20 May 2024
Full year results for the
year ended 31 March 2024
Kainos Group plc
'Kainos' or the 'Group'
Kainos Group plc (KNOS), a UK-headquartered provider
of sophisticated IT services with expertise across three divisions:
Digital Services, Workday Services, and Workday
Products, is pleased to announce its results for
the year ended 31 March 2024.
Financial highlights
|
|
2024
|
2023
|
Change
|
|
Revenue
|
£382.4m
|
£374.8m
|
+2%
|
|
Statutory
profit before tax
|
£64.8m
|
£54.3m
|
+19%
|
|
Adjusted
pre-tax profit
|
£77.2m
|
£67.6m
|
+14%
|
|
Cash([1])
|
£126.0m
|
£108.3m
|
+16%
|
|
Bookings
|
£424.5m
|
£427.8m
|
-1%
|
|
Product
Annual Recurring Revenue (ARR)
|
£60.5m
|
£47.9m
|
+26%
|
|
Contracted
backlog
|
£357.1m
|
£322.9m
|
+11%
|
|
Diluted
earnings per share
|
38.6p
|
33.1p
|
+17%
|
|
Adjusted
diluted earnings per share
|
46.5p
|
42.5p
|
+9%
|
|
Total
dividend per share
|
27.3p
|
23.9p
|
+14%
|
Operational highlights
We have
recorded our 14th consecutive year of growth across a wide range of
key metrics, with our business performance demonstrating
disciplined execution against a backdrop of macro-economic
uncertainty.
•
Revenue increased by 2% (6% organic, 3%
ccy) to £382.4 million (2023: £374.8 million).
• Strong
adjusted pre-tax profit growth of 14% (17% ccy) to £77.2 million
(2023: £67.6 million), representing an adjusted profit margin of
20% (2023: 18%).
• Overall bookings were
£424.5 million (2023: £427.8 million).
• Strong contracted
backlog growth of 11% to £357.1 million (2023: £322.9
million).
• Strong
year-end cash(1) of £126.0 million (2023: £108.3
million); with cash conversion at 98% (2023:
104%).
Our
Workday-related products delivered very strong growth and we remain
on track to achieve our target of £100 million ARR by
2026.
·
Revenue growth was 28% (23% organic, 33% ccy),
with revenues now £57.3 million (2023: £44.7 million), with the ARR
increasing by 26% to £60.5 million (2023: £47.9
million).
· Available since October
2023, our new Employee Document Management product is our most
successful product launch, with 26 clients already
contracted.
·
We continued to invest in our products, increasing research
& development expenditure by 48%, to £13.5 million (2023: £9.1
million), which was expensed in the year, and sales & marketing
spend increased 16% to £12.5 million (2023: £10.8
million).
In Digital
Services, we continue to deliver major digital transformation
projects, with a solid performance in public sector offset by
reductions in healthcare and commercial sectors.
·
Overall, Digital Services revenue decreased by 5% to £213.1
million (2023: £224.4 million).
·
A solid performance within public sector generated revenue
growth of 1% to £138.2 million (2023: £137.0 million).
· Year-on-year healthcare
sector revenues decreased by 11% to £44.2 million (2023: £49.7
million), although the previous year included significant
pandemic-related revenue. Excluding these revenues, our core
healthcare business levels increased by 23%.
·
Commercial sector revenues were impacted by reduced customer
expenditure and decreased 19% to £30.8 million (2023: £37.8
million). The majority of the impact resulted from project
deferrals and scope reductions together with some project
cancellations.
We continue
to be the leading pan-European Workday consulting specialist and
are a Phase 1 partner in both the US and Canadian
markets.
·
We recorded good revenue growth of 6% (9% ccy) to £112.0
million (2023: £105.7 million), of which the majority (76%) are
generated from international customers([2]).
We continue
to extend our footprint as a global business; with 39% of our
revenues now generated internationally.
·
Strong international growth, with revenues up 13% to £149.8
million (2023: £132.0 million).
The
commitment and engagement of our colleagues underpins our business
performance as we continue to grow a global, talented
team.
• We have
2,995 people (2023: 2,990) based across 23 countries. We have
continued to reduce the number of contract staff (2024: 42
contractors; 2023: 209) in favour of long-term investment in
permanent employees, an increase of 172 people over the
year.
• Our
employee retention improved to 93% (2023: 88%), and engagement
levels remained high, measuring 78% on our internal surveys, and we
were again awarded '50 Best Places To Work in the UK' by
Glassdoor.
Excellent
customer service drives customer satisfaction, retention and
revenue growth.
•
Existing customer revenue increased by
2% to £345.8 million (2023:
£337.6 million) which represents a Net
Revenue Retention of 102%.
• Our
customers assessed our services as 'excellent' with a Net Promoter
Score of 58([3]).
•
Customer numbers increased to 930 (2023: 821), an increase of
13%.
We are making
rapid progress on our announced £10 million investment in
Generative AI to further enhance our leadership in Artificial
Intelligence.
• We
continue to see an increase in demand for broad AI expertise and
have delivered projects for Companies House, Defra, Royal London
Asset Management and Worldline.
•
Generative AI remains largely experimental for our clients,
often delayed by the challenges of low data quality for their more
complex, organisation-specific use cases.
• Over
500 colleagues are now trained in the use of Generative AI and over
30% of our projects are using co-pilots to assist in accelerating
our development pace.
We retained
our carbon neutral status and remain on track to be carbon net zero
by 2025.
• Based
upon our draft carbon footprint figures (provided May 2024) we have
achieved our SBTi near-term carbon reduction targets two years
ahead of schedule - reducing since 2020 Scope 1 and Scope 2
emissions by 70%, and Scope 3 by 45% per unit of value
added.
We are
maintaining a positive outlook as our key business segments are
positioned for further growth in the near and
medium-term.
•
Notwithstanding the global economic uncertainty, we believe
that our largest business areas, Workday Products, Workday
Services, and the public sector segment of Digital Services
(together, 80% of revenue) will continue to deliver growth, in both
the near term and medium term.
• In the
year ahead we expect a return to growth for our healthcare
business. This will be offset in the near term by further modest
reductions in revenues from our commercial sector customers within
Digital Services, but we expect a return to growth for our
commercial sector customers in the medium term.
• As
demonstrated in these results, we remain well-positioned to deliver
strong margin and cash generation growth through the year as we
continue to benefit from our disciplined operational
execution.
• We have
a growing sense of excitement about some of our smaller,
high-growth activities, of which Workday Extend, Automation and Low
Code, international growth in Digital Services and, obviously, Data
& AI are showing significant promise.
Commenting on the results, CEO Russell Sloan
said:
"Our latest results, record our 14th
consecutive year of growth with disciplined execution in the
current macro-economic climate.
We have been focused on our operational
performance, maintaining the appropriate balance between growth,
international expansion, investment for the future and
profitability.
