Belfast-based tech firm Kainos (LON:KNOS) reported a 37% jump in revenue to £268.8 million for the six months to September. A strong sales performance across the group drove adjusted pre-tax profits up 30% to £41.7 million. Furthermore, Kainos finished the half with £86.5 million cash in its coffers.
So why did shares in the IT provider slide in early dealings on Monday?
Well, investors were disappointed as Kainos stopped short of delivering another profit upgrade. Instead, the company warned of a revenue growth slowdown to come in its biggest division, Digital Services.
Having upgraded FY27 guidance on 18 August, Kainos expects H2 sales and earnings to be merely ‘in line’ with market expectations. This follows a rise in lower margin subcontracted work which weighed on gross margins in H1.
Digital Services slowdown
Kainos provides sophisticated IT services to major public sector, commercial and healthcare customers. The FTSE 250 constituent also develops software applications.
Digital Services is Kainos’ largest division, which designs, builds and operates complex digital platforms. Kainos warned that a stronger H2 comparative will result in Digital Services revenue growth moderating from the ‘exceptional level’ achieved in H1.
The division had an ‘excellent’ six months, with revenue growth of 57% driven by significant contract wins during FY26 and during H1. However, gross margin declined by 3.9% to 31.9%, largely reflecting the ongoing use of contractors and supply partners to support rapid growth.
Kainos stressed this is a short-term staffing decision. And the company expects margins to normalise as it replaces third parties with employed staff as revenue growth moderates.
AI services demand grows
Elsewhere within the group, Workday Products revenue grew by 22% to £48 million. Workday Services delivered solid revenue growth of 9%, driven by North America and Kainos’ newer regions such as Australia.
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Kainos insisted that demand for its AI services continues to grow, as it helps customers implement solutions responsibly.
Revenues for AI and data-related projects increased 40% to £28.5 million n H1. Furthermore, the firm is now certified in the Claude Partner Network, Anthropic’s programme for firms that put Claude into production for customers.
What did the CEO say?
CEO Brendan Mooney said: ‘This was an excellent six months for Kainos, building on our strong performance last year. Technology is central to the UK Government’s plans to transform public services and this is reflected in the outstanding growth in Digital Services, particularly across our public sector and healthcare clients.’
| Kainos – H1 highlights | H127 | H126 | Change |
| Revenue (£m) | 268.8 | 196.1 | +37% |
| Adjusted pre-tax profit (£m) | 41.7 | 32 | +30% |
| DPS (p) | 10.4 | 9.8 | +6% |
| Cash (£m) | 86.5 | 105.5 | -18% |
Source: Kainos, interim results
Mooney added: ‘Industry data shows that we were one of the largest winners of Government digital contracts in the period, showing that we are one of the most-trusted suppliers to the UK Government and have a strong track record of delivering value.’
Today’s share price plunge is a setback for Kainos, which continues to shake off a post-pandemic slowdown.
However, patient investors who believe Kainos has entered a sustained earnings recovery phase, and that this margin pressure is temporary, might be tempted to buy the dip.
Kainos helps organisations deploy AI inside complex enterprise systems. Demand for its AI services is growing and the company is well-placed to continue winning Government digital contracts.
In addition, a strong balance sheet gives Kainos considerable financial flexibility for acquisitions, product investment and shareholder returns.
