TIDMLBOW
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
(t he "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
GBP 80.5 Million (1) committed in six loans as at 31 January
2022
GBP 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 0.97 years 1.76 years
maturity (1)
---------------- ----------------
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 7.85 pence 8.21 pence
(1)
---------------- ----------------
NAV Per Share (1) 72.4 pence 98.3 pence
---------------- ----------------
declared Dividend 5.60 pence 6.00 pence
per Share (1)
---------------- ----------------
Capital Distribution 26.0 pence -
per Share (1)
---------------- ----------------
(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been replaced by concerns over energy prices, the rising cost of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 GBP80.5 million.
The Company received three full repayments during the year. In
July 2021 the remaining GBP5.7 million balance of the Halcyon loan
was repaid, following a refinancing of the underlying security
portfolio. In October 2021 the GBP7.8 million Knowsley loan repaid,
following a sale of the underlying property. The GBP16.3m 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 GBP0.8 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 GBP200,000 per annum.
Post Year End Trading
In April 2022, the Company received full repayment of the
outstanding GBP6.0 million balance of the Quattro loan, together
with interest and fees totalling GBP0.5 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 GBP31.5 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 GBP87.77 million as at 31 January 2022 (31 January
2021: GBP 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 GBP9.52 million (31 January 2021:
GBP9.95 million), and profit after tax was GBP 7.34 million (31
January 2021: GBP 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 GBP57,597, 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 GBP80.54
million, representing 91.77% of the shareholders' equity (31
January 2021: nine loans with aggregate principal balance of GBP
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 GBP 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
Will Talkington
Andrew Worne +44 (0)20 7397 1920
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. F ollowing 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
-------------------- ---------------- ----------- ------------------------
Closed ended investment
Fund launch: 5 February 2013 Fund type: 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
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Share price & NAV at 31 January Key portfolio statistics at
2022 31 January 2022
-------------------------------------------------------- ------------------------------------
Share price (pence per
share): 71.40 Number of investments: 6
--------------------------------------------- --------- ---------------------------- ------
NAV (pence per share) Percentage capital invested
(1) : 72.35 (1) (3) : 94.9%
--------------------------------------------- --------- ---------------------------- ------
Premium / (Discount) Weighted avg. investment
(1) : (1.3%) coupon: 7.39%
--------------------------------------------- --------- ---------------------------- ------
Approved dividend (pence
per share) (2) : 1.1 Weighted avg. LTV: 67.8%
--------------------------------------------- --------- ---------------------------- ------
Dividend payment date 29 April
(2) : 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 GBP5.7 million Halcyon loan,
together with exit and prepayment fees of GBP0.1 million;
-- Repayment in full of the GBP7.8 million Knowsley loan,
together with exit and prepayment fees of GBP0.2 million;
-- Repayment in full of the GBP16.3 million GMG loan, together
with exit and prepayment fees of GBP0.8 million;
-- Partial GBP4.0 million repayment of the Quattro loan;
-- Partial GBP1.5 million repayment of the Southport loan;
-- Amendment to terms of the GBP25.4 million RoyaleLife loan,
securing additional returns for the Company.
As a consequence of the above activity, total commitments at
period end stood at GBP80.9 million (31 January 2021: GBP117.3
million) with the par value of the loan portfolio being GBP80.5
million (31 January 2021: GBP109.3 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 GBP6.0 million balance of the Quattro loan, together with
interest and fees totalling GBP0.5 million in aggregate.
As at the date of this report, the Company's portfolio totals
five investments with an aggregate committed balance of GBP74.6
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
GBP80.9 million, of which GBP80.5 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 GBP80,543,427 GBP109,258,944
---------------- ----------------
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 GBP4,801,224 GBP8,773,640
---------------- ----------------
Drawings on Working Capital Facility GBP nil GBP nil
---------------- ----------------
Investment Portfolio as at 31 January 2022
Balance
Day Day undrawn
Unexpired 1 1 (GBPm) Current
Balance
outstanding
term balance LTV (1, 2) LTV
Project Region Sector Term start (years) (GBPm) (%) (GBPm) (%)
South
Quattro East Mixed use Oct-17 0.00 9.00 83.7 5.96 74.0
South
Affinity West Office Mar-18 0.28 14.20 67.3 17.30 0.40 68.4
North
Southport 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 GBP40 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 GBP57bn, some 6%
above the five year average and a 40% rebound on the 2020 figure.
