REG - Kainos Group plc - Interim Results
11/11/2024 07:00
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RNS Number : 6113L Kainos Group plc 11 November 2024
11 November 2024
Interim results for the six months ended 30 September 2024
Kainos Group plc ('Kainos' or the 'Group')
Excellent Workday Products growth offset by a subdued services market with
profitability maintained
Kainos Group plc (KNOS), a UK-headquartered IT provider with expertise across
three divisions - Digital Services, Workday Services and Workday Products - is
pleased to announce its results for the six months ended 30 September 2024.
Financial highlights
H1 25
Revenue £183.1m £193.2m -5%
Statutory profit before tax £34.2m £30.9m +11%
Adjusted pre-tax profit((( 1 ))) £38.2m £37.9m +1%
Diluted earnings per share 20.1p 17.5p +15%
Adjusted diluted earnings per share 22.5p 22.1p +2%
Interim dividend per share 9.3p 8.2p +13%
Bookings £179.5m £201.9m -11%
Product annual recurring revenue (ARR) £65.1m £55.4m +18%
Contracted backlog £354.1m £326.9m +8%
Cash((( 2 ))) £151.6m £113.0m +34%
Revenue reflects the tougher trading environment in services, as referenced in
our recent trading updates, but our disciplined execution and strong growth in
higher-margin products have supported profitability
· Revenue decreased 5% (-5% organic, -5% ccy) to £183.1 million (H1
24: £193.2 million).
· Adjusted pre-tax profit grew by 1% (2% ccy) to £38.2 million,
which included a £1.2 million investment to support our extended strategic
partnership with Workday (see below). Adjusted profit margin has increased to
21% (H1 24: 20%).
· Overall bookings were 11% lower at £179.5 million (H1 24: £201.9
million).
· The contracted backlog at the period end increased 8% to £354.1
million (H1 24: £326.9 million).
· Strong period-end cash((2)) of £151.6 million (H1 24: £113.0
million), with cash conversion at 75% (H1 24: 82%).
· Board announces intention to launch a share buyback programme of
£30.0 million to be executed over the next six months.
Operational highlights
Workday-related products continued to grow strongly and now account for 19% of
Group revenue (H1 24: 14%). Our enhanced partnership with Workday underpins
our £100 million 2026 ARR target and our new 2030 target of £200 million
· Workday Products revenue was up 28% (28% organic, 31% ccy) to £34.3
million (H1 24: £26.7 million), with ARR increasing by 18% (24% ccy) to
£65.1 million (H1 24: £55.4 million).
· Growth was driven by the continued success of our Employee Document
Management (EDM) product, launched in October 2023, and strong sales execution
across the Smart product suite.
· Our new strategic partnership with Workday incentivises Workday's
worldwide sales teams to introduce and co-sell both current and future Kainos
developed Workday products.
· We continued to invest in our products, increasing research &
development expenditure by 31% to £7.7 million (H1 24: £5.9 million), which
was all expensed in the period. Sales & marketing spend increased by 5% to
£6.2 million (H1 24: £5.9 million), including £1.2 million of additional
costs associated with the Workday partnership incurred since July 2024. The
total additional costs in FY25 to support the partnership are estimated at
£7.0 million, including investment in our sales capabilities and on-going
development of our products to utilise the full power of Workday's new Built
on Workday program.
As described in our recent trading update, Digital Services had a subdued
first half with delayed customer decision making and project mobilisations
· Digital Services revenue decreased by 11% to £97.3 million (H1 24:
£109.2 million).
· Despite sustained public sector demand, the hiatus following the UK
General Election has delayed project mobilisations, with public sector revenue
falling by 15% to £62.0 million (H1 24: £73.0 million).
· Within the healthcare sector, strong revenue growth of 16% resulted
in revenue of £23.6 million (H1 24: £20.4 million).
· Commercial sector revenue continued to be affected by the lacklustre
economy resulting in delays to customer investment decisions and was 27% lower
at £11.6 million (H1 24: £15.8 million).
· Softer market conditions affected Workday Services revenue in the
first half, with opportunity for further international expansion into Asia
Pacific
· We are the leading pan-European Workday consulting specialist and
the eighth largest by certified consultant numbers globally. We have extended
our Workday Services activities to Asia Pacific, creating a team and building
a pipeline in H1.
· Despite a continued strong win rate and customer success, revenue
in the period was 10% lower (-9% ccy) at £51.5 million (H1 24: £57.3
million), with bookings of £39.9 million (H1 24: £53.1 million).
· As previously flagged, this weakness was due to lower volumes and
values, as well as aggressive pricing in some parts of the market due to
increased competition.
· Revenue was 5% lower on a like-for-like basis, after adjusting the
prior-period revenue for discontinued procurement consulting services
associated with Blackline Group, which we acquired in 2022. We ceased
providing these services in FY24.
We continue to expand internationally, with international markets generating
41% of Group revenue
· International revenue was £75.4 million, up 1% (H1 24: £74.7
million).
· Workday Services has a particularly strong international position,
with 77% of revenue from these customers (H1 24: 77%).
Excellent customer service drives customer satisfaction and retention
· Our customers continued to rate our services as 'excellent', with a
Net Promoter Score of 58((( 3 ))) (H1 24: 62).
· Existing customers generated revenue of £148.9 million (H1 24:
£182.3 million).
· Customer numbers increased to 1,022 (H1 24: 892)((( 4 ))).
The commitment and engagement of our colleagues underpins our business
performance
· We have 3,029 people (H1 24: 3,139) across 20 countries, with our
employee retention remaining strong at 93% (H1 24: 92%).
· Engagement levels remain high, measuring 76% (H1 24: 79%) in our
internal surveys, and we were again ranked one of the '50 Best Places To Work
in the UK' by Glassdoor.
We continue to leverage artificial intelligence (AI) to benefit our customers
and our business
· To date, we have delivered more than 140 AI & Data projects
across the public, healthcare and commercial sectors, and have won nearly 40
AI & Data contracts in the period.
· Our recently established AI Catalyst Team enables us to rapidly
deliver proofs of concept for clients and demonstrate the value opportunity
from adoption.
· Our leading position in AI is reflected in the receipt of awards
such as the National AI Award for Government & Public Sector.
· We are one of only 15 global early AI adopters for Workday, with
three products already available which have Workday's 'Responsible AI'
designation.
Current Trading and Outlook
· On 31 October, we moderately reduced revenue expectations for the
full year reflecting the poor macro-economic conditions and delayed UK
Government decision-making. We expect the majority of the revenue reduction
(along with the impact of the additional investment to support our products
partnership with Workday) to flow through to lower adjusted profit before tax.
· We continue to have a healthy pipeline, ongoing cost discipline, a
strong balance sheet and a significant contracted backlog.
o Workday Products will continue to grow strongly in the second half,
with the revenue benefits of our partnership with Workday starting to ramp
up in FY26.
o In Digital Services, we expect a slight revenue decrease in the
remainder of the year and a flat outlook into FY26, as slow UK Government
decision making persists, before the new Government determines and executes
its investment priorities in both central Government and the NHS.
o We expect flat Workday Services revenue in the second half and into
FY26 in a soft market, although we continue to benefit from our reputation for
excellent customer service and our growing profile within Workday.
· More generally, we continue to see good opportunities in smaller
but faster-growing areas, including AI, data and low code, and building custom
Workday applications using our Workday Extend capabilities.
Commenting on the results, CEO Russell Sloan said:
"Our services businesses faced a tougher environment in the first half of the
year in a generally soft market, and we remain cautious about our prospects
for the remainder of the year. However, we continue to generate robust levels
of profitability and looking to the medium term and beyond, we continue to see
substantial growth opportunities across all our core markets.
"Our Workday Products division is going from strength to strength and our
strategic partnership with Workday will help us to more than triple our annual
recurring revenue from this business over the next six years. This unique
partnership is Workday's first transformative innovation agreement as part of
its Built on Workday program and has further raised our overall profile within
Workday Inc., as well as within its customer and partner ecosystem.
"In Digital Services, the new UK Government is determined to improve public
services and healthcare provision, while delivering efficiencies and
leveraging the potential of AI. Digital transformation will have a key part to
play in achieving these goals. While we are confident of the opportunities
ahead, we are cautious about the timing of future growth as we await the
Government moving out of the delayed decision-making phase. More broadly, we
also see prospects for further international growth.
"We have an excellent position in Workday Services, as leaders in the European
market and eighth worldwide by the number of certified consultants. While we
are currently in a generally softer market, we continue to look for ways to
add value beyond our consulting assignments, such as our new partnership with
Pulsora to help customers with their ESG reporting, in order to return to
growth.
"Our business is built on addressing markets with long-term structural growth
drivers, and a self-reinforcing cycle of attracting and developing great
people, who provide excellent customer service. This in turn creates the
long-term customer relationships that generate the majority of our revenue
each year. We can then invest for further growth and to expand
internationally, while balancing this investment with near-term profitability.
As always, we are grateful for our customers' continued trust in us and the
efforts of our colleagues across the world in continuing to deliver for them."
