Kainos : Full year results (report)

DocuSign Envelope ID: 13B0A41F-72A4-48F2-A496-AE14035BCBA5

22 May 2023

Full year results for the year ended 31 March 2023

Kainos Group plc 'Kainos' or the 'Group'

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 year ended 31 March 2023.

Financial highlights
	2023	2022	Change
Revenue	£374.8m	£302.6m	+24%
Statutory profit before tax	£54.3m	£46.0m	+18%
Adjusted pre-tax profit	£67.6m	£58.8m	+15%
Cash	£108.3m	£76.6m	+41%
Bookings	£427.8m	£349.8m	+22%
Product Annual Recurring Revenue (ARR)	£47.9m	£34.3m	+40%
Contracted backlog	£322.9m	£259.7m	+24%
Diluted earnings per share	33.1p	28.5p	+16%
Adjusted diluted earnings per share	42.5p	38.1p	+12%
Total dividend per share	23.9p	22.2p	+8%

Operational highlights

We have recorded our 13th consecutive year of growth across a wide range of key metrics. Our very strong business performance reflects robust underlying market demand, high levels of customer engagement and the ongoing commitment of our colleagues.

• Revenue growth of 24% (22% organic) to £374.8 million (2022: £302.6 million).
• Adjusted pre-tax profit increased by 15% to £67.6 million (2022: £58.8 million) reflecting strong underlying performance and increased investment in Workday Products, where product development and sales & marketing expenditure increased by £9.3 million.
• Workday Products revenues ARR increased by 40% to £47.9 million (2022: £34.3 million) representing significant progress towards our 2026 target of £100 million ARR.
• Bookings up 22% to £427.8 million (2022: £349.8 million).
• Contracted backlog growth of 24% to £322.9 million (2022: £259.7 million).
• Cash at 31 March 2023 was £108.3 million (2022: £76.6 million), with cash conversion at
  104% (2022: 83%).

We continue to grow as a global business with over one-third of revenues generated internationally.

• Very strong international growth, up 52% to £132.0 million (2022: £87.0 million), and now representing 35% of total revenue.

Commercial sector customers now generate half our revenues.

• Commercial revenues are up 51% to £186.4 million (2022: £123.8 million), representing 50% of total revenue.
• Public sector revenues up 24% to £138.0 million (2022: £111.0 million) or 37% of revenue.

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• Healthcare revenues, as anticipated, have reduced by 26% to £50.4 million (2022: £67.9 million), which is 13% of total revenue.

We continue to grow a global, talented and engaged team.

• We now have 2,990 people (2022: 2,692) based across 22 countries.
• Our employee retention has increased to 88% (2022: 86%), and engagement levels remain high, measuring 81% 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, underpinning revenue growth.

• Customer approval rating (1) remains high at 99% (2022: 98%).
• Existing customer revenue increased by 26% to £337.6 million (2022: £267.7 million), which represents a Net Revenue Retention of 126%.
• Customer numbers increased to 821 (2022: 731), an increase of 12%.

We continue with our ambition to be a responsible organisation.

• We retained our carbon neutral status in 2023 and remain on track to achieve carbon net zero by 2025.
• Our gender balance improved, with the proportion of women in Kainos increasing to 34% (2022: 33%), well above the industry average of 22%(2) and we remain committed to further improvement.
• We hosted over 1,800 young people on our outreach programmes, including targeted programmes aimed at improving gender diversity, supporting social mobility and for those students with special educational needs.

In Digital Services, we continue to deliver significant digital transformation programmes across the public sector, commercial sector and healthcare.

• This extensive project portfolio has driven strong revenue growth of 12%, with Digital Services revenues increasing to £224.4 million (2022: £199.8 million).
• Customer demand remains strong as digital transformation continues to be a business and political priority.

We continue to be the leading pan-European Workday specialist and during the year we were appointed Workday Phase 1 Prime partner in the US market.

• Workday Services recorded very strong revenue growth of 49% (41% organic) to £105.7 million (2022: £70.9 million).
• Our international expansion continues with North America now representing over half of Workday Services revenues at £55.9 million (2022: £30.4 million) an increase of 84%.

Our Workday-related products, Smart Test, Smart Audit and Smart Shield delivered very strong growth, and we remain on track to achieve our target of £100 million ARR by 2026.