We are grateful for the support and trust that
our customers continue to place in Kainos to deliver their critical
projects. Customer satisfaction levels are high, and one of the
best measures of that satisfaction is the high level of repeat
business which we receive from our customers.
Our excitement is increasing about our Workday
Products division. This year's excellent performance is another
significant step towards our goal of £100 million ARR by
2026. We are further delighted that our fourth and latest
product, Employee Document Management, has been our most successful
product launch to date, with 26 international clients already
signed up. We remain confident there will be further
opportunities to develop new, innovative products as we continue to
engage closely with Workday and with our customers.
Our Digital Services division has seen a solid
performance with consistent demand from public sector clients,
strong growth in our core healthcare business (excluding
pandemic-related revenue) despite a reduction in our commercial
business. Meanwhile, there has been good growth in our
Workday Services division where we continue to be the leading
Workday partner in Europe and have Phase 1 partner status in both
the US and Canada.
Despite the ongoing global economic
uncertainty, we believe that our largest business areas, Workday
Products, Workday Services and the public sector segment of Digital
Services, will continue to be resilient and will offer substantial
growth opportunities in both the near term and medium term. We are
well positioned within these markets, both locally and,
increasingly, internationally, and we remain confident in our
strategy.
What underpins that confidence is the talent
and ability of our people. We continue to invest in their
development and can rely on their expertise and energy to drive our
success."
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 / Ben Griffiths /
Nick Prowting
FTI Consulting LLP +44
20 3727 1000
Matt Dixon / 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 450 global customers use one or more
of our products.
Our people are central to our success. We have
more than 2,900 people in 23 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.
Definition of terms
We use the following definitions for our key
metrics:
Active customer: a customer who has paid
us to deliver a product or service within the current financial
year.
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). Our adjusted results in the
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 value
at the end of the accounting period of the software and
subscription recurring revenue annualised.
Bookings: the total value of sales
contracted during the period.
Carbon net zero: any CO2,
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.
Contracted backlog: the value of
contracted revenue that has yet to be recognised.
Compound annual growth rate (CAGR):
annual growth rate over a specified period of
time.
Existing customer revenue: total revenue
recognised from customers in the current period who were also
customers in the preceding year.
Net Promoter Score (NPS): a metric that
organisations use to measure customer loyalty toward their brand,
product or service, and 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.
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
customers.
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 ongoing subscription to use the software
rather than purchasing it once and installing
it.
Science Based Targets initiative (SBTi):
a target for reducing greenhouse gases and CO2
emissions which is aligned with the global effort to limit global
warming to 1.5OC.
Kainos at a glance
We are a UK-headquartered
provider of sophisticated IT services to major public sector,
commercial and healthcare customers. Our expertise is organised
across three divisions: Digital Services, Workday Services,
and Workday Products.
Purpose
Our purpose is to help our customers with
their most challenging projects and, together with our partners,
help them build the capability to succeed in the digital
age.
Our operating divisions
Digital Services
FY24
revenue: £213.1 million, 56% of Group total, 5-year growth: 15%
CAGR.
Our Digital Services division helps our
customers to solve their business problems by using technology,
enabling them and their users to work smarter, faster and
better.
Working collaboratively with customers, our
innovative and transformative solutions are secure, accessible,
cost-effective, and take a user-first approach. We leverage the
benefits of public cloud and enable customers to utilise their data
to drive better decision-making.
In the public sector, we have delivered
projects helping more than 60 million users, while saving our
customers hundreds of millions of pounds.
In the commercial sector, customers trust us
to provide digital transformation programmes that evolve their
services, deliver efficiencies, increase their capabilities and
future-proof their businesses.
In healthcare, we help providers deliver a
service that is faster, more cost-effective and patient
centric.
We deliver services to over 150 clients,
including existing clients such Irish Life Assurance plc, the
Government of Ontario, and HM Passport Office, and new clients
including the Crown Prosecution Service, Royal London Asset
Management and Arqiva.
Workday Services
FY24
revenue: £112.0 million, 29% of Group total, 5-year growth: 32%
CAGR.
In our Workday Services division we provide a
comprehensive range of services to support customers in their
adoption and utilisation of Workday's software suite. Our expertise
spans consulting, project management, integration and
post-deployment services.
Kainos first engaged with Workday in 2009 and,
appointed as a partner in 2011, we are one of the most experienced
participants in Workday's partner ecosystem. We remain the only
specialist Workday partner headquartered in the UK, but our reach
has grown to be global, with over 75% of our projects being
undertaken for clients in Central Europe and North
America.
With over 300 international clients, we are
proud to work with customers such as Kion Group (Germany),
Wealthsimple (Canada), Novozymes (Denmark), Kone (Finland), ASOS
plc (UK), Takeaway.com (Netherlands) and Match.com
(USA).
Workday Products
FY24
revenue: £57.3 million, 15% of Group total, 5-year growth: 32%
CAGR.
We have developed four proprietary software
tools, Smart Test, Smart Audit and Smart Shield (collectively, our
Smart Suite) and Employee Document Management (EDM).
Smart Test allows Workday customers to
automatically test and verify their unique Workday configuration.
Smart Audit is our compliance-monitoring tool that allows customers
to maintain operational controls over their Workday environments.
Smart Shield is a data-masking tool that can easily and seamlessly
mask sensitive data without impacting the Workday user experience.
EDM improves the experience of generating and storing
employee-related documents in Workday while supporting an
organisation's global compliance requirements.
These tools are implemented as cloud-based
Software as a Service (SaaS) solutions and customers utilise them
on a subscription basis.
Reflecting our longevity in the Workday
ecosystem, we released Smart Test in 2014, but have been increasing
the pace of our product launches, with Smart Audit in 2021, Smart
Shield in 2022 and EDM in 2023.
Over 450 customers use at least one of our
products, including AT&T
(USA), State of Oregon (USA), Booking.com (Netherlands), Whole Foods (USA)
and Netflix (USA).
Our competitive environment
The competitive environment in our markets is
largely stable, with few companies either entering or exiting. A
strong track record of delivery is vital for success in all our
divisions -Digital Services, Workday Services and Workday Products
- providing very important credibility with potential customers and
creating a meaningful barrier to entry.
Digital Services
•
Addressable market([4]): £3,096 million (2023: £2,706
million).
• Example
competitors: Deloitte,
Capgemini, BJSS, Atos, Equal Experts, NTT
Data.
Workday Services
•
Addressable market([5]): £1,100 million (2023: £1,100
million).
• Example
competitors: Alight, Cognizant, CrossVue.
Workday Products
• Smart
suite addressable
market([6]):
£650 million (2023: £625 million).
• EDM
addressable market([7]): £415 million (2023: no
research).
• Example
competitors: Worksoft,
Turnkey, Opkey.
Our people and customers
People
• Number
of staff and contractors: 2,995 (2023: 2,990).
