Risk Assessment: CWG Choices Limited

1. Risk Rating: MEDIUM

Justification: While the company remains solvent with £5.9M net assets and has demonstrated improving operational performance, two consecutive years of trading losses and a near-halving of equity since 2021 represent a material erosion of the balance sheet. The positive trajectory in margins and cash generation mitigates what would otherwise be a higher risk rating, but the cumulative impact of sustained losses warrants careful monitoring.

2. Key Concerns

Concern 1: Significant Equity Erosion

Net assets have declined from £11.9M (2021) to £5.9M (2024) — a reduction of approximately 50% over three years. The retained profit reserve has fallen from £11.9M to £5.9M, with cumulative losses of approximately £635K over 2023-2024 alone. While the company retains a substantial buffer, the rate of erosion is notable and unsustainable if losses persist.

Concern 2: Consecutive Trading Losses

The company recorded operating losses of £486K (2023) and £255K (2024), with corresponding pre-tax losses of £461K and £225K. Although the trend is improving, the business has not returned to profitability. The strategic report explicitly acknowledges ongoing headwinds from inflation, interest rates, and weak consumer confidence in their end market.

Concern 3: Related Party and Group Structure Dynamics

Inwido UK Limited holds over 75% of shares, voting rights, and the right to appoint/remove directors. This level of control by a parent entity introduces risks around transfer pricing, intercompany balances, cash extraction, and strategic decisions that may prioritise group interests over the individual entity. The resignation of director CJ Powell (May 2026) shortly after signing the accounts may indicate governance changes driven by the parent.

3. Positive Indicators

• Improving Gross Margins: Gross profit margin increased from 31.55% to 34.39%, suggesting better cost management or pricing power despite inflationary pressures on raw materials.

• Positive Cash Generation: Operating cash flow of £952K and a net cash inflow of £638K for the year, with the cash position strengthening from £836K to £1.47M. This indicates the business is cash-generative even while reporting accounting losses.

• Clean Audit Opinion: Shaw Gibbs (Audit) Limited issued an unqualified opinion with no material uncertainty regarding going concern. The auditors confirmed the financial statements give a true and fair view.

• Revenue Growth: Turnover increased 5% to £19.5M, demonstrating some market resilience and success in winning new business to offset declining demand from existing customers.

• Continued Capital Investment: £335K in capex during the year suggests commitment to maintaining operational capability and long-term business viability.

• Comfortable Liquidity: Net current assets of £2.5M and a current ratio of approximately 2:1 provide a reasonable short-term buffer.

4. Due Diligence Notes

1. Intercompany Position: Investigate the nature and terms of any intercompany balances with Inwido UK Limited and the wider group. The accounts should disclose related party transactions; these should be examined for transfer pricing concerns or cash extraction risks.

2. 2022 Exceptional Items: The financial history shows a dramatic drop in net assets from £11.9M (2021) to £6.5M (2022) — a reduction of approximately £5.4M. The 2022 accounts are not provided in full text, but this appears disproportionate to operating performance alone. Determine whether this reflects dividends paid to the parent, asset write-downs, or other exceptional items.

3. Debtor Movements: Trade debtors decreased from £3.1M (2023) to £2.1M (2024). While this may indicate improved collection, it should be verified whether this reflects provisions, write-offs, or changes in trading terms.

4. Director Resignation: CJ Powell resigned on 22 May 2026, shortly after signing the 2024 accounts on 30 September 2025. Understand the circumstances and whether this signals broader management changes driven by the parent company.

5. Market Outlook Verification: The strategic report describes a challenging outlook. Cross-reference with sector data for UK window/door manufacturers to assess whether CWG's performance is in line with or diverging from industry norms.

6. Tax Credit Recognition: A tax credit of £51K was recognised on the 2024 loss. Verify the basis for this recognition and whether it is dependent on future profitability within the group structure.