LSH report that Q4 2021 saw GBP17.3bn of trades (although Savills
has a higher figure, of GBP19.7bn) 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
GBP4.3bn were a new all-time high, with the annual volume of
GBP15.2bn 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 GBP28m, with a sale due to
complete in Q2 2022 at a headline price of GBP44m. LSH describe the
run of deals as 'meteoric', with 2021 volumes of GBP3.0bn being a
six-year high. An element of liquidity also returned to the
shopping centre market, particularly with smaller lot sizes of
sub-GBP25m 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 GBP172m, 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 GBP1.25bn 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 GBP135m. 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 GBP169.9
billion at the end of January 2022, up from GBP167.6 billion in the
prior year. This was led by a very strong month of deployment in
December (+GBP1.35bn), 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 GBP9.00 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 GBP6.00 million participation in the loan subsequently acquiring the
minority GBP3.00 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 GBP9,000,000
------------- -------------------------- -------------
Property value GBP8,050,000 Debt outstanding GBP5,956,304
------------- -------------------------- -------------
Property value per sq. ft. GBP235 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. GBP174
------------- -------------------------- -------------
Affinity
On 28 February 2018, a new GBP16.20 million commitment was made, of which GBP14.20 million
was advanced, to refinance a multi-let office property in Bristol, and to provide a GBP2.00
million capital expenditure facility to fund a refurbishment programme. Subsequently, the
loan commitment was increased to GBP17.70 million in support of the borrower's business plan,
of which GBP17.30 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 GBP14,200,000
-------------- -------------------------- --------------
Property value GBP25,300,000 Debt outstanding GBP16,700,000
-------------- -------------------------- --------------
Property value per sq. ft. GBP221 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. GBP146
-------------- -------------------------- --------------
Southport
A GBP15.00 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 GBP15.00 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 GBP12,500,000
-------------- -------------------------- --------------
Property value (GBP) GBP17,500,000 Debt outstanding GBP15,000,000
-------------- -------------------------- --------------
Property value (GBP/bedroom) GBP131,579 Original term 4 years
-------------- -------------------------- --------------
Property value (GBP/sq. ft.) GBP385 Maturity April 2023
-------------- -------------------------- --------------
Bedrooms 133 LTV as at 31 January 85.7%
-------------- -------------------------- --------------
Property area (sq. ft.) 45,430 Loan exposure per bedroom GBP112,781
-------------- -------------------------- --------------
Northlands
In October 2019 the Company provided a GBP12.50 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 GBP9.00 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 GBP3.50 million capital expenditure commitment. This commitment was partially drawn during
the period, with the outstanding balance now GBP10.43 million and LTV 58.3%.
Property profile Debt profile
Number of properties 14 Day one debt GBP9,000,000
-------------- --------------------------
Property value GBP17,910,650 Debt outstanding GBP10,431,142
-------------- -------------------------- --------------
Property value per sq. ft. GBP147 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. GBP86
-------------- -------------------------- --------------
RoyaleLife
In September 2019 the Company provided a GBP24.6 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, GBP142.7 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 GBP20.3 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 GBP25.38 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 GBP20,267,119
------------------- ----------------------
Property value (GBP) * GBP34,024,151 Debt outstanding GBP25,382,017
------------------- ---------------------- --------------
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 GBP6.5 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 GBP11.07m,
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 GBP4,922,000
-------------- -------------------------- -------------
Property value GBP11,000,000 Debt outstanding GBP6,474,000
-------------- -------------------------- -------------
Property value per sq. ft. GBP1,042 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. GBP613
-------------- -------------------------- -------------
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 GBP200,000 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:
Ordinary Shares % holding at Ordinary Shares % holding at
of GBP1 each held 31 January 2022 of GBP1 each held 31 January 2021
Director 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 GBP31.6m 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 Benefits of Engagements
Engagement
Shareholders
The Company In the financial year
The major investors engages the Company issued:
in the Company's shares with its * 3 Portfolio updates by way of RNS
are set out on page shareholders
18. through the
Following the Covid-19 pandemic and the Company share price falling to a deep issue * 4 Quarterly fact sheets.
