Overview
A
ICG-Longbow Senior Secured UK Property Debt Investments Limited
Annual Report And Consolidated Financial Statements
Company Number: 55917
ICG-Longbow Senior Secured UK
Property Debt Investments Limited
Annual Report and Consolidated
Financial Statements
For the year ended 31 January 2022
CONTENTS
Overview
01 Financial Highlights
01 Corporate Summary
02 Financial Summary
03 Chairman’s Statement
05 Investment Manager’s Report
13 Investment Policy
Governance
14 Board of Directors
16 Report of the Directors
22 Directors’ Responsibilities Statement
23 Corporate Governance Report
30 Report of the Audit and Risk Committee
33 Independent Auditor’s Report
Financial Statements
39 Consolidated Statement of Comprehensive Income
40 Consolidated Statement of Financial Position
41 Consolidated Statement of Changes In Equity
42 Consolidated Statement of Cash Flows
43 Notes to the Consolidated Financial Statements
Other Information
61 Alternative Performance Measures
62 Glossary of Capitalised Defined Terms
64 Directors and General Information
All capitalised terms are defined in the Glossary of Capitalised
Defined Terms on pages 62 to 63 unless separately defined.
01
ICG-Longbow Senior Secured UK Property Debt Investments Limited
Annual Report And Consolidated Financial Statements
Overview
Overview Governance Financial Statements Other Information
FINANCIAL HIGHLIGHTS
FOR THE YEAR ENDED 31 JANUARY 2022
CORPORATE SUMMARY
INVESTMENT OBJECTIVE
In line with the revised Investment Objective and Policy approved by shareholders at the Extraordinary General
Meeting in January 2021, the Company is undertaking an orderly realisation of its investments.
STRUCTURE
The Company is a non-cellular company limited by shares incorporated in Guernsey on 29 November 2012 under
the Companies Law. The Company’s registration number is 55917, and it has been registered with the GFSC as
a registered closed-ended collective investment scheme. The Company’s Ordinary Shares were admitted to the
premium segment of the FCA’s Official List and to trading on the Main Market of the London Stock Exchange as
part of its IPO which completed on 5 February 2013. The issued capital comprises the Company’s Ordinary Shares
denominated in Pounds Sterling. The Company previously made investments in its portfolio through ICG-Longbow
Senior Debt S.A., the Company’s wholly owned Luxembourg subsidiary. The Board resolved to simplify its corporate
structure by collapsing the subsidiary company which has historically acted as the lender for the Company’s
investments. Following this decision, the subsidiary, ICG Longbow Senior Debt S.A. was dissolved under Luxembourg
Law with effect from 18 January 2022. Following the dissolution, the Company has assumed the assets and liabilities
of its former subsidiary.
INVESTMENT MANAGER
During the year ended 31 January 2021, the Company’s management arrangements were amended and the
Company appointed ICG Alternative Investment Limited as external discretionary investment manager, under the
Alternative Investment Fund Management Directive (AIFMD) within a remit set by the Board. Previously, the Company
was internally managed by the Board, after receiving advice from Intermediate Capital Managers Limited (an affiliate
of ICG Alternative Investment Limited) under the terms of a non-discretionary Investment Advisory agreement.
Portfolio
Performance
Committed in
six loans as at
31 January 2022
£80.5 million
(1)
Invested in
five loans as at
19 May 2022
£74.6 million
Weighted
average loan
coupon
(1)
7.39%
(2021: 7.19%)
Weighted
average loan
maturity
(1)
0.97 years
(2021: 1.76 years)
Weighted
average loan to
value ratio
(1)
67.8%
(2021: 69.3%)
(1)
These are Alternative Performance Measures, refer to page 61 below for details.
Earnings
per Share
6.05 pence
(2021: 6.11 pence)
Total Income
per Share
(1)
7.85 pence
(2021: 8.21 pence)
NAV
per Share
(1)
72.4 pence
(2021: 98.3 pence)
Declared Dividend
per Share
(1)
5.60 pence
(2021: 6.00 pence)
Capital Distribution
per Share
(1)
26.0 pence
(2021: — pence)
02
ICG-Longbow Senior Secured UK Property Debt Investments Limited
Annual Report And Consolidated Financial Statements
FINANCIAL SUMMARY
PERFORMANCE
O In line with its objective of an orderly realisation of
its assets, during the year the Company returned
£31.5 million of shareholder capital, equating to
26.0 pence per Ordinary Share.
O On 18 May 2022 the Directors approved a further
return of capital equivalent to 6.0 pence per
Ordinary Share.
O NAV of £87.77 million as at 31 January 2022
(31 January 2021: £119.25 million), equivalent to
72.35 pence per ordinary share (31 January 2021:
98.30 pence per ordinary share).
O Notwithstanding the capital returns, total income for
the year ended 31 January 2022 was £9.52 million
(31 January 2021: £9.95 million), and profit after tax
was £7.34 million (31 January 2021: £7.41 million).
O 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).
O Following dividend distributions and the return of
capital in the year, retained earnings increased
by £57,597, representing 0.05 pence per Ordinary
Share.
O There have been no credit losses or impairments in
the investment portfolio.
DIVIDEND AND CAPITAL DISTRIBUTIONS
O 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:
– Interim dividend of 1.5 pence per share paid in
respect of quarter ended 30 April 2021
– Interim dividend of 1.5 pence per share paid in
respect of quarter ended 31 July 2021
– Interim dividend of 1.5 pence per share paid in
respect of quarter ended 31 October 2021
– Interim dividend of 1.1 pence per share paid in
respect of quarter ended 31 January 2022
O 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:
– Return of capital equivalent to 5.5 pence per
Ordinary Share paid in September 2021
– Return of capital equivalent to 6.5 pence per
Ordinary Share paid in December 2021
– Return of capital equivalent to 14.0 pence per
Ordinary Share paid in January 2022
O Total capital distributions paid or declared post year
ended 31 January 2022 of 6.0 pence per share made
up as follows:
– On 18 May 2022 the Directors approved a further
return of capital equivalent to 6.0 pence per
Ordinary Share
INVESTMENT PORTFOLIO
O As at 31 January 2022, the Company’s investment
portfolio comprised six loans with an aggregate
principal balance of £80.54 million, representing
91.77% of the shareholders’ equity (31 January
2021: nine loans with aggregate principal balance
of £109.32 million, representing 91.67% of the
shareholders’ equity).
O The weighted average coupon on drawn capital, before
recognition of arrangement and exit fees, was 7.39%
(31 January 2021: 7.19%).
O The portfolio weighted average LTV was 67.8%
(31 January 2021: 69.1%), reflecting revaluations and
changes to the composition of the loan portfolio.
O The portfolio weighted average residual term was
0.97 years (31 January 2021: 1.76 years).
O As a result of certain loan redemptions after the
financial year end, the Company’s portfolio as at
19 May 2022 comprises five loans with an aggregate
principal balance of £74.6 million.
O 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%.
O The Directors do not consider there to have been any
impairments or incurred losses on loan balances as at
19 May 2022.
03
ICG-Longbow Senior Secured UK Property Debt Investments Limited
Annual Report And Consolidated Financial Statements
Overview
CHAIRMAN’S STATEMENT
JACK PERRY CHAIRMAN
INTRODUCTION
On behalf of the Board, it is my
pleasure to present the ninth Annual
Report for the Company, for the
year ended 31 January 2022.
The feeling of increased optimism in
the UK economy which was apparent in
early 2022, as a result of the unwinding
of all remaining Covid-19 restrictions
in England, has in recent months been
replaced by concerns over energy prices,
the rising cost of living, and of course
the tragic events resulting from the
Russian invasion of Ukraine. The near-
and long-term consequences of this
remain uncertain at the time of writing.
At a domestic level, the UK property
market has largely shaken off the
effects of the Covid-19 pandemic with
occupational, investment and finance
market transactions returning to
something like normal levels. Although
the trends seen pre-Covid-19 which had
especially impacted some sub-sectors
of retail property have continued. Against
this backdrop, several of the Company’s
borrowers have been able to secure
successful sales and refinancing of
their property holdings and repay the
Company’s loans in full, and this allowed
the Company to commence its programme
of returning capital to shareholders.
As at the date of these accounts, the
Company has paid capital distributions
of 26.0 pence per share and a further
capital distribution equivalent to 6.0 pence
per Ordinary Share was approved
by the Directors on 18 May 2022.
I am pleased to report that the Company
delivered robust earnings performance
during the period, with pre-tax profits
substantially in line with the prior year
despite a meaningful reduction in the
investment portfolio in the second half of
the reporting period. The declared dividend
was fully covered during the period.
Notwithstanding the reduction in size
of the investment portfolio, the Board
has also been able to maintain a robust
level of quarterly dividends, with the
total dividend declared of 5.6 pence
per share in respect of the financial
year to 31 January 2022. This has been
bolstered by the significant prepayment
protection originally negotiated by the
Investment Manager on the underlying
loans, which served to generate additional
income for the Company following
some of the recent early repayments.
The underlying performance of the
Company’s portfolio has been steady
in another challenging year, and the
Board has been pleased to see that the
Investment Manager has been able to
work through some of the difficulties
presented by Covid-19 to improve the
Company’s risk positioning and in certain
instances secure additional returns.
As the number of remaining investments
reduces, the Investment Manager
has been focused on working closely
with borrowers to establish likely exit
timetables for the remaining loans, with
a particular focus on the likelihood of
any further early repayments. As the
critical mass of the portfolio reduces,
the Board and Investment Manager may
explore the potential for negotiated early
exits, or other solutions which allow
for an acceleration of capital return
while preserving shareholder value.
PORTFOLIO
At 31 January 2022, the portfolio
comprised six loans with a total principal
balance outstanding of £80.5 million.
The Company received three full
repayments during the year. In July 2021
the remaining £5.7 million balance of
the Halcyon loan was repaid, following
a refinancing of the underlying security
portfolio. In October 2021 the £7.8 million
Knowsley loan repaid, following a sale of
the underlying property. The £16.3 million
remaining balance of the GMG loan was
repaid in full in December 2021, again
following a sale of the underlying property.
The latter came with interest, exit and
prepayment fees of £0.8 million, which
was modestly accretive to overall NAV.
During the period, the Company received
a partial repayment of the Southport loan,
representing the pay down of previously
capitalised loan interest, and a series of
partial repayments of the Quattro loan
(which repaid in full after period end). Also,
during the year the Investment Manager
negotiated a number of amendments to
the RoyaleLife loan, with the associated
amendment to fees being both accretive
to NAV during the period and improving
the prepayment protection provisions.
DIVIDEND
As a result of its strong performance
the Company delivered a fully
covered 5.6 pence per share dividend
with respect to the financial year
to 31 January 2022, despite the
challenges presented by Covid-19 and
notwithstanding the reduction in the
size of the loan portfolio upon which
the Company is reliant for its income.
“ The Company
continues to return
shareholder capital
while maintaining
covered quarterly
dividends”
Overview Governance Financial Statements Other Information
04
ICG-Longbow Senior Secured UK Property Debt Investments Limited
Annual Report And Consolidated Financial Statements
CHAIRMAN’S STATEMENT (CONTINUED)
At the date of these accounts, and
based on the current outlook, the
Board is targeting payment of dividends
equating to 6% (on an annualised
basis) of the preceding quarter’s
net asset value, for as long as it is
prudent and economic to do so.
GOVERNANCE AND MANAGEMENT
As reported last year, the Board
resolved to simplify the Group’s
corporate structure by collapsing the
Luxembourg subsidiary company which
has historically acted as the lender for
the Company’s investments. These
investments have been transferred to
the Company following the dissolution of
the Luxembourg subsidiary. Over time,
the Company expects this restructuring
to reduce pro forma operating expenses
by approximately £200,000 per annum.
POST YEAR END TRADING
In April 2022, the Company received
full repayment of the outstanding
£6.0 million balance of the Quattro
loan, together with interest and fees
totalling £0.5 million in aggregate.
Following this repayment, on
18 May 2022 the Board resolved to
make a further capital distribution
to shareholders equivalent to
6.0 pence per Ordinary Share.
OUTLOOK
The Company is continuing the orderly
realisation of its investment portfolio.
As funds become available the Board
intends to continue to return capital
to shareholders, taking account of the
Company’s working capital requirements.
The Board is mindful that shareholders
will be eager to understand the
likely quantum and timing of capital
distributions. Forecasting repayments
from the underlying loan investments
is uncertain given the borrowers’
rights to repay early. As noted in the
Investment Manager’s report below,
certain of the Company’s borrowers have
already commenced sales processes
or refinance searches. The Board’s
current expectation is for the LBS and
Affinity loans to repay in H2 2022, with
both properties currently on the market
for sale, and the Northlands loan to
repay later in 2022. The RoyaleLife and
Southport loans have legal maturity
dates in 2023. The unexpired term to
maturity of the investments, as set out
on page 7, may also provide a degree
of guidance. We will continue to keep
shareholders updated on the timing
and likelihood of any repayments and
associated capital distributions.
The Company’s financial position remains
strong, with all remaining investments
expected to be repaid in full together
with interest and exit fees. As such, the
Board expects to be able to return to
shareholders all, or substantially all, of
the Company’s current net asset value,
based on prudent assumptions on the
Company’s ongoing cost base and the
level of the ongoing dividend. As set out
in last year’s report, as the Company’s
portfolio further reduces, the Board
and Investment Manager may begin
to consider opportunities which might
accelerate the return of capital while
seeking to preserve shareholder value.
JACK PERRY
Chairman
19 May 2022
05
ICG-Longbow Senior Secured UK Property Debt Investments Limited
Annual Report And Consolidated Financial Statements
Overview
INVESTMENT MANAGER’S REPORT
The Investment Manager’s Report refers to the performance of the loans and the portfolio for the year to 31 January 2022, and
the general market conditions prevailing at that date. Any forward-looking statements in this report reflect the latest information
available as at 19 May 2022.
INVESTMENT OBJECTIVE
The investment objective of the Company, as approved by the shareholders of the Company, was revised during the prior year and
is now to conduct an orderly realisation of the assets of the Company.
Fund facts
Fund launch: 5 February 2013 Fund type: Closed ended investment company
Investment Manager: ICG-Longbow Domicile: Guernsey
Base currency: GBP Listing: London Stock Exchange
Issued shares: 121.3 million ISIN code: GG00B8C23S81
Management fee: 1.0% LSE code: LBOW
Website: www.lbow.co.uk
Share price & NAV at 31 January 2022 Key portfolio statistics at 31 January 2022
Share price (pence per share): 71.40 Number of investments: 6
NAV (pence per share)
(1)
: 72.35 Percentage capital invested
(1)(3)
: 94.9%
Premium/(Discount)
(1)
: (1.3%) Weighted avg. investment coupon: 7.39%
Approved dividend (pence per share)
(2)
: 1.1 Weighted avg. LTV: 67.8%
Dividend payment date
(2)
: 29 April 2022
(1)
These are Alternative Performance Measures, refer to page 61 for details.
(2)
For the Quarter ended 31 January 2022
(3)
Loans advanced at amortised cost/Total Equity attributable to the owners of the Company.
SHARE PRICE TOTAL RETURNS VS NAV TOTAL RETURN (FROM IPO TO 31 JANUARY 2022)
Shareholder Total ReturnNAV Total Return
Jan-13
Jul-13
Jan-14
Jul-14
Jan-15
Jul-15
Jan-16
Jul-16
Jan-17
Jul-17
Jan-18
Jul-18
Jan-19
Jul-19
Jan-20
Jul-20
Jan-21
Jul-21
Jan-22
-10%
0%
10%
20%
30%
40%
50%
60%
Overview Governance Financial Statements Other Information
06
ICG-Longbow Senior Secured UK Property Debt Investments Limited
Annual Report And Consolidated Financial Statements
INVESTMENT MANAGER’S REPORT (CONTINUED)
SUMMARY
At 31 January 2022, the investment portfolio comprised six
loans. Principal activity in the period included:
O Repayment in full of the £5.7 million Halcyon loan, together
with exit and prepayment fees of £0.1 million;
O Repayment in full of the £7.8 million Knowsley loan, together
with exit and prepayment fees of £0.2 million;
O Repayment in full of the £16.3 million GMG loan, together with
exit and prepayment fees of £0.8 million;
O Partial £4.0 million repayment of the Quattro loan;
O Partial £1.5 million repayment of the Southport loan;
O Amendment to terms of the £25.4 million RoyaleLife loan,
securing additional returns for the Company.
As a consequence of the above activity, total commitments
at period end stood at £80.9 million (31 January 2021:
£117.3 million) with the par value of the loan portfolio being
£80.5 million (31 January 2021: £109.3 million).
The weighted average loan to value ratio reduced to 67.8%
(31 January 2021: 69.3%) reflecting the changes to the portfolio
composition. The weighted average coupon rate at year end was
7.39% (31 January 2021: 7.19%), with returns supplemented by
contractual arrangement and exit fees.
Following the year end, the Company received repayment of the
remaining £6.0 million balance of the Quattro loan, together
with interest and fees totalling £0.5 million in aggregate.
As at the date of this report, the Company’s portfolio totals five
investments with an aggregate committed balance of £74.6
million, which is now fully drawn. The weighted average LTV is
67.3%, with a weighted average interest coupon of 7.34% and
weighted average loan maturity of 0.75 years.
COMPANY PERFORMANCE
The Investment Manager’s focus during the period was
monitoring and seeking to maintain the credit quality of
the portfolio investments while encouraging the underlying
borrowers towards early exits, where possible. We summarise
the status of each investment in more detail below but would
highlight that we continue to believe the Company has a
satisfactory security position on all its investments and does
not expect any shortfall in interest, principal or fees on any of
the investments.
As a result of the repayments received during the year,
the Company’s loan commitments at year end stood at
approximately £80.9 million, of which £80.5 million was drawn.
