TIDMKNOS
RNS Number : 1582T
Kainos Group plc
13 November 2023
13 November 2023
Kainos Group plc
( "Kainos" or the "Group")
Interim results for the six months ended 30 September 2023
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 2023 (H1 24).
Financial highlights
H1 24 H1 23 Change
===================================== ========== ========== =======
Revenue GBP193.2m GBP179.8m +7%
===================================== ========== ========== =======
Profit before tax GBP30.9m GBP27.5m +12%
===================================== ========== ========== =======
Adjusted pre-tax profit GBP37.9m GBP34.0m +11%
===================================== ========== ========== =======
Cash GBP113.0m GBP97.1m +16%
===================================== ========== ========== =======
Bookings GBP201.9m GBP221.5m -9%
===================================== ========== ========== =======
Product Annual Recurring Revenue
(ARR) GBP55.4m GBP44.2m +25%
===================================== ========== ========== =======
Contracted Backlog GBP326.9m GBP307.9m +6%
===================================== ========== ========== =======
Diluted earnings per share 17.5p 17.4p +1%
===================================== ========== ========== =======
Adjusted diluted earnings per share 22.1p 22.0p <1%
===================================== ========== ========== =======
Interim dividend per share 8.2p 7.8p +5%
===================================== ========== ========== =======
Operational highlights
Our key business areas continue to deliver strong growth and
provide an excellent foundation for future expansion.
-- Within Digital Services, strong public sector revenue growth
of 17% was offset by the anticipated decrease in healthcare and
project scope reductions in some commercial sector engagements,
with overall revenues at GBP109.2 million (H1 23: GBP110.5
million).
-- Our Workday Services division recorded strong revenue growth
of 18% (21% ccy), increasing to GBP57.3 million (H1 23: GBP48.4
million).
-- Workday Products revenues grew 28% (24% organic, 31% ccy) to
GBP26.7 million (H1 23: GBP20.9 million).
Our underlying business performance demonstrates disciplined
execution against the backdrop of macro-economic uncertainty.
-- Revenue up 7% (7% organic, 8% ccy) to GBP193.2 million (H1 23: GBP179.8 million).
-- Adjusted pre-tax profit grew 11% (19% ccy) to GBP37.9 million
(H1 23: GBP34.0 million), representing an adjusted profit
percentage of 20% (H1 23: 19%).
-- Overall bookings reduced by 9% to GBP201.9 million (H1 23:
GBP221.5 million); we note that the comparative period included a
125% increase in Workday Services bookings.
-- Contracted backlog growth of 6% to GBP326.9 million (H1 23: GBP307.9 million).
-- Period-end cash amounted to GBP113.0 million (H1 23: GBP97.1
million); with cash conversion at 82% (H1 23: 70%).
After a four-year succession plan, we completed a smooth
transition at Board level as Russell Sloan, a Kainos 24-year
veteran, takes over as CEO.
-- Prior to his appointment to CEO, Russell was the Head of the Digital Services division.
-- Rosaleen Blair, who joined the Board in January 2021, has
assumed the role of Deputy Chairperson and we are delighted to
welcome James Kidd, former Aveva CFO and CEO, to the Board.
-- The appointment of Rosaleen and James are part of a planned
succession process, with Tom Burnet and Andy Malpass due to
complete their term as Non-Executive Directors in September
2024.
In Digital Services, we continue to deliver significant digital
transformation programmes across public sector, while there are
further reductions in healthcare.
-- Strong growth in public sector was offset by anticipated
lower revenues in healthcare (H1 24: GBP20.4 million; H1 23:
GBP29.5 million) and reductions in scope for some commercial sector
projects (H1 24: GBP15.8 million; H1 23: GBP18.7 million). This
resulted in an overall reduction of 1% (1% ccy) in revenues to
GBP109.2 million (H1 23: GBP110.5 million).
We continue to be the leading pan-European Workday consulting
specialist and are a Phase 1 partner in both the US and Canadian
markets.
-- As noted, we recorded strong revenue growth of 18% (21% ccy)
to GBP57.3 million (H1 23: GBP48.4 million), of which the majority
(77%) are international revenues.
-- The acquisition of the Blackline Group in early 2022 included
a standalone procurement consulting capability and we have decided
to stop providing these services during this financial year; the
Workday Strategic Sourcing activity remains unchanged( [1] ) .
Our Workday-related products delivered very strong growth and we
remain on track to achieve our target of GBP100 million ARR by
2026.
-- Revenue growth was very strong at 28% (24% organic, 31% ccy),
with revenues now GBP26.7 million (H1 23: GBP20.9 million) and the
associated ARR increased by 25% to GBP55.4 million (H1 23: GBP44.2
million).
-- In October 2023 we launched our latest product, Employee
Document Management (EDM), with nine clients already
contracted.
-- We continued to invest in our products, increasing research
& development expenditure by 48%, to GBP5.9 million (H1 23:
GBP4.0 million) and sales & marketing spend increased 23% to
GBP5.9 million (H1 23: GBP4.8 million).
We continue to extend our footprint as a global business; almost
40% of our revenues are now generated internationally.
-- Very strong international growth, with revenues up 22% to
GBP74.7 million (H1 23: GBP61.0 million), and now representing 39%
of total revenue.
Commercial sector customers now generate over half our
revenues.
-- Commercial revenues are up 16% to GBP99.8 million (H1 23:
GBP86.3 million), representing 51% of total revenue.
-- Public sector revenues have increased 15% to GBP73.0 million
(H1 23: GBP63.3 million) or 38% of total revenue.
-- Healthcare revenues, as previously forecast, have reduced by
32% to GBP20.5 million (H1 23: GBP30.2 million), which is 11% of
total revenue.
The commitment and engagement of our colleagues underpins our
business performance as we continue to grow a global, talented
team.
-- We have 3,139 people (H1 23: 2,920) based across 23
countries, representing an increase of 8%, or 16% when considering
the reduction in contractors to 111 (H1 23: 303).
-- Our employee retention improved to 92% (H1 23: 86%), and
engagement levels remain high, measuring 79% 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 and
retention, supporting our revenue growth.
-- Our customer approval rating remains high and we recorded a
Net Promoter Score of 62 (a score over 50 is viewed as 'excellent'
( [2] ) ).
-- Existing customer revenue increased by 7 % to GBP 182.3
million (H1 23: GBP 169.8 million) which represents a Net Revenue
Retention of 107%.
-- Customer numbers increased to 892 (H1 23: 779), an increase of 15%.
We are making rapid progress on our announced GBP10 million
investment in Generative AI to further enhance our leadership in
Artificial Intelligence.
-- Over the past ten years we have established a practice of
190+ Data and AI specialists, delivering projects for clients that
include Hello Fresh, the Ministry of Defence and the United
Nations.
-- We are investing a further GBP10 million to accelerate the
skills of over 1,000 colleagues to ensure that they can responsibly
harness Generative AI for the benefit of our customers.
-- During 2023 we have been supporting more than 25 clients
assess and explore the potential and implications of Generative AI,
with two of these projects moving from the exploration phase to
deployment in production environments.
We have retained our carbon neutral status for 2023 and we
remain on track to achieve carbon net zero by 2025.
-- Having made substantive progress on our Scope 1, Scope 2 and
business travel-related emissions, our focus has moved to
addressing the emissions within our supply chain. Our supplier
engagement plan will commence during November.
We are maintaining a positive outlook as our key business
segments are positioned for further growth in the near-term
-- Notwithstanding the global economic uncertainty, we believe
that our key business areas, Workday Products, Workday Services and
public sector Digital Services will continue to deliver growth, in
both the near term and medium term.
-- We do not expect any further significant revenue reductions
in the healthcare and commercial sub-sectors of our Digital
Services division and that they are likely to return to growth in
the near-to-medium term .
-- We are well-positioned to deliver strong margin 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, the first after the recent CEO transition,
are the outcome of continued excellent performance where we have
again delivered strong growth.
We are grateful for the ongoing support and trust that our
customers place in Kainos to deliver their critical projects. Our
customer satisfaction levels are high, as is the level of continued
business from our customers.
In the last six months, our Digital Services division has been
fuelled by public sector clients continuing to invest strongly in
digital transformation projects. Meanwhile, there has been strong
growth in our Workday Services division where we continue to be the
leading Workday partner in Europe and are enjoying a growing status
in the US and Canada.
