The directors present the strategic report for the year ended 30 June 2024.
Azets Holdings Limited (the "company" or "Azets UK") heads and is one of the principal trading entities for the UK sub-group of the wider Azets group (being the group headed by Lynx Topco Limited) ("the group", "Azets") and provides accountancy, advisory and taxation services.
During the year, the company completed the acquisitions of customer contracts in the medical services sector. In addition, the company also completed the hive-up of the trading activities and net assets of Naylor Wintersgill Limited and Azets Tait Walker Management Services Limited.
As discussed below, the company traded profitably and generated a retained profit. The company has grown by acquisition and with this comes a significant non-cash amortisation charge related to the intangible assets acquired. These acquisitions were funded via intercompany loans which attract interest at market rates. However interest is rolled up into the loan rather than being paid in cash. In total, these two non-cash charges of £26.9 million (2023: £26.8 million) were incurred by the company. Despite these non-cash charges, the retained profit before exceptional items was £14.7 million (2023: £3.0 million).
Revenue for the year of £283.7 million was a 13.0% increase on the prior year (2023: £251.1 million) as a result of organic growth, a full year's trading of the Sandisons and Naylor Wintersgill businesses which were acquired in the prior year.
The main measure of the company’s profit performance is operating profit from continuing operations before depreciation, interest, taxation, intangible asset amortisation and exceptional items (“EBITDAE”). EBITDAE for the year was £44.1 million (2023: £36.1 million).
EBITDAE increased by £8.0 million (22.2%) to £44.1 million due to the growth in revenue due to organic growth and full year impact of prior year acquisitions, increased margins and improved operational performance throughout the business building on the benefits of the transformation programme implemented in the prior year as well as the positive impact of the recent acquisitions.
After the non-cash depreciation of £10.6 million (2023: £9.1 million) and amortisation charges of £15.2 million (2023: £14.8 million) and exceptional items of £7.5 million (2023: £5.0 million), there was an operating profit for the year of £10.8 million (2023: £7.3 million).
Exceptional items included within operating profit of £7.5 million (2023: £5.0 million) include impairment charges of £0.9 million (2023: £0.2 million), movement in fair value of consideration of £0.9 million (2023: £1.2 million) and other exceptional costs of £5.7 million (2023: £3.6 million). Other exceptional costs principally relate to redundancy costs and post-acquisition integration costs related to acquisitions from the prior year.
There was a net interest charge of £13.4 million (2023: £13.4 million) and a tax credit of £4.1 million (2023: £4.0 million) as a result of the unwinding of the deferred tax recognised on customer intangible assets. The company also received dividends of £13.3 million (2023: £16.5 million) from its subsidiaries and recorded a consequent impairment of £7.7 million (2023: £16.4 million) in the associated investments. This resulted in a profit after tax for the year of £7.1 million (2023: loss after tax of £2.0 million).
The statement of financial position shows the company’s financial position at the year end. The company is financed via intercompany loans which totalled £228.1 million at 30 June 2024 (2023: £233.9 million). The company has obtained agreement that these loans will not be repayable before 31 December 2025 and as a result has net current assets as at 30 June 2024 of £42.8 million (30 June 2023: £36.6 million).
The company’s financial position is considered satisfactory in terms of working capital and cash, and the directors believe the company to be well positioned for future growth.
The principal activity of the company is the provision of accountancy, advisory and taxation services in the United Kingdom. We serve a number of client segments, including private clients, large companies, and smaller growing businesses both privately owned and in the public sector. The majority of our clients are entrepreneurial, owner-managed, and family-owned businesses in the SME/SMB sector.
The company is committed to providing a high-quality client service. We get to know our clients both individually and by using data insights that enable us to increase our focus on advisory services aligned to client needs. We are increasing our service portfolio, with a key focus on identifying opportunities to deliver value-added services to new and existing clients. This is a key part in remaining the primary trusted business relationship to our clients. We do this both by developing and extending our core services and through a network of complimentary strategic services. This strategy is rapidly strengthening Azets’ position as a provider of business-critical services, increasing our share of spend and delivering greater benefits for clients.
Our propositions are underpinned by market leading technology. The Azets client portal, Cozone, provides clients access to their data and all services from anywhere on any device, including talking to advisors. Aligned to our wide range of client propositions this gives Azets a unique position in the market.
In the past twelve months, the Azets group has strengthened its Environmental, Social and Governance (“ESG”) structure, creating an Executive Steering Committee and an ESG Delivery Group that brings together senior colleagues from across the Group. This structure determines the Group-wide initiatives and actions that build a better environment for our colleagues, clients and communities whilst also increasing awareness and mitigating potential financial and reputational risks.
As a result of growth during the year ended 30 June 2024 and up to the date of signing this report, the company now employs more than 3,400 people from 60+ offices around the UK.
During the year ended 30 June 2024, the company continued to acquire employees and customer lists during the current year with a focus on high quality accountancy businesses and complimentary business services providers, aligned with the Group’s strategic plan and with a focus on smooth and successful integration.
The company acquired RSM UK’s specialist medical accounting team and client book for consideration of £6 million. This is Azets’ second specialist medical accounting acquisition after Dorset-based Sandisons joined the Group in September 2022 and expands Azets’ regional footprint in the South East, North West, and Yorkshire. Azets now plans to drive further growth as the number one provider of accounting and advisory services to the UK’s medical sector.
There are six notable risk category themes for this reporting period: Credit, Financial (including Liquidity / Capital Management), Technology and Systems (including Operational Resilience), Macro Environment and Data and Information Security. The specific risks below are not static or exhaustive and may be subject to modification as risk exposure changes; some of which are not within the control of the company or its directors:
Credit: The company’s credit risk is primarily attributable to its trade receivables. The company has no significant concentration of credit risk, with exposure spread over many customers and market segments.
Liquidity / Capital Management / Cash Flow: The company is financed through floating rate inter-company loans (see note 21 for more details). The appropriateness of these inter-company loans and the risks related to variable rate loans has been reviewed by management and the Board. This financing provides the necessary headroom to support the expansion plans of the business. The facilities are not the subject of financial covenants.
Operational Resilience (Systems, People and Processes): With ongoing acquisitions, emerging technologies and operational improvement in mind, the ability to realise operational benefits and integrate systems effectively provides the company with opportunities as well as risk exposure. Focus remains on integrating new acquisitions efficiently, optimising/embedding change, new opportunities and process improvements including automation opportunities and implementing effective people strategies (workforce planning, recruitment and retaining the right people in the right roles) to support agility and efficiency. The company is monitoring the emerging use of generative artificial intelligence and other digital advances/disruptions (to include changing risk exposure and/or opportunities).
Data Capability and Management: The company continues to focus on data as an asset and an enabler for growth. Keeping in mind the update of existing systems, data held or new systems through acquisitions and/or obsolete, end of life systems, effective data management is vital to minimise the risk of data loss or missed opportunities, across the company. The data management risk (including availability, accuracy and completeness) is monitored by the Data Governance Board, with stakeholders across the Group, including our Group GDPR lead and Data Protection Officer (DPO), monitoring risks, opportunities and actions (including data cleansing activities).
Information / Cyber Security: The company is committed to maintaining security of its internal and client data. Information security risk and the risk of a cyber-attack (for example, malware, phishing, ransomware, denial of service) continues to feature as a key risk for the company. All employees are required to complete a programme of mandatory cyber security training and will be trained as part of their induction. This training, along with ongoing communication and testing, supports staff awareness and their need to report potential issues; for example, phishing attacks have been spotted, reported and dealt with appropriately.
Macro Environment / Geopolitical: With macro-economic changes (interest rates, inflation) and wider geo-political instability, the company continues to monitor direct and indirect impacts and risk exposure. Emerging risks, including but not limited to, changes to legislation and regulation and ESG requirements, are recorded, monitored and, where appropriate, actioned through the existing Group Horizon Scanning Forum and Group Risk Committee.