discount to of regular
NAV, shareholders supported a recommendation by the Board to wind down the portfolio
Company. updates in the
form
The Company sought to maintain shareholder satisfaction through: of RNS
* Transparency of communication announcements The Company, through
and quarterly its Investment Manager,
factsheets. Broker and the Board
* Capital preservation liaised with major
The Company shareholders in connection
provides with the change in
* Payment of regular and sustainable dividends and in depth Investment Policy
commentary leading to an orderly
on the realisation of assets
* Return of capital on loan repayments investment of the Company, receiving
portfolio, over 75% support from
corporate shareholders. The
governance and Company has continued
corporate to execute this realisation
outlook in its during the year.
semi-annual Engagement with shareholders
and annual through regular announcements
financial and fact sheets enables
statements. shareholders to take
The Board informed decision
receives as to the winding
quarterly up process and timetable,
feedback which in turn, should
from its support the share
Broker in price and reduce any
respect of discount to NAV in
their investor normal market conditions.
engagement and
investor
sentiment.
The engagement
with
shareholders,
including the
AGM,
will continue
through
the wind down
period
as capital is
returned to
investors.
---------------- -----------------------------------------
Borrowers During the course
The Company's principal The Company of the year the
clients are its Borrowers engages Investment Manager
to whom the Company with its has undertaken and
provides term finance. Borrowers the Board has reviewed
through its four monitoring
The Board believes Investment reports.
that the Company and Manager. At the request of
its Investment Manager the Southport borrower,
have a duty to act The Investment the Investment Manager
fairly in respect Manager agreed to the surrender
of its Borrowers and forms and of a commercial lease
that strong engagement maintains at the property, which
with Borrowers drives a close allowed for a partial
favourable outcomes working repayment of the loan.
for stakeholders and relationship Similarly, the Investment
Borrowers themselves. with Borrowers Manager engaged in
through a series of amendments
the to the RoyaleLife
underwriting loan, which are expected
and to generate additional
execution of returns for shareholders.
new loans, In each case
and the the Board considers
ongoing this to be evidence
quarterly of
monitoring of positive and consensual
such engagement.
loans over One investment had
their passed its
respective maturity date. The
terms. Investment Manager
successfully worked
The Board with the borrower
monitors to ensure an orderly
the timeliness repayment of the loan
and can be made, and is
quality of satisfied with the
these plans
engagements put in place, which
through its it does not consider
regular will increase the
engagement risk profile of the
with the Company.
Investment
Manager. There have been no
borrower complaints.
The Investment
Manager
works closely
with
borrowers to
support
the delivery
of their
business
plans.
---------------- -----------------------------------------
Service Providers
The Company does not The Company's The feedback given
have any direct employees; Management by the service providers
however, it works Engagement is used to review
closely with a number Committee the Company's policies,
of service providers has identified controls, and procedures
(the Investment Manager, its to ensure open lines
Administrator, Company key service of communication,
Secretary, Broker providers. operational efficiency,
and other professional On an annual robustness and, appropriate
service providers) basis pricing for services
whose interests are it undertakes provided.
aligned to the success a review
of the Company. of performance
The quality and timeliness based
of their service provision on a
is critical to the questionnaire
success of the Company. 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.
---------------- -----------------------------------------
Lenders
The Company had a The Company's The Facility continued
three-year Revolving engagement to operate and remained
Credit Facility which with its available throughout
expired in the period. Lender was most of the period,
The Facility provided primarily however with the Company
the Company with a through in an orderly wind
flexible funding line its Investment down it was not renewed
which could be used Manager at the end of the
to finance new investments who provided contractual loan term.
or working capital regular
and therefore its reports to the There have been no
availability was a Bank issues or concerns
key component of the and had an raised by the Bank,
Company's ability open line who offered terms
to remain fully invested of to extend the Facility.
and minimise cash communication
drag. 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.
