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AICG-Longbow Senior Secured UK Property Debt Investments LimitedAnnual Report And Consolidated Financial Statements

XXXXX (CONTINUED)

Company Number: 55917

ICG-Longbow Senior Secured UK Property Debt Investments Limited

Annual Report and Consolidated Financial Statements

For the year ended 31 January 2019

CONTENTS

Overview

01 FinancialHighlights

01 CorporateSummary

02 FinancialSummary

03 Chairman’sStatement

05 InvestmentAdviser’sReport

15 InvestmentPolicy

Governance

16 BoardofDirectors

18 ReportoftheDirectors

22 Directors’ResponsibilitiesStatement

24 CorporateGovernanceReport

32 ReportoftheAuditandOperationalRiskCommittee

35 IndependentAuditor’sReport

Financial Statements

42 ConsolidatedStatementofComprehensiveIncome

43 ConsolidatedStatementofFinancialPosition

44 ConsolidatedStatementofChangesInEquity

45 ConsolidatedStatementofCashFlows

46 NotestotheConsolidatedFinancialStatements

Other Information

64 GlossaryofCapitalisedDefinedTerms

66 DirectorsandGeneralInformation

AllcapitalisedtermsaredefinedintheGlossaryofCapitalisedDefinedTermsonpages64to65unlessseparatelydefined.

Cover picture: Spectrum Building, Bristol

01ICG-Longbow Senior Secured UK Property Debt Investments LimitedAnnual Report And Consolidated Financial Statements

Overview

Governance


Other Inform

ation

FINANCIAL HIGHLIGHTS FOR THE YEAR ENDED 31 JANUARY 2019

Portfolio

£107,221,546

Invested in 9 loans as at 31 January

2019

£121,271,423

Invested in 10 loans as at 23 April

2019

Over 60%

of original portfolio transitioned or extended, with strong pipeline

to invest upcoming loan maturities

3.75 Year

weighted average maturity of new loans

£25 million

3 year revolving credit facility

secured

CORPORATE SUMMARY

INVESTMENT OBJECTIVETheinvestmentobjectiveoftheGroup,asapprovedbytheshareholdersoftheCompany,is“toconstructaportfolioofUKrealestatedebtrelatedinvestmentspredominantlycomprisingloanssecuredbyfirstrankingfixedchargesagainstcommercialpropertyinvestments,withtheaimofprovidingshareholderswithattractive,quarterlydividends,capitalpreservationand,overthelongerterm,adegreeofcapitalappreciation.”

STRUCTURETheCompanyisanon-cellularcompanylimitedbysharesincorporatedinGuernseyon29November2012undertheCompaniesLaw.TheCompany’sregistrationnumberis55917,andithasbeenregisteredwiththeGFSCasaregisteredclosed-endedcollectiveinvestmentscheme.TheCompany’sordinaryshareswereadmittedtothepremiumsegmentoftheFCA’sOfficialListandtotradingontheMainMarketoftheLondonStockExchangeaspartofitsIPOwhichcompletedon5February2013.TheissuedcapitalcomprisestheCompany’sordinarysharesdenominatedinPoundsSterling.TheCompanymakesinvestmentsinitsportfoliothroughICG-LongbowSeniorDebtS.A.,theCompany’swhollyownedsubsidiary.

INVESTMENT ADVISERTheInvestmentAdviser(IntermediateCapitalManagersLimited),whichtradesunderthenameofICG-Longbow,isauthorisedandregulatedbytheFCA.TheassetsoftheCompanyaremanagedbytheBoardafterreceivingadvicefromtheInvestmentAdviserunderthetermsofthenon-discretionaryInvestmentAdvisoryAgreement.

Performance

Total Income Per Share

6.30 pence

NAV Per Share

99.16 pence

Dividend per Share

6.00 pence

Shareholder Total Return since IPO

35.4%

02 ICG-Longbow Senior Secured UK Property Debt Investments LimitedAnnual Report And Consolidated Financial Statements

FINANCIAL SUMMARY

PERFORMANCEO NAVof£120.28millionasat31January2019(31January2018:£117.98million).

O Totaldividendspaidordeclaredfortheyearended31January2019of6.00pencepershare(31January2018:8.25pencepershare).Intheprioryear,totaldividendpaidincludedaspecialdividendof2.25pencepershare.

O Totalincomeexcludingprepaymentfeesof£7.64million(31January2018:£7.10million).

O Prepaymentfeesof£nil(31January2018:£0.97million).Allloanrepaymentsreceivedduringtheyearwereoutsidetheircontractedincomeprotectionperiods.

O Profitaftertaxof£5.26millionfortheyearended31January2019(31January2018:£5.90million),asaresultofnoprepaymentfeesearned.

O Earningspershareof4.36pence(31January2018:5.33pence).

DIVIDENDO Totaldividendspaidordeclaredfortheyearended31January2019of6.00pencepershare(31January2018:8.25pencepershare),madeupasfollows:

– Interimdividendof1.5pencepersharepaidinrespectofquarterended30April2018

– Interimdividendof1.5pencepersharepaidinrespectofquarterended31July2018

– Interimdividendof1.5pencepersharepaidinrespectofquarterended31October2018

– Interimdividendof1.5pencepersharepaidinrespectofquarterended31January2019

INVESTMENT PORTFOLIO O Asat31January2019,theGroup’sinvestmentportfoliocomprisednineloanswithanaggregateprincipalbalanceof£107.22million,representing89.14%oftheshareholders’equity(31January2018:tenloanswithaggregateprincipalbalanceof£111.15million,representing94.21%oftheshareholders’equity).

O Theweightedaveragecouponwas6.23%(31January2018:6.29%).

O TheportfolioweightedaverageLTVwas62.2%(31January2018:58.03%),reflectingchangestothecompositionoftheloanportfolio.TheweightedaverageICRwas208%(31January2018:218%).

O Theportfolioweightedaverageresidualtermwas0.96years,ofwhich,onaverage,0.42yearsremainsincomeprotected(31January2018:residualterm1.37years,incomeprotectedterm0.53years).

O Asaresultofnewinvestmentsmadeafterthefinancialyearend,theGroup’sinvestmentportfolioasatthedateoftheseaccountscomprisestenloanswithanaggregateprincipalbalanceof£121.27million.TheGrouphasmadea£3.5milliondrawdownonitsrevolvingcreditfacility.

O TheportfolioweightedaverageLTVasat23April2019is63.0%,theweightedaverageresidualloantermis1.13years,andtheweightedaverageloancouponis6.32%.


Overview

Governance


Other Inform

ation

CHAIRMAN’S STATEMENT

JACK PERRY CHAIRMAN

INTRODUCTIONOnbehalfoftheBoard,itismypleasuretopresentthesixthAnnualReportfortheGroup,fortheyearended31January2019.

TheCompanycontinuestomakestrongprogressagainstitskeyobjectives.Followingshareholderapproval,theBoardadoptedtherevisedInvestmentPolicyinMarch2017tofacilitatethereinvestmentofthematuringloanportfolioandtogrowtheCompany.AsignificantproportionoftheinvestmentportfoliohasnowbeentransitionedandtheBoardisgreatlyencouragedbytheincreasinglyattractivepipelineofnewlendingopportunities.ThenewRevolvingCreditFacilityiscontributingtoeffectivedeploymentofcapitalinnewloansinanticipationofloanredemptions.Theexistinginvestmentportfoliohasperformedinlinewithexpectations,producingatotalincomeof£7.6millionforthefinancialyear(£8.1millionforyearto31January2018)deliveringearningspershare,aftercosts,of4.36pence(5.33pencein2018).Thereductioninearningspersharereflectsthelowerincomeduetothetimingoftheredeploymentofcapitalunderthenewinvestmentmandatefollowingtherepaymentofcertainoriginalloansandtheexceptionalprepaymentfeesreceivedin2018notbeingrepeated.

Themomentuminthefinancialyearto31January2019hasbeencontinuedduringthefirstquarterofthisyear.Inadditiontonewloanscompleted,theInvestmentAdviserhasagreedtermsonthreenewloansandextendedthetermsonoriginalhighcouponloanswithanaggregatecommittedbalanceinexcessof£45million,which,ifcompleted,willincreasetheweightedaverageinvestmentcouponandloanduration.

Asaconsequenceofthepositivetransitionoftheinvestments,supportedbytheconfidenceinthepipeline,theBoardexpectstoprogresstowardsprovidingafullycovereddividendlaterintheyear.Accordingly,andasdiscussedfurtherbelow,theannualdividendhasbeenmaintainedat6pencepershare.

PORTFOLIOOverthepastyeartheGroupsuccessfullycontinuedtheprocessofrepositioningitsinvestmentportfolioasandwhenloansarerepaid.TheCompanyissuednewsharecapitalduringtheyear,howeverthevolumeofnewissuancewasaffectedbymarketsentimentintheperiod.Further,theGrouprecentlysecureda£25millionrevolvingcreditfacilitywithOakNorthBankplcwhichhasenabledtheInvestmentAdvisertoproactivelyseeknewinvestmentopportunitiesaheadofloanmaturitiessoastoreducetheimpactofcashdragontheGroup’sperformance.

At31January2019,theportfoliocomprisednineloansofwhichthree,includingtheincreaseandextensiontotheMeadowloan,wereunderthenewinvestmentpolicy,withonefurtherloancompletedsinceyearend.Overall,sinceitsIPOtheCompanyhasseenover£65millionofinvestmentsredeem,andhascompletedover£80millionofnewinvestmentcommitments.

Theweightedaveragematurityoftheloanscompletedunderthenewpolicy,atover3.75years,andIRRreturns,atover8.2%,comparefavourablytotheoverallbookandwillsupportincomegenerationinthelongerterm.

AsdiscussedintheInvestmentAdviser’sReportwhichfollows,anincreasinglyfavourablepipelineofinvestmentopportunitiesisnowbeingassembledtoreplacetheolder,maturingloanswhichwillrepaythrough2019.Theloanmaturityprofileoftheportfolioshouldextendaccordingly.

Duringtheyear,inlightofthevolatilepoliticalenvironmentanduncertaintyaroundBrexit,theGroupmaintaineditsdisciplinedinvestmentprocessandexercisedagreaterdegreeofcautioninconsideringnewinvestmentsfortheportfolio.TheBoardwouldhighlightthat,subjecttotheapprovalofthechangeofuseinrespectoftheMeadowproperty,theportfoliohasanegligibleexposuretothehighlychallengingretailpropertysector.AsaresultoftheGroup’sprudentriskmanagementpracticesandinvestmentselection,allloanscontinuetoperforminlinewiththeirrespectivebusinessplansandareincompliancewithfinancialcovenants.

SHARE PLACEMENT & WORKING CAPITAL FACILITYTheCompanyraisednewcapitalintheyearunderitsshareplacementprogramme.Howevermarketcircumstancesatthetimewerenotfavourableandonly4.26millionnewshareswereissued.TheBoardremainskeentogrowtheCompanyfurtherwhenthetimeisripe,andhascontinuedtomonitormarketconditionswithaviewtoraisingfurthercapital.

InOctober2018theCompanyenteredintothethreeyearrevolvingcreditfacilitywithOakNorthBankplc.TheBoardispleasedbytheflexibilitythisfacilitybringstotheCompanyintransitioningtheloanbookandgrowingtheinvestmentportfolio.Giventheaddedcertaintyofliquidity,theInvestmentAdviserhasaccordinglynowbeenabletocompleteonenewinvestment,aheadofanticipatedloanrepaymentsinApril,andexpectstoutilisethefacilityfurthertoconvertthepipelineopportunitiesreferredtoabove.

“Continuedportfolioanddividendstabilitylaysthefoundationforfuturegrowth”


CHAIRMAN’S STATEMENT(CONTINUED)

SHARE PLACEMENT & WORKING CAPITAL FACILITY (CONTINUED)TheOakNorthfacilityalsoprovidestheopportunitytoraiseequityonceloancapitalhasbeendeployed,whichisamuchmoreattractivepropositionforpotentialshareholders,borrowersandtheBoardthanraisingcapitalinadvanceofdeployment.TheBoardwillconsiderwhethertoseektofurtherextendtheplacementprogrammeattheCompany’sAnnualGeneralMeeting.

DIVIDENDOverthepastyeartheCompanyhasbeensupplementingearningsgeneratedfromtheportfoliowiththereleaseofpriorperiodprofitsinordertomaintainitsdividendwhilelegacy,loweryielding,loansrun-off.TheCompany’sretainedprofitshavenowbeenfullyutilised.Thelastoftheloweryieldingloans,madeundertheoldinvestmentpolicy,matureinApril2019andareexpectedtobereplacedbyhigherreturninginvestments,whichwillalsoservetoincreasemateriallytheweightedaverageloandurationandweightedaveragecouponoftheportfolio.

TheBoardconsidersthatitisinshareholders’intereststomaintainitsdividendwhilethistransitionprocessiscompleted,andhasthereforedeclaredadividendof1.50pencepershareinrespectofthequarterended31January2019maintainingthetotaldividendfortheyearat6.0pencepershareofwhich0.54penceisbeingpaidfromcapital.

Giventhepositiveoutlookhighlightedabove,theBoardintendstomaintaintheCompany’sdividend,utilisingcapital

asrequireduntiltheselegacyloanshavebeenreplaced.TheBoardremainsconfidentofreturningtoacovereddividendoverthenextthreequarters.

GOVERNANCE AND MANAGEMENTTheBoardcontinuestocommitsignificanttimeandefforttoitsgovernanceresponsibilities.TostrengthenoversightoftheperformanceoftheongoinginvestmentportfoliotheBoardestablishedanInvestmentRiskCommitteeintheprioryear.ThisCommitteehasworkedeffectivelythroughoutthisyear.TheBoardasawholecontinuestoassessandchallengenewpipelineinvestmentsfortheGroup.AfullaccountofthedischargeoftheBoard’sgovernanceresponsibilitiesisprovidedintheCorporateGovernanceReport.

OUTLOOKFollowingyearend,theGroupcompletedanew£15millioncommitmentanddrewdownafurther£1.5milliononthecommittedAffinityloan.InallcasestheInvestmentAdviserhassought–andcontinuestoseek–tostresstesttheBrexitresiliencyofnewopportunities,whichincertaincasesledtoadelayincompletionofthesenewloansbutresultedinanimprovedriskpositionfortheGroup.

Followingthesecompletions,theweightedaverageunexpiredloantermofthecommittedportfolioincreasesto1.13yearsandtheaverageLTVoftheportfoliorisesto63.0%.TheGroup’swiderpipelineremainshighlyencouragingwithtermsnowagreedonthreenewtransactionsandthe

InvestmentAdviserhas,fromlateFebruaryonwards,seenastrongpickupinnewenquiries.

CertainoftheGroup’sshort-datedandlower-returningloanswillreachmaturity,withanexpectationofrepaymentinthefirsthalfoftheyearofuptoapproximately£46million.Thedepthofthecurrentpipelinewillallowforthesubstantialtransitioningoftheportfoliotowardslonger-datedandhigherreturningloansinlinewiththestatedinvestmentobjectives.Asat31January2019,over60%oftheportfoliohadbeenextendedortransitionedtothenewinvestmentpolicyandbasedoncurrentexpectedmaturitiesandredeployments,thisshouldrisetoover80%byJuly2019.

TheBoardcontinuestoprogressapotentialinvestmentinanICG-Longbowprivatefundopportunityasdetailedinourlastfactsheet.ThelikelytimingforsuchaninvestmentwillbebalancedagainstthepipelineofnewdirectlendingdealsandtheGroup’savailablefundstoensuretheoptimumoutcomeforshareholdersfromarisk,returnandloandiversificationperspective.

JACK PERRYChairman

23April2019

Bliss Hotel, Southport


Overview

Governance


Other Inform

ation

INVESTMENT ADVISER’SREPORT


Fund facts

Fundlaunch: 5February2013 Fundtype: Closedendedinvestmentcompany

InvestmentAdviser: ICG-Longbow Domicile: Guernsey

Basecurrency: GBP Listing: LondonStockExchange

Issuedshares: 121.3million ISINcode: GG00B8C23S81

Managementfee: 1.0% LSEcode: LBOW

Website: www.lbow.co.uk

Share price & NAV at 31 January 2019 Key portfolio statistics at 31 January 2019

Shareprice(pencepershare): 98.80 Numberofinvestments: 9

NAV(pencepershare): 99.16 Percentagecapitalinvested(2): 90.3%

Discount: (0.36%) Weightedavg.investmentcoupon: 6.23%

Approveddividend(pencepershare)(1): 1.5 Weightedavg.LTV: 62.2%

Dividendpaymentdate(1): 12April2019 Weightedavg.ICR: 208%

(1) For the Quarter ended 31 January 2019.(2) Loans advanced at amortised cost/Total equity attributable to the owners of the Company.

SHARE PRICE TOTAL RETURN V NAV TOTAL RETURN (FROM IPO TO 31 JANUARY 2019)(1)

Shareholder Total ReturnNAV Total Return

-5%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

Jan-

13

May

-13

Sep-

13

Jan-

14

May

-14

Sep-

14

Jan-

15

May

-15

Sep-

15

Jan-

16

May

-16

Sep-

16

Jan-

17

May

-17

Sep-

17

Jan-

18

May

-18

Sep-

18

Jan-

19

(1) Reduction in NAV in April 2017 due to declaration of 2.25 pence per share special dividend.


INVESTMENT ADVISER’SREPORT(CONTINUED)

SUMMARYAt31January2019theinvestmentportfoliocomprisednineloans,followingtherepaymentintheperiodoftheIRAFandHulbertloans,andreinvestmentofproceedsintothe£16.20millionAffinityloancommitment.Afurther£1.50millionwasadvancedtotheborroweroftheMeadowloan.

Theweightedaverageloantovalueratioincreasedto62.2%(31January2018:58.0%),reflectingtherepaymentoftherelativelylowlyleveragedIRAFandHulbertloans.Eachindividualloanremainswellsecured,withtheportfolioICRat208%,substantiallyinlinewith31January2018(218%).

Followingtheyearend,theGroupenteredintoa£15.00millioncommitmentsecuredbyahotelandleisurecomplexinSouthport,Merseyside,ofwhich£12.50millionwasdrawnatclosing.TheloancarriesaninitialLTVratioof59.5%,andmaturesinApril2023.ItisinlinewiththeGroup’sinvestmentparametersandprovidesanattractiveriskadjustedreturn.Additionally,afurther£1.50millionadvancewasmadeontheGroup’sAffinityloan,insupportoftheborrower’songoingrefurbishmentworks.

Thisresultedinanaggregateof£121,271,423beingadvancedasat31March2019andthecashbalancereducedto£3,286,723.

ThesechangestaketheportfolioweightedaverageLTVto63.0%,theweightedaverageresidualloantermto1.13years,andtheweightedaverageloancouponto6.32%.

GROUP PERFORMANCE TheGroup’sperformancewassteadyin2018,withthe£11.94millionIRAFrepaymentimmediatelyreinvestedintotheAffinityloan,minimisingcashdrag.InOctober2018the£6.57millionHulbertloanrepaid,withtheproceedsreinvestedinthe£1.50millionadvancetoMeadow,notedabove,and,inFebruary2019(post-yearend),inthe£15.00millionSouthportloancommitment.TheSouthportloanwasfundedfromcashresourcesanda£3.50milliondrawdownontheOakNorthBankPlcfacility.Alsopostyearend,inMarch2019,afurther£1.50mwasdrawnunderthecommittedAffinityloan.

TheportfoliocontinuestoperforminlinewithexpectationsandincompliancewithalloftheGroup’sinvestmentparameters.

PORTFOLIO

Portfolio statistics 31 January 2019 31 January 2018

Numberofloaninvestments 9 10

Aggregateprincipaladvanced £107,221,546 £111,153,477

WeightedaverageLTV 62.2% 58.0%

WeightedaverageICR 208% 218%

Weightedaverageinterestcoupon 6.23% 6.29%pa

Weightedaverageunexpiredloanterm 0.96years 1.37years

Weightedaverageunexpiredinterestincomeprotection 0.42years 0.53years

Cashheld £12,370,129 £6,486,150


Overview

Governance


Other Inform

ation


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ECONOMY AND FINANCIAL MARKET UPDATEAnnualGDPgrowthfor2018was1.4%,reflectingtheninthconsecutiveyearofgrowth,withmonthlyfiguresforJanuaryandFebruary2019alsobeingstrongandaheadofconsensusexpectations.Lookingforward,theOBRisforecastingcontinuedgrowthforeachofthenextfiveyears.TheOBRdoesexpectgrowthtotemperin2019(to1.2%),howeverthepublicfinancesareinthestrongestpositionsincethefinancialcrisisandappearwellplacedtoweatheranysoftening.

TheUKemploymentsuccessstorycontinues.Thelabourmarketisessentiallyatfullcapacity,with473,000morepeopleinworkinJanuary2019comparedtotheprioryear,andtheemploymentrateof76.1%atanall-timehigh.Lastyearwereportedthattheunemploymentrateof4.3%wasthejointlowestsince1975;ithassincefallenfurther,to3.9%.Unfilledvacanciesarereportedat863,000,furtherhighlightingpositivelabourdemand.

Duringtheyearthestrengthofthelabourmarkettranslatedintorealwagegrowth,withaveragenominalwagesgrowingbycirca3.3%year-on-year,thefastestratesince2008,comparedwithCPIinflationat1.9%attheendofFebruary.Inflationhadbeenonadownwardtrendduringtheyear,withtheJanuary2018ratebeing3.0%,howeverthelatestCPIfiguresdidshowamodestincreasefromtheJanuary2019level,withimportcostsperhapspointingtoafurthermoderateriseininflationinthecomingmonths.

Notwithstandingthestrengthofthelabourmarketandoutlookforprices,theBankofEngland’sdecisionmakingoninterestratesislikelytobeheavilyweightedtowardstheoutcomeofBrexitnegotiations.Fiveyearswaprateshavetrendedmodestlydownwardsoverthesecondhalfoftheyear(fromahighofcirca1.45%inOctober2018tobelow1.00%inMarch2019),perhapsreflectingaviewoftheBankofEnglandbeinginwait-and-seemodefortheforeseeablefuture.

BREXITAnextensionto31October2019oftheArticle50deadlinetoavoidadisruptive“nodeal”BrexithasrecentlybeenagreedbetweentheUKandEuropeanUnion.ItappearsthatthevastmajorityofbothParliamentandtheGovernmentarestronglyagainstleavingwithoutadeal;theEUalsowishestoavoidanodealscenario.Intensivepoliticaldebatewillcontinuealthoughtheendgameisstillasmurkyasever.

OngoingBrexituncertaintyisaffectingbusinessandconsumerconfidenceandfurtherdelaywillnotbehelpful.

Intheeventofa“no-deal”Brexit,weforeseeaperiodofvolatilityinthepropertymarketasitreactstotheincreaseduncertaintywhichwillprovideopportunity.CapitalEconomics–whoseprojectionsprovedrobustintheimmediateaftermathoftheunexpectedreferendumresult–isprojectinga5.4%fallinUKcommercialpropertyvaluesina‘managed’nodealandan8.8%fallinadisorderlyexitscenario.WebelievetheGroup’sportfolioissufficientlyrobusttowithstandanysuchshock,andmoreoveranyvolatilitymaycreateexcellentopportunitiesfornewinvestmentintheeventthat,forexample,open-endedpropertyfundsareforcedtodiveststocktomeetredemptions,asintheimmediateaftermathofthereferendum.

Inwhatwemaycalla‘normalised’Brexitscenario,andaswedetailbelow,consensusopinioninthepropertymarketshasforsometimebeenthattheoutlookforreturnswillbedrivenbyincomeinthecomingyears,giventheextendedmarketcycleandongoingstructuralweaknessinretail.Inourviewthiscontinuestoreinforcethecasefordebtratherthanequityinvesting.

OCCUPATIONAL DEMAND/SUPPLY Theoccupationalmarkets(outsideofretail)remainbroadlypositive,drivenbystrongemploymentdataandjobcreation.Intheofficemarkets,CentralLondontakeupin2018wasslightlyaheadoftheprioryear,whilstintheregions,thestrongestperformerswereGlasgowandManchester,easilysurpassing2017takeup.Glasgowinparticularsawtakeup64%abovethe10-yearaverage,accordingtoCBRE.BristolandBirminghamreportedlyremainstrong,albeitarebothhamperedbylackofavailablesupply.TakeupintheSouthEast,at3.5millionsq.ft.,wasthehighestsince2007.

Industrialandlogisticstakeupcontinuestobepositive.AccordingtoCBRE,2018logisticstakeupof31.5millionsq.ft.wascomfortablyabovethe10yearaverageof21.4millionsq.ft.andanewannualrecord.Rentalvaluegrowthwasalsopositive,at5.2%inthe12monthstoDecember2018.

Thisrepresentsamarkedcontrastwiththeretailmarket,whereCBREreportaverageprimerentsonUKhighstreetsfalling4.4%in2018,withdoubledigitdeclinesinScotland,WalesandtheNorthWest.Itshouldbehighlightedtheaboveexcludessecondaryandnon-corelocations,andeventhenmaybeunderstatingthetrueextentofthedecline–bywayofexampleinMarch2019Nextplcreportedthatinleaserenewalsconcludedfor28storesduringtheyear,itachievedaveragelike-for-likerentalreductionsof29%.Thefallingrentsarereflectiveofthehighvolumeofstoreclosuresduringtheyear(manythroughthecontroversialCVAprocess)andlesscompetitionforspace.

PROPERTY INVESTMENT MARKETIntheinvestmentmarket,LambertSmithHampton’sregularinvestmenttransactionbulletinshowedthat2018wasastrongyearforvolumes,with£16.6billionoftransactionsinQ4takingtheannualtotalto£61.8billion,modestlyaheadof2017andthesecondhighestforadecade.Thisisevenmoreimpressivewhenconsideredinthelightofaslumpinretailinvestmentvolumes28%belowthe10-yearaverage.

Industrialinvestmentwasatarecordhighwith£8.4billiontransacted,andofficevolumeswere29%abovethe10-yearaverage,ledbyCentralLondon(£16.9billion)whereBrexitdoesnotappeartohavedeterredoverseaspurchasers,particularlyfromtheFarEast,frommakingsizeablecommitments(albeitsomemaybetakingadvantageofthefavourableexchangerate).

Towardstheendof2018andinparticularinearly2019,thedatashowthatvolumeshavesoftened,withtotalinvestmentinJanuaryandFebruary2019onlyhalftheleveloftheprioryear.ThishasbeenreflectedinourownexperienceasinvestorsborrowingfinancetookamorecautiousapproachtodecisionmakingamidstwhatatthetimeappearedtobethepeakoftheBrexitturmoil.Wehaveseenamaterialincreaseinactivityfromlate-Februaryonwardand,asandwhenmoreclarityemergesonBrexit,weexpectthistrendtocontinueastheweightofmoneyallocatedtoUKpropertyremainsstrong.

All-propertycapitalvaluesroseby2.1%during2018,ameaningfulslowdownfromthe5.2%growthreportedintheprioryear,andlargelydrivenbya6%fallinretailvalues.Totalreturnsfellto7.5%,from10%ayearearlier.Lookingforward,IPFconsensusforecastsshowtotalreturnsaveragingcirca3%during2019and2020,beforerisingto4.9%in2021.Ineachcasetheoutlookforreturnsisexpectedtobedrivenbyincome,albeitrentalvaluegrowthisexpectedtobesubdued,particularlygiventheongoingstructuralweaknessinretail.


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FINANCE MARKETSAccordingtothelatestCassBusinessSchoolLendingSurvey,thevalueoftotaloutstandingCREloansdippedonlymarginally(2.5%)throughthefirsthalfof2018suggestingthebeginningofalevellingoutofloanbooksafterafewyearsofdecline–theBankofEnglandreportedhistoricyearlyfallsof6.8%,7.2%and7.6%between2017and2015.CasshighlightthatthisputscurrentoutstandingUKpropertydebtat£163billion,some36%lowerthanthe2008peakof£255billion.

WhilsttheUK’soverallloanbookisshowingsignsofstabilisation,thenatureofthelenderssupplyingdebtcapitaltothemarketcontinuestochange.AreviewoftheyearendaccountsoftheUKclearingbanksshowstheyaregenerallystillreducingtheirexposuretothesector.During2018,LloydsBankingGroupreportedareductioninitsUKcommercialrealestateloanbookbycirca£0.1billion(0.6%);RoyalBankofScotlandbycirca£2.17billion(8.5%);andSantanderbycirca£1.86billion(22%),asregulatoryconstraintsandcreditappetitecontinuetoaffectbusinessvolumes.

Meanwhilealternativelenderscontinuetothrive.AccordingtotheCassSurvey‘OtherLenders’,whichincludesalternativenon-banklenderssuchastheGroup,sawloanoriginationsincreaseby21%inH12018,thelatestdataforwhichfiguresareavailable.

Interestingly,accordingtotheCasssurvey,respondentsput‘PropertyFundamentals’aheadof‘Brexit’asthekeycurrentlendingrisk.Thisdoubtlessreflectsthewidelyreportedstructuralchallengesintheretailsectorandtheextendedpropertycycle,butreinforcesourviewthatthelendingmarketremainssanguineaboutbusinessprospectsspecificallyrelatedtoBrexit.

PORTFOLIO PROFILE AND ACTIVITYTheGroup’sinvestmentportfoliowasgenerallystableduringtheyear,withtworepayments–the£11.94millionIRAFloanandthe£6.57millionHulbertloan–andonenewinvestment,anew£16.20millioncommitmentsecuredbyaBristolofficebuilding(theAffinityloan).A£1.50millionincreasetotheMeadowloanwasadvancedinDecember2018.TheGroupalsoagreedloanextensionswiththeborrowersoftheHalcyon,CarraraandNorthlandsloans,allowingshareholderstobenefitfromthesemodestlyleveragedandperformingassetsforanextendedperiod.

OverthereportingperiodtheGroup’sinvestmentshavecontinuedtoperforminlinewithbusinessplanswithunderlyingperformancegenerallystableorimproving.Allfinancialcovenantsareincompliance.Theweightedaverage

LTVatyearendwas62.2%(31January2018:58.0%),astheGroupcontinuestotransitionitsloanportfolioundertherevisedinvestmentpolicy.TheweightedaverageICRontheportfolioremainsrobustat208%,broadlyinlinewiththe218%reportedat31January2018.

InFebruary2019,followingyearend,theGroupadvancedanew£15.00millionloancommitmenttoBlissHotelsgroup,securedbyahotelandleisurecomplexinSouthport,Merseyside.

Followingthepost-yearendevents,theweightedaverageLTVoftheGroup’sinvestmentsis63.0%,theweightedaverageICRis202%andweightedaveragecouponhasincreasedto6.32%.Theaverageunexpiredloantermhasincreasedto1.13years,astheinvestmentportfoliocontinuestotransition.