Progress within our Workday Products division continues to gain
momentum. In addition to our three established Smart Suite
products, we are delighted to have launched our latest product,
Employee Document Management, which already has nine international
clients signed up. We are confident that we will have further
opportunities to develop new, innovative products as we continue to
help ambitious clients deploy Workday.
We have a well-diversified business with an increasing focus on
our international expansion, where growth continues to be very
strong. In addition to the global growth in our Workday divisions,
we are now creating opportunities for our Digital Services division
to expand internationally, especially into our impressive Workday
customer base.
During this period we have maintained our focus on operational
excellence while at the same time building for the future, as we
have grown our employee base strongly while reducing our usage of
third-party contractors.
This is a natural evolution as we rely on the ability, energy,
and expertise of our people to drive our success. Our high level of
employee engagement, now measured monthly, has resulted in improved
retention which is amongst the highest levels we have experienced
in the last ten years.
As the result of many years of research, and then deployment of
Artificial Intelligence (AI) system, we have built a strong
reputation as an AI leader in the UK. The recent surge of interest
in, and capabilities of, technologies such as Generative AI,
provide ongoing opportunity for us. These range from helping our
customers assess and safely explore the benefits and limitations of
these new models, to the internal deployment of assistive tools to
increase our own productivity.
Despite the ongoing global economic uncertainty, we believe that
in the near-term and long-term, our business will sustainably
deliver growth. The efficiency and benefits that are derived from
our products and services are significant and attract investment
within our customers. We are excited that our talented colleagues
will continue to drive change at pace and make a positive impact on
people's lives."
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
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.
-- Digital Services 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.
-- Workday Services 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.
-- Workday Products 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 400 customers globally to
safeguard their Workday systems.
Our people are central to our success. We employ more than 3,100
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 and changes in fair value of our
investment property.
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 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 CO 2 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
on-going 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 CO(2) emissions which is aligned with the
global effort to limit global warming to 1.5(O) C.
Cautionary statement
This report has been prepared solely to provide additional
information to shareholders to assess the Group's strategies and
the potential for those strategies to succeed. It should not be
relied on by any other party or for any other purpose.
This report includes statements that are, or may be deemed to
be, "forward-looking statements". These statements are made by the
Directors in good faith based on the information available to them
up to the time of their approval of this report, but such
statements should be treated with caution due to the inherent
uncertainties, including both economic and business risk factors,
underlying any such forward-looking information.
Group business review
Our overall performance
Our key business areas, Workday Services, Workday Products and
public sector within Digital Services, together 81% of revenue,
continue to perform strongly, even when measured against a strong
comparative period (H1 23 total revenue growth of 26%). Offsetting
this growth, our healthcare revenues continued their post-pandemic
decline and we observed some reductions in project scope for some
commercial sector customers within Digital Services.
In total, revenue for the six months grew by 7% (7% organic, 8%
ccy) to GBP193.2 million (H1 23: GBP179.8 million) with adjusted
pre-tax profit( [3] ) increasing by 11% (19% ccy) to GBP37.9
million (H1 23: GBP34.0 million).
Our sales are a combination of extensions to existing contracts,
new projects placed by existing customers and winning new
customers. Bookings in the first six months were 9% lower at
GBP201.9 million (H1 23: GBP221.5 million), noting that in the
comparative period, Workday Services recorded a 125% increase in
bookings. Our contracted backlog increased 6% to GBP326.9 million
(H1 23: GBP307.9 million).
In line with our previous guidance, we have increased investment
in our software products, now representing a total of GBP11.8
million. Research & development investment increased to GBP5.9
million (H1 23: GBP4.0 million) and our product-related sales &
marketing investment increased to GBP5.9 million (H1 23: GBP4.8
million).
As at 30 September 2023, we had a strong cash balance of
GBP113.0 million (H1 23: GBP97.1 million), representing 82% cash
conversion (H1 23: 70%).
Our people
We are clear that our success is driven by the ability, energy
and expertise of the people in Kainos.
In the past twelve months, our headcount has grown by 219 to
3,139 people (H1 23: 2,920). Of our colleagues, 4% are contractors
(H1 23: 10%). By region, UK & Ireland increased to 2,153 people
(+49), Central Europe increased to 477 people (+39) and the
Americas increased to 413 people (+50). In Asia, the number of
people increased to 96 (+81) as we welcomed our new colleagues from
the RapidIT-Cloudbera acquisition.
Our employee engagement levels remain high. We now utilise
Workday Peakon to continuously assess employee engagement and have
achieved a rating of 79%. 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 twelve months, 92% of our colleagues made the choice
to stay and develop their career within Kainos (H1 23: 86%). This
improved retention is partially as a result 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 six
months we achieved a NPS score of 62 (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
94% of revenues coming from our existing clients (H1 23: 94%). We
have also gained new customers during the first six months, and we
now work with 892 customers (H1 23: 779).
From a sector perspective we have a well-diversified business,
with 51% of our revenues from commercial clients (H1 23: 48%), 38%
from public sector organisations (H1 23: 35%), and 11% from
healthcare customers (H1 23: 17%).
Our international client base has also expanded and as a result
our international revenues have grown by 22% to GBP74.7 million (H1
23: GBP61.0 million). Regionally, UK & Ireland accounts for 61%
of our business (H1 23: 66%), North America for 28% (H1 23: 25%),
Central Europe for 11% (H1 23: 9%), with the rest of the world
representing <1% (H1 23: <1%).
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.
In the last six months performance has varied across sectors.
Public sector clients continued to invest strongly 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 some
clients reduced project expenditure.
As a result, Digital Services revenues reduced by 1% to GBP109.2
million (H1 23: GBP110.5 million). Bookings, at GBP118.8 million
(H1 23: GBP117.0 million), represented an increase of 2%, and
contracted backlog increased by 7% to GBP149.0 million (H1 23:
GBP139.2 million).
Overall, public sector now represents 67% of divisional revenues
(H1 23: 56%), healthcare 19% (H1 23: 27%) and commercial sector 14%
(H1 23: 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( [4] ) 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 17% to
GBP73.0 million (H1 23: GBP62.3 million).
We continue to support our long-standing customers, including
the Ministry of Justice, the Department of Food and Rural Affairs
and HM Passport Office and are assisting new customers such as the
General Records Office, the Pensions Regulator and National
Highways 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.
We continue to deliver digital services for our established
customers, including Irish Life, Bank of Ireland and Nexi Group and
we are helping new customers including Royal London, Unum and Asda.
In addition, we are providing Data and AI services to existing
Workday customers including GEA, Spencer Stuart and
Checkout.com.
Reflecting reduced activity levels, our revenues were 16% lower
at GBP15.8 million (H1 23: GBP18.7 million).
Healthcare sector
We flagged in our May update that our NHS customers are
experiencing post-pandemic budget constraints, combined with the
disruption of the ongoing merger of the NHS England and NHS Digital
organisations to form NHS England's new Transformation
Directorate.
As a result, our healthcare revenues have reduced to GBP20.4
million (H1 23: GBP29.5 million), a decrease of 31%; further
significant reductions are not anticipated.
This year, our customers have included the Department for Health
and Care Wales, where we delivered their Patient App, Genomics
England and Our Future Health where we are helping to build the
world's largest health research study.
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 Hello Fresh, 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 SunLife Insurance.
Our international revenues are reported in the figures in the
sectors listed above, but for clarity, international revenues for
the division have increased by 40% to GBP5.9 million (H1 23: GBP4.2
million), representing 5% of total Digital Services revenue (H1 23:
4%).
Workday Services review
Revenue for the six months recorded strong growth of 18% to
GBP57.3 million (H1 23: GBP48.4 million), driven by the exceptional
sales closure a year ago, which reported an increase in bookings of
125%, to GBP80.5 million.
This same sales performance creates a challenging comparator and
as a result bookings at GBP53.1 million (H1 23: GBP80.5 million)
represent a reduction of 34%. Similarly, the contracted backlog of
GBP64.1 million (H1 23: GBP83.2 million) decreased by 23%.
The number of accredited Workday consultants at Kainos increased
by 11% to 814 (H1 23: 732).
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 54 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. Our European customers, including those in the UK &
Ireland, generated 49% of total revenue (H1 23: 46%).
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
51% of total revenue (H1 23: 54%).
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 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 60
organisations including Home Depot, AES Corporation and Ferguson
Enterprises to build Workday Extend applications specific to their
requirements.