During the year, the company acquired RSM UK's specialist medical accounting team and client book for £6 million. The customer contracts have been capitalsed as an intangible and further details are set out in note 12 to the financial statements.
The company did not make any acquisitions of business during the year.
On 31 October 2023, the trade and assets of Azets Tait Walker Management Limited were transferred to the company via a hive-up arrangement. On 31 December 2023, the trade and assets of Naylor Wintersgill Limited were transferred to the company via a hive-up arrangement.
Further details are set out in note 12 to the financial statements.
Subsequent events
On 1 October 2024, the company acquired 100% of the share capital of Milne Craig Holdings Limited for consideration of approximately £17.2 million. Based in Paisley (Glasgow), Milne Craig is a long-established firm of accountants, providing accountancy, tax, advisory and Wealth Management Services to clients in the Glasgow region.
On 31 January 2025, the company acquired 100% of the share capital of Laurus Associates Holding Company Limited for consideration of approximately £1.7 million. Based in Newcastle Upon Tyne, Laurus Associates is a long-established wealth management business.
Due to the relative proximity of these acquisitions to the finalisation of these financial statements, management has not completed its assessment of the fair values of the assets and liabilities acquired. However, neither the fair values of the assets and liabilities, including the associated goodwill, nor the forecast contribution to profit before tax are expected to be material relative to the company's current financial position, results of operations or cash flows.
Future developments
FY24 saw the Azets group enter its next growth phase, welcoming new investment from PAI Partners, who hold a co-controlling stake in the Group alongside existing investors Hg. This represents the next phase of embedding our five-year strategy - The Pathway - which sets out our ambitious growth strategy to be a £1bn+ revenue business by 2027 by offering trusted, business critical advice, compliance and outsourcing services to ambitious companies and business owners via our talented colleagues, network of local offices, effective technology and digital insights. The company forms a key part of this Group strategy.
Underpinning our strategy is our purpose: to improve the lives of our colleagues, clients and communities, in a sustainable way. This is our driving force, and the successful delivery of our five-year strategy is underpinned by five strategic pillars, each with executive Group ownership for delivery.
Ambitious Growth Pillar – We continue to expand our range of services across our geographies and client segments to offer our existing clients the service they need as well as attracting new clients. Our successful M&A growth strategy means we have acquired and integrated new businesses globally increasing our footprint into new sectors too.
We are continuing to develop our data capabilities and client insights to identify opportunities to help our clients achieve their ambitions - be that to grow, to exit, to increase profitability or to simply remain confidently compliant. We will continue to actively grow our market share in the SME/SMB sector, whilst retaining and growing our presence in private client, public sector, large and enterprise corporates and international businesses. We have strength and depth in a number of sectors, and this is our next area of focus, to maximise the opportunity to go to market by sector which will give our colleagues an opportunity to evolve and refine their skills.
Talented Smart People Pillar – Our colleagues are central to our success and core to our purpose is our aim to improve the lives of our colleagues. Our goal is to be an attractive company to work for – the employer of choice – where our colleagues want to stay, and new people want to join. We continue to proactively invest in the development of our people through Azets Reach! - our talent and performance development framework that focuses on offering learning and development that enables our colleagues to progress to the most senior levels within Azets or to develop their specialist skills to be experts.
Personalised Client Service Pillar – We have a loyal client portfolio of 100,000 clients driven by our ambitious client feedback process and network of local offices across our communities. We recognise that our clients want to find a local support network and no business of our scale operates through as many local communities as we do. Our ambition is to deliver a personalised client service using both traditional client service techniques but also leveraging best in breed technologies, enhancing our client propositions, and increasing our use of data analytics. Our data is a huge asset, providing client insight unrivalled in our sector. Investment in data analytics continues and will generate significant growth opportunities for both existing and new clients.
Operational Excellence Pillar – Our continuous improvement programmes continue to touch every area of our business enabling us to work smarter and more effectively, creating capacity to deliver services that our clients want and will enhance our trusted client relationships. We continue to optimise our core systems and processes to create and build a solid, scalable foundation for future growth. These include demand and resource planning tools, expansion of nearshoring to our Romania operation, process optimisation and automation technologies. Data is rapidly becoming one of the world’s most valuable commodities and armed with the rich data our investments are generating, our colleagues can identify opportunities to help our clients make the right decisions for their business or on a personal level. Our use of data will increase and become the bedrock of business. Across Azets we will continue to enhance our automation strategy and deployments ensuring we fully embrace and maximise the potential that automation technologies can bring to our business. Process automation, system integration, software robotics and artificial intelligence sit at the heart of accelerated automation projects we have in the pipeline, all designed to create capacity to focus on higher value client work. These technologies provide us with opportunities to further improve both the predictability and reliability of our service delivery and, more importantly, the ability to scale up / down quickly to meet client demand and smooth peaks in our delivery.
Effective Technology – Our future client propositions will remain a combination of personal, face to face advisory support combined with a digital proposition to ensure we continue to capitalise on the demand for real time advice aimed at making our clients’ businesses better. We will equip our advisors with the skills to deliver compliance services efficiently and proactive business advice, using real-time business intelligence from end-to-end digital solutions. We will deploy specialist technology consulting teams to help our clients successfully transition to digital business processes. Through our scale we will continue to partner with leading industry strategic third-party vendors such as Dext & Xero to embed the right end-to-end business solutions, for example the regulatory UK requirements of Making Tax Digital mean our clients will interact with us more regularly, strengthening client relationships and opportunities to grow revenue. The combination of digital business tools, business intelligence, data driven client insight and the ongoing re-development of the Azets Cozone portal will differentiate us in our markets.
The Wates Corporate Governance Principles for Large Private Companies serves as the framework to demonstrate how directors have had regard for the matters set out in sections 172(1)(a) to (f) of the Act when performing their duties. Reporting against the Wates Principles is included in the Statement below.
Statement of Corporate Governance
For the year ended 30 June 2024, the company applied the Wates Corporate Governance Principles for Large Private Companies which can be found at www.wates.co.uk/who-we-are/corporate-governance.
The company provides accountancy, advisory and taxation services to its clients which are predominantly in the UK. As noted above the company is a member of the Azets group and is the group’s main trading entity in the UK.
Historically, the company had been wholly subject to the governance framework of the group, but as the company has grown both organically and through acquisition, so has the level of governance required at the company level. The directors continue to take steps to develop the governance structure for the company however, as would be expected for a wholly-owned company, once the appropriate governance has been established and embedded at company level, certain aspects of governance will continue to be subject to group arrangements.
Set out below is an explanation of how the Wates Principles have been applied during the year ended 30 June 2024 (“FY24”) and any changes that have been implemented subsequent to the year end.
Principle 1 – Purpose and leadership
Purpose
The company is part of Azets, an international accounting, tax, audit, advisory and business services group. Our company purpose is to improve the lives of our colleagues, clients and communities in a sustainable way.
The company provides its clients with the support they need to help manage and grow their businesses. The company also places great emphasis on developing and supporting its employees, and the communities in which they work, in order to contribute to, and have a positive impact on society beyond our core business deliverables.
The group and the company continue to expand through strong organic growth augmented by strategic acquisitions as it has done since the inception of the group in 2016 and post completion of the group-wide transformation programme and as outlined in our “Route to Success” our desire to drive forward as “One Azets”, a more aligned business; driving value creation through standardised operational practices across the group enabling benefits from the acquisitions completed to date to be synergised quickly and providing the platform for further growth whether organic or from M&A activity.
Values and Culture
The values of the company are aligned with those of the group in being Collaborative, Authentic, Respectful and Dynamic. These values are regularly communicated and reinforced amongst the company's teams.
In addition, the company abides by the ICAEW Code of Ethics which guide members’ behaviour: Integrity, Objectivity, Professional Competence and Due Care, Confidentiality and Professional behaviour.
