REG - Kainos Group plc - Half-year Report
14/11/2022 07:00
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RNS Number : 2168G Kainos Group plc 14 November 2022
14 November 2022
Kainos Group plc
("Kainos" or the "Group")
Interim results for the six months ended 30 September 2022
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 2022
(H1 23).
Financial highlights
H1 23 H1 22 Change
Revenue £179.8m £142.3m +26%
Profit before tax £27.5m £24.8m +11%
Adjusted pre-tax profit £34.0m £29.2m +16%
Cash ((( 1 ))) £97.1m £80.4m +21%
Bookings £221.5m £187.4m +18%
Product Annual Recurring Revenue (ARR) £44.2m £28.0m +58%
Contracted Backlog £307.9m £250.0m +23%
Diluted earnings per share 17.4p 16.0p +9%
Adjusted diluted earnings per share 22.0p 19.1p +15%
Interim dividend 7.8p 7.1p +10%
Operational highlights
Our strong business performance reflects robust underlying market demand, high
levels of customer engagement and the continued commitment of our colleagues.
· Revenue growth of 26% (23% in constant currency (ccy)) to £179.8
million (H1 22: £142.3 million).
· Adjusted pre-tax profit increased 16% (reduced 3% ccy) to £34.0
million (H1 22: £29.2 million) as we invested an additional £4.2 million in
our Workday Products. This investment represents an increase of 91%, with
research & development increased to £4.0m (H1 22: £2.7m) and investment
in sales & marketing increased to £4.8 million (H1 22: £1.9 million).
· Bookings up 18% (16% ccy) to £221.5 million (H1 22: £187.4
million).
· Contracted backlog growth of 23% to £307.9 million (H1 22: £250.0
million).
· Period-end cash amounted to £97.1 million (H1 22: £80.4
million((1))); with cash conversion at 70% (H1 22: 38%).
( 1 ) H1 22 cash includes treasury deposits of £18.0 million.
We continue our transition to a global business with over one-third of
revenues generated internationally.
· Very strong international growth, up 53% to £61.0 million (H1 22:
£39.9 million).
· At IPO, international customers generated 6% of revenue.
Commercial sector customers now generate almost half our revenues.
· At IPO, commercial sector clients accounted for 25% of revenue.
· Commercial revenues are up 46% to £86.3 million (H1 22: £59.3
million), representing 48% of total revenue.
· Public sector revenues are up 21% to £63.3 million (H1 22: £52.3
million) or 35% of total revenue.
· Healthcare revenues have reduced by 1% to £30.2 million (H1 22:
£30.6 million), which is 17% of total revenue.
We continue to add to the talents of our global team.
· The team has now grown to 2,920 people (H1 22: 2,438) an increase
of 20% and reflects strong recruitment in our core markets.
· We now have colleagues based in 22 countries.
· Against the backdrop of a global shortage in digital skills, our
employee retention has reduced to 86% (H1 22: 89%, FY22: 86%). Our focus
remains on being a great employer, as demonstrated by our #38 placing in the
2022 Glassdoor, 'Best Places To Work in the UK' rankings.
Excellent customer service drives customer satisfaction and retention,
underpinning revenue growth.
· Customer approval rating((( 2 ))) of Kainos remains high at 98% (H1
22: 98%).
· Existing customer revenue increased by 25% to £169.8 million (H1
22: £135.8 million) and represents 94% of revenue in the six months.
· Customer numbers increased to 779 (H1 22: 601), an increase of
30%.
We continue with our ambition to be a responsible organisation.
· Having retained our carbon neutral status for 2022, we remain on
track to achieve carbon net zero by 2025. As part of our offsetting activity,
we have supported reforestation projects in Timor-Leste and Nicaragua
(removal) and N(2)O destruction projects in the US (avoidance).
(2) Data from all completed customer surveys in the period. There are five
possible designations: 'Poor', 'Satisfactory', 'Good', 'Very Good' or
'Excellent'; the rating reflects the percentage of customers that rate our
performance 'Good' or better.
In Digital Services, we continue to deliver significant digital transformation
programmes across public sector, healthcare and commercial sector customers.
· This extensive project portfolio has driven strong revenue growth
of 17% (17% in ccy) to £110.5 million (H1 22: £94.2 million).
· Customer demand remains very high in the Public Sector and in the
Commercial Sector as digital transformation continues to be a business
priority.
· As previously expected, the integration of NHSx and NHS Digital
organisations is causing some delays in the award of new projects, although
not disrupting ongoing projects.
We continue to be the leading pan-European Workday specialist and we have been
appointed a Phase 1 partner for the US market.
· Our Workday Services recorded very strong revenue growth of 44%
(36% ccy) to £48.4 million (H1 22: £33.6 million).
· Focused on the opportunity in North America, we have increased our
presence and now have 363 colleagues (H1 22: 257) based across USA, Canada and
Argentina.
Our Workday-related products, Smart Test and Smart Audit, achieved very strong
growth and we have now launched Smart Shield. We remain on track to achieve
our target of £100 million Annual Recurring Revenue (ARR) by 2026.
· Workday Products revenues grew 45% (30% ccy) to £20.9 million (H1
22: £14.4 million); at the same time the ARR, at 30 September 2022, increased
58% (33% ccy) to £44.2 million (H1 22: £28.0 million).
· As noted earlier, we continue to invest in our Workday Products,
increasing our research & development to £4.0 million (H1 22: £2.7
million) and sales & marketing increased to £4.8 million (H1 22: £1.9
million).
Commenting on the results, CEO Brendan Mooney said:
"As the Digital Transformation market enters its second decade, it continues
to grow in importance for organisations operating in government, in healthcare
and in the commercial sector.
This importance is translating into continued demand for the work that we do
for our customers, not just in the last six months but also looking to the
future. Despite the economic uncertainty, there is an urgency from our
customers about extending existing projects and starting new projects.
We are grateful for the ongoing trust that our customers have placed in
Kainos, to help them drive their ambitious digital transformation programmes
as they change the ways they deliver essential services to citizens, patients,
customers, and employees.
Our business is becoming increasingly resilient. We work with over 750
organisations, many of whom are international in scale and who operate across
a range of industries including healthcare, public sector, banking, insurance,
pharmaceuticals and education. From our UK base we have expanded globally,
with over one-third of our revenues now generated internationally.
Looking forward, we remain confident in our business as the demand for our
services has never been higher, our reputation for delivery continues to
flourish, while the scale and capability of our organisation continues to grow
at pace.
Underpinning that confidence is the quality and talents of our colleagues.
Their expertise, experience and energy have been the driving force behind all
that we have achieved. We share their excitement about the future - the
journey is just starting."
