Icg-longbow Regulatory News (LBOW)

ICG-Longbow Senior Secured UK Property Debt Investments Limited

Annual Report And Consolidated Financial Statements

For the year ended 31 January 2016

ICG-Longbow Senior Secured UK Property Debt Investments Limited is pleased to announce the release of its Annual Financial Statements for the year ended 31 January 2016 which will shortly be available on the Company's website at (www.lbow.co.uk) where further information on the Company can also be found.

All capitalised terms are defined in the glossary of capitalised defined terms unless separately defined.

Chairman's Statement

Introduction

On behalf of the Board, I am pleased to present the third Annual Report for the Group for the year ended 31 January 2016. This has been a period of steady performance, very much in line with expectations, given the stable nature of the Group's investment portfolio enabling the Company to deliver on its objective of generating profits to pay an annual dividend of 6.0 pence per share.

Portfolio

While the portfolio of 11 loans was unchanged in the year we saw a material improvement in risk profile with the weighted average portfolio LTV ratio reducing from 60.1% to 52.7% tracking the general market uplift in property values. Individual borrowers continue to manage their properties in line with business plan and, at portfolio level, there has been no change in the ICR at 161%.

As we announced, following the year end the Mansion loan (£18.1 million) was repaid in full and we are pleased to confirm that the proceeds, together with exit and prepayment fees, have already been redeployed into a new £22.4 million loan secured on two industrial parks in the North of England. The new loan aligns to the maturity profile of the existing portfolio and with the reinvestment of prepayment and exit fees will, we believe, be accretive to the portfolio return and Group as a whole. The new loan increases the Portfolio weighted average LTV to 57.2% but improves our average income protection to 1.7 years remaining.

Revenue and Dividend Performance

Revenue for the year of £8.4 million (31 January 2015: £9.2 million) fell slightly as the exit and prepayment fees earned in the prior year were not repeated given the unchanged loan portfolio, however the underlying profit after tax of £6.7 million (6.18 pence per share) was in line with expectations and sufficient to cover the Company's dividend objective of 6.0 pence per ordinary share per annum.

The Company has paid three interim dividends of 1.5 pence per share each during the year and on 26 April 2016 the Board approved a fourth interim dividend of 1.5 pence per share bringing the total dividends declared in respect of the year to 6.0 pence per share. Guernsey registered companies are not required to obtain shareholder approval in respect of any interim dividend and this policy is consistent with the Company's Admission documents. The Board wishes to afford the shareholders the ability to approve the interim dividends paid in this financial year and there will be an ordinary resolution proposed at the forthcoming AGM in this regard.

NAV and Share Price Performance

The retained profits for the year have resulted in a modest increase in NAV from 99.99 pence per share to 100.18 pence per share. During a period of considerable market volatility, the Company's shares have continued to trade in a relatively narrow range of 101 to 106.5 pence per share, consistently trading at a premium to NAV, reflecting the secure and predictable nature of the income generated by the underlying loan portfolio. The portfolio has 2.81 years weighted average unexpired term remaining (1.6 years of which are subject to pre-payment protection).

Governance and Management

Governance and oversight remain a principal activity of the Board and, as we have discussed previously, we maintain a close eye on regulatory changes and best practice in this area. We have sought to adopt or implement relevant changes in a manner appropriate to the size and risk profile of the Group's activities. As such we have considered the long term viability of the Company and include a viability statement within our Annual Report for the first time.

In the past twelve months we have undertaken a review of the Company's key service providers, including an on-site review of the Investment Manager's asset management and portfolio monitoring policies and procedures and an assessment of the Luxembourg Administrator. The conclusions of these reviews were highly satisfactory providing assurance to the Board.

In December 2015 we announced the appointment of a new corporate broker, Cenkos Securities plc, in place of Investec Bank plc. Together with Cenkos we have begun a shareholder consultation process in anticipation of the continuation vote in 2017.

Outlook

The UK economic environment remains stable with steady, if unspectacular, levels of growth coupled with increasing employment. Low levels of new property development have begun to lead to rental growth in most sectors and have driven property values up over the financial year. Our portfolio has benefitted from this effect as evidenced by the most recent property valuations and a consequent fall in weighted average LTV ratios.

These conditions bode well for the investment portfolio as a whole in terms of the ability of borrowers to refinance their loans on maturity but we anticipate that uncertainty surrounding the outcome of the UK's EU membership referendum will temper these conditions in the short term. While the likelihood of a vote to leave remains unclear, an exit vote would undoubtedly lead to an extended period of uncertainty which could indirectly affect the Group's loan portfolio and underlying property values if inward investment and property transaction volumes fall. However the underlying property portfolios are generally well diversified and are not materially exposed to international businesses or trade at the tenant level. As such the loans are well covered in terms of valuations. Consequently, based on our initial analysis, we would not expect the Company to be materially adversely affected by such a vote in terms of revenue generation or capital risk.

As referred to above, given the shortening residual maturity of the loan portfolio and recognising that current market conditions would not support the re-investment of loan proceeds at similar risk and return dynamics as the existing portfolio, the Board together with the Investment Manager and now Cenkos is reviewing the Company's longer term strategy. This review will seek to identify changes to the investment objective (whether in terms of risk or return) that would be required in order to allow the anticipated future loan proceeds to be reinvested as the portfolio is realised. Recognition of shareholder views on the trade-off between yield and risk will of course be taken into account. The results of that review will be communicated to shareholders in due course and indeed well in advance of the continuation vote in 2017.

In the meantime, the Board is confident that the Group's portfolio of investments will continue to perform in line with our investment objective.

Jack Perry

Chairman

26 April 2016

Highlights

Performance

· NAV of £108.41 million as at 31 January 2016 (31 January 2015: £108.21 million).

o NAV per share of 100.18 pence (31 January 2015: 99.99 pence).

· Underlying earnings are substantially unchanged from prior year.

· Profit after tax of £6.69 million for the year ended 31 January 2016 (31 January 2015: £7.57 million).

o Earnings per share of 6.18 pence (31 January 2015: 7.05 pence).

o Adjusted Earnings per share of 6.18 pence (31 January 2015: 6.37 pence (adjusted for one-off other fee income of £731,218)).

Dividend

· Total dividends paid or declared for the year ended 31 January 2016 of 6.0 pence per share (31 January 2015: 6.0 pence per share), made up as follows:

o Interim dividends of 1.5 pence per share paid in respect of the three quarterly periods ending 30 April 2015, 31 July 2015 and 31 October 2015.

o 4th interim dividend of 1.5 pence per share declared in respect of the quarter ended 31 January 2016.

· 4th interim dividend details:

o Declared 26 April 2016

o Amount 1.5 pence per share

o Dividend ex-date 5 May 2016

o Dividend payment date 26 May 2016

· An ordinary resolution will be proposed at the forthcoming AGM to approve the interim dividends paid in this financial year.

Investment Portfolio

· There were no changes to the composition of the portfolio in the year ended 31 January 2016 and all loans are performing and covenant compliant.

· As at 31 January 2016 the Group's investment portfolio comprised 11 loans with an aggregate principal balance of £104.00 million (31 January 2015: £104.00 million).

· The portfolio weighted average interest coupon is 7.40% (31 January 2015: 7.40%) with a weighted average gross investment IRR of 8.49% (31 January 2015: 8.49%).

· The portfolio weighted average LTV was 52.7% (31 January 2015: 60.1%) and the weighted average ICR was 161% (31 January 2015: 161%).

· The portfolio weighted average residual term was 2.8 years, of which by average 1.6 years remains income protected (31 January 2015: residual term 3.8 years, income protected term 2.6 years).

· Following the year end the £18.7 million Mansion loan was repaid in full together with exit and prepayment fees of £2.5 million, and the proceeds reinvested in a new £22.4 million loan on terms accretive to shareholders.

For further information, please contact:

Heritage International Fund Managers Limited:

Mark Huntley +44 (0)14 8171 6000

James Christie

Cenkos Securities plc:

Will Rogers +44 (0)20 7397 1920

Ollie Packard +44 (0)20 7397 1918

Maitland Consultancy Limited:

Rebecca Mitchell +44 (0)20 7379 5151

Corporate Summary

Investment Objective

The investment objective of the Group is to construct a portfolio of good quality, defensive, senior debt investments secured by first ranking fixed charges predominantly against UK commercial property investments, providing target dividends of circa 6% per annum on the IPO issue price, paid quarterly, with an underlying target portfolio IRR of 8% per annum.

