TIDMKNOS
RNS Number : 4048I
Kainos Group plc
26 November 2018
26 November 2018
Kainos Group plc
("Kainos" or the "Group")
Interim results for the six months ended 30 September 2018
Kainos Group plc (LSE: KNOS), a leading UK-based provider of IT,
consulting and software solutions announces its results for the six
months ended 30 September 2018.
FINANCIAL HIGHLIGHTS
H1 2019 H1 2018 Change
Revenue GBP67.2m GBP41.4m 62%
Adjusted pre-tax profit(1) GBP10.1m GBP7.1m 42%
Profit before tax GBP8.7m GBP6.8m 28%
Cash GBP38.8m GBP27.3m 42%
Sales orders GBP90.2m GBP63.4m 42%
SaaS sales orders GBP6.4m GBP5.3m 21%
Backlog(2) GBP125.6m GBP97.1m 29%
Adjusted diluted earnings per
share(1) 6.6p 4.9p 35%
Diluted earnings per share 5.7p 4.6p 24%
Proposed interim dividend 2.8p 2.0p 40%
OPERATIONAL HIGHLIGHTS
-- Performance in line with upgraded market expectations, with on-going momentum.
- Revenue growth of 62% to GBP67.2 million (H1 2018: GBP41.4 million).
- Adjusted pre-tax profit increased 42% to GBP10.1m (H1 2018: GBP7.1 million).
- Sales orders up 42% to GBP90.2 million (H1 2018: GBP63.4m million).
- Contracted backlog growth of 29% to GBP125.6 million (H1 2018: GBP97.1 million).
-- Revenue diversification continues, across a series of sectors.
- Commercial revenues up 30% to GBP17.6 million (H1 2018: GBP13.6 million).
- International revenues up 28% to GBP12.8 million (H1 2018: GBP10.0 million).
- Healthcare revenues up 67% to GBP11.0 million (H1 2018: GBP6.6 million).
- SaaS and software-related revenues up 13% to GBP9.9 million (H1 2018: GBP8.7 million).
-- Very strong growth in Digital Services driven by new and existing customer demand.
- Revenue growth of 75% to GBP57.3 million (H1 2018: GBP32.7 million).
- Significant on-going engagements in UK government's digital transformation programme.
- Further strengthening of position within Europe as leading
boutique Workday partner, with 33 new deals signed (H1 2018: 16);
building presence in North America.
-- Digital Platforms showing progress against key milestones.
- Revenue growth of 13% to GBP9.9 million (H1 2018: GBP8.7 million).
- 139 customers on Kainos Smart (H1 2018: 103).
- Research and development expenditure of GBP2.2 million expensed (H1 2018: GBP2.6 million).
-- A total of 1,324 people in Kainos (H1 2018: 1,019) up 30%,
with on-going recruitment activity.
-- Customer approval of Group services rated as 'good' or better by 90% of customers.(3)
-- Highly cash generative, strong underlying cash conversion and
period-end cash of GBP38.8 million.
(1) Adjusted measures are based on reported statutory profit
numbers excluding the effect of share-based payments and related
costs. Reconciliations between the reported and adjusted measures
are included in the Financial Review.
2 The value of contracted revenue that has yet to be
recognised.
3 Data collected from regular feedback surveys conducted with
sub-set of Kainos customers over the course of the period.
Brendan Mooney, CEO, commented:
"An exceptionally strong six month performance means that we are
well on the way to achieving a ninth consecutive year of growth -
in terms of our people, customers, revenue and adjusted pre-tax
profit.
Our Digital Services division continues to experience strong
momentum, fuelled by demand from existing and new customers, both
locally and internationally.
We continue to deliver major transformation programmes across UK
government and for our commercial clients, where demand in the UK
has resulted in the opening of new office locations in Birmingham
and London.
To support the continued expansion with our Workday-related
business, in Europe we continue to grow from our recently
established offices in Frankfurt and Copenhagen, alongside our
existing offices in Amsterdam and Gdansk. In North America we
continue to expand our presence in Boston and Atlanta and we will
open an office in Toronto in the next few weeks.
Our Digital Platforms division continues to make progress
against key milestones. Smart, our market-leading Software as a
Service (SaaS) platform for automated testing of the Workday suite
continues to add global brands as customers, with over 130
international organisations now on the platform. In Evolve we
continue to help our NHS customers maximise their use of Evolve,
against a backdrop of a challenging funding environment for Acute
Trusts.
We remain focused on providing exceptional careers for our staff
and exceptional digital products and services for our customers.
The Group's pipeline of prospects continues to strengthen across
all divisions and the Board believes that the Group is
well-positioned for growth both in the short-term and in the coming
years."
Ends
For further information, please contact
Kainos via FTI Consulting
Brendan Mooney, Chief Executive Officer LLP
Richard McCann, Chief Financial Officer
Investec Bank plc
Andrew Pinder / Patrick Robb +44 20 7597 4000
Canaccord Genuity
Simon Bridges / Emma Gabriel +44 20 7523 4606
FTI Consulting LLP
Matt Dixon / Harry Staight +44 20 3727 1000
About Kainos
Kainos Group plc is a UK-headquartered provider of Digital
Services and Digital Platforms.
The Group's Digital Services include full lifecycle development
and support of customised Digital Services for government and
commercial customers. Kainos is also the leading boutique partner
for Workday, Inc. ('Workday') in Europe, responsible for
implementing Workday's innovative Software-as-a-Service (SaaS)
platform for enterprise customers.
The Group's Digital Platforms comprise specialised digital
products in the mobile healthcare and automated testing arenas.
Smart is an automated testing platform for Workday customers;
Evolve Electronic Medical Records ('EMR') is the market leading
product for the digitisation of patient notes in the Acute sector
of the NHS.
Kainos has over 1,300 people across eleven offices in Europe and
the US, working interchangeably across its Services and Platforms
businesses.
Kainos is listed on the London Stock Exchange (LSE: KNOS).
