Credit Analysis: BLANCOMET SCOT LTD

1. Credit Opinion: CONDITIONAL

Rationale: Blancomet Scot Ltd demonstrates a solid trading history of 14+ years with consistently growing net assets and profitability. However, the dramatic deterioration in cash reserves—from £606k (2022) to just £46k (2025)—alongside a 64% surge in current liabilities and heavy concentration of current assets in stock and debtors (98.5% of current assets), raises material liquidity and working capital quality concerns. The commodity-sensitive nature of the business (precious metals, catalytic converters) and complex group ownership structure warrant additional conditions on any facility. Approval is recommended only with strengthened covenants and monitoring.

2. Financial Strength

Balance Sheet Overview (YE 31 Dec 2025):

Positive indicators: - Net assets have grown every year for a decade, from £686k (2016) to £2.15M (2025)—demonstrating sustained profit retention and balance sheet strengthening - Gearing appears conservative: long-term creditors of only £52,911 against £2.15M net assets - Freehold property of £660k provides tangible asset backing - Share capital stable at £10k; growth driven entirely by retained earnings

Concerning indicators: - Current liabilities surged from £1,050,693 to £1,727,302 (+64.3%)—this requires explanation. If primarily trade creditors, this may reflect extended payment terms; if short-term borrowings, it signals funding stress - Revaluation reserve of (£52,438) suggests a historic downward valuation adjustment on assets - PSC structure shows three entities/individuals each holding >75%—this overlapping control structure is atypical and may indicate complex group arrangements or intercompany exposures not visible on the standalone balance sheet

Asset Composition Quality:

The concentration in stock (41.4%) and debtors (33.9%) means 75.2% of total assets are working capital items vulnerable to commodity price movements and collection risk. Cash at just 1.2% of total assets provides negligible buffer.

3. Cash Flow Assessment

Liquidity Position:

Critical finding: The current ratio of 1.76x appears adequate on the surface, but the quick ratio of 0.81x (below 1.0x) indicates the company cannot cover current liabilities without liquidating stock. For a precious metals and catalytic converter wholesaler, stock realisation depends heavily on volatile commodity prices.

Cash Trajectory – Significant Deterioration:

Cash has declined by 92.4% over three years. This is the most pressing credit concern. While some cash consumption is expected in a growing trading business (increased stock, expanded operations, 42 employees vs 38 prior year), the rate of depletion is alarming.

Working Capital Dynamics:

• Stock increased 34.2% (£1.23M → £1.65M): May reflect commodity price inflation or strategic stockpiling, but also increases risk of impairment if metal prices correct
• Debtors increased 47.0% (£919k → £1.35M): Significantly ahead of asset growth—suggests potential collection issues or extended credit terms to customers
• Trade creditors (assumed majority of current liabilities increase): If the £676k liability increase is trade creditors, this indicates the company is stretching supplier terms to fund operations

Cash Flow Implied Analysis: Using the balance sheet movements, retained earnings increased by £56,549 (£2,136,045 → £2,192,594), yet cash fell by £67,853. This suggests operating cash flows are significantly lower than accounting profits, with working capital absorbing substantial cash.

4. Monitoring Points

Immediate Priorities:

1. Cash Position: Cash at £46k is critically low for a business of this scale. Monitor monthly cash flow statements and require 30-day rolling cash flow forecasts if facility is granted

2. Current Liabilities Composition: Obtain breakdown of the £1.73M current liabilities—specifically the split between trade creditors, corporation tax, social security, and any short-term borrowings or related party balances

3. Debtors Aging: Request full aged debtor analysis. The 47% increase in debtors warrants scrutiny for collectability and concentration risk

4. Stock Composition and Realisability: Given commodity price sensitivity, obtain details of stock categories (catalytic converters, e-waste, precious metals, batteries) and any hedging arrangements. Understand NRV (net realisable value) assumptions

5. Group Structure and Intercompany Exposures: The PSC register shows Blancomet Scot Holdco Limited and M Holding both with >75% ownership alongside Mr Tamulaitis personally. Obtain group structure chart and quantify any intercompany receivables/payables

Ongoing Covenants (if facility approved):

6. Minimum Cash: Require minimum cash balance of £75k at all times
7. Current Ratio: Minimum 1.5x (currently 1.76x)
8. Quick Ratio: Monitor quarterly; target ≥0.9x within 6 months
9. Debtors Days: Cap debtor days at 60 days; currently estimated at approximately 45-50 days based on available data
10. Commodity Price Monitoring: Require notification if precious metal indices decline >15% from facility date levels

Annual Review Requirements:

11. Audited or Accountant-Reviewed Accounts: Current filings are unaudited small company accounts with profit and loss account filleted under s444(1). Require full P&L disclosure going forward
12. Management Accounts: Quarterly submission required for ongoing monitoring
13. Related Party Transactions: Annual disclosure of all intercompany balances and transactions within the group

Additional Risk Factors

• Foreign Currency Exposure: The accounts reference GBP, EUR, and USD currencies, indicating international trading activity. Unhedged FX exposure could materially impact margins
• Commodity Price Volatility: The core business (wholesale of waste and scrap, specifically catalytic converters and precious metals) is directly exposed to palladium, platinum, and rhodium prices, which have exhibited extreme volatility
• Regulatory Risk: E-waste and battery disposal are subject to environmental regulation; compliance failures could result in fines or operational restrictions
• Director Nationality: Multiple Lithuanian-national directors; ensure all statutory and beneficial ownership is properly documented and PSC register remains current