·
Number of employed staff: 2,953 (2023: 2,781).
•
Employee retention: 93% (2023: 88%).
• People
by region:
·
UK & Ireland (68%),
·
Central Europe (15%),
·
Americas (13%), and
·
Rest of World (4%).
• People
by division:
·
Digital Services (51%),
·
Workday Services (25%),
·
Workday Products (17%), and
·
Central Services (7%).
•
Offices: (14) Antwerp, Atlanta, Belfast, Birmingham, Buenos
Aires, Copenhagen, Derry, Dublin, Gdańsk,
Helsinki, Indianapolis, London, Paris, and
Toronto.
Customers
• Active
customers: 930 (2023: 821).
• Net
Promoter Score: 58 (2023: alternate measure used).
• Revenue
from existing customers: 90% (2023: 90%).
• Our
customers by sector (revenue):
·
Commercial sector: 52% (2023: 50%),
·
Public sector: 36% (2023: 37%), and
·
Healthcare: 12% (2023: 13%).
• Our
customers by region (revenue):
·
UK & Ireland; 61% (2023: 65%),
·
North America: 28% (2023: 25%),
·
Central Europe: 11% (2023: 9%), and
·
Rest of World: <1% (2023: 1%).
CEO statement
Being agile in supporting our customers
We work closely with over 900 customers, most
of them global organisations. For many of our customers, it has
been another challenging year, often operating in uncertain and
changeable markets conditions.
As their partners, it is our role to support
them as they deal with these changing circumstances. For many
customers it has been about maintaining investment in critical
transformation programmes; for some it has resulted in reductions
in their technology expenditure as they deal with more volatile
business conditions.
Changes for our customers can sometimes
require us to be agile in how we manage our own business. In
reviewing the year, we believe that we have maintained the
appropriate balance between growth, profitability, international
expansion and investing for the future.
To achieve that balance has required us to be
disciplined in our execution throughout the year and we believe
that we have delivered a robust financial performance while
maintaining high customer satisfaction and employee engagement
levels.
A disciplined business performance
Overall, our revenues have grown to £382.4
million, a 2% increase, and our adjusted pre-tax profit grew 14% to
£77.2 million. This strong profit increase in a more subdued growth
environment is a demonstration of our business
discipline.
This robust performance has been achieved
while also investing in the future - our international business
grew 13% to £149.8 million and we increased our investments in AI
and in our product development, in total increasing 48% to £13.5
million.
Our biggest investment remains in our people,
in developing the careers of our existing team members as well as
attracting new recruits. While our staff complement, of 2,995
people, remained constant over the year, we reduced the number of
contractors in favour of long-term investment in permanent
employees, an increase of 172 people over the year.
Digital Services
Our Digital Services division recorded a
reduction in revenue of 5% to £213.1 million. This was a
combination of a solid performance in public sector, offset by
post-pandemic related reductions in healthcare and significantly
lower business levels in commercial sector where our banking,
insurance and payments customers reduced expenditure.
The demand for digital transformation in the
UK remains high, despite some short-term, sector-specific
challenges. This demand is driven by the need to replace ageing,
inefficient legacy systems or by organisations striving for greater
agility, to allow them to react more quickly to business changes,
whether addressing challenges or securing new
opportunities.
In the last year we have continued to make
excellent progress in expanding our digital services activity
internationally. Our engagements in Central Europe and North
America are now delivering revenues of £12.3 million, an increase
of 28%. Whilst still a modest amount of our overall Digital
Services revenues, it is exciting to see the speed of
progress.
Workday Services
As a Phase 1 Prime partner to Workday in
Europe and North America, our Workday Services team continues to
build a truly international business. Our Workday Services revenues
have increased by 6% to £112.0 million and over three-quarters of
these revenues are derived from customers based outside the UK,
including forward-thinking organisations such as Kone (Finland),
Kion Group (Germany), Match.com (USA) and Takeaway.com
(Netherlands).
We have launched Spark & Grow which
utilises Generative AI technologies to simplify,
automate and streamline the implementation process of a Workday
deployment. Through Spark & Grow, we are able to achieve
an 80% reduction in deployment effort and timelines, allowing
smaller organisations access to Workday's HR and Finance
systems.
Workday Products
Over the course of the year our Workday
Product revenues grew 28% to £57.3 million, with the Annual
Recurring Revenue (ARR) similarly increasing to £60.5 million. This
strong performance underscores our confidence in achieving our
target of £100 million ARR by 2026.
While the growth this year was, again, powered
by our Smart product portfolio, we are excited about our customers'
positive response to the launch of latest product, Employee
Document Management (EDM). Available since October 2023, EDM
utilises Workday's Extend technology and improves the experience of
generating and storing documents inside Workday, while supporting
an organisation's global compliance requirements.
With this success, it is no surprise that we
are continuing with our investment in all our Workday Products.
Over the past year we increased our investment in product
development by 48%, to £13.5 million, and in our sales &
marketing, which increased by 16% to £12.5 million.
Being a responsible business
Our climate journey, despite being essential,
has not been easy. Our ambitious goal to be carbon net zero by 2025
has placed us in the vanguard of changeable policy, regulation,
measurement and best practice.
It is therefore with a sense of achievement
that our draft carbon footprint figures indicate that we achieved
our SBTi near-term reduction targets during the year, significantly
ahead of our 2025 timetable([8]). We are grateful to those in Kainos
who led on this initiative, and for the widespread support provided
by many of our colleagues.
While we have a wide range of diversity
initiatives across Kainos we are focused on improving the gender
imbalance that exists across the industry, where just 22% of
roles are undertaken by women. During the year, the
proportion of women in Kainos increased from 34% to 35%, and we
recognise that a sustained effort is required to make further
progress.
Changing the diversity of our industry is
about inspiring the next generation of digital talent from a broad
range of backgrounds. In the last year over 2,200 young people
participated in our outreach programmes, where we had targeted
programmes aimed at improving gender diversity and social mobility
for young people, for students with special educational needs and
financial support for young people from backgrounds that are
traditionally under-represented at university.
Board changes
In September 2023 at our AGM, we completed the
planned, four-year succession process, with Brendan Mooney stepping
down as CEO, at which point I assumed the CEO role.
At our AGM in September 2024, and after
serving as Non-Executive Directors for nine years, our Chairperson
Tom Burnet and our Senior Independent Director Andy Malpass, will
complete their term on the Kainos Board of Directors.
I would like to extend the thanks of the
entire Kainos community to Tom, Andy and Brendan for their
commitment and contribution throughout their time as
Directors.
Our existing Non-Executive Directors Rosaleen
Blair and James Kidd will, respectively, assume the roles of
Chairperson and Senior Independent Director at our September
AGM.