For further information, please visit www.kainos.com.
INTERIM RESULTS FOR THE SIX MONTHSED 30 SEPTEMBER 2018
DIVISIONAL REVIEW
Digital Services
The Digital Services division comprises two areas of
activity:
-- Digital Transformation: the delivery of customised online
digital solutions, principally for central government, regional
government and local government departments and agencies ("UK
government") and for commercial sector organisations. The solutions
provided are highly cost-effective and make public services more
accessible and easier to use for the citizen and customer.
-- Workday Implementation: the provision of consulting, project
management, integration and post deployment services for Workday's
Enterprise Resource Planning (ERP) software suite, which includes
cloud-based software for Human Capital Management (HCM) and
Financial Management that enables enterprises to organise their
staff efficiently and to support financial reporting
requirements.
Digital Services revenue for the six months ended 30 September
2018 grew by 75% to GBP57.3 million (H1 2018: GBP32.7 million),
with revenue from customers in commercial sectors accounting for
GBP12.9 million (H1 2018: GBP10.2 million), an increase of 27%.
Sales orders in Digital Services increased by 50% to GBP82.4
million (H1 2018: GBP54.9 million) and backlog for the division
increased by 58% to GBP90.3 million (H1 2018: GBP57.3 million).
Digital Services - Digital Transformation
Brexit continues to generate uncertainty within the wider UK
economy. Despite this, Kainos' assessment of the associated impact
in the government IT landscape remains consistent with previous
guidance - there is no negative impact to the programmes with which
Kainos is involved.
Within central government, Kainos is delivering a combination of
existing and new programmes across sixteen major departments and
agencies, with the Department for International Development added
as a new customer in the past reporting period. In devolved
government Kainos continues to be successful in projects in
Scotland and Wales; whilst the absence of political institutions in
Northern Ireland continues to defer most procurement activity in
this market during the period.
Progress continues in client acquisition in the commercial
sector, where we have added 4 new clients. The partnership with NHS
Digital continues to expand, with Kainos delivering significant
elements of NHS Online and the NHS App, both of which entered
private beta in October 2018.
Looking forward, the Group remains optimistic about the future
of digitisation in the UK public sector, and is confident that it
is well positioned to maintain a central role in the public
sector's transformation. Equally, a developing reputation in the
commercial sector and opportunities within NHS Digital are expected
to generate further long term growth for the Group.
Digital Services - Workday Implementation
Kainos first engaged with Workday in 2010 and is now one of the
most experienced participants in Workday's partner ecosystem.
Kainos remains the only boutique Workday partner headquartered in
the UK and one of only 33 partners globally accredited to implement
Workday's innovative SaaS platform.
Within Europe, Kainos continues to consolidate its position as
the leading boutique partner, signing 33 new clients in the period
(H1 2018: 16). This leadership position is a result of highly
capable consulting staff and high satisfaction levels within the
Kainos customer base, but is also aided by consolidation within the
partner ecosystem, with boutique suppliers Appirio (2016), DayNine
(2016) and Ataraxis (2018) all having been acquired by larger
partners.
Kainos has continued its international expansion with notable
developments in the period including the appointment of Kainos as a
Workday partner in Canada and, post period end, achieving preferred
supplier status for a significant US customer. In Europe, strong
growth continues within the Nordic markets of Denmark, Sweden,
Norway and Finland (Copenhagen office opened 2017) and DACH markets
of Germany, Austria and Switzerland (Frankfurt office opened 2017).
This is in addition to the Amsterdam office (opened 2015, covering
Belgium, Netherlands and Luxembourg). Kainos now has 34 clients for
Workday services in mainland Europe (H1 2018: 17).
The UK Public Sector is an important new market for Workday and
Kainos has been instrumental in securing new customers. Of the
seven deals signed by Workday, Kainos are undertaking the
implementation with six customers and Workday are delivering the
remaining project, supported by Kainos consultants. Kainos
customers include Crown Commercial Service, the Office for Students
and Innovate UK.
In addition to the delivery of Workday for new customers, Kainos
is increasingly involved in supporting the operation of customers
that are already live on the Workday platform. This annuity-style
revenue stream, described as Post Deployment Services, accounts for
GBP4.0 million (H1 2018: GBP1.7 million) and has 68 customers (H1
2018: 23 customers).
The number of accredited Workday consultants in the Group's
Digital Services division has increased by 44% to 197 people (H1
2018: 137 people), with further recruitment underway.
Looking forward, growth prospects remain very strong, driven by
geographic expansion, increased penetration within the UK Public
Sector and the further development of our Post Deployment Services
offering. These prospects are, in turn, underpinned by very strong
annual revenue growth at Workday Inc. ("Workday"), reported as 28%
in their most recent US filings.
Digital Platforms
The Group Digital Platforms division comprises the following
platforms:
-- Smart Automated Testing (Smart): Smart is a proprietary
software tool that allows Workday customers to automatically verify
their Workday configuration both during implementation and in live
operation. Smart is the only automated testing platform
specifically designed for the Workday product suite. Smart is a
cloud-based SaaS solution licensed on a subscription basis to
customers.
-- The Evolve Healthcare Portfolio comprises Evolve Electronic
Medical Record (Evolve EMR), a proprietary software product that
removes paper from the care process by digitising NHS patient
records, thereby enabling efficient healthcare and Evolve
Integrated Care (Evolve IC), a mobile-optimised integrated care
platform, designed to automate common care pathways for healthcare
delivery organisations.
Evolve EMR can be consumed either on-premise or in a hosted
environment, with perpetual and subscription licensing options.
Evolve IC is a cloud-based SaaS solution licensed on a subscription
basis.
In aggregate, Digital Platforms revenue for the six months ended
30 September 2018 increased by 13% to GBP9.9 million (H1 2018:
GBP8.7 million). Sales orders for Digital Platforms decreased 8% to
GBP7.8 million (H1 2017: GBP8.4 million), attributable to reduced
demand for Evolve as a result of continued funding challenges
within the NHS. Sales orders for the Group's SaaS platforms
increased by 21% to GBP6.4 million (H1 2018: GBP5.3 million).