These values underpin the way that we undertake our work and work with each other. The company operates policies and procedures designed to support staff in applying those values throughout their careers. These include regular updates and webinars along with mandatory and vocational training.
Strategy
The company aims to deliver a personalised client service through leveraging best in breed technologies, enhancing our client propositions, and increasing our use of data analytics. Investment in data analytics continues and will generate significant growth opportunities by creating additional value for both existing and new clients.
The company’s client experience is based on delivering a highly personalised service, through its local office network and its proprietary digital workplace technology, “Azets CoZone”. A unique cloud-based portal, Azets CoZone continues its development and will offer SMEs a market leading digital solution, providing the Azets client team and our UK clients with instant access to information about the their business that simplifies workflows, increases operational productivity, and supports a more productive client relationship.
Strategy (continued)
The company will be launching a range of sector focussed digital propositions capitalising on the demand for real time advice aimed at making our clients‘ businesses better. The combination of digital propositions, data driven client insight and the ongoing re-development of the Azets CoZone portal will differentiate us in our markets. Our future client propositions will be a combination of face to face and digital offerings with development of our wider Digital Service Proposition underway.
The company will continue to target acquisitions of quality and scale, complementary businesses with an increased focus on smooth, successful integrations into the transformed Azets’ UK landscape.
Principle 2 – Board Composition
The board of directors of the company (the “Board”) now comprises three executive directors, one executive director having resigned from the Board on 1 August 2024. The company has not appointed a Chairman or further non-executive directors. The group board includes the Chairman, investor directors, non-executive and executive directors. It is envisaged that non-executive oversight will continue to be exercised at group level.
The Board is collectively responsible for establishing the framework and procedures to govern their work and to ensure the appropriate discharge of their legal and regulatory obligations associated with the company being a regulated entity. The business remains structured into five regional areas alongside five national service lines with an overall UK CEO and UK CFO appointed reporting directly to the Board. Each regional area is managed by a Regional Managing Director supported by a regional finance partner with the national service lines reporting into the CFO. Heads of the largest 3 service lines drive national focus, standardisation and coherence across the 5 new regions and report to the CEO. The Operational Board continues to retain delegated responsibility for the day to day running of the business led by the UK CEO supported by the UK CFO.
Balance and Diversity & Size and Structure
The Board currently comprises three directors, two of whom are male and one female. The current board members have a diverse range of skills, expertise and experience, including experience in the fields of management, accountancy and audit .
The directors have equal voting rights when making decisions. Directors have access to the advice and services of the General Counsel of the group and may, if required, take professional advice at the company’s expense.
The company promotes diversity in its approach to hiring new staff and will, along with the group and principal shareholder, apply the same considerations when making appointments to the Board. There is an equal opportunities and diversity policy in place.
The Board continues to delegate to the Operational Board responsibility for the day to day running of the business to that board led by the UK CEO. The Operational Board meets monthly and includes the CEO and CFO, Service Line Heads for the 3 largest service lines, five regional RMD’s, and representatives from HR, IT and Marketing, Compliance and the Group Deputy General Counsel. The Operational Board provides reports to the Board at each of their meetings. Operational Board gender diversity is 60:40 Male/Female.
Effectiveness
Directors keep their skills, knowledge and familiarity with the company up to date by meeting with senior management, and by attending company events and appropriate external seminars and training courses. Induction briefing sessions are provided to new directors which are tailored to their specific experience and knowledge, and which provide access to all parts of the business. Continuous professional development (CPD) is a pre-requisite for accountancy professionals, and this includes training in relation to director responsibilities. The directors are required to act in the interests of the company but will have regard to the interests of the wider group in discharging their responsibilities.
Principle 3 – Directors Responsibilities
Accountability
The Board has clearly documented terms of reference which were adopted during the prior year. This is aligned to the group’s governance arrangements but has also been designed to meet the company´s requirements on a standalone basis.
The Board met once during the year (FY23: twice). Under the newly established arrangements, the Board operates alongside the Operations Board with two independent meetings a year, with ad hoc meetings held as and when required.
The group continues to develop its governance framework which will encompass the company providing policies and delegations of authorities.
Committees
The group Board operates using various committees, including Audit and Risk and has delegated certain governance responsibilities to those committees which also have oversight of matters for the company. The Operations Board established sub committees for Audit and for Remuneration to work alongside the Operations Board. The Operations Board and its committees will review terms of reference to ensure that they remain fit for purpose, are adapted to promote good governance and meet the requirements of the company in line with overall direction from the group Board. The members of the Operations Board and sub committees are encouraged to challenge each other and the business to ensure there is constructive problem solving.
The Board and its committees will review terms of reference to ensure that they remain fit for purpose, are adapted to promote good governance and meet the requirements of the company.
The members of the Board are encouraged to challenge each other and the business to ensure there is constructive problem solving.
Integrity of Information
During FY23 and FY24, alongside the regular reports on business and financial performance, the Board has received regular reports from the Operational Board which now include, key risks and opportunities, strategy, operational matters, market conditions, human resources, legal, compliance, and regulatory matters.
Key financial information is collated by the company’s centralised finance function from its various accounting systems. The group’s finance function has the appropriate independence, expertise and qualifications to ensure the integrity of this information and is provided with the necessary training to keep up to date with regulatory changes. Financial information is externally audited by Ernst & Young LLP on an annual basis, who report their findings to the Board at the conclusion of the group audit and to the group via attendance at its Audit and Risk Committee. Other key information is prepared by the relevant business and internal functions, which are subject to periodic reviews by the internal audit function. Ernst & Young LLP also attend the Board meeting of the company at which the financial statements of the company are approved
The group’s Audit and Risk Committee which is a subcommittee of the group's Board is responsible for monitoring the effectiveness of internal financial control systems that identify, assess, manage and monitor financial risks, and the effectiveness of other operational and regulatory controls within the group, and this includes oversight of the company. Reporting to the group's Audit and Risk Committee is designed to separately identify issues related to the company versus issues related to other areas in the group, with issues related to the company being followed up with the company's Board for resolution.
The group Risk and Governance Director and members of the group's Internal Audit function are attendees at each Group Risk Committee and Group Audit Committee meeting and have unfettered access to meet with the Committee Chairman outside of the formal meeting programme, throughout the year.
Principle 4 - Opportunity and Risk Opportunity
The Board discussed its strategic plan with group management on a regular basis during the year. Short term opportunities to improve business performance and achieve operational efficiencies are considered with group management on a monthly basis. Longer term growth plans are also considered within this framework.
Risk
The Group Risk Committee and Group Audit Committee provide oversight to the company's management of risk. The group’s risk register is updated on a regular basis for review by the Committee; this includes commentary on risk exposure, key controls and emerging risks. The Audit and Risk Committee of the company supports the Board in fulfilling its responsibility for determining the company´s risk appetite and for ensuring that sound risk management and internal control systems are maintained. Risk appetite is set and approved, aligned to enterprise risk categories, against which all risks are assessed and monitored.
Senior leaders, risk owners and the company’s Risk and Compliance Director attend all meetings of the company’s Board during the year; risk is reported regularly with clear actions and accountability assigned. The group Audit and Risk Committee is the defined reporting and escalation route from the Board for risk or control matters (individual or aggregate) outside normal parameters. The group has formalised its enterprise risk management framework to focus on risk identification, assessment and management across key risk categories, to include control assessment, enabling the implementation of a consistent, systematic methodology.
Principle 5 - Remuneration
The principles in relation to remuneration are laid out by the group, but the Board is accountable for the decisions taken in relation to the company and its staff.
The remuneration principles allow each region or national serviceline to determine the remuneration for their region, with oversight provided by the group Remuneration Committee. The company is responsible for ensuring that remuneration is consistent with business strategy, objectives, values and the long-term interests of the company, encourages fair treatment of clients and fair treatment of staff, and include measures to avoid conflicts of interest. Appropriate remuneration structures assist the company in securing and retaining high quality staff.