TheInvestmentAdviserbelievestheGroup’sloanportfoliocontinuestobesatisfactorilysecured,givenitsseniorpositionwithaweightedaverageexposureof62.2%LTVatyearend.Riskremainswell-diversifiedatportfoliolevelbysectorandregion.Exposuresarepredominantlyagainstmulti-propertyormulti-tenantedsecurity,andwhereappropriateinterestissupportedbyfullyfundedcashreserves.

PORTFOLIO OUTLOOKAstheGroup’sshorter-dated,lower-returningloansreachmaturity,withanexpectationofrepaymentinthefirsthalfofthefinancialyear,thereisnowastrongopportunitytocementthetransitionoftheportfoliotowardsnewer,longer-datedandhigher-returningloansinlinewiththestatedinvestmentobjectives.

Inpreparationfortherapidreinvestmentofanyrepaidproceeds,theInvestmentAdviserhasagreedtermsonthreenewandrenewaltransactionswithanaggregatecommittedbalanceinexcessof£45million,which,ifcompleted,willsignificantlyincreasetheweightedaverageinvestmentcouponandloanduration,andprogresstheCompanytowardsafullycovereddividend.

TheUKretailmarketremainschallenged,andalthoughsuchdifficultiesalwayspresentopportunities,extremeselectivityandcautioniswarranted.ItshouldbenotedthattheGroup’sexposuretoretailislowat20%(theMeadowloan)andsecuredbyasiteundergoingplanningapprovalforalargeresidentialdevelopment.Exposuretotrueretailislimitedtolocalconvenienceshoppingparades(withintwooftheloanssecuredbymixed-useportfolios),asub-marketwhichislessexposedtothegeneraltravailsofthesector.



LOAN PORTFOLIOAssetoutabove,asat31January2019,theGroup’sportfoliocomprisednineloanswithanaggregateprincipalbalanceoutstandingof£107.22million.

Asummaryofeachoftheindividualloansasat31January2019issetoutbelow:

Meadow

Originallyan£18.07millionseniorloanfacilityusedtoassistfinancinganestablishedandwellsupportedinternationalrealestatefundintheacquisitionofahighlyprominentretailparkinNorthLondon.TheborrowerisanSPVownedbyMeadowRealEstateFundIILPandismanagedbyMeadowPartners,aninternationalrealestateinvestorandassetmanager.

Theestateisnowvacant,saveforsometemporaryoccupancyofpartofthesite,anddebtservicecontinuestobemetfromapre-fundedreserveaccount(toppedupquarterly)whichprovidesinterestcoverthroughtoloanmaturity.Theloanremainscompliantwithallcovenantsandissatisfactorilysecured.

Duringtheyear,a£1.50millionincreasewasadvancedtotheborrower,withtheloanextendedforafurtherperioduptoJanuary2020.Theincreasesupportedtheacquisitionofanadjoiningsitewhichwasdeemedtoholdmarriagevaluewiththemainschemebyenhancingaccessroutes.

Aspreviouslyreported,thesponsorisintheadvancedstagesofreachingadeterminationonitsresidentialproposalsforthesite.WhilstBarnetCouncilinitiallyrejectedtheapplication,theLondonMayorcalledintheproposalon5November2018forhisowndetermination.Adecisionispending.

Property profile Debt profile

Numberofproperties 1 Dayonedebt £18,070,000

Propertyvalue(£) £30,600,000* Debtoutstanding £21,500,000

Propertyvalue(£/sq.ft.) £329.45 Originalterm 4.3years

Propertyareasq.ft. 92,882 Maturity January2020

Numberoftenants n/a CurrentLTV 70.3%

Weightedleaselength n/a CurrentICR 100%

Loanexposurepersq.ft. £231.48

*Thepropertyvalueof£30.6mreflectsthecurrentvalueofthepropertyincludingthepotentialupliftinvaluewhichmaybeachievedshouldplanningpermissionbeobtained.

Northlands

Originallya£7.20millionseniorloanfacilityusedtorefinanceexistingseniordebtsecuredonamixeduseportfolioofhighstreetretail(46%),officeandtenantedresidentialunitslocatedpredominantlyinLondonandtheSouthEast.TheborrowerisNorthlandsHoldingsandgroupaffiliatesonacross-collateralisedbasis.

Thesecurityportfolioishighlydiverseacrossitspropertyandtenantbase,principallybeinglettoconvenienceretailandresidentialoccupiers.Followingcertainchangestotheunderlyingpropertysecuritypoolandadditionaladvances,theloanbalanceisnow£8.50million,reflecting53.5%LTV.

ThesponsorandCompanyhaveagreedtermsforafullrefinancingofthefacility,onattractiverisk-adjustedterms,insupportofthenextphaseofthesponsor’sbusinessplan.Postyearend,ashorttermextensionofthecurrentloanmaturityhasbeenagreedwhilsttherefinancingprogresses.



Propertyvalue(£) £15,877,950 Debtoutstanding £8,500,000


Propertyareasq.ft. 121,285 Maturity February2019(extendedtoNovember2019)Numberoftenants 119

Weightedleaselength 2.17years CurrentLTV 53.5%

CurrentICR 158%



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LOAN PORTFOLIO (CONTINUED)

Halcyon

Originallya£8.60millionseniorloanfacilityutilisedtorefinanceaportfoliooffreeholdgroundrents.

Duringtheyeartheloanwaspartiallyrepaidby£2.17mfollowingthereleaseofthreefreeholdassetswhichwassanctionedonthebasisthattheoverallcreditriskdynamicontheportfoliodidnotchange.

Withtheloanbeingsecuredbyaportfolioofdefensivefreeholdgroundrentinvestments,thesecuritypositionisconsideredstrongdespiteanICRbelowtheaverageoftheGroup’sinvestments.

Arepaymentofthefacilityisexpectedinadvanceofthescheduledloanmaturity.





Propertyareasq.ft. 263,545 Maturity December2019

Numberoftenants 4 CurrentLTV 65.2%

Weightedleaselength 83.76years CurrentICR 115%


Carrara

A£1.30millionseniorloanfacilitywasusedtorefinanceanindividualgroundrentinvestment.

TheCarrarasecuritycomprisesasinglevirtualfreeholdgroundrentinvestmentlocatedinLeedswithanunexpiredleasetermof82years,subjecttoagroundrentof25%ofmarketrent.ThepropertyisamodernofficebuildingonanestablishedbusinessparkaccessedfromtheM1motorway.GiventheGroup’sseniorpositioninthecapitalstructureagainstthesuperiorfreeholdinterestintheasset,thesecuritypositionremainsverystrong.

Arepaymentofthefacilityisexpectedinadvanceofthescheduledloanmaturity.





Propertyareasq.ft. 24,470 Maturity December2019







Ramada

A£7.98millionloantoQuayHotelsLimited,whichhadanoriginalmaturitydateofApril2019.

TheinvestmentissecuredbyafirstandonlychargeovertheRamadaEncorehotelinGateshead,amodern200bedroomhotelwhichwasconstructedin2012.Thesecuredproperty,whichisoperatedbyWyndhamHotelsGroup,issituatedinahighlyvisiblelocationinGatesheadQuays,adjacenttotheBalticCentreforContemporaryArtandwithinashortwalkoftheSageGatesheadconcertvenueandtheMillenniumfootbridgewhichlinksGatesheadandNewcastlequaysideareas.

TheLTVpositionoftheloan,at66%,andICR(162%)remainrobust.

Ashorttermextensionoftheloanisunderdiscussionwiththeborrower.Thiswillallowshareholderstoenjoyincomeontheloanforanextendedperiod.




Propertyvalue(£/bedroom) £60,500 Originalterm 5.0years

Bedrooms 200 Maturity April2019

CurrentLTV 66.0%

CurrentICR 162%

Loanexposureperbedroom £39,912.50

Commercial Regional Space

A£22.40millionloantoCommercialRegionalSpaceLimitedandaffiliatesmadeon16March2016,andsecuredbyfirstchargesagainsttwomulti-letindustrialestateslocatedinLancashirecomprising1.25millionsq.ft.ofaccommodationandprovidingahighlydiversifiedincomestreamfromlettingstoover160tenants.

Performancecontinuestoremainrobustduringtheyear,withincomestableandtheloanbeingconsideredverywellsecured.

Postyearend,ashorttermextensionoftheloanwasagreed,atanimprovedinterestrate,whilstarefinancingisprogressed.Thereafterweanticipaterepaymentoftheloaninthecomingsixmonths.




Propertyvalue(£/sq.ft.) £36.81 Originalterm 3years

Propertyareasq.ft. 1,195,197 Maturity July2019





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BMO

TheGroupadvancedanew£16.00millionloantoclientsofBMORealEstatePartners,withaninitialLTVratioof55.4%andamaturitydateinApril2019.Theloanwasoriginallysecuredbyfirstchargesagainstaportfolioof17propertieslocatedacrosstheUK,principallyinthehighstreetretailandindustrialsectors,andprovidesadiversifiedincomestream.

Arepaymentofthefacilityisexpectedinthecomingquarter.Howeverashortextensionisbeingagreedtoallowrefinancingtobefinalised.




Propertyvalue(£/sq.ft.) £96.50 Originalterm 2years

Propertyareasq.ft. 318,036 Maturity April2019




Quattro

On17October2017,theGroupadvancedanew£9.00millionloantoaprivatepropertycompany,securedbythreemixeduseassetsinandaroundtheLondonBoroughofKingston.TheGroupinitiallyfinanceda£6.00millionparticipationintheloansubsequently,acquiringtheminority£3.00millionpositionfromICGfollowinganequityissuanceunderthe2017PlacingProgramme.

TheloancarriesaninitialLTVratioof83.7%,atthetopendoftheGroup’sinvestmentparameters,howeveritofferssignificantincomeandvaluegrowthopportunities.

Theloanisstructuredwithaprofitparticipationcomponent,allowingtheGrouptobenefitfromanyfuturevaluegrowthintheportfoliowhilstretainingthesecurityofaseniorfirstmortgageposition.Therehasbeennovaluegrowthtodateandaccordinglynovalueiscurrentlyascribedtotheprofitparticipation.





Propertyareasq.ft. 38,038 Maturity January2021







Affinity

On28February2018,anew£16.20millioncommitmentwasmade,ofwhich£14.20millionwasadvanced,torefinanceamulti-letofficepropertyinBristol,andtoprovidea£2.00millioncapitalexpenditurefacilitytofundarefurbishmentprogramme.Theloanissecuredbyafivestoreyofficeblockcomprising114,364sq.ft.lettotentenantswithacontractedrentof£1.24millionperannumandaninitialweightedunexpiredleasetermatloanclosingof4.9years.

Theloancontinuestoperforminlinewiththebusinessplanwithsomekeyleaserenewalssecuredduringtheperiod.





Propertyareasq.ft. 114,364 Maturity May2022




Followingyearend,thefollowingloanwasaddedtotheportfolio:

Southport Hotel

A£15millionloancommitment,ofwhich£12.50millionhasbeendrawn,securedbyahotelandleisurecomplexinSouthport,Merseyside.Theinitialloantovalueratiois59.5%.

Thehotelhasademonstrabletradinghistorywithabusinessplanfocusedoninvestinginimprovingtheasset,renovatingthebedroomsandthereafterdrivingroomrates.




Propertyvalue(£/bedroom) £157,895 Originalterm 4years

Propertyvalue(£/sq.ft.) £462.25 Maturity April2023

Bedrooms 133 CurrentLTV 59.5%

Propertyareasq.ft. 45,430 CurrentICR 143%

LoanExposureperbedroom £93,984.96

ICG-LONGBOW 23April2019


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INVESTMENT POLICY


INVESTMENT POLICYTheGroup’sinvestmentpolicyistoinvestin:

O directrealestatedebtinvestmentsviaadiversifiedloanportfoliocomprisedoffirstrankingloanssecuredonUKCommercialProperty,withanaggregateLTVofnomorethan75%(basedontheinitialvaluationsatthetimeofloanoriginationoracquisitiononcefullyinvested);and

O ICGPrivateFundsacquiredinprimaryorsecondarytransactions,includingfromtheInvestmentAdviseroritsassociates.

INVESTMENT RESTRICTIONSA.Thefollowingrestrictionsapplytoloaninvestmentswithin

theportfolio.

TheGroupwill,subjectassetoutbelow,onlyinvestinloansthat:

O areoriginatedbytheInvestmentAdviseroritsassociates;

O aredenominatedinPoundsSterling;

O benefitfromafirstrankingfixedchargeovertherelevantproperties,includinginrespectofanyreceivableincome;

O benefitfromloancovenantsstructuredtoensurethatamaterialdecreaseintheincomeorvaluefromtheunderlyingpropertywilltriggeraneventofdefaultorcash-flowlock-up;

O haveatermofnogreaterthantenyearsfromthedateofinvestment;

O haveanLTVnohigherthan85%atthetimeoforiginationoracquisitionprovidedhoweverthattheaggregatevalueoftheloanswithanLTVofgreaterthan80%shallbenogreaterthan20%oftheGroup’sgrossassetvalue;and

O arebilateral(otherthanwheresyndicatedwithotherfundsmanagedbytheInvestmentAdviseroritsassociates).

Atthetimeanyinvestmentismade:

O themaximumpercentageoftheGroup’sgrossassetsallocatedtoasingleloanshallbe10%,providedthatthelimitmaybeincreasedto15%inrespectofloansbenefitingfromInvestmentGradeTenantsand20%inrespectofloansbenefitingfromadiversifiedtenantprofile;

O themaximumpercentageoftheGroup’sgrossassetsallocatedtoasingleborrower(togetherwithitsparents,subsidiariesand/oraffiliates)shallbe20%;

O themaximumexposureofthegrossrentsreceivableonallloaninvestmentstoasingleunderlyingtenantshallbe10%,exceptinthecaseoftheUKGovernment,whenthemaximumexposureshallbe25%;

O themaximumexposuretoamainstreampropertysectororthemixedpropertysectorshallbe50%oftheGroup’sgrossassets;

O themaximumexposuretoanalternativepropertysectorshallbe25%oftheGroup’sgrossassets;

O themaximumexposuretopropertywhichisnotamainstreampropertysector,analternativepropertysectororthemixedpropertysectorshallbe5%oftheGroup’sgrossassets;

O themaximumexposuretopropertywithinasingleUKeconomicregionshallbe30%oftheGroup’sgrossassets,providedthatthemaximumexposuretoGreaterLondonpropertyshallbe60%oftheGroup’sgrossassets;and

O thevalueoftheGroup’ssecuritywhichisnotfreeholdtenureorlong-leaseholdtenurewithanunexpiredtermofmorethan50yearsshallnotbegreaterthan5%ofthetotalvalueoftheGroup’ssecurity.

TheGroupwillnotinvestinsubordinatedloansandmezzanineloans,bridgeloans,developmentloansorloan-on-loanfinancings.

B.Thefollowingrestrictionsapplytotheportfolio’sindirectrealestateexposure.

TheGroupmayonlyinvestinICGPrivateFundswhereatthedateofmakinganinvestmentorcommitment:

O therelevantICGPrivateFund’sinvestmentparameters,investmentpolicyand/orinvestmentobjective,asthecasemaybe,requirethatatleast90%ofthatICGPrivateFund’scapitalisinvestedinPoundsSterlingdenominatedloanssecuredbycommercialrealestateandatleast60%inloanssecuredbyfirstrankingsecurityoverCommercialProperty;

O themaximumpercentageoftheGroup’sgrossassetscommittedtoasingleICGPrivateFundshallbe20%,wheregrossassetsarecalculatedontheassumptionthattheGroup’scommitmenttosuchfundisfullyutilised;and

O themaximumpercentageoftheGroup’sgrossassetscommittedtoallICGPrivateFundsshallbe30%,wheregrossassetsarecalculatedontheassumptionthattheGroup’scommitmenttosuchfundsisfullyutilised.

GEARINGTheGroupmayutiliseborrowingsfromtimetotimeinordertofinanceitsworkingcapitalrequirementsprovidedthatsuchborrowingswillnotexceedanamountequalto20%oftheGroup’sNetAssetValueimmediatelyfollowingthedrawdownoftheborrowings.

CASH MANAGEMENT POLICYCashheldbytheGrouppendinginvestmentordistributionwillbeheldineithercashorcashequivalents.TheGroupmayinvestinquotedbondandotherdebtinstrumentswithafinalmaturityoflessthan365daysaswellasmoneymarketfundsforthepurposesofcashmanagementprovidedanysuchinstrumenthasaminimumcreditrating.TheGroupwillnotapplygearingtothesetemporaryinvestments.

TheGroupwillnotinvestinotherlistedorunlistedclosed-endedfunds.

AnymaterialchangetotheGroup’spublishedinvestmentpolicywillbemadeonlywiththepriorapprovalofshareholdersbyordinaryresolution.


BOARDOFDIRECTORS

APPOINTMENT: AppointedtotheBoardandasaChairmaninNovember2012

EXPERIENCE:Jackpursuesacareerasaportfolionon-executivedirector.Inadditiontoanumberofcurrentpublicandcharitableappointments,heischairmanofEuropeanAssetsTrustPLCandanon-executivedirectorofWitanInvestmentTrustplc.HewasChiefExecutiveOfficerofScottishEnterpriseandpriortothiswasamanagingpartnerandregionalindustryleaderforErnst&YoungLLP.JackwasalsochairmanofCBIScotland.HehasservedontheBoardsofFTSE250andotherpublicandprivatecompaniesandisamemberoftheInstituteofCharteredAccountantsofScotland.

COMMITTEE MEMBERSHIP: NominationCommittee,ManagementEngagementCommitteeJACK PERRY CBE

Chairman and Non-Executive Independent Director

APPOINTMENT: AppointedtotheBoardinNovember2012

EXPERIENCE:StuartisanIndependentConsultantwithvariousrolesadvisingclientsinrealestatefundmanagement,investment,developmentandassetmanagement.HeisBoardMemberofMetropolitanThamesValleyHousingandnon-executivedirectorofEmpiricStudentPropertyplc.From2004to2013hewasanon-executivedirectoratUniteGroupPlc.From2002to2011hewasManagingDirectorofGrosvenorFundManagementLimitedandamemberoftheBoardofGrosvenorGroupLimited,theinternationalpropertygroup.PriortojoiningGrosvenor,hewasManagingDirectoratLegalandGeneralPropertyLimited,havingpreviouslyheldanumberofrolesatNorwichUnion(nowAviva).StuartisaCharteredSurveyorwithover30years’experienceinrealestatebothintheUKandoverseas.

COMMITTEE MEMBERSHIP: AuditandOperationalRiskCommittee,InvestmentRiskCommittee,NominationCommittee

STUART BEEVOR

Non-Executive Independent Director


EXPERIENCE:PatrickqualifiedasaCharteredAccountantwithKPMGGuernseyin1991andisalsoamemberoftheCharteredInstituteforSecuritiesandInvestment.HehasworkedinthefundindustryinGuernseysincejoiningRothschildAssetManagement(CI)Limitedin1992beforemovingtobecomeManagingDirectoratButterfieldFundServices(Guernsey)Limited(subsequentlyButterfieldFulcrumGroup(Guernsey)Limited),acompanyprovidingthirdpartyfundadministrationservices,whereheworkedfromApril2002untilJune2009.Heisanon-executivedirectorofanumberofinvestmentfundsandmanagementcompanies,includingGLIFinanceLimited,RiverstoneEnergyLimited,JZCapitalPartnersLimitedandNextEnergySolarFundLimited.MrFirthisaresidentofGuernsey.

COMMITTEE MEMBERSHIP: AuditandOperationalRiskCommittee,NominationCommittee,ManagementEngagementCommittee,InvestmentRiskCommittee

PATRICK FIRTH



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BOARDOFDIRECTORS(CONTINUED)


EXPERIENCE:Markhasover40years’experienceinthefundandfiduciarysectorandmuchofhisinvolvementinthefundandprivateassetsectorshasinvolvedrealestateandprivateequityinvestments.Heholdsanumberofboardappointmentsonlistedandprivatefundsandpropertyadvisoryboardsincludingnon-executiveboardappointmentofthefollowinglistedcompanies:MacauPropertyOpportunitiesFundLimited,StirlingMortimerNo.8FundUKLandLimitedandStirlingMortimerNo.9FundUKLand2Limited.HehasbeenactivelyinvolvedinrealestateinvestmentintheUKandinternationally.Healsohasexperienceofanumberofprivateandlisteddebtstructures.MarkisanAssociateoftheInstituteofFinancialServices(TrusteeDiploma).

HeactedasaconsultanttotheAdministratorfollowingthesaleofthecompanyinNovember2017.Thepurposeoftheconsultancywastoprovidecorporateknowledgeprimarilyforthethreemonthsfollowingsaleto31January2018.Noremunerationhasbeenpaidandheholdsnoexecutiverolesorfunctions.TherehasbeennoinvolvementwiththeAdministratorunderthisarrangementconcerningtheGroup’sactivities.TheconsultancyisnotactiveandwillexpireinOctober2019.

COMMITTEE MEMBERSHIP: InvestmentRiskCommittee,NominationCommittee

MARK HUNTLEY

Non-Executive Director


EXPERIENCE:Paulisanindependentdirectorofinvestmentcompanies,insurersandinvestmentfunds.Untiltheautumnof2012hewasHeadofPortfolioManagementforCollinsStewartbasedinGuernsey,priortowhichhewasChiefExecutiveofCorazonCapital.Hehasover30years’experienceinfinancialmarketsinLondon,DublinandGuernsey,holdingseniorpositionsinportfoliomanagementandtrading.PriortojoiningCorazonhewasManagingDirectorofRothschild’sSwissprivate-bankingsubsidiaryinGuernsey.Heisanon-executivedirectorofthefollowinglistedcompanies:GuaranteedInvestmentProducts1PCCLimited,VoltaFinanceLimited,SchroderOrientalIncomeFundLimited,SQNAssetFinanceIncomeFundLimitedandJPMorganGlobalConvertiblesIncomeFundLimited.PaulisaCharteredFellowoftheCharteredInstituteofSecurities&Investments,apastCommissioneroftheGuernseyFinancialServicesCommissionandpastChairmanoftheGuernseyInternationalBusinessAssociation.HeisagraduateofHertfordCollege,Oxford.

COMMITTEE MEMBERSHIP: AuditandOperationalRiskCommittee,InvestmentRiskCommittee,NominationCommittee,ManagementEngagementCommittee

PAUL MEADER



REPORT OFTHEDIRECTORS

TheDirectorsherebysubmittheAnnualReportandConsolidatedFinancialStatementsfortheGroupfortheyearended31January2019.ThisReportoftheDirectorsshouldbereadtogetherwiththeCorporateGovernanceReportonpages24to31.

GENERAL INFORMATIONTheCompanyisanon-cellularcompanylimitedbysharesincorporatedon29November2012undertheCompaniesLaw.TheCompany’sregistrationnumberis55917,andithasbeenregisteredwiththeGFSCasaregisteredclosed-endedcollectiveinvestmentscheme.TheCompany’sordinaryshareswereadmittedtothepremiumsegmentoftheFCA’sOfficialListandtotradingontheMainMarketoftheLondonStockExchangeon5February2013.

PRINCIPAL ACTIVITIESTheprincipalactivityoftheGroupistoinvestinseniorsecureddebtinvestments.TheinvestmentobjectiveoftheGroupistoconstructaportfolioofUKrealestatedebtrelatedinvestmentspredominantlycomprisingloanssecuredbyfirstranking

fixedchargesagainstcommercialpropertyinvestments,withtheaimofprovidingshareholderswithattractive,quarterlydividends,capitalpreservationand,overthelongerterm,adegreeofcapitalappreciation.

BUSINESS REVIEWAreviewoftheGroup’sbusinessanditslikelyfuturedevelopmentisprovidedintheChairman’sStatementonpages3to4andintheInvestmentAdviser’sReportonpages5to14.

LISTING REQUIREMENTSSincebeingadmittedon5February2013totheOfficialListmaintainedbytheFCA,theCompanyhascompliedwiththeapplicableListingRules.

RESULTS AND DIVIDENDSTheresultsfortheyeararesetoutintheFinancialStatementsonpages42to63.

Duringtheyear,andsincetheyearend,theDirectorsdeclaredthefollowingdividends:

Dividend Quarter Ended Date of Declaration Payment Date

Amount per Ordinary

Share (pence)

Interimdividend 31January2018 13March2018 20April2018 1.5

Interimdividend 30April2018 28June2018 27July2018 1.5

Interimdividend 31July2018 2October2018 2November2018 1.5

Interimdividend 31October2018 7December2018 18January2019 1.5

Interimdividend 31January2019 8March2019 12April2019 1.5

SHARE CAPITALAtincorporationon29November2012,theCompanyissuedonefoundingordinaryshareofnoparvalue.On5February2013theCompanyissuedafurther104,619,249ordinarysharesofnoparvalueat£1perordinaryshareinanIPO.On24April2014,theCompanyissued3.6millionnewordinarysharesat102pencepershare,apremiumof2pencepershareaboveIPOissueprice.On26October2017,theCompanyissued8.82millionnewordinarysharesat102pencepershare,apremiumof2pencepershareaboveIPOissueprice.On27March2018,theCompanyissued4.26millionnewordinarysharespursuanttotheremainingauthoritytoallotafurther31.2millionsharesunderthe2017PlacingProgramme.

TheCompanyhasoneclassofordinaryshares.Theissuednominalvalueoftheordinarysharesrepresents100%ofthetotalissuednominalvalueofallsharecapital.UndertheCompany’sArticlesofIncorporation,onashowofhands,each

shareholderpresentinpersonorbyproxyhastherighttoonevoteatAnnualGeneralMeetings.Onapoll,eachshareholderisentitledtoonevoteforeveryshareheld.On1March2017,theproposedresolutionthatCompanyhavethepowertoallotuptoanadditional40,000,000shareswasdulypassedwithoutamendment.

ShareholdersareentitledtoalldividendspaidbytheCompanyand,onawindingup,providingtheCompanyhassatisfiedallofitsliabilities,theshareholdersareentitledtoallofthesurplusassetsoftheCompany.Theordinaryshareshavenorighttofixedincome.


REPORT OFTHEDIRECTORS(CONTINUED)

SHAREHOLDINGS OF THE DIRECTORSTheDirectorswithbeneficialinterestsinthesharesoftheCompanyasat31January2019and2018aredetailedbelow:

Director

Ordinary Shares of £1 each held

31 January 2019

% holding at 31 January

2019

Ordinary Shares of £1 each held

31 January 2018

% holding at 31 January

2018

JackPerry 50,000 0.04 50,000 0.04

StuartBeevor 30,000 0.02 20,000 0.02

PaulMeader 25,000 0.02 25,000 0.02

PatrickFirth 10,000 0.01 10,000 0.01

MarkHuntley 10,000 0.01 10,000 0.01

Directors’beneficialinterestsinthesharesoftheCompanyasat22March2019,beingthemostcurrentinformationavailable,areunchangedfromthosedisclosedabove.

DIRECTORS’ AUTHORITY TO BUY BACK SHARES TheDirectorsbelievethatthemosteffectivemeansofminimisinganydiscounttoNetAssetValuewhichmayariseontheCompany’sshareprice,istodeliverstrong,consistentperformancefromtheGroup’sinvestmentportfolioinbothabsoluteandrelativeterms.However,theBoardrecognisesthatwidermarketconditionsandotherconsiderationswillaffecttheratingofthesharesintheshorttermandtheBoardmayseektolimitthelevelandvolatilityofanydiscounttoNetAssetValueatwhichthesharesmaytrade.ThemeansbywhichthismightbedonecouldincludetheCompanyrepurchasingshares.Therefore,subjecttotherequirementsoftheListingRules,theCompaniesLaw,theArticlesandotherapplicablelegislation,theCompanymaypurchasesharesinthemarketinordertoaddressanyimbalancebetweenthesupplyofanddemandforsharesortoenhancetheNetAssetValueofshares.

IndecidingwhethertomakeanysuchpurchasestheDirectorswillhaveregardtowhattheybelievetobeinthebestinterestsofshareholdersandinaccordancewiththeapplicableGuernseylegalrequirementswhichrequiretheDirectorstobesatisfiedonreasonablegroundsthattheCompanywill,immediatelyafteranysuchrepurchase,satisfyasolvencytestprescribedbytheCompaniesLawandanyotherrequirementsinitsMemorandumandArticlesofIncorporation.ThemakingandtimingofanybuybackswillbeattheabsolutediscretionoftheBoardandnotattheoptionoftheshareholders.AnysuchrepurchaseswouldonlybemadethroughthemarketforcashatadiscounttoNetAssetValue.

AnnuallytheCompanypassesaresolutiongrantingtheDirectorsgeneralauthoritytopurchaseinthemarketupto14.99%ofthesharesinissueimmediatelyfollowingAdmissionatapricenotexceedingthehigherof(i)5%abovetheaveragemid-marketvaluesofsharesforthefivebusinessdaysbeforethepurchaseismadeor(ii)thehigherofthelastindependenttradeorthehighestcurrentindependentbidforshares.TheDirectorsintendtoseekrenewalofthisauthorityfromtheshareholdersattheAnnualGeneralMeeting.

Pursuanttothisauthority,andsubjecttotheCompaniesLawandthediscretionoftheDirectors,theCompanymaypurchasesharesinthemarketonanon-goingbasiswithaviewtoaddressinganyimbalancebetweenthesupplyofanddemandforshares.

SharespurchasedbytheCompanymaybecancelledorheldastreasuryshares.TheCompanymayborrowand/orrealiseinvestmentsinordertofinancesuchsharepurchases.

TheCompanydidnotpurchaseanysharesfortreasuryorcancellationduringtheyearortodate.

DIRECTORS’ AND OFFICERS’ LIABILITY INSURANCETheGroupmaintainsinsuranceinrespectofdirectors’andofficers’liabilityinrelationtotheiractsonbehalfoftheGroup.Insuranceisinplace,havingbeenrenewedon30December2018.

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SUBSTANTIAL SHAREHOLDINGSAsat31January2019,theCompanyhadbeennotified,inaccordancewithChapter5oftheDisclosureandTransparencyRules,ofthefollowingsubstantialvotingrightsasshareholdersoftheCompany.

Shareholder Shareholding % holding

CloseBrothersAssetManagement 21,243,517 17.51

BrooksMacdonald 11,356,118 9.36

TDCPensionskasse 10,653,156 8.78

PremierAssetManagement 10,300,000 8.49

IntermediateCapitalGroup 10,000,000 8.24

Canopius 9,806,107 8.08

KleinwortHambros 6,259,802 5.16

Inaddition,theCompanyalsoprovidesthesameinformationasat22March2019,beingthemostcurrentinformationavailable.