Within Smart, revenue for the period increased by 43% to GBP5.2
million (H1 2018: GBP3.6 million), of which GBP4.3 million relates
to SaaS subscriptions (H1 2018: GBP3.0 million). New sales bookings
for the period amounted to GBP7.3 million (H1 2018: GBP5.7
million), an increase of 27%. The Annual Recurring Revenue (ARR)
for Smart at period end was GBP9.2 million (H1 2018: GBP6.3
million); backlog for Smart is GBP15.6 million (H1 2018: GBP13.7
million).
The on-going funding constraints within the NHS continue to
impact Evolve revenues. Despite a stable maintenance revenue
stream, there has been an 8% reduction in revenue to GBP4.7 million
(H1 2018: GBP5.1 million). Sales orders for the period amounted to
GBP0.5 million (H1 2018: GBP2.7 million), suggesting no material
increase in revenues in the short-term.
As noted in the annual report, the commercial arrangement with
Evolve IC and Telehealth provider InTouch Health concluded on 31
March 2018. InTouch Health terminated their commercial relationship
with Kainos in order to develop their own internal solution. Kainos
has since referred this matter to US legal counsel.
Digital Platforms - Smart
Smart is now used by 139 customers globally to automatically
verify their Workday configurations (H1 2018: 103). Kainos has four
Smart modules: HCM, Security, Financials and Payroll. Over 90% of
customers have purchased a subscription for both HCM and Security,
with 31 customers subscribed to Financials (which is in line with
the wider adoption of Workday Financials) and 20 customers who have
a Payroll subscription. The relocation of a number of the sales
team to the US has resulted in a stronger sales performance.
Workday have announced Workday Cloud Platform (WCP), their
Platform as a Service (PaaS) offering. Kainos has been part of the
early adopter programme since 2017 with an anticipated General
Availability in late 2019. While still at an early stage, WCP
featured heavily in the recent Workday user conference and WCP may
offer a new future growth opportunity - such as additional IP
development for Kainos or specialised development services to other
Workday customers and partners.
Looking forward, continued strong growth for Smart will be
powered by increased penetration of Smart in the Workday customer
base, by expansion of the Workday customer base itself and by the
development and adoption of new Smart modules, of which Payroll is
the most recent example.
Digital Platforms - Evolve
Evolve EMR continues to be a leading supplier to the NHS, and is
now deployed at enterprise scale across 35 Health Trusts
(approximately 110 hospitals), managing over 1.5 billion images
with 35 million patients registered on the system.
The dominant feature of the UK NHS market is that of restricted
funding, which has significantly reduced procurement activity
across the sector. Near-term, there are areas of interest in
existing clients migrating to Cloud EMR and early indications of
modest increases in procurement activity in the UK and Ireland
markets.
Looking forward, the Group believes that the opportunity for
Evolve EMR growth remains undiminished in the longer term, with
over 90 Health Trusts in England still to address their
considerable paper challenge, representing an available market of
c. GBP200 million. Near-term, expectations are for a continued,
subdued market.
OUR PEOPLE
Kainos believes that the future success of the organisation is
dependent upon the capability of the people working in the Group.
The People Development Plan focuses on the key objectives of
development, retention and recruitment.
The Group has 1,324 people working in Kainos (H1 2018: 1,019) an
increase of 30%, of which 11% are contractors (H1 2018: 5%).
Attrition has increased to 14% during the period (H1 2018:
12%).
Kainos continues to attract strong interest in key recruitment
markets, with 9,282 applicants in the period ended 30 September
2018 (H1 2018: 2,403(4) ). A total of 1,857 interviews were
conducted (H1 2018: 1,093) with 244 people joining Kainos (H1 2018:
181), representing 2.6% of the initial applicants (H1 2018:
7.5%).
The Kainos Digital Academy and associated programmes are central
to the continued development of staff. During the six month
reporting period, 3,322 training days were completed.
Employee wellbeing is a key priority and Kainos strives to be an
excellent employer, the success of which is reflected in holding
Sunday Times Top 100 Employer status continuously since 2012, an
accreditation that is entirely based upon employee feedback.
Kainos continues to provide a comprehensive range of benefits to
support financial security, such as Private Medical Insurance,
Contributory Pension plan, Life Insurance and Income Protection.
Kainos also provide a comprehensive health cash plan, Healthshield
which offers support with dental and optical costs, access to 24/7
counselling, health assessments and a range of complementary
therapies to assist staff and their families' health and
wellbeing.
The Group operates a Share Incentive Plan for all staff and a
total of 1.8 million free shares have been distributed to staff. In
addition, the Group created SAYE schemes in July 2015 and July
2018, which awarded a further 2.3 million options to staff.
The Group promotes awareness of digital technologies amongst
school students. Over the past four years, Kainos has helped train
280 teachers in technical skills and their outreach programmes have
directly benefitted the lives of over 4,000 young people in the UK
and Ireland, catering for students from a range of socio-economic
backgrounds and with female student participation in a number of
programmes reaching 40%.
SUMMARY AND OUTLOOK
The directors believe that the Group's sales performance and
consequent increase in contracted backlog underpin near-term
performance.
Over the longer term, Kainos remains well placed to deliver
further growth. The Group's Digital Services division continues to
benefit from the UK government's digitisation programmes, and from
the strong and sustained growth of Workday.
In the Group's Digital Platforms division, Smart remains in a
commanding position as the leading automated testing product for
Workday globally, and while constrained NHS funding is expected to
limit the growth of Evolve in the near-term, the directors remain
confident that it is well positioned to capitalise on its lead in
the NHS marketplace in the long term.