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 have decided to
stop the provision of these services during this financial year.
This decision directly impacts 23 of our colleagues based in the US
and four customer contracts; the services that are being
discontinued amounted to GBP3.6 million of revenue during the first
six months of FY24.
In light of this decision, we have recognised an amortisation
charge of GBP2. 6 million relating to the customer relationship
intangible asset, a restructuring cost of GBP0.4 million and all
post combination remuneration.
Workday Products review
Our Workday Products revenue increased 28% (24% organic, 31%
ccy) to GBP26.7 million (H1 23: GBP20.9 million); the Annual
Recurring Revenue was GBP55.4 million (H1 23: GBP44.2 million), an
increase of 25% and backlog increased 33% to GBP113.8 million (H1
23: GBP85.5 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 enable customers to further
increase the benefit that they can realise from their investment in
Workday.
We have three products within the Smart Suite:
-- Smart Test (launched in 2014), is used by organisations to automatically verify their Workday configurations. Smart Test is used by over 350 global enterprise customers, including Salesforce, Capital One and Whole Foods.
-- Smart Audit (2021) has been deployed to over 70 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 easily and
seamlessly masks sensitive data without impacting the Workday user
experience. It ensures that data remains controlled when Workday
environments are made available to wider teams, for instance,
during support and maintenance activities, or for ongoing internal
Workday training and onboarding programmes. Smart Shield is now
used by over 40 customers, including Match.com and LKAB.
In total, over 400 customers use one or more of our Smart Suite
products.
In October 2023, our latest product, Employee Document
Management (EDM), became generally available. EDM utilises Workday
Extend technology and helps customers manage and simplify the full
lifecycle of employee documents inside Workday. In advance of the
launch, we worked with a number of design partners to ensure a
fit-for-purpose solution for organisations using Workday HCM; we
have nine customers already contracted.
Launched during Workday's global customer event, Workday Rising
in San Francisco, we also received high levels of engagement from
attendees and generated a strong pipeline of prospects.
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.
By the end of November, all customers that used Genie on a
weekly basis will have been successfully moved to the updated
platform. The migration of the remaining customers, those that use
Genie for bi-annual Workday release testing, is on track to
complete in January 2024.
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 employer. A key part of achieving
that ambition is for our people to tell us when we get it right and
to tell us about the areas where we can improve.
We use Workday Peakon, an intelligent listening platform that
allows for timely and immediate feedback, provides a holistic view
of employee sentiment and allows comparison against c. 350 leading
global technology employers.
Peakon allows organisations to request feedback at any interval;
we ask our colleagues for feedback on a monthly basis. Based on
feedback from our people, our level of employee engagement remains
high (79%), as are our ratings for diversity and inclusion (83%)
and wellbeing (77%).
We also continue to measure engagement through Glassdoor, the
online career community with over 59 million users that enables
current and former employees to provide feedback on companies. In
September 2023, Kainos had an overall approval rating of 84% and
86% of respondents would recommend working at Kainos to a friend.
In early 2023, we were once again designated to be in the '50 Best
Places to Work in the UK' annual Employee Choice awards from
Glassdoor, ranked #No. 39.
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 8% to 3,139 people (H1 23:
2,920). In total, 4% of our colleagues are contractors (H1 23:
10%). By region, UK & Ireland increased to 2,153 people (+2%),
Central Europe grew to 477 people (+9%) and the Americas increased
to 413 people (+14%). With the completion of the RapidIT-Cloudbera
acquisition, the number of colleagues in the Asia region increased
from 15 to 96 people.
Included in these numbers are 182 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 invest
heavily in training and certifications for our people, with over
6,200 trainings days completed in the past six months. We have a
diverse curriculum of internal courses (which we call 'Kainos MAP')
and comprehensive self-study materials to support external
technical and professional qualifications and certifications.
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 900
young people to participate in our virtual Work Experience
programmes (our target is 1,800 for the year). Supporting these
programmes, over 130 of our colleagues acted as mentors for the
participants.
In 2021 we launched our university-focused Digital Bursaries
programme, with our aim to widen participation for people from
backgrounds that historically have been under-represented at
university. To date, 68 people have benefitted from our
programme.
Staff share incentive plan
The Group operates a Share Incentive Plan for all staff.
Including the annual awards made in November 2022 (447,620 shares
granted) a total of 3,620,940 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
Notwithstanding the global economic uncertainty that exists, we
believe that in the near-term, our key business areas, Workday
Products, Workday Services and public sector-focused digital
services will continue to deliver growth. The efficiency and cost
reduction that the shift to digitisation can generate is
significant and continues to attract funding within
organisations.
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 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.
A near-term general election features in our planning. This will
be the fifth election since the start of the digital reform of UK
public services, which commenced in 2009. After each election,
successive governments have demonstrated their commitment to the
creation of better government services for reduced costs. We expect
this commitment to be reaffirmed following the next election.
The digitisation pressures and opportunities within the
commercial sector are similar, and therefore the growth prospects
for us are substantial in the medium-term. In the short-term, that
is, for the duration of the current uncertain economic climate, we
expect to see caution from organisations when considering
expenditure on large-scale projects, despite their often-rapid
return on investment.
After two consecutive periods of revenue decline, our healthcare
sector business has returned to growth. The case for greater use of
technology in healthcare provision has been well articulated, and
we are positive about the medium-term prospects, albeit that
sentiment is tempered by the significant funding challenges facing
the NHS.
We are 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( [5] ) , up from c.$6.5 billion today.
In addition, we believe that we can outpace Workday's rapid
growth by continuing our international expansion, especially within
the US market, and by replacing other Workday partners in
engagements where they are underserving 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, as demonstrated by
the successful launch of our latest product, Employee Document
Management. In such circumstances, our growth will initially be
determined by the product-market fit of our new products, followed
by their penetration into the Workday client base.
Financial review
H1 24 was another period of strong financial performance.
In summary, we grew revenue by 7% (8% ccy) to GBP193.2 million
(H1 23: GBP179.8 million). Digital Services revenue reduced by 1%
to GBP109.2 million (H1 23: GBP110.5 million), reflecting increased
demand in the public sector, offset by reductions in healthcare and
commercial sectors. Workday Services revenue grew 18% (21% ccy) to
GBP57.3 million (H1 23: GBP48.4 million) driven by growth in both
Europe and North America. Workday Products revenue increased to
GBP26.7 million (H1 23: GBP20.9 million), representing growth of
28% (31% ccy) (H1 23: 30% ccy). The Group business review provides
more information on our revenue performance.
Our overall gross margin increased to 48.0% (H1 23: 46.6%).
Digital Services' gross margin decreased slightly to 37.7% (H1 23:
38.3%). Workday Services margin increased to 54.8% (H1 23: 52.6%),
driven by an increase in utilisation. Workday Products margin
decreased slightly to 75.7% (H1 23: 76.5%).
Operating expenses
Operating expenses increased by 13% to GBP63.9 million (H1 23:
GBP56.8 million). The growth in operating expenses is higher than
revenue growth due to the increased investment in Workday Products
in both sales and product development.
Our investment in product development increased to GBP5.9
million (H1 23: GBP4.0 million), all of which was expensed during
the period. We recognised GBP1.8 million of Research &
Development Expenditure Credit (RDEC) income during the period (H1
23: GBP0.8 million).
Blackline acquisition
As noted in the Workday Services review, we have decided to stop
the provision of standalone procurement consulting services during
this financial period. Upon review of the remaining useful life of
the customer relationship intangible asset, recognised on
acquisition of Blackline Group in January 2022, we accelerated the
amortisation of this asset, recognising a total amortisation charge
of GBP2.6 million in the period. All post combination remuneration
has been fully recognised as at 30 September 2023. Restructuring
costs of GBP0.4 million have also been incurred.
Alternative performance measures
We use underlying results to manage the business and measure
performance day-to-day. We believe that 'adjusted profit before
tax', 'adjusted EBITDA' and 'adjusted diluted and basic earnings
per share' better represent the Group's underlying performance and
make it easier to compare the Group's performance between
periods.
Our adjusted results exclude the effect of share-based payment
expense, acquisition-related expenses, including amortisation of
acquired intangible assets, and compensation for post-combination
services. Our adjusted results in the period also exclude one-off
gains recognised on sale of property and fair value remeasurement
gain of our investment property.