For further information, please contact:
Kainos
via FTI Consulting LLP
Russell Sloan, Chief Executive Officer
Richard McCann, Chief Financial Officer
Investec Bank
plc
+44 20 7597 5970
Patrick Robb / Nick Prowting / Ben Griffiths
FTI Consulting
LLP
+44 20 3727 1000
Dwight Burden / Kwaku Aning
About Kainos Group plc
Kainos Group plc is a UK-headquartered provider of sophisticated IT services
to major public sector, commercial and healthcare customers. Our expertise
spans three divisions: Digital Services, Workday Services, and Workday
Products.
· Digital Services: We develop and support custom digital service
platforms that transform service delivery in public, commercial, and
healthcare sectors. Our solutions ensure security, accessibility,
cost-effectiveness, and improved user outcomes.
· Workday Services: Specialising in deploying Workday, Inc.'s Finance,
HR, and Planning products, we are a respected partner in Europe and North
America. Experienced in complex deployments, we are trusted to launch, test,
expand, and support Workday systems.
· Workday Products: Our established product suite, incorporating Smart
Test, Smart Audit, and Smart Shield, complements Workday by enhancing system
security and compliance. Our Employee Document Management product, launched in
October 2023, improves document generation and storage within Workday while
supporting an organisation's global compliance requirements. Over 500 global
customers use one or more of our products.
Our people are central to our success. We employ more than 3,000 people in 20
countries across Europe, Asia and the Americas.
We are listed on the London Stock Exchange (LSE: KNOS) and you can discover
more about us at www.kainos.com (http://www.kainos.com) .
Definition of terms
We use the following definitions for our key metrics:
Active customer: a customer who has signed a contract with us within the last
three months or has generated revenue in the last six months.
Adjusted EBITDA: adjusted pre-tax profit excluding interest, tax, depreciation
of property, plant and equipment and right-of-use assets, and amortisation of
intangible assets.
Adjusted pre-tax profit: profit before tax excluding the effect of share-based
payment expense, acquisition-related expenses including amortisation of
acquired intangible assets and post-combination remuneration expense (relating
to contingent deferred consideration subject to future service conditions).
Our adjusted results in the prior period also exclude one-off gains recognised
on sale of property, plant and equipment and changes in fair value of our
investment property.
Adjusted profit margin: adjusted profit as a percentage of revenue for the
period.
Annual recurring revenue (ARR): the total of the annualised committed
subscription value contracted at the end of the reporting period.
Bookings: the total value of sales contracted during the period.
Cash conversion: cash generated from operating activities as a percentage of
adjusted EBITDA.
Constant currency (ccy): excludes the effect of foreign currency exchange rate
fluctuations on period-on-period performance by translating the relevant prior
period figure at current period average exchange rates.
Contracted backlog: the value of contracted revenue that has yet to be
recognised.
Existing customer revenue: total revenue recognised from customers in the
current period who were also customers in the preceding year.
International revenue: total revenue derived from locations outside of UK and
Ireland.
Net Promoter Score (NPS): a metric that organisations use to measure customer
loyalty toward their brand, product or service, which can range from -100 to
+100. Bain & Co, the creators of the metric, held that a score above 0 is
good; 20+ is favourable; 50+ is excellent and 80+ is world class.
Organic revenue: our revenue excluding revenue from acquisitions completed in
the current and comparative reporting periods.
Software as a service (SaaS): a software distribution model that delivers
application programmes over the internet, with users typically accessing the
programme through a web browser. Users pay an ongoing subscription to use the
software rather than purchasing it once and installing it.
Cautionary statement
This report has been prepared solely to provide additional information to
shareholders to assess the Group's strategies and the potential for those
strategies to succeed. It should not be relied on by any other party or for
any other purpose.
This report includes statements that are, or may be deemed to be,
"forward-looking statements". These statements are made by the Directors in
good faith based on the information available to them up to the time of their
approval of this report, but such statements should be treated with caution
due to the inherent uncertainties, including both economic and business risk
factors, underlying any such forward-looking information.
Group business review
Our overall performance
We experienced mixed revenue performance across the Group during the period.
Workday Products and the Digital Services Healthcare Sector recorded strong
growth, offset by the impact of difficult market conditions in Digital
Services Public Sector and Workday Services, and a significant reduction in
Digital Services Commercial Sector revenue. The overall impact was a revenue
decline of 5%. This reflects a wider softness in the services sector, where
the economic environment has encouraged customers where possible to defer
project-based expenditure.
Despite this, adjusted pre-tax profit was resilient and increased by 1% (2%
ccy) to £38.2 million (H1 24: £37.9 million) generating a 21% margin. This
reflected several factors, including our continued disciplined management of
our costs, the growth in the higher-margin Workday Products business, the
reduction in contractor numbers compared with the first half of last year and
lower salary increases compared with our historical average.
Bookings in the period were 11% lower at £179.5 million (H1 24: £201.9
million). Our contracted backlog increased 8% to £354.1 million (H1 24:
£326.9 million).
As previously guided, we have continued to invest to support the growth in our
software products. Research & development investment rose by 31% to £7.7
million (H1 24: £5.9 million) and our product-related sales & marketing
investment (including £1.2 million of Built on Workday partnership costs),
was £6.2 million, up 5% (H1 24: £5.9 million). The total investment in our
software products was £13.9 million (H1 24: £11.8 million), an increase of
18%.
We remain highly cash generative and delivered another robust cash
performance, with cash conversion in the period of 75% (H1 24: 82%). As a
result, at 30 September 2024 we had a cash balance (including treasury
deposits) of £151.6 million (H1 24: £113.0 million).
Workday Products performance
Workday Products revenue continued to grow very strongly, with an increase of
28% (28% organic, 31% ccy) to £34.3 million (H1 24: £26.7 million). Revenue
benefited from growth across all our products, including continued uptake of
our Employee Document Management (EDM) product (see below), which we released
in October 2023 and has been our most-successful launch to date.
In total, more than 500 customers now use our products, with about a third
taking multiple products. We also continue to improve our sales execution and
to refine our customer value proposition for our Smart Suite products,
emphasising the cost savings they can deliver as well as their control and
compliance benefits.
Annual recurring revenue at the period end was £65.1 million (H1 24: £55.4
million), up 18% (24% ccy), and backlog increased 11% to £126.6 million (H1
24: £113.8 million).
During the period, we announced an enhanced strategic partnership with
Workday, which will accelerate our growth in Workday Products. Combined with
the underlying momentum in the division, this underpins our confidence in
achieving our ARR target of £100 million by 2026 and has allowed us to set a
new target for 2030 of £200 million. More information on the strategic
partnership can be found below.
Our software products
We currently have four products, of which three sit within the Smart Suite:
· Smart Test (launched in 2014) is the leading platform for Workday
customers to automatically test and verify that their unique Workday
configuration is operating effectively.
· Smart Audit (2021) is a compliance-monitoring tool that allows
Workday customers to maintain operational security controls across their
Workday environments.
· Smart Shield (2022) is a data-masking tool that ensures sensitive
data remains controlled when Workday environments are made available to
broader internal or external teams.
Our latest product, EDM (2023), improves the experience of generating and
storing documents inside Workday, while supporting an organisation's global
compliance requirements.
Accelerating our growth through strategic partnership
In July 2024, we announced an enhanced partnership with Workday, which
incentivises Workday's sales teams across North America, Europe and Asia
Pacific to introduce and co-sell our products. This unique partnership gives
us an increased profile within Workday and supports its recent launch of the
Built on Workday program. Built on Workday uses the Workday Extend technology
(see Workday Services below) to enable partners to create apps and distribute
them to Workday's 10,500+ enterprise customers via the Workday Marketplace.
The multi-year agreement covers our Smart Audit, Smart Test and EDM products,
as well as future products that we will develop utilising Built on Workday. To
support the partnership, we will incur the following additional costs:
· Payments to Workday of approximately £7.8 million per year (details
of the commitment are disclosed in note 15 to the condensed consolidated
financial statements);
· Investment to expand our own sales capability, to support Workday's
sales organisation; and
· Investment to continue to develop Smart Test, Smart Audit and EDM, to
utilise the full power of Built on Workday.
These additional costs are expected to total approximately £7.0 million in
FY25, of which we incurred £1.2 million in the period since July 2024.
Since announcing the partnership, which is the first of its kind signed by
Workday, we have made significant progress with sales enablement and the
Workday Rising customer event has been an excellent catalyst for increased
customer meetings. The mobilisation phase for the partnership will result in
revenue building from FY26 and starting to offset the annual investment. As a
result, revenue uplift in the current financial year will be negligible.
Digital Services performance
Our Digital Services division builds highly cost-effective solutions that make
public-facing services more accessible and easier to use for citizens,
patients and customers.
Overall, Digital Services had a subdued start to FY25, reflecting the market
conditions described below. Digital Services revenue was 11% lower at £97.3
million (H1 24: £109.2 million). Bookings declined by 13% to £102.8 million
(H1 24: £118.8 million), while the contracted backlog rose 12% to £166.3
million (H1 24: £149.0 million).
Public sector
Revenue from public sector customers fell by 15% to £62.0 million (H1 24:
£73.0 million) and accounted for 64% of divisional revenue (H1 24: 67%). This
was primarily due to the impact of the UK General Election, which took place
several months earlier than originally expected. The resulting hiatus has
caused delays in mobilising some projects as customer teams sought fresh or
additional approvals, alongside generally slower decision making.
Prospects in the public sector remain positive, with the new Government clear
on its intent to use digital technology, including AI, to improve public
services and generate efficiencies. With the Government having outlined the
direction of travel for investment in the Budget on 30 October 2024, we expect
longer-term plans to come out of the multi-year spending review in Spring
2025.
During the period, we continued to support our long-standing customers
including the Ministry of Justice, the Department for Environment, Food &
Rural Affairs, the Driver and Vehicle Standards Agency, HM Passport Office,
the Department for Transport and the Ministry of Defence. We also began
working with new customers, including the Crown Prosecution Service, Ofwat,
University of Cambridge and a new framework win with Queen's University
Belfast.
Healthcare sector
Our customers in this sector are mainly UK public health bodies. In previous
reports, we noted the disruption caused by the merger of NHS Digital into NHS
England, which also delayed decision-making on some programmes. With the
merger largely completed, NHS England has been releasing larger programmes of
work to tender. Revenue from the sector was £23.6 million (H1 24: £20.4
million), representing growth of 16% and accounting for 24% of Digital
Services' revenue in the period (H1 24: 19%).
During the period, our customers have included NHS England, where we are
leading the transformation of Digital Urgent and Emergency Care Services, the
Department for Health and Social Care, where we are working in preventative
healthcare to deliver the new digital NHS Health Check, the UK Health Security
Agency, for whom we are delivering an enterprise data and analytics platform
to help it detect and analyse emerging health threats, and the NHS Business
Services Authority, where we are supporting its digital projects portfolio.
Commercial sector
There is significant long-term potential for us in the UK commercial sector,
where IT expenditure is more than three times higher than the public sector.
To increase our likelihood of success in this market, we have initially
focused on financial services customers.
As anticipated, demand from the commercial sector remained low in the period,
as customers delayed decisions on project-related expenditure in the uncertain
economic environment. Our commercial sector revenue was therefore 27% lower at
£11.6 million (H1 24: £15.8 million), representing 12% of divisional revenue
(H1 24: 14%).
We continue to deliver digital services for our established customers,
including Irish Life Assurance plc, Bank of Ireland, EasyJet and WPP, and we
are helping new customers including Hiscox, Just Group and Hodge Bank.
International
The UK was an early adopter of digital transformation, which provides us with
the opportunity to replicate our home market success in other regions. Our
strategy is to target countries where we already have a presence and customer
contacts through our Workday Services division. International revenue was
£5.3 million (H1 24: £5.9 million), representing 5% of total Digital
Services revenue (H1 24: 5%). We continued to gain momentum in Canada and have
built a local team to support our growth, reflecting our strategy to scale our
in-region delivery capability in line with our success.
In North America, we continue to make progress and diversify our client base
across the public, commercial and healthcare sectors, with organisations
including the Province of Nova Scotia, the Government of Ontario and WPP.
Workday Services performance
We are one of Workday Inc.'s most-experienced partners and the eighth largest
partner globally accredited to implement Workday's innovative SaaS platform.
We are the leading Workday partner in Europe and a Phase 1 Prime partner in
the US, which remains the biggest market for Workday Inc. At the end of H1, we
had 788 accredited Workday consultants (H1 24: 814), ranking us eighth
globally by number of consultants.
Workday Services revenue in the period was 10% lower (-9% ccy) at £51.5
million (H1 24: £57.3 million). In the prior financial year, we stopped
providing procurement consulting services previously offered by Blackline
Group, which we acquired in 2022. Adjusting H1 24 revenue to exclude these
services, revenue in the current period was 5% lower on a like-for-like basis.
Our win rate has remained strong, and our strong customer service has enabled
us to continue to secure business from customers where earlier phases of the
project were undertaken by a different partner. Overall, however, the number
and value of contracts in the market have been lower than in previous periods
and we have also experienced more aggressive pricing by some competitors in
the market.
Sales bookings decreased by 25% to £39.9 million (H1 24: £53.1 million)
while our contracted backlog was £61.1 million (H1 24: £64.1 million).
Regionally, North American customers generated 50% of divisional revenue (H1
24: 51%), with our European customers responsible for 50% of revenue (H1 24:
49%). We have started to build a team in Australia to support growth in Asia
Pacific, with our first Australian contract secured since the end of H1.
We continue to add non-Workday services that create value for our Workday
customers and broaden our revenue streams. For example, during the summer we
announced a strategic partnership with Pulsora, the leading sustainability
management platform. The partnership will enable customers to extract data
from their Workday systems and use it to fulfil ESG reporting requirements
through Pulsora, helping them overcome challenges with ESG transparency and
accountability.
Workday Extend
Workday Extend is Workday's Platform-as-a-Service offering. It allows
organisations to build specialised functionality on the Workday platform, to
further enhance customers' Workday deployment. Engaging with clients on
Workday Extend projects gives us insight into common challenges that they
experience and creates the potential to build further products that can be
part of the Built on Workday program. To date, we have helped more than 80
organisations to build Workday Extend applications.
We believe that we have the largest independent group of Extend skills
globally. We continue to upskill colleagues through our Extend Academy,
enabling them to carry out consulting projects for customers and to work on
product development for our Workday Products division.
Our people
Our success is driven by our people's ability, energy and expertise. We are
therefore pleased that our employee retention remains high, with 93% of our
people choosing to continue to develop their careers with us over the past 12
months (H1 2024: 92%).
Employee engagement remains strong with their overall satisfaction and
enthusiasm with work being rated at 76% (H1 24: 79%). We capture feedback each
month through Workday Peakon, which gives us a holistic view of employee
sentiment and allows us to compare our performance against c. 1,600 global
employers. We also retained our top 50 ranking in Glassdoor's Best Places to
Work in the UK 2024. In September 2024, we had an overall approval rating on
Glassdoor of 84% and 87% of respondents would recommend working at Kainos to a
friend.
Overall, our headcount has remained stable at 3,029 people (H1 24: 3,139).
During the period, we moved over 80 colleagues from our services divisions to
Workday Products to support its growth, and expanded our teams in both Canada
and Australia. At the period end, colleague numbers by region were: UK &
Ireland, 2,070 people (H1 24: 2,153); Central Europe, 472 people (H1 24: 477);
the Americas, 403 people (H1 24: 413); and Asia, 84 people (H1 24: 96).
We have continued to focus our recruitment on entry level talent, which aligns
with our preference to develop and promote internally to fill more senior
vacancies. Our focus on cost control and investing in permanent employees
means contractor numbers remain low, at 2% of our colleagues (H1 24: 4%).
To develop our colleagues' skills, we invest heavily in training and
certifications, with our people completing more than 6,500 training days in
the past six months (H1 24: more than 6,200 days).
Part of our people strategy is to encourage young people and those from
under-represented groups to pursue careers in our industry. During the period
we ran a week-long Quantum Camp in Gdansk, Poland, bringing in experts from
around Europe to inspire and educate young people on this emerging technology.
Our customers
Consistently delivering for our customers is at the heart of our business. It
creates strong relationships, which in turn generate high levels of repeat
business, while our reputation for delivery also helps us to win new work.
We continued to perform strongly during the period, as reflected by:
· Our Net Promoter Score (NPS) of 58 (H1 24: 62), maintaining our
record of consistently high customer satisfaction. A score above 50 is viewed
as 'excellent';
· Existing customers generating 81% of our revenue (H1 24: 94%), as
they continue to trust us to deliver for them; and
· Further new customer wins, giving us 1,022 active customers at the
period end (H1 24: 892).
Our business is well diversified across our sectors, with revenue coming from:
· Commercial customers: 53% (H1 24: 51%);
· Public sector customers: 34% (H1 24: 38%); and
· Healthcare customers: 13% (H1 24: 11%).
Regionally, UK & Ireland accounts for 59% of our business (H1 24: 61%),
North America for 30% (H1 24: 28%), Central Europe for 10% (H1 24: 11%), and
the rest of the world representing 1% (H1 24: <1%). Total international
revenue was £75.4 million, up 1% (H1 24: £74.7 million).
Artificial intelligence
Our vision for AI is to guide and deliver responsible AI adoption and to solve
real-world problems. To date we have delivered more than 140 AI & Data
projects for public sector, healthcare and commercial customers, providing
end-to-end services ranging from strategy development to full-scale AI
deployment and data optimisation.
During H1, we won nearly 40 AI & Data contracts across all markets, with
clients including NHS England, the UK Health Security Agency, Homes England,
the Ministry of Defence, WPP, the National Highways Agency, Hodge Bank, Mizuho
Bank, Danske Bank, Irish Life and Control Risks. We also secured a major AI
consultancy engagement with the Crown Prosecution Service. Example projects
include providing AI solutions for the United Nations International
Organization for Migration, to support migration as a result of climate change
and to combat fraudulent passports being used to cross borders.
Our AI & Data team comprises more than 200 consultants, including data
scientists, AI engineers and machine learning specialists. We have
strengthened our AI Ethics and Governance capabilities and established an AI
Catalyst Team, which delivers rapid client-led proofs of concept. Examples
include AI-assisted underwriting for insurance, transaction verification for
credit cards, and AI-driven notetaking for local authorities.
Our position as an AI leader is reinforced by key milestones. We hosted and
curated the leading conference, AI Con, for the sixth year, featuring over 400
attendees and the first live AI-powered panellist. Our thought leadership on
AI regulation was included in the UK Department for Science, Industry and
Technology's Portfolio of AI Assurance Techniques. We were also awarded the
National AI Award for Government & Public Sector for our AI work with HM
Land Registry creating a solution that uses machine learning and AI to
automatically compare documents in different formats and identify
discrepancies.
Our alliance strategy continues to strengthen. As a Microsoft Data & AI
Solution Partner, we have achieved three AI Advanced Specialisations and are
an established member of the Global Partner Advisory Council. We are a Premier
Tier AWS Partner (top 1% globally), hold the AWS Machine Learning specialist
competency and have developed AWS-approved Generative AI solutions, which are
available on the AWS Marketplace. Additionally, we are one of only 15 global
early AI adopters for Workday, with three products already available on the
Workday AI Marketplace, all of which have attained the 'Responsible AI'
designation from Workday.
Finally, we are driving our own efficiency through AI. In addition to our
internal projects, including a Gen AI employee assistant, a pre-sales content
assistant and "Juno" - our AI workshop facilitator - over half of our
development projects are using AI to accelerate delivery as we help more
customers adopt these emerging technologies.
Innovation, research and development
Successful businesses continue to challenge themselves. We are keen to improve
our existing offerings, develop new business ideas and assess business and
technology concepts that are likely to impact us or our clients in the future.
Including our product investment, our research and development expenditure for
the period amounted to £7.7 million (H1 24: £5.9 million), an increase of
31%, all of which was fully expensed.
Assessing the technologies of the future
Our R&D team's horizon scanning and strategic foresight help us to uncover
the upcoming trends and technologies to explore and exploit, both within the
business and with our customers. Examples include next-generation AI, which
explores topics such as Small Language Models, Agentic AI, and Federated
Learning; sustainable computing, which investigates topics such as green
software, responsible computing and sustainable AI; and emerging
technology, which includes research into quantum computing, distributed
trust and spatial computing.
Smart Product Suite
We are making sustained investment in our Smart Suite, where we are leveraging
cutting-edge AI alongside Workday's Extend technology to drive operational
efficiencies for our customers. Our Smart Test platform now incorporates AI to
automate test scoping and creation, which allows for broader, deeper and
more-efficient test coverage within Workday environments.
AI is also embedded in Smart Audit, where it increases the ability to swiftly
detect anomalous Workday configurations. This helps customers identify
potential vulnerabilities, allowing for more thorough and accelerated
automation of IT security and audit controls.
Employee Document Management for Workday
We are continuously enhancing EDM's capabilities to increase its value for
Workday customers across an expanding number of specific regional compliance
standards. We are utilising AI across multiple aspects of document management,
including automated document generation, intelligent document filing, and
regulatory compliance tracking.
Launching new products for Workday
Alongside improvements to our current product portfolio, a key focus of our
R&D efforts is to identify and develop new products that streamline manual
processes within HR and Finance. As part of our Built on Workday partnership,
we are collaborating closely with Workday to align these developments with its
product roadmap. Our target is to introduce at least one new product every
year, each catering to distinct market needs. We are currently evaluating
additional product ideas where regulation and compliance are key
considerations.
Our innovation services team
Our innovation team utilises our innovation framework to support customers and
colleagues in the effective evaluation of solution feasibility, when assessing
an idea that solves an internal or customer-centric idea.
One of the framework's key elements is Spark & Scale, our programme to
incubate great ideas brought forward by our people. We are currently investing
in 14 ideas, ranging from using generative AI in the Policing and Justice
sector, to Low Code tools to drive business efficiencies.
Financial review
H1 25 was a period of tough trading environments for our services businesses -
Digital Services and Workday Services.
In aggregate, revenue for the period decreased by 5% (-5% ccy) to £183.1
million (H1 24: £193.2 million). Within this, Digital Services revenue
reduced by 11% to £97.3 million (H1 24: £109.2 million), due to lower demand
across the public and commercial sectors. Workday Services revenue reduced by
10% (-9% ccy) to £51.5 million (H1 24: £57.3 million), in part due to more
competitive market conditions. In the prior financial year, we stopped
providing procurement consulting services previously offered by Blackline
Group, which we acquired in 2022. Adjusting H1 24 revenue to exclude these
services, Workday Services revenue in the current period was 5% lower on a
like-for-like basis. The reduction in revenue within our services business is
offset to some extent by continued strong growth in Workday Products. Revenue
in the period for Workday Products increased to £34.3 million (H1 24: £26.7
million), representing growth of 28% (31% ccy) (H1 24: 28%). The Group
business review provides more information on our revenue performance.
Our overall gross margin increased to 50.3% (H1 24: 48.0%). Digital Services'
gross margin increased slightly to 38.4% (H1 24: 37.7%) driven by lower use of
contractors. Workday Services margin remained consistent at 54.0% (H1 24:
54.8%) while Workday Products margin increased to 78.4% (H1 24: 75.7%) due to
only moderate increases in direct costs required to deliver the strong revenue
growth.
Operating expenses
Operating expenses decreased by 3% to £61.9 million (H1 24: £63.9 million)
reflecting disciplined cost management.
As noted in our Workday Products review, we entered into an enhanced strategic
partnership agreement with Workday Inc. in the period. Under the terms of this
agreement, annual fees of approximately £7.8 million are payable. A total
charge of £1.2 million (H1 24: nil) for two months was recognised in the
period.
We continue to invest in product development, with expenditure increasing to
£7.7 million (H1 24: £5.9 million), all of which was expensed during the
period. We recognised £1.6 million of Research & Development Expenditure
Credit (RDEC) income during the period (H1 24: £1.8 million).
Alternative performance measures
We use several alternative performance measures to monitor day-to-day
performance and to assist management's financial, strategic and operating
decisions.
Specifically, we exclude costs directly attributable to acquisitions. This
includes amortisation of acquired intangible assets, compensation for
post-combination services and acquisition-related expenses such as legal and
professional costs incurred mainly in the period of acquisition. These costs
can vary between periods depending on the timing and size of acquisitions, the
nature of intangible assets acquired and the structure of consideration.
We also adjust for the cost of our share-based payment arrangements in our
adjusted measures. Our arrangements consist of both equity-settled and
cash-settled schemes and the cost of each award will be influenced by the
share price at the date of grant. The cost of our cash-settled arrangements
will also be impacted by share price movements between reporting dates. Due to
these variables, we believe adjusting for such costs better represents our
underlying trading performance, providing a more meaningful comparison between
periods.
Furthermore, we also adjust for items which we consider significant and
non-recurring in nature. In the prior period we excluded gains relating to the
sale of property, plant and equipment and fair value movements in investment
property.
We adjust for the above items consistently across all our adjusted measures,
namely 'adjusted profit before tax', 'adjusted EBITDA', 'cash conversion' and
'adjusted diluted and basic earnings per share'. We believe our adjusted
measures are better indicators of trading performance, assist comparison
between periods and are useful measures for users of the financial statements.
The nature and type of items adjusted are also similar to comparable
companies.
The adjusted profit measures we use are not defined in UK-adopted
International Accounting Standards and our definitions may not be comparable
with similarly titled performance measures and disclosures by other entities.
As such, these measures should not be considered in isolation but as
supplementary information to the financial statements.
The adjusted profit measures reconcile to the reported numbers as follows:
Adjusted profit measures
Profit before tax 34,202 30,861 64,772
Share-based payment expense and related costs 3,104 2,896 5,952
Amortisation of acquired intangible assets 414 3,222 4,190
Increase in fair value of investment property and gain on sale of property - (2,154) (2,154)
Compensation for post-combination services 414 2,664 3,800
Acquisition-related expenses 16 363 626
Adjusted profit before tax 38,150 37,852 77,186
Profit after tax 25,425 22,126 48,715
After tax impact of:
Share-based payment expense and related costs 2,306 2,085 4,464
Amortisation of acquired intangible assets 324 2,372 3,147
Increase in fair value of investment property and gain on sale of property - (1,616) (1,894)
Compensation for post-combination services 414 2,528 3,746
Acquisition-related expenses 16 363 582
Adjusted profit after tax 28,485 27,858 58,760
Adjusted EBITDA
Adjusted profit before tax 38,150 37,852 77,186
Depreciation of property, plant and equipment 1,660 1,276 2,886
Depreciation of right-of-use assets 615 433 1,152
Finance expense 164 76 334
Finance income (3,509) (1,764) (4,336)
Adjusted EBITDA 37,080 37,873 77,222
Adjusted profit before tax increased by 1% to £38.2 million (H1 24: £37.9
million). Profit before tax increased by 11% to £34.2 million (H1 24: £30.9
million).
Corporation tax charge
The total tax charge for the six months ended 30 September 2024 is £8.8
million (H1 24: £8.7 million). This tax charge equates to an effective tax
rate of 26% (H1 24: 28%).
The expected annual tax rate for the year to 31 March 2025 is 26% (31 March
2024: 27%).
Financial position
We continue to have a strong financial position with £151.6 million of cash
and treasury deposits (31 March 2024: £126.0 million), no debt and net assets
of £159.3 million (31 March 2024: £156.8 million).
The combined underlying net trade receivables and accrued income balance
decreased by 13% to £60.0 million (31 March 2024: £68.6 million) reflecting
the decrease in revenue in Digital Services and Workday Services. Trade
payables and accruals have reduced to £38.4 million (31 March 2024: £50.1
million) due mainly to the timing of the FY24 bonus payout post 31 March 2024.
As previously disclosed, we agreed to sell part of the site which was
purchased in FY20 for the development of the Group's future headquarters in
Belfast. We concluded the sale during the period, receiving proceeds of £6.2
million. The fair value of this investment property prior to disposal was
£6.2 million. As a result, no gain or loss relating to the disposal of this
property has been recognised in the period.
The final dividend for FY24 of £24.0 million has been included as a current
liability in these financial statements. This dividend was approved by
shareholders at the Annual General Meeting on 24 September 2024 and paid to
shareholders on 25 October 2024.
Cash flow and cash conversion
Cash conversion, which is cash generated by operating activities as a
percentage of adjusted EBITDA, remained strong at 75% (H1 24: 82%).
Interim dividend
The Board has declared an interim dividend of 9.3 pence per share for H1 25
(H1 24: 8.2 pence). This will be paid on 13 December 2024 to shareholders on
the register at the close of business on 22 November 2024, with an ex-dividend
date of 21 November 2024.
Capital allocation policy
Kainos has a strong unlevered balance sheet and continues to generate
significant operating cash flow. The Board's main priorities when it comes to
our cash are to enhance the growth of the business, both organically and
through acquisition, and to reward shareholders through growth in earnings
alongside our progressive dividend policy, while retaining a robust capital
base.
Where there is surplus cash over and above that needed to fund organic and
inorganic growth, the Board will consider additional one-off returns of
capital to shareholders. After applying the Board's capital allocation
framework, we are announcing our intention to launch a share buyback programme
of £30.0 million, to be executed over the next six months (see separate
announcement).
The Board will continue to keep its capital allocation policy and further
distributions to shareholders under review, with consideration of other
potential uses of capital that may drive value for shareholders over the
medium-term.
Related party transactions
There have been no material changes in related party transactions from those
described in the last annual report.
Risks & Uncertainties
There are several potential risks and uncertainties which could have a
material impact on the Group's performance over the remaining six months of
the financial year and could cause actual results to differ materially from
forecast and historic results.
The Directors do not consider that the principal risks and uncertainties
described in the Annual Report for the year ended 31 March 2024 have changed,
although substantial work has been completed to ensure that these risks are
effectively managed. A detailed explanation of the risks summarised below, and
how the Group seeks to mitigate the risks, can be found on pages 54 - 58 of
the Annual Report for the year ended 31 March 2024 (available on the Group's
website www.kainos.com
(https://eur01.safelinks.protection.outlook.com/?url=http%3A%2F%2Fwww.kainos.com%2F&data=04%7C01%7CM.Paul%40kainos.com%7Cf88a48f36eb84e5a6fb408d99494e8aa%7C7ed9bdc7964d4dc09084812b90e05c6d%7C0%7C0%7C637704189543670863%7CUnknown%7CTWFpbGZsb3d8eyJWIjoiMC4wLjAwMDAiLCJQIjoiV2luMzIiLCJBTiI6Ik1haWwiLCJXVCI6Mn0%3D%7C1000&sdata=ILhveiNiGWlSVQroj4uMseRe7HzPgnaEhijCAbFWF0s%3D&reserved=0)
).
Risk Description
1.Long-term climate change and sustainability With increased focus on sustainability and climate, there is reputational risk
for Kainos if we decide not to act, or act too slowly.
2. Cyber and information security As cyber threats grow in number, frequency and complexity, we must continually
strengthen controls to protect the confidentiality, integrity, and
availability of our IT systems, both internally and in our customer services.
3. Increasing complexity of global data protection laws We must comply with legal, regulatory and contractual data privacy
requirements, considering regional variations as we expand into new geographic
locations.
4. Increasing customer demands in a competitive skills market High demand for specialised skills may introduce challenges when recruiting
new people and retaining existing skilled employees.
5. Partner relationships A deterioration in our strategic partner relationships could result in us
losing access to essential intellectual property or services, which could
impact partner-influenced sales.
6. Global macro-economic events Ongoing global macroeconomic events may impact us due to:
• Instability of financial systems, market disruptions or suspensions.
• Material downturn in the financial markets or an economic recession.
• The insolvency, closure, consolidation or rationalisation of parts of our
customer base.
• Increased geopolitical instability.
7. Exchange rate fluctuations There is a risk of material detrimental movement in foreign exchange rates.
8. Non-compliance with laws and regulations We must comply with laws and regulations applicable to us and design our
products and services to comply with laws and regulations applicable to our
customers.
9. Unsafe use of Generative AI The use of AI without proper safeguards or ethical considerations could result
in data mishandling, privacy violations or reputational damage.
Going concern
As further outlined in note 2 to the condensed consolidated financial
statements, the Directors are satisfied that the Group has sufficient
resources to continue in operation for the foreseeable future, which is a
period of not less than 12 months from the date of this report. Accordingly,
they continue to adopt the going concern basis in preparing the condensed
consolidated financial statements.
Condensed consolidated income statement for the six months ended 30 September
2024
Continuing operations Note 6 months to 6 months to 30 Sep 2023 12 months to
30 Sep 2024 (unaudited) 31 Mar 2024
(unaudited) (£000s) (audited)
(£000s) (£000s)
Revenue 5 183,113 193,249 382,393
Cost of sales 5 (91,065) (100,457) (195,079)
Gross profit 92,048 92,792 187,314
Operating expenses (61,929) (63,941) (128,411)
Impairment gain/(loss) (including amounts recovered) on trade receivables and 738 (718) (287)
accrued income
Gain on disposal of property, plant and equipment - - 1,114
Increase in fair value of investment property - 1,040 1,040
Operating profit 30,857 29,173 60,770
Finance income 3,509 1,764 4,336
Finance expense (164) (76) (334)
Profit before tax 34,202 30,861 64,772
Income tax expense 6 (8,777) (8,735) (16,057)
Profit for the period 25,425 22,126 48,715
Profit attributable to equity holders of the parent Company
Condensed consolidated statement of comprehensive income for the six months
ended 30 September 2024
6 months to 6 months to 12 months to 31 Mar 2024
30 Sep 2024 30 Sep 2023 (audited)
(unaudited) (unaudited) (£000s)
(£000s) (£000s)
Profit for the period 25,425 22,126 48,715
Items that may be reclassified subsequently to profit or loss:
Foreign operations - foreign currency translation differences (2,110) (540) (1,065)
Total comprehensive income for the period 23,315 21,586 47,650
Total comprehensive income attributable to equity holders of the parent
Company
Earnings per share
Basic 8 20.3p 17.8p 39.0p
Diluted 8 20.1p 17.5p 38.6p
Condensed consolidated statement of financial position as at 30 September 2024
Note 30 Sep 2024 30 Sep 2023 31 Mar 2024
(unaudited) (unaudited) (audited)
(£000s) (£000s) (£000s)
Non-current assets
Goodwill 36,415 38,197 38,203
Other intangible assets 4,507 6,500 5,208
Property, plant and equipment 12,156 11,520 12,285
Investment property 10 - 6,200 6,200
Right-of-use assets 5,356 3,923 5,216
Investments in equity instruments 1,299 1,299 1,299
Deferred tax asset 5,406 4,444 5,147
65,139 72,083 73,558
Current assets
Trade and other receivables 9 36,588 40,623 41,832
Prepayments 5,419 4,190 4,268
Accrued income 31,422 38,358 33,225
Cash and cash equivalents 137,141 113,045 121,558
Treasury deposits 14 14,435 - 4,403
225,005 196,216 205,286
Total assets 290,144 268,299 278,844
Current liabilities
Trade payables and accruals (38,407) (44,529) (50,062)
Dividend payable 7 (24,027) (20,135) -
Deferred income (40,980) (40,860) (44,954)
Current tax liabilities (8,094) (5,145) (7,069)
Lease liabilities (1,201) (1,042) (1,015)
Provisions - (101) -
Other tax and social security (10,041) (14,746) (10,135)
(122,750) (126,558) (113,235)
Non-current liabilities
Provisions (1,524) (1,359) (1,542)
Deferred tax liability (1,738) - (2,371)
Lease liabilities (4,838) (3,015) (4,883)
(8,100) (4,374) (8,796)
Total liabilities (130,850) (130,932) (122,031)
Net assets 159,294 137,367 156,813
Equity
Share capital 629 625 629
Share premium account 9,503 8,658 9,419
Capital reserve 3,548 3,548 3,548
Share-based payment reserve 34,323 27,980 31,228
Translation reserve (2,145) 490 (35)
Retained earnings 113,436 96,066 112,024
Total equity 159,294 137,367 156,813
Condensed consolidated statement of changes in equity for the six months ended
30 September 2024
Share Share Capital Share-based Translation reserve Retained Total
capital premium reserve payment earnings equity
reserve
(£000s) (£000s) (£000s) (£000s) (£000s) (£000s) (£000s)
Balance at 31 March 2023 (audited) 623 6,567 3,548 23,394 1,030 94,185 129,347
Profit for the period - - - - - 22,126 22,126
Other comprehensive income - - - - (540) - (540)
Total comprehensive income for the period - - - - (540) 22,126 21,586
Equity settled share-based payments - - - 4,586 - - 4,586
Current tax for equity-settled share-based payments - - - - - 326 326
Deferred tax for equity-settled share-based payments - - - - - (436) (436)
Issue of share capital - share options exercised 2 2,091 - - - - 2,093
Dividends - - - - - (20,135) (20,135)
Balance at 30 September 2023 (unaudited) 625 8,658 3,548 27,980 490 96,066 137,367
Profit for the period - - - - - 26,589 26,589
Other comprehensive income - - - - (525) - (525)
Total comprehensive income for the period - - - - (525) 26,589 26,064
Equity settled share-based payments - - - 3,248 - - 3,248
Current tax for equity-settled share-based payments - - - - - 188 188
Deferred tax for equity-settled share-based payments - - - - - (532) (532)
Issue of share capital - share options exercised 4 761 - - - - 765
Dividends - - - - - (10,287) (10,287)
Balance at 31 March 2024 (audited) 629 9,419 3,548 31,228 (35) 112,024 156,813
Profit for the period - - - - - 25,425 25,425
Other comprehensive income - - - - (2,110) - (2,110)
Total comprehensive income for the period - - - - (2,110) 25,425 23,315
Equity settled share-based payments - - - 3,095 - - 3,095
Current tax for equity-settled share-based payments - - - - - 14 14
Issue of share capital - share options exercised - 84 - - - - 84
Dividends - - - - - (24,027) (24,027)
Balance at 30 September 2024 (unaudited) 629 9,503 3,548 34,323 (2,145) 113,436 159,294
Condensed consolidated statement of cash flows for the six months ended 30
September 2024
6 months to 6 months to 12 months to
30 Sep 2024 30 Sep 2023 31 Mar 2024
(unaudited) (unaudited) (audited)
(£000s) (£000s) (£000s)
Cash flows from operating activities
Profit for the period 25,425 22,126 48,715
Adjustments for:
Finance income (3,509) (1,764) (4,336)
Finance expense 164 76 334
Tax expense 8,777 8,735 16,057
Share-based payment expense 3,104 2,896 5,952
Depreciation of property, plant and equipment 1,660 1,276 2,886
Depreciation of right-of-use assets 615 433 1,152
Amortisation of intangible assets 414 3,222 4,190
Gain on disposal of property, plant and equipment - (1,114) (1,114)
Increase in fair value of investment property - (1,040) (1,040)
Post-acquisition remuneration settled by shares - 1,365 1,501
(Decrease)/increase in provisions (18) 88 170
Operating cash flows before movements in working capital 36,632 36,299 74,467
Decrease/(increase) in trade and other receivables (including accrued income) 6,654 (2,127) 2,337
Decrease in trade and other payables (including deferred income) (15,392) (3,156) (1,336)
Cash generated from operating activities 27,894 31,016 75,468
Income taxes paid (8,753) (4,480) (6,454)
Net cash from operating activities 19,141 26,536 69,014
Cash flows from investing activities
Interest received 3,202 1,764 4,336
Purchases of property, plant and equipment (1,531) (3,287) (5,662)
Proceeds from sale of property 6,200 1,424 1,484
Acquisition of subsidiaries net of cash acquired - (23,338) (22,908)
Amounts placed on treasury deposit (10,032) - (4,403)
Net cash used in investing activities (2,161) (23,437) (27,153)
Cash flows from financing activities
Dividends paid - - (30,422)
Interest paid (164) (76) (334)
Repayment of lease liabilities (739) (424) (466)
Proceeds on issue of shares 84 2,093 2,858
Net cash (used in)/from financing activities (819) 1,593 (28,364)
Net increase in cash and cash equivalents 16,161 4,692 13,497
Cash and cash equivalents at start of period 121,558 108,302 108,302
Effect of exchange rate fluctuations on cash held (578) 51 (241)
Cash and cash equivalents at end of period 137,141 113,045 121,558
Notes to the condensed consolidated financial statements
1. Corporate information
Kainos Group plc ("Company") is a public company limited by shares
incorporated in the United Kingdom under the Companies Act 2006 and is
registered in England and Wales (Company registration number 09579188), having
its registered office at 21 Farringdon Road, 2nd Floor, London, EC1M 3HA. The
Company is listed on the London Stock Exchange.
These condensed consolidated financial statements for the six months ended 30
September 2024 comprise the Company and its subsidiaries (together the
"Group"). The nature of the Group's operations and its principal activities
are set out in the Group business review.
These statements have not been audited but have been reviewed by the Group's
auditor pursuant to International Standard on Review Engagements (UK) 2410
"Review of Interim Financial Information Performed by the Independent Auditor
of the Entity" issued by the Financial Reporting Council.
These condensed consolidated financial statements were approved for issue on 8
November 2024.
2. Basis of preparation
The condensed consolidated financial statements for the six months ended 30
September 2024 have been prepared in accordance with the Disclosure and
Transparency Rules of the Financial Conduct Authority and with IAS 34 "Interim
Financial Reporting" under UK-adopted International Accounting Standards and
should be read in conjunction with the Group's last annual consolidated
financial statements as at and for the year ended 31 March 2024 ('last annual
financial statements'). They do not include all of the information required
for a complete set of financial statements prepared in accordance with
UK-adopted International Accounting Standards and in conformity with the
requirements of the Companies Act 2006. However, selected explanatory notes
are included to explain events and transactions that are significant to an
understanding of the changes in the Group's financial position and performance
since the last annual financial statements.
These condensed consolidated financial statements do not constitute statutory
accounts of the Group within the meaning of Section 434 of the Companies Act
2006. The statutory accounts for the year ended 31 March 2024 have been filed
with the registrar of companies and can be found on the Group's website. The
auditor's report on those accounts was unqualified, did not contain an
emphasis of matter paragraph and did not contain any statement under Section
498(2) or (3) of the Companies Act 2006.
The annual statements of Kainos Group plc are prepared in accordance with
UK-adopted International Accounting Standards.
Going concern
Having reviewed the future plans and projections for our business and our
current financial position, the Directors believe that we are well placed to
manage our business risks successfully. We have adequate financial resources,
no borrowings, a good level of recurring revenue, and a broad spread of
customers.
At 31 March 2024, the Directors assessed the Group's viability over a longer
period to March 2027. The review included sensitivity analysis on the future
performance and solvency over three years and for the principal and emerging
risks facing the business in severe but reasonable scenarios.
In performing this assessment, our long-term strategy and focus, the demand
for our products and services, the level of recurring revenue and strong
customer retention, the track record of strong cash generation and a healthy
cash balance with no debt from financial institutions were all taken into
consideration. Consideration was also given to the risks of regional and
political changes in our main markets.
Based on the results of this assessment, the Directors had a reasonable
expectation that should these risks, either all or in part manifest
themselves, the resulting adverse outcomes can be managed and mitigated such
that, the Group and Company will be able to continue in operation and meet
their liabilities as they fall due over the period of their assessment. In
doing so, we note that such future assessments are subject to a level of
uncertainty that increases with time and, therefore, future outcomes cannot be
guaranteed or predicted with certainty.
As a consequence of these factors and having reviewed the forecasts for the
coming year, the Directors have a reasonable expectation that we have adequate
resources to continue in operational existence for the foreseeable future, a
period of not less than 12 months from the date of this Interim Report. For
this reason, we continue to adopt the going concern basis of accounting in
preparing our financial statements.
3. Significant accounting policies
Except for as detailed below, the accounting policies, presentation and
methods of computation applied by the Group in these condensed consolidated
financial statements are the same as those applied in the Group's latest
audited annual consolidated financial statements for the year ended 31 March
2024. No newly introduced standard or amendments to standards had a material
impact on the condensed financial statements. The Group has not early adopted
any other standard, interpretation or amendment that has been issued but is
not yet effective.
Income tax
The policy for recognising and reassessing income taxes in the interim period
is consistent with that applied in the previous period as described in note 6.
4. Critical accounting judgements and key sources of
estimation uncertainty
The preparation of interim financial statements requires management to make
judgements, estimates and assumptions that affect the application of
accounting policies and the reported amounts of assets and liabilities, income
and expense. Actual results may differ from these estimates.
In preparing these condensed consolidated financial statements, the
significant judgements made by management in applying the Group's accounting
policies and key sources of estimation uncertainty were the same as those
applied to the statutory accounts for the year ended 31 March 2024.
5. Segment reporting
All our revenue for the six-month period to 30 September 2024 was derived from
continuing operations.
The Group's Executive Directors are considered to be the Chief Operating
Decision Maker ('CODM') of the Group. They use internal management reports to
assess both performance and strategy of the Group and the three specialist
business areas: Digital Services, Workday Services and Workday Products.
The following is an analysis of the Group's revenue and results by reportable
segment:
Digital Services Workday Services Total
2024 (£000s) (£000s) Workday (£000s)
6 months to 30 September (unaudited) Products
(£000s)
Revenue 97,271 51,542 34,300 183,113
Cost of sales (59,967) (23,693) (7,405) (91,065)
Gross profit 37,304 27,849 26,895 92,048
Direct expenses((( 5 ))) (11,208) (17,401) (15,761) (44,370)
Contribution 26,096 10,448 11,134 47,678
Central overheads((5)) (12,873)
Net finance income 3,345
Adjusted profit before tax 38,150
Share-based payment expense and related costs (3,104)
Amortisation of acquired intangible assets (414)
Compensation for post-combination services (414)
Acquisition-related expenses (16)
Profit before tax 34,202
Digital Workday Services Total
2023 Services (£000s) Workday (£000s)
6 months to 30 September (unaudited) (£000s) Products
(£000s)
Revenue 109,209 57,294 26,746 193,249
Cost of sales (68,068) (25,886) (6,503) (100,457)
Gross profit 41,141 31,408 20,243 92,792
Direct expenses((5)) (12,359) (18,061) (13,657) (44,077)
Contribution 28,782 13,347 6,586 48,715
Central overheads((5)) (12,551)
Net finance income 1,688
Adjusted profit before tax 37,852
Share-based payment expense and related costs (2,896)
Amortisation of acquired intangible assets (3,222)
Compensation for post-combination services (2,664)
Acquisition-related expenses (363)
Increase in fair value of investment property and gain on sale of property 2,154
Profit before tax 30,861
2024
12 months to 31 March
(audited)
Revenue 213,097 112,044 57,252 382,393
Cost of sales (131,280) (50,717) (13,082) (195,079)
Gross profit 81,817 61,327 44,170 187,314
Direct expenses((5)) (20,778) (35,889) (28,280) (84,947)
Contribution 61,039 25,438 15,890 102,367
Central overheads((5)) (29,183)
Net finance income 4,002
Adjusted profit before tax 77,186
Share-based payments expense and related costs (5,952)
Amortisation of acquired intangible assets (4,190)
Compensation for post-combination services (3,800)
Acquisition-related expenses (626)
Increase in fair value of investment property and gain on sale of property 2,154
Profit before tax 64,772
The Group's revenue from external customers by geographic location is detailed
below:
6 months to 6 months to 12 months to
30 Sep 2024 30 Sep 2023 31 Mar 2024
(unaudited) (unaudited) (audited)
(£000s) (£000s) (£000s)
United Kingdom & Ireland 107,679 118,528 232,557
North America 55,752 53,076 106,990
Central Europe 19,072 20,969 41,433
Rest of world 610 676 1,413
183,113 193,249 382,393
Disaggregation of the Group's revenue is presented in the following tables:
Type of revenue
Services 93,004 50,139 1,990 145,133
Subscriptions - - 32,310 32,310
Third party & other 4,267 1,403 - 5,670
97,271 51,542 34,300 183,113
Type of revenue
Services 105,727 54,320 1,196 161,243
Subscriptions - - 25,550 25,550
Third party & other 3,482 2,974 - 6,456
109,209 57,294 26,746 193,249
Type of revenue
Services 204,950 105,428 2,430 312,808
Subscriptions - - 54,822 54,822
Third party & other 8,147 6,616 - 14,763
213,097 112,044 57,252 382,393
6 months to 6 months to 12 months to
30 Sep 2024 30 Sep 2023 31 Mar 2024 (audited)
(unaudited) (unaudited) (£000s)
(£000s) (£000s)
Digital Services
Public 62,046 72,979 138,168
Commercial 11,643 15,801 30,749
Healthcare 23,582 20,429 44,180
97,271 109,209 213,097
Workday Services
Public 53 15 89
Commercial 51,480 57,273 111,949
Healthcare 9 6 6
51,542 57,294 112,044
Workday Products
Public - - -
Commercial 34,260 26,705 57,170
Healthcare 40 41 82
34,300 26,746 57,252
Group
Public 62,099 72,994 138,257
Commercial 97,383 99,779 199,868
Healthcare 23,631 20,476 44,268
Total 183,113 193,249 382,393
6. Income tax expense
The estimate of the provision of income taxes which is determined in the
interim financial statements uses the estimated average annual effective
income tax rate applied to the profit before tax of the interim period,
adjusted for the tax effect of certain items recognised in full in the interim
period. As such, the effective tax rate in the interim financial statements
may differ from management's estimate of the effective tax rate for the annual
financial statements.
The total tax charge for the six months ended 30 September 2024 is £8.8
million (H1 24: £8.7 million). This tax charge equates to an effective tax
rate of 26% (H1 24: 28%).
The expected annual tax rate for the year to 31 March 2025 is 26% (31 March
2024: 27%).
7. Dividends
The dividends declared and paid in the periods covered by these condensed
consolidated financial statements are detailed below:
6 months to 6 months to 30 Sep 2023 12 months to
30 Sep 2024 (unaudited) 31 Mar 2024
(unaudited) (£000s) (audited)
(£000s) (£000s)
Amounts recognised as distributions to equity holders in the period:
Final dividend for 2024 of 19.1p per share 24,027 - -
Interim dividend for 2024 of 8.2p per share - - 10,287
Final dividend for 2023 of 16.1p per share - 20,135 20,135
24,027 20,135 30,422
A final dividend of 19.1 pence per share for the year ended 31 March 2024 was
paid on 25 October 2024 to shareholders on the register at the close of
business on 4 October 2024, with an ex-dividend date of 3 October 2024. This
dividend was declared following approval by the shareholders of the Company by
ordinary resolution at the Company's Annual General Meeting on 24 September
2024 and a liability for payment of the dividend of £24.0 million has
therefore been recognised in these condensed consolidated financial
statements.
An interim dividend of 9.3 pence per share has been declared for the six
months to 30 September 2024 which amounts to £11.7 million. This will be paid
on 13 December 2024 to shareholders on the register at the close of business
on 22 November 2024, with an ex-dividend date of 21 November 2024. These
condensed consolidated financial statements do not reflect the interim
dividend payable.
8. Earnings per share
Basic
The calculation of basic earnings per share (EPS) has been based on the
following profit attributable to ordinary shareholders and weighted-average
number of ordinary shares outstanding.
6 months to 30 Sep 2024 6 months to 30 Sep 2023 12 months to 31 Mar 2024
(unaudited) (unaudited) (audited)
(£000s) (£000s) (£000s)
Profit for the period 25,425 22,126 48,715
Thousands Thousands Thousands
Issued ordinary shares at 1 April 125,788 124,628 124,628
Effect of shares held in trust (826) (757) (790)
Effect of share options vested and exercised 396 497 711
Effect of shares issued related to a business combination 32 86 113
Effect of shares issued related to free share awards - - 109
Weighted average number of ordinary shares 125,390 124,454 124,771
Basic earnings per share 20.3p 17.8p 39.0p
Diluted
The calculation of diluted EPS has been based on the following profit
attributable to ordinary shareholders and the weighted-average number of
ordinary shares outstanding after adjustments for the effects of all dilutive
potential ordinary shares.
6 months to 30 Sep 2024 6 months to 30 Sep 2023 12 months to 31 Mar 2024
(unaudited) (unaudited) (audited)
(£000s) (£000s) (£000s)
Profit for the period 25,425 22,126 48,715
Thousands Thousands Thousands
Weighted average number of ordinary shares (basic) 125,390 124,454 124,771
Effect of share options in issue 275 667 626
Effect of shares held in trust 826 757 790
Effect of potential shares to be issued related to a business combination 131 223 138
Weighted average number of ordinary shares (diluted) 126,622 126,101 126,325
Diluted earnings per share 20.1p 17.5p 38.6p
The average market value of the Company's shares for the purpose of
calculating the dilutive effect of share options was based on quoted market
prices for the period during which the options were outstanding.
At 30 September 2024, 1,464,231options (H1 24: 86,590) were excluded from the
diluted weighted average number of ordinary shares calculation because their
effect would have been anti-dilutive.
Adjusted
Adjusted basic and adjusted diluted earnings per share is calculated using the
adjusted profit after tax for the period measure. The calculation of adjusted
profit after tax for the period is detailed in the Financial review section of
this report.
6 months to 6 months to 12 months to
30 Sep 2024 30 Sep 2023 31 Mar 2024
(unaudited) (unaudited) (unaudited)
(£000s) (£000s) (£000s)
Adjusted profit after tax for the period 28,485 27,858 58,760
Thousands Thousands Thousands
Weighted average number of ordinary shares for the purposes of basic earnings 125,390 124,454 124,771
per share
Weighted average number of ordinary shares for the purposes of diluted 126,622 126,101 126,325
earnings per share
Adjusted basic earnings per share 22.7p 22.4p 47.1p
Adjusted diluted earnings per share 22.5p 22.1p 46.5p
9. Trade and other receivables
30 Sep 2024 30 Sep 2023 31 Mar 2024
(unaudited) (unaudited) (audited)
(£000s) (£000s) (£000s)
Trade receivables 28,587 32,277 35,368
Other receivables 8,001 8,346 6,464
36,588 40,623 41,832
10. Investment property
The Group previously held an investment property, reflecting the Group's
agreement to sell part of the site purchased for the development of the Group'
future headquarters in Belfast. The fair value of the property as at 31 March
2024 was based on an agreed contract for sale, discounted at the market rate
of interest. The sale was subject to planning permission.
During the six months ended 30 September 2024, the planning permission was
approved and the sale was completed at a transaction price of £6.2 million.
11. Financial Instruments
The Directors consider that the carrying amount for all financial assets and
liabilities is a reasonable approximation of their fair value.
12. Related party transactions
There have been no related party transactions during the six months to 30
September 2024 that have materially affected the financial position or
performance of the Group.
No share options were exercised by Directors during the period (H1 24: 580
options).
All related party transactions are materially consistent with those disclosed
by the Group in its financial statements for the year ended 31 March 2024.
13. Issue of ordinary shares
During the six months ended 30 September 2024, the Group issued 24,505
ordinary shares (H1 24: 386,596 shares) due to the exercise of vested options.
The weighted average exercise price of options exercised in the period was
£2.51 per share (H1 24: £5.36 per share).
The Group issued 32,382 ordinary shares in respect of post-acquisition
remuneration (H1 24: 103,795).
All ordinary shares were issued with a nominal value of £0.005 each.
14. Treasury deposits
Treasury deposits represent bank deposits with an original maturity of over
three months and are held with a fixed rate of interest.
During the period, £10.0 million was placed on a 95-day deposit, which is due
to mature in October 2024.
£4.4 million within treasury deposits relates to cash held in a Protected
Cell Captive (PCC). The Group established the PCC for certain self-insurance
purposes. To satisfy regulatory requirements, a minimum of £2.5 million (H1
24: £2.5 million included within cash and cash equivalents) must be retained
in cash within the cell. The Group can access the funds with 95 days notice
and has control over the investing decisions made.
15. Contractual commitments
During the six months ended 30 September 2024, the Group has entered into
capital commitments of £1.3 million in connection with the construction of
the Group's new headquarters in Belfast. £0.8 million remains committed at 30
September 2024. Further, the Group has entered into a strategic partnership
agreement with Workday Inc. under which the Group is committed to incurring a
total minimum expenditure of £23.6 million over 3 years. £21.8 million
remains committed as at 30 September 2024.
The Group had no commitments at 30 September 2023 and £0.1 million in
connection with the property construction at 31 March 2024.
16. Compensation for post-combination services
In connection with the Group's prior acquisitions, additional compensation for
post-combination services of up to £3.1 million (H1 24: £7.4 million) will
be payable in future periods to March 2026, subject to future service
conditions being met. Amounts relating to compensation for post-combination
services are recognised as an expense over the service period. During the
period, a charge of £0.4 million (H1 24: £2.7 million) has been recognised
for compensation for post-combination services in operating expenses.
17. Subsequent events
Subsequent to 30 September 2024, the Company paid the final dividend of £24.0
million in respect of the year ended 31 March 2024. As detailed in note 7,
this dividend was declared at the Annual General Meeting on 24 September 2024
and paid to shareholders on 25 October 2024.
Furthermore, on 8 November 2024, the Board of Directors approved the
commencement of a £30.0 million share buyback programme to be executed over a
period of six months. The sole purpose of the programme is to reduce the
Company's share capital, and any shares purchased for this purpose will be
cancelled.
Statement of Directors responsibilities
The Directors are responsible for preparing the half-yearly financial report
in accordance with the Disclosure Guidance and Transparency Rules ("the DTR")
of the UK's Financial Conduct Authority ("the UK FCA").
In preparing the condensed set of consolidated financial statements included
within the half-yearly financial report, the Directors are required to:
· prepare and present the condensed set of consolidated financial
statements in accordance with IAS 34 Interim Financial Reporting as adopted in
the UK and the DTR of the UK FCA;
· ensure the condensed set of consolidated financial statements has
adequate disclosures;
· select and apply appropriate accounting policies;
· make accounting estimates that are reasonable in the circumstances;
and
· assess the entity's ability to continue as a going concern,
disclosing, as applicable, matters related to going concern and using the
going concern basis of accounting unless the Directors either intend to
liquidate the entity or to cease operations, or have no realistic alternative
but to do so.
The Directors are responsible for designing, implementing and maintaining such
internal controls as they determine is necessary to enable the preparation of
the condensed set of consolidated financial statements that is free from
material misstatement whether due to fraud or error.
We confirm that to the best of our knowledge:
(1) the condensed set of consolidated financial statements included within
the half-yearly financial report of Kainos Group plc for the six months ended
30 September 2024 ("the interim financial information") which comprises the
condensed consolidated income statement, the condensed consolidated statement
of comprehensive income, the condensed consolidated statement of financial
position, the condensed consolidated statement of changes in equity, the
condensed consolidated statement of cash flows and the related explanatory
notes, have been presented and prepared in accordance with IAS 34, Interim
Financial Reporting, as adopted for use in the UK, and the DTR of the UK FCA.
(2) The interim financial information presented, as required by the DTR of
the UK FCA, includes:
a. an indication of important events that have occurred during the first six
months of the financial year, and their impact on the condensed set of
consolidated financial statements;
b. a description of the principal risks and uncertainties for the remaining
six months of the financial year;
c. related parties' transactions that have taken place in the first six
months of the current financial year and that have materially affected the
financial position or the performance of the enterprise during that period;
and
d. any changes in the related parties' transactions described in the last
annual report that could have a material effect on the financial position or
performance of the enterprise in the first six months of the current financial
year.
The Directors are responsible for the maintenance and integrity of the
corporate and financial information included on the Entity's website.
Legislation in the UK governing the preparation and dissemination of financial
statements may differ from legislation in other jurisdictions.
On behalf of the Board
Richard McCann
Chief Financial Officer/Chief Operating Officer
8 November 2024
Independent Review Report to Kainos Group plc ("the Entity").
Conclusion
We have been engaged by the Entity to review the Entity's condensed set of
consolidated financial statements in the half-yearly financial report for the
six months ended 30 September 2024 which comprises the condensed consolidated
statement of comprehensive income, the condensed consolidated statement of
financial position, the condensed consolidated statement of changes in equity,
the condensed consolidated statement of cash flows a summary of significant
accounting policies and other explanatory notes.
Based on our review, nothing has come to our attention that causes us to
believe that the condensed set of consolidated financial statements in the
half-yearly financial report for the six months ended 30 September 2024 is not
prepared, in all material respects in accordance with International Accounting
Standard 34 Interim Financial Reporting ("IAS 34") as contained in the UK
adopted International Accounting Standards and the Disclosure Guidance and
Transparency Rules ("the DTR") of the UK's Financial Conduct Authority ("the
UK FCA").
Basis for conclusion
We conducted our review in accordance with International Standard on Review
Engagements (UK) 2410 Review of Interim Financial Information Performed by the
Independent Auditor of the Entity ("ISRE (UK) 2410") issued for use in the UK.
A review of interim financial information consists of making enquiries,
primarily of persons responsible for financial and accounting matters, and
applying analytical and other review procedures.
A review is substantially less in scope than an audit conducted in accordance
with International Standards on Auditing (UK) and consequently does not enable
us to obtain assurance that we would become aware of all significant matters
that might be identified in an audit. Accordingly, we do not express an audit
opinion.
Conclusions relating to going concern
Based on our review procedures, which are less extensive than those performed
in an audit as described in the Basis for conclusion section of this report,
nothing has come to our attention that causes us to believe that the directors
have inappropriately adopted the going concern basis of accounting, or that
the directors have identified material uncertainties relating to going concern
that have not been appropriately disclosed.
This conclusion is based on the review procedures performed in accordance with
ISRE (UK) 2410. However, future events or conditions may cause the Entity to
cease to continue as a going concern, and the above conclusions are not a
guarantee that the Entity will continue in operation.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and has been
approved by, the directors. The directors are responsible for preparing the
half-yearly financial report in accordance with the DTR of the UK FCA.
The directors are responsible for preparing the condensed set of consolidated
financial statements included in the half-yearly financial report in
accordance with IAS 34 as adopted for use in the UK.
As disclosed in note 2, the annual financial statements of the Entity for the
period ended 31 March 2024 are prepared in accordance with UK-adopted
International Accounting Standards.
In preparing the condensed set of consolidated financial statements, the
directors are responsible for assessing the Entity's ability to continue as a
going concern, disclosing, as applicable, matters related to going concern and
using the going concern basis of accounting unless the directors either intend
to liquidate the Entity or to cease operations, or have no realistic
alternative but to do so.
Our responsibility
Our responsibility is to express to the Entity a conclusion on the condensed
set of consolidated financial statements in the half-yearly financial report
based on our review.
Our conclusion, including our conclusions relating to going concern, are based
on procedures that are less extensive than audit procedures, as described in
the Basis for conclusion section of this report.
The purpose of our review work and to whom we owe our responsibilities
This report is made solely to the Entity in accordance with the terms of our
engagement to assist the Entity in meeting the requirements of the DTR of the
UK FCA. Our review has been undertaken so that we might state to the Entity
those matters we are required to state to it in this 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 Entity for our review work, for this
report, or for the conclusions we have reached.
KPMG
8 November 2024
Chartered Accountants
The Soloist Building
1 Lanyon Place
Belfast
BT1 3LP
(( 1 )) The Financial review section reconciles adjusted and statutory profit
measures. See also the definition of terms section for more information on
adjusted measures and other key terms and metrics used in this report.
((( 2 ))) Includes £14.4 million (H1 24: nil) of treasury deposits which do
not meet the definition of cash and cash equivalents.
((( 3 ))) See the definition of terms for more information on how Net Promoter
Score is calculated.
(( 4 )) We refined the definition of an active customer during the period (see
the definition of terms) and customer numbers at the period end are therefore
not directly comparable to prior periods.
( 5 ) Direct expenses plus central overheads plus balances below adjusted
profit equals the sum of operating expenses plus impairment losses and
reversals on trade receivables and accrued income.
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