Portfolio LTV was 67.8% on a weighted average basis, all
secured by first ranking mortgage investments. The weighted
average loan coupon of 7.39% is supplemented by contractual
arrangement and exit fees, along with the possibility of ad hoc
returns from repricing loans or receiving prepayment fees.
Our borrowers have continued to progress their business plans
during the year:
O 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.
O 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.
O The Northlands sponsor substantially completed a residential
development project within its portfolio.
O The LBS loan sponsor invested further capital in its asset to fit
out space for flexible offices.
O The Quattro sponsor secured planning permission for
redevelopment of one of its portfolio assets.
The most challenging investment remains the Southport
loan, due to disruption in the hotel sector. A strong summer
of trading was offset by headwinds caused by the Omicron
variant and, while interest has been paid, we have seen a
value reduction during the period. Nonetheless, the Sponsor
remains confident of a return to stabilised trade over the
coming quarters, and the Investment Manager is monitoring
the position closely.
PORTFOLIO
Portfolio statistics 31 January 2022 31 January 2021
Number of loan investments 6 9
Aggregate principal advanced
£80,543,427 £109,258,944
Weighted average LTV 67.8% 69.1%
Weighted average interest coupon 7.39% 7.19%
Weighted average unexpired loan term 0.97 years 1.76 years
Cash held £4,801,224 £8,773,640
Drawings on Working Capital Facility £nil £nil
07
ICG-Longbow Senior Secured UK Property Debt Investments Limited
Annual Report And Consolidated Financial Statements
Overview
INVESTMENT MANAGER’S REPORT (CONTINUED)
Overview Governance Financial Statements Other Information
INVESTMENT PORTFOLIO AS AT 31 JANUARY 2022
Project Region Sector Term start
Unexpired
term
(years)
Day 1
balance
(£m)
Day 1
LTV
(%)
Balance
outstanding
(1,2)
(£m)
Balance
undrawn
(£m)
Current
LTV
(%)
Quattro South East Mixed use Oct-17 0.00 9.00 83.7 5.96 – 74.0
Affinity South West Office Mar-18 0.28 14.20 67.3 17.30 0.40 68.4
Southport North West Hotel Feb-19 1.20 12.50 59.5 15.00 – 85.7
Northlands London Mixed use Aug-19 0.70 9.00 55.3 10.43 – 58.3
RoyaleLife National Residential Sept-19 1.70 20.27 74.3 25.38 – 61.5
LBS London Office Oct-19 0.70 4.92 69.3 6.47 – 58.9
Total/weighted average 0.97 86.14 68.2 80.54 0.40 67.8
(1)
For the RoyaleLife facility, Balance outstanding includes capitalised interest
Senior Loans
Cash
94.5%
5.5%
Asset Type
Residential
Mixed Use
Hotels
Office
19%
30%
31%
Sector Distribution by Loan Amount
20%
21%
19%
7%
32%
London
South East
North West
National
Regional Distribution by Loan Amount
South West
21%
08
ICG-Longbow Senior Secured UK Property Debt Investments Limited
Annual Report And Consolidated Financial Statements
INVESTMENT MANAGER’S REPORT (CONTINUED)
ECONOMY AND FINANCIAL MARKET UPDATE
In 2021 the UK economy bounced back to its pre-pandemic
(February 2020) level, with 7.5% GDP growth on the year. After a
drop in December resulting from the Omicron variant, January
2022 saw a rebound with a 0.8% GDP rise, and growth reported
across all sectors, according to the ONS. This slowed to 0.1%
in February 2022 and latest Bank of England growth forecasts
indicate the UK economy will contract from Q4 2022 and into 2023.
Despite the sedate level of growth, the high and rising inflation
levels have led to four increases in Bank rate over the past
few months, from 0.1% in Q4 2021 to 1.0% currently. The
MPC seems to be walking a tightrope on rates between rising
inflation, driven by rocketing energy prices on the one hand and
sluggish economic growth on the other, with an increasingly
challenging global economic outlook. The market is nonetheless
pricing in at least three more rate rises by year end.
Labour markets however continue to show strength and have
largely shaken off the Covid-19 disruption. The UK employment
rate rose by 0.1% to 75.5% in Q4 2021, with a further 108,000
jobs added in January, taking payrolled employees to a record
29.5 million. The unemployment rate was 3.8% in the three
months to February 2022 and job vacancies also remain high.
Nominal wages are growing, with average pay including
bonuses rising 5.4% in the three months to February. The
challenge for the UK economy is that this rate of growth is not
keeping up with inflation. With CPI at 7.0% in March 2022 and
RPI still higher, and tax rises and further energy price hikes
to come, many households will see their finances come under
pressure this year.
OCCUPATIONAL DEMAND/SUPPLY
Offices
The prevailing Government narrative through the latter part
of 2021 and coming into 2022 is supporting a ‘return to work’
policy, reversing the work from home Covid-19 policy prevalent
over the previous two years.
Whilst this change in guidance – combined with steady
momentum of employers encouraging a return to the workplace
– should bolster office demand relative to the previous two
years, the more widespread acceptance of flexible working
generally may impact absolute levels of office demand. As
highlighted in last year’s report, some commentators such as
Savills consider that this will be offset by reducing densities (i.e.
offering more space per worker and greater amenity provision).
Knight Frank’s latest occupational survey, for example,
highlights that 65% of businesses surveyed plan to either
increase or maintain the amount of office space they occupy, but
change how the space is utilised, with fewer desks and more
common areas, amenity and collaborative spaces.
In the leasing markets, Manchester City Centre leasing
statistics for FY2021, reported by Knight Frank, note a positive
rebound in take-up to levels close to the 5 and 10 year
averages, both in terms of square footage and number of
deals, together with c.750k sq ft of active requirements in the
market. Conversely, Savills report that, whilst Central London
has also seen a rebound in demand (+54% YoY as at the end of
November 2021), take-up remains c.22% below the long-term
average. Bristol had a steady year, with take up being 7% below
the 10-year average but Q4 2021 being the second-highest
quarterly figure in the past five years. The strength of the Bristol
occupational market has been evidenced by the letting success
seen in the property securing the Company’s Affinity loan.
A developing trend is that of employers seeking to provide
higher quality workplaces to continue to maintain the attraction
of the office to employees and coax them back into the cities.
Additionally, firms are increasingly realising the importance
of their office estates in delivering – and signalling – their
commitments to sustainability and climate goals. We therefore
expect a polarisation in the market between best-in-class (Grade
A) offerings and the Grade B/C market. This is supported by the
major consultancies, including JLL who comment that they expect
the rental differential between prime space and the rest to widen
as occupiers focus on best-in-class offices, particularly those with
a high focus on sustainability, wellness and smart technology.
According to JLL, in their ‘Big 6’ regional office market review,
overall vacancy rates are 6.2% across all classes of office, but
only 2.8% in Grade A stock and forecast to fall further. Prime
rents continued to increase across the regional markets, with
all now showing record rents and Edinburgh and Glasgow
showing the strongest growth on the year. JLL forecast further
increases in 2022, supported by favourable supply/demand
dynamics, with a number of cities expected to breach the £40
per sq ft level in the coming months.
The Central London market, according to Savills, will see
material development and refurbishment activity over the next
three years, with a record level of 7.4m sq ft scheduled for
delivery in 2023, and a similar level anticipated for 2024. Total
forecast deliveries over the next five years are only 17% pre-let,
with Savills estimating that the speculative pipeline for the
next five years equates to c.43 months of average estimated
post-Covid-19 take-up of 7m sq ft per annum. This highlights a
potential oversupply issue in parts of the Central London market
that may put pressure on prime rental levels.
Industrial and warehousing
The structural tailwinds supporting the UK industrial and
warehousing market continued in 2021, with a new annual
record take-up of 55.1m sq ft reported by Savills, surpassing
the previously exceptional total of 51.6m sq ft in 2020 and 86%
above the long-term average. The take-up in terms of square
footage was mirrored by the number of deals, with 220 separate
transactions recorded in the +50,000 sq ft bracket; the first time
there has been more than 200 transactions in a calendar year.
Supply continues to fall with the vacancy rate standing at
2.9%, the lowest level ever recorded, with market conditions
supportive of speculative development with the result that
18.6m sq ft is under construction.
The supply/demand dynamics have promoted significant year-
on-year rental growth in almost all key UK markets, with quoted
Grade A rents increasing in the East Midlands (+29% YoY), West
Midlands (+26%), Yorkshire & North East (+20%) and East of
England (+16%).
The positive market conditions have also been seen in the multi-
let sub-sector, with Gerald Eve reporting a continued decline
in void rates and annualised rental growth in London (+7.4%
YoY) and across the wider UK market (+5%). Although Amazon’s
recent announcement of falling year-on-year sales may take
some of the heat out of the sector.
Retail
The Covid-19 pandemic accelerated pre-existing trends of
online sales growth, with the ONS reporting that online sales
penetration peaked at c.38% of total sales in January 2021
(versus pre-pandemic penetration of c.20%). Clothing/fashion
retailers appear to have been more heavily affected by the
pandemic, with more defensive areas such as food retail and
DIY faring better.
With Covid-19 restrictions now ended, Google mobility data
indicates that footfall is now close to pre-pandemic levels
on an aggregate basis, however PwC note that the footfall
recovery is more polarised at sub-sector level, with retail parks
outperforming shopping centres and the high street.
09
ICG-Longbow Senior Secured UK Property Debt Investments Limited
Annual Report And Consolidated Financial Statements
Overview
INVESTMENT MANAGER’S REPORT (CONTINUED)
Owing to their projected growth in online sales and what is
viewed as still an oversupply of physical real estate in the sector,
PwC forecast rental declines in 2022, albeit at a reduced pace
than has been seen in the previous five years. More recently,
there were some reports of green shoots on the high street; the
Local Data Company reported vacancy rates dropped in H2 2021
to 14.4% of all shops, the first decline in three years, with a 0.3%
reduction in the shopping centre vacancy rate.
Hotel
Perhaps the starkest indication of the effect of the pandemic
on UK hotel markets is in occupancy figures. According
to Lambert Smith Hampton (LSH), during the peak of the
pandemic where hotels were only able to accommodate guests
for essential, legally permitted reasons, occupancy rates dipped
down to 25-35% in most UK markets. An immediate bounce-
back in occupancy rates was seen after hotels were able to
reopen, and strong demand for staycations pushed nationwide
occupancy to above 70% in August.
Unsurprisingly, summer 2021 occupancy rates were highest
in markets driven by domestic tourism and leisure such as
Brighton, Bournemouth and York. Each of these saw occupancy
rise above 80%, while average daily rates and RevPAR were well
in excess of pre-pandemic norms. Larger cities, more reliant
on international and business travel, continued to struggle –
occupancy levels in Manchester and Birmingham were below
the national average in August and London had the lowest
occupancy rate of any major UK market at 56%.
With UK Government policy in 2022 easing travel restrictions,
an approach that is mirrored in the EU for vaccinated travellers,
a recovery in international travel is expected albeit with PwC
estimating that travel volumes will not return to normal until
2023/24. As a result, it is expected that the 2021 trend will
continue into 2022, with ‘staycation’ markets faring better
than city markets, which should bode well for the Company’s
Southport Hotel loan.
PROPERTY INVESTMENT MARKET
According to Lambert Smith Hampton’s investment
transactions report, sales volumes in the UK were a respectable
£57bn, some 6% above the five year average and a 40% rebound
on the 2020 figure. LSH report that Q4 2021 saw £17.3bn of
trades (although Savills has a higher figure, of £19.7bn) which
gave the market strong momentum coming into 2022.
Across the property sectors, industrial was the standout
performer, once again dominating the headlines from both
a volume and pricing perspective. LSH report that Q4 2021
volumes of £4.3bn were a new all-time high, with the annual
volume of £15.2bn being almost double the previous annual
record. Prime industrial yields fell from 3.75% to 3.25%
during the year, according to Savills, however we are aware
of several deals in London which traded at yields below this
level, driven by relentless investor demand and rising rental
growth expectations.
Retail warehousing was another success story. Savills headline
yields fell from 6.5% to 5.5% on the year, as UK institutions
returned to the market in earnest, however, there have been
individual outperformers. The Investment Manager financed
one retail park in Q1 2021 at a price of £28m, with a sale due to
complete in Q2 2022 at a headline price of £44m. LSH describe
the run of deals as ‘meteoric’, with 2021 volumes of £3.0bn
being a six-year high. An element of liquidity also returned
to the shopping centre market, particularly with smaller lot
sizes of sub-£25m where the double-digit yields available
finally attracted private buyers. While there were certain
well-publicised larger deals, such as the sale of a 25% stake
in Bluewater to Landsec for a reported £172m, some of these
deals were not to true third-party buyers (Landsec already had a
stake in Bluewater, for example).
The office sector overall had a solid year, with a strong Q4
(dominated by the £1.25bn acquisition of 5 Broadgate in London)
offsetting a weak Q1 2021 during the Covid-19 lockdown.
Manchester saw the largest-ever single asset deal in the UK
regions, when NatWest acquired its existing office at One
Hardman Boulevard, and the Assembly building in Bristol
traded for £135m. City of London and regional offices each saw
modest (25bp) compression in prime yields during the year, to
3.75% and 4.75% respectively, driven largely by demand from
international buyers, such as the National Pension Service of
Korea (NPS) in the case of 5 Broadgate.
Encouragingly for the Company’s RoyaleLife loan, there has
been increasing investor interest in the bungalow, holiday
home and manufactured housing sector. Park Holidays and
Park Leisure have each been acquired during recent months,
with investors including Blackstone reportedly mulling bids for
Parkdean Resorts.
FINANCE MARKETS
The principal changes to the finance markets during the year
were driven by a renewed confidence in the economic outlook,
particularly in the second half, and latterly the changes in
inflation and interest rate expectations, with around a 1.5%
increase in the benchmark five year swap rate during the period.
Outstanding debt to the UK property markets, as reported to
the Bank of England, was up on the year. Lending stood at
£169.9 billion at the end of January 2022, up from £167.6 billion in
the prior year. This was led by a very strong month of deployment
in December (+£1.35bn), as lenders sought to close deals prior to
year-end.
In certain sectors – particularly the sought after ‘beds and sheds’
– we have seen lending margins compressed and we are aware
of industrial loans being quoted at sub-175bps for 60% LTV and
250 – 275bp for 70% LTV. Even at these levels, with swap rates in
excess of 2% again the overall cost of debt is still notably higher
for borrowers now than in 2020 and 2021. In some instances, debt
is not accretive to equity returns in these markets.
An element of liquidity returned to the UK shopping centre
finance market, with Abrdn, OakNorth Bank and Bentall
GreenOak among those reportedly closing loans during the
year. LTVs remain conservative and spreads far wider than
in other sectors, reflecting the uncertain income outlook and
valuation challenges.
PORTFOLIO OUTLOOK
The Portfolio is now firmly in run off, and as at the date of this
report over 35% of the loan commitments in place when the
decision was taken to realise the Company’s assets have now
been repaid. Of the remainder, all of the security has either
been revalued during the year or we have clear line of sight
towards a repayment.
The Hotel securing the Southport investment has seen its
valuation decline during the period, although this was not
unexpected given the challenges facing the hotel sector. The
sponsor reports trading ahead of budget with a favourable level of
reservation for the coming months and has continued to service
interest. As a result, and assuming no further Covid-19 disruption
to the sector, the outlook for the hotel appears more positive.
Our focus remains on managing the portfolio towards exit,
supporting borrowers in their sales or refinancing strategies,
and ensuring the portfolio continues to generate optimal
returns during the period of run off. In doing so we will continue
to balance the returns from the loans against timely return of
capital to shareholders.
Overview Governance Financial Statements Other Information
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Annual Report And Consolidated Financial Statements
INVESTMENT MANAGER’S REPORT (CONTINUED)
LOAN PORTFOLIO
A summary of each of the individual loans as at 31 January 2022 is set out below:
Quattro
In October 2017, the Group advanced a new £9.00 million loan to a private property company, secured by three mixed use assets
in and around the London Borough of Kingston. The Group initially financed a £6.00 million participation in the loan subsequently
acquiring the minority £3.00 million position from ICG following an equity issuance under the 2017 Placing Programme. The initial
LTV ratio was 83.7%.
The loan passed its maturity date in the period and we have been working with the sponsor in good faith towards an exit strategy
to maximise shareholder value. Strong progress has been made with several sales and one asset refinancing reducing the
outstanding loan balance. Further, planning permission was secured in the period for the redevelopment of the largest remaining
asset, which should be accretive to value.
The loan repaid in full after the period end.
Property profile Debt profile
Number of properties 2 Day one debt £9,000,000
Property value £8,050,000 Debt outstanding £5,956,304
Property value per sq. ft. £235 Original term 3.2 years
Property area (sq. ft.) 34,209 Maturity January 2021
Number of tenants 7 LTV as at 31 January 74.0%
Weighted lease length 6.03 years Loan exposure per sq. ft. £174
Affinity
On 28 February 2018, a new £16.20 million commitment was made, of which £14.20 million was advanced, to refinance a multi-
let office property in Bristol, and to provide a £2.00 million capital expenditure facility to fund a refurbishment programme.
Subsequently, the loan commitment was increased to £17.70 million in support of the borrower’s business plan, of which
£17.30 million has been drawn.
During the period the Sponsor made substantial leasing progress in line with its business plan, capitalising on refurbishment works
undertaken earlier in the loan term. As a result, the property was fully occupied at period end, and the Sponsor is pursuing a sale of
the asset. The Company has agreed to a short-term extension of the loan facility to allow for the sales process to conclude, with the
expectation of repayment in the coming months.
