# Kainos Group Plc reports strong product growth, weaker services - Link: https://www.directorstalkinterviews.com/kainos-group-plc-reports-strong-product-growth-weaker-services/4121197214 - Published: 2025-05-19T08:20:25+01:00 - Author: Amilia Stone **Kainos Group plc **(LON:KNOS), a UK-headquartered IT provider with expertise across three divisions – Digital Services, Workday Services and Workday Products, has announced its results for the year ended 31 March 2025. **Financial highlights** | ** ** | **2025** | **2024** | **Change** | | **Revenue** | £367.2m | £382.4m | -4% | | **Statutory profit before tax** | £48.6m | £64.8m | -25% | | **Adjusted pre-tax profit^([1])** | £65.6m | £77.2m | -15% | | **Diluted earnings per share** | 28.2p | 38.6p | -27% | | **Adjusted diluted earnings per share** | 38.3p | 46.5p | -18% | | **Total dividend per share** | 28.4p | 27.3p | +4% | | **Bookings** | £382.4m | £424.5m | -10% | | **Product Annual Recurring Revenue (ARR)** | £72.6m | £60.5m | +20% | | **Contracted backlog** | £368.2m | £357.1m | +3% | | **Cash^([2])** | £133.7m | £126.0m | +6% | **Results in line with revised expectations, with strong growth in Workday Products revenue more than offset by the tough trading environment in our two services divisions** •   Revenue decreased 4% (-4% organic, -3% ccy) to £367.2 million (2024: £382.4 million). •   Adjusted pre-tax profit was 15% lower (-14% ccy) at £65.6 million, including a £5.2 million investment to support our extended Workday partnership (see Operational Highlights). •   Adjusted profit margin decreased to 18% (2024: 20%). •   Overall bookings fell 10% to £382.4 million (2024: £424.5 million), although activity accelerated in the second half of the year (H1: £179.5 million; H2: £202.9 million). •   Year-end contracted backlog rose 3% to £368.2 million (2024: £357.1 million). •   Cash conversion of 112%^([3]) (2024: 98%) contributed to a strong year-end cash position^((2)) of £133.7 million (2024: £126.0 million), after completing £22.6 million of our £30.0 million share buyback programme. •   The share buyback programme completed on 9 May 2025 with a total of 3,993,382 shares bought back for consideration of £30.0 million. •   The Board announces intention to launch a further share buyback programme of £30.0 million to be executed over the next six months. **Restructuring for growth: global workforce reduced by 7%** •  In March, we made the difficult decision to reduce our workforce, with 190 people leaving Kainos as part of the organisational changes. •   The restructuring programme was driven by the need to create capacity for investment in product development, AI, data, new partnerships, skills development, targeted recruitment and carefully managed international expansion. •  The workforce reduction resulted in restructuring costs of £8.4 million in FY25. Most affected colleagues had a leaving date of 4 April 2025. • Approximately two-thirds of the estimated £19 million cost savings will be reinvested in the areas outlined above, with the remainder allocated to staff-related cost increases, including pay rises, higher UK National Insurance contributions, and new hires. **Operational highlights** **Workday-related products continued to grow strongly and now account for 19% of Group revenue (2024: 15%). Our enhanced partnership with Workday underpins our £ 100 million 2026 ARR target and our new 2030 target of £200 million** ·   Workday Products revenue was up 24% (26% organic, 26% ccy) to £71.3 million ( 2024: £57.3 million), with ARR increasing by 20% (23% ccy) to £72.6 million (2024: £60.5 million). ·    Growth was driven by strong sales execution across the Smart product suite and the continued success of our Employee Document Management (EDM) product, launched in October 2023. ·   Our new strategic partnership with Workday, announced in July 2024, incentivises its global sales teams to introduce and co-sell both current and future Kainos-developed Workday products. ·    We continued to invest in our products and are on schedule to release our fifth product in late 2025, which will help organisations understand and address pay equality issues, with particular focus on the EU Pay Directive that will be adopted by EU member states in 2026.  ·    During the year, we increased research & development investment by 24% to £ 16.8 million (2024: £13.5 million), all of which was expensed in the period. Sales& marketing spend also rose by 24% to £15.5 million (2024: £12.5 million), including costs relating to the Built on Workday partnership. The multi-year agreement represents an annual investment of £7.8 million, with £5.2 million recognised during FY25 following its activation in July 2024. **Digital Services had a subdued year with customers delaying project-related investment** ·     Digital Services revenue decreased by 7% to £197.2 million (2024: £213.1 million). ·   Public sector revenue declined by 9% to £125.5 million (2024: £138.2 million), reflecting the hiatus caused by the UK General Election and the delays in the new government setting out its longer-term plans to save money and increase efficiency through the continuing digitisation of government services. ·    Within the healthcare sector, revenue was up strongly, with 14% growth to £ 50.6 million (2024: £44.2 million), driven by major digital and data wins with NHS England and UKHSA, alongside continued growth across other arm’s-length bodies and devolved administrations. ·    Commercial sector revenue continued to be affected by weak economic conditions and was 32% lower at £21.0 million (2024: £30.8 million). **Softer market conditions and increased competition affected Workday Services revenue, with opportunity for further international expansion into Asia Pacific** ·   We are the leading pan-European Workday consulting specialist and the eighth largest by certified consultant numbers globally. We have extended our Workday Services activities to Asia Pacific, winning our first contracts in Australia and New Zealand in the second half of the year. ·    Despite continued strong win rates and high customer satisfaction, lower contract volumes and values – alongside aggressive pricing in some areas due to increased competition from new partners – resulted in a 12% decline in revenue (-10% ccy) to £98.7 million (2024: £112.0 million), with bookings of £84.6 million (2024: £ 116.5 million). ·   On a like-for-like basis, revenue was 8% lower, after adjusting prior year revenue for discontinued procurement consulting services associated with Blackline Group, which we acquired in 2022. We ceased providing these services in FY24. **We continue to benefit from our geographical breadth, with international markets generating 41% of Group revenue (2024: 39%)** ·     International revenue was in line with last year at £149.9 million (2024: £149.8 million). ·    Our Workday Products and Workday Services divisions have particularly strong international positions, collectively generating 81% of their revenues from these customers (2024: 81%). **Excellent customer service drives customer satisfaction and retention** •  Our customers continued to rate our services as ‘excellent’, with a Net Promoter Score of 70^([4]) (2024: 58). •  Existing customers generated revenue of £299.4 million (2024: £345.8 million). •  Customer numbers increased to 1,094 (2024: 930)^([5]).  **The commitment and engagement of our colleagues underpins our business performance** •  We have more than 2,800 people (2024: 2,995) across 20 countries, with our employee retention remaining strong at 93% (2024: 93%). •   Engagement levels remain high, measuring 75% (2024: 78%) in our internal surveys, and we were ranked 14^(th) in Glassdoor’s ’50 Best Places To Work in the UK’, up from 32^(nd) in 2024. •   As noted earlier, we recently completed a restructuring exercise that directly affected 190 colleagues. We are now focused on internal efforts to strengthen engagement across the organisation. **Continued growth in our AI business, with revenues growing 61%, as we help customers harness the potential of AI** •   Revenues for AI and related projects increased 61% to £41.1 million (2024: £ 25.6 million) and now represent 21% of our Digital Services revenues. •   To date, we have delivered over 250 AI & Data projects across the public, healthcare, and commercial sectors, including 88 in the period. •   Since 2018, Kainos has been the 5th largest supplier of AI to the UK Public Sector, with over £61 million in awarded contracts. •   We now have more than 250 AI professionals across the organisation, accelerating innovation and delivery for our customers. •   We launched a Microsoft AI Centre of Excellence to accelerate customer adoption of AI, building on our Microsoft AI Partner of the Year recognition and deep sector expertise. •   Kainos has 3 of the 20 AI solutions available on the Workday Marketplace, reflecting our leadership in delivering trusted, Workday-approved innovation. **Current trading and outlook** •   Following a challenging first half of the financial year, we are pleased to have delivered against our revised expectations, supported by an improved final quarter performance which recorded low single-digit