Property value per sq. ft. £147 Original term 3.0 years
Property area (sq. ft.) 121,285 Maturity October 2022
Number of tenants 89 LTV as at 31 January 58.3%
Weighted lease length 1.9 years Loan exposure per sq. ft. £86
RoyaleLife
In September 2019 the Company provided a £24.6 million commitment to an
affiliate of RoyaleLife, the UK's leading provider of bungalow homes, secured
by a portfolio of ten assets in the residential bungalow homes sector. The
facility forms part of a larger four-year, £142.7 million loan originated by
the Investment Manager, with the Company participating alongside two other
funds managed by the Investment Manager.
The initial loan drawn down was £20.3 million, with the balance comprising a
capital expenditure commitment in support of the borrower's business plan. The
loan has been fully drawn and was increased during 2020 as a result of partial
interest capitalisation when Covid-19 restrictions adversely affected home
sales. The total outstanding loan balance is now £25.38 million.
The sponsor continues to deliver on its business plan, and a positive
revaluation was received at the end of the reporting period. During the year,
a series of amendments to the loan were negotiated for which the Company
received some additional return and also improved the contracted minimum
earnings from the investment.
Property profile Debt profile
Number of properties 10 Day one debt £20,267,119
Property value (£) * £34,024,151 Debt outstanding £25,382,017
Number of tenants n/a Original term 4.1 years
Weighted lease length n/a Maturity October 2023
LTV as at 31 January 61.5%
*Pro rata based on Company's share of total loan
LBS
In September 2019, the Group entered into a £6.5 million loan commitment with
a fund advised by LBS Properties, secured by a multi-let office property in
Farringdon, London.
The loan carried an initial LTV ratio of 69.0% and included a capital
expenditure commitment in support of the borrower's business plan, which has
now been fully drawn. The loan is performing in line with expectations and
shortly after period end the asset was revalued at £11.07m, reflecting 58.5%
LTV.
After period end, the property was placed on the market for sale.
Property profile Debt profile
Number of properties 1 Day one debt £4,922,000
Property value £11,000,000 Debt outstanding £6,474,000
Property value per sq. ft. £1,042 Original term 3.1 years
Property area (sq. ft.) 10,557 Maturity October 2022
Number of tenants 1 LTV as at 31 January 58.9%
Weighted lease length 8.5 years Loan exposure per sq. ft. £613
ICG Real Estate
19 May 2022
Investment Policy
Investment Objective
The investment objective of the Company, as approved by the shareholders of
the Company, 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. Jack is a former Chairman of the Confederation of British Industry
(CBI) Scotland and was a member of the CBI President's Committee.
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 non-executive director of Empiric Student Property plc and
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. 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 35 years'
experience in real estate both in the UK and overseas.
Committee Membership: Audit and Risk Committee, Nomination Committee,
Remuneration Committee
Fiona Le Poidevin - Non-Executive Independent Director
Appointment: Appointed to the Board in September 2020
Experience: Fiona is a non-executive director with a particular focus on
listed investment companies and private equity. A Chartered Director, Fellow
of the Institute of Directors and Chartered Accountant (FCA), Fiona has over
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.
Until the end of July 2020, Fiona was Chief Executive Officer of The
International Stock Exchange Group Limited, a company listed on The
International Stock Exchange, where she was responsible for the commercial
aspects of the 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 the IoD Guernsey
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 the autumn of 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 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 a
non-executive Director of the following listed companies: Volta Finance
Limited and Schroder Oriental Income Fund Limited.
Paul is a Chartered Fellow of the Chartered Institute of 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 Consolidated Financial
Statements for the Company and its dissolved subsidiary, ICG-Longbow S.A Debt,
for the year ended 31 January 2022. This Report of the Directors should be
read together with the Corporate Governance Report on pages 23 to 29.
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
reported in the Company's interim report and accounts, 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. 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. The Company expects this restructuring to
reduce pro forma operating expenses by approximately £200,000 per annum.
Principal Activities
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 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 on pages 3 to 4 and in the Investment
Manager's Report on pages 5 to 12.
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 on pages 39
to 60.
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 2021 24 March 2021 30 April 2021 1.5
Interim dividend 30 April 2021 28 June 2021 6 August 2021 1.5
Interim dividend 31 July 2021 30 September 2021 5 November 2021 1.5
Interim dividend 31 October 2021 7 December 2021 14 January 2022 1.5
Interim dividend 31 January 2022 24 March 2022 29 April 2022 1.1
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
has made three such issuances during the period as follows:
No. B Shares issued Purpose Date of Declaration Payment Date Par Value per Redeemable B Share (pence)
121,302,779 Return of Capital 13 September 2021 30 September 2021 5.5
121,302,779 Return of Capital 7 December 2021 24 December 2021 6.5
121,302,779 Return of Capital 11 January 2022 28 January 2022 14.0
As set out in the recent RNS announcement, the Directors resolved on 18 May
2022 to return a further 6.0 pence per share.
Shareholdings of the Directors
The Directors' beneficial interests in the shares of the Company as at 31
January 2022 and 2021 are detailed below:
Director Ordinary Shares % holding at Ordinary Shares % holding at
of £1 each held 31 January 2022 of £1 each held 31 January 2021
31 January 2022 31 January 2021
Mr Perry 108,609 0.09 89,398 0.07
Mr Beevor 30,000 0.02 30,000 0.02
Mr Meader( 1 ) 290,766 0.24 210,766 0.17
Mr Firth (retired 28 June 2021) 10,000 0.01 10,000 0.01
Mrs Le Poidevin - 0.00 - 0.00
1 Including persons closely associated with Mr Meader
Following the year end, Mr Meader purchased an additional 35,921 shares and Mr
Perry purchased an additional 22,630 shares bringing their total holdings at
the date of this report to 326,687 shares and 131,239 shares respectively.
Directors' beneficial interests in the shares of the Company as at 19 May
2022, 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 on-going 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 2022, 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 20,457,963 16.87%
Canopius 12,276,107 10.12%
TDC Pensionskasse 10,653,156 8.78%
Premier Miton Investors 10,500,000 8.66%
Intermediate Capital Group 10,000,000 8.24%
Hargreaves Lansdown, stockbrokers (EO) 6,191,779 5.10%
Brewin Dolphin, stockbrokers 6,616,958 5.45%
CG Asset Management 5,586,000 4.61%
Kleinwort Hambros 5,062,714 4.17%
AXA Framlington Investment Managers 3,750,000 3.09%
In addition, the Company also provides the same information as at 29 April
2022, being the most current information available.
Shareholder Shareholding % holding
Close Brothers Asset Management 20,364,450 16.79%
Canopius 12,276,107 10.12%
TDC Pensionskasse 10,653,156 8.78%
Premier Miton Investors 10,500,000 8.66%
Intermediate Capital Group 10,000,000 8.24%
Hargreaves Lansdown, stockbrokers (EO) 6,484,133 5.35%
Brewin Dolphin, stockbrokers 6,261,802 5.16%
CG Asset Management 5,586,000 4.61%
Kleinwort Hambros 5,010,593 4.13%
AXA Framlington Investment Managers 3,750,000 3.09%
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
15. Following a review of the independence and effectiveness of the external
auditor, a resolution was proposed and accepted at the 2021 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 is set out in the Report of
the Audit and Risk Committee on pages 30 to 32.
Articles of Incorporation
The Company's Articles of Incorporation may only be amended by special
resolution of the shareholders.
NMPI Status
There is no change to the Company's status in respect of NMPI and the Company
remains on the AIC list of exempted securities.
The Company continues to make all reasonable efforts to conduct its affairs in
such a manner so that its shares can be recommended by UK financial advisers
to ordinary retail investors in accordance with the FCA's rules relating to
non-mainstream investment products.
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 satisfy themselves that 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, and the Directors expect that the investments will be held to
maturity with the last loan repaying by the end of 2023. 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
consolidated financial statements, as was the case for the year ended 31
January 2021. No material adjustments 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
consolidated financial statement on a basis other than a going concern due to
the Company being in a managed wind down.
Since the EGM four loans have repaid in full and £31.6m 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. 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 and liabilities 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 2024. The Company
expects to maintain positive cashflows, before dividends, in all but the final
quarter, and intends to distribute surplus net profits by way of capital
distribution whilst it remains prudent to do so and retaining an appropriate
working capital reserve to continue its operations given the unpredictable
timing of loan repayments.
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 Engagement Benefits of Engagements
Shareholders
The Company engages with its shareholders through the issue of regular In the financial year the Company issued:
portfolio updates in the form of RNS announcements and quarterly factsheets.
The major investors in the Company's shares are set out on page 18.
- 3 Portfolio updates by way of RNS
- 4 Quarterly fact sheets.
Following the Covid-19 pandemic and the Company share price falling to a deep The Company provides in depth commentary on the investment portfolio,
discount to NAV, shareholders supported a recommendation by the Board to wind corporate governance and corporate outlook in its semi-annual and annual
down the Company. financial statements.
The Board receives quarterly feedback from its Broker in respect of their
investor engagement and investor sentiment.
The Company sought to maintain shareholder satisfaction through:
The Company, through its Investment Manager, Broker and the Board liaised with
· Transparency of communication
major shareholders in connection with the change in Investment Policy leading
The engagement with shareholders, to an orderly realisation of assets of the Company, receiving over 75% support
· Capital preservation
from shareholders. The Company has continued to execute this realisation
including the AGM, will continue through during the year.
· Payment of regular and sustainable dividends and
the wind down period as capital is Engagement with shareholders through regular announcements and fact sheets
· Return of capital on loan repayments
enables shareholders to take informed decision as to the winding up process
returned to investors. and timetable, which in turn, should support the share price and reduce any
discount to NAV in normal market conditions.
Borrowers During the course of the year the
The Company's principal clients are its Borrowers to whom the Company provides The Company engages with its Borrowers through its Investment Manager. Investment Manager has undertaken and
term finance.
the Board has reviewed four monitoring
The Investment Manager forms and maintains a close working relationship with reports.
The Board believes that the Company and its Investment Manager have a duty to Borrowers through the underwriting and execution of new loans, and the ongoing
act fairly in respect of its Borrowers and that strong engagement with quarterly monitoring of such loans over their respective terms. At the request of the Southport borrower, the Investment Manager agreed to the
Borrowers drives favourable outcomes for stakeholders and Borrowers
surrender of a commercial lease at the property, which allowed for a partial
themselves. repayment of the loan. Similarly, the Investment Manager engaged in a series
of amendments to the RoyaleLife loan, which are expected to generate
The Board monitors the timeliness and additional returns for shareholders. In each case
quality of these engagements through its the Board considers this to be evidence of
regular engagement with the Investment positive and consensual engagement.
Manager. One investment had passed its
maturity date. The Investment Manager successfully worked with the borrower to
ensure an orderly repayment of the loan can be made, and is satisfied with the
The Investment Manager works closely with borrowers to support the delivery of plans
their business plans.
put in place, which it does not consider will increase the risk profile of the
Company.
There have been no borrower complaints.
Service Providers
The Company does not have any direct employees; however, it works closely with The Company's Management Engagement Committee has identified its key service The feedback given by the service providers is used to review the Company's
a number of service providers (the Investment Manager, Administrator, Company providers. On an annual basis it undertakes a review of performance based on a policies, controls, and procedures to ensure open lines of communication,
Secretary, Broker and other professional service providers) whose interests questionnaire through which it also seeks feedback. operational efficiency, robustness and, appropriate pricing for services
are aligned to the success of the Company.
provided.
The quality and timeliness of their service provision is critical to the
success of the Company. Furthermore, the Board and its sub-committees engage regularly with its
service providers on a formal and informal basis.
The Management Engagement Committee will also regularly review all material
contracts for service quality and value.
Lenders
The Company had a three-year Revolving Credit Facility which expired in the The Company's engagement with its Lender was primarily through its Investment The Facility continued to operate and remained available throughout most of
period. Manager who provided regular reports to the Bank and had an open line of the period, however with the Company in an orderly wind down it was not
communication in respect of the ongoing operation and maintenance of the renewed at the end of the contractual loan term.
The Facility provided the Company with a flexible funding line which could be Facility.
used to finance new investments or working capital and therefore its
availability was a key component of the Company's ability to remain fully
invested and minimise cash drag.
There have been no issues or concerns raised by the Bank, who offered terms to
The Investment Manager provided feedback to the Board in terms of actual and extend the Facility.
planned utilisation of the Facility as well as covenant compliance.
Community & Environment
As an Investment Company whose purpose is the provision of and investment in Within its Investment Strategy, the environmental and social impact of the In the year to 31 January 2022 the Company made no new loans, but previous
commercial real estate debt, the Company's direct engagement with the local properties on which the Company's loans are secured was an important loans included substantial capital expenditure facilities, generally to be
community and the environment is limited. consideration when it had made its investments. applied towards the refurbishment of existing properties which has a
substantially lower environmental impact than demolition and redevelopment.
Such refurbishments generally seek to improve the energy performance of the
However, the Board recognises the role the Company can play in terms of the target properties as well as providing improved working or living environments
environment by supporting and guiding Borrowers to find environmentally for their occupiers.
friendly sustainable solutions in the maintenance of their properties and
delivery of their business plan objectives more generally.
The ESG report provides further information on the Investment Manager's
approach to this important subject.
The Company engages with its shareholders through the issue of regular
portfolio updates in the form of RNS announcements and quarterly factsheets.
The Company provides in depth commentary on the investment portfolio,
corporate governance and corporate outlook in its semi-annual and annual
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.
In the financial year the Company issued:
- 3 Portfolio updates by way of RNS
- 4 Quarterly fact sheets.
The Company, through its Investment Manager, Broker and the Board liaised with
major shareholders in connection with the change in Investment Policy leading
to an orderly realisation of assets of the Company, receiving over 75% support
from shareholders. The Company has continued to execute this realisation
during the year.
Engagement with shareholders through regular announcements and fact sheets
enables shareholders to take informed decision as to the winding up process
and timetable, which in turn, should support the share price and reduce any
discount to NAV in normal market conditions.
Borrowers
The Company's principal clients are its Borrowers to whom the Company provides
term finance.
The Board believes that the Company and its Investment Manager have a duty to
act fairly in respect of its Borrowers and that strong engagement with
Borrowers drives favourable outcomes for stakeholders and Borrowers
themselves.
The Company engages with its Borrowers through its Investment Manager.
The Investment Manager forms and maintains a close working relationship with
Borrowers through the underwriting and execution of new loans, and the ongoing
quarterly monitoring of such loans 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.
During the course of the year the
Investment Manager has undertaken and
the Board has reviewed four monitoring
reports.
At the request of the Southport borrower, the Investment Manager agreed to the
surrender of a commercial lease at the property, which allowed for a partial
repayment of the loan. Similarly, the Investment Manager engaged in a series
of amendments to the RoyaleLife loan, which are expected to generate
additional returns for shareholders. In each case
the Board considers this to be evidence of
positive and consensual engagement.
One investment had passed its
maturity date. The Investment Manager successfully worked with the borrower to
ensure an orderly repayment of the loan can be made, and is satisfied with the
plans
put in place, which it does not consider will increase the risk profile of the
Company.
There have been no borrower complaints.
Service Providers
The Company does not have any direct employees; however, it works closely with
a number of service providers (the Investment Manager, Administrator, Company
Secretary, Broker and other professional service providers) whose interests
are aligned to the success of the Company.
The quality and timeliness of their service provision is critical to the
success of the Company.
The Company's Management Engagement Committee has identified its key service
providers. On an annual basis it undertakes a review of performance based on a
questionnaire through which it also seeks feedback.
Furthermore, the Board and its sub-committees engage regularly with its
service providers on a formal and informal basis.
The Management Engagement Committee will also regularly review all material
contracts for service quality and value.
The feedback given by the service providers is used to review the Company's
policies, controls, and procedures to ensure open lines of communication,
operational efficiency, robustness and, appropriate pricing for services
provided.
Lenders
The Company had a three-year Revolving Credit Facility which expired in the
period.
The Facility provided the Company with a flexible funding line which could be
used to finance new investments or working capital and therefore its
availability was a key component of the Company's ability to remain fully
invested and minimise cash drag.
The Company's engagement with its Lender was primarily through its Investment
Manager who provided regular reports to the Bank and had an open line of
communication in respect of the ongoing operation and maintenance of the
Facility.
The Investment Manager provided feedback to the Board in terms of actual and
planned utilisation of the Facility as well as covenant compliance.
The Facility continued to operate and remained available throughout most of
the period, however with the Company in an orderly wind down it was not
renewed at the end of the contractual loan term.
There have been no issues or concerns raised by the Bank, who offered terms to
extend the Facility.
Community & Environment
As an Investment Company whose purpose is the provision of and investment in
commercial real estate debt, the Company's direct engagement with the local
community and the environment is limited.
However, the Board recognises the role the Company can play in terms of the
environment by supporting and guiding Borrowers to find environmentally
friendly sustainable solutions in the maintenance of their properties and
delivery of their business plan objectives more generally.
Within its Investment Strategy, the environmental and social impact of the
properties on which the Company's loans are secured was an important
consideration when it had made its investments.
In the year to 31 January 2022 the Company made no new loans, but previous
loans included substantial capital expenditure facilities, generally to be
applied towards the refurbishment of existing properties which has a
substantially lower environmental impact than demolition and redevelopment.
Such refurbishments generally seek to improve the energy performance of the
target properties as well as providing improved working or living environments
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 stakeholder Company's as
discussed above.
In making the following key decision 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 maintain its paid dividend at 1.5 pence
per share for the first three periods and a dividend of 1.1 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
three distributions of capital equating to a total of 26.0 pence per share for
the year. A fourth distribution equivalent to 6.0 pence per Ordinary Share was
approved after the year end.
As the Company is winding up and no longer making new investments, the Board
reviewed the need for its revolving credit facility and decided not to pursue
a renewal or secure a replacement.
