Endava plc — FY2020 Form 20-F summary
Period clarification: The filing is Endava’s annual report for the fiscal year ended June 30, 2020, not a standalone 2019 Q4 filing. It gives limited Q4 FY2020 data but no clear Q4 FY2019 comparison. Financial statements are audited and prepared under IFRS in British pounds.
Business context and reporting period
Endava provides technology and software engineering services, primarily to clients in Payments and Financial Services and Technology, Media and Telecommunications. It reported 416 active clients and 6,624 employees at June 30, 2020. The company’s fiscal year runs July 1 to June 30.
Key financial metrics
| Metric | FY2020 | FY2019 |
|---|---|---|
| Revenue | £351.0 million | £287.9 million |
| Revenue growth | 21.9% reported; 21.0% constant currency | 32.3% reported; 31.1% constant currency |
| Gross profit / margin | £100.2 million / 28.5% | £98.8 million / 34.3% |
| Operating profit / margin | £21.9 million / 6.2% | £33.0 million / 11.5% |
| Profit before tax / margin | £25.3 million / 7.2% | £30.1 million / 10.5% |
| Net profit | £21.4 million | £24.0 million |
| Basic / diluted EPS | £0.40 / £0.38 | £0.48 / £0.44 |
| Cash from operating activities | £40.2 million | £35.3 million |
| Adjusted free cash flow | £31.4 million | £29.8 million |
| Cash and cash equivalents at year-end | £101.3 million | £70.2 million |
| Working capital | £111.1 million | £82.7 million |
| Total assets / liabilities / equity | £360.9 million / £124.6 million / £236.3 million | £222.7 million / £56.3 million / £166.3 million |
Management’s non-IFRS adjusted PBT margin was 19.5%, versus 18.0% in FY2019. Adjusted PBT was £68.6 million, compared with £52.0 million. These measures exclude specified items and are not substitutes for IFRS results.
Material changes versus the prior comparable period
- Revenue increased 21.9%, but growth slowed from 32.3% in FY2019; constant-currency growth likewise eased to 21.0% from 31.1%.
- Reported operating profit, PBT, net profit and EPS declined. A major factor was a non-recurring £27.9 million discretionary employee bonus, funded through EBT sales of company shares; £25.4 million was recorded in cost of sales and £2.5 million in SG&A. Excluding the bonus, management said gross margin would have been 35.8% and PBT margin 15.1%.
- Operating cash flow rose to £40.2 million, while investing cash outflow increased to £29.7 million, including cash consideration for the Intuitus and Exozet acquisitions and capital spending.
- Endava adopted IFRS 16 in FY2020 without restating prior-year comparatives. It recorded £51.1 million of right-of-use assets and £53.4 million of lease liabilities at year-end; the change materially increased reported assets and liabilities.
- The company acquired Intuitus and Exozet during FY2020. After year-end, on August 17, 2020, it completed the CDS acquisition for €60 million cash, subject to closing adjustments; 10% of the price was held back for 24 months.
Liquidity, debt, outlook and risks
Endava reported no borrowings outstanding under its £200 million unsecured revolving credit facility at June 30, 2020; £8.7 million was used for bank guarantees. The facility matures in October 2022 and includes leverage and interest-coverage covenants. Management said cash, operating cash flows and available credit were sufficient for at least 12 months. Lease liabilities were £53.4 million; total disclosed contractual obligations were £85.0 million, including leases contracted but not yet commenced.
Q4 FY2020 revenue was £90.5 million, down 2% sequentially from Q3’s £92.2 million, but 5% and 10% above Q2 and Q1, respectively. Management said revenue was largely sustained during COVID-19 lockdowns and described this as a baseline to build on in FY2021. No formal numerical FY2021 guidance is provided in the filing. Going-concern stress tests modeled revenue reductions of 12% and 40% against baseline forecasts; management said cash remained positive through the forecast periods and neither scenario required drawing the revolving facility.
- COVID-19: Could reduce client technology spending, delay projects and payments, pressure pricing and growth, or disrupt delivery and recruiting. The company shifted almost all employees to remote work and suspended non-essential travel; it reported limited disruption to productivity to date.
- Client and sector concentration: The ten largest clients generated 38.1% of revenue; 91.0% of FY2020 revenue came from clients that had also generated revenue in FY2019. Payments and Financial Services represented 52.8% of revenue and TMT 25.7%. Client engagements may be terminated or not renewed.
- Currency and costs: Revenue and expenses are exposed to currency movements, particularly GBP against the euro and U.S. dollar, as well as wage inflation and utilization changes.
- Internal controls: Management found material weaknesses in risk assessment, COSO framework training and IT general controls, with related process-control deficiencies in revenue, credit-loss estimates, acquisitions and payroll. Management concluded disclosure controls and internal control over financial reporting were ineffective at June 30, 2020; KPMG issued an adverse opinion on internal control. KPMG’s opinion on the consolidated financial statements was unqualified. Remediation was planned during FY2021.
- Other exposures: Acquisition integration, data privacy and cybersecurity, Brexit-related uncertainty, regulatory and tax changes, and potential impairment of goodwill and acquired intangibles.
Most important facts for investors to verify
- Whether FY2021 revenue and margins developed in line with management’s stated expectation to build on Q4 FY2020, and how COVID-19 affected demand, project timing and collections.
- The recurring operating margin and cash-generation profile after separating the £27.9 million employee bonus and other adjusted items.
- Progress remediating the disclosed material weaknesses, including whether subsequent filings report effective controls and any financial-statement corrections.
- Post-acquisition performance, integration costs and funding for CDS, alongside the effects of Intuitus and Exozet on revenue and profitability.
- Lease commitments, revolving-facility covenant headroom, and the impact of currency movements, client concentration and employee costs on liquidity and margins.