For further information, please contact:
Kainos
via FTI Consulting LLP
Brendan Mooney, Chief Executive Officer
Richard McCann, Chief Financial Officer
Investec Bank
plc
+44 20 7597 5970
Patrick Robb / Ben Griffiths
Canaccord
Genuity
+44 20 7523 8000
Simon Bridges / Emma Gabriel
FTI Consulting
LLP
+44 20 3727 1000
Matt Dixon / Dwight Burden / Kwaku Aning
About Kainos Group plc
Kainos Group plc is a UK-headquartered IT provider with expertise across three
divisions - Digital Services, Workday Services, and Workday Products.
Our Digital Services division develops and supports custom digital service
platforms for public sector, commercial, and healthcare customers. Our
solutions transform the delivery of these services, ensuring they are secure,
accessible, and cost-effective, and provide better outcomes for users.
Our Workday Services division specialises in the deployment of Workday Inc.'s
Finance, HR and Planning products to leading organisations across Europe and
North America. We are one of Workday's most respected partners, experienced in
complex deployment and trusted by our customers to launch, test, expand, and
support their Workday systems.
Our Workday Products division develops products that complement Workday. Our
Smart product suite, including Smart Test (for automated testing), Smart
Audit (for compliance monitoring), and Smart Shield (for data masking), are
used by more than 350 customers globally to safeguard their Workday
systems.
Our people are central to our success. We employ more than 2,900 people in 22
countries across Europe 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:
Adjusted EBITDA: calculated as being 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).
Annual Recurring Revenue (ARR): the value at the end of the accounting period
of the software and subscription recurring revenue annualised.
Backlog: the value of contracted revenue that has yet to be recognised.
Bookings: the total value of sales contracted during the period.
Carbon net zero: any CO(2), released into the atmosphere from a company's
entire value chain is reduced as much as possible and the rest is removed.
Carbon neutral: any CO2 released into the atmosphere from a company's entire
value chain activities is balanced by an equivalent amount being removed.
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 year-on-year performance by translating the relevant prior
year figure at current year average exchange rates.
Existing customer revenue: total revenue recognised from customers in the
current period who were also customers in the preceding year.
Net revenue retention (NRR): is the percentage of recurring revenue from
existing customers we retained over the year. This considers increases or
reductions in customer spending and those customers where the engagement has
ended; it does not include revenue from new customers. NRR therefore shows how
our business could continue to grow solely from our current customer base
alone, without acquiring any new ones.
Organic revenue: our revenues excluding revenue from acquisitions completed in
the current and comparative reporting periods.
Software as a service (SaaS): is a software distribution model that delivers
application programs over the Internet, with users typically accessing the
program through a web browser. Users pay an on-going subscription to use the
software rather than purchasing it once and installing it.
Science based targets initiative (SBTi) - partnership between Carbon
Disclosure Project (CDP), the United Nations Global Compact, World Resources
Institute (WRI) and the World Wide Fund for Nature (WWF) created to encourage
companies to design clearly defined emission reduction plans in line with the
Paris agreement goals.
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
Continued business momentum with widening opportunities
The level of digital transformation undertaken by ambitious organisations
continues to increase as the industry enters its second decade. Our
established track record in guiding and supporting customers to deliver their
large-scale digital transformation programmes, as they respond to the changing
demands in their organisations, continues to provide the bedrock for our own
growth.
Our high levels of activity with our customers has translated into an
excellent set of results for the first six months of FY23.
Revenue for the six months grew by 26% (23% ccy) to £179.8 million (H1 22:
£142.3 million) with adjusted pre-tax profit(( 3 )) increasing by 16%
(reduced 3% ccy) to £34.0 million (H1 22: £29.2 million). Adjusted pre-tax
profit would have been c.£5.8 million lower under constant currency exchange
rates; it would have been c.£1.5 million higher if the two additional UK bank
holidays had not occurred.
In line with our previous guidance, we have increased investment in our
software products, with research & development investment increased to
£4.0 million (H1 22: £2.7 million) and our product-related sales &
marketing investment increased to £4.8 million (H1 22: £1.9 million).
Our sales performance underlines our success in winning business - extensions
to existing contracts, additional projects placed by existing customers and
winning new customers. Bookings in the first six months increased 18% (16%
ccy) to £221.5 million (H1 22: £187.4 million), which resulted in a 23%
increase in the contracted backlog to £307.9 million (H1 22: £250.0
million).
In response to this success, we have been undertaking significant recruitment,
with staff and contractor numbers increasing by 20% to 2,920 (H1 22: 2,438).
Employee engagement remains high, as demonstrated by our many Sunday Times,
'Top 100 Best Companies to Work For' accreditations and our 2022, '50 Best
Places To Work in the UK' award from Glassdoor; and reflected in our staff
retention at 86% (H1 22: 89%).
Customer satisfaction remains high, with 98% (H1 22: 98%) of our customers
rating service as 'good' or better. This high level of customer service
underpins our long-term customer relationships, with existing customers
accounting for 94% of total revenue (H1 22: 95%). We currently have 779 active
customers (H1 22: 601).
Significant progress has been made in widening our customer base by sector and
region. Following growth of 46%, commercial sector customers now account for
48% of total revenue (H1 22: 42%), our growing public sector customers
represent 35% (H1 22: 37%) and 17% of revenue is from healthcare customers (H1
22: 21%).
The proportion of revenue generated from customers outside the UK and Ireland
increased by 53% to £61.0 million (H1 22: £39.9 million) and is now 34% of
total revenue (H1 22: 28%).
(3) The Financial Review section includes reconciliations between adjusted
pre-tax profit and profit before tax numbers.
As at 30 September 2022, we had a strong cash balance of £97.1 million (H1
22: £80.4 million including treasury deposits), representing 70% cash
conversion (H1 22: 38%).
Digital Services review
Our Digital Services division builds solutions that are highly cost-effective
and make public-facing services more accessible and easier to use for the
citizen, patient and customer.
Revenues grew by 17% (17% ccy) to £110.5 million (H1 22: £94.2 million).
Bookings, at £117.0 million (H1 22: £125.9 million), registered a reduction
of 7% (reduced 7% ccy), although the prior six months included significant
contracts with Defra, HM Passport Office and DVSA which are due to renew in H2
23. In line with bookings, our backlog decreased by 9% to £139.2 million (H1
22: £152.2 million).
With more opportunities in our addressable markets than we have people to
deliver them, we have been prioritising the work we undertake. At the top of
that list is our existing project and customer commitments, followed by
prioritising new engagements in the commercial and healthcare sectors as we
work towards a more balanced sector coverage within the division. As a result
of this prioritisation, public sector now represents 56% of divisional
revenues (H1 22: 55%), healthcare 27% (H1 22: 32%) and commercial sector 17%
(H1 22: 13%).
Public sector
Our public sector customers have remained committed to their digital
transformation programmes and they remain ambitious in the scope of services
that they wish to digitise, which is underpinned by a new digital
transformation policy which outlines 50 of 75 services to be digitised by
2025. As a result, revenues increased by 21% to £62.3 million (H1 22: £51.7
million).