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. The adjusted profit measures
reconcile to the reported numbers as follows:
Adjusted profit measures
6 months to 6 months 12 months
to 30 Sep to 31 Mar
2022 2023
30 Sep 2023 (GBP000s) (GBP000s)
(GBP000s)
==================================================== =========== ===========
Profit before tax 30,861 27,523 54,338
=========================================== ======== =========== ===========
Share-based payment expense and
related costs 2,896 2,697 6,346
=========================================== ======== =========== ===========
Amortisation of acquired intangible
assets 3,222 1,472 2,642
=========================================== ======== =========== ===========
Increase in fair value of investment (2,154) - -
property and gain on sale of property
=========================================== ======== =========== ===========
Compensation for post-combination
services 2,664 2,271 4,176
=========================================== ======== =========== ===========
Acquisition-related expenses 363 58 57
=========================================== ======== =========== ===========
Adjusted profit before tax 37,852 34,021 67,559
=========================================== ======== =========== ===========
6 months to 6 months 12 months
to 30 Sep to 31 Mar
2022 2023
30 Sep 2023 (GBP000s) (GBP000s)
(GBP000s)
==================================================== =========== ===========
Profit after tax 22,126 21,863 41,645
=========================================== ======== =========== ===========
Share-based payment expense and
related costs (net of associated
taxes) 2,085 2,023 4,886
=========================================== ======== =========== ===========
Amortisation of acquired intangible
assets 2,372 1,472 2,642
=========================================== ======== =========== ===========
Increase in fair value of investment (1,616) - -
property and gain on sale of property
=========================================== ======== =========== ===========
Compensation for post-combination
services 2,528 2,271 4,176
=========================================== ======== =========== ===========
Acquisition-related expenses 363 58 57
=========================================== ======== =========== ===========
Adjusted profit after tax 27,858 27,687 53,406
=========================================== ======== =========== ===========
Adjusted EBITDA
6 months 6 months to 12 months to
to 30 Sep 2022 31 Mar 2023
30 Sep 2023 (GBP000s) (GBP000s)
(GBP000s)
============== ============= =============
Adjusted profit before tax 37,852 34,021 67,559
============================== ============== ============= =============
Depreciation of property,
plant and equipment 1,276 1,105 2,249
============================== ============== ============= =============
Depreciation of right-of-use
assets 433 638 1,163
============================== ============== ============= =============
Finance expense 76 28 71
============================== ============== ============= =============
Finance income (1,764) (356) (1,463)
============================== ============== ============= =============
Adjusted EBITDA 37,873 35,436 69,579
============================== ============== ============= =============
Adjusted profit before tax increased by 11% to GBP37.9 million
(H1 23: GBP34.0 million). Profit before tax increased by 12% to
GBP30.9 million (H1 23: GBP27.5 million).
Corporation tax charge
The total tax charge for the six months ended 30 September 2023
is GBP8.7 million (H1 23: GBP5.7 million). This tax charge equates
to an effective tax rate of 28% (H1 23: 21%).
The effective tax rate for the period is higher than the prior
period due a number of factors, including the increase of the UK
corporation tax rate from 19% to 25% effective 1 April 2023, an
increase in profits subject to tax at higher overseas rates and
acquisition related expenses incurred in the period which are not
deductible for tax.
The expected annual tax rate for the year to 31 March 2024 is
27% (31 March 2023: 21%).
Financial position
We continue to have a strong financial position with GBP113.0
million of cash (H1 23: GBP97.1 million), no debt and net assets of
GBP137.4 million (H1 23: GBP117.3 million). The combined underlying
net trade receivables and accrued income balance decreased by 8% to
GBP70.6 million (H1 23: GBP76.9 million).
During the period we completed the sale of property located in
Belfast, recognising a gain on disposal of GBP1.1 million. At 31
March 2023, the carrying value of this property was GBP0.3 million
and was recognised as assets held for sale within current
assets.
Within non-current assets, property, plant and equipment has
increased to GBP11.5 million (H1 23: GBP9.6 million) due mainly to
property refurbishment costs incurred. We have also entered into
two property lease agreements in the period, adding a total of
GBP2.5 million to our right-of-use assets and corresponding lease
liabilities.
As noted within our Workday Products review, we completed the
acquisition of RapidIT-Cloudbera Inc. on 30(th) June 2023. The fair
value of assets acquired and liabilities assumed at acquisition
date have been determined on a provisional basis and are detailed
further in note 15.
The final dividend for FY23 of GBP20.1 million has been included
as a current liability in these financial statements. This dividend
was approved by shareholders at the Annual General Meeting on 21
September 2023 and paid to shareholders on 20 October 2023.
Cash flow and cash conversion
Cash conversion, which is cash generated by operating activities
as a percentage of adjusted EBITDA, remained strong at 82% (H1 23:
70%).
Interim dividend
The Board has declared an interim dividend of 8.2 pence per
share for H1 24 (H1 23: 7.8 pence). This will be paid on 15
December 2023 to shareholders on the register at the close of
business on 24 November 2023, with an ex-dividend date of 23
November 2023.
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 54 - 58 of the Annual Report
associated with the Group's Annual Results published on 21July 2023
(available on the Group's website www.kainos.com ).
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 2023
Continuing operations Note 6 months 6 months to 12 months
to 30 Sep 2022 to
30 Sep 2023 (unaudited) 31 Mar 2023
(unaudited) (GBP000s) (audited)
(GBP000s) (GBP000s)
===================================== ===== ============= ============ ============
Revenue 5 193,249 179,775 374,807
===================================== ===== ============= ============ ============
Cost of sales 5 (100,457) (95,991) (197,652)
===================================== ===== ============= ============ ============
Gross profit 92,792 83,784 177,155
===================================== ==================== ============ ============
Operating expenses (63,941) (56,843) (124,597)
===================================== ===== ============= ============ ============
Impairment (loss)/gain (including
amounts recovered) on trade
receivables and accrued income (718) 254 388
===================================== ===== ============= ============ ============
Increase in fair value of
investment property 1,040 - -
===================================== ===== ============= ============ ============
Operating profit 29,173 27,195 52,946
===================================== ===== ============= ============ ============
Finance income 1,764 356 1,463
===================================== ===== ============= ============ ============
Finance expense (76) (28) (71)
===================================== ===== ============= ============ ============
Profit before tax 30,861 27,523 54,338
===================================== ===== ============= ============ ============
Income tax expense 6 (8,735) (5,660) (12,693)
===================================== ===== ============= ============ ============
Profit for the period 22,126 21,863 41,645
===================================== ===== ============= ============ ============
Consolidated statement of comprehensive income for the six
months ended
30 September 2023
6 months to 6 months 12 months
to to 31 Mar
2023
30 Sep 2023 30 Sep 2022 (audited)
(unaudited) (unaudited) (GBP000s)
(GBP000s) (GBP000s)
==================================== =============== ============== ===========
Profit for the period 22,126 21,863 41,645
==================================== =============== ============== ===========
Items that may be reclassified
subsequently to profit or loss:
--------------- -------------- -----------
Foreign operations - foreign
currency translation differences (540) 1,754 779
==================================== =============== ============== ===========
Total comprehensive income for
the period 21,586 23,617 42,424
==================================== =============== ============== ===========
Earnings per share
---- ---------- ------------ ------------------
Basic 8 17.8p 17.7p 33.6p
---- --------------- --------------- ----------
Diluted 8 17.5p 17.4p 33.1p
---- --------------- --------------- ----------
Condensed consolidated statement of financial position as at 30
September 2023
Note 30 Sep 2023 30 Sep 2022 31 Mar 2023
(unaudited) (unaudited) (audited)
(GBP000s) (GBP000s) (GBP000s)
================================== ===== ============= ============ =============
Non-current assets
================================== ===== ============= ============ =============
Goodwill 11 38,197 20,294 19,007
Other intangible assets 12 6,500 5,495 3,816
Property, plant and equipment 11,520 9,612 9,509
Investment property 6,200 5,160 5,160
Right-of-use assets 3,923 2,445 1,261
Investments in equity instruments 1,299 1,343 1,299
Deferred tax asset 4,444 5,444 3,103
================================== ===== ============= ============ =============
72,083 49,793 43,155
================================== ===== ============= ============ =============
Current assets
================================== ===== ============= ============ =============
Trade and other receivables 9 40,623 38,137 38,970
Prepayments 4,190 4,381 3,656
Accrued income 38,358 41,990 38,808
Tax receivable - - 400
Cash and cash equivalents 16 113,045 97,064 108,302
Assets held for sale - - 310
================================== ===== ============= ============ =============
196,216 181,572 190,446
================================== ===== ============= ============ =============
Total assets 268,299 231,365 233,601
================================== ===== ============= ============ =============
Current liabilities
================================== ===== ============= ============ =============
Trade payables and accruals (44,529) (43,884) (52,348)
Dividend payable 7 (20,135) (18,740) -
Deferred income (40,860) (33,541) (37,087)
Current tax liabilities (5,145) (3,844) -
Lease liabilities (1,042) (893) (794)
Provisions (101) (421) (341)
