CREDIT ANALYSIS REPORT

TRACE ONE LIMITED (03429380)

1. CREDIT OPINION: CONDITIONAL

Reasoning: The company presents a fundamentally sound balance sheet with strong net assets and a substantial cash position, operating within an established software group structure. However, several factors warrant a conditional rather than outright approval:

• Limited financial disclosure under the small companies regime restricts visibility into turnover, profitability, and debt service coverage ratios
• Complex group ownership with multiple PSCs holding >75% suggests intercompany obligations that could affect cash flow priorities
• Stale financial data in structured format (latest detailed figures only to 2020), though 2025 accounts have been filed
• No P&L visibility to assess operational performance or EBITDA for covenant calculations

Approval recommended subject to: (i) provision of group consolidated accounts and profit & loss statements; (ii) clarification of intercompany balances and obligations; (iii) confirmation of group support arrangements.

2. FINANCIAL STRENGTH

Balance Sheet Analysis (2020 figures - latest available in structured data):

Assessment: MODERATE-STRONG

• Gearing ratio (liabilities to assets): 30.7% in 2020 — conservative leverage
• Cash-to-assets: 51.5% — exceptionally liquid balance sheet
• Net asset growth of 52.2% year-on-year demonstrates capital accumulation
• Shareholders' funds equal net assets, indicating no minority interests or preference capital complicating the structure

Caveats: - The dramatic cash increase (£2.2M growth) may reflect intercompany funding, customer prepayments, or capital injection rather than organic cash generation — source needs verification - Without a P&L, we cannot confirm whether retained profits are driving equity growth or if it stems from share premium/capital contributions - Nominal share capital of only £1.00 suggests significant reserves have been built through retained earnings or group contributions

3. CASH FLOW ASSESSMENT

Liquidity Position:

The 2020 cash position of £3.71M against total liabilities of £2.22M provides a cash coverage ratio of 1.68x — the company could theoretically settle all liabilities from cash reserves alone.

Working Capital Considerations: - Current assets are not broken down beyond the cash figure, but given cash represents over half of total assets, working capital appears robust - The software industry (SIC 62012) typically operates with low inventory requirements and strong working capital dynamics — cash collection tends to be the primary working capital driver

Cash Flow Risks: - Intercompany cash sweeps: Group ownership structure (Trace One SAS, Riva Holdco 2 Limited) may permit upstream cash extraction, leaving the UK entity thinly capitalised despite apparent strength - No operating cash flow visibility: Without P&L data, we cannot assess whether the business is cash generative from operations or reliant on parent funding - Foreign ownership and management: French-dominated directorship may indicate operational decisions are made outside the UK, potentially prioritising group interests over creditor protection

4. MONITORING POINTS

Priority Metrics to Watch:

1. Intercompany Balances: Request full breakdown of amounts owed to/from group entities — these could represent significant off-balance-sheet obligations or cash extraction mechanisms

2. Revenue and EBITDA Trends: Obtain group management accounts to assess trading performance; the UK entity may be a cost centre with revenue recognised elsewhere in the group

3. Dividend/Upstream Payment Policy: Monitor whether cash is being stripped via dividends or management charges, which could erode the creditor protection the balance sheet currently offers

4. Filing Compliance: Currently up to date with no overdue filings — continue monitoring. Next accounts due 30 September 2027

5. Director Changes: Christophe Vanackere resigned September 2025; Séverine Tourpin appointed same date — understand rationale and ensure continuity of governance

6. Group Support Letter: If lending, obtain a letter of comfort or guarantee from the ultimate parent entity, given the UK entity appears to be a subsidiary within a larger French-headquartered group

7. Cash Trajectory: Monitor whether the 2020 cash peak is sustained or represents a one-off position (e.g., deferred revenue, acquisition funding, or temporary intercompany placement)

8. Covenant Structure: Any facility should include minimum net worth and cash covenants, plus restrictions on upstream payments without lender consent

ADDITIONAL OBSERVATIONS

Business Resilience: The company has operated since 1997 (28 years), surviving multiple economic cycles and the 2008 financial crisis. The rebrand from EQOS Systems to Trace One (2001/2010) suggests strategic pivots have been managed successfully. The PLM and compliance software market has structural growth drivers (regulatory complexity, supply chain transparency demands).

Management Quality: Filing compliance is current, accounts are audited (Menzies LLP), and the auditor's report is unqualified with no emphasis of matter. However, the small companies regime limits the strategic and operational disclosures available for assessment. The predominance of French nationals in directorships suggests strategic direction comes from the parent group rather than local management.

Industry Context: Software development businesses typically enjoy high margins, recurring revenue models, and asset-light structures. The balance sheet profile (cash-heavy, limited fixed assets) is consistent with this industry norm.