Maintaining a confident outlook
In an uncertain economic climate, it is
understandable that the growth opportunities in our markets may
have reduced prominence. However, this lower profile does not
diminish the scale of the opportunities that exist - digital
transformation is a key foundation for organisations as they seek
to reduce their costs and increase their agility.
This has been, and will continue to be, a
long-term trend as organisations redirect their spending from
inefficient legacy systems to agile, modern systems. This momentum
will be accelerated by the deployment of AI-enabled systems where
high data quality is a pre-requisite.
The execution of our strategy has placed us in
leading positions within our core markets, which allows us to look
confidently to the future.
That confidence is underpinned by the strength
of our relationships with our customers and the talents of our
colleagues.
Our customers continue to value the work that
we do for them and how we work together. In the past year,
and despite the economic climate, our existing customers did more
business with us than in the year before, and at the same time our
customers record their satisfaction levels as
'excellent'.
We have always been proud of the expertise,
energy and enthusiasm of our colleagues and the exceptional work
that they deliver to our customers. In the past year their ability
to be disciplined in how we operate our own business has been
equally impressive.
We recognise that while large and growing, our
markets are never static.
In anticipation, we have been investing,
appropriately, in the future - from our fast-growing Workday
Products, to enhancing our Workday consulting services through the
use of our own AI co-pilots, to establishing strong services
revenue streams in Workday Extend, AI, low-code, automation and
data. These initiatives have already made an impact and will
continue to be important in our future.
While it is sensible to be confident about our
markets, our customers and our abilities, it is equally sensible to
recognise that the economic environment for our customers remains
uncertain, with no promise of immediate improvement. Alongside our
confidence, we need to maintain our already-proven disciplined
approach to operating our own business.
Thank you
I would like to extend my thanks to our
customers and colleagues.
We are grateful for the trust and confidence
that our customers continue to place in Kainos, and thankful for
the support and commitment that our colleagues have demonstrated
throughout the year.
Russell Sloan
Chief Executive Officer
Our strategy
We are a growth-orientated business and while
we are always confident of growing our market share in subdued
markets, we naturally orientate towards higher growth, dynamic
markets. It is in these markets where the talents of our people
shine the brightest and opportunities for growth are the
strongest.
Our ambition is to be a global, independent
company operating towards the disruptive end of technology, that
will thrive not just today, but for generations. In building for
the long-term, we aspire to provide our people with rewarding and
fulfilling long-term careers.
As part of this ambition, we believe that we
can achieve sustained growth in terms of revenue, adjusted pre-tax
profit and cash flow.
We have, deliberately, developed from a
national to an international organisation, both internally and in
the customers and markets that we serve. We expect our
international presence to continue to expand in terms of locations,
people and customers.
It is our preference to grow organically; we
will undertake acquisitions only in exceptional circumstances, for
instance, where we need to obtain unique skills.
We also look to ensure that we have a
well-balanced business, which is not overly reliant on any one
customer, market or sector. This occasionally requires us to
prioritise smaller, early-stage opportunities ahead of established
market growth. We are comfortable with taking this long term
view.
People
The fundamental component of our strategy is
our people. Our business is successful because of the talent, skill
and motivation of our colleagues as they deliver on commitments to
internal and external customers.
We will add to our existing talented workforce
by recruiting high calibre people from school, college and
industry; we will continue to invest in developing their skills and
careers; and we will continue to strive to be a great
employer.
|
|
|
|
• Our staff
complement is now 2,995 colleagues (2023: 2,990). This includes 194
early careers colleagues.
• Invested over
12,000 days of technical and skills development in our
people.
|
• Maintain high
standards when recruiting new applicants.
• Ongoing
investment in skills and career development of all colleagues in
Kainos.
|
|
• Employee
retention increased to 93%.
• We were
ranked in the '50 Best Places to Work in the UK' by
Glassdoor.
• As measured
through Workday Peakon, we have maintained high levels of employee
engagement (78%), and high ratings for diversity and inclusion
(D&I) (83%) and wellbeing (77%).
|
• Maintain our
high levels of employee retention (achieve over 85%).
• Maintain or
improve our scores for employee engagement, D&I and
wellbeing.
|
|
• Involved over
2,200 young people and those from under-represented groups in our
outreach programmes.
|
• Continue to
inspire and educate young people and those from under-represented
groups for potential careers in IT.
|
Customers
Our business model is based on the conviction
that by delivering consistently to our customers we will build
long-lasting, mutually beneficial relationships that will see us
thrive as a business.
These relationships are built on our
reputation for delivery and exemplary customer service. By being
responsive to and supportive of our customers' complex and changing
business needs, we reinforce the strength of our
relationships.
Therefore, our purpose is to help our
customers with their most challenging projects and, together with
our partners, help them build the capability to succeed in the
digital age.
|
|
|
|
• Customer
satisfaction level as measured by Net Promoter Score was 58 (H1
2024: 62), which is regarded as 'excellent'.
• Net revenue
retention recorded as 102% (2023: 126%).
|
• Maintain high
levels of customer satisfaction, resulting in high levels of net
revenue retention.
|
Markets
Digital Services
Our focus is to:
•
continue to grow within the public and
healthcare sectors, being engaged in ambitious transformation
projects across UK Government and the NHS;
• repeat
our digital transformation success within the UK commercial sector,
with a focus on financial services; and
• expand
internationally, focused initially within Germany and Canada where
we already have established delivery teams, have built business
development expertise and have an existing Workday Services and
Products client base.
|
|
|
|
• Public sector
revenues increased by 1% to £138.2 million (2023: £137.0
million).
• Following the
easing of pandemic-related spending, healthcare revenues decreased
by 11% to £44.2 million (2023: £49.7 million).
|
• Grow our
business in both sectors, supporting existing clients and projects,
and adding new long-term clients in line with our delivery
capacity.
|
|
• Reflecting
the wider macro-economic environment, our commercial sector
revenues reduced by 19% to £30.8 million (2023: £37.8
million).
|
• Continue to
build reputation and references in the sector to support a return
to growth as the UK economy recovers.
|
|
• International
revenues from Central Europe and North America increased by 28% to
£12.3 million (2023: £9.6 million).
|
• Continue to
build reputation and references within both
regions.
• Refine sales
and marketing approach as market penetration increases.
• Build
in-region delivery capability in line with success.
|
Workday Services
Our focus is to:
•
continue to grow in our existing, established markets as
Workday continues to expand within these markets;
• gain
market share, replacing incumbent providers to existing Workday
customers through a reputation for higher service levels;
and
• expand
internationally, establishing operations in countries with large
and growing numbers of Workday customers.
|
|
|
|
• Workday
Services revenues increased by 6% to £112.0 million (2023: £105.7
million).
|
• Maintain
growth trajectory in all regions, supporting existing clients and
projects, and adding new long-term clients in line with
capacity.
|
|
• We were
appointed by 30+ customers where earlier phases of the project were
undertaken by a different partner.
|
• Continue to
excel in customer service.
|
|
• International
revenues increased by 6% to £85.6 million (2023: £81.1
million).
|
• Maintain
growth trajectory in all regions, particularly the Phase 1
opportunity in the US market.
|
Workday Products
Our focus is to:
•
increase the number of Workday's customers who use our
software;
• ensure
high levels of customer satisfaction driving strong Net Revenue
Retention (NRR); and
• invest
in our existing products, and develop additional products within
the Workday ecosystem, where our blend of software skills and
Workday experience makes us uniquely positioned.
|
|
|
|
• Our customer
numbers increased, with 450+ customers now using one or more of our
products.
