Credit Analysis: A. HINGLEY & SON (TIMBER) LIMITED

1. Credit Opinion: APPROVE

Rationale: This long-established (50+ years) family timber merchant demonstrates a strongly improving financial trajectory with net assets growing from £125,183 (2015) to £1,019,084 (2024). The company has substantially de-leveraged, with current liabilities reduced by £264,379 in the latest year alone. Retained profits surged by £270,442, indicating robust trading performance. Gearing is negligible at 0.5% (long-term debt of £5,251 against equity of £1.019M), and the freehold property provides tangible security. The primary concern is the persistently low cash position (£9,751), though this appears to reflect aggressive debt repayment rather than poor cash generation.

2. Financial Strength Analysis

Balance Sheet Summary (November 2024)

Key Ratios

• Current Ratio: 1.70x (2024) vs 1.10x (2023) — significant improvement
• Quick Ratio: 1.44x — adequate coverage excluding stock
• Gearing: 0.5% — effectively nil leverage
• Debt-to-Assets: 31.2% — conservative

Equity Composition

• Share Capital: £126,474
• Share Premium: £214,587
• Retained Earnings: £678,023 (up from £407,581)
• Total Equity: £1,019,084

Assessment: The balance sheet has transformed from a precarious position (net assets of £125,183 in 2015) to a robust £1.019M. The retained earnings growth of £270,442 represents strong profitability after any distributions. Freehold property (land £263,000 + buildings £372,389) provides £635,398 of tangible asset backing, which could serve as security for lending.

3. Cash Flow Assessment

Liquidity Position

Cash Concerns: - Cash has remained stubbornly low (£4,233 to £11,484 range over 10 years) - The £646,738 debtor book is substantial — approximately 77% of current assets - Debtors represent roughly 5-6 weeks of revenue (estimated), which requires monitoring for collection efficiency

Positive Indicators: - Current liabilities reduced by £264,379 — this cash was clearly generated from operations and used to pay down creditors - Working capital swing of +£246,432 year-on-year (from £74,225 to £320,657) - Director loans of only £3,000 total (£1,500 each) — no excessive extraction

Assessment: The low cash position is a structural feature rather than a distress signal. The company appears to operate a "sweep" model where surplus cash is applied to creditor reduction. However, the heavy reliance on debtors conversion means any slowdown in collections could create immediate liquidity pressure. The debtor concentration warrants investigation — are these trade debtors, and what is the aging profile?

4. Monitoring Points

Priority Metrics

1. Debtor Collection: Debtors of £646,738 require monthly monitoring. Request aged debtor analysis. Target DSO below 55 days.
2. Cash Position: Maintain minimum cash buffer of £15,000-£20,000. Current levels provide negligible headroom for unexpected demands.
3. Profitability Trend: Request full P&L (currently abridged/filleted). The £270,442 retained profit addition is encouraging but requires verification of turnover and margin trends.

Secondary Watchpoints

4. Stock Management: Stock reduced by £15,315 (11.3%) — monitor for potential write-down risk in timber inventory given commodity price volatility.
5. Capital Expenditure: £25,000 additions in year — understand planned capex requirements for sawmilling equipment.
6. Key Person Risk: Two family directors (Andrew John and Xxxxxx Xxxxxxxxname shown to subscribers) with 25-50% ownership each. Establish succession planning and key-person insurance requirements.
7. Industry Cyclicality: Timber and construction materials are cyclical. Monitor UK construction output and timber price indices as leading indicators.
8. Related Party Balances: Director loans are minimal (£3,000 total) but should be monitored for any increase that could indicate cash flow stress.

Covenant Recommendations (if facility granted)

• Minimum net current assets: £200,000
• Maximum current ratio: maintain above 1.2x
• Net worth covenant: maintain above £750,000
• Debtors aging: no more than 15% over 90 days

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