Other tax and social security (14,746) (10,036) (12,068)
================================== ===== ============= ============ =============
(126,558) (111,359) (102,638)
================================== ===== ============= ============ =============
Non-current liabilities
----- ------------- ------------ -------------
Provisions (1,359) (1,026) (1,031)
Lease liabilities (3,015) (1,715) (585)
================================== ===== ============= ============ =============
(4,374) (2,741) (1,616)
================================== ===== ============= ============ =============
Total liabilities (130,932) (114,100) (104,254)
================================== ===== ============= ============ =============
Net assets 137,367 117,265 129,347
================================== ===== ============= ============ =============
Equity
================================== ===== ============= ============ =============
Share capital 14 625 619 623
Share premium account 8,658 6,524 6,567
Capital reserve 3,548 3,548 3,548
Share-based payment reserve 27,980 19,152 23,394
Translation reserve 490 2,005 1,030
Retained earnings 96,066 85,417 94,185
================================== ===== ============= ============ =============
Total equity 137,367 117,265 129,347
================================== ===== ============= ============ =============
Condensed consolidated statement of changes in equity for the
six months ended 30 September 2023
Share Share Capital Share-based Translation Retained Total
capital premium reserve payment reserve earnings equity
reserve
(GBP000s)
(GBP000s) (GBP000s)
(GBP000s) (GBP000s) (GBP000s) (GBP000s)
============================= ============= ========== ========== =========== =========== ========== ==========
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
===================================== ===== ========== ========== =========== =========== ========== ==========
Profit for the period - - - - - 19,782 19,782
===================================== ===== ========== ========== =========== =========== ========== ==========
Other comprehensive income - - - - (975) - (975)
===================================== ===== ========== ========== =========== =========== ========== ==========
Total comprehensive income
for the period - - - - (975) 19,782 18,807
===================================== ===== ========== ========== =========== =========== ========== ==========
Equity settled share-based
payment - - - 4,242 - - 4,242
===================================== ===== ========== ========== =========== =========== ========== ==========
Current tax for equity-settled
share-based payments - - - - - 197 197
===================================== ===== ========== ========== =========== =========== ========== ==========
Deferred tax for equity-settled
share-based payments - - - - - (1,517) (1,517)
===================================== ===== ========== ========== =========== =========== ========== ==========
Issue of share capital -
share options exercised 4 43 - - - - 47
===================================== ===== ========== ========== =========== =========== ========== ==========
Dividends - - - - - (9,694) (9,694)
===================================== ===== ========== ========== =========== =========== ========== ==========
Balance at 31 March 2023
(audited) 623 6,567 3,548 23,394 1,030 94,185 129,347
===================================== ===== ========== ========== =========== =========== ========== ==========
Profit for the period - - - - - 22,126 22,126
===================================== ===== ========== ========== =========== =========== ========== ==========
Other comprehensive income - - - - (540) - (540)
===================================== ===== ========== ========== =========== =========== ========== ==========
Total comprehensive income
for the period - - - - (540) 22,126 21,586
===================================== ===== ========== ========== =========== =========== ========== ==========
Equity settled share-based
payment - - - 4,586 - - 4,586
===================================== ===== ========== ========== =========== =========== ========== ==========
Current tax for equity-settled
share-based payments - - - - - 326 326
===================================== ===== ========== ========== =========== =========== ========== ==========
Deferred tax for equity-settled
share-based payments - - - - - (436) (436)
===================================== ===== ========== ========== =========== =========== ========== ==========
Issue of share capital -
share options exercised 2 2,091 - - - - 2,093
===================================== ===== ========== ========== =========== =========== ========== ==========
Dividends - - - - - (20,135) (20,135)
===================================== ===== ========== ========== =========== =========== ========== ==========
Balance at 30 September
2023 (unaudited) 625 8,658 3,548 27,980 490 96,066 137,367
===================================== ===== ========== ========== =========== =========== ========== ==========
Consolidated statement of cash flows for the six months ended 30
September 2023
6 months to 6 months 12 months
to to
30 Sep 2023 30 Sep 2022 31 Mar 2023
(unaudited) (unaudited) (audited)
(GBP000s) (GBP000s) (GBP000s)
==================================== ================= ===============
Cash flows from operating activities
================================================== =========== =========== =============
Profit for the period 22,126 21,863 41,645
================================================== =========== =========== ===============
Adjustments for:
================================================== =========== =========== ===============
Finance income (1,764) (356) (1,463)
================================================== =========== =========== ===============
Finance expense 76 28 71
================================================== =========== =========== ===============
Tax expense 8,735 5,660 12,693
================================================== =========== =========== ===============
Share-based payment expense 2,896 2,697 6,346
================================================== =========== =========== ===============
Depreciation of property, plant and
equipment 1,276 1,105 2,249
================================================== =========== =========== ===============
Depreciation of right-of-use assets 433 638 1,163
================================================== =========== =========== ===============
Amortisation of intangible assets 3,222 1,472 2,642
================================================== =========== =========== ===============
Gain on disposal of property, plant
and equipment (1,114) - -
================================================== =========== =========== ===============
Increase in fair value of investment
property (1,040) - -
================================================== =========== =========== ===============
Post-acquisition remuneration settled
by shares 1,365 1,716 3,200
================================================== =========== =========== ===============
Increase/(decrease) in provisions 88 (683) (758)
================================================== =========== =========== ===============
Operating cash flows before movements
in working capital 36,299 34,140 67,788
================================================== =========== =========== ===============
Increase in trade and other receivables (2,127) (3,072) (3,380)
================================================== =========== =========== ===============
(Decrease)/increase in trade and other
payables (3,156) (6,095) 8,076
================================================== =========== =========== ===============
Cash generated from operating activities 31,016 24,973 72,484
================================================== =========== =========== ===============
Income taxes paid (4,480) (4,171) (10,585)
================================================== =========== =========== ===============
Net cash from operating activities 26,536 20,802 61,899
================================================== =========== =========== ===============
Cash flows from investing activities
================================================== =========== =========== ===============
Interest received 1,764 356 1,463
================================================== =========== =========== =============
Purchases of property, plant and equipment (3,287) (1,010) (2,499)
================================================== =========== =========== =============
Proceeds from sale of property 1,424 - -
================================================== =========== =========== ===============
Acquisition of subsidiaries net of
cash acquired (23,338) - -
================================================== =========== =========== =============
Net cash used in investing activities (23,437) (654) (1,036)
================================================== =========== =========== =============
Cash flows from financing activities
================================================== =========== =========== =============
Dividends paid - - (28,434)
================================================== =========== =========== =============
Interest paid (76) (28) (71)
================================================== =========== =========== =============
Repayment of lease liabilities (424) (623) (1,075)
================================================== =========== =========== =============
Proceeds on issue of shares 2,093 91 138
================================================== =========== =========== =============
Net cash from/(used) in financing
activities 1,593 (560) (29,442)
================================================== =========== =========== =============
Net increase in cash and cash equivalents 4,692 19,588 31,421
================================================== =========== =========== =============
Cash and cash equivalents at start
of period 108,302 76,609 76,609
================================================== =========== =========== =============
Effect of exchange rate fluctuations
on cash held 51 867 272
================================================== =========== =========== =============
Cash and cash equivalents at end of
period 113,045 97,064 108,302
================================================== =========== =========== =============
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 2023 comprise the Company and its
subsidiaries (together the "Group"). The nature of the Group's
operations and its principal activities are set out in the Group
business review.
These statements have not been audited but have been reviewed by
the Group's auditor pursuant to International Standard on Review
Engagements (UK) 2410 "Review of Interim Financial Information
Performed by the Independent Auditor of the Entity" issued by the
Financial Reporting Council.