In summary, the Group sees continued stability and growth
opportunities for its Digital Services division and is encouraged
by the strong position of its Digital Platform SaaS offerings
globally. Going forward, the Group will remain focused on providing
exceptional careers for staff and exceptional digital products and
services for its customers.
(4) Comparatives have been adjusted to remove contractors
FINANCIAL REVIEW
Kainos achieved revenue of GBP67.2 million (H1 2018: GBP41.4
million), representing an increase of 62%. Digital Services revenue
grew 75% to GBP57.3 million (H1 2018: GBP32.7 million) which was
driven by growth in both Digital Transformation and Workday
Services. Digital Platform revenue has increased by 13% to GBP9.9
million (H1 2018: GBP8.7 million) which is attributable to growth
in Smart and partially offset by a decline in Evolve, which now
represents 7% of Group revenue.
Overall gross margin was 46% (H1 2018: 49%). Digital Services
margin decreased to 44% (H1 2018: 47%), whilst Digital Platforms
gross margin increased to 59% (H1 2018: 54%). The reduction in
Digital Services gross margin was mostly due to increasing the
number of contractors and revenue delivered through partners, as
well as the geographic expansion within Workday Services.
Operating expenses excluding share-based payments for H1 2018
increased by 59% to GBP20.8 million (H1 2018: GBP13.1 million).
This increase is in line with revenue growth and relates to the
geographic expansion and sales investment within the Digital
Services division. Investment in product development has decreased
to GBP2.2 million (H1 2018: GBP2.6 million) due to a reduction in
staff involved in Evolve product development which was partially
offset by a growth in Smart product development. All product
development was expensed in the period. Research and Development
Expenditure Credit (RDEC) grants recognised in the period totalled
GBP0.9 million (H1 2018: GBP0.9 million).
The share-based payment expense incurred in the period was
GBP1.3 million (H1 2018: GBP0.3 million). This increase relates
mainly to social security costs associated with vesting of share
awards.
Adjusted pre-tax profit increased by 42% to GBP10.1 million (H1
2018: GBP7.1 million). Profit before tax increased by 28% to GBP8.7
million (H1 2018: GBP6.8 million). The adjusted profit measures can
be reconciled to the reported statutory numbers as follows:
6 months 6 months 12 months
to 30 Sep to 30 Sep to 31
2018 unaudited 2017 unaudited Mar 2018
GBP'000 GBP'000 audited
GBP'000
Profit before tax 8,722 6,810 14,251
Share-based payments and related
costs 1,330 320 1,096
----------------------------------- ---------------- ---------------- ----------
Adjusted profit before tax 10,052 7,130 15,347
=================================== ================ ================ ==========
Profit after tax 6,960 5,484 11,666
Share-based payments and related
costs (net of associated taxes) 1,104 320 910
----------------------------------- ------ ------ -------
Adjusted profit after tax 8,064 5,804 12,576
=================================== ====== ====== =======
The effective tax rate for the six months ended 30 September
2018 was 20.2% (H1 2018: 19.5%) and is in line with
expectations.
The Group continues to have a robust statement of financial
position with GBP38.8 million of cash (H1 2018: GBP27.3 million),
no debt and net assets of GBP45.8 million (H1 2018: GBP36.2
million). Cash conversion, calculated by taking cash generated by
operations over EBITDA, continued to be strong at 93% (H1 2018:
63%). The combined underlying trade debtor and accrued income
totalled GBP28.8 million (H1 2018: GBP20.4 million). The increase
of 41% is in line with expectations given revenue growth.
Dividend
An interim dividend of 2.8 pence per share has been declared for
the six months to 30 September 2018. This will be paid on 28
December 2018 to shareholders on the register at the close of
business on 7 December 2018, with an ex-dividend date of 6 December
2018.
RISKS
There are a number of 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.
The directors do not consider that the principal risks and
uncertainties have changed since the publication of the Group's
Annual Results on 29 May 2018. These are described in more detail
on pages 11 - 16 of the Annual Report (available on the Group's
website www.kainos.com).
Condensed consolidated interim statement of comprehensive income
for the six months ended 30 September 2018
Note 6 months 6 months to 30 Sep 2017 12 months to 31 Mar
to 30 Sep 2018 (unaudited) 2018 (audited)
(unaudited) GBP'000 GBP'000
GBP'000
Continuing operations
Revenue 5 67,179 41,425 96,680
Cost of sales 5 (36,357) (21,253) (50,076)
------------------------ ----- ------------------------ --------------------------- ------------------------
Gross profit 30,822 20,172 46,604
Operating expenses
excluding share-based
payments (20,793) (13,077) (31,308)
Share-based payments
and related costs(5) (1,330) (320) (1,096)
------------------------ ----- ------------------------ --------------------------- ------------------------
Operating expenses (22,123) (13,397) (32,404)
------------------------ ----- ------------------------ --------------------------- ------------------------
Operating profit 8,699 6,775 14,200
------------------------ ----- ------------------------ --------------------------- ------------------------
Finance income 23 37 53
Finance expense - (2) (2)
Profit before tax 8,722 6,810 14,251
Taxation 6 (1,762) (1,326) (2,585)
------------------------ ----- ------------------------ --------------------------- ------------------------
Profit for the period 6,960 5,484 11,666
=============================== ======================== =========================== ========================
Consolidated statement of comprehensive 6 months 6 months 12 months
income to 30 Sep to 30 Sep to 31 Mar
2018 (unaudited) 2017 (unaudited) 2018 (audited)
GBP'000 GBP'000 GBP'000
----------------------------------------- ------------------ ------------------ ----------------
Profit for the year 6,960 5,484 11,666
Other comprehensive income:
Currency translation difference 385 (20) (201)
----------------------------------------- ------------------ ------------------ ----------------
Total comprehensive income for
the period 7,345 5,464 11,465
----------------------------------------- ------------------ ------------------ ----------------
Earnings per share
Basic 8 5.9p 4.7p 10.0p
Diluted 8 5.7p 4.6p 9.6p
(5) Charge for period relates to equity and cash settled share
schemes and associated social security costs as referenced in the
segmental reporting note (Note 5).