During the year, the Operations Board established a sub committee to review and make recommendations with regard to remuneration levels within the UK business. The Remuneration Advisory Group was established comprised of a board director, UK CFO, UK CPO and a diverse group of partners from across the UK business. Subsequent to 30th June 2024, The Operations Board released a new Partner Balanced Scorecard to support fair and transparent remuneration decisions based on a wider range of qualitative and quantitative measures including risk and quality. Whilst the Scorecard remains iterative, the intention is to use this as a basis for remuneration discussions after 1st July 2025. More detailed gender pay gap reporting will be provided in future years. Data is being gathered in readiness for reporting to Government timescales.
Principle 6 – Stakeholder Relationships and Engagement
The Board is responsible for managing the business and the strategic success of the company and its subsidiaries. The Board adopts the behavioural standards and values of the group in relation to all its stakeholders.
External impacts
The company inevitably impacts the areas in which it works, both economically, bringing work to the region, and environmentally.
The Group has established an Environmental, Social and Governance (“ESG”) Committee. This committee has determined the group-wide initiatives and actions to build a better environment for our colleagues, clients & communities, increase diversity and inclusiveness in the workplace and have the right level of reporting, assessment and training in place to increase awareness and mitigate potential financial and reputational risks. Specific environmental actions continuing into 2024 include reducing printing and paper consumption, using recycling facilities in our offices, screening our suppliers using social and environmental criteria and ensuring our datacentre providers have robust carbon footprint reduction plans in place.
Stakeholders
As part of the group, the Board considers the views of its ultimate parent and the interests of the group as part of any major decisions made by the company. There is an ongoing dialogue with the stakeholders, both internally and externally on a range of subjects.
Clients
The company is committed to ensuring that all clients are treated fairly and that any conflicts of interest are highlighted and mitigated.
Employees
The Board recognises that employees have a major part to play in the success of the company and continues to foster high levels of employee engagement ensuring that our employees are central to how we operate. As part of this we have invested in developing the pathways that our staff take during their time with the company, including their professional development, but equally importantly their wellbeing and ensuring there is an appropriate balance of in-office and working from home.
People are at the heart of the business, and we want our staff to feel that they are integral to the success of the company and that it considers them in all that it does. The Board recognises that it is important employees feel able to raise concerns about conduct or ethical practices in a manner which they feel is safe and secure, a process which is aligned to the ICAEW regulated status of the company. A new policy in this respect is under review and is expected in due course. Any conflicts between staff and clients are managed via an internal self-reporting process ratified by an annual ‘fit and proper’ process and are also covered by directors as part of the standard board agenda.
The Board continues to benefit from high levels of employee engagement via regular “Your Voice” employee surveys to gain valuable staff feedback. Since December 2020, the group has used a quarterly “Your Voice” employee engagement survey to gain valuable staff feedback. There are a variety of questions on topics include wellbeing, job satisfaction, connection to the company, peer relationships and workload. The surveys are open to employees throughout the group, but the results can be filtered by department and location. People managers and senior leaders are actively encouraged to review the eNPS scores of their teams and respond to the comments made in the survey, and then make positive changes. We have seen considerable improvement to employee satisfaction over the last 3 years, have introduced a number of new benefits and initiatives as a result of the feedback. These include having more flexible annual leave benefits, enhanced family friendly policies and training for new managers. Engagement with staff, including two way dialogue within the business is fundamental. The ‘Your Voice’ survey is a core element of our engagement strategy as it provides the employee with a direct means of feedback and which enables us to put in place the necessary action plans to address issues raised.
The DE&I Network continues to foster diversity and inclusion across the business. During the year we have appointed a dedicated Head of DE&I and ESG who works with committee members but fully supported by our AUK CEO and Leadership team who regularly attend meetings. Regular communications are a priority, keeping our colleagues and company informed about both business and people news. These updates are shared through various communication channels, including emails, our bi-weekly newsletter called "Pulse", newsletters, general updates, and the company intranet. In a meaningful partnership with The Princes Trust, we've strengthened our social commitment through a series of volunteering and mentoring opportunities. To further appreciate our peoples hard work and commitment, we have proudly launched two award recognition schemes across the business, allowing colleagues to recognise and celebrate one another.
Community
The company, as part of the wider group, takes its responsibility for environmental and social matters seriously. We have a number of informal working groups set up across the group, looking at Charities, ‘Green’ issues and Diversity & Inclusion. ESG reporting takes place at group level, with working groups in place across the group to further ESG matters.
Charity initiatives are particularly popular across the company, with local, regional and national events regularly happening throughout the year with much engagement from staff. During the year, we established a partnership with the King's Trust to provide corporate volunteering opportunities to support young people in building a better future for themselves and their communities.
Suppliers
The company carries out regular due diligence with new suppliers and existing ones, checking that slavery and human trafficking is not taking place in any of its supply chains or any part of its business. Suppliers are required to comply with the Modern Slavery Act. Our centralised procurement function continues to support our governance in this area, although offices will continue to use local businesses to supply goods and services where appropriate.
The directors present their annual report and financial statements for the year ended 30 June 2024.
The results for the year are set out on page 21. No interim ordinary dividends were paid during the year. The directors do not recommend the payment of a final dividend.
The directors who held office during the year and up to the date of signature of the financial statements were as follows:
The company's current policy concerning the payment of trade creditors is to follow the CBI's Prompt Payers Code (copies are available from the CBI, Centre Point, 103 New Oxford Street, London WC1A 1DU).
The company's current policy concerning the payment of trade creditors is to:
settle the terms of payment with suppliers when agreeing the terms of each transaction;
ensure that suppliers are made aware of the terms of payment by inclusion of the relevant terms in contracts; and
pay in accordance with the company's contractual and other legal obligations.
Trade creditors of the company at the year-end were equivalent to 75 days (2023: 59 days) purchases, based on the average daily amount invoiced by suppliers during the year.
In accordance with the company's articles, a resolution proposing that Ernst & Young LLP be reappointed as auditor of the company will be put at a General Meeting.
Reporting Period
The SECR reporting period coincides with the financial year reporting period between 1 July 2023 and 30 June 2024.
Energy Consumption
Reporting Methodology
Energy data has been collected by Azets staff from information issued by energy suppliers or brokers. This information includes both actual readings and estimated readings. This methodology had to be used as most offices remain closed during the pandemic. Where information has not been made available reasonable estimations have been made for the energy use.
In regard of business transport, each business journey is recorded in the companies expense control system and this information has been used to identify the total mileage travelled and the total litres of fuel purchased.
The conversion factor for kWh of energy to kgCO2e and miles travelled to kgCO2e have been taken from the government published data for ‘Greenhouse gas reporting: conversion factors 2020 at the Internet web address Greenhouse gas reporting: conversion factors 2023 - GOV.UK (www.gov.uk) [gov.uk] and ghg-conversion-factors-2023-condensed-set-update.xlsx (live.com) [view.officeapps.live.com]
Intensity Measurement
The Azets workforce are either office workers, travelling sales or consultancy roles. Therefore, it has been decided that the number of employees would be the most consistent year on year measure for annual energy comparisons. During the year ended 30 June 2024 the average number of employees are 3,487 (2023: 3,333 employees).
The Azets employee intensity ratio is therefore: 419kgCO2e per employee (2023: 427kgCO2e).
The decrease in the intensity ratio can be accounted for by staff continuing to work remotely and increased efficiency as a result of automation of processes.
Activities to Reduce Emissions
At Azets, we pledge to help enable a low-carbon and more circular economy, with a focus on the following areas:
• Becoming net zero
• Expanding our green initiatives across the group
• Promoting digital services and hybrid way of working
The company takes the environmental protection seriously and are committed to develop services and operations in a way that supports the sustainable society. Through the company values of Collaborative, Authentic, Respectful and Dynamic, Azets conducts our business in a responsible manner and in respect of the environment. In the professional services business the impact on the environment is mainly set by day to day decisions made by employees and customers, type of offices and consumable supplies used in those and through the supply chain.