Shareholder Shareholding % holding

CloseBrothersAssetManagement 21,102,083 17.40

Canopius 11,006,107 9.07

TDCPensionskasse 10,653,156 8.78

PremierAssetManagement 10,300,000 8.49

IntermediateCapitalGroup 10,000,000 8.24

BrooksMacdonald 9,791,465 8.07

KleinwortHambros 6,172,312 5.09

TheDirectorsconfirmthattherearenosecuritiesinissuethatcarryspecialrightswithregardtothecontroloftheCompany.

INDEPENDENT EXTERNAL AUDITORDeloitteLLPhasbeentheCompany’sexternalauditorsincetheCompany’sincorporation.TheAuditandOperationalRiskCommitteereviewstheappointmentoftheexternalauditor,itseffectivenessanditsrelationshipwiththeCompany,whichincludesmonitoringtheuseoftheexternalauditorfornon-auditservicesandthebalanceofauditandnon-auditfeespaid,asincludedinNote15.Followingareviewoftheindependenceandeffectivenessoftheexternalauditor,aresolutionwillbeproposedatthe2019AnnualGeneralMeetingtore-appointDeloitteLLP.EachDirectorbelievesthatthereisnorelevantinformationofwhichtheexternalauditorisunaware.Eachhadtakenallstepsnecessary,asaDirector,tobeawareofanyrelevantauditinformationandtoestablishthatDeloitteLLPismadeawareofanypertinentinformation.ThisconfirmationisgivenandshouldbeinterpretedinaccordancewiththeprovisionsofSection249oftheCompaniesLaw.FurtherinformationontheworkoftheexternalauditorissetoutintheReportoftheAuditandOperationalRiskCommitteeonpages32to34.

ARTICLES OF INCORPORATIONTheCompany’sArticlesofIncorporationmayonlybeamendedbyspecialresolutionoftheshareholders.

NMPI STATUS ThereisnochangetotheCompany’sstatusinrespectofNMPIandtheCompanyremainsontheAIClistofexemptedsecurities.

TheCompanycontinuestomakeallreasonableeffortstoconductitsaffairsinsuchamannersothatitssharescanberecommendedbyUKfinancialadviserstoordinaryretailinvestorsinaccordancewiththeFCA’srulesrelatingtonon-mainstreaminvestmentproducts.

AIFMDTheCompanyisaninternallymanagednon-EUdomiciledalternativeinvestmentfund.AnyofferofsharestoprospectiveinvestorswithinselectedmemberstatesoftheEuropeanEconomicArea(includingtheUK)willbemadeinaccordancewiththeapplicablenationalprivateplacementregime,andtheCompanywillnotifyitsintentiontomarkettothecompetentauthorityineachoftheselectedmemberstatesforthepurposesofcompliancewithAIFMD.

AEOI RULESUnderAEOIRulestheCompanycontinuestocomplywithbothFATCAandCRSrequirementstotheextentrelevanttotheCompany.

CHANGE OF CONTROLTherearenoagreementsthattheCompanyconsiderssignificantandtowhichtheCompanyispartythatwouldtakeeffect,alterorterminateuponchangeofcontroloftheCompanyfollowingatakeoverbid.



GOING CONCERNTheDirectors,atthetimeofapprovingtheFinancialStatements,haveareasonableexpectationthattheGrouphasadequateresourcestocontinueinoperationalexistencefortheforeseeablefutureanddonotconsidertheretobeanythreattothegoingconcernstatusoftheGroup.TheGroupwassubstantiallyinvestedat31January2019,withloansadvancedatamortisedcostrepresenting90.25%ofthetotalequityattributabletotheownersoftheCompany.TheBoardexpectsthattheloanportfoliowillgeneratesufficientcashflowstopayon-goingexpensesandgeneratereturnstoshareholdersforaperiodofatleasttwelvemonthsfromthedateofapprovaloftheConsolidatedFinancialStatements.TheDirectorshaveconsideredthecashposition,maturityprofileandperformancesofcurrentinvestmentsmadebytheGroup,anditsabilitytoreinvestmaturingloansandhaveconcludedthatitisappropriatetoadoptthegoingconcernbasisofaccountinginpreparingtheFinancialStatements.

Thefirstcontinuationvotewasheldon1March2017andpassedbytheshareholders.Follow-oncontinuationresolutionsshallbeheldeveryfiveyearsatwhichtheDirectorsshallproposeanordinaryresolutionthattheCompanycontinuesitsbusinessasaclosed-endedcollectiveinvestmentscheme.Thefirstfollow-oncontinuationresolutionwillberequiredonorbeforetheAnnualGeneralMeetingoftheCompanytobeheldin2022.

VIABILITY STATEMENTAsrequiredbytheAICCode,theDirectorshaveassessedtheprospectsoftheGroupoveraperiodlongerthan12monthsrequiredbythegoingconcernprovision.TheBoardhasconductedthisreviewforaperiodcoveringtheperiodto31January2022,whichisdeemedappropriategiven:

(i) thematurityprofileoftheGroup’scurrentloanportfoliofromApril2019toJanuary2023;

(ii) theCompany’sintentiontoreplaceexistingloansatmaturitywithnewloansof3-5yeartenureastheyexpire;

(iii) theexpectationthattheweightedaverageloantermwillincreaseto2-3years;and

(iv) thedateofthenextscheduledcontinuationvotebeing2022.

TheGroup’scapitalhasremainedsubstantiallyinvestedandcanbereinvestedunderthenewinvestmentpolicyutilisingtheCompany’srevolvingcreditfacility(“RCF”)inadvanceofexpectedloanrepayments.Basedonpastperformancethereturnsgeneratedfromeachinvestmentshouldbestableandpredictableinthemediumterm.

TheInvestmentAdviserhaspreparedandtheBoardhasreviewedtheGroup’srevenue,cashflowandworkingcapitalprojectionsoverthenextthreeyears,andconsideredtheimpactofsomeoftheprincipalrisksoftheGroupasdescribedonpages29to31.TheInvestmentAdviserandtheBoardevaluatedtheresilienceoftheGrouptotheoccurrenceoftheserisksinsevereyetplausiblescenarios.Thisevaluationhasappliedthroughthefollowingkeyscenariostotheportfolioofloansprevailingat31January2019andknownsubsequentchanges:

O eachloanrepaysattheexpirydate.UtilisingtheCompany’srevolvingcreditfacility,capitalisinvestedinadvanceofloanmaturitywithinthetargetinvestmentpolicyandreflectingthe

InvestmentAdviser’stransactionpipeline.LoanrepaymentsareusedtoreduceborrowingundertheRCFafterthreemonths(the“BaseCase”);

O theUKeconomyentersaperiodofsevererecessioncausinga20%reductionininterestcollectionasaresultofacombinationoftenantdefaultsandfallingrentswhichinturncauseasharpcorrectiontopropertyvaluessimilartothatwhichwasexperiencedin2008.DuringthisperiodtheRCFremainsavailable,butisnotextended,andunderperformingassetsarenotrealisedbeforematurity(the“StressCase”).

ItwasassumedthattherewouldbenochangesrelatingtotheGroupstructure,whichincludeschangesintaxlegislationapplicabletotheGrouporCompanyandchangestofundlegislation,andforthepurposeoftheprojectionsthatnonewcapitalwasraised.

TheInvestmentAdviserandtheBoardhavefurtherconsideredtheimpactofBrexitontheperformanceoftheloanportfolio,andtheGroup’sabilitytoredeploycapital.GiventhestrengthofthecurrentpipelineandinvestmentpropertytransactionvolumestheBoardwassatisfiedthatBrexitdidnotposeagreaterrisktothebusinessthanthestressscenario.

Havingconductedarobustanalysisoftheabovescenariosandstressesappliedtoeach,theDirectorsremainsatisfiedthattheGroupcanmeetitsliabilitiesastheyfalldueandremainsviableovertheperiodunderconsideration(toJanuary2022).

FINANCIAL RISK MANAGEMENT POLICIES AND OBJECTIVESFinancialRiskManagementPoliciesandObjectivesaredisclosedinNote11onpages58to62.

PRINCIPAL RISKS AND UNCERTAINTIESPrincipalRisksandUncertaintiesarediscussedintheCorporateGovernanceReportonpages29to31.

SUBSEQUENT EVENTSSignificantsubsequenteventshavebeendisclosedinNote17totheFinancialStatementsonpage63.

ANNUAL GENERAL MEETINGTheAGMoftheCompanywillbeheldat2pmBSTon2July2019atFloor2,TrafalgarCourt,LesBanques,StPeterPort,GY14LY.DetailsoftheresolutionstobeproposedattheAGM,togetherwithexplanations,willappearintheNoticeofMeetingtobedistributedtoshareholderstogetherwiththisAnnualReport.

MembersoftheBoardwillbeinattendanceattheAGMandwillbeavailabletoanswershareholderquestions.

ByorderoftheBoard

JACK PERRYChairman

23April2019

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DIRECTORS’ RESPONSIBILITIESSTATEMENT

TheDirectorsareresponsibleforpreparingtheAnnualReportandFinancialStatementsinaccordancewithapplicablelawandregulations.

TheCompaniesLawrequirestheDirectorstoprepareFinancialStatementsforeachfinancialyear.UnderthatlawtheDirectorsarerequiredtopreparetheConsolidatedFinancialStatementsinaccordancewithIFRSasadoptedbytheEuropeanUnion.UndertheCompaniesLaw,theDirectorsmustnotapprovetheFinancialStatementsunlesstheyaresatisfiedthattheygiveatrueandfairviewofthestateofaffairsoftheGroupandoftheprofitorlossoftheGroupforthatperiod.InpreparingtheseFinancialStatements,theDirectorsarerequiredto:

O selectsuitableaccountingpoliciesinaccordancewithIAS8:AccountingPolicies,ChangesinAccountingEstimatesandErrorsandthenapplythemconsistently;

O makejudgementsandestimatesthatarereasonableandprudent;

O presentinformation,includingaccountingpolicies,inamannerthatprovidesrelevant,reliable,comparableandunderstandableinformation;

O provideadditionaldisclosureswhencompliancewiththespecificrequirementsinIFRSareinsufficienttoenableuserstounderstandtheimpactofparticulartransactions,othereventsandconditionsontheGroup’sfinancialpositionandfinancialperformance;

O statethattheGrouphascompliedwithIFRS,subjecttoanymaterialdeparturesdisclosedandexplainedintheFinancialStatements;and

O preparetheFinancialStatementsonagoingconcernbasisunlessitisinappropriatetopresumethattheGroupwillcontinueinbusiness.

TheDirectorsconfirmthattheyhavecompliedwiththeaboverequirementsinpreparingtheFinancialStatements.

TheDirectorsareresponsibleforkeepingproperaccountingrecords,whichdisclosewithreasonableaccuracyatanytime,thefinancialpositionoftheGroupandenablethemtoensurethattheFinancialStatementscomplywithCompaniesLaw.TheyarealsoresponsibleforsafeguardingtheassetsoftheCompanyandhencefortakingreasonablestepsforthepreventionanddetectionoffraud,errorandnon-compliancewithlawandregulations.

TheDirectorsareresponsibleforthemaintenanceandintegrityofthecorporateandfinancialinformationincludedonthewebsite(www.lbow.co.uk).

LegislationinGuernseygoverningthepreparationanddisseminationoftheFinancialStatementsmaydifferfromlegislationinotherjurisdictions.

RESPONSIBILITY STATEMENT OF THE DIRECTORS IN RESPECT OF THE ANNUAL REPORT UNDER THE DISCLOSURE AND TRANSPARENCY RULESEachoftheDirectors,whosenamesaresetoutonpages16and17,confirmstothebestoftheirknowledgeandbeliefthat:

O theFinancialStatements,preparedinaccordancewithIFRS,giveatrueandfairviewoftheassets,liabilities,financialpositionandprofitorlossoftheCompanyandtheundertakingsincludedintheconsolidationtakenasawhole;

O theAnnualReportincludesafairreviewofthedevelopmentandperformanceofthebusinessandthepositionoftheCompanyanditssubsidiary,togetherwithadescriptionoftheprincipalrisksanduncertaintiesfaced;and

O theAnnualReportandConsolidatedFinancialStatementsincludeinformationrequiredbytheFCAandensuringthattheCompanycomplieswiththeprovisionsoftheListingRules,DisclosureGuidelinesandTransparencyRulesoftheFCA.Withregardtocorporategovernance,theCompanyisrequiredtodisclosehowithasappliedtheprinciplesandcompliedwiththeprovisionsoftheCorporateGovernanceCodeapplicabletotheCompany.

RESPONSIBILITY STATEMENT OF THE DIRECTORS IN RESPECT OF THE ANNUAL REPORT UNDER THE CORPORATE GOVERNANCE CODETheDirectorsareresponsibleforpreparingtheAnnualReportandFinancialStatementsinaccordancewithapplicablelawandregulations.HavingtakenadvicefromtheAuditandOperationalRiskCommittee,theDirectorsconsidertheAnnualReportandFinancialStatements,takenasawhole,asfair,balancedandunderstandableandthatitprovidestheinformationnecessaryforshareholderstoassesstheGroup’sperformance,businessmodelandstrategy.

ByorderoftheBoard

JACK PERRY PATRICK FIRTHChairman Director

23April2019 23April2019


Ramada, Gateshead

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CORPORATE GOVERNANCE REPORT

AsaUKpremiumlistedCompany,ICG-LongbowSeniorSecuredUKPropertyDebtInvestmentLimited’sgovernancepoliciesandproceduresarebasedontheprinciplesoftheCorporateGovernanceCodeasrequiredundertheListingRules.TheCorporateGovernanceCodeisavailableontheFinancialReportingCouncil’swebsite,www.frc.org.uk.

TheCompanybecameamemberoftheAICeffective27February2013andhasthereforeputinplacearrangementstocomplywiththeAICCodeand,inaccordancewiththeAICCode,voluntarilycomplieswiththeCorporateGovernanceCode.TheDirectorsrecognisetheimportanceofsoundcorporategovernance,particularlytherequirementsoftheAICCode.TheAICCodeandtheAICGuideareavailableontheAIC’swebsite,www.theaic.co.uk.Wearesupportiveofthecontinuedenhancementofgovernancestandardsthathaverecentlybeenpublishedforaccountingperiodsbeginningonorafter1January2019.

TheCompanyissubjecttotheGFSCCode,whichappliestoallcompaniesregisteredascollectiveinvestmentschemesinGuernsey.TheGFSChasalsoconfirmedthatcompaniesthatreportagainsttheCorporateGovernanceCodeorAICCodearedeemedtomeettheGFSCCode.

TheBoardmonitorsdevelopmentsincorporategovernancetoensuretheBoardremainsalignedwithbestpracticeespeciallywithrespecttotheincreasedfocusondiversity.TheBoardacknowledgestheimportanceofdiversity,includinggender,fortheeffectivefunctioningoftheBoardandcommitstosupportingdiversityintheboardroom.ItistheBoard’songoingaspirationtohaveawelldiversifiedrepresentation.TheBoardalsovaluesdiversityofbusinessskillsandexperiencebecauseDirectorswithdiverseskillssets,capabilitiesandexperiencegainedfromdifferentgeographicalbackgroundsenhancetheBoardbybringingawiderangeofperspectivestotheCompany.

TheAICCode,asexplainedbytheAICGuide,addressesalltheprinciplessetoutintheCorporateGovernanceCode,aswellassettingoutadditionalprinciplesandrecommendationsonissuesthatareofspecificrelevancetoinvestmentcompaniessuchastheCompany.TheBoardconsidersthatreportingagainsttheprinciplesandrecommendationsoftheAICCode,byreferencetotheAICGuide,providesbetterinformationtoshareholders.

Throughouttheyearended31January2019,theCompanyhascompliedwiththerecommendationsoftheAICCodeandtherelevantprovisionsofSection1oftheCorporateGovernanceCode,exceptassetoutbelow.

TheCorporateGovernanceCodeincludesprovisionsrelatingto:

O theroleofthechiefexecutive;

O executivedirectors’remuneration;and

O theneedforaninternalauditfunction.

ForthereasonssetoutintheAICGuide,andasexplainedintheCorporateGovernanceCode,theBoardconsidersthattheaboveprovisionsarenotcurrentlyrelevanttothepositionoftheCompany,beinganinternallymanagedinvestmentcompany,whichdelegatesmostday-to-dayfunctionstothirdparties.

AsaninvestmentcompanytheCompanyhasnoemployees,allDirectorsarenon-executiveandindependentoftheInvestmentAdviserandthereforetheDirectorsconsidertheCompanyhasnorequirementforaChiefExecutiveorSeniorIndependent

DirectorandtheBoardissatisfiedthatanyrelevantissuescanbeproperlyconsideredbytheBoard.TheabsenceofaninternalauditfunctionisdiscussedintheReportoftheAuditandOperationalRiskCommitteeonpage33.

Asaninvestmentcompany,theGroup’sactivitieshavenodirectimpactontheenvironment.HowevertheBoardbelievesthatitisintheshareholders’interesttoconsiderenvironmental,socialandgovernancefactorswhenselectingandretaininginvestments.TheInvestmentAdviserisasignatorytotheUNPrinciplesforResponsibleInvestmentandtheseprinciplesareappliedinallinvestmentdecisions.TheInvestmentAdviserhascontinuedtodevelopitsESGpoliciesandprocedures,whichincludedcompletingtheGlobalRealEstateSustainabilityBenchmarksurveyofrealestatedebtinvestorsforthesecondtime,withsatisfactoryresultsagainstitspeergroup.

Moreover,duringtheyeartheparentoftheInvestmentAdviserhasbeennamedasaconstituentoftheFTSE4Goodindex.FTSERussell(thetradingnameofFTSEInternationalLimitedandFrankRussellCompany)confirmsthatIntermediateCapitalGrouphasbeenindependentlyassessedaccordingtotheFTSE4Goodcriteria,andhassatisfiedtherequirementstobecomeaconstituentoftheFTSE4GoodIndexSeries.CreatedbytheglobalindexproviderFTSERussell,theFTSE4GoodIndexSeriesisdesignedtomeasuretheperformanceofcompaniesdemonstratingstrongEnvironmental,SocialandGovernance(ESG)practices.TheFTSE4Goodindicesareusedbyawidevarietyofmarketparticipantstocreateandassessresponsibleinvestmentfundsandotherproducts.

THE BOARDTheCompanyisledandcontrolledbyaBoardofDirectors,whichiscollectivelyresponsibleforthelong-termsuccessoftheCompany.ItdoessobyactingintheinterestsoftheCompany,creatingandpreservingvalueandhasasitsforemostprincipleactingintheinterestsofshareholders.TheCompanybelievesthatthecompositionoftheBoardisafundamentaldriverofitssuccessastheBoardmustprovidestrongandeffectiveleadershipoftheCompany.ThecurrentBoardwasselected,astheirbiographiesillustrate,tobringabreadthofknowledge,skillsandbusinessexperiencetotheCompany.TheDirectorsdetailsarelistedonpages16and17whichsetouttheirrangeofinvestment,financialandbusinessskillsandexperiencerepresented.

TheChairmanoftheBoardmustbeindependentandisappointedinaccordancewiththeCompany’sArticlesofIncorporation.MrPerryisconsideredtobeindependentbecausehe:

O hasnocurrentorhistoricalemploymentwiththeInvestmentAdviser;

O hasnocurrentdirectorshipsinanyotherinvestmentfundsmanagedbytheInvestmentAdviser;and

O isnotanexecutiveofaself-managedcompanyoranex-employeewhohaslefttheexecutiveteamofaself-managedcompanywithinthelastfiveyears.

TheBoardmeetsatleastfourtimesayearand,inaddition,thereisregularcontactbetweentheBoard,theInvestmentAdviserandtheAdministrator.Further,theBoardrequirestobesuppliedinatimelymannerwithinformationbytheInvestmentAdviser,theCompanySecretaryandotheradvisersinaformandofaqualityappropriatetoenableittodischargeitsduties.


CORPORATE GOVERNANCE REPORT(CONTINUED)

BOARD TENURE AND RE-ELECTIONAllDirectorswereappointedinNovember2012thereforenomemberoftheBoardhasservedforlongerthansevenyearstodate.AssuchnoissuehasarisentobeconsideredbytheBoardwithrespecttolongtenure.InaccordancewiththeAICCode,whenandifanyDirectorshallhavebeeninoffice(oronre-electionwouldattheendofthattermofoffice)formorethannineyearstheCompanywillconsiderfurtherwhetherthereisariskthatsuchaDirectormightreasonablybedeemedtohavelostindependencethroughsuchlongservice.Followingtherecentpublicationofthe2019AICCode,theBoardrecognisesthatDirectorsservingnineyearsormoremayappeartohavetheirindependenceimpaired.However,theBoardmaynonethelessconsiderDirectorstoremainindependentandwillprovideaclearexplanationwithfutureAnnualReportandFinancialStatementsastotheirreasoning.

TheNominationCommitteeshalltaketheleadinanydiscussionsrelatingtotheappointmentorre-appointmentofDirectors,andgiveconsiderationtoBoardrotationinadvanceofthenineyeartenurelimit.

ADirectorwhoretiresatanAnnualGeneralMeetingmay,ifwillingtocontinuetoact,beelectedorre-electedatthatmeeting.If,atageneralmeetingatwhichaDirectorretires,theCompanyneitherre-electsthatDirectornorappointsanotherpersontotheBoardintheplaceofthatDirector,theretiringDirectorshall,ifwillingtoact,bedeemedtohavebeenre-appointedunlessatsuchmeetingitisexpresslyresolvednottofillthevacatedofficeoraresolutionforthere-appointmentoftheDirectorisputtothemeetingandlost.

Directorsareappointedunderlettersofappointment,copiesofwhichareavailableattheregisteredofficeoftheCompany.TheBoardconsidersitscompositionandsuccessionplanningonanon-goingbasis.TheCompany’sArticlesofIncorporationspecifythatnotgreaterthanonethirdbynumberoftheDirectorswillbesubjecttoannualre-electionateachsubsequentAnnualGeneralMeetingoftheCompanyandthateachoftheDirectorsshouldsubmitthemselvesforre-electionatleasteverythreeyears.MrFirthandMrMeaderwillretireasDirectorsofthe

CompanyinaccordancewiththepolicyadoptedbytheBoardandwillbeputforwardforre-electionattheforthcomingAGM.MrHuntleywasconsideredbytheBoardasindependentbutasheremainedaconsultanttotheAdministratorunderanagreementwhichisdescribedonpage17whichexpiresinOctober2019hewillstandforre-election.

AnyDirectorwhoiselectedorre-electedatthatmeetingistreatedascontinuinginofficethroughout.Ifheisnotelectedorre-elected,heshallretainofficeuntiltheendofthemeetingor(ifearlier)whenaresolutionispassedtoappointsomeoneinhisplaceorwhenaresolutiontoelectorre-electtheDirectorisputtothemeetingandlost.

TheBoardhasanagreedsuccessionplanfortheorderlyretirementofexistingDirectorsandtoprovidefortheregularrefreshmentofskillsandtalent.TheBoardwelcomesthe2019AICCodeandisconfidentthatitssuccessionplanrespectsboththeletterandthespiritoftheCoderegardingBoardcomposition,diversity-particularlywithrespecttogender-andhoweffectivelymembersworktogethertoachievetheCompany’sobjectives.

RegularretirementsofDirectorswilltakeplacestartingfromtheAGMin2020ensuringthattheCompanycomplieswiththe2019AICCode.

DIRECTORS’ REMUNERATIONThelevelofremunerationoftheNon-executiveDirectorsreflectsthetimecommitmentandresponsibilitiesoftheirroles.TheChairmanisentitledtoannualremunerationof£50,000(31January2018:£50,000).TheChairmanoftheAuditandOperationalRiskCommitteeisentitledtoannualremunerationof£40,000(31January2018:£40,000)andtheChairmanoftheInvestmentRiskCommitteeisentitledtoannualremunerationof£37,500effectivefrom1May2018(31January2018:£35,000).TheotherindependentDirectorsareentitledtoannualremunerationof£35,000(31January2018:£35,000).NochangetoDirectors’remunerationisproposedfortheyearto31January2020.

Duringtheyearended31January2019andtheyearended31January2018,theDirectors’remunerationwasasfollows:

Director

1 February 2018 to31 January 2019

£


£

JackPerry 50,000 50,833

PatrickFirth 40,000 41,875

PaulMeader 36,875 36,875

StuartBeevor 35,000 36,875

MarkHuntley 35,000 36,875

TheCompanyDirectors’feesfortheyearamountedto£196,875(31January2018:£203,333)withoutstandingfeesof£49,375duetotheDirectorsat31January2019(31January2018:£48,750)(seeNote8).Duringtheprioryear,theCompanypaideachDirectoranadditional,one-offfeeof£5,000fortheextraservicestheyperformedinconnectionwiththe2017PlacingProgramme.

AlloftheDirectorsarenon-executiveandareeachconsideredindependentforthepurposesofChapter15oftheListingRules.

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DUTIES AND RESPONSIBILITIESTheBoardhasoverallresponsibilityformaximisingtheCompany’ssuccessbydirectingandsupervisingtheaffairsofthebusinessandmeetingtheappropriateinterestsofshareholdersandrelevantstakeholders,whileenhancingthevalueoftheCompanyandalsoensuringtheprotectionofinvestors.TheBoardhasadoptedaScheduleofMatterswhichsetsouttheparticulardutiesoftheBoard.Suchreservedpowersincludethefollowing:

O strategicmatters;

O riskassessmentandmanagementincludingreporting,compliance,governance,monitoringandcontrolandfinancialreporting;

O statutoryobligationsandpublicdisclosure;

O declaringCompanydividends;

O managingtheCompany’sadvisers;and

O othermattershavingamaterialeffectontheCompany.

TheDirectorshaveaccesstotheadviceandservicesoftheAdministrator,whoisresponsibletotheBoardforensuringthatBoardproceduresarefollowedandthatitcomplieswithCompaniesLawandapplicablerulesandregulationsoftheGFSCandtheLondonStockExchange.Wherenecessary,incarryingouttheirduties,theDirectorsmayseekindependent

professionaladviceandservicesattheexpenseoftheCompany.TheCompanymaintainsappropriateDirectors’andOfficers’liabilityinsuranceinrespectoflegalactionagainstitsDirectorsonanon-goingbasis.

TheBoard’sresponsibilitiesfortheAnnualReportaresetoutintheDirectors’ResponsibilityStatementonpage22.TheBoardisalsoresponsibleforissuingappropriateInterimReportsandotherprice-sensitivepublicreports.

OneofthekeycriteriatheCompanyuseswhenselectingnon-executiveDirectorsistheirconfirmationpriortotheirappointmentthattheywillbeabletoallocatesufficienttimetotheCompanytodischargetheirresponsibilitiesinatimelyandeffectivemanner.

TheBoardformallymetfourtimesduringtheyearandthead-hocBoardmeetingswerecalledinrelationtospecificeventsortoissueapprovals,oftenatshortnoticeanddidnotnecessarilyrequirefullattendance.EachBoardmemberreceivesacomprehensiveBoardpackatleastfivedayspriortoeachmeetingwhichincorporatesaformalagendatogetherwithsupportingpapersforitemstobediscussedatthemeeting.DirectorsareencouragedwhentheyareunabletoattendameetingtogivetheChairmantheirviewsandcommentsonmatterstobediscussed,inadvance.Inadditiontotheirmeetingcommitments,theNon-executiveDirectorsalsoliaisewiththeInvestmentAdvisertomanagementwheneverrequiredandthereisregularcontactoutsidetheBoardmeetingschedule.

Attendanceisfurthersetoutbelow:

Director

Scheduled Board

Meetings

Ad-hoc Board

Meetings

Audit andOperational

Risk Committee

Meetings

Investment Risk

CommitteeMeetings

NominationCommittee

Meeting

ManagementEngagement

CommitteeMeeting

Tenure as at 31 January 2019

StuartBeevor 4of4 1of4 3of3 4of4 1of1 n/a 6yearsand2months

PatrickFirth 4of4 3of4 3of3 n/a 1of1 1of1 6yearsand2months

MarkHuntley 4of4 4of4 n/a 4of4 1of1 n/a 6yearsand2months

PaulMeader 4of4 2of4 3of3 4of4 1of1 1of1 6yearsand2months

JackPerry 4of4 2of4 n/a n/a 1of1 1of1 6yearsand2months

AquorumiscomprisedofanytwoormoremembersoftheBoardfromtimetotime,toperformadministrativeandotherroutinefunctionsonbehalfoftheBoard,subjecttosuchlimitationsastheBoardmayexpresslyimposeonthiscommitteefromtimetotime.

COMMITTEES OF THE BOARDTheBoardbelievesthatitanditscommitteeshaveanappropriatecompositionandblendofbackgrounds,skillsandexperiencetodischargetheirdutieseffectively.TheBoardisoftheviewthatnooneindividualorsmallgroupdominatesdecision-making.TheBoardkeepsitsmembership,andthatofitscommittees,underreviewtoensurethatanacceptablebalanceismaintained,andthatthecollectiveskillsandexperienceofitsmemberscontinuetoberefreshed.ItissatisfiedthatallDirectorshavesufficienttimetodevotetotheirrolesandthatunduerelianceisnotplacedonanyindividual.

EachcommitteeoftheBoardhaswrittentermsofreference,approvedbytheBoard,summarisingitsobjectives,remit

andpowers,whichareavailableontheCompany’swebsite(www.lbow.co.uk)andarereviewedonanannualbasis.EachCommitteehasaccesstosuchexternaladviceasitmayconsiderappropriate.

Allcommitteemembersareprovidedwithanappropriateinductiononjoiningtheirrespectivecommittees,aswellason-goingaccesstotraining.MinutesofallmeetingsofthecommitteesaremadeavailabletoallDirectorsandfeedbackfromeachofthecommitteesisprovidedtotheBoardbytherespectivecommitteeChairmenatthenextBoardmeeting.TheChairmanofeachcommitteeattendstheAGMtoansweranyquestionsontheircommittee’sactivities.

TheBoardanditscommitteesaresuppliedwithregular,comprehensiveandtimelyinformationinaformandofaqualitythatenablesthemtodischargetheirdutieseffectively.AllDirectorsareabletomakefurtherenquiriesofmanagementwhenevernecessary,andhaveaccesstotheservicesoftheCompanySecretary.

ICG-Longbow Senior Secured UK Property Debt Investments LimitedAnnual Report And Consolidated Financial Statements 27


AUDIT AND OPERATIONAL RISK COMMITTEETheAuditandOperationalRiskCommitteeischairedbyMrFirthandalsocomprisesMrBeevorandMrMeader,allofwhomheldofficethroughouttheyear.OtherDirectorshaveastandinginvitationtoattendmeetings.However,theirattendanceatthesemeetingsisasanobserveronly.TheChairmanoftheAuditandOperationalRiskCommittee,theInvestmentAdviserandtheexternalauditor,DeloitteLLP,havehelddiscussionsregardingtheauditapproachandidentifiedrisks.TheexternalauditorsattendAuditandOperationalRiskCommitteemeetingsandaprivatemeetingisroutinelyheldwiththeexternalauditorstoaffordthemtheopportunityofdiscussionswithoutthepresenceoftheInvestmentAdviserorAdministrator.TheAuditandOperationalRiskCommitteeactivitiesarecontainedintheReportoftheAuditandOperationalRiskCommitteeonpages32to34.