Property profile Debt profile
Number of properties 1 Day one debt £14,200,000
Property value £25,300,000 Debt outstanding £16,700,000
Property value per sq. ft. £221 Original term 4.2 years
Property area (sq. ft.) 114,364 Maturity May 2022
Number of tenants 12 LTV as at 31 January 68.1%
Weighted lease length 6.46 years Loan exposure per sq. ft. £146
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ICG-Longbow Senior Secured UK Property Debt Investments Limited
Annual Report And Consolidated Financial Statements
Overview
INVESTMENT MANAGER’S REPORT (CONTINUED)
LOAN PORTFOLIO (CONTINUED)
Southport
A £15.00 million loan commitment, secured by a hotel and leisure complex in Southport, Merseyside. The initial loan to value ratio
was 59.5%. The business plan focused on investing in improving the asset, renovating the bedrooms and thereafter driving room
rates. Substantially all business plan works across the hotel were completed prior to the onset of Covid-19.
The hotel again suffered from the Government-mandated closure of all hotels for substantially all of the first half of 2021.
It re-opened for trade in July 2021 and enjoyed a strong summer of trade, albeit the winter period has suffered owing to
the effects of the Omicron variant.
During the period, the Company agreed to the Sponsor entering into a lease surrender arrangement with one of the commercial
tenants; the proceeds received allowed for the repayment of previously capitalised interest, with the balance of £15.00 million in
line with the original loan commitment.
In Q4 2021 the asset was revalued which resulted in an 85.7% LTV, in breach of the lending covenant. The Company has reserved
its rights in respect of this breach and is in discussions with the Sponsor as to next steps.
Property profile Debt profile
Number of properties 1 Day one debt £12,500,000
Property value (£) £17,500,000 Debt outstanding £15,000,000
Property value (£/bedroom) £131,579 Original term 4 years
Property value (£/sq. ft.) £385 Maturity April 2023
Bedrooms 133 LTV as at 31 January 85.7%
Property area (sq. ft.) 45,430 Loan exposure per bedroom £112,781
Northlands
In October 2019 the Company provided a £12.50 million commitment to the sponsor, secured by a highly diversified portfolio
of high street retail, office and tenanted residential units located predominantly in London and the South East. The initial loan
amount was £9.00 million with an LTV ratio of 55.3%.
The sponsor’s business plan includes implementation of a planning consent to develop residential apartments on one of the
sites in the portfolio, and in support of this the Company has provided a £3.50 million capital expenditure commitment. This
commitment was partially drawn during the period, with the outstanding balance now £10.43 million and LTV 58.3%.
Property profile Debt profile
Number of properties 14 Day one debt £9,000,000
Property value £17,910,650 Debt outstanding £10,431,142
Property value per sq. ft. £147 Original term 3.0 years
Property area (sq. ft.) 121,285 Maturity October 2022
Number of tenants 89 LTV as at 31 January 58.3%
Weighted lease length 1.9 years Loan exposure per sq. ft. £86
Overview Governance Financial Statements Other Information
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Annual Report And Consolidated Financial Statements
INVESTMENT MANAGER’S REPORT (CONTINUED)
LOAN PORTFOLIO (CONTINUED)
RoyaleLife
In September 2019 the Company provided a £24.6 million commitment to an affiliate of RoyaleLife, the UK’s leading provider of
bungalow homes, secured by a portfolio of ten assets in the residential bungalow homes sector. The facility forms part of a larger
four-year, £142.7 million loan originated by the Investment Manager, with the Company participating alongside two other funds
managed by the Investment Manager.
The initial loan drawn down was £20.3 million, with the balance comprising a capital expenditure commitment in support of
the borrower’s business plan. The loan has been fully drawn and was increased during 2020 as a result of partial interest
capitalisation when Covid-19 restrictions adversely affected home sales. The total outstanding loan balance is now £25.38 million.
The sponsor continues to deliver on its business plan, and a positive revaluation was received at the end of the reporting period.
During the year, a series of amendments to the loan were negotiated for which the Company received some additional return and
also improved the contracted minimum earnings from the investment.
Property profile Debt profile
Number of properties 10 Day one debt £20,267,119
Property value (£)* £34,024,151 Debt outstanding £25,382,017
Number of tenants n/a Original term 4.1 years
Weighted lease length n/a Maturity October 2023
LTV as at 31 January 61.5%
*Pro rata based on Company’s share of total loan
LBS
In September 2019, the Group entered into a £6.5 million loan commitment with a fund advised by LBS Properties, secured by a
multi-let office property in Farringdon, London.
The loan carried an initial LTV ratio of 69.0% and included a capital expenditure commitment in support of the borrower’s
business plan, which has now been fully drawn. The loan is performing in line with expectations and shortly after period end the
asset was revalued at £11.07m, reflecting 58.5% LTV.
After period end, the property was placed on the market for sale.
Property profile Debt profile
Number of properties 1 Day one debt £4,922,000
Property value £11,000,000 Debt outstanding £6,474,000
Property value per sq. ft. £1,042 Original term 3.1 years
Property area (sq. ft.) 10,557 Maturity October 2022
Number of tenants 1 LTV as at 31 January 58.9%
Weighted lease length 8.5 years Loan exposure per sq. ft. £613
ICG REAL ESTATE
19 May 2022
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ICG-Longbow Senior Secured UK Property Debt Investments Limited
Annual Report And Consolidated Financial Statements
Overview
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:
O investments may be made to honour commitments under
existing contractual arrangements or to preserve the value of
the underlying property security; and
O 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.
Overview Governance Financial Statements Other Information
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ICG-Longbow Senior Secured UK Property Debt Investments Limited
Annual Report And Consolidated Financial Statements
BOARD OF DIRECTORS
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
JACK PERRY CBE
Chairman and 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
STUART BEEVOR
Non-Executive
Independent Director
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ICG-Longbow Senior Secured UK Property Debt Investments Limited
Annual Report And Consolidated Financial Statements
Overview
BOARD OF DIRECTORS (CONTINUED)
Other InformationFinancial StatementsGovernanceOverview
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
FIONA LE POIDEVIN
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
PAUL MEADER
Non-Executive
Independent Director
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ICG-Longbow Senior Secured UK Property Debt Investments Limited
Annual Report And Consolidated Financial Statements
REPORT OF THE DIRECTORS
The Directors hereby submit the Annual Report and Consolidated
Financial Statements for the Company and its dissolved
subsidiary, ICG-Longbow S.A Debt, for the year ended 31 January
2022. This Report of the Directors should be read together with
the Corporate Governance Report on pages 23 to 29.
GENERAL INFORMATION
The Company is a non-cellular company limited by shares
incorporated in Guernsey on 29 November 2012 under the
Companies Law. The Company’s registration number is 55917
and it is registered with the GFSC as a registered closed-ended
collective investment scheme. The Company’s Ordinary Shares
were admitted to the premium segment of the FCA’s Official List
and to trading on the Main Market of the London Stock Exchange
on 5 February 2013. As reported in the Company’s interim
report and accounts, the Board resolved to simplify its corporate
structure by collapsing the Luxembourg subsidiary company
which has historically acted as the lender for the Company’s
investments. These investments have now been transferred
to the Company, at par, and in a manner understood to be tax
neutral for the Company. The subsidiary, ICG Longbow Senior
Debt S.A., was dissolved under Luxembourg Law with effect
from 18 January 2022. The Company expects this restructuring
to reduce pro forma operating expenses by approximately
£200,000 per annum.
PRINCIPAL ACTIVITIES
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.
17
ICG-Longbow Senior Secured UK Property Debt Investments Limited
Annual Report And Consolidated Financial Statements
Overview
REPORT OF THE DIRECTORS (CONTINUED)
SHAREHOLDINGS OF THE DIRECTORS
The Directors’ beneficial interests in the shares of the Company as at 31 January 2022 and 2021 are detailed below:
Director
Ordinary Shares
of £1 each held
31 January
2022
% holding at
31 January
2022
Ordinary Shares
of £1 each held
31 January
2021
% holding at
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.
Other InformationFinancial StatementsGovernanceOverview
18
ICG-Longbow Senior Secured UK Property Debt Investments Limited
Annual Report And Consolidated Financial Statements
REPORT OF THE DIRECTORS (CONTINUED)
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.
19
ICG-Longbow Senior Secured UK Property Debt Investments Limited
Annual Report And Consolidated Financial Statements
Overview
REPORT OF THE DIRECTORS (CONTINUED)
AIFMD
The Company is a non-EU domiciled alternative investment
fund and appointed ICG Alternative Investments Limited
as its discretionary Investment Manager on 25 November
2020. Prior to this appointment the Company was internally
managed. Any offer of shares to prospective investors within
selected member states of the European Economic Area
and the UK will be made in accordance with the applicable
national private placement regime, and the Company will
notify its intention to market to the competent authority in
each of the selected member states for the purposes of
compliance with AIFMD.
AEOI RULES
Under AEOI Rules the Company continues to comply with
both FATCA and CRS requirements to the extent relevant
to the Company.
The Board is committed to upholding and maintaining a
zero tolerance policy towards the criminal facilitation of
tax evasion.
CHANGE OF CONTROL
There are no agreements that the Company considers
significant and to which the Company is party that may
affect its control following a takeover bid.
GOING CONCERN
The Directors, at the time of approving the Financial
Statements, are required to satisfy themselves that they
have a reasonable expectation that the Company has
adequate resources to continue in operational existence
for the foreseeable future and do not consider there to be
any threat to the going concern status of the Company. At
the EGM of the Company on 14 January 2021, following a
recommendation from the Board published in a circular
on 16 December 2020, shareholders voted by the requisite
majority in favour of a change to the Company’s Objectives
and Investment Policy which would lead to an orderly
realisation of the Company’s assets and a return of capital
to shareholders.
It is intended that the investments will be realised as and
when the loans fall due, and the Directors expect that the
investments will be held to maturity with the last loan
repaying by the end of 2023. Whilst the Directors are satisfied
that the Company has adequate resources to continue in
operation throughout the realisation period and to meet all
liabilities as they fall due, given the Company is now in a
managed wind down the Directors considered it appropriate
to adopt a basis other than a going concern in preparing the
consolidated financial statements, as was the case for the
year ended 31 January 2021. No material adjustments have
arisen as a result of ceasing to apply the going concern basis.
VIABILITY STATEMENT
The AIC Code requires that, the Directors make a viability
statement in which they assess the prospects of the Company
over a period longer than the 12 months required by the
going concern provision.
A change in Investment Policy was approved by the
shareholders at the EGM on 14 January 2021 with the
resultant intention that the Company undergo an orderly
realisation of assets, returning capital to shareholders.
For this reason, and as discussed above, the Company is
preparing the consolidated financial statement on a basis
other than a going concern due to the Company being in a
managed wind down.
Since the EGM four loans have repaid in full and £31.6m of
capital has been returned to Shareholders. Based on the
maturity profile of the Company’s investments, the Board
expects the wind down of the Company to be completed
within two years, although this cannot be guaranteed.
Cashflow projections have been prepared based on the
Board’s current intention to hold all investments to maturity.
The Board intends to return surplus capital to investors
following each loan repayment, whilst it remains prudent to
do so and taking into account the commitments and liabilities
of the Company at the time.
Having conducted a robust analysis on this basis, the
Directors remain satisfied that the Company can, in all
quarters, meet its liabilities as they fall due over the period
under consideration to January 2024. The Company expects
to maintain positive cashflows, before dividends, in all but
the final quarter, and intends to distribute surplus net profits
by way of capital distribution whilst it remains prudent to
do so and retaining an appropriate working capital reserve
to continue its operations given the unpredictable timing of
loan repayments.
DIRECTORS’ RESPONSIBILITIES TO STAKEHOLDERS
Section 172 of the UK Companies Act 2006 applies directly to
UK domiciled companies. Nonetheless the AIC Code requires
that the matters set out in section 172 are reported on by all
companies, irrespective of domicile. This requirement does
not conflict with Guernsey company law.
Section 172 recognises that Directors are responsible
for acting in a way that they consider, in good faith, is the
most likely to promote the success of the Company for the
benefit of its shareholders as a whole. In doing so, they are
also required to consider the broader implications of their
decisions and operations on other key stakeholders and their
impact on the wider community and the environment. Key
decisions are those that are either material to the Company
or are significant to any of the Company’s key stakeholders.
The Company’s engagement with key stakeholders and the
key decisions that were made or approved by the Directors
during the year are described below.
Other InformationFinancial StatementsGovernanceOverview
20
ICG-Longbow Senior Secured UK Property Debt Investments Limited
Annual Report And Consolidated Financial Statements
REPORT OF THE DIRECTORS (CONTINUED)
Stakeholder Group Methods of Engagement Outcomes of Engagements
Shareholders
The major investors in the Company’s
shares are set out on page 18.
Following the Covid-19 pandemic and the
Company share price falling to a deep
discount to NAV, shareholders supported
a recommendation by the Board to wind
down the Company.
The Company sought to maintain
shareholder satisfaction through:
O Transparency of communication
O Capital preservation
O Payment of regular and sustainable
dividends and
O Return of capital on loan repayments
The Company engages with its
shareholders through the issue of regular
portfolio updates in the form of RNS
announcements and quarterly factsheets.
The Company provides in depth
commentary on the investment portfolio,
corporate governance and corporate
outlook in its semi-annual and annual
financial statements.
The Board receives quarterly feedback
from its Broker in respect of their investor
engagement and investor sentiment.
The engagement with shareholders,
including the AGM, will continue through
the wind down period as capital is
returned to investors.
In the financial year the Company issued:
O 3 Portfolio updates by way of RNS
O 4 Quarterly fact sheets.
The Company, through its Investment
Manager, Broker and the Board liaised
with major shareholders in connection with
the change in Investment Policy leading
to an orderly realisation of assets of the
Company, receiving over 75% support from
shareholders. The Company has continued
to execute this realisation during the year.
Engagement with shareholders through
regular announcements and fact sheets
enables shareholders to take informed
decision as to the winding up process and
timetable, which in turn, should support
the share price and reduce any discount to
NAV in normal market conditions.
Borrowers
The Company’s principal clients are
its Borrowers to whom the Company
provides term finance.
The Board believes that the Company and
its Investment Manager have a duty to
act fairly in respect of its Borrowers and
that strong engagement with Borrowers
drives favourable outcomes for
stakeholders and Borrowers themselves.
The Company engages with its Borrowers
through its Investment Manager.
The Investment Manager forms and
maintains a close working relationship
with Borrowers through the underwriting
and execution of new loans, and the
ongoing quarterly monitoring of such
loans over their respective terms.
The Board monitors the timeliness and
quality of these engagements through its
regular engagement with the Investment
Manager.
The Investment Manager works closely
with borrowers to support the delivery of
their business plans.
During the course of the year the
Investment Manager has undertaken
and the Board has reviewed four
monitoring reports.
At the request of the Southport borrower,
the Investment Manager agreed to the
surrender of a commercial lease at the
property, which allowed for a partial
repayment of the loan. Similarly, the
Investment Manager engaged in a series of
amendments to the RoyaleLife loan, which
are expected to generate additional returns
for shareholders. In each case the Board
considers this to be evidence of positive
and consensual engagement.
One investment had passed its maturity
date. The Investment Manager successfully
worked with the borrower to ensure an
orderly repayment of the loan can be
made, and is satisfied with the plans put
in place, which it does not consider will
increase the risk profile of the Company.
There have been no borrower complaints.
Service Providers
The Company does not have any direct
employees; however, it works closely
with a number of service providers (the
Investment Manager, Administrator,
Company Secretary, Broker and other
professional service providers) whose
interests are aligned to the success of
the Company.
The quality and timeliness of their service
provision is critical to the success of
the Company.
The Company’s Management Engagement
Committee has identified its key
service providers. On an annual basis it
undertakes a review of performance based
on a questionnaire through which it also
seeks feedback.
Furthermore, the Board and its sub-
committees engage regularly with
its service providers on a formal and
informal basis.
The Management Engagement Committee
will also regularly review all material
contracts for service quality and value.
The feedback given by the service
providers is used to review the
Company’s policies, controls, and
procedures to ensure open lines of
communication, operational efficiency,
robustness and appropriate pricing for
services provided.
DIRECTORS’ RESPONSIBILITIES TO STAKEHOLDERS (CONTINUED)
21
ICG-Longbow Senior Secured UK Property Debt Investments Limited
Annual Report And Consolidated Financial Statements
Overview
REPORT OF THE DIRECTORS (CONTINUED)
Stakeholder Group Methods of Engagement Outcomes of Engagements
Lenders
The Company had a three-year Revolving
Credit Facility which expired in the period.
The Facility provided the Company with a
flexible funding line which could be used
to finance new investments or working
capital and therefore its availability was a
key component of the Company’s ability
to remain fully invested and minimise
cash drag.
The Company’s engagement with
its Lender was primarily through its
Investment Manager who provided regular
reports to the Bank and had an open line of
communication in respect of the ongoing
operation and maintenance of the Facility.
The Investment Manager provided
feedback to the Board in terms of actual
and planned utilisation of the Facility as
well as covenant compliance.
The Facility continued to operate and
remained available throughout most of
the period, however with the Company in
an orderly wind down it was not renewed
at the end of the contractual loan term.
There have been no issues or concerns
raised by the Bank, who offered terms to
extend the Facility.
Community & Environment
As an Investment Company whose
purpose is the provision of and
investment in commercial real estate
debt, the Company’s direct engagement
with the local community and the
environment is limited.
However, the Board recognises the role
the Company can play in terms of the
environment by supporting and guiding
Borrowers to find environmentally
friendly sustainable solutions in the
maintenance of their properties and
delivery of their business plan objectives
more generally.
Within its Investment Strategy, the
environmental and social impact of the
properties on which the Company’s
loans are secured was an important
consideration when it had made its
investments.