---------------- -----------------------------------------
Community & Environment
As an Investment Company Within its In the year to 31
whose purpose is the Investment January 2022 the Company
provision of and investment Strategy, the made no new loans,
in commercial real environmental but previous loans
estate debt, the Company's and social included substantial
direct engagement impact capital expenditure
with the local community of the facilities, generally
and the environment properties to be applied towards
is limited. on which the the refurbishment
Company's of existing properties
However, the Board loans are which has a substantially
recognises the role secured lower environmental
the Company can play was an impact than demolition
in terms of the environment important and redevelopment.
by supporting and consideration Such refurbishments
guiding Borrowers when it had generally seek to
to find environmentally made its improve the energy
friendly sustainable investments. performance of the
solutions in the maintenance target properties
of their properties as well as providing
and delivery of their improved working or
business plan objectives living environments
more generally. for their occupiers.
The ESG report provides
further information
on the Investment
Manager's approach
to this important
subject.
---------------- -----------------------------------------
Key Decisions
Key decisions are defined as both those that are material to the
Company, but also those that are significant to any of our key
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 .
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
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 GBP 50,000 (31 January 2021:
GBP50,000). The Chairman of the Audit and Risk Committee is
entitled to annual remuneration of GBP 40,000 (31 January 2021:
GBP40,000). The other independent Directors are entitled to annual
remuneration of GBP 35,000 (31 January 2021: GBP35,000). 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 2021 to 31 January 1 February 2020 to 31 January
1 February 2022 2022 2021
to 31 January
2023
Director GBP GBP
---------------------- -------------------------- -------------------------------- --------------------------------
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 GBP171,375
(31 January 2021: GBP199,953) with outstanding fees of GBP31,250
due to the Directors at 31 January 2022 (31 January 2021:
GBP45,995) (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:
Audit and Management
Scheduled Risk Ad-hoc Nomination Engagement Remuneration
Board Ad-hoc Board Committee Committee Committee Committee Committee
Meetings Meetings Meetings Meetings Meeting Meeting Meeting
Director 5 6 5 1 1 2 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 Rising corporate Rental income is The Board and the
of interest insolvencies generally the primary Investment Manager
and working capital source of income work pro-actively
challenges may for the Company's with borrowers to
mean some businesses, borrowers and has monitor, mitigate
including tenants a direct link, and manage any issues
of the Company's in most cases, and, where appropriate,
borrowers, are to the borrower's will capitalise interest
unwilling or ability to service and/or reserve its
unable to pay its debt obligations rights. Loans were
rents. and pay interest. restructured/extended
and repayment plans
Moreover, in agreed within this
the wake of Covid-19 Should a material year.
the UK government number of the tenants
had lifted measures in the properties
which removed securing the Company's
some of the actions investments fail
available to to pay rents, the
a landlord if Company may, consequently,
a tenant fails experience a shortfall
to pay rent. in receipts of
interest over the
coming quarters.
------------------------- ---------------------------- --------------------------
Fall in Certain sections Ongoing Covid-19 The Company invests
collateral of the economy related disruption, on a hold to maturity
values, continue to deal changes to working basis and as such
and accuracy with the ramifications patterns and higher its loans are not
of valuations of Covid-19 and interest rates directly exposed
rising interest may continue to to short-term volatility
rates, leading impact certain in the valuation
to a re-rating property values of the underlying
of property values and/or investors real estate on which
particularly reassess likely its loans are secured.
amongst leisure occupational demand
and some retail due to changing Further, the Company
assets. working practices. currently enjoys
Higher interest a strong balance
rates are likely sheet and maintains
to depress real an appropriate cash
estate values, surplus for working
other factors being capital purposes
equal. If necessary, the
Company has the ability
Falling property to extend loans where
values may delay its borrowers are
refinancing and unable to sell or
exit strategies refinance properties
of borrowers adding due to any market
to uncertainty dislocation.
over the timing
of capital repayments
to shareholders.
------------------------- ---------------------------- --------------------------
Uncertain Higher inflation Inflationary pressures, The remaining loans
Economic caused by supply higher interest are in the final
Outlook side constraints rates and the resultant stages of their term
and Geopolitical in the face of increase in cost and the Investment
risk strong demand of borrowing may Manager is closely
has been exacerbated reduce investor monitoring exit and
by the Ukrainian appetite with a repayment strategies
Crisis. The interest knock on effect of each borrower.
rate and macro-economic on property liquidity A number of loans
implications and valuations. are expected to mature
of this are highly soon.
uncertain.