INVESTMENT RISK COMMITTEETheInvestmentRiskCommitteewasestablishedon21September2017andischairedbyMrMeaderandalsocomprisesMrBeevor,MrHuntleyandMrMortimer,allofwhomheldofficethroughouttheyear.MrChristieretiredfromtheInvestmentRiskCommitteeon7March2019andMrFirthwasappointedtotheInvestmentRiskCommitteeon7March2019.MrChristieisarepresentativeofLuxcoandMrMortimerisarepresentativeoftheInvestmentAdviser.ThenewrepresentativeofLuxcoiscurrentlyunderconsideration.TheInvestmentRiskCommitteewillmeetnotlessthantwiceayearpursuanttoitstermsofreferencewhichareavailableontheCompany’swebsite.

Pursuanttoitstermsofreference,theInvestmentRiskCommittee’sremitistomonitortherisksassociatedwiththeinvestmentsandtomonitorthecomplianceoftheinvestmentportfoliowiththeinvestmentrestrictionsoftheGroup.TheInvestmentRiskCommitteereviews;theperformanceandinvestmentrisksassociatedwiththeindividualinvestments,theeffectivenessoftheInvestmentAdviser’sinvestmentunderwritingandinvestmentstructuring/documentationprocessesanditscompliancewiththem,andtheeffectivenessoftheInvestmentAdviser’sinvestmentmanagementandriskreportingprocesses,challengingwhereappropriate.

MANAGEMENT ENGAGEMENT COMMITTEETheManagementEngagementCommitteeischairedbyMrPerryandalsocomprisesMrFirthandMrMeader,allofwhomheldofficethroughouttheyear.TheManagementEngagementCommitteewillmeetnotlessthanonceayearpursuanttoitstermsofreferencewhichareavailableontheCompany’swebsite.

TheManagementEngagementCommittee’smainfunctionistoreviewandmakerecommendationsinrelationtotheCompany’sserviceproviders.TheManagementEngagementCommitteewillreviewinparticularanyproposedamendmenttotheInvestmentAdvisoryAgreementandwillkeepunderreviewtheperformanceoftheInvestmentAdviser(includingeffectiveandactivemonitoringandsupervisionoftheactivitiesoftheInvestmentAdviser)initsroleasInvestmentAdvisertotheCompanyaswellastheperformanceofanyotherserviceproviderstotheCompany.TheAuditandOperationalRiskCommitteealsoreportontheirrelationshipwiththeexternalauditor.

Board Performance Evaluation InaccordancewithPrinciple7oftheAICCodewhichrequiresaformalandrigorousannualevaluationofitsperformance,the

Boardformallyreviewsitsperformanceannuallythroughaninternalprocess.

TheassessmentcoverstheeffectivenessandperformanceoftheBoardasawhole,anevaluationofindividualDirectorsandtheeffectivenessoftheBoardCommittees.InternalevaluationoftheBoard,theAuditandOperationalRiskCommittee,theNominationCommittee,theManagementEngagementCommitteeandindividualDirectorstooktheformofself-appraisalquestionnairesanddiscussiontodetermineeffectivenessandperformanceaswellastheDirectors’continuedindependence.DuringtheyeartheBoardcarriedoutaninternalevaluationoftheperformancesoftheBoardandtheBoardCommittees.TheresponseswereconsolidatedandanonymisedandcommonthemesidentifiedinorderfortheBoardtodeterminekeyactionsandnextstepsforimprovingBoardandCommitteeeffectivenessandperformance.

TheBoardbelievesthatannualevaluationsarehelpfulandprovideavaluableopportunityforcontinuousimprovement.TheevaluationconcludedthattheBoardisperformingsatisfactorilyandisacquittingitsresponsibilitieswellintheareasreviewedwhichincorporated:investmentmatters,Boardcompositionandindependence,relationshipsandcommunication,shareholdervalue,knowledgeandskills,BoardprocessesandtheperformanceoftheChairman.TheBoardbelievesthatthecurrentmixofskills,experience,knowledgeandageoftheDirectorsisappropriatetotherequirementsoftheCompany.

NewDirectorswillreceiveaninductiononjoiningtheBoard.DirectorsregularlymeetwiththeseniormanagementemployedbytheInvestmentAdviserbothformallyandinformallytoensurethattheBoardremainsregularlyupdatedonallissues.AllmembersoftheBoardaremembersofprofessionalbodiesandserveonotherBoards,whichensurestheyarekeptabreastofthelatesttechnicaldevelopmentsintheirareasofexpertise.TheBoardarrangesforpresentationsfromtheInvestmentAdviser,theCompany’sbrokersandotheradvisersonmattersrelevanttotheCompany’sbusiness.TheBoardassessesthetrainingneedsofDirectorsonanannualbasis.

NOMINATION COMMITTEETheNominationCommitteeischairedbyMrPerryandalsocomprisesMrBeevor,MrFirth,MrHuntleyandMrMeader,allofwhomheldofficethroughouttheyear.TheNominationCommitteemeetsatleastonceayearpursuanttoitstermsofreferenceandmeton23April2018.TheNominationCommittee’sremitistoreviewregularlythestructure,sizeandcompositionoftheBoard;togivefullconsiderationtosuccessionplanningforDirectors;tokeepunderreviewtheleadershipneedsoftheCompanyandberesponsibleforidentifyingandnominating,fortheapprovaloftheBoard,candidatestofillBoardvacanciesasandwhentheyarise.

TheNominationCommitteerecognisesthecontinuingimportanceofplanningforthefutureandensuringthatsuccessionplansareinplace.InconsideringappointmentstotheBoard,theNominationCommitteetakesintoaccounttheongoingrequirementsoftheCompanyandevaluatesthebalanceofskills,experience,independence,andknowledgeofeachcandidate.AppointmentsarethereforemadeonpersonalmeritandagainstobjectivecriteriawiththeaimofbringingnewskillsanddifferentperspectivestotheBoardwhilsttakingintoaccounttheexistingbalanceofknowledge,experienceanddiversity.

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NOMINATION COMMITTEE (CONTINUED)InthecaseofcandidatesforNon-executiveDirectorships,careistakentoascertainthattheyhavesufficienttimetofulfiltheirBoardand,whererelevant,committeeresponsibilities.TheBoardbelievesthatthetermsofreferenceoftheNominationCommitteeensurethatitoperatesinarigorousandtransparentmanner.TheBoardbelievesthat,asawhole,itcomprisesanappropriatebalanceofskills,experienceandknowledge.TheBoardalsobelievesthatdiversityofexperienceandapproach,includinggenderdiversity,amongstBoardmembersisofgreatimportanceanditistheCompany’spolicytogivecarefulconsiderationtoissuesofBoardbalanceanddiversitywhenmakingnewappointments.

TheNominationsCommitteehasreviewedthecomposition,structureanddiversityoftheBoard,successionplanning,theindependenceoftheDirectorsandwhethereachoftheDirectorshassufficienttimeavailabletodischargetheirdutieseffectively.TheCommitteeandtheBoardconfirmthattheybelievethattheBoardhasanappropriatemixofskillsandbackgroundsandwasselectedwiththatinmind,thatamajorityofDirectorsshouldbeconsideredasIndependentinaccordancewiththeprovisionsoftheAICCodeandthatallDirectorshavethetimeavailabletodischargetheirdutieseffectively.Inthisregard,theCommitteereviewedinmoredetailthecommitmentsofMrFirth,MrMeaderandMrHuntley.

MrFirthisadirectorandChairmanoftheAuditandOperationalRiskCommittee.Heisalsoafull-timenon-executivedirectorofanumberofcompanies,fourofwhicharelistedinvestmentcompanies.MrFirthhasalsoannouncedthathewillshortlyberetiringfromtheboardofoneofthosecompanies,JZCapitalPartnersLimited.TheCommitteenotedthatMrFirthhasattendedallBoardandmaincommitteemeetings,and3outof4ad-hocBoardmeetings(thequorumforwhichistwomembers),duringtheyearandthathehasalwaysdemonstratedthetimecommitmenttodischargefullyandeffectivelyhisdutiesasaDirector.

MrMeaderisalsoafulltimenon-executivedirectorandisadirectoroffivelistedinvestmentcompanies,oneofwhichheischairman.TheCommitteenotedthatMrMeaderhasalwaysdemonstratedthetimecommitmenttodischargehisdutiesfullyandeffectivelyandheattendedallscheduledBoardmeetings,allcommitteemeetingsand2ofthe4ad-hocBoardmeetings.

MrHuntleyisalsoafulltimenon-executivedirectorandisadirectorofthreelistedinvestmentcompanies.TheCommitteenotedthatMrHuntleyhasalwaysdemonstratedthetimecommitmenttodischargehisdutiesfullyandeffectivelyandheattendedallscheduledBoardmeetings,allcommitteemeetingsandallad-hocBoardmeetings.

Accordingly,theBoardrecommendsthatshareholdersvoteinfavourofthere-electionofallDirectorsattheforthcomingAGM.

INTERNAL CONTROL AND FINANCIAL REPORTINGTheDirectorsacknowledgethattheyareresponsibleforestablishingandmaintainingtheGroupandCompany’ssystemofinternalcontrolsandreviewingitseffectiveness.Internalcontrolsystemsaredesignedtomanageratherthaneliminatethefailuretoachievebusinessobjectivesandcanonlyprovidereasonablebutnotabsoluteassuranceagainstmaterialmisstatementsorloss.TheDirectorscanconfirmtheyhavecarriedoutarobustassessmentoftheprincipalrisksfacingtheCompany,includingthosethatwouldthreatenitsbusinessmodel,futureperformance,solvencyorliquidity.Thekeyprocedureswhichhavebeenestablishedtoprovideinternalcontrolare:

O theBoardhasdelegatedthedaytodayoperationsoftheGroupandCompanytotheAdministratorandInvestmentAdviser,however,itremainsaccountableforallfunctionsitdelegates;

O theBoardclearlydefinesthedutiesandresponsibilitiesoftheCompany’sagentsandadvisersandappointmentsaremadebytheBoardafterdueandcarefulconsideration.TheBoardmonitorstheon-goingperformanceofsuchagentsandadvisersandwillcontinuetodosothroughtheManagementEngagementCommittee;

O theBoardmonitorstheactionsoftheInvestmentAdviseratregularBoardmeetingsandisalsogivenfrequentupdatesondevelopmentsarisingfromtheoperationsandstrategicdirectionoftheunderlyingborrowers;and

O theAdministratorprovidesadministrationandcompanysecretarialservicestotheCompany.TheAdministratormaintainsasystemofinternalcontrolonwhichitreportstotheBoard.

TheBoardhasreviewedtheneedforaninternalauditfunctionandhasdecidedthatthesystemsandproceduresemployedbytheAdministratorandInvestmentAdviser,includingtheirowninternalcontrolsandprocedures,providesufficientassurancethatanappropriatelevelofriskmanagementandinternalcontrol,whichsafeguardsshareholders’investmentandtheGroup’sassets,ismaintained.AninternalauditfunctionspecifictotheCompanyisthereforeconsideredunnecessary,asexplainedonpage33.

Internalcontrolsoverfinancialreportingaredesignedtoprovidereasonableassuranceregardingthereliabilityoffinancialreportingandthepreparationoffinancialstatementsforexternalreportingpurposes.TheAdministratorandInvestmentAdviserbothoperateriskcontrolledframeworksonacontinualongoingbasiswithinaregulatedenvironment.TheAdministratorundertakesanISAE3402:AssuranceReportsonControlsataServiceOrganisationauditannuallywhichisprovidedtotheBoardwhenfinalised.TheAdministratoralsoformallyreportstotheBoardquarterlythroughacompliancereport.TheInvestmentAdviserformallyreportstotheBoardquarterlyincludingupdateswithinICG-LongbowandalsoengageswiththeBoardonanad-hocbasisasrequired.NoweaknessesorfailingwithintheAdministratororInvestmentAdviserhavebeenidentified.

Thesystemsofcontrolreferredtoabovearedesignedtoensureeffectivenessandefficientoperation,internalcontrolandcompliancewithlawsandregulations.Inestablishingthesystemsofinternalcontrol,regardispaidtothematerialityofrelevantrisks,thelikelihoodofcostsbeingincurredandcostsofcontrol.Itfollows,therefore,thatthesystemsofinternalcontrolcanonlyprovidereasonablebutnotabsoluteassuranceagainsttheriskofmaterialmisstatementorloss.

TheCompanyhasdelegatedtheprovisionofservicestoexternalserviceproviderswhoseworkisoverseenbytheManagementEngagementCommitteeatitsregularscheduledmeetings.EachyearadetailedreviewofperformancepursuanttotheirtermsofengagementisundertakenbytheManagementEngagementCommittee.Anon-sitereviewoftheInvestmentAdviserandanassessmentoftheLuxembourgAdministratorwereundertakeninNovember2018andinFebruary2019respectively.TheconclusionsofthesereviewswerehighlysatisfactoryprovidingassurancetotheBoard.Inaddition,theCompanymaintainsawebsitewhichcontainscomprehensiveinformation,includingregulatoryannouncements,sharepriceinformation,financialreports,investmentobjectivesandstrategy,investorcontactsandinformationontheBoard.



INVESTMENT ADVISORY AGREEMENTTheCompanyhasenteredintoanagreementwiththeInvestmentAdviser.ThissetsouttheInvestmentAdviser’skeyresponsibilities,whichincludeidentifyingandrecommendingsuitableinvestmentsfortheCompanytoenterintoandnegotiatingonbehalfoftheCompanythetermsonwhichsuchinvestmentswillbemade.TheInvestmentAdviserisalsoresponsibletotheBoardforallissuesrelatingtothemaintenanceandmonitoringofexistinginvestments.

InaccordancewithListingRule15.6.2(2)RandhavingformallyappraisedtheperformanceandresourcesoftheInvestmentAdviser,intheopinionoftheDirectorsthecontinuingappointmentoftheInvestmentAdviseronthetermsagreedisintheinterestsoftheshareholdersasawhole.

RELATIONS WITH SHAREHOLDERSTheBoardwelcomesshareholders’viewsandplacesgreatimportanceoncommunicationwithitsshareholders.TheCompany’sAGMprovidesaforumforshareholderstomeetanddiscussissueswiththeDirectorsoftheCompany.TheChairmanandotherMembersoftheBoardhavemade,andwillcontinuetomakethemselvesavailabletomeetshareholdersatothertimes.

TheCompanyreportsformallytoshareholdersinanumberofways:regulatorynewsreleasesthroughtheLondonStockExchange’sRegulatoryNewsServicewherebyannouncementsareissuedinresponsetoeventsorroutinereportingobligations;anInterimReportispublishedinSeptembereachyear,outliningperformanceto31July,whichismadeavailableontheCompany’swebsite;theAnnualReportispublishedinAprileachyear,fortheyearended31January,whichismadeavailableontheCompany’swebsite.Inaddition,theCompany’swebsite(http://www.lbow.co.uk)containscomprehensiveinformation,includingcompanynotifications,shareinformation,financialreports,investmentobjectivesandpolicy,investorcontactsandinformationontheBoardandcorporategovernance.TheBoardreceivescomprehensiveshareholderreportsfromtheCompany’sRegistraratallquarterlyBoardmeetingsandregularlymonitorstheviewsofshareholdersandtheshareholderprofileoftheCompany.Overtheyear,theInvestmentManager’sinvestorrelationsteamandseniormanagementheldseveralroadshowsandover20meetingswithinvestorsandequityresearchanalysts.

WHISTLEBLOWING TheBoardhasconsideredtheAICCoderecommendationsinrespectofarrangementsbywhichstaffoftheInvestmentAdviserorAdministratormay,inconfidence,raiseconcernswithintheirrespectiveorganisationsaboutpossibleimproprietiesinmattersoffinancialreportingorothermatters.

Ithasconcludedthatadequatearrangementsareinplacefortheproportionateandindependentinvestigationofsuchmattersand,wherenecessary,forappropriatefollow-upactiontobetakenwithintheirorganisation.

PRINCIPAL RISKS AND UNCERTAINTIESDuringtheyeartheBoardhasoverseenthecontinuedenhancementoftheGroup’sriskmanagementframeworkandriskculture.TheCommitteeundertookarobustassessmentoftheGroup’sprincipalrisksandassociatedriskappetite,takingintoaccountchangesinthebusinessandtheexternalenvironment.

TheBoardcanconfirmthattheyhaveundertakenarobustassessmentofprincipalrisksfacingtheCompany.Theseriskshavebeenrankedconsideringthemagnitudeofpotentialimpact,probabilityandtakingintoaccounttheeffectivenessofexistingcontrols.TherisksrepresentasnapshotoftheCompany’scurrentriskprofile.ThisisnotanexhaustivelistofallriskstheCompanyfaces.Asthemacroenvironmentchangesandcountryandindustrycircumstancesevolve,newrisksmayariseorexistingrisksmayrecedeortherankingsoftheserisksmaychange.

TheBoardthoroughlyconsiderstheprocessforidentifying,evaluatingandmanaginganysignificantrisksfacedbytheCompanyonanon-goingbasisandtheserisksarereportedanddiscussedatBoardmeetings.Itensuresthateffectivecontrolsareinplacetomitigatetheserisksandthatasatisfactorycomplianceregimeexiststoensureallapplicablelocalandinternationallawsandregulationsareupheld.

TheBoardiscommittedtoupholdingandmaintainingourzerotolerancetowardsthecriminalfacilitationoftaxevasion.

Foreachmaterialrisk,thelikelihoodandpotentialimpactareidentified.TheCompany’sfinancialinstrumentrisksarediscussedinNote11totheFinancialStatements.

TheDirectorshaveidentifiedthefollowingasthekeyrisksfacedbytheCompany:

Description Potential Impact Mitigation

Realestateloannon-performance

RealestateloansmadebytheGroupmay,afterfunding,becomenon-performingforawidevarietyofreasons,includingnon-paymentofprincipalorinterest,aswellascovenantviolationsbytheborrowerinrespectoftheunderlyingloandocuments.Non-paymentofinterestcouldaffecttheCompany’sabilitytopaythetargetdividendinfull,whilstnon-paymentofprincipalcouldleadtotheCompanyinitiatinganenforcementprocessovertheassetssecuringtherelevantloan,wheretherecoveriesundersuchprocessmaybesmallerthanthevalueoftheCompany’sinvestmentintheloan.

TheGroup’scurrentinvestmentparametersrequireanequitybufferofatleast15%(and25%byaverage)ofthepropertysecurity’svaluetoshieldagainstanyreductionincapitalvalues.Allloansincludecovenantswhichgivethelendertheopportunitytointerveneandtakeprotectiveactionatanearlystageifthevalueoftheunderlyingpropertyortheincomeprofilereducesmaterially.Inordertoidentifyanysuchdeterioration,loansaremonitoredonaquarterlybasisforsignsofunderperformanceordistress.

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Propertyvaluations

Valuationsofpropertyandproperty-relatedassetsareinherentlysubjectiveduetotheindividualnatureofeachproperty.Asaresult,valuationsaresubjecttouncertaintyand,indeterminingmarketvalue,valuersarerequiredtomakecertainassumptionsandsuchassumptionsmayprovetobeinaccurate.Thisisparticularlysoinperiodsofvolatilityorwhentherearelimitedrealestatetransactionaldataagainstwhichpropertyvaluationcanbebenchmarked.Ifvaluationsprovetobeinaccurate,theassetssecuringtheCompany’sloanmaybeworthlessthantheCompanyanticipated.Thismaymeantherelevantloanbecomesnon-performing,withthepossibilityofalossorimpairmentfortheCompany.

Allinvestmentsaremonitoredonaquarterlybasisforearlywarningsignsofunderperformanceordistress.ThematurityoftheloansandtheInvestmentAdviser’sdirectpropertymarketexperience,includingitsongoinginteractionswiththemarketinrespectofotherfundsitmanages,shouldalsohelpittoidentifyanypotentialinaccuraciesintheindependentthirdpartyvaluations,oradversetrendsinthemarketasawhole.

Marketconditions TheperformanceoftheGroupanditsunderlyinginvestmentsmaybeaffectedbyothereconomicconditionssuchaschangestoequityriskpremiums,corporatefailurerates,changesinlawsorregulations,nationalandinternationalpoliticalcircumstances,andgeneralmacroeconomicvariablesetc.Theserisksareparticularlyacutegiventhepotentialvolatilityofthecapitalandcreditmarkets,andtheInvestmentAdvisermaybeunabletopredictwhether,ortowhatextentorforhowlong,suchconditionsmayoccurandaffecttheoperationoftheGroup.

WhilstmarketconditionsmayhaveasignificantimpactonthesharepriceoftheCompany,theimpactonitsinvestmentsandunderlyingperformancewillbelessseveretotheextentitdoesnotimpacttheconfidenceofpropertyinvestorsortheoccupationalmarkets.TheGroup’sinvestmentstrategy,basedondiverseunderlyingincomeandthoroughcashflow–basedunderwriting,andpropertyduediligencewillmitigatetheriskofpropertiesand/orlocationsbecomingundesirableduetoothermarketconditionsduringthetermoftheinvestments.ThegeneraleconomicbackdropismonitoredbytheInvestmentAdviser.

Risks relating to Group structure:


Changeintaxandregulatorylegislationandensuringthecorporatestructureisfitforpurpose

AchangeintaxlegislationapplicabletotheGrouporCompany,resultinginincreasedtaxliabilitiesfortheGrouporCompanyandaconsequentialreductioninyieldorcapitaltoinvestors.TheGroupmayalsobeimpactedbytheOECD’sBEPSlegislation.BEPSreferstothetaxplanningstrategiesofmultinationalcorporationsthatexploitmismatchesinnationaltaxrulestoshiftartificialprofitstoloworno-taxlocations,resultinginlittleornooverallcorporatetaxbeingpaid.WhiletheInvestmentAdviserdoesnotbelievetheCompanyisanintendedtargetoftheOECD’sBEPSmeasures,beingneitheramultinationalcompanynorinvolvedinartificialarrangements,itiscurrentlyunclearwhattheimplicationswillbefortheGrouportherealestatesector.ItispossiblethattheimplementationoftheBEPSactionsintheUKorotherjurisdictionsthroughwhichtheGroupinvestsmayhavenegativeimplicationsfortheGroup,includingthepotentialforareductioninthetaxdeductibilityofdebtinterest.TheriskofsuchchangestotaxandregulatorylegislationisheightenedastheUKwithdrawsfromEurope.

ThecorporatestructureoftheCompanyisregularlyreviewedand,whereappropriate,externaltaxadvicesought.ICG-LongbowandtheBoardcontinuetomonitordevelopmentsinUK,GuernseyandEuropeantaxandregulatorylegislation.WithrespecttoBEPSandBrexit,theGroupcontinuestomonitorthesituationbutdoesnotcurrentlyexpecteithertoimpactitsoperatingstructureorinvestmentperformance.

TheInvestmentAdviserisinconstantcontactwithadvisersandindustrybodiestobeabletomonitorthepotentialimpactofchangesinregulationandlegislation.



TheCompany’sprincipalriskfactorsarefullydiscussedintheCompany’s2018Prospectus,availableontheCompany’swebsite(www.lbow.co.uk)andshouldbereviewedbyshareholders.

EmergingrisksareregularlyconsideredtoassessanypotentialimpactontheGroupandtodeterminewhetheranyactionsarerequired.Emergingrisksincludethoserelatedtoregulatory/legislativechangeandmacroeconomicandpoliticalchange,whichinthecurrentyearhaveincludedtheongoingdevelopmentsinrespectoftheUK’sdecisiontoleavetheEuropeanUnion.

Insummary,theaboverisksaremitigatedandmanagedbytheBoardthroughcontinualreview,policysettingandupdatingoftheCompany’sriskmatrixateachquarterlymeetingtoensurethatproceduresareinplacewiththeintentionofminimisingtheimpactoftheabovementionedrisks.TheBoardrelies

onperiodicreportsprovidedbytheInvestmentAdviserandAdministratorregardingrisksthattheGroupfaces.Whenrequired,expertswillbeemployedtogatherinformation,includingpropertysurveyors,taxadvisers,legaladvisers,andenvironmentaladvisers.

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REPORTOFTHEAUDIT AND OPERATIONAL RISK COMMITTEE

TheAuditandOperationalRiskCommittee,chairedbyMrFirth,operateswithinclearlydefinedtermsofreference(whichareavailablefromtheCompany’swebsite)andincludesallmattersindicatedbyDisclosureandTransparencyRule7.1,theAICCodeandtheUKCode.ItsothermembersareMrBeevorandMrMeader.OnlyindependentDirectorscanserveontheAuditandOperationalRiskCommittee.MembersoftheAuditandOperationalRiskCommitteemustbeindependentoftheCompany’sexternalauditorandInvestmentAdviser.TheAuditandOperationalRiskCommitteewillmeetnolessthantwiceayear,andatsuchothertimesastheAuditandOperationalRiskCommitteeChairmanshallrequire.

TheCommitteemembershaveconsiderablefinancialandbusinessexperienceandtheBoardhasdeterminedthatthemembershipasawholehassufficientrecentandrelevantsectorandfinancialexperiencetodischargeitsresponsibilities.TheBoardhastakennoteoftherequirementthatatleastonememberoftheAuditandOperationalRiskCommitteeshouldhaverecentandrelevantfinancialexperienceandissatisfiedthattheAuditandOperationalRiskCommitteeisproperlyconstitutedinthatrespect,withallmembersbeinghighlyexperiencedand,inparticular,withonememberhavingabackgroundasacharteredaccountant.

ThedutiesoftheAuditandOperationalRiskCommitteeindischargingitsresponsibilitiesincludereviewingtheAnnualReportandConsolidatedFinancialStatementsandtheInterimReport,thesystemofinternalcontrols,andthetermsofappointmentoftheCompany’sindependentauditortogetherwiththeirremuneration.ItisalsotheformalforumthroughwhichtheauditorwillreporttotheBoardofDirectors.TheobjectivityoftheauditorisreviewedbytheAuditandOperationalRiskCommitteewhichwillalsoreviewthetermsunderwhichtheexternalauditorisappointedtoperformnon-auditservicesandthefeespaidtothemortheiraffiliatedfirmsoverseas.

RESPONSIBILITIESThemaindutiesoftheAuditandOperationalRiskCommitteeare:

O reviewingandmonitoringtheintegrityoftheFinancialStatementsoftheGroupandanyformalannouncementsrelatingtotheGroup’sfinancialperformance,reviewingsignificantfinancialreportingjudgementscontainedinthem;

O reportingtotheBoardontheappropriatenessofouraccountingpoliciesandpracticesincludingcriticaljudgementareas;

O reviewinganydraftimpairmentreviewsoftheGroup’sinvestmentspreparedbytheInvestmentAdviser,andmakingarecommendationtotheBoardonanyimpairmentinthevalueoftheGroup’sinvestments;

O meetingregularlywiththeexternalauditortoreviewtheirproposedauditplanandthesubsequentauditreportandassesstheeffectivenessoftheauditprocessandthelevelsoffeespaidinrespectofbothauditandnon-auditwork;

O makingrecommendationstotheBoardinrelationtotheappointment,re-appointmentorremovaloftheexternalauditorandapprovingtheirremunerationandthetermsoftheirengagement;

O monitoringandreviewingannuallytheauditor’sindependence,objectivity,expertise,resources,qualificationandnon-auditwork;

O consideringannuallywhetherthereisaneedfortheCompanyanditsGrouptohaveitsowninternalauditfunction;

O monitoringtheinternalfinancialcontrolandriskmanagementsystemsonwhichtheCompanyanditsGroupisreliant;

O reviewingandconsideringtheUKCode,theAICCode,theFRCGuidanceonAuditandOperationalRiskCommittees;and

O reviewingtherisksfacingtheGroupandmonitoringtheriskmatrix.

TheAuditandOperationalRiskCommitteeisrequiredtoreportformallyitsfindingstotheBoard,identifyinganymattersonwhichitconsidersthatactionorimprovementisneeded,andmakerecommendationsonthestepstobetaken.

TheexternalauditorisinvitedtoattendtheAuditandOperationalRiskCommitteemeetingsastheDirectorsdeemappropriateandatwhichtheyhavetheopportunitytomeetwiththeAuditandOperationalRiskCommitteewithoutrepresentativesoftheInvestmentAdviserortheAdministratorbeingpresentatleastonceperyear.

FINANCIAL REPORTINGTheprimaryroleoftheAuditandOperationalRiskCommitteeinrelationtothefinancialreportingistoreviewwiththeAdministrator,InvestmentAdviserandtheauditortheappropriatenessoftheInterimReportandAnnualReportandConsolidatedFinancialStatements,concentratingon,amongstothermatters:

O thequalityandacceptabilityofaccountingpoliciesandpractices;

O theclarityofthedisclosuresandcompliancewithfinancialreportingstandardsandrelevantfinancialandgovernancereportingrequirements;

O materialareasinwhichsignificantjudgementshavebeenappliedortherehasbeendiscussionwiththeexternalauditorincludinggoingconcernandviabilitystatement;

O whethertheAnnualReportandConsolidatedFinancialStatements,takenasawhole,isfair,balancedandunderstandableandprovidestheinformationnecessaryforshareholderstoassesstheGroup’sperformance,businessmodelandstrategy;and

O anycorrespondencefromregulatorsinrelationtotheGroup’sfinancialreporting.

Toaiditsreview,theAuditandOperationalRiskCommitteeconsidersreportsfromtheAdministratorandInvestmentAdviserandalsoreportsfromtheauditorontheoutcomeoftheirannualaudit.TheAuditandOperationalRiskCommitteesupportsDeloitteLLPindisplayingthenecessaryprofessionalscepticismtheirrolerequires.


REPORTOFTHEAUDIT AND OPERATIONAL RISK COMMITTEE(CONTINUED)MEETINGSDuringtheyearended31January2019,theAuditandOperationalRiskCommitteemetformallyon3occasions.Themattersdiscussedatthosemeetingsinclude:

O reviewofthetermsofreferenceoftheAuditandOperationalRiskCommitteeforapprovalbytheBoard;

O reviewoftheaccountingpoliciesandformatoftheFinancialStatements;

O detailedreviewoftheAnnualReportandFinancialStatements,InterimReportandrecommendationforapprovalbytheBoardincludingthegoingconcernbasisandtheviabilitystatement;

O reviewoftheGroup’sriskmatrix;

O reviewandapprovaloftheauditplanandfinalAuditandOperationalRiskCommitteereportoftheauditor;

O discussionandapprovalofthefeefortheexternalaudit;

O assessmentoftheindependenceoftheexternalauditor;

O assessmentoftheeffectivenessoftheexternalauditprocessasdescribedbelow;and

O reviewoftheGroup’skeyrisksandinternalcontrols.