In the year to 31 January 2022 the
Company made no new loans, but
previous loans included substantial
capital expenditure facilities, generally
to be applied towards the refurbishment
of existing properties which has a
substantially lower environmental impact
than demolition and redevelopment.
Such refurbishments generally seek to
improve the energy performance of the
target properties as well as providing
improved working or living environments
for their occupiers.
The ESG report provides further
information on the Investment Manager’s
approach to this important subject.
KEY DECISIONS
Key decisions are defined as both those that are material to
the Company, but also those that are significant to any of our
key stakeholder Company’s as discussed above.
In making the following key decision the Board considered the
outcome from its stakeholder engagement as well as the need to
maintain a reputation for high standards of business conduct and
the need to act fairly between the members of the company:
During the year the Board decided to maintain its paid
dividend at 1.5 pence per share for the first three periods
and a dividend of 1.1 pence per share in respect of the final
quarter, during which the portfolio was being transitioned.
Given that some of the Company’s loans were fully repaid, the
board approved three distributions of capital equating to a
total of 26.0 pence per share for the year. A fourth distribution
equivalent to 6.0 pence per Ordinary Share was approved after
the year end.
As the Company is winding up and no longer making new
investments, the Board reviewed the need for its revolving
credit facility and decided not to pursue a renewal or secure
a replacement.
The Board reviewed the performance of the Investment Manager
which was considered to be highly satisfactory. Accordingly, the
Investment Manager’s reappointment was confirmed.
During the year and following a decision by the Board, the
Company’s Luxembourg subsidiary, ICG Longbow Senior Debt
S.A., was dissolved under Luxembourg Law with effect from
18 January 2022.
FINANCIAL RISK MANAGEMENT POLICIES AND PROCEDURES
Financial Risk Management Policies and Procedures are
disclosed in Note 11 on pages 54 to 58.
PRINCIPAL RISKS AND UNCERTAINTIES
Principal Risks and Uncertainties are discussed in the
Corporate Governance Report on pages 28 to 29.
SUBSEQUENT EVENTS
Significant subsequent events have been disclosed in Note 19
to the Financial Statements on page 60.
ALTERNATIVE PERFORMANCE MEASURES
The Directors believe that the performance indicators detailed
in the Financial Highlights and Financial Summary on pages
1 and 2, which are typical for entities investing in real estate
debt, will provide shareholders with sufficient information to
assess how effectively the Company is meeting its objectives.
The alternative performance measures are described in the
table on page 61.
ANNUAL GENERAL MEETING
The AGM of the Company will be held at 12:00 BST on 22 June 2022
at Floor 2, Trafalgar Court, Les Banques, St Peter Port, Guernsey,
GY1 4LY. Details of the resolutions to be proposed at the AGM,
together with explanations of the AGM arrangements, will appear
in the Notice of Meeting to be distributed to shareholders.
Members of the Board will be in attendance at the AGM and
will be available to answer shareholder questions.
By order of the Board
JACK PERRY
Chairman
19 May 2022
Other InformationFinancial StatementsGovernanceOverview
22
ICG-Longbow Senior Secured UK Property Debt Investments Limited
Annual Report And Consolidated Financial Statements
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:
O select suitable accounting policies in accordance with IAS 8:
Accounting Policies, Changes in Accounting Estimates and
Errors and then apply them consistently;
O make judgements and estimates that are reasonable and
prudent;
O present information, including accounting policies, in a
manner that provides relevant, reliable, comparable and
understandable information;
O 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;
O state that the Company has complied with IFRS, subject to any
material departures disclosed and explained in the Financial
Statements; and
O 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:
O 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;
O 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
23
ICG-Longbow Senior Secured UK Property Debt Investments Limited
Annual Report And Consolidated Financial Statements
Overview
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:
O the role of the chief executive;
O executive directors’ remuneration; and
O 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.
Other InformationFinancial StatementsGovernanceOverview
24
ICG-Longbow Senior Secured UK Property Debt Investments Limited
Annual Report And Consolidated Financial Statements
CORPORATE GOVERNANCE REPORT (CONTINUED)
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.
25
ICG-Longbow Senior Secured UK Property Debt Investments Limited
Annual Report And Consolidated Financial Statements
Overview
CORPORATE GOVERNANCE REPORT (CONTINUED)
DIRECTORS’ REMUNERATION
The level of remuneration of the Directors reflects the time
commitment and responsibilities of their roles. The Chairman
is entitled to annual remuneration of £50,000 (31 January 2021:
£50,000). The Chairman of the Audit and Risk Committee is
entitled to annual remuneration of £40,000 (31 January 2021:
£40,000). The other independent Directors are entitled to
annual remuneration of £35,000 (31 January 2021: £35,000).
These levels of remuneration have remained unchanged
since July 2017.
During the year ended 31 January 2022 and the year ended 31 January 2021, the Directors’ remuneration was as follows:
Director
Expected Fees
1 February 2022 to
31 January 2023
£
1 February 2021 to
31 January 2022
£
1 February 2020 to
31 January 2021
£
Jack Perry 50,000 50,000 50,000
Patrick Firth
(1)
– 16,466 40,000
Paul Meader 35,000 35,000 37,500
Stuart Beevor 35,000 35,000 35,000
Mark Huntley
(2)
– – 22,870
Fiona Le Poidevin
(3)
40,000 38,024 14,584
(1)
Patrick Firth retired 28 June 2021
(2)
Mark Huntley retired 25 September 2020
(3)
Fiona Le Poidevin appointed 1 September 2020 and was appointed Audit and Risk Committee Chair on 28 June 2021
The Company Directors’ fees for the year amounted to £171,375
(31 January 2021: £199,953) with outstanding fees of £31,250
due to the Directors at 31 January 2022 (31 January 2021:
£45,995) (see Note 8).
All of the Directors are non-executive and are each considered
independent for the purposes of Chapter 15 of the Listing Rules.
DUTIES AND RESPONSIBILITIES
The Board has overall responsibility for maximising the
Company’s success by directing and supervising the affairs
of the business and meeting the appropriate interests of
shareholders and relevant stakeholders, while enhancing
the value of the Company and also ensuring the protection of
investors. The Board has adopted a Schedule of Matters which
sets out the particular duties of the Board. Such reserved
powers include the following:
O strategic matters;
O risk assessment and management including reporting,
compliance, governance, monitoring and control and
financial reporting;
O statutory obligations and public disclosure;
O declaring Company dividends;
O managing the Company’s advisers; and
O 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.
Other InformationFinancial StatementsGovernanceOverview
26
ICG-Longbow Senior Secured UK Property Debt Investments Limited
Annual Report And Consolidated Financial Statements
CORPORATE GOVERNANCE REPORT (CONTINUED)
DUTIES AND RESPONSIBILITIES (CONTINUED)
Attendance is further set out below:
Director
Scheduled
Board
Meetings
Ad-hoc
Board
Meetings
Audit and
Risk
Committee
Meetings
Ad-hoc
Committee
Meetings
Nomination
Committee
Meeting
Management
Engagement
Committee
Meeting
Remuneration
Committee
Meeting
5 5 4 3 3 1 0
Stuart Beevor 5 3 5 0 1 2 0
Patrick Firth
(1)
3 2 3 0 1 2 0
Paul Meader 5 6 5 1 1 2 0
Jack Perry 5 6 5 0 1 2 0
Fiona Le Poidevin 5 6 5 1 1 2 0
(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.
ICG-Longbow Senior Secured UK Property Debt Investments Limited
Annual Report And Consolidated Financial Statements
Overview
27
CORPORATE GOVERNANCE REPORT (CONTINUED)
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:
O 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;
O 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;
O 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
O 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.
Other InformationFinancial StatementsGovernanceOverview
28
ICG-Longbow Senior Secured UK Property Debt Investments Limited
Annual Report And Consolidated Financial Statements
CORPORATE GOVERNANCE REPORT (CONTINUED)
INTERNAL CONTROL AND FINANCIAL REPORTING (CONTINUED)
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 in January 2022. The
conclusions of these reviews were highly satisfactory, providing
assurance to the Board. In addition, the Company maintains a
website which contains comprehensive information, including
regulatory announcements, share price information, financial
reports, investment objectives and strategy, investor contacts
and information on the Board.
INVESTMENT MANAGER AGREEMENT
The Company has entered into an agreement with the
Investment Manager. This sets out the Investment Manager’s
key responsibilities, this includes being responsible to the
Board for all issues relating to the maintenance and monitoring
of existing investments.
In accordance with Listing Rule 15.6.2(2) R and having formally
appraised the performance and resources of the Investment
Manager, in the opinion of the Directors the continuing
appointment of the Investment Manager on the terms agreed is
in the interests of the shareholders as a whole.
WHISTLEBLOWING
The Board has considered the AIC Code recommendations
in respect of arrangements by which staff of the Investment
Manager or Administrator may, in confidence, raise concerns
within their respective organisations about possible
improprieties in matters of financial reporting or other matters.
It has concluded that adequate arrangements are in place
for the proportionate and independent investigation of such
matters and, where necessary, for appropriate follow-up action
to be taken within their organisation.
PRINCIPAL RISKS AND UNCERTAINTIES
During the year the Board has overseen the Company’s risk
management framework and risk culture. The Audit and Risk
Committee undertook a robust assessment of the Company’s
principal risks and associated risk appetite, taking into account
changes in the business and the external environment.
The Board considers the process for identifying, evaluating
and managing any significant risks faced by the Company on
an on-going basis and these risks are reported and discussed
at Board meetings. This ensures that effective controls are in
place to mitigate these risks and that a satisfactory compliance
regime exists to ensure all applicable local and international
laws and regulations are adhered to.
The Board can confirm that it has undertaken a robust
assessment of the principal risks facing the Company. In its
most recent assessment of risks the Board has considered
the particular risks that the Company may face as a result
of the Ukrainian Crisis either directly or indirectly. The risks
set out below represent a snapshot of the Company’s current
principal risk profile. These risks have been ranked considering
the magnitude of potential impact, probability and taking into
account the effectiveness of existing controls. This is not an
exhaustive list of all risks the Company faces. As the macro
environment changes and country and industry circumstances
evolve, new risks may arise or existing risks may recede or the
rankings of these risks may change.
For each material risk, the likelihood and potential impact
are identified. The Company’s financial instrument risks are
discussed in Note 11 to the Financial Statements.
The Directors have identified the following as the key risks
faced by the Company:
Description Nature of Risk Potential Impact Mitigation
Non-payment
of interest
Rising corporate insolvencies
and working capital
challenges may mean some
businesses, including tenants
of the Company’s borrowers,
are unwilling or unable to pay
rents.
Moreover, in the wake of
Covid-19 the UK government
had lifted measures which
removed some of the actions
available to a landlord if a
tenant fails to pay rent.
Rental income is generally the
primary source of income for the
Company’s borrowers and has a
direct link, in most cases, to the
borrower’s ability to service its debt
obligations and pay interest.
Should a material number of the
tenants in the properties securing
the Company’s investments fail
to pay rents, the Company may,
consequently, experience a shortfall
in receipts of interest over the
coming quarters.
The Board and the Investment Manager
work pro-actively with borrowers to
monitor, mitigate and manage any issues
and, where appropriate, will capitalise
interest and/or reserve its rights. Loans
were restructured/extended and repayment
plans agreed within this year.
Fall in
collateral
values, and
accuracy of
valuations
Certain sections of the
economy continue to deal
with the ramifications of
Covid-19 and rising interest
rates, leading to a re-rating
of property values particularly
amongst leisure and some
retail assets.
Ongoing Covid-19 related disruption,
changes to working patterns and
higher interest rates may continue
to impact certain property values
and/or investors reassess likely
occupational demand due to
changing working practices. Higher
interest rates are likely to depress
real estate values, other factors
being equal.
Falling property values may delay
refinancing and exit strategies of
borrowers adding to uncertainty
over the timing of capital
repayments to shareholders.
The Company invests on a hold to maturity
basis and as such its loans are not directly
exposed to short-term volatility in the
valuation of the underlying real estate on
which its loans are secured.
Further, the Company currently enjoys
a strong balance sheet and maintains
an appropriate cash surplus for working
capital purposes If necessary, the Company
has the ability to extend loans where its
borrowers are unable to sell or refinance
properties due to any market dislocation.
ICG-Longbow Senior Secured UK Property Debt Investments Limited
Annual Report And Consolidated Financial Statements
Overview
29
CORPORATE GOVERNANCE REPORT (CONTINUED)
Description Nature of Risk Potential Impact Mitigation
Uncertain
Economic
Outlook and
Geopolitical
risk
Higher inflation caused by
supply side constraints in
the face of strong demand
has been exacerbated by
the Ukrainian Crisis. The
interest rate and macro-
economic implications of
this are highly uncertain.
Inflationary pressures, higher
interest rates and the resultant
increase in cost of borrowing may
reduce investor appetite with a
knock on effect on property liquidity
and valuations.
The remaining loans are in the final stages
of their term and the Investment Manager
is closely monitoring exit and repayment
strategies of each borrower. A number of
loans are expected to mature soon.
The existing loan book is well diversified
with a robust weighted average LTV of 67.3%
as at the date of signing these financial
statements, which the Board expects to
prove generally resilient against the likely
impacts.
The Company’s principal risk factors are fully set out in the
Company’s 2018 Prospectus available on the Company’s website
(www.lbow.co.uk) and should be reviewed by shareholders,
together with the supplemental prospectus issued in 2019.
Emerging risks are regularly considered to assess any potential
impact on the Company and to determine whether any actions
are required. Emerging risks include those related to regulatory/
legislative change, the Ukrainian Crisis, and macroeconomic and
political change.
In summary, the above risks are mitigated and managed
by the Board through continual review, policy setting and
updating of the Company’s detailed risk matrix to ensure
that procedures are in place with the intention of minimising
the impact of the above-mentioned risks. The Board relies
on periodic reports provided by the Investment Manager and
Administrator regarding risks that the Company faces. When
required, experts will be employed to gather information,
including property surveyors, tax managers, legal managers,
and environmental managers as appropriate.
By order of the Board
JACK PERRY FIONA LE POIDEVIN
Chairman Director
19 May 2022 19 May 2022
Other InformationFinancial StatementsGovernanceOverview
30
ICG-Longbow Senior Secured UK Property Debt Investments Limited
Annual Report And Consolidated Financial Statements
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:
O 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;
O reporting to the Board on the appropriateness of the
Company’s accounting policies and practices including critical
judgement areas;
O 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;
O 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;
O 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;
O monitoring and reviewing annually the auditor’s
independence, objectivity, expertise, resources, qualification
and non-audit work;
O considering annually whether there is a need for the Company
to have its own internal audit function;
O monitoring the internal financial control and risk management
systems on which the Company is reliant;
O reviewing and considering the UK Code, the AIC Code, the FRC
Guidance on Audit and Risk Committees; and
O 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:
O the quality and acceptability of accounting policies and
practices;
O the clarity of the disclosures and compliance with financial
reporting standards and relevant financial and governance
reporting requirements;
O 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;
O 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
O 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:
O review of the terms of reference of the Audit and Risk
Committee for approval by the Board;
O review of the accounting policies and format of the Financial
Statements;
O 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;
O review of the Company’s risk matrix;
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REPORT OF THE AUDIT AND RISK COMMITTEE
(CONTINUED)
O review and approval of the audit plan and final Audit and Risk
Committee report of the auditor;
O discussion and approval of the fee for the external audit;
O assessment of the independence of the external auditor;
O assessment of the effectiveness of the external audit process
as described below; and
O 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
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REPORT OF THE AUDIT AND RISK COMMITTEE
(CONTINUED)
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.
EXTERNAL AUDIT (CONTINUED)
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:
O discussions with or reports from the auditor describing its
arrangements to identify, report and manage any conflicts of
interest; and
O 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:
O the auditor’s fulfilment of the agreed audit plan and variations
from it;
O discussions or reports highlighting the major issues that arose
during the course of the audit;
O feedback from other service providers evaluating the
performance of the audit team;
O arrangements for ensuring independence and objectivity;
O the robustness of the auditor in handling key accounting and
audit judgements; and
O 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.
FIONA LE POIDEVIN
Chair of the Audit and Operational Risk Committee
19 May 2022
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Overview
Other InformationFinancial StatementsGovernanceOverview
INDEPENDENT AUDITOR’S REPORT
to the Members of ICG-Longbow Senior Secured UK Property Debt Investments Limited
REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS
1. OPINION
In our opinion the financial statements of ICG-Longbow Senior Secured UK Property Debt Investments Limited (the ‘Company’)
and its subsidiary (together the ‘Group’):
O 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;
O have been properly prepared in accordance with United Kingdom adopted international accounting standards; and
O have been prepared in accordance with the requirements of the Companies (Guernsey) Law, 2008.
We have audited the financial statements which comprise:
O the Consolidated Statement of Comprehensive Income;
O the Consolidated Statement of Financial Position;
O the Consolidated Statement of Changes in Equity;
O the Consolidated Statement of Cash Flows; and
O 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:
O The assessment of expected credit losses (ECL) on loans advanced; and
O Revenue recognition.
Within this report, key audit matters are identified as follows:
Newly identified
Increased level of risk
Similar level of risk
Decreased level of risk
Materiality
The materiality that we used for the group financial statements in the current year was
£1.8 million which was determined on the basis of 2% of the net asset value.
Scoping
We preformed full scope audit of the Group and audit work to respond to the risks of material
misstatement was performed directly by the Group audit engagement team.
Significant changes
in our approach
There have been no significant changes in our approach.
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INDEPENDENT AUDITOR’S REPORT (CONTINUED)
5. KEY AUDIT MATTERS
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial
statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to
fraud) that we identified. These matters included those which had the greatest effect on: the overall audit strategy, the allocation of
resources in the audit; and directing the efforts of the engagement team.
These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon,
and we do not provide a separate opinion on these matters.
5.1. The assessment of expected credit losses (ECL) on loans advanced
Key audit matter
description
As at 31 January 2022, the aggregate value of loans advanced amounted to £83.3 million (2021: £110.7
million) representing 94% of total assets (2021: 92%).
As described in the Report of the Audit and Risk Committee, the Group’s loans are the key value driver for
the Group Net Asset Value and income from loans. Judgements over the level of potential impairment of
loan values using the expected credit losses (ECL) model under IFRS 9, and the recoverability thereof, has
been identified as a key audit matter.
The key areas of judgement and estimation uncertainty include the determination of appropriate
assumptions for calculating the ECL provision under IFRS 9 (including the probability of default (‘PD’),
the loss given default (‘LGD’), exposure at default (‘EAD’), estimation of recoverable amount of any non-
performing loans and the categorisation of loans into the various credit stages in light of qualitative and
quantitative factors against management’s definition of significant increase in credit risk (‘SICR’) and
default), as well as considering the impact of loan-specific matters included in the loan monitoring reports
such as:
O movement in loan to value and interest cover ratios since date of initial recognition (i.e. deterioration in
assets security);
O covenant breaches;
O delinquency in contractual payments including unexpected modifications to contractual cash flows;
O borrower’s actual performance in relation to business plan;
O changes to the contractual documentation that could indicate financial stress on the part of the
borrower; and
O other signs of financial stress.
This matter is explained further in the Report of the Audit and Risk Committee on page 31. Note 2 (l)
and note 3 to the financial statements set out the associated accounting policy and disclosure in respect
of critical judgements and key sources of estimation uncertainty, note 5 set out the composition of the
debt portfolio as well as the stress analysis and note 11 sets out details of the associated risk factors,
including credit risk.
How the scope of our
audit responded to the
key audit matter
We have:
O Obtained an understanding of relevant controls relating to the loan loss provisioning review process;
O 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;
O 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;
O 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;
O Tested the clerical accuracy of the expected credit loss provision based on the above inputs;
O With the involvement of our internal credit specialists, we challenged the appropriateness of the ECL
provision with respect to the covenant breaches; and
O 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.
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INDEPENDENT AUDITOR’S REPORT (CONTINUED)
5.2. Revenue recognition
Key audit matter
description
Interest income from loans advanced totalled £8.6 million for the year ended 31 January 2022
(2021:£9.7 million), with further other income of £1.0 million (2021: £0.3 million) recognised as a result
of repayments (see note 5 to the financial statements). Management applies the effective interest rate
(‘EIR’) method to amortise any premium/discount over the loan asset life with further assumptions made
as to these loan assets’ future cash flows.
There is a risk that revenue may be recognised in the incorrect period due to differences in timing
between cash receipts of interest and investment principal repayments and the application of the EIR
method. Incorrect treatment of any upfront fees and exit fees and the impact of ECL assessment on the
EIR calculation may significantly affect the level of distributable income. In addition, the existence of
prepayments and exits arising from early repayments in the period will have an impact on the recorded
income and may not be correctly recorded in accordance with the EIR requirements set out in IFRS 9.
The timing of recognition timing of these one-off fees including the consideration of any contractual
restriction is considered a potential fraud risk given the involvement of management judgement.
The key accounting policies related to this key audit matter can be found in note (2f) and note 3 to
the financial statements. This matter is also described on page 31 of the Report of the Audit and
Risk Committee.
How the scope of our
audit responded to the
key audit matter
We have:
O Obtained an understanding of the relevant controls relating to the recognition of interest income;
O Tested relevant controls relating to recognition of interest income;
O Assessed management’s judgements in respect in respect of the inclusion of the upfront fees and exit
fees in the EIR calculation;
O 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;
O Evaluated the impact of any loan loss provisioning on the recognition and valuation of interest income
recorded in the period;
O Evaluated the impact of any prepayments or exit fees from early repayments on the interest income
recorded in the period; and
O Agreed cash receipts in the year to and from the bank statements.
Key observations
Having carried out the procedures, we determined that interest income and loan related fees are
appropriately accounted for in the financial statements.
6. OUR APPLICATION OF MATERIALITY
6.1. Materiality
We define materiality as the magnitude of misstatement in the financial statements that makes it probable that the economic
decisions of a reasonably knowledgeable person would be changed or influenced. We use materiality both in planning the scope of
our audit work and in evaluating the results of our work.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
Group Materiality
£1.8 million (2021: £2.4 million)
Basis for determining
materiality
2% (2021: 2%) of net asset value
We have applied a lower materiality threshold of £427,000 (2021: £497,000) to the income
statement based on 5% of income from loans (2021: 5% of net income).
Rationale for the
benchmark applied
We believe net asset value is the most appropriate benchmark as it is considered one of the
principal considerations for members of the Group in assessing financial performance.
A lower threshold has been used for loan interest income and expenses as such transactions
are important to investors and provide the profit to support distributions to shareholders.
NAV
£87.8m
Group materiality
£1.8m
Audit and Risk Committee
reporting threshold
£0.1m
NAV
Group materiality
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INDEPENDENT AUDITOR’S REPORT (CONTINUED)
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:
O our risk assessment, including our assessment of the Group’s overall control environment; and
O our past experience of the audit, which has indicated a low number of corrected and uncorrected misstatements identified in
prior periods.
6.3. Error reporting threshold
We agreed with the Audit and Risk Committee that we would report to the Committee all audit differences in excess of £87,000
(2021: £119,000), as well as differences below that threshold that, in our view, warranted reporting on qualitative grounds. We also
report to the Audit and Risk Committee on disclosure matters that we identified when assessing the overall presentation of the
financial statements.
7. AN OVERVIEW OF THE SCOPE OF OUR AUDIT
7.1. Scoping
Our audit was scoped by obtaining an understanding of the Group and its environment, including internal control, and assessing
the risks of material misstatement for the Company. Audit work to respond to the risks of material misstatement was performed
directly by the Group audit engagement team.
We performed a full scope audit of the Group. Our audit focus for the current year was only on the parent entity. This is because
during the year, the board dissolved the Luxemburg subsidiary which was holding all the loan investments for the Group. All
investments have been transferred to the Company.
At the Group level, we have tested the consolidation process and carried out analytical procedures to confirm our conclusion that
there were no additional risks of material misstatement on the aggregated financial information of the Group.
7.2. Our consideration of the control environment
The Company is administered by a third party Guernsey regulated service provider. As part of our audit, we obtained an
understanding of relevant controls established at the service provider.
8. OTHER INFORMATION
The other information comprises the information included in the annual report, other than the financial statements and our
auditor’s report thereon. The Directors are responsible for the other information contained within the annual report.
Our opinion on the financial statements does not cover the other information and we do not express any form of assurance
conclusion thereon.
Our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent
with the financial statements or our knowledge obtained in the course of the audit, or otherwise appears to be materially misstated.
If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether this gives
rise to a material misstatement in the financial statements themselves. If, based on the work we have performed, we conclude that
there is a material misstatement of this other information, we are required to report that fact.
We have nothing to report in this regard.
9. RESPONSIBILITIES OF DIRECTORS
As explained more fully in the Directors’ responsibilities statement, the Directors are responsible for the preparation of the financial
statements and for being satisfied that they give a true and fair view, and for such internal control as the Directors determine is
necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the Directors are responsible for assessing the Group’s ability to continue as a going concern,
disclosing as applicable, matters related to going concern and using the going concern basis of accounting unless the Directors either
intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so.
10. AUDITOR’S RESPONSIBILITIES FOR THE AUDIT OF THE FINANCIAL STATEMENTS
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is
a high level of assurance but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the
aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial
statements.
A further description of our responsibilities for the audit of the financial statements is located on the FRC’s website at: www.frc.
org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.
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INDEPENDENT AUDITOR’S REPORT (CONTINUED)
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:
O 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;
O 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;
O results of our enquiries of management and the Audit and Risk Committee about their own identification and assessment of the
risks of irregularities;
O any matters we identified having obtained and reviewed the Group’s documentation of their policies and procedures relating to:
– identifying, evaluating and complying with laws and regulations and whether they were aware of any instances of non-compliance;
– detecting and responding to the risks of fraud and whether they have knowledge of any actual, suspected or alleged fraud;
– the internal controls established to mitigate risks of fraud or non-compliance with laws and regulations; and
– 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:
O The assessment of expected credit losses (ECL) on loans advanced; and
O 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:
O 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;
O enquiring of management and the Audit and Risk Committee concerning actual and potential litigation and claims;
O performing analytical procedures to identify any unusual or unexpected relationships that may indicate risks of material
misstatement due to fraud;
O reading minutes of meetings of those charged with governance and reviewing correspondence with Guernsey Financial Services
Commission; and
O 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.
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INDEPENDENT AUDITOR’S REPORT (CONTINUED)
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:
O 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;
O 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;
O the Directors’ statement on fair, balanced and understandable set out on page 22;
O the board’s confirmation that it has carried out a robust assessment of the emerging and principal risks set out on page 28;
O 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
O 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:
O we have not received all the information and explanations we require for our audit; or
O proper accounting records have not been kept by the parent company; or
O 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
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ICG-Longbow Senior Secured UK Property Debt Investments Limited
Annual Report And Consolidated Financial Statements
Other InformationFinancial StatementsGovernanceOverview
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 January 2022
Notes
1 February 2021 to
31 January 2022
£
1 February 2020 to
31 January 2021
£
Income
Income from loans 2 f) 9,310,030 9,655,862
Other fee income from loans 2 g) 207,739 297,979
Income from cash and cash equivalents – 49
Total income 9,517,769 9,953,890
Expenses
Investment Management fees 14 1,165,922 1,195,588
Directors’ remuneration 13 171,375 199,953
Audit fees for the Company 15 46,454 47,355
Audit fees for the Subsidiary 15 – 14,885
Finance cost 18 63,351 95,812
Bank loan Interest 18 – 98,852
Reorganisation Costs 129,941 208,397
Other expenses 17 594,049 677,782
Total expenses 2,171,092 2,538,624
Profit for the year before tax 7,346,677 7,415,266
Taxation charge 4 10,912 4,461
Profit for the year after tax 7,335,765 7,410,805
Total comprehensive income for the year 7,335,765 7,410,805
Basic and diluted Earnings per Share (pence) 9 6.05 6.11
All items within the above statement have been derived from discontinuing activities on the basis of the orderly realisation of the
company’s assets.
The Group had no recognised gains or losses for either period other than those included in the results above, therefore, no separate
statement of other comprehensive income has been prepared.
The accompanying notes form an integral part of these Consolidated Financial Statements.
40
ICG-Longbow Senior Secured UK Property Debt Investments Limited
Annual Report And Consolidated Financial Statements
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at 31 January 2022
The accompanying notes form an integral part of these Consolidated Financial Statements.
Notes
31 January 2022
£
31 January 2021
£
Assets
Loans advanced at amortised cost 5 83,257,529 110,712,112
Trade and other receivables 6 502,485 1,233,834
Cash and cash equivalents 7 4,801,224 8,773,640
Total assets 88,561,238 120,719,586
Liabilities
Other payables and accrued expenses 8 793,223 1,470,447
Total liabilities 793,223 1,470,447
Net assets 87,768,015 119,249,139
Equity
Share capital 10 87,576,589 119,115,310
Retained earnings 191,426 133,829
Total equity attributable to the owners of the Company 87,768,015 119,249,139
Number of Ordinary Shares in issue at year end 10 121,302,779 121,302,779
Net Asset Value per Ordinary Share (pence) 9 72.35 98.31
The Financial Statements were approved by the Board of Directors on 19 May 2022 and signed on their behalf by:
JACK PERRY FIONA LE POIDEVIN
Chairman Director
19 May 2022 19 May 2022
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Annual Report And Consolidated Financial Statements
The accompanying notes form an integral part of these Consolidated Financial Statements.
Other InformationFinancial StatementsGovernanceOverview
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year ended 31 January 2022
Notes
Number
of shares
Ordinary
Share
capital
£
B Share
capital
£
Retained
earnings
£
Total
£
As at 1 February 2021 121,302,779 119,115,310 – 133,829 119,249,139
Share issue – – – – –
Share issue costs – – – – –
Profit for the year – – – 7,335,765 7,335,765
Dividends paid 10 – – – (7,278,168 ) (7,278,168 )
B-Shares issued September 2021 10 121,302,779 (6,671,651 ) 6,671,651 – –
B Shares redeemed & cancelled
September 2021 10 (121,302,779 ) – (6,671,651 ) – (6,671,651 )
B-Shares issued December 2021 10 121,302,779 (7,884,681 ) 7,884,681 – –
B Shares redeemed & cancelled
December 2021 10 (121,302,779 ) – (7,884,681 ) – (7,884,681 )
B-Shares issued January 2022 10 121,302,779 (16,982,389 ) 16,982,389 – –
B Shares redeemed & cancelled
January 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
Notes
Number
of shares
Share
capital
£
B Share
capital
£
Retained
earnings
£
Total
£
As at 1 February 2020 121,302,779 119,115,310 – 1,192 119,116,502
Share issue costs – – – – –
Profit for the period – – – 7,410,805 7,410,805
Dividends paid 10 – – – (7,278,168 ) (7,278,168 )
As at 31 January 2021 121,302,779 119,115,310 – 133,829 119,249,139
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ICG-Longbow Senior Secured UK Property Debt Investments Limited
Annual Report And Consolidated Financial Statements
The accompanying notes form an integral part of these Consolidated Financial Statements.
CONSOLIDATED STATEMENT OF CASH FLOWS
For the year ended 31 January 2022
Notes
1 February 2021 to
31 January 2022
£
1 February 2020 to
31 January 2021
£
Cash flows generated from operating activities
Profit for the period 7,335,765 7,410,805
Adjustments for non-cash items & working capital movements:
Movement in other receivables 731,350 51,632
Movement in other payables and accrued expenses (675,545 ) (522,614 )
Movement in tax payable (1,679 ) (9,090 )
Loan amortisation (1,321,983 ) (512,292 )
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
ICG-Longbow Senior Secured UK Property Debt Investments Limited
Annual Report And Consolidated Financial Statements
43
Other InformationFinancial StatementsGovernanceOverview
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 January 2022
1. GENERAL INFORMATION
in Guernsey under the Companies Law on 29 November 2012 with registered number 55917 as a closed-ended investment company .
The registered office address is Floor 2, PO Box 286, Trafalgar Court, Les Banques, St Peter Port, Guernsey, GY1 4LY .
The Company’s shares were admitted to the Premium Segment of the Official List and to trading on the Main Market of the London
Stock Exchange on 5 February 2013.
The Consolidated Financial Statements comprise the Financial Statements of the Group as at 31 January 2022.
In line with the revised Investment Objective and Policy approved by shareholders in the Extraordinary General Meeting in January
2021, the Company is now undertaking an orderly realisation of its investments. As sufficient funds become available the Board
intends to return capital to shareholders, taking account of the Company’s working capital requirements and funding commitments.
ICG Alternative Investment Limited is the external discretionary investment manager. The Board resolved to simplify its corporate
structure by collapsing the Luxembourg subsidiary company which has historically acted as the lender for the Group’s investments.
The subsidiary was dissolved on 18 January 2022. Under Luxembourg Law, and as sole shareholder, the Company has taken
responsibility for the remaining assets and liabilities of its subsidiary following its dissolution.
2. ACCOUNTING POLICIES
a) Basis of preparation
The Financial Statements for the year ended 31 January 2022 have been prepared in accordance with IFRS as adopted in the UK and
the Companies Law and on the historical cost basis as modified for the measurement of certain financial instruments.
In the preparation of these Financial Statements, the Company followed the same accounting policies and methods of computation
as compared with those applied in the previous year.
At the date of approval of these Financial Statements, the Group has reviewed the following new and revised IFRS standards and
interpretations that have been issued and are now effective:
The adoption of these standards and interpretations has had no impact on the Consolidated Financial Statements of the Group.
Effective for periods
commencing
IFRS 7 Financial Instruments Disclosures (Amendments regarding the interest rate
benchmark rate)
1 January 2021
IFRS 9 Financial Instruments (Amendments regarding the interest rate benchmark rate) 1 January 2021
IFRS 3 Business Combinations (Amendments regarding references to the Conceptual Framework
for Financial Reporting)
1 January 2022
IFRS 9 Financial Instruments (Amendments regarding fees to be included in the 10% test for
derecognition of financial liabilities)
1 January 2022
The following new and revised IFRS standards and interpretations that have been issued and are not yet effective:
Effective for periods
commencing
IAS 1 Presentation of Financial Statements (Amendments regarding the liabilities classification
and materiality)
1 January 2023
IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors (Amendments regarding
the definition of Accounting Estimates)
1 January 2023
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.
44
ICG-Longbow Senior Secured UK Property Debt Investments Limited
Annual Report And Consolidated Financial Statements
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. ACCOUNTING POLICIES (CONTINUED)
c) Basis of consolidation
The Consolidated Financial Statements incorporate the Financial Statements of the Company and entities controlled by the Company
(its subsidiaries) made up to 31 January each year. Control is achieved where the Company has the power to govern the financial and
operating policies of an investee entity so as to obtain benefits from its activities.
The results of subsidiaries acquired, disposed of, or dissolved during the year are included in the Consolidated Statement of
Comprehensive Income from the effective date of acquisition or up to the effective date of disposal, or dissolution, as appropriate.
Where necessary, adjustments are made to the Financial Statements of subsidiaries to bring the accounting policies used into line
with those used by the Group. All intra-group transactions, balances, income and expenses are eliminated on consolidation.