percentage revenue growth. •   Looking ahead, we remain confident in the opportunities for digital transformation, as public, healthcare, and commercial organisations increasingly seek to harness technology – including AI – to improve services for users while reducing the cost of delivery. •   While the long-term drivers in our market remain strong, and our near-term performance is supported by a healthy pipeline, a significant contracted backlog, and a strong balance sheet, we believe it is prudent to maintain our cautious stance given continued volatility in the global macroeconomic environment. •   In considering FY26, we expect the following: –     Continued momentum in Workday Products, driven by our Built on Workday partnership, with significant progress towards our ARR milestones of £100 million (2026) and £200 million (2030). –     Ongoing recovery in Digital Services, led by our public sector and healthcare segments, with the upcoming UK Government Comprehensive Spending Review announcement expected to influence the timing and pace of future demand. –     In Workday Services, market-related pressures are easing, and we are encouraged by signs of recovery and stronger international activity, including recent wins in Australia and New Zealand. •   More generally, we continue to see opportunities in smaller but faster-growing areas, including AI, data, low-code development and building custom Workday applications through our Workday Extend capabilities. > **Commenting on the results, Brendan Mooney said:** > “Our results reflect a mixed year for Kainos, with strong growth in Workday Products > and in our healthcare sector, set against broader market challenges in IT services– > particularly in Workday Services and in the public and commercial sectors of Digital > Services. > We remain grateful for the trust our customers place in us to deliver their critical > transformation initiatives. The economic backdrop has affected them and for many, > the focus has been on maintaining investment in critical transformation programmes. > For others, it has led to reductions or delays in technology expenditure as they > navigate an ever-changing business environment.  > We delivered an improved business performance in the final quarter, where we recorded > low single-digit percentage revenue growth, which allows us to look ahead with > greater confidence, despite the ongoing volatility in the macroeconomic environment. > We are excited about the opportunity for our Workday Products division. Another > year of excellent performance has positioned us strongly to meet our initial ARR > target of £100 million during 2026. We expect to launch our fifth product in late > 2025, designed to help organisations understand and address pay equality issues > with particular focus on the EU Pay Directive, which will be adopted by EU member > states in 2026. Additionally, and underpinned by our Built on Workday partnership, > we believe we can increase the frequency of new product releases and make strong > progress toward our ambitious goal of £200 million ARR in 2030. > In Digital Services, following the election-related hiatus and a return to modest > growth in the second half of the year, our public sector business is well positioned > to benefit from the UK Government’s continued focus on digital transformation. > Momentum in healthcare is expected to moderate following the announcement regarding > the disbanding of NHS England, while activity levels in our commercial sector > are anticipated to remain broadly consistent with the past year. > In Workday Services, while demand remained subdued through the second half, we > believe that market-related pressures are beginning to moderate. As a result, > we are cautiously encouraged by early signs of recovery and increasing activity > across our international customer base, including recent wins in Australia and > New Zealand. > AI engagements with our customers continue to evolve rapidly, with experimentation > remaining a key theme throughout the year. We completed over 80 separate engagements, > with larger projects primarily in the public sector – reinforcing our position > as the fifth-largest AI supplier to the UK public sector by contract value since > 2018, behind organisations such as Microsoft and Palantir. > My final words – and my thanks – go to my colleagues. For many years, they have > continuously exhibited their expertise and ability and in recent weeks have also > shown great resilience, especially in the wake of the recent restructuring. Thank > you again for everything you do for Kainos.” Share on: