The directors present the strategic report for the year ended 31 December 2023.
The combined UK business accounts for 16.7% of Group (audited) turnover with UK revenues 8.2% higher year on year, slowing from 60.8% in 2022, reflecting both the continued demand for consultancy services and annual contracts as organisations continue to strengthen their commitment to digital transformation strategies, whilst at the same time reflecting a maturing of the Business Applications market to a more sustainable long-term growth rate following the peaks and troughs following the COVID pandemic and other macro-economic events.
The UK management team continued the heightened level of attention placed on revenue, costs and cash flow forecasts, meeting frequently to provide business updates and to agree corrective actions needed to best manage business growth in a challenging environment.
Throughout the year, HSO continued to recruit to build capacity to meet future demand from the Microsoft Dynamics field, supported by contractors to cover peak demand, whilst investing in new capabilities to meet the fast-changing needs of our marketplace. In particular, we see organisations broadening their investment in Microsoft technologies to encompass Cloud, Data, Integration and Application Modernisation solutions, and HSO has focused recruitment investment in these areas.
Enterprise Solutions entered 2023 with a strong order book and sales pipeline. As noted in the previous report, the management team were conscious that the prospective time to deal closure during the second half of this year might become protracted, due mainly to the uncertainty caused by ongoing macro-economic events, and this turned out to be the case. Whilst HSO continues to be highly competitive due to the depth of its Microsoft skills, the maturity of its industry practices and its reputation in the market, 2023 saw longer decision cycles and more cautious investment decisions, and we see this trend continuing into the first half of 2024.
The business continues to invest in a range of service lines including Microsoft Business Analytics and Microsoft Power Platform. For 2023 an Azure oriented Infrastructure Services service line was created, providing an alternative and complimentary value-add customer service to our Business Applications. A key strategy for 2024 is the continued development of the Industry Market Units whereby go-to-market consultancy and technology propositions are defined by industry. HSO’s traditional Retail, Manufacturing and Distribution sectors were extended in 2023 to include Public Sector and the under-served Professional Services sector and this saw notable successes in Local Government, Policing, Government Arm’s Length Bodies, Legal Practices and Construction, which provide a platform for further growth in 2024.
At the same time, we continued to broaden our footprint in the long-established Manufacturing sector in 2023, consolidating our position in the discrete and process manufacturing sub-sectors, and adding customers in energy, engineering and life sciences. In retail, our successes reflected the changing landscape of the sector as the centre of gravity move from the high street to on-line and industrial estates.
A claim associated with R&D developments under the HMRC Sponsored Research & Development rebate scheme for 2021 was successful, the receipt of which is recognised within Other Income. HSO will not be submitting a similar R&D claim for the 2022 period.
Managing risks and uncertainties related to the business is an integral part of management and control. Management and the workforce identify, discuss, and manage risks and challenges that are associated with the respective business, project, customer, or contract continuously. The management culture is very risk averse from a financial and operational point of view. Employees at all levels and roles are supported to call out and register risks as soon they identify them; managing them is our core business.
Our processes include formally reviewing internal and external risks as quickly as possible, including risks facing our customers, their businesses and/or their projects and we manage these accordingly.
We have categorised risks and uncertainties in the following categories:
Strategic
The types of business solutions, applications and services needed by our customers continue to expand rapidly because of changing business environments and in turn shifting technology requirements. New and existing clients alike are investing heavily in agile cloud-based solutions resulting in a steady stream of new project services and support opportunities.
As we exclusively work with state-of-the-art solutions from Microsoft, HSO management invests substantial time and money into HSO's future strategy with Microsoft. Such investment includes expanding our project and support services portfolio, product portfolio and updating skills and knowledge to be a leader in the cloud business applications space. The service lines provide more focus and greater service delivery economies across the various service disciplines, including Unified Operations (D365F&O), Customer Engagement (D365CE) and Managed Services, Business Intelligence/Analytics, Power Platform and Infrastructure Services, resulting in new project and support service revenue streams.
The introduction of Industry Market Units (IMU) capability for our existing Manufacturing, Retail, Distribution, and newer Professional Services and Public Sector markets leverages expertise and IP from across the HSO Group. Each IMU brings deep Industry expertise to complement existing technical know-how and will straddle the Service Lines to expand and round out solution propositions for each market.
