Credit Assessment: MCCORMICK AND HUNTER LIMITED

1. Credit Opinion: CONDITIONAL

Reasoning: While the company demonstrates adequate liquidity and a modest improvement in net assets in the latest year, the significant long-term erosion of the balance sheet—from net assets exceeding £1M in 2016/2017 to £397K in 2025—raises material concerns about financial trajectory and business resilience. The recent substantial increase in long-term liabilities (from £4,197 to £63,561) and the full amortization of intangible assets require clarification. Credit facilities may be extended, but with appropriate covenants and enhanced monitoring.

2. Financial Strength

Balance Sheet Summary (FY2025): - Net Assets: £396,929 (down 61% from the £1.02M peak in 2016) - Shareholders' Funds: £396,929 (entirely retained earnings; share capital is nominal at £6) - Total Liabilities: £191,976 (current: £128,415; long-term: £63,561)

Key Concerns: - Sustained Equity Erosion: Net assets have declined from £1,020,390 (2016) to £396,929 (2025)—a cumulative reduction of approximately £623,000 over nine years. This suggests either significant trading losses, substantial dividend extractions, or a combination of both. - Intangible Asset Write-off: The full amortization of intangible assets (£132,700 written off in FY2025) represents a non-cash charge but signals the elimination of any residual value from prior acquisitions or intellectual property. - Long-term Debt Surge: Creditors falling due after one year increased from £4,197 to £63,561—a fifteen-fold increase. This requires urgent clarification: is this a new term loan, hire purchase for the £85,600 in tangible asset additions, or a reclassification of existing obligations? - Minimal Share Capital: At £6, the company has virtually no permanent equity cushion beyond retained earnings, which could be distributed to shareholders.

Positive Factors: - Net assets showed a small positive movement of £9,610 in FY2025 versus FY2024 - Tangible asset investment of £85,600 suggests continued operational commitment - The business has been trading since 2007—demonstrating longevity

3. Cash Flow Assessment

Liquidity Position (FY2025): - Cash: £385,378 (significant increase from £182,078 in FY2024) - Current Assets: £470,877 - Current Liabilities: £128,415 - Current Ratio: 3.67x — comfortably above the 1.5x threshold typically expected - Net Current Assets: £342,462 — healthy working capital position

Working Capital Composition: | Item | FY2025 | FY2024 | Movement | |------|--------|--------|----------| | Stocks | £12,000 | £12,000 | Nil | | Debtors | £73,499 | £128,325 | (£54,826) | | Cash | £385,378 | £182,078 | +£203,300 | | Current Liabilities | £128,415 | £125,521 | +£2,894 |

Observations: - The cash increase of £203,300 is notable and requires source verification—this could reflect strong operating cash generation, asset disposals, or new borrowing - Debtors have decreased by £54,826, which may indicate improved collection or reduced revenue - Stock levels remain flat and minimal at £12,000—consistent with a roofing contractor carrying limited inventory - The company appears to have sufficient liquidity to service near-term obligations comfortably

Cash Flow Concern: - Without a P&L account (filed as abridged), it is impossible to assess operating profitability or the relationship between profit and cash generation - The long-term debt increase suggests potential new borrowing that will require future cash service

4. Monitoring Points

Specific Monitoring Requirements:

1. Source of Cash Increase: Verify whether the £203K cash increase stems from trading performance, asset disposals, or new borrowing. If borrowing, assess repayment obligations.

2. Long-term Debt Nature: Obtain details on the £63,561 long-term creditor—terms, interest rate, maturity, and security status.

3. Profit & Loss Performance: Request full (non-abridged) accounts to assess revenue trends, gross margins, and net profitability. The abridged filing obscures critical credit metrics.

4. Dividend Policy: Clarify whether the historic equity erosion reflects trading losses or shareholder distributions. If distributions, assess whether they are sustainable relative to profits.

5. Intangible Asset History: Understand the nature of the £1.327M original cost intangible asset that has been fully amortized—this may indicate a prior acquisition that has now been written off.

6. PSC Transparency: The PSC register shows only a statement, not identified individuals. Request confirmation of ultimate beneficial owners with 25%+ control.

7. Business Volume: With only 8 employees and declining net assets, assess whether the business is contracting intentionally (lifestyle business) or facing competitive/structural challenges in the roofing sector.