Digital Services - Azets offers digitalised accountancy and business support services. By digitalizing our services and utilizing the opportunities of modern software platforms combined with digital marketing we aim to minimize the usage of paper and printing not only in our own operations but also among our 100,000 clients. Introduction of dry recycling bins: over 50% of waste is now recycled.
Smarter Working – Azets is committed to strive towards smarter working in order to create a more flexible working environment for our employees and to minimize negative impacts on the environment. By combining remote working and office work, we are able to reduce the office space needed and the energy and water consumption of our offices and reduce travelling by replacing physical meetings with digital ones and also encouraging our customers to do so. In case travelling is needed we recommend our employees to use public transportation instead of own cars and flights when possible. Through smarter working our aim is to constantly reduce the CO2 emissions of our operations.
Offices - When selecting our offices we aim to select locations with good public transportation connections and energy efficient solutions.
Utilities - We are currently transferring all our utilities to 100% renewable source contracts as they expire.
During the year, the company made charitable donations of £74,787 (2023: £17,250) to a number of charities.
The financial statements have been prepared on a going concern basis which the directors consider to be appropriate. Funding is provided to the company through intercompany borrowings from other companies within Azets. As at 30 June 2024, there were outstanding loans of £228.1 million which are not repayable before 31 December 2025.
In making their assessment of going concern, the directors have considered the company's cash flows, liquidity and likely business activities over the period to 31 March 2026, these forecasts assume no repayments in respect of the intercompany borrowings. The results of the base case forecasts show that the company currently has access to adequate resources to continue in operational existence until 31 March 2026. When applying what are considered to be reasonably possible downside scenarios the forecasts show that the company currently has access to adequate resources to continue in operational existence until 31 March 2026.
In making their assessment of going concern, the directors have obtained written confirmation from Azets Opco Limited that it has the ability to and will provide financial support to the company for a period until 31 March 2026 to assist the company in meeting its liabilities as and when they fall due to the extent that it is not otherwise able to do so from its existing resources.
The directors consider Azets Opco Limited is the most appropriate company to provide this support. Based on enquiries made in relation to the Azets Opco Limited group’s liquidity forecast the directors have concluded that Azets Opco Limited will be able to provide financial support to the company, for a period until 31 March 2026 as stated in the letter of support.
In reaching the conclusion that Azets Opco Limited is able to provide financial and other support, the directors of the company note that:
Azets Opco Limited group ("the Group") is funded through external borrowing. The external borrowings are not repayable before October 2028.
Azets Opco Limited is subject to a leverage ratio (Total net debt to Consolidated pro-forma EBITDA) financial covenant related to this external debt which will be assessed quarterly during the year. Under the terms of the banking agreement, the financial covenant becomes progressively more stringent after the first 36 months.
In making their assessment of going concern of the Group, the Directors of Azets Opco Limited ("the Group directors") have reviewed both the liquidity of the Group and its ability to comply with the financial covenant in both a base case and a downside scenario. The base case scenario applied by the Group Directors in their assessment of going concern shows that the Group will have adequate resources to continue in operational existence for the period under review and will meet its financial covenant during that period. The Group Directors have also considered what they believe to be a severe but plausible downside scenario being a 10% reduction in pro-forma EBITDA compared to pro forma EBTIDA generated in the year ended 30 June 2024. This scenario shows that the Group would continue to meet its financial covenant and meet its liabilities as they fall due for the period to 31 March 2026.
As such, the directors continue to adopt the going concern basis of preparation for these financial statements.
We have audited the financial statements of Azets Holdings Limited (the 'company') for the year ended 30 June 2024 which comprise the statement of comprehensive income, the statement of financial position, the statement of changes in equity and the related notes 1 to 33, including a summary of material accounting policy information. The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards, including FRS 101 ‘Reduced Disclosure Framework’ (United Kingdom Generally Accepted Accounting Practice).
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.
Our evaluation of the directors’ assessment of the company’s ability to continue to adopt the going concern basis of accounting included a review expected cashflows of the business, which confirmed that in certain circumstances the company will require financial support from a parent company, and obtaining a copy of the support letter the company received from Azets Opco Limited which we confirmed contained no conditionality and extended for the period to 31 March 2026. As part of assessing the ability of Azets Opco Limited to provide the support indicated we reviewed the consolidated financial statements of Azets Opco Limited for the year ended 30 June 2024, which were approved on 29 October 2024, and confirmed that, in concluding that the group headed by Azets Opco Limited was a going concern, both that company’s directors and auditors had considered a period of 15 months following the date of approval, which we calculate to be through to 31 March 2026. We have also considered the underlying consolidated forecasts presented by Azets Opco Limited at the time their financial statements were finalised and made direct enquiries of Azets Opco Limited management to confirm that the underlying forecasts referred to above remain the latest consolidated forecasts of the Azets Opco Limited group and that actual trading in the period since the approval of the Azets Opco Limited financial statements is not inconsistent with those forecasts.
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 until 31 March 2026.
Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report. However, because not all future events or conditions can be predicted, this statement is not a guarantee as to the company's ability to continue as a going concern.
Other information
The other information comprises the information included in the annual report other than the financial statements and our auditor's report thereon. The directors are responsible for the other information contained within the annual report.
Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in this report, we do not express any form of assurance conclusion thereon.
Our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the course of the audit, or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether this gives rise to a material misstatement in the financial statements themselves. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact.
We have nothing to report in this regard.
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.
Explanation as to what extent 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 irregularities, including fraud. The risk of not detecting a material misstatement due to fraud is higher than the risk of not detecting one resulting from error, as fraud may involve deliberate concealment by, for example, forgery or intentional misrepresentations, or through collusion. The extent to which our procedures are capable of detecting irregularities, including fraud is detailed below. However, the primary responsibility for the prevention and detection of fraud rests with both those charged with governance of the entity and management.
We obtained an understanding of the legal and regulatory frameworks that are applicable to the company and determined that the most significant are those that relate to the reporting framework (FRS 101 and the Companies Act 2006) and the relevant direct and indirect tax compliance regulation in the United Kingdom. In addition, the company has to comply with laws and regulations relating to its operations, including health and safety and GDPR.
We understood how Azets Holdings Limited is complying with those frameworks by making enquiries of management to understand how the company maintains and communicates its policies and procedures in these areas, and corroborated this by reviewing supporting documentation.
We assessed the susceptibility of the company’s financial statements to material misstatement, including how fraud might occur by considering the risk of management override and by assuming revenue to be a fraud risk. We identified the value ascribed to the recognition and valuation of work-in-progress (WIP) which directly impacts revenue as a specific revenue recognition risk. As the most likely source of fraud, to address this risk we tested, on a sample basis, specific transactions impacting WIP to source documentation, performed procedures to validate the reasonableness of adjustments made to reflect the expected recovery of standard charge out rates, and performed procedures to validate the outcome of management’s review process to identify WIP in need of provision. This included discussions with a representative sample of non-finance personnel responsible for client engagements.
In relation to management override we used data analytics to review the entire population of revenue journals, identifying specific transactions which did not meet our expectations based on specific criteria. We then investigated the journals identified to gain an understanding of the supporting rationale prior to agreeing a sample of journals to source and supporting documentation in order to conclude on the appropriateness of the journals.
Based on this understanding we designed our audit procedures to identify noncompliance with such laws and regulations. Our procedures involved verifying that material transactions are recorded in compliance with FRS 101 and where appropriate Companies Act 2006. Compliance with other operational laws and regulations was covered through our inquiry with no indication of non-compliance identified.
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.
All operations are continuing operations.
Azets Holdings Limited is a private company limited by shares incorporated in England and Wales. The registered office is 2nd Floor, Regis House, 45 King William Street, London, United Kingdom, EC4R 9AN. The company's principal activities and nature of its operations are disclosed in the directors' report.
