Kainos Group lifts revenue 37% as backlog targets £1bn

By Sophie Lindqvist

Kainos Group lifted first-half fiscal 2027 revenue by 37%, with contracted backlog of £853 million, up 26%. Two additional UK government awards worth £196 million were awaiting signature.

Adjusted profit rose 30% to £9.7 million, while group sales increased 27%. Management said the backlog provides visibility over the next several years. Growth was substantial, but the margin arithmetic proved less congenial.

What drove the first-half growth?

Digital Services (custom platforms transforming public, commercial and healthcare service delivery) drove the increase, lifting revenue 57%. Gains spanned government, healthcare, defense and Canada, management said.

CFO Richard McCann said: “Healthcare revenue grew 85%, public-sector revenue increased 55%, and defense grew 44%.” The commercial sector continued to contract, although the division returned to a positive contribution.

Digital Services bookings rose 44% to £297 million, and backlog increased 31% to £600 million. Kainos introduced a revised total contract value calculation (a fuller measure of larger, longer contracts), affecting bookings and backlog but not revenue recognition (the timing of recorded sales). Under the previous method, divisional bookings would have risen 71% and backlog 26%.

Will contracted backlog exceed £1 billion?

The two contracts awaiting signature comprise a £111 million Home Office award and an £85 million Foreign, Commonwealth and Development Office award. Management said signing them should push group backlog above £1 billion, although neither was included in reported figures. Both were expected to be signed within weeks.

How are contractors affecting margins?

Digital Services contractor numbers rose to 316 from 139 a year earlier. Revenue delivered by contractors and partners increased to £49 million from £15 million.

CFO Richard McCann said: “The use of contractors and partners accounted for virtually all of the decline in Digital Services gross margin.” Gross margin measures gross profit as a share of revenue. More than 60% of the growth in contractor and partner use related to capacity needs, and management said Kainos would seek to replace outside workers with its own staff as growth moderates.

Group gross profit increased 23%, or £21.6 million, but gross margin declined. McCann identified Digital Services’ growing share of lower-margin revenue and increased contractor and partner use as the main pressures.

Slower growth in direct expenses and central costs offset the operational gross-margin effects, McCann said. Adjusted profit margin nevertheless fell by 0.8%, which he attributed to lower interest income as cash balances declined following share buybacks, office construction and dividend payments.

First-half cash conversion (a measure of cash generated from earnings) was 62%. McCann said first-half conversion normally runs lower because of bonus-payment timing, while full-year conversion should end slightly below the previous year because of growth-related working-capital needs (funds tied up in operations). The trade-off is straightforward: higher activity, lower cash conversion.

Can Workday sustain the growth?

Workday Services (consulting, project management, integration and post-deployment support for Workday software) revenue rose 9%. Growth reached 10% in the Americas and 8% in EMEA (the company’s regional grouping that includes Australia). Division sales increased 1%, against 35% growth in the prior-year comparison.

Kainos secured 13 high-value Workday Services deals in the first half, compared with seven in the same period last year. Management said the company remained focused on more complex deployments and expected to exceed the 21 high-value deals secured in the previous full year.

Workday Products (product sales) revenue rose 22%, and annual recurring revenue (repeat subscription revenue) increased 24%. Management expected annual recurring revenue to pass £100 million within weeks and targeted £200 million by the end of 2030.

Smart Test, Smart Audit and Employee Document Management led growth. European legislative timetable changes slowed uptake of Pay Transparency Analyzer, although management believed the delays had extended the opportunity’s duration. Research and development spending rose 33% and remained expensed in the year incurred.

What does Kainos Group do?

Kainos Group plc provides digital technology services in the UK, Ireland, North America, Central Europe and other international markets. Its three segments are Digital Services, Workday Services and Workday Products. The Workday suite includes cloud-based software for human capital management, financial management and adaptive planning.

What is artificial intelligence worth today?

AI (artificial intelligence) and data-related revenue rose 40% to £29 million. Management said customers continued to run pilots and proofs of concept (limited tests before full deployment), but relatively few had launched significant AI programs because of concerns including security, cost and vendor lock-in (dependence on one technology supplier).

Kainos also launched Actonomy, an early-stage business designed to help customers move AI pilots into production. With AI and data-related revenue at £29 million, the next test is conversion: moving pilots into production deployments, rather than merely counting them.