EMMA HARDIE LIMITED
Company number 05495827 · 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: EMMA HARDIE LIMITED
1. Credit Opinion: CONDITIONAL
The credit decision is CONDITIONAL pending receipt of a parent company guarantee from Creightons Plc and satisfactory explanation for the significant deterioration in retained earnings during FY2021.
Reasoning: While the company demonstrates strong asset growth over the medium term and maintains a current ratio above 2x, FY2021 reveals concerning deterioration: retained earnings swung from (£123) to (£260,307), representing a loss of approximately £260k. Invoice financing surged from £169k to £526k (a 211% increase), signalling potential cash flow stress. Net assets declined 47% year-on-year from £554k to £294k. However, the company benefits from being a subsidiary within the Creightons Plc group, which provides implicit support. Credit can be extended subject to appropriate group-level covenants.
2. Financial Strength
Balance Sheet Summary (FY2021 vs FY2020):
| Metric | 2021 | 2020 | Movement |
|---|---|---|---|
| Total Assets | £2,630,643 | £2,463,895 | +6.8% |
| Net Current Assets | £1,325,539 | £1,638,890 | -19.1% |
| Net Assets | £293,712 | £553,896 | -47.0% |
| Shareholders' Funds | £293,712 | £553,896 | -47.0% |
Key Observations:
- Equity erosion: The significant decline in net assets is driven by accumulated losses. Retained earnings deteriorated from (£123) to (£260,307), indicating the business consumed approximately £260k of capital during the period.
- Gearing: Long-term creditors of £1.09m against equity of £294k yields a debt-to-equity ratio of approximately 3.7x – materially high for a SME retailer.
- Intangible assets: Capitalised development costs of £37.5k (amortised over 5 years) represent a moderate balance sheet risk if product launches underperform.
- Stock concentration: Inventory of £1.37m represents 53% of current assets and 52% of total assets. This heavy weighting toward stock creates significant liquidity risk if product lines become obsolete or demand softens.
Trajectory: The long-term trajectory from 2016 (net assets of £-371k) to 2020 (£554k) was strongly positive. However, FY2021 represents a material reversal that requires explanation.
3. Cash Flow Assessment
Liquidity Position:
| Metric | 2021 | 2020 | Commentary |
|---|---|---|---|
| Current Ratio | 2.07x | 3.12x | Deteriorating but adequate |
| Quick Ratio | 0.96x | 1.64x | Now below 1x – concerning |
| Cash | £166,299 | £168,498 | Stable but low relative to obligations |
| Working Capital | £1,325,539 | £1,638,890 | Declining |
Working Capital Composition Analysis:
The quick ratio falling below 1.0x is a significant concern. Stripping out £1.37m of stock, the company has only £1.20m of liquid assets against £1.24m of current liabilities. This means the company is reliant on converting stock to cash to meet short-term obligations.
Invoice Financing Dependency:
The most notable development is the tripling of invoice financing from £169k to £526k. This 211% increase suggests: - The company is leveraging receivables to fund operations - Cash conversion from debtors may be slowing - There is increased working capital pressure, potentially driven by stock build
Trade Creditor Stretch:
Trade creditors increased 28% from £347k to £443k. While this could indicate supplier term extension (a low-cost funding source), it may also signal payment pressure.
Cash Flow Concerns: - Operating with negative retained earnings and increasing leverage - Employee headcount reduced from 16 to 11, suggesting cost reduction measures - Reliance on invoice financing facilities introduces facility renewal risk and cost drag
4. Monitoring Points
| Priority | Metric | Current Level | Threshold/Concern |
|---|---|---|---|
| HIGH | Quick Ratio | 0.96x | Below 1.0x – monitor for further deterioration |
| HIGH | Invoice Financing | £525,767 | Rapid growth; track facility terms and expiry |
| HIGH | Retained Earnings | (£260,307) | Negative and deteriorating; watch for continued losses |
| MEDIUM | Stock Days | £1.37m inventory | Assess whether stock is moving or ageing |
| MEDIUM | Trade Creditor Days | £443k | Monitor for payment stress indicators |
| MEDIUM | Group Support | Creightons Plc ownership | Confirm ongoing parent support and guarantee |
| LOW | Employee Count | 11 (down from 16) | Understand if further reductions planned |
| LOW | Debtor Collection | £773k trade debtors | Monitor days sales outstanding trends |
Recommended Covenant Package (if approved): - Minimum current ratio of 1.5x - Maximum debt-to-equity ratio of 4.0x - Parent company guarantee from Creightons Plc - Quarterly management accounts submission - Notification if invoice financing exceeds £600k