Within central government, we continue to consolidate our strong position
across key accounts, securing new contracts to deliver digital programmes
in Companies House, Department for Environment Food & Rural Affairs,
Department for Transport, Driver and Vehicle Standards Agency and Foreign
Commonwealth & Development Office. Beyond our existing accounts, we are
also delivering projects with new areas, in Defence (Defence Science &
Technology Laboratory - Artificial Intelligence Delivery Partner) and Policing
(Secure Policing HQ - Cloud Migration Partner).
Commercial sector
In the UK, the commercial sector expenditure on IT is over three times that of
the public sector. While this represents significant opportunity, to increase
our likelihood of success, we have initially chosen to focus our activity on
financial services customers.
Like all large organisations post-pandemic, those within banking and insurance
are increasing their levels of investment in digital transformation. This,
coupled with our growing references in the sector has driven a rapid increase
in activity as we have helped established customers like Concardis and New
Ireland and new customers such as IMCO, Danske Bank and Federated Hermes
Limited.
Reflecting these higher activity levels, our revenues increased 51% to £18.7
million (H1 22: £12.4 million).
Healthcare sector
Our healthcare revenues reduced by 2% to £29.5 million (H1 22: £30.1
million).
We have enjoyed strong partnerships with both NHS Digital and NHS X, who are
merging to form NHS England's new Transformation Directorate. As anticipated,
there have been some delays in the award of new projects as both organisations
are integrated.
Most recently, our work has been a blend of providing ongoing support to
Covid-19 initiatives and, increasingly, to broader healthcare provision and
how technology can support the NHS with its ambitious digital plans. In this
regard, we have deployed the NHS App with NHS Wales and we continue to assist
in genomics medicine with Genomics England and Our Future Health.
Workday Services review
Revenue for the six months grew by 44% (36% ccy) to £48.4 million (H1 22:
£33.6 million); backlog increased by 136% to £83.2 million (H1 22: £35.3
million); and bookings increased 125% (114% ccy) to £80.5 million (H1 22:
£35.8 million).
The number of accredited Workday consultants at Kainos increased by 30% to 732
(H1 22: 562).
Having first engaged with Workday Inc. in 2011, we are now one of their most
experienced partners. We are the only specialist Workday partner headquartered
in the UK and one of only 40 partners globally accredited to implement
Workday's innovative SaaS platform.
From our initial strong base in UK & Ireland, we expanded internationally
- into Northern and Central Europe in 2015 and into the North American market
in 2018. Within Europe, we are the leading Workday partner - this leadership
position is the result of high satisfaction levels within our customer base,
coupled with our geographic expansion in the region. Our European customers,
including those in the UK & Ireland, generated 46% of total revenue (H1
22: 61%).
A similar focus on customer success in our North American market has resulted
in our appointment, in mid-2022, as a Phase 1 Prime partner for the US market
- which remains the largest market globally for Workday Inc. Our North
American customers generated 54% of total revenue (H1 22: 39%).
In addition to the delivery of Workday for new customers, we are increasingly
involved in supporting customers already live on the Workday platform. We
describe this annuity-style revenue stream as Post Deployment Services.
Workday Products review
Our Workday Products revenue increased 45% (30% ccy) to £20.9 million (H1 22:
£14.4 million); the Annual Recurring Revenue was £44.2 million (H1 22:
£28.0 million), an increase of 58% (33% ccy) and backlog increased 37% to
£85.5 million (H1 22: £62.5 million).
Workday is a comprehensive SaaS platform, but we have identified opportunities
to develop our own software products that are complementary to the platform
and that enables customers to further increase the benefit that they can
realise from their investment in Workday.
In 2014, Kainos launched Smart Test which is used by organisations to
automatically verify their Workday configurations. Smart Test currently
consists of six modules: HCM, Security, Financials, Payroll, Recruitment and
Advanced Compensation, with a seventh module for Workday Extend due to launch
later this year. In Workday's inaugural Innovation Awards, Smart Test came
first in the Product Innovation category. Smart Test is used by over 325
global enterprise customers, including Salesforce, Capital One and Whole
Foods.
Our second product, Smart Audit, became generally available in August 2021 and
has already been deployed to over 50 customers including Chanel, Arcbest and
QBE Insurance. Smart Audit is a compliance monitoring tool that allows Workday
customers to maintain operational controls over their Workday environments.
Our pre-built controls focus on safeguarding against Segregation of Duties
conflicts, providing robust Privileged Access Controls and protecting Personal
and Sensitive employee data.
In August 2022, we launched our third product, Smart Shield, a data masking
tool that can easily and seamlessly mask sensitive data without impacting the
Workday user experience. It ensures that sensitive data remains controlled
when Workday environments are made available to broader internal or external
teams, for instance, during support and maintenance activities, or for
on-going internal Workday training and onboarding programs. Although just
released, Smart Shield is now used by 8 customers, including Match.com and
LKAB.
Workday Extend
Workday, Inc. has a Platform-as-a-Service offering known as Workday Extend,
which became generally available to customers in May 2020. Kainos has been
part of the Workday Extend early adopter programme since 2017.
Workday Extend allows customers to build additional, specialised functionality
on the Workday platform to further enhance customers' Workday deployment. As
experts in Workday Extend, we have helped organisations such as Universal
Music Group, Groupon and Cardinal Health build Workday Extend applications
specific to their requirements.
In addition to these services-based assignments, Workday Extend provides the
opportunity to build further products. During 2022 we have built and deployed
applications such as Employee Document Management and Rewards &
Recognition.
Our people
We believe that the future success of our organisation is dependent upon the
ability, skills and motivation of the people working in Kainos; and our People
Development Plan focuses on the key objectives of engagement, development,
retention and recruitment.
Our culture
Our ambition is to be a great place to work. Our people tell us when we get it
right and tell us about the areas where we can improve.
Historically we have used the Sunday Times 'Best Companies to Work For' survey
as an annual health check, creating a confidential way for our colleagues to
share their feedback, and having first appeared in the Top 100 in 2012, we are
delighted to still be there in 2022. From 2023, we will be measuring our
performance as an employer through the Workday Peakon employee engagement
tool, which will allow us to solicit more detailed and frequent feedback from
all our colleagues.
We are focused on creating a workplace environment that people want to join
and then stay to develop their careers. During the last six months, staff
retention was 86% (H1 22: 89%) and on Glassdoor, the website which hosts
anonymous employee reviews of global organisations, 81% of reviewers would
recommend working at Kainos.
Recruitment
We work hard at retaining the talented people already in Kainos; we are also
very focused on recruiting new talented colleagues. Kainos continues to
attract strong interest in key recruitment markets, with several thousand
candidates applying each year to join Kainos.
Overall headcount increased by 20% to 2,920 people (H1 22: 2,438). In total,
10% of our colleagues are contractors (H1 22: 13%). By region, UK &
Ireland increased to 2,104 people (+19%), Central Europe grew to 453 people
(+12%) and North and South America increased to 363 people (+41%).