Structure

The Company is a non-cellular company limited by shares incorporated in Guernsey on 29 November 2012 under the Companies Law. The Company's registration number is 55917, and it has been authorised by the GFSC as a registered closed-ended collective investment scheme. The Company's ordinary shares were admitted to the premium segment of the UK Listing Authority's Official List and to trading on the Main Market of the London Stock Exchange as part of its IPO which completed on 5 February 2013. The issued capital during the year comprises the Company's ordinary shares denominated in Pounds Sterling. The Company makes investments in its portfolio through ICG-Longbow Senior Debt S.A., the Company's wholly owned subsidiary.

Investment Manager

Following the acquisition of management's residual equity interest in Longbow Real Estate Capital LLP by ICG plc, the ICG-Longbow team has transferred employment to ICG and consequently, with effect from 30 April 2015 the Investment Management Agreement was novated to Intermediate Capital Managers Limited, an FCA regulated, ICG plc group subsidiary. The Investment Manager continues to trade under the name of ICG-Longbow. The assets of the Group are managed by the Investment Manager under the terms of the Investment Management Agreement.

Investment Manager's Report

Investment Objective

The investment objective of the Group is "…to construct a portfolio of good quality, defensive, senior debt investments secured by first ranking fixed charges predominantly against UK commercial property investments, providing target dividends of circa 6% per annum on the IPO issue price, paid quarterly, with an underlying target portfolio IRR of 8% per annum…"

Summary

At 31 January 2016 the investment portfolio comprised 11 loans and was unchanged in the year with a par value of £104.0 million.

Each investment in the portfolio remained well secured from a capital perspective, with a weighted average LTV exposure of 52.7%, a decrease over the year from 60.1% which reflects both the delivery of business plans by borrowers and the general market upturn driven by positive investor sentiment toward the commercial real estate sector. The portfolio level gross expected IRR if held to contracted loan term maturity and recognising prepayment/exit fees received to date is 8.49%.

At the portfolio level, the Interest Cover Ratio was unchanged at 161% (31 January 2015: 161%).

Following the year end Mansion Group completed the disposal of its student accommodation portfolio including the two properties which provided security for the Group's loan. As a result of this disposal the £18.07 million loan has been repaid in full, together with exit and prepayment fees of approximately £2.5 million. The Group, via Luxco, subsequently made a new loan of £22.4 million to Commercial Regional Space Limited on terms accretive to shareholders.

Group Performance

The Group's portfolio was unchanged in the period and as a result the profit after tax for the twelve months of £6.7 million (6.18 pence per share) was in line with expectations and with the previous year.

Underpinned by supportive property market conditions, the Group's loan portfolio continues to perform in line with expectations and in compliance with all of the Group's investment parameters. With 1.6 years weighted average income protection remaining as at 31 January 2016 (ranging from 0.6 years to 2.3 years), the Company remains well positioned to continue to deliver its target dividend. The re-investment of proceeds to fund the Commercial Regional Space Limited loan has had a positive impact on the weighted average income protection increasing it to 1.7 years.

Given the nature of the investment portfolio and the reinvestment of the Mansion loan proceeds referred to above, the level of profit and cash flow generation are adequate to cover the Company's target dividend level of 6.0 pence per share per annum for the term of the existing loans.

Portfolio

(1) Weighted average projected gross IRR of the portfolio reflects partial repayments received to date in addition to the remaining investments.

The result on the portfolio of the Mansion loan repayment on 8 March 2016 and the reinvestment is summarised below:

(1) Weighted average projected gross IRR of the portfolio reflects partial repayments received to date in addition to the remaining investments.

Investment Portfolio as at 31 January 2016

 (1)IRAF Portfolio loan is a replacement of the LM Real Estate loan. It is secured on substantially the same portfolio as the previous LM Real Estate loan but with a new borrower and on substantially the same commercial terms. Day 1 figures represent LM Real Estate loan opening position

The result on the portfolio of the Mansion loan repayment on 8 March 2016 and the reinvestment is summarised below:

Investment Portfolio as at 31 March 2016

(1)IRAF Portfolio loan is a replacement of the LM Real Estate loan. It is secured on substantially the same portfolio as the previous LM Real Estate loan but with a new borrower and on substantially the same commercial terms. Day 1 figures represent LM Real Estate loan opening position

Market Update

Economy and Financial Markets

Based on latest estimates from the Office of Budget Responsibility, the UK GDP grew by 2.4% GDP over 2015. The strength in the economy is represented by the continued fall in the unemployment rate over the year to 5.1% and the growth in employment - up 0.6 million over the year resulting in 31.4 million people now being in work.

Market consensus is that the UK has a relatively low exposure to China and the energy crisis, but in spite of this, the Bank of England has recently trimmed GDP growth forecasts by 0.3% for each of 2016 and 2017 to 2.2% and 2.3%, respectively.

As a consequence of this, short term interest rates are expected to remain low throughout this year and into the next, whilst the financial markets are reflecting this change in medium term inflationary expectations, with the 5 year swap rate having fallen below 1% in recent weeks.

UK Commercial Property Debt Market

The IPD All Property Index returns for 2015 were:

· Rental growth - 4.8%

· Capital value growth - 8.0%

· Total return - 13.1%

Following nearly three years of strong capital growth which started in April 2013, property has not been immune from the global re-evaluation of risk and growth expectations across all asset classes. Property investor mentality, which last year was concerned about the risk of being un-invested in a growth market, has now switched this year to being concerned about overpaying in a market where the next move in values for some assets may be downwards.

Following strong capital growth in the first half of 2015, we have observed that aspirational pricing of investment sales based on summer 2015 deals has not always been achieved in Q4 2015. As a result, transactions concluded at year end 2015 were at levels lower than mid-year. However, the mid-year position was not picked up in property carrying values and so, whilst 2015 still showed strong year on year capital growth, a small "invisible correction" occurred in H2 2015.

In the early part of 2016, we have noticed a reduction in transactional volumes in the investment markets, as investors exercise a degree of caution in the run-up to the UK's referendum on EU membership in June. Concerns of a possible 'Brexit' are expected to continue to temper activity levels during H1 2016.

Looking further forward, given the expectation for continued growth in jobs and relatively low levels of new construction of commercial floor-space, rental growth is expected to continue but will moderate to an average of 2.5% per annum, according to the Investment Property Forum forecast. With the Investment Property Forum projecting an average of only 1% per annum capital growth over 2016 to 2019, property returns are expected to be driven by income and rental growth over the next few years. Consequently, the average IPD All Property total return over the next four years is projected to be 6.3% per annum. However, in common with other asset classes, "safe haven" status properties remain in strong demand but some risk assets have been and will continue to be subject to a re-rating. Additionally, we believe that the rental growth expected in Central London offices and in particular City offices, may not be realised if the ongoing global market turmoil impacts on financial sector jobs.

The polarisation in the lending market has continued and deepened over 2015, with the following pricing ranges being apparent in the market between prime/trophy assets through to lower/mid-market in Q4 2015:

· Senior - 1.25% to 3.0% margins (2% to 5% all in)

· Mezzanine - 7.5% to 12.5%

· Whole loans - 4% to 10%

We do not see this differential closing materially over the current year, although it is apparent that some banks are now widening margins by circa 20-40 basis points for senior debt when compared to the levels seen in H2 2015.

Looking forward, as a result of the regulatory environment, recent volatility in fixed income markets and Brexit concerns as previously mentioned, we believe that lenders will remain cautious in the short term, albeit the availability of debt capital broadly remains strong in most areas of the market.

Portfolio Profile

The activity across the portfolio during the year has centred on monitoring all the loans for their performance against agreed business plans and with regard to previous quarters. All investments are compliant with their respective financial covenants, and the investment limitations of the strategy. All of the investments are performing broadly in line with the underwritten business plans. As at the year end, the 11 loans in the portfolio had a weighted coupon of 7.40%, whilst the projected portfolio IRR remains the same at 8.49%.

The year-end weighted average risk exposure of 52.7% LTV reflects a significant decrease over the previous year (from 60.1%). This has principally been driven by the positive outcome of the annual valuation process across the portfolio and reflects the market at large but with some notable exceptions (IRAF, Northlands and Mansion as described in the loan commentaries that follow).

The weighted average ICR on the portfolio has remained stable over the year at 161% (31 January 2015: 161%), however, there has been movement in ICR at an individual loan level, with the most significant movements over the year being:

1. Northlands Portfolio - ICR increased to 149% from 123% as at January 2015 as a result of lower non-recoverable costs associated with the portfolio. Interest cover is supported by a cash reserve account of £230,000 charged to the lender.

2. Lanos (York) - reported ICR has increased to 116% from 105% as at January 2015 primarily due to the completion of the refurbishment works and now all 125 rooms being available.

3. Hulbert Properties - ICR decreased from 180% as at January 2015 to 166%; this was due to the borrower securing vacant possession on a loss making site which they plan to demolish and market the resultant yard space. This is in-line with the underwritten business plan.