Condensed consolidated interim statement of financial position
at 30 September 2018
Note 30 Sep 2018 (unaudited) 30 Sep 2017 (unaudited) 31 Mar 2018 (audited)
GBP'000 GBP'000 GBP'000
Non--current assets
Property, plant and equipment 2,592 2,026 2,109
Investments 1,025 900 1,025
Other non--current assets 1,058 630 1,289
------------------------------- ----- ------------------------ ------------------------ ----------------------
4,675 3,556 4,423
------------------------------- ----- ------------------------ ------------------------ ----------------------
Current assets
Trade and other receivables 9 21,927 14,276 23,157
Prepayments 1,637 1,762 2,647
Accrued income 9,131 8,107 6,106
Cash and bank balances 38,842 27,314 28,961
------------------------------- ----- ------------------------ ------------------------ ----------------------
71,537 51,459 60,871
------------------------------- ----- ------------------------ ------------------------ ----------------------
Total assets 76,212 55,015 65,294
=============================== ===== ======================== ======================== ======================
Current liabilities
Trade creditors and accruals (12,429) (7,362) (13,039)
Deferred income (8,789) (5,615) (6,993)
Corporation tax (1,914) (2,573) (3,157)
Other tax and social security (6,810) (3,017) (6,028)
(29,942) (18,567) (29,217)
------------------------------- ----- ------------------------ ------------------------ ----------------------
Non-current liabilities
Other provisions (444) (297) (347)
------------------------------- ----- ------------------------ ------------------------ ----------------------
(444) (297) (347)
------------------------------- ----- ------------------------ ------------------------ ----------------------
Total liabilities (30,386) (18,864) (29,564)
------------------------------- ----- ------------------------ ------------------------ ----------------------
Net assets 45,826 36,151 35,730
=============================== ===== ======================== ======================== ======================
Equity
Share capital 602 593 593
Share premium account 3,225 1,628 1,702
Capital reserve 666 666 666
Share-based payments reserve 3,258 1,773 2,549
Translation reserve (65) (269) (450)
Retained earnings 38,140 31,760 30,670
------------------------------- ----- ------------------------ ------------------------ ----------------------
Total equity 45,826 36,151 35,730
=============================== ===== ======================== ======================== ======================
Condensed consolidated interim statement of changes in
shareholders' equity for the six months ended 30 September 2018
Share Share Capital Share-based Translation Retained Total
capital premium redemption payments reserve earnings equity
reserve GBP'000
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Balance at 31
March 2017
(audited) 592 1,626 667 1,279 (249) 26,071 29,986
---------------- -------- -------- ---------------- ----------- ---------------- --------- --------
Profit for the
period - - - - - 5,484 5,484
Other
comprehensive
income (20) (20)
---------------- -------- -------- ---------------- ----------- ---------------- --------- --------
Total
comprehensive
income for the
period - - - - (20) 5,484 5,464
---------------- -------- -------- ---------------- ----------- ---------------- --------- --------
Share-based
payment expense - - - 320 - - 320
Adjustment to
share-based
payments
reserve - - - 174 - (174) -
Current tax for
equity-settled
share-based
payments - - - - - 57 57
Deferred tax for
equity-settled
share-based
payments - - - - - 322 322
Issue of share
capital 1 2 (1) - - - 2
---------------- -------- -------- ---------------- ----------- ---------------- --------- --------
Balance at 30
September 2017
(unaudited) 593 1,628 666 1,773 (269) 31,760 36,151
---------------- -------- -------- ---------------- ----------- ---------------- --------- --------
Profit for the
period - - - - - 6,182 6,182
Other
comprehensive
income - - - - (181) - (181)
---------------- -------- -------- ---------------- ----------- ---------------- --------- --------
Total
comprehensive
income for the
period - - - - (181) 6,182 6,001
---------------- -------- -------- ---------------- ----------- ---------------- --------- --------
Share-based
payment expense - - - 776 - - 776
Current tax for
equity-settled
share-based
payments - - - - - 25 25
Deferred tax for
equity-settled
share-based
payments - - - - - 284 284
Issue of share
capital - 74 - - - - 74
Dividends - - - - (7,581) (7,581)
---------------- -------- -------- ---------------- ----------- ---------------- --------- --------
Balance at 31
March 2018
(audited) 593 1,702 666 2,549 (450) 30,670 35,730
---------------- -------- -------- ---------------- ----------- ---------------- --------- --------
Profit for the
period - - - - - 6,960 6,960
Other
comprehensive
income - - - - 385 - 385
---------------- -------- -------- ---------------- ----------- ---------------- --------- --------
Total
comprehensive
income for the
year - - - - 385 6,960 7,345
Share-based
payment expense - - - 709 - - 709
Current tax for
equity-settled
share-based
payments - - - - - 716 716
Deferred tax for
equity-settled
share-based
payments - - - - - (206) (206)
Issue of share
capital 9 1,523 - - - - 1,532
Balance at 30
September 2018
(unaudited) 602 3,225 666 3,258 (65) 38,140 45,826
================ ======== ======== ================ =========== ================ ========= ========
Condensed consolidated interim cash flow statement for the six
momths ended 30 September 2018
6 months to 6 months to 12 months to
30 Sep 2018 30 Sep 2017 31 Mar 2018
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
Net cash from operating activities 9,342 4,119 14,152
----------------------------------------------------------- --- ------------ ------------ ------------------
Investing activities
Purchase of trading investments - - (125)
Purchases of property, plant and equipment (1,010) (509) (1,130)
----------------------------------------------------------- --- ------------ ------------ ------------------
Net cash used in investing activities (1,010) (509) (1,255)
----------------------------------------------------------- --- ------------ ------------ ------------------
Financing activities
Dividends paid - - (7,581)
Proceeds on issue of shares 1,532 2 76
----------------------------------------------------------- --- ------------ ------------ ------------------
Net cash generated/(used) in financing activities 1,532 2 (7,505)
----------------------------------------------------------- --- ------------ ------------ ------------------
Net increase in cash and cash equivalents 9,864 3,612 5,392
Cash and cash equivalents at beginning of period 28,961 23,722 23,722
Effects of foreign exchange rate changes 17 (20) (153)
----------------------------------------------------------- --- ------------ ------------ ------------------
Cash and cash equivalents at end of period 38,842 27,314 28,961