•
Revenues increased by
28% to £57.3 million
(2023: £44.7
million).
|
• Increase the
total number of customers using our software.
• Increase the
adoption of multiple products by each customer.
|
|
• Maintained a
high level of NRR, driven by segment NPS of 68.
|
• Maintain our
high levels of customer satisfaction.
|
|
• We launched
Employee Document Management (October 2023).
• Overall
investment, spanning product development and sales & marketing,
increased by 31% to £26.0 million (2023: £19.9 million).
|
• Ensure that
customer adoption and revenues reflect the very strong increase in
investment.
• Develop and
launch one new product.
|
New opportunities
As noted in the previous section, we invest
strongly in our Workday Products, both in extending our existing
products and developing new products. In addition to these
activities, we also look to develop new opportunities for the
others areas of Kainos.
Within Digital Services we have launched a
series of practices - Cloud (launched 2017), Data and Artificial
Intelligence (2019) and Intelligent Automation (2020)
practices. These are now significant high growth activities
that are fully embedded within Digital Services.
In Workday Services, we have developed our
Workday Extend professional services and our Application Catalogue
(these are described in more detail in the Operational Review,
Workday Extend) and we have launched our Spark & Grow service
which accelerates the deployment of Workday for smaller, scaling
companies (more details in the Operational Review, Innovation Case
Study)
We have a structured innovation process which
helps us identify and promote new ideas that have the potential to
become sizeable revenue streams in the future.
|
|
|
|
• In total, 46
ideas were evaluated, with eight moving to the next stage of
development.
|
• Maintain idea
generation and evaluation activity levels.
• Develop
current next-stage ideas, seeking to create at least one viable
business opportunity.
|
Operational review
Our overall performance
Our largest business areas, Workday Services,
Workday Products and public sector within Digital Services,
together 80% of revenue, delivered excellent growth, even when
measured against a strong comparative period (combined segment
growth, 2024: 7%; 2023: 36%). Offsetting this growth, within
Digital Services, we experienced revenue reductions in our
commercial sector, as a result of the macro-economic environment,
and in our healthcare sector as there were no pandemic-related
projects in the year.
In total, revenue for the year grew by 2% (6%
organic, 3% ccy) to £382.4 million (2023: £374.8 million) with
adjusted pre-tax profit([9]) increasing by 14% (17% ccy) to £77.2
million (2023: £67.6 million).
Our sales are a combination of extensions to
existing contracts, new projects placed by existing customers and
winning new customers. Bookings in the year were 1% lower at £424.5
million (2023: £427.8 million). Our contracted backlog increased
11% to £357.1 million (2023: £322.9 million).
In line with our previous guidance, we
have increased investment in our software products,
now representing a total of £26.0 million, an increase of 31%.
Research & development investment increased to £13.5 million
(2023: £9.1 million) and our product-related sales
& marketing investment increased to £12.5 million (2023: £10.8
million).
As at 31 March 2024, we had a strong cash
balance (including treasury deposits) of £126.0 million (2023:
£108.3 million), representing 98% cash conversion (2023:
104%).
Our people
We are clear that our success is driven by the
ability, energy and expertise of the people in Kainos.
In the past 12 months, our headcount has
remained stable at 2,995 people (2023: 2,990). We have continued to
reduce the number of contract staff in favour of long-term
investment in permanent employees and as a result contractors
represent 1% of our colleagues (2023: 7%). Correspondingly, over
the past year the number of permanent employees has increased by
6%.
By region, UK & Ireland reduced to 2,043
people (-4%), Central Europe increased to 463 people (+4%) and the
Americas has remained constant at 395 people. In Asia, the number
of people increased to 94 (+76 people) as we welcomed our new
colleagues from the RapidIT-Cloudbera acquisition, which completed
in June 2023.
Our employee engagement levels remain high. We
now utilise Workday Peakon to continuously assess employee
engagement and have achieved an engagement rating of 78%. For the
second consecutive year, we were awarded '50 Best Places To Work
For in the UK' by Glassdoor, the online career
community.
In the past 12 months, 93% of our colleagues
chose to continue to develop their career at Kainos (2023: 88%).
This improved retention is partially because of our ongoing
engagement efforts, but we also recognise that there is increased
job-changing caution within the sector.
Our customers
We believe that by delivering
consistently to our customers we build long-term relationships. The
strength of our customer relationships is reflected in our
consistently high satisfaction scores. We have now migrated from
our proprietary customer satisfaction index to Net Promoter Score
(NPS), and in the last 12 months we achieved a NPS score of 58 (a
score above 50 is viewed as 'excellent').
Existing customers continue to
trust us to deliver their most challenging projects, and this is
reflected in our revenues, with 90% of revenues coming from our
existing clients (2023: 90%). We have also gained new customers
during the year, and we now work with 930 customers (2023:
821).
From a sector perspective we have
a well-diversified business, with 52% of our revenues from
commercial clients (2023: 50%), 36% from public sector
organisations (2023: 37%), and 12% from healthcare customers (2023:
13%).
Our international client base has also
expanded and as a result our international revenues have grown by
13% to £149.8 million (2023: £132.0 million). Regionally,
UK & Ireland accounts for 61% of our business (2023:
65%), North America for 28% (2023: 25%), Central Europe for 11%
(2023: 9%), with the rest of the world representing <1% (2023:
1%).
Digital Services performance
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.
In the last 12 months performance
has varied across sectors. Public sector clients maintained their
investment levels in digital transformation projects. In contrast,
and as anticipated, healthcare revenues declined, driven by
post-pandemic budget constraints and ongoing internal NHS
reorganisation. Within commercial sector we also recorded decreased
revenue as clients significantly reduced project
expenditure.
As a result, Digital Services
revenues declined by 5% to £213.1 million (2023: £224.4 million).
Bookings, at £228.1 million (2023: £238.2 million), represented a
reduction of 4%, while contracted backlog increased by 11% to
£156.6 million (2023: £140.9 million).
Overall, public sector now
represents 65% of divisional revenues (2023: 61%), healthcare 21%
(2023: 22%) and commercial sector 14% (2023: 17%).