Overall, the Investment Manager believes the Group's loan portfolio to be satisfactorily secured, given our senior position with a weighted average exposure of 52.7% LTV and 161% ICR at 31 January 2016 (57.2% LTV and 174% ICR at 31 March 2016). In addition risk is diversified at portfolio level by sector and region and at loan level through exposure to predominantly multi-property or multi-tenanted security. All of the loans are fully compliant with the parameters as set out in the prospectus.

Portfolio Activity 

During the financial year the principal activity within the loan portfolio has been:

In quarter one; Mansion Student Fund took the decision to put the entire student accommodation property up for sale. In March 2016 (post year end) the borrower successfully completed the disposal of the two student accommodation properties and as a result the £18.07 million loan has been repaid in full, together with exit and prepayment fees of approximately £2.5 million in aggregate.

In the second half of the year Lanos (York) completed the refurbishment works on the hotel making all 125 rooms available. The hotel was revalued at £20 million, reducing our LTV exposure to 50%.

The Northlands borrower has completed some lettings of previously vacant units in the last quarter of this financial year; income is expected to pick up going forward. Following the year end the Investment Manager is recommending advancing a further £500,000 to assist with the capital expenditure programme.

Meadow Partners are currently considering two options regarding the Pentavia Retail Park asset - a low (planning) risk reconfiguration of the existing built space or a more ambitious scheme, potentially involving retail, leisure, residential and hotel usage. The borrower is in consultation with the local authority on the former and has recently approached planning consultants to explore the latter option, which could achieve a substantially higher residual site value.

Outlook

The outlook for the investment portfolio remains good, underpinned by the favourable economic and property market conditions. Whilst we anticipate some change in the underlying property portfolios of the borrowers as they deliver their business plans and substitute or replace assets, we expect this to result in an improvement in the quality of the underlying property. Given pre-payment protection fees, early repayment is not expected in the current financial year other than in partial portfolio sales or in exceptional circumstances such as the £400 million sale of the entire Mansion portfolio. However, to the extent this occurred we would expect the resultant prepayment fees to enable the Group to reinvest any such proceeds on a basis that will be accretive to shareholders as illustrated by the new Commercial Regional Space Loan as discussed below. We expect that the Company should be able to maintain the quarterly dividend payment level of 1.5 pence per share during the term of the current portfolio of loans.

Following the financial year end and the successful completion of the Mansion loan repayment, the Group redeployed the proceeds through the completion of a new £22.4 million loan to Commercial Regional Space Limited. The loan has a maturity date of April 2019 and is fully compliant with the parameters set out in the Prospectus. The loan is secured by first charges against two multi-let industrial estates located in Lancashire comprising 1.25 million sq. ft. of accommodation and providing a highly diversified income stream from lettings to over 140 tenants.

This transaction reinvests substantially all of the cash held by the Group following the repayment of the Mansion loan. The combined effect of the Mansion loan repayment and this reinvestment is materially accretive to shareholders, represented by an increase in NAV of approximately 2.5 pence per share.

The impact of a possible 'Brexit' vote in June has been considered. Although the effect of such a vote on the portfolio and market conditions more widely remains uncertain, the Investment Manager believes the strong risk positioning of the portfolio, with a diverse range of local and regional assets; low LTV exposure and robust interest cover should see the loans well placed to weather any resultant volatility and support the maintenance of the quarterly dividend payment during any potential downturn.

Following the Group's year end, the UK Government announced certain changes to the SDLT regime for commercial property, with the top rate levied on purchases increasing from 4% to 5% on the portion of the price in excess of £250,000. Further, an additional 3% SDLT charge will be levied on the purchase of additional residential properties (such as buy-to-let and second homes), over and above the currently prevailing rates.

The Investment Manager anticipates these additional costs to be absorbed by purchasers and reflected in valuations going forward, however given the nature and positioning of the Group's portfolio, the overall effect on value and liquidity is expected to be negligible.

Loan Portfolio

As set out above, as at 31 January 2016, the Group's portfolio comprised 11 loans with an aggregate balance outstanding of £104 million.

A summary of each of the individual loans as at 31 January 2016 is set out below:

Following the year end the Mansion loan was repaid in full and the Group made a new investment as summarised below:

Intermediate Capital Managers Limited

26 April 2016

Investment Policy

The Group's investment policy is to invest in a loan portfolio comprised of senior loans to property investors secured on UK commercial property with some potential exposure to UK investment residential property. The individual loans that comprise the portfolio will be between £1 million and £40 million with four to six year terms. The portfolio will target a 6.5% to 7.5% per annum loan coupon (paid quarterly) with arrangement and exit fees, each of approximately 2%, paid by the borrower. All costs directly associated with entering into the loan transaction will be paid for by the borrower.

The Group will only invest in loans that:

• are originated by ICG-Longbow;

• benefit from a first ranking fixed charge over the relevant properties, including in respect of any receivable income;

• are bilateral, non-syndicated and senior and which have no subordinated debt;

• have a maximum LTV of 65%; and

• benefit from loan covenants structured to ensure that a material decrease in the income or value from the underlying property will trigger an event of default, providing control to the lender and the opportunity to: (i) decrease the risk through the introduction of new borrower equity; and/or (ii) capture additional pricing.

Investment Restrictions

The following investment restrictions apply to the portfolio, in each case measured at the time an investment is made:

1. the maximum percentage of gross assets allocated to a single loan shall be 10%, provided that the limit may be increased to 20% for loans benefiting from diversified and/or Investment Grade Tenants (as determined by MIS and/or S&P, being credit rating agencies registered in accordance with Regulation (EC) No 1060/2009);

2. the maximum percentage of gross assets allocated to a single borrower (together with its parents, subsidiaries and/or affiliates) shall be 20%;

3. following the Investment Period, the maximum exposure of the gross rents receivable on all investments to a single underlying tenant shall be 10%, except:

- in the case of an Investment Grade Tenant (as determined by MIS and/or S&P, being credit rating agencies registered in accordance with Regulation (EC) No 1060/2009), the maximum exposure shall be 20%; and

- in the case of the UK Government (including any of its ministries, departments and/or executive agencies), the maximum exposure shall be 50%;

4. the maximum exposure to a property sector shall be 50% of gross assets, on the basis that:

- where 60% or more of the value of a loan's collateral real estate assets falls in a Single Property Sector, 100% of the value of the relevant loan will be attributed to that Single Property Sector; and

- where less than 60% of the value of a loan's collateral real estate assets falls in any Single Property Sector, then the value of the relevant loan will be attributed to the mixed portfolio property sector; and

5. the maximum exposure to residential property shall be 15% of gross assets and any such exposure shall be restricted to multi-family investment properties.

Board of Directors

Jack Perry CBE - Chairman and Non-Executive Independent Director

Jack was Chief Executive Officer of Scottish Enterprise between 2004 and 2009. He is a chartered accountant and became an office managing partner in 1995 with Ernst & Young LLP and a regional industry leader for the firm in 1999. Jack was a member of the council of CBI Scotland between 1996 and 2001 before being appointed Chairman, a position he held for two years. Since leaving Scottish Enterprise in 2009 Jack has been pursuing a career as a non-executive director and adviser to a variety of public and private companies. Jack was appointed in 2014 as a non-executive director and on 25 April 2015 as chairman of European Assets Trust NV, a company admitted to trading on the London Stock Exchange and Euronext Amsterdam Stock Market.

Committee Membership: Audit Committee, Nomination Committee, Management Engagement Committee

Stuart Beevor - Non-Executive Independent Director

Stuart is an Independent Consultant with various roles advising clients in real estate fund management, investment, development and asset management. He is a non-executive director of Metropolitan Housing Trust and Empiric Student Property plc. From 2004 to 2013 he was a non-executive director at Unite Group Plc. From 2002 to 2011 he was Managing Director of Grosvenor Fund Management Limited and a member of the Board of Grosvenor Group Limited, the international property group. Prior to joining Grosvenor, he was Managing Director at Legal and General Property Limited, having previously held a number of roles at Norwich Union (now Aviva). Stuart is a Chartered Surveyor with over 30 years' experience in real estate both in the UK and overseas.

Committee Membership: Audit Committee, Nomination Committee, Management Engagement Committee

Patrick Firth - Non-Executive Independent Director

Patrick qualified as a Chartered Accountant with KPMG Guernsey in 1991 and is also a member of the Chartered Institute for Securities and Investment. He has worked in the fund industry in Guernsey since joining Rothschild Asset Management (CI) Limited in 1992 before moving to become Managing Director at Butterfield Fund Services (Guernsey) Limited (subsequently Butterfield Fulcrum Group (Guernsey) Limited), a company providing third party fund administration services, where he worked from April 2002 until June 2009. He is a non-executive director of a number of investment funds and management companies, including the following listed companies; DW Catalyst Fund Limited (formerly BH Credit Catalysts Limited), Riverstone Energy Limited, JZ Capital Partners Limited, GLI Finance Limited (formerly Greenwich loan Income Fund Limited), Guernsey Portfolio PCC Limited, Heritage Diversified Investments PCC Limited and NextEnergy Solar Fund Limited. Patrick is the current Chairman of the Guernsey International Business Association.