=========================================================== === ============ ============ ==================
Net cash from operating activities 6 months to 6 months to 12 months to
30 Sep 2018 30 Sep 2017 31 Mar 2018
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
Profit for the period 6,960 5,484 11,666
Adjustments for:
Income tax expense 1,762 1,326 2,585
Share-based payment expense 1,330 320 1,096
Government grants released - (13) (13)
Depreciation 527 485 976
Loss on disposal of property, plant and equipment - - 47
Increase in provisions 97 - 50
Operating cash flows before movements in working capital 10,676 7,602 16,407
Increase in receivables (602) (465) (8,087)
(Decrease)/increase in payables (252) (2,384) 7,370
----------------------------------------------------------- --- ------------ ------------ ------------------
Cash generated by operations 9,822 4,753 15,690
Income taxes paid (480) (634) (1,538)
----------------------------------------------------------- --- ------------ ------------ ------------------
Net cash from operating activities 9,342 4,119 14,152
=========================================================== === ============ ============ ==================
Notes to the condensed consolidated interim financial
statements
1. Corporate information
Kainos Group plc ("Company") is a company incorporated and
domiciled in the UK (Company registration number 09579188), having
its registered office at 21 Farringdon Road, 2(nd) Floor, London,
EC1M 3HA. These condensed consolidated interim financial statements
for the six months ended 30 September 2018 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
Divisional Review and in note 5. The Group is headquartered in
Belfast.
These statements have not been audited but have been reviewed by
the Group's auditor pursuant to the Auditing Practices Board
guidance on the Review of Interim Financial Information.
These condensed interim financial statements were approved for
issue on 23 November 2018.
2. Basis of preparation
The interim condensed consolidated financial statements for the
six months ended 30 September 2018 have been prepared in accordance
with the Disclosure and Transparency Rules of the Financial Conduct
Authority and with IAS 34 "Interim Financial Reporting" as adopted
by the European Union.
These interim 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 2018 have been filed with the registrar of
companies. 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 Section 498(3) of the
Companies Act 2006.
The annual statements of Kainos Group plc are prepared in
accordance with IFRSs as adopted by the European Union. These
consolidated financial statements are presented in pounds sterling
because that is the currency of the primary economic environment in
which the Group operates.
Going concern
The directors have, at the time of approving the financial
statements, a reasonable expectation that the Company and the Group
have adequate resources to continue in operational existence for at
least 12 months from the date of the financial statements. Thus,
they continue to adopt the going concern basis of accounting in
preparing the financial statements.
3. Significant accounting policies
The accounting policies, presentation and methods of computation
applied by the Group in these interim 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 2018, except for; IFRS9 'Financial instruments'
and IFRS15 'Revenue from contracts with customers', effective 1
April 2018.
Revenue from contracts with customers
IFRS15 contains a new set of principles on when to recognise and
measure revenue as well as new requirements related to presentation
and disclosure. Prior to adoption, the Group performed detailed
analysis of the impact of IFRS15 on the consolidated financial
statements and no material impact was identified. Service revenue
remains the largest revenue stream (85% of total revenue for the
six
3. Significant accounting policies (continued)
months ended 30(th) September 2018) and the adoption of IFRS15
has had no impact on revenue recognition.
IFRS15 has also had no impact on revenue recognition for our
other revenue streams, such as licence
revenue and managed service revenue and no contract acquisition
or contract fulfilment costs have been identified thus far that
meet the criteria for capitalisation under IFRS15. As a result,
there was no adjustment to retained earnings on application at 1
April 2018.
Financial instruments
IFRS9 replaces the classification and measurement models for
financial instruments in IAS39, including a new expected credit
loss model for calculating impairment on financial assets.
The vast majority of financial assets held are trade receivables
and cash, which continue to be accounted for at amortised cost. Due
to the general quality and short-term nature of trade receivables,
the move from an incurred loss model to an expected loss model has
not had a material impact. As permitted by IFRS9, the Group applies
the simplified approach to measure expected credit losses which
uses a lifetime expected loss allowance.
The impact of adopting IFRS9 on the consolidated financial
statements was not material for the Group and there was no
adjustment to retained earnings on application at 1 April 2018.
Leases
IFRS16, published in January 2016, eliminates the classification
of leases as either operating or finance leases and introduces a
single, on-balance sheet lease accounting model for lessees. A
lessee recognises a right-of-use asset representing its right to
use the underlying asset and a lease liability representing its
obligation to make lease payments. There are optional exemptions
for short-term leases and leases of low value items. The Group has
carried out an initial assessment of the likely impact of IFRS16 on
its lease portfolio as at 31 March 2018. Application of the new
standard will result in a material increase in assets and
liabilities on the consolidated statement of financial position,
however the impact on net assets and the consolidated income
statement will not be material. IFRS16 'Leases' is mandatory for
financial years commencing on or after 1 January 2019. At this
stage, the Group does not intend to adopt the standard before its
effective date.
4. Estimates
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 interim financial statements, 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 2018. The only exception relates to the estimate of
the provision of income taxes which is determined in the interim
financial statements using the estimated average annual effective
income tax rate applied to the profit before tax of the interim
period.
5. Segmental reporting
Kainos provides Digital Services and Digital Platforms to
customers in the public and commercial industry sectors.
Digital Services include full lifecycle development and support
of digital solutions for government and commercial customers.
Kainos is also the largest boutique partner for Workday in Europe,
responsible for implementing Workday's innovative SaaS platform for
enterprise customers.
