Good morning, everyone. Thank you very much for taking the time to join Richard and I, who are joining this call from our office here in Belfast before heading over to London for the rest of the week on the road show. Before we start, some very quick housekeeping points. The presentation from Richard and I today will be about 35 minutes in length. Over the last couple of iterations, we have noticed that our presentation has been getting slightly longer, so today we are going to skip over some of the more high-level slides around our business background and allow more time for Q&A. During our presentation, your connection will be muted, and at the end of the presentation, FTI will moderate our Q&A session. We are recording this broadcast, and we will publish the recording to our website later today.
In terms of what we will cover, I will give the first part of the presentation, so the group overview and divisional performance will be done by myself. Richard will take you through the detailed financial performance. I will finish off with a view about our outlook, and we will head into the Q&A session. As you will have seen already, we are publishing a very strong set of results this morning. I know that our very positive trading update back in August gave a hint of these results, but it is great to be able to share the underlying details today. We think of today's results very much as a continuation of the updates we have been giving over the last 18 months about a return to growth, so it is pleasing to see that the message has come through today so strongly in the results.
To pick up some of the key data points, very strong revenue growth at 37%, a great performance across all three of our divisions. That revenue growth has been the driver of our adjusted profit increase, which is up 30%, and we have maintained our very strong sales performance, up a further 27% in the first six months of fiscal 2027. Without doubt, my favorite number on this slide is our contracted backlog figure at GBP 853 million, up 26%. As we will cover later in the presentation, that will increase further in the next couple of months. That level of backlog gives us great visibility in our business over the next couple of years. Not mentioned on this slide, but just to note that we continue to evolve our commercial arrangements.
Time and material arrangements continue to reduce and now account for about 60% of our total revenues as a group. We saw strong revenue growth across all three divisions. As I say, Digital Services up 57%, Workday Services up 9%, and Workday Products saw an ARR increase of 24%. As a company, we are very excited about passing the GBP 100 million ARR milestone in the next few weeks. Our very strong revenue growth has required us to increase the use of contractors, which has slightly moderated our margin growth. Richard will take you through the moving parts around that later in the presentation. In terms of AI, we continue to see traction with our customers for AI and data projects, with related revenues up 40% to GBP 29 million.
So in summary, from our perspective, a really strong set of results and a great performance by the team. Looking at our customers, we use these charts really to underscore how we think about our business, the durability of our revenues, the balance across sectors, and the global nature of our business. On the left is the breakdown of our existing versus new customer revenues. I have to say, to have 82% of our revenues from existing customers is just brilliant, giving us a high degree of visibility and predictability in our business. We are able to generate that level of repeat business, and we do believe it can be higher because of the value we deliver to our customers and the excellent customer satisfaction levels that we achieve. As we add new customers, we unlock future revenue streams as well.
Just to highlight for those not familiar with it, a Net Promoter Score of 61 is defined as excellent customer service. In the middle chart, we have the sector balance, and balance, I think, really is the correct term. That is balance across all three of our sectors, but also across clients as well. We now work with over 1,300 customers across the business. In the chart on the right, we break down revenues across the regions. With the larger contracts that we won in the U.K. over the last six months, we have seen the strongest growth in the U.K., just over 50% of growth there. In North America, it grew by 23% over the last six months, and Central Europe grew by 6%. Overall, positive figures across each of those regions. Digital Services have been the standout performer in this set of results.
Focusing on the revenue, first of all, revenue, as I have said, up 57%. It is a really strong performance by the team, especially given the size of the Digital Services business inside Kainos. That performance is not a one-off. You can see that from the chart on the right-hand side of the screen. Really strong growth in H2 of last year, and that momentum has continued into H1 of this year. The growth has been really broad-based across government, across healthcare, across defense, and the work we are doing in Canada as well. I have not mentioned on the slide, but in terms of our commercial sector, it has continued to reduce, but it is now GBP 5 million, so it is a modest part of the overall Digital Services revenue. From a sales performance, bookings in the period were just below GBP 300 million, so another excellent performance.
This performance, again, as with revenue, is not a one-off. Towards the end of the summer, we were awarded two additional contracts, one with the Home Office for GBP 111 million and one with the FCDO for GBP 85 million. They are currently in the signing process and are due for signature in the next few weeks. To be clear, these contracts are not in the figures today. Our backlog in Digital Services is excellent at GBP 600 million, or almost two years of visibility. That is before we add in those new contracts as well. Digital Services is a part of the business where we deploy contractors most often. With this level of growth, we have maintained a high use of those contract staff. That is more than doubled H1 to H1, from 139 contractors to 316 contractors today.