The financial statements of Azets Holdings Limited (the “company”) for the year ended 30 June 2024 were authorised for issue by the board of directors on 6 February 2025 and the balance sheet was signed on the board’s behalf by David Aikman.
The financial statements are prepared in sterling, which is the functional currency of the company and are presented in £'000s unless indicated otherwise.
The financial statements are presented for the year 1 July to 30 June.
As permitted by FRS 101, the company has taken advantage of the following disclosure exemptions from the requirements of IFRS:
inclusion of an explicit and unreserved statement of compliance with IFRS;
presentation of a statement of cash flows and related notes;
disclosure of the objectives, policies and processes for managing capital;
disclosure of key management personnel compensation;
disclosure of the categories of financial instrument and the nature and extent of risks arising on these financial instruments;
the effect of financial instruments on the statement of comprehensive income;
comparative period reconciliations for the number of shares outstanding and the carrying amounts of property, plant and equipment and intangible assets;
disclosure of the future impact of new International Financial Reporting Standards in issue but not yet effective at the reporting date;
comparative narrative information; and
related party disclosures for transactions with the parent or wholly owned members of the group.
Where required, equivalent disclosures are given in the group accounts of Lynx Topco Limited.
The company has taken advantage of the exemption under section 400 of the Companies Act 2006 not to prepare consolidated financial statements. The financial statements present information about the company as an individual entity and not about its group.
Azets Holdings Limited is a wholly owned subsidiary of Azets BA Bidco Limited, a company incorporated in Jersey, and the results of Azets Holdings Limited will be included in the consolidated financial statements of Lynx Topco Limited, a company incorporated in Jersey, which will be available from Companies House, Crown Way, Cardiff, CF14 3UZ.
The cost of a business combination is the fair value at the acquisition date of the assets given, equity instruments issued and liabilities incurred or assumed. The excess of the cost of a business combination over the fair value of the identifiable assets, liabilities and contingent liabilities acquired is recognised as goodwill.
The cost of the combination includes the estimated amount of contingent consideration that is probable and can be measured reliably.
Provisional fair values recognised for business combinations in previous periods are adjusted retrospectively for final fair values determined in the 12 months following the acquisition date.
Intangible assets acquired separately are initially measured at cost and subsequently measured at cost less accumulated amortisation and accumulated impairment losses. Operating intangible assets are acquired in the ordinary course of business and typically include computer software. Non-operating intangible assets acquired in a business combination such as brands, patents and customer relationships with cost deemed to be their fair value at the date of acquisition. Following initial recognition, they are carried at cost less any accumulated amortisation and accumulated impairment losses.
Goodwill is not amortised. Other intangible assets are amortised over their estimated useful economic lives. Estimated useful economic lives and amortisation rates are as follows:
Brand - 5 years straight-line
Patents - 5 years straight-line
Customer relationships - 10 years straight-line
Computer software - 3 - 5 years straight-line
Intangible assets with indefinite useful lives are not amortised, but are tested for impairment annually, either individually or at the cash-generating unit level. The assessment of indefinite life is reviewed annually to determine whether the indefinite life continues to be supportable. If not, the change in useful life from indefinite to finite is made on a prospective basis.
Cash generating unit
A cash-generating unit (“CGU”) is the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets. In identifying whether cash inflows from an asset (or a group of assets) are largely independent of the cash inflows from other assets (or groups of assets), management considers various factors including how management monitors the entity’s operations (such as by product or service lines businesses geographical areas).
Depreciation is recognised so as to write off the cost of assets less their residual values over their useful lives on the following bases:
The gain or loss arising on the disposal of an asset is determined as the difference between the sale proceeds and the carrying value of the asset, and is recognised in the income statement.
Interests in subsidiaries, associates and jointly controlled entities are initially measured at cost and subsequently measured at cost less any accumulated impairment losses. The investments are assessed for impairment at each reporting date and any impairment losses or reversals of impairment losses are recognised immediately in profit or loss.
The recoverable amount of assets is the greater of their fair value less costs to sell and their value in use. In assessing value in use, estimated future cash flows are discounted to present value using a post-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the CGU to which the asset belongs.
Financial assets are derecognised only when the contractual rights to the cash flows from the asset expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership to another entity.
Basic financial liabilities, including trade and other payables, bank loans and 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.
Debt instruments are subsequently carried at amortised cost, using the effective interest rate method.
Trade payables 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 payables are recognised initially at transaction price and subsequently measured at amortised cost using the effective interest method.
Other financial liabilities, including borrowings, trade payables and other short-term monetary liabilities, are initially measured at fair value net of transaction costs directly attributable to the issuance of the financial liability. They are subsequently measured at amortised cost using the effective interest method. For the purposes of each financial liability, interest expense includes initial transaction costs and any premium payable on redemption, as well as any interest or coupon payable while the liability is outstanding.
Financial liabilities are derecognised when, and only when, the company’s obligations are discharged, cancelled, or they expire.
Equity instruments issued by the company are recorded at the proceeds received, net of direct issue costs. Dividends payable on equity instruments are recognised as liabilities once they are no longer at the discretion of the company.
Income tax on profit or loss for the year comprises current and deferred tax. Income tax is recognised in profit or loss except to the extent that it relates to items recognised in other comprehensive income or directly taken to equity.
Equity-settled share-based payments are measured at fair value at the date of grant by reference to the fair value of the equity instruments granted using the Monte Carlo pricing model. The fair value determined at the grant date is expensed on a straight-line basis over the vesting period, based on the estimate of shares that will eventually vest. A corresponding adjustment is made to equity.
When the terms and conditions of equity-settled share-based payments at the time they were granted are subsequently modified, the fair value of the share-based payment under the original terms and conditions and under the modified terms and conditions are both determined at the date of the modification. Any excess of the modified fair value over the original fair value is recognised over the remaining vesting period in addition to the grant date fair value of the original share-based payment. The share-based payment expense is not adjusted if the modified fair value is less than the original fair value.
Cancellations or settlements (including those resulting from employee redundancies) are treated as an acceleration of vesting and the amount that would have been recognised over the remaining vesting period is recognised immediately.
The company assesses at contract inception whether a contract is, or contains, a lease. A lease is a contract that conveys the right to control the use of an identified asset for a period of time in exchange for consideration.
Company as a lessee
The company applies a single recognition and measurement approach for all leases, except for short-term leases and leases of low-value assets. The company recognises lease liabilities to make lease payments and right-of-use assets representing the right to use the underlying assets.
i) Right-of-use assets
The company recognises right of use assets at the commencement date of the lease (i.e. the date the underlying asset is available for use). Right-of-use assets are measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any remeasurement of lease liabilities. The cost of right-of-use assets includes the amount of lease liabilities recognised, initial direct costs incurred, and lease payments made at or before the commencement date less any lease incentives received. Right-of-use assets are depreciated on a straight-line basis over the shorter of the lease term and the estimated useful lives of the assets, as follows:
Leasehold improvements Over the term of the lease
Fixtures and fittings 3 – 8 years
Motor vehicles and equipment 3 – 5 years
If ownership of the leased asset transfers to the company at the end of the lease term or the cost reflects the exercise of a purchase option, depreciation is calculated using the estimated useful life of the asset.
The right-of-use assets are also subject to impairment.
ii) Lease liabilities
At the commencement date of the lease, the company recognises a lease liability measured at the present value of lease payments to be made over the lease term. The lease payments include fixed payments (including in substance fixed payments) less any lease incentives receivable, variable lease payments that depend on an index or a rate, and amounts expected to be paid under residual value guarantees. The lease payments also include the exercise price of a purchase option reasonably certain to be exercised by the company and payments of penalties for terminating the lease, if the lease term reflects the company exercising the option to terminate. Variable lease payments that do not depend on an index or a rate are recognised as expenses (unless they are incurred to produce inventories) in the period in which the event or condition that triggers the payment occurs.
