C.BREWER & SONS LIMITED
Company number 00203852 · Monitor this company
This analysis was written by an AI from the company's public filings. It may contain errors or omissions and is not financial or professional advice.
Credit Analysis: C. Brewer & Sons Limited
1. Credit Opinion: CONDITIONAL
Reasoning: While C. Brewer & Sons demonstrates positive operational momentum with 9% sales growth and a trading history spanning nearly a century, the significant deterioration in the balance sheet due to pension liabilities raises material concerns. The net deficit in pension schemes rose by £10.8m in 2014, causing shareholders' funds to fall from £24.9m to £13.8m—a 44% decline. Additionally, a £2.25m provision was recognized for prior year pension underpayments, bringing the total provision to £5m. This pension exposure represents a contingent liability that could further erode the company's financial position and impact future cash flows available for debt service.
The company's decision to distribute £1.547m in dividends during 2014 (a 74% increase from 2013's £887k) while facing a growing pension deficit raises questions about financial stewardship priorities. Credit facilities should only be extended with appropriate covenants protecting the bank's position, particularly regarding pension scheme obligations and dividend restrictions.
2. Financial Strength
Balance Sheet Deterioration:
| Metric | 2014 | 2013 | Change |
|---|---|---|---|
| Shareholders' Funds | £13.8m | £24.9m | -44% |
| Total Liabilities | £24.1m | £22.5m | +7.1% |
| Net Assets | £13.8m | £24.9m | -44% |
The balance sheet has weakened substantially, primarily driven by the pension scheme deficit movement. Key concerns include:
- Pension Liability Risk: The £10.8m adverse movement in pension deficits represents a significant contingent liability. The company acknowledges "significant pension liabilities for which plans are in hand to manage" but notes "the timing of their resolution is uncertain."
- Pension Underpayment Provision: The £5m provision for historical pension underpayments (up from £2.75m in 2013) suggests potential governance issues and further possible liabilities.
- Leverage Position: With total liabilities of £24.1m against shareholders' funds of £13.8m, the debt-to-equity ratio stands at approximately 1.75x—elevated for a retail business in this sector.
- Asset Quality: The company holds freehold and leasehold properties and investment properties. Directors assert market values exceed book values, but no independent valuation is provided.
Positive Factors: - Share capital of £270k provides a permanent equity base - PricewaterhouseCoopers LLP as auditors provides confidence in financial reporting quality - Long-established since 1925, demonstrating historical resilience
3. Cash Flow Assessment
Operational Performance: - Sales growth of 9% in 2014 (2013: 6%) indicates healthy demand - Sales per employee of £147k (up 3% YoY) suggests modest productivity improvement - Creditor days maintained at 19 days—indicating the company is not stretching supplier terms to preserve cash
Cash Flow Concerns: - Dividend Policy: £1.547m paid in dividends represents a significant cash outflow, particularly concerning given the pension deficit growth - Acquisition Activity: Multiple acquisitions completed in 2014 (Robinson & Neal Limited, Handyman's Corner, DOT New Media Ltd, Palmers of Chiswick, Coleman Bros) and early 2015 (Humberside Decorative, Paint & Decorative Supplies, Park Trading) will have consumed substantial cash resources - Working Capital: No breakdown of current assets/liabilities is available in the data provided, but the 19-day creditor payment cycle suggests reasonable working capital management - Interest Rate Risk: The company maintains both interest-bearing assets and liabilities, with deposits from directors, shareholders, and staff at mixed rates
Liquidity Position: - Cash balances of £8.3m (2012) and £8.0m (2011) suggest reasonable liquidity, though more recent figures are not available in the financial history provided - Banking relationship with Barclays Bank plc is established
4. Monitoring Points
| Priority | Metric | Rationale |
|---|---|---|
| Critical | Pension deficit position and recovery plan | £10.8m adverse movement represents existential risk; requires regular monitoring of actuarial valuations and recovery plan progress |
| Critical | Pension underpayment provision | £5m provision may increase; monitor for any regulatory action or additional claims |
| High | Dividend policy vs. pension obligations | Dividend payments should be restricted until pension deficit is addressed; establish covenant restricting dividends to a percentage of free cash flow after pension contributions |
| High | Acquisition integration performance | Multiple acquisitions completed; monitor for goodwill impairment and integration costs |
| Medium | Sales growth sustainability | 9% growth is positive but likely includes acquisition contributions; monitor organic growth rates |
| Medium | Working capital management | Monitor current ratio and debtor days as the business expands |
| Medium | Competitive pressures | Company identifies competitive environment and technological change (IT/web) as key risks |
| Low | US subsidiary exposure | Small administrative presence in USA; monitor for any foreign exchange or regulatory risks |
Recommended Covenants: 1. Minimum net worth covenant (excluding pension deficit) 2. Maximum dividend restriction tied to pension contribution compliance 3. Debt service coverage ratio minimum of 1.25x 4. Notification requirement for any material pension scheme changes 5. Limitation on further acquisitions without lender consent above a threshold