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
INDEPENT AUDITOR'S REPORT TO THE MEMBERS OF ICG-LONGBOW SENIOR
SECURED UK PROPERTY DEBT INVESTMENTS LIMITED
Report on the audit of the financial statements
1. Opinion
In our opinion the financial statements of ICG-Longbow Senior
Secured UK Property Debt Investments Limited (the 'Company') 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 GBP1.8 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 There have been no significant changes in our approach.
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 As at 31 January 2022, the aggregate value of loans
description advanced amounted to GBP83.3 million (2021: GBP110.7
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 We have:
of our audit responded * Obtained an understanding of relevant controls
to the key audit relating to the loan loss provisioning review
matter process;
* Challenged the 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 Interest income from loans advanced totalled GBP8.6
description million for the year ended 31 January 2022 (2021:GBP9.7
million), with further other income of GBP1.0 million
(2021: GBP0.3 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 We have:
of our audit responded * Obtained an understanding of the relevant controls
to the key audit relating to the recognition of interest income;
matter
* 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 GBP1.8 million (2021: GBP2.4 million)
----------------------------------- ---------------------------------------------------------------------------------
Basis for determining materiality 2% (2021: 2%) of net asset value
We have applied a lower materiality threshold of GBP427,000 (2021: GBP497,000) 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 GBP87,000
(2021: GBP119,000), 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 . 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
GBP GBP
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
GBP GBP
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
GBP GBP GBP GBP
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
GBP GBP GBP GBP
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
GBP GBP
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. T he
registered office address is Floor 2, PO Box 286, Trafalgar Court,
Les Banques, St Peter Port, Guernsey, GY1 4LY.
The Company's shares were admitted to the Premium Segment of the
Official List and to trading on the Main Market of the London Stock
Exchange on 5 February 2013.
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 01 January 2021
rate)
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 01 January 2022
10% 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 01 January 2023
(Amendments 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 GBP1,200 which is included within other expenses. The
Company is required to apply annually to obtain exempt status for
the purposes of Guernsey Taxation.
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 GBPnil
(31 January 2021: GBPnil).
4. Taxation
The Group's tax charge of GBP10,912 (31 January 2021: GBP4,461)
consists of taxes levied on Luxco. The net wealth tax charge was
GBP10,912 (including adjustments of previous years of GBP3,713) for
the financial year ended 31 January 2022 (31 January 2021:
GBP4,461). 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 GBPnil for 2022 (31 January 2021: GBPnil)
set by the Luxembourg Tax Administration.
1 February 2021 to 31 January 2022 1 February 2020 to 31 January 2021
GBP GBP
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 31 January 31 January 31 January
2022 2022 2021 2021
Principal At amortised Principal At amortised
advanced cost advanced cost
GBP GBP GBP GBP
------------ ------------------------- --------------------- ------------ ---------------------
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 t wo 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 GBPnil.
(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 GBP5.3 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 GBP3.0 million, of which
GBP754,000 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 GBP1.0million.
Stress test impact on Expected Credit Loss at 31 January
2022
ECL Impact 31 January
2021
------------- -------------
One grade deterioration GBP166,000 GBP473,000
in credit rating
-------------
Two grade deterioration GBP654,000 GBP925,000
in credit rating
-------------
Three grade deterioration GBP3,137,000 GBP2,819,000
in credit rating
-------------
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
GBP GBP
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
GBP GBP
--------------------------------------------------------- ---------------- ----------------
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
GBP GBP
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 (GBP) 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 GBP207,739 (31 January 2021:
GBPnil).
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 (GBP) 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 - -
------------------------------------------------ ----------------- ------------------------
GBP GBP
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 GBP
Interim dividend in respect of quarter ended 31 January
2021 1.50 1,819,542
Interim dividend in respect of quarter ended 30 April
2021 1.50 1,819,542
Interim dividend in respect of quarter ended 31 July
2021 1.50 1,819,542
Interim dividend in respect of quarter ended 31 October
2021 1.50 1,819,542
6.00 7,278,168
=============================== ====================
Dividend per share Total dividend
1 February 2020 to 31 January 2021 Pence GBP
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 GBP31,538,721 in total based on the current
number of Ordinary Shares in issue. This return of capital was ef
fec ted by way of an issue of redeemable B Shares to existing
shareholders pro rata to their shareholding on the record date set
out below and the subsequent redemption of those B Shares.
