Commercial Credit Assessment: Vigilant Protect UK Limited

1. Credit Opinion: CONDITIONAL

Rationale: The company demonstrates consistent revenue growth and improving profitability within a well-established, group-backed security services operation. However, the significant cash depletion over the reporting period, thin profit margins, and material increase in total liabilities warrant a conditional approach. Any credit facility should include covenants addressing liquidity minimums and leverage ratios.

Positive Factors: - Revenue growth trajectory: 29% increase over three years (£29.3M to £37.8M) - Profit before tax improved 50% year-on-year (£313K to £469K) - Net assets strengthening (£1.78M to £2.35M over two years) - Ultimate parent is Croma Security Solutions Group Plc (provides implied group support) - 25-year trading history with audited accounts - Current ratio remains above 1.0x

Constraining Factors: - Cash reserves have fallen 90% from £1.63M (2022) to £160K (2025) - Net profit margin of approximately 1.2% provides minimal headroom - Total liabilities increased 47% year-on-year (£5.9M to £8.6M) - Employee numbers declining (-6%) despite revenue growth may signal operational strain

2. Financial Strength Analysis

Balance Sheet Summary (FY2025): - Total Assets: £10,996,981 - Total Liabilities: £8,644,509 - Net Assets: £2,352,472 - Share Capital: £40,000 (unchanged) - Retained Earnings: £2,312,472 (accumulated profits retained)

Assessment: The balance sheet shows a strengthening equity position with net assets growing 16.5% year-on-year. The share capital has remained static at £40,000, indicating growth has been funded through retained profits and external borrowing rather than equity injection—typical for a subsidiary within a group structure.

The significant jump in total assets from £7.9M to £11.0M (39% increase) alongside a 47% increase in total liabilities suggests the company has taken on additional debt to fund expansion or working capital requirements. Without a detailed breakdown of current versus non-current liabilities, the composition of this increased debt burden requires clarification—particularly whether it represents trade creditors (normal for a growing security business with payroll obligations) or structured debt facilities.

The company's gearing appears manageable given the net asset position, but the reliance on a debtor-backed facility (noted in the strategic report) indicates the business is leveraged against its receivables book, which is standard in the security sector but creates concentration risk if key clients default.

Group Structure Considerations: The PSC register confirms Croma Security Solutions Group Plc holds >75% of shares and voting rights. This provides comfort regarding potential parent company support but also raises questions about whether cash extraction through intercompany dividends or management charges has contributed to the declining cash position. No dividends were declared in the current year, which is prudent given the cash constraints.

3. Cash Flow Assessment

Liquidity Position: - Current ratio: 126% (2025) vs 133% (2024) — declining but adequate - Cash position: £160,280 — critically low for a business with ~£37.8M turnover

Cash Trajectory: | Year | Cash | Turnover | Cash as % Turnover | |------|------|----------|-------------------| | 2022 | £1,628,012 | £29.3M | 5.6% | | 2023 | £256,792 | £34.8M | 0.7% | | 2024 | £1,214,459 | £37.0M | 3.3% | | 2025 | £160,280 | £37.8M | 0.4% |

The cash position is volatile and currently at concerning levels. For a business employing approximately 933 security personnel with significant weekly payroll obligations, £160K in cash provides minimal buffer. The security industry is labour-intensive with weekly/monthly wage commitments, making cash flow management critical.

Working Capital Dynamics: The company notes it trades from "internally generated working capital" and has access to an "external borrowing facility secured on its debtor book." This confirms an invoice discounting or factoring arrangement, which is common in the sector but indicates the business cannot self-fund its working capital cycle from cash reserves alone.

The decline in employee numbers from 991 to 933 despite 2% revenue growth suggests either improved efficiency or, more likely, difficulty in recruitment/retention—a cited principal risk. In the current labour market, wage inflation pressure could further compress already-thin margins.

Gross Margin Analysis: Gross profit increased 8% to £5.26M, yielding a gross margin of approximately 13.9% (up from 13.2%). This marginal improvement is positive but remains thin for absorbing overhead cost increases or bad debt losses.

4. Monitoring Points

Immediate Concerns: 1. Cash Position Monitoring: Monthly cash flow reporting should be required. The current £160K is dangerously low for a business of this scale. Any further deterioration would warrant immediate review.

2. Liability Composition: Request full breakdown of the £8.6M liabilities—specifically current versus non-current, and the nature of the increase. Understanding whether this is trade creditors, accruals, or structured debt is essential.

3. Debtor Book Quality: Given the invoice discounting facility, monitor debtor days and concentration. A few large client defaults could trigger a facility reduction.

Ongoing Covenants: 4. Minimum Liquidity Ratio: Require current ratio to remain above 1.15x 5. Cash Minimum: Consider requiring minimum cash of £500K (approximately 2 weeks' payroll for 933 employees) 6. EBITDA Margin Floor: Require minimum EBITDA margin of 3% to ensure adequate debt service coverage

Strategic Risks: 7. Contract Retention: The company acknowledges competitive tender risk. Monitor client concentration and contract renewal rates closely. 8. Labour Market: Wage inflation in the security sector remains a key risk. Any significant pay increases without corresponding contract price rises will erode margins further. 9. Group Dependency: Understand the parent company's financial health and any intercompany arrangements that could impact cash flow (management charges, group loans, dividend expectations).

Sector Considerations: 10. Regulatory Risk: Private security activities (SIC 80100) are regulated by the Security Industry Authority. Any licensing issues could materially impact operations. 11. Economic Sensitivity: Security services are relatively resilient in downturns but can suffer if clients reduce premises/footprint.