Credit Analysis: CAA STELLAR LIMITED

1. Credit Opinion: CONDITIONAL

Rationale: CAA Stellar demonstrates strong profitability and cash generation, with net profit of £8.25M on turnover of £25.4M (32% net margin) in the most recent filed period. Cash reserves of £4.99M provide substantial liquidity. However, several factors warrant a conditional rather than outright approval:

• Material uncertainty regarding potential tax liability flagged in the auditor's emphasis of matter (Note 24) – no provision has been made and the outcome cannot be determined
• Net assets declined from £6.14M to £5.52M despite strong profitability, suggesting significant dividend extraction
• Financial data is dated – the detailed accounts only extend to October 2017, with more recent figures unavailable for analysis
• Recent corporate restructuring evidenced by the April 2025 name change from Stellar Football Limited, requiring understanding of the commercial rationale and any impact on the business

Conditions for approval: Up-to-date audited financial statements must be provided, full disclosure and quantification of the potential tax liability referenced in the auditor's report, and clarification of intercompany obligations within the group structure.

2. Financial Strength

Balance Sheet Position (Year Ending October 2017): | Metric | 2017 | 2016 | Movement | |--------|------|------|----------| | Total Assets | £11.96M | £12.63M | -£672k | | Total Liabilities | £6.52M | £6.60M | -£78k | | Net Assets | £5.52M | £6.14M | -£611k | | Cash | £4.99M | £4.81M | +£184k |

Analysis: - Strong asset base with net assets of £5.52M providing a reasonable equity cushion - Cash represents 42% of total assets – indicating a highly liquid balance sheet with minimal reliance on fixed assets - Net asset decline of 10% despite £8.25M net profit is concerning – this indicates substantial dividend distribution or other equity withdrawals, which raises questions about capital retention policy - Liability profile is stable with marginal reduction year-on-year - Share capital is nominal at £100, meaning the entire equity position is built on retained earnings, which could be distributed

Concern: The divergence between strong profitability and declining net assets suggests aggressive dividend policy. This reduces the equity buffer available to absorb potential losses, including the undisclosed tax liability.

3. Cash Flow Assessment

Liquidity Position: - Cash of £4.99M against current liabilities (not fully broken down in available data) suggests adequate short-term coverage - The company generated sufficient cash to increase cash balances year-on-year despite the decline in total assets - Turnover growth of 25% (£20.4M to £25.4M) indicates strong revenue momentum, which typically supports positive operating cash flow

Working Capital Considerations: - As a sports management/agency business (SIC 82990 and 93110), the company likely operates with minimal stock and high debtor balances from client arrangements - The nature of football/sports agency work involves lumpy revenue streams tied to transfer windows and contract renewals - Cash conversion appears strong given the ability to grow cash reserves while distributing significant dividends

Key Risk: The potential tax liability could create a material cash call if crystallised. Without quantification, the impact on liquidity cannot be assessed.

4. Monitoring Points

Additional Monitoring Requirements: 1. Director conduct: Multiple directors with international backgrounds (American, Irish) – monitor for any jurisdictional complications in enforcement 2. Group dependency: Two PSC entities each owning >75% creates a complex control structure – understand parent company financial health and any upstream obligations 3. Currency exposure: The auditor notes no specific strategy to mitigate currency risk despite international operations – monitor for FX-related losses 4. Business model sustainability: Sports agency revenues can be volatile and dependent on a small number of high-value client relationships