As a reminder, back in fiscal 2024, we had 60 contractors working in Kainos. As those contractor numbers reduce, we will see that kind of margin expansion across the business as well. In terms of timing about those reduction in contractors, that is really, I guess, predicated on our growth rate. If we grow at more than 20%, we will continue to use a high number of contract staff. If we grow at less than 20%, we will be able to replace contract staff with employees. Just to note, our market size figure on the screen here has been increased since the last update. The biggest increase is in healthcare. That is up GBP 300 million, with defense and government both increasing by GBP 100 million. We just see these increases as further evidence of strong demand in the market.
Finally, just to highlight that sovereign is a more regular conversation with our government clients. Sovereign has lots of different flavors. Sovereign could be economic sovereignty. That is about local job creation. It could be about being a sovereign supplier, so using U.K.-based people rather than overseas. It could be about our supply chain, so again, a reduced reliance on overseas providers. Or it could be about technology, so local control and choice over the technology stack. We would summarize what we hear as British control and optionality over the choices that are made. It is not necessarily about everything being British, but ensuring the U.K. has the control, the choices, and builds critical domestic capabilities where they matter most. Back in May, we talked about adopting total contract value, or TCV, in order to share clear insights about how our business is performing.
In this set of results, we move to that industry standard. This slide really restates the reasons for making the change. As I recap, our contracts have increased in size and scope and duration. The table on the right-hand side really illustrates these points, multiple large contracts over multiple years. Our historic policy was to recognize a portion of the larger contracts, which, as the contracts increased in duration, was understating our performance. The move to TCV provides that greater insight into our business performance. Again, as a reminder, this change is nothing about revenue recognition, just the booking and backlog figures, and it only relates to Digital Services. Workday Services and Workday Products are unaffected by this change. Under the revised approach, Digital Services bookings grew 44% to GBP 297 million, and backlog increased by 31%.
Under the old methodology, bookings would have increased by 71% and backlog by 26%. There is a full reconciliation of all those numbers in the appendix of this deck. Before moving off this slide, I really just want to highlight two things. The first thing is really the strong flow of high-value contract wins over the past 18 months. The second thing is really the three large contracts that are in the signing process. That is the very bottom of the table under the peach heading. Those two new contracts, when they sign, should nudge our group backlog to over GBP 1 billion, which is, for us, just brilliant visibility inside our business. This case study we are using today links back to the case study we used this time last year.
The case study from last year talked about a project we had just completed, moving one billion passport records from an old system to a cloud-based system. That allowed the Home Office to switch off the old system, saving themselves GBP 33 million per year. That was an amazing result by itself. But truthfully, whenever we are switching off old legacy systems, you do see significant cost savings as well. Today's case study is about what has been done with that passport data now it has been moved off that old system and now can be accessed in a controlled manner. Working in partnership with the Home Office, we developed the Data Validation Application Digital Service, or DVA Digital, to allow controlled access to this information by approved parties.
For instance, a citizen looking to use government or NHS services online can verify their GOV.UK One Login identity via the passport information, or government departments can use the information to confirm a citizen's identity. A very topical example at the moment is what is going on in East Midlands Airport, where there is a rollout of passport-free airport e-gates. In this case, an e-gate can take a photograph of someone approaching the gate, verify that photograph against the passport data, and open the gate if there is a match. Or if the passenger has not been identified, direct the passenger to a different gate or to a member of the Border Force service. Early trials in East Midlands suggest this is a 25% quicker way to have people go through the gates as opposed to the traditional e-gates.
It is really just a great example of how DVA Digital is how government is making that data available for other services and allowing them to improve government-provided services. We continue to win and deliver AI work, with revenues in H1 up 40%. At the end of H1, we were awarded two further multimillion-pound contracts, which will see our figure grow again further in H2. Stepping back from those contract wins, our observation is the U.K. government has clear ambitions about the use and adoption of AI technology to improve its services and its productivity. There is clearly a market opportunity for AI services going forward. The conversation we are finding is much more nuanced when you get into the detail. Customers have internal capability constraints and concerns over safety, security, cost, and vendor lock-in. These are hurdles to the wider spread adoption of AI.