The Board reviewed the performance of the Investment Manager which was
considered to be highly satisfactory. Accordingly, the Investment Manager's
reappointment was confirmed.
During the year and following a decision by the Board, the Company's
Luxembourg subsidiary, ICG Longbow Senior Debt S.A., was dissolved under
Luxembourg Law with effect from 18 January 2022.
Financial Risk Management Policies and Procedures
Financial Risk Management Policies and Procedures are disclosed in Note 11 on
pages 54 to 58.
Principal Risks and Uncertainties
Principal Risks and Uncertainties are discussed in the Corporate Governance
Report on pages 28 to 29.
Subsequent Events
Significant subsequent events have been disclosed in Note 19 to the Financial
Statements on page 60.
Alternative Performance Measures
The Directors believe that the performance indicators detailed in the
Financial Highlights and Financial Summary on pages 1 and 2, 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. The alternative performance measures are described in the table on
page 61.
Annual General Meeting
The AGM of the Company will be held at 12:00 BST on 22 June 2022 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
19 May 2022
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 Consolidated 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 Consolidated 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, whose names are set out on pages 14 and 15, 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 and the undertakings included in the consolidation
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 and its
subsidiary, 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
19 May 2022 19 May 2022
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 and, in
accordance with the AIC Code, voluntarily complies with the Corporate
Governance Code. The Directors recognise the importance of sound corporate
governance, particularly the requirements of the AIC Code. The AIC Code is
available on the AIC's website, www.theaic.co.uk (http://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 Corporate Governance Code or
AIC Code are deemed to meet the GFSC Code.
The AIC Code addresses all the principles set out in the 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 better 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 2022, 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 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.
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 on
page 31.
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
(https://www.icgam.com/~/media/Files/I/ICGAM-V2/responsible-investing-documents/2021-icg-responsible-investing-policy-2.pdf)
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, it is considered unlikely there will be significant
opportunities to support borrowers in ESG matters outside of the delivery of
existing business plans.
The Investment Manager nonetheless continues to work consensually with
borrowers to assist them in delivering their business plans. The Company's
loan commitments have, during the period, been used by certain of the
borrowers to upgrade energy efficiency at the underlying assets securing the
loans. In particular the GMG borrower used the Company's finance to generate
an Energy Performance Certificate (EPC) rating improvement from a D to a B
standard, and the Knowsley borrower constructed a high specification, EPC C
rated industrial unit on its site. The property securing the Affinity loan
has seen the Company-funded refurbishment work improve the EPC rating to a B
on the renovated space during the Company's loan term. This is consistent with
the Investment Manager's goals of securing improved investment outcomes
through supporting sustainable, value-add 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, cooperative and collegiate
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 and 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 questioning 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 are listed on
pages 14 and 15 which set out their range of investment, financial and
business skills and experience represented.
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
On 28 June 2021 Patrick Firth retired from the Board.
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 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 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 as noted further below. In addition, it is
considered beneficial for shareholders that there is continuity of Board
leadership during this final managed realisation phase before placing the
Company in liquidation. Board and Chairman tenure is discussed further
below.
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.
A Director who retires at an Annual General Meeting may, if willing to
continue to act, be elected or re-elected at that meeting. If, at a general
meeting at which a Director retires, the Company neither re-elects that
Director nor appoints another person to the Board in the place of that
Director, the retiring Director shall, if willing to act, be deemed to have
been re-appointed unless at such meeting it is expressly resolved not to fill
the vacated office or a resolution for the re-appointment of the Director is
put to the meeting and lost.
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 he is not elected or re-elected, he shall
retain office until the end of the meeting or (if earlier) when a resolution
is passed to appoint someone in his 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 two years 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 £50,000 (31 January 2021: £50,000). The Chairman of the
Audit and Risk Committee is entitled to annual remuneration of £40,000 (31
January 2021: £40,000). The other independent Directors are entitled to
annual remuneration of £35,000 (31 January 2021: £35,000). These levels of
remuneration have remained unchanged since July 2017.
During the year ended 31 January 2022 and the year ended 31 January 2021, the
Directors' remuneration was as follows:
Expected fees 1 February 2022 to 31 January 2023 1 February 2021 to 31 January 2022 1 February 2020 to 31 January 2021
Director £ £
Jack Perry 50,000 50,000 50,000
Patrick Firth(1) - 16,466 40,000
Paul Meader 35,000 35,000 37,500
Stuart Beevor 35,000 35,000 35,000
Mark Huntley(2) - - 22,870
Fiona Le Poidevin(3) 40,000 38,024 14,584
(1) Patrick Firth retired 28 June 2021
(2) Mark Huntley retired 25 September 2020
(3) Fiona Le Poidevin appointed 1 September 2020 and was appointed
Audit and Risk Committee Chair on 28 June 2021
The Company Directors' fees for the year amounted to £171,375 (31 January
2021: £199,953) with outstanding fees of £31,250 due to the Directors at 31
January 2022 (31 January 2021: £45,995) (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; 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 it occur.
The Board's responsibilities for the Annual Report are set out in the
Directors' Responsibility Statement on page 22. 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. New Directors will receive
an induction on joining the Board and the Board assesses the training needs of
Directors on an annual basis.
The Board formally met five 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:
Director Scheduled Board Ad-hoc Board Audit and Risk Committee Ad-hoc
Meetings Meetings Meetings Committee
5 6 5 Meetings Management Engagement
1 Nomination Committee Remuneration
Committee Meeting Committee
Meeting 2 Meeting
1 0
Stuart Beevor 5 3 5 0 1 2 0
Patrick Firth((1) ) 3 2 3 0 1 2 0
Paul Meader 5 6 5 1 1 2 0
Jack Perry 5 6 5 0 1 2 0
Fiona Le Poidevin 5 6 5 1 1 2 0
Footnotes
(1) Retired 28 June 2021
A quorum is comprised of any two or more members of the Board from time to
time, to perform administrative and other routine functions on behalf of the
Board, subject to such limitations as the Board may expressly impose on this
committee from time to time.
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, which are available on
the Company's website (www.lbow.co.uk) 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 on-going 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 Chairmen 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 routinely held with the external auditors to afford them the
opportunity of discussions without the presence of the Investment Manager or
Administrator. The Audit and Risk Committee activities are contained in the
Report of the Audit and Risk Committee on pages 30 to 32.
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. The
Nomination Committee meets at least once a year pursuant to its terms of
reference and last met on 24 March 2021. 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 under the
mandate of the Nomination Committee.
The internal evaluation conducted by the Nomination Committee 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 Nomination Committee 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, knowledge and age 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 having 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. In addition, it is considered beneficial for
shareholders that there is continuity of Board leadership during this final
managed realisation phase before placing the Company in liquidation.
Therefore, with the Company in a managed realisation phase, the Board has
determined that, barring 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 Meader and comprises of Mr Perry,
Mr Meader, Mrs Le Poidevin 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. The Remuneration Committee meets at least once a year pursuant
to its terms of reference. The Remuneration Committee was not formally held in
this year but the Board had discussed remuneration at a board meeting and it
was agreed that there will be no increase to fees during the realisation
period subject to any unforeseen
circumstances. Current levels of remuneration were set on 1 July 2017 and have
remained unchanged since then. No change in remuneration is proposed for the
year to 31 January 2023.
Internal Control and Financial Reporting
The Directors acknowledge that they are responsible for establishing and
maintaining the Company's systems 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 will continue 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 company secretarial
services to the Company. The Administrator maintains a system of internal
control 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, as explained on page 31.
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 weaknesses or failing 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. The
conclusions of these reviews were 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 Manager 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 interests 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.
The Board considers the process for identifying, evaluating and managing any
significant risks faced by the Company on an on-going 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. In its most recent assessment of risks the
Board has considered the particular risks that the Company may face as a
result of the Ukrainian Crisis either directly or indirectly. 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 Risk Potential Impact Mitigation
Non-payment of interest Rising corporate insolvencies and working capital challenges may mean some Rental income is generally the primary source of income for the Company's The Board and the Investment Manager work pro-actively with borrowers to
businesses, including tenants of the Company's borrowers, are unwilling or borrowers and has a direct link, in most cases, to the borrower's ability to monitor, mitigate and manage any issues and, where appropriate, will
unable to pay rents. service its debt obligations and pay interest. capitalise interest and/or reserve its rights. Loans were
restructured/extended and repayment plans agreed within this year.
Moreover, in the wake of Covid-19 the UK government had lifted measures which
removed some of the actions available to a landlord if a tenant fails to pay
rent. Should a material number of the tenants in the properties securing the
Company's investments fail to pay rents, the Company may, consequently,
experience a shortfall in receipts of interest over the coming quarters.
Fall in collateral values, and accuracy of valuations Certain sections of the economy continue to deal with the ramifications of Ongoing Covid-19 related disruption, changes to working patterns and higher The Company invests on a hold to maturity basis and as such its loans are not
Covid-19 and rising interest rates, leading to a re-rating of property values interest rates may continue to impact certain property values and/or investors directly exposed to short-term volatility in the valuation of the underlying
particularly amongst leisure and some retail assets. reassess likely occupational demand due to changing working practices. Higher real estate on which its loans are secured.
interest rates are likely to depress real estate values, other factors being
equal.