These condensed consolidated financial statements were approved
for issue on 10 November 2023.
2. Basis of preparation
The condensed consolidated financial statements for the six
months ended 30 September 2023 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 2023 ('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 2023 have been filed with the registrar of
companies and can be found on the Group's website. The auditor's
report on those accounts was unqualified, did not contain an
emphasis of matter paragraph and did not contain any statement
under Section 498(2) or (3) of the Companies Act 2006.
The annual statements of Kainos Group plc are prepared in
accordance with UK-adopted International Accounting Standards.
Going concern
Having reviewed the future plans and projections for our
business and our current financial position, the Directors believe
that we are well placed to manage our business risks successfully.
We have adequate financial resources, no borrowings, a good level
of recurring revenue, and a broad spread of customers.
At 31 March 2023, the Directors assessed the Group's viability
over a longer period to March 2026. 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 a consequence of these factors and having reviewed the
forecasts for the coming year, the Directors have a reasonable
expectation that we have adequate resources to continue in
operational existence for the foreseeable future, a period of not
less than 12 months from the date of this Interim Report. For this
reason, we continue to adopt the going concern basis of accounting
in preparing our financial statements.
3. Significant accounting policies
Except for as detailed below, the accounting policies,
presentation and methods of computation applied by the Group in
these condensed consolidated financial statements are the same as
those applied in the Group's latest audited annual consolidated
financial statements for the year ended 31 March 2023. No newly
introduced standard or amendments to standards had a material
impact on the condensed financial statements. The Group has not
early adopted any other standard, interpretation or amendment that
has been issued but is not yet effective.
Income tax
The policy for recognising and reassessing income taxes in the
interim period is consistent with that applied in the previous
period as described in note 6.
4. Critical accounting judgements and key sources of estimation uncertainty
The preparation of interim financial statements requires
management to make judgements, estimates and assumptions that
affect the application of accounting policies and the reported
amounts of assets and liabilities, income and expense. Actual
results may differ from these estimates.
In preparing these condensed consolidated financial statements,
apart from as detailed below, 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 20 23.
RapidIT-Cloudbera Acquisition
The acquisition of RapidIT-Cloubdbera ("RIC") resulted in the
purchase of a US based entity ("RIC USA") and the transfer of over
70 staff from a company registered in India ("RIC India") that was
under the control of the majority shareholders of RIC USA, to a
newly formed company set up by Kainos ("Kainos India"). The
individuals transferring from RIC India worked solely under the
direction of RIC USA and the transfer of employment was completed
within 5 business days of the incorporation of Kainos India. An
amount was held in escrow on acquisition date in accordance with
the purchase agreement to facilitate the transfer of employment to
Kainos India. The amount payable to the vendors would have been
reduced had the number of employees joining Kainos India fallen
below a threshold. The amount was payable in full had Kainos India
not been incorporated within the 120-day period. There were no
other conditions required to be met to facilitate the release of
this amount.
It is our view that the transfer of employees was solely to
facilitate the successful acquisition of the entire RIC business,
was administrative in nature and there was no substantive
requirement for post-acquisition services. As such, our accounting
judgement is that the $6.0 million amount initially held in escrow
and paid in full by the date of these financial statements, should
be reflected as purchase consideration rather than post-acquisition
services.
5. Segment reporting
All our revenue for the six-month period to 30 September 2023
was derived from continuing operations.
The Group's Executive Directors are considered to be the Chief
Operating Decision Maker ('CODM') of the Group. They use internal
management reports to assess both performance and strategy of the
Group and the three specialist business areas: Digital Services,
Workday Services and Workday Products.
The following is an analysis of the Group's revenue and results
by reportable segment :
2023
6 months to 30 September Workday
(unaudited)
Workday Products
Digital Services Services Total
(GBP000s) (GBP000s) (GBP000s) (GBP000s)
=========================== ================= =========== ============ ===========
Revenue 109,209 57,294 26,746 193,249
=========================== ================= =========== ============ ===========
Cost of sales (68,068) (25,886) (6,503) (100,457)
=========================== ================= =========== ============ ===========
Gross profit 41,141 31,408 20,243 92,792
=========================== ================= =========== ============ ===========
Direct expenses( [6] () (12,359) (18,061) (13,657) (44,077)
=========================== ================= =========== ============ ===========
Contribution 28,782 13,347 6,586 48,715
=========================== ================= =========== ============ ===========
Central overheads( (6) (12,551)
=========================== ================= =========== ============ ===========
Net finance expense 1,688
=========================== ================= =========== ============ ===========
Adjusted profit before tax 37,852
=========================== ================= =========== ============ ===========
Share-based payment expense and related costs (2,896)
========================================================================= ===========
Amortisation of acquired intangible assets (3,222)
========================================================================= ===========
Compensation for post-combination services (2,664)
========================================================================= ===========
Acquisition-related expenses (363)
========================================================================= ===========
Increase in fair value of investment property and gain
on sale of property 2,154
========================================================================= ===========
Profit before tax 30,861
========================================================================= ===========
2022
6 months to 30 September Workday
(unaudited)
Workday Products
Digital Services Services Total
(GBP000s) (GBP000s) (GBP000s) (GBP000s)
=========================== ================= =========== ============ ===========
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( (6) (12,516) (17,496) (9,950) (39,962)
=========================== ================= =========== ============ ===========
Contribution 29,801 7,954 6,067 43,822
=========================== ================= =========== ============ ===========
Central overheads( (6) (10,129)
=========================== ================= =========== ============ ===========
Net finance expense 328
=========================== ================= =========== ============ ===========
Adjusted profit before tax 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
========================================================================= ===========
2023 Workday
12 months to 31 March Digital Workday Products
Services Services Total
(audited) (GBP000s) (GBP000s) (GBP000s) (GBP000s)
=========================== =========== =========== ============ ===========
Revenue 224,384 105,741 44,682 374,807
=========================== =========== =========== ============ ===========
Cost of sales (138,798) (48,406) (10,448) (197,652)
=========================== =========== =========== ============ ===========
Gross profit 85,586 57,335 34,234 177,155
=========================== =========== =========== ============ ===========
Direct expenses(6) (24,326) (36,439) (21,687) (82,452)
=========================== =========== =========== ============ ===========
Contribution 61,260 20,896 12,547 94,703
=========================== =========== =========== ============ ===========
Central overheads(6) (28,536)
=========================== =========== =========== ============ ===========
Net finance income 1,392
=========================== =========== =========== ============ ===========
Adjusted profit before tax 67,559
=========================== =========== =========== ============ ===========
Share-based payments expense and related costs (6,346)
=================================================================== ===========
Amortisation of acquired intangible assets (2,642)
=================================================================== ===========
Compensation for post-combination services (4,176)
=================================================================== ===========
Acquisition-related expenses (57)
=================================================================== ===========
Profit before tax 54,338
=================================================================== ===========
The Group's revenue from external customers by geographic
location is detailed below:
6 months to 6 months to 12 months
to
30 Sep 2023 30 Sep 2022 31 Mar 2023
(unaudited) (unaudited) (audited)
(GBP000s) (GBP000s) (GBP000s)
============================= ==================== ============ ============
United Kingdom & Ireland 118,528 118,721 242,787
============================= ==================== ============ ============
North America 53,076 44,390 95,505
============================= ==================== ============ ============
Central Europe 20,969 16,087 35,262
============================= ==================== ============ ============
Rest of world 676 577 1,253
============================= ==================== ============ ============
193,249 179,775 374,807
============================= ==================== ============ ============
Disaggregation of the Group's revenue is presented in the
following tables:
Digital Workday Workday Total
6 months to Services Services Products
30 September 2023 (unaudited) (GBP000s) (GBP000s) (GBP000s) (GBP000s)
================================ ========== ========== ========== ==========
Type of revenue
==================================================================================
Services 105,727 54,320 1,196 161,243
================================== ========== ========== ========== ==========
Subscriptions - - 25,550 25,550
================================== ========== ========== ========== ==========
Third party & other 3,482 2,974 - 6,456
================================== ========== ========== ========== ==========
109,209 57,294 26,746 193,249
================================ ========== ========== ========== ==========
Digital Workday Workday Total
6 months to Services Services Products
30 September 2022 (unaudited) (GBP000s) (GBP000s) (GBP000s) (GBP000s)
==================================== ==== ========== ========== ========== ==========
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 Workday Workday Total
12 months to Services Services Products
31 March 2023 (audited) (GBP000s) (GBP000s) (GBP000s) (GBP000s)
========================== ========== ========== ========== ==========
Type of revenue
============================================================================
Services 217,490 98,961 1,625 318,076
============================ ========== ========== ========== ==========
Subscriptions - - 43,057 43,057
============================ ========== ========== ========== ==========
Third party & other 6,894 6,780 - 13,674
============================ ========== ========== ========== ==========
224,384 105,741 44,682 374,807
========================== ========== ========== ========== ==========
6 months to 6 months to 12 months
to
30 Sep 2023 30 Sep 2022 31 Mar 2023
(audited)
(unaudited) (unaudited) (GBP000s)
(GBP000s) (GBP000s)
================= ============= ============ ============
Digital Services
================= ============= ============ ============
Public 72,979 62,276 136,951
================= ============= ============ ============
Commercial 15,801 18,682 37,782
================= ============= ============ ============
Healthcare 20,429 29,514 49,651
================= ============= ============ ============
109,209 110,472 224,384
================= ============= ============ ============
Workday Services
================= ============= ============ ============
Public 15 83 167
================= ============= ============ ============
Commercial 57,273 48,149 105,423
================= ============= ============ ============
Healthcare 6 131 151
================= ============= ============ ============
57,294 48,363 105,741
================= ============= ============ ============
Workday Products
================= ============= ============ ============
Public - 892 891
================= ============= ============ ============
Commercial 26,705 19,471 43,171
================= ============= ============ ============
Healthcare 41 577 620
================= ============= ============ ============
26,746 20,940 44,682
================= ============= ============ ============
Group
================= ============= ============ ============
Public 72,994 63,251 138,009
================= ============= ============ ============
Commercial 99,779 86,302 186,376
================= ============= ============ ============
Healthcare 20,476 30,222 50,422
================= ============= ============ ============
Total 193,249 179,775 374,807
================= ============= ============ ============
6. Income tax expense
The estimate of the provision of income taxes which is
determined in the interim financial statements uses the estimated
average annual effective income tax rate applied to the profit
before tax of the interim period, adjusted for the tax effect of
certain items recognised in full in the interim period. As such,
the effective tax rate in the interim financial statements may
differ from management's estimate of the effective tax rate for the
annual financial statements.