Included in these numbers are 168 colleagues joining us from school,
university or via one of our academies, supporting those wishing to switch
careers.
Development
To support our colleagues in their skills development we provide extensive
internal and external training programmes. Reflecting the increasingly global
nature of our organisation, these programmes are delivered virtually. The
programmes remain in high demand and we have delivered over 9,500 days of
technical and behavioural skills training during the last six months.
While much of our efforts are aimed internally, supporting the career
development of our colleagues, we also remain committed to helping young and
under-represented people who are making their first career decisions. Since
April, our Tech Outreach programmes have allowed over 300 young people to
participate in our virtual Work Experience programmes (our target is 1,000 for
the year); similarly, we hosted 200 young people on our week-long virtual
CodeCamps.
To widen participation at university, we launched our Digital Bursaries
programme which over the next 3 years will support 80 young people who have
historically been under-represented at university.
Staff share incentive plan
The Group operates a Share Incentive Plan for all staff. Including the annual
awards made in December 2021 (259,200 shares granted) a total of 3,173,320
free shares have now been distributed to staff. In addition, the Group
operates Save as you earn (SAYE) schemes through which 3,536,677 options have
also been granted to staff.
Summary and outlook
Group outlook
In the near-term, we anticipate that demand for all our services will remain
high as the shift to digitisation has been well-established for many years and
which the pandemic has further accelerated.
Over the medium-term, we remain well-placed to deliver further growth, as
detailed in the following sections.
Digital Services outlook
We remain extremely positive about the future of digitisation in the UK public
sector and within the NHS, both immediately and over the long-term. We are
confident that based upon our strong reputation and successful track record,
we are well positioned to maintain a central role in this transformation
drive.
The digitisation pressures and opportunities within the commercial sector are
similar, and therefore the growth prospects for us are substantial. Our
progress in the past eighteen months provides confidence that we will deliver
significant growth in the years ahead.
We are similarly optimistic about the international opportunity, utilising the
skills and expertise gained as a leading digital transformation specialist in
the UK and focusing on international regions where we already have established
delivery teams, sales expertise and a strong Workday client base.
Workday Services outlook
Our strong performance provides further evidence of the strength of the
Workday market. With Workday's main competitors, Oracle and SAP, soon to mark
50 years in the ERP market, we believe that Workday's more innovative product
suite can continue to gain significant market share for many years to come.
This is reflected in Workday Inc's bold target of achieving $10 billion
revenue by 2026, up from c.$5 billion today.
In addition, we believe that we can outpace this rapid market growth by
continuing our international expansion, especially within the US market, and
by replacing other Workday partners in engagements where they are
under-serving their customers.
Workday Products outlook
For our existing Workday products, our growth will be powered by the increase
in Workday clients and by higher penetration of our products into the Workday
client base.
We believe that we are well positioned to identify and develop additional
products for the Workday ecosystem. Our growth will initially be determined by
the product-market fit of our new products, followed the penetration into the
Workday client base.
Financial review
In H1 23 we achieved revenue of £179.8 million (H1 22: £142.3 million),
representing an increase of 26% (23% ccy). Digital Services revenue grew 17%
(17% ccy) to £110.5 million (H1 22: £94.2 million) reflecting increased
demand for digital transformation primarily across the public and commercial
sectors. Workday Services revenue grew 44% (36% ccy) to £48.4 million (H1 22:
£33.6 million), driven by growth in North America. Workday Products revenue
increased to £20.9 million (H1 22: £14.4 million), representing growth of
45% (30% ccy).
Overall gross margin was 46.6% (H1 22: 47.4%). Digital Services margins
decreased to 38.3% (H1 22: 39.8%) mainly due to the two additional bank
holidays in the period. Workday Services margins decreased to 52.6% (H1 22:
56.7%), driven primarily by salary inflation. Workday Products margins
increased to 76.5% (H1 22: 75.3%).
Operating expenses
Operating expenses for the period increased by 35% to £56.8 million (H1 22:
£42.2 million). The growth in operating expenses is higher than revenue
growth due to the increased investment in our Workday products in both sales
and product development, and increased acquisition-related expenses, partly
offset by foreign exchange gains.
Investment in product development increased to £4.0 million (H1 22: £2.7
million). All product development costs were expensed in the period. Research
and Development Expenditure Credit (RDEC) grants recognised in the period
totalled £0.8 million (H1 22: £0.9 million). The net value of RDEC
receivable recognised in the statement of financial position as at 30
September is £4.0 million (H1 22 £3.8 million).
Adjusted pre-tax profit increased by 16% (reduced 3% ccy) to £34.0 million
(H1 22: £29.2 million). Profit before tax increased by 11% to £27.5 million
(H1 22: £24.8 million).
Alternative performance measures
The business is managed and measured on a day-to-day basis using underlying
results. The Directors believe that the 'adjusted pre-tax profit, 'adjusted
EBITDA' and the 'adjusted diluted and basic earnings per share' measures
presented are more representative of the underlying performance of the Group
and enable comparability between periods.
To arrive at adjusted results, adjustments are made to exclude the effect of
share-based payment expense, acquisition-related expenses including
amortisation of acquired intangible assets and compensation for
post-combination services.
The adjusted profit measures are not defined performance measures in
UK-adopted International Accounting Standards. The Group's definition may not
be comparable with similarly titled performance measures and disclosures in
other entities. Adjusted profit measures can be reconciled to the reported
numbers as follows:
Adjusted profit measures
6 months to 6 months to 30 Sep 2021 12 months to 31 Mar 2022
30 Sep 2022 (£000s) (£000s)
(£000s)
Profit before tax 27,523 24,841 45,993
Share-based payment expense and related costs 2,697 2,671 3,727
Amortisation of acquired intangible assets 1,472 186 1,890
Compensation for post-combination services 2,271 923 5,520
Acquisition-related expenses 58 584 1,641
Adjusted pre-tax profit 34,021 29,205 58,771
6 months to 6 months to 30 Sep 2021 12 months to 31 Mar 2022
30 Sep 2022 (£000s) (£000s)
(£000s)
Profit after tax 21,863 19,987 35,768
Share-based payment expense and related costs (net of associated taxes) 2,023 2,164 2,907
Amortisation of acquired intangible assets 1,472 143 1,890
Compensation for post-combination services 2,271 923 5,520
Acquisition-related expenses 58 584 1,641
Adjusted pre-tax profit 27,687 23,801 47,726
Adjusted EBITDA
6 months to 6 months to 30 Sep 2021 12 months to 31 Mar 2022
30 Sep 2022 (£000s) (£000s)
(£000s)
Adjusted pre-tax profit 34,021 29,205 58,771
Depreciation of property, plant and equipment 1,105 584 1,538
Depreciation of right-of-use assets 638 707 1,654
Finance expense 28 34 74
Finance income (356) (2) (52)
Adjusted EBITDA 35,436 30,528 61,985
Corporation tax charge
The effective tax rate for H1 23 was 21% (H1 22: 20% based on the estimated
average annual effective income tax rate). It is marginally higher than the UK
corporation tax rate of 19% due to the inclusion of overseas tax rates in the
calculation which are higher than the UK tax rate.