Public sector
Our public sector customers remain
committed to their digital transformation programmes, the
importance of which are underlined in the 2025 Roadmap published by
the Central Data & Digital Office([10]) which aims to create a more
efficient digital government that provides better outcomes for
everyone. This continued digital adoption by government, and
our success in the market, has resulted in an increase in our
revenues by 1% to £138.2 million (2023: £137.0 million).
We continue to support our
long-standing customers, including the Ministry of Justice, the
Department for Environment, of Food & Rural Affairs, the Driver
and Vehicle Standards Agency and HM Passport Office and are
assisting new customers such as the Crown Prosecution Service, the
Water Services Regulation Authority (OFWAT) and the Open University
as they progress their ambitious digital programmes. We have been
awarded places on new digital services frameworks with Ministry of
Defence, HM Revenue and Customs and the Financial Conduct
Authority.
Commercial sector
In the UK, the commercial sector
expenditure on IT is over three times that of the public sector.
While this represents significant long-term opportunity, to
increase our likelihood of success, we have initially chosen to
focus our activity on financial services
customers.
While our customers recognise the
need to increase their levels of investment in digital
transformation, the uncertain economic backdrop has resulted in a
cautious approach to embarking upon major transformation programmes
and limiting the scope of some in-flight projects.
Reflecting reduced activity levels,
our commercial sector revenue was 19% lower at £30.8 million (2023:
£37.8 million).
Notwithstanding these short-term
headwinds, we continue to deliver digital services for our
established customers, including Irish Life Assurance plc, the
United Nations International Organization for Migration and Nexi
Group and we are helping new customers including Royal London Asset
Management and Arqiva.
Healthcare sector
We have described in previous
updates that our NHS customers are experiencing post-pandemic
budget constraints, combined with the disruption of the merger of
the NHS England and NHS Digital organisations; this remains the
case.
While this may, in simple terms,
explain the 11% reduction in our healthcare revenues to £44.2
million (2023: £49.7 million), it overlooks the strong performance
in our core healthcare business. In defining our core healthcare
business, we remove all revenues relating to supporting the NHS
pandemic response. Using this definition, core healthcare revenues
in the past 12 months have increased to £44.2 million (2023: £35.8
million), representing an increase of 23%.
This year, our customers have
included the Department for Health and Social Care (DHSC), where we
are leading the delivery of the new digital Health Check, NHS
Business Services Authority (NHSBSA) and their digital projects
portfolio, and the Department for Health and Care Wales, where we
delivered their Patient App.
International expansion outside of UK and
Ireland
With the UK as an early adopter of
digital transformation, the opportunity exists to replicate our
home market success in international jurisdictions. In Europe, our
initial focus is primarily on commercial customers in Germany and
Switzerland, with organisations such as Worldline, Nexi Group and
GEA. In North America, we are making progress across public sector,
commercial sector and the healthcare sector with organisations that
include the Province of Nova Scotia, WPP and the Government of
Ontario.
Our international revenues are
reported in the figures in the sectors listed above, but for
clarity, international revenues for the division have increased by
28% to £12.3 million (2023: £9.6 million), representing 6% of total
Digital Services revenue (2023: 4%).
Workday Services performance
Revenue over the last 12 months recorded
growth of 6% to £112.0 million (2023: £105.7 million) however, as
noted below, excluding revenues associated with withdrawn services
linked to the Blackline acquisition, revenue growth was 10%. Sales
bookings decreased by 4% to £116.5 million (2023: £121.7 million)
while our contracted backlog remained constant at £73.0 million
(2023: £72.8 million).
Having first engaged with Workday Inc. in
2011, we are now one of their most experienced partners and one of
only 62 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 from 2015 and into the North American market from
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. A similar focus on customer
success in our North American market 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.
Regionally, our North American customers
generated 49% of total divisional revenue (2023: 53%), with our
European customers responsible for 50% of revenue (2023:
47%).
The number of accredited Workday consultants
at Kainos is 798 (2023: 808).
Workday Extend
Alongside the typical consulting activities
involved in deploying Workday's SaaS platform, there is a growing
opportunity linked to Workday Extend, Workday's
Platform-as-a-Service offering which became generally available in
May 2020. Kainos has been part of the Workday Extend early adopter
programme since 2017.
Workday Extend allows organisations to build
additional, specialised functionality on the Workday platform to
further enhance customers' Workday deployment. As experts and
global leaders in Workday Extend, we have helped more than 80
organisations including Home Depot, AES Corporation and Ferguson
Enterprises to build Workday Extend applications specific to their
requirements or to deploy one of our pre-built applications from
our 45-application catalogue.
In September 2023, to coincide with the
release of significant AWS-native AI capabilities accessible
through Extend, Workday announced the creation of their AI
Marketplace. This marketplace, expected to be available mid-2024,
will allow third-party developers to market Workday-approved,
pre-built applications to the 10,000+ Workday customer
community.
In addition to the paid-for consulting
services activity, engaging with clients on Workday Extend projects
provides us with insight into common challenges that clients
experience, and the potential to build products that are embedded
inside Workday.
Blackline Group
In January 2022 we announced the acquisition
of Blackline Group, a 50-person specialist business that
focused on both advisory services linked to Workday Strategic
Sourcing and standalone procurement consulting services.
On review of the standalone procurement
consulting activity, and in discussion with our colleagues and
customers, we decided to stop the provision of these services
during the financial year. This decision directly impacted 23
of our colleagues based in the US and four customer
contracts; the services that are being withdrawn amounted to
£5.5 million of revenue in the year (2023: £8.6m, 2025 forecast:
negligible).
As a result of this decision, we have
recognised an amortisation charge of £2.6 million
relating to the customer relationship intangible asset, a
restructuring cost of £0.4 million and all post-combination
remuneration.
Workday Products performance
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 enable
customers to further increase the benefit that they can realise
from their investment in Workday.
Our Workday Products revenue increased 28%
(23% organic, 33% ccy) to £57.3 million (2023: £44.7 million),
driven by an 18% increase in bookings to £79.9 million (2023: 67.9
million). The Annual Recurring Revenue was £60.5 million
(2023: £47.9 million), an increase of 26% and backlog increased 17%
to £127.5 million (2023: £109.3 million).
In total, over 450 customers use one or more
of our products.
Smart Suite
We have three products within the Smart
Suite:
·
Smart Test (launched in 2014) allows Workday customers to
automatically test and verify that their unique Workday
configuration is operating effectively, both during implementation
and in live operation. Smart Test is the leading automated testing
platform specifically designed for Workday and is used
by over 400 global enterprise customers, including Salesforce,
Capital One and Whole Foods.
·
Smart Audit (2021) has been deployed to over 100 customers
including Chanel, Arcbest and QBE Insurance. Smart Audit is a
compliance-monitoring tool that allows Workday customers to
maintain operational security controls across 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.
·
Smart Shield (2022) is 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 ongoing internal Workday training and onboarding
programmes. Smart Shield is now used by over 75 customers,
including Match.com and LKAB.
