EXTEL LIMITED (T/A Care Through the Millennium) - Risk Assessment

1. Risk Rating: MEDIUM

While the company maintains a substantial net asset position (£8.44m) and nearly three decades of operating history, significant deterioration in cash reserves, declining profitability margins, and a 50% increase in total liabilities within a single year elevate the risk profile above baseline. The trajectory warrants close monitoring rather than immediate alarm.

2. Key Concerns

i. Dramatic Cash Deterioration

Cash at bank fell from £6.76m (2024) to £2.53m (2025) — a reduction of £4.23m or 62.6%. This is the most pressing concern. While the accounts mention a new HSBC loan facility obtained in June 2025 (post year-end), the magnitude of the cash decline within the reporting period requires substantive explanation. The cash burn may relate to the share buy-back completed in December 2024 (12 ordinary shares repurchased), capital expenditure, or operational cash outflows — but the filed data does not fully reconcile this decline.

ii. Profitability Erosion Despite Revenue Growth

Turnover grew by approximately 3% (£16.7m to £17.2m), yet key profitability metrics declined materially: - Gross profit: Down from £7.1m to £6.5m (8.5% decline) - Gross margin: Contracted from 42.6% to 38.0% (460 basis points) - Operating profit: Down from £3.8m to £3.1m (18.4% decline) - Operating margin: Fell from 23.0% to 18.2% (480 basis points) - EBITDA: Down from £4.2m to £3.5m (16.7% decline)

This combination — rising revenue with falling margins — typically indicates cost inflation outpacing pricing power, which is a known sector challenge in social care given staffing cost pressures and local authority fee constraints.

iii. Liability Expansion and Asset Contraction

Total liabilities increased from £2.96m to £4.45m (+50.3%) while total assets decreased from £14.48m to £13.10m (-9.5%). The simultaneous growth in obligations and reduction in asset base compresses the equity buffer. Net assets declined by approximately £135k year-on-year. If this trend continues, the previously comfortable solvency margin could erode meaningfully within 3-5 years.

3. Positive Indicators

• Substantial Net Asset Position: £8.44m in shareholders' funds provides a meaningful buffer against operational volatility and represents a healthy solvency position at present.

• Consistent Revenue Growth: Turnover has grown steadily from approximately £14.0m (2021) to £17.2m (2025), representing compound annual growth of approximately 5.3% over four years — respectable in a sector constrained by public funding.

• High Occupancy Rates: The 98% occupancy rate cited in the strategic report is excellent for residential care and indicates strong demand for services and effective capacity utilisation.

• Government-Funded Revenue Base: Nearly all turnover derives from Local Authorities and Clinical Commissioning Groups, providing relative revenue stability and low credit risk on receivables.

• New Banking Facility: The HSBC five-year loan facility obtained in June 2025 suggests ongoing bank confidence in the business and provides additional liquidity headroom, though the terms and security required are not disclosed.

• Regulatory Compliance: Accounts and confirmation statements are filed on time; no overdue filings or disqualification records are apparent. The company is CQC-registered and references compliance with regulatory requirements.

• Long Operating History: Incorporated in 1996, the business has nearly 29 years of continuous operation, suggesting institutional resilience and experienced management.

4. Due Diligence Notes

1. Cash Flow Reconciliation: Request detailed cash flow working papers to understand the £4.23m cash outflow. Specifically determine the split between: (a) share buy-back consideration, (b) capital expenditure on property/assets, (c) loan repayments, and (d) operational cash consumption.

2. HSBC Loan Facility Terms: Obtain full details of the June 2025 facility — principal amount, interest rate, covenants, security (likely fixed charges over property given the asset base), and repayment schedule. This is critical given the post year-end timing and its potential impact on future cash flows.

3. Cttm Trustees Limited Relationship: The PSC register shows both Mr Christopher Michael Higgins and Cttm Trustees Limited as holding more than 75% of shares and voting rights. Clarify whether Cttm Trustees Limited is the vehicle from the employee ownership period (2015-2022) and confirm the current beneficial ownership structure following the December 2024 share buy-back. This overlap in declared control thresholds requires explanation.

4. Margin Pressure Analysis: Conduct a detailed review of cost drivers behind the gross margin compression. In the care sector, this typically reflects staffing cost inflation (National Living Wage increases), energy costs, and local authority fee constraints. Assess whether margins are likely to stabilise or continue eroding.

5. CQC Inspection Reports: Review current CQC ratings for all operated facilities. Regulatory enforcement action or inadequate ratings could materially affect occupancy, funding, and operational viability.

6. Related Party Transactions: Given the concentrated ownership (single shareholder post-December 2024), examine whether there are management charges, property rentals, or other transactions between the company and the Higgins family or connected entities that may affect profit quality.

7. Capital Expenditure Commitments: The significant fixed asset base (likely including freehold/leasehold care homes) requires ongoing maintenance capital expenditure. Understand the capex cycle and whether deferred maintenance is contributing to apparent profitability.

8. Sector-Specific Risks: Assess exposure to: (a) local authority funding cuts or fee freezes, (b) workforce recruitment and retention challenges, (c) regulatory compliance costs, and (d) insurance cost inflation in the care sector.