Investment Risk Analysis: LEEKES LIMITED

1. Risk Rating: MEDIUM

Justification: Leekes Limited benefits from substantial net assets (£27.8m), long-established trading history (incorporated 1956), and compliant banking facilities with significant covenant headroom. However, the company has moved from profit to loss, cash reserves are persistently thin relative to turnover, and the dramatic balance sheet contraction between 2024 and 2025 warrants scrutiny. The overall risk profile is elevated from what would otherwise be a lower-risk family business position due to near-term profitability and liquidity pressures.

2. Key Concerns

Concern 1: Profitability Deterioration

The company moved from a pre-tax profit of £1.17m (2023/24) to a pre-tax loss of £1.11m (2024/25), with EBITDA declining by 60% from £2.79m to £1.11m. A 5% revenue decline combined with £0.7m of cost inflation on payroll and property costs has severely compressed margins. For a business with approximately £45m turnover, an EBITDA margin of just 2.5% leaves minimal room for further shocks.

Concern 2: Persistently Thin Cash Position

Cash has been on a declining trajectory: £1.85m (2021) → £1.36m (2022) → £0.21m (2023) → £0 (2024) → £0.61m (2025). While the 2025 position shows some recovery, £610k cash against £45m turnover represents approximately 5 days of revenue coverage — an extremely thin buffer for a retail business. The 2024 zero cash position is particularly concerning, even if temporary.

Concern 3: Unexplained Balance Sheet Volatility

Total assets fell from £86.7m (2024) to £62.9m (2025) — a reduction of £23.8m (27.5%). Total liabilities fell by a corresponding £23.4m. This magnitude of balance sheet movement requires explanation and could indicate property revaluation, asset disposals, or intercompany restructuring. Without clarity, this introduces material uncertainty about the true asset backing and financial structure.

3. Positive Indicators

• Substantial Net Asset Base: Net assets of £27.8m at company level (£88.8m at group level) provide a meaningful buffer, with the strategic report noting "substantial freehold property interests" providing tangible asset backing.

• Banking Support and Covenant Compliance: Successful renewal of a £25m Revolving Credit Facility with Barclays (extended to October 2028) on favourable terms, with full covenant compliance and significant headroom reported on interest cover, senior leverage, gearing, and loan-to-value metrics. This signals lender confidence.

• Low Gearing: Group gearing of 14.3% is conservative and indicates limited overleveraging risk.

• Interest Rate Protection: The 10-year £10m swap at 0.8825% provides meaningful protection against rising rates on a material portion of debt.

• Post-Year-End Trading Recovery: Pipeline sales reportedly up 12% on the prior year, with the new Cheltenham store generating strong order books that will be recognised in 2025/26.

• Long-Established Family Business: Nearly 70 years of trading history, multiple family members on the board, and the controlling shareholder (J.H. Leeke And Sons Limited) holding >75% of shares suggests long-term orientation and commitment.

• Regulatory Compliance: Accounts and confirmation statements are filed on time. No overdue filings. Audited by UHY Hacker Young.

4. Due Diligence Notes

1. Balance Sheet Movements: Request detailed explanation for the £23.8m reduction in total assets and £23.4m reduction in total liabilities between 2024 and 2025. Determine whether this reflects property revaluations, intercompany restructurings, or asset disposals, and assess impact on asset quality and security.

2. Current Assets Breakdown: The available data does not provide a split between fixed and current assets, nor between stock, debtors, and cash within current assets. Given the thin cash position, understanding working capital composition — particularly stock levels and debtor days — is critical for assessing liquidity risk.

3. Intercompany Position: As a subsidiary of J.H. Leeke And Sons Limited, intercompany balances may be significant. The balance sheet volatility could reflect intercompany restructuring. Understanding whether Leekes Limited is a net creditor or debtor to the group, and the terms of any intercompany facilities, is essential.

4. Cash Flow Patterns: Request cash flow statements for the last 3 years to understand operating, investing, and financing cash flows. The gap between EBITDA (£1.11m) and cash (£0.61m) suggests significant cash absorption elsewhere in the business.

5. New Store Performance: Obtain specific trading data for the Cheltenham store (opened November 2024) including capital invested, pre-trading costs incurred, current revenue run rate, and timeline to breakeven. The pre-trading costs are cited as a drag on current-year results.

6. Property Valuation: Given that the strategic report emphasises "substantial freehold property interests," obtain current property valuations and loan-to-value calculations. Understand whether the 2025 balance sheet reduction reflects a property revaluation and whether any properties were sold or transferred.

7. Director Resignation: Mr G L Leeke OBE FCA resigned as director on 31 July 2024. Clarify the circumstances of this departure, particularly given he appears to remain a PSC with significant voting rights (50-75%).

8. Dividend Policy: No dividends have been paid or recommended. For a company with £27.8m net assets and family ownership, this may indicate either reinvestment strategy or cash conservation concerns. Clarify the board's medium-term dividend expectations.