The subsidiary, ICG Longbow Senior Debt S.A., was consolidated into the Company’s accounts, and was liquidated on 18 January
2022. The Company’s financial statements are prepared on a consolidated basis as the Group existed for the majority of the financial
year. Accordingly, when a parent had had subsidiaries at any time during a reporting period, IFRS 10 requires consolidated financial
statements to be presented (unless any of the exemptions in IFRS 10 are available).
d) Functional and presentation currency
The Financial Statements are presented in Pounds Sterling, which is the functional currency as well as the presentation currency as
all the Group’s investments and most transactions are denominated in Pounds Sterling.
e) Foreign currencies
Transactions in foreign currencies are translated at the foreign exchange rate ruling at the date of the transaction. Monetary assets
and liabilities denominated in foreign currencies at the reporting date are translated at the foreign exchange rate ruling at that date.
Foreign exchange differences arising on translation are recognised in Consolidated Statement of Comprehensive Income.
f) Interest income
In accordance with IFRS 9 interest income is recognised when it is probable that the economic benefits will flow to the Company
and the amount of revenue can be measured reliably. Interest income is accrued on a time basis, by reference to the principal
outstanding and at the effective interest rate applicable, which is the rate that exactly discounts estimated future cash receipts
through the expected life of the financial asset to that asset’s net carrying amount on initial recognition. Arrangement and exit fees
which are considered to be an integral part of the contract are included in the effective interest rate calculation.
Interest on cash and cash equivalents is recognised on an accruals basis.
g) Other fee income
Other fee income includes prepayment and other fees due under the contractual terms of the debt instruments. Such fees and related
cash receipts are not considered to form an integral part of the effective interest rate and are accounted for on an accruals basis.
h) Operating expenses
Operating expenses are the Company’s costs incurred in connection with the on-going management of the Company’s investments
and administrative costs. Operating expenses are accounted for on an accruals basis.
i) Taxation
The Company is exempt from Guernsey taxation under the Income Tax (Exempt Bodies) (Guernsey) Ordinance 1989 for which it pays
an annual fee of £1,200 which is included within other expenses. The Company is required to apply annually to obtain exempt status
for the purposes of Guernsey Taxation.
The Group was liable to Luxembourg tax arising on the results and capitalisation of its Luxembourg registered entity which is
included in tax charge for the year (see Note 4).
j) Dividends
Dividends payable are recognised as distributions in the financial statements when the Company’s obligation to make payment
has been established. Dividends paid during the year are disclosed in the Consolidated Statement of Changes in Equity. Dividends
declared post year end are disclosed in Note 10.
k) Segmental reporting
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker.
The chief operating decision-maker, who is responsible for allocating resources and assessing performance of the operating
segments, has been identified as the Board of Directors, as a whole. The key measure of performance used by the Board to assess
the Company’s performance and to allocate resources is the total return on the Company’s Net Asset Value, as calculated under
IFRS, and therefore no reconciliation is required between the measure of profit or loss used by the Board and that contained in the
Financial Statements.
For management purposes, the Company is organised into one main operating segment, being the provision of a diversified portfolio
of UK commercial property backed senior debt investments.
The majority of the Company’s income is derived from loans secured on commercial and residential property in the United Kingdom.
Due to the Company’s nature it has no employees.
The Company’s results do not vary significantly during reporting periods as a result of seasonal activity.
45
ICG-Longbow Senior Secured UK Property Debt Investments Limited
Annual Report And Consolidated Financial Statements
Other InformationFinancial StatementsGovernanceOverview
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. ACCOUNTING POLICIES (CONTINUED)
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.
46
ICG-Longbow Senior Secured UK Property Debt Investments Limited
Annual Report And Consolidated Financial Statements
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. ACCOUNTING POLICIES (CONTINUED)
l) Financial instruments (continued)
In particular, the following information is taken into account when assessing whether credit risk has increased significantly
since initial recognition:
O an actual or expected significant deterioration in the financial instrument’s external (if available) or internal credit rating;
O significant deterioration in external market indicators of credit risk for a particular financial instrument,
O 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;
O 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;
O any actual or expected significant deterioration in the operating results of the debtor;
O significant increases in credit risk on other financial instruments of the same debtor; or
O 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:
O when there is a breach of financial covenants by the debtor; or
O 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.
47
ICG-Longbow Senior Secured UK Property Debt Investments Limited
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Other InformationFinancial StatementsGovernanceOverview
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. ACCOUNTING POLICIES (CONTINUED)
l) Financial instruments (continued)
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.
O Stage 1 covers financial assets that have not deteriorated significantly in credit risk since initial recognition;
O Stage 2 covers financial assets that have significantly deteriorated in credit quality since initial recognition; and
O 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.
48
ICG-Longbow Senior Secured UK Property Debt Investments Limited
Annual Report And Consolidated Financial Statements
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. ACCOUNTING POLICIES (CONTINUED)
l) Financial instruments (continued)
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.
49
ICG-Longbow Senior Secured UK Property Debt Investments Limited
Annual Report And Consolidated Financial Statements
Other InformationFinancial StatementsGovernanceOverview
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. CRITICAL ACCOUNTING JUDGEMENTS AND ESTIMATES IN APPLYING THE GROUP’S ACCOUNTING POLICIES (CONTINUED)
Revenue recognition is considered a significant accounting judgement and estimate that the Directors make in the process of
applying the Company’s accounting policies (see Notes 2e) and 2 f)).
The Directors also make estimates in determining the fair value of prepayment options embedded within the contracts for loans
advanced. The key factors considered in the valuation of prepayment options include the exercise price, the interest rate of the host
loan contract, differential to current market interest rates, the risk free rate of interest, contractual terms of the prepayment option,
and the expected term of the option. Given the low probability of exercise and undeterminable exercise date, the value attributed to
these embedded derivatives is considered to be £nil (31 January 2021: £nil).
4. TAXATION
The Group’s tax charge of £10,912 (31 January 2021: £4,461) consists of taxes levied on Luxco. The net wealth tax charge was
£10,912 (including adjustments of previous years of £3,713) for the financial year ended 31 January 2022 (31 January 2021: £4,461).
The net wealth tax charge, set at a rate of 0.5% (31 January 2021: 0.5%), on Luxco’s global assets (net worth), is determined as at
the 1 January of each calendar year. The corporate income tax charge, including corporate income tax and municipal business tax,
amounted to £nil for 2022 (31 January 2021: £nil) set by the Luxembourg Tax Administration.
1 February 2021 to
31 January 2022
£
1 February 2020 to
31 January 2021
£
Net wealth tax – current year 7,199 4,461
Net wealth tax – prior year 3,713 –
10,912 4,461
5. LOANS ADVANCED
(i) Loans advanced
31 January 2022
Principal
advanced
£
31 January 2022
At amortised
cost
£
31 January 2021
Principal
advanced
£
31 January 2021
At amortised
cost
£
Northlands 10,431,142 10,548,056 9,578,514 9,542,788
Quattro 5,956,304 5,984,263 8,853,459 8,974,982
Affinity 17,299,963 17,706,033 16,700,000 17,010,855
Southport 15,000,000 15,348,830 16,059,285 16,157,217
RoyaleLife 25,382,017 27,145,110 25,382,017 26,174,473
LBS 6,474,000 6,525,237 6,283,119 6,271,791
Halycon – – 5,732,465 5,864,704
Knowsley – – 7,750,000 7,747,844
GMG – – 12,981,133 12,967,458
80,543,427 83,257,529 109,319,992 110,712,112
(ii) Valuation considerations
As noted above the Company is now in the process of an orderly wind down. It remains the intention of the Manager and Directors
to hold loans through to their repayment date. The Directors consider that the carrying value amounts of the loans, recorded
at amortised cost, are approximately equal to their fair value. For further information regarding the status of each loan and the
associated risks see the Investment Manager’s Report, the Statement of Principal Risks on pages 10 to 12 and Note 11.
Amortised cost is calculated using the effective interest rate method which takes into account all contractual terms (including
arrangement and exit fees) that are an integral part of the loan agreement. As such fees are taken into account when determining
initial net carrying value, their recognition in profit or loss is effectively spread over the life of the loan. The Company’s accounting
policy on the measurement of financial assets is discussed further in Note 2.
The Company’s investments are in the form of bilateral loans and, as such, are illiquid investments with no readily available
secondary market. Whilst the terms of each loan includes repayment and prepayment fees, in the absence of a liquid secondary
market, the Directors do not believe a willing buyer would pay a premium to the par value of the loans to recognise such terms and
as such the amortised cost is considered representative of the fair value of the loans.
50
ICG-Longbow Senior Secured UK Property Debt Investments Limited
Annual Report And Consolidated Financial Statements
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. LOANS ADVANCED (CONTINUED)
(i) Loans advanced (continued)
Each property on which investments are secured was subject to an independent, third party valuation at the time the investment
was entered into. All investments are made on a hold to maturity basis. Each investment is monitored on a quarterly basis, in line
with the underlying property rental cycle, including a review of the performance of the underlying property security. Beyond the
impact of Covid-19 discussed below, no market or other events have been identified through this review process which would result
in a fair value of the investments significantly different to the carrying value.
Whilst the forced closure of much of the UK economy due to Covid-19 lockdowns impacted rent collection and business plan
progress on a number of investments, resulting in interest deferral or capitalisation and in some cases term extensions, the
balance outstanding in each case remains at sufficient discount to the value of the underlying real estate on which they are secured.
The Investment Manager has reviewed the plans in place and prospects for repayment of each loan over its residual term and
the Directors do not consider any loan to be subject to specific impairment, or for there to be a risk of not achieving full recovery,
including arears of interest over the residual term of each loan.
(iii) IFRS 9 – Impairment of Financial Assets
In accordance with the Company’s Accounting Policy for Financial Instruments as set out in Note 2 l) (iv) above, the Board is
required to consider the future potential impairment of the loan portfolio. Accordingly, the internal credit rating of each loan as
at 31 January 2022 has been reviewed. Of the two loans identified as Stage 2 assets in the previous reporting year one has since
repaid in full while the other is still identified as Stage 2. An additional loan showed a deterioration in their internal credit rating
since 31 January 2021 and has been identified as a stage 2 asset. One further loan, Affinity, was identified as Stage 2 in the interim
accounts but has since shown material credit improvement and is no longer considered to be Stage 2. All other loans showed no
deterioration, and were considered as Stage 1 assets with no ECL over a twelve month period.
As at 31 January 2022
Stage 1 Stage 2 Stage 3 Total
Principal advanced 59,587,122 20,956,304 – 80,543,426
Gross carrying value 61,924,436 21,333,093 – 83,257,529
Less ECL allowance – – – –
61,924,436 21,333,093 – 83,257,529
As at 31 January 2021
Stage 1 Stage 2 Stage 3 Total
Principal advanced 84,407,248 24,912,744 – 109,319,922
Gross carrying value 85,579,913 25,132,199 – 110,712,112
Less ECL allowance – – – –
85,579,913 25,132,199 – 110,712,112
Two loans were considered as Stage 2 loans as at 31 January 2022 (31 January 2021 two loans)
The Stage 2 loan, Quattro, was identified as Stage 2 since January 2019 reflecting delays in delivery of its business plan and poor
interest cover. Interest arrears reported have now been resolved, an element of the business plan has been delivered resulting in
a partial repayment of the loan and a material improvement has been observed in the remaining property value. More recently the
Sponsor has secured additional planning consents at one of the remaining properties which will further enhance value and has
enabled the borrower to secure terms for a refinance which would see the Company repaid in full. The refinance was completed,
and the loan repaid in full including accrued interest and fees, in April 2022.
The Second stage 2 loan, Southport, was recognised as Stage 2 for the first time this period following a downward valuation of
the hotel which has been adversely impacted by the intermittent Covid-19 lockdowns and related trading restrictions. The hotel
recorded record trading results during summer 2021, which enabled a catch up in interest arrears, and reports a strong order book
for 2022. Whilst diminished, the valuation headroom and improved trading outlook remain sufficient for the Directors to expect the
loan to be repaid in full at maturity.
The Affinity loan, considered as Stage 2 at 31 July 2021, has shown strong lettings in recent months and an improvement in
valuation as a result leading to a credit rating upgrade.
All other loans have shown no material deterioration since inception or over the course of the financial year and were considered as
Stage 1 assets with no ECL over a twelve month period.
A reconciliation of the ECL allowance was not presented as the allowance recognised at period end was £nil.
51
ICG-Longbow Senior Secured UK Property Debt Investments Limited
Annual Report And Consolidated Financial Statements
Other InformationFinancial StatementsGovernanceOverview
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. LOANS ADVANCED (CONTINUED)
(iv) IFRS 9 Impairment – Stress Analysis
As discussed above, the Company’s ECL is a function of the probability of default (“PD”) and loss given default (“LGD”), where PD
is benchmarked against ICG Alternative Investment’s internal credit rating model and LGD is based on ICG Alternative Investment’s
track record of over £5.3 billion of senior and whole loans which would satisfy the Company’s investment parameters.
With the exception of the Quattro loan which was extended, and has subsequently repaid, all loans are expected to repay in full
within their residual term, the Company has performed stress analysis on its expected credit loss by considering the impact of
a one, two and three grade deterioration in the credit rating of each loan as if they were all Stage 2 assets and considered the
impact of impairment over the life of the loans.
As discussed above, the Covid-19 pandemic has impacted the performance of a number of loans with a resultant reduction in
interest cover, and either arrears or capitalisation of interest leading to higher LTV exposures, the Leisure sector in particular
where properties have been subject to forced closure and operating restrictions. Within ICG’s benchmark portfolio, the Covid-19
pandemic and its impact on valuation of the retail sector properties in particular has reduced ICG Alternative Investment’s recovery
expectations for non-performing loans across its wider benchmark portfolio, although it should be noted that the Company has very
limited exposure to the retail sector. As a result, the application of stress tests in accordance with the Company’s policy results in a
significantly higher risk profile than pre Covid-19, reflecting ICG’s loss experience.
A three-grade stress on the portfolio would result in two loans (Quattro and Southport) moving to doubtful with a materially
increased probability of default and loss given default leading to 12 month expected aggregate losses of £3.0 million, of which
£754,000 was attributed to the Quattro loan which has now repaid in full.
The majority of loans still benefit from strong equity value protection and could withstand a 25% fall in property values before being
at risk of loss. The exception is Southport where the current LTV is 85.7% and where a 20% fall in underlying property values would
result in a loss of approximately £1.0million.
Stress test impact on Expected Credit Loss at 31 January 2022
ECL Impact 31 January 2021
One grade deterioration in credit rating £166,000 £473,000
Two grade deterioration in credit rating £654,000 £925,000
Three grade deterioration in credit rating £3,137,000 £2,819,000
The remaining loan portfolio is set out in 4(i) above and the current performance of each loan is discussed in the Investment
Manager’s report. The current aggregate exposure by internal credit rating of the loan portfolio is set out in note 11.
6. TRADE AND OTHER RECEIVABLES
31 January 2022
£
31 January 2021
£
Other receivables 502,485 1,233,834
Other receivables include accrued interest on loans receivable. There were no factors to indicate significant increase in credit risk
or objective evidence of impairment or default at year end, hence no lifetime ECL was recognised on the balances. Please see
comments in note 5 above in respect of the loan portfolio.
The Company has management policies in place to ensure that all receivables are received within the credit time frame. The
Directors consider that the carrying amount of all receivables approximates to their fair value.
52
ICG-Longbow Senior Secured UK Property Debt Investments Limited
Annual Report And Consolidated Financial Statements
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. CASH AND CASH EQUIVALENTS
Cash and cash equivalents comprise cash held by the Company and short-term bank deposits held with maturities of twelve months
or less. The carrying amounts of these assets approximate their fair value.
The table below shows the Company’s cash balances and the banks in which they are held:
31 January 2022
£
31 January 2021
£
Royal Bank of Scotland Global Banking (Luxembourg) S.A. 1,266,096 6,361,893
Lloyds Bank International Limited 396,016 109,769
Barclays Bank plc 396,056 109,835
Butterfield Bank (Guernsey) Limited
(1)
396,076 109,738
Royal Bank of Scotland International Limited 2,346,980 2,082,405
4,801,224 8,773,640
(1)
Formerly ABN Amro CI
8. OTHER PAYABLES AND ACCRUED EXPENSES
31 January 2022
£
31 January 2021
£
Investment Management fees (see Note 14) 289,107 897,928
Taxes payable – (7,411)
Directors’ remuneration (see Note 13) 31,250 45,995
Administration fees (see Note 14) 22,188 35,907
Broker fees 51,650 25,825
Audit fees 29,723 50,664
Other expenses 44,419 17,014
Reorganisation costs – 171,397
Trade creditors 324,886 233,128
793,223 1,470,447
Trade creditors comprise amounts payable to borrowers. The Company has management policies in place to ensure that all
payables are paid within the credit time frame. The Directors consider that the carrying amount of all payables approximates to
their fair value.
9. EARNINGS PER SHARE AND NET ASSET VALUE PER SHARE
Earnings per share
1 February 2021
to 31 January 2022
1 February 2020
to 31 January 2021
Profit for the year (£) 7,335,765 7,410,805
Weighted average number of Ordinary Shares in issue 121,302,779 121,302,779
Basic and diluted EPS (pence) 6.05 6.11
Adjusted basic and diluted EPS (pence) 5.25 6.11
The calculation of basic and diluted earnings per share is based on the profit for the year and on the weighted average number of
Ordinary Shares in issue in for the year ended 31 January 2022.
The calculation of adjusted basic and diluted earnings per share is based on the profit for the year, adjusted for one-off other fee
income during the year totalling £207,739 (31 January 2021: £nil).
There are no dilutive shares in issue at 31 January 2022 (31 January 2021: none).