Committee Membership: Audit Committee, Nomination Committee, Management Engagement Committee

Mark Huntley - Non-Executive Director

Mark has over 30 years' experience in the fund and fiduciary sector and much of his involvement in the fund and private asset sectors has involved real estate and private equity investments. He holds a number of board appointments on listed and private funds and property advisory boards including Heritage Diversified Investments PCC Limited, Stirling Mortimer No.8 Fund UK Limited, Stirling Mortimer No.9 Fund UK Limited, and has been actively involved in real estate investment in the UK and internationally. He also has experience of a number of private and listed debt structures. Mark is an associate of the Institute of Financial Services (Trustee Diploma). He is the Head of the Financial Services Group of Heritage Group; one of the largest independently owned financial services businesses in Guernsey. He is Managing Director of the Administrator.

Committee Membership: Nomination Committee

Paul Meader - Non-Executive Independent Director

Paul is an independent director of investment companies, insurers and investment funds. Until the autumn of 2012 he was Head of portfolio Management for Collins Stewart based in Guernsey, prior to which he was Chief Executive of Corazon Capital. He has 30 years' experience in financial markets in London, Dublin and Guernsey, holding senior positions in portfolio management and trading. Prior to joining Corazon he was Managing Director of Rothschild's Swiss private-banking subsidiary in Guernsey. He is a non-executive director of the following listed companies: Highbridge Multi-Strategy Fund Limited, Guaranteed Investment Products 1 PCC Limited, The Spitfire Funds (Bermuda) Limited, Volta Finance Limited, Schroder Oriental Income Fund Limited and JP Morgan Global Convertibles Income Fund Limited. Paul is a Chartered Fellow of the Chartered Institute of Securities & Investments, a past Commissioner of the Guernsey Financial Services Commission and past Chairman of the Guernsey International Business Association. He is a graduate of Hertford College, Oxford.

Committee Membership: Audit Committee, Nomination Committee, Management Engagement Committee

Report of the Directors

The Directors hereby submit the Annual Report and Consolidated Financial Statements for the Group for the year ended 31 January 2016.

General Information

The Company is a non-cellular company limited by shares incorporated on 29 November 2012 under the Companies Law. The Company's registration number is 55917, and it has been authorised by the GFSC as a registered closed-ended collective investment scheme. The Company's ordinary shares were admitted to the premium segment of the UK Listing Authority's Official List and to trading on the Main Market of the London Stock Exchange on 5 February 2013.

Principal Activities

The principal activity of the Group is to invest in senior secured debt investments. The Group's investment objective is to construct a Portfolio of good quality, defensive, senior debt investments secured by first ranking fixed charges predominantly against UK commercial property investments, providing target dividends of circa 6% per annum on the IPO issue price.

Business Review

A review of the Group's business and its likely future development is provided in the Chairman's Statement and in the Investment Manager's Report.

Listing Requirements

Since being admitted on 5 February 2013 to the Official List of the UK Listing Authority, maintained by the FCA, the Company has complied with the applicable Listing Rules.

Results and Dividends

The results for the year are set out in the Financial Statements.

During the year and since the year end the Directors declared the following dividends:

Share Capital

At incorporation on 29 November 2012, the Company issued one founding ordinary share of no par value. On 5 February 2013 the Company issued a further 104,619,249 Ordinary shares of no par value at £1 per ordinary share in an IPO. On 24 April 2014, the Company issued 3.6 million new ordinary shares following a placing under the authority granted at launch at 102 pence per share, a premium of 2 pence per share above IPO issue price.

The Company has one class of ordinary shares. The issued nominal value of the ordinary shares represents 100% of the total issued nominal value of all share capital. Under the Company's Articles of Incorporation, on a show of hands, each shareholder present in person or by proxy has the right to one vote at Annual General Meetings. On a poll, each shareholder is entitled to one vote for every share held.

Shareholders are entitled to all dividends paid by the Company and, on a winding up, providing the Company has satisfied all of its liabilities, the shareholders are entitled to all of the surplus assets of the Company. The ordinary shares have no right to fixed income.

Shareholdings of the Directors

The Directors of the Company and their beneficial interests in the shares of the Company as at 31 January 2016 and 2015 are detailed below:

There have been no changes to the Directors' shareholdings since 31 January 2016.

Directors' Authority to Buy Back Shares 

The Directors believe that the most effective means of minimising any discount to Net Asset Value which may arise on the Company's share price, is to deliver strong, consistent performance from the Group's investment portfolio in both absolute and relative terms. However, the Board recognises that wider market conditions and other considerations will affect the rating of the shares in the short term and the Board may seek to limit the level and volatility of any discount to Net Asset Value at which the shares may trade. The means by which this might be done could include the Company repurchasing shares. Therefore, subject to the requirements of the Listing Rules, the Companies Law, the Articles and other applicable legislation, the Company may purchase shares in the market in order to address any imbalance between the supply of and demand for shares or to enhance the Net Asset Value of shares.

In deciding whether to make any such purchases the Directors will have regard to what they believe to be in the best interests of shareholders and in accordance with the applicable Guernsey legal requirements which require the Directors to be satisfied on reasonable grounds that the Company will, immediately after any such repurchase, satisfy a solvency test prescribed by the Companies Law and any other requirements in its Memorandum and Articles of Incorporation. The making and timing of any buybacks will be at the absolute discretion of the Board and not at the option of the shareholders. Any such repurchases would only be made through the market for cash at a discount to Net Asset Value.

On incorporation the Company passed a written resolution granting the Directors general authority to purchase in the market up to 14.99% of the shares in issue immediately following Admission at a price not exceeding the higher of (i) 5% above the average mid-market values of shares for the five business days before the purchase is made or (ii) the higher of the last independent trade or the highest current independent bid for shares. The Directors intend to seek renewal of this authority from the shareholders at the Annual General Meeting.

Pursuant to this authority, and subject to the Companies Law and the discretion of the Directors, the Company may purchase shares in the market on an on-going basis with a view to addressing any imbalance between the supply of and demand for shares.

Shares purchased by the Company may be cancelled or held as treasury shares. The Company may borrow and/or realise investments in order to finance such share purchases.

The Company did not purchase any shares for treasury or cancellation during the year or to date.

Directors' and Officers' Liability Insurance

The Group maintains insurance in respect of directors' and officers' liability in relation to their acts on behalf of the Group. Insurance is in place, having been renewed on 30 December 2015.

Substantial Shareholdings

As at 31 January 2016, the Company had been notified, in accordance with Chapter 5 of the Disclosure and Transparency Rules, of the following substantial voting rights as shareholders of the Company.

In addition, the Company also provides the same information as at 31 March 2016, being the most current information available.

The Directors confirm that there are no securities in issue that carry special rights with regards to the control of the Company.

Independent External Auditor

Deloitte LLP has been the Company's external auditor since the Company's incorporation. The Audit Committee reviews the appointment of the external auditor and its effectiveness. Following a review of the independence and effectiveness of the external auditor, a resolution will be proposed at the 2016 Annual General Meeting to re-appoint Deloitte LLP. Each Director believes that there is no relevant information of which the external auditor is unaware. Each had taken all steps necessary, as a Director, to be aware of any relevant audit information and to establish that Deloitte LLP is made aware of any pertinent information. This confirmation is given and should be interpreted in accordance with the provisions of Section 249 of the Companies Law. Further information on the work of the external auditor is set out in the Report of the Audit Committee.

Articles of Incorporation

The Company's Articles of Incorporation may only be amended by special resolution of the shareholders.

NMPIs

There is no change to the Company's status in respect of NMPI and the Company remains on the AIC list of exempted securities.

The Company continues to make all reasonable efforts to conduct its affairs in such a manner so that its shares can be recommended by IFAs to ordinary retail investors in accordance with the FCA's rules relating to non-mainstream investment products.

AIFMD

The Company is a non-EU domiciled Alternative Investment Fund which does not currently intend to market its shares within Europe or indeed in any jurisdiction due to the fund being effectively closed to new investors. Accordingly neither authorisation nor registration under AIFMD is currently required.

FATCA

The Company continues to comply with FATCA's requirements to the extent relevant to the Company.

Change of Control

There are no agreements that the Company considers significant and to which the Company is party that would take effect, alter or terminate upon change of control of the Company following a takeover bid.

