Business context and reporting period
Endava plc’s Form 20-F reports the fiscal year ended June 30, 2021, with comparisons to fiscal 2020 and 2019. It is an annual filing, not a standalone 2020 Q4 report. Endava provides technology and digital transformation services, principally to clients in Payments and Financial Services and Technology, Media and Telecommunications (TMT). Financial statements are prepared under IFRS and presented in British pounds.
Key financial metrics
| Metric | FY2021 | FY2020 | Change |
|---|---|---|---|
| Revenue | £446.3m | £351.0m | +27.2% reported; +29.6% at constant currency |
| Gross profit / margin | £153.8m / 34.5% | £100.2m / 28.5% | Margin +6.0 percentage points |
| Operating profit / margin | £63.5m / 14.2% | £21.9m / 6.2% | Higher |
| Profit before tax / margin | £54.4m / 12.2% | £25.3m / 7.2% | Higher |
| Net profit | £43.4m | £21.4m | Higher |
| Basic / diluted EPS | £0.79 / £0.76 | £0.40 / £0.38 | Higher |
| Operating cash flow | £88.4m | £40.2m | Higher |
| Adjusted free cash flow (non-IFRS) | £82.7m | £31.4m | Higher |
Cash and cash equivalents were £69.9m at year-end, down from £101.3m. Investing activities used £107.1m, largely reflecting acquisitions. The company reported £63.7m of lease liabilities; its £200m unsecured revolving credit facility was undrawn apart from £18.4m used for bank guarantees. Net current assets were £86.9m. Management said cash, operating cash generation and available facilities were expected to cover requirements for at least 12 months.
Material changes versus the prior comparable period
- Revenue grew across regions and business lines. North American revenue rose 40.0% to £140.1m; UK revenue rose 20.3% to £187.0m; European revenue rose 25.7% to £108.0m.
- Payments and Financial Services remained the largest vertical at £226.4m, or 50.7% of revenue; TMT contributed £121.0m, or 27.1%. Other verticals contributed £98.9m, or 22.2%.
- Gross margin improved to 34.5% from 28.5%, alongside lower cost of sales as a percentage of revenue. Adjusted PBT margin, a non-IFRS measure, increased to 20.6% from 19.5%.
- Operating cash flow more than doubled, though receivables and accrued income increased and working capital reduced cash by £21.4m.
- Endava acquired Comtrade Digital Services, Five and Levvel during FY2021. The acquired businesses contributed £43.7m of revenue after acquisition dates. Investing cash outflow included £97.6m net of acquired cash for those three acquisitions.
- The top 10 clients’ share of revenue declined to 34.9% from 38.1%; however, 81.8% of FY2021 revenue came from clients that had also generated revenue in prior fiscal years.
Outlook, risks and unusual items
- Outlook: No formal numeric revenue or earnings guidance is provided in the supplied filing text. Management said the pandemic had accelerated digital-transformation demand and cited sequential revenue growth in the final three quarters of FY2021; Q4 sequential growth was 19.0%, with Five and Levvel contributing to growth. These are historical results, not guidance.
- Liquidity scenarios: Management’s going-concern analysis modeled downside cases with revenue 10% or 24% below baseline over the forecast period. Cash remained positive in both cases, and management said no facility draw would be required.
- Acquisitions and accounting: Acquisition activity drove higher goodwill and intangible assets; goodwill rose to £124.4m from £57.0m. Purchase accounting for Five and Levvel remained provisional at year-end. Share-based compensation was £24.4m, up from £15.7m; the company excludes it and certain other items from adjusted PBT.
- Foreign exchange and tax: Net finance expense was £9.2m, including £6.5m of foreign-exchange loss. The effective tax rate rose to 20.1% from 15.2%; FY2020 benefited from a non-taxable disposal gain and temporary pandemic-related tax measures.
- Controls: Management concluded disclosure controls and internal control over financial reporting were ineffective at June 30, 2021, due to a material weakness in risk assessment and controls concerning subsequent events and the trade-receivables credit-loss allowance. Immaterial misstatements were corrected before issuance. The auditor gave an adverse opinion on internal control, while issuing an unqualified opinion on the financial statements. Management planned remediation during FY2022.
- Other risks: Key exposures include client concentration and short-term contracts, hiring and wage inflation, utilization and pricing, acquisitions and integration, currency movements, cybersecurity and privacy compliance, and COVID-19-related disruption. The company does not anticipate paying dividends for the foreseeable future.
Important facts for investors to verify
- Confirm the reporting period: the filing is for the year ended June 30, 2021, not a standalone 2020 Q4 filing.
- Review the reconciliation and assumptions behind non-IFRS constant-currency growth, adjusted PBT margin and adjusted free cash flow.
- Assess acquisition contribution, purchase-price allocations, provisional accounting for Five and Levvel, and the recoverability of goodwill and acquired intangibles.
- Track receivables, accrued income, credit-loss allowances and cash conversion, particularly in light of the disclosed material weakness.
- Monitor progress and independent testing of the FY2022 control-remediation plan.
- Evaluate lease commitments, acquisition-related obligations and the distinction between the undrawn revolving facility and the £63.7m lease liability.
- Consider the concentration of revenue in major clients and two industry verticals, and the effect of foreign exchange and wage inflation on margins.