Customers continue to run proof of concepts and pilots that still dominates the work they are undertaking, with very few organizations launching significant AI programs. Internally, we have AI deployed across the organization, and we continue to see productivity gains in both engineering and deployment activities. Those productivity gains are most pronounced in engineering-related disciplines than in Workday consulting. We continue to believe that on the engineering side of our business, that 20% is the best way to think about the productivity gains we are able to achieve. Over the summer, we launched Actonomy, which is our dedicated business focusing on helping customers move their pilot AI systems into production, and importantly, to keep them in production as well. We have distilled our learning into a product called Actonomy Core, which provides data foundations, secure deployment, AI assurance, and live service operations management.
We have launched with four customers, a specialist lender, a healthcare organization focused on dementia care, a water utility, and a non-profit in the marine research environment. It is best to think of Actonomy as very much as early stage, lots of interest, lots of interesting conversations, and a decent pipeline, but it has only been operating for a few months. While we are ambitious about what Actonomy can do, it is only at the very start of its journey. There has been good progress in the Workday Services division. Revenues are up 9% H1- to- H1, led by Americas growing at 10% and EMEA growing at 8%. In EMEA, there was some weakness in Germany, that was offset by good progress in Australia, and we report our Australian revenues through our EMEA business.
Looking at the sales performance, up 1%, sales growth in the last period, same period last year was 35%, so a tough comparator. Inside Workday Services, we refocus on those more complex deals, which continues to yield results for us, and we are on track this year to exceed the number of high-value deals we secured last year. As a point of comparison, we secured 13 high-value deals in the first half of this year compared to seven for the same period last year, and 21 high-value deals over the course of the year. In this part of our business, the commercial arrangements continue to evolve, with more fixed-fee projects. 43% of our revenues in the first half were delivered in a fixed-fee arrangement compared to 34% last year. As always, we are focused on the people as part of our business.
The number of Workday-accredited consultants continue to grow, with a strong focus this year for us on recruitment of early careers colleagues to complement what we are doing around experienced recruitment. We are looking to get a balance across our consulting pyramid. GK Software is headquartered in Schöneck, Germany, but supports customers in over 70 different countries. They are a very successful software company formed back in 1990, and as they have expanded, they have implemented the usual pattern of systems, a core system that helps them run their business, augmented by smaller, specific local databases. Regional expansion and growth exacerbates the challenge where disparate systems are not always in sync with one another or cannot share information in a timely fashion.
The implementation of Workday Financial Management addresses this challenge, replacing all these systems with a single system, handling accounting, procurement, expenses, planning, and reporting, and integrating in real time with other systems such as their banking system. We are now supporting their financial system through our application managed service, and also supporting their HCM deployment as well. We are super excited about achieving the GBP 100 million ARR milestone, which should be in the next few weeks. Just in terms of that milestone, I want to take a moment to recognize the effort of the team, both the founding team and the current team. We first mentioned this milestone back in May of 2022.
Back then, we were doing GBP 34 million of ARR. I checked the transcript of the call that says, "Over the next four years, GBP 100 million of SaaS subscription revenues is a credible target." To be talking about that in that timeframe is just an achievement, great achievement by the team. Of course, our attention has switched to the GBP 200 million target, and we are delighted to have added the experience of Derek, David, Richard, and Naomi to the Workday Products leadership team. They have really settled into the task and have kept a strong pace in the business, as these results talk to you as well. ARR growth has been driven by our flagship products, Smart Test, Smart Audit, and Employee Document Management, with contributions also from Smart Shield and PTA. In terms of PTA, we are now at 68 customers.
The shift of legislation dates in most European countries, so only four countries went live as scheduled on June 11. Two more have gone live since then, but most are still due to go live next year and into 2028. It has slowed the activity for the uptake of PTA, but we think has extended the duration of the opportunity. In early Q4 this year, we chose to launch two new products, Conflict of Interest, which allows customers and contractors to register a conflict of interest inside an organization, and Rewards and Recognition, which allows organizations to manage the nomination and approval of recognition awards inside their business. To set some expectation around both those products, we think Conflict of Interest and Rewards and Recognition are likely to add incremental revenue rather than being one of our flagship products.
