CICERO CONSULTING LIMITED

1. Risk Rating: MEDIUM

Justification: The company exhibits significant financial deterioration in the 2019 reporting period, characterized by a swing from positive net current assets to a working capital deficit of £367,640 and a substantial operating loss of £554,414. However, the acquisition of a controlling stake by Havas UK Limited in February 2020 fundamentally alters the risk profile. The explicit confirmation of parent company support mitigates what would otherwise be a high solvency risk, although the structural reliance on this support for liquidity remains a concern.

2. Key Concerns:

• Working Capital Deficit: The most immediate financial red flag is the shift from net current assets of £389,393 in 2018 to net current liabilities of £367,640 in 2019. With cash at only £144,559 against current liabilities of £1.88M, the company is technically illiquid on a standalone basis and relies heavily on trade receivables collection and parent company support to meet short-term obligations.
• Profitability Collapse and Exceptional Items: Despite a healthy 29% increase in revenue (from £5.03M to £6.51M), the company moved from an operating loss of £128,397 to a much larger loss of £554,414. This was driven by a significant increase in administrative expenses and exceptional items totaling £540,019. The nature of these exceptional items requires scrutiny, though they appear linked to the acquisition/restructuring.
• Data Staleness and Covid-19 Impact: The latest detailed financial accounts are for the year ending December 2019. The directors' report acknowledges an expected 10-15% reduction in revenues due to Covid-19. Given the already thin liquidity position at year-end 2019, the impact of the pandemic on cash flow in 2020/2021 is a critical unknown that could stress the Havas support facility.

3. Positive Indicators:

• Strong Parent Backing: The acquisition by Havas UK Limited (a subsidiary of the French multinational Havas Group) provides significant financial and operational shelter. The directors' report explicitly states the company "remains solvent and has the support of Havas SA," which underpins the going concern status.
• Revenue Growth: Top-line performance was strong in 2019, with revenue growing by nearly £1.5M. This suggests the underlying business model and market positioning (noted as the "largest Public Affairs agency in the UK" by PR Week) remain viable.
• Regulatory Compliance: The company has a clean audit opinion from Constantin, with no qualifications regarding going concern (contingent on parent support) or accounting records. Filing compliance appears current with no overdue flags.

4. Due Diligence Notes:

• Nature of Investments: The balance sheet shows a dramatic increase in "Investments" from £100 to £762,139. It is essential to determine if this represents intercompany loans to subsidiaries (Cicero Online Limited, Yatterbox Limited) or equity investments, and whether these are recoverable.
• PSC Discrepancy: The PSC register indicates Havas UK Limited owns more than 75% of the company, whereas the directors' report states a 60% stake was acquired in February 2020. Further clarification on the exact dilution/ownership structure is required.
• Exceptional Items: The £540,019 exceptional item should be investigated to understand if it represents non-recurring acquisition costs (which would be acceptable) or operational write-offs.
• Recent Financial Performance: Given the age of the data (2019), obtaining management accounts for 2020, 2021, and 2022 is imperative to assess the actual impact of Covid-19 and the integration success under the "Cicero/AMO" rebrand.