Financial position
We continue to have a strong financial position with £97.1 million of cash
(H1 22: £80.4 million cash and treasury deposits), no debt and net assets of
£117.3 million (H1 22: £95.9 million). The combined underlying net trade
receivables and accrued income balance increased by 15% to £76.9 million (H1
22: £67.0 million).
Property, plant and equipment decreased to £9.6 million at period end (H1 22
£12.4 million). During the period, £5.2 million was transferred to
investment property, reflecting our intention to sell part of the site
purchased in 2019 for the build of our new office headquarters.
The final dividend for FY22 of £18.7 million has been included as a current
liability in these financial statements. This dividend was approved by
shareholders at the Annual General Meeting on 28 September 2022 and paid to
shareholders on 28 October 2022.
Cash flow and cash conversion
Cash conversion, calculated by taking cash generated by operations over
adjusted EBITDA, increased in the period to 70% (H1 22: 38%) representing a
return to more normalised levels for half year reporting.
Interim dividend
The Board has declared an interim dividend of 7.8 pence per share for H1 23
(H1 22: 7.1 pence). This will be paid on 16 December 2022 to shareholders on
the register at the close of business on 25 November 2022, with an ex-dividend
date of 24 November 2022.
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. These principal risks and uncertainties remain
consistent with the detailed description provided in pages 44 - 52 of the
Annual Report associated with the Group's Annual Results published on 28 July
2022 (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)
).
Regarding the Covid-19 global pandemic, we are in a monitoring position, but
do not consider there to be any substantial change in impact to our business
at this point. Kainos continues to operate on a largely remote basis and
looking to the future, will continue to operate a blended way of working,
incorporating remote working with office and customer-based work. In the event
of a winter resurgence of the pandemic we will review our measures, continuing
to treat the safety of our people as a top priority.
The wider impact of the Russian invasion of Ukraine remains uncertain, however
we continue to monitor and plan to mitigate any impact as outlined in the
Annual Report.
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, 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 2022
Continuing operations Note 6 months to 6 months to 30 Sep 2021 12 months to
30 Sep 2022 (unaudited) 31 Mar 2022
(unaudited) (£000s) (audited)
(£000s) (£000s)
Revenue 5 179,775 142,253 302,632
Cost of sales 5 (95,991) (74,860) (162,386)
Gross profit 83,784 67,393 140,246
Operating expenses (56,843) (42,228) (93,625)
Impairment gain/(loss) (including amounts recovered) on trade receivables and 254 (292) (606)
accrued income
Operating profit 27,195 24,873 46,015
Finance income 356 2 52
Finance expense (28) (34) (74)
Profit before tax 27,523 24,841 45,993
Income tax expense 6 (5,660) (4,854) (10,225)
Profit for the period 21,863 19,987 35,768
Consolidated statement of comprehensive income for the six months ended
30 September 2022
6 months to 6 months to 12 months to 31 Mar 2022
30 Sep 2022 30 Sep 2021 (audited)
(unaudited) (unaudited) (£000s)
(£000s) (£000s)
Profit for the period 21,863 19,987 35,768
Items that may be reclassified subsequently to profit or loss:
Foreign operations - foreign currency translation differences 1,754 580 728
Total comprehensive income for the period 23,617 20,567 36,496
Earnings per share
Basic 8 17.7p 16.3p 29.1p
Diluted 8 17.4p 16.0p 28.5p
Condensed consolidated statement of financial position as at 30 September 2022
Note 30 Sep 2022 30 Sep 2021 31 Mar 2022
(unaudited) (unaudited) (audited)
(£000s) (£000s) (£000s)
Non-current assets
Goodwill 11 20,294 13,868 18,765
Other intangible assets 5,495 3,158 5,993
Property, plant and equipment 9,612 12,444 14,867
Investment property 12 5,160 - -
Right-of-use assets 2,445 3,468 3,166
Investments in equity instruments 1,343 1,379 1,343
Deferred tax asset 5,444 5,585 4,282
49,793 39,902 48,416
Current assets
Trade and other receivables 9 38,137 43,186 38,358
Prepayments 4,381 2,654 4,377
Accrued income 41,990 28,093 39,462
Treasury deposits - 18,028 -
Cash and cash equivalents 97,064 62,413 76,609
181,572 154,374 158,806
Total assets 231,365 194,276 207,222
Current liabilities
Trade payables and accruals (43,884) (38,170) (49,199)
Dividend payable 7 (18,740) (18,645) -
Deferred income (33,541) (21,616) (30,966)
Current tax liabilities (3,844) (5,140) (1,959)
Lease liabilities (893) (1,280) (1,093)
Provisions (421) - (872)
Other tax and social security (10,036) (9,425) (11,917)
(111,359) (94,276) (96,006)
Non-current liabilities
Provisions (1,026) (2,196) (1,258)
Lease liabilities (1,715) (1,944) (2,268)
(2,741) (4,140) (3,526)
Total liabilities (114,100) (98,416) (99,532)
Net assets 117,265 95,860 107,690
Equity
Share capital 14 619 617 619
Share premium account 6,524 6,036 6,433
Capital reserve 3,548 2,261 3,548
Shares to be issued reserve - 1,286 -
Share-based payment reserve 19,152 10,754 15,171
Translation reserve 2,005 103 251
Retained earnings 85,417 74,803 81,668
Total equity 117,265 95,860 107,690
Condensed consolidated statement of changes in equity for the six months ended 30 September 2022
Share Share Capital Shares to be issued reserve Share-based Translation reserve Retained Total
capital premium reserve (£000s) payment earnings equity
reserve
(£000s) (£000s) (£000s) (£000s) (£000s) (£000s) (£000s)
Balance at 31 March 2021 (audited) 614 5,737 662 - 9,083 (477) 71,989 87,608
Profit for the period - - - - - - 19,987 19,987
Other comprehensive income - - - - - 580 - 580
Total comprehensive income for the period - - - - - 580 19,987 20,567
Equity settled share-based payment - - - - 1,671 - - 1,671
Current tax for equity-settled share-based payments - - - - - - 358 358
Deferred tax for equity-settled share-based payments - - - - - - 1,114 1,114
Issue of share capital - share options exercised 3 1,898 - - - - - 1,901
Issue of shares as purchase consideration - - - 1,286 - - - 1,286
Reclassification between reserves(( 4 )) - (1,599) 1,599 - - - - -
Dividends - - - - - - (18,645) (18,645)
Balance at 30 September 2021 (unaudited) 617 6,036 2,261 1,286 10,754 103 74,803 95,860
Profit for the period - - - - - 15,781 15,781
Other comprehensive income - - - - - 148 - 148
Total comprehensive income for the period - - - - - 148 15,781 15,929
Equity settled share-based payment - - - - 4,417 - - 4,417
Current tax for equity-settled share-based payments - - - - - - 1,252 1,252
Deferred tax for equity-settled share-based payments - - - - - - (1,394) (1,394)
Issue of share capital - share options exercised 2 397 1 - - - - 400
Issue of shares as purchase consideration - - 1,286 (1,286) - - - -
Dividends - - - - - - (8,774) (8,774)
Balance at 31 March 2022 (audited) 619 6,433 3,548 - 15,171 251 81,668 107,690
Profit for the period - - - - - - 21,863 21,863
Other comprehensive income - - - - - 1,754 - 1,754
Total comprehensive income for the period - - - - - 1,754 21,863 23,617
Equity settled share-based payment - - - - 3,981 - - 3,981
Current tax for equity-settled share-based payments - - - - - - 40 40
Deferred tax for equity-settled share-based payments - - - - - - 586 586
Issue of share capital - share options exercised - 91 - - - - - 91
Dividends - - - - - - (18,740) (18,740)
Balance at 30 September 2022 (unaudited) 619 6,524 3,548 - 19,152 2,005 85,417 117,265
Consolidated statement of cash flows for the six months ended 30 September 2022
6 months to 6 months to 12 months to
30 Sep 2022 30 Sep 2021 31 Mar 2022
(unaudited) (unaudited) (audited)
(£000s) (£000s) (£000s)
Cash flows from operating activities
Profit for the period 21,863 19,987 35,768
Adjustments for:
Finance income (356) (2) (52)
Finance expense 28 34 74
Tax expense 5,660 4,854 10,225
Share-based payment expense 2,697 2,671 3,727
Depreciation of property, plant and equipment 1,105 584 1,538
Depreciation of right-of-use assets 638 707 1,654
Amortisation of intangible assets 1,472 186 1,890
Loss on disposal of property, plant and equipment - 5 8
Post-acquisition remuneration settled by shares 1,716 - 2,950
(Decrease)/increase in provisions (683) 460 395
Operating cash flows before movements in working capital 34,140 29,486 58,177
(Increase)/decrease in trade and other receivables (3,072) (14,777) (22,996)
(Decrease)/increase in trade and other payables (6,095) (2,958) 16,571
Cash generated from operating activities 24,973 11,751 51,752
Income taxes paid (4,171) (2,646) (7,089)
Net cash from operating activities 20,802 9,105 44,663
Cash flows from investing activities
Interest received 356 2 52
Purchases of property, plant and equipment (1,010) (2,464) (5,819)
Acquisition of other investments - (74) (74)
Amounts withdrawn/(placed) on treasury deposit - - 18,028
Acquisition of subsidiaries net of cash acquired - (8,186) (16,768)
Net cash used in investing activities (654) (10,722) (4,581)
Cash flows from financing activities
Dividends paid - - (27,419)
Interest paid (28) (4) (74)
Repayment of lease liabilities (623) (852) (1,409)
Proceeds on issue of shares 91 1,901 2,301
Net cash (used)/from in financing activities (560) 1,045 (26,601)
Net increase/(decrease) in cash and cash equivalents 19,588 (572) 13,481
Cash and cash equivalents at start of period 76,609 62,896 62,896
Effect of exchange rate fluctuations on cash held 867 89 232
Cash and cash equivalents at end of period 97,064 62,413 76,609
(( 4 )) Premium on shares issued as consideration in FY20 reclassified from
share premium account to capital reserve, in accordance with the requirements
of the Companies Act 2006, S612.
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 2022 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 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
11 November 2022.
2. Basis of preparation
The condensed consolidated financial statements for the six months ended 30
September 2022 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 2022 ('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 2022 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. 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.
At 31 March 2022, the Directors assessed the Group's viability over a longer
period to March 2025. 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 growing
demand for our products and services, the increasing level of recurring
revenue and low customer attrition, 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 at the date of this Interim Report, we remain optimistic that we are well
positioned to help public and private sector organisations in their digital
transformation initiatives. We have a proportionally low fixed cost base which
enables swift responses to adverse economic conditions when required, further
supported by our strong cash position, low capital commitments and no
borrowings.
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
2022. 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.
Investment property
Investment property is initially measured at cost and subsequently at fair
value with any change therein recognised in profit or loss. When the use of a
property changes from owner-occupied to investment property, the property is
remeasured to fair value and reclassified accordingly. Any gain arising on
this remeasurement is recognised in profit or loss to the extent that it
reverses a previous impairment loss on the specific property, with any
remaining gain recognised in OCI and presented in the revaluation reserve.
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 2022.
5. Segment reporting
All our revenue for the six-month period to 30 September 2022 was derived from
continuing operations.
During the period, we opted to amend our divisional reporting structure both
internally to our CODM (Executive Directors) and publicly. In prior periods we
reported results with respect to our Digital Services and Workday Practice
divisions. Due to the continued growth of our Workday Services and Workday
Products businesses, we are now reporting these areas as separate operating
divisions. There is no change in reporting for our Digital Services division.
Note 15 includes an analysis of current and prior period results by reportable
segment under both the current and previous reporting structures for
comparison purposes.
The tables below present the results for current and prior periods in our
current reporting structure.
2022 Digital Services Workday Services Workday Total
6 months to 30 September (unaudited) (£000s) (£000s) Products (£000s)
(£000s)
Revenue 110,472 48,363 20,940 179,775
Cost of sales (68,155) (22,913) (4,923) (95,991)
Gross profit 42,317 25,450 16,017 83,784
Direct expenses(( 5 )) (12,516) (17,496) (9,950) (39,962)
Contribution 29,801 7,954 6,067 43,822
Central overheads(()(5)) (10,129)
Net finance income 328
Adjusted pre-tax profit 34,021
Share-based payment expense and related costs (2,697)
Amortisation of acquired intangible assets (1,472)
Compensation for post-combination services (2,271)
Acquisition-related expenses (58)
Profit before tax 27,523
2021 Digital Services Workday Services Workday Total
6 months to 30 September (unaudited) (£000s) (£000s) Products (£000s)
(£000s)
Revenue 94,189 33,647 14,417 142,253
Cost of sales (56,725) (14,573) (3,562) (74,860)
Gross profit 37,464 19,074 10,855 67,393
Direct expenses(()(5)) (10,653) (11,207) (6,109) (27,969)
Contribution 26,811 7,867 4,746 39,424
Central overheads(()(5)) (10,187)
Net finance expense (32)
Adjusted pre-tax profit 29,205
Share-based payment expense and related costs (2,671)
Amortisation of acquired intangible assets (186)
Compensation for post-combination services (923)
Acquisition-related expenses (584)
Profit before tax 24,841
(5) Direct expenses plus central overheads plus share-based payment expense
and acquisition related expenses (including amortisation of acquired
intangible assets and compensation for post-combination remuneration) equals
the sum of operating expenses plus impairment losses and reversals on trade
receivables and accrued income. Direct expenses are expenses that are directly
attributable to each division.