As always, we have maintained our strong investment in R&D, up 33% compared to this time last year. As you know, we expense that all in-year to the P&L. I am guessing no one on the call has heard of the organization, The Claremont Colleges Services, or TCCS. They are based in Southern California, and TCCS provides shared services to nine organizations in the region, most of whom are independent colleges. Part of the service they provide is the support for staff and students through Workday. That is quite a complex undertaking, as each institution has their own requirements, processes, and security models. Organizations use Smart Test for a variety of reasons, but there are common themes across most of them, and two of those are demonstrated in this engagement with TCCS. The first is that there is a significant reduction in time taken to test new releases each year.
That is down from weeks to days in terms of duration. There is a significant reduction in the number of people involved in testing activity. In the case of TCCS, it is down from 160 people down to 20, which is a reduction of 87% in terms of that number of people involved. The reason that reduction in time and people is important is it creates capacity inside TCCS to spend more time adopting and adapting features inside Workday. This is important, as Workday is constantly evolving, you know, delivers significant new features and functionality with every release. We often find across our customer base, customers are often paying for modules that they are not using, or at least underusing.
Freeing up time for TCCS to focus on that allows them to get better value about their investment in Workday, rather than spending their time on testing the application. I am going to hand over now to Richard to take you through the details of our financial performance.
Thanks, Brendan. We will start with the group income statement. Clearly, the standout number here is the one that Brendan mentioned right at the very start, which is the revenue growth of 37%. Brendan has already gone into some of the reasons for this. I will get into a little bit more detail in the following slides. Two other important numbers to call out are the gross profit and the gross margin. Gross profit is up GBP 21.6 million. That is a growth of 23%. Gross margin, on the other hand, is down 4.9%. Again, I will get into that in more detail in the following slides. It is also worth pointing out that direct expenses grew 17% compared to that revenue growth of 37%, and central overheads grew by 15%, again, compared to that 37%.
Finally, adjusted profit grew by 30%, by GBP 9.7 million, whereas adjusted profit margin actually fell by 0.8%. There is a fair amount to unpick in those numbers. We will move on to an adjusted PBT margin walk. I thought it would be useful to represent this graphically. in H1 last year, adjusted PBT margin was 16.3%. I will remind you, that was after absorbing the employer NIC rises. Rachel Reeves may be gone, but her NIC rises are still in our costs. As Brendan mentioned, last year we were expensing our R&D. This year, we are still expensing our R&D. The first major change I will call out is the impact on group gross margin of the mix. Digital Services has grown by 57%. That means it is a bigger part of the overall group.
Historically, it is the division with the lowest gross margin. Because it is now a bigger element of the group, it impacts mix, and that mix impact on group gross margin is about 1.7%. Secondly, as Brendan alluded to earlier, there is a fall in gross margin within Digital Services itself that had a negative impact of 2.4% on the group. This is almost exclusively driven by the need to use more contractors and partners. It is worth pointing out that the gross margin from revenues delivered by our own staff are virtually unchanged. There are also minor impacts relating to the falling gross margin in Workday Services and Workday Products. I will pick up on those later.
The interesting thing is that all these gross margin impacts have been exactly offset by direct expenses and central costs growing much more slowly than revenue. On an operational basis, there is effectively no change in adjusted PBT margins. However, we have returned about GBP 40 million in share buybacks. We have also started the construction of an office, and we continue to progress with dividend.
All of that has led to lower cash balances during the year and a lower interest earned. That has had a negative impact of about 0.8% on adjusted PBT margin. That 0.8% is effectively the difference in adjusted margin from H1 last year to this year. If we move into a bit more detail on Digital Services. Digital Services, I think, is a bit like the late great Dolly Parton of Kainos. Like Dolly, it has two very substantial businesses in public sector and healthcare. Like Dolly's music and theme park business, public sector and healthcare have a common heritage and a loyal fan base. Healthcare grew 85%, and public sector by a mere 55%. Also worth mentioning that the defense sector has now reached a level of maturity that it's reported separately, and it grew by 44%.
The Americas business grew organically by 13% and through the acquisition of Davis Pier as well. Finally, as Brendan mentioned, commercial sector continued to contract, but returned to a positive contribution. Looking at more detail at margins, Digital Services gross margins fell by 3.9%, which is clearly a major drop. But virtually all that reduction relates to the use of contractors and partners. Revenues from these sources increased from GBP 15 million in H1 last year to GBP 49 million in this period. Part of the reason for this is structural, part of it's capacity-related. The capacity-related part is the major element. It's over 60% of this growth. This is where we need what I will call burst capacity to assist in starting new projects, and the vast majority of contractors fall into this category, but some partners also fall into this category.
