Kainos Group has issued a revenue warning due to challenging market conditions, resulting in the company’s shares hitting their lowest value in over four months.

The IT consultancy, which specializes in information technology systems for both private and public sectors, announced that it expects only a “small increase” in revenue for the fiscal year ending March 2025, projecting figures below the market’s expectation of £415.5 million. This revision stems from a “tougher trading environment in services” observed in the current financial year.

Previously, Kainos recorded sales of £382.4 million and an adjusted pre-tax profit of £77.2 million in its last financial year.

Despite the revenue cut, Kainos remains optimistic, stating it anticipates adjusted pre-tax profits to align with the previously forecasted range of £78.5 million to £79.7 million.

More than 50% of Kainos’s sales come from its digital services division, where the company develops tailored platforms. While demand from public sector clients remained steady in the initial months of this year, some projects faced delays due to the recent general election, and demand from commercial clients has been lackluster, as many businesses are re-evaluating their spending amid ongoing economic uncertainty.

A significant portion of Kainos’s operations is derived from its collaboration with Workday, an American human resources software firm, which provides tools for managing recruitment and payroll services. The Workday services division saw fewer contracts awarded compared to prior periods and was adversely affected by “more aggressive pricing from partners.” However, company leaders are hopeful that this segment will experience growth in the latter half of the year.

Additionally, the Workday products division, dedicated to developing proprietary software, showed robust growth during the same period, successfully advancing following a strengthened distribution agreement with Workday.

In light of the prevailing macroeconomic conditions, Kainos’s board expressed confidence in striking a balance between maintaining profitability, investing for future growth, and pursuing international expansion. They are optimistic about the rest of the year, backed by a strong pipeline, healthy balance sheet, and substantial contracted backlog.

Analysts from Investec have observed that the company has made “downward revenue ‘tweaks'” over the past 18 months, with profit levels being preserved through prudent forecasting and careful management of costs. Nevertheless, they warn that this may mark the final instances of competitive leverage for Kainos, stressing the importance of revenue in the upcoming second half of the year.

Founded in 1986 through a partnership between Queen’s University Belfast and ICL (Fujitsu), Kainos is recognized as Northern Ireland’s leading technology enterprise. Its client portfolio includes various central government departments and agencies, with notable projects such as the digitization of NHS patient records. The company employs over 2,900 individuals across 22 countries.

Last year, long-time CEO Brendan Mooney, who had led the company for 22 years, stepped down, with Russell Sloan, the former divisional director of digital services, taking over the role.

Kainos made its debut on the London Stock Exchange in 2015 at 139p per share and was promoted to the mid-cap index in 2019. Following the revenue warning, Kainos’s shares plummeted by 158p, translating to a 14.3% decline, closing at 948p.