Going Concern

The Directors, at the time of approving the Financial Statements, have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future and do not consider there to be any threat to the going concern status of the Group. The Group is now fully invested with a total loan portfolio representing 95% of the net capital raised and expects that the loan portfolio will generate enough cash flows to pay on-going expenses and returns to shareholders. The Directors have considered the cash position and performances of current investments made by the Group and have concluded that it is appropriate to adopt the going concern basis of accounting in preparing the Financial Statements.

The Directors have specifically considered the implications of the continuation vote on the application of the going concern basis. The Directors shall convene a general meeting of the Company on or before the fifth anniversary of Admission (and every year thereafter), and shall propose an ordinary resolution that the Company continues its business as a closed-ended collective investment scheme. The Directors consider that it is likely that such a resolution would be passed, given the past performance of the Company and therefore conclude that there is no material uncertainty which may cast significant doubt on the ability of the Company to continue as a going concern.

Viability Statement

The Group's Financial Statements are prepared in accordance with the AIC Code and presented on a going concern basis. As further disclosed in the Corporate Governance Report the Company is a member of the AIC and complies with the AIC Code which was revised in February 2015 to reflect changes to the UK Code.

As required by the AIC Code, the Directors have assessed the prospects of the Group over a period longer than 12 months required by the going concern provision. The Board has conducted this review for a period covering the next three years to June 2019, which is deemed appropriate given:

(i) the maturity profile of the Group's current loan portfolio (December 2017 to June 2019);

(ii) the investment objectives of the Group; and

(iii) the assumption that the continuation vote scheduled for 2017 will be passed.

The Group's capital has been fully invested and based on past performance the returns generated are stable and predictable in the medium term.

The Investment Manager has prepared and the Board has reviewed the Group's revenue, cashflow and working capital projections over the next three years, and considered the impact of some of the principal risks of the Group. The Investment Manager and the Board evaluated the resilience of the Group to the occurrence of these risks in severe yet plausible scenarios. This evaluation has applied the following key scenarios (it was assumed that there would be no changes relating to the Group structure which includes changes in tax legislation applicable to the Group or Company and changes to fund legislation):

· Loan non-performance - The impact to the Group should several loans become non-performing, including non-payment of principal or interest;

· Property valuations - The consequences to the Group should a sharp crash in the property market occur similar to the 2008 correction; and

· Inability to roll-over loans and early repayment of loans - the following scenarios were considered in detail and how each would affect the Group:

o redemption of loan at income protection date with reinvestment at 3% (lower than the current market rate); and

o redemption at income protection date with no reinvestment and redemption at maturity date with no reinvestment.

Having conducted a robust analysis of the above scenarios, the Directors remain satisfied that the Group remains viable.

Financial Risk Management Policies and Objectives

Financial Risk Management Policies and Objectives are disclosed in Note 11.

Principal Risks and Uncertainties

Principal Risks and Uncertainties are discussed in the Corporate Governance Report.

Subsequent Events

Significant subsequent events have been disclosed in note 15 to the Financial Statements.

Annual General Meetings

The AGM of the Company will be held at 1.30 pm BST on 3 June 2016 at Lefebvre Place, Lefebvre Street, St Peter Port, Guernsey. Details of the resolutions to be proposed at the AGM, together with explanations, will appear in the Notice of Meeting to be distributed to shareholders together with this Annual Report.

Members of the Board will be in attendance at the AGM and will be available to answer shareholder questions.

By order of the Board

Jack Perry

Chairman

26 April 2016

Directors' Responsibilities Statement

The Directors are responsible for preparing the Annual Report and Financial Statements in accordance with applicable law and regulations.

The Companies Law requires the Directors to prepare Financial Statements for each financial year. Under that law the Directors are required to prepare the Consolidated Financial Statements in accordance with IFRS. Under the Companies Law, the Directors must not approve the Financial Statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and of the profit or loss of the Group for that period. In preparing these Financial Statements, the Directors are required to:

· select suitable accounting policies in accordance with IAS 8: Accounting Policies, Changes in Accounting Estimates and Errors and then apply them consistently;

· make judgements and estimates that are reasonable and prudent;

· present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information;

· provide additional disclosures when compliance with the specific requirements in IFRS are insufficient to enable users to understand the impact of particular transactions, other events and conditions on the Group's financial position and financial performance;

· state that the Group has complied with IFRS, subject to any material departures disclosed and explained in the Financial Statements; and

· prepare the Financial Statements on a going concern basis unless it is inappropriate to presume that the Group will continue in business.

The Directors confirm that they have complied with the above requirements in preparing the Financial Statements.

The Directors are responsible for keeping proper accounting records, which disclose with reasonable accuracy at any time, the financial position of the Group and to enable them to ensure that the Financial Statements comply with Companies Law. They are also responsible for safeguarding the assets of the Group and hence for taking reasonable steps for the prevention and detection of fraud, error and non-compliance with law and regulations.

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the website (www.lbow.co.uk).

Legislation in Guernsey governing the preparation and dissemination of the Financial Statements may differ from legislation in other jurisdictions.

Responsibility Statement of the Directors in Respect of the Annual Report under the Disclosure and Transparency Rules

Each of the Directors, whose names are set out in the Board of Directors section above, confirms to the best of their knowledge and belief that:

· the Financial Statements, prepared in accordance with IFRS, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole;

· the Annual Report includes a fair review of the development and performance of the business and the position of the Company and its subsidiary, together with a description of the principal risks and uncertainties faced; and

· the Annual Report and Consolidated Financial Statements include information required by the UK Listing Authority and ensuring that the Company complies with the provisions of the Listing Rules, Disclosure and Transparency Rules of the UK Listing Authority, with regard to corporate governance, require the Company to disclose how it has applied the principles, and complied with the provisions of the corporate governance code applicable to the Company.

Responsibility Statement of the Directors in Respect of the Annual Report under the Corporate Governance Code

The Directors are responsible for preparing the Annual Report and Financial Statements in accordance with applicable law and regulations. Having taken advice from the Audit Committee, the Directors consider the Annual Report and Financial Statements, taken as a whole, as fair, balanced and understandable and that it provides the information necessary for shareholders to assess the Group's performance, business model and strategy.

By order of the Board

Corporate Governance Report

The Directors recognise the importance of sound corporate governance, particularly the requirements of the AIC Code.

The Company became a member of the AIC effective 27 February 2013. The Directors have considered the principles and recommendations of the AIC Code by reference to the AIC Guide.

The GFSC published the Guernsey Code in 2011. The introduction to the Guernsey Code states that "Companies which report against the UK Corporate Governance Code or the Association of Investment Companies Code of Corporate Governance are also deemed to meet this Code". Therefore, AIC members which are Guernsey-domiciled and which report against the AIC Code are not required to report separately against the Guernsey Code.

The AIC Code, as explained by the AIC Guide, provides a 'comply or explain' code of corporate governance and addresses all the principles set out in the UK Code as well as setting out additional principles and recommendations on issues that are of specific relevance to specialist debt companies such as the Company. The Board considers that reporting against the principles and recommendations of the AIC Code, and by reference to the AIC Guide (which incorporates the UK Code), provides better information to shareholders.

The AIC Code and the AIC Guide are available on the AIC's website, www.theaic.co.uk. The UK Code is available on the FRC's website, www.frc.org.uk.

Throughout the year ended 31 January 2016, the Company has complied with the recommendations of the AIC Code and the relevant provisions of Section 1 of the UK Code, except as set out below. 

The Company has not established a separate remuneration committee as the Company has no executive officers; there is no Chief Executive position and no Senior Independent Director. As an investment company the Company has no employees, all Directors are non-executive and independent of the Investment Manager and therefore the Directors consider the Company has no requirement for a Chief Executive or Senior Independent Director and the Board is satisfied that any relevant issues can be properly considered by the Board. The absence of an internal audit function is discussed in the Audit Committee report.

The Board monitors developments in corporate governance to ensure the Board remains aligned with best practice especially with respect to the increased focus on diversity. The Board acknowledges the importance of diversity, including gender, for the effective functioning of the Board and commits to supporting diversity in the boardroom. It is the Board's on-going aspiration to have a well-diversified representation. The Board also values diversity of business skills and experience because Directors with diverse skills sets, capabilities and experience gained from different geographical backgrounds enhance the Board by bringing a wide range of perspectives to the Company.

The Board

The Directors details are listed in the Board of Directors section above which set out their range of investment, financial and business skills and experience represented.

The Board meets at least four times a year and, in addition, there is regular contact between the Board, the Investment Manager and the Administrator. Further, the Board requires to be supplied in a timely manner with information by the Investment Manager, the Company Secretary and other advisers in a form and of a quality appropriate to enable it to discharge its duties.

The Directors have adopted the Model Code for Directors' share dealings contained in the Listing Rules. The Board is responsible for taking all proper and reasonable steps to ensure compliance with the Model Code.