PRIMARY AREA OF JUDGEMENTTheAuditandOperationalRiskCommitteedeterminedthatthekeyriskofmisstatementoftheGroup’sFinancialStatementsrelatestotherecoverabilityoftheloans,inthecontextofthejudgementsnecessarytoevaluateanyrelatedimpairmentoftheloans.

TheGroup’sloansarethekeyvaluedriverfortheGroup’sNAVandinterestincome.JudgementsoverthelevelofanyimpairmentandrecoverabilityofloaninterestcouldsignificantlyaffecttheNAV.

TheBoardreviewsthecomplianceofallloanswithtermsandcovenantsateachBoardmeeting.TheBoardalsoreceivesupdatesfromtheInvestmentAdviserregardingthetradingperformanceforeachborrower,theborrower’sperformanceundertheloansandonthegeneralUKpropertymarket.Asaresult,theBoardisabletodeterminethelevel,ifany,ofanyimpairmenttotheloans.

Theincorrecttreatmentofanyarrangement,exitandprepaymentfeesandtheimpactofloanimpairmentsintheeffectiveinterestratecalculationsmaysignificantlyaffectthelevelofincomerecordedintheyearthusaffectingthelevelofdistributableincome.

TheAuditandOperationalRiskCommitteehasfocussedtheirworkontheadoptionofIFRS9andinparticulartotheassessmentofthecreditriskchanges,probabilityofdefaultandlossgivendefaultinrelationtotheloanportfolio.TheAuditandOperationalRiskCommitteehasrevieweddetailedimpairmentanalysisandcurrentloanperformancereportspreparedbytheInvestmentAdvisertogetherwiththeconsiderationofthecurrentcollateralvaluesunderpinningtheloanportfolio.TheAuditandOperationalRiskCommitteenotesthatcriticaljudgementshavebeenmadeinrelationtotheassessmentofthestagingoftheloanstogetherwiththeestimationoftheprobabilityofdefaultandalsothelossgivendefault.ParticularconsiderationwasgiventotheMeadowloanwhichhasexperiencedasignificantcreditriskincreasegiventhefallinLTVandreductioninICRasthepropertybecomesvacantinreadinessforthechangeinuse.Further,itshouldbe

notedthatthecurrentvaluationincludesanupliftinrelationtotheexpectedvalueofthegrantingofplanningpermission.Shouldthispermissionnotbegranted,thejudgementsaroundthevaluationwouldneedtoberevisited.TheAuditandOperationalRiskCommitteebelievesthatwhilstthereisanon-goingriskthatthecapitalvalueinvestedintheloanportfoliomaynotberecoverableortheremaybedelaysinrecoveringthecapital,itissatisfiedwiththevalueofthesecurityheldprovidessufficientheadroomabovetheloanprincipaltosupporttheassertionthatnoimpairmentlossisrequiredtoberecordedat31January2019.

TheAuditandOperationalRiskCommitteealsoconsideredthepotentialforimpairmentoftheportfoliointhelongerterm,inaccordancewithIFRS9,basedonanagreedcreditratingmethodologywhichisbenchmarkedagainsttheGroup’spreviousexperienceinmanagingseniordebtandwholeloanportfolios.

TheAuditandOperationalRiskCommitteealsoreviewedtheincomerecognitionandthetreatmentofarrangementandexitfeeswhichwerebasedoneffectiveinterestratecalculationspreparedbytheInvestmentAdviserandtheAdministrator.Themainassumptionsofthecalculationswerethatnoneoftheloanswereimpairedandthateachloanwouldberepaidattheendoftheagreedloanterm.ThesewerediscussedattheAuditandOperationalRiskCommitteemeetingtoreviewtheAnnualReport,withtheInvestmentAdviser,theAdministratorandAuditor.TheAuditandOperationalRiskCommitteeissatisfiedthattheGroupinterestincomehasbeenrecognisedinlinewiththerequirementsofIFRS.

TheAuditandOperationalRiskCommitteehasreviewedthejudgementsandestimationsindeterminingthefairvalueofprepaymentoptionsembeddedwithinthecontractsforloansadvanced.Thekeyfactorsconsideredinthevaluationofprepaymentoptionsincludetheexerciseprice,theinterestrateofthehostloancontract,differentialtocurrentmarketinterestrates,theriskfreerateofinterest,contractualtermsoftheprepaymentoption,andtheexpectedtermoftheoption.Inresponsetothesefactorsithasbeenevaluatedthattheprobabilityofexercisebytheborrowerislowandthetimingofexerciseisindeterminable.Asaresult,theAuditandOperationalRiskCommitteehasconcludedthatitisappropriatenovalueisattributedtoembeddedprepaymentoptions.

RISK MANAGEMENTTheCompany’sriskassessmentprocessandthewayinwhichsignificantbusinessrisksaremanagedisakeyareaoffocusfortheAuditandOperationalRiskCommittee.TheworkoftheAuditandOperationalRiskCommitteeisdrivenprimarilybytheGroup’sassessmentofitsprincipalrisksanduncertaintiesassetoutonpages29to31oftheCorporateGovernanceReport,anditreceivesreportsfromtheInvestmentAdviserandAdministratorontheGroup’sriskevaluationprocessandreviewschangestosignificantrisksidentified.Furthermore,theInvestmentRiskCommitteemonitorstherisksassociatedwiththeinvestmentsandthecomplianceoftheinvestmentportfoliowiththeinvestmentrestrictionsoftheGroup.

INTERNAL AUDITTheAuditandOperationalRiskCommitteecontinuestoreviewtheneedforaninternalauditfunctionandhasdecidedthatthesystemsandproceduresemployedbytheAdministratorandtheInvestmentAdviser,includingtheirowninternalcontrolsandprocedures,providesufficientassurancethatanappropriatelevelofriskmanagementandinternalcontrol,whichsafeguardsshareholders’investmentandtheGroup’sassets,ismaintained.AninternalauditfunctionspecifictotheCompanyisthereforeconsideredunnecessary.

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REPORTOFTHEAUDIT AND OPERATIONAL RISK COMMITTEE(CONTINUED)EXTERNAL AUDITDeloitteLLPhasbeentheCompany’sexternalauditorsincetheCompany’sinception.Thisisthesixthauditperiod.

Theexternalauditorisrequiredtorotatetheauditpartnereveryfiveyears.ThecurrentDeloitteLLPleadauditpartner,MrsNicolaPaul,startedhertenurein2014(inrespectoftheyearended31January2015)andhercurrentrotationwillendwiththeauditofthe2019AnnualReportandFinancialStatements.TheAuditandOperationalRiskCommitteeshallgiveadvancenoticeofanyretenderingplanswithintheAnnualReport.TheAuditandOperationalRiskCommitteehasconsideredthere-appointmentoftheauditoranddecidednottoputtheprovisionoftheexternalauditouttotenderatthistime.

TheobjectivityoftheauditorisreviewedbytheAuditandOperationalRiskCommitteewhichalsoreviewsthetermsunderwhichtheexternalauditormaybeappointedtoperformnon-auditservices.TheAuditandOperationalRiskCommitteereviewsthescopeandresultsoftheaudit,itscosteffectivenessandtheindependenceandobjectivityoftheauditor,withparticularregardtoanynon-auditworkthattheauditormayundertake.Inordertosafeguardauditorindependenceandobjectivity,theAuditandOperationalRiskCommitteeensuresthatanyotheradvisoryand/orconsultingservicesprovidedbytheexternalauditordonotconflictwithitsstatutoryauditresponsibilities.Advisoryand/orconsultingserviceswillgenerallyonlycoverreviewsofInterimReports,taxcomplianceandcapitalraisingwork.Anynon-auditservicesconductedbytheauditoroutsideoftheseareaswillrequiretheconsentoftheAuditandOperationalRiskCommitteebeforebeinginitiated.

TheexternalauditormaynotundertakeanyworkfortheGroupinrespectofthefollowingmatters–preparationoftheFinancialStatements,provisionofinvestmentadvice,takingmanagementdecisionsoradvocacyworkinadversarialsituations.

TheCommitteereviewsthescopeandresultsoftheaudit,itscosteffectivenessandtheindependenceandobjectivityoftheauditor,withparticularregardtothelevelofnon-auditfees.

TheCommitteeregularlymonitorsnonauditservicesbeingprovidedbyDeloittetoensurethereisnoimpairmenttotheirindependenceorobjectivity.

Notwithstandingsuchservices,theAuditandOperationalRiskCommitteeconsidersDeloitteLLPtobeindependentoftheCompanyandthattheprovisionofsuchnon-auditservicesisnotathreattotheobjectivityandindependenceoftheconductoftheauditasappropriatesafeguardsareinplace.

Tofulfilitsresponsibilityregardingtheindependenceoftheauditor,theAuditandOperationalRiskCommitteewillconsider:

O discussionswithorreportsfromtheauditordescribingitsarrangementstoidentify,reportandmanageanyconflictsofinterest;and

O theextentofnon-auditservicesprovidedbytheauditorandarrangementsforensuringtheindependenceandobjectivityandrobustnessandperceptivenessoftheauditorandtheirhandlingofkeyaccountingandauditjudgements.

Toassesstheeffectivenessoftheauditor,theAuditandOperationalRiskCommitteewillreview:

O theauditor’sfulfilmentoftheagreedauditplanandvariationsfromit;

O discussionsorreportshighlightingthemajorissuesthataroseduringthecourseoftheaudit;

O feedbackfromotherserviceprovidersevaluatingtheperformanceoftheauditteam;

O arrangementsforensuringindependenceandobjectivity;and

O therobustnessoftheauditorinhandlingkeyaccountingandauditjudgements.

TheAuditandOperationalRiskCommitteeissatisfiedwithDeloitteLLP’seffectivenessandindependenceasauditorhavingconsideredthedegreeofdiligenceandprofessionalscepticismdemonstratedbythem.Havingcarriedoutthereviewdescribedaboveandhavingsatisfieditselfthattheauditorremainsindependentandeffective,theAuditandOperationalRiskCommitteehasrecommendedtotheBoardthatDeloitteLLPbereappointedasauditorfortheyearending31January2020.

TheAuditandOperationalRiskCommitteehasprovidedtheBoardwithitsrecommendationtotheshareholdersonthere-appointmentofDeloitteLLPasexternalauditorwhichwillbeputtoshareholdersattheAnnualGeneralMeeting.

TheChairmanoftheAuditandOperationalRiskCommitteewillbeavailableattheAnnualGeneralMeetingtoansweranyquestionsabouttheworkoftheCommittee.

OnbehalfoftheAuditandOperationalRiskCommittee

PATRICK FIRTHChairman of the Audit and Operational Risk Committee

23April2019


INDEPENDENTAUDITOR’S REPORTtotheMembersofICG-LongbowSeniorSecuredUKPropertyDebtInvestmentsLimited

REPORT ON THE AUDIT OF THE CONSOLIDATED FINANCIAL STATEMENTS

OPINIONIn our opinion the consolidated financial statements of ICG Longbow Senior Secured UK Property Debt Investments Limited:

O give a true and fair view of the state of the Group’s affairs as at 31 January 2019 and of the Group’s profit for the year then ended;

O have been properly prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union; and

O have been prepared in accordance with the requirements of the Companies (Guernsey) Law, 2008.

Wehaveauditedthefinancialstatementswhichcomprise:

O theConsolidatedStatementofComprehensiveIncome;

O theConsolidatedStatementofFinancialPosition;

O theConsolidatedStatementofChangesinEquity;

O theConsolidatedStatementofCashFlows;and

O therelatednotes1to17.

ThefinancialreportingframeworkthathasbeenappliedintheirpreparationisapplicablelawandIFRSsasadoptedbytheEuropeanUnion.

BASIS FOR OPINIONWeconductedourauditinaccordancewithInternationalStandardsonAuditing(UK)(ISAs(UK))andapplicablelaw.Ourresponsibilitiesunderthosestandardsarefurtherdescribedintheauditor’sresponsibilitiesfortheauditofthefinancialstatementssectionofourreport.

WeareindependentoftheGroupinaccordancewiththeethicalrequirementsthatarerelevanttoourauditofthefinancialstatementsintheUK,includingtheFinancialReportingCouncil’s(FRC’s)EthicalStandardasappliedtolistedentities,andwehavefulfilledourotherethicalresponsibilitiesinaccordancewiththeserequirements.

Webelievethattheauditevidencewehaveobtainedissufficientandappropriatetoprovideabasisforouropinion.

SUMMARY OF OUR AUDIT APPROACH

Key audit matters Thekeyauditmattersthatweidentifiedinthecurrentyearwere:

• theassessmentofanyimpairmentinvalueofloansadvanced;and

• revenuerecognition.

Withinthisreport,anynewkeyauditmattersareidentifiedwith andanykeyauditmatterswhicharethesameastheprioryearidentifiedwith

Materiality ThematerialityweusedfortheGroupfinancialstatementswas£2.4millionwhichwasdeterminedas2%oftheNetAssetValue.

Wealsoappliedalowermaterialitythresholdof£0.38millionbasedon5%ofInvestmentIncome.

Scoping Auditworktorespondtotherisksofmaterialmisstatementwasperformeddirectlybytheauditengagementteam.

Significant changes in our approach

Therehavebeennosignificantchangesinourapproachfromtheprioryear.

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INDEPENDENTAUDITOR’S REPORT(CONTINUED)

CONCLUSIONS RELATING TO GOING CONCERN, PRINCIPAL RISKS AND VIABILITY STATEMENTGoing concernWehavereviewedtheDirectors’statementinnote2(b)tothefinancialstatementsaboutwhethertheyconsidereditappropriatetoadoptthegoingconcernbasisofaccountinginpreparingthemandtheiridentificationofanymaterialuncertaintiestotheGroup’sabilitytocontinuetodosooveraperiodofatleasttwelvemonthsfromthedateofapprovalofthefinancialstatements.

Weconsideredaspartofourriskassessmentthenatureofthegroup,itsbusinessmodelandrelatedrisksincludingwhererelevanttheimpactofBrexit,therequirementsoftheapplicablefinancialreportingframeworkandthesystemofinternalcontrol.Weevaluatedthedirectors’assessmentofthegroup’sabilitytocontinueasagoingconcern,includingchallengingtheunderlyingdataandkeyassumptionsusedtomaketheassessment,andevaluatedthedirectors’plansforfutureactionsinrelationtotheirgoingconcernassessment.

WearerequiredtostatewhetherwehaveanythingmaterialtoaddordrawattentiontoinrelationtothatstatementrequiredbyListingRule9.8.6R(3)andreportifthestatementismateriallyinconsistentwithourknowledgeobtainedintheaudit.

We confirm that we have nothing material to report, add or draw attention to in respect of these matters.

Principal risks and viability statementBasedsolelyonreadingthedirectors’statementsandconsideringwhethertheywereconsistentwiththeknowledgeweobtainedinthecourseoftheaudit,includingtheknowledgeobtainedintheevaluationofthedirectors’assessmentoftheGroup’sabilitytocontinueasagoingconcern,wearerequiredtostatewhetherwehaveanythingmaterialtoaddordrawattentiontoinrelationto:

O thedisclosuresonpages29-31thatdescribetheprincipalrisksandexplainhowtheyarebeingmanagedormitigated;

O theDirectors’confirmationonpage29thattheyhavecarriedoutarobustassessmentoftheprincipalrisksfacingtheGroup,includingthosethatwouldthreatenitsbusinessmodel,futureperformance,solvencyorliquidity;or

O theDirectors’explanationonpage21astohowtheyhaveassessedtheprospectsoftheGroup,overwhatperiodtheyhavedonesoandwhytheyconsiderthatperiodtobeappropriate,andtheirstatementastowhethertheyhaveareasonableexpectationthattheGroupwillbeabletocontinueinoperationandmeetitsliabilitiesastheyfalldueovertheperiodoftheirassessment,includinganyrelateddisclosuresdrawingattentiontoanynecessaryqualificationsorassumptions.

Wearealsorequiredtoreportwhetherthedirectors’statementrelatingtotheprospectsoftheGrouprequiredbyListingRule9.8.6R(3)ismateriallyinconsistentwithourknowledgeobtainedintheaudit.

We confirm that we have nothing material to report, add or draw attention to in respect of these matters.



KEY AUDIT MATTERSKeyauditmattersarethosemattersthat,inourprofessionaljudgement,wereofmostsignificanceinourauditofthefinancialstatementsofthecurrentperiodandincludethemostsignificantassessedrisksofmaterialmisstatement(whetherornotduetofraud)thatweidentified.Thesemattersincludedthosewhichhadthegreatesteffecton:theoverallauditstrategy,theallocationofresourcesintheaudit;anddirectingtheeffortsoftheengagementteam.

Thesematterswereaddressedinthecontextofourauditofthefinancialstatementsasawhole,andinformingouropinionthereon,andwedonotprovideaseparateopiniononthesematters.

The assessment of any impairment in value of loans advanced

Key audit matter description

Asat31January2019,loansmeasuring£108.56million(31January2018:£112.33million)arecarriedatamortisedcostlessanyprovisionforimpairmentasdisclosedinNote2k)vandNote5oftheConsolidatedFinancialStatements.

AsdescribedintheReportOfTheAuditandOperationalRiskCommittee,theGroup’sloansarethekeyvaluedriverfortheGroupNetAssetValueandinterestincome.

Judgementsoverthelevelofanyimpairmentcouldsignificantlyaffectthesekeyperformanceindicators.ImpairmentisconsideredtobethemostcriticalaccountingjudgmentandestimatemadeinapplyingtheGroup’saccountingpoliciesasdescribedinNote3.Thespecificareasofjudgementinclude:

O Thedeterminationoftheappropriateassumptionsunderlyingtheimpairmentanalysis;

O Theimpactofloan-specificmattersandmacroeconomicfactorsthatmightindicatesignificantincreaseincreditriskorobjectiveevidenceofimpairmentonanindividualloanorontheentireloanportfolio;and

O Thedeterminationofkeyinputsoftheexpectedcreditlossesmodelsuchasprobabilityofdefaultandlossgivendefault.

How the scope of our audit responded to the key audit matter

Ourproceduresincluded:

O reviewingtheloanduediligence(includingthirdpartypropertyvaluations)inrespectofeachloaninexistenceatbalancesheetdate;

O challengingthejudgments(includingqualitativeandquantitativecriteria)takenbymanagementrelatedtothecategorisationofloanassetsintovariouscreditstagesrequiredunderIFRS9.Weconsideredthisinthecontextofmanagement’sdefinitionofsignificantincreaseincreditrisk(‘SICR’)andDefault.Toachievethis,weperformedareviewofthe‘LoanMonitoringReport’toassessevidenceofchangesincreditriskarisingfromfactorssuchas:

– movementinloantovalueandinterestcoverratiossincedateofinitialrecognition(i.e.deteriorationinassetsecurity);

– covenantbreaches;

– delinquencyincontractualpaymentsincludingunexpectedmodificationstocontractualcashflows;or

– othersignsoffinancialstress.

O evaluatingthereasonablenessofestimatesappliedtodeterminetheprobabilityofdefault(PD),lossgivendefault(LGD)andexposureatdefault(EAD),includinghowforwardlookinginformationwasconsideredinthisregard;

O workingwithourcreditspecialiststochallengetheECLmodelitselfandtheECLestablishedforeachloan;

O reviewingeachloantoassesswhethertheloanhasorislikelygoingtobreachitscovenantsorhasdefaultedonanycouponpayments,andconsideringotherinformationavailableontheborrowertoassesstheability(orotherwise)tomeetfuturepaymentcommitments;and

O assessingthedesignandimplementationofrelevantcontrolsrelatingtotheloanimpairmentreviewprocess.

Key observations

Havingcarriedouttheproceduresaboveandbasedontheevidenceobtained,wedeterminedthattheimpairmentassumptionswerereasonableandtheresultingestimateofexpectedcreditlossesandimpairmentisinaccordancewithinternationalfinancialreportingstandards.

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Revenue recognition

Key audit matter description

Incomefromloansadvancedtotalled£7.20mfortheyearended31January2019(2018:£7.04m),withfurtherotherincomeof£0.44m(31January2018:£1.04million)receivedasaresultofearlyprincipalrepayments(seenote5).PartoftheGroup’sinvestmentobjectiveasdisclosedintheInvestmentAdviser’sReportincludesanaimtoprovideshareholderswithattractivequarterlydividends.Incorrecttreatmentofanyarrangementfees,exitfees,prepaymentfeesandtheimpactofloanimpairmentsintheeffectiveinterestratecalculationsmaysignificantlyaffectthelevelofincomerecordedintheperiod,thusaffectingthelevelofdistributableincome.

Inaddition,theexistenceofprepaymentfeesarisingfromearlyprincipalrepaymentsduringtheperiodwillaffecttheincomerecognisedandmaynotberecordedinaccordancewiththeeffectiveinterestraterequirementssetoutinIFRS9.

TheaccountingpoliciesrelatedtothiskeyauditmattercanbefoundinNote2e)andNote3.

How the scope of our audit responded to the key audit matter

Ourproceduresincluded:

O assessingandchallengingmanagement’sjudgementsinrespectoftheestimatedcontractualcashflows(includingarrangementandexitfees)throughexaminationoftheamortisationschedulespreparedforeachloantogetherwiththeimpairmentanalysis;

O recalculatinginterestincomeaccruingundertheeffectiveinterestratemethod,takingintoaccounttheimpactofanyprepaymentsandothermodificationsincontractualcashflows,totheloanbalancesandinterestincomerecognised;

O evaluatingtheimpactofanyimpairmentsontherecognitionofincomerecordedintheperiod;

O evaluatingtheimpactofanyprepaymentsorexitfeesfromearlyrepaymentsontheincomerecordedintheperiod;

O tracingscheduledcouponpaymentstobankstatements;and

O assessingthedesignandimplementationofrelevantcontrolsrelatingtorecognitionofinvestmentincome.

Key observations

Havingcarriedouttheprocedures,wefoundoutthatinterestincomeandloanrelatedfeesareappropriatelyaccountedforinthefinancialstatementsandnomaterialmisstatementswereidentifiedbyourtesting.



OUR APPLICATION OF MATERIALITYWedefinematerialityasthemagnitudeofmisstatementinthefinancialstatementsthatmakesitprobablethattheeconomicdecisionsofareasonablyknowledgeablepersonwouldbechangedorinfluenced.Weusematerialitybothinplanningthescopeofourauditworkandinevaluatingtheresultsofourwork.

Basedonourprofessionaljudgement,wedeterminedmaterialityforthefinancialstatementsasawholeasfollows:

Group materiality £2.4million(2018:£2.36million)

Basis for determining materiality

WedeterminedmaterialityfortheGrouptobe£2.4million(31January2018:£2.36million),whichisapproximately2%(31January2018:2%)ofNetAssetValue.

Wehaveappliedalowermaterialitythresholdof£382,000(31January2018:£351,000)basedon5%ofnetincome(31January2018:5%)inrespectofloaninterestincome.

Rationale for the benchmark applied

WebelieveNetAssetValueisthemostappropriatebenchmarkasitisconsideredoneoftheprincipalconsiderationsformembersoftheGroupinassessingfinancialperformance.

Alowerthresholdhasbeenusedforloaninterestincomeassuchtransactionsareimportanttoinvestorsandprovidetherevenuetosupportdistributionstoshareholders.

Net Asset Value £120.28m

Group materiality £2.4m

Audit Committee reporting threshold

£0.12m

Net Asset Value

Group materiality

FollowingdiscussionwiththeAuditCommittee,wereassessedourreportingthresholdfromtheprioryearandagreedthatwewouldreporttotheCommitteeallauditdifferencesinexcessof£120,000(2018:£47,000)fortheGroup,aswellasdifferencesbelowthatthresholdthatinourview,warrantedreportingonqualitativegrounds.WealsoreporttotheAuditCommitteeondisclosuremattersthatweidentifiedwhenassessingtheoverallpresentationofthefinancialstatements.

AN OVERVIEW OF THE SCOPE OF OUR AUDITTheconsolidatedfinancialstatementsoftheGroupincorporatesthefinancialstatementsoftheparentcompanyanditssubsidiaryasdefinedintheopinionparagraphabove.MaterialtransactionsofthesubsidiaryandparentcompanywereincludedwithinthescopeofourauditoftheconsolidatedfinancialstatementsconductedusingtheGroupmaterialitysetoutabove.

OurauditwasscopedbyobtaininganunderstandingoftheGroupanditsenvironment,includinginternalcontrol,andassessingtherisksofmaterialmisstatement.Auditworktorespondtotherisksofmaterialmisstatementwasperformeddirectlybytheauditengagementteamforboththeparententityanditswhollyownedsubsidiary,ICG-LongbowSeniorDebtS.A.,whichholdstheportfolioofloaninvestmentsoftheGroup.

ICG-LongbowSeniorSecuredUKPropertyDebtInvestmentsLimitedusesserviceorganisationstomanagebook-keepingandsupportinthepreparationofthefinancialstatements.Assuch,wehaveassessedthedesignandimplementationofrelevantcontrolsestablishedbytheserviceorganisations.

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OTHER INFORMATION

TheDirectorsareresponsiblefortheotherinformation.Theotherinformationcomprisestheinformationincludedintheannualreport,otherthanthefinancialstatementsandourauditor’sreportthereon.

Ouropiniononthefinancialstatementsdoesnotcovertheotherinformationandwedonotexpressanyformofassuranceconclusionthereon.

Inconnectionwithourauditofthefinancialstatements,ourresponsibilityistoreadtheotherinformationand,indoingso,considerwhethertheotherinformationismateriallyinconsistentwiththefinancialstatementsorourknowledgeobtainedintheauditorotherwiseappearstobemateriallymisstated.

Ifweidentifysuchmaterialinconsistenciesorapparentmaterialmisstatements,wearerequiredtodeterminewhetherthereisamaterialmisstatementinthefinancialstatementsoramaterialmisstatementoftheotherinformation.If,basedontheworkwehaveperformed,weconcludethatthereisamaterialmisstatementofthisotherinformation,wearerequiredtoreportthatfact.

Inthiscontext,mattersthatwearespecificallyrequiredtoreporttoyouasuncorrectedmaterialmisstatementsoftheotherinformationincludewhereweconcludethat:

O Fair, balanced and understandable–thestatementgivenbythedirectorsthattheyconsidertheannualreportandfinancialstatementstakenasawholeisfair,balancedandunderstandableandprovidestheinformationnecessaryforshareholderstoassesstheGroup’spositionandperformance,businessmodelandstrategy,ismateriallyinconsistentwithourknowledgeobtainedintheaudit;or

O Audit committee reporting–thesectiondescribingtheworkoftheauditcommitteedoesnotappropriatelyaddressmatterscommunicatedbyustotheauditcommittee;or

O Directors’ statement of compliance with the UK Corporate Governance Code–thepartsofthedirectors’statementrequiredundertheListingRulesrelatingtothecompany’scompliancewiththeUKCorporateGovernanceCodecontainingprovisionsspecifiedforreviewbytheauditorinaccordancewithListingRule9.8.10R(2)donotproperlydiscloseadeparturefromarelevantprovisionoftheUKCorporateGovernanceCode.

We have nothing to report in respect of these matters.

RESPONSIBILITIES OF DIRECTORSAsexplainedmorefullyintheDirectors’responsibilitiesstatement,theDirectorsareresponsibleforthepreparationofthefinancialstatementsandforbeingsatisfiedthattheygiveatrueandfairview,andforsuchinternalcontrolastheDirectorsdetermineisnecessarytoenablethepreparationoffinancialstatementsthatarefreefrommaterialmisstatement,whetherduetofraudorerror.

Inpreparingthefinancialstatements,thedirectorsareresponsibleforassessingtheGroup’sabilitytocontinueasagoingconcern,disclosingasapplicable,mattersrelatedtogoingconcernandusingthegoingconcernbasisofaccountingunlessthedirectorseitherintendtoliquidatetheGrouportoceaseoperations,orhavenorealisticalternativebuttodoso.

AUDITOR’S RESPONSIBILITIES FOR THE AUDIT OF THE FINANCIAL STATEMENTSOurobjectivesaretoobtainreasonableassuranceaboutwhetherthefinancialstatementsasawholearefreefrommaterialmisstatement,whetherduetofraudorerror,andtoissueanauditor’sreportthatincludesouropinion.Reasonableassuranceisahighlevelofassurance,butisnotaguaranteethatanauditconductedinaccordancewithISAs(UK)willalwaysdetectamaterialmisstatementwhenitexists.Misstatementscanarisefromfraudorerrorandareconsideredmaterialif,individuallyorintheaggregate,theycouldreasonablybeexpectedtoinfluencetheeconomicdecisionsofuserstakenonthebasisofthesefinancialstatements.

AfurtherdescriptionofourresponsibilitiesfortheauditofthefinancialstatementsislocatedontheFRC’swebsiteat:www.frc.org.uk/auditorsresponsibilities.Thisdescriptionformspartofourauditor’sreport.



REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTSMatters on which we are required to report by exception

Adequacy of explanations received and accounting recordsUndertheCompanies(Guernsey)Law,2008wearerequiredtoreporttoyouif,inouropinion:

O wehavenotreceivedalltheinformationandexplanationswerequireforouraudit;or

O properaccountingrecordshavenotbeenkeptbytheparentcompany;or

O thefinancialstatementsarenotinagreementwiththeaccountingrecords.

We have nothing to report in respect of these matters.

USE OF OUR REPORTThisreportismadesolelytothecompany’smembers,asabody,inaccordancewithSection262oftheCompanies(Guernsey)Law,2008.Ourauditworkhasbeenundertakensothatwemightstatetothecompany’smembersthosematterswearerequiredtostatetotheminanauditor’sreportand/orthosematterswehaveexpresslyagreedtoreporttothemoninourengagementletterandfornootherpurpose.Tothefullestextentpermittedbylaw,wedonotacceptorassumeresponsibilitytoanyoneotherthanthecompanyandthecompany’smembersasabody,forourauditwork,forthisreport,orfortheopinionswehaveformed.

