Credit Assessment: WHAT STORES LIMITED

1. Credit Opinion: CONDITIONAL APPROVE

Rationale: WHAT STORES Limited presents a fundamentally sound balance sheet with strong net assets of £3.66M and negligible long-term debt. The company has a 20-year trading history and owns freehold property, providing substantial collateral coverage. However, the significant cash deterioration (87% decline year-on-year) and heavy stock concentration require further investigation before unqualified approval. The conditional rating reflects the need to understand cash flow dynamics and stock realisability before extending facilities.

2. Financial Strength

Balance Sheet Summary (FY2025): - Net Assets: £3,664,605 (down from £3,678,672 in FY2024 — a decline of £14,067 or 0.4%) - Share Capital: £100 (nominal only) - Total Equity funded by P&L Reserves: £3,664,505 - Gearing: Negligible — no long-term borrowings disclosed; only £39,296 in bank loans/overdrafts within current liabilities

Asset Composition Concern: The balance sheet is heavily concentrated in two asset classes: - Stock: £2,795,624 (61.1% of total assets, 70.8% of current assets) - Goodwill: £1,766,000 cost with £1,765,999 amortisation — effectively fully written down, carrying value of £1

This leaves tangible net assets (excluding goodwill) at approximately £3,664,604, which remains substantial. However, the stock concentration creates significant valuation risk should trading conditions deteriorate.

Freehold Property: The company holds freehold land and buildings at £248,640 carrying value (original cost £310,800), providing real asset backing.

Intercompany Positions: - Owed by group undertakings: £64,878 - Owed to group undertakings: £332,779 - Net liability to group: £267,901

These intercompany balances require clarification regarding repayment terms, security, and whether they are subordinated. The net payable position could represent a call on cash resources.

Trajectory Assessment: Net assets peaked at £3,894,111 in FY2020 and have gradually declined by approximately £229,500 (5.9%) over five years. This erosion, while modest, suggests the business is either distributing profits aggressively or experiencing margin compression. The absence of a filed P&L (small company exemption) limits visibility on profitability.

3. Cash Flow Assessment

Liquidity Position: | Metric | FY2025 | FY2024 | Movement | |--------|--------|--------|----------| | Cash | £121,667 | £966,358 | -87.4% | | Current Assets | £3,952,056 | £4,007,135 | -1.4% | | Current Liabilities | £889,539 | £1,098,470 | -19.1% | | Net Current Assets | £3,062,517 | £2,908,665 | +5.3% | | Current Ratio | 4.44x | 3.65x | Improved | | Quick Ratio (ex-stock) | 1.30x | 1.76x | Deteriorated |

Cash Deterioration Analysis: The £844,691 cash decline is partially explained by: - Stock increase: +£603,478 (working capital absorption) - Trade debtors increase: +£144,741 (potential collection delays) - Trade creditors decrease: -£293,774 (paying suppliers faster) - Net intercompany position shift requires investigation

The cash position, while sharply reduced, remains positive with no overdraft utilisation beyond the £39,296 disclosed.

Working Capital Quality: The quick ratio of 1.30x is adequate but leaves limited headroom if stock cannot be converted to cash at book value. In a retail business, stock realisability is the critical variable — any markdown would rapidly erode the working capital cushion.

Trade Creditors Reduction: Trade creditors fell from £479,821 to £186,047 — a 61% reduction. This could indicate improved supplier terms, reduced purchasing, or accelerated payment. Combined with the stock build, this suggests the company may be stockpiling ahead of anticipated supply issues or seasonal demand, or conversely, experiencing slow stock turnover.

4. Monitoring Points

Immediate Investigation Required: 1. Management accounts: Request monthly management accounts to understand trading performance, given the net asset decline and absent P&L 2. Stock ageing analysis: With 61% of total assets in stock, understand composition, ageing, and markdown provisions 3. Intercompany agreements: Clarify terms of the £332,779 owed to group undertakings — are these on arm's length terms? Is there a right of set-off? 4. Cash flow forecast: Understand the drivers behind the 87% cash decline and expected recovery trajectory 5. Debtor collection: Trade debtors increased 22% — assess whether this reflects sales growth or deteriorating collection

Ongoing Monitoring: 1. Stock turnover ratio: Track quarterly to ensure stock remains current and saleable 2. Net asset trend: The slow erosion from £3.89M (2020) to £3.66M (2025) requires monitoring — establish acceptable threshold 3. Cash position: Set minimum cash covenant at £150,000 given the volatility demonstrated 4. Related party transactions: Monitor for further intercompany balance growth 5. Employee costs: Headcount increased from 24 to 27 — assess impact on overheads 6. Sector risk: Monitor retail trading conditions, particularly cost-of-living impacts on variety retail

Covenant Recommendations (if facility approved): - Minimum net assets: £3,000,000 - Maximum gearing: 50% (currently negligible) - Minimum current ratio: 2.0x (currently 4.44x) - Minimum cash balance: £150,000 - Stock provision coverage: evidence of adequate provision for slow-moving/damaged stock