The total tax charge for the six months ended 30 September 2023
is GBP8.7 million (H1 23: GBP5.7 million). This tax charge equates
to an effective tax rate of 28% (H1 23: 21%).
The effective tax rate of 28% is higher than prior year (21%)
due to the following factors;
-- The UK corporation tax rate increased to 25% (H1 23: 19%), effective 1 April 2023.
-- Increased profits subject to tax at higher overseas rates.
-- Acquisition related costs which are non-deductible for tax
purposes incurred during the period to 30 September 2023.
The expected annual tax rate for the year to 31 March 2024 is
27% (31 March 2023: 21%).
7. Dividends
The dividends declared and paid in the periods covered by these
condensed consolidated financial statements are detailed below:
6 months 6 months 12 months
to to 30 Sep to
2022
30 Sep 2023 (unaudited) 31 Mar 2023
(unaudited) (GBP000s) (audited)
(GBP000s) (GBP000s)
==================================== ============= ============ ============
Amounts recognised as distributions
to equity holders in the period:
==================================== ============= ============ ============
Final dividend for 2023 of 16.1p
per share 20,135 - -
==================================== ============= ============ ============
Interim dividend for 2023 of 7.8p
per share - - 9,702
==================================== ============= ============ ============
Final dividend for 2022 of 15.1p
per share - 18,740 18,732
==================================== ============= ============ ============
20,135 18,740 28,434
==================================== ============= ============ ============
A final dividend of 16.1 pence per share for the year ended 31
March 2023 was paid on 20 October 2023 to shareholders on the
register at the close of business on 29 September 2023, with an
ex-dividend date of 28 September 2023. This dividend was declared
following approval by the shareholders of the Company by ordinary
resolution at the Company's Annual General Meeting on 21 September
2023 and a liability for payment of the dividend of GBP20.1 million
has therefore been recognised in these condensed consolidated
financial statements.
An interim dividend of 8.2 pence per share has been declared for
the six months to 30 September 2023 which amounts to GBP10.3
million. This will be paid on 15 December 2023 to shareholders on
the register at the close of business on 24 November 2023, with an
ex-dividend date of 23 November 2023. 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 6 months to 12 months
to 30 Sep 30 Sep 2022 to 31 Mar
2023 2023
(unaudited) (unaudited) (audited)
(GBP000s) (GBP000s) (GBP000s)
================================ === ================
Profit for the period 22,126 21,863 41,645
=========================================== ========== ============ ==========
Thousands Thousands Thousands
=========================================== ========== ============ ==========
Issued ordinary shares at 1 April 124,628 124,078 124,078
=========================================== ========== ============ ==========
Effect of shares held in trust (757) (760) (786)
=========================================== ========== ============ ==========
Effect of share options vested and
exercised 497 360 392
=========================================== ========== ============ ==========
Effect of shares issued related
to a business combination 86 - 18
=========================================== ========== ============ ==========
Effect of shares issued related
to free share awards - - 99
=========================================== ========== ============ ==========
Weighted average number of ordinary
shares 124,454 123,678 123,801
=========================================== ========== ============ ==========
Basic earnings per share 17.8p 17.7p 33.6p
=========================================== ========== ============ ==========
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 6 months to 12 months
to 30 Sep 30 Sep 2022 to 31 Mar
2023 2023
(unaudited) (unaudited) (audited)
(GBP000s) (GBP000s) (GBP000s)
============= ======================== =============
Profit for the period 22,126 21,863 41,645
======================================= ============= ============ ==========
Thousands Thousands Thousands
======================================= ============= ============ ==========
Weighted average number of ordinary
shares (basic) 124,454 123,678 123,801
======================================= ============= ============ ==========
Effect of share options in issue 667 728 758
======================================= ============= ============ ==========
Effect of shares held in trust 757 760 786
======================================= ============= ============ ==========
Effect of potential shares to
be issued related to a business
combination 223 490 299
======================================= ============= ============ ==========
Weighted average number of ordinary
shares (diluted) 126,101 125,656 125,644
======================================= ============= ============ ==========
Diluted earnings per share 17.5p 17.4p 33.1p
======================================= ============= ============ ==========
The average market value of the Company's shares for the purpose
of calculating the dilutive effect of share options was based on
quoted market prices for the period during which the options were
outstanding.
At 30 September 2023, 86,590 options (H1 23: 393,624) were
excluded from the diluted weighted average number of ordinary
shares calculation because their effect would have been
anti-dilutive.
Adjusted
Adjusted basic and adjusted diluted earnings per share is
calculated using the adjusted profit for the period measure. The
calculation of adjusted profit for the period is detailed in the
Financial review section of this report.