Return of Capital per share Total Return of Capital
1 February 2021 to 31 January 2022 Pence GBP
Return of Capital September 2021 5.50 GBP 6,671,651
Return of Capital December 2021 6.50 GBP 7,884,681
Return of Capital January 2022 14.00 GBP 16,982,389
26.00 GBP 31,538,721
============================ =========================
Rights attaching to Shares
The Company has a single class of Ordinary Shares which are not
entitled to a fixed dividend. The company had 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 determin es to return capital
to Shareholders, the Company has issued B Shares, paid up out of
the Company's assets, to existing Shareholders pro rata to their
holding of Ordinary Shares at the time of such issue. The amount
paid up on the B Shares will be equal to the cash distribution to
be made to Shareholders via the B Share mechanism. The B Shares
shall be redeemable at the option of the Company following issue
and the redemption proceeds (being equal to the amount paid up on
such B Shares) paid to the holders of such B Shares on such terms
and in such manner as the Directors may from time to time
determine. It is therefore expected that the B Shares will only
ever be in issue for a short period of time and will be redeemed
for cash shortly after their issue in order to make the return of
capital to Shareholders.
It is intended that following each return of capital the Company
will publish a revised estimated Net Asset Value and Net Asset
Value per Ordinary Share based on the prevailing published amounts
adjusted to take into account the return of capital.
The number of Ordinary Shares in issue will remain
unchanged.
11. Risk Management Policies and Procedures
The Company through its investment in senior loans is exposed to
a variety of financial risks, including market risk (including
currency risk and interest rate risk), credit risk and liquidity
risk. The Company's overall risk management procedures focus on the
unpredictability of operational performance of the borrowers and on
property fundamentals and seek to minimise potential adverse
effects on the Company's financial performance.
The Directors are ultimately responsible for the overall risk
management approach within the Company. The Directors have
established procedures for monitoring and controlling risk. The
Company has investment guidelines that set out its overall business
strategies, its tolerance for risk and its general risk management
philosophy.
In addition, the Investment Manager monitors and measures the
overall risk bearing capacity in relation to the aggregate risk
exposure across all risk types and activities. Further details
regarding these policies are set out below:
Market risk
Market risk includes market price risk, currency risk and
interest rate risk. If a borrower defaults on a loan and the real
estate market enters a downturn it could materially and adversely
affect the value of the collateral over which loans are secured.
This risk is considered by the Board to be as a result of credit
risk as it relates to the borrower defaulting on the loan.
Market risk is moderated through a careful selection of loans
within specified limits. The Company's overall market position is
monitored by the Investment Manager and is reviewed by the
Directors on an 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
GBP GBP
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 Maximum credit risk Maximum credit risk
ECL exposure 2022 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 GBP88,344,670 (31 January 2021: GBP118,093,632).
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
GBP GBP
--------------------------------------------------------- -------- ---------------- ----------------
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
GBP GBP GBP
Northlands - principal 10,431,142 - 10,431,142
Northlands - interest and exit fees 715,242 - 715,242
Quattro - principal 5,956,304 - 5,956,304
Quattro - interest and exit fees 203,167 - 203,167
Affinity - principal 17,299,963 - 17,299,963
Affinity - interest and exit fees 801,862 - 801,862
Southport - principal - 15,000,000 15,000,000
Southport - interest and exit fees 1,050,000 483,904 1,533,904
RoyaleLife - principal - 25,382,017 25,382,017
RoyaleLife - interest and exit fees 2,030,561 5,268,400 7,298,961
LBS - principal 6,474,000 - 6,474,000
LBS - interest and exit fees 571,451 - 571,451
45,533,692 46,134,321 91,668,013
=================== =========================== =================
Total as at
Less than one year Between one and five years 31 January 2021
GBP GBP GBP
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 GBPnil (31 January 2021: GBPnil).
Capital management policies and procedures
The Company's capital management objectives are to ensure that
the Company will be able to continue to meet all of its liabilities
as they fall due and to maximise the income and capital return to
equity shareholders.
In accordance with the Company's investment policy, the
Company's principal use of cash has been to fund investments in the
form of loans sourced by the Investment Manager, as well as
on-going operational expenses and payment of dividends and other
distributions to shareholders in accordance with the Company's
dividend policy.