The Chairman of the Board must be independent and is appointed in accordance with the Company's Articles of Incorporation. Jack Perry is considered to be independent because he:

• has no current or historical employment with the Investment Manager;

• has no current directorships in any other investment funds managed by the Investment Manager;

• is not an executive of a self-managed company or an ex-employee who has left the executive team of a self-managed company within the last five years.

Board Tenure and Re-election

All Directors were appointed in November 2012 therefore no member of the Board has served for longer than four years to date. As such no issue has arisen to be considered by the Board with respect to long tenure. In accordance with the AIC Code, when and if any Director shall have been in office (or on re-election would at the end of that term of office) for more than nine years the Company will consider further whether there is a risk that such a Director might reasonably be deemed to have lost independence through such long service.

A Director who retires at an Annual General Meeting may, if willing to continue to act, be elected or re-elected at that meeting. If, at a general meeting at which a Director retires, the Company neither re-elects that Director nor appoints another person to the Board in the place of that Director, the retiring Director shall, if willing to act, be deemed to have been re-appointed unless at such meeting it is expressly resolved not to fill the vacated office or a resolution for the re-appointment of the Director is put to the meeting and lost.

Directors do not have service contracts. Directors are appointed under letters of appointment, copies of which are available at the registered office of the Company. The Board considers its composition and succession planning on an on-going basis.

The Company's Articles of Incorporation specify that not greater than one third by number of the Directors will be subject to annual re-election at each subsequent Annual General Meeting of the Company and that each of the Directors should submit themselves for re-election at least every three years. Patrick Firth and Paul Meader will retire as Directors of the Company in accordance with the policy adopted by the Board and will be put forward for re-election. Mark Huntley is not a member of the Board's Management Engagement Committee and will stand for re-election annually.

Any Director who is elected or re-elected at that meeting is treated as continuing in office throughout. If he is not elected or re-elected, he shall retain office until the end of the meeting or (if earlier) when a resolution is passed to appoint someone in his place or when a resolution to elect or re-elect the Director is put to the meeting and lost.

Directors' Remuneration

The Chairman is entitled to annual remuneration of £40,000. The other Directors are entitled to annual remuneration of £27,500, with Patrick Firth receiving an additional annual fee of £5,000 for acting as chairman of the Audit Committee.

During the year ended 31 January 2016 and the year ended 31 January 2015, the Directors' remuneration was as follows:

All of the Directors are non-executive and are each considered independent for the purposes of Chapter 15 of the Listing Rules.

Duties and Responsibilities

The Board has overall responsibility for maximising the Company's success by directing and supervising the affairs of the business and meeting the appropriate interests of shareholders and relevant stakeholders, while enhancing the value of the Company and also ensuring the protection of investors. A summary of the Board's responsibilities is as follows:

• statutory obligations and public disclosure;

• strategic matters and financial reporting;

• risk assessment and management including reporting, compliance, governance, monitoring and control; and

• other matters having a material effect on the Company.

The Board is responsible to shareholders for the overall management of the Company. The Board has adopted a Schedule of Matters which sets out the particular duties of the Board. Such reserved powers include decisions relating to the determination of investment policy and approval of changes in strategy, capital structure, statutory obligations and public disclosure, and entering into any material contracts by the Company.

The Directors have access to the advice and services of the Administrator, who is responsible to the Board for ensuring that Board procedures are followed and that it complies with Companies Law and applicable rules and regulations of the GFSC and the London Stock Exchange. Where necessary, in carrying out their duties, the Directors may seek independent professional advice and services at the expense of the Company. The Company maintains appropriate Directors' and Officers' liability insurance in respect of legal action against its Directors on an on-going basis.

The Board's responsibilities for the Annual Report are set out in the Directors' Responsibility Statement. The Board is also responsible for issuing appropriate Interim Reports and other price-sensitive public reports.

One of the key criteria the Company uses when selecting non-executive Directors is their confirmation prior to their appointment that they will be able to allocate sufficient time to the Company to discharge their responsibilities in a timely and effective manner. The Board formally met four times during the year with attendance further set out below:

Committees of the Board

Audit Committee

The Audit Committee is chaired by Mr Firth and comprises Mr Perry, Mr Beevor and Mr Meader. The report of the role and activities of this Audit Committee and its relationship with the external auditor is contained in the Report of the Audit Committee. The Committee has terms of reference which are available on the Company's website.

Nomination Committee

The Nomination Committee is chaired by Mr Perry and comprises Mr Beevor, Mr Firth, Mr Huntley and Mr Meader. The Nomination Committee will meet not less than once a year pursuant to its terms of reference which are available on the Company's website.

Pursuant to its terms of reference, the Nomination Committee's remit is to review regularly the structure, size and composition of the Board; to give full consideration to succession planning for Directors; to keep under review the leadership needs of the Company and be responsible for identifying and nominating, for the approval of the Board, candidates to fill Board vacancies as and when they arise.

The Board believes that, as a whole, it comprises an appropriate balance of skills, experience and knowledge. The Board also believes that diversity of experience and approach, including gender diversity, amongst Board members is of great importance and it is the Company's policy to give careful consideration to issues of Board balance and diversity when making new appointments.

The Board is satisfied with the current composition and functioning of its members.

Management Engagement Committee

The Management Engagement Committee is chaired by Mr Perry and comprises Mr Beevor, Mr Firth and Mr Meader. The Management Engagement Committee will meet not less than once a year pursuant to its terms of reference which are available on the Company's website.

The Management Engagement Committee's main function is to review and make recommendations in relation to the Company's service providers. The Management Engagement Committee will review in particular any proposed amendment to the Investment Management Agreement and will keep under review the performance of the Investment Manager (including effective and active monitoring and supervision of the activities of the Investment Manager) in its role as Investment Manager to the Company as well as the performance of any other service providers to the Company. The Audit Committee also report on their relationship with the external auditor.

Board Performance Evaluation

In accordance with Principle 7 of the AIC Code, the Board is required to undertake a formal and rigorous evaluation of its performance on an annual basis.

During the year, the Board formally reviewed its performance for the year through an internal process. Internal evaluation of the Board, the Audit Committee, the Nomination Committee, the Management Engagement Committee and individual Directors took the form of self-appraisal questionnaires and discussion to determine effectiveness and performance as well as the Directors' continued independence. The evaluation concluded that the Board is performing satisfactorily and is acquitting its responsibilities well in the areas reviewed which incorporated: investment matters, Board composition and independence, relationships and communication, shareholder value, knowledge and skills, Board processes and the performance of the Chairman.

New Directors receive an induction on joining the Board and regularly meet with the senior management employed by the Investment Manager. The Board arranges for a presentation from the Investment Manager, the Company's brokers and other advisers on matters relevant to the Company's business. The Board assesses the training needs of Directors on an annual basis.

Internal Control and Financial Reporting

The Directors acknowledge that they are responsible for establishing and maintaining the Group and Company's system of internal control and reviewing its effectiveness. Internal control systems are designed to manage rather than eliminate the failure to achieve business objectives and can only provide reasonable but not absolute assurance against material misstatements or loss. The Directors can confirm they have carried out a robust assessment of the principal risks facing the Company, including those that would threaten its business model, future performance, solvency or liquidity. The key procedures which have been established to provide internal control are:

• the Board has delegated the day to day operations of the Group and Company to the Administrator and Investment Manager; however, it remains accountable for all functions it delegates;

• the Board clearly defines the duties and responsibilities of the Company's agents and advisers and appointments are made by the Board after due and careful consideration. The Board monitors the on-going performance of such agents and advisers and will continue to do so through the Management Engagement Committee;

• the Board monitors the actions of the Investment Manager at regular Board meetings and is also given frequent updates on developments arising from the operations and strategic direction of the underlying borrowers; and

• the Administrator provides administration and company secretarial services to the Company. The Administrator maintains a system of internal control on which it reports to the Board.

The Board has reviewed the need for an internal audit function and has decided that the systems and procedures employed by the Administrator and Investment Manager, including their own internal controls and procedures, provide sufficient assurance that an appropriate level of risk management and internal control, which safeguards shareholders' investment and the Group's assets, is maintained. An internal audit function specific to the Company is therefore considered unnecessary, as explained below.

The Administrator and Investment Manager both operate risk controlled frameworks on a continual ongoing basis within a regulated environment. The Administrator has undertaken an ISAE 3402: Assurance Reports on Controls at a Service Organisation audit and formally reports to the Board quarterly through a compliance report. The Investment Manager formally reports to the Board quarterly including updates within ICG-Longbow and also engages with the Board on an ad-hoc basis as required.