Further, the Company currently enjoys a strong balance sheet and maintains an
appropriate cash surplus for working capital purposes If necessary, the
Falling property values may delay refinancing and exit strategies of borrowers Company has the ability to extend loans where its borrowers are unable to sell
adding to uncertainty over the timing of capital repayments to shareholders. or refinance properties due to any market dislocation.
Uncertain Economic Outlook and Geopolitical risk Higher inflation caused by supply side constraints in the face of strong Inflationary pressures, higher interest rates and the resultant increase in The remaining loans are in the final stages of their term and the Investment
demand has been exacerbated by the Ukrainian Crisis. The interest rate and cost of borrowing may reduce investor appetite with a knock on effect on Manager is closely monitoring exit and repayment strategies of each borrower.
macro-economic implications of this are highly uncertain. property liquidity and valuations. A number of loans are expected to mature soon.
The existing loan book is well diversified with a robust weighted average LTV
of 67.3% as at the date of signing these financial statements, which the Board
expects to prove generally resilient against the likely impacts.
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.
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, and environmental
managers as appropriate.
By order of the Board
Jack Perry Fiona Le Poidevin
Chairman Director
19 May 2022 19 May 2022
Report of the Audit and Risk Committee
The Audit and Risk Committee, chaired by Mrs Le Poidevin, appointed on 28 June
2021, following the retirement of Patrick Firth on 28 June 2021, 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
Chairman 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 Consolidated 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, 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 Consolidated 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 here has been discussion with the external auditor including
the going concern and viability statement;
• whether the Annual Report and Consolidated 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 2022, the Audit and Risk Committee met
formally on five 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;
• review 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 is able to determine the level, if any, of any 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 new requirements under the AIC Code, emerging risks,
environmental, social and governance matters and on subsequent event
disclosures which considered the potential impact of the Ukrainian Crisis on
the Company.
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 also 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 main assumptions of the calculations were that none of the loans were
impaired and that each loan would be repaid at the end of the agreed loan term
with the exception of Quattro, which was not repaid at maturity. No
provisioning was deemed necessary for this loan which was repaid in full
following the year end. All loans were discussed at the Audit and Risk
Committee meeting to review the Annual Report, with the Investment Manager,
the Administrator and Auditor. The Audit and Risk Committee is satisfied that
the Company's interest income has been recognised in line with the
requirements of IFRS.
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 on
pages 28 to 29 of 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 ninth audit period. With the audit period approaching
ten years, 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
decided 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 shall give advance notice of any
retendering plans within the Annual Report. 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 and objectivity and 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 2023.
The Audit and Risk Committee has provided the Board with its recommendation to
the shareholders on the re-appointment of Deloitte LLP as external auditor
which 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
19 May 2022
INDEPENDENT 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') and its subsidiary (together
the 'Group'):
· give a true and fair view of the state of the Group's affairs as at
31 January 2022 and of the Group's 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 Consolidated Statement of Comprehensive Income;
· the Consolidated Statement of Financial Position;
· the Consolidated Statement of Changes in Equity;
· the Consolidated Statement of Cash Flows; and
· the related notes 1 to 19.
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 Group 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 the non-audit services prohibited by the FRC's Ethical Standard were not
provided to the Group or 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 consolidated financial statements, which
indicates that the consolidated 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
· Revenue 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 for the group financial statements in the current
year was £1.8 million which was determined on the basis of 2% of the net
asset value.
Scoping We preformed full scope audit of the Group and audit work to respond to the
risks of material misstatement was performed directly by the Group audit
engagement team.
Significant changes in our approach There have been no significant changes in our approach.
Materiality
The materiality that we used for the group financial statements in the current
year was £1.8 million which was determined on the basis of 2% of the net
asset value.
Scoping
We preformed full scope audit of the Group and audit work to respond to the
risks of material misstatement was performed directly by the Group audit
engagement team.
Significant changes in our approach
There have been no significant changes in our approach.
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 description As at 31 January 2022, the aggregate value of loans advanced amounted to
£83.3 million (2021: £110.7 million) representing 94% of total assets (2021:
92%).
As described in the Report of the Audit and Risk Committee, the Group's loans
are the key value driver for the Group 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.
The key areas of judgement and estimation uncertainty include the
determination of appropriate assumptions for calculating the ECL provision
under IFRS 9 (including the probability of default ('PD'), the loss given
default ('LGD'), exposure at default ('EAD'), estimation of recoverable amount
of any non-performing loans and the categorisation of loans into the various
credit stages in light of qualitative and quantitative factors against
management's definition of significant increase in credit risk ('SICR') and
default), as well as considering 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;
· borrower's actual performance in relation to 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
on page 31. Note 2 (l) 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 of our audit responded to the key audit matter We have:
· Obtained an understanding of relevant controls relating to the loan loss
provisioning review process;
· Challenged the judgments (including evaluation of qualitative and
quantitative criteria) taken by management 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 'SICR' and performed an
assessment of the Loan Monitoring Report to assess evidence of changes in
credit risk resulting from factors mentioned in our description of the key
audit matter;
· Challenged the assumptions made by management in respect of the estimated
recoverable value of any non-performing loans with reference to the valuation
of the underlying collateral;
· Obtained corroboratory evidence to assess reasonableness of estimates
applied to determine the PD, LGD and EAD 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;
· With the involvement of our internal credit specialists, we challenged
the appropriateness of the ECL provision with respect to the covenant
breaches; 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 assumptions applied
by management in relation to the staging of loans, were appropriate, and that
the resulting ECL provision was within an acceptable range.
5.2. Revenue recognition
Key audit matter description Interest income from loans advanced totalled £8.6 million for the year ended
31 January 2022 (2021:£9.7 million), with further other income of £1.0
million (2021: £0.3 million) recognised as a result of repayments (see note 5
to the financial statements). 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 timing between cash receipts of interest and investment
principal repayments and the application of the EIR method. Incorrect
treatment of any upfront fees and exit fees and the impact of ECL assessment
on the EIR calculation may significantly affect the level of distributable
income. 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 timing 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 (2f) and note 3 to the financial statements. This matter is also
described on page 31 of the Report of the Audit and Risk Committee.
How the scope of our audit responded to the key audit matter We have:
· Obtained an understanding of the relevant controls relating to the
recognition of interest income;
· Tested relevant controls relating to recognition of interest income;
· Assessed management's judgements in respect in respect of the
inclusion of the upfront fees and exit fees in the EIR calculation;
· Recalculated the interest income from loans which is 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:
Group Materiality £1.8 million (2021: £2.4 million)
Basis for determining materiality 2% (2021: 2%) of net asset value
We have applied a lower materiality threshold of £427,000 (2021: £497,000)
to the income statement based on 5% of income from loans (2021: 5% of net
income).
Rationale for the benchmark applied We believe net asset value is the most appropriate benchmark as it is
considered one of the principal considerations for members of the Group in
assessing financial performance.
A lower threshold has been used for loan interest income and expenses as such
transactions are important to investors and provide the profit to support
distributions to shareholders.
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. Group
performance materiality was set at 70% of Group materiality for the 2022 audit
(2021: 70%). In determining performance materiality, we considered the
following factors:
· our risk assessment, including our assessment of the Group's 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.
Error reporting threshold
We agreed with the Audit and Risk Committee that we would report to the
Committee all audit differences in excess of £87,000 (2021: £119,000), 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 Group and its
environment, including internal control, and assessing the risks of material
misstatement for the Company. Audit work to respond to the risks of material
misstatement was performed directly by the Group audit engagement team.
We performed a full scope audit of the Group. Our audit focus for the current
year was only on the parent entity. This is because during the year, the board
dissolved the Luxemburg subsidiary which was holding all the loan investments
for the Group. All investments have been transferred to the Company.
At the Group level, we have tested the consolidation process and carried out
analytical procedures to confirm our conclusion that there were no additional
risks of material misstatement on the aggregated financial information of the
Group.
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 Group'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 Group 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
(http://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 Group's remuneration
policies, key drivers for Directors' remuneration, bonus levels and
performance targets;
· the Group'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 6
December 2021;
· 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 Group'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; and
o the matters discussed among the audit engagement team and relevant
internal specialists, including tax and 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
· Revenue 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 Group 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 licenses 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 revenue 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 Group'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 set out on page 19;
· the Directors' explanation as to its assessment of the Group's
prospects, the period this assessment covers and why the period is appropriate
set out on page 19;
· the Directors' statement on fair, balanced and understandable set
out on page 22;
· the board's confirmation that it has carried out a robust
assessment of the emerging and principal risks set out on page 28;
· the section of the annual report that describes the review of
effectiveness of risk management and internal control systems set out on page
28; and
· the section describing the work of the Audit and Risk Committee set
out on page 30.
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 Operational Risk Committee, we
were re-appointed by board on 28 June 2021 to audit the financial statements
for the year ending 31 January 2022 and subsequent financial periods. The
period of total uninterrupted engagement including previous renewals and
reappointments of the firm is 9 years, covering the years ending 31 January
2014 to 31 January 2022.