53
ICG-Longbow Senior Secured UK Property Debt Investments Limited
Annual Report And Consolidated Financial Statements
Other InformationFinancial StatementsGovernanceOverview
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. EARNINGS PER SHARE AND NET ASSET VALUE PER SHARE (CONTINUED)
Net Asset Value per share
31 January 2022 31 January 2021
NAV (£) 87,768,015 119,249,139
Number of Ordinary Shares in issue 121,302,779 121,302,779
NAV per share (pence) 72.35 98.31
The calculation of NAV per share is based on Net Asset Value and the number of Ordinary Shares in issue at the year end.
10. SHARE CAPITAL
The authorised share capital of the Company is represented by an unlimited number of Ordinary Shares with or without a par value
which, upon issue, the Directors may designate as (a) Ordinary Shares; (b) B Shares; and (c) C Shares, in each case of such classes
and denominated in such currencies as the Directors may determine.
31 January 2022
Number of shares
31 January 2021
Number of shares
Authorised
Ordinary Shares of no par value Unlimited Unlimited
B Shares of no par value Unlimited Unlimited
Total No Total No
Ordinary Shares 121,302,779 121,302,779
B Shares
B Shares issued September 2021 121,302,779 –
B Shares redeemed and cancelled September 2021 (121,302,779) –
B Shares issued December 2021 121,302,779 –
B Shares redeemed and cancelled December 2021 (121,302,779) –
B Shares issued January 2022 121,302,779 –
B Shares redeemed and cancelled January 2022 (121,302,779) –
B Shares – –
£ £
Share capital brought forward 119,115,310 119,115,310
Repaid in the year (31,538,721) –
Share capital carried forward 87,576,589 119,115,310
Dividends
Dividends are recognised by the Company in the quarterly NAV calculation following the declaration date. A summary of the
dividends declared and/or paid during the year ended 31 January 2022 and 31 January 2021 are set out below:
1 February 2021 to 31 January 2022
Dividend
per share
Pence
Total dividend
£
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
54
ICG-Longbow Senior Secured UK Property Debt Investments Limited
Annual Report And Consolidated Financial Statements
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. SHARE CAPITAL (CONTINUED)
Dividends (continued)
1 February 2020 to 31 January 2021
Dividend
per share
Pence
Total
dividend
£
Interim dividend in respect of quarter ended 31 January 2020 1.50 1,819,542
Interim dividend in respect of quarter ended 30 April 2020 1.50 1,819,542
Interim dividend in respect of quarter ended 31 July 2020 1.50 1,819,542
Interim dividend in respect of quarter ended 31 October 2020 1.50 1,819,542
6.00 7,278,168
Following shareholder approval of proposed changes to the Company’s Investment Objectives and Investment Policy which will
allow an orderly realisation of the Company’s assets and return of capital to shareholders, the Board expects the Company to
continue the payment of quarterly dividends whilst it remains prudent to do so. The dividend payable per Ordinary Share will
however reduce over time as assets are realised and as capital is returned to shareholders.
Return of Capital
Return of Capital is recognised by the Company in the quarterly NAV calculation following the declaration date.
The Directors announced three returns in the year and have returned a total amount of 26.00 pence per Ordinary Share to
shareholders, being £31,538,721 in total based on the current number of Ordinary Shares in issue. This return of capital was
effected by way of an issue of redeemable B Shares to existing shareholders pro rata to their shareholding on the record date set
out below and the subsequent redemption of those B Shares.
1 February 2021 to 31 January 2022
Return of Capital
per share
Pence
Total Return
of Capital
£
Return of Capital September 2021 5.50 6,671,651
Return of Capital December 2021 6.50 7,884,681
Return of Capital January 2022 14.00 16,982,389
26.00 31,538,721
Rights attaching to Shares
The Company has a single class of Ordinary Shares which are not entitled to a fixed dividend. The company had three issues of
redeemable B shares which were redeemed throughout the year on a Return of Capital payment to shareholders of the redeemable
B shares. At any General Meeting of the Company each Ordinary Shareholder is entitled to have one vote for each share held. The
Ordinary Shares also have the right to receive all income attributable to those shares and participate in distributions made and such
income shall be divided pari passu among the holders of Ordinary Shares in proportion to the number of Ordinary Shares held by them.
The Company’s Articles include a B Share mechanism for returning capital to Shareholders and following Shareholder approval
on 14 January 2021, the Company has and will continue to utilise this mechanism in future. When the Board determines to return
capital to Shareholders, the Company has issued B Shares, paid up out of the Company’s assets, to existing Shareholders pro
rata to their holding of Ordinary Shares at the time of such issue. The amount paid up on the B Shares will be equal to the cash
distribution to be made to Shareholders via the B Share mechanism. The B Shares shall be redeemable at the option of the
Company following issue and the redemption proceeds (being equal to the amount paid up on such B Shares) paid to the holders of
such B Shares on such terms and in such manner as the Directors may from time to time determine. It is therefore expected that
the B Shares will only ever be in issue for a short period of time and will be redeemed for cash shortly after their issue in order to
make the return of capital to Shareholders.
It is intended that following each return of capital the Company will publish a revised estimated Net Asset Value and Net Asset Value
per Ordinary Share based on the prevailing published amounts adjusted to take into account the return of capital.
The number of Ordinary Shares in issue will remain unchanged.
11. RISK MANAGEMENT POLICIES AND PROCEDURES
The Company through its investment in senior loans is exposed to a variety of financial risks, including market risk (including
currency risk and interest rate risk), credit risk and liquidity risk. The Company’s overall risk management procedures focus on the
unpredictability of operational performance of the borrowers and on property fundamentals and seek to minimise potential adverse
effects on the Company’s financial performance.
The Directors are ultimately responsible for the overall risk management approach within the Company. The Directors have
established procedures for monitoring and controlling risk. The Company has investment guidelines that set out its overall business
strategies, its tolerance for risk and its general risk management philosophy.
55
ICG-Longbow Senior Secured UK Property Debt Investments Limited
Annual Report And Consolidated Financial Statements
Other InformationFinancial StatementsGovernanceOverview
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. RISK MANAGEMENT POLICIES AND PROCEDURES (CONTINUED)
In addition, the Investment Manager monitors and measures the overall risk bearing capacity in relation to the aggregate risk
exposure across all risk types and activities. Further details regarding these policies are set out below:
Market risk
Market risk includes market price risk, currency risk and interest rate risk. If a borrower defaults on a loan and the real estate
market enters a downturn it could materially and adversely affect the value of the collateral over which loans are secured. This risk
is considered by the Board to be as a result of credit risk as it relates to the borrower defaulting on the loan.
Market risk is moderated through a careful selection of loans within specified limits. The Company’s overall market position is
monitored by the Investment Manager and is reviewed by the Directors on an on-going basis.
Currency risk
The Company’s currency risk exposure is considered to be immaterial as all investments have been and will be made in Pounds
Sterling, with immaterial expenses incurred in Euro by Luxco. With the liquidation of Luxco finalised on 18 January 2022, the
Company does not anticipate being exposed to currency risk henceforth.
Interest rate risk
Interest rate risk is the risk that the value of financial instruments and related income from cash and cash equivalents will fluctuate
due to changes in market interest rates.
The majority of the Company’s financial assets are loans advanced, which are at a fixed rate of interest, and cash and cash
equivalents. The Company’s interest rate risk is limited to interest earned on cash deposits.
The following table shows the portfolio profile of the material financial assets as at 31 January 2022 and 31 January 2021:
31 January 2022
£
31 January 2021
£
Floating rate
Cash 4,801,224 8,773,640
Fixed rate
Loans advanced at amortised cost 83,257,529 110,712,112
88,058,753 119,485,752
The timing of interest payments on the loans advanced is summarised in the table on page 57.
Credit risk
Credit risk is the risk that a counterparty will be unable to pay amounts in full when due. The Company’s main credit risk exposure
are on the loans advanced, where the Company invests in secured senior debt, and in respect of monies held with banks.
Outside of its investment portfolio, discussed below, in order to minimise credit risk, the Company has adopted a policy, where
possible, of only dealing with creditworthy counterparties as a means of mitigating the risk of financial loss from defaults. The
Company only transacts with entities that are rated the equivalent of investment grade and investments in these instruments,
including bills of exchange, debentures and redeemable notes, where the counterparties have minimum BBB- credit rating,
are considered to have low credit risk for the purpose of impairment assessment. The credit rating information is supplied by
independent rating agencies where available and, if not available, the Company uses other publicly available financial information
and its own trading records to rate its major customers. The Company’s exposure and the credit ratings of its counterparties are
continuously monitored and the aggregate value of transactions concluded is spread amongst approved counterparties.
With respect to its loan portfolio the Company has adopted the Investment Manager’s internal credit rating methodology to assess
and monitor the creditworthiness of each loan and resultant credit risk, PD and LGD. The model takes into account factors below
such as:
O financial risk of the borrower – considers the financial position of the borrower in general and considers LTV, ICR and amortisation
profile/debt maturity;
O property risk – where the property location, quality (specification, condition) and letting risk are considered;
O income risk – the income risk category considers, tenant diversity, tenant credit quality and lease length ratio, sector diversity and
geographical diversity; and
O borrower/structure risk – where factors such as history of the borrower/sponsor, loan control (security package) and covenants
are considered.
56
ICG-Longbow Senior Secured UK Property Debt Investments Limited
Annual Report And Consolidated Financial Statements
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. RISK MANAGEMENT POLICIES AND PROCEDURES (CONTINUED)
Credit risk (continued)
The credit rating methodology is dynamic and recognises the interplay between diversity and quality as a risk mitigant. The
Company’s current credit risk grading framework comprises the following categories and portfolio weightings:
Grade Description Staging Basis for recognising ECL
Maximum
credit risk
exposure
2022
Maximum
credit risk
exposure
2021
AAA, AA+ Virtually no risk Stage 1 12 month ECL – –
AA to A Low risk Stage 1 12 month ECL – –
BBB Moderate risk Stage 1 12 month ECL 10,548,056 9,542,788
BB Average risk Stage 1 12 month ECL 49,155,980 66,019,869
B Acceptable risk Stage 1 12 month ECL 20,956,304 35,149,455
CCC+ Borderline Risk Stage 2 Lifetime ECL-not credit impaired – –
CCC Special Mention Stage 2 Lifetime ECL-not credit impaired – –
CC Substandard Stage 3 Lifetime ECL-credit impaired – –
D Doubtful Stage 3 Lifetime ECL-credit impaired – –
D Loss N/A Amount is written off – –
The Company has used the Investment Manager’s loss experience to benchmark investment performance and potential impairment
for both Stage 1 and Stage 2 loans under IFRS 9 considering both probability of default and expected credit loss. The total exposure to
credit risk arises from default of the loan counterparty and the carrying amounts of other financial assets best represent the maximum
credit risk exposure at the year-end date, including the principal advanced on loans, interest outstanding on loans and cash and cash
equivalents. As at 31 January 2022, the maximum credit risk exposure was £88,344,670 (31 January 2021: £118,093,632).
The Investment Manager has adopted procedures to reduce credit risk exposure through the inclusion of covenants in loans issued,
along with conducting credit analysis of the counterparties, their business and reputation, which is monitored on an on-going basis.
The Investment Manager routinely analyses the profile of the Company’s underlying risk in terms of exposure to significant tenants,
reviewing market data and forecast economic trends to benchmark borrower performance and to assist in identifying potential
future stress points.
Collateral held as security
Each loan is secured by a charge of commercial real estate property pledged by the borrower. The current valuations for these
properties and LTV information for each loan (and for the portfolio as a whole) are detailed in the loan summary pages in the
Investment Manager’s report on pages 10 to 12.
To diversify credit risk the Company maintains its cash and cash equivalents across four (31 January 2021: four) different banking
groups as shown below. In order to cover operational expenses, a working capital balance at Royal Bank of Scotland International
Limited is maintained and monitored. This is subject to the Company’s credit risk monitoring policies.
The table below shows the Company’s cash balances and the credit rating for each counterparty:
Rating
31 January 2022
£
31 January 2021
£
Royal Bank of Scotland Global Banking (Luxembourg) S.A. A- 1,266,096 6,361,893
Lloyds Bank International Limited A 396,016 109,769
Barclays Bank plc A 396,056 109,835
Butterfield Bank (Guernsey) Limited
(1)
BBB+ 396,076 109,738
Royal Bank of Scotland International Limited A- 2,346,980 2,082,405
4,801,224 8,773,640
(1)
Formerly ABN Amro CI
The carrying amount of these assets approximates their fair value.
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Other InformationFinancial StatementsGovernanceOverview
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. RISK MANAGEMENT POLICIES AND PROCEDURES (CONTINUED)
Liquidity risk
Liquidity risk is the risk that the Company will not be able to meet its liabilities as they fall due. The Company’s loans advanced are
illiquid and may be difficult or impossible to realise for cash at short notice.
The Company manages its liquidity risks through the regular preparation and monitoring of cash flow forecasts to ensure that it can
meet its obligations as they fall due.
Liquidity risks arise in respect of other financial liabilities of the Company due to counterparties. The Company expects to meet its
ongoing obligations from cash flows generated by the loan portfolio. Except for the loans advanced, the Company’s financial assets
and financial liabilities all have maturity dates within one year. An analysis of the maturity of financial assets classified as loans
advanced is shown in the table below:
Less than
one year
£
Between one
and five years
£
Total as at
31 January 2022
£
Northlands – principal 10,431,142 – 10,431,142
Northlands – interest and exit fees 715,242 – 715,242
Quattro – principal 5,956,304 – 5,956,304
Quattro – interest and exit fees 203,167 – 203,167
Affinity – principal 17,299,963 – 17,299,963
Affinity – interest and exit fees 801,862 – 801,862
Southport – principal – 15,000,000 15,000,000
Southport – interest and exit fees 1,050,000 483,904 1,533,904
RoyaleLife – principal – 25,382,017 25,382,017
RoyaleLife – interest and exit fees 2,030,561 5,268,400 7,298,961
LBS Inn – principal 6,474,000 – 6,474,000
LBS Inn – interest and exit fees 571,451 – 571,451
45,533,692 46,134,321 91,668,013
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Annual Report And Consolidated Financial Statements
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. RISK MANAGEMENT POLICIES AND PROCEDURES (CONTINUED)
Liquidity risk (continued)
Less than
one year
£
Between one
and five years
£
Total as at
31 January 2021
£
Northlands – principal – 9,578,514 9,578,514
Northlands – interest and exit fees 622,603 656,815 1,279,418
Halcyon – principal 5,732,465 – 5,732,465
Halcyon – interest and exit fees 132,239 – 132,239
Quattro – principal 8,853,459 – 8,853,459
Quattro – interest and exit fees 121,523 – 121,523
Affinity – principal – 16,700,000 16,700,000
Affinity – interest and exit fees 1,249,068 783,103 2,032,171
Southport – principal – 16,059,285 16,059,285
Southport – interest and exit fees 1,124,150 1,642,227 2,766,377
RoyaleLife – principal – 25,382,017 25,382,017
RoyaleLife – interest and exit fees 2,030,561 6,585,517 8,616,078
LBS – principal – 6,283,119 6,283,119
LBS – interest and exit fees 410,641 329,132 739,773
Knowsley – principal – 7,750,000 7,750,000
Knowsley – interest and exit fees 658,904 816,776 1,475,680
GMG – principal – 12,981,133 12,981,133
GMG – interest and exit fees 778,868 1,168,302 1,947,170
21,715,106 106,667,054 128,382,160
The Company could also be exposed to prepayment risk, being the risk that the principal may be repaid earlier than anticipated,
causing the return on certain investments to be less than expected. The Company, where possible, seeks to mitigate this risk by
inclusion of income protection clauses that protect the Company against any prepayment risk on the loans advanced for some of
the period of the loan. To date, all loans advanced have included income protection clauses in the event of prepayment of the loans
for the majority of the loan term. As at the year-end date the residual weighted average income protection period was 0.75 years
(31 January 2021: 0.72 years).
The Company has loans and receivables with a prepayment option embedded. Given the low probability of exercise and
indeterminable exercise date, the value attributed to these embedded derivatives is considered to be £nil (31 January 2021: £nil).
Capital management policies and procedures
The Company’s capital management objectives are to ensure that the Company will be able to continue to meet all of its liabilities as
they fall due and to maximise the income and capital return to equity shareholders.
In accordance with the Company’s investment policy, the Company’s principal use of cash has been to fund investments in the
form of loans sourced by the Investment Manager, as well as on-going operational expenses and payment of dividends and other
distributions to shareholders in accordance with the Company’s dividend policy.
The Board, with the assistance of the Investment Manager, monitors and reviews the broad structure of the Company’s capital on
an on-going basis.
The Company has no externally imposed capital requirements. The Company’s capital at the year-end comprised equity share
capital and reserves.
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Other InformationFinancial StatementsGovernanceOverview
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. SUBSIDIARY
At 31 January 2021 the Company had one wholly owned subsidiary, ICG-Longbow Senior Debt S.A., registered in Luxembourg. As
reported in the Company’s interim report and accounts, the Board resolved to simplify its corporate structure by collapsing the
Luxembourg subsidiary company which has historically acted as the lender for the Company’s investments. The subsidiary was
dissolved under Luxembourg Law on 18 January 2022 and its assets and liabilities transferred to the Company. As at 19 January
2022 the loans were held by the Company.
13. RELATED PARTY TRANSACTIONS AND DIRECTORS’ REMUNERATION
Parties are considered to be related if one party has the ability to control the other party or exercise significant influence over the
party in making financial or operational decisions.
In the opinion of the Directors, on the basis of shareholdings advised to them, the Company has no immediate or ultimate
controlling party.
Directors
The Directors’ fees for the year amounted to £171,375 (31 January 2021: £199,953) with outstanding fees of £31,250 due to the
Directors at 31 January 2022 (31 January 2021: £45,995) (see Note 8).