Digital Platforms comprises of Smart, the market leading
automated testing platform for Workday customers; Evolve EMR, the
leading product for the digitisation of patient notes in the Acute
sector of the NHS; and Evolve IC, an integrated care platform for
healthcare providers.
Segmental revenue and results
The following is an analysis of the Group's revenue and results
by reportable segment:
Digital Services Digital Platforms
6 months to 30 September 2018 (unaudited) GBP'000 GBP'000 Total
GBP'000
Revenue 57,299 9,880 67,179
Cost of sales (32,312) (4,045) (36,357)
--------------------------------------------------- ----------------- ------------------ ----------
Gross profit 24,987 5,835 30,822
Direct expenses(6) (7,763) (4,903) (12,666)
Contribution 17,224 932 18,156
Central overheads6 (8,104)
Adjusted pre-tax profit 10,052
--------------------------------------------------- ------------------------------------- ----------
6 months to 30 September 2017 (unaudited) Digital Services Digital Platforms
GBP'000 GBP'000 Total
GBP'000
Revenue 32,694 8,731 41,425
Cost of sales (17,258) (3,995) (21,253)
------------------------------------------------- ----------------- ------------------ ----------
Gross profit 15,436 4,736 20,172
Direct expenses6 (3,966) (4,762) (8,728)
Contribution 11,470 (26) 11,444
Central overheads6 (4,314)
Adjusted pre-tax profit 7,130
------------------------------------------------- ------------------------------------- ----------
6 Operating expenses excluding share-based payments includes
direct expenses, central overheads and finance income/expenses.
5. Segmental reporting (continued)
Digital Services Digital Platforms
12 months to 31 March 2018 (audited) GBP'000 GBP'000 Total
GBP'000
Revenue 78,592 18,088 96,680
Cost of sales (42,605) (7,471) (50,076)
----------------------------------------- --- ----------------- ------------------ ----------
Gross profit 35,987 10,617 46,604
Direct expenses(6) (9,297) (9,099) (18,396)
----------------------------------------- --- ----------------- ------------------ ----------
Contribution 26,690 1,518 28,208
Central overheads(6) (12,861)
Adjusted pre-tax profit 15,347
---------------------------------------------- ----------------- ------------------ ----------
6. Taxation
The total tax charge for the six months ended 30 September 2018
is GBP1.8 million (six months ended 30 September 2017: GBP1.3
million). This tax charge equates to an effective tax rate of 20.2%
(30 September 2017: 19.5%). The expected annual tax rate for the
year to 31 March 2019 is 19.8% (31 March 2018: 18.1%).
7. Dividends
The dividends paid in the periods covered in these condensed
consolidated interim financial statements are detailed below:
6 months to 6 months to 12 months to
30 Sep 2018 30 Sep 2017 31 Mar 2018
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
Amounts recognised as distributions to equity holders in the period:
Final dividend for 2017 of 4.4p per share - - 5,215
Interim dividend for 2018 of 2.0p per share - - 2,371
Total - - 7,586
====================================================================== ============== ============== =============
A final dividend of 4.6 pence per share for the year to 31 March
2018 was paid on 19 October 2018 to shareholders on the register at
the close of business on 21 September 2018. An interim dividend of
2.8 pence per share has been declared for the six months to 30
September 2018. This will be paid on 28 December 2018 to
shareholders on the register at the close of business on 7 December
2018, with an ex-dividend date of 6 December 2018. These condensed
consolidated interim financial statements do not reflect the final
dividend paid or the interim dividend payable.
8. Earnings per share
Basic earnings per share is calculated by dividing the profit
attributable to ordinary shareholders of the parent company by the
weighted average number of ordinary shares in issue during the
period.
6 months to 6 months to 12 months to
30 Sep 2018 30 Sep 2017 31 Mar 2018
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
Profit for the period 6,960 5,484 11,666
------------------------------------------------------------------------- ------------- ------------- -------------
Weighted average number of ordinary shares for the purposes of basic
earnings per share 117,948 117,214 117,231
Effect of dilutive potential ordinary shares from share options 3,377 2,195 3,668
Weighted average number of ordinary shares for the purposes of diluted
earnings per share 121,325 119,409 120,899
------------------------------------------------------------------------- ------------- ------------- -------------
Basic earnings per share 5.9p 4.7p 10.0p
Diluted earnings per share 5.7p 4.6p 9.6p
========================================================================= ============= ============= =============
Adjusted basic earnings per share is calculated by dividing the
profit attributable to ordinary equity holders of the parent
company, excluding exceptional items and share-based payments and
related costs (including associated taxes) by the weighted average
number of ordinary shares in issue during the period.
6 months to 6 months to 12 months to
30 Sep 2018 30 Sep 2017 31 Mar 2018
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
Profit for the period 6,960 5,484 11,666
Share-based payments
and related costs (net
of associated taxes) 1,104 320 910
-------------------------------------- ------------- ------------- -------------
Adjusted profit for
the period 8,064 5,804 12,576
-------------------------------------- ------------- ------------- -------------
Weighted average number
of ordinary shares for
the purposes of basic
earnings per share 117,948 117,214 117,231
Effect of dilutive potential
ordinary shares from
share options 3,377 2,195 3,668
Weighted average number
of ordinary shares for
the purposes of diluted
earnings per share 121,325 119,409 120,889
-------------------------------------- ------------- ------------- -------------
Adjusted basic earnings
per share 6.8p 5.0p 10.7p
Adjusted diluted earnings
per share 6.6p 4.9p 10.4p
====================================== ============= ============= =============
9. Trade and other receivables
30 Sep 2018 30 Sep 2017 31 Mar 2018
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
Trade receivables 20,047 12,258 19,738
Allowance for doubtful debts (366) - -
------------------------------ ------------- ------------- ------------
19,681 12,258 19,738
Other receivables 2,246 2,018 3,419
Total 21,927 14,276 23,157
============================== ============= ============= ============
10. Share-based payments
During the six months to 30 September 2018, 1,020,536 new share
options were granted to employees (six months to 30 September 2017:
392,230) in line with the existing schemes as previously published.