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.
As required by the Financial Conduct Authority (FCA) Disclosure Guidance and
Transparency Rule (DTR) 4.1.14R, these financial statements form part of the
European Single Electronic Format (ESEF) prepared Annual Financial Report
filed on the National Storage Mechanism of the UK FCA in accordance with the
ESEF Regulatory Technical Standard ('ESEF RTS'). This auditor's report
provides no assurance over whether the annual financial report has been
prepared using the single electronic format specified in the ESEF RTS.
David Becker
For and on behalf of Deloitte LLP
Recognised Auditor
St Peter Port, Guernsey
19 May 2022
Consolidated Statement of Comprehensive Income
For the year ended 31 January 2022
1 February 2021 to 1 February 2020 to
Notes 31 January 2022 31 January 2021
£ £
Income
Income from loans 2 f) 9,310,030 9,655,862
Other fee income from loans 2 g) 207,739 297,979
Income from cash and cash equivalents 49
-
Total income 9,517,769 9,953,890
Expenses
Investment Management fees 14 1,165,922 1,195,588
Directors' remuneration 13 171,375 199,953
Audit fees for the Company 15 46,454 47,355
Audit fees for the Subsidiary 15 14,885
-
Finance cost 18 63,351 95,812
Bank loan Interest 18 98,852
-
Reorganisation Costs 129,941 208,397
Other expenses 17 594,049 677,782
Total expenses 2,171,092 2,538,624
Profit for the year before tax 7,346,677 7,415,266
Taxation charge 4 10,912 4,461
Profit for the year after tax 7,335,765 7,410,805
Total comprehensive income for the year 7,335,765 7,410,805
Basic and diluted Earnings per Share (pence) 9 6.05 6.11
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 Group had no recognised gains or losses for either period other than those
included in the results above, therefore, no separate statement of other
comprehensive income has been prepared.
The accompanying notes form an integral part of these Consolidated Financial
Statements.
Consolidated Statement of Financial Position
As at 31 January 2022
Notes 31 January 2022 31 January 2021
£ £
Assets
Loans advanced at amortised cost 5 83,257,529 110,712,112
Trade and other receivables 6 502,485 1,233,834
Cash and cash equivalents 7 4,801,224 8,773,640
Total assets 88,561,238 120,719,586
Liabilities
Other payables and accrued expenses 8 793,223 1,470,447
Total liabilities 793,223 1,470,447
Net assets 87,768,015 119,249,139
Equity
Share capital 10 87,576,589 119,115,310
Retained earnings 191,426 133,829
Total equity attributable to the owners of the Company 87,768,015 119,249,139
Number of Ordinary Shares in issue at year end 10 121,302,779 121,302,779
Net Asset Value per Ordinary Share (pence) 9 72.35 98.31
The Financial Statements were approved by the Board of Directors on 19 May
2022 and signed on their behalf by:
Jack Perry Fiona Le Poidevin
Chairman Director
19 May 2022 19 May 2022
The accompanying notes form an integral part of these Consolidated Financial
Statements.
Consolidated Statement of Changes in Equity
For the year ended 31 January 2022
Number Ordinary Share B Share Retained
Notes of shares capital capital earnings Total
£ £ £ £
As at 1 February 2021 121,302,779 119,115,310 133,829 119,249,139
Share issue - - - - -
Share issue costs - - - - -
Profit for the year - - - 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
For the year ended 31 January 2021
Number Share B Share Retained
Notes of shares capital capital earnings Total
£ £ £ £
As at 1 February 2020 121,302,779 119,115,310 - 1,192 119,116,502
Share issue costs - - - - -
Profit for the period - - - 7,410,805 7,410,805
Dividends paid 10 - - - (7,278,168) (7,278,168)
As at 31 January 2021 121,302,779 119,115,310 - 133,829 119,249,139
The accompanying notes form an integral part of these Consolidated Financial
Statements.
Consolidated Statement of Cash Flows
For the year ended 31 January 2022
1 February 2021 to 1 February 2020 to
Notes 31 January 2022 31 January 2021
£ £
Cash flows generated from operating activities
Profit for the period 7,335,765 7,410,805
Adjustments for non-cash items & working capital movements:
Movement in other receivables 731,350 51,632
Movement in other payables and accrued expenses (675,545) (522,614)
Movement in tax payable (1,679) (9,090)
Loan amortisation (1,321,983) (512,292)
6,067,908 6,418,441
Loans advanced less arrangement fees (1,643,473) (27,144,200)
Loans repaid at par 30,420,038 38,593,726
Net loans repaid less arrangement fees 28,776,565 11,449,526
Net cash generated from operating activities 34,844,473 17,867,967
Cash flows used in financing activities
Net amounts (repaid) on loan facility - (5,200,000)
Dividends paid 10 (7,278,168) (7,278,168)
Return of Capital paid 10 (31,538,721) -
Net cash (used in) financing activities (38,816,889) (12,478,168)
Net movement in cash and cash equivalents (3,972,416) 5,389,799
Cash and cash equivalents at the start of the year 8,773,640 3,383,841
Cash and cash equivalents at the end of the year 4,801,224 8,773,640
The accompanying notes form an integral part of these Consolidated Financial
Statements.
Notes to the Consolidated Financial Statements
For the year ended 31 January 2022
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. The 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.
The Consolidated Financial Statements comprise the Financial Statements of the
Group as at 31 January 2022.
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 Group'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 2022 have been prepared
in accordance with IFRS as adopted in the UK and the Companies Law and on the
historical cost basis as modified for the measurement of certain financial
instruments.
In the preparation of these Financial Statements, the Company followed the
same accounting policies and methods of computation as compared with those
applied in the previous year.
At the date of approval of these Financial Statements, the Group 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
Consolidated Financial Statements of the Group.
Effective for periods commencing
IFRS 7 Financial Instruments Disclosures (Amendments regarding the interest rate 01 January 2021
benchmark rate)
IFRS 9 Financial Instruments (Amendments regarding the interest rate benchmark rate) 01 January 2021
IFRS 3 Business Combinations (Amendments regarding references to the Conceptual 01 January 2022
Framework for Financial Reporting)
IFRS 9 Financial Instruments (Amendments regarding fees to be included in the 10% 01 January 2022
test for derecognition of financial liabilities)
Effective for periods commencing
IAS 1 Presentation of Financial Statements (Amendments regarding the liabilities 01 January 2023
classification and materiality)
IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors (Amendments 01 January 2023
regarding the definition of Accounting Estimates)
The following new and revised IFRS standards and interpretations that have
been issued and are not yet effective:
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. 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 due for repayment by the end of 2023. 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 than a going concern in
preparing the consolidated financial statements. The basis of valuation for
investments is amortised cost, recognising the realisable value of each
investment in the orderly wind down of the Company and in the absence of a
ready secondary market in real estate loans by which to assess market value.
There has been no material change in the carrying value of the investments. No
material adjustments have arisen as a result of ceasing to apply the going
concern basis.
The Luxembourg subsidiary was dissolved on 18 January 2022. The loans were
transferred to the Company and will be held to their maturity.
c) Basis of consolidation
The Consolidated Financial Statements incorporate the Financial Statements of
the Company and entities controlled by the Company (its subsidiaries) made up
to 31 January each year. Control is achieved where the Company has the power
to govern the financial and operating policies of an investee entity so as to
obtain benefits from its activities.
The results of subsidiaries acquired, disposed of, or dissolved during the
year are included in the Consolidated Statement of Comprehensive Income from
the effective date of acquisition or up to the effective date of disposal, or
dissolution, as appropriate.
Where necessary, adjustments are made to the Financial Statements of
subsidiaries to bring the accounting policies used into line with those used
by the Group. All intra-group transactions, balances, income and expenses are
eliminated on consolidation.
The subsidiary, ICG Longbow Senior Debt S.A., was consolidated into the
Company's accounts and was liquidated on 18 January 2022. The Company's
financial statements are prepared on a consolidated basis as the Group existed
for the majority of the financial year. Accordingly, when a parent had had
subsidiaries at any time during a reporting period, IFRS 10 requires
consolidated financial statements to be presented (unless any of the
exemptions in IFRS 10 are available).
d) 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 Group's
investments and most transactions are denominated in Pounds Sterling.
e) 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 Consolidated Statement of
Comprehensive Income.
f) 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.
Interest on cash and cash equivalents is recognised on an accruals basis.
g) 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.
h) Operating expenses
Operating expenses are the Company's costs incurred in connection with the
on-going management of the Company's investments and administrative costs.
Operating expenses are accounted for on an accruals basis.
i) 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 £1,200
which is included within other expenses. The Company is required to apply
annually to obtain exempt status for the purposes of Guernsey Taxation.
The Group was liable to Luxembourg tax arising on the results and
capitalisation of its Luxembourg registered entity which is included in tax
charge for the year (see Note 4).
j) 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 Consolidated Statement of Changes in
Equity. Dividends declared post year end are disclosed in Note 10.
k) 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.
