Kainos half-year margins drop but sales and profit beats expectations

Kainos Group PLC on Monday confirmed it full-year financial guidance, as revenue and profit beat expectations in the first half of the year, despite crimped margins.

London-based Kainos provides IT support to customers across three divisions: Digital Services, Workday Services, and Workday Products.

Its shares were down 8.5% at 1,126.00 pence each in London on Monday morning but remain up more than 20% in the past 12 months. The wider FTSE 250 index was up 0.3% early Monday.

Pretax profit rose 26% to £35.8 million for the six months ended September 30 from £28.4 million a year prior.

Revenue jumped 37% to £268.8 million from £196.1 million, with organic growth of 36%, beating £253.2 million Visible Alpha consensus, cited by Stifel.

Gross margin declined to 43.1% from 48.0% mainly reflecting the increased use of contractors and partners to help scale up major new projects, Kainos said. Contractors and partners have much lower margins than Kainos staff, the firm explained. Kainos increasingly uses partners to win larger contracts where it acts as prime contractor, it explained.

"This strategy leads to lower gross margins but much higher total contract value wins as evidenced in the booking figures," it said.

Bookings grew 27% to £402.3 million in the half year from £317.0 million a year before, while contracted backlog increased 26% to £853.0 million from £679.3 million.

Digital Services "had an excellent six months", Kainos said, with revenue surging 57% to £162.5 million, driven by strong demand from UK government and healthcare clients, although the division's gross margin narrowed by 3.9 percentage points to 31.9%.

Workday Products revenue rose 22% to £48.0 million, with annual recurring revenue reaching £96.0 million, while Workday Services revenue grew 9.0% to £58.3 million.

Workday Products is "firmly on track" to reach its annual recurring revenue targets of £100 million by the end of 2026 and £200 million by the end of 2030, Kainos said.

Adjusted pretax profit increased 30% to £41.7 million in the recent half from £32.0 million a year before, ahead of consensus which growth of 27%.

Diluted earnings per share rose 38% to 23.1 pence from 16.7p, or by 45% to 27.4p from 18.9p on an adjusted basis.

Kainos raised its interim dividend by 6.0% to 10.4p per share from 9.8p.

Looking ahead, Kainos expects further revenue and adjusted pretax profit growth in the second half, in line with current market expectations.

"The group has a substantial, multi-year backlog, a robust balance sheet and a proven strategy, giving us a solid platform for further success," Kainos said.

In August, Kainos said its annual results will be "comfortably ahead" of current market expectations.

At the time, Kainos cited these as adjusted pretax profit of £75.0 million to £84.0 million on revenue of £498.0 million to £514.0 million. This would be up from £67.1 million and £431.1 million in financial 2026.

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