Digital Services Workday Services Workday Total
(audited) (unaudited) Products (audited)
2022 (£000s) (£000s) (unaudited) (£000s)
12 months to 31 March (£000s)
Revenue 199,831 70,868 31,933 302,632
Cost of sales (122,430) (32,388) (7,568) (162,386)
Gross profit 77,401 38,480 24,365 140,246
Direct expenses((5)) (21,723) (24,666) (12,932) (59,321)
Contribution 55,678 13,814 11,433 80,925
Central overheads((5)) (22,132)
Net finance expense (22)
Adjusted pre-tax profit 58,771
Share-based payment expense and related costs (3,727)
Amortisation of acquired intangible assets (1,890)
Compensation for post-combination services (5,520)
Acquisition-related expenses (1,641)
Profit before tax 45,993
The Group's revenue from external customers by geographic location is detailed
below:
6 months to 6 months to 12 months to
30 Sep 2022 30 Sep 2021 31 Mar 2022
(unaudited) (unaudited) (audited)
(£000s) (£000s) (£000s)
United Kingdom & Ireland 118,721 102,402 215,606
North America 44,390 26,521 58,712
Central Europe 16,087 12,623 27,125
Rest of world 577 707 1,189
179,775 142,253 302,632
Disaggregation of the Group's revenue is presented in the following tables:
Digital Services Workday Services Workday Total
6 months to (£000s) (£000s) Products
30 September 2022 (unaudited) (£000s) (£000s)
Type of revenue
Services 107,026 45,262 861 153,149
Subscriptions - - 20,079 20,079
Third party & other 3,446 3,101 - 6,547
110,472 48,363 20,940 179,775
Digital Services Workday Services Workday Total
6 months to (£000s) (£000s) Products
30 September 2021(unaudited) (£000s) (£000s)
Type of revenue
Services 90,255 29,943 1,346 121,544
Subscriptions - - 13,071 13,071
Third party & other 3,934 3,704 - 7,638
94,189 33,647 14,417 142,253
Digital Services Workday Services Workday Total
12 months to (£000s) (£000s) Products
31 March 2022 (unaudited) (£000s) (£000s)
Type of revenue
Services 192,662 64,475 2,990 260,127
Subscriptions - - 28,943 28,943
Third party & other 7,169 6,393 - 13,562
199,831 70,868 31,933 302,632
6 months to 6 months to 12 months to
30 Sep 2022 30 Sep 2021 31 Mar 2022 (unaudited)
(unaudited) (unaudited) (£000s)
(£000s) (£000s)
Digital Services
Public 62,276 51,678 108,400
Commercial 18,682 12,391 25,120
Healthcare 29,514 30,120 66,311
110,472 94,189 199,831
Workday Services
Public 83 388 1,311
Commercial 48,149 33,017 68,948
Healthcare 131 242 609
48,363 33,647 70,868
Workday Products
Public 892 263 1,271
Commercial 19,471 13,933 29,730
Healthcare 577 221 932
20,940 14,417 31,933
Group
Public 63,251 52,329 110,982
Commercial 86,302 59,341 123,798
Healthcare 30,222 30,583 67,852
Total 179,775 142,253 302,632
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. 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 2022 is £5.7
million (six months ended 30 September 2021: £4.9 million). This tax charge
equates to an effective tax rate of 21% (30 September 2021: 20%). The expected
annual tax rate for the year to 31 March 2023 is 21% (31 March 2022: 22%).
On 24 May 2021, the UK Finance Act 2021 was substantively enacted, increasing
the corporate tax rate to 25% effective from 1 April 2023. Deferred tax
balances have to be measured using the tax rates that have been substantively
enacted and that are expected to apply to the period when the asset is
realised, or the liability is settled.
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 2021 12 months to
30 Sep 2022 (unaudited) 31 Mar 2022
(unaudited) (£000s) (audited)
(£000s) (£000s)
Amounts recognised as distributions to equity holders in the period:
Final dividend for 2022 of 15.1p per share 18,740 - -
Interim dividend for 2022 of 7.1p per share - - 8,774
Final dividend for 2021 of 15.1p per share - 18,645 18,645
18,740 18,645 27,419
A final dividend of 15.1 pence per share for the year ending 31 March 2022 was
paid on 28 October 2022 to shareholders on the register at the close of
business on 7 October 2022, with an ex-dividend date of 6 October 2022. This
dividend was declared following approval by the shareholders of the Company by
ordinary resolution at the Company's Annual General Meeting on 28 September
2022 and a liability for payment of the dividend of £18.7 million has
therefore been recognised in these condensed consolidated financial
statements.
An interim dividend of 7.8 pence per share has been declared for the six
months to 30 September 2022 which amounts to £9.7 million. This will be paid
on 16 December 2022 to shareholders on the register at the close of business
on 25 November 2022, with an ex-dividend date of 24 November 2022. 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 2022 6 months to 30 Sep 2021 12 months to 31 Mar 2022
(unaudited) (unaudited) (audited)
(£000s) (£000s) (£000s)
Profit for the period 21,863 19,987 35,768
Thousands Thousands Thousands
Issued ordinary shares at 1 April 124,078 122,785 122,785
Effect of shares held in trust (760) (914) (863)
Effect of share options vested and exercised 360 478 802
Effect of shares issued related to a business combination - 11 31
Effect of shares issued related to free share awards - - 49
Weighted average number of ordinary shares 123,678 122,360 122,804
Basic earnings per share 17.7p 16.3p 29.1p
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 2022 6 months to 30 Sep 2021 12 months to 31 Mar 2022
(unaudited) (unaudited) (audited)
(£000s) (£000s) (£000s)
Profit for the period 21,863 19,987 35,768
Thousands Thousands Thousands
Weighted average number of ordinary shares (basic) 123,678 122,360 122,804
Effect of share options in issue 728 1,324 1,256
Effect of shares held in trust 760 914 863
Effect of potential shares to be issued related to a business combination 490 - 410
Weighted average number of ordinary shares (diluted) 125,656 124,598 125,333
Diluted earnings per share 17.4p 16.0p 28.5p
Adjusted
Adjusted basic and adjusted diluted earnings per share is calculated using the
adjusted profit for the period measure.