The Company's results do not vary significantly during reporting periods as a
result of seasonal activity.
l) Financial instruments
Financial assets and financial liabilities are recognised in the Group's
Consolidated Statement of Financial Position when the Group 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 Consolidated
Statement of Financial Position and Consolidated Statement of Comprehensive
Income when there is a currently enforceable legal right to offset the
recognised amounts and the Group 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 Group'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 these 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 in the longer term
may, but will not necessarily, reduce the ability of the borrower to fulfil
its contractual cash flow obligations.
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; 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).
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)
above);
(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 expected credit loss 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.
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.
m) 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 Group'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
both Stage 1 and Stage 2 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 life of the loan. The Board has estimated
that two loans have shown evidence of heightened credit risk since
origination. In assessing the ultimate ECL in relation to these loans, the
Board has made assumptions regarding the collateral value and headroom over
the principal loan amounts as well as the residual term of the loans.
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. This is described further in Note 2 I).
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. Covid‑19 impacted valuations in those
real estate sectors most impacted by lockdowns and social restrictions and
changes in working habits. As the restrictions have been lifted and the
vaccination programme has been rolled out, most sectors have recovered
somewhat and investors, and tenants, have returned to the market. Inflation
and interest rate pressures remain a concern and the prospect for growth has
deteriorated since the start of the Ukrainian crisis. However, given the exit
plans in place for each remaining loans, supported by valuation equity
headroom, the Directors consider the loss given default to be close to zero as
the loans are the subject of very detailed due diligence procedures on
inception, close monitoring through their life to provide early warning of a
deteriorating credit position and LTV headroom. In line with the Company's
investment strategy at the time, most loans benefited from significant LTV
headroom, and business plans designed to deliver further value increases over
time. This combined with tight covenants have 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 the risk of capital loss.
As a result of these considerations, no loss allowance has been recognised
based on 12‑month expected credit losses for those in stage 1 nor for
lifetime losses for those in stage 2, as any such impairment would be wholly
insignificant to the Company. Note 5(iii) details management's assessment of
the sensitivity of expected credit losses to LTV and ICR movements across the
portfolio.
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)).
The Directors also make estimates 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. Given the low
probability of exercise and undeterminable exercise date, the value attributed
to these embedded derivatives is considered to be £nil (31 January 2021:
£nil).
4. Taxation
The Group's tax charge of £10,912 (31 January 2021: £4,461) consists of
taxes levied on Luxco. The net wealth tax charge was £10,912 (including
adjustments of previous years of £3,713) for the financial year ended 31
January 2022 (31 January 2021: £4,461). The net wealth tax charge, set at a
rate of 0.5% (31 January 2021: 0.5%), on Luxco's global assets (net worth), is
determined as at the 1 January of each calendar year. The corporate income tax
charge, including corporate income tax and municipal business tax, amounted to
£nil for 2022 (31 January 2021: £nil) set by the Luxembourg Tax
Administration.
1 February 2021 to 31 January 2022 1 February 2020 to 31 January 2021
£ £
Net wealth tax - current year 7,199 4,461
Net wealth tax - prior year 3,713 -
10,912 4,461
5. Loans advanced
(i) Loans advanced
31 January 2022 31 January 2022 31 January 2021 31 January 2021
Principal advanced At amortised cost Principal advanced At amortised cost
£ £ £ £
Northlands 10,431,142 10,548,056 9,578,514 9,542,788
Quattro 5,956,304 5,984,263 8,853,459 8,974,982
Affinity 17,299,963 17,706,033 16,700,000 17,010,855
Southport 15,000,000 15,348,830 16,059,285 16,157,217
RoyaleLife 25,382,017 27,145,110 25,382,017 26,174,473
LBS 6,474,000 6,525,237 6,283,119 6,271,791
Halycon - - 5,732,465 5,864,704
Knowsley - - 7,750,000 7,747,844
GMG - - 12,981,133 12,967,458
80,543,427 83,257,529 109,319,992 110,712,112
(ii) Valuation considerations
As noted above the Company is now in the process of an orderly wind down. It
remains the intention of the 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, 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, the Statement of
Principal Risks on pages 10 to 12 and Note 11.
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 such 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
accounting policy on the measurement of financial assets is discussed further
in Note 2.
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. 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.
Beyond the impact of Covid-19 discussed below, 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.
Whilst the forced closure of much of the UK economy due to Covid‑19
lockdowns impacted rent collection and business plan progress on a number of
investments, resulting in interest deferral or capitalisation and in some
cases term extensions, the balance outstanding in each case remains at
sufficient discount to the value of the underlying real estate on which they
are secured. The Investment Manager has reviewed the plans in place and
prospects for repayment of each loan over its residual term and the Directors
do not consider any loan to be subject to specific impairment, or for there to
be a risk of not achieving full recovery, including arears of interest over
the residual term of each loan.
(iii) IFRS 9 - Impairment of Financial Assets
In accordance with the Company's Accounting Policy for Financial Instruments
as set out in Note 2 l) (iv) above, the Board is required to consider the
future potential impairment of the loan portfolio. Accordingly, the internal
credit rating of each loan as at 31 January 2022 has been reviewed. Of the two
loans identified as Stage 2 assets in the previous reporting year one has
since repaid in full while the other is still identified as Stage 2. An
additional loan showed a deterioration in their internal credit rating since
31 January 2021 and has been identified as a stage 2 asset. One further
loan, Affinity, was identified as Stage 2 in the interim accounts but has
since shown material credit improvement and is no longer considered to be
Stage 2. All other loans showed no deterioration, and were considered as Stage
1 assets with no ECL over a twelve month period.
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
As at 31 January 2021
Stage 1 Stage 2 Stage 3 Total
Principal advanced 84,407,248 24,912,744 - 109,319,922
Gross carrying value 85,579,913 25,132,199 - 110,712,112
Less ECL allowance - - - -
85,579,913 25,132,199 - 110,712,112
Two loans were considered as Stage 2 loans as at 31 January 2022 (31 January
2021 two loans)
The Stage 2 loan, Quattro, was identified as Stage 2 since January 2019
reflecting delays in delivery of its business plan and poor interest cover.
Interest arrears reported have now been resolved, an element of the business
plan has been delivered resulting in a partial repayment of the loan and a
material improvement has been observed in the remaining property value. More
recently the Sponsor has secured additional planning consents at one of the
remaining properties which will further enhance value and has enabled the
borrower to secure terms for a refinance which would see the Company repaid in
full. The refinance was completed, and the loan repaid in full including
accrued interest and fees, in April 2022.
The Second stage 2 loan, Southport, was recognised as Stage 2 for the first
time this period following a downward valuation of the hotel which has been
adversely impacted by the intermittent Covid-19 lockdowns and related trading
restrictions. The hotel recorded record trading results during summer 2021,
which enabled a catch up in interest arrears, and reports a strong order book
for 2022. Whilst diminished, the valuation headroom and improved trading
outlook remain sufficient for the Directors to expect the loan to be repaid in
full at maturity.
The Affinity loan, considered as Stage 2 at 31 July 2021, has shown strong
lettings in recent months and an improvement in valuation as a result leading
to a credit rating upgrade.
All other loans have shown no material deterioration since inception or over
the course of the financial year and were considered as Stage 1 assets with no
ECL over a twelve month period.
A reconciliation of the ECL allowance was not presented as the allowance
recognised at period end was £nil.
(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 Alternative Investment's internal credit rating model and LGD is based on
ICG Alternative Investment's track record of over £5.3 billion of senior and
whole loans which would satisfy the Company's investment parameters.
With the exception of the Quattro loan which was extended, and has
subsequently repaid, all loans are expected to repay in full within their
residual term, 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 of each loan as if they were all Stage 2
assets and considered the impact of impairment over the life of the loans.
As discussed above, the Covid‑19 pandemic has impacted the performance of a
number of loans with a resultant reduction in interest cover, and either
arrears or capitalisation of interest leading to higher LTV exposures, the
Leisure sector in particular where properties have been subject to forced
closure and operating restrictions. Within ICG's benchmark portfolio, the
Covid‑19 pandemic and its impact on valuation of the retail sector
properties in particular has reduced ICG Alternative Investment's recovery
expectations for non‑performing loans across its wider benchmark portfolio,
although it should be noted that the Company has very limited exposure to the
retail sector. 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.
A three‑grade stress on the portfolio would result in two loans (Quattro and
Southport) moving to doubtful with a materially increased probability of
default and loss given default leading to 12 month expected aggregate losses
of £3.0 million, of which £754,000 was attributed to the Quattro loan which
has now repaid in full.
The majority of loans still benefit from strong equity value protection and
could withstand a 25% fall in property values before being at risk of loss.
The exception is Southport where the current LTV is 85.7% and where a 20% fall
in underlying property values would result in a loss of approximately
£1.0million.
Stress test impact on Expected Credit Loss at 31 January 2022
ECL Impact 31 January 2021
One grade deterioration in credit rating £166,000 £473,000
Two grade deterioration in credit rating £654,000 £925,000
Three grade deterioration in credit rating £3,137,000 £2,819,000
The remaining loan portfolio is set out in 4(i) above and the current
performance of each loan is discussed in the Investment Manager's report. The
current aggregate exposure by internal credit rating of the loan portfolio is
set out in note 11.
