Kainos: Quietly building the AI engine behind digital government

After a tough year shaped by delays in public sector contracts and more cautious commercial spending, Kainos is beginning to reset the narrative. Beneath the surface of what appeared to be a muted performance, the company’s investment in artificial intelligence is driving structural change. With revenue in that segment up 61%, Kainos is emerging as one of the most quietly important players in the UK’s digital and AI infrastructure.

A specialist in digital transformation

At the top of the funnel is Digital Services, where Kainos works with large organisations, often in the public sector, to reimagine how services are delivered in the digital age. This work includes rebuilding legacy systems, integrating new platforms, and improving user access, data handling and security.

Workday Services is a specialised consulting arm that helps organisations deploy, optimise and maintain Workday software which is a market-leading platform used for HR, finance and planning. Kainos is one of the largest certified Workday partners in Europe and has recently extended its reach into Asia Pacific.

Finally, its Workday Products division develops proprietary add-ons that enhance Workday’s functionality. These tools have been adopted by over 550 clients globally and are designed to improve system security, document management and compliance workflows. This is a higher-margin, recurring revenue business that is scaling quickly.

The synergy across these divisions is important. Clients brought in for implementation work often become long-term users of Kainos’s own products. Meanwhile, the company’s deep domain expertise in public services and regulated industries gives it a natural edge in areas where compliance, scale and security matter.

AI growth comes into focus

AI is where things start to get interesting. Kainos has been involved in AI development for several years, but 2025 was a breakout year. Revenues in the segment rose 61% to £41.1 million, with over 250 projects delivered across healthcare, commercial and government sectors. That means AI now accounts for 21% of the Digital Services division, up from 12% the year before.

The company has quietly become the fifth largest supplier of AI to the UK public sector, with over £61 million in awarded contracts since 2018. It now employs more than 250 AI professionals, and its recent launch of a Microsoft AI Centre of Excellence underlines its growing presence in this field. Kainos was also recognised as Microsoft’s AI Partner of the Year, further validating its credentials.

What sets Kainos apart is its ability to deliver practical, embedded AI solutions. This is not speculative R&D, it’s about solving real-world problems using machine learning and data science, often inside the kind of critical systems that run the NHS or national government platforms.

That same approach is now starting to influence its Workday business. Kainos has three of the 20 approved AI tools currently available on the Workday Marketplace, and its latest partnership agreement with Workday includes co-selling rights through Workday’s global sales teams. This gives Kainos a wider channel to push its Workday-integrated tools, with a target of hitting £100 million in annual recurring revenue by 2026 and £200 million by 2030.

The fifth product in its suite, due later this year, focuses on pay transparency and is designed to help organisations comply with the 2026 EU Pay Directive. With HR and compliance under increasing scrutiny, this kind of tool is likely to be in high demand.

Repositioned for the next phase

Not all areas of the business were firing in 2025. Group revenue declined 4% to £367.2 million, and adjusted pre-tax profit dropped 15% to £65.6 million. Digital Services revenue fell 7% due to delays in contract awards tied to the general election cycle and broader uncertainty around public sector spending. However, there was strong momentum in healthcare, where revenue grew 14% thanks to new wins with NHS England and UKHSA.

Workday Services was also weaker, down 12%, due to lower contract volumes and increased competition in Europe. Pricing pressure from newer partners meant some projects were deferred or won on thinner margins. That said, international expansion is progressing, with the group winning its first Workday contracts in Australia and New Zealand.

Rather than stand still, Kainos acted. In March, the company reduced its global workforce by 7%, generating around £19 million in annual cost savings. Two thirds of those savings are being reinvested into priority areas like AI, product development and international growth. The restructuring was painful but necessary to create capacity for future investment. The remaining third of the savings will help absorb staff cost increases and new hires.

Room for recovery

While the operating performance was mixed, the company’s financial position remains solid. Kainos finished the year with £134 million of net cash, cash conversion above 100%, and no debt on the balance sheet. The company has also maintained a healthy dividend policy, with a forecast yield of 4%, and completed a £30 million share buyback in May. Another £30 million buyback is now underway.

That brings us back to the share price. Over the past year, the stock has dropped more than 40%, underperforming the broader tech sector and falling well below its long-term averages. But this weakness looks more like a rerating driven by short-term uncertainty than a reflection of long-term value.

Kainos is quietly becoming one of the most important software partners in the UK public sector and an emerging leader in practical enterprise AI. The market may not have fully priced in the significance of that shift yet, but for patient investors, the story is starting to rebuild.