6 months to 6 months to 12 months to
30 Sep 2022 30 Sep 2021 31 Mar 2022
(unaudited) (unaudited) (audited)
(£000s) (£000s) (£000s)
Profit for the period 21,863 19,987 35,768
Share-based payment expense (net of associated taxes) 2,023 2,164 2,907
Amortisation of acquired intangible assets 1,472 143 1,890
Compensation for post-combination services 2,271 923 5,520
Acquisition-related expenses 58 584 1,641
Adjusted profit for the period 27,687 23,801 47,726
Thousands Thousands Thousands
Weighted average number of ordinary shares for the purposes of basic earnings 123,678 122,360 122,804
per share
Weighted average number of ordinary shares for the purposes of diluted 125,656 124,598 125,333
earnings per share
Adjusted basic earnings per share 22.4p 19.5p 38.9p
Adjusted diluted earnings per share 22.0p 19.1p 38.1p
9. Trade and other receivables
30 Sep 2022 30 Sep 2021 31 Mar 2022
(unaudited) (unaudited) (audited)
(£000s) (£000s) (£000s)
Trade receivables 34,868 38,929 35,228
Other receivables 3,269 4,257 3,130
38,137 43,186 38,358
10. Financial Instruments
The Directors consider that the carrying amount for all financial assets and
liabilities is a reasonable approximation of their fair value.
11. Goodwill
30 Sep 2022 30 Sep 2021 31 Mar 2022
(unaudited) (unaudited) (audited)
Cost (£000s) (£000s) (£000s)
1 April 18,765 3,121 3,121
Acquisitions through business combinations - 10,817 15,633
Effect of movement in exchange rates 1,529 (70) 11
At end of period 20,294 13,868 18,765
Accumulated impairment losses
At beginning and end of period - - -
Carrying amount
At end of period 20,294 13,868 18,765
At beginning of period 18,765 3,121 3,121
12. Investment property
During the period, £5.2 million was transferred from property, plant and
equipment to investment property, reflecting our intention to sell part of the
site purchased in 2019 for the build of our new office headquarters.
Immediately before the transfer, the Group internally remeasured the relevant
portion of the site to fair value with no gain or loss arising. Our policy for
accounting for investment property is disclosed in note 3.
13. Related party transactions
There have been no related party transactions during the six months to 30
September 2022 that have materially affected the financial position or
performance of the Group.
No Directors exercised share options during the period (H1 22: one Director
exercised 35,036 share options with a gain arising on the exercise of £0.6
million).
All related party transactions are materially consistent with those disclosed
by the Group in its financial statements for the year ended 31 March 2022.
14. Issue of ordinary shares
During the six months ended 30 September 2022, the Group issued 33,129
ordinary shares due to the exercise of vested options. The exercise price of
options exercised in the period ranged from £0.005 per share to £7.35 per
share.
All ordinary shares were issued with a nominal value of £0.005 each.
15. Impact of change in segmental reporting
As described in note 5, during the period the Group implemented a change in
how it reports the results from its underlying business operations. The tables
below present the results for periods ending 30 September 2021, 31 March 2022
and 30 September 2022 in the current segmental reporting structure and as per
the previous reporting structure for comparison purposes.
Current segmental
2022 Digital Services Workday Services Workday Products
6 months to 30 September (£'000s) (£000s) (£000s) Total
(unaudited) (£'000s)
Revenue 110,472 48,363 20,940 179,775
Cost of sales (68,155) (22,913) (4,923) (95,991)
Gross profit 42,317 25,450 16,017 83,784
Direct expenses (12,516) (17,496) (9,950) (39,962)
Contribution 29,801 7,954 6,067 43,822
Central overheads (10,129)
Net finance income 328
Adjusted pre-tax profit 34,021
Previous segmental
2022 Digital Workday
6 months to 30 September Services Practice Total
(unaudited) (£'000s) (£000s) (£'000s)
Revenue 110,472 69,303 179,775
Cost of sales (68,155) (27,836) (95,991)
Gross profit 42,317 41,467 83,784
Direct expenses (12,516) (27,446) (39,962)
Contribution 29,801 14,021 43,822
Central overheads (10,129)
Net finance income 328
Adjusted pre-tax profit 34,021
Current segmental
2021 Digital Services Workday Services Workday Products
6 months to 30 September (£'000s) (£000s) (£000s) Total
(unaudited) (£'000s)
Revenue 94,189 33,647 14,417 142,253
Cost of sales (56,725) (14,573) (3,562) (74,860)
Gross profit 37,464 19,074 10,855 67,393
Direct expenses (10,653) (11,207) (6,109) (27,969)
Contribution 26,811 7,867 4,746 39,424
Central overheads (10,187)
Net finance expense (32)
Adjusted pre-tax profit 29,205
Previous segmental
2021 Digital Services Workday Practice
6 months to 30 September (£'000s) (£000s) Total
(unaudited) (£'000s)
Revenue 94,189 48,064 142,253
Cost of sales (56,725) (18,135) (74,860)
Gross profit 37,464 29,929 67,393
Direct expenses (10,653) (17,316) (27,969)
Contribution 26,811 12,613 39,424
Central overheads (10,187)
Net finance expense (32)
Adjusted pre-tax profit 29,205
Current segmental
2022 Digital Services Workday Services Workday Products
12 months to 31 March (£'000s) (£000s) (£000s) Total
(unaudited) (£'000s)
Revenue 199,831 70,868 31,933 302,632
Cost of sales (122,430) (32,388) (7,568) (162,386)
Gross profit 77,401 38,480 24,365 140,246
Direct expenses (21,723) (24,666) (12,932) (59,321)
Contribution 55,678 13,814 11,433 80,925
Central overheads (22,132)
Net finance expense (22)
Adjusted pre-tax profit 58,771
Previous segmental
2022 Digital Services Workday Practice
12 months to 31 March (£'000s) (£000s) Total
(audited) (£'000s)
Revenue 199,831 102,801 302,632
Cost of sales (122,430) (39,956) (162,386)
Gross profit 77,401 62,845 140,246
Direct expenses (21,723) (37,598) (59,321)
Contribution 55,678 25,247 80,925
Central overheads (22,132)
Net finance expense (22)
Adjusted pre-tax profit 58,771
16. Subsequent events
Subsequent to 30 September 2022, the Company paid the final dividend of £18.7
million in respect of the year ended 31 March 2022, declared at the Annual
General Meeting on 28 September 2022, to shareholders on 28 October 2022, as
detailed in note 7.
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 2022 ("the interim financial information") which comprises the
condensed consolidated income statement, the consolidated statement of
comprehensive income, the condensed consolidated statement of financial
position, the condensed consolidated statement of changes in equity, the
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
11 November 2022
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 2022 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 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 2022 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.
We read the other information contained in the half-yearly financial report to
identify material inconsistencies with the information in the condensed set of
consolidated financial statements and to identify any information that is
apparently materially incorrect based on, or materially inconsistent with, the
knowledge acquired by us in the course of performing the review. If we become
aware of any apparent material misstatements or inconsistencies, we consider
the implications for our report.
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 2022 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
11 November 2022
Chartered Accountants
The Soloist Building
1 Lanyon Place
Belfast
BT1 3LP
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