6 months to 6 months 12 months
to to
30 Sep 2023 30 Sep 2022 31 Mar 2023
(unaudited) (unaudited) (unaudited)
(GBP000s) (GBP000s) (GBP000s)
============= ======================== =============
Adjusted profit for the period 27,858 27,687 53,406
======================================= ============= ============ ============
Thousands Thousands Thousands
======================================= ============= ============ ============
Weighted average number of ordinary
shares for the purposes of basic
earnings per share 124,454 123,678 123,801
======================================= ============= ============ ============
Weighted average number of ordinary
shares for the purposes of diluted
earnings per share 126,101 125,656 125,644
======================================= ============= ============ ============
Adjusted basic earnings per
share 22.4p 22.4p 43.1p
======================================= ============= ============ ============
Adjusted diluted earnings per
share 22.1p 22.0p 42.5p
======================================= ============= ============ ============
9. Trade and other receivables
30 Sep 2023 30 Sep 2022 31 Mar 2023
(unaudited) (unaudited) (audited)
(GBP000s) (GBP000s) (GBP000s)
=================================== ============== ============ ===========
Trade receivables 32,277 34,868 35,693
==================================== ============= ============ ===========
Other receivables 8,346 3,269 3,277
==================================== ============= ============ ===========
40,623 38,137 38,970
==================================== ============= ============ ===========
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 2023 30 Sep 2022 31 Mar 2023
(unaudited) (unaudited) (audited)
Cost (GBP000s) (GBP000s) (GBP000s)
=========================================== ============== ============ ===========
1 April 19,007 18,765 18,765
============================================ ============= ============ ===========
Acquisitions through business combinations 18,629 - -
============================================ ============= ============ ===========
Effect of movement in exchange rates 561 1,529 242
============================================ ============= ============ ===========
At end of period 38,197 20,294 19,007
============================================ ============= ============ ===========
Accumulated impairment losses
============================================ ============= ============ ===========
At beginning and end of period - - -
============================================ ============= ============ ===========
Carrying amount
============================================ ============= ============ ===========
At end of period 38,197 20,294 19,007
============================================ ============= ============ ===========
At beginning of period 19,007 18,765 18,765
============================================ ============= ============ ===========
12. Intangible assets
30 Sep 2023 30 Sep 2022 31 Mar 2023
(unaudited) (unaudited) (audited)
Cost (GBP000s) (GBP000s) (GBP000s)
================================== ================== ============ ===========
1 April 8,784 8,340 8,340
============================================== ====== ============ ===========
Acquisitions through business combinations 5,777 - -
============================================== ====== ============ ===========
Effect of movement in exchange rates 218 1,288 444
============================================== ====== ============ ===========
At end of period 14,779 9,628 8,784
============================================== ====== ============ ===========
Accumulated amortisation and impairment
losses
============================================== ====== ============ ===========
1 April 4,968 2,347 2,347
============================================== ====== ============ ===========
Amortisation for the period 3,222 1,472 2,642
============================================== ====== ============ ===========
Effect of movement in exchange rates 89 314 (21)
============================================== ====== ============ ===========
At end of period 8,279 4,133 4,968
============================================== ====== ============ ===========
Carrying amount
============================================== ====== ============ ===========
At end of period 6,500 5,495 3,816
============================================== ====== ============ ===========
At beginning of period 3,816 5,993 5,993
============================================== ====== ============ ===========
The useful economic life of the customer relationship intangible
asset, recognised on the acquisition of Blackline Group, was
reviewed during the period. Previously assessed as seven years, the
useful economic life was reassessed as two years. The effect of the
decrease in the useful economic life resulted in an increase in the
amortisation expense, included in 'operating expenses', during the
period. A total amortisation charge of GBP2.6 million has been
recognised in the period, which includes GBP2.3 million accelerated
amortisation as a result of this change.
13. Related party transactions
There have been no related party transactions during the six
months to 30 September 2023 that have materially affected the
financial position or performance of the Group.
580 share options were exercised by Directors during the period
(H1 23: nil). The total gain arising on the exercise of options was
GBP3,923.
All related party transactions are materially consistent with
those disclosed by the Group in its financial statements for the
year ended 31 March 2023.
14. Issue of ordinary shares
During the six months ended 30 September 2023, the Group issued
386,596 ordinary shares (H1 23: 33,129 shares) due to the exercise
of vested options. The exercise price of options exercised in the
period ranged from GBP0.005 per share to GBP7.35 per share (H1 23:
GBP0.005 to GBP7.35).
The Group issued 103,795 ordinary shares in respect of
post-acquisition remuneration (H1 23: nil).
All ordinary shares were issued with a nominal value of GBP0.005
each.
15. Acquisitions
On 30 June 2023, the Group acquired 100% of the share capital of
US based RapidIT-Cloudbera, Inc. ("RapidIT-Cloudbera").
Established in 2017, RapidIT-Cloudbera is the creator of Genie,
a Workday-focused automated testing product which has the ability
to rapidly auto-generate test cases, allowing customers to quickly
launch their automated testing efforts. Genie is used by over 100
organisations to streamline their testing activity.
The skills and knowledge of the RapidIT-Cloudbera team will
allow us to accelerate our product development, increasing the
functionality of our market-leading automated testing product,
Smart Test and enable us to quickly bring new products to the
market.
From 30 June 2023, RapidIT-Cloudbera has contributed revenue of
GBP0.8 million and GBP0.1 million loss for the period. If the
acquisition had occurred on 1 April 2023, management estimates that
consolidated revenue for the six months ended 30 September 2023
would have been GBP193.9 million and consolidated profit for the
period would have been GBP22.0 million.
The following table summarises the recognised amounts of assets
and liabilities assumed at the acquisition date. Due to the close
proximity of the acquisition date and the reporting date, the
finalisation of the fair value of the assets acquired and
liabilities assumed at the acquisition date, including fair value
of intangible assets and any associated deferred tax, has not been
finalised at the reporting date. Accordingly, the amounts in the
table below have been determined on a provisional basis and amounts
including goodwill are subject to change following completion of
the fair value assessment.
Provisional
Fair value
(unaudited)
(GBP000s)
=========== ========================================== ===== =============
Cash and cash equivalents 340
============================================ ========= ====================
Trade and other receivables 281
============================================ ========= ====================
Intangible assets 5,777
================================ ========== ===================================
Trade and other payables (1,349)
============================================ ========= ====================
Fair value of net identifiable assets 5,049
============================================ ========= ====================
Goodwill 18,629
============================================ ========= ====================
Total consideration 23,678
============================================ ========= ====================
(unaudited)
Satisfied by: (GBP000s)
============================================ ========= ===== =============
Cash 23,678
======================================================= ===== =============
Total consideration 23,678
======================================================= ===== =============
(unaudited)
(GBP000s)
========== === ================================================ ============
Cash consideration 23,678
=========================================== ==================== ============
Less cash and equivalents acquired (340)
=========================================== ==================== ============
Net cash outflow 23,338
======================================================= ======== ============
Goodwill
Goodwill has arisen on the acquisition and reflects the future
economic benefits arising from assets that are not capable of being
identified individually and recognised as separate assets and is
pending finalisation of the fair value of the assets acquired and
liabilities assumed at the acquisition date. The goodwill reflects
the skilled and assembled workforce of the acquired entity and the
anticipated profitability and synergistic benefits arising from the
combination. None of the goodwill recognised is expected to be
deductible for tax purposes.
Acquisition related costs
The Group incurred acquisition related costs of GBP0.4 million
on legal and due diligence costs. These costs have been included in
operating expenses.
Compensation for post-combination services
In respect of all acquisitions of the Group, additional
compensation for post-combination services of up to GBP7.4 million
(H1 23: GBP9.2 million) will be payable in future periods to March
2026, subject to future service conditions being met. Amounts
relating to compensation for post-combination services are
recognised as an expense over the service period. During the
period, a charge of GBP2.7 million (H1 23: GBP2.3 million) has been
recognised for compensation for post-combination services in
operating expenses. Of this amount GBP1.4 million (H1 23: GBP1.8
million) relates to share-based payment arrangements and has been
credited to equity.
16. Cash and cash equivalents
In connection with the Group's insurance arrangements, the Group
has an insurance cell within a protected cell company. To satisfy
regulatory requirements, GBP2.5 million (H1 23: nil), included
within cash and cash equivalents, must be kept by the Group in a
bank account. The Group has full access to this bank account and
funds can be withdrawn without penalty.
17. Subsequent events
Subsequent to 30 September 2023, the Company paid the final
dividend of GBP20.1 million in respect of the year ended 31 March
2023, declared at the Annual General Meeting on 21 September 2023,
to shareholders on 20 October 2023, 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 2023 ("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
10 November 2023
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
2023 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 2023 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 2023 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 10 November 2023
Chartered Accountants
The Soloist Building
1 Lanyon Place
Belfast
BT1 3LP
([1]) Further detail, including associated expenses recognised
in the period, is contained within the Workday Services review on
Page 13.
( [2] ) During this reporting period we moved from a
proprietary, five-point rating system ('Poor', 'Satisfactory',
'Good', 'Very Good' or 'Excellent') to the established industry
measure, Net Promoter Score. 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.
( [3] ) The Financial review section includes reconciliations
between adjusted pre-tax profit and profit before tax numbers.
( [4] () The report can be accessed via GOV.UK, or by using this
link .
([5]) Workday, Inc.
([6]) Direct expenses plus central overheads plus balances below
adjusted profit equals the sum of operating expenses plus
impairment losses and reversals on trade receivables and accrued
income and fair value movements on investment property. Direct
expenses are expenses that are directly attributable to each
division.
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END
IR NKBBBDBDDBDD
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November 13, 2023 02:00 ET (07:00 GMT)
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