Credit Assessment: J. Fletcher (Engineers) Limited

1. Credit Opinion: CONDITIONAL

Reasoning: The company presents a fundamentally sound trading operation with consistent profitability and revenue growth. However, the recent change of control, extraction of £2.3M in dividends exceeding annual profit, and resulting 33% decline in net assets raise material concerns about financial resilience under new ownership. Credit facilities should be extended only with appropriate safeguards, including a parent company guarantee from Tendra Technical Services Group.

2. Financial Strength

Balance Sheet Deterioration: The most significant red flag in these accounts is the substantial erosion of the equity position. Net assets fell from £3,719,038 (2024) to £2,493,981 (2025) — a reduction of £1,225,057 or approximately 33%. This decline is entirely attributable to the dividend extraction of £2,308,326, which significantly exceeded the profit before tax of £991,265.

Leverage Concern: The liability-to-equity ratio has shifted materially. Total liabilities now represent approximately 147% of shareholders' funds (up from 103% in 2024). While not immediately distressed, the business has materially less buffer to absorb adverse trading conditions.

Historical Context: The company had been steadily building equity from £1,399,912 (2018) to £3,719,038 (2024). The 2025 position represents a reversal to approximately 2022 levels. The timing of this extraction, coinciding precisely with the change of ownership, suggests this was an acquisition-related restructuring rather than a sustainable dividend policy.

Positive Factors: - The business remains profitable with EBIT of £1,105k (2025) - Revenue grew 4% to £17.4M - Cash position remains reasonable at £1.08M - Long-established trading history since 1984 - Diversified revenue streams across HVAC, fabrication, and maintenance

3. Cash Flow Assessment

Operating Performance: EBIT declined 8% from £1,203k to £1,105k despite 4% revenue growth, indicating margin compression. EBIT margin fell from 7.2% to 6.4%. This warrants monitoring but remains acceptable for an engineering services business.

Dividend Impact: The £2.308M dividend payment substantially exceeded retained profits for the year. This has funded either shareholder extraction or acquisition-related debt servicing at the holding company level. Cash reduced from £1.647M to £1.081M — a £566k decline, though the business retained reasonable liquidity.

Working Capital Observations: The significant reduction in total assets (£9.59M to £6.73M) without a corresponding reduction in liabilities suggests working capital has been stripped. Without detailed current asset/liability breakdowns in the data provided, this requires further investigation, but the pattern is consistent with acquisition-related leverage.

Cash Generation: The business has demonstrated reasonable cash generation historically, with cash positions ranging from £294k (2021) to £1.647M (2024). The current £1.08M provides approximately 6.2% of turnover as a cash buffer — adequate for ongoing operations but offering limited headroom for unexpected demands.

4. Monitoring Points

Critical: - Parent Company Guarantee: Obtain and verify guarantee from Tendra Technical Services Limited or J. Fletchers (Engineers) Holdings Limited. The new ownership structure means financial decisions may be made at group level, potentially to the detriment of this entity's creditors. - Dividend Policy: Clarify the new ownership's dividend expectations. The 2025 dividend exceeded profits by approximately £1.3M. Any continuation of this policy would rapidly erode the remaining equity base. - Intercompany Balances: Investigate whether the asset reduction includes intercompany receivables or transfers to group entities. The PSC register shows both J. Fletchers (Engineers) Holdings Limited and Hammer Propco Limited with >75% ownership — the latter's name suggests a property vehicle that may have acquired company assets.

Important: - Margin Compression: EBIT declining 8% while revenue grew 4% suggests cost pressures. Monitor quarterly management accounts for margin trends. - Contract Pipeline: The strategic report notes "robust" order book, but obtain specific contract values and renewal rates. The business notes reliance on public and private sector capital investment — currently a favourable environment but cyclical. - Asset Quality: The 30% reduction in total assets requires explanation. Determine what has been disposed of or transferred and whether this impacts operating capacity. - Management Continuity: Two original directors (J J Fletcher and W Price) resigned in November 2025. Two new directors (S Gupta and G Davies) appointed January 2026. Assess whether operational expertise has been retained.

Ongoing: - Monthly management accounts review - Covenant compliance monitoring if facilities are established - Tracking of any further intercompany transactions - Sector outlook for HVAC and industrial engineering services