Employee Document Management (EDM)
In October 2023, our latest product, Employee
Document Management (EDM), became generally available. EDM utilises
Workday Extend technology and improves the experience of generating
and storing documents inside Workday, while supporting an
organisation's global compliance requirements.
This has been our most successful product
launch, with 26 customers already contracted, of whom Hilti was the
first customer to go live.
RapidIT-Cloudbera acquisition
In June 2023 we completed the acquisition of
RapidIT-Cloudbera, the creators of Genie, a Workday-focused
automated testing product, headquartered in Atlanta, US, and
employing 101 staff in the US and India.
Since the completion of the acquisition, we
have successfully combined our testing and development teams, and
have added the unique Genie functionality to our Smart Test
platform. All customers who were using Genie have now been
successfully migrated to our combined platform.
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 year amounted to £13.5 million
(2023: £9.1 million), an increase of 48%, which was fully expensed
in the year.
Product innovation and incubation
The past year has seen us incubate, develop
and launch two innovative products in our Workday Product
division.
Launched in October 2023, Employee Document
Management (EDM) traces its roots to a conversation in 2020 with
our customer Hilti about an unmet need in document generation and
storage. We validated this idea with several other customers and
started our internal process of creating EDM. Based on a
combination of AWS and Workday Extend technologies, EDM offers a
frictionless way for Workday customers to create, manage, store and
access employee documents, such as contracts, offer letters,
policies and compensation statements, all inside
Workday. Since launch, 26 organisations have become
customers.
Workday's core HR and Finance systems are
typically deployed by medium-sized, and larger, organisations. For
ambitious smaller organisations, the elapsed time to implement
Workday, coupled with the internal effort and external consulting
time, often mean that they choose less comprehensive HR and finance
solutions. Focusing on reducing this 'time to value', our Workday
Product Division led the incubation and development of Spark &
Grow, a unique proposition based around automation which allows
smaller organisations to get live on Workday in four weeks. Spark
& Grow extends Workday's addressable market and featured in the
most recent Workday, Inc earnings call.
Services innovation and incubation
In our services division, innovation has been
pivotal in fostering growth and enhancing our engagements with both
new and longstanding clients.
In October 2023, after securing a contract to
develop a modern digital registration system for births, marriages,
and deaths with the Home Office, we utilised an Open Innovation
process to help uncover innovative solutions. The activity involved
several hundred of our colleagues in a structured process to help
brainstorm novel solutions for the challenges that the Home Office
were seeking to overcome. This was highly successful, identifying
new ways to use cutting-edge technologies to efficiently support
individual users.
Moreover, our commitment to innovation has
strengthened our ongoing relationships with key clients. For
example, DVSA were considering the concept of allowing the driving
theory test to be undertaken from a home or remote setting, thereby
extending the accessibility of the service. They turned to Kainos
to create and deliver the concept of a secure, remote theory test.
Collaborating closely with the client, we engaged academic experts,
cutting-edge technology start-ups, and end users to design and
prove a unique solution that met the needs of all
stakeholders.
Across our services division, innovation
remains a key driver in adopting generative AI solutions within and
beyond Kainos. From instant jargon busting to summarising hundreds
of contracts in minutes, we have been at the forefront of
delivering effective generative AI-based services, demonstrating
our commitment to transformative growth and client
satisfaction.
Technical and market research
To support innovation activities and strategic
decision making across Kainos, we have invested in a team dedicated
to technical and market research. The team's activities include
providing foresight and research into emerging technologies,
interpreting developing trends and identifying market
insights.
The team is continuing research into: the
advances of machine learning and AI, such as federated learning and
synthetic data; advances in the development of green software and
sustainable approaches to innovation; uses of artificial
intelligence in automatic speech recognition and object detection;
and a range of other emerging concepts, with a goal of
understanding when they should approach a level of maturity and the
impact they will have on our business and clients.
Partnerships
In addition to internally sourced ideas, we
nurture relationships with a broad network of partner organisations
across our global footprint, from hyperscale partners such as
Microsoft and Amazon Web Services, through to start-ups who are
developing cutting-edge solutions to some of the world's most
complex problems.
We also continue to work with academic
research partners and leading industry organisations, such as
Ulster University AI Research Centre, and University of Oxford's
Responsible Technology Institute, as well as working with our
strategic partners on further-from market technology and
research.
Founders
Our Founders Programme has been established to
foster and support intrapreneurship within Kainos. It serves as a
platform for providing guidance, advice, network access and
resources to Founders engaged in innovative projects within the
Company.
Founders in Kainos are visionary leaders who
challenge the status quo with innovative alternatives, excel in
developing strategies, and inspire trust through integrity. They
possess strong leadership, negotiation, and communication skills,
and are adept at turning ideas into commercially viable
businesses.
Innovation case study: AI-enabling Smart Test and Smart
Audit
Adding AI capability to our Smart
Suite has been a key focus for our innovation efforts within our
development activity.
In March 2024, we reached a
significant milestone when we released the latest version of Smart
Audit to our 100+ customers. The AI-enabled functionality assists
in security access and permission audits within Workday by
identifying potential errors or inconsistencies in access rules,
enabling more frequent reviews and earlier detection of
issues.
In addition, we have integrated AI
tooling in our other products. Notably, we invested in a new
Copilot feature for Smart Test, which assesses customers' Workday
configuration and automatically builds test scenarios targeting the
highest risk areas.
These AI tools are designed to
enhance our users' experience and aid organisations in addressing
complex business challenges, much faster than ever
before.
Innovation case study: Spark & Grow - using AI to
optimise Workday deployments
As we described above, ambitious, scaling
organisations are often interested in deploying Workday's
innovative HR and Finance system but lack the internal capacity and
time to undertake the deployment.
This innovation project focused on using
cutting-edge AI and Generative AI technologies to simplify,
automate and streamline the implementation process of a Workday
deployment. We were able to achieve an impressive 80%
reduction in effort and timelines, allowing smaller organisations
to deploy Workday and quickly attain value from their investment in
Workday's HR and Finance systems.
A key element of this initiative, which we
called Spark & Grow, was the establishment of a standalone
unit, functioning with the agility of a start-up, yet backed by the
robust infrastructure of Kainos. This enabled rapid prototyping and
application of AI technologies without the constraints of
traditional corporate structures.
In a novel approach, the project employed AI
to critique and refine its own development processes, a method we
refer to as 'AI for AI'. This not only ensured that our methods and
strategies were free from human biases but also significantly
enhanced decision-making efficiency.
Over a six-month period, the project
successfully launched several AI-driven tools, including
AI-Generated Knowledge Bases, Sentiment Analysis systems, and six
other use cases in Phase 1, which collectively led to setting new
benchmarks for operational efficiency within the market.