The Board, with the assistance of the Investment Manager,
monitors and reviews the broad structure of the Company's capital
on an on-going basis.
The Company has no externally imposed capital requirements. The
Company's capital at the year-end comprised equity share capital
and reserves.
12. 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 GBP 171,375 (31
January 2021: GBP199,953) with outstanding fees of GBP 31,250 due
to the Directors at 31 January 2022 (31 January 2021: GBP45,995)
(see Note 8).
14. Material Agreements
Investment Manager Agreement
Investment Management fees for the year amounted to GBP
1,165,922 (31 January 2021: GBP 1,195,588 ), of which GBP 289,107
(31 January 2021: GBP 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 GBP90,000 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 GBP40,000 per annum. Administration and
accounting fees for the year amounted to GBP205,285 (31 January
2021: GBP172,421) of which GBP22,188 (31 January 2021: GBP35,907)
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 GBP1.78 per
shareholder per annum or part thereof, subject to a minimum of
GBP7,500 per annum. Other Registrar activities will be charged for
in accordance with the Registrar's normal tariff as published from
time to time.
Depositary Agreement
The Depositary has been appointed from 25 November 2020 to
provide depositary services under the AIFMD to the Company, which
include cash monitoring, asset verification and oversight, as set
out in the Depositary Agreement.
Under the terms of the Depositary Agreement, the Depositary is
entitled to a fixed fee from the Company of GBP25,000 per
annum.
15. Auditor's Remuneration
Audit and non-audit fees payable to the auditors can be analysed
as follows:
31 January 31 January
2022 2021
GBP GBP
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 GBP25 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 GBPnil at 1 February 2021. The
overall balance drawn down at 31 January 2022 GBPnil (31 January
2021: GBPnil).
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
GBP GBP
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 GBP63,351 (31 January 2021: GBP95,812)
relating to the amortisation of arrangement fees on the revolving
credit facility and GBPnil (31 January 2021: GBP98,852) 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 GBP7,278,167 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 Definition Reason for Use
Measure
Weighted Average The money weighted average To provide shareholders
Loan Coupon rate of interest being charged with a means to assess
on each investment at the whether the interest
relevant reporting date. payable on the Company's
loans reflects the
risk of such loans;
and whether this is
in line with the Company's
investment parameters
and shareholders'
return expectations.
----------------------------------- ------------------------------
Weighted Average The money weighted average To provide transparency
Loan Maturity period from the relevant to the Company's investment
reporting date until the outlook and likely
Company's investments reach level of loan repayments,
their contractual repayment and to assist shareholders
date. in identifying whether
the remaining duration
of the loans reflects
their own investment
time frames.
----------------------------------- ------------------------------
Weighted Average The money weighted average To provide transparency
Loan to Value Loan to Value ratio at the to the Company's risk
Ratio relevant reporting date, positioning and to
calculated on the basis demonstrate compliance
of the outstanding loan with the investment
amount for each investment restrictions.
as a percentage of the most
recent Market Value of the
properties securing each
investment.
----------------------------------- ------------------------------
Total Income The total income of the To provide transparency
per Share Company as disclosed in to the Company's investment
the Consolidated Statement returns.
of 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 To assist shareholders
Company divided by the number in assessing the performance
of Ordinary Shares in issuance of the Company over
at the relevant reporting a period in relation
date. to its Investment
Objectives.
----------------------------------- ------------------------------
Dividend per The total dividends per To assist shareholders
Share Ordinary Share declared in assessing the performance
and/or paid during the relevant of the Company in
reporting period. relation to its Investment
Objectives.
----------------------------------- ------------------------------
Shareholder Share price movements combined To assist shareholders
Total Return with dividends paid on the in assessing the total
since IPO assumption that dividends return earned over
have been reinvested. the life of the Company.
----------------------------------- ------------------------------
Share Price The percentage difference To assist shareholders
Premium / Discount between the NAV per share in identifying and
and the quoted price of monitoring the performance
each Ordinary Share as at of the Company.
the relevant reporting date.