In calculating the present value of lease payments, the company uses its incremental borrowing rate at the lease commencement date because the interest rate implicit in the lease is not readily determinable. After the commencement date, the amount of lease liabilities is increased to reflect the accretion of interest and reduced for the lease payments made. In addition, the carrying amount of lease liabilities is remeasured if there is a modification, a change in the lease term, a change in the lease payments (e.g., changes to future payments resulting from a change in an index or rate used to determine such lease payments) or a change in the assessment of an option to purchase the underlying asset. The company’s lease liabilities are presented separately on the face of the balance sheet.
iii) Short-term leases and leases of low-value assets
The company applies the short-term lease recognition exemption to its short-term leases (i.e., those leases that have a lease term of 12 months or less from the commencement date and do not contain a purchase option). It also applies the lease of low-value assets recognition exemption to leases that are considered to be low value. Lease payments on short-term leases and leases of low-value assets are recognised as expense on a straight-line basis over the lease term.
Trade and other receivables
Trade receivables
Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less expected credit loss. The main components of this allowance are a specific loss component that relates to individually significant exposures, and a collective loss component established for groups of similar assets in respect of losses that have been incurred but not yet identified.
The collective loss allowance is determined based on historical data of payment statistics for similar financial assets adjusted for expected future losses.
Work-in-progress
Work-in-progress (“WIP”) is worked performed, and not yet billed. The carrying values includes outlays incurred on behalf of clients. Revenue not billed to clients is included in amounts recoverable on contracts, within trade and other receivables. Payments on account in excess of the relevant amount of revenue are included in excess payments received on account within trade and other payables.
Revenue is generally recognised as contract activity progresses and in determining the amount of revenue to be recognised on incomplete contracts, it is necessary to estimate their stage of completion, the remaining time and cost to be incurred and the amount that will be paid for the services provided. These estimates are made on an assignment and office wide basis and a different assessment of any these factors would result in a change to the amount of revenue recognised. Revenue related to contingent fee arrangements is typically recognised when the appropriate milestones as set out in the contracts are met.
Finance income and costs
Finance income and costs are recognised using the effective interest method. Finance costs are recognised in the income statement simultaneously with the recognition of an increase in a liability or the reduction in an asset.
Exceptional items
Exceptional items are items of income and expenditure which are non-recurring and unrelated to the ongoing operating performance of the business. They require separate disclosure by virtue of their nature, size or incidence to obtain a clear and consistent presentation of the company's underlying performance and to provide consistency with internal management reporting.
Exceptional items include, but are not limited to:
Acquisition related costs;
Restructuring costs which are outside of normal business operations;
Gains and losses on the disposal, or closure, of businesses;
Gains and losses on the disposal of property, plant and equipment; and
Impairment charges of ROU assets.
Acquisition-related costs may include financing costs; legal and professional fees (including external advisory, legal, valuation and other professional fees); post-acquisition integration costs; internal costs that can be directly attributed to the acquisition (including payments to selling shareholders that are accounted for as remuneration) and changes in fair value of contingent consideration.
In applying the company’s accounting policies, management are required to make judgements, estimates and assumptions about the carrying value 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 if the revision affects only that period or future periods if the revision affects future periods.
Information about these judgements and estimates is included in relevant note that are specific to a component of the financial statements, the most significant being:
An analysis of the company's revenue by class and geographic region is as follows:
Other in the revenue by class relates to Fee Protection services, inter-company billings in the wider Azets Group and commission income.
The company’s revenue is derived from the provision of services over time, however there was revenue recognised of £2,711,000 (2023: £2,077,000) that related to Fee Protection services and commissions that are recognised at a point in time.
Contract assets and liabilities
The following table provides a summary of contract asset and liabilities arising from the company’s contracts with customers:
The contract asset balances include amounts the company has invoiced to customers (trade receivables) as well as amounts where the company has the right to receive consideration for work completed which has not been billed at the reporting date (unbilled receivables and work-in-progress). Unbilled receivables and work-in-progress are transferred to trade receivables when the rights become unconditional which usually occurs when the customer is invoiced.
Trade receivables and unbilled receivables and work-in-progress are included within the ‘Trade and other receivables’ heading in the balance sheet.
The average debtor days during the year are 53 days (2023: 58 days).
The information required by IFRS 15 paragraph 120 is not disclosed as the contracts with customers are expected to be less than one year in duration.
Exceptional items analysed by income statement headings are as follows:-
Transformation costs - £3.7 million (2023: £0.2 million)
Transformation costs during the year primarily related to redundancy costs arising from the ongoing restructuring of the business and costs associated with reducing the number of offices.
Acquisition costs - £0.3 million (2023: £0.4 million)
Acquisition costs include legal, professional, abort costs and other transactions costs related to acquisition and potential acquisitions.
Restructuring and integration costs - £0.1 million (2023: £2.5 million)
Restructuring and integration costs includes post acquisition integration costs such as dual management costs, rebranding and cessation of pre-acquisition contractual obligations and post-acquisition restructuring such as redundancy, IT and property costs.
Other costs - £1.6 million (2023: £0.6 million)
In the current year the other costs comprise a share-based payments charge and bonus costs of £1.5 million, and an increase in provision for retirement annuities of £0.1 million. These bonus payments are exceptional in natures on the basis that they are non-recurring and relate to the PAI investment and acquisition of a portion of the Azets Topco Limited group.
Movement in fair value of contingent consideration - £0.9 million (2023: £1.2 million)
Movement in fair value of contingent consideration in the year relates to the increase in the expected payments to be made to former owners of acquired businesses in respect of better than forecast post acquisition performance.
The number of directors for whom retirement benefits are accruing under defined contribution schemes amounted to 3 (2023 - 4).
The number of directors whose shares vested during the year was 3 (2023 - 0),(refer to note 27).
The total number of employees of Azets Holdings Limited, including those recharged to other group companies, at the year end was 3,452 (2023: 3,355).
The note below relates solely to the employees who worked directly for the company during the year.
Their aggregate remuneration (including directors' remuneration) comprised:
Income from group undertakings comprise dividends received from subsidiaries.
The tax credit for the year can be reconciled to the profit/(loss) per the income statement as follows:
From 17 March 2020, the substantively enacted UK corporation tax rate was 19% as announced by the Government in the Spring budget 2020. In the Finance Bill 2021, the UK Government announced an increase in the UK corporation tax rate to 25% with effect from 1 April 2023. This increased tax rate was substantially enacted on 24 May 2021. Closing deferred tax balances have been calculated at the rates that are expected to apply in the period when the underlying temporary differences reverse, being 25% on items unwinding after 1 April 2023.
The company is part of a Group that is subject to the Base Erosion and Profit Shifting Pillar 2 Rules that were substantively enacted in the UK during the year. Pillar Two of the Organisation for Economic Co-operation and Development's ("OECD's") Two Pillar Solution provides for the taxation of income of large groups at a minimum effective rate of 15% on a jurisdictional basis.
The company is a wholly owned subsidiary of Lynx Topco Limited, which is incorporated in Jersey and is the ultimate parent undertaking. The Group is within scope of the OECD Pillar Two model rules. Pillar Two legislation received Royal Assent on 11 July 2023 in the United Kingdom and will apply to accounting periods beginning on or after 31 December 2023.
The company has applied the mandatory temporary exception to the requirements of IAS 12 under which a
company does not recognise or disclose information about deferred tax assets and liabilities related to Pillar Two income taxes.
Goodwill
As at 30 June 2024, the balance sheet included goodwill of £79.4 million (2023: £77.7 million). The company is required to test its goodwill for impairment at least annually, or more frequently if indicators of impairment exist. The review of goodwill impairment by management is performed at the lowest level of cash generating unit (‘CGU’) monitored for goodwill purposes, management have determined that the company represents a single CGU.