NICOLA SARAH PAUL FCAfor and on behalf of Deloitte LLPRecognised AuditorSt Peter Port, Guernsey

23April2019

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CONSOLIDATEDSTATEMENTOFCOMPREHENSIVE INCOMEFortheyearended31January2019

Notes

1 February 2018 to 31 January 2019

£


£

Income

Incomefromloans 2e) 7,196,384 7,035,459

Otherfeeincomefromloans 2f),5 439,207 1,042,285

Incomefromcashandcashequivalents 6,657 1,928

Total income 7,642,248 8,079,672

Expenses

Investmentadvisoryfees 13,14 1,211,925 1,141,405

Administrationfees 13,14 163,333 170,000

Directors’remuneration 13 196,875 203,333

Luxcooperatingexpenses 169,559 153,379

Brokerfees 52,501 52,775

AuditfeesfortheCompany 15 40,000 40,000

AuditfeesfortheSubsidiary 15 12,953 12,993

Regulatoryfees 22,679 21,765

Listingfees 10,325 10,161

Legalandprofessionalfees 413,221 372,840

Otherexpenses 87,827 104,194

Total expenses 2,381,198 2,282,845

Profit for the year before tax 5,261,050 5,796,827

Taxationcharge/(credit) 4 2,803 (98,541)

Profit for the year after tax 5,258,247 5,895,368

Total comprehensive income for the year 5,258,247 5,895,368

Basic and diluted Earnings per share (pence) 9 4.36 5.33

Allitemswithintheabovestatementhavebeenderivedfromcontinuingactivities.

TheaccompanyingnotesformanintegralpartoftheseConsolidatedFinancialStatements.


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CONSOLIDATEDSTATEMENTOF FINANCIAL POSITIONAsat31January2019


Notes31 January 2019

£31 January 2018

£

Assets

Cashandcashequivalents 7 12,370,129 6,486,150

Tradeandotherreceivables 6 126,654 202,182

Loansadvancedatamortisedcost 5 108,561,477 112,331,666

Total assets 121,058,260 119,019,998

Liabilities

Otherpayablesandaccruedexpenses 8 773,871 1,037,809

Total liabilities 773,871 1,037,809

Net assets 120,284,389 117,982,189

Equity

Sharecapital 10 119,115,310 114,857,090

Retainedearnings 1,169,079 3,125,099

Total equity attributable to the owners of the Company 120,284,389 117,982,189

Number of ordinary shares in issue at year end 10 121,302,779 117,042,779

Net Asset Value per ordinary share (pence) 9 99.16 100.80

TheFinancialStatementswereapprovedbytheBoardofDirectorson23April2019andsignedontheirbehalfby:




CONSOLIDATEDSTATEMENTOFCHANGES IN EQUITYFortheyearended31January2019


NotesNumber

of shares

Sharecapital

£

Retainedearnings

£Total

£

As at 1 February 2018 117,042,779 114,857,090 3,125,099 117,982,189

Shareissue 10 4,260,000 4,302,600 – 4,302,600

Shareissuecosts 10 – (44,380) – (44,380)

Profitfortheyear – – 5,258,247 5,258,247

Dividendspaid 10 – – (7,214,267) (7,214,267)

As at 31 January 2019 121,302,779 119,115,310 1,169,079 120,284,389

Fortheyearended31January2018

NotesNumber

of shares

Sharecapital

£

Retainedearnings

£Total

£

As at 1 February 2017 108,219,250 106,038,522 6,290,172 112,328,694

Shareissue 10 8,823,529 9,000,000 – 9,000,000

Shareissuecosts 10 – (181,432) – (181,432)

Profitfortheyear – – 5,895,368 5,895,368

Dividendspaid 10 – – (9,060,441) (9,060,441)

As at 31 January 2018 117,042,779 114,857,090 3,125,099 117,982,189


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CONSOLIDATEDSTATEMENTOF CASH FLOWSFortheyearended31January2019


Notes


£


£

Cash flows generated from operating activities

Profitfortheyear 5,258,247 5,895,368

Adjustmentsfornon-cashitems:

Movementinotherreceivables 75,528 (177,162)

Movementinotherpayablesandaccruedexpenses (242,282) 241,027

Movementintaxpayable (21,656) (101,760)

Loanamortisation (750,171) (706,539)

4,319,666 5,150,934

Loansadvancedlessarrangementfees (16,592,089) (11,940,000)

Loansrepaid 21,112,449 10,258,135

Netloansadvancedlessarrangementfees 4,520,360 (1,681,865)

Net cash generated from operating activities 8,840,026 3,469,069

Cash flows used in financing activities

Proceedsfromissueofshares 10 4,302,600 9,000,000

Shareissuecostspaid 10 (44,380) (181,432)

Dividendspaid 10 (7,214,267) (9,060,441)

Net cash used in financing activities (2,956,047) (241,873)

Netmovementincashandcashequivalents 5,883,979 3,227,196

Cashandcashequivalentsatthestartoftheyear 6,486,150 3,258,954

Cash and cash equivalents at the end of the year 12,370,129 6,486,150


NOTESTOTHECONSOLIDATED FINANCIAL STATEMENTSFortheyearended31January2019

1. GENERAL INFORMATIONICG-LongbowSeniorSecuredUKPropertyDebtInvestmentsLimitedisanon-cellularcompanylimitedbysharesandwasincorporatedinGuernseyundertheCompaniesLawon29November2012withregisterednumber55917asaclosed-endedinvestmentcompany.TheregisteredofficeandprincipalplaceofbusinessoftheCompanyisHeritageHall,POBox225,LeMarchantStreet,StPeterPort,Guernsey,GY14HY,ChannelIslands.

TheCompany’sshareswereadmittedtothePremiumSegmentoftheOfficialListandtotradingontheMainMarketoftheLondonStockExchangeon5February2013.

TheConsolidatedFinancialStatementscomprisetheFinancialStatementsoftheGroupasat31January2019.

TheinvestmentobjectiveoftheGroup,asapprovedbytheshareholdersoftheCompany,istoconstructaportfolioofUKrealestatedebtrelatedinvestmentspredominantlycomprisingloanssecuredbyfirstrankingfixedchargesagainstcommercialpropertyinvestments,withtheaimofprovidingshareholderswithattractive,quarterlydividends,capitalpreservationand,overthelongerterm,adegreeofcapitalappreciation.

TheInvestmentAdviser,whichtradesunderthenameofICG-Longbow,isauthorisedandregulatedbytheFCA.TheassetsoftheCompanyaremanagedbytheBoardundertheadviceoftheInvestmentAdviserunderthetermsoftheInvestmentAdvisoryAgreement.

2. ACCOUNTING POLICIESa) Basis of preparationTheFinancialStatementsfortheyearended31January2019havebeenpreparedinaccordancewithIFRSasadoptedintheEUandtheCompaniesLaw.

InthepreparationoftheseFinancialStatements,theCompanyfollowedthesameaccountingpoliciesandmethodsofcomputationascomparedwiththoseappliedinthepreviousyear,exceptfortheclassification,measurement,impairmentandgeneralhedgeaccountingprinciplesofIFRS9;consequentialamendmentstoIFRS7FinancialInstruments:Disclosuresthatwereappliedtothedisclosuresfor2019;andotherconsequentialamendmentstootherIFRSstandardsthatareeffectiveforannualperiodsbeginningonorafter1February2018.TheadoptionofthechangesinothermandatorilyeffectiveIFRSstandardsdidnotmateriallyimpacttheCompany.

AtthedateofapprovaloftheseFinancialStatements,theGrouphasnotappliedthefollowingnewandrevisedIFRSstandardsandinterpretationsthathavebeenissuedbutyetarenoteffective:

Effective for periods commencing

IFRS9 FinancialInstruments(Amendmentsregardingprepaymentfeatureswithnegativecompensationandmodificationsoffinancialliabilities)

1January2019

IFRS11 Jointarrangements(AmendmentsresultingfromAnnualImprovements2015-2017Cycle) 1January2019

IFRS16 Leases 1January2019

IFRS17 InsuranceContracts 1January2021

IAS1 PresentationofFinancialStatements(Amendmentsregardingthedefinitionofmaterial) 1January2020

IAS8 AccountingPolicies,ChangesinAccountingEstimatesandErrors(Amendmentsregardingthedefinitionofmaterial)

1January2020

IAS12 IncomeTaxes(AmendmentsresultingfromAnnualImprovements2015-2017Cycle) 1January2019

IFRIC23 UncertaintyoverIncomeTaxTreatments 1January2019

TheDirectorsdonotanticipatethattheadoptionofthesestandardsandinterpretationsinfutureperiodswillhaveasignificantimpactontheConsolidatedFinancialStatementsoftheGroup.

New and amended IFRS Standards that are effective and have been adopted in the current year

Impact of initial application of IFRS 9 Financial InstrumentsInthecurrentyear,theGrouphasappliedIFRS9FinancialInstruments(asrevisedinJuly2014)andtherelatedconsequentialamendmentstootherIFRSStandardsthatareeffectiveforanannualperiodthatbeginsonorafter1January2018andwasadoptedbytheGroupfortheyearended31January2019.ThetransitionprovisionsofIFRS9allowanentitynottorestatecomparatives.TheGrouphaselectednottorestatecomparativesinrespectoftheclassificationandmeasurementoffinancialinstruments.

Additionally,theGroupadoptedconsequentialamendmentstoIFRS7FinancialInstruments:Disclosuresthatwereappliedtothedisclosuresfortheyearending31January2019andtothecomparativeperiod.

IFRS9introducednewrequirementsfor:

1) Theclassificationandmeasurementoffinancialassetsandfinancialliabilities,

2) Impairmentoffinancialassets;and

3) Generalhedgeaccounting.


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NOTESTOTHECONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2. ACCOUNTING POLICIES (CONTINUED)a) Basis of preparation (continued)DetailsofthesenewrequirementsaswellastheirimpactontheGroup’sConsolidatedFinancialStatementsaredescribedbelow.

TheGrouphasappliedIFRS9inaccordancewiththetransitionprovisionssetoutinIFRS9.

(a) Classification and measurement of financial assetsThedateofinitialapplication(i.e.thedateonwhichtheGrouphasassesseditsexistingfinancialassetsandfinancialliabilitiesintermsoftherequirementsofIFRS9)is1February2018.Accordingly,theGrouphasappliedtherequirementsofIFRS9toinstrumentsthatcontinuetoberecognisedasat1February2018andhasnotappliedtherequirementstoinstrumentsthathadalreadybeenderecognisedasat1February2018.Comparativeamountsinrelationtoinstrumentsthatcontinuetoberecognisedasat1February2018havenotbeenrestated.

AllrecognisedfinancialassetsthatarewithinthescopeofIFRS9arerequiredtobemeasuredsubsequentlyatamortisedcostorfairvalueonthebasisoftheentity’sbusinessmodelformanagingthefinancialassetsandthecontractualcashflowcharacteristicsofthefinancialassets.

TheDirectorsoftheCompanyreviewedandassessedtheGroup’sexistingfinancialassetsasat1February2018basedonthefactsandcircumstancesthatexistedatthatdateandconcludedthattheinitialapplicationofIFRS9hashadthefollowingimpactontheGroup’sfinancialassetsasregardstheirclassificationandmeasurement:

O Financialassetsclassifiedasheld-to-maturityandloansandreceivablesunderIAS39thatweremeasuredatamortisedcostcontinuetobemeasuredatamortisedcostunderIFRS9astheyareheldwithinabusinessmodeltocollectcontractualcashflowsandthesecashflowsconsistsolelyofpaymentsofprincipalandinterestontheprincipalamountoutstanding;and

O Changesinthewayinwhichallowanceforcreditlosses(impairment)aremeasured,asdescribedbelow.ThechangehadnomaterialimpacttotheGroup.

(b) Impairment of financial assetsInrelationtotheimpairmentoffinancialassets,IFRS9requiresanexpectedcreditlossmodelasopposedtoanincurredcreditlossmodelunderIAS39.TheexpectedcreditlossmodelrequirestheGrouptoaccountforECLandchangesinthoseECLateachreportingdatetoreflectchangesincreditrisksinceinitialrecognitionofthefinancialassets.Inotherwords,itisnolongernecessaryforacrediteventtohaveoccurredbeforecreditlossesarerecognised.

Inparticular,IFRS9requirestheGrouptomeasurethelossallowanceforafinancialinstrumentatanamountequaltothelifetimeECLifthecreditriskonthatfinancialinstrumenthasincreasedsignificantlysinceinitialrecognition,orifthefinancialinstrumentisapurchasedororiginatedcredit-impairedfinancialasset.

However,ifthecreditriskonafinancialinstrumenthasnotincreasedsignificantlysinceinitialrecognition(exceptforapurchasedororiginatedcredit-impairedfinancialasset),theGroupisrequiredtomeasurethelossallowanceforthatfinancialinstrumentatanamountequalto12-monthsECL.IFRS9alsorequiresasimplifiedapproachformeasuringthelossallowanceatanamountequaltolifetimeECLfortradereceivables,contractassetsandleasereceivablesincertaincircumstances.

(c) Classification and measurement of financial liabilitiesTheapplicationofIFRS9hashadnoimpactontheclassificationandmeasurementoftheGroup’sfinancialliabilities.

(d) General hedge accountingTheapplicationoftheIFRS9hedgeaccountingrequirementshashadnoimpactontheresultsandfinancialpositionoftheGroupforthecurrentand/orprioryears.

AssessmentTheadoptionofIFRS9hasnothadamaterialimpactontheGroup’sConsolidatedFinancialStatements.ThisisbasedonthefollowingsummaryofGroup’stransactionsandactivity:

O Cashandcashequivalents–initialrecognitionatfairvalueandsubsequentmeasurementatamortisedcostunderbothIAS39andIFRS9;

O Tradeandotherreceivables–initialrecognitionatfairvalueandsubsequentmeasurementcontinuestobeheldatamortisedcostunderbothIAS39andIFRS9.AsnotedinNote2a)andNote2d)theimpairmentprovisionshasnothadamaterialimpactontheGroup;and

O Otherpayablesandaccruedexpenses–initialrecognitionatfairvalueandsubsequentmeasurementcontinuestobeheldatamortisedcostunderbothIAS39andIFRS9.

O Loansadvancedatamortisedcost–initialrecognitionatamortisedcostandsubsequentmeasurementcontinuestobeheldatamortisedcostunderbothIAS39andIFRS9.Asnotedbelow,theimpairmentprovisionhasnothadamaterialimpactontheGroup.

TheGrouphasadoptedtheInvestmentAdviser’sinternalcreditratingmethodologyanduseditslossexperiencetobenchmarkinvestmentperformanceandpotentialimpairmentforbothStage1andStage2loansunderIFRS9consideringbothprobabilityofdefaultandECL.

BasedontheGroup’sinternalcreditratingmodelanditspriorexperiencetogetherwiththatoftheInvestmentAdviser,seniorloans(lessthan65%dayoneLTV),typicallyachievean“investmentgrade”equivalentcreditrating.WhilstloanswithaLTVover65%maybeconsideredsub-investmentgrade.Theriskoflossismitigatedbythequalityoftheunderlyingpropertyandthestrengthsofthefinancialcovenantswhichenablethelendertotakeearlypreventativemeasures.TodatetheGrouphasnotexperiencedanycreditlosses.TheGrouphasadoptedtheInvestmentAdviser’sinternalcreditratingmethodologyanduseditslossexperiencetobenchmarkinvestmentperformanceandpotentialimpairmentforbothStage1andStage2loansunderIFRS9consideringbothprobabilityofdefaultandECL.

InaccordancewiththeGroup’sIFRS9policythecredit-worthinessofeachinvestmenthasbeenreviewedusingICG-Longbow‘sinternalratingsmodels.

Afterthereviewprocess,theGroupdoesnotconsiderthattherearespecialcircumstances,whichwouldincreasethebaselineprobabilityofdefaultandaccordinglynoIFRS9ECLprovisionhasbeentakenagainstanyloan.



2. ACCOUNTING POLICIES (CONTINUED)b) Going concernTheDirectors,atthetimeofapprovingtheFinancialStatements,haveareasonableexpectationthattheGrouphasadequateresourcestocontinueinoperationalexistenceforaperiodofatleasttwelvemonthsfromthedateofapprovaloftheConsolidatedFinancialStatementsanddonotconsidertheretobeanythreattothegoingconcernstatusoftheGroup.

TheGroupisnowsubstantiallyinvestedwithloansadvancedatamortisedcostrepresenting90.25%ofthetotalequityattributabletotheownersoftheCompanyandexpectsthattheloanportfoliowillgenerateenoughcashflowstopayon-goingexpensesandreturnstoshareholders.TheDirectorshaveconsideredthecashpositionandperformancesofcurrentinvestmentsmadebytheGroupandhaveconcludedthatitisappropriatetoadoptthegoingconcernbasisofaccountinginpreparingtheFinancialStatements.

Thefirstcontinuationvotewasheldon1March2017andpassedbytheshareholders.Therequirementforsubsequentannualcontinuationvoteshasbeenamendedsothatanyfollow-oncontinuationresolutionsshallbeheldeveryfiveyearsandtheDirectorsshallproposeanordinaryresolutionthattheCompanycontinuesitsbusinessasaclosed-endedcollectiveinvestmentscheme.Thefirstfollow-oncontinuationresolutionwillberequiredonorbeforetheAnnualGeneralMeetingoftheCompanytobeheldin2022.

c) Basis of consolidation TheConsolidatedFinancialStatementsincorporatetheFinancialStatementsoftheCompanyandentitiescontrolledbytheCompany(itssubsidiaries)madeupto31Januaryeachyear.ControlisachievedwheretheCompanyhasthepowertogovernthefinancialandoperatingpoliciesofaninvesteeentitysoastoobtainbenefitsfromitsactivities.

TheresultsofsubsidiariesacquiredordisposedofduringtheyearareincludedintheConsolidatedStatementofComprehensiveIncomefromtheeffectivedateofacquisitionoruptotheeffectivedateofdisposal,asappropriate.

Wherenecessary,adjustmentsaremadetotheFinancialStatementsofsubsidiariestobringtheaccountingpoliciesusedintolinewiththoseusedbytheGroup.Allintra-grouptransactions,balances,incomeandexpensesareeliminatedonconsolidation.

TheGroupisnotconsideredan‘InvestmentEntity’asdefinedbyIFRS10ConsolidatedFinancialStatementsasitdoesnotmeetthecriteriasetouttherein,specificallyitdoesnotmeasureandevaluatetheperformanceofsubstantiallyallofitsinvestmentsonafairvaluebasis.

d) Functional and presentation currencyTheFinancialStatementsarepresentedinPoundsSterling,whichisthefunctionalcurrencyaswellasthepresentationcurrencyasalltheGroup’sinvestmentsandmosttransactionsaredenominatedinPoundsSterling.

e) Interest incomeInterestincomeisrecognisedwhenitisprobablethattheeconomicbenefitswillflowtotheGroupandtheamountofrevenuecanbemeasuredreliably.Interestincomeisaccruedonatimebasis,byreferencetotheprincipaloutstandingandattheeffectiveinterestrateapplicable,whichistheratethatexactlydiscountsestimatedfuturecashreceiptsthroughtheexpectedlifeofthefinancialassettothatasset’snetcarryingamountoninitialrecognition.Arrangementandexitfeeswhichareconsideredtobeanintegralpartofthecontractareincludedintheeffectiveinterestratecalculation.

Interestoncashandcashequivalentsisrecognisedonanaccrualsbasis.

f) Other fee incomeOtherfeeincomeincludesprepaymentandotherfeesdueunderthecontractualtermsofthedebtinstruments.Suchfeesandrelatedcashreceiptsarenotconsideredtoformanintegralpartoftheeffectiveinterestrateandareaccountedforonanaccrualsbasis.

g) Operating expensesOperatingexpensesaretheGroup’scostsincurredinconnectionwiththeon-goingmanagementoftheGroup’sinvestmentsandadministrativecosts.Operatingexpensesareaccountedforonanaccrualsbasis.

h) TaxationTheCompanyisexemptfromGuernseytaxationundertheIncomeTax(ExemptBodies)(Guernsey)Ordinance1989forwhichitpaysanannualfeeof£1,200whichisincludedwithinotherexpenses.TheCompanyisrequiredtoapplyannuallytoobtainexemptstatusforthepurposesofGuernseyTaxation.

TheGroupisliabletoLuxembourgtaxarisingontheresultsandcapitalisationofitsLuxembourgregisteredentitywhichisincludedintaxchargefortheyear(seeNote4).

i) DividendsDividendspaidduringtheyeararedisclosedintheConsolidatedStatementofChangesinEquity.DividendsdeclaredpostyearendaredisclosedinNote17.


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2. ACCOUNTING POLICIES (CONTINUED)j) Segmental reportingOperatingsegmentsarereportedinamannerconsistentwiththeinternalreportingprovidedtothechiefoperatingdecision-maker.Thechiefoperatingdecision-maker,whoisresponsibleforallocatingresourcesandassessingperformanceoftheoperatingsegments,hasbeenidentifiedastheBoardofDirectors,asawhole.ThekeymeasureofperformanceusedbytheBoardtoassesstheGroup’sperformanceandtoallocateresourcesisthetotalreturnontheGroup’sNetAssetValue,ascalculatedunderIFRS,andthereforenoreconciliationisrequiredbetweenthemeasureofprofitorlossusedbytheBoardandthatcontainedintheFinancialStatements.

Formanagementpurposes,theGroupisorganisedintoonemainoperatingsegment,beingtheprovisionofadiversifiedportfolioofUKcommercialpropertybackedseniordebtinvestments.

ThemajorityoftheGroup’sincomeisderivedfromloanssecuredoncommercialandresidentialpropertyintheUnitedKingdom.

DuetotheGroup’snatureithasnoemployees.

TheGroup’sresultsdonotvarysignificantlyduringreportingperiodsasaresultofseasonalactivity.

k) Financial instruments FinancialassetsandfinancialliabilitiesarerecognisedintheGroup’sConsolidatedStatementofFinancialPositionwhentheGroupbecomesapartytothecontractualprovisionsoftheinstrument.FinancialassetsandfinancialliabilitiesareonlyoffsetandthenetamountreportedintheConsolidatedStatementofFinancialPositionandConsolidatedStatementofComprehensiveIncomewhenthereisacurrentlyenforceablelegalrighttooffsettherecognisedamountsandtheGroupintendstosettleonanetbasisorrealisetheassetandliabilitysimultaneously.

Financial assetsAllfinancialassetsarerecognisedandde-recognisedonatradedatewherethepurchaseorsaleofafinancialassetisunderacontractwhosetermsrequiredeliveryofthefinancialassetwithinthetimeframeestablishedbythemarketconcerned,andareinitiallymeasuredatfairvalue,plustransactioncosts,exceptforthosefinancialassetsclassifiedasatfairvaluethroughprofitorloss,whichareinitiallymeasuredatfairvalue.

Financialassetsareclassifiedintothefollowingspecifiedcategories:financialassetsatfairvaluethroughprofitorloss,financialassetsatfairvaluethroughOCIorfinancialassetsatamortisedcost.Theclassificationdependsonthenatureandpurposeofthefinancialassetsandisdeterminedatthetimeofinitialrecognition.

TheGroup’sfinancialassetscurrentlycompriseloans,tradeandotherreceivablesandcashandcashequivalents.

i) Loans and receivablesTheseassetsarenon-derivativefinancialassetswithfixedordeterminablepaymentsthatarenotquotedinanactivemarket.Theycompriseloansandtradeandotherreceivables.

Theyareinitiallyrecognisedatfairvalueplustransactioncoststhataredirectlyattributabletotheacquisition,andsubsequentlycarriedatamortisedcostusingtheeffectiveinterestratemethod,lessallowanceforECL.Theeffectofdiscountingonthesetradeandotherreceivablesisnotconsideredtobematerial.

TheGrouphasloansandreceivableswithaprepaymentoptionembedded.Thekeyfactorsconsideredinthevaluationofprepaymentoptionsincludetheexerciseprice,theinterestrateofthehostloancontract,differentialtocurrentmarketinterestrates,theriskfreerateofinterest,contractualtermsoftheprepaymentoption,andtheexpectedtermoftheoption.Giventhelowprobabilityofexerciseandundeterminableexercisedate,thevalueattributedtotheseembeddedderivativesisconsideredtobe£nil(31January2018:£nil).

ii) Derecognition of financial assetsAfinancialasset(inwholeorinpart)isderecognisedeitherwhen:

O theGrouphastransferredsubstantiallyalltherisksandrewardsofownership;or

O ithasneithertransferrednorretainedsubstantiallyalltherisksandrewardsandwhenitnolongerhascontrolovertheassetsoraportionoftheasset;or

O thecontractualrighttoreceivecashflowhasexpired.

iii) Cash and cash equivalentsCashandcashequivalentscomprisecashonhandanddemanddepositsandothershort-termhighlyliquidinvestmentswithanoriginalmaturityofthreemonthsorlessthatarereadilyconvertibletoaknownamountofcashandaresubjecttoaninsignificantriskofchangesinvalue.

iv) Effective interest rate methodTheeffectiveinterestratemethodisamethodofcalculatingtheamortisedcostofadebtinstrumentandofallocatinginterestincomeovertherelevantperiod.Theeffectiveinterestrateistheratethatexactlydiscountsestimatedfuturecashreceipts(includingallfeespaidorreceivedthatformanintegralpartoftheeffectiveinterestrate,transactioncostsandotherpremiumsordiscounts)throughtheexpectedlifeofthedebtinstrument,or,whereappropriate,ashorterperiod,tothenetcarryingamountoninitialrecognition.



2. ACCOUNTING POLICIES (CONTINUED)k) Financial instruments (continued)v) Impairment of financial assets

TheGrouprecognisesalossallowanceforECLontradereceivablesandloanreceivables.TheamountofECLisupdatedateachreportingdatetoreflectchangesincreditrisksinceinitialrecognitionoftherespectivefinancialinstrument.TheGroupalwaysrecognises12-monthECLfortradereceivablesandloanreceivablesthatfallunderstage1assets.

Forstage2assets,theGrouprecogniseslifetimeECLwhentherehasbeenasignificantincreaseincreditrisksinceinitialrecognition.TheECLonthesefinancialassetsareestimatedusingaprovisionmatrixbasedontheGroup’shistoricalcreditlossexperience,adjustedforfactorsthatarespecifictothedebtors,generaleconomicconditionsandanassessmentofboththecurrentaswellastheforecastdirectionofconditionsatthereportingdate,includingtimevalueofmoneywhereappropriate.

vi) Significant increase in credit riskInassessingwhetherthecreditriskonafinancialinstrumenthasincreasedsignificantlysinceinitialrecognition,theGroupcomparestheriskofadefaultoccurringonthefinancialinstrumentatthereportingdatewiththeriskofadefaultoccurringonthefinancialinstrumentatthedateofinitialrecognition.Inmakingthisassessment,theGroupconsidersbothquantitativeandqualitativeinformationthatisreasonableandsupportable,includinghistoricalexperienceandforward-lookinginformationthatisavailablewithoutunduecostoreffort.Forward-lookinginformationconsideredincludesthefutureprospectsoftheindustriesinwhichtheGroup’sdebtorsoperate,obtainedfromeconomicexpertreports,financialanalysts,governmentalbodies,relevantthink-tanksandothersimilarorganisations,aswellasconsiderationofvariousexternalsourcesofactualandforecasteconomicinformationthatrelatetotheGroup’scoreoperations.

Inparticular,thefollowinginformationistakenintoaccountwhenassessingwhethercreditriskhasincreasedsignificantlysinceinitialrecognition:

O anactualorexpectedsignificantdeteriorationinthefinancialinstrument’sexternal(ifavailable)orinternalcreditrating;

O significantdeteriorationinexternalmarketindicatorsofcreditriskforaparticularfinancialinstrument,e.g.asignificantincreaseinthecreditspread,thecreditdefaultswappricesforthedebtor,orthelengthoftimeortheextenttowhichthefairvalueofafinancialassethasbeenlessthanitsamortisedcost;

O existingorforecastadversechangesinbusiness,financialoreconomicconditionsthatareexpectedtocauseasignificantdecreaseinthedebtor’sabilitytomeetitsdebtobligations;

O anactualorexpectedsignificantdeteriorationintheoperatingresultsofthedebtor;

O significantincreasesincreditriskonotherfinancialinstrumentsofthesamedebtor;or

O anactualorexpectedsignificantadversechangeintheregulatory,economic,ortechnologicalenvironmentofthedebtorthatresultsinasignificantdecreaseinthedebtor’sabilitytomeetitsdebtobligations.

Despitetheforegoing,theGroupassumesthatthecreditriskonafinancialinstrumenthasnotincreasedsignificantlysinceinitialrecognitionifthefinancialinstrumentisdeterminedtohavelowcreditriskatthereportingdate.Afinancialinstrumentisdeterminedtohavelowcreditriskif:

(1)Thefinancialinstrumenthasalowriskofdefault;

(2)Thedebtorhasastrongcapacitytomeetitscontractualcashflowobligationsinthenearterm;and

(3)Adversechangesineconomicandbusinessconditionsinthelongertermmay,butwillnotnecessarily,reducetheabilityoftheborrowertofulfilitscontractualcashflowobligations.

TheGroupconsidersafinancialassettohavelowcreditriskwhentheassethasexternalcreditratingof‘investmentgrade’inaccordancewiththegloballyunderstooddefinitionorifanexternalratingisnotavailable,theassethasaninternalratingof‘performing’.Performingmeansthatthecounterpartyhasastrongfinancialpositionandtherearenopastdueamounts.

TheGroupregularlymonitorstheeffectivenessofthecriteriausedtoidentifywhethertherehasbeenasignificantincreaseincreditriskandrevisesthemasappropriatetoensurethatthecriteriaarecapableofidentifyingsignificantincreaseincreditriskbeforetheamountbecomespastdue.


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2. ACCOUNTING POLICIES (CONTINUED)k) Financial instruments (continued) vii) Definition of default

TheGroupconsidersthefollowingasconstitutinganeventofdefaultforinternalcreditriskmanagementpurposesashistoricalexperienceindicatesthatfinancialassetsthatmeeteitherofthefollowingcriteriaaregenerallynotrecoverable:

O whenthereisabreachoffinancialcovenantsbythedebtor;or

O informationdevelopedinternallyorobtainedfromexternalsourcesindicatesthatthedebtorisunlikelytopayitscreditors,includingtheGroup,infull(withouttakingintoaccountanycollateralheldbytheGroup).

viii) Credit-impaired financial assetsAfinancialassetiscredit-impairedwhenoneormoreeventsthathaveadetrimentalimpactontheestimatedfuturecashflowsofthatfinancialassethaveoccurred.Evidencethatafinancialassetiscredit-impairedincludesobservabledataaboutthefollowingevents:

(a)significantfinancialdifficultyoftheissuerortheborrower;

(b)abreachofcontract,suchasadefaultorpastdueevent(see(vii)above);

(c)thelendersoftheborrower,foreconomicorcontractualreasonsrelatingtotheborrower’sfinancialdifficultyhavinggrantedtotheborroweraconcessionsthatthelenderswouldnototherwiseconsider;

(d)itisbecomingprobablethattheborrowerwillenterbankruptcyorotherfinancialreorganisation;or

(e)thedisappearanceofanactivemarketforthatfinancialassetbecauseoffinancialdifficulties.

ix) Write-off policyTheGroupwritesoffafinancialassetwhenthereisinformationindicatingthatthedebtorisinseverefinancialdifficultyandthereisnorealisticprospectofrecovery,e.g.whenthedebtorhasbeenplacedunderliquidationorhasenteredintobankruptcyproceedings,orinthecaseofloanreceivables,whentheamountsareovertwoyearspastdue,whicheveroccurssooner.FinancialassetswrittenoffmaystillbesubjecttoenforcementactivitiesundertheGroup’srecoveryprocedures,takingintoaccountlegaladvicewhereappropriate.Anyrecoveriesmadearerecognisedinprofitorloss.

x) Measurement and recognition of ECLThemeasurementofECLisafunctionoftheprobabilityofdefault,lossgivendefault(i.e.themagnitudeofthelossifthereisadefault)andtheexposureatdefault.Theassessmentoftheprobabilityofdefaultandlossgivendefaultisbasedonhistoricaldataadjustedbyforward-lookinginformationasdescribedabove.Asfortheexposureatdefault,forfinancialassets,thisisrepresentedbytheasset’sgrosscarryingamountatthereportingdate.