The fair value of the new share options will be expensed over the
same vesting period duration as the existing share options for each
scheme. The Group used the inputs as previously published to
measure the fair value of the share options immediately before and
after the re-pricing. 732,670 options are exercisable at the period
end.
11. Related party transactions
Balances and transactions between the Company and its
subsidiaries, which are related parties, have been eliminated on
consolidation and are not disclosed in this note. There are no
loans outstanding with directors at the start or end of the
period.
Trading transactions
During the period, group companies entered into the following
transactions with related parties who are not members of the
group:
Sale of goods and services Purchase of goods and services
6 months to 30 Sep 2018 6 months to 12 months to 31 Mar 2018 6 months to 30 Sep 2018 6 months to 30 Sep 2017 12 months to 31 Mar 2018
(unaudited) 30 Sep 2017 (audited) (unaudited) (unaudited) (audited)
GBP'000 (unaudited) GBP'000 GBP'000 GBP'000 GBP'000
GBP'000
Cirdan
Imaging
Limited 221 248 685 - - -
Queen's
University
Belfast - - - 132 141 259
----------- ----------------------- ------------ ------------------------ ----------------------- ----------------------- ------------------------
Total 221 248 685 132 141 259
=========== ======================= ============ ======================== ======================= ======================= ========================
11. Related party transactions (continued)
The following amounts were outstanding at the statement of
financial position date:
Amounts owed by related parties Amounts owed to related parties
30 Sep 2018 30 Sep 2017 31 Mar 30 Sep 30 Sep 2017 31 Mar
(unaudited) (unaudited) 2018 2018 (unaudited) 2018
GBP'000 GBP'000 (audited) (unaudited) GBP'000 (audited)
GBP'000 GBP'000 GBP'000
Cirdan Imaging Limited 502 227 395 - - -
Queen's University Belfast 20 - - - 18 -
Total 522 227 395 - 18 -
============================ ============= ============= =========== ============= ============= ===========
Queen's University Belfast is a related party as one of the
Group's material shareholders. Cirdan Imaging Limited is a related
party due to the Group's shareholding of 11.2% in this company.
12. Contingent Liability
In the US, the commercial arrangement with Evolve IC and
Telehealth provider InTouch Health concluded on 31 March 2018.
InTouch Health terminated their commercial relationship with Kainos
to develop their own internal solution. Kainos has since referred
this matter to US legal counsel and has pursued legal recourse for
breach of contract by InTouch Health. In response, InTouch Health
has counterclaimed against Kainos. At this stage the directors'
assessment, based on independent US legal advice, is that the basis
for InTouch's counter-claim has little merit and it is not probable
that an economic outflow will be required to settle the claim.
Responsibility statement of the directors in respect of the
interim financial report
The directors confirm that these condensed interim financial
statements have been prepared in accordance with International
Accounting Standard 34 "Interim Financial Reporting" as adopted by
the European Union, and that the interim management report includes
a fair review of the information required by DTR 4.2.7 and DTR
4.2.8 of the Disclosure and Transparency Rules of the Financial
Conduct Authority, namely:
-- An indication of important events that have occurred during
the first six months and their impact on the condensed set of
financial statements, and a description of the principal risks and
uncertainties for the remaining six months of the financial year;
and
-- Material related party transactions in the first six months
and any material changes in the related party transactions
described in the last annual report
Richard McCann
Director
23 November 2018
INDEPENT REVIEW REPORT TO KAINOS GROUP PLC
We have been engaged by the company to review the interim
financial information included in the Half Yearly Financial Report
for the six months ended 30 September 2018 which comprise the
condensed consolidated interim balance sheet as at 30 September
2018, and the related condensed consolidated interim statement of
comprehensive income, condensed consolidated interim statement of
changes in shareholders' equity and condensed consolidated interim
cash flow statement for the six-month period then ended ("interim
financial information"). We have read the other information
contained in the Half Yearly Financial Report and considered
whether it contains any apparent misstatements or material
inconsistencies with the information in the interim financial
information.
This report is made solely to the company in accordance with
International Standard on Review Engagements 2410 "Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity" ("ISRE 2410") issued by the International Auditing
and Assurance Standards Board. Our work has been undertaken so that
we might state to the company those matters we are required to
state to it in an independent review 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 company, for our
review work, for this review report, or for the conclusions we have
formed.
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 which includes the
interim financial information, in accordance with the Disclosure
and Transparency Rules of the Financial Conduct Authority and with
International Accounting Standard 34 "Interim Financial Reporting"
as adopted by the European Union.
As disclosed in note 2, the annual financial statements of the
company are prepared in accordance with IFRSs as adopted by the
European Union. The interim financial information included in this
Half-Yearly Financial Report has been prepared in accordance with
International Accounting Standard 34 "Interim Financial Reporting"
as adopted by the European Union and the Disclosure and
Transparency Rules of the United Kingdom's Financial Conduct
Authority.
Our responsibility
Our responsibility is to express to the company a conclusion on
the interim financial information in the Half-Yearly Financial
Report based on our review.
Scope of review
We conducted our review in accordance with ISRE 2410. A review
of interim financial information consists of making inquiries,
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.
Conclusion
Based on our review, nothing has come to our attention that
causes us to believe that the interim financial information in the
Half-Yearly Financial Report for the six months ended 30 September
2018 is not prepared, in all material respects, in accordance with
International Accounting Standard 34 "Interim Financial Reporting"
as adopted by the European Union and the Disclosure and
Transparency Rules of the United Kingdom's Financial Conduct
Authority.
Richard Howard
For and on behalf of Deloitte (NI) Limited
Chartered Accountants and Statutory Audit Firm
Belfast, United Kingdom
23 November 2018
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
IR UOSWRWBAAUAA
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