6. Trade and other receivables
31 January 2022 31 January 2021
£ £
Other receivables 502,485 1,233,834
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.
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 below shows the Company's cash balances and the banks in which they
are held:
31 January 2022 31 January 2021
£ £
Royal Bank of Scotland Global Banking (Luxembourg) S.A. 1,266,096 6,361,893
Lloyds Bank International Limited 396,016 109,769
Barclays Bank plc 396,056 109,835
Butterfield Bank (Guernsey) Limited ( 1 ) 396,076 109,738
Royal Bank of Scotland International Limited 2,346,980 2,082,405
4,801,224 8,773,640
(1) Formerly ABN Amro CI
8. Other payables and accrued expenses
31 January 2022 31 January 2021
£ £
Investment Management fees (see Note 14) 289,107 897,928
Taxes payable - (7,411)
Directors' remuneration (see Note 13) 31,250 45,995
Administration fees (see Note 14) 22,188 35,907
Broker fees 51,650 25,825
Audit fees 29,723 50,664
Other expenses 44,419 17,014
Reorganisation costs - 171,397
Trade creditors 324,886 233,128
793,223 1,470,447
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 2021 to 1 February 2020 to
31 January 2022 31 January 2021
Profit for the year (£) 7,335,765 7,410,805
Weighted average number of Ordinary Shares in issue 121,302,779 121,302,779
Basic and diluted EPS (pence) 6.05 6.11
Adjusted basic and diluted EPS (pence) 5.25 6.11
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 2022.
The calculation of adjusted basic and diluted earnings per share is based on
the profit for the year, adjusted for one-off other fee income during the year
totalling £207,739 (31 January 2021: £nil).
There are no dilutive shares in issue at 31 January 2022 (31 January 2021:
none).
Net Asset Value per share
31 January 2022 31 January 2021
NAV (£) 87,768,015 119,249,139
Number of Ordinary Shares in issue 121,302,779 121,302,779
NAV per share (pence) 72.35 98.31
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 2022 31 January 2021
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 - -
£ £
Share capital brought forward 119,115,310 119,115,310
Repaid in the year (31,538,721) -
Share capital carried forward 87,576,589 119,115,310
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 2022 and 31 January 2021 are set out
below:
Dividend per share Total dividend
1 February 2021 to 31 January 2022 Pence £
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
Dividend per share Total dividend
1 February 2020 to 31 January 2021 Pence £
Interim dividend in respect of quarter ended 31 January 2020 1.50 1,819,542
Interim dividend in respect of quarter ended 30 April 2020 1.50 1,819,542
Interim dividend in respect of quarter ended 31 July 2020 1.50 1,819,542
Interim dividend in respect of quarter ended 31 October 2020 1.50 1,819,542
6.00 7,278,168
Following shareholder approval of proposed changes to the Company's Investment
Objectives and Investment Policy which will allow an orderly realisation of
the Company's assets and return of capital to shareholders, the Board expects
the Company to continue the payment of quarterly dividends whilst it remains
prudent to do so. The dividend payable per Ordinary Share will however reduce
over time as assets are realised and as capital is returned to shareholders.
Return of Capital
Return of Capital is recognised by the Company in the quarterly NAV
calculation following the declaration date.
The Directors announced three returns in the year and have returned a total
amount of 26.00 pence per Ordinary Share to shareholders, being £31,538,721
in total based on the current number of Ordinary Shares in issue. This return
of capital was effected 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 2021 to 31 January 2022 Pence £
Return of Capital September 2021 5.50 £ 6,671,651
Return of Capital December 2021 6.50 £ 7,884,681
Return of Capital January 2022 14.00 £ 16,982,389
26.00 £ 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 three issues 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 determines 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 on-going 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, with immaterial
expenses incurred in Euro by Luxco. With the liquidation of Luxco finalised on
18 January 2022, the Company does not anticipate being exposed to currency
risk henceforth.
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 2022 and 31 January 2021:
31 January 2022 31 January 2021
£ £
Floating rate
Cash 4,801,224 8,773,640
Fixed rate
Loans advanced at amortised cost 83,257,529 110,712,112
88,058,753 119,485,752
The timing of interest payments on the loans advanced is summarised in the
table on page 57.
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 below, 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 Staging Basis for recognising ECL Maximum credit risk exposure 2022 Maximum credit risk exposure 2021
AAA, AA+ Virtually no risk Stage 1 12 month ECL - -
AA to A Low risk Stage 1 12 month ECL - -
BBB Moderate risk Stage 1 12 month ECL 10,548,056 9,542,788
BB Average risk Stage 1 12 month ECL 49,155,980 66,019,869
B Acceptable risk Stage 1 12 month ECL 20,956,304 35,149,455
CCC+ Borderline Risk Stage 2 Lifetime ECL-not credit impaired - -
CCC Special Mention Stage 2 Lifetime ECL-not credit impaired - -
CC Substandard Stage 3 Lifetime ECL-credit impaired - -
D Doubtful Stage 3 Lifetime ECL-credit impaired - -
D Loss N/A Amount is written off - -
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 2022, the maximum credit risk exposure was
£88,344,670 (31 January 2021: £118,093,632).
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 pages in the Investment Manager's report on pages 10 to 12.
To diversify credit risk the Company maintains its cash and cash equivalents
across four (31 January 2021: 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 2022 31 January 2021
£ £
Royal Bank of Scotland Global Banking (Luxembourg) S.A. A- 1,266,096 6,361,893
Lloyds Bank International Limited A 396,016 109,769
Barclays Bank plc A 396,056 109,835
Butterfield Bank (Guernsey) Limited ( 1 ) BBB+ 396,076 109,738
Royal Bank of Scotland International Limited A- 2,346,980 2,082,405
4,801,224 8,773,640
(1) Formerly ABN Amro CI
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. Except for the loans
advanced, 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 below:
Less than one year Between one and five years Total as at
31 January 2022
£ £ £
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
Less than one year Between one and five years Total as at
31 January 2021
£ £ £
Northlands - principal - 9,578,514 9,578,514
Northlands - interest and exit fees 622,603 656,815 1,279,418
Halcyon - principal 5,732,465 - 5,732,465
Halcyon - interest and exit fees 132,239 - 132,239
Quattro - principal 8,853,459 - 8,853,459
Quattro - interest and exit fees 121,523 - 121,523
Affinity - principal - 16,700,000 16,700,000
Affinity - interest and exit fees 1,249,068 783,103 2,032,171
Southport - principal - 16,059,285 16,059,285
Southport - interest and exit fees 1,124,150 1,642,227 2,766,377
RoyaleLife - principal - 25,382,017 25,382,017
RoyaleLife - interest and exit fees 2,030,561 6,585,517 8,616,078
LBS - principal - 6,283,119 6,283,119
LBS - interest and exit fees 410,641 329,132 739,773
Knowsley - principal - 7,750,000 7,750,000
Knowsley - interest and exit fees 658,904 816,776 1,475,680
GMG - principal - 12,981,133 12,981,133
GMG - interest and exit fees 778,868 1,168,302 1,947,170
21,715,106 106,667,054 128,382,160
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. As at the year-end date the residual weighted average income
protection period was 0.75 years (31 January 2021: 0.72 years).
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 £nil (31 January
2021: £nil).
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. Subsidiary
At 31 January 2021 the Company had one wholly owned subsidiary, ICG-Longbow
Senior Debt S.A., registered in Luxembourg. As reported in the Company's
interim report and accounts, 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 under Luxembourg Law on 18 January 2022 and its assets and
liabilities transferred to the Company. As at 19 January 2022 the loans were
held by the Company.
13. 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 £171,375 (31 January 2021:
£199,953) with outstanding fees of £31,250 due to the Directors at 31
January 2022 (31 January 2021: £45,995) (see Note 8).
14. Material Agreements
Investment Manager Agreement
Investment Management fees for the year amounted to £1,165,922 (31 January
2021: £1,195,588), of which £289,107 (31 January 2021: £897,928) 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 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 £90,000 per annum for services such as
administration, corporate secretarial services, corporate governance,
regulatory compliance and stock exchange continuing obligations provided both
to the Company and some limited administration services to Luxco in
conjunction with the Luxembourg Administrator. The Administrator will also be
entitled to an accounting fee charged on a time spent basis with a minimum fee
of £40,000 per annum. Administration and accounting fees for the year
amounted to £205,285 (31 January 2021: £172,421) of which £22,188 (31
January 2021: £35,907) 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 £1.78 per shareholder per annum or part
thereof, subject to a minimum of £7,500 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 £25,000 per annum.
15. Auditor's Remuneration
Audit and non-audit fees payable to the auditors can be analysed as follows:
31 January 2022
31 January 2021
£ £
Audit fees for the Company 46,454 47,355
Audit fees for the Subsidiary - 14,885
Total Audit fees 46,454 62,240
There were no non-audit fees paid during the year.
