Risk Assessment: MELLOR ELECTRICS LIMITED

1. Risk Rating: MEDIUM

While the company demonstrates a substantial asset base and long trading history (incorporated 1964), several concerning trends in the most recent financial year (ending 30 September 2025) warrant elevated scrutiny. The net asset position remains robust at £2.46M, but significant deterioration in cash reserves and debtor quality present material concerns that require monitoring.

2. Key Concerns

i) Severe Cash Deterioration

Cash at bank has declined from £440,068 (2024) to £107,407 (2025) — a 75.6% reduction in a single year. This is particularly alarming given that: - A new bank loan of £110,122 has been drawn (none existed in 2024) - Trade creditors have increased by 63.4% (from £250,414 to £409,232), suggesting potential cash flow pressure is being managed through stretched supplier payment terms

The combination of falling cash, new borrowing, and growing creditor balances signals potential liquidity stress.

ii) Doubled Trade Debtors with Questionable Recoverability

Trade debtors have surged from £504,319 to £1,105,466 — a 119% increase year-on-year. This raises several concerns: - Is this reflective of genuine revenue growth, or deteriorating collection practices? - Without a profit & loss account (exempt from filing), we cannot assess whether turnover has grown proportionately - The risk of bad debt provisions materialising is heightened given the concentration and velocity of increase

iii) Director Loans Without Formal Terms

Amounts due from directors stand at £247,673 (up from £201,989), with no formal repayment terms — described as "repayable on demand." This represents: - A significant sum relative to the company's diminished cash position (2.3x current cash) - Potential conflict of interest regarding capital allocation priorities - A governance concern given the directors' ability to withdraw funds without structured repayment obligations

3. Positive Indicators

• Established Business: 60+ year trading history provides operational resilience and market positioning
• Strong Net Asset Position: Shareholders' funds of £2,464,705 with consistent growth trajectory over the long term
• Healthy Working Capital: Net current assets of £2,146,040 provide a substantial buffer against short-term obligations
• Compliance Record: All filings are current and not overdue; accounts prepared under FRS 102
• Minimal External Debt: No long-term creditors; the only borrowing is the recent £110,122 bank facility
• Pension Obligations Met: Defined contribution scheme with contributions current (£6,770 payable at year-end)

4. Due Diligence Notes