• Workday Products revenues grew 40% to £44.7 million (2022: £31.9 million) and ARR
  increased by 40% to £47.9 million (2022: £34.3 million).
• We continued to invest in our Workday Products, increasing research & development expenditure by 52%, to £9.1 million (2022: £6.0 million) and sales & marketing spend increased 135% to £10.8 million (2022: £4.6 million).

1. Data from all completed customer surveys in the year. There are five possible designations: 'Poor', 'Satisfactory', 'Good', 'Very Good' or 'Excellent'; the rating reflects the percentage of customers that rate our performance 'Good' or better.
2. BCS diversity report 2022: Women in IT.

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Commenting on the results, CEO Brendan Mooney said:

"Our latest results, the eighth as a public company, outline another excellent performance as we once again achieved strong growth in terms of people, customers, revenue and profitability.

Our performance as a business is influenced by many factors, but it is our relationships with our customers and the talents of our colleagues that are the key drivers. The strength and depth of both have continued to grow this year and we are grateful for the trust and confidence that our customers continue to place in Kainos and the expertise, experience, and energy of our colleagues, who have been the driving force behind all that we have achieved.

These results describe our performance over the past twelve months. While we draw a sense of satisfaction from the consistency of our performance, representing the thirteenth consecutive year of growth, our attention is firmly fixed on the future.

The digital transformation market continues to grow in importance for organisations operating in government, in healthcare and in the commercial sector.

This importance is translating into continued demand for the work we do for our customers. Despite the economic uncertainty, there is an urgency for our customers about extending existing projects and starting new projects, as they change the ways they deliver essential services to citizens, patients, customers and employees.

In addition to responding to the needs of our customers we have also been focused on building solid foundations for our business - across the services we offer, the sectors within which we operate and in the regions where we are based.

As a result, our business is becoming increasingly resilient. We work with over 800 organisations, many of whom are international in scale and who operate across a range of industries including healthcare, public sector, banking, insurance, pharmaceuticals and education. From our UK base we have expanded globally, with over one-third of our revenues now generated internationally.

It is all these factors combined - our customers, our people, our consistent performance, the opportunity and the scale and resilience of our business - that underpin the confidence that we have about the future.

Alongside our confidence, we also have a sense of excitement - technology continues to develop at pace and the positive impact it can have on people's lives increases. It is energising to be at the forefront of these developments."

For further information, please contact:

Kainos	via FTI Consulting LLP
Brendan Mooney, Chief Executive Officer
Richard McCann, Chief Financial Officer
Investec Bank plc	[phone]
Patrick Robb / Ben Griffiths
FTI Consulting LLP	[phone]
Matt Dixon / Dwight Burden / Kwaku Aning

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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 350 customers globally to safeguard their Workday systems.

Our people are central to our success. We employ more than 2,900 people in 22 countries across Europe and the Americas.

We are listed on the London Stock Exchange (LSE: KNOS) and you can discover more about

us at www.kainos.com.

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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-taxprofit: 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).

Annual Recurring Revenue (ARR): the value at the end of the accounting period of the software and subscription recurring revenue annualised.

Bookings: the total value of sales contracted during the period.

Carbon net zero: any CO2, released into the atmosphere from a company's entire value chain is reduced as much as possible and the rest is removed.

Carbon neutral: any CO2 released into the atmosphere from a company's entire value chain activities is balanced by an equivalent amount being removed.

Cash conversion: cash generated from operating activities as a percentage of adjusted

EBITDA.

Constant currency (ccy): Excludes the effect of foreign currency exchange rate fluctuations on year-on-year performance by translating the relevant prior year figure at current year average exchange rates.

Contracted backlog: the value of contracted revenue that has yet to be recognised.

Compound annual growth rate (CAGR): annual growth rate over a specified period of time.

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 ones.

Organic revenue: our revenue excluding revenue from acquisitions completed in the current and comparative reporting periods.

Software as a service (SaaS): is a software distribution model that delivers application programs over the Internet, with users typically accessing the program through a web browser. Users pay an ongoing subscription to use the software rather than purchasing it once and installing it.

Science Based Targets initiative (SBTi) - partnership between Carbon Disclosure Project (CDP), the United Nations Global Compact, World Resources Institute (WRI) and the World Wide Fund for Nature (WWF) created to encourage companies to design clearly defined emission reduction plans in line with the Paris Agreement goals.