Changes to freedom of movement post Brexit restricted our ability to recruit freely from EU countries during 2023 requiring an increase in Visa sponsorship. However, to help mitigate any potential risk of being able to meet demand, the company provides an array of staff retention initiatives such as technical and soft skills training plus many staff engagement and support programs. Staff attrition fell from 15% to 10% in 2023, aligning to the industry norm with HSO UK achieving 6th position overall and 1st in the technology category in the Enterprise level top 100 Best Companies to work for in 2023, and we were recently named Best Microsoft Partner to Work for 2024.
HSO recognises the stresses on our workforce that come with working in such a rapidly changing industry. Our employees constantly need to acquire new skills and tools to meet the fast-changing needs of customers, who themselves are working under more pressure than ever before. HSO’s internal training team supported by the HSO Academy have played a large role in ensuring HSO and our people are the most skilled in the industry and at the forefront of innovation.
HSO has always given the highest priority to employee wellbeing. The management team continues its focus on and investment in communication, sustainable working, learning and development, employee engagement, diversity and inclusion, community, and mental health support.
HSO Enterprise Solutions continues to work to improve professional services profitability, thus reducing the dependency on software license revenue and margins to deliver positive EBIT. Across our consulting engagements, we take full advantage of the offerings of the HSO Global Services team which provide packaged solutions which can be embedded into our consultancy services, for example Testing as a Service (TaaS). The continued development of templates, accelerators and HSO-developed IP also provides the dual benefit of providing more cost-effective solutions for our customers at a higher margin.
HSO checks the financial position of potential customers before engaging and contracting. However, financial checks alone do not always tell the whole story. Reading signals such as a change of CIO, CFO or CEO sometimes indicates more than balance sheets do.
HSO continues to focus on cash flow and collections, reducing the overall exposure on receivables. Improvements include involving resources that are close to the customer (project managers, account managers) to support timely collections and building good relationships with our customers' finance departments.
The company has no loans or credit lines; therefore, a change in interest rates would have no impact.
Operational
Our services revenues are the result of projects or annual contracts. Larger projects or contracts may represent up to 10% of the total service revenue; therefore, project or contract related risks need to be limited and distributed.
Our delivery approach and methodology is to organise projects into multiple Business Releases, each with its own scope, time and budget. Our project contracts or statements of work are based on phases within each Business Release, providing a clear definition of project deliverables.
Business Releases are further divided into phases including Diagnostic, Analysis, Design, Develop, Deliver, Deploy and Operation. Our methodology is supported by tools, systems and templates to control project risks. Optimisation of our approach and methodology is a continuous process as is investment in templates to accelerate and standardise deliverables.
The company has adequate financial resources along with a diverse spread of customers. There is no over reliance on any single customer. The directors have prepared forecasts for this business, considering any change in trading position since the year end. Consequently, they believe that the company is well placed to manage its business risks successfully despite an uncertain economic environment. Thus, they continue to adopt the going concern basis of accounting in preparing these financial statements.
As directors of HSO, we are dedicated to promoting the success of the group for the benefit of its members as a whole, while considering the interests of our stakeholders. This statement outlines how we have fulfilled our duties under Section 172 of the Companies Act 2006.
We prioritise sustainable growth and innovation. Our strategic decisions, such as investing in advanced technologies and expanding our service offerings, are made with a long-term perspective to ensure HSO’s continued success and competitiveness in the technology sector.
Our employees are our greatest asset. We have implemented comprehensive training programs, competitive compensation packages, and a supportive work environment to foster their growth and well-being. Regular feedback sessions and employee surveys help us understand and address their needs.
Maintaining strong relationships with our suppliers, customers, and partners is crucial. We engage in regular dialogue with our key stakeholders to ensure mutual benefits and address any concerns promptly. Our customer-centric approach drives us to continuously improve our products and services.
On behalf of the board
The directors present their annual report and financial statements for the year ended 31 December 2023.
The results for the year are set out on page 11.
Ordinary dividends were paid amounting to £1,035,368. The directors do not recommend payment of a further dividend.
The directors who held office during the year and up to the date of signature of the financial statements were as follows:
The auditor, PM+M Solutions for Business LLP, is deemed to be reappointed under section 487(2) of the Companies Act 2006.
During the year, the company consumed 1.9m kWh (2022 - 1.73m kWh) of energy.
There were no direct emissions of CO2.
The volume of CO2 equivalent produced through indirect emissions by the purchase of electricity was 11 tonnes (2022 - 11 tonnes) and fuel consumed for transport not owned by the group was 769 tonnes (2022 - 847 tonnes).
The chosen intensity measurement ratio is total gross emissions in metric tonnes CO2e per employee. This was 2.33 metric tonnes CO2e per employee in 2023 (2022: 2.49).
Basis for opinion
Conclusions relating to going concern
In auditing the financial statements, we have concluded that the directors' use of the going concern basis of accounting in the preparation of the financial statements is appropriate.
Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or collectively, may cast significant doubt on the company's ability to continue as a going concern for a period of at least twelve months from when the financial statements are authorised for issue.
Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report.
Other information
Opinions on other matters prescribed by the Companies Act 2006
In our opinion, based on the work undertaken in the course of our audit:
the information given in the strategic report and the directors' report for the financial year for which the financial statements are prepared is consistent with the financial statements; and
the strategic report and the directors' report have been prepared in accordance with applicable legal requirements.
As explained more fully in the directors' responsibilities statement, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the directors are responsible for assessing the company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the company or to cease operations, or have no realistic alternative but to do so.
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.
Extent to which the audit was considered capable of detecting irregularities, including fraud
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which our procedures are capable of detecting irregularities, including fraud, is detailed below.
We identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, and then design and perform audit procedures responsive to those risks, including obtaining audit evidence that is sufficient and appropriate to provide a basis for our opinion.
Identifying and assessing potential risks related to irregularities
In identifying and assessing risks of material misstatement in respect of irregularities, including fraud and non-compliance with laws and regulations, we have considered the following:
the nature of the industry and sector, control environment and business performance including the design of the Company's remuneration policies, key drivers for directors’ remuneration, bonus levels and performance targets;
results of our enquiries of management about their own identification and assessment of the risks of irregularities;
the matters discussed among the audit engagement team and relevant specialists regarding how and where fraud might occur in the financial statements and any potential indicators of fraud;
any matters we identified having obtained and reviewed the Company's documentation of their policies and procedures relating to:
identifying, evaluating and complying with laws and regulations and whether they were aware of any instances of non-compliance;
detecting and responding to the risks of fraud and whether they have knowledge of any actual, suspected or alleged fraud;
the internal controls established to mitigate risks of fraud or non-compliance with laws and regulations.
As a result of these procedures, we considered the opportunities and incentives that may exist within the organisation for fraud and identified the greatest potential for fraud in the following areas: timing of recognition of commercial income, posting of unusual journals and complex transactions; and manipulating the Company's performance profit measures and other key performance indicators to meet remuneration targets and externally communicated targets. In common with all audits under ISAs (UK), we are also required to perform specific procedures to respond to the risk of management override.
We also obtained an understanding of the legal and regulatory frameworks that the Company operates in, focusing on provisions of those laws and regulations that had a direct effect on the determination of material amounts and disclosures in the financial statements. The key laws and regulations we considered in this context included UK Companies Act, employment law, health and safety regulations, pensions legislation and tax legislation.
Audit response to risks identified
Our procedures to respond to risks identified included the following:
reviewing the financial statement disclosures and testing to supporting documentation to assess compliance with provisions of relevant laws and regulations described as having a direct effect on the financial statements;
enquiring of management concerning actual and potential litigation and claims;
performing analytical procedures to identify any unusual or unexpected relationships that may indicate risks of material misstatement due to fraud;
reading minutes of meetings of those charged with governance and reviewing correspondence with HMRC; and
in addressing the identified risks of fraud through management override of controls, testing the appropriateness of journal entries and other adjustments; assessing whether the judgements made in making accounting estimates are indicative of a potential bias; and evaluating the business rationale of any significant transactions that are unusual or outside the normal course of business.
Owing to the inherent limitations of an audit, there is an unavoidable risk that we may not have detected some material misstatements in the financial statements, even though we have properly planned and performed our audit in accordance with auditing standards. For example, the further removed non-compliance with laws and regulations (irregularities) is from the events and transactions reflected in the financial statements, the less likely the inherently limited procedures required by auditing standards would identify it. In addition, as with any audit, there remained a higher risk of non-detection of irregularities, as these may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal controls. We are not responsible for preventing non-compliance and cannot be expected to detect non-compliance with all laws and regulations.
A further description of our responsibilities is available on the Financial Reporting Council’s website at: https://www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor's report.
Use of our report
This report is made solely to the company's members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company's members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company's members as a body, for our audit work, for this report, or for the opinions we have formed.
The profit and loss account has been prepared on the basis that all operations are continuing operations.
HSO Enterprise Solutions Limited is a private company limited by shares incorporated in England and Wales. The registered office is 3rd Floor, Jackson House, Sibson Road, Sale M33 7RR.
The financial statements are prepared in sterling, which is the functional currency of the company. Monetary amounts in these financial statements are rounded to the nearest £.
This company is a qualifying entity for the purposes of FRS 102, being a member of a group where the parent of that group prepares publicly available consolidated financial statements, including this company, which are intended to give a true and fair view of the assets, liabilities, financial position and profit or loss of the group. The company has therefore taken advantage of exemptions from the following disclosure requirements:
Section 7 ‘Statement of Cash Flows’: Presentation of a statement of cash flow and related notes and disclosures;
Section 33 ‘Related Party Disclosures’: Compensation for key management personnel.
The financial statements of the company are consolidated in the financial statements of HSO UK Holding Limited. These consolidated financial statements are available from its registered office, 3rd Floor Jackson House, Sibson Road, Sale, England, M33 7RR.
The company has adequate financial resources along with a diverse spread of customers. There is no over reliance on any single customer. The directors have prepared forecasts for this business, considering the change in trading position since the year end. Consequently, they believe that the company is well placed to manage its business risks successfully despite the current uncertain economic environment. Thus, they continue to adopt the going concern basis of accounting in preparing these financial statements.
Basic financial assets, which include debtors and cash and bank balances, are initially measured at transaction price including transaction costs and are subsequently carried at amortised cost. Financial assets classified as receivable within one year are not amortised.
Financial assets are derecognised only when the contractual rights to the cash flows from the asset expire or are settled, or when the company transfers the financial asset and substantially all the risks and rewards of ownership to another entity, or if some significant risks and rewards of ownership are retained but control of the asset has transferred to another party that is able to sell the asset in its entirety to an unrelated third party.
Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An equity instrument is any contract that evidences a residual interest in the assets of the company after deducting all of its liabilities.
Basic financial liabilities, including creditors, bank loans, loans from fellow group companies, are initially recognised at transaction price unless the arrangement constitutes a financing transaction, where the debt instrument is measured at the present value of the future payments discounted at a market rate of interest. Financial liabilities classified as payable within one year are not amortised.
Trade creditors are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Amounts payable are classified as current liabilities if payment is due within one year or less. If not, they are presented as non-current liabilities. Trade creditors are recognised initially at transaction price and subsequently measured at amortised cost.
Financial liabilities are derecognised when the company’s contractual obligations expire or are discharged or cancelled.
In the application of the company’s accounting policies, the directors are required to make judgements, estimates and assumptions about the carrying amount of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised where the revision affects only that period, or in the period of the revision and future periods where the revision affects both current and future periods.
The main areas of judgement that have a risk of causing material adjustment to the carrying amounts of assets and liabilities within the next financial year, are in relation to Trade debtor provisions, see note 11 for carrying amount. All estimates and assumptions surrounding the impairment of Trade debtor balances are based on past knowledge and current commercial awareness.
The number of directors for whom retirement benefits are accruing under defined contribution schemes amounted to 2 (2022 - 1).
The average monthly number of persons (including directors) employed by the company during the year was:
Their aggregate remuneration comprised:
From the 1 April 2023 the effective tax rate is 25%. During the year the effective tax rate was 23.5%.
The actual charge for the year can be reconciled to the expected charge for the year based on the profit or loss and the standard rate of tax as follows:
The amounts owed to group undertakings have no fixed repayment terms and are interest free.
There is a fixed and floating charge over all the assets and undertakings of the company.
The following are the major deferred tax liabilities and assets recognised by the company and movements thereon:
The company operates a defined contribution pension scheme for all qualifying employees. The assets of the scheme are held separately from those of the company in an independently administered fund.
At the balance sheet date, the total outstanding pension contributions were £246,001 (2022: 141,453).
On 11 October 2019, a fixed and floating charge over all assets of the company was created by Wilmington Trust (London) Limited.
At the reporting end date the company had outstanding commitments for future minimum lease payments under non-cancellable operating leases, which fall due as follows:
During the year, the company paid salaries and benefits to connected parties of a Director. The aggregate amounts recognised in the financial statements was £
The company is exempt from disclosing transactions with wholly owned companies within it's own group, under FRS 102 paragraph 33.11.