Commercial Credit Assessment: THE CAKE CREW LIMITED

1. Credit Opinion: CONDITIONAL

The Cake Crew Limited presents a conflicted credit profile. While operational performance is demonstrably improving — EBITDA grew 108% to £1.34m and turnover increased 2% — the balance sheet is fundamentally impaired with net assets of -£3.02m and shareholders' funds of -£3.08m, deteriorating significantly from just -£147k three years ago. The company is technically insolvent and reliant on shareholder loans of approximately £4.4m (treated as quasi-equity) to remain a going concern. Any credit facility must be conditional upon continued shareholder support documentation, appropriate subordination agreements, and monitoring of the new invoice discounting/loan arrangements noted as post year-end events. Unsecured lending without covenants protecting creditor position would be inappropriate.

2. Financial Strength

Balance Sheet Position: Severely Weak

The trajectory of net assets is deeply concerning — a twenty-fold deterioration from -£147k to over -£3m across three years. This reflects accumulated losses eroding the equity base progressively. The share capital of just £148 is nominal, and the P&L reserve is heavily negative.

Mitigating Factor — Shareholder Loans: The directors note that shareholder loans total approximately £4.4m including rolled-up interest, which more than offsets the balance sheet deficit. If treated as quasi-equity, the adjusted net asset position would be approximately +£1.4m. However, these remain creditor obligations in law unless formally subordinated. Without a deed of subordination, these loans rank alongside other unsecured creditors and could be called upon, creating immediate insolvency risk.

Liability Composition: The reduction in total liabilities from £9.52m to £8.59m is a modest positive, but the overall debt burden remains substantial relative to the asset base. The asset base has remained relatively stable around £9m, suggesting limited capital investment or asset growth — concerning for a manufacturing business that should be investing in capability.

Gearing/Insolvency: The company is balance-sheet insolvent. Traditional gearing metrics are meaningless when equity is negative. The relevant measure is the extent of shareholder support relative to the deficit — currently adequate, but entirely discretionary.

3. Cash Flow Assessment

Liquidity Position: Extremely Tight

Cash balances are perilously thin for a business of this scale — under £68k on a £9.4m asset base represents less than 1% of total assets. While the 2025 cash position improved significantly from the 2024 nadir of under £14k, this level provides virtually no buffer for operational volatility.

Working Capital Concerns: - The cash position suggests the business is trading at the edge of its working capital capacity - No dividend payments are being made (appropriate given the position) - Shareholders are not requiring debt service on their loans — this interest deferral is critical to cash survival - The post year-end introduction of new invoice discounting and longer-term loan facilities is essential for ongoing operations and growth

EBITDA Performance: The reported EBITDA of £1.34m (108% growth year-on-year) is the primary positive indicator. This suggests the underlying business is generating cash from operations. However, EBITDA must be considered against: - Finance costs on the substantial debt burden - Capital expenditure requirements for a food manufacturing business - Working capital fluctuations driven by seasonal supermarket demand patterns - Commodity price volatility (particularly cocoa, noted as a continuing pressure)

Cash Conversion: The gap between reported EBITDA improvement and the still-minimal cash position raises questions about cash conversion efficiency. It is possible that working capital absorption, debt service, or capital expenditure are consuming the majority of EBITDA before it reaches the balance sheet.

Funding Structure: The new invoice discounting facility provides working capital headroom, but introduces a prior charge on receivables — reducing the asset pool available to unsecured creditors. This should be reflected in any security assessment.

4. Monitoring Points

Additional Risk Factors: - Customer dependency: Supply to major supermarkets provides volume but creates significant concentration risk and margin pressure from powerful buyers - Commodity exposure: Cocoa prices have been exceptionally volatile; contracting strategy provides some mitigation but not complete protection - Labour cost inflation: National Living Wage increases and employer NIC changes will compress margins unless recovered through pricing - Quality/food safety: BRC A rating is a strength but any downgrade would threaten major customer relationships immediately - Controlling shareholder:* Schocroft Cove Limited holds >75% of shares and voting rights — decisions are concentrated, and any change in their strategic intent would be decisive