The Board have not identified any significant weaknesses on internal controls. The systems of control referred to above are designed to ensure effectiveness and efficient operation, internal control and compliance with laws and regulations. In establishing the systems of internal control, regard is paid to the materiality of relevant risks, the likelihood of costs being incurred and costs of control. It follows, therefore, that the systems of internal control can only provide reasonable but not absolute assurance against the risk of material misstatement or loss.

The Company has delegated the provision of all services to external service providers whose work is overseen by the Management Engagement Committee at its regular scheduled meetings. Each year a detailed review of performance pursuant to their terms of engagement is undertaken by the Management Engagement Committee. As disclosed in the Chairman's Statement an on-site review of the Investment Manager and an assessment of the Luxembourg Administrator were undertaken. The conclusions of these reviews were highly satisfactory providing assurance to the Board.  In addition, the Company maintains a website which contains comprehensive information, including regulatory announcements, share price information, financial reports, investment objectives and strategy, investor contacts and information on the Board.

Investment Management Agreement

The Company has entered into an agreement with the Investment Manager. This sets out the Investment Manager's key responsibilities, which include identifying and recommending suitable investments for the Company to enter into and negotiating on behalf of the Company the terms on which such investments will be made. The Investment Manager is also responsible to the Board for all issues relating to the maintenance and monitoring of existing investments.

In accordance with Listing Rule 15.6.2(2) R and having formally appraised the performance and resources of the Investment Manager, in the opinion of the Directors the continuing appointment of the Investment Manager on the terms agreed is in the interests of the shareholders as a whole.

Relations with Shareholders

The Board welcomes shareholders' views and places great importance on communication with its shareholders. The Company's Annual General Meeting provides a forum for shareholders to meet and discuss issues with the Directors of the Company. The Chairman and other Members of the Board have made, and will continue to make themselves available to meet shareholders at other times.

In December 2015 we announced the appointment of a new corporate broker, Cenkos Securities plc, in place of Investec Bank plc. Together with Cenkos we have begun a shareholder consultation process in anticipation of the continuation vote in 2017.

The Board receives comprehensive shareholder reports from the Company's Registrar at all quarterly Board meetings and regularly monitors the views of shareholders and the shareholder profile of the Company. Shareholders may also find Company information or contact the Company through its website.

Principal risks and uncertainties

Each Director is fully aware of the risks inherent in the Company's business and understands the importance of identifying, evaluating and monitoring these risks. The Board has adopted procedures and controls that enable it to carry out a robust assessment of the risks facing the Company, manage these risks within acceptable limits and to meet all of its legal and regulatory obligations.

The Board thoroughly considers the process for identifying, evaluating and managing any significant risks faced by the Company on an on-going basis and these risks are reported and discussed at Board meetings. It ensures that effective controls are in place to mitigate these risks and that a satisfactory compliance regime exists to ensure all applicable local and international laws and regulations are upheld.

The Company's financial instrument risks are discussed in Note 11 to the Financial Statements.

The Company's principal risk factors are fully discussed in the Company's Prospectus, available on the Company's website (www.lbow.co.uk) and should be reviewed by shareholders.

The Directors have identified the following as the key risks faced by the Company:

Risks relating to the loan portfolio performance and recovery:

· Real estate loan non-performance - Real estate loans made by the Company may, after funding, become non-performing for a wide variety of reasons, including non-payment of principal or interest, as well as covenant violations by the borrower in respect of the underlying loan documents.

· Property valuations - Valuations of property and property-related assets are inherently subjective due to the individual nature of each property. As a result, valuations are subject to uncertainty and, in determining market value, valuers are required to make certain assumptions and such assumptions may prove to be inaccurate. This is particularly so in periods of volatility or when there is limited real estate transactional data against which property valuation can be benchmarked.

· Inability to roll-over loans - Following early repayment of a facility, in whole or in part, the Company may not be able to reinvest the surplus cash at an interest rate which are accretive to investor returns.

· Early repayment of loans - Loan principals may be paid earlier than anticipated. All of the original loans made by the company included income protection provisions for an original period of circa four years of the term of the loan. Upon expiry of the income protection period, early repayment of the loan may be attractive to the borrower which increases the possibility that borrowers may seek to repay loans before the end of the full term.

In the event of a repayment, the Company would endeavour to redeploy the capital received. However, if capital could not be redeployed under the Company's existing investment policy and investment restrictions in a manner which would, in the Directors' opinion, be beneficial to shareholders, then the Directors would consider a return of capital to shareholders in the most efficient manner possible.

Risks relating to Group structure:

· Change in tax legislation - A change in tax legislation applicable to the Group or Company, resulting in increased tax liabilities for the Group or Company and a consequential reduction in yield or capital to investors.

· Change in fund legislation - A change in legislation in Guernsey or the United Kingdom applicable to the Group or Company, resulting in an adverse impact on the Group or Company's viability.

The above risks are mitigated and managed by the Board through continual review, policy setting and updating of the Company's risk matrix at each Audit Committee Meeting to ensure that procedures are in place with the intention of minimising the impact of the above mentioned risks. The Board relies on periodic reports provided by the Investment Manager and Administrator regarding risks that the Group faces. When required, experts will be employed to gather information, including tax advisers, legal advisers, and environmental advisers.

By order of the Board

Report of the Audit Committee

The Audit Committee, chaired by Mr Firth, operates within clearly defined terms of reference (which are available from the Company's website) and includes all matters indicated by Disclosure and Transparency Rule 7.1 and the AIC Code. Its other members are Mr Perry, Mr Beevor and Mr Meader. Only independent Directors can serve on the Audit Committee. Members of the Audit Committee must be independent of the Company's external auditor and Investment Manager. Appointments to the Audit Committee shall be for a period of up to three years, extendable for one, or more, further three-year periods. The Audit Committee will meet no less than twice a year, and at such other times as the Audit Committee Chairman shall require.

The Board has taken note of the requirement that at least one member of the Audit Committee should have recent and relevant financial experience and is satisfied that the Audit Committee is properly constituted in that respect, with all members being highly experienced and, in particular, two members having backgrounds as chartered accountants.

The duties of the Audit Committee in discharging its responsibilities include reviewing the Annual Report and Consolidated Financial Statements and the Interim Report, the system of internal controls, and the terms of appointment of the Company's independent auditor together with their remuneration. It is also the formal forum through which the auditor will report to the Board of Directors. The objectivity of the auditor is reviewed by the Audit Committee which will also review the terms under which the external auditor is appointed to perform non-audit services and the fees paid to them or their affiliated firms overseas.

Responsibilities

The main duties of the Audit Committee are:

• reviewing and monitoring the integrity of the Financial Statements of the Group and any formal announcements relating to the Group's financial performance, reviewing significant financial reporting judgements contained in them;

• reporting to the Board on the appropriateness of our accounting policies and practices including critical judgement areas;

• reviewing the draft impairment reviews of the Group's investments prepared by the Investment Manager, and making a recommendation to the Board on any impairment in the value of the Group's investments;

• meeting regularly with the external auditor to review their proposed audit plan and the subsequent audit report and assess the effectiveness of the audit process and the levels of fees paid in respect of both audit and non-audit work;

• making recommendations to the Board in relation to the appointment, re-appointment or removal of the external auditor and approving their remuneration and the terms of their engagement;

• monitoring and reviewing annually the auditor's independence, objectivity, expertise, resources, qualification and non-audit work;

• considering annually whether there is a need for the Company and its Group to have its own internal audit function;

• monitoring the internal financial control and risk management systems on which the Company and its Group is reliant;

• reviewing and considering the UK Code, the AIC Code, the FRC Guidance on Audit Committees; and

• reviewing the risks facing the Group and monitoring the risk matrix.

The Audit Committee is required to report formally its findings to the Board, identifying any matters on which it considers that action or improvement is needed, and make recommendations on the steps to be taken.

The external auditor is invited to attend the Audit Committee meetings as the Directors deem appropriate and at which they have the opportunity to meet with the Audit Committee without representatives of the Investment Manager or the Administrator being present at least once per year.

Financial Reporting

The primary role of the Audit Committee in relation to the financial reporting is to review with the Administrator, Investment Manager and the auditor the appropriateness of the Interim Report and Annual Report and Consolidated Financial Statements, concentrating on, amongst other matters:

• the quality and acceptability of accounting policies and practices;

• the clarity of the disclosures and compliance with financial reporting standards and relevant financial and governance reporting requirements;

• material areas in which significant judgements have been applied or there has been discussion with the external auditor;

• whether the Annual Report and Consolidated Financial Statements, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Group's performance, business model and strategy; and

• any correspondence from regulators in relation to the Group's financial reporting.

To aid its review, the Audit Committee considers reports from the Administrator and Investment Manager and also reports from the auditor on the outcome of their annual audit. The Audit Committee aids Deloitte LLP in displaying the necessary professional scepticism their role requires.

