Kainos Group H2 Earnings Call Highlights

Key Points

• Kainos Group said it has returned to growth, with sales bookings up 32% to GBP 505 million, revenue rising to GBP 431 million, and backlog above GBP 430 million. Management said the results give strong visibility into fiscal 2027 and beyond.
• Growth was broad-based across all three divisions: Digital Services bookings rose 29%, Workday Services bookings increased 44%, and Workday Products ARR grew 23%. North America was the fastest-growing region, with revenue up 20% year over year.
• Margins came under pressure despite strong operating performance because of higher contractor use, partner costs, bonus expenses, and National Insurance increases. Even so, cash conversion was 99%, and the company kept its progressive dividend policy while pausing share buybacks to fund growth initiatives.

Kainos Group LON: KNOS said it has returned to growth after reporting stronger sales, revenue and backlog for the year ended March 31, 2026, with management highlighting broad-based momentum across its three divisions.

Brendan, who led the presentation alongside Richard, said the main message from the results was that “Kainos are back in growth mode.” The company reported sales bookings up 32% to GBP 505 million, which Brendan described as a record sales period. Revenue rose to GBP 431 million, while backlog stood at more than GBP 430 million, providing what management called strong visibility into fiscal 2027 and future years.

The company said growth was not concentrated in one area. Digital Services sales rose 29%, Workday Services sales increased 44%, and Workday Products annual recurring revenue, or ARR, grew 23%. Brendan said revenue also increased across all three divisions, though the rapid growth required greater use of contractors and supply partners, which moderated margin growth.

Customer base and workforce expand

Kainos said it now works with more than 1,250 customers globally, with almost half of its customers based outside the U.K. Revenue from existing customers increased by more than GBP 70 million over the past year, and the company added more than 150 new clients. Brendan also pointed to a Net Promoter Score of 61, which he said placed the company in the “excellent” category.

North America was the fastest-growing region, with revenue up 20% year over year and now representing about one-third of group revenue. The company also reported growth in the U.K. and Europe.

The workforce increased 21% during the year. Brendan said contractors were used to scale quickly in response to sales and revenue growth, noting that contractors can be hired and deployed in about four weeks compared with roughly five months for permanent staff. He said Kainos expects the staffing mix to shift back toward more employees over time.

Kainos also said it had achieved its net zero score after a six-year effort to reduce its carbon impact. Female staff represented 37% of the workforce. The company hired nearly 130 early-career employees last year and expects to hire another 200 in the current year.

Workday Products ARR rises 23%

In Workday Products, Brendan said ARR increased 23% year over year, keeping the company on track for its target of GBP 100 million in ARR by the end of the current year and GBP 200 million by the end of 2030. He said the team expects to reach the GBP 100 million milestone around November or December.

The company said ARR increased by GBP 5 million in the first half and by a further GBP 12 million in the second half. Smart Test remains Kainos’ largest product, while Smart Audit and Employee Document Management were the fastest growing, rising 46% and 100%, respectively.

Kainos also said its Pay Transparency product, sold exclusively through Workday under a reseller arrangement, had signed about 30 customers during Kainos’ fourth quarter. Brendan said delays in some European legislation timelines were extending the sales opportunity into fiscal 2028. He cited Poland as being on track for legislation in early June, while Germany was expected to slip, potentially into the second half of 2027.

The company discussed Workday’s Clear Skies partner program, under which partners build products in areas Workday does not plan to develop itself. Kainos said it has more than 60 ideas in evaluation and one Kainos-generated idea in build, expected to launch in late summer.

Workday Services and Digital Services post strong bookings

Workday Services bookings rose 44%, with GBP 68 million of deals closed in the second half compared with GBP 54 million in the first half. Brendan said the division had focused on more complex deployments where Kainos can demonstrate value by helping clients go live quickly. The number of high-value deals, defined as deals above GBP 1 million, doubled from fiscal 2025.

Fixed-price engagements now account for just over 37% of Workday Services revenue, while annuity-style arrangements represent about 19%, or GBP 21 million. Consulting services tied to Kainos’ own products generated GBP 3.1 million in the year, and management said it expects that revenue stream to double in the next year.

Digital Services also delivered what Brendan called a record year for revenue, bookings and backlog. Bookings rose 29%, and second-half revenue was 33% higher than in the first half, which he said was the largest six-month growth period in the division’s history. Second-half bookings were just over GBP 145 million.

Richard said public sector revenue in Digital Services grew 11%, while healthcare revenue increased 55%. He also said organic growth in the Americas was 57%, supplemented by the acquisition of Davis Pier during the year. Commercial sector revenue continued to contract and now represents just over 2% of group revenue.

Management said Digital Services is seeing larger contracts with longer durations and more cases where clients ask Kainos to act as prime contractor overseeing third-party suppliers. Fixed-price engagements accounted for 20% of Digital Services revenue and increased 44% by value from fiscal 2025.

AI revenue grows as management cites productivity gains

Kainos said AI-related project revenue in Digital Services was just over GBP 41 million, up 11% year over year. Brendan said the company has been building its AI and machine learning practice since 2016 and has completed about 400 projects over that period.

He said Kainos has deployed generative AI tools across its workforce and continues to use an estimated 20% productivity improvement as a guide. According to Brendan, that productivity gain helps the company deliver services faster for government clients, deploy Workday systems more quickly and ship more features in Workday Products.

In Workday Services, Kainos has established a Workday AI Centre of Excellence focused on faster deployments, helping clients adopt AI features within Workday, and identifying ideas that could become future Kainos products.

Margins pressured by contractors, partners and costs

Richard said operating improvements in the services business, including higher utilization and effective rates, added 2.9 percentage points to profit before tax margin. However, those gains were outweighed by higher contractor and supply partner usage, strategic partner costs on larger contracts, Built on Workday costs, higher employer National Insurance contributions, increased bonus costs and lower interest income.

As a result, adjusted profit before tax margin fell by 2.4 percentage points. Richard said contractors increased from about 69 in March 2025 to 259 in March 2026, adding that contractor numbers have historically fallen as growth moderates.

Group revenue grew 17%, while the tax rate remained around 27%. Cash conversion was 99%, above the company’s historical guidance of 80% to 85%. Richard said Kainos has not renewed its share buyback, citing the need to fund organic growth, maintain a robust balance sheet, support the Bankmore Place headquarters project and retain capacity for targeted acquisitions. The company continued its progressive dividend policy.

Looking ahead, Brendan said Kainos is focused on reaching the GBP 100 million ARR milestone in Workday Products, supporting growth in U.K. public sector, healthcare and Canada, expanding complex Workday Services engagements and reducing reliance on contractors by hiring permanent staff.

About Kainos Group LON: KNOS

Kainos Group plc engages in the provision of digital technology services in the United Kingdom, Ireland, North America, Central Europe, and internationally. It operates through three segments: Digital Services, Workday Services, and Workday Products. The Digital Services segment develops and supports custom digital service platforms for transforming service delivery in public, commercial, and healthcare sectors. The Workday Services segment provides consulting, project management, integration, and post deployment services for Workday's software suite, which includes cloud-based software for human capital management, and financial management, and adaptive planning.

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