16. Revolving Credit Facility
On 1 October 2018, the Company entered into a revolving credit facility with
OakNorth Bank plc. This facility was for an amount equal to the lower of £25
million and 20% of the NAV from time to time. The loan matured 36 months
from the date of the agreement. Interest accrued on each loan at a rate of
LIBOR plus 3.95% per annum. An arrangement fee was payable on first drawing
the facility.
This facility was used towards maintaining and preserving liquidity, making
new customer loans and payment of the fees, costs and expenses due. No
drawdowns were made during the year. The opening drawn down balance was £nil
at 1 February 2021. The overall balance drawn down at 31 January 2022 £nil
(31 January 2021: £nil).
17. Other Expenses
The other expenses shown in the Consolidated Statement of Comprehensive Income
are made up as shown below.
31 January 2022 31 January 2021
£ £
Luxco operating expenses 95,358 278,661
Broker fees 76,925 52,163
Administration fees 205,285 172,421
Regulatory fees 16,524 19,351
Listing fees 14,573 13,375
Legal & professional fees 122,555 70,311
Other expenses 62,829 71,500
594,049 677,782
18. Finance Costs
Finance costs comprise £63,351 (31 January 2021: £95,812) relating to the
amortisation of arrangement fees on the revolving credit facility and £nil
(31 January 2021: £98,852) relating to the facility set-up costs.
19. Subsequent events
On 24 March 2022, the Company declared a dividend of 1.1 pence per Ordinary
Share in respect of the quarter ended 31 January 2022, payable on 29 April
2022.
On 18 May 2022, the Directors resolved to return £7,278,167 of capital to
Ordinary shareholders, equivalent to 6.0 pence per Ordinary Share, through
issuance and redemption of B shares, with a record date of 27 May 2022 and a
payment date of 13 June 2022.
Following the Russian invasion of the Ukraine the Investment Manager has
reviewed the portfolio and has not identified any direct exposure to either
Russian or Ukrainian companies or individuals. The Company continues to
monitor the situation for potential macro-economic impacts which may impact
the performance or repayment of the remaining loans.
alternative performance measures
Performance Measure Definition Reason for Use
Weighted Average Loan Coupon The money weighted average rate of interest being charged on each investment To provide shareholders with a means to assess whether the interest payable on
at the relevant reporting date. 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.
Weighted Average Loan Maturity The money weighted average period from the relevant reporting date until the To provide transparency to the Company's investment outlook and likely level
Company's investments reach their contractual repayment date. of loan repayments, and to assist shareholders in identifying whether the
remaining duration of the loans reflects their own investment time frames.
Weighted Average Loan to Value Ratio The money weighted average Loan to Value ratio at the relevant reporting date, To provide transparency to the Company's risk positioning and to demonstrate
calculated on the basis of the outstanding loan amount for each investment as compliance with the investment restrictions.
a percentage of the most recent Market Value of the properties securing each
investment.
Total Income per Share The total income of the Company as disclosed in the Consolidated Statement of To provide transparency to the Company's investment returns.
Comprehensive Income divided by the number of Ordinary Shares in issuance at
the relevant reporting date.
NAV per Share The net asset value of the Company divided by the number of Ordinary Shares in To assist shareholders in assessing the performance of the Company over a
issuance at the relevant reporting date. period in relation to its Investment Objectives.
Dividend per Share The total dividends per Ordinary Share declared and/or paid during the To assist shareholders in assessing the performance of the Company in relation
relevant reporting period. to its Investment Objectives.
Shareholder Total Return since IPO Share price movements combined with dividends paid on the assumption that To assist shareholders in assessing the total return earned over the life of
dividends have been reinvested. the Company.
Share Price Premium / Discount The percentage difference between the NAV per share and the quoted price of To assist shareholders in identifying and monitoring the performance of the
each Ordinary Share as at the relevant reporting date. Company.
Percentage Capital Invested The aggregate value of the investments at amortised cost divided by total To assist shareholders in identifying and monitoring the performance of the
shareholder equity. Where the figure exceeds 100%, the investments will be Company and the level of gearing.
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 Affinity Global Real Estate 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 Consolidated Financial Statements" means
the annual publication of the Group provided to the shareholders to describe
their operations and financial conditions, together with their Consolidated
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;
"CBI" means the Confederation of British Industry;
"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 Stirling;
"ESG" means Environmental, Social and Governance;
"EU" means the European Union;
"Euro" or "€" means Euro;
"FATCA" means Foreign Account Tax Compliance Act;
"FCA" means the UK Financial Conduct Authority (or its successor bodies);
"Financial Statements" or "Consolidated Financial Statements" means the
audited consolidated financial statements of the Group, including the
Consolidated Statement of Comprehensive Income, the Consolidated Statement of
Financial Position, the Consolidated Statement of Changes in Equity, the
Consolidated 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;
"GMG" means GMG Real Estate Limited;
"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);
"GFSC Code" means the GFSC Finance Sector Code of Corporate Governance;
"Halcyon" means Halcyon Ground Rents Limited;
"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, as adopted
by the United Kingdom;
"Interest Cover Ratio" 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 IC Alternative Investment Limited
or its associates;
"Investment Manager Agreement" means Investment Management Agreement dated 25
November 2020 between the Company and the Investment Manager ICG Alternative
Investment Limited;
"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;
"Knowsley" means Knowsley (Image Business Park) Limited;
"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" or "Subsidiary" means the Company's wholly owned subsidiary, ICG
Longbow Senior Debt S.A.;
"Luxembourg Administrator" means Ocorian Services (Luxembourg) S.à.r.l being
the administrator of Luxco;
"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 Group 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 Bliss Hotels Limited and Bliss Hotels(Southport)
Limited;
"Sq ft" means square feet;
"UK" or "United Kingdom" means the United Kingdom of Great Britain and
Northern Ireland;
"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
"£" or "Pounds Sterling" means British pound sterling and "pence" means
British pence.
directors and general information
Board of Directors Independent Auditor English Solicitors to the Company
Jack Perry Deloitte LLP Gowlings WLG (UK) LLP
(Chairman)
Stuart Beevor PO Box 137 4 More London Riverside
Paul Meader Regency Court London
Fiona Le Poidevin Glategny Esplanade United Kingdom
Patrick Firth (Retired 28 June 2021) St. Peter Port SE1 2AU
Guernsey
Audit and Risk Committee GY1 3HW Guernsey Advocates to the Company
Fiona Le Poidevin (Chair from 28 June 2021) Carey Olsen
Stuart Beevor Guernsey Administrator and Company Secretary Carey House
Paul Meader Ocorian Administration (Guernsey) Limited PO Box 98
Patrick Firth (Chairman - Retired 28 June P.O. Box 286 Les Banques
2021)
Floor 2 St Peter Port
Trafalgar Court Guernsey
Les Banques GY1 4BZ
Management Engagement Committee
St Peter Port
Jack Perry
(Chairman) Guernsey Bankers
Paul Meader GY1 4LY Royal Bank of Scotland Global Banking (Luxembourg) S.A. Espace Kirchberg
Fiona Le Poidevin The Square
Stuart Beevor Luxembourg Administrator Building A-40 Avenue J.F. Kennedy
Patrick Firth (retired 28 June 2021) Ocorian Services (Luxembourg) L-1855
S.à.r.l Luxembourg
Nomination Committee 6c Rue Gabriel Lippmann
Jack Perry (Chairman) Munsbach Butterfield Bank (Guernsey) Limited
Stuart Beevor Luxembourg PO Box 25
Paul Meader L-5365 Regency Court
Fiona Le Poidevin Glategny Esplanade
Patrick Firth (Retired 28 June 2021) Depositary St Peter Port
Ocorian Depositary (UK) Limited Guernsey
Remuneration Committee 5th Floor GY1 3AP
Paul Meader (Chairman) 20 Fenchurch Street
Jack Perry London Barclays Bank plc
Stuart Beevor England 6-8 High Street
Fiona Le Poidevin EC3M 3BY St Peter Port
Guernsey
Investment Manager Registrar GY1 3BE
ICG Alternative Investment Limited Link Asset Services (Guernsey) Limited
Procession House Mont Crevelt House Lloyds Bank International Limited
55 Ludgate Hill Bulwer Avenue PO Box 136
London St Sampson Sarnia House
United Kingdom Guernsey Le Truchot
EC4M 7JW GY2 4LH St Peter Port
Guernsey
Registered office GY1 4EN
P.O. Box 286 Corporate Broker and Financial Adviser
Floor 2 Cenkos Securities plc
Trafalgar Court 6-8 Tokenhouse Yard
Les Banques London
St Peter Port United Kingdom
Guernsey EC2R 7AS The Royal Bank of Scotland International
GY1 4LY Royal Bank Place
1 Glategny Esplanade
Identifiers St Peter Port
GIIN: 6IG8VS.99999.SL.831 Guernsey
ISIN: GG00B8C23S81 GY1 4BQ
Sedol: B8C23S8
Ticker: LBOW OakNorth Bank plc
Website: www.lbow.co.uk (http://www.lbow.co.uk) 6(th) Floor Nightingale House
3(rd) Floor 57 Broadwick Street
Soho
London
W1F 9QS
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 (http://www.lbow.co.uk)
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