The recoverable amount of the CGU has been based on a value in use calculation. This uses cash flow projections included in the most recent budget for 2025 and the 5-year plan, which has been approved by the Board and reflects management’s expectations of revenue growth and operating costs and margin for the core business in place at 30 June 2024, based on all information available to it. Where long-term growth rates for periods are not covered by the annual budget, management has used assumption relating to the services and industries in which the CGU operates. The growth rates to perpetuity beyond the initial budgeted cash flows, applied in the value in use calculations for goodwill were 2.7% (2023: 2.7%) based on the spot and the forecast yields for 30-year UK government bonds. The pre-tax discount rates applied was 14.3% (2023: 15.1%). The value in use has been compared to the carrying value and no impairment has been recognised for the year ended 30 June 2024.
Sensitivity to changes in key assumptions
A sensitivity analysis has been performed in respect of the CGU in order to review the impact of changes in key assumptions. The results of this sensitivity analysis indicate that no reasonably possible change in any of the key assumptions would cause the carrying value of the CGU to exceed its recoverable amount. The most sensitive assumptions in the impairment analysis are deemed to be the discount rate and the terminal value growth rate.
Hive-up
On 31 October 2023, the trade and assets of Azets Tait Walker Mangement Limited, the company's subsidiary, was transferred to the company via a hive-up arrangement. This involved the company acquiring the trade and assets of the acquired company at fair value for consideration in the form of an intercompany loan.
On 31 December 2023, the trade and assets of Naylor Wintersgill Limited, the company's subsidiary, was transferred to the company via a hive-up arrangement. This involved the company acquiring the trade and assets of the acquired company at fair value for consideration in the form of an intercompany loan.
As permitted under FRS101 the company has elected to record the carrying value of the underlying assets and liabilities acquired via the hive up at amounts equal to those stated in the consolidated accounts of the parent entity, Lynx Topco Limited, and as a result recognised net goodwill of £1.7 million in respect of the same assets and liabilities. The fair value of net assets acquired and consideration paid is presented on the following page:
Details of the company's subsidiaries at 30 June 2024 are as follows:
* represents investments that are held indirectly.
With the exception of Azets Wealth Management Limited, the registered office of subsidiaries incorporated in England and Wales is 2nd Floor, Regis House, 45 King William Street, London, EC4R 9AN. The registered office of subsidiaries incorporated in Scotland is Titanium 1 Kings inch Place, Renfrew, PA4 8WF.
The registered office for Azets Wealth Management Limited is Bulman House Regent Centre, Gosforth, Newcastle Upon Tyne, NE3 3LS.
Details of the company's associates at 30 June 2024 are as follows:
The registered office of the associates is 2nd Floor, Regis House, 45 King William Street, London EC4R 9AN.
The impairment loss of investment in subsidiares during the year arises from the group restructuring with respect to the hive-up of subsidiary business and net assets for the former Naylor Wintersgill business and Azets Tait Walker Management Limited business along with the distribution of excess distributable reserves in the former Azets Inspire business. The distribution of the excess distributable reserves from these subsidiaries resulted in an impairment of the investment in these subsidiaries.
Cash and cash equivalents comprise bank deposits amounting to £8.6 million (2023: £16.3 million). Included within the cash balance is restricted cash of £Nil (2023: £452,000l).
Included within other receivables are insurance receivables in respect of litigation and claims (refer to note 28) amounting to £1,054,000 (2023: £2,480,000).
Included within trade receivables are lease receivables amounting to £48,000 (2023: £126,000) of which £4,000 (2023: £44,000) are receivable in more than one year.
Loans from group undertakings represent amounts due to other companies within Azets.
The loans from group undertakings are repayable on demand. In June 2024, the counterparties of the loans agreed to vary the terms such that there would be no repayment of capital or interest before 31 December 2025 and as such the amounts owed are classified as non-current liabilities at 30 June 2024. The loans bear interest at an average rate of 5% (2023: 5%).
The following are the major deferred tax liabilities and assets recognised by the company and movements thereon during the current and prior reporting period.
There are unrecognised deferred tax assets of £5,431,000 (2023: £5,431,000) relating to interest disallowed under the corporate interest restriction which are not probable of becoming allowable in the future.
Ordinary A, B and C shares are shares which have no voting rights and the right to receive dividends. Holders of Ordinary A and B shares are entitled to be paid first up to the value of the nominal amount of the paid up capital of these shares.
The company has several lease contracts that include extension and termination options. These options are negotiated by management to provide flexibility in managing the leased asset portfolio and align with the company's business needs.
Lease liabilities are classified based on the amounts that are expected to be settled within the next 12 months and after more than 12 months from the reporting date, as follows:
During the year, there were cash payments in respect of leases of £7,225,000 (2023: £7,226,000).
In prior years, a number of shares in Azets Topco Limited were awarded to selected senior employees under the Management Investment Plan ("the plan") at a cost of £2.95. Under the terms of this plan, and subject to specific provisions for leavers, the group does not have any obligation to repurchase awards for cash or other assets. The intention was that the employees will sell their shares to a third-party purchaser on a future sale of the Group, as such, the employees will have to remain in employment until a future exit event in order to realise any gain on their shares. All shares issues in prior years vested as part of the investment transaction in October 2023.
Also, as part of the investment transaction, there was an award of shares in Lynx Topco Limited to selected senior employees at a cost of £2.72.
The number of shares awarded and outstanding under the plan was as follows:
Dilapidations
Relates to the dilapidation provision on property leases. The expected timing of any resulting outflow of economic benefit for most properties is not expected within the next 5 years and dependent on the timing of lease agreement termination.
Legal claims
From time to time, the company will provide business advisory services on a number of matters which exposes the company to risks of future investigation and potential claims. Provisions have been recognised for certain known or reasonably likely legal claims or actions against the company that are generally expected to settle within the next 24 months. The Directors do not expect known and reasonably likely legal claims or actions for which a provision has not been established to have a material impact on the company’s financial position, results of operations or cash flows.
In many cases, the known claims are covered by the company’s professional indemnity insurance. Once the insurer has accepted liability and panel solicitors have been appointed, an insurance receivable is recognised and reported within other receivables on the balance sheet. In the rare case where a legal claimant action is made which is not covered by the company's Professional Indemnity insurance, then an appropriate provision will be made in the event that the directors believe that it is probable that a settlement of that obligation will be paid, and a reliable estimate can be made of the amount of the obligation. The reversal of amount relates to amounts that the company no longer expects to settle and there is a corresponding reduction in the other receivables for any related insurance receivables.
Once amounts are agreed in principal but not yet paid, they are transferred to accruals.
Contingent consideration
As part of the company's acquisition of businesses and customer intangibles, there is an earn-out consideration whose amount is determined by the future performance of the acquired business. An assessment is made of the deterred consideration at the time of acquisition and this is revised periodically based on the subsequent performance of the acquired businesses and intangible assets.
During the year, the company acquired customer intangibles which comprised a contingent consideration element of approximately £1.6 million.
In the normal course of business, the company has a number of transactions with companies that are part of the Azets group of companies and has taken advantage of the exemption within FRS101 from disclosing transactions or balances with wholly owned group companies. This includes inter-company recharges, management recharges and sales and purchases between these related parties made at market prices. Outstanding balances are unsecured, interest free and cash settlement is expected in line with normal trading terms.
The company has the following debtor/(creditor) balances with non-wholly owned companies in the Azets group:-
Azets Audit Services Limited: £15,461,332 (2023: £14,157,073)
Azets Probate Services Limited: £(1,000) (2023: £93,360)
During the year, the company made sales to group companies as follows:-
Azets Audit Services Limited: £83,432,619 (2023: £62,939,394)
Azets Probate Services Limited: £2,761 (2023: £18,894)
During the year, the company received management charges from group companies as follows:-
Azets Audit Services Limited: £200,000 (2023: £200,000)
Azets Probate Services Limited: £Nil (2023: £11,170)
During the year, the company was charged rent from Bridge House Friendly Society, with a certain director in common, of £291,510 (2023: £425,550). There was no outstanding balance at the year end.