14. MATERIAL AGREEMENTS
Investment Manager Agreement
Investment Management fees for the year amounted to £1,165,922 (31 January 2021: £1,195,588), of which £289,107 (31 January
2021: £897,928) was outstanding at the year-end (see Note 8).
The Investment Manager is entitled to a management fee at a rate equivalent to 1% per annum of the Net Asset Value paid quarterly
in arrears based on the average Net Asset Value as at the last business day of each month in each relevant quarter.
The Investment Manager’s appointment cannot be terminated by the Company with less than 12 months’ notice. The Company
may terminate the Investment Management Agreement with immediate effect if the Investment Manager has committed any
material, irremediable breach of the Investment Management Agreement or has committed a material breach and fails to remedy
such breach within 30 days of receiving notice from the Company requiring it to do so; or the Investment Manager is no longer
authorised and regulated by the FCA or is no longer permitted by the FCA to carry on any regulated activity necessary to perform
its duties under the Investment Management Agreement. The Investment Manager may terminate their appointment immediately
if the Company has committed any material, irremediable breach of the Investment Management Agreement or has committed a
material breach and fails to remedy such breach within 30 days of receiving notice from the Company requiring it to do so.
Administration Agreement
The Administrator has been appointed to provide day to day administration and company secretarial services to the Company, as
set out in the Administration Agreement. Under the terms of the Administration Agreement, the Administrator is entitled to a fixed
fee of £90,000 per annum for services such as administration, corporate secretarial services, corporate governance, regulatory
compliance and stock exchange continuing obligations provided both to the Company and some limited administration services to
Luxco in conjunction with the Luxembourg Administrator. The Administrator will also be entitled to an accounting fee charged on a
time spent basis with a minimum fee of £40,000 per annum. Administration and accounting fees for the year amounted to £205,285
(31 January 2021: £172,421) of which £22,188 (31 January 2021: £35,907) was outstanding at the year end.
Registrar Agreement
The Registrar has been appointed to provide registration services to the Company and maintain the necessary books and records,
as set out in the Registrar Agreement.
Under the terms of the Registrar Agreement, the Registrar is entitled to an annual fee from the Company equal to £1.78 per
shareholder per annum or part thereof, subject to a minimum of £7,500 per annum. Other Registrar activities will be charged for in
accordance with the Registrar’s normal tariff as published from time to time.
Depositary Agreement
The Depositary has been appointed from 25 November 2020 to provide depositary services under the AIFMD to the Company, which
include cash monitoring, asset verification and oversight, as set out in the Depositary Agreement.
Under the terms of the Depositary Agreement, the Depositary is entitled to a fixed fee from the Company of £25,000 per annum.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
15. AUDITOR’S REMUNERATION
Audit and non-audit fees payable to the auditors can be analysed as follows:
31 January 2022
£
31 January 2021
£
Audit fees for the Company 46,454 47,355
Audit fees for the Subsidiary – 14,885
Total Audit fees 46,454 62,240
There were no non-audit fees paid during the year.
16. REVOLVING CREDIT FACILITY
On 1 October 2018, the Company entered into a revolving credit facility with OakNorth Bank plc. This facility was for an amount equal to
the lower of £25 million and 20% of the NAV from time to time. The loan matured 36 months from the date of the agreement. Interest
accrued on each loan at a rate of LIBOR plus 3.95% per annum. An arrangement fee was payable on first drawing the facility.
This facility was used towards maintaining and preserving liquidity, making new customer loans and payment of the fees, costs and
expenses due. No drawdowns were made during the year. The opening drawn down balance was £nil at 1 February 2021. The overall
balance drawn down at 31 January 2022 £nil (31 January 2021: £nil).
17. OTHER EXPENSES
The other expenses shown in the Consolidated Statement of Comprehensive Income are made up as shown below.
31 January 2022
£
31 January 2021
£
Luxco operating expenses 95,358 278,661
Broker fees 76,925 52,163
Administration fees 205,285 172,421
Regulatory fees 16,524 19,351
Listing fees 14,573 13,375
Legal & professional fees 122,555 70,311
Other expenses 62,829 71,500
594,049 677,782
18. FINANCE COSTS
Finance costs comprise £63,351 (31 January 2021: £95,812) relating to the amortisation of arrangement fees on the revolving credit
facility and £nil (31 January 2021: £98,852) relating to the facility set-up costs.
19. SUBSEQUENT EVENTS
On 24 March 2022, the Company declared a dividend of 1.1 pence per Ordinary Share in respect of the quarter ended 31 January
2022, payable on 29 April 2022.
On 18 May 2022, the Directors resolved to return £7,278,167 of capital to Ordinary shareholders, equivalent to 6.0 pence per Ordinary
Share, through issuance and redemption of B shares, with a record date of 27 May 2022 and a payment date of 13 June 2022.
Following the Russian invasion of the Ukraine the Investment Manager has reviewed the portfolio and has not identified any direct
exposure to either Russian or Ukrainian companies or individuals. The Company continues to monitor the situation for potential
macro-economic impacts which may impact the performance or repayment of the remaining loans.
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Annual Report And Consolidated Financial Statements
Governance Financial Statements Other InformationOverview
ALTERNATIVE PERFORMANCE MEASURES
Performance Measure Definition Reason for Use
Weighted Average Loan Coupon The money weighted average rate of
interest being charged on each investment
at the relevant reporting date.
To provide shareholders with a means to
assess whether the interest 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 Loan Maturity The money weighted average period
from the relevant reporting date until
the Company’s investments reach their
contractual repayment date.
To provide transparency to the Company’s
investment outlook and likely level of loan
repayments, and to assist shareholders in
identifying whether the remaining duration of
the loans reflects their own investment time
frames.
Weighted Average Loan to Value Ratio The money weighted average Loan to
Value ratio at the relevant reporting date,
calculated on the basis of the outstanding
loan amount for each investment as a
percentage of the most recent Market
Value of the properties securing each
investment.
To provide transparency to the Company’s
risk positioning and to demonstrate
compliance with the investment restrictions.
Total Income per Share The total income of the Company as
disclosed in the Consolidated Statement
of Comprehensive Income divided by the
number of Ordinary Shares in issuance at
the relevant reporting date.
To provide transparency to the Company’s
investment returns.
NAV per Share The net asset value of the Company
divided by the number of Ordinary Shares
in issuance at the relevant reporting date.
To assist shareholders in assessing the
performance of the Company over a period
in relation to its Investment Objectives.
Dividend per Share The total dividends per Ordinary Share
declared and/or paid during the relevant
reporting period.
To assist shareholders in assessing the
performance of the Company in relation to
its Investment Objectives.
Shareholder Total Return since IPO Share price movements combined with
dividends paid on the assumption that
dividends have been reinvested.
To assist shareholders in assessing the total
return earned over the life of the Company.
Share Price Premium/Discount The percentage difference between the
NAV per share and the quoted price of
each Ordinary Share as at the relevant
reporting date.
To assist shareholders in identifying and
monitoring the performance of the Company.
Percentage Capital Invested The aggregate value of the investments
at amortised cost divided by total
shareholder equity. Where the figure
exceeds 100%, the investments will be
partially funded by the Company’s debt
facility.
To assist shareholders in identifying and
monitoring the performance of the Company
and the level of gearing.
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GLOSSARY OF CAPITALISED DEFINED TERMS
“Administrator” means Ocorian Administration (Guernsey)
Limited;
“Administration Agreement” means the Administration
Agreement dated 23 January 2013 between the Company and
the Administrator;
“Admission” means the admission of the shares to the
premium listing segment of the Official List and to trading on
the London Stock Exchange;
“AEOI” means Automatic Exchange of Information;
“Affinity” means Affinity Global Real Estate Limited;
“AGM” or “Annual General Meeting” means the general
meeting of the Company;
“AIC” means the Association of Investment Companies;
“AIC Code” means the AIC Code of Corporate Governance;
“AIFMD” means the Alternative Investment Fund Managers
Directive;
“Annual Report” or “Annual Report and Consolidated
Financial Statements” means the annual publication of the
Group provided to the shareholders to describe their operations
and financial conditions, together with their Consolidated
Financial Statements;
“Articles of Incorporation” or “Articles” means the articles of
incorporation of the Company, as amended from time to time;
“Board” or “Directors” or “Board of Directors” means the
directors of the Company from time to time;
“B shares” means a redeemable Ordinary Share of no par value
in the capital of the Company issued and designated as a B
Share of such class, and denominated in such currency, as may
be determined by the Directors at the time of issue. Issued for
the purpose of returning capital in accordance with Article 8;
“CBI” means the Confederation of British Industry;
“CMBS” means commercial mortgage-backed security;
“Code” or “Corporate Governance Code” means the UK
Corporate Governance Code 2019 as published by the Financial
Reporting Council;
“Companies Law” means the Companies (Guernsey) Law, 2008,
(as amended);
“Company” means ICG-Longbow Senior Secured UK Property
Debt Investments Limited;
“Covid-19” means the global coronavirus pandemic;
“CRS” means Common Reporting Standard;
“ECL” means expected credit losses;
“EPS” or “Earnings per share” means Earnings per Ordinary
Share of the Company and is expressed in Pounds Stirling;
“ESG” means Environmental, Social and Governance;
“EU” means the European Union;
“Euro” or “€” means Euro;
“FATCA” means Foreign Account Tax Compliance Act;
“FCA” means the UK Financial Conduct Authority (or its
successor bodies);
“Financial Statements” or “Consolidated Financial
Statements” means the audited consolidated financial
statements of the Group, including the Consolidated Statement
of Comprehensive Income, the Consolidated Statement of
Financial Position, the Consolidated Statement of Changes
in Equity, the Consolidated Statement of Cash Flows, and
associated notes;
“FRC” means the Financial Reporting Council;
“FTSE” means the Financial Times Stock Exchange;
“GDP” means gross domestic product;
“GFSC” means the Guernsey Financial Services Commission;
“GIIN” means Global Intermediary Identification Number;
“GMG” means GMG Real Estate Limited;
“Group” means the Company, ICG Longbow Senior Secured UK
Property Debt Investments Limited together with its previously
wholly owned subsidiary, ICG Longbow Senior Debt S.A (Luxco);
“GFSC Code” means the GFSC Finance Sector Code of
Corporate Governance;
“Halcyon” means Halcyon Ground Rents Limited;
“IAS” means international accounting standards as issued by
the Board of the International Accounting Standards Committee;
“ICG” means Intermediate Capital Group PLC;
“ICR” means interest coverage ratio;
“IFRS” means the International Financial Reporting Standards,
being the principles-based accounting standards, interpretations
and the framework by that name issued by the International
Accounting Standards Board, as adopted by the United Kingdom;
“Interest Cover Ratio” or “ICR” means the debt/profitability
ratio used to determine how easily a company can pay interest
on outstanding debt;
“Interim Report” means the Company’s interim report and
unaudited interim condensed financial statements for the period
ended 31 July;
“Investment Manager” or “ICG-Longbow” means IC Alternative
Investment Limited or its associates;
“Investment Manager Agreement” means Investment
Management Agreement dated 25 November 2020 between
the Company and the Investment Manager ICG Alternative
Investment Limited;
“IoD” means Institute of Directors;
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Governance Financial Statements Other InformationOverview
GLOSSARY OF CAPITALISED DEFINED TERMS (CONTINUED)
“IPO” means the Company’s initial public offering of shares to
the public which completed on 5 February 2013;
“ISAE 3402” means International Standard on Assurance
Engagements 3402, “Assurance Reports on Controls at a
Service Organisation”;
“ISIN” means an International Securities Identification Number;
“Knowsley” means Knowsley (Image Business Park) Limited;
“LBS” means LBS Properties Limited;
“LGD” means loss given default;
“Listing Rules” means the listing rules made by the FCA under
section 73A Financial Services and Markets Act 2000;
“London Stock Exchange” or “LSE” means London Stock
Exchange plc;
“LTV” means Loan to Value ratio;
“Luxco” or “Subsidiary” means the Company’s wholly owned
subsidiary, ICG Longbow Senior Debt S.A.;
“Luxembourg Administrator” means Ocorian Services
(Luxembourg) S.à.r.l being the administrator of Luxco;
“Main Market” means the main securities market of the London
Stock Exchange;
“Management Engagement Committee” means a formal
committee of the Board with defined terms of reference;
“Memorandum” means the Company’s memorandum;
“NAV per share” means the Net Asset Value per Ordinary Share
divided by the number of Shares in issue (other than shares held
in treasury);
“Net Asset Value” or “NAV” means the value of the assets of
the Group less its liabilities, calculated in accordance with the
valuation guidelines laid down by the Board, further details of
which are set out in the 2017 Prospectus;
“Northlands” means London & Guildford Properties Limited,
London & Weybridge Properties Limited, Lamborfore Limited,
Northlands Holdings Limited, Peeble Stone Limited, Auldana
Limited, Felixstow Limited, Richmond Lodge Construction
Limited, Piperton Finance Limited and Alton & Farnham
Properties Limited;
“NMPIs” means Non-Mainstream Pooled Investments;
“OBR” means the Office of Budget Responsibility;
“Official List” is the Premium Segment of the FCA’s Official List;
“ONS” means Office for National Statistics;
“PD” means probability of default;
“Quattro” means the CNM Estates (New Malden) Limited, CNM
Estates (Ewell Road) Limited, CNM Estates (Coombe Road)
Limited and CNM Estates (Cox Lane) Limited;
“Registrar” means Link Asset Services (Guernsey) Limited
(formerly Capita Registrars (Guernsey) Limited);
“Registrar Agreement” means the Registrar Agreement dated
31 January 2013 between the Company and the Registrar;
“RevPar” means revenue per available room;
“RoyaleLife” means the Time GB Properties LendCo Limited;
“Schedule of Matters” means the Schedule of Matters Reserved
for the Board, adopted 23 January 2013, amended 25 September
2020;
“Southport” means the Bliss Hotels Limited and Bliss Hotels
(Southport) Limited;
“Sq ft” means square feet;
“UK” or “United Kingdom” means the United Kingdom of Great
Britain and Northern Ireland;
“2017 Placing Programme” means the placing programme in
connection with the 2017 Prospectus published in April 2017;
“2017 Prospectus” means the prospectus published in April
2017 by the Company in connection with the 2017 Placing
Programme; and
“£” or “Pounds Sterling” means British pound sterling and
“pence” means British pence.
64
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DIRECTORS AND GENERAL INFORMATION
Board of Directors
Jack Perry
(Chairman)
Stuart Beevor
Paul Meader
Fiona Le Poidevin
Patrick Firth (Retired 28 June 2021)
Audit and Risk Committee
Fiona Le Poidevin
(Chair from 28 June 2021)
Stuart Beevor
Paul Meader
Patrick Firth
(Chairman – Retired
28 June 2021)
Management Engagement Committee
Jack Perry
(Chairman)
Paul Meader
Fiona Le Poidevin
Stuart Beevor
Patrick Firth (retired 28 June 2021)
Nomination Committee
Jack Perry (Chairman)
Stuart Beevor
Paul Meader
Fiona Le Poidevin
Patrick Firth (Retired 28 June 2021)
Remuneration Committee
Paul Meader (Chairman)
Jack Perry
Stuart Beevor
Fiona Le Poidevin
Investment Manager
ICG Alternative Investment Limited
Procession House
55 Ludgate Hill
London
United Kingdom
EC4M 7JW
Registered office
P.O. Box 286
Floor 2
Trafalgar Court
Les Banques
St Peter Port
Guernsey
GY1 4LY
Independent Auditor
Deloitte LLP
PO Box 137
Regency Court
Glategny Esplanade
St. Peter Port
Guernsey
GY1 3HW
Guernsey Administrator and
Company Secretary
Ocorian Administration (Guernsey) Limited
P.O. Box 286
Floor 2
Trafalgar Court
Les Banques
St Peter Port
Guernsey
GY1 4LY
Luxembourg Administrator
Ocorian Services (Luxembourg) S.à.r.l
6c Rue Gabriel Lippmann
Munsbach
Luxembourg
L-5365
Depositary
Ocorian Depositary (UK) Limited
5th Floor
20 Fenchurch Street
London
England
EC3M 3BY
Registrar
Link Asset Services (Guernsey) Limited
Mont Crevelt House
Bulwer Avenue
St Sampson
Guernsey
GY2 4LH
Corporate Broker and Financial Adviser
Cenkos Securities plc
6-8 Tokenhouse Yard
London
United Kingdom
EC2R 7AS
Identifiers
GIIN: 6IG8VS.99999.SL.831
ISIN: GG00B8C23S81
Sedol: B8C23S8
Ticker: LBOW
Website: www.lbow.co.uk
English Solicitors to the Company
Gowlings WLG (UK) LLP
4 More London Riverside
London
United Kingdom
SE1 2AU
Guernsey Advocates to the Company
Carey Olsen
Carey House
PO Box 98
Les Banques
St Peter Port
Guernsey
GY1 4BZ
Bankers
Royal Bank of Scotland Global Banking
(Luxembourg) S.A.
Espace Kirchberg
The Square
Building A-40 Avenue J.F. Kennedy
L-1855
Luxembourg
Butterfield Bank (Guernsey) Limited
PO Box 25
Regency Court
Glategny Esplanade
St Peter Port
Guernsey
GY1 3AP
Barclays Bank plc
6-8 High Street
St Peter Port
Guernsey
GY1 3BE
Lloyds Bank International Limited
PO Box 136
Sarnia House
Le Truchot
St Peter Port
Guernsey
GY1 4EN
The Royal Bank of Scotland International
Royal Bank Place
1 Glategny Esplanade
St Peter Port
Guernsey
GY1 4BQ
OakNorth Bank plc
6th Floor Nightingale House
3rd Floor 57 Broadwick Street
Soho
London
W1F 9QS
ICG-Longbow Senior Secured UK Property Debt Investments Limited
Annual Report And Consolidated Financial Statements
65
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