Forfinancialassets,theexpectedcreditlossisestimatedasthedifferencebetweenallcontractualcashflowsthatareduetotheGroupinaccordancewiththecontractandallthecashflowsthattheGroupexpectstoreceive,discountedattheoriginaleffectiveinterestrate.

IftheGrouphasmeasuredthelossallowanceforafinancialinstrumentatanamountequaltolifetimeECLinthepreviousreportingperiod,butdeterminesatthecurrentreportingdatethattheconditionsforlifetimeECLarenolongermet,theGroupmeasuresthelossallowanceatanamountequalto12-monthECLatthecurrentreportingdate,exceptforassetsforwhichsimplifiedapproachwasused.

TheGroup’smeasurementofECLreflectsanunbiasedandprobability-weightedamountthatisdeterminedbyevaluatingtherangeofpossibleoutcomesaswellasincorporatingthetimevalueofmoney.TheGrouphasalsoconsideredreasonableandsupportableinformationfrompastevents,currentconditionsandreasonableandsupportableforecastsforfutureeconomicconditionswhenmeasuringECL.

xi) Modification of cash flowsHavingperformedadequateduediligenceprocedures,theGroupmaynegotiateorotherwisemodifythecontractualcashflowsofloanstocustomers,usuallyasaresultofloanextensions.Whenthishappens,theGroupassesseswhetherornotthenewtermsaresubstantiallydifferenttotheoriginalterms.

Ifthetermsarenotsubstantiallydifferent,therenegotiationormodificationdoesnotresultinderecognition,andtheGrouprecalculatesthegrosscarryingamountbasedontherevisedcashflowsofthefinancialassetandrecognisesamodificationgainorlossinprofitorloss.Thenewgrosscarryingamountisrecalculatedbydiscountingthemodifiedcashflowsattheoriginaleffectiveinterestrate.



2. ACCOUNTING POLICIES (CONTINUED)k) Financial instruments (continued) xii) Derecognition of financial assets

TheGroupderecognisesafinancialassetonlywhenthecontractualrightstothecashflowsfromtheassetexpire,orwhenittransfersthefinancialassetandsubstantiallyalltherisksandrewardsofownershipoftheassettoanotherentity.IftheGroupneithertransfersnorretainssubstantiallyalltherisksandrewardsofownershipandcontinuestocontrolthetransferredasset,theGrouprecognisesitsretainedinterestintheassetandanassociatedliabilityforamountsitmayhavetopay.IftheGroupretainssubstantiallyalltherisksandrewardsofownershipofatransferredfinancialasset,theGroupcontinuestorecognisethefinancialassetandalsorecognisesacollateralisedborrowingfortheproceedsreceived.

Onderecognitionofafinancialassetmeasuredatamortisedcost,thedifferencebetweentheasset’scarryingamountandthesumoftheconsiderationreceivedandreceivableisrecognisedinprofitorloss.

O Stage1coversfinancialassetsthathavenotdeterioratedsignificantlyincreditrisksinceinitialrecognition;

O Stage2coversfinancialassetsthathavesignificantlydeterioratedincreditqualitysinceinitialrecognition;and

O Stage3coversfinancialassetsthathaveobjectiveevidenceofimpairmentatthereportingdate.

TwelvemonthECLarerecognisedinstage1,whilelifetimeECLarerecognisedinstages2and3.

Financial liabilitiesTheclassificationoffinancialliabilitiesatinitialrecognitiondependsonthepurposeforwhichthefinancialliabilitywasissuedanditscharacteristics.

Allfinancialliabilitiesareinitiallyrecognisedatfairvaluenetoftransactioncostsincurred.Allpurchasesoffinancialliabilitiesarerecordedonatradedate,beingthedateonwhichtheGroupbecomespartytothecontractualrequirementsofthefinancialliability.UnlessotherwiseindicatedthecarryingamountsoftheGroup’sfinancialliabilitiesapproximatetotheirfairvalues.

TheGroup’sfinancialliabilitiesconsistofonlyfinancialliabilitiesmeasuredatamortisedcost.

i) Financial liabilities measured at amortised costTheseincludetradepayablesandothershort-termmonetaryliabilities,whichareinitiallyrecognisedatfairvalueandsubsequentlycarriedatamortisedcostusingtheeffectiveinterestratemethod.

ii) Derecognition of financial liabilitiesTheGroupderecognisesfinancialliabilitieswhen,andonlywhen,theGroup’sobligationsaredischarged,cancelledorhaveexpired.Thedifferencebetweenthecarryingamountofthefinancialliabilityderecognisedandtheconsiderationpaidandpayableisrecognisedinprofitorloss.

l) Equity instrumentsAnequityinstrumentisanycontractthatevidencesaresidualinterestintheassetsofanentityafterdeductingallofitsliabilities.EquityinstrumentsissuedbytheCompanyarerecognisedastheproceedsreceived,netofdirectissuecosts.

3. CRITICAL ACCOUNTING JUDGEMENTS AND ESTIMATES IN APPLYING THE GROUP’S ACCOUNTING POLICIESThepreparationoftheFinancialStatementsunderIFRSrequiresmanagementtomakejudgements,estimatesandassumptionsthataffecttheapplicationofpoliciesandreportedamountsofassetsandliabilities,incomeandexpenses.Theestimatesandassociatedassumptionsarebasedonhistoricalexperienceandotherfactorsthatarebelievedtobereasonableunderthecircumstances,theresultsofwhichformthebasisofmakingjudgementsaboutcarryingvaluesofassetsandliabilitiesthatarenotreadilyapparentfromothersources.Actualresultsmaydifferfromtheseestimates.

Theestimatesandunderlyingassumptionsarereviewedonanon-goingbasis.Revisionstoaccountingestimatesarerecognisedintheperiodinwhichtheestimateisrevisediftherevisionaffectsonlythatperiodorintheperiodoftherevisionandfutureperiodsiftherevisionaffectsbothcurrentandfutureperiods.

Critical judgementsInassessingtheECL,theBoardhavemadecriticaljudgementsinrelationtothestagingoftheloansandassessmentswhichimpactthelossgivendefault.InassessingwhethertheloanshaveincurredasignificantincreaseincreditrisktheInvestmentAdviser,onbehalfoftheBoard,assessesthecreditriskattachingtoeachoftheloans.TheGrouphasadoptedtheInvestmentAdviser’sinternalcreditratingmethodologyandhasuseditslossexperiencetobenchmarkinvestmentperformanceandpotentialimpairmentforbothStage1andStage2loansunderIFRS9consideringbothprobabilityofdefaultandexpectedcreditlosses.ThejudgementappliedinallocatingeachinvestmenttoStage1,2or3iskeyindecidingwhetherlossesareconsideredforthenext12monthsoroverthelifeoftheloan.TheBoardhasestimatedthattwoloanshaveshownevidenceofsignificantcreditriskinrelationtoreductioninLTVandICR.InassessingtheultimateECLinrelationtotheseloans,theBoardhasmadeassumptionsregardingthecollateralvalue,headroomovertheprincipalloanamountsand,inthecaseoftheMeadowloan,theexpectationthatplanningpermissionwillbegranted.


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3. CRITICAL ACCOUNTING JUDGEMENTS AND ESTIMATES IN APPLYING THE GROUP’S ACCOUNTING POLICIES (CONTINUED)Critical accounting estimatesThemeasurementofboththeinitialandongoingexpectedcreditlossallowanceforloanreceivablesmeasuredatamortisedcostisanareathatrequirestheuseofsignificantassumptionsaboutcreditbehavioursuchaslikelihoodofborrowersdefaultingandtheresultinglosses.ThisisdescribedfurtherinNote2k).InassessingtheprobabilityofdefaulttheBoardhastakennoteoftheexperienceandlosshistoryoftheInvestmentAdviserwhichmaynotbeindicativeoffuturelosses.ThedefaultprobabilitiesarebasedonLTVheadroomwhichtheInvestmentAdviserbelievestobeagoodpredictoroftheprobabilityofdefault,inaccordancewithrecentmarketstudiesofEuropeancommercialrealestateloans.TheDirectorsconsiderthelossgivendefaulttobeclosetozeroastheloansarethesubjectofverydetailedduediligenceproceduresoninceptionand,inaddition,thereissignificantLTVheadroom.Asaresult,nolossallowancehasbeenrecognisedbasedon12-monthexpectedcreditlossesforthoseinstage1andorlifetimelossesforthoseinstage2,asanysuchimpairmentwouldbewhollyinsignificanttotheGroup.

RevenuerecognitionisconsideredasignificantaccountingjudgementandestimatethattheDirectorsmakeintheprocessofapplyingtheGroup’spolicies(seeNotes2e)and2f)).

FurthertheDirectorsmakeestimatesindeterminingthefairvalueofprepaymentoptionsembeddedwithinthecontractsforloansadvanced.Thekeyfactorsconsideredinthevaluationofprepaymentoptionsincludetheexerciseprice,theinterestrateofthehostloancontract,differentialtocurrentmarketinterestrates,theriskfreerateofinterest,contractualtermsoftheprepaymentoption,andtheexpectedtermoftheoption.

4.TAXATIONTheGroup’staxchargeof£2,803(31January2018:credit£98,541)consistsoftaxesandnon-deductibleVATleviedonLuxco.Thenetwealthtaxchargewasnilforthefinancialyearended31January2019(31January2018:£4,365).Thenetwealthtaxcharge,setatarateof0.5%(31January2018:0.5%),onLuxco’sglobalassets(networth),determinedasatthe1Januaryofeachcalendaryear.Thecorporateincometaxcharge,includingcorporateincometaxandmunicipalbusinesstax,amountedto£nilfor2019(31January2018:£nil)setbytheLuxembourgTaxAdministration.


£


£

Netwealthtax–currentyear – 4,365

Netwealthtax–prioryear – (27,470)

Fixedincometax–currentyear (285) –

Fixedincometax–prioryear – (75,316)

Municipalbusinesstax–currentyear – –

Municipalbusinesstax–prioryear – (875)

Non-deductibleVAT 3,088 755

2,803 (98,541)

5.LOANS ADVANCED(i) Loans advanced

31 January 2019

Principal advanced

£

31 January 2019At

amortised cost

£

31 January 2018

Principal advanced

£

31 January 2018At

amortised cost

£

IRAF – – 11,935,000 12,150,584

Meadow 21,500,000 21,941,471 20,000,000 20,413,021

Northlands 8,500,000 8,692,447 7,577,250 7,690,133

Hulbert – – 6,565,000 6,666,450

Halcyon 6,423,280 6,570,708 8,600,000 8,730,605

Carrara 1,300,000 1,331,708 1,300,000 1,319,743

Ramada 7,982,500 8,151,125 7,982,500 8,077,179

CommercialRegionalSpace 22,400,000 22,620,181 22,400,000 22,556,213

BMO 15,793,727 15,807,533 15,793,727 15,770,768

Quattro 9,000,000 9,007,986 9,000,000 8,956,970

Affinity 14,322,039 14,438,318 – –

107,221,546 108,561,477 111,153,477 112,331,666



5.LOANS ADVANCED (CONTINUED)(ii) Valuation considerationsTheDirectorsconsiderthatthecarryingvalueamountsoftheloans,recordedatamortisedcostintheFinancialStatements,areapproximatelyequaltotheirfairvalue.Noelementoftheloansadvancedispastdueorimpaired.ForfurtherinformationandtheassociatedrisksseetheInvestmentAdviser’sReport,theStatementofPrincipalRisksandNote11.

Amortisedcostiscalculatedusingtheeffectiveinterestratemethodwhichtakesintoaccountallcontractualterms(includingarrangementandexitfees)thatareanintegralpartoftheloanagreement.Asthesefeesaretakenintoaccountwhendetermininginitialnetcarryingvalue,theirrecognitioninprofitorlossiseffectivelyspreadoverthelifeoftheloan.TheGroup’saccountingpolicyonthemeasurementoffinancialassetsisdiscussedfurtherinNote2k).

TheGroup’sinvestmentsareintheformofbilateralloans,andassuchareilliquidinvestmentswithnoreadilyavailablesecondarymarket.Whilstthetermsofeachloanincludesrepaymentandprepaymentfees,intheabsenceofaliquidsecondarymarket,theDirectorsdonotbelieveawillingbuyerwouldpayapremiumtotheparvalueoftheloanstorecognisesuchtermsandassuchtheamortisedcostisconsideredrepresentativeofthefairvalueoftheloans.

Eachpropertyonwhichinvestmentsaresecuredwassubjecttoanindependent,thirdpartyvaluationatthetimetheinvestmentwasenteredinto.Allinvestmentsaremadeonaholdtomaturitybasis.Eachinvestmentismonitoredonaquarterlybasis,inlinewiththeunderlyingpropertyrentalcycle,includingareviewoftheperformanceoftheunderlyingpropertysecurity.Nomarketorothereventshavebeenidentifiedthroughthisreviewprocesswhichwouldresultinafairvalueoftheinvestmentssignificantlydifferenttothecarryingvalue.

Whilsttheloansareperformingandthebalanceoutstandingineachcaseisatasubstantialdiscounttothevalueoftheunderlyingrealestateonwhichtheyaresecured,theDirectorsdonotconsideranyloantobesubjecttospecificimpairment,orfortheretobeariskofnotachievingfullrecovery.

(iii) IFRS 9 – Impairment of Financial AssetsInaccordancewiththeGroup’sAccountingPolicyforFinancialInstrumentsassetoutinNote2k)(v)above,theBoardisrequiredtoconsiderthefuturepotentialimpairmentoftheloanportfolio.Accordingly,theinternalcreditratingofeachloanasat31January2019hasbeenreviewed.Twoloansshowedadeteriorationintheirinternalcreditratingsince31January2018andhavebeenidentifiedasastage2assets;allotherloansshowednodeterioration,andwereconsideredasStage1assetswithnoECLoveratwelvemonthperiod.

As at 31 January 2019

Stage 1 Stage 2 Stage 3 Total

Principaladvanced 76,721,546 30,500,000 – 107,221,546

Grosscarryingvalue 77,612,020 30,949,457 – 108,561,477

LessECLallowance – – –

77,612,020 30,949,457 – 108,561,477

As at 31 January 2018

Stage 1 Stage 2 Stage 3 Total

Principaladvanced 76,721,546 30,500,000 – 107,221,546

Grosscarryingvalue 112,331,666 – – 112,331,666

LessECLallowance – – – –

112,331,666 – – 112,331,666

ThetwoStage2loanswereQuattroandMeadow.InthecaseofMeadowthedeteriorationincreditratingwasastheresultofahigherLTVarisingfromtheincreaseintheloanamount.Investmentperformancewasinlinewithbusinessplanandtherewerenocircumstanceswarrantingspecialconsideration.Basedontheinternalcreditratingtheprobabilityofdefaultwasconsideredtobenilovertheremainingtermoftheloan.

InthecaseoftheQuattroloanthedeteriorationincreditratingwastheresultofareductionininterestcoverastheinterestreservewasutilised.Therewerenospecialcircumstanceswarrantingfurtherconsiderationandtheprobablyofdefaultovertheremainingtermwasconsideredtobenil.

AreconciliationoftheECLallowancewasnotpresentedastheallowancerecognisedatyearendwas£nil.


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5.LOANS ADVANCED (CONTINUED)IFRS 9 Impairment – Sensitivity AnalysisAsdiscussedabove,andinNote2,theGroup’sECLisafunctionoftheprobabilityofdefault(“PD”)andlossgivendefault(“LGD”),wherePDisbenchmarkedagainstICG-Longbow’sinternalcreditratingmodelandLGDisbasedonICG-Longbow’strackrecordofover£3.0billionofseniorandwholeloanswhichwouldsatisfytheCompany’sinvestmentparameters.

TheCompanyhasperformedsensitivityanalysisonitsexpectedcreditlossbyconsideringtheimpactofaonegradedeteriorationinthecreditratingofeachloan(PD)andaonegradeincreaseinloss(LGD)asaconsequence.Aonegradedeteriorationincreditrating(e.g.BBBtoBB)isbroadlyequivalenttoa5%increaseinLTVratioor20%reductioninICR.

GiventhelowweightedaverageLTVandstrongICRoftheportfolioasawholetheone-gradestressapplieddoesnotresultinanincreasetotheexpectedcreditlosswhichremainsnil.Atwogradedecreaseincreditqualityofeachloanwouldresultinanexpectedcreditlossof£157,080(0.14%ofthetotalcapitaladvance).

Reasonable possible shift 31 January 2019

LTV +5%£nil

ICR -10%

LTV +10%£157,080

ICR -20%

(iv) Portfolio movements HavingconsideredbothStage1andStage2loans,theBoardconsiderthattheExpectedCreditLosswithintheportfoliois£nil,andnoprovisionforimpairmentisrequiredunderIFRS9.

On28February2018,theGroupreceivedrepaymentinfullofthe£11,935,000IRAFloan,togetherwithinterestandexitfeesofapproximately£238,700.

On2March2018,theGroupmadeanewloancommitmentof£16,200,000toanaffiliateofAffinityGlobalRealEstate.At31January2019,£14,322,039ofthetotalfacilityhadbeendrawndown.On11March2019,theGroupadvancedafurther£1,549,877totheborroweroftheAffinityloan,takingtotaldrawingsto£15,871,916.

On5March2018,theGroupadvancedafurther£922,750commitmentontheNorthlandsloanandextendedthecouponprotectionperiodofthetotalNorthlandsloanof£8,500,000.InDecember2018,a90dayextensiontothematuritydatewasagreedwiththeborroweroftheNorthlandsloan.

On28June2018,theGroupreceivedapartialrepaymentof£2,176,720fromtheHalcyonloanborrower,togetherwithinterestandexitfeesofapproximately£50,414.

On15October2018,theGroupreceivedrepaymentinfullofthe£6,565,000Hulbertloan,togetherwithinterestandexitfeesofapproximately£135,093.

On3December2018,theGroupadvancedafurther£1,500,000totheborroweroftheMeadowloan.Theincreaseisonsubstantiallythesametermsandconditionsastheexistingloan.

InDecember2018,theHalcyonandCarraraloanswerebothextendedbyaperiodof12months.

Otherfeeincomefromloanstotalled£439,207(31January2018:£1,042,285).

Followingtheyearend,on25February2019,theGrouparrangedanewloancommitmentof£15.0milliontoanaffiliateofBlissHotelsgroup,withaninitialadvanceof£12.5million.TheCompanymadeitsfirstdrawingof£3.5milliononitsworkingcapitalfacilityinordertofundthisinvestment.

On11April2019,theCompanyagreedathreemonthextensionofitsfacilitytotheborroweroftheCommercialRegionalSpaceloan,atahigherrateofinterest.



6. TRADE AND OTHER RECEIVABLES

31 January 2019£

31 January 2018£

Otherreceivables 126,654 202,182

Therearenomaterialpastdueorimpairedreceivablebalancesoutstandingattheyearend.

TheGrouphasfinancialriskmanagementpoliciesinplacetoensurethatallreceivablesarereceivedwithinthecredittimeframe.TheBoardofDirectorsconsidersthatthecarryingamountofallreceivablesapproximatestotheirfairvalue.

7. CASH AND CASH EQUIVALENTSCashandcashequivalentscomprisescashheldbytheGroupandshort-termbankdepositsheldwithmaturitiesofthreemonthsorless.Thecarryingamountsoftheseassetsapproximatetheirfairvalue.Thisincludesrestrictedcashof£272,423(31January2018:£nil).

8.OTHER PAYABLES AND ACCRUED EXPENSES

31 January 2019£

31 January 2018£

Investmentadvisoryfees(seeNote13) 302,122 865,836

Taxespayable 1,679 23,335

Shareissuecostspayable – 10,000

Directors’remuneration(seeNote13) 49,375 48,750

Administrationfees(seeNote13) 14,167 30,833

Brokerfees 27,083 28,953

Auditfees 30,000 28,000

Otherexpenses 349,445 2,102

773,871 1,037,809

TheGrouphasfinancialriskmanagementpoliciesinplacetoensurethatallpayablesarepaidwithinthecredittimeframe.TheBoardofDirectorsconsidersthatthecarryingamountofallpayablesapproximatestotheirfairvalue.

9.EARNINGS PER SHARE AND NET ASSET VALUE PER SHAREEarnings per share



Profitfortheyear(£) 5,258,247 5,895,368

Weightedaveragenumberofordinarysharesinissue 120,660,861 110,564,133

BasicanddilutedEPS(pence) 4.36 5.33

AdjustedbasicanddilutedEPS(pence) 3.99 4.39

ThecalculationofbasicanddilutedEarningspershareisbasedontheprofitfortheyearandontheweightedaveragenumberofordinarysharesinfortheyearended31January2019.

ThecalculationofadjustedbasicanddilutedEarningspershareisbasedontheprofitfortheyear,adjustedforone-offotherfeeincomeduringtheyeartotalling£439,207(31January2018:£1,042,285).

Therearenodilutivesharesinissueat31January2019(31January2018:none).

Net Asset Value per share

31 January 2019 31 January 2018

NAV(£) 120,284,389 117,982,189

Numberofordinarysharesinissue 121,302,779 117,042,779

NAVpershare(pence) 99.16 100.80

ThecalculationofNAVpershareisbasedonNetAssetValueandthenumberofordinarysharesinissueattheyearend.


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10.SHARE CAPITALTheauthorisedsharecapitaloftheCompanyisrepresentedbyanunlimitednumberofordinaryshareswithorwithoutaparvaluewhich,uponissue,theDirectorsmaydesignateas(a)ordinaryshares;(b)Bshares;and(c)Cshares,ineachcaseofsuchclassesanddenominatedinsuchcurrenciesastheDirectorsmaydetermine.

31 January 2019£

31 January 2018£

Authorised

Ordinarysharesofnoparvalue Unlimited Unlimited

Issued and fully paid: Total No Total No

Ordinarysharesofnoparvalue

Sharesasatinception 1 1

Issuedon5February2013 104,619,249 104,619,249

Issuedon24April2014 3,600,000 3,600,000

Issuedon26October2017 8,823,529 8,823,529

Issuedon27March2018 4,260,000 –

121,302,779 117,042,779

£ £

Sharecapitalbroughtforward 114,857,090 106,038,522

Movementsfortheyear:

Ordinarysharesissuedon26October2017 4,302,600 9,000,000

Shareissuecosts (44,380) (181,432)

Share capital 119,115,310 114,857,090

Dividends DividendsarerecognisedbytheCompanyinthequarterlyNAVcalculationfollowingthedeclarationdate.Asummaryofthedividendsdeclaredand/orpaidduringtheyearended31January2019and31January2018aresetoutbelow:


Dividendper share

PenceTotal dividend

£

Interimdividendinrespectofquarterended31January2018 1.50 1,755,642

Interimdividendinrespectofquarterended30April2018 1.50 1,819,542

Interimdividendinrespectofquarterended31July2018 1.50 1,819,541

Interimdividendinrespectofquarterended31October2018 1.50 1,819,542

6.00 7,214,267

Dividends


Dividend per share

Pence

Total dividend

£

Interimdividendinrespectofquarterended31January2017 1.50 1,623,289

Specialdividendinrespectofquarterended31January2017 2.25 2,434,933

Interimdividendinrespectofquarterended30April2017 1.50 1,623,289

Interimdividendinrespectofquarterended31July2017 1.50 1,623,289

Interimdividendinrespectofquarterended31October2017 1.50 1,755,641

8.25 9,060,441



10.SHARE CAPITAL (CONTINUED)Additional interim dividendOn8March2019,theDirectorsdeclaredaninterimdividendinrespectofthequarterended31January2019of£1,819,541equatingto1.5penceperordinarysharetoshareholdersontheregisterasatthecloseofbusinesson22March2019.

Rights attaching to SharesTheCompanyhasasingleclassofordinaryshareswhicharenotentitledtoafixeddividend.AtanyGeneralMeetingoftheCompanyeachordinaryshareholderisentitledtohaveonevoteforeachshareheld.Theordinarysharesalsohavetherighttoreceiveallincomeattributabletothosesharesandparticipateindistributionsmadeandsuchincomeshallbedividedparipassuamongtheholdersofordinarysharesinproportiontothenumberofordinarysharesheldbythem.

11. RISK MANAGEMENT POLICIES AND PROCEDURESTheGroupthroughitsinvestmentinseniorloansisexposedtoavarietyoffinancialrisks,includingmarketrisk(includingcurrencyriskandinterestraterisk),creditriskandliquidityrisk.TheGroup’soverallriskmanagementproceduresfocusontheunpredictabilityofoperationalperformanceoftheborrowersandonpropertyfundamentalsandseektominimisepotentialadverseeffectsontheGroup’sfinancialperformance.

TheBoardofDirectorsisultimatelyresponsiblefortheoverallriskmanagementapproachwithintheGroup.TheBoardofDirectorshasestablishedproceduresformonitoringandcontrollingrisk.TheGrouphasinvestmentguidelinesthatsetoutitsoverallbusinessstrategies,itstoleranceforriskanditsgeneralriskmanagementphilosophy.

Inaddition,theInvestmentAdvisermonitorsandmeasurestheoverallriskbearingcapacityinrelationtotheaggregateriskexposureacrossallrisktypesandactivities.Furtherdetailsregardingthesepoliciesaresetoutbelow:

Market riskMarketriskincludesmarketpricerisk,currencyriskandinterestraterisk.Ifaborrowerdefaultsonaloanandtherealestatemarketentersadownturnitcouldmateriallyandadverselyaffectthevalueofthecollateraloverwhichloansaresecured.ThisriskisconsideredbytheBoardtobeasaresultofcreditriskasitrelatestotheborrowerdefaultingontheloan.

Marketriskismoderatedthroughacarefulselectionofloanswithinspecifiedlimits.TheGroup’soverallmarketpositionismonitoredbytheInvestmentAdviserandisreviewedbytheBoardofDirectorsonanon-goingbasis.

Currency riskTheGroup’scurrencyriskexposureisconsideredtobeimmaterialasallinvestmentshavebeenandwillbemadeinPoundsSterling,withimmaterialexpensesincurredinEurobyLuxco.

Interest rate riskInterestrateriskistheriskthatthevalueoffinancialinstrumentsandrelatedincomefromcashandcashequivalentswillfluctuateduetochangesinmarketinterestrates.

ThemajorityoftheGroup’sfinancialassetsareloansadvanced,whichareatafixedrateofinterestandcashandcashequivalents.TheGroup’sinterestrateriskislimitedtointerestearnedoncashdeposits.

Thefollowingtableshowstheportfolioprofileofthematerialfinancialassetsat31January2019and31January2018:

31 January 2019£

31 January 2018£

Floating rate

Cash 12,370,129 6,486,150

Fixed rate

Loansadvancedatamortisedcost 108,561,477 112,331,666

120,931,606 118,817,816

Thetimingofinterestpaymentsontheloansadvancedissummarisedinthetableonpage61.


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11. RISK MANAGEMENT POLICIES AND PROCEDURES (CONTINUED)Credit riskCreditriskistheriskthatacounterpartywillbeunabletopayamountsinfullwhendue.TheGroup’smaincreditriskexposureisontheloansadvanced,wheretheGroupinvestsinsecuredseniordebt.

Inordertominimisecreditrisk,theGrouphasadoptedapolicyofonlydealingwithcreditworthycounterpartiesasameansofmitigatingtheriskoffinanciallossfromdefaults.TheGrouponlytransactswithentitiesthatareratedtheequivalentofinvestmentgradeandinvestmentsintheseinstruments,includingbillsofexchange,debenturesandredeemablenotes,wherethecounterpartieshaveminimumBBB-creditrating,areconsideredtohavelowcreditriskforthepurposeofimpairmentassessment.Thecreditratinginformationissuppliedbyindependentratingagencieswhereavailableand,ifnotavailable,theGroupusesotherpubliclyavailablefinancialinformationanditsowntradingrecordstorateitsmajorcustomers.TheGroup’sexposureandthecreditratingsofitscounterpartiesarecontinuouslymonitoredandtheaggregatevalueoftransactionsconcludedisspreadamongstapprovedcounterparties.

TheGrouphasadoptedtheCMBScreditratingmethodologytoassessthecreditworthinessofeachloanandresultantcreditrisk,PDandLGD.Themodeltakesintoaccountfactorsbelowsuchas:

O financialriskofthedebtor–considersthefinancialpositionofthedebtoringeneralandconsidersLTV,ICRandamortisationprofile/debtmaturity;

O propertyrisk–wherethepropertylocation,quality(specification,condition)andlettingriskareconsidered;

O incomerisk–theincomeriskcategoryconsiders,tenantdiversity,tenantcreditqualityandleaselengthratio,sectordiversityandgeographicaldiversity;and

O Borrower/structurerisk–wherefactorssuchashistoryoftheborrower/sponsor,loancontrol(securitypackage)andcovenantsareconsidered.

Thecreditriskmodelisdynamicandrecognisestheinterplaybetweendiversityandqualityasariskmitigant.TheGroup’scurrentcreditriskgradingframeworkcomprisesthefollowingcategories:

Grade Description Staging Basis for recognising ECL

AAA,AA+ Virtuallynorisk Stage1 12monthECL

AAtoA Lowrisk Stage1 12monthECL

BBB Moderaterisk Stage1 12monthECL

BB Averagerisk Stage1 12monthECL

B Acceptablerisk Stage1 12monthECL

CCC+ BorderlineRisk Stage2 LifetimeECL-notcreditimpaired

CCC SpecialMention Stage2 LifetimeECL-notcreditimpaired

CC Substandard Stage3 LifetimeECL-creditimpaired

D Doubtful Stage3 LifetimeECL-creditimpaired

D Loss N/A Amountiswrittenoff

TheGrouphasadoptedtheInvestmentAdviser’sinternalcreditratingmethodologyanduseditslossexperiencetobenchmarkinvestmentperformanceandpotentialimpairmentforbothStage1andStage2loansunderIFRS9consideringbothprobabilityofdefaultandexpectedcreditloss.Thetotalexposuretocreditriskarisesfromdefaultoftheloancounterpartyandthecarryingamountsofotherfinancialassetsbestrepresentthemaximumcreditriskexposureattheyearenddate,includingtheprincipaladvancedonloans,cashandcashequivalentsandinterestoutstandingonloans.Asat31January2019,themaximumcreditriskexposurewas£119,591,675(31January2018:£117,827,695).