----------------------------------- ------------------------------
Percentage Capital The aggregate value of the To assist shareholders
Invested investments at amortised in identifying and
cost divided by total shareholder monitoring the performance
equity. Where the figure of the Company and
exceeds 100%, the investments the level of gearing.
will be partially funded
by the Company's debt facility.
----------------------------------- ------------------------------
glossary of capitalised defined terms
"Administrator" means Ocorian Administration (Guernsey)
Limited;
"Administration Agreement" means the Administration Agreement
dated 23 January 2013 between the Company and the
Administrator;
"Admission" means the admission of the shares to the premium
listing segment of the Official List and to trading on the London
Stock Exchange;
" AEOI " means Automatic Exchange of Information;
" Affinity " means 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 "EUR" 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 Rati o " or "ICR" means the debt/profitability
ratio used to determine how easily a company can pay interest on
outstanding debt;
"Interim Report" means the Company's interim report and
unaudited interim condensed financial statements for the period
ended 31 July;
"Investment Manager" or "ICG-Longbow" means 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
"GBP" or "Pounds Sterling" means British pound sterling and
"pence" means British pence.
directors and general information
Board of Directors Independent Auditor English Solicitors
Jack Perry (Chairman) Stuart Deloitte LLP to the Company
Beevor PO Box 137 Gowlings WLG
Paul Meader Regency Court (UK) LLP
Fiona Le Poidevin Glategny Esplanade 4 More London
Patrick Firth (Retired 28 St. Peter Port Riverside
June 2021) Guernsey London
GY1 3HW United Kingdom
Audit and Risk Committee SE1 2AU
Fiona Le Poidevin (Chair from Guernsey Administrator
28 June 2021) and Company Secretary Guernsey Advocates
Stuart Beevor Ocorian Administration to the Company
Paul Meader (Guernsey) Limited Carey Olsen
Patrick Firth (Chairman - P.O. Box 286 Carey House
Retired 28 June 2021) Floor 2 PO Box 98
Trafalgar Court Les Banques
Les Banques St Peter Port
Management Engagement Committee St Peter Port Guernsey
Jack Perry (Chairman) Guernsey GY1 4BZ
Paul Meader GY1 4LY
Fiona Le Poidevin Bankers
Stuart Beevor Luxembourg Administrator Royal Bank of
Patrick Firth (retired 28 Ocorian Services Scotland Global
June 2021) (Luxembourg) Banking (Luxembourg)
S.à.r.l S.A. Espace Kirchberg
Nomination Committee 6c Rue Gabriel The Square
Jack Perry (Chairman) Lippmann Building A-40
Stuart Beevor Munsbach Avenue J.F. Kennedy
Paul Meader Luxembourg L-1855
Fiona Le Poidevin L-5365 Luxembourg
Patrick Firth (Retired 28
June 2021) Depositary Butterfield Bank
Ocorian Depositary (Guernsey) Limited
Remuneration Committee (UK) Limited PO Box 25
Paul Meader (Chairman) 5th Floor Regency Court
Jack Perry 20 Fenchurch Street Glategny Esplanade
Stuart Beevor London St Peter Port
Fiona Le Poidevin England Guernsey
EC3M 3BY GY1 3AP
Investment Manager
ICG Alternative Investment Registrar Barclays Bank
Limited Link Asset Services plc
Procession House (Guernsey) Limited 6-8 High Street
55 Ludgate Hill Mont Crevelt House St Peter Port
London Bulwer Avenue Guernsey
United Kingdom St Sampson GY1 3BE
EC4M 7JW Guernsey
GY2 4LH Lloyds Bank International
Registered office Limited
P.O. Box 286 PO Box 136
Floor 2 Corporate Broker Sarnia House
Trafalgar Court and Financial Adviser Le Truchot
Les Banques Cenkos Securities St Peter Port
St Peter Port plc Guernsey
Guernsey 6-8 Tokenhouse GY1 4EN
GY1 4LY Yard
London
United Kingdom
EC2R 7AS
The Royal Bank
Identifiers of Scotland International
GIIN: 6IG8VS.99999.SL.831 Royal Bank Place
ISIN: GG00B8C23S81 1 Glategny Esplanade
Sedol: B8C23S8 St Peter Port
Ticker: LBOW Guernsey
Website: www.lbow.co.uk GY1 4BQ
OakNorth Bank
plc
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
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