Credit Assessment — MEGGER LIMITED (CH 02110613)

1. Credit Opinion: CONDITIONAL

Directionally supportive, but not approvable on the information supplied.

Positives: - Trading longevity: Incorporated March 1987, ~38 years of continuous operation. Name changes (Legibus 890 → AVO International → AVO → Megger) are consistent with rebranding/acquisition history, not distress. - Compliance discipline: Accounts and confirmation statement both filed, neither overdue. Full accounts (not abridged/filleted) are being prepared — a reasonable proxy for a finance function of substance. - Ownership: Megger Group Limited holds >75%. This is a wholly-owned subsidiary of an established group, and the operating brand (megger.com) is a recognised name in electrical test equipment. Credit here is fundamentally a bet on the group, not the standalone balance sheet. - Capital base: £1,030,000 issued share capital indicates a long-established, capitalised entity rather than a thinly funded shell.

Why not APPROVE: - No financial statements data is present in the pack. I have no turnover, gross margin, EBITDA, net assets, borrowings, or cash figures. I cannot evidence debt service capacity, and I will not sign off on brand strength alone. - No visibility on group funding structure. Whether this entity is self-funding, cash-pooled, or dependent on intercompany loans materially changes the risk. A UK trading subsidiary can be asset-rich on paper and cash-poor in practice if group treasury sweeps balances. - No charge/security information was supplied.

Conditions precedent to approval: 1. Latest full accounts (FY to 30 November 2025) plus prior two years, and the group's consolidated accounts. 2. Parent company guarantee or letter of support from Megger Group Limited, with confirmation of the guarantor's net assets. 3. Schedule of intercompany balances, cash-pooling arrangements and any cross-guarantees or debentures, cross-checked against the Charges Register. 4. Confirmation of debtor concentration (top 10 customers as % of ledger) and any significant customer contractual exposure.

2. Financial Strength

What the data tells us: very little directly, and I want to be explicit about that rather than infer comfort that isn't there.

• Filing category "Full" implies the company is not claiming small-company exemptions — likely exceeding at least two of the small thresholds (turnover £10.2m / balance sheet £5.1m / 50 employees). Treat as an indicator, not a verified fact.
• Share capital of £1.03m is meaningful for a private company and suggests historic capitalisation, but book equity tells you nothing about current solvency without the reserves position. Accumulated P&L reserve is the number that matters and it is absent.
• SIC 46140 (agents in the sale of machinery/industrial equipment) is notable. If accurate, the UK entity is a sales and distribution arm, not the manufacturer — which typically means a working-capital-heavy balance sheet (debtors and stock) with limited fixed assets and therefore weak tangible asset backing for lending. If the SIC is legacy/inaccurate, that itself is a minor governance point worth raising.
• Structural subordination risk: as a >75%-owned subsidiary, any lending to Megger Limited ranks behind group-level obligations unless secured. Lending here without a parent guarantee or a debenture would be poorly protected.

Verdict on balance sheet: unassessable on current evidence. No adverse indicators, but no affirmative ones either.

3. Cash Flow Assessment

Cannot be assessed from the data provided. Specific gaps that must be closed:

• Operating cash conversion — EBITDA-to-cash ratio over three years. For a capital-equipment distributor, the risk is revenue recognised on delivery with cash collected 60–120 days later, and inventory build ahead of order cycles.
• Working capital cycle — debtor days, creditor days, stock turns. A sales-agent model with thin fixed assets means liquidity lives or dies on receivables quality.
• Intercompany flows — dividends upstream, management charges, or treasury sweeps can strip cash from the entity regardless of trading performance. This is the single largest hidden risk in group subsidiary lending.
• Cyclicality — electrical test equipment demand tracks utility and infrastructure capex budgets. Revenue is likely lumpy and project-driven, which argues for a committed revolving facility rather than an overdraft, and for covenant headroom set on a trailing twelve-month basis.

4. Monitoring Points

Recommended facility structure if proceeding: parent guarantee plus a fixed and floating charge, committed 364-day revolving facility with an annual clean-down test, and a covenant package on interest cover (minimum 3.0x) and tangible net worth, tested on group-consolidated figures with a subsidiary-level liquidity floor.

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