Meetings

During the year ended 31 January 2016, the Audit Committee has met formally on three occasions and met on one further occasion since the year end through to the date of this Annual Report. The matters discussed at those meetings include:

• review of the terms of reference of the Audit Committee for approval by the Board;

• review of the accounting policies and format of the Financial Statements;

• detailed review of the Annual Report and Financial Statements, Interim Report and recommendation for approval by the Board;

• review of the Group's risk matrix;

• review and approval of the audit plan and final Audit Committee report of the auditor;

• discussion and approval of the fee for the external audit;

• assessment of the independence of the external auditor;

• assessment of the effectiveness of the external audit process as described below; and

• review of the Group's key risks and internal controls.

Primary Area of Judgement

The Audit Committee determined that the key risk of misstatement of the Group's Financial Statements relates to the recoverability of the loans, in the context of the judgements necessary to evaluate any related impairment of the loans.

The Group's loans are the key value driver for the Group's NAV and interest income. Judgements over the level of any impairment and recoverability of loan interest could significantly affect the NAV.

The Board reviews the compliance of all loans with terms and covenants at each Board meeting. The Board also receives updates from the Investment Manager regarding the trading performance for each borrower, the borrower's performance under the loans and on the general UK property market. As a result, the Board is able to determine the level, if any, of any impairment to the loans. In addition, during the year a sub group of the Board conducted an on-site review of the Investment Managers' processes and controls for monitoring investment performance and borrower compliance. The results of that review were deemed to be satisfactory.

The incorrect treatment of any arrangement, exit and prepayment fees and the impact of loan impairments in the effective interest rate calculations may significantly affect the level of income recorded in the year thus affecting the level of distributable income.

The Audit Committee reviewed detailed impairment analysis and current loan performance reports prepared by the Investment Manager. These were discussed with the Investment Manager at length. The Audit Committee believes that whilst there is an on-going risk that the capital invested may not be recoverable or there may be delays in recovering the capital, it is satisfied with the security held and has concluded that none of the loans were impaired at the reporting date or the subsequent period to the date of this Annual Report.

The Audit Committee also reviewed the income recognition and the treatment of arrangement and exit fees which were based on effective interest rate calculations prepared by the Investment Manager and the Administrator. The main assumptions of the calculations were that none of the loans were impaired and that each loan would be repaid at the end of the agreed loan term. These were discussed at the Audit Committee meeting to review the Annual Report, with the Investment Manager, the Administrator and Auditor. The Audit Committee is satisfied that the Group interest income has been recognised in line with the requirements of IFRS and as none of the loans were impaired the income recognised has not been adjusted.

The Audit Committee has reviewed the judgements and estimations in determining the fair value of prepayment options embedded within the contracts for loans advanced. The key factors considered in the valuation of prepayment options include the exercise price, the interest rate of the host loan contract, differential to current market interest rates, the risk free rate of interest, contractual terms of the prepayment option, and the expected term of the option. In response to these factors it has been evaluated that the probability of exercise by the borrower is low and the timing of exercise is indeterminable. As a result, the Audit Committee has concluded that it is appropriate no value is attributed to embedded prepayment options.

Notwithstanding the above, the prepayment received in respect of the Mansion loan was, under the terms of the loan contract and as a result of disposal of the security held, a mandatory prepayment. Until such time that the borrower has exchanged contracts to dispose of underlying security, these circumstances are not assumed within the fair value of the voluntary prepayment option. As a result, it has been concluded that the Mansion prepayment is a non-adjusting event and prepayment fee income recognised in accordance with the stated accounting policy in note 2 f).

Risk Management

The Company's risk assessment process and the way in which significant business risks are managed is a key area of focus for the Audit Committee. The work of the Audit Committee is driven primarily by the Group's assessment of its principal risks and uncertainties as set out in the Corporate Governance Report, and it receives reports from the Investment Manager and Administrator on the Group's risk evaluation process and reviews changes to significant risks identified.

Internal audit

The Audit Committee continues to review the need for an internal audit function and has decided that the systems and procedures employed by the Administrator and the Investment Manager, including their own internal controls and procedures, provide sufficient assurance that an appropriate level of risk management and internal control, which safeguards shareholders' investment and the Group's assets, is maintained. An internal audit function specific to the Company is therefore considered unnecessary.

External Audit

Deloitte LLP has been the Company's external auditor since the Company's inception. This is the third audit period.

The auditor is required to rotate the audit partner every five years. The current partner is in her second year of tenure. There are no contractual obligations restricting the choice of external auditor and the Company will put the audit services contract out to tender at least every ten years. In line with the FRC's recommendations on audit tendering, this will be considered further when the audit partner rotates after a five year tenure. Under the Companies Law the reappointment of the external auditor is subject to shareholder approval at the Annual General Meeting.

The objectivity of the auditor is reviewed by the Audit Committee which also reviews the terms under which the external auditor may be appointed to perform non-audit services. The Audit Committee reviews the scope and results of the audit, its cost effectiveness and the independence and objectivity of the auditor, with particular regard to any non-audit work that the auditor may undertake. In order to safeguard auditor independence and objectivity, the Audit Committee ensures that any other advisory and/or consulting services provided by the external auditor do not conflict with its statutory audit responsibilities. Advisory and/or consulting services will generally only cover reviews of Interim Reports, tax compliance and capital raising work. Any non-audit services conducted by the auditor outside of these areas will require the consent of the Audit Committee before being initiated.

The external auditor may not undertake any work for the Group in respect of the following matters - preparation of the Financial Statements, provision of investment advice, taking management decisions or advocacy work in adversarial situations.

The Committee reviews the scope and results of the audit, its cost effectiveness and the independence and objectivity of the auditor, with particular regard to the level of non-audit fees. Notwithstanding such services, the Audit Committee considers Deloitte LLP to be independent of the Company and that the provision of such non-audit services is not a threat to the objectivity and independence of the conduct of the audit as appropriate safeguards are in place.

To fulfil its responsibility regarding the independence of the auditor, the Audit Committee will consider:

• discussions with or reports from the auditor describing its arrangements to identify, report and manage any conflicts of interest; and

• the extent of non-audit services provided by the auditor and arrangements for ensuring the independence and objectivity and robustness and perceptiveness of the auditor and their handling of key accounting and audit judgements.

To assess the effectiveness of the auditor, the Audit Committee will review:

• the auditor's fulfilment of the agreed audit plan and variations from it;

• discussions or reports highlighting the major issues that arose during the course of the audit;

• feedback from other service providers evaluating the performance of the audit team;

• arrangements for ensuring independence and objectivity; and

• the robustness of the auditor in handling key accounting and audit judgements.

The Audit Committee is satisfied with Deloitte LLP's effectiveness and independence as auditor having considered the degree of diligence and professional scepticism demonstrated by them. Having carried out the review described above and having satisfied itself that the auditor remains independent and effective, the Audit Committee has recommended to the Board that Deloitte LLP be reappointed as auditor for the year ending 31 January 2017.

The Audit Committee has provided the Board with its recommendation to the shareholders on the re-appointment of Deloitte LLP as external auditor will be put to shareholders at the Annual General Meeting.

The Chairman of the Audit Committee will be available at the Annual General Meeting to answer any questions about the work of the Committee.

On behalf of the Audit Committee

Patrick Firth

Chairman of the Audit Committee

26 April 2016

Independent Auditor's Report

to the Members of ICG-Longbow Senior Secured UK Property Debt Investments Limited

Nicola Sarah Paul FCA

for and on behalf of Deloitte LLP

Chartered Accountants and Recognised Auditors

Guernsey, Channel Islands

26 April 2016

Consolidated Statement of Comprehensive Income

For the year ended 31 January 2016

All items within the above statement have been derived from continuing activities.

Consolidated Statement of Financial Position

The Financial Statements were approved by the Board of Directors on 26 April 2016 and signed on their behalf by:

Consolidated Statement of Changes in Equity

For the year ended 31 January 2016

Consolidated Statement of Cash Flows

For the year ended 31 January 2016

The accompanying notes form an integral part of these Consolidated Financial Statements.

Notes to the Consolidated Financial Statements

For the year ended 31 January 2016

1. General information

ICG-Longbow Senior Secured UK Property Debt Investments Limited is a non-cellular company limited by shares and was incorporated in Guernsey under the Companies Law on 29 November 2012 with registered number 55917 as a closed-ended investment company. The registered office and principal place of business of the Company is Heritage Hall, PO Box 225, Le Marchant Street, St Peter Port, Guernsey, GY1 4HY, Channel Islands.

The Company's shares were admitted to trading on the Main Market of the London Stock Exchange on 5 February 2013.

The Consolidated Financial Statements comprise the Financial Statements of the Group as at 31 January 2016.