COBRA COFFEE LIMITED
Company number 08549511 · Monitor this company
This analysis was written by an AI from the company's public filings. It may contain errors or omissions and is not financial or professional advice.
Credit Assessment: COBRA COFFEE LIMITED
1. Credit Opinion: CONDITIONAL
Reasoning: The company presents a concerning financial profile characterised by significant net current liabilities, declining equity, and high leverage. While the business is actively trading and expanding (employee count grew from 140 to 194), the 2017 accounts reveal a material deterioration in the balance sheet. Net assets fell by 56% from £291,532 to £127,732, indicating substantial trading losses during the period. The net current liability position of over £1m creates immediate liquidity risk, and the cross-guarantee with Cobra Restaurants Ltd introduces contagion risk from associated entities. Any credit facility would require robust security, strict covenants, and close monitoring.
2. Financial Strength
Balance Sheet Position – Weakening
| Metric | 2017 | 2016 | Trend |
|---|---|---|---|
| Net Assets | £127,732 | £291,532 | ▼ 56% |
| Shareholders' Funds | £127,732 | £291,532 | ▼ 56% |
| Net Current Assets/(Liabilities) | (£1,002,150) | (£757,943) | ▼ Deteriorating |
| Share Capital | £100 | £100 | → Static |
Key Observations:
- Thin equity base: Net assets of £127,732 against total assets of £3.9m gives a very low equity ratio of approximately 3.2%. The balance sheet is overwhelmingly debt-financed.
- Accumulated losses: Retained earnings fell by £163,800 (from £291,432 to £127,632), confirming significant trading losses in FY2017.
- Historical volatility: Net assets have swung from -£24,600 (2014) to £291,532 (2016) and back down to £127,732 (2017), suggesting inconsistent profitability.
- Intangible assets: £294,356 in franchise rights (amortised over 10 years) represents a significant portion of the asset base. These may have limited realisable value in a distressed scenario.
Total Secured Debt: £2,310,693 (HSBC) – representing bank loans across current and long-term creditors, all secured by fixed and floating charge plus cross-company guarantee.
3. Cash Flow Assessment
Liquidity Position – Strained
| Metric | 2017 | 2016 | Movement |
|---|---|---|---|
| Cash | £299,948 | £535,788 | ▼ £235,840 |
| Current Assets | £963,676 | £1,134,690 | ▼ £170,014 |
| Current Liabilities | £1,965,826 | £1,892,633 | ▲ £73,193 |
| Current Ratio | 0.49 | 0.60 | ▼ Deteriorating |
Working Capital Analysis:
- Net current liabilities of £1,002,150 mean the company cannot cover short-term obligations from current assets. This is a significant red flag for ongoing trading viability.
- Cash depletion: Cash fell by 44% year-on-year, suggesting negative operating cash flow despite revenue growth (inferred from employee expansion).
- Trade creditors of £808,922 (up from £657,428) may indicate the company is stretching supplier payments to manage cash flow – a potential warning sign.
- Bank overdraft/utilisation of £611,392 (current portion) shows heavy reliance on revolving facilities.
Debtors Note: Other debtors of £612,479 require investigation. If these are inter-company balances with Cobra Restaurants Ltd, recoverability may be uncertain given the cross-guarantee arrangement.
Debt Service Capacity: With retained earnings declining by £163,800, the company appears unable to service existing debt from operations without further borrowing. The addition of £631,922 in new restaurant acquisitions during FY2017, funded by increased bank debt, raises questions about expansion discipline.
4. Monitoring Points
Immediate Concerns
- Net current liability position: Must be addressed – either through equity injection, asset disposal, or restructuring of long-term debt to current proportions.
- Cross-guarantee exposure: The unlimited multilateral guarantee with Cobra Restaurants Ltd means this company is jointly liable for that entity's debts. Full financials of Cobra Restaurants Ltd must be obtained to assess group-level risk.
- Cash burn rate: At the current rate of cash depletion, the company may face a liquidity crisis within 12-18 months without intervention.
Ongoing Covenant Suggestions
| Metric | Suggested Threshold |
|---|---|
| Net Current Assets | Minimum £0 (target positive) |
| Debt-to-Equity Ratio | Not to exceed 15:1 (currently ~18:1) |
| Cash Position | Minimum £200,000 |
| Debt Service Coverage | Minimum 1.25x |
| Annual Capex | Prior approval for >£100,000 |
Key Metrics to Watch
- Monthly management accounts showing trading profitability
- Cash flow statements to verify operating cash generation
- Trade creditor days (current stretch suggests possible distress)
- Inter-company balances and transactions with Cobra Restaurants Ltd
- Performance of new restaurant openings (FY2017 saw significant expansion)
- HSBC facility utilisation and compliance certificates
Sector Risk Factors
- Food & beverage sector vulnerability: Low margins, high fixed costs, labour-intensive
- Consumer discretionary exposure: Economic downturns directly impact footfall
- Rising input costs: Coffee commodity prices, minimum wage increases, energy costs
- Lease commitments: Significant leasehold obligations (not quantified in filed accounts but implied by leasehold improvements)