Credit Analysis: OCS SECURITY LIMITED (formerly City Group Security Limited)

1. Credit Opinion: CONDITIONAL APPROVE

Reasoning: The company demonstrates strong revenue growth, improving profitability, and a solid net asset base. However, the very low cash position (£96k against £34.7m turnover) and high total liabilities (£13.3m) indicate reliance on working capital facilities and bank debt. Conditional approval is appropriate, subject to regular covenant monitoring and maintaining the current growth trajectory.

2. Financial Strength

• Net assets have grown consistently: £1.77m (2023) → £2.03m (2024) → £2.54m (2025), representing a 43% increase over two years.
• Total assets expanded 32% year-on-year to £16.9m, driven by acquisitions (Business Watch Guarding) and organic growth.
• Shareholders' funds are healthy at £2.54m, providing a reasonable equity cushion (15% of total assets).
• Leverage risk: Total liabilities of £13.3m represent 79% of total assets. This is high for a security services company but partially offset by strong recurring revenue streams. Bank loans and working capital facilities are secured against assets and subject to covenants.

3. Cash Flow Assessment

• Cash position is critically low at £96k (2025) – barely sufficient for one day's wages in a labour-intensive business. This is a key concern.
• Working capital dynamics: The strategic report confirms use of bank working capital facilities to manage liquidity. The company relies on these facilities to bridge timing gaps between paying staff and collecting from customers.
• Profitability supports cash flow: Operating profit of £1.19m (2025) provides a genuine cash generation capacity, but much is likely absorbed by debt service and working capital growth.
• Debt servicing capacity: Interest cover appears adequate (profit before tax £699k implies interest charges of c.£492k, given operating profit of £1.19m). Cover ratio of approximately 2.4x is acceptable but leaves limited headroom.

4. Monitoring Points

• Cash and liquidity: Monthly cash balances and utilisation of working capital facility. Any sustained drop below £50k would be a red flag.
• Covenant compliance: Ensure loan covenants (profitability, net worth, leverage ratios) are tested and complied with.
• Debtor days: In a labour-intensive business, slow payment from customers can quickly strain cash. Monitor trade debtor ageing.
• Margin stability: Gross margin declined from 14.4% to 13.3% as stated. Ensure this does not erode further below 12%.
• Contract retention: The company reported zero contract losses in price renegotiations – any future loss of a major contract would materially impact revenue and cash flow.
• Director changes: Two directors (Xxxxxxxname shown to subscribers and Xxxxxxxname shown to subscribers) resigned in April 2026. Monitor succession and any impact on management control.

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