TheInvestmentAdviserhasadoptedprocedurestoreducecreditriskexposurethroughtheinclusionofcovenantsinloansissued,alongwithconductingcreditanalysisofthecounterparties,theirbusinessandreputation,whichismonitoredonanon-goingbasis.TheInvestmentAdviserroutinelyanalysestheprofileoftheGroup’sunderlyingriskintermsofexposuretosignificanttenants,reviewingmarketdataandforecasteconomictrendstobenchmarkborrowerperformanceandtoassistinidentifyingpotentialfuturestresspoints.



11. RISK MANAGEMENT POLICIES AND PROCEDURES (CONTINUED)Collateral held as security Eachloanissecuredbyachargeofcommercialrealestatepropertypledgedbytheborrower.ThecurrentvaluationsforthesepropertiesandLTVinformationforeachloan(andfortheportfolioasawhole)aredetailedintheloansummarypagesintheInvestmentManager’sreportonpages10to14.

TodiversifycreditrisktheCompanymaintainsitscashandcashequivalentsacrossfour(31January2018:four)differentbankinggroupsasshownbelow,whichhaveparentcompaniesratedBaaorhigherbyMISoranequivalent.Inordertocoveroperationalexpenses,aworkingcapitalbalanceatRoyalBankofScotlandInternationalLimitedismonitoredandmaintained.TodiversifycreditriskwithinLuxco,cashandcashequivalentsaremaintainedatappropriatelevelsofoperationalcapitalwithinterestpaymentsmadetotheCompanyonaregularbasis.ThisissubjecttotheGroup’screditriskmonitoringpolicies.

31 January 2019£

RoyalBankofScotlandGlobalBanking(Luxembourg)S.A. 2,144,187

LloydsBankInternationalLimited 3,386,029

BarclaysBankplc 3,385,247

ABNAMRO(Guernsey)Limited 3,385,217

RoyalBankofScotlandInternationalLimited 69,449

12,370,129

31 January 2018£

RoyalBankofScotlandGlobalBanking(Luxembourg)S.A. 1,723,531

LloydsBankInternationalLimited 1,554,210

BarclaysBankplc 1,554,219

ABNAMRO(Guernsey)Limited 1,554,190

RoyalBankofScotlandInternationalLimited 100,000

6,486,150

Thecarryingamountoftheseassetsapproximatestheirfairvalue.

AreconciliationoftheECLallowancewasnotpresentedastheallowancerecognisedatyearendwas£nil.

Liquidity riskLiquidityriskistheriskthattheGroupwillnotbeabletomeetitsliabilitiesastheyfalldue.TheGroup’sloansadvancedareilliquidandmaybedifficultorimpossibletorealiseforcashatshortnotice.

TheGroupmanagesitsliquidityrisksthroughcashflowforecaststoensurethatitcanmeetitsobligationsastheyfalldue.Inaddition,duringtheyear,theGroupenteredintoarevolvingcreditfacilitywithOakNorthBankPlc.ThefacilitywasundrawnattheyearendbutinfuturewillbeusedtomaintainandpreserveliquidityaswellasmakingnewloansandinvestmentandmeetingoperatingcostsoftheGroup.


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11. RISK MANAGEMENT POLICIES AND PROCEDURES (CONTINUED)LiquidityrisksariseinrespectofotherfinancialliabilitiesoftheGroupduetocounterparties.TheGroupexpectstomeetitson-goingobligationsfromcashflowsgeneratedbytheloanportfolio.Exceptfortheloansadvanced,theGroup’sfinancialassetsandfinancialliabilitiesallhavematuritydateswithinoneyear.Ananalysisofthematurityoffinancialassetsclassifiedasloansadvancedisshowninthetablebelow:

Less than one year

£

Between one and five years

£

Total as at31 January 2019

£

Meadow–principal 21,500,000 – 21,500,000

Meadow–interestandexitfees 2,095,514 – 2,095,514

Northlands–principal 8,500,000 – 8,500,000

Northlands–interestandexitfees 232,976 – 232,976

Halcyon–principal 6,423,280 – 6,423,280

Halcyon–interestandexitfees 527,589 – 527,589

Carrara–principal 1,300,000 – 1,300,000

Carrara–interestandexitfees 106,778 – 106,778

Ramada–principal 7,982,500 – 7,982,500

Ramada–interestandexitfees 343,357 – 343,357

CommercialRegionalSpace–principal 22,400,000 – 22,400,000

CommercialRegionalSpace–interestandexitfees 433,977 – 433,977

BMO–principal 15,793,727 – 15,793,727

BMO–interestandexitfees 126,761 – 126,761

CNM–principal – 9,000,000 9,000,000

CNM–interestandexitfees 720,000 810,000 1,530,000

Affinity–principal – 14,322,039 14,322,039Affinity–interestandexitfees 1,070,332 2,827,139 3,897,471

89,556,791 26,959,178 116,515,969

Less than one year

£

Between one and five years

£

Total as at31 January 2018

£

IRAF–principal 11,935,000 – 11,935,000

IRAF–interestandexitfees 964,283 – 964,283

Meadow–principal – 20,000,000 20,000,000

Meadow–interestandexitfees 1,494,448 1,904,110 3,398,558

Northlands–principal 7,577,250 – 7,577,250

Northlands–interestandexitfees 674,687 – 674,687

Hulbert–principal 6,565,000 – 6,565,000

Hulbert–interestandexitfees 580,148 – 580,148

Halcyon–principal 8,600,000 – 8,600,000

Halcyon–interestandexitfees 706,378 – 706,378

Carrara–principal 1,300,000 – 1,300,000

Carrara–interestandexitfees 106,778 – 106,778

Ramada–principal – 7,982,500 7,982,500

Ramada–interestandexitfees 638,600 343,357 981,957

CommercialRegionalSpace–principal – 22,400,000 22,400,000

CommercialRegionalSpace–interestandexitfees 987,840 433,977 1,421,817

BMO–principal – 15,793,727 15,793,727

BMO–interestandexitfees 500,228 124,035 624,263

Quattro–principal – 9,000,000 9,000,000Quattro–interestandexitfees 720,000 1,530,000 2,250,000

43,350,640 79,511,706 122,862,346



11. RISK MANAGEMENT POLICIES AND PROCEDURES (CONTINUED)TheGroupcouldalsobeexposedtoprepaymentrisk,beingtheriskthattheprincipalmayberepaidearlierthananticipated,causingthereturnoncertaininvestmentstobelessthanexpected.TheGroup,wherepossible,seekstomitigatethisriskbyinclusionofincomeprotectionclausesthatprotecttheGroupagainstanyprepaymentriskontheloansadvancedforsomeoftheperiodoftheloan.Todate,allloansincludeincomeprotectionclausesintheeventofprepaymentoftheloansforthemajorityoftheloanterm.Asattheyearenddatetheresidualweightedaverageincomeprotectionperiodwasyears0.42(31January2018:0.53years).

TheGrouphasloansandreceivableswithaprepaymentoptionembedded.Giventhelowprobabilityofexerciseandindeterminableexercisedate,thevalueattributedtotheseembeddedderivativesisconsideredtobe£nil(31January2018:£nil).

Capital management policies and proceduresTheGroup’scapitalmanagementobjectivesaretoensurethattheGroupwillbeabletocontinueasagoingconcernandtomaximisetheincomeandcapitalreturntoequityshareholders.

InaccordancewiththeGroup’sinvestmentpolicy,theGroup’sprincipaluseofcashhasbeentofundinvestmentsintheformofloanssourcedbytheInvestmentAdviser,aswellason-goingoperationalexpensesandpaymentofdividendsandotherdistributionstoshareholdersinaccordancewiththeCompany’sdividendpolicy.

TheBoard,withtheassistanceoftheInvestmentAdviser,monitorsandreviewsthebroadstructureoftheCompany’scapitalonanon-goingbasis.

TheCompanyhasnoexternallyimposedcapitalrequirements.TheGroup’scapitalattheyearendcomprisedequitysharecapitalandreserves.

12. SUBSIDIARY AtthedateofthisAnnualReporttheCompanyhadonewhollyownedsubsidiary,ICG-LongbowSeniorDebtS.A.,registeredinLuxembourg.

13. RELATED PARTY TRANSACTIONS AND DIRECTORS’ REMUNERATION Partiesareconsideredtoberelatedifonepartyhastheabilitytocontroltheotherpartyorexercisesignificantinfluenceoverthepartyinmakingfinancialoroperationaldecisions.

IntheopinionoftheDirectors,onthebasisofshareholdingsadvisedtothem,theCompanyhasnoimmediateorultimatecontrollingparty.

Administrator and DirectorsDuringtheyear,theCompanyincurredadministrationfeesinrelationtoservicesprovidedbytheCompany’sAdministratorof£163,333(31January2018:£170,000)ofwhich£14,167(31January2018:£30,833)wasoutstandingattheyearend(seeNote8).MrHuntleyactedasaconsultanttotheAdministratorfollowingthesaleofthecompanyinNovember2017.Thepurposeoftheconsultancywastoprovidecorporateknowledgeprimarilyforthethreemonthsfollowingsaleto31January2018.Noremunerationhasbeenpaidandheholdnoexecutiverolesorfunctions.TherehasbeennoinvolvementwiththeAdministratorunderthisarrangementconcerningtheGroup’sactivities.TheconsultancyisnotactiveandwillexpireinOctober2019.DuringtheyearMrHuntleyreceivedaDirector’sfeeof£35,000(31January2018:£36,875)ofwhich£8,750(31January2018:£8,750)wasoutstandingattheyearend.

TheCompanyDirectors’feesfortheyearamountedto£196,875(31January2018:£203,333)withoutstandingfeesof£49,375duetotheDirectorsat31January2019(31January2018:£48,750)(seeNote8).

Investment AdviserInvestmentadvisoryfeesfortheyearamountedto£1,211,925(31January2018:£1,141,405),ofwhich£302,122(31January2018:£865,836)wasoutstandingattheyearend(seeNote8).

14. MATERIAL AGREEMENTSInvestment Advisory Agreement TheCompanyandtheInvestmentAdviserhaveenteredintotheInvestmentAdvisoryAgreement,pursuanttowhichtheInvestmentAdviserhasbeengivenresponsibilityforthenon-discretionarymanagementoftheCompany’s(andanyoftheCompany’ssubsidiaries)assets(includinguninvestedcash)inaccordancewiththeGroup’sinvestmentpolicies,restrictionsandguidelines.

UnderthetermsoftheInvestmentAdvisoryAgreement,theInvestmentAdviserisentitledtoamanagementfeeatarateequivalentto1%perannumoftheNetAssetValuepaidquarterlyinarrearsbasedontheaverageNetAssetValueasatthelastbusinessdayofeachmonthineachrelevantquarter.

TheInvestmentAdviser’sappointmentcannotbeterminatedbytheCompanywithlessthan12months’notice.TheCompanymayterminatetheInvestmentAdvisoryAgreementwithimmediateeffectiftheInvestmentAdviserhascommittedanymaterial,irremediablebreachoftheInvestmentAdvisoryAgreementorhascommittedamaterialbreachandfailstoremedysuchbreachwithin30daysofreceivingnoticefromtheCompanyrequiringittodoso;ortheInvestmentAdviserisnolongerauthorisedandregulatedbytheFCAorisnolongerpermittedbytheFCAtocarryonanyregulatedactivitynecessarytoperformitsdutiesundertheInvestmentAdvisoryAgreement.TheInvestmentAdvisermayterminatetheirappointmentimmediatelyiftheCompanyhascommittedanymaterial,irremediablebreachoftheInvestmentAdvisoryAgreementorhascommittedamaterialbreachandfailstoremedysuchbreachwithin30daysofreceivingnoticefromtheCompanyrequiringittodoso.AsdisclosedinNote1,theInvestmentAdviser,whichtradesunderthenameofICG-LongbowisauthorisedandregulatedbytheFCA.


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14. MATERIAL AGREEMENTS (CONTINUED)Administration AgreementTheAdministratorhasbeenappointedtoprovidedaytodayadministrationandcompanysecretarialservicestotheCompany,assetoutintheAdministrationAgreement.

UnderthetermsoftheAdministrationAgreement,theAdministratorisentitledtoafixedfeeof£90,000perannumforservicessuchasadministration,corporatesecretarialservices,corporategovernance,regulatorycomplianceandstockexchangecontinuingobligationsprovidedbothtotheCompanyandsomelimitedadministrationservicestoLuxcoinconjunctionwiththeLuxembourgAdministrator.TheAdministratorwillalsobeentitledtoanaccountingfeechargedonatimespentbasiswithaminimumfeeof£40,000perannum.Accountingfeesfortheyearamountedto£80,000(31January2018:£80,000)ofwhich£14,167(31January2018:£30,833)wasoutstandingattheyearend.

Registrar AgreementTheRegistrarhasbeenappointedtoprovideregistrationservicestotheCompanyandmaintainthenecessarybooksandrecords,assetoutintheRegistrarAgreement.

UnderthetermsoftheRegistrarAgreement,theRegistrarisentitledtoanannualfeefromtheCompanyequalto£1.78pershareholderperannumorpartthereof,subjecttoaminimumof£7,500perannum.OtherRegistraractivitieswillbechargedforinaccordancewiththeRegistrar’snormaltariffaspublishedfromtimetotime.

15. AUDITOR’S REMUNERATIONAuditandnon-auditfeespayabletotheauditorscanbeanalysedasfollows:


£


£

AuditfeesfortheCompany 40,000 40,000

AuditfeesfortheSubsidiary 12,953 12,993

Total Audit fees 52,953 52,993

Professionalservicesinrelationtothe2017Prospectus – 51,000

Professionalservicesinrelationtothe2018Prospectus 49,000 –

Professionalservicesinrelationtotheshareissue – 6,000

Total non-audit fees 49,000 57,000

16. REVOLVING CREDIT FACILITYOn1October2018,theGroupenteredintoarevolvingcreditfacilitywithOakNorthBankplc.Thisfacilityisforanamountequaltothelowerof£25millionand209%oftheNAVfromtimetotime.Theloanmatures36monthsfromthedateoftheagreement.InterestaccruesoneachloanatarateofLIBORplus3.95%perannum.Anarrangementfeeispayableonfirstdrawingthefacilityandontheterminationdate.

Thisfacilitywillbeusedtowardsmaintainingandpreservingliquidity,makingnewcustomerloans,investinginLongbowPrivateFundsandpaymentofthefees,costsandexpensesdue.Nodrawdownsweremadeunderthisfacilityduringtheyear.ThefirstdrawdownwasmadeinFebruary2019(seeNote17).

17. SUBSEQUENT EVENTS On25February2019,theGrouparrangedanewloancommitmentof£15.0milliontoanaffiliateofBlissHotelsgroup,withaninitialadvanceof£12.5million.TheCompanymadeitsfirstdrawingof£3.5milliononitsworkingcapitalfacilityinordertofundthisinvestment.

On11March2019,afurther£1.5millionwasdrawndownonthecommittedAffinityloan.

On8March2019,theCompanydeclaredadividendof1.5penceperordinaryshareinrespectofthequarterended31January2019,payableon12April2019.


GLOSSARY OFCAPITALISED DEFINED TERMS

“Administrator”meansEsteraInternationalFundManagers(Guernsey)Limited;

“Administration Agreement”meanstheAdministrationAgreementdated23January2013betweentheCompanyandtheAdministrator;

“Admission”meanstheadmissionofthesharestothepremiumlistingsegmentoftheOfficialListandtotradingontheLondonStockExchange;

“AEOI”meansAutomaticExchangeofInformation;

“Affinity”meansAffinityGlobalRealEstate;

“AGM”or“Annual General Meeting”meansthegeneralmeetingoftheCompany;

“AIC”meanstheAssociationofInvestmentCompanies;

“AIC Code”meanstheAICCodeofCorporateGovernance;

“AIC Guide”meanstheAICCorporateGovernanceGuideforInvestmentCompanies;

“AIFMD”meanstheAlternativeInvestmentFundManagersDirective;

“Annual Report”or“Annual Report and Consolidated Financial Statements”meanstheannualpublicationoftheGroupprovidedtotheshareholderstodescribetheiroperationsandfinancialconditions,togetherwiththeirConsolidatedFinancialStatements;

“Article 50”meansArticle50oftheTreatyofLisbonwhichgivesanyEUmemberstatetherighttoquitunilaterallyandoutlinestheprocedurefordoingso;

“Articles of Incorporation”or“Articles”meansthearticlesofincorporationoftheCompany,asamendedfromtimetotime;

“Audit and Operational Risk Committee”meanstheAuditandOperationalRiskManagementCommittee,aformalcommitteeoftheBoardwithdefinedtermsofreference;

“BEPS”meansBaseerosionandprofitshifting;

“BMO”meansBMORealEstatePartners;

“Board”or“Directors”or“Board of Directors”meansthedirectorsoftheCompanyfromtimetotime;

“Brexit”meansthepotentialdepartureoftheUKfromtheEU;

“Carrara”meansCarraraGroundRents;

“CBI”meanstheConfederationofBritishIndustry;

“CMBS”meanscommercialmortgage-backedsecurity;

“Code”or“Corporate Governance Code”meanstheUKCorporateGovernanceCode2016aspublishedbytheFinancialReportingCouncil;

“Commercial Regional Space”meansCommercialRegionalSpaceLimited;

“Companies Law”meanstheCompanies(Guernsey)Law,2008,(asamended);

“Company”meansICG-LongbowSeniorSecuredUKPropertyDebtInvestmentsLimited;

“CPI”meansconsumerpriceindex;

“CRE”meanscommercialrealestate;

“CRS”meansCommonReportingStandard;

“CVA”meanscompanyvoluntaryarrangement;

“Disclosure Guidance and Transparency Rules”or“DTRs”meansthedisclosureguidancepublishedbytheFCAandthetransparencyrulesmadebytheFCAundersection73AofFSMA;

“ECL”meansexpectedcreditlosses;

“EGM”meanstheExtraordinaryGeneralMeetingoftheCompanyheldon1March2017;

“EPS”or“Earnings per share”meansEarningsperordinaryshareoftheCompanyandisexpressedinPoundsStirling;

“ESG”meansEnvironmental,SocialandGovernance;

“EU”meanstheEuropeanUnion;

“Euro”or“€”meansEuros,thecurrencyintroducedatthestartofthethirdstageofEuropeaneconomicandmonetaryunion;

“FATCA”meansForeignAccountTaxComplianceAct;

“FCA”meanstheUKFinancialConductAuthority(oritssuccessorbodies);

“Financial Statements”or“Consolidated Financial Statements”meanstheauditedconsolidatedfinancialstatementsoftheGroup,includingtheConsolidatedStatementofComprehensiveIncome,theConsolidatedStatementofFinancialPosition,theConsolidatedStatementofChangesinEquity,theConsolidatedStatementofCashFlows,andassociatednotes;

“FRC”meanstheFinancialReportingCouncil;

“FTSE”meanstheFinancialTimesStockExchange;

“FVTOCI”meansFairValuethroughStatementofOtherComprehensiveIncome;

“GDP”meansgrossdomesticproduct;

“GFSC”meanstheGuernseyFinancialServicesCommission;

“GIIN”meansGlobalIntermediaryIdentificationNumber;

“GLA”meanstheGreaterLondonAuthority;

“Group”meanstheCompany,ICGLongbowSeniorSecuredUKPropertyDebtInvestmentsLimitedtogetherwithitswhollyownedsubsidiary,ICGLongbowSeniorDebtS.A(Luxco);

“GFSC Code”meanstheGFSCFinanceSectorCodeofCorporateGovernance;

“Halcyon”meansHalcyonGroundRents;

“Hulbert”meansHulbertProperties;

“IAS”meansinternationalaccountingstandardsasissuedbytheBoardoftheInternationalAccountingStandardsCommittee;

“ICG”meansIntermediateCapitalGroupPLC;

ICG-Longbow Senior Secured UK Property Debt Investments LimitedAnnual Report And Consolidated Financial Statements

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GLOSSARYOFCAPITALISED DEFINED TERMS (CONTINUED)

“ICG Private Funds”meansprivaterealestatedebtfundsmanagedoradvisedbytheInvestmentAdviseroritsassociates;

“ICR”meansinterestcoverageratio;

“IFRS”meanstheInternationalFinancialReportingStandards,beingtheprinciples-basedaccountingstandards,interpretationsandtheframeworkbythatnameissuedbytheInternationalAccountingStandardsBoard,asadoptedbytheEU;

“Interest Cover Ratio”or“ICR”meansthedebt/profitabilityratiousedtodeterminehoweasilyacompanycanpayinterestonoutstandingdebt;

“Interim Report”meanstheCompany’sinterimreportandunauditedinterimcondensedfinancialstatementsfortheperiodended31July;

“Investment Grade Tenant”meansatenantthatisratedAaatoBaa3byMISand/orAAAtoBBB-byS&P;

“Investment Adviser”or“ICG-Longbow”meansIntermediateCapitalManagersLimitedoritsassociates;

“Investment Advisory Agreement”meansInvestmentAdvisoryAgreementdated31January2013betweentheCompanyandtheInvestmentAdviser,asamendedandrestatedon27April2017;

“Investment Risk Committee”meanstheInvestmentRiskCommittee,aformalcommitteeoftheBoardwithdefinedtermsofreference;

“IPF”meanstheInternationalPropertyForum;

“IPO”meanstheCompany’sinitialpublicofferingofsharestothepublicwhichcompletedon5February2013;

“IRAF”meansIRAFPortfolio;

“ISAE 3402”meansInternationalStandardonAssuranceEngagements3402,“AssuranceReportsonControlsataServiceOrganisation”;

“ISIN”meansanInternationalSecuritiesIdentificationNumber;

“Listing Rules”meansthelistingrulesmadebytheFCAundersection73AFinancialServicesandMarketsAct2000;

“London Stock Exchange”or“LSE”meansLondonStockExchangeplc;

“LGD”meanslossgivendefault;

“LTV”meansLoantoValueratio;

“Luxco”or“Subsidiary”meanstheCompany’swhollyownedsubsidiary,ICG-LongbowSeniorDebtS.A.;

“Luxembourg Administrator”meansOcorianServices(Luxembourg)S.àr.lbeingtheadministratorofLuxco;

“Main Market”meansthemainsecuritiesmarketoftheLondonStockExchange;

“Management Engagement Committee”meansaformalcommitteeoftheBoardwithdefinedtermsofreference;

“Meadow”meansMeadowRealEstateFundII;

“Memorandum”meanstheCompany’smemorandum;

“MIS”meansMoody’sInvestorsServiceLtd,acreditratingagencyregisteredinaccordancewithRegulation(EC)No1060/2009witheffectfrom31October2011;

“NAV per share”meanstheNetAssetValueperordinarysharedividedbythenumberofSharesinissue(otherthansharesheldintreasury);

“Net Asset Value”or“NAV”meansthevalueoftheassetsoftheGrouplessitsliabilities,calculatedinaccordancewiththevaluationguidelineslaiddownbytheBoard,furtherdetailsofwhicharesetoutinthe2017Prospectus;

“Nomination Committee”meansaformalcommitteeoftheBoardwithdefinedtermsofreference;

“Northlands”meansNorthlandsPortfolio;

“NMPIs”meansNon-MainstreamPooledInvestments;

“OBR”meanstheOfficeofBudgetResponsibility;

“OECD”meansTheOrganisationforEconomicCo-operationandDevelopment;

“Official List”isthePremiumSegmentoftheFCA’sOfficialList;

“PD”meansprobabilityofdefault;

“Ramada”meansRamadaGateshead;

“RCF”meansRevolvingCreditFacility;

“Registrar”meansLinkAssetServices(Guernsey)Limited(formerlyCapitaRegistrars(Guernsey)Limited);

“Registrar Agreement”meanstheRegistrarAgreementdated31January2013betweentheCompanyandtheRegistrar;

“Schedule of Matters”meanstheScheduleofMattersReservedfortheBoard,adopted23January2013;

“S&P”meansStandard&Poor’sCreditMarketServicesEuropeLimited,acreditratingagencyregisteredinaccordancewithRegulation(EC)No1060/2009witheffectfrom31October2011;

“SPV”meansspecialpurposevehicle;

“Treaty of Lisbon”meansaninternationalagreementthatamendsthetwotreatieswhichfromtheconstitutionalbasisoftheEU;

“UK”or“United Kingdom”meanstheUnitedKingdomofGreatBritainandNorthernIreland;

“US”or“United States”meanstheUnitedStatesofAmerica,itterritoriesandpossessions;

“2017 Placing Programme”meanstheplacingprogrammeinconnectionwiththe2017ProspectuspublishedinApril2017;

“2017 Prospectus”meanstheprospectuspublishedinApril2017bytheCompanyinconnectionwiththe2017PlacingProgramme;and

“£”or“Pounds Sterling”meansBritishpoundsterlingand“pence”meansBritishpence.


DIRECTORSAND GENERAL INFORMATION

Board of DirectorsJackPerry(Chairman)StuartBeevorPatrickFirthMarkHuntleyPaulMeader

Audit and Operational Risk CommitteePatrickFirth (Chairman) StuartBeevorPaulMeader

Investment Risk CommitteePaulMeader (Chairman) StuartBeevorJamesChristie(Retired7March2019)MarkHuntleyDavidMortimerPatrickFirth(Appointed7March2019)

Management Engagement CommitteeJackPerry (Chairman)PatrickFirthPaulMeader

Nomination CommitteeJackPerry (Chairman)StuartBeevorPatrickFirthMarkHuntleyPaulMeader

Investment AdviserIntermediateCapitalManagersLimitedJuxonHouse100StPaul’sChurchyardLondonUnitedKingdomEC4M8BU

Registered officeHeritageHallPOBox225LeMarchantStreetStPeterPortGuernseyGY14HY

Effective from 29 April 2019EsteraInternationalFundManagers(Guernsey)LimitedFloor2TrafalgarCourtLesBanquesStPeterPortGuernseyGY14LY

Independent AuditorDeloitteLLPPOBox137RegencyCourtGlategnyEsplanadeSt.PeterPortGuernseyGY13HW

Guernsey Administrator and Company SecretaryEsteraInternationalFundManagers(Guernsey)LimitedHeritageHallPOBox225LeMarchantStreetSt.PeterPortGuernseyGY14HY

Effective from 29 April 2019EsteraInternationalFundManagers(Guernsey)LimitedFloor2TrafalgarCourtLesBanquesStPeterPortGuernseyGY14LY

Luxembourg AdministratorOcorianServices(Luxembourg)S.àr.l6cRueGabrielLippmannMunsbachLuxembourgL-5365

RegistrarLinkAssetServices(Guernsey)LimitedMontCreveltHouseBulwerAvenueStSampsonGuernseyGY24LH

Corporate Broker and Financial AdviserCenkosSecuritiesplc6-8TokenhouseYardLondonUnitedKingdomEC2R7AS

IdentifiersGIIN: 6IG8VS.99999.SL.831ISIN: GG00B8C23S81Sedol: B8C23S8Ticker: LBOWWebsite: www.lbow.co.uk

English Solicitors to the CompanyGowlingsWLG(UK)LLP4MoreLondonRiversideLondonUnitedKingdomSE12AU

Guernsey Advocates to the CompanyCareyOlsenCareyHousePOBox98LesBanquesStPeterPortGuernseyGY14BZ

BankersABNAMRO(Guernsey)LimitedMartelloCourtAdmiralParkStPeterPortGuernseyGY13QJ

BarclaysBankplc6-8HighStreetStPeterPortGuernseyGY13BE

LloydsBankInternationalLimitedPOBox136SarniaHouseLeTruchotStPeterPortGuernseyGY14EN

TheRoyalBankofScotlandInternationalRoyalBankPlace1GlategnyEsplanadeStPeterPortGuernseyGY14BQ


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CAUTIONARYSTATEMENT

TheChairman’sStatementandInvestmentAdviser’sReporthavebeenpreparedsolelytoprovideadditionalinformationforshareholderstoassesstheCompany’sstrategiesandthepotentialforthosestrategiestosucceed.Theseshouldnotbereliedonbyanyotherpartyorforanyotherpurpose.

TheChairman’sStatementandInvestmentAdviser’sReportmayincludestatementsthatare,ormaybedeemedtobe,“forward-lookingstatements”.Theseforward-lookingstatementscanbeidentifiedbytheuseofforward-lookingterminology,includingtheterms“believes”,“estimates”,“anticipates”,“expects”,“intends”,“may”,“will”or“should”or,ineachcase,theirnegativeorothervariationsorcomparableterminology.

Theseforward-lookingstatementsincludeallmattersthatarenothistoricalfacts.Theyappearinanumberofplacesthroughoutthisdocumentandincludestatementsregardingtheintentions,beliefsorcurrentexpectationsoftheDirectorsandtheInvestmentAdviser,concerning,amongstotherthings,theinvestmentobjectivesandinvestmentpolicy,financingstrategies,investmentperformance,resultsofoperations,financialcondition,liquidity,prospects,anddistributionpolicyoftheCompanyandthemarketsinwhichitinvests.

Bytheirnature,forward-lookingstatementsinvolverisksanduncertaintiesbecausetheyrelatetoeventsanddependoncircumstancesthatmayormaynotoccurinthefuture.Forward-lookingstatementsarenotguaranteesoffutureperformance.

TheCompany’sactualinvestmentperformance,resultsofoperations,financialcondition,liquidity,distributionpolicyandthedevelopmentofitsfinancingstrategiesmaydiffermateriallyfromtheimpressioncreatedbytheforward-lookingstatementscontainedinthisdocument.

Subjecttotheirlegalandregulatoryobligations,theDirectorsandtheInvestmentAdviserexpresslydisclaimanyobligationstoupdateorreviseanyforward-lookingstatementcontainedhereintoreflectanychangeinexpectationswithregardtheretooranychangeinevents,conditionsorcircumstancesonwhichanystatementisbased.


FORYOURNOTES

ICG-Longbow Senior Secured UK Property Debt Investments LimitedHeritageHall,POBox225,LeMarchantStreet,StPeterPort,Guernsey,GY14HY,ChannelIslands.

T+44(0)1481742742F+44(0)1481730617

Furtherinformationavailableonline:www.lbow.co.uk

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