As you know, this is not our preferred methodology, but as growth moderates, we will always try to replace contractors and partner staff by using our own staff. That might take some time and clearly will depend on the rate of revenue growth. Thinking then about what I'll call strategic partners, the smaller element of this growth, this is somewhat a reflection on a new position that Kainos occupies compared to a few years ago. Usually, we are now the prime contractor. A few years ago, we might have been a subcontractor. Sometimes we need specialist skills, like in areas like defense, but sometimes customers want us to include SMEs in bids, and we're happy to do that. Margins for contractors are about half the margins we get on our own staff. Margin on partners are lower again.
I said six months ago that lower margins were a price worth paying for the quality of work that we're doing. I'm even more convinced of that today than I was six months ago. If I look at Digital Service expenses, we see the benefit of contractors and partners, which have much, much lower direct expenses than our own staff. This is one of the reasons that direct expenses grew by only 23% compared to revenue growth of 57%. If I move on to Workday Services, as Brendan mentioned, both Americas and EMEA, which includes APAC, grew at somewhat similar levels. Gross margin fell slightly, driven by a small fall in utilization from 75% to 73%, and direct expenses grew in line with revenue, leading to a modest increase in contribution. Moving on to Workday Products, revenue grew by 22% over H1 last year.
There was no currency impact in those numbers. ARR grew by about 24% over the same time last year. There was a gross margin fall, which was substantial in this part of the business, but it is worth noting that SaaS margins fell very slightly, and that was mainly as a result of an accounting change. Bonus costs in products are now aligned with the rest of the business in terms of where they are located on the P&L account. The bigger impact was a result of implementation costs for the two newest products. Both Employee Document Management and Pay Transparency Analyzer require significant effort at present. Work is ongoing to make changes to the products to reduce this effort. We have sought in the contracting to protect the SaaS revenue on these products, and that has come at the cost of the services revenue.
Worth pointing out that direct expenses increased at a slightly lower rate than revenue, and overall contribution increased by 14%. If we move on to the balance sheet, the increase in fixed assets is largely the result of the work on the Bankmore Square property, but in addition, there are assets associated with the growth in staff numbers. What we call lock-in days, that is trade receivables plus work in progress, are largely in line with last year. The growth in other liabilities since 31st of March largely relates to the final dividend liability. We have also seen an increase in accruals for contractors and partners, but that has been offset by the accounting treatment on the decrease in the share purchase liability. Finally, if I look at the cash flow statement, key number here probably is the cash conversion of 62%.
Cash conversion is always much lower for us in H1 than for the overall year. That is due to the timing of bonus payments in May and June. We would expect cash conversion over the year to be a bit lower than last year due to the additional working capital requirements associated with phenomenal growth. Brendan.
Richard, thank you very much. In terms of just kind of looking ahead, I mean, we are very excited about the opportunities ahead of us, and part of that excitement is because of the foundations that we have built over the past 18 months, which today's results really underscore. In the left panel of this screen, you can see lots of fantastic statistics, but my favorite remains the backlog figure. In a few weeks, that number will be over GBP 1 billion, which is just a fantastic visibility for us as a business. In terms of our near-term priorities, we are excited about achieving the GBP 100 million ARR milestone, and with an experienced expanded team now in place to lead Workday Products forward, our attention is very much focused on that GBP 200 million ARR target by the end of 2030.
Digital Services had a really strong performance in the past 12 months, emphasizing the current and future opportunity across government, across healthcare, across defense, and in Canada as well. Like the rest of our business, Workday Services is now back in growth mode, and we see an opportunity to build further this year, especially in the more complex international Workday deployments. For us, a clear priority is to continue to retain and recruit talented colleagues. It's the building block for our business, but it's also the key to unlock the margin expansion across our services businesses. Longer term, we see growing opportunity. Our results today confirm that there's opportunity in the market and that we know how to access that same opportunity. We see the same level of opportunity into the future.
Our customers remain convinced that technology is a key investment for them as they look to improve. AI has made that landscape more complicated for them to traverse, and we clearly can help them on that journey. There are a number of growth levers in our business, ARR scaling, sector growth inside the U.K., international expansion, and the opportunities that AI will introduce. It's been a pleasure to present our results today. We're clearly enjoying being back in growth mode and genuinely excited about the next few years. I'll now stop sharing my screen and pass over to FTI to host our Q&A session.