Endava Plc annual report, Q4 FY2023

Business context and reporting period

Endava plc is a U.K.-based technology services provider, reporting under IFRS in British pounds. This Form 20-F covers the fiscal year ended June 30, 2023, with comparisons to fiscal 2022 and 2021; it is not a standalone 2022 Q4 report. The company served 711 active clients and had 12,063 employees at year-end. Its largest industry verticals were Payments and Financial Services and TMT.

Key financial metrics

At June 30, 2023, total assets were £770.1m, total liabilities £198.8m and equity £571.3m. The company had no borrowings outstanding on its £350m revolving credit facility, apart from £8.8m used for bank guarantees; lease liabilities were £69.0m. Net current assets were £226.1m. No dividends were paid, and management does not anticipate dividends for the foreseeable future.

Material changes versus the prior comparable period

• Reported revenue growth slowed to 21.4% from 46.7% in FY2022; foreign exchange reduced FY2023 growth by an estimated 4.8 percentage points.
• Gross margin was nearly unchanged, while operating margin and profit-before-tax margin declined. Management said it controlled costs, particularly wage increases, amid softer demand.
• Revenue from Payments and Financial Services increased 25.4% to £416.0m; TMT rose 6.4% to £173.9m, with reported headwinds in North America. Other verticals rose 28.5% to £204.8m.
• Revenue concentration in the top 10 clients eased to 32.8% from 33.8%, though Mastercard contributed 10.7% of revenue, up from below 10% in each of the prior two years.
• Investing cash outflow increased to £110.9m from £23.9m, mainly reflecting acquisitions and related payments. Acquisitions of Lexicon, Mudbath and DEK were completed during FY2023.

Outlook, management commentary, risks and unusual items

Management reported slower client demand during FY2023, particularly in North America and the U.K., as clients became more cautious amid higher interest rates and economic uncertainty. Private-equity-backed clients were a source of softness, and subdued deal activity reduced short-term due-diligence work. The filing provides no specific FY2024 revenue or earnings guidance. Management expects cash, operating cash flow and available facilities to cover anticipated needs; its going-concern assessment remained positive under modeled downside scenarios.

• Demand and execution: Clients may delay or reduce technology spending; contracts are generally short term and may be terminated. Pricing pressure, wage inflation, utilization and project cost overruns could affect margins.
• Concentration and people: The business depends substantially on existing clients and the Payments and Financial Services and TMT sectors, as well as recruiting, retaining and effectively deploying skilled staff.
• Geopolitical, currency and regulatory exposure: Risks include the Russia-Ukraine conflict, operations in Moldova and other emerging markets, foreign-exchange movements, data privacy requirements and evolving AI regulation.
• Cybersecurity and AI: The company identifies cyber incidents, third-party system vulnerabilities and generative-AI risks, including confidentiality, intellectual-property, security and output-quality issues. It disclosed past minor security incidents with no known material impact or required regulatory notification.
• Unusual financial items: FY2023 included £6.6m of restructuring costs, £10.7m of net foreign-exchange losses (including a £5.1m Argentina blue-chip swap loss), and a £10.6m favorable fair-value movement in contingent consideration within the adjusted-PBT reconciliation. These items affect comparability.
• Acquisition accounting: DEK and Mudbath purchase accounting was provisional at year-end. Goodwill rose to £240.8m from £145.9m; the auditor identified the valuation of acquired client relationships as a critical audit matter.
• Controls and legal matters: Management and the auditor concluded internal control over financial reporting was effective at June 30, 2023. Acquisitions completed during the year, representing 4.8% of assets and 2.0% of revenue, were excluded from the controls assessment. The filing says the company is not currently party to material litigation, while also noting legal proceedings that could have adverse effects if decided against it.
• Subsequent event: Endava acquired TLM Partners in August 2023 for stated consideration of £16.5m; purchase-price allocation was not complete when the filing was prepared.

Important facts for investors to verify

1. Whether demand and revenue growth trends—especially in North America, the U.K. and TMT—stabilized after the reported FY2023 slowdown, and what subsequent guidance says.
2. Whether margins and utilization can be sustained as wage, inflation and foreign-exchange effects change; compare IFRS results with management’s adjusted measures.
3. Client concentration and retention, including Mastercard’s contribution and the top 10 clients’ share of revenue.
4. Cash conversion, receivables and credit-loss allowances, acquisition-related cash requirements, and the company’s capacity to meet lease and other commitments.
5. Final purchase accounting, earn-out outcomes and integration performance for Lexicon, Mudbath, DEK and the post-year-end TLM acquisition.
6. Progress in managing cybersecurity, privacy and generative-AI risks, and integration of acquired entities into financial controls.