Innovation case study: Working with
academia
Kainos continues to support Ulster
University's Artificial Intelligence Research Centre (AIRC). This
partnership between industry and academia is dedicated to advancing
research, innovation, and skills development in AI in Northern
Ireland. Our shared goal is to inspire the next generation to
harness the transformative power of AI for societal
improvement.
The pillars of our work include
knowledge sharing and strategic research and our collaborative
sessions have covered a wide variety of subjects including data
ethics, large language models and probabilistic programming. These
sessions provide a platform for Kainos staff to gain insight into
emerging technical concepts, share the practical challenges that
industry is facing and identify opportunities to work
together.
This past year, within our
strategic research focus, we have funded and launched PhD research
projects in both ethical AI and explainable AI where our goal is to
provide the knowledge and tools to ensure AI solutions are created
ethically, with transparency, accountability and
explainability.
Financial review
FY24 was another year of solid financial
performance.
In summary, we grew revenue by 2% (3% ccy) to
£382.4 million (2023: £374.8 million). Digital Services revenue
reduced by 5% to £213.1 million (2023: £224.4 million), reflecting
decreased customer expenditure across the commercial sector and
lack of pandemic-related revenues in the healthcare sector. Workday
Services revenue grew 6% (9% ccy) to £112.0 million (2023: £105.7
million) driven mainly by growth in Central Europe. Workday
Products revenue increased to £57.3 million (2023: £44.7 million),
representing growth of 28% (33% ccy) (2023: 40%). The Operating
Review provides more information on our revenue
performance.
Our overall gross margin was 49.0% (2023:
47.3%). Digital Services' gross margin increased to 38.4% (2023:
38.1%) driven by lower contractor headcount. Workday Services
margin increased to 54.7% (2023: 54.2%) driven by higher
utilisation. Workday Products margin increased to 77.1% (2023:
76.6%).
Operating expenses
Operating expenses increased by 3% to £128.4
million (2023: £124.6 million) and is largely consistent with
revenue growth.
Our investment in product development
increased to £13.5 million (2023: £9.1 million), all of which was
expensed during the period. We recognised £5.2 million of Research
& Development Expenditure Credit (RDEC) income during the year
(2023: £4.2 million).
Alternative performance measures
We use several alternative performance
measures to monitor day-to-day performance and to assist management
make 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 adjust for the cost of our share-based
payment arrangements in our adjusted measures also. 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 current
period we excluded gains relating to the sale of property, plant
and equipment and fair value movements in our 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 in 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
|
|
2024
(£000s)
|
2023
(£000s)
|
|
Profit before tax
|
64,772
|
54,338
|
|
Share-based payment expense and related costs
|
5,952
|
6,346
|
|
Amortisation of acquired intangible assets
|
4,190
|
2,642
|
|
Increase in fair value of investment property and
gain on sale of property
|
(2,154)
|
-
|
|
Compensation for post-combination services
|
3,800
|
4,176
|
|
Acquisition-related expenses
|
626
|
57
|
|
Adjusted profit before tax
|
77,186
|
67,559
|
|
|
2024
(£000s)
|
2023
(£000s)
|
|
Profit after tax
|
48,715
|
41,645
|
|
After tax impact
of:
|
|
|
|
Share-based payment expense and related costs
|
4,464
|
4,886
|
|
Amortisation of acquired intangible assets
|
3,147
|
2,642
|
|
Increase in fair value of investment property and
gain on sale of property
|
(1,894)
|
-
|
|
Compensation for post-combination services
|
3,746
|
4,176
|
|
Acquisition-related expenses
|
582
|
57
|
|
Adjusted profit after tax
|
58,760
|
53,406
|
Adjusted EBITDA
|
|
2024
(£000s)
|
2023
(£000s)
|
|
Adjusted profit before tax
|
77,186
|
67,559
|
|
Depreciation of property, plant and equipment
|
2,886
|
2,249
|
|
Depreciation of right-of-use assets
|
1,152
|
1,163
|
|
Finance expense
|
334
|
71
|
|
Finance income
|
(4,336)
|
(1,463)
|
|
Adjusted EBITDA
|
77,222
|
69,579
|
Adjusted pre-tax profit increased by 14% to
£77.2 million (2023: £67.6 million). Profit before tax increased by
19% to £64.8 million (2023: £54.3 million).
Corporation tax charge
The effective tax rate for the year was 25%
(2023: 23%). The effective tax rate for the period is in line with
the UK corporation tax rate which increased to 25% effective 1
April 2023. The rates at which our overseas profits are taxed vary
from jurisdiction to jurisdiction but on average have been subject
to a blended rate that is largely in line with 25%.
Financial position
We continue to have a strong financial
position, with £126.0 million of cash and treasury deposits (2023:
£108.3 million), no debt and net assets of £156.8 million (2023:
£129.3 million).
The underlying trade receivables and accrued
income balance has reduced to £68.6 million (2023: £74.5 million),
despite the growth in revenue, due to strong cash conversion in the
period.
Our deferred income balance at year end is
£45.0 million (2023: £37.1 million). This increase of 21% is
attributed mainly to the growth in our SaaS revenue in the year to
£54.8 million (2023: £43.1 million).
Within non-current assets our property, plant
and equipment balance increased to £12.3 million at the year end
(2023: £9.5 million) due mainly to property refurbishment costs
incurred during the year. During the period we entered into 4 new
property leases increasing our right-of-use asset balance to £5.2
million at 31 March 2024 (2023: £1.3 million). A corresponding
increase to our lease liabilities was also recognised contributing
to the increase in our closing lease liability of £5.9 million
(2023: £1.4 million).
In the prior year £5.2 million was transferred
from property, plant and equipment to investment property,
reflecting our agreement to sell part of the site acquired in 2019
for the development of our future headquarters in Belfast. The sale
was subject to planning permission which was obtained subsequent to
year end. An increase in fair value of £1.0 million was recognised
during the year.
During the period we completed the sale of
property located in Belfast, recognising a gain on disposal of £1.1
million. At 31 March 2023, the carrying value of this property was
£0.3 million and was recognised as assets held for sale within
current assets.
As noted within our Workday Products review,
we completed the acquisition of RapidIT-Cloudbera Inc. on 30 June
2023. The fair value of assets acquired and liabilities assumed at
acquisition date are detailed further in note 29.
Cash flow and cash conversion
Cash conversion, which is cash
generated by operating activities as a percentage of adjusted
EBITDA, remained strong at 98% (2023: 104%).
Dividend
Our progressive dividend policy provides
shareholder returns, while ensuring we have sufficient funds to
invest in long-term growth. The proposed final dividend recommended
by Directors is 19.1p and, if approved by shareholders, will be
paid on 25 October 2024 to shareholders on the register on 4
October 2024, with an ex-dividend date of 3 October 2024. This will
make the total dividend for the year 27.3p (2023: 23.9p) which will